Saks Fifth Avenue 2008 Annual Report Download - page 72

SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
outstanding accounts receivable, negotiate a new agreement with HSBC or begin issuing private label credit
cards itself or through others. The agreement allows the Company to terminate the agreement early following the
occurrence of certain events, the most significant of which would be HSBC’s failure to pay owed amounts,
bankruptcy, a change in control or a material adverse change in HSBC’s ability to perform under the agreement.
The agreement also allows for HSBC to terminate the agreement if the Company fails to pay owed amounts or
enters bankruptcy. Should either the Company or HSBC choose to terminate the agreement early, the Company
has the right, but not the requirement, to repurchase the credit card accounts and associated accounts receivable
from HSBC at their fair value. The Company is contingently liable to pay monies to HSBC in the event of an
early termination or a significant disposition of stores. The contingent payment is based upon a declining portion
of an amount established at the beginning of the ten-year agreement and on a prorated portion of significant store
closings. The maximum contingent payment had the agreement been terminated early at January 31, 2009 would
have been approximately $21,787. Management believes the risk of incurring a contingent payment is remote.
In September of 2006 the Company entered into agreements with HSBC and MasterCard International
Incorporated to issue a co-branded MasterCard card to new and existing proprietary credit card customers. Under
this program, qualifying customers are issued a SFA and MasterCard branded credit card that functions as a
traditional proprietary credit card when used at any SFA or OFF 5th store and at Saks Direct or as a MasterCard
card when used at any unaffiliated location that accepts MasterCard cards. HSBC establishes and owns the
co-brand accounts, retains the benefits and sales associated with the ownership of the accounts, receives the
finance charge and other income from the accounts, and incurs the bad-debts associated with the accounts.
With the exception of depreciation expense, all components of the credit card operations are included in
SG&A. The credit contribution comprises program compensation and servicing compensation. For 2008, 2007,
and 2006, the components of the credit contribution included in SG&A were $29,899, $28,754 and $58,038,
respectively
NOTE 4 — PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
January 31,
2009
February 2,
2008
Land and land improvements ............................................. $ 177,069 $ 177,040
Buildings ............................................................. 594,578 593,635
Leasehold improvements ................................................. 340,343 349,141
Fixtures and equipment .................................................. 811,642 797,366
Construction in progress ................................................. 24,968 24,540
1,948,600 1,941,722
Accumulated depreciation ................................................ (891,183) (849,718)
$1,057,417 $1,092,004
Depreciation expense was $134,669, $131,710, and $125,822 in 2008, 2007, and 2006, respectively.
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