Neiman Marcus 2009 Annual Report Download - page 51

Table of Contents
statements issued for interim and annual periods ending after September 15, 2009, or our first quarter of fiscal year 2010 ending
October 31, 2009. The adoption of this guidance did not have an impact on our consolidated financial statements.
In December 2008 and January 2010, the FASB issued guidance related to improving disclosures about fair value
measurements. This guidance requires reporting entities to make new disclosures about recurring and nonrecurring fair value
measurements with respect to assets held by pension plans, as well as other assets and liabilities. Such disclosure requirements
include disclosures related to significant transfers into and out of Level 1 and Level 2 fair value measurements and information on
purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. We adopted this
guidance in the preparation of our consolidated financial statements for the fiscal year ending July 31, 2010 and expanded our
disclosures regarding plan assets, the basis of determination of the fair value of these assets and provided additional information
regarding activity related to our Level 3 investments.
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 7 to our Notes to Consolidated Financial Statements.
In connection with the Acquisition, NMG obtained $2,575.0 million of floating rate debt agreements, of which $2,125.0
million was outstanding at the Acquisition date and $1,513.4 million (including $7.6 million of borrowings classified as current
liabilities) is outstanding under its Senior Secured Term Loan Facility at July 31, 2010. In addition, as of July 31, 2010, NMG had no
borrowings outstanding under its Asset-Based Revolving Credit Facility. Future borrowings under NMG's Asset-Based Revolving
Facility, to the extent of outstanding borrowings, would be affected by interest rate changes.
Effective December 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. These swap
agreements hedge a portion of our contractual floating rate interest commitments through the expiration of the agreements in
December 2010. 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 6.963% to 6.983% per quarter through December 2010 and result in an average fixed rate
of 6.973%. We believe that a 1% increase in interest rates relating to the portion of our floating rate debt that is not hedged would
increase annual interest expense by approximately $2 million (prior to the expiration of the interest rate swap agreements) during
fiscal year 2011.
Effective January 2010, NMG entered into interest rate cap agreements for an aggregate notional amount of $500.0 million in
order to hedge the variability of our cash flows related to a portion of our floating rate indebtedness once the interest rate swap expires
in December 2010. The interest rate cap agreements commence in December 2010 and expire in December 2012. Pursuant to the
interest rate cap agreements, NMG has capped LIBOR at 2.50% through December 2012 with respect to the $500.0 million notional
amount of such agreements. In the event LIBOR is less than 2.50%, NMG will pay interest at the lower LIBOR rate. In the event
LIBOR is higher than 2.50%, NMG will pay interest at the capped rate of 2.50%. As of July 31, 2010, LIBOR was 0.5103%. We
believe that a 1% increase in LIBOR would increase our annual interest expense by approximately $10 million (subsequent to the
expiration of the interest rate swap agreements) during fiscal year 2011.
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.
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