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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 56-2058574
(State of incorporation) (IRS Employer Identification No.)
2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code:
(704) 357-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Class A Common Stock, $0.01 per share None
Class B Common Stock, $0.01 per share None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common equity held by non-affiliates of
the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors are "affiliates" of the Registrant) as of April
15, 2000 (based on the book value per share of Common Stock of the Registrant,
as of January 29, 2000) was $299,304,444.60. 54,732,565 shares of common stock
were outstanding as of April 15, 2000, comprised of 53,770,664 shares of the
registrant's Class A Common Stock, par value $0.01, and 961,901 shares of the
registrant's Class B Common Stock, par value $0.01.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 24, 2000 are incorporated herein by reference in Part III.
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BELK, INC.
TABLE OF CONTENTS
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ITEM NO. PAGE NO.
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PART I
1. Business.................................................... 2
2. Properties.................................................. 9
3. Legal Proceedings........................................... 10
4. Matters Submitted to a Vote of Security Holders............. 10
PART II
5. Market Information for Registrant's Common Equity and 11
Related Stockholder Matters.................................
6. Selected Financial Data..................................... 11
7. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations...................................
7A. Quantitative and Qualitative Disclosure about Market Risk... 17
8. Financial Statements and Supplementary Data................. 18
9. Changes in and Disagreements with Accountants on Accounting 37
and Financial Disclosure....................................
PART III
10. Directors and Executive Officers of the Registrant.......... 37
11. Executive Compensation...................................... 37
12. Security Ownership of Certain Beneficial Owners and 37
Management..................................................
13. Certain Relationships and Related Transactions.............. 37
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on 37
Form 8-K....................................................
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THIS INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of the Company, may constitute "forward-looking
statements" within the meaning of the federal securities laws. Statements
regarding future events and developments and the Company's future performance,
as well as our expectations, beliefs, plans, estimates or projections relating
to the future, are forward-looking statements within the meaning of these laws.
You can identify these forward-looking statements through our use of words such
as "may", "will", "intend", "project", "expect", "anticipate", "believe",
"estimate", "continue" or other similar words. Forward looking statements
include information concerning possible or assumed future results from
merchandising, marketing and advertising in our stores and through the internet,
our ability to be competitive in the retail industry, anticipated benefits from
the consolidation of our operating divisions, the expected benefit of our new
systems and technology and the expected increase in our sales and revenues
generated through our proprietary charge card program. We have also made
statements in this document with respect to significant enhanced results that we
continue to expect from the Reorganization (as defined herein). Such expected
benefits include: long-term efficiencies, significant expense savings through
reduced taxes, improved cash management and more cost-effective financing, a
more intensified customer focus and a unified approach to marketing,
merchandising and advertising. In expecting such results, we have made certain
assumptions regarding our ability to consolidate functions and combine resources
to realize efficiencies, the extent of overlap among each of the Belk stores and
our ability to effectively manage the stores on a larger scale. These
forward-looking statements are subject to certain risks and uncertainties which
may cause our actual results to differ significantly from the results we discuss
in such forward-looking statements. We believe that these forward-looking
statements are reasonable; however, you should not place undue reliance on such
statements.
Risks and uncertainties that might cause our results to differ from those
we project in our forward-looking statements include, but are not limited to:
- general economic and business conditions, both nationally and in our
market areas;
- levels of consumer debt and bankruptcies;
- changes in interest rates;
- changes in buying, charging and payment behavior among our customers;
- the effects of weather conditions on seasonal sales in our market areas;
- seasonal fluctuations in net income due to increased consumer spending
during the holiday season, timing of new store openings, merchandise mix,
the timing and level of markdowns and historically low first quarter
results;
- competition among department and specialty stores and other retailers,
including luxury goods retailers, general merchandise stores, internet
retailers, mail order retailers and off-price and discount stores;
- the competitive pricing environment within the department and specialty
store industries;
- our ability to compete on merchandise mix, quality, style, service,
convenience and credit availability;
- the effectiveness of our advertising, marketing and promotional
campaigns;
- our ability to determine and implement appropriate merchandising
strategies, merchandise flow and inventory turnover levels;
- our realization of planned synergies and cost savings through our
reorganization and division consolidation;
- the effectiveness of our e-commerce strategies;
- our ability to contain costs;
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- our ability to accomplish our logistics and distribution strategies;
- changes in our business strategy or development plans;
- our ability to hire and retain key personnel;
- changes in laws and regulations, including changes in accounting
standards, tax statutes or regulations, environmental and land use
regulations, and uncertainties of litigation; and
- our ability to obtain capital to fund any growth or expansion plans.
Our other filings with the Securities and Exchange Commission may contain
additional information concerning the risks and uncertainties listed above, and
other factors you may wish to consider. Upon request, we will provide copies of
these filings to you free of charge.
Our forward-looking statements are based on current expectations and speak
only as of the date of such statements. We undertake no obligation to publicly
update or revise any forward-looking statement, even if future events or new
information may impact the validity of such statements.
PART I
ITEM 1. BUSINESS
GENERAL
Belk, Inc., together with its subsidiaries (collectively, the "Company" or
"Belk"), is the largest privately-owned department store business in the United
States, with total revenues of approximately $2.14 billion for the fiscal year
ended January 29, 2000. The Company and its predecessors have been successfully
operating department stores since 1888 by providing superior service and
merchandise that meets customers' needs for fashion, value and quality.
The Company operates 206 retail department stores in 13 states in the
southeastern United States. Belk stores seek to provide customers the
convenience of one-stop shopping, with a dominant merchandise mix and extensive
offerings of brands, styles, assortments and sizes. Belk stores sell top
national brands of fashion apparel, shoes and accessories for women, men and
children, as well as cosmetics, home furnishings, housewares, gifts and other
types of quality merchandise. The Company also sells exclusive private label
brands, which offer customers differentiated merchandise selections at better
values. Larger Belk stores may include hair salons, restaurants, optical centers
and other amenities.
Although the Company operates 48 Belk stores that exceed 100,000 square
feet in size, most Belk stores range in size from 50,000 to 80,000 square feet.
Most of the Belk stores are anchor tenants in major regional malls and shopping
centers, primarily in medium and smaller markets. In addition to department
stores, the Company operates two stores that sell limited selections of
cosmetics, hosiery and accessories for women under the "Belk Express" store
name. The Belk stores occupy in the aggregate approximately 16.369 million
square feet of space.
Management of the Belk stores is organized into four regional operating
divisions, with each unit headed by a division chairman and a division
president. Each division supervises a number of stores and maintains an
administrative office in the markets served by the division. Division offices
provide overall management and support for the Belk stores in their regions.
Belk Stores Services, Inc., a subsidiary of Belk, Inc., and its subsidiary Belk
Administration Company (collectively "BSS") coordinate the operations of Belk
stores on a company-wide basis by providing services to the Belk division
offices and stores, such as merchandising, marketing, advertising and sales
promotion, information systems, human resources, public relations, accounting,
real estate and store planning, credit, legal, tax, distribution and purchasing.
The Company has recently established a separate division, headed by a division
president, to develop and manage its e-commerce initiatives.
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The Company was incorporated in Delaware in 1997. The Company's principal
executive offices are located at 2801 West Tyvola Road, Charlotte, North
Carolina 28217-4500, and its telephone number is (704) 357-1000.
THE REORGANIZATION
In fiscal year 2000, Belk continued to realize the benefits of the merger
and reorganization of the former 112 Belk corporations into Belk, Inc., which
became effective on May 2, 1998 (the "Reorganization"). In addition, as of June
6, 1999, the Company consolidated its 13 operating divisions into four expanded
regional divisions headquartered in Charlotte and Raleigh, North Carolina,
Greenville, South Carolina and Jacksonville, Florida. The Reorganization and
division consolidation have created a more streamlined legal and operational
structure, and the Company expects to continue to realize significant expense
savings through more efficient operation and management as well as through
reduced taxes, improved cash management and more cost-effective financing.
BUSINESS STRATEGY
Belk's mission is to be the dominant department store in its markets by
selling merchandise to customers that meets their needs for fashion, selection,
value, quality and service. To achieve this mission, Belk's business strategy
includes six key elements: (i) a target customer focus; (ii) focused merchandise
assortments; (iii) compelling sales promotions; (iv) distinctive customer
service; (v) a winning store and market strategy; and (vi) a "clicks and mortar"
e-commerce strategy which supports and enhances the Company's department store
business and provides an additional distribution channel for certain categories
of merchandise.
Target Customer Focus. Belk's target customer is a 35-to-54-year-old
female who has a job and is career oriented; who has a family income of $35,000
to $75,000 per year; who buys for herself and her family; and who is style
conscious and seeks updated fashions and quality basic merchandise. The Company
plans to maintain its target customer focus by conducting ongoing research to
determine target customer needs, such as annual customer satisfaction surveys
and customer focus group studies. Belk believes that its commitment to meeting
the target customer's needs will produce profitable sales increases in women's
apparel, accessories and shoe categories and in other key merchandise areas,
including juniors apparel, accessories and shoes; men's and children's apparel,
accessories and shoes; cosmetics; home furnishings and household merchandise;
and gifts.
The Company intends to respond aggressively to changing customer shopping
and service needs through effective communication with customers and consumer
research. The Company also seeks to maximize customer convenience through
effective inventory management that ensures consistently high inventory levels
of basic and advertised merchandise, effective store layout, merchandise signing
and visual display, and quick and efficient transactions at the point of sale.
The Company also strives to continue to attract and retain well-qualified
associates who provide a high level of friendly, personal service to enhance the
customer's shopping experience.
Focused Merchandise Assortments. The Company has positioned itself through
its target customer focus to take advantage of significant sales growth
opportunities in its women's apparel (including special sizes), accessories and
shoe businesses. The Company has launched merchandise initiatives focused on
providing its target customer with in-depth assortments of updated, branded
fashions for career, casual and social occasions.
Compelling Sales Promotions. Belk's sales promotion strategy focuses on
promoting merchandise which the target customer desires, offering her more
compelling sale discounts, and providing adequate inventory to support all sales
promotion events.
Distinctive Customer Service. The Company's customer research has
determined that Belk generally differentiates itself from competitors because of
the high level of service its stores provide. Belk intends to
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continue its tradition of employing sales associates who are knowledgeable about
the merchandise they sell, approach customers promptly, help when needed and
provide quick checkout.
Winning Store and Market Strategy. The Company has an explicit
company-wide store and market strategy focused on maximizing return on
investment and improving its competitive position. The approach to investing in
new markets and expanding existing facilities includes a disciplined real estate
evaluation process using a balanced scorecard, rigorous financial measures, and
investment guidelines.
"Clicks and Mortar" E-Commerce Strategy. During fiscal year 2001, the
Company intends to implement an e-commerce strategy designed to utilize the
Internet to increase sales in its stores, to enhance the level of service and
information available to its customers and to provide customers the opportunity
to purchase items via the Internet to meet specific merchandise needs.
The Company also seeks to improve profitability through developing and
implementing initiatives designed to improve productivity and efficiency
throughout the organization. Such initiatives include continued development of a
"floor-ready" merchandise program that speeds delivery of merchandise to the
sales floor and the use of computer-based training programs. The Company is also
exploring the feasibility of business-to-business Internet applications to
improve and expedite various business processes.
GROWTH STRATEGY
The Company intends to selectively open new stores in new and existing
markets in order to increase sales, market share and customer loyalty. As the
consolidation of the department store industry continues, the Company will also
seek out and consider store acquisitions that offer opportunities and growth
into contiguous markets. The Company has invested approximately $416 million
over the past five years in building new stores and expanding and renovating
existing stores.
Management of the Company believes that there are significant opportunities
for growth in existing Belk markets where the Belk name and reputation are well
known. Although the Company will take advantage of opportunities to expand into
large markets, the Company will focus its expansion in medium-sized markets with
store units in the 50,000 to 80,000 square-foot size range.
In determining where to open new stores in the future, the Company's
management will evaluate demographic information such as income and education
levels, age and occupation, availability of prime real estate locations,
existing and potential competitors and the number of Belk stores in the same or
contiguous market areas. Management will also analyze store and market sales and
income data and seek to identify economies of scale available in advertising,
distribution and other expenses as part of its process for determining new store
sites and markets for expansion.
In fiscal year 2000, the Company opened five new stores that have a
combined size of approximately 245,000 square feet of space, and expanded five
existing stores with a total combined new space of approximately 195,000 square
feet. In fiscal year 2001, Belk plans to open eight new stores that will have a
combined space of approximately 555,000 square feet, as well as major expansions
of five existing stores with a total combined new space of approximately 113,000
square feet.
New stores and major expansions opened in fiscal year 2000 include:
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NEW STORES NEW OR EXISTING
LOCATION SIZE (IN SQ. FT.) DATE OF OPENING MARKET
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Clinton, N.C., Sampson Crossing........ 48,497 March 17, 1999 Existing
Morganton, N.C., Fiddler's Run......... 49,473 March 17, 1999 Existing
Mt. Pleasant, S.C., Mount Pleasant
Towne Centre......................... 61,317 April 21, 1999 Existing
Paragould, Ark......................... 33,579 October 13, 1999 Existing
Greenville, Texas, Crossroads Mall..... 52,775 October 20, 1999 Existing
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EXPANSIONS
SIZE (IN SQ. FT.) OF NEW OR EXISTING
LOCATION EXPANSION SPACE DATE OF OPENING MARKET
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Bluefield, W. Va., Mercer Mall....... 37,000 August 4, 1999 Existing
Jacksonville, Fla., Regency Square... 64,836 August 25, 1999 Existing
Kill Devil Hills, N.C., Dare
Center............................. 12,151 October 27, 1999 Existing
Charlottesville, Va., Fashion
Square............................. 60,007 October 20, 1999 Existing
Southern Pines, N.C., Pinecrest
Plaza.............................. 22,204 November 17, 1999 Existing
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New stores and major store expansions scheduled for completion in fiscal
year 2001 include:
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NEW STORES
NEW OR EXISTING
LOCATION SIZE (IN SQ. FT.) DATE OF OPENING MARKET
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Snellville, Ga., Snellville Pavilion... 58,364 March 15, 2000 New
Charleston, S.C., Citadel Mall......... 179,940 March 22, 2000 Existing
Fayetteville, Ga., Fayette Pavilion.... 65,927 April 12, 2000 Existing
Camden, S.C., Springdale Plaza......... 52,289 May 3, 2000 Existing
Spring Hill, Fla., Coastal Way......... 57,927 August 9, 2000 New
Wilkesboro, N.C. ...................... 50,245 October 11, 2000 Existing
Lady Lake, Fla., La Plaza Grande --
The Villages......................... 40,810 November 1, 2000 New
Deland, Fla., West Volusia Regional.... 48,319 November 15, 2000 New
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EXPANSIONS
SIZE (IN SQ. FT.) OF NEW OR EXISTING
LOCATION EXPANSION SPACE DATE OF OPENING MARKET
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Hilton Head, S.C., The Mall at
Shelter Cove....................... 30,752 April 14, 2000 Existing
Boone, N.C., Boone Mall.............. 12,049 June 7, 2000 Existing
Aiken, S.C., Aiken Mall.............. 10,540 August 23, 2000 Existing
Anderson, S.C., Anderson Mall........ 53,790 October 11, 2000 Existing
Statesboro, Ga., Statesboro Mall..... 6,125 November 15, 2000 Existing
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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 men, women and children, as well as
cosmetics, home furnishings, housewares, gift and guild, jewelry, candy and
other types of department store merchandise.
The Company's merchandise initiatives are focused on meeting the needs of
its target customer and boosting profitable sales in women's apparel,
accessories and shoes. The goal is to position Belk stores as the leaders in
their markets in providing updated career and casual fashion assortments with
greater depth of style, selection and value. The Company's strategic merchandise
initiatives produced substantial sales increases in women's apparel during
fiscal year 2000 and have begun to improve results throughout other areas of the
business. Double-digit sales increases were achieved in several women's apparel
areas, including better career and casual wear, petite sportswear and large size
sportswear.
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Belk stores offer complete assortments of the most desirable national
brands. Most Belk stores are the leading sellers in their markets of such top
"mega-brands" as Liz Claiborne, Lauren by Ralph Lauren, Tommy Hilfiger, Estee
Lauder, Clinique, Lancome, Nine West, Fossil, Polo Ralph Lauren, Calvin Klein,
Bali, Vanity Fair and others. The Company has enjoyed excellent long-time
relationships with many top apparel and cosmetics suppliers and is often the
exclusive distributor of apparel, accessories and cosmetic lines in its markets.
This enhances the Belk stores' image as a fashion leader and enables Belk stores
to offer customers exclusive and original styles that are not generally
available in other stores in their markets.
Belk stores also offer a number of exclusive private label brands that
provide customers with merchandise that is comparable in quality and style with
national brands at substantial savings. Belk private label brands, which include
Kim Rogers, Madison Studio, J. Khaki, Meeting Street and Home Accents, provide
outstanding value for customers and differentiate Belk from its competitors.
The Company intends to keep fresh seasonal inventory in stock at stores
throughout the year and to maintain inventory levels that provide optimum
in-stock positions. Belk stores place special emphasis on maintaining high
levels of inventory of advertised and basic items to ensure that consumers may
buy the merchandise they want.
MARKETING
The Company's primary marketing strategy emphasizes direct communications
with customers through personal contact and the use of multi-faceted
advertising, marketing and sales promotion programs. This strategy encompasses
extensive mass media print and broadcast advertising, direct mailings to charge
customers, comprehensive store visual merchandising and signing, in-store
special events (e.g., trunk shows, celebrity and designer appearances) and
magazine and billboard advertising. The Company also maintains a web site at
www.Belk.com that provides the latest information about the Company and its
merchandise offerings and sales promotions and permits access to the Company's
bridal registry. The site received millions of hits during the past year from
individuals throughout Belk's market area and beyond.
Major sales promotions and sales events are planned and implemented in Belk
stores throughout the year. The Company regularly produces advertising circulars
that are distributed to millions of customers via newspaper inserts or direct
mailings, and suppliers fund the cost of many of these mailings in part or in
whole. The Company intends to use creative advertising that effectively
communicates the Company's merchandise offerings, fashion image and reputation
for superior service to store customers in a variety of media.
Belk intends to employ its strategic marketing initiatives and strategies
in order to develop and enhance the equity of the Belk brand, strengthen its
relationship with and become the desired destination for the target customer,
and create and strengthen "one-to-one" relationships with customers.
Belk Customer Database Marketing Program. Belk's "one-to-one" relationship
marketing program allows the Company to communicate and advertise more
effectively with customers based on their particular merchandise needs and
shopping preferences. A computerized customer database provides information on
the purchasing behavior and shopping patterns of Belk charge customers as well
as those who shop with Visa and MasterCard. This enables the Company to
customize its advertising and sales promotions to attract target customers.
Moreover, the program has substantially reduced the costs and improved the
effectiveness of the Company's direct mail advertising. The Company also intends
to integrate its customer relationship management efforts with its e-commerce
initiatives described below.
The Company will carefully monitor marketing and sales promotion efforts
and media mix to ensure that customers are being reached effectively and
efficiently and that stores generate the maximum return possible on their
advertising expenditures.
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E-COMMERCE
Belk is moving quickly to take advantage of the opportunities that the
Internet is creating for customers, employees, vendors and suppliers. The
Company has established an e-commerce division, headed by a president, to
develop and implement an overall electronic business plan. The plan will focus
on specific Internet, Extranet and Intranet strategies that will streamline
business processes, improve communications, and enable the Company to expand its
merchandise offerings and service to customers, both within and outside of its
current market areas.
The Company plans to aggressively pursue business-to-consumer and
business-to-business opportunities that will enhance its competitive position,
improve customer service and generate the greatest return on investment. The
e-commerce strategies will focus on integrating the Internet into the Company's
existing bricks and mortar business and establishing it as an additional
electronic channel for serving customers and meeting their shopping needs. The
e-commerce strategies also aim to generate new customers and increase the amount
that current customers are spending with Belk.
During fiscal year 2001, the Company intends to redesign its web site and
commence on-line selling of merchandise. The Company will utilize a solutions
based approach to its on-line merchandise offerings that will allow customers to
select merchandise that meets their specific fashion and lifestyle needs. The
Company's approach will also emphasize dynamic marketing, personalized
assortments and targeted selling.
BELK PROPRIETARY CHARGE PROGRAMS
The Company offers its customers the convenience of paying for their
purchases on credit using a variety of proprietary charge payment programs.
These programs include:
- 30-day revolving account;
- interest-free 30-60-90 day account;
- interest-free Table Top plan (for china, crystal, silver and other gift
purchases); and
- interest-free Fine Jewelry plan.
The Company intends to promote use of the Belk charge cards by existing
Belk charge customers, as well as to increase the number of new Belk
cardholders, through targeted marketing campaigns and active solicitation
efforts within Belk stores. The "BelkSelects" affinity program for top Belk
charge customers is designed to attract profitable new customers, increase sales
from existing customers and increase the active Belk credit card account base.
The program offers a number of special benefits and services, such as free
deluxe gift wrapping and free basic alterations, to charge customers who have
made Belk charge purchases totaling $800 or more in the past 12 months.
The Company's charge cards are issued through Belk National Bank, a
subsidiary of the Company located in Lawrenceville, Georgia, which began
operations on May 3, 1999. Belk National Bank has enabled the Company to
standardize the interest rate terms of Belk charge customer accounts across the
13 states in which Belk operates and competitively set interest rates and fees
comparable to other key retailers.
BUYING
The Company's highly qualified and experienced buyers and merchants
carefully monitor the merchandise mix of the Belk stores to maximize sales and
profitability. The planning process involves a continuous review of merchandise
needs by department and demand center, as well as on an individual store basis.
Historically, Belk stores have remained in touch with local customers and
markets by using a decentralized buying process. In order to achieve a more
efficient buying process, however, the Company evolved to a buying process
conducted by regional division offices. Buyers in the regional division offices
work together with corporate buyers at BSS and local store personnel to ensure
that each Belk store receives merchandise assortments that meet the needs of
local customers.
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As part of its target customer strategy, the Company is continuing to
implement changes in its merchandising processes to strengthen and streamline
its buying and assortment planning to ensure the effective execution of the
Company's strategic merchandising initiatives. A new team buying process and a
new assortment planning process are being implemented in which buying teams
comprised of BSS and division merchants will provide overall planning and
direction for each of the Company's key merchandise areas.
SYSTEMS AND TECHNOLOGY
Belk continued to make significant investments in technology and
information systems in order to drive sales growth, improve operating efficiency
and support its overall business strategy. A total of approximately $42 million
was invested in information technology during fiscal year 2000.
The Company has placed a priority on the development and implementation of
computerized systems to support its merchandising, sales floor, inventory and
logistics initiatives. These systems enable Belk management to quickly identify
sales trends, order, track and distribute merchandise, manage markdowns and
monitor merchandise mix and inventory levels. Examples of new or enhanced
systems that were in development or implementation phases in fiscal year 2000
include:
- Price Look-up -- permits associates to look up permanent prices at
the point of sale and enables the implementation of "floor ready"
initiatives;
- Auto Replenishment -- improves inventory turns by automatically
alerting suppliers when merchandise inventories need to be
replenished;
- Inventory Scanning -- enables associates to take stock counts
electronically to update unit and financial information;
- Floor Ready Systems -- new system enhancements to support the
Company's "floor-ready" initiatives will improve cycle time and
in-stock position, allow for faster merchandise replenishment and
enable the Company to manage the supply chain more effectively and
move the latest fashions and styles onto the sales floor as quickly
as possible;
- Gift Card -- the Company's new Gift Card, scheduled to be introduced
to Belk customers in the second quarter of fiscal year 2001, will
replace existing paper gift checks with an electronic stored value
card, which will improve efficiency and permit the issuance of
electronic credits in lieu of cash refunds on returns without sales
receipts;
- Financial System -- includes new general ledger, expense payables
and budgeting systems, which will improve the efficiency of the
accounting and budgeting processes and provide management with more
timely and useful financial reporting and analysis; and
- Computer-Based Training (CBT) -- computer-based training in all
stores, which provides basic orientation and point-of-sale register
training for all newly hired associates in all Belk stores.
NON-RETAIL BUSINESSES
Several of the Company's subsidiaries engage in businesses that indirectly
or directly support the operations of the retail department stores. The
non-retail businesses include United Electronic Services, Inc. ("UES"), a wholly
owned subsidiary of Belk, Inc., which provides equipment maintenance services,
primarily on cash registers, but also on other equipment. UES provides such
services to the Company pursuant to contracts with BSS.
INDUSTRY AND COMPETITION
The Company operates retail department stores in the highly competitive and
dynamic retail apparel industry. Management of the Company believes that the
principal competitive factors for retail department store operations include
merchandise selection, quality, value, customer service and convenience. The
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Company believes its stores are strong competitors in all of these areas. The
Company's primary competitors are traditional department stores, mass
merchandisers, national apparel chains, designer boutiques, individual specialty
apparel stores and direct marketing firms, including Federated Department
Stores, Inc., Wal-Mart Stores, Inc., The May Department Stores Company,
Dillard's, Inc., Sak's, Inc., Sears Roebuck & Co. and J.C. Penney Company, Inc.
TRADEMARKS AND SERVICE MARKS
BSS owns all of the principal trademarks and service marks now used by the
Company, including "Belk" and "All for You". These marks are registered with the
United States Patent and Trademark Office. The term of each of these
registrations is generally ten years, and they are generally renewable
indefinitely for additional ten-year periods, so long as they are in use at the
time of renewal. Most of the trademarks, trade names and service marks employed
by the Company are used in the Company's private label program. The Company
intends to vigorously protect its trademarks and service marks and initiate
appropriate legal action whenever necessary.
ASSOCIATES
As of January 29, 2000, the Company had approximately 21,000 full-time and
part-time associates. Because of the seasonal nature of the retail business, the
number of associates 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 is represented by unions or
subject to collective bargaining agreements.
ITEM 2. PROPERTIES
STORE LOCATIONS
As of January 29, 2000, the Company operated a total of 206 retail stores
in the following states:
<TABLE>
<S> <C> <C>
Alabama -- 3 Maryland -- 2 Tennessee -- 3
Arkansas -- 2 Mississippi -- 1 Texas -- 2
Florida -- 17 North Carolina -- 75 Virginia -- 19
Georgia -- 38 South Carolina -- 38 West Virginia -- 2
Kentucky -- 4
</TABLE>
Belk stores are located in regional malls (118), strip shopping centers
(85) and as freestanding units (3). Approximately 89% of the gross square feet
of the typical Belk store is devoted to selling space to ensure maximum
operating efficiencies. A majority of the stores are either new or have
undergone renovations within the past ten years. The new and renovated stores
feature the latest in retail design, including attractive exteriors and
interiors. The interiors are designed to create an exciting, comfortable and
convenient shopping environment for customers. They include the latest lighting
and merchandise fixturing, as well as quality decorative floor and wall
coverings and other special decor. The store layout is designed for ease of
shopping and store signing is used to help customers identify and locate
merchandise.
As of January 29, 2000, the Company owned 61 store buildings, leased 139
store buildings under operating leases, and owned 10 store buildings under
ground leases. The typical operating lease has an initial term of between 15 and
20 years, with four renewal periods of five years each, exercisable at the
Company's option.
The typical ground lease has an initial term of 20 years, with a minimum of
four renewal periods of five years each, exercisable at the Company's option.
9
<PAGE> 12
NON-STORE FACILITIES
The Company also owns or leases the following distribution centers,
division offices and headquarters facilities:
<TABLE>
<CAPTION>
BELK PROPERTY LOCATION OWN/LEASE
- ------------- --------------------- ---------
<S> <C> <C>
Belk, Inc. Jacksonville, Fla. Division Office..... Jacksonville, FL Lease
Belk, Inc. Raleigh, N.C. Division Office.......... Raleigh, NC Lease
Belk, Inc. Greenville, S.C. Division Office....... Greenville, SC Own
BSS/BAC Offices -- LakePointe..................... Charlotte, NC Own
Belk Distribution Center.......................... Fayetteville, NC Lease
Belk Distribution Center.......................... Morrisville, NC Own
Belk Distribution Center.......................... Greensboro, NC Lease
Belk Distribution Center.......................... Mauldin, SC Lease
Belk Distribution Center.......................... Summerville, SC Lease
Belk Distribution Center.......................... Charlotte, NC Lease
</TABLE>
OTHER
The Company owns various other real property, including primarily former
store locations and division offices. Such property is not material, either
individually or in the aggregate, to the Company's results of operations or
financial condition.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in various legal actions that are incidental to its
business. Management of the Company believes that none of the various actions
and proceedings involving the Company will have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
fourth quarter of the fiscal year ending January 29, 2000.
10
<PAGE> 13
PART II
ITEM 5. MARKET INFORMATION FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Neither the Class A Common Stock, par value $.01 per share (the "Class A
Common Stock") nor the Class B Common Stock, par value $.01 per share (the
"Class B Common Stock") was listed or traded on a public market during any part
of fiscal year 2000. There is no established public trading market for either
class of the Registrant's common stock. As of April 15, 2000, there were
approximately 564 holders of record of the Class A Common Stock and 108 holders
of record of Class B Common Stock. On March 29, 2000, the Company declared a
dividend of $.25 on each share of the Class A and Class B Common Stock
outstanding on that date. The amount of dividends paid out with respect to
fiscal year 2001 and each subsequent year will be determined at the sole
discretion of the Board of Directors based upon the Company's results of
operation, financial condition, cash requirements and other factors deemed
relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME DATA:
Revenues............................. $2,144,674 $2,056,173 $1,945,067 $1,747,316 $1,662,878
Cost of goods sold................... 1,449,077 1,398,446 1,325,118 1,194,936 1,141,070
Depreciation and amortization........ 65,117 57,141 54,081 51,021 50,832
Income from operations............... 141,579 127,189 107,319 96,908 70,825
Income from continuing operations.... 72,706 57,974 59,672 64,497 42,518
Income (loss) from discontinued
operations*........................ (1,543) -- (5,272) 36,873 1,298
Net income........................... 71,163 56,970 54,400 101,370 43,816
Basic income per share:
From continuing operations........... 1.31 1.02 N/A N/A N/A
Net income........................... 1.28 1.01 N/A N/A N/A
Cash dividends per share............. 0.235 N/A N/A N/A N/A
SELECTED BALANCE SHEET DATA:
Accounts receivable, net............. 340,061 351,143 353,509 335,914 263,161
Merchandise inventory................ 499,285 482,247 431,169 425,415 365,902
Working capital...................... 591,729 627,628 497,146 442,753 423,543
Total assets......................... 1,629,501 1,593,918 1,348,502 1,358,900 1,260,979
Short-term debt...................... 7,854 4,264 59,323 187,272 116,327
Long-term debt and capitalized lease
obligations........................ 405,357 403,713 299,582 216,010 178,441
Stockholders' equity................. 822,768 787,935 703,785 672,016 748,706
SELECTED OPERATING DATA:
Number of stores at end of period.... 206 212 218 250 216
Comparable store net revenue
increases (decreases).............. 2.4% 2.8% 1.2% 2.3% (2.3)%
</TABLE>
- ---------------
All years include 52 weeks (364 days), with the exception of the fiscal year
ended February 3, 1996, which includes 368 days.
(*) Income (loss) from discontinued operations represents the operating results
and gain on the sale of BAC, Inc., which owned and operated a mall in
Charlotte, North Carolina, and the operating results of TAGS, LLC, which
owned and operated outlet stores.
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In April 1998, the shareholders of the 112 companies previously comprising
the Belk Companies (the "Predecessor Companies") approved the Reorganization of
the Predecessor Companies into the Company effective on May 2, 1998. The
following is a discussion of the historical consolidated or combined financial
condition and results of operations of the Company and the Predecessor
Companies, for each of the fiscal years ended January 29, 2000, January 30,
1999, and January 31, 1998, which should be read in conjunction with the
financial statements, including the notes thereto, included elsewhere in this
Form 10-K. The results of operations for the fiscal year ended January 30, 1999
include three months of pre-Reorganization historical combined results of the
Predecessor Companies and nine months of post-Reorganization consolidated
results of the Company. Prior to the Reorganization, the Belk-Simpson Company,
Greenville, South Carolina ("Belk-Simpson") was included in the combined
financial statements as a 37% equity investment. Subsequent to the
Reorganization, Belk-Simpson is included in the consolidated financial
statements as a wholly-owned subsidiary. References herein to the "Company"
include the Belk Companies as predecessors to the Company and references herein
to consolidated financial statements include combined financial statements of
the Predecessor Companies for periods prior to the Reorganization.
GENERAL
Discontinued Operations. In October 1997, the Company announced the
closing of the TAGS outlet stores (the "TAGS Stores"), that were operated by
TAGS Stores, LLC ("TAGS"). The operating results of these entities are presented
as discontinued operations.
Certain Components of Net Income. Revenues include sales from retail
operations and net revenues from leased departments. Cost of goods sold include
cost of merchandise, buying, and occupancy expense. Selling, general and
administrative expense ("SG&A") includes payroll, advertising, credit and
depreciation expense.
THE REORGANIZATION
In fiscal year 2000, Belk continued to realize the benefits of the merger
and reorganization of the former 112 Belk corporations into Belk, Inc., which
became effective on May 2, 1998 (the "Reorganization"). In addition, as of June
6, 1999 the Company consolidated its thirteen operating divisions into four
expanded regional divisions headquartered in Charlotte and Raleigh, North
Carolina, Greenville, South Carolina and Jacksonville, Florida. The
Reorganization and division consolidation have created a more streamlined legal
and operational structure, and the Company expects to continue to realize
significant expense savings through more efficient operation and management as
well as through reduced taxes, improved cash management and more cost-effective
financing.
12
<PAGE> 15
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to revenues of certain items in the Company's statements of income
and other pertinent financial and operating data.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
SELECTED FINANCIAL DATA
Revenues.............................................. 100.0% 100.0% 100.0%
Cost of goods sold.................................... 67.6 68.0 68.1
Selling, general and administrative expenses.......... 25.5 25.8 26.0
Income from operations................................ 6.6 6.2 5.5
Interest expense, net................................. 1.7 1.8 1.8
Income taxes.......................................... 1.8 1.7 1.5
Income from continuing operations..................... 3.4 2.8 3.1
Discontinued operations............................... (0.1) 0.0 (0.3)
Net income............................................ 3.3 2.8 2.8
SELECTED OPERATING DATA:
Gross square footage (in thousands)................... 16,369 16,225 16,217
Store revenues per gross sq. ft....................... $131 $127 $120
Comparable store net revenue increases................ 2.4% 2.8% 1.2%
Number of stores
Opened.............................................. 5 8 5
Acquired............................................ 0 7 0
Closed.............................................. (11) (21) (37)
Total -- end of period...................... 206 212 218
</TABLE>
COMPARISON OF FISCAL YEARS ENDED JANUARY 29, 2000 AND JANUARY 30, 1999
Revenues. The Company's revenues in fiscal year 2000 increased 4.3%, or
$88.5 million, to $2.14 billion from $2.06 billion in fiscal year 1999. The
increase resulted primarily from a 2.4% increase in revenue from comparable
stores and $25.9 million of additional revenues from new, expanded and remodeled
stores over the prior year revenues for those locations.
Cost of Goods Sold. As a percentage of revenues, cost of goods sold
decreased to 67.6% in fiscal year 2000 as compared to 68.0% in fiscal year 1999.
The reduction resulted from decreases in buying costs due to a more efficient
purchasing structure.
Selling, General and Administrative Expenses. SG&A expenses were $546.4
million in fiscal year 2000, compared to $530.5 million in fiscal year 1999, an
increase of 3.0%. As a percentage of revenues, SG&A decreased to 25.5% in fiscal
year 2000 from 25.8% in fiscal year 1999. The decrease is attributable to
reductions in personnel costs due to improved operating efficiencies and
increases in finance charge income and reduced bad debt losses on the Company's
proprietary credit card receivables partially offset by $6.4 million of
incremental costs incurred during fiscal year 2000 in connection with
establishing the Company's four expanded regional divisions. These incremental
costs consist primarily of one-time expenses for hiring and relocating employees
and converting the Company's systems to support the expanded regional divisions.
During fiscal years 2000 and 1999 the Company's bad debt expense, net of
recovery associated with the issuance of credit on the Belk proprietary credit
cards, was $10.1 million and $12.2 million, respectively. During fiscal years
2000 and 1999, finance charge income on the outstanding Belk proprietary credit
card receivables was $50.4 million and $41.9 million, respectively. Accounts
receivable management and collection services expenses for fiscal years 2000 and
1999 were $21.6 million and $21.5 million, respectively.
Restructuring Charge. For fiscal year 2000, the Company recorded a $7.6
million charge in connection with the consolidation of its thirteen operating
divisions into four expanded regional divisions. The charge
13
<PAGE> 16
consisted of $3.9 million of employee severance costs and $3.7 million related
to the disposal of excess assets in the closing divisions.
Income From Operations. The Company's income from operations for fiscal
year 2000 includes a $7.6 million restructuring charge related to the
consolidation of its operating divisions and $6.4 million of incremental SG&A
expenses associated with establishing its four expanded regional divisions.
Excluding the impact of these additional costs, income from operations for
fiscal year 2000 increased $28.4 million, or 22.3% over fiscal year 1999.
Discontinued Operations. During fiscal year 2000, the Company recognized
an after-tax loss on disposal of discontinued operations of $1.5 million as a
result of increases in the estimated costs associated with the disposal of the
TAGS leased property.
Net Income. Net income increased by $14.2 million in fiscal year 2000
compared to fiscal year 1999. However, fiscal year 2000 net income includes a
$4.8 million restructuring charge, net of income taxes of $2.8 million, $4.0
million of incremental SG&A expenses, net of income taxes of $2.4 million
associated with establishing the Company's four expanded regional divisions and
a $1.5 million loss on disposal of discontinued operations, net of income taxes
of $.9 million. Fiscal year 1999 included a $1.0 million extraordinary charge,
net of income taxes of $.7 million. Excluding these items, net income for fiscal
year 2000 increased $23.5 million, or 40.5% over fiscal year 1999.
COMPARISON OF FISCAL YEARS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998
Revenues. The Company's revenues in fiscal year 1999 increased 5.7%, or
$111.1 million, to $2.06 billion from $1.95 billion in fiscal year 1998. The
increase was partially due to including the Belk-Simpson revenues in the
consolidated operating results subsequent to the Reorganization, which
contributed $55 million, or 2.7%, in revenues for fiscal year 1999. Excluding
the impact of the Reorganization, revenues for the fiscal year 1999 increased
2.9%, or $56 million, over fiscal year 1998. On a comparable store basis,
revenues increased 2.8% for the year.
Cost of Goods Sold. As a percentage of revenues, cost of goods sold for
fiscal year 1999 was 68.0% compared to 68.1% for fiscal year 1998. Fiscal year
1999 cost of goods sold was negatively impacted by higher levels of markdowns
compared to the markdowns during fiscal year 1998, due to additional markdowns
associated with the stores obtained from Dillard's, Inc. and higher markdowns in
existing stores designed to promote sales in response to a weak retail
environment and unseasonably warm weather during the fall of 1998. The higher
markdown levels were offset by decreases in buying costs due to a more efficient
purchasing structure.
Selling, General and Administrative Expenses. SG&A expenses were $530.5
million in fiscal year 1999, compared to $506.4 million in fiscal year 1998, an
increase of 4.8%. As a percentage of revenues, SG&A decreased to 25.8% in fiscal
year 1999 from 26.0% in fiscal year 1998. The decrease is attributable to
reductions in personnel costs due to improved operating efficiencies, partially
offset by decreases in finance charge income on the Company's proprietary credit
card receivables.
During fiscal years 1999 and 1998 the Company's bad debt expense, net of
recovery associated with the issuance of credit on the Belk proprietary credit
cards, was $12.2 million and $13.2 million, respectively. During fiscal years
1999 and 1998, finance charge income on the outstanding Belk proprietary credit
card receivables was $41.9 million and $44.3 million, respectively. Accounts
receivable management and collection services expenses for fiscal years 1999 and
1998 were $21.5 million and $20.5 million, respectively.
Income From Operations. Income from operations increased $19.9 million, or
18.5%, to $127.2 million in fiscal year 1999, as compared to $107.3 million in
fiscal year 1998. The increase resulted from increases in revenues and decreases
in SG&A expenses as a percentage of revenues.
The Company's income from operations in fiscal year 1999 was negatively
impacted by approximately $4 million of additional costs incurred in connection
with the store exchange with Dillard's, Inc. These costs consist primarily of
additional markdowns, costs associated with the closing of the surrendered
stores, costs of
14
<PAGE> 17
converting the acquired stores and costs of preparing the Company's Summerville,
South Carolina distribution center for the additional volume of merchandise
processed for the acquired stores.
Interest Expense, Net. Interest expense, net increased $1.4 million, or
4.2%, in fiscal year 1999 compared to fiscal year 1998. The increase resulted
primarily from higher average outstanding borrowings offset by reduced effective
interest rates due to the refinancing of higher rate debt facilities. The
borrowings were utilized to fund the Company's capital expenditures and to
repurchase stock from stockholders exercising their appraisal rights in
connection with the Reorganization.
Net Income. Net income increased by $2.6 million in fiscal year 1999
compared to fiscal year 1998. However, fiscal year 1998 net income includes
$15.9 million of gains on the sale of investments by Belk-Simpson that the
Company recognized as equity in earnings of unconsolidated entities. Excluding
the impact of the Belk-Simpson investment gains, net income for fiscal year 1999
increased $18.5 million, or 48.1%, over fiscal year 1998.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its revenues, operating income and net
income. The highest revenue period for the Company is the fourth quarter, which
includes the Christmas selling season. A disproportionate amount of the
Company's revenues and a substantial amount of the Company's operating and net
income are realized during the fourth quarter. If for any reason the Company's
revenues were below seasonal norms during the fourth quarter, the Company's
annual results of operations could be adversely affected. The Company's
inventory levels generally reach their highest in anticipation of increased
revenues during these months.
The following table illustrates the seasonality of revenues by quarter as a
percentage of the full year for the fiscal years indicated.
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
First quarter............................................... 23.1% 21.5% 22.8%
Second quarter.............................................. 22.0 21.7 21.9
Third quarter............................................... 22.5 22.9 23.4
Fourth quarter.............................................. 32.4 33.9 31.9
</TABLE>
The Company's quarterly results of operations could also fluctuate
significantly as a result of a variety of factors, including the timing of new
store openings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash on hand, cash flow from
operations and borrowings under debt facilities. The Company's primary debt
facilities consist of a $300 million variable rate note, a $125 million ten-year
variable rate bond facility and a $150 million seasonal line of credit
agreement. The debt facilities place certain restrictions on mergers,
consolidations and the sale of the Company's assets and require maintenance of
minimum financial ratios. The $300 million variable rate note is collateralized
by the Company's customer accounts receivable and limits borrowings under the
facility to approximately 75% of the Company's customer accounts receivable.
Because the interest rates on all of the Company's debt agreements vary
with LIBOR or commercial paper rates, the Company has entered into interest rate
swap agreements with various financial institutions to manage the exposure to
changes in interest rates. The amount of indebtedness covered by the interest
rate swaps is $325 million for fiscal year 2000, $300 million for fiscal years
2001 through 2008, and $250 million for fiscal year 2009.
On April 30, 1999, the Company sold certain leasehold improvements for $42
million and is leasing them back over the next nine years. The Company is
required to repurchase the leasehold improvements at the end of the lease. In
accordance with SFAS No. 98, "Accounting for Leases", and SFAS No. 66
"Accounting for
15
<PAGE> 18
Sales of Real Estate", the Company is accounting for the sale-leaseback as a
financing. The Company used the proceeds from the sale to reduce borrowings
under its existing debt facilities.
Operating activities provided cash of $136.7 million during fiscal year
2000, as compared to $126.4 million in fiscal year 1999. The increase in cash
provided by operating activities compared to the prior period was principally
due to increases in net income and depreciation and amortization expense and
decreases in accounts receivable from customers, partially offset by increases
in merchandise inventory levels.
Investing activities used cash of $96.4 million during fiscal year 2000, as
compared to $83.1 million in fiscal year 1999. The increase in cash used for
investing activities was primarily due to decreases in proceeds from the sale of
investments and property and equipment, partially offset by decreases in
purchases of property and equipment.
Expenditures for property and equipment were $114.0 million during fiscal
year 2000, compared to $136.5 million in fiscal year 1999. During fiscal year
2000, the Company's capital expenditures included expenditures for opening five
new stores and making significant renovations to and/or expansions of five
existing stores. While it is difficult to predict capital expenditures for the
Company, capital expenditures over the next three fiscal years are expected to
average approximately $125 to $150 million per year.
Net cash used by financing activities amounted to $35.6 million during
fiscal year 2000, primarily consisting of dividend payments and common stock
repurchases.
Management of the Company believes that cash flows from operations and the
planned credit facilities will be sufficient to cover working capital needs,
capital expenditures and debt service agreements.
BELK NATIONAL BANK
During the first quarter of fiscal year 2000, the Company formed Belk
National Bank ("BNB"), a wholly-owned subsidiary, in order to standardize the
interest rate terms of Belk charge customer accounts across the thirteen states
in which Belk operates and to set competitive interest rates and fees comparable
to other retailers. BNB began operations in May 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which establishes standards for accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133", which deferred the effective
date of SFAS No. 133. The standard is effective for the Company starting in
fiscal year 2002. The impact of SFAS No. 133 on the Company's financial
statements has not been determined.
IMPACT OF INFLATION
While it is difficult to determine the precise effects of inflation,
management of the Company does not believe inflation had a material impact on
the consolidated financial statements for the periods presented.
YEAR 2000 ISSUES
The Company previously recognized the material nature of the business
issues surrounding computer processing of dates into and beyond the Year 2000
and began taking corrective action. The Company's efforts included (i) preparing
an inventory of the Company's systems, merchandise vendors, service providers
and user developed or installed software; (ii) assessing the Year 2000 issues
for each system device or provider identified; (iii) repairing and replacing
systems and/or devices requiring modification; (iv) testing such modifications
to validate compliance; and (v) developing contingency plans. The Company also
conducted similar analyses and developed contingency plans for its merchandise
vendors and service providers. Management believes the Company has completed all
of the activities within its control to ensure that the
16
<PAGE> 19
Company's systems are Year 2000 compliant and the Company has experienced no
interruptions to normal operations due to the start of the Year 2000.
The Company's Year 2000 readiness costs were approximately $6.0 million,
approximately $1.1 million of which were incurred in fiscal year 2000. The
Company funded these costs through operating cash flows. The Company does not
currently expect to apply any further funds to address Year 2000 issues.
As of April 1, 2000, the Company has not experienced any material
disruptions of its internal computer systems or software applications, and has
not experienced any material problems with the computer systems or software
applications of its third party vendors, suppliers or service providers. The
Company will continue to monitor these third parties to determine the impact, if
any, of the business of the Company and the actions the Company must take, if
any, in the event of non-compliance by any of these third parties. Based upon
the Company's assessment of compliance by third parties, there appears to be no
material business risk posed by any such non-compliance. Moreover, the Company
generally believes that the vendors that supply merchandise and services to the
Company are responsible for such products' Year 2000 functionality.
Although the Company's Year 2000 rollover did not present any material
business disruptions, there are some remaining Year 2000-related risks. These
risks include potential merchandise supply issues and other non-operational
issues. Management believes that appropriate action has been taken to address
these remaining Year 2000 issues, and contingency plans are in place to minimize
the financial impact to the Company. Management, however, cannot be certain that
Year 2000 issues will not have a material adverse impact on the Company, since
the evaluation process is not yet complete, and it is early in the Year 2000.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on its
variable rate debt. The Company uses interest rate swaps to manage the interest
rate risk associated with its borrowings and to manage the Company's allocation
of fixed and variable rate debt. The Company does not use financial instruments
for trading or other speculative purposes and is not a party to any leveraged
financial instruments.
The Company's net exposure to interest rate risk consists of exposure for
variable rate debt in excess of its interest rate swaps. At January 29, 2000,
the Company had $331 million of variable debt and $325 million of offsetting,
pay variable rate, receive fixed rate swaps. The impact on the Company's results
of operations of a one-point interest rate change on the outstanding balance of
unhedged variable rate debt as of January 29, 2000 would not be material.
The Company also owns marketable equity securities that are subject to
market risk. A discussion of the Company's accounting policies for derivative
financial instruments and equity securities is included in the Summary of
Significant Accounting Policies in Note 2 to the Company's financial statements.
17
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 19
Consolidated Statements of Income........................... 20
Consolidated Balance Sheets................................. 21
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income.................................. 22
Consolidated Statements of Cash Flows....................... 23
Notes to Financial Statements............................... 24
</TABLE>
18
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Belk, Inc.:
We have audited the accompanying consolidated balance sheets of Belk, Inc.
and subsidiaries (as described in Note 1) as of January 29, 2000 and January 30,
1999, and the related consolidated statements of income, stockholders' equity
and comprehensive income and cash flows for each of the years in the three-year
period ended January 29, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 2000 and January 30, 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended January 29, 2000, in conformity with generally accepted accounting
principles.
KPMG LLP
Charlotte, North Carolina
March 20, 2000
19
<PAGE> 22
BELK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues................................................... $2,144,674 $2,056,173 $1,945,067
Cost of goods sold (including occupancy and buying
expenses)................................................ 1,449,077 1,398,446 1,325,118
Selling, general and administrative expenses............... 546,421 530,538 506,370
Restructuring charge....................................... 7,597 -- --
Impairment of long-lived assets............................ -- -- 6,260
---------- ---------- ----------
Income from operations..................................... 141,579 127,189 107,319
Interest expense........................................... (37,975) (37,132) (39,950)
Interest income............................................ 1,593 1,026 5,288
Gain (loss) on sale of property, equipment and
investments.............................................. 5,443 597 (597)
Other income, net.......................................... 466 757 859
---------- ---------- ----------
Income from continuing operations before income taxes and
equity in earnings of unconsolidated entities............ 111,106 92,437 72,919
Income taxes............................................... 38,400 34,651 29,900
---------- ---------- ----------
Income from continuing operations before equity in earnings
of unconsolidated entities............................... 72,706 57,786 43,019
Equity in gain on sale of investments of unconsolidated
entities, net of income taxes............................ -- -- 15,891
Equity in earnings of unconsolidated entities, net of
income taxes............................................. -- 188 762
---------- ---------- ----------
Income from continuing operations.......................... 72,706 57,974 59,672
Discontinued operations:
Loss from discontinued operations, net of income tax
benefit of $814 for fiscal year 1998.................. -- -- (1,273)
Loss on disposal of discontinued operations, net of
income tax benefit of $943 and $2,411 for fiscal years
2000 and 1998, respectively........................... (1,543) -- (3,999)
---------- ---------- ----------
Net income before extraordinary item....................... 71,163 57,974 54,400
Extraordinary item -- loan prepayment penalty, net of
income tax benefit of $670............................... -- (1,004) --
---------- ---------- ----------
Net income................................................. $ 71,163 $ 56,970 $ 54,400
========== ========== ==========
Basic income per share:
Income from continuing operations........................ $ 1.31 $ 1.02 N/A
========== ========== ==========
Discontinued operations.................................. $ (0.03) $ -- N/A
========== ========== ==========
Extraordinary item....................................... $ -- $ (0.01) N/A
========== ========== ==========
Net income............................................... $ 1.28 $ 1.01 N/A
========== ========== ==========
Dividends per share........................................ $ 0.235 N/A N/A
========== ========== ==========
Weighted average shares outstanding........................ 55,403,167 56,682,252 N/A
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 23
BELK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 23,009 $ 18,313
Accounts receivable, net.................................. 340,061 351,143
Merchandise inventory..................................... 499,285 482,247
Prepaid income taxes...................................... 5,972 7,205
Deferred income taxes..................................... 1,610 4,378
Prepaid expenses and other current assets................. 11,795 18,269
---------- ----------
Total current assets.............................. 881,732 881,555
Investment securities....................................... 21,809 24,164
Property and equipment, net................................. 598,945 560,949
Prepaid pension costs....................................... 99,542 101,352
Other assets................................................ 27,473 25,898
---------- ----------
Total assets...................................... $1,629,501 $1,593,918
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 163,083 $ 167,598
Accrued expenses.......................................... 85,296 56,071
Accrued income taxes...................................... 24,296 20,993
Lines of credit and notes payable......................... 7,854 4,264
Current installments of long-term debt and capital lease
obligations............................................ 9,474 5,001
---------- ----------
Total current liabilities......................... 290,003 253,927
Deferred income taxes....................................... 47,734 45,712
Long-term debt and capital lease obligations, excluding
current installments...................................... 395,883 398,712
Deferred compensation and other noncurrent liabilities...... 73,113 107,632
---------- ----------
Total liabilities................................. 806,733 805,983
---------- ----------
Stockholders' equity:
Preferred stock........................................... -- --
Common stock, 54.9 million and 56.7 million shares issued
and outstanding at January 29, 2000 and January 30,
1999, respectively..................................... 549 567
Paid-in capital........................................... 565,031 586,641
Retained earnings......................................... 258,388 200,203
Accumulated other comprehensive income (loss)............. (1,200) 524
---------- ----------
Total stockholders' equity........................ 822,768 787,935
---------- ----------
Total liabilities and stockholders' equity........ $1,629,501 $1,593,918
========== ==========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 24
BELK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
COMMON PAID-IN RETAINED INCOME
STOCK CAPITAL EARNINGS (LOSS) TOTAL
-------- -------- --------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at February 1, 1997............. $ 70,885 $ 470 $ 578,525 $ 22,136 $672,016
Comprehensive income:
Net income............................ -- -- 54,400 -- 54,400
Unrealized loss on investments,net of
income tax benefit of $7,937....... -- -- -- (11,421) (11,421)
Equity in net unrealized gains on
investments held by unconsolidated
entity............................. -- -- -- 3,137 3,137
--------
Total comprehensive income.... 46,116
--------
Cash dividends.......................... -- -- (8,936) -- (8,936)
Repurchase and retirement of stock...... (256) -- (5,155) -- (5,411)
-------- -------- --------- -------- --------
Balance at January 31, 1998............. 70,629 470 618,834 13,852 703,785
Comprehensive income:
Net income............................ -- -- 56,970 -- 56,970
Unrealized loss on investments, net of
income tax benefit of $538......... -- -- -- (897) (897)
--------
Total comprehensive income.... 56,073
--------
Cash dividends.......................... -- -- (8,854) -- (8,854)
Repurchase and retirement of stock...... (50) -- (3,450) -- (3,500)
Reorganization of Belk Companies........ (70,012) 586,171 (463,297) (12,431) 40,431
-------- -------- --------- -------- --------
Balance at January 30, 1999............. 567 586,641 200,203 524 787,935
Comprehensive income:
Net income............................ -- -- 71,163 -- 71,163
Unrealized loss on investments, net of
income tax benefit of $1,085....... -- -- -- (1,724) (1,724)
--------
Total comprehensive income.... 69,439
--------
Cash dividends.......................... -- -- (12,978) -- (12,978)
Repurchase and retirement of stock...... (18) (21,610) -- -- (21,628)
-------- -------- --------- -------- --------
Balance at January 29, 2000............. $ 549 $565,031 $ 258,388 $ (1,200) $822,768
======== ======== ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 25
BELK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 71,163 $ 56,970 $ 54,400
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income taxes..................................... 6,688 5,087 (4,326)
Depreciation and amortization............................. 65,117 57,141 54,081
Restructuring charge...................................... 7,597 -- --
Impairment of long-lived assets........................... -- -- 6,260
Loss of disposal of discontinued operations, net.......... 1,543 -- 3,999
(Gain) loss on sale of property and equipment............. (3,001) (2,152) 1,058
(Gain) loss on sale of investments........................ (2,443) 1,555 (461)
Equity in earnings of unconsolidated entities, net of
income taxes............................................ -- (188) (16,653)
(Increase) decrease in:
Accounts receivable, net................................ 11,082 14,810 (17,595)
Merchandise inventory................................... (17,038) (34,987) (5,754)
Prepaid income taxes.................................... 1,233 (1,756) (2,544)
Prepaid expenses and other assets....................... 5,896 (16,356) 18,732
Increase (decrease) in:
Accounts payable and accrued expenses................... 20,047 31,786 553
Accrued income taxes.................................... 3,303 18,696 (2,317)
Deferred compensation and other liabilities............. (34,519) (4,222) 2,468
--------- --------- ---------
Net cash provided by operating activities................... 136,668 126,384 91,901
--------- --------- ---------
Cash flows from investing activities:
Purchases of investments.................................. (7,064) (10,149) (4,403)
Proceeds from sales of investments........................ 9,053 23,021 5,673
Purchases of property and equipment....................... (114,015) (136,518) (77,295)
Proceeds from sales of property and equipment............. 15,640 28,673 2,996
Cash acquired from Belk-Simpson Reorganization............ -- 11,861 --
--------- --------- ---------
Net cash used by investing activities....................... (96,386) (83,112) (73,029)
--------- --------- ---------
Cash flows from financing activities:
Payments to dissenting stockholders....................... -- (50,553) --
Proceeds from notes payable............................... -- 271,678 24,541
Payments on notes payable................................. -- (69,095) (122,796)
Proceeds from issuance of long-term debt.................. 83,217 125,000 175,351
Principal payments on long-term debt and capital lease
obligations............................................. (87,787) (292,134) (91,779)
Net proceeds from (payments on) lines of credit........... 3,590 (13,764) (29,694)
Dividends paid............................................ (12,978) (8,854) (8,936)
Repurchase of common stock................................ (21,628) (3,500) (5,411)
--------- --------- ---------
Net cash used by financing activities....................... (35,586) (41,222) (58,724)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 4,696 2,050 (39,852)
Cash and cash equivalents at beginning of period............ 18,313 16,263 56,115
--------- --------- ---------
Cash and cash equivalents at end of period......... $ 23,009 $ 18,313 $ 16,263
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 36,775 $ 34,226 $ 40,489
Income taxes paid, net.................................... 27,176 41,607 38,965
Supplemental schedule of noncash investing and financing
activities:
Increase in property and equipment through assumption of
capital leases.......................................... 6,214 25,587 --
Increase in property and equipment through assumption of
debt.................................................... -- 32,000 --
Increase in assets and liabilities due to
Reorganization.......................................... -- 40,431 --
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 26
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Belk, Inc. and its subsidiaries (the "Company") operate retail department
stores in the southeastern United States. The Company's outlet store subsidiary
is presented as a discontinued operation.
On April 15 and 16, 1998, the shareholders of the 112 companies previously
comprising the Belk Companies (the "Predecessor Companies") voted to approve the
reorganization (the "Reorganization") of the Predecessor Companies into a single
operating entity, Belk, Inc. (the "Company"), pursuant to a Plan and Agreement
of Reorganization, dated November 25, 1997, as amended, among the Company, Belk
Acquisition Co. and the Predecessor Companies (the "Reorganization Agreement").
The accompanying consolidated balance sheets as of January 29, 2000 and January
30, 1999 and the statements of income, stockholders' equity and comprehensive
income and cash flows for the year ended January 29, 2000 reflect the
adjustments to merge the companies pursuant to the Reorganization. The
statements of income, stockholders' equity and comprehensive income and cash
flows for the fiscal year ended January 30, 1999 include three months of pre-
Reorganization historical combined results of operations of the Predecessor
Companies and nine months of post-Reorganization consolidated results of
operations of the Company. The calculation of net income per share for the year
ended January 30, 1999 assumes that the Belk, Inc. shares of common stock issued
in connection with the Reorganization have been outstanding since February 1,
1998. The combined financial statements for the fiscal year ended January 31,
1998 have been prepared for purposes of depicting the combined financial
position and results of operations of the Predecessor Companies on a historical
cost basis.
On May 2, 1998, a majority of the shareholders of one of the Belk
Companies, Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson"),
redeemed their shares in Belk-Simpson (the "Belk-Simpson Reorganization", see
Note 4). Prior to the Belk-Simpson Reorganization, the 37% investment in Belk-
Simpson was accounted for under the equity method of accounting. Subsequent to
the Belk-Simpson Reorganization, Belk-Simpson is included in the consolidated
financial statements as a wholly-owned subsidiary.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
All significant inter-company transactions and balances have been
eliminated in consolidation and combination.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to each January 31.
Fiscal years 2000, 1999 and 1998 ended on January 29, 2000, January 30, 1999 and
January 31, 1998, respectively, and included 52 weeks.
REVENUES
Revenues include sales from retail operations, net of returns, and the net
revenue received from leased departments of $6,557, $5,853 and $4,516 for fiscal
years 2000, 1999 and 1998, respectively. Customer returns are recognized as
incurred. In December 1999 new accounting rules were issued requiring leased
department income rather than leased department sales to be included in
revenues. The Company has restated its revenues and cost of sales to reflect
this accounting change, with no impact on net income.
24
<PAGE> 27
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
COST OF GOODS SOLD
Cost of goods sold includes occupancy and buying expenses. Occupancy
expenses include rent, utilities and real estate taxes. Buying expenses include
payroll and travel expenses associated with the buying function.
FINANCE CHARGES
Selling, general and administrative expenses in the statements of income
are reduced by finance charge revenue arising from customer accounts receivable.
Finance charge revenues were $50,349, $41,918, and $44,262 in fiscal years 2000,
1999 and 1998, respectively.
PRE-OPENING COSTS
Store pre-opening costs are expensed as incurred.
ADVERTISING
Advertising costs, net of co-op recoveries from suppliers, are expensed as
incurred and amounted to $63,934, $60,707, and $61,326 in fiscal years 2000,
1999 and 1998, respectively.
IMPAIRMENT CHARGE
The Company evaluates its investment in long-lived assets on an individual
store basis and determines fair value based upon an assessment of historical and
projected operating results. As a result of this analysis, the Company recorded
pre-tax impairment charges of $6,260 for fiscal year 1998 to reduce the carrying
value of these assets to their estimated fair value.
CASH EQUIVALENTS
Cash equivalents include liquid investments with an original maturity of 90
days or less.
MERCHANDISE INVENTORY
Merchandise inventory is stated at the lower of average cost or market as
determined by the retail inventory method.
INVESTMENTS
The Company accounts for investments in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Securities classified as
available-for-sale are valued at fair value, while securities that the Company
has the ability and positive intent to hold to maturity are valued at amortized
cost. The Company includes unrealized holding gains and losses for
available-for-sale securities in other comprehensive income. Realized gains and
losses are recognized on a specific identification basis and are included in
income.
PROPERTY AND EQUIPMENT, NET
Property and equipment owned by the Company is stated at cost less
accumulated depreciation. Property and equipment leased by the Company under
capital leases is stated at an amount equal to the present value of the minimum
lease payments less accumulated amortization. Depreciation and amortization are
provided utilizing straight-line and various accelerated methods over the
shorter of estimated asset lives or related lease terms.
25
<PAGE> 28
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement bases
and the respective tax bases of the assets and liabilities and operating loss
and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
INTANGIBLE ASSETS, NET
Leasehold intangibles, which represent the excess of fair value over the
carrying value of leaseholds, are amortized on a straight-line basis over the
remaining terms of the lease agreements and are included in property and
equipment, net. The carrying value of intangible assets is periodically reviewed
by the Company's management to assess the recoverability of the assets.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments (interest rate swap
agreements) to manage the interest rate risk associated with its borrowings. The
counterparties to these instruments are major financial institutions. These
agreements are used to reduce the potential impact of increases in interest
rates on variable rate long-term debt. The differential to be paid or received
is accrued as interest rates change and is recognized as an adjustment to
interest expense. Other than the amounts allocated to interest rate swaps in
recording the Reorganization, the fair value of the swap agreements is not
recognized in the financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 31, 1999, the Company adopted Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", which establishes standards for the costs of
computer software developed or obtained for internal use. The Company has
capitalized $2.7 million of costs for internal use software during fiscal year
2000 that historically would have been expensed.
Effective February 1, 1998, the Company adopted SFAS No. 128, "Earnings Per
Share". SFAS No. 128 has not been applied to the combined financial statements
of the Predecessor Companies but was applicable to the Company subsequent to the
Reorganization on May 2, 1998. For the purpose of calculating net income per
share for the fiscal year ended January 30, 1999, the calculation assumes that
the Belk, Inc. shares of common stock issued in connection with the
Reorganization have been outstanding since February 1, 1998.
Effective February 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", and SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits". SFAS No. 130 requires the
Company to report the change in its net assets from non-owner sources.
Accumulated other comprehensive income (loss) consists of unrealized gains and
losses on investments. Comprehensive income is disclosed in the statements of
changes in stockholders' equity. SFAS No. 131 establishes revised standards for
the reporting of information about operating segments. SFAS No. 131 did not
impact the Company as it operates as one segment. SFAS No. 132 standardizes the
disclosure requirements for pension and other postretirement benefit plans. SFAS
No. 132 did not impact the Company's accounting for these plans, but did affect
the disclosures in Note 14.
26
<PAGE> 29
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which establishes standards for accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB Statement No. 133" which deferred the effective date
of SFAS No. 133. The standard is effective for the Company starting in fiscal
year 2002. The impact of SFAS No. 133 on the Company's financial statements has
not been determined.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial
statements to conform with the classification used in the financial statements
for the fiscal year ended January 29, 2000.
(3) RESTRUCTURING CHARGE
During fiscal year 2000, the Company recorded a charge of $7.6 million in
connection with the consolidation of its thirteen operating divisions into four
expanded regional divisions. The Company closed excess facilities and eliminated
340 positions as a result of streamlining operations related to the
restructuring. The excess property and equipment is being disposed of or sold.
The restructuring charge and its utilization are as follows:
<TABLE>
<CAPTION>
BALANCE AT
RESTRUCTURING JANUARY 29,
CHARGE UTILIZED 2000
------------- -------- -----------
<S> <C> <C> <C>
Employee Severance Costs............................... $3,903 $3,793 $110
Disposal of Excess Property and Equipment.............. 3,694 2,837 857
------------- -------- -----------
Total........................................ $7,597 $6,630 $967
============= ======== ===========
</TABLE>
(4) ACQUISITIONS
In May 1998, in accordance with the Belk-Simpson Reorganization,
Belk-Simpson sold substantially all of its investment assets and used the
proceeds to purchase common stock of Belk-Simpson. Of the 99,008 shares of
common stock of Belk-Simpson that were outstanding at the time of the offer,
63,077 shares were tendered and purchased by Belk-Simpson for an aggregate
purchase price of approximately $68 million. The acquisition was accounted for
using the purchase method of accounting.
(5) DISCONTINUED OPERATIONS
In September 1997, the managers and the advisory board of TAGS Stores, LLC,
("TAGS"), the Company's discount outlet store subsidiary, adopted a formal plan
to liquidate its operations during the 1997 Christmas retailing season.
Accordingly, the results of operations of TAGS are presented as discontinued
operations. During the year ended January 31, 1998, the Company provided for
losses on liquidation of the discontinued operations of $4.0 million, net of
income tax benefit of $2.4 million. During the year ended January 29, 2000, an
additional $1.5 million, net of income tax benefit of $.9 million, was provided
for the disposal of the TAGS leased property that is requiring more time than
originally anticipated. TAGS, which was formed in February 1996, recorded
revenue of $25.9 million for fiscal year 1998.
(6) ACCOUNTS RECEIVABLE, NET
Customer receivables arise primarily under open-end revolving credit
accounts used to finance purchases of merchandise from the Company. These
accounts have various billing and payment structures, including
27
<PAGE> 30
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
varying minimum payment levels and finance charge rates. Installments of
deferred payment accounts receivable maturing after one year are included in
current assets in accordance with industry practice.
The Company provides an allowance for doubtful accounts which is determined
based on a number of factors, including the risk characteristics of the
portfolio, historical charge-off patterns and management judgment.
Accounts receivable, net consists of:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
<S> <C> <C>
Customer receivables........................................ $330,490 $343,125
Other....................................................... 19,478 17,370
Less allowance for doubtful accounts........................ (9,907) (9,352)
-------- --------
Accounts receivable, net.......................... $340,061 $351,143
======== ========
</TABLE>
Changes in the allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year............................ $ 9,352 $ 8,406 $ 6,813
Charged to expense.................................... 10,087 12,237 13,181
Acquired.............................................. -- 313 --
Net uncollectible balances written off................ (9,532) (11,604) (11,588)
------- -------- --------
Balance, end of year........................ $ 9,907 $ 9,352 $ 8,406
======= ======== ========
</TABLE>
(7) INVESTMENTS IN UNCONSOLIDATED ENTITIES
Prior to the Belk-Simpson Reorganization (see Note 1), the Company's 37%
investment in Belk-Simpson was recorded on the equity method. Equity in earnings
of Belk-Simpson in fiscal years 2000, 1999 and 1998 were $0, $188 and $762,
respectively. Equity in gain on sale of investments of unconsolidated entities
for the year ended January 31, 1998 includes $15,891, net of income tax expense
of $9,580, for the Company's portion of the gain recognized by Belk-Simpson in
the liquidation of its investment portfolio.
(8) INVESTMENT SECURITIES
Held-to-maturity securities consist of federal, state and local debt
securities. Details of investments in held-to-maturity securities are as
follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
<S> <C> <C>
Amortized cost.............................................. $12,316 $11,432
Gross unrealized gains (losses)............................. (87) 778
------- -------
Fair value........................................ $12,229 $12,210
======= =======
</TABLE>
28
<PAGE> 31
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
At January 29, 2000, scheduled maturities of held-to-maturity securities
are as follows:
<TABLE>
<CAPTION>
AMORTIZED
FAIR VALUE COST
---------- ---------
<S> <C> <C>
One to five years........................................... $ 5,301 $ 5,217
Six to ten years............................................ 3,022 2,987
After ten years............................................. 3,906 4,112
------- -------
$12,229 $12,316
======= =======
</TABLE>
Details of investments in available-for-sale securities are as follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
<S> <C> <C>
Cost........................................................ $11,423 $11,857
Gross unrealized gains...................................... 1,812 1,833
Gross unrealized losses..................................... (3,742) (958)
------- -------
Fair value of securities.......................... $ 9,493 $12,732
======= =======
</TABLE>
Gross realized gains on sales of investment securities included in income
in fiscal years 2000, 1999, and 1998 were $2,704, $277 and $546, respectively,
and gross realized losses included in income in fiscal years 2000, 1999, and
1998 were $261, $1,832 and $85, respectively.
(9) PROPERTY AND EQUIPMENT, NET
Details of property and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED JANUARY 29, JANUARY 30,
LIVES 2000 1999
--------- ----------- -----------
<S> <C> <C> <C>
Land................................................. n/a $ 33,075 $ 29,752
Buildings............................................ 30-50 573,870 559,530
Furniture, fixtures and equipment.................... 5-7 540,330 489,248
Construction in progress............................. n/a 27,371 10,181
----- ---------- ----------
1,174,646 1,088,711
Less accumulated depreciation and amortization....... (575,701) (527,762)
---------- ----------
Property and equipment, net................ $ 598,945 $ 560,949
========== ==========
</TABLE>
(10) ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
<S> <C> <C>
Salaries, wages and employee benefits....................... $20,475 $ 24,712
Interest.................................................... 4,220 3,020
Rent........................................................ 6,042 5,596
Taxes, other than income.................................... 4,685 5,180
Construction obligation..................................... 32,000 --
Other....................................................... 17,874 17,563
------- --------
$85,296 $ 56,071
======= ========
</TABLE>
29
<PAGE> 32
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(11) BORROWINGS
Long-term debt, principally due to banks, and capital lease obligations
consist of the following:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
<S> <C> <C>
Bond facility............................................... $125,000 $125,000
Note payable................................................ 205,852 243,863
Sale/leaseback financing.................................... 39,743 --
Capital lease agreements through February 2018.............. 34,160 34,170
Unsecured notes payable..................................... 602 680
-------- --------
405,357 403,713
Less current installments................................... (9,474) (5,001)
-------- --------
Long-term debt and capital lease obligations, excluding
current installments...................................... $395,883 $398,712
======== ========
</TABLE>
The annual maturities of long-term debt and capital lease obligations over
the next five years as of January 29, 2000 are $9,474, $215,906, $10,684, $8,069
and $5,869, respectively.
On April 30, 1999, the Company sold certain leasehold improvements for $42
million and is leasing them back over the next nine years. The Company is
required to repurchase the leasehold improvements at the end of the lease. In
accordance with SFAS No. 98, "Accounting for Leases", and SFAS No. 66
"Accounting for Sales of Real Estate", the Company is accounting for the
sale-leaseback as financing. The effective interest rate on the facility is
6.75%. The Company used the proceeds from the sale to reduce borrowings under
its existing debt facilities.
The Company's loan agreements place restrictions on mergers,
consolidations, acquisitions, sales of assets, indebtedness, transactions with
affiliates, leases, liens and investments. They also contain leverage ratio,
tangible net worth and fixed charge coverage ratio requirements. The Company is
in compliance with all debt covenants. The bond facility matures in July 2008
and bears interest at a variable rate based on the market for the bonds that has
historically approximated one-month LIBOR plus 50 basis points. The note payable
bears interest at a rate that approximates LIBOR plus 35 basis points, is
collateralized by the Company's customer accounts receivable and limits
borrowings to approximately 75% of the Company's customer accounts receivable.
The note payable expires on April 28, 2001 and, accordingly, the balance as of
January 29, 2000 has been included in annual maturities of long-term debt for
fiscal year 2001. However, the note may be renewed by mutual consent of the
parties and it is the Company's intent to utilize the note payable as long-term
financing. At January 29, 2000 LIBOR was 5.9%.
The Company has entered into interest rate swap agreements with various
financial institutions to manage the exposure to changes in interest rates on
its variable rate indebtedness. The amount of indebtedness covered by the
interest rate swaps is $325 million for fiscal year 2000, $300 million for
fiscal years 2001 through 2008 and $250 million for fiscal year 2009.
At January 29, 2000, the Company has an unsecured line of credit agreement
totaling $150 million with a bank at a variable interest rate based on LIBOR
plus 60 basis points. The agreement expires on May 30, 2000 and may be renewed
upon mutual agreement between the parties. The amounts outstanding under line of
credit agreements at January 29, 2000 and January 30, 1999 were $7,854 and
$4,264, respectively. The weighted average interest rates on short term
borrowings at January 29, 2000 and January 30, 1999 were 6.5% and 5.6%,
respectively.
30
<PAGE> 33
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company prepaid substantially all of its unsecured notes and all of its
mortgage notes outstanding during fiscal year 1999 due to the availability of
lower interest rate financing. The Company incurred a loan prepayment penalty of
$1,004, net of income taxes of $670, on a mortgage prepayment that is reported
as an extraordinary loss.
(12) LEASES
The Company leases certain 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 and provide for payment by the lessee of
real estate taxes and other expenses and, in certain instances, increased
rentals based on percentages of sales.
Future minimum lease payments under non-cancelable leases as of January 29,
2000 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
----------- -------- ---------
<S> <C> <C>
2001........................................................ $ 7,772 $ 34,327
2002........................................................ 7,712 29,739
2003........................................................ 7,660 27,392
2004........................................................ 4,388 26,059
2005........................................................ 1,751 22,303
After 2005.................................................. 15,795 100,292
-------- --------
Total............................................. 45,078 $240,112
========
Less imputed interest....................................... (10,918)
--------
Present value of minimum lease payments..................... 34,160
Less current portion........................................ (5,811)
--------
$ 28,349
========
</TABLE>
Rental expense for all operating leases consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Buildings:
Minimum rentals..................................... $29,733 $29,420 $30,195
Contingent rentals.................................. 4,795 5,059 5,037
Equipment............................................. 7,481 9,316 10,385
------- ------- -------
Total rental expense........................ $42,009 $43,795 $45,617
======= ======= =======
</TABLE>
Contingent rentals are determined on the basis of a percentage of sales in
excess of stipulated minimums for certain store facilities.
Assets under capital lease and accumulated amortization was $49,047 and
$17,236, respectively, at January 29, 2000.
31
<PAGE> 34
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(13) INCOME TAXES
Federal and state income tax expense (benefit) from continuing operations
was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................................. $27,813 $24,654 $28,212
State............................................... 3,899 4,910 6,014
------- ------- -------
31,712 29,564 34,226
------- ------- -------
Deferred:
Federal............................................. 5,751 3,644 (3,280)
State............................................... 937 1,443 (1,046)
------- ------- -------
6,688 5,087 (4,326)
------- ------- -------
Income taxes.......................................... $38,400 $34,651 $29,900
======= ======= =======
</TABLE>
A reconciliation between income taxes from continuing operations computed
using the effective income tax rate and the federal statutory income tax rate of
35% is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Income tax at the statutory federal rate.............. $38,887 $32,353 $25,522
State income taxes, net of federal income tax
benefit............................................. 3,142 4,130 3,229
Change in valuation allowance......................... (675) (1,775) (783)
Other................................................. (2,954) (57) 1,932
------- ------- -------
Income taxes.......................................... $38,400 $34,651 $29,900
======= ======= =======
</TABLE>
32
<PAGE> 35
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Deferred taxes based upon differences between the financial statement and
tax bases of assets and liabilities and available tax carryforwards consist of:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Benefit plan costs........................................ $24,720 $25,243
Inventory capitalization.................................. 5,525 5,579
Allowance for doubtful accounts........................... 3,432 3,564
Tax carryovers............................................ 1,994 2,580
Accrued vacation.......................................... 2,306 2,363
Other..................................................... 5,601 2,061
------- -------
Gross deferred tax assets................................... 43,578 41,390
Less valuation allowance.................................... (255) (930)
------- -------
Net deferred tax assets........................... 43,323 40,460
------- -------
Deferred tax liabilities:
Prepaid pension costs..................................... 36,432 38,625
Property and equipment.................................... 38,547 30,400
Inventory................................................. 9,266 7,469
Investment securities..................................... 2,594 3,771
Other..................................................... 2,608 1,529
------- -------
Gross deferred tax liabilities.............................. 89,447 81,794
------- -------
Net deferred tax liabilities...................... $46,124 $41,334
======= =======
</TABLE>
The valuation allowance decreased by $675 and $1,775 for the years ended
January 29, 2000 and January 30, 1999, respectively. In assessing the
realization of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
temporary differences becoming deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment.
As of January 29, 2000, the Company has net operating loss carryforwards
for federal and state income tax purposes of $3,891 and $12,043, respectively,
which are available to offset future taxable income, if any. These carryforwards
expire at various intervals through 2013. In addition, the Company has
alternative minimum tax net operating loss carryforwards of $4,231 which are
available to reduce future alternative minimum taxable income at various
intervals through 2013.
(14) PENSION AND POSTRETIREMENT BENEFITS
The Company has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the employee's
compensation during the calendar years 1994, 1995 and 1996, or the first three
years of employment, if initially employed after 1994. The cost of pension
benefits has been determined by the projected unit credit actuarial method in
accordance with SFAS No. 87 "Employers' Accounting for Pensions". The assets
held by the plan consist of 57% equities and 43% fixed income investments. No
additional funding of the plan is anticipated in the foreseeable future.
The Company also has a defined benefit health care plan that provides
postretirement medical and life insurance benefits to certain retired full-time
employees. The Company accounts for postretirement benefits by recognizing the
cost of these benefits over an employee's estimated term of service with the
Company.
33
<PAGE> 36
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The change in benefit obligation, change in plan assets, funded status,
amounts recognized, net periodic benefit cost and actuarial assumptions are as
follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------- -------------------------
JANUARY 29, JANUARY 30, JANUARY 29, JANUARY 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year... $231,806 $209,469 $ 36,988 $ 32,332
Service cost.............................. 13,301 13,068 506 464
Interest cost............................. 16,583 15,536 2,433 2,472
Amendments................................ -- -- -- 881
Actuarial (gain) loss..................... (10,529) 9,940 (3,748) 3,658
Benefits paid............................. (17,230) (16,207) (2,729) (2,819)
-------- -------- -------- --------
Benefit obligation at end of year......... 233,931 231,806 33,450 36,988
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of
year................................... 356,598 332,775 -- --
Actual return on plan assets.............. 25,506 40,030 -- --
Contributions to plan..................... -- -- 2,729 2,819
Benefits paid............................. (17,230) (16,207) (2,729) (2,819)
-------- -------- -------- --------
Fair value of plan assets at end of
year................................... 364,874 356,598 -- --
-------- -------- -------- --------
Funded status............................... 130,943 124,792 (33,450) (36,988)
Unrecognized net transition obligation...... (523) (1,046) 3,403 3,664
Unrecognized prior service costs............ 1,187 1,266 -- --
Unrecognized net (gain) loss................ (32,065) (23,660) 2,603 6,580
-------- -------- -------- --------
Net amount recognized....................... $ 99,542 $101,352 $(27,444) $(26,744)
======== ======== ======== ========
</TABLE>
The components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
PENSION PLAN POSTRETIREMENT PLAN
--------------------------------------- ---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31, JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998 2000 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service cost.................... $13,301 $13,068 $10,688 $ 506 $ 464 $ 454
Interest cost................... 16,583 15,536 14,924 2,433 2,472 2,287
Expected return on assets....... (27,629) (25,048) (20,064) -- -- --
Amortization of unrecognized
items:
Net transition (asset)
obligation................. (523) (1,022) (1,965) 262 486 934
Prior service cost............ 78 144 277 -- -- --
Net (gains) losses............ -- (545) (1,511) 229 241 395
------- ------- ------- ------ ------ ------
Net periodic benefit
cost..................... $ 1,810 $ 2,133 $ 2,349 $3,430 $3,663 $4,070
======= ======= ======= ====== ====== ======
</TABLE>
Weighted average assumptions were:
<TABLE>
<CAPTION>
PENSION PLAN POSTRETIREMENT PLAN
--------------------------------------- ---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31, JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998 2000 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Discount rates.................. 7.75% 6.75% 7.25% 7.75% 6.75% 7.25%
Rates of compensation
increase...................... 4.00 4.00 4.00 N/A N/A N/A
Return on plan assets........... 8.50 8.50 8.50 N/A N/A N/A
</TABLE>
For measurement purposes, a 6.5% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
fiscal year 2000; the rate was assumed to decrease gradually to
34
<PAGE> 37
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
5.5% by fiscal year 2003 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported. For
example, increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of January 29, 2000 by $2,384 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for the
year ended January 29, 2000 by $291. Decreasing the assumed health care cost
trend rates by one percentage point in each year would decrease the accumulated
postretirement benefit obligation as of January 29, 2000 by $1,948 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended January 29, 2000 by $232.
(15) OTHER EMPLOYEE BENEFITS
The Belk Employees' Health Care Plan provides medical and dental benefits
to substantially all full-time employees. This Plan is "self-funded" for medical
and dental benefits through a 501(c)(9) Trust. The Group Life Insurance Plan and
The Belk Employees Short Term Disability Insurance Plan provide insurance to
substantially all full-time employees and are fully insured through contracts
issued by insurance companies. Contributions by the Company under these plans
amounted to approximately $20,799, $17,350, and $11,584 in fiscal years 2000,
1999, and 1998, respectively.
The Belk 401(k) Savings Plan, a contributory, defined contribution
multi-employer plan, provides benefits for substantially all employees. Prior to
January 1, 1998, the contributions to the plan generally represented 10% of
profits, as defined. Beginning on January 1, 1998, the contributions to the
401(k) Savings Plan are comprised of a matching contribution, generally 50% of
the employees' contribution up to 6% of eligible compensation, and a basic
contribution, generally 2% of eligible compensation, regardless of the
employees' contributions. The cost of the plan was approximately $9,280, $7,961,
and $16,292 in fiscal years 2000, 1999, and 1998, respectively.
The Supplemental Executive Retirement Plan ("SERP") is a non-qualified
defined benefit retirement plan that provides retirement and death benefits to
certain qualified executives of the Company. The accrued liability under the
plan, which is included in deferred compensation and other non-current
liabilities, was $13.6 million in both fiscal years 2000 and 1999. The projected
benefit obligation was $14.0 million and $15.7 million in fiscal years 2000 and
1999, respectively. Total SERP costs charged to operations were approximately
$1,467, $1,431, and $1,336 in fiscal years 2000, 1999, and 1998, respectively.
The effective discount rate used in determining the net periodic SERP cost is
7.75%, 6.75%, and 7.25% for fiscal years 2000, 1999, and 1998, respectively.
Actuarial gains and losses are amortized over the average remaining service
lives of the participants.
Certain eligible employees participate in a non-qualified Deferred
Compensation Plan ("DCP"). Participants in the plan have elected to defer a
portion of their regular compensation subject to certain limitations prescribed
by the DCP. The Company is required to pay interest on the employees' deferred
compensation at various rates that have historically been between 8% and 15%.
Total interest expense related to this plan and charged to operations was
approximately $3,486, $4,007, and $3,028 in fiscal years 2000, 1999, and 1998,
respectively.
35
<PAGE> 38
BELK, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values approximate fair values for financial instruments that are
short-term in nature, such as cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, notes payable and lines of credit. The fair
value of other financial instruments are as follows:
<TABLE>
<CAPTION>
JANUARY 29, 2000 JANUARY 30, 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Long-term debt (excluding capitalized
leases)..................................... $371,197 $371,197 $369,543 $369,543
Interest rate swap agreements................. (3,078) 16,135 (3,844) (16,785)
Investment securities......................... 21,809 21,722 24,164 24,942
</TABLE>
The fair value of the Company's fixed rate long-term debt is estimated
based on the current rates offered to the Company for debt of the same remaining
maturities. The carrying value of the Company's variable rate long-term debt is
reasonable estimates of fair value.
The fair value of interest rate swap agreements is the estimated amount
that the Company would pay to terminate the swap agreement, taking into account
current credit worthiness of the swap counterparties.
(17) STOCKHOLDERS' EQUITY
Authorized capital stock of Belk, Inc. includes 200 million shares of Class
A common stock, 200 million shares of Class B common stock and 20 million shares
of preferred stock, all with par value of $.01 per share. At January 29, 2000,
there were 54,134,919 shares of Class A common stock outstanding, 782,144 shares
of Class B common stock outstanding, and no shares of preferred stock
outstanding. The Class A shares were issued in exchange for the shares of
existing shareholders of the Predecessor Companies in connection with the
Reorganization described in Note 1.
Class A shares are convertible into Class B shares on a 1 for 1 basis, in
whole or in part, at any time at the option of the holder. Class A and Class B
shares are identical in all respects, with the exception that Class A
stockholders are entitled to 10 votes per share and Class B stockholders are
entitled to one vote per share. There are restrictions on transfers of Class A
shares to any person other than a Class A permitted holder. Each Class A share
transferred to a non Class A permitted holder automatically converts into one
share of Class B.
(18) RELATED PARTY TRANSACTIONS
On January 25, 1999, the Company completed the settlement of dissent
proceedings with respect to the capital stock of various Belk Companies involved
in the Reorganization with Mrs. Sarah Belk Gambrell, a director of the Company
and Mrs. Sarah Gambrell Knight, daughter of Sarah Belk Gambrell, for aggregate
consideration of $35 million and $15 million, respectively.
36
<PAGE> 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE (ITEM 304 OF REGULATION S-K)
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to Directors and
Executive Officers of the Registrant is included in the sections entitled
"Election of Directors", "Management of the Company" and "Executive
Compensation -- Executive Officers" of the Proxy Statement for the Annual
Meeting of Stockholders to be held on May 24, 2000 and is incorporated herein by
reference.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this Item is included in the section entitled
"Executive Compensation" of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 24, 2000 and is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the sections entitled
"Management Common Stock Ownership" and "Principal Stockholders" of the Proxy
Statement for the Annual Meeting of Stockholders to be held on May 24, 2000 and
is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the section entitled
"Executive Compensation -- Certain Transactions" of the Proxy Statement for the
Annual Meeting of Stockholders to be held on May 24, 2000 and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Report of Independent Auditors
Balance Sheets -- Years ended January 29, 2000 and January 30, 1999
Statements of Income -- Years ended January 29, 2000, January 30, 1999
and January 31, 1998
Statements of Changes in Stockholders' Equity and Comprehensive
Income -- Years ended January 29, 2000, January 30, 1999, and January
31, 1998
Statements of Cash Flow -- Years ended January 29, 2000, January 30,
1999 and January 31, 1998
Notes to Financial Statements
2. Financial Statement Schedules
None
37
<PAGE> 40
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:
<TABLE>
<C> <C> <S>
3.1 -- Amended and Restated Certificate of the Registrant
(incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-4 (File No.
333-42935))
3.2 -- Amended and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3.3 to the Registrant's Registration
Statement on Form S-4 (File No. 333-42935))
4.1 -- Specimen Class A Stock Certificate (incorporated by
reference to Exhibit 4.0 to the Registrant's Registration
Statement on Form S-4 (File No. 333-42935))
4.2 -- Specimen Class B Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-4 (File No. 333-42935))
10.1 -- Note Purchase and Security Agreement between Enterprise
Funding Corporation, as Company, and Belk, Inc. as Debtor,
and the Belk Center, Inc. as Servicer, and NationsBank,
N.A., as Agent, and Bank Investor, dated as of June 12, 1998
(incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K, filed on April 30,
1999 (File No. 333-42935)).
10.2 -- Receivables Purchase Agreement among Belk-Simpson Company,
Greenville, South Carolina, as Seller, and Belk, Inc., as
Purchaser, and The Belk Center, Inc., as Servicer, dated as
of June 12, 1998 (incorporated by reference to Exhibit 10.2
to the Registrant's Annual Report on Form 10-K, filed on
April 30, 1999 (File No. 333-42935)).
10.3 -- Amendment No. 1 to Note Purchase and Security Agreement,
dated as of January 30, 1999, by and among Belk, Inc., as
Debtor, The Belk Center, Inc., as Servicer, Enterprise
Funding Corporation, as Company, and NationsBank, N.A., as
Agent (incorporated by reference to Exhibit 10.3 to the
Registrant's Annual Report on Form 10-K, filed on April 30,
1999 (File No. 333-42935)).
10.4 -- Receivables Purchase Agreement among Belk Stores of Virginia
LLC, as Seller, and Belk, Inc., as Purchaser, and The Belk
Center, Inc., as Servicer, dated as of January 30, 1999
(incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K, filed on April 30,
1999 (File No. 333-42935)).
10.5 -- Amendment No. 2 to Note Purchase Agreement among Belk, Inc.,
as Debtor, The Belk Center, Inc., as Servicer, Enterprise
Funding Corporation, as Company, and NationsBank, N.A., as
Agent, dated as of April 28, 1999 (incorporated by reference
to Exhibit 10.5 to the Registrant's Annual Report on Form
10-K, filed on April 30, 1999 (File No. 333-42935)).
10.6 -- Letter of Credit and Reimbursement Agreement by and between
Belk, Inc. and First Union National Bank, dated as of July
1, 1998 (incorporated by reference to Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K, filed on April 30,
1999 (File No. 333-42935)).
10.7 -- Credit Agreement, dated as of September 11, 1998, by and
between Belk, Inc., as Borrower, and Wachovia Bank, N.A., as
Bank (incorporated by reference to Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K, filed on April 30,
1999 (File No. 333-42935)).
10.8 -- Receivables Purchase Agreement among Belk, Inc., as Seller,
and Belk National Bank, as Purchaser, and The Belk Center,
Inc., as Servicer dated as of May 3, 1999 (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q, filed on December 14, 1999 (File No.
000-26207)).
10.9 -- Receivables Purchase Agreement among Belk, Inc., as Seller,
and Belk Accounts Receivable LLC, as Purchaser, and The Belk
Center, Inc., as Servicer dated as of May 3, 1999
(incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q, filed on
December 14, 1999 (File No. 000-26207)).
</TABLE>
38
<PAGE> 41
<TABLE>
<C> <C> <S>
10.10 -- Receivables Purchase Agreement among Belk National Bank, as
Seller, and Belk Accounts Receivable LLC, as Purchaser, and
Belk, Inc. and The Belk Center, Inc., as Servicer dated as
of May 3, 1999 (incorporated by reference to Exhibit 10.3 to
the Registrant's Quarterly Report on Form 10-Q, filed on
December 14, 1999 (File No. 000-26207)).
10.11 -- Guaranty and Security Agreement, dated as of May 3, 1999,
between Belk Accounts Receivable LLC, as Guarantor, The Belk
Center, Inc., as Servicer, Belk, Inc., as Debtor,
NationsBank, N.A., as agent for Enterprise Funding
Corporation, and the Bank Investors party to the Note
Purchase Agreement (incorporated by reference to Exhibit
10.4 to the Registrant's Quarterly Report on Form 10-Q,
filed on December 14, 1999 (File No. 000-26207)).
10.12 -- Note Purchase Agreement, dated as of May 3, 1999, by and
among Belk, Inc., as Debtor, The Belk Center, Inc., as
Servicer, Enterprise Funding Corporation, and NationsBank,
N.A., as agent for Enterprise Funding Corporation and the
Bank Investors and as a Bank Investor (incorporated by
reference to Exhibit 10.5 to the Registrant's Quarterly
Report on Form 10-Q, filed on December 14, 1999 (File No.
000-26207)).
10.13 -- Belk, Inc. 2000 Incentive Stock Plan.
21.1 -- Subsidiaries.
27.1 -- Financial Data Schedules.
</TABLE>
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the fiscal year ended
January 29, 2000.
39
<PAGE> 42
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 28th day of
April, 2000.
BELK, INC.
(Registrant)
By: /s/ JOHN M. BELK
------------------------------------
John M. Belk
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on April 28, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JOHN M. BELK Chairman of the Board and Chief Executive
- --------------------------------------------- Officer (Principal Executive Officer)
John M. Belk
/s/ THOMAS M. BELK, JR. President and Director
- ---------------------------------------------
Thomas M. Belk, Jr.
/s/ H. W. MCKAY BELK President and Director
- ---------------------------------------------
H. W. McKay Belk
/s/ JOHN R. BELK President and Director
- ---------------------------------------------
John R. Belk
/s/ B. FRANK MATTHEWS, II Vice Chairman of the Board and Director
- ---------------------------------------------
B. Frank Matthews, II
/s/ SARAH BELK GAMBRELL Director
- ---------------------------------------------
Sarah Belk Gambrell
/s/ J. KIRK GLENN, JR. Director
- ---------------------------------------------
J. Kirk Glenn, Jr.
/s/ KARL G. HUDSON, JR. Director
- ---------------------------------------------
Karl G. Hudson, Jr.
/s/ JOHN A. KUHNE Director
- ---------------------------------------------
John A. Kuhne
/s/ JAMES M. BERRY Executive Vice President, Finance
- --------------------------------------------- (Principal Financial Officer)
James M. Berry
/s/ BILL R. WALTON Senior Vice President and Treasurer
- --------------------------------------------- (Principal Accounting Officer)
Bill R. Walton
</TABLE>
40
<PAGE> 1
EXHIBIT 10.13
BELK, INC. 2000 INCENTIVE STOCK PLAN
SEC. 1
BACKGROUND AND PURPOSE
The purpose of this Plan is to promote the interest of Belk by authorizing
the Board to grant Stock, Options, Restricted Stock and/or Stock Appreciation
Rights to Key Employees and/or Directors in order (1) to attract and retain Key
Employees and Directors, (2) to provide an additional incentive to each Key
Employee or Director to work to increase the value of Stock and (3) to provide
each Key Employee or Director with a stake in the future of Belk which
corresponds to the stake of each of Belk's stockholders.
SEC. 2
DEFINITIONS
2.1 Affiliate. means any organization (other than a Subsidiary) that would
be treated as under common control with Belk under sec. 414(c) of the Code if
"50 percent" were substituted for "80 percent" in the income tax regulations
under sec. 414(c) of the Code.
2.2 Board -- means the Board of Directors of Belk.
2.3 Change in Control -- means (1) a "change in control" of Belk of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A for a proxy statement filed under Section 14(a) of the 1934 Act,
(2) a "person" (as that term is used in Section 14(d)(2) of the 1934 Act)
becomes after the effective date of this Plan the beneficial owner (as defined
in Rule 13d-3 under the 1934 Act) directly or indirectly of securities
representing 50% or more of the combined voting power for election of directors
of the then outstanding securities of Belk, (3) the individuals who at the
beginning of any period of two consecutive years or less constitute the Board
cease for any reason during such period to constitute at least a majority of the
Board, unless the election or nomination for election of each new member of the
Board was approved by vote of at least two-thirds of the members of the Board
then still in office who were members of the Board at the beginning of such
period, (4) the shareholders of Belk approve any dissolution or liquidation of
Belk or any sale or disposition of 50% or more of the assets or business of Belk
or (5) the shareholders of Belk approve a merger or consolidation to which Belk
is a party (other than a merger or consolidation with a wholly-owned subsidiary
of Belk) or a share exchange in which Belk shall exchange Belk shares for shares
of another corporation as a result of which the persons who were shareholders of
Belk immediately before the effective date of such merger, consolidation or
share exchange shall have beneficial ownership of less than 50% of the combined
voting power for election of directors of the surviving corporation following
the effective date of such merger, consolidation or share exchange.
2.4 Code -- means the Internal Revenue Code of 1986, as amended.
2.5 Committee -- means the Executive Committee or such other committee as
the Board may designate.
2.6 Director -- means any member of the Board who is not an employee of
Belk or a Parent or Subsidiary or affiliate (as such term is defined in Rule 405
of the 1933 Act) of Belk.
2.7 Fair Market Value -- means the price at which the Board acting in good
faith determines through any reasonable valuation method that a share of Stock
might change hands between a willing buyer and a willing seller, neither being
under any compulsion to buy or to sell and both having reasonable knowledge of
the relevant facts.
2.8 ISO -- means an option granted under this Plan to purchase Stock which
is intended to satisfy the requirements of sec. 422 of the Code.
<PAGE> 2
2.9 Key Employee. means an employee of Belk or any Subsidiary or Parent or
Affiliate designated by the Committee who, in the judgment of the Committee
acting in its absolute discretion, is key directly or indirectly to the success
of Belk.
2.10 1933 Act. means the Securities Act of 1933, as amended.
2.11 1934 Act. means the Securities Exchange Act of 1934, as amended.
2.12 Non-ISO. means an option granted under this Plan to purchase Stock
which is intended to fail to satisfy the requirements of sec. 422 of the Code.
2.13 Option. means an ISO or a Non-ISO which is granted under sec. 7 of
this Plan.
2.14 Option Certificate. means the written certificate which sets forth
the terms and conditions of an Option granted to a Key Employee or Director
under this Plan.
2.15 Option Price. means the price which shall be paid to purchase one
share of Stock upon the exercise of an Option granted under this Plan.
2.16 Parent. means any corporation which is a parent of Belk within the
meaning of sec. 424(e) of the Code.
2.17 Plan. means this Belk, Inc. 2000 Incentive Stock Plan as effective as
of the date adopted by the Board and as amended from time to time thereafter.
2.18 Restricted Stock. means Stock granted to a Key Employee under certain
conditions pursuant to sec. 9 of this Plan.
2.19 Restricted Stock Certificate. means the document which sets forth the
terms and conditions of a Restricted Stock grant to a Key Employee.
2.20 Rule 16b-3. means the exemption under Rule 16b-3 to Section 16(b) of
the 1934 Act or any successor to such rule.
2.21 Stock. means the Class B common stock of Belk.
2.22 SAR Value. means the value assigned by the Committee to a share of
Stock in connection with the grant of a Stock Appreciation Right under sec. 8.
2.23 Stock Appreciation Right. means a right to receive the appreciation
in a share of Stock which is granted under sec. 8 of this Plan.
2.24 Stock Appreciation Right Certificate. means the document which sets
forth the terms and conditions of a Stock Appreciation Right which is not
granted to a Key Employee as part of an Option.
2.25 Subsidiary. means a corporation which is a subsidiary corporation
(within the meaning of sec. 424(f) of the Code) of Belk.
2.26 Ten Percent Shareholder. means a person who owns (after taking into
account the attribution rules of sec. 424(d) of the Code) more than ten percent
of the total combined voting power of all classes of stock of either Belk, a
Subsidiary or Parent.
2.27 Belk. means Belk, Inc. and any successor to Belk, Inc.
<PAGE> 3
SEC. 3
SHARES RESERVED UNDER PLAN
There shall (subject to sec. 13) be 2,800,000 shares of Stock reserved for
use under this Plan. Such shares of Stock shall be reserved to the extent that
Belk deems appropriate from authorized but unissued shares of Stock and from
shares of Stock which have been reacquired by Belk. Any shares of Stock subject
to an Option which remain unissued after the cancellation, expiration or
exchange of such Option, any shares of Restricted Stock which are forfeited or
canceled and any shares of Stock subject to a Stock Appreciation Right with
respect to which no exercise has been made under sec. 8 before the cancellation
or expiration of such Stock Appreciation Right thereafter shall again become
available for use under this Plan, but any shares of Stock used to exercise an
Option or to satisfy a withholding obligation shall not again become available
for use under this Plan.
SEC. 4
EFFECTIVE DATE
The effective date of this Plan shall be the date of its adoption by the
Board, provided the shareholders of Belk (acting at a duly called meeting of
such shareholders) approve such adoption within twelve (12) months of such
effective date. Any Option or Restricted Stock or Stock Appreciation Right
granted before such shareholder approval automatically shall be granted subject
to such approval.
SEC. 5
COMMITTEE
This Plan shall be administered by the Committee. The Committee acting in
its absolute discretion shall exercise such powers and take such action as
expressly called for under this Plan and, further, the Committee shall have the
power to interpret this Plan and (subject to sec. 13, sec. 14 and sec. 15 and
Rule 16b-3) to take such other action in the administration and operation of
this Plan as the Committee deems equitable under the circumstances, which action
shall be binding on Belk, on each affected Key Employee or Director and on each
other person directly or indirectly affected by such action.
SEC. 6
ELIGIBILITY AND ANNUAL GRANT CAPS
Only Key Employees who are employed by Belk or a Subsidiary or Parent shall
be eligible for the grant of ISOs under this Plan, and Key Employees and
Directors shall be eligible for the grant of Non-ISOs under this Plan. Only Key
Employees shall be eligible for the grant of Stock, Restricted Stock or Stock
Appreciation Rights under this Plan. No Key Employee in any calendar year shall
receive a Stock or Restricted Stock grant, Option or Stock Appreciation Right
with respect to more than 100,000 shares of stock.
SEC. 7
OPTIONS
7.1 Board Action. The Board acting in its absolute discretion may
authorize the Committee to grant Options to Directors and Key Employees under
this Plan from time to time to purchase shares of Stock and, further, the Board
may authorize the Committee to grant new Options in exchange for the
cancellation of outstanding Options which have a higher or lower Option Price
than the new Options. Each grant of an Option to a Key Employee shall be
evidenced by an Option Certificate, and each Option Certificate shall set forth
whether the Option is an ISO or a Non-ISO and shall set forth such other terms
and conditions of such grant as the Committee acting in its absolute discretion
deems consistent with the terms of this Plan; however, if the
<PAGE> 4
Committee grants an ISO and a Non-ISO to a Key Employee on the same date, the
right of the Key Employee to exercise the ISO shall not be conditioned on his or
her failure to exercise the Non-ISO.
7.2 $100,000 Limit. No Option shall be treated as an ISO to the extent
that the aggregate Fair Market Value of the Stock subject to the Option which
would first become exercisable in any calendar year exceeds $100,000. Any such
excess shall instead automatically be treated as a Non-ISO. The Committee shall
interpret and administer the ISO limitation set forth in this sec. 7.2 in
accordance with sec. 422(d) of the Code, and the Committee shall treat this
sec. 7.2 as in effect only for those periods for which sec. 422(d) of the Code
is in effect.
7.3 Option Price. The Option Price for each share of Stock subject to an
Option which is granted to a Director or Key Employee shall be no less than the
Fair Market Value of a share of Stock on the date the Option is granted;
provided, however, if the Option is an ISO granted to a Key Employee who is a
Ten Percent Shareholder, the Option Price for each share of Stock subject to
such ISO shall be no less than 110% of the Fair Market Value of a share of Stock
on the date such ISO is granted. The Option Price shall be payable in full upon
the exercise of any Option, and at the discretion of the Committee an Option
Certificate can provide for the payment of the Option Price either in cash, by
check or in Stock which has been held for at least 6 months and which is
acceptable to the Committee or in any combination of cash, check and such Stock.
The Option Price in addition may be paid through any cashless exercise procedure
which is acceptable to the Committee or its delegate and which is facilitated
through a sale of Stock. Any payment made in Stock shall be treated as equal to
the Fair Market Value of such Stock on the date the certificate for such Stock
is presented to the Committee or its delegate in such form as acceptable to the
Committee.
7.4 Exercise Period. Each Option granted under this Plan to a Key Employee
shall be exercisable in whole or in part at such time or times as set forth in
the related Option Certificate, but no Option Certificate shall make an Option
granted to a Director or Key Employee exercisable on or after the earlier of
(1) the date such Option is exercised in full, or
(2) the date which is the fifth anniversary of the date the Option is
granted, if the Option is an ISO and the Key Employee is a Ten Percent
Shareholder on the date the Option is granted, or
(3) the date which is the tenth anniversary of the date the Option is
granted, if the Option is (a) a Non-ISO or (b) an ISO which is granted to a
Key Employee who is not a Ten Percent Shareholder on the date the Option is
granted.
An Option Certificate may provide for the exercise of an Option after the
employment of a Key Employee has terminated for any reason whatsoever, including
death or disability.
7.5 Grants to Directors. A Non-ISO granted to a Director under this
sec. 7.5 shall be subject to such other terms and conditions as the Committee
deems appropriate and proper under the circumstances, and no Director shall be
eligible to receive an Option under this Plan except as provided in this
sec. 7.5. A grant of a Non-ISO to a Director under this sec. 7.5 is intended to
be granted in a manner which continues to allow such Director to be a
"non-employee director" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of sec. 162(m) of the Code, and all Non-ISOs
granted to Directors under this sec. 7.5 shall be construed to effect such
intent.
<PAGE> 5
SEC. 8
STOCK APPRECIATION RIGHTS
8.1 Board Action. The Board acting in its absolute discretion may
authorize the Committee to grant a Stock Appreciation Right to a Key Employee
under this Plan from time to time, and each Stock Appreciation Right grant shall
be evidenced by a Stock Appreciation Right Certificate or, if such Stock
Appreciation Right is granted as part of an Option, shall be evidenced by the
Option Certificate for the related Option.
8.2 Terms and Conditions.
(1) Stock Appreciation Right Certificate. If a Stock Appreciation
Right is evidenced by a Stock Appreciation Right Certificate, such
certificate shall set forth the number of shares of Stock to which the Key
Employee has the right to appreciation and the SAR Value of each share of
Stock. Such SAR Value shall be no less than the Fair Market Value of a
share of Stock on the date that the Stock Appreciation Right is granted.
The Stock Appreciation Right Certificate shall set forth such other terms
and conditions for the exercise of the Stock Appreciation Right as the
Committee deems appropriate under the circumstances, but no Stock
Appreciation Right Certificate shall make a Stock Appreciation Right
exercisable on or after the date which is the tenth anniversary of the date
such Stock Appreciation Right is granted.
(2) Option Certificate. If a Stock Appreciation Right is evidenced by
an Option Certificate, the SAR Value for each share of Stock subject to the
Stock Appreciation Right shall be the Option Price for the related Option.
Each such Option Certificate shall provide that the exercise of the Stock
Appreciation Right with respect to any share of Stock shall cancel the Key
Employee's right to exercise his or her Option with respect to such share
and, conversely, that the exercise of the Option with respect to any share
of Stock shall cancel the Key Employee's right to exercise his or her Stock
Appreciation Right with respect to such share. A Stock Appreciation Right
which is granted as part of an Option shall be exercisable only while the
related Option is exercisable. The Option Certificate shall set forth such
other terms and conditions for the exercise of the Stock Appreciation Right
as the Committee deems appropriate under the circumstances.
8.3 Exercise. A Stock Appreciation Right shall be exercisable only when
the Fair Market Value of a share of Stock subject to such Stock Appreciation
Right exceeds the SAR Value for such share, and the payment due on exercise
shall be based on such excess with respect to the number of shares of Stock to
which the exercise relates. A Key Employee upon the exercise of his or her Stock
Appreciation Right shall receive a payment from Belk in cash or in Stock, or in
a combination of cash and Stock, and any payment in Stock shall be based on the
Fair Market Value of a share of Stock on the date the Stock Appreciation Right
is exercised. The Committee acting in its absolute discretion shall have the
right to determine the form and time of any payment under this sec. 8.3.
SEC. 9
STOCK
9.1 Board Action. The Board acting in its absolute discretion may
authorize the Committee to grant Stock to Key Employees under this Plan from
time to time and, further, shall have the right to make new Stock or Restricted
Stock grants in exchange for the cancellation of an outstanding Restricted Stock
grant to such Key Employee. Each Restricted Stock grant shall be evidenced by a
Restricted Stock Certificate, and each Restricted Stock Certificate shall set
forth the conditions under which Stock will be issued pursuant to the grant and
the conditions under which the Key Employee's interest in the underlying Stock
will become nonforfeitable.
9.2 Restricted Stock Grants.
(1) Conditions to Issuance of Stock. The Committee acting in its
absolute discretion may make the issuance of Stock to a Key Employee
subject to the satisfaction of one, or more than one, condition
<PAGE> 6
which the Committee deems appropriate under the circumstances for Key
Employees generally or for a Key Employee in particular, and the related
Restricted Stock Certificate shall set forth each such condition and the
deadline for satisfying each such condition. Stock subject to a Restricted
Stock grant shall be issued in the name of a Key Employee only after each
such condition, if any, has been timely satisfied, and any Stock which is
so issued and is subject to forfeiture conditions pursuant to sec. 9.2(2)
shall be held by Belk pending the satisfaction of those forfeiture
conditions.
(2) Forfeiture Conditions. The Committee acting in its absolute
discretion may make Stock issued in the name of a Key Employee subject to
one, or more than one, objective employment, performance or other
forfeiture condition that the Committee acting in its absolute discretion
deems appropriate under the circumstances for Key Employees generally or
for a Key Employee in particular, and the related Restricted Stock
Certificate shall set forth each such forfeiture condition, if any, and the
deadline, if any, for Each share of Stock issued pursuant to a Restricted
Stock grant shall be unavailable under sec. 3 unless such share thereafter
is forfeited as a result of a failure to timely satisfy a forfeiture
condition, in which event such share of Stock shall again become available
under sec. 3 as of the date of such failure, satisfying each such
forfeiture condition.
9.3 Dividends and Voting Rights. If a cash dividend is paid on a share of
Stock issued to a Key Employee pursuant to a Restricted Stock grant which Stock
is subject to forfeiture conditions pursuant to sec. 9.2(2), Belk shall pay such
cash dividend directly to such Key Employee. Such Stock dividend shall be
treated as part of the Restricted Stock grant, and a Key Employee's interest in
such Stock dividend shall be forfeited or shall become nonforfeitable at the
same time as the Stock with respect to which the Stock dividend was paid is
forfeited or becomes nonforfeitable. The disposition of each other form of
dividend which is declared on such a share of Stock shall be made in accordance
with such rules as the Committee shall adopt with respect to each such dividend.
A Key Employee also shall have the right to vote such Stock.
9.4 Satisfaction of Forfeiture Conditions; Provision for Income Taxes. A
share of Stock shall cease to be Restricted Stock at such time as a Key
Employee's interest in such Stock becomes nonforfeitable under this Plan, and
the certificate representing such share shall be transferred to the Key Employee
as soon as practicable thereafter. The Committee acting in its absolute
discretion shall have the power to authorize and direct Belk to pay a cash bonus
(or to provide in the terms of the Restricted Stock Certificate for Belk to make
such payment) to a Key Employee to pay all, or any portion of, his or her
federal, state and local income tax liability which the Committee deems
attributable to a Stock or Restricted Stock grant, and to pay any such tax
liability attributable to such cash bonus.
9.5 Section 162(m). The Committee shall use its best efforts (where the
Committee deems appropriate under the circumstances) to grant Restricted Stock
either (1) subject to at least one condition which seems likely to result in the
Restricted Stock qualifying as "performance-based compensation" under
sec. 162(m) of the Code or (2) under such other circumstances as the Committee
deems likely to result in an income tax deduction for Belk with respect such
Restricted Stock grant.
SEC. 10
NONTRANSFERABILITY
No Option, forfeitable Restricted Stock or Stock Appreciation Right shall
(absent the Committee's consent) be transferable by a Key Employee or an
Director other than by will or by the laws of descent and distribution, and any
Option or Stock Appreciation Right shall (absent the Committee's consent) be
exercisable during a Key Employee's or Director's lifetime only by the Key
Employee or Director. The person or persons to whom an Option or Restricted
Stock or Stock Appreciation Right is transferred by will or by the laws of
descent and distribution (or with the Committee's consent) thereafter shall be
treated as the Key Employee or Director.
<PAGE> 7
SEC. 11
SECURITIES REGISTRATION
As a condition to the receipt of shares of Stock under this Plan, the Key
Employee or Director shall, if so requested by Belk, agree to hold such shares
of Stock for investment and not with a view of resale or distribution to the
public and, if so requested by Belk, shall deliver to Belk a written statement
satisfactory to Belk to that effect. If so requested by Belk, the Key Employee
or Director shall make a written representation to Belk that he or she will not
sell or offer for sale any of such Stock unless a registration statement shall
be in effect with respect to such Stock under the 1933 Act and any applicable
state securities law or he or she shall have furnished to Belk an opinion in
form and substance satisfactory to Belk of legal counsel satisfactory to Belk
that such registration is not required. Certificates representing the Stock
transferred pursuant to a Stock or Restricted Stock grant or upon the exercise
of an Option or Stock Appreciation Right may at the discretion of Belk bear a
legend to the effect that such Stock has not been registered under the 1933 Act
or any applicable state securities law and that such Stock cannot be sold or
offered for sale in the absence of an effective registration statement as to
such Stock under the 1933 Act and any applicable state securities law or an
opinion in form and substance satisfactory to Belk of legal counsel satisfactory
to Belk that such registration is not required.
SEC. 12
LIFE OF PLAN
No Option, Stock, Restricted Stock or Stock Appreciation Right shall be
granted under this Plan on or after the earlier of
(1) the tenth anniversary of the effective date of this Plan (as
determined under sec. 4 of this Plan), in which event this Plan otherwise
thereafter shall continue in effect until all outstanding Options and Stock
Appreciation Rights have been exercised in full or no longer are
exercisable and all Restricted Stock grants under this Plan have been
forfeited or the forfeiture conditions, if any, on such Stock have been
satisfied in full, or
(2) the date on which all of the Stock reserved under sec. 3 of this
Plan has (as a result of Stock grants or the exercise of Options or Stock
Appreciation Rights granted under this Plan or the satisfaction of the
forfeiture conditions, if any, on Restricted Stock) been issued or no
longer is available for use under this Plan, in which event this Plan also
shall terminate on such date.
<PAGE> 8
SEC. 13
ADJUSTMENT
13.1 Capital Structure. The number, kind or class (or any combination
thereof) of shares of Stock reserved under sec. 3 of this Plan, the annual grant
caps described in sec. 6 of this Plan, the number, kind or class (or any
combination thereof) of shares of Stock subject to Options or Stock Appreciation
Rights granted under this Plan and the Option Price of such Options and the SAR
Value of such Stock Appreciation Rights as well as the number, kind or class of
shares of Stock and Restricted Stock granted under this Plan shall be adjusted
by the Board in an equitable manner to reflect any change in the capitalization
of Belk, including, but not limited to, such changes as stock dividends or stock
splits.
13.2 Mergers. The Board as part of any corporate transaction described in
sec. 424(a) of the Code shall have the right to adjust (in any manner which the
Board in its discretion deems consistent with sec. 424(a) of the Code) the
number, kind or class (or any combination thereof) of shares of Stock reserved
under sec. 3 of this Plan and the annual grant caps described in sec. 6 of this
Plan. Furthermore, the Committee as part of any corporate transaction described
in sec. 424(a) of the Code shall have the right to adjust (in any manner which
the Board in its discretion deems consistent with sec. 424(a) of the Code) the
number, kind or class (or any combination thereof) of shares of Stock to be
issued under any Restricted Stock grants previously made under this Plan and any
related grant conditions and forfeiture conditions, and the number, kind or
class (or any combination thereof) of shares subject to Option and Stock
Appreciation Right grants previously made under this Plan and the related Option
Price and SAR Value for each such Option and Stock Appreciation Right, and,
further, shall have the right (in any manner which the Committee in its
discretion deems consistent with sec. 424(a) of the Code and without regard to
the annual grant caps described in sec. 6 of this Plan) to make Restricted
Stock, Option and Stock Appreciation Right grants to effect the assumption of,
or the substitution for, restricted stock, option and stock appreciation right
grants previously made by any other corporation to the extent that such
corporate transaction calls for such substitution or assumption of such
restricted stock, option or appreciation right grants.
13.3 Fractional Shares. If any adjustment under this sec. 13 would create
a fractional share of Stock or a right to acquire a fractional share of Stock,
such fractional share shall be disregarded and the number of shares of Stock
reserved under this Plan and the number subject to any Options or Stock
Appreciation Right grants and Restricted Stock grants shall be the next lower
number of shares of Stock, rounding all fractions downward. An adjustment made
under this sec. 13 by the Board shall be conclusive and binding on all affected
persons and, further, shall not constitute an increase in "the number of shares
reserved under sec. 3" within the meaning of sec. 15 of this Plan.
SEC. 14
SALE, MERGER OR CHANGE IN CONTROL
If on any date Belk agrees (whether or not such agreement is subject to the
approval of Belk's shareholders) to sell all or substantially all of its assets
or agrees to any merger, consolidation, reorganization, division or other
corporate transaction in which Stock is converted into another security or into
the right to receive securities or property or if a tender offer is made on any
date which could lead to a Change in Control (other than a tender offer by Belk
or an employee benefit plan established and maintained by Belk), or if there
otherwise is a Change in Control of Belk on any date, any and all conditions to
the exercise of all outstanding Options and Stock Appreciation Rights on such
date and any and all outstanding issuance and forfeiture conditions on any Stock
or Restricted Stock on such date automatically shall be deemed satisfied in
full, and the Board shall have the right (to the extent required as part of such
transaction) to cancel such Options, Stock Appreciation Rights and Restricted
Stock grants after providing each Key Employee and Director a reasonable
opportunity to exercise his or her Options and Stock Appreciation Rights and to
take such other action as necessary or appropriate to receive the Stock subject
to any Restricted Stock grants.
<PAGE> 9
SEC. 15
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent that
the Board deems necessary or appropriate; provided, however, no such amendment
shall be made absent the approval of the shareholders of Belk required under
sec. 422 of the Code (1) to increase the number of shares of Stock reserved
under sec. 3 which can be used for ISO grants, or (2) to change the class of
employees eligible for Options which are ISOs. The Board also may suspend the
granting of Options or Stock Appreciation Rights, Stock or Restricted Stock
under this Plan at any time and may terminate this Plan at any time; provided,
however, the Board shall not have the right unilaterally to modify, amend or
cancel any Option, Stock Appreciation Right or Restricted Stock granted before
such suspension or termination unless (1) the Key Employee or Director consents
in writing to such modification, amendment or cancellation or (2) there is a
dissolution or liquidation of Belk or a transaction described in sec. 13 or
sec. 14 of this Plan.
SEC. 16
MISCELLANEOUS
16.1 Shareholder Rights. No Key Employee or Director shall have any rights
as a shareholder of Belk as a result of the grant of an Option or a Stock
Appreciation Right granted to him or her under this Plan or his or her exercise
of such Option or Stock Appreciation Right pending the actual delivery of the
Stock subject to such Option to such Key Employee or Director. Subject to
sec. 9, a Key Employee's rights as a shareholder in the shares of Stock
underlying a Restricted Stock grant shall be set forth in the related Restricted
Stock Certificate.
16.2 No Contract of Employment. The grant of an Option, a Stock
Appreciation Right or Stock or Restricted Stock to a Key Employee or Director
under this Plan shall not constitute a contract of employment or a right to
continue to serve on the Board and shall not confer on a Key Employee or
Director any rights upon his or her termination of employment or service in
addition to those rights, if any, expressly set forth in the related Option
Certificate, Stock Appreciation Right Certificate, or Restricted Stock
Certificate.
16.3 Withholding. Each Option, Stock Appreciation Right and Stock or
Restricted Stock grant shall be made subject to the condition that the Key
Employee or Director consents to whatever action the Committee directs to
satisfy the federal and state tax withholding requirements, if any, which the
Committee in its discretion deems applicable to the exercise of such Option or
Stock Appreciation Right or the satisfaction of any forfeiture conditions with
respect to Restricted Stock issued in the name of the Key Employee or Director.
The Committee also shall have the right to provide in an Option Certificate,
Stock Appreciation Right Certificate or a Restricted Stock Certificate that a
Key Employee or Director may elect to satisfy federal and state tax withholding
requirements through a reduction in the cash or the number of shares of Stock
actually transferred to him or to her under this Plan.
16.4 Construction. All references to sections (sec.) are to sections
(sec.) of this Plan unless otherwise indicated. This Plan shall be construed
under the laws of the State of Delaware. Finally, each term set forth in sec. 2
shall have the meaning set forth opposite such term for purposes of this Plan
and, for purposes of such definitions, the singular shall include the plural and
the plural shall include the singular.
16.5 Other Conditions. Each Option Certificate, Stock Appreciation Right
Certificate or Restricted Stock Certificate may require that a Key Employee or
Director (as a condition to the exercise of an Option or a Stock Appreciation
Right or a Restricted Stock grant) enter into any agreement or make such
representations prepared by Belk, including (without limitation) any agreement
which restricts the transfer of Stock acquired pursuant to the exercise of an
Option or a Stock Appreciation Right or Restricted Stock grant or provides for
the repurchase of such Stock by Belk.
16.6 Rule 16b-3. The Committee shall have the right to amend any Option,
Restricted Stock or Stock Appreciation Right grant or to withhold or otherwise
restrict the transfer of any Stock or cash under this Plan to a Key Employee or
Director as the Committee deems appropriate in order to satisfy any condition or
<PAGE> 10
requirement under Rule 16b-3 to the extent Rule 16 of the 1934 Act might be
applicable to such grant or transfer.
16.7 Loans. If approved by the Committee, Belk may lend money to, or
guarantee loans made by a third party to, any Key Employee to finance all or a
part of the exercise of any Option granted under this, and the exercise of an
Option with the proceeds of any such loan shall be treated as an exercise or
purchase for cash under this Plan.
IN WITNESS WHEREOF, Belk, Inc. has caused its duly authorized officer to
execute this Plan to evidence its adoption of this Plan.
BELK, INC.
By:
--------------------------------------
Date:
--------------------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Belk-Simpson Company, Greenville, South Carolina (incorporated in South
Carolina)
United Electronic Services, Inc. (incorporated in Virginia)
Belk Stores Mutual Insurance Company (incorporated in North Carolina)
The Belk Center, Inc. (incorporated in North Carolina)
Belk International, Inc. (incorporated in North Carolina)
Belk National Bank (incorporated in Georgia)
Belk Stores Services, Inc. (incorporated in North Carolina)
Belk Administration Company (incorporated in North Carolina) (subsidiary of Belk
Stores Services, Inc.)
Belk Stores of Virginia LLC (incorporated in North Carolina) (subsidiary of Belk
Stores Services, Inc.)
Belk Accounts Receivable LLC (incorporated in North Carolina) (subsidiary of
Belk Stores Services, Inc.)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 23,009
<SECURITIES> 21,809
<RECEIVABLES> 349,968
<ALLOWANCES> 9,907
<INVENTORY> 499,285
<CURRENT-ASSETS> 881,732
<PP&E> 1,174,646
<DEPRECIATION> 575,701
<TOTAL-ASSETS> 1,629,501
<CURRENT-LIABILITIES> 290,003
<BONDS> 405,357
0
0
<COMMON> 549
<OTHER-SE> 822,219
<TOTAL-LIABILITY-AND-EQUITY> 1,629,501
<SALES> 2,144,674
<TOTAL-REVENUES> 2,144,674
<CGS> 1,449,077
<TOTAL-COSTS> 1,449,077
<OTHER-EXPENSES> 7,597
<LOSS-PROVISION> 10,087
<INTEREST-EXPENSE> 37,975
<INCOME-PRETAX> 111,106
<INCOME-TAX> 38,400
<INCOME-CONTINUING> 72,706
<DISCONTINUED> (1,543)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,163
<EPS-BASIC> 1.28
<EPS-DILUTED> 0
</TABLE>
