UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended January 29,
2011
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
000-26207
BELK, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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56-2058574
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(State of incorporation)
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(IRS Employer Identification No.)
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2801 West Tyvola Road, Charlotte, North Carolina
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28217-4500
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(Address of Principal Executive
Offices)
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(Zip Code)
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Registrants 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:
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Title of each class
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Class A Common Stock, $0.01 per share
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Class B Common Stock, $0.01 per share
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
file). Yes o No o
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 registrants 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated
filer, and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller Reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common equity held by
non-affiliates of the Registrant (assuming for these purposes
that all executive officers and directors are
affiliates of the Registrant) as of July 31,
2010 (based on the price at which the common equity was last
sold on July 27, 2010, the date closest to the last
business day of the Companys most recently completed
second fiscal quarter) was $293,408,377. 46,530,489 shares
of common stock were outstanding as of April 1, 2011,
comprised of 45,408,268 shares of the Registrants
Class A Common Stock, par value $0.01, and
1,122,221 shares of the Registrants 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 25, 2011 are incorporated
herein by reference in Part III.
BELK,
INC
TABLE OF
CONTENTS
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PART I
General
Belk, Inc., together with its subsidiaries (collectively, the
Company or Belk), is the largest
privately owned mainline department store business in the United
States, with 305 stores in 16 states, primarily in the
southern United States as of the end of fiscal year 2011. The
Company generated revenues of $3.5 billion for the fiscal
year ended January 29, 2011, and together with its
predecessors, has been successfully operating department stores
since 1888 by seeking to provide superior service and
merchandise that meets customers needs for fashion, value
and quality.
The Companys fiscal year ends on the Saturday closest to
each January 31. All references to fiscal years are as
follows:
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Fiscal Year
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Ended
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Weeks
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2014
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February 1, 2014
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52
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2013
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February 2, 2013
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53
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2012
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January 28, 2012
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52
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2011
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January 29, 2011
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2010
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January 30, 2010
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52
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2009
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January 31, 2009
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2008
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February 2, 2008
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2007
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February 3, 2007
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Belk stores seek to provide customers the convenience of
one-stop shopping, with an appealing merchandise mix and
extensive offerings of brands, styles, assortments and sizes.
Belk stores sell top national brands of fashion apparel, shoes
and accessories for women, men and children, as well as
cosmetics, home furnishings, housewares, fine jewelry, gifts and
other types of quality merchandise. The Company also sells
exclusive private label brands, which offer customers
differentiated merchandise selections. Larger Belk stores may
include hair salons, spas, restaurants, optical centers and
other amenities.
Although the Company operates 93 stores that exceed
100,000 square feet in size, the majority of Belk stores
range in size from 60,000 to 100,000 square feet. Most of
the Belk stores are anchor tenants in major regional malls or in
open-air shopping centers in medium and smaller markets. In the
aggregate, the Belk stores occupy approximately
22.8 million square feet of selling space.
Management of Belks store operations is organized into
three regional operating divisions, with each unit headed by a
division chairman and a director of stores. Each division
supervises a number of stores and maintains an administrative
office in the markets served by the division. Division offices
execute centralized initiatives at the individual stores, and
their primary activities relate to providing management and
support for the personnel, operations and maintenance of the
Belk stores in their regions. These divisions are not considered
segments for financial reporting purposes.
Belk Stores Services, Inc., a subsidiary of Belk, Inc., and its
subsidiary Belk Administration Company, along with Belk
International, Inc., a subsidiary of Belk, Inc., and its
subsidiary, Belk Merchandising Company, LLC (collectively
BSS), coordinate the operations of Belk stores on a
company-wide basis. BSS provides a wide range of services to the
Belk division offices and stores, such as merchandising,
merchandise planning and allocation, 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
Companys principal executive offices are located at
2801 West Tyvola Road, Charlotte, North Carolina
28217-4500,
and its telephone number is
(704) 357-1000.
2
Business
Strategy
Belk adopted a new mission and vision as part of its re-branding
launch in the third quarter of fiscal year 2011. The mission is
to satisfy the modern Southern lifestyle like no one else,
so that our customers get the fashion they desire and the value
they deserve. The vision is for the modern Southern
woman to count on Belk first. For her, for her family, for
life.
The Company seeks to maximize its sales opportunities by
providing quality merchandise assortments of fashion goods that
differentiate its stores from competitors. Belk merchants and
buyers monitor fashion merchandising trends, shop domestic and
international markets and leverage relationships with key
vendors in order to provide the latest seasonal assortments of
most-wanted styles and brands of merchandise. Through
merchandise planning and allocation, the Company tailors its
assortments to meet the particular needs of customers in each
market. The Company conducts customer research and participates
in market studies on an ongoing basis in order to obtain
information and feedback from customers that will enable it to
better understand their merchandise needs and service
preferences.
The Companys marketing and sales promotion strategy seeks
to attract customers to shop at Belk by keeping them informed of
the latest fashion trends, merchandise offerings, and sales
promotions through a combination of advertising and interactive
media, including direct mail, circulars, broadcast, Internet,
social media (including Facebook, Twitter and YouTube) and
in-store special events. Belk uses its proprietary database to
communicate directly to key customer constituencies with special
offers designed to appeal to these specific audiences. The sales
promotions are designed to promote attractive merchandise brands
and styles at compelling price values with adequate inventories
planned and allocated to ensure that stores will be in stock on
featured merchandise.
Belk strives to attract and retain talented, well-qualified
associates who provide a high level of friendly, personal
service to enhance the customers shopping experience. Belk
associates are trained to be knowledgeable about the merchandise
they sell, approach customers promptly, help when needed, and
provide quick checkout. The Company desires to be an inclusive
Company that embraces diversity among its associates, customers,
and vendors. Its ongoing diversity program includes a number of
company-wide initiatives aimed at increasing the diversity of
its management and associate teams, increasing its spend with
diverse vendors, creating awareness of diversity issues, and
demonstrating the Companys respect for, and responsiveness
to, the rapidly changing cultural and ethnic diversity in Belk
markets.
Belk also makes investments each year in information technology
and process improvement in order to build and strengthen its
business infrastructure. Its various information systems and
process improvement initiatives are designed to improve the
overall efficiency and effectiveness of the organization in
order to improve operating performance and financial results.
Growth
Strategy
In response to economic conditions and the significant decline
in the number of new retail centers being developed over the
last several years, the Company has focused its growth strategy
on remodeling and expanding existing stores and on developing
new merchandising concepts in targeted demand centers. The
Company will, however, continue to explore new store
opportunities in markets where the Belk name and reputation are
well known and where Belk can distinguish its stores from the
competition. The Company will also consider closing stores in
markets where more attractive locations become available or
where the Company does not believe there is potential for long
term growth and success. In addition, the Company periodically
reviews and adjusts its space requirements to create greater
operating efficiencies and convenience for the customer.
The Company completed major remodel projects in ten stores and
opened one new store during fiscal year 2011, which is listed
below:
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Size (Selling
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Opening
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New or Existing
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Location
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Sq. Ft.)
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Date
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Market
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Port Orange, FL
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67,000
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3/10/10
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New
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In fiscal year 2012, the Company plans to complete three store
expansions and open one store as a replacement for an existing
store that will close simultaneously. The Company also intends
to continue remodeling existing
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stores and rolling out new merchandising concepts in targeted
demand centers, which will increase its anticipated capital
expenditures for fiscal year 2012.
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, fashionable assortments
with depth in style, selection and value.
Recent consumer research conducted by the Company identified
significant sales opportunities with customers seeking modern
and trendy merchandise. As a result, a focus is being placed on
expanding assortments of this type of merchandise across all
categories. The Company is also seeking to enhance its value
proposition to customers through its merchandise offerings,
pricing and sales promotion strategies, rewards card programs
and its returns policy and positive customer service reputation.
Belk stores offer complete assortments of many national brands.
The Company has enjoyed excellent long-term relationships with
many top apparel and cosmetics suppliers and is often the sole
distributor of desirable apparel, accessories and cosmetic lines
in its markets. Belk stores also offer exclusive private brands
in selected merchandise categories that are designed and
manufactured to provide compelling fashion assortments that meet
customers needs and set Belk apart from competitors
through their styling, quality and price. The Companys
private brands include Madison, ND-New Directions, Choices, Kim
Rogers, J. Khaki, Pro Tour, Saddlebred, Red Camel, Nursery
Rhyme, Belk Silverworks, Be Inspired,
Biltmoretm
For Your Home, Biltmore Apothecary, Mary Janes Farm, Home
Accents and Cooks Tools.
In the fourth quarter of fiscal year 2010, Belk began a
strategic initiative to strengthen its merchandising and
planning organization. The Company is investing in additional
staffing and enhanced merchandise information systems in order
to improve buying and planning processes. The initiative seeks
to enable Belk to better meet customers shopping needs by
effectively tailoring merchandise assortments by market area.
The Company completed a pilot test of the new merchandising
structure and systems in its feminine apparel area in the fourth
quarter of fiscal year 2011 and anticipates completing
implementation in all merchandise areas in the first quarter of
fiscal year 2012.
In fiscal year 2007, the Company established its own fine
jewelry business, with buying and administrative offices at the
corporate office in Charlotte and a state of the art repair and
distribution center located in Ridgeland, Mississippi. The shops
replaced the Companys former leased fine jewelry
operations and offer expanded assortments of high quality
diamond jewelry, rubies, emeralds and other fine gemstones, and
top brands of fine watches and jewelry. During fiscal year 2011,
the Company opened three new fine jewelry shops and was
operating 151 fine jewelry shops in its stores under the
Belk and Co. Fine Jewelers name as of the fiscal
year end.
Marketing
and Branding
The Company employs strategic marketing initiatives to develop
and enhance the equity of the Belk brand and to create and
strengthen
one-to-one
relationships with customers. The Companys marketing
strategy involves a combination of mass media print and
broadcast advertising, direct marketing, Internet marketing,
comprehensive store visual merchandising and signing and
in-store special events, such as trunk shows, celebrity and
designer appearances, Charity Sale, Educator Appreciation Day,
Healthcare Appreciation Day and Senior Day.
In the third quarter of fiscal year 2011, Belk launched a
company-wide re-branding and corporate marketing initiative that
included a new logo and tag line, Modern. Southern.
Style. New logo signs were installed in 60 stores by the
end of the fiscal year, with the balance scheduled for
installation by October 2011. Newly designed Belk Rewards charge
cards were issued to the Companys Elite Rewards and
Premier Rewards customers, and subsequently will be issued to
Rewards cardholders in Spring 2011. The corporate identity
re-launch was supported by an extensive re-branding, advertising
and public relations campaign that included market-wide
television and
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print advertising, circulars, direct mail and social media, all
of which promoted Belks new graphic elements and brand
messages.
eCommerce
During the third quarter of fiscal year 2009, the Company
launched a redesigned and expanded belk.com website and began
operating a 142,000 square foot eCommerce fulfillment
center in Pineville, NC to process handling and shipping of
online orders. The website features a wide assortment of fashion
apparel, accessories and shoes, plus a large selection of
cosmetics, home and gift merchandise. Many leading national
brands are offered at belk.com along with the Companys
exclusive private brands. The website also includes expanded
information about the Company, including history, career
opportunities, community involvement, diversity initiatives, a
Company newsroom, its Securities and Exchange Commission
(SEC) filings, and more.
In fiscal year 2011, the Company strengthened its eCommerce
business with systems improvements, expansion of merchandise
assortments, increased multimedia marketing and implementation
of social community engagement strategies. In addition, in the
fourth quarter of fiscal year 2011, the Company expanded its
eCommerce fulfillment center by 117,000 square feet.
Gift
Cards
The Companys gift card program provides a convenient
option for customer gift-giving and enables stores to issue
electronic credits to customers in lieu of cash refunds for
merchandise returned without sales receipts. Several types of
gift cards are available, each featuring a distinctive design
and appeal. During fiscal year 2011, the Company continued to
expand its efforts to offer Belk gift cards for sale outside of
Belk stores mainly in select grocery store outlets through
partnerships with regional and national grocery store chains.
Salons
and Spas
As of the end of fiscal year 2011, the Company owned and
operated 23 hair styling salons in various store locations, 17
of which also offer spa services. The hair salons offer the
latest hair styling services as well as wide assortments of top
brand name beauty products, including Aveda, Bumble and Bumble
and Redken. The spas offer massage therapy, full skincare, nail
and pedicure services and other specialized body treatments.
Eight of the salons and spas operate under the name
Carmen! Carmen! Prestige Salon and Spa at Belk, two
under the name Richard Joseph Studio Salon/Spa at
Belk, and the balance under the name Belk Salon and
Spa.
Belk Gift
Registry
The Companys gift registry offers a wide assortment of
bridal merchandise that can be registered for and purchased
online at belk.com 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 the belk.com website, or they can go to a Belk store
where a certified professional bridal consultant can provide
assistance using the stores online gift registry kiosk. In
the Belk stores that have kiosks, brides and engaged couples can
use a portable scanning device, which enables them to quickly
and easily enter information on their gift selections directly
into the registry system.
Belk
Proprietary Charge Programs
In fiscal year 2011, Belk and GE Money Bank (GE), an
affiliate of GE Consumer Finance, continued to plan and execute
enhanced marketing programs designed to recognize and reward
Belk card customers, attract profitable new customers and
increase sales from existing card customers. The Companys
customer loyalty program (Belk Rewards Card Loyalty
Program) issues certificates for discounts on future
purchases to Belk Rewards Card customers based on their spending
levels. The rewards program is cumulative, issuing a $10
certificate for every 400 points earned in a calendar year. Belk
Rewards Card customers whose purchases total $600 or more in a
calendar year qualify for a Belk Premier Rewards Card that
entitles them to unlimited free gift wrapping and basic
alterations, an interest-free Flex Pay Plan account and
notifications of special savings and sales events. Customers
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who spend more than $1,500 annually at Belk qualify for a Belk
Elite Rewards Card that offers additional benefits, including a
specially designed black Elite credit card, triple points
events, a 20% off birthday shopping pass, points that never
expire, quarterly Pick Your Own Sale Days and free shipping
coupons.
Systems
and Technology
The Company continued to invest in technology and information
systems during fiscal year 2011 to support sales and
merchandising initiatives, reduce costs, improve core business
processes and support its overall business strategy. Key systems
initiatives included enhancements to the belk.com website and
its fulfillment center, implementation of price optimization and
product life cycle management software, supply chain
enhancements and the in-sourcing of several technology roles
such as product management and system analysis functions. Belk
continues to invest in its information systems and new
technology in order to expand its Internet business and provide
improved decision making tools that enable management to react
quickly to changing sales trends, improve merchandise mix,
distribute merchandise based on individual market needs and
manage inventory levels based on customer demand.
Inventory
Management and Logistics
The Company operates four distribution facilities that receive
and process merchandise for delivery to Belk stores and belk.com
customers. A 410,000 square foot distribution center in
Blythewood, SC services the stores located in the northern and
eastern areas of the Companys footprint, a
174,000 square foot distribution center at the Greater
Jackson Industrial Park in Byram, MS services the central and
western areas; an 8,300 square foot distribution center in
Ridgeland, MS services the Companys fine jewelry
operations; and a 259,000 square foot distribution center
in Pineville, NC services orders from the belk.com website. The
Companys store ready merchandise receiving
processes enable stores to receive and process merchandise
shipments and move goods to the sales floor quickly and
efficiently. In addition, the Blythewood, SC distribution center
was expanded in the fourth quarter of fiscal year 2011 enabling
the Company to implement a new fluid load process
designed to increase the centers capacity and boost its
efficiency in moving goods to stores more timely.
Strategic
Sourcing
The Company initiated a strategic sourcing program in fiscal
year 2011 designed to streamline and adopt best practices for
its sourcing and procurement processes for non-retail goods and
supplies. The program also aims to eliminate costs associated
with previous non-retail procurement processes.
Sustainability
The Company continued implementation of sustainability
initiatives aimed at fulfilling its commitment to be a good
steward of the environment by eliminating waste, conserving
energy, using resources more responsibly and embracing and
promoting sustainable practices. In the first quarter of fiscal
year 2011, the Companys new store in Port Orange, FL
received the LEED Silver certification from the U.S. Green
Building Council. A Belk Sustainability Committee composed of
Company associates also developed and initiated a sustainability
framework that identifies long term environmental goals for
reducing the Companys carbon footprint and minimizing its
impact on the environment. Current initiatives encompass
recycling, increasing energy efficiency, store construction,
reduction of product packaging materials, and use of solar
energy.
Non-Retail
Businesses
Several of the Companys subsidiaries engage in businesses
that indirectly or directly support the operations of the retail
department stores. The non-retail businesses include United
Electronic Services (UES), a division of the
Company, which provides equipment maintenance services to Belk
stores and third parties.
Industry
and Competition
The Company operates department stores in the highly competitive
retail industry. Management believes that the principal
competitive factors for retail department store operations
include merchandise selection, quality,
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value, customer service and convenience. The Company believes
its stores are strong competitors in all of these areas. The
Companys primary competitors are traditional department
stores, mass merchandisers, national apparel chains, individual
specialty apparel stores and direct merchant firms, including
J.C. Penney Company, Inc., Dillards, Inc., Kohls
Corporation, Macys, Inc., Sears Holding Corporation,
Target Corporation and Wal-Mart Stores, Inc.
Trademarks
and Service Marks
Belk Stores Services, Inc. owns all of the principal trademarks
and service marks now used by the Company, including
belk. 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 its private brands program. The Company
intends to vigorously protect its trademarks and service marks
and initiate appropriate legal action whenever necessary.
Seasonality
and Quarterly Fluctuations
Due to the seasonal nature of the retail business, the Company
has historically experienced and expects to continue to
experience seasonal fluctuations in its revenues, operating
income and net income. A disproportionate amount of the
Companys revenues and a substantial amount of operating
and net income are realized during the fourth quarter, which
includes the holiday selling season. Working capital
requirements also fluctuate during the year, increasing somewhat
in mid-summer in anticipation of the fall merchandising season
and increasing substantially prior to the holiday selling season
when the Company carries higher inventory levels. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Seasonality and
Quarterly Fluctuations.
Associates
As of the end of fiscal year 2011, the Company had approximately
24,000 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.
Where You
Can Find More Information
The Company makes available free of charge through its website,
www.belk.com, its annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements and amendments to those reports filed pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after the
Company files such material with, or furnishes it to, the SEC.
Certain statements made in this report, and other written or
oral statements made by or on our behalf, may constitute
forward-looking statements within the meaning of the
federal securities laws. Statements regarding future events and
developments and our 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, general
economic conditions, the success of our re-branding and our
ability to be competitive in the retail industry, our ability to
execute profitability and efficiency strategies, our ability to
execute growth strategies, anticipated benefits from our
strategic initiative to strengthen our merchandising and
planning organizations, anticipated benefits from the redesign
and expansion of our belk.com website and our eCommerce
fulfillment center, the expected benefit of new systems and
technology,
7
anticipated benefits from our acquisitions and the anticipated
benefit under our Program Agreement with GE. 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.
Any such forward-looking statements are qualified by the
following important risk factors and other risks which may be
disclosed from time to time in our filings that could cause
actual results to differ materially from those predicted by the
forward-looking statements. Forward-looking statements relate to
the date initially made, and we undertake no obligation to
update them.
Economic,
political and business conditions could negatively affect our
financial condition and results of operations.
Economic, political and business conditions, nationally and in
our market areas, are beyond our control. These factors
influence our forecasts and impact actual performance. Factors
include rates of economic growth, interest rates, inflation or
deflation, consumer credit availability, levels of consumer debt
and bankruptcies, tax rates and policy, unemployment trends,
potential acts of terrorism and threats of such acts and other
matters that influence consumer confidence and spending.
Consumer purchases of discretionary items, including our
merchandise, generally decline during recessionary periods and
other periods where disposable income is adversely affected. The
downturn in the economy during fiscal years 2009 and 2010, and
the continuing uncertain economic climate have affected, and
will continue to affect for an undetermined period of time,
consumer purchases of our merchandise. The precise future impact
and duration of these economic conditions are uncertain, but
they could continue to adversely impact our financial condition
and results of operations.
If
customers do not accept our new brand, our re-branding
initiative could adversely affect our financial
performance.
In October 2010, we launched a re-branding campaign which
included a change in our logo and extensive advertising and
promotional activity in connection with our new brand and
tagline. We are investing approximately $70 million in
advertising, supplies and capital, and we are in the process of
changing exterior and interior signing on all of our stores. If
customers do not accept our new brand, our sales, performance
and customer relationships could be adversely affected.
Our
sales and operating results depend on accurately anticipating
customer demands.
Our business depends upon the ability to anticipate the demands
of our customers for a wide variety of merchandise and services.
We routinely make predictions about the merchandise mix,
quality, style, service, convenience and credit availability of
our customers. If we do not accurately anticipate changes in
buying, charging and payment behavior among our customers, or
consumer tastes, preferences, spending patterns and other
lifestyle decisions, we may be faced with excess inventories for
some products
and/or
missed opportunities for others. Excess inventories can result
in lower gross margins due to greater than anticipated discounts
and markdowns that might be necessary to reduce inventory
levels. Low inventory levels can adversely affect the
fulfillment of customer demand and diminish sales and brand
loyalty. Our inability to identify and respond to lifestyle and
customer preferences and buying trends could have an adverse
impact on our business, and our failure to accurately predict
inventory demands could adversely impact our results of
operations.
Unseasonable
and extreme weather conditions in our market areas may adversely
affect our business.
Apparel comprises a majority of our sales. If the weather in our
market areas is unseasonably warm or cold for an extended period
of time, it can affect the timing of apparel purchases by our
customers and result in an inventory imbalance. In addition,
frequent or unusually heavy snow or ice storms, hurricanes or
tropical rain storms in our market areas may decrease customer
traffic in our stores and adversely affect our business.
8
The
seasonal nature of our business could have a material adverse
effect on our financial results and cash flows.
We experience seasonal fluctuations in quarterly net income, as
is typical in the retail industry. A significant portion of our
revenues are generated during the holiday season in the fourth
fiscal quarter. Because we order merchandise in advance of our
peak season, we carry a significant amount of inventory during
that time. A decrease in the availability of working capital
needed in the months before the peak period could impact our
ability to build up an appropriate level of merchandise in our
stores. If we do not order the merchandise mix demanded by our
customers or if there is a decrease in customer spending during
the peak season, we may be forced to rely on markdowns or
promotional sales to dispose of the inventory, which could have
a material adverse effect on our financial results and cash
flows.
The
retail industry is highly competitive, which could adversely
impact our revenues and profitability.
We face competition from other department and specialty stores
and other retailers, including luxury goods retailers, general
merchandise stores, Internet retailers, mail order retailers and
off-price and discount stores in the highly competitive retail
industry. Although we offer extensive Internet purchasing
options and on-line gift registry for our customers, we rely on
in-store sales for a substantial majority of our revenues.
Competition is characterized by many factors, including price,
merchandise mix, quality, style, service, convenience, credit
availability and advertising. We have expanded and continue to
expand into new markets served by our competitors. We have also
expanded our eCommerce capabilities in the past few years. We
face the entry of new competitors into or expansion of existing
competitors in our existing markets, all of which further
increase the competitive environment and cause downward pressure
on prices and reduced margins, which could adversely impact our
revenues and profitability. In addition, a significant shift in
consumer buying patterns from in-store purchases to Internet
purchases could negatively impact our revenues.
We may
not be able to develop and implement effective advertising,
marketing and promotional campaigns.
We spend significant amounts on advertising, marketing and
promotional campaigns. Our business depends on effective
marketing to generate high customer traffic in our stores and,
to a lesser degree, through on-line sales. If our advertising,
marketing and promotional efforts are not effective, it could
negatively impact our operating results.
Variations
in the amount of vendor allowances received could adversely
impact our operating results.
We receive vendor allowances for advertising, payroll and margin
maintenance that are a strategic part of our operations. A
reduction in the amount of cooperative advertising allowances
would likely cause us to consider other methods of advertising
as well as the volume and frequency of our product advertising,
which could increase/decrease our expenditures
and/or
revenue. Decreased payroll reimbursements would either cause
payroll costs to rise, negatively impacting operating income, or
cause us to reduce the number of employees, which may cause a
decline in sales. A decline in the amount of margin maintenance
allowances would either increase cost of sales, which would
negatively impact gross margin and operating income, or cause us
to reduce merchandise purchases, which may cause a decline in
sales.
If we
do not successfully operate our information technology systems
and our fulfillment facility, our financial performance could be
adversely affected.
In fiscal year 2009, we launched a substantially updated and
redesigned website that enhanced customers online shopping
capabilities, offered expanded merchandise assortments and
enabled customers to access a broader range of our information
online, including current sales promotions, special events and
corporate information. Additionally, we have begun a process of
evaluating then enhancing our technology infrastructure. We also
began operating a new fulfillment facility to process and ship
merchandise purchased through our website. In fiscal year 2011,
we expanded our online capabilities, increased multimedia
marketing, implemented social community engagement strategies
and expanded our fulfillment facility. If we do not successfully
meet the challenges of enhancing our technology, operating the
website consistently, managing our social community engagement
and
9
efficiently operating the fulfillment center, our financial
performance could be adversely affected. In addition, if
customers are not receptive to our eCommerce offerings, revenues
and profitability could be adversely impacted.
Our
profitability depends on our ability to source merchandise and
deliver it to our customers in a timely and cost-effective
manner.
Our merchandise is sourced from a wide variety of domestic and
international vendors. Our ability to find qualified vendors,
including the vendors ability to secure adequate financing
and obtain access to products in a timely and efficient manner,
could be a significant challenge, especially with respect to
goods sourced outside the United States.
Political or financial instability, trade restrictions, tariffs,
transport capacity, costs and other factors relating to foreign
trade are beyond our control, and we may experience supply
problems or untimely delivery of merchandise as a result. If we
are not able to source merchandise at an acceptable price and in
a timely manner, it could negatively impact our results.
Increases
in the price of merchandise, raw materials, fuel and labor or
their reduced availability could increase our cost of goods and
negatively impact our financial results.
We are beginning to experience inflation in our merchandise due
to increases in raw materials, fuel and labor costs. The cost of
cotton, which is a key raw material in many of our products, has
had the most dramatic increases. The price and availability of
cotton may fluctuate substantially, depending on a variety of
factors, including demand, acreage devoted to cotton crops and
crop yields, weather, supply conditions, transportation costs,
energy prices, work stoppages, government regulation and
government policy, economic climates, market speculation and
other unpredictable factors. Fluctuations in the price and
availability of fuel, labor and raw materials, such as cotton,
have not materially affected our cost of goods in recent years,
but an inability to mitigate these cost increases, unless
sufficiently offset with our pricing actions, might cause a
decrease in our profitability; while any related pricing actions
might cause a decline in our sales volume. Additionally, any
decrease in the availability of raw materials could impair the
ability of our suppliers to meet our production or purchasing
requirements in a timely manner. Both the increased cost and
lower availability of merchandise, raw materials, fuel and labor
may also have an adverse impact on our cash and working capital
needs as well as those of our suppliers.
Changes
in the income and cash flow from our long-term marketing and
servicing alliance related to our proprietary credit cards could
impact operating results and cash flows.
In fiscal year 2006, we sold our proprietary credit card
business to, and entered into a
10-year
strategic alliance with, GE to operate our private label credit
card business. Sales of merchandise and services are facilitated
by these credit card operations. We receive income from GE
relating to the credit card operations based on a variety of
variables, but primarily from the amount of purchases made
through the proprietary credit cards. The income we receive from
this alliance and the timing of receipt of payments will vary
based on changes in customers credit card use, and
GEs ability to extend credit to our customers, all of
which can vary based on changes in federal and state banking and
consumer protection laws and from a variety of economic, legal,
social, and other factors that we cannot control.
If we
do not manage expenses appropriately, our results of operations
could be adversely affected.
Our performance depends on appropriate management of our expense
structure, including our selling, general and administrative
costs. If we fail to meet our anticipated cost structure based
on our anticipated sales level or to appropriately reduce
expenses during a weak sales environment, our results of
operations could be adversely affected.
Capital
investments in store growth and remodels may not produce the
returns we anticipate.
Our ability to identify strategic opportunities to open new
stores, or to remodel or expand existing stores, will depend in
part upon general economic conditions and the availability of
existing retail stores or store sites on acceptable terms. It
will also depend on our ability to successfully execute our
retailing concept in new markets and
10
geographic regions and to design and implement remodeling plans
and new merchandising concepts. In addition, we will need to
identify, hire and retain a sufficient number of qualified
personnel to work in our new and remodeled stores. Increases in
real estate, construction and development costs, consolidation
or viability of prospective developers and the availability of
financing to potential developers could limit our growth
opportunities. If consumers are not receptive to us in new
markets or regions or to our remodels and expansions in existing
markets, our financial performance could be adversely affected.
If our
logistics or distribution processes do not operate effectively,
our business could be disrupted.
We currently operate distribution centers in South Carolina and
Mississippi that service all of our stores and an eCommerce
fulfillment center in North Carolina that processes belk.com
customer orders. The efficient operation of our business is
dependent on receiving and distributing merchandise in a
cost-effective and timely manner. We also rely on information
systems to effectively manage sales, distribution, merchandise
planning and allocation functions. We are continuing to
implement software technology to assist with these functions. If
we do not effectively operate the distribution network or if
information systems fail to perform as expected, our business
could be disrupted.
We
rely on third party vendors for certain business
support.
Some business support processes are outsourced to third parties.
We make a diligent effort to ensure that all providers of
outsourced services are observing proper internal control
practices, including secure data transfers between us and
third-party vendors; however, there are no guarantees that
failures will not occur. Failure of third parties to provide
adequate services could have an adverse effect on our results of
operations, financial condition or ability to accomplish our
financial and management reporting.
Loss
of our key management, or an inability to attract such
management and other personnel, could adversely impact our
business.
We depend on our senior executive officers to run our business.
The loss of any of these officers could materially adversely
affect our operations. Competition for qualified employees is
intense, and the loss of qualified employees or an inability to
attract, retain and motivate additional highly skilled employees
required for the operation and expansion of our business could
adversely impact our business.
Changes
in federal, state or local laws and regulations could expose us
to legal risks and adversely affect our results of
operations.
Our business is subject to a wide array of laws and regulations.
While our management believes that our associate relations are
good, significant legislative changes that impact our
relationship with our associates could increase our expenses and
adversely affect our results of operations. Examples of possible
legislative changes impacting our relationship with our
associates include changes to an employers obligation to
recognize collective bargaining units, the process by which
collective bargaining agreements are negotiated or imposed,
minimum wage requirements, and health care mandates. In
addition, if we fail to comply with applicable laws and
regulations we could be subject to legal risk, including
government enforcement action and class action civil litigation.
Changes in the regulatory environment regarding other topics
such as privacy and information security, product safety or
environmental protection, among others, could also cause our
expenses to increase and adversely affect our results of
operations
Covenants
in our debt agreements impose some financial restrictions on
us.
Our debt agreements contain certain restrictive financial
covenants, which include a leverage ratio, consolidated debt to
consolidated capitalization ratio and a fixed charge coverage
ratio. Our failure to comply with these covenants could
adversely affect capital resources, financial condition and
liquidity. As of January 29, 2011, we were in compliance
with our debt covenants; however, if we fail to comply with our
debt covenants, we could be forced to settle outstanding debt
obligations, negatively impacting cash flows, and our ability to
obtain future financing.
11
If we
do not effectively integrate and operate acquired businesses,
our financial performance may be adversely
affected.
In fiscal year 2006, we acquired Proffitts and
McRaes stores from Saks Incorporated and in fiscal year
2007, we acquired Parisian stores from Saks Incorporated. In
fiscal year 2007, we also acquired assets of Migerobe, Inc. and
in fiscal year 2008, took over the operation of formerly leased
fine jewelry operations in a number of our stores. We may make
further acquisitions in the future. In order to realize the
planned efficiencies from our acquisitions, we must effectively
integrate and operate these stores and departments. Our
operating challenges and management responsibilities increase as
we grow. To successfully integrate and operate acquired
businesses, we face a number of challenges, including entering
markets in which we have no direct prior experience; maintaining
uniform standards, controls, procedures and policies in the
newly-acquired stores and departments; extending technologies
and personnel; and effectively supplying the newly-acquired
stores and departments.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Store
Locations
As of the end of fiscal year 2011, the Company operated a total
of 305 retail stores, with approximately 22.8 million
selling square feet, in the following 16 states:
|
|
|
|
|
Alabama 22
|
|
Louisiana 4
|
|
Oklahoma 3
|
Arkansas 7
|
|
Maryland 2
|
|
South Carolina 37
|
Florida 30
|
|
Mississippi 16
|
|
Tennessee 23
|
Georgia 47
|
|
Missouri 1
|
|
Texas 13
|
Kentucky 6
|
|
North Carolina 70
|
|
Virginia 20
|
|
|
|
|
West Virginia 4
|
Belk stores are located in regional malls (154), strip shopping
centers (98), power centers (27) and
lifestyle centers (24). Additionally, there are two
freestanding stores. Approximately 83% of the gross square
footage of the typical Belk store is devoted to selling space to
ensure maximum operating efficiencies. New and renovated stores
feature the latest in retail design, including updated 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 fixtures, as
well as quality decorative floor and wall coverings and other
special decor. The store layout is designed for ease of
shopping, and store signage is used to help customers identify
and locate merchandise.
As of the end of fiscal year 2011, the Company owned 77 store
buildings, leased 166 store buildings under operating leases and
owned 76 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 Companys 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
Companys option.
12
Non-Store
Facilities
The Company also owns or leases the following distribution
centers, division offices and headquarters facilities:
|
|
|
|
|
|
|
Belk Property
|
|
Location
|
|
Own/Lease
|
|
|
Belk, Inc. Corporate Offices Condominium
|
|
Charlotte, NC
|
|
|
Lease
|
|
Belk Central Distribution Center
|
|
Blythewood, SC
|
|
|
Lease
|
|
Belk Distribution Center
|
|
Byram, MS
|
|
|
Own
|
|
Belk, Inc. Fine Jewelry Distribution Center
|
|
Ridgeland, MS
|
|
|
Lease
|
|
Belk, Inc. eCommerce Fulfillment Center
|
|
Pineville, NC
|
|
|
Lease
|
|
Other
The Company owns or leases various other real properties,
including primarily former store locations. Such property is not
material, either individually or in the aggregate, to the
Companys consolidated financial position or results of
operations.
|
|
Item 3.
|
Legal
Proceedings
|
In the ordinary course of business, the Company is subject to
various legal proceedings and claims. The Company believes that
the ultimate outcome of these matters will not have a material
adverse effect on its consolidated financial position or results
of operations.
13
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
In fiscal year 2011, there was no established public trading
market for either the Belk Class A Common Stock, par value
$.01 per share (the Class A Common Stock) or
the Belk Class B Common Stock, par value $.01 per share
(the Class B Common Stock). There were limited
and sporadic quotations of bid and ask prices for the
Class A Common Stock and the Class B Common Stock in
the Pink Sheets and on the Over the Counter Bulletin Board
under the symbols BLKIA and BLKIB,
respectively. As of April 1, 2011, there were approximately
562 holders of record of the Class A Common Stock and 299
holders of record of the Class B Common Stock.
On March 30, 2011, the Company declared a regular dividend
of $0.55 on each share of the Class A and Class B
Common Stock outstanding on that date. On April 1, 2010 the
Company declared a regular dividend of $0.40 and a special
one-time additional dividend of $0.40, and on April 1,
2009, the Company declared a regular dividend of $0.20 on each
share of the Class A and Class B Common Stock
outstanding on those dates. The amount of dividends paid out
with respect to fiscal year 2012 and each subsequent year will
be determined at the sole discretion of the Board of Directors
based upon the Companys results of operations, financial
condition, cash requirements and other factors deemed relevant
by the Board of Directors. For a discussion of the
Companys debt facilities and their restrictions on
dividend payments, see Liquidity and Capital
Resources in Managements Discussion and
Analysis of Financial Condition and Results of Operations.
There were no purchases of issuer equity securities during the
fourth quarter of fiscal year 2011.
14
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data are derived from the
consolidated financial statements of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
January 29,
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
February 3,
|
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands, except per share amounts)
|
|
SELECTED STATEMENT OF INCOME DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,513,275
|
|
|
$
|
3,346,252
|
|
|
$
|
3,499,423
|
|
|
$
|
3,824,803
|
|
|
$
|
3,684,769
|
|
Cost of goods sold
|
|
|
2,353,536
|
|
|
|
2,271,925
|
|
|
|
2,430,332
|
|
|
|
2,636,888
|
|
|
|
2,451,171
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
326,649
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
140,239
|
|
|
|
158,388
|
|
|
|
165,267
|
|
|
|
159,945
|
|
|
|
142,618
|
|
Operating income (loss)
|
|
|
245,981
|
|
|
|
147,441
|
|
|
|
(232,643
|
)
|
|
|
198,117
|
|
|
|
323,719
|
|
Income (loss) before income taxes
|
|
|
195,871
|
|
|
|
97,190
|
|
|
|
(283,281
|
)
|
|
|
138,644
|
|
|
|
279,050
|
|
Net income (loss)
|
|
|
127,628
|
|
|
|
67,136
|
|
|
|
(212,965
|
)
|
|
|
95,740
|
|
|
|
181,850
|
|
Basic net income (loss) per share
|
|
|
2.72
|
|
|
|
1.39
|
|
|
|
(4.35
|
)
|
|
|
1.92
|
|
|
|
3.59
|
|
Diluted net income (loss) per share
|
|
|
2.71
|
|
|
|
1.39
|
|
|
|
(4.35
|
)
|
|
|
1.92
|
|
|
|
3.59
|
|
Cash dividends per share
|
|
|
0.800
|
|
|
|
0.200
|
|
|
|
0.400
|
|
|
|
0.400
|
|
|
|
0.350
|
|
SELECTED BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net(1)
|
|
|
31,119
|
|
|
|
22,427
|
|
|
|
34,043
|
|
|
|
65,987
|
|
|
|
61,434
|
|
Merchandise inventory
|
|
|
808,503
|
|
|
|
775,342
|
|
|
|
828,497
|
|
|
|
932,777
|
|
|
|
931,870
|
|
Working capital
|
|
|
924,450
|
|
|
|
986,234
|
|
|
|
808,031
|
|
|
|
750,547
|
|
|
|
679,822
|
|
Total assets
|
|
|
2,389,631
|
|
|
|
2,582,575
|
|
|
|
2,503,588
|
|
|
|
2,851,315
|
|
|
|
2,845,524
|
|
Long-term debt and capital lease obligations
|
|
|
539,239
|
|
|
|
688,856
|
|
|
|
693,190
|
|
|
|
722,141
|
|
|
|
734,342
|
|
Stockholders equity
|
|
|
1,156,272
|
|
|
|
1,094,295
|
|
|
|
1,032,027
|
|
|
|
1,388,726
|
|
|
|
1,326,022
|
|
SELECTED OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores at end of period
|
|
|
305
|
|
|
|
305
|
|
|
|
307
|
|
|
|
303
|
|
|
|
315
|
|
Comparable store net revenue increase (decrease)
|
|
|
5.1
|
%
|
|
|
(4.6
|
)%
|
|
|
(8.7
|
)%
|
|
|
(1.1
|
)%
|
|
|
4.5
|
%
|
(on a 52 versus 52 week basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company previously presented amounts due from vendors on a
gross basis due to systems constraints and the lack of available
information in fiscal year 2009 and prior. In fiscal years 2011
and 2010, the Company has presented amounts due from vendors on
a net basis, and revised amounts presented in the fiscal year
2009 balance sheet for comparability purposes. This transaction
caused a reduction in accounts receivable for fiscal years 2011,
2010 and 2009. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
Belk, Inc., together with its subsidiaries (collectively, the
Company or Belk), is the largest
privately owned mainline department store business in the United
States, with 305 stores in 16 states, primarily in the
southern United States as of the end of fiscal year 2011. The
Company generated revenues of $3.5 billion for the fiscal
year ended January 29, 2011, and together with its
predecessors, has been successfully operating department stores
since 1888 by seeking to provide superior service and
merchandise that meets customers needs for fashion, value
and quality.
15
The Companys fiscal year ends on the Saturday closest to
each January 31. All references to fiscal years are as
follows:
|
|
|
|
|
Fiscal Year
|
|
Ended
|
|
Weeks
|
|
2014
|
|
February 1, 2014
|
|
52
|
2013
|
|
February 2, 2013
|
|
53
|
2012
|
|
January 28, 2012
|
|
52
|
2011
|
|
January 29, 2011
|
|
52
|
2010
|
|
January 30, 2010
|
|
52
|
2009
|
|
January 31, 2009
|
|
52
|
2008
|
|
February 2, 2008
|
|
52
|
2007
|
|
February 3, 2007
|
|
53
|
The Companys total revenues increased 5.0% in fiscal year
2011 to $3.5 billion. Comparable store sales increased 5.1%
as a result of improved sales trends resulting from the
implementation of key strategic initiatives that included
re-branding, marketing, merchandising, information technology
and store improvements during fiscal year 2011. Comparable store
revenue includes stores that have reached the one-year
anniversary of their opening as of the beginning of the fiscal
year, but excludes closed stores. Net income was
$127.6 million or $2.72 per basic share and $2.71 per
diluted share in fiscal year 2011 compared to net income of
$67.1 million or $1.39 per basic and diluted share in
fiscal year 2010. The increase in net income reflects higher
sales and margin, lower impairments, and improved expense
leverage. The gross margin performance was the result of strong
customer response to the Companys fashion and value
offerings combined with disciplined inventory management.
Management believes that consumers will remain focused on value
in fiscal year 2012. The Company intends to continue to be
flexible in sales and inventory planning and in expense
management in order to react to changes in consumer demand.
Additionally, merchandise costs in apparel categories are
expected to have low double-digit increases in the second half
of fiscal year 2012 due to inflation in the cost of raw
materials, labor and fuel. Specific increases are dependent on
the category and the related fabric content. The Company has
been preparing for these cost increases for some time and is
working diligently to minimize the impact of these higher costs
on a consumer that is still buying cautiously and, therefore,
less open to paying higher prices for discretionary goods.
Belk stores seek to provide customers the convenience of
one-stop shopping, with an appealing merchandise mix and
extensive offerings of brands, styles, assortments and sizes.
Belk stores sell top national brands of fashion apparel, shoes
and accessories for women, men and children, as well as
cosmetics, home furnishings, housewares, fine jewelry, gifts and
other types of quality merchandise. The Company also sells
exclusive private label brands, which offer customers
differentiated merchandise selections. Larger Belk stores may
include hair salons, spas, restaurants, optical centers and
other amenities.
The Company seeks to be the leading department store in its
markets by selling merchandise to customers that meets their
needs for fashion, selection, value, quality and service. To
achieve this goal, Belks business strategy focuses on
quality merchandise assortments, effective marketing and sales
promotional strategies, attracting and retaining talented,
well-qualified associates to deliver superior customer service,
and operating efficiently with investments in information
technology and process improvement.
The Company operates retail department stores in the highly
competitive retail industry. Management believes that the
principal competitive factors for retail department store
operations include merchandise selection, quality, value,
customer service and convenience. The Company believes its
stores are strong competitors in all of these areas. The
Companys primary competitors are traditional department
stores, mass merchandisers, national apparel chains, individual
specialty apparel stores and direct merchant firms, including
J.C. Penney Company, Inc., Dillards, Inc., Kohls
Corporation, Macys, Inc., Sears Holding Corporation,
Target Corporation and Wal-Mart Stores, Inc.
In response to economic conditions and the significant decline
in the number of new retail centers being developed over the
last several years, the Company has focused its growth strategy
on remodeling and expanding existing stores and on developing
new merchandising concepts in targeted demand centers. The
Company will, however, continue to explore new store
opportunities in markets where the Belk name and reputation are
well
16
known and where Belk can distinguish its stores from the
competition. The Company will also consider closing stores in
markets where more attractive locations become available or
where the Company does not believe there is potential for long
term growth and success. In addition, the Company periodically
reviews and adjusts its space requirements to create greater
operating efficiencies and convenience for the customer. In
fiscal year 2011, the Company decreased net store selling square
footage by 0.6 million square feet, or 2.6%.
eCommerce
During the third quarter of fiscal year 2009, the Company
launched a redesigned and expanded belk.com website and began
operating a 142,000 square foot eCommerce fulfillment
center in Pineville, NC to process handling and shipping of
online orders. The website features a wide assortment of fashion
apparel, accessories and shoes, plus a large selection of
cosmetics, home and gift merchandise. Many leading national
brands are offered at belk.com along with the Companys
exclusive private brands. The website also includes expanded
information about the Company, including history, career
opportunities, community involvement, diversity initiatives, a
Company newsroom, its SEC filings, and more.
In fiscal year 2011, the Company strengthened its eCommerce
business with systems improvements, expansion of merchandise
assortments, increased multimedia marketing and implementation
of social community engagement strategies. In addition, in the
fourth quarter of fiscal year 2011, the Company expanded its
eCommerce fulfillment center by 117,000 square feet.
Results
of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to revenues of certain items in the
Companys consolidated statements of income and other
pertinent financial and operating data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
January 29,
|
|
January 30,
|
|
January 31,
|
|
|
2011
|
|
2010
|
|
2009
|
|
SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
67.0
|
|
|
|
67.9
|
|
|
|
69.4
|
|
Selling, general and administrative expenses
|
|
|
26.0
|
|
|
|
26.5
|
|
|
|
27.1
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
9.3
|
|
Gain on sale of property and equipment
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Other asset impairment and exit costs
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
0.9
|
|
Pension curtailment charge
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
Operating income (loss)
|
|
|
7.0
|
|
|
|
4.4
|
|
|
|
(6.6
|
)
|
Interest expense
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
1.6
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Income tax expense (benefit)
|
|
|
1.9
|
|
|
|
0.9
|
|
|
|
(2.0
|
)
|
Net income (loss)
|
|
|
3.6
|
|
|
|
2.0
|
|
|
|
(6.1
|
)
|
SELECTED OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling square footage (in thousands)
|
|
|
22,800
|
|
|
|
23,400
|
|
|
|
24,203
|
|
Store revenues per selling sq. ft.
|
|
$
|
154
|
|
|
$
|
143
|
|
|
$
|
145
|
|
Comparable store net revenue increase (decrease)
|
|
|
5.1
|
%
|
|
|
(4.6
|
)%
|
|
|
(8.7
|
)%
|
Number of stores
|
|
|
|
|
|
|
|
|
|
|
|
|
Opened
|
|
|
1
|
|
|
|
3
|
|
|
|
8
|
|
Combined stores
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
Total end of period
|
|
|
305
|
|
|
|
305
|
|
|
|
307
|
|
17
The Companys store and eCommerce operations have been
aggregated into one operating segment due to their similar
economic characteristics, products, production processes and
customers. These operations are expected to continue to have
similar characteristics and long-term financial performance in
future periods.
The following table gives information regarding the percentage
of revenues contributed by each merchandise area for each of the
last three fiscal years. There were no material changes between
fiscal years, as reflected in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
Merchandise Areas
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Womens
|
|
|
35
|
%
|
|
|
36
|
%
|
|
|
37
|
%
|
Cosmetics, Shoes and Accessories
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
31
|
%
|
Mens
|
|
|
17
|
%
|
|
|
16
|
%
|
|
|
16
|
%
|
Home
|
|
|
9
|
%
|
|
|
9
|
%
|
|
|
10
|
%
|
Childrens
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Fiscal Years Ended January 29, 2011 and January 30,
2010
Revenues. In fiscal year 2011, the
Companys revenues increased 5.0%, or $0.2 billion, to
$3.5 billion from $3.3 billion in fiscal year 2010.
The increase was primarily attributable to a 5.1% increase in
revenues from comparable stores and a $5.8 million increase
in revenues from new stores, partially offset by a
$12.0 million decrease in revenues due to closed stores.
Cost of Goods Sold. Cost of goods sold was
$2.4 billion, or 67.0% of revenues in fiscal year 2011
compared to $2.3 billion, or 67.9% of revenues in fiscal
year 2010. The increase in cost of goods sold of
$81.6 million was primarily due to the increase in
revenues. The decrease in cost of goods sold as a percentage of
revenues was primarily attributable to reduced markdown
activity, partially offset by an increase in buying expenses
related to the Companys merchandising initiatives for
fiscal year 2011.
Merchandise costs across apparel categories are expected to have
low double-digit increases for the second half of fiscal year
2012 due to inflation in the cost of raw materials, labor and
fuel. Specific increases are dependent on the category and the
related fabric content. The Company has been preparing for these
cost increases for some time and is working diligently to
minimize the impact of these higher costs on a consumer that is
still buying cautiously and, therefore, less open to paying
higher prices for discretionary goods.
Selling, General and Administrative
Expenses. Selling, general and administrative
(SG&A) expenses were $914.1 million, or
26.0% of revenues in fiscal year 2011 compared to
$886.3 million, or 26.5% of revenues for fiscal year 2010.
The increase in SG&A expenses was primarily due to an
increase in branding and other strategic initiatives,
advertising, and performance based compensation, partially
offset by reductions in depreciation and pension expense for
fiscal year 2011. The decrease in the SG&A expense rate is
primarily the result of the decrease in depreciation and pension
expense, coupled with increasing revenues.
Gain on sale of property and equipment. Gain
on sale of property and equipment was $6.4 million for
fiscal year 2011 compared to $2.0 million for fiscal year
2010. The fiscal year 2011 gain was primarily due to the
$2.6 million of amortization of the deferred gain on the
sale and leaseback of the Companys headquarters building
located in Charlotte, NC, as well as $2.3 million for gains
on the sale of three former retail locations. The fiscal year
2010 gain was primarily due to the $2.6 million of
amortization of the deferred gain on the sale and leaseback of
the Companys headquarters building located in Charlotte,
NC, offset by a $0.6 million loss on the abandonment of
property and equipment.
Other Asset Impairment and Exit Costs. In
fiscal year 2011, the Company recorded $5.9 million in
asset impairment charges primarily to adjust two retail
locations net book values to fair value. The Company
determines fair value of its retail locations primarily based on
the present value of future cash flows. The Company also
recorded a $3.5 million charge for real estate holding
costs related to a store closing, offset by a $3.5 million
revision to a previously estimated lease termination reserve. In
fiscal year 2010, the Company recorded $38.5 million in
18
impairment charges primarily to adjust eight retail
locations net book values to fair value, a
$1.0 million charge for real estate holding costs and other
store closing costs, and $0.4 million in exit costs
comprised primarily of severance costs associated with the
outsourcing of certain information technology functions.
Pension curtailment charge. A one-time pension
curtailment charge of $2.7 million in the third quarter of
fiscal year 2010 resulted from the decision to freeze the
Companys defined benefit plan, effective December 31,
2009, for those remaining participants whose benefits were not
previously frozen in fiscal year 2006.
Interest Expense. In fiscal year 2011, the
Companys interest expense decreased $0.6 million to
$50.7 million from $51.3 million for fiscal year 2010.
The decrease was primarily due to weighted average interest
rates being lower in fiscal year 2011 compared to fiscal year
2010, and a $150.0 million net decrease in long-term debt
excluding capital leases during fiscal year 2011.
Interest Income. In fiscal year 2011, the
Companys interest income decreased $0.5 million, or
44.6%, to $0.6 million from $1.0 million in fiscal
year 2010. The decrease was primarily due to significantly lower
market interest rates in fiscal year 2011 as compared to fiscal
year 2010.
Income tax expense. Income tax expense for
fiscal year 2011 was $68.2 million, or 34.8%, compared to
$30.1 million, or 30.9%, for the same period in fiscal year
2010. The effective tax rate increased primarily as a result of
lower corporate owned life insurance income and charitable stock
contributions for fiscal year 2011, coupled with a
$98.7 million increase in income before income taxes.
Comparison
of Fiscal Years Ended January 30, 2010 and January 31,
2009
Revenues. In fiscal year 2010, the
Companys revenues decreased 4.4%, or $0.2 billion, to
$3.3 billion from $3.5 billion in fiscal year 2009.
The decrease was primarily attributable to a 4.6% decrease in
revenues from comparable stores and a $15.0 million
decrease in revenues due to closed stores, partially offset by
an increase in revenues from new stores of $24.8 million.
Cost of Goods Sold. Cost of goods sold was
$2.3 billion, or 67.9% of revenues in fiscal year 2010
compared to $2.4 billion, or 69.4% of revenues in fiscal
year 2009. The decrease in cost of goods sold of
$158.4 million was primarily due to the revenue decline.
The decrease as a percentage of revenues was primarily
attributable to reduced markdown activity.
Selling, General and Administrative
Expenses. SG&A expenses were
$886.3 million, or 26.5% of revenues in fiscal year 2010,
compared to $947.6 million, or 27.1% of revenues in fiscal
year 2009. The decrease in SG&A expenses of
$61.3 million was primarily due to reductions in selling
and sales support payroll, benefits, and advertising expenses
totaling $49.5 million in response to the declining sales
environment. The effect of these decreases as a percentage of
revenues was partially offset by the de-leveraging experienced
as a result of the decline in revenues for fiscal year 2010.
Goodwill impairment. The Company recorded a
goodwill impairment charge of $326.6 million in fiscal year
2009. The Companys annual goodwill impairment measurement
date was its fiscal year end and as a result of the decline in
the fair value of the Companys goodwill, the Company
recorded a goodwill impairment charge during the fourth quarter
of fiscal year 2009. The Company determined the fair value of
goodwill through various valuation techniques including
discounted cash flows and market comparisons. The impairment of
goodwill was a non-cash impairment charge and did not affect the
Companys compliance with financial covenants under its
various debt agreements.
Gain on sale of property and equipment. Gain
on sale of property and equipment was $2.0 million for
fiscal year 2010 compared to $4.1 million for fiscal year
2009. The fiscal year 2010 gain was primarily due to the
$2.6 million of amortization of the deferred gain on the
sale and leaseback of the Companys headquarters building
located in Charlotte, NC, offset by a $0.6 million loss on
the abandonment of property and equipment. The fiscal year 2009
gain was primarily due to a $1.3 million gain on the sale
of the Parisian headquarters facility and adjacent land parcels,
and the $2.6 million of amortization of the deferred gain
on the sale and leaseback of the Companys headquarters
building.
19
Other Asset Impairment and Exit Costs. In
fiscal year 2010, the Company recorded $38.5 million in
impairment charges primarily to adjust eight retail
locations net book values to fair value, a
$1.0 million charge for real estate holding costs and other
store closing costs, and $0.4 million in exit costs
comprised primarily of severance costs associated with the
outsourcing of certain information technology functions. The
Company determines fair value of its retail locations primarily
based on the present value of future cash flows. In fiscal year
2009, the Company recorded $27.1 million in impairment
charges to adjust nine retail locations net book values to
fair value, $3.5 million in exit costs comprised primarily
of severance costs associated with the outsourcing of certain
information technology and support functions and corporate
realignment of functional areas, and a $1.0 million charge
for real estate holding costs and other store closing costs.
Pension curtailment charge. A one-time pension
curtailment charge of $2.7 million in the third quarter of
fiscal year 2010 resulted from the decision to freeze the
Companys defined benefit plan, effective December 31,
2009, for those remaining participants whose benefits were not
previously frozen in fiscal year 2006.
Interest Expense. In fiscal year 2010, the
Companys interest expense decreased $4.2 million, or
7.5%, to $51.3 million from $55.5 million for fiscal
year 2009. The decrease was primarily due to weighted average
interest rates being lower in fiscal year 2010 compared to
fiscal year 2009.
Interest Income. In fiscal year 2010, the
Companys interest income decreased $3.6 million, or
78.0%, to $1.0 million from $4.7 million in fiscal
year 2009. The decrease was primarily due to significantly lower
market interest rates in fiscal year 2010 as compared to fiscal
year 2009.
Income tax expense (benefit). Income tax
expense for fiscal year 2010 was $30.1 million, or 30.9%,
compared to income tax benefit of $70.3 million, or 24.8%,
for the same period in fiscal year 2009. The effective tax rate
was lower for fiscal year 2009 as a result of the impairment of
the Companys $326.6 million goodwill, of which
$90.3 million was not deductible for income tax purposes.
Seasonality
and Quarterly Fluctuations
Due to the seasonal nature of the retail business, the Company
has historically experienced and expects to continue to
experience seasonal fluctuations in its revenues, operating
income and net income. A disproportionate amount of the
Companys revenues and a substantial amount of operating
and net income are realized during the fourth quarter, which
includes the holiday selling season. If for any reason the
Companys revenues were below seasonal norms during the
fourth quarter, the Companys annual results of operations
could be adversely affected. The Companys inventory levels
generally reach their highest levels in anticipation of
increased revenues during these months.
The following table illustrates the seasonality of revenues by
quarter as a percentage of the full year for the fiscal years
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
First quarter
|
|
|
22.9
|
%
|
|
|
22.7
|
%
|
|
|
23.4
|
%
|
Second quarter
|
|
|
22.4
|
|
|
|
22.7
|
|
|
|
23.7
|
|
Third quarter
|
|
|
21.2
|
|
|
|
21.8
|
|
|
|
21.2
|
|
Fourth quarter
|
|
|
33.5
|
|
|
|
32.8
|
|
|
|
31.7
|
|
The Companys 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 Companys primary sources of liquidity are cash on hand
of $453.4 million as of January 29, 2011, cash flows
from operations, and borrowings under debt facilities, which
consist of a $475.0 million credit facility that matures in
November 2015 and $375.0 million in senior notes. As of
January 29, 2011, the credit facility was comprised of an
outstanding $125.0 million term loan and a
$350.0 million revolving line of credit.
20
The credit facility was refinanced on November 23, 2010.
The refinanced credit facility allows for up to
$250.0 million of outstanding letters of credit,
representing a $50.0 million increase from the previous
facility. Amounts outstanding under the credit facility bear
interest at a base rate or LIBOR rate, at the Companys
option. Base rate loans bear interest at the higher of the prime
rate or the federal funds rate plus 0.5% or LIBOR plus 1.0%.
LIBOR rate loans bear interest at the LIBOR rate plus a LIBOR
rate margin, 1.50% as of January 29, 2011, based upon the
leverage ratio. The credit facility contains restrictive
covenants including leverage and fixed charge coverage ratios.
The Companys calculated leverage ratio dictates the LIBOR
spread that will be charged on outstanding borrowings in the
subsequent quarter. The leverage ratio is calculated by dividing
adjusted debt, which is the sum of the Companys
outstanding debt and rent expense multiplied by a factor of
eight, by pre-tax income plus net interest expense and non-cash
items, such as depreciation, amortization, and impairment
expense. The maximum leverage covenant ratio decreased from 4.25
under the previous facility to 4.0 under the new facility, and
the calculated leverage ratio was 2.37 as of January 29,
2011. In connection with the refinancing, the Company incurred
$3.3 million of financing costs that were deferred and are
being amortized over the term of the credit facility. The
Company was in compliance with all covenants as of
January 29, 2011 and expects to remain in compliance with
all debt covenants during fiscal year 2012. As of
January 29, 2011, the Company had $35.4 million of
standby letters of credit outstanding under the credit facility,
and availability under the credit facility was
$314.6 million.
On April 21, 2010, the Company made a $75.0 million
discretionary payment towards the outstanding amount of the term
loan under the credit facility. In addition, the Company made a
discretionary payment of $125.0 million on
November 23, 2010, utilizing $75.0 million of cash on
hand, and $50.0 million from a 5.70% fixed rate,
10-year note
issued by the Company on November 23, 2010.
The senior notes are comprised of an $80.0 million floating
rate senior note that has a stated variable interest rate based
on three-month LIBOR plus 80.0 basis points, or 1.10% at
January 29, 2011, that matures in July 2012. This
$80.0 million notional amount has an associated interest
rate swap with a fixed interest rate of 5.2%. Additionally, a
$20.0 million fixed rate senior note that bears interest of
5.05% matures in July 2012, a $100.0 million fixed rate
senior note that bears interest of 5.31% matures in July 2015, a
$125.0 million fixed rate senior note that bears interest
of 6.20% matures in August 2017, and a $50.0 million fixed
rate senior note issued on November 23, 2010 that bears
interest of 5.70% matures in November 2020. The senior notes
have restrictive covenants that are similar to the
Companys credit facility. Additionally, the Company has a
$17.8 million,
20-year
variable rate, 0.29% at January 29, 2011, state bond
facility which matures in October 2025.
The debt facilities place certain restrictions on mergers,
consolidations, acquisitions, sales of assets, indebtedness,
transactions with affiliates, leases, liens, investments,
dividends and distributions, exchange and issuance of capital
stock and guarantees, and require maintenance of minimum
financial ratios, which include a leverage ratio, consolidated
debt to consolidated capitalization ratio and a fixed charge
coverage ratio. These ratios are calculated exclusive of
non-cash charges, such as fixed asset, goodwill and other
intangible asset impairments.
The Company utilizes a derivative financial instrument (interest
rate swap agreement) to manage the interest rate risk associated
with its borrowings. The Company has not historically traded,
and does not anticipate prospectively trading, in derivatives.
The swap agreement is used to reduce the potential impact of
increases in interest rates on variable rate debt. The
difference between the fixed rate leg and the variable rate leg
of the swap, to be paid or received, is accrued and recognized
as an adjustment to interest expense. Additionally, the change
in the fair value of a swap designated as a cash flow hedge is
marked to market through accumulated other comprehensive income
(loss).
The Companys exposure to derivative instruments was
limited to one interest rate swap as of January 29, 2011,
an $80.0 million notional amount swap, which has a fixed
interest rate of 5.2% and expires in fiscal year 2013. It has
been designated as a cash flow hedge against variability in
future interest rate payments on the $80.0 million floating
rate senior note.
Management believes that cash flows from operations and existing
credit facilities will be sufficient to cover working capital
needs, stock repurchases, dividends, capital expenditures,
pension funding and debt service requirements through fiscal
year 2012.
21
The Company plans to invest approximately $500 million over
the next several years in the following areas: store remodeling
projects, upgrading and modernization of our information
technology infrastructure, re-branding and marketing, and
enhancements to the
e-commerce
business and website.
Net cash provided by operating activities was
$189.2 million for fiscal year 2011 compared to
$387.4 million for fiscal year 2010. The decrease in cash
provided by operating activities for fiscal year 2011 was
principally due to the increase in inventory to support current
sales trends, a $67.1 million increase in income taxes paid
in fiscal year 2011, and $59.0 million discretionary
defined benefit plan contributions in fiscal year 2011,
partially offset by a $60.5 million increase in net income
for the current year period.
Net cash used by investing activities increased
$32.5 million to $73.8 million for fiscal year 2011
from $41.3 million for fiscal year 2010. The increase in
cash used by investing activities primarily resulted from
increased purchases of property and equipment of
$40.1 million.
The Companys capital expenditures of $82.4 million
during fiscal year 2011 were comprised primarily of amounts
related to our re-branding initiative, a new store, expansions,
remodels, information technology and other capital needs. The
Company has increased the amount of its anticipated capital
expenditures for fiscal year 2012 primarily due to expansions
and remodels, and other infrastructure capital needs. Management
expects to fund fiscal year 2012 capital expenditures
principally with cash flows from operations.
Net cash used by financing activities increased
$227.7 million to $248.0 million for fiscal year 2011
from $20.3 million for fiscal year 2010. The increase in
cash used by financing activities primarily relates to the
$200.0 million discretionary payments on amounts
outstanding under the credit facility, offset by the
$50.0 million issuance of a fixed rate senior note, a
$28.9 million increase in dividends paid, and a
$45.5 million increase in the repurchase and retirement of
common stock.
Contractual
Obligations and Commercial Commitments
To facilitate an understanding of the Companys contractual
obligations and commercial commitments, the following data is
provided:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Within
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
After 5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
$
|
517,780
|
|
|
$
|
|
|
|
$
|
100,000
|
|
|
$
|
225,000
|
|
|
$
|
192,780
|
|
Estimated Interest Payments on Debt(a)
|
|
|
142,163
|
|
|
|
25,851
|
|
|
|
47,680
|
|
|
|
40,882
|
|
|
|
27,750
|
|
Capital Lease Obligations
|
|
|
21,459
|
|
|
|
4,426
|
|
|
|
8,333
|
|
|
|
4,992
|
|
|
|
3,708
|
|
Operating Leases(b)
|
|
|
571,037
|
|
|
|
71,782
|
|
|
|
127,966
|
|
|
|
95,226
|
|
|
|
276,063
|
|
Purchase Obligations(c)
|
|
|
170,590
|
|
|
|
74,396
|
|
|
|
67,870
|
|
|
|
28,240
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$
|
1,423,029
|
|
|
$
|
176,455
|
|
|
$
|
351,849
|
|
|
$
|
394,340
|
|
|
$
|
500,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration per Period
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
Within
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
After 5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Other Commercial Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby Letters of Credit
|
|
$
|
35,376
|
|
|
$
|
18,227
|
|
|
$
|
17,149
|
|
|
$
|
|
|
|
$
|
|
|
Import Letters of Credit
|
|
|
5,724
|
|
|
|
5,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Commitments
|
|
$
|
41,100
|
|
|
$
|
23,951
|
|
|
$
|
17,149
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
(a) |
|
Interest rates used to compute estimated interest payments
utilize the stated rate for fixed rate debt and projected
interest rates for variable rate debt. Projected rates range
from 1.80% to 5.96% over the term of the variable rate debt
agreements. |
|
(b) |
|
Lease payments consist of base rent only and do not include
amounts for percentage rents, real estate taxes, insurance and
other expenses related to those locations. |
|
(c) |
|
Purchase obligations include agreements to purchase goods or
services that are enforceable and legally binding and that
specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction.
Agreements that are cancelable without penalty have been
excluded. Purchase obligations relate primarily to purchases of
property and equipment, information technology contracts,
maintenance agreements and advertising contracts. |
Obligations under the deferred compensation and postretirement
benefit plans are not included in the contractual obligations
table. The Companys deferred compensation and
postretirement plans are not funded in advance. Deferred
compensation payments during fiscal years 2011 and 2010 totaled
$7.5 million and $5.8 million, respectively.
Postretirement benefit payments during fiscal years 2011 and
2010 totaled $2.6 million and $2.8 million,
respectively.
Obligations under the Companys defined benefit pension
plan are not included in the contractual obligations table.
Under the current requirements of the Pension Protection Act of
2006, the Company is required to fund the net pension liability
over seven years. The net pension liability is calculated based
on certain assumptions at January 1, of each year, that are
subject to change based on economic conditions (and any
regulatory changes) in the future. The Company expects to
contribute sufficient amounts to the pension plan so that the
Pension Protection Act of 2006 guidelines are exceeded, and over
the next five years, the pension plan becomes fully funded.
As of January 29, 2011, the total uncertain tax position
liability was approximately $20.9 million, including tax,
penalty and interest. The Company is not able to reasonably
estimate the timing of these tax related future cash flows and
has excluded these liabilities from the table. At this time, the
Company does not expect a material change to its gross
unrecognized tax benefit during fiscal year 2012.
Also excluded from the contractual obligations table are
payments the Company may make for employee medical costs and
workers compensation, general liability and automobile claims.
Off-Balance
Sheet Arrangements
The Company has not provided any financial guarantees as of
January 29, 2011. The Company has not created, and is not
party to, any special-purpose or off-balance sheet entities for
the purpose of raising capital, incurring debt or operating the
Companys business. The Company does not have any
arrangements or relationships with entities that are not
consolidated into the financial statements that are reasonably
likely to materially affect the Companys liquidity or the
availability of capital resources.
Impact of
Inflation or Deflation
Although the Company expects that operations will be influenced
by general economic conditions, including rising food, fuel and
energy prices, management does not believe that inflation has
had a material effect on the Companys results of
operations. However, there can be no assurance that our business
will not be affected by such factors in the future.
The Company is beginning to experience inflation in merchandise
due to increases in raw material, labor and fuel costs. Such
cost increases were not significant in fiscal year 2011, but the
Company does expect to experience low to mid single-digit cost
increases in the first half of fiscal year 2012 and low
double-digit increases in the second half of fiscal year 2012.
In private and exclusive brands, where there is more control
over the production and manufacture of the merchandise, the
Company has historically been able to minimize inflationary
pressures through measures such as committing earlier for
merchandise and shifting sourcing to lower cost markets.
Belks third-party brand vendors are also facing the same
inflationary pressures. Management will continue to work with
these vendors in efforts to minimize the impact of inflation on
merchandise costs and selling prices.
23
Critical
Accounting Policies
Managements discussion and analysis discusses the results
of operations and financial condition as reflected in the
Companys consolidated financial statements, which have
been prepared in accordance with GAAP. As discussed in the
Companys notes to the consolidated financial statements,
the preparation of the consolidated financial statements in
conformity with GAAP 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 consolidated 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,
vendor allowances, property and equipment, rent expense, useful
lives of depreciable assets, recoverability of long-lived
assets, including intangible assets, store closing reserves,
customer loyalty programs, income taxes, derivative financial
instruments, credit income, the calculation of pension and
postretirement obligations, self-insurance reserves and stock
based compensation.
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 the Companys notes to the
consolidated financial statements for a discussion of the
Companys 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 consolidated 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 is 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 affect the ending
inventory valuation at cost as well as the corresponding charge
to cost of goods sold. In addition, failure to take appropriate
markdowns currently can result in an overstatement of inventory
under the lower of cost or market principle.
Vendor Allowances. The Company receives
allowances from its vendors through a variety of programs and
arrangements, including markdown reimbursement programs. These
vendor allowances are generally intended to offset the
Companys costs of selling the vendors products in
its stores. Allowances are recognized in the period in which the
Company completes its obligations under the vendor agreements.
Most incentives are deducted from amounts owed to the vendor at
the time the Company completes its obligations to the vendor or
shortly thereafter. The following summarizes the types of vendor
incentives and the Companys applicable accounting policy:
|
|
|
|
|
Advertising allowances Represents reimbursement of
advertising costs initially funded by the Company. Amounts are
recognized as a reduction to SG&A expenses in the period
that the advertising expense is incurred.
|
|
|
|
Markdown allowances Represents reimbursement for the
cost of markdowns to the selling price of the vendors
merchandise. Amounts are recognized as a reduction to cost of
goods sold in the later of the period that the merchandise is
marked down or the reimbursement is negotiated. Amounts received
prior to recognizing the markdowns are recorded as a reduction
to the cost of inventory.
|
|
|
|
Payroll allowances Represents reimbursement for
payroll costs. Amounts are recognized as a reduction to
SG&A expense in the period that the payroll cost is
incurred.
|
Property and Equipment, net. Property and
equipment owned by the Company are stated at cost less
accumulated depreciation and amortization. Property and
equipment leased by the Company under capital leases
24
are stated at an amount equal to the present value of the
minimum lease payments less accumulated amortization.
Depreciation and amortization are recorded utilizing
straight-line and in certain circumstances accelerated methods,
typically over the shorter of estimated asset lives or related
lease terms. The Company amortizes leasehold improvements over
the shorter of the expected lease term or estimated asset life
that would include cancelable option periods where failure to
exercise such options would result in an economic penalty in
such amount that a renewal appears, at the date the assets are
placed in service, to be reasonably assured.
Goodwill and Intangibles. Goodwill and other
intangible assets are accounted for in accordance with
ASC 350, Intangibles Goodwill and
Other. This statement requires that goodwill and other
intangible assets with indefinite lives should not be amortized,
but should be tested for impairment on an annual basis, or more
often if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below
its carrying amount.
Leasehold intangibles, which represent the excess of fair value
over the carrying value (assets) or the excess of carrying value
over fair value (liabilities) of acquired leases, are amortized
on a straight-line basis over the remaining terms of the lease
agreements. The lease term includes cancelable option periods
where failure to exercise such options would result in an
economic penalty in such amount that a renewal appears to be
reasonably assured. The lease intangibles are included in other
current assets and accrued liabilities for the current portions
and other assets and other noncurrent liabilities for the
noncurrent portions. Customer relationships, which represent the
value of customer relationships obtained in acquisitions or
purchased, are amortized on a straight-line basis over their
estimated useful life and are included in other assets. The
carrying value of intangible assets is reviewed by the
Companys management to assess the recoverability of the
assets when facts and circumstances indicate that the carrying
value may not be recoverable.
Rent Expense. The Company recognizes rent
expense on a straight-line basis over the expected lease term,
including cancelable option periods where failure to exercise
such options would result in an economic penalty in such amount
that a renewal appears, at the inception of the lease, to be
reasonably assured. Developer incentives are recognized as a
reduction to occupancy costs over the lease term. The lease term
commences on the date when the Company gains control of the
property.
Useful Lives of Depreciable Assets. The
Company makes judgments 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 typically determined by the Companys historical
experience with the type of asset purchased.
Recoverability of Long-Lived Assets. In
accordance with ASC 360, Property, Plant, and
Equipment, long-lived assets, such as property and
equipment and purchased intangible assets subject to
amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If circumstances require a
long-lived asset be tested for possible impairment, the Company
first compares undiscounted cash flows expected to be generated
by an asset to the carrying value of the asset. If the carrying
value of the long-lived asset is not recoverable on an
undiscounted cash flow basis, an impairment is recognized to the
extent that the carrying value exceeds its fair value. The
Company determines fair value of its retail locations primarily
based on the present value of future cash flows.
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 the Company ceases using
property
and/or
equipment. The reserve includes future minimum lease payments
and common area maintenance and taxes for which the Company is
obligated under operating lease agreements. Additionally, the
Company makes certain assumptions related to potential subleases
and lease terminations. These assumptions are based on
managements knowledge of the market and other relevant
experience. However, significant changes in the real estate
market and the inability to enter into the subleases or obtain
lease terminations within the estimated time frame may result in
increases or decreases to these reserves.
Customer Loyalty Programs. The Company
utilizes a customer loyalty program that issues certificates for
discounts on future purchases to proprietary charge card
customers based on their spending levels. The certificates are
classified as a reduction to revenue as they are earned by the
customers. The Company maintains a reserve
25
liability for the estimated future redemptions of the
certificates. The estimated impact on revenues of a 10% change
in program utilization would be $2.0 million.
Pension and Postretirement Obligations. The
Company utilizes significant assumptions in determining its
periodic pension and postretirement expense and obligations that
are included in the consolidated financial statements. These
assumptions include determining an appropriate discount rate,
investment earnings, as well as the remaining service period of
active employees. The Company calculates the periodic pension
and postretirement expense and obligations based upon these
assumptions and actual employee census data.
The Company elected an investment earnings assumption of 8.0% to
determine its fiscal year 2011 expense. The Company believes
that this assumption was appropriate given the composition of
its plan assets and historical market returns thereon. The
estimated effect of a 0.25% increase or decrease in the
investment earnings assumption would decrease or increase
pension expense by approximately $0.8 million. The Company
has elected an investment earnings assumption of 7.5% for fiscal
year 2012.
The Company selected a discount rate assumption of 5.75% to
determine its fiscal year 2011 expense. The Company believes
that this assumption was appropriate given the composition of
its plan obligations and the interest rate environment as of the
measurement date. The estimated effect of a 0.25% increase or
decrease in the discount rate assumption would have decreased or
increased fiscal year 2011 pension expense by approximately
$0.3 million. The Company has decreased its discount rate
assumption to 5.50% for fiscal year 2012.
Under the current requirements of the Pension Protection Act of
2006, the Company is required to fund the net pension liability
over seven years. The net pension liability is calculated based
on certain assumptions at January 1, of each year, that are
subject to change based on economic conditions (and any
regulatory changes) in the future. The Company expects to
contribute sufficient amounts to the pension plan so that the
Pension Protection Act of 2006 guidelines are exceeded, and over
the next five years, the pension plan becomes fully funded. The
Company elected to contribute $59.0 million to its Pension
Plan in fiscal year 2011. In the prior year, the Company made a
$44.0 million discretionary contribution to its Pension
Plan on September 15, 2009. The Company expects to
contribute $1.3 million and $2.6 million to its
non-qualified defined benefit Supplemental Executive Retirement
Plan and postretirement plan, respectively, in fiscal year 2012.
Effective December 31, 2009, the Pension Plan was frozen
for the remaining participants whose benefits were not
previously frozen in fiscal year 2006. Upon communication of
this decision to permanently freeze accruals in the plan, the
plans financial status was re-measured on October 31,
2009 based on economic conditions at the time. A one-time
curtailment charge of $2.7 million was incurred in the
third quarter of fiscal year 2010. The expense for all of fiscal
year 2010 reflected a change in the fourth quarter commensurate
with that re-measurement.
Self Insurance Reserves. The Company is
responsible for the payment of workers compensation,
general liability and automobile claims under certain dollar
limits. The Company purchases insurance for workers
compensation, general liability and automobile claims for
amounts that exceed certain dollar limits. The Company records a
liability for its obligation associated with incurred losses
utilizing historical data and industry accepted loss analysis
standards to estimate the loss development factors used to
project the future development of incurred losses. Management
believes that the Companys loss reserves are adequate but
actual losses may differ from the amounts provided.
The Company is responsible for the payment of medical and dental
claims and records a liability for claims obligations in excess
of amounts collected from associate premiums. Historical data on
incurred claims along with industry accepted loss analysis
standards are used to estimate the loss development factors to
project the future development of incurred claims. Management
believes that the Companys reserves are adequate but
actual claims liabilities may differ from the amounts provided.
Income Taxes. Income taxes are accounted for
under the asset and liability method. The annual effective tax
rate is based on income, statutory tax rates and tax planning
opportunities available in the various jurisdictions in which
the Company operates. Significant judgment is required in
determining annual tax expense and in evaluating tax positions.
In accordance with ASC 740, Income Taxes, the
Company recognizes the effect of income tax positions only if
those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized.
Changes in recognition or
26
measurement are reflected in the period in which the change in
judgment occurs. The reserves (including the impact of the
related interest and penalties) are adjusted in light of
changing facts and circumstances, such as the progress of a tax
audit.
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.
The Company accrues interest related to unrecognized tax
benefits in interest expense, while accruing penalties related
to unrecognized tax benefits in income tax expense (benefit).
Derivative Financial Instruments. The Company
utilizes derivative financial instruments (interest rate swap
agreements) to manage the interest rate risk associated with its
borrowings. The Company has not historically traded, and does
not anticipate prospectively trading, in derivatives. These swap
agreements are used to reduce the potential impact of increases
in interest rates on variable rate long-term debt. The
difference between the fixed rate leg and the variable rate leg
of each swap, to be paid or received, is accrued and recognized
as an adjustment to interest expense. Additionally, the changes
in the fair value of swaps designated as cash flow hedges are
marked to market through accumulated other comprehensive income
(loss). Swaps that are not designated as hedges are marked to
market through gain (loss) on investments.
Stock Based Compensation. The Company accounts
for stock based compensation under the guidelines of
ASC 718, Compensation Stock
Compensation. ASC 718 requires the Company to account
for stock based compensation by using the grant date fair value
of share awards and the estimated number of shares that will
ultimately be issued in conjunction with each award.
Finance Income. In connection with the program
agreement (Program Agreement) signed with GE Money
Bank (GE), an affiliate of GE Consumer Finance, in
fiscal year 2006, the Company is paid a percentage of net
private label credit card account sales. These payments are
recorded as an offset to SG&A expenses in the consolidated
statements of income. SG&A expenses are reduced by proceeds
from the
10-year
credit card Program Agreement between Belk and GE, which expires
June 30, 2016. This Program Agreement sets forth among
other things the terms and conditions under which GE will issue
credit cards to Belks customers. The Company will be paid
a percentage of net credit sales, as defined by the Program
Agreement, for future credit card sales. Belk is required to
perform certain duties and receive fees.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures 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 Companys 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 derivative instruments. The
Companys net exposure to interest rate risk is based on
the difference between the outstanding variable rate debt and
the notional amount of its designated interest rate swaps. At
January 29, 2011, the Company had $222.8 million of
variable rate debt, and an $80.0 million notional amount
swap, which has a fixed interest rate of 5.2% and expires in
fiscal year 2013. The effect on the Companys annual
interest expense of a one-percent change in interest rates would
be approximately $1.4 million.
A discussion of the Companys accounting policies for
derivative financial instruments is included in the Summary of
Significant Accounting Policies in Note 1 to the
Companys consolidated financial statements.
27
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
28
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Belk, Inc.:
We have audited the accompanying consolidated balance sheets of
Belk, Inc. and subsidiaries as of January 29, 2011 and
January 30, 2010, 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 January 29, 2011. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Belk, Inc. and subsidiaries as of January 29,
2011 and January 30, 2010, and the results of their
operations and their cash flows for each of the years in the
three-year period ended January 29, 2011, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Belk,
Inc. and subsidiaries internal control over financial
reporting as of January 29, 2011, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated April 12,
2011, expressed an unqualified opinion on the effectiveness of
the Companys internal control over financial reporting.
Charlotte, North Carolina
April 12, 2011
29
BELK,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Dollars
in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
$
|
3,513,275
|
|
|
$
|
3,346,252
|
|
|
$
|
3,499,423
|
|
Cost of goods sold (including occupancy, distribution and buying
expenses)
|
|
|
2,353,536
|
|
|
|
2,271,925
|
|
|
|
2,430,332
|
|
Selling, general and administrative expenses
|
|
|
914,078
|
|
|
|
886,263
|
|
|
|
947,602
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
326,649
|
|
Gain on sale of property and equipment
|
|
|
6,416
|
|
|
|
2,011
|
|
|
|
4,116
|
|
Other asset impairment and exit costs
|
|
|
6,096
|
|
|
|
39,915
|
|
|
|
31,599
|
|
Pension curtailment charge
|
|
|
|
|
|
|
2,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
245,981
|
|
|
|
147,441
|
|
|
|
(232,643
|
)
|
Interest expense
|
|
|
(50,679
|
)
|
|
|
(51,321
|
)
|
|
|
(55,512
|
)
|
Interest income
|
|
|
569
|
|
|
|
1,027
|
|
|
|
4,670
|
|
Gain on investments
|
|
|
|
|
|
|
43
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
195,871
|
|
|
|
97,190
|
|
|
|
(283,281
|
)
|
Income tax expense (benefit)
|
|
|
68,243
|
|
|
|
30,054
|
|
|
|
(70,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
127,628
|
|
|
$
|
67,136
|
|
|
$
|
(212,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
2.72
|
|
|
$
|
1.39
|
|
|
$
|
(4.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
2.71
|
|
|
$
|
1.39
|
|
|
$
|
(4.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46,921,875
|
|
|
|
48,450,401
|
|
|
|
49,010,509
|
|
Diluted
|
|
|
47,011,533
|
|
|
|
48,452,460
|
|
|
|
49,010,509
|
|
See accompanying notes to consolidated financial statements.
30
BELK,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
453,403
|
|
|
$
|
585,930
|
|
Short-term investments
|
|
|
6,150
|
|
|
|
2,500
|
|
Accounts receivable, net
|
|
|
31,119
|
|
|
|
22,427
|
|
Merchandise inventory
|
|
|
808,503
|
|
|
|
775,342
|
|
Prepaid income taxes, expenses and other current assets
|
|
|
18,869
|
|
|
|
24,902
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,318,044
|
|
|
|
1,411,101
|
|
Investment securities
|
|
|
|
|
|
|
6,850
|
|
Property and equipment, net
|
|
|
951,120
|
|
|
|
1,009,250
|
|
Deferred income taxes
|
|
|
83,698
|
|
|
|
117,827
|
|
Other assets
|
|
|
36,769
|
|
|
|
37,547
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,389,631
|
|
|
$
|
2,582,575
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
196,622
|
|
|
$
|
213,946
|
|
Accrued liabilities
|
|
|
161,844
|
|
|
|
155,648
|
|
Accrued income taxes
|
|
|
10,926
|
|
|
|
35,775
|
|
Deferred income taxes
|
|
|
19,776
|
|
|
|
16,079
|
|
Current installments of long-term debt and capital lease
obligations
|
|
|
4,426
|
|
|
|
3,419
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
393,594
|
|
|
|
424,867
|
|
Long-term debt and capital lease obligations, excluding current
installments
|
|
|
534,813
|
|
|
|
685,437
|
|
Interest rate swap liability
|
|
|
5,388
|
|
|
|
7,403
|
|
Retirement obligations and other noncurrent liabilities
|
|
|
299,564
|
|
|
|
370,573
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,233,359
|
|
|
|
1,488,280
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
Common stock, 400 million shares authorized and 46.3 and
48.3 million shares
|
|
|
|
|
|
|
|
|
issued and outstanding as of January 29, 2011 and
January 30, 2010, respectively
|
|
|
463
|
|
|
|
483
|
|
Paid-in capital
|
|
|
409,201
|
|
|
|
451,278
|
|
Retained earnings
|
|
|
887,953
|
|
|
|
798,963
|
|
Accumulated other comprehensive loss
|
|
|
(141,345
|
)
|
|
|
(156,429
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,156,272
|
|
|
|
1,094,295
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,389,631
|
|
|
$
|
2,582,575
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
31
BELK,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
Balance at February 2, 2008
|
|
|
49,569
|
|
|
$
|
496
|
|
|
$
|
479,020
|
|
|
$
|
977,206
|
|
|
$
|
(67,996
|
)
|
|
$
|
1,388,726
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(212,965
|
)
|
|
|
|
|
|
|
(212,965
|
)
|
Unrealized loss on investments, net of $740 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,247
|
)
|
|
|
(1,247
|
)
|
Reclassification to loss on investments, net of $231 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(388
|
)
|
|
|
(388
|
)
|
Unrealized loss on interest rate swaps, net of $807 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,360
|
)
|
|
|
(1,360
|
)
|
Defined benefit expense, net of $57,941 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,606
|
)
|
|
|
(97,606
|
)
|
Effects of changing the pension plan measurement date pursuant
to
ASC 715-30-35-62,
net of $1,008 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,699
|
|
|
|
1,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(311,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,846
|
)
|
|
|
|
|
|
|
(19,846
|
)
|
Effects of changing the pension plan measurement date pursuant
to
ASC 715-30-35-62,
net of $1,672 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,816
|
)
|
|
|
|
|
|
|
(2,816
|
)
|
Issuance of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(444
|
)
|
|
|
|
|
|
|
|
|
|
|
(444
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
314
|
|
Common stock issued
|
|
|
57
|
|
|
|
1
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
308
|
|
Repurchase and retirement of common stock
|
|
|
(873
|
)
|
|
|
(9
|
)
|
|
|
(22,339
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
|
48,753
|
|
|
|
488
|
|
|
|
456,858
|
|
|
|
741,579
|
|
|
|
(166,898
|
)
|
|
|
1,032,027
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,136
|
|
|
|
|
|
|
|
67,136
|
|
Unrealized gain on investments, net of $287 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482
|
|
|
|
482
|
|
Unrealized gain on interest rate swaps, net of $259 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521
|
|
|
|
521
|
|
Defined benefit expense, net of $4,078 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,688
|
|
|
|
7,688
|
|
Pension curtailment charge, net of $941 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,778
|
|
|
|
1,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,752
|
)
|
|
|
|
|
|
|
(9,752
|
)
|
Issuance of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
(115
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Common stock issued
|
|
|
33
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Repurchase and retirement of common stock
|
|
|
(500
|
)
|
|
|
(5
|
)
|
|
|
(5,945
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
|
48,286
|
|
|
|
483
|
|
|
|
451,278
|
|
|
|
798,963
|
|
|
|
(156,429
|
)
|
|
|
1,094,295
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,628
|
|
|
|
|
|
|
|
127,628
|
|
Unrealized gain on interest rate swaps, net of $669 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,346
|
|
|
|
1,346
|
|
Defined benefit expense, net of $7,370 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,738
|
|
|
|
13,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,638
|
)
|
|
|
|
|
|
|
(38,638
|
)
|
Issuance of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,823
|
|
|
|
|
|
|
|
|
|
|
|
8,823
|
|
Common stock issued
|
|
|
36
|
|
|
|
|
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
539
|
|
Repurchase and retirement of common stock
|
|
|
(1,978
|
)
|
|
|
(20
|
)
|
|
|
(51,396
|
)
|
|
|
|
|
|
|
|
|
|
|
(51,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2011
|
|
|
46,344
|
|
|
$
|
463
|
|
|
$
|
409,201
|
|
|
$
|
887,953
|
|
|
$
|
(141,345
|
)
|
|
$
|
1,156,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
32
BELK,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
127,628
|
|
|
$
|
67,136
|
|
|
$
|
(212,965
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
326,649
|
|
Other asset impairment and exit costs
|
|
|
6,096
|
|
|
|
39,915
|
|
|
|
31,599
|
|
Deferred income tax expense (benefit)
|
|
|
33,453
|
|
|
|
(9,982
|
)
|
|
|
(63,562
|
)
|
Depreciation and amortization expense
|
|
|
140,239
|
|
|
|
158,388
|
|
|
|
165,267
|
|
Stock-based compensation expense
|
|
|
10,466
|
|
|
|
180
|
|
|
|
314
|
|
Pension curtailment charge
|
|
|
|
|
|
|
2,719
|
|
|
|
|
|
(Gain) loss on sale of property and equipment
|
|
|
(3,787
|
)
|
|
|
618
|
|
|
|
(1,487
|
)
|
Amortization of deferred gain on sale and leaseback
|
|
|
(2,629
|
)
|
|
|
(2,629
|
)
|
|
|
(2,629
|
)
|
Gain on sale of investments
|
|
|
|
|
|
|
(43
|
)
|
|
|
(204
|
)
|
Investment securities contribution expense
|
|
|
|
|
|
|
1,889
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(7,981
|
)
|
|
|
11,616
|
|
|
|
31,565
|
|
Merchandise inventory
|
|
|
(33,161
|
)
|
|
|
53,155
|
|
|
|
104,280
|
|
Prepaid income taxes, expenses and other assets
|
|
|
6,348
|
|
|
|
4,361
|
|
|
|
(6,050
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(11,984
|
)
|
|
|
52,746
|
|
|
|
(80,095
|
)
|
Accrued income taxes
|
|
|
(24,849
|
)
|
|
|
35,182
|
|
|
|
(25,387
|
)
|
Retirement obligations and other liabilities
|
|
|
(50,598
|
)
|
|
|
(27,856
|
)
|
|
|
(1,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
189,241
|
|
|
|
387,395
|
|
|
|
265,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(82,409
|
)
|
|
|
(42,326
|
)
|
|
|
(129,282
|
)
|
Proceeds from sales of property and equipment
|
|
|
5,448
|
|
|
|
140
|
|
|
|
19,715
|
|
Purchases of short-term investments
|
|
|
|
|
|
|
|
|
|
|
(17,750
|
)
|
Proceeds from sales of short-term investments
|
|
|
3,200
|
|
|
|
900
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(73,761
|
)
|
|
|
(41,286
|
)
|
|
|
(119,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt and capital lease
obligations
|
|
|
(204,605
|
)
|
|
|
(4,496
|
)
|
|
|
(29,685
|
)
|
Dividends paid
|
|
|
(38,638
|
)
|
|
|
(9,752
|
)
|
|
|
(19,846
|
)
|
Repurchase and retirement of common stock
|
|
|
(51,416
|
)
|
|
|
(5,950
|
)
|
|
|
(22,348
|
)
|
Stock compensation tax benefit (expense)
|
|
|
41
|
|
|
|
(64
|
)
|
|
|
154
|
|
Cash paid for withholding taxes in lieu of stock-based
compensation shares
|
|
|
(84
|
)
|
|
|
(51
|
)
|
|
|
(598
|
)
|
Deferred financing costs
|
|
|
(3,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(248,007
|
)
|
|
|
(20,313
|
)
|
|
|
(72,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(132,527
|
)
|
|
|
325,796
|
|
|
|
73,161
|
|
Cash and cash equivalents at beginning of period
|
|
|
585,930
|
|
|
|
260,134
|
|
|
|
186,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
453,403
|
|
|
$
|
585,930
|
|
|
$
|
260,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (refunded)
|
|
$
|
60,232
|
|
|
$
|
(6,846
|
)
|
|
$
|
32,710
|
|
Supplemental schedule of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in property and equipment through accrued
purchases
|
|
|
1,379
|
|
|
|
(7,525
|
)
|
|
|
(11,079
|
)
|
Increase (decrease) in investment securities through short-term
investments
|
|
|
(6,850
|
)
|
|
|
6,850
|
|
|
|
|
|
Increase in property and equipment through assumption of capital
leases
|
|
|
4,990
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
33
BELK,
INC. AND SUBSIDIARIES
|
|
(1)
|
Summary
of Significant Accounting Policies
|
Description
of Business and Basis of Presentation
Belk, Inc. and its subsidiaries (collectively, the
Company or Belk) operate retail
department stores in 16 states primarily in the southern
United States. All intercompany transactions and balances have
been eliminated in consolidation. The Companys fiscal year
ends on the Saturday closest to each January 31. All
references to fiscal years are as follows:
|
|
|
|
|
Fiscal Year
|
|
Ended
|
|
Weeks
|
|
2014
|
|
February 1, 2014
|
|
52
|
2013
|
|
February 2, 2013
|
|
53
|
2012
|
|
January 28, 2012
|
|
52
|
2011
|
|
January 29, 2011
|
|
52
|
2010
|
|
January 30, 2010
|
|
52
|
2009
|
|
January 31, 2009
|
|
52
|
2008
|
|
February 2, 2008
|
|
52
|
2007
|
|
February 3, 2007
|
|
53
|
Certain prior period amounts have been reclassified to conform
with current year presentation. Previously, the Company
presented gift card liability amounts within accounts payable as
presented on the consolidated balance sheet. In the current
year, the Company has presented the gift card liability in
accrued liabilities, and revised amounts presented in the fiscal
year 2010 consolidated balance sheet for comparability purposes.
The revision had no impact on net income, total current
liabilities, cash flows from operating activities, or
stockholders equity for fiscal year 2010.
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
stock-based compensation, depreciation, amortization and
recoverability of long-lived and intangible assets, valuation of
inventory, establishing store closing and other reserves,
self-insurance reserves and calculating retirement obligations
and expense.
Revenues
The Companys store and eCommerce operations have been
aggregated into one operating segment due to their similar
economic characteristics, products, production processes,
customers and methods of distribution. These operations are
expected to continue to have similar characteristics and
long-term financial performance in future periods.
34
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table gives information regarding the percentage
of revenues contributed by each merchandise area for each of the
last three fiscal years. There were no material changes between
fiscal years, as reflected in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise Areas
|
|
Fiscal Year 2011
|
|
|
Fiscal Year 2010
|
|
|
Fiscal Year 2009
|
|
|
Womens
|
|
|
35
|
%
|
|
|
36
|
%
|
|
|
37
|
%
|
Cosmetics, Shoes and Accessories
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
31
|
%
|
Mens
|
|
|
17
|
%
|
|
|
16
|
%
|
|
|
16
|
%
|
Home
|
|
|
9
|
%
|
|
|
9
|
%
|
|
|
10
|
%
|
Childrens
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues include sales of merchandise and the net revenue
received from leased departments of $2.3 million each for
fiscal years 2011 and 2010, and $3.1 million for fiscal
year 2009. Sales from retail operations are recorded at the time
of delivery and reported net of sales taxes and merchandise
returns. The reserve for returns is calculated as a percentage
of sales based on historical return percentages.
The Company utilizes a customer loyalty program that issues
certificates for discounts on future purchases to proprietary
charge card customers based on their spending levels. The
certificates are classified as a reduction to revenue as they
are earned by the customers. The Company maintains a reserve
liability for the estimated future redemptions of the
certificates.
Cost of
Goods Sold
Cost of goods sold is comprised principally of the cost of
merchandise as well as occupancy, distribution and buying
expenses. Occupancy expenses include rent, utilities and real
estate taxes. Distribution expenses include all costs associated
with distribution facilities. Buying expenses include payroll
and travel expenses associated with the corporate merchandise
buying function.
Selling,
General and Administrative Expenses
Selling, general and administrative (SG&A)
expenses are comprised principally of payroll and benefits for
retail and corporate employees, depreciation, advertising and
other administrative expenses. SG&A expenses are reduced by
proceeds from the
10-year
credit card program agreement (Program Agreement)
between Belk and GE Money Bank (GE), an affiliate of
GE Consumer Finance, which expires June 30, 2016. This
Program Agreement sets forth among other things the terms and
conditions under which GE will issue credit cards to Belks
customers. The Company is paid a percentage of net credit sales,
as defined by the Program Agreement. Belk is required to perform
certain duties, including receiving and remitting in-store
payments on behalf of GE and receiving fees for these
activities. These amounts totaled $71.1 million,
$67.0 million and $67.3 million in fiscal years 2011,
2010 and 2009, respectively.
Gift
Cards
At the time gift cards are sold, no revenue is recognized;
rather, a liability is established for the face amount of the
gift card. The liability is relieved and revenue is recognized
when gift cards are redeemed for merchandise. The estimated
values of gift cards expected to go unused are recognized as a
reduction to SG&A expenses in proportion to actual gift
card redemptions as the remaining gift card values are redeemed.
35
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Advertising
Advertising costs, net of co-op recoveries from merchandise
vendors, are expensed in the period in which the advertising
event takes place and amounted to $143.2 million,
$123.5 million and $134.2 million in fiscal years
2011, 2010 and 2009, respectively.
Recoverability
of Long-Lived Assets
In accordance with Accounting Standards Codification
(ASC) 360, Property, Plant, and
Equipment, long-lived assets, such as property and
equipment and purchased intangible assets subject to
amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The impairment to be recognized is
measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset based upon the future
highest and best use of the impaired asset. If circumstances
require a long-lived asset be tested for possible impairment,
the Company first compares undiscounted cash flows expected to
be generated by an asset to the carrying value of the asset. If
the carrying value of the long-lived asset is not recoverable on
an undiscounted cash flow basis, an impairment is recognized to
the extent that the carrying value exceeds its fair value. The
Company determines fair value of its retail locations primarily
based on the present value of future cash flows.
Cash
Equivalents
Cash equivalents include liquid investments with an original
maturity of 90 days or less.
Short-term
Investments
Short-term investments consist of investments whose original
maturity is greater than 90 days. At January 29, 2011,
the Company held an auction rate security (ARS) of
$6.2 million in short-term investments, which represents
the amount called at par by the issuer during the first quarter
of fiscal year 2012.
Merchandise
Inventory
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 is 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 affect the ending
inventory valuation at cost as well as the corresponding charge
to cost of goods sold. In addition, failure to take appropriate
markdowns can result in an overstatement of inventory under the
lower of cost or market principle.
Investment
Securities
The Company accounts for investments in accordance with the
provisions of ASC 320, Investments 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 (loss). Realized gains
and losses are recognized on an average cost basis and are
included in income. Declines in fair value that are considered
to be other than temporary are reported in gain (loss) on
investments.
36
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment, Net
Property and equipment owned by the Company are stated at
historical cost less accumulated depreciation and amortization.
Property and equipment leased by the Company under capital
leases are stated at an amount equal to the present value of the
minimum lease payments less accumulated amortization.
Depreciation and amortization are recorded utilizing
straight-line and in certain circumstances accelerated methods,
typically over the shorter of estimated asset lives or related
lease terms. The Company amortizes leasehold improvements over
the shorter of the estimated asset life or expected lease term
that would include cancelable option periods where failure to
exercise such options would result in an economic penalty in
such amount that a renewal appears, at the date the assets are
placed in service, to be reasonably assured.
Goodwill
and Intangibles
Goodwill and other intangible assets are accounted for in
accordance with ASC 350, Intangibles
Goodwill and Other. This statement requires that goodwill
and other intangible assets with indefinite lives should not be
amortized, but should be tested for impairment on an annual
basis, or more often if an event occurs or circumstances change
that would more likely than not reduce the fair value of a
reporting unit below its carrying amount.
Leasehold intangibles, which represent the excess of fair value
over the carrying value (assets) or the excess of carrying value
over fair value (liabilities) of acquired leases, are amortized
on a straight-line basis over the remaining terms of the lease
agreements. The lease term includes cancelable option periods
where failure to exercise such options would result in an
economic penalty in such amount that a renewal appears to be
reasonably assured. The lease intangibles are included in other
current assets and accrued liabilities for the current portions
and other assets and other noncurrent liabilities for the
noncurrent portions. Customer relationships, which represent the
value of customer relationships obtained in acquisitions or
purchased, are amortized on a straight-line basis over their
estimated useful life and are included in other assets. The
carrying value of intangible assets is reviewed by the
Companys management to assess the recoverability of the
assets when facts and circumstances indicate that the carrying
value may not be recoverable.
Rent
Expense
The Company recognizes rent expense on a straight-line basis
over the expected lease term, including cancelable option
periods where failure to exercise such options would result in
an economic penalty in such amount that a renewal appears, at
the inception of the lease, to be reasonably assured. Developer
incentives are recognized as a reduction to occupancy costs over
the lease term. The lease term commences on the date when the
Company gains control of the property.
Vendor
Allowances
The Company receives allowances from its vendors through a
variety of programs and arrangements, including markdown
reimbursement programs. These vendor allowances are generally
intended to offset the Companys costs of selling the
vendors products in our stores. Allowances are recognized
in the period in which the Company completes its obligations
under the vendor agreements. Most incentives are deducted from
amounts owed to the vendor at the time the Company completes its
obligations to the vendor or shortly thereafter.
The following summarizes the types of vendor incentives and the
Companys applicable accounting policies:
|
|
|
|
|
Advertising allowances Represents reimbursement of
advertising costs initially funded by the Company. Amounts are
recognized as a reduction to SG&A expenses in the period
that the advertising expense is incurred.
|
|
|
|
Markdown allowances Represents reimbursement for the
cost of markdowns to the selling price of the vendors
merchandise. Amounts are recognized as a reduction to cost of
goods sold in the later of the period
|
37
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
that the merchandise is marked down or the reimbursement is
negotiated. Amounts received prior to recognizing the markdowns
are recorded as a reduction to the cost of inventory.
|
|
|
|
|
|
Payroll allowances Represents reimbursement for
payroll costs. Amounts are recognized as a reduction to
SG&A expenses in the period that the payroll cost is
incurred.
|
Pension
and Postretirement Obligations
The Company utilizes significant assumptions in determining its
periodic pension and postretirement expense and obligations that
are included in the consolidated financial statements. These
assumptions include determining an appropriate discount rate,
investment earnings, as well as the remaining service period of
active employees. The Company calculates the periodic pension
and postretirement expense and obligations based upon these
assumptions and actual employee census data.
Stock
Based Compensation
The Company accounts for stock based compensation under the
guidelines of ASC 718, Compensation Stock
Compensation. ASC 718 requires the Company to account
for stock based compensation by using the grant date fair value
of share awards and the estimated number of shares that will
ultimately be issued in conjunction with each award.
Self
Insurance Reserves
The Company is responsible for the payment of workers
compensation, general liability and automobile claims under
certain dollar limits. The Company purchases insurance for
workers compensation, general liability and automobile
claims for amounts that exceed certain dollar limits. The
Company records a liability for its obligation associated with
incurred losses utilizing historical data and industry accepted
loss analysis standards to estimate the loss development factors
used to project the future development of incurred losses.
Management believes that the Companys loss reserves are
adequate but actual losses may differ from the amounts provided.
The Company is responsible for the payment of medical and dental
claims and records a liability for claims obligations in excess
of amounts collected from associate premiums. Historical data on
incurred claims along with industry accepted loss analysis
standards are used to estimate the loss development factors to
project the future development of incurred claims. Management
believes that the Companys reserves are adequate but
actual claims liabilities may differ from the amounts provided.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. The annual effective tax rate is based on income,
statutory tax rates and tax planning opportunities available in
the various jurisdictions in which the Company operates.
Significant judgment is required in determining annual tax
expense and in evaluating tax positions. In accordance with
ASC 740, Income Taxes, the Company recognizes
the effect of income tax positions only if those positions are
more likely than not of being sustained. Recognized income tax
positions are measured at the largest amount that is greater
than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in
judgment occurs. The reserves (including the impact of the
related interest and penalties) are adjusted in light of
changing facts and circumstances, such as the progress of a tax
audit.
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.
38
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
The Company accrues interest related to unrecognized tax
benefits in interest expense, while accruing penalties related
to unrecognized tax benefits in income tax expense (benefit).
Derivative
Financial Instruments
The Company utilizes derivative financial instruments (interest
rate swap agreements) to manage the interest rate risk
associated with its borrowings. The Company has not historically
traded, and does not anticipate prospectively trading, in
derivatives. These swap agreements are used to reduce the
potential impact of increases in interest rates on variable rate
long-term debt. The difference between the fixed rate leg and
the variable rate leg of each swap, to be paid or received, is
accrued and recognized as an adjustment to interest expense.
Additionally, the changes in the fair value of swaps designated
as cash flow hedges are marked to market through accumulated
other comprehensive income (loss). Swaps that are not designated
as hedges are marked to market through gain (loss) on
investments.
As of January 29, 2011, the Company has one interest rate
swap for an $80.0 million notional amount, which has a
fixed rate of 5.2% and expires in fiscal year 2013. It has been
designated as a cash flow hedge against variability in future
interest rate payments on the $80.0 million floating rate
senior note. The Company previously had a $125.0 million
notional amount swap, which had a fixed rate of 6.0% and expired
in September 2008, that had been designated as a cash flow hedge
against variability in future interest payments on a
$125.0 million variable rate bond facility. On
July 26, 2007, the $125.0 million notional amount swap
was de-designated due to the Companys decision to prepay
the underlying debt.
|
|
(2)
|
Goodwill
and Intangibles
|
Goodwill and other intangible assets are accounted for in
accordance with ASC 350, Intangibles
Goodwill and Other. This statement requires that goodwill
and other intangible assets with indefinite lives should not be
amortized, but should be tested for impairment on an annual
basis, or more often if an event occurs or circumstances change
that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. At January 31,
2009, the Company completed its annual impairment measurement
and, through the use of discounted cash flow techniques and
market comparisons, determined that the fair value of the
reporting unit was less than its carrying value. As a result,
the Company recorded a $326.6 million goodwill impairment
charge. The impairment of goodwill was a non-cash charge and did
not affect the Companys compliance with financial
covenants under its various debt agreements.
39
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortizing intangibles are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
Favorable lease intangibles
|
|
$
|
9,960
|
|
|
$
|
10,160
|
|
Accumulated amortization favorable lease intangibles
|
|
|
(3,368
|
)
|
|
|
(2,586
|
)
|
Credit card and customer list intangibles
|
|
|
18,746
|
|
|
|
18,746
|
|
Accumulated amortization credit card and customer
list
|
|
|
|
|
|
|
|
|
intangibles
|
|
|
(12,913
|
)
|
|
|
(10,813
|
)
|
Other intangibles
|
|
|
7,852
|
|
|
|
7,951
|
|
Accumulated amortization other intangibles
|
|
|
(6,131
|
)
|
|
|
(5,870
|
)
|
|
|
|
|
|
|
|
|
|
Net amortizing intangible assets
|
|
$
|
14,146
|
|
|
$
|
17,588
|
|
|
|
|
|
|
|
|
|
|
Amortizing intangible liabilities:
|
|
|
|
|
|
|
|
|
Unfavorable lease intangibles
|
|
$
|
(26,347
|
)
|
|
$
|
(30,453
|
)
|
Accumulated amortization unfavorable lease
intangibles
|
|
|
6,394
|
|
|
|
6,579
|
|
|
|
|
|
|
|
|
|
|
Net amortizing intangible liabilities
|
|
$
|
(19,953
|
)
|
|
$
|
(23,874
|
)
|
|
|
|
|
|
|
|
|
|
The Company recorded net amortization expense related to
amortizing intangibles of $1.6 million in fiscal year 2011,
and $2.0 million in fiscal years 2010 and 2009,
respectively.
|
|
(3)
|
Other
Asset Impairment and Exit Costs
|
In fiscal year 2011, the Company recorded $5.9 million in
asset impairment charges primarily to adjust two retail
locations net book values to fair value. The Company
determines fair value of its retail locations primarily based on
the present value of future cash flows. The Company also
recorded a $3.5 million charge for real estate holding
costs related to a store closing, offset by a $3.5 million
revision to a previously estimated lease termination reserve.
In fiscal year 2010, the Company recorded $38.5 million in
impairment charges primarily to adjust eight retail
locations net book values to fair value, a
$1.0 million charge for real estate holding costs and other
store closing costs, and $0.4 million in exit costs
comprised primarily of severance costs associated with the
outsourcing of certain information technology functions.
As of January 29, 2011 and January 30, 2010, the
remaining reserve balance for post-closing real estate lease
obligations was $8.9 million and $8.8 million,
respectively. These balances are presented within accrued
liabilities and other noncurrent liabilities on the consolidated
balance sheets. The Company does not anticipate incurring
significant additional exit costs in connection with the store
closings. The following is a summary of post-closing real estate
lease obligations activity:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, beginning of year
|
|
$
|
8,821
|
|
|
$
|
7,044
|
|
Charges and adjustments
|
|
|
1,857
|
|
|
|
2,858
|
|
Utilization/payments
|
|
|
(1,783
|
)
|
|
|
(1,081
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
8,895
|
|
|
$
|
8,821
|
|
|
|
|
|
|
|
|
|
|
40
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(4)
|
Accumulated
Other Comprehensive Loss
|
The following table sets forth the components of accumulated
other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Unrealized loss on interest rate swaps, net of $2,119 and $2,789
of income
|
|
|
|
|
|
|
|
|
taxes as of January 29, 2011 and January 30, 2010,
respectively
|
|
$
|
(3,268
|
)
|
|
$
|
(4,614
|
)
|
Defined benefit plans, net of $83,348 and $90,721 of income
taxes as of
|
|
|
|
|
|
|
|
|
January 29, 2011 and January 30, 2010, respectively
|
|
|
(138,077
|
)
|
|
|
(151,815
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(141,345
|
)
|
|
$
|
(156,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
Accounts
Receivable, Net
|
Accounts receivable, net consists of:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Accounts receivable from vendors
|
|
$
|
12,322
|
|
|
$
|
9,283
|
|
Credit card accounts receivable
|
|
|
16,428
|
|
|
|
9,381
|
|
Other receivables
|
|
|
2,369
|
|
|
|
3,763
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
31,119
|
|
|
$
|
22,427
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
securities as of January 29, 2011 consisted of a
$6.2 million ARS classified as a short-term investment,
which represents the amount called at par by the issuer during
the first quarter of fiscal year 2012. As a result of persistent
failed auctions during fiscal year 2009 and the uncertainty of
when these investments could be successfully liquidated at par,
the Company reclassified the ARS to
held-to-maturity
from
available-for-sale
during fiscal year 2010. As of January 29, 2011, the
amortized cost and fair value of the ARS was $6.2 million.
During the fourth quarter of fiscal year 2009, the Company
recognized an
other-than-temporary
impairment on its investment in a partnership that had been
accounted for under the equity method of accounting, as the
Company did not anticipate recovering the partnerships
cost basis in the near future. The Company determined this
other-than-temporary
impairment primarily due to the macroeconomic effects across the
retail industry which resulted in declines in retail property
values associated with this partnership. Accordingly, the
Company recorded a $1.4 million
other-than-temporary
impairment in gain (loss) on investments, and reduced the cost
basis of the partnership to a fair value of zero.
41
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(7)
|
Property
and Equipment, net
|
Details of property and equipment, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
January 29,
|
|
|
January 30,
|
|
|
|
Lives
|
|
2011
|
|
|
2010
|
|
|
|
(In Years)
|
|
(Dollars in thousands)
|
|
|
Land
|
|
|
|
$
|
51,173
|
|
|
$
|
58,494
|
|
Buildings
|
|
primarily 15-31.5
|
|
|
1,071,126
|
|
|
|
1,044,520
|
|
Furniture, fixtures and equipment
|
|
3-20
|
|
|
1,117,326
|
|
|
|
1,083,214
|
|
Property under capital leases
|
|
5-20
|
|
|
63,943
|
|
|
|
56,777
|
|
Construction in progress
|
|
|
|
|
1,977
|
|
|
|
12,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,305,545
|
|
|
|
2,255,066
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
(1,354,425
|
)
|
|
|
(1,245,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
951,120
|
|
|
$
|
1,009,250
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded depreciation and amortization related to
property and equipment of $138.6 million,
$156.4 million and $163.3 million in fiscal years
2011, 2010 and 2009, respectively. Accumulated amortization of
assets under capital lease was $44.4 million and
$41.7 million as of January 29, 2011 and
January 30, 2010, respectively.
During fiscal year 2011, the Company sold three former store
locations for $4.6 million that resulted in gains on sale
of property of $2.3 million.
During fiscal year 2009, the Company sold an acquired
distribution facility for $4.0 million that resulted in a
gain on the sale of property of $0.7 million. The Company
also sold an acquired corporate headquarters facility and
adjacent land parcels for $12.4 million that resulted in a
gain on the sale of property of $1.3 million. In addition,
during fiscal year 2009, the Company sold two stores for net
proceeds of $2.6 million, which resulted in no gain or loss.
42
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries, wages and employee benefits
|
|
$
|
44,665
|
|
|
$
|
44,696
|
|
Gift card liability
|
|
|
32,143
|
|
|
|
30,049
|
|
Accrued capital expenditures
|
|
|
3,219
|
|
|
|
1,723
|
|
Taxes, other than income
|
|
|
17,973
|
|
|
|
17,793
|
|
Rent
|
|
|
7,518
|
|
|
|
6,719
|
|
Sales returns allowance
|
|
|
10,950
|
|
|
|
9,677
|
|
Interest
|
|
|
7,664
|
|
|
|
7,769
|
|
Store closing reserves
|
|
|
2,020
|
|
|
|
6,275
|
|
Self insurance reserves
|
|
|
7,494
|
|
|
|
6,292
|
|
Advertising
|
|
|
5,118
|
|
|
|
5,774
|
|
Other
|
|
|
23,080
|
|
|
|
18,881
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities
|
|
$
|
161,844
|
|
|
$
|
155,648
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Credit facility term loan
|
|
$
|
125,000
|
|
|
$
|
325,000
|
|
Senior notes
|
|
|
375,000
|
|
|
|
325,000
|
|
Capital lease agreements through August 2020
|
|
|
21,459
|
|
|
|
21,076
|
|
State bond facility
|
|
|
17,780
|
|
|
|
17,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
539,239
|
|
|
|
688,856
|
|
Less current installments
|
|
|
(4,426
|
)
|
|
|
(3,419
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, excluding current
installments
|
|
$
|
534,813
|
|
|
$
|
685,437
|
|
|
|
|
|
|
|
|
|
|
As of January 29, 2011, the annual maturities of long-term
debt and capital lease obligations over the next five years are
$4.4 million, $104.7 million, $3.6 million,
$3.0 million, and $227.0 million, respectively. The
Company made interest payments of $36.4 million,
$34.7 million and $43.7 million, of which
$0.2 million, $0.5 million, and $1.7 million was
capitalized into property and equipment during fiscal years
2011, 2010, and 2009, respectively.
The Companys borrowings consist primarily of a
$475.0 million credit facility that matures in November
2015 and $375.0 million in senior notes. As of
January 29, 2011, the credit facility was comprised of an
outstanding $125.0 million term loan and a
$350.0 million revolving line of credit.
The credit facility was refinanced on November 23, 2010.
The refinanced credit facility allows for up to
$250.0 million of outstanding letters of credit,
representing a $50.0 million increase from the previous
facility. Amounts outstanding under the credit facility bear
interest at a base rate or LIBOR rate, at the Companys
option. Base rate loans bear interest at the higher of the prime
rate or the federal funds rate plus 0.5% or LIBOR plus 1.0%.
LIBOR rate loans bear interest at the LIBOR rate plus a LIBOR
rate margin, 1.50% as of January 29, 2011, based
43
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
upon the leverage ratio. The credit facility contains
restrictive covenants including leverage and fixed charge
coverage ratios. The Companys calculated leverage ratio
dictates the LIBOR spread that will be charged on outstanding
borrowings in the subsequent quarter. The leverage ratio is
calculated by dividing adjusted debt, which is the sum of the
Companys outstanding debt and rent expense multiplied by a
factor of eight, by pre-tax income plus net interest expense and
non-cash items, such as depreciation, amortization, and
impairment expense. The maximum leverage covenant ratio
decreased from 4.25 under the previous facility to 4.0 under the
new facility, and the calculated leverage ratio was 2.37 as of
January 29, 2011. In connection with the refinancing, the
Company incurred $3.3 million of financing costs that were
deferred and are being amortized over the term of the credit
facility. The Company was in compliance with all covenants as of
January 29, 2011 and expects to remain in compliance with
all debt covenants during fiscal year 2012. As of
January 29, 2011, the Company had $35.4 million of
standby letters of credit outstanding under the credit facility,
and availability under the credit facility was
$314.6 million.
On April 21, 2010, the Company made a $75.0 million
discretionary payment towards the outstanding amount of the term
loan under the credit facility. In addition, the Company made a
discretionary payment of $125.0 million on
November 23, 2010, utilizing $75.0 million of cash on
hand, and $50.0 million from a 5.70% fixed rate,
10-year note
issued by the Company on November 23, 2010.
The senior notes are comprised of an $80.0 million floating
rate senior note that has a stated variable interest rate based
on three-month LIBOR plus 80.0 basis points, or 1.10% at
January 29, 2011, that matures in July 2012. This
$80.0 million notional amount has an associated interest
rate swap with a fixed interest rate of 5.2%. Additionally, a
$20.0 million fixed rate senior note that bears interest of
5.05% matures in July 2012, a $100.0 million fixed rate
senior note that bears interest of 5.31% matures in July 2015, a
$125.0 million fixed rate senior note that bears interest
of 6.20% matures in August 2017, and a $50.0 million fixed
rate senior note that bears interest of 5.70% matures in
November 2020. The senior notes have restrictive covenants that
are similar to the Companys credit facility. Additionally,
the Company has a $17.8 million,
20-year
variable rate, 0.29% at January 29, 2011, state bond
facility which matures in October 2025.
The debt facilities place certain restrictions on mergers,
consolidations, acquisitions, sales of assets, indebtedness,
transactions with affiliates, leases, liens, investments,
dividends and distributions, exchange and issuance of capital
stock and guarantees, and require maintenance of minimum
financial ratios, which include a leverage ratio, consolidated
debt to consolidated capitalization ratio and a fixed charge
coverage ratio. These ratios are calculated exclusive of
non-cash charges, such as fixed asset, goodwill and other
intangible asset impairments.
The Company utilizes a derivative financial instrument (interest
rate swap agreement) to manage the interest rate risk associated
with its borrowings. The Company has not historically traded,
and does not anticipate prospectively trading, in derivatives.
The swap agreement is used to reduce the potential impact of
increases in interest rates on variable rate debt. The
difference between the fixed rate leg and the variable rate leg
of the swap, to be paid or received, is accrued and recognized
as an adjustment to interest expense. Additionally, the change
in the fair value of a swap designated as a cash flow hedge is
marked to market through accumulated other comprehensive income
(loss).
The Companys exposure to derivative instruments was
limited to one interest rate swap as of January 29, 2011,
an $80.0 million notional amount swap, which has a fixed
interest rate of 5.2% and expires in fiscal year 2013. It has
been designated as a cash flow hedge against variability in
future interest rate payments on the $80.0 million floating
rate senior note.
44
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(11)
|
Retirement
Obligations and Other Noncurrent Liabilities
|
Retirement obligations and other noncurrent liabilities are
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Pension liability
|
|
$
|
99,343
|
|
|
$
|
172,663
|
|
Deferred compensation plans
|
|
|
32,241
|
|
|
|
31,234
|
|
Post-retirement benefits
|
|
|
20,458
|
|
|
|
22,249
|
|
Supplemental executive retirement plans
|
|
|
24,033
|
|
|
|
23,029
|
|
Deferred gain on sale/leaseback
|
|
|
23,440
|
|
|
|
26,069
|
|
Unfavorable lease liability
|
|
|
18,015
|
|
|
|
22,169
|
|
Deferred rent
|
|
|
28,621
|
|
|
|
26,558
|
|
Self-insurance reserves
|
|
|
11,170
|
|
|
|
11,278
|
|
Developer incentive liability
|
|
|
9,008
|
|
|
|
9,826
|
|
Income tax reserves
|
|
|
19,120
|
|
|
|
17,224
|
|
Other noncurrent liabilities
|
|
|
14,115
|
|
|
|
8,274
|
|
|
|
|
|
|
|
|
|
|
Retirement obligations and other noncurrent liabilities
|
|
$
|
299,564
|
|
|
$
|
370,573
|
|
|
|
|
|
|
|
|
|
|
The Company leases some of its stores, warehouse facilities and
equipment. The majority of these leases will expire over the
next 10 years. The leases usually contain renewal options
at the lessees discretion 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.
Future minimum lease payments under non-cancelable leases, net
of future minimum sublease rental income under non-cancelable
subleases, as of January 29, 2011 were as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Capital
|
|
|
Operating
|
|
|
|
(Dollars in thousands)
|
|
|
2012
|
|
|
5,819
|
|
|
|
71,782
|
|
2013
|
|
|
5,806
|
|
|
|
68,447
|
|
2014
|
|
|
4,433
|
|
|
|
59,519
|
|
2015
|
|
|
3,566
|
|
|
|
51,976
|
|
2016
|
|
|
2,350
|
|
|
|
43,250
|
|
After 2016
|
|
|
4,203
|
|
|
|
276,063
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
26,177
|
|
|
|
571,037
|
|
Less sublease rental income
|
|
|
|
|
|
|
(13,037
|
)
|
|
|
|
|
|
|
|
|
|
Net rentals
|
|
|
26,177
|
|
|
$
|
558,000
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest
|
|
|
(4,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
21,459
|
|
|
|
|
|
Less current portion
|
|
|
(4,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion of the present value of minimum lease payments
|
|
$
|
17,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublease rental income primarily relates to the portion of the
Companys headquarters building located in Charlotte, NC
that was sold and leased back by the Company during fiscal year
2008 and was subsequently subleased by the Company.
45
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net rental expense for all operating leases consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Buildings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rentals
|
|
$
|
74,141
|
|
|
$
|
76,218
|
|
|
$
|
76,512
|
|
Contingent rentals
|
|
|
3,239
|
|
|
|
2,614
|
|
|
|
3,066
|
|
Sublease rental income
|
|
|
(2,326
|
)
|
|
|
(2,383
|
)
|
|
|
(2,307
|
)
|
Equipment
|
|
|
1,988
|
|
|
|
2,133
|
|
|
|
2,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net rental expense
|
|
$
|
77,042
|
|
|
$
|
78,582
|
|
|
$
|
79,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal and state income tax expense (benefit) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
32,758
|
|
|
$
|
36,438
|
|
|
$
|
(644
|
)
|
State
|
|
|
2,032
|
|
|
|
3,598
|
|
|
|
(6,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,790
|
|
|
|
40,036
|
|
|
|
(6,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
29,792
|
|
|
|
(9,437
|
)
|
|
|
(69,476
|
)
|
State
|
|
|
3,661
|
|
|
|
(545
|
)
|
|
|
5,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,453
|
|
|
|
(9,982
|
)
|
|
|
(63,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
68,243
|
|
|
$
|
30,054
|
|
|
$
|
(70,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation between income taxes and income tax expense
(benefit) computed using the federal statutory income tax rate
of 35% is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Income tax at the statutory federal rate
|
|
$
|
68,555
|
|
|
$
|
34,016
|
|
|
$
|
(99,148
|
)
|
State income taxes, net of federal
|
|
|
3,930
|
|
|
|
744
|
|
|
|
(1,244
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
32,835
|
|
Increase in cash surrender value of officers life insurance
|
|
|
(4,178
|
)
|
|
|
(4,619
|
)
|
|
|
(2,915
|
)
|
Net increase (decrease) in uncertain tax positions
|
|
|
(485
|
)
|
|
|
735
|
|
|
|
(4,807
|
)
|
Change in valuation allowances for prior years
|
|
|
|
|
|
|
|
|
|
|
4,938
|
|
Other
|
|
|
421
|
|
|
|
(822
|
)
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
68,243
|
|
|
$
|
30,054
|
|
|
$
|
(70,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred taxes based upon differences between the financial
statement and tax bases of assets and liabilities and available
tax carryforwards consist of:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Prepaid pension costs
|
|
$
|
24,517
|
|
|
$
|
48,912
|
|
Benefit plan costs
|
|
|
31,740
|
|
|
|
31,868
|
|
Store closing and other reserves
|
|
|
20,620
|
|
|
|
15,473
|
|
Inventory capitalization
|
|
|
6,123
|
|
|
|
5,855
|
|
Tax carryovers
|
|
|
14,308
|
|
|
|
13,305
|
|
Interest rate swaps
|
|
|
2,007
|
|
|
|
2,758
|
|
Prepaid rent
|
|
|
10,995
|
|
|
|
10,068
|
|
Goodwill
|
|
|
55,384
|
|
|
|
61,231
|
|
Intangibles
|
|
|
12,451
|
|
|
|
13,173
|
|
Other
|
|
|
8,909
|
|
|
|
11,950
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
187,054
|
|
|
|
214,593
|
|
Less valuation allowance
|
|
|
(20,996
|
)
|
|
|
(19,899
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
166,058
|
|
|
|
194,694
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
52,716
|
|
|
|
49,753
|
|
Intangibles
|
|
|
6,495
|
|
|
|
6,842
|
|
Inventory
|
|
|
42,597
|
|
|
|
35,788
|
|
Investment securities
|
|
|
|
|
|
|
|
|
Other
|
|
|
328
|
|
|
|
563
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
102,136
|
|
|
|
92,946
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
63,922
|
|
|
$
|
101,748
|
|
|
|
|
|
|
|
|
|
|
Due to current economic conditions and their impact on the
future, the Company believes that it is more likely than not
that the benefit from certain state net operating loss and
credit carryforwards, and net deferred tax assets for state
income tax purposes, will not be realized. In recognition of
this risk, the Company has provided a valuation allowance of
$20.8 million and $19.7 million at January 29,
2011 and January 30, 2010, respectively, on these deferred
tax assets. The increase in the valuation allowance consists of
$1.7 million from current year increases to deferred tax
assets resulting from recurring current year operations, offset
by $0.6 million related to deferred tax assets within other
comprehensive income. If or when recognized, the Company
anticipates that the tax benefits relating to any reversal of
the valuation allowance on deferred tax assets at
January 29, 2011 will be accounted for as a reduction of
income tax expense.
The Companys valuation allowance was based on an
assessment of the amount of deferred tax assets that are more
likely than not to be realized, and represents the extent to
which deferred tax assets are not supported by future reversals
of existing taxable temporary differences.
As of January 29, 2011, the Company has net operating loss
carryforwards for state income tax purposes of
$303.7 million. The state carryforwards expire at various
intervals through fiscal year 2032 but primarily in fiscal years
2024 through 2027. The Company also has state job credits of
$1.2 million, which are available to offset future taxable
income, in the applicable states, if any. These credits expire
between fiscal years 2016 and 2023. In addition,
47
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Company has alternative minimum tax net operating loss
carryforwards of $0.9 million which are available to reduce
future alternative minimum taxable income, and are not subject
to expiration.
The state net operating loss carryforwards from filed returns
included uncertain tax positions taken in prior years. State net
operating loss carryforwards as shown on the Companys tax
returns are larger than the state net operating losses for which
a deferred tax asset is recognized for financial statement
purposes.
As of January 29, 2011, the total gross unrecognized tax
benefit was $23.6 million. Of this total, $3.3 million
represents the amount of unrecognized tax benefits (net of the
federal benefit on state issues) that, if recognized, would
favorably affect the effective income tax rate in a future
period. A reconciliation of the beginning and ending amount of
total unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, beginning of year
|
|
$
|
18,958
|
|
|
$
|
21,567
|
|
Additions for tax positions from prior years
|
|
|
1,245
|
|
|
|
7,429
|
|
Reductions for tax positions from prior years
|
|
|
(227
|
)
|
|
|
(382
|
)
|
Additions for tax positions related to the current year
|
|
|
3,599
|
|
|
|
1,500
|
|
Settlement payments
|
|
|
|
|
|
|
(11,156
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
23,575
|
|
|
$
|
18,958
|
|
|
|
|
|
|
|
|
|
|
The Company reports interest related to unrecognized tax
benefits in interest expense, and penalties related to
unrecognized tax benefits in income tax expense. Total accrued
interest and penalties for unrecognized tax benefits (net of tax
benefit) as of January 29, 2011 was $2.0 million,
after recognition of a $0.1 million benefit during fiscal
year 2011.
The Company is subject to U.S. federal income tax as well
as income tax of multiple state jurisdictions. The Company has
concluded all U.S. federal income tax matters with the IRS
for tax years through 2007. All material state and local income
tax matters have been concluded for tax years through 2004.
At this time, the Company does not expect a material change to
its gross unrecognized tax benefit over the next 12 months.
|
|
(14)
|
Pension,
SERP and Postretirement Benefits
|
The Company has a defined benefit pension plan, the Belk Pension
Plan, which prior to fiscal year 2010 had been partially frozen
and closed to new participants. Pension benefits were suspended
for fiscal year 2010, and effective December 31, 2009, the
Pension Plan was frozen for those remaining participants whose
benefits were not previously frozen in fiscal year 2006. This
Pension Plan freeze resulted in a one-time curtailment charge of
$2.7 million in the third quarter of fiscal year 2010.
The Company has a non-qualified defined benefit Supplemental
Executive Retirement Plan, (Old SERP), which
provides retirement and death benefits to certain qualified
executives. Old SERP has been closed to new executives and has
been replaced by the 2004 Supplemental Executive Retirement Plan
(2004 SERP), a non-qualified defined contribution
plan.
The Company also 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 employees estimated term of
service with the Company, in accordance with ASC 715,
Compensation Retirement Benefits.
48
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The change in the projected benefit obligation, change in plan
assets, funded status, amounts recognized and unrecognized, net
periodic benefit cost and actuarial assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Old SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
466,741
|
|
|
$
|
429,863
|
|
|
$
|
11,352
|
|
|
$
|
10,279
|
|
|
$
|
24,808
|
|
|
$
|
26,704
|
|
Service cost
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
126
|
|
|
|
150
|
|
|
|
133
|
|
Interest cost
|
|
|
26,069
|
|
|
|
26,433
|
|
|
|
618
|
|
|
|
629
|
|
|
|
1,360
|
|
|
|
1,624
|
|
Actuarial (gains) losses
|
|
|
11,347
|
|
|
|
36,547
|
|
|
|
1,117
|
|
|
|
1,584
|
|
|
|
(651
|
)
|
|
|
(892
|
)
|
Benefits paid
|
|
|
(26,990
|
)
|
|
|
(26,102
|
)
|
|
|
(1,355
|
)
|
|
|
(1,266
|
)
|
|
|
(2,632
|
)
|
|
|
(2,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
477,167
|
|
|
|
466,741
|
|
|
|
11,805
|
|
|
|
11,352
|
|
|
|
23,035
|
|
|
|
24,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
294,078
|
|
|
|
217,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
51,736
|
|
|
|
58,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to plan
|
|
|
59,000
|
|
|
|
44,000
|
|
|
|
1,355
|
|
|
|
1,266
|
|
|
|
2,632
|
|
|
|
2,761
|
|
Benefits paid
|
|
|
(26,990
|
)
|
|
|
(26,102
|
)
|
|
|
(1,355
|
)
|
|
|
(1,266
|
)
|
|
|
(2,632
|
)
|
|
|
(2,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
377,824
|
|
|
|
294,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
|
(99,343
|
)
|
|
|
(172,663
|
)
|
|
|
(11,805
|
)
|
|
|
(11,352
|
)
|
|
|
(23,035
|
)
|
|
|
(24,809
|
)
|
Unrecognized net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
|
|
706
|
|
Unrecognized prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss
|
|
|
218,670
|
|
|
|
239,870
|
|
|
|
2,560
|
|
|
|
1,594
|
|
|
|
(263
|
)
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prepaid (accrued)
|
|
$
|
119,327
|
|
|
$
|
67,207
|
|
|
$
|
(9,245
|
)
|
|
$
|
(9,758
|
)
|
|
$
|
(22,842
|
)
|
|
$
|
(23,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains and losses are generally amortized over the
average remaining service life of the Companys active
employees. Due to the pension plan freeze in the third quarter
of fiscal year 2010, the Company began using the average
remaining life of the participants in the pension plan rather
than the average remaining service life of the Companys
active employees.
Amounts recognized in the consolidated balance sheets consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Old SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Accrued liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,230
|
|
|
$
|
1,326
|
|
|
$
|
2,579
|
|
|
$
|
2,560
|
|
Deferred income tax assets
|
|
|
82,342
|
|
|
|
89,743
|
|
|
|
873
|
|
|
|
546
|
|
|
|
133
|
|
|
|
432
|
|
Retirement obligations and other noncurrent liabilities
|
|
|
99,343
|
|
|
|
172,663
|
|
|
|
10,575
|
|
|
|
10,026
|
|
|
|
20,458
|
|
|
|
22,249
|
|
Accumulated other comprehensive loss
|
|
|
(136,328
|
)
|
|
|
(150,127
|
)
|
|
|
(1,687
|
)
|
|
|
(1,048
|
)
|
|
|
(62
|
)
|
|
|
(640
|
)
|
49
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Old SERP Plan
|
|
|
Postretirement Benefits
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Obligation and funded status at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, 2011 and January 30, 2010, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
477,167
|
|
|
$
|
466,741
|
|
|
$
|
11,805
|
|
|
$
|
11,352
|
|
|
$
|
23,035
|
|
|
$
|
24,808
|
|
Accumulated benefit obligation
|
|
|
477,167
|
|
|
|
466,741
|
|
|
|
10,861
|
|
|
|
10,583
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Fair value of plan assets
|
|
|
377,824
|
|
|
|
294,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Old SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Net actuarial loss
|
|
$
|
(136,328
|
)
|
|
$
|
(150,127
|
)
|
|
$
|
(1,687
|
)
|
|
$
|
(1,048
|
)
|
|
$
|
210
|
|
|
$
|
(197
|
)
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(272
|
)
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(136,328
|
)
|
|
$
|
(150,127
|
)
|
|
$
|
(1,687
|
)
|
|
$
|
(1,048
|
)
|
|
$
|
(62
|
)
|
|
$
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity related to plan assets and benefit obligations
recognized in accumulated other comprehensive loss are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Old SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Adjustment to minimum liability
|
|
$
|
9,236
|
|
|
$
|
(13
|
)
|
|
$
|
(734
|
)
|
|
$
|
(1,045
|
)
|
|
$
|
426
|
|
|
$
|
588
|
|
Effect of pension curtailment charge
|
|
|
|
|
|
|
1,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
173
|
|
Prior service cost
|
|
|
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses
|
|
|
4,563
|
|
|
|
7,717
|
|
|
|
95
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,799
|
|
|
$
|
9,725
|
|
|
$
|
(639
|
)
|
|
$
|
(1,045
|
)
|
|
$
|
578
|
|
|
$
|
786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average assumptions used to determine benefit
obligations at the January 29, 2011 and January 30,
2010 measurement dates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
Old SERP Plan
|
|
Postretirement Plan
|
|
|
Measurement Date
|
|
Measurement Date
|
|
Measurement Date
|
|
|
1/29/11
|
|
1/30/10
|
|
1/29/11
|
|
1/30/10
|
|
1/29/11
|
|
1/30/10
|
|
Discount rates
|
|
|
5.500
|
%
|
|
|
5.750
|
%
|
|
|
5.500
|
%
|
|
|
5.750
|
%
|
|
|
5.500
|
%
|
|
|
5.750
|
%
|
Rates of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
50
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following weighted-average assumptions were used to
determine net periodic benefit cost for the fiscal years shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Old SERP Plan
|
|
|
Postretirement Plan
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Discount rates
|
|
|
5.750
|
%
|
|
|
6.375
|
%
|
|
|
6.125
|
%
|
|
|
5.750
|
%
|
|
|
6.375
|
%
|
|
|
6.125
|
%
|
|
|
5.750
|
%
|
|
|
6.375
|
%
|
|
|
6.125
|
%
|
Rates of compensation increase
|
|
|
N/A
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Return on plan assets
|
|
|
8.00
|
|
|
|
8.00
|
|
|
|
8.25
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The Company developed the discount rate by matching the
projected future cash flows of the plan to a modeled yield curve
consisting of over 500 Aa-graded, noncallable bonds. Based on
this analysis, management selected a 5.75% discount rate, which
represented the calculated yield curve rate rounded up to the
nearest quarter point. The pension plans expected return
assumption is based on the weighted average aggregate long-term
expected returns of various actively managed asset classes
corresponding to the plans asset allocation. The majority
of the pension plan assets are allocated to equity securities,
with the remaining assets allocated to fixed income securities,
private equity investments, and cash.
The measurement date for the defined benefit pension plan, Old
SERP and postretirement benefits for fiscal year 2011 is
January 29, 2011. For measurement purposes, an 8.0% annual
rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rate) was assumed for fiscal year
2011; the rate was assumed to decrease to 5.0% gradually over
the next six 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 or decreasing the assumed health care cost trend
rates by one percentage point would increase or decrease the
accumulated postretirement benefit obligation as of
January 29, 2011 by $0.4 million and the aggregate of
the service and interest cost components of net periodic
postretirement benefit cost for the year ended January 29,
2011 by $0.1 million.
The Company maintains policies for investment of pension plan
assets. The policies set forth stated objectives and a structure
for managing assets, which includes various asset classes and
investment management styles that, in the aggregate, are
expected to produce a sufficient level of diversification and
investment return over time and provide for the availability of
funds for benefits as they become due. The policies also provide
guidelines for each investment portfolio that control the level
of risk assumed in the portfolio and ensure that assets are
managed in accordance with stated objectives. The policies set
forth criteria to monitor and evaluate the performance results
achieved by the investment managers. In addition, managing the
relationship between plan assets and benefit obligations within
the policy objectives is achieved through periodic asset and
liability studies required by the policies.
The asset allocation for the pension plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets at Measurement Date
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
Target Allocation
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Domestic equity securities
|
|
|
40-55
|
%
|
|
|
48
|
%
|
|
|
50
|
%
|
|
|
45
|
%
|
International equity securities
|
|
|
10-15
|
%
|
|
|
14
|
%
|
|
|
12
|
%
|
|
|
12
|
%
|
Fixed Income
|
|
|
30-45
|
%
|
|
|
35
|
%
|
|
|
34
|
%
|
|
|
39
|
%
|
Private Equity
|
|
|
0-5
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
Cash
|
|
|
|
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company uses a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers
include: Level 1, defined as observable inputs such as
quoted prices in active markets for identical assets and
liabilities; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
As of January 29, 2011 and January 30, 2010, the
pension plan assets were required to be measured at fair value.
These assets included cash and cash equivalents, equity
securities, fixed income securities, mutual funds, private
equity funds and exchange traded limited partnership units.
These categories can cross various asset allocation strategies
as reflected in the preceding table.
Fair values of the pension plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
January 29,
|
|
|
Identical Assets
|
|
|
Outputs
|
|
|
Inputs
|
|
|
January 30,
|
|
|
Identical Assets
|
|
|
Outputs
|
|
|
Inputs
|
|
Description
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
9,647
|
|
|
$
|
|
|
|
$
|
9,647
|
|
|
$
|
|
|
|
$
|
8,075
|
|
|
$
|
237
|
|
|
$
|
7,838
|
|
|
$
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International companies
|
|
|
14,060
|
|
|
|
14,060
|
|
|
|
|
|
|
|
|
|
|
|
2,181
|
|
|
|
2,181
|
|
|
|
|
|
|
|
|
|
U.S. companies (a)
|
|
|
92,336
|
|
|
|
92,336
|
|
|
|
|
|
|
|
|
|
|
|
134,138
|
|
|
|
134,138
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
20,335
|
|
|
|
|
|
|
|
20,335
|
|
|
|
|
|
|
|
3,397
|
|
|
|
|
|
|
|
3,397
|
|
|
|
|
|
Government securities
|
|
|
63,204
|
|
|
|
|
|
|
|
63,204
|
|
|
|
|
|
|
|
15,571
|
|
|
|
|
|
|
|
15,571
|
|
|
|
|
|
Mortgage backed securities
|
|
|
2,075
|
|
|
|
|
|
|
|
2,075
|
|
|
|
|
|
|
|
402
|
|
|
|
|
|
|
|
402
|
|
|
|
|
|
Municipal bonds
|
|
|
640
|
|
|
|
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
169,720
|
|
|
|
53,620
|
|
|
|
116,100
|
|
|
|
|
|
|
|
124,157
|
|
|
|
86,033
|
|
|
|
38,124
|
|
|
|
|
|
Private equity
|
|
|
5,560
|
|
|
|
|
|
|
|
|
|
|
|
5,560
|
|
|
|
5,640
|
|
|
|
|
|
|
|
|
|
|
|
5,640
|
|
Exchange traded limited partnership units
|
|
|
247
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
517
|
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
377,824
|
|
|
$
|
160,263
|
|
|
$
|
212,001
|
|
|
$
|
5,560
|
|
|
$
|
294,078
|
|
|
$
|
223,106
|
|
|
$
|
65,332
|
|
|
$
|
5,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The U.S. equity securities consist of large cap companies, mid
cap companies and small cap companies of $56.3 million,
$20.5 million and $15.5 million, respectively, in
fiscal year 2011, and $95.0 million, $19.8 million and
$19.3 million, respectively, in fiscal year 2010. |
The pension plan cash equivalents, corporate bonds, government
securities, mortgage backed securities, municipal bonds, and
mutual funds of $9.6 million, $20.3 million,
$63.2 million, $2.1 million, $0.6 million, and
$116.1 million, respectively, in fiscal year 2011, and cash
equivalents, corporate bonds, government securities, mortgage
backed securities, and mutual funds of $7.8 million,
$3.4 million, $15.6 million, $0.4 million and
$38.1 million, respectively, in fiscal year 2010 have been
classified as Level 2:
Cash equivalents and mutual funds fair
values of cash equivalents and mutual funds are largely provided
by independent pricing services. Where independent pricing
services provide fair values, the
52
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company has obtained an understanding of the methods, models and
inputs used in pricing, and has procedures in place to validate
that amounts provided represent current fair values.
Investments in corporate bonds, municipal bonds and
government securities fair values of
corporate bonds, municipal bonds, and government securities are
valued based on a calculation using interest rate curves and
credit spreads applied to the terms of the debt instruments
(maturity and coupon interest rate) and consider the
counterparty credit rating.
Mortgage backed securities fair values
of mortgage backed securities are based on external broker bids,
where available, or are determined by discounting estimated cash
flows.
The private equity pension plan investments are considered
Level 3 assets as there is not an active market for
identical assets from which to determine fair value or current
market information about similar assets to use as observable
inputs. The fair value of private equity investments is
determined using pricing models, which requires significant
management judgment.
The following table provides a reconciliation of the fiscal year
2011 and 2010 beginning and ending balances of the pension
plans private equity funds (Level 3):
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance as of January 31, 2009
|
|
$
|
7,188
|
|
Calls of private equity investments
|
|
|
180
|
|
Total losses realized/unrealized included in plan earnings
|
|
|
(1,261
|
)
|
Distributions of private equity investments
|
|
|
(467
|
)
|
|
|
|
|
|
Balance as of January 30, 2010
|
|
$
|
5,640
|
|
|
|
|
|
|
Calls of private equity investments
|
|
|
476
|
|
Total gains realized/unrealized included in plan earnings
|
|
|
402
|
|
Distributions of private equity investments
|
|
|
(958
|
)
|
|
|
|
|
|
Balance as of January 29, 2011
|
|
$
|
5,560
|
|
|
|
|
|
|
The Company expects to have the following benefit payments
related to its pension, Old SERP and postretirement plans in the
coming years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Pension Plan
|
|
|
Old SERP Plan
|
|
|
Postretirement Plan
|
|
|
|
(Dollars in thousands)
|
|
|
2012
|
|
$
|
27,710
|
|
|
$
|
1,263
|
|
|
$
|
2,648
|
|
2013
|
|
|
27,726
|
|
|
|
1,227
|
|
|
|
2,510
|
|
2014
|
|
|
27,919
|
|
|
|
1,192
|
|
|
|
2,425
|
|
2015
|
|
|
28,170
|
|
|
|
1,158
|
|
|
|
2,293
|
|
2016
|
|
|
28,379
|
|
|
|
1,125
|
|
|
|
2,188
|
|
2017 2021
|
|
|
146,703
|
|
|
|
5,970
|
|
|
|
10,220
|
|
Under the current requirements of the Pension Protection Act of
2006, the Company is required to fund the net pension liability
over seven years. The net pension liability is calculated based
on certain assumptions at January 1, of each year, that are
subject to change based on economic conditions (and any
regulatory changes) in the future. The Company expects to
contribute sufficient amounts to the pension plan so that the
Pension Protection Act of 2006 guidelines are exceeded, and over
the next five years, the pension plan becomes fully funded. The
Company elected to contribute $59.0 million to its Pension
Plan in fiscal year 2011. In the prior year, the Company made a
$44.0 million discretionary contribution to its Pension
Plan on September 15, 2009. The Company expects to
53
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
contribute $1.3 million and $2.6 million to its
non-qualified defined benefit Supplemental Executive Retirement
Plan and postretirement plan, respectively, in fiscal year 2012.
The components of net periodic benefit expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
Pension Plan
|
|
|
Old SERP Plan
|
|
|
Postretirement Plan
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,095
|
|
|
$
|
73
|
|
|
$
|
126
|
|
|
$
|
189
|
|
|
$
|
150
|
|
|
$
|
133
|
|
|
$
|
133
|
|
Interest cost
|
|
|
26,069
|
|
|
|
26,433
|
|
|
|
24,577
|
|
|
|
618
|
|
|
|
629
|
|
|
|
728
|
|
|
|
1,360
|
|
|
|
1,624
|
|
|
|
1,629
|
|
Expected return on assets
|
|
|
(26,202
|
)
|
|
|
(22,107
|
)
|
|
|
(23,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
262
|
|
|
|
262
|
|
Prior service cost
|
|
|
|
|
|
|
371
|
|
|
|
495
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses (gains)
|
|
|
7,010
|
|
|
|
11,806
|
|
|
|
9,887
|
|
|
|
144
|
|
|
|
|
|
|
|
217
|
|
|
|
(30
|
)
|
|
|
39
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual benefit expense
|
|
$
|
6,877
|
|
|
$
|
16,503
|
|
|
$
|
14,470
|
|
|
$
|
835
|
|
|
$
|
756
|
|
|
$
|
1,135
|
|
|
$
|
1,742
|
|
|
$
|
2,058
|
|
|
$
|
2,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment (gain)/loss
|
|
|
|
|
|
|
2,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
6,877
|
|
|
$
|
19,222
|
|
|
$
|
14,470
|
|
|
$
|
835
|
|
|
$
|
756
|
|
|
$
|
1,135
|
|
|
$
|
1,742
|
|
|
$
|
2,058
|
|
|
$
|
2,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amounts that will be amortized from accumulated
other comprehensive income into net periodic benefit cost in
fiscal year 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Benefits
|
|
|
Old SERP Plan
|
|
|
Benefits
|
|
|
|
(Dollars in thousands)
|
|
|
Amortization of actuarial loss (gain)
|
|
$
|
7,867
|
|
|
$
|
256
|
|
|
$
|
(138
|
)
|
Amortization of transition obligation
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized from other comprehensive income
|
|
$
|
7,867
|
|
|
$
|
256
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15)
|
Other
Employee Benefits
|
The Belk Employees Health Care Plan provides medical and
dental benefits to substantially all full-time employees. This
plan for medical and dental benefits is administered 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. Expense
recognized by the Company under these plans amounted to
$41.8 million, $45.2 million and $44.0 million in
fiscal years 2011, 2010 and 2009, respectively.
The Belk 401(k) Savings Plan, a defined contribution plan,
provides benefits for substantially all employees. Effective
February 1, 2009, the 401(k) Savings Plan was suspended for
employer matching contributions. As of November 1, 2009,
employer match contributions, following the adoption of the IRS
Safe-Harbor principle, were reinstated for the plan. Employer
match contributions are calculated at 100% of the first 4% of
employees contributions, plus 50% on the next 2% of
employees contributions, up to a total 5% employer match
on eligible compensation. The cost of the plan was
$8.1 million, $2.4 million and $11.6 million in
fiscal years 2011, 2010 and 2009, respectively.
The Company has a non-qualified 401(k) Restoration Plan for
highly compensated employees, as defined by the Employee
Retirement Income Security Act (ERISA). The plan
previously provided contributions to a participants
account ranging from 2% to 4.5% of eligible compensation to
restore benefits limited in the qualified
54
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
401(k) plan. Effective February 1, 2009, employer
contributions were suspended. As of January 1, 2010, the
plan was changed to provide a contribution equal to 5% of a
participants compensation, except for those who are
participants in the 2004 SERP plan, in excess of the limit set
forth in Code section 401(a)(17), as adjusted. The Company
accrues each participants return on investment based on an
asset investment model of their choice. The cost (benefit) of
the plan to the Company in fiscal years 2011, 2010 and 2009 was
$0.9 million, $1.3 million and $(1.0) million,
respectively.
The 2004 SERP, a non-qualified defined contribution retirement
benefit plan for certain qualified executives, previously
provided annual contributions ranging from 7% to 11% of eligible
compensation to the participants accounts, which earned
6.0% interest during plan year beginning April 1, 2010.
Effective February 1, 2009, employer contributions to the
plan were suspended for plan year beginning April 1, 2009.
Beginning with the April 1, 2010 plan year, the plan
provided a contribution equal to 5% of a participants
compensation in excess of the limit set forth in Code
section 401(a)(17), as adjusted. The contribution and
interest costs charged to operations were $1.2 million,
$0.8 million and $1.7 million in fiscal years 2011,
2010 and 2009, respectively.
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 proscribed by the
DCP. The Company is required to pay interest on the
employees deferred compensation at various rates that have
historically been between 7% and 10%. Interest cost related to
the plan and charged to interest expense was $4.0 million
in fiscal years 2011, 2010 and 2009, respectively.
The Company has a Pension Restoration Plan, a non-qualified
defined contribution plan. The plan provides benefits for
certain officers, whose pension plan benefit accruals were
frozen, that would have been otherwise grandfathered in their
pension participation based on age and vesting. Effective
January 1, 2009, the Company suspended accrual to this plan
for one year and subsequently permanently froze future
contributions as of December 31, 2009. Expense of
$0.1 million, $0.1 million and $0.8 million was
incurred for fiscal years 2011, 2010 and 2009, respectively, to
provide benefits under this plan.
|
|
(16)
|
Stock-Based
Compensation
|
Under the Belk, Inc. 2010 Incentive Stock Plan (the 2010
Incentive Plan), the Company is authorized to award up to
2.5 million shares of class B common stock for various
types of equity incentives to key executives of the Company.
Under the Belk, Inc. 2000 Incentive Stock Plan (the 2000
Incentive Plan), the Company was authorized to award up to
2.8 million shares of common stock for various types of
equity incentives to key executives of the Company.
The Company recognized compensation expense, net of tax, under
the 2010 and 2000 Incentive Plans of $6.7 million,
$0.1 million and $0.2 million for fiscal years 2011,
2010 and 2009, respectively.
Performance
Based Stock Award Programs
The Company has a performance based stock award program (the
Long Term Incentive Plan or LTI Plan),
which the Company grants, under its 2010 Incentive Plan, stock
awards to certain key executives. Shares awarded under the LTI
Plan vary based on Company results versus specified performance
targets and generally vest at the end of the performance period.
Beginning with fiscal year 2009, the LTI Plan began using a
one-year performance period and a two-year service period. A
portion of any shares earned during the performance period will
be issued after the end of the performance period with the
remaining shares issued at the end of the service period.
LTI Plan compensation costs are computed using the fair value of
the Companys stock on the grant date based on a
third-party valuation and the estimated expected attainment of
performance goals. As of January 29, 2011, the unrecognized
compensation cost related to non-vested share-based compensation
arrangements granted under the
55
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
LTI Plan was $4.9 million. There was no unrecognized
compensation cost related to non-vested share-based compensation
arrangements granted under the LTI Plan as of January 30,
2010.
The weighted-average grant-date fair value of shares granted
under the LTI Plans during fiscal years 2011 and 2009 was
$26.00, and $25.60, respectively. There were no LTI Plan shares
granted during fiscal year 2010. The total fair value of stock
grants issued under the LTI Plans during fiscal year 2009 was
$1.3 million. The fiscal year 2011 performance targets were
met, however the plan does not vest until fiscal year 2012 and
2013. The fiscal year 2009 LTI performance targets were not met,
therefore no stock grants vested in fiscal year 2010.
Activity under the LTI Plan during the year ended
January 29, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value per Share
|
|
|
|
(Shares in thousands)
|
|
|
Non-vested at January 30, 2010
|
|
|
|
|
|
|
|
|
Granted
|
|
|
339
|
|
|
$
|
26.00
|
|
Changes in Performance Estimates
|
|
|
176
|
|
|
|
26.00
|
|
Vested
|
|
|
|
|
|
|
26.00
|
|
Forfeited
|
|
|
(10
|
)
|
|
|
26.00
|
|
|
|
|
|
|
|
|
|
|
Non-vested at January 29, 2011
|
|
|
505
|
|
|
$
|
26.00
|
|
|
|
|
|
|
|
|
|
|
In fiscal year 2011, the Company established a performance-based
long term incentive plan (the Stretch Incentive Plan
or SIP), under its 2010 Incentive Plan, in which
certain key executive officers are eligible to participate. The
performance period began on the first day of the third quarter
of fiscal year 2011 and ends on the last day of fiscal year
2013. The target award level for all eligible employees is set
at one times target total cash compensation. Executives can earn
up to a maximum of 150% of the target award for achievement
equal to or greater than 110% of the cumulative earnings before
interest and taxes goal and 103% of the sales goal. The SIP
award will be denominated in cash and settled in shares of
class B common stock. One-half of any SIP award earned will
be granted after the end of the performance period; the balance
of the award earned will be granted after the end of fiscal year
2014. The actual number of shares granted will be determined
based on the Companys stock price on the date the shares
are granted. As of January 29, 2011, the unrecognized
compensation cost related to non-vested compensation
arrangements granted under the SIP Plan was $10.2 million.
The Company granted one service-based stock award in fiscal year
2011. The service-based award granted ten thousand shares in
fiscal year 2011; five thousand were issued and vested in the
second quarter of fiscal year 2011, and the remaining five
thousand will be issued at the end of the service period, fiscal
year 2014. The Company granted two service-based stock awards in
fiscal year 2009. One service-based award had two vesting
periods, and issued five thousand shares at the end of each
service period. Because the associate was employed at
April 1, 2010, a total of ten thousand shares was issued.
The second service-based award granted approximately seven
thousand shares in fiscal year 2009. This service-based award
vested in fiscal year 2009. The weighted-average grant-date fair
value of shares granted under the service-based plans during
fiscal years 2011 and 2009 was $26.00 and $26.49, respectively.
The total fair value of service-based stock grants vested during
fiscal years 2011, 2010 and 2009 was $0.3 million,
$0.1 million, and $0.2 million, respectively. The
unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the service-based plan
as of January 29, 2011 was $0.1 million.
In fiscal year 2007, the Company established a five-year
performance-based incentive stock plan for the Chief Financial
Officer (the CFO Incentive Plan). Up to
11,765 shares are awarded under the plan at the end of each
fiscal year if an annual Company performance goal is met.
Performance goals are established annually for each of the five
one-year performance periods, which results in five separate
grant dates. The participant has the option to receive 30% of
the award in cash (liability portion) at the end of each of the
five one-year periods. The annual cash
56
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
award is based on the number of shares earned during the annual
period times the fair value of the Companys stock as of
the fiscal year end. The amounts under the liability portion of
the award vest ratably at the end of each fiscal year. The
remaining 70% of the award (equity portion) is granted in the
Companys stock. Shares granted under the equity portion
vest at the end of the five-year period. The award also includes
a cumulative five-year look-back feature whereby previously
unearned one-year awards were earned based on cumulative
performance. The shares that were awarded based on the fiscal
years 2011 and 2010 performance goal had a grant date fair value
of $26.00 and $11.90, respectively. The total fair value of
stock grants issued during fiscal year 2011 was
$0.2 million. The CFO Incentive Plan resulted in
compensation cost of $0.9 million and $0.1 million in
fiscal years 2011 and 2010, respectively. The CFO Incentive Plan
did not result in compensation cost in fiscal year 2009.
|
|
(17)
|
Purchase
Obligations
|
Purchase obligations include agreements to purchase goods or
services that are enforceable and legally binding and that
specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction.
Agreements that are cancelable without penalty have been
excluded. Purchase obligations relate primarily to purchases of
property and equipment, information technology contracts,
maintenance agreements and advertising contracts.
The annual amount and due dates of purchase obligations as of
January 29, 2011 are $74.4 million due within one
year, $67.9 million due within one to three years,
$28.2 million due within three to five years, and
$0.1 million due after five years.
Basic earnings per share (EPS) is computed by
dividing net income (loss) by the weighted-average number of
shares of common stock outstanding for the period. The diluted
EPS calculation includes the effect of contingently issuable
stock-based compensation awards with performance vesting
conditions as being outstanding at the beginning of the period
in which all vesting conditions are met. If all necessary
conditions have not been satisfied by the end of the period, the
contingently issuable shares included in diluted EPS are based
on the number of dilutive shares that would be issuable if the
end of the reporting period were the end of the contingency
period. Contingently-issuable non-vested share awards are
included in the diluted EPS calculation as of the beginning of
the period (or as of the date of the contingent share agreement,
if later).
The reconciliation of basic and diluted shares for fiscal years
2011, 2010, and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Basic Shares
|
|
|
46,921,875
|
|
|
|
48,450,401
|
|
|
|
49,010,509
|
|
Dilutive contingently-issuable non-vested share awards
|
|
|
83,840
|
|
|
|
|
|
|
|
|
|
Dilutive contingently-issuable vested share awards
|
|
|
5,818
|
|
|
|
2,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Shares
|
|
|
47,011,533
|
|
|
|
48,452,460
|
|
|
|
49,010,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal year ended January 31, 2009, the Company had a
net loss from operations; therefore, the inclusion of
contingently-issuable vested share awards would have an
anti-dilutive effect on the Companys calculation of
diluted loss per share. Accordingly, the diluted loss per share
equals basic loss per share for this period.
|
|
(19)
|
Fair
Value Measurements
|
Fair value is the price that would be received to sell an asset
or paid to transfer a liability (an exit price) in an orderly
transaction between market participants on the measurement date.
The Company uses a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers
include: Level 1, defined as observable inputs such as
quoted prices in active markets for identical assets and
liabilities; Level 2, defined as
57
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
inputs other than quoted prices in active markets that are
either directly or indirectly observable; and Level 3,
defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions.
As of January 29, 2011 and January 30, 2010, the
Company held an interest rate swap that is required to be
measured at fair value on a recurring basis. In the fourth
quarter of fiscal year 2010, all
available-for-sale
investment securities were contributed to charitable
organizations, and the auction rate security was reclassified to
held-to-maturity.
The Company has entered into interest rate swap agreements with
financial institutions to manage the exposure to changes in
interest rates. 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 values of
swap contracts are determined based on inputs that are readily
available in public markets or can be derived from information
available in publicly quoted markets. The Company has
consistently applied these valuation techniques in all periods
presented. Additionally, the change in the fair value of a swap
designated as a cash flow hedge is marked to market through
accumulated other comprehensive income (loss). Any swap that is
not designated as a hedging instrument is marked to market
through gain (loss) on investments.
The Companys assets and liabilities measured at fair value
on a recurring basis at January 29, 2011 and
January 30, 2010, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at January 29, 2011
|
|
Fair Value at January 30, 2010
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Interest rate swap liability
|
|
$
|
|
|
|
$
|
5,388
|
|
|
$
|
|
|
|
$
|
5,388
|
|
|
$
|
|
|
|
$
|
7,403
|
|
|
$
|
|
|
|
$
|
7,403
|
|
Certain assets are measured at fair value on a nonrecurring
basis; that is, the instruments are not measured at fair value
on an ongoing basis but are subject to fair value adjustments
only in certain circumstances (for example, when there is
evidence of impairment). The fair value measurements related to
the impairment of long-lived assets during fiscal year 2011 were
determined using expected future cash flow analyses. The Company
classifies these measurements as Level 3.
|
|
|
|
|
|
|
Property and Equipment
|
|
|
(Dollars in thousands)
|
|
Measured as of January 29, 2011:
|
|
|
|
|
Carrying amount
|
|
$
|
6,828
|
|
Fair value measurement
|
|
|
950
|
|
|
|
|
|
|
Impairment charge recognized
|
|
|
(5,878
|
)
|
|
|
|
|
|
|
|
|
|
|
Measured as of January 30, 2010:
|
|
|
|
|
Carrying amount
|
|
$
|
48,567
|
|
Fair value measurement
|
|
|
10,052
|
|
|
|
|
|
|
Impairment charge recognized
|
|
|
(38,515
|
)
|
|
|
|
|
|
58
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the carrying amounts and estimated
fair values of financial instruments not measured at fair value
in the consolidated balance sheets. These included the
Companys auction rate security and fixed rate long-term
debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, 2011
|
|
|
January 30, 2010
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate security
|
|
$
|
6,150
|
|
|
$
|
6,150
|
|
|
$
|
9,350
|
|
|
$
|
9,350
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (excluding capitalized leases)
|
|
$
|
517,780
|
|
|
$
|
520,036
|
|
|
$
|
667,780
|
|
|
$
|
647,287
|
|
As of January 29, 2011, the par value of the ARS was
$6.2 million and the estimated fair value was
$6.2 million, based on the amount received upon call by the
issuer in the first quarter of fiscal year 2012.
The fair value of the Companys fixed rate long-term debt
is estimated based on the current rates offered to the Company
for debt of the same remaining maturities.
|
|
(20)
|
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
January 29, 2011, there were 45,408,268 shares of
Class A common stock outstanding, 935,666 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.
On March 30, 2011, the Company declared a regular dividend
of $0.55 on each share of the Class A and Class B
Common Stock outstanding on that date. On April 1, 2010,
the Company declared a regular dividend of $0.40 and a special
one-time additional dividend of $0.40, and on April 1,
2009, the Company declared a regular dividend of $0.20, on each
share of the Class A and Class B Common Stock
outstanding on those dates.
On March 30, 2011, the Companys Board of Directors
approved a self-tender offer to purchase up to
2,200,000 shares of common stock at a price of $33.70 per
share. On April 1, 2010, the Companys Board of
Directors approved a self-tender offer to purchase up to
2,880,000 shares of common stock at a price of $26.00 per
share. The tender offer was initiated on April 21, 2010,
and on May 19, 2010, the Company accepted for purchase
1,482,822 shares of Class A and 494,719 shares of
Class B common stock for $51.4 million.
On April 1, 2009, the Companys Board of Directors
approved a self-tender offer to purchase up to
500,000 shares of common stock at a price of $11.90 per
share. The tender offer was initiated on April 22, 2009,
and on May 20, 2009, the Company accepted for purchase
102,128 shares of Class A and 139,536 shares of
Class B common stock for $2.9 million. Subsequently,
in a separate transaction, the Company accepted for purchase
258,336 shares of Class A common stock for
$3.1 million on June 24, 2009 from Mr. H.W. McKay
Belk, former President and Chief Merchandising Officer. The
number of shares purchased from Mr. Belk represents the
difference between the number of shares of common stock which
the Company offered to purchase in the tender offer that was
initiated on April 22, 2009 and the number of shares that
were tendered by stockholders and purchased by the Company. The
purchase price was the same as the purchase price offered by the
Company in the initial tender offer.
59
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(21)
|
Selected
Quarterly Financial Data
(unaudited)
|
The following table summarizes the Companys unaudited
quarterly results of operations for fiscal years 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 29,
|
|
|
October 30,
|
|
|
July 31,
|
|
|
May 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
1,175,109
|
|
|
$
|
746,556
|
|
|
$
|
787,697
|
|
|
$
|
803,913
|
|
Gross profit(1)
|
|
|
405,997
|
|
|
|
230,749
|
|
|
|
255,631
|
|
|
|
267,362
|
|
Net income (loss)
|
|
|
95,075
|
|
|
|
(4,239
|
)
|
|
|
12,449
|
|
|
|
24,343
|
|
Basic income (loss) per share
|
|
|
2.05
|
|
|
|
(0.09
|
)
|
|
|
0.27
|
|
|
|
0.50
|
|
Diluted income (loss) per share
|
|
|
2.04
|
|
|
|
(0.09
|
)
|
|
|
0.27
|
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 30,
|
|
|
October 31,
|
|
|
August 1,
|
|
|
May 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
1,097,109
|
|
|
$
|
727,988
|
|
|
$
|
760,261
|
|
|
$
|
760,894
|
|
Gross profit(1)
|
|
|
376,118
|
|
|
|
231,515
|
|
|
|
237,893
|
|
|
|
228,801
|
|
Net income
|
|
|
56,736
|
|
|
|
446
|
|
|
|
9,410
|
|
|
|
544
|
|
Basic income per share
|
|
|
1.17
|
|
|
|
0.01
|
|
|
|
0.19
|
|
|
|
0.01
|
|
Diluted income per share
|
|
|
1.17
|
|
|
|
0.01
|
|
|
|
0.19
|
|
|
|
0.01
|
|
|
|
|
(1) |
|
Gross profit represents revenues less cost of goods sold
(including occupancy, distribution and buying expenses) |
Per share amounts are computed independently for each of the
quarters presented. The sum of the quarters may not equal the
total year amount due to the impact of changes in average
quarterly shares outstanding.
60
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
The Companys management conducted an evaluation, under the
supervision and with the participation of its Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls
and procedures as of the end of the period covered by this
report. The Companys disclosure controls and procedures
are designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is
accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective.
Managements
Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting.
The Companys internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. The Companys internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America, and that the receipts and expenditures of the Company
are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of January 29,
2011, based on the framework set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Based on that
assessment, management concluded that, as of January 29,
2011, the Companys internal control over financial
reporting is effective based on the criteria established in the
Internal Control-Integrated Framework.
Managements assessment of the effectiveness of the
Companys internal controls over financial reporting as of
January 29, 2011, has been audited by KPMG, LLP, an
independent registered public accounting firm. Their attestation
report is included herein on the effectiveness of the
Companys internal control over financial reporting as of
January 29, 2011.
Changes
in Internal Control over Financial Reporting
There have been no changes in the Companys internal
control over financial reporting during the fourth fiscal
quarter ended January 29, 2011 that materially affected, or
are reasonably likely to materially affect, the Companys
internal control over financial reporting.
61
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Belk, Inc.:
We have audited Belk Inc. and subsidiaries internal
control over financial reporting as of January 29, 2011,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Belk Inc. and
subsidiaries management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Belk, Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial
reporting as of January 29, 2011, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Belk, Inc. and subsidiaries as of
January 29, 2011 and January 30 2010, 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 January 29, 2011, and
our report dated April 12, 2011, expressed an unqualified
opinion on those consolidated financial statements.
Charlotte, North Carolina
April 12, 2011
62
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information about the Companys directors and executive
officers is included in the sections entitled
Proposal One Election of Directors,
Belk Management Directors and Belk
Management Executive Officers of the Proxy
Statement for the Annual Meeting of the Stockholders to be held
on May 25, 2011 and is incorporated herein by reference.
The information about the Companys Audit Committee is
included in the section entitled Belk
Management Committees of the Board Audit
Committee of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 25, 2011 and is incorporated
herein by reference.
The information about the Companys Nominating and
Corporate Governance Committee is included in the section
entitled Belk Management Committees of the
Board Nominating and Corporate Governance
Committee of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 25, 2011 and is incorporated
herein by reference.
The information about the Companys compliance with
Section 16 of the Exchange Act of 1934, as amended, is
included in the section entitled Section 16(a)
Beneficial Ownership Reporting Compliance of the Proxy
Statement for the Annual Meeting of Stockholders to be held on
May 25, 2011 and is incorporated herein by reference.
In March 2004, the Company adopted a Code of Ethics for Senior
Executive and Financial Officers (the Code of
Ethics) that applies to the chief executive officer, chief
financial officer and chief accounting officer and persons
performing similar functions. The Code of Ethics was filed as an
exhibit to its Annual Report on
Form 10-K
for the fiscal year ended January 31, 2004 and is available
on the Companys website at www.belk.com.
|
|
Item 11.
|
Executive
Compensation
|
The information about executive and director compensation is
included in the sections entitled Compensation Discussion
and Analysis, Executive Compensation,
Director Compensation, Belk
Management Compensation Committee Report and
Compensation Committee Interlocks and Insider
Participation of the Proxy Statement for the Annual
Meeting of Stockholders to be held on May 25, 2011 and is
incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information about security ownership is included in the
section entitled Common Stock Ownership of Management and
Principal Stockholders of the Proxy Statement for the
Annual Meeting of Stockholders to be held on May 25, 2011
and is incorporated herein by reference.
Information about the equity compensation plans is included in
the section entitled Equity Compensation Plan
Information of the Proxy Statement for the Annual Meeting
of Stockholders to be held on May 25, 2011 and is
incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information about transactions with related persons is
included in the section entitled Certain
Transactions of the Proxy Statement for the Annual Meeting
of Stockholders to be held on May 25, 2011 and is
incorporated herein by reference.
63
The information about director independence is included in the
sections entitled Belk Management Corporate
Governance Independence of Directors and
Belk Management Committees of the Board
of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 25, 2011 and is incorporated herein by
reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information set forth under the section entitled
Summary of Fees to Independent Registered Public
Accountants, of the Proxy Statement for the
Registrants Annual Meeting of Shareholders to be held on
May 25, 2011, is incorporated herein by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) 1.
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income Years ended
January 29, 2011, January 30, 2010, and
January 31, 2009.
Consolidated Balance Sheets As of January 29,
2011 and January 30, 2010.
Consolidated Statements of Changes in Stockholders Equity
and Comprehensive
Income Years ended January 29, 2011,
January 30, 2010, and January 31,
2009.
Consolidated Statements of Cash Flows Years ended
January 29, 2011,
January 30, 2010, and January 31, 2009.
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules
All schedules are omitted because the required information is
shown in the financial statements or the notes thereto or
considered to be immaterial.
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
Companys Registration Statement on
Form S-4,
filed on March 5, 1998 (File
No. 333-42935)).
|
|
3
|
.2
|
|
Form of Second Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.2 of the
Companys Annual Report on
Form 10-K,
filed on April 15, 2004).
|
|
4
|
.1
|
|
Articles Fourth, Fifth and Seventh of the Amended and
Restated Certificate of Incorporation of the Company
(incorporated by reference to pages B-24 to B-33 of the
Companys Registration Statement on
Form S-4,
filed on March 5, 1998 (File
No. 333-42935)).
|
|
4
|
.2
|
|
Articles I and IV of the Second Amended and Restated
Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Companys Annual Report on
Form 10-K,
filed on April 15, 2004).
|
|
10
|
.1*
|
|
Belk, Inc. 2000 Incentive Stock Plan (incorporated by reference
to Exhibit 10.13 to the Registrants Annual Report on
Form 10-K,
filed on April 28, 2000).
|
|
10
|
.2*
|
|
Belk, Inc. Revised Executive Long Term Incentive Plan
(incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on
Form 10-Q,
filed on June 12, 2008).
|
|
10
|
.3*
|
|
Belk, Inc. CFO Incentive Plan (incorporated by reference to
Exhibit 10.1.3 of the Companys Annual Report on
form 10-K,
filed on April 13, 2006).
|
64
|
|
|
|
|
|
10
|
.4*
|
|
Belk, Inc. 2004 Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.2 of the
Companys Annual Report on
Form 10-K,
filed on April 15, 2004).
|
|
10
|
.5*
|
|
Belk, Inc. 2010 Incentive Stock Plan (incorporated by reference
to Exhibit A to the Companys Definitive Proxy
Statement, filed on April 21, 2010).
|
|
10
|
.6*
|
|
Belk, Inc.
2011-2013
Stretch Incentive Plan.
|
|
10
|
.7*
|
|
Belk, Inc. Annual Incentive Plan (incorporated by reference to
Exhibit 10.3 of the Companys Annual Report on
Form 10-K,
filed on April 14, 2005).
|
|
10
|
.8*
|
|
Transition Agreement, dated as of June 23, 2009, by and
between Belk, Inc. and H.W. McKay Belk (incorporated by
reference to Exhibit 10.1 of the Companys Quarterly
Report on
Form 10-Q,
filed on September 9, 2009).
|
|
10
|
.9
|
|
Note Purchase Agreement, dated as of August 31, 2007, by
and among Belk, Inc. and certain subsidiaries of Belk, Inc., as
obligors, and the purchasers referred to therein (incorporated
by reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K,
filed on September 7, 2007).
|
|
10
|
.10
|
|
Note Purchase Agreement, dated as of July 12, 2005, by and
among Belk, Inc. and certain subsidiaries of Belk, Inc., as
obligors, and the purchasers referred to therein (incorporated
by reference to the Companys Current Report on
Form 8-K
filed on July 18, 2005).
|
|
10
|
.11
|
|
Form of Third Amendment and Restated Credit Agreement, dated
November 23, 2010, by and among Wells Fargo Bank, National
Association, Bank of America, N.A. and the other lenders
referred to therein (incorporated by reference to
Exhibit 10.1 of the Companys Quarterly Report on
Form 10-Q,
filed on December 8, 2010).
|
|
10
|
.12
|
|
Note Purchase Agreement, dated as of November 23, 2010, by
and among Belk, Inc. and certain subsidiaries of Belk, Inc., as
obligors, and the purchasers referred to therein (incorporated
by reference to Exhibit 10.2 of the Companys
Quarterly Report on
Form 10-Q,
filed on December 8, 2010).
|
|
14
|
.1
|
|
Belk, Inc. Code of Ethics for Senior Executive and Financial
Officers (incorporated by reference to Exhibit 14.1 of the
Companys Annual Report on
Form 10-K,
filed on April 14, 2004).
|
|
21
|
.1
|
|
Subsidiaries.
|
|
23
|
.1
|
|
Consent of KPMG LLP.
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Identifies each management contract or compensatory plan
required to be filed. |
65
SIGNATURES
Pursuant to the 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 12th day of
April, 2011.
BELK, INC.
(Registrant)
|
|
|
|
By:
|
/s/ THOMAS
M. BELK, JR.
|
Thomas M. Belk, Jr.
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
April 12, 2011.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ THOMAS
M. BELK, JR.
Thomas
M. Belk, Jr.
|
|
Chairman of the Board, Chief Executive Officer
(Principal Executive Officer) and Director
|
|
|
|
/s/ H.
W. MCKAY BELK
H.
W. McKay Belk
|
|
Vice Chairman of the Board and Director
|
|
|
|
/s/ JOHN
R. BELK
John
R. Belk
|
|
President, Chief Operating Officer and Director
|
|
|
|
/s/ J.
KIRK GLENN, JR.
J.
Kirk Glenn, Jr.
|
|
Director
|
|
|
|
/s/ JERRI
L. DEVARD
Jerri
L. DeVard
|
|
Director
|
|
|
|
/s/ ELIZABETH
VALK LONG
Elizabeth
Valk Long
|
|
Director
|
|
|
|
/s/ THOMAS
C. NELSON
Thomas
C. Nelson
|
|
Director
|
|
|
|
/s/ JOHN
R. THOMPSON
John
R. Thompson
|
|
Director
|
|
|
|
/s/ JOHN
L. TOWNSEND, III
John
L. Townsend, III
|
|
Director
|
|
|
|
/s/ BRIAN
T. MARLEY
Brian
T. Marley
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
/s/ RODNEY
F. SAMPLES
Rodney
F. Samples
|
|
Vice President and Controller
(Principal Accounting Officer)
|
66