Neiman Marcus 2004 Annual Report Download - page 90

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. We
receive certain allowances to reimburse us for markdowns taken and/or to support the gross margins earned in connection with the sales of the vendor's
merchandise. We recognize these allowances as an increase to gross margin when the allowances are earned and approved by the vendor. Other allowances
we receive represent reductions to the amounts paid to acquire the merchandise. We recognize these allowances as a reduction in the cost of the acquired
merchandise resulting in an increase to gross margin at the time the goods are sold. The amounts of vendor reimbursements we received did not have a
significant impact on the year-over-year change in gross margin during 2005, 2004 or 2003. Vendor allowances received were $83.5 million in 2005,
$79.3 million in 2004 and $83.4 million in 2003.
We obtain certain merchandise, primarily precious jewelry, on a consignment basis in order to expand our product assortment. Consignment merchandise
with a cost basis of approximately $226.8 million at July 30, 2005 and approximately $220.4 million at July 31, 2004 is not reflected in our consolidated
balance sheets.
Long-lived Assets. Property and equipment are stated at historical cost less accumulated depreciation. For financial reporting purposes, we compute
depreciation principally using the 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 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 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.
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 of future store generated cash flows.
The underlying estimates of cash flows include estimates for future revenues, gross margin rates and store expenses. We base these estimates 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.
Recoverability of goodwill and intangible assets is assessed annually and upon the occurrence of certain events. The recoverability assessment requires
us to make judgments and estimates regarding fair values. 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.
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