<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended February 1, 1997
Commission file number 001-14346
SAKS HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1685667
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
12 East 49th Street, New York, New York 10017
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 940-4048
Securities pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered:
Common Stock, par value $.01 per share New York Stock Exchange
- -------------------------------------- -----------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
5-1/2% Convertible Subordinated Notes due September 15, 2006
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
1) Yes /X/ No / /
2) Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at April 5, 1997 was $1,691,382,450. The aggregate market value was
computed by reference to the closing price as of that date. (For purposes of
calculating this amount only, all directors, executive officers and greater than
10% shareholders of the Registrant are treated as affiliates.)
The number of shares outstanding of the Registrants only class of common stock
as of April 5, 1997 was 63,400,313.
Documents Incorporated by Reference
Portions of the Registrant's annual shareholders report for the year ended
February 1, 1997 are incorporated into Part II.
Portions of the Registrant's definitive Proxy Statement for its annual
shareholders meeting to be held on June 16, 1997 are incorporated by reference
into Part III.
<PAGE>
Part I
Item 1. Business
GENERAL
Saks Holdings, Inc. is the parent company of Saks & Company,
which does business as Saks Fifth Avenue, OFF 5TH and Folio.
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 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 through its acquisition
of Gimbel Bros., Inc. In July 1990, affiliates of Investcorp
S.A. and a group of international investors acquired Saks &
Company from B.A.T. Industries, PLC.
Sales are generated through four retail store formats:
Full-line; resort stores; Main Street stores; OFF 5TH stores;
and, Folio catalogs. As of February 1, 1997, there were 40
Full-line stores, seven Resort stores, three Main Street
stores and 33 OFF 5TH outlet stores. The full-line, resort and
main street store operations are conducted from premier retail
locations and sell merchandise which has been determined to be
most important to its top customers. The OFF 5TH outlet
division sells high quality, upscale branded fashion apparel
and home furnishings at exceptional prices. The Folio catalogs
primarily offer fashionable women's apparel, accessories and
home furnishings and gifts.
In addition to the preceding discussion, a description of each
retail format included in the annual shareholders report for
the year ended February 1, 1997 is incorporated herein by
reference.
TRADEMARKS AND SERVICE MARKS
The Company owns its principal trademarks and service marks,
including "Saks Fifth Avenue", "SFA" and "S5A" marks. Other
important trademarks and service marks include "OFF 5TH",
"Folio", "Real Clothes", "The Works" and "The Fifth Avenue
Club". The Company's trademarks and service marks are
registered in the
<PAGE>
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.
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 1996, fiscal 1995 and fiscal 1994,
the fourth quarter provided approximately 31%, 32% and 31%,
respectively, of the Company's net sales and the majority of
its operating income. As a result, the Company's operating
results depend significantly on the holiday selling season.
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.
RELIANCE ON FIFTH AVENUE STORE
The Company's flagship Fifth Avenue store in New York City
accounted for approximately 21%, 22% and 24% of consolidated
net sales in fiscal 1996, fiscal 1995 and fiscal 1994,
respectively and plays a significant role in marketing the
Saks Fifth Avenue name.
COMPETITION
All aspects of the retail industry, including attracting
customers, securing merchandise and locating appropriate
retail sites, are highly competitive. The Company 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. Although management
believes it will be able to continue to compete on the basis
of quality, service and reputation, there can be no assurance
that it will maintain or improve the Company's competitive
position.
EMPLOYEES
At February 1, 1997, the Company employed approximately 838
people at its headquarters and buying offices and 14,506 in
its stores, two distribution centers and data center. The
Company's 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 147 of the Company's
employees are covered by collective bargaining
<PAGE>
agreements. The Company has never been subject to a strike and
believes that its relationship with its employees and the
unions is good.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document as well as those
items incorporated by reference, 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
document as well as those items incorporated by reference.
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.
CAPITAL EXPENDITURES; LIQUIDITY; SOURCES OF SUPPLY; REVENUES
BY RETAIL FORMAT
For information on capital expenditures, liquidity, sources of
supply and revenues by retail format, Management's Discussion
and Analysis of Financial Condition and Results of Operations
included in the annual shareholders report for the year ended
February 1, 1997 is incorporated herein by reference.
<PAGE>
Item 2. Properties
The following table summarizes the property ownership of
stores as of February 1, 1997:
<TABLE>
<CAPTION>
Number Gross % of Gross
of Square Square
Stores Footage Footage
<S> <C> <C> <C>
Full-Line, Resort and Main Street Stores:
Owned store on owned land ..................... 7 1,380,000 23 %
Owned on leased land .......................... 20 1,949,700 36
Leased store on leased land ................... 23 1,757,200 27
=========== ============= ===========
50 5,086,900 86
OFF 5TH Stores:
Leased store on leased land ................... 32 772,600 13
Owned on leased land .......................... 1 27,100 1
----------- ------------- -----------
33 799,700 14
----------- ------------- -----------
Total ............................................ 83 5,886,600 100 %
=========== ============= ===========
</TABLE>
In addition to the preceding table, a listing of all retail
properties included in the annual shareholders report for the
year ended February 1, 1997 is incorporated herein by
reference.
The Company currently operates two distribution centers
located in Yonkers, N.Y. and Ontario, CA. A new
state-of-the-art distribution center in Aberdeen, MD is being
constructed to replace the Yonkers, NY facility. The Company
expects to make the transition to this new facility in 1997.
The Company also leases its home office space in New York, NY.
Item 3. Legal Proceedings
There are no material legal proceedings, other than ordinary
routine litigation incidental to the business, to which the
Company or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of its
security holders during the fourth quarter of fiscal 1996.
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Common Stock Market Prices and Common Stock Information
included in the annual shareholders report for the year ended
February 1, 1997 is incorporated herein by reference.
The Company's common stock is traded on the New York Stock
Exchange (ticker symbol SKS). The approximate number of record
holders of the Company's common stock at February 1, 1997 was
354.
The Company currently does not pay any cash dividends on
common stock. Saks Holdings is a holding company with no
business operations of its own. Saks Holdings is therefore
dependent upon payments, dividends and distributions from Saks
& Company for funds to pay its expenses and to pay future cash
dividends or
<PAGE>
distributions, if any, to holders of the common stock. The
Company currently retains any earnings for support of its
working capital, repayment of indebtedness, capital
expenditures and general corporate purposes. Saks & Company
has no current intention of paying dividends or making other
distributions to the Company in excess of amounts necessary to
pay the Company's expenses and taxes. Saks & Company's credit
facility contains restrictions on the ability to pay dividends
or make other distributions to the Company.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal
1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------
(In Millions, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales ................................ $1,945 $1,687 $1,418 $1,396 $1,344
Management fees .......................... (1) (7) (2) (2) (2)
Impairment and special charges ........... - (36) - (178) -
Operating income (loss) ................. 109 36 66 (154) 12
Income (loss) before
extraordinary charge ................... 37 (58) (10) (228) (77)
Net income (loss) ........................ 24 (64) (11) (256) (86)
Total assets ............................. 1,573 1,366 1,289 1,306 1,471
Long-term debt and capital lease
obligations ......................... 709 976 874 892 862
Per common share:
Income (loss) before
extraordinary charge .............. 0.63 (1.29) (0.22) (5.07) (1.93)
Net income (loss) ................... 0.41 (1.43) (0.24) (5.68) (2.14)
</TABLE>
All per share data have been retroactively adjusted to reflect
the five-for-one stock split in fiscal 1996 of the Company's
common stock effected in the form of share distributions
("stock dividends").
Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the annual shareholders
report for the year ended February 1, 1997 is incorporated
herein by reference.
Impairment and special charges of $36.4 million were recorded
in fiscal 1995. The charges recorded consist of exit costs of
its Yonkers distribution center, the integration costs of
former I. Magnin locations and write-down of capitalized EDP
software and amounted to $10,015, $8,900 and $8,500,
respectively.
Impairment and special charges of $177.7 million were recorded
in fiscal 1993. These charges consisted of $118.0 million to
reduce the carrying value of property and equipment, goodwill
and intangible assets, $40.2 million related 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.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the annual shareholders
report for the year ended February 1, 1997 is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
The report of independent accountants and consolidated
financial statements included in the annual shareholders
report for the year ended February 1, 1997 is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Officers of the Registrant
The information contained in Saks Holdings, Inc.'s Proxy
Statement dated May 2, 1997, with respect to directors and
executive officers of the Company, is incorporated herein by
reference in response to this item.
Item 11. Executive Compensation
The information contained in Saks Holdings, Inc.'s Proxy
Statement dated May 2, 1997, with respect to executive
compensation and transactions, is incorporated herein by
reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in Saks Holdings, Inc.'s Proxy
Statement dated May 2, 1997, with respect to security
ownership of certain beneficial owners and management, is
incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions
The information contained in Saks Holdings, Inc.'s Proxy
Statement dated May 2, 1997, with respect to certain
relationships and related transactions, is incorporated herein
by reference in response to this item.
<PAGE>
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a-1) The following consolidated financial statements of Saks
Holdings, Inc. included in the annual report to shareholders for
the year ended February 1, 1997, are incorporated by reference in
Item 8:
Consolidated Balance Sheets - February 1, 1997 and February 3,
1996
Consolidated Statements of Operations - Fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995.
Consolidated Statements of Shareholders' Equity - Fiscal years
ended February 1, 1997, February 3, 1996 and January 28, 1995.
Consolidated Statements of Cash Flows - Fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
(a-2) The following consolidated financial statement schedules of
Saks Holdings, Inc. and subsidiaries are included in Item 14(d):
Schedule I Condensed financial information of registrant.
Report of Independent Accountants on Schedule I.
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
(a-3) Listing of Exhibits
Exhibit No.
-----------
11.01 - Statement Re: Computation of Per Share Earnings
13.01 - Common Stock Market Prices and Common Stock
Information, incorporated into Part II, Item 5 of this Form
10-K by reference to the Registrant's annual shareholders
report for the year ended February 1, 1997 (the "1997 Annual
Report").
13.02 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, incorporated into Part
II, Item 6 and Item 7 of this Form 10-K by reference to the
1997 Annual Report.
13.03 - Report of Independent Accountants and Consolidated
Financial Statements, incorporated into Part II, Item 8 of
this Form 10-K by reference to the 1997 Annual Report.
21.01 - Subsidiaries of the Registrant
22.01 - Proxy Statement, incorporated herein by reference to
Registrants' proxy statement (File No. ) Filed on May 2,
1997.
23.01 - Consent of Independent Accountants
27.01 - Financial Data Schedule
<PAGE>
Exhibit No.
-----------
99.01 - Press Release - Saks announces preliminary first
quarter results
99.02 - Press Release - Saks Holding, Inc. and Isetan
Company Limited agree to a joint reorganization plan for
Barney's Inc.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal
1996:
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SAKS HOLDINGS, INC.
/s/ Mark E. Hood
-----------------
Mark E. Hood
Senior Vice President - Finance
Chief Accounting Officer
May 2, 1997
-----------
Date
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Philip B. Miller
- --------------------------------------- Chairman of the Board and May 2, 1997
Philip B. Miller Chief Executive Officer
(Principal Executive Officer)
/s/ Brian E. Kendrick
- --------------------------------------- Vice Chairman of the Board and May 2, 1997
Brian E. Kendrick Chief Operating Officer
/s/ Rose Marie Bravo
- -------------------------------------- President and Director May 2, 1997
Rose Marie Bravo
/s/ Richard F. Zannino
- -------------------------------------- Executive Vice President, May 2, 1997
Richard F. Zannino Chief Financial Officer and
Treasurer (Principal Financial
Officer)
/s/ Savio W. Tung
- ---------------------------------------- Director May 2, 1997
Savio W. Tung
/s/ Jon P. Hedley
- ------------------------------------------ Director May 2, 1997
Jon P. Hedley
/s/ E. Garrett Bewkes III
- -------------------------------------- Director May 2, 1997
E. Garrett Bewkes III
/s/ Charles J. Philippin
- ---------------------------------------- Director May 2, 1997
Charles J. Philippin
/s/ Stephen I. Sadove
- ---------------------------------------- Director May 2, 1997
Stephen I. Sadove
/s/ Brian Ruder
- ---------------------------------------- Director May 2, 1997
Brian Ruder
/s/ Mark E. Hood
- ----------------------------------------- Senior Vice President - Finance May 2, 1997
Mark E. Hood (Principal Accounting Officer)
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Saks Holdings, Inc.
Our report on the consolidated financial statements of Saks Holdings, Inc. has
been incorporated by reference in this Form 10-K from the Annual Shareholders
Report of Saks Holdings, Inc. In connection with our audits of such consolidated
financial statements, we have also audited the related financial statement
schedule listed in item 14(a-2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 4, 1997
<PAGE>
Schedule I - Condensed Financial Information of Registrant
Saks Holdings, Inc.
(Parent Company)
Condensed Balance Sheets
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
-------------------- ---------------------
(In Thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................ $ 5,159 $ -
Interest receivable from subsidiary .................. 5,429 -
-------------------- ---------------------
Total current assets ............................ 10,588 -
Note receivable from subsidiary .......................... 276,000 -
Deferred financing costs, net ............................ 7,907 -
Investment in subsidiary ................................. 515,604 83,175
-------------------- ---------------------
Total assets ................................... $ 810,099 $ 83,175
==================== =====================
Liabilities and shareholders' equity
Current liabilities ...................................... $ 5,429 $ -
Long-term debt ........................................... 276,000 -
Shareholders' equity:
Common stock ........................................ 633 450
Other shareholders' equity .......................... 528,037 82,725
-------------------- ---------------------
Total shareholders' equity ............................... 528,670 83,175
-------------------- ---------------------
Total liabilities and shareholders' equity ............... $ 810,099 $ 83,175
==================== =====================
</TABLE>
The accompanying Notes are an integral part of the condensed financial
statements
<PAGE>
Schedule I - Condensed Financial Information of Registrant - Continued
Saks Holdings, Inc.
(Parent Company)
Condensed Statements of Operations
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
------------------ ----------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Interest income .................................. $ 5,468 $ - $ -
Interest expense ................................. 5,722 - -
------------------ ----------------- ------------------
Income (loss) before income taxes and equity
in net income (loss) of subsidiaries ........ (254) - -
Income taxes ..................................... - - -
------------------ ----------------- ------------------
(254) - -
Equity in net income (loss) of subsidiaries ...... 24,398 (64,095) (10,618)
------------------ ----------------- ------------------
Net income (loss) ................................ $ 24,144 $ (64,095) $ (10,618)
================== ================= ==================
</TABLE>
The accompanying Notes are an integral part of the condensed financial
statements
<PAGE>
Schedule I - Condensed Financial Information of Registrant - Continued
Saks Holdings, Inc.
(Parent Company)
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
---------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Net cash provided by operating activities ............... $ 16,477 $ 0 $ 0
---------------- --------------- ---------------
Investing activities:
Advances to subsidiary ............................. (276,000) - -
Investment in subsidiary ........................... (424,469) - -
---------------- --------------- ---------------
Net cash (used in) investing activities ................. (700,469) 0 0
---------------- --------------- ---------------
Financing activities:
Proceeds from initial public offering .............. (416,969) - -
Proceeds from exercise of stock options ............ 4,325 - -
Proceeds from issuance of Notes .................... 276,000 - -
Financing costs .................................... (8,200) - -
Other .............................................. 57 - -
---------------- --------------- ---------------
Net cash provided by financing activities ............... 689,151 0 0
---------------- --------------- ---------------
Increase in cash and cash equivalents ................... 5,159 $ 0 $ 0
---------------- --------------- ---------------
Cash at end of year ..................................... $ 5,159 $ 0 $ 0
================ =============== ===============
</TABLE>
The accompanying Notes are an integral part of the condensed financial
statements
<PAGE>
Schedule I - Condensed Financial Information of Registrant - Continued
Saks Holdings, Inc.
(Parent Company)
Notes to Condensed Financial Statements
1. Basis of Presentation
Saks Holdings, Inc.'s investment in subsidiaries is accounted for under the
equity method and is stated at cost plus (minus) equity in undistributed
earnings (losses) since the date of acquisition, less dividends received from
subsidiaries. Parent company-only financial statements are not the primary
financial statements of the registrant and should be read in conjunction with
the Company's consolidated financial statements included in the Saks Holdings,
Inc. consolidated annual report to shareholders.
2. Note Receivable from Subsidiary
The terms and provisions of this note correspond to those of the convertible
subordinated notes disclosed in the Saks Holdings, Inc. consolidated financial
statements.
<PAGE>
Exhibit Index
Exhibit No. Page No.
- ----------- --------
11.01 - Statement Re: Computation of Per Share Earnings
13.01 - Common Stock Market Prices and Common Stock Information,
incorporated into Part II, Item 5 of this Form 10-K by
reference to the Registrant's annual shareholders report for
the year ended Feburary 1, 1997 (the "1997 Annual Report").
13.02 - Management's Discussion and Analysis of Financial Condition
and Results of Operations, incorporated into Part II, Item 6
and Item 7 of this Form 10-K by reference to the 1997 Annual
Report.
13.03 - Report of Independent Accountants and Consolidated Financial
Statements, incorporated into Part II, Item 8 of this Form
10-K by reference to the 1997 Annual Report.
21.01 - Subsidiaries of the Registrant
22.01 - Proxy Statement, incorporated herein by reference to
Registrants' proxy statement (File No. ) Filed on May 2,
1997.
23.01 - Consent of Independent Accountants
27.01 - Financial Data Schedule
99.01 - Press Release - Saks announces preliminary first quarter
results
99.02 - Press Release - Saks Holding, Inc. and Isitan Company Limited
agree to a joint reorganization plan for Barney's Inc.
<PAGE>
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
------------------ ------------------ ------------------
(In Thousands, except per share data)
<S> <C> <C> <C>
Average shares outstanding ......................... 57,722 44,955 45,010
Net effect of dilutive stock options - based on
the treasury stock method using average
market price .................................... 1,118 - -
Total .............................................. 58,840 44,955 45,010
================== ================== ==================
Income (loss) before extraordinary charge .......... $ 36,890 $ (58,104) $ (10,083)
================== ================== ==================
Net income (loss) .................................. $ 24,144 $ (64,095) $ (10,618)
================== ================== ==================
Per share amounts:
Income (loss) before extraordinary charge ....... $ .63 $ (1.29) $ (0.22)
================== ================== ==================
Net income (loss) ............................... $ .41 $ (1.43) $ (0.24)
================== ================== ==================
</TABLE>
Note: In fiscal 1996, the conversion of the 5 1/2% Convertible Subordinated
Notes is not assumed in the computation because its effect is antidilutive.
<PAGE>
COMMON STOCK INFORMATION
The shares of Common Stock of Saks Holdings, Inc. are listed on the New York
Stock Exchange with the symbol SKS.
QUARTERLY PER SHARE MARKET PRICES
Market Price of Common Stock
------------------------------
High Low Close
- --------------------------------------------------------------------------------
Second Quarter 35 1/4 25 1/4 33 1/4
Third Quarter 41 1/4 32 1/4 34
Fourth Quarter 37 1/4 25 1/2 28 1/2
- --------------------------------------------------------------------------------
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Overview
Since fiscal 1994, the Company has been developing and implementing
comprehensive and integrated merchandising, service and marketing strategies to
position its core retail business for future growth. It has also implemented
growth strategies to leverage and extend the Saks franchise.
The Company's strategies resulted in significant improvements in Saks' financial
performance. From fiscal 1994 to fiscal 1996, Saks' net sales increased by $527
million, or 37%, to $1,945 million from $1,418 million. Operating income,
excluding management fees, increased by $42 million, or 62%, to $110 million in
fiscal 1996 from $68 million in fiscal 1994. The improvement in operating income
demonstrates the productivity and leverage of fixed costs when sales growth is
accelerated. Our financial momentum is evidenced in our comparable sales
performance, which is set forth in the table, above right.
CHANGE IN COMPARABLE SALES*
Fiscal Fiscal Fiscal
1996 1995 1994
- ------------------- ----------------------------------------------------------
First Quarter 13.3% 10.2% 4.1%
Second Quarter 11.3 11.3 5.3
Third Quarter 9.2 9.9 5.9
Fourth Quarter 8.3 11.0 6.6
Annual 10.3 10.6 5.6
- ------------------- ----------------------------------------------------------
*Comparable sales exclude the impact of the 53rd week in fiscal 1995, and in
fiscal 1996 comparable sales are adjusted for the calendar shift following the
53rd week in fiscal 1995.
In fiscal 1996, the Company concluded its first year as a public company
following the completion of an initial public offering in May 1996 which
generated net proceeds of $418 million. This offering, together with the
establishment of a new credit facility and the issuance of $276 million of
Convertible Subordinated Notes enabled the Company to reduce its overall
indebtedness by $275 million and decrease the effective annual interest rate on
its year-end indebtedness to 7.6% from 8.8%.
Saks' net sales are generated through multiple retail formats: At February 1,
1997 the Company operates 50 Full-Line, Resort and Main Street stores, 33 OFF
5TH stores, and its Folio catalog operation. The following table provides net
sales and percent of total sales information for these formats.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995 Fiscal 1994
---------------- ---------------- ----------------
(Dollars in millions) Dollars Percent Dollars Percent Dollars Percent
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Full-Line, Resort and Main Street stores $1,665.7 806% $1,504.5 89% $1,302.7 92%
OFF 5TH stores 200.1 10 108.0 6 57.2 4
Folio catalog 79.1 4 74.3 5 58.3 4
- --------------------------------------------------------------------------------------------------------------------
Total $1,944.9 100% $1,686.8 100% $1,418.2 100%
====================================================================================================================
</TABLE>
25
<PAGE>
RESULTS OF OPERATIONS
Results of operations as a percent of total net sales for the past three years
were as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996(1) 1995(1) 1994(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy (69.3) (69.3) (69.1)
- -------------------------------------------------------------------------------------------------------------
Gross margin 30.7 30.7 30.9
Selling, general and administrative expenses (25.0) (26.0) (26.1)
Management fees (0.1) (0.4) (0.1)
Impairment and special charges - (2.2) -
- -------------------------------------------------------------------------------------------------------------
Operating income (loss) 5.6 2.1 4.7
Interest, net (3.7) (5.6) (5.4)
- -------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary charge 1.9 (3.5) (0.7)
Income taxes - - -
- -------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge 1.9 (3.5) (0.7)
Extraordinary charge-loss on early extinguishment of debt (0.7) (0.3) -
- -------------------------------------------------------------------------------------------------------------
Net income (loss) 1.2% (3.8)% (0.7)%
=============================================================================================================
</TABLE>
(1) Fiscal 1995 consisted of 53 weeks. Fiscal 1996 and fiscal 1994 each
consisted of 52 weeks.
Fiscal 1996 Compared to Fiscal 1995
NET SALES
Net sales for fiscal 1996 were $1,944.9 million, an increase of $258.1 million,
or 15.3%, over net sales of $1,686.8 million for fiscal 1995. Fiscal 1995
included 53 weeks; therefore annual sales comparisons are not comparable. Fiscal
1995 net sales comparisons are presented on a 52-week basis for comparability.
The increase in total net sales was 16.7% and comparable sales increased 10.3%.
All of Saks' geographic regions experienced increased net sales. Full-Line,
Resort and Main Street store net sales were $1,665.7 million in fiscal 1996, an
increase of $161.2 million, or 10.7%, from fiscal 1995. Comparable sales of
Full-Line, Resort and Main Street stores increased 10.5%. OFF 5TH store net
sales for fiscal 1996 were $200.1 million, an increase of $92.1 million, or
85.3%, from fiscal 1995. This increase is a result of the 16 new stores opened
in fiscal 1996 as well as the 11 new stores opened in fiscal 1995. Comparable
sales for OFF 5TH stores increased 11.4%. Folio catalog net sales for fiscal
1996 were $79.1 million, an increase of $4.8 million, or 6.5%, from fiscal 1995.
COST OF SALES
Cost of sales includes the cost of merchandise and buying and occupancy costs.
Cost of sales increased $179.2 million, or 15.3%, to $1,347.7 million during
fiscal 1996 from $1,168.5 million in fiscal 1995. As a percentage of net sales,
cost of sales, including buying and occupancy costs, was 69.3% for both fiscal
1996 and fiscal 1995. The increased penetration of lower margin OFF 5TH sales
was offset by increased sales of higher margin accessories and leverage of
buying and occupancy costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $486.8 million, or
25.0% of net sales, in fiscal 1996 from $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 expense leverage associated with the comparable sales growth,
increased penetration of OFF 5TH stores which have a lower expense rate and
relatively flat depreciation and amortization expense.
MANAGEMENT FEES
Management fees paid to an affiliate of Investcorp, decreased by $6 million to
$1 million in fiscal 1996 from $7 million in fiscal 1995. The fees paid in
fiscal 1995 reflected additional advisory services related to strategic planning
and real estate alternatives. Management fees were discontinued in July 1996.
IMPAIRMENT AND SPECIAL CHARGES
Impairment and special charges of $36.4 million were recorded in fiscal 1995. No
such charges were recorded in fiscal 1996.
OPERATING INCOME
Operating income was $109.4 million for fiscal 1996, an increase of $73.1
million from fiscal 1995. Excluding the special charges and management fees,
operating income increased by 38.5% or $30.7 million.
26
<PAGE>
INTEREST EXPENSE
Interest expense decreased by 23.5% to $72.2 million for fiscal 1996 compared to
$94.4 million for fiscal 1995, primarily due to reduced debt levels following
the initial public offering. As a result of the lower debt levels following the
offering and the issuance of the Convertible Subordinated Notes the effective
interest rate on the Company's debt decreased from 8.8% at the end of fiscal
1995 to 7.6% at the end of fiscal 1996.
INCOME TAXES
Income taxes increased to $.3 million in fiscal 1996 from $0 in fiscal 1995 due
to an increase in the alternative minimum taxable income.
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, Resort and Main Street store net sales increased $201.8
million, or 15.5%, from $1,302.7 million to $1,504.5 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 stores increased by $50.8 million, or 88.8%, to $108.0 million from
$57.2 million primarily as a result of the addition of 11 new stores. Folio
catalog net sales increased by $16.0 million, or 27.4%, to $74.3 million from
$58.3 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 to $1,168.5 million, or 69.3% of net sales, in
fiscal 1995 from $979.7 million, or 69.1% of net sales, in fiscal 1994. This
increase as a percentage of net sales resulted from the increased penetration of
lower margin OFF 5TH sales, partially offset by slightly higher retail and Folio
gross margins, and improved leverage of buying and occupancy costs. The change
in mix of merchandise assortments featured in Full-Line, Resort and Main Street
stores did not have a significant impact on cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $438.6 million, or
26.0% of net sales, in fiscal 1995 from $370.4 million, or 26.1% of net sales,
in fiscal 1994. This decrease as a percentage of net sales was achieved as a
result of lower depreciation and amortization expense and improved store expense
leverage, offset in part by higher bad debt charges, as well as investments in
central organization (management information systems, merchandising, training
and communications and planning) to position for future growth.
MANAGEMENT FEES
Management fees paid to an affiliate of Investcorp increased to $7 million in
fiscal 1995 from $2 million in fiscal 1994. This increase reflected the payment
of fees for additional advisory services relating to strategic planning and real
estate alternatives rendered in fiscal 1995.
IMPAIRMENT AND SPECIAL CHARGES
Impairment and special charges of $36.4 million were recorded in fiscal 1995.
These charges consisted of $19.0 million relating to exit costs associated with
relocation of distribution activities from 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 special
charges and management fees, operating income increased to $79.7 million in
fiscal 1995, an increase of $11.6 million, or 17.0%.
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.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company completed an initial public offering of 18,062,500 shares of common
stock during May 1996. The net proceeds of $417.8 million were primarily used to
prepay term loan borrowings under the Credit Facility and repay outstanding
balances on the revolving credit portion of the facility. Upon completion of the
offering, the Company amended its Credit Facility to reduce the spread on its
variable interest rate borrowings and to change availability of borrowings.
In September 1996, the Company issued $276 million of 51U2% Convertible
Subordinated Notes for net cash proceeds after offering expenses of $267.5
million. The net proceeds from the offering were primarily used to prepay term
loan borrowings under the Credit Facility and repay outstanding balances on the
revolving credit portion of the Credit Facility.
In October 1996, the Company amended and restated the Credit Facility. The
revolving credit commitments were increased to $350 million and the maturity of
the revolving credit commitments was extended to October 30, 2001. The borrowing
availability is reduced by any standby or commercial letters of credit. As of
February 1, 1997, the Company has $344.2 million of borrowing capacity under the
Credit Facility.
In April 1996, the Company replaced its existing accounts receivable
securitization program with a new facility. The program includes $413 million in
floating rate medium term notes and $118 million in variable principal floating
rate series. The medium term notes and variable principal amount series mature
in April 1999. In August 1996, the Company entered into interest rate swap
agreements with a notional amount of $250 million to reduce its exposure to
changes in prevailing market interest rates.
During fiscal 1996, the Company financed its working capital needs and
capital expenditures primarily with cash provided by operations and by
borrowings available under the Credit Facility. The following discussion
analyzes liquidity and capital resources by operating, investing and financing
activities as presented in the Company's Consolidated Statements of Cash Flows.
Net cash provided by operating activities was $4.5 million during fiscal
1996 compared to a $6.8 million usage in fiscal 1995. This increase was primary
attributable to an increase in net income which was partially offset by
increases in working capital accounts. The primary items affecting working
capital in fiscal 1996 were a net increase in merchandise inventories of $99
million due to the addition of new stores and an increase to support existing
store sales growth, partially offset by an increase in accounts payable and
accrued liabilities of $27 million due to the timing of the related payments.
Net cash used in investing activities was $103.6 million in fiscal 1996
compared to $56.3 million in fiscal 1995. Capital expenditures were $133.9
million, net of construction allowances, during fiscal 1996 compared to $82.6
million during fiscal 1995. Capital expenditures during fiscal 1996 consisted
principally of construction of new stores and remodeling existing stores.
Proceeds from the sale and sale-leaseback of assets were $30.3 million in fiscal
1996 compared to $12.8 million in fiscal 1995. The increase in 1996 is due to a
$22.6 million sale-leaseback of one of the Company's store locations. During
1996, the Company opened one Full-Line, two Resort, two Main Street and 16 OFF
5TH stores.
Net cash provided from financing activities in fiscal 1996 was $145.5
million compared to $60.2 million in fiscal 1995. The 1996 amount reflects the
proceeds from the Company's May 1996 initial public offering of common stock and
issuance of the Convertible Subordinated Notes, net of debt repayments. The 1995
amount reflects increased borrowings used to renovate four former I. Magnin
locations, net of financing costs related to the refinancing of real estate
borrowings in May 1995.
At February 1, 1997, the Company has a net operating loss carryforward of
$761 million which is available to offset taxes otherwise payable on its future
taxable income. The carryforwards begin to expire unless utilized in fiscal
years 2005 through 2011.
Our growth strategy and capital expenditures for fiscal 1997 and fiscal
1998 are expected to add 1.5 million square feet. The growth in square footage
will span all four of our store formats-Full-Line, Resort, Main Street and OFF
5TH-and is expected to add approximately 35 new or replacement stores and
encompass 12 expansion projects. Capital expenditures for these programs as well
as operations are expected to be approximately $500 million ($250 million in
each of fiscal 1997 and fiscal 1998). These projects will primarily be funded
from cash generated from operations. Borrowings under the Credit Facility, lease
financing and developer contributions may also be used to fund these
expenditures. Inflation has not had a material impact on the financial
statements during the past three years.
PRO FORMA
As a result of the issuance of common stock in the Company's initial public
offering (the "Offering") pro forma earnings per share has been computed
assuming the Offering occurred at the beginning of the current fiscal year. Pro
forma earnings per share is computed by dividing the pro forma weighted average
common and common equivalent shares into the earnings applicable to such shares.
The pro forma net earnings reflect the elimination of management fees, the
elimination of the early extinguishment of debt charges and the interest expense
savings on debt repayments made with proceeds of the Offering. On a pro forma
basis, the Company's 1996 net income was $48,116, or $.75 per share.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SAKS HOLDINGS, INC.:
We have audited the accompanying consolidated balance sheets of Saks Holdings,
Inc. as of February 1, 1997 and February 3, 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three fiscal years in the period ended February 1, 1997. 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. as of February 1, 1997 and February 3, 1996, and the consolidated
results of its operations and its cash flows for each of the three fiscal years
in the period ended February 1, 1997, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
March 4, 1997
29
<PAGE>
CONSOLIDATED BALANCE SHEETS
February 1, February 3,
(Dollars and shares in thousands) 1997 1996
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 52,955 $ 6,627
Accounts receivable, net 42,195 37,426
Inventories 435,666 339,723
Other current assets 69,791 61,538
- --------------------------------------------------------------------------------
Total current assets 600,607 445,314
Property and equipment:
Land 186,277 188,157
Buildings and building improvements 439,451 409,693
Furniture, fixtures and equipment 232,258 229,276
Beneficial leasehold interests 54,161 54,161
Construction in progress 49,439 5,088
Leased property under capital leases 118,493 107,008
- --------------------------------------------------------------------------------
1,080,079 993,383
Less accumulated depreciation and amortization (255,999) (225,119)
- --------------------------------------------------------------------------------
824,080 768,264
Goodwill, net 90,417 93,123
Other intangibles, net 7,519 8,533
Other noncurrent assets 50,240 50,953
- --------------------------------------------------------------------------------
Total assets $ 1,572,863 $ 1,366,187
================================================================================
Liabilities
Current liabilities:
Accounts payable, trade $ 146,462 $ 120,858
Accrued liabilities 139,681 117,853
Taxes other than income taxes 13,616 21,456
Current portion of long-term debt and capital
lease obligations 5,437 31,235
- --------------------------------------------------------------------------------
Total current liabilities 305,196 291,402
Long-term debt 591,841 840,239
Obligations under capital leases 111,189 104,468
Other noncurrent liabilities 35,967 46,903
- --------------------------------------------------------------------------------
Total liabilities 1,044,193 1,283,012
- --------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock, par value $.01 per share, 10,000
shares authorized, no shares issued and outstanding -- --
Common stock, par value $.01 per share, 150,000
shares authorized, 63,274 and 44,987 shares issued
as of February 1, 1997 and February 3, 1996; 63,250
and 44,958 shares outstanding as of
February 1, 1997 and February 3, 1996 633 450
Additional paid-in capital 1,343,536 922,424
Accumulated deficit (814,973) (839,117)
Treasury stock, at cost (526) (582)
- --------------------------------------------------------------------------------
Total shareholders' equity 528,670 83,175
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,572,863 $ 1,366,187
================================================================================
The accompanying Notes are an integral part of the consolidated financial
statements.
30 SAKS FIFTH AVENUE
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
(Dollars and shares in thousands, except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,944,862 $ 1,686,787 $ 1,418,163
Cost of sales, including buying and occupancy costs (1,347,653) (1,168,490) (979,650)
- ----------------------------------------------------------------------------------------------------------------
Gross margin 597,209 518,297 438,513
Selling, general and administrative expenses (486,829) (438,624) (370,441)
Management fees (1,000) (7,000) (2,000)
Impairment and special charges -- (36,415) --
- ----------------------------------------------------------------------------------------------------------------
Operating income 109,380 36,258 66,072
Interest, net (72,215) (94,362) (76,155)
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary charge 37,165 (58,104) (10,083)
Income taxes (275) -- --
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge 36,890 (58,104) (10,083)
Extraordinary charge-loss on early extinguishment of debt, net of taxes (12,746) (5,991) (535)
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) $ 24,144 $ (64,095) $ (10,618)
================================================================================================================
Net income (loss) per share before extraordinary charge $ 0.63 $ (1.29) $ (0.22)
================================================================================================================
Net income (loss) per share $ 0.41 $ (1.43) $ (0.24)
================================================================================================================
Weighted-average number of shares outstanding 58,840 44,955 45,010
================================================================================================================
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital Stock
------------------ Additional Treasury Total
Shares Par Paid-in Accumulated Stock, Shareholders'
(Dollars and shares in thousands) Outstanding Value Capital Deficit at Cost Equity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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) --
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 --
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
- ------------------------------------------------------------------------------------------------------------
Issuance of common stock, net
of offering expenses 18,063 181 416,789 -- -- 416,970
Exercise of options 224 2 4,323 -- -- 4,325
Purchase of treasury stock (5) -- -- -- (148) (148)
Reissuance of treasury stock 10 -- -- -- 204 204
1996 net income -- -- -- 24,144 -- 24,144
- ------------------------------------------------------------------------------------------------------------
Balance at February 1, 1997 63,250 $633 $ 1,343,536 $(814,973) $ (526) $ 528,670
============================================================================================================
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
32 SAKS FIFTH AVENUE
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
(Dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 24,144 $ (64,095) $ (10,618)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Extraordinary charge 12,746 5,991 535
Impairment and special charges -- 36,415 --
Depreciation and amortization 66,975 66,766 67,974
Amortization of deferred financing costs 7,197 10,009 12,731
Other items, net (477) (1,583) (8,597)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities before
changes in operating assets and liabilities 110,585 53,503 62,025
- ----------------------------------------------------------------------------------------------------------
Change in operating assets and liabilities:
Accounts receivable (36,801) (62,583) (67,705)
Proceeds from sale of accounts receivable 912,854 805,158 739,851
Origination of accounts receivable (882,745) (751,478) (673,202)
Inventories (98,854) (70,974) (18,006)
Accounts payable 30,604 27,269 21,265
Accrued liabilities (3,807) 18,627 (11,340)
Taxes other than income taxes (7,840) (10,105) 1,108
Other assets and liabilities (19,512) (16,248) 9,122
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 4,484 (6,831) 63,118
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale and sale-leaseback of assets 30,269 12,806 31,150
Capital expenditures (157,486) (87,028) (71,713)
Construction allowances received from third parties 23,590 4,449 15,990
Proceeds from sale of subordinated certificates -- 13,427 13,500
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (103,627) (56,346) (11,073)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from initial public offering 417,769 -- --
Proceeds from issuance of 51U2% Convertible Subordinated Notes 276,000 -- --
Payment under revolving credit facility, net (198,101) (13,566) (832)
Proceeds from term loans -- 125,000 --
Prepayment/payment of term loans (283,602) (19,826) (16,573)
Payment of 9% Subordinated Notes (50,000) -- --
Payment of REMIC Certificates (4,159) -- --
Proceeds from REMIC Certificates -- 335,000 --
Payment of Euronotes -- (335,000) (26,000)
Financing costs (11,919) (27,064) (571)
Payment of capital lease obligations (4,100) (3,739) (2,483)
Other 3,583 (629) (1,447)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 145,471 60,176 (47,906)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 46,328 (3,001) 4,139
Cash and cash equivalents, beginning of period 6,627 9,628 5,489
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 52,955 $ 6,627 $ 9,628
==========================================================================================================
Supplemental cash flow information:
Interest paid $ 53,733 $ 69,504 $ 54,416
==========================================================================================================
Supplemental disclosure of non-cash investing and financing activities:
Capital leases $ 11,485 $ 13,626 $ 28,867
==========================================================================================================
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1. Basis of Presentation
Saks Holdings, Inc. ("Saks Holdings"), through its wholly owned subsidiary Saks
& Company, which does business as Saks Fifth Avenue, OFF 5TH and Folio ("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. Saks Holdings' primary asset is its investment
in Saks. 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.
Certain amounts in the fiscal 1995 and fiscal 1994 financial statements have
been reclassified to conform with the fiscal 1996 presentation.
2. Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
1996 and fiscal 1994 contain 52 weeks and ended on February 1, 1997 and January
28, 1995, respectively. Fiscal 1995 contains 53 weeks and ended on February 3,
1996.
Net Sales
Net sales include sales of merchandise and services and sales of leased
departments, net of returns and exclusive of sales tax. Sales of leased
departments were $81,778, $70,940 and $56,416 in fiscal 1996, fiscal 1995 and
fiscal 1994, respectively. Comparable sales changes represent the percentage
increase (decrease) in net sales of stores (excluding major store expansions)
open in both reporting periods for the portion of such periods open, and Folio
net sales.
SaksFirst 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 that 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 is included in other current assets
in the accompanying consolidated balance sheets. Restricted cash consists of
$1.9 million and $1.5 million, respectively, payable under the Company's
accounts receivable securitization program in fiscal 1996 and fiscal 1995.
Additionally, restricted cash in fiscal 1995 includes a $4.2 million real estate
financing prepayment related to the sale of a closed store location.
Accounts Receivable
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 and recourse
obligations which, when realized, has been within the range of management's
expectations.
Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------
Allowance for uncollectible
accounts - beginning of period $ 11,160 $ 9,313 $ 10,892
Bad debt provision 20,961 20,628 11,400
Write-offs, net of recoveries (19,038) (18,781) (12,979)
------- ------- -------
Allowance for uncollectible
accounts - end of period $ 13,083 $ 11,160 $ 9,313
================================================================================
34 SAKS FIFTH AVENUE
<PAGE>
The Company has an ongoing program to sell certain of its proprietary credit
card receivables (see Note 4). Accounts repurchased as a result of the recourse
provision are included in accounts receivable until they are collected or
written off. The Company also includes its retained interest in the trust, which
is not material, as a component of accounts receivable due to the similarity of
the underlying collateral with the Company's retained receivables. The portion
of the allowance for recourse obligations is not material and has therefore not
been reclassified to liabilities.
In accordance with industry practice, installments on deferred payment
accounts receivable maturing in more than one year have been included in current
assets to the extent that they have not been sold as part of the Company's
accounts receivable securitization.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market, as determined
by the retail method. Consignment merchandise on hand of $72,684 and $72,720 at
February 1, 1997 and February 3, 1996, respectively, is not reflected in the
consolidated balance sheets.
Advertising
Direct response advertising relates primarily to the production and distribution
of the Company's catalogs and is amortized within a three-month period following
mailing. All other advertising costs are expensed in the period incurred.
Advertising expenses were $52,900, $42,956 and $30,566 in fiscal 1996, fiscal
1995 and fiscal 1994, respectively. Direct response advertising amounts included
in other current assets in the consolidated balance sheets at February 1, 1997
and February 3, 1996 were $3,837 and $6,972, respectively.
Store Pre-opening Costs
Costs associated with the opening of a new store are deferred and amortized over
the 12-month period following the store opening. Pre-opening costs included in
other current assets in the consolidated balance sheets at February 1, 1997 and
February 3, 1996 were $7,339 and $1,698, respectively. Amortization of
pre-opening costs was $4,828, $882 and $1,798 in fiscal 1996, fiscal 1995 and
fiscal 1994, respectively.
Property and Equipment
Property and equipment is recorded at cost. Property and equipment is
depreciated using the straight-line method over estimated useful lives.
Leasehold improvements included in buildings and building improvements are
amortized over the shorter of their estimated useful lives or their related
lease terms. Beneficial leasehold interests are 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 using the
straight-line method over a five-year period (see Note 3). Capitalized software
costs included in the consolidated balance sheets at February 1, 1997 and
February 3, 1996 were $14,364 and $8,062, respectively, net of accumulated
amortization.
During fiscal 1996, fiscal 1995 and fiscal 1994, the Company capitalized
interest cost of $1,973, $1,555 and $1,401, respectively, to property and
equipment.
Accounting for the Impairment of Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 prescribes the accounting for the
impairment of long-lived assets, such as property, plant and equipment and
intangible assets, as well as the accounting for long-lived assets that are held
for disposal. The statement requires that such assets be reviewed only when
events or circumstances indicate that an impairment might exist. The adoption of
this Statement in fiscal 1996 did not have a material effect on the results of
operations or financial position of the Company.
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.
35 SAKS FIFTH AVENUE
<PAGE>
Derivatives Policy
The Company uses financial derivatives only to reduce risk in conjunction with
specific business transactions.
The Company purchases interest rate cap agreements to limit its exposure to
adverse movements in interest rates related to the real estate financing and the
accounts receivable securitizations. In addition, the Company entered into
interest rate swap agreements to limit its exposure to interest rate
fluctuations related to accounts receivable securitizations (see Note 4). 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 allocated to individual stores on the basis of their projected cash
flows at their acquisition date. Goodwill is amortized over 40 years using the
straight-line method. Accumulated amortization at February 1, 1997 and February
3, 1996 totaled $18,080 and $15,374, respectively.
Other Intangibles
Other intangibles include customer lists acquired which are amortized using the
straight-line method over their estimated useful life of 14 years. Accumulated
amortization at February 1, 1997 and February 3, 1996 totaled $6,693 and $5,679,
respectively.
Income Taxes
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse (see Note
9).
Earnings Per Share
Earnings per share amounts are computed using the weighted-average number of
common and common equivalent shares outstanding during the year. Common
equivalent shares relate to employee stock plans.
Stock Options Granted to Employees
The Company records compensation expense for all stock-based compensation plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Under Opinion No.
25, compensation expense, if any, is measured as the excess of the market price
of the stock over the exercise price on the measurement date. In October 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which
encourages companies to recognize expense for stock-based awards based on their
estimated value on the date of grant. SFAS No. 123, which is first effective for
fiscal year 1996, does not require companies to change their existing accounting
for stock-based awards. The Company continues to account for stock-based
compensation plans using the intrinsic value method, and has supplementally
disclosed pro forma information required by SFAS No. 123 (see Note 7).
Other Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128
applies to all entities with publicly held common stock and requires a dual
presentation of basic and diluted earnings per share by entities with complex
capital structures. This statement will be adopted in the Company's fiscal 1997
financial statements and, based on current circumstances, is not expected to
have a material effect on the current earnings per share computation or
disclosure.
36 SAKS FIFTH AVENUE
<PAGE>
3. IMPAIRMENT AND SPECIAL CHARGES
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 write-down of capitalized
EDP software and amounted to $19,015, $8,900 and $8,500, respectively.
Exit costs include the write-down of the Yonkers distribution center to its
net realizable value. The write-down 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 write-down and the costs associated with exiting this facility totaled
$19,015. The costs of 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 500 associates.
The liability for these costs at February 1, 1997 of $7,208 is included in
accrued liabilities in the consolidated balance sheets. Amounts paid and charged
against the liability during fiscal 1996 totaled $1,042. Amounts paid and
charged against the liability and other adjustments to the liability during
fiscal 1995 were not material. The anticipated costs of relocating the
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 Securitization
Saks has entered into agreements to securitize most of its proprietary credit
card receivables. The securitization of receivables involves the transfer 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 servicing fee
which totaled $7.9 million, $7.7 million and $6.5 million in fiscal 1996, fiscal
1995 and fiscal 1994, respectively. This fee approximates the fees paid by Saks
to third parties to provide certain credit card processing and related credit
card services. Due to the short-term life of the underlying receivables the
servicing asset is not significant.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities." The principal provisions
of SFAS No. 125, as it relates to Saks, require that the carrying amount of the
financial assets retained, comprised of servicing rights and certain cash flows,
be recorded at their fair values. In accordance with SFAS No. 125, Saks adopted
the provisions of this statement on January 1, 1997. The effect of adopting SFAS
No. 125 was not material to the Company's results of operations or financial
position. Prior to the adoption of SFAS No. 125, the Company recorded finance
charge income and servicing revenues net of securitization costs when earned.
Net finance charge income included with selling, general and administrative
expenses in the consolidated statements of operations totaled $43.0 million,
$37.1 million and $34.4 million in fiscal 1996, fiscal 1995 and fiscal 1994,
respectively.
In April 1996, the trust sold two series of certificates of beneficial
interests with subordinated structures. This issuance was in conjunction with
the previously existing trust entering its wind-down period, which was completed
in fiscal 1996. The first series is a term series with a maximum capacity of
$413 million. The second series is a variable series with a maximum capacity of
$118 million. Each series of beneficial interest bears interest at fixed spreads
over the one-month LIBOR and matures in April 1999. Saks retained interest in
the trust and outstanding securitized receivables sold to third parties were
$23.6 million and $428.4 million at February 1, 1997 and $11.2 million and
$398.3 million at February 3, 1996, respectively.
37 SAKS FIFTH AVENUE
<PAGE>
5. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Credit Facility
Term Loans:
Tranche A $ -- $ 59,475
Tranche B -- 224,127
Revolving Credit -- 198,100
- --------------------------------------------------------------------------------
-- 481,702
Real Estate Financing-REMIC Certificates 315,841 335,000
51/2% Convertible Subordinated Notes 276,000 --
9% Subordinated Notes -- 50,000
- --------------------------------------------------------------------------------
591,841 866,702
Less current portion of long-term debt -- 26,463
- --------------------------------------------------------------------------------
$591,841 $840,239
================================================================================
</TABLE>
CREDIT FACILITY
In October 1996, the Company amended and restated the Credit Facility. The
revolving credit commitments were increased to $350 million and the maturity of
the revolving credit commitments was extended to October 30, 2001. Borrowings
under the Credit Facility bear interest at variable rates as defined in the
agreement. The borrowing availability is reduced by any standby or commercial
letters of credit. As of February 1, 1997 and February 3, 1996, the Company has
approximately $5,834 and $6,694, respectively, of outstanding letters of credit.
In May 1996, the Company completed an initial public offering with net
proceeds of approximately $418 million. The net proceeds from the offering were
primarily used to prepay term loan borrowings under the Credit Facility and
repay outstanding balances on the revolving credit portion of the Credit
Facility. The Company recorded an extraordinary charge of $3.3 million
associated with the accelerated write-off of deferred financing costs related to
these prepayments.
As of February 1, 1997, total available credit under the credit agreements
was $344,166. During fiscal 1996 and fiscal 1995, the weighted-average interest
rate was approximately 8.3% and 9.0%, respectively, for all borrowings under the
credit agreements.
The Credit Facility contains restrictive covenants, which include
limitations on capital expenditures and payment of dividends, specified maximum
levels of consolidated indebtedness to total capitalization, as well as
maintenance of specified ratios, including an interest coverage ratio, as
defined.
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 subsidiaries established to effect the accounts receivable
sale.
REAL ESTATE FINANCING
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
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 and leases collateralizing the mortgage
certificates are cross guaranteed. Saks guarantees the obligations under all
intercompany leases. In conjunction with the May 1995 transaction, the Company
recorded an extraordinary charge related to the early extinguishment of debt of
$5,991.
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. In
January 1997, the Company acquired $15,000 of certificates with an annual fixed
interest rate of 12.36%, effectively prepaying the mortgage certificates. The
Company recorded an extraordinary charge of $3.0 million associated with the
repurchase premium and accelerated write-off of deferred financing costs related
to this repurchase. In February 1997, the Company entered into an agreement to
acquire an additional $15,000 of certificates with an annual fixed interest rate
of 12.36%. During the first quarter of fiscal 1997, the Company will record an
extraordinary charge of $3.4 million.
The sale of the Yonkers distribution center (see Notes 3 and 13) would
require the prepayment of mortgage certificates totaling $9,074.
CONVERTIBLE SUBORDINATED NOTES
In September 1996, Saks Holdings issued $276 million aggregate principal amount
of 51/2% Convertible Subordinated Notes (the "Notes") for net cash proceeds
after offering expenses and financing costs of $267.5 million.
The Notes are due on September 15, 2006 and are convertible at any time
prior to maturity into shares of the Company's common stock at a conversion rate
of 24.0601 shares of common stock for each one thousand dollar
38 SAKS FIFTH AVENUE
<PAGE>
principal amount of Notes, which is equivalent to a conversion price of
approximately $41.563 per share. If all of the Notes are converted, a total of
6,641 shares of common stock will be issued. The Notes are redeemable at the
Company's option at any time on or after September 15, 1999 at redemption rates
ranging from 100.55% to 103.85%. The Notes are unsecured obligations
subordinated in right of payment to all existing and future senior indebtedness
of the Company and are effectively subordinated in right of payment to all
indebtedness and other liabilities of its subsidiaries. The Notes contain no
sinking fund requirements.
The net proceeds from the issuance of the Notes were primarily used to
prepay term loan borrowings under the Credit Facility and repay outstanding
balances on the revolving credit portion of the Credit Facility. During fiscal
1996, the Company prepaid its $50 million 9% Subordinated Notes. During fiscal
1996, the Company recorded extraordinary charges of $6.5 million associated with
the accelerated write-off of deferred financing costs related to the prepayments
under the Credit Facility and 9% Subordinated Notes.
As of February 1, 1997, approximately $5.3 million in letters of credit
were outstanding under a $10 million letter-of-credit facility.
As of February 1, 1997, all of the Company's outstanding long-term debt,
excluding capital leases (see Note 10) is due after fiscal 2001.
6. SHAREHOLDERS' EQUITY
CAPITALIZATION
In May 1996, the Company completed an initial public offering of Common Stock.
The Company sold approximately 18,062 shares of Common Stock at an initial
public offering price of $25 per share. The net proceeds from the offering were
$418 million. Effective with the initial public offering, all issued and
outstanding shares of Class A, Class B, Class C and Class D Stock automatically
converted into shares of Common Stock on a one-for-one basis. As of February 1,
1997, the Company has issued 63,274 shares of Common Stock, of which 63,250 are
outstanding and 24 are in treasury.
The following is a summary of the capitalization of the Company at February
3, 1996:
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 shares issued and 5,158 shares outstanding at
February 3, 1996. Additionally, treasury stock aggregated 29 shares as of
February 3, 1996.
Class D Stock:
100 shares authorized; 50 shares issued and outstanding at February 3, 1996.
Common Stock:
150,000 shares authorized; none issued and outstanding.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations prescribed
by law, to issue up to 10,000 shares of 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.
SHARES RESERVED FOR FUTURE ISSUANCE
The Company has 6,011 shares reserved for issuance upon the exercise of options
under the stock incentive plans (see Note 7) and 6,641 shares reserved for
issuance upon the conversion of the 51/2 % Convertible Subordinated Notes.
7. 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 the Company. As of February 1, 1997,
there were options to purchase 18.7 shares of Common Stock outstanding under the
Old Incentive Plan, all of which vested upon the closing of the initial public
offering, and options to purchase 2,890 shares of Common Stock 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 6,011, subject to adjustment to reflect stock splits,
stock dividends and similar stock transactions.
In accordance with an exchange approved on January 19, 1996 by the Board of
Directors of the Company, on February 28, 1996, Options to acquire 1,414 shares
of Common Stock issued under the Old Incentive Plan were surrendered to the
Company in exchange for the issuance of Options to purchase an identical number
of shares with an exercise price of $16 per share to reflect the fair market
value of the underlying shares at that time. The individual Stock Option
Agreements pursuant to which Options were exchanged provide that Options vest,
to the extent of one-third of the shares underlying the Options granted, as of
the closing of an initial public offering, one-third on the first anniversary
thereof and one-third on the second anniversary thereof, and expire upon the
tenth anniversary of such Stock Option Agreement.
39 SAKS FIFTH AVENUE
<PAGE>
As discussed in Note 2, the Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and
related Interpretations in accounting for its employee stock options. Under APB
25, because the exercise price of the Company's employee stock options equaled
the market price of the underlying stock on the date of grant, no compensation
expense was recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.60%
and 5.51%; dividend yields of 0% and 0%; volatility of the Company's Common
Stock of 33% and 0.1%; and an expected life of the options ranging from two to
four years for 1996 grants and five years for 1995 grants. All options granted
prior to the Company's initial public offering were valued using the Minimum
Value option pricing model with the same weighted-average assumptions discussed
above, with the exception of volatility, for which minimal value was utilized.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation expense for the options been determined consistent with the
provisions of SFAS No. 123, the Company's net income (loss) for fiscal 1996 and
1995 would have been $18,542 and $(64,112), respectively. The Company's pro
forma earnings (loss) per share for fiscal 1996 and fiscal 1995 would have been
$.32 and $(1.43), respectively.
A summary of the Company's stock option activity, and related information, is as
follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995 Fiscal 1994
----------- ----------- -----------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 1,455 $20.00 1,307 $20.00 1,486 $20.00
Granted 1,718 22.88 253 20.00 147 20.00
Exercised (224) 19.29 -- -- -- --
Forfeited (40) 20.71 (105) 20.00 (326) 20.00
- ----------------------------------------------------------------------------------
Outstanding-end of year 2,909 $19.80 1,455 $20.00 1,307 $20.00
==================================================================================
Exercisable at end of year 964 $19.55 871 $20.00 596 $20.00
Weighted-average fair value
of options granted during
the year $ 4.49 $ 4.82 N/A
- ----------------------------------------------------------------------------------
</TABLE>
Exercise prices and weighted-average contractual lives for options outstanding
as of February 1, 1997 were as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
- -------------- ------------------------------ ----------------------- -------
<S> <C> <C> <C> <C> <C>
$16.00 1,722 9.1 $16.00 574 $16.00
$20.00 19 7.0 $20.00 19 $20.00
$25.00 1,115 9.3 $25.00 371 $25.00
$30.13 - $35.75 53 9.7 $33.88 - -
- --------------------------------------------------------------------------------
2,909 964
</TABLE>
40 SAKS FIFTH AVENUE
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 contributed $18,440 in fiscal
1996 and did not make any contributions in fiscal 1995 or fiscal 1994. 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 common stock funds, U.S. Government and agencies obligations,
corporate debt securities, bonds and real estate interests.
Net periodic pension expense consisted of the following components:
Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------
Service cost $ 4,729 $3,527 $ 4,250
Interest cost 6,629 5,778 6,226
Loss (return) on plan assets (5,587) (9,095) 3,085
Net amortization (deferral) 2 4,906 (8,600)
- --------------------------------------------------------------------------------
Net pension expense $ 5,773 $5,116 $ 4,961
================================================================================
The following table sets forth the Pension Plan's funded status and the present
value of benefit obligations:
February 1, February 3,
1997 1996
- --------------------------------------------------------------------------------
Accumulated benefit obligation:
Vested $ (79,876) $ (77,266)
Nonvested (4,636) (4,838)
(84,512) (82,104)
- --------------------------------------------------------------------------------
Effect of projected salary increases (4,867) (4,562)
Projected benefit obligation (89,379) (86,666)
Plan assets at fair value 73,800 53,058
- --------------------------------------------------------------------------------
Excess of projected benefit obligation
over plan assets (15,579) (33,608)
Unrecognized net (gain) loss (1,027) 4,415
Unrecognized prior service cost 24 (56)
Accrued pension cost $ (16,582) $ (29,249)
================================================================================
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 $784, $502 and $487 in fiscal
1996, fiscal 1995 and fiscal 1994, respectively. Payments from the supplemental
plan were $233, $279 and $336 during fiscal 1996, fiscal 1995 and fiscal 1994,
respectively. The accrued liability for this plan at February 1, 1997 and
February 3, 1996 was $7,811 and $7,260, respectively, and is included in other
noncurrent liabilities in the accompanying consolidated balance sheets.
The actuarial present value of the projected benefit obligations for both
the Pension Plan and supplemental plan was determined using a weighted-average
discount rate of 8% at February 1, 1997 and 7.35% at February 3, 1996. The
projected benefit obligation was determined using an assumed rate of increase in
future compensation of 3.0% at February 1, 1997 and February 3, 1996. The
assumed long-term rate of return on plan assets was 9.5% for fiscal 1996 and
9.0% for fiscal 1995. A 1% change in the assumed discount rate would change the
accumulated benefit obligation for the Pension Plan and the supplemental plan by
approximately $9 million and $.5 million, respectively, at February 1, 1997.
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, nine other mutual funds, or a Saks Holdings, Inc. Stock Fund. Eligible
employees may contribute up to 16% of their compensation, as defined. The
Company contributes a percentage of employees' elective contributions in the
form of a matching contribution. The match rate in each fiscal year was 25%. The
Company's expense related to contributions to this plan totaled $2,327, $2,098
and $1,912, for fiscal 1996, fiscal 1995 and fiscal 1994, respectively.
9. INCOME TAXES
At February 1, 1997, the Company has net operating loss carryforwards of
approximately $761,494 for income tax purposes that expire, unless utilized, in
fiscal years 2005 through 2011.
The Company recorded certain assets and liabilities at the date of their
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.
11
<PAGE>
The Company uses the liability method to account for income taxes. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are summarized below:
February 1, February 3,
1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets
Operating loss carryforward $ 303,101 $ 289,609
Accrued expenses and reserves 16,555 17,722
Employee benefits 7,122 14,532
Depreciation, amortization
and basis differences 14,748 15,575
Allowance for doubtful accounts 5,207 4,442
Deferred lease payments 3,732 3,133
Other 4,360 4,084
- --------------------------------------------------------------------------------
Total deferred tax assets 354,825 349,097
Deferred tax liabilities
Deferred financing costs (5,590) (4,038)
Pre-opening costs (2,921) --
- --------------------------------------------------------------------------------
Total deferred tax liabilities (8,511) (4,038)
- --------------------------------------------------------------------------------
Net deferred tax asset 346,314 345,059
Less valuation allowance (346,314) (345,059)
- --------------------------------------------------------------------------------
Net deferred taxes $ -- $ --
================================================================================
The Company's provision for income taxes resulted in effective tax rates that
varied from the statutory federal income tax rate as follows:
Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
39.8 39.8 39.8
Generation of net operating
loss carryforward (39.1) (39.8) (39.8)
- --------------------------------------------------------------------------------
Net effective income tax rate 0.7% 0.0% 0.0%
================================================================================
The fiscal 1996 income tax provision consists principally of a current federal
provision relating to alternative minimum taxes, as well as a deferred tax
benefit of $1.3 million principally related to tax losses, which has been fully
reserved.
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 67 years. Operating leases consist of land leases and land and building
leases with remaining terms ranging primarily from five to 30 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:
Fiscal Fiscal Fiscal
1996 1995 1994
- --------------------------------------------------------------------------------
Land and building rent:
Fixed minimum $15,957 $11,401 $ 8,787
Contingent rentals 7,580 5,454 4,516
- --------------------------------------------------------------------------------
Total land and building rent 23,537 16,855 13,303
Equipment and other 4,636 3,956 4,540
- --------------------------------------------------------------------------------
Total rent expense $28,173 $20,811 $17,843
================================================================================
Future minimum payments under capital leases and noncancelable operating leases
consist of the following at February 1, 1997:
Fiscal Years Capital Operating
- --------------------------------------------------------------------------------
1997 $15,602 $32,053
1998 13,870 30,462
1999 13,355 29,718
2000 13,767 29,706
2001 13,568 30,468
Thereafter 207,939 335,089
- --------------------------------------------------------------------------------
Total minimum payments $278,101 $487,496
================================================================================
Less executory costs 531
- -------------------------------------------------------------
Net minimum lease payments 277,570
- -------------------------------------------------------------
Less interest 160,944
- -------------------------------------------------------------
Present value of net
minimum lease payments $116,626
=============================================================
Current obligations under capital leases $ 5,437
Noncurrent obligations under capital leases 111,189
- -------------------------------------------------------------
$116,626
=============================================================
42 SAKS FIFTH AVENUE
<PAGE>
Property and equipment includes the following amounts for leases that have been
capitalized at February 1, 1997 and February 3, 1996. Amortization of assets
under capital leases is included in depreciation expense.
February 1, February 3,
1997 1996
- --------------------------------------------------------------------------------
Building and equipment $118,493 $107,008
Less accumulated amortization (28,056) (20,403)
- --------------------------------------------------------------------------------
$ 90,437 $ 86,605
================================================================================
The Company leases certain selling space within its stores to other specialty
retailers under contingent rental agreements. Rental income related to these
agreements was $11,486, $10,209 and $9,038 in fiscal 1996, fiscal 1995 and
fiscal 1994, respectively.
During fiscal 1996, fiscal 1995 and fiscal 1994, the Company consummated the
sale and sale-leaseback of certain property and equipment with proceeds of
$30,269, $12,806 and $31,150, respectively.
11. 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 relating
to the Accounts Receivable Securitization. At February 1, 1997, there were six
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 exceed 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.
The following is a summary of the interest rate cap agreements related to real
estate financing as of February 1, 1997:
Notional Strike Effective Expiration
Amount Rate Date Date
- --------------------------------------------------------------------------------
$175,000 7.25% 05/09/95 02/12/97
87,500 9.70 02/12/97 05/13/02
87,500 9.70 02/12/97 05/13/02
- --------------------------------------------------------------------------------
The combined carrying value and fair value of the Company's interest rate cap
agreements were $2,319 and $870 at February 1, 1997 and $2,242 and $1,828 at
February 3, 1996, respectively.
During fiscal 1996, the Company entered into three financial fixed-rate swap
agreements. The Company is obligated to pay a fixed rate of interest, and will
receive a floating rate based on LIBOR. The Company utilizes interest rate swaps
solely as a risk management tool with an objective of managing the level of
interest rate risk relating to its accounts receivable securitization.
The following is a summary of the interest rate swap agreements as of February
1, 1997:
Notional Swap Effective Expiration
Amount Rate Date Date
- --------------------------------------------------------------------------------
$250,000 6.02% 02/20/97 02/20/98
250,000 6.41 02/20/98 02/20/99
250,000 6.55 02/20/99 04/20/99
- --------------------------------------------------------------------------------
At February 1, 1997, the combined carrying value and fair value of the Company's
financial fixed-rate swap agreements were $0 and $(1,134), respectively.
The fair value of the Company's other financial instruments, which consist
primarily of cash and cash equivalents, accounts receivable, accounts payable
and long-term debt, approximate their carrying amounts reported in the
consolidated balance sheets.
12. Related Party Transactions
The Company received various consulting and advisory services from an affiliate
of Investcorp, a shareholder, under an agreement which expired in July 1996. The
fees paid or payable for such services were $1 million, $7 million and $2
million in fiscal 1996, fiscal 1995 and fiscal 1994, respectively. In
conjunction with the initial public offering, the Company committed to register
securities and absorb the cost in connection with certain secondary offerings
initiated by Investcorp.
<PAGE>
13. CONTINGENCIES
The Company is from time to time involved in routine litigation incidental to
the course of its business. Management does not believe that the disposition of
such litigation will have a material adverse effect on the financial position or
results of 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 1996
--------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Full Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 464,479 $ 403,766 $ 476,271 $ 600,346 $ 1,944,862
Cost of goods sold 323,172 298,001 319,623 406,857 1,347,653
Net income (loss) before
extraordinary charge (2,952) (22,655) 15,810 46,687 36,890
Net income (loss) (2,952) (25,995) 9,355 43,736 24,144
Net income (loss) per share
before extraordinary charge (0.07) (0.38) 0.25 0.73 0.63
Net income (loss) per share (0.07) (0.44) 0.15 0.68 0.41
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal 1996
--------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Full Year
- ------------------------------------------------------------------------------------------------------------------------
Net sales $ 384,564 $ 353,229 $ 407,990 $541,004 $ 1,686,787
Cost of goods sold 262,446 262,945 275,035 368,065 1,168,491
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 (0.37) (0.76) (0.79) 0.62 (1.29)
Net income (loss) per share (0.37) (0.89) (0.79) 0.61 (1.43)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21.01
Subsidiaries of Saks Holdings, Inc.
<TABLE>
<CAPTION>
Name of Subsidiary Additional Names Jurisdiction of
as per under which Incorporation
Certificate of Incorporation Subsidiary Does Business
<S> <C> <C>
Saks & Company Saks Fifth Avenue New York
Off 5th - Saks Fifth Avenue Outlet
Cafe SFA - Saks Fifth Avenue California
Minneapolis, Inc.
Saks Fifth Avenue, Atlanta, Inc. Saks Fifth Avenue Georgia
Saks Fifth Avenue Food Saks Fifth Avenue California
Corporation
Saks Fifth Avenue, Inc. Saks Fifth Avenue Massachusetts
Off 5th - Saks Fifth Avenue Outlet
Saks Fifth Avenue - Louisiana Saks Fifth Avenue Delaware
Inc.
Saks Fifth Avenue of Missouri, Saks Fifth Avenue Missouri
Inc.
Saks Fifth Avenue of Ohio, Inc. Saks Fifth Avenue Delaware
Off 5th - Saks Fifth Avenue Outlet
Saks Fifth Avenue of Texas, Saks Fifth Avenue Delaware
Inc. Off 5th - Saks Fifth Avenue Outlet
Saks Fifth Avenue - Stamford Saks Fifth Avenue Connecticut
Inc.
(Formerly Saks Fifth Avenue
New Haven, Inc.)
Saks Specialty Stores, Inc. Saks Fifth Avenue Delaware
Off 5th - Saks Fifth Avenue Outlet
S.F.A. Data Processing, Inc. Saks Fifth Avenue Delaware
SFA Folio Collections, Inc. Folio New York
SFA Folio
Saks Fifth Avenue Folio
SFA Boca Inc. Saks Fifth Avenue Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Additional Names Jurisdiction of
as per under which Incorporation
Certificate of Incorporation Subsidiary Does Business
<S> <C> <C>
SFA Post Street Saks Fifth Avenue Delaware
The Restaurant at Saks Fifth Saks Fifth Avenue New York
Avenue Corporation Cafe SFA
(formerly Fashions for Men)
Fifth Win, Inc. Saks Fifth Avenue Delaware
Ohio Win, Inc. Saks Fifth Avenue Delaware
(formerly Mass Win, Inc.)
Or. Win, Inc. Saks Fifth Avenue Delaware
(formerly Lou Win, Inc.)
Vir. Win, Inc. Saks Fifth Avenue Delaware
York Win Realty, Inc. Saks Fifth Avenue Delaware
(formerly New Win, Inc.)
Calwin Realty II, Inc. Saks Fifth Avenue Delaware
Tex Win II, Inc. Saks Fifth Avenue Delaware
Win Realty Holdings II, Inc. Saks Fifth Avenue Delaware
Cal SFA, Inc. Saks Fifth Avenue New York
(survivor of merger with Calwin
Realty, Inc.)
Penn SFA, Inc. Saks Fifth Avenue New York
(survivor of merger with Win
Realty Holdings, Inc.)
Tex SFA, Inc. Saks Fifth Avenue New York
(survivor of merger with Tex
Win, Inc.)
Fifteenth Win, Inc. (Formerly Saks Fifth Avenue Delaware
Winrock, Inc.) Off 5th - Saks Fifth Avenue Outlet
SFA Finance Company Saks Fifth Avenue Delaware
SFA Finance Company II Saks Fifth Avenue Delaware
SFA Real Estate Co. Saks Fifth Avenue Delaware
Saks Fifth Avenue Distribution Saks Fifth Avenue Delaware
Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Additional Names Jurisdiction of
as per under which Incorporation
Certificate of Incorporation Subsidiary Does Business
<S> <C> <C>
HNY, Inc. Delaware
FCT, Inc. Delaware
The Gallery, Inc. Pennsylvania
Gimbels Food Services, Inc. Pennsylvania
Modern Realty Company Pennsylvania
Saks-Chicago, Inc. Delaware
</TABLE>
<PAGE>
Exhibit 23.01 - Consent of Independent Accountants
We consent to the inclusion or incorporation by reference in the registration
statement of Saks Holdings, Inc. on Form S-8 (File No. 33-18589) of our reports
dated March 4, 1997, on our audits of the consolidated financial statements and
financial statement schedule of Saks Holdings, Inc. as of February 1, 1997 and
February 3, 1996 and for each of the three years in the period ended February 1,
1997, which reports are included or incorporated by reference in this Annual
Shareholders Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
New York, New York
May 2, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 52,955
<SECURITIES> 0
<RECEIVABLES> 55,278
<ALLOWANCES> 13,083
<INVENTORY> 435,666
<CURRENT-ASSETS> 600,607
<PP&E> 1,080,079
<DEPRECIATION> 255,999
<TOTAL-ASSETS> 1,572,863
<CURRENT-LIABILITIES> 305,196
<BONDS> 591,841
0
0
<COMMON> 0
<OTHER-SE> 528,670
<TOTAL-LIABILITY-AND-EQUITY> 1,572,863
<SALES> 1,944,862
<TOTAL-REVENUES> 1,944,862
<CGS> 1,347,653
<TOTAL-COSTS> 1,347,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,215
<INCOME-PRETAX> 37,165
<INCOME-TAX> 275
<INCOME-CONTINUING> 36,890
<DISCONTINUED> 0
<EXTRAORDINARY> (12,746)
<CHANGES> 0
<NET-INCOME> 24,144
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.01 - Press Release - Saks announces preliminary first quarter results
For: Saks Holdings, Inc.
Approved by: Jaqui Lividini
Media
Contact: Jennifer Mann/Saks Holdings, Inc.
212/940-4259
Stacey Bibi/Saks Holdings, Inc.
212/940-5262
David Walke/Naomi Rosenfeld
Morgen-Walke Associates
212/850-5600
FOR IMMEDIATE RELEASE
SAKS ANNOUNCES PRELIMINARY FIRST QUARTER RESULTS
New York, NY April 22, 1997 -- Saks Holdings, Inc. (NYSE:SAKS), the holding
company for Saks Fifth Avenue, today announced that, based on sales trends in
March and April, it expects to report sales of approximately $520 million, for
the first fiscal quarter of fiscal 1997, ending May 3, 1997. This compares to
sales of $465 million for the first quarter of fiscal 1996. As a result, the
company is estimating, depending on final sales results for the month of April,
lower than expected earnings for the first quarter of approximately $0.20 per
share as compared to pro forma earnings per share of $0.09 in the first quarter
of fiscal 1996. The company expects to report actual results for the first
quarter on or about May 15, 1997.
Management commanded that results for the first quarter of fiscal 1997 have
primarily been affected by continued softness in the Folio catalog operation, a
slowdown in sales of Off 5th due to lower-than-planned sell-off inventory levels
and lower than expected sales in casual bridge apparel at the full-line stores.
Philip B. Miller, Chairman and Chief Executive Officer, noted, "The strategic
initiatives that have contributed to our past two years of double digit
comparable sales and earnings growth remain fundamentally in evidence in the
first quarter. While our first quarter performance does reflect a significant
increase over last year's earnings results, we have taken steps to address the
issues that arose during the period. In addition, we continue to implement our
real estate strategies, which will enhance our penetration of key markets. As
such, we are on track with the planning and construction of our core store
projects and Off 5th stores for fiscal 1997."
Saks Fifth Avenue was founded in 1924. Today, the company comprises 40 full-line
stores, eight resort stores and three main street stores led by the company's
landmark flagship on New York's Fifth Avenue. In addition, Saks also operates 34
Off 5th stores and Folio, a separate direct mail business.
This release contains forward-looking information within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include, without limitation, the projection of first quarter sales
and earnings statements containing the words "believes", "estimates",
"expects", and words of similar import. Such forward-looking statements
involve risks, uncertainties and other factors that may cause the actual
results to be materially different from such forward-looking
<PAGE>
statements. Such factors include, among others, levels of store sales and
traffic and general economic conditions in those areas in which Saks operates;
competition; changes in business strategy or development plans; and the
availability of capital to fund the expansion of Saks' business. For more
details, see the company's filings with the Securities and Exchange Commission.
<PAGE>
Exhibit 99.02 - Press Release - Saks Holding, Inc. and Isetan Company Limited
agree to a joint reorganization plan for Barney's Inc.
For: Saks Holdings, Inc.
Approved by: Jaqui Lividini
Saks
Contacts: Jennifer Mann (Media)
212/940-4259
FOR IMMEDIATE RELEASE Stacey Bibi (Investors)
212/940-5262
Saks Holdings, Inc.
David Walke/Naomi Rosenfeld
Morgen-Walke Associates
212/850-5600
Isetan
Contact: William Cox
Dentsu Communications, Inc.
609/896-3250
SAKS HOLDINGS, INC. AND ISETAN COMPANY LIMITED AGREE TO A JOINT
REORGANIZATION PLAN FOR BARNEY'S INC.
New York, NY, April 22, 1997-- Saks Holdings, Inc. (NYSE:SAKS) and Isetan
Company Limited today announced that they have agreed to the terms of a
proposed Joint Plan of reorganization for Barney's Inc., and its related debtor
subsidiaries, and that they intend to seek the approval of the Bankruptcy Court
for the Southern District of New York to file the Joint Plan with the Court.
Under the terms of the proposed Joint Plan, Saks would acquire 100% of the
stock or substantially all of the assets of the Barney's debtors for a
consideration of $290 million, subject to adjustment in certain circumstances.
The reorganized company will enter into leases with Isetan for its three
flagship stores. It is estimated that unsecured creditors would receive
approximately twenty cents on the dollar under the Joint Plan.
In a joint statement, the two companies said, "We believe the Saks-Isetan Joint
Plan offers a global settlement to, and is the most viable resolution for, all
parties in the Barney's bankruptcy. It is a significant increase over the prior
publicly-announced offer. The combination of Saks and Isetan represents the
strongest possible pairing of retailing and real estate expertise." In a
separate statement, Saks said, "The acquisition of Barney's is consistent with
Saks' long-term objective of enhancing this strategic investment will be
accretive to Saks shareholders."
Isetan also stated, "Isetan has agreed to the Joint Plan despite having to
accept rents that are substantially below current market rates and the existing
lease rates. In addition, Isetan will experience a significant loss on its
emergency loans to Barney's affiliated companies totaling nearly $20 million.
While we have held, and may in the future hold, discussion with other interested
investors in Barney's, we have concluded that Saks presented the most attractive
transaction. We believe the Joint Plan is fair to all parties and that it will
bring to Barney's the management skills of one of the world's finest retailers
of luxury goods. This Plan treats all parties in accordance with their
legitimate legal and contractual rights and will bring to an end Barney's
baseless litigation initiatives."
<PAGE>
SAKS AND ISETAN AGREE TO BARNEY'S REORGANIZATION PLAN --2
Saks Holdings, Inc. is the holding company for Saks Fifth Avenue, founded in
1924. Today, Saks comprises 40 full-line stores, 8 resort stores and 3 main
street stores led by its landmark flagship on New York's 5th Avenue. In
addition, Saks operated 34 Off 5th outlet stores and Folio, a separate direct
mail business.
Isetan Company Limited is one of Japan's foremost retailing groups. Its
operations are centered on department stores. Isetan has seven full-scale
department stores in the Tokyo area, including its flagship store in Shinjuku
and subsidiary stores in Niigata and Shizuoka. The company's expanding
international operations now comprise 10 department stores in Asia and
specialty stores in Asia and Europe.
