Saks Fifth Avenue 2008 Annual Report Download - page 68

SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
The following table presents additional potentially dilutive common shares excluded from diluted earnings
(loss) per share because the effect of including these potential shares would have been anti-dilutive:
2008 2007 2006
Stock Options and Employee Stock Purchase Plan Shares .......................... 346 — 1,266
Unvested Restricted Stock Awards and Performance Shares ......................... 1,889 — 1,161
Total ................................................................ 2,235 — 2,427
Securities excluded from the diluted earnings (loss) per share calculation because the
exercise prices was greater than the average market price
Stock Options (1) ...................................................... 1,811 688 1,722
Securities excluded from the diluted earnings (loss) per share calculation because the
performance criteria were not met:
Performance Shares .................................................... 845 — —
(1) These options represent the number outstanding at the end of the respective year. At the point that the
exercise price is less than the average market price, these options have the potential to be dilutive and
application of the treasury method would reduce this amount.
There were also 19,219 potentially exercisable shares under the convertible notes that were not included in
the computation of diluted EPS for the year ended January 31, 2009 because inclusion of the potential common
shares would have been anti-dilutive as the Company generated a net loss for the period. Included in the
computation of diluted EPS for the year ended February 2, 2008 are 11,190 potentially dilutive shares associated
with shares the Company would issue to settle the difference between fair value and the par value of the
convertible notes upon conversion and the shares to be issued upon the exercise of a call option the Company
sold at the time of issuance of the convertible debentures. There were also 19,219 potentially exercisable shares
under the convertible notes that were not included in the computation of diluted EPS due to the assumption of net
share settlement as discussed below.
In 2007, if the holders of the convertible notes exercised their conversion rights, the Company intended to
pay cash equal to 100 percent of the principal amount of the convertible notes. In the event that the cash
conversion price exceeded 100 percent of the principal amount of the 2% convertible notes, the Company’s
intention was to issue common stock for the difference between the par value and fair value at the time of
conversion. The Company had $101,162 of cash available as well as availability under the senior revolving credit
facility as of February 2, 2008. The cash on hand as well as the availability of borrowings under the senior credit
facility provided an adequate source of liquidity to pay 100% of the principal amount of the notes if the holders
had elected to exercise their conversion rights.
For the year ended February 3, 2007, there were also 19,219 potentially exercisable shares under the
convertible notes that were not included in the computation of diluted EPS due to the assumption of net share
settlement.
The FASB is contemplating an amendment to SFAS No. 128 “Earnings Per Share” (“SFAS No. 128”) that
would require the Company to ignore the cash presumption of net share settlement and to assume share
settlement for purposes of calculating diluted earnings per share. Although the Company is now required to
ignore the contingent conversion provision on its convertible notes under EITF 04-8 “The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share,” it can still presume that it will satisfy the net share
settlement of the par value upon conversion of the notes in cash, and thus exclude the effect of the conversion of
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