Neiman Marcus 2004 Annual Report Download - page 30

revenues we generated during 2005. Included in buying and occupancy costs in 2005 are unfavorable net adjustments to depreciation and rent aggregating
approximately $5.0 million, or 0.1% of revenues, made primarily in the second and third quarters of 2005 in connection with our review of the amortization
periods assigned to our leased property and equipment and deferred real estate credits.
Selling, general and administrative expenses. Selling, general and administrative expenses were 23.7% of revenues in 2005 compared to 24.1% of
revenues in 2004.
The net decrease in SG&A expenses as a percentage of revenues in 2005 as compared to 2004 was primarily due to:
a decrease in marketing and advertising costs by approximately 0.3% as a percentage of revenues, primarily due to the elimination of
expenditures for Chef's Catalog which were higher as a percentage of revenues than the marketing and advertising costs for our other Direct
Marketing brands;
a decrease in incentive compensation by approximately 0.1% as a percentage of revenues; and
an increase in the net income generated by our credit card portfolio by approximately 0.1% as a percentage of revenues consistent with the
increase in sales made pursuant to our proprietary credit card program.
In addition, SG&A expense declined as a percentage of revenues in 2005 as compared to 2004 by approximately 0.2% due to a $7.6 million reduction in
the income generated by our credit card portfolio in 2004 related to the required amortization of the premium associated with the carrying value of the
Retained and Sold Interests during the transition from Off-Balance Sheet Accounting to Financing Accounting in 2004, as more fully described in Note 2 of
the Notes to Consolidated Financial Statements. We recorded no corresponding increase in SG&A expenses in 2005.
These decreases in SG&A expenses as a percentage of revenues were partially offset by:
costs, consisting primarily of legal and consulting fees, aggregating $6.7 million, or approximately 0.2% as a percentage of revenues, incurred in
connection with the Transactions;
an increase in costs, primarily payroll, by approximately 0.1% as a percentage of revenues incurred by Direct Marketing and the Brand
Development Companies in support of new business initiatives and the expansion of Kate Spade operations; and
an increase in employee benefit expenses, including medical and pension expenses, by approximately 0.1% as a percentage of revenues.
In addition, SG&A expense increased as a percentage of revenues in 2005 due to a $3.7 million reduction in SG&A expenses recorded in the second
quarter of 2004 for the favorable impact of conclusions of certain sales tax and unclaimed property examinations for which the agreed-on settlements were
less than the amounts we previously estimated. We recorded no corresponding reduction in SG&A expenses in 2005.
Loss on disposition of Chef's Catalog. In November 2004, we sold our Chef's Catalog direct marketing business to a private equity firm. Chef's
Catalog is a multi-channel retailer of professional-quality kitchenware with revenues of approximately $73 million in 2004. At October 30, 2004, Chef's
Catalog had net tangible assets, primarily inventory, of $12.5 million and net intangible assets of $17.2 million. We received proceeds, net of selling costs, of
$14.4 million from the sale. As the carrying value of the Chef's Catalog assets exceeded the net proceeds from the sale, we incurred a pretax loss of
$15.3 million in the first quarter of 2005 related to the disposition of Chef's Catalog.
Gain on Credit Card Sale. On July 7, 2005, HSBC Bank Nevada, National Association (HSBC) purchased our approximately three million private
label Neiman Marcus and Bergdorf Goodman credit
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