SAKS HOLDINGS INC, S-1, 1996-08-29

SAKS HOLDINGS INC
S-1, 1996-08-29
DEPARTMENT STORES

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As filed with the Securities and Exchange Commission on August 29, 1996

Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
SAKS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 5311 52-1685667
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
</TABLE>

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12 EAST 49TH STREET
NEW YORK, NEW YORK 10017
(212) 940-4048
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------

JOAN F. KREY
GENERAL COUNSEL
SAKS HOLDINGS, INC.
12 EAST 49TH STREET
NEW YORK, NEW YORK 10017
(212) 940-4048
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------

Copies to:

CHARLES K. MARQUIS PATRICIA A. CERUZZI
STEVEN R. FINLEY SULLIVAN & CROMWELL
GIBSON, DUNN & CRUTCHER LLP 125 BROAD STREET
200 PARK AVENUE NEW YORK, NEW YORK 10004
NEW YORK, NEW YORK 10166 (212) 558-4000
(212) 351-4000

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
- -------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- -------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO PROPOSED MAXIMUM PROPOSED MAXIMUM
BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
REGISTERED REGISTERED UNIT(1)(2) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value........ 9,200,000 $34.44 $316,848,000 $109,260
</TABLE>

(1) Estimated solely for the purposes of calculating the registration fee and
based upon the average of the high and low prices of the Common Stock on the
New York Stock Exchange as shown on the Composite Tape on August 28, 1996.
(2) The Common Stock is not being registered for the purpose of sales outside
the United States.
------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 29, 1996.

[LOGO]
8,000,000 SHARES

SAKS HOLDINGS, INC.
COMMON STOCK

(PAR VALUE $.01 PER SHARE)
-------------------

Of the 8,000,000 shares of Common Stock offered, 6,400,000 shares are being
offered hereby in the United States and 1,600,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share are identical
for both offerings. See "Underwriting".

All the shares of Common Stock offered hereby are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the Common Stock.

The last reported sale price of the Common Stock, which is listed under the
symbol "SKS", on the New York Stock Exchange on August 28, 1996 was $34 3/4 per
share. See "Price Range of Common Stock and Dividend Policy".

Concurrently with the Common Stock Offerings, the Company is offering
$200,000,000 aggregate principal amount of its % Convertible Subordinated
Notes due , 2006 by a separate prospectus. The consummation of the
Common Stock Offerings and the Convertible Subordinated Notes offering are not
conditioned upon each other.

SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN RISKS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) SELLING STOCKHOLDERS(2)
------------------ ------------ ------------------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>

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

(1) Saks Holdings and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.

(2) Before deducting estimated expenses of $1,000,000 payable by Saks Holdings.

(3) The Selling Stockholders have granted the Underwriters options for 30 days
to purchase up to an additional 1,200,000 shares of Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. If such options are exercised in full, the
total initial public offering price, underwriting discount and proceeds to
the Selling Stockholders will be $ , $ and $
respectively. See "Underwriting".
-------------------

Goldman, Sachs & Co. is acting as book running lead manager for the
offerings. Goldman, Sachs & Co., CS First Boston Corporation, Morgan Stanley &
Co. Incorporated and Salomon Brothers Inc are acting as co-lead managers. The
shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
September , 1996 against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
-------------------
The date of this Prospectus is September , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

<PAGE>

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AND THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.

DURING THE OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE NOTES AND THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM
RULE 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.

<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. As used in this Prospectus, "Saks
Holdings" refers to Saks Holdings, Inc. and "Saks" refers to Saks & Company, a
wholly-owned subsidiary of Saks Holdings, which does business as Saks Fifth
Avenue. The terms "fiscal year" and "fiscal" refer to Saks Holdings' fiscal
year, which is the 52- or 53-week period ending on the Saturday closest to
January 31 of the following calendar year (e.g., a reference to "fiscal 1995" is
a reference to the fiscal year ended February 3, 1996). Unless the context
otherwise requires, the information contained herein gives effect to a five-for-
one split of the Common Stock effected on April 26, 1996 in the form of a stock
dividend to all stockholders of record on April 26, 1996. In addition, unless
the context otherwise requires, the information contained in this Prospectus
assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting". In addition to the historical information contained herein,
certain statements in this Prospectus constitute "forward-looking statements"
under the Private Securities Litigation Reform Act (the "Reform Act") which
involve risks and uncertainties. Saks Holdings' actual results may differ
significantly from those discussed herein. Factors that might cause such a
difference include, but are not limited to, those discussed under the captions
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as well as those discussed elsewhere in this
Prospectus. See "Risk Factors-- Forward-Looking Statements".

THE COMPANY

GENERAL

Saks Fifth Avenue is recognized worldwide as a premier fashion retailer,
offering the finest quality and latest style in women's and men's apparel.
Supported by a strong commitment to personalized customer service, Saks
primarily sells better, bridge and designer apparel, shoes, accessories,
jewelry, cosmetics and fragrances for women and men, as well as gift merchandise
and children's apparel. Capitalizing on its 70-year history as a fashion
authenticator and the prominence of its landmark Fifth Avenue store in New York
City, Saks Fifth Avenue has developed one of the most recognized retailing
franchises in the world.

Saks is experiencing significant momentum in its financial performance,
reflecting the success of new business strategies developed and initially
implemented in 1994 and the significant investments in stores, inventories,
staff and systems made since 1990. Saks recorded net sales of $1.69 billion and
$868.2 million in fiscal 1995 and the six months ended August 3, 1996,
respectively, increases of 18.9% and 17.7% over fiscal 1994 and the six months
ended July 29, 1995, respectively. Comparable sales increased 10.6% and 12.4% in
fiscal 1995 and the six months ended August 3, 1996, respectively. Primarily due
to certain impairment and special charges and increased interest costs, Saks
Holdings' net loss in fiscal 1995 increased to $64.1 million from $10.6 million
in fiscal 1994. Saks Holdings' net loss decreased to $28.9 million for the six
months ended August 3, 1996 from $56.4 million for the six months ended July 29,
1995. The results for the six months ended July 29, 1995 include a special
charge of $8.9 million for the costs of integrating four former I. Magnin store
locations.

3
<PAGE>
branded fashion apparel at exceptional prices. Saks' Folio catalogs offer
fashionable women's apparel, accessories and home furnishings and gifts.

HISTORY

Saks Fifth Avenue was founded in 1867 and was incorporated in New York as
Saks & Company in 1902. Opened in New York City in September 1924 by Horace Saks
and Bernard Gimbel, the landmark Fifth Avenue store offered exclusive
merchandise from around the world. In 1973, Saks & Company was acquired by a
subsidiary of B.A.T. Industries PLC ("B.A.T.") through its acquisition of Gimbel
Bros., Inc. In July 1990, affiliates of Investcorp S.A. ("Investcorp") and a
group of international investors acquired Saks from B.A.T. (the "1990
Acquisition").

BUSINESS STRATEGY

These initiatives and strategies resulted in improvements in Saks' financial
performance. From fiscal 1991 to fiscal 1995, Saks' net sales grew from $1.27
billion to $1.69 billion, a 32.9% increase. During this period gross margin as a
percentage of net sales increased from 27.3% to 30.7%, and selling, general and
administrative expenses as a percentage of net sales decreased from 30.5% to
26.0%. In addition, from fiscal 1991 to fiscal 1995, Saks' interest expense,
net, decreased from $126.2 million to $94.2 million and Saks' net loss decreased
from $180.5 million to $64.1 million. Operating income increased by $78.9
million from a loss of $42.8 million in fiscal 1991 to income of $36.1 million
in fiscal 1995. Operating income is net of management fees paid to Investcorp
International Inc. ("III") in both fiscal 1991 and fiscal 1995 and in fiscal
1995 is net of special charges of $36.4 million. Operating income excluding
these fees and the special charges increased by $120.3 million to $79.5 million
during this period. Management fees to III were discontinued in July 1996.
Management believes that Saks' current momentum, as reflected by its recent
results of operations and comparable sales performance relative to the industry,
is directly attributable to implementation of its strategies during fiscal 1994,
fiscal 1995 and fiscal 1996. Saks' comparable sales performance* is set forth
below:

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
First quarter..................................... 4.1% 10.2% 13.3%
Second quarter.................................... 5.3 11.3 11.3
Third quarter..................................... 5.9 9.9 --
Fourth quarter.................................... 6.6 11.0 --
</TABLE>

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

* Represents the percentage increase in (i) net sales of stores (excluding major
store expansions) open in both reporting periods for the portion of such
periods open and (ii) Folio net sales. In fiscal 1995 and fiscal 1996,
comparable sales excludes the impact of the 53rd week in fiscal 1995.

Management believes that the ongoing execution and implementation of these
strategies will continue to drive performance. A summary of these strategies is
set forth below.

4
<PAGE>
TOP CUSTOMER FOCUS

Based on extensive market research, Saks has identified certain top
customers who generate a significant share of Saks' sales. The large number of
customers who comprise this group change over time and are geographically
dispersed. Management believes that Saks can capture a substantially greater
share of apparel and related expenditures by these customers and has developed
and implemented customer affinity programs designed to capitalize on the
purchasing habits of top customers by increasing the frequency and productivity
of customer contact, increasing cross-selling activities and enhancing customer
loyalty. These programs include proactive customer clienteling programs, the
Saks First Program and the Fifth Avenue Club.

DIFFERENTIATED MERCHANDISE ASSORTMENTS

STORE INTENSIFICATION

Management is improving the productivity of its store portfolio through a
comprehensive and integrated store intensification program. Saks initially
concentrated its efforts and resources on those stores that represented the
highest potential for increased sales and profit margins. Pursuant to this
strategy, from the beginning of fiscal 1993 to the end of fiscal 1995 Saks made
significant investments in 14 high potential stores, including $109 million in
gross capital expenditures, $43 million in increased inventory levels, $21
million in additional annual store payroll costs and $4 million in increased
annual localized marketing spending. As a result, net sales in these stores
increased 29.5% from $698 million in fiscal 1992 to $904 million in fiscal 1995.
Saks is expanding its store intensification program to additional stores in 1996
and 1997.

STORE EXPANSION

Saks continuously evaluates opportunities for profitable expansion of its
store base. Management believes that the current retail environment,
characterized by an accelerated pace of store rationalizations, downsizings and
bankruptcies, as well as the re-tenanting of major malls, offers many attractive
opportunities for Saks to continue to expand its store portfolio.

FULL-LINE STORES. Saks currently operates 40 full-line stores. Excluding
acquisitions, Saks plans to open three new full-line stores (including a store
in Orlando, Florida in 1996) and two replacement stores and to complete nine
remodels through fiscal 1998.

RESORT STORES. Saks broadens its reach to the affluent tourist and permanent
and seasonal residents of resort markets through its resort stores. Saks
currently operates six resort stores, including a store in Charleston, South
Carolina that was opened in August 1996. Saks plans to open four new 30,000 to
50,000 gross square foot resort stores through fiscal 1998.

MAIN STREET STORES. Saks is testing a 35,000 square foot main street store
format designed for the local shopping areas of affluent suburban markets. The
first main street store is scheduled to open in Greenwich, Connecticut in
September 1996.

ACQUISITIONS. Management believes that the current retail environment will
continue to offer selected opportunities to increase Saks' presence in important
markets. For example, Saks intensified its presence on the west coast and in the
southwest by acquiring four former I. Magnin stores in February 1995.

5
<PAGE>
Similarly, Saks intends to expand its presence in the demographically
attractive Texas market. In July 1996, Saks entered into an agreement with
Dayton Hudson Corporation and certain of its affiliates to acquire three
Marshall Field store locations in Texas which would add 250,000 square feet of
store space to Saks' presence in this market subject to certain conditions. Two
of these stores are intended to replace two smaller stores that Saks currently
operates in Houston and Dallas. Saks intends to spend approximately $100 million
in connection with the acquisition and renovation of these stores. There can be
no assurance that Saks will satisfy the conditions under the agreement and
acquire these store locations.

In addition, Saks has agreed with Japanese department store operator Isetan
Company Limited and its affiliate, Isetan of America, Inc. (collectively,
"Isetan"), which are creditors of Barneys Inc. and its affiliates (collectively,
"Barneys"), to begin exploring on a preliminary basis the financial feasibility
of co-sponsoring a plan of reorganization for Barneys, which filed for Chapter
11 bankruptcy protection in January 1996. Saks would only proceed with such a
plan if management concludes that Barneys represents an attractive investment
opportunity. There can be no assurance that Saks and Isetan will reach agreement
on the terms of a proposed plan of reorganization or that Saks and Isetan will
be successful in introducing any such plan in Barneys' bankruptcy case.

See "Business--Business Strategy--Store Expansion--Acquisitions".

FRANCHISE EXTENSION STRATEGIES

Management believes that the Saks Fifth Avenue franchise is extendable over
multiple formats and has developed the following specific growth strategies:

OFF 5TH. Through its Off 5th division, Saks extends its customer reach by
offering high quality, upscale branded fashion apparel in an outlet store
setting at 40% to 70% off original and comparable retail prices. Off 5th
provides attractive financial returns and an economically superior form of
inventory liquidation for Saks' retail stores. Saks currently operates 23 Off
5th stores and expects to open approximately 12 additional stores in the
remainder of fiscal 1996.

FOLIO. Saks extends its reach to direct response customers through its Folio
catalogs which offer fashionable women's apparel, accessories, home furnishings
and gifts and unique selections of Saks' private label merchandise. Folio mailed
29 million catalogs in fiscal 1995, an increase of 26% over fiscal 1994.
Management plans to increase Folio's sales through further development of its
customer list, increased circulation and the development of new catalogs,
including home and gift and outlet catalogs, both domestically and in
international markets.

CAPITAL EXPENDITURES

Saks is committed to expanding and improving its store portfolio. From the
beginning of fiscal 1993 to the end of fiscal 1995, Saks made capital
expenditures of approximately $148 million on new stores, remodels, replacements
and expansions and, excluding acquisitions, plans to make additional such
capital expenditures of approximately $270 million through fiscal 1998.
Management believes that cash generated from Saks' operations, funds available
under Saks' credit facility and funds available from lease financing and
developer contributions will be sufficient to satisfy Saks' cash requirements
over this period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Capital
Expenditures".

Saks Holdings is headquartered at 12 East 49th Street, New York, New York
10017, next to the flagship Saks Fifth Avenue store which occupies the entire
block on Fifth Avenue between 49th and 50th Streets in New York City, directly
across from Rockefeller Center. Its telephone number is (212) 940-4048. Saks is
a wholly-owned subsidiary of Saks Holdings.

6
<PAGE>
THE OFFERINGS

The 6,400,000 shares of Common Stock initially being offered in the United
States (the "U.S. Offering") and the 1,600,000 shares of Common Stock
concurrently being offered outside the United States (the "International
Offering"), collectively are referred to in this Prospectus as the "Offerings".

<TABLE>
<CAPTION>
<S> <C>
Common Stock to be offered by the Selling
Stockholders................................. 8,000,000 shares
Common Stock to be outstanding after the
Offerings.................................... 63,037,464 shares
Use of Proceeds.............................. Saks Holdings will not receive any proceeds
from the sale of Common Stock pursuant to
the Offerings. Saks Holdings will pay
certain fees and expenses related to the
Offerings, including certain fees and
expenses incurred by the Selling
Stockholders.
NYSE Symbol.................................. SKS
</TABLE>

RISK FACTORS

See "Risk Factors" beginning on page 11 for a description of certain risks
relevant to an investment in the Common Stock.

CONCURRENT OFFERING OF CONVERTIBLE SUBORDINATED NOTES

Concurrent with the Offerings, Saks Holdings is offering $200 million
aggregate principal amount of % Convertible Subordinated Notes due , 2006
(the "Notes" and the offering of such Notes, the "Notes Offering") by a separate
prospectus. The consummation of the Offerings and the Notes Offering are not
conditioned upon each other. The net proceeds to Saks Holdings from the Notes
Offering (after deduction of underwriting discount and estimated expenses) are
estimated to be $194 million. Saks Holdings intends to loan substantially all of
the estimated net
proceeds from the Notes Offering to Saks to enable Saks to (i) prepay $138
million aggregate principal amount of term loans outstanding under Saks' credit
facility, (ii) prepay $35 million aggregate principal amount of Saks' existing
subordinated indebtedness and (iii) use the balance for working capital and
general corporate purposes.

7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA

The summary historical consolidated financial data presented below for each
of the five fiscal years in the period ended February 3, 1996 have been derived
from the audited Consolidated Financial Statements. The summary historical
financial data presented below for the six months ended July 29, 1995 and August
3, 1996 were derived from Saks Holdings' unaudited Condensed Consolidated
Financial Statements which contain all accruals and adjustments (consisting only
of normal recurring adjustments) which management considers necessary for a fair
presentation of the financial information for such periods. The results of
operations for the six months ended August 3, 1996 are not necessarily
indicative of the operating results that may be expected for the full fiscal
year. This financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Consolidated Financial Statements and Notes thereto, the unaudited Condensed
Consolidated Financial Statements and the Notes thereto and the other financial
information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
--------------------
FISCAL FISCAL FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales......................... $1,269.4 $1,343.5 $1,395.5 $1,418.2 $1,686.8 $ 737.8 $ 868.2
Cost of sales, including buying
and occupancy.................... (922.7) (933.1) (975.4) (979.7) (1,168.7) (525.4) (621.1 )
-------- -------- -------- -------- -------- -------- ---------
Gross margin..................... 346.7 410.4 420.1 438.5 518.1 212.4 247.1
Selling, general and
administrative expenses.......... (387.5) (396.0) (394.8) (370.4) (438.6) (209.8) (229.5 )
Management fees (1)............... (2.0) (2.0) (2.0) (2.0) (7.0) (1.0) (1.0 )
Impairment and special charges
(2)............................... -- -- (177.7) -- (36.4) (8.9) --
-------- -------- -------- -------- -------- -------- ---------
Operating income (loss).......... (42.8) 12.4 (154.4) 66.1 36.1 (7.3) 16.6
Interest expense, net............. (126.2) (89.5) (73.8) (76.2) (94.2) (43.4) (42.2 )
-------- -------- -------- -------- -------- -------- ---------
Income (loss) before income taxes
and extraordinary charge....... (169.0) (77.1) (228.2) (10.1) (58.1) (50.7) (25.6 )
Income taxes (3).................. -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Income (loss) before
extraordinary charge........... (169.0) (77.1) (228.2) (10.1) (58.1) (50.7) (25.6 )
Extraordinary charge (4).......... (11.5) (8.4) (27.6) (.5) (6.0) (5.7) (3.3 )
-------- -------- -------- -------- -------- -------- ---------
Net income (loss)................ $ (180.5) $ (85.5) $ (255.8) $ (10.6) $ (64.1) $ (56.4) $ (28.9 )
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Net income (loss) per share
before extraordinary charge.... $ (5.63) $ (1.93) $ (5.07) $ (.22) $ (1.29) $ (1.13) $ (.49 )
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Net income (loss) per share...... $ (6.02) $ (2.14) $ (5.68) $ (.24) $ (1.43) $ (1.25) $ (.55 )
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Weighted average number of shares
outstanding (000s)................ 30,000 40,015 45,030 45,010 44,955 44,955 52,311
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 3, 1996
-----------------------------

ACTUAL AS ADJUSTED (5)
-------- ---------------

(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Inventories....................................................... $ 389.6 $ 389.6
Property and equipment............................................ 798.4 798.4
Total assets...................................................... 1,421.6 1,424.8
Total debt (6).................................................... 652.1 658.1
Stockholders' equity.............................................. 472.3 469.5
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
--------------------
FISCAL FISCAL FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT SALES PER SQUARE FOOT DATA)
OTHER DATA:
Change in comparable sales (7)...... (1.9%) 3.4% 1.7% 5.6% 10.6% 10.7% 12.4%
Retail sales per average square foot
(8):
Full-line and resort............... $ 251 $ 258 $ 264 $ 288 $ 311 $ 143 $ 156
Off 5th............................ $ 411 $ 452 $ 440 $ 362 $ 352 $ 171 $ 154
Gross margin rate................... 27.3% 30.5% 30.1% 30.9% 30.7% 28.8% 28.5%
Selling, general and administrative
expense rate....................... 30.5% 29.5% 28.3% 26.1% 26.0% 28.4% 26.4%
EBIT (9)............................ $(40.8) $ 14.4 $ 25.3 $ 68.1 $ 79.5 $ 2.6 $ 17.6
Depreciation and amortization....... $ 87.7 $ 89.0 $ 86.8 $ 68.0 $ 66.8 $ 32.7 $ 32.5
Capital expenditures................ $ 50.4 $ 67.5 $ 49.8 $ 71.7 $ 87.0 $ 35.6 $ 57.0
Number of stores:
Full-line and resort
--beginning of period............ 47 48 49 49 45 45 45
--opened......................... 1 1 -- 1 2 2 0
--closed......................... -- -- -- (5) (2) (1) 0
------ ------ ------ ------ ------ -------- ---------
--end of period.................. 48 49 49 45 45 46 45
------ ------ ------ ------ ------ -------- ---------
------ ------ ------ ------ ------ -------- ---------
Off 5th
--beginning of period............ 1 1 3 4 8 8 19
--opened......................... -- 2 1 4 11 1 3
------ ------ ------ ------ ------ -------- ---------
--end of period.................. 1 3 4 8 19 9 22
------ ------ ------ ------ ------ -------- ---------
------ ------ ------ ------ ------ -------- ---------
End of period gross square feet
(000s):
Full-line and resort............... 4,888 4,918 4,959 4,549 4,806 4,686 4,806
Off 5th............................ 26 83 114 227 456 239 504
CASH FLOW DATA (10):
Net cash provided by (used in)
operating activities............... $ 69.4 $(27.5) $ 15.6 $ 53.8 $ (6.1) $(18.5) $ (43.8)
Net cash provided by (used in)
investing activities............... $ 11.2 $ 42.6 $(30.3) $ (1.7) $(57.1) $(32.1) $ (48.3)
Net cash provided by (used in)
financing activities............... $(78.2) $(13.2) $ 15.1 $(47.9) $ 60.2 $ 48.7 $ 88.2
</TABLE>

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

(1) Management fees represent amounts paid or payable to III, an affiliate of
Investcorp. Such fees relate to advisory services on matters that include
review of operating performance, treasury activities and other strategic
planning and real estate alternatives. Management fees to III were
discontinued in July 1996.

(2) Impairment and special charges represent costs associated with (i)
adjustments to long-lived assets, an early retirement program and store
closings and space reductions in fiscal 1993 and (ii) distribution center
exit costs, integration of former I. Magnin locations and write-off of
capitalized EDP software in fiscal 1995. See Note 3 to Consolidated
Financial Statements.

(3) At February 3, 1996 Saks had a net operating loss carryforward of $728
million which may be used to reduce taxes payable on future taxable income.
The carryforward begins to expire in 2005 if not used in full. See Note 9
to Consolidated Financial Statements.

(4) The extraordinary charge in each period relates to early extinguishment of
debt. See Note 5 to Consolidated Financial Statements and Note 2 to
unaudited Condensed Consolidated Financial Statements.

(5) Adjusted to give effect to (i) the sale of $200 million aggregate principal
amount of Notes in the Notes Offering and application of the net proceeds
therefrom to repay $194 million of debt and (ii) the write-off of $2.8
million of deferred financing costs resulting from repayment of debt.

(6) Includes obligations under capital leases. See Note 10 to Consolidated
Financial Statements.

(7) Comparable sales represents (i) net sales of stores (excluding major store
expansions) open in both reporting periods for the portion of such period
open and (ii) Folio net sales. In fiscal 1995 and fiscal 1996, comparable
sales excludes the impact of the 53rd week in fiscal 1995.

(8) Sales per average square foot in each period represent net sales for such
period divided by the average of total gross square feet of store
buildings. The number for fiscal 1994 excludes net sales and square feet
for stores identified in the store closing and downsizing program.

(9) EBIT represents earnings before interest expense, net, income taxes,
management fees, impairment and special charges and extraordinary charges.
Saks Holdings has included information concerning EBIT because management
believes that it is a widely used comparative measure for Saks Holdings'
peer group and that, net of depreciation and amortization, it is useful
information regarding a company's ability to service and incur debt. EBIT
should not be

9
<PAGE>
considered in isolation or as a substitute for net income, cash flows,
operating income or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity.

(10) For more information regarding cash flow data, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources", the Consolidated Financial Statements and the
unaudited Condensed Consolidated Financial Statements included elsewhere in
this Prospectus.

10
<PAGE>
RISK FACTORS

Prospective purchasers of the Common Stock should consider carefully the
following risk factors relating to the offering and the business of Saks
Holdings, together with the information and financial data set forth elsewhere
in this Prospectus, prior to making an investment decision. Certain statements
under this caption constitute "forward-looking statements" under the Reform Act.
See"--Forward-Looking Statements".

RELIANCE ON FIFTH AVENUE STORE

Saks' flagship Fifth Avenue store in New York City accounted for
approximately 22% of consolidated net sales in fiscal 1995 and in the six months
ended August 3, 1996 and plays a significant role in marketing the Saks Fifth
Avenue name. The loss of, or any significant impairment to the operations of,
the Fifth Avenue store could have a material adverse effect on Saks' results of
operations and financial condition. See "Business--Full-Line and Resort Stores".

INDEBTEDNESS AND LIQUIDITY

Saks Holdings is a holding company with no business operations of its own.
Saks Holdings' only material asset is the outstanding capital stock of Saks.

Saks had outstanding indebtedness of $652.1 million at August 3, 1996,
bearing interest at a weighted average rate of 8.8%. Any default by Saks with
respect to its outstanding indebtedness, or any inability on the part of Saks to
obtain necessary liquidity, would have a material adverse effect on Saks
Holdings' results of operations and financial condition. At August 3, 1996,
after giving effect to the consummation of the Notes Offering and the
application of the net proceeds therefrom (after deducting the underwriting
discount and estimated expenses of the Notes Offering), the consolidated
indebtedness of Saks would have been approximately $658.1 million. Such
indebtedness would have had an average interest rate of 8.2% and Saks would have
had interest expense, net, of $26.8 million during the six months ended August
3, 1996. Although the application of the net proceeds from the Notes Offering
will result in a permanent reduction of the principal amount of the term loans
outstanding under Saks' credit facility, it will not reduce amounts available to
Saks under its revolving credit facility. The revolving credit facility permits
Saks to borrow funds for working capital and capital expenditure purposes,
including store acquisitions. See "Use of Proceeds" and "Description of Certain
Indebtedness".

The level of consolidated indebtedness of Saks could have important
consequences to the holders of Common Stock, including the following: (i) a
substantial portion of Saks' cash flow from operations must be dedicated to the
payment of principal of and interest on its indebtedness and will not be
available for other purposes; (ii) the ability of Saks to obtain financing in
the future for working capital needs, capital expenditures, acquisitions,
investments, general corporate purposes or other purposes may be materially
limited or impaired; and (iii) Saks' level of indebtedness may reduce its
flexibility to respond to changing business and economic conditions. See
"Description of Certain Indebtedness".

NO DIVIDENDS

Saks Holdings currently does not intend to pay any cash dividends on the
Common Stock. Saks Holdings is a holding company with no business operations of
its own. Saks Holdings therefore is dependent upon payments, dividends and
distributions from Saks for funds to pay its expenses and to pay future cash
dividends or distributions, if any, to holders of the Common Stock. Saks
currently intends to retain any earnings for support of its working capital,
repayment of indebtedness, capital expenditures and general corporate purposes.
Saks has no current intention of paying dividends or making other distributions
to Saks Holdings in excess of amounts necessary to pay Saks Holdings' expenses
and taxes. Saks' credit facility and existing subordinated debt contain
restrictions on Saks' ability to pay dividends or make other distributions to
Saks Holdings.

11
<PAGE>
See "Dividend Policy" and "Description of Certain Indebtedness--Credit
Agreement" and "Description of Certain Indebtedness--Subordinated Debt".

RECENT LOSSES

Saks Holdings incurred net losses of $180.5 million, $85.5 million, $255.8
million, $10.6 million and $64.1 million, respectively, during the five year
period from fiscal 1991 through fiscal 1995. Saks Holdings incurred a net loss
of $28.9 million for the six months ended August 3, 1996. Saks Holdings also
incurred operating losses in fiscal 1991 and 1993. Saks' interest expense, net,
was $126.2 million in fiscal 1991, $89.5 million in fiscal 1992, $73.8 million
in fiscal 1993, $76.2 million in fiscal 1994, $94.2 million in fiscal 1995 and
$42.2 million for the six months ended August 3, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations". There
can be no assurance that Saks will attain profitability or achieve continued
growth in operating performance.

RELOCATION OF DISTRIBUTION FACILITY

Saks plans to relocate its primary distribution center from Yonkers, New
York to a new facility in Aberdeen, Maryland, which is scheduled to open in
early 1997. The Aberdeen distribution center may be operated simultaneously with
the Yonkers distribution center for up to six months as the new facility is
brought on-line, after which time the Yonkers distribution center will be
closed. Any significant disruptions in inventory delivery, storage or
distribution during transition to the new facility could have a material adverse
effect on Saks' ability to receive inventory, deliver inventory to its stores or
locate and ship its Folio merchandise, which in turn could negatively affect
Saks' financial condition and results of operations. See "Business--Distribution
Facilities".

INTRODUCTION OF NEW MIS SYSTEM

Saks has made and continues to make substantial investments in information
systems designed to support its business strategy. Saks' capital expenditures on
information systems in fiscal 1993, fiscal 1994 and fiscal 1995 aggregated $21
million, and Saks plans additional capital expenditures of approximately $43
million through fiscal 1998 on such systems. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources". New information systems are scheduled to be implemented by early
1997. The new information systems will be operated simultaneously with Saks'
present information systems for up to six months as the new systems are brought
on-line, after which time use of the existing information systems will be
terminated. Any significant disruptions in the use of Saks' information systems
resulting from the transition to the new system could have an adverse effect on
Saks' ability to conduct its operations and may adversely affect financial
condition and results of operations. See "Business--Management Information
Systems" and "Business--Business Strategy".

CONTROL BY PRINCIPAL STOCKHOLDERS

Investcorp, its affiliates and others who frequently co-invest with
Investcorp may be deemed to be the beneficial owners of approximately 77.5% of
the outstanding shares of Common Stock (65.52% giving effect to the sale by the
Selling Stockholders of the shares of Common Stock offered hereby). Until such
time, if ever, that there is a significant decrease in the percentage of
outstanding shares held by such stockholders, these stockholders will be able to
control Saks Holdings through their ability to determine the outcome of votes of
stockholders regarding, among other things, election of directors and approval
of significant transactions. In particular, Investcorp, as the beneficial owner
of 16.73% of the Common Stock of Saks Holdings and with representatives on the
board of directors of Saks Holdings, may be able to exert influence over the
operations of Saks Holdings and Saks. In addition, executive officers and
directors of Saks Holdings and Saks own an aggregate of approximately 2,107,700
shares, or 3.25%, of Common Stock on a fully-

12
<PAGE>
diluted basis, after giving effect to the exercise of all outstanding options
held by such officers and directors. See "Principal Stockholders".

DEPENDENCE ON KEY PERSONNEL

The recent growth and development of Saks has been largely dependent upon
the services of Philip Miller, Chairman of Saks, Brian Kendrick, Vice Chairman
of Saks, and Rose Marie Bravo, President of Saks. The loss of Mr. Miller's, Mr.
Kendrick's or Ms. Bravo's services could have a material adverse effect on Saks.
Neither Saks Holdings nor Saks maintains any key-man or similar insurance
policies. See "Management".

SENSITIVITY TO ECONOMIC CONDITIONS; CHANGING CONSUMER PREFERENCES

The retail apparel business is dependent upon the level of consumer
spending, which may be adversely affected by an economic downturn or a decline
in consumer confidence. An economic downturn, particularly in the Northeast and
other regions from which Saks derives a significant portion of its net sales,
could have a material adverse effect on Saks' results of operations and
financial condition. In addition, Saks' success depends in part upon its ability
to anticipate and respond to changing consumer preferences and fashion trends in
a timely manner. Although Saks attempts to stay abreast of emerging lifestyle
and consumer preferences affecting its merchandise, any sustained failure by
Saks to identify and respond to such trends would have a material adverse effect
on Saks' business, results of operations and financial condition.

SEASONALITY

The retail apparel industry is seasonal in nature, with a high proportion of
sales and operating income generated in November and December. During fiscal
1994 and fiscal 1995, the fourth quarter provided approximately 31% and 32%,
respectively, of Saks' net sales and the majority of its operating income. As a
result, Saks' operating results depend significantly on the holiday selling
season. Operating results usually are weakest in the second quarter of Saks'
fiscal year. Working capital requirements fluctuate during the year, increasing
substantially in October and November in anticipation of the holiday selling
season as significantly higher inventory levels are necessary. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Seasonality and Quarterly Fluctuations".

COMPETITION

All aspects of the retail industry, including attracting customers, securing
merchandise and locating appropriate retail sites, are highly competitive. Saks
competes for customers in this industry primarily with large specialty apparel
retailers, better department stores, national apparel chains, designer boutiques
and individual specialty apparel stores. Many of these competitors are larger
and have significantly greater financial resources than Saks. See
"Business--Competition".

EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY PROVISIONS

Saks Holdings' Board of Directors is authorized, subject to certain
limitations prescribed by law, to issue up to 10 million shares of preferred
stock in one or more classes or series and to fix the designations, powers,
preferences, rights, qualifications, limitations or restrictions, including
voting rights, of those shares without any further vote or action by
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of Saks
Holdings. Saks Holdings has no current plans to issue shares of preferred stock.
Saks' credit facility and subordinated indebtedness contain provisions that,
under certain circumstances, will cause such indebtedness to become due upon the
occurrence of a change of control of Saks. See "Description of Certain
Indebtedness--Credit Agreement" and

13
<PAGE>
"--Subordinated Debt". These provisions could have the effect of making it more
difficult for a third party to acquire control of Saks Holdings. See
"Description of Capital Stock--Preferred Stock".

Saks Holdings is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock--Certain Provisions of Delaware Law".

POSSIBLE VOLATILITY OF PRICE

The market price of the Common Stock could be subject to wide fluctuations
in response to a number of factors, including quarterly variations of operating
results, investor perceptions of Saks and other retailers and general economic
and market conditions.

SUBSTANTIAL AMOUNT OF COMMON STOCK ELIGIBLE FOR FUTURE SALE

As of August 28, 1996, 63,037,464 shares of Common Stock were outstanding.
The 18,062,500 shares of Common Stock sold in Saks Holdings' initial public
offering in May 1996 are, and the 8,000,000 shares sold in the Offerings will
be, freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), except for shares acquired in the offerings by
"affiliates" of Saks Holdings as that term is defined in Rule 144 under the
Securities Act. The remaining 36,974,964 outstanding shares of Common Stock are
deemed to be "restricted securities" as that term is defined in Rule 144, all of
which are eligible for sale in the public market in compliance with Rule 144.

Saks Holdings has agreed with the Underwriters that, during the period of 90
days from the date of this Prospectus, subject to certain exceptions, it will
not issue, sell, offer or agree to sell, grant any options for the sale of
(other than employee stock options) or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable for Common Stock, other than pursuant to the Notes Offering. In
addition, certain stockholders and the Selling Stockholders have agreed with the
Underwriters that, subject to certain exceptions, they will not offer, pledge,
sell, transfer or otherwise dispose of the 35,513,356 shares of Common Stock
owned by them for a period of 180 days after the date of this Prospectus. See
"Principal and Selling Stockholders" and "Underwriting". Further, in connection
with the initial public offering, certain stockholders owning 35,766,605 shares
of Common Stock agreed with the Underwriters of the initial public offering
that, subject to certain exceptions, they will not offer, pledge, sell, transfer
or otherwise dispose of such shares of Common Stock prior to November 17, 1996.
At the expiration of the lock-up periods described above, or earlier with the
written consent of the representatives of the applicable underwriters, the
holders of 53,224,319 shares of Common Stock (assuming exercise of the
Underwriters' over-allotment options) will have the right to sell shares of
Common Stock without regard to the volume or other limitations of Rule 144 under
the Securities Act.

Saks Holdings has filed a registration statement on Form S-8 under the
Securities Act to register the sale of the 6,209,045 shares of Common Stock
reserved for issuance under its Senior Management Stock Incentive Plan and 1996
Management Stock Incentive Plan. As a result, any shares issued upon exercise of
stock options granted under such plans will be available, subject to special
rules for affiliates, for resale in the public market, subject to applicable
lock-up arrangements. See "Management--Stock Incentive Plans".

No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares of Common Stock for future
sale would have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market
following the Offerings, or the perception that such sales could occur, could
have an

14
<PAGE>
adverse effect on prevailing market prices for the Common Stock. See "Shares
Eligible for Future Sale" and "Underwriting".

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes", "anticipates",
"intends", "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Reform Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of Saks Holdings, Saks
or the retail industry to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions, both nationally and in those areas in which Saks
operates; demographic changes; prospects for the retail industry; competition;
changes in business strategy or development plans; the loss of key personnel;
the availability of capital to fund the expansion of Saks' business; and other
factors referenced in this Prospectus, including, without limitation, under the
captions "Prospectus Summary", "Risk Factors", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business". Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. Saks Holdings disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.

USE OF PROCEEDS

All of the shares of Common Stock being sold in the Offerings are being sold
by the Selling Stockholders. Consequently, Saks Holdings will not receive any
proceeds from the sale of Common Stock pursuant to the Offerings. Saks Holdings
will pay certain fees and expenses related to the Offerings, including certain
fees and expenses incurred by the Selling Stockholders.

CONCURRENT NOTES OFFERING

Concurrent with the Offerings, Saks Holdings is offering $200 million
aggregate principal amount of the Notes by a separate prospectus pursuant to the
Notes Offering. The consummation of the Offerings and the Notes Offering are not
conditioned upon each other. The net proceeds to Saks Holdings from the Notes
Offering (after deduction of underwriting discount and estimated expenses) are
estimated to be $194 million. Saks Holdings intends to loan substantially all of
the estimated net proceeds from the Notes Offering to Saks to enable Saks to (i)
prepay $138 million aggregate principal amount of term loans outstanding under
Saks' credit facility, (ii) prepay $35 million aggregate principal amount of
Saks' existing subordinated indebtedness and (iii) use the balance for working
capital and general corporate purposes.

If the Notes Offering is not completed prior to September 15, 1996, Saks
intends to use funds from its revolving credit facility to prepay the existing
subordinated debt and subsequently repay such borrowings following the
completion of the Notes Offering. Although the application of the net proceeds
from the Notes Offering will result in a permanent reduction of the principal
amount of the term loans, it will not reduce amounts available to Saks under the
revolving credit facility. The revolving credit facility permits Saks to borrow
funds for working capital and capital expenditure purposes, including store
acquisitions. Saks from time to time may consider store acquisitions as part of
its business strategy. Saks currently does not have any understandings or
agreements with respect to potential acquisitions other than those discussed
under the caption "Business-- Business Strategy--Store Expansion--Acquisitions".
For information on interest rates and terms of the credit facility and Saks'
existing subordinated debt, see "Description of Certain Indebtedness--Credit
Agreement", "Description of Certain Indebtedness--Subordinated Debt" and Note 5
to Consolidated Financial Statements.

15
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock has been traded on the New York Stock Exchange under the
symbol "SKS" following Saks Holdings' initial public offering on May 21, 1996.
The following table sets forth, for the periods indicated, the range of high and
low sales prices for the Common Stock as reported on the New York Stock
Exchange.

<TABLE>
<CAPTION>
1996 HIGH LOW
- ------------------------------------------------------------- ---- ----
<S> <C> <C>
35 25
Second quarter (from May 22, 1996)........................... 7/8 1/2
36 32
Third quarter (through August 28, 1996)...................... 3/8 1/8
</TABLE>

On August 28, 1996, the last reported sale price of the Common Stock was $34
3/4 per share. At August 26, 1996, Saks Holdings had approximately 360
stockholders of record.

Saks Holdings currently does not intend to pay any cash dividends on the
Common Stock.

Saks Holdings is a holding company with no business operations of its own.
Saks Holdings therefore is dependent upon payments, dividends and distributions
from Saks for funds to pay dividends to stockholders of Saks Holdings. Saks
currently intends to retain any earnings for support of its working capital,
repayment of indebtedness, capital expenditures and other general corporate
purposes. Saks has no current intention of paying dividends or making other
distributions to Saks Holdings in excess of amounts necessary to pay Saks
Holdings' expenses up to $4 million per fiscal year, obligations under the Notes
and taxes. Saks' credit facility and existing subordinated debt contain
restrictions on Saks' ability to pay dividends or make payments or other
distributions to Saks Holdings. See "Risk Factors--No Dividends", "Description
of Certain Indebtedness--Credit Agreement" and "Description of Certain
Indebtedness--Subordinated Debt".

16
<PAGE>
CAPITALIZATION

The following table sets forth the consolidated capitalization of Saks
Holdings at August 3, 1996 and as adjusted as of such date to give effect to the
issuance and sale of the Notes pursuant to the concurrent Notes Offering (after
deducting the underwriting discount and estimated expenses of the Notes
Offering) and the application of the net proceeds therefrom as described under
the caption "Concurrent Note Offering". No effect is given to expenses
associated with the Offerings payable by Saks Holdings, estimated to be $1
million. This table should be read in conjunction with the Consolidated
Financial Statements and the notes thereto, the unaudited Condensed Consolidated
Financial Statements and the Notes thereto and other financial information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 3, 1996
------------------------

AS
ACTUAL ADJUSTED
---------- ----------

(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current maturities).................... $ 17,317 $ 4,749
---------- ----------
Long-term debt
Senior credit facility (1)(2)................................... $ 150,950 $ 4,518
Subordinated debt (2)........................................... 50,000 15,000
REMIC certificates (2).......................................... 330,841 330,841
Obligations under capital leases (3)............................ 102,995 102,995
% Convertible Subordinated Notes due 2006....................... -- 200,000
---------- ----------
Total long-term debt.......................................... $ 634,786 $ 653,354
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share; 10 million shares
authorized, no shares issued and outstanding...................... $ -- $ --
Common Stock, par value $.01 per share; 150 million shares
authorized, 63,049,315 issued and 63,034,489 shares
outstanding (4)................................................... 631 631
Additional paid-in capital (4).................................. 1,340,017 1,340,017
Accumulated deficit (5)......................................... (868,064) (870,859)
Treasury stock, at cost (4)..................................... (297) (297)
---------- ----------
Total stockholders' equity.................................... 472,287 469,492
---------- ----------
Total capitalization.......................................... $1,124,390 $1,127,595
---------- ----------
---------- ----------
</TABLE>

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

(1) As of August 28, 1996, the amount of indebtedness to be repaid with the
estimated net proceeds of the offering would be approximately $194 million.

(2) See Note 5 to Consolidated Financial Statements.

(3) See Note 10 to Consolidated Financial Statements.

(4) See Notes 6 and 15 to Consolidated Financial Statements.

(5) Reflects the write-off of $2.8 million of deferred financing costs resulting
from the repayment of the term loans under the credit facility with the net
proceeds of the Notes Offering.

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for each of the
five fiscal years in the period ended February 3, 1996 have been derived from
the audited Consolidated Financial Statements. The selected historical financial
data presented below for the six months ended July 29, 1995 and August 3, 1996
were derived from Saks Holdings' unaudited Condensed Consolidated Financial
Statements which contain all accruals and adjustments (consisting only of normal
recurring adjustments) which management considers necessary for a fair
presentation of the financial information for such periods. The results of
operations for the six months ended August 3, 1996 are not necessarily
indicative of the operating results that may be expected for the full fiscal
year. The financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Consolidated Financial Statements and Notes thereto, the unaudited Condensed
Consolidated Financial Statements and the Notes thereto and the other financial
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
----------------------
FISCAL FISCAL FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- ----------

(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)

<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $1,269.4 $1,343.5 $1,395.5 $1,418.2 $1,686.8 $ 737.8 $ 868.2
Cost of sales, including buying and
occupancy................................. (922.7) (933.1) (975.4) (979.7) (1,168.7) (525.4) (621.1)
-------- -------- -------- -------- -------- -------- ----------
Gross margin............................. 346.7 410.4 420.1 438.5 518.1 212.4 247.1
Selling, general and administrative
expenses.................................. (387.5) (396.0) (394.8) (370.4) (438.6) (209.8) (229.5)
Management fees (1)....................... (2.0) (2.0) (2.0) (2.0) (7.0) (1.0) (1.0)
Impairment and special charges (2)........ -- -- (177.7) -- (36.4) (8.9) --
-------- -------- -------- -------- -------- -------- ----------
Operating income (loss)................... (42.8) 12.4 (154.4) 66.1 36.1 (7.3) 16.6
Interest expense, net..................... (126.2) (89.5) (73.8) (76.2) (94.2) (43.4) (42.2)
-------- -------- -------- -------- -------- -------- ----------
Income (loss) before income taxes and
extraordinary charge...................... (169.0) (77.1) (228.2) (10.1) (58.1) (50.7) (25.6)
Income taxes (3).......................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ----------
Income (loss) before extraordinary
charge.................................... (169.0) (77.1) (228.2) (10.1) (58.1) (50.7) (25.6)
Extraordinary charge (4).................. (11.5) (8.4) (27.6) (.5) (6.0) (5.7) (3.3)
-------- -------- -------- -------- -------- -------- ----------
Net income (loss)........................ $ (180.5) $ (85.5) $ (255.8) $ (10.6) $ (64.1) $ (56.4) $ (28.9)
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Net income (loss) per share before
extraordinary charge................... $ (5.63) $ (1.93) $ (5.07) $ (.22) $ (1.29) $ (1.13) $ (.49)
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Net income (loss) per share............... $ (6.02) $ (2.14) $ (5.68) $ (.24) $ (1.43) $ (1.25) $ (.55)
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Weighted average number of shares
outstanding (000s)....................... 30,000 40,015 45,030 45,010 44,955 44,955 52,311
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28 FEBRUARY 3, AUGUST 3,
1992 1993 1994 1995 1996 1996
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
BALANCE SHEET DATA:
Inventories....................... $ 198.6 $ 236.1 $ 253.2 $ 271.9 $ 339.7 $ 389.6
Total assets...................... 2,541.7 1,471.0 1,305.9 1,289.2 1,366.2 1,421.6
Total debt (5).................... 1,146.0 861.7 891.5 874.4 975.9 652.1
Stockholders' equity.............. 197.1 411.4 159.1 147.2 83.2 472.3
</TABLE>

18
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
---------------------
FISCAL FISCAL FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ -------- ---------

(DOLLARS IN MILLIONS, EXCEPT SALES PER
SQUARE FOOT DATA)

<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Change in comparable sales (6)................. (1.9%) 3.4% 1.7% 5.6% 10.6% 10.7% 12.4%
Retail sales per average square foot (7):
Full-line and resort.......................... $ 251 $ 258 $ 264 $ 288 $ 311 $ 143 $ 156
Off 5th....................................... $ 411 $ 452 $ 440 $ 362 $ 352 $ 171 $ 154
Gross margin rate.............................. 27.3% 30.5% 30.1% 30.9% 30.7% 28.8% 28.5%
Selling, general and administrative expense
rate........................................... 30.5% 29.5% 28.3% 26.1% 26.0% 28.4% 26.4%
EBIT (8)....................................... $(40.8) $ 14.4 $ 25.3 $ 68.1 $ 79.5 $ 2.6 $ 17.6
Depreciation and amortization.................. $ 87.7 $ 89.0 $ 86.8 $ 68.0 $ 66.8 $ 32.7 $ 32.5
Capital expenditures........................... $ 50.4 $ 67.5 $ 49.8 $ 71.7 $ 87.0 $ 35.6 $ 57.0
Number of stores:
Full-line and resort
--beginning of period....................... 47 48 49 49 45 45 45
--opened.................................... 1 1 -- 1 2 2 0
--closed.................................... -- -- -- (5) (2) (1) 0
------ ------ ------ ------ ------ -------- ---------
--end of period............................. 48 49 49 45 45 46 45
------ ------ ------ ------ ------ -------- ---------
------ ------ ------ ------ ------ -------- ---------
Off 5th
--beginning of period....................... 1 1 3 4 8 8 19
--opened.................................... -- 2 1 4 11 1 3
------ ------ ------ ------ ------ -------- ---------
--end of period............................. 1 3 4 8 19 9 22
------ ------ ------ ------ ------ -------- ---------
------ ------ ------ ------ ------ -------- ---------
End of period gross square feet (000s):
Full-line and resort.......................... 4,888 4,918 4,791 4,549 4,806 4,686 4,806
Off 5th....................................... 26 83 114 227 456 239 504
CASH FLOW DATA (9):
Net cash provided by (used in) operating
activities..................................... $ 69.4 $(27.5) $ 15.6 $ 53.8 $ (6.1) $(18.5) $ (43.8)
Net cash provided by (used in) investing
activities..................................... $ 11.2 $ 42.6 $(30.3) $ (1.7) $(57.1) $(32.1) $ (48.3)
Net cash provided by (used in) financing
activities..................................... $(78.2) $(13.2) $ 15.1 $(47.9) $ 60.2 $ 48.7 $ 88.2
</TABLE>

- ------------
(1) Management fees represent amounts paid or payable to III. Such fees relate
to advisory services on matters that include review of operating
performance, treasury activities and other strategic planning and real
estate alternatives. Management fees to III were discontinued in July 1996.

(5) Includes obligations under capital leases. See Note 10 to Consolidated
Financial Statements.

(6) Comparable sales represents (i) net sales of stores (excluding major store
expansions) open in both reporting periods for the portion of such period
open and (ii) Folio net sales. In fiscal 1995 and fiscal 1996, comparable
sales excludes the impact of the 53rd week in fiscal 1995.

(7) Sales per average square foot in each period represents net sales for such
period divided by the average of total gross square feet of store
buildings. The number for the year ended January 28, 1995 excludes net
sales and square feet for stores identified in the store closing and
downsizing program.

(8) EBIT represents earnings before interest expense, net, income taxes,
management fees, impairment and special charges and extraordinary charges.
Saks Holdings has included information concerning EBIT because management
believes that it is a widely used comparative measure for Saks Holdings'
peer group and that, net of depreciation and amortization, it is useful
information regarding a company's ability to service and incur debt. EBIT
should not be considered in isolation or as a substitute for net income,
cash flows, operating income or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles or as
a measure of a company's profitability or liquidity.

(9) For more information regarding cash flow data, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources" and the Consolidated Financial Statements and the
unaudited Condensed Consolidated Financial Statements included elsewhere in
this Prospectus.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements under this caption constitute "forward-looking
statements" under the Reform Act which involve risks and uncertainties. Saks
Holdings' actual results may differ significantly from the results discussed in
such forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under the caption "Risk
Factors".

GENERAL

OVERVIEW

After the 1990 Acquisition, Investcorp recruited a new executive management
team to correct recognized weaknesses and develop a new business strategy
designed to capitalize on the strength of the Saks franchise. New management
began to implement several key initiatives, including: (i) rebuilding Saks'
senior corporate, merchandising and store management teams; (ii) creating a more
efficient cost structure; (iii) upgrading and differentiating merchandise
assortments; (iv) improving the quality of the store portfolio through
expansions and renovations and by closing underperforming stores; (v) investing
in incremental growth formats including the Off 5th outlet store and Folio
catalog businesses; and (vi) developing management information systems to
support these activities. By early 1994, management had implemented these
important initiatives and developed and began implementing comprehensive,
integrated merchandising, service and marketing strategies to position its core
retail business for future growth and extend the Saks franchise.

These initiatives and strategies resulted in improvements in Saks' financial
performance. From fiscal 1991 to fiscal 1995, Saks' net sales increased by
$417.4 million, or 32.9%, to $1,686.8 million from $1,269.4 million. During this
period gross margin increased from 27.3% to 30.7%, and selling, general and
administrative expenses as a percentage of net sales decreased from 30.5% to
26.0%. In addition, from fiscal 1991 to fiscal 1995, Saks' interest expense,
net, decreased from $126.2 million to $94.2 million and Saks' net loss decreased
from $180.5 million to $64.1 million. Operating income increased by $78.9
million from a loss of $42.8 million in fiscal 1991 to income of $36.1 million
in fiscal 1995. Operating income is net of management fees paid to III in both
fiscal 1991 and fiscal 1995 and in fiscal 1995 is net of special charges of
$36.4 million. Operating income excluding these fees and the special charges
increased by $120.3 million during this period to $79.5 million. Management fees
to III were discontinued in July 1996. These results were achieved in a retail
environment generally characterized by weak consumer spending and intensifying
competition. Management believes that Saks' current momentum, as demonstrated in
its recent results of operations and comparable sales performance, is directly
attributable to the implementation of these merchandising, service and marketing
strategies during fiscal 1994, fiscal 1995 and fiscal 1996. Saks' comparable
sales performance is set forth below.

CHANGE IN COMPARABLE SALES*

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
First quarter................................................. 4.1% 10.2% 13.3%
Second quarter................................................ 5.3 11.3 11.3
Third quarter................................................. 5.9 9.9 --
Fourth quarter................................................ 6.6 11.0 --
</TABLE>

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

* Represents the percentage increase in (i) net sales of stores (excluding major
store expansions) open in both reporting periods for the portion of such
periods open, and (ii) Folio net sales. In fiscal 1995 and fiscal 1996,
comparable sales excludes the impact of the 53rd week in fiscal 1995.

20
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth selected consolidated financial data
expressed as a percent of total net sales for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
FISCAL FISCAL FISCAL JULY 29, AUGUST 3,
1993(1) 1994(1) 1995(1) 1995 1996
------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including
buying and occupancy........ (69.9) (69.1) (69.3) (71.2) (71.5)
------- ------- ------- -------- ---------
Gross margin.............. 30.1 30.9 30.7 28.8 28.5
Selling, general and
administrative expenses....... (28.3) (26.1) (26.0) (28.4) (26.4)
Management fees............... (0.1) (0.1) (0.4) (0.1) (0.1)
Impairment and special
charges....................... (12.7) (0.0) (2.2) (1.2) --
------- ------- ------- -------- ---------
Operating income (loss)... (11.0) 4.7 2.1 (0.9) 2.0
Interest expense, net......... (5.3) (5.4) (5.6) (5.9) (4.9)
------- ------- ------- -------- ---------
Income (loss) from
operations before income
taxes and extraordinary
charge........................ (16.3) (0.7) (3.5) (6.8) (2.9)
Income taxes.................. 0.0 0.0 0.0 -- --
Extraordinary charge.......... (2.0) 0.0 (0.3) (0.8) (0.4)
------- ------- ------- -------- ---------
Net income (loss)......... (18.3)% (0.7)% (3.8)% (7.6)% (3.3)%
------- ------- ------- -------- ---------
------- ------- ------- -------- ---------
</TABLE>

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

(1) Fiscal 1995 consisted of 53 weeks. Fiscal 1993 and fiscal 1994 each
consisted of 52 weeks.

SIX MONTHS ENDED AUGUST 3, 1996 COMPARED TO SIX MONTHS ENDED JULY 29, 1995

NET SALES. Net sales for the six months ended August 3, 1996 were $868.2
million, an increase of $130.4 million, or 17.7%, over net sales of $737.8
million for the six months ended July 29, 1995. Comparable sales increased 12.9%
from the fiscal 1995 period. Because fiscal 1995 included 53 weeks, the six
month periods in fiscal 1995 and 1996 are not comparable. Adjusting for the week
difference in the calendar, the increases in net sales and comparable sales were
16.9% and 12.4%, respectively. Full-line and resort store net sales increased
$86.6 million, or 13.0%, from $665.5 million for the six months ended July 29,
1995 to $752.1 million for the six months ended August 3, 1996. Comparable sales
for full-line and resort stores increased 12.0% from the comparable calendar
period in fiscal 1995. Off 5th store net sales for the six months ended August
3, 1996 increased $37.4 million, or 92.9%, from $40.2 million for the six months
ended July 29, 1995 to $77.6 million, primarily as a result of the opening of
fourteen new stores in the fall of 1995 and the spring of 1996. Comparable sales
for Off 5th stores increased 12.3% from the comparable calendar period in fiscal
1995. Folio catalog net sales for the six months ended August 3, 1996 increased
by $6.4 million, or 20.0%, from $32.1 million for the six months ended July 29,
1995 to $38.5 million.

COST OF SALES. Cost of sales includes the cost of merchandise and buying and
occupancy costs. Costs of sales increased $95.8 million, or 18.2%, during the
six months ended August 3, 1996 compared to the six months ended July 29, 1995.
As a percentage of net sales, cost of sales, including buying and occupancy
costs, was 71.5% for the six months ended August 3, 1996 compared to 71.2% for
the six months ended July 29, 1995. The increase in the cost of sales rate for
the six months ended August 3, 1996 was primarily due to the increased
penetration of lower margin Off 5th sales and an increase in the Folio cost of
sales rate.

21
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $19.7 million, or 9.4%, to $230.5 million
for the six months ended August 3, 1996 from the comparable period in fiscal
1995, primarily due to higher sales volume related costs. As a percentage of net
sales, selling, general and administrative expenses were 26.4% for the six
months ended August 3, 1996 compared to 28.8% for the six months ended July 29,
1995. The improvement in the selling, general and administrative expense rate
resulted primarily from expense leverage associated with the sales growth.

MANAGEMENT FEES. Saks paid management fees of $1 million to III in the first
six months of both fiscal 1996 and fiscal 1995. Such fees relate to advisory
services on matters that include the review of operating performance, treasury
activities and other strategic planning and real estate alternatives. Management
fees to III were discontinued in July 1996.

SPECIAL CHARGES. Special charges of $8.9 million ($.20 per share) were
recorded for the six months ended July 29, 1995. These charges represent costs
associated with the integration of four former I. Magnin store locations.

OPERATING INCOME. Operating income was $16.6 million for the six months
ended August 3, 1996, an increase of $23.9 million from the six months ended
July 29, 1995. Excluding the special charges incurred in the six months ended
July 29, 1995, operating income increased by $15 million.

INTEREST EXPENSE. Interest expense decreased by 2.8% to $42.2 million for
the six months ended August 3, 1996 compared to the six months ended July 29,
1995, primarily due to reduced debt levels following Saks Holdings' initial
public offering.

INCOME TAXES. Saks Holdings anticipates that the income tax provision for
the full year will not be material, therefore no tax benefit or provision has
been reflected in the six month period ended August 3, 1996.

FISCAL 1995 COMPARED TO FISCAL 1994

NET SALES. Net sales for fiscal 1995 increased by $268.6 million, or 18.9%,
to $1,686.8 million from $1,418.2 million in fiscal 1994. Comparable sales
increased by 10.6%. Full-line and resort store net sales increased $193.7
million, or 14.9%, from $1,302.3 million to $1,496.0 million with significant
increases resulting from Saks' west coast intensification through the
acquisition of four former I. Magnin stores and its strategic focus on its top
customer segments, target merchandise categories and high-potential stores. All
of Saks' geographic regions experienced increased net sales. The net sales of
Off 5th outlet stores increased by $50.8 million, or 88.8%, from $57.2 million
to $108.0 million primarily as a result of the addition of 11 new stores. Folio
catalog net sales increased by $24.1 million, or 41.1%, from $58.7 million to
$82.8 million reflecting increased mailings, new catalog titles and an increase
in the average order in fiscal 1995 compared to fiscal 1994.

COST OF SALES. Cost of sales includes the cost of merchandise sold and
buying and occupancy costs. Cost of sales increased from $979.7 million, or
69.1% of net sales, in fiscal 1994 to $1,168.7 million, or 69.3% of net sales in
fiscal 1995. This increase as a percentage of net sales resulted from the
increased penetration of lower margin Off 5th sales, which increased the cost of
sales rate by .7%, partially offset by slightly higher retail and Folio gross
margins, which decreased the cost of sales rate by .2%, and improved leverage of
buying and occupancy costs, which decreased the cost of sales rate by .3%. The
change in mix of merchandise assortments featured in full-line and resort stores
did not have a significant impact on cost of sales. The inclusion of leased
department sales in net sales and the portion of such sales remitted to the
leased department operator in cost of sales increased the cost of sales rate by
.6% and .7% in fiscal 1994 and fiscal 1995, respectively.

22
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $370.4 million, or 26.1% of net sales, in
fiscal 1994 to $438.6 million, or 26.0% of net sales, in fiscal 1995. This
decrease as a percentage of net sales was achieved as a result of lower
depreciation and amortization and improved store expense leverage, which
decreased the selling, general and administrative expense rate by 1.7%, offset
in part by slightly lower finance charge income net of securitization costs and
higher bad debt charges, which increased the selling, general and administrative
expense rate by .6%, as well as investments in Saks' central organization
(management information systems, merchandising, training and communications and
planning) to better position Saks for future growth, which increased the
selling, general and administrative expense rate by 1.0%. Selling, general and
administrative expenses are net of gross finance charge income of $56.6 million
and $69.1 million in fiscal 1994 and fiscal 1995, respectively. Finance charge
income net of accounts receivable securitization costs was $34.4 million and
$37.1 million in fiscal 1994 and fiscal 1995, respectively.

MANAGEMENT FEES. Management fees paid to III, an affiliate of Investcorp,
increased from $2 million in fiscal 1994 to $7 million in fiscal 1995. This
increase reflected the payment of fees for additional advisory services relating
to strategic planning and real estate alternatives rendered in fiscal 1995.
Management fees to III were discontinued in July 1996.

IMPAIRMENT AND SPECIAL CHARGES. Impairment and special charges of $36.4
million were recorded in fiscal 1995. These charges consist of $19.0 million
relating to exit costs associated with the Yonkers distribution facility
(write-down to net realizable value, severance and occupancy costs following
exit), $8.9 million of costs to integrate four former I. Magnin store locations
and $8.5 million to write-down capitalized EDP software which became obsolete.
The anticipated costs of relocating distribution activities to the Aberdeen
distribution facility have not been accrued and are not expected to materially
impact future results. Additionally, Saks will receive incentive payments from
various government agencies which are expected to approximate these costs.

OPERATING INCOME. Operating income decreased to $36.1 million in fiscal 1995
from $66.1 million in fiscal 1994. This decrease was a result of the $5 million
increase in management fees and the $36.4 million of special charges discussed
above. Excluding these items, operating income increased to $77.5 million in
fiscal 1995, an increase of $11.4 million or 17.3%.

INTEREST EXPENSE. Interest expense increased by $18.0 million in fiscal 1995
to $94.2 million from $76.2 million in fiscal 1994. The increase resulted
primarily from a general increase in short-term interest rates and increased
costs associated with the refinancing in May 1995 of Euronotes with REMIC
certificates, as well as increased borrowing levels to support Saks' working
capital growth and capital expenditures.

FISCAL 1994 COMPARED TO FISCAL 1993

NET SALES. Net sales for fiscal 1994 were $1,418.2 million, an increase of
$22.6 million, or 1.6%, from net sales of $1,395.5 million in fiscal 1993.
Comparable sales increased 5.6%. Full-line and resort store net sales increased
by $2.7 million. This increase resulted from significant net sales gains at the
New York Fifth Avenue store and recently remodeled stores offset by the closure
of five stores and by weak net sales in the Florida markets. The net sales of
Off 5th stores increased by $14.3 million, or 33.3% from $42.9 million to $57.2
million, primarily as a result of opening four stores. Folio catalog net sales
increased by $6.7 million, or 13.0%, from $51.6 million to $58.3 million.

COST OF SALES. Cost of sales increased from $975.4 million, or 69.9% of net
sales, in fiscal 1993 to $979.7 million, or 69.1% of net sales, in fiscal 1994.
This decrease as a percentage of net sales was primarily due to lower net
markdowns, which decreased the cost of sales rate by .5%, and improved leverage
of buying and occupancy costs, which decreased the cost of sales rate by

23
<PAGE>
.5%, and occurred despite an increase in penetration of lower margin Off 5th
sales, which increased the cost of sales rate by .2%. The inclusion of leased
department sales in net sales and the portion of such sales remitted to the
leased department operator in cost of sales increased the cost of sales rate by
.6% and .6% in fiscal 1993 and fiscal 1994, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $394.8 million, or 28.3% of net sales, in
fiscal 1993 to $370.4 million, or 26.1% of net sales, in fiscal 1994. The
decrease as a percentage of net sales is primarily due to lower depreciation and
amortization in fiscal 1994 resulting from the impairment and special charges
recorded in fiscal 1993. Additionally, selling, general and administrative
expenses in fiscal 1994 versus fiscal 1993 were reduced by higher finance charge
income net of accounts receivable securitization costs and bad debt charges,
which decreased the selling, general and administrative expense rate by .5%. The
higher finance charge income resulted from higher receivable balances associated
with the change in payment terms on Saks' proprietary credit card program.
Selling, general and administrative expenses are net of gross finance charge
income of $45.8 million and $56.6 million in fiscal 1993 and fiscal 1994,
respectively. Finance charge income net of accounts receivable securitization
costs was $30.4 million and $34.4 million in fiscal 1993 and fiscal 1994,
respectively.

MANAGEMENT FEES. Saks paid management fees of $2 million to III in both
fiscal 1993 and fiscal 1994. Such fees relate to advisory services on matters
that include review of operating performance, treasury activities and other
strategic planning and real estate alternatives.

IMPAIRMENT AND SPECIAL CHARGES. Impairment and special charges of $177.7
million were recorded in fiscal 1993. These charges consist of $118.0 million to
reduce the carrying value of property and equipment, goodwill and intangible
assets, $40.2 million relating to store closings and downsizings (write-down of
property and equipment to net realizable value, lease related costs, inventory
liquidations and severance) and $19.5 million related to an early retirement
program.

OPERATING INCOME. Operating income increased to $66.1 million in fiscal 1994
from an operating loss of $154.4 million in fiscal 1993. This increase was
partially a result of the $177.7 million impairment and special charge recorded
in fiscal 1993. Excluding this charge, fiscal 1994 operating income increased by
$42.8 million, or 183.7%, from $23.3 million in fiscal 1993.

INTEREST EXPENSE. Interest expense for fiscal 1994 increased by $2.3 million
to $76.2 million from $73.8 million in fiscal 1993 due primarily to higher
interest rates on Saks' floating rate debt, which increase was partially offset
by the refinancing and repayment of certain high cost debt.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Saks' business is highly seasonal, with a substantial percentage of net
sales and operating income occurring in the fourth quarter, which includes the
holiday selling season. Saks incurred a net loss in the first three quarters of
both fiscal 1994 and fiscal 1995 and in the six months ended August 3, 1996.
Seasonality also affects Saks' working capital requirements and cash flow as

24
<PAGE>
inventories peak in October and November in anticipation of the holiday selling
season. The following table illustrates this seasonality:

<TABLE>
<CAPTION>
PERCENTAGE NET INCOME
NET SALES OF FULL YEAR (LOSS) (1)
------------- ------------ -------------
<S> <C> <C> <C>
(IN MILLIONS) (IN MILLIONS)
FISCAL 1995
First quarter..................................... $ 384.6 23% $ (16.6)
Second quarter.................................... 353.2 21 (39.8)
Third quarter..................................... 408.0 24 (35.3)
Fourth quarter.................................... 541.0 32 27.6

FISCAL 1994
First quarter..................................... $ 333.6 24% $ (9.3)
Second quarter.................................... 298.5 21 (26.3)
Third quarter..................................... 343.4 24 (5.4)
Fourth quarter.................................... 442.7 31 30.4
</TABLE>

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

(1) Saks recorded special charges of $8.9 million and $27.5 million in the first
and third quarters, respectively, of fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

Saks' principal sources of liquidity are cash on hand, cash from operations,
borrowings under its credit facility and sale of its accounts receivable through
its securitization agreements.

In May 1996, Saks Holdings sold 18,062,500 shares of Common Stock pursuant
to an initial public offering. The net proceeds of $417.8 million from the
initial public offering were used primarily to prepay term loan borrowings under
Saks' credit facility and to repay outstanding balances on the revolving loan
portion of the credit facility.

Saks' net cash provided by (used in) operating activities was $15.6 million,
$53.8 million and $(6.1) million in fiscal 1993, fiscal 1994 and fiscal 1995,
respectively. The increase in cash flow from operating activities in fiscal 1994
is primarily due to increased operating income. The decrease in cash flow from
operating activities in fiscal 1995 is primarily due to Saks' investment in
additional inventory to drive its merchandise and west coast intensification
programs and reduced net income. Net cash used in operating activities was $43.8
million during the six months ended August 3, 1996 compared to $18.5 million in
the six months ended July 29, 1995. This increase was primarily attributable to
increased use of working capital in the 1996 period. The primary items affecting
working capital in the 1996 period were a decrease in accrued liabilities of
$25.9 million due to the timing of payments and the timing of redemptions
against the liability established for customer affinity programs and a net
increase in merchandise inventories of $22.3 million due to a seasonal increase
and an increase to support sales growth.

Saks' net cash used in investing activities was $30.3 million, $1.7 million
and $57.1 million in fiscal 1993, fiscal 1994 and fiscal 1995, respectively. The
decrease in fiscal 1994 is primarily due to the sale and leaseback of one of
Saks' store locations and the sale of subordinated certificates under Saks
accounts receivable securitization program. The increase in fiscal 1995 results
primarily from increased capital expenditures, net of construction allowances,
to fund the remodeling of former I. Magnin stores and the opening of 11 Off 5th
stores. In fiscal 1995, Saks engaged in fewer asset sales. Net cash used in
investing activities was $48.3 million during the six months ended August 3,
1996 compared to $32.1 million in the six months ended July 29, 1995. Capital
expenditures were $47.3 million, net of construction allowances, during the six
months ended

25
<PAGE>
August 3, 1996 and consisted principally of construction of new stores. Capital
expenditures, net of construction allowances in the six months ended July 29,
1995 were $35.4 million. Saks plans to open five new full-line and resort stores
and 13 Off 5th Stores in the fall of 1996.

Saks' net cash (used in) provided by financing activities was $15.1 million,
$(47.9) million and $60.2 million in fiscal 1993, fiscal 1994 and fiscal 1995,
respectively. The decrease in fiscal 1994 resulted from repayments of debt. The
increase in fiscal 1995 is primarily due to increased term loan borrowings to
support the acquisition and remodeling of four former I. Magnin stores and
working capital growth. In addition, in fiscal 1995, Saks incurred greater
financing costs in connection with its increased borrowings under the credit
facility and the refinancing of its real estate borrowings.

Net cash provided from financings during the six months ended August 3, 1996
were $88.2 million compared to $48.7 million in the six months ended July 29,
1995. The 1996 amount reflects the proceeds from Saks Holdings' May 1996 initial
public offering, net of debt repayments. The 1995 amount reflects increased
borrowings used to acquire four former I. Magnin locations, net of financing
costs related to the refinancing of real estate borrowings.

FINANCING FACILITIES

Saks has a credit facility with a syndicate of banks and financial
institutions. See "Description of Certain Indebtedness--Credit Agreement". The
facility consists of a $322 million two-tiered revolving loan and a two-tiered
term loan. At August 3, 1996, there was approximately $25 million outstanding
under the Tranche A term loan and approximately $113 million outstanding under
the Tranche B term loan. Tranche A has scheduled repayments which began in 1993
and end in 1998 and Tranche B has scheduled repayments which begin in 1997 and
end in the year 2000. Saks intends to prepay the outstanding balance of the term
loans with the proceeds from the Notes Offering, if consummated. At August 3,
1996, borrowing availability under the revolving loan was $291 million. The
credit facility contains restrictive covenants which include, among others,
limitations on capital expenditures, limitations on indebtedness, and specified
minimum levels of consolidated net worth and minimum consolidated operating
profit levels as well as maintaining specified levels of interest coverage, all
as defined in the credit facility, and which restrict payment of dividends on
capital stock.

Saks may borrow up to $20 million in aggregate principal amount of swingline
loans which bear interest at the Alternate Base Rate (as defined in the credit
facility) plus an applicable margin ranging from 0.0% to 1.0% depending on the
Interest Coverage Ratio (as defined in the credit facility). All other loans
under the credit facility bear interest at a rate equal to, at Saks' option, (a)
the Alternate Base Rate plus a percentage ranging from 0.0% to 1.5% depending on
the Interest Coverage Ratio or (b) the Eurodollar Rate (as defined in the credit
facility) plus a percentage ranging from 1.0% to 2.5% depending on the Interest
Coverage Ratio. Eurodollar Rate loans can have maturities of one-, two-, three-
or six-month periods. Interest is payable on these loans on the last day of the
applicable interest period, except for six-month period loans, which provide for
interest to be payable quarterly. Interest on Alternate Base Rate loans is
payable quarterly.

Saks and its lenders currently are reviewing Saks' revolving loan facility
and intend to modify the terms of the facility to reflect Saks' improved
creditworthiness.

RECEIVABLES SECURITIZATION

Saks also has an accounts receivable securitization program. The program
includes a $225 million floating rate Euronote series, a $413 million floating
rate medium term note series and a $121 million variable principal amount
series. The floating rate Euronote series matures in November 1996. The medium
term note series and the variable principal amount series mature in

26
<PAGE>
April 1999. See "Description of Certain Indebtedness" for a further description
of Saks' indebtedness.

DERIVATIVES ACTIVITY

Saks utilizes interest rate caps to manage its interest rate exposure. See
Note 11 to Consolidated Financial Statements. Saks' policy is to use financial
derivatives only to reduce risk in conjunction with specific business
transactions. In August 1996, Saks entered into $250 million notional amount of
fixed interest rate swap agreements to reduce its exposure to changes in
prevailing market interest rates.

LOSS CARRYFORWARDS

At February 3, 1996 Saks had a net operating loss carryforward of $728
million which is available to offset taxes otherwise payable on Saks' future
taxable income. The carryforwards begin to expire, unless used, in fiscal 2005.
Although the Offerings may result in an "ownership change" (as defined in
Section 382 of the Internal Revenue Code of 1986, as amended) that limits the
amount of future taxable income that Saks may offset against pre-ownership
change losses in any year, Saks expects that any such limitation would not have
a material impact on Saks' utilization of operating loss carryforwards.

CAPITAL EXPENDITURES

Excluding acquisitions, Saks plans to make capital expenditures of
approximately $150 million in fiscal 1996 and to make additional capital
expenditures of approximately $225 million in fiscal 1997 and fiscal 1998. These
expenditures include amounts relating to its store intensification, store
expansion and franchise extension strategies, as well as operations including
MIS systems. Management believes that cash generated from Saks' operations,
funds available under Saks' credit facility and funds available from lease
financing and developer contributions will be sufficient to satisfy Saks' cash
requirements in each of the periods. Management believes that cash generated
from operations will be sufficient to fund expenses and working capital
requirements for its top customer focus and store intensification strategies, as
well as store operations.

In connection with the possible acquisition and renovation of three Marshall
Field store locations in Texas, Saks intends to spend approximately $100
million. See "Business--Business Strategy--Store Expansion--Acquisitions".

A new distribution center in Aberdeen, Maryland currently is under
construction and is expected to be completed in early 1997. Saks will receive
incentive payments from various government agencies which are expected to
approximate the costs of relocating its processing activities to the new
facility. Saks will occupy the facility pursuant to a lease, with the net
present value of future rental payments equal to approximately $23 million. Saks
expects to sell its Yonkers facility after exiting it in early 1997. Saks
recorded a charge in fiscal 1995 to reduce the carrying value of the Yonkers
facility to its net realizable value. If Saks or a purchaser is successful in
obtaining rezoning for the use of the property, a gain on sale could be
realized. Management is unable to determine if rezoning will occur.

EFFECTS OF INFLATION

Management does not believe inflation had a material impact on the financial
statements for the periods presented.

27
<PAGE>
BUSINESS

In addition to the historical information contained herein, certain
statement under this caption constitute "forward-looking statements" under the
Reform Act which involve risks and uncertainties. Saks Holdings' actual results
may differ significantly from those discussed herein. Factors that might cause
such a difference include, but are not limited to, those discussed under the
captions "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as those discussed elsewhere in
this Prospectus.

GENERAL

OVERVIEW

Saks Fifth Avenue is recognized worldwide as a premier fashion retailer
offering the finest quality and latest style in women's and men's apparel.
Supported by a strong commitment to personalized customer service, Saks
primarily sells better, bridge and designer apparel, shoes, accessories,
jewelry, cosmetics and fragrances for women and men, as well as gift merchandise
and children's apparel. Capitalizing on its 70-year history as a fashion
authenticator and the prominence of its landmark Fifth Avenue store in New York
City, Saks Fifth Avenue has developed one of the most recognized retailing
franchises in the world.

Saks' net sales are generated through three retail formats: 46 full-line and
resort stores; 23 Off 5th outlet stores; and Folio catalogs. The full-line and
resort store operations are conducted from an exceptional portfolio of mostly
owned stores in premier retail locations, including Fifth Avenue in New York
City, Wilshire Boulevard in Beverly Hills, Michigan Avenue in Chicago and Union
Square in San Francisco. Saks' rapidly growing Off 5th outlet store division
sells high quality, upscale branded fashion apparel at exceptional prices. Saks'
Folio catalogs offer fashionable women's apparel, accessories and home
furnishings and gifts. The following table provides net sales and percent of
total sales information for each of these formats.
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1994 FISCAL 1995
------------------ ------------------ ------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
-------- ------- -------- ------- -------- -------

(DOLLARS IN MILLIONS)

<S> <C> <C> <C> <C> <C> <C>
Full-line and resort stores.......... $1,231.2 88% $1,288.5 91% $1,486.0 88%
Off 5th outlet stores................ 42.9 3 57.2 4 108.0 6
Folio catalog........................ 51.6 4 58.3 4 82.8 5
Closed stores........................ 69.8 5 14.2 1 10.0 1
-------- ------- -------- ------- -------- -------
Total............................ $1,395.5 100% 1,418.2 100% 1,686.8 100%
-------- ------- -------- ------- -------- -------
-------- ------- -------- ------- -------- -------
</TABLE>

28
<PAGE>
HISTORY

Saks Fifth Avenue was founded in 1867 and was incorporated in New York as
Saks & Company in 1902. Opened in New York City in September 1924 by Horace Saks
and Bernard Gimbel, the landmark Fifth Avenue store offered exclusive
merchandise from around the world. In 1926, Adam Gimbel, son of Bernard, became
President of Saks and set out to create a Saks Fifth Avenue network of
high-fashion retail stores throughout the United States as a division of Gimbel
Bros. Inc. By the time Adam Gimbel retired in 1969, Saks & Company owned and
operated 28 stores in 16 states. In 1973, Saks & Company was acquired by B.A.T.
through its acquisition of Gimbel Bros., Inc. In July 1990, affiliates of
Investcorp and a group of international investors acquired Saks from B.A.T.

INDUSTRY

Industry sources indicate that the market for better, bridge and designer
apparel and other luxury goods is substantial. Saks is positioned to capitalize
on the following trends affecting this market:

DEMOGRAPHICS. The female population aged 45 to 54, which includes Saks' core
customers, is expected to be the fastest growing population segment over the
next five years. The population aged 45 to 54 has the highest average household
income among all demographic groups.

LUXURY GOODS. Management believes that certain luxury goods brands have
experienced substantial sales growth in the last few years. Because bridge and
designer merchandise, generally considered luxury goods, comprises a significant
portion of Saks' merchandise assortments, Saks is positioned to benefit from any
continuation of this trend.

RETAIL ENVIRONMENT. The current retail environment is characterized by (i)
the continuing consolidation of department store and national apparel chains,
(ii) a de-emphasis by department stores on bridge and designer merchandise,
(iii) bankruptcies and restructurings of several competing providers of upscale
merchandise and (iv) the re-tenanting of many major malls. Management believes
that this environment will present significant opportunities for acquisitions
and other market share gains.

BUSINESS STRATEGY

29
<PAGE>
$64.1 million. Operating income increased by $78.9 million from a loss of $42.8
million in fiscal 1991 to income of $36.1 million in fiscal 1995. Operating
income is net of management fees paid to III in both fiscal 1991 and fiscal 1995
and in fiscal 1995 is net of special charges of $36.4 million. Operating income
excluding these fees and the special charges increased by $120.3 million to
$79.5 million during this period. Management fees to III were discontinued in
July 1996. Management believes that Saks' current momentum, as reflected by its
recent results of operations and comparable sales performance relative to the
industry, is directly attributable to the implementation of its strategies
during fiscal 1994, fiscal 1995 and fiscal 1996.

Saks' comparable sales performance* is set forth below:

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

Management believes that the ongoing execution and implementation of these
strategies will continue to drive performance. A summary of these strategies is
set forth below.

TOP CUSTOMER FOCUS

DIFFERENTIATED MERCHANDISE ASSORTMENTS

In 1994, Saks began to specifically target the merchandise categories that,
based on extensive research, were determined to be most important to its top
customers. Saks is developing dominant assortments in these key merchandise
categories by increasing inventory investments, upgrading the quality and
congruency of merchandise assortments and by adding important vendors and
brands. Saks' overall merchandising strategy is to offer congruent and balanced
assortments of differentiated, upscale limited-distribution merchandise. Saks
achieves differentiation through disciplined merchandise purchasing, development
of high visibility vendor relationships, dominant designer assortments and
exclusive product offerings, Saks' private label apparel collections and the
continual editing of its merchandise to reflect the forefront of fashion. In
addition, Saks customizes its merchandise assortments at the store level to take
advantage of differences in store size, local competitive offerings, fashion
tastes, seasonality and lifestyles.

STORE INTENSIFICATION

30
<PAGE>
Pursuant to this strategy, from the beginning of fiscal 1993 to the end of
fiscal 1995 Saks made significant investments in 14 high potential stores,
including $109 million in gross capital expenditures, $43 million in increased
inventory levels, $21 million in additional annual store payroll costs and $4
million in increased annual localized marketing spending. As a result, net sales
in these stores increased 29.5% from $698 million in fiscal 1992 to $904 million
in fiscal 1995. Saks is expanding its store intensification program to
additional stores in 1996 and 1997.

STORE EXPANSION

FULL-LINE STORES. Saks currently operates 40 full-line stores. Excluding
acquisitions, Saks plans to open three new full-line stores (including a store
in Orlando, Florida in 1996) and two replacement stores, and to complete nine
remodels through fiscal 1998.

Similarly, Saks intends to expand its presence in the demographically
attractive Texas market. In July 1996, Saks entered into an agreement with
Dayton Hudson Corporation and certain of its affiliates to acquire three
Marshall Field store locations in Texas which would add 250,000 square feet of
store space to Saks' presence in this market subject to certain conditions. Two
of these stores are intended to replace two smaller stores that Saks currently
operates in Houston and Dallas. Saks intends to spend approximately $100 million
in connection with the acquisition and renovation of these stores. There can be
no assurance that Saks will satisfy the conditions under the agreement and
acquire these store locations. In addition, Saks is exploring other markets in
Texas.

In July 1996, Saks agreed with Japanese department store operator Isetan, a
creditor of Barneys, to begin exploring the financial feasibility of
co-sponsoring a plan of reorganization for Barneys, which filed for Chapter 11
bankruptcy protection in January 1996. The preliminary terms presently being
discussed would result in Saks obtaining control of Barneys and Isetan leasing
the Barneys store locations in Chicago, Beverly Hills and on Madison Avenue in
New York to the reorganized Barneys. However, Saks has only partially completed
its financial and business assessment of Barneys and is currently without access
to confidential information concerning Barneys. Saks would only proceed with
such a plan if management concludes that Barneys represents an attractive
investment opportunity. There can be no assurance that Saks and Isetan will
reach agreement on the terms of a proposed plan of reorganization. Even if Saks
and Isetan were to agree on the terms of such a plan, they could not file a plan
at this time without the support of Barneys, which currently retains the
exclusive right to file a plan of reorganization in its bankruptcy case. Barneys
has publicly opposed the cooperation between Saks and Isetan.

31
<PAGE>
FRANCHISE EXTENSION STRATEGIES

Management believes that the Saks Fifth Avenue franchise is extendible over
multiple formats and has developed the following specific growth strategies:

INTERNATIONAL. Although Saks currently does not have significant sales
abroad, management believes that Saks' worldwide reputation and international
customer base offer attractive opportunities for future international growth.
Saks is exploring outreach programs in Japan, with selected catalog mailings and
the sale of Saks' private label merchandise to an established Japanese
department store, and in Latin America, through trunk shows and special events.
None of Saks' current intentions with respect to international expansion would
involve any material capital expenditures.

CAPITAL EXPENDITURES

Saks is committed to expanding and improving its store portfolio. From the
beginning of fiscal 1993 to the end of fiscal 1995 Saks made capital
expenditures of approximately $148 million on new stores, remodels, replacements
and expansions and, excluding acquisitions, plans to make additional such
capital expenditures of approximately $270 million through fiscal 1998.
Management believes that cash generated from Saks' operations, funds available
from Saks' credit facility and funds available from lease financing and
developer contributions will be sufficient to satisfy Saks' cash requirements
over this period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".

FULL-LINE AND RESORT STORES

GENERAL

Saks operates a nationwide portfolio of 40 full-line stores and six resort
stores under the Saks Fifth Avenue name. The store portfolio includes premier
retail locations such as Fifth Avenue in New York City, Wilshire Boulevard in
Beverly Hills, Michigan Avenue in Chicago and Union Square in San Francisco. In
fiscal 1995, the percentage of total full-line and resort store net sales by
region were 41% in the Northeast, 20% in the Midwest, 15% in the Southeast and
24% in the West. Saks enjoys strong competitive positions in a number of the
most important retail markets in the United States, including New York City,
Florida and California.

32
<PAGE>
Unlike many of its competitors, Saks owns, rather than leases, a large
portion of its retail gross square footage, including its landmark Fifth Avenue
store. The following table sets forth certain information regarding Saks' real
estate portfolio at February 3, 1996.

<TABLE>
<CAPTION>
PERCENT OF
TOTAL GROSS
SQUARE FOOTAGE
--------------
<S> <C>
Own building and own land............................... 30%
Own building and lease land............................. 48
Lease building and lease land........................... 22
</TABLE>

FULL-LINE STORES. Saks' 40 full-line stores are located in major markets in
the United States and range from 60,000 to 646,000 gross square feet. Since the
beginning of 1990, Saks has opened four new stores, replaced three stores,
expanded and remodeled 11 stores and closed four stores. Excluding acquisitions,
Saks plans to open three new full-line stores (including a store in Orlando,
Florida in 1996) and two replacement stores and to complete nine remodels
through fiscal 1998.

As part of a strategy to enhance its presence in California, in February
1995 Saks acquired four former I. Magnin store locations in Beverly Hills, San
Diego, Phoenix and Carmel. Saks converted three of these stores to its format
within two months, and the Beverly Hills store within six months, of
acquisition. This transaction resulted in additions to Saks' Beverly Hills and
Carmel stores, replacement of its Phoenix store and a new store in San Diego. In
addition to adding 234,000 gross square feet of store space, the I. Magnin
transaction permitted Saks to gain access to exclusive merchandise arrangements
previously unavailable to Saks in that part of the United States. Prior to the
acquisition, Saks had closed four underperforming stores located in non-
strategic areas of this market. Management believes that the current retail
environment will provide other opportunities for expansion through acquisition.

RESORT STORES. Saks' resort stores are located in markets characterized by
affluent vacationers and permanent and seasonal residents. The resort store
format allows Saks to capture sales from customers who are increasingly
migrating to resort areas during parts of the year. Saks' resort stores average
34,000 gross square feet. Since the 1990 Acquisition, Saks has opened two new
stores, expanded and remodeled two stores and closed one store. Saks currently
operates six resort stores including a store in Charleston, South Carolina that
was opened in August 1996. Saks plans to open four new resort stores through
fiscal 1998.

MAIN STREET STORES. Saks is testing a 35,000 square foot main street format
store designed for the local shopping areas of affluent suburban markets. The
first of these main street stores is scheduled to open in Greenwich, Connecticut
in September 1996. If successful, this format will be tested in similar
communities.

CAPITAL INVESTMENT. Management has committed substantial capital to upgrade
the size and shopping environment of many of its stores. From the 1990
Acquisition through fiscal 1995, Saks spent in excess of $183 million on new
stores, remodels, replacements and expansions. These investments have yielded
strong financial returns. As a result of these investments, over 60% of Saks'
selling space is either new or remodeled since the 1990 Acquisition.

Management continually evaluates the performance of Saks' assets. During
fiscal 1993, through a strategic review of Saks' existing stores and asset base,
management developed a plan to close underperforming stores and redeploy their
assets. Accordingly, in fiscal 1994 Saks closed three full-line stores, one
resort store, its 17 specialty stores (2,000 to 4,000 square foot mall shops
operated under designer names) and Saks' service center in New York City. In
fiscal 1995 Saks closed its full-line store in Owings Mills, Maryland and
announced the relocation of its primary

33
<PAGE>
distribution center from Yonkers, New York to a new, state-of-the-art facility
in Aberdeen, Maryland. See "Distribution Facilities".

The evolution of Saks' full-line and resort store portfolio since fiscal
1991 is set forth below:

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
TOTAL STORES:
Beginning of period................................ 47 48 49 49 45
Closures........................................... 0 0 0 (5 ) (2 )
Openings........................................... 1 1 0 1 2
------ ------ ------ ------ ------
End of period...................................... 48 49 49 45 45
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL SQUARE FOOTAGE (in thousands):
Beginning of period................................ 4,813 4,888 4,918 4,959 4,549
Closures........................................... -- -- -- (523 ) (154 )
Openings........................................... 75 30 -- 106 272
Expansions......................................... -- -- 41 7 139
------ ------ ------ ------ ------
End of period...................................... 4,888 4,918 4,959 4,549 4,806
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>

At August 29, 1996, Saks operates 46 full-line and resort stores.

Saks' store management is comprised of a general manager and an assistant
general manager of administration in charge of operations and human resources
and a manager of sales and service training. In larger stores, management is
augmented by one or more assistant general managers for merchandising, an
assistant general manager of operations and a human resources director. General
managers are accountable for sales training, service standards, customer
relationships, merchandising, operations and profitability of their stores. A
typical Saks store also has ten to 15 department managers, depending on the
store size, who have responsibility for customer development, sales associate
management, specific merchandise areas, and approximately five managers
overseeing support functions including shipping, receiving and security.

MERCHANDISING

Over its 70 year history, Saks Fifth Avenue has developed a reputation as a
leading fashion authenticator. Saks' position is strengthened by its
relationships with internationally acclaimed fashion design houses such as
Giorgio Armani, Bill Blass, Chanel, Escada, Salvatore Ferragamo, Gucci, Donna
Karan, Calvin Klein, Ralph Lauren, Judith Leiber, Prada, Oscar de la Renta, Jil
Sander, St. John, Yves St. Laurent, Ellen Tracy, Emanuel Ungaro and Ermenegildo
Zegna. These design houses establish trends and create product from which Saks
develops its merchandise mix. In turn, Saks enhances the image of these vendors
by presenting their merchandise in elegant shopping environments and, in many
cases, in-store shops. Management believes that Saks is a significant, if not
the largest, customer of many of these vendors. As a result, Saks is
advantageously positioned to obtain exclusive merchandise assortments, new
product introductions and financial incentives from these vendors.

34
<PAGE>
Saks' merchandise strategy is to offer congruent and balanced assortments of
differentiated, upscale merchandise. Saks offers a predominantly better, bridge
and designer assortment of fashionable apparel, shoes, accessories, cosmetics
and fragrances for women and men, as well as gift merchandise and children's
apparel. Within these merchandise categories, Saks focuses on vendors and
merchandise offerings that are distinctive and differentiated and that
contribute to profit growth. The following table sets forth the percentage of
retail sales by merchandise category for fiscal 1995:

<TABLE>
<CAPTION>
PERCENTAGE OF
FISCAL 1995
MERCHANDISE CATEGORY RETAIL SALES
- ---------------------------------------------------------- -------------
<S> <C>
Women's designer apparel.................................. 14%
Women's sportswear........................................ 32
Men's apparel............................................. 16
Shoes, jewelry, handbags and other accessories............ 22
Fragrances and cosmetics.................................. 14
Other..................................................... 2
</TABLE>

Saks achieves differentiation through its focus on upscale merchandise, its
preferred vendor relationships which provide access to product that is sold
exclusively through Saks, Saks' private label collections, special size apparel
offerings and the continual editing of its merchandise to reflect the forefront
of fashion. Saks has exited lower price point and broadly distributed
merchandise categories where it cannot differentiate its assortments. In fiscal
1995, Saks no longer offered certain vendors' merchandise which, in fiscal 1992,
comprised net sales of $85 million.

Capitalizing on its status as a leading fashion authenticator, Saks has
created a private label business, with a differentiated product offering and
relatively lower price points, that allows it to serve a broader customer base
interested in fashion. Saks offers private label apparel in most merchandise
categories. Saks' merchandising staff, with the assistance of freelance
designers, creates exclusive designs and oversees production through contract
manufacturers. Saks' leading private labels are Saks Fifth Avenue Collections
(women's bridge sportswear), Real Clothes (casual/active sportswear for women),
The Works (career coordinates for women) and Saks Fifth Avenue Mens Collection
(sportswear and furnishings for men). Saks continually seeks opportunities to
expand its private label business. Recent additions include the Como Sport for
Cobra Golf line of golf apparel for men and women. Private label merchandise
comprised 8% of consolidated net sales in fiscal 1995.

In order to extend its customer base and to differentiate its merchandise,
Saks has devoted considerable efforts to the development of its special size
apparel categories: petites and, for the larger woman, "Salon Z". Saks has
invested in inventory and selling space, and has prompted a number of its
vendors to create designs for its Salon Z merchandise that are consistent with
Saks' strategy of offering distinctive, high quality fashion merchandise. These
special size categories comprised 5% of consolidated net sales in fiscal 1995.
Net sales of these categories in fiscal 1995 increased 24% from fiscal 1994.

Although Saks draws its customers from a broad group, women in the 40 to 55
year old age bracket comprise a core component of Saks' customer base. In 1994,
Saks began to specifically target the merchandise categories that, based on
extensive research, were determined to be most important to these top customers.
Saks is increasingly developing dominant assortments in these categories by
increasing inventory allocation, upgrading the quality and congruency of
merchandise and increasing the number of important vendors and brands.

In developing Saks' merchandise assortments, management monitors the
relationship between merchandise mix and profitability. Saks balances a complex
mix of merchandise at different price

35
<PAGE>
points and profitability levels, using appropriate quantities of designer
apparel to build image, create merchandise excitement and drive sales of higher
margin merchandise in order to increase profits.

Management believes that the success of Saks' resort stores is driven to a
significant degree by Saks' ability to tailor assortments to local climate,
preferences and social events. Similarly, Saks anticipates selling merchandise
assortments in its main street stores that are customized to local market
conditions.

To support its merchandising strategy, Saks has increased capital
expenditures, inventory and marketing support to improve merchandise assortments
and presentation and to increase customer awareness. In addition, Saks has
modified its training and incentive compensation programs to improve product
knowledge and selling efforts and cross-selling among merchandise categories.

At August 3, 1996, Saks employed approximately 280 people in its
merchandising and buying offices. Saks' largest supplier in fiscal 1995
accounted for less than 4% of total merchandise purchases. Saks believes that
the loss of any one of its vendors would not have a material adverse effect on
Saks' business.

MERCHANDISE PLANNING AND MONITORING

In 1995, Saks completed a comprehensive review of its merchandise planning
process. The review evaluated Saks' existing organization and processes as well
as retail industry best practices. Saks redesigned its planning process and
organization and established the framework of a store-level merchandise planning
process to drive sales and gross margin performance by store. The key elements
of the process include the development and maintenance of store profiles which
identify, among other things, important store characteristics such as customer
demographics, physical plant, competitive environment, seasonality and local
events. This information is used by the buying and planning organizations to
tailor merchandise assortments and flows by store.

The planning process involves the interactive development of total company
merchandise plans by department and merchandise groups as well as on a
store-by-store basis. The planning organization is structured to work as a
partnership with the merchandise buying organization with a ratio of one planner
for every two buyers. The merchants are focused on top-side merchandise issues
including merchandising guidelines, strategic vendor alliances, assortment
planning, shopping the market, negotiating with vendors and meeting financial
targets. The planners are focused on development of store specific congruent
merchandise assortments and meeting financial targets. The planners also
function as the "controllers" for buying responsibilities and monitor the
ongoing execution of the plan and open-to-buy on a by-store basis throughout the
season. This process includes semi-monthly review of results and forecasts with
senior merchants, store management and finance groups. Management believes that
the new planning process is essential to improving sales and gross margin and
Saks' productivity of its inventory investment.

CUSTOMER AFFINITY PROGRAMS

Management believes its strong customer service and marketing abilities,
supported by its sophisticated client data base, are key competitive advantages.
Saks is enhancing the quality of its customer service through improved
recruiting and training of sales associates, implementation of performance-based
compensation policies, increased accountability for performance of both sales
associates and managers, increased clienteling and data base marketing
activities and increased selling payroll.

36
<PAGE>
In keeping with its top customer focus, management developed several
programs designed to increase sales to its top customers. These initiatives have
resulted in increased average dollar amounts spent by these customers at Saks
each year and retention of such customers from year to year.

CUSTOMER CLIENTELING. Through its customer clienteling program, Saks' top
customers are identified for each store and individually assigned to sales
associates who have been trained in sophisticated sales, service and
relationship-building techniques. Saks currently is implementing The Link, its
state-of-the-art automated client book, to assist sales associates in their
clienteling efforts through better understanding of the purchasing behavior and
merchandise preferences of their customers. Management expects that this system
will enable sales associates to further personalize selling efforts and thereby
generate increased sales per customer.

SAKS FIRST PROGRAM. To foster customer loyalty and increase sales, in late
1994 Saks improved the benefits of its Saks First Program, an affinity program
directed to customers who charge in excess of $2,000 annually on their Saks
credit card. Saks First customers are rewarded with points convertible into Saks
gift certificates based on spending levels. Saks First customers also receive
fashion newsletters, invitations to one-of-a-kind special events, such as
fashion shows, movie premiers and celebrity dining, and advance notice of sale
events.

THE FIFTH AVENUE CLUB. Fifth Avenue Club membership offers participants
service-intensive private shopping environments within Saks' stores.
Historically, the Fifth Avenue Club has accounted for a significant portion of
Saks' full price designer sales. Based upon performance in selected markets,
management believes that the Fifth Avenue Club is underpenetrated in the
majority of its stores. In order to enhance the attractiveness of, and
participation in, the Fifth Avenue Club, management recently increased marketing
support to broaden customer awareness, improved the quality and quantity of club
staff, upgraded club facilities and heightened accountability on the part of
store general managers for the program.

MARKETING

Saks' marketing program supports its focus on top customers, target
merchandise groups and high potential stores while maintaining a high profile,
consistently visible image on both national and local levels. These programs are
designed to reinforce Saks' position as one of the world's premier fashion
retailers, to increase awareness of Saks' merchandise range and customer service
standards and to reaffirm Saks' cachet and reputation.

All marketing activities, including advertising, in-store special events and
window display, are developed and managed by Saks' in-house marketing and visual
departments on a centralized basis. Although Saks markets through a variety of
media, including direct mail, newspaper, public relations, magazines, radio and
television, customer outreach programs and other means, Saks focuses its efforts
on those media that effectively reaffirm Saks' position as a leading fashion
authenticator and efficiently reach Saks' top customer group. Saks actively
pursues vendor co-operative advertising, substantially increasing the
advertising resources available to Saks. Saks promotes its image as a fashion
leader primarily through regular advertisements in authoritative fashion and
life-style magazines, such as Vogue, W, Gourmet and Town and Country, store
events hosted by designers such as Calvin Klein, Isaac Mizrahi and Oscar de la
Renta, and sponsorship of fashion oriented charity events. Saks continually
evaluates and adjusts its marketing programs to efficiently drive sales.

OFF 5TH STORES

Through its Off 5th division, Saks extends its customer reach by offering
high quality branded fashion apparel in an outlet store setting at prices that
are 40% to 70% off original and comparable

37
<PAGE>
retail prices. Off 5th opened its first store in Franklin Mills, Pennsylvania in
1990 to provide a more efficient means of liquidating end-of-season merchandise
from Saks' retail stores. The concept gained immediate consumer acceptance due
to Off 5th's exceptional prices, high quality fashion merchandise and pleasant
shopping environment in combination with the Saks Fifth Avenue name. Based upon
this initial success, management continued to develop Off 5th's supporting
infrastructure, and Saks today operates 23 Off 5th stores in 15 states.

Off 5th occupies a unique market position with its multi-brand assortment of
exceptionally priced, high quality fashion merchandise, including better, bridge
and designer apparel. Management believes that Off 5th possesses the following
important competitive advantages: (i) access to end-of-season merchandise from
Saks' retail stores; (ii) Saks' strong vendor relationships that provide access
to high quality merchandise; (iii) vendor willingness to clear overstocks with,
and extend production runs for, Off 5th; and (iv) the broad aspirational appeal
to customers of the Saks Fifth Avenue brand name. In addition, Off 5th offers an
economically superior form of inventory liquidation for Saks' retail stores.

Off 5th's merchandise strategy is to offer women's and men's apparel
consistent with the level of quality and fashion found in Saks' retail stores.
In fiscal 1995, Off 5th purchased approximately 40% of its inventory from Saks
with the balance purchased directly from vendors. Management expects to purchase
a greater percentage of its merchandise directly from vendors as the number of
Off 5th stores increases.

Located primarily in outlet malls, Off 5th stores average approximately
23,000 square feet. Management believes that the stores maintain fixturing,
visual presentation and service standards superior to those generally associated
with outlet stores.

Off 5th generates attractive economic returns resulting from its relatively
high sales productivity, favorable lease economics (due to Off 5th's status as a
desirable anchor tenant), and low corporate overhead (as Off 5th shares in the
economies of scale of Saks' corporate and logistics structures). Management
plans to substantially increase its store base by opening new stores in selected
outlet malls and off-price centers throughout the United States. Saks expects to
open approximately 12 additional Off 5th stores in the remainder of fiscal 1996.
Information regarding Off 5th's historical growth is set forth below.

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales (in millions)........................ $ 10.6 $ 27.9 $ 42.9 $ 57.2 $108.0
Net sales per average square foot.............. $ 411 $ 452 $ 440 $ 362 $ 352
Number of stores at period end................. 1 3 4 8 19
</TABLE>

FOLIO CATALOGS

Saks offers designer fashion brands and unique selections of Saks Fifth
Avenue private label merchandise to direct response customers through its Folio
catalogs. Folio enjoys a strong position in the relatively underserved catalog
market for upscale designer merchandise. Folio's merchandise is of a quality and
fashion consistent with that carried in Saks' retail stores, with an emphasis on
classic styling.

Folio began operations in 1972 when it mailed its first holiday catalog. For
the next 20 years, Folio operated as both a marketing vehicle for Saks' retail
stores and a direct response business. In 1993 management began to establish
Folio as an independent operating division with a catalog format and merchandise
offerings tailored to the direct response customer. In 1994, Folio recruited its
own merchandise and marketing staff. In 1995, Folio installed a new
state-of-the-art customized

38
<PAGE>
catalog management information system. Also in 1995, Folio successfully
introduced two new merchandise concepts, Folio Designs For The Home, a catalog
offering upscale home and gift merchandise, and Folio Outlet By Mail, an
off-price catalog marketing upscale branded fashion merchandise at a discount.
In addition, Folio initiated international mailings, primarily to Japan.

Folio has developed a highly productive customer list primarily derived from
Saks' retail stores customer data base and prior customer purchases from Folio.
In addition, Folio utilizes a variety of sources to acquire new names, including
list rentals and exchanges with other catalogs and credit card companies. Names
of the most active of Folio's customers are maintained in a 12-month buyer file
which lists those customers who have purchased from Folio in the past 12 months.
As of July 1996, Saks' 12-month buyer list included 335,000 names, an increase
of approximately 27% over July 1995.

Folio mailed a total of 23 catalogs with a total circulation of 29 million
in fiscal 1995. This compares to a total of 20 catalogs with a total circulation
of 23 million in fiscal 1994. Folio generated net sales in fiscal 1995 of $82.8
million, a 42% increase over fiscal 1994. Based upon the success of its
initiatives in fiscal 1995, management has added catalogs and increased the
circulation of its new titles and international mailings in fiscal 1996.

Orders for merchandise are received by telephone, fax and mail at Folio's
telemarketing and fulfillment facility located within Saks' Yonkers, New York
distribution center. Management expects the recent installation of a dedicated
catalog management information system for use by its telemarketing agents to
improve customer service and increase the productivity of its catalog
operations. Folio's telemarketing and fulfillment capabilities will be
transferred to Saks' new Aberdeen, Maryland facility upon the relocation of
Saks' Yonkers distribution center.

The economies of scale available to Folio through the use of Saks'
merchandising, corporate and logistics infrastructure contribute to Folio's
relatively strong profit margins. In turn, Folio facilitates the testing of new
products and markets, which Saks may then capitalize on through its retail
stores.

SAKS FIFTH AVENUE PROPRIETARY CREDIT CARD

Established over 40 years ago, Saks' proprietary credit card accounted for
approximately half of Saks' net sales in fiscal 1995. As of February 3, 1996,
Saks had approximately 1.4 million credit card customers that had made a
purchase within 24 months.

The proprietary credit card provides Saks with valuable customer information
and an excellent marketing and communications tool for its customers. During
fiscal 1995, Saks mailed approximately 500,000 statements per month to its
credit card holders. Saks is able to analyze its customer data by purchasing
patterns, including frequency, amount spent and merchandise category. Saks uses
this information to more effectively target merchandise information, special
events and promotions to its customers. Folio utilizes the Saks credit card
customer lists to develop new customers for its direct marketing mailings. The
Saks First Program also is linked directly to the credit card. In addition,
management believes that Saks' proprietary credit card promotes customer
affinity and loyalty because these customers on average generate greater sales
per transaction than the average customer.

Saks outsources its credit card operations to a third party, while
maintaining control over credit policy decisions and customer service standards.
Customers who apply for the Saks credit card are approved for credit based on a
satisfactory evaluation of a credit bureau report along with employment and bank
information.

39
<PAGE>
MANAGEMENT INFORMATION SYSTEMS

Saks has made substantial investments in information systems designed to
support its strategies. Saks made capital expenditures of approximately $21
million on information systems in fiscal 1993 through fiscal 1995 and plans to
make additional capital expenditures of approximately $43 million on such
systems through fiscal 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources".

To increase sales and assist selling personnel, Saks has implemented an
industry-leading automated client book and a merchandise locator. The automated
client book enables sales associates throughout Saks to access from any POS
register a database of the purchasing preferences of their top customers. The
merchandise locator allows a sales associate to locate merchandise on a
real-time basis in any Saks store and arrange for that merchandise to be
promptly shipped to a customer. In addition, Saks' POS terminals utilize bar
code scanning technology to enhance customer service and inventory management.

In support of Saks' merchandising operations and new merchandise planning
processes, Saks continues to invest in further developing existing and new
systems. Saks' newest system is "Merchants Workbench", which provides detailed
information on merchandise sales by store utilizing a relational database and
client server technologies. Saks' inventory management is supported by quick
response electronic data interchange systems and by an automatic replenishment
system that utilizes actual sales, sales forecasts and seasonal selling profiles
down to the SKU level to replenish certain merchandise categories automatically,
resulting in improved assortments, in-stock position and sales. Saks has
implemented the automatic replenishment system in categories such as dress
shirts, hosiery, leather belts and accessories.

STORE PROPERTIES

The following table sets forth the location, mall name or street address,
year opened and gross square footage of each full-line, resort and Off 5th store
open as of August 29, 1996:

FULL-LINE STORES
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
- -------------------------------- ---------------------------------- ------ --------------

<S> <C> <C> <C>
NEW YORK CITY
New York, NY................ 611 Fifth Avenue 1924 646

NORTHEAST REGION
Stamford, CT................ Stamford Town Center 1983 78
Boston, MA.................. Prudential Center 1971 110
Chevy Chase, MD............. 555 Wisconsin Avenue 1964 108
Hackensack, NJ.............. Riverside Square 1977 107
Short Hills, NJ............. Short Hills Mall 1994 106
Garden City, NY............. 1300 Franklin Avenue 1962 106
White Plains, NY............ Bloomingdale Road 1954 128
Bala Cynwyd, PA............. No. 2 Decker Square 1969 102
McLean, VA.................. The Galleria at Tyson's II 1988 120
</TABLE>

40
<PAGE>
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
- -------------------------------- ---------------------------------- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
SOUTHEAST REGION
Boca Raton, FL.............. Town Center 1986 75
Ft. Lauderdale, FL.......... Galleria Mall 1980 74
Bal Harbour, FL............. Bal Harbour Mall 1976 104
Miami, FL................... Dadeland Mall 1984 78
Palm Beach Gardens, FL...... The Gardens 1991 75
Atlanta, GA................. Phipps Plaza 1968 130

MIDWEST REGION
Chicago, IL................. 700 North Michigan, Chicago Place 1990 150
Oakbrook, IL................ Oakbrook Shopping Center 1981 90
Skokie, IL.................. Old Orchard Mall 1978 105
New Orleans, LA............. Canal Place 1983 75
Dearborn, MI................ Fairlane Town Center 1980 91
Troy, MI.................... Somerset Mall 1967 121
Minneapolis, MN............. Nicollett Mall 1989 120
Frontenac, MO............... Plaza Frontenac 1973 123
Kansas City, MO............. Country Club Plaza 1982 73
Beachwood, OH............... Beachwood Place 1978 102
Cincinnati, OH.............. Fifth and Race Streets 1984 76
Tulsa, OK................... Utica Square 1986 62
Pittsburgh, PA.............. 513 Smithfield Street 1977 86

WESTERN REGION
Phoenix, AZ................. Biltmore Fashion Park 1995 90
Beverly Hills, CA........... 9600/9634 Wilshire Blvd 1938/95 175/100
Costa Mesa, CA.............. South Coast Plaza 1979 105
San Diego, CA............... Fashion Valley 1995 80
San Francisco, CA........... Union Square 1981 136
Denver, CO.................. Cherry Creek Mall 1990 90
Las Vegas, NV............... The Fashion Show 1981 68
Portland, OR................ Pioneer Place 1990 60
Dallas, TX.................. Dallas Galleria 1982 117
Houston, TX................. Pavilion/Post Oak 1974 125
San Antonio, TX............. 650 North Star Mall 1985 84
</TABLE>

RESORT STORES
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
- -------------------------------- ---------------------------------- ------ --------------
<S> <C> <C> <C>
NORTHEAST REGION
Southampton, NY............. 8-12 Main Street 1987 8

SOUTHEAST REGION
Naples, FL.................. Westside Shops Pelican Bay 1992 30
Palm Beach, FL.............. The Esplanade 1979 37
Charleston, SC.............. Majestic Square 1996 30

WESTERN REGION
Carmel-by-the-Sea, CA....... Carmel Plaza 1986/95 24/24
Palm Springs, CA............ Desert Fashion Plaza 1985 50
</TABLE>

41
<PAGE>
OFF 5TH STORES
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
- ------------------------------- --------------------------------- ------ --------------
<S> <C> <C> <C>
NORTHEAST REGION
Clinton, CT................ Clinton Crossing Factory Outlets 1996 18
Danvers, MA................ Liberty Tree Mall 1996 19
Worcester, MA.............. Worcester Common Fashion Outlets 1994 29
Niagara Falls, NY.......... Factory Outlet Mall 1995 20
Franklin Mills Circle, Franklin Mills 1990 28
PA.............................

SOUTHEAST REGION
Orlando, FL................ International Designer Outlet 1994 22
Center
Sunrise, FL................ Sawgrass Mills 1992 46
Dawsonville, GA............ North Georgia Premium Outlets 1996 20
Raleigh, NC................ Triangle Factory Shops 1996 20
Myrtle Beach, SC........... Myrtle Beach Factory Stores 1995 15
Nashville, TN.............. Oaks Shopping Center 1995 25
Woodbridge, VA............. Potomac Mills 1992 28

MIDWEST REGION
Gurnee, IL................. Gurnee Mills 1993 29
Aurora, OH................. Aurora Farms 1995 15
Jeffersonville, OH......... Jeffersonville Outlet Mall 1994 15

WESTERN REGION
Phoenix, AZ................ Arizona Factory Stores 1995 16
Camarillo, CA.............. Camarillo Factory Stores 1995 16
Milpitas, CA............... The Great Mall of the Bay Area 1995 25
Petaluma, CA............... Petaluma Village Factory Outlet 1995 15
Honolulu, HI............... Waikele Center 1994 30
Hillsboro, TX.............. Southwest Outlet Center 1995 15
San Marcos, TX............. San Marcos Factory Shops 1995 22
Auburn, WA................. Supermall of the Great Northwest 1995 25
</TABLE>

DISTRIBUTION FACILITIES

Saks operates two distribution centers that service Saks' full-line, resort
and Off 5th stores, as well as Folio. Saks owns a 509,000 square foot
distribution center in Yonkers, New York that serves as Saks' primary
distribution facility and handles 85% of Saks' retail store distribution, all
Folio catalog telemarketing and fulfillment and Off 5th merchandise processing.
Saks also leases an 88,000 square foot distribution center in Ontario,
California that handles the balance of Saks' retail distribution. The
distribution centers employ state-of-the-art bar code scanning and tracing
technology, as well as integrated purchase-order tracking capabilities that
assist in merchandise planning. During fiscal 1995, the two distribution centers
processed approximately 15 million pieces of merchandise.

Saks recently announced plans to relocate the processing activity of its
Yonkers facility to a new, state-of-the-art facility in Aberdeen, Maryland. This
600,000 gross square foot facility, which will be leased by Saks, is expected to
open in early 1997. In order to ensure an effective transition, Saks will
operate both facilities for up to six months following the opening of the
Aberdeen facility, after which period the Yonkers facility will be closed. The
relocation is anticipated to result in lower processing costs as well as more
rapid delivery of merchandise to the sales floor to maximize full-price sales
and improve fulfillment rates for the Folio catalog division.

42
<PAGE>
Saks will receive incentive payments from various government agencies which
are expected to approximate the costs of relocating its processing activities to
the new facility. Saks will occupy the facility pursuant to a lease, with the
net present value of future rental payments equal to $23 million. Saks expects
to sell its Yonkers facility after exiting it in early 1997. Saks recorded a
charge in fiscal 1995 to reduce the carrying value of the Yonkers facility to
its net realizable value. If Saks or a purchaser is successful in obtaining
rezoning for the use of the property, a gain on sale could be realized.
Management is unable to determine if rezoning will occur.

In the area of logistics, Saks has implemented various programs designed to
improve processing productivity in order to speed the flow of merchandise from
vendors through Saks distribution facilities to the selling floor. These include
size and color marking and tracking, increased vendor pre-marking, a variety of
pre-distribution services, integrated universal product code (UPC)
identification methods, radio frequency (RF) scanning and electronic data
interchange (EDI) technologies. Saks uses contract carriage for approximately
73% of its merchandise. Saks uses air cargo for transcontinental merchandise
shipments, as well as for shipping to particular markets during peak demand
periods. When appropriate, Saks arranges for vendors to ship directly to stores.

COMPETITION

All aspects of the retail industry, including attracting customers, securing
merchandise and locating appropriate retail sites, are highly competitive. Saks
competes for customers in this industry with retailers in the following five
categories: large specialty apparel retailers; better department stores;
national specialty apparel chains; designer boutiques; and individual specialty
apparel stores. The type of individual competitor in each of these groups
differs from region to region and from store to store. Many of these competitors
are larger and have greater financial resources than Saks.

LARGE SPECIALTY APPAREL RETAILERS. These retailers usually operate stores in
key regional or national markets and primarily offer apparel, cosmetics and
accessory products. Main competitors in this category are Barneys, Bergdorf
Goodman, Brooks Brothers, Jacobson's, Lord & Taylor, Neiman Marcus and
Nordstrom. Store sizes vary widely.

BETTER DEPARTMENT STORES. This group is best categorized as offering a broad
merchandise assortment, including apparel and accessories, as well as, in some
cases, furniture, electronics and fine china, often in large stores of 200,000
selling square feet or more. This group includes stores operated by Dayton
Hudson Department Stores, Dillard Department Stores, Federated Department
Stores, The May Department Stores Company and Mercantile Stores.

NATIONAL SPECIALTY APPAREL CHAINS. This competitor group is characterized by
a large number of smaller stores nationwide, usually between 5,000 and 10,000
selling square feet, and a limited and focused merchandise assortment. This
group includes AnnTaylor, Banana Republic and Talbots.

DESIGNER BOUTIQUES. These stores are usually between 5,000 and 10,000
selling square feet and frequently are limited to major cities. Merchandise
offered by designer boutiques is highly focused and generally limited to the
product lines of one designer.

INDIVIDUAL SPECIALTY APPAREL STORES. These stores are comparable to designer
boutiques in size but carry product lines of more than one designer.

Off 5th competes with designer factory outlet stores, specialty outlet
stores and other off-price formats and the moderate department store sector.
Folio competes with diversified general merchandise catalogs, department store
catalogs and specialty catalogs.

43
<PAGE>
TRADEMARKS AND SERVICE MARKS

Saks owns its principal trademarks and service marks, including the "Saks
Fifth Avenue",

[LOGO]

"SFA" and " " marks. Other important trademarks and service marks include "Off
5th", "Folio",
"Real Clothes", "The Works" and "The Fifth Avenue Club". Saks' trademarks and
service marks are registered in the United States Patent and Trademark Office.
The term of these registrations is generally ten years, and they are renewable
for additional ten year periods indefinitely, so long as the marks are still in
use at the time of renewal. Saks is not aware of any claims of infringement or
other challenges to its right to register or use its marks in the United States.

EMPLOYEES

At August 3, 1996, Saks employed approximately 870 people at its
headquarters and buying offices and 10,800 in its stores, two distribution
centers and data center. Saks' staffing requirements fluctuate during the year
as a result of the seasonality of the retail apparel industry, adding
approximately 1,200 to 1,500 more seasonal employees in the fourth quarter.
Approximately 100 of Saks' employees are covered by collective bargaining
agreements. Saks has never been subject to a strike and believes that its
relationship with its employees and the unions is good.

LITIGATION

Saks is a defendant in a suit pending in the Supreme Court of the State of
New York, County of New York, in which the plaintiff, a former Saks employee,
contends, among other things, that Saks was negligent in hiring a co-worker who
allegedly assaulted the plaintiff. The plaintiff is seeking $10 million in
damages. Saks has moved to dismiss the action. Saks believes that, subject to a
self-insured retention, the claim is covered by Saks' insurance. In connection
with the suit, Saks also is in litigation with one of its insurance providers
regarding the provider's duties and obligations under its insurance contract
with Saks. Saks does not believe that the resolution of these suits will have a
material adverse impact on its financial position or results of operations.

Saks also is from time to time involved in routine litigation incidental to
the conduct of its business. Management believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
financial position or results of operations.

44
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the name, age and position of each of the
directors and executive officers of Saks Holdings. In March 1996, the executive
officers of Saks were given the same titles at Saks Holdings as they held at
Saks. Each director of Saks Holdings will hold office until the next annual
meeting of stockholders of Saks Holdings or until his or her successor has been
elected and qualified. Officers of Saks Holdings are elected by the Board of
Directors of Saks Holdings and serve at the discretion of such Board of
Directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Philip B. Miller............... 57 Chairman and Chief Executive Officer and Director
Brian E. Kendrick.............. 42 Vice Chairman and Chief Operating Officer and
Director
Rose Marie Bravo............... 44 President and Director
Owen E. Dorsey................. 45 Executive Vice President
Richard F. Zannino............. 37 Executive Vice President and Chief Financial Officer
and Treasurer
Christina Johnson.............. 46 Executive Vice President
Mark E. Hood................... 44 Senior Vice President and Chief Accounting Officer
Joan F. Krey................... 51 Vice President and Secretary
Savio W. Tung.................. 44 Director
Jon P. Hedley.................. 35 Director
E. Garrett Bewkes III.......... 45 Director
Charles J. Philippin........... 45 Director
Stephen I. Sadove.............. 45 Director
Brian Ruder.................... 42 Director
</TABLE>

PHILIP B. MILLER became Chairman and Chief Executive Officer of Saks in June
1993. Mr. Miller joined Saks in August 1990 as Vice Chairman and became Chief
Operating Officer in 1992. Mr. Miller became Vice Chairman and a director of
Saks Holdings in August 1990 and a Vice President of Saks Holdings in January
1991. Mr. Miller formerly was Chairman and Chief Executive Officer of Marshall
Field's, joining that company in 1983 from Neiman Marcus, where he had been
President since 1977.

BRIAN E. KENDRICK became Vice Chairman of Saks in November 1994 and Chief
Operating Officer of Saks and Saks Holdings in August 1996. He joined Saks as
Senior Vice President and Chief Financial Officer in April 1991. Mr. Kendrick
became Vice President of Saks Holdings in April 1993 and a director of Saks
Holdings in February 1994. From 1981 to 1991 Mr. Kendrick was the Chief
Financial Officer of Maison Blanche/Goudchaux, Inc. in Baton Rouge, Louisiana.
In 1987 and 1988 he took a leave of absence to become the Chief Administrative
Officer for the State of Louisiana.

ROSE MARIE BRAVO became President of Saks in September 1992 and a director
of Saks in October 1992. Ms. Bravo became a Vice President and a director of
Saks Holdings in September and October of 1992, respectively. Ms. Bravo formerly
was the Chairman and Chief Executive Officer of I. Magnin, a specialty division
of the R.H. Macy Company, a position she held since 1987. In February 1992 R.H.
Macy & Co., I. Magnin's parent company, entered bankruptcy protection.

OWEN E. DORSEY became an Executive Vice President of Saks in November 1994.
In November 1993 Mr. Dorsey joined Saks as Senior Vice President, Human
Resources. Mr. Dorsey became a Vice President of Saks Holdings in January 1994.
Mr. Dorsey formerly was with the Ritz Carlton Hotel Company, where he held the
position of Vice President, Human Resources from 1988 to 1993.

45
<PAGE>
RICHARD F. ZANNINO became Executive Vice President, Chief Financial Officer
of Saks and Saks Holdings and Treasurer of Saks Holdings in August 1996. Mr.
Zannino served as Senior Vice President of Saks from May 1994 to July 1996. Mr.
Zannino joined Saks in January 1993 as Vice President and Treasurer. From March
1992 to November 1992, Mr. Zannino was Vice President of Finance for JWP Inc., a
multinational technical services company. In December 1993, JWP Inc. entered
bankruptcy protection. From 1986 to 1992 Mr. Zannino was with Peter Kiewit Sons,
Inc., a privately-held, multi-industry company in a finance and business
development role.

CHRISTINA JOHNSON became Executive Vice President of Saks and Saks Holdings
in August 1996. From 1992 to July 1996, Ms. Johnson served Saks as Senior Vice
President and Director of Stores in the Northeast Region. Ms. Johnson joined
Saks in 1991 from Marshall Field where she was a Senior Vice President and a
General Merchandise Manager at Marshall Field's.

MARK E. HOOD became Senior Vice President and Chief Accounting Officer of
Saks and Saks Holdings in August 1996. Mr. Hood joined Saks in June 1995 as Vice
President. From 1991 to June 1995, Mr. Hood served as Vice President and
controller for Foley's Department Stores, a division of the May Department
Stores Company.

JOAN F. KREY became Vice President and Secretary of Saks Holdings in August
1996. Ms. Krey has served as General Counsel, Vice President and Secretary of
Saks since August 1985.

SAVIO W. TUNG became a director of Saks Holdings in April 1990. He has been
an executive of Investcorp, its predecessor or one or more of its wholly-owned
subsidiaries since September 1984. Mr. Tung is a director of Star Markets, Inc.

JON P. HEDLEY became a director of Saks and Saks Holdings in October 1995.
Mr. Hedley served as Secretary and Treasurer of Saks Holdings from September
1992 to August 1996. He has been an executive of Investcorp, its predecessor or
one or more of its wholly-owned subsidiaries since April 1990.

E. GARRETT BEWKES III became a director of Saks and Saks Holdings in June
1994. He is co-founder of GarMark Advisors, LLC. He was an executive of
Investcorp, its predecessor or one or more of its wholly-owned subsidiaries from
March 1994 to November 1995. Prior to joining Investcorp, Mr. Bewkes was Vice
Chairman and Co-head of the Investment Banking Department at Bear, Stearns & Co.
Inc. Mr. Bewkes also held the position of Senior Managing Director. He is a
director of The Bear Stearns Companies Inc.

CHARLES J. PHILIPPIN became a director of Saks and Saks Holdings in January
1995. He has been an executive of Investcorp, its predecessor or one or more of
its wholly-owned subsidiaries since October 1994. Prior to joining Investcorp,
Mr. Philippin was a partner with Coopers & Lybrand L.L.P. Mr. Philippin is a
director of Prime Holdings, Inc.

STEPHEN I. SADOVE became a director of Saks Holdings in August 1996. Since
1991, Mr. Sadove has served as President Worldwide of Clairol, Inc. Mr. Sadove
currently sits on the board of directors of Alpine Lace Brands, Inc.

BRIAN RUDER became a director of Saks Holdings in August 1996. Since 1995,
Mr. Ruder has served as President of Heinz U.S.A. Retail Products Group, a
division of H.J. Heinz Company. Mr. Ruder has held various executive positions
at H.J. Heinz or one of its operating divisions since 1988.

COMMITTEES OF THE BOARD OF DIRECTORS

In March 1996, Saks Holdings created a compensation committee, an audit
committee and a stock option and stock purchase plan committee. Messrs. Bewkes,
Tung, Philippin and Hedley were appointed to the compensation committee, Messr.
Bewkes was appointed to the audit committee and Messrs. Bewkes, Tung, Philippin
and Hedley were appointed to the stock option and stock

46
<PAGE>
purchase plan committee. In August 1996, Messrs. Sadove and Ruder were appointed
to the audit, compensation and stock option and stock purchase plan committees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to March 1996, Saks Holdings did not have a compensation committee.
Messrs. Bewkes, Philippin, Hedley and Tung participated in deliberations
concerning compensation of executive officers of Saks during 1995. None of the
executive officers of Saks Holdings served on the Board of Directors or on the
compensation committee of any other entity, any of whose officers served either
on the Board of Directors or on the compensation committee of Saks Holdings.

NON-EMPLOYEE DIRECTORS COMPENSATION

Directors who are employees of Saks Holdings or executives of Investcorp
receive no separate compensation other than stock options for serving as
directors. Other directors receive an annual retainer of $22,000, stock options
and reimbursement of out-of-pocket expenses incurred in attending meetings of
the Board of Directors and any committees of the Board on which they serve, as
well as payments of $1,500 per meeting attended in person and $500 per
telephonic meeting.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

Saks Holdings is a holding company which conducts all of its activities
through its operating subsidiary, Saks, and the subsidiaries of Saks. The
officers of Saks Holdings receive no compensation in their capacities as
officers of Saks Holdings. Accordingly, the following table sets forth
information concerning the annual and long-term compensation earned by Saks'
chief executive officer and each of the four other most highly compensated
executive officers of Saks whose annual salary and bonus during the fiscal years
presented exceeded $100,000 (the "Named Officers").

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION (2)(3)(4) ------------
------------------------- SECURITIES
NAME AND FISCAL ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION(1) YEAR SALARY BONUS OPTIONS COMPENSATION (2)
- ------------------------ ------ ---------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Philip B. Miller........ 1995 $1,100,000 $360,000 0 $ 59,567(5)
Chairman and Chief
Executive Officer
Brian E. Kendrick....... 1995 666,667 225,000 0 8,347(6)
Vice Chairman and Chief
Operating Officer
Rose Marie Bravo........ 1995 666,667 225,000 0 18,515(7)
President
Owen E. Dorsey.......... 1995 357,500 40,000 0 113,009(8)
Executive Vice President
Richard F. Zannino...... 1995 290,000 90,000 39,110 6,845(9)
Executive Vice
President, Chief
Financial Officer and
Treasurer
</TABLE>

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

(1) The principal position given for each of the Named Officers is as the date
of this Prospectus and does not necessarily reflect the position held during
fiscal 1995.

(2) The amounts indicated reflect compensation paid by Saks unless otherwise
specified.

(Footnotes continued on following page)

47
<PAGE>
(Footnotes continued from preceding page)

(3) Other annual compensation did not exceed $50,000 or 10% of the total salary
and bonus for any of the Named Officers.

(4) Does not include retirement benefits covered under Saks' Pension Plan and
Supplemental Plan. See the pension plan table and "Pension Plans".

(5) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770, $3,359 and $9,940 with respect to supplementary medical benefits,
long-term disability benefits and term life insurance, respectively, for the
benefit of Mr. Miller, (ii) $2,498 of matching benefits paid by Saks under
the Retirement Savings Plan and (iii) $40,000 paid by Saks for
business-related clothing expenses.

(6) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770 and $2,079 with respect to supplementary medical benefits and term
life insurance, respectively, for the benefit of Mr. Kendrick and (ii)
$2,498 of matching benefits paid by Saks under the Retirement Savings Plan.

(7) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770 and $2,079 with respect to supplementary medical benefits and term
life insurance, respectively, for the benefit of Ms. Bravo, (ii) $2,498 of
matching benefits paid by Saks under the Retirement Savings Plan, (iii)
$2,067 paid by Saks with respect to relocation expenses and (iv) $10,168
paid by Saks for business related clothing discounts.

(8) Reflects (i) the value of insurance premiums paid by Saks in the amount of
$3,770 and $1,158 with respect to supplementary medical benefits and term
life insurance, respectively, for the benefit of Mr. Dorsey, (ii) $2,432 of
matching benefits paid by Saks under the Retirement Savings Plan and (iii)
$105,649 paid by Saks with respect to relocation expenses.

(9) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770 and $940 with respect to supplementary medical benefits and term life
insurance, respectively, for the benefit of Mr. Zannino and (ii) $2,135 of
matching benefits paid by Saks under the Retirement Savings Plan.

The following table contains further information concerning the stock option
grants made to each of the Named Officers during fiscal 1995.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
----------------------------------------------------- OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS FOR OPTION
UNDERLYING GRANTED TO TERM (2)
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION ---------------------
NAME GRANTED (1) FISCAL YEAR BASE PRICE DATE 5% 10%
- ------------------- ----------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip B. Miller... -- -- -- -- -- --
Brian E. Kendrick.. -- -- -- -- -- --
Rose Marie Bravo... -- -- -- -- -- --
Owen E. Dorsey..... -- -- -- -- -- --
Richard F.
Zannino............ 39,110 15.4% $ 20(3) 2005 $491,926 $1,246,625
</TABLE>

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

(1) The option agreements provide that options have vested and will vest to the
extent of one-third of the options granted as of the date of Saks Holdings'
initial public offering, one-third on the first anniversary thereof and
one-third on the second anniversary thereof. In the event of an Approved
Sale (as defined in the option agreement), all options vest in their
entirety.

(2) These amounts are based on compounded annual rates of stock price
appreciation of 5% and 10% over the ten-year term of the options, are
mandated by the rules of the Securities and Exchange Commission and are not
indicative of expected stock price performance. Actual gains, if any, on
stock option exercises are dependent on future performance of the Common
Stock, overall market conditions, as well as the option holders' continued
employment throughout the vesting period. The amounts reflected in this
table may not necessarily be achieved or

(Footnotes continued on following page)

48
<PAGE>
(Footnotes continued from preceding page)
may be exceeded. The indicated amounts are net of the option exercise price
but before taxes that may be payable upon exercise.

(3) All stock options were granted with exercise prices equal to fair market
value, as determined by the Board of Directors, on the grant date. In
January 1996, the Board of Directors repriced the stock options from $20
(the price paid for shares at the time of the 1990 Acquisition and also in
connection with significant third party purchases of Common Stock in 1993,
which price per share was routinely used in connection with option grants
from the 1990 Acquisition through 1995) to $16 to reflect the estimated fair
market value of the Common Stock. Toward the end of 1995, management of Saks
Holdings decided to evaluate whether a $20 per share price reflected fair
market value and, therefore, whether options granted with a $20 per share
exercise price, which might have been higher than fair value, properly
incentivized management. Based on management's internal analysis, as well as
advice from third party advisors, Saks Holdings determined that as of the
end of fiscal 1995 the fair market value of the Common Stock was $16 per
share and authorized repricing the options at $16 per share.

The following table sets forth certain information regarding options to
purchase Common Stock held as of February 3, 1996 by each of the Named Officers.
None of such Named Officers exercised any options during fiscal 1995.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END (1)
---------------------------- ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE (2) UNEXERCISABLE (2)
- ------------------------ ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Philip B. Miller........ -- 324,330 -- $ 0
Brian E. Kendrick....... -- 225,050 -- 0
Rose Marie Bravo........ -- 223,750 -- 0
Owen E. Dorsey.......... -- 35,700 -- 0
Richard F. Zannino...... -- 65,060 -- 0
</TABLE>

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

(1) Calculated on the basis of $16 per share, the fair market value of the
Common Stock at February 3, 1996, as determined by the Board of Directors,
less the exercise price payable for such shares.

(2) On February 23, 1996 the exercise price with respect to the stock options
was reduced from $20 per share to $16 per share.

Saks maintains a pension plan (the "Pension Plan"), which covers
substantially all of the employees of Saks and its affiliates. Saks also
maintains a supplemental pension plan (the "Supplemental Plan") which covers
certain senior executives of Saks. See "Pension Plans". The following table sets
forth estimated annual benefits payable upon retirement with regard to the
Supplemental Plan.

<TABLE>
<CAPTION>
YEARS OF
SERVICE(1)
REMUNERATION(2) 15 20 25 30 35
- --------------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
25$0,000...... $ 75,000 $100,000 $125,000 $125,000 $125,000
300,000...... 90,000 120,000 150,000 150,000 150,000
400,000...... 130,000 160,000 200,000 200,000 200,000
500,000...... 150,000 200,000 250,000 250,000 250,000
750,000...... 225,000 300,000 375,000 375,000 375,000
1,000,000.... 300,000 400,000 500,000 500,000 500,000
1,320,000.... 396,000 528,000 660,000 660,000 660,000
</TABLE>

(Footnotes on following page)

49
<PAGE>
(Footnotes for preceding page)

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

(1) Mr. Miller has an estimated 18 credited years of service (13 of which were
granted to him pursuant to his employment agreement). Mr. Kendrick has an
estimated five credited years of service. Ms. Bravo and Mr. Zannino each
have three years of credited service and Mr. Dorsey has two.

(2) The compensation covered by the Supplemental Plan includes base salary only,
and not bonus or other amounts. For each of the Named Officers, the current
compensation covered by the Supplemental Plan does not differ by more than
10% from the amount listed in the "Salary" column of the Summary
Compensation table. The amount of the supplemental pension to which a
participant is entitled is an annual amount computed in the form of single
life annuity equal to 2% of his or her Average Final Earnings multiplied by
his or her years of credited service up to a maximum of 25 years, reduced by
any amounts received due to the Pension Plan, primary Social Security
benefits or matching amounts under the Retirement Savings Plan. "Average
Final Earnings" for purposes of the Supplemental Plan is the average rate of
the participant's salary for the last 36 calendar months of his or her
credited service.

EMPLOYMENT AGREEMENTS

Saks has employment agreements with each of Mr. Miller, Mr. Kendrick, Ms.
Bravo and Mr. Dorsey. Each agreement requires the executive officer to devote
his or her full time and best efforts to Saks during the term of the agreement.

PHILIP B. MILLER. The employment agreement with Mr. Miller commenced in
March 1996 and continues until terminated by either party as provided therein.
The agreement provides for an annual salary of $1.2 million plus increases based
on the percentage increase, if any, in the Consumer Price Index, or by a greater
amount, at the discretion of the Board of Directors of Saks. In addition, the
agreement provides for the payment of an annual bonus as determined by the Board
of Directors of Saks.

If Saks terminates Mr. Miller's employment for any reason other than for
death, disability, retirement or cause, Mr. Miller shall be entitled to receive
an amount equal to three times his base salary then in effect ($3.6 million at
his current salary) and Standard Termination Amounts. Mr. Miller is entitled to
receive an identical amount if he voluntarily terminates his employment at any
time when he is not a member of the Boards of Directors of both Saks Holdings
and Saks. If Saks terminates Mr. Miller for "cause" (as defined in the
agreement) or if Mr. Miller voluntarily terminates his employment except as
described in the preceding sentence, Mr. Miller is entitled to receive Standard
Termination Amounts. "Standard Termination Amounts" consist of pro-rated earned
but unpaid salary, bonus, deferred compensation, certain expense allowances and
unpaid or unreimbursed benefits under applicable benefits plans and programs.

BRIAN E. KENDRICK, ROSE MARIE BRAVO AND OWEN E. DORSEY. Saks' employment
agreements with Mr. Kendrick, Ms. Bravo and Mr. Dorsey commenced in March 1996
and continue until terminated. The agreements provide for annual salaries of
$750,000, $750,000 and $360,000 respectively, and a bonus of up to 50% of Mr.
Kendrick's, Ms. Bravo's or Mr. Dorsey's salary, as applicable. The agreements
further provide for annual performance and salary reviews, and for participation
in all other bonus and benefit plans applicable to other similarly situated
officers.

If Saks terminates Mr. Kendrick's or Ms. Bravo's employment for any reason
other than for death, disability, retirement or cause, Mr. Kendrick or Ms.
Bravo, as applicable, is entitled to receive an amount equal to two times his or
her base salary then in effect ($1.5 million at their current salaries) and
Standard Termination Amounts. If Saks terminates Mr. Dorsey's employment for any
reason other than for death, disability, retirement or cause, Mr. Dorsey is
entitled to receive an amount in cash equal to his base salary then in effect,
Standard Termination Amounts and benefits for one year following termination. If
Saks terminates Mr. Kendrick's, Ms. Bravo's or Mr.

50
<PAGE>
Dorsey's employment for "cause" (as defined in each agreement) or if such
employee voluntarily terminates his or her employment, such employee shall be
entitled to receive Standard Termination Amounts.

All other officers are appointed by and serve at the discretion of the Board
of Directors of Saks.

STOCK INCENTIVE PLANS

In October 1990, Saks Holdings adopted a Senior Management Stock Incentive
Plan (the "Old Incentive Plan"), and in February 1996, Saks Holdings adopted a
1996 Management Stock Incentive Plan (the "New Incentive Plan", and together
with the Old Incentive Plan, the "Incentive Plans"), for members of senior
management and certain other officers and employees of Saks Holdings and of
Saks. As of August 28, 1996 there were options to purchase 26,720 shares of
Common Stock outstanding under the Old Incentive Plan, all of which vested upon
the closing of Saks Holdings initial public offering, and options to purchase
3,045,315 shares of Common Stock outstanding under the New Incentive Plan. The
vesting of options under the New Incentive Plan is described below. No
additional options will be granted under the Old Incentive Plan. The maximum
number of shares of Common Stock issuable pursuant to the Incentive Plans is
6,209,045, subject to adjustment to reflect stock splits, stock dividends and
similar stock transactions.

The Incentive Plans provide for the grant of options that qualify as
incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as
amended (the "Code"), as well as options that do not qualify as ISOs
("Non-qualified Options") (collectively referred to as the "Options"), and also
provide for the grant of stock appreciation rights and for the sale or grant of
restricted stock. Options to purchase shares of Common Stock may extend for ten
years for ISOs and ten years and 30 days for Non-qualified Options from the date
of grant. Options may not be granted and restricted stock may not be sold or
granted after October 17, 2000. The granting of Options is conditioned upon
active employment with Saks Holdings, Saks or any of its direct or indirect
subsidiaries. In the event an employee ceases to be employed by Saks Holdings,
Saks or any of its direct or indirect subsidiaries, for any reason, Saks
Holdings may repurchase at fair market value, as determined annually by the
Board of Directors, any shares of Common Stock acquired by such employee
pursuant to the exercise of an Option granted under the Incentive Plans.

The Incentive Plans are administered by the stock option and stock purchase
plan committee (the "Incentive Plans Committee"), each member of which is
required to be "disinterested" within the meaning of Rule 16b-3 under the
Exchange Act. The Incentive Plans Committee has the authority to interpret the
Incentive Plans, to determine the terms and conditions of Options and other
grants under the Incentive Plans and to make all other determinations necessary
or advisable for the administration of the Incentive Plans. The Incentive Plans
Committee may determine the number of shares subject to grants or sales and the
terms thereof. The terms upon which options and stock appreciation rights are
granted and restricted stock is sold or granted are to be evidenced by a written
agreement executed by Saks Holdings and the relevant employee.

Saks Holdings has entered into individual Stock Option Agreements with
members of management with respect to 3,045,315 options outstanding under the
New Incentive Plan, pursuant to which each such employee's right to exercise
such Options has vested and will vest to the extent of one-third of the Options
granted as of the date of Saks Holdings' initial public offering, one-third on
the first anniversary thereof and one-third on the second anniversary thereof.
In the event of an Approved Sale (as defined in the agreement), all options vest
in their entirety. The Stock Option Agreements further provide for the
termination of the vested portions of any Options upon the tenth anniversary of
such Stock Option Agreement, and for acceleration of termination if the employee
ceases to be employed by Saks Holdings or a subsidiary.

51
<PAGE>
RETIREMENT SAVINGS PLAN (401(K))

In July 1990 Saks adopted a Retirement Savings Plan (the "Retirement Savings
Plan"), a savings and investment plan intended to be qualified under Section 401
of the Code. All employees of Saks and its affiliates (including officers and
directors who are employees) who are at least 21 years of age may participate in
the plan after one year of service with Saks or such affiliate. Participating
employees may make pre-tax and after-tax contributions, subject to limitations
under the Code, of a percentage (not to exceed 16%) of their total compensation,
and such amounts (and the earnings thereon) are fully vested at all times. Saks
makes matching contributions in an amount equal to one-fourth of the first 6% of
an employee's contribution. Any such matching contributions (and the investment
earnings thereon) will vest 25% after two years of service and an additional 25%
per year of service thereafter until fully vested after five years of service,
provided that such contributions become 100% vested upon the employee's death,
disability or retirement.

PENSION PLANS

Saks' Pension Plan covers substantially all of the employees of Saks and its
affiliates. Benefits are based primarily on years of service and the employees'
compensation, subject to limitations under the Code. The compensation covered by
the Pension Plan includes base salary only, and not bonus or other amounts.
Saks' policy is to fund the plan to satisfy the requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Generally, an employee is
entitled upon retirement to annual payments for each year of service in the
amount of 1% of his or her covered compensation received for that year of
service. The estimated benefits payable upon retirement at normal retirement age
for each Named Officer as of February 3, 1996 is $21,869 (Mr. Miller), $44,369
(Mr. Kendrick), $35,903 (Ms. Bravo), $33,000 (Mr. Dorsey) and $46,910 (Mr.
Zannino).

Saks also maintains an unfunded supplemental retirement plan (the
"Supplemental Plan") covering the Chairman, Vice Chairman, President, Executive
Vice Presidents and Senior Vice Presidents of Saks (the "Covered Employees").
The Supplemental Plan is maintained primarily for the purpose of providing
deferred compensation for a select group of management and highly compensated
employees in accordance with the provisions of ERISA. The Covered Employees have
a nonforfeitable right to receive a supplemental pension upon five years of
service in the covered position. Generally, the amount of the supplemental
pension for a Covered Employee is an annual amount computed in the form of a
single life annuity equal to 2% of the Final Average Earnings (as defined in the
Supplemental Plan) multiplied by his or her years of service up to a maximum of
25 years, subject to deduction for Social Security benefits and for amounts
received from Saks or its affiliates under any other qualified or unqualified,
formal or informal plan, including the Pension Plan.

52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of August 28, 1996, as adjusted to reflect the
sale by the Selling Stockholders of the shares offered hereby, by (i) each
person who is known by Saks Holdings to own beneficially more than 5% of the
outstanding shares of the Common Stock; (ii) each director and Named Officer and
(iii) all executive officers and directors as a group. Unless otherwise
indicated, to Saks Holdings' knowledge each person has sole voting power and
investment power with respect to the shares attributed to them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
---------------------------------------------------------
PRIOR TO THE
OFFERINGS AFTER THE OFFERINGS
--------------------- ---------------------

SHARES
NUMBER OF BEING NUMBER
NAME OF BENEFICIAL OWNER SHARES PERCENT OFFERED OF SHARES PERCENT
- ------------------------------------------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Investcorp (1)............................. 10,547,715 16.73% -- 10,547,715 16.73%
SIPCO Limited (2).......................... 10,533,715 16.71 -- 10,533,715 16.71
His Royal Highness Prince Al Waleed Bin
Talal Bin Abdulaziz (3)................... 4,450,000 7.06 884,711 3,565,289 5.66
SFA Saudi Investments Limited.............. 550,000 * 109,346 440,654 *
Fifth Avenue Equity Limited................ 2,504,386 3.97 497,900 2,006,486 3.18
Fifth Avenue Holdings Limited.............. 1,815,789 2.88 361,000 1,454,789 2.31
Fifth Avenue Investments Limited........... 1,940,789 3.08 385,851 1,554,938 2.46
Saks Fifth Avenue Holdings II Ltd.......... 2,171,052 3.44 405,285 1,765,767 2.80
Saks Fifth Avenue Investments II Ltd....... 2,171,052 3.44 405,285 1,765,767 2.80
Saks Fifth Avenue Equity Limited........... 2,241,249 3.56 444,876 1,792,802 2.84
Real Clothes Equity Limited................ 2,065,789 3.28 410,702 1,655,087 2.63
Real Clothes Holdings Limited.............. 1,785,087 2.83 354,895 1,430,192 2.27
Real Clothes Investments Limited........... 1,815,789 2.88 361,000 1,454,789 2.31
SFA Equity Limited......................... 1,565,789 2.48 311,296 1,254,493 1.99
SFA Holdings Limited....................... 1,815,789 2.88 361,000 1,454,789 2.31
SFA Investments Limited.................... 1,653,289 2.62 328,693 1,324,596 2.10
SFA Label Investments Limited.............. 2,100,000 3.33 417,504 1,682,496 2.67
Works Holdings Limited..................... 2,348,739 3.73 417,253 1,931,486 3.06
J.C. Orr & Co.............................. 1,315,789 2.09 261,594 1,054,195 1.67
Macro International Ltd.................... 1,754,386 2.78 348,792 1,405,576 2.23
Government of Kuwait....................... 2,192,982 3.48 435,990 1,765,992 2.79
Trustees of the Estate of Bernice Pauahi
Bishop..................................... 2,500,000 3.97 497,028 2,002,972 3.18
Philip B. Miller (5)....................... 351,048 * -- 351,048 *
Brian E. Kendrick (5)...................... 143,763 * -- 143,763 *
Rose Marie Bravo (5)....................... 157,273 * -- 157,273 *
Richard F. Zannino (5)..................... 40,457 * -- 40,457 *
Owen E. Dorsey (5)......................... 30,387 * -- 30,387 *
Savio W. Tung (6).......................... 99,325 * -- 99,325 *
Jon P. Hedley (7).......................... 45,000 * -- 45,000 *
E. Garrett Bewkes III...................... -- -- -- -- --
Charles J. Philippin....................... 15,000 * -- 15,000 *
Stephen I. Sadove.......................... -- -- -- -- --
Brian Ruder................................ -- -- -- -- --
All directors and executive officers as a
group (14 people) (8)..................... 931,798 1.46 -- 931,798 1.46
</TABLE>

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

* Less than 1%.

(Footnotes continued on following page)

53
<PAGE>
(Footnotes continued from preceding page)
(1) Investcorp does not directly own any shares of Common Stock. The number of
shares shown as owned by Investcorp includes all of the shares owned by SFA
Folio Limited, SFA Label Limited, SFA Collection Limited, SFA Designer
Limited, Saks Fifth Avenue Holdings II Limited, Saks Fifth Avenue
Investments II Limited, Flair Limited, SFA Capital Limited, Ballet Limited,
Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger
Limited, Quill Limited, Radial Limited, Shoreline Limited, Zinnia Limited,
and Chemical Nominees (Guernsey) Limited. Other than Flair Limited and SFA
Capital Limited, which are indirect wholly-owned subsidiaries of
Investcorp, Investcorp owns no stock in such entities. Investcorp may be
deemed to share beneficial ownership of the shares of Common Stock held by
such entities because such entities or their shareholders or principals
have entered into revocable management services or similar agreements with
an affiliate of Investcorp pursuant to which each such entity has granted
such affiliate the authority to direct the voting and disposition of the
stock owned by such entity for so long as such agreement is in effect.
Investcorp is a Luxembourg corporation, with its registered address at 37
rue Notre-Dame, Luxembourg.

(2) SIPCO Limited ("SIPCO") does not directly own any Common Stock. The number
of shares shown as owned by SIPCO consists of the shares Investcorp is
deemed to beneficially own. SIPCO may be deemed to control Investcorp
through its ownership of a majority of the stock of a company which
indirectly owns a majority of Investcorp's outstanding stock. SIPCO is a
Cayman Islands corporation with its address at P.O. Box 1111, West Wind
Building, George Town, Grand Cayman, Cayman Islands, British West Indies.

(3) His Royal Highness Prince Al Waleed Bin Talal Bin Abdulaziz does not
directly own any Common Stock. The number of shares shown as owned by him
include all of the shares held by SFA Saudi Holdings Limited, of which he
owns a majority of the outstanding stock. The business address of His Royal
Highness Prince Al Waleed Bin Talal Bin Abdulaziz is c/o Kingdom
Establishment Trading and Contracting, P.O. Box 8653, Riyadh 11492, Saudi
Arabia.

(4) Includes the following shares of Common Stock, purchasable within 60 days
of August 28, 1996, upon exercise of stock options by the following
individuals: Mr. Miller (211,404 shares), Mr. Kendrick (135,008 shares),
Ms. Bravo (134,023 shares), Mr. Zannino (39,156 shares) and Mr. Dorsey
(26,601 shares).

(5) Includes 50,000 shares that Mr. Tung has the right to acquire within 60
days of August 28, 1996.

(6) Includes 5,000 shares that Mr. Hedley has the right to acquire within 60
days of August 28, 1996.

(7) Includes an aggregate of 587,953 shares of Common Stock purchasable within
60 days of August 28, 1996 upon exercise of stock options.

54
<PAGE>
CERTAIN TRANSACTIONS

RELATED TRANSACTIONS

Saks incurred fees of $8 million payable to III, an affiliate of Investcorp,
for certain management, consulting and advisory services rendered in fiscal 1995
and the first half of fiscal 1996. Of these expenses, $7 million are reflected
in Saks' operating results for fiscal 1995 and $1 million is reflected in Saks'
operating results for the six months ended August 3, 1996. Fees of $2 million
also were paid to III in each of fiscal 1991, 1992, 1993 and 1994. Saks believes
that the terms of its management, advisory and consulting arrangements with III
were no less favorable to Saks than terms that may have been available from
independent third parties. Management fees to III were discontinued in July
1996. Saks expects that there will be no further remuneration for consulting
services between Saks or Saks Holdings and Investcorp or any of its affiliates.

Prior to April 3, 1996 Investcorp and its affiliates had an ownership
interest in and controlled a majority of the voting stock of Gucci Group N.V.
and its affiliates ("Gucci"), an Italian designer, manufacturer and distributor
of women's and men's luxury apparel and accessories. Investcorp affiliates
continue to represent a majority of the members of the Supervisory Board of
Gucci. In addition, Investcorp and its affiliates have an ownership interest in,
control a majority of the voting stock of, and have directors serving on the
board of directors of Ebel S.A. ("Ebel"), a Swiss manufacturer and distributor
of watches, and Chaumet International S.A. ("Chaumet"), a French retailer of
jewelry, gems and other luxury products. Saks distributes the products of Gucci,
Ebel and Chaumet through its stores. Saks believes that the terms of these
arrangements are on arms' length bases. Except for these arrangements, Saks has
no business relationships with Investcorp or any of its affiliates or related
parties.

Gucci designs and sells lines of women's and men's apparel that compete with
Saks' private label apparel business. Saks believes that competition with Gucci
is limited because Saks' private label merchandise generally is sold at
different price points and targets different market segments.

Although the agreement for management and advisory services expired in July
1996, Investcorp, as the beneficial owner of 17.30% of the Common Stock of Saks
Holdings and with representatives on the board of directors of Saks Holdings,
may be able to exert influence over the operations of Saks Holdings and Saks.

LOANS TO CERTAIN OFFICERS AND DIRECTORS

From time to time, Saks extends loans to certain officers and directors in
connection with stock purchase transactions.

In January 1992, Mr. Kendrick executed a note in favor of Saks in the
principal amount of $175,100. The note matures in January 1997, bears interest
at an annual rate of 8% and is secured by a pledge of Common Stock. In March
1996, Mr. Kendrick executed a note in favor of Saks in the principal amount of
$250,000, the proceeds of which were used to refinance an earlier note executed
by Mr. Kendrick. The note matures in March 1999, bears interest at an annual
rate of 8% and is secured by a pledge of Common Stock. At Saks' option, the
principal of, and accrued interest on, each of the notes described above becomes
immediately due upon the occurrence of certain events, including the termination
of Mr. Kendrick's employment by Saks for any reason.

55
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

Saks Holdings' authorized capital stock consists of 10 million shares of
preferred stock, of which no shares are issued and outstanding, and 150 million
shares of Common Stock, $.01 par value per share, of which 63,049,315 shares are
issued and 63,037,464 shares are outstanding as of August 28, 1996. The material
terms of Saks Holdings' certificate of incorporation and bylaws are discussed
below.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to vote cumulatively
for the election of directors. Holders of Common Stock have no redemption,
conversion, preemptive or other subscription rights. There are no sinking fund
provisions relating to the Common Stock. In the event of the liquidation,
dissolution or winding up of Saks Holdings, holders of Common Stock are entitled
to share ratably in all of the assets of Saks Holdings, if any, remaining after
satisfaction of the debts and liabilities of Saks Holdings. The outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, upon payment therefor as contemplated herein, validly issued, fully paid and
nonassessable.

Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors of Saks Holdings out of funds legally
available therefor. Saks Holdings does not anticipate paying cash dividends on
the Common Stock in the foreseeable future. See "Dividend Policy".

PREFERRED STOCK

The Board of Directors is authorized, subject to certain limitations
prescribed by law, to issue the preferred stock in one or more classes or series
and to fix the designations, powers, preferences, rights, qualifications,
limitations or restrictions of any such class or series. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of Saks Holdings. Saks Holdings has no
current plans to issue shares of preferred stock.

CERTAIN PROVISIONS OF DELAWARE LAW

Saks Holdings was incorporated in 1990 under the Delaware General
Corporation Law (the "DGCL"). Saks Holdings is subject to Section 203 of the
DGCL, which restricts certain transactions and "business combinations" between a
Delaware corporation and an "interested stockholder" (in general, a stockholder
owning 15% or more of the corporation's outstanding voting stock) or an
affiliate or associate of an interested stockholder, for a period of three years
from the date the stockholder becomes an interested stockholder. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
unless the transaction is approved by the Board of Directors and the holders of
at least 66 2/3% of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder), Section 203 prohibits significant
business transactions such as a merger with, disposition of assets to or receipt
of disproportionate financial benefits by the interested stockholder, or any
other transaction that would increase the interested stockholder's proportionate
ownership of any class or series of the corporation's stock. The statutory ban
does not apply if, upon consummation of the transaction in which any person

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becomes an interested stockholder, the interested stockholder owns at least 85%
of the outstanding voting stock of the corporation (excluding shares held by
persons who are both directors and officers or by certain employee stock plans).

Saks Holdings' Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. The Certificate
of Incorporation provides that, to the fullest extent permitted by the DGCL, no
director of Saks Holdings will be liable to Saks Holdings or its stockholders
for monetary damages for breach of fiduciary duty as a director. The Certificate
of Incorporation and Bylaws of Saks Holdings also contain provisions
indemnifying the directors and officers of Saks Holdings to the fullest extent
permitted by the DGCL.

Section 203 and the provisions of Saks Holdings' Certificate of
Incorporation and Bylaws described above may make it more difficult for a third
party to acquire, or discourage acquisition bids for, Saks Holdings. Section 203
and these provisions could have the effect of inhibiting attempts to change the
membership of the Board of Directors of Saks Holdings. In addition, the limited
liability provisions in the Certificate of Incorporation and the indemnification
provisions in the Certificate of Incorporation and Bylaws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty (including breaches resulting from grossly negligent conduct) and
may have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise have benefited Saks Holdings and its stockholders. Furthermore, a
stockholder's investment in Saks Holdings may be adversely affected to the
extent Saks Holdings pays the costs of settlement and damage awards against
directors and officers of Saks Holdings pursuant to the indemnification
provisions in Saks Holdings' Bylaws. The limited liability provisions in the
Certificate of Incorporation will not limit the liability of directors under
federal securities laws.

SHARES RESERVED FOR ISSUANCE

Saks Holdings has 6,209,045 shares of Common Stock reserved for issuance
upon the exercise of options granted or to be granted under the Incentive Plans.
As of August 28, 1996, options for the purchase of 3,072,035 shares were
outstanding. As of August 28, 1996 options for the purchase of 1,041,158 shares
of Common Stock have fully vested.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services LLC.

LISTING

The Common Stock is listed on the New York Stock Exchange under the symbol
"SKS".

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DESCRIPTION OF CERTAIN INDEBTEDNESS

The material terms of certain indebtedness of Saks are described below. Each
of the following summaries is subject to and qualified in its entirety by
reference to the detailed provisions of the respective agreements and
instruments to which each summary relates. Copies of such agreements and
instruments have been filed as exhibits to the Registration Statement of which
this Prospectus is a part.

CREDIT AGREEMENT

In July 1993, Saks entered into an Amended and Restated Credit Agreement
with certain lenders (the "Lenders") which provided for $200 million in term
loans ("Term Loans"), $225 million in base revolving credit loans ("Base
Revolving Loans") and $100 million in working capital revolving credit loans
("Working Capital Revolving Loans"). The Term Loans, Base Revolving Loans and
Working Capital Revolving Loans collectively are referred to as the "Credit
Facility". The Term Loans consist of two tranches: the tranche A term loan (the
"Tranche A Loan") and the tranche B term loan (the "Tranche B Loan"), each
initially in the amount of $100 million. In March 1995, Saks and the Lenders
amended the Credit Facility to increase the principal amount of the Tranche B
Loan by $75 million for the primary purpose of financing the acquisition of four
stores previously operated by I. Magnin. In October 1995, Saks and the Lenders
amended the Credit Facility to (a) increase the principal amount of the Tranche
B Loan by $50 million, and (b) permit Saks to retain up to $25 million of net
proceeds from asset sales that otherwise would have been subject to mandatory
prepayment under the Credit Facility, each for the purpose of financing capital
expenditures relating to the remodeling, replacement and construction of retail
stores and a distribution center. For information regarding installment payments
due on the Tranche A Loan and the Tranche B Loan, see Note 5 to Consolidated
Financial Statements. As of August 3, 1996, there was approximately $25 million
and $113 million outstanding under the Tranche A and Tranche B Loans,
respectively.

In March 1996, Saks and the Lenders amended the Credit Facility, among other
things, to (i) permit Saks Holdings' initial public offering, (ii) exclude up to
$45 million in special charges from the calculation of certain restrictive
financial covenants and (iii) require that (a) at least one-third of the net
proceeds from Saks Holdings' initial public offering be used to prepay Term
Loans and (b) the remainder of such net proceeds be used to prepay first the
Working Capital Revolving Loans and then the Base Revolving Loans without
permanent reductions of availability. In April 1996, Saks and the Lenders
amended the Credit Facility, among other things, to (i) allow certain of the
proceeds of the Base Revolving Loans and Working Capital Revolving Loans to be
used to make permitted acquisitions and permitted capital expenditures, (ii) add
a covenant specifying a maximum ratio of outstanding loans to consolidated
adjusted operating profit tested annually and (iii) amend the method of
calculating interest rates under the Credit Facility as set forth below. In
April 1996, Saks and the Lenders amended the Credit Facility to allow Saks to
make payments, dividends or distributions with respect to operating costs
incurred by Saks Holdings in amounts not to exceed $4.0 million per fiscal year.

In August 1996, the Lenders consented to the issuance of the Notes pursuant
to the Notes Offering and certain payments from Saks to Saks Holdings pursuant
to an intercompany note (the "Intercompany Note") to permit Saks Holdings to
fund payments of principal of and interest on the Notes. The Lenders also
consented to the prepayment of Saks' existing subordinated debt. Saks is
required to prepay the outstanding balance of the term loans with the proceeds
from the Intercompany Note if the Notes Offering is consummated.

As of August 3, 1996, an aggregate principal amount of approximately $291
million was available for borrowing under the Working Capital Revolving Loans
and the Base Revolving Loans,

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which amount is net of approximately $24.7 million in borrowings and $6.6
million in standby letters of credit issued and outstanding under the Credit
Facility. The Lenders' commitments to make the Working Capital Revolving Loans
and the Base Revolving Loans expire on the earlier of June 30, 1998 and the
termination of the commitments under the Credit Facility. Saks and the Lenders
currently are reviewing Saks' Revolving Loans and intends to modify the terms of
the Revolving Loans to reflect Saks' improved credit worthiness.

Saks may borrow up to $20 million in aggregate principal amount of swingline
loans which bear interest at the Alternate Base Rate (as defined in the Credit
Facility) plus an applicable margin ranging from 0.0% to 1.0% depending on the
type of loan and the Interest Coverage Ratio (as defined in the Credit
Facility). All other loans under the Credit Facility bear interest at a rate
equal to, at Saks' option, (a) the Alternate Base Rate plus a percentage ranging
from 0.0% to 1.5% depending on the Interest Coverage Ratio or (b) the Eurodollar
Rate (as defined in the Credit Facility) plus a percentage ranging from 1.0% to
2.5% depending on the Interest Coverage Ratio. Saks has purchased three interest
rate cap agreements which limit the maximum interest rate on $400 million of
borrowings through September 2, 1996 to 5.5%.

The Credit Facility imposes certain covenants and other requirements on Saks
and its subsidiaries. In general, the affirmative covenants include standard
operating covenants requiring Saks, among other things, to: periodically and
upon the occurrence of certain events furnish certain financial information and
certificates to the administrative agent; pay obligations when due; continue to
engage in a business of the same general type as conducted on the date of the
Credit Facility; maintain property in good working order; maintain insurance
coverage on all property; keep proper books and records; promptly give notice
upon the occurrence of certain events; cause each Real Estate Holding Subsidiary
(as defined in the Credit Facility) to make certain distributions to Saks or a
subsidiary; grant a security interest to the administrative agent in certain new
leaseholds; and use reasonable best efforts to cause each such new leasehold to
be mortgageable and assignable. The Credit Facility also contains certain
negative covenants and restrictions that, among other things, restrict: (i) the
incurrence of indebtedness (as described below); (ii) the incurrence of liens or
other encumbrances; (iii) the incurrence of contingent obligations; (iv) the
sale, lease, assignment, transfer or other disposition of assets other than in
the ordinary course of business; (v) fundamental corporate changes including
acquisitions, mergers, consolidations, liquidations or material changes in Saks'
current method of conducting business or engaging in any type of business other
than the same general type presently conducted; (vi) investments, loans and
advances; (vii) capital expenditures; (viii) certain payments of dividends (see
"Risk Factors--No Dividends"); (ix) transactions with affiliates including
purchases, sales, leases, exchanges of property or rendering of any service with
any affiliate; (x) entering into certain foreign currency exchange contracts
other than for the purpose of hedging payments received in a foreign currency in
the ordinary course of business; (xi) changes in significant credit or
collection policies; (xii) prepayments and amendments of subordinated debt and
debt incurred pursuant to the REMIC Financing; (xiii) certain amendments of
leases of operating properties; and (xiv) waiver of surviving rights and causes
of action under the stock purchase agreement pursuant to which the stock of Saks
was acquired in 1990 and the I. Magnin acquisition agreement in 1994. Financial
covenants in the Credit Facility specify that consolidated net worth tested
quarterly may not be below the net proceeds from Saks Holdings' initial public
offering (approximately $418 million) plus $650 million and that consolidated
adjusted operating profit tested annually may not be below $155 million during
fiscal 1996 increasing to $225 million in fiscal 1999. Financial covenants in
the Credit Facility also require maintenance of the Interest Coverage Ratio
tested quarterly with respect to the immediately preceding four quarters which
increase from 1.90 to 1.00 for the third quarter of fiscal 1996, to 3.00 to 1.00
for the second quarter of fiscal 2000 and specify that the ratio of outstanding
loans to consolidated adjusted operating profit tested annually may not exceed a
certain level which decreases from 2.75 to 1.00 in fiscal 1996 to 1.75 to 1.00
in fiscal 1999.

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Saks and its subsidiaries may not create, incur, assume or suffer to exist
any indebtedness except: (i) indebtedness outstanding on the date of the Credit
Facility that was specifically scheduled, excluding the refinancing of such
indebtedness; (ii) indebtedness arising under the Credit Facility;
(iii) indebtedness incurred after the date of the Credit Facility for industrial
revenue bonds, capitalized lease obligations or the deferred purchase price of
newly acquired property not exceeding an aggregate at any one time outstanding
of $140 million plus amounts outstanding under certain capitalized leases;
(iv) intercompany indebtedness; (v) indebtedness evidenced by the Subordinated
Notes, subject to certain conditions; (vi) indebtedness pursuant to the REMIC
Financing; (vii) unsecured indebtedness not exceeding an aggregate principal
amount at any one time outstanding of $50 million; (viii) indebtedness in
respect of foreign currency exchange contracts otherwise permitted in the Credit
Facility; (ix) indebtedness in respect of the Accounts Receivable Financing (as
defined in the Credit Facility, which includes the transactions described under
"Receivables Securitization"); (x) unsecured indebtedness in respect of letters
of credit issued under other credit facilities, subject to a $25 million limit
in the aggregate; and (xi) indebtedness relating to certain specifically
scheduled store transactions.

Saks from time to time has amended covenants contained in the Credit
Facility in anticipation of changes in its results of operations and in economic
conditions generally.

Events of default under the Credit Facility include, among other things: (i)
the failure to pay any principal when due or any interest within five days of
being due; (ii) any representation or warranty in documents delivered in
connection with the Credit Facility which is proven to be materially incorrect
as of the date made; (iii) a failure by Saks, Saks Holdings or any subsidiary to
comply with or perform certain obligations under the Credit Facility or certain
documents delivered in connection therewith; (iv) a default by Saks or any
subsidiary in the payment when due of certain indebtedness or conditions or
agreements relating to such indebtedness, provided that the aggregate principal
amount of liabilities involved is at least $1 million; (v) certain insolvency
events; (vi) certain prohibited ERISA events; (vii) judgments or decrees entered
against Saks or any subsidiary involving an aggregate of $1 million or more
(excluding amounts covered by insurance) not stayed, discharged, vacated or
bonded within the applicable time for such action; (viii) the ineffectiveness or
unenforceability of documents delivered in connection with the Credit Facility;
(ix) a change of control, which is deemed to occur if any person (other than
Investcorp, any of its Affiliates or subsidiaries, any person who is senior
management of Saks or Saks Holdings, any entity that is majority-owned by such
senior management of Saks or Saks Holdings, or any person acting in the capacity
of an underwriter), whether singly or in concert with one or more persons,
directly or indirectly acquires the power to vote or direct the voting of 25% or
more, on a fully diluted basis, of the outstanding common stock of Saks or of
the Common Stock; and (x) any amendment or other modification of the
Subordinated Note Indenture or Subordinated Notes made without all required
written consents.

The Credit Facility is secured by substantially all of the assets of Saks
and its subsidiaries other than (i) a significant number of the real estate
properties owned or leased by Saks or its subsidiaries which are subject to the
REMIC Financing, (ii) certain accounts receivable of Saks which are subject to
sale under the accounts receivable financing discussed below, (iii) the
inventory of Saks and its subsidiaries and (iv) the capital stock of Saks' real
estate subsidiaries and accounts receivable subsidiaries. Saks Holdings has
guaranteed payment of the obligations of Saks under the Credit Facility and has
secured this guarantee with a pledge of all of the issued and outstanding
capital stock of Saks.

In addition, as of August 3, 1996, approximately $4.9 million in letters of
credit were outstanding under a separate $10 million letter of credit facility
between Saks and The Bank of Tokyo.

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SUBORDINATED DEBT

On July 1, 1993, Saks issued and sold in a private placement $50 million
principal amount of 9% Subordinated Notes due 2001 (the "Subordinated Notes").
The Subordinated Notes bear interest at 9% per year, payable semiannually in
arrears on each June 30 and December 31, and mature on May 31, 2001. The
Subordinated Notes are unsecured obligations of Saks and are subordinated in
right of payment to all existing and future Senior Indebtedness (as defined in
the indenture pursuant to which the Subordinated Notes were issued (the
"Subordinated Note Indenture")).

The Subordinated Notes may be redeemed at the option of Saks in whole or in
part at (a) 101% of the principal amount redeemed prior to November 30, 1996,
(b) 100.5% of the principal amount redeemed on or after November 30, 1996 but
prior to May 31, 1997 or (c) 100% of the principal amount redeemed on or after
May 31, 1997 through maturity, in each case plus accrued and unpaid interest, if
any. Saks intends to redeem $35 million aggregate principal amount of the
Subordinated Notes with the proceeds from the Intercompany Note. Upon a "Change
of Control," Saks is obligated to make an offer to repurchase all outstanding
Subordinated Notes at the optional redemption prices set forth above, plus
accrued and unpaid interest, if any, to and including the Change of Control
Payment Date (as defined in the Subordinated Note Indenture). A "Change of
Control" will be deemed to occur if any person (other than Investcorp, an
Affiliate of Investcorp, a person who is senior management of Saks, any entity
majority-owned by such senior management of Saks or any person acting in the
capacity of an underwriter), whether singly or in concert with one or more
persons, directly or indirectly, shall have acquired 20% or more, on a fully
diluted basis, of the outstanding Common Stock.

The Subordinated Note Indenture contains various restrictive covenants that,
among other things, limit: (i) the incurrence of certain additional indebtedness
by Saks or its subsidiaries; (ii) the creation of Senior Indebtedness of Saks
which is, by its terms, subordinated in right of payment to other indebtedness
of Saks; and (iii) the payment of dividends on capital stock of Saks (see "Risk
Factors--No Dividends"). Affirmative covenants include, among others, an
obligation to pay principal, interest and premium, if any, when due, hold funds
for note payments in trust, maintain its corporate existence, maintain its
properties in good condition, pay taxes when due, furnish to the trustee copies
of certain financial information, and certify as to whether Saks is in default
within 90 days after the end of each fiscal quarter of Saks. Events of default
under the Subordinated Note Indenture include, among other things: (i) a default
in the payment of any interest on any Note when due, which default continues for
30 days; (ii) a default in the payment of any principal of or premium, if any,
on any Note when due; (iii) a default in the deposit of any payment when due
pursuant to a Change of Control or redemption of any Note; (iv) the failure by
Saks to comply with any agreement or covenant in the Subordinated Note Indenture
with respect to the payment of dividends on capital stock, which failure
continues for ten business days; (v) the failure by Saks to comply with any
other agreement or covenant in the Subordinated Note Indenture, which failure
continues for 60 days after a Notice of Default (as defined in the Subordinated
Note Indenture) is given; (vi) the rendering of a final judgment in excess of
$20 million (excluding amounts covered by insurance) not discharged, waived or
stayed for 45 days after the date on which the right to final appeal expires,
which default continues for 30 days after a Notice of Default is given; (vii)
certain defaults under a bond, debenture, note or other indebtedness of Saks or
any Significant Subsidiary (as defined in the Subordinated Note Indenture), or
under a mortgage, indenture or other instrument under which there may be issued
or by which there may be secured or evidenced indebtedness for money borrowed by
Saks or such Significant Subsidiary, which indebtedness has a principal amount
of over $20 million; and (viii) certain events of bankruptcy, insolvency or
reorganization of Saks or any Significant Subsidiary.

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REMIC FINANCING

In May 1995, Fifth Avenue Capital Trust, a special purpose Delaware business
trust (the "Depositor") of which the primary beneficiary is Saks, made 27
commercial mortgage loans (the "Mortgage Loans") in the aggregate principal
amount of $335 million (the "REMIC Financing") to eight special purpose Delaware
corporations and one special purpose Delaware business trust (the "REMIC
Borrowers") which owned 28 properties operated as Saks stores (including the
Fifth Avenue store) and the Yonkers distribution center (the "REMIC
Properties"). The eight corporate REMIC Borrowers are direct or indirect
wholly-owned subsidiaries of Saks. All of the beneficial interests in the one
REMIC Borrower that is a business trust are owned indirectly by Saks.

The Mortgage Loans were deposited by the Depositor in a trust fund (the
"Trust Fund") created by the Depositor pursuant to a trust and servicing
agreement among the Depositor, Bankers Trust Company, as servicer (the
"Servicer"), and Marine Midland Bank, as trustee. Commercial Mortgage
Pass-Through Certificates in the aggregate principal amount of $335 million
representing beneficial ownership interests in the Trust Fund (the "REMIC
Certificates") were offered and sold in transactions exempt from registration
under the Securities Act pursuant to Rule 144A or Regulation S under the
Securities Act. The Depositor holds the REMIC Certificate representing the
residual interest in the Trust Fund. An election was made to treat the Trust
Fund as a REMIC for federal income tax purposes. The Depositor used the proceeds
of the sale of the REMIC Certificates to repay an existing $335 million
financing secured by certain of the REMIC Properties and certain other Saks
stores. For information regarding aggregate principal amounts of the various
series of REMIC Certificates, and the rates of interest payable thereon, see
Note 5 to Consolidated Financial Statements.

There is no scheduled principal amortization on the Mortgage Loans prior to
May 12, 2002. The unpaid principal balance of each Mortgage Loan is due in a
single balloon payment on that date.

Each REMIC Borrower has guaranteed the Mortgage Loans of each other REMIC
Borrower. Each REMIC Borrower has secured its obligations with respect to its
Mortgage Loans and its guaranty of each other REMIC Borrower's Mortgage Loans by
a first priority mortgage lien on each fee or leasehold interest of each REMIC
Borrower in its REMIC Properties and an assignment of leases, rents and lease
guarantees relating to all leases on each such REMIC Property, primarily
consisting of an operating lease (an "Operating Lease") with Saks or a direct or
indirect wholly-owned operating subsidiary of Saks (an "Operating Lessee"). The
Mortgage Loans also contain covenants limiting the ability of each REMIC
Borrower to incur certain additional indebtedness. In addition, a REMIC Borrower
may not renovate a REMIC Property if such renovation would cause the related
store to be closed for ten days or more or if the modification would cost more
than $5 million per REMIC Property or $15 million in the aggregate for all REMIC
Properties, subject to certain specific exceptions for renovation projects
scheduled in the related documents. The REMIC Borrowers are subject to covenants
which require them to maintain their businesses separate and apart from Saks and
restrict their ability to engage in any activity or business not directly
related to the REMIC Properties. Saks guarantees the obligations under all
Operating Leases with Operating Lessees other than Saks. Under the terms of the
Operating Leases, the Operating Lessees are required to pay as additional rent
all taxes, assessments, utility charges and similar fees and charges. The
Operating Lessees are also responsible for paying all operating expenses and
insurance premiums and paying all utilities, and cannot reduce or set off any
rent (except, in certain circumstances, in the case of a condemnation), nor can
they terminate the Operating Leases for any reason, including condemnation,
casualty or structural defects. The Operating Lessees are required to bear the
cost of all repairs (including structural repairs) to the REMIC properties.

Events of default under the Mortgage Loans include the following: (i) a
default in the payment of any portion of the principal of or interest or
premium, if any, on any Mortgage Loan when due; (ii) a default in the payment of
any other amounts due and payable under any REMIC Certificate or

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related Mortgage Loan document, which continues for a period of ten days after
written demand; (iii) an "Event of Default" as defined in any document
evidencing or securing the Mortgage Loans which has not been cured within any
applicable cure or grace period; (iv) a default by the REMIC Borrowers under any
ground lease, operating lease or reciprocal easement agreement and such default
shall not be cured prior to the expiration of any applicable grace period; and
(v) the failure of Saks to be the sole direct or indirect owner of any REMIC
Borrower that has not paid in full its REMIC Certificates.

The Mortgage Loans may be prepaid, as described in Note 5 to Consolidated
Financial Statements. In connection with any sale of the Yonkers facility, Saks
must prepay the Mortgage Loan with respect to such facility. The Mortgage Loan
with respect to the Owings Mills, Maryland store was prepaid in January 1996 in
connection with the closing of the store at that location and the disposition of
that REMIC Property. The aggregate outstanding principal amount of the Mortgage
Loans at August 28, 1996 was $330,840,901.

RECEIVABLES SECURITIZATION

Since 1991, Saks has sold its proprietary credit card receivables (the
"Receivables") to SFA Finance Company ("Finco"), a Delaware corporation and a
wholly owned subsidiary of Saks established solely for the purpose of purchasing
Receivables from Saks. Finco subsequently transferred the Receivables, in
exchange for cash and subordinated certificates of beneficial interests, to the
SFA Master Trust (the "Original Receivables Trust") established pursuant to a
pooling and servicing agreement among Finco, Saks, as servicer, and Bankers
Trust Company, as trustee (the "Original A/R Trustee"), which is consolidated by
Saks. Saks receives a fee for servicing the Receivables for the Original
Receivables Trust.

The Original Receivables Trust has sold two series of certificates of
beneficial interest in the Original Receivables Trust to third parties. These
certificates represent undivided interests in the receivables generated from
time to time by Saks by a portfolio of accounts meeting the designated
eligibility requirements. Series 1991-2 is a medium term series that matures in
November 1996. In May 1996, principal collections of Receivables allocable to
Series 1991-2 began to be accumulated in a bank account maintained by the
Original A/R Trustee in order to make the November 1996 principal repayment and
are not available to pay for new Receivables transferred by Finco. Class A of
Series 1991-2 at August 3, 1996 had an outstanding principal balance of $200
million and bore interest at LIBOR plus .45%. The Class A Certificates were sold
in transactions exempt from registration under the Securities Act pursuant to
Rule 144A or Regulation S under the Securities Act.

In April 1996 the Saks Master Trust (the "New Receivables Trust") was formed
pursuant to a pooling and servicing agreement among Finco, Saks, as servicer,
and Bankers Trust Company, as trustee (the "New A/R Trustee"). The assets of the
New Receivables Trust currently consist principally of a certificate evidencing
the entire interest in the Transition Certificate, Series 1996-1 (the
"Transition Certificate"), which is the second outstanding series issued by the
Original Receivables Trust. The Transition Certificate represents the interest
in the assets of the Original Receivables Trust not represented by Series 1991-2
and has a principal amount which will fluctuate from time to time according to
the level of receivables in the Original Receivables Trust in excess of the
amount required to support the Series 1991-2 Certificates. On the date on which
Series 1991-2 has been fully liquidated (the "Existing Trust Termination Date"),
the assets of the Original Receivables Trust will be transferred to the New
Receivables Trust in exchange for the cancellation of the Transition
Certificate. After the Existing Trust Termination Date, Saks will receive a fee
for servicing the Receivables for the New Receivables Trust.

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In April 1996 the New Receivables Trust sold two series of certificates of
beneficial interests. These certificates represent undivided interests in the
receivables generated from time to time by Saks by a portfolio of accounts
meeting the designated eligibility requirements. Series 1996-1 is a medium term
series that matures in April 1999. Approximately $297 million of Class A Series
1996-1 Certificates and $53 million of Class B Series 1996-1 Certificates were
sold in transactions exempt from registration under the Securities Act pursuant
to Rule 144A thereunder. Approximately $47 million of subordinated Series 1996-1
Certificates were privately placed at the same time. All such certificates bear
interest at fixed spreads over one-month LIBOR. Finco retains approximately
$16.5 million of subordinated Series 1996-1 Certificates. Series 1996-1 has a
substantial prefunded amount, which will be invested in Receivables (via the
Transition Certificate) as cash allocable to Series 1991-2 is no longer
reinvested in Receivables, but instead is accumulated in order to make the
principal payment due with respect thereto in November 1996.

Series 1996-2 is a series with a variable principal amount. The Class A
Series 1996-1 Certificates have a maximum outstanding principal balance of $100
million and have been privately placed. Subordinated Series 1996-2 Certificates,
with an aggregate maximum outstanding principal balance of approximately $16.0
million, also were privately placed. All Series 1996-2 Certificates bear
interest at fixed spreads over one-month LIBOR. Finco will retain up to
approximately $5.0 million of subordinated Series 1996-2 Certificates. The
principal balance of Series 1996-2 is currently zero.

Saks is obligated to repurchase Receivables related to customer credits such
as merchandise returns and other receivable defects. Saks has no obligation to
reimburse Finco, the Original Receivables Trust, the New Receivables Trust or
the purchasers of the certificates of beneficial interests for credit losses;
however, the subordinated certificates of beneficial interest in, and deposits
with, the Original Receivables Trust, and the New Receivables Trust which are
assets of Finco, and the discount on the sale of Receivables to Finco, if any,
are available to cover such losses.

Saks continues to provide for losses related to the receivables pursuant to
the recourse provisions of the relevant agreements in determining its allowance
for doubtful accounts.

Finco is subject to covenants which require it to maintain its business
separate and apart from Saks and restrict its ability to engage in any activity
or business not directly related to acquiring the Receivables and transferring
them to the trusts.

For additional information, see Note 4 to Consolidated Financial Statements.

64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

As of August 28, 1996, 63,037,464 shares of Common Stock were outstanding.
The 18,062,500 shares of Common Stock sold in Saks Holdings' initial public
offering in May 1996 are, and the 8,000,000 shares sold in the Secondary
Offering will be, available for resale in the public market without restriction
or further registration under the Securities Act, except for shares acquired in
the offerings by "affiliates" of Saks Holdings (in general, any person who has a
control relationship with Saks Holdings), which shares may be resold only if
registered under the Securities Act or if transferred pursuant to an exemption
from registration, including resales pursuant to Rule 144 and Regulation S under
the Securities Act. The remaining 36,974,964 outstanding shares of Common Stock
are deemed to be "restricted securities" as that term is defined in Rule 144,
all of which are eligible for sale in the public market in compliance with Rule
144 and 29,247,630 of which have been held for at least three years by persons
Saks Holdings believes are not affiliates.

Saks Holdings has agreed with the Underwriters that, during the period of 90
days from the date of this Prospectus, subject to certain exceptions, it will
not issue, sell, offer or agree to sell, grant any options for the sale of
(other than employee stock options) or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable for Common Stock, other than pursuant to the Notes Offering. In
addition, certain stockholders and the Selling Stockholders in the Offerings
have agreed with the Underwriters that, subject to certain exceptions, they will
not offer, pledge, sell, transfer or otherwise dispose of the 36,713,356 shares
of Common Stock owned by them for a period of 180 days after the date of this
Prospectus. Further, in connection with the initial public offering, certain
stockholders owning 35,766,605 shares of Common Stock agreed with the
underwriters of the initial public offering that subject to certain exceptions,
they will not offer, pledge, sell, transfer or otherwise dispose of such shares
of Common Stock prior to November 17, 1996. At the expiration of the lock-up
periods described above, or earlier with the written consent of the
representatives of the applicable underwriters, the holders of 53,224,319 shares
of Common Stock (assuming exercise of the Underwriters' over-allotment options)
will have the right to sell shares of Common Stock without regard to the volume
or other limitations of Rule 144 under the Securities Act.

In addition, up to 3,072,035 shares of Common Stock may be issued upon
exercise of certain employee stock options that Saks Holdings has granted, of
which options to purchase 1,041,158 shares of Common Stock were exercisable as
of August 28, 1996. Saks Holdings has filed a registration statement on Form S-8
under the Securities Act to register the 6,209,045 shares of Common Stock
reserved for issuance under the Incentive Plans. As a result, any shares issued
upon exercise of stock options granted under such plans are available, subject
to special rules for affiliates, for resale in the public market, subject to
applicable lock-up arrangements. See "Underwriting" and "Management--Stock
Incentive Plans".

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years is entitled to sell, within any three-month period, a number of restricted
securities which does not exceed the greater of 1% of the then-outstanding
shares of Saks Holdings' Common Stock (630,374 shares as of August 28, 1996) or
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 also may be subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about Saks Holdings. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of Saks Holdings at any
time during the three months preceding a sale, and who has beneficially owned
shares within the definition of "restricted securities" under Rule 144 for at
least three years, is entitled to sell such shares under Rule 144(k) without
regard to the volume limitation, manner of sale provisions, public information
requirements or notice requirements. Regulation S permits the sale by affiliates
and others of shares in an

65
<PAGE>
"offshore transaction" (as defined in Regulation S), subject to certain other
conditions including the requirement that the purchaser not resell the shares to
a U.S. person during a 40 day restricted period.

No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock that are restricted securities or the availability of
such shares will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock and could impair Saks Holdings' future ability to
raise capital through an offering of equity securities.

The Company is undertaking the Offerings pursuant to certain registration
rights granted to the Selling Stockholders.

VALIDITY OF SHARES

The validity of the Common Stock offered hereby will be passed upon for Saks
Holdings by Gibson, Dunn & Crutcher LLP, New York, New York, and for the
Underwriters by Sullivan & Cromwell, New York, New York.

EXPERTS

The consolidated balance sheets of Saks Holdings as of January 28, 1995 and
February 3, 1996 and the consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
3, 1996, included in this Prospectus, have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

Saks Holdings is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements, and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C., 20549, and at the Commission's
Regional Offices at Citicorp Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington,
D.C. 20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Reports, proxy and information statements and other information
concerning the Company may also be inspected at the offices of the New York
Stock Exchange, Inc. 20 Broad Street, New York, New York 10005, on which Saks
Holdings' Common Stock is listed.

Saks Holdings has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions having been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
Saks Holdings and the Common Stock, reference is hereby made to such
Registration Statement

66
<PAGE>
and the exhibits and schedules thereto. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete, although the material terms thereof are described in this Prospectus,
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified by such reference to such exhibits. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from such office upon payment of the fees prescribed by
the Commission.

67
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets at January 28, 1995 and February 3, 1996................ F-3
Consolidated Statements of Operations for the fiscal years ended January 29, 1994,
January 28, 1995 and February 3, 1996............................................. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended
January 29, 1994, January 28, 1995 and February 3, 1996........................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 1994,
January 28, 1995 and February 3, 1996............................................. F-6
Notes to Consolidated Financial Statements for fiscal years ended January 29, 1994,
January 28, 1995 and February 3, 1996............................................... F-7
Condensed Consolidated Balance Sheets at July 29, 1995 and August 3, 1996
(unaudited)....................................................................... F-26
Condensed Consolidated Statements of Operations for the six months ended July 29,
1995 and August 3, 1996 (unaudited)................................................. F-27
Condensed Consolidated Statements of Cash Flows for the six months ended July 29,
1995 and August 3, 1996 (unaudited)................................................. F-28
Notes to Condensed Consolidated Financial Statements for the six months ended July
29, 1995 and August 3, 1996 (unaudited)............................................. F-29
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Saks Holdings, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Saks
Holdings, Inc. and Subsidiaries as of January 28, 1995 and February 3, 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended February 3,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Saks Holdings, Inc. and Subsidiaries as of January 28, 1995 and February 3,
1996, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended February 3, 1996, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

New York, New York
March 13, 1996 except as to
the information regarding the amendments
to the Credit Facility in April 1996
presented in Note 5 for which the date is
April 18, 1996 and the information presented
in Note 15, for which the date is
April 26, 1996.

F-2
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)

<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................................... $ 9,628 $ 6,627
Accounts receivable (net of allowances of $9,313 and
$11,160)........................................................ 43,797 37,426
Inventories................................................... 271,875 339,723
Other current assets.......................................... 44,820 55,420
Restricted cash............................................... 5,392 6,118
----------- -----------
Total current assets.................................... 375,512 445,314
----------- -----------
Property and equipment:
Land.......................................................... 192,053 188,157
Buildings and building improvements........................... 385,927 421,693
Furniture, fixtures and equipment............................. 252,694 229,276
Beneficial leasehold interests................................ 54,161 54,161
Construction in progress...................................... 17,156 5,088
Leased property under capital leases.......................... 95,875 107,008
Assets held for sale.......................................... 8,750 --
----------- -----------
1,006,616 1,005,383
Less, Accumulated depreciation and amortization............. (225,380 ) (225,119 )
----------- -----------
781,236 780,264
Goodwill (net of accumulated amortization of
$12,669 and $15,374).......................................... 95,828 93,123
Other intangibles (net of accumulated amortization of
$4,665 and $5,679)............................................ 9,547 8,533
Other noncurrent assets......................................... 27,074 38,953
----------- -----------
Total assets............................................ $1,289,197 $1,366,187
----------- -----------
----------- -----------
LIABILITIES:
Current liabilities:
Accounts payable, trade....................................... $ 96,577 $ 119,399
Accrued liabilities........................................... 92,756 108,491
Taxes other than income taxes................................. 31,561 21,456
Accrued interest.............................................. 5,504 10,821
Current portion of long-term debt............................. 19,825 26,463
Other......................................................... 4,167 4,772
----------- -----------
Total current liabilities............................... 250,390 291,402
Long term debt.................................................. 755,270 840,239
Obligations under capital leases................................ 95,240 104,468
Other noncurrent liabilities.................................... 41,103 46,903
----------- -----------
Total liabilities....................................... 1,142,003 1,283,012
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01 per share, 10,000 shares
authorized, no shares issued and outstanding.................... -- --
Common Stock, $.01 par value per share, 150,000 shares
authorized, 45,089 issued and 44,958 outstanding................ 450 450
Additional paid-in capital...................................... 923,368 922,424
Accumulated deficit............................................. (775,022 ) (839,117 )
Treasury stock, at cost......................................... (1,602 ) (582 )
----------- -----------
Total stockholders' equity.............................. 147,194 83,175
----------- -----------
Total liabilities and stockholders' equity.............. $1,289,197 $1,366,187
----------- -----------
----------- -----------
</TABLE>

The accompanying Notes are an integral part of the consolidated financial
statements.

F-3
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands)

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................ $1,395,536 $1,418,163 $1,686,787
Cost of sales, including buying and occupancy........ (975,360) (979,650) (1,168,692)
---------- ---------- ----------
Gross margin....................................... 420,176 438,513 518,095
Selling, general and administrative expenses......... (394,828) (370,441) (438,603)
Management fees...................................... (2,000) (2,000) (7,000)
Impairment and special charges....................... (177,731) -- (36,415)
---------- ---------- ----------
Operating income (loss).......................... (154,383) 66,072 36,077
Interest, net........................................ (73,822) (76,155) (94,181)
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary charge................................. (228,205) (10,083) (58,104)
Income taxes......................................... -- -- --
---------- ---------- ----------
Income (loss) before extraordinary charge........ (228,205) (10,083) (58,104)
Extraordinary charge--loss on early extinguishment of
debt................................................. (27,640) (535) (5,991)
---------- ---------- ----------
Net income (loss)................................ $ (255,845) $ (10,618) $ (64,095)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share before extraordinary
charge............................................... $ (5.07) $ (.22) $ (1.29)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share...................... $ (5.68) $ (.24) $ (1.43)
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding.............. 45,030 45,010 44,955
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The accompanying Notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)

<TABLE>
<CAPTION>
CAPITAL STOCK
------------------- ADDITIONAL TREASURY TOTAL
SHARES PAR PAID-IN ACCUMULATED STOCK, STOCKHOLDERS'
OUTSTANDING VALUE CAPITAL DEFICIT AT COST EQUITY
----------- ----- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 30,
1993........................ 45,025 $450 $919,757 $(508,559) $ (247 ) $ 411,401
Purchase of treasury
stock....................... (2) (36 ) (36)
Reissuance of treasury
stock....................... 4 88 88
Payment of stock
subscriptions receivable... 34 34
Earned compensation......... 167 167
Gain on sale to affiliate... 3,250 3,250
1993 net loss............... (255,845) (255,845)
----------- ----- ---------- ----------- -------- -------------
Balance at January 29,
1994........................ 45,027 450 923,208 (764,404) (195 ) 159,059
----------- ----- ---------- ----------- -------- -------------
Purchase of treasury
stock....................... (70) (1,393 ) (1,393)
Reissuance of treasury
stock....................... 3 62 62
Employee stock subscriptions
receivable.................. (62) (62)
Surrender of unvested stock
grants...................... (3) 76 (76 ) 0
Earned compensation......... 146 146
1994 net loss............... (10,618) (10,618)
----------- ----- ---------- ----------- -------- -------------
Balance at January 28,
1995........................ 44,957 450 923,368 (775,022) (1,602 ) 147,194
----------- ----- ---------- ----------- -------- -------------
Purchase of treasury
stock....................... (1) (26 ) (26)
Reissuance of treasury
stock....................... 2 46 46
Conversion of stock......... (1,000) 1,000 0
Earned compensation......... 56 56
1995 net loss............... (64,095) (64,095)
----------- ----- ---------- ----------- -------- -------------
Balance at February 3,
1996........................ 44,958 $450 $922,424 $(839,117) $ (582 ) $ 83,175
----------- ----- ---------- ----------- -------- -------------
----------- ----- ---------- ----------- -------- -------------
</TABLE>

The accompanying Notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $(255,845) $ (10,618) $ (64,095)
Adjustments to reconcile net loss to cash provided by
operating activities:
Extraordinary charge..................................... 27,640 535 5,991
Impairment and special charges........................... 177,731 -- 36,415
Depreciation and amortization............................ 86,812 67,974 66,766
Amortization of deferred financing costs................. 13,891 12,731 10,009
Non-cash interest, net................................... 738 (946) 462
Other items, net......................................... (15,395) (7,651) (1,045)
--------- --------- ---------
Net cash provided by operating activities before
changes in operating assets and liabilities.......... 35,572 62,025 54,503
Change in operating assets and liabilities:
Accounts receivable...................................... (35,976) (67,705) (62,583)
Proceeds from sale of accounts receivable................ 722,027 739,851 805,158
Origination of accounts receivable....................... (692,364) (673,202) (751,478)
Inventories.............................................. (15,045) (18,006) (70,974)
Accounts payable......................................... 7,363 21,265 27,322
Accrued liabilities...................................... (2,221) (12,634) 12,257
Accrued interest......................................... (690) 1,294 5,317
Taxes other than income taxes............................ 385 1,108 (10,105)
Other assets and liabilities............................. (3,468) (205) (15,522)
--------- --------- ---------
Net cash provided by (used in) operating activities.... 15,583 53,791 (6,105)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale and sale-leaseback of assets............ -- 31,150 12,806
Capital expenditures....................................... (49,752) (71,713) (87,028)
Construction allowances received from third parties........ 15,393 15,990 4,449
Change in restricted cash.................................. 4,105 9,327 (726)
Proceeds from the sale of subordinated certificates........ 13,500 13,427
--------- --------- ---------
Net cash used in investing activities.................. (30,254) (1,746) (57,072)
--------- --------- ---------
Cash flows from financing activities:
Payments under revolving credit loans and notes, net....... (27,500) (832) (13,566)
Proceeds from term loan.................................... 200,000 -- 125,000
Proceeds from commercial mortgage pass-through
certificates................................................ -- -- 335,000
Payment of Euronotes....................................... (11,000) (26,000) (335,000)
Payment of subordinated debt............................... (130,313) -- --
Premiums paid on early retirement of debt.................. (3,606) -- --
Payment of term loans...................................... (5,000) (16,573) (19,826)
Financing costs............................................ (18,087) (571) (27,064)
Proceeds on sale to affiliate.............................. 11,903 -- --
Principal payments under capital leases.................... (1,331) (2,483) (3,739)
Other...................................................... 32 (1,447) (629)
--------- --------- ---------
Net cash provided by (used in) financing activities.... 15,098 (47,906) 60,176
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents... 427 4,139 (3,001)
Cash and cash equivalents, beginning of period.............. 5,062 5,489 9,628
--------- --------- ---------
Cash and cash equivalents, end of period............... $ 5,489 $ 9,628 $ 6,627
--------- --------- ---------
Supplemental disclosure of cash flow information:
Interest paid.............................................. $ 60,582 $ 54,416 $ 69,504
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of non-cash investing and financing
activities:
Capital leases............................................. $ 4,947 $ 28,867 $ 13,626
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accompanying Notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

1. BASIS OF PRESENTATION

Saks Holdings, Inc. ("Saks Holdings"), through its wholly-owned subsidiary
Saks & Company, which does business as Saks Fifth Avenue ("Saks", and together
with Saks Holdings, the "Company") is a premier fashion retailer, offering the
finest quality and latest style in women's and men's apparel. The consolidated
financial statements include the accounts of Saks Holdings and its direct and
indirect subsidiaries, and Fifth Avenue Capital Trust, an entity formed to
effect Saks' real estate financing (See Note 5). Saks Holdings' only asset is
its investment in Saks; it has no other operations or cash flows. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR:

The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
1995 contains 53 weeks and ended on February 3, 1996. Fiscal 1994 and fiscal
1993 contain 52 weeks and ended on January 28, 1995 and January 29, 1994,
respectively.

NET SALES:

Net sales include sales of merchandise and sales of leased departments, net
of returns. Sales of leased departments were $55,608, $56,416 and $70,940 in
fiscal 1993, fiscal 1994 and fiscal 1995, respectively.

SAKS FIRST PROGRAM:

The Company maintains a customer loyalty program which rewards customers who
spend more than two thousand dollars annually on their Saks credit card. The
rewards range from 2% to 6% of the customers' spending and are in the form of
gift checks redeemable at Saks. The cost associated with future redemptions is
recorded as a charge to cost of goods sold in the period in which the rewards
are earned.

CASH AND CASH EQUIVALENTS:

Cash and cash equivalents consist of deposits with banks and financial
institutions which are unrestricted as to withdrawal or use, and have
maturities, when purchased, of three months or less. Cash equivalents are stated
at cost which approximates market. Restricted cash consists of $1.5 million
payable to the Trust under the Company's accounts receivable securitization
program in both fiscal 1994 and fiscal 1995. Additionally, restricted cash
includes, in fiscal 1994 and fiscal 1995, $3.9 and $.4 million, respectively,
required under the Company's real estate financing and, in fiscal 1995, a $4.2
million real estate financing prepayment related to the sale of the Owings Mills
store location.

F-7
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

ACCOUNTS RECEIVABLE AND FINANCE CHARGE INCOME:

In accordance with industry practice, installments on deferred payment
accounts receivable maturing in more than one year have been included in current
assets.

The Company provides credit to its customers and performs ongoing credit
evaluations of its customers. Concentration of credit risk is limited because of
the large number of customers and their dispersion throughout the United States
and other countries. The Company maintains an allowance for potential credit
losses which, when realized, has been within the range of management's
expectations.

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Allowance for uncollectable receivables--beginning of
period........................................................ $11,251 $10,892 $ 9,313
Bad debt expense.............................................. 14,444 11,400 20,628
Write-offs, net of recoveries................................. (14,803) (12,979) (18,781)
------- ------- -------
Allowance for uncollectable accounts--end of period........... $10,892 $ 9,313 $11,160
------- ------- -------
------- ------- -------
</TABLE>

The Company has an ongoing program to sell certain of its proprietary credit
card receivables (the "Receivables"). See Note 4. The Company's credit
operations generate finance charge income and service fee income which is
recognized as income when earned. Finance charge income, net of certain costs
associated with the securitization of accounts receivable is included as a
reduction of selling, general and administrative expenses in the consolidated
statements of operations and was $30,414, $34,424 and $37,084 in fiscal 1993,
fiscal 1994 and fiscal 1995, respectively. Service fee income was $5,420, $6,544
and $7,745 in fiscal 1993, fiscal 1994, and fiscal 1995, respectively. As noted
above, the Company's credit operations are an integral part of its business,
accordingly its records are not maintained to report credit as a separate line
of business.

MERCHANDISE INVENTORIES:

Merchandise inventories are stated at the lower of cost or market, as
determined by the retail method. Consignment merchandise on hand of $59,105 and
$72,720 at January 28, 1995 and February 3, 1996, respectively, are not
reflected in the consolidated balance sheets.

ADVERTISING:

Direct response advertising costs are deferred and amortized over the period
of expected benefit. Direct response advertising consists primarily of costs
associated with the production and distribution of the Company's catalogs. Such
costs are amortized within a three-month period following mailing. All other
advertising costs are expensed in the period incurred. Advertising expenses were
$26,842, $30,566 and $42,956, in fiscal 1993, fiscal 1994 and fiscal 1995,
respectively. Direct response advertising amounts included in Other current
assets in the consolidated balance sheets at January 28, 1995 and February 3,
1996 were $3,739 and $6,972, respectively.

STORE PREOPENING COSTS:

Costs associated with the opening of a new store are deferred and amortized
over the 12 months following the store opening.

F-8
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

PROPERTY AND EQUIPMENT:

Property and equipment are recorded at cost. The cost of property and
equipment placed in service prior to July 1990 was revalued at the acquisition
of Saks in 1990 (the "Acquisition"). Property and equipment are depreciated on a
straight-line basis over their estimated useful lives. In fiscal 1993 the
Company reviewed the carrying value of its store assets. See Note 3.

Leasehold improvements included in buildings and building improvements are
amortized over the shorter of their estimated useful lives or related lease
terms. Beneficial leasehold interests are being amortized on a straight-line
basis over 15 years.

The Company capitalizes both internally developed and purchased computer
software. The cost of such computer software is amortized on a straight-line
basis using its five-year estimated useful life. See Note 3. Capitalized
software costs included in the consolidated balance sheets at January 28, 1995
and February 3, 1996 were $15,095 and $8,062, respectively.

NONCURRENT ASSET IMPAIRMENT:

The Company assesses whether an asset has been impaired whenever factors
indicate that the carrying amount of a store's asset base may not be
recoverable. Significant factors considered include long-term economic downturns
in a market in which a store operates, a reduction of customer traffic due to
the opening of a new mall and the introduction of new competition to the
marketplace. These factors are used to assess whether the store's forecasted
operating results will recover the store's asset base over the remaining
depreciation and amortization periods.

DEFERRED FINANCING COSTS:

Financing costs are amortized over the life of the related debt. Such costs
are included in Other noncurrent assets in the consolidated balance sheets and
amortization is included in interest expense in the consolidated statements of
operations.

DERIVATIVES POLICY:

The Company's policy is to use financial derivatives only to reduce risk in
conjunction with specific business transactions.

The Company purchased interest rate cap agreements to limit its exposure to
adverse movements in interest rates related to the Credit Facility and the real
estate financing (See Note 5). The financial institutions associated with these
agreements are considered to be major, well-known institutions. The premiums
paid were capitalized and are being amortized over the term of the related
agreements.

GOODWILL:

Goodwill is amortized over 40 years by the straight-line method. Goodwill is
allocated to individual stores on the basis of their projected cash flows at
their acquisition date.

OTHER INTANGIBLES:

Other intangibles include computer software and customer lists acquired at
the Acquisition which are being amortized on a straight-line basis over their
useful lives of three and 14 years, respectively. Computer software costs became
fully amortized in July 1993.

F-9
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

INCOME TAXES:

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires recognition of deferred tax assets and liabilities on the basis of the
difference between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect for the years in which the
differences are expected to reverse (See Note 9).

RECENT ACCOUNTING PRONOUNCEMENTS:

In March 1995 and October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets" (SFAS 121), and Statement of Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
respectively. SFAS 121 is effective for fiscal years beginning after December
31, 1995, and addresses the accounting for potential impairment of long-lived
assets. The effect of implementing SFAS 121 is not expected to be material to
the Company's financial position or results of operations. SFAS 123 is effective
for fiscal years beginning after December 15, 1996 and introduces a fair-value
based method of accounting for stock-based compensation. SFAS 123 encourages but
does not require companies to adopt the fair-value based method. Management does
not intend to adopt the recognition provisions of SFAS 123.

3. IMPAIRMENT AND SPECIAL CHARGES

In fiscal 1993 the Company recorded a charge of $177,731 related to asset
impairment and other special charges. The impairment charges which totaled
$118,015 reduced the carrying value of property and equipment, goodwill and
intangible assets of certain stores and an idle service center to their net
realizable values. The Company determined the net realizable values of these
assets by assessing the discounted cash flows it estimated would be generated in
the future. The writedown of property and equipment, goodwill and intangible
assets amounted to $81,481, $33,295, and $3,239 respectively.

The other special charges in fiscal 1993 consisted of $40,166 for store
closings and downsizing and $19,550 related to an early retirement program. The
store closings and downsizing charge related to the closing of five of its
full-line or resort stores and all of its specialty store operations. The
principal components of the charge consisted of reducing certain property and
equipment to net realizable value, lease related costs, cost of inventory
liquidations, and severance.

The non-cash impact of the asset impairment and store closings charges was
$134,671. The cash impact of the change in fiscal 1993 was $19,550. The
remaining items in the store closings and downsizings charge totaling $23,510
were settled in fiscal 1994 and fiscal 1995 in the range of management's
expectations.

In fiscal 1995 the Company recorded special charges totaling $36,415. The
charges recorded consist of exit costs of its Yonkers distribution center, the
integration costs of former I. Magnin locations and writedown of capitalized EDP
software and amounted to $19,015, $8,900 and $8,500, respectively.

Exit costs include the writedown of the Yonkers distribution center to net
realizable value. The writedown was necessary as a result of the Company's
decision to exit this facility in early 1997 and relocate distribution
activities to a facility currently under construction in Aberdeen, Maryland.
This writedown and the costs associated with exiting this facility totaled
$19,015. The costs of

F-10
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

exiting the Yonkers facility include the Company's estimate of the severance
costs, related to vacating the facility, and certain occupancy costs during the
period prior to the sale of the facility. The closing of this facility will
involve the termination of approximately 530 associates. The liability for these
costs is included in accrued liabilities in the consolidated balance sheet at
February 3, 1996. Amounts paid and charged against the liability and other
adjustments to the liability during fiscal 1995 were not material. The
anticipated costs of relocating its distribution activities to the Aberdeen
distribution facility have not been accrued and are not expected to materially
impact future results. Additionally, Saks will receive incentive payments from
various government agencies which are expected to approximate these costs.

Integration costs consist of costs to integrate the former I. Magnin store
locations into the Company's west coast locations. These costs include customer
acquisition costs, training and travel costs and remerchandising and other
costs.

The Company began implementation of a new core retail information processing
system in fiscal 1995. As a result certain of its capitalized software became
obsolete and was written off.

4. ACCOUNTS RECEIVABLE SALE

Saks has entered into agreements to securitize most of its Receivables.

The securitization of receivables involves the sale of Receivables with
limited recourse through a subsidiary to a trust in exchange for cash and
subordinated certificates representing undivided interests in the pool of
Receivables, and the subsequent sale by the trust of certificates of beneficial
interests, also representing undivided interests in the Receivables, to
investors. Saks is obligated to repurchase Receivables related to customer
credits such as merchandise returns and other receivable defects. Saks has no
obligation to reimburse the trust or the purchasers of beneficial interests for
credit losses; however, the subordinated certificates and deposits with the
trust and the discount on the sale of Receivables are available to cover such
losses.

Saks continues to service all receivables for the trust for a normal
servicing fee for similar types of transactions. Saks has agreements with third
parties to provide certain credit card processing and related credit services.

During fiscal 1994 and fiscal 1995, a portion of the subordinated
certificates were sold for $13,500 and $13,427, respectively. The Company
continues to hold the remaining subordinated certificates, which, subject to
approval of the trust, can be placed with third parties.

The reinvestment period of the securitization facility is scheduled to
terminate in May 1996. Upon expiration of the reinvestment period, subsequent
principal collections will be allocated on a pro rata basis to each
certificateholder. The Company expects to replace this facility in April 1996.

The Company's interest in subordinated certificates representing its equity
in the trust totaled $23,437 and $11,182, at January 28, 1995 and February 3,
1996, respectively, and is included in accounts receivable in the consolidated
balance sheets. At January 28, 1995 and February 3, 1996, $344,650 and $398,330,
respectively, of the Receivables sold to the trust on behalf of investors remain
outstanding.

Under the terms of the securitization agreements, the Company provides
enhancements for the protection of purchasers of the certificates of beneficial
interest against loss. A deposit with the trust of $7,602 and $8,447, at January
28, 1995 and February 3, 1996, respectively, is also available for credit loss
and is included in other noncurrent assets in the consolidated balance

F-11
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

sheets. The Company's obligation to repurchase Receivables subject to customer
credit adjustments is collateralized by letters of credit in the amount of
$8,621 and $1,459 at January 28, 1995 and February 3, 1996, respectively. The
Company provides for losses related to the Receivables in determining the
allowance for doubtful accounts.

5. LONG TERM DEBT

<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
<S> <C> <C>
Total Credit Facility:
Term Loans:
Tranche A.................................. $ 79,300 $ 59,475
Tranche B.................................. 99,127 224,127
Base Revolving Loans......................... 211,668 198,100
----------- -----------
390,095 481,702
----------- -----------
Total Real Estate Financing:
Euronotes.................................... 335,000 --
REMIC Certificates........................... -- 335,000
----------- -----------
335,000 335,000
----------- -----------
Subordinated Notes............................. 50,000 50,000
----------- -----------
775,095 866,702
Less current portion of long term debt......... 19,825 26,463
----------- -----------
$ 755,270 $ 840,239
----------- -----------
----------- -----------
</TABLE>

CREDIT FACILITY

In July 1993, Saks entered into a $525,000 amended and restated bank credit
facility (the "Credit Facility") which provided for $200,000 in term loans (the
"Term Loans"), $225,000 in base revolving credit loans (the "Base Revolving
Loans"), and $100,000 in working capital revolving credit loans (the "Working
Capital Revolving Loans"). The principal changes to the previous facility were
the establishment of the Term Loans and the extension of maturity dates on the
revolvers. Proceeds from the Term Loans were principally used to prepay 13%
Subordinated Debt. Deferred financing costs of $7.5 million relating to the
prior senior credit agreement were written off as an extraordinary charge in
fiscal 1993. The Term Loans consist of two tranches: the tranche A term loan
(the "Tranche A Loan") and the Tranche B term loan (the "Tranche B Loan"), each
initially in the amount of $100,000.

In March 1995, Saks and the lenders party to the Credit Facility (the
"Lenders") amended the Credit Facility to increase the principal amount of the
Tranche B Loan by $75,000, primarily for the purpose of financing the
acquisition and conversion of four stores previously operated by I. Magnin. In
October 1995, Saks and the Lenders amended the Credit Facility to (a) increase
the principal amount of the Tranche B Loan by $50,000 and (b) permit Saks to
retain up to $25,000 of net proceeds from asset sales that otherwise would have
been subject to mandatory prepayment under the Credit Facility, each for the
purpose of financing capital expenditures relating to the remodeling,
replacement and construction of retail stores and a distribution center.

F-12
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

In March 1996, Saks and the Lenders amended the Credit Facility to, among
other things, (i) permit the initial public offering of the shares of Common
Stock of Saks Holdings (the "Offerings") (see Note 15) provided that the gross
proceeds received by Saks Holdings from the Offerings exceed $200 million and
the net proceeds received by Saks Holdings from the Offerings are immediately
contributed to Saks, (ii) exclude up to $45 million in special charges from the
calculation of certain restrictive financial covenants and (iii) require that
(a) at least one-third of the net proceeds from the Offerings be used to prepay
Term Loans and (b) the remainder of such net proceeds be used to prepay first
the Working Capital Revolving Loans and then the Base Revolving Loans. In April
1996, Saks and the Lenders amended the Credit Facility to, among other things,
(i) allow certain of the proceeds of the Base Revolving Loans and Working
Capital Revolving Loans to be used to make permitted acquisitions and permitted
capital expenditures, (ii) add a covenant specifying a maximum ratio of
outstanding loans to consolidated adjusted operating profit tested annually and
(iii) amend the method of calculating interest rates under the Credit Facility
as set forth below. In April 1996, Saks and the Lenders amended the Credit
Facility to allow Saks to make payments, dividends or distributions with respect
to operating costs incurred by Saks Holdings in amounts not to exceed $4.0
million per fiscal year.

The Company, from time to time, may request standby or commercial letters of
credit which reduce amounts available under the Working Capital Revolving Loans.
At January 28, 1995 and February 3, 1996, approximately $9,242 and $6,694,
respectively, of letters of credit were outstanding.

The remaining principal amount of the Tranche A Loan is payable in five
consecutive semiannual installments, that increase over time from approximately
$9,900 to $12,400, commencing June 1996. The remaining principal amount of the
Tranche B Loan is payable in six consecutive semiannual installments, commencing
December 1997, ranging from approximately $5,600 for the first two installments
to approximately $56,000 for the last two installments.

Under the terms of the Credit Facility, the maximum borrowings under each
facility are reduced, on a pro rata basis, upon the incurrence of any
indebtedness not specifically permitted under the agreement or the consummation
of a sale, sale-leaseback or other disposition of the Company's property or
assets, as defined in the Credit Facility, except with respect to the REMIC
Financing described below and certain other sales of property or assets. As of
February 3, 1996 the maximum borrowings allowable under the Term Loans, Base
Revolving Loans and Working Capital Revolving Loans were $283,602, $225,000 and
$97,163, respectively.

As of January 28, 1995 and February 3, 1996, total available credit under
the Credit Facility was $101,253 and $117,369, respectively. During fiscal 1994
and fiscal 1995, the weighted average interest rate was approximately 7.33% and
9.0%, respectively, for all debt under the Credit Facility.

Prior to consummation of the Offerings, Saks may borrow up to $20 million in
aggregate principal amount of swingline loans which bear interest at the
Alternate Base Rate (as defined in the Credit Facility) plus 1 1/2%. All other
loans under the Credit Facility bear interest prior to the closing of the
Offerings at a rate equal to, at Saks' option, (a) the Alternate Base Rate plus
2% for the Tranche B Loan or 1 1/2% for all other loans, or (b) the Eurodollar
Rate (as defined in the Credit Facility) plus 3% for the Tranche B Loan or 2
1/2% for all other loans. Following the consummation of the Offerings, Saks may
borrow up to $20 million in aggregate principal amount of swingline loans which
bear interest at the Alternate Base Rate plus an applicable margin ranging from
0.0% to 1.0% depending on the Interest Coverage Ratio (as defined in the Credit
Facility). All other loans under

F-13
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

the Credit Facility following the closing of the Offerings will bear interest at
a rate equal to, at Saks' option, (a) the Alternate Base Rate plus a percentage
ranging from 0.0% to 1.5% depending on the Interest Coverage Ratio or (b) the
Eurodollar Rate plus a percentage ranging from 1.0% to 2.5% depending on the
Interest Coverage Ratio. Eurodollar loans can have maturities of one-, two-,
three- or six-month periods. Interest is payable on these loans at the maturity
dates, except for six-month period loans, which provide for interest to be
payable quarterly. Interest on Alternate Base Rate loans is payable quarterly.

During fiscal 1993 and fiscal 1994, the Company consummated the sale and
sale-leaseback of certain properties. In fiscal 1994, the net proceeds of such
sales were used to reduce the Tranche A, Tranche B and Working Capital Revolving
Loans by $10,700, $873 and $2,837, respectively.

The Credit Facility contains restrictive covenants, which include
limitations on capital expenditures, specified minimum levels of consolidated
net worth and minimum consolidated adjusted operating profit, as well as
maintenance of specified ratios, including an interest coverage ratio, as
defined. In addition, the Credit Facility contains restrictions on Saks' ability
to pay dividends or make other distributions to Saks Holdings. Saks Holdings is
a holding company with no business operations of its own. Saks Holdings
therefore is dependent upon payments, dividends and distributions from Saks for
funds to pay its expenses and to pay future cash dividends or distributions, if
any, to holders of the Common Stock. The Credit Facility provides that Saks may
not declare any dividends or make any other payments or distributions to Saks
Holdings except for amounts necessary (i) to pay Saks Holdings' operating
expenses up to $4 million per fiscal year and (ii) to pay Saks Holdings' taxes.
With respect to the impairment and special charges described in Note 3, the
Company received consent from the banks, in May 1994 and March 1996, which
excluded such charges from the aforementioned restrictive covenants. Amounts
outstanding under the Credit Facility are collateralized by the assets of Saks
and its subsidiaries, except for the real estate properties included in the real
estate financing described below, the accounts receivable described in Note 4,
inventories and the capital stock of Saks' real estate subsidiaries and the
capital stock of the subsidiaries established to effect the accounts receivable
sale. Saks Holdings has guaranteed the payment of principal and interest by Saks
and has collateralized this guarantee with a pledge of the capital stock of
Saks.

The occurrence of the Offerings will not trigger the change of control
provision under the Credit Facility.

REAL ESTATE FINANCING:

In December 1990, the Company issued $500,000 of Euronotes (the "Notes") in
connection with the completion of a major real estate financing. During fiscal
1993 and fiscal 1994, early repayment of Notes, arising from the sale and
closing of certain properties and the reversion of escrow amounts aggregated
$11,000 and $26,000, respectively. The sale of properties resulted in gains of
$3,250 and $2,115 in fiscal 1993 and fiscal 1994, respectively. (See Note 12.)

The Notes accrued interest at .75% over the three-month LIBOR with interest
payable on a quarterly basis. These Notes were refinanced in May 1995.

In May 1995, the Company through a subsidiary trust completed a real estate
financing, aggregating $335,000, through the issuance of mortgage loans
collateralized by intercompany leases. Mortgage certificates in the principal
amount of $175,000 bear interest at variable rates based on three-month LIBOR,
payable quarterly. The remaining $160,000 in certificates, which are

F-14
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

subordinated to the other certificates, bear interest at annual fixed rates
ranging from 8.98% to 12.36%, payable semiannually. All of the mortgage
certificates are scheduled to mature in May 2002. The debt related to individual
properties is prepayable at premiums ranging from stated value to 150% of stated
value. The various properties collateralizing the mortgage certificates are
cross guaranteed. Saks guarantees the obligations under all intercompany leases.
In January 1996, the Company sold one of its stores and prepaid the mortgage
loan associated with this property aggregating $4,159. The proceeds were used to
prepay the related mortgage certificate in February 1996 (see Note 2). The sale
of the Yonkers distribution center (See Notes 3 and 13) would require the
prepayment of mortgage certificates totaling $9,074.

SUBORDINATED NOTES:

In fiscal 1993, the Company issued $50,000 of Subordinated Notes due May
2001. Interest is payable at 9% per annum on a semiannual basis. The notes are
subject to optional redemption from time to time at specified prices ranging
from 104% to 100%. These notes are subordinated to other indebtedness of the
Company.

Proceeds from the issuance of the Term Loans and the 9% Subordinated Notes
were used to prepay the remaining 13% subordinated debt issued at the
Acquisition, which consisted of principal of $180,313, accrued interest of
$11,720, and redemption premiums of $3,606. Deferred financing costs of $16,155
related to the repaid subordinated debt and the aforementioned redemption
premiums are reflected as an extraordinary charge to operations in 1993.

The Subordinated Notes may be redeemed at the option of Saks in whole or in
part at any time before maturity. Upon a "Change of Control," as defined, Saks
is obligated to make an offer to repurchase all outstanding Subordinated Notes
at the optional redemption prices set forth above, plus accrued and unpaid
interest. The occurrence of the Offerings will not trigger a change of control.
The subordinated note indenture provides that Saks may not declare any dividends
or make any other distributions on any shares of its capital stock other than
dividends to Saks Holdings in amounts required for Saks Holdings to pay
franchise taxes and other fees required to maintain its corporate existence and
to pay Federal, state and local income taxes.

The Company has purchased various interest rate caps to minimize its
exposure to interest rate fluctuations (See Note 11).

In addition as of February 3, 1996 approximately $5.3 million in letters of
credit were outstanding under a $10 million letter of credit facility.

The Company's expected aggregate principal payments as of February 3, 1996
for all indebtedness, excluding capital leases (See Note 10), are as follows:

<TABLE>
<CAPTION>
<S> <C>
1996............................................................ $ 26,463
1997............................................................ 30,384
1998............................................................ 266,522
1999............................................................ 106,460
2000............................................................ 56,032
Thereafter...................................................... 380,841
--------
$866,702
--------
--------
</TABLE>

F-15
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

6. STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNTS)

CAPITALIZATION:

The following is a summary of the capitalization of the Company at January
28, 1995 and February 3, 1996:

<TABLE>
<CAPTION>
<S> <C>
Class A Stock: 37,500 shares authorized, issued and outstanding.
Class B Stock: 2,250 shares authorized, issued and outstanding.
Class C Stock: 25,050 shares authorized; 5,187 and 5,239 shares issued and 5,107 and
5,158 shares outstanding, respectively, at January 28, 1995 and February
3, 1996. Additionally, treasury stock aggregated 80 and 29 shares as of
January 28, 1995 and February 3, 1996, respectively.
Class D Stock: 100 shares authorized and issued at January 28, 1995 and February 3, 1996;
100 and 50 shares outstanding at January 28, 1995 and February 3, 1996,
respectively.
Common Stock: 150,000 shares authorized; none issued and outstanding.
</TABLE>

All of the stock has a $.01 par value per share. The transfer of any shares
of stock is restricted as specified in the Company's Certificate of Designation
(the "Certificate").

Under the Senior Management Stock Incentive Plan and the 1996 Stock
Incentive Plan, an aggregate of, 6,209 shares of Class C Stock have been
reserved. In addition to the options described in Note 7, certain officers and
employees of the Company held 171.3 and 172.3 shares of restricted Class C
Shares as of January 28, 1995 and February 3, 1996, respectively.

CONVERSION OF STOCK:

In the event of an initial public offering or sale of the Company, as
defined in the Certificate, all issued and outstanding shares of Class A, Class
B, Class C and Class D Stock not otherwise redeemed by the Company shall
automatically convert into shares of Common Stock on a one-for-one basis.

VOTING RIGHTS:

Holders of shares of Class D Stock and Common Stock are entitled to one vote
for each share of such stock held. Until a change of control of the Company, as
defined in the Certificate, holders of Class A, Class B and Class C Stock have
no voting rights, except that the holders of these shares shall have the right
to one vote for each share held as to the approval of any change to the
Certificate of Incorporation that would increase or decrease the par value of
such stock, or change the powers, preferences or special rights of such stock so
as to have a material adverse effect on such holders.

Effective upon a change of control, holders of shares of Class A, Class B
and Class C Stock shall be entitled to one vote for each share of stock held.

Currently, affiliates of Investcorp S.A. ("Investcorp") own all of the
outstanding voting stock of the Company. Investcorp owns no voting stock and
less than 10% of the Company's total outstanding stock.

F-16
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

LIQUIDATION RIGHTS:

In the event of liquidation of the Company, each holder of Class A, Class B
and Class C Stock shall be entitled to receive $.001 per share before any
payment or distribution shall be made or set aside for payment on the Class D
Stock or Common Stock. Any remaining assets or proceeds therefrom are to be
distributed to all stockholders on a pro rata basis.

DIVIDEND RIGHTS:

Dividends are payable to all stockholders on a pro rata basis upon
declaration of such dividends by the Board of Directors.

7. STOCK INCENTIVE PLANS (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNT)

In October 1990, Saks Holdings adopted a Senior Management Stock Incentive
Plan (the "Old Incentive Plan"), and in February 1996, Saks Holdings adopted a
1996 Management Stock Incentive Plan (the "New Incentive Plan" and together with
the Old Incentive Plan, the "Incentive Plans"), for members of senior management
and certain other officers and employees of the Company. As of February 3, 1996
there were options to purchase 1,455.2 shares of Common Stock outstanding under
the Old Incentive Plan, and no options outstanding under the New Incentive Plan.
No additional options will be granted under the Old Incentive Plan. The maximum
number of shares of Common Stock issuable pursuant to the Incentive Plans is
6,209, subject to adjustment to reflect stock splits, stock dividends and
similar stock transactions.

The Incentive Plans provide for the grant of options that qualify as
incentive stock options ("ISOs") under the Internal Revenue Code, as amended, as
well as options that do not qualify as ISOs ("Non-qualified Options")
(collectively referred to as the "Options"), and also provide for the grant of
stock appreciation rights and for the sale or grant of restricted stock. Options
to purchase shares of Common Stock may extend for ten years for ISOs and ten
years and 30 days for Non-qualified Options from the date of grant. Options may
not be granted and restricted stock may not be sold or granted under the
Incentive Plans after October 17, 2000. The exercise of Options is conditioned
upon active employment with the Company. In the event an employee ceases to be
employed by the Company, for any reason, the Company may repurchase at fair
market value, as determined annually by the Board of Directors, any shares of
Class C Stock acquired by such employee pursuant to exercise of an Option
granted under the Incentive Plans.

F-17
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

The following table summarizes the activity in Options:

<TABLE>
<CAPTION>
COMPANY-
OTHER PERFORMANCE
OPTIONS OPTIONS
------- -----------
<S> <C> <C>
Outstanding at January 29, 1994................... 155.4 1,330.5
Granted......................................... -- 147.2
Canceled........................................ (25.4) (301.1)
------- -----------
Outstanding at January 28, 1995................... 130.0 1,176.6
Granted......................................... 172.1 80.9
Canceled........................................ (16.1) (88.3)
------- -----------
Outstanding at February 3, 1996................... 286.0 1,169.2
------- -----------
------- -----------
</TABLE>

The exercise price of all Options granted is $20.00 per share, representing
the estimated fair market value at the time of grant.

In accordance with an exchange approved by the Board of Directors of the
Company on January 19, 1996, on February 28, 1996, Options to acquire 1,620.9
shares of Common Stock issued under the Old Plan were surrendered to the Company
in exchange for the issuance of Options to purchase an identical number of
shares under the New Incentive Plan. The exercise price of the new Options is
$16.00 per share. The individual Stock Option Agreements pursuant to which
Options are granted under the New Incentive Plan provide that Options vest to
the extent of one-third of the shares underlying the Options granted as of the
closing of the Offerings, one-third on the first anniversary thereof and
one-third on the second anniversary thereof. In the event of an Approved Sale
(as defined in the agreement), all options vest in their entirety. The Stock
Option Agreements further provide for the termination of the vested portions of
any Options upon the tenth anniversary of such Stock Option Agreement, and for
acceleration of termination if the employee ceases to be employed by Saks
Holdings or a subsidiary.

8. POSTEMPLOYMENT BENEFITS

The Company has a noncontributory defined benefit pension plan covering
substantially all full-time employees. Benefits are based upon years of service
and compensation prior to retirement. As a result of the Company's special
retirement initiative in fiscal 1993 and funding limitations, the plan refunded
the Company $4,574 in fiscal 1994. The Company did not make a contribution in
fiscal 1994 or fiscal 1995. The Company's policy is to fund the plan to satisfy
the requirements of the Employee Retirement Income Security Act of 1974
("ERISA"). Pension Plan assets consist primarily of short term investments,
bonds, various equities and real estate interests.

F-18
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

The net periodic pension expense consisted of the following components:

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Service cost.................................. $ 4,815 $ 4,250 $ 3,527
Interest cost................................. 6,137 6,226 5,778
Loss (return) on plan assets.................. (9,450) 3,085 (9,095)
Net (deferral) amortization................... 2,318 (8,600) 4,906
------- ------- -------
Net pension expense....................... $ 3,820 $ 4,961 $ 5,116
------- ------- -------
------- ------- -------
</TABLE>

The following table sets forth the Pension Plan's funded status and the
present value of benefit obligations:

<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested....................................... $ (62,169) $ (77,266)
Nonvested.................................... (3,618) (4,838)
----------- -----------
(65,787) (82,104)
Effect of projected future salary increases.... (2,776) (4,562)
----------- -----------
Projected benefit obligation................... (68,563) (86,666)
Plan assets at fair value...................... 48,598 53,058
----------- -----------
Plan assets (less than) projected benefit
obligation..................................... (19,965) (33,608)
Unrecognized net (gain) loss................... (4,108) 4,415
Unrecognized prior service cost................ (60) (56)
----------- -----------
(Accrued) pension cost..................... $ (24,133) $ (29,249)
----------- -----------
----------- -----------
</TABLE>

The Company also maintains an unfunded supplemental retirement plan which
provides for benefits in addition to those provided by the Pension Plan.
Expenses related to the supplemental plan were $591, $487 and $502 in fiscal
1993, fiscal 1994 and fiscal 1995, respectively. Payments from the supplemental
plan were $336 and $279 for fiscal 1994 and fiscal 1995, respectively. The
accrued liability for this plan at January 28, 1995 and February 3, 1996 was
$7,037 and $7,260, respectively.

The actuarial present value of the projected benefit obligations for both
the Pension Plan and supplemental plan was determined at a weighted-average
assumed discount rate and an assumed rate of increase in future compensation of
9.0% and 3.0%, respectively, for fiscal 1994 and 7.35% and 3.0%, respectively,
for fiscal 1995. The assumed long-term rate of return on plan assets was 9.0%
for both fiscal 1994 and fiscal 1995. A 1% change in the assumed discount rate
would change the accumulated benefit obligation by approximately $10 million.

The Company also maintains a 401(k) Plan which covers substantially all of
its employees. The plan is a defined contribution plan and is subject to the
provisions of ERISA. The assets of the plan can be invested in a fixed income
fund and six mutual funds. Eligible employees may contribute up to 16% of their
compensation, as defined. The Company contributes an amount equal to 1/4 of the

F-19
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

first 6% of an employee's contribution. The Company's expense was $1,914, $1,912
and $2,098, for fiscal 1993, fiscal 1994 and fiscal 1995, respectively.

As of the date of the Acquisition, the Company recorded an actuarially
determined liability representing the present value of certain postemployment
health care and life insurance benefit obligations for certain retirees as well
as active employees. In fiscal 1993, the Board approved changes to such benefits
which substantially reduced these benefits and resulted in aggregate reductions
in the accrued liability and employee benefit expenses of $6,452.

9. INCOME TAXES

The Company has net operating loss carryforwards for tax purposes of
approximately $727,597 at February 3, 1996. The carryforwards begin to expire,
unless utilized, in fiscal 2005 through fiscal 2010. The Company has not
reflected any benefit in the consolidated financial statements with respect to
these carryforwards because it has provided a valuation allowance equivalent to
the net deferred tax assets.

The Company recorded certain assets and liabilities at the date of the
Acquisition for financial reporting purposes which are not similarly recognized
under income tax regulations, aggregating a tax benefit of $34,525. Subsequent
realization of this tax benefit will be accounted for as a reduction of
goodwill.

At January 28, 1995 and February 3, 1996 the Company had net deferred tax
assets of $337,803 and $345,059, respectively. The tax effects of temporary
differences that give rise to the deferred tax assets are as follows:

<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforward................................... $ 253,506 $ 289,609
Accrued expenses and reserves................................. 20,962 17,722
Employee benefits............................................. 12,486 14,532
Depreciation/amortization and basis differences............... 39,702 15,575
Allowance for doubtful accounts............................... 3,707 4,442
Deferred lease payments....................................... 2,542 3,133
Other......................................................... 4,898 4,084
----------- -----------
Total deferred tax assets................................... 337,803 349,097
Deferred tax liability
Deferred financing costs...................................... 0 (4,038)
----------- -----------
Total deferred tax liability................................ 0 (4,038)
----------- -----------
Net deferred tax assets....................................... 337,803 345,059
Less valuation allowance...................................... (337,803) (345,059)
----------- -----------
Net deferred tax.............................................. $ 0 $ 0
----------- -----------
----------- -----------
</TABLE>

The reconciliation between the statutory federal income tax rate and the
effective income tax rate for the last three years is as follows:

F-20
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate.................................. 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit........... 4.8 4.8 4.8
------ ------ ------

Effective income tax rate........................................ 39.8 39.8 39.8

Generation of NOL carryforward................................... (39.8 ) (39.8 ) (39.8 )
------ ------ ------
Net effective income tax rate.................................... 0.0% 0.0% 0.0%
------ ------ ------
------ ------ ------
</TABLE>

10. LEASES

The Company leases certain land and buildings under various noncancelable
capital and operating leases. The Company's capital leases have remaining terms
of up to 29 years. Operating leases consist of land leases and land and building
leases with terms from one to 54 years. All of these leases are subject to
renewal options.

Substantially all leases provide for contingent rentals based upon sales and
require the Company to pay taxes, insurance and occupancy costs. Certain rentals
are based solely on a percentage of sales.

The Company also leases certain equipment under operating leases expiring
during the next five fiscal years.

The Company's rent expense consisted of the following:

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Land and building rent:
Fixed minimum.............................. $ 8,960 $ 8,787 $11,401
Contingent rentals......................... 5,694 4,516 5,454
------- ------- -------
Total land and building rent............. 14,654 13,303 16,855
Equipment and other.......................... 4,851 4,540 3,956
------- ------- -------
Total rent expense....................... $19,505 $17,843 $20,811
------- ------- -------
------- ------- -------
</TABLE>

F-21
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

At February 3, 1996, the future minimum lease commitments under
noncancelable operating and capital leases, including equipment leases, are as
follows:

<TABLE>
<CAPTION>
FISCAL YEARS CAPITAL OPERATING
- --------------------------------------------------- -------- ---------
<S> <C> <C>
1996............................................... $ 14,311 $ 17,175
1997............................................... 13,898 22,751
1998............................................... 12,131 20,454
1999............................................... 11,851 19,415
2000............................................... 12,281 19,138
Thereafter......................................... 210,198 261,477
-------- ---------
Total minimum payments........................... 274,670 $360,410
---------
---------
Less, Executory costs.............................. 629
--------
Net minimum lease payments....................... 274,041
Less, Interest..................................... 164,801
--------
Present value of net minimum lease payments...... 109,240
Less, current...................................... 4,772
--------
Noncurrent obligations under capital leases...... $104,468
--------
--------
</TABLE>

Leased property under capital leases is summarized as follows:

<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
<S> <C> <C>
Building and equipment......................... $ 95,875 $ 107,008
Less, Accumulated amortization............... (15,269) (20,403)
----------- -----------
$ 80,606 $ 86,605
----------- -----------
----------- -----------
</TABLE>

The Company leases certain selling space within its stores to other
specialty retailers under contingent rental agreements. Rental income related to
these agreements was $8,988, $9,038 and $10,209 in fiscal 1993, fiscal 1994 and
fiscal 1995, respectively.

11. DERIVATIVE FINANCIAL INSTRUMENTS

The Company has entered into interest rate cap agreements to reduce the
impact of increases in interest rates on the REMIC Financing and Credit
Facility. The Company is also an indirect beneficiary of interest rate cap
agreements entered into by the Receivables Trust. At February 3, 1996, there
were 18 interest rate cap agreements outstanding. Accordingly, the Company is
entitled to receive from various financial institutions the amount, if any, by
which the Company's interest payments on its debt exceeds the stated interest
rates or strike rates. Payments received as a result of the caps in the
Company's debt are recorded as a reduction of interest expense. Payments
received by the Receivables trust as a result of the caps related to the
securitization are

F-22
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

recorded by the Company as an increase in finance charge income. The following
is a summary of the interest rate cap agreements as of February 3, 1996:

<TABLE>
<CAPTION>
NOTIONAL STRIKE
AMOUNT RATE EFFECTIVE DATE EXPIRATION DATE
-------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
A/R Floating Rate Certificate
Program.......................... 150,000 (1) 9.00% December 1991 May 1999
50,000 (1) 9.00% August 1992 May 1999
250,000 7.25-9.00 March 1995 May 1996
A/R Commercial Paper Program..... 191,500 (1) 9.00 October 1993 May 1999
142,000 7.25-9.00 March 1995 November 1996
142,000 7.25 November 1996 February 1997
A/R Series 1991-2 Class C
Certificates..................... 8,841 9.00 November 1992 May 1996
A/R Series 1991-2 Class B
Certificates..................... 13,500 9.00 September 1994 May 1996
A/R Series 1991-3 Class B1
Certificates..................... 10,338 9.00 September 1995 May 1996
A/R Series 1991-3 Class C1
Certificates..................... 8,475 9.00 September 1995 May 1996
Senior credit facility........... 100,000 5.00 September 1993 September 1996
100,000 5.00 September 1993 September 1996
200,000 6.00 September 1993 September 1996
50,000 7.25 March 1995 February 1997
400,000 7.25 September 1996 February 1997
Real estate financing............ 175,000 7.25 May 1995 February 1997
87,500 9.70 February 1997 May 2002
87,500 9.70 February 1997 May 2002
</TABLE>

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

(1) Effective November 1996, the strike rate increases to 10% and the notional
amount begins amortizing each month at a variable rate.

The strike rate related to the senior credit facility and real estate
financing is based on three-month LIBOR contracts. The accounts receivable
strike rate is based on one-month LIBOR contracts.

The aggregate carrying value and fair value of the Company's interest rate
cap agreements was $1,575 and $3,839 at January 28, 1995 and $2,242 and $1,828
at February 3, 1996, respectively. The fair value of interest rate cap
agreements is based on current settlement price of comparable contracts obtained
from interest rate cap providers' quotes. The majority of the Company's
long-term debt bears interest at floating rates; therefore its carrying amount
and fair value are equal.

12. RELATED PARTY TRANSACTIONS

The Company receives various consulting and advisory services from an
affiliate of Investcorp, for which it pays fees. The fees paid or payable for
such services were $2 million, $2 million and $7 million in fiscal 1993, fiscal
1994 and fiscal 1995, respectively. Additionally, the Company purchased
merchandise for sale from Gucci Group N.V., Ebel S.A., and Chaumet International
S.A., all of which also may be deemed to be affiliates of Investcorp during such
fiscal year. The amount of such purchases in fiscal 1995 were $7.3, $.6 and $.5
million, respectively. In fiscal 1993 the

F-23
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

Company sold a closed store location to an affiliate of Investcorp. The net
proceeds and gain on sale were $11.9 million and $3.3 million, respectively. The
gain on sale was recorded as paid-in-capital in the consolidated statement of
stockholder's equity.

13. CONTINGENCIES

The Company also is involved in various other suits and claims in the
ordinary course of business. Management does not believe that the disposition of
such suits will have a material adverse effect on the financial position or
continuing operations of the Company.

Management has entered into an agreement to sell its current distribution
facility, located in Yonkers, New York. The sale is subject to the successful
rezoning of the property. If rezoned, proceeds associated with the sale would
fall within a range of $20 to $25 million. A sale of the distribution center in
this price range could result in a gain on sale of $8 to $13 million. Management
is unable to determine at this time if this transaction will be completed.

14. QUARTERLY RESULTS (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL 1995
-------------------------------------------- FISCAL
FIRST SECOND THIRD FOURTH 1995
QUARTER QUARTER QUARTER QUARTER FULL YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales......................... $384,564 $353,229 $407,990 $541,004 $1,686,787
Cost of goods sold................ 262,435 262,956 275,092 368,209 1,168,692
Net income (loss) before
extraordinary charge.............. (16,553) (34,133) (35,319) 27,901 (58,104)
Net income (loss)................. (16,553) (39,817) (35,319) 27,594 (64,095)
Net income (loss) per share before
extraordinary charge.............. (.37) (.76) (.79) .62 (1.29)
Net income (loss) per share....... (.37) (.89) (.79) .61 (1.43)
</TABLE>

F-24
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)

The Company recorded special charges in the first and third quarters of
$8,900 and $27,515, respectively. (See Note 3).

<TABLE>
<CAPTION>
FISCAL 1994
-------------------------------------------- FISCAL
FIRST SECOND THIRD FOURTH 1994
QUARTER QUARTER QUARTER QUARTER FULL YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales......................... $333,614 $298,455 $343,375 $442,719 $1,418,163
Cost of goods sold................ 229,104 220,920 233,818 295,808 979,650
Net income (loss) before
extraordinary charge.............. (9,211) (25,935) (5,426) 30,489 (10,083)
Net income (loss)................. (9,299) (26,341) (5,426) 30,448 (10,618)
Net income (loss) per share before
extraordinary charge.............. (.20) (.58) (.12) .68 (.22)
Net income (loss) per share....... (.21) (.59) (.12) .68 (.24)
</TABLE>

15. SUBSEQUENT EVENTS

The Company is in the process of filing an initial public offering for the
issuance of shares of common stock. This offering is expected to be completed
during the second quarter of fiscal 1996.

In April 1996, Saks Holdings effected a five-for-one split in the form of a
400% common stock dividend (the "Stock Split"). Saks Holdings has also increased
the number of authorized shares of its common stock to 150,000 and authorized
10,000 shares of preferred stock. All share and per share information has been
restated to reflect the stock split.

Since February 3, 1996, Saks Holdings has granted to members of management
options for the purchase of 449 shares of Common Stock. In addition, Saks
Holdings will grant, conditioned upon the closing of the Offerings, options for
the purchase of 1,200 shares of Common Stock.

F-25
<PAGE>
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)

<TABLE>
<CAPTION>
AUGUST 3, JULY 29,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................................... $ 2,688 $ 7,776
Accounts receivable, net........................................ 44,467 39,049
Inventories..................................................... 389,610 318,317
Other current assets and restricted cash........................ 52,149 39,889
---------- ----------
Total current assets.......................................... 488,914 405,031
---------- ----------
Property and equipment, net....................................... 798,386 784,449
Intangibles and other assets...................................... 134,259 144,646
---------- ----------
Total Assets.................................................. $1,421,559 $1,334,126
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade......................................... $ 142,312 $ 120,664
Accrued liabilities............................................. 92,365 95,382
Taxes other than income taxes................................... 13,795 33,164
Current portion of long term debt............................... 12,568 19,825
Other........................................................... 4,749 4,498
---------- ----------
Total current liabilities..................................... 265,789 273,533
Long term debt.................................................... 531,791 830,790
Other noncurrent liabilities...................................... 151,692 138,953
---------- ----------
Total liabilities............................................. 949,272 1,243,276
Stockholders' equity.............................................. 472,287 90,850
---------- ----------
Total Liabilities & Stockholders' Equity.......................... $1,421,559 $1,334,126
---------- ----------
---------- ----------
</TABLE>

The accompanying Notes are an integral part of the
unaudited Condensed Consolidated Financial Statements.

F-26
<PAGE>
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars and shares in thousands)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
<S> <C> <C>
AUGUST 3, JULY 29,
1996 1995
---------- ----------

Net sales............................................................ $ 868,245 $ 737,793
Cost of sales, including buying & occupancy.......................... (621,173) (525,391)
---------- ----------
Gross margin..................................................... 247,072 212,402
Selling, general and administrative expenses......................... (230,516) (210,796)
Impairment and special charges....................................... -- (8,900)
---------- ----------
Operating income (loss).............................................. 16,556 (7,294)
Interest expense, net................................................ (42,163) (43,392)
---------- ----------
Income (loss) before income taxes and extraordinary charge......... (25,607) (50,686)
Income taxes......................................................... -- --
Income (loss) before extraordinary charge.......................... (25,607) (50,686)
Extraordinary charge - loss on early extinguishment of debt.......... (3,340) (5,684)
---------- ----------
Net income (loss)................................................ $ (28,947) $ (56,370)
---------- ----------
---------- ----------
Net income (loss) per share before extraordinary charge.......... $ (0.49) $ (1.13)
---------- ----------
---------- ----------
Net income (loss) per share.......................................... $ (0.55) $ (1.25)
---------- ----------
---------- ----------
Weighted average shares outstanding.................................. 52,311 44,955
---------- ----------
---------- ----------
</TABLE>

The accompanying Notes are an integral part of the
unaudited Condensed Consolidated Financial Statements.

F-27
<PAGE>
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
AUGUST 3, JULY 29,
1996 1995
--------- --------
<S> <C> <C>
Net income (loss) plus depreciation and amortization............... $ 7,816 $(18,369)
Adjustments to reconcile to net cash provided by (used in)
operations:
Extraordinary charge--early extinguishment of debt............. 3,340 5,684
Impairment and special charges................................. -- 8,900
Change in operating assets and liabilities..................... (54,973) (14,701)
--------- --------
Net cash (used in) operating activities.................... (43,817) (18,486)
--------- --------
Cash flows from investing activities:
Net cash (used in) investing activities (primarily capital
expenditures)...................................................... (48,325) (32,078)
Cash flows from financing activities:
Additional paid-in-capital from initial public offering........ 417,769 --
Net revolver borrowing (payment) under senior credit
facility........................................................... (173,401) 10,433
Proceeds from commercial mortgage pass-through certificates.... -- 335,000
Payment of euronotes........................................... -- (335,000)
Borrowing (payment) of debt.................................... (148,943) 65,087
Financing costs................................................ (5,582) (25,000)
Other.......................................................... (1,640) (1,808)
--------- --------
Net cash provided by financing activities.................. 88,203 48,712
--------- --------
Increase (decrease) in cash and cash equivalents........... $ (3,939) $ (1,852)
--------- --------
--------- --------
</TABLE>

The accompanying Notes are an integral part of the
unaudited Condensed Consolidated Financial Statements.

F-28
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except where indicated)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of Saks Holdings, Inc. and
its subsidiaries (the "Company") are submitted in response to the requirements
of Regulation S-X promulgated under the Securities Act and should be read in
conjunction with the annual consolidated financial statements included in this
prospectus. In the opinion of management, these statements contain all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position, the results of operations and net cash
flows for the interim periods presented. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
retail industry is seasonal in nature, and historically the results of
operations for interim periods may not be indicative of the results for the full
year.

2. INITIAL PUBLIC OFFERING

In May 1996, the Company completed an initial public offering. The Company
sold approximately 18 million shares at an initial public offering price of
$25.00 per share. The net proceeds from the offering were approximately $417.8
million. The net proceeds from the offering were primarily used to prepay term
loan borrowings under the Senior Credit Facility and repay outstanding balances
on the revolving credit portion of the facility. The Company recorded an
extraordinary charge of $3.3 million ($.06 per share) associated with the
accelerated write-off of deferred financing costs related to these pre-payments.
Effective with the offering, the Company amended its Senior Credit Facility to
reduce the spread on its variable interest rate borrowings under the Facility
and change the availability of borrowings under the facility. The Company has
$322 million of borrowing capacity available under the revolving credit portion
of the facility and has $138 million in term loan borrowings outstanding.

3. SPECIAL CHARGES

A special charge of $8.9 million ($.20 per share) was recorded in the
thirteen weeks ended April 29, 1995. This charge represented costs to integrate
four former I. Magnin store locations.

4. RECEIVABLES SECURITIZATION

SFA Finance Company ("Finco") is a wholly-owned subsidiary established for
the purpose of purchasing proprietary credit card receivables (the
"Receivables") from Saks & Company ("Saks"). In April 1996 Saks Master Trust
(the "New Receivables Trust") was formed pursuant to a pooling and servicing
agreement among Finco, Saks, as servicer, and Bankers Trust Company, as trustee
(the "New A/R Trustee"). The assets of the New Receivables Trust currently
consist principally of a certificate evidencing the entire interest in the
Transition Certificate, Series 1996-1 (the "Transition Certificate"), which is
the second outstanding series issued by SFA Master Trust. The Transition
Certificate represents the interest in the assets of the SFA Master Trust not
represented by Series 1991-2 and has a principal amount which will fluctuate
from time to time according to the level of receivables in the SFA Master Trust
in excess of the amount required to support the Series 1991-2 Certificates. On
the date on which Series 1991-2 has been fully liquidated (the "Existing Trust
Termination Date"), the assets of the SFA Master Trust will be

F-29
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(in thousands, except where indicated)

4. RECEIVABLES SECURITIZATION--(CONTINUED)
transferred to the New Receivables Trust in exchange for the cancellation of the
Transition Certificate. After the Existing Trust Termination Date, Saks will
continue to receive a fee for servicing the Receivables for the New Receivables
Trust.

In April 1996 the New Receivables Trust sold two series of certificates of
beneficial interests. These certificates represent undivided interests in the
receivables generated from time to time by Saks by a portfolio of accounts
meeting the designated eligibility requirements. Series 1996-1 is a medium term
series that matures in April 1999. Approximately $297 million of Class A Series
1996-1 Certificates and $53 million of Class B Series 1996-1 Certificates were
sold in non-public transactions. Approximately $47 million of subordinated
Series 1996-1 Certificates were privately placed at the same time. All such
certificates bear interest at fixed spreads over one-month LIBOR. Finco retains
approximately $16.5 million of subordinated Series 1996-1 Certificates. Series
1996-1 has a substantial prefunded amount, which will be invested in Receivables
(via the Transition Certificate) as cash allocable to Series 1991-2 is no longer
reinvested in Receivables, but instead is accumulated in order to make the
principal payment due with respect thereto in November 1996.

Series 1996-2 is a series with a variable principal amount. The Class A
Series 1996-2 Certificates have a maximum outstanding principal balance of $100
million and have been privately placed. Subordinated Series 1996-2 Certificates,
with an aggregate maximum outstanding principal balance of approximately $16.0
million, also were privately placed. All Series 1996-2 Certificates bear
interest at fixed spreads over one-month LIBOR. Finco will retain up to
approximately $5.0 million of subordinated Series 1996-2 Certificates. The
principal balance of Series 1996-2 is currently zero.

5. CONTINGENCIES

The Company has entered into an agreement to sell its current distribution
facility, located in Yonkers, New York. The sale is subject to the successful
rezoning of the property. If rezoned, proceeds associated with the sale would
fall within a range of $20 to $25 million. A sale of the distribution center in
this price range could result in a gain on sale of $8 to $13 million. Management
is unable to determine at this time if this transaction will be completed.

The Company has entered into an agreement with Dayton Hudson Corporation and
certain of its affiliates to acquire three Marshall Field store locations in
Texas, adding 250,000 square feet of

F-30
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(in thousands, except where indicated)

5. CONTINGENCIES--(CONTINUED)
store space. Two of these stores are intended to replace two smaller stores
currently operated by Saks in Houston and Dallas. Saks intends to spend
approximately $100 million in connection with the acquisition and renovation of
these stores. Completion of the transaction is subject to certain conditions and
is expected to be completed in December 1996.

6. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

As required, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets" beginning with
fiscal 1996 reporting. SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed whenever events or changes in circumstances
indicate that recoverability is questionable. The adoption did not have a
material effect on the results of operations or financial position.

F-31
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have agreed to sell to each of the U.S. Underwriters named
below, and each of such U.S. Underwriters, for whom Goldman, Sachs & Co., CS
First Boston Corporation, Morgan Stanley & Co. Incorporated and Salomon Brothers
Inc are acting as representatives, has severally agreed to purchase from the
Selling Stockholders, the respective number of shares of Common Stock set forth
opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- --------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co......................................
CS First Boston Corporation..............................
Morgan Stanley & Co. Incorporated........................
Salomon Brothers Inc.....................................
------------
Total.................................................. 6,400,000
------------
------------
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and the other selling terms may from time to time
be varied by the representatives.

Saks Holdings and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the international offering (the "International Underwriters") providing for the
concurrent offer and sale of 1,600,000 shares of Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The representatives of
the International Underwriters are Goldman Sachs International, CS First Boston
Limited, Morgan Stanley & Co. International Limited and Salomon Brothers
International Limited.

Pursuant to the Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed or will agree pursuant to the Agreement
Between that, as a part of the distribution of the shares offered as a part of
the international offering, and subject to certain exceptions, it will (i) not,
directly or indirectly, offer, sell or deliver shares of Common Stock (a) in the
United States or to any U.S. persons or (b) to any person who it believes
intends to reoffer, resell or deliver the shares in

U-1
<PAGE>
the United States or to any U.S. persons, and (ii) cause any dealer to whom it
may sell such shares at any concession to agree to observe a similar
restriction.

Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession. This Prospectus may be used by the Underwriters and dealers in
connection with offers and sales of the Common Stock, including shares initially
sold in the international offering, to persons located in the United States.

The Selling Stockholders have granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of additional shares of Common Stock solely to cover
over-allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the shares of Common Stock offered hereby. The
Selling Stockholders have granted the International Underwriters a similar
option exercisable for up to an aggregate of additional shares of Common
Stock.

Saks Holdings, the Selling Stockholders and certain stockholders have agreed
that, during the period beginning from the date of this Prospectus and
continuing to and including (a) in the case of Saks Holdings, the date 90 days
after, and (b) in the case of the Selling Stockholders and certain other
stockholders, solely with respect to 41,055,460 of their shares of Common Stock,
the date 180 days after, in each case, the date of this Prospectus, they will
not offer, sell, contract to sell or otherwise dispose of, except as provided in
the U.S. Underwriting Agreement and the International Underwriting Agreement,
any securities of Saks Holdings which are substantially similar to the shares of
the Common Stock or securities which are convertible or exchangeable into
securities which are substantially similar to the shares of the Common Stock
(other than any sales of Common Stock (i) in connection with the acquisition of
or merger with any other corporation or other entity or the acquisition of any
assets or properties thereof provided that, prior to the issuance of such
securities, such corporation or entity agrees to be similarly bound or (ii)
pursuant to employee stock option, stock purchase or other employee benefit
plans existing on the date of the Underwriting Agreement) without the prior
written consent of the representatives.

The initial public offering price of the Common Stock offered hereby will be
determined by referring to the market price of the Common Stock on the New York
Stock Exchange taking into account prevailing market conditions and certain
other factors.

The Common Stock is traded on the New York Stock Exchange under the symbol
"SKS".

Saks Holdings and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.

The consummation of the Offerings and the Notes offering are not conditioned
upon each other.

Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to Saks Holdings and its
affiliates, for which such Underwriters have received and will receive customary
fees and commissions.

U-2
<PAGE>

[U.S. BACK COVER--SECONDARY]
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN
OFFER TO SELL OR THE SOLICITATION OF AN 8,000,000 SHARES
OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE SAKS HOLDINGS, INC.
MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF SAKS HOLDINGS SINCE THE COMMON STOCK
DATE HEREOF OR THAT THE INFORMATION (PAR VALUE, $.01 PER SHARE)
CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.

-------------------
TABLE OF CONTENTS

PAGE ------------------
---- [SAKS FIFTH AVENUE LOGO]
------------------
Prospectus Summary.................. 3
Risk Factors........................11
Use of Proceeds.....................15
Concurrent Notes Offering...........15
Price Range of Common Stock and
Dividend Policy.....................16
Capitalization......................17
Selected Consolidated GOLDMAN, SACHS & CO.
Financial Data....................18 CS FIRST BOSTON
Management's Discussion and Analysis
of Financial Condition and Results MORGAN STANLEY & CO.
of Operations.....................20 INCORPORATED

Business............................28
Management..........................45 SALOMON BROTHERS INC
Principal and Selling
Stockholders......................53 REPRESENTATIVES OF THE UNDERWRITERS
Certain Transactions................55
Description of Capital Stock........56
Description of Certain
Indebtedness........................58
Shares Eligible for Future
Sale................................65
Validity of Shares..................66
Experts.............................66
Additional Information..............66
Index to Consolidated Financial
Statements.........................F-1
Underwriting.......................U-1

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The Registrant's expenses in connection with the offering described in this
registration statement are set forth below. All amounts except the Securities
and Exchange Commission registration fee, the NASD filing fee and the NYSE
listing fee are estimated.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... 109,260
NASD filing fee............................................... 30,500
Printing expenses............................................. 500,000
Accounting fees and expenses.................................. 50,000
Legal fees and expenses....................................... 100,000
Fees and expenses (including legal fees) for qualifications
under state securities laws................................... 30,000
Transfer agent's fees and expenses............................ 50,000
Miscellaneous................................................. 130,240
----------
Total..................................................... $1,000,000
----------
----------
</TABLE>

ITEM 14. IDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances from liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (the
"Act").

As permitted by the DGCL, the registrant's Certificate of Incorporation (the
"Charter") provides that, to the fullest extent permitted by the DGCL, no
director shall be liable to the registrant or to its stockholders for monetary
damages for breach of his fiduciary duty as a director. Delaware law does not
permit the elimination of liability (i) for any breach of the director's duty of
loyalty to the registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock redemptions
or repurchases, or (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision in the Charter is to
eliminate the rights of the registrant and its stockholders (through
stockholders' derivative suits on behalf of the registrant) to recover monetary
damages against a director for breach of fiduciary duty as a director thereof
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i)-(iv), inclusive, above. These
provisions will not alter the liability of directors under federal securities
laws.

The registrant's Bylaws (the "Bylaws") provide that the registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the registrant) by reason of the fact that he is or was a director,
officer, employee or agent of the registrant or is or was serving at the request
of the registrant as a director, officer, employee or agent of any other
corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of

II-1
<PAGE>
the registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.

The Bylaws also provide that the registrant may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the registrant to procure
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the registrant unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine that despite the adjudication of liability but in view of all the
circumstances of the case, such person if fairly and reasonably entitled to be
indemnified for such expenses which the Court of Chancery of the State of
Delaware or the court in which such action was brought shall deem proper.

The Bylaws also provide that to the extent a director or officer of the
registrant has been successful in the defense of any action, suit or proceeding
referred to in the previous paragraphs or in the defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification provided for in the Bylaws shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
registrant may purchase and maintain insurance on behalf of a director or
officer of the registrant against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the registrant would have the power to indemnify him against such liabilities
under such Bylaws.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The registrant has not issued or sold securities within the past three years
pursuant to offerings that were not registered under the Securities Act of 1933,
as amended (the "Securities Act"), except as follows:

<TABLE>
<C> <S>
(a) In August 1993, Saks Holdings sold 260 of its Class C Shares to Robert Ramsden for
an aggregate of $26,000. These shares have since been repurchased by Saks Holdings.

(b) In December 1994, Saks Holdings sold 357 of its Class C Shares to Owen Dorsey for
an aggregate of $35,700.

(d) In November 1995, Saks Holdings sold 97 of its Class C Shares to Stephen Bock for
an aggregate of $9,700.

(e) In December 1995, Saks Investments Limited, Saks Equity Limited and Saks Capital
Limited each converted 2,400 Class D Shares into 2,400 Class C Shares pursuant to
Section 6(d) of the Certificate of Designations of Saks Holdings.

(f) In January 1996, Saks Holdings sold 357 of its Class C Shares to Gail Pisano for an
aggregate of $35,700.

(g) In February 1996, Saks Holdings sold 357 of its Class C Shares to Dan Smith for an
aggregate of $35,700.

(h) In February 1996, Saks Holdings sold 357 of its Class C Shares to Wayne Meichner
for an aggregate of $35,700.
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
(i) In February 1996, Saks Holdings sold 357 of its Class C Shares to Barbara Lynne
Ronon for an aggregate of $35,700.
(j) In February 1996, Saks Holdings sold 357 of its Class C Shares to Sheri Wilson-Gray
for an aggregate of $35,700.
(k) In February 1996, Saks Holdings sold 260 of its Class C Shares to Mark Hood for an
aggregate of $26,000.
(l) On various dates from January 30, 1993 through February 28, 1996, pursuant to the
Old Incentive Plan, Saks Holdings awarded to key employees of Saks (i)
Non-qualified Options, exercisable in whole or in part at $100.00 ($20.00 giving
effect to the stock split in the form of a dividend effected on April 26, 1996 (the
"Stock Split")) per share to purchase an aggregate of 129,313 (646,565 giving
effect to the Stock Split) Class C Shares and (ii) ISOs, exercisable in whole or in
part at $100.00 ($20.00 giving effect to the Stock Split) per share to purchase an
aggregate of 47,557 (237,785 giving effect to the Stock Split) Class C Shares.
(m) On February 28, 1996, pursuant to the New Incentive Plan, Saks Holdings issued
ISOs, exercisable in whole or in part at $80.00 ($16.00 giving effect to the Stock
Split) per share, to purchase 324,171 (1,620,855 giving effect to the Stock Split)
Class C Shares in exchange for the cancellation of Options issued pursuant to the
Old Incentive Plan to purchase an identical number of Class C Shares.
(n) On various dates from February 29, 1996 through April 19, 1996, pursuant to the New
Incentive Plan, Saks Holdings issued ISOs, exercisable in whole or in part at
$80.00 ($16.00 giving effect to the Stock Split) per share, to purchase 51,068
(255,340 giving effect to the Stock Split) Class C Shares.
(o) On May 22, 1996, Saks Holdings granted ISOs, pursuant to the New Incentive Plan, to
purchase 1,199,750 shares of Common Stock, exercisable in whole or in part at
$25.00 per share.
</TABLE>

The transactions set forth above were undertaken in reliance upon the
exemptions from the registration requirements of the Securities Act afforded by
(i) Section 4(2) thereof and/or Regulation D promulgated thereunder, as sales
not involving a public offering, and/or (ii) Rule 701 promulgated thereunder, as
sales by an issuer to employees, directors, officers, consultants or advisors
pursuant to written compensatory benefit plans or written contracts relating to
the compensation of such persons. The purchases of the securities described
above acquired them for their own account not with a view to any distribution
thereof to the public. The certificates evidencing the securities bear legends
stating that the shares may not be offered, sold or transferred other than
pursuant to an effective registration statement under the Securities Act or an
exemption from such registration requirements.

With respect to the transaction described in paragraphs (l) through (o)
above, on June 10, 1996, Saks Holdings registered on Form S-8 under the
Securities Act the exercise of options granted under the Plans as well as any
further grants of options granted under the New Incentive Plan.

Upon the closing of Saks Holdings' initial public offering on May 28, 1996,
all of Saks Holdings' capital stock, including all Class C Shares, was converted
into Common Stock.

II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------
<S> <C>
1.01** Form of Underwriting Agreement
1.02** Form of International Underwriting Agreement
3.01* Amended and Restated Certificate of Incorporation of Saks Holdings, as filed
with the Delaware Secretary of State on May 28, 1996
3.02* Bylaws of Saks Holdings, as adopted on August 6, 1990
4.01* See Exhibits 3.01 and 3.02 as to the rights of holders of Saks Holdings' Common
Stock
4.02* Form of Stock Certificate of the Common Stock of Saks Holdings
4.03.1* Amended and Restated Credit Agreement, dated as of July 1, 1993, among Saks,
Chemical Bank and Bankers Trust Company as managing agents, Chemical Bank,
Bankers Trust Company, the CIT Group/Business Credit, Inc. and Barclays Bank
PLC as co-agents, and Chemical Bank as administrative agent (the "Credit
Facility")
4.04.2* First Amendment to the Credit Facility, dated as of March 1, 1995
4.04.3* Second Amendment to the Credit Facility, dated as of October 24, 1995
4.04.4* Third Amendment to the Credit Facility, dated as of March 5, 1996
4.04.5* Fourth Amendment to the Credit Facility, dated as of April 10, 1996
4.04.6* Fifth Amendment to the Credit Facility, dated as of April 18, 1996
4.04.7 Sixth Amendement and Consent to the Credit Facility, dated as of August ,
1996
4.05* Amended and Restated Loan and Security Agreement dated as of
May 12, 1995 between Fifth Avenue Capital Trust ("FACT") and certain direct and
indirect wholly-owned subsidiaries of Saks (the "Borrowers")
4.06* Trust and Servicing Agreement dated as of May 12, 1995 among FACT, Bankers
Trust Company, as servicer, and Marine Midland Bank, as trustee
4.07* Amended and Restated Trust Agreement, dated as of May 12, 1995, among Saks,
HNY, Inc. and Wilmington Company, as owner trustee
4.08* Indenture, dated as of July 1, 1993, between Saks and AIBC Services N.V., as
trustee
4.09* First Supplemental Indenture, dated as of April 22, 1996, between Saks and AIBC
Services N.V., as trustee
5.01** Opinion of Gibson, Dunn & Crutcher LLP
10.01.1* Amended and Restated Pooling & Servicing Agreement, dated as of December 16,
1991, among SFA Finance Company, Saks and Bankers Trust Company, as trustee
(the "1991 P&S")
10.01.2* First Amendment to the 1991 P&S, dated as of November 5, 1992
10.01.3* Second Amendment to the 1991 P&S, dated as of October 26, 1993
10.02.1* Second Amended and Restated Receivables Purchase Agreement, dated as of
December 16, 1991, between Saks and SFA Finance Company (the "Receivables
Purchase Agreement")
10.02.2* First Amendment to the 1991 Receivables Purchase Agreement, dated as of
November 5, 1992
10.02.3* Second Amendment to the 1991 Receivables Purchase Agreement, dated as of
October 26, 1993
10.03.1* Series 1991-2 Supplement, dated as of December 16, 1991, among SFA Finance
Company, Saks, MHTC, as administrative agent, and Bankers Trust Company, as
trustee (the "1991-2 Supplement")
10.03.2* First Amendment to the 1991-2 Supplement, dated as of July 22, 1992
10.03.3* Second Amendment to the 1991-2 Supplement, dated as of August 20, 1992
10.03.4* Third Amendment to the 1991-2 Supplement, dated as of November 5, 1992
10.03.5* Fourth Amendment to the 1991-2 Supplement, dated as of May 20, 1993
10.03.6* Fifth Amendment to the 1991-2 Supplement, dated as of October 28, 1993
10.03.7* Sixth Amendment to the 1991-2 Supplement, dated as of September 30, 1994
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------
<S> <C>
10.04.1* Class C Supplement to Series 1991-2 Supplement, dated as of
November 5, 1992, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee (the "1991-2(C) Supplement")
10.04.2* First Amendment to the 1991-2(C) Supplement, dated as of September 30, 1994
10.05* Class B Supplement to Series 1991-2 Supplement, dated as of September 30, 1994,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.06* Series 1995-1 Supplement, dated as of November 13, 1995, among SFA Finance
Company, Saks, Swiss Bank Corporation, New York Branch, as administrative
agent, and Bankers Trust Company, as trustee
10.07* Transition Supplement to the 1991 P&S, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee
10.08* Pooling and Servicing Agreement, dated as of April 25, 1996, among SFA Finance
Company, Saks and Bankers Trust Company, as trustee (the "1996 P&S")
10.09* Series 1996-1 Supplement to the 1996 P&S, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee
10.10* Third Amended and Restated Receivables Purchase Agreement, dated as of April
25, 1996, between Saks and SFA Finance Company
10.11* Series 1996-2 Supplement to the 1996 P&S, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee
10.12* Purchase Agreement, dated May 4, 1995 among Saks, FACT, the Borrowers, Goldman,
Sachs & Company and Chemical Securities, Inc., with respect to the sale of
Commercial Mortgage Pass-Through Certificates due May 12, 2002
10.13* Saks Fifth Avenue Supplemental Pension Plan, effective July 2, 1990
10.14* Saks Holdings, Inc. Senior Management Stock Incentive Plan, dated as of October
17, 1990 (the "Old Incentive Plan")
10.15* Standard Form of Stock Option Agreement Pursuant to the Old Incentive Plan
10.16.1* Saks Holdings, Inc. 1996 Management Stock Incentive Plan, dated as of February
1, 1996 (the "New Incentive Plan")
10.16.2* Amendment to the New Incentive Plan
10.17* Standard Form of Stock Option Agreement Pursuant to the New Incentive Plan
10.18* Amended and Restated Employment Agreement, dated as of March 1, 1996, between
Saks and Philip B. Miller
10.19* Amended and Restated Employment Agreement, dated as of March 1, 1996, between
Saks and Rose Marie Bravo
10.20* Amended and Restated Employment Agreement, dated as of March 1, 1996, between
Saks and Owen E. Dorsey
10.21* Employment Agreement, dated as of March 1, 1996, between Saks and Brian E.
Kendrick
10.22* Agreement for Management Advisory and Consulting Services, dated as of July 2,
1995, between Saks and III
10.23* Acquisitions Advisory Agreement, dated as of January 29, 1995, between Saks and
III
10.24* Public Company Expenses Agreement, dated as of April 27, 1996, between Saks
Holdings and Saks.
10.25* Form of Common Stock Purchase Agreement between Saks Holdings and Investcorp,
S.A.
21.01* Subsidiaries of Saks Holdings
23.01 Consent of Coopers & Lybrand L.L.P.
23.02** Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.01)
24.01 Power of Attorney (included on signature page of Registration Statement)
</TABLE>

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

* Incorporated herein by reference to Saks Holdings' registration statement on
Form S-1 (Reg No. 333-2426)

** To be filed by amendment

II-5
<PAGE>
ITEM 17. UNDERTAKINGS

(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such labilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(b) The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in The City of New York,
State of New York, on August 28, 1996.

SAKS HOLDINGS, INC.

By /s/ PHILIP B. MILLER
...................................
Philip B. Miller
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brian E. Kendrick and Mark E. Hood and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including,
without limitation, any registration statement filed pursuant to Rule 462 under
the Securities Act of 1933, as amended, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or any of them or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the capacity
indicated on August 28, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ------------------------------------------------
<S> <C>
/s/ PHILIP B. MILLER Chairman of the Board and
........................................ Chief Executive Officer
Philip B. Miller (Principal Executive Officer)

/s/ BRIAN E. KENDRICK Vice Chairman of the Board and
........................................ Chief Operating Officer
Brian E. Kendrick

/s/ ROSE MARIE BRAVO President and Director
........................................
Rose Marie Bravo

/s/ RICHARD F. ZANNINO Executive Vice President,
........................................ Chief Financial Officer and Treasurer
Richard F. Zannino (Principal Financial Officer)

/s/ SAVIO W. TUNG Director
........................................
Savio W. Tung
</TABLE>

II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ------------------------------------------------
/s/ JON P. HEDLEY Director
........................................
Jon P. Hedley
<S> <C>

/s/ E. GARRETT BEWKES III Director
........................................
E. Garrett Bewkes III

/s/ CHARLES J. PHILIPPIN Director
........................................
Charles J. Philippin

/s/ STEPHEN I. SADOVE Director
........................................
Stephen I. Sadove

/s/ BRIAN RUDER Director
........................................
Brian Ruder

/s/ MARK E. HOOD Senior Vice President--Finance
........................................ (Principal Accounting Officer)
Mark E. Hood
</TABLE>

*By: /s/ MARK E. HOOD
...........................................................................

Mark E. Hood
Attorney in Fact

II-8
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- ------------------------------------------------------------------------ ----
<S> <C> <C>
1.01** Form of Underwriting Agreement
1.02** Form of International Underwriting Agreement
3.01* Amended and Restated Certificate of Incorporation of Saks Holdings, as
filed with the Delaware Secretary of State on May 28, 1996
3.02* Bylaws of Saks Holdings, as adopted on August 6, 1990
4.01* See Exhibits 3.01 and 3.02 as to the rights of holders of Saks Holdings'
Common Stock
4.02* Form of Stock Certificate of the Common Stock of Saks Holdings
4.03.1* Amended and Restated Credit Agreement, dated as of July 1, 1993, among
Saks, Chemical Bank and Bankers Trust Company as managing agents,
Chemical Bank, Bankers Trust Company, the CIT Group/Business Credit,
Inc. and Barclays Bank PLC as co-agents, and Chemical Bank as
administrative agent (the "Credit Facility")
4.04.2* First Amendment to the Credit Facility, dated as of March 1, 1995
4.04.3* Second Amendment to the Credit Facility, dated as of October 24, 1995
4.04.4* Third Amendment to the Credit Facility, dated as of March 5, 1996
4.04.5* Fourth Amendment to the Credit Facility, dated as of April 10, 1996
4.04.6* Fifth Amendment to the Credit Facility, dated as of April 18, 1996
4.04.7 Sixth Amendement and Consent to the Credit Facility, dated as of August
, 1996
4.05* Amended and Restated Loan and Security Agreement dated as of
May 12, 1995 between Fifth Avenue Capital Trust ("FACT") and certain
direct and indirect wholly-owned subsidiaries of Saks (the "Borrowers")
4.06* Trust and Servicing Agreement dated as of May 12, 1995 among FACT,
Bankers Trust Company, as servicer, and Marine Midland Bank, as trustee
4.07* Amended and Restated Trust Agreement, dated as of May 12, 1995, among
Saks, HNY, Inc. and Wilmington Company, as owner trustee
4.08* Indenture, dated as of July 1, 1993, between Saks and AIBC Services
N.V., as trustee
4.09* First Supplemental Indenture, dated as of April 22, 1996, between Saks
and AIBC Services N.V., as trustee
5.01** Opinion of Gibson, Dunn & Crutcher LLP
10.01.1* Amended and Restated Pooling & Servicing Agreement, dated as of December
16, 1991, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee (the "1991 P&S")
10.01.2* First Amendment to the 1991 P&S, dated as of November 5, 1992
10.01.3* Second Amendment to the 1991 P&S, dated as of October 26, 1993
10.02.1* Second Amended and Restated Receivables Purchase Agreement, dated as of
December 16, 1991, between Saks and SFA Finance Company (the
"Receivables Purchase Agreement")
10.02.2* First Amendment to the 1991 Receivables Purchase Agreement, dated as of
November 5, 1992
10.02.3* Second Amendment to the 1991 Receivables Purchase Agreement, dated as of
October 26, 1993
10.03.1* Series 1991-2 Supplement, dated as of December 16, 1991, among SFA
Finance Company, Saks, MHTC, as administrative agent, and Bankers Trust
Company, as trustee (the "1991-2 Supplement")
10.03.2* First Amendment to the 1991-2 Supplement, dated as of July 22, 1992
10.03.3* Second Amendment to the 1991-2 Supplement, dated as of August 20, 1992
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- ------------------------------------------------------------------------ ----
<S> <C> <C>
10.03.4* Third Amendment to the 1991-2 Supplement, dated as of November 5, 1992
10.03.5* Fourth Amendment to the 1991-2 Supplement, dated as of May 20, 1993
10.03.6* Fifth Amendment to the 1991-2 Supplement, dated as of October 28, 1993
10.03.7* Sixth Amendment to the 1991-2 Supplement, dated as of September 30, 1994
10.04.1* Class C Supplement to Series 1991-2 Supplement, dated as of
November 5, 1992, among SFA Finance Company, Saks and Bankers Trust
Company, as trustee (the "1991-2(C) Supplement")
10.04.2* First Amendment to the 1991-2(C) Supplement, dated as of September 30,
1994
10.05* Class B Supplement to Series 1991-2 Supplement, dated as of September
30, 1994, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee
10.06* Series 1995-1 Supplement, dated as of November 13, 1995, among SFA
Finance Company, Saks, Swiss Bank Corporation, New York Branch, as
administrative agent, and Bankers Trust Company, as trustee
10.07* Transition Supplement to the 1991 P&S, dated as of April 25, 1996, among
SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.08* Pooling and Servicing Agreement, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee (the "1996
P&S")
10.09* Series 1996-1 Supplement to the 1996 P&S, dated as of April 25, 1996,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.10* Third Amended and Restated Receivables Purchase Agreement, dated as of
April 25, 1996, between Saks and SFA Finance Company
10.11* Series 1996-2 Supplement to the 1996 P&S, dated as of April 25, 1996,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.12* Purchase Agreement, dated May 4, 1995 among Saks, FACT, the Borrowers,
Goldman, Sachs & Company and Chemical Securities, Inc., with respect to
the sale of Commercial Mortgage Pass-Through Certificates due May 12,
2002
10.13* Saks Fifth Avenue Supplemental Pension Plan, effective July 2, 1990
10.14* Saks Holdings, Inc. Senior Management Stock Incentive Plan, dated as of
October 17, 1990 (the "Old Incentive Plan")
10.15* Standard Form of Stock Option Agreement Pursuant to the Old Incentive
Plan
10.16.1* Saks Holdings, Inc. 1996 Management Stock Incentive Plan, dated as of
February 1, 1996 (the "New Incentive Plan")
10.16.2* Amendment to the New Incentive Plan
10.17* Standard Form of Stock Option Agreement Pursuant to the New Incentive
Plan
10.18* Amended and Restated Employment Agreement, dated as of March 1, 1996,
between Saks and Philip B. Miller
10.19* Amended and Restated Employment Agreement, dated as of March 1, 1996,
between Saks and Rose Marie Bravo
10.20* Amended and Restated Employment Agreement, dated as of March 1, 1996,
between Saks and Owen E. Dorsey
10.21* Employment Agreement, dated as of March 1, 1996, between Saks and Brian
E. Kendrick
10.22* Agreement for Management Advisory and Consulting Services, dated as of
July 2, 1995, between Saks and III
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- ------------------------------------------------------------------------ ----
<S> <C> <C>
10.23* Acquisitions Advisory Agreement, dated as of January 29, 1995, between
Saks and III
10.24* Public Company Expenses Agreement, dated as of April 27, 1996, between
Saks Holdings and Saks.
10.25* Form of Common Stock Purchase Agreement between Saks Holdings and
Investcorp, S.A.
21.01* Subsidiaries of Saks Holdings
23.01 Consent of Coopers & Lybrand L.L.P.
23.02** Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.01)
24.01 Power of Attorney (included on signature page of Registration Statement)
</TABLE>

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

* Incorporated herein by reference to Saks Holdings' registration statement on
Form S-1 (Reg No. 333-2426)

** To be filed by amendment

EXHIBIT 4.04.7

SIXTH AMENDMENT AND CONSENT, dated as of August __, 1996 (this
"Amendment"), to and of the Amended and Restated Credit Agreement, dated as
of July 1, 1993 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"; terms used herein and not otherwise
defined herein are used herein as therein defined), among SAKS & COMPANY
(the "Company"), the Lenders from time to time parties thereto (the
"Banks") and THE CHASE MANHATTAN BANK, successor by merger to Chemical
Bank, as administrative agent for the Banks (in such capacity, the
"Administrative Agent").

W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has requested the Banks to consent to certain matters
regarding certain provisions of the Credit Agreement; and

WHEREAS, the Banks party hereto are willing to consent to such matters and
to amend the Credit Agreement, but only on, and subject to, the terms and
conditions hereof;

NOW, THEREFORE, in consideration of the mutual premises and
mutual agreements contained herein and for other valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Company,
the Banks party hereto and the Administrative Agent hereby agree as
follows:

Section 1 Consents and Waivers.
--------------------

(a) Notwithstanding anything to the contrary in the Credit
Documents, Holdings shall be permitted to issue up to an aggregate
principal amount of $300 million of unsecured convertible subordinated
notes (the "Holdings Notes") having (i) no scheduled maturity, amortization
or mandatory redemption or purchase prior to the sixth anniversary of the
date of issuance, (ii) an interest rate no greater than 7.5% per annum and
(iii) such other terms and conditions that conform in all material respects
to the terms described under cover of a letter dated August 22, 1996 from
the Company to the Administrative Agent, except as otherwise consented to
by the Administrative Agent, which consent shall not be unreasonably
withheld; provided that the net proceeds of such issuance shall be loaned
--------
to the Company in accordance with Section 1(b) hereof.

(b) Notwithstanding anything to the contrary in the Credit
Documents, the Company shall be permitted to incur unsecured, subordinated
Indebtedness to Holdings in an aggregate principal amount not to exceed the
aggregate principal amount of the Holdings Notes (the "Intercompany Debt");
provided, however, (a) that promptly upon such issuance the Company shall
- -------- -------
apply the net proceeds of the Intercompany Debt to the prepayment of the
New Term Loans in full in accordance with the terms of subsection 6.4(a) of
the Credit Agreement, except that the proviso in the first sentence thereof
prohibiting prepayments of Eurodollar Loans on other than the last day of
an Interest Period with respect thereto shall have no effect; (b) the
Intercompany Debt

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

(i) shall only be mandatorily prepayable or redeemable to the extent the
Holdings Notes are mandatorily prepayable or redeemable, (ii) shall have
the same interest rate as the Holdings Notes, and (iii) shall have other
terms and conditions reasonably satisfactory to the Administrative Agent;
and (c) the Company and its Subsidiaries shall not, without the consent of
the Required Banks, optionally prepay, redeem, purchase or defease any of
the Intercompany Debt or the Holdings Notes. The Company shall reimburse
the Banks for any costs incurred in connection with the prepayment of a
Eurodollar Loan on other than the last day of an Interest Period with
respect thereto in accordance with subsection 6.12(d) of the Credit
Agreement.

(c) Provided that no Default or Event of Default shall have
occurred and be continuing, notwithstanding anything to the contrary in the
Credit Documents, the Company shall be permitted to amend, supplement or
otherwise modify the terms of the Subordinated Debt Indenture as the
Company may deem reasonably necessary or desirable to provide for the
prepayment (optional or mandatory, in whole or in part), retirement,
redemption, purchase or defeasement of, and may so prepay, retire, redeem,
purchase or defease, the Subordinated Notes on or after the date hereof.

Section 2 Representations and Warranties. To induce the Banks
------------------------------
to enter into this Amendment, the Company hereby represents and warrants to
the Banks as of the date hereof that the representations and warranties
made by the Company in the Credit Agreement are true and correct in all
material respects on and as of the date hereof, before and after giving
effect to the effectiveness of this Amendment, as if made on and as of the
date hereof unless expressly stated to relate to and earlier date, in which
case such representations and warranties shall be true and correct in all
material respects as of such earlier date.

Section 3 Expenses. The Company agrees to pay or reimburse the
--------
Administrative Agent for all of its reasonable out-of-pocket costs and
expenses incurred in connection with this Amendment and any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of
Simpson, Thacher & Bartlett, counsel to the Administrative Agent.

Section 4 Credit Document Acknowledgment. The Administrative
------------------------------
Agent shall receive from each Credit Party with respect to the Credit
Documents to which it is a party an acknowledgment and consent
substantially in the form of Exhibit A hereto to the execution, delivery
and performance of this Amendment and the transactions contemplated hereby
and that such execution, deliver and performance shall not affect such
Credit Party's obligations under any Credit Document.

Section 5 Effectiveness. This Amendment shall become effective
-------------
upon the date that the Administrative Agent shall have received
counterparts of this

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

Amendment, duly executed by the Company, the Required Banks and the
Administrative Agent.

Section 6 Continuing Effect of Credit Agreement. Except for
-------------------------------------
the amendments, consents and waivers expressly provided herein, the Credit
Agreement shall continue to be, and shall remain, in full force and effect
in accordance with its terms.

Section 7 Counterparts. This Amendment may be executed in any
------------
number of counterparts by the parties hereto, and all of said counterparts,
when taken together, shall be deemed to constitute one and the same
instrument.

Section 8 Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
-------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered in New York, New York by their proper and
duly authorized officers as of the date first above written.

SAKS & COMPANY

By: /s/
----------------------------------
Title: Vice President, Treasurer

THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Bank

By: /s/ NEIL R. BOYLAN
----------------------
NEIL R. BOYLAN
Title: VICE PRESIDENT

ARAB BANKING CORPORATION, as a Bank

By: /s/ Louise Billero
-----------------------
Title: Vice President

BANK OF SCOTLAND, as a Bank

By: /s/
----------------------
Title: VICE PRESIDENT
BANK OF SCOTLAND

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

THE BANK OF TOKYO -- MITSUBISHI TRUST
COMPANY, as successor by merger to The
Bank of Tokyo Trust Company, as a Bank

By:
----------------------
Title:

THE BANK OF TOKYO -- MITSUBISHI LIMITED, NEW
YORK BRANCH, as successor by merger to The
Mitsubishi Bank Ltd., as a Bank

By:
----------------------

Title:

BANQUE FRANCAISE DU COMMERCE EXTERIEUR, as a
Bank

By:
----------------------

Title:

By:
----------------------

Title:

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

BANKERS TRUST COMPANY,
as a Bank

By: /s/ MARY KAY COYLE
----------------------
MARY KAY COYLE
Title: MANAGING DIRECTOR

CANADIAN IMPERIAL BANK OF COMMERCE, as a Bank

By:
----------------------
Title:

THE CIT GROUP/BUSINESS CREDIT, INC., as a
Bank

By:
----------------------

Title:

COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE,
as a Bank

By: /s/ Marcus Edward
----------------------
Marcus Edward
Title: Vice President

By: /s/ Sean Mounier
----------------------
Sean Mounier
Title: First Vice President

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

CREDIT SUISSE, as a Bank

By: CHRIS T. HORGAN JOEL GLODOV
----------------------
CHRIS T. HORGAN JOEL GLODOV
Title: ASSOCIATE MEMBER OF SENIOR
MANAGEMENT

FIRST UNION, as a Bank

By: /s/
----------------------
Title: AVP

GIROCREDIT BANK, as a Bank

By: /s/
----------------------
Title:

ING CAPITAL ADVISORS, AS AGENT FOR BANK
SYNDICATE ACCOUNT, as a Bank

By: /s/ Kathleen A. Lanarcic
----------------------
Kathleen A. Lanarcic
Title: Vice President & Portfolio Manager

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED,
NEW YORK BRANCH, as a Bank

By:
----------------------

Title:

MELLON BANK, as a Bank

By:
----------------------

Title:

MERRILL LYNCH PRIME RATE PORTFOLIO, as a Bank

By: /s/ JOHN W. FRASER
-------------------------
JOHN W. FRASER
Title: AUTHORIZED SIGNATORY

MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC., as a Bank

By: /s/ JOHN W. FRASER
----------------------
JOHN W. FRASER
Title: AUTHORIZED SIGNATORY

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

MIDLAND BANK, PLC, as a Bank

By:
----------------------

Title:

NIPPON CREDIT, as a Bank

By: /s/
----------------------
Title: Assistant Vice President

PILGRIM PRIME RATE TRUST,
as a Bank

By: /s/ HOWARD TIFFEN
----------------------
HOWARD TIFFEN
Title: Senior Vice President

POSTIPANKKI LTD., as a Bank

By:
----------------------

Title:

By:
----------------------

Title:

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

DEAN WITTER INTERCAPITAL,
as a Bank

By:
----------------------

Title:

PROTECTIVE LIFE ASSET
INSURANCE COMPANY, as a Bank

By: /s/ Mark K. Okada CFA
----------------------
Mark K. Okada CFA
Title: Principal
Protective Asset Management Co.

SOCIETE GENERALE, as a Bank

By: Karel Vasak
----------------------
Title: Karel Vasak
Vice President and
Senior relationship Director

THE SUMITOMO TRUST & BANKING CO., LTD., NY
BRANCH, as a Bank

By:
----------------------

Title:

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

SWISS BANK CORPORATION, NY BRANCH, as a Bank

By:
----------------------

Title:

VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST,
as a Bank

By: /s/ JEFFREY W. MAILLET
----------------------
JEFFREY W. MAILLET
Title: Sr. Vice Pres. - Portfolio Mgr.

WELLS FARGO BANK, as a Bank

By:
----------------------

Title:

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

EXHIBIT A TO
SIXTH AMENDMENT

ACKNOWLEDGMENT AND CONSENT

Each of the undersigned corporations hereby:

(a) acknowledges and consents to (i) the execution, delivery and
performance of the Sixth Amendment and Consent dated as of August __, 1996
(the "Amendment") to and of the Amended and Restated Credit Agreement,
---------
dated as of July 1, 1993 (as amended by the Amendment and as further
amended, supplemented or otherwise modified from time to time, the "Amended
-------
Credit Agreement"), among Saks & Company (the "Company"), the financial
- ---------------- -------
institutions from time to time parties thereto (the "Banks") and The Chase
-----
Manhattan Bank, successor by merger to Chemical Bank administrative agent

(in such capacity, the "Administrative Agent"), and (ii) the transactions
---------------------
contemplated thereby;

(b) agrees that such execution, delivery and performance shall not in
any way affect such corporation's obligations under any Credit Document (as
defined in the Amended Credit Agreement) to which such corporation is a
party or, in the case of the Company, the Trademark Security Agreement
dated as of July 2, 1990 (as amended, supplemented or otherwise modified
from time to time, the "Trademark Agreement"); and
-------------------

(c) agrees and acknowledges that all references and in any Credit
Document to which such corporation is a party or, in the case of the
Company, in the Trademark Agreement to the "Credit Agreement" are
references to the "Amended Credit Agreement."

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

<PAGE>

Dated: ________, 1996

SAKS & COMPANY

By: /s/ Robert J. Vill
----------------------------
Name: Robert J. Vill
Title: Vice President, Treasurer

SAKS HOLDINGS, INC.

By: Richard F. Zannino
----------------------------
Name: Richard F. Zannino
Title: Executive VP, CFO, Treasurer

CAFE SFA-MINNEAPOLIS, INC.
THE RESTAURANT AT SAKS FIFTH
AVENUE CORPORATION
SAKS FIFTH AVENUE FOOD
CORPORATION

By: Victoria Carter
----------------------------
Name: Victoria Carter
Title: Vice President, Secretary, Treasurer

SAKS FIFTH AVENUE, INC.
SAKS FIFTH AVENUE, ATLANTA, INC.
SAKS-CHICAGO, INC.
SAKS FIFTH AVENUE-LOUISIANA, INC.
SAKS FIFTH AVENUE OF MISSOURI, INC.
SAKS FIFTH AVENUE OF OHIO, INC.
SAKS FIFTH-AVENUE-STAMFORD, INC.
SAKS FIFTH AVENUE OF TEXAS, INC.
SAKS SPECIALTY STORES, INC.
SFA DATA PROCESSING, INC.
SFA FOLIO COLLECTIONS, INC.
SFA REAL ESTATE CO.
SFA BOCA INC.
SFA POST STREET INC.

By: Robert J. Vill
----------------------------
Name: Robert J. Vill
Title: Vice President, Treasurer

AGREED TO AND ACCEPTED
THE CHASE MANHATTAN BANK,
as Administrative Agent

By: NEIL R. BOYLAN
--------------------
Name: NEIL R. BOYLAN
Title: VICE PRESIDENT

SIXTH AMENDMENT AND CONSENT TO SAKS & CO. CREDIT AGREEMENT
----------------------------------------------------------

EXHIBIT 23.01

CONSENT OF INDEPENDENT AUDITORS

We consent to the inclusion in this registration statement on Form S-1 (File No.
333-____) of our report dated March 13, 1996, except as to the information
regarding the amendments to the Credit Facility in April 1996 presented in Note
5 for which the date is April 18, 1996 and the information presented in Note 15,
for which the date is April 26, 1996, on our audits of the consolidated
financial statements of Saks Holdings, Inc. as of January 28, 1995 and February
3, 1996, and for each of the three fiscal years in the period ended February 3,
1996. We also consent to the reference to our firm under the caption "Experts."

Coopers & Lybrand L.L.P.

New York, New York
August 29, 1996