Neiman Marcus 2003 Annual Report Download - page 53

From the inception of the Credit Card Facility until December 2003, the Company's transfers and sales of credit card receivables
pursuant to the terms of the Credit Card Facility were accounted for as sales (Off-Balance Sheet Accounting). As a result, $225
million of credit card receivables were removed from the Company's balance sheet at the inception of the Credit Card Facility and the
Company's $225 million repayment obligation to the holders of the certificates representing the Sold Interests was not required to be
shown as a liability on the Company's consolidated balance sheet. During the period the transfers and sales qualified for Off-Balance
Sheet Accounting, the Retained Interests were shown as "Undivided interests in NMG Credit Card Master Trust" on the Company's
consolidated balance sheets.
Transfers to the Trust ceased to qualify for Off-Balance Sheet Accounting beginning in December 2003 since the contractual life of
the receivables transferred after November 2003 is estimated to extend to September 2005 when the Repurchase Option becomes
exercisable. Rather, these transfers were recorded as secured borrowings by the Company (Financing Accounting). As a
consequence, the credit card receivables generated after November 2003 remained on the Company's balance sheet. The transition
period from Off-Balance Sheet Accounting to Financing Accounting (Transition Period) lasted approximately four months (December
2003 to March 2004). During the Transition Period, cash collections of receivables were allocated to the previous Sold Interests and
Retained Interests until such time as those balances were reduced to zero and the Company recorded a liability for its repayment
obligation to the holders of the $225 million of certificates representing the Sold Interests.
A reconciliation of the outstanding balance of the Company's accounts receivable to the balances recorded by the Company at July 31,
2004 and August 2, 2003 is as follows:
(in millions)
July 31,
2004
August 2,
2003
Credit card receivables $ 525.7 $ 468.1
Other receivables 26.0 22.6
551.7 490.7
Less: Sold Interests originally qualifying for Off-Balance Sheet
Accounting — (225.0)
Net balance $ 551.7 $ 265.7
Amounts reflected in the Company's balance sheet:
Undivided interests in NMG Credit Card Master Trust $ — $ 243.1
Accounts receivable 551.7 22.6
$ 551.7 $ 265.7
Current portion of borrowings under Credit Card Facility $ 150.0 $ —
Long-term borrowings under Credit Card Facility 75.0 —
$ 225.0 $ —
At the completion of the Transition Period, the Company's entire credit card portfolio was included in accounts receivable in its
consolidated balance sheet and the $225 million repayment obligation was shown as a liability.
As of the start of the Transition Period in December 2003, the carrying value of the Retained Interests exceeded face value by
approximately $7.6 million as a result of the application of the provisions of current accounting rules related to the calculation of the
gains on sale of the previous Sold Interests and the valuation of both Sold and Retained Interests. During the Transition Period, the
$7.6 million premium was amortized as a reduction of the Company's net earnings from its credit card portfolio (recorded as a
reduction of selling, general and administrative expenses in the consolidated statements of earnings). Of the $7.6 million premium,
$5.3 million was amortized in the second quarter of 2004 and the remaining $2.3 million was amortized in the third quarter of 2004.
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