Saks Fifth Avenue 2008 Annual Report Download - page 28

INTEREST EXPENSE
Interest expense declined to $42.3 million in 2007 from $50.1 million in 2006 and, as a percentage of net
sales, decreased to 1.3% in 2007 from 1.7% in 2006. The decrease of $7.8 million was primarily due to the
reduction in debt resulting from the repurchase of approximately $106.3 million of senior notes during the year
ended February 2, 2008.
GAIN/(LOSS) ON EXTINGUISHMENT OF DEBT
During the year ended February 2, 2008, the Company repurchased a total of approximately $106.3 million
of senior notes. The repurchase of these notes resulted in a loss on extinguishment of debt of $5.6 million. For
the year ended February 3, 2007, the Company repurchased a total of approximately $0.2 million in principal
amount of senior notes. The repurchase of these notes resulted in a gain on extinguishment of debt of $7
thousand.
OTHER INCOME, NET
Other income decreased to $24.9 million in 2007 from $28.4 million in 2006 primarily due to the decrease
in interest income of $18.6 million as the Company invested the cash proceeds from the NDSG and Parisian
dispositions prior to the payment of the May and November $4 per common share dividends in 2006. This is
partially offset by an increase to other income of approximately $13.5 million due to the business interruption
insurance settlement proceeds received for the SFA New Orleans store, which was destroyed in the aftermath of
Hurricane Katrina. Other income in 2007 also included $2.7 million related to an OFF 5th store closing and the
sale of an unused support facility.
INCOME TAXES
For 2007 and 2006 the effective income tax rate differs from the federal statutory tax rate due to state
income taxes and other items such as executive compensation, tax-exempt interest, the change in valuation
allowance against state net operating loss carryforwards, and the effect of concluding tax examinations and other
tax reserve adjustments. Including the effect of these items, the Company’s effective income tax rate for
continuing operations was 36.5% and 89.3% in 2007 and 2006, respectively. The effective income tax rate for
2006 was impacted by a favorable settlement of certain tax examinations as well as the effect of the allocation of
state taxes to discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The primary needs for cash are to fund operations, acquire or construct new stores, renovate and expand
existing stores, provide working capital for new and existing stores, invest in technology and distribution centers
and service debt. The Company anticipates that cash on hand, cash generated from operating activities and
borrowings under its revolving credit facility will be sufficient to sustain its current level of operations.
Cash provided by operating activities from continuing operations was $17.2 million in 2008, $67.4 million
in 2007 and $153.8 million in 2006. The accompanying consolidated statements of cash flows identify major
differences between net income and net cash provided by operating activities for each of those years. Cash
provided by operating activities principally represents income before depreciation and non-cash charges and after
changes in working capital. Working capital is significantly impacted by changes in inventory and accounts
payable. Inventory levels typically increase or decrease to support expected sales levels and accounts payable
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