Neiman Marcus 2008 Annual Report Download - page 118

Table of Contents
event the Sponsors cause the sale of shares of the Company to an unaffiliated entity, the exercise price will cease to accrete at the time
of the sale with respect to a pro rata portion of the accreting options.
All grants of stock options have an exercise price equal to the fair market value of our common stock on the date of grant.
Because we are privately held and there is no public market for our common stock, the fair market value of our common stock is
determined by our Compensation Committee at the time option grants are awarded. In determining the fair value of our common
stock, the Compensation Committee considers such factors as the Company's actual and projected financial results, the principal
amount of the Company's indebtedness, valuations of the Company performed by third parties and other factors it believes are
material to the valuation process.
We use the Black-Scholes option-pricing model to determine the fair value of our options as of the date of grant in
accordance with the provisions of SFAS 123(R). A summary of fiscal years 2008 and 2007 grants and fair value assumptions is as
follows:
Fiscal Year 2008
Grants
Fiscal Year 2007
Grants
Fair Value
Options
Accreting
Exercise
Price
Options
Fair Value
Options
Accreting
Exercise
Price
Options
Options Granted 130.0 130.0 1,248.0 1,248.0
Exercise Price at August 1,
2009 $ 2,684 $ 2,952 $ 1,942 $ 2,350
Term 5 5 5 5
Volatility 30.0% 30.0% 30.0% 30.0%
Risk-Free Rate 3.5% 3.5% 4.5% 4.5%
Dividend Yield — — — —
Fair Value $ 882 $ 433 $ 676 $ 341
Expected volatility is based on a combination of NMG's historical volatility adjusted for our leverage and estimates of
implied volatility of our peer group.
We recognize compensation expense for stock options straight-line over the vesting period. We recognized non-cash stock
compensation expense of $5.8 million in fiscal year 2009, $6.1 million in fiscal year 2008 and $5.9 million in fiscal year 2007, which
is included in selling, general and administrative expenses. At August 1, 2009, unearned non-cash stock-based compensation that we
expect to recognize as expense through fiscal year 2014 aggregates approximately $6.1 million.
NOTE 13. INCOME TAXES
The significant components of income tax (benefit) expense are as follows:
Fiscal year ended
(in thousands)
August 1,
2009
August 2,
2008
July 28,
2007
Current:
Federal $ (66,168 ) $ 108,467 $ 127,754
State (389 )19,976 15,063
(66,557 )128,443 142,817
Deferred:
Federal (132,442 ) (37,693 ) (53,763 )
State (21,446 )(6,934 )(6,759 )
(153,888 )(44,627 )(60,522 )
Income tax (benefit) expense $ (220,445 )$ 83,816 $ 82,295
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