UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended January 30, 2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission File Number
000-26207
BELK, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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56-2058574
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(State of incorporation)
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(IRS Employer Identification No.)
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2801 West Tyvola Road, Charlotte, North Carolina
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28217-4500
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(Address of Principal Executive
Offices)
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(Zip Code)
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Registrants telephone number, including area code:
(704) 357-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
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Title of each class
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Class A Common Stock, $0.01 per share
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Class B Common Stock, $0.01 per share
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated
filer, and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common equity held by
non-affiliates of the Registrant (assuming for these purposes
that all executive officers and directors are
affiliates of the Registrant) as of August 1,
2009 (based on the price at which the common equity was last
sold on August 10, 2009, the date closest to the last
business day of the Companys most recently completed
second fiscal quarter) was $142,862,916. 48,297,326 shares
of common stock were outstanding as of April 1, 2010,
comprised of 46,905,134 shares of the Registrants
Class A Common Stock, par value $0.01, and
1,392,192 shares of the Registrants Class B
Common Stock, par value $0.01.
Documents
Incorporated By Reference
Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 26, 2010 are incorporated
herein by reference in Part III.
BELK,
INC
TABLE OF
CONTENTS
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PART I
General
Belk, Inc., together with its subsidiaries (collectively, the
Company or Belk), is the largest
privately owned mainline department store business in the United
States, with 305 stores in 16 states, primarily in the
southern United States. The Company generated revenues of
$3.3 billion for the fiscal year ended January 30,
2010, and together with its predecessors, has been successfully
operating department stores since 1888 by seeking to provide
superior service and merchandise that meets customers
needs for fashion, value and quality.
The Companys fiscal year ends on the Saturday closest to
each January 31. All references to fiscal years are as
follows:
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Fiscal Year
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Ended
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Weeks
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2011
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January 29, 2011
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52
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2010
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January 30, 2010
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52
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2009
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January 31, 2009
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2008
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February 2, 2008
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2007
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February 3, 2007
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Belk stores seek to provide customers the convenience of
one-stop shopping, with an appealing merchandise mix and
extensive offerings of brands, styles, assortments and sizes.
Belk stores sell top national brands of fashion apparel, shoes
and accessories for women, men and children, as well as
cosmetics, home furnishings, housewares, fine jewelry, gifts and
other types of quality merchandise. The Company also sells
exclusive private label brands, which offer customers
differentiated merchandise selections. Larger Belk stores may
include hair salons, spas, restaurants, optical centers and
other amenities.
Although the Company operates 96 stores that exceed
100,000 square feet in size, the majority of Belk stores
range in size from 60,000 to 100,000 square feet. Most of
the Belk stores are anchor tenants in major regional malls or in
open-air shopping centers in medium and smaller markets. In the
aggregate, the Belk stores occupy approximately
23.4 million square feet of selling space.
Management of Belks store operations is organized into
three regional operating divisions, with each unit headed by a
division chairman and a director of stores. Each division
supervises a number of stores and maintains an administrative
office in the markets served by the division. Division offices
execute centralized initiatives at the individual stores, and
their primary activities relate to providing management and
support for the personnel, operations and maintenance of the
Belk stores in their regions. These divisions are not considered
segments for financial reporting purposes.
Belk Stores Services, Inc., a subsidiary of Belk, Inc., and its
subsidiary Belk Administration Company, along with Belk
International, Inc., a subsidiary of Belk, Inc., and its
subsidiary, Belk Merchandising Company, LLC (collectively
BSS), coordinate the operations of Belk stores on a
company-wide basis. BSS provides a wide range of services to the
Belk division offices and stores, such as merchandising,
merchandise planning and allocation, advertising and sales
promotion, information systems, human resources, public
relations, accounting, real estate and store planning, credit,
legal, tax, distribution and purchasing.
The Company was incorporated in Delaware in 1997. The
Companys principal executive offices are located at
2801 West Tyvola Road, Charlotte, North Carolina
28217-4500,
and its telephone number is
(704) 357-1000.
Business
Strategy
Belk seeks to maximize its sales opportunities by providing
quality merchandise assortments of fashion goods that
differentiate its stores from competitors. The Companys
merchants and buyers monitor fashion merchandising trends, shop
domestic and international markets and leverage relationships
with key vendors in order to provide the latest seasonal
assortments of most-wanted styles and brands of merchandise.
Through merchandise planning and
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allocation, the Company tailors its assortments to meet the
particular needs of customers in each market. The Company
conducts customer research and participates in market studies on
an ongoing basis in order to obtain information and feedback
from customers that will enable it to better understand their
merchandise needs and service preferences.
The Companys marketing and sales promotion strategy seeks
to attract customers to shop at Belk by keeping them informed of
the latest fashion trends, merchandise offerings, and sales
promotions through a combination of advertising media, including
direct mail, circulars, broadcast, Internet and in-store special
events. Belk uses its proprietary database to communicate
directly to key customer constituencies with special offers
designed to appeal to these specific audiences. The sales
promotions are designed to promote attractive merchandise brands
and styles at compelling price values with adequate inventories
planned and allocated to ensure that stores will be in stock on
featured merchandise.
Belk strives to attract and retain talented, well-qualified
associates who provide a high level of friendly, personal
service to enhance the customers shopping experience. Belk
associates are trained to be knowledgeable about the merchandise
they sell, approach customers promptly, help when needed, and
provide quick checkout. The Company desires to be an inclusive
Company that embraces diversity among its associates, customers,
and vendors. Its ongoing diversity program includes a number of
company-wide initiatives aimed at increasing the diversity of
its management and associate teams, increasing its spend with
diverse vendors, creating awareness of diversity issues, and
demonstrating the Companys respect for, and responsiveness
to, the rapidly changing cultural and ethnic diversity in Belk
markets.
Belk also makes investments each year in information technology
and process improvement in order to build and strengthen its
business infrastructure. Its various information systems and Six
Sigma process improvement initiatives are designed to improve
the overall efficiency and effectiveness of the organization in
order to improve operating performance and financial results.
Growth
Strategy
In recent years, the Company has taken advantage of prudent
opportunities to expand its store base by opening and expanding
stores in new and existing markets in order to increase sales,
market share and customer loyalty. In response to recent
economic conditions and the significant decline in the number of
new retail centers being developed, the Company has scaled back
its store growth plans but will continue to explore strategic
opportunities to open and expand stores where the Belk name and
reputation are well known and in contiguous markets where Belk
can distinguish its stores from the competition. The Company
will also consider closing stores in markets where more
attractive locations become available or where the Company does
not believe there is potential for long term growth and success.
In addition, the Company periodically reviews and adjusts its
space requirements to create greater operating efficiencies and
convenience for the customer.
The Company opened three new stores during fiscal year 2010 with
a combined selling space of approximately 243,000 square
feet and completed expansions of three existing stores. New
stores and store expansions completed in fiscal year 2010
include:
New
Stores
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Size (Selling
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Opening
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New or Existing
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Location
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Sq. Ft.)
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Date
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Market
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Newnan, GA (The Forum Ashley Park)
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109,369
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3/11/09
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Existing
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Winder, GA (Barrow Crossing)
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66,901
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3/11/09
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New
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Richmond, KY (Richmond Centre)
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66,957
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3/11/09
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New
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3
Store
Expansions
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Expanded Size
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Completion
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Location
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(Selling Sq. Ft)
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Date
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Knoxville, TN (Turkey Creek)
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92,412
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5/6/09
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Ashland, KY (Ashland Town Center)
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83,467
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6/3/09
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Hilton Head Island, SC (Shelter Cove)
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88,818
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10/14/09
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In fiscal year 2011, the Company plans to open one new store
that will have selling space of approximately 68,000 square
feet. It also expects to complete major remodels of three
existing stores. The Company has increased the amount of its
anticipated capital expenditures for fiscal year 2011 primarily
due to expansions and remodels, and other capital needs.
Merchandising
Belk stores feature quality name brand and private label
merchandise in moderate to better price ranges, providing
fashion, selection and value to customers. The merchandise mix
is targeted to middle and upper income customers shopping for
their families and homes, and includes a wide selection of
fashion apparel, accessories and shoes for women, men and
children, as well as cosmetics, home furnishings, housewares,
gift and guild, jewelry, and other types of department store
merchandise. The goal is to position Belk stores as the leaders
in their markets in providing updated, fashionable assortments
with depth in style, selection and value.
Belk stores offer complete assortments of many national brands.
The Company has enjoyed excellent long-term relationships with
many top apparel and cosmetics suppliers and is often the sole
distributor of desirable apparel, accessories and cosmetic lines
in its markets. Belk stores also offer exclusive private brands
in selected merchandise categories that are designed and
manufactured to provide compelling fashion assortments that meet
customers needs and set Belk apart from competitors
through their styling, quality and price. The Companys
private brands include Kim Rogers, Choices, ND New
Directions, Madison, Be Inspired, Sophie Max, Belk Silverworks,
Saddlebred, Pro Tour, Red Camel, J. Khaki, Nursery Rhyme,
Biltmore For Your Home, Mary Janes Farm, Home Accents,
Lorena Garcia and Cooks Tools.
In the fourth quarter of fiscal year 2010, Belk began a
strategic initiative to strengthen its merchandising and
planning organization. The Company plans to invest in additional
staffing and enhanced merchandise information systems in order
to improve buying and planning processes. The initiative seeks
to enable Belk to better meet customers shopping needs by
effectively tailoring merchandise assortments by market area.
The Company will begin piloting the initiative in fiscal year
2011, with completion anticipated in fiscal year 2012.
In fiscal year 2007, the Company established its own fine
jewelry business, with buying and administrative offices at the
corporate office in Charlotte and a state of the art repair and
distribution center located in Ridgeland, Mississippi. The shops
replaced the Companys former leased fine jewelry
operations and offered expanded assortments of high quality
diamond jewelry, rubies, emeralds and other fine gemstones, and
top brands of fine watches and jewelry. As of the end of fiscal
year 2010, the Company was operating 154 fine jewelry shops in
its stores under the new Belk and Co. Fine Jewelers
name.
Marketing
and eCommerce
The Company employs strategic marketing initiatives to develop
and enhance the equity of the Belk brand and to create and
strengthen
one-to-one
relationships with customers. The Companys marketing
strategy involves a combination of mass media print and
broadcast advertising, direct marketing, Internet marketing,
comprehensive store visual merchandising and signing and
in-store special events, such as trunk shows, celebrity and
designer appearances, Charity Sale, Educator Appreciation Day,
Healthcare Appreciation Day and Senior Day.
During the third quarter of fiscal year 2009, the Company
launched a redesigned and expanded belk.com website and began
operating a 142,000 square foot eCommerce fulfillment
center in Pineville, NC to process handling and shipping of
online orders. The website features a wide assortment of fashion
apparel, accessories and shoes, plus a large selection of
cosmetics, home and gift merchandise. Many leading national
brands are offered at belk.com along with the Companys
exclusive private brands. The website also includes expanded
information
4
about the Company, including history, career opportunities,
community involvement, diversity initiatives, a Company
newsroom, its Securities and Exchange Commission
(SEC) filings, and more.
Gift
Cards
The Companys gift card program provides a convenient
option for customer gift-giving and enables stores to issue
electronic credits to customers in lieu of cash refunds for
merchandise returned without sales receipts. Several types of
gift cards are available, each featuring a distinctive design
and appeal. During fiscal year 2010, the Company continued to
expand its efforts to offer Belk gift cards for sale outside of
Belk stores mainly in select grocery store outlets through
partnerships with regional and national grocery store chains.
Salons
and Spas
As of the end of fiscal year 2010, the Company owned and
operated 23 hair styling salons in various store locations, 17
of which also offer spa services. The hair salons offer the
latest hair styling services as well as wide assortments of top
brand name beauty products, including Aveda, Bumble and Bumble
and Redken. The spas offer massage therapy, full skincare, nail
and pedicure services and other specialized body treatments.
Eight of the salons and spas operate under the name
Carmen! Carmen! Prestige Salon and Spa at Belk, two
under the name Richard Joseph Studio Salon/Spa at
Belk, and the balance under the name Belk Salon and
Spa.
Belk Gift
Registry
The Companys gift registry offers a wide assortment of
bridal merchandise that can be registered for and purchased
online at belk.com or in local Belk stores and shipped directly
to the customer or gift recipient. The gift registry is a fully
integrated system that combines the best of Internet technology
and in-store shopping. Brides and engaged couples can
conveniently create their gift registry and make selections
through the belk.com website, or they can go to a Belk store
where a certified professional bridal consultant can provide
assistance using the stores online gift registry kiosk. In
the Belk stores that have kiosks, brides and engaged couples can
use a portable scanning device, which enables them to quickly
and easily enter information on their gift selections directly
into the registry system.
Belk
Proprietary Charge Programs
In fiscal year 2010, Belk and GE Money Bank (GE), an
affiliate of GE Consumer Finance, continued to plan and execute
enhanced marketing programs designed to recognize and reward
Belk card customers, attract profitable new customers and
increase sales from existing card customers. The Companys
customer loyalty program (Belk Rewards) issues
certificates for discounts on future purchases to Belk card
customers based on their spending levels. The rewards program is
cumulative, issuing a $10 certificate for every 400 points
earned in a calendar year. Belk card customers whose purchases
total $600 or more in a calendar year qualify for a Belk Premier
card that entitles them to unlimited free gift wrapping and
basic alterations, an interest-free 0% Premier Plan account and
notifications of special savings and sales events. Customers who
spend more than $2,500 annually at Belk qualify for a Belk Elite
Card that offers additional benefits, including a specially
designed black Elite credit card, triple points events, a 20%
off birthday shopping pass, points that never expire, quarterly
Pick Your Own Sale Days and free shipping coupons.
Systems
and Technology
The Company continued to invest in technology and information
systems during fiscal year 2010 to support sales and
merchandising initiatives, reduce costs, improve core business
processes and support its overall business strategy. Key systems
initiatives included enhancements to the belk.com website and
its customer fulfillment center, implementation of price
optimization and product life cycle management software, supply
chain enhancements and the outsourcing of application
maintenance, support and development functions. Belk continues
to invest in its information systems and new technology in order
to expand its Internet business and provide improved decision
making tools that enable management to react quickly to changing
sales trends, improve merchandise mix, distribute merchandise
based on individual market needs and manage inventory levels
based on customer demand.
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Inventory
Management and Logistics
The Company operates four distribution facilities that receive
and process merchandise for delivery to Belk stores and belk.com
customers. A 371,000 square foot distribution center in
Blythewood, SC services the stores located in the northern and
eastern areas of the Companys footprint, a
174,000 square foot distribution center at the Greater
Jackson Industrial Park in Byram, MS services the central and
western areas and an 8,300 square foot distribution center
in Ridgeland, MS services the Companys fine jewelry
operations. During fiscal year 2009, the Company opened a
142,000 square foot
direct-to-consumer
eCommerce fulfillment center in Pineville, NC to process orders
from its belk.com website. The Companys store
ready merchandise receiving processes enable stores to
receive and process merchandise shipments and move goods to the
sales floor quickly and efficiently. Additionally, the Company
continued the implementation of eco-friendly
initiatives aimed at fulfilling the Companys commitment to
be a good steward of the environment by eliminating waste,
conserving energy, using resources more responsibly and
embracing and promoting sustainable practices.
Non-Retail
Businesses
Several of the Companys subsidiaries engage in businesses
that indirectly or directly support the operations of the retail
department stores. The non-retail businesses include United
Electronic Services (UES), a division of the
Company, which provides equipment maintenance services to Belk
stores and third parties.
Industry
and Competition
The Company operates department stores in the highly competitive
retail industry. Management believes that the principal
competitive factors for retail department store operations
include merchandise selection, quality, value, customer service
and convenience. The Company believes its stores are strong
competitors in all of these areas. The Companys primary
competitors are traditional department stores, mass
merchandisers, national apparel chains, individual specialty
apparel stores and direct merchant firms, including J.C. Penney
Company, Inc., Dillards, Inc., Kohls Corporation,
Macys, Inc., Sears Holding Corporation, Target Corporation
and Wal-Mart Stores, Inc.
Trademarks
and Service Marks
Belk Stores Services, Inc. owns all of the principal trademarks
and service marks now used by the Company, including
Belk. These marks are registered with the United
States Patent and Trademark Office. The term of each of these
registrations is generally ten years, and they are generally
renewable indefinitely for additional ten-year periods, so long
as they are in use at the time of renewal. Most of the
trademarks, trade names and service marks employed by the
Company are used in its private brands program. The Company
intends to vigorously protect its trademarks and service marks
and initiate appropriate legal action whenever necessary.
Seasonality
and Quarterly Fluctuations
Due to the seasonal nature of the retail business, the Company
has historically experienced and expects to continue to
experience seasonal fluctuations in its revenues, operating
income and net income. A disproportionate amount of the
Companys revenues and a substantial amount of operating
and net income are realized during the fourth quarter, which
includes the holiday selling season. Working capital
requirements also fluctuate during the year, increasing somewhat
in mid-summer in anticipation of the fall merchandising season
and increasing substantially prior to the holiday selling season
when the Company carries higher inventory levels. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Seasonality and
Quarterly Fluctuations.
Associates
As of the end of fiscal year 2010, the Company had approximately
23,880 full-time and part-time associates. Because of the
seasonal nature of the retail business, the number of associates
fluctuates from time to time and is highest during the holiday
shopping period in November and December. The Company as a whole
considers its
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relations with associates to be good. None of the associates of
the Company are represented by unions or subject to collective
bargaining agreements.
Where You
Can Find More Information
The Company makes available free of charge through its website,
www.belk.com, its annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements and amendments to those reports filed pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after the
Company files such material with, or furnishes it to, the SEC.
Certain statements made in this report, and other written or
oral statements made by or on our behalf, may constitute
forward-looking statements within the meaning of the
federal securities laws. Statements regarding future events and
developments and our future performance, as well as our
expectations, beliefs, plans, estimates or projections relating
to the future, are forward-looking statements within the meaning
of these laws. You can identify these forward-looking statements
through our use of words such as may,
will, intend, project,
expect, anticipate, believe,
estimate, continue or other similar
words.
Forward-looking statements include information concerning
possible or assumed future results from merchandising, marketing
and advertising in our stores and through the Internet, general
economic conditions, our ability to be competitive in the retail
industry, our ability to execute profitability and efficiency
strategies, our ability to execute growth strategies,
anticipated benefits from our strategic initiative to strengthen
our merchandising and planning organizations, anticipated
benefits from the redesign of our belk.com website and our
eCommerce fulfillment center, the expected benefit of new
systems and technology, anticipated benefits from our
acquisitions and the anticipated benefit under our Program
Agreement with GE. These forward-looking statements are subject
to certain risks and uncertainties that may cause our actual
results to differ significantly from the results we discuss in
such forward-looking statements.
We believe that these forward-looking statements are reasonable.
However, you should not place undue reliance on such statements.
Any such forward-looking statements are qualified by the
following important risk factors and other risks which may be
disclosed from time to time in our filings that could cause
actual results to differ materially from those predicted by the
forward-looking statements. Forward-looking statements relate to
the date initially made, and we undertake no obligation to
update them.
General
Economic, Political and Business Conditions
General economic, political and business conditions, nationally
and in our market areas, are beyond our control. These factors
influence our forecasts and impact actual performance. Factors
include rates of economic growth, interest rates, inflation or
deflation, consumer credit availability, levels of consumer debt
and bankruptcies, tax rates and policy, unemployment trends,
potential acts of terrorism and threats of such acts and other
matters that influence consumer confidence and spending.
Consumer purchases of discretionary items, including our
merchandise, generally decline during recessionary periods and
other periods where disposable income is adversely affected. The
downturn in the economy during fiscal years 2009 and 2010 has
affected, and will continue to affect for an undetermined period
of time, consumer purchases of our merchandise. The precise
future impact and duration of the downturn is uncertain, but it
could continue to adversely impact our results of operations and
continued growth.
Debt
Covenants
Our failure to comply with debt covenants could adversely affect
capital resources, financial condition and liquidity. Our debt
agreements contain certain restrictive financial covenants,
which include a leverage ratio, consolidated debt to
consolidated capitalization ratio and a fixed charge coverage
ratio. As of January 30, 2010, we were in compliance with
our debt covenants. Continued worsening of the economy could
further reduce consumer purchases of our merchandise and
adversely impact our results of operations and continued growth.
If we fail to comply with our debt covenants as a result of one
or more of the factors listed above, we could be forced to
settle
7
outstanding debt obligations, negatively impacting cash flows.
Our ability to obtain future financing could also be negatively
impacted.
Anticipating
Customer Demands
Our business depends upon the ability to anticipate the demands
of our customers for a wide variety of merchandise and services.
We routinely make predictions about the merchandise mix,
quality, style, service, convenience and credit availability of
our customers. If we do not accurately anticipate changes in
buying, charging and payment behavior among our customers, or
consumer tastes, preferences, spending patterns and other
lifestyle decisions, it could result in an inventory imbalance
and adversely affect our performance and our relationships with
our customers.
Effects
of Weather
Unseasonable and extreme weather conditions in our market areas
affect our business. Apparel comprises a majority of our sales.
If the weather in our market areas is unseasonably warm or cold
for an extended period of time, it can affect the timing of
apparel purchases by our customers and result in an inventory
imbalance. In addition, frequent or unusually heavy snow or ice
storms, hurricanes or tropical rain storms in our market areas
may decrease customer traffic in our stores and adversely affect
our performance.
Seasonal
Fluctuations
We experience seasonal fluctuations in quarterly net income due
to a number of factors. A significant portion of our revenues
are generated during the holiday season in the fourth fiscal
quarter. Because we order merchandise in advance of our peak
season, we carry a significant amount of inventory during that
time. A decrease in the availability of working capital needed
in the months before the peak period could impact our ability to
build up an appropriate level of merchandise in our stores. If
we do not order the merchandise mix demanded by our customers or
if there is a decrease in customer spending during the peak
season, we may be forced to rely on markdowns or promotional
sales to dispose of the inventory.
Highly
Competitive Industry
We face competition from other department and specialty stores
and other retailers, including luxury goods retailers, general
merchandise stores, Internet retailers, mail order retailers and
off-price and discount stores in the highly competitive retail
industry. Competition is characterized by many factors,
including price, merchandise mix, quality, style, service,
convenience, credit availability and advertising. We have
expanded and continue to expand into new markets served by our
competitors and face the entry of new competitors into or
expansion of existing competitors in our existing markets, all
of which further increase the competitive environment and cause
downward pressure on prices and reduced margins. Although we
offer on-line gift registry and Internet purchasing options for
certain merchandise categories, we rely on in-store sales for a
substantial majority of our revenues. A significant shift in
customer buying patterns from in-store purchases to purchases
via the Internet could impact our business.
Advertising,
Marketing and Promotional Campaigns
We spend significant amounts on advertising, marketing and
promotional campaigns. Our business depends on effective
marketing to generate high customer traffic in our stores and,
to a lesser degree, through on-line sales. If our advertising,
marketing and promotional efforts are not effective, this could
impact our results.
Merchandise
Sourcing
Our merchandise is sourced from a wide variety of domestic and
international vendors. Our ability to find qualified vendors,
including the vendors ability to secure adequate financing
and obtain access to products in a timely and efficient manner,
could be a significant challenge, especially with respect to
goods sourced outside the United States. Political or financial
instability, trade restrictions, tariffs, transport capacity,
costs and other factors relating to foreign trade are beyond our
control, and we may experience supply problems or untimely
delivery of
8
merchandise as a result. If we are not able to source
merchandise at an acceptable price and in a timely manner, it
could impact our results.
Credit
Card Operations
In fiscal year 2006, we sold our proprietary credit card
business to, and entered into a
10-year
strategic alliance with GE to operate our private label credit
card business. Sales of merchandise and services are facilitated
by these credit card operations. We receive income from GE
relating to the credit card operations based on a variety of
variables, but primarily from the amount of purchases made
through the proprietary credit cards. The income we receive from
this alliance and the timing of receipt of payments will vary
based on changes in customers credit card use, and
GEs ability to extend credit to our customers, all of
which can vary based on changes in federal and state banking and
consumer protection laws and from a variety of economic, legal,
social, and other factors that we cannot control.
Inventory
Levels
We purchase inventory at levels that match anticipated sales. If
we do not correctly anticipate the levels and our inventories
become too large, we may have to take markdowns and decrease the
sales price of significant amounts of inventory, which could
reduce our revenues and profitability.
Expense
Management
Our performance depends on appropriate management of our expense
structure, including our selling, general and administrative
costs. If we fail to meet our anticipated cost structure based
on our anticipated sales level or to appropriately reduce
expenses during a weak sales environment, our results of
operations could be adversely affected.
Store
Growth
Our ability to identify strategic opportunities to open new
stores, or to remodel or expand existing stores, will depend in
part upon general economic conditions and the availability of
existing retail stores or store sites on acceptable terms. It
will also depend on our ability to successfully execute our
retailing concept in new markets and geographic regions.
Increases in real estate, construction and development costs,
consolidation or viability of prospective developers and the
availability of financing to potential developers could limit
our growth opportunities. If consumers are not receptive to us
in new markets or regions, our financial performance could be
adversely affected. In addition, we will need to identify, hire
and retain a sufficient number of qualified personnel to work in
our new stores.
Logistics,
Distribution and Information Technology
We currently operate distribution centers in South Carolina and
Mississippi that service all of our stores and an eCommerce
fulfillment center in North Carolina that processes belk.com
customer orders. The efficient operation of our business is
dependent on receiving and distributing merchandise in a
cost-effective and timely manner. We also rely on information
systems to effectively manage sales, distribution, merchandise
planning and allocation functions. We are continuing to
implement software technology to assist with these functions. If
we do not effectively operate the distribution network or if
information systems fail to perform as expected, our business
could be disrupted.
eCommerce
In fiscal year 2009, we launched a substantially updated and
redesigned website that enhanced customers online shopping
capabilities, offered expanded merchandise assortments and
enabled customers to access a broader range of our information
online, including current sales promotions, special events and
corporate information. We also began operating a new fulfillment
facility to process and ship merchandise purchased through our
website. If we do not successfully meet the systems challenges
of operating the website consistently and of efficiently
9
operating the fulfillment center, our financial performance
could be adversely affected. In addition, if customers are not
receptive to our eCommerce offerings, revenues and profitability
could be adversely impacted.
Integrating
and Operating Acquired Stores
In fiscal year 2006, we acquired Proffitts and
McRaes stores from Saks Incorporated and in fiscal year
2007, we acquired Parisian stores from Saks Incorporated. In
fiscal year 2007, we also acquired assets of Migerobe, Inc. and
in fiscal year 2008, took over the operation of formerly leased
fine jewelry operations in a number of our stores. We may make
further acquisitions in the future. In order to realize the
planned efficiencies from our acquisitions, we must effectively
integrate and operate these stores and departments. Our
operating challenges and management responsibilities increase as
we grow. To successfully integrate and operate acquired
businesses, we face a number of challenges, including entering
markets in which we have no direct prior experience; maintaining
uniform standards, controls, procedures and policies in the
newly-acquired stores and departments; extending technologies
and personnel; and effectively supplying the newly-acquired
stores and departments.
Outsourcing
Certain Business Support Relationships
Some business support processes are outsourced to third parties.
We make a diligent effort to ensure that all providers of
outsourced services are observing proper internal control
practices, including secure data transfers between us and the
third-party vendor; however, there are no guarantees that
failures will not occur. Failure of third parties to provide
adequate services could have an adverse effect on our results of
operations, financial condition or ability to accomplish our
financial and management reporting.
Other
Factors
Other factors that could cause actual results to differ
materially from those predicted include: our ability to obtain
capital to fund any growth or expansion 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;
uncertainties of litigation; and labor strikes or other work
interruptions.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Store
Locations
As of the end of fiscal year 2010, the Company operated a total
of 305 retail stores, with approximately 23.4 million
selling square feet, in the following 16 states:
|
|
|
|
|
Alabama 22
|
|
Louisiana 4
|
|
Oklahoma 3
|
Arkansas 7
|
|
Maryland 2
|
|
South Carolina 37
|
Florida 30
|
|
Mississippi 16
|
|
Tennessee 23
|
Georgia 47
|
|
Missouri 1
|
|
Texas 13
|
Kentucky 6
|
|
North Carolina 70
|
|
Virginia 20
|
|
|
|
|
West Virginia 4
|
Belk stores are located in regional malls (158), strip shopping
centers (93), power centers (27) and
lifestyle centers (23). Additionally, there are four
freestanding stores. Approximately 80% of the gross square
footage of the typical Belk store is devoted to selling space to
ensure maximum operating efficiencies. New and renovated stores
feature the latest in retail design, including updated exteriors
and interiors. The interiors are designed to create an exciting,
comfortable and convenient shopping environment for customers.
They include the latest lighting and merchandise fixtures, as
well as quality decorative floor and wall coverings and other
special decor. The store layout is designed for ease of
shopping, and store signage is used to help customers identify
and locate merchandise.
10
As of the end of fiscal year 2010, the Company owned 77 store
buildings, leased 169 store buildings under operating leases and
owned 75 store buildings under ground leases. The typical
operating lease has an initial term of between 15 and
20 years, with four renewal periods of five years each,
exercisable at the Companys option. The typical ground
lease has an initial term of 20 years, with a minimum of
four renewal periods of five years each, exercisable at the
Companys option.
Non-Store
Facilities
The Company also owns or leases the following distribution
centers, division offices and headquarters facilities:
|
|
|
|
|
|
|
Belk Property
|
|
Location
|
|
Own/Lease
|
|
Belk, Inc. Corporate Offices Condominium
|
|
Charlotte, NC
|
|
|
Lease
|
|
Belk Central Distribution Center
|
|
Blythewood, SC
|
|
|
Lease
|
|
Belk Distribution Center
|
|
Byram, MS
|
|
|
Own
|
|
Belk, Inc. Fine Jewelry Distribution Center
|
|
Ridgeland, MS
|
|
|
Lease
|
|
Belk, Inc. eCommerce Fulfillment Center
|
|
Pineville, NC
|
|
|
Lease
|
|
Other
The Company owns or leases various other real properties,
including primarily former store locations. Such property is not
material, either individually or in the aggregate, to the
Companys consolidated financial position or results of
operations.
|
|
Item 3.
|
Legal
Proceedings
|
In the ordinary course of business, the Company is subject to
various legal proceedings and claims. The Company believes that
the ultimate outcome of these matters will not have a material
adverse effect on its consolidated financial position or results
of operations.
11
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
In fiscal year 2010, there was no established public trading
market for either the Belk Class A Common Stock, par value
$.01 per share (the Class A Common Stock) or
the Belk Class B Common Stock, par value $.01 per share
(the Class B Common Stock). There were limited
and sporadic quotations of bid and ask prices for the
Class A Common Stock and the Class B Common Stock in
the Pink Sheets and on the Over the Counter Bulletin Board
under the symbols BLKIA and BLKIB,
respectively. As of January 30, 2010, there were
approximately 599 holders of record of the Class A Common
Stock and 363 holders of record of the Class B Common Stock.
On April 1, 2010, the Company declared a regular dividend
of $0.40 and a special one-time additional dividend of $0.40 on
each share of the Class A and Class B Common Stock
outstanding on that date. On April 1, 2009 and
April 2, 2008, the Company declared a regular dividend of
$0.20 and $0.40, respectively, on each share of the Class A
and Class B Common Stock outstanding on those dates. The
amount of dividends paid out with respect to fiscal year 2011
and each subsequent year will be determined at the sole
discretion of the Board of Directors based upon the
Companys results of operations, financial condition, cash
requirements and other factors deemed relevant by the Board of
Directors. For a discussion of the Companys debt
facilities and their restrictions on dividend payments, see
Liquidity and Capital Resources in
Managements Discussion and Analysis of Financial
Condition and Results of Operations. There were no
purchases of issuer equity securities during the fourth quarter
of fiscal year 2010.
12
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data are derived from the
consolidated financial statements of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
February 3,
|
|
January 28,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(Dollars in thousands, except per share amounts)
|
|
SELECTED STATEMENT OF INCOME DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,346,252
|
|
|
$
|
3,499,423
|
|
|
$
|
3,824,803
|
|
|
$
|
3,684,769
|
|
|
$
|
2,968,777
|
|
Cost of goods sold
|
|
|
2,271,925
|
|
|
|
2,430,332
|
|
|
|
2,636,888
|
|
|
|
2,451,171
|
|
|
|
1,977,385
|
|
Goodwill impairment
|
|
|
|
|
|
|
326,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
158,388
|
|
|
|
165,267
|
|
|
|
159,945
|
|
|
|
142,618
|
|
|
|
113,945
|
|
Operating income (loss)
|
|
|
147,441
|
|
|
|
(232,643
|
)
|
|
|
198,117
|
|
|
|
323,719
|
|
|
|
258,501
|
|
Income (loss) before income taxes
|
|
|
97,190
|
|
|
|
(283,281
|
)
|
|
|
138,644
|
|
|
|
279,050
|
|
|
|
213,555
|
|
Net income (loss)
|
|
|
67,136
|
|
|
|
(212,965
|
)
|
|
|
95,740
|
|
|
|
181,850
|
|
|
|
136,903
|
|
Basic and diluted net income (loss) per share
|
|
|
1.39
|
|
|
|
(4.35
|
)
|
|
|
1.92
|
|
|
|
3.59
|
|
|
|
2.65
|
|
Cash dividends per share
|
|
|
0.200
|
|
|
|
0.400
|
|
|
|
0.400
|
|
|
|
0.350
|
|
|
|
0.315
|
|
SELECTED BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net(1)
|
|
|
22,427
|
|
|
|
34,043
|
|
|
|
65,987
|
|
|
|
61,434
|
|
|
|
43,867
|
|
Merchandise inventory
|
|
|
775,342
|
|
|
|
828,497
|
|
|
|
932,777
|
|
|
|
931,870
|
|
|
|
703,609
|
|
Working capital
|
|
|
986,234
|
|
|
|
808,031
|
|
|
|
750,547
|
|
|
|
679,822
|
|
|
|
649,711
|
|
Total assets
|
|
|
2,582,575
|
|
|
|
2,503,588
|
|
|
|
2,851,315
|
|
|
|
2,845,524
|
|
|
|
2,437,171
|
|
Long-term debt and capital lease obligations
|
|
|
688,856
|
|
|
|
693,190
|
|
|
|
722,141
|
|
|
|
734,342
|
|
|
|
590,901
|
|
Stockholders equity
|
|
|
1,094,295
|
|
|
|
1,032,027
|
|
|
|
1,388,726
|
|
|
|
1,326,022
|
|
|
|
1,194,827
|
|
SELECTED OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores at end of period
|
|
|
305
|
|
|
|
307
|
|
|
|
303
|
|
|
|
315
|
|
|
|
276
|
|
Comparable store net revenue increase (decrease)
(on a 52 versus 52 week basis)
|
|
|
(4.6
|
)%
|
|
|
(8.7
|
)%
|
|
|
(1.1
|
)%
|
|
|
4.5
|
%
|
|
|
1.2
|
%
|
|
|
|
(1) |
|
The Company previously presented amounts due from vendors on a
gross basis due to systems constraints and the lack of available
information in fiscal year 2009 and prior. In the current year,
the Company has presented amounts due from vendors on a net
basis, and revised amounts presented in the fiscal year 2009
balance sheet for comparability purposes. This transaction
caused a reduction in accounts receivable for fiscal years 2010
and 2009. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
Belk, Inc., together with its subsidiaries (collectively, the
Company or Belk), is the largest
privately owned mainline department store business in the United
States, with 305 stores in 16 states, primarily in the
southern United States. The Company generated revenues of
$3.3 billion for the fiscal year ended January 30,
2010, and together with its predecessors, has been successfully
operating department stores since 1888 by seeking to provide
superior service and merchandise that meets customers
needs for fashion, value and quality.
The Companys fiscal year ends on the Saturday closest to
each January 31. All references to fiscal years are as
follows:
|
|
|
|
|
Fiscal Year
|
|
Ended
|
|
Weeks
|
|
2011
|
|
January 29, 2011
|
|
52
|
2010
|
|
January 30, 2010
|
|
52
|
2009
|
|
January 31, 2009
|
|
52
|
2008
|
|
February 2, 2008
|
|
52
|
2007
|
|
February 3, 2007
|
|
53
|
The Companys total revenues decreased 4.4% in fiscal year
2010 to $3.3 billion. Comparable store sales decreased 4.6%
as a result of a significant decline in consumer spending during
the first half of fiscal year 2010 that
13
was partially offset by improved sales trends in the second half
of fiscal year 2010. Comparable store revenue includes stores
that have reached the one-year anniversary of their opening as
of the beginning of the fiscal year, but excludes closed stores.
Net income was $67.1 million or $1.39 per basic and diluted
share in fiscal year 2010 compared to a net loss of
$213.0 million or $4.35 per basic and diluted share in
fiscal year 2009. The increase in net income (loss) reflects the
after-tax impact of a goodwill impairment charge taken in the
previous fiscal year, plus corporate initiatives that produced
improved merchandise margins and reduced expenses. The Company
recorded a non-cash goodwill impairment charge of
$326.6 million in the fourth quarter of fiscal year 2009 as
a result of the decline in the fair value of the goodwill as
determined in the Companys annual goodwill impairment
test. As a result of this goodwill impairment charge, the
Company had an operating loss of $232.6 million in fiscal
year 2009 compared to operating income of $147.4 million in
fiscal year 2010.
As of the end of fiscal year 2010, the Company operated 305
retail department stores in 16 states, primarily in the
southern United States. Belk stores seek to provide customers
the convenience of one-stop shopping, with an appealing
merchandise mix and extensive offerings of brands, styles,
assortments and sizes. Belk stores sell top national brands of
fashion apparel, shoes and accessories for women, men and
children, as well as cosmetics, home furnishings, housewares,
fine jewelry, gifts and other types of quality merchandise. The
Company also sells exclusive private label brands, which offer
customers differentiated merchandise selections. Larger Belk
stores may include hair salons, spas, restaurants, optical
centers and other amenities.
The Company seeks to be the leading department store in its
markets by selling merchandise to customers that meets their
needs for fashion, selection, value, quality and service. To
achieve this goal, Belks business strategy focuses on
quality merchandise assortments, effective marketing and sales
promotional strategies, attracting and retaining talented,
well-qualified associates to deliver superior customer service,
and operating efficiently with investments in information
technology and process improvement.
The Company operates retail department stores in the highly
competitive retail industry. Management believes that the
principal competitive factors for retail department store
operations include merchandise selection, quality, value,
customer service and convenience. The Company believes its
stores are strong competitors in all of these areas. The
Companys primary competitors are traditional department
stores, mass merchandisers, national apparel chains, individual
specialty apparel stores and direct merchant firms, including
J.C. Penney Company, Inc., Dillards, Inc., Kohls
Corporation, Macys, Inc., Sears Holding Corporation,
Target Corporation and Wal-Mart Stores, Inc.
In recent years, the Company has taken advantage of prudent
opportunities to expand its store base by opening and expanding
stores in new and existing markets in order to increase sales,
market share and customer loyalty. In response to recent
economic conditions and the significant decline in the number of
new retail centers being developed, the Company has scaled back
its store growth plans but will continue to explore strategic
opportunities to open and expand stores where the Belk name and
reputation are well known and in contiguous markets where Belk
can distinguish its stores from the competition. The Company
will also consider closing stores in markets where more
attractive locations become available or where the Company does
not believe there is potential for long term growth and success.
In addition, the Company periodically reviews and adjusts its
space requirements to create greater operating efficiencies and
convenience for the customer. In fiscal year 2010, the Company
decreased net store selling square footage by 0.8 million
square feet, or 3.3%, primarily due to store closures and space
reductions, offset by new stores and expansions. In fiscal year
2011, the Company plans to open one new store that will have
selling space of approximately 68,000 square feet, and
expects to complete the renovation of three existing stores.
eCommerce
During the third quarter of fiscal year 2009, the Company
launched a redesigned and expanded belk.com website and began
operating a 142,000 square foot eCommerce fulfillment
center in Pineville, NC to process handling and shipping of
online orders. The website features a wide assortment of fashion
apparel, accessories and shoes, plus a large selection of
cosmetics, home and gift merchandise. Many leading national
brands are offered at belk.com along with the Companys
exclusive private brands. The website also includes expanded
information about the Company, including history, career
opportunities, community involvement, diversity initiatives, a
Company newsroom, its Securities and Exchange Commission
(SEC) filings, and more.
14
Results
of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to revenues of certain items in the
Companys consolidated statements of income and other
pertinent financial and operating data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
|
2010
|
|
2009
|
|
2008
|
|
SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
67.9
|
|
|
|
69.4
|
|
|
|
68.9
|
|
Selling, general and administrative expenses
|
|
|
26.5
|
|
|
|
27.1
|
|
|
|
25.7
|
|
Goodwill impairment
|
|
|
|
|
|
|
9.3
|
|
|
|
|
|
Gain on sale of property and equipment
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Other asset impairment and exit costs
|
|
|
1.2
|
|
|
|
0.9
|
|
|
|
0.3
|
|
Pension curtailment charge
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
4.4
|
|
|
|
(6.6
|
)
|
|
|
5.2
|
|
Interest expense
|
|
|
1.5
|
|
|
|
1.6
|
|
|
|
1.7
|
|
Interest income
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Income tax expense (benefit)
|
|
|
0.9
|
|
|
|
(2.0
|
)
|
|
|
1.1
|
|
Net income (loss)
|
|
|
2.0
|
|
|
|
(6.1
|
)
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELECTED OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling square footage (in thousands)
|
|
|
23,400
|
|
|
|
24,203
|
|
|
|
23,937
|
|
Store revenues per selling sq. ft.
|
|
$
|
143
|
|
|
$
|
145
|
|
|
$
|
160
|
|
Comparable store net revenue increase (decrease)
(on a 52 versus 52 week basis)
|
|
|
(4.6
|
)%
|
|
|
(8.7
|
)%
|
|
|
(1.1
|
)%
|
Number of stores
|
|
|
|
|
|
|
|
|
|
|
|
|
Opened
|
|
|
3
|
|
|
|
8
|
|
|
|
11
|
|
Combined Stores
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Closed
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(19
|
)
|
Total end of period
|
|
|
305
|
|
|
|
307
|
|
|
|
303
|
|
The Companys store and eCommerce operations have been
aggregated into one operating segment due to their similar
economic characteristics, products, production processes,
customers and methods of distribution. These operations are
expected to continue to have similar characteristics and
long-term financial performance in future periods.
The following table gives information regarding the percentage
of revenues contributed by each merchandise area for each of the
last three fiscal years. There were no material changes between
fiscal years, as reflected in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
Merchandise Areas
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Womens
|
|
|
36
|
%
|
|
|
37
|
%
|
|
|
37
|
%
|
Cosmetics, Shoes and Accessories
|
|
|
33
|
%
|
|
|
31
|
%
|
|
|
30
|
%
|
Mens
|
|
|
16
|
%
|
|
|
16
|
%
|
|
|
17
|
%
|
Home
|
|
|
9
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
Childrens
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Fiscal Years Ended January 30, 2010 and January 31,
2009
Revenues. In fiscal year 2010, the
Companys revenues decreased 4.4%, or $0.2 billion, to
$3.3 billion from $3.5 billion in fiscal year 2009.
The decrease was primarily attributable to a 4.6% decrease in
revenues from
15
comparable stores and a $15.0 million decrease in revenues
due to closed stores, partially offset by an increase in
revenues from new stores of $24.8 million.
Cost of Goods Sold. Cost of goods sold was
$2.3 billion, or 67.9% of revenues in fiscal year 2010
compared to $2.4 billion, or 69.4% of revenues in fiscal
year 2009. The decrease in cost of goods sold of
$158.4 million was primarily due to the revenue decline.
The decrease as a percentage of revenues was primarily
attributable to reduced markdown activity.
Selling, General and Administrative
Expenses. Selling, general and administrative
(SG&A) expenses were $886.3 million, or
26.5% of revenues in fiscal year 2010, compared to
$947.6 million, or 27.1% of revenues in fiscal year 2009.
The decrease in SG&A expenses of $61.3 million was
primarily due to reductions in selling and sales support
payroll, benefits, and advertising expenses totaling
$49.5 million in response to the declining sales
environment. The effect of these decreases as a percentage of
revenues was partially offset by the de-leveraging experienced
as a result of the decline in revenues for fiscal year 2010.
Goodwill impairment. The Company recorded a
goodwill impairment charge of $326.6 million in fiscal year
2009. The Companys annual goodwill impairment measurement
date was its fiscal year end and as a result of the decline in
the fair value of the Companys goodwill, the Company
recorded a goodwill impairment charge during the fourth quarter
of fiscal year 2009. The Company determined the fair value of
goodwill through various valuation techniques including
discounted cash flows and market comparisons. The impairment of
goodwill was a non-cash impairment charge and did not affect the
Companys compliance with financial covenants under its
various debt agreements.
Gain on sale of property and equipment. Gain
on sale of property and equipment was $2.0 million for
fiscal year 2010 compared to $4.1 million for fiscal year
2009. The fiscal year 2010 gain was primarily due to the
$2.6 million of amortization of the deferred gain on the
sale and leaseback of the Companys headquarters building
located in Charlotte, NC, offset by a $0.6 million loss on
the abandonment of property and equipment. The fiscal year 2009
gain was primarily due to a $1.3 million gain on the sale
of the Parisian headquarters facility and adjacent land parcels
and the $2.6 million of amortization of the deferred gain
on the sale and leaseback of the Companys headquarters
building.
Other Asset Impairment and Exit Costs. In
fiscal year 2010, the Company recorded $38.5 million in
impairment charges primarily to adjust eight retail
locations net book values to fair value, a
$1.0 million charge for real estate holding costs and other
store closing costs, and $0.4 million in exit costs
comprised primarily of severance costs associated with the
outsourcing of certain information technology functions. The
Company determines fair value of its retail locations primarily
based on the present value of future cash flows. In fiscal year
2009, the Company recorded $27.1 million in impairment
charges to adjust nine retail locations net book values to
fair value, $3.5 million in exit costs comprised primarily
of severance costs associated with the outsourcing of certain
information technology and support functions and corporate
realignment of functional areas, and a $1.0 million charge
for real estate holding costs and other store closing costs.
Pension curtailment charge. A one-time pension
curtailment charge of $2.7 million in the third quarter of
fiscal year 2010 resulted from the decision to freeze the
Companys defined benefit plan, effective December 31,
2009, for those remaining participants whose benefits were not
previously frozen in fiscal year 2006.
Interest Expense. In fiscal year 2010, the
Companys interest expense decreased $4.2 million, or
7.5%, to $51.3 million from $55.5 million for fiscal
year 2009. The decrease was primarily due to weighted average
interest rates being lower in fiscal year 2010 compared to
fiscal year 2009.
Interest Income. In fiscal year 2010, the
Companys interest income decreased $3.6 million, or
78.0%, to $1.0 million from $4.7 million in fiscal
year 2009. The decrease was primarily due to significantly lower
market interest rates in fiscal year 2010 as compared to fiscal
year 2009.
Income tax expense (benefit). Income tax
expense for fiscal year 2010 was $30.1 million, or 30.9%,
compared to income tax benefit of $70.3 million, or 24.8%,
for the same period in fiscal year 2009. The effective tax rate
was lower for fiscal year 2009 as a result of the impairment of
the Companys $326.6 million goodwill, of which
$90.3 million was not deductible for income tax purposes.
16
Comparison
of Fiscal Years Ended January 31, 2009 and February 2,
2008
Revenues. In fiscal year 2009, the
Companys revenues decreased 8.5%, or $0.3 billion, to
$3.5 billion from $3.8 billion in fiscal year 2008.
The decrease was primarily attributable to an 8.7% decrease in
revenues from comparable stores and a $75.8 million
decrease in revenues due to closed stores partially offset by an
increase in revenues from new stores of $69.0 million.
Cost of Goods Sold. Cost of goods sold was
$2.4 billion, or 69.4% of revenues in fiscal year 2009
compared to $2.6 billion, or 68.9% of revenues in fiscal
year 2008. The increase in cost of goods sold as a percentage of
revenues for fiscal year 2009 was due primarily to a 0.45%
increase in occupancy costs as a percentage of revenues due to
rising rent associated with new stores and real estate taxes on
a declining revenue base.
Selling, General and Administrative
Expenses. SG&A expenses were
$947.6 million, or 27.1% of revenues in fiscal year 2009,
compared to $982.4 million, or 25.7% of revenues in fiscal
year 2008. The decrease in SG&A expenses of
$34.8 million was due to reductions in selling related
payroll expense of $19.8 million in response to the
declining sales environment, as well as a decrease in one-time
acquisition-related expenses of $15.8 million. The increase
in SG&A expenses as a percentage of revenues was primarily
due to the 8.5% decline in revenue, which more than offset the
improvement resulting from the decrease in the dollar amount of
SG&A expenses.
Goodwill impairment. The Company recorded a
goodwill impairment charge of $326.6 million in fiscal year
2009. The Companys annual goodwill impairment measurement
date was its fiscal year end and as a result of the decline in
the fair value of the Companys goodwill, the Company
recorded a goodwill impairment charge during the fourth quarter
of fiscal year 2009. The Company determines the fair value of
goodwill through various valuation techniques including
discounted cash flows and market comparisons. The impairment of
goodwill was a non-cash impairment charge and did not affect the
Companys compliance with financial covenants under its
various debt agreements.
Gain on sale of property and equipment. Gain
on sale of property and equipment was $4.1 million for
fiscal year 2009 compared to $3.4 million for fiscal year
2008. The fiscal year 2009 gain was primarily due to a
$1.3 million gain on the sale of the Parisian headquarters
facility and adjacent land parcels and $2.6 million of
amortization of the deferred gain on the sale and leaseback of
the Companys headquarters building located in Charlotte,
NC. The fiscal year 2008 gain was primarily due to insurance
recoveries on property and equipment for damaged store locations
of $1.4 million and $2.5 million of amortization of
the deferred gain on the sale and leaseback of the
Companys headquarters.
Other Asset Impairment and Exit Costs. In
fiscal year 2009, the Company recorded $27.1 million in
impairment charges to adjust nine retail locations net
book values to fair value, $3.5 million in exit costs
comprised primarily of severance costs associated with the
outsourcing of certain information technology and support
functions and corporate realignment of functional areas, and a
$1.0 million charge for real estate holding costs and other
store closing costs. The Company determines fair value of its
retail locations primarily based on the present value of future
cash flows. In fiscal year 2008, the Company recorded
$8.0 million in impairment charges to adjust two retail
locations net book values to fair value, a
$1.8 million asset impairment charge for assets related to
a software development project that was abandoned and a
$1.0 million charge for real estate holding costs and other
store closing costs.
Interest Expense. In fiscal year 2009, the
Companys interest expense decreased $10.5 million, or
15.9%, to $55.5 million from $66.0 million for fiscal
year 2008. The decrease was primarily due to weighted average
interest rates being lower in fiscal year 2009 compared to
fiscal year 2008.
Interest Income. In fiscal year 2009, the
Companys interest income decreased $2.9 million, or
38.6%, to $4.7 million from $7.6 million in fiscal
year 2008. The decrease was due primarily to decreases in market
interest rates from fiscal year 2008 to fiscal year 2009.
Income tax expense (benefit). Income tax
benefit for fiscal year 2009 was $70.3 million, or 24.8%,
compared to income tax expense of $42.9 million, or 30.9%,
for the same period in fiscal year 2008. The effective tax rate
was lower for fiscal year 2009 as a result of the impairment of
the Companys $326.6 million goodwill, of which
$90.3 million was not deductible for income tax purposes.
17
Seasonality
and Quarterly Fluctuations
Due to the seasonal nature of the retail business, the Company
has historically experienced and expects to continue to
experience seasonal fluctuations in its revenues, operating
income and net income. A disproportionate amount of the
Companys revenues and a substantial amount of operating
and net income are realized during the fourth quarter, which
includes the holiday selling season. If for any reason the
Companys revenues were below seasonal norms during the
fourth quarter, the Companys annual results of operations
could be adversely affected. The Companys inventory levels
generally reach their highest levels in anticipation of
increased revenues during these months.
The following table illustrates the seasonality of revenues by
quarter as a percentage of the full year for the fiscal years
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
First quarter
|
|
|
22.7
|
%
|
|
|
23.4
|
%
|
|
|
23.6
|
%
|
Second quarter
|
|
|
22.7
|
|
|
|
23.7
|
|
|
|
23.0
|
|
Third quarter
|
|
|
21.8
|
|
|
|
21.2
|
|
|
|
21.1
|
|
Fourth quarter
|
|
|
32.8
|
|
|
|
31.7
|
|
|
|
32.3
|
|
The Companys quarterly results of operations could also
fluctuate significantly as a result of a variety of factors,
including the timing of new store openings.
Liquidity
and Capital Resources
The Companys primary sources of liquidity are cash on
hand, cash flows from operations, and borrowings under debt
facilities, which consist of a $675.0 million credit
facility that matures in October 2011 and $325.0 million in
senior notes. On March 30, 2009, the Company amended its
$725.0 million credit facility to revise the debt
covenants, and reduce available borrowings to
$675.0 million, of which a $325.0 million term loan
was outstanding at January 30, 2010 and January 31,
2009. Under the amended credit facility, the Company has a
$350.0 million revolving line of credit, and allows for up
to $200.0 million of outstanding letters of credit. During
the fourth quarter of fiscal year 2009, the Company made a
$25.0 million discretionary payment on the amount
outstanding under the credit facility.
The credit facility charges interest based upon certain Company
financial ratios and the interest spread was calculated at
January 30, 2010 using LIBOR plus 200.0 basis points.
The weighted average interest rate charged on the credit
facility was 2.27% at January 30, 2010. The credit facility
contains restrictive covenants including leverage and fixed
charge coverage ratios. The Companys calculated leverage
ratio dictates the LIBOR spread that will be charged on
outstanding borrowings in the subsequent quarter. The leverage
ratio is calculated by dividing adjusted debt, which is the sum
of the Companys outstanding debt plus rent expense
multiplied by a factor of eight, divided by pre-tax income plus
net interest expense and non-cash items, such as depreciation,
amortization, and impairment expense. At January 30, 2010,
the maximum leverage allowed under the credit facility is 4.25,
and the calculated leverage ratio was 3.06. The Company was in
compliance with all covenants at the end of fiscal year 2010 and
expects to remain in compliance with all debt covenants during
fiscal year 2011. The Company elected to amend the financial
covenants in the credit facility on March 30, 2009. The
result of this amendment was an increase in the maximum leverage
ratio from 4.0 to 4.25 as well as an increase in the interest
spread from LIBOR plus 112.5 basis points to LIBOR plus
200.0 basis points at March 30, 2009, as well as a
reduction in the size of the credit facility to
$675.0 million. As of January 30, 2010, the Company
had $35.4 million of standby letters of credit and a
$325.0 million term loan outstanding under the credit
facility. As of January 30, 2010, availability under the
credit facility was $314.6 million.
The senior notes are comprised of an $80.0 million floating
rate senior note that has a stated variable interest rate based
on three-month LIBOR plus 80.0 basis points, or 2.15% at
January 30, 2010, that matures in July 2012. This
$80.0 million notional amount has an associated interest
rate swap with a fixed interest rate of 5.2%. Additionally, a
$20.0 million fixed rate senior note that bears interest of
5.05% matures in July 2012, a $100.0 million fixed rate
senior note that bears interest of 5.31% matures in July 2015,
and a $125.0 million fixed rate senior note that bears
interest of 6.2% matures in August 2017. The senior notes have
restrictive
18
covenants that are similar to the Companys credit
facility. Additionally, the Company has a $17.8 million,
20-year
variable rate, 0.24% at January 30, 2010, state bond
facility which matures in October 2025.
The debt facilities place certain restrictions on mergers,
consolidations, acquisitions, sales of assets, indebtedness,
transactions with affiliates, leases, liens, investments,
dividends and distributions, exchange and issuance of capital
stock and guarantees, and require maintenance of minimum
financial ratios, which include a leverage ratio, consolidated
debt to consolidated capitalization ratio and a fixed charge
coverage ratio. These ratios are calculated exclusive of
non-cash charges, such as fixed asset, goodwill and other
intangible asset impairments.
The Company utilizes derivative financial instruments (interest
rate swap agreements) to manage the interest rate risk
associated with its borrowings. The Company has not historically
traded, and does not anticipate prospectively trading, in
derivatives. These swap agreements are used to reduce the
potential impact of increases in interest rates on variable rate
debt. The difference between the fixed rate leg and the variable
rate leg of the swap, to be paid or received, is accrued and
recognized as an adjustment to interest expense. Additionally,
the change in the fair value of a swap designated as a cash flow
hedge is marked to market through accumulated other
comprehensive income (loss). Any swap that is not designated as
a hedging instrument is marked to market through gain (loss) on
investments.
The Companys exposure to derivative instruments was
limited to one interest rate swap as of January 30, 2010,
an $80.0 million notional amount swap, which has a fixed
interest rate of 5.2% and expires in fiscal year 2013. It has
been designated as a cash flow hedge against variability in
future interest rate payments on the $80.0 million floating
rate senior note. The Company had a $125.0 million notional
amount swap, which expired in September 2008, that had
previously been designated as a cash flow hedge against
variability in future interest payments on a $125.0 million
variable rate bond facility. On July 26, 2007, the
$125.0 million notional amount swap was de-designated due
to the Companys decision to prepay the underlying debt.
This swap was marked to market in gain (loss) on investments
through its expiration date.
Management believes that cash flows from operations and existing
credit facilities will be sufficient to cover working capital
needs, stock repurchases, dividends, capital expenditures,
pension funding and debt service requirements through fiscal
year 2011. The Company focused on managing inventories, capital
expenditures and expenses in fiscal year 2010, which resulted in
an increase in cash and cash equivalents of $325.8 million
compared to $73.2 million in fiscal year 2009. The Company
plans to continue generating cash flows from operations during
fiscal year 2011.
Net cash provided by operating activities was
$387.4 million for fiscal year 2010 compared to
$265.3 million for fiscal year 2009. The increase in cash
provided by operating activities for fiscal year 2010 was
principally due to successful inventory and expense control
initiatives in fiscal year 2010 and a $39.6 million
reduction in income taxes paid in fiscal year 2010 primarily as
a result of the fiscal year 2009 net loss, partially offset
by a $24.0 million increase in the Companys defined
benefit plan contribution.
Net cash used by investing activities decreased
$78.5 million to $41.3 million for fiscal year 2010
from $119.8 million for fiscal year 2009. The decrease in
cash used by investing activities was primarily due to an
$87.0 million decrease in purchases of property and
equipment in fiscal year 2010.
The Company made capital expenditures of $42.3 million
during fiscal year 2010, comprised primarily of amounts related
to three new stores, expansions, remodels and other capital
needs. The Company has increased the amount of its anticipated
capital expenditures for fiscal year 2011 primarily due to
expansions and remodels, and other capital needs. Management
expects to fund fiscal year 2011 capital expenditures with cash
flows from operations.
Net cash used by financing activities decreased
$52.0 million to $20.3 million for fiscal year 2010
from $72.3 million for fiscal year 2009. The decrease in
cash used by financing activities primarily relates to the
$10.1 million decrease in dividends paid, a
$16.4 million decrease in the repurchase and retirement of
common stock, and the $25.0 million discretionary payment
on the amount outstanding under the credit facility in fiscal
year 2009.
19
Contractual
Obligations and Commercial Commitments
To facilitate an understanding of the Companys contractual
obligations and commercial commitments, the following data is
provided:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Within
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
After 5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
$
|
667,780
|
|
|
$
|
|
|
|
$
|
425,000
|
|
|
$
|
|
|
|
$
|
242,780
|
|
Estimated Interest Payments on Debt(a)
|
|
|
132,946
|
|
|
|
29,496
|
|
|
|
47,809
|
|
|
|
27,187
|
|
|
|
28,454
|
|
Capital Lease Obligations
|
|
|
21,076
|
|
|
|
3,419
|
|
|
|
6,365
|
|
|
|
5,782
|
|
|
|
5,510
|
|
Operating Leases(b)
|
|
|
602,160
|
|
|
|
71,209
|
|
|
|
128,507
|
|
|
|
99,564
|
|
|
|
302,880
|
|
Purchase Obligations(c)
|
|
|
176,613
|
|
|
|
70,366
|
|
|
|
93,063
|
|
|
|
13,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$
|
1,600,575
|
|
|
$
|
174,490
|
|
|
$
|
700,744
|
|
|
$
|
145,717
|
|
|
$
|
579,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration per Period
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
Within
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
After 5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Other Commercial Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby Letters of Credit
|
|
$
|
35,376
|
|
|
$
|
18,227
|
|
|
$
|
17,149
|
|
|
$
|
|
|
|
$
|
|
|
Import Letters of Credit
|
|
|
60,113
|
|
|
|
60,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Commitments
|
|
$
|
95,489
|
|
|
$
|
78,340
|
|
|
$
|
17,149
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Interest rates used to compute estimated interest payments
utilize the stated rate for fixed rate debt and projected
interest rates for variable rate debt. Projected rates range
from 2.25% to 6.5% over the term of the variable rate debt
agreements. |
|
(b) |
|
Lease payments consist of base rent only and do not include
amounts for percentage rents, real estate taxes, insurance and
other expenses related to those locations. |
|
(c) |
|
Purchase obligations include agreements to purchase goods or
services that are enforceable and legally binding and that
specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction.
Agreements that are cancelable without penalty have been
excluded. Purchase obligations relate primarily to purchases of
property and equipment, information technology contracts,
maintenance agreements and advertising contracts. |
Obligations under the deferred compensation and postretirement
benefit plans are not included in the contractual obligations
table. The Companys deferred compensation and
postretirement plans are not funded in advance. Deferred
compensation payments during fiscal years 2010 and 2009 totaled
$5.8 million and $5.4 million, respectively.
Postretirement benefit payments during fiscal years 2010 and
2009 totaled $2.8 million and $2.1 million,
respectively.
Obligations under the Companys defined benefit pension
plan are not included in the contractual obligations table.
Under the current requirements of the Pension Protection Act of
2006, the Company is required to fund the net pension liability
(funding shortfall) by fiscal year 2016. The net
pension liability is calculated based on certain assumptions at
January 1, of each year, that are subject to change based
on economic conditions (and any regulatory changes) in the
future. The Company has a credit balance of $11.5 million
at fiscal 2010 year-end due to excess funding over the
minimum requirements in prior years, which may be used to
satisfy minimum required contribution requirements during at
least the first two quarters of fiscal 2011. The Company expects
to contribute sufficient amounts to the pension plan so that the
Pension Protection Act of 2006 guidelines are exceeded, and over
the next five years, the pension plan becomes fully funded.
20
As of January 30, 2010, the total uncertain tax position
liability was approximately $17.2 million, including tax,
penalty and interest. The Company is not able to reasonably
estimate the timing of these tax related future cash flows and
has excluded these liabilities from the table. At this time, the
Company does not expect a material change to its gross
unrecognized tax benefit during fiscal year 2011.
Also excluded from the contractual obligations table are
payments the Company may make for employee medical costs and
workers compensation, general liability and automobile claims.
Off-Balance
Sheet Arrangements
The Company has not provided any financial guarantees as of
January 30, 2010. The Company has not created, and is not
party to, any special-purpose or off-balance sheet entities for
the purpose of raising capital, incurring debt or operating the
Companys business. The Company does not have any
arrangements or relationships with entities that are not
consolidated into the financial statements that are reasonably
likely to materially affect the Companys liquidity or the
availability of capital resources.
Recently
Issued Accounting Standards
In June 2009, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles a replacement of
SFAS No. 162, which modifies the Generally
Accepted Accounting Principles (GAAP) hierarchy by
establishing only two levels of GAAP, authoritative and
nonauthoritative accounting literature. Effective July 2009, the
FASB Accounting Standards Codification (ASC), also
known collectively as the Codification, is
considered the single source of authoritative
U.S. accounting and reporting standards, except for
additional authoritative rules and interpretive releases issued
by the SEC. The Codification was developed to organize GAAP
pronouncements by topic so that users can more easily access
authoritative accounting guidance. ASC
105-10
became effective for the third quarter of fiscal year 2010. All
other accounting standard references have been updated in this
report with ASC references.
In January 2010, the FASB issued Accounting Standards Update
(ASU)
2010-06,
Improving Disclosures about Fair Value Measurements,
which updates ASC
820-10,
Fair Value Measurements and Disclosures. The updated
guidance clarifies existing disclosures and requires new
disclosures regarding recurring
and/or
nonrecurring fair-value measurements, including significant
transfers into and out of Level 1 and Level 2
fair-value measurements and information on purchases, sales,
issuances, and settlements on a gross basis in the
reconciliation of Level 3 fair-value measurements. ASU
2010-06 will
be effective for the first quarter of fiscal year 2011, except
for the disclosures regarding the reconciliation of Level 3
fair-value measurements, which will be effective for the Company
in the first quarter of fiscal year 2012. The Company early
adopted the requirements under ASU
2010-06 for
the fourth quarter of fiscal year 2010. Refer to the
Companys notes to the consolidated financial statements
for the disclosures required under ASU
2010-06.
Effective for the fourth quarter of fiscal year 2010, the FASB
issued ASU
2009-05,
Measuring Liabilities at Fair Value, which updates
ASC 820-10,
Fair Value Measurements and Disclosures. The updated
guidance clarifies that the fair value of a liability can be
measured in relation to the counterpartys asset when
traded in an active market, without adjusting the price for
restrictions that prevent the sale of the liability. The
Companys adoption of the requirements under ASU
2009-5 did
not change the Companys valuation techniques for measuring
liabilities at fair value.
Effective for the fourth quarter of fiscal year 2010, the
Compensation-Retirement Benefits Topic, ASC
715-20
required more detailed disclosures regarding the assets of a
defined benefit pension or other postretirement plan. Refer to
the Companys notes to the consolidated financial
statements for the disclosures required under ASC
715-20.
Effective for the second quarter of fiscal year 2010, the
Financial Instruments Topic, ASC
825-10
required disclosure regarding the fair value of financial
instruments of publicly traded companies for interim reporting
periods as well as annual reporting periods. Refer to the
Companys notes to the consolidated financial statements
for the disclosures required under ASC
825-10.
21
Effective for the second quarter of fiscal year 2010, the
Investments-Debt and Equity Securities Topic,
ASC 320-10
amended the presentation and disclosure requirements for
other-than-temporary
impairment on debt and equity securities in the financial
statements. Refer to the Companys notes to the
consolidated financial statements for the disclosures required
under ASC
320-10.
Effective for the second quarter of fiscal year 2010, the
Fair Value Measurements and Disclosures Topic, ASC
820-10-65-4,
provided additional guidance for estimating fair value when the
volume and level of activity for the asset or liability have
significantly decreased and identifying circumstances that
indicate a transaction is not orderly. Refer to the
Companys notes to the consolidated financial statements
for the disclosures required under ASC
820-10-65-4.
Effective for the first quarter of fiscal year 2010, the
Fair Value Measurements and Disclosures Topic, ASC
820-10-65-1,
established a single definition of fair value and a framework
for measuring fair value in GAAP for nonfinancial assets and
liabilities to increase consistency and comparability in fair
value measurements. The Companys adoption of the
requirements under ASC
820-10-65-1
did not require other additional disclosure during the first
quarter of fiscal year 2010.
Impact of
Inflation or Deflation
While it is difficult to determine the precise effects of
inflation or deflation, management does not believe inflation or
deflation had a material impact on the consolidated financial
statements for the periods presented.
Critical
Accounting Policies
Managements discussion and analysis discusses the results
of operations and financial condition as reflected in the
Companys consolidated financial statements, which have
been prepared in accordance with GAAP. As discussed in the
Companys notes to the consolidated financial statements,
the preparation of the consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and
reported amounts of revenues and expenses during the reporting
period. On an ongoing basis, management evaluates its estimates
and judgments, including those related to inventory valuation,
vendor allowances, property and equipment, rent expense, useful
lives of depreciable assets, recoverability of long-lived
assets, including intangible assets, store closing reserves,
customer loyalty programs, income taxes, derivative financial
instruments, credit income, the calculation of pension and
postretirement obligations, self-insurance reserves and stock
based compensation.
Management bases its estimates and judgments on its substantial
historical experience and other relevant factors, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. See the Companys notes to the
consolidated financial statements for a discussion of the
Companys significant accounting policies.
While the Company believes that the historical experience and
other factors considered provide a meaningful basis for the
accounting policies applied in the preparation of the
consolidated financial statements, the Company cannot guarantee
that its estimates and assumptions will be accurate, which could
require the Company to make adjustments to these estimates in
future periods.
The following critical accounting policies are used in the
preparation of the consolidated financial statements:
Inventory Valuation. Inventories are valued
using the lower of cost or market value, determined by the
retail inventory method. Under the retail inventory method
(RIM), the valuation of inventories at cost and the
resulting gross margins are calculated by applying a
cost-to-retail
ratio to the retail value of inventories. RIM is an averaging
method that is widely used in the retail industry due to its
practicality. Also, it is recognized that the use of the retail
inventory method will result in valuing inventories at lower of
cost or market if markdowns are currently taken as a reduction
of the retail value of inventories. Inherent in the RIM
calculation are certain significant management judgments and
estimates including, among others, merchandise markon, markup,
markdowns and shrinkage, which significantly affect the ending
inventory valuation at cost as well as the corresponding charge
to cost of goods sold.
22
In addition, failure to take appropriate markdowns currently can
result in an overstatement of inventory under the lower of cost
or market principle.
Vendor Allowances. The Company receives
allowances from its vendors through a variety of programs and
arrangements, including markdown reimbursement programs. These
vendor allowances are generally intended to offset the
Companys costs of selling the vendors products in
its stores. Allowances are recognized in the period in which the
Company completes its obligations under the vendor agreements.
Most incentives are deducted from amounts owed to the vendor at
the time the Company completes its obligations to the vendor or
shortly thereafter. The following summarizes the types of vendor
incentives and the Companys applicable accounting policy:
|
|
|
|
|
Advertising allowances Represents reimbursement of
advertising costs initially funded by the Company. Amounts are
recognized as a reduction to SG&A expenses in the period
that the advertising expense is incurred.
|
|
|
|
Markdown allowances Represents reimbursement for the
cost of markdowns to the selling price of the vendors
merchandise. Amounts are recognized as a reduction to cost of
goods sold in the later of the period that the merchandise is
marked down or the reimbursement is negotiated. Amounts received
prior to recognizing the markdowns are recorded as a reduction
to the cost of inventory.
|
|
|
|
Payroll allowances Represents reimbursement for
payroll costs. Amounts are recognized as a reduction to
SG&A expense in the period that the payroll cost is
incurred.
|
Property and Equipment, net. Property and
equipment owned by the Company are stated at cost less
accumulated depreciation and amortization. Property and
equipment leased by the Company under capital leases are stated
at an amount equal to the present value of the minimum lease
payments less accumulated amortization. Depreciation and
amortization are recorded utilizing straight-line and in certain
circumstances accelerated methods over the shorter of estimated
asset lives or related lease terms. The Company also amortizes
leasehold improvements over the shorter of the expected lease
term or estimated asset life that would include cancelable
option periods where failure to exercise such options would
result in an economic penalty in such amount that a renewal
appears, at the date the assets are placed in service, to be
reasonably assured.
Goodwill and Intangibles. Goodwill and other
intangible assets are accounted for in accordance with ASC 350,
Intangibles Goodwill and Other. This
statement requires that goodwill and other intangible assets
with indefinite lives should not be amortized, but should be
tested for impairment on an annual basis, or more often if an
event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying
amount.
Leasehold intangibles, which represent the excess of fair value
over the carrying value (assets) or the excess of carrying value
over fair value (liabilities) of acquired leases, are amortized
on a straight-line basis over the remaining terms of the lease
agreements. The lease term includes cancelable option periods
where failure to exercise such options would result in an
economic penalty in such amount that a renewal appears to be
reasonably assured. The lease intangibles are included in other
current assets and accrued liabilities for the current portions
and other assets and other noncurrent liabilities for the
noncurrent portions. Customer relationships, which represent the
value of customer relationships obtained in acquisitions or
purchased, are amortized on a straight-line basis over their
estimated useful life and are included in other assets. The
carrying value of intangible assets is reviewed by the
Companys management to assess the recoverability of the
assets when facts and circumstances indicate that the carrying
value may not be recoverable.
Rent Expense. The Company recognizes rent
expense on a straight-line basis over the expected lease term,
including cancelable option periods where failure to exercise
such options would result in an economic penalty in such amount
that a renewal appears, at the inception of the lease, to be
reasonably assured. Developer incentives are recognized as a
reduction to occupancy costs over the lease term. The lease term
commences on the date when the Company gains control of the
property.
Useful Lives of Depreciable Assets. The
Company makes judgments in determining the estimated useful
lives of its depreciable long-lived assets which are included in
the consolidated financial statements. The estimate of useful
lives is determined by the Companys historical experience
with the type of asset purchased.
23
Recoverability of Long-Lived Assets. In
accordance with ASC 360, Property, Plant, and
Equipment, long-lived assets, such as property and
equipment and purchased intangible assets subject to
amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If circumstances require a
long-lived asset be tested for possible impairment, the Company
first compares undiscounted cash flows expected to be generated
by an asset to the carrying value of the asset. If the carrying
value of the long-lived asset is not recoverable on an
undiscounted cash flow basis, an impairment is recognized to the
extent that the carrying value exceeds its fair value. The
Company determines fair value of its retail locations primarily
based on the present value of future cash flows.
Store Closing Reserves. The Company reduces
the carrying value of property and equipment to fair value for
owned locations or recognizes a reserve for future obligations
for leased facilities at the time the Company ceases using
property
and/or
equipment. The reserve includes future minimum lease payments
and common area maintenance and taxes for which the Company is
obligated under operating lease agreements. Additionally, the
Company makes certain assumptions related to potential subleases
and lease buyouts that reduce the recorded amount of the
reserve. These assumptions are based on managements
knowledge of the market and other relevant experience. However,
significant changes in the real estate market and the inability
to enter into the subleases or obtain buyouts within the
estimated time frame may result in increases or decreases to
these reserves.
Customer Loyalty Programs. The Company
utilizes a customer loyalty program that issues certificates for
discounts on future purchases to proprietary charge card
customers based on their spending levels. The certificates are
classified as a reduction to revenue as they are earned by the
customers. The Company maintains a reserve liability for the
estimated future redemptions of the certificates. The estimated
impact on revenues of a 10% change in program utilization would
be $1.9 million.
Pension and Postretirement Obligations. The
Company utilizes significant assumptions in determining its
periodic pension and postretirement expense and obligations that
are included in the consolidated financial statements. These
assumptions include determining an appropriate discount rate,
investment earnings, as well as the remaining service period of
active employees. The Company calculates the periodic pension
and postretirement expense and obligations based upon these
assumptions and actual employee census data.
The Company elected an investment earnings assumption of 8.0% to
determine its fiscal year 2010 expense. The Company believes
that this assumption was appropriate given the composition of
its plan assets and historical market returns thereon. The
estimated effect of a 0.25% increase or decrease in the
investment earnings assumption would decrease or increase
pension expense by approximately $0.7 million. The Company
has elected an investment earnings assumption of 8.0% for fiscal
year 2011.
The Company selected a discount rate assumption of 6.375% to
determine its fiscal year 2010 expense. The Company believes
that this assumption was appropriate given the composition of
its plan obligations and the interest rate environment as of the
measurement date. The estimated effect of a 0.25% increase or
decrease in the discount rate assumption would have decreased or
increased fiscal year 2010 pension expense by approximately
$0.7 million. The Company has decreased its discount rate
assumption to 5.75% for fiscal year 2011.
Under the current requirements of the Pension Protection Act of
2006, the Company is required to fund the net pension liability
(funding shortfall) by fiscal year 2016. The net
pension liability is calculated based on certain assumptions at
January 1, of each year, that are subject to change based
on economic conditions (and any regulatory changes) in the
future. The Company has a credit balance of $11.5 million
at fiscal 2010 year-end due to excess funding over the
minimum requirements in prior years, which may be used to
satisfy minimum required contribution requirements during at
least the first two quarters of fiscal 2011. The Company expects
to contribute sufficient amounts to the pension plan so that the
Pension Protection Act of 2006 guidelines are exceeded, and over
the next five years, the pension plan becomes fully funded. The
Company elected to contribute $44.0 million and
$20.0 million to its Pension Plan on September 15,
2009 and September 10, 2008, respectively. The Company
expects to contribute $1.4 million and $2.6 million to
its non-qualified defined benefit Supplemental Executive
Retirement Plan and postretirement plan, respectively, in fiscal
year 2011.
Effective December 31, 2009, the Pension Plan was frozen
for the remaining participants whose benefits were not
previously frozen in fiscal year 2006. Upon communication of
this decision to permanently freeze accruals in
24
the plan, the plans financial status was re-measured on
October 31, 2009 based on economic conditions at the time.
A one-time curtailment charge of $2.7 million was incurred
in the third quarter of fiscal year 2010. The expense for all of
fiscal year 2010 reflected a change in the fourth quarter
commensurate with that re-measurement.
Self Insurance Reserves. The Company is
responsible for the payment of workers compensation,
general liability and automobile claims under certain dollar
limits. The Company purchases insurance for workers
compensation, general liability and automobile claims for
amounts that exceed certain dollar limits. The Company records a
liability for its obligation associated with incurred losses
utilizing historical data and industry accepted loss analysis
standards to estimate the loss development factors used to
project the future development of incurred losses. Management
believes that the Companys loss reserves are adequate but
actual losses may differ from the amounts provided.
Income Taxes. Income taxes are accounted for
under the asset and liability method. The annual effective tax
rate is based on income, statutory tax rates and tax planning
opportunities available in the various jurisdictions in which
the Company operates. Significant judgment is required in
determining annual tax expense and in evaluating tax positions.
In accordance with ASC 740, Income Taxes, the
Company recognizes the effect of income tax positions only if
those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized.
Changes in recognition or measurement are reflected in the
period in which the change in judgment occurs. The reserves
(including the impact of the related interest and penalties) are
adjusted in light of changing facts and circumstances, such as
the progress of a tax audit.
Deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement bases and the respective tax bases of
the assets and liabilities and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected
to be realized.
The Company accrues interest related to unrecognized tax
benefits in interest expense, while accruing penalties related
to unrecognized tax benefits in income tax expense (benefit).
Derivative Financial Instruments. The Company
utilizes derivative financial instruments (interest rate swap
agreements) to manage the interest rate risk associated with its
borrowings. The Company has not historically traded, and does
not anticipate prospectively trading, in derivatives. These swap
agreements are used to reduce the potential impact of increases
in interest rates on variable rate long-term debt. The
difference between the fixed rate leg and the variable rate leg
of each swap, to be paid or received, is accrued and recognized
as an adjustment to interest expense. Additionally, the changes
in the fair value of swaps designated as cash flow hedges are
marked to market through accumulated other comprehensive income
(loss). Swaps that are not designated as hedges are marked to
market through gain (loss) on investments.
Stock Based Compensation. The Company accounts
for stock based compensation under the guidelines of ASC 718,
Compensation Stock Compensation. ASC 718
requires the Company to account for stock based compensation by
using the grant date fair value of share awards and the
estimated number of shares that will ultimately be issued in
conjunction with each award.
Finance Income. In connection with the program
agreement (Program Agreement) signed with GE Money
Bank (GE), an affiliate of GE Consumer Finance, in
fiscal year 2006, the Company is paid a percentage of net
private label credit card account sales. These payments are
recorded as an offset to SG&A expenses in the consolidated
statements of income. SG&A expenses are reduced by proceeds
from the
10-year
credit card Program Agreement between Belk and GE, which expires
June 30, 2016. This Program Agreement sets forth among
other things the terms and conditions under which GE will issue
credit cards to Belks customers. The Company will be paid
a percentage of net credit sales, as defined by the Program
Agreement, for future credit card sales. Belk is required to
perform certain duties and receive fees.
25
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
The Company is exposed to market risk from changes in interest
rates on its variable rate debt. The Company uses interest rate
swaps to manage the interest rate risk associated with its
borrowings and to manage the Companys allocation of fixed
and variable rate debt. The Company does not use financial
instruments for trading or other speculative purposes and is not
a party to any leveraged derivative instruments. The
Companys net exposure to interest rate risk is based on
the difference between the outstanding variable rate debt and
the notional amount of its designated interest rate swaps. At
January 30, 2010, the Company had $422.8 million of
variable rate debt, and an $80.0 million notional amount
swap, which has a fixed interest rate of 5.2% and expires in
fiscal year 2013. The effect on the Companys annual
interest expense of a one-percent change in interest rates would
be approximately $3.4 million.
The Company also owns an auction rate security that is subject
to market risk. A discussion of the Companys accounting
policies for derivative financial instruments and the auction
rate security is included in the Summary of Significant
Accounting Policies in Note 1 to the Companys
consolidated financial statements.
26
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|
Item 8.
|
Financial
Statements and Supplementary Data
|
27
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Belk, Inc.:
We have audited the accompanying consolidated balance sheets of
Belk, Inc. and subsidiaries as of January 30, 2010, and
January 31, 2009, and the related consolidated statements
of income, changes in stockholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended January 30, 2010. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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 30,
2010, and January 31, 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended January 30, 2010, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted the provisions of ASC
Section 740-10-25,
Income Taxes Recognition, as of February 4,
2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Belk,
Inc. and subsidiaries internal control over financial
reporting as of January 30, 2010, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated April 14,
2010, expressed an unqualified opinion on the effectiveness of
the Companys internal control over financial reporting.
Charlotte, North Carolina
April 14, 2010
28
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|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
3,346,252
|
|
|
$
|
3,499,423
|
|
|
$
|
3,824,803
|
|
Cost of goods sold (including occupancy, distribution and buying
expenses)
|
|
|
2,271,925
|
|
|
|
2,430,332
|
|
|
|
2,636,888
|
|
Selling, general and administrative expenses
|
|
|
886,263
|
|
|
|
947,602
|
|
|
|
982,425
|
|
Goodwill impairment
|
|
|
|
|
|
|
326,649
|
|
|
|
|
|
Gain on sale of property and equipment
|
|
|
2,011
|
|
|
|
4,116
|
|
|
|
3,393
|
|
Other asset impairment and exit costs
|
|
|
39,915
|
|
|
|
31,599
|
|
|
|
10,766
|
|
Pension curtailment charge
|
|
|
2,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
147,441
|
|
|
|
(232,643
|
)
|
|
|
198,117
|
|
Interest expense
|
|
|
(51,321
|
)
|
|
|
(55,512
|
)
|
|
|
(65,980
|
)
|
Interest income
|
|
|
1,027
|
|
|
|
4,670
|
|
|
|
7,607
|
|
Gain (loss) on investments
|
|
|
43
|
|
|
|
204
|
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
97,190
|
|
|
|
(283,281
|
)
|
|
|
138,644
|
|
Income tax expense (benefit)
|
|
|
30,054
|
|
|
|
(70,316
|
)
|
|
|
42,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
67,136
|
|
|
$
|
(212,965
|
)
|
|
$
|
95,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per share
|
|
$
|
1.39
|
|
|
$
|
(4.35
|
)
|
|
$
|
1.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,450,401
|
|
|
|
49,010,509
|
|
|
|
49,749,689
|
|
Diluted
|
|
|
48,452,460
|
|
|
|
49,010,509
|
|
|
|
49,784,635
|
|
See accompanying notes to consolidated financial statements.
29
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
585,930
|
|
|
$
|
260,134
|
|
Short-term investments
|
|
|
2,500
|
|
|
|
10,250
|
|
Accounts receivable, net
|
|
|
22,427
|
|
|
|
34,043
|
|
Merchandise inventory
|
|
|
775,342
|
|
|
|
828,497
|
|
Property held for sale
|
|
|
|
|
|
|
750
|
|
Prepaid income taxes, expenses and other current assets
|
|
|
24,902
|
|
|
|
30,705
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,411,101
|
|
|
|
1,164,379
|
|
Investment securities
|
|
|
6,850
|
|
|
|
1,074
|
|
Property and equipment, net
|
|
|
1,009,250
|
|
|
|
1,169,150
|
|
Deferred income taxes
|
|
|
117,827
|
|
|
|
128,829
|
|
Other assets
|
|
|
37,547
|
|
|
|
40,156
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,582,575
|
|
|
$
|
2,503,588
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
243,995
|
|
|
$
|
205,227
|
|
Accrued liabilities
|
|
|
125,599
|
|
|
|
118,045
|
|
Accrued income taxes
|
|
|
35,775
|
|
|
|
593
|
|
Deferred income taxes
|
|
|
16,079
|
|
|
|
27,997
|
|
Current installments of long-term debt and capital lease
obligations
|
|
|
3,419
|
|
|
|
4,486
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
424,867
|
|
|
|
356,348
|
|
Long-term debt and capital lease obligations, excluding current
installments
|
|
|
685,437
|
|
|
|
688,704
|
|
Interest rate swap liability
|
|
|
7,403
|
|
|
|
8,182
|
|
Retirement obligations and other noncurrent liabilities
|
|
|
370,573
|
|
|
|
418,327
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,488,280
|
|
|
|
1,471,561
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
Common stock, 400 million shares authorized and 48.3 and
48.8 million shares issued and outstanding as of
January 30, 2010 and January 31, 2009, respectively
|
|
|
483
|
|
|
|
488
|
|
Paid-in capital
|
|
|
451,278
|
|
|
|
456,858
|
|
Retained earnings
|
|
|
798,963
|
|
|
|
741,579
|
|
Accumulated other comprehensive loss
|
|
|
(156,429
|
)
|
|
|
(166,898
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,094,295
|
|
|
|
1,032,027
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,582,575
|
|
|
$
|
2,503,588
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
Balance at February 3, 2007
|
|
|
49,991
|
|
|
$
|
500
|
|
|
$
|
507,127
|
|
|
$
|
901,378
|
|
|
$
|
(82,983
|
)
|
|
$
|
1,326,022
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,740
|
|
|
|
|
|
|
|
95,740
|
|
Unrealized loss on investments, net of $379 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(639
|
)
|
|
|
(639
|
)
|
Unrealized loss on interest rate swaps, net of $2,109 income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,553
|
)
|
|
|
(3,553
|
)
|
Reclassification adjustment for interest rate swap dedesignation
included in net income, net of $7 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
(51
|
)
|
Defined benefit expense, net of $11,416 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,230
|
|
|
|
19,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,097
|
)
|
|
|
|
|
|
|
(20,097
|
)
|
Issuance of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2,322
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,322
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
(1,939
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,939
|
)
|
Adoption of ASC 740 adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
185
|
|
Common stock issued
|
|
|
359
|
|
|
|
4
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
376
|
|
Repurchase and retirement of common stock
|
|
|
(781
|
)
|
|
|
(8
|
)
|
|
|
(24,218
|
)
|
|
|
|
|
|
|
|
|
|
|
(24,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008
|
|
|
49,569
|
|
|
|
496
|
|
|
|
479,020
|
|
|
|
977,206
|
|
|
|
(67,996
|
)
|
|
|
1,388,726
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(212,965
|
)
|
|
|
|
|
|
|
(212,965
|
)
|
Unrealized loss on investments, net of $740 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,247
|
)
|
|
|
(1,247
|
)
|
Reclassification to loss on investments, net of $231 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(388
|
)
|
|
|
(388
|
)
|
Unrealized loss on interest rate swaps, net of $807 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,360
|
)
|
|
|
(1,360
|
)
|
Defined benefit expense, net of $57,941 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,606
|
)
|
|
|
(97,606
|
)
|
Effects of changing the pension plan measurement date pursuant
to ASC
715-30-35-62,
net of $1,008 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,699
|
|
|
|
1,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(311,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,846
|
)
|
|
|
|
|
|
|
(19,846
|
)
|
Effects of changing the pension plan measurement date pursuant
to ASC
715-30-35-62,
net of $1,672 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,816
|
)
|
|
|
|
|
|
|
(2,816
|
)
|
Issuance of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(444
|
)
|
|
|
|
|
|
|
|
|
|
|
(444
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
314
|
|
Common stock issued
|
|
|
57
|
|
|
|
1
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
308
|
|
Repurchase and retirement of common stock
|
|
|
(873
|
)
|
|
|
(9
|
)
|
|
|
(22,339
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
|
48,753
|
|
|
|
488
|
|
|
|
456,858
|
|
|
|
741,579
|
|
|
|
(166,898
|
)
|
|
|
1,032,027
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,136
|
|
|
|
|
|
|
|
67,136
|
|
Unrealized gain on investments, net of $287 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482
|
|
|
|
482
|
|
Unrealized gain on interest rate swaps, net of $259 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521
|
|
|
|
521
|
|
Defined benefit expense, net of $4,078 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,688
|
|
|
|
7,688
|
|
Pension curtailment charge, net of $941 income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,778
|
|
|
|
1,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,752
|
)
|
|
|
|
|
|
|
(9,752
|
)
|
Issuance of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
(115
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Common stock issued
|
|
|
33
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Repurchase and retirement of common stock
|
|
|
(500
|
)
|
|
|
(5
|
)
|
|
|
(5,945
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
|
48,286
|
|
|
$
|
483
|
|
|
$
|
451,278
|
|
|
$
|
798,963
|
|
|
$
|
(156,429
|
)
|
|
$
|
1,094,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
67,136
|
|
|
|
(212,965
|
)
|
|
$
|
95,740
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
326,649
|
|
|
|
|
|
Other asset impairment and exit costs
|
|
|
39,915
|
|
|
|
31,599
|
|
|
|
10,766
|
|
Deferred income tax (benefit) expense
|
|
|
(9,982
|
)
|
|
|
(63,562
|
)
|
|
|
11,357
|
|
Depreciation and amortization expense
|
|
|
158,388
|
|
|
|
165,267
|
|
|
|
159,945
|
|
Stock-based compensation expense
|
|
|
180
|
|
|
|
314
|
|
|
|
(1,939
|
)
|
Pension curtailment charge
|
|
|
2,719
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of property and equipment
|
|
|
618
|
|
|
|
(1,487
|
)
|
|
|
(1,297
|
)
|
Amortization of deferred gain on sale and leaseback
|
|
|
(2,629
|
)
|
|
|
(2,629
|
)
|
|
|
(2,096
|
)
|
(Gain) loss on sale of investments
|
|
|
(43
|
)
|
|
|
(204
|
)
|
|
|
1,100
|
|
Investment securities contribution expense
|
|
|
1,889
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
11,616
|
|
|
|
31,565
|
|
|
|
(4,233
|
)
|
Merchandise inventory
|
|
|
53,155
|
|
|
|
104,280
|
|
|
|
(907
|
)
|
Prepaid income taxes, expenses and other assets
|
|
|
4,361
|
|
|
|
(6,050
|
)
|
|
|
6,392
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
52,746
|
|
|
|
(80,095
|
)
|
|
|
(80,151
|
)
|
Accrued income taxes
|
|
|
35,182
|
|
|
|
(25,387
|
)
|
|
|
3,294
|
|
Retirement obligations and other liabilities
|
|
|
(27,856
|
)
|
|
|
(1,994
|
)
|
|
|
17,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
387,395
|
|
|
|
265,301
|
|
|
|
215,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(42,326
|
)
|
|
|
(129,282
|
)
|
|
|
(202,668
|
)
|
Proceeds from sales of property and equipment
|
|
|
140
|
|
|
|
19,715
|
|
|
|
54,682
|
|
Purchases of short-term investments
|
|
|
|
|
|
|
(17,750
|
)
|
|
|
(564,580
|
)
|
Proceeds from sales of short-term investments
|
|
|
900
|
|
|
|
7,500
|
|
|
|
564,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(41,286
|
)
|
|
|
(119,817
|
)
|
|
|
(147,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
125,355
|
|
Principal payments on long-term debt and capital lease
obligations
|
|
|
(4,496
|
)
|
|
|
(29,685
|
)
|
|
|
(130,000
|
)
|
Dividends paid
|
|
|
(9,752
|
)
|
|
|
(19,846
|
)
|
|
|
(20,097
|
)
|
Repurchase and retirement of common stock
|
|
|
(5,950
|
)
|
|
|
(22,348
|
)
|
|
|
(24,226
|
)
|
Stock compensation tax (expense) benefit
|
|
|
(64
|
)
|
|
|
154
|
|
|
|
2,938
|
|
Cash paid for withholding taxes in lieu of stock-based
compensation shares
|
|
|
(51
|
)
|
|
|
(598
|
)
|
|
|
(5,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(20,313
|
)
|
|
|
(72,323
|
)
|
|
|
(51,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
325,796
|
|
|
|
73,161
|
|
|
|
15,734
|
|
Cash and cash equivalents at beginning of period
|
|
|
260,134
|
|
|
|
186,973
|
|
|
|
171,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
585,930
|
|
|
$
|
260,134
|
|
|
$
|
186,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (refunded)
|
|
$
|
(6,846
|
)
|
|
$
|
32,710
|
|
|
$
|
27,675
|
|
Supplemental schedule of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in property and equipment through accrued
purchases
|
|
|
(7,525
|
)
|
|
|
(11,079
|
)
|
|
|
10,332
|
|
Increase (decrease) in property and equipment through assets
held for sale
|
|
|
750
|
|
|
|
(750
|
)
|
|
|
(11,036
|
)
|
Increase in investment securities through short-term investments
|
|
|
6,850
|
|
|
|
|
|
|
|
|
|
Decrease in property and equipment through adjustment of goodwill
|
|
|
|
|
|
|
|
|
|
|
(14,874
|
)
|
Decrease in property and equipment through adjustment of capital
lease obligation
|
|
|
|
|
|
|
|
|
|
|
(4,315
|
)
|
Decrease in long-term debt through other current assets
|
|
|
|
|
|
|
|
|
|
|
(3,220
|
)
|
See accompanying notes to consolidated financial statements.
32
BELK,
INC. AND SUBSIDIARIES
|
|
(1)
|
Summary
of Significant Accounting Policies
|
Description
of Business and Basis of Presentation
Belk, Inc. and its subsidiaries (collectively, the
Company or Belk) operate retail
department stores in 16 states primarily in the southern
United States. All intercompany transactions and balances have
been eliminated in consolidation. The Companys fiscal year
ends on the Saturday closest to each January 31. All
references to fiscal years are as follows:
|
|
|
|
|
Fiscal Year
|
|
Ended
|
|
Weeks
|
|
2011
|
|
January 29, 2011
|
|
52
|
2010
|
|
January 30, 2010
|
|
52
|
2009
|
|
January 31, 2009
|
|
52
|
2008
|
|
February 2, 2008
|
|
52
|
2007
|
|
February 3, 2007
|
|
53
|
Certain prior period amounts have been reclassified to conform
with current year presentation. Previously, the Company
presented amounts due from vendors on a gross basis due to
systems constraints and the lack of available information. In
the current year, the Company has presented amounts due from
vendors on a net basis, and revised amounts presented in the
fiscal year 2009 consolidated balance sheet and cash flow
statements for comparability purposes. The revision had no
impact on net income, working capital, cash flows from operating
activities, or stockholders equity for fiscal year 2009.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Significant estimates are required as part of determining
stock-based compensation, depreciation, amortization and
recoverability of long-lived and intangible assets, valuation of
inventory, establishing store closing and other reserves,
self-insurance reserves and calculating retirement benefits.
Revenues
The Companys store and eCommerce operations have been
aggregated into one operating segment due to their similar
economic characteristics, products, production processes,
customers and methods of distribution. These operations are
expected to continue to have similar characteristics and
long-term financial performance in future periods.
The following table gives information regarding the percentage
of revenues contributed by each merchandise area for each of the
last three fiscal years. There were no material changes between
fiscal years, as reflected in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise Areas
|
|
Fiscal Year 2010
|
|
|
Fiscal Year 2009
|
|
|
Fiscal Year 2008
|
|
|
Womens
|
|
|
36
|
%
|
|
|
37
|
%
|
|
|
37
|
%
|
Cosmetics, Shoes and Accessories
|
|
|
33
|
%
|
|
|
31
|
%
|
|
|
30
|
%
|
Mens
|
|
|
16
|
%
|
|
|
16
|
%
|
|
|
17
|
%
|
Home
|
|
|
9
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
Childrens
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues include sales of merchandise and the net revenue
received from leased departments of $2.3 million,
$3.1 million and $5.7 million for fiscal years 2010,
2009 and 2008, respectively. Leased department revenues were
significantly affected by the conversion of fine jewelry leased
departments into an owned fine jewelry operation principally
during fiscal year 2008. Sales from retail operations are
recorded at the time of delivery and reported net of sales taxes
and merchandise returns. The reserve for returns is calculated
as a percentage of sales based on historical return percentages.
The Company utilizes a customer loyalty program that issues
certificates for discounts on future purchases to proprietary
charge card customers based on their spending levels. The
certificates are classified as a reduction to revenue as they
are earned by the customers. The Company maintains a reserve
liability for the estimated future redemptions of the
certificates.
Cost of
Goods Sold
Cost of goods sold is comprised principally of the cost of
merchandise as well as occupancy, distribution and buying
expenses. Occupancy expenses include rent, utilities and real
estate taxes. Distribution expenses include all costs associated
with distribution facilities. Buying expenses include payroll
and travel expenses associated with the corporate merchandise
buying function.
Selling,
General and Administrative Expenses
Selling, general and administrative (SG&A)
expenses are comprised principally of payroll and benefits for
retail and corporate employees, depreciation, advertising and
other administrative expenses. SG&A expenses are reduced by
proceeds from the
10-year
credit card program agreement (Program Agreement)
between Belk and GE Money Bank (GE), an affiliate of
GE Consumer Finance, which expires June 30, 2016. This
Program Agreement sets forth among other things the terms and
conditions under which GE will issue credit cards to Belks
customers. The Company will be paid a percentage of net credit
sales, as defined by the Program Agreement, for future credit
card sales. Belk is required to perform certain duties,
including receiving and remitting in-store payments on behalf of
GE and receiving fees for these activities. These amounts
totaled $67.0 million, $67.3 million and
$71.6 million in fiscal years 2010, 2009 and 2008,
respectively.
Gift
Cards
At the time gift cards are sold, no revenue is recognized;
rather, a liability is established for the face amount of the
gift card. The liability is relieved and revenue is recognized
when gift cards are redeemed for merchandise. The estimated
values of gift cards expected to go unused are recognized as a
reduction to SG&A expenses in proportion to actual gift
card redemptions as the remaining gift card values are redeemed.
Advertising
Advertising costs, net of co-op recoveries from merchandise
vendors, are expensed in the period in which the advertising
event takes place and amounted to $123.5 million,
$134.2 million and $137.1 million in fiscal years
2010, 2009 and 2008, respectively.
Recoverability
of Long-Lived Assets
In accordance with Accounting Standards Codification
(ASC) 360, Property, Plant, and
Equipment, long-lived assets, such as property and
equipment and purchased intangible assets subject to
amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The impairment to be recognized is
measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset based upon the future
highest and best use of the impaired asset. If circumstances
require a long-lived asset be tested for possible impairment,
the Company first compares
34
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
undiscounted cash flows expected to be generated by an asset to
the carrying value of the asset. If the carrying value of the
long-lived asset is not recoverable on an undiscounted cash flow
basis, an impairment is recognized to the extent that the
carrying value exceeds its fair value. The Company determines
fair value of its retail locations primarily based on the
present value of future cash flows.
Cash
Equivalents
Cash equivalents include liquid investments with an original
maturity of 90 days or less.
Short-term
Investments
Short-term investments consist of investments whose original
maturity is greater than 90 days. At January 30, 2010,
the Company held an auction rate security (ARS) of
$2.5 million in short-term investments, which represents
the amount called at par by the issuer during the first quarter
of fiscal year 2011. Short-term investments are classified as
held-to-maturity
securities and are valued at amortized cost at January 30,
2010.
Merchandise
Inventory
Inventories are valued using the lower of cost or market value,
determined by the retail inventory method. Under the retail
inventory method (RIM), the valuation of inventories
at cost and the resulting gross margins are calculated by
applying a
cost-to-retail
ratio to the retail value of inventories. RIM is an averaging
method that is widely used in the retail industry due to its
practicality. Also, it is recognized that the use of the retail
inventory method will result in valuing inventories at lower of
cost or market if markdowns are currently taken as a reduction
of the retail value of inventories. Inherent in the RIM
calculation are certain significant management judgments and
estimates including, among others, merchandise markon, markup,
markdowns and shrinkage, which significantly affect the ending
inventory valuation at cost as well as the corresponding charge
to cost of goods sold. In addition, failure to take appropriate
markdowns can result in an overstatement of inventory under the
lower of cost or market principle.
Property
Held for Sale
Property held for sale at January 31, 2009, represented a
closed retail location which, at January 30, 2010, no
longer met the
held-for-sale
criteria, and was reclassified to property held for use.
Investment
Securities
The Company accounts for investments in accordance with the
provisions of ASC 320, Investments Debt and
Equity Securities. Securities classified as
available-for-sale
are valued at fair value, while securities that the Company has
the ability and positive intent to hold to maturity are valued
at amortized cost. The Company includes unrealized holding gains
and losses for
available-for-sale
securities in other comprehensive income (loss). Realized gains
and losses are recognized on an average cost basis and are
included in income. Declines in value that are considered to be
other than temporary are reported in gain (loss) on investments.
Property
and Equipment, Net
Property and equipment owned by the Company are stated at
historical cost less accumulated depreciation and amortization.
Property and equipment leased by the Company under capital
leases are stated at an amount equal to the present value of the
minimum lease payments less accumulated amortization.
Depreciation and amortization are recorded utilizing
straight-line and in certain circumstances accelerated methods
over the shorter of estimated asset lives or related lease
terms. The Company also amortizes leasehold improvements over
the shorter of the estimated asset life or expected lease term
that would include cancelable option periods where failure to
exercise such options
35
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
would result in an economic penalty in such amount that a
renewal appears, at the date the assets are placed in service,
to be reasonably assured.
Goodwill
and Intangibles
Goodwill and other intangible assets are accounted for in
accordance with ASC 350, Intangibles Goodwill
and Other. This statement requires that goodwill and other
intangible assets with indefinite lives should not be amortized,
but should be tested for impairment on an annual basis, or more
often if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below
its carrying amount.
Leasehold intangibles, which represent the excess of fair value
over the carrying value (assets) or the excess of carrying value
over fair value (liabilities) of acquired leases, are amortized
on a straight-line basis over the remaining terms of the lease
agreements. The lease term includes cancelable option periods
where failure to exercise such options would result in an
economic penalty in such amount that a renewal appears to be
reasonably assured. The lease intangibles are included in other
current assets and accrued liabilities for the current portions
and other assets and other noncurrent liabilities for the
noncurrent portions. Customer relationships, which represent the
value of customer relationships obtained in acquisitions or
purchased, are amortized on a straight-line basis over their
estimated useful life and are included in other assets. The
carrying value of intangible assets is reviewed by the
Companys management to assess the recoverability of the
assets when facts and circumstances indicate that the carrying
value may not be recoverable.
Rent
Expense
The Company recognizes rent expense on a straight-line basis
over the expected lease term, including cancelable option
periods where failure to exercise such options would result in
an economic penalty in such amount that a renewal appears, at
the inception of the lease, to be reasonably assured. Developer
incentives are recognized as a reduction to occupancy costs over
the lease term. The lease term commences on the date when the
Company gains control of the property.
Vendor
Allowances
The Company receives allowances from its vendors through a
variety of programs and arrangements, including markdown
reimbursement programs. These vendor allowances are generally
intended to offset the Companys costs of selling the
vendors products in our stores. Allowances are recognized
in the period in which the Company completes its obligations
under the vendor agreements. Most incentives are deducted from
amounts owed to the vendor at the time the Company completes its
obligations to the vendor or shortly thereafter.
The following summarizes the types of vendor incentives and the
Companys applicable accounting policies:
|
|
|
|
|
Advertising allowances Represents reimbursement of
advertising costs initially funded by the Company. Amounts are
recognized as a reduction to SG&A expenses in the period
that the advertising expense is incurred.
|
|
|
|
Markdown allowances Represents reimbursement for the
cost of markdowns to the selling price of the vendors
merchandise. Amounts are recognized as a reduction to cost of
goods sold in the later of the period that the merchandise is
marked down or the reimbursement is negotiated. Amounts received
prior to recognizing the markdowns are recorded as a reduction
to the cost of inventory.
|
|
|
|
Payroll allowances Represents reimbursement for
payroll costs. Amounts are recognized as a reduction to
SG&A expenses in the period that the payroll cost is
incurred.
|
36
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Based Compensation
The Company accounts for stock based compensation under the
guidelines of ASC 718, Compensation Stock
Compensation. ASC 718 requires the Company to account for
stock based compensation by using the grant date fair value of
share awards and the estimated number of shares that will
ultimately be issued in conjunction with each award.
Self
Insurance Reserves
The Company is responsible for the payment of workers
compensation, general liability and automobile claims under
certain dollar limits. The Company purchases insurance for
workers compensation, general liability and automobile
claims for amounts that exceed certain dollar limits. The
Company records a liability for its obligation associated with
incurred losses utilizing historical data and industry accepted
loss analysis standards to estimate the loss development factors
used to project the future development of incurred losses.
Management believes that the Companys loss reserves are
adequate but actual losses may differ from the amounts provided.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. The annual effective tax rate is based on income,
statutory tax rates and tax planning opportunities available in
the various jurisdictions in which the Company operates.
Significant judgment is required in determining annual tax
expense and in evaluating tax positions. In accordance with ASC
740, Income Taxes, the Company recognizes the effect
of income tax positions only if those positions are more likely
than not of being sustained. Recognized income tax positions are
measured at the largest amount that is greater than 50% likely
of being realized. Changes in recognition or measurement are
reflected in the period in which the change in judgment occurs.
The reserves (including the impact of the related interest and
penalties) are adjusted in light of changing facts and
circumstances, such as the progress of a tax audit.
Deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement bases and the respective tax bases of
the assets and liabilities and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected
to be realized.
The Company accrues interest related to unrecognized tax
benefits in interest expense, while accruing penalties related
to unrecognized tax benefits in income tax expense (benefit).
Derivative
Financial Instruments
The Company utilizes derivative financial instruments (interest
rate swap agreements) to manage the interest rate risk
associated with its borrowings. The Company has not historically
traded, and does not anticipate prospectively trading, in
derivatives. These swap agreements are used to reduce the
potential impact of increases in interest rates on variable rate
long-term debt. The difference between the fixed rate leg and
the variable rate leg of each swap, to be paid or received, is
accrued and recognized as an adjustment to interest expense.
Additionally, the changes in the fair value of swaps designated
as cash flow hedges are marked to market through accumulated
other comprehensive income (loss). Swaps that are not designated
as hedges are marked to market through gain (loss) on
investments.
As of January 31, 2010, the Company has one interest rate
swap for an $80.0 million notional amount, which has a
fixed rate of 5.2% and expires in fiscal year 2013. It has been
designated as a cash flow hedge against
37
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
variability in future interest rate payments on the
$80.0 million floating rate senior note. The Company had a
$125.0 million notional amount swap, which had a fixed rate
of 6.0% and expired in September 2008, that had previously been
designated as a cash flow hedge against variability in future
interest payments on a $125.0 million variable rate bond
facility. On July 26, 2007, the $125.0 million
notional amount swap was de-designated due to the Companys
decision to prepay the underlying debt. This swap was marked to
market in gain (loss) on investments through its expiration date.
Recently
Issued Accounting Standards
In June 2009, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles a replacement of
SFAS No. 162, which modifies the Generally
Accepted Accounting Principles (GAAP) hierarchy by
establishing only two levels of GAAP, authoritative and
nonauthoritative accounting literature. Effective July 2009, the
FASB Accounting Standards Codification (ASC), also
known collectively as the Codification, is
considered the single source of authoritative
U.S. accounting and reporting standards, except for
additional authoritative rules and interpretive releases issued
by the SEC. The Codification was developed to organize GAAP
pronouncements by topic so that users can more easily access
authoritative accounting guidance. ASC
105-10
became effective for the third quarter of fiscal year 2010. All
other accounting standard references have been updated in this
report with ASC references.
In January 2010, the FASB issued Accounting Standards Update
(ASU)
2010-06,
Improving Disclosures about Fair Value Measurements,
which updates ASC
820-10,
Fair Value Measurements and Disclosures. The updated
guidance clarifies existing disclosures and requires new
disclosures regarding recurring
and/or
nonrecurring fair-value measurements, including significant
transfers into and out of Level 1 and Level 2
fair-value measurements and information on purchases, sales,
issuances, and settlements on a gross basis in the
reconciliation of Level 3 fair-value measurements. ASU
2010-06 will
be effective for the first quarter of fiscal year 2011, except
for the disclosures regarding the reconciliation of Level 3
fair-value measurements, which will be effective for the Company
in the first quarter of fiscal year 2012. The Company early
adopted the requirements under ASU
2010-06 for
the fourth quarter of fiscal year 2010. Refer to the
Companys notes to the consolidated financial statements
for the disclosures required under ASU
2010-06.
Effective for the fourth quarter of fiscal year 2010, the FASB
issued ASU
2009-05,
Measuring Liabilities at Fair Value, which updates
ASC 820-10,
Fair Value Measurements and Disclosures. The updated
guidance clarifies that the fair value of a liability can be
measured in relation to the counterpartys asset when
traded in an active market, without adjusting the price for
restrictions that prevent the sale of the liability. The
Companys adoption of the requirements under ASU
2009-5 did
not change the Companys valuation techniques for measuring
liabilities at fair value.
Effective for the fourth quarter of fiscal year 2010, the
Compensation-Retirement Benefits Topic,
ASC 715-20
required more detailed disclosures regarding the assets of a
defined benefit pension or other postretirement plan. Refer to
the Companys notes to the consolidated financial
statements for the disclosures required under
ASC 715-20.
Effective for the second quarter of fiscal year 2010, the
Financial Instruments Topic, ASC
825-10
required disclosure regarding the fair value of financial
instruments of publicly traded companies for interim reporting
periods as well as annual reporting periods. Refer to the
Companys notes to the consolidated financial statements
for the disclosures required under ASC
825-10.
Effective for the second quarter of fiscal year 2010, the
Investments-Debt and Equity Securities Topic,
ASC 320-10
amended the presentation and disclosure requirements for
other-than-temporary
impairment on debt and equity securities in the financial
statements. Refer to the Companys notes to the
consolidated financial statements for the disclosures required
under ASC
320-10.
38
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective for the second quarter of fiscal year 2010, the
Fair Value Measurements and Disclosures Topic, ASC
820-10-65-4,
provided additional guidance for estimating fair value when the
volume and level of activity for the asset or liability have
significantly decreased and identifying circumstances that
indicate a transaction is not orderly. Refer to the
Companys notes to the consolidated financial statements
for the disclosures required under ASC
820-10-65-4.
Effective for the first quarter of fiscal year 2010, the
Fair Value Measurements and Disclosures Topic,
ASC 820-10-65-1,
established a single definition of fair value and a framework
for measuring fair value in GAAP for nonfinancial assets and
liabilities to increase consistency and comparability in fair
value measurements. The Companys adoption of the
requirements under ASC
820-10-65-1
did not require other additional disclosure during the first
quarter of fiscal year 2010.
|
|
(2)
|
Goodwill
and Intangibles
|
Goodwill and other intangible assets are accounted for in
accordance with ASC 350, Intangibles Goodwill
and Other. This statement requires that goodwill and other
intangible assets with indefinite lives should not be amortized,
but should be tested for impairment on an annual basis, or more
often if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below
its carrying amount. The Company completed its annual impairment
measurement at January 31, 2009 through use of discounted
cash flow techniques and market comparisons and determined that
the fair value of the reporting unit was less than its carrying
value. As a result, the Company recorded a $326.6 million
goodwill impairment charge during the fourth quarter of fiscal
year 2009. The impairment of goodwill was a non-cash charge and
did not affect the Companys compliance with financial
covenants under its various debt agreements.
Amortizing intangibles are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
Favorable lease intangibles
|
|
$
|
10,160
|
|
|
$
|
10,160
|
|
Accumulated amortization favorable lease intangibles
|
|
|
(2,586
|
)
|
|
|
(1,928
|
)
|
Credit card and customer list intangibles
|
|
|
18,746
|
|
|
|
18,746
|
|
Accumulated amortization credit card and customer
list intangibles
|
|
|
(10,813
|
)
|
|
|
(8,504
|
)
|
Other intangibles
|
|
|
7,951
|
|
|
|
7,940
|
|
Accumulated amortization other intangibles
|
|
|
(5,870
|
)
|
|
|
(4,698
|
)
|
|
|
|
|
|
|
|
|
|
Net amortizing intangible assets
|
|
$
|
17,588
|
|
|
$
|
21,716
|
|
|
|
|
|
|
|
|
|
|
Amortizing intangible liabilities:
|
|
|
|
|
|
|
|
|
Unfavorable lease intangibles
|
|
$
|
(30,453
|
)
|
|
$
|
(33,035
|
)
|
Accumulated amortization unfavorable lease
intangibles
|
|
|
6,579
|
|
|
|
5,209
|
|
|
|
|
|
|
|
|
|
|
Net amortizing intangible liabilities
|
|
$
|
(23,874
|
)
|
|
$
|
(27,826
|
)
|
|
|
|
|
|
|
|
|
|
The Company recorded net amortization expense related to
amortizing intangibles of $2.0 million, $2.0 million
and $1.4 million in fiscal years 2010, 2009, and 2008,
respectively.
(3) Other
Asset Impairment and Exit Costs
In fiscal year 2010, the Company recorded $38.5 million in
impairment charges primarily to adjust eight retail
locations net book values to fair value, a
$1.0 million charge for real estate holding costs and other
store closing
39
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
costs, and $0.4 million in exit costs comprised primarily
of severance costs associated with the outsourcing of certain
information technology functions. The Company determines fair
value of its retail locations primarily based on the present
value of future cash flows.
In fiscal year 2009, the Company recorded $27.1 million in
impairment charges to adjust nine retail locations net
book values to fair value, $3.5 million in exit costs
comprised primarily of severance costs associated with the
outsourcing of certain information technology and support
functions and corporate realignment of functional areas, and a
$1.0 million charge for real estate holding costs and other
store closing costs.
As of January 30, 2010 and January 31, 2009, the
remaining reserve balance for post-closing real estate lease
obligations was $8.8 million and $7.0 million,
respectively. These balances are presented within accrued
liabilities and other noncurrent liabilities on the consolidated
balance sheets. The Company does not anticipate incurring
significant additional exit costs in connection with the store
closings. The following is a summary of post-closing real estate
lease obligations activity:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, beginning of year
|
|
$
|
7,044
|
|
|
$
|
7,483
|
|
Charges and adjustments
|
|
|
2,858
|
|
|
|
879
|
|
Utilization/payments
|
|
|
(1,081
|
)
|
|
|
(1,318
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
8,821
|
|
|
$
|
7,044
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
Accumulated
Other Comprehensive Loss
|
The following table sets forth the components of accumulated
other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Unrealized loss on investments, net of $287 of income taxes as
of January 31, 2009
|
|
$
|
|
|
|
$
|
(482
|
)
|
Unrealized loss on interest rate swaps, net of $2,789 and $3,048
of income taxes as of January 30, 2010 and January 31,
2009, respectively
|
|
|
(4,614
|
)
|
|
|
(5,135
|
)
|
Defined benefit plans, net of $90,721 and $95,740 of income
taxes as of January 30, 2010 and January 31, 2009,
respectively
|
|
|
(151,815
|
)
|
|
|
(161,281
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(156,429
|
)
|
|
$
|
(166,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
Accounts
Receivable, Net
|
Accounts receivable, net consists of:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Accounts receivable from vendors
|
|
$
|
9,283
|
|
|
$
|
15,216
|
|
Credit card accounts receivable
|
|
|
9,381
|
|
|
|
15,437
|
|
Other receivables
|
|
|
3,779
|
|
|
|
3,435
|
|
Less allowance for doubtful accounts
|
|
|
(16
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
22,427
|
|
|
$
|
34,043
|
|
|
|
|
|
|
|
|
|
|
40
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Held-to-maturity
securities, totaling $9.4 million, consist of the current
and non-current portions of an ARS as of January 30, 2010.
The ARS owned by the Company is backed by student loans, which
are 97% guaranteed under the Federal Family Education Loan
Program, carries the highest credit ratings of AAA, and has a
maturity date of July 1, 2034. Historically, the fair value
of the Companys ARS holdings approximated par value due to
the frequent auction periods, which provided liquidity to these
investments. However, during fiscal year 2009, many auctions
involving this security failed. The result of the failed
auctions resulted in very limited liquidity, however, the
Company continues to receive interest in accordance with the
terms at each auction date.
To date, the Company has collected all interest payable on the
outstanding ARS when due and expects to continue to do so in the
future. At this time, the Company has no reason to believe that
the underlying issuer of the ARS or their insurers are presently
at risk. While the auction failures limit the ability to
liquidate these investments, the Company expects that the ARS
failures will have no significant impact on the ability to fund
ongoing operations and growth initiatives due to its strong cash
position. As a result of the persistent failed auctions and the
uncertainty of when these investments could be successfully
liquidated at par, the Company has reclassified the ARS to
held-to-maturity
from
available-for-sale,
and has recorded $6.85 million of the ARS as a non-current
investment security and the remaining $2.5 million as
short-term investments, which represents the amount called at
par by the issuer during the first quarter of fiscal year 2011.
As of January 30, 2010, the amortized cost and fair value
of the ARS was $9.4 million.
Available-for-sale
securities consisted primarily of equity investments as of
January 31, 2009. In evaluating the possible impairment of
the Companys
available-for-sale
equity investment securities as of January 31, 2009,
consideration was given to the length of time and the extent to
which the fair value has been less than cost, the financial
conditions and near-term prospects of the issuer and the ability
and intent of the Company to retain its investment in the issuer
for a period of time sufficient to allow for any anticipated
recovery in fair value. During the third quarter of fiscal year
2009, due to the current economic environment and the financial
condition of the issuer, the Company recognized an
other-than-temporary
impairment on a portion of its investment securities. The
impaired investment security had experienced a significant
decline in fair value and the Company did not anticipate
recovering the securitys cost basis in the near future.
Accordingly, the Company recorded a $0.6 million
other-than-temporary
impairment in gain (loss) on investments, and reduced the cost
basis of the security to the estimated fair value.
As of January 31, 2009, the cost, gross unrealized loss and
fair value of
available-for-sale
securities was $1.8 million, $0.7 million and
$1.1 million, respectively. In the fourth quarter of fiscal
year 2010, the Company transferred ownership of all remaining
available-for-sale
securities to two charitable organizations.
During the fourth quarter of fiscal year 2009, the Company
recognized an
other-than-temporary
impairment on its investment in a partnership that had been
accounted for under the equity method of accounting, as the
Company did not anticipate recovering the partnerships
cost basis in the near future. The Company determined this
other-than-temporary
impairment primarily due to the macroeconomic effects across the
retail industry which resulted in declines in retail property
values associated with this partnership. Accordingly, the
Company recorded a $1.4 million
other-than-temporary
impairment in gain (loss) on investments, and reduced the cost
basis of the partnership to a fair value of zero.
41
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(7)
|
Property
and Equipment, net
|
Details of property and equipment, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
January 30,
|
|
|
January 31,
|
|
|
|
Lives
|
|
2010
|
|
|
2009
|
|
|
|
(In years)
|
|
(Dollars in thousands)
|
|
|
Land
|
|
|
|
$
|
58,494
|
|
|
$
|
60,645
|
|
Buildings
|
|
primarily 15-31.5
|
|
|
1,044,520
|
|
|
|
1,047,784
|
|
Furniture, fixtures and equipment
|
|
3-7
|
|
|
1,083,214
|
|
|
|
1,091,927
|
|
Property under capital leases
|
|
5-20
|
|
|
56,777
|
|
|
|
56,777
|
|
Construction in progress
|
|
|
|
|
12,061
|
|
|
|
21,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,255,066
|
|
|
|
2,278,594
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
(1,245,816
|
)
|
|
|
(1,109,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
1,009,250
|
|
|
$
|
1,169,150
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded depreciation and amortization related to
property and equipment of $156.4 million,
$163.3 million and $158.5 million in fiscal years
2010, 2009, and 2008, respectively. Accumulated amortization of
assets under capital lease was $41.7 million and
$37.5 million as of January 30, 2010 and
January 31, 2009, respectively.
During fiscal year 2009, the Company sold an acquired
distribution facility for $4.0 million that resulted in a
gain on the sale of property of $0.7 million. The Company
also sold an acquired corporate headquarters facility and
adjacent land parcels for $12.4 million that resulted in a
gain on the sale of property of $1.3 million. In addition,
during fiscal year 2009, the Company sold two stores for net
proceeds of $2.6 million, which resulted in no gain or loss.
During fiscal year 2008, the Company sold seven stores for net
proceeds of $29.2 million.
Effective April 27, 2007, the Company sold a portion of its
headquarters building located in Charlotte, NC for
$23.3 million. The Company also entered into a lease
arrangement with the purchaser of the property to lease the
property for a term of 13 years, 8 months. The fiscal
year 2008 sale and leaseback transaction resulted in a gain on
the sale of the property of $7.3 million, which has been
deferred and will be recognized ratably over the lease term.
42
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries, wages and employee benefits
|
|
$
|
44,696
|
|
|
$
|
36,229
|
|
Accrued capital expenditures
|
|
|
1,723
|
|
|
|
10,325
|
|
Taxes, other than income
|
|
|
17,793
|
|
|
|
15,452
|
|
Rent
|
|
|
6,719
|
|
|
|
7,647
|
|
Sales returns allowance
|
|
|
9,677
|
|
|
|
6,472
|
|
Interest
|
|
|
7,769
|
|
|
|
5,533
|
|
Store closing reserves
|
|
|
6,275
|
|
|
|
6,062
|
|
Self insurance reserves
|
|
|
6,292
|
|
|
|
5,967
|
|
Advertising
|
|
|
5,774
|
|
|
|
4,889
|
|
Other
|
|
|
18,881
|
|
|
|
19,469
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities
|
|
$
|
125,599
|
|
|
$
|
118,045
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Credit facility term loan
|
|
$
|
325,000
|
|
|
$
|
325,000
|
|
Senior notes
|
|
|
325,000
|
|
|
|
325,000
|
|
Capital lease agreements through August 2020
|
|
|
21,076
|
|
|
|
25,410
|
|
State bond facility
|
|
|
17,780
|
|
|
|
17,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
688,856
|
|
|
|
693,190
|
|
Less current installments
|
|
|
(3,419
|
)
|
|
|
(4,486
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, excluding current
installments
|
|
$
|
685,437
|
|
|
$
|
688,704
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2010, the annual maturities of long-term
debt and capital lease obligations over the next five years are
$3.4 million, $328.1 million, $103.3 million,
$3.0 million, and $2.8 million, respectively. The
Company made interest payments of $39.0 million,
$43.7 million, and $49.3 million, of which
$0.5 million, $1.7 million, and $1.9 million was
capitalized into property and equipment during fiscal years
2010, 2009, and 2008, respectively.
The Companys borrowings consist primarily of a credit
facility that matures in October 2011 and $325.0 million in
senior notes. On March 30, 2009, the Company amended its
$725.0 million credit facility to revise the debt
covenants, and reduce available borrowings to
$675.0 million, of which a $325.0 million term loan
was outstanding at January 30, 2010 and January 31,
2009. Under the amended credit facility, the Company has a
$350.0 million revolving line of credit, and allows for up
to $200.0 million of outstanding letters of credit. During
the fourth quarter of fiscal year 2009, the Company made a
$25.0 million discretionary payment on the amount
outstanding under the credit facility.
The credit facility charges interest based upon certain Company
financial ratios and the interest spread was calculated at
January 30, 2010 using LIBOR plus 200.0 basis points.
The weighted average interest rate charged on the credit
facility was 2.27% at January 30, 2010. The credit facility
contains restrictive covenants including
43
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
leverage and fixed charge coverage ratios. The Companys
calculated leverage ratio dictates the LIBOR spread that will be
charged on outstanding borrowings in the subsequent quarter. The
leverage ratio is calculated by dividing adjusted debt, which is
the sum of the Companys outstanding debt plus rent expense
multiplied by a factor of eight, divided by pre-tax income plus
net interest expense and non-cash items, such as depreciation,
amortization, and impairment expense. At January 30, 2010,
the maximum leverage allowed under the credit facility is 4.25,
and the calculated leverage ratio was 3.06. The Company was in
compliance with all covenants at the end of fiscal year 2010 and
expects to remain in compliance with all debt covenants during
fiscal year 2011. The Company elected to amend the financial
covenants in the credit facility on March 30, 2009. The
result of this amendment was an increase in the maximum leverage
ratio from 4.0 to 4.25 as well as an increase in the interest
spread from LIBOR plus 112.5 basis points to LIBOR plus
200.0 basis points at March 30, 2009, as well as a
reduction in the size of the credit facility to
$675.0 million. As of January 30, 2010, the Company
had $35.4 million of standby letters of credit and a
$325.0 million term loan outstanding under the credit
facility. As of January 30, 2010, availability under the
credit facility was $314.6 million.
The senior notes are comprised of an $80.0 million floating
rate senior note that has a stated variable interest rate based
on three-month LIBOR plus 80.0 basis points, or 2.15% at
January 30, 2010, that matures in July 2012. This
$80.0 million notional amount has an associated interest
rate swap with a fixed interest rate of 5.2%. Additionally, a
$20.0 million fixed rate senior note that bears interest of
5.05% matures in July 2012, a $100.0 million fixed rate
senior note that bears interest of 5.31% matures in July 2015,
and a $125.0 million fixed rate senior note that bears
interest of 6.2% matures in August 2017. The senior notes have
restrictive covenants that are similar to the Companys
credit facility. Additionally, the Company has a
$17.8 million,
20-year
variable rate, 0.24% at January 30, 2010, state bond
facility which matures in October 2025.
The debt facilities place certain restrictions on mergers,
consolidations, acquisitions, sales of assets, indebtedness,
transactions with affiliates, leases, liens, investments,
dividends and distributions, exchange and issuance of capital
stock and guarantees, and require maintenance of minimum
financial ratios, which include a leverage ratio, consolidated
debt to consolidated capitalization ratio and a fixed charge
coverage ratio. These ratios are calculated exclusive of
non-cash charges, such as fixed asset, goodwill and other
intangible asset impairments.
The Company utilizes derivative financial instruments (interest
rate swap agreements) to manage the interest rate risk
associated with its borrowings. The Company has not historically
traded, and does not anticipate prospectively trading, in
derivatives. These swap agreements are used to reduce the
potential impact of increases in interest rates on variable rate
debt. The difference between the fixed rate leg and the variable
rate leg of the swap, to be paid or received, is accrued and
recognized as an adjustment to interest expense. Additionally,
the change in the fair value of a swap designated as a cash flow
hedge is marked to market through accumulated other
comprehensive income (loss). Any swap that is not designated as
a hedging instrument is marked to market through gain (loss) on
investments.
The Companys exposure to derivative instruments was
limited to one interest rate swap as of January 30, 2010,
an $80.0 million notional amount swap, which has a fixed
interest rate of 5.2% and expires in fiscal year 2013. It has
been designated as a cash flow hedge against variability in
future interest rate payments on the $80.0 million floating
rate senior note. The Company had a $125.0 million notional
amount swap, which expired in September 2008, that had
previously been designated as a cash flow hedge against
variability in future interest payments on a $125.0 million
variable rate bond facility. On July 26, 2007, the
$125.0 million notional amount swap was de-designated due
to the Companys decision to prepay the underlying debt.
This swap was marked to market in gain (loss) on investments
through its expiration date.
44
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(11)
|
Retirement
Obligations and Other Noncurrent Liabilities
|
Retirement obligations and other noncurrent liabilities are
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Pension liability
|
|
$
|
172,663
|
|
|
$
|
212,317
|
|
Deferred compensation plans
|
|
|
31,234
|
|
|
|
31,188
|
|
Post-retirement benefits
|
|
|
22,249
|
|
|
|
24,027
|
|
Supplemental executive retirement plans
|
|
|
23,029
|
|
|
|
22,366
|
|
Deferred gain on sale/leaseback
|
|
|
26,069
|
|
|
|
28,698
|
|
Unfavorable lease liability
|
|
|
22,169
|
|
|
|
25,971
|
|
Deferred rent
|
|
|
26,558
|
|
|
|
23,952
|
|
Self-insurance reserves
|
|
|
11,278
|
|
|
|
11,028
|
|
Developer incentive liability
|
|
|
9,826
|
|
|
|
10,254
|
|
Income tax reserves
|
|
|
17,224
|
|
|
|
21,964
|
|
Other noncurrent liabilities
|
|
|
8,274
|
|
|
|
6,562
|
|
|
|
|
|
|
|
|
|
|
Retirement obligations and other noncurrent liabilities
|
|
$
|
370,573
|
|
|
$
|
418,327
|
|
|
|
|
|
|
|
|
|
|
The Company leases some of its stores, warehouse facilities and
equipment. The majority of these leases will expire over the
next 15 years. The leases usually contain renewal options
and provide for payment by the lessee of real estate taxes and
other expenses and, in certain instances, contingent rentals
determined on the basis of a percentage of sales in excess of
stipulated minimums.
Future minimum lease payments under non-cancelable leases, net
of future minimum sublease rental income under non-cancelable
subleases, as of January 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Capital
|
|
|
Operating
|
|
|
|
(Dollars in thousands)
|
|
|
2011
|
|
|
4,891
|
|
|
|
71,209
|
|
2012
|
|
|
4,307
|
|
|
|
66,942
|
|
2013
|
|
|
4,294
|
|
|
|
61,565
|
|
2014
|
|
|
3,762
|
|
|
|
52,583
|
|
2015
|
|
|
3,363
|
|
|
|
46,981
|
|
After 2015
|
|
|
6,342
|
|
|
|
302,880
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
26,959
|
|
|
|
602,160
|
|
Less sublease rental income
|
|
|
|
|
|
|
(16,883
|
)
|
|
|
|
|
|
|
|
|
|
Net rentals
|
|
|
26,959
|
|
|
$
|
585,277
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest
|
|
|
(5,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
21,076
|
|
|
|
|
|
Less current portion
|
|
|
(3,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion of the present value of minimum lease payments
|
|
$
|
17,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sublease rental income primarily relates to the portion of the
Companys headquarters building located in Charlotte, NC
that was sold and leased back by the Company during fiscal year
2008 and was subsequently subleased by the Company.
Net rental expense for all operating leases consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Buildings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rentals
|
|
$
|
76,218
|
|
|
$
|
76,512
|
|
|
$
|
75,098
|
|
Contingent rentals
|
|
|
2,614
|
|
|
|
3,066
|
|
|
|
4,665
|
|
Sublease rental income
|
|
|
(2,383
|
)
|
|
|
(2,307
|
)
|
|
|
(2,308
|
)
|
Equipment
|
|
|
2,133
|
|
|
|
2,008
|
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net rental expense
|
|
$
|
78,582
|
|
|
$
|
79,279
|
|
|
$
|
79,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal and state income tax expense (benefit) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
36,438
|
|
|
$
|
(644
|
)
|
|
$
|
29,469
|
|
State
|
|
|
3,598
|
|
|
|
(6,110
|
)
|
|
|
2,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,036
|
|
|
|
(6,754
|
)
|
|
|
31,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(9,437
|
)
|
|
|
(69,476
|
)
|
|
|
14,365
|
|
State
|
|
|
(545
|
)
|
|
|
5,914
|
|
|
|
(3,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,982
|
)
|
|
|
(63,562
|
)
|
|
|
11,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
30,054
|
|
|
$
|
(70,316
|
)
|
|
$
|
42,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation between income taxes and income tax expense
(benefit) computed using the federal statutory income tax rate
of 35% is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Income tax at the statutory federal rate
|
|
$
|
34,016
|
|
|
$
|
(99,148
|
)
|
|
$
|
48,525
|
|
State income taxes, net of federal
|
|
|
744
|
|
|
|
(1,244
|
)
|
|
|
(839
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
32,835
|
|
|
|
|
|
Increase in cash surrender value of officers life insurance
|
|
|
(4,619
|
)
|
|
|
(2,915
|
)
|
|
|
(5,201
|
)
|
Net increase (decrease) in uncertain tax positions
|
|
|
735
|
|
|
|
(4,807
|
)
|
|
|
1,247
|
|
Change in valuation allowances for prior years
|
|
|
|
|
|
|
4,938
|
|
|
|
|
|
Other
|
|
|
(822
|
)
|
|
|
25
|
|
|
|
(828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
30,054
|
|
|
$
|
(70,316
|
)
|
|
$
|
42,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes based upon differences between the financial
statement and tax bases of assets and liabilities and available
tax carryforwards consist of:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Prepaid pension costs
|
|
$
|
48,912
|
|
|
$
|
79,736
|
|
Benefit plan costs
|
|
|
31,868
|
|
|
|
31,984
|
|
Store closing and other reserves
|
|
|
15,473
|
|
|
|
15,172
|
|
Inventory capitalization
|
|
|
5,855
|
|
|
|
3,171
|
|
Tax carryovers
|
|
|
13,305
|
|
|
|
10,742
|
|
Interest rate swaps
|
|
|
2,758
|
|
|
|
4,025
|
|
Prepaid rent
|
|
|
10,068
|
|
|
|
9,030
|
|
Goodwill
|
|
|
61,231
|
|
|
|
67,101
|
|
Intangibles
|
|
|
13,173
|
|
|
|
13,191
|
|
Other
|
|
|
11,950
|
|
|
|
6,626
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
214,593
|
|
|
|
240,778
|
|
Less valuation allowance
|
|
|
(19,899
|
)
|
|
|
(17,807
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
194,694
|
|
|
|
222,971
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
49,753
|
|
|
|
74,954
|
|
Intangibles
|
|
|
6,842
|
|
|
|
7,190
|
|
Inventory
|
|
|
35,788
|
|
|
|
38,106
|
|
Investment securities
|
|
|
|
|
|
|
448
|
|
Other
|
|
|
563
|
|
|
|
1,441
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
92,946
|
|
|
|
122,139
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
101,748
|
|
|
$
|
100,832
|
|
|
|
|
|
|
|
|
|
|
47
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Due to current economic conditions and their impact on the
future, the Company believes that it is more likely than not
that the benefit from certain state net operating loss and
credit carryforwards, and net deferred tax assets for state
income tax purposes, will not be realized. In recognition of
this risk, the Company has provided a valuation allowance of
$19.7 million and $17.6 million at January 30,
2010 and January 31, 2009, respectively, on these deferred
tax assets. The increase in the valuation allowance consists of
$1.8 million from current year increases to deferred tax
assets resulting from recurring current year operations, an
increase of $0.7 million due to the Companys Internal
Revenue Service (IRS) audit settlement in the fourth
quarter of fiscal year 2010, offset by $0.4 million related
to deferred tax assets within other comprehensive income. If or
when recognized, the Company anticipates that the tax benefits
relating to any reversal of the valuation allowance on deferred
tax assets at January 30, 2010 will be accounted for as a
reduction of income tax expense.
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
realization of deferred tax assets are dependent upon whether
there are sufficient sources of income in the future. Management
considers these sources of income from 1) the scheduled
reversal of deferred tax liabilities, 2) projected future
taxable income, 3) taxable income in prior carryback
year(s) if carryback is permitted under the tax law, and
4) tax planning strategies in making this assessment.
As of January 30, 2010, the Company has net operating loss
carryforwards for federal and state income tax purposes of
$0.6 million and $268.7 million, respectively. These
carryforwards expire at various intervals through fiscal year
2031 but primarily in fiscal years 2024 and 2026, respectively.
The Company also has state job credits of $1.2 million,
which are available to offset future taxable income, if any.
These credits expire between fiscal years 2016 and 2023. Some of
the loss carryforwards are limited to an annual deduction of
approximately $0.3 million under Internal Revenue Code
Section 382. In addition, the Company has alternative
minimum tax net operating loss carryforwards of
$0.9 million which are available to reduce future
alternative minimum taxable income.
The state net operating loss carryforwards from filed returns
included uncertain tax positions taken in prior years. State net
operating loss carryforwards as shown on the Companys tax
returns are larger than the state net operating losses for which
a deferred tax asset is recognized for financial statement
purposes.
As of January 30, 2010, the total gross unrecognized tax
benefit was $19.0 million. Of this total, $3.1 million
represents the amount of unrecognized tax benefits (net of the
federal benefit on state issues) that, if recognized, would
favorably affect the effective income tax rate in a future
period. A reconciliation of the beginning and ending amount of
total unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance, beginning of year
|
|
$
|
21,567
|
|
|
$
|
23,731
|
|
Additions for tax positions from prior years
|
|
|
7,429
|
|
|
|
1,847
|
|
Reductions for tax positions from prior years
|
|
|
(382
|
)
|
|
|
(7,798
|
)
|
Additions for tax positions related to the current year
|
|
|
1,500
|
|
|
|
4,113
|
|
Settlement payments
|
|
|
(11,156
|
)
|
|
|
(326
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
18,958
|
|
|
$
|
21,567
|
|
|
|
|
|
|
|
|
|
|
As part of its continuing practice, the Company has accrued
interest related to unrecognized tax benefits in interest
expense while accruing penalties related to unrecognized tax
benefits in tax expense. Total accrued interest and penalties
for unrecognized tax benefits (net of the federal benefit on
state issues) as of January 30, 2010 was $2.2 million,
of which a benefit of $1.7 million was recognized during
fiscal year 2010. Any prospective adjustments to the
Companys gross unrecognized tax benefit will be recorded
as an increase or decrease to interest expense
and/or the
provision for income taxes (for taxes and penalties) affecting
the effective tax rate.
48
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is subject to U.S. federal income tax as well
as income tax of multiple state jurisdictions. The Company has
concluded all U.S. federal income tax matters with the IRS
for tax years through 2007. All material state and local income
tax matters have been concluded for tax years through 2004. The
Company settled its federal income tax audit for tax years 2005,
2006 and 2007 during the fourth quarter of fiscal year 2010. As
a result of this settlement, the Company decreased unrecognized
tax benefits, interest expense and cash by $5.2 million,
$0.8 million and $10.1 million, respectively and
increased deferred tax assets, tax expense and accrued
liabilities by $8.9 million, $0.1 million, and
$3.3 million, respectively. The settlement was primarily
attributable to the timing of income recognition related to gift
cards, trade discounts and capitalizable inventory costs.
At this time, the Company does not expect a material change to
its gross unrecognized tax benefit over the next 12 months.
|
|
(14)
|
Pension,
SERP and Postretirement Benefits
|
The Company has a defined benefit pension plan, the Belk Pension
Plan, which prior to fiscal year 2010 had been partially frozen
and closed to new participants. Pension benefits were suspended
for fiscal year 2010, and effective December 31, 2009, the
Pension Plan was frozen for those remaining participants whose
benefits were not previously frozen in fiscal year 2006. This
Pension Plan freeze resulted in a one-time curtailment charge of
$2.7 million in the third quarter of fiscal year 2010.
The Company has a non-qualified defined benefit Supplemental
Executive Retirement Plan, (Old SERP), which
provides retirement and death benefits to certain qualified
executives. Old SERP has been closed to new executives and has
been replaced by the 2004 Supplemental Executive Retirement Plan
(2004 SERP), a non-qualified defined contribution
plan.
The Company also provides postretirement medical and life
insurance benefits to certain retired full-time employees. The
Company accounts for postretirement benefits by recognizing the
cost of these benefits over an employees estimated term of
service with the Company, in accordance with ASC 715,
Compensation Retirement Benefits.
49
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The change in the projected benefit obligation, change in plan
assets, funded status, amounts recognized and unrecognized, net
periodic benefit cost and actuarial assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Old SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
429,863
|
|
|
$
|
410,290
|
|
|
$
|
10,279
|
|
|
$
|
11,980
|
|
|
$
|
26,704
|
|
|
$
|
27,148
|
|
Service cost
|
|
|
|
|
|
|
3,095
|
|
|
|
126
|
|
|
|
189
|
|
|
|
133
|
|
|
|
133
|
|
Interest cost
|
|
|
26,433
|
|
|
|
24,577
|
|
|
|
629
|
|
|
|
728
|
|
|
|
1,624
|
|
|
|
1,629
|
|
Effect of eliminating early measurement date
|
|
|
|
|
|
|
524
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
(264
|
)
|
Actuarial (gains) losses
|
|
|
36,547
|
|
|
|
16,610
|
|
|
|
1,584
|
|
|
|
(1,679
|
)
|
|
|
(892
|
)
|
|
|
177
|
|
Benefits paid
|
|
|
(26,102
|
)
|
|
|
(25,233
|
)
|
|
|
(1,266
|
)
|
|
|
(898
|
)
|
|
|
(2,761
|
)
|
|
|
(2,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
466,741
|
|
|
|
429,863
|
|
|
|
11,352
|
|
|
|
10,279
|
|
|
|
24,808
|
|
|
|
26,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
217,546
|
|
|
|
351,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
58,634
|
|
|
|
(127,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to plan
|
|
|
44,000
|
|
|
|
20,000
|
|
|
|
1,266
|
|
|
|
898
|
|
|
|
2,761
|
|
|
|
2,119
|
|
Effect of eliminating early measurement date
|
|
|
|
|
|
|
(588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(26,102
|
)
|
|
|
(25,233
|
)
|
|
|
(1,266
|
)
|
|
|
(898
|
)
|
|
|
(2,761
|
)
|
|
|
(2,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
294,078
|
|
|
|
217,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
|
(172,663
|
)
|
|
|
(212,317
|
)
|
|
|
(11,352
|
)
|
|
|
(10,279
|
)
|
|
|
(24,809
|
)
|
|
|
(26,704
|
)
|
Unrecognized net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
706
|
|
|
|
982
|
|
Unrecognized prior service costs
|
|
|
|
|
|
|
3,091
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss
|
|
|
239,870
|
|
|
|
251,653
|
|
|
|
1,594
|
|
|
|
4
|
|
|
|
366
|
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prepaid (accrued)
|
|
$
|
67,207
|
|
|
$
|
42,427
|
|
|
$
|
(9,758
|
)
|
|
$
|
(10,273
|
)
|
|
$
|
(23,737
|
)
|
|
$
|
(24,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains and losses are generally amortized over the
average remaining service life of the Companys active
employees. Due to the pension plan freeze in the third quarter
of fiscal year 2010, the Company began using the average
remaining life of the participants in the pension plan rather
than the average remaining service life of the Companys
active employees.
50
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts recognized in the consolidated balance sheets consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Old SERP Benefits
|
|
Postretirement Benefits
|
|
|
January 30,
|
|
January 31,
|
|
January 30,
|
|
January 31,
|
|
January 30,
|
|
January 31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(Dollars in thousands)
|
|
Accrued liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,326
|
|
|
$
|
1,034
|
|
|
$
|
2,560
|
|
|
$
|
2,678
|
|
Deferred income tax assets
|
|
|
89,743
|
|
|
|
94,892
|
|
|
|
546
|
|
|
|
3
|
|
|
|
432
|
|
|
|
845
|
|
Retirement obligations and other noncurrent liabilities
|
|
|
172,663
|
|
|
|
212,317
|
|
|
|
10,026
|
|
|
|
9,245
|
|
|
|
22,249
|
|
|
|
24,027
|
|
Accumulated other comprehensive loss
|
|
|
(150,127
|
)
|
|
|
(159,852
|
)
|
|
|
(1,048
|
)
|
|
|
(3
|
)
|
|
|
(640
|
)
|
|
|
(1,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Old SERP Plan
|
|
Postretirement Benefits
|
|
|
January 30,
|
|
January 31,
|
|
January 30,
|
|
January 31,
|
|
January 30,
|
|
January 31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(Dollars in thousands)
|
|
Obligation and funded status at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2010 and January 31, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
466,741
|
|
|
$
|
429,863
|
|
|
$
|
11,352
|
|
|
$
|
10,279
|
|
|
$
|
24,808
|
|
|
$
|
26,704
|
|
Accumulated benefit obligation
|
|
|
466,741
|
|
|
|
429,863
|
|
|
|
10,583
|
|
|
|
9,543
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Fair value of plan assets
|
|
|
294,078
|
|
|
|
217,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Old SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Net actuarial loss
|
|
$
|
(150,127
|
)
|
|
$
|
(157,912
|
)
|
|
$
|
(1,048
|
)
|
|
$
|
(2
|
)
|
|
$
|
(197
|
)
|
|
$
|
(810
|
)
|
Prior service cost
|
|
|
|
|
|
|
(1,940
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(443
|
)
|
|
|
(616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(150,127
|
)
|
|
$
|
(159,852
|
)
|
|
$
|
(1,048
|
)
|
|
$
|
(3
|
)
|
|
$
|
(640
|
)
|
|
$
|
(1,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Activity related to plan assets and benefit obligations
recognized in accumulated other comprehensive loss are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Old SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Adjustment to minimum liability
|
|
$
|
(13
|
)
|
|
$
|
(105,416
|
)
|
|
$
|
(1,045
|
)
|
|
$
|
1,054
|
|
|
$
|
588
|
|
|
$
|
(69
|
)
|
Effect of pension curtailment charge
|
|
|
1,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of eliminating early measurement date
|
|
|
|
|
|
|
1,621
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
44
|
|
Amortization of unrecognized items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173
|
|
|
|
164
|
|
Prior service cost
|
|
|
243
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses
|
|
|
7,717
|
|
|
|
6,204
|
|
|
|
|
|
|
|
136
|
|
|
|
25
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,725
|
|
|
$
|
(97,280
|
)
|
|
$
|
(1,045
|
)
|
|
$
|
1,224
|
|
|
$
|
786
|
|
|
$
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
Old SERP Plan
|
|
Postretirement Plan
|
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010
|
|
2009
|
|
2008
|
|
2010
|
|
2009
|
|
2008
|
|
Discount rates
|
|
|
5.750
|
%
|
|
|
6.375
|
%
|
|
|
6.125
|
%
|
|
|
5.750
|
%
|
|
|
6.375
|
%
|
|
|
6.125
|
%
|
|
|
5.750
|
%
|
|
|
6.375
|
%
|
|
|
6.125
|
%
|
Rates of compensation increase
|
|
|
N/A
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Return on plan assets
|
|
|
8.00
|
|
|
|
8.25
|
|
|
|
8.25
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The Company developed the discount rate by matching the
projected future cash flows of the plan to a modeled yield curve
consisting of over 500 Aa-graded, noncallable bonds. Based on
this analysis, management selected a 5.750% discount rate, which
represented the calculated yield curve rate plus 25.0 basis
points. The pension plans expected return assumption is
based on the weighted average aggregate long-term expected
returns of various actively managed asset classes corresponding
to the plans asset allocation. The majority of the pension
plan assets are allocated to equity securities, with the
remaining assets allocated to fixed income securities, private
equity investments, and cash.
ASC
715-30-35-62,
Defined Benefit Plans Pension, Timing of
Measurement, required the Company to transition its
measurement date to the end of fiscal year 2009 as compared to a
measurement date of November 1 for previous fiscal years. This
resulted in a measurement period of fifteen months during fiscal
year 2009, 3 months of which were recorded as an adjustment
to retained earnings of $2.8 million, net of
$1.7 million income taxes.
The measurement date for the defined benefit pension plan, Old
SERP and postretirement benefits for fiscal year 2010 is
January 30, 2010. For measurement purposes, an 8.0% annual
rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rate) was assumed for fiscal year
2010; the rate was assumed to decrease to 5.0% gradually over
the next six years and remain at that level for fiscal years
thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example,
increasing or decreasing the assumed health care cost trend
rates by one percentage point would increase or decrease the
accumulated postretirement benefit obligation as of
January 30, 2010 by $0.6 million and the aggregate of
the service and interest cost components of net periodic
postretirement benefit cost for the year ended January 30,
2010 by $0.1 million.
52
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company maintains policies for investment of pension plan
assets. The policies set forth stated objectives and a structure
for managing assets, which includes various asset classes and
investment management styles that, in the aggregate, are
expected to produce a sufficient level of diversification and
investment return over time and provide for the availability of
funds for benefits as they become due. The policies also provide
guidelines for each investment portfolio that control the level
of risk assumed in the portfolio and ensure that assets are
managed in accordance with stated objectives. The policies set
forth criteria to monitor and evaluate the performance results
achieved by the investment managers. In addition, managing the
relationship between plan assets and benefit obligations within
the policy objectives is achieved through periodic asset and
liability studies required by the policies.
The asset allocation for the pension plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
|
Percentage of Plan Assets at Measurement Date
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Domestic equity securities
|
|
|
40-55
|
%
|
|
|
50
|
%
|
|
|
45
|
%
|
|
|
48
|
%
|
International equity securities
|
|
|
10-15
|
%
|
|
|
12
|
%
|
|
|
12
|
%
|
|
|
14
|
%
|
Fixed Income
|
|
|
30-45
|
%
|
|
|
34
|
%
|
|
|
39
|
%
|
|
|
34
|
%
|
Private Equity
|
|
|
0-5
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
Cash
|
|
|
|
|
|
|
2
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company uses a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers
include: Level 1, defined as observable inputs such as
quoted prices in active markets for identical assets and
liabilities; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
As of January 30, 2010, the pension plan assets were
required to be measured at fair value. These assets included
cash and cash equivalents, equity securities, fixed income
securities, mutual funds, private equity funds and exchange
traded limited partnership units. These categories can cross
various asset allocation strategies as reflected in the
preceding table.
53
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair values of the pension plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
January 30,
|
|
|
Identical Assets
|
|
|
Observable Outputs
|
|
|
Inputs
|
|
Description
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
8,075
|
|
|
$
|
237
|
|
|
$
|
7,838
|
|
|
$
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International companies
|
|
|
2,181
|
|
|
|
2,181
|
|
|
|
|
|
|
|
|
|
U.S. companies(a)
|
|
|
134,138
|
|
|
|
134,138
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
3,397
|
|
|
|
|
|
|
|
3,397
|
|
|
|
|
|
Government securities
|
|
|
15,571
|
|
|
|
|
|
|
|
15,571
|
|
|
|
|
|
Mortgage backed securities
|
|
|
402
|
|
|
|
|
|
|
|
402
|
|
|
|
|
|
Mutual funds
|
|
|
124,157
|
|
|
|
86,033
|
|
|
|
38,124
|
|
|
|
|
|
Private equity
|
|
|
5,640
|
|
|
|
|
|
|
|
|
|
|
|
5,640
|
|
Exchange traded limited partnership units
|
|
|
517
|
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
294,078
|
|
|
$
|
223,106
|
|
|
$
|
65,332
|
|
|
$
|
5,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The U.S. equity securities consist of large cap companies, mid
cap companies and small cap companies of $95.0 million,
$19.8 million and $19.3 million, respectively. |
The pension plan cash and cash equivalents, equity securities,
mutual funds and exchange traded limited partnership units of
$0.2 million, $136.3 million, $86.0 million and
$0.5 million, respectively, have been classified as
Level 1 as quoted market prices were used to determine the
fair value.
The pension plan cash equivalents, corporate bonds, government
securities, mortgage backed securities, and mutual funds of
$7.8 million, $3.4 million, $15.6 million,
$0.4 million and $38.1 million, respectively, have
been classified as Level 2:
Cash equivalents and mutual funds fair
values of cash equivalents and mutual funds are largely provided
by independent pricing services. Where independent pricing
services provide fair values, the Company has obtained an
understanding of the methods, models and inputs used in pricing,
and has procedures in place to validate that amounts provided
represent current fair values.
Investments in corporate bonds and government
securities fair values of corporate bonds and
government securities are valued based on a calculation using
interest rate curves and credit spreads applied to the terms of
the debt instruments (maturity and coupon interest rate) and
consider the counterparty credit rating.
Mortgage backed securities fair values
of mortgage backed securities are based on external broker bids,
where available, or are determined by discounting estimated cash
flows.
The private equity pension plan investments are considered
Level 3 assets as there is not an active market for
identical assets from which to determine fair value or current
market information about similar assets to use as observable
inputs. The fair value of private equity investments is
determined using pricing models, which requires significant
management judgment.
54
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides a reconciliation of the beginning
and ending balances of the pension plans private equity
funds (Level 3):
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance as of January 31, 2009
|
|
$
|
7,188
|
|
Calls of private equity investments
|
|
|
180
|
|
Total losses realized/unrealized included in plan earnings
|
|
|
(1,261
|
)
|
Distributions of private equity investments
|
|
|
(467
|
)
|
|
|
|
|
|
Balance as of January 30, 2010
|
|
$
|
5,640
|
|
|
|
|
|
|
The Company expects to have the following benefit payments
related to its pension, Old SERP and postretirement plans in the
coming years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Pension Plan
|
|
|
Old SERP Plan
|
|
|
Postretirement Plan
|
|
|
|
(Dollars in thousands)
|
|
|
2011
|
|
$
|
27,106
|
|
|
$
|
1,364
|
|
|
$
|
2,632
|
|
2012
|
|
|
27,214
|
|
|
|
1,227
|
|
|
|
2,581
|
|
2013
|
|
|
27,436
|
|
|
|
1,192
|
|
|
|
2,469
|
|
2014
|
|
|
27,857
|
|
|
|
1,158
|
|
|
|
2,410
|
|
2015
|
|
|
28,282
|
|
|
|
1,125
|
|
|
|
2,405
|
|
2016 2020
|
|
|
149,241
|
|
|
|
5,475
|
|
|
|
11,209
|
|
Under the current requirements of the Pension Protection Act of
2006, the Company is required to fund the net pension liability
(funding shortfall) by fiscal year 2016. The net
pension liability is calculated based on certain assumptions at
January 1, of each year, that are subject to change based
on economic conditions (and any regulatory changes) in the
future. The Company has a credit balance of $11.5 million
at fiscal 2010 year-end due to excess funding over the
minimum requirements in prior years, which may be used to
satisfy minimum required contribution requirements during at
least the first two quarters of fiscal 2011. The Company expects
to contribute sufficient amounts to the pension plan so that the
Pension Protection Act of 2006 guidelines are exceeded, and over
the next five years, the pension plan becomes fully funded. The
Company elected to contribute $44.0 million and
$20.0 million to its Pension Plan on September 15,
2009 and September 10, 2008, respectively. The Company
expects to contribute $1.4 million and $2.6 million to
its non-qualified defined benefit Supplemental Executive
Retirement Plan and postretirement plan, respectively, in fiscal
year 2011.
55
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net periodic benefit expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
Pension Plan
|
|
|
Old SERP Plan
|
|
|
Postretirement Plan
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
3,095
|
|
|
$
|
3,509
|
|
|
$
|
126
|
|
|
$
|
189
|
|
|
$
|
186
|
|
|
$
|
133
|
|
|
$
|
133
|
|
|
$
|
167
|
|
Interest cost
|
|
|
26,433
|
|
|
|
24,577
|
|
|
|
23,132
|
|
|
|
629
|
|
|
|
728
|
|
|
|
707
|
|
|
|
1,624
|
|
|
|
1,629
|
|
|
|
1,674
|
|
Expected return on assets
|
|
|
(22,107
|
)
|
|
|
(23,584
|
)
|
|
|
(23,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
262
|
|
|
|
262
|
|
Prior service cost
|
|
|
371
|
|
|
|
495
|
|
|
|
495
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses (gains)
|
|
|
11,806
|
|
|
|
9,887
|
|
|
|
11,707
|
|
|
|
|
|
|
|
217
|
|
|
|
195
|
|
|
|
39
|
|
|
|
16
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual benefit expense
|
|
$
|
16,503
|
|
|
$
|
14,470
|
|
|
$
|
15,652
|
|
|
$
|
756
|
|
|
$
|
1,135
|
|
|
$
|
1,089
|
|
|
$
|
2,058
|
|
|
$
|
2,040
|
|
|
$
|
2,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment (gain)/loss
|
|
|
2,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
19,222
|
|
|
$
|
14,470
|
|
|
$
|
15,652
|
|
|
$
|
756
|
|
|
$
|
1,135
|
|
|
$
|
1,089
|
|
|
$
|
2,058
|
|
|
$
|
2,040
|
|
|
$
|
2,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amounts that will be amortized from accumulated
other comprehensive income into net periodic benefit cost in
fiscal year 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Benefits
|
|
|
Old SERP Plan
|
|
|
Benefits
|
|
|
|
(Dollars in thousands)
|
|
|
Amortization of actuarial loss
|
|
$
|
7,010
|
|
|
$
|
144
|
|
|
$
|
(30
|
)
|
Amortization of prior service cost
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Amortization of transition obligation
|
|
|
|
|
|
|
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized from other comprehensive income
|
|
$
|
7,010
|
|
|
$
|
145
|
|
|
$
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15)
|
Other
Employee Benefits
|
The Belk Employees Health Care Plan provides medical and
dental benefits to substantially all full-time employees. This
plan for medical and dental benefits is administered through a
501 (c) (9) Trust. The Group Life Insurance Plan and The
Belk Employees Short Term Disability Insurance Plan provide
insurance to substantially all full-time employees and are fully
insured through contracts issued by insurance companies. Expense
recognized by the Company under these plans amounted to
$45.2 million, $44.0 million and $43.9 million in
fiscal years 2010, 2009 and 2008, respectively.
The Belk 401(k) Savings Plan, a defined contribution plan,
provides benefits for substantially all employees. Effective
February 1, 2009, the 401(k) Savings Plan was suspended for
employer matching contributions. As of November 1, 2009,
employer match contributions, following the adoption of the IRS
Safe-Harbor principle, were reinstated for the plan. Employer
match contributions are calculated at 100% of the first 4% of
employees contributions, plus 50% on the next 2% of
employees contributions, up to a total 5% employer match
on eligible compensation. The cost of the plan was
$2.4 million, $11.6 million and $12.8 million in
fiscal years 2010, 2009 and 2008, respectively.
The Company has a non-qualified 401(k) Restoration Plan for
highly compensated employees, as defined by ERISA. The plan
previously provided contributions to a participants
account ranging from 2% to 4.5% of eligible compensation to
restore benefits limited in the qualified 401(k) plan. Effective
February 1, 2009, employer
56
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
contributions were suspended. As of January 1, 2010, the
plan was changed to provide a contribution equal to 5% of a
participants compensation, except for those who are
participants in the 2004 SERP plan, in excess of the limit set
forth in Code section 401(a)(17), as adjusted. The Company
accrues each participants return on investment based on an
asset model of their choice. The cost (benefit) of the plan to
the Company in fiscal years 2010, 2009 and 2008 was
$1.3 million, $(1.0) million and $1.0 million,
respectively.
The 2004 SERP, a non-qualified defined contribution retirement
benefit plan for certain qualified executives, previously
provided annual contributions ranging from 7% to 11% of eligible
compensation to the participants accounts, which earned
4.0% interest at January 30, 2010. Effective
February 1, 2009, employer contributions to the plan were
suspended for plan year beginning April 1, 2009. Beginning
with the April 1, 2010 plan year, the plan will provide a
contribution equal to 5% of a participants compensation in
excess of the limit set forth in Code section 401(a)(17),
as adjusted. The contribution and interest costs charged to
operations were $0.8 million, $1.7 million and
$2.4 million in fiscal years 2010, 2009, and 2008,
respectively.
Certain eligible employees participate in a non-qualified
Deferred Compensation Plan (DCP). Participants in
the DCP have elected to defer a portion of their regular
compensation subject to certain limitations proscribed by the
DCP. The Company is required to pay interest on the
employees deferred compensation at various rates that have
historically been between 7% and 10%. Interest cost related to
the plan and charged to interest expense was $4.0 million,
$4.0 million and $3.9 million in fiscal years 2010,
2009 and 2008, respectively.
The Company has a Pension Restoration Plan, a non-qualified
defined contribution plan. The plan provides benefits for
certain officers, whose pension plan benefit accruals were
frozen, that would have been otherwise grandfathered in their
pension participation based on age and vesting. Effective
January 1, 2009, the Company suspended accrual to this plan
for one year and subsequently permanently froze future
contributions as of December 31, 2009. Expense of
$0.1 million, $0.8 million and $0.5 million was
incurred for fiscal years 2010, 2009 and 2008, respectively, to
provide benefits under this plan.
|
|
(16)
|
Stock-Based
Compensation
|
Under the Belk, Inc. 2000 Incentive Stock Plan (the
Incentive Plan), the Company is authorized to award
up to 2.8 million shares of common stock for various types
of equity incentives to key executives of the Company.
The Company recognized compensation expense (income), net of
tax, under the Incentive Plan of $0.1 million,
$0.2 million and $(1.2) million for fiscal years 2010,
2009 and 2008, respectively.
Performance
Based Stock Award Programs
The Company has a performance based stock award program (the
Long Term Incentive Plan or LTI Plan),
which the Company grants, under its Incentive Plan, stock awards
to certain key executives. Shares awarded under the LTI Plan
vary based on Company results versus specified performance
targets and generally vest at the end of the performance period.
Prior to fiscal year 2009, the performance period was typically
three years. Beginning with fiscal year 2009, the LTI Plan began
using a one-year performance period and a two-year service
period. A portion of any shares earned during the performance
period will be issued at the end of the performance period with
the remaining shares issued at the end of the service period.
LTI Plan compensation costs are computed using the fair value of
the Companys stock on the grant date based on a
third-party valuation and the estimated expected attainment of
performance goals. As of January 30, 2010, there was no
unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the LTI Plan.
There were no LTI Plan shares granted during fiscal year 2010.
The weighted-average grant-date fair value of shares granted
under the LTI Plans during fiscal years 2009 and 2008 was $25.60
and $30.81, respectively. The total fair value of stock grants
issued under the LTI Plans during fiscal years 2009 and 2008 was
$1.3 million and
57
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$11.2 million, respectively. The fiscal year 2009 LTI
performance targets were not met, therefore no stock grants
vested. The total fair value of stock grants vested under the
LTI Plan during fiscal year 2008 was $1.4 million.
The Company implemented performance-based stock award programs
(the Executive Transition Incentive Plans or the
ETI Plans) in connection with the acquisition and
integration of the Proffitts and McRaes stores (the
PM Plan) and Parisian stores (the Parisian
Plan) in fiscal years 2006 and 2007, respectively. Shares
awarded under the ETI Plans varied based upon Company results
versus specified performance targets. Shares awarded in the PM
Plan vested at the end of each of two one-year performance
periods ended August 4, 2007 and July 29, 2006. Shares
awarded in the Parisian Plan vested at the end of a
16 month period, ending February 2, 2008. In addition,
during fiscal year 2008, the Company made a discretionary award
of approximately 50% of the total award to the participants in
the Parisian Plan. The award resulted in compensation cost for
fiscal year 2008 of $0.5 million.
ETI Plan compensation cost was recorded under ASC 718,
Compensation Stock Compensation, and was
computed using the fair value stock price on the grant date and
the estimated expected attainment of performance goals. The
Company issued new shares of common stock as the awards vested
at the end of the performance period.
The weighted-average grant-date fair value for shares granted
under the ETI Plans was $27.15 for fiscal year 2008. The total
fair value of stock grants vested and issued under the ETI Plans
during fiscal years 2009 and 2008 was $0.4 million and
$4.5 million, respectively. The ETI Plans did not vest any
stock grants in fiscal year 2009. The total fair value of stock
grants vested under the ETI Plans during fiscal year 2008 was
$5.0 million.
The Company granted two service-based stock awards in fiscal
year 2009. One service-based award will have two vesting
periods, and will issue five thousand shares at the end of each
service period. Because the associate was employed at
April 1, 2010, a total of ten thousand shares was issued.
The second service-based award granted approximately seven
thousand shares in fiscal year 2009. This service-based award
vested in fiscal year 2009. The weighted-average grant-date fair
value for shares granted under these service-based awards was
$26.49 for fiscal year 2009. The total fair value of stock
grants vested during fiscal year 2010 and 2009 was
$0.1 million and $0.2 million, respectively. The
unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the service-based plan
as of January 30, 2010 and January 31, 2009 was $10.0
thousand and $0.1 million, respectively.
In fiscal year 2007, the Company established a five-year
performance-based incentive stock plan for the Chief Financial
Officer (the CFO Incentive Plan). Up to
11,765 shares are awarded under the plan at the end of each
fiscal year if an annual Company performance goal is met.
Performance goals are established annually for each of the five
one-year performance periods, which results in five separate
grant dates. The participant has the option to receive 30% of
the award in cash (liability portion) at the end of each of the
five one-year periods. The annual cash award is based on the
number of shares earned during the annual period times the fair
value of the Companys stock as of the fiscal year end. The
amounts under the liability portion of the award vest ratably at
the end of each fiscal year. The remaining 70% of the award
(equity portion) is granted in the Companys stock. Shares
granted under the equity portion vest at the end of the
five-year period. The award also includes a cumulative five-year
look-back feature whereby previously unearned one-year awards
can be earned based on cumulative performance. The shares that
were awarded based on the fiscal year 2010 performance goal had
a grant date fair value of $11.90. The total fair value of stock
grants issued during fiscal year 2008 was $0.3 million. The
CFO Incentive Plan resulted in compensation cost of
$0.1 million in fiscal year 2010. The CFO Incentive Plan
did not result in compensation cost in fiscal years 2009 and
2008. Future compensation cost will be determined based on
future grant date fair values and attainment of the performance
goals.
|
|
(17)
|
Purchase
Obligations
|
Purchase obligations include agreements to purchase goods or
services that are enforceable and legally binding and that
specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or
58
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
variable price provisions; and the approximate timing of the
transaction. Agreements that are cancelable without penalty have
been excluded. Purchase obligations relate primarily to
purchases of property and equipment, information technology
contracts, maintenance agreements and advertising contracts.
The annual amount and due dates of purchase obligations as of
January 30, 2010 are $70.4 million due within one
year, $93.1 million due within one to three years,
$13.2 million due within three to five years, and no
purchase obligations due after five years.
Basic earnings per share (EPS) is computed by
dividing net income (loss) by the weighted-average number of
shares of common stock outstanding for the period. The diluted
EPS calculation includes the effect of contingently issuable
stock-based compensation awards with performance vesting
conditions as being outstanding at the beginning of the period
in which all vesting conditions are met. The reconciliation of
basic and diluted shares for fiscal years 2010, 2009, and 2008
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Basic Shares
|
|
|
48,450,401
|
|
|
|
49,010,509
|
|
|
|
49,749,689
|
|
Dilutive contingently-issuable vested share awards
|
|
|
2,059
|
|
|
|
|
|
|
|
34,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Shares
|
|
|
48,452,460
|
|
|
|
49,010,509
|
|
|
|
49,784,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal year ended January 31, 2009, the Company had a
net loss from operations, therefore, the inclusion of
contingently-issuable vested share awards would have an
anti-dilutive effect on the Companys calculation of
diluted loss per share. Accordingly, the diluted loss per share
equals basic loss per share for this period.
|
|
(19)
|
Fair
Value Measurements
|
Fair value is the price that would be received to sell an asset
or paid to transfer a liability (an exit price) in an orderly
transaction between market participants on the measurement date.
The Company uses a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers
include: Level 1, defined as observable inputs such as
quoted prices in active markets for identical assets and
liabilities; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
As of January 30, 2010, the Company held an interest rate
swap that is required to be measured at fair value on a
recurring basis. As of January 31, 2009, the Company held
available-for-sale
investment securities, an auction rate security, and an interest
rate swap measured at fair value on a recurring basis. In the
fourth quarter of fiscal year 2010, all
available-for-sale
investment securities were contributed to charitable
organizations, and the auction rate security was reclassified to
held-to-maturity.
In fiscal year 2009, the Companys
available-for-sale
investment securities unrealized holding gains and losses
were included in other comprehensive income. The fair value of
available-for-sale
securities was based on quoted market prices.
The Company has entered into interest rate swap agreements with
financial institutions to manage the exposure to changes in
interest rates. The fair value of interest rate swap agreements
is the estimated amount that the Company would pay or receive to
terminate the swap agreement, taking into account the current
credit worthiness of the swap counterparties. The fair values of
swap contracts are determined based on inputs that are readily
available in public markets or can be derived from information
available in publicly quoted markets. The Company has
consistently applied these valuation techniques in all periods
presented. Additionally, the change in the fair value of a swap
designated as a cash flow hedge is marked to market through
accumulated other comprehensive
59
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income (loss). Any swap that is not designated as a hedging
instrument is marked to market through gain (loss) on
investments.
The Companys assets and liabilities measured at fair value
on a recurring basis at January 30, 2010 and
January 31, 2009, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at January 30, 2010
|
|
|
Fair Value at January 31, 2009
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Auction rate securities
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,250
|
|
|
$
|
10,250
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,074
|
|
|
$
|
|
|
|
$
|
10,250
|
|
|
$
|
11,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liability
|
|
$
|
|
|
|
$
|
7,403
|
|
|
$
|
|
|
|
$
|
7,403
|
|
|
$
|
|
|
|
$
|
8,182
|
|
|
$
|
|
|
|
$
|
8,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
|
|
|
$
|
7,403
|
|
|
$
|
|
|
|
$
|
7,403
|
|
|
$
|
|
|
|
$
|
8,182
|
|
|
$
|
|
|
|
$
|
8,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of the beginning
and ending balances of the Companys investment in ARS
(Level 3):
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Balance as of January 31, 2009
|
|
|
|
|
|
$
|
10,250
|
|
Purchases of auction rate securities
|
|
|
|
|
|
|
|
|
Redemption of auction rate security
|
|
|
|
|
|
|
(900
|
)
|
Reclassification of auction rate security(a)
|
|
|
|
|
|
|
(9,350
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of January 30, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The auction rate security classified as available for sale was
reclassified to
held-to-maturity
as of January 30, 2010; its carrying value approximates its
fair value. |
Certain assets are measured at fair value on a nonrecurring
basis; that is, the instruments are not measured at fair value
on an ongoing basis but are subject to fair value adjustments
only in certain circumstances (for example, when there is
evidence of impairment). The fair value measurements related to
the long-lived assets in the following table were prompted due
to real estate decisions made and annual impairment testing
performed during the fourth quarter of fiscal year 2010. Fair
values were determined using expected future cash flow analyses.
The Company classifies these measurements as Level 3.
|
|
|
|
|
|
|
Property and Equipment
|
|
|
|
(Dollars in thousands)
|
|
|
Measured as of January 30, 2010:
|
|
|
|
|
Carrying amount
|
|
$
|
48,567
|
|
Fair value measurement
|
|
|
10,052
|
|
|
|
|
|
|
Impairment charge recognized
|
|
|
(38,515
|
)
|
60
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the carrying amounts and estimated
fair values of financial instruments not measured at fair value
in the consolidated balance sheets. These included the
Companys auction rate security and fixed rate long-term
debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2010
|
|
|
January 31, 2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate security(a)
|
|
$
|
9,350
|
|
|
$
|
9,350
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (excluding capitalized leases)(b)
|
|
$
|
667,780
|
|
|
$
|
647,287
|
|
|
$
|
667,780
|
|
|
$
|
612,702
|
|
|
|
|
(a) |
|
Amounts represent
held-to-maturity
ARS backed by student loans, which are 97% guaranteed under the
Federal Family Education Loan Program, and carries the highest
credit ratings of AAA. |
|
(b) |
|
Represents the sum of fixed rate and variable rate long-term
debt excluding capitalized leases. |
As of January 30, 2010, the par value of the ARS was
$9.4 million and the estimated fair value was
$9.4 million. The fair value of the ARS is estimated using
Level 3 inputs as a result of the lack of frequent trading
in these securities. The ARS fair value determination used an
income-approach considering factors that reflect assumptions
market participants would use in pricing, including: the
collateralization underlying the investment; the
creditworthiness of the counterparty; expected future cash
flows, including the next time the security is expected to have
a successful auction; and risks associated with the
uncertainties in the current market. The Company has no reason
to believe that the underlying issuer of the ARS is presently at
risk or that the underlying credit quality of the assets backing
the ARS investment has been impacted by the reduced liquidity of
this investment.
The fair value of the Companys fixed rate long-term debt
is estimated based on the current rates offered to the Company
for debt of the same remaining maturities.
|
|
(20)
|
Stockholders
Equity
|
Authorized capital stock of Belk, Inc. includes 200 million
shares of Class A common stock, 200 million shares of
Class B common stock and 20 million shares of
preferred stock, all with par value of $.01 per share. At
January 30, 2010, there were 46,907,178 shares of
Class A common stock outstanding, 1,378,535 shares of
Class B common stock outstanding, and no shares of
preferred stock outstanding.
Class A shares are convertible into Class B shares on
a 1 for 1 basis, in whole or in part, at any time at the option
of the holder. Class A and Class B shares are
identical in all respects, with the exception that Class A
stockholders are entitled to 10 votes per share and Class B
stockholders are entitled to one vote per share. There are
restrictions on transfers of Class A shares to any person
other than a Class A permitted holder. Each Class A
share transferred to a non-Class A permitted holder
automatically converts into one share of Class B.
On April 1, 2010, the Company declared a regular dividend
of $0.40 and a special one-time additional dividend of $0.40 on
each share of the Class A and Class B Common Stock
outstanding on that date. On April 1, 2009 and
April 2, 2008, the Company declared a regular dividend of
$0.20 and $0.40, respectively, on each share of the Class A
and Class B Common Stock outstanding on those dates.
On April 1, 2010, the Companys Board of Directors
approved a self-tender offer to purchase up to
2,880,000 shares of common stock at a price of $26.00 per
share.
On April 1, 2009, the Companys Board of Directors
approved a self-tender offer to purchase up to
500,000 shares of common stock at a price of $11.90 per
share. The tender offer was initiated on April 22, 2009,
and on May 20, 2009, the Company accepted for purchase
102,128 shares of Class A and 139,536 shares of
61
BELK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Class B common stock for $2.9 million. Subsequently,
in a separate transaction, the Company accepted for purchase
258,336 shares of Class A common stock for
$3.1 million on June 24, 2009 from
Mr. H.W. McKay Belk, President and Chief Merchandising
Officer. The number of shares purchased from Mr. Belk
represents the difference between the number of shares of common
stock which the Company offered to purchase in the tender offer
that was initiated on April 22, 2009 and the number of
shares that were tendered by stockholders and purchased by the
Company. The purchase price was the same as the purchase price
offered by the Company in the initial tender offer.
|
|
(21)
|
Selected
Quarterly Financial Data (unaudited)
|
The following table summarizes the Companys unaudited
quarterly results of operations for fiscal years 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
January 30,
|
|
October 31,
|
|
August 1,
|
|
May 2,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2009
|
|
|
(In thousands, except per share amounts)
|
|
Revenues
|
|
$
|
1,097,109
|
|
|
$
|
727,988
|
|
|
$
|
760,261
|
|
|
$
|
760,894
|
|
Gross profit(1)
|
|
|
376,118
|
|
|
|
231,515
|
|
|
|
237,893
|
|
|
|
228,801
|
|
Net income
|
|
|
56,736
|
|
|
|
446
|
|
|
|
9,410
|
|
|
|
544
|
|
Basic income per share
|
|
|
1.17
|
|
|
|
0.01
|
|
|
|
0.19
|
|
|
|
0.01
|
|
Diluted income per share
|
|
|
1.17
|
|
|
|
0.01
|
|
|
|
0.19
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
January 31,
|
|
November 1,
|
|
August 2,
|
|
May 3,
|
|
|
2009
|
|
2008
|
|
2008
|
|
2008
|
|
|
(In thousands, except per share amounts)
|
|
Revenues
|
|
$
|
1,111,407
|
|
|
$
|
741,403
|
|
|
$
|
829,301
|
|
|
$
|
817,312
|
|
Gross profit(1)
|
|
|
345,562
|
|
|
|
208,811
|
|
|
|
255,655
|
|
|
|
259,063
|
|
Net income (loss)
|
|
|
(202,813
|
)
|
|
|
(23,488
|
)
|
|
|
8,207
|
|
|
|
5,129
|
|
Basic income (loss) per share
|
|
|
(4.16
|
)
|
|
|
(0.48
|
)
|
|
|
0.17
|
|
|
|
0.10
|
|
Diluted income (loss) per share
|
|
|
(4.16
|
)
|
|
|
(0.48
|
)
|
|
|
0.17
|
|
|
|
0.10
|
|
|
|
|
(1) |
|
Gross profit represents revenues less cost of goods sold
(including occupancy, distribution and buying expenses) |
Per share amounts are computed independently for each of the
quarters presented. The sum of the quarters may not equal the
total year amount due to the impact of changes in average
quarterly shares outstanding.
62
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
The Companys management conducted an evaluation, under the
supervision and with the participation of its Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls
and procedures as of the end of the period covered by this
report. The Companys disclosure controls and procedures
are designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is
accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective.
Managements
Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting.
The Companys internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. The Companys internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America, and that the receipts and expenditures of the Company
are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of January 30,
2010, based on the framework set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Based on that
assessment, management concluded that, as of January 30,
2010, the Companys internal control over financial
reporting is effective based on the criteria established in the
Internal Control-Integrated Framework.
Managements assessment of the effectiveness of the
Companys internal controls over financial reporting as of
January 30, 2010, has been audited by KPMG, LLP, an
independent registered public accounting firm. Their attestation
report is included herein on the effectiveness of the
Companys internal control over financial reporting as of
January 30, 2010.
Changes
in Internal Control over Financial Reporting
There have been no changes in the Companys internal
control over financial reporting during the fourth fiscal
quarter ended January 30, 2010 that materially affected, or
are reasonably likely to materially affect, the Companys
internal control over financial reporting.
63
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Belk, Inc.:
We have audited Belk, Inc. and subsidiaries internal
control over financial reporting as of January 30, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Belk, Inc. and
subsidiaries management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Belk, Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial
reporting as of January 30, 2010, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Belk, Inc. and subsidiaries as of
January 30, 2010 and January 31, 2009, and the related
consolidated statements of income, changes in stockholders
equity and comprehensive income, and cash flows for each of the
years in the three-year period ended January 30, 2010, and
our report dated April 14, 2010, expressed an unqualified
opinion on those consolidated financial statements.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted the provisions of ASC
Section 740-10-25,
Income Taxes Recognition, as of February 4,
2007.
Charlotte, North Carolina
April 14, 2010
64
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information about the Companys directors and executive
officers is included in the sections entitled
Proposal One Election of Directors,
Belk Management Directors and Belk
Management Executive Officers of the Proxy
Statement for the Annual Meeting of the Stockholders to be held
on May 26, 2010 and is incorporated herein by reference.
The information about the Companys Audit Committee is
included in the section entitled Belk
Management Committees of the Board Audit
Committee of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 26, 2010 and is incorporated
herein by reference.
The information about the Companys Nominating and
Corporate Governance Committee is included in the section
entitled Belk Management Committees of the
Board Nominating and Corporate Governance
Committee of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 26, 2010 and is incorporated
herein by reference.
The information about the Companys compliance with
Section 16 of the Exchange Act of 1934, as amended, is
included in the section entitled Section 16(a)
Beneficial Ownership Reporting Compliance of the Proxy
Statement for the Annual Meeting of Stockholders to be held on
May 26, 2010 and is incorporated herein by reference.
In March 2004, the Company adopted a Code of Ethics for Senior
Executive and Financial Officers (the Code of
Ethics) that applies to the chief executive officer, chief
financial officer and chief accounting officer and persons
performing similar functions. The Code of Ethics was filed as an
exhibit to its Annual Report on
Form 10-K
for the fiscal year ended January 31, 2004 and is available
on the Companys website at www.belk.com.
|
|
Item 11.
|
Executive
Compensation
|
The information about executive and director compensation is
included in the sections entitled Compensation Discussion
and Analysis, Executive Compensation,
Director Compensation, Belk
Management Compensation Committee Report and
Compensation Committee Interlocks and Insider
Participation of the Proxy Statement for the Annual
Meeting of Stockholders to be held on May 26, 2010 and is
incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information about security ownership is included in the
section entitled Common Stock Ownership of Management and
Principal Stockholders of the Proxy Statement for the
Annual Meeting of Stockholders to be held on May 26, 2010
and is incorporated herein by reference.
Information about the equity compensation plans is included in
the section entitled Equity Compensation Plan
Information of the Proxy Statement for the Annual Meeting
of Stockholders to be held on May 26, 2010 and is
incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information about transactions with related persons is
included in the section entitled Certain
Transactions of the Proxy Statement for the Annual Meeting
of Stockholders to be held on May 26, 2010 and is
incorporated herein by reference.
65
The information about director independence is included in the
sections entitled Belk Management Corporate
Governance Independence of Directors and
Belk Management Committees of the Board
of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 26, 2010 and is incorporated herein by
reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information set forth under the section entitled
Summary of Fees to Independent Registered Public
Accountants, of the Proxy Statement for the
Registrants Annual Meeting of Shareholders to be held on
May 26, 2010, is incorporated herein by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) 1.
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income Years ended
January 30, 2010, January 31, 2009, and
February 2, 2008.
Consolidated Balance Sheets As of January 30,
2010 and January 31, 2009.
Consolidated Statements of Changes in Stockholders Equity
and Comprehensive Income Years ended
January 30, 2010, January 31, 2009, and
February 2, 2008.
Consolidated Statements of Cash Flows Years ended
January 30, 2010, January 31, 2009, and
February 2, 2008.
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules
None.
3. Exhibits
The following list of exhibits includes both exhibits submitted
with this
Form 10-K
as filed with the Commission and those incorporated by reference
to other filings:
|
|
|
|
|
|
3
|
.1
|
|
Form of Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to pages B-24 to B-33 of the
Companys Registration Statement on
Form S-4,
filed on March 5, 1998 (File
No. 333-42935)).
|
|
3
|
.2
|
|
Form of Second Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.2 of the
Companys Annual Report on
Form 10-K,
filed on April 15, 2004).
|
|
4
|
.1
|
|
Articles Fourth, Fifth and Seventh of the Amended and
Restated Certificate of Incorporation of the Company
(incorporated by reference to pages B-24 to B-33 of the
Companys Registration Statement on
Form S-4,
filed on March 5, 1998 (File
No. 333-42935)).
|
|
4
|
.2
|
|
Articles I and IV of the Second Amended and Restated
Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Companys Annual Report on
Form 10-K,
filed on April 15, 2004).
|
|
10
|
.1
|
|
Belk, Inc. 2000 Incentive Stock Plan (incorporated by reference
to Exhibit 10.13 to the Registrants Annual Report on
Form 10-K,
filed on April 28, 2000).
|
|
10
|
.1.1
|
|
Belk, Inc. Executive Long Term Incentive Plan (incorporated by
reference to Exhibit 10.4 of the Companys Annual
Report on
Form 10-K,
filed on April 14, 2005).
|
|
10
|
.1.2
|
|
Belk, Inc. Revised Executive Long Term Incentive Plan
(incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on
Form 10-Q,
filed on June 12, 2008).
|
|
10
|
.1.3
|
|
Belk, Inc. CFO Incentive Plan (incorporated by reference to
Exhibit 10.1.3 of the Companys Annual Report on
form 10-K,
filed on April 13, 2006).
|
66
|
|
|
|
|
|
10
|
.2
|
|
Belk, Inc. 2004 Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.2 of the
Companys Annual Report on
Form 10-K,
filed on April 15, 2004).
|
|
10
|
.3
|
|
Belk, Inc. Annual Incentive Plan (incorporated by reference to
Exhibit 10.3 of the Companys Annual Report on
Form 10-K,
filed on April 14, 2005).
|
|
10
|
.4
|
|
Transition Agreement, dated as of June 23, 2009, by and
between Belk, Inc. and H.W. McKay Belk (incorporated by
reference to Exhibit 10.1 of the Companys Quarterly
Report on
Form 10-Q,
filed on September 9, 2009).
|
|
10
|
.5
|
|
Note Purchase Agreement, dated as of August 31, 2007, by
and among Belk, Inc. and certain subsidiaries of Belk, Inc., as
obligors, and the purchasers referred to therein (incorporated
by reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K,
filed on September 7, 2007).
|
|
10
|
.6
|
|
Second Amended and Restated Credit Agreement, dated as of
October 2, 2006, by and among Belk, Inc. and the
subsidiaries of Belk, Inc., as borrowers, and Wachovia Bank,
National Association, Bank of America, NA. and the other lenders
referred to therein (incorporated by reference to the
Companys Current Report on
Form 8-K
filed on October 6, 2006).
|
|
10
|
.7
|
|
Note Purchase Agreement, dated as of July 12, 2005, by and
among Belk, Inc. and certain subsidiaries of Belk, Inc., as
obligors, and the purchasers referred to therein (incorporated
by reference to the Companys Current Report on
Form 8-K
filed on July 18, 2005).
|
|
10
|
.8
|
|
Form of First Amendment to the Second Amended and Restated
Credit Agreement, dated March 30, 2009 (incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K,
filed on April 3, 2009).
|
|
14
|
.1
|
|
Belk, Inc. Code of Ethics for Senior Executive and Financial
Officers (incorporated by reference to Exhibit 14.1 of the
Companys Annual Report on
Form 10-K,
filed on April 14, 2004).
|
|
21
|
.1
|
|
Subsidiaries.
|
|
23
|
.1
|
|
Consent of KPMG LLP.
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 14th day of
April, 2010.
BELK, INC.
(Registrant)
|
|
|
|
By:
|
/s/ THOMAS
M. BELK, JR.
|
Thomas M. Belk, Jr.
Chairman of the Board and
Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed by the following persons on
behalf of the Registrant and in the capacities indicated on
April 14, 2010.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ THOMAS
M. BELK, JR.
Thomas
M. Belk, Jr.
|
|
Chairman of the Board, Chief Executive Officer
(Principal Executive Officer) and Director
|
|
|
|
/s/ H.
W. MCKAY BELK
H.
W. McKay Belk
|
|
President, Chief Merchandising Officer and Director
|
|
|
|
/s/ JOHN
R. BELK
John
R. Belk
|
|
President, Chief Operating Officer and Director
|
|
|
|
/s/ J.
KIRK GLENN, JR.
J.
Kirk Glenn, Jr.
|
|
Director
|
|
|
|
/s/ JOHN
A. KUHNE
John
A. Kuhne
|
|
Director
|
|
|
|
/s/ ELIZABETH
VALK LONG
Elizabeth
Valk Long
|
|
Director
|
|
|
|
/s/ THOMAS
C. NELSON
Thomas
C. Nelson
|
|
Director
|
|
|
|
/s/ JOHN
R. THOMPSON
John
R. Thompson
|
|
Director
|
|
|
|
/s/ JOHN
L. TOWNSEND, III
John
L. Townsend, III
|
|
Director
|
|
|
|
/s/ BRIAN
T. MARLEY
Brian
T. Marley
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
/s/ RODNEY
F. SAMPLES
Rodney
F. Samples
|
|
Vice President and Controller
(Principal Accounting Officer)
|
68