Neiman Marcus 2009 Annual Report Download - page 106

Table of Contents
merchandise returns are made in less than 30 days after the sales transaction, we believe the risk that differences between our
estimated and actual returns will have a material impact on our consolidated financial statements is minimal.
Buying and Occupancy Costs. Our buying costs consist primarily of salaries and expenses incurred by our merchandising
and buying operations. Occupancy costs primarily include rent, property taxes and operating costs of our retail, distribution and
support facilities and exclude depreciation expense.
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 $61.1 million in fiscal year 2010, $65.8 million in fiscal year 2009 and $71.6
million in fiscal year 2008.
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 three to six months. We expense the costs incurred to produce the photographic content on our websites, as well as website
design and web marketing costs, as incurred.
Deferred catalog costs included in other current assets in the consolidated balance sheets were $4.1 million as of July 31,
2010 and $4.0 million as of August 1, 2009. Net advertising expenses were $77.4 million in fiscal year 2010, $81.1 million in fiscal
year 2009 and $102.8 million in fiscal year 2008.
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. Advertising
allowances fluctuate based on the level of advertising expenses incurred and are recorded as a reduction of our advertising costs when
earned. Advertising allowances aggregated approximately $46.2 million in fiscal year 2010, $65.7 million in fiscal year 2009 and
$75.7 million in fiscal year 2008.
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 $2.7 million in fiscal year 2010, $5.1 million
in fiscal year 2009 and $7.7 million in fiscal year 2008.
Income from credit card program, net. Pursuant to a long-term marketing and servicing alliance with HSBC, HSBC offers
credit card and non-card payment plans bearing our brands and we receive 1) ongoing payments from HSBC based on net credit card
sales and 2) compensation for marketing and servicing activities (HSBC Program Income). The HSBC Program Income is subject to
adjustments, both increases and decreases, based upon the overall profitability and performance of the credit card portfolio. We
recognize HSBC Program Income when earned. In the future, the HSBC Program Income may be:
• increased or decreased based upon the level of utilization of our proprietary credit cards by our customers;
• increased or decreased based upon future changes to our historical credit card program related to, among other things,
the interest rates applied to unpaid balances, the assessment of late fees and the level of usage of promotional no-interest
credit programs;
• decreased based upon the level of future services we provide to HSBC; and
• increased or decreased based upon the overall profitability and performance of the credit card portfolio.
Our original program agreement with HSBC was scheduled to expire in July 2010. We have subsequently entered into an
agreement with HSBC to extend the program to July 2015 (renewable thereafter for three-year terms). We refer to the agreement with
HSBC, including as extended, as the Program Agreement.
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