SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 1, 1997
Commission File Number
SAKS HOLDINGS, INC.
(Exact name of the registrant as specified in its charter)
Delaware 52-1685667
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12 East 49th Street, New York, New York 10017
(Address of principal executive offices) (Zip Code)
(212) 940-4048
(Registrant's telephone number, including area code)
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 |_|
As of December 12, 1997 there were outstanding 63,659,970 shares of the issuer's
common stock, $.01 par value.
<PAGE>
SAKS HOLDINGS, INC.
INDEX
Page
Part I. Financial Information Number
Item 1. Condensed Consolidated Balance Sheets as of November 1,
1997, November 2, 1996, and February 1, 1997 1
Condensed Consolidated Statements of Operations for the
three months and nine months ended November 1, 1997 and
November 2, 1996 2
Condensed Consolidated Statements of Cash Flows for the
nine months ended November 1, 1997 and
November 2, 1996 3
Notes to Condensed Consolidated Financial Statements
(unaudited) 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
Part II. Other Information
Item 1 Legal proceedings 13
Item 2 Changes in securities 13
Item 3 Defaults upon senior securities 13
Item 4 Submission of matters to a vote of security holders 13
Item 5 Other information 13
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
November 1, November 2, February 1,
(in thousands) 1997 1996 1997
------------------------------------------
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 8,114 $ 17,529 $ 52,955
Accounts receivable, net 71,048 54,085 42,195
Merchandise inventories 628,018 499,601 435,666
Other current assets 70,069 50,878 69,791
------------------------------------------
Total current assets 777,249 622,093 600,607
Property and equipment, net 902,528 797,145 824,080
Intangibles and other assets 139,616 135,156 148,176
------------------------------------------
Total Assets $1,819,393 $1,554,394 $1,572,863
==========================================
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable, trade $ 244,071 $ 200,926 $ 146,462
Accrued liabilities 96,715 97,486 139,681
Taxes other than income taxes 20,129 18,915 13,616
Current portion of long-term debt and capital lease 6,824 4,790 5,437
obligations
------------------------------------------
Total current liabilities 367,739 322,117 305,196
Long - term debt 742,341 606,841 591,841
Other non-current liabilities 149,427 143,024 147,156
------------------------------------------
Total liabilities 1,259,507 1,071,982 1,044,193
Shareholders' equity 559,886 482,412 528,670
------------------------------------------
Total Liabilities & Shareholders' Equity $1,819,393 $1,554,394 $1,572,863
==========================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
1
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SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS of OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In thousands except for November 1, November 2, November 1, November 2,
per share amounts) 1997 1996 1997 1996
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net sales $ 545,988 $ 476,271 $ 1,521,108 $ 1,344,516
Cost of sales, including buying & occupancy costs (366,699) (319,624) (1,072,288) (940,796)
--------------------------- -----------------------------
Gross margin 179,289 156,647 448,820 403,720
Selling, general and administrative expenses (133,667) (124,977) (377,472) (355,494)
--------------------------- -----------------------------
Operating income 45,622 31,670 71,348 48,226
Interest expense, net (14,657) (15,860) (42,145) (58,022)
--------------------------- -----------------------------
Income (loss) from operations before
income taxes and extraordinary charge 30,965 15,810 29,203 (9,796)
Income taxes (713) 0 (517) 0
--------------------------- -----------------------------
Income (loss) from operations before
extraordinary charge 30,252 15,810 28,686 (9,796)
Extraordinary charge 0 (6,455) (3,352) (9,795)
--------------------------- -----------------------------
Net income (loss) $ 30,252 $ 9,355 $ 25,334 $ (19,591)
=========================== =============================
Net income (loss) per share before extraordinary charge $ 0.47 0.25 $ 0.45 (0.18)
=========================== =============================
Net income (loss) per share $ 0.47 0.15 $ 0.40 (0.35)
=========================== =============================
Weighted average shares outstanding 63,993 64,408 64,026 55,892
=========================== =============================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) Nine Months Ended
November 1, November 2,
1997 1996
-------------------------
<S> <C> <C>
Net income and depreciation and amortization $ 79,455 $ 35,831
Adjustments to reconcile net earnings to net cash used in operations:
Extraordinary charge 3,352 9,795
Change in operating assets and liabilities (144,470) (134,375)
-------------------------
Net cash used in operating activities (61,663) (88,749)
Cash flows from investing activities:
Proceeds from sale and sale-leaseback of assets 4,630 22,593
Capital expenditures, net of construction allowances received (125,735) (67,049)
-------------------------
Net cash used in investing activities (121,105) (44,456)
-------------------------
Cash flow from financing activities:
Additional paid-in-capital from initial public offering 0 417,769
Net borrowings / (payments) under senior credit facility 165,500 (198,101)
Repayment of debt (30,000) (337,761)
Proceeds from the issuance of 5 1/2% convertible subordinated notes 0 276,000
Financing costs 0 (11,918)
Other 2,427 (1,882)
-------------------------
Net cash provided by financing activities 137,927 144,107
-------------------------
(Decrease) increase during the period $ (44,841) $ 10,902
=========================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Saks Holdings,
Inc. and its subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation have been included. The retail
industry is seasonal in nature, and historically the results of operations for
interim periods may not be indicative of the results for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's consolidated financial statements
for the year ended February 1, 1997 which were previously filed.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
2. Income Taxes
The Company has net operating loss carryforwards, at February 1, 1997, of
approximately $761 million, which are available to offset taxes otherwise
payable on its future taxable income. The carryforwards begin to expire unless
utilized in fiscal years 2005 through 2011.
Saks' results of operations, consistent with the retail industry, are seasonal
in nature with a majority of its earnings derived in its fourth quarter. The
Company currently expects that it will be required under generally accepted
accounting principles to recognize the benefit of its net operating loss
carryforwards in its 1997 fourth quarter results. If recognition is required,
the net operating loss carryforwards would increase 1997 fourth quarter earnings
by an estimated $275 million, and would also result in recording an asset for
the deferred tax benefit and a corresponding increase to shareholders' equity in
the Company's balance sheet. The recognition of the net operating loss
carryforwards in the Company's 1997 financial statements would result in 1997
pretax earnings being subject to an estimated forty-one percent effective tax
rate (excluding the recognition of operating loss carryforwards) and would also
be reflected in reported results on an ongoing basis beginning in 1998, when its
pretax earnings would become subject to an estimated forty-one percent effective
income tax rate.
4
<PAGE>
3. Synthetic Lease Financing
In June 1997, the Company entered into a $100.5 million operating lease
agreement for the purpose of financing the acquisition and construction of new
store sites. The facility can be used to finance qualified properties placed in
service by December 31, 1999. The lease requires a variable rent payment related
to LIBOR interest rates. The initial lease term ends in October 2001 and may be
extended at the mutual consent of the lessor and the Company. The Company has
also guaranteed a substantial residual value of the properties under lease. The
Company may purchase the assets under lease or elect for the properties to be
sold to a third party. At November 1, 1997, there were approximately $10.8
million of expenditures under this lease agreement.
4. Initial Public Offering
In May 1996, the Company completed an initial public offering (the "Offering").
The Company sold approximately 18 million shares of common stock at an initial
offering price of $25.00 per share. The net proceeds from the Offering were
approximately $417.8 million. The net proceeds from the Offering were primarily
used to prepay term loan borrowings under the Credit Facility and repay
outstanding balances on the revolving credit portion of the Credit Facility.
5. 5 1/2% Convertible Subordinated Notes
In September 1996, the Company issued $276 million aggregate principal amount of
5 1/2% 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 $1,000 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 6,640,588 shares of common stock will be issued.
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.
6. Extraordinary Charge
In February 1997, the Company re-acquired $15.0 million of its outstanding
mortgage certificates with an annual fixed interest rate of 12.36%, effectively
prepaying the mortgage certificates. The Company recorded an extraordinary
charge of $3.4 million associated with the repurchase premium and accelerated
write-off of deferred financing costs related to the repurchase.
7. Commitments and 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.
5
<PAGE>
The Company has entered into an agreement to sell its former distribution
facility located in Yonkers, New York. The sale is subject to the successful
rezoning of the property. Management currently expects that this transaction
will be completed in the second half of fiscal 1998. Since this property is part
of the Company's real estate financing, a debt prepayment of $9.1 million will
be required. The net proceeds after debt repayment and other costs is expected
to be $8 to $12 million.
8. Disclosure of the Impact of Recently Issued Accounting Standards
Segment Disclosure
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information." Statement
No. 131 establishes standards for the way in which public companies report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes the
standards for related disclosure about products and services, geographic areas
and major customers. Statement No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. The Company's adoption of this
statement will have no impact on the Company's results of operations, financial
position or cash flows.
6
<PAGE>
Saks Holdings, Inc.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations for the Nine Months Ended November 1, 1997
Compared with the Nine Months Ended November 2, 1996
Net sales for the nine months ended November 1, 1997 were $1,521.1 million, an
increase of $176.6 million, or 13.1%, over net sales of $1,344.5 million
reported in the nine months ended November 2, 1996. Comparable sales increased
3.2% from the 1996 fiscal period. In fiscal 1996, comparable sales increased
12.3% from the 1995 fiscal period.
Full-line, resort and main street stores net sales for the nine months ended
November 1, 1997 were $1,269.5 million, an increase of $112.5 million, or 9.7%,
from $1,157.0 million for the nine months ended November 2, 1996. Comparable
sales for full-line, resort and main street stores increased 4.4% in fiscal
1997. In fiscal 1996, comparable sales increased 11.2% from the 1995 fiscal
period. The increase in comparable sales in fiscal 1997 was primarily due to
continued strong demand for luxury goods. This performance was offset in part by
the softness in demand for select branded and private label categories of bridge
apparel in the first and second quarters. The demand for bridge apparel improved
during the third quarter. Off 5th stores net sales for the nine month period
ended November 1, 1997 were $195.5 million, an increase of $65.9 million, or
50.7%, from $129.6 million for the nine month period ended November 2, 1996. The
increase is primarily a result of opening eleven net new stores during the last
twelve months. Comparable sales for Off 5th stores decreased 5.3% from the
fiscal 1996 period. The decline in comparable sales in Off 5th stores sales for
the nine month period ended November 1, 1997 resulted in part from the current
period anniversarying of seven 1996 new store openings, as well as the clearance
of spring bridge apparel. Folio catalog net sales for the nine month period
ended November 1, 1997 were $56.1 million, a decrease of $1.8 million, or 3.1%,
from $57.9 million for the nine month period ended November 2, 1996. The
decrease in catalog net sales is primarily a result of decreased catalog
circulation in 1997.
Cost of sales includes the cost of merchandise and buying and occupancy costs.
Cost of sales in the nine months ended November 1, 1997 was $1,072.3 million, an
increase of $131.5 million compared to $940.8 million in the nine months ended
November 2, 1996. As a percentage of net sales, cost of sales including buying
and occupancy costs was 70.5% for the nine month period ended November 1, 1997,
compared to 70.0% for the nine month period ended November 2, 1996. The increase
in the cost of sales rate was primarily due to an increase in penetration of
lower margin Off 5th sales, an increase in markdown rates and fixed occupancy
costs associated with new stores.
Selling, general and administrative expenses for the nine month period ended
November 1, 1997 were $377.5 million, an increase of $22.0 million, or 6.2%,
from the comparable period in fiscal 1996 primarily due to higher sales volume
related costs. As a percentage of net sales, selling, general and administrative
expenses were 24.8% for the nine month period ended November 1, 1997, compared
to 26.4% for the nine month period ended November 2, 1996. The improvement
7
<PAGE>
in the selling, general and administrative expense rate resulted from expense
reductions and cost control measures, as well as relatively flat depreciation
dollars, leverage from the Company's sales growth and increased penetration of
Off 5th sales which have a lower expense rate than the Company's full line,
resort and main street stores.
An extraordinary charge of $3.4 million, or $0.05 per share, was recorded during
the nine month period ended November 1, 1997, which related to the repurchase of
high cost debt.
Operating income was $71.3 million for the nine month period ended November 1,
1997 , an increase of $23.1 million, or 45.0%, from operating income excluding
management fees for the nine month period ended November 2, 1996.
Interest expense in the nine months ended November 1, 1997 was $42.1 million, a
decrease of 27.4% compared to the same period in fiscal 1996. This decrease is
due to reduced average borrowings outstanding following the Company's initial
public offering, the exchange of higher cost debt with lower cost debt
associated with the September 1996 issuance by the Company of 5 1/2% Convertible
Subordinated Notes due 2006, and a reduction of the spread on the Company's
variable interest borrowings.
Income tax expense was $0.5 million for the nine months ended November 1, 1997
compared to $0.0 for the nine months ended November 2, 1996. The Company
currently anticipates that it will be required to recognize the benefit of its
net operating loss carryforwards in the fourth quarter of fiscal 1997. In 1996,
the Company anticipated that the income tax provision for the full year would be
immaterial, accordingly no tax provision was reflected in the nine month period
ended November 2, 1996. The Company anticipates that it will continue to pay
cash taxes at the two percent effective alternative minimum tax rate until
approximately the year 2001. See Note 2 to the Condensed Consolidated Financial
Statements for additional discussion on income taxes.
Net income, before extraordinary charge, for the nine months ended November 1,
1997 was $28.7 million or $0.45 per share, which is an improvement of $38.5
million or $0.63 per share from the nine months ended November 2, 1996.
Supplemental Information:
The Company completed its initial public offering of common stock during May
1996. In order to provide meaningful comparisons, pro forma results are
provided. For the nine months ended November 1, 1997, the Company's pro forma
net income was $17.2 million or $0.27 per share, an improvement of $16.4 million
compared to a pro forma net income of $0.8 million or $0.01 per share for the
nine months ended November 2, 1996. The pro forma results adjust reported
results to give effect to the elimination of management fees, interest savings
on debt repayments as though the initial public offering had been completed at
the beginning of fiscal 1996, elimination of extraordinary charges and assumes a
forty-one percent effective tax rate, as well as reflecting an increase in the
average number of shares outstanding in fiscal 1996.
8
<PAGE>
Results of Operations for the Three Months Ended November 1, 1997
Compared with the Three Months Ended November 2, 1996
Net sales for the three months ended November 1, 1997 were $546.0 million, an
increase of $69.7 million, or 14.6%, over net sales of $476.3 million reported
in the three months ended November 2, 1996. Comparable sales increased 4.8% from
the fiscal 1996 period. In fiscal 1996, comparable sales increased 11.2% from
the 1995 fiscal period.
Full-line, resort and main street stores net sales for the three months ended
November 1, 1997 were $451.2 million, an increase of $46.2 million, or 11.4%,
from $405.0 million for the three months ended November 2, 1996. Comparable
sales for full-line, resort and main street stores increased 5.9% in fiscal
1997. In fiscal 1996, comparable sales increased 9.7% from the 1995 fiscal
period. The increase in comparable sales in fiscal 1997 was led by continued
strong demand for luxury goods as well as improved customer response to fall
fashion assortments in bridge apparel categories. Off 5th stores net sales for
the three month period ended November 1, 1997 were $73.6 million, an increase of
$21.5 million, or 41.3%, from $52.1 million for the three month period ended
November 2, 1996. The increase is primarily as a result of opening eleven net
new stores during the last twelve months. Comparable sales for Off 5th stores
decreased 8.0% from the fiscal 1996 period. The decline in comparable sales in
Off 5th stores sales for the three month period ended November 1, 1997 was
primarily due to anniversarying five 1996 new store openings, as well as lack of
demand for clearance of spring bridge apparel. Folio catalog net sales for the
three month period ended November 1, 1997 were $21.2 million, an increase of
$2.0 million, or 10.4%, from $19.2 million for the three month period ended
November 2, 1996 . The improvement in Folio sales reflects favorable customer
reception to efforts to revitalize the Company's catalog business.
Cost of sales includes the cost of merchandise and buying and occupancy costs.
Cost of sales in the three months ended November 1, 1997 was $366.7 million, an
increase of $47.1 million, compared to $319.6 million in the three months ended
November 2, 1996. As a percentage of net sales, cost of sales, including buying
and occupancy costs, was 67.2% for the three months ended November 1, 1997
compared to 67.1% for the three months ended November 2, 1996. The increase in
the cost of sales rate in the third quarter was primarily due to increased
markdowns to clear residual spring merchandise at Off 5th stores.
Selling, general and administrative expenses for the three month period ended
November 1, 1997 were $133.7 million, an increase of $8.7 million, or 7.0%, from
the comparable period in fiscal 1996 primarily due to higher sales volume
related costs. As a percentage of net sales, selling, general and administrative
expenses were 24.5% for the three month period ended November 1, 1997, compared
to 26.2% for the three month period ended November 2, 1996. The improvement in
the selling, general and administrative expense rate resulted primarily from
expense reductions and cost control measures as well as relatively flat
depreciation dollars, leverage from the Company's sales growth and increased
penetration of Off 5th sales which have a lower expense rate than the Company's
full line, resort and main street stores. During the third quarter, distribution
center costs increased as a result of startup costs as the Company
9
<PAGE>
transitioned to a new work force resulting in lower productivity levels in the
short term. These costs, which the Company expects will be reduced in the fourth
quarter, were offset by a decrease in the reserves for the Company's prior
distribution facility.
Operating income was $45.6 million for the three month period ended November 1,
1997, an improvement of $14.0 million, or 44.1%, from the three month period
ended November 2, 1996.
Interest expense in the three months ended November 1, 1997 was $14.7 million, a
decrease of 7.6% compared to the same period in fiscal 1996. This decrease is
due to the exchange of higher cost debt with lower cost debt associated with the
September 1996 issuance by the Company of 5 1/2% Convertible Subordinated Notes
due 2006, and a reduction of the spread on the Company's variable interest rate
borrowings offset, in part, by an increase in average revolver borrowings
related to growth in working capital and capital expenditures.
Income tax expense was $0.7 million for the three months ended November 1, 1997
compared to $0.0 for the three months ended November 2, 1996. The Company
currently anticipates that it will be required to recognize the benefit of its
net operating loss carryforwards in the fourth quarter of fiscal 1997. In 1996,
the Company anticipated that the income tax provision for the full year would be
immaterial, accordingly no tax provision was reflected in the three month period
ended November 2, 1996. The Company currently expects that it will continue to
pay cash taxes at the two percent effective alternative minimum tax rate until
approximately the year 2001. See Note 2 to the Condensed Consolidated Financial
Statements for additional discussion on income taxes.
Net income, before extraordinary charge, for the three months ended November 1,
1997 was $30.3 million, or $0.47 per share, which is an improvement of $14.4
million or $0.22 per share from the three months ended November 2, 1996.
Supplemental Information:
The Company completed its initial public offering of common stock during May
1996. In order to provide meaningful comparisons, pro forma results are
provided. For the three months ended November 1, 1997, the Company's pro forma
net income was $18.3 million or $0.29 per share, an improvement of $8.9 million,
compared to a pro forma net income of $9.3 million or $0.14 per share for the
three months ended November 2, 1996. The pro forma results adjust reported
results to give effect to the elimination of extraordinary charges and assumes a
forty-one percent effective tax rate.
Changes in Financial Condition and Liquidity since February 1, 1997
In June 1997, the Company entered into a $100.5 million operating lease
agreement for the purpose of financing the acquisition and construction of new
store sites. The facility can be used to finance qualified properties placed in
service by December 31, 1999. The lease requires a variable rent payment related
to LIBOR interest rates. The initial lease term ends in October 2001 and may be
extended at the mutual consent of the lessor and the Company. The Company has
also guaranteed a substantial residual value of the properties under lease. The
Company may purchase the assets under lease or elect for the properties to be
sold to a third party. At
10
<PAGE>
November 1, 1997, there were approximately $10.8 million of expenditures under
this lease agreement.
In February 1997, the Company re-acquired $15.0 million of its outstanding
mortgage certificates with an annual fixed interest rate of 12.36%. The Company
recorded an extraordinary charge of $3.4 million associated with the repurchase
premium and accelerated write-off of deferred financing costs.
During the fiscal 1997 period, the Company financed its working capital needs
and capital expenditures primarily with cash on hand at the beginning of the
period, cash provided by operations and borrowings under its Credit Facility.
The following discussion analyzes liquidity and capital resources by operating,
investing and financing activities as presented in the Condensed Consolidated
Statements of Cash Flows.
Net cash used in operating activities was $61.7 million during the nine months
ended November 1, 1997, compared to $88.7 million used in the nine months ended
November 2, 1996. This decrease was primarily attributable to increased net
income in the 1997 period as well as a lower rate of increase in working capital
accounts. The primary items affecting working capital in the 1997 period were a
net increase in merchandise inventories, net of an increase in trade accounts
payable of $94.8 million, an increase of $18.9 million in accounts receivable,
and a decrease in accrued liabilities of $43.0 million. The increase in
merchandise inventories, accounts receivable and trade accounts payable was due
to the addition of new stores, seasonal inventory increases, and an increase to
support existing store sales growth. The decrease in accrued liabilities of
$43.0 million was due to the settlement of the January 1997 repurchase of $15.0
million of the Company's outstanding mortgage certificates, as well as the
redemption of Saks First gift checks.
Net cash used in investing activities was $121.1 million during the nine months
ended November 1, 1997 compared to $44.5 million in the nine months ended
November 2, 1996. Capital expenditures were $125.7 million, net of construction
allowances, during the nine months ended November 1, 1997 and consisted
principally of construction of new stores and remodeling existing stores.
Capital expenditures, net of construction allowance, in the nine months ended
November 2, 1996 were $67.0 million. Proceeds from the sale and sale-leaseback
of assets were $4.6 million during the nine months ended November 1, 1997,
compared to $22.6 during the nine months ended November 2, 1996. During 1997,
the Company opened a new resort store in Hilton Head, South Carolina as well as
a replacement store in the Houston Galleria and a new store in the Houston Town
and Country mall, as well as a new men's store in San Francisco, California.
Major renovations and expansions were also completed in Boston, New Orleans and
Southampton. In addition, the Company opened Off 5th stores in Las Vegas,
Nevada, Riverhead, New York (Long Island), Westbury, New York, San Diego,
California, Castle Rock, Colorado, Grapevine, Texas and Wrentham, Massachusetts
and closed one store in Danvers, Massachusetts. The Company anticipates that it
will close three Off 5th stores in the first quarter of 1998 and will continue
to evaluate the performance of three additional underperforming stores. The
Company expects to open a new Main Street store in La Jolla, California in
December 1997 which will complete the opening of new stores in fiscal 1997
resulting in an 11% increase in square footage over the prior year. The Company
currently has 15 major real estate projects scheduled for 1998 - 2 new full line
stores, 5 new main street stores, 1 new resort store, 1 replacement store, 4
major store expansions and 2 major remodels. These projects are expected to add
approximately 600,000 square feet. The Company also plans to open 3 Off 5th
stores in 1998.
11
<PAGE>
Net cash provided from financing activities during the nine months ended
November 1, 1997 was $137.9 million compared to $144.1 million in the nine
months ended November 2, 1996. In 1997, the cash provided from financing
activities was the result of net borrowings under the Credit Facilities and
repayment on mortgage debt. Cash provided from financing activities in 1996
resulted from the Company's initial public offering , the issuance of
subordinated convertible securities and repayments on bank debt.
During the second quarter of fiscal 1997, the Company relocated its primary
merchandise processing from its Yonkers, New York distribution center to a new
facility in Aberdeen, Maryland. The Company also converted its core management
information systems to improve longer term infrastructure capabilities. The
Company continues to integrate its systems, people and processes from these
changes. Continued successful execution in the fourth quarter in these areas
will be critical as this is the period where the Company historically earns all
its income.
This filing contains forward-looking information, within the meaning of The
Private Securities Litigation Reform Act of 1995, regarding expectations and
estimates of future earnings, tax benefits, real estate projects, distribution
facility expense and financial reporting requirements. Such forward-looking
statements involve risks, uncertainties and other factors that may cause the
actual results to be materially different from such forward-looking statements.
Such factors include, among others, changes in consumer preferences or fashion
trends, levels of operating earnings, delays in anticipated store openings and
expansions, success in integrating distribution personnel and operations,
adverse weather conditions during peak selling seasons, changes in demographic
or retail environments, competitive influences, significant increases in paper,
printing and postage costs, changes in the Company's relationship with designers
and other resources and changes in business strategy or development plans, tax
laws or financial reporting requirements. For more details, see the Company's
other filings with the Securities and Exchange Commission.
12
<PAGE>
SAKS HOLDINGS, INC.
PART II OTHER INFORMATION
Item 1 Legal proceedings Not Applicable
Item 2 Changes in securities Not Applicable
Item 3 Defaults upon senior securities Not Applicable
Item 4 Submission of matters to a vote of security holders Not Applicable
Item 5 Other Information Not Applicable
Item 6(a) Exhibits
Exhibit No. Exhibit
3.01* Amended and Restated Certificate
of Incorporation of Saks Holdings, Inc.
as filed with the Delaware Secretary of
State on May 28, 1996.
3.02* Bylaws of Saks Holdings, Inc. as adopted
on August 6,1990.
11.01 Statement Re: Computation of Earnings
per share
27.01 Financial Data Schedule
Item 6(b) Reports on Form 8-K Not Applicable
- ----------
* Incorporated herein by reference to Saks Holdings, Inc.'s registration
statement on Form S-1 (File No. 333-2426).
13
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities 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.
(Registrant)
/S/ Mark E. Hood
---------------------------------------
Date: December 12, 1997 Mark E. Hood
Senior Vice President - Finance
Chief Accounting Officer
14
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
----------------------------------------------------
(In Thousands, except per share data)
<S> <C> <C> <C> <C>
Average shares outstanding 63,993 64,408 64,026 55,892
Income (loss) before extraordinary charge $ 30,252 $ 15,810 $ 28,686 $ (9,796)
======== ======== ======== ========
Net income (loss) $ 30,252 $ 9,355 $ 25,344 $(19,591)
======== ======== ======== ========
Per share amounts:
Income (loss) before extraordinary charge $ 0.47 $ 0.25 $ 0.45 $ (0.18)
======== ======== ======== ========
Net income (loss) $ 0.47 $ 0.15 $ 0.40 $ (0.35)
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-03-1997
<PERIOD-END> NOV-01-1997
<CASH> 8,114
<SECURITIES> 0
<RECEIVABLES> 84,945
<ALLOWANCES> 13,897
<INVENTORY> 628,018
<CURRENT-ASSETS> 777,249
<PP&E> 1,205,949
<DEPRECIATION> 303,421
<TOTAL-ASSETS> 1,819,393
<CURRENT-LIABILITIES> 367,739
<BONDS> 742,341
0
0
<COMMON> 636
<OTHER-SE> 559,250
<TOTAL-LIABILITY-AND-EQUITY> 1,819,393
<SALES> 1,521,108
<TOTAL-REVENUES> 1,521,108
<CGS> 1,072,288
<TOTAL-COSTS> 1,449,760
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,145
<INCOME-PRETAX> 29,203
<INCOME-TAX> 517
<INCOME-CONTINUING> 28,686
<DISCONTINUED> 0
<EXTRAORDINARY> 3,352
<CHANGES> 0
<NET-INCOME> 25,334
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0
</TABLE>
