Neiman Marcus 2008 Annual Report Download - page 51

Table of Contents
Loyalty Programs. We maintain customer loyalty programs in which customers accumulate points for qualifying purchases.
Upon reaching certain levels, customers may redeem their points for gifts. Generally, points earned in a given year must be redeemed
no later than 90 days subsequent to the end of the annual program period.
The estimates of the costs associated with the loyalty programs require us to make assumptions related to customer
purchasing levels, redemption rates and costs of awards to be chosen by our customers. Our customers redeem a substantial portion of
the points earned in connection with our loyalty programs for gift cards. At the time the qualifying sales giving rise to the loyalty
program points are made, we defer the portion of the revenues on the qualifying sales transactions equal to the estimate of the retail
value of the gift cards to be issued upon conversion of the points to gift cards. We record the deferral of revenues related to gift card
awards under our loyalty programs as a reduction of revenues. In addition, we charge the cost of all other awards under our loyalty
programs to cost of goods sold.
Benefit Plans. We sponsor a noncontributory defined benefit pension plan (Pension Plan), an unfunded supplemental
executive retirement plan (SERP Plan) which provides certain employees additional pension benefits and a postretirement plan
providing eligible employees limited postretirement health care benefits (Postretirement Plan). In calculating our obligations and
related expense, we make various assumptions and estimates, after consulting with outside actuaries and advisors. The annual
determination of expense involves calculating the estimated total benefits ultimately payable to plan participants and allocating this
cost to the periods in which services are expected to be rendered. We use the projected unit credit method in recognizing pension
liabilities. The Pension and SERP Plans are valued annually as of the beginning of each fiscal year.
Significant assumptions related to the calculation of our obligations include the discount rate used to calculate the present
value of benefit obligations to be paid in the future, the expected long-term rate of return on assets held by the Pension Plan, the
average rate of compensation increase by Pension Plan and SERP Plan participants and the health care cost trend rate for the
Postretirement Plan. We review these assumptions annually based upon currently available information, including information
provided by our actuaries.
Significant assumptions utilized in the calculation of our projected benefit obligations as of August 1, 2009 and future
expense requirements for our Pension Plan, SERP Plan and Postretirement Plan, and sensitivity analysis related to changes in these
assumptions, are as follows:
Using Sensitivity Rate
Actual
Rate
Sensitivity Rate
Increase/(Decrease)
Increase in
Liability
(in millions)
Increase in
Expense
(in millions)
Pension Plan:
Discount rate 5.90 % (0.25 )% $ 16.1 $ 1.7
Expected long-term rate of return on plan assets 8.00 % (1.00 )% n/a $ 3.2
Rate of future compensation increase 4.50 % 0.25 % $ 0.5 $ 0.1
SERP Plan:
Discount rate 5.90 % (0.25 )% $ 2.7 Insignificant
Rate of future compensation increase 4.50 % 0.25 % $ 0.5 Insignificant
Postretirement Plan:
Discount rate 5.80 % (0.25 )% $ 0.5 Insignificant
Ultimate health care cost trend rate 8.00 % 1.00 % $ 2.2 $ 0.2
Self-insurance and Other Employee Benefit Reserves. We use estimates in the determination of the required accruals for
general liability, workers' compensation and health insurance. We base these estimates upon an examination of historical trends,
industry claims experience and independent actuarial estimates. Although we do not expect that we will ultimately pay claims
significantly different from our estimates, self-insurance reserves could be affected if future claims experience differ significantly
from our historical trends and assumptions. Self-insurance reserves including general liability, workers' compensation and health
insurance aggregated $35.5 million at August 1, 2009 and $44.1 million at August 2, 2008.
Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We are routinely under audit
by federal, state or local authorities in the area of income taxes. We regularly evaluate the likelihood of realization of tax benefits
derived from positions we have taken in various federal and state filings after consideration of all relevant facts, circumstances and
available information. For those tax benefits we believe more likely than not will be sustained, we recognize the benefit we believe is
cumulatively greater than 50% likely to be realized. To the extent we were to prevail in
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