Neiman Marcus 2005 Annual Report Download - page 31

We also receive allowances from certain merchandise vendors in conjunction with compensation programs for employees who
sell the vendor's merchandise. These allowances are netted against the related compensation expense that we incur. Amounts received
from vendors related to compensation programs were $59.5 million in fiscal year 2006 (including $10.1 million for the Predecessor prior
to the Acquisition), $53.2 million in fiscal year 2005 and $46.3 million in fiscal year 2004.
Changes in our selling, general and administrative expenses are affected primarily by the following factors:
• changes in the number of sales associates primarily due to expansion of existing stores and new store openings, including
increased health care and related benefits expenses;
• changes in expenses incurred in connection with our advertising and marketing programs; and
• changes in expenses related to insurance and long-term benefits due to general economic conditions such as rising health
care costs.
Income from credit card operations. Prior to the Credit Card Sale on July 7, 2005, our credit card operations generated finance
charge income, net of credit losses, which we recognized as income when earned. As a part of the Credit Card Sale, we entered into a
long-term marketing and servicing alliance with HSBC. Under the terms of this alliance, HSBC offers credit card and non-card payment
plans bearing our brands and we receive ongoing payments from HSBC based on net credit card sales and compensation for marketing
and servicing activities (HSBC Program Income). We recognize HSBC Program Income when earned. Prior to fiscal year 2006, we
presented income from credit card operations as a reduction of selling, general and administrative expenses. We now present this income
as a separate line item on our statements of earnings and have reclassified prior periods to conform to this presentation.
As a percentage of revenues, the HSBC Program Income is lower than the net finance charge income we earned prior to the
Credit Card Sale. However, the resulting decrease in income from credit card operations is mitigated, in part, by 1) decreases in SG&A
expenses we incur due to the transfer of certain servicing functions to HSBC after the sale, 2) decreases in our capital investments related
to the servicing of the credit card portfolio and 3) decreases in carrying costs related to our previous funding of the seasonal working
capital requirements of the credit card portfolio. In tandem with HSBC, we have initiated various changes in our credit card program to
alter the credit terms available to our cardholders and to enhance the earnings of the portfolio. These changes have increased the level of
HSBC Program Income earned by the Company.
In the future, the HSBC Program Income may be:
• decreased based upon the level of future services we provide to HSBC; and
• increased based upon other changes to our historical credit card program related to, among other things, the interest rates
applied to unpaid balances and the assessment of late fees.
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