Saks Fifth Avenue 2009 Annual Report Download

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Morningstar® Document Research℠
FORM 10-K
SAKS INC - sks
Filed: March 18, 2010 (period: January 30, 2010)
Annual report which provides a comprehensive overview of the company for the past year

Table of contents

  • Page 1
    Morningstar Document Research ® ℠FORM 10-K SAKS INC - sks Filed: March 18, 2010 (period: January 30, 2010) Annual report which provides a comprehensive overview of the company for the past year

  • Page 2
    ... Executive Offices) 12 East 49 Street New York, New York (Zip Code) 10017 Registrant's telephone number, including area code: (212) 940-5305 Securities Registered Pursuant to Section 12 (b) of the Act: Title of each class Name of Each Exchange on which registered Common Shares, par value...

  • Page 3
    ... with Accountants on Accounting and Financial Disclosure Item 9. Controls and Procedures Item 9A. Item 9B. Other Information PART III Directors, Executive Officers and Corporate Governance Item 10. Item 11. Executive Compensation Security Ownership of Certain Beneficial Owners and Management and...

  • Page 4
    ...New York, New York. The back office sales support functions for the Company, such as accounting, credit card administration, store planning, and information technology, are located principally in the Company's operations center in Jackson, Mississippi or in the SFA corporate offices in New York City...

  • Page 5
    ... to accounting for invoice payment and reconciliation. Return Policy The Company offers its customers a fair and liberal return policy, consistent with other luxury retailers, at SFA stores, OFF 5TH stores, and online at www.saks.com. Approximately 23% of merchandise sold is later returned, and...

  • Page 6
    ...credit cards offered by HSBC Bank Nevada, N.A. ("HSBC") to develop advertising and promotional events targeted at specific customers who have purchasing patterns for certain brands, departments, and store locations. Proprietary Credit Cards HSBC offers proprietary credit card accounts to the Company...

  • Page 7
    ... SFA store located on Fifth Avenue in New York City accounted for approximately 19% of total Company sales in 2009 and plays a significant role in creating awareness for the Saks Fifth Avenue brand name. Customer Service The Company believes that good customer service contributes to increased store...

  • Page 8
    ... communicate with customers to advise them of new merchandise offerings and special promotions. Typical SFA stores also provide comfortable seating areas, and most SFA stores offer a complimentary personal shopping service called "The Fifth Avenue Club." Seasonality The Company's business, like that...

  • Page 9
    ... results of operations. The Company is focused on the luxury retail sector. SFA stores, OFF 5TH stores and www.saks.com offer a wide assortment of luxury fashion apparel, shoes, accessories, jewelry, cosmetics, and gift items. All of the goods that the Company sells are discretionary items. Changes...

  • Page 10
    ...may have a material impact on the Company's business, its ability to source products, results of operations, and financial condition in the future. The Company's flagship SFA New York store is especially susceptible to volatility in the financial markets and employment and compensation trends in the...

  • Page 11
    ...Company sells. A number of different competitive factors could have a material adverse effect on the Company's business, results of operations and financial condition including: • • increased operational efficiencies of competitors; competitive pricing strategies, including deep discount pricing...

  • Page 12
    ... lower profit margins, any of which could have a material adverse effect on the Company's results of operations and financial condition. The Company faces a number of risks in opening new stores. As part of its growth strategy, the Company could potentially increase the total number of stores, which...

  • Page 13
    ... the Company's cost of goods sold. If the Company is unable to pass such cost increases on to its customers or the higher cost of the products results in decreased consumption, gross margins and ultimately earnings would decrease. If the Company does not successfully upgrade, maintain and secure our...

  • Page 14
    ... of annual sales at that location. The Company generally cannot terminate these leases. If a store is not profitable, and the Company decides to close it, the Company may be committed to perform certain obligations under the applicable lease including, among other things, paying rent for the balance...

  • Page 15
    ... the legal department of General Foods Corporation from 1983 to 1989 and an associate with the New York law firm of Summit, Rovins and Feldesman (and its predecessors) from 1980 to 1983. Jennifer S. de Winter was named Executive Vice President of Stores in June 2008. She joined Saks Fifth Avenue in...

  • Page 16
    ...various leadership positions since that time, including Senior Vice President and General Manager of the SFA flagship store in New York City. Prior to joining the Company, he was a store manager for Macy's/Bullocks. Kevin G. Wills was named Executive Vice President and Chief Financial Officer of the...

  • Page 17
    ... and Saks Direct SFA and OFF 5TH The Company's principal administrative offices are as follows: Office Aberdeen, Maryland Ontario, California 514,000 120,000 Leased Leased Corporate Operations Center Corporate Office Headquarters and SFA Offices Jackson, Mississippi New York, New York Location...

  • Page 18
    ...The following tables set forth information about the Company's stores as of January 30, 2010: Owned Locations* Number Gross Square Of Units Feet (in mil.) Leased Locations Number Gross Square Of Units Feet (in mil.) Total Gross Square Feet (in mil.) SFA OFF 5TH Total 29 1 30 3.9 0.1 4.0 24 54 78...

  • Page 19
    ... business activities and has accruals for losses where appropriate. Management believes that none of these legal proceedings will have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. 17 Source: SAKS INC, 10-K, March 18, 2010 Powered...

  • Page 20
    ...Securities. Market Information The Company's common stock trades on the New York Stock Exchange ("NYSE") under the symbol SKS. The prices in the table below represent the high and low sales prices for the stock as reported by the NYSE. Year Ended January 30, 2010 High Low Year Ended January 31, 2009...

  • Page 21
    ... business, the Company assumed then-outstanding stock options previously granted to employees and directors of the acquired corporation. No additional grants or awards may be made under the plan pursuant to which these stock options were granted. As of January 30, 2010, the total number of shares...

  • Page 22
    ... the Company's 1997 Stock-Based Incentive Plan (the "1997 Plan") to assist in attracting, retaining, and motivating employees and directors. The Board amended the 1997 Plan several times. The exercise price for all outstanding options awarded under the 1997 Plan equals the fair market value of...

  • Page 23
    ... application of adopting a new accounting pronouncement relating to convertible debt. Amounts have also been revised to reflect all shipping and handling revenue in Net Sales. See Note 2 to the consolidated financial statements for further discussion. 21 Source: SAKS INC, 10-K, March 18, 2010...

  • Page 24
    ...5TH stores are primarily located in upscale mixed-use and off-price centers and offer luxury apparel, shoes, and accessories, targeting the value-conscious customer. As of January 30, 2010, the Company operated 53 SFA stores with a total of approximately 5.9 million square feet and 55 OFF 5TH stores...

  • Page 25
    ... As of January 31, 2009, the Company discontinued the operations of its CLL business, which consisted of 98 leased, mall-based specialty stores, targeting girls aged 4-12 years old. Charges incurred during 2008 associated with the closing of these stores totaled approximately $44.5 million and...

  • Page 26
    ... 5TH store closing and the sale of an unused support facility. Lastly, there was a $3.0 million, or $.02 per share, state income tax valuation adjustment (credit). During the preparation of our condensed consolidated financial statements for the quarterly period ended October 31, 2009, the Company...

  • Page 27
    ... 30, 2010 ("2009") COMPARED TO FISCAL YEAR ENDED JANUARY 31, 2009 ("2008") DISCUSSION OF OPERATING LOSS - CONTINUING OPERATIONS The following table shows the changes in operating loss from 2008 to 2009: Total Company (In Millions) 2008 Operating Loss-Continuing Operations Store sales and margin...

  • Page 28
    ... For the year ended January 30, 2010, gross margin was $963.4 million, or 36.6% of net sales, compared to $980.9 million, or 32.2% of net sales, for the year ended January 31, 2009. The increase in gross margin dollars and gross margin rate was primarily the result of controlled inventory levels and...

  • Page 29
    ... TO FISCAL YEAR ENDED FEBRUARY 2, 2008 ("2007") DISCUSSION OF OPERATING INCOME (LOSS) - CONTINUING OPERATIONS The following table shows the changes in operating income (loss) from 2007 to 2008: Total Company (In Millions) 2007 Operating Income-Continuing Operations Store sales and margin Operating...

  • Page 30
    ... year ended January 31, 2009, the Company's operating loss totaled $135.4 million, a 760 basis point decrease as a percentage of net sales from operating income of $102.9 million in the same period last year. Operating loss was driven by a 6.1% decrease in comparable store sales and a gross margin...

  • Page 31
    ... and accounts payable. Inventory levels typically increase or decrease to support expected sales levels, and accounts payable fluctuations are generally determined by the timing of merchandise purchases and payments. The $188.7 million increase in cash flows from continuing operations in 2009 from...

  • Page 32
    ...common stock associated with stock option exercises. During the year ended February 2, 2008, the Company repurchased approximately 1.7 million shares of its common stock at an average price of $15.95 and a total cost of approximately $27.5 million. During the year ended January 31, 2009, the Company...

  • Page 33
    ...the equity issuance in the second quarter of fiscal 2009. Senior Revolving Credit Facility At January 30, 2010, the Company maintained a senior revolving credit facility maturing in 2013, which is secured by inventory and certain third party credit card accounts receivable. Borrowings are limited to...

  • Page 34
    ... initial purchasers' discounts and offering expenses. The Company used the net proceeds to pay down amounts outstanding under its revolving credit facility and for general corporate purposes. On February 1, 2009, the Company adopted the provisions of ASC 470 related to accounting for convertible...

  • Page 35
    ..., or a combination thereof at its discretion. The holders may convert the notes at the following times, among others: if the Company's share price is greater than 120% of the applicable conversion price for a certain trading period; if the credit ratings of the notes are below a certain threshold...

  • Page 36
    ... to fund a cash balance pension plan. The Company's current policy is to maintain at least the minimum funding requirements specified by the Employee Retirement Income Security Act of 1974. The Company expects funding requirements for its pension plan of approximately $1.4 million in 2010, which is...

  • Page 37
    ... 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...

  • Page 38
    ...associated with gift cards is recognized upon redemption of the card. There are minimal accounting judgments and uncertainties affecting the application of this policy. The Company estimates the amount of goods that will be returned for a refund based on historical trends and reduces sales and gross...

  • Page 39
    ... for estimated shrinkage, thereby reducing the carrying value of merchandise inventory. A complete physical inventory of all the Company's stores and distribution facilities is performed annually, with the recorded amount of merchandise inventory being adjusted to coincide with this physical...

  • Page 40
    ... the carrying value of store assets is assessed upon the occurrence of certain events (e.g., opening a new store near an existing store or announcing plans for a store closing) and, absent certain triggering events, annually during the fourth quarter. The recoverability assessment requires judgment...

  • Page 41
    ... cash balance pension plan and SERP for certain employees of the Company. The Company amended the pension plan during 2006, freezing benefit accruals for all participants except those who have attained age 55 and completed 10 years of credited service as of January 1, 2007, who are 39 Source: SAKS...

  • Page 42
    ... Employee Retirement Income Security Act of 1974. The Company may provide additional contributions from time to time, generally not to exceed the maximum tax-deductible limitation. The pension plans are valued annually as of the Company's fiscal year-end balance sheet date. The projected unit credit...

  • Page 43
    ...did not have an impact on the Company's consolidated financial statements. On May 3, 2009, the Company adopted the provisions of a new accounting standard related to disclosures about the fair value of financial instruments, which requires publicly-traded companies to provide disclosures on the fair...

  • Page 44
    ...relationship marketing efforts of proprietary credit card loyalty programs; appropriate inventory management; effective expense control; successful operation of the Company's proprietary credit card strategic alliance with HSBC Bank Nevada, N.A.; geo-political risks; the performance of the financial...

  • Page 45
    ... Officer, to allow timely decisions regarding required disclosure. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange...

  • Page 46
    ...internal control over financial reporting that occurred during the quarter ended January 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. Other Information Not applicable. 44 Source: SAKS INC, 10...

  • Page 47
    ... entitled "Corporate Governance." The information required by this Item with respect to the Company's executive officers is set forth under "Executive Officers and Directors of the Registrant." The information required by this Item with respect to Section 16(a) of the Securities and Exchange Act is...

  • Page 48
    ... not applicable, or the required information is included in the consolidated financials statements or notes thereto. Exhibits - The exhibits listed in the accompanying Index to Exhibits immediately following the signature page to this Report. 46 (2) Source: SAKS INC, 10-K, March 18, 2010 Powered...

  • Page 49
    ... duly authorized on March 18, 2010. SAKS INCORPORATED By: / S/ Kevin G. Wills Executive Vice President and Chief Financial Officer KEVIN G. WILLS Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the...

  • Page 50
    ... Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2009 (the "2009 10-K")) Second Supplemental Indenture, dated as of May 18, 2000, among the Company, the Subsidiary Guarantors and Bank One Trust Company, National Association, successor-in-interest to The First National Bank...

  • Page 51
    ... to the Company's Current Report on Form 8-K filed on July 21, 2005) Eighth Supplemental Indenture, dated as of January 31, 2010, among the Company, the Subsidiary Guarantors named therein, and The Bank of New York Mellon (successor in interest to J.P. Morgan Trust Company, National Association), as...

  • Page 52
    ... to the Company's Current Report on Form 8-K filed on July 6, 2005) Fifth Supplemental Indenture, dated as of January 31, 2010, among the Company, the Subsidiary Guarantors named therein, and The Bank of New York Mellon (successor in interest to J.P. Morgan Trust Company, National Association), as...

  • Page 53
    ...Exhibit 10.6.1 to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2008 (the "2008 10-K")) Amendment to Servicing Agreement, dated April 4, 2007, between Household Corporation and Saks Fifth Avenue, Inc. (successor by merger to Jackson Office Properties, Inc., which was...

  • Page 54
    ... 10.6 to the 2009 Third Quarter 10-Q) 2007 Saks Incorporated Senior Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 7, 2007) Saks Incorporated Amended and Restated Employee Stock Purchase Plan, effective September 16...

  • Page 55
    ... period ended May 2, 2009 (the "2009 First Quarter 10-Q")) Employment Agreement, dated as of April 17, 2007, between the Company and Kevin G. Wills, Executive Vice President and Chief Financial Officer (incorporated by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K filed...

  • Page 56
    ... of the principal accounting officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Saks Incorporated Employee Stock Purchase Plan Financial Statements for the years ended December 31, 2009 and December 31, 2008 * * Filed herewith 54 Source: SAKS INC, 10-K, March 18, 2010 Powered by...

  • Page 57
    ... Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Statements of Income for the fiscal years ended January 30, 2010, January 31, 2009, and February 2, 2008 Consolidated Balance Sheets at January 30, 2010 and January 31, 2009 Consolidated Statements of Changes...

  • Page 58
    ... 31, 2009, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in...

  • Page 59
    Table of Contents SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended January 31, 2009 (Revised) (In Thousands, except per share amounts) January 30, 2010 NET SALES Cost of sales (excluding depreciation and amortization) Gross margin Selling, general and administrative ...

  • Page 60
    Table of Contents SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 31, (In Thousands, except per share amounts) ASSETS CURRENT ASSETS Cash and cash equivalents Merchandise inventories Other current assets Deferred income taxes, net TOTAL CURRENT ASSETS PROPERTY AND EQUIPMENT, ...

  • Page 61
    ... ASC 470 (Note 2) Balance at February 3, 2007, revised Net income Change in minimum pension liability, net of tax Comprehensive income Adoption of accounting for uncertain tax positions Issuance of common stock Income tax provision adjustment related to employee stock plans Increase in tax valuation...

  • Page 62
    ... Equity compensation Amortization of discount on convertible notes Deferred income taxes Impairments and dispositions Gain on lease termination Gain on sale of property Changes in operating assets and liabilities: Merchandise inventories Other current assets Accounts payable and accrued liabilities...

  • Page 63
    ... As of January 31, 2009, the Company discontinued the operations of its CLL business, which consisted of 98 leased, mall-based specialty stores, targeting girls aged 4-12 years old. Charges incurred during 2008 associated with the closing of these stores totaled $44,521 and included inventory...

  • Page 64
    ... per share amounts) Certain reclassifications were made to prior period amounts to conform to the current year presentation. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS Effective February 1, 2009, the Company retrospectively adopted Financial Accounting Standards Board ("FASB") Accounting Standards...

  • Page 65
    ... of a new accounting standard related to disclosures about the fair value of financial instruments, which requires publicly-traded companies to provide disclosures on the fair value of financial instruments in interim financial statements. F-9 Source: SAKS INC, 10-K, March 18, 2010 Powered by...

  • Page 66
    ... of the merchandise or direct its shipment. Revenue associated with gift cards is recognized upon redemption of the card. The Company estimates the amount of goods that will be returned for a refund and reduces sales and gross margin by that amount. Commissions from leased departments included in...

  • Page 67
    ... 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...

  • Page 68
    ... Net advertising expenses were $36,025, $39,358, and $42,058 in 2009, 2008, and 2007, respectively. Expense reimbursements received from the owner of the Company's proprietary credit card portfolio are discussed at Note 3 to these financial statements. • STORE PRE-OPENING COSTS Store pre-opening...

  • Page 69
    ... by market data Level 3: Unobservable inputs reflecting the reporting entity's own assumptions The Company may also be required, from time to time, to measure certain other financial assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. As of January 30, 2010, the...

  • Page 70
    ...assumptions. STOCK-BASED COMPENSATION PLANS The Company maintains an equity incentive plan for the granting of options, stock appreciation rights, performance shares, restricted stock, and other forms of equity awards to employees and directors. Options granted generally vest over a four-year period...

  • Page 71
    ...dilutive: 2009 2008 2007 Stock Options and Employee Stock Purchase Plan Shares Unvested Restricted Stock Awards and Performance Shares Total Securities excluded from the diluted earnings (loss) per share calculation because the exercise prices was greater than the average market price Stock Options...

  • Page 72
    ... Income Security Act of 1974. The Company may provide additional contributions from time to time, generally not to exceed the maximum tax-deductible limitation. The Company's pension plans are valued annually as of the fiscal year-end balance sheet date. GIFT CARDS The Company sells gift cards with...

  • Page 73
    ... 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...

  • Page 74
    Table of Contents SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) servicing compensation. For 2009, 2008, and 2007, the components of the credit contribution included in SG&A were $29,425, $29,899, and $28,754, ...

  • Page 75
    ... balance sheets were as follows: January 31, 2009 (Revised) Current: Deferred tax assets: Accrued expenses NOL carryforwards Valuation allowance Inventory Net current deferred tax asset Non-current: Deferred tax assets: Capital leases Rent Adjustments Pension Other long-term liabilities AMT Credit...

  • Page 76
    ... tax assets in 2009 and 2008, respectively, impacting our results of operations. A similar analysis was performed in 2007, which resulted in a decrease in the reserve of $2,957. While the Company has incurred a cumulative loss over the three year period ended January 30, 2010, after evaluating all...

  • Page 77
    ... FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) A reconciliation of the beginning and ending amount of gross unrecognized tax benefits follows: January 30, 2010 January 31, 2009 February 2, 2008 Unrecognized tax benefits at beginning of year Gross amount of increases...

  • Page 78
    ... FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) NOTE 6 - DEBT A summary of long-term debt and capital lease obligations is as follows: January 30, 2010 Carrying Amount Fair Value January 31, 2009 Carrying Amount (Revised) Fair Value Notes 7.50%, maturing fiscal year 2010...

  • Page 79
    Table of Contents SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) (for documentary or commercial letters of credit). The Company also pays an unused line fee ranging from 0.5% to 1.0% per annum on the average daily ...

  • Page 80
    ... notes in May 2009 (the "7.5% Convertible Notes"). The 7.5% Convertible Notes mature in December 2013 and are convertible, at the option of the holders at any time, into shares of the Company's common stock at a conversion rate of $5.54 per share of common stock (21,670 shares of common stock to be...

  • Page 81
    ..., or a combination thereof at its discretion. The holders may convert the notes at the following times, among others: if the Company's share price is greater than 120% of the applicable conversion price for a certain trading period; if the credit ratings of the notes are below a certain threshold...

  • Page 82
    ... amounts and normally require the Company to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs. Generally, the leases have primary terms ranging from 20 to 30 years and include renewal options ranging from 5 to 20 years. At January 30, 2010, future minimum...

  • Page 83
    ... to the holders of the call options based on the value of the Company's common stock. In the normal course of business, the Company purchases merchandise under purchase commitments; enters into contractual commitments with real estate developers and construction companies for new store construction...

  • Page 84
    ... the 2009 and 2010 calendar years. At January 30, 2010, total assets invested by participants related to the employee savings plans was $394,715, of which approximately 1% was invested in the Company's stock at the discretion of the participating employees. DEFINED BENEFIT PLANS The Company sponsors...

  • Page 85
    ... FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) The components of net periodic pension expense (benefit) and other amounts recognized in other comprehensive income related to the Company's pension plan and SERP for the years ended January 30, 2010, January 31, 2009...

  • Page 86
    ...SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) The change in benefit obligation, change in plan assets, funded status, and amounts recognized in the consolidated balance sheets at January 30, 2010 and January 31, 2009...

  • Page 87
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) 2009 2008 Weighted-average assumptions used in measuring the net periodic pension benefit cost: Pension Plan: Discount rate Expected return on assets Rate of compensation increase SERP Discount rate...

  • Page 88
    ... summarizes changes in the fair value of Level 3 assets for the year ended January 30, 2010: Real estate securities Balance at January 31, 2009 Actual return on plan assets: Relating to assets still held at year-end Relating to assets sold during the year Purchases, sales and settlements Balance at...

  • Page 89
    ... rights, performance shares, restricted stock and other forms of equity awards to employees and directors. At January 30, 2010 and January 31, 2009, the Company had available for grant 6,028 and 16,061 shares of common stock, respectively. Options granted generally vest over a four-year period after...

  • Page 90
    ... FINANCIAL STATEMENTS-(Continued) (In thousands, except per share amounts) STOCK OPTIONS The Company expenses the fair value of all stock-based option grants over the requisite service period on a prospective basis utilizing the Black-Scholes option pricing model. The Black-Scholes model...

  • Page 91
    ... market value of the Company's common stock on the date of grant. The actual number of performance shares earned is based on the level of performance achieved relative to established operating (non-market condition) goals for the one-year performance period beginning February 1, 2009 and range from...

  • Page 92
    ... calendar year. On December 8, 2009, the HRCC of the Board of Directors suspended the employee stock purchase plan indefinitely. NOTE 11 - STORE DISPOSITIONS, INTEGRATION AND OTHER CHARGES During the fourth quarter of 2008, the Company discontinued the operations of its CLL specialty store business...

  • Page 93
    ... quarterly financial information for 2009 and 2008 is as follows: First Quarter (Revised) Second Quarter (Revised) Fiscal year ended January 30, 2010: Total sales Gross margin Operating income (loss) Income (loss) from continuing operations Net income (loss) Basic earnings (loss) per common share...

  • Page 94
    ... credit arrangement. There are also management and royalty fee arrangements among Saks Incorporated and its subsidiaries. At January 30, 2010, Saks Incorporated was the sole obligor for the majority of the Company's long-term debt and employed a small group of corporate employees. F-38 Source: SAKS...

  • Page 95
    ... CONSOLIDATING STATEMENTS OF INCOME FOR THE YEAR ENDED JANUARY 30, 2010 SAKS INCORPORATED GUARANTOR SUBSIDIARIES (In Thousands) NET SALES Cost of sales (excluding depreciation and amortization) GROSS MARGIN Selling, general and administrative expenses Other operating expenses Store pre-opening...

  • Page 96
    ... & SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JANUARY 30, 2010 SAKS INCORPORATED GUARANTOR SUBSIDIARIES (In Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents Merchandise inventories Other current assets Deferred income taxes, net TOTAL CURRENT ASSETS PROPERTY AND EQUIPMENT...

  • Page 97
    ... activities: Equity in earnings of subsidiaries Depreciation and amortization Equity compensation Amortization of discount on convertible senior notes Gain on debt extinguishment Deferred income taxes Impairments and dispositions Gain on sale of property Changes in operating assets and liabilities...

  • Page 98
    ... STATEMENTS OF INCOME FOR THE YEAR ENDED JANUARY 31, 2009 SAKS INCORPORATED (Revised) GUARANTOR SUBSIDIARIES (Revised) (In Thousands) NET SALES Cost of sales (excluding depreciation and amortization) GROSS MARGIN Selling, general and administrative expenses Other operating expenses Store...

  • Page 99
    ... CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JANUARY 31, 2009 SAKS INCORPORATED (Revised) GUARANTOR SUBSIDIARIES (Revised) (In Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents Merchandise inventories Other current assets Deferred income taxes, net TOTAL CURRENT ASSETS PROPERTY...

  • Page 100
    ...used in) provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Equity compensation Amortization of discount on convertible senior notes Gain on sale of building Deferred income taxes Impairments and dispositions Changes in operating assets and liabilities...

  • Page 101
    ... STATEMENTS OF INCOME FOR THE YEAR ENDED FEBRUARY 2, 2008 SAKS INCORPORATED (Revised) GUARANTOR SUBSIDIARIES (Revised) (In Thousands) NET SALES Cost of sales (excluding depreciation and amortization) GROSS MARGIN Selling, general and administrative expenses Other operating expenses Store...

  • Page 102
    ... income to net cash (used in) provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Equity Compensation Amortization of discount on convertible senior notes Gain on lease termination Gain on sale of building Deferred income taxes Loss on extinguishment of...

  • Page 103
    ... SAKS INCORPORATED & SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Year Ended January 31, 2009 (Dollars In Thousands) Allowance for sales returns, net: Balance at Beginning of Year Charged to Costs and Expenses Deductions (A) Balance at End of Year January 30, 2010 February...

  • Page 104
    ... as Guarantors, and J.P. Morgan Trust Company, National Association, as trustee (the "Seventh Supplemental Indenture"), Saks Fifth Avenue Texas, L.P. merged with and into Saks Fifth Avenue Texas LLC effective June 30, 2007, and the following transactions or name changes have occurred with respect to...

  • Page 105
    ... Office Properties, Inc., a Guarantor, merged with and into Saks Fifth Avenue, Inc., a Guarantor; (d) Saks Fifth Avenue Distribution Company, a Guarantor, merged with and into Saks & Company, a Guarantor; (e) Saks Direct, Inc., a Guarantor, merged with and into the New Guarantor; (f) SCIL Store...

  • Page 106
    ... or sufficiency of this Supplemental Indenture. The recitals and statements herein are deemed to be those of the Company and the Guarantors and not those of the Trustee. [signatures contained on following page] Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Researchâ„

  • Page 107
    ...: Name: Title: /s/ Kevin G. Wills Kevin G. Wills Executive Vice President and Chief Financial Officer GUARANTORS: CLUB LIBBY LU, INC. MERCHANDISE CREDIT, LLC SAKS DIRECT, LLC SAKS FIFTH AVENUE, INC. SAKS FIFTH AVENUE OF TEXAS, INC. SAKS FIFTH AVENUE TEXAS LLC SAKS HOLDINGS, INC. SCCA STORE HOLDINGS...

  • Page 108
    ... as Guarantors, and J.P. Morgan Trust Company, National Association, as trustee (the "Seventh Supplemental Indenture"), Saks Fifth Avenue Texas, L.P. merged with and into Saks Fifth Avenue Texas LLC effective June 30, 2007, and the following transactions or name changes have occurred with respect to...

  • Page 109
    ... Office Properties, Inc., a Guarantor, merged with and into Saks Fifth Avenue, Inc., a Guarantor; (d) Saks Fifth Avenue Distribution Company, a Guarantor, merged with and into Saks & Company, a Guarantor; (e) Saks Direct, Inc., a Guarantor, merged with and into the New Guarantor; (f) SCIL Store...

  • Page 110
    ... or sufficiency of this Supplemental Indenture. The recitals and statements herein are deemed to be those of the Company and the Guarantors and not those of the Trustee. [signatures contained on following page] Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Researchâ„

  • Page 111
    ...: Name: Title: /s/ Kevin G. Wills Kevin G. Wills Executive Vice President and Chief Financial Officer GUARANTORS: CLUB LIBBY LU, INC. MERCHANDISE CREDIT, LLC SAKS DIRECT, LLC SAKS FIFTH AVENUE, INC. SAKS FIFTH AVENUE OF TEXAS, INC. SAKS FIFTH AVENUE TEXAS LLC SAKS HOLDINGS, INC. SCCA STORE HOLDINGS...

  • Page 112
    ... Inc. distributed its interest in both McRae's Stores Partnership and PMIN General Partnership to Parisian, Inc., thereby terminating McRae's Stores Partnership and PMIN General Partnership; Saks Incorporated sold its equity interests in Herberger's Department Stores, LLC and the stock of Parisian...

  • Page 113
    ... Office Properties, Inc., a Guarantor, merged with and into Saks Fifth Avenue, Inc., a Guarantor; (d) Saks Fifth Avenue Distribution Company, a Guarantor, merged with and into Saks & Company, a Guarantor; (e) Saks Direct, Inc., a Guarantor, merged with and into the New Guarantor; (f) SCIL Store...

  • Page 114
    ... or sufficiency of this Supplemental Indenture. The recitals and statements herein are deemed to be those of the Company and the Guarantors and not those of the Trustee. [signatures contained on following page] Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Researchâ„

  • Page 115
    ...: Name: Title: /s/ Kevin G. Wills Kevin G. Wills Executive Vice President and Chief Financial Officer GUARANTORS: CLUB LIBBY LU, INC. MERCHANDISE CREDIT, LLC SAKS DIRECT, LLC SAKS FIFTH AVENUE, INC. SAKS FIFTH AVENUE OF TEXAS, INC. SAKS FIFTH AVENUE TEXAS LLC SAKS HOLDINGS, INC. SCCA STORE HOLDINGS...

  • Page 116
    ...therein, as Guarantors, and The Bank of New York Trust Company, N.A., as trustee (the "Second Supplemental Indenture"), Saks Fifth Avenue Texas, L.P. merged with and into Saks Fifth Avenue Texas LLC effective June 30, 2007, and the following transactions or name changes have occurred with respect to...

  • Page 117
    ... Office Properties, Inc., a Guarantor, merged with and into Saks Fifth Avenue, Inc., a Guarantor; (d) Saks Fifth Avenue Distribution Company, a Guarantor, merged with and into Saks & Company, a Guarantor; (e) Saks Direct, Inc., a Guarantor, merged with and into the New Guarantor; (f) SCIL Store...

  • Page 118
    ... or sufficiency of this Supplemental Indenture. The recitals and statements herein are deemed to be those of the Company and the Guarantors and not those of the Trustee. [signatures contained on following page] Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Researchâ„

  • Page 119
    ...: Name: Title: /s/ Kevin G. Wills Kevin G. Wills Executive Vice President and Chief Financial Officer GUARANTORS: CLUB LIBBY LU, INC. MERCHANDISE CREDIT, LLC SAKS DIRECT, LLC SAKS FIFTH AVENUE, INC. SAKS FIFTH AVENUE OF TEXAS, INC. SAKS FIFTH AVENUE TEXAS LLC SAKS HOLDINGS, INC. SCCA STORE HOLDINGS...

  • Page 120
    ... therein, as Guarantors, and The Bank of New York Trust Company, N.A., as trustee (the "First Supplemental Indenture"), Saks Fifth Avenue Texas, L.P. merged with and into Saks Fifth Avenue Texas LLC effective June 30, 2007, and the following transactions or name changes have occurred with respect to...

  • Page 121
    ... Office Properties, Inc., a Guarantor, merged with and into Saks Fifth Avenue, Inc., a Guarantor; (d) Saks Fifth Avenue Distribution Company, a Guarantor, merged with and into Saks & Company, a Guarantor; (e) Saks Direct, Inc., a Guarantor, merged with and into the New Guarantor; (f) SCIL Store...

  • Page 122
    ...: Name: Title: /s/ Kevin G. Wills Kevin G. Wills Executive Vice President and Chief Financial Officer GUARANTORS: CLUB LIBBY LU, INC. MERCHANDISE CREDIT, LLC SAKS DIRECT, LLC SAKS FIFTH AVENUE, INC. SAKS FIFTH AVENUE OF TEXAS, INC. SAKS FIFTH AVENUE TEXAS LLC SAKS HOLDINGS, INC. SCCA STORE HOLDINGS...

  • Page 123
    ... Office Properties, Inc., a Guarantor, merged with and into Saks Fifth Avenue, Inc., a Guarantor; (d) Saks Fifth Avenue Distribution Company, a Guarantor, merged with and into Saks & Company, a Guarantor; (e) Saks Direct, Inc., a Guarantor, merged with and into the New Guarantor; (f) SCIL Store...

  • Page 124
    ...by the laws of the State of New York. SECTION 5. Counterparts. This Supplemental Indenture may be signed in any number of counterparts, each of which shall ...statements herein are deemed to be those of the Company and the Guarantors and not those of the Trustee. Source: SAKS INC, 10-K, March 18, 2010...

  • Page 125
    ...: Name: Title: /s/ Kevin G. Wills Kevin G. Wills Executive Vice President and Chief Financial Officer GUARANTORS: CLUB LIBBY LU, INC. MERCHANDISE CREDIT, LLC SAKS DIRECT, LLC SAKS FIFTH AVENUE, INC. SAKS FIFTH AVENUE OF TEXAS, INC. SAKS FIFTH AVENUE TEXAS LLC SAKS HOLDINGS, INC. SCCA STORE HOLDINGS...

  • Page 126
    ..., 2010 Jurisdiction Of Formation Name of Subsidiary Tradenames Café SFA-Minneapolis, LLC Club Libby Lu, Inc. Fifth Floor Restaurant at SFA LLC Merchandise Credit, LLC Saks & Company California Illinois New York Virginia New York Saks Saks Fifth Avenue Club Libby Lu Saks Saks Fifth Avenue Saks...

  • Page 127
    The Restaurant at Saks Fifth Avenue Corporation New York Saks Saks Fifth Avenue Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Researchâ„

  • Page 128
    ... PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on...Saks Incorporated of our report dated March 18, 2010 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting...

  • Page 129
    ...hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-91416) of Saks Incorporated of our report dated March 18, 2010 relating to the financial statements of the Saks Incorporated Employee Stock Purchase Plan, which appears in Exhibit 99.1 in this Form 10...

  • Page 130
    ... 31.1 Pursuant to the certification requirements of Section 302 of the Sarbanes-Oxley Act of 2002, the principal executive officer of the registrant has complied as follows. I, Stephen I. Sadove, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Saks Incorporated; Based on my...

  • Page 131
    ... not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 18, 2010 Stephen I. Sadove Stephen I. Sadove Chief Executive Officer /s/ Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar...

  • Page 132
    ... Act of 2002, the principal financial officer of the registrant has complied as follows. I, Kevin G. Wills, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Saks Incorporated; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit...

  • Page 133
    ... or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 18, 2010 Kevin G. Wills Kevin G. Wills Executive Vice President and Chief Financial Officer /s/ Source: SAKS INC, 10-K, March 18...

  • Page 134
    ...with the filing with the Securities and Exchange Commission of Saks Incorporated's (the "Company") Annual Report on Form 10-K for the fiscal year ended January 30, 2010 (the "Report"). The undersigned hereby certifies that: 1. 2. The Report fully complies with the requirements of Section 13(a) or 15...

  • Page 135
    ...with the filing with the Securities and Exchange Commission of Saks Incorporated's (the "Company") Annual Report on Form 10-K for the fiscal year ended January 30, 2010 (the "Report"). The undersigned hereby certifies that: 1. 2. The Report fully complies with the requirements of Section 13(a) or 15...

  • Page 136
    Exhibit 99.1 Saks Incorporated Employee Stock Purchase Plan Financial Statements December 31, 2009 and 2008 Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Researchâ„

  • Page 137
    Saks Incorporated Employee Stock Purchase Plan Index December 31, 2009 and 2008 Report of Independent Registered Public Accounting Firm Financial Statements Statements of Net Assets Available for Benefits Statements of Changes in Net Assets Available for Benefits Notes to Financial Statements Page...

  • Page 138
    ... Employee Stock Purchase Plan (the "Plan") at December 31, 2009 and 2008, and the changes in net assets available for benefits for the three years ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. These financial statements...

  • Page 139
    ... Employee Stock Purchase Plan Statements of Net Assets Available for Benefits December 31, 2009 and 2008 Assets Cash held by Saks Incorporated Liabilities Due to terminated employees Net assets available for benefits The accompanying notes are an integral part of these financial statements. 3 2009...

  • Page 140
    Saks Incorporated Employee Stock Purchase Plan Statements of Changes in Net Assets Available for Benefits For the Years Ended December 31, 2009, 2008 and 2007 Additions Participant contributions Deductions Purchase of common stock Return of contributions to terminated employees Net change Net ...

  • Page 141
    ... of the Human Resources and Compensation Committee (the "HRCC") of the Company's Board of Directors. Option periods currently end on December 31 of each year. The price at which the stock may be purchased is 85% of the lesser of the closing price per share as listed on the New York Stock Exchange on...

  • Page 142
    Saks Incorporated Employee Stock Purchase Plan Notes to Financial Statements For the Years Ended December 31, 2009, 2008, and 2007 2. Plan Termination The HRCC has the right under the Plan document to alter, suspend, amend or terminate the Plan. On December 3, 2008, the HRCC suspended the Plan for...