Neiman Marcus 2005 Annual Report Download - page 98

NOTE 4. DISPOSITION OF GURWITCH PRODUCTS, L.L.C.
On July 27, 2006, we sold our former majority interest in Gurwitch Products, L.L.C. to Alticor Inc., for pretax net cash
proceeds of approximately $40.8 million (Gurwitch Disposition). Gurwitch Products, L.L.C. designs and markets Laura Mercier
cosmetics line and had annual revenues of approximately $71.6 million in fiscal year 2006. At July 27, 2006, Gurwitch Products, L.L.C.
had 1) net tangible assets, primarily accounts receivable, inventory and property and equipment of $31.6 million, 2) net intangible assets
and goodwill of $40.7 million and 3) total liabilities of $31.5 million. In addition, we recorded tax expense of $13.3 million, payable by the
Company, on the excess of the tax over book gain realized in connection with the Gurwitch Disposition. The Company's consolidated financial statements,
accompanying notes and other information provided in this Annual Report on Form 10-K reflect Gurwitch Products, L.L.C. as a discontinued operation for all
periods presented.
NOTE 5. TRANSACTIONS WITH SPONSORS
In connection with the Transactions, we entered into a management services agreement with affiliates of the Sponsors pursuant
to which affiliates of one of the Sponsors received on the closing date a transaction fee of $25 million in cash. Affiliates of the other
Sponsor waived any cash transaction fee in connection with the Transactions.
In addition, pursuant to such agreement, and in exchange for on-going consulting and management advisory services that will be
provided to us by the Sponsors and their affiliates, affiliates of the Sponsors will receive an aggregate annual management fee equal to the
lesser of (i) 0.25% of our consolidated annual revenues or (ii) $10 million. Affiliates of the Sponsors will also receive reimbursement for
out-of-pocket expenses incurred by them or their affiliates in connection with services provided pursuant to the agreement. These
management fees are payable quarterly in arrears. During the forty-three weeks ended July 29, 2006, we recorded management fees of
$8.7 million, which are included in selling, general and administrative expenses in the consolidated statement of earnings.
The management services agreement also provides that affiliates of the Sponsors may receive future fees in connection with
certain subsequent financing and acquisition or disposition transactions. The management services agreement includes customary
exculpation and indemnification provisions in favor of the Sponsors and their affiliates.
NOTE 6. CREDIT CARD RECEIVABLES
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 card accounts and related assets, as well as the outstanding balances
associated with such accounts (Credit Card Sale). The total purchase price was approximately $647 million, consisting of $534 million in
net cash proceeds and the assumption of approximately $113 million of our outstanding debt under our previous revolving credit card
securitization facility (Credit Card Facility). We recognized a gain of $6.2 million in connection with the sale of our credit card portfolio
to HSBC in the fourth quarter of fiscal year 2005.
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
related to credit card sales and compensation for marketing and servicing activities (HSBC Program Income). In addition, we continue to
handle certain key customer service functions. 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 either decreased based upon the level
of future services we provide to HSBC or 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.
Prior to the Credit Card Sale. Prior to the Credit Card Sale on July 7, 2005, we transferred substantially all of our credit card
receivables to a wholly-owned subsidiary, Neiman Marcus Funding Corporation, which in turn sold such receivables to the Neiman
Marcus Credit Card Master Trust (Trust) pursuant to a revolving credit card securitization program (the Credit Card Facility). At the
inception of the Credit Card Facility in September 2000, the Trust issued certificates representing undivided interests in the credit card
receivables to both third-party investors (Sold Interests) and to the Company (Retained Interests). From the inception of the Credit Card
Facility until December 2003, our transfers and sales of credit card receivables pursuant to the terms of the Credit Card Facility were
accounted for as sales (Off-Balance Sheet Accounting). As a result, $225.0 million of credit card receivables were removed from our
balance sheet at the inception of the Credit Card Facility and
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