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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549****Form 10-K**   **(Mark One)**  **[X]** **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    SECURITIES EXCHANGE ACT OF 1934**  **For the fiscal year ended January 29, 2005**  **OR****[  ]** **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    SECURITIES EXCHANGE ACT OF 1934**  **For the transition period    from                 to ****Commission File Number 000-26207****BELK, INC.**(Exact name of registrant as specified in its charter)   **Delaware** **56-2058574**    (State of incorporation)     (IRS Employer Identification No.) **2801 West Tyvola Road, Charlotte, North Carolina** **28217-4500**    (Address of Principal Executive Offices)     (Zip Code)Registrant’s telephone number, including area code:**(704) 357-1000**Securities registered pursuant to Section 12(b) of the Act:NoneSecurities registered pursuant to Section 12(g) of the Act:   **Title of each class** **Name of Exchange on which registered**       Class A Common Stock, $0.01 per share     None    Class B Common Stock, $0.01 per share     None      Indicate by check mark whether the registrant (1) has filedall reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has beensubject to such filing requirements for the past90 days.     Yes x     No o     Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. x     Indicate by check mark whether the registrant is an acceleratedfiler (as defined in Exchange ActRule 12b-2).     Yes x     No o     The aggregate market value of the common equity held bynon-affiliates of the Registrant (assuming for these purposes,but without conceding, that all executive officers and directorsare “affiliates” of the Registrant) as ofJuly 30, 2004 (based on the price at which the commonequity was last sold as of the last business day of theCompany’s most recently completed second fiscal quarter)was $164,404,000. 51,653,522 shares of common stock wereoutstanding as of April 1, 2005, comprised of50,187,528 shares of the registrant’s Class ACommon Stock, par value $0.01, and 1,465,994 shares of theregistrant’s Class B Common Stock, par value $0.01.**DOCUMENTS INCORPORATED BY REFERENCE**     Portions of the Proxy Statement for the Annual Meeting ofStockholders to be held on May 25, 2005 are incorporatedherein by reference in Part III.  

**BELK, INC****TABLE OF CONTENTS**       **Item No.** **Page No.**   ** Part I**     1.      Business  2      2.      Properties  9      3.      Legal Proceedings  10      4.      Submission of Matters to a Vote of Security    Holders  10  ** Part II**     5.      Market Information for Registrant’s    Common Equity, Related Stockholder Matters and Issuer Purchases    of  Equity Securities  11      6.      Selected Financial Data  12      7.      Management’s Discussion and Analysis    of Financial Condition and Results of Operations  12      7A.      Quantitative and Qualitative Disclosure    About Market Risk  23      8.      Financial Statements and Supplementary    Data  24      9.      Changes in and Disagreements with    Accountants on Accounting and Financial Disclosure  49      9A.      Controls and Procedures  49      9B.      Other Information  51  ** Part III**     10.      Directors and Executive Officers of the    Registrant  51      11.      Executive Compensation  51      12.      Security Ownership of Certain Beneficial    Owners and Management and Related Stockholder Matters  51      13.      Certain Relationships and Related    Transactions  51      14.      Principal Accountant Fees and Services  51  ** Part IV**     15.      Exhibits and Financial Statement    Schedules  51  Ex-10.3 Ex-10.4 EX-21.1 EX-23.1 EX-31.1 EX-31.2 EX-32.1 EX-32.2
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**THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS**     Certain statements made in this report, and other written ororal statements made by or on behalf of the Company, mayconstitute “forward-looking statements” within themeaning of the federal securities laws. Statements regardingfuture events and developments and the Company’s futureperformance, as well as our expectations, beliefs, plans,estimates or projections relating to the future, areforward-looking statements within the meaning of these laws. Youcan identify these forward-looking statements through our use ofwords such as “may,” “will,”“intend,” “project,” “expect,”“anticipate,” “believe,”“estimate,” “continue” or other similarwords. Forward-looking statements include information concerningpossible or assumed future results from merchandising, marketingand advertising in our stores and through the internet, ourability to be competitive in the retail industry, our ability toexecute profitability and efficiency strategies, our ability toexecute our growth strategies, anticipated benefits from theconsolidation of our operating divisions and distributionfacilities, the expected benefit of our new systems andtechnology, the expected increase in our sales and revenuesgenerated through our proprietary charge card program and theanticipated benefits from the consolidation of ourmerchandising, marketing and merchandise planning and allocationfunctions. These forward-looking statements are subject tocertain risks and uncertainties that may cause our actualresults to differ significantly from the results we discuss insuch forward-looking statements. We believe that theseforward-looking statements are reasonable. However, you shouldnot place undue reliance on such statements.     Risks and uncertainties that might cause our results to differfrom those we project in our forward-looking statements include,but are not limited to: •     general economic and business conditions, both nationally and in    our market areas;  •     levels of consumer debt and bankruptcies;  •     changes in interest rates;  •     changes in buying, charging and payment behavior among our    customers;  •     the effects of weather conditions on seasonal sales in our    market areas;  •     seasonal fluctuations in net income due to increased consumer    spending during the holiday season, timing of new store    openings, merchandise mix, the timing and level of markdowns and    historically low first quarter results;  •     competition among department and specialty stores and other    retailers, including luxury goods retailers, general merchandise    stores, internet retailers, mail order retailers and off-price    and discount stores;  •     the competitive pricing environment within the department and    specialty store industries;  •     our ability to compete on merchandise mix, quality, style,    service, convenience and credit availability;  •     the effectiveness of our advertising, marketing and promotional    campaigns;  •     our ability to determine and implement appropriate merchandising    strategies, merchandise flow and inventory turnover levels;  •     our realization of planned synergies and cost savings through    the consolidation of our distribution facilities and functions;  •     the effectiveness of our e-commerce and gift registry strategies;  •     our ability to contain costs;  •     our ability to accomplish our logistics and distribution    strategies;  •     the effectiveness of our merchandising and sales promotion    consolidation and the implementation of our planning and    allocation functions;  •     changes in our business strategy or development plans;
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 •     our ability to hire and retain key personnel;  •     changes in laws and regulations, including changes in accounting    standards, tax statutes or regulations, environmental and land    use regulations, and uncertainties of litigation; and  •     our ability to obtain capital to fund any growth or expansion    plans.     Our other filings with the Securities and Exchange Commission(“SEC”) may contain additional information concerningthe risks and uncertainties listed above, and other factors youmay wish to consider. Upon request, we will provide copies ofthese filings to you free of charge.     Our forward-looking statements are based on current expectationsand speak only as of the date of such statements. We undertakeno obligation to publicly update or revise any forward-lookingstatement, even if future events or new information may impactthe validity of such statements.**PART I****Item 1.*****Business*****General**     Belk, Inc., together with its subsidiaries (collectively, the“Company” or “Belk”), is the largestprivately owned department store business in the United States,with total revenues of approximately $2.45 billion for thefiscal year ended January 29, 2005. The Company and itspredecessors have been successfully operating department storessince 1888 by seeking to provide superior service andmerchandise that meets customers’ needs for fashion, valueand quality.     The Company’s fiscal year ends on the Saturday closest toeach January 31. All references to “fiscal year 2006”refer to the fiscal year ending January 28, 2006;references to “fiscal year 2005” refer to the fiscalyear ended January 29, 2005; references to “fiscalyear 2004” refer to the period ended January 31, 2004;references to “fiscal year 2003” refer to the periodended February 1, 2003; and references to “fiscal year2002” refer to the period ended February 2, 2002.     As of the end of its fiscal year 2005, the Company operated 226retail department stores in 14 states, primarily in thesoutheastern United States. Belk stores seek to providecustomers the convenience of one-stop shopping, with anappealing merchandise mix and extensive offerings of brands,styles, assortments and sizes. Belk stores sell top nationalbrands of fashion apparel, shoes and accessories for women, menand children, as well as cosmetics, home furnishings,housewares, gifts and other types of quality merchandise. TheCompany also sells exclusive private label brands, which offercustomers differentiated merchandise selections at bettervalues. Larger Belk stores may include hair salons, spas,restaurants, optical centers and other amenities.     Although the Company operates 49 Belk stores that exceed100,000 square feet in size, most Belk stores range in sizefrom 50,000 to 80,000 square feet. Most of the Belk storesare anchor tenants in major regional malls and shopping centers,primarily in medium and smaller markets. In addition todepartment stores, the Company operates two stores that selllimited selections of cosmetics, hosiery and accessories forwomen under the “Belk Express” store name. In theaggregate, the Belk stores occupy approximately15.2 million square feet of selling space.     Management of the Belk stores is organized into four regionaloperating divisions, with each unit headed by a divisionchairman and a director of stores. Each division supervises anumber of stores and maintains an administrative office in themarkets served by the division. Division offices provide overallmanagement and support for the Belk stores in their regions.These divisions are not considered segments for reportingpurposes. Belk Stores Services, Inc., a subsidiary of Belk,Inc., and its subsidiary Belk Administration Company, along withBelk International, Inc., a subsidiary of Belk, Inc., and itssubsidiary, Belk Merchandising LLC (collectively“BSS”), coordinate the operations of Belk stores on acompany-wide basis. BSS provides services to the Belk divisionoffices and stores, such as merchandising, marketing,merchandise planning and
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allocation, advertising and sales promotion, informationsystems, human resources, public relations, accounting, realestate and store planning, credit, legal, tax, distribution andpurchasing.     The Company was incorporated in Delaware in 1997. TheCompany’s principal executive offices are located at 2801West Tyvola Road, Charlotte, North Carolina 28217-4500, and itstelephone number is (704) 357-1000.**Business Strategy**     Belk’s mission is to be the dominant department store inits markets by selling merchandise to customers that meets theirneeds for fashion, selection, value, quality and service. Toachieve this mission, Belk’s business strategy includes sixkey elements: (1) a target customer focus; (2) focusedmerchandise assortments; (3) compelling sales promotions;(4) distinctive customer service; (5) a winning storeand market strategy; and (6) an emphasis on productivityand efficiency.     *Target Customer Focus.* Belk’s primary targetcustomer is a 35-to-54-year-old female with middle to upperlevel family income who works outside of the home; who buys forherself and her family; and who is style-conscious and seeksupdated fashions and quality merchandise. The Company maintainsits target customer focus through research and direct customerfeedback to ascertain and update target customer characteristicsand needs. The Company seeks to maximize customer convenienceand satisfaction through effective inventory management thatensures consistently high inventory levels of desiredmerchandise, effective store layout, merchandise signing andvisual display, and quick and efficient transactions at thepoint of sale. Additionally, the Company strives to attract andretain well-qualified associates who provide a high level offriendly, personal service to enhance the customer’sshopping experience.     *Focused Merchandise Assortments.* The Company haspositioned itself through its target customer focus to takeadvantage of significant sales growth opportunities in itswomen’s apparel (including special sizes), accessories andmen’s businesses, as well as its home business. The Companyhas merchandise initiatives focused on providing its targetcustomer with in-depth assortments of updated, branded fashionsthat meet customers’ lifestyle needs for casual, career andsocial occasions.     *Compelling Sales Promotions.* Belk’s sales promotionstrategy focuses on promoting merchandise that the targetcustomer desires, offering her compelling price values, andproviding adequate inventory to support all sales promotionevents. Belk uses its proprietary database to communicatedirectly to key customer constituencies with special offersdesigned to appeal to these specific audiences.     *Distinctive Customer Service.* The Company’s customerresearch has revealed that Belk generally differentiates itselffrom competitors through the high level of service and amenitiesthat its stores provide. Belk intends to continue its traditionof employing sales associates who are knowledgeable about themerchandise they sell, approach customers promptly, help whenneeded and provide quick checkout.     *Winning Store and Market Strategy.* The Company has astore and market strategy focused on maximizing return oninvestment and improving its competitive position. The approachto investment in new markets and the expansion and renovation ofexisting facilities includes a disciplined real estateevaluation process using rigorous financial and strategicmeasures and investment return guidelines.     *Emphasis on Productivity and Efficiency.* The Companyseeks to improve its performance and profitability throughdeveloping and implementing initiatives designed to enhanceproductivity and efficiency throughout the organization. Suchinitiatives include a “store-ready” merchandiseprogram that speeds delivery of merchandise to the sales floor,the expanded implementation of a “smart store” conceptthat enhances efficiencies on the sales floor through the use ofcentralized cash register, gift wrap stands, the use ofcomputer-based training programs and rigorous expense management.**Growth Strategy**     The Company intends to continue to open new stores selectivelyin new and existing markets in order to increase sales, marketshare and customer loyalty. As the consolidation of thedepartment store industry
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continues, the Company also will consider store acquisitionsthat offer opportunities for growth in existing and contiguousmarkets.     Management believes that significant opportunities for growthexist in Belk markets where the Belk name and reputation arewell known and in contiguous markets where Belk can distinguishits stores from the competition. Although the Company willcontinue to take advantage of prudent opportunities to expandinto large markets, the Company will focus its expansion onmedium-sized markets with store units in the 50,000 to80,000 square-foot size range.     In determining where to open new stores in the future, theCompany’s management will evaluate demographic informationsuch as income, education levels, age and occupation, as well asthe availability of prime real estate locations, existing andpotential competitors and the number of Belk stores in the sameor contiguous market areas. Management will also analyze storeand market sales and income data and seek to identify economiesof scale available in advertising, distribution and otherexpenses as part of its process for determining new store sitesand markets for expansion.     In fiscal year 2005, the Company opened 14 new stores that havea combined selling space of approximately 964,300 squarefeet and completed expansions and renovations of three existingstores and major renovations of five existing stores.     In fiscal year 2006, Belk plans to open 12 new stores that willhave a combined selling space of approximately864,800 square feet. The Company also will completeexpansions and renovations of five existing stores and majorrenovations of two existing stores.     On March 1, 2005, the Company acquired from a subsidiary ofSaks Incorporated the leases and certain fixtures and equipmentof four Proffitt’s department stores located at ColonialMall in Greenville, NC, Berkeley Mall in Goldsboro, NC, VernonPark Mall in Kinston, NC, and Golden East Crossing in RockyMount, NC. The Company, which operates existing stores in eachof these malls, plans to expand into the vacated Proffitt’sstore buildings in Greenville and Goldsboro during fiscal 2006and is seeking replacement tenants for the vacatedProffitt’s store buildings in Kinston and Rocky Mount.     New stores, store expansions and major store renovationscompleted in fiscal year 2005 include:*New Stores*               **Size (Selling** **Opening** **New or Existing****Location** **Sq. Ft.)** **Date** **Market**           Waco, TX (Central Texas MarketPlace)  86,400   3/10/04   New     Covington (North Shore), LA (Stirling Covington)  67,000   3/10/04   New     Beaufort, SC (Cross Creek Plaza)  58,400   3/10/04   Existing     Kerrville, TX (River Hills Mall)  50,300   3/10/04   New     Sherman, TX (Sherman Town Center)  67,000   3/10/04   New     Myrtle Beach, SC (Coastal Grand)  126,200   3/17/04   Existing     Lenoir, NC (Festival Centre)  49,800   3/24/04   Existing     Cumming, GA (Lakeland Plaza)  79,200   9/15/04   Existing     Sevierville, TN (River Place)  58,500   9/15/04   New     McKinney, TX (Eldorado Plaza)  59,700   9/15/04   New     Marietta, GA (Village Green)  59,700   9/15/04   New     Clermont, FL (Citrus Tower Village)  60,000   11/3/04   New     Auburn, AL (Colonial Mall)  82,400   11/3/04   New     Viera, FL (The Avenue Viera)  59,700   11/19/04   New 
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*Store Expansions*               **Size (Selling** **Opening** **New or Existing****Location** **Sq. Ft.)** **Date** **Market**           Corinth, MS (Southgate Plaza)  28,100   4/21/04   Existing     Cullman, AL (Cullman Shopping Center)  78,500   6/9/04   Existing     Stuttgart, AR (Stuttgart Shopping Center)  19,200   7/1/04   Existing *Store Renovations*               **Size (Selling** **Opening** **New or Existing****Location** **Sq. Ft.)** **Date** **Market**           Savannah, GA (Oglethorpe Mall)  138,700   10/13/04   Existing     N. Charleston, SC (Northwoods Mall)  94,000   10/13/04   Existing     Sumter, SC (Sumter/Jessamine Mall)  58,000   11/3/04   Existing     Winchester, VA (Apple Blossom Mall)  66,700   11/3/04   Existing     Athens, GA (Georgia Square)  102,000   11/3/04   Existing      New stores, store expansions and major store renovationsscheduled for completion in fiscal year 2006 include:*New Stores*               **Size (Selling** **Scheduled** **New or Existing****Location** **Sq. Ft.)** **Opening Date** **Market**           Conyers, GA (Conyers Crossroads)  59,100   3/9/05   New     Land O’Lakes, FL (Collier Commons)  59,700   3/9/05   New     Spanish Fort, AL (Eastern Shore Centre)  85,600   3/9/05   New     Titusville, FL (St. John’s Plaza)  41,200   7/1/05   Existing     Charlotte, NC (Northlake Mall)  162,000   9/15/05   Existing     Williamsburg, VA (WindsorMeade Marketplace)  67,300   10/12/05   New     Lakeland, FL (Lakeside Village)  65,700   10/12/05   Existing     Guntersville, AL (Big Springs Village)  52,000   10/12/05   New     Shreveport, LA (Eastgate Shopping Center)  78,000   10/12/05   New     Alabaster, AL (Colonial Promenade)  67,100   10/12/05   New     Owasso, OK (Smith Farm Marketplace)  67,300   10/12/05   New     Waxahachie, TX (Waxahachie Towne Center)  59,700   10/12/05   New *Store Expansions*               **Size (Selling** **Scheduled** **New or Existing****Location** **Sq. Ft.)** **Opening Date** **Market**           Goldsboro, NC (Berkeley Mall)  106,600   4/5/05   Existing     Greenville, NC (Colonial Mall)  121,900   10/12/05   Existing     Valdosta, GA (Colonial Mall)  92,300   11/02/05   Existing     Suffolk, VA (Suffolk Shopping Center)  53,400   11/02/05   Existing     California, MD (Wildewood Shopping Center)  53,300   11/02/05   Existing 
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*Store Renovations*               **Size (Selling** **Scheduled** **New or Existing****Location** **Sq. Ft.)** **Opening Date** **Market**           Lynchburg, VA (River Ridge Mall)  113,900   11/2/05   Existing     Raleigh, NC (Crabtree Valley Mall)  196,400   11/2/05   Existing **Merchandising**     Belk stores feature quality name brand and private labelmerchandise in moderate to better price ranges, providingfashion, selection and value to customers. The merchandise mixis targeted to middle and upper income customers shopping fortheir families and homes, and includes a wide selection offashion apparel, accessories and shoes for women, men andchildren, as well as cosmetics, home furnishings, housewares,gift and guild, jewelry, and other types of department storemerchandise. The goal is to position Belk stores as the leadersin their markets in providing updated, fashionable assortmentswith depth in style, selection and value.     Belk stores offer complete assortments of many national brands.The Company has enjoyed excellent long-term relationships withmany top apparel and cosmetics suppliers and is often theexclusive distributor of apparel, accessories and cosmetic linesin its markets. These exclusive distribution arrangementsenhance the Belk stores’ image as fashion leaders andenable Belk to offer customers exclusive and originalmerchandise that is not generally available in other stores intheir markets.     Belk stores also offer exclusive private brands in selectedmerchandise categories that provide customers with merchandisethat is comparable in quality and style with national brands atsubstantial savings. Belk private brands, which include KimRogers, Madison Studio, J. Khaki, Meeting Street, Saddlebred andHome Accents, provide outstanding value for customers and setBelk apart from its competitors.     During fiscal year 2005, the Company implemented a strategy tostrengthen its home store business by expanding home storeselling space in 30 stores, adopting new corporate standards forhome store fixtures and adding high capacity home store fixturesin 16 test stores. The Company plans to implement the highcapacity fixtures program in additional stores during fiscalyear 2006.**Marketing**     The Company employs strategic marketing initiatives to developand enhance the equity of the Belk brand, strengthen itsrelationship with and become the desired destination for thetarget customer, and create and strengthen“one-to-one” relationships with customers. TheCompany’s primary marketing strategy emphasizes directcommunications with customers through personal contact and theuse of multi-faceted advertising, marketing and sales promotionprograms. This strategy involves extensive mass media print andbroadcast advertising, direct marketing, comprehensive storevisual merchandising and signing, in-store special events (e.g.,trunk shows, celebrity and designer appearances, Charity Day andSeniors’ Day) and magazine, newspaper and billboardadvertising. The Company also provides information about theCompany and its bridal gift registry on its www.belk.com website.     Major sales promotions and sales events are planned andimplemented in Belk stores throughout the year. The Companyregularly produces advertising circulars that are distributed tomillions of customers via newspaper inserts or direct mailings.The Company uses creative advertising that effectivelycommunicates the Company’s merchandise offerings, fashionimage and reputation for superior service to store customers ina variety of media, including customized advertising based uponthe particular merchandise needs and shopping preferences of itscustomers.**Gift Cards**     The Company’s “Great Gifts Card” program providesa convenient option for customer gift-giving and enables storesto issue electronic credits to customers in lieu of cash refundsfor merchandise returned without sales receipts. Four types ofGreat Gifts Cards are available, each with its own distinctivedesign and appeal: Bridal/ Anniversary, Holiday, Zuniverse (forjuniors customers) and Standard.
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**Salons and Spas**     The Company owns and operates 12 hair styling salons in variousstore locations, 11 of which also offer spa services. The hairsalons offer the latest hair styling services, as well as wideassortments of top brand name beauty products, including Aveda.The spas offer massage therapy, skincare, nail treatments andother specialized services. The salons and spas in the Belkstores at SouthPark Mall in Charlotte, NC, Asheville Mall inAsheville, NC, Columbiana Centre in Columbia, SC, Triangle TowneCenter in Raleigh, NC, the Streets at Southpoint in Durham, NC,and Westfield Shoppingtown/ Independence Mall in Wilmington, NCoperate under the name of “Carmen! Carmen! Prestige Salonand Spa at Belk.” In fiscal year 2005, the Company openedone new “Carmen! Carmen! Prestige Salon and Spa atBelk” in its new store at Coastal Grand Myrtle Beach centerin Myrtle Beach, SC, and it plans to open one additional salonand spa in fiscal year 2006 at its new store at Northlake Mallin Charlotte, NC.**Belk Gift Registry**     The Company’s gift registry offers a wide assortment ofbridal merchandise that can be registered and purchased onlineat www.belk.com or in local Belk stores and shipped directly tothe customer or gift recipient. The gift registry is a fullyintegrated system that combines the best of Internet technologyand in-store shopping. Brides and engaged couples canconveniently create their gift registry and make selectionsthrough www.belk.com from a home computer, or they can go to aBelk store where a certified professional bridal consultant canprovide assistance using the store’s online gift registrykiosk. In the Belk stores that have kiosks, brides and engagedcouples can use a portable scanning device, which enables themto quickly and easily enter information on their gift selectionsdirectly into the registry system.**Belk Proprietary Charge Programs**     The Company offers its customers the convenience of paying fortheir purchases on credit using a variety of proprietary chargepayment programs, including a 30-day revolving account, aninterest-free 30-60-90 day account, an interest-free tabletop plan (for china, crystal, silver and other gift purchases)and an interest-free fine jewelry plan.     The Company promotes the development of new and existingcardholder business through targeted marketing campaigns andactive solicitation efforts within Belk stores. TheCompany’s “Belk Select” program is designed torecognize and reward its best Belk charge customers, attractprofitable new customers, increase sales from existing customersand expand the active Belk credit card account base. The programoffers special benefits and services to charge customers whoseBelk charge purchases total $650 or more in a calendar year. Thebenefits and services include $5 in free “Belk RewardDollars” for every $150 charged to their Belk Select cardwhich can be applied toward future Belk purchases, “MakeYour Own Sale” certificates, free deluxe gift wrapping,free basic alterations, choice of billing dates, no annual fee,and notifications of special savings, sales events and courtesyshopping days.     The Company’s charge cards are issued through Belk NationalBank, a subsidiary of the Company located in Lawrenceville,Georgia.**Systems and Technology**     Belk continues to make significant investments in technology andinformation systems in order to drive sales, improve operatingefficiency and support its overall business strategy. TheCompany has prioritized the development and implementation ofcomputerized systems to support its merchandising, marketing,sales floor, inventory management, logistics, finance,operations and human resources initiatives. These systems enablemanagement quickly to identify sales trends, order, track anddistribute merchandise, manage markdowns and monitor merchandisemix and inventory levels. During fiscal year 2005, the Companydeployed a new financial information system to support itsmerchandise planning and allocation organization and begandevelopment of a companion system to support the Company’sassortment planning process; deployed a coupon management systemthat enables the scanning of bar coded coupons at the point ofsale to enhance customer service and improve the management andcontrol of promotional pricing; expanded and
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added enhanced capabilities to its customer data warehouse;enabled the acceptance of debit cards at point of sale that gavecustomers a new payment option and reduced processing costs;implemented a new company-wide biometric time capture system;implemented a new system that allows loss prevention staff toreview and monitor sales transactions; implemented a new“instant credit” point of sale process for Belk chargeapplications; enhanced and expanded its use of radio frequencytechnology applications for store pricing, inventory andmerchandise transfers; expanded the number and use of salesfloor kiosks that enable customers to locate merchandise atother Belk stores; and implemented various process changes toimprove service levels and enhance execution of systemsinitiatives and deployments.**Inventory Management and Logistics**     The Company operates a 371,000 square foot CentralDistribution Center in Blythewood, SC that incorporates thelatest distribution center design, technology and equipment andfacilitates the automation of many labor-intensive processes.The Company’s “store ready” processes for storemerchandise receiving enable stores to receive and processmerchandise shipments and move goods to the sales floor quicklyand efficiently, thus ensuring the ongoing timely delivery offresh goods to meet customers’ shopping needs.**Non-Retail Businesses**     Several of the Company’s subsidiaries engage in businessesthat indirectly or directly support the operations of the retaildepartment stores. The non-retail businesses include UnitedElectronic Services, Inc. (“UES”), a wholly ownedsubsidiary of Belk, Inc., which provides equipment maintenanceservices, primarily for cash registers, but also for otherequipment. UES provides these services to the Company pursuantto contracts with BSS.**Industry and Competition**     The Company operates retail department stores in the highlycompetitive retail apparel industry. Management of the Companybelieves that the principal competitive factors for retaildepartment store operations include merchandise selection,quality, value, customer service and convenience. The Companybelieves its stores are strong competitors in all of theseareas. The Company’s primary competitors are traditionaldepartment stores, mass merchandisers, national apparel chains,individual specialty apparel stores and direct merchant firms,including Federated Department Stores, Inc., Wal-Mart Stores,Inc., Target Corp., Kohl’s Corporation, The May DepartmentStores Company, Dillard’s, Inc., Saks, Inc., Sears HoldingCorporation and J.C. Penney Company, Inc.**Trademarks and Service Marks**     Belk Stores Services, Inc. owns all of the principal trademarksand service marks now used by the Company, including“Belk” and “All for You.” These marks areregistered 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 additionalten-year periods, so long as they are in use at the time ofrenewal. Most of the trademarks, trade names and service marksemployed by the Company are used in the Company’s privatebrands program. The Company intends to vigorously protect itstrademarks and service marks and initiate appropriate legalaction whenever necessary.**Seasonality and Quarterly Fluctuations**     Due to the seasonal nature of the retail business, the Companyhas historically experienced and expects to continue toexperience seasonal fluctuations in its revenues, operatingincome and net income. A disproportionate amount of theCompany’s revenues and a substantial amount of theCompany’s operating and net income are realized during thefourth quarter, which includes the Christmas selling season.Working capital requirements also fluctuate during the year,increasing somewhat in mid-summer in anticipation of the fallmerchandising season and increasing substantially prior to theChristmas selling season when the Company
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carries higher inventory levels. See “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations — Seasonality and QuarterlyFluctuations.”**Associates**     As of January 29, 2005, the Company had approximately17,900 full-time and part-time associates. Because of theseasonal nature of the retail business, the number of associatesfluctuates from time to time and is highest during the holidayshopping period in November and December. The Company as a wholeconsiders its relations with associates to be good. None of theassociates of the Company are represented by unions or subjectto 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, quarterlyreports on Form 10-Q, current reports on Form 8-K andamendments to those reports filed pursuant to Section 13(a)or 15(d) of the Securities Exchange Act of 1934, as amended, assoon as reasonably practicable after the Company files suchmaterial with, or furnishes it to, the SEC.**Item 2.*****Properties*****Store Locations**     As of January 29, 2005, the Company operated a total of 226retail stores, with approximately 15.2 million sellingsquare feet, in the following states:         Alabama — 5     Maryland — 2     Tennessee — 8    Arkansas — 5     Mississippi — 2     Texas — 8    Florida — 19     North Carolina — 74     Virginia — 19    Georgia — 40     South Carolina — 37     West Virginia — 2    Kentucky — 4     Louisiana — 1       Belk stores are located in regional malls (116), stripshopping centers (90), “power” centers (9)and “lifestyle” centers (7). Additionally, thereare five freestanding stores. Approximately 80% of the grosssquare footage of the typical Belk store is devoted to sellingspace to ensure maximum operating efficiencies. A majority ofthe stores are either new or have undergone renovations withinthe past ten years. The new and renovated stores feature thelatest in retail design, including updated exteriors andinteriors. The interiors are designed to create an exciting,comfortable and convenient shopping environment for customers.They include the latest lighting and merchandise fixturing, aswell as quality decorative floor and wall coverings and otherspecial decor. The store layout is designed for ease ofshopping, and store signage is used to help customers identifyand locate merchandise.     As of January 29, 2005, the Company owned 58 storebuildings, leased 148 store buildings under operating leases andowned 33 store buildings under ground leases. The typicaloperating lease has an initial term of between 15 and20 years, with four renewal periods of five years each,exercisable at the Company’s option. The typical groundlease has an initial term of 20 years, with a minimum offour renewal periods of five years each, exercisable at theCompany’s option.**Non-Store Facilities**     The Company also owns or leases the following distributioncenters, division offices and headquarters facilities:       **Belk Property** **Location** **Own/Lease**         Belk, Inc. Western Division Office     Greenville, SC  Lease     Belk, Inc. Corporate Offices     Charlotte, NC  Own     Belk Central Distribution Center     Blythewood, SC  Lease 
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**Other**     The Company owns or leases various other real properties,including primarily former store locations and distributioncenters. Such property is not material, either individually orin the aggregate, to the Company’s consolidated financialposition or results of operations.**Item 3.*****Legal Proceedings***     The Company is engaged from time to time in various legalactions in the ordinary course of its business. Management ofthe Company believes that none of the various actions andproceedings involving the Company will have a material adverseeffect on the Company’s consolidated financial position orresults of operations.**Item 4.*****Submission of Matters to a Vote of Security Holders***     No matters were submitted to a vote of the security holdersduring the fourth quarter of the fiscal year endedJanuary 29, 2005.
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**PART II****Item 5.*****Market Information for Registrant’s Common Equity,    Related Stockholder Matters and Issuer Purchases of Equity    Securities***     Neither the Class A Common Stock, par value $.01 pershare (the “Class A Common Stock”) nor theClass B Common Stock, par value $.01 per share (the“Class B Common Stock”) was listed or traded on apublic market during any part of fiscal year 2005. There is noestablished public trading market for either class of theRegistrant’s common stock. As of January 29, 2005,there were approximately 562 holders of record of theClass A Common Stock and 294 holders of record ofClass B Common Stock.     On March 16, 2005, the Company declared a regular dividendof $0.315 on each share of the Class A and Class BCommon Stock outstanding on that date. On March 10, 2004,the Company declared a regular dividend of $0.275 and a specialone-time dividend of $0.20 on each share of the Class A andClass B Common Stock outstanding on that date. The amountof dividends paid out with respect to fiscal year 2005 and eachsubsequent year will be determined at the sole discretion of theBoard of Directors based upon the Company’s results ofoperations, financial condition, cash requirements and otherfactors deemed relevant by the Board of Directors. For adiscussion of the Company’s debt facilities and theirrestrictions on dividend payments, see “Liquidity andCapital Resources” in “Management’s Discussionand Analysis of Financial Condition and Results ofOperations.” There were no purchases of issuer equitysecurities during the fourth quarter of fiscal year 2005.
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**Item 6.*****Selected Financial Data***     The following selected financial data are derived from theconsolidated financial statements of the Company.                        **52 Weeks** **52 Weeks** **52 Weeks** **52 Weeks** **53 Weeks**  **Ended** **Ended** **Ended** **Ended** **Ended**  **January 29,** **January 31,** **February 1,** **February 2,** **February 3,**  **2005** **2004** **2003** **2002** **2001**             **(dollars in thousands, except per share amounts)****SELECTED STATEMENT OF INCOME DATA:**                        Revenues $2,446,832  $2,264,907  $2,241,555  $2,236,054  $2,263,801     Cost of goods sold  1,618,639   1,506,905   1,512,045   1,536,506   1,566,599     Depreciation and amortization  101,255   91,007   89,312   83,625   74,102     Operating income  224,030   192,766   167,461   137,144   132,288     Income before income taxes  194,276   170,647   133,817   101,961   90,896     Net income  124,076   111,547   84,017   63,382   57,333     Basic and diluted income per share:                         From continuing operations  2.40   2.11   1.53   1.18   1.05      Net income  2.40   2.11   1.53   1.16   1.04     Cash dividends per share  0.475   0.275   0.25   0.25   0.25 **SELECTED BALANCE SHEET DATA:**                        Accounts receivable, net  319,706   311,141   334,440   343,247   339,591     Merchandise inventory  527,860   496,242   487,490   495,744   542,262     Working capital  788,743   698,059   678,087   615,728   621,905     Total assets  1,866,906   1,730,263   1,736,102   1,707,380   1,734,744     Short-term debt  —   —   —   6,089   9,715     Long-term debt and capital lease obligations  301,419   308,488   365,553   410,587   452,579     Stockholders’ equity  1,066,616   969,499   954,284   898,242   865,070 **SELECTED OPERATING DATA:**                        Number of stores at end of period  226   221   214   207   207     Comparable store net revenue increase (decrease)(1)  4.2%   (0.5)%  (2.2)%  (2.0)%  5.7%  (1)     On a 52 versus 52 week basis, comparable store net revenues    decreased 1.0% in fiscal year 2002 and increased 4.6% in fiscal    year 2001. Comparable store net revenue includes sales from    stores open during the entire fiscal year in both the current    and prior year, excluding stores that have been expanded in    either fiscal year.**Item 7.*****Management’s Discussion and Analysis of Financial    Condition and Results of Operations*****Overview**     Belk, together with its subsidiaries, is the largest privatelyowned department store business in the United States, with totalrevenues of approximately $2.45 billion for the fiscal yearended January 29, 2005. The Company and its predecessorshave been successfully operating department stores since 1888 byseeking to provide superior service and merchandise that meetscustomers’ needs for fashion, value and quality.     The Company’s fiscal year ends on the Saturday closest toeach January 31. All references to “fiscal year 2006”refer to the fiscal year ending January 28, 2006;references to “fiscal year 2005” refer to the period
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ended January 29, 2005; references to “fiscal year2004” refer to the period ended January 31, 2004; andreferences to “fiscal year 2003” refer to the periodended February 1, 2003.     As of the end of its fiscal year 2005, the Company operated 226retail department stores in 14 states primarily in thesoutheastern United States. Belk stores seek to providecustomers the convenience of one-stop shopping, with anappealing merchandise mix and extensive offerings of brands,styles, assortments and sizes. Belk stores sell top nationalbrands of fashion apparel, shoes and accessories for women, menand children, as well as cosmetics, home furnishings,housewares, gifts and other types of quality merchandise. TheCompany also sells exclusive private label brands, which offercustomers differentiated merchandise selections at bettervalues. Larger Belk stores may include hair salons, spas,restaurants, optical centers and other amenities.     Belk’s mission is to be the dominant department store inits markets by selling merchandise to customers that meets theirneeds for fashion, selection, value, quality and service. Toachieve this mission, Belk’s business strategy includes sixkey elements: (1) a target customer focus; (2) focusedmerchandise assortments; (3) compelling sales promotions;(4) distinctive customer service; (5) a winning storeand market strategy; and (6) an emphasis on productivityand efficiency.     The Company operates retail department stores in the highlycompetitive retail apparel industry. The Company’s primarycompetitors are traditional department stores, massmerchandisers, national apparel chains, individual specialtyapparel stores and direct merchant firms. In addition to intensecompetition, the retail industry has experienced downward salespressure in recent years due primarily to national, regional andlocal economic conditions.     Management believes that significant opportunities for growthexist in Belk markets where the Belk name and reputation arewell known and in contiguous markets where Belk can distinguishits stores from the competition. Although the Company willcontinue to take advantage of prudent opportunities to expandinto large markets, the Company will focus its expansion inmedium-sized markets with store units in the 50,000 to80,000 square-foot size range. One of the more significantchallenges currently facing the Company’s management teamis to continue to identify new Belk markets and to effectivelyincrease the Company’s net store selling square footage. Infiscal year 2005, the Company increased net store selling squarefootage by 590,400 square feet, or 4.0%, and plans toexpand by an additional 803,300 square feet, or 5.3%, in2006.     The Company focuses on four key indicators to assess performanceand growth. These key indicators are: (1) comparable storesales, (2) gross profit rate, (3) expense rate, and(4) net square footage growth. The Company’s progressagainst these indicators is discussed throughoutManagement’s Discussion and Analysis (“MD&A”).**Lease Accounting**     Historically, when accounting for lease renewal options, rentexpense was recorded on a straight-line basis over thenon-cancelable lease term beginning on the date when the rent isfirst assessed, which is typically the store opening date. Thedepreciable lives of certain leasehold improvements andlong-lived assets on those properties extended beyond thenon-cancelable lease term.     The Company believed that its accounting treatment was permittedunder generally accepted accounting principles and that suchtreatment was consistent with the practices of other companiesin the retail industry. However, on February 7, 2005, theChief Accountant of the U.S. Securities and ExchangeCommission (“SEC”) released a letter expressing theSEC’s views on certain lease accounting matters. TheCompany has identified areas where its historical accountingpractices differ from the SEC’s views and adjusted itsaccounting policies as follows to comply with the SEC’sguidance: (i) conform the depreciable lives for buildingson leased land and other leasehold improvements to the shorterof the economic life of the asset or the lease term used fordetermining the capital versus operating lease classificationand calculating straight-line rent; (ii) include pre-openingrent-free periods and cancelable option periods in thecalculation of straight-line rent expense where failure toexercise such options would result in an economic penalty insuch amount that a renewal appears, at the inception of thelease, to be reasonably assured; and (iii) capitalize rent
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costs during the store construction period. The Company hasrecorded the life-to-date accounting impact of correcting forthese errors in fiscal year 2005.     The cumulative effect of these adjustments in fiscal year 2005was an increase in depreciation expense, a component of selling,general and administrative expenses, of $8.9 million($5.6 million net of tax) and an increase in rent expense,a component of cost of goods sold, of $1.7 million($1.1 million net of tax). These adjustments did not haveany impact on the overall cash flows of the Company.**Stock Compensation**     The Company adopted the Financial Accounting Standards Board(“FASB”) Statement of Financial Accounting StandardsNo. 123R, “Share Based Payment”(“SFAS 123R”), during the fourth quarter offiscal year 2005. The Company had previously accounted for stockbased compensation under the guidelines of Accounting PrinciplesBoard (“APB”) Opinion No. 25, “Accountingfor Stock Issued to Employees.” SFAS 123R requires theCompany to account for stock based compensation by using thegrant date fair value of share awards and the estimated numberof shares that will ultimately be issued in conjunction witheach award. The Company elected to apply the standard using themodified retrospective method of adoption, where the standardwould only impact stock based compensation expense in fiscalyear 2005 and future years. The adoption of SFAS 123Rresulted in a $3.6 million reduction in compensation costs,a component of selling, general and administrative expenses, infiscal year 2005. The application of SFAS 123R did not havean impact on the overall cash flows of the Company.**Results of Operations**     The following table sets forth, for the periods indicated, thepercentage relationship to revenues of certain items in theCompany’s consolidated statements of income and otherpertinent financial and operating data.                 **52 Weeks** **52 Weeks** **52 Weeks**  **Ended** **Ended** **Ended**  **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003**       **SELECTED FINANCIAL DATA:**                Revenues  100.0%  100.0%  100.0%    Cost of goods sold  66.2   66.5   67.5     Selling, general and administrative expenses  24.6   24.9   24.7     Store closing costs  0.2   —   —     Restructuring charges  —   0.1   0.4     Operating income  9.2   8.5   7.5     Interest expense, net  1.3   1.7   1.6     Income taxes  2.9   2.6   2.2     Net income  5.1   4.9   3.7 **SELECTED OPERATING DATA:**                Selling square footage (in thousands)  15,244   14,653   14,310     Store revenues per selling sq. ft.  $161  $155  $157     Comparable store net revenue increase (decrease)  4.2%  (0.5)%  (2.2)%    Number of stores                 Opened  14   8   9      Closed  (9)  (1)  (2)      Total — end of period  226   221   214 
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**Comparison of Fiscal Years Ended January 29, 2005 andJanuary 31, 2004**     *Revenues.* In fiscal year 2005, the Company’srevenues increased 8.0%, or $181.9 million, to$2.447 billion from $2.265 billion. The increaseresulted from additional revenue of $92.6 million from newstores and from a 4.2% increase in revenues from comparablestores.     Beginning in fiscal year 2005, the Company’s definition ofcomparable stores sales no longer excluded replacement andexpansion stores. Non-comparable stores will only includeclosing stores and new stores that have not reached the one-yearanniversary of their opening prior to the beginning of thefiscal year in which they were constructed. The Company believesthis revised measure is a more accurate indicator of existingstore performance and is a common basis used by other retailers.     *Cost of Goods Sold.* As a percentage of revenues, cost ofgoods sold decreased to 66.2% in fiscal year 2005 as compared to66.5% in fiscal year 2004. The decrease is primarilyattributable to improved margin on inventory purchases, improvedoperating efficiencies and a 0.14% reduction in buying costs dueprimarily to reduced merchandising payroll and benefit expensesas a percentage of revenues.     *Selling, General and Administrative Expenses.* Selling,general and administrative (“SG&A”) expenses were$601.2 million in fiscal year 2005, compared to$563.2 million in fiscal year 2004. As a percentage ofrevenues, SG&A decreased to 24.6% in fiscal year 2005 from24.9% in fiscal year 2004. The decrease in SG&A expenses asa percentage of revenues resulted primarily from a decrease inbad debt expense as a percentage of revenues of 0.30%, adecrease in payroll costs as a percentage of revenues of 0.23%,and a decrease in casualty insurance costs as a percentage ofrevenues of 0.20%. These decreases were partially offset by anincrease in depreciation expense as a percentage of revenues of0.20% primarily related to the lease accounting adjustments, anincrease in pension costs as a percentage of revenues of 0.15%and a $1.4 million charge recognized in fiscal year 2005for the curtailment and settlement of the Company’s definedbenefit supplemental executive retirement plan.     During fiscal years 2005 and 2004, the Company’s bad debtexpense, net of recoveries, associated with the issuance ofcredit on the Belk proprietary credit cards was$11.6 million and $17.5 million, respectively. Duringfiscal years 2005 and 2004, finance charge income on theoutstanding Belk proprietary credit card receivables was$70.7 million and $64.4 million, respectively.Accounts receivable management and collection services expensesfor fiscal years 2005 and 2004 were both $19.9 million.     *Store Closing Costs.* During fiscal year 2005, the Companyrecorded $3.0 million of exit costs related to the closingof six stores in fiscal year 2005 and one store to be closed infiscal year 2006. The exit costs consisted primarily of the losson abandonment of leasehold improvements, post-closing realestate lease obligations, and severance costs. The Company didnot incur any charges related to store closings in fiscal year2004.     *Restructuring Charges.* In fiscal year 2004, the Companyrecorded a $2.0 million charge in connection with therestructuring of its logistics network. The charges are due toincreases in projected costs related to post-closing real estatelease obligations. The Company did not incur any restructuringcharges in fiscal year 2005.     *Interest Expense.* In fiscal year 2005, the Company’sinterest expense decreased $4.5 million to$34.3 million from $38.8 million. The decrease was dueto a reduction in accrued interest reserves and lower effectiveinterest rates due to the termination of two interest rate swapswith a $50 million notional value in the first quarter offiscal year 2005.     *Gain (loss) on property, equipment and investments.* Thegain on property, equipment and investments decreased to$1.9 million for the fiscal year ended January 29,2005, compared to $14.8 million for the fiscal year endedJanuary 31, 2004. The current year gain is primarily due tothe sale of a store that was closed during fiscal year 2005. Theprior year amount relates primarily to a $19.3 million gainrecognized on the sale of property located in Charlotte, NC,partially offset by a $6.5 million loss on thededesignation of two interest rate swaps.
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     *Income taxes.* For fiscal year 2005, the Company’seffective tax rate increased from 34.6% to 36.1%. The increasein rate is primarily attributable to an increase innon-deductible expenses that qualify as permanent differences.**Comparison of Fiscal Years Ended January 31, 2004 andFebruary 1, 2003**     *Revenues.* In fiscal year 2004, the Company’srevenues increased 1.0%, or $23.4 million, to$2.265 billion from $2.242 billion. The increaseresulted from additional revenue of $39.6 million from new,expanded and remodeled stores and from improved comparable storesales in the fourth quarter of fiscal year 2004. The increasewas partially offset by a 0.5% decrease in revenue fromcomparable stores due to a soft economy and a difficult salesenvironment during the first half of fiscal year 2004.     *Cost of Goods Sold.* As a percentage of revenues, cost ofgoods sold decreased to 66.5% in fiscal year 2004 as compared to67.5% in fiscal year 2003. The decrease is primarilyattributable to improved margin on inventory purchases, improvedoperating efficiencies and a 0.15% reduction in direct costs asa percentage of revenues resulting from the consolidation of theCompany’s merchandising and marketing functions completedduring fiscal year 2003.     *Selling, General and Administrative Expenses.* SG&Aexpenses were $563.2 million in fiscal year 2004, comparedto $553.4 million in fiscal year 2003. As a percentage ofrevenues, SG&A increased to 24.9% in fiscal year 2004 from24.7% in fiscal year 2003. The increase in SG&A expenses asa percentage of revenues resulted primarily from increases inpension costs and casualty insurance costs as a percentage ofrevenues of approximately 0.22% each, and an increase in baddebt expense as a percentage of revenues of 0.08%. Theseincreases were partially offset by a decrease in payroll costsas a percentage of revenues of 0.12%, a 0.08% increase in incomeas a percentage of revenues generated from the Company’sproprietary credit card, and a 0.09% decrease in recruiting andrelocation expenses as a percentage of revenues due to one-timecosts incurred in fiscal year 2003 associated with themerchandise restructuring.     During fiscal years 2004 and 2003, the Company’s bad debtexpense, net of recoveries, associated with the issuance ofcredit on the Belk proprietary credit cards, was$17.5 million and $15.5 million, respectively. Duringfiscal years 2004 and 2003, finance charge income on theoutstanding Belk proprietary credit card receivables was$64.4 million and $61.9 million, respectively.Accounts receivable management and collection services expensesfor fiscal years 2004 and 2003 were $19.9 million and$20.7 million, respectively.     *Store Closing Costs.* During fiscal year 2003, the Companyrecorded $0.5 million of exit costs related to the closingof one store in fiscal year 2003 and one store in the firstquarter of fiscal year 2004. The exit costs consisted primarilyof post-closing real estate lease obligations and severancecosts. The Company did not incur any charges related to storeclosings in fiscal year 2004.     *Restructuring Charges.* In fiscal year 2004 and 2003, theCompany recorded a $2.0 million and $0.8 millioncharge, respectively, in connection with the restructuring ofits logistics network. The charges are due to increases inprojected costs related to post-closing real estate leaseobligations.     During fiscal year 2003, the Company recorded a restructuringcharge of $7.1 million in connection with the consolidationof its divisional merchandising and marketing functions into asingle organization located at the Company’s corporateoffices in Charlotte, NC. The consolidation also includedimplementation of a central planning and allocation function tooversee the distribution and allocation of merchandise to thestores. The charge consisted of $5.1 million of employeeseverance costs, $1.5 million of post-closing real estatelease obligation costs, and $0.5 million for the reductionto fair value of excess assets.     *Gain (loss) on property, equipment and investments.* Thegain on property, equipment and investments increased to$14.8 million for the fiscal year ended January 31,2004, compared to losses of $0.4 million for the fiscalyear ended February 1, 2003. The fiscal year 2004 amount isdue primarily to a $19.3 million gain recognized on thesale of property located in Charlotte, NC, partially offset by a$6.5 million loss on the dedesignation of two interest rateswaps.
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     *Income taxes.* For fiscal year 2004, the Companyexperienced a decrease in its effective tax rate from 37.2% to34.6%. The decrease in rate is primarily attributable to anincrease in non-taxable income and deductible expenses thatqualify as permanent differences and a decrease in the effectivestate income tax rates.**Seasonality and Quarterly Fluctuations**     The Company has historically experienced and expects to continueto experience seasonal fluctuations in its revenues, operatingincome and net income due to the seasonal nature of the retailbusiness. The highest revenue period for the Company is thefourth quarter, which includes the Christmas selling season. Adisproportionate amount of the Company’s revenues and asubstantial amount of the Company’s operating and netincome are realized during the fourth quarter. If for any reasonthe Company’s revenues were below seasonal norms during thefourth quarter, the Company’s annual results of operationscould be adversely affected. The Company’s inventory levelsgenerally reach their highest levels in anticipation ofincreased revenues during these months.     The following table illustrates the seasonality of revenues byquarter as a percentage of the full year for the fiscal yearsindicated.     The Company’s quarterly results of operations could alsofluctuate significantly as a result of a variety of factors,including the timing of new store openings.               **2005** **2004** **2003**           First quarter  22.5%  22.2%  23.8%    Second quarter  21.9   21.7   22.1     Third quarter  22.1   22.5   22.1     Fourth quarter  33.5   33.6   32.0 **Liquidity and Capital Resources**     The Company’s primary sources of liquidity are cash onhand, cash flow from operations and borrowings under debtfacilities. The Company’s debt facilities consist of a$250.0 million variable rate note, a $125.0 millionten-year variable rate bond facility and a $330.0 millioncredit facility.     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 capitalstock and guarantees, and require maintenance of minimumfinancial ratios. As of January 29, 2005, the Company wasin compliance with all covenants and does not anticipate thatcompliance with the covenants will impact the Company’sliquidity in fiscal year 2006. The $250.0 million variablerate note expires in April 2008, is collateralized by theCompany’s customer accounts receivable and limitsborrowings under the facility to approximately 85% of theCompany’s customer accounts receivable. The ten-yearvariable rate bond facility matures in July 2008.     During fiscal year 2005, the Company replaced its combined$200.0 million revolving line of credit and$127.0 million standby letter of credit facility with a$330.0 million credit facility that expires in October2009. Up until October 2007, under certain circumstances thefacility may be increased to $380.0 million at theCompany’s request. The new facility allows for up to$225.0 million of outstanding letters of credit. Thecurrent interest rate payable under the credit facility is basedon LIBOR plus approximately 63 basis points or prime. Thecredit facility contains restrictive covenants consistent withthe Company’s existing debt agreements and financialcovenants including leverage and fixed charge coverage ratios.The Company has $127.0 million of standby letters of creditand no borrowings under the revolving credit agreements atJanuary 29, 2005 and January 31, 2004.     Because the interest rates on most of the Company’s debtagreements vary with LIBOR or commercial paper rates, theCompany has entered into interest rate swap agreements with afinancial institution to manage the exposure to changes ininterest rates. The notional amount of the interest rate swapsis $250.0 million for
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fiscal years 2004 through 2009, $125.0 million for fiscalyears 2010 through 2012, and $50.0 million for fiscal year2013. During the first quarter of fiscal year 2005, the Companyterminated two interest rate swaps with a combined notionalvalue of $50.0 million. The interest rate swaps hadpreviously been dedesignated as cash flow hedges during thethird quarter of fiscal year 2004.     Operating activities provided cash of $230.1 million duringfiscal year 2005, as compared to $273.0 million in fiscalyear 2004. The decrease in cash provided by operating activitiescompared to the prior period was principally due to increases inmerchandise inventory and accounts receivable, partially offsetby a $12.5 million increase in net income.     Investing activities used cash of $124.4 million duringfiscal year 2005, as compared to $96.9 million duringfiscal year 2004. The increase in cash used for investingactivities was primarily due to a $2.3 million increase incapital expenditures and a $22.6 million reduction inproceeds from the sale of property and equipment. The prior yearproceeds consist primarily of $25.6 million related to thesale of investment property located in Charlotte, NC.     Expenditures for property and equipment were $129.4 millionduring fiscal year 2005, compared to $127.1 million duringfiscal year 2004. During fiscal year 2005, the Company’scapital expenditures included expenditures for opening 14 newstores and making significant renovations to and/or expansionsto eight existing stores. The Company currently projects capitalexpenditures over the next three fiscal years to averageapproximately $145.0 million per year.     Net cash used by financing activities amounted to$39.6 million and $101.3 million during fiscal years2005 and 2004, respectively. The decrease is a result of a$105.1 million reduction in payments on outstanding debt infiscal 2005, as well as a $19.5 million reduction in therepurchase of common stock, partially offset by$53.4 million more proceeds from the issuance of debt infiscal year 2004.     Management of the Company believes that cash flows fromoperations and its credit facilities will be sufficient to coverworking capital needs, capital expenditures and debt serviceagreements for the next 12 months.**Related Party Transactions**     In October 2001, the Company extended loans to Mr. ThomasM. Belk, Jr., Mr. H.W. McKay Belk and Mr. John R.Belk in the principal amounts of $2.5 million,$2.5 million and $2.0 million, respectively. InFebruary 2002, the loan to Mr. John R. Belk was increasedto $2.5 million. The loans are being repaid to the Companyin equal annual installments of $1.5 million plus interestin cash or stock over a five-year period that beganJanuary 3, 2003. The loans bear interest at LIBOR plus1.5%. The Company received the third of the five payments,including principal and interest, from the three executives onJanuary 3, 2005. The Sarbanes-Oxley Act of 2002 prohibitsextensions of credit to executive officers and directors and the“material modification” of any term of a loan that wasextended before July 30, 2002. The Company entered intothese loans in October 2001 and February 2002, before theSarbanes-Oxley Act of 2002 was enacted. Since that time, theCompany has not made any new extensions of credit to executiveofficers or directors nor materially modified the terms of anyexisting loans.
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**Contractual Obligations and Commercial Commitments**     To facilitate an understanding of the Company’s contractualobligations and commercial commitments, the following data isprovided:                        **Payments Due by Period**       **Within**    **Total** **1 Year** **2 - 3 Years** **4 - 5 Years** **After 5 Years**             **(dollars in thousands)****Contractual Obligations**                        Long-Term Debt $269,004  $5,234  $13,745  $250,025  $—     Capital Lease Obligations  51,040   4,847   9,850   9,381   26,962     Operating Leases  266,758   33,726   57,657   44,995   130,380     Purchase Obligations(a)  174,759   86,417   52,056   36,286   —                      Total Contractual Cash Obligations $761,561  $130,224  $133,308  $340,687  $157,342                                         **Amount of Commitment Expiration per Period**     **Total**    **Amounts** **Within**    **Committed** **1 Year** **2 - 3 Years** **4 - 5 Years** **After 5 Years**             **(dollars in thousands)****Other Commercial Commitments**                        Standby Letters of Credit(b) $135,318  $2,669  $132,649  $—  $—     Import Letters of Credit  22,412   22,412   —   —   —                      Total Commercial Commitments $157,730  $25,081  $132,649  $—  $—                      (a)    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.     (b)    Standby letters of credit include a $126.8 million facility    that supports the ten-year bond facility (accrued principal and    interest) due July 2008.     Obligations under the pension and postretirement benefit plansare not included in the contractual obligations table. TheCompany’s pension plan funding policy is to contributeamounts necessary to satisfy minimum pension fundingrequirements plus such additional amounts from time to time asare determined to be appropriate to improve the plan’sfunded status. The pension plan’s funded status is affectedby many factors including discount rates and the performance ofplan assets. The Company is not required to make minimum pensionfunding payments in fiscal year 2006, but elected to contribute$6.0 million to the pension plan on March 7, 2005. TheCompany did not make any voluntary contributions to the pensionplan during fiscal year 2005. The Company’s postretirementplan is not funded in advance. Postretirement benefit paymentsduring fiscal year 2005 totaled $2.4 million.     Also excluded from the contractual obligations table arepayments the Company may make for employee medical costs andworkers compensation, general liability and automobile claims.**Implementation of New Accounting Standards**     In December 2003, the FASB revised SFAS No. 132,“Employers’ Disclosures about Pensions and OtherPostretirement Benefits” (“RevisedStatement 132”). Revised Statement 132 revisesemployers’ required disclosures about pension plans andother postretirement benefit plans. It does not change themeasurement or recognition of those plans required by FASBStatements No. 87, “Employers’ Accounting forPensions,” No. 88, “Employers’ Accountingfor Settlements and Curtailments of Defined Benefit PensionPlans and for Termination Benefits” and No. 106,“Employers’ Accounting for Postretirement BenefitsOther
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Than Pensions.” Revised Statement 132 requiresdisclosures in addition to those in the original FASB StatementNo. 132. The interim-period disclosures required by RevisedStatement 132 are effective for interim periods beginningafter December 15, 2003. The Company adopted the interimdisclosure requirements set forth in Revised Statement 132for the first quarter of fiscal year 2005.     In May 2004, the FASB issued Staff Position FAS 106-2,“Accounting and Disclosure Requirements Relating to theMedicare Prescription Drug, Improvement and Modernization Act of2003.” The Company offers an access-only prescription drugplan to retirees and therefore the adoption of the provisionsunder Staff Position FAS 106-2 did not have an impact onthe Company’s consolidated financial position or results ofoperations.     In December 2004, the FASB issued SFAS 123R, which detailshow the Company should account for stock-based compensation. TheCompany elected to adopt SFAS 123R in fiscal year 2005 andto apply the modified retrospective method of adoption, wherethe standard would only impact stock based compensation expensein fiscal year 2005 and future years. The Company had previouslyaccounted for stock-based compensation under the guidance setforth in APB No. 25, “Accounting for Stock Issued toEmployees.”**Impact of Inflation**     While it is difficult to determine the precise effects ofinflation, management of the Company does not believe inflationhad a material impact on the consolidated financial statementsfor the periods presented.**Critical Accounting Policies**     MD&A discusses the results of operations and financialcondition as reflected in the Company’s consolidatedfinancial statements, which have been prepared in accordancewith accounting principles generally accepted in the UnitedStates of America (“GAAP”). As discussed inNote 1 to the Company’s consolidated financialstatements, the preparation of the consolidated financialstatements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the consolidated financial statementsand reported amounts of revenues and expenses during thereporting period. On an ongoing basis, management evaluates itsestimates and judgments, including those related to inventoryvaluation, vendor allowances, the allowance for doubtfulaccounts, useful lives of depreciable assets, recoverability oflong-lived assets, including intangible assets, restructuringand store closing reserves and the calculation of pension andpostretirement obligations and self-insurance reserves.Management bases its estimates and judgments on its substantialhistorical experience and other relevant factors, the results ofwhich form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparentfrom other sources. See Note 1 to the Company’sconsolidated financial statements for a discussion of theCompany’s significant accounting policies.     While the Company believes that the historical experience andother factors considered provide a meaningful basis for theaccounting policies applied in the preparation of theconsolidated financial statements, the Company cannot guaranteethat its estimates and assumptions will be accurate, which couldrequire the Company to make adjustments to these estimates infuture periods.     The following critical accounting policies are used in thepreparation of the consolidated financial statements:     *Inventory Valuation.* Inventories are valued using thelower of cost or market value, determined by the retailinventory method. Under the retail inventory method(“RIM”), the valuation of inventories at cost and theresulting gross margins are calculated by applying acost-to-retail ratio to the retail value of inventories. RIM isan averaging method that is widely used in the retail industrydue to its practicality. Also, it is recognized that the use ofthe retail inventory method will result in valuing inventoriesat lower of cost or market if markdowns are currently taken as areduction of the retail value of inventories. Inherent in theRIM calculation are certain significant management judgments andestimates including, among others, merchandise markon, markup,markdowns and shrinkage, which significantly impact the endinginventory valuation at
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cost as well as resulting gross margins. These significantestimates, coupled with the fact that the RIM is an averagingprocess, can, under certain circumstances, produce distorted orinaccurate costs. In addition, failure to take markdownscurrently can result in an overstatement of cost under the lowerof cost or market principle.     *Vendor Allowances.* The Company receives allowances fromits vendors through a variety of programs and arrangements,including markdown reimbursement programs. These vendorallowances are generally intended to offset the Company’scosts of selling the vendors’ products in its stores.Allowances are recognized in the period in which the Companycompletes its obligations under the vendor agreements. Mostincentives are deducted from amounts owed to the vendor at thetime the Company completes its obligations to the vendor orshortly thereafter. The following summarizes the types of vendorincentives and the Company’s applicable accounting policy: •     Advertising allowances — Represents reimbursement of    advertising costs initially funded by the Company. Amounts are    recognized as a reduction to selling, general and administrative    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.     *Allowance for Doubtful Accounts.* The Company provides anallowance for doubtful accounts that is determined based on anumber of factors, including delinquency rates, bankruptcyfilings, historical charge-off patterns and management judgment.     *Property and Equipment, net.* Property and equipment ownedby the Company is stated at cost less accumulated depreciation.Property and equipment leased by the Company under capitalleases is stated at an amount equal to the present value of theminimum lease payments less accumulated amortization.Depreciation and amortization are provided utilizingstraight-line and various accelerated methods over the shorterof estimated asset lives or related lease terms. The Companyalso amortizes the depreciation of leasehold improvements overthe expected lease term that would include cancelable optionperiods where failure to exercise such options would result inan economic penalty in such amount that a renewal appears, atthe inception of the lease, to be reasonably assured. In fiscalyear 2005 the Company implemented a new accounting policy tocapitalize rent expense during a store’s constructionperiod.     *Rent Expense.* The Company recognizes rent expense on astraight-line basis over the expected lease term, includingcancelable option periods where failure to exercise such optionswould result in an economic penalty in such amount that arenewal appears, at the inception of the lease, to be reasonablyassured. The lease term commences on the date when the companygains control of the property. Rent expense during storeconstruction is included in leasehold improvement costs.     *Useful Lives of Depreciable Assets.* The Company makesjudgments in determining the estimated useful lives of itsdepreciable long-lived assets which are included in theconsolidated financial statements. The estimate of useful livesis determined by the Company’s historical experience withthe type of asset purchased.     *Recoverability of Long-Lived Assets.* Long-lived assets,including intangible assets, are reviewed when facts andcircumstances indicate that the carrying value of the asset maynot be recoverable. When necessary, impaired assets are writtendown to estimated fair value based on the best informationavailable. Estimated fair value is generally measured bydiscounting estimated future cash flows. Where available, theCompany would also obtain individual appraisals or utilize otherindicators of fair value. Considerable management judgment isnecessary to estimate discounted future cash flows.     *Restructuring and Store Closing Reserves.* The Companyreduces the carrying value of property and equipment to fairvalue for owned locations or recognizes a reserve for futureobligations for leased facilities at the time the Company ceasesusing property and/or equipment. The reserve includes futureminimum lease
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payments and common area maintenance and taxes for which theCompany is obligated under operating lease agreements.Additionally, the Company makes certain assumptions related topotential subleases and lease buyouts that reduce the recordedamount of the reserve. These assumptions are based onmanagement’s knowledge of the market and other relevantexperience, including information provided by third party realestate brokers. However, significant changes in the real estatemarket and the inability to enter into the subleases or obtainbuyouts within the estimated time frame may result in increasesor decreases to these reserves.     *Pension and Postretirement Obligations.* The Companyutilizes significant assumptions in determining its periodicpension and postretirement expense and obligations that areincluded in the consolidated financial statements. Theseassumptions include determining an appropriate discount rate,investment earnings, rate of compensation increase, as well asthe remaining service period of active employees. The Companyutilizes a qualified actuary to calculate the periodic pensionand postretirement expense and obligations based upon theseassumptions and actual employee census data.     The funded status of the Company’s pension plan hasexperienced significant declines in recent years, due to stockmarket losses and decreases in interest rates. As a result ofthese factors, the fair market value of the Company’spension plan assets fell below the accumulated benefitobligation (“ABO”) in fiscal year 2004 and the prepaidpension asset was charged off and the Company established an$8.1 million minimum pension liability, representing theunderfunded portion of the pension plan. In fiscal year 2005,the minimum pension liability increased to $39.3 million.If the fair market value of the pension plan assets exceeds theABO at a future valuation date, the charge off would be reversedand the remaining prepaid pension costs would be re-establishedas an asset on the consolidated balance sheets.     The Company maintained the investment earnings assumption of8.5% to determine its fiscal year 2006 expense. The Companybelieves that this assumption is appropriate given thecomposition of its plan assets and historical market returnsthereon.     On March 7, 2005, the Company made an optional$6.0 million contribution to its pension plan. The Companyhas evaluated the funded status of the pension plan and does notbelieve the underfunded position will materially affect theCompany’s cash flow in fiscal year 2006 and future years.     *Self Insurance Reserves.* The Company purchasesthird-party insurance for workers’ compensation, generalliability and automobile claims that exceed certain dollarlimits. The Company is responsible for the payment ofworkers’ compensation, general liability and automobileclaims under the insured limits. The Company records a liabilityfor its obligation associated with incurred losses utilizinginformation from a third-party insurance broker. The brokerutilizes historical data and industry accepted loss analysisstandards to estimate the loss development factors used toproject the future development of incurred losses. The lossestimates are adjusted based upon actual reported and settledclaims.     *Stock Based Compensation.* The Company adopted theSFAS 123R, “Share Based Payment,” during thefourth quarter of fiscal year 2005. The Company had previouslyaccounted for stock based compensation under the guidelines ofAPB Opinion No. 25, “Accounting for Stock Issued toEmployees.” SFAS 123R requires the Company to accountfor stock based compensation by using the grant date fair valueof share awards and the estimated number of shares that willultimately be issued in conjunction with each award. The Companyelected to apply the standard using the modified retrospectivemethod of adoption, where the standard would only impact stockbased compensation expense in fiscal year 2005 and future years.The adoption of SFAS 123R resulted in a $3.6 millionreduction in compensation costs, a component of selling, generaland administrative expenses, in fiscal year 2005. Theapplication of SFAS 123R did not have an impact on theoverall cash flows of the Company.     As of January 29, 2005, the Company had two stock basedcompensation programs that are described in Note 16.
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**Item 7a.     *Quantitativeand Qualitative Disclosure About Market Risk***     The Company is exposed to market risk from changes in interestrates on its variable rate debt. The Company uses interest rateswaps to manage the interest rate risk associated with itsborrowings and to manage the Company’s allocation of fixedand variable rate debt. The Company does not use financialinstruments for trading or other speculative purposes and is nota party to any leveraged derivative instruments. TheCompany’s net exposure to interest rate risk is based onthe difference between the outstanding variable rate debt andthe notional amount of its interest rate swaps. AtJanuary 29, 2005, the Company had $250.0 million ofvariable rate debt and $250.0 million of offsetting,receive variable rate, pay fixed rate swaps. The impact on theCompany’s results of operations of a one-percent ratechange on the outstanding balance of unhedged variable rate debtas of January 29, 2005 and January 31, 2004 would notbe material.     During the first quarter of fiscal year 2005, the Companyterminated two interest rate swaps with a combined notionalvalue of $50.0 million. The interest rate swaps hadpreviously been dedesignated as cash flow hedges during thethird quarter of fiscal year 2004.     The Company also owns marketable equity securities that aresubject to market risk. A discussion of the Company’saccounting policies for derivative financial instruments andequity securities is included in the Summary of SignificantAccounting Policies in Note 1 to the Company’sconsolidated financial statements.
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**Item 8.*****Financial Statements and Supplementary Data***       **Page**        Report of Independent Registered Public    Accounting Firm  25      Consolidated Statements of Income  26      Consolidated Balance Sheets  27      Consolidated Statements of Changes in    Stockholders’ Equity and Comprehensive Income  28      Consolidated Statements of Cash Flows  29      Notes to Consolidated Financial    Statements  30 
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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**The Board of DirectorsBelk, Inc.:     We have audited the accompanying consolidated balance sheets ofBelk, Inc. and subsidiaries as of January 29, 2005 andJanuary 31, 2004, and the related consolidated statementsof income, changes in stockholders’ equity andcomprehensive income, and cash flows for each of the years inthe three-year period ended January 29, 2005. Theseconsolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express anopinion on these consolidated financial statements based on ouraudits.     We conducted our audits in accordance with the standards of thePublic Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing theaccounting principles used and significant estimates made bymanagement, as well as evaluating the overall financialstatement presentation. We believe that our audits provide areasonable basis for our opinion.     In our opinion, the consolidated financial statements referredto above present fairly, in all material respects, the financialposition of Belk, Inc. and subsidiaries as of January 29,2005 and January 31, 2004, and the results of theiroperations and their cash flows for each of the years in thethree-year period ended January 29, 2005, in conformitywith U.S. generally accepted accounting principles.     We also have audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States), theeffectiveness of Belk, Inc. and subsidiaries internal controlover financial reporting as of January 29, 2005, based oncriteria established in Internal Control — IntegratedFramework issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO) and our report datedApril 14, 2005*,*expressed an unqualified opinion onmanagement’s assessment of, and the effective operation of,internal control over financial reporting.     KPMG LLPCharlotte, North CarolinaApril 14, 2005
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**BELK, INC. AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OF INCOME****(dollars in thousands, except per share amounts)**               **Fiscal Year Ended**     **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003**           Revenues $2,446,832  $2,264,907  $2,241,555     Cost of goods sold (including occupancy and buying expenses)  1,618,639   1,506,905   1,512,045     Selling, general and administrative expenses  601,206   563,225   553,390     Store closing costs  2,957   —   561     Restructuring charges  —   2,011   8,098               Operating income  224,030   192,766   167,461     Interest expense  (34,292)  (38,806)  (35,849)    Interest income  2,146   1,518   968     Gain (loss) on property, equipment and investments  1,883   14,843   (402)    Other income, net  509   326   1,639               Income before income taxes  194,276   170,647   133,817     Income taxes  70,200   59,100   49,800               Net income $124,076  $111,547  $84,017               Basic and diluted net income per share $2.40  $2.11  $1.53               Weighted average shares outstanding  51,693,308   52,755,577   54,742,994           See accompanying notes to consolidated financial statements.
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**BELK, INC. AND SUBSIDIARIES****CONSOLIDATED BALANCE SHEETS****(dollars in thousands)**             **January 29,** **January 31,**  **2005** **2004**     **ASSETS**    Current assets:             Cash and cash equivalents $232,264  $166,071      Accounts receivable, net  319,706   311,141      Merchandise inventory  527,860   496,242      Prepaid expenses and other current assets  17,302   17,286              Total current assets  1,097,132   990,740     Investment securities  6,914   6,975     Property and equipment, net  734,866   702,682     Other assets  27,994   29,866              Total assets $1,866,906  $1,730,263         **LIABILITIES AND STOCKHOLDERS’ EQUITY**    Current liabilities:             Accounts payable $177,793  $160,013      Accrued expenses  84,413   87,536      Accrued income taxes  35,289   36,499      Deferred income taxes  2,695   785      Current installments of long-term debt and capital lease    obligations  8,199   7,848              Total current liabilities  308,389   292,681     Deferred income taxes  21,537   18,540     Long-term debt and capital lease obligations, excluding current    installments  293,220   300,640     Interest rate swap liability  21,305   35,367     Deferred compensation and other noncurrent liabilities  155,839   107,664              Total liabilities  800,290   754,892            Stockholders’ equity:             Preferred stock  —   —      Common stock, 51.5 and 51.9 million shares issued and    outstanding as of January 29, 2005 and January 31,    2004, respectively  515   519      Paid-in capital  533,923   536,484      Retained earnings  617,097   517,721      Accumulated other comprehensive loss  (84,919)  (79,353)             Total stockholders’ equity  1,066,616   975,371              Total liabilities and stockholders’ equity $1,866,906  $1,730,263        See accompanying notes to consolidated financial statements.
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**BELK, INC. AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OF CHANGES IN****STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME****(dollars in thousands)**                               **Accumulated**          **Other**          **Comprehensive**    **Common** **Paid-in** **Retained** **Income**    **Stock** **Capital** **Earnings** **(Loss)** **Total**               Balance at February 2, 2002 $547  $556,079  $350,876  $(8,166) $899,336     Comprehensive income:                         Net income  —   —   84,017   —   84,017      Reclassification adjustment for investment gains included in net    income, net of $61 income tax benefit  —   —   —   (104)  (104)     Unrealized gain on investments, net of $250 income tax expense  —   —   —   436   436      Unrealized loss on interest rate swaps, net of income tax    benefit of $8,544  —   —   —   (14,548)  (14,548)                      Total comprehensive income                  69,801                     Cash dividends  —   —   (13,690)  —   (13,690)    Stock compensation granted, net  —   2,717   —   —   2,717     Common stock issued and redeemed, net  (1)  (68)  —   —   (69)                    Balance at February 1, 2003  546   558,728   421,203   (22,382)  958,095     Comprehensive income:                         Net income  —   —   111,547   —   111,547      Reclassification adjustment for investment gains included in net    income, net of $136 income tax benefit  —   —   —   (231)  (231)     Unrealized gain on investments, net of $476 income tax expense  —   —   —   811   811      Unrealized gain on interest rate swaps, net of income tax    expense of $2,074  —   —   —   3,528   3,528      Reclassification adjustment for interest rate swap    dedesignation, net of income tax expense of $2,398              4,083   4,083      Pension asset adjustment, net of income tax benefit of $38,269  —   —   —   (65,162)  (65,162)                      Total comprehensive income                  54,576                     Cash dividends  —   —   (15,029)  —   (15,029)    Stock compensation granted, net  —   2,061   —   —   2,061     Common stock issued  3   3,906           3,909     Repurchase and retirement of common stock  (30)  (28,211)  —   —   (28,241)                    Balance at January 31, 2004  519   536,484   517,721   (79,353)  975,371     Comprehensive income:                         Net income  —   —   124,076   —   124,076      Reclassification adjustment for investment gains included in net    income, net of $109 income tax benefit  —   —   —   (184)  (184)     Unrealized gain on investments, net of $286 income tax expense  —   —   —   483   483      Unrealized gain on interest rate swaps, net of income tax    expense of $3,027  —   —   —   5,157   5,157      Pension asset adjustment, net of income tax benefit of $6,474  —   —   —   (11,022)  (11,022)                      Total comprehensive income                  118,510                     Cash dividends  —   —   (24,700)  —   (24,700)    Stock compensation granted, net  —   1,062   —   —   1,062     Common stock issued  3   3,540   —   —   3,543     Repurchase and retirement of common stock  (7)  (7,163)  —   —   (7,170)                    Balance at January 29, 2005 $515  $533,923  $617,097  $(84,919) $1,066,616                 See accompanying notes to consolidated financial statements.
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**BELK, INC. AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OF CASH FLOWS****(dollars in thousands)**                 **Fiscal Year Ended**     **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003**           Cash flows from operating activities:                 Net income $124,076  $111,547  $84,017     Adjustments to reconcile net income to net cash provided by    operating activities:                 Store closing costs  2,957   —   561      Deferred income taxes  1,702   12,796   5,959      Depreciation and amortization  101,255   91,007   89,312      Restructuring charges  —   2,011   8,098      (Gain) loss on sale of property, equipment and investments  (1,883)  (14,843)  402      (Increase) decrease in:                  Accounts receivable, net  (8,565)  23,299   8,807       Merchandise inventory  (31,618)  (8,752)  8,254       Prepaid expenses and other assets  498   (6,273)  4,526      Increase (decrease) in:                  Accounts payable and accrued expenses  15,243   39,370   (1,342)      Accrued income taxes  (1,210)  11,417   (10,687)      Deferred compensation and other liabilities  27,684   11,379   5,406               Net cash provided by operating activities  230,139   272,958   203,313               Cash flows from investing activities:                 Purchases of investments  (167)  —   (135)     Proceeds from sales of investments  100   2,475   4,081      Purchases of property and equipment  (129,389)  (127,053)  (75,023)     Proceeds from sales of property and equipment  5,076   27,671   3,936               Net cash used by investing activities  (124,380)  (96,907)  (67,141)              Cash flows from financing activities:                 Proceeds from issuance of long-term debt  19   53,436   59,971      Principal payments on long-term debt and capital lease    obligations  (7,898)  (112,988)  (107,491)     Stock compensation tax benefit  183   —   —      Net payments on line of credit  —   —   (6,089)     Dividends paid  (24,700)  (15,029)  (13,690)     Repurchase of common stock  (7,170)  (26,685)  —               Net cash used by financing activities  (39,566)  (101,266)  (67,299)              Net increase in cash and cash equivalents  66,193   74,785   68,873     Cash and cash equivalents at beginning of period  166,071   91,286   22,413               Cash and cash equivalents at end of period $232,264  $166,071  $91,286               Supplemental disclosures of cash flow information:                 Interest paid $23,511  $26,693  $27,665      Income taxes paid  65,060   35,695   52,227     Supplemental schedule of noncash investing and financing    activities:                 Increase in property and equipment through assumption of capital    leases  1,212   2,571   2,487      Increase in property and equipment through capitalization of    construction period rent  7,982   —   — See accompanying notes to consolidated financial statements.
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****(1) ****Summary of Significant Accounting Policies****Description of Business and Basis of Presentation**     Belk, Inc. and its subsidiaries (the “Company”)operate retail department stores in 14 states primarily inthe southeastern United States. All significant intercompanytransactions and balances have been eliminated in consolidation.The Company’s fiscal year ends on the Saturday closest toeach January 31. All references to “fiscal year 2006”refer to the fiscal year ending January 28, 2006;references to “fiscal year 2005” refer to the periodended January 29, 2005; references to “fiscal year2004” refer to the period ended January 31, 2004; andreferences to “fiscal year 2003” refer to the periodended February 1, 2003.     Certain prior period amounts have been reclassified to conformwith the current year presentation.**Use of Estimates**     The preparation of financial statements in conformity withaccounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results coulddiffer from those estimates.     Significant estimates are required as part of determining theallowance for doubtful accounts, depreciation, amortization andrecoverability of long-lived assets, establishing restructuringand other reserves, and calculating retirement benefits.**Revenues**     Revenues include sales of merchandise and the net revenuereceived from leased departments of $8.4 million,$7.6 million, and $7.6 million for fiscal years 2005,2004, and 2003, respectively. Sales from retail operations arerecorded at the time of delivery and reported net of merchandisereturns. The reserve for returns is calculated as a percentageof sales based on historical return percentages.**Cost of Goods Sold**     Cost of goods sold includes occupancy and buying expenses.Occupancy expenses include rent, utilities and real estatetaxes. Buying expenses include payroll and travel expensesassociated with the buying function.**Finance Charges**     Selling, general and administrative expenses in the consolidatedstatements of income are reduced by finance charge and late feerevenue arising from customer accounts receivable. Financecharge and late fee revenues were $69.2 million,$63.0 million, and $60.9 million in fiscal years 2005,2004, and 2003, respectively.**Pre-Opening Costs**     Store pre-opening costs are expensed as incurred.**Advertising**     Advertising costs, net of co-op recoveries from suppliers, areexpensed as incurred and amounted to $69.1 million,$63.3 million, and $62.5 million in fiscal years 2005,2004, and 2003, respectively.
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)****Long-Lived Asset Recoverability**     Long-lived assets, including intangible assets, are reviewedwhen facts and circumstances indicate that the carrying value ofthe asset may not be recoverable. When necessary, impairedassets are written down to estimated fair value based on thebest information available. Estimated fair value is generallybased on either appraised value or measured by discountingestimated future cash flows. Considerable management judgment isnecessary to estimate discounted future cash flows. Accordingly,actual results could vary significantly from such estimates.     No impairment charges were incurred for fiscal years 2005, 2004,and 2003.**Cash Equivalents**     Cash equivalents include liquid investments with an originalmaturity of 90 days or less.**Merchandise Inventory**     Merchandise inventory is stated at the lower of average cost ormarket as determined by the retail inventory method.**Investments**     The Company accounts for investments in accordance with theprovisions of Statement of Financial Accounting Standards(“SFAS”) No. 115, “Accounting for CertainInvestments in Debt and Equity Securities.” Securitiesclassified as available-for-sale are valued at fair value, whilesecurities that the Company has the ability and positive intentto hold to maturity are valued at amortized cost. The Companyincludes unrealized holding gains and losses foravailable-for-sale securities in other comprehensive income.Realized gains and losses are recognized on a specificidentification basis and are included in income. Declines invalue that are considered to be other than temporary arereported in gain (loss) on property, equipment and investments.**Property and Equipment, Net**     Property and equipment owned by the Company is stated at costless accumulated depreciation. Property and equipment leased bythe Company under capital leases is stated at an amount equal tothe present value of the minimum lease payments less accumulatedamortization. Depreciation and amortization are providedutilizing straight-line and various accelerated methods over theshorter of estimated asset lives or related lease terms. TheCompany also amortizes the depreciation of leaseholdimprovements over the expected lease term that would includecancelable option periods where failure to exercise such optionswould result in an economic penalty in such amount that arenewal appears, at the inception of the lease, to be reasonablyassured. In fiscal year 2005, the Company implemented a newaccounting policy to capitalize rent expense during astore’s construction period.**Rent Expense**     The Company recognizes rent expense on a straight-line basisover the expected lease term, including cancelable optionperiods where failure to exercise such options would result inan economic penalty in such amount that a renewal appears, atthe inception of the lease, to be reasonably assured. The leaseterm commences on the date when the company gains control of theproperty. Rent expense during store construction is included inleasehold improvement costs.
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)****Stock Based Compensation**     The Company adopted the Financial Accounting Standards Board(“FASB”) SFAS No. 123R, “Share BasedPayment” (“SFAS 123R”), during the fourthquarter of fiscal year 2005. The Company had previouslyaccounted for stock based compensation under the guidelines ofAccounting Principles Board (“APB”) OpinionNo. 25, “Accounting for Stock Issued toEmployees.” SFAS 123R requires the Company to accountfor stock based compensation using the grant date fair value ofshare awards and the estimated number of shares that willultimately be issued in conjunction with each award. The Companyelected to apply the standard using the modified retrospectivemethod of adoption, where the standard would only impact stockbased compensation expense in fiscal year 2005 and future years.The adoption of SFAS 123R resulted in a $3.6 millionreduction in compensation costs, a component of selling, generaland administrative expenses, in fiscal year 2005. Theapplication of SFAS 123R did not have an impact on theoverall cash flows of the Company. As of January 29, 2005,the Company had two stock based compensation programs that aredescribed in Note 16.**Income Taxes**     Income taxes are accounted for under the asset and liabilitymethod. Deferred income tax assets and liabilities arerecognized for the future tax consequences attributable todifferences between the financial statement bases and therespective tax bases of the assets and liabilities and operatingloss and tax credit carry forwards. Deferred tax assets andliabilities are measured using enacted tax rates expected toapply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled.     The effect on deferred tax assets and liabilities of a change intax rates is recognized in income in the period that includesthe enactment date. Valuation allowances are established whennecessary to reduce deferred tax assets to the amount expectedto be realized.**Intangible Assets, Net**     Leasehold intangibles, which represent the excess of fair valueover the carrying value of leaseholds, are amortized on astraight-line basis over the remaining terms of the leaseagreements and are included in property and equipment, net. Thecarrying value of intangible assets is periodically reviewed bythe Company’s management to assess the recoverability ofthe assets.**Derivative Financial Instruments**     The Company utilizes derivative financial instruments (interestrate swap agreements) to manage the interest rate riskassociated with its borrowings. The counterparties to theseinstruments are major financial institutions. These agreementsare used to reduce the potential impact of increases in interestrates on variable rate long-term debt. The differential to bepaid or received is accrued as interest rates change and isrecognized as an adjustment to interest expense.     During the first quarter of fiscal year 2005, the Companyterminated two interest rate swaps with a combined notionalvalue of $50.0 million. The interest rate swaps hadpreviously been dedesignated as cash flow hedges during thethird quarter of fiscal year 2004.     The Company holds $250.0 million of interest rate swapsthat hedge the Company’s $125.0 million bond facilityand a series of forecasted borrowings through maturity in 2012.As of January 29, 2005 and January 31, 2004, theCompany had swaps with a negative fair value of$21.3 million and $35.4 million, respectively,designated as a cash flow hedge of forecasted cash flowsassociated with the Company’s borrowings. For fiscal year2005 and 2004, $0.5 million and $0.9 million,respectively, of the Company’s swap liability related tocontracts with option provisions that are excluded from hedgeaccounting treatment. Any hedge ineffectiveness is recorded as acomponent of interest expense. During fiscal years 2005 and2004, there was no hedge
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**ineffectiveness recorded by the Company. The change in the swapliability for contracts with option provisions is recorded ininterest expense on the consolidated statement of income. TheCompany recorded $0.4 million as an offset to interestexpense related to the change in swap liability for contractswith option provisions for the twelve months endedJanuary 29, 2005 and January 31, 2004.**Implementation of New Accounting Standards**     In December 2003, the FASB issued SFAS No. 132,“Employers’ Disclosures about Pensions and OtherPostretirement Benefits” (“RevisedStatement 132”). Revised Statement 132 revisesemployers’ required disclosures about pension plans andother postretirement benefit plans. It does not change themeasurement or recognition of those plans required bySFAS No. 87, “Employers’ Accounting forPensions,” No. 88, “Employers’ Accountingfor Settlements and Curtailments of Defined Benefit PensionPlans and for Termination Benefits” and No. 106,“Employers’ Accounting for Postretirement BenefitsOther Than Pensions.” SFAS N0. 132 requiresdisclosures in addition to those in the originalSFAS No. 132. The interim-period disclosures requiredby SFAS 132R are effective for interim periods beginningafter December 15, 2003. The Company adopted the interimdisclosure requirements set forth in SFAS No. 132 forthe first quarter of fiscal year 2005.     In May 2004, the FASB issued Staff Position FAS 106-2,“Accounting and Disclosure Requirements Relating to theMedicare Prescription Drug, Improvement and Modernization Act of2003.” The Company offers an access-only prescription drugplan to retirees and therefore the adoption of the provisionsunder Staff Position FAS 106-2 did not have an impact onthe Company’s consolidated financial position or results ofoperations.     In December 2004, the FASB issued SFAS 123R, which detailshow the Company should account for stock-based compensation. TheCompany elected to adopt SFAS 123R in fiscal year 2005 andto apply the modified retrospective method of adoption, wherethe standard would only impact stock based compensation expensein fiscal year 2005 and future years. The Company had previouslyaccounted for stock-based compensation under the guidance setforth in APB No. 25, “Accounting for Stock Issued toEmployees.”**(2)****Lease Accounting**     Historically rent expense was recorded on a straight-line basisover the non-cancelable lease term beginning on the date whenthe rent is first assessed, which is typically the store openingdate. The depreciable lives of certain leasehold improvementsand long-lived assets on those properties extended beyond thenon-cancelable lease term.     The Company believed that its accounting treatment was permittedunder generally accepted accounting principles and that suchtreatment was consistent with the practices of other companiesin the retail industry. However, on February 7, 2005, theChief Accountant of the U.S. Securities and ExchangeCommission (“SEC”) released a letter expressing theSEC’s views on certain lease accounting matters. TheCompany has identified areas where its historical accountingpractices differ from the SEC’s views and adjusted itsaccounting policies as follows to comply with the SEC’sguidance: (i) conform the depreciable lives for buildingson leased land and other leasehold improvements to the shorterof the economic life of the asset or the lease term used fordetermining the capital versus operating lease classificationand calculating straight-line rent; (ii) include pre-openingrent-free periods and cancelable option periods in thecalculation of straight-line rent expense where failure toexercise such options would result in an economic penalty insuch amount that a renewal appears, at the inception of thelease, to be reasonably assured; and (iii) capitalize rent costsduring the store construction period. The Company has recordedthe life-to-date accounting impact of correcting for theseerrors in fiscal year 2005.
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**     The cumulative effect of these adjustments in fiscal year 2005was an increase in depreciation expense, a component of selling,general and administrative expenses, of $8.9 million,$5.6 million net of tax, and an increase in rent expense, acomponent of cost of goods sold, of $1.7 million,$1.1 million net of tax. These adjustments did not have anyimpact on the overall cash flows of the Company.**(3)****Store Closing Costs**     During fiscal year 2005, the Company recorded $3.0 millionof exit costs related to the closing of six stores in fiscalyear 2005 and one store to be closed in fiscal year 2006. Theexit costs consisted primarily of the loss on abandonment ofleasehold improvements, post-closing real estate leaseobligations and severance costs.     During fiscal year 2003, the Company recognized$0.5 million of exit costs associated with the announcementof two store closings. The exit costs consist primarily ofpost-closing real estate lease obligations and severance costs.     As of January 29, 2005 the remaining reserve balance forpost-closing real estate lease obligations was$2.5 million. The Company does not anticipate incurringsignificant additional exit costs in connection with the storeclosings.**(4)****Restructuring Charge****The Merchandising Restructuring**     During fiscal year 2003, the Company recorded a restructuringcharge of $7.1 million in connection with the consolidationof its divisional merchandising and marketing functions into asingle organization located at the Company’s corporateoffices in Charlotte, NC (the “MerchandisingRestructuring”). The consolidation also includedimplementation of a central planning and allocation function tooversee the distribution and allocation of merchandise to thestores. The charge consisted of $5.1 million of employeeseverance costs, $1.5 million of post-closing real estatelease obligation costs, and $0.5 million for the reductionto fair value of excess assets. Approximately 260 merchandising,marketing and administrative personnel accepted severanceeffective August 3, 2002 as a result of the restructuring.The Company relocated its division offices from their previouslocations into smaller facilities and sold or sublet theprevious division office locations. The Company sold excessproperty and equipment from the division offices with a net bookvalue of approximately $1.4 million. The consolidation wassubstantially completed in the third quarter of fiscal year 2003.**The Logistics Restructuring**     During fiscal year 2001, the Company constructed a new371,000 square foot central distribution center inBlythewood, SC as part of the restructuring of theCompany’s merchandise distribution and logistics network(the “Logistics Restructuring”). During fiscal year2002, the Company completed the consolidation of itsdistribution centers located in Charlotte, NC, Morrisville, NC,Greensboro, NC, Mauldin, SC, Summerville, SC and Fayetteville,NC, together with store merchandise receiving and processingfunctions in 91 stores not previously serviced by a distributioncenter, into the new Blythewood center.     During fiscal year 2004 and 2003, the Company increased theestimated post-closing real estate lease obligations associatedwith the consolidation of its distribution centers by$2.0 million and $0.8 million, respectively.     As of January 29, 2005 the remaining logisticsrestructuring reserve balance for post-closing real estate leaseobligations was $2.7 million. The Company does notanticipate incurring significant additional exit costs inconnection with the logistics restructuring.
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)****(5)****Accumulated Other Comprehensive Loss**     The following table sets forth the components of accumulatedother comprehensive loss:           **January 29,** **January 31,**  **2005** **2004**       **(dollars in thousands)**    Unrealized loss on interest rate swaps, net of $6,269 and $9,296    income tax benefit as of January 29, 2005 and    January 31, 2004, respectively $(10,674) $(15,831)    Unrealized gains on investments, net of $1,125 and $948 income    tax expense as of January 29, 2005 and January 31,    2004, respectively  1,939   1,640     Pension asset adjustment, net of income tax benefit of $44,743    and $38,269 as of January 29, 2005 and January 31,    2004, respectively  (76,184)  (65,162)           Accumulated other comprehensive loss $(84,919) $(79,353)       **(6)****Accounts Receivable, Net**     Customer receivables arise primarily under open-end revolvingcredit accounts used to finance purchases of merchandise fromthe Company. These accounts have various billing and paymentstructures, including varying minimum payment levels.Installments of deferred payment accounts receivable maturingafter one year are included in current assets in accordance withindustry practice.     The Company provides an allowance for doubtful accounts that isdetermined based on a number of factors, including delinquencyrates, bankruptcy filings, historical charge-off patterns andmanagement judgment.     Accounts receivable, net consists of:            **January 29,** **January 31,**  **2005** **2004**       **(Dollars in thousands)**    Customer receivables $313,361  $309,058     Other receivables  16,331   15,119     Less allowance for doubtful accounts  (9,986)  (13,036)            Accounts receivable, net $319,706  $311,141             Changes in the allowance for doubtful accounts are as follows:                **52 Weeks Ended** **52 Weeks Ended** **52 Weeks Ended**  **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003**         **(Dollars in thousands)**    Balance, beginning of year $13,036  $11,729  $12,318     Charged to expense  11,661   17,536   15,554     Net uncollectible balances written off  (14,711)  (16,229)  (16,143)               Balance, end of year $9,986  $13,036  $11,729           
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)****(7)****Investment Securities**     Held-to-maturity securities consist of federal, state and localdebt securities. Details of investments in held-to-maturitysecurities are as follows:            **January 29,** **January 31,**  **2005** **2004**       **(dollars in thousands)**    Amortized cost $425  $360     Gross unrealized gains  7   15             Fair value $432  $375             At January 29,2005, scheduled maturities ofheld-to-maturity securities are as follows:             **Amortized**  **Fair Value** **Cost**       **(dollars in thousands)**    One to five years $30  $30     Six to ten years  —   —     After ten years  402   395          $432  $425             Available-for-sale securities consist primarily of equityinvestments. Details of investments in available-for-salesecurities are as follows:            **January 29,** **January 31,**  **2005** **2004**       **(dollars in thousands)**    Cost $3,405  $4,007     Gross unrealized gains  3,084   2,608             Fair value of securities $6,489  $6,615             Details of realized gains and losses are as follows:                **52 Weeks Ended** **52 Weeks Ended** **52 Weeks Ended**  **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003**         **(dollars in thousands)**    Gross realized gains on sales of securities $396  $1,000  $1,713     Gross realized losses on sales of securities  (49)  (1)  (175)    Losses on other than temporary declines in market values  (155)  —   (78)               Net realized gain $192  $999  $1,460           
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)****(8)****Property and Equipment, net**     Details of property and equipment, net are as follows:                **Estimated** **January 29,** **January 31,**  **Lives** **2005** **2004**           **(dollars in thousands)**    Land  n/a  $23,500  $23,329     Buildings  15-40   737,105   673,707     Furniture, fixtures and equipment  3-7   629,199   603,826     Property under capital leases  5-25   73,020   73,468     Construction in progress  n/a   33,039   35,826                  1,495,863   1,410,156     Less accumulated depreciation and amortization      (760,997)  (707,474)               Property and equipment, net     $734,866  $702,682           **(9)****Sale of Investment Property**     During fiscal year 2004, the Company sold investment propertylocated in downtown Charlotte, NC and land located inGreenville, SC for a net sales price of $21.9 million and$3.7 million, respectively. The Company recognized a gainof $12.5 million, net of $7.4 million tax expense, onthe sale of these properties, which is included in gain (loss)on property, equipment and investments on the consolidatedstatement of income.**(10) ****Accrued Expenses**     Accrued expenses are comprised of the following:            **January 29,** **January 31,**  **2005** **2004**       **(dollars in thousands)**    Salaries, wages and employee benefits $23,582  $20,069     Interest  2,692   2,953     Rent  4,051   4,436     Taxes, other than income  10,258   10,971     Store closing and restructuring reserves  3,100   644     Self insurance reserves  6,010   4,513     Accrued capital expenditures  9,290   22,136     Other  25,430   21,814             Accrued Expenses $84,413  $87,536        
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)****(11) ****Borrowings**     Long-term debt, principally due to banks, and capital leaseobligations consist of the following:           **January 29,** **January 31,**  **2005** **2004**       **(dollars in thousands)**    Bond facility $125,000  $125,000     Note payable  125,025   125,007     Sale/leaseback financing  18,846   23,652     Capital lease agreements through August 2020  32,415   34,495     Unsecured notes payable  133   334           301,419   308,488     Less current installments  (8,199)  (7,848)           Long-term debt and capital lease obligations, excluding current    installments $293,220  $300,640             The annual maturities of long-term debt and capital leaseobligations over the next five years as of January 29, 2005are $8.2 million, $16.0 million, $2.2 million,$252.4 million, and $2.6 million, respectively.     The bond facility matures in July 2008 and bears interest at avariable rate based on the market for the bonds that hashistorically approximated one-month LIBOR plus 70 basispoints. The note payable expires in April 2008, bears interestat a rate that approximates one month LIBOR plus 50 basispoints, is collateralized by the Company’s customeraccounts receivable and limits borrowings to the lesser of$250.0 million or approximately 85% of the Company’scustomer accounts receivable. At January 29, 2005, onemonth LIBOR was 2.59%.     On April 30, 1999, the Company sold certain leaseholdimprovements for $42.0 million and is leasing them backthrough fiscal year 2008. The Company has the option torepurchase the leasehold improvements at the end of the lease.In accordance with SFAS No. 98, “Accounting forLeases,” and SFAS No. 66, “Accounting forSales of Real Estate,” the Company is accounting for thesale-leaseback as financing. The effective interest rate on thefacility is 7.27%.     The Company’s loan agreements place restrictions onmergers, consolidations, acquisitions, sales of assets,indebtedness, transactions with affiliates, leases, liens,investments, dividends and distributions, exchange and issuanceof capital stock, and guarantees. They also contain leverageratio, tangible net worth and fixed charge coverage ratiorequirements. The bond facility requires the Company to maintaina $127.0 million supporting letter of credit. The Companyis in compliance with all debt covenants.     The Company has entered into interest rate swap agreements withvarious financial institutions to manage the exposure to changesin interest rates on its variable rate indebtedness. The amountof indebtedness covered by the interest rate swaps is$250.0 million for fiscal years 2004 through 2009,$125.0 million for fiscal years 2010 through 2012 and$50.0 million for fiscal year 2013 (see note 1).     During fiscal year 2005, the Company replaced its combined$200.0 million revolving line of credit and$127.0 million standby letter of credit facility with a$330.0 million credit facility that expires in October2009. Up until October 2007, under certain circumstances thefacility may be increased to $380.0 million at theCompany’s request. The new facility allows for up to$225.0 million of outstanding letters of credit. Thecurrent interest rate payable under the credit facility is basedon LIBOR plus approximately 63 basis points or prime. Thecredit facility contains restrictive covenants consistent withthe Company’s existing debt agreements and financialcovenants including leverage and fixed charge coverage ratios.The Company has
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**$127.0 million of standby letters of credit and noborrowings under the revolving credit agreements atJanuary 29, 2005 and January 31, 2004.**(12)****Leases**     The Company leases certain of its stores, warehouse facilitiesand equipment. The majority of these leases will expire over thenext 15 years. The leases usually contain renewal optionsand provide for payment by the lessee of real estate taxes andother expenses and, in certain instances, contingent rentalsdetermined on the basis of a percentage of sales in excess ofstipulated minimums for certain store facilities. Assets undercapital lease and accumulated amortization were$73.0 million and $47.1 million, respectively, atJanuary 29, 2005 and are included in property andequipment, net.     Future minimum lease payments under noncancelable leases, net offuture minimum sublease rental income under noncancelablesubleases, as of January 29, 2005 were as follows:          **Fiscal Year** **Capital** **Operating**       **(dollars in thousands)**    2006  4,847   33,726     2007  4,911   30,521     2008  4,939   27,136     2009  4,679   23,921     2010  4,702   21,074     After 2010  26,962   130,380             Total  51,040   266,758     Less sublease rental income  —   (2,247)           Net rentals  51,040  $264,511            Less imputed interest  (18,625)               Present value of minimum lease payments  32,415         Less current portion  (2,965)             $29,450                 Net rental expense for all operating leases consists of thefollowing:                 **52 Weeks Ended** **52 Weeks Ended** **52 Weeks Ended**  **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003**         **(dollars in thousands)**    Buildings:                 Minimum rentals $33,906  $29,834  $29,737      Contingent rentals  3,507   3,323   3,368      Sublease rental income  (493)  (663)  (876)    Equipment  1,366   1,657   2,359                 Total net rental expense $38,286  $34,151  $34,588           
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)****(13)****Income Taxes**     Federal and state income tax expense from continuing operationswas as follows:                **52 Weeks Ended** **52 Weeks Ended** **52 Weeks Ended**  **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003**         **(dollars in thousands)**    Current:                 Federal $57,157  $41,689  $38,181      State  4,670   3,953   5,252              61,827   45,642   43,433               Deferred:                 Federal  7,742   12,292   5,597      State  631   1,166   770              8,373   13,458   6,367               Income taxes $70,200  $59,100  $49,800                A reconciliation between income taxes from continuing operationsand income tax expense computed using the federal statutory taxrate of 35% is as follows:               **52 Weeks Ended** **52 Weeks Ended** **52 Weeks Ended**  **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003**         **(dollars in thousands)**    Income tax at the statutory federal rate $67,996  $59,727  $46,836     State income taxes, net of federal income tax benefit  3,447   3,328   3,914     Increase in Cash Surrender Value of Officers’ Life Insurance  (3,120)  (3,297)  (1,892)    Other  1,877   (658)  942               Income taxes $70,200  $59,100  $49,800           
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**     Deferred taxes based upon differences between the financialstatement and tax bases of assets and liabilities and availabletax carryforwards consist of:             **January 29,** **January 31,**  **2005** **2004**       **(dollars in thousands)**    Deferred tax assets:             Prepaid pension costs $10,953  $1,368      Benefit plan costs  28,737   27,850      Restructuring and other reserves  13,102   10,596      Inventory capitalization  6,151   5,848      Allowance for doubtful accounts  3,755   4,886      Tax carryovers  2,405   2,757      Interest rate swaps  7,768   10,880      Other  9,230   5,111            Gross deferred tax assets  82,101   69,296     Less valuation allowance  (548)  (768)             Net deferred tax assets  81,553   68,528            Deferred tax liabilities             Property and equipment  73,762   64,533      Inventory  22,870   20,162      Investment securities  2,438   2,542      Other  6,715   616            Gross deferred tax liabilities  105,785   87,853              Net deferred tax liabilities $24,232  $19,325             In assessing the realization of deferred tax assets, managementconsiders whether it is more likely than not that some portionor all of the deferred tax assets will not be realized. Theultimate realization of deferred tax assets is dependent uponthe temporary differences becoming deductible. Managementconsiders the scheduled reversal of deferred tax liabilities,projected future taxable income, and tax planning strategies inmaking this assessment.     As of January 29, 2005, the Company has net operating losscarryforwards for federal and state income tax purposes of$1.1 million and $9.6 million, respectively, and statejob credits of $1.7 million, which are available to offsetfuture taxable income, if any. These carryforwards expire atvarious intervals through fiscal year 2020. Some of the losscarryforwards are limited to an annual deduction ofapproximately $0.3 million under a provision of IRCSection 382. In addition, the Company has alternativeminimum tax net operating loss carryforwards of$2.8 million, which are available to reduce futurealternative minimum taxable income at various intervals expiringthrough fiscal year 2011.**(14)****Pension And Postretirement Benefits**     The Company has a defined benefit pension plan coveringsubstantially all of its employees. The benefits are based onyears of service and the employee’s compensation. EffectiveJanuary 1, 2005 the pension formula was modified forservice on or after that date for all employees. Changes to thepension formula consist primarily of automatic updates ofemployee compensation amounts used to compute benefits andrevised contribution rates. Previously the employee compensationupdates were optional and earnings during the most
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**recent update were used for all credited years of service. Underthe new formula, the earnings update is automatic and appliesonly to credited years of service related to that update. OnMarch 7, 2005, the Company made an optional$6.0 million contribution to its defined benefit pensionplan. No additional funding of the plan is anticipated in fiscalyear 2006.     The Company also provides postretirement medical and lifeinsurance benefits to certain retired full-time employees. TheCompany accounts for postretirement benefits by recognizing thecost of these benefits over an employee’s estimated term ofservice with the Company, in accordance withSFAS No. 106, “Employers’ Accounting forPostretirement Benefits Other than Pensions.”     As of the Company’s fiscal year 2004 pension planmeasurement date of November 1, 2003, the pension planaccumulated benefit obligation exceeded the fair market value ofthe plan assets by $8.1 million. As a result, the prepaidpension asset, as of the fiscal year ending January 31,2004, of $99.8 million was substantially eliminated and an$8.1 million minimum pension liability and a$4.5 million intangible pension asset was recorded, with acorresponding charge of $65.2 million, net of tax,recognized in other comprehensive income, a component ofstockholders’ equity.
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**     The change in the projected benefit obligation, change in planassets, funded status, amounts recognized and unrecognized, netperiodic benefit cost and actuarial assumptions are as follows:                    **Pension Benefits** **Postretirement Benefits**       **January 29,** **January 31,** **January 29,** **January 31,**  **2005** **2004** **2005** **2004**           **(dollars in thousands)**    Change in projected benefit obligation:                     Benefit obligation at beginning of year $332,946  $293,649  $24,431  $27,991      Service cost  10,345   11,521   213   290      Interest cost  21,230   20,630   1,535   1,931      Actuarial (gain) loss  19,019   28,018   2,327   (3,272)     Benefits paid  (21,467)  (20,872)  (2,448)  (2,509)                  Benefit obligation at end of year  362,073   332,946   26,058   24,431                  Change in plan assets:                     Fair value of plan assets at beginning of year  314,307   290,362   —   —      Actual return on plan assets  16,614   34,817   —   —      Contributions to plan  —   10,000   2,448   2,509      Benefits paid  (21,467)  (20,872)  (2,448)  (2,509)                  Fair value of plan assets at end of year  309,454   314,307   —   —                  Funded Status  (52,619)  (18,639)  (26,058)  (24,431)    Unrecognized net transition obligation  —   —   2,094   2,358     Unrecognized prior service costs  4,211   4,487   —   —     Unrecognized net (gain) loss  134,205   113,947   (3,448)  (6,238)                 Net prepaid (accrued) $85,797  $99,795  $(27,412) $(28,311)                 Amounts recognized in the consolidated balance sheets consist of:                     Minimum pension liability $(39,341) $(8,123)             Pension asset  4,211   4,487              Accumulated other comprehensive loss  120,927   103,431                        $85,797  $99,795                          Obligation and funded status at November 1, 2004 and 2003,    respectively:                     Projected benefit obligation $362,073  $332,946  $26,058  $24,431      Accumulated benefit obligation  348,796   322,430   N/A   N/A      Fair value of plan assets  309,454   314,307   —   — 
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**     Weighted average assumptions were:                           **Pension Plan** **Postretirement Plan**       **January 29,** **January 31,** **February 1,** **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003** **2005** **2004** **2003**                 Discount rates  5.875%  6.375%  7.0%  5.875%  6.375%  7.0%    Rates of compensation increase  3.0   4.0   4.0   N/A   N/A   N/A     Return on plan assets  8.5   8.5   8.5   N/A   N/A   N/A      The measurement date for the defined benefit pension plan andpost retirement benefits is November 1. For measurementpurposes, an 8.0% annual rate of increase in the per capita costof covered benefits (i.e., health care cost trend rate) wasassumed for fiscal year 2005; the rate was assumed to decreaseto 5.5% gradually over the next 3 years and remain at thatlevel for fiscal years thereafter. The health care cost trendrate assumption has a significant effect on the amountsreported. For example, increasing the assumed health care costtrend rates by one percentage point would increase theaccumulated postretirement benefit obligation as ofJanuary 29, 2005 by $0.5 million and the aggregate ofthe service and interest cost components of net periodicpostretirement benefit cost for the year ended January 29,2005 by $0.1 million. Decreasing the assumed health carecost trend rates by one percentage point would decrease theaccumulated postretirement benefit obligation as ofJanuary 29, 2005 by $0.5 million and the aggregate ofthe service and interest cost components of net periodicpostretirement benefit cost for the year ended January 29,2005 by $0.1 million. The Company’s investmentearnings assumption for the pension plan is based on theallocation of asset classes and their historical market returnsthereon.     The asset allocation for the pension plan is as follows:                   **Target Allocation** **Percentage of Plan Assets at Year End**       **January 28,** **January 29,** **January 31,** **February 1,**  **2006** **2005** **2004** **2003**             Equity Securities  65%  66%  68%  60%    Fixed Income  33%  31%  30%  40%    Cash  2%  3%  2%  0%                 Total  100%  100%  100%  100%     The Company expects to have the following payments related toits pension and postretirement plans in the coming years:         **Calendar Year** **Pension Plan** **Postretirement Plan**       **(dollars in thousands)**    2005 $21,291  $2,653     2006  21,938   2,780     2007  22,506   2,908     2008  23,202   3,036     2009  23,924   3,164     2010 — 2014  134,632   17,851 
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**     The components of net periodic benefit expense are as follows:                             **Pension Plan** **Postretirement Plan**       **52 Weeks** **52 Weeks** **52 Weeks** **52 Weeks** **52 Weeks** **52 Weeks**  **Ended** **Ended** **Ended** **Ended** **Ended** **Ended**  **January 29,** **January 31,** **February 1,** **January 29,** **January 31,** **February 1,**  **2005** **2004** **2003** **2005** **2004** **2003**               **(dollars in thousands)**    Service cost $10,345  $11,521  $13,056  $213  $290  $404     Interest cost  21,230   20,630   20,329   1,535   1,931   2,226     Expected return on assets  (26,233)  (26,537)  (30,975)  —   —   —     Amortization of unrecognized items:                             Net transition (asset) obligation  —   —   —   262   262   262      Prior service cost  276   276   276   (497)  (276)  —      Net losses  8,381   3,674   —   —   —   —                          Net periodic benefit expense $13,999  $9,564  $2,686  $1,513  $2,207  $2,892                    **(15) ****Other Employee Benefits**     The Belk Employees’ Health Care Plan provides medical anddental benefits to substantially all full-time employees. ThisPlan is “self-funded” for medical and dental benefitsthrough a 501 (c) (9) Trust. The Group Life InsurancePlan and The Belk Employees Short Term Disability Insurance Planprovide insurance to substantially all full-time employees andare fully insured through contracts issued by insurancecompanies. Contributions by the Company under these plansamounted to approximately $28.8 million,$26.3 million, and $26.7 million in fiscal years 2005,2004, and 2003, respectively.     The Belk 401(k) Savings Plan, a contributory, definedcontribution multi-employer plan, provides benefits forsubstantially all employees. The contributions to the 401(k)Savings Plan are comprised of a matching contribution, generally50% of the employees’ contribution up to 6% of eligiblecompensation, and a basic contribution, generally approximately2% of eligible compensation, regardless of the employees’contributions. The cost of the plan was $8.9 million,$9.5 million, and $10.4 million in fiscal years 2005,2004, and 2003, respectively.     Effective January 1, 2004, the Company established anon-qualified 401(k) Restoration Plan for highly compensatedemployees, as defined by ERISA. The Plan provides contributionsto a participants’ account ranging from 2% to 4.5% ofeligible compensation to restore benefits limited in thequalified 401(k) plan. Participants can contribute up to 25% ofeligible compensation. The cost of the plan in fiscal year 2005was approximately $0.4 million.     On April 1, 2004, certain participants elected to waivetheir benefits in the Company’s existing non-qualifieddefined benefit Supplemental Executive Retirement Plan(“Old SERP”) in exchange for participation in theCompany’s new non-qualified defined contribution 2004Supplemental Executive Retirement Plan (“2004 SERP”).This election resulted in the curtailment and settlement oftheir benefits in the Old SERP. The Company recognized a netcharge of $1.4 million in selling, general andadministrative expenses during fiscal year 2005 related to thecurtailment and settlement. The 2004 SERP provides annualcontributions ranging from 9% to 11% of eligible compensation tothe participants’ accounts, which earn 6.5% interestannually.
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**     On a combined basis, Old SERP and 2004 SERP costs including thecurtailment and settlement cost charged to operations wereapproximately $4.2 million, $1.6 million, and$2.0 million in fiscal years 2005, 2004, and 2003,respectively. As of January 29, 2005 and January 31,2004, the projected benefit obligation was $12.3 millionand $22.1 million, respectively. The corresponding accruedobligation of $11.4 million and $16.2 million as ofJanuary 29, 2005 and January 31, 2004, respectively,has been recorded in deferred compensation and other non-currentliabilities. The effective discount rates used in determiningthe net periodic Old SERP liability as of January 29, 2005,January 31, 2004, and February 1, 2003 was 5.875%,6.375%, and 7.00%, respectively. Actuarial gains and losses areamortized over the average remaining service lives of theparticipants.     Certain eligible employees participate in a non-qualifiedDeferred Compensation Plan (“DCP”). Participants inthe DCP have elected to defer a portion of their regularcompensation subject to certain limitations prescribed by theDCP. The Company is required to pay interest on theemployees’ deferred compensation at various rates that havehistorically been between 8% and 15%. Total interest costrelated to the plan and charged to interest expense wasapproximately $3.7 million, $3.7 million, and$3.6 million, in fiscal years 2005, 2004, and 2003,respectively.**(16)****Stock-Based Compensation**     In fiscal year 2001, the Company’s Board of Directorsapproved the Belk, Inc. 2000 Incentive Stock Plan (the“Plan”). Under the Plan, the Company is authorized toaward up to 2.8 million shares of common stock for varioustypes of equity incentives to key executives of the Company.     In fiscal years 2004 and 2003, the Company applied APB 25in measuring compensation cost extended under the Plan. InDecember 2004, the FASB issued SFAS 123R, which details howthe Company should account for stock-based compensation. TheCompany elected to adopt SFAS 123R in fiscal year 2005 andto apply the modified retrospective method of adoption, wherethe standard would only impact stock-based compensation expensein fiscal year 2005 and future years. The effect of theimplementation of SFAS 123R to fiscal year 2005 was a$3.6 million decrease to compensation costs, a component ofselling, general and administrative expenses, and a$2.3 million increase to net income in fiscal year 2005. Ifthe Company had elected to follow the measurement provisions ofSFAS No. 123, “Accounting for Stock-basedCompensation,” in accounting for its stock awards forfiscal years 2004 and 2003, the change to net income and netincome per share would have been immaterial for those years.     Compensation cost for the Plan was $3.5 million,$3.4 million, and $1.7 million net of income taxbenefits of $2.1 million, $2.0 million, and$1.0 million for fiscal years 2005, 2004, and 2003,respectively.**Performance Based Stock Award Plan**     In fiscal year 2001 the Company implemented a performance basedstock award program (the “Long Term Incentive Plan” or“LTI Plan”) and at the beginning of that fiscal yearand each fiscal year thereafter the Company grants certain keyexecutives stock awards under the LTI Plan. Shares awarded underthe LTI Plan vary based on company results versus specifiedcumulative three-year performance targets and generally vest atthe end of each three-year period. No monetary consideration ispaid by employees who receive performance based stock awards.     LTI Plan compensation costs recorded under SFAS 123R arecomputed using the fair value stock price on the grant datebased on a third party valuation and the estimated expectedattainment of performance goals based on internal projections.The Company issues new shares of common stock as the awards vestat the end of each three-year period. As of January 29,2005, there was $3.8 million of total unrecognizedcompensation cost related to non-vested share-based compensationarrangements granted under the LTI Plan; that cost will berecognized as compensation costs over the next two fiscal years.
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**     Activity under the LTI plan during the year endedJanuary 29, 2005 is as follows:             **Weighted-Average Grant**  **Shares** **Date Fair Value per Share**       **(In thousands)**      Nonvested at February 1, 2004  513  $8.44     Granted  336   10.71     Changes in Performance Estimates  221   9.57     Vested  (265)  8.97     Forfeited  (124)  9.31            Nonvested at January 29, 2005  681   10.56        **Key Executive Share Grant Program**     During fiscal year 2003, the Company created an incentive stockplan aimed at retaining certain key executives (the “KeyExecutive Share Grant Program”). Shares granted under theKey Executive Share Grant Program vest incrementally over athree-year term ending July 31, 2005 and are issued at theend of each 12 month vesting period. No monetaryconsideration is paid by employees who receive incentive stockawards.     Key Executive Share Grant Program compensation costs recordedunder SFAS 123R are computed using the fair value stockprice on the grant date based on a third party valuation. TheCompany issues new shares of common stock as the awardsincrementally vest. As of January 29, 2005, there was$1.1 million of total unrecognized compensation costrelated to non-vested share-based compensation arrangementsgranted under the Key Executive Share Grant Program; that costwill be recognized as compensation costs in fiscal year 2006.     Activity under the Key Executive Share Grant Program during theyear ended January 29, 2005 is as follows:             **Weighted-Average Grant**  **Shares** **Date Fair Value per Share**       **(In thousands)**      Nonvested at February 1, 2004  502  $8.00     Vested  (214)  8.66     Forfeited  (26)  8.00            Nonvested at January 29, 2005  262   8.00        **(17)****Fair Value of Financial Instruments**     Carrying values approximate fair values for financialinstruments that are short-term in nature, such as cash and cashequivalents, accounts receivable, accounts payable, accruedexpenses, notes payable and lines of credit. The fair value ofother financial instruments are as follows:                   **January 29, 2005** **January 31, 2004**       **Carrying** **Fair** **Carrying** **Fair**  **Value** **Value** **Value** **Value**           **(Dollars in thousands)**    Long-term debt (excluding capitalized leases) $269,004  $267,630  $273,994  $264,606     Interest rate swap liability  21,305   21,305   35,367   35,367     Investment securities  6,914   6,921   6,975   6,990 
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**BELK, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS — (Continued)**     The fair value of the Company’s fixed rate long-term debtis estimated based on the current rates offered to the Companyfor debt of the same remaining maturities. The carrying value ofthe Company’s variable rate long-term debt approximates itsfair value. The fair value of interest rate swap agreements isthe estimated amount that the Company would pay or receive toterminate the swap agreement, taking into account the currentcredit worthiness of the swap counterparties. The fair value ofinvestment securities is primarily based on quoted market prices.**(18)****Stockholders’ Equity**     Authorized capital stock of Belk, Inc. includes 200 millionshares of Class A common stock, 200 million shares ofClass B common stock and 20 million shares ofpreferred stock, all with par value of $.01 per share. AtJanuary 29, 2005, there were 50,188,528 shares ofClass A common stock outstanding, 1,286,980 shares ofClass B common stock outstanding, and no shares ofpreferred stock outstanding.     Class A shares are convertible into Class B shares ona 1 for 1 basis, in whole or in part, at any time at the optionof the holder. Class A and Class B shares areidentical in all respects, with the exception that Class Astockholders are entitled to 10 votes per share and Class Bstockholders are entitled to one vote per share. There arerestrictions on transfers of Class A shares to any personother than a Class A permitted holder. Each Class Ashare transferred to a non — Class A permittedholder automatically converts into one share of Class B.     On June 14, 2004, the Company repurchased643,071 shares of outstanding Class A common stock ata cost of $7.2 million.**(19)****Related Party Transactions**     In October 2001, the Company extended loans to Mr. ThomasM. Belk, Jr., Mr. H.W. McKay Belk and Mr. John R.Belk in the principal amounts of $2.5 million,$2.5 million and $2.0 million, respectively. InFebruary 2002, the loan to Mr. John R. Belk was increasedto $2.5 million. The loans are being repaid to the Companyin equal annual installments of $1.5 million plus interestin cash or stock over a five-year period that beganJanuary 3, 2003. The loans bear interest at LIBOR plus1.5%. The Company received the third of the five payments,including principal and interest, from the three executives onJanuary 3, 2005. The Sarbanes-Oxley Act of 2002 prohibitsextensions of credit to executive officers and directors and the“material modification” of any term of a loan that wasextended before July 30, 2002. The Company entered intothese loans in October 2001 and February 2002, before theSarbanes-Oxley Act of 2002 was enacted. Since that time, theCompany has not made any new extensions of credit to executiveofficers or directors nor materially modified the terms of anyexisting loans.
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**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 Controlsand Procedures**     Belk has established disclosure controls and procedures toensure that material information relating to the Company is madeknown to the officers who certify the Company’s financialreports and to other members of senior management and the Boardof Directors.     Based on their evaluation as of January 29, 2005, the ChiefExecutive Officer (“CEO”) and Chief Financial Officer(“CFO”) of the Company have concluded that theCompany’s disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Securities ExchangeAct of 1934) are effective to ensure that the informationrequired to be disclosed by the Company in the reports that itfiles or submits under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the timeperiods specified in SEC rules and forms.**Management’s Report on Internal Control Over FinancialReporting**     The management of Belk, Inc. is responsible for establishing andmaintaining adequate internal control over financial reporting.     The company’s internal control over financial reporting isa process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation offinancial statements for external purposes in accordance withaccounting principles generally accepted in the United States ofAmerica. The Company’s internal control over financialreporting includes those policies and procedures that(i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company;(ii) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financialstatements in accordance with accounting principles generallyaccepted in the United States of America, and that receipts andexpenditures of the company are being made only in accordancewith authorizations of management and directors of the company;and (iii) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, ordisposition of the company’s assets that could have amaterial effect on the financial statements.     Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect misstatements.Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.     Management assessed the effectiveness of the Company’sinternal control over financial reporting as of January 29,2005, based on the framework set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in*Internal Control-Integrated Framework*. Based on thatassessment, management concluded that, as of January 29,2005, the Company’s internal control over financialreporting is effective based on the criteria established in*Internal Control-Integrated Framework*.     Management’s assessment of the effectiveness of thecompany’s internal control over financial reporting as ofJanuary 29, 2005, has been audited by KPMG, LLP, anindependent registered public accounting firm. Their report,which is included herein, expresses unqualified opinions onmanagement’s assessment and on the effectiveness of thecompany’s internal control over financial reporting as ofJanuary 29, 2005.
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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**The Board of DirectorsBelk, Inc.:     We have audited management’s assessment, included in theaccompanying Management’s Report on Internal Control OverFinancial Reporting that Belk, Inc. and subsidiaries maintainedan effective internal control over financial reporting as ofJanuary 29, 2005, based on criteria established in InternalControl — Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO).Belk, Inc. and subsidiaries management is responsible formaintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal controlover financial reporting. Our responsibility is to express anopinion on management’s assessment and an opinion on theeffectiveness of the Company’s internal control overfinancial reporting based on our audit.     We conducted our audit in accordance with the standards of thePublic Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal controlover financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding ofinternal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the designand operating effectiveness of internal control, and performingsuch other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonablebasis for our opinion.     A company’s internal control over financial reporting is aprocess designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation offinancial statements for external purposes in accordance withgenerally accepted accounting principles. A company’sinternal control over financial reporting includes thosepolicies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the companyare being made only in accordance with authorizations ofmanagement and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on thefinancial statements.     Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect misstatements.Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.     In our opinion, management’s assessment that Belk, Inc. andsubsidiaries maintained effective internal control overfinancial reporting as of January 29, 2005, is fairlystated, in all material respects, based on criteria establishedin Internal Control — Integrated Framework issued bythe Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Also, in our opinion, Belk, Inc andsubsidiaries maintained, in all material respects, effectiveinternal control over financial reporting as of January 29,2005, based on criteria established in InternalControl — Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO).     We also have audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States), theconsolidated balance sheets of Belk, Inc. and subsidiaries as ofJanuary 29, 2005, and January 31, 2004, and therelated consolidated statements of income, changes instockholders’ equity and comprehensive income, and cashflows for each of the years in the three-year period endedJanuary 29, 2005, and our report dated April 14, 2005expressed an unqualified opinion on those consolidated financialstatements.     KPMG LLPCharlotte, North CarolinaApril 14, 2005
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**Item 9B. Other Information**     None.**PART III****Item 10.*****Directors and Executive Officers of the Registrant***     The information required by this Item with respect to Directorsand Executive Officers of the Registrant is included in thesections entitled “Election of Directors,”“Management of the Company,” and “ExecutiveCompensation” of the Proxy Statement for the Annual Meetingof Stockholders to be held on May 25, 2005 and isincorporated herein by reference. The sections under theheadings “Section 16(a) Beneficial Ownership ReportingCompliance” and “Other Matters” in the ProxyStatement are also incorporated by reference.     In March 2004, the Company adopted a Code of Ethics for SeniorExecutive and Financial Officers (the “Code ofEthics”) that applies to the chief executive officer, chieffinancial officer and chief accounting officer and personsperforming similar functions. The Code of Ethics was filed as anexhibit to its Annual Report on Form 10-K for the fiscalyear ended January 31, 2004.**Item 11.*****Executive Compensation***     The information required by this Item is included in the sectionentitled “Executive Compensation” of the ProxyStatement for the Annual Meeting of Stockholders to be held onMay 25, 2005 and is incorporated herein by reference.**Item 12.*****Security Ownership of Certain Beneficial Owners and    Management and Related Stockholder Matters***     The information required by this Item is included in thesections entitled “Common Stock Ownership of Management andPrincipal Stockholders” and “ExecutiveCompensation” of the Proxy Statement for the Annual Meetingof Stockholders to be held on May 25, 2005 and isincorporated herein by reference.**Item 13.*****Certain Relationships and Related Transactions***     The information required by this Item is included in the Sectionentitled “Executive Compensation — CertainTransactions” of the Proxy Statement for the Annual Meetingof Stockholders to be held on May 25, 2005 and isincorporated herein by reference.**Item 14.*****Principal Accountant Fees and Services***     The information set forth under the Section entitled“Selection of Independent Auditors” of the     Proxy Statement for the Registrant’s Annual Meeting ofShareholders to be held on May 25, 2005, is incorporatedherein by reference.**PART IV****Item 15.*****Exhibits and Financial Statement Schedules***(a) 1. *Consolidated Financial Statements*     Report of Independent Accountants      Consolidated Balance Sheets — As of January 29,    2005 and January 31, 2004.      Consolidated Statements of Income — Years ended    January 29, 2005, January 31, 2004 and    February 1, 2003.      Consolidated Statements of Changes in Stockholders’ Equity    and Comprehensive Income — Years ended    January 29, 2005, January 31, 2004 and    February 1, 2003.      Consolidated Statements of Cash Flows — Years ended    January 29, 2005, January 31, 2004 and    February 1, 2003.      Notes to Consolidated Financial Statements
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     2. *Consolidated Financial Statement Schedules*     3. *Exhibits*     The following list of exhibits includes both exhibits submittedwith this Form 10-K as filed with the Commission and thoseincorporated by reference to other filings:      3.1     Form of Amended and Restated Certificate of Incorporation of the    Company (incorporated by reference to pages B-24 to B-33 of the    Company’s Registration Statement on Form S-4, filed on    March 5, 1998 (File No. 333-42935)). 3.2     Form of Second Amended and Restated Bylaws of the Company    (incorporated by reference to Exhibit 3.2 of the    Company’s 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 Company’s    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 Company’s 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 Registrant’s Annual Report on    Form 10-K, filed on April 28, 2000). 10.2     Belk, Inc. 2004 Supplemental Executive Retirement Plan    (incorporated by reference to Exhibit 10.2 of the    Company’s Annual Report on Form 10-K, filed on    April 15, 2004). 10.3     Belk, Inc. Annual Incentive Plan. 10.4     Belk, Inc. Executive Long Term Incentive Plan. 10.5     Amendment Number 7 to Note Purchase Agreement, dated as of    April 6, 2004, among Belk, Inc., The Belk Center, Inc.,    Enterprise Funding Corporation, and Bank of America, N.A.,    amending that certain Note Purchase Agreement dated as of    May 3, 1999 (incorporated by reference to Exhibit 10.1    of the Company’s Quarterly Report on Form 10-Q, filed on    June 10, 2004). 10.4     Consulting Services Agreement dated as of May 26, 2004 by    and between Belk, Inc. and John M. Belk (incorporated by    reference to Exhibit 10.2 of the Company’s Quarterly    Report on Form 10-Q, filed on June 10, 2004). 10.5     Credit Agreement, dated as of October 28, 2004, by and    among Belk, Inc., certain Belk, Inc. subsidiaries, Wachovia    Bank, N.A., as Administrative Agent, Bank of America, N.A., as    Syndication Agent, and Branch Banking and Trust Company and    SunTrust Bank, as Documentation Agents. (incorporated by    reference to Exhibit 10.1 of the Company’s Quarterly    Report on Form 10-Q, filed on December 9, 2004). 14.1     Belk, Inc. Code of Ethics for Senior Executive and Financial    Officers (incorporated by reference to Exhibit 14.1 of the    Company’s Annual Report on Form 10-K, filed on    April 15, 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.
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**SIGNATURES**     Pursuant to requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, as amended, the Registrant hasduly caused this Report to be signed on its behalf by theundersigned, thereunto duly authorized on the 14th day ofApril, 2005.     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 of1934, this Report has been signed by the following persons onbehalf of the Registrant and in the capacities indicated onApril 14, 2005.     **Signature** **Title**        /s/ THOMAS M.    BELK, JR.