SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended May 4, 1996
Commission File Number
SAKS HOLDINGS, INC.
(Exact name of the registrant as specified in its charter)
Delaware 52-1685667
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12 East 49th Street, New York, New York 10017
(Address of principal executive offices) (Zip Code)
(212) 940-4048
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
1) Yes |X| No | |
2) Yes | | No |X|
As of May 22, 1996 there were outstanding 63,029,105 shares of the issuer's
common stock, $.01 par value.
SAKS HOLDINGS, INC.
INDEX
Part I. Financial Information Page
Number
Item 1. Condensed Consolidated Balance Sheets as of May 4, 1996,
April 29, 1995 and February 3, 1996 1
Condensed Consolidated Statements of Operations for the
Thirteen weeks ended May 4, 1996 and
April 29, 1995 2
Condensed Consolidated Statements of Cash Flows for the
Thirteen weeks ended May 4, 1996 and
April 29, 1995 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-7
Part II. Other Information
Item 1 Legal proceedings 8
Item 2 Changes in securities 8
Item 3 Defaults upon senior securities 8
Item 4 Submission of matters to a vote of security holders 8
Item 5 Other information 8
Item 6 Exhibits and Reports on Form 8-K 8
Signatures 9
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (UNAUDITED)
May 4, April 29, February 3,
(in thousands) 1996 1995 1996
---------- ---------- ----------
ASSETS:
Current assets:
Cash and cash equivalents $ 10,935 $ 7,586 $ 6,627
Accounts receivable, net 54,750 47,178 37,426
Merchandise inventories 379,931 328,418 339,723
Other current assets and restricted cash 51,497 36,341 61,538
---------- ---------- ----------
Total current assets 497,113 419,523 445,314
Property and equipment, net 779,052 781,692 780,264
Intangibles and other assets 141,033 133,812 140,609
---------- ---------- ----------
Total Assets $1,417,198 $1,335,027 $1,366,187
========== ========== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable, trade $ 128,354 % 139,995 $ 119,399
Accrued liabilities 104,126 87,328 119,312
Taxes other than income taxes 16,219 32,993 21,456
Current portion of long-term debt 22,305 19,825 26,463
Other current liabilities 4,749 4,167 4,772
Total current liabilities 275,753 284,308 291,402
---------- ---------- ----------
Long-term debt 909,339 782,702 840,239
Other non-current liabilities 151,741 137,381 151,371
---------- ---------- ----------
Total liabilities 1,336,833 1,204,391 1,283,012
Shareholders' equity 80,365 130,636 83,175
---------- ---------- ----------
Total Liabilities & shareholders' equity $1,417,198 $1,335,027 $1,366,187
========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
1
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS of OPERATIONS
(UNAUDITED)
(In thousands except for Thirteen Weeks Ended
per share amounts) May 4, April 29,
1996 1995
--------- ---------
Net Sales $ 464,479 $ 384,575
Cost of sales, including buying and occupancy (323,173) (262,446)
--------- ---------
Gross Margin 141,306 122,129
Selling, general and administrative expenses (120,038) (109,236)
Impairment and special charges 0 (8,900)
--------- ---------
Operating income 21,268 3,993
Interest expense, net (24,221) (20,546)
--------- ---------
Income (loss) from operations
before income taxes (2,953) (16,553)
Income taxes 0 0
--------- ---------
Net income (loss) ($ 2,953) ($ 16,553)
========= =========
Net income (loss) per share ($ 0.07) ($ 0.37)
========= =========
Weighted avg. shares outstanding 44,967 44,955
========= =========
See Notes to Condensed Consolidated Financial Statements
2
SAKS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS
(UNAUDITED)
(in thousands) Thirteen Weeks Ended
May 4, April 29,
1996 1995
------- -------
Earnings and depreciation and amortization $ 15,338 $ 3,016
Adjustments to reconcile net earnings to net cash
(used in) operations:
Change in operating assets and liabilities (52,356) (9,051)
Net cash (used in) operating activities (37,018) (6,035)
-------- --------
Net cash (used in) investing activities (19,292) (17,208)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under senior credit facility 69,100 (47,568)
Borrowings of debt 0 75,000
Repayment of debt (4,159) 0
Financing costs (3,539) (5,353)
Other (784) (878)
-------- --------
Net cash provided by financing activities 60,618 21,201
-------- --------
Increase (decrease) during the period $ 4,308 ($ 2,042)
======== ========
See Notes to condensed Consolidated Financial Statements
3
SAKS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of presentation
The condensed consolidated financial statements of Saks Holdings, Inc. and
its subsidiaries (the "Company") are submitted in response to the
requirements of Form 10-Q and should be read in conjunction with the
consolidated financial statements previously filed. In the opinion of
management, these statements contain all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the
financial position, the results of operations and net cash flows for the
interim periods presented. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The retail industry is seasonal
in nature, and historically the results of operations for interim periods
may not be indicative of the results for the full year.
2. Special charges
A special charge of $8.9 million ($.20 per share) was recorded in the
thirteen weeks ended April 29, 1995. This charge represented costs to
integrate four former I. Magnin store locations.
3. Receivables Securitization
SFA Finance Company ("Finco") is a wholly owned subsidiary established for
the purpose of purchasing proprietary credit card receivables
("Receivables") from Saks & Company ("Saks"). In April 1996 Saks Master
Trust (the "New Receivables Trust") was formed pursuant to a pooling and
servicing agreement among Finco, Saks, as servicer, and Bankers Trust
Company, as trustee (the "New A/R Trustee"). The assets of the New
Receivables Trust currently consist principally of a certificate evidencing
the entire interest in the Transition Certificate, Series 1996-1 (the
"Transition Certificate"), which is the second outstanding series issued by
SFA Master Trust. The Transition Certificate represents the interest in the
assets of the SFA Master Trust not represented by Series 1991-2 and has a
principal amount which will fluctuate from time to time according to the
level of receivables in the SFA Master Trust in excess of the amount
required to support the Series 1991-2 Certificates. On the date on which
Series 1991-1 has been fully liquidated (the "Existing Trust Termination
Date"), the assets of the SFA Master Trust will be transferred to the New
Receivables Trust in exchange for the cancellation of the Transition
Certificate. After the Existing Trust Termination Date, Saks will receive
a fee for servicing the Receivables for the New Receivables Trust.
In April 1996 the New Receivables Trust sold two series of certificates of
beneficial interests. These certificates represent undivided interests in
the receivables generated from time to time by Saks by a portfolio of
accounts meeting the designated eligibility requirements. Series 1996-1
is a medium term series that matures in April 1999. Approximately $297
million of Class A Series 1996-1 Certificates and $53 million of Class B
Series 1996-1 Certificates were sold in non-public transactions.
Approximately $47 million of subordinated Series 1996-1 Certificates were
privately placed at the same time. All such certificates bear interest at
fixed spreads over one-month LIBOR. Finco retains approximately $16.5
million of subordinated Series 1996-1 Certificates. Series 1996-1 has a
substantial prefunded amount, which will be invested in Receivables (via
the Transition Certificate) as cash allocable to Series 1991-2 is no longer
reinvested in Receivables, but instead is accumulated in order to make the
principal payment due with respect thereto in November 1996.
Series 1996-2 is a series with a variable principal amount. The Class A
Series 1996-2 Certificates have a maximum outstanding principal balance of
$100 million and have been privately placed. Subordinated Series 1996-2
Certificates, with an aggregate maximum outstanding principal balance of
approximately $16.0 million, also were privately placed. All Series 1996-2
Certificates bear interest at fixed spreads over one-month LIBOR. Finco
will retain up to approximately $5.0 million of subordinated Series 1996-2
Certificates. The principal balance of Series 1996-2 is currently zero.
4
4. Contingencies
Saks is a defendant in a suit pending in the Supreme Court of the State of
New York, County of New York, in which the plaintiff, a former Saks
employee, contends, among other things, that Saks was negligent in hiring a
co-worker who allegedly assaulted the plaintiff. The plaintiff is seeking
$10 million in damages. Saks has moved to dismiss the action. Saks believes
that, subject to a self-insured retention, the claim is covered by Saks'
insurance. In connection with the suit, Saks also is in litigation with one
of its insurance providers regarding the provider's duties and obligations
under its insurance contract with Saks. Saks does not believe that the
resolution of these suits will have a material adverse impact on its
financial position or results of operations.
The Company also is involved in various other suits and claims in the
ordinary course of business. Management does not believe that the
disposition of such suits will have a material adverse effect on the
financial position or continuing operations of the Company.
The Company has entered into an agreement to sell its current distribution
facility, located in Yonkers, New York. The sale is subject to the
successful rezoning of the property. If rezoned, proceeds associated with
the sale would fall within the range of $20 to $25 million. A sale of the
distribution center in this price range could result in a gain on sale of
$8 to $13 million. Management is unable to determine at this time if this
transaction will be completed.
5. Accounting for the Impairment of Long-Lived Assets
As required, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets"
beginning with fiscal 1996 reporting. SFAS 121 requires that long-lived
assets and certain identifiable intangibles be reviewed whenever events or
changes in circumstances indicate that recoverability is questionable. The
adoption did not have a material effect on the results of operations or
financial position.
6. Subsequent events
In May 1996, the Company completed an initial public offering. The Company
sold approximately 18 million shares at an initial offering price, net of
underwriting discount, of $23.50 per share. The net proceeds from the
offering were approximately $419 million. The net proceeds from the
offering were primarily used to prepay term loan borrowings under the
Senior Credit Facility and repay outstanding balances on the revolving
credit portion of the facility. Effective with the offering the Company
amended its Senior Credit Facility to lower the spread on its variable
interest rate borrowings under the Facility and change the availability
of borrowings under the Facility. Upon completion of the initial public
offering, the Company had $322 million of borrowing capacity available
under the revolving credit portion of the Facility and had $144 million
in term loan borrowings outstanding.
5
Saks Holdings, Inc.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations for the Thirteen Weeks Ended May 4, 1996
Compared with the Thirteen Weeks Ended April 29, 1995
Net sales for the thirteen weeks ended May 4, 1996 were $464.5 million, an
increase of $79.9 million or 20.8% over net sales of $384.6 million reported in
the thirteen weeks ended April 29, 1995. Comparable sales increased 15.9% from
the 1995 fiscal period. Because fiscal 1995 included 53 weeks, the 13 week
period in fiscal 1996 and 1995 are not comparable. Adjusting for the week
difference in the calendar, the increases in total and comparable sales were
17.9% and 13.3% respectively.
Full-line and resort store net sales increased $56.6 million, or 16.4 %, from
$346.0 million in the fiscal 1995 period to $402.6 million in the fiscal 1996
period. Comparable sales increased 15.1% from the fiscal 1995 period. Off 5th
store net sales increased $18.4 million, or 91.9%, from $20.0 million to $38.3
million, primarily the result of the opening of eleven new stores in the fall of
1995. Comparable sales increased 18.6% from the fiscal 1995 period. Folio
catalog net sales increased by $5.0 million, or 26.7%, from $18.6 million to
$23.6 million.
Cost of sales includes the cost of merchandise and buying and occupancy costs.
Cost of sales increased $60.7 million or 23.1% during the thirteen weeks ended
May 4, 1996 compared to the 1995 fiscal period. As a percentage of net sales,
cost of sales including buying and occupancy costs was 69.6% in the fiscal 1996
period compared to 68.2% in the fiscal 1995 period. The increase in the cost of
sales rate for the fiscal 1996 period was due to several factors. These factors
included primarily the cost of customer affinity programs, the increased
penetration of lower margin Off 5th sales and increased cost of sales rate for
Folio.
Selling, general and administrative expenses increased by $10.8 million or 9.9%
to $120.0 million in the thirteen weeks ended May 4, 1996 from the 1995 fiscal
period primarily due to higher sales volume related costs. As a percentage of
net sales, selling, general and administrative expenses were 25.8% in the 1996
fiscal period compared to 28.4% in the 1995 fiscal period. The improvement in
the selling, general and administrative expense rate resulted primarily from
improved store expense leverage. A portion of this improved leverage results
from the calendar shift following the 53 week 1995 fiscal year.
Special charges of $8.9 million ($.20 per share) were recorded in the fiscal
1995 period. These charges represent costs associated with the integration of
four former I. Magnin store locations.
Operating income was $21.3 million in the fiscal 1995 period, an increase of
$17.3 million from the fiscal 1995 period. Excluding the special charges in the
1995 period, operating income increased by $8.4 million or 65.0%.
6
Interest expense increased 17.9% to $24.2 million in the thirteen weeks ended
May 4, 1996 compared to the 1995 fiscal period, primarily due to increased
borrowing levels to support working capital growth and capital expenditures as
well as slightly higher costs associated with a real estate financing facility
that was put into place in May 1995.
At February 3, 1996, the Company had a net operating loss carryforward of $728
million which is available to offset taxes otherwise payable on the Company's
future earnings. The carryforwards begin to expire, unless used, in fiscal 2005.
The Company anticipates that the income tax provision for the full year will be
immaterial, therefore the benefit has not been reflected in the thirteen week
period ended May 4, 1996.
Changes in Financial Condition and Liquidity since February 3, 1996
During the fiscal 1996 period, the Company financed its working capital needs
and capital expenditures primarily with cash provided by its Senior Credit
Facility. The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
Condensed Consolidated Statement of Cash Flows.
Net cash used in operating activities was $37.0 million during the thirteen
weeks ended May 4, 1996. The primary items affecting working capital were a net
increase in merchandise inventories of $35.3 million (net of related payables).
Net cash used in investing activities was $19.3 million during the thirteen
weeks ended May 4, 1996. Capital expenditures were $14.0 million, net of
construction allowances, during the fiscal 1996 period and consisted principally
of construction of new stores and the development of and investment in new MIS
systems to support the long term growth and business strategies of the company.
The company plans to open five new full line and resort stores by the fall of
1996 and fourteen new Off 5th stores through out the year.
The Company increased its bank borrowings by $69.1 million during the thirteen
weeks ended May 4, 1996. At that date, the Company had $44 million available
under its Senior Credit Facility.
In April 1996, the Company replaced its existing accounts receivable
securitization program with a new facility. The program includes $413 million in
floating rate medium term notes and $121 million in variable principal floating
rate series. The medium term notes and variable principal amount series mature
in April 1999.
The Company completed an initial public offering on May 22, 1996 whereby the
Company sold approximately 18 million shares of common stock. The net proceeds
of approximately $419 million were primarily used to prepay term loan borrowings
under the Senior Credit Facility and repay outstanding balances on the revolving
credit portion of such facility.
7
SAKS HOLDINGS, INC.
PART II OTHER INFORMATION
Item 1 Legal proceedings Not Applicable
Item 2 Changes in securities Not Applicable
Item 3 Defaults upon senior securities Not Applicable
Item 4 Submission of matters to a vote of security holders Not Applicable
Item 5 Other Information Not Applicable
Item 6(a) Exhibits Exhibit 27: Financial Data Schedule
Item 6(b) Reports on Form 8-K Not Applicable
8
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAKS HOLDINGS, INC
------------------
(Registrant)
/S/ Mark E. Hood
Date: July 03, 1996 ..................................
Mark E. Hood
Vice President - Finance
Principal Accounting Officer
9