Neiman Marcus 2003 Annual Report Download - page 25

Off-Balance Sheet Arrangements
Pursuant to the Credit Card Facility, the Company transfers substantially all of its credit card receivables to a wholly-owned
subsidiary, Neiman Marcus Funding Corporation, which in turn sells such receivables to the Neiman Marcus Credit Card Master Trust
(Trust). At the inception of the Credit Card Facility in September 2000, the Trust issued certificates representing undivided interests
in the credit card receivables to third-party investors in the face amount of $225 million (Sold Interests) and to the Company in an
aggregate amount equal to the excess of the balance of the credit card portfolio over $225 million (Retained Interests). In order to
maintain the committed level of securitized assets, cash collections on the securitized receivables are used by the Trust to purchase
new credit card balances from the Company in accordance with the terms of the Credit Card Facility. Beginning in April 2005, cash
collections will be used by the Trust to repay the $225 million principal balance of the Class A Certificates in six monthly installments
of $37.5 million (Amortization Period).
From the inception of the Credit Card Facility until December 2003, the Company's transfers and sales of credit card receivables
pursuant to the terms of the Credit Card Facility were accounted for as sales (Off-Balance Sheet Accounting). As a result, $225
million of credit card receivables were removed from the Company's balance sheet at the inception of the Credit Card Facility and the
Company's $225 million repayment obligation to the holders of the certificates representing the Sold Interests was not required to be
shown as a liability on the Company's consolidated balance sheet. During the period the transfers and sales qualified for Off-Balance
Sheet Accounting, the Retained Interests were shown as "Undivided interests in NMG Credit Card Master Trust" on the Company's
consolidated balance sheets.
Transfers to the Trust ceased to qualify for Off-Balance Sheet Accounting beginning in December 2003 and were recorded as secured
borrowings by the Company (Financing Accounting). As a consequence, the credit card receivables generated after November 2003
remained on the Company's consolidated balance sheet. The transition period from Off-Balance Sheet Accounting to Financing
Accounting (Transition Period) lasted approximately four months (December 2003 to March 2004). During the Transition Period,
cash collections of receivables were allocated to the previous Sold Interests and Retained Interests until such time as those balances
were reduced to zero and the Company recorded a liability for its repayment obligation to the holders of the $225 million of
certificates representing the Sold Interests. As of July 31, 2004, the Company's entire credit card portfolio is included in accounts
receivable and the $225 million of outstanding borrowings under the Credit Card Facility are shown as a liability in the consolidated
balance sheet.
The Company's securitization of credit card receivables is more fully described in Note 2 of the Notes to Consolidated Financial
Statements in Item 15.
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