Neiman Marcus 2002 Annual Report Download - page 27

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments represents the potential loss arising from adverse changes in interest
rates and foreign currency exchange rates. The Company does not enter into derivative financial instruments for trading purposes.
The Company seeks to manage exposure to adverse interest rate changes through its normal operating and financing activities. The
Company is exposed to interest rate risk through its securitization and borrowing activities, which are described in Notes 2 and 5 to
the Consolidated Financial Statements in Item 15.
As of August 2, 2003, the Company had no borrowings outstanding under its revolving Credit Agreement. Future borrowings under
the Company's revolving Credit Agreement, to the extent of outstanding borrowings, would be affected by interest rate changes.
The Company's outstanding long-term debt as of August 2, 2003 is at fixed interest rates and would not be affected by interest rate
changes. Based upon quoted prices, the fair value of the Company's senior notes and debentures was $265.0 million as of August 2,
2003 and $249.9 million as of August 3, 2002.
Pursuant to a proprietary credit card securitization program that begins to expire in September 2005, the Company sold substantially
all of its credit card receivables through a subsidiary in exchange for certificates representing undivided interests in such receivables.
The Class A Certificates, which have an aggregate principal value of $225 million, were sold to investors. The holders of the Class A
Certificates are entitled to monthly interest distributions from the Trust at the contractually-defined rate of one month LIBOR plus
0.27 percent annually. The distributions to the Class A Certificate holders are payable from the finance charge income generated by
the credit card receivables held by the Trust. At August 2, 2003, the Company estimates a 100 basis point increase in LIBOR would
result in an approximate annual decrease of $2.25 million in the pretax income to the Company from its Retained Interests in the credit
card portfolio held by the Trust.
The Company uses derivative financial instruments to manage foreign currency risk related to the procurement of merchandise
inventories from foreign sources. The Company enters into foreign currency contracts denominated in the euro and British pound.
The Company had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $44.3 million
as of August 2, 2003 and approximately $32.7 million as of August 3, 2002. The market risk inherent in these instruments was not
material to the Company's consolidated financial position, results of operations, or cash flows in 2003.
The effects of changes in the U.S. equity and bond markets serve to increase or decrease the value of Pension Plan assets, resulting in
increased or decreased cash funding by the Company. The Company seeks to manage exposure to adverse equity and bond returns by
maintaining diversified investment portfolios and utilizing professional investment managers.
Based on a review of the Company's financial instruments outstanding at August 2, 2003 that are sensitive to market risks, 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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