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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended: May 1, 2010

or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from
 to

Commission File Number: 1-13113

SAKS INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)



|                                               |  |                                  
|---------------------------------------------- |  | ---------------------------------
|TENNESSEE                                      |  | 62-0331040                       
|(State or other jurisdiction
of incorporation) |  | (IRS Employer
Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|12 East
49thStreet
New York, New York    |  | 10017     
|(Address of principal
executive offices) |  | (Zip Code)

212-940-5305

(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Date File required to be submitted and posted pursuant to Rule-405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                           |  |                      |  |                          |  |                             
|-------------------------- |  | -------------------- |  | ------------------------ |  | ----------------------------
|Large accelerated filer  x |  | Accelerated filer   ̈ |  | Non-accelerated filer   ̈ |  | Smaller Reporting Company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

As of May 19, 2010, the number of shares of the Registrants Common Stock outstanding was 160,923,339.









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TABLE OF CONTENTS



|                              |  |                                                                                                  |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------------------ |  | --
|                              |  | Page No.                                                                                        
|PART I. FINANCIAL INFORMATION |  |                                                                                                 
|                              |  |                                                                                                 
|Item 1.                       |  | Financial Statements (Unaudited)                                                                 |  |   
|                              |  |                                                                                                 
|                              |  | Condensed Consolidated Balance Sheets  May 1, 2010, January 30, 2010, and May 2, 2009           |  | 3 
|                              |  |                                                                                                 
|                              |  | Condensed Consolidated Statements of Income  Three Months Ended May 1, 2010 and May 2, 2009     |  | 4 
|                              |  |                                                                                                 
|                              |  | Condensed Consolidated Statements of Cash Flows  Three Months Ended May 1, 2010 and May 2, 2009 |  | 5 
|                              |  |                                                                                                 
|                              |  | Notes to Condensed Consolidated Financial Statements                                             |  | 6 
|                              |  |                                                                                                 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations            |  | 25
|                              |  |                                                                                                 
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                       |  | 36
|                              |  |                                                                                                 
|Item 4.                       |  | Controls and Procedures                                                                          |  | 37
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                 
|                              |  |                                                                                                 
|Item 1.                       |  | Legal Proceedings                                                                                |  | 37
|                              |  |                                                                                                 
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                      |  | 37
|                              |  |                                                                                                 
|Item 6.                       |  | Exhibits                                                                                         |  | 38
|                              | 
|SIGNATURE                     |  | 39                                                                                              



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SAKS INCORPORATED and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

(Unaudited)



|                                               |  |            |           |                 |   |            |  |   |          
|---------------------------------------------- |  | ---------- | --------- | --------------- | - | ---------- |  | - | ---------
|                                               |  | May 1,2010 |           | January 30,2010 |   | May 2,2009
|ASSETS                                         |  |            |           |                 |   |            |  |   |          
|Current Assets                                 |  |            |           |                 |   |            |  |   |          
|Cash and cash equivalents                      |  | $          | 179,056   |                 | $ | 147,301    |  | $ | 10,252   
|Merchandise inventories                        |  |            | 702,132   |                 |   | 649,196    |  |   | 779,474  
|Other current assets                           |  |            | 92,991    |                 |   | 93,479     |  |   | 97,977   
|Deferred income taxes, net                     |  |            | 34,013    |                 |   | 35,974     |  |   | 26,721   
|                                               |  |            |           |                 |   |            |  |   |          
|Total current assets                           |  |            | 1,008,192 |                 |   | 925,950    |  |   | 914,424  
|Property and Equipment, net                    |  |            | 938,292   |                 |   | 956,082    |  |   | 1,042,960
|Deferred Income Taxes, net                     |  |            | 219,492   |                 |   | 221,354    |  |   | 200,289  
|Other Assets                                   |  |            | 30,465    |                 |   | 32,315     |  |   | 19,684   
|                                               |  |            |           |                 |   |            |  |   |          
|TOTAL ASSETS                                   |  | $          | 2,196,441 |                 | $ | 2,135,701  |  | $ | 2,177,357
|                                               |  |            |           |                 |   |            |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |            |           |                 |   |            |  |   |          
|Current Liabilities                            |  |            |           |                 |   |            |  |   |          
|Trade accounts payable                         |  | $          | 148,071   |                 | $ | 101,739    |  | $ | 140,252  
|Accrued expenses and other current liabilities |  |            | 241,160   |                 |   | 250,185    |  |   | 218,361  
|Current portion of long-term debt              |  |            | 28,639    |                 |   | 27,857     |  |   | 4,686    
|                                               |  |            |           |                 |   |            |  |   |          
|Total current liabilities                      |  |            | 417,870   |                 |   | 379,781    |  |   | 363,299  
|Long-Term Debt                                 |  |            | 496,993   |                 |   | 493,330    |  |   | 631,940  
|Other Long-Term Liabilities                    |  |            | 191,116   |                 |   | 190,980    |  |   | 193,858  
|                                               |  |            |           |                 |   |            |  |   |          
|Total liabilities                              |  |            | 1,105,979 |                 |   | 1,064,091  |  |   | 1,189,097
|Commitments and Contingencies                  |  |            |          |                 |   |           |  |   |         
|Shareholders Equity                           |  |            | 1,090,462 |                 |   | 1,071,610  |  |   | 988,260  
|                                               |  |            |           |                 |   |            |  |   |          
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY     |  | $          | 2,196,441 |                 | $ | 2,135,701  |  | $ | 2,177,357
|                                               |  |            |           |                 |   |            |  |   |          

See notes to condensed consolidated financial
statements.



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SAKS INCORPORATED and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)



|                                                             |  |                    |         |   |            |   |         |  
|------------------------------------------------------------ |  | ------------------ | ------- | - | ---------- | - | ------- | -
|                                                             |  | Three Months Ended |        
|                                                             |  | May 1,2010         |         |   | May 2,2009 |  
|NET SALES                                                    |  | $                  | 667,438 |   |            | $ | 624,265 |  
|Cost of sales                                                |  |                    | 379,707 |   |            |   | 382,858 |  
|                                                             |  |                    |         |   |            |   |         |  
|Gross margin                                                 |  |                    | 287,731 |   |            |   | 241,407 |  
|Selling, general and administrative expenses                 |  |                    | 163,495 |   |            |   | 158,433 |  
|Other operating expenses:                                    |  |                    |         |   |            |   |         |  
|Property and equipment rentals                               |  |                    | 25,669  |   |            |   | 26,471  |  
|Depreciation and amortization                                |  |                    | 28,860  |   |            |   | 33,340  |  
|Taxes other than income taxes                                |  |                    | 22,436  |   |            |   | 20,159  |  
|Store pre-opening costs                                      |  |                    | 2       |   |            |   | 627     |  
|Impairments and dispositions                                 |  |                    | 1,815   |   |            |   | 186     |  
|                                                             |  |                    |         |   |            |   |         |  
|OPERATING INCOME                                             |  |                    | 45,454  |   |            |   | 2,191   |  
|Interest expense                                             |  |                    | (14,139 | ) |            |   | (10,435 | )
|Other income, net                                            |  |                    | 190     |   |            |   | 97      |  
|                                                             |  |                    |         |   |            |   |         |  
|INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |  |                    | 31,505  |   |            |   | (8,147  | )
|Provision (benefit) for income taxes                         |  |                    | 12,720  |   |            |   | (3,266  | )
|                                                             |  |                    |         |   |            |   |         |  
|INCOME (LOSS) FROM CONTINUING OPERATIONS                     |  |                    | 18,785  |   |            |   | (4,881  | )
|DISCONTINUED OPERATIONS:                                     |  |                    |         |   |            |   |         |  
|Loss from discontinued operations before income taxes        |  |                    |        |   |            |   | (363    | )
|Benefit for income taxes                                     |  |                    |        |   |            |   | (127    | )
|                                                             |  |                    |         |   |            |   |         |  
|LOSS FROM DISCONTINUED OPERATIONS                            |  |                    |        |   |            |   | (236    | )
|                                                             |  |                    |         |   |            |   |         |  
|NET INCOME (LOSS)                                            |  | $                  | 18,785  |   |            | $ | (5,117  | )
|                                                             |  |                    |         |   |            |   |         |  
|Per-Share amounts - Basic                                    |  |                    |         |   |            |   |         |  
|Income (loss) from continuing operations                     |  | $                  | 0.12    |   |            | $ | (0.04   | )
|Loss from discontinued operations                            |  | $                  |        |   |            | $ |        |  
|Net Income (loss) per share                                  |  | $                  | 0.12    |   |            | $ | (0.04   | )
|Per-Share amounts - Diluted                                  |  |                    |         |   |            |   |         |  
|Income (loss) from continuing operations                     |  | $                  | 0.11    |   |            | $ | (0.04   | )
|Loss from discontinued operations                            |  | $                  |        |   |            | $ |        |  
|Net Income (loss) per share                                  |  | $                  | 0.11    |   |            | $ | (0.04   | )
|Weighted average common shares:                              |  |                    |         |   |            |   |         |  
|Basic                                                        |  |                    | 153,739 |   |            |   | 138,297 |  
|Diluted                                                      |  |                    | 198,895 |   |            |   | 138,297 |  

See notes to condensed
consolidated financial statements.



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SAKS INCORPORATED and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)



|                                                                                                   |  |                    |         |   |            |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------- | - | ------- | -
|                                                                                                   |  | Three Months Ended |        
|                                                                                                   |  | May 1,2010         |         |   | May 2,2009 |  
|Operating Activities:                                                                              |  |                    |         |   |            |   |         |  
|Net Income (Loss)                                                                                  |  | $                  | 18,785  |   |            | $ | (5,117  | )
|Loss from discontinued operations                                                                  |  |                    |        |   |            |   | (236    | )
|                                                                                                   |  |                    |         |   |            |   |         |  
|Income (loss) from continuing operations                                                           |  |                    | 18,785  |   |            |   | (4,881  | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                    |         |   |            |   |         |  
|Depreciation and amortization                                                                      |  |                    | 28,860  |   |            |   | 33,340  |  
|Impairments and dispositions                                                                       |  |                    |        |   |            |   | 186     |  
|Equity compensation                                                                                |  |                    | 5,003   |   |            |   | 4,171   |  
|Amortization of discount on convertible notes                                                      |  |                    | 2,879   |   |            |   | 1,769   |  
|Deferred income taxes                                                                              |  |                    | 3,641   |   |            |   | (3,330  | )
|Change in operating assets and liabilities, net                                                    |  |                    | (18,686 | ) |            |   | (26,349 | )
|                                                                                                   |  |                    |         |   |            |   |         |  
|Net Cash Provided By Operating Activities - Continuing Operations                                  |  |                    | 40,482  |   |            |   | 4,906   |  
|Net Cash Used In Operating Activities - Discontinued Operations                                    |  |                    |        |   |            |   | (13,596 | )
|                                                                                                   |  |                    |         |   |            |   |         |  
|Net Cash Provided By (Used In) Operating Activities                                                |  |                    | 40,482  |   |            |   | (8,690  | )
|Investing Activities:                                                                              |  |                    |         |   |            |   |         |  
|Purchases of property and equipment                                                                |  |                    | (7,891  | ) |            |   | (27,956 | )
|Proceeds from the sale of property and equipment                                                   |  |                    |        |   |            |   | 8       |  
|                                                                                                   |  |                    |         |   |            |   |         |  
|Net Cash Used In Investing Activities - Continuing Operations                                      |  |                    | (7,891  | ) |            |   | (27,948 | )
|Net Cash Used In Investing Activities - Discontinued Operations                                    |  |                    |        |   |            |   |        |  
|                                                                                                   |  |                    |         |   |            |   |         |  
|Net Cash Used In Investing Activities                                                              |  |                    | (7,891  | ) |            |   | (27,948 | )
|Financing Activities:                                                                              |  |                    |         |   |            |   |         |  
|Proceeds from revolving credit facility                                                            |  |                    |        |   |            |   | 38,325  |  
|Payments on capital lease obligations                                                              |  |                    | (1,250  | ) |            |   | (1,237  | )
|Cash dividends paid                                                                                |  |                    |        |   |            |   | (471    | )
|Net proceeds from the issuance of common stock                                                     |  |                    | 414     |   |            |   |        |  
|                                                                                                   |  |                    |         |   |            |   |         |  
|Net Cash Provided By (Used In) Financing Activities - Continuing Operations                        |  |                    | (836    | ) |            |   | 36,617  |  
|Net Cash Used In Financing Activities - Discontinued Operations                                    |  |                    |        |   |            |   |        |  
|                                                                                                   |  |                    |         |   |            |   |         |  
|Net Cash Provided By (Used In) Financing Activities                                                |  |                    | (836    | ) |            |   | 36,617  |  
|Increase (decrease) in Cash and Cash Equivalents                                                   |  |                    | 31,755  |   |            |   | (21     | )
|Cash and cash equivalents at beginning of period                                                   |  |                    | 147,301 |   |            |   | 10,273  |  
|Cash and cash equivalents at end of period                                                         |  | $                  | 179,056 |   |            | $ | 10,252  |  
|                                                                                                   |  |                    |         |   |            |   |         |  

See notes to condensed consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

NOTE 1
 GENERAL

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in
the United States of America (GAAP) for interim financial information and in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Operating results for the three months ended May 1, 2010 are not necessarily indicative of the
results that may be expected for the fiscal year ending January 29, 2011 (fiscal year 2010). The financial statements include the accounts of Saks Incorporated and its subsidiaries (collectively, the Company). All intercompany
amounts and transactions have been eliminated.

The accompanying Condensed Consolidated Balance Sheet at January 30, 2010 has been
derived from the audited financial statements at that date but does not include all disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and
related notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended January 30, 2010.

Certain
reclassifications were made to prior period amounts to conform to the current year presentation.

The Companys operations consist of
Saks Fifth Avenue (SFA), Saks Fifth Avenue OFF 5TH (OFF 5TH), and SFAs e-commerce operations. Previously, the Company also operated Club Libby Lu (CLL), the operations of which were discontinued in January
2009. The operations of CLL are presented as discontinued operations in the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Cash Flows for the prior year period.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Net Sales  Net Sales include sales of merchandise (net of returns and exclusive of sales taxes), commissions from leased departments,
shipping and handling revenues related to merchandise sold and breakage income from unredeemed gift cards. Commissions from leased departments were $7,367 and $6,191 for the three months ended May 1, 2010 and May 2, 2009, respectively.
Leased department sales were $54,116 and $47,616 for the three months ended May 1, 2010 and May 2, 2009, respectively, and were excluded from Net Sales in the accompanying Condensed Consolidated Statements of Income.



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Cash and Cash Equivalents  Cash and cash equivalents primarily consist of cash on hand
in the stores, deposits with banks, and investments with banks and financial institutions that have original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Cash equivalents totaled $170,573
and $240 at May 1, 2010 and May 2, 2009, respectively, primarily consisting of money market funds, demand deposits, and time deposits. Included in cash equivalents at May 1, 2010 was a $20,000 compensating balance related to the
Companys purchasing card program to ensure future credit availability under that program. Income earned on cash equivalents was $119 and $38 for the three-month periods ended May 1, 2010 and May 2, 2009, respectively. Income earned
on cash equivalents is reflected in Other Income in the accompanying Condensed Consolidated Statements of Income.

Inventory
 Merchandise inventories are stated at the lower of cost or market and include freight, buying and distribution costs. The Company takes markdowns related to slow moving inventory, ensuring the appropriate inventory valuation. The Company
receives vendor provided support in different forms. When the vendor provides support for inventory markdowns, the Company records the support as a reduction to cost of sales. Such support is recorded in the period that the corresponding markdowns
are taken. When the Company receives inventory-related support that is not designated for markdowns, the Company includes this support as a reduction in the cost of purchases.

Impairments and Dispositions The Company continuously evaluates its real estate portfolio and closes underproductive stores in the
normal course of business as leases expire or as other circumstances dictate. The Company also performs an asset impairment analysis at each fiscal year end and whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. The Company announced that three SFA stores will be closed in the second quarter of 2010. The Company incurred charges of $1,815 primarily related to severance, lease termination, and other store closing costs for the three month period
ended May 1, 2010. Additional costs are expected to be incurred related to the store closures in the second quarter of fiscal 2010, however, the Company does not expect these costs to be material to its consolidated financial statements for the
quarter ending July 31, 2010. The Company incurred charges primarily related to asset dispositions in the normal course of business of $186 for the three month period ended May 2, 2009. Asset dispositions and store closing costs are
included in Impairments and Dispositions in the accompanying Condensed Consolidated Statements of Income.

Segment Reporting
 SFA, OFF 5TH, and SFAs e-commerce operations have been aggregated into one reportable segment based on the aggregation criteria outlined in the authoritative accounting guidance.

Fair Value of Financial InstrumentsThe carrying value of the Companys financial instruments, including cash and cash
equivalents, receivables, accounts payable, and accrued expenses at May 1, 2010, January 30, 2010, and May 2, 2009 approximates their fair values due to the short-term nature of these financial instruments. Refer to Note 5
for fair value disclosures related to the Companys long-term debt.



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NOTE 2  RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

In the first quarter of 2010, the Company adopted a new standard that changed the accounting for transfers of financial assets. This new standard
eliminates the concept of a qualifying special-purpose entity; removes the scope exception from applying the accounting standards that address the consolidation of variable interest entities to qualifying special-purpose entities; changes the
standard for de-recognizing financial assets; and requires enhanced disclosure. The adoption of this new standard did not impact the Companys consolidated financial statements.

In the first quarter of 2010, the Company adopted a new standard for determining whether to consolidate a variable interest entity. This new standard
eliminated a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and requires an ongoing reassessment
of whether an entity is the primary beneficiary. The adoption of this new standard did not impact the Companys consolidated financial statements.

Recently Issued Pronouncements

In January 2010, the Financial Accounting Standards Board issued an accounting standard update related to improving disclosures about fair value
measurements. The update requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and
information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The accounting standard update is effective for reporting periods beginning after December 15, 2009,
except for Level 3 reconciliation disclosures which are effective for periods beginning after December 15, 2010. Adoption of the accounting standard update as it relates to Level 1 and Level 2 fair value disclosures did not impact the
Companys consolidated financial statements. The Company does not expect the adoption of the accounting standard update related to the Level 3 reconciliation disclosures to have a material impact on its consolidated financial statements.

NOTE 3  INCOME TAXES

The effective income tax rate from continuing operations for the three-month period ended May 1, 2010 was 40.4% compared to 40.1%, for the
three-month period ended May 2, 2009. There was no material change in the effective rate for the three-month period ended May 1, 2010.



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Components of the Companys income tax expense (benefit) from continuing operations for the three-month
periods ended May 1, 2010 and May 2, 2009 were as follows:



|                                                                |  |                    |        |   |            |   |        |  
|--------------------------------------------------------------- |  | ------------------ | ------ | - | ---------- | - | ------ | -
|                                                                |  | Three Months Ended |       
|                                                                |  | May 1,2010         |        |   | May 2,2009 |  
|Expected federal income taxes at 35%                            |  | $                  | 11,027 |   |            | $ | (2,852 | )
|State income taxes, net of federal benefit                      |  |                    | 3,210  |   |            |   | (445   | )
|State NOL valuation allowance adjustment                        |  |                    | (1,476 | ) |            |   |       |  
|Effect of settling tax exams and other tax reserve adjustments  |  |                    | (34    | ) |            |   | (171   | )
|Other items, net                                                |  |                    | (7     | ) |            |   | 202    |  
|                                                                |  |                    |        |   |            |   |        |  
|Provision (benefit) for income taxes from continuing operations |  | $                  | 12,720 |   |            | $ | (3,266 | )
|                                                                |  |                    |        |   |            |   |        |  

In accordance with the relevant accounting guidance related to accounting for income taxes in interim periods, the Company
has determined its income tax provision for the three months ended May 1, 2010 on a discrete basis since it could not reliably estimate its 2010 annual effective tax rate because minor changes in its estimated pre-tax results could have a
significant impact on its annualized effective tax rate. This is a change from the prior year where the annual effective tax rate approach was used. Accordingly, the tax rate used for the income tax provision for the three months ended May 1,
2010 was based on the actual effective tax rate for the period. This included a decrease in the valuation allowance reserve of $1,476 against state deferred tax assets resulting from the utilization of state net operating losses (NOLs)
for the three month period ended May 1, 2010.

The Company believes that it is reasonably possible that up to $25,532 in unrecognized tax
benefits relating to prior acquisitions could be recognized within 12 months of the May 1, 2010 balance sheet date.

The Company files a
consolidated U.S. Federal income tax return as well as state tax returns in multiple state jurisdictions. The Company has completed examinations by the Internal Revenue Service or the statute of limitations has expired for taxable years through
January 28, 2006. With respect to state and local jurisdictions, the Company has completed examinations in many jurisdictions through the same period and currently has examinations in progress for several jurisdictions.

The Companys Condensed Consolidated Balance Sheet as of May 1, 2010 includes a gross deferred tax asset of $158,374 related to U.S. federal
and state net operating loss and alternative minimum tax credit carryforwards. The majority of the net operating loss carryforward is a result of the net operating losses incurred during the fiscal years ended January 30, 2010 and
January 31, 2009 due principally to difficult market and macroeconomic conditions. The Company has concluded, based on the weight of all available positive and negative evidence, that all but $41,334 of these tax benefits relating to certain
state losses are more likely than not to be realized in the future. Therefore, a valuation allowance for the $41,334 has been established. The Company evaluates the realizability of its deferred tax assets on quarterly basis. While the Company has
incurred a cumulative loss over the three years ended May 1, 2010, after evaluating all available evidence including its past operating results, the macroeconomic factors contributing to the 2009 and 2008 fiscal year losses, the length of the
carryforward periods available and its forecast of future taxable income, including the availability of prudent and feasible tax planning strategies, the Company concluded that it is more likely than not the net deferred tax asset, net of the
$41,334 valuation allowance related to state NOLs, will be realized. The Company will continue to assess the need for additional valuation allowance in the future. If future results are less than projected or tax planning alternatives are no longer
viable, then additional valuation allowance may be required to reduce the deferred tax assets which could have a material impact on its results of operations in the period in which it is recorded.



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NOTE 4  EARNINGS PER COMMON SHARE

Calculations of earnings per common share (EPS) for the three-month period ended May 1, 2010 and May 2, 2009, respectively, are as
follows:



|                                           |  |                                       |        |                       |                                       |                |   |       |          |  |   |                       |   |                |         |  |   |       |  
|------------------------------------------ |  | ------------------------------------- | ------ | --------------------- | ------------------------------------- | -------------- | - | ----- | -------- |  | - | --------------------- | - | -------------- | ------- |  | - | ----- | -
|                                           |  | For the Three Months EndedMay 1, 2010 |        |                       | For the Three Months EndedMay 2, 2009 |               
|                                           |  | NetIncome                             |        | WeightedAverageShares |                                       | PerShareAmount |   |       | Net Loss |  |   | WeightedAverageShares |   | PerShareAmount |        
|Basic EPS                                  |  | $                                     | 18,785 |                       | 153,739                               |                | $ | 0.12  |          |  | $ | (5,117                | ) |                | 138,297 |  | $ | (0.04 | )
|Effect of dilutive potential common shares |  |                                       | 3,704  |                       | 45,156                                |                |   | (0.01 | )        |  |   |                      |   |                |        |  |   |      |  
|                                           |  |                                       |        |                       |                                       |                |   |       |          |  |   |                       |   |                |         |  |   |       |  
|Diluted EPS                                |  | $                                     | 22,489 |                       | 198,895                               |                | $ | 0.11  |          |  | $ | (5,117                | ) |                | 138,297 |  | $ | (0.04 | )
|                                           |  |                                       |        |                       |                                       |                |   |       |          |  |   |                       |   |                |         |  |   |       |  

Diluted EPS includes the effect of 40,889 shares that could be issued upon the conversion of the 7.5% and 2.0% convertible
notes and the related interest expense, net of tax, of $3,704 for the three months ended May 1, 2010 as the effect is dilutive. The weighted-average diluted shares outstanding also include 3,995 of restricted stock and performance shares and
272 option awards as inclusion has a dilutive effect on earnings per share. The Company had 1,365 options that were excluded from the computation of diluted EPS for the three months ended May 1, 2010, because the exercise prices of the options
exceeded the average market price of the Companys common stock for the period. These options represent the number of awards outstanding at the end of the period and application of the treasury stock method would reduce this amount if they had
a dilutive effect and were included in the computation of diluted EPS.

As of May 2, 2009, the Company had 2,779 options and 6,056
unvested restricted stock and performance share awards outstanding that were excluded from the computation of diluted EPS because the potential common shares would have been anti-dilutive as the Company generated a net loss for the three months
ended May 2, 2009. These options and unvested restricted stock and performance share awards represent the number of shares outstanding at the end of the period and application of the treasury stock method would reduce this amount if they had a
dilutive effect and were included in the computation of diluted EPS. There were also 19,219 of potentially exercisable shares under the 2.0% convertible notes that were not included in the computation of diluted EPS for the three months ended
May 2, 2009 because inclusion of the potential common shares would have been anti-dilutive as the Company generated a net loss for the period.



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NOTE 5  DEBT

A summary of long-term debt and capital lease obligations is as follows:



|                                                            |  |                |         |   |                  |   |         |                |  |   |           |   |  |                |         |   |           |   |         |   |  |   |        
|----------------------------------------------------------- |  | -------------- | ------- | - | ---------------- | - | ------- | -------------- |  | - | --------- | - |  | -------------- | ------- | - | --------- | - | ------- | - |  | - | -------
|                                                            |  | May 1, 2010    |         |   | January 30, 2010 |   |         | May 2, 2009   
|                                                            |  | CarryingAmount |         |   | FairValue        |   |         | CarryingAmount |  |   | FairValue |   |  | CarryingAmount |         |   | FairValue
|Notes 7.50%, maturing fiscal year 2010                      |  | $              | 22,859  |   |                  | $ | 23,442  |                |  | $ | 22,859    |   |  | $              | 22,973  |   |           | $ | 45,872  |   |  | $ | 43,578 
|Notes 9.875%, maturing fiscal year 2011                     |  |                | 141,557 |   |                  |   | 149,343 |                |  |   | 141,557   |   |  |                | 148,547 |   |           |   | 141,557 |   |  |   | 133,064
|Notes 7.00%, maturing fiscal year 2013                      |  |                | 2,922   |   |                  |   | 2,852   |                |  |   | 2,922     |   |  |                | 2,674   |   |           |   | 2,922   |   |  |   | 2,425  
|Notes 7.375%, maturing fiscal year 2019                     |  |                | 1,911   |   |                  |   | 1,659   |                |  |   | 1,911     |   |  |                | 1,567   |   |           |   | 1,911   |   |  |   | 1,269  
|Convertible Notes 7.50%, maturing fiscal year 2013, net (1) |  |                | 101,567 |   |                  |   | 237,416 |                |  |   | 100,570   |   |  |                | 175,896 |   |           |   |        |   |  |   |       
|Convertible Notes 2.00%, maturing fiscal year 2024, net (2) |  |                | 196,827 |   |                  |   | 238,050 |                |  |   | 194,946   |   |  |                | 192,913 |   |           |   | 189,472 |   |  |   | 148,350
|Revolving credit facility                                   |  |                |        |   |                  |   |        |                |  |   |          |   |  |                |        |   |           |   | 195,000 |   |  |   | 195,000
|Terminated interest rate swap agreements, net (3)           |  |                | 9       |   |                  |   | N/A     |                |  |   | 12        |   |  |                | N/A     |   |           |   | 46      |   |  |   | N/A    
|Capital lease obligations (4)                               |  |                | 57,980  |   |                  |   | N/A     |                |  |   | 56,410    |   |  |                | N/A     |   |           |   | 59,846  |   |  |   | N/A    
|                                                            |  |                |         |   |                  |   |         |                |  |   |           |   |  |                |         |   |           |   |         |   |  |   |        
|Total debt                                                  |  |                | 525,632 |   |                  |   | 652,762 |                |  |   | 521,187   |   |  |                | 544,570 |   |           |   | 636,626 |   |  |   | 523,686
|Less current portion:                                       |  |                |         |   |                  |   |         |                |  |   |           |   |  |                |         |   |           |   |         |   |  |   |        
|Notes 7.50%, maturing fiscal year 2010                      |  | $              | (22,859 | ) |                  | $ | (23,442 | )              |  | $ | (22,859   | ) |  | $              | (22,973 | ) |           | $ |        |   |  | $ |       
|Capital lease obligations (4)                               |  |                | (5,780  | ) |                  |   | N/A     |                |  |   | (4,998    | ) |  |                | N/A     |   |           |   | (4,686  | ) |  |   | N/A    
|                                                            |  |                |         |   |                  |   |         |                |  |   |           |   |  |                |         |   |           |   |         |   |  |   |        
|Current portion of long-term debt                           |  |                | (28,639 | ) |                  |   | (23,442 | )              |  |   | (27,857   | ) |  |                | (22,973 | ) |           |   | (4,686  | ) |  |   |       
|Long-term debt                                              |  | $              | 496,993 |   |                  | $ | 629,320 |                |  | $ | 493,330   |   |  | $              | 521,597 |   |           | $ | 631,940 |   |  | $ | 523,686
|                                                            |  |                |         |   |                  |   |         |                |  |   |           |   |  |                |         |   |           |   |         |   |  |   |        



|(1) | Amount represents the $120,000 convertible notes, net of the unamortized discount of $18,433 and $19,430 as of May 1, 2010 and January 30, 2010, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Amount represents the $230,000 convertible notes, net of the unamortized discount of $33,173, $35,054, and $40,528 as of May 1, 2010, January 30, 2010,
and May 2, 2009, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The fair value of the terminated interest rate swaps is considered immaterial.
|--- | ------------------------------------------------------------------------------



|(4) | Disclosure regarding fair value of capital leases is not required.
|--- | ------------------------------------------------------------------

The fair values of the long-term debt were estimated based on quotes obtained from financial institutions for those or similar instruments or on the
basis of quoted market prices. For variable rate notes that reprice frequently, such as the Companys revolving credit agreement, fair value approximates carrying value.

REVOLVING CREDIT AGREEMENT

The Company
has a $500,000 revolving credit facility, subject to a borrowing base equal to a specified percentage of eligible inventory and certain credit card receivables. The facility matures in November 2013. At May 1, 2010, the Company had no direct
outstanding borrowings and had letters of credit outstanding of $31,909. The obligations under the facility are guaranteed by certain of the Companys existing and future domestic subsidiaries, and the obligations are secured by the
Companys and the guarantors merchandise inventories and certain third party accounts receivable. Borrowings under the facility bear interest at a per annum rate of either LIBOR plus a percentage ranging from 3.5% to 4.0%, or at the
higher of the prime rate and federal funds rate plus a percentage ranging from 2.5% to 3.0%. Letters of credit are charged a per annum fee equal to the then applicable LIBOR borrowing spread (for standby letters of credit) or the applicable LIBOR
spread minus 0.50% (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 unused revolver.



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During periods in which availability under the agreement is $87,500 or more, the Company is not subject to
financial covenants. If and when availability under the agreement decreases to less than $87,500, the Company will be subject to a minimum fixed charge coverage ratio of 1 to 1. There is no debt rating trigger. As of May 1, 2010, the Company
was not subject to the minimum fixed charge coverage ratio.

The revolving credit agreement permits additional debt in specific categories
including the following (each category being subject to limitations as described in the revolving credit agreement): debt arising from permitted sale/leaseback transactions; debt to finance purchases of machinery, equipment, real estate and other
fixed assets; debt in connection with permitted acquisitions; and unsecured debt. The revolving credit agreement also permits other debt (including permitted sale/leaseback transactions) in an aggregate amount not to exceed $400,000 at any time,
including secured debt, so long as it is a permitted lien as defined by the revolving credit agreement. The revolving credit agreement also places certain restrictions on, among other things, asset sales, the ability to make acquisitions and
investments, and to pay dividends.

SENIOR NOTES

At May 1, 2010, the Company had $169,249 of unsecured senior notes outstanding, excluding the convertible notes, comprised of four separate series
having maturities ranging from 2010 to 2019 and interest rates ranging from 7.000% to 9.875%. The senior notes are guaranteed by all of the subsidiaries that guarantee the Companys credit facility and have substantially identical terms except
for the maturity dates and interest rates payable to investors. The notes permit certain sale/leaseback transactions but place certain restrictions around the use of proceeds generated from a sale/leaseback transaction. The terms of each senior note
require all principal to be repaid at maturity. There are no financial covenants associated with these notes, and there are no debt-rating triggers.

CONVERTIBLE NOTES

7.5%
Convertible Notes

The Company issued $120,000 of 7.5% convertible 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
issued upon conversion). The Company can settle a conversion of the notes with shares, cash, or a combination thereof at its discretion. Authoritative accounting literature requires the allocation of convertible debt proceeds between the liability
component and the embedded conversion option (i.e., the equity component). The liability component of the debt instrument is accreted to par value using the effective interest method over the remaining life of the debt. This amortization is reported
as a component of interest expense. The equity component is not subsequently revalued as long as it continues to qualify for equity treatment.



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Upon issuance, the Company estimated the fair value of the liability component of the 7.5% Convertible
Notes, assuming a 13% non-convertible borrowing rate, to be $97,994. The difference between the fair value and the principal amount of the 7.5% Convertible Notes was $22,006. This amount was recorded as a debt discount and as an increase to
additional paid-in capital as of the issuance date. The discount is being amortized to interest expense over the 4.5 year period to the maturity date of the notes in December 2013 resulting in an increase in non-cash interest expense in future
periods.

The following tables provide additional information about the Companys 7.5% Convertible Notes.



|                                                                     |  |            |         |                 |   |        
|-------------------------------------------------------------------- |  | ---------- | ------- | --------------- | - | -------
|                                                                     |  | May 1,2010 |         | January 30,2010
|Carrying amount of the equity component (additional paid-in capital) |  | $          | 22,006  |                 | $ | 22,006 
|Principal amount of the 7.5% Convertible Notes                       |  | $          | 120,000 |                 | $ | 120,000
|Unamortized discount of the liability component                      |  | $          | 18,433  |                 | $ | 19,430 
|Net carrying amount of liability component                           |  | $          | 101,567 |                 | $ | 100,570



|                                               |  |              |       |  
|---------------------------------------------- |  | ------------ | ----- | -
|                                               |  | Three Months |      
|                                               |  | May 1,2010   |      
|Effective interest rate on liability component |  |              | 12.9  | %
|Cash interest expense recognized               |  | $            | 2,250 |  
|Non-cash interest expense recognized           |  | $            | 997   |  

The remaining period over which the
unamortized discount will be recognized is 3.6 years. As of May 1, 2010, the if-converted value of the notes exceeded its principal amount by $91,287.

The 7.5% Convertible Notes were classified within Long-Term Debt on the Condensed Consolidated Balance Sheet as of May 1, 2010 because the Company
can settle the principal amount of the notes with shares, cash or a combination thereof at its discretion.

2.0% Convertible Senior
Notes

The Company issued $230,000 of 2.0% convertible senior notes in March 2004 (the 2.0% Convertible Notes). The 2.0%
Convertible Notes mature in 2024 and in certain circumstances, the provisions of the 2.0% Convertible Notes allow the holder to convert the notes to shares of the Companys common stock at a conversion rate of $11.97 per share of common stock
(19,219 shares of common stock to be issued upon conversion) subject to an anti-dilution adjustment. The Company can settle a conversion of the notes with shares, cash 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; or upon the occurrence of
certain consolidations, mergers or share exchange transactions involving the Company. At May 1, 2010, the conversion criteria with respect to the credit rating requirements were met.



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In connection with the issuance of the 2.0% Convertible Notes, the Company entered into a convertible note
hedge and written call options on its common stock to reduce the Companys exposure to dilution from the conversion of the 2.0% Convertible Notes. The terms and conditions of the note hedge include: strike price of $11.97; contract is indexed
to 19,219 shares of the Companys common stock; maturity date of the hedge instruments is March 21, 2011. The terms of the written call options include: strike price of $13.81; contract is indexed to 19,219 shares of the Companys
common stock; maturity date of the written call option instruments is June 20, 2011. These transactions were accounted for as a net reduction of stockholders equity of approximately $25,000 in 2004. The estimated fair value of the
convertible note hedge and written call option was $2,723, $521, and $1,377 at May 1, 2010, January 30, 2010, and May 2, 2009, respectively.

Authoritative accounting literature requires the allocation of convertible debt proceeds between the liability component and the embedded conversion
option (i.e., the equity component). The liability component of the debt instrument is accreted to par value using the effective interest method over the remaining life of the debt. This amortization is reported as a component of interest expense.
The equity component is not subsequently revalued as long as it continues to qualify for equity treatment. The Company estimated the fair value of the liability component as of the date of issuance of its 2.0% Convertible Notes, assuming a 6.25%
non-convertible borrowing rate, to be $158,148. The difference between the fair value and the principal amount of the 2.0% Convertible Notes was $71,852. This amount was recorded as a debt discount and as an increase to additional paid-in capital as
of the issuance date. The discount is being amortized to interest expense over the ten-year period to the first put date of the 2.0% Convertible Notes in 2014 resulting in an increase in non-cash interest expense in prior and future periods.

The following tables provide additional information about the Companys 2.0% Convertible Notes.



|                                                                     |  |            |         |                 |   |            |  |   |        
|-------------------------------------------------------------------- |  | ---------- | ------- | --------------- | - | ---------- |  | - | -------
|                                                                     |  | May 1,2010 |         | January 30,2010 |   | May 2,2009
|Carrying amount of the equity component (additional paid-in capital) |  | $          | 71,852  |                 | $ | 71,852     |  | $ | 71,852 
|Principal amount of the 2.0% Convertible Notes                       |  | $          | 230,000 |                 | $ | 230,000    |  | $ | 230,000
|Unamortized discount of the liability component                      |  | $          | 33,173  |                 | $ | 35,054     |  | $ | 40,528 
|Net carrying amount of liability component                           |  | $          | 196,827 |                 | $ | 194,946    |  | $ | 189,472



|                                               |  |                    |       |   |            |   |       |  
|---------------------------------------------- |  | ------------------ | ----- | - | ---------- | - | ----- | -
|                                               |  | Three Months Ended |      
|                                               |  | May 1,2010         |       |   | May 2,2009 |  
|Effective interest rate on liability component |  |                    | 6.2   | % |            |   | 6.2   | %
|Cash interest expense recognized               |  | $                  | 1,150 |   |            | $ | 1,150 |  
|Non-cash interest expense recognized           |  | $                  | 1,882 |   |            | $ | 1,769 |  

The remaining period over which the
unamortized discount will be recognized is 3.9 years. As of May 1, 2010, the if-converted value of the notes did not exceed its principal amount.



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The 2.0% Convertible Notes were classified within Long-Term Debt on the Condensed Consolidated Balance Sheet
as of May 1, 2010 and May 2, 2009 because the Company can settle the principal amount of the notes with shares, cash or a combination thereof at its discretion.

NOTE 6  EMPLOYEE BENEFIT PLANS

The Company sponsors a defined benefit cash balance pension plan and supplemental executive retirement plan (SERP) for certain employees of
the Company. The Company amended the pension plan during 2006, freezing benefit accruals for all participants except those who had attained age 55 and completed 10 years of credited service as of January 1, 2007, who were considered to be
non-highly compensated employees. In January 2009, the Company suspended future benefit accruals for all remaining participants in the plan, effective March 13, 2009. The Company generally funds pension costs currently, subject to regulatory
funding requirements. The components of net periodic pension expense related to the Companys pension plan and SERP for the three months ended May 1, 2010 and May 2, 2009 were as follows:



|                                                   |  |                    |        |   |            |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ---------- | - | ------ | -
|                                                   |  | Three Months Ended |       
|                                                   |  | May 1,2010         |        |   | May 2,2009 |  
|Service cost                                       |  | $                  |       |   |            | $ | 25     |  
|Interest cost                                      |  |                    | 1,800  |   |            |   | 2,150  |  
|Expected return on plan assets                     |  |                    | (1,800 | ) |            |   | (1,600 | )
|Net amortization of losses and prior service costs |  |                    | 542    |   |            |   | 725    |  
|                                                   |  |                    |        |   |            |   |        |  
|Net periodic pension expense                       |  | $                  | 542    |   |            | $ | 1,300  |  
|                                                   |  |                    |        |   |            |   |        |  

The Company expects funding requirements of approximately $1,400 in 2010.

NOTE 7  SHAREHOLDERS EQUITY

The following table summarizes the changes in shareholders equity for the three months ended May 1, 2010:



|                                                  |  |                   |   |  |                   |        |   |                          |   |           |                    |  |   |                                   |   |  |                          |         |   |  |   |           |  
|------------------------------------------------- |  | ----------------- | - |  | ----------------- | ------ | - | ------------------------ | - | --------- | ------------------ |  | - | --------------------------------- | - |  | ------------------------ | ------- | - |  | - | --------- | -
|                                                  |  | CommonStockShares |   |  | CommonStockAmount |        |   | AdditionalPaid-InCapital |   |           | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveLoss |   |  | TotalShareholdersEquity |        
|Balance at January 30, 2010                       |  | 159,786           |   |  | $                 | 15,979 |   |                          | $ | 1,277,773 |                    |  | $ | (173,342                          | ) |  | $                        | (48,800 | ) |  | $ | 1,071,610 |  
|Net Income                                        |  |                   |   |  |                   |        |   |                          |   |           |                    |  |   | 18,785                            |   |  |                          |         |   |  |   | 18,785    |  
|Issuance of common stock, net                     |  | 68                |   |  |                   | 7      |   |                          |   | 407       |                    |  |   |                                   |   |  |                          |         |   |  |   | 414       |  
|Income tax impact related to employee stock plans |  |                   |   |  |                   |        |   |                          |   | (3,319    | )                  |  |   |                                   |   |  |                          |         |   |  |   | (3,319    | )
|Net activity under stock compensation plans       |  | 1,338             |   |  |                   | 134    |   |                          |   | (134      | )                  |  |   |                                   |   |  |                          |         |   |  |   |          |  
|Restricted shares withheld for taxes              |  | (264              | ) |  |                   | (26    | ) |                          |   | (2,005    | )                  |  |   |                                   |   |  |                          |         |   |  |   | (2,031    | )
|Stock-based compensation                          |  |                   |   |  |                   |        |   |                          |   | 5,003     |                    |  |   |                                   |   |  |                          |         |   |  |   | 5,003     |  
|                                                  |  |                   |   |  |                   |        |   |                          |   |           |                    |  |   |                                   |   |  |                          |         |   |  |   |           |  
|Balance at May 1, 2010                            |  | 160,928           |   |  | $                 | 16,094 |   |                          | $ | 1,277,725 |                    |  | $ | (154,557                          | ) |  | $                        | (48,800 | ) |  | $ | 1,090,462 |  
|                                                  |  |                   |   |  |                   |        |   |                          |   |           |                    |  |   |                                   |   |  |                          |         |   |  |   |           |  



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There were no repurchases or retirements of common stock during the three months ended May 1, 2010 or
May 2, 2009. At May 1, 2010, there were 32,709 shares remaining available for repurchase under the Companys existing share repurchase program.

NOTE 8  STOCK-BASED COMPENSATION

The Company maintains equity incentive plans 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 after grant and have an exercise term of seven to ten years from the grant date. Restricted stock and performance shares generally vest three years
after the grant date, although the plan permits accelerated vesting in certain circumstances at the discretion of the Human Resources and Compensation Committee of the Board of Directors.

Compensation cost for restricted stock and performance shares that cliff vest is expensed on a straight line basis over the requisite service period.
Restricted stock and performance shares with graded vesting features are treated as multiple awards based upon the vesting date. The Company records compensation costs for these awards on a straight line basis over the requisite service period
for each separately vesting portion of the award. Compensation cost for stock option awards with graded vesting are expensed on a straight line basis over the requisite service period.

Total pre-tax stock-based compensation expense for the three month periods ended May 1, 2010 and May 2, 2009 was $5,003 and $4,171,
respectively.

NOTE 9  CONTINGENCIES

LEGAL CONTINGENCIES

The Company is
involved in legal proceedings arising from its normal 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.

TAX MATTERS

The Company is routinely under audit by federal, state or local authorities in the areas of income taxes and the remittance of sales and use taxes. These
audits include questioning the timing and amount of deductions and the allocation of income among various tax jurisdictions. Based on current evaluations of tax filing positions, the Company believes it has adequately accrued for its income tax
exposures. To the extent the Company were to prevail in matters for which accruals have been established or be required to pay amounts in excess of the current reserves, the Companys effective tax rate in a given financial statement period may
be materially impacted. At May 1, 2010 certain state examinations were ongoing.



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OTHER MATTERS

From time to time the Company has issued guarantees to landlords under leases of stores operated by its subsidiaries. Certain of these stores were sold in
connection with the Southern Department Store Group and Northern Department Store Group transactions. If the purchasers fail to perform certain obligations under the leases guaranteed by the Company, the Company could have obligations to landlords
under such guarantees. Based on the information currently available, management does not believe that its potential obligations under these lease guarantees would be material.

NOTE 10  CLUB LIBBY LU CLOSURE

In
January 2009, the Company discontinued the operations of its CLL specialty store business, which consisted of 98 leased, mall-based stores, as CLL was no longer determined to be a strategic fit for the Company. The Company incurred charges of
$44,521 in 2008 associated with the CLL store closings. The charges consisted of $16,993 for asset impairments, $14,045 in lease termination costs (net of a non-cash deferred rent benefit of $3,701), $6,965 in inventory liquidation costs, $5,074 in
severance and personnel related costs and $1,444 in other closing costs. Amounts payable relating to the store closings was $702 as of May 1, 2010. There was no payment activity for the three months ending May 1, 2010.

NOTE 11  CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The following tables present condensed consolidating financial information for: (1) Saks Incorporated and (2) on a combined basis, the
guarantors of Saks Incorporateds senior notes and revolving credit facility (which are all of the wholly owned subsidiaries of Saks Incorporated).

The condensed consolidating financial statements presented as of and for the three months ended May 1, 2010 and May 2, 2009 and as of
January 30, 2010 reflect the legal entity compositions at the respective dates. The results of operations of CLL are presented as discontinued operations in the condensed consolidated statements of income and the condensed consolidated
statements of cash flows for the prior year period. Additionally, certain reclassifications were made to prior period amounts to conform to the current year presentation.

Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally, fully and unconditionally
liable under the guarantees. Borrowings and the related interest expense under the Companys revolving credit agreement are allocated to Saks Incorporated and the guarantor subsidiaries under an intercompany revolving credit arrangement. There
are also management and royalty fee arrangements among Saks Incorporated and these subsidiaries. At May 1, 2010, Saks Incorporated was the sole obligor for a majority of the Companys long-term debt.



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SAKS INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEETS AT MAY 1, 2010

(Dollar Amounts In Thousands)



|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|---------------------------------------------- |  | ---------------- | --------- | --------------------- | - | ------------ |  | - | ------------ | - |  | - | ---------
|                                               |  | SaksIncorporated |           | GuarantorSubsidiaries |   | Eliminations |  |   | Consolidated
|ASSETS                                         |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Assets                                 |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                | 170,573   |                       | $ | 8,483        |  |   |              |   |  | $ | 179,056  
|Merchandise inventories                        |  |                  |           |                       |   | 702,132      |  |   |              |   |  |   | 702,132  
|Other current assets                           |  |                  |           |                       |   | 92,991       |  |   |              |   |  |   | 92,991   
|Deferred income taxes, net                     |  |                  |           |                       |   | 34,013       |  |   |              |   |  |   | 34,013   
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Assets                           |  |                  | 170,573   |                       |   | 837,619      |  |   |             |   |  |   | 1,008,192
|Property and Equipment, net                    |  |                  |           |                       |   | 938,292      |  |   |              |   |  |   | 938,292  
|Deferred Income Taxes, net                     |  |                  | 76,249    |                       |   | 143,243      |  |   |              |   |  |   | 219,492  
|Other Assets                                   |  |                  | 12,947    |                       |   | 17,518       |  |   |              |   |  |   | 30,465   
|Investment in and Advances to Subsidiaries     |  |                  | 1,306,131 |                       |   |             |  | $ | (1,306,131   | ) |  |   |          
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Assets                                   |  | $                | 1,565,900 |                       | $ | 1,936,672    |  | $ | (1,306,131   | ) |  | $ | 2,196,441
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Liabilities                            |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Trade accounts payable                         |  |                  |           |                       | $ | 148,071      |  |   |              |   |  | $ | 148,071  
|Accrued expenses and other current liabilities |  | $                | 7,786     |                       |   | 233,374      |  |   |              |   |  |   | 241,160  
|Current portion of long-term debt              |  |                  | 22,859    |                       |   | 5,780        |  |   |              |   |  |   | 28,639   
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Liabilities                      |  |                  | 30,645    |                       |   | 387,225      |  |   |             |   |  |   | 417,870  
|Long-Term Debt                                 |  |                  | 444,793   |                       |   | 52,200       |  |   |              |   |  |   | 496,993  
|Other Long-Term Liabilities                    |  |                  |           |                       |   | 191,116      |  |   |              |   |  |   | 191,116  
|Investment by and Advances from Parent         |  |                  |           |                       |   | 1,306,131    |  | $ | (1,306,131   | ) |  |   |          
|Shareholders Equity                           |  |                  | 1,090,462 |                       |   |              |  |   |              |   |  |   | 1,090,462
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Liabilities and Shareholders Equity     |  | $                | 1,565,900 |                       | $ | 1,936,672    |  | $ | (1,306,131   | ) |  | $ | 2,196,441
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          



18



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MAY 1, 2010

(Dollar Amounts In Thousands)



|                                                   |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|-------------------------------------------------- |  | ---------------- | ------- | - | --------------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                   |  | SaksIncorporated |         |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | Consolidated |  
|Net sales                                          |  |                  |         |   |                       | $ | 667,438 |              |  |   |              |   |  | $ | 667,438 |  
|Cost of Sales                                      |  |                  |         |   |                       |   | 379,707 |              |  |   |              |   |  |   | 379,707 |  
|                                                   |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Gross Margin                                       |  |                  |        |   |                       |   | 287,731 |              |  |   |             |   |  |   | 287,731 |  
|Selling, general and administrative expenses       |  | $                | 420     |   |                       |   | 163,075 |              |  |   |              |   |  |   | 163,495 |  
|Other operating expenses                           |  |                  | 1       |   |                       |   | 76,964  |              |  |   |              |   |  |   | 76,965  |  
|Store pre-opening costs                            |  |                  |         |   |                       |   | 2       |              |  |   |              |   |  |   | 2       |  
|Impairments and dispositions                       |  |                  |         |   |                       |   | 1,815   |              |  |   |              |   |  |   | 1,815   |  
|                                                   |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Operating Income (Loss)                            |  |                  | (421    | ) |                       |   | 45,875  |              |  |   |             |   |  |   | 45,454  |  
|Other income (expense)                             |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Equity in earnings of subsidiaries                 |  |                  | 26,566  |   |                       |   |         |              |  | $ | (26,566      | ) |  |   |         |  
|Interest expense                                   |  |                  | (12,525 | ) |                       |   | (1,614  | )            |  |   |              |   |  |   | (14,139 | )
|Other income, net                                  |  |                  | 190     |   |                       |   |         |              |  |   |              |   |  |   | 190     |  
|                                                   |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Income before provision (benefit) for income taxes |  |                  | 13,810  |   |                       |   | 44,261  |              |  |   | (26,566      | ) |  |   | 31,505  |  
|Provision (benefit) for income taxes               |  |                  | (4,975  | ) |                       |   | 17,695  |              |  |   |              |   |  |   | 12,720  |  
|                                                   |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Income                                         |  | $                | 18,785  |   |                       | $ | 26,566  |              |  | $ | (26,566      | ) |  | $ | 18,785  |  
|                                                   |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  



19



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MAY 1, 2010

(Dollar Amounts In Thousands)



|                                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | --------------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                                                            |  | SaksIncorporated |         |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | Consolidated |  
|OPERATING ACTIVITIES                                                                        |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Income                                                                                  |  | $                | 18,785  |   |                       | $ | 26,566  |              |  | $ | (26,566      | ) |  | $ | 18,785  |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Equity in earnings of subsidiaries                                                          |  |                  | (26,566 | ) |                       |   |         |              |  |   | 26,566       |   |  |   |        |  
|Depreciation and amortization                                                               |  |                  |         |   |                       |   | 28,860  |              |  |   |              |   |  |   | 28,860  |  
|Equity compensation                                                                         |  |                  | 5,003   |   |                       |   |         |              |  |   |              |   |  |   | 5,003   |  
|Amortization of discount on convertible senior notes                                        |  |                  | 2,879   |   |                       |   |         |              |  |   |              |   |  |   | 2,879   |  
|Deferred income taxes                                                                       |  |                  | 545     |   |                       |   | 3,096   |              |  |   |              |   |  |   | 3,641   |  
|Changes in operating assets and liabilities, net                                            |  |                  | (2,686  | ) |                       |   | (16,000 | )            |  |   |              |   |  |   | (18,686 | )
|                                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Provided By (Used In) Operating Activities                                         |  |                  | (2,040  | ) |                       |   | 42,522  |              |  |   |             |   |  |   | 40,482  |  
|INVESTING ACTIVITIES                                                                        |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Purchases of property and equipment                                                         |  |                  |         |   |                       |   | (7,891  | )            |  |   |              |   |  |   | (7,891  | )
|                                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Used In Investing Activities                                                       |  |                  |        |   |                       |   | (7,891  | )            |  |   |             |   |  |   | (7,891  | )
|FINANCING ACTIVITIES                                                                        |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Intercompany borrowings, contributions and distributions                                    |  |                  | 35,852  |   |                       |   | (35,852 | )            |  |   |              |   |  |   |        |  
|Payments on capital lease obligations                                                       |  |                  |         |   |                       |   | (1,250  | )            |  |   |              |   |  |   | (1,250  | )
|Net proceeds from issuance of common stock                                                  |  |                  | 414     |   |                       |   |         |              |  |   |              |   |  |   | 414     |  
|                                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Provided By (Used In) Financing Activities                                         |  |                  | 36,266  |   |                       |   | (37,102 | )            |  |   |             |   |  |   | (836    | )
|Increase (Decrease) in Cash and Cash Equivalents                                            |  |                  | 34,226  |   |                       |   | (2,471  | )            |  |   |              |   |  |   | 31,755  |  
|Cash and Cash Equivalents at beginning of period                                            |  |                  | 136,347 |   |                       |   | 10,954  |              |  |   |              |   |  |   | 147,301 |  
|                                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Cash and Cash Equivalents at end of period                                                  |  | $                | 170,573 |   |                       | $ | 8,483   |              |  | $ |             |   |  | $ | 179,056 |  
|                                                                                            |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  



20



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SAKS INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEETS AT MAY 2, 2009

(Dollar Amounts In Thousands)



|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|---------------------------------------------- |  | ---------------- | --------- | --------------------- | - | ------------ |  | - | ------------ | - |  | - | ---------
|                                               |  | SaksIncorporated |           | GuarantorSubsidiaries |   | Eliminations |  |   | Consolidated
|ASSETS                                         |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Assets                                 |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                | 240       |                       | $ | 10,012       |  |   |              |   |  | $ | 10,252   
|Merchandise inventories                        |  |                  |           |                       |   | 779,474      |  |   |              |   |  |   | 779,474  
|Other current assets                           |  |                  |           |                       |   | 97,977       |  |   |              |   |  |   | 97,977   
|Deferred income taxes, net                     |  |                  |           |                       |   | 26,721       |  |   |              |   |  |   | 26,721   
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Assets                           |  |                  | 240       |                       |   | 914,184      |  |   |             |   |  |   | 914,424  
|Property and Equipment, net                    |  |                  |           |                       |   | 1,042,960    |  |   |              |   |  |   | 1,042,960
|Deferred Income Taxes, net                     |  |                  | 58,662    |                       |   | 141,627      |  |   |              |   |  |   | 200,289  
|Other Assets                                   |  |                  | 3,255     |                       |   | 16,429       |  |   |              |   |  |   | 19,684   
|Investment in and Advances to Subsidiaries     |  |                  | 1,509,057 |                       |   |              |  | $ | (1,509,057   | ) |  |   |          
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Assets                                   |  | $                | 1,571,214 |                       | $ | 2,115,200    |  | $ | (1,509,057   | ) |  | $ | 2,177,357
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Liabilities                            |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Trade accounts payable                         |  |                  |           |                       | $ | 140,252      |  |   |              |   |  | $ | 140,252  
|Accrued expenses and other current liabilities |  | $                | 6,174     |                       |   | 212,187      |  |   |              |   |  |   | 218,361  
|Current portion of long-term debt              |  |                  |           |                       |   | 4,686        |  |   |              |   |  |   | 4,686    
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Liabilities                      |  |                  | 6,174     |                       |   | 357,125      |  |   |             |   |  |   | 363,299  
|Long-Term Debt                                 |  |                  | 576,780   |                       |   | 55,160       |  |   |              |   |  |   | 631,940  
|Other Long-Term Liabilities                    |  |                  |           |                       |   | 193,858      |  |   |              |   |  |   | 193,858  
|Investment by and Advances from Parent         |  |                  |           |                       |   | 1,509,057    |  | $ | (1,509,057   | ) |  |   |          
|Shareholders Equity                           |  |                  | 988,260   |                       |   |              |  |   |              |   |  |   | 988,260  
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Liabilities and Shareholders Equity     |  | $                | 1,571,214 |                       | $ | 2,115,200    |  | $ | (1,509,057   | ) |  | $ | 2,177,357
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          



21



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SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MAY 2, 2009

(Dollar Amounts In Thousands)



|                                                                                     |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | ---------------- | ------ | - | --------------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                                                     |  | SaksIncorporated |        |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | Consolidated |  
|Net sales                                                                            |  |                  |        |   |                       | $ | 624,265 |              |  |   |              |   |  | $ | 624,265 |  
|Cost of Sales                                                                        |  |                  |        |   |                       |   | 382,858 |              |  |   |              |   |  |   | 382,858 |  
|                                                                                     |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Gross Margin                                                                         |  |                  |       |   |                       |   | 241,407 |              |  |   |             |   |  |   | 241,407 |  
|Selling, general and administrative expenses                                         |  | $                | 193    |   |                       |   | 158,240 |              |  |   |              |   |  |   | 158,433 |  
|Other operating expenses                                                             |  |                  | 1      |   |                       |   | 79,969  |              |  |   |              |   |  |   | 79,970  |  
|Store pre-opening costs                                                              |  |                  |        |   |                       |   | 627     |              |  |   |              |   |  |   | 627     |  
|Impairments and dispositions                                                         |  |                  |        |   |                       |   | 186     |              |  |   |              |   |  |   | 186     |  
|                                                                                     |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Operating Income (Loss)                                                              |  |                  | (194   | ) |                       |   | 2,385   |              |  |   |             |   |  |   | 2,191   |  
|Other income (expense)                                                               |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Equity in earnings of subsidiaries                                                   |  |                  | 492    |   |                       |   |         |              |  | $ | (492         | ) |  |   |         |  
|Interest expense                                                                     |  |                  | (8,711 | ) |                       |   | (1,724  | )            |  |   |              |   |  |   | (10,435 | )
|Other income, net                                                                    |  |                  | 97     |   |                       |   |         |              |  |   |              |   |  |   | 97      |  
|                                                                                     |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Income (loss) from continuing operations before provision (benefit) for income taxes |  |                  | (8,316 | ) |                       |   | 661     |              |  |   | (492         | ) |  |   | (8,147  | )
|Provision (benefit) for income taxes                                                 |  |                  | (3,435 | ) |                       |   | 169     |              |  |   |              |   |  |   | (3,266  | )
|                                                                                     |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Income (loss) from continuing operations                                             |  | $                | (4,881 | ) |                       | $ | 492     |              |  | $ | (492         | ) |  | $ | (4,881  | )
|Discontinued Operations:                                                             |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Equity in earnings of subsidiaries  discontinued operations (net of tax)            |  |                  | (236   | ) |                       |   |         |              |  |   | 236          |   |  |   |         |  
|Loss from discontinued operations before benefit for income taxes                    |  |                  |        |   |                       |   | (363    | )            |  |   |              |   |  |   | (363    | )
|Benefit for income taxes                                                             |  |                  |        |   |                       |   | (127    | )            |  |   |              |   |  |   | (127    | )
|                                                                                     |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Loss from discontinued operations                                                    |  |                  | (236   | ) |                       |   | (236    | )            |  |   | 236          |   |  |   | (236    | )
|Net Income (Loss)                                                                    |  | $                | (5,117 | ) |                       | $ | 256     |              |  | $ | (256         | ) |  | $ | (5,117  | )
|                                                                                     |  |                  |        |   |                       |   |         |              |  |   |              |   |  |   |         |  



22



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##### Table of Contents

SAKS INCORPORATED

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MAY 2, 2009

(Dollar Amounts In Thousands)



|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | ---------------- | ------- | - | --------------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                                                     |  | SaksIncorporated |         |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | Consolidated |  
|OPERATING ACTIVITIES                                                                 |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Income (Loss)                                                                    |  | $                | (5,117  | ) |                       | $ | 256     |              |  | $ | (256         | ) |  | $ | (5,117  | )
|Loss from discontinued operations                                                    |  |                  | (236    | ) |                       |   | (236    | )            |  |   | 236          |   |  |   | (236    | )
|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Income (loss) from continuing operations                                             |  |                  | (4,881  | ) |                       |   | 492     |              |  |   | (492         | ) |  |   | (4,881  | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Equity in earnings of subsidiaries                                                   |  |                  | (492    | ) |                       |   |         |              |  |   | 492          |   |  |   |        |  
|Depreciation and amortization                                                        |  |                  |         |   |                       |   | 33,340  |              |  |   |              |   |  |   | 33,340  |  
|Impairments and dispositions                                                         |  |                  |         |   |                       |   | 186     |              |  |   |              |   |  |   | 186     |  
|Equity compensation                                                                  |  |                  | 4,171   |   |                       |   |         |              |  |   |              |   |  |   | 4,171   |  
|Amortization of discount on convertible senior notes                                 |  |                  | 1,769   |   |                       |   |         |              |  |   |              |   |  |   | 1,769   |  
|Deferred income taxes                                                                |  |                  | 486     |   |                       |   | (3,816  | )            |  |   |              |   |  |   | (3,330  | )
|Changes in operating assets and liabilities, net                                     |  |                  | (2,647  | ) |                       |   | (23,702 | )            |  |   |              |   |  |   | (26,349 | )
|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Provided By (Used In) Operating Activities - Continuing Operations          |  |                  | (1,594  | ) |                       |   | 6,500   |              |  |   |             |   |  |   | 4,906   |  
|Net Cash Used In Operating Activities - Discontinued Operations                      |  |                  |         |   |                       |   | (13,596 | )            |  |   |              |   |  |   | (13,596 | )
|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Used In Operating Activities                                                |  |                  | (1,594  | ) |                       |   | (7,096  | )            |  |   |             |   |  |   | (8,690  | )
|INVESTING ACTIVITIES                                                                 |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Purchases of property and equipment                                                  |  |                  |         |   |                       |   | (27,956 | )            |  |   |              |   |  |   | (27,956 | )
|Proceeds from the sale of property and equipment                                     |  |                  |         |   |                       |   | 8       |              |  |   |              |   |  |   | 8       |  
|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Used In Investing Activities - Continuing Operations                        |  |                  |        |   |                       |   | (27,948 | )            |  |   |             |   |  |   | (27,948 | )
|Net Cash Used In Investing Activities - Discontinued Operations                      |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |        |  
|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Used In Investing Activities                                                |  |                  |        |   |                       |   | (27,948 | )            |  |   |             |   |  |   | (27,948 | )
|FINANCING ACTIVITIES                                                                 |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Intercompany borrowings, contributions and distributions                             |  |                  | (36,256 | ) |                       |   | 36,256  |              |  |   |              |   |  |   |        |  
|Proceeds from revolving credit facility                                              |  |                  | 38,325  |   |                       |   |         |              |  |   |              |   |  |   | 38,325  |  
|Payments on capital lease obligations                                                |  |                  |         |   |                       |   | (1,237  | )            |  |   |              |   |  |   | (1,237  | )
|Cash dividends paid                                                                  |  |                  | (471    | ) |                       |   |         |              |  |   |              |   |  |   | (471    | )
|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Provided By Financing Activities - Continuing Operations                    |  |                  | 1,598   |   |                       |   | 35,019  |              |  |   |             |   |  |   | 36,617  |  
|Net Cash Provided By Financing Activities - Discontinued Operations                  |  |                  |         |   |                       |   |        |              |  |   |              |   |  |   |        |  
|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Net Cash Provided By Financing Activities                                            |  |                  | 1,598   |   |                       |   | 35,019  |              |  |   |             |   |  |   | 36,617  |  
|Increase (Decrease) in Cash and Cash Equivalents                                     |  |                  | 4       |   |                       |   | (25     | )            |  |   |              |   |  |   | (21     | )
|Cash and Cash Equivalents at beginning of period                                     |  |                  | 236     |   |                       |   | 10,037  |              |  |   |              |   |  |   | 10,273  |  
|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  
|Cash and Cash Equivalents at end of period                                           |  | $                | 240     |   |                       | $ | 10,012  |              |  | $ |             |   |  | $ | 10,252  |  
|                                                                                     |  |                  |         |   |                       |   |         |              |  |   |              |   |  |   |         |  



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SAKS INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEETS AT JANUARY 30, 2010

(Dollar Amounts In Thousands)



|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|---------------------------------------------- |  | ---------------- | --------- | --------------------- | - | ------------ |  | - | ------------ | - |  | - | ---------
|                                               |  | SaksIncorporated |           | GuarantorSubsidiaries |   | Eliminations |  |   | Consolidated
|ASSETS                                         |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Assets                                 |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                | 136,347   |                       | $ | 10,954       |  |   |              |   |  | $ | 147,301  
|Merchandise inventories                        |  |                  |           |                       |   | 649,196      |  |   |              |   |  |   | 649,196  
|Other current assets                           |  |                  |           |                       |   | 93,479       |  |   |              |   |  |   | 93,479   
|Deferred income taxes, net                     |  |                  |           |                       |   | 35,974       |  |   |              |   |  |   | 35,974   
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Assets                           |  |                  | 136,347   |                       |   | 789,603      |  |   |             |   |  |   | 925,950  
|Property and Equipment, net                    |  |                  |           |                       |   | 956,082      |  |   |              |   |  |   | 956,082  
|Deferred Income Taxes, net                     |  |                  | 71,274    |                       |   | 150,080      |  |   |              |   |  |   | 221,354  
|Other Assets                                   |  |                  | 13,887    |                       |   | 18,428       |  |   |              |   |  |   | 32,315   
|Investment in and Advances to Subsidiaries     |  |                  | 1,324,256 |                       |   |              |  | $ | (1,324,256   | ) |  |   |          
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Assets                                   |  | $                | 1,545,764 |                       | $ | 1,914,193    |  | $ | (1,324,256   | ) |  | $ | 2,135,701
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Current Liabilities                            |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Trade accounts payable                         |  |                  |           |                       | $ | 101,739      |  |   |              |   |  | $ | 101,739  
|Accrued expenses and other current liabilities |  | $                | 9,377     |                       |   | 240,808      |  |   |              |   |  |   | 250,185  
|Current portion of long-term debt              |  |                  | 22,859    |                       |   | 4,998        |  |   |              |   |  |   | 27,857   
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Current Liabilities                      |  |                  | 32,236    |                       |   | 347,545      |  |   |             |   |  |   | 379,781  
|Long-Term Debt                                 |  |                  | 441,918   |                       |   | 51,412       |  |   |              |   |  |   | 493,330  
|Other Long-Term Liabilities                    |  |                  |           |                       |   | 190,980      |  |   |              |   |  |   | 190,980  
|Investment by and Advances from Parent         |  |                  |           |                       |   | 1,324,256    |  | $ | (1,324,256   | ) |  |   |          
|Shareholders Equity                           |  |                  | 1,071,610 |                       |   |              |  |   |              |   |  |   | 1,071,610
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          
|Total Liabilities and Shareholders Equity     |  | $                | 1,545,764 |                       | $ | 1,914,193    |  | $ | (1,324,256   | ) |  | $ | 2,135,701
|                                               |  |                  |           |                       |   |              |  |   |              |   |  |   |          



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|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Managements Discussion and Analysis (MD&A) is intended to provide an analytical view of the business from managements
perspective and has four major components:



| |  |  | Managements Overview
| | - |  | ---------------------



| |  |  | Results of Operations
| | - |  | ---------------------



| |  |  | Liquidity and Capital Resources
| | - |  | -------------------------------



| |  |  | Critical Accounting Policies
| | - |  | ----------------------------

MD&A should be read in conjunction with the condensed consolidated financial statements and related notes thereto contained elsewhere in this report.

MANAGEMENTS OVERVIEW

GENERAL

The
operations of Saks Incorporated and its subsidiaries (together the Company) consist of Saks Fifth Avenue (SFA), Saks Fifth Avenue OFF
5TH(OFF
5TH), and SFAs e-commerce operations.
Previously, the Company also operated Club Libby Lu (CLL), the operations of which were discontinued in January 2009. The Company is primarily a fashion retail organization offering a wide assortment of distinctive luxury fashion
apparel, shoes, accessories, jewelry, cosmetics and gifts. SFA stores are principally free-standing stores in exclusive shopping destinations or anchor stores in upscale regional malls. Customers may also purchase SFA products by catalog or online
at www.saks.com. OFF 5THis intended to be the premier
luxury off-price retailer in the United States. OFF 5THstores are primarily located in upscale mixed-use and off-price centers and offer luxury fashion apparel, shoes, and accessories, targeting the value-conscious customer. As of May 1, 2010, Saks operated 53 SFA stores with
5.9 million square feet and 55 OFF 5THstores
with 1.6 million square feet.

FINANCIAL PERFORMANCE SUMMARY

For the first quarter ended May 1, 2010, the Company recorded net income of $18.8 million, or $.11 per diluted share. Those results included
after-tax charges totaling $1.1 million, or $.01 per share, primarily related to severance expense, lease termination, and other store closing costs associated with the Portland, Oregon; San Diego, California; and Charleston, South Carolina SFA
store closings.

For the first quarter ended May 2, 2009, the Company posted a net loss of $5.1 million, or $.04 per share. Excluding the
after-tax loss from discontinued operations of $0.2 million, the Company recorded a loss from continuing operations of $4.9 million, or $.04 per share.



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##### Table of Contents

The Company believes that an understanding of its reported financial condition and results of operations is
not complete without considering the effect of all other components of MD&A included herein.

RESULTS OF OPERATIONS

The following table shows, for the periods indicated, items from the Companys Condensed Consolidated Statements of Income
expressed as percentages of net sales. (numbers may not total due to rounding)



|                                                             |  |                    |   |  |            |  
|------------------------------------------------------------ |  | ------------------ | - |  | ---------- | -
|                                                             |  | Three Months Ended |  
|                                                             |  | May 1,2010         |   |  | May 2,2009 |  
|Net sales                                                    |  | 100.0              | % |  | 100.0      | %
|Cost of sales                                                |  | 56.9               | % |  | 61.3       | %
|                                                             |  |                    |   |  |            |  
|Gross margin                                                 |  | 43.1               | % |  | 38.7       | %
|Selling, general & administrative expenses                   |  | 24.5               | % |  | 25.4       | %
|Other operating expenses                                     |  | 11.5               | % |  | 12.8       | %
|Store pre-opening costs                                      |  | 0.0                | % |  | 0.1        | %
|Impairments and dispositions                                 |  | 0.3                | % |  | 0.0        | %
|                                                             |  |                    |   |  |            |  
|Operating income                                             |  | 6.8                | % |  | 0.4        | %
|Interest expense                                             |  | -2.1               | % |  | -1.7       | %
|Other income, net                                            |  | 0.0                | % |  | 0.0        | %
|                                                             |  |                    |   |  |            |  
|Income (loss) from continuing operations before income taxes |  | 4.7                | % |  | -1.3       | %
|Provision (benefit) for income taxes                         |  | 1.9                | % |  | -0.5       | %
|                                                             |  |                    |   |  |            |  
|Income (loss) from continuing operations                     |  | 2.8                | % |  | -0.8       | %
|Discontinued Operations:                                     |  |                    |   |  |            |  
|Loss from discontinued operations                            |  | 0.0                | % |  | 0.0        | %
|Benefit for income taxes                                     |  | 0.0                | % |  | 0.0        | %
|                                                             |  |                    |   |  |            |  
|Loss from discontinued operations                            |  | 0.0                | % |  | 0.0        | %
|                                                             |  |                    |   |  |            |  
|Net Income (loss)                                            |  | 2.8                | % |  | -0.8       | %
|                                                             |  |                    |   |  |            |  

THREE MONTHS ENDED MAY 1, 2010 COMPARED TO THREE MONTHS ENDED MAY 2, 2009

DISCUSSION OF OPERATING INCOME  CONTINUING OPERATIONS

The following table shows the changes in operating income from continuing operations for the three-month period ended May 2, 2009 compared to the
three-month period ended May 1, 2010:



|                                       |  |              |      |  
|-------------------------------------- |  | ------------ | ---- | -
|(In Millions)                          |  | TotalCompany |     
|For the three months ended May 2, 2009 |  | $            | 2.2  |  
|Store sales and margin                 |  |              | 46.3 |  
|Operating expenses                     |  |              | (1.4 | )
|Impairments and dispositions           |  |              | (1.6 | )
|                                       |  |              |      |  
|Increase                               |  |              | 43.3 |  
|                                       |  |              |      |  
|For the three months ended May 1, 2010 |  | $            | 45.5 |  
|                                       |  |              |      |  



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##### Table of Contents

For the three month period ended May 1, 2010, operating income was $45.5 million compared to operating
income of $2.2 million for the same period last year. The $43.3 million increase in operating income for the quarter was driven by a 6.1% increase in comparable store sales as well as a 440 basis point increase in the year-over-year gross
margin rate resulting from improved inventory management, increased full-price selling, and a reduced level of promotional activity. Additionally, the Company achieved approximately 90 basis points of improvement in the year-over-year Selling,
General and Administrative (SG&A) expense rate as a percentage of sales.

NET SALES

For the three months ended May 1, 2010, total net sales increased 6.9% to $667.4 million from $624.3 million for the three months ended May 2,
2009. Comparable store sales increased $37.4 million, or 6.1%, from $611.2 million for the three months ended May 2, 2009 to $648.6 million for the three months ended May 1, 2010.

Comparable store sales are determined on a rolling 13-month basis. Thus, to be included in the comparison, a store must be open for 13 months. The
additional month is used to transition the first month impact of a new store opening. Correspondingly, closed stores are removed from the comparable store sales comparison when they begin liquidating merchandise. Expanded, remodeled and converted
stores are included in the comparable store sales comparison, except for the periods in which they are closed for remodeling and renovation.

GROSS MARGIN

For the three
months ended May 1, 2010, gross margin was $287.7 million, or 43.1% of net sales, compared to $241.4 million, or 38.7% of net sales, for the three months ended May 2, 2009. The Companys gross margin rate increased 440 basis points in
the quarter primarily as a result of improved inventory management, increased full-price selling, and a reduced level of promotional activity during the current quarter.



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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

For the three months ended May 1, 2010, SG&A was $163.5 million, or 24.5% of net sales, compared to $158.4 million, or 25.4% of net sales, for
the three months ended May 2, 2009. The year-over-year increase is primarily due to reduced proprietary credit card income related to the previously announced contract changes with HSBC and higher variable expenses associated with the 6.9%
sales increase. As a percentage of sales, SG&A expense improved 90 basis points as the Company was able to leverage its fixed costs with the $43.2 million year-over-year sales increase.

OTHER OPERATING EXPENSES

For the
three months ended May 1, 2010, other operating expenses, including property and equipment rentals, depreciation and amortization, taxes other than income taxes and store pre-opening costs, were $77.0 million, or 11.5% of net sales, compared to
$80.6 million, or 12.9% of net sales, for the three months ended May 2, 2009. As a percent of sales, other operating expenses improved by 140 basis points year-over year. The decrease of $3.6 million was principally driven by lower depreciation
expense of $4.5 million as a result of reduced capital expenditures in the prior year and asset impairment charges recorded during the fourth quarter ended January 30, 2010. This was partially offset by an increase in taxes other than income
taxes of $2.3 million for the three months ended May 1, 2010.

IMPAIRMENTS AND DISPOSITIONS

For the three months ended May 1, 2010, the Company recorded losses from impairments and dispositions of $1.8 million, compared to a loss of $0.2
million for the three months ended May 2, 2009. The Company announced that three SFA stores will be closed in the second quarter of 2010. The current quarter charges related to severance expense, lease termination, and other store closing costs
associated with the closing of these three SFA stores. The prior quarter charges were primarily due to asset dispositions in the normal course of business.

INTEREST EXPENSE

For the three
months ended May 1, 2010, interest expense was $14.1 million, or 2.1% of net sales, compared to $10.4 million, or 1.7% of net sales, for the three months ended May 2, 2009. The increase in interest expense was primarily due to the issuance
of $120.0 million of convertible notes in May 2009 and the amortization of financing costs associated with these notes and the revolving credit facility offset in part by the extinguishment of $23.0 million of senior notes in July 2009. Non-cash
interest expense associated with the amortization of the debt discount on the Companys convertible notes was $2.9 million and $1.8 million for the three months ended May 1, 2010 and May 2, 2009, respectively.



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INCOME TAXES

The effective income tax rate from continuing operations for the three-month periods ended May 1, 2010 and May 2, 2009 was 40.4% and 40.1%,
respectively. There was no material change in the effective rate for the three-month period ended May 1, 2010.

The Companys
Consolidated Balance Sheet as of May 1, 2010 includes a gross deferred tax asset of $158.4 million related to U.S. federal and state net operating loss and alternative minimum tax credit carryforwards. The majority of the net operating loss
carryforward is a result of the net operating losses incurred during the fiscal years ended January 30, 2010 and January 31, 2009 due principally to difficult market and macroeconomic conditions. The Company has concluded, based on the
weight of all available positive and negative evidence, that all but $41.3 million of these tax benefits relating to certain state losses are more likely than not to be realized in the future. Therefore, a valuation allowance for the $41.3 million
has been established. The Company evaluates the realizability of its deferred tax assets on quarterly basis. While the Company has incurred a cumulative loss over the three years ended May 1, 2010, after evaluating all available evidence
including past operating results, the macroeconomic factors contributing to the 2008 and 2009 fiscal year losses, the length of the carryforward periods available and its forecast of future taxable income, including the availability of prudent and
feasible tax planning strategies, the Company concluded that it is more likely than not the net deferred tax asset, net of the $41.3 million valuation allowance related to state NOLs, will be realized. The Company will continue to assess the need
for additional valuation allowance in the future. If future results are less than projected or tax planning alternatives are no longer viable, then additional valuation allowance may be required to reduce the deferred tax assets which could have a
material impact on its results of operations in the period in which it is recorded.

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 support its current level of operations.



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##### Table of Contents

Cash provided by operating activities from continuing operations was $40.5 million for the three months
ended May 1, 2010 and $4.9 million for the three months ended May 2, 2009. Cash provided by (used in) 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 merchandise
purchases and payments. The $35.6 million year-over-year increase in operating cash flows from continuing operations was primarily driven by income from continuing operations of $18.8 million for the three months ended May 1, 2010 compared to a
loss from continuing operations of $4.9 million for the three months ended May 2, 2009 and changes in working capital. Net cash used in operating activities for discontinued operations was $13.6 million for the three months ended May 2,
2009 and was primarily related to the payment of severance, lease termination and other closing costs associated with the January 2009 CLL store closings.

Cash used in investing activities for continuing operations was $7.9 million for the three months ended May 1, 2010 and $27.9 million for the three
months ended May 2, 2009. Cash used in investing activities principally consists of construction of new stores, renovation and expansion of existing stores and investments in support areas (e.g., technology and distribution centers). The $20.0
million decrease in cash used in investing activities for continuing operations is primarily due to a decrease in capital expenditures in the current year.

Cash provided by (used in) financing activities from continuing operations was ($0.8) million for the three months ended May 1, 2010 and $36.6
million for the three months ended May 2, 2009. The current year cash used in financing activities was attributable to payment on capital lease obligations of $1.3 million partially off-set by $0.4 million in proceeds from the issuance of
common stock. The prior year cash provided by financing activities primarily related to $38.3 million in borrowings under the revolving credit facility partially off-set by payment on capital lease obligations of $1.2 million and payment of
dividends of $0.5 million.

CASH BALANCES AND LIQUIDITY

The Companys primary sources of short-term liquidity are cash on hand and availability under its $500 million revolving credit facility. At
May 1, 2010, the Company had no direct borrowings under its revolving credit facility, and had $31.9 million in unfunded letters of credit. At May 1, 2010 and May 2, 2009, the Company maintained cash and cash equivalent balances of
$179.1 million and $10.3 million, respectively. Included in cash equivalents at May 1, 2010 was a $20.0 million compensating balance related to the Companys purchasing card program to ensure future credit availability under that program.
Exclusive of approximately $8.5 million and $10.0 million of store operating cash at May 1, 2010 and May 2, 2009, respectively, cash was invested principally in money market funds, demand deposits, and time deposits.



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The Company has $22.9 million of senior notes due in December 2010, $179.1 million of cash on hand, and
ample availability on its revolving credit facility. The Company expects to be cash flow positive for fiscal year 2010 and have sufficient liquidity to fund operations for the next twelve months.

There were no repurchases or retirements of common stock during the three months ended May 1, 2010 or May 2, 2009. At May 1, 2010, there
were 32.7 million shares remaining available for repurchase under the Companys existing share repurchase program.

CAPITAL
STRUCTURE

The Company continuously evaluates its debt-to-capitalization ratio in light of the economic trends, business trends, levels
of interest rates, and terms, conditions and availability of capital in the capital markets. At May 1, 2010, the Companys capital and financing structure was comprised of a revolving credit agreement, senior unsecured notes, convertible
unsecured notes, and capital and operating leases. On May 1, 2010, total funded debt (including the equity component of the convertible notes) was $577.2 million, representing a decrease of $100.0 million from a balance of $677.2 million at
May 2, 2009. This decrease was primarily related to a decrease of $195.0 million in outstanding borrowings on the revolving credit facility as of May 1, 2010, the extinguishment of $23.0 million of the 7.5% senior notes in June and July
2009, and $4.8 million in payments on capital lease obligations. These decreases were partially offset by the issuance of $120.0 million ($101.6 million, net of current unamortized discount) of 7.5% convertible notes during the second quarter of
2009 and the addition of $2.8 million of capital lease obligations during the first quarter of 2010. The debt-to-capitalization ratio decreased to 35.7% from 41.7% in the prior year, as a result of the net decrease in debt in the current year and
the issuance of 14.9 million common shares in October 2009.

Revolving Credit Facility

At May 1, 2010, the Company maintained a $500 million revolving credit facility, which is subject to a borrowing base equal to a specified percentage
of eligible inventory and certain credit card receivables. The facility matures in November 2013. The Companys inventory position increases and decreases over time and this change will at times cause the revolver capacity to fall below the
stated $500 million facility. There are no debt ratings-based provisions in the revolving credit facility. The facility includes a fixed-charge coverage ratio requirement of 1 to 1 that the Company is subject to only if availability under the
facility becomes less than $87.5 million. At May 1, 2010, the Company was not subject to the fixed charge coverage ratio as its availability under the facility exceeded $87.5 million. Based on the inventory and credit card receivable balances
as of May 1, 2010, the Company had unutilized availability under the facility of $423.7 million after deducting outstanding letters of credit of $31.9 million. The facility contains default provisions that are typical for this type of
financing, including a provision that would trigger a default under the facility if a default were to occur in another debt instrument resulting in the acceleration of principal of more than $20 million in that other instrument. At May 1, 2010,
the Company had no direct outstanding borrowings under the revolving credit facility.



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Senior Notes

At May 1, 2010, the Company had $169.2 million of senior notes outstanding, excluding the convertible notes, comprising four separate series having
maturities ranging from 2010 to 2019 and interest rates ranging from 7.00% to 9.88%. The terms of each senior note call for all principal to be repaid at maturity. The senior notes have substantially identical terms except for the maturity dates and
interest rates payable to investors. Each senior note contains limitations on the amount of secured indebtedness the Company may incur. The Company believes it will have sufficient cash on hand, availability under its revolving credit facility and
access to various capital markets to repay these notes at maturity.

7.5% Convertible Notes

The Company had $120 million of convertible notes, at May 1, 2010, that bear cash interest semiannually at an annual rate of 7.5% and mature in 2013.
The provisions of the convertible notes allow the holder to convert the notes at any time to shares of the Companys common stock at a conversion rate of 180.5869 shares per one thousand dollars in principal amount of notes. The Company can
settle a conversion with shares, cash or a combination thereof at its discretion. In May 2009, the Company received net proceeds from the convertible notes of approximately $115.3 million after deducting 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.

Authoritative accounting literature requires the allocation of convertible debt proceeds between the liability component and the embedded conversion
option (i.e., the equity component). The liability component of the debt instrument is accreted to par value using the effective interest method over the remaining life of the debt. This amortization is reported as a component of interest expense.
The equity component is not subsequently revalued as long as it continues to qualify for equity treatment. Upon issuance of the convertible notes, the Company estimated the fair value of the liability component of the 7.5% convertible notes,
assuming a 13% non-convertible borrowing rate, to be $98.0 million. The difference between the fair value and the principal amount of the 7.5% convertible notes was $22.0 million. This amount was recorded as a debt discount and as an increase to
additional paid-in capital as of the issuance date. The current unamortized discount of $18.4 million is being amortized to interest expense over the remaining 3.6 year period to the maturity date of the notes in December 2013 resulting in an
increase in non-cash interest expense in future periods.

The convertible notes were classified within Long-Term Debt on the Condensed
Consolidated Balance Sheet as of May 1, 2010 and May 2, 2009 because the Company can settle the principal amount of the notes with shares, cash or a combination thereof at its discretion.



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2.0% Convertible Senior Notes

The Company had $230 million of convertible senior notes at May 1, 2010, that bear interest at a rate of 2.0% per annum and mature in 2024. The
provisions of the convertible notes allow the holder to convert the notes to shares of the Companys common stock at a conversion rate of 83.5609 shares per one thousand dollars in principal amount of notes (subject to an anti-dilution
adjustment). The holder may put the debt back to the Company in 2014 or 2019 and the Company can call the debt on or after March 11, 2011. The Company can settle a conversion of the notes with shares, cash 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; or upon the occurrence of certain consolidations, mergers or share exchange transactions involving the Company. At May 1, 2010, the conversion criteria with respect to the credit rating requirements were met.

The Company used approximately $25 million of the proceeds from the issuances to enter into a convertible note hedge and written call options on its
common stock to reduce the exposure to dilution from the conversion of the notes. The Company believes it will have sufficient cash on hand, availability under its revolving credit facility and access to various capital markets to repay both the
senior notes and convertible notes at maturity.

Authoritative accounting literature requires the allocation of convertible debt proceeds
between the liability component and the embedded conversion option (i.e., the equity component). The liability component of the debt instrument is accreted to par value using the effective interest method over the remaining life of the debt. This
amortization is reported as a component of interest expense. The equity component is not subsequently revalued as long as it continues to qualify for equity treatment. The Company estimated the fair value of the liability component, as of the date
of issuance, of its 2.0% convertible senior notes assuming a 6.25% non-convertible borrowing rate to be $158.1 million. The difference between the fair value and the principal amount of the notes was $71.9 million. This amount was retrospectively
recorded as a debt discount and as an increase to additional paid-in capital as of the issuance date. The discount is being amortized to interest expense over the ten-year period from the issuance date to the first put date of the notes in 2014
resulting in an increase in non-cash interest expense in prior periods. The current unamortized discount of $33.2 million will be recognized over the remaining 3.9 year period.

The convertible notes were classified within Long-Term Debt on the Condensed Consolidated Balance Sheet as of May 1, 2010 and May 2, 2009
because the Company can settle the principal amount of the notes with shares, cash or a combination thereof at its discretion.



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Capital Leases

At May 1 2010, the Company had $58.0 million in capital leases covering various properties and pieces of equipment. The terms of the capital leases
provide the lessor with a security interest in the asset being leased and require the Company to make periodic lease payments, aggregating between $4 million and $6 million per year.

Pension Plan

The Company is
obligated 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 of
$1.4 million in 2010. The Company amended the SFA 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
considered to be non-highly compensated employees. In January 2009, the Company suspended future benefit accruals for all remaining participants in the plan, effective March 13, 2009.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

The Company has not entered into any off-balance sheet arrangements which would be reasonably likely to have a current or future material effect, such as
obligations under certain guarantees or contracts, retained or contingent interests in assets transferred to an unconsolidated entity or similar arrangements, obligations under certain derivative arrangements, or obligations under material variable
interests.

There were no other material changes in the Companys contractual obligations specified in Item 303(a)(5) of Regulation
S-K during the three months ended May 1, 2010. For additional information regarding the Companys contractual obligations as of January 30, 2010, see the Managements Discussion and Analysis section of the Companys Annual
Report on Form 10-K for the year ended January 30, 2010.

CRITICAL ACCOUNTING POLICIES

A summary of the Companys critical accounting policies is included in the Management Discussion and Analysis section of the Companys Annual
Report on Form 10-K for the year ended January 30, 2010.



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NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

In the first quarter of 2010, the Company adopted a new standard that changed the accounting for transfers of financial assets. This new standard
eliminates the concept of a qualifying special-purpose entity; removes the scope exception from applying the accounting standards that address the consolidation of variable interest entities to qualifying special-purpose entities; changes the
standards for de-recognizing financial assets; and requires enhanced disclosure. The adoption of this new standard did not impact the Companys consolidated financial statements.

In the first quarter of 2010, the Company adopted a new standard for determining whether to consolidate a variable interest entity. This new standard
eliminated a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and requires an ongoing reassessment
of whether an entity is the primary beneficiary. The adoption of this new standard did not impact the Companys consolidated financial statements.

Recently Issued Pronouncements

In January 2010, the Financial Accounting Standards Board issued an accounting standard update related to improving disclosures about fair value
measurements. The update requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and
information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The accounting standard update is effective for reporting periods beginning after December 15, 2009,
except for Level 3 reconciliation disclosures which are effective for periods beginning after December 15, 2010. Adoption of the accounting standard update as it relates to Level 1 and Level 2 fair value disclosures did not impact the
Companys consolidated financial statements. The Company does not expect the adoption of the accounting standard update related to the Level 3 reconciliation disclosures to have a material impact on its consolidated financial statements.

FORWARD-LOOKING INFORMATION

The information contained in this Form 10-Q that addresses future results or expectations is considered forward-looking information within the
definition of the Federal securities laws. Forward-looking information in this document can be identified through the use of words such as may, will, intend, plan, project,
expect, anticipate, should, would, believe, estimate, contemplate, possible, and point. The forward-looking information is premised on many
factors, some of which are outlined below. Actual consolidated results might differ materially from projected forward-looking information.



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The forward-looking information and statements are or may be based on a series of projections and estimates
and involve risks and uncertainties. These risks and uncertainties include such factors as: the level of consumer spending for luxury apparel and other merchandise carried by the Company and its ability to respond quickly to consumer trends;
macroeconomic conditions and their effect on consumer spending; the Companys ability to secure adequate financing; adequate and stable sources of merchandise; the competitive pricing environment within the retail sector; the effectiveness of
planned advertising, marketing, and promotional campaigns; favorable customer response to 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 markets; changes in interest rates; and fluctuations in foreign currency. For additional information
regarding these and other risk factors, please refer to the Companys Form 10-K for the fiscal year ended January 30, 2010 filed with the SEC, which may be accessed through the Internet at www.sec.gov.

The Company undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events, or
otherwise.



|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

The Companys exposure to market risk primarily arises from changes in interest rates and the U.S. equity and bond markets. The effects of changes in
interest rates on earnings generally have been small relative to other factors that also affect earnings, such as sales and operating margins. The Company seeks to manage exposure to adverse interest rate changes through its normal operating and
financing activities, and if appropriate, through the use of derivative financial instruments. Such derivative instruments can be used as part of an overall risk management program in order to manage the costs and risks associated with various
financial exposures. The Company does not enter into derivative instruments for trading purposes, as clearly defined in its risk management policies. The Company is exposed to interest rate risk primarily through its borrowings, and derivative
financial instrument activities.

Based on the Companys market risk sensitive instruments outstanding at May 1, 2010, the Company
has determined that there was no material market risk exposure to the Companys consolidated financial position, results of operations, or cash flows as of such date.



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|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, the
Company conducted an evaluation of the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the
end of the period covered by this report. Based upon this evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of such date. The
Companys disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms and that such information is accumulated and communicated to the Companys management, including the Chief Executive Officer and Chief Financial Officer, to allow timely discussions
regarding required disclosures.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in the Companys internal controls over financial reporting that occurred during the quarter ended May 1, 2010 that have
materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

PART II.
OTHER INFORMATION



|Item 1. | LEGAL PROCEEDINGS.
|------- | ------------------

The
information in Part I  Financial Information, Note 9  Contingencies  Legal Contingencies, is incorporated into this Item by reference.



|Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

During the quarter ended May 1, 2010, the Company did not sell any equity securities which were not registered under the Securities Act.

The Company has a share repurchase program that authorizes it to purchase shares of the Companys common stock in order to both distribute cash to
stockholders and manage dilution resulting from shares issued under the Companys equity compensation plans. The Company did not repurchase and retire any shares of common stock during the quarter ended May 1, 2010. At May 1, 2010,
32.7 million shares remained available for repurchase under the Companys 70.0 million share repurchase authorization.



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|Item 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                   |  |                                           
|------------------ |  | ------------------------------------------
|                   |  | SAKS INCORPORATED                         
|                   |  | Registrant                                
|                   | 
|Date: June 2, 2010 |  | /s/ Kevin G. Wills                        
|                   |  | Kevin G. Wills                            
|                   |  | On behalf of registrant and as Executive  
|                   |  | Vice President and Chief Financial Officer
|                   |  | (Principal Financial Officer)             



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