Neiman Marcus 2010 Annual Report Download - page 50

Table of Contents
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 6 of the Notes to Consolidated Financial Statements in Item 15.
In connection with the Acquisition, NMG entered into $2,575.0 million of floating rate debt obligations, of which $2,125.0
million was outstanding at the Acquisition Date and $2,060.0 million was outstanding under its Senior Secured Term Loan Facility at
July 30, 2011. Borrowings pursuant to the Senior Secured Term Loan Facility bear interest at floating rates, primarily based on
LIBOR, but in no event less than a floor rate of 1.25%, plus applicable margins. In addition, as of July 30, 2011, 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 hedged a portion of our contractual floating rate interest commitments through the expiration of the agreements in
December 2010.
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 expired
in December 2010. The interest rate cap agreements commenced in December 2010 and will 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 30, 2011, three-month LIBOR was
0.25%. As a consequence of the LIBOR floor rate described above, we estimate that a 1% increase in LIBOR would not significantly
impact our annual interest requirements during fiscal year 2012.
In August 2011, NMG entered into additional interest rate cap agreements for an aggregate notional amount of $1,000.0
million in order to hedge the variability of our cash flows related to a portion of our floating rate indebtedness once the current interest
rate cap agreements expire in December 2012. The interest rate cap agreements cap LIBOR at 2.50% from December 2012 through
December 2014 with respect to the $1,000.0 million notional amount of such agreements.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and supplementary data are included as pages F-1 through
F-41 at the end of this Annual Report on Form 10-K:
Index
Page
Number
Management's Report on Internal Control over Financial Reporting F-2
Reports of Independent Registered Public Accounting Firm F-3
Consolidated Balance Sheets F-5
Consolidated Statements of Operations F-6
Consolidated Statements of Cash Flows F-7
Consolidated Statements of Shareholders' Equity F-8
Notes to Consolidated Financial Statements F-9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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