Neiman Marcus 2007 Annual Report Download - page 48

Table of Contents
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. No store impairment charges were recorded in fiscal years 2008, 2007 or 2006.
Goodwill and Intangible Assets. Goodwill and indefinite-lived intangible assets, such as tradenames, are not subject to
amortization. Rather, recoverability of goodwill and indefinite-lived 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. In addition, the fair values of our tradenames are based, in part, on our estimates of royalties which could be derived from
the licensing of such tradenames to third parties.
To the extent that our estimates are not realized, future assessments could result in impairment charges. In the fourth quarters
of fiscal years 2008 and 2007, we recorded $31.3 million and $11.5 million pretax impairment charges related to the writedown to fair
value of the net carrying 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.
Customer lists are amortized using the straight-line method over their estimated useful lives, ranging from 5 to 24 years
(weighted average life of 13 years). Favorable lease commitments are amortized straight-line over the remaining lives of the leases,
ranging from 6 to 49 years (weighted average life of 33 years).
Financial Instruments. NMG uses derivative financial instruments to help manage our interest rate risk. Effective
December 6, 2005, NMG entered into floating to fixed interest rate swap agreements for an aggregate notional amount of
$1,000.0 million to limit our exposure to interest rate increases related to a portion of our floating rate indebtedness. The interest rate
swap agreements terminate after five years. At August 2, 2008, the fair value of NMG's interest rate swap agreements was a loss of
approximately $34.4 million, which amount is included in other long-term liabilities.
As of the effective date, NMG designated the interest rate swaps as cash flow hedges. As a result, changes in the fair value of
NMG's swaps are recorded subsequent to the effective date as a component of accumulated other comprehensive (loss) income.
As a result of the swap agreements, NMG's effective fixed interest rates as to the $1,000.0 million in floating rate
indebtedness will currently range from 6.524% to 6.733% per quarter through 2010 and result in an average fixed rate of 6.608%.
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 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 and web advertising 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 90 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 loyalty programs for gift cards. 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 estimate of the retail
value of the gift cards to be issued upon conversion of the points to gift cards. We record the deferral of revenues related to gift card
awards under our loyalty programs as a reduction of revenues. In addition, we charge the cost of all other awards under our loyalty
programs to cost of goods sold.
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