Neiman Marcus 2013 Annual Report Download - page 42

Table of Contents
Corporate expenses, which are included in SG&A expenses, were $56.0 million in fiscal year 2014 compared to $46.7 million in fiscal year 2013.
The increase in corporate expenses relates primarily to 1) favorable adjustments recorded in fiscal year 2013 related to our long-term incentive compensation
plans and 2) a higher level of spending in the current year related to the continued investment in and expansion of our omni-channel capabilities.
Corporate depreciation/amortization charges, which are included in depreciation and amortization expenses, represent 1) the depreciation on the
step-up in the carrying values of our property and equipment recorded in connection with purchase accounting and 2) the amortization of finite-lived
intangible assets, primarily customer lists and favorable lease commitments, established in connection with purchase accounting. The increase in these
charges from $52.9 million in fiscal year 2013 to $170.9 million in fiscal year 2014, as well as the $129.6 million amortization of inventory step-up recorded
as a component of COGS in fiscal year 2014, are attributable to fair value adjustments to our assets recorded in connection with the purchase price allocation
to reflect the Acquisition.
Interest expense. Net interest expense was $270.1 million, or 5.6% of revenues, in fiscal year 2014 and $169.0 million, or 3.6% of revenues, for the
prior fiscal year, reflecting the higher level of indebtedness incurred in connection with the Acquisition. The significant components of interest expense are
as follows:
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Asset-Based Revolving Credit Facility
$ 386
$ —
Senior Secured Term Loan Facility
106,505
—
Cash Pay Notes
60,329
—
PIK Toggle Notes
41,240
—
2028 Debentures
8,906
9,004
Former Asset-Based Revolving Credit Facility
477
1,453
Former Senior Secured Term Loan Facility
22,521
108,489
Senior Subordinated Notes
—
19,031
Amortization of debt issue costs
19,583
8,404
Other, net
2,995
7,214
Capitalized interest
(770)
(237)
$ 262,172
$ 153,358
Loss on debt extinguishment
7,882
15,597
Interest expense, net
$ 270,054
$ 168,955
In connection with the Refinancing Amendment with respect to the Senior Secured Term Loan Facility in fiscal year 2014, we incurred a loss on
debt extinguishment of $7.9 million, which primarily consisted of the write-off of debt issuance costs incurred in connection with the initial issuance of the
facility allocable to lenders that no longer participate in the facility subsequent to the refinancing.
In connection with the retirement of the Senior Subordinated Notes in fiscal year 2013, we incurred a loss on debt extinguishment of $15.6 million,
which included 1) costs of $10.7 million related to the tender for and redemption of the Senior Subordinated Notes and 2) the write-off of $4.9 million of debt
issuance costs related to the initial issuance of the Senior Subordinated Notes.
Income tax expense. Our effective income tax rate for fiscal year 2014 was 35.8% compared to 41.0% for fiscal year 2013. Our effective income tax
rates exceeded the federal statutory rate primarily due to state income taxes and the non-deductible portion of transaction costs incurred in connection with
the Acquisition in fiscal year 2014.
We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. During the second quarter of fiscal year 2013, the
Internal Revenue Service (IRS) began its audit of our fiscal year 2010 and 2011 federal income tax returns and closed its audit of our fiscal year 2008 and
2009 income tax returns. During the second quarter of fiscal year 2014, the IRS began its audit of our fiscal year 2012 federal income tax return. With respect
to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for fiscal years before
2009. We believe our recorded tax liabilities as of August 2, 2014 are sufficient to cover any potential assessments to be made by the IRS or other taxing
authorities upon the completion of their examinations and we will continue to review our recorded tax liabilities for potential audit assessments based upon
subsequent events, new information and future circumstances. We believe it is reasonably possible that additional adjustments in the amounts of our
unrecognized tax benefits could occur within
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