Neiman Marcus 2009 Annual Report Download - page 33

Table of Contents
incur. Amounts received from vendors related to compensation programs were $61.1 million, or 1.7% of revenues, in fiscal year
2010, $65.8 million, or 1.8% of revenues, in fiscal year 2009 and $71.6 million, or 1.6% of revenues, in fiscal year 2008.
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 new store openings and expansion of existing stores,
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 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). Based upon current market
conditions and the terms of the current Program Agreement, we believe the future income earned by the Company will be lower than
the income earned pursuant to the original Program Agreement and that a higher portion of such future income will be based upon the
future profitability and performance of the credit card portfolio.
Seasonality
We conduct our selling activities in two primary selling seasons—Fall and Spring. The Fall season is comprised of our first
and second fiscal quarters and the Spring season is comprised of our third and fourth fiscal quarters.
Our first fiscal quarter is generally characterized by a higher level of full-price sales with a focus on the initial introduction of
Fall season fashions. Aggressive in-store marketing activities designed to stimulate customer buying, a lower level of markdowns and
higher margins are characteristic of this quarter. The second fiscal quarter is more focused on promotional activities related to the
December holiday season, the early introduction of resort season collections from certain designers and the sale of Fall season goods
on a marked down basis. As a result, margins are typically lower in the second fiscal quarter. However, due to the seasonal increase
in revenues that occurs during the holiday season, the second fiscal quarter is typically the quarter in which our revenues are the
highest and in which expenses as a percentage of revenues are the lowest. Our working capital requirements are also the greatest in
the first and second fiscal quarters as a result of higher seasonal requirements.
Similarly, the third fiscal quarter is generally characterized by a higher level of full-price sales with a focus on the initial
introduction of Spring season fashions. Aggressive in-store marketing activities designed to stimulate customer buying, a lower level
of markdowns and higher margins are again characteristic of this quarter. Revenues are generally the lowest in the fourth fiscal
quarter with a focus on promotional activities offering Spring season goods to the customer on a marked down basis, resulting in
lower margins during the quarter. Our working capital requirements are typically lower in the third and fourth fiscal quarters than in
the other quarters.
A large percentage of our merchandise assortment, particularly in the apparel, fashion accessories and shoe categories, is
ordered months in advance of the introduction of such goods. For example, women's apparel, men's apparel, shoes and handbags are
typically ordered six to nine months in advance of the products being offered for sale while jewelry and other
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