Neiman Marcus 2013 Annual Report Download - page 111

Table of Contents
the customer. 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. Net
marketing and advertising expenses were $109.8 million for the thirty-nine weeks ended August 2, 2014, $34.6 million for the thirteen weeks ended
November 2, 2013, $126.9 million in fiscal year 2013 and $106.5 million in fiscal year 2012.
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 $31.4 million for the thirty-
nine weeks ended August 2, 2014, $20.0 million for the thirteen weeks ended November 2, 2013, $55.0 million in fiscal year 2013 and $53.1 million in fiscal
year 2012.
Income from Credit Card Program. We maintain a proprietary credit card program through which credit is extended to customers and have a related
marketing and servicing alliance with affiliates of Capital One Financial Corporation (Capital One). Pursuant to our agreement with Capital One (the
Program Agreement), Capital One currently offers credit cards and non-card payment plans under both the "Neiman Marcus" and "Bergdorf Goodman" brand
names. Effective July 1, 2013, we amended and extended the Program Agreement to July 2020 (renewable thereafter for three-year terms), subject to early
termination provisions.
Pursuant to the Program Agreement, we receive payments from Capital One based on sales transacted on our proprietary credit cards. We may
receive additional payments based on the profitability of the portfolio as determined under the Program Agreement depending on a number of factors
including credit losses. In addition, we receive payments from Capital One for marketing and servicing activities we provide to Capital One.
We recognize income from our credit card program when earned. In the future, the income from our credit card program may:
• increase or decrease based upon the level of utilization of our proprietary credit cards by our customers;
• increase or decrease based upon the overall profitability and performance of the credit card portfolio due to the level of bad debts incurred or
changes in interest rates, among other factors;
• increase or decrease based upon future changes to our historical credit card program in response to changes in regulatory requirements or other
changes related to, among other things, the interest rates applied to unpaid balances and the assessment of late fees; and
• decrease based upon the level of future services we provide to Capital One.
Gift Cards. The gift cards sold to our customers have no stated expiration dates and, in some cases, are subject to actual and/or potential
escheatment rights in various of the jurisdictions in which we operate. Unredeemed gift cards aggregated $43.1 million at August 2, 2014 and $36.3 million
at August 3, 2013.
We recognized gift card breakage of $1.3 million for the thirty-nine weeks ended August 2, 2014, $0.3 million for the thirteen weeks ended
November 2, 2013, $1.9 million in fiscal year 2013 and $2.5 million in fiscal year 2012 as a component of revenues.
Loyalty Program. We maintain a customer loyalty program in which customers earn points for qualifying purchases. Upon reaching specified
levels, points are redeemed for awards, primarily gift cards. The estimates of the costs associated with the loyalty program require us to make assumptions
related to customer purchasing levels and redemption rates. At the time the qualifying sales giving rise to the loyalty program points are made, we defer the
portion of the revenues on the qualifying sales transactions equal to the estimated retail value of the gift cards to be redeemed upon conversion of the earned
points to gift cards. We record the deferral of revenues related to gift card awards under our loyalty program as a reduction of revenues.
Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. We are routinely under audit by federal, state or local authorities in the area of income
taxes. We regularly evaluate the likelihood of realization of tax benefits derived from positions we have taken in various federal and state filings after
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