Neiman Marcus 2007 Annual Report Download - page 50

Table of Contents
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" (SFAS 161). SFAS 161 enhances current disclosures related to derivative instruments and
hedging activities to provide adequate information about how derivative and hedging activities affect an entity's financial position,
financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, or our second fiscal quarter ending January 31, 2009. We have not yet evaluated the impact, if
any, of adopting SFAS 161 on our consolidated financial statements.
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 August 2, 2008, 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 August 2, 2008, NMG had $1,625.0 million of debt under its Senior Secured Term Loan Facility issued in connection with
the Acquisition that bears interest at floating rates.
NMG uses derivative financial instruments to help manage our 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 our exposure to
interest rate increases related to a portion of our 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 6.524% to 6.733% per quarter through 2010 and result in an average fixed rate of 6.608%. With respect to
outstanding borrowings 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-56 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-11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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