Neiman Marcus 2008 Annual Report Download - page 39

Table of Contents
These decreases in SG&A expenses, as a percentage of revenues, were partially offset by:
• higher benefits expenses of approximately 0.2% of revenues reflecting increases in long-term benefits; and
• a higher level of advertising and promotions costs of approximately 0.1% of revenues incurred by our Specialty Retail stores
during fiscal year 2008 in connection with 1) the celebration of the 100th anniversary of Neiman Marcus in October 2007 and
2) promotional events and activities conducted to facilitate the sell-through of on-hand inventories held in excess of sales
trends.
Income from credit card program. We earned HSBC Program Income of $65.7 million, or 1.4% of revenues, in fiscal year
2008 compared to $65.7 million, or 1.5% of revenues, in fiscal year 2007.
Depreciation expense. Depreciation expense was $148.4 million, or 3.2% of revenues, in fiscal year 2008 compared to $136.5
million, or 3.1% of revenues, in fiscal year 2007.
Amortization expense. Amortization of intangible assets (customer lists and favorable lease commitments) aggregated $72.2
million, or 1.6% of revenues, in fiscal year 2008 compared to $72.3 million, or 1.6% of revenues, in fiscal year 2007.
Impairment charges. In the fourth quarter of fiscal year 2008, we recorded a $31.3 million, or 0.7% of revenues, pretax
impairment charge related to the writedown to fair value of the Horchow tradename based upon lower revenues and royalty rate
expectations with respect to the Horchow brand in light of current operating performance and future operating expectations.
In the fourth quarter of fiscal year 2007, we recorded a $11.5 million, or 0.3% of revenues, pretax impairment charge related
to the writedown to fair value of the Horchow tradename.
Other income. In the first quarter of fiscal year 2008, we recorded a pension curtailment gain of $32.5 million, or 0.7% of
revenues, as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007.
In fiscal year 2007, other income of $10.2 million was comprised of income related to proceeds received from an investment
and gift card breakage. In the first quarter of fiscal year 2007, we received consideration aggregating $4.2 million, or 0.1% of
revenues, in connection with the merger of Wedding Channel.com, in which we held a minority interest, and The Knot. We accounted
for our investment in Wedding Channel.com under the cost method. In prior years, we had previously reduced our carrying value of
this investment to zero.
In the fourth quarter of fiscal year 2007, we recorded $6.0 million, or 0.1% of revenues, 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 was remote and our determination that such balances were 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. Gift card
breakage during fiscal year 2008 was not significant.
Segment operating earnings. Segment operating earnings for our Specialty Retail stores and Direct Marketing segments do
not reflect the impact of adjustments to revalue our assets and liabilities to estimated fair value at the Acquisition date. The
reconciliation of segment operating earnings to total operating earnings is as follows:
Specialty Retail stores $ 476.7
Direct Marketing 117.7
Amortization of intangible assets and favorable lease commitments (72.2)
Corporate expenses and other (55.8)
Total operating earnings $ 466.4
Operating earnings for our Specialty Retail stores segment were $476.7 million, or 12.4% of Specialty Retail stores revenues,
for fiscal year ended August 2, 2008 compared to $490.6 million, or 13.4% of Specialty Retail stores revenues, for the prior fiscal
year. The decrease in operating margin as a percentage of revenues was primarily due to:
• lower than anticipated demand resulting in a lower level of full-price sales and higher markdowns; and
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