Neiman Marcus 2009 Annual Report Download - page 102

Table of Contents
NEIMAN MARCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On April 22, 2005, Neiman Marcus, Inc. (the Company), formerly Newton Acquisition, Inc., and its wholly-owned
subsidiary, Newton Acquisition Merger Sub, Inc. (Merger Sub), were formed and incorporated in the state of Delaware. The Company
is a subsidiary of Newton Holding, LLC (Holding). Holding, the Company and Merger Sub were formed by investment funds
affiliated with TPG Capital (formerly Texas Pacific Group) and Warburg Pincus LLC (collectively, the Sponsors) for the purpose of
acquiring The Neiman Marcus Group, Inc. (NMG).
The acquisition of NMG was completed on October 6, 2005 through the merger of Merger Sub with and into NMG, with
NMG being the surviving entity (the Acquisition). Subsequent to the Acquisition, NMG is a subsidiary of the Company, which is
controlled by Holding.
Our fiscal year ends on the Saturday closest to July 31. Like many other retailers, we follow a 4-5-4 reporting calendar,
which resulted in an extra week in fiscal year 2008 (the fifty-third week). All references to fiscal year 2010 relate to the fifty-two
weeks ended July 31, 2010, all references to fiscal year 2009 relate to the fifty-two weeks ended August 1, 2009 and all references to
fiscal year 2008 relate to the fifty-three weeks ended August 2, 2008.
The accompanying consolidated financial statements include the amounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Certain prior period balances have been reclassified to conform to the current period presentation.
ESTIMATES AND CRITICAL ACCOUNTING POLICIES
We make estimates and assumptions about future events in preparing our financial statements in conformity with generally
accepted accounting principles. These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses and
the disclosure of gain and loss contingencies at the date of the consolidated financial statements.
While we believe that our past estimates and assumptions have been materially accurate, the amounts currently estimated are
subject to change if we make different assumptions as to the outcome of future events. We evaluate our estimates and judgments on an
ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe to be
reasonable under the circumstances. We make adjustments to our assumptions and judgments when facts and circumstances dictate.
Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in
preparing the accompanying consolidated financial statements.
Cash and Cash Equivalents. Cash and cash equivalents primarily consist of cash on hand in our stores, deposits with banks
and overnight investments with banks and financial institutions. Cash equivalents are stated at cost, which approximates fair value.
Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts
payable includes outstanding checks not yet presented for payment of $35.8 million at July 31, 2010 and $30.0 million at August 1,
2009.
Merchandise Inventories and Cost Of Goods Sold. We utilize the retail method of accounting. Under the retail inventory
method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio,
for various groupings of similar items, to the retail value of our inventories. The cost of the inventory reflected on the consolidated
balance sheets is decreased by charges to cost of goods sold at the time the retail value of the inventory is lowered through the use of
markdowns. Earnings are negatively impacted when merchandise is marked down. As we adjust the retail value of our inventories
through the use of markdowns to reflect market conditions, our merchandise inventories are stated at the lower of cost or market.
The areas requiring significant management judgment related to the valuation of our inventories include 1) setting the
original retail value for the merchandise held for sale, 2) recognizing merchandise for which the customer's perception of value has
declined and appropriately marking the retail value of the merchandise down to the perceived value and 3) estimating the
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