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 October 28, 2000

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: October 28, 2000
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 -- 141,570,840 shares as of October 28, 2000

 

SAKS INCORPORATED

Index

PART I. FINANCIAL INFORMATION   Page No.     Item 1. Financial Statements
(Unaudited)      Condensed Consolidated Balance Sheets -- October 28, 2000,
January 29, 2000, and October 30, 1999 3   Condensed Consolidated Statements of
Income -- Three Months and Nine Months Ended October 28, 2000 and October 30,
1999 4   Condensed Consolidated Statements of Cash Flows -- Nine Months Ended
October 28, 2000 and October 30, 1999 5   Notes to Condensed Consolidated
Financial Statements 6     Item 2. Management's Discussion and Analysis of
Financial
               Condition and Results of Operations                       
        21      Item 3. Quantitative and Qualitative Disclosures About
                Market Risk 28 PART II. OTHER INFORMATION       Item 6. Exhibits
and Reports on Form 8-K 30 SIGNATURES 31

 

SAKS INCORPORATED and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)

October 28,
2000
(Unaudited)

January 29,
2000

October 30,
1999
(Unaudited)

ASSETS

Current Assets

    Cash and cash equivalents

$ 20,128

$ 19,560

$ 20,949

    Retained interest in accounts receivable

198,019

202,134

172,334

    Merchandise inventories

1,912,388

1,487,783

1,872,257

    Other current assets

78,575

122,983

87,358

    Deferred income taxes

          39,650 

        62,198  

         65,807  

      Total current assets

2,248,760

1,894,658

2,218,705

Property and Equipment, net

2,408,180

2,350,543

2,294,537

Goodwill and Intangibles, net

556,936

578,001

583,479

Deferred Income Taxes

190,434

213,204

259,498

Other Assets

        62,006  

        62,546  

         64,251  

TOTAL ASSETS

       $ 5,466,316
===========

     $ 5,098,952
==========

     $ 5,420,470
==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

    Trade accounts payable

$ 661,258

$ 235,967

$ 596,674

    Accrued expenses and other current liabilities

500,708

540,124

495,620

    Current portion of long-term debt

          6,406  

         7,771  

        8,663  

      Total current liabilities

1,168,372

783,862

1,100,957

Long-Term Debt

1,948,234

1,966,802

2,090,011

Other Long-Term Liabilities

             127,592

           139,945

           157,744

      Total liabilities

3,244,198

2,890,609

3,348,712

Commitments and Contingencies

Common Equity Put Options

-     

-     

8,875

Shareholders' Equity

          2,222,118

        2,208,343

        2,062,883

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

       $ 5,466,316
===========

     $ 5,098,952
===========

     $ 5,420,470
===========

See notes to condensed consolidated financial statements.

 

 

SAKS INCORPORATED and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share amounts)

 

Three Months Ended

Nine Months Ended

October 28, 2000
(Unaudited)

October 30, 1999
(Unaudited)

October 28,
2000
(Unaudited)

October 30, 1999
(Unaudited)

Net sales

$ 1,565,708

$ 1,547,476

$ 4,450,433

$ 4,386,789

Cost of sales

      1,002,317

       960,666

       2,840,855

        2,735,925

    Gross margin

563,391

586,810

1,609,578

1,650,864

Selling, general and administrative expenses

371,882

354,584

1,026,917

990,270

Other operating expenses

150,175

138,972

420,473

387,235

Store pre-opening costs

2,657

7,268

5,698

10,705

Integration costs

14,366

8,305

20,559

26,754

Losses from long-lived assets and closings

         570

             1,903   

              1,244   

               1,903   

Year 2000 expenses

              -   

         531

                -   

        4,523

  Operating income

23,741

75,247

134,687

229,474

Other income (expense):

  Interest expense

(36,851)

(33,847)

(109,234)

(103,135)

  Other income (expense), net

         91  

        78

            152  

         2,898  

Income (loss) before provision (benefit) for 
    income taxes and extraordinary items
 (13,019)

 41,478

 25,605
 129,237 Provision (benefit) for income taxes       (4,870)            15,578
         5,686

          50,783

Income (loss) before  extraordinary items

(8,149) 25,900 19,919 78,454

Extraordinary loss on extinguishment of

 
    debt, net of taxes

                    -   
                   -   
                   -   
           (9,261)   Net income (loss) $ (8,149)
========= $ 25,900
========= $ 19,919
=========

$ 69,193
=========

Basic earnings (loss) per common share:     Income (loss) before extraordinary
items $ (0.06) $ 0.18 $ 0.14 $ 0.54

    Extraordinary items

                  -                       -                       -   
           (0.06)  

   Net income (loss)

$ (0.06)
=========

$ 0.18
=========

$ 0.14
========= $ 0.48
========= Diluted earnings (loss) per common share:    Income (loss) before
extraordinary items $ (0.06) $ 0.18 $ 0.14 $ 0.53

   Extraordinary items

                   -   

                   -   

                   -   

          (0.06)  

   Net income (loss)

$ (0.06)
=========

$ 0.18
=========

$ 0.14
=========

$ 0.47
=========

Weighted average common shares:

   Basic

141,470

144,139

141,660

144,446

   Diluted

142,964

145,154

142,545

146,686

See notes to condensed consolidated financial statements.

SAKS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)

Nine Months Ended

October 28, 2000
(Unaudited)

October 30, 1999
(Unaudited)

Operating Activities:

Net income

$ 19,919

$ 69,193

Adjustments to reconcile net income to net cash

provided by (used in) operating activities:

Depreciation and amortization

154,802

132,932

Losses from long-lived assets and closings

1,244

1,903

Extraordinary loss on extinguishment of debt

-

7,310

Deferred income taxes

11,543

8,469

Change in operating assets and liabilities, net

        51,946

       (253,051)

Net Cash Provided By (Used In) Operating Activities

239,454

(33,244)

Investing Activities:

Purchases of property and equipment, net

(213,791)

(320,427)

Proceeds from the sale of assets

19,455

22,514

Acquisition of stores

                -    

         (4,500)   

Net Cash (Used In) Investing Activities

(194,336)

(302,413)

Financing Activities:

Proceeds from long-term borrowings

-

550,000

Payments on long-term debt and capital lease obligations

(5,933)

(14,701)

Borrowings (repayments) under credit facilities

(14,000)

(326,700)

Purchases and retirements of common stock

(25,010)

(18,745)

Proceeds from issuance of common stock

393

6,088

Release of cash held in escrow for debt redemption

-

363,753

Payment of REMIC certificates

                -   

    (235,841)

Net Cash Provided By (Used In) Financing Activities

(44,550)

323,854

Increase (Decrease) In Cash and Cash Equivalents

568

(11,803)

Cash and cash equivalents at beginning of period

       19,560

       32,752

Cash and cash equivalents at end of period

$ 20,128
========

$ 20,949
========

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
the Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and nine months ended
October 28, 2000 are not necessarily indicative of the results that may be
expected for the year ending February 3, 2001. 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 January 29, 2000.

The accompanying balance sheet at January 29, 2000 has been derived from the
audited financial statements at that date but does not include all Generally
Accepted Accounting Principles disclosures.

Sales, as previously reported in prior years, have been restated to exclude
leased department sales and other sales with no effect on previously reported
gross margin, operating income, net income, shareholders' equity or cash flows.
Restated sales amounts represent only owned department sales and leased
department commissions. Leased department sales of $54.9 million and $49.8
million are excluded from net sales, and commissions from leased departments of
$8.3 million and $7.6 million are included in net sales for the three months
ended October 28, 2000 and October 30, 1999, respectively. Leased department
sales of $165.8 million and $146.8 million are excluded from net sales, and
commissions from leased departments of $25.2 million and $22.3 million are
included in net sales for the nine months ended October 28, 2000 and October 30,
1999, 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.

NOTE 2 -- BUSINESS COMBINATIONS AND INTEGRATION COSTS

For the three and nine-month periods ended October 28, 2000 and October 30,
1999, the Company incurred certain integration costs related to prior business
combinations. The costs for 2000 were primarily comprised of systems conversions
and other related charges associated with the consolidation efforts of the
Herberger's and McRae's operating divisions and distribution centers. The costs
for 1999 primarily consisted of the consolidation and conversion of redundant
systems and administrative operations.

A reconciliation of the aforementioned costs to the amounts of integration costs
remaining unpaid at October 28, 2000 is as follows (in thousands):

Amounts unpaid at January 29, 2000 and related to prior integration events

$ 13,576

Revisions to prior year estimates

(3,674)

Integration costs for the period

24,233

Amounts paid during the period

(21,998)

Amounts representing non-cash charges

   (4,925)   

Amounts unpaid at October 28, 2000

$ 7,212
========

The components of the aforementioned amounts unpaid are as follows (in
thousands):

October 28,
     2000    

January 29,
     2000    

Direct merger costs

$ 2,007

$ 5,558

Severance related to merger and integration efforts

4,652

6,874

Contractual obligations with extended payment terms

177

248

Other

      376

      896

Total

$ 7,212
======

$ 13,576
======

NOTE 3 -- EARNINGS PER COMMON SHARE

Calculations of earnings per common share ("EPS") for the three and nine months
ended October 28, 2000 and October 30, 1999 are as follows (income and shares in
thousands):

                         

For the Three Months Ended
                  October 28, 2000                

 

For the Three Months Ended
             October 30, 1999              

 

Income (a)   Weighted Average Shares  
Per Share Amount  

Income (a)   Weighted Average Shares  
Per Share Amount Basic EPS $ (8,149)   141,470   $(0.06)   $25,900   144,139  
$  0.18 Effect of dilutive stock options (based on the treasury stock method
using the average price)

                    

          1,494  

                    

                    

       1,015  

                   Diluted EPS $ (8,149)
=======   142,964
=======   $ (0.06)
=======   $25,900
=======   145,154
=======   $ 0.18
=======                          

For the Nine Months Ended
                  October 28, 2000                

 

For the Nine Months Ended
             October 30, 1999              

 

Income (a)   Weighted Average Shares  
Per Share Amount  

Income (a)   Weighted Average Shares  
Per Share Amount Basic EPS $ 19,919   141,660   $  0.14   $78,454   144,446   $ 
0.54 Effect of dilutive stock options (based on the treasury stock method using
the average price)

                    

         885  

                    

                    

       2,240  

                   Diluted EPS $ 19,919
=======   142,545
=======   $ 0.14
=======   $78,454
=======   146,686
=======   $ 0.53
=======                         (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.

NOTE 5 -- SEGMENT REPORTING

The Company has identified the following three reportable segments: department
stores, furniture and the direct response business. The department stores
segment includes all department stores that the Company operates as well as the
proprietary credit card operation owned by National Bank of the Great Lakes (the
"Bank"), the Company's wholly owned subsidiary. The Bank's proprietary credit
card operation is considered an integral component of the department stores
segment, as its primary purpose is to support and enhance this segment's retail
operations. The furniture segment includes the Company's five freestanding
furniture stores as well as furniture departments within existing department
stores. The direct response business segment includes the Company's Folio and
Bullock & Jones direct marketing catalogs and the electronic commerce business,
saksfifthavenue.com. The combined operations of the furniture and direct
response business segments represent less than three percent of the Company's
total revenues, assets and operating profit. As a consequence, the results of
operations of these two segments are not segregated, and the three identified
segments are combined within the consolidated financial statements of the
Company. The Company launched its saksfifthavenue.com website during August 2000
and anticipates that when the direct response business becomes a significant
segment, it will be disclosed separately. Management continues to address the
appropriateness of the company's reportable segments in light of continuing
changes in the Company's customers, merchandise assortments and organizational
structure.

NOTE 6 -- NEW ACCOUNTING PRONOUNCEMENTS

In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133," which amended the effective date provisions of SFAS No. 133.
The statement defers application of SFAS No. 133 to all fiscal quarters of all
fiscal years beginning after June 15, 2000. Thus, SFAS No. 133 will be effective
for the Company in the first quarter of fiscal year 2001. In June 2000, the FASB
issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133," which amended
certain provisions within the body of the original FASB Statement No. 133.
Management has begun its assessment of the impact that these new standards will
have on the Company's financial statements. The impact of these standards on the
Company's financial position and results of operations is not expected to be
material.

NOTE 7 -- COMPREHENSIVE INCOME

The Company had no components of comprehensive income for the three or
nine-month periods ended October 28, 2000 and October 30, 1999 other than net
income.

NOTE 8 -- SHARE REPURCHASES

In July 1999, the Board of Directors of the Company authorized a share
repurchase program for up to five million shares, or approximately 3.5% of the
then outstanding common stock. As of January 29, 2000, 2,004,000 shares had been
repurchased under the program for an aggregate amount of $33.3 million. For the
nine months ended October 28, 2000, the Company repurchased an additional
2,041,000 shares for an aggregate amount of $25.0 million.

NOTE 9 -- SPIN-OFF OF BUSINESSES

On July 19, 2000, the Company announced that the Board of Directors had
unanimously approved plans for a strategic restructuring whereby Saks
Incorporated intends to spin off its Saks Fifth Avenue, Saks Direct, and Saks
Off 5th operations into a separate, publicly owned company to be named Saks
Fifth Avenue Enterprises, Inc. The spin-off is expected to be completed in mid
2001.

NOTE 10 -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The following tables present condensed consolidating financial information for:
1) Saks Incorporated; 2) on a combined basis, the guarantors of Saks
Incorporated's Senior Notes (which are all of the subsidiaries of Saks
Incorporated except for special purpose subsidiaries, the Bank and other
immaterial subsidiaries); and 3) on a combined basis, the Company's special
purpose subsidiaries, the Bank and other 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 October 28, 2000
and October 30, 1999 and as of January 29, 2000 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
informal lending arrangement. There are also management and royalty fee
arrangements among Saks Incorporated and the subsidiaries. At October 28, 2000,
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.

SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT OCTOBER 28, 2000 (Unaudited)
(Dollar Amounts In Thousands)

Saks
 Incorporated

Guarantor 
Subsidiaries

Non-Guarantor 
Subsidiaries

Eliminations

Consolidated

ASSETS

Current Assets

  Cash and cash equivalents

($2,531)  

$22,659  

$20,128  

  Retained interest in accounts receivable

198,019  

198,019  

  Merchandise inventories

$3,847 

1,908,541  

1,912,388  

  Deferred income taxes

51,623  

(11,973)

39,650  

  Intercompany borrowings

933 

19,908  

2,927  

($23,768)

  Other current assets

             

      78,523  

                52  

              

     78,575  

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  
==========

SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED OCTOBER 28, 2000 (Unaudited)
(Dollar Amounts In Thousands)

Saks
 Incorporated

Guarantor 
Subsidiaries

Non-Guarantor
 Subsidiaries

Eliminations

Consolidated

Net sales

$3,740  

$1,561,968  

$1,565,708  

Costs and expenses

  Cost of sales

2,671  

999,646  

1,002,317  

  Selling, general and administrative expenses

2,629  

398,447  

$17,492  

($46,686)  

371,882  

  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 and closings

              

         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 before provision (benefit) for 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)  
=========

SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 28, 2000 (Unaudited)
(Dollar Amounts In Thousands)

Saks
Incorporated

Guarantor
Subsidiaries

Non-Guarantor
 Subsidiaries

Eliminations

Consolidated

Net sales

$10,018  

$4,440,415  

4,450,433  

Costs and expenses

  Cost of sales

6,842  

2,843,013  

2,840,855  

  Selling, general and administrative expenses

8,628  

1,115,954  

$49,560  

($147,225)  

1,026,917  

  Other operating expenses

2,898  

417,575  

420,473  

  Store pre-opening costs

5,698  

5,698  

  Integration costs

20,559  

20,559  

  Losses from long-lived assets and closings

             

      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

(103,546)  

(3,673)  

(2,015)  

(109,234)  

  Other income (expense), net

             

            152  

             

             

            152  

Income before provision (benefit) for 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  
========

SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 28, 2000 (Unaudited)
(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  

  Deferred income taxes

4,610  

6,933  

11,543  

  Losses from long-lived assets and closings

1,244  

1,244  

  Changes in operating assets and liabilities, net

      8,803  

      38,052  

       5,091  

               

      51,946  

       Net Cash Provided By (Used In) Operating
       Activities

(62,354)  

230,898  

70,910  

239,454  

INVESTING ACTIVITIES

  Purchases of property and equipment, net

(213,791)  

(213,791)  

  Proceeds from the 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 (repayments) under credit facilities

(14,000)  

(14,000)  

  Purchases and retirements of common stock

(25,010)  

(25,010)  

  Proceeds from issuance of common stock

         393  

               

               

               

           393  

       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  
========

SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT OCTOBER 30, 1999 (Unaudited)
(Dollar Amounts In Thousands)

Saks 
Incorporated

Guarantor 
Subsidiaries

Non-Guarantor
 Subsidiaries

Eliminations

Consolidated

ASSETS

                 

Current Assets

  Cash and cash equivalents

($6,518)  

$27,467  

$20,949  

  Retained interest in accounts receivable

172,334  

172,334  

  Merchandise inventories

1,872,257  

1,872,257  

  Deferred income taxes

65,812  

(5)  

65,807  

  Intercompany borrowings

$4,786   

($4,786)  

  Other current assets

            

      84,298  

      3,060  

            

    87,358  

 

Total Current Assets

4,786  

2,015,849  

202,856  

(4,786)  

2,218,705  

Property and Equipment, net

1,753,919  

540,618  

2,294,537  

Goodwill and Intangibles, net

583,479  

 583,479  

Other Assets

58,369  

5,882  

64,251   

Deferred Income Taxes

259,498  

259,498  

Investment in and Advances to Subsidiaries

4,057,895  

1,625,928  

 

               

(5,683,823)  

            

Total Assets

$4,062,681  
========

$6,297,042  
========

$749,356  
========

($5,688,609)  
========

$5,420,470  
========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

  Trade accounts payable

$596,674  

$596,674  

  Accrued expenses and other current liabilities

$44,009  

447,393  

$4,218  

495,620  

  Intercompany borrowings

4,786  

($4,786)  

  Current portion of long-term debt

             

       8,663  

             

             

      8,663  

Total Current Liabilities

44,009  

1,052,730  

9,004  

(4,786)  

1,100,957  

Long-Term Debt

1,931,300  

158,711 

2,090,011  

Deferred Income Taxes

(8,237)  

8,237  

Other Long-Term Liabilities

15,614  

142,130  

 

157,744  

Investment by and Advances from Parent

   

4,951,708  

 732,115  

(5,683,823)  

Common Equity Put Options 8,875               8,875    

Shareholders' Equity

 2,062,883  

             

             

             

   2,062,883  

Total Liabilities and Shareholders' Equity

$4,062,681  
========

$6,297,042  
========

$749,356  
========

($5,688,609)  
========

$5,420,470  
========

SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED OCTOBER 30, 1999 (Unaudited)

Saks Incorporated

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Eliminations

Consolidated

Net sales

$1,547,476  

$1,547,476  

Costs and expenses

  Cost of sales

960,666  

960,666  

  Selling, general and administrative expenses

$2,696  

371,305  

$25,529  

($44,946)  

354,584  

  Other operating expenses

313  

148,941  

(10,282)  

138,972  

  Store pre-opening costs

7,268  

7,268  

  Integration costs

8,305  

8,305  

  Losses from long-lived assets and closings 1,903    1,903   

  Year 2000 expenses

               

          531  

               

               

        531  

Operating income (loss)

(3,009)  

48,557  

(15,247)  

44,946  

75,247  

Other income (expense)

  Finance charge income, net

44,946  

(44,946)  

  Intercompany exchange fees

(9,356)  

9,356  

  Intercompany servicer fees

11,701  

(11,701)  

  Equity in earnings of subsidiaries

51,685  

3,372  

(55,057)  

  Interest expense

(33,366)  

(1,219)  

738   

(33,847)  

  Other income (expense), net

               

           78  

               

               

           78  

Income before income

taxes 

15,310  

53,133  

28,092  

(55,057)  

41,478  

Provision (benefit) for income taxes

    (10,590)  

       15,993  

       10,175  

               

      15,578  

Net income

$25,900  
==========

$37,140  
==========

$17,917  
==========

($55,057)  
==========

$25,900  
==========

SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 30, 1999 (Unaudited)

(Dollar Amounts In Thousands)

Saks Incorporated

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Eliminations

Consolidated

Net sales

$4,386,789   

$4,386,789  

Costs and expenses

  Cost of sales

2,735,925  

2,735,925  

  Selling, general and administrative expenses

$7,591  

1,041,566  

$73,612  

($132,499)  

990,270  

  Other operating expenses

1,180  

416,901  

(30,846)  

387,235  

  Store pre-opening costs

10,705  

10,705  

  Integration costs

  26,754  

26,754  

  Loses from long-lived assets and closings 1,903    1,903   

  Year 2000 expenses

                

        4,523  

                

                

         4,523  

Operating income (loss)

(8,771)  

148,512  

(42,766)  

132,499  

229,474  

Other income (expense)

  Finance charge income, net

132,499  

(132,499)  

  Intercompany exchange fees

(25,152)  

25,152  

  Intercompany servicer fees

30,331  

(30,331)  

  Equity in earnings of subsidiaries

136,540  

11,783  

(148,323)  

  Interest expense

(96,063)  

(7,072)  

 

(103,135)  

  Other income (expense), net

                

         2,898  

                

                

        2,898  

Income before provision (benefit) for income

taxes and extraordinary items

31,706  

161,300  

84,554  

(148,323)  

129,237  

Provision (benefit) for income taxes

       (37,487)  

      57,096  

       31,174  

                

     50,783  

Income before extraordinary items

69,193  

104,204  

53,380  

(148,323)  

78,454  

Extraordinary items, net of taxes

                

                

       (9,261)  

                

    (9,261)  

Net income

$69,193  
==========

$104,204  
==========

$44,119  
==========

($148,323)  
==========

$69,193  
==========

SAKS INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 30, 1999 (Unaudited)
(Dollar Amounts In Thousands)

Saks Incorporated

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Eliminations

Consolidated

OPERATING ACTIVITIES

Net income

$69,193  

$104,204  

$44,119  

($148,323)  

$69,193  

Adjustments to reconcile net income to net cash provided by (used in) operating
activities:

  Equity in earnings of subsidiaries

(136,540)  

(11,783)  

148,323  

  Depreciation and amortization

122,477  

10,455  

132,932  

  Deferred income taxes

8,469  

8,469  

  Extraordinary loss on extinguishment of debt

7,310  

7,310  

  Losses from long-lived assets and closings 1,903    1,903   

  Changes in operating assets and liabilities, net

               

   (216,578)  

        (36,473)  

                

 (253,051)  

        Net Cash Provided By (Used In) Operating
        Activities

(67,347)  

8,692   

25,411  

(33,244)  

INVESTING ACTIVITIES

  Purchases of property and equipment, net

(274,788)  

(45,639)  

(320,427)  

  Proceeds from sale of assets 22,514     22,514    

  Acquisition of stores

               

       (4,500)  

               

               

   (4,500)  

        Net Cash Used In Investing Activities

(256,774)  

(45,639)  

(302,413)  

FINANCING ACTIVITIES

  Intercompany borrowings, contributions and
     distributions

(163,662)  

(80,737)  

244,399  

  Proceeds from long-term borrowings

550,000  

550,000  

  Payments on long-term debt and capital lease
      obligations

(14,701)  

(14,701)  

  Borrowings (repayments) under credit facilities

(326,700)  

(326,700)  

  Payment of REMIC certificates

(235,841)  

(235,841)  

  Release of cash held in escrow for debt
       redemption

363,753  

363,753  

  Proceeds from issuance of common stock

        6,088  

               

               

               

       6,088  

  Repurchase and retirement of common stock (18,745)                 
                                   (18,745)

        Net Cash Provided By (Used In) Financing
        Activities

46,981  

268,315  

8,558   

323,854  

Increase (Decrease) In Cash and Cash Equivalents

(20,366)  

20,233  

(11,670)  

(11,803)  

Cash and cash equivalents at beginning of period

      20,366  

    (26,751)  

      39,137  

              

     32,752  

Cash and cash equivalents at end of period

$0  
=========

($6,518)  
=========

$27,467  
=========

=========

$20,949  
=========

SAKS INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS AT JANUARY 29, 2000
(Dollar Amounts In Thousands)

Saks
 Incorporated

Guarantor
  Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

Consolidated

ASSETS

Current Assets

  Cash and cash equivalents

($3,049)  

$22,609  

$19,560  

  Retained interest in accounts receivable

202,134  

202,134  

  Merchandise inventories

1,487,783  

1,487,783  

  Deferred income taxes

67,238  

(5,040)  

62,198  

  Intercompany borrowings

$27,659  

23,883  

7,636  

($59,178)  

  Other current assets

              

      122,941  

              42  

              

       122,983  

Total Current Assets

27,659  

1,698,796  

227,381  

(59,178)  

1,894,658  

Property and Equipment, net

2,350,543  

2,350,543  

Goodwill and Intangibles, net

578,001  

578,001  

Other Assets

56,657  

5,889  

62,546  

Deferred Income Taxes

213,204  

213,204  

Investment in and Advances to Subsidiaries

4,023,830  

      93,042  

              

(4,116,872)  

              

Total Assets

$4,051,489  
=========

$4,990,243  
=========

$233,270  
=========

($4,176,050)  
=========

$5,098,952  
=========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

  Trade accounts payable

$235,967  

$235,967  

  Accrued expenses and other current liabilities

$22,769  

512,130  

$5,225  

540,124  

  Intercompany borrowings

7,636  

51,542  

($59,178)  

  Current portion of long-term debt

               

         7,771  

               

               

         7,771  

Total Current Liabilities

22,769  

763,504  

56,767  

(59,178)  

783,862  

Long-Term Debt

1,809,000  

157,802  

1,966,802  

Other Long-Term Liabilities

11,377  

128,568  

139,945  

Investment by and Advances from Parent

3,940,369  

176,503  

(4,116,872)  

Shareholders' Equity

 2,208,343  

               

               

               

2,208,343  

Total Liabilities and Shareholders' Equity

$4,051,489  
=========

$4,990,243  
=========

$233,270  
=========

($4,176,050)  
=========

$5,098,952  
=========

 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION

RESULTS OF OPERATIONS

 Three Months Ended   Nine Months Ended 10/28/00 10/30/99 10/28/00 10/30/99 Net
sales 100.0% 100.0% 100.0% 100.0% Costs and expenses:     Cost of sales  64.0 
62.1 63.8 62.4     Selling, general & administrative expenses 23.8 22.9  23.1 
 22.6     Other operating expenses  9.6 9.0 9.5  8.8     Store pre-opening
costs  0.2 0.5  0.1  0.2    Integration costs  0.9 0.5  0.5 0.6    Losses from
long-lived assets  0.0  0.1 0.0  0.0    Year 2000 expenses  0.0  0.0   0.0   
0.1      Operating income   1.5   4.9   3.0 5.2 Other income (expense):
 Interest expense (2.4)   (2.2) (2.5) (2.4) Other income (expense), net   0.0
0.0  0.0 0.1   Income (loss) before provision (benefit) for
     income taxes and extraordinary items  (0.8) 2.7    0.5  2.9  Provision
(benefit) for income taxes (0.3) 1.0   0.1  1.2    Income (loss) before
extraordinary items (0.5)  1.7   0.4 1.8 Extraordinary loss, net of taxes 0.0
0.0 0.0 (0.2) NET INCOME (LOSS)     (0.5)%     1.7%    0.4%    1.6%

 

THREE MONTHS ENDED OCTOBER 28, 2000 COMPARED TO THREE MONTHS ENDED OCTOBER 30,
1999

NET SALES

For the three months ended October 28, 2000, total Company sales were $1.57
billion, a 1.2% increase over $1.55 billion in the prior year. This sales
increase was primarily attributable to sales from new stores opened during the
prior twelve months, coupled with a comparable store sales increase of 0.4% and
partially offset by the reduction of sales associated with closed stores. During
the last twelve months, new store openings included four Saks Fifth Avenue
stores, two Saks Off 5th stores, one Carson Pirie Scott store and one Parisian
store. Stores closed during the last twelve months included one Carson Pirie
Scott store, one Parisian store, two Younkers stores and two Saks Fifth Avenue
stores.

GROSS MARGIN

For the three months ended October 28, 2000, gross margin was $563.4 million, or
36.0% of net sales, compared to $586.8 million, or 37.9% of net sales, for the
three months ended October 30, 1999. The decrease in gross margin rate was
primarily due to increased markdowns being incurred in an effort to clear spring
merchandise as a result of lower than expected spring sales, partially offset by
a shift in the timing of seasonal markdowns.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SGA")

For the three months ended October 28, 2000, SGA was $371.9 million, or 23.8% of
net sales, compared to $354.6 million, or 22.9% of net sales, for the three
months ended October 30, 1999. The rate deterioration was primarily attributable
to increases in expenses incurred to launch the Company's e-commerce business; a
decline in expense leverage resulting from increased payroll and media expenses
on lower than anticipated sales; partially offset by a higher net credit
contribution resulting from changes in credit card payment terms.

OTHER OPERATING EXPENSES

For the three months ended October 28, 2000, other operating expenses were
$150.2 million, or 9.6% of net sales, compared to $139.0 million, or 9.0% of net
sales, for the three months ended October 30, 1999. The increase was largely due
to higher depreciation and amortization expense, which was attributable to new
owned stores opened in the last twelve months, capital expenditures related to
remodels and expansions of existing stores, increased investments in information
technology, and a revision of certain intangible useful lives primarily from 40
to 20 years.

CERTAIN ITEMS

Integration costs

For the three months ended October 28, 2000, integration costs were $14.4
million, or 0.9% of net sales, compared to $8.3 million, or 0.5% of net sales,
for the three months ended October 30, 1999. The 2000 integration costs
principally related to severance, relocation of employees, systems conversions
and other charges related to the consolidation of the Herberger's and McRae's
operating divisions and distribution centers. The 1999 integration costs
primarily related to expenses incurred in the consolidation and conversion of
redundant systems and administrative operations following the 1998 acquisition
of Saks Holdings, Inc.

Year 2000 expenses ("Y2K")

For the three months ended October 30, 1999, the Company incurred $0.5 million
related to the required system upgrades, replacements and modifications to
prepare for the year 2000 to prevent systems failure and business interruption.

Losses from long-lived assets and closings

For the three months ended October 28, 2000, the Company recognized losses from
long-lived assets and closings of $0.6 million related to the sale of an
abandoned corporate building. For the three months ended October 30, 1999,
losses from long-lived assets and closings of $1.9 million related primarily to
the write-off of goodwill associated with the closing of a distribution center.

INTEREST EXPENSE

For the three months ended October 28, 2000, interest expense was $36.9 million,
or 2.4% of net sales, compared to $33.8 million, or 2.2% of net sales, for the
three months ended October 30, 1999. The increase was primarily due to higher
interest rates on variable-based borrowings.

INCOME TAXES

The effective tax rates for the three months ended October 28, 2000 and October
30, 1999 remained relatively flat at 37.4% and 37.6%, respectively.

NET INCOME (LOSS)

Net income (loss) decreased from $25.9 million for the three months ended
October 30, 1999 to ($8.1) million for the three months ended October 28, 2000
largely due to the decline in operating income resulting from increased markdown
activity and incremental expenses incurred to launch the Company's e-commerce
business.

NINE MONTHS ENDED OCTOBER 28, 2000 COMPARED TO NINE MONTHS ENDED OCTOBER 30,
1999

NET SALES

For the nine months ended October 28, 2000, total Company sales were $4.45
billion, a 1.5% increase over $4.39 billion in the prior year. The sales
increase for the nine-month period was primarily attributable to sales from new
stores opened and a comparable store sales increase of 0.5%, partially offset by
the reduction of sales associated with closed stores. During the last twelve
months, new store openings included four Saks Fifth Avenue stores, two Saks Off
5th stores, one Carson Pirie Scott store and one Parisian store. Stores closed
during the last twelve months included one Carson Pirie Scott store, one
Parisian store, two Younkers stores and two Saks Fifth Avenue stores.

GROSS MARGIN

For the nine months ended October 28, 2000, gross margin was $1.61 billion, or
36.2% of net sales, compared to $1.65 billion, or 37.6% of net sales, for the
nine months ended October 30, 1999. The decrease in gross margin rate was
primarily due to increased markdowns, primarily in women's apparel, as a result
of lower than expected sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SGA")

For the nine months ended October 28, 2000, SGA was $1.03 billion, or 23.1% of
net sales, compared to $990.3 million, or 22.6% of net sales, for the nine
months ended October 30, 1999. The rate deterioration was primarily attributable
to increases in expenses incurred to launch the Company's e-commerce business; a
decline in expense leverage resulting from lower than anticipated sales;
partially offset by a higher net credit contribution resulting from changes in
payment terms and increased proprietary credit card penetration.

OTHER OPERATING EXPENSES

For the nine months ended October 28, 2000, other operating expenses were $420.5
million, or 9.5% of net sales, compared to $387.2 million, or 8.8% of net sales,
for the nine months ended October 30, 1999. The increase of $33.3 million was
largely due to higher depreciation and amortization expense of approximately
$21.9 million, which was attributable to new owned stores opened in the last
twelve months, capital expenditures related to remodels and expansions of comp
stores, increased investments in information technology, and a revision of
certain intangible useful lives primarily from 40 to 20 years.

CERTAIN ITEMS

Integration costs

For the nine months ended October 28, 2000, net integration costs were $20.6
million, or 0.5% of net sales, compared to $26.8 million, or 0.6% of net sales,
for the nine months ended October 30, 1999. The 2000 integration costs primarily
related to systems conversions and other charges related to the consolidation of
the Herberger's and McRae's operating divisions and distribution centers. The
1999 integration costs primarily related to expenses incurred in the
consolidation and conversion of redundant systems and administrative operations
following the acquisition of Saks Fifth Avenue.

Year 2000 expenses ("Y2K")

For the nine months ended October 30, 1999, the Company incurred $4.5 million
related to the required system upgrades, replacements and modifications to
prepare for the year 2000 to prevent systems failure and business interruption.

Losses from long-lived assets and closings

For the nine months ended October 28, 2000, the Company recognized losses from
long-lived assets and closings of $1.2 million, which related primarily to
losses of $3.6 million associated with the sale of a closed store location and
an abandoned corporate building, partially offset by gains of $2.3 million
associated with the sale of a closed distribution center and a store location.

INTEREST EXPENSE

For the nine months ended October 28, 2000, interest expense was $109.2 million,
or 2.5% of net sales, compared to $103.1 million, or 2.4% of net sales, for the
nine months ended October 30, 1999. The increase was primarily due to higher
interest rates on variable-based borrowings.

INCOME TAXES

The effective tax rates for the nine months ended October 28, 2000 and October
30, 1999 were 22.2% and 39.3%, respectively. Included in the provision for the
nine months ended October 28, 2000 was a tax benefit of $4.1 million related to
the previous disposition of a real estate investment. Excluding this item, the
October 28, 2000 effective tax rate would have been 38.3%. The improvement in
the adjusted 2000 effective rate over the 1999 rate was primarily due to a
reduction in state income taxes resulting from a subsidiary reorganization in
1999.

EXTRAORDINARY ITEMS

The extraordinary loss for the nine months ended October 30, 1999 related to the
February 1999 repurchase of $236 million of outstanding REMIC mortgage
certificates. In conjunction with this debt restructuring, the Company incurred
charges related to the early extinguishment of debt totaling $9.3 million after
taxes.

NET INCOME

Net income decreased to $19.9 million for the nine months ended October 28, 2000
from $69.2 million for the nine months ended October 30, 1999 largely due to the
decline in operating income resulting from lower than expected sales, increased
markdown activity and incremental expenses incurred to launch the Company's
e-commerce business.

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.

Retained interest in accounts receivable at October 28, 2000 was higher compared
to October 30, 1999 primarily due to the increase in credit sales and increased
gains from the sale of receivables under the Company's accounts receivable
securitization facilities occurring during the last twelve months.

Merchandise inventory at October 28, 2000 increased from October 30, 1999
balances primarily due to increases in private label and in transit inventory
levels, partially offset by a decrease in comparable store inventories.

Property and equipment balances at October 28, 2000 increased over October 30,
1999 balances due to capital expenditures primarily related to new store
additions and investments in information technology, as well as expansions,
replacements and the remodeling of existing stores, partially offset by
depreciation and disposals related to closed stores.

Goodwill and intangibles at October 28, 2000 decreased from October 30, 1999
primarily due to the amortization of goodwill coupled with the write-off of
certain store goodwill associated with store closings in the last twelve months.

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 $239.5 million for the nine
months ended October 28, 2000 and ($33.2) million for the nine months ended
October 30, 1999. The increase in operating cash flows was primarily related to
management's successful efforts to reduce working capital during 2000.

Cash used in investing activities was $194.3 million for the nine months ended
October 28, 2000 and $302.4 million for the nine months ended October 30, 1999.
The decrease in the current year was due to reduced levels of capital
expenditures for new and remodeled store locations.

Cash provided by (used in) financing activities was ($44.6) million for the nine
months ended October 28, 2000 and $323.9 million for the nine months ended
October 30, 1999. The decrease in the current year was due to the reduced need
for debt borrowings resulting from decreased capital expenditures and increased
cash flow from operations.

CAPITAL STRUCTURE

As of October 28, 2000, the Company had total debt outstanding of approximately
$1.95 billion with an additional $604 million available to borrow under its
existing $750 million revolving credit facility that expires in 2003. The
Company allowed a second revolving credit facility with $250 million of
availability to expire in August 2000 as the $750 million facility is expected
to provide adequate liquidity and funding through 2003. The October 28, 2000
balance represents a debt to total capitalization percentage of 46.8% and a
decrease of $144 million from total debt outstanding at October 30, 1999. The
decrease was primarily due to a decrease in annual capital expenditures and the
application of operating cash flow to reduce debt.

ACCOUNTS RECEIVABLE SECURITIZATION

National Bank of the Great Lakes, a wholly owned subsidiary of the Company, owns
all proprietary credit card accounts maintained for the Company's retail
customers. In accordance with the Company's accounts receivable securitization
facilities, 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 either a credit card related
trust or a bank conduit facility in exchange for cash and subordinated
certificates representing undivided interests in the pool of receivables. The
accounts receivable securitization facilities subsequently issue certificates of
beneficial interest, also representing undivided interests in the pool of
receivables, to investors. At October 28, 2000, funding under these facilities
totaled $1.1 billion, which consisted of $421 million in fixed rate term
certificates outstanding, $401 million in floating rate term certificates
outstanding and $314 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," 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 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
planned changes in customer service formats; the effectiveness of planned
advertising, marketing and promotional campaigns; favorable customer response to
increased relationship marketing efforts and the company's proprietary credit
card loyalty programs; appropriate inventory management; reduction of corporate
overhead; effective operations of the Company's national bank's credit card
operations; changes in interest rates; successful operation of
saksfifthavenue.com; and effective execution of the spin-off of the Saks Fifth
Avenue businesses. For additional information regarding these and other risk
factors, please refer to Exhibit 99.1 to the Company's Form 10-K/A for the
fiscal year ended January 29, 2000 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.

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 January 29, 2000.

Based on the Company's market risk sensitive instruments (including variable
rate debt and derivative financial instruments) outstanding at October 28, 2000,
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.

 

SAKS INCORPORATED

PART II. OTHER INFORMATION

Item 6. Exhibits.

    (a)    Exhibits.  

  10.1 Saks Incorporated 2000 Change of Control and Material Transaction
Severance Plan   10.2 Employment Agreement between Saks Incorporated and R. Brad
Martin, Chief Executive Officer and Chairman of the Board   10.3 Employment
Agreement between Saks Incorporated and Douglas E. Coltharp, Executive Vice
President and Chief Financial Officer   10.4 Employment Agreement between Saks
Incorporated and Brian J. Martin, Executive Vice President and General Counsel  
10.5 Employment Agreement between Saks Incorporated and James A. Coggin,
President and Chief Operation Officer   10.6 Employment Agreement between Saks
Incorporated and Donald E. Wright, Senior Vice President of Financial and
Accounting   27.1 Financial Data Schedule

    (b)    Form 8-K Reports.

> > The following 8-Ks were filed during the quarter ended July 29, 2000:
> > 
> > Date Filed Subject October 6, 2000 Historical comparable store sales
> > information for Saks Incorporated, Saks Fifth Avenue Enterprises, and Saks
> > Incorporated's Department Store Group
> > 
> > > > > > > > > >  

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               
                                          
                                          &nbs

Registrant

 

                                                                      
            

December 12, 2000                           
                                          
                                            &n Date

 

                                                                         

    /s/ Douglas E. Coltharp                                
                                                                                
Douglas E. Coltharp, Executive Vice
                                                                               
President and Chief Financial Officer