UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended November 3, 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:November 3, 2001
Commission File Number:1-13113
Exact name of registrant as specified in its charter:
SAKS INCORPORATED
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 -- 141,941,745 shares as of November 3, 2001
<PAGE 1>
SAKS INCORPORATED
Index
PART I. FINANCIAL INFORMATION | Page No. |
Item 1. Financial Statements | |
| | Condensed Consolidated Balance Sheets -- November 3, 2001, February 3, 2001 and October 28, 2000 | 3 |
| | Condensed Consolidated Statements of Income -- Three Months and Nine Months Ended November 3, 2001 and October 28, 2000 | 4 |
| | Condensed Consolidated Statements of Cash Flows -- Nine Months Ended November 3, 2001 and October 28, 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 6. Exhibits and Reports on Form 8-K | 31 |
| | | |
SIGNATURES | 32 |
<PAGE 2> SAKS INCORPORATED and SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Dollar amounts in thousands) |
| | | | | | | | | |
| November 3,
2001 | | February 3,
2001 | | October 28,
2000 |
| |
ASSETS | | | | | | | | | |
Current Assets | | | | | | | | |
Cash and cash equivalents | | | $ 40,250 | | $ 64,660 | | $ 20,128 |
Retained interest in accounts receivable | | 211,042 | | 193,258 | | 198,020 |
Merchandise inventories | | | 1,764,546 | | 1,522,203 | | 1,913,000 |
Other current assets | | | 102,153 | | 96,929 | | 77,962 |
Deferred income taxes, net | | | 42,489 | | 39,188 | | 39,650 |
Total current assets | | | 2,160,480 | | 1,916,238 | | 2,248,760 |
| | | | | | | | | |
Property and Equipment, net | | | 2,278,281 | | 2,390,850 | | 2,408,180 |
Goodwill and Intangibles, net | | | 363,606 | | 511,333 | | 556,936 |
Deferred Income Taxes, net | | | 203,650 | | 178,118 | | 190,434 |
Other Assets | | | | 44,294 | | 54,072 | | 62,006 |
| | | | | | | | | |
TOTAL ASSETS | | | | $ 5,050,311
========= | | $ 5,050,611
========= | | $ 5,466,316
========= |
| | | | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | |
| | | | | | | | | |
Current Liabilities | | | | | | | | |
Trade accounts payable | | | $ 545,668 | | $ 319,537 | | $ 661,258 |
Accrued expenses and other current liabilities | 478,052 | | 505,095 | | 500,708 |
Current portion of long-term debt | | 5,240 | | 5,650 | | 6,406 |
Total current liabilities | | | 1,028,960 | | 830,282 | | 1,168,372 |
| | | | | | | | | |
Long-Term Debt | | | | 1,642,707 | | 1,801,657 | | 1,948,234 |
Other Long-Term Liabilities | | | 133,573 | | 124,843 | | 127,592 |
Total liabilities | | | 2,805,240 | | 2,756,782 | | 3,244,198 |
| | | | | | | |
Commitments and Contingencies | | | | | | | |
| | | | | | | |
Shareholders' Equity | | | 2,245,071 | | 2,293,829 | | 2,222,118 |
| | | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 5,050,311
========= | | $ 5,050,611
========= | | $ 5,466,316
========= |
| | | | | | | | | |
See notes to condensed consolidated financial statements. <PAGE 3> |
SAKS INCORPORATED and SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
(Dollar amounts in thousands, except per share amounts) |
| | | | | | | | | | | |
| | | | | Three Months Ended | | Nine Months Ended |
| | | | | November 3, 2001 | | October 28, 2000 | | November 3, 2001 | | October 28, 2000 |
| | | | | | | | | | | |
Net sales | | | | | $ 1,423,551 | | $ 1,567,796 | | $ 4,158,609 | | $ 4,457,783 |
Cost of sales | | | | 925,314 | | 1,003,695 | | 2,691,393 | | 2,845,042 |
Gross margin | | | | 498,237 | | 564,101 | | 1,467,216 | | 1,612,741 |
| | | | | | | | | | | |
Selling, general and administrative expenses | 353,910 | | 372,592 | | 1,027,077 | | 1,030,080 |
Other operating expenses | | | 148,412 | | 150,175 | | 429,199 | | 420,473 |
Store pre-opening costs | | | 3,568 | | 2,657 | | 5,170 | | 5,698 |
Integration costs | | | 91 | | 14,366 | | 1,539 | | 20,559 |
Losses from long-lived assets | | | (1,902) | | 570 | | 18,604 | | 1,244 |
Operating income (loss) | | | | (5,842) | | 23,741 | | (14,373) | | 134,687 |
Other income (expense): | | | | | | | | | |
Interest expense | | | | (32,303) | | (36,851) | | (99,354) | | (109,234) |
Other income (expense), net | | | 463 | | 91 | | 746 | | 152 |
Income (loss) before provision (benefit) for | | | | | | | | |
income taxes and extraordinary items | | | (37,682) | | (13,019) | | (112,981) | | 25,605 |
Provision (benefit) for income taxes | | | (13,907) | | (4,870) | | (42,898) | | 5,686 |
| | | | | | | | | | | |
Income (loss) before extraordinary items | | (23,775) | | (8,149) | | (70,083) | | 19,919 |
Extraordinary gain on extinguishment of
debt, net of taxes | 2,022 | | - | | 16,439 | | - |
| | | | | | | | | | | |
Net income (loss) | | | | $ (21,753)
========= | | $ (8,149)
======== | | $ (53,644)
======== | | $ 19,919
======== |
| | | | | | | | | | | |
Basic earnings (loss) per common share: | | | | | | | | |
Income (loss) before extraordinary items | | $ (0.17) | | $ (0.06) | | $ (0.49) | | $ 0.14 |
Extraordinary items | | | 0.02 | | - | | 0.11 | | - |
Net income (loss) | | | | $ (0.15)
======== | | $ (0.06)
======= | | $ (0.38)
======== | | $ 0.14
======== |
| | | | | | | | | | | |
Diluted earnings (loss) per common share: | | | | | | | | |
Income (loss) before extraordinary items | | $ (0.17) | | $ (0.06) | | $ (0.49) | | $ 0.14 |
Extraordinary items | | | 0.02 | | - | | 0.11 | | - |
Net income (loss) | | | | $ (0.15)
======== | | $ (0.06)
======= | | $ (0.38)
======== | | $ 0.14
======== |
Weighted average common shares: | | | | | | | | |
Basic | | | | | 141,969 | | 141,470 | | 141,955 | | 141,660 |
Diluted | | | | | 141,969 | | 141,470 | | 141,955 | | 142,545 |
| | | | | | | |
See notes to condensed consolidated financial statements. <PAGE 4> SAKS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
(Dollar amounts in thousands)
|
| | Nine Months Ended |
| | November 3,
2001 | October 28,
2000 |
| Operating Activities: | | |
| Net income (loss) | $(53,644) | $19,919 |
Adjustments to reconcile net income to net cash
provided by operating activities: | | |
| Depreciation and amortization | 162,157 | 154,802 |
| Losses from long-lived assets | 18,604 | 1,244 |
| Extraordinary gain on extinguishment of debt | (16,439) | -- |
| Provision for employee deferred compensation | 4,784 | 5,211 |
| Deferred income taxes | (30,612) | 11,543 |
| Change in operating assets and liabilities, net | (97,676) | 46,735 |
| Net Cash Provided by (Used In) Operating Activities | (12,826) | 239,454 |
| | | |
| Investing Activities: | | |
| Purchases of property and equipment | (170,832) | (213,791) |
| Proceeds from the sale of property and equipment | 22,695 | 19,455 |
Proceeds from the sale of stores, net of
repurchased receivables | 275,452 | -- |
| Net Cash Provided by (Used In) Investing Activities | 127,315 | (194,336) |
| | | |
| Financing Activities: | | |
| Payments on long-term debt and capital lease obligations | (421,523) | (5,933) |
| Net borrowings under credit facilities | 285,000 | (14,000) |
| Purchases and retirement of common stock | (3,586) | (25,010) |
| Proceeds from issuance of common stock | 1,210 | 393 |
| Net Cash Used in Financing Activities | (138,899) | (44,550) |
| | | |
| Increase (Decrease) In Cash and Cash Equivalents | (24,410) | 568 |
| | | |
| Cash and cash equivalents at beginning of period | (64,660) | 19,560 |
| | | |
| Cash and cash equivalents at end of period | $40,250
========= | $20,128
========= |
<PAGE 5>
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 nine months ended November 3, 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 a nd 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 include sales of merchandise, net of returns and exclusive of sales taxes, commissions from leased departments and shipping and handling revenues related to merchandise sold. 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 $2,201 and $2,088 are included in net sales and expenses of $1,537 and $1,378 are included in cost of sales for the three months ended November 3, 2001 and October 28, 2000, respectively. Revenues from shipping and handling of $6,987 and $7,350 are included in net sales and expenses of $5,452 and $4,186 are included in cost of sales for the nine months ended November 3, 2001 and October 28, 2000, respectively.
<PAGE 6>
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.
NOTE 2 -- INTEGRATION COSTS
For the three and nine-month periods ended November 3, 2001 and October 28, 2000, the Company incurred certain integration costs. 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 November 3, 2001 is as follows:
Amounts unpaid at February 3, 2001 and | | | |
related to prior integration events | | | $ 5,153 |
Integration costs for the period | | | | 1,539 |
Amounts paid during the period | | | (2,335) |
Amounts representing non-cash charges | | (1,511) |
Amounts unpaid at November 3, 2001 | | | $ 2,846
====== |
The components of the aforementioned amounts unpaid are as follows:
| | November 3,
2001 | | February 3,
2001 |
| | |
Severance | | $ 2,802 | | $ 4,340 |
Other | | 44 | | 813 |
Total | | $ 2,846
======= | | $ 5,153
======= |
<PAGE 7>
NOTE 3 -- EARNINGS PER COMMON SHARE
Calculations of earnings per common share ("EPS") for the three and nine months ended November 3, 2001 and October 28, 2000 are as follows (income and shares in thousands):
| | For the Three Months Ended
November 3, 2001 | For the Three Months Ended
October 28, 2000 |
| | Income (a) | Weighed
Average
Shares | Per Share
Amount | Income (a) | Weighted
Average Shares | Per Share
Amount |
| Basic EPS | $ (23,775) | 141,969 | $ (0.17) | $ (8,149) | 141,470 | $ (0.06) |
| Effect of dilutive stock options (based on the treasury stock method using the average price) | | -- | | | -- | |
| Diluted EPS | $ (23, 775)
========= | 141,969
======== | $ (0.17)
========= | $ (8,149)
======== | 141,470
======== | $ (0.06)
======== |
| | | | | | | |
| | For the Nine Months Ended
November 3, 2001 | For the Nine Months Ended
October 28, 2000 |
| | Income (a) | Weighed
Average
Shares | Per Share
Amount | Income (a) | Weighted
Average Shares | Per Share
Amount |
| Basic EPS | $ (70,083) | 141,955 | $ (0.49) | $ 19,919 | 141,660 | $ 0.14 |
| Effect of dilutive stock options (based on the treasury stock method using the average price) | | -- | | | 885 | |
| Diluted EPS | $ (70,083)
========= | 141,955
======== | $ (0.49)
======== | $ 19,919
======= | 142,545
======== | $ 0.14
======= |
(a) Income (loss) 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 a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
<PAGE 8>
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.
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | |
| | | November 3,
2001 | October 28,
2000 | | November 3,
2001 | October 28,
2000 |
Net Sales: | | | | | |
| Saks Department Stores Group | $ 861,149 | $ 906,520 | | $ 2,434,720 | $ 2,587,661 |
| Saks Fifth Avenue Enterprises | 562,402 | 661,276 | | 1,723,889 | 1,870,122 |
| | | $ 1,423,551
======== | $ 1,567,796
======== | | $ 4,158,609
========= | $ 4,457,783
========= |
Operating Income: | | | | | |
| Saks Department Stores Group | $ 21,566 | $ 16,130 | | $ 76,988 | $ 96,436 |
| Saks Fifth Avenue Enterprises | (18,942) | 30,255 | | (33,397) | 79,350 |
| Other, including corporate | (8,052) | (7,708) | | (22,658) | (20,348) |
| Certain items, net | (414) | (14,936) | | (35,306) | (20,751) |
| | | $ (5,842)
======== | $ 23,741
======== | | $ (14,373)
======== | $ 134,687
======== |
Depreciation and Amortization: | | | | | |
| Saks Department Stores Group | $ 29,420 | $ 29,898 | | $ 87,348 | $ 85,038 |
| Saks Fifth Avenue Enterprises | 24,526 | 25,207 | | 73,332 | 68,435 |
| Other, including corporate | 690 | 553 | | 1,477 | 1,329 |
| | | $ 54,636
======== | $ 55,658
======== | | $ 162,157
======== | $ 154,802
======== |
Total Assets: | | | | | |
| Saks Department Stores Group | $ 2,483,194 | $ 2,928,862 | | $ 2,483,194 | $ 2,928,862 |
| Saks Fifth Avenue Enterprises | 2,075,750 | 2,122,694 | | 2,075,750 | 2,122,694 |
| Other, including corporate | 491,367 | 414,760 | | 491,367 | 414,760 |
| | | $ 5,050,311
======== | $ 5,466,316
======== | | $ 5,050,311
======== | $ 5,466,316
======== |
Capital Expenditures: | | | | | |
| Saks Department Stores Group | $ 12,032 | $ 15,049 | | $ 46,558 | $ 57,236 |
| Saks Fifth Avenue Enterprises | 19,956 | 23,018 | | 72,407 | 84,071 |
| Other, including corporate | 18,220 | 25,981 | | 51,867 | 72,484 |
| | | $ 50,208
======== | $ 64,048
======== | | $ 170,832
========= | $ 213,791
========= |
<PAGE 9>
For the three and nine-month periods ended November 3, 2001, Operating Income includes charges and losses associated with certain unusual or infrequently occurring events and transactions aggregating to charges of $414 and $35,306, respectively. These certain items primarily consist of charges related to store closings and the write-off of Bullock & Jones intangible assets resulting from the reorganization and downsizing of the Saks Direct business, as well as other corporate reorganization and integration activities.
For the three and nine-month periods ended October 28, 2000, Operating Income includes charges and losses (gains) associated with certain unusual or infrequently occurring events and transactions aggregating to charges of $14,936 and $20,751, 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.
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 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.
In October of 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets, which replaced SFAS No. 121, and replaced certain provisions of APB Opinion No. 30. 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.
<PAGE 10>
NOTE 7 -- DEBT AND SHARE REPURCHASES
On March 16, 2001, the Company completed the sale of nine store locations. 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 $23,442 ($14,417 after income taxes) for the nine months ended November 3, 2001.
In October 2001, the Company completed an exchange offer relating to $450 million outstanding principal amount of its 7-1/4% and 7% senior notes due in 2004. Approximately $283 million of 2004 notes were tendered for exchange. The Company issued approximately $141.5 million of new 9-7/8% notes due in 2011 and paid approximately $141.5 million in cash to complete the exchange offer. The exchange offer resulted in an extraordinary gain of $3,287 ($2,022 after taxes) for the three and nine months ended November 3, 2001 due mainly to the recognition of a gain on a previously terminated interest rate swap agreement.
During the six months ended July 29, 2000, the Company repurchased 2.0 million shares of Company stock 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 nine months ended November 3, 2001, the Company repurchased approximately 460,000 shares, leaving 5.5 million shares available for repurchase under the programs.
On November 20, 2001, the Company replaced its $750 million revolving credit facility that was scheduled to mature in September 2003 with a new $700 million revolving credit facility that will mature in November 2006. The credit facility is secured by the Company's merchandise inventories and will be used for working capital and general corporate purposes.
During 2001, the Company extended certain of its accounts receivable securitization facilities into 2002 and reduced the funding capacity to $1.3 billion.
<PAGE 11>
NOTE 8 -- 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, 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 nine-month periods ended November 3, 2001 and October 28, 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 th e 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 between Saks Incorporated and the subsidiaries. At November 3, 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.
<PAGE 12>
SAKS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS AT NOVEMBER 3, 2001
(Dollar Amounts in Thousands)
ASSETS | Saks
Incorporated | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Consolidated |
Current Assets | | | | | |
Cash and cash equivalents | | $34,040 | $6,210 | | $40,250 |
Retained interest in accounts receivable | | | 211,042 | | 211,042 |
Merchandise inventories | $4,472 | 1,752,290 | 7,784 | | 1,764,546 |
Deferred income taxes | | 57,923 | (15,434) | | 42,489 |
Intercompany borrowings | | 30,520 | 26,292 | ($56,812) | |
Other current assets | | 101,716 | 437 | | 102,153 |
| | | | | |
Total Current Assets | 4,472 | 1,976,489 | 236,331 | (56,812) | 2,160,480 |
| | | | | |
Property and Equipment, net | 7,974 | 2,261,328 | 8,979 | | 2,278,281 |
Goodwill and Intangibles, net | | 363,606 | | | 363,606 |
Other Assets | 10,116 | 30,119 | 4,059 | | 44,294 |
Deferred Income Taxes | | 203,650 | | | 203,650 |
Investment in and Advances to Subsidiaries | 3,756,643 | 154,634 | | (3,911,277) | |
| | | | | |
Total Assets | $3,779,205
========= | $4,989,826
========= | $249,369
========== | ($3,968,089)
========= | $5,050,311
========== |
| | | | | |
| | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | |
Current Liabilities | | | | | |
Trade accounts payable | $1,341 | $543,929 | $398 | | $545,668 |
Accrued expenses and other current liabilities | 31,400 | 446,597 | 55 | | 478,052 |
Intercompany borrowings | 6,025 | 20,267 | 30,520 | ($56,812) | |
Current portion of long-term debt | | 5,240 | | | 5,240 |
| | | | | |
Total Current Liabilities | 38,766 | 1,016,033 | 30,973 | (56,812) | 1,028,960 |
| | | | | |
Long-Term Debt | 1,495,006 | 147,701 | | | 1,642,707 |
Other Long-Term Liabilities | 362 | 133,211 | | | 133,573 |
Investment by and Advances from Parent | | 3,692,881 | 218,396 | (3,911,277) | |
Shareholders' Equity | 2,245,071 | | | | 2,245,071 |
| | | | | |
Total Liabilities and Shareholders' Equity | $3,779,205
========== | $4,989,826
========= | $249,369
========== | ($3,968,089)
========== | $5,050,311
========== |
| | | | | |
<PAGE 13>
SAKS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED NOVEMBER 3, 2001
| Saks
Incorporated | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Consolidated |
| | | | | |
Net sales | $4,086 | $1,416,209 | $3,256 | | $1,423,551 |
Costs and expenses | | | | | |
Cost of sales | 2,579 | 918,719 | 4,016 | | 925,314 |
Selling, general and administrative expenses | 2,629 | 380,201 | 24,310 | ($53,230) | 353,910 |
Other operating expenses | 866 | 147,184 | 362 | | 148,412 |
Store pre-opening costs | | 3,568 | | | 3,568 |
Integration costs | | 91 | | | 91 |
Losses from long-lived assets | | (1,902) | | | (1,902) |
Operating income (loss) | (1,988) | (31,652) | (25,432) | 53,230 | (5,842) |
| | | | | |
Other income (expense) | | | | | |
Finance charge income, net | | | 53,230 | (53,230) | |
Intercompany exchange fees | | (10,344) | 10,344 | | |
Intercompany servicer fees | | 12,969 | (12,969) | | |
Equity in earnings of subsidiaries | (8,227) | 2,568 | | 5,659 | |
Interest expense | (27,579) | (4,053) | (671) | | (32,303) |
Other income (expense), net | | 463 | | | 463 |
| | | | | |
Income (loss) before income taxes | (37,794) | (30,049) | 24,502 | 5,659 | (37,682) |
| | | | | |
Provision (benefit) for income taxes | (14,019) | (12,068) | 12,180 | | (13,907) |
| | | | | |
Income (loss) before extraordinary item | (23,775) | (17,981) | 12,322 | 5,659 | (23,775) |
| | | | | |
Extraordinary gain on extinguishment of debt, net
of taxes | 2,022 | | | | 2,022 |
| | | | | |
Net income (loss) | ($21,753)
========== | ($17,981)
========= | $12,322
========= | $5,659
========= | ($21,753)
========= |
| | | | | |
<PAGE 14>
SAKS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED NOVEMBER 3, 2001
(Dollar Amounts In Thousands)
| Saks
Incorporated | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Consolidated |
| | | | | |
Net sales | $11,302 | $4,136,601 | $10,706 | | $4,158,609 |
Costs and expenses | | | | | |
Cost of sales | 7,007 | 2,671,378 | 13,008 | | 2,691,393 |
Selling, general and administrative expenses | 8,048 | 1,104,612 | 71,057 | ($156,640) | 1,027,077 |
Other operating expenses | 2,622 | 424,903 | 1,674 | | 429,199 |
Store pre-opening costs | | 5,170 | | | 5,170 |
Integration costs | | 1,539 | | | 1,539 |
Losses from long-lived assets | | 18,604 | | | 18,604 |
Operating income (loss) | (6,375) | (89,605) | (75,033) | 156,640 | (14,373) |
| | | | | |
Other income (expense) | | | | | |
Finance charge income, net | | | 156,640 | (156,640) | |
Intercompany exchange fees | | (29,700) | 29,700 | | |
Intercompany servicer fees | | 37,590 | (37,590) | | |
Equity in earnings of subsidiaries | (16,573) | 17,650 | | (1,077) | |
Interest expense | (84,224) | (12,850) | (2,280) | | (99,354) |
Other income (expense), net | (68) | 814 | | | 746 |
| | | | | |
Income (loss) before income taxes | (107,240) | (76,101) | 71,437 | (1,077) | (112,981) |
| | | | | |
Provision (benefit) for income taxes | (37,157) | (34,688) | 28,947 | | (42,898) |
| | | | | |
Income (loss) before extraordinary item | (70,083) | (41,413) | 42,490 | (1,077) | (70,083) |
| | | | | |
Extraordinary gain on extinguishment of debt, net of taxes | 16,439 | | | | 16,439 |
| | | | | |
Net income (loss) | ($53,644)
========= | ($41,413)
======== | $42,490
======== | ($1,077)
======== | ($53,644)
======== |
| | | | | |
<PAGE 15>
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 3, 2001
(Dollar Amounts In Thousands)
| Saks
Incorporated | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Consolidated |
| | | | | |
OPERATING ACTIVITIES | | | | | |
Net income (loss) | ($53,644) | ($41,413) | $42,490 | ($1,077) | ($53,644) |
Adjustments to reconcile net income to net cash | | | | | |
provided by (used in) operating activities: | | | | | |
Equity in earnings of subsidiaries | 16,573 | (17,650) | | 1,077 | |
Extraordinary gain on extinguishment of debt | (16,439) | | | | (16,439) |
Depreciation and amortization | 772 | 160,690 | 695 | | 162,157 |
Provision for employee deferred compensation | 4,784 | | | | 4,784 |
Deferred income taxes | | (32,452) | 1,840 | | (30,612) |
Losses from long-lived assets | | 18,604 | | | 18,604 |
Changes in operating assets and liabilities, net | 418 | (66,476) | (37,618) | | (103,676) |
| | | | | |
Net Cash Provided By (Used In) Operating
Activities | (47,536) | 21,303 | 7,407 | | (18,826) |
| | | | | |
INVESTING ACTIVITIES | | | | | |
Purchases of property and equipment | | (168,147) | (2,685) | | (170,832) |
Proceeds from the sale of assets | | 22,695 | | | 22,695 |
Proceeds from the sale of stores, net of repurchased
receivables | | 275,452 | | | 275,452 |
| | | | | |
Net Cash Provided By (Used In) Investing
Activities | | 130,000 | (2,685) | | 127,315 |
| | | | | |
FINANCING ACTIVITIES | | | | | |
Intercompany borrowings, contributions and
distributions | 142,070 | (115,746) | (26,324) | | |
Payments on long-term debt and capital lease
obligations | (417,158) | (4,365) | | | (421,523) |
Borrowings (repayments) under credit facilities | 285,000 | | | | 285,000 |
Purchases and retirements of common stock | (3,586) | | | | (3,586) |
Proceeds from issuance of common stock | 1,210 | | | | 1,210 |
Proceeds from real estate financing | | 6,000 | | | 6,000 |
| | | | | |
Net Cash Provided By (Used In) Financing Activities | 7,536 | (114,111) | (26,324) | | (132,899) |
| | | | | |
Increase (Decrease) In Cash and Cash Equivalents | (40,000) | 37,192 | (21,602) | | (24,410) |
| | | | | |
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
========== | $34,040
========== | $6,210
========== | ========= | $40,250
======== |
| | | | | |
<PAGE 16>
SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT OCTOBER 28, 2000
(Dollar Amounts In Thousands)
ASSETS | Saks
Incorporated | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Consolidated |
Current Assets | | | | | |
Cash and cash equivalents | | ($2,531) | $22,659 | | $20,128 |
Retained interest in accounts receivable | | | 198,020 | | 198,020 |
Merchandise inventories | $3,847 | 1,909,153 | | | 1,913,000 |
Deferred income taxes | | 51,623 | (11,973) | | 39,650 |
Intercompany borrowings | 933 | 19,908 | 2,927 | ($23,768) | |
Other current assets | | 77,911 | 51 | | 77,962 |
| | | | | |
Total Current Assets | 4,780 | 2,056,064 | 211,684 | (23,768) | 2,248,760 |
| | | | | |
Property and Equipment, net | 8,924 | 2,399,256 | | | 2,408,180 |
Goodwill and Intangibles, net | | 556,936 | | | 556,936 |
Other Assets | | 57,860 | 4,146 | | 62,006 |
Deferred Income Taxes | | 190,434 | | | 190,434 |
Investment in and Advances to Subsidiaries | 4,050,210 | 120,557 | | (4,170,767) | |
| | | | | |
Total Assets | $4,063,914
========= | $5,381,107
========= | $215,830
======== | ($4,194,535)
========= | $5,466,316
======== |
| | | | | |
LIABILITIES AND SHAREHOLDERS'
EQUITY | | | | | |
Current Liabilities | | | | | |
Trade accounts payable | $1,154 | $660,104 | | | $661,258 |
Accrued expenses and other current
liabilities | 45,237 | 451,003 | $4,468 | | 500,708 |
Intercompany borrowings | | 2,927 | 20,841 | ($23,768) | |
Current portion of long-term debt | | 6,406 | | | 6,406 |
| | | | | |
Total Current Liabilities | 46,391 | 1,120,440 | 25,309 | (23,768) | 1,168,372 |
| | | | | |
Long-Term Debt | 1,795,000 | 153,234 | | | 1,948,234 |
Other Long-Term Liabilities | 405 | 127,187 | | | 127,592 |
Investment by and Advances from Parent | | 3,980,246 | 190,521 | (4,170,767) | |
Shareholders' Equity | 2,222,118 | | | | 2,222,118 |
| | | | | |
Total Liabilities and Shareholders' Equity | $4,063,914
========= | $5,381,107
========= | $215,830
======== | ($4,194,535)
========= | $5,466,316
======== |
| | | | | |
<PAGE 17>
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED OCTOBER 28, 2000
(Dollar Amounts In Thousands)
| Saks
Incorporated | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Consolidated |
| | | | | |
Net sales | $3,740 | $1,564,056 | | | $1,567,796 |
Costs and expenses | | | | | |
Cost of sales | 2,671 | 1,001,024 | | | 1,003,695 |
Selling, general and administrative expenses | 2,629 | 399,157 | $17,492 | ($46,686) | 372,592 |
Other operating expenses | 1,068 | 149,107 | | | 150,175 |
Store pre-opening costs | | 2,657 | | | 2,657 |
Integration costs | | 14,366 | | | 14,366 |
Losses from long-lived assets | | 570 | | | 570 |
Operating income (loss) | (2,628) | (2,825) | (17,492) | 46,686 | 23,741 |
| | | | | |
Other income (expense) | | | | | |
Finance charge income, net | | | 46,686 | (46,686) | |
Intercompany exchange fees | | (9,197) | 9,197 | | |
Intercompany servicer fees | | 10,651 | (10,651) | | |
Equity in earnings of subsidiaries | 16,110 | 9,772 | | (25,882) | |
Interest expense | (34,805) | (1,421) | (625) | | (36,851) |
Other income (expense), net | | 91 | | | 91 |
| | | | | |
Income (loss) before income taxes | (21,323) | 7,071 | 27,115 | (25,882) | (13,019) |
| | | | | |
Provision (benefit) for income taxes | (13,174) | (1,000) | 9,304 | | (4,870) |
| | | | | |
Net income (loss) | ($8,149)
========= | $8,071
======== | $17,811
========= | ($25,882)
======== | ($8,149)
========= |
| | | | | |
<PAGE 18>
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 28, 2000
(Dollar Amounts In Thousands)
| Saks
Incorporated | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Consolidated |
| | | | | |
Net sales | $10,018 | $4,447,765 | | | $4,457,783 |
Costs and expenses | | | | | |
Cost of sales | 6,842 | 2,838,200 | | | 2,845,042 |
Selling, general and administrative expenses | 8,628 | 1,119,117 | $49,560 | ($147,225) | 1,030,080 |
Other operating expenses | 2,898 | 417,575 | | | 420,473 |
Store pre-opening costs | | 5,698 | | | 5,698 |
Merger and integration costs | | 20,559 | | | 20,559 |
Losses from long-lived assets | | 1,244 | | | 1,244 |
Operating income (loss) | (8,350) | 45,372 | (49,560) | 147,225 | 134,687 |
| | | | | |
Other income (expense) | | | | | |
Finance charge income, net | | | 147,225 | (147,225) | |
Intercompany exchange fees | | (25,913) | 25,913 | | |
Intercompany servicer fees | | 29,984 | (29,984) | | |
Equity in earnings of subsidiaries | 91,937 | 32,015 | | (123,952) | |
Interest expense, net | (103,546) | (3,673) | (2,015) | | (109,234) |
Other income (expense), net | | 152 | | | 152 |
| | | | | |
Income before income taxes | (19,959) | 77,937 | 91,579 | (123,952) | 25,605 |
| | | | | |
Provision (benefit) for income taxes | (39,878) | 12,871 | 32,693 | | 5,686 |
| | | | | |
Net income | $19,919
======== | $65,066
======== | $58,886
======== | ($123,952)
======== | $19,919
======== |
| | | | | |
<PAGE 19>
SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 28, 2000
(Dollar Amounts In Thousands)
| Saks
Incorporated | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminations | Consolidated |
| | | | | |
OPERATING ACTIVITIES | | | | | |
Net income | $19,919 | $65,066 | $58,886 | ($123,952) | $19,919 |
Adjustments to reconcile net income to net cash provided | | | | | |
by (used in) operating activities: | | | | | |
Equity in earnings of subsidiaries | (91,937) | (32,015) | | 123,952 | |
Depreciation and amortization | 861 | 153,941 | | | 154,802 |
Provision for employee deferred compensation | 5,211 | | | | 5,211 |
Deferred income taxes | | 4,610 | 6,933 | | 11,543 |
Losses from long-lived assets | | 1,244 | | | 1,244 |
Changes in operating assets and liabilities, net | 3,592 | 38,052 | 5,091 | | 46,735 |
| | | | | |
Net Cash Provided By (Used In) Operating
Activities | (62,354) | 230,898 | 70,910 | | 239,454 |
| | | | | |
INVESTING ACTIVITIES | | | | | |
Purchases of property and equipment | | (213,791) | | | (213,791) |
Proceeds from sale of assets | | 19,455 | | | 19,455 |
| | | | | |
Net Cash Used In Investing Activities | | (194,336) | | | (194,336) |
| | | | | |
FINANCING ACTIVITIES | | | | | |
Intercompany borrowings, contributions and
distributions | 100,971 | (30,111) | (70,860) | | |
Payments on long-term debt and capital lease
obligations | | (5,933) | | | (5,933) |
Borrowings under credit facilities | (14,000) | | | | (14,000) |
Proceeds from issuance of common stock | 393 | | | | 393 |
Purchases and retirements of common stock | (25,010) | | | | (25,010) |
| | | | | |
Net Cash Provided By (Used In) Financing
Activities | 62,354 | (36,044) | (70,860) | | (44,550) |
| | | | | |
Increase In Cash and Cash Equivalents | 0 | 518 | 50 | | 568 |
| | | | | |
Cash and cash equivalents at beginning of period | 0 | (3,049) | 22,609 | | 19,560 |
| | | | | |
Cash and cash equivalents at end of period | $0
========= | ($2,531)
========= | $22,659
======== | ======= | $20,128
======== |
| | | | | |
<PAGE 20>
SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT FEBRUARY 3, 2001
(Dollar Amounts in Thousands)
ASSETS | Saks
Incorporated | Guarantor
Subsidiaries | Non-Guarantor
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 |
Investments 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
======== |
| | | | | |
<PAGE 21>
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 | Nine Months Ended |
| | 11/3/01 | 10/28/00 | 11/3/01 | 10/28/00 |
| Net Sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Costs and expenses: | | | | |
| Cost of sales | 65.0 | 64.0 | 64.7 | 63.8 |
| Selling, general & administrative expenses | 24.9 | 23.8 | 24.7 | 23.1 |
| Other operating expenses | 10.4 | 9.6 | 10.3 | 9.4 |
| Store pre-opening costs | 0.3 | 0.2 | 0.1 | 0.1 |
| Integration costs | 0.0 | 0.9 | 0.0 | 0.5 |
| Losses (gains) from long-lived assets | (0.1) | 0.0 | 0.4 | 0.0 |
| Operating income (loss) | (0.4) | 1.5 | (0.3) | 3.0 |
| Other income (expenses): | | | | |
| Interest expense | (2.3) | (2.4) | (2.4) | (2.5) |
| Other income (expense), net | 0.0 | 0.0 | 0.0 | 0.0 |
Income (loss) before income taxes
and extraordinary item | (2.6) | (0.8) | (2.7) | 0.6 |
| Provision (benefit) for income taxes | (1.0) | (0.3) | (1.0) | 0.1 |
| Income (loss) before extraordinary item | (1.7) | (0.5) | (1.7) | 0.4 |
| Extraordinary gain, net of taxes | 0.1 | 0.0 | 0.4 | 0.0 |
| | (1.5)%
====== | (0.5)%
======= | (1.3)%
======= | 0.4%
====== |
THREE MONTHS ENDED NOVEMBER 3, 2001 COMPARED TO THREE MONTHS ENDED OCTOBER 28, 2000
NET SALES
For the three months ended November 3, 2001, total Company sales decreased $144.3 million, or 9.2%, versus the prior year period. Total sales for the three-month period decreased by $45.4 million and $98.9 million at SDSG and SFAE, respectively. The sales decline at SDSG was attributable to a comparable stores decrease of 0.7% and the elimination of sales associated with nine stores sold to The May Department Stores Company. The sales decline at SFAE was primarily due to a comparable stores decrease of 16.3%. SFAE's comparable store sales were significantly affected by the events on and following September 11, particularly the New York City flagship store, which experienced a comparable sales decrease of approximately 23% for the three month period. Other SFAE major metropolitan markets highly reliant upon business and tourist travel were also significantly negatively affected.
<PAGE 22>
GROSS MARGIN
For the three months ended November 3, 2001, gross margin was $498.2 million, or 35.0% of net sales, compared to $564.1 million, or 36.0% of net sales, for the three months ended October 28, 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 November 3, 2001, SGA was $353.9 million, or 24.9% of net sales, compared to $372.6 million, or 23.8% of net sales, for the three months ended October 28, 2000. The decrease in expenses was largely due to a decline in costs incurred at Saks Direct and to the sale of the nine SDSG stores. The rate deterioration was primarily attributable to a decline in expense leverage resulting from the decline in sales.
OTHER OPERATING EXPENSES
For the three months ended November 3, 2001, other operating expenses were $148.4 million, or 10.4% of net sales, compared to $150.2 million, or 9.6% of net sales, for the three months ended October 28, 2000. The decline in expense leverage was principally due to the inability to reduce fixed expenses, primarily depreciation and rent, relative to the decline in sales.
INTEGRATION COSTS
For the three months ended November 3, 2001, integration costs were $0.1 million compared to $14.4 million for the three months ended October 28, 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 November 3, 2001, the Company incurred gains from long-lived assets of $1.9 million related mainly to the disposition of store locations. For the three months ended October 28, 2000, losses from long-lived assets of $0.6 million related to the sale of an abandoned corporate building.
OPERATING INCOME
Operating income for the three months ended November 3, 2001 declined by $29.6 million from the prior year period. Operating income at SDSG increased by $5.4 million principally due to decreased markdowns resulting from enhanced inventory management, partially offset by a comparable store sales decline. Operating income at SFAE declined by $49.2 million primarily due to the comparable store sales decline and increased markdowns, offset partially by lower operating expenses, principally in Saks Direct. Gains and losses associated with certain items (including the write-off of long-lived assets, integration costs and corporate reorganization costs) improved compared to the prior year.
<PAGE 23>
INTEREST EXPENSE
For the three months ended November 3, 2001, interest expense was $32.3 million, or 2.3% of net sales, compared to $36.9 million, or 2.4% of net sales, for the three months ended October 28, 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
The effective tax rates for the three months ended November 3, 2001 and October 28, 2000 were 36.9% and 37.4%, respectively. The decrease in the effective rate is the result of the effect of non-deductible goodwill amortization on lower earnings in the current period.
EXTRAORDINARY ITEM
The extraordinary gain for the three months ended November 3, 2001 was primarily due to the current period recognition of a gain on a previously terminated interest rate swap agreement resulting from the exchange of 2004 senior notes.
NET INCOME
Net loss increased from $8.1 million for the three months ended October 28, 2000 to $21.8 million for the three months ended November 3, 2001. The increase was primarily due to a decline in operating income resulting from negative comparable store sales, partially offset by reduced integration costs, decreased interest expense and the current period extraordinary gain.
<PAGE 24>
NINE MONTHS ENDED NOVEMBER 3, 2001 COMPARED TO NINE MONTHS ENDED OCTOBER 28, 2000
NET SALES
For the nine months ended November 3, 2001, total Company sales decreased $299.2 million, or 6.7%, versus the prior year period. Total sales for the nine-month period decreased by $153.0 million and $146.2 million at SDSG and SFAE, respectively. The sales decline at SDSG was attributable to a comparable stores decrease of 2.2% and the elimination of sales associated with 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 9.6% and was significantly affected by the events of September 11, 2001.
GROSS MARGIN
For the nine months ended November 3, 2001, gross margin was 35.3% of net sales, compared to 36.2% of net sales, for the nine months ended October 28, 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 at SFAE and SDSG.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SGA")
For the nine months ended November 3, 2001, SGA was $1,027.1 million, or 24.7% of net sales, compared to $1,030.1 million, or 23.1% of net sales, for the nine months ended October 28, 2001. The decrease in expenses was due to a decline in costs incurred at Saks Direct business and to the sale of the nine SDSG stores. This decline in expenses was partially offset by an increase in expenses related to the first quarter 2001 launch of loyalty programs for the Bank's SDSG proprietary credit cards and increased medical and insurance costs. The rate deterioration was primarily attributable to a decline in expense leverage resulting from the sales decline.
OTHER OPERATING EXPENSES
For the nine months ended November 3, 2001, other operating expenses were $429.2 million, or 10.3% of net sales, compared to $420.5 million, or 9.4% of net sales, for the nine months ended October 28, 2000. The increase in expenses was principally due to 1) depreciation expense resulting from new stores, remodels and expansions of existing stores and increased investments in information technology; and 2) increased rental expenses resulting from new and expanded leased stores. These increases were partially offset by the expenses associated with the nine stores sold to The May Department Stores Company. The decline in expense leverage was principally due to the inability to reduce fixed expenses relative to the decline in sales.
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INTEGRATION COSTS
For the nine months ended November 3, 2001, integration costs were $1.5 million, compared to $20.6 million for the nine months ended October 28, 2000. The 2001 charges were largely related to the continuing 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 consolidation of the southern distribution centers.
LOSSES FROM LONG-LIVED ASSETS
For the nine months ended November 3, 2001, the Company incurred losses from long-lived assets of $18.6 million related to (1) the goodwill and intangibles associated with the disposition of the Bullock & Jones catalog and the reorganization of the Saks Direct business and (2) property and equipment associated with the disposition of store locations. For the nine months ended October 28, 2000, losses from long-lived assets of $1.2 million related to the loss associated with the sale of a closed store, partially offset by gains from the sale of a store location and a closed distribution center.
OPERATING INCOME
Operating income for the nine months ended November 3, 2001 declined by $149.1 million from the prior year period. Operating income at SDSG declined by $19.4 million largely due to the decline in comparable store sales and the sale of the nine SDSG stores, partially offset by decreased markdowns and a reduction in operating expenses. Operating income at SFAE declined by $112.7 million primarily due to the comparable store sales decline and increased markdowns associated with the sales decline. Gains and losses associated with certain items (including the write down of long-lived assets, integration costs and corporate reorganization costs) also contributed to the decline in operating income.
INTEREST EXPENSE
For the nine months ended November 3, 2001, interest expense was $99.4 million, or 2.4% of net sales, compared to $109.2 million, or 2.5% of net sales, for the nine months ended October 28, 2000. The improvement was the result of a decline in the average debt balances during the current period and a reduction in short-term variable borrowing rates.
INCOME TAXES
The effective tax rates for the nine months ended November 3, 2001 and October 28, 2000 were 38.0% and 22.2%. Included in the provision for the nine months ended October 28, 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 38.3%. The decrease in the normalized effective rates is the result of the effect of non-deductible goodwill amortization on lower earnings for the current period.
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EXTRAORDINARY ITEM
The extraordinary gain for the nine months ended November 3, 2001 was primarily due to the repurchase of senior notes at a discount to the carrying value and the current period recognition of a gain on a previously terminated interest rate swap agreement resulting from the exchange of 2004 senior notes
NET INCOME (LOSS)
Net income (loss) decreased from $19.9 million for the nine months ended October 28, 2000 to $(53.6) million for the nine months ended November 3, 2001. The decline was largely due to negative comparable store sales, the write-offs associated with the disposition of Bullock & Jones, and store closings and was partially offset by the gain on extinguishment of debt.
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 $1.247 billion and $1.307 billion at November 3, 2001 and October 28, 2000, respectively. The decrease was primarily due to the year-to-date sales decrease.
Merchandise inventory balances at November 3, 2001 decreased from October 28, 2000 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 November 3, 2001 decreased over October 28, 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 November 3, 2001 decreased from October 28, 2000 primarily due to the reduction in store-related goodwill associated with the sale of nine SDSG stores and the sale of the Bullock & Jones catalog in connection with the reorganization of the Saks Direct business.
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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 (used in) operating activities was ($18.8) million for the nine months ended November 3, 2001 and $239.5 million for the nine months ended October 28, 2000. The decrease in operating cash flows was primarily related to the decline in net income and changes in working capital due to the timing of inventory receipts and payments associated with the 52/53 week retail calendar shift.
Cash provided by (used in) investing activities was $127.3 million for the nine months ended November 3, 2001 and ($194.3) million for the nine months ended October 28, 2000. The change was principally due to the proceeds received from the sale of nine SDSG stores and decreased capital expenditures.
Cash used in financing activities was $132.9 million for the nine months ended November 3, 2001 and $44.6 million for the nine months ended October 28, 2000. The change was primarily due to the current period repurchase of senior notes at a discount.
CAPITAL STRUCTURE
As of November 3, 2001, the Company had total debt outstanding of approximately $1.6 billion with $465 million available to borrow under its revolving credit facility that expires in 2003. This balance represents a debt to total capitalization percentage of 42.3% and a decrease of $306.7 million from October 28, 2000. The decrease was primarily due the application of operating cash flow and proceeds from the sale of nine SDSG stores to repurchase senior debt.
On November 20, 2001, the Company replaced its $750 million revolving credit facility that was scheduled to mature in September 2003 with a new $700 million revolving credit facility that will mature in November 2006. The credit facility is secured by the Company's merchandise inventories and will be used for working capital and general corporate purposes.
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 November 3, 2001, funding under this facility totaled approximately $1.1 billion, which consisted of $200 million in fixed rate term certificates outstanding, $811 million in floating rate term certificates outstanding and $93 million outstanding under its variable funding certificates.
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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.
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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 November 3, 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 6. Exhibits.
(a) Exhibits
10.1 Shareholder agreement between Saks Incorporated and Inmobiliaria
Carso, S.A. de C.V.
(b) Form 8-K Reports.
The following 8-K's were filed during the quarter ended November 3, 2001:
| Date Filed | Subject |
| | |
| August 21, 2001 | Earnings for second quarter ended August 4, 2001. |
| | |
| August 30, 2001 | Intent to make an exchange offer related to $450 million of 7-1/4% and 7% notes due 2004 and capital expenditures for the six months ended August 4, 2001. |
| | |
| September 28, 2001 | Receipt of required consents for the exchange offer relating to the $450 million of 7-1/4% and 7% notes due 2004. Update of September sales trend. Completion of offer to exchange cash and new 9-7/8% notes due 2011 for 7% and 7-1/4% notes due 2004. |
| | |
| October 11, 2001 | Successful completion of exchange of cash and new notes for 7% and 7-1/4% notes. |
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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
December 14, 2001
Date
/s/ Douglas E. Coltharp
Douglas E. Coltharp,
Executive Vice President and
Chief Financial Officer
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