Neiman Marcus 2009 Annual Report Download - page 104

Table of Contents
Intangible Assets Subject to Amortization. Customer lists and amortizable tradenames are amortized using the straight-line
method over their estimated useful lives, ranging from 4 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). Total estimated amortization of all acquisition-related intangible assets for the next five fiscal years is currently estimated
as follows (in thousands):
2011 $ 62,548
2012 50,123
2013 47,436
2014 46,881
2015 46,881
Indefinite-Lived Intangible Assets and Goodwill. Indefinite-lived intangible assets, such as tradenames and goodwill, are
not subject to amortization. Rather, we assess the recoverability of indefinite-lived intangible assets and goodwill in the fourth quarter
of each fiscal year and upon the occurrence of certain events.
The recoverability assessment with respect to each of the tradenames used in our operations requires us to estimate the fair
value of the tradename as of the assessment date. Such determination is made using discounted cash flow techniques (Level 3).
Inputs to the valuation model include:
• future revenue and profitability projections associated with the tradename;
• estimated market royalty rates that could be derived from the licensing of our tradenames to third parties in order to
establish the cash flows accruing to the benefit of the Company as a result of our ownership of our tradenames; and
• rates, based on our estimated weighted average cost of capital, used to discount the estimated royalty cash flow
projections to their present value (or estimated fair value).
If the recorded carrying value of the tradename exceeds its estimated fair value, an impairment charge is recorded to write the
tradename down to its estimated fair value. The tradename impairment testing process is subject to inherent uncertainties and
subjectivity. The use of different assumptions, estimates or judgments could materially increase or decrease any related impairment
charge. We believe our estimates are appropriate based upon current market conditions and the best information available at the
assessment date. However, future impairment charges could be required if we do not achieve our current revenue and profitability
projections, market royalty rates decrease or the weighted average cost of capital increases.
The assessment of the recoverability of the goodwill associated with our Neiman Marcus stores, Bergdorf Goodman stores
and Direct Marketing reporting units involves a two-step process. The first step requires the comparison of the estimated enterprise
fair value of each of our reporting units to its recorded carrying value. We estimate the enterprise fair value based on discounted cash
flow techniques (Level 3). Inputs to the valuation model include:
• estimated future cash flows;
• growth assumptions for future revenues as well as future gross margin rates, expense rates and other estimates; and
• rates, based on our estimated weighted average cost of capital, used to discount our estimated future cash flow
projections to their present value (or estimated fair value).
The projected sales, gross margin and expense rate and capital expenditures assumptions are based on our annual business
plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows
directly resulting from the use of those assets in our operations. The estimates of the enterprise fair values of our reporting units are
based on the best information available as of the date of the assessment.
If the recorded carrying value of a reporting unit exceeds its estimated enterprise fair value in the first step, a second step is
performed in which we allocate the enterprise fair value to the fair value of the reporting unit's net assets. The second step of the
impairment testing process requires, among other things, the estimation of the fair values of substantially all of our tangible and
intangible assets. Any enterprise fair value in excess of amounts allocated to such net assets represents the implied
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