Saks Fifth Avenue 2008 Annual Report Download - page 64

SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
equity for the $558,587 dividend. For the year ended February 3, 2007, the Company made dividend cash
payments totaling $1,095,025, primarily relating to the aggregate $8.00 per common share dividends. The
remaining portion of the dividends will be paid prospectively as, and to the extent, awards of restricted stock
vest.
MERCHANDISE INVENTORIES AND COST OF SALES (excluding depreciation and amortization)
Merchandise inventories are stated at the lower of cost or market and include freight, buying and
distribution costs. The Company takes markdowns related to slow moving inventory, ensuring the appropriate
inventory valuation. On February 3, 2008, the Company elected to change its method of costing its inventories to
the retail “first-in, first-out” (FIFO) method, whereas in all prior periods inventory was costed using the retail
“last-in, first-out” (LIFO) method. The new method of accounting had no impact on the fiscal years ending
January 31, 2009, February 2, 2008, and February 3, 2007 as the LIFO value exceeded the FIFO market value
and inventory had been adjusted to reflect FIFO market value in all periods.
Consignment merchandise on hand of $138,762 and $150,527 at January 31, 2009 and February 2, 2008,
respectively, is not reflected in the consolidated balance sheets.
The Company receives vendor provided support in different forms. When the vendor provides support for
inventory markdowns, the Company records the support as a reduction to cost of sales. Such support is recorded
in the period that the corresponding markdowns are taken. When the Company receives inventory-related support
that is not designated for markdowns, the Company includes this support as a reduction in the cost of purchases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses (“SG&A”) are comprised principally of the costs related to
employee compensation and benefits in the selling and administrative support areas, exclusive of payroll taxes;
advertising; store and headquarters occupancy, operating and maintenance costs exclusive of rent, depreciation,
and property taxes; proprietary credit card promotion, issuance and servicing costs; insurance programs;
telecommunications; and other operating expenses not specifically categorized elsewhere in the consolidated
statements of income. Advertising and sales promotion costs are generally expensed in the period in which the
advertising event takes place. The Company receives allowances and expense reimbursements from merchandise
vendors and from the owner of the proprietary credit card portfolio which are netted against the related expense:
• Allowances received from merchandise vendors in conjunction with incentive compensation programs
for employees who sell the vendors’ merchandise and netted against the related compensation expense
were $54,653, $57,348, and $55,007 in 2008, 2007, and 2006, respectively.
• Allowances received from merchandise vendors in conjunction with jointly produced and distributed
print and television media and netted against the gross expenditures for such advertising were $45,813,
$48,896, and $42,584 in 2008, 2007, and 2006, respectively. Net advertising expenses were $39,358,
$42,058, and $43,875 in 2008, 2007, and 2006, respectively.
• Expense reimbursements received from the owner of the Company’s proprietary credit card portfolio are
discussed at Note 3 to these financial statements.
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