UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
| x | Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934 (No fee required, effective October 7, 1996) |
For Fiscal Year Ended: December 31, 2006 or
| ¨ | Transition report pursuant to Section 15(d) of the Securities Exchange Act of 1934 (No fee required) |
For the transition period from to
Commission File Number: 1-13113
| A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
Saks Incorporated 401 (k) Retirement Plan
| B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
Saks Incorporated
12 East 49th Street
New York, New York 10017
Telephone No: (212) 940-5305
Saks Incorporated
401(k) Retirement Plan
Financial Statements and Supplemental Schedule
December 31, 2006
Saks Incorporated 401(k) Retirement Plan
Index
December 31, 2006 and 2005
| Note: | Other schedules required by 29 CFR 2520-103-10 of the Department of Labor’s Rules and Regulations for Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable. |
Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of
Saks Incorporated 401(k) Retirement Plan
In our opinion, the accompanying statements of net assets available for benefits and the related statement of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of Saks Incorporated 401(k) Retirement Plan (the “Plan”) at December 31, 2006 and 2005, and the changes in net assets available for benefits for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of Assets (Held at End of Year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
PricewaterhouseCoopers LLP
Birmingham, Alabama
June 27, 2007
1
Saks Incorporated 401(k) Retirement Plan
Statements of Net Assets Available for Benefits
December 31, 2006 and 2005
| | | | | | |
| | | 2006 | | 2005 |
Assets | | | | | | |
Investments, at market value | | $ | 514,536,120 | | $ | 617,756,601 |
Participant contribution receivable | | | 1,153,423 | | | 1,625,977 |
Employer contribution receivable | | | 294,852 | | | 395,124 |
Interest and dividends receivable | | | 22,875 | | | 31,912 |
| | | | | | |
Total assets | | | 516,007,270 | | | 619,809,614 |
Liabilities | | | | | | |
Accrued administrative fees | | | 22,078 | | | 48,102 |
| | | | | | |
Total liabilities | | | 22,078 | | | 48,102 |
| | | | | | |
Net assets available for benefits, at fair value | | | 515,985,192 | | | 619,761,512 |
Adjustment from fair value to contract value for fully benefit-responsive investment contracts | | | 1,479,358 | | | 1,809,026 |
| | | | | | |
Net assets available for benefits, at contract value | | $ | 517,464,550 | | $ | 621,570,538 |
| | | | | | |
The accompanying notes are an integral part of these financial statements.
2
Saks Incorporated 401(k) Retirement Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2006
| | | | |
| Increase in net assets available for benefits | | | | |
Interest and dividend income | | $ | 27,998,753 | |
Net appreciation in market value of investments | | | 34,081,935 | |
Contributions | | | | |
Employer | | | 7,792,543 | |
Participant | | | 31,282,571 | |
Rollover | | | 2,528,763 | |
| | | | |
Total increases | | | 103,684,565 | |
| | | | |
| Decrease in net assets available for benefits | | | | |
Benefit payments | | | 207,122,670 | |
Administrative fees | | | 667,883 | |
| | | | |
Total decreases | | | 207,790,553 | |
| | | | |
Net decrease | | | (104,105,988 | ) |
Net assets available for benefits, beginning of year | | | 621,570,538 | |
| | | | |
Net assets available for benefits, end of year | | $ | 517,464,550 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
3
Saks Incorporated 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2006
| 1. | Description of the Plan |
The following description of the Saks Incorporated 401(k) Retirement Plan (the “Plan”) is for general information purposes only. Participants should refer to the Plan for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering all eligible employees of Saks Incorporated (the “Employer” or “Company”) and its subsidiaries who are a minimum of 21 years of age and have completed a minimum service hour requirement as provided for in the plan agreement. At December 31, 2006, the Company operated Saks Fifth Avenue Enterprises (“SFAE”), which consisted of Saks Fifth Avenue stores and Saks Off 5th stores. The Company also operated Club Libby Lu specialty stores. The Company previously operated the Northern Department Store Group (“NDSG”) (operating under the nameplates of Bergner’s, Boston Store, Carson Pirie Scott, Herberger’s and Younkers which was sold to the Bon-Ton Stores, Inc. (“Bon-Ton”) in March 2006) and Parisian, which was sold to Belk Inc. (“Belk”) in October 2006. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974.
Contributions
The Plan allows for discretionary employer contributions, participant contributions and rollover contributions. The Employer contributes a discretionary amount of cash or employer stock to the Plan as approved by the Employer’s Board of Directors. The Employer’s contributions are not mandatory and are not based on the operations or net profits of the Employer. Employer contributions may be 0% or any positive percentage multiplied by matchable participant salary deferrals, as defined in the plan agreement. Employer contributions may not exceed 5% of the compensation of each participant making salary deferral contributions. For the 2006 plan year ended December 31, 2006, the Employer’s matching contribution was 40% of the first 5% of total compensation that a participant elected to contribute.
Participants may elect regular payroll deductions of up to 90% of compensation, as defined in the plan agreement, to be contributed to the Plan on a before tax basis. No participant shall be permitted to elect before-tax contributions under the Plan during any calendar year in excess of the amount prescribed by the Internal Revenue Code (the “Code”) ($15,000 for 2006). Participants may also contribute amounts representing distributions from other qualified defined benefit or contribution plans (“rollover contributions”) provided such rollover contributions meet the requirements of the plan agreement. Participants may direct the investment of their contributions, as well as the Employer’s contributions, through various investment options offered by the Plan. The Plan currently offers twelve mutual funds and an Employer common stock fund as investment options for participants.
Effective August 31, 2006, the percentage of future employee contributions invested in the Employer common stock fund is limited to 25%. Certain “grandfather” rules apply to participants over the 25% limits on the effective date. Transfers of assets to the Employer common stock fund are limited to the maximum amount such that after any such transfer, the percentage of the participant’s account invested in the Employer common stock fund does not exceed 25%.
Participant Accounts
Each participant’s account is credited with the participant’s contribution, the Employer’s discretionary contribution, and an allocation of the Plan’s earnings or losses. Allocations are based on account balances as defined in the Plan.
4
Saks Incorporated 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2006
Vesting
All participants are at all times fully vested in their contributions, including rollover contributions, plus actual earnings thereon. The Plan participants vest in the Employer’s discretionary contributions in addition to actual earnings thereon, based on years of credited service in accordance with the following vesting schedule:
| | | | | | | | | | | | | | | | | |
Years of Service | | | | | | | | | | | | | | | | Vested
Percentage | |
Less than 3 | | 0 | % |
3 or more | | 100 | % |
The vested percentage shall be 100% for a participant on and after attainment of normal retirement age, death, or disability, as defined in the plan agreement.
Participant Loans
A participant may borrow a minimum of $1,000 up to a maximum of $50,000 or 50% of the vested value of his or her account less the outstanding principal balance of any other participant loans. The loans are collateralized by the balance in the participant’s account and bear interest at a rate commensurate with prevailing rates at the time of the loan, as determined quarterly. At December 31, 2006 and 2005, interest rates ranged from 5.00% to 10.50%. At December 31, 2006 and 2005, the total outstanding loan balance aggregated $12,239,747 and $19,555,840, respectively.
Forfeitures
Forfeitures occur when a nonvested participant receives a distribution of the vested value of his or her participant account or incurs five consecutive breaks in service, as defined in the Plan. Forfeitures may be used to reinstate previously forfeited amounts, provide funds necessary for the correction of errors, and to reduce future employer contributions. At December 31, 2006 and 2005, the Plan had $82,688 and $131,482 of unallocated forfeitures included in net assets available for plan benefits, respectively.
Distribution of Benefits
Vested plan benefits are distributed upon retirement, death, or termination of service. A participant may elect to receive a lump sum distribution equal to the vested balance of his/her account or periodic installments over a period of time not exceeding the participant’s life expectancy (or the joint life expectancy of the participant and his/her beneficiary).
Termination of the Plan
In the event of a termination of the plan, participants become fully vested in all individual account balances.
In conjunction with the sale of NDSG to Bon-Ton in March 2006 and the sale of Parisian to Belk in October 2006, to the extent not vested, terminated employees became immediately vested in their accrued benefits. As a result, during the 2006 plan year, $101,068,996 was distributed to NDSG terminated employees and $19,702,886 was distributed to Parisian terminated employees who elected to receive a distribution of their balances, and is included on the Statement of Changes in Net Assets Available for Benefits as a component of benefit payments. For the five months ended May 31, 2007, $8,346,277 was distributed to NDSG terminated employees and $4,754,498 was distributed to Parisian terminated employees who elected to receive a distribution of their account balances.
5
Saks Incorporated 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2006
| 2. | Significant Accounting Policies |
Basis of Accounting
The accounts of the Plan are maintained on the accrual basis of accounting and have been prepared in conformity with accounting principles generally accepted in the United States of America.
Risks and Uncertainties
The Plan provides for various investment options in any combination of Saks Incorporated common stock and mutual funds offered by the Plan. Generally all investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the value of investments, it is at least reasonably possible that changes in risks in the near term could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits and the statement of changes in net assets available for benefits.
Participants are exposed to credit loss in the event of non-performance by the trustee or non-performance by the entities in which the investments are placed.
Income Tax Status
The Internal Revenue Service has determined and informed the Employer by a letter dated September 7, 2001, that the Plan is designed in accordance with applicable sections of the Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the Code. Therefore, no provision for income taxes has been included in the financial statements.
Valuation of Investments
Investments of the Plan, other than participant loans, are stated in the accompanying financial statements at market value as determined by the Plan’s trustee based on quoted market prices. Purchases and sales of investments are reflected as of the trade date. Since the Plan has one fund that includes fully benefit-responsive investment contracts, net assets at fair value have been adjusted to net assets at contract value. Investment income is recorded when earned.
Loans to participants are valued at cost, which approximates market value.
The Plan presents in the statement of changes in net assets available for benefits the net appreciation (depreciation) in the market value of its investments which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments.
Contributions
Contributions receivable from the Employer are accrued based on amounts declared by the Employer’s Board of Directors. Contributions receivable from employees are accrued based on unremitted deductions from the participants payroll compensation.
Expenses of the Plan
Expenses of $667,883 incurred in the administration of the Plan during the 2006 plan year were paid by the Plan. The Plan funds payment of expenses by assessing a proportional annual charge on the fair value of each fund. Certain plan expenses are paid by the Employer.
6
Saks Incorporated 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2006
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of additions and deductions during the reporting periods. Actual results could differ from those estimates.
New Accounting Pronouncements
Beginning as of January 1, 2006, the Plan adopted the requirements as described in Financial Accounting Standards Board Staff Position, FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (FSP AAG INV-1 and SOP 94-4-1). These requirements are effective for financial statements issued for periods ending after December 15, 2006. The provisions of FSP AAG INV-1 and SOP 94-4-1 have been retroactively applied to the statement of net assets available for benefits presented as of December 31, 2005, as required. FSP AAG INV-1 and SOP 94-4-1 require investment contracts held by a defined-contribution plan to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan. The plan invests in investment contracts through a collective trust. As required by the FSP, the Statement of Net Assets Available for Benefits presents the fair value of the investment in the collective trust as well as the adjustment of the investment in the collective trust from fair value to contract value relating to the investment contracts. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis.
Reclassifications
Certain 2005 balances have been reclassified to conform to the 2006 presentation.
7
Saks Incorporated 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2006
Investment information as of December 31, 2006 and 2005 and for the year ended December 31, 2006 is as follows:
| | | | | | |
| | | 2006 | | 2005 |
Mutual funds: | | | | | | |
Wells Fargo Small Cap Fund | | | | | | |
Vanguard Institutional Index Fund | | $ | 80,493,551 | | $ | 94,613,717 |
PIMCO Total Return Fund | | | 24,037,872 | | | 31,079,535 |
Dodge & Cox Balanced Fund | | | 56,232,743 | | | 56,295,035 |
Neuberger & Berman Genesis Trust Fund | | | 50,531,630 | | | 76,590,898 |
Neuberger & Berman Partners Fund | | | 56,834,970 | | | — |
Hotchkis & Wiley Large Cap Value | | | 14,491,499 | | | — |
Franklin Templeton Fund | | | 26,028,599 | | | 25,601,773 |
Wells Fargo Stable Return Fund | | | 104,189,097 | | | 127,407,143 |
AIM Basic Value Fund | | | — | | | 17,039,682 |
Fidelity Low-Priced Stock Fund | | | 27,126,825 | | | 28,176,791 |
Wells Fargo Growth Balanced Fund | | | — | | | 15,269,892 |
Federated Capital Appreciation Fund | | | — | | | 56,036,755 |
Columbia Acorn Fund | | | 34,509,837 | | | 38,915,988 |
American Fund AMCAP | | | 9,371,908 | | | 11,819,580 |
Common stock: | | | | | | |
Saks Incorporated Stock Fund (a) | | | 18,447,842 | | | 19,353,972 |
Participant loans | | | 12,239,747 | | | 19,555,840 |
| | | | | | |
| | $ | 514,536,120 | | $ | 617,756,601 |
| | | | | | |
Interest and dividend income | | $ | 27,998,753 | | | |
| | | | | | |
Net appreciation in market value of investments | | $ | 34,081,935 | | | |
| | | | | | |
| (a) | The Saks Incorporated Stock Fund is measured in "units of participation" rather than in shares of Saks Incorporated common stock. In order to facilitate daily participant transactions of Saks, Inc. stock, a minimal daily cash balance is maintained in the Fund. |
The Vanguard Institutional Index Fund, Neuberger & Berman Genesis Trust Fund, Wells Fargo Stable Return Fund, Columbia Acorn Fund and Dodge & Cox Balanced Fund each exceeded 5% of the Plan’s net assets available for benefits at December 31, 2006 and 2005. The Neuberger & Berman Partners Fund, Franklin Templeton Fund and Fidelity Low-Priced Stock Fund exceeded 5% of the Plan’s net assets available for plan benefits at December 31, 2006. The Federated Capital Appreciation Fund and PIMCO Total Return Fund exceeded 5% of the Plan’s net assets available for plan benefits at December 31, 2005.
8
Saks Incorporated 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2006
The Plan’s investments (including investments bought and sold, as well as those held during the year) had net appreciation in value of $34,081,935 during the year ended December 31, 2006, as follows:
| | | |
Collective investment trust | | $ | 4,950,810 |
Mutual funds | | | 20,863,516 |
Common stock | | | 8,267,609 |
| | | |
| | $ | 34,081,935 |
| | | |
| 4. | Related Party Transactions |
The Plan allows for transactions with certain parties who may perform services or have fiduciary responsibilities to the Plan, including the Company and Wells Fargo, the Plan’s trustee. The Plan invests in common stock of the Company and issues loans to participants, which are secured by the balances in the participant’s account. During the year ended December 31, 2006, the Plan purchased 429,100 units of the Saks Incorporated Stock Fund for $7,361,925 and disposed of 477,800 units for $6,248,361. During the year ended December 31, 2005, the Plan purchased 71,790 units of the Saks Incorporated Stock Fund for $1,227,998 and disposed of 607,550 units for $10,781,415. Shareholders of record as of April 14, 2006 were paid a dividend of $4.00 per share on May 1, 2006 and on the date of record the Plan held the equivalent of 1,039,144 shares and received a dividend payment of $4,156,576. Additionally, shareholders of record as of November 15, 2006 were paid a dividend of $4.00 per share on November 30, 2006 and on the date of record the Plan held the equivalent of 908,437 shares and received a dividend payment of $3,633,748. These transactions qualify as party-in-interest transactions.
9
Supplemental Schedule
Saks Incorporated 401(k) Retirement Plan
Schedule of Assets (Held at End of Year) Form 5500 Schedule H line 4(i)
December 31, 2006
| | | | | | | | | | | | |
| | | | | (c) Description of investment | | | | | | | |
| | | | | including, maturity date, rate | | | | | | | |
| | | (b) Identity of issuer, borrower, | | of interest, collateral par, or | | | | | | | |
(a) | | lessor or similar party | | maturity value | | (d) Cost** | | (e) | | | Current value |
| | Vanguard Institutional Index Fund | | Mutual fund | | | | | | | $ | 80,493,551 |
| | PIMCO Total Return Fund | | Mutual fund | | | | | | | | 24,037,872 |
| | Dodge & Cox Balanced Fund | | Mutual fund | | | | | | | | 56,232,743 |
| | Neuberger & Berman Genesis Trust Fund | | Mutual fund | | | | | | | | 50,531,630 |
| | Neuberger & Berman Partners Fund | | Mutual fund | | | | | | | | 56,834,970 |
| | Hotchkis & Wiley Large Cap Value | | Mutual fund | | | | | | | | 14,491,499 |
| | Franklin Templeton Fund | | Mutual fund | | | | | | | | 26,028,599 |
| | Fidelity Low-Priced Stock Fund | | Mutual fund | | | | | | | | 27,126,825 |
| | Columbia Acorn Fund | | Mutual fund | | | | | | | | 34,509,837 |
| | American Fund AMCAP | | Mutual fund | | | | | | | | 9,371,908 |
* | | Wells Fargo Stable Return Fund | | Collective investment trust | | | | 1 | | | | 104,189,097 |
* | | Saks Incorporated Stock Fund | | Common stock units | | | | | | | | 18,447,842 |
* | | Participant loans | | 5.00% - 10.50% | | | | | | | | 12,239,747 |
| | | | | | | | | | | | |
| | | | | | | | | | | $ | 514,536,120 |
| | | | | | | | | | | | |
| * | Party-in-interest to the Plan. |
| ** | Cost information has not been disclosed as all investments are participant directed. |
10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| | | | |
| | | | Saks Incorporated 401(k) Retirement Plan |
| | |
| Date: June 27, 2007 | | | | /s/ Kevin G. Wills |
| | | | Kevin G. Wills Executive Vice President and Chief Financial Officer |
INDEX TO EXHIBITS
| | |
| Exhibit No. | | Description of Exhibit |
| |
| 23 | | Consent of Independent Registered Public Accounting Firm |
