Neiman Marcus 2008 Annual Report Download - page 101

Table of Contents
insurance, common area maintenance costs and other occupancy costs. For leases that contain predetermined, fixed calculations of
minimum rentals, we recognize rent expense on a straight-line basis over the lease term. We recognize contingent rent expenses when
it is probable that the sales thresholds will be reached during the year.
We receive allowances from developers related to the construction of our stores. We record these allowances as deferred real
estate credits which we recognize as a reduction of rent expense on a straight-line basis over the lease term beginning with the date the
Company takes possession of the leased asset. We received construction allowances aggregating $10.0 million in fiscal year 2009,
$36.8 million in fiscal year 2008 and $24.6 million in fiscal year 2007.
Financial Instruments. In connection with the Acquisition, we obtained $2,575.0 million of floating rate debt agreements,
of which $2,125.0 million was outstanding at the Acquisition date and $1,625.0 million is outstanding at August 1, 2009 (including
$26.6 million of borrowings classified as current liabilities). 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. 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 6.831% to 6.983% per quarter through
2010 and result in an average fixed rate of 6.900%.
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 post retirement 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 end 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.
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.
Other Long-term Liabilities. Other long-term liabilities consist primarily of certain employee benefit obligations,
postretirement health care benefit obligations and the liability for scheduled rent increases.
Revenues. Revenues include sales of merchandise and services and delivery and processing revenues related to merchandise
sold. Revenues from our Specialty Retail stores are recognized at the later of the point of sale or the delivery of goods to the customer.
Revenues from our Direct Marketing operation are recognized when the merchandise is delivered to the customer. Revenues
associated with gift cards are recognized at the time of redemption by the customer. Revenues exclude sales taxes collected from our
customers.
We maintain reserves for anticipated sales returns primarily based on our historical trends related to returns by our retail and
direct marketing customers. Our reserves for anticipated sales returns aggregated $29.7 million at August 1, 2009 and $45.0 million at
August 2, 2008. As the vast majority of merchandise returns are made in less than 30 days after the sales transaction, we believe the
risk that differences between our estimated and actual returns will have a material impact on our consolidated financial statements is
minimal.
Buying and Occupancy Costs. Our buying costs consist primarily of salaries and expenses incurred by our merchandising
and buying operations. Occupancy costs primarily include rent, property taxes and operating costs of our retail, distribution and
support facilities and exclude depreciation expense.
F-12