Neiman Marcus 2007 Annual Report Download - page 114

Table of Contents
NOTE 10. OTHER (INCOME) EXPENSE, NET
Other Income. In the first quarter of fiscal year 2008, we recorded a one-time pension curtailment gain of $32.5 million, or
0.7% of revenues, as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007.
In the first quarter of fiscal year 2007, we received consideration aggregating $4.2 million, or 0.1% of revenues, in
connection with the merger of Wedding Channel.com, in which we held a minority interest, and The Knot. We accounted for our
investment in Wedding Channel.com under the cost method. In prior years, we had previously reduced our carrying value of this
investment to zero.
In the fourth quarter of fiscal year 2007, we recorded $6.0 million of other income for the breakage on gift cards we
previously sold and issued. The income was recognized based upon our analysis of the aging of these gift cards, our determination
that the likelihood of future redemption is remote and our determination that such balances are not subject to escheatment laws
applicable to our operations. Prior to the fourth quarter of fiscal year 2007, we had not recognized breakage on gift cards pending,
among other things, our final determination of the applicable escheatment laws applicable to our operations.
Other Expense. In the fourth quarters of fiscal years 2008 and 2007, we recorded $31.3 million and $11.5 million pretax
impairment charges related to the writedown to fair value of the net carrying value of the Horchow tradename based upon lower
revenues and royalty rate expectations with respect to the Horchow brand in light of current operating performance and future
operating expectations.
For the nine weeks ended October 1, 2005, we recorded $23.5 million of transaction and other costs incurred in connection
with the Acquisition. These costs consist primarily of $4.5 million of accounting, investment banking, legal and other costs associated
with the Acquisition and a $19.0 million non-cash charge for stock compensation resulting from the accelerated vesting of Predecessor
stock options and restricted stock in connection with the Acquisition.
NOTE 11. COMMON SHAREHOLDERS' EQUITY
Successor
Carryover Basis Adjustment for Management Shareholders. Executive management participants held certain equity
interests, including stock options, in the Predecessor prior to the Acquisition and continue to hold equity interests in the Company,
representing indirect equity interests in the Successor after the Acquisition. In accordance with the provisions of Emerging Issues
Task Force No. 88-16, "Basis in Leveraged Buyout Acquisition," the basis of executive management's indirect interests in the
Successor after the Acquisition is carried over at the basis of their interests in the Predecessor prior to the Acquisition. The carryover
basis of such interests less the net cash received by the management participants represents a deemed dividend of $69.2 million to the
management participants and has been recognized as a reduction to shareholders' equity in connection with the Acquisition.
Successor Stock-Based Compensation Accounting. The Company has approved equity-based management arrangements
which authorize equity awards to be granted to certain management employees for up to 87,992.0 shares of the common stock of the
Company. Options generally vest over four to five years and expire 10 years from the date of grant.
A summary of the status of our stock option plan as of August 2, 2008, July 28, 2007 and July 29, 2006 and changes during
the periods ended on these dates is as follows:
Fiscal year ended
August 2, 2008
Fiscal year ended
July 28, 2007
Fiscal year ended
July 29, 2006
Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price
Outstanding at beginning of fiscal year 83,634.3 $ 1,430 81,716.3 $ 1,416 — $ —
Granted 260.0 2,684 2,496.0 1,942 81,716.3 1,416
Exercised — — (578.0) 1,590 — —
Forfeited (747.7)1,597 — — — —
Outstanding at end of fiscal year 83,146.6 $ 1,553 83,634.3 $ 1,430 81,716.3 $ 1,416
Options exercisable at end of fiscal year 46,684.4 $ 1,375 29,764.1 $ 1,233 7,283.3 $ 359
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