Neiman Marcus 2006 Annual Report Download - page 112

Selling, General and Administrative Expenses (excluding depreciation). Selling, general and administrative expenses are comprised
principally of the costs related to employee compensation and benefits in the selling and administrative support areas, preopening
expenses, advertising and catalog costs and insurance expense.
We receive allowances from certain merchandise vendors in conjunction with compensation programs for employees who sell
the vendors' merchandise. These allowances are netted against the related compensation expense that we incur. Amounts received from
vendors related to compensation programs were $65.4 million in fiscal year 2007, $49.4 million for the forty-three weeks ended July 29,
2006, $10.1 million for the nine weeks ended October 1, 2005 and $53.2 million in fiscal year 2005.
We incur costs to advertise and promote the merchandise assortment offered by both Specialty Retail stores and Direct
Marketing. Advertising costs incurred by our Specialty Retail stores consist primarily of print media costs related to promotional
materials mailed to our customers. These costs are expensed at the time of mailing to the customer. Advertising costs incurred by Direct
Marketing relate to the production, printing and distribution of our print catalogs and the production of the photographic content on our
websites. We amortize the costs of print catalogs during the periods we expect to generate revenues from such catalogs, generally six
months. We expense the costs incurred to produce the photographic content on our websites at the time the images are first loaded onto
the website. We expense website design costs as incurred.
Deferred catalog costs included in other current assets in the consolidated balance sheets were $7.1 million as of July 28, 2007
and $7.0 million as of July 29, 2006. Net advertising expenses were $100.2 million in fiscal year 2007, $95.3 million for the forty-three
weeks ended July 29, 2006, $13.1 million for the nine weeks ended October 1, 2005 and $110.8 million in fiscal year 2005.
Consistent with industry practice, we receive advertising allowances from certain of our merchandise vendors. Substantially all
the advertising allowances we receive represent reimbursements of direct, specific and incremental costs that we incur to promote the
vendor's merchandise in connection with our various advertising programs, primarily catalogs and other print media. As a result, these
allowances are recorded as a reduction of our advertising costs when earned. Vendor allowances earned and recorded as a reduction to
selling, general and administrative expenses aggregated approximately $63.4 million in fiscal year 2007, $43.1 million for the forty-three
weeks ended July 29, 2006, $18.6 million for nine weeks ended October 1, 2005 and $57.5 million in fiscal year 2005.
Preopening expenses primarily consist of payroll and related media costs incurred in connection with store openings and major
renovations and are expensed when incurred. We incurred preopening expenses of $8.8 million in fiscal year 2007, $7.4 million for the
forty-three weeks ended July 29, 2006, $3.9 million for the nine weeks ended October 1, 2005 and $5.9 million in fiscal year 2005.
Income from credit card program. We sold our proprietary credit card accounts to HSBC on July 7, 2005 (Credit Card Sale).
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
credit card sales and compensation for marketing and servicing activities (HSBC Program Income). We recognize HSBC Program
Income when earned.
Prior to the Credit Card Sale, we extended credit to certain of our customers pursuant to our proprietary retail credit card
program. Our credit card operations generated finance charge income, net of credit losses, which was recognized as income when earned
and we maintained reserves for potential credit losses. We evaluated the collectibility of our accounts receivable based on a combination
of factors, including analysis of historical trends, aging of accounts receivable, write-off experience and expectations of future
performance.
Gift Cards. We sell gift cards at our Specialty Retail stores and through our Direct Marketing operation. Unredeemed gift cards
aggregated $33.1 million at July 28, 2007 and $30.1 million at July 29, 2006. The gift cards sold to our customers have no stated
expiration dates and are subject to actual and/or potential escheatment rights in various of the jurisdictions in which we operate. In the
fourth quarter of fiscal year 2007, we recorded $6.0 million of other income for the breakage on gift cards we previously sold and issued.
The income was recognized based upon our analysis of the aging of these gift cards, our determination that the likelihood of future
redemption is remote and our determination that such balances are not subject to escheatment laws applicable to our operations. Prior to
the fourth quarter of fiscal year 2007, we had not recognized breakage on gift cards pending, among other things, our final determination
of the applicable escheatment laws applicable to our operations. We will evaluate gift card breakage in the future on an ongoing basis.
We do not believe gift card breakage will have a material impact on our future operations.
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