Saks Fifth Avenue 2010 Annual Report Download - page 27

notes and the amended revolving credit facility offset in part by the extinguishment of $23.0 million of senior
notes in July 2009 and the retirement of $84.1 million in principal amount of senior notes which matured in
November 2008. Noncash interest expense associated with the adoption of the accounting standard related to
accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash
settlement) was $9.8 million and $6.8 million for the years ended January 30, 2010 and January 31, 2009,
respectively.
GAIN ON EXTINGUISHMENT OF DEBT
During the year ended January 30, 2010, the Company extinguished approximately $23.0 million of senior
notes. The repurchase of these notes resulted in a gain on extinguishment of debt of $0.8 million. There were no
such gains recorded during the year ended January 31, 2009.
OTHER INCOME, NET
Other income decreased to $1.0 million in 2009 from $5.6 million in 2008. Other income in 2009 was
primarily attributable to interest income. Other income in 2008 included a $3.4 million gain on the sale of three
unutilized properties.
INCOME TAXES
For 2009 and 2008, the effective income tax rate for continuing operations differed from the federal
statutory tax rate due to state income taxes and other items such as the change in the valuation allowance against
state NOL carryforwards, the effect of concluding tax examinations and other tax reserve adjustments, the
write-off of an expired federal NOL, and the change in the overall state tax rate. Including the effect of these
items, the Company’s effective income tax rate for continuing operations was 43.6% and 27.9% in 2009 and
2008, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The primary needs for cash are to fund operations, acquire or construct new stores, renovate and expand
existing stores, provide working capital for new and existing stores, invest in technology and distribution centers
and service debt. The Company anticipates that cash on hand, cash generated from operating activities and
borrowings under its revolving credit facility will be sufficient to sustain its current level of operations.
There are numerous general business and economic factors affecting the retail industry. These factors
include consumer confidence levels, intense competition, global economic conditions and financial market
stability. Significant changes in one or more of these factors could potentially have a material adverse impact on
the Company’s ability to generate sufficient cash flows to operate its business. The Company expects to be able
to manage its working capital and capital expenditure amounts so as to maintain sufficient levels of liquidity.
Depending upon its actual and anticipated sources and uses of liquidity, conditions in the capital markets and
other factors, the Company may from time to time consider the issuance of debt or other securities or other
possible capital market transactions for the purpose of raising capital which could be used to refinance current
indebtedness or for other corporate purposes.
Cash provided by operating activities from continuing operations was $124.4 million in 2010, $205.9
million in 2009 and $17.2 million in 2008. Cash provided by operating activities principally represents income
before depreciation and non-cash charges and after changes in working capital. Working capital is significantly
impacted by changes in inventory 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
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