Neiman Marcus 2012 Annual Report Download - page 108

Table of Contents
One). Pursuant to an agreement with Capital One, which we refer to as the Program Agreement, Capital One currently offers credit cards and non-card
payment plans.
Pursuant to the Program Agreement, we receive payments (Program Income) from Capital One based on sales transacted on our proprietary credit
cards. 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 the overall profitability and performance of the credit card portfolio due to the level of bad debts incurred or
changes in interest rates, among other factors;
· 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; and
· decrease based upon the level of future services we provide to Capital One.
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 $36.3 million at August 3, 2013 and $41.8 million at
July 28, 2012.
We recognized gift card breakage of $1.9 million in fiscal year 2013, $2.5 million in fiscal year 2012 and $1.6 million in fiscal year 2011 as a
component of revenues.
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 the financial reporting and tax bases 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. If we believe it is more likely than not that our position will be sustained, we recognize the benefit
we believe is cumulatively greater than 50% likely to be realized.
Recent Accounting Pronouncements. In June 2011, the Financial Accounting Standards Board (FASB) issued guidance to improve the
presentation and prominence of comprehensive earnings and its components as a result of convergence with International Financial Reporting Standards. We
retroactively adopted this guidance during the first quarter of fiscal year 2013. The adoption of this guidance did not have a material impact on our
Consolidated Financial Statements.
In September 2011, the FASB issued guidance to reduce the complexity and costs associated with interim and annual goodwill impairment tests, by
allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value
of a reporting unit. We adopted this guidance during the first quarter of fiscal year 2013 and our annual impairment tests were performed in the fourth quarter
of fiscal year 2013. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.
In July 2012, the FASB issued guidance to reduce the complexity and costs associated with interim and annual indefinite-lived intangible assets
impairment tests, by allowing an entity the option to make a qualitative evaluation about the likelihood of impairment to determine whether it should calculate
the fair value of the indefinite-lived intangible assets. This guidance is effective for annual and interim impairment tests performed for fiscal years beginning
after September 15, 2012, which is effective for us as of the first quarter of fiscal year 2014. We do not expect that the implementation of this standard will
have a material impact on our Consolidated Financial Statements.
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