Neiman Marcus 2008 Annual Report Download - page 37

Table of Contents
year. The decrease in operating margin as a percentage of revenues was primarily due to:
• lower level of full-price sales as a result of weak customer demand and higher net markdowns and promotional costs incurred
to liquidate on-hand inventories held in excess of sales trends; and
• the deleveraging of a significant portion of our expenses on the lower level of revenues; partially offset by
• a lower level of spending for advertising and promotion costs.
Operating earnings for Direct Marketing were $70.6 million, or 10.8% of Direct Marketing revenues, in fiscal year 2009
compared to $117.7 million, or 15.7% of Direct Marketing revenues, for the prior fiscal year. The decrease in operating margin as a
percentage of revenues for Direct Marketing was primarily the result of:
• a decrease in margins primarily due to higher net markdowns in response to weak customer demand; and
• the deleveraging of a significant portion of our expenses.
Interest expense, net. Net interest expense was $235.6 million, or 6.5% of revenues, in fiscal year 2009 and $239.8 million,
or 5.2% of revenues, for the prior fiscal year. The net decrease in interest expense is primarily due to 1) the decrease in interest rates
on our variable-rate indebtedness, partially offset by 2) incremental PIK interest on the Senior Notes, 3) lower interest income and 4)
lower capitalized interest as a result of lower capital expenditures. The significant components of interest expense are as follows:
Fiscal year ended
(in thousands)
August 1,
2009
August 2,
2008
Senior Secured Term Loan Facility $ 90,952 $ 106,504
2028 Debentures 8,906 8,903
Senior Notes 66,356 63,000
Senior Subordinated Notes 52,028 51,875
Amortization of debt issue costs 17,185 14,217
Other 3,709 3,275
Total interest expense 239,136 247,774
Less:
Interest income 2,569 4,933
Capitalized interest 993 3,036
Interest expense, net $ 235,574 $ 239,805
Income tax (benefit) expense. Our effective income tax rate for fiscal year 2009 was 24.8% compared to 37.0% for fiscal
year 2008. No income tax benefit exists related to the $329.7 million of goodwill impairment charges recorded in fiscal year 2009.
Excluding the impact of the goodwill impairment charges, our effective income tax rate was 39.5% for fiscal year 2009.
We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. During the third quarter
of fiscal year 2009, we closed the IRS examination of fiscal years 2005 and 2006 and received net refunds of approximately $2.8
million. In addition, as a result of the completion of the audit and IRS determination regarding certain deductions taken in connection
with the Acquisition, we recorded a decrease in the gross amount of unrecognized tax benefits of $13.7 million and a decrease in
accrued interest and penalties of $2.2 million. This $15.9 million reduction in our liability for unrecognized tax benefits resulted in a
decrease to goodwill of $17.3 million and a tax benefit of $1.3 million, offset by a decrease to deferred tax liabilities of $2.7 million
during fiscal year 2009. Finally, in the fourth quarter of fiscal year 2009, we recorded a decrease to our recorded liability for
unrecognized tax benefits and a corresponding reduction to goodwill of $0.7 million as a result of the expiration of statutes of
limitation in various taxing jurisdictions.
During the fourth quarter of fiscal year 2008, we entered into a negotiated settlement with a state tax authority regarding a
state non-filing position which resulted in a decrease in our accruals for uncertain tax positions and a reduction to our gross
unrecognized tax benefits of $7.2 million and a corresponding decrease to goodwill of $3.0 million related to the resolution of
uncertainties that existed at the time of the Acquisition.
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