Commission File No. 1-13113
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 August 4, 2001
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: August 4, 2001
Commission File Number: 1-13113
Exact name of registrant as specified in its charter:
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 -- 142,025,286 shares as of August 4, 2001
2
SAKS INCORPORATED
Index
PART 1. FINANCIAL INFORMATION | Page No. |
| | Item 1. Financial Statements | |
| | | Condensed Consolidated Balance Sheets - August 4, 2001, February 3, 2001, and July 29, 2000 | 3 |
| | | Condensed Consolidated Statements of Income - Three Months and Six Months Ended August 4, 2001 and July 29, 2000 | 4 |
| | | Condensed Consolidated Statements of Cash Flows - Six Months Ended August 4, 2001 and July 29, 2000 | 5 |
| | | Notes to Condensed Consolidated Financial Statements | 6 |
| | Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations | 22 |
| | Item 3. Quantitative and Qualitative Disclosures About Market
Risk | 29 |
| | | |
PART II. OTHER INFORMATION | |
| | Item 4. Submission of Matters to a Vote of Security Holders | 30 |
| | Item 6. Exhibits and Reports on Form 8-K | 31 |
| | | |
SIGNATURES | 32 |
3
SAKS INCORPORATED and SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Dollar amounts in thousands) |
| | | | | | | | | |
| | | | | | | | | |
| | | | | August 4, | | February 3, | | July 29, |
| | | | | 2001 | | 2001 | | 2000 |
ASSETS | | | | | | | | | |
Current Assets | | | | | | | | |
Cash and cash equivalents | | | $ 20,293 | | $ 64,660 | | $ 54,707 |
Retained interest in accounts receivable | | 185,433 | | 193,258 | | 193,750 |
Merchandise inventories | | | 1,491,512 | | 1,522,203 | | 1,496,676 |
Other current assets | | | 93,589 | | 96,929 | | 97,022 |
Deferred income taxes | | | 33,267 | | 39,188 | | 43,226 |
Total current assets | | | 1,824,094 | | 1,916,238 | | 1,885,381 |
| | | | | | | | | |
Property and Equipment, net | | | 2,295,777 | | 2,390,850 | | 2,398,892 |
Goodwill and Intangibles, net | | | 367,378 | | 511,333 | | 562,058 |
Deferred Income Taxes | | | 206,772 | | 178,118 | | 220,633 |
Other Assets | | | | 49,200 | | 54,072 | | 58,081 |
| | | | | | | | | |
TOTAL ASSETS | | | | $ 4,743,221
======== | | $ 5,050,611
======== | | $ 5,125,045
======== |
| | | | | | | | | |
| | | | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | |
| | | | | | | | | |
Current Liabilities | | | | | | | | |
Trade accounts payable | | | $ 345,382 | | $ 319,537 | | $ 292,348 |
Accrued expenses and other current liabilities | 448,552 | | 505,095 | | 473,005 |
Current portion of long-term debt | | 5,452 | | 5,650 | | 6,773 |
Total current liabilities | | | 799,386 | | 830,282 | | 772,126 |
| | | | | | | | | |
Long-Term Debt | | | | 1,551,944 | | 1,801,657 | | 1,996,241 |
Other Long-Term Liabilities | | | 125,792 | | 124,843 | | 139,928 |
Total liabilities | | | 2,477,122 | | 2,756,782 | | 2,908,295 |
| | | | | | | |
Commitments and Contingencies | | | | | | | |
| | | | | | | |
Shareholders' Equity | | | 2,266,099 | | 2,293,829 | | 2,216,750 |
| | | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 4,743,221
======== | | $ 5,050,611
======== | | $ 5,125,045
======== |
| | | | | | | | | |
| | | | | | | | | |
See notes to condensed consolidated financial statements. |
4
SAKS INCORPORATED and SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
(Dollar amounts in thousands, except per share amounts) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | Three Months Ended | | Six Months Ended |
| | | | | August 4, 2001 | | July 29, 2000 | | August 4, 2001 | | July 29, 2000 |
| | | | | | | | | | | |
Net sales | | | | | $ 1,270,708 | | $ 1,389,169 | | $ 2,735,058 | | $ 2,889,987 |
Cost of sales | | | | 848,290 | | 893,079 | | 1,766,079 | | 1,841,347 |
Gross margin | | | | 422,418 | | 496,090 | | 968,979 | | 1,048,640 |
| | | | | | | | | | | |
Selling, general and administrative expenses | 329,925 | | 332,890 | | 673,167 | | 657,488 |
Other operating expenses | | | 138,939 | | 135,611 | | 280,787 | | 270,298 |
Store pre-opening costs | | | 1,020 | | 352 | | 1,602 | | 3,041 |
Integration costs | | | 325 | | 4,596 | | 1,448 | | 6,193 |
Losses from long-lived assets and closings | | | 20,818 | | 3,020 | | 20,506 | | 674 |
Operating income (loss) | | | | (68,609) | | 19,621 | | (8,531) | | 110,946 |
Other income (expense): | | | | | | | | | |
Interest expense | | | | (32,450) | | (35,510) | | (67,051) | | (72,383) |
Other income (expense), net | | | 60 | | (89) | | 283 | | 61 |
Income (loss) before provision (benefit) for | | | | | | | | |
income taxes and extraordinary items | | | (100,999) | | (15,978) | | (75,299) | | 38,624 |
Provision (benefit) for income taxes | | | (38,834) | | (10,191) | | (28,991) | | 10,556 |
| | | | | | | | | | | |
Income (loss) before extraordinary items | | (62,165) | | (5,787) | | (46,308) | | 28,068 |
Extraordinary gain on extinguishment of
debt, net of taxes | 3,776 | | - | | 14,417 | | - |
| | | | | | | | | | | |
Net income (loss) | | | | $ (58,389)
========= | | $ (5,787)
========= | | $ (31,891)
========== | | $ 28,068
========== |
| | | | | | | | | | | |
Basic earnings (loss) per common share: | | | | | | | | |
Income (loss) before extraordinary items | | $ (0.44) | | $ (0.04) | | $ (0.33) | | $ 0.20 |
Extraordinary items | | | 0.03 | | - | | 0.11 | | - |
Net income (loss) | | | | $ (0.41)
========= | | $ (0.04)
========= | | $ (0.22)
========== | | $ 0.20
========== |
| | | | | | | | | | | |
Diluted earnings (loss) per common share: | | | | | | | | |
Income (loss) before extraordinary items | | $ (0.44) | | $ (0.04) | | $ (0.33) | | $ 0.20 |
Extraordinary items | | | 0.03 | | - | | 0.11 | | - |
Net income (loss) | | | | $ (0.41)
========== | | $ (0.04)
========= | | $ (0.22)
========== | | $ 0.20
========== |
Weighted average common shares: | | | | | | | | |
Basic | | | | | 141,995 | | 141,335 | | 141,948 | | 141,755 |
Diluted | | | | | 141,995 | | 141,335 | | 141,948 | | 142,336 |
| | | | | | | |
See notes to condensed consolidated financial statements. |
5
SAKS INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Dollar amounts in thousands) |
| | | | | | | |
| | | | | Six Months Ended |
| | | | | August 4, 2001 | | July 29, 2000 |
| Operating Activities: | | | | |
| | Net income (loss) | | $ (31,891) | | $ 28,068 |
| | Adjustments to reconcile net income to net cash | | | | |
| | | provided by operating activities: | | | | |
| | | Depreciation and amortization | | 107,521 | | 99,144 |
| | | Losses from long-lived assets | | 20,506 | | 674 |
| | | Extraordinary gain on extinguishment of debt | | (14,417) | | - |
| | | Provision for employee deferred compensation | | 2,993 | | 3,474 |
| | | Deferred income taxes | | (23,834) | | 11,542 |
| | | Change in operating assets and liabilities, net | | (36,717) | | 20,999 |
| | Net Cash Provided By Operating Activities | | 24,161 | | 163,901 |
| | | | | | | |
| Investing Activities: | | | | |
| | Purchases of property and equipment | | (123,768) | | (149,743) |
| | Proceeds from the sale of property and equipment | | 7,229 | | 17,306 |
| | Proceeds from the sale of stores, net of
repurchased receivables | | 275,452 | | - |
| | Net Cash Provided By (Used In) Investing Activities | | 158,913 | | (132,437) |
| | | | | | | |
| Financing Activities: | | | | |
| | Payments on long-term debt and capital lease obligations | (278,573) | | (4,059) |
| | Borrowings under credit facilities | | 51,500 | | 32,500 |
| | Purchases and retirements of common stock | | (1,304) | | (25,010) |
| | Proceeds from issuance of common stock | | 936 | | 252 |
| | Net Cash Provided By (Used In) Financing Activities | | (227,441) | | 3,683 |
| | | | | | | |
| | Increase (Decrease) In Cash and Cash Equivalents | | (44,367) | | 35,147 |
| | | | | | | |
| | Cash and cash equivalents at beginning of period | | 64,660 | | 19,560 |
| | | | | | | |
| | Cash and cash equivalents at end of period | | $ 20,293
======= | | $ 54,707
======= |
| | | | | | | |
See notes to condensed consolidated financial statements. |
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
NOTE 1 -- BASIS OF PRESENTATION AND ORGANIZATION
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 and six months ended August 4, 2001 are not necessarily indicative of the results that may be expected for the year ending February 2, 2002. The financial statements include the accounts of Saks Incorporated and its subsidiaries (collectively, the "Company"). All intercompany amounts and transactions have been eliminated. 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 February 3, 2001.
The Company is a national retailer currently operating luxury, traditional and off-price department stores and a direct response business. The Company operates Saks Fifth Avenue Enterprises ("SFAE"), which consists of Saks Fifth Avenue stores, Off 5th stores, and Saks Direct. The Company also operates the Saks Department Stores Group ("SDSG"), which consists of Proffitt's, McRae's, Younkers, Parisian, Herberger's, Carson Pirie Scott, Bergner's, and Boston Stores department stores.
The accompanying balance sheet at February 3, 2001 has been derived from the audited financial statements at that date but does not include all required generally accepted accounting principles disclosures.
Net sales and cost of sales, as previously reported in prior years, have been restated to include revenues and expenses from the shipping and handling of merchandise sold with no effect on previously reported operating income, net income, shareholders' equity or cash flows. Revenues from shipping and handling of $2,098 and $2,342 are included in net sales and expenses of $1,645 and $1,346 are included in cost of sales for the three months ended August 4, 2001 and July 29, 2000, respectively. Revenues from shipping and handling of $4,787 and $5,262 are included in net sales and expenses of $3,915 and $2,809 are included in cost of sales for the six months ended August 4, 2001 and July 29, 2000, respectively.
In order to maintain consistency and comparability between periods presented, certain other amounts have been reclassified from previously reported financial statements to conform to the financial statement presentation of the current period. These reclassifications have no effect on previously reported net income, shareholders' equity or cash flows.
7
NOTE 2 -- BUSINESS COMBINATIONS AND INTEGRATION COSTS
For the three and six-month periods ended August 4, 2001 and July 29, 2000, the Company incurred certain integration costs related to prior business combinations. The costs for 2001 were primarily comprised of charges associated with the consolidation efforts of the SDSG southern distribution centers. The costs for 2000 primarily consisted of the consolidation of the Herberger's operating division into the Carson Pirie Scott operating division and McRae's operating division into the Proffitt's operating division.
A reconciliation of the aforementioned costs to the amounts of integration costs remaining unpaid at August 4, 2001 is as follows:
Amounts unpaid at February 3, 2001 and | | | |
related to prior integration events | | | $ 5,153 |
Integration costs for the period | | | 1,448 |
Amounts paid during the period | | | (1,608) |
Amounts representing non-cash charges | | (1,448) |
Amounts unpaid at August 4, 2001 | | | $ 3,545
====== |
The components of the aforementioned amounts unpaid are as follows:
| August 4, | | February 3, |
| 2001 | | 2001 |
Severance | $ 3,298 | | $ 4,340 |
Other | 247 | | 813 |
Total | $ 3,545
====== | | $ 5,153
====== |
8
NOTE 3 -- EARNINGS PER COMMON SHARE |
|
Calculations of earnings per common share ("EPS") for the three and six months ended August 4, 2001 and July 29, 2000 are as follows (income and shares in thousands): |
|
| | | | For the Three Months Ended | | For the Three Months Ended |
| | | | August 4, 2001 | | July 29, 2000 |
| | | | Income (a) | | Weighted
Average
Shares | | Per Share
Amount | | Income (a) | | Weighted
Average
Shares | | Per Share
Amount |
| | | | | | | | | | | | | | |
Basic EPS | | | | $ (62,165) | | 141,995 | | $ (0.44) | | $ (5,787) | | 141,335 | | $ (0.04) |
| | | | | | | | | | | | | | |
Effect of dilutive stock options
(based on the treasury stock
method using the average price) | | | | - | | | | | | - | | |
| | | | | | | | | | | | | | |
Diluted EPS | | | | $ (62,165)
======== | | 141,995
====== | | $ (0.44)
======= | | $ (5,787)
======= | | 141,335
====== | | $ (0.04)
======= |
| | | | | | | | | | | | | | |
| | | | For the Six Months Ended | | For the Six Months Ended |
| | | | August 4, 2001 | | July 29, 2000 |
| | | | Income (a) | | Weighted
Average
Share | | Per Share
Amount | | Income (a) | | Weighted Average
Shares | | Per Share
Amount |
| | | | | | | | | | | | | | |
Basic EPS | | | | $ (46,308) | | 141,948 | | $ (0.33) | | $ 28,068 | | 141,755 | | $ 0.20 |
| | | | | | | | | | | | | | |
Effect of dilutive stock options
(based on the treasury stock
method using the average price) | | | | - | | | | | | 581 | | |
| | | | | | | | | | | | | | |
Diluted EPS | | | | $ (46,308)
======= | | 141,948
====== | | $ (0.33)
======= | | $ 28,068
======= | | 142,336
====== | | $ 0.20
====== |
| | | | | | | | | | | | | | |
(a) Income before extraordinary items. | | | | | | | | | | |
NOTE 4 -- CONTINGENCIES
The Company is involved in several legal proceedings arising in the normal course of business activities, and it has established accruals for losses 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.
9
NOTE 5 -- SEGMENT INFORMATION
The Company conducts its business through two segments, Saks Department Stores Group and Saks Fifth Avenue Enterprises. Operating Income for the segments includes the revenue, cost of sales, direct selling, general, and administrative expenses, other direct operating expenses for the respective segment and an allocation of certain operating expenses shared by the two segments. "Other, including corporate" consists of the assets, revenue and expenses associated with the corporate offices, certain accounting, finance, human resource, and information technology activities and other items managed on a company-wide basis.
The financial information for each segment is reported on the basis used internally by the Company to evaluate performance and allocate resources.
| | | Three Months Ended | | Six Months Ended |
| | | August 4,
2001 | July 29,
2000 | | August 4,
2001 | July 29,
2000 |
Net Sales: | | | | | |
| Saks Department Stores Group | $ 748,224 | $ 820,080 | | $ 1,573,571 | $ 1,681,141 |
| Saks Fifth Avenue Enterprises | 522,484 | 569,089 | | 1,161,487 | 1,208,846 |
| | | $ 1,270,708
======== | $ 1,389,169
======== | | $ 2,735,058
======== | $ 2,889,987
======== |
Operating Income: | | | | | |
| Saks Department Stores Group | $ 16,552 | $ 32,685 | | $ 55,422 | $ 80,306 |
| Saks Fifth Avenue Enterprises | (45,287) | 1,252 | | (14,455) | 49,095 |
| Other, including corporate | (7,747) | (6,130) | | (14,606) | (12,640) |
| Certain items, net | (32,127) | (8,186) | | (34,892) | (5,815) |
| | | $ (68,609)
======== | $ 19,621
======== | | $ (8,531)
======== | $ 110,946
======== |
Depreciation and Amortization: | | | | | |
| Saks Department Stores Group | $ 28,206 | $ 27,596 | | $ 57,928 | $ 55,278 |
| Saks Fifth Avenue Enterprises | 24,775 | 22,051 | | 48,806 | 43,290 |
| Other, including corporate | 413 | 242 | | 787 | 576 |
| | | $ 53,394
======== | $ 49,889
======== | | $ 107,521
======== | $ 99,144
======== |
Total Assets: | | | | | |
| Saks Department Stores Group | $ 2,312,331 | $ 2,694,695 | | $ 2,312,331 | $ 2,694,695 |
| Saks Fifth Avenue Enterprises | 1,971,118 | 1,955,586 | | 1,971,118 | 1,955,586 |
| Other, including corporate | 459,772 | 474,764 | | 459,772 | 474,764 |
| | | $ 4,743,221
======== | $ 5,125,045
======== | | $ 4,743,221
======== | $ 5,125,045
======== |
Capital Expenditures: | | | | | |
| Saks Department Stores Group | $ 22,193 | $ 19,170 | | $ 34,556 | $ 42,187 |
| Saks Fifth Avenue Enterprises | 26,261 | 28,023 | | 52,451 | 61,053 |
| Other, including corporate | 20,613 | 28,247 | | 36,761 | 46,503 |
| | | $ 69,067
======== | $ 75,440
======== | | $ 123,768
======== | $ 149,743
======== |
For the three and six-month periods ended August 4, 2001, Operating Income includes charges and losses associated with certain unusual or infrequently occurring events and transactions aggregating to charges of $32,127 and $34,892, respectively. These certain items primarily consist of charges related to store closings and the write-off of Bullock & Jones intangible assets related to the integration of the Saks Direct business into the Saks Fifth Avenue Enterprises businesses, as well as other corporate reorganization and integration activities.
For the three and six-month periods ended July 29, 2000, Operating Income includes charges and losses (gains) associated with certain unusual or infrequently occurring events and transactions aggregating to charges of $8,186 and $5,815, respectively. These certain items primarily relate to the consolidation of SDSG operating divisions and distribution centers, offset by revisions to prior year closed store accruals and gains from the sale of a closed store and a closed distribution center.
10
NOTE 6 -- NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, became effective for the Company in the first quarter of fiscal year 2001. Adoption of this standard had no material impact on the Company's financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140, which replaced SFAS No. 125 and revised criteria for accounting for securitizations and introduced new disclosures. Compliance with the revised criteria did not have a material impact on the Company's financial position or results of operations. The new disclosure requirements were adopted in fiscal year 2000 and included in the footnotes to the Company's annual report to Form 10-K for the fiscal year ended February 3, 2001.
In June of 2001, the FASB issued SFAS No. 141, Business Combinations, which replaced APB Opinion No. 16 and disallowed the future use of the pooling-of-interests method of accounting for business combinations. This new standard is effective for all business combinations occurring after June 30, 2001.
In June of 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible Assets, which superseded APB Opinion No. 17 and revised the financial accounting and reporting for goodwill and intangible assets. Among the revisions and guidance set forth in SFAS No. 142 are the discontinuation of the amortization of goodwill and certain intangible assets, periodic testing (at least annually) for the impairment of goodwill and intangible assets at the reporting unit level, and additional financial statement and footnote disclosures. This new standard will be effective for the Company in the first quarter of 2002. The Company is in the process of ascertaining the impact that this new standard will have on its financial statements.
11
NOTE 7 -- DEBT AND SHARE REPURCHASES
On March 16, 2001, the Company completed the sale of nine store locations represented by property and equipment with a carrying value of $112,109, goodwill and intangibles with a carrying value of $121,778, inventory and receivables. Certain of the proceeds from the sale and cash flow available from operations were used to repurchase previously sold receivables of $28,260 and $298,410 of senior notes. The senior notes were repurchased at a discount to the carrying value resulting in the extraordinary gain on extinguishment of debt of $6,197 ($3,776 after income taxes) and $23,442 ($14,417 after income taxes) for the three and six months ended August 4, 2001, respectively.
During the six months ended July 29, 2000, the Company repurchased 2.0 million shares of Company stock for an aggregate amount of $25,010 under a five million share repurchase program authorized in 1999. In March 2001, the Board of Directors authorized an additional repurchase program of five million shares. During the six months ended August 4, 2001, the Company repurchased 100,0000 shares for an aggregate amount of $1,304, leaving 5.9 million shares available for repurchase under the programs.
NOTE 8 -- SUBSEQUENT EVENT
On August 30, 2001, the Company commenced an exchange offer relating to $450 million outstanding principal amount of its 7-1/4% and 7% senior notes due in 2004. In the exchange offer, the Company is offering to exchange $500 (of which $10 represents a consent fee) in cash and $500 in new 9-7/8 % senior notes due 2011 for each $1,000 principal amount of the 2004 notes.
12
NOTE 9 -- 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 (representing all subsidiaries of Saks Incorporated except for special purpose subsidiaries, the National Bank of the Great Lakes ("the Bank") and immaterial subsidiaries); and 3) on a combined basis, the Company's special purpose subsidiaries, the Bank and immaterial subsidiaries, which collectively represent the only subsidiaries of the Company that are not guarantors of the Senior Notes. The condensed consolidating financial statements presented as of and for the three and six-month periods ended August 4, 2001 and July 29, 2000 and as of February 3, 2001 reflect the legal entity compositions at the respective dates. 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. Borrowings and the related interest expense under the Company's revolving credit facility are allocated to Saks Incorporated and the guarantor subsidiaries under an intercompany revolving credit agreement. There are also management and royalty fee arrangements among Saks Incorporated and the subsidiaries. At August 4, 2001, Saks Incorporated was the sole obligor for a majority of the Company's long-term debt, owned one store location and maintained a small group of corporate employees. All other Company stores are operated by the guarantor subsidiaries of Saks Incorporated.
13
SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT AUGUST 4, 2001
(Dollar Amounts In Thousands)
| | Saks | | Guarantor | | Non-Guarantor | | | | |
| ASSETS | Incorporated | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Current Assets | | | | | | | | | |
Cash and cash equivalents | | | ($11,593) | | $31,886 | | | | $20,293 |
Retained interest in accounts receivable | | | | | 185,433 | | | | 185,433 |
Merchandise inventories | $3,539 | | 1,483,401 | | 4,572 | | | | 1,491,512 |
Deferred income taxes | | | 49,093 | | (15,826) | | | | 33,267 |
Intercompany borrowings | | | 29,403 | | 22,089 | | ($51,492) | | |
Other current assets | | | 92,732 | | 857 | | | | 93,589 |
| | | | | | | | | | |
Total Current Assets | 3,539 | | 1,643,036 | | 229,011 | | (51,492) | | 1,824,094 |
| | | | | | | | | | |
Property and Equipment, net | 8,224 | | 2,279,027 | | 8,526 | | | | 2,295,777 |
Goodwill and Intangibles, net | | | 367,378 | | | | | | 367,378 |
Other Assets | 13,310 | | 31,870 | | 4,020 | | | | 49,200 |
Deferred Income Taxes | | | 206,772 | | | | | | 206,772 |
Investment in and Advances to Subsidiaries | 3,673,573 | | 137,735 | | | | (3,811,308) | | |
| | | | | | | | | | |
| | Total Assets | $3,698,646
========= | | $4,665,818
========= | | $241,557
========= | | ($3,862,800)
========== | | $4,743,221
========= |
| | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | |
Current Liabilities | | | | | | | | | |
Trade accounts payable | $1,062 | | $343,862 | | $458 | | | | $345,382 |
Accrued expenses and other current liabilities | 19,626 | | 426,377 | | 2,549 | | | | 448,552 |
Intercompany borrowings | 8,608 | | 13,481 | | 29,403 | | ($51,492) | | |
Current portion of long-term debt |
| | 5,452 | | | | | | 5,452 | | | | | | | | | | | |
| | Total Current Liabilities | 29,296 | | 789,172 | | 32,410 | | (51,492) | | 799,386 |
| | | | | | | | | | |
Long-Term Debt | 1,403,090 | | 148,854 | | | | | | 1,551,944 |
Deferred Income Taxes | | | | | | | | | |
Other Long-Term Liabilities | 161 | | 125,631 | | | | | | 125,792 |
Investment by and Advances from Parent | | | 3,602,161 | | 209,147 | | (3,811,308) | | |
Common Equity Put Options | | | | | | | | | |
Shareholders' Equity | 2,266,099 | |
| | | | | | 2,266,099 | | | | | | | | | | | |
| | Total Liabilities and Shareholders' Equity | $3,698,646
========= | | $4,665,818
=========== | | $241,557
=========== | | ($3,862,800)
=========== | | $4,743,221
========== |
| | | | | | | | | | |
14
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED AUGUST 4, 2001
(Dollar Amounts In Thousands)
| | Saks | | Guarantor | | Non-Guarantor | | | | |
| | Incorporated | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| | | | | | | | | | |
Net sales | $3,219 | | $1,263,890 | | $3,599 | | | | $1,270,708 |
Costs and expenses | | | | | | | | | |
Cost of sales | 1,955 | | 841,389 | | 4,946 | | | | 848,290 |
Selling, general and administrative expenses | 2,783 | | 356,493 | | 22,613 | | ($51,964) | | 329,925 |
Other operating expenses | 922 | | 137,371 | | 646 | | | | 138,939 |
Store pre-opening costs | | | 1,020 | | | | | | 1,020 |
Integration costs | | | 325 | | | | | | 325 |
Losses from long-lived assets |
| | 20,818 | | | | | | 20,818 | | | Operating income (loss) | (2,441) | | (93,526) | | (24,606) | | 51,964 | | (68,609) |
| | | | | | | | | | |
Other income (expense) | | | | | | | | | |
Finance charge income, net | | | | | 51,964 | | (51,964) | | |
Intercompany exchange fees | | | (8,712) | | 8,712 | | | | |
Intercompany servicer fees | | | 10,841 | | (10,841) | | | | |
Equity in earnings of subsidiaries | (43,543) | | 7,987 | | | | 35,556 | | |
Interest expense | (27,042) | | (4,525) | | (883) | | | | (32,450) |
Other income (expense), net |
| | 60 | | | | | | 60 | | | | | | | | | | | |
Income (loss) before income taxes | (73,026) | | (87,875) | | 24,346 | | 35,556 | | (100,999) |
| | | | | | | | | | |
Provision (benefit) for income taxes | (10,861) | | (36,954) | | 8,981 | |
| | (38,834) | | | | | | | | | | | |
Income (loss) before extraordinary item | (62,165) | | (50,921) | | 15,365 | | 35,556 | | (62,165) |
| | | | | | | | | | |
Extraordinary gain on extinguishment of debt,
net of taxes | 3,776 | |
| | | | | | 3,776 | | | | | | | | | | | |
Net income (loss) | ($58,389)
======== | | ($50,921)
========= | | $15,365
======== | | $35,556
========= | | ($58,389)
======== |
| | | | | | | | | | |
15
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED AUGUST 4, 2000
| | Saks | | Guarantor | | Non-Guarantor | | | | |
| | Incorporated | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| | | | | | | | | | |
Net sales | $7,216 | | $2,720,392 | | $7,450 | | | | $2,735,058 |
Costs and expenses | | | | | | | | | |
Cost of sales | 4,428 | | 1,752,659 | | 8,992 | | | | 1,766,079 |
Selling, general and administrative expenses | 5,419 | | 724,411 | | 46,747 | | ($103,410) | | 673,167 |
Other operating expenses | 1,756 | | 277,719 | | 1,312 | | | | 280,787 |
Store pre-opening costs | | | 1,602 | | | | | | 1,602 |
Integration costs | | | 1,448 | | | | | | 1,448 |
Year 2000 expenses | | | | | | | | | |
Losses from long-lived assets |
| | 20,506 | | | | | | 20,506 | | | Operating income (loss) | (4,387) | | (57,953) | | (49,601) | | 103,410 | | (8,531) |
| | | | | | | | | | |
Other income (expense) | | | | | | | | | |
Finance charge income, net | | | | | 103,410 | | (103,410) | | |
Intercompany exchange fees | | | (19,356) | | 19,356 | | | | |
Intercompany servicer fees | | | 24,621 | | (24,621) | | | | |
Equity in earnings of subsidiaries | (8,346) | | 15,082 | | | | (6,736) | | |
Interest expense | (56,645) | | (8,797) | | (1,609) | | | | (67,051) |
Other income (expense), net | (68) | | 351 | |
| | | | 283 | | | | | | | | | | | |
Income (loss) before income taxes | (69,446) | | (46,052) | | 46,935 | | (6,736) | | (75,299) |
| | | | | | | | | | |
Provision (benefit) for income taxes | (23,138) | | (22,620) | | 16,767 | |
| | (28,991) | | | | | | | | | | | |
Income (loss) before extraordinary item | (46,308) | | (23,432) | | 30,168 | | (6,736) | | (46,308) |
| | | | | | | | | | |
Extraordinary gain on extinguishment of debt,
net of taxes | 14,417 | |
| | | | | | 14,417 | | | | | | | | | | | |
Net income (loss) | ($31,891)
======== | | ($23,432)
======== | | $30,168
========= | | ($6,736)
======== | | ($31,891)
======== |
| | | | | | | | | | |
16
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 4, 2001
(Dollar Amounts In Thousands)
| | Saks | | Guarantor | | Non-Guarantor | | | | |
| | Incorporated | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| | | | | | | | | | |
OPERATING ACTIVITIES | | | | | | | | | |
Net income (loss) | ($31,891) | | ($23,432) | | $30,168 | | ($6,736) | | ($31,891) |
Adjustments to reconcile net income to net cash | | | | | | | | | |
provided by (used in) operating activities: | | | | | | | | | |
Equity in earnings of subsidiaries | 8,346 | | (15,082) | | | | 6,736 | | |
Extraordinary gain on extinguishment of debt | (14,417) | | | | | | | | (14,417) |
Depreciation and amortization | 517 | | 106,432 | | 572 | | | | 107,521 |
Provision for employee deferred compensation | 2,993 | | | | | | | | 2,993 |
Deferred income taxes | | | (26,066) | | 2,232 | | | | (23,834) |
Losses from long-lived assets | | | 20,506 | | | | | | 20,506 |
Changes in operating assets and liabilities, net | (7,709) | | (35,546) | | 6,538 | |
| | (36,717) | | | | | | | | | | | |
Net Cash Provided By (Used In) Operating Activities | (42,161) | | 26,812 | | 39,510 | | | | 24,161 |
| | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | |
Purchases of property and equipment | | | (121,386) | | (2,382) | | | | (123,768) |
Proceeds from the sale of assets | | | 7,229 | | | | | | 7,229 |
Proceeds from the sale of stores, net of repurchased
receivables |
| | 275,452 | | | | | | 275,452 | | | | | | | | | | | |
Net Cash Provided By (Used In) Investing Activities | | | 161,295 | | (2,382) | | | | 158,913 |
| | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | |
Intercompany borrowings, contributions and distributions | 226,602 | | (193,548) | | (33,054) | | | | |
Payments on long-term debt and capital lease obligations | (275,573) | | (3,000) | | | | | | (278,573) |
Borrowings (repayments) under credit facilities | 51,500 | | | | | | | | 51,500 |
Purchases and retirements of common stock | (1,304) | | | | | | | | (1,304) |
Proceeds from issuance of common stock | 936 | |
| | | | | | 936 | | | | | | | | | | | |
Net Cash Provided By (Used In) Financing Activities | 2,161 | | (196,548) | | (33,054) | | | | (227,441) |
| | | | | | | | | | |
Increase (Decrease) In Cash and Cash Equivalents | (40,000) | | (8,441) | | 4,074 | | | | (44,367) |
| | | | | | | | | | |
Cash and cash equivalents at beginning of period | 40,000 | | (3,152) | | 27,812 | |
| | 64,660 | | | | | | | | | | | |
Cash and cash equivalents at end of period | $0
========= | | ($11,593)
======== | | $31,886
======== | |
======== | | $20,293
======== | | | | | | | | | | | |
17
SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT JULY 29, 2000
(Dollar Amounts In Thousands)
| | Saks | | Guarantor | | Non-Guarantor | | | | |
ASSETS | Incorporated | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Current Assets | | | | | | | | | |
Cash and cash equivalents | | | $29,142 | | $25,565 | | | | $54,707 |
Retained interest in accounts receivable | | | | | 193,750 | | | | 193,750 |
Merchandise inventories | $3,556 | | 1,493,120 | | | | | | 1,496,676 |
Deferred income taxes | | | 55,246 | | (12,020) | | | | 43,226 |
Intercompany borrowings | 1,955 | | 14,360 | | 2,232 | | ($18,547) | | |
Other current assets | | | 96,971 | | 51 | | | | 97,022 |
| | | | | | | | | | |
Total Current Assets | 5,511 | | 1,688,839 | | 209,578 | | (18,547) | | 1,885,381 |
| | | | | | | | | | |
Property and Equipment, net | 9,159 | | 2,389,733 | | | | | | 2,398,892 |
Goodwill and Intangibles, net | | | 562,058 | | | | | | 562,058 |
Other Assets | | | 53,316 | | 4,765 | | | | 58,081 |
Deferred Income Taxes | | | 220,633 | | | | | | 220,633 |
Investment in and Advances to Subsidiaries | 4,079,220 | | 115,285 | | | | (4,194,505) | | |
| | | | | | | | | | |
| | Total Assets | $4,093,890
========= | | $5,029,864
========== | | $214,343
========= | | ($4,213,052)
========== | | $5,125,045
========= |
| | | | | | | | | | |
| | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | |
Current Liabilities | | | | | | | | | |
Trade accounts payable | $1,067 | | $291,281 | | | | | | $292,348 |
Accrued expenses and other current liabilities | 23,054 | | 445,432 | | $4,519 | | | | 473,005 |
Intercompany borrowings | | | 2,232 | | 16,315 | | ($18,547) | | |
Current portion of long-term debt | | | 6,773 | | | | | | 6,773 |
| | | | | | | | | | |
Total Current Liabilities | 24,121 | | 745,718 | | 20,834 | | (18,547) | | 772,126 |
| | | | | | | | | | |
Long-Term Debt | 1,841,500 | | 154,741 | | | | | | 1,996,241 |
Other Long-Term Liabilities | 11,519 | | 128,409 | | | | | | 139,928 |
Investment by and Advances from Parent | | | 4,000,996 | | 193,509 | | (4,194,505) | | |
Shareholders' Equity | 2,216,750 | | | | | | | | 2,216,750 |
| | | | | | | | | | |
| | Total Liabilities and Shareholders' Equity | $4,093,890
========== | | $5,029,864
========= | | $214,343
========= | | ($4,213,052)
========== | | $5,125,045
========= |
| | | | | | | | | | |
18
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JULY 29, 2000
(Dollar Amounts In Thousands)
| Saks | | Guarantor | | Non-Guarantor | | | | |
| Incorporated | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| | | | | | | | | |
Net sales | $2,947 | | $1,386,222 | | | | | | $1,389,169 |
Costs and expenses | | | | | | | | | |
Cost of sales | 1,915 | | 891,164 | | | | | | 893,079 |
Selling, general and administrative expenses | 2,802 | | 361,494 | | $16,788 | | ($48,194) | | 332,890 |
Other operating expenses | 926 | | 134,685 | | | | | | 135,611 |
Store pre-opening costs | | | 352 | | | | | | 352 |
Integration costs | | | 4,596 | | | | | | 4,596 |
Losses from long-lived assets | | | 3,020 | | | | | | 3,020 |
| Operating income (loss) | (2,696) | | (9,089) | | (16,788) | | 48,194 | | 19,621 |
| | | | | | | | | |
Other income (expense) | | | | | | | | | |
Finance charge income, net | | | | | 48,194 | | (48,194) | | |
Intercompany exchange fees | | | (7,956) | | 7,956 | | | | |
Intercompany servicer fees | | | 9,978 | | (9,978) | | | | |
Equity in earnings of subsidiaries | 19,055 | | 10,434 | | | | (29,489) | | |
Interest expense | (35,390) | | 454 | | (574) | | | | (35,510) |
Other income (expense), net | | | (89) | | | | | | (89) |
| | | | | | | | | |
Income (loss) before income taxes | (19,031) | | 3,732 | | 28,810 | | (29,489) | | (15,978) |
| | | | | | | | | |
Provision (benefit) for income taxes | (13,244) | | (7,877) | | 10,930 | | | | (10,191) |
| | | | | | | | | |
Net income (loss) | ($5,787)
========= | | $11,609
========= | | $17,880
========= | | ($29,489)
========= | | ($5,787)
========= |
| | | | | | | | | | |
19
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JULY 29, 2000
(Dollar Amounts In Thousands)
| Saks | | Guarantor | | Non-Guarantor | | | | |
| Incorporated | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| | | | | | | | | |
Net sales | $6,278 | | $2,883,709 | | | | | | $2,889,987 |
Costs and expenses | | | | | | | | | |
Cost of sales | 4,171 | | 1,837,176 | | | | | | 1,841,347 |
Selling, general and administrative expenses | 5,999 | | 719,960 | | $32,068 | | ($100,539) | | 657,488 |
Other operating expenses | 1,830 | | 268,468 | | | | | | 270,298 |
Store pre-opening costs | | | 3,041 | | | | | | 3,041 |
Merger and integration costs | | | 6,193 | | | | | | 6,193 |
Losses from long-lived assets | | | 674 | | | | | | 674 |
| Operating income (loss) | (5,722) | | 48,197 | | (32,068) | | 100,539 | | 110,946 |
| | | | | | | | | |
Other income (expense) | | | | | | | | | |
Finance charge income, net | | | | | 100,539 | | (100,539) | | |
Intercompany exchange fees | | | (16,716) | | 16,716 | | | | |
Intercompany servicer fees | | | 19,333 | | (19,333) | | | | |
Equity in earnings of subsidiaries | 75,827 | | 22,243 | | | | (98,070) | | |
Interest expense, net | (68,741) | | (2,252) | | (1,390) | | | | (72,383) |
Other income (expense), net | | | 61 | | | | | | 61 |
| | | | | | | | | |
Income before income taxes | 1,364 | | 70,866 | | 64,464 | | (98,070) | | 38,624 |
| | | | | | | | | |
Provision (benefit) for income taxes | (26,704) | | 13,871 | | 23,389 | | | | 10,556 |
| | | | | | | | | |
Net income | 28,068
========= | | 56,995
========== | | 41,075
========== | | (98,070)
========= | | 28,068
========== |
| | | | | | | | | | |
20
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 29, 2000
(Dollar Amounts In Thousands)
| Saks | | Guarantor | | Non-Guarantor | | | | |
| Incorporated | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| | | | | | | | | |
OPERATING ACTIVITIES | | | | | | | | | |
Net income | $28,068 | | $56,995 | | $41,075 | | ($98,070) | | $28,068 |
Adjustments to reconcile net income to net cash provided | | | | | | | | | |
by (used in) operating activities: | | | | | | | | | |
Equity in earnings of subsidiaries | (75,827) | | (22,243) | | | | 98,070 | | |
Depreciation and amortization | | | 99,144 | | | | | | 99,144 |
Provision for employee deferred compensation | 3,474 | | | | | | | | 3,474 |
Deferred income taxes | | | 16,582 | | (5,040) | | | | 11,542 |
Losses from long-lived assets | | | 674 | | | | | | 674 |
Changes in operating assets and liabilities, net | (5,536) | | 17,741 | | 8,794 | |
| | 20,999 | | | | | | | | | | |
Net Cash Provided By (Used In) Operating Activities | (49,821) | | 168,893 | | 44,829 | | | | 163,901 |
| | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | |
Purchases of property and equipment | | | (149,743) | | | | | | (149,743) |
Proceeds from sale of assets |
| | 17,306 | | | | | | 17,306 | | | | | | | | | | |
Net Cash Used In Investing Activities | | | (132,437) | | | | | | (132,437) |
| | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | |
Intercompany borrowings, contributions and distributions | 42,079 | | (206) | | (41,873) | | | | |
Payments on long-term debt and capital lease obligations | | | (4,059) | | | | | | (4,059) |
Borrowings under credit facilities | 32,500 | | | | | | | | 32,500 |
Proceeds from issuance of common stock | 252 | | | | | | | | 252 |
Purchases and retirements of common stock | (25,010) | |
| | | | | | (25,010) | | | | | | | | | | |
Net Cash Provided By (Used In) Financing Activities | 49,821 | | (4,265) | | (41,873) | | | | 3,683 |
| | | | | | | | | |
Increase In Cash and Cash Equivalents | 0 | | 32,191 | | 2,956 | | | | 35,147 |
| | | | | | | | | |
Cash and cash equivalents at beginning of period | 0 | | (3,049) | | 22,609 | |
| | 19,560 | | | | | | | | | | |
Cash and cash equivalents at end of period | $0
========== | | $29,142
========= | | $25,565
========== | |
======== | | $54,707
======== | | | | | | | | | | |
21
SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT FEBRUARY 3, 2001
(Dollar Amounts In Thousands)
| Saks | | Guarantor | | Non-Guarantor | | | | |
ASSETS | Incorporated | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Current Assets | | | | | | | | | |
Cash and cash equivalents | $40,000 | | ($3,152) | | $27,812 | | | | $64,660 |
Retained interest in accounts receivable | | | | | 193,258 | | | | 193,258 |
Merchandise inventories | 3,356 | | 1,512,982 | | 5,865 | | | | 1,522,203 |
Deferred income taxes | | | 52,782 | | (13,594) | | | | 39,188 |
Intercompany borrowings | | | 30,272 | | 48,100 | | ($78,372) | | |
Other current assets | | | 95,875 | | 1,054 | | | | 96,929 |
| | | | | | | | | |
Total Current Assets | 43,356 | | 1,688,759 | | 262,495 | | (78,372) | | 1,916,238 |
| | | | | | | | | |
Property and Equipment, net | 8,702 | | 2,375,716 | | 6,432 | | | | 2,390,850 |
Goodwill and Intangibles, net | | | 511,333 | | | | | | 511,333 |
Other Assets | 17,782 | | 32,763 | | 3,527 | | | | 54,072 |
Deferred Income Taxes | | | 178,118 | | | | | | 178,118 |
Investment in and Advances to Subsidiaries | 3,899,921 | | 114,783 | | | | (4,014,704) | | |
| | | | | | | | | |
| Total Assets | $3,969,761
========== | | $4,901,472
========= | | $272,454
========== | | ($4,093,076)
========== | | $5,050,611
========= |
| | | | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | |
Current Liabilities | | | | | | | | | |
Trade accounts payable | $1,007 | | $316,425 | | $2,105 | | | | $319,537 |
Accrued expenses and other current liabilities | 22,296 | | 479,021 | | 3,778 | | | | 505,095 |
Intercompany borrowings | 2,029 | | 46,071 | | 30,272 | | ($78,372) | | |
Current portion of long-term debt |
| | 5,650 | | | | | | 5,650 | | | | | | | | | | |
Total Current Liabilities | 25,332 | | 847,167 | | 36,155 | | (78,372) | | 830,282 |
| | | | | | | | | |
Long-Term Debt | 1,650,000 | | 151,657 | | | | | | 1,801,657 |
Other Long-Term Liabilities | 600 | | 124,243 | | | | | | 124,843 |
Investment by and Advances from Parent | | | 3,778,405 | | 236,299 | | (4,014,704) | | |
Shareholders' Equity | 2,293,829 | |
| | | | | | 2,293,829 | | | | | | | | | | |
| Total Liabilities and Shareholders' Equity | $3,969,761
========== | | $4,901,472
========= | | $272,454
========== | | ($4,093,076)
========== | | $5,050,611
========= |
| | | | | | | | | |
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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 total due to rounding).
| | | Three Months Ended | Six Months Ended |
| | | 8/4/01 | 7/29/01 | 8/4/01 | 7/29/00 |
| Net Sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Costs and expenses: | | | | |
| | Cost of sales | 66.8 | 64.3 | 64.6 | 63.7 |
| | Selling, general & administrative expenses | 26.0 | 24.0 | 24.6 | 22.8 |
| | Other operating expenses | 10.9 | 9.8 | 10.2 | 9.3 |
| | Store pre-opening costs | 0.1 | 0.0 | 0.1 | 0.1 |
| | Integration costs | 0.0 | 0.3 | 0.1 | 0.2 |
| | Losses (gains) from long-loved assets | 1.6 | 0.2 | 0.7 | 0.0 |
| | Operating income (loss) | (5.4) | 1.4 | (0.3) | 3.8 |
| Other income (expense): | | | | |
| | Interest expense | (2.6) | (2.6) | (2.5) | (2.5) |
| | Other income (expense), net | 0.0 | 0.0 | 0.0 | 0.0 |
| | Income (loss) before income taxes
and extraordinary item | (7.9) | (1.2) | (2.8) | 1.3 |
| Provision (benefit) for income taxes | (3.1) | (0.7) | (1.1) | 0.4 |
| | Income (loss) before extraordinary item | (4.9) | (0.4) | (1.7) | 1.0 |
| Extraordinary gain, net of taxes | 0.3 | 0.0 | 0.5 | 0.0 |
| NET INCOME (LOSS) | (4.6)%
====== | (0.4)%
===== | (1.2)%
===== | 1.0%
===== |
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THREE MONTHS ENDED AUGUST 4, 2001 COMPARED TO THREE MONTHS ENDED JULY 29, 2000
NET SALES
For the three months ended August 4, 2001, total Company sales decreased $118.5 million, or 8.5%, versus the prior year period. Total sales for the three-month period decreased by $71.9 million and $46.6 million at SDSG and SFAE, respectively. The sales decline at SDSG was attributable to a comparable stores decrease of 4.4% and the elimination of revenues resulting from the sale of nine stores to The May Department Stores Company. The sales decline at SFAE was due to a comparable stores decrease of 10.2% and was partially offset by additional sales from new stores opened and e-commerce revenues. SFAE's comparable store sales were negatively effected by a continued softening in demand of luxury sector merchandise and declining sales in its direct-response operations and in the Off 5th operations.
GROSS MARGIN
For the three months ended August 4, 2001, gross margin was $422.4 million, or 33.2% of net sales, compared to $496.1 million, or 35.7% of net sales, for the three months ended July 29, 2000. The decline in gross margin rate was primarily due to increased markdowns in an effort to reduce inventory levels commensurate with the sales decline.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SGA")
For the three months ended August 4, 2001, SGA was $329.9 million, or 26.0% of net sales, compared to $332.9 million, or 24.0% of net sales, for the three months ended July 29, 2001. The rate deterioration was primarily attributable to a decline in expense leverage resulting from the decline in sales.
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OTHER OPERATING EXPENSES
For the three months ended August 4, 2001, other operating expenses were $138.9 million, or 10.9% of net sales, compared to $135.6 million, or 9.8% of net sales, for the three months ended July 29, 2000. The increase in expenses was largely due to 1) higher depreciation expense resulting from stores opened in the last twelve months, capital expenditures related to remodels and expansions of existing stores and increased investments in information technology and 2) increased rental expenses, which were the result of new and expanded leased stores.
INTEGRATION COSTS
For the three months ended August 4, 2001, integration costs were $0.3 million, or 0.0% of net sales, compared to $4.6 million, or 0.3% of net sales, for the three months ended July 29, 2000. The 2000 costs primarily consisted of the consolidation of the Herberger's and McRae's operating divisions and the consolidation of the southern distribution centers.
LOSSES FROM LONG-LIVED ASSETS
For the three months ended August 4, 2001, the Company incurred losses from long-lived assets of $20.8 million related largely to the write-off of (1) the goodwill and intangibles associated with the disposition of the Bullock & Jones catalog and the integration of the Saks Direct business into SFAE and (2) property and equipment associated with the disposition of store locations. For the three months ended July 29, 2000, losses from long-lived assets of $3.0 million related primarily to the loss associated with the sale of a closed store.
OPERATING INCOME
Operating income for the three months ended August 4, 2001 declined by $88.2 million from the prior year period. Operating income at SDSG declined by $16.1 million largely due to the decline in comparable store sales and the inability to leverage fixed expenses to decreased sales. Operating income at SFAE declined by $46.5 million primarily due to the comparable store sales decline, increased markdowns and the inability to leverage fixed expenses to decreased sales. Gains and losses associated with certain items (including the write-off of long-lived assets, integration costs and corporate reorganization costs) contributed a $23.9 million decline in operating income.
INTEREST EXPENSE
For the three months ended August 4, 2001, interest expense was $32.5 million, or 2.6% of net sales, compared to $35.5 million, or 2.6% of net sales, for the three months ended July 29, 2000. The improvement was the result of a reduction in short-term variable borrowing rates and a decline in the average debt balances during the current period.
INCOME TAXES
Included in the tax benefit for the three months ended July 29, 2000 was a $4.1 million benefit related to the previous disposition of a real estate investment. Excluding this item, the July 29, 2000 effective tax rate would have been 38.0%. The increase in the 2001 effective rate of 38.5% over the adjusted 2000 rate is the result of the dilutive effect of non-deductible goodwill amortization on lower earnings projected for 2001.
EXTRAORDINARY ITEM
The extraordinary gain for the three months ended August 4, 2001 was related to the current period repurchase of $115 million in senior notes at a discount to the recorded value.
NET INCOME
Net loss increased from $5.7 million for the three months ended July 29, 2000 to $58.4 million for the three months ended August 4, 2001. The increase was largely due to negative comparable store sales, the inability to leverage fixed expenses and the write-offs associated with the disposition of Bullock & Jones and store closings.
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SIX MONTHS ENDED AUGUST 4, 2001 COMPARED TO SIX MONTHS ENDED JULY 29, 2000
NET SALES
For the six months ended August 4, 2001, total Company sales decreased $154.9 million, or 5.4%, versus the prior year period. Total sales for the six-month period decreased by $107.6 million and $47.3 million at SDSG and SFAE, respectively. The sales decline at SDSG was attributable to a comparable stores decrease of 3.0% and the absence of sales resulting from the nine stores sold to The May Department Stores Company in March of 2001. The sales decline at SFAE was due to a comparable stores decrease of 6.1% and was partially offset by additional sales from new stores opened and e-commerce. SFAE's comparable store sales were negatively effected by a softening in demand of luxury sector merchandise, declining sales in its direct-response operations (attributable to a reduction in books produced) and in the Off 5th operations.
GROSS MARGIN
For the six months ended August 4, 2001, gross margin was $969.0 million, or 35.4% of net sales, compared to $1,048.6 million, or 36.3% of net sales, for the six months ended July 29, 2000. The decline in gross margin rate was primarily due to increased markdowns in an effort to reduce inventory levels commensurate with the sales decline.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SGA")
For the six months ended August 4, 2001, SGA was $673.2 million, or 24.6% of net sales, compared to $657.5 million, or 22.8% of net sales, for the six months ended July 29, 2001. The rate deterioration was primarily attributable to a decline in expense leverage resulting from the sales decline, an increase in e-commerce expenses and an increase in expenses related to the first quarter 2001 launch of loyalty programs for the Bank's SDSG proprietary credit cards.
OTHER OPERATING EXPENSES
For the six months ended August 4, 2001, other operating expenses were $280.8 million, or 10.2% of net sales, compared to $270.3 million, or 9.3% of net sales, for the six months ended July 29, 2000. The increase in expenses was largely due to 1) higher depreciation expense resulting from stores opened in the last twelve months, capital expenditures related to remodels and expansions of existing stores and increased investments in information technology and 2) increased rental expenses, which were the result of new and expanded leased stores.
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INTEGRATION COSTS
For the six months ended August 4, 2001, integration costs were $1.4 million, or 0.1% of net sales, compared to $6.2 million, or 0.2% of net sales, for the six months ended July 29, 2000. The 2001 charges were largely related to the consolidation efforts of the southern distribution centers. The 2000 costs primarily consisted of the consolidation of the Herberger's and McRae's operating divisions and the southern distribution centers.
LOSSES FROM LONG-LIVED ASSETS
For the six months ended August 4, 2001, the Company incurred losses from long-lived assets of $20.5 million related largely to (1) the goodwill and intangibles associated with the disposition of the Bullock & Jones catalog and the integration of the Saks Direct business into SFAE and (2) property and equipment associated with the disposition of store locations. For the six months ended July 29, 2000, losses from long-lived assets of $0.7 million related to the loss associated with the sale of a closed store, offset by gains from the sale of a store location and a closed distribution center.
OPERATING INCOME
Operating income for the six months ended August 4, 2001 declined by $119.5 million from the prior year period. Operating income at SDSG declined by $24.9 million largely due to the decline in comparable store sales and the inability to leverage fixed expenses to decreased sales. Operating income at SFAE declined by $63.6 million primarily due to the comparable store sales decline, the inability to leverage fixed expenses to decreased sales and increased losses in e-commerce operations. Gains and losses associated with certain items (including the sale of long-lived assets, integration costs and corporate reorganization costs) contributed a $29.1 million decline in operating income.
INTEREST EXPENSE
For the six months ended August 4, 2001, interest expense was $67.1 million, or 2.5% of net sales, compared to $72.4 million, or 2.5% of net sales, for the six months ended July 29, 2000. The improvement was the result of a reduction in short-term variable borrowing rates and a decline in the average debt balances during the current period.
INCOME TAXES
Included in the provision for the six months ended July 29, 2000 was a $4.1 million benefit related to the previous disposition of a real estate investment. Excluding this item, the July 29, 2000 effective tax rate would have been 38.0%. The increase in the 2001 effective rate of 38.5% over the adjusted 2000 rate is the result of the dilutive effect of non-deductible goodwill amortization on lower projected for 2001.
EXTRAORDINARY ITEM
The extraordinary gain for the six months ended August 4, 2001 was related to the current period repurchase of $298 million in senior notes at a discount to the carrying value.
NET INCOME (LOSS)
Net income (loss) decreased from $28.1 million for the six months ended July 29, 2000 to $(31.9) million for the six months ended August 4, 2001. The decline was largely due to negative comparable store sales, the inability to leverage fixed expenses to decreased sales and the write-offs associated with the disposition of Bullock & Jones and store closings and was partially offset by the gain on extinguishment of debt.
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LIQUIDITY AND CAPITAL RESOURCES
The retained interest in accounts receivable, inventory, accounts payable and debt balances fluctuate throughout the year due to the seasonal nature of the Company's business.
Gross accounts receivable were $1.191 billion and $1.220 billion at August 4, 2001 and July 29, 2000, respectively. The decrease was primarily due to the year-to-date sales decrease and was partially offset by an increase in average balances.
Merchandise inventory at August 4, 2001 decreased from July 29, 2000 balances largely due to a comparable stores inventory decrease and inventory related to sold stores, partially offset by inventory related to new stores.
Property and equipment balances at August 4, 2001 decreased over July 29, 2000 balances due primarily to the sale of nine SDSG stores and depreciation on existing assets during the last twelve months, partially offset by capital expenditures related to new store additions and investments in information technology, as well as expansions, replacements and the remodeling of existing stores.
Goodwill and intangibles at August 4, 2001 decreased from July 29, 2000 primarily due to the reduction in store-related goodwill associated with the sale of nine SDSG stores and the disposal of the Bullock & Jones catalog in connection with the integration of the Saks Direct business into SFAE.
CASH FLOW
The primary needs for liquidity are to acquire, renovate, or construct stores and to provide working capital for new and existing stores.
Cash provided by operating activities was $24.2 million for the six months ended August 4, 2001 and $163.9 million for the six months ended July 29, 2000. The decrease in operating cash flows was primarily related to the decline in net income and the timing of inventory receipts and payments.
Cash provided by (used in) investing activities was $158.9 million for the six months ended August 4, 2001 and ($132.4) million for the six months ended July 29, 2000. The change was principally due to the proceeds received from the sale of nine SDSG stores and decreased capital expenditures.
Cash provided by (used in) financing activities was $(227.4) million for the six months ended August 4, 2001 and $3.7 million for the six months ended July 29, 2000. The change was primarily due to the repurchase of $298 million in senior notes at a discount.
CAPITAL STRUCTURE
As of August 4, 2001, the Company had total debt outstanding of approximately $1.6 billion with $698.5 million available to borrow under its existing revolving credit facility that expires in 2003. This balance represents a debt to total capitalization percentage of 40.7% and a decrease of $446 million from July 29, 2000. The decrease was primarily due the application of proceeds from the sale of nine SDSG stores to repurchase senior debt and the application of operating cash flow to reduce revolver outstandings.
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ACCOUNTS RECEIVABLE SECURITIZATION
National Bank of the Great Lakes (the "Bank"), a wholly owned subsidiary of the Company, owns all proprietary credit card accounts maintained for the Company's retail customers. The Bank sells the receivables generated by these accounts to the Company's special purpose subsidiaries. The special purpose subsidiaries transfer the receivables, with limited recourse, to a credit card related trust or in exchange for cash and subordinated certificates representing undivided interests in the pool of receivables. The trust subsequently issues certificates of beneficial interest, also representing undivided interests in the pool of receivables, to investors. At August 4, 2001, funding under this facility totaled approximately $1.0 billion, which consisted of $200 million in fixed rate term certificates outstanding, $811 million in floating rate term certificates outstanding and $35 million outstanding under its variable funding certificates.
FORWARD-LOOKING INFORMATION
Certain information presented in this Form 10-Q addresses future results or expectations and is considered "forward-looking" information within the definition of the Federal securities laws. Forward-looking statements can be identified through the use of words such as "may," "will," "intend," "plan," "project," "expect," "anticipate," "should," "would," "believe," "estimate," "contemplate," "possible," "attempts," "seeks" and "point." The forward-looking information is premised on many factors. 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 many uncertainties arising from the terrorist attacks of September 11, 2001; the level of consumer spending for apparel and other merchandise carried by the Company and its ability to respond quickly to consumer trends; adequate and stable sources of merchandise; the competitive pricing environment within the department and specialty store industries as well as other retail channels; favorable customer response to recent and planned changes in customer service formats; the effectiveness of planned advertising, marketing and promotional campaigns; successful integration of Saks Direct into the SFAE stores and merchant organization; favorable customer response to increased relationship marketing efforts and proprietary credit card loyalty programs; appropriate inventory management; reduction of corporate overhead; effective operation of the Bank's credit card operations; and changes in interest rates. For additional information regarding these and other risk factors, please refer to Exhibit 99.1 to the Company's Form 10-K for the fiscal year ended February 3, 2001 filed with the Securities and Exchange Commission, which may be accessed via EDGAR through the Internet at www.sec.gov.
The Company 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 the Company makes on related subjects in its reports with the Securities and Exchange Commission and in its press releases.
29
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk primarily arises from changes in interest rates. Changes in interest rates may adversely affect the company's financial position, results of operations, and cash flows. The Company seeks to manage exposure to adverse interest rate changes through its normal operating and financing activities and, if appropriate, through the use of derivative financial instruments. The Company does not enter into derivative financial instruments for trading purposes. The Company is exposed to interest rate risk through its securitization, borrowing, and derivative financial instrument activities, which are described in the Company's Annual Report to Shareholders on Form 10-K for the fiscal year ended February 3, 2001.
Based on the Company's market risk sensitive instruments (including variable rate debt and derivative financial instruments) outstanding at August 4, 2001, the Company has determined that there was no material market risk exposure to the Company's consolidated financial position, results of operations, or cash flows as of such date.
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SAKS INCORPORATED
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held an annual meeting of shareholders on June 13, 2001 for the following purposes:
Item 1: To elect six Directors to hold office for the term specified;
Item 2: To ratify the appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for the current fiscal year ending February 3, 2001;
Item 3: To vote on a shareholder proposal concerning Board of Director term limits; and
Item 4: To vote on a shareholder proposal concerning the Company's classified Board of Directors
The number of votes cast for and withheld for each nominee for the Company's Board of Directors were as follows:
| FOR | WITHHELD |
| Bernard E. Bernstein | 120,099,318 | 3,869,647 |
| Stanton J. Bluestone | 119,750,009 | 4,218,956 |
| Julius W. Erving | 116,922,374 | 7,046,591 |
| Donald E. Hess | 119,349,719 | 4,619,246 |
| George L. Jones | 120,115,853 | 3,853,112 |
| Stephen I. Sadove | 120,127,582 | 3,841,383 |
The number of votes cast for, against, and abstain for Items 2, 3 and 4 were as follows:
| | FOR | AGAINST | ABSTAIN |
| Item 2 | 123,719,864 | 182,909 | 66,191 |
| Item 3 | 2,878,015 | 107,502,912 | 264,652 |
| Item 4 | 34,716,316 | 68,849,288 | 2,109,818 |
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Item 6. Exhibits.
(a) Exhibits
10.1 Employment Agreement between Saks Incorporated and R. Brad Martin,
Chief Executive Officer and Chairman of the Board
(b) Form 8-K Reports.
There were no Form 8-Ks filed during the quarter ended August 4, 2001.
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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
August 17, 2001
Date
/s/ Douglas E. Coltharp
Douglas E. Coltharp
Executive Vice President and
Chief Financial Officer
