Saks Fifth Avenue 2008 Annual Report Download - page 21

The Company seeks to create value for its shareholders by improving returns on its invested capital. The
Company attempts to generate improved operating margins by generating sales increases while improving
merchandising margins and controlling expenses. The Company uses operating cash flows to reinvest in the
business and to repurchase debt or equity. The Company actively manages its real estate portfolio by routinely
evaluating opportunities to improve or close underproductive stores and open new stores.
DISCONTINUED OPERATIONS
On July 5, 2005, Belk acquired from the Company for approximately $622.7 million in cash substantially all
of the assets directly involved in the Proffitt’s business operations, plus the assumption of approximately $1.0
million in capitalized lease obligations and the assumption of certain other ordinary course liabilities associated
with the acquired assets. The assets sold included the real and personal property and inventory associated with 22
Proffitt’s stores and 25 McRae’s stores that generated fiscal 2004 revenues of approximately $784.0 million. The
Company realized a net gain of $155.5 million on the sale.
Upon the closing of the transaction, Belk entered into a Transition Services Agreement (“Proffitt’s TSA”)
whereby the Company continued to provide certain back office services related to the Proffitt’s operations.
Beginning with the second quarter of 2006, the back office services were substantially complete, and therefore,
the Proffitt’s TSA no longer qualified as continuing involvement in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
On March 6, 2006, the Company sold to Bon-Ton all outstanding equity interests of certain of the
Company’s subsidiaries that owned NDSG, either directly or indirectly. The consideration received consisted of
approximately $1.12 billion in cash (reduced as described below based on changes in working capital), plus the
assumption by Bon-Ton of approximately $35 million of unfunded benefit liabilities and approximately $35
million of capital leases. A working capital adjustment based on working capital as of the effective time of the
transaction reduced the amount of cash proceeds by approximately $75 million resulting in net cash proceeds to
the Company of approximately $1.04 billion. The disposition included NDSG’s operations consisting of, among
other things, the following: the real and personal property, operating leases and inventory associated with 142
NDSG units (31 Carson Pirie Scott stores, 14 Bergner’s stores, 10 Boston Store stores, 40 Herberger’s stores, and
47 Younkers stores), the administrative/headquarters facilities in Milwaukee, Wisconsin and distribution centers
located in Rockford, Illinois, Naperville, Illinois, Green Bay, Wisconsin, and Ankeny, Iowa. The Company
realized a net gain of $204.7 million on the sale.
Bon-Ton entered into a Transition Service Agreement with the Company (“NDSG TSA”), whereby the
Company continued to provide, for varying transition periods, back office services related to the NDSG operations.
The back-office services included certain information technology, telecommunications, credit, accounting and store
planning services, among others. Bon-Ton compensated the Company for these services, as outlined in the NDSG
TSA. The results of the NDSG operations are reflected as discontinued operations in the accompanying
consolidated statements of income and the consolidated statements of cash flows for fiscal year 2006.
On October 2, 2006, the Company sold to Belk of all of the outstanding equity interests of the Company’s
subsidiaries that conducted the Parisian specialty department store business (“Parisian”). The consideration
received consisted of $285.0 million in cash (increased in accordance with a working capital adjustment
described below). In addition, Belk reimbursed the Company at closing for $6.7 million in capital expenditures
incurred in connection with the construction of four new Parisian stores. Belk also paid the Company a premium
associated with the purchase of accounts and accounts receivable from Household Bank (SB), N.A. (now known
as HSBC Bank Nevada, N.A., “HSBC”), in the amount of $2.3 million. A working capital adjustment based on
working capital as of the effective time of the transaction increased the amount of cash proceeds by $14.2 million
resulting in total net cash proceeds of $308.2 million.
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