Neiman Marcus 2010 Annual Report Download - page 110

Table of Contents
Income from credit card program. Pursuant to a long-term marketing and servicing alliance with HSBC, HSBC offers credit
card and non-card payment plans bearing our brands and we receive income from HSBC (Program Income) consisting of 1) ongoing
payments based on net credit card sales and 2) compensation for marketing and servicing activities. The Program Income is subject to
annual adjustments, both increases and decreases, based upon the overall annual profitability and performance of the credit card
portfolio. We recognize Program Income when earned. In the future, the Program Income may:
• increase or decrease based upon the level of utilization of our proprietary credit cards by our customers;
• increase or decrease based upon future changes to our historical credit card program in response to changes in regulatory
requirements or other changes related to, among other things, the interest rates applied to unpaid balances and the
assessment of late fees;
• decrease based upon the level of future services we provide to HSBC; and
• increase or decrease based upon the overall profitability and performance of the credit card portfolio.
Our original program agreement with HSBC expired in July 2010. Effective July 2010, we amended and extended our
agreement with HSBC to July 2015 (renewable thereafter for three-year terms). We refer to the agreement with HSBC, including the
extension, as the Program Agreement.
Gift Cards. The gift cards sold to our customers have no stated expiration dates and, in some cases, are subject to actual and/
or potential escheatment rights in various of the jurisdictions in which we operate. Unredeemed gift cards aggregated $39.9 million at
July 30, 2011 and $32.0 million at July 31, 2010.
Gift card breakage recognized during fiscal years 2011 and 2010 was not significant.
Loyalty Programs. We maintain customer loyalty programs in which customers accumulate points for qualifying purchases.
Upon reaching specified levels, points are redeemed for prizes, primarily gift cards. The estimates of the costs associated with the
loyalty programs require us to make assumptions related to customer purchasing levels and redemption rates. 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 estimated retail value of the gift cards to be redeemed 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.
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.
Recent Accounting Pronouncements. In May 2011, the Financial Accounting Standards Board (FASB) issued guidance
related to certain fair value measurements and disclosures, which is effective for us as of the third quarter of fiscal year 2012. In
June 2011, the FASB issued guidance to improve the presentation and prominence of comprehensive income and its components as a
result of convergence with International Financial Reporting Standards, which is effective for us as of the first quarter of fiscal year
2013. We do not expect that the implementation of the requirements of either of these standards will have a material impact on our
consolidated financial statements.
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