Neiman Marcus 2004 Annual Report Download - page 47

straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over five to 30 years while fixtures and
equipment are depreciated over three to 15 years. Leasehold improvements are amortized over the shorter of the asset life or the lease term. Costs incurred for
the development of internal computer software are capitalized and amortized using the straight-line method over three to ten years.
To the extent that we remodel or otherwise replace or dispose of property and equipment prior to the end of the assigned depreciable lives, we could
realize a loss or gain on the disposition. To the extent assets continue to be used beyond their assigned depreciable lives, no depreciation expense is incurred.
We reassess the depreciable lives of our long-lived assets in an effort to reduce the risk of significant losses or gains at disposition and the utilization of assets
with no depreciation charges. The reassessment of depreciable lives involves utilizing historical remodel and disposition activity and forward-looking capital
expenditure plans. In 2005, we made adjustments to rent and depreciation aggregating approximately $5.0 million, or 0.1% of revenues, made in the second
and third quarters of 2005 in connection with our review of the amortization periods assigned to our leased property and equipment and deferred real estate
credits. Our reassessments of depreciable lives had no material impact on our operating results in 2004 or 2003.
We assess the recoverability of the carrying values of our store assets annually and upon the occurrence of certain events (e.g., opening a new store near
an existing store or announcing plans for a store closing). The recoverability assessment requires judgment and estimates for future store generated cash
flows. The underlying estimates of cash flows include estimates of future revenues, gross margin rates and store expenses and are based upon the stores' past
and expected future performance. New stores may require two to five years to develop a customer base necessary to generate the cash flows of our more
mature stores. To the extent our estimates for revenue growth and gross margin improvement are not realized, future annual assessments could result in
impairment charges. No store impairment charges were recorded in either 2005, 2004 or 2003.
We assess the recoverability of goodwill and intangible assets annually and upon the occurrence of certain events. The recoverability assessment requires
us to make judgments and estimates regarding the fair values. The fair values are determined using estimated future cash flows, including growth assumptions
for future revenues, gross margin rates and other estimates. To the extent that our estimates are not realized, future assessments could result in impairment
charges. In the fourth quarter of 2004, we recorded a $3.9 million pretax impairment charge related to the writedown to fair value of the net carrying value of
the Chef's Catalog tradename.
Advertising and Catalog Costs. 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 at the time the images are first loaded onto the website. We expense website design costs as incurred.
Loyalty Programs. We maintain customer loyalty programs in which customers accumulate points for qualifying purchases. Upon reaching certain
levels, customers may redeem their points for gifts. Generally, points earned in a given year must be redeemed no later than ninety days subsequent to the end
of the annual program period.
The estimates of the costs associated with the loyalty programs require us to make assumptions related to customer purchasing levels, redemption rates
and costs of awards to be chosen by our customers. Our customers redeem a substantial portion of the points earned in connection with our
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