Saks Fifth Avenue 2008 Annual Report Download - page 71

SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. The Company will adopt the
provisions of FSP APB 14-1 on February 1, 2009 and will be required to retroactively apply its provisions. The
adoption of FSP APB 14-1 is expected to result in approximately $71,852 of the carrying value of the 2.00%
convertible senior notes to be reclassified to equity as of the March 2004 issuance date. The amount represents
the equity component of the proceeds from the notes calculated assuming a 6.25% non-convertible borrowing
rate. The discount will be accreted to interest expense over the 10 year period to the first put date of the notes.
Accordingly, the Company will revise its consolidated statements of income to reflect the pre-tax non-cash
interest expense of approximately $6,433, $5,989, $5,557, $5,351, and $4,440 for 2008, 2007, 2006, 2005, and
2004, respectively.
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-
Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). This FSP provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid
or unpaid, are participating securities and shall be included in the computation of both basic and diluted earnings
per share. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years. The adoption of this standard will not have a
material impact on the consolidated financial statements.
In December 2008, the FASB issued FSP FAS 132R-1, “Employers’ Disclosures about Postretirement
Benefit Plan Assets” (“FSP FAS 132R-1”), which provides additional guidance on employers’ disclosures about
the plan assets of defined benefit pension or other postretirement plans. The disclosures required by FSP
FAS 132R-1 include a description of how investment allocation decisions are made, major categories of plan
assets, valuation techniques used to measure the fair value of plan assets, the impact of measurements using
significant unobservable inputs and concentrations of risk within plan assets. The disclosures about plan assets
required by this FSP shall be provided for fiscal years ending after December 15, 2009. For the Company, FSP
FAS 132R-1 will be effective for fiscal year end 2009 and will result in additional disclosures related to the
assets of defined benefit pension plans in notes to the Company’s consolidated financial statements.
NOTE 3 — PROPRIETARY CREDIT CARDS
On April 15, 2003, the Company sold its proprietary credit card portfolio, consisting of the proprietary
credit card accounts owned by the National Bank of the Great Lakes and the Company’s ownership interest in the
assets of the trust, to HSBC, a third party financial institution.
HSBC, an affiliate of HSBC Holdings PLC, offers proprietary credit card accounts to the Company’s
customers. Pursuant to a program agreement with a term of ten years expiring in 2013, HSBC establishes and
owns proprietary credit card accounts for the Company’s customers, retains the benefits and risks associated with
the ownership of the accounts, receives the finance charge income and incurs the bad debts associated with those
accounts. During the ten-year term, pursuant to a servicing agreement, the Company continues to provide key
customer service functions, including new account opening, transaction authorization, billing adjustments and
customer inquiries, and receives compensation from HSBC for these services.
At the end of the ten-year term expiring in 2013, the agreement can be renewed for two two-year terms. At
the end of the agreement, the Company has the right to repurchase, at fair value, all of the accounts and
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