Neiman Marcus 2006 Annual Report Download - page 55

Download and view the complete annual report

Please find page 55 of the 2006 Neiman Marcus annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 171

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171

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. 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 borrowing activities, which are described in Note 9 to our consolidated financial statements.
As of July 28, 2007, NMG had no borrowings outstanding under its Asset-Based Revolving Credit Facility that bears interest at
floating rates. Future borrowings under NMG's Asset-Based Revolving Facility, to the extent of outstanding borrowings, would be
affected by interest rate changes.
At July 28, 2007, NMG had $1,625.0 million of debt under its Senior Secured Term Loan Facility issued in connection with the
Transactions that bears interest at floating rates.
NMG uses derivative financial instruments to help manage its interest rate risk. Effective December 6, 2005, NMG entered into
floating to fixed interest rate swap agreements for an aggregate notional amount of $1,000.0 million to limit its exposure to interest rate
increases related to a portion of its floating rate indebtedness. The interest rate swap agreements terminate after five years. As a result of
the swap agreements, NMG's effective fixed interest rates as to the $1,000.0 million in floating rate indebtedness will currently range
from 6.482% to 6.733% per quarter through 2010 and result in an average fixed rate of 6.577%. With respect to outstanding borrowing in
excess of $1,000.0 million on the Senior Secured Term Loan Facility, such borrowings are at floating rates. A 1% increase in these
floating rates would increase annual interest expense by approximately $6.3 million.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and supplementary data are included as pages F-1 through F-62
at the end of this Annual Report on Form 10-K:
Index
Page
Number
Management's Report on Internal Control over Financial Reporting F-2
Reports of Independent Registered Public Accounting Firms F-3
Consolidated Balance Sheets F-6
Consolidated Statements of Earnings F-7
Consolidated Statements of Cash Flows F-8
Consolidated Statements of Shareholders' Equity F-10
Notes to Consolidated Financial Statements F-12
52