UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of
1934
For the quarterly period ended May 1, 1999
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of
1934
For the transition period from to
For Quarter Ended: May 1, 1999
Commission File Number: 1-13113
Exact name of registrant as specified in its charter:
SAKS INCORPORATED (formerly PROFFITT'S, INC.)
State of Incorporation: Tennessee
I.R.S. Employer Identification Number: 62-0331040
Address of Principal Executive Offices (including zip code):
750 Lakeshore Parkway, Birmingham, Alabama 35211
Registrant's telephone number, including area code:
(205) 940-4000
Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.10 Par Value 144,689,755 shares as of May 1,
1999
SAKS INCORPORATED
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- May 1, 1999,
January 30, 1999, and May 2, 1998 3
Condensed Consolidated Statements of Income -- Three
Months Ended May 1, 1999 and May 2, 1998 4
Condensed Consolidated Statements of Cash Flows --
Three Months Ended May 1, 1999 and May 2, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
SAKS INCORPORATED and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars amounts in thousands)
<TABLE>
May 1, May 2,
1999 January 30, 1998
(Unaudited) 1999 (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 43,926 $ 32,752 $ 42,484
Retained interest in accounts receivable 191,412 159,596 182,620
Merchandise inventories 1,571,182 1,406,182 1,407,643
Other current assets 85,803 110,426 86,039
Deferred income taxes 79,463 83,958 77,869
---------- ---------- ----------
Total current assets 1,971,786 1,792,914 1,796,655
Property and Equipment, net 2,141,049 2,118,555 1,772,940
Goodwill and Intangibles, net 585,113 586,297 334,870
Cash Placed in Escrow for Debt Redemption 363,753
Deferred Income Taxes 255,976 249,816 246,648
Other Assets 73,446 77,646 72,152
---------- ---------- ----------
TOTAL ASSETS $5,027,370 $5,188,981 $4,223,265
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 425,479 $ 360,388 $ 438,220
Accrued expenses and other current liabilities 466,502 529,128 414,991
Current portion of long-term debt 12,167 15,523 13,208
---------- ---------- ----------
Total current liabilities 904,148 905,039 866,419
Senior Debt 1,919,516 2,110,395 952,385
Other Long-Term Liabilities 161,778 165,972 138,703
Subordinated Debt 286,964
Shareholders' Equity 2,041,928 2,007,575 1,978,794
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,027,370 $5,188,981 $4,223,265
========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
SAKS INCORPORATED and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share amounts)
<TABLE>
Three Months Ended
------------------------------
May 1, 1999 May 2, 1998
----------- -----------
<S> <C> <C>
Net sales $1,544,521 $1,412,602
Cost of sales 994,393 922,570
----------- -----------
Gross margin 550,128 490,032
Selling, general and administrative expenses 320,423 296,609
Other operating expenses 126,126 115,184
Store pre-opening costs 2,192 2,372
Merger and integration costs 8,397 1,956
Gains from long-lived assets (3)
Year 2000 expenses 1,507 1,525
----------- -----------
Operating income 91,483 72,389
Other income (expense):
Interest expense (34,976) (24,794)
Other income (expense), net (4) 128
----------- -----------
Income before provision for income taxes
and extraordinary items 56,503 47,723
Provision for income taxes 22,768 19,599
----------- -----------
Income before extraordinary items 33,735 28,124
Extraordinary loss on extinguishment of debt, net of taxes (9,261)
----------- -----------
Net income $ 24,474 $ 28,124
=========== ===========
Basic earnings per common share:
Income before extraordinary items $ 0.23 $ 0.20
Extraordinary items (0.06)
----------- -----------
Net income $ 0.17 $ 0.20
=========== ===========
Diluted earnings per common share:
Income before extraordinary items $ 0.23 $ 0.19
Extraordinary items (0.06)
----------- -----------
Net income $ 0.17 $ 0.19
=========== ===========
Weighted average common shares:
Basic 144,424 141,736
Diluted 147,663 145,958
</TABLE>
See notes to condensed consolidated financial statements.
SAKS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
<TABLE>
Three Months Ended
------------------------------
May 1, 1999 May 2, 1998
----------- -----------
<S> <C> <C>
Operating Activities:
Net income $ 24,474 $ 28,124
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 41,528 35,749
Gains from long-lived assets (3)
Extraordinary loss on extinguishment of debt 7,310
Deferred income taxes 14,568 2,057
Change in operating assets and liabilities, net (180,163) 158,219
----------- -----------
Net Cash (Used In) Provided By Operating Activities (92,283) 224,146
Investing Activities:
Purchases of property and equipment, net (67,872) (77,443)
Acquisition of Dillard's and Brody's stores (2,519) (17,042)
----------- -----------
Net Cash Used In Investing Activities (70,391) (94,485)
Financing Activities:
Proceeds from long-term borrowings 200,000
Payments on long-term debt and capital lease obligations (8,394) (76,426)
Net repayments under credit and receivables facilities (150,000) (66,793)
Proceeds from issuance of stock 4,330 5,178
Release of cash held in escrow for debt redemption 363,753
Payment of REMIC certificates (235,841)
----------- -----------
Net Cash Provided By (Used In) Financing Activities 173,848 (138,041)
Increase (Decrease) In Cash and Cash Equivalents 11,174 (8,380)
Cash and cash equivalents at beginning of period 32,752 50,864
----------- -----------
Cash and cash equivalents at end of period $ 43,926 $ 42,484
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements 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 the
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) considered necessary for a fair presentation
have been included. Operating results for the three months ended
May 1, 1999 are not necessarily indicative of the results that
may be expected for the year ending January 29, 2000. The
financial statements include the accounts of Saks Incorporated
(the "Company;" formerly Proffitt's, Inc.) and its subsidiaries,
including its special purpose receivables financing subsidiaries.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended January 30, 1999.
The accompanying balance sheet at January 30, 1999 has been
derived from the audited financial statements at that date.
NOTE 2 -- BUSINESS COMBINATIONS
Effective September 17, 1998, Proffitt's, Inc. combined its
business with Saks Holdings, Inc. ("SHI"), the holding company of
Saks & Company which did business as Saks Fifth Avenue, Off 5th,
Folio and Bullock & Jones. The merger has been accounted for as
a pooling-of-interests, and accordingly, the consolidated
financial statements have been restated for the prior periods to
include the results of operations, financial position and cash
flows of SHI. In conjunction with the merger, Proffitt's, Inc.
changed its corporate name to Saks Incorporated.
For the three months ended May 1, 1999 and May 2, 1998, the
Company incurred certain merger and integration costs ("M&I")
related to several business combinations, including SHI. These
costs, primarily consisting of the consolidation and conversion
of redundant systems and administrative operations, were (before
income taxes) $8.4 million and $2.0 million, respectively, for
the three months ended May 1, 1999 and May 2, 1998.
A reconciliation of the aforementioned costs to the amounts of
merger and integration costs remaining unpaid at May 1, 1999 is
as follows (in thousands):
Amounts unpaid at January 30, 1999
related to prior M&I events $ 31,951
M&I costs for the period 8,397
Amounts paid during the period (21,547)
Amounts representing non-cash changes -
-----------
Amounts unpaid at May 1, 1999 $ 18,801
===========
The components of the aforementioned amounts unpaid are as
follows (in thousands):
May 1, January 30,
1999 1999
----------- ----------
Direct merger costs $ 6,068 $ 17,530
Severance 5,206 6,638
Contractual obligations to be paid within
one year of merger 5,900 5,900
Contractual obligations with extended
payment terms (such as rents on
abandoned leases and payments on
abandoned contracts) 323 348
Other (includes all merger and integration
efforts) 1,304 1,535
--------- ---------
Totals $ 18,801 $ 31,951
========= =========
NOTE 3 -- EARNINGS PER COMMON SHARE
Calculations of earnings per common share ("EPS") for the three
months ended May 1, 1999 and May 2, 1998 are as follows:
(income and shares in thousands)
<TABLE>
For the Three Months Ended For the Three Months Ended
May 1, 1999 May 2, 1998
--------------------------------- -------------------------------
Weighted Weighted
Average Per Share Average Per Share
Income (a) Shares Amount Income (a) Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $33,735 144,424 $0.23 $28,124 141,736 $0.20
Effect of dilutive
stock options(based
on the treasury stock
method using the
average price) 3,239 4,222
-------- -------- -------- -------- -------- --------
Diluted EPS $33,735 147,663 $0.23 $28,124 145,958 $0.19
======== ======== ======== ======== ======== ========
(a) Income before extraordinary items.
</TABLE>
NOTE 4 -- CONTINGENCIES AND SUBSEQUENT EVENT
The Company is involved in several legal proceedings arising in
the normal course of business activities, and accruals for losses
have been established where appropriate. Management believes
that none of these legal proceedings will have an ongoing
material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
On June 10, 1999, the Company announced plans to consolidate three
distribution centers in 2001. In connection with this consolidation,
the Company is evaluating alternatives for the distribution centers
affected. Such alternatives include alternative uses or the sale of
the properties.
NOTE 5 -- SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 provides companies the
opportunities to aggregate two or more operating segments into a
single operating segment if the segments have similar
characteristics. In applying SFAS No. 131, the Company
identified three reportable segments, which are as follows:
department stores, catalog and furniture stores. The catalog and
furniture stores segments represent less than three percent of the
Company's total revenues, assets and operating profit.
Consistent with its practice in 1998, the three identified
segments are combined within the Company's condensed consolidated
financial statements.
NOTE 6 -- NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires
that all derivative financial instruments be recorded on the
financial statements. SFAS No. 133 is effective for the Company
in the first quarter of 2000, and the Company is in the process
of ascertaining the impact this new standard will have on its
financial statements.
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income" in 1998. Components of the Company's comprehensive
income for the year ended January 30, 1999 included the net loss
of $0.9 million and a minimum pension liability adjustment of
$7.5 million, net of taxes. The Company had no components of
comprehensive income for the three month periods ended May 1,
1999 and May 2, 1998.
NOTE 7 -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables present condensed consolidating financial
information for: 1) Saks Incorporated; 2) on a combined basis,
the guarantors of Saks Incorporated's Senior Notes (which are the
subsidiaries of Saks Incorporated with material assets, except
for Proffitt's Credit Corporation ("PCC"), National Bank of the
Great Lakes ("NBGL"), SHI real estate financing subsidiary trusts
("REMIC trusts"), and SFA Finance Corp.("SFC")); and 3) on a
combined basis, PCC, NBGL, REMIC Trusts, and SFC, the only active
non-guarantor subsidiaries of the Senior Notes. Separate
financial statements of the guarantor subsidiaries are not
presented because the guarantors are jointly, severally, and
unconditionally liable under the guarantees, and the Company
believes the condensed consolidating financial statements are
more meaningful in understanding the financial position of the
guarantor subsidiaries.
On January 31, 1999, immediately following the Company's fiscal
year end, the Company restructured its legal entity composition.
This restructuring changed the composition of Saks Incorporated
to include only the operations of a small group of corporate
employees and the majority of the Company's long-term debt. The
consolidating financial statements presented for the quarter
ended May 1, 1999 reflect this new legal entity composition. The
consolidating financial statements presented for the quarter
ended May 2, 1998 reflect the legal entity composition in place
at the time. Borrowings and the related interest expense under
Saks Incorporated's revolving credit facility are allocated to
Saks Incorporated and the guaranty subsidiaries under
arrangements among Saks Incorporated and the subsidiaries.
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MAY 1, 1999
(Dollar Amounts In Thousands)
<TABLE>
Saks Guarantor Non-Guarantor
Incorporated Subsdiaries Subsidiaries Eliminations Consolidated
---------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $1,544,521 $1,544,521
Costs and expenses
Cost of sales 994,393 994,393
Selling, general and administrative
expenses $2,414 336,841 $25,527 ($44,359) 320,423
Other operating expenses 691 135,716 (10,281) 126,126
Store pre-opening costs 2,192 2,192
Merger and integration costs 8,397 8,397
Year 2000 expenses 1,507 1,507
--------- --------- --------- --------- ---------
Operating income (loss) (3,105) 65,475 (15,246) 44,359 91,483
Other income (expense)
Finance charge income, net 44,359 (44,359)
Intercompany exchange fees (8,184) 8,184
Intercompany servicer fees 10,810 (10,810)
Equity in earnings of subsidiaries 46,320 4,091 (50,411)
Interest expense, net (30,945) (3,293) (738) (34,976)
Other income (expense), net (4) (4)
--------- --------- --------- --------- ---------
Income before provision for income taxes
and extraordinary items 12,270 68,895 25,749 (50,411) 56,503
Provision (benefit) for income taxes (12,204) 25,487 9,485 22,768
--------- --------- --------- --------- ---------
Income before extraordinary items 24,474 43,408 16,264 (50,411) 33,735
Extraordinary items, net of taxes 9,261 9,261
--------- --------- --------- --------- ---------
Net income $24,474 $43,408 $7,003 ($50,411) $24,474
========= ========= ========= ========= =========
</TABLE>
SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT MAY 1, 1999
(Dollar Amounts In Thousands)
<TABLE>
Saks Guarantor Non-Guarantor
Incorporated Subsidiaries Subsidiaries Eliminations Consolidated
ASSETS ------------ ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents ($27,468) $71,394 $43,926
Retained interest in accounts receivable 191,412 191,412
Merchandise inventories 1,571,182 1,571,182
Deferred income taxes 79,468 (5) 79,463
Intercompany borrowings $44,780 ($44,780)
Other current assets 78,678 7,125 85,803
---------- ---------- ---------- ---------- ----------
Total Current Assets 44,780 1,701,860 269,926 (44,780) 1,971,786
Property and Equipment, net 1,629,101 511,948 2,141,049
Goodwill and Intangibles, net 585,113 585,113
Other Assets 68,110 5,336 73,446
Deferred Income Taxes 255,976 255,976
Investment in and Advances to Subsidiaries 3,810,105 1,620,131 (5,430,236)
---------- ---------- ---------- ---------- ----------
Total Assets $3,854,885 $5,860,291 $787,210 ($5,475,016) $5,027,370
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $425,479 $425,479
Accrued expenses and other current
liabilities $ 41,709 408,181 $16,612 466,502
Intercompany borrowings 44,780 ($44,780)
Current portion of long-term debt 12,167 12,167
---------- ---------- ---------- ---------- ----------
Total Current Liabilities 41,709 845,827 61,392 (44,780) 904,148
Senior Debt 1,758,000 161,516 1,919,516
Deferred Income Taxes (8,237) 8,237
Other Long-Term Liabilities 13,248 146,800 1,730 161,778
Investment By and Advances From Parent 4,714,385 715,851 (5,430,236)
Shareholders' Equity 2,041,928 2,041,928
---------- ---------- ---------- ---------- ----------
Total Liabilities and Shareholders' Equity $3,854,885 $5,860,291 $787,210 ($5,475,016) $5,027,370
=========== =========== =========== =========== ===========
</TABLE>
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MAY 1, 1999
(Dollar Amounts In Thousands)
<TABLE>
Saks Guarantor Non-Guarantor
Incorporated Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $24,474 $43,408 $7,003 ($50,411) $24,474
Adjustments to reconcile net income to
net cash used in operating activities:
Equity in earnings of subsidiaries (46,320) (4,091) 50,411
Depreciation and amortization 38,043 3,485 41,528
Deferred income taxes 14,568 14,568
Extraordinary loss on extinguishment
of debt 7,310 7,310
Changes in operating assets and liabil-
ities, net (135,215) (44,948) (180,163)
---------- ---------- ---------- ---------- ----------
Net cash used in
operating activities (21,846) (43,287) (27,150) (92,283)
INVESTING ACTIVITIES
Purchases of property and equipment, net (57,872) (10,000) (67,872)
Acquisition of Dillard's and Brody's stores (2,519) (2,519)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities (60,391) (10,000) (70,391)
FINANCING ACTIVITIES
Inter-company borrowings, contributions
and distributions (52,850) (252,398) 305,248
Proceeds from long-term borrowings 200,000 200,000
Payments on long-term debt and capital
leases (8,394) (8,394)
Net repayments under credit and receivables
facilities (150,000) (150,000)
Payment of REMIC certificates (235,841) (235,841)
Release of cash held in escrow for debt
redemption 363,753 363,753
Proceeds from issuance of common shares 4,330 4,330
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities 1,480 102,961 69,407 173,848
Increase (decrease) in cash and cash
equivalents (20,366) (717) 32,257 11,174
Cash and cash equivalents at beginning
of period 20,366 (26,751) 39,137 32,752
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period ($27,468) $71,394 $43,926
========= ========= ========= ========= =========
</TABLE>
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MAY 2, 1998
(Dollar Amounts In Thousands)
<TABLE>
Saks Guarantor Non-Guarantor
Incorporated Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $174,308 $1,238,294 1,412,602
Costs and expenses
Cost of sales 114,806 807,764 922,570
Selling, general and administrative expenses 36,354 276,045 $23,313 ($39,103) 296,609
Other operating expenses 13,838 109,961 (8,615) 115,184
Store pre-opening costs 462 1,910 2,372
Merger and integration costs 1,419 537 1,956
Gains from long lived assets (3) (3)
Year 2000 expenses 331 1,194 1,525
---------- ---------- ---------- ---------- ----------
Operating income (loss) 7,101 40,883 (14,698) 39,103 72,389
Other income (expense)
Finance charge income, net 39,103 (39,103)
Intercompany exchange fees (1,534) (7,990) 9,524
Intercompany servicer fees 6,239 (6,239)
Equity in earnings of subsidiaries 25,169 6,832 (32,001)
Interest expense, net (1,223) (14,438) (9,133) (24,794)
Other income (expense), net 106 22 128
---------- ---------- ---------- ---------- ----------
Income before provision for income taxes 29,619 31,548 18,557 (32,001) 47,723
Provision for income taxes 1,495 11,416 6,688 19,599
---------- ---------- ---------- ---------- ----------
Net income $28,124 $20,132 $11,869 ($32,001) $28,124
========= ========= ========= ========= =========
</TABLE>
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 2, 1998
(Dollar Amounts In Thousands)
<TABLE>
Saks Guarantor Non-Guarantor
Incorporated Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $28,124 $20,132 $11,869 ($32,001) $28,124
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Equity in earnings of subsidiaries (25,169) (6,832) 32,001
Depreciation and amortization 3,814 26,783 5,152 35,749
Deferred income taxes 2,057 2,057
Gains from long-lived assets (3) (3)
Changes in operating assets and liabilities,
net (20,196) (32,984) 211,399 158,219
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities (13,430) 9,156 228,420 224,146
INVESTING ACTIVITIES
Purchases of property and equipment, net (6,587) (67,639) (3,217) (77,443)
Acquisition of other assets (17,042) (17,042)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities (23,629) (67,639) (3,217) (94,485)
FINANCING ACTIVITIES
Inter-company borrowings, contributions
and distributions 96,294 13,934 (110,228)
Payments on long-term debt (74,741) (1,685) (76,426)
Net repayments under credit and receivables
facilities 58,207 (125,000) (66,793)
Proceeds from issuance of common shares 5,178 5,178
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 26,731 70,456 (235,228) (138,041)
Increase (decrease) in cash and cash
equivalents (10,328) 11,973 (10,025) (8,380)
Cash and cash equivalents at beginning of
period 15,405 (4,594) 40,053 50,864
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $5,077 $7,379 $30,028 $42,484
========= ========= ========= ========= =========
</TABLE>
SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT JANUARY 30, 1999
(Dollar Amounts In Thousands)
<TABLE>
Saks Guarantor Non-Guarantor
Incorporated Subsidiaries Subsidiaries Eliminations Consolidated
ASSETS ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $20,366 ($26,751) $39,137 $32,752
Retained interest in accounts receivable 54 220 159,322 159,596
Merchandise inventories 221,585 1,184,597 1,406,182
Deferred income taxes (3,217) 87,175 83,958
Intercompany borrowings 11,070 ($11,070)
Other current assets 19,471 90,810 145 110,426
---------- ---------- ---------- ---------- ----------
Total Current Assets 269,329 1,336,051 198,604 (11,070) 1,792,914
Property and Equipment, net 342,355 1,270,766 505,434 2,118,555
Goodwill and Intangibles, net 125,717 460,580 586,297
Other Assets 1,196 55,592 20,858 77,646
Deferred Income Taxes 249,816 249,816
Cash Placed in Escrow for Debt Redemption 363,753 363,753
Investment in and Advances to Subsidiaries 3,112,552 1,350,621 (4,463,173)
---------- ---------- ---------- ---------- ----------
Total Assets $3,851,149 $5,087,179 $724,896 ($4,474,243) $5,188,981
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $48,768 $311,620 $360,388
Accrued expenses and other current
liabilities 39,118 452,000 $38,010 529,128
Intercompany borrowings 11,070 ($11,070)
Current portion of long-term debt 452 15,071 15,523
---------- ---------- ---------- ---------- ----------
Total Current Liabilities 88,338 778,691 49,080 (11,070) 905,039
Senior Debt 1,709,093 165,461 235,841 2,110,395
Deferred Income Taxes 18,893 (27,045) 8,152
Other Long-Term Liabilities 27,250 136,992 1,730 165,972
Investment by and Advances from Parent 4,033,080 430,093 (4,463,173)
Shareholders' Equity 2,007,575 2,007,575
---------- ---------- ---------- ---------- ----------
Total Liabilities and Shareholders'
Equity $3,851,149 $5,087,179 $724,896 ($4,474,243) $5,188,981
=========== =========== =========== =========== ===========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Prior year balance sheet information has been restated to reflect
the September 17, 1998 merger with SHI, which was accounted for
as a pooling-of-interests.
Accounts receivable, inventory, accounts payable, and senior debt
balances fluctuate throughout the year due to the seasonal nature
of the retail industry.
May 1, 1999 merchandise inventory and property and equipment
balances increased over May 2, 1998 balances primarily due to new
store locations opened during the last 12 months, as well as the
acquisition of 15 stores from Dillard's in October and December
1998.
May 1, 1999 goodwill and intangibles increased over May 2, 1998
balances primarily due to the goodwill and intangibles associated
with the acquisition of the 15 stores from Dillard's.
Senior debt at May 1, 1999 increased over senior debt at May 2,
1998 primarily due to borrowings related to the acquisition of
the 15 stores from Dillard's and related working capital
requirements for these stores.
In conjunction with the SHI merger and the acquisition of the
Dillard's stores, the Company initiated a series of refinancing
activities between September 1998 and February 1999 that were
designed to reduce the weighted average cost of capital, provide
appropriate debt maturities and increase overall liquidity.
Included within the Company's senior debt are real estate and
mortgage notes. The May 1, 1999 real estate and mortgage notes
balance declined from the May 2, 1998 balance by $323 million primarily due
to the repurchase of $65 million and $236 million of outstanding
REMIC mortgage certificates in September 1998 and February 1999,
respectively.
Also included within the Company's senior debt are senior notes
payable. The May 1, 1999 notes payable balance increased by $1.3
billion from the May 2, 1998 balance due to the November and December 1998
issuance of $1.1 billion in senior notes, and the February 1999
issuance of $200 million in senior notes, with maturities ranging
from 2004 to 2019 and interest rates between 7-1/4% and 8-1/4%,
offset by the September 1998 tender of the Company's $125 million
8.125% senior notes.
At May 1, 1999, the Company had total debt outstanding of
approximately $1.93 billion. At that time, the Company had an
additional $781 million available to borrow under its existing
credit facilities, which do not expire until 2003. The Company
reduced its 364 day revolving credit facility in March 1999 from
$750 million to $500 million.
May 1, 1999 subordinated debt decreased from the balance at May
2, 1998 primarily due to the November 1998 repurchase of $267.7
million of SHI's 5-1/2% Convertible Subordinated Notes due
September 2006. The Company's merger with SHI triggered the
change in control provision contained in the debenture, and as a
result, the Company made an offer to repurchase the notes at par
plus accrued interest.
Results of Operations
Prior year income statement information below has been restated
to reflect the September 17, 1998 merger with SHI, which was
accounted for as a pooling-of-interests.
The following table shows for the periods indicated, certain
items from the Company's Condensed Consolidated Statements of
Income expressed as percentages of net sales (numbers may not
foot due to rounding).
Three Months Ended
-------------------------
5/1/99 5/2/98
------ ------
Net sales 100.0% 100.0%
Costs and expenses:
Cost of sales 64.4 65.3
Selling, general & administrative
expenses 20.7 21.0
Other operating expenses 8.2 8.1
Store pre-opening costs 0.1 0.2
Merger and integration costs 0.5 0.1
Gains from long-lived assets 0.0 0.0
Year 2000 expenses 0.1 0.1
------ ------
Operating income 5.9 5.1
Other income (expense):
Interest expense (2.3) (1.8)
Other income (expense), net (0.0) 0.0
------ ------
Income before provision for income
taxes and extraordinary items 3.7 3.4
Provision for income taxes 1.5 1.4
------ ------
Income before extraordinary items 2.2 2.0
Extraordinary loss, net of taxes (0.6) 0.0
------ ------
NET INCOME 1.6% 2.0%
====== =======
Net Sales
For the first quarter ended May 1, 1999, total Company sales were
$1.54 billion, a 9% increase over $1.41 billion in the prior
year. The sales increase for the quarter was primarily
attributable to additional sales from new stores opened, the
Brody's stores acquired in March 1998, the Dillard's stores
acquired in October and December 1998, and a comparable store
sales increase of 3%.
Gross margin
For the quarter ended May 1, 1999, the Company's gross margin
percentage increased 90 basis points over the prior year. This
improvement reflected the Company's improved execution of its
merchandising strategies, reduced levels of clearance
merchandise, continued efficiencies in distribution and
logistics, increased penetration of higher margin proprietary
brand merchandise, the conversion of the shoe departments at the
Carson Pirie Scott stores from leased to owned and shifts in the
merchandise mix of certain stores.
Selling, general and administrative expenses ("SGA")
SGA decreased as a percentage of net sales for the quarter ended
May 1, 1999 by 30 basis points. This expense leverage primarily
resulted from targeted cost reductions related to each of the
Company's completed business combinations and certain
productivity efficiencies.
Merger and integration costs ("M&I")
The Company incurred certain M&I costs totaling $8.4 million, or
0.5% of net sales, in the first quarter of 1999 primarily related
to the Company's merger with SHI. These charges were primarily
related to costs incurred in the conversion and consolidation of
systems and administrative operations.
Year 2000 expenses ("Y2K")
The Company's Y2K compliance project began in 1997. From
commencement of the Y2K project through May 1, 1999, the
Company's Y2K expenses have totaled
$18.5 million. Company management anticipates that additional
Y2K expenses will total approximately $4.5 million for the
balance of 1999. The Company expects its significant systems to
be Y2K compliant by September 1999. The costs of the project and
the date on which the Company plans to complete modifications are
based on management's best estimates, which were derived
utilizing assumptions of future events including the continued
availability of certain resources, third party modification plans
and representations and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual
results could differ materially from those plans. For complete
disclosure of the Company's Y2K issues, refer to "Management's
Discussion and Analysis" contained in the Company's Annual Report
to Shareholders on Form 10-K for the fiscal year ended January
30, 1999.
Interest expense
For the first quarter of 1999, interest expense increased in
dollars and as a percentage of net sales by $10.2 million and 50
basis points, respectively, primarily due to additional
indebtedness related to the fall 1998 cash purchase of 15 stores
and related inventory and accounts receivable from Dillard's.
Income before extraordinary items
Income before extraordinary items for the quarter ended May 1,
1999 totaled $33.7 million, or $.23 per diluted share, compared
to income before extraordinary items of $28.1 million, or $.19
per diluted share, for the quarter ended May 2, 1998. The
improvement in income over the prior year primarily was due to
higher gross margin performance and leverage on SGA.
Extraordinary items
The extraordinary loss for the quarter ended May 1, 1999 related
to the February 1999 repurchase of $236 million of outstanding
REMIC mortgage certificates. In conjunction with this debt
restructuring, the Company incurred charges related to the early
extinguishment of debt totaling $9.3 million after tax.
Forward-looking information
This Form 10-Q contains "forward-looking" statements within the
meaning of the federal securities laws. Forward-looking
information in this Form 10-Q is premised on many factors, some
of which are outlined below. Actual consolidated results might
differ materially from projected forward-looking information if
there are any material changes in management's assumptions.
The forward-looking information and statements are based on a
series of projections and estimates and involve certain risks and
uncertainties. Potential risks and uncertainties include such
factors as the level of consumer spending for apparel and other
merchandise carried by the Company; the competitive pricing
environment within the department and specialty store industries;
the effectiveness of planned advertising, marketing, and
promotional campaigns; appropriate inventory management;
realization of planned synergies; effective cost containment; and
solution of Year 2000 systems issues by the Company and its
suppliers. For additional information regarding these and other
risk factors, please refer to the Company's public filings with
the Securities and Exchange Commission, which may be accessed via
EDGAR through the Internet at www.sec.gov.
When used throughout this Form 10-Q, words such as "believes,"
"estimates," "plans," "expects," "should," "may," "anticipates"
and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements.
Management undertakes no obligation to correct or update any
forward-looking statements, whether as a result of new
information, future events or otherwise. Readers are advised,
however, to consult any further disclosures management makes on
related subjects in its reports with the Securities and Exchange
Commission.
SAKS INCORPORATED
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Form 8-K Reports.
The following Form 8-Ks were filed during the quarter
ended May 1, 1999:
Date Filed Subject
February 9, 1999 Sales for the month, quarter and year
ended January 30, 1999
February 12, 1999 The Company's issuance and sale of
$200 million of 7-3/8% Notes due 2019
February 18, 1999 The Company's issuance and sale of
$200 million of 7-3/8% Notes due 2019
SIGNATURES
Pursuant to the requirements 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 INCORPORATED
______________________________
Registrant
6/14/99
______________________________
Date
/s/ Douglas E. Coltharp
______________________________
Douglas E. Coltharp
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Financial Statements as presented in Saks Incorporated's
Form 10-Q for the quarterly period ended May 1, 1999.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-30-2000 JAN-30-1999
<PERIOD-END> MAY-01-1999 MAY-02-1998
<CASH> 43,926,000 42,484,000
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<RECEIVABLES> 191,412,000 182,620,000
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<INTEREST-EXPENSE> 34,976,000 24,794,000
<INCOME-PRETAX> 56,503,000 47,723,000
<INCOME-TAX> 22,768,000 19,599,000
<INCOME-CONTINUING> 33,735,000 28,124,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 9,261,000 0
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<NET-INCOME> 24,474,000 28,124,000
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