Neiman Marcus 2009 Annual Report Download - page 118

Table of Contents
NOTE 9. IMPAIRMENT OF LONG-LIVED ASSETS
We assess the recoverability of indefinite-lived assets and goodwill in the fourth quarter of each year and upon the
occurrence of certain events. In connection with the preparation of our consolidated financial statements for the second quarter of
fiscal year 2009, we concluded that it was appropriate to test our long-lived assets for recoverability in light of the significant declines
in the domestic and global financial markets during the first and second quarters of fiscal year 2009. Utilizing our then-current
operating forecasts to estimate the fair values of our Neiman Marcus stores, Bergdorf Goodman stores and Direct Marketing
operation, we determined certain of our property and equipment, tradenames and goodwill to be impaired and recorded impairment
charges in the second quarter of fiscal year 2009 aggregating $560.1 million.
In the fourth quarter of fiscal year 2009, we updated our short-term and long-term operating forecasts in connection with our
annual planning process in light of our updated expectations of future business conditions and trends. Utilizing these updated
operating forecasts to estimate the fair values of our reporting units, we determined further impairment with respect to certain of our
property and equipment, tradenames and goodwill and recorded additional impairment charges in the fourth quarter of fiscal year 2009
aggregating $143.1 million.
Total impairment charges recorded in fiscal year 2009 are as follows:
(in thousands)
Specialty
Retail stores
Direct
Marketing Total
Property and equipment $ 30,348 $ — $ 30,348
Tradenames 311,835 31,374 343,209
Goodwill 329,709 — 329,709
$ 671,892 $ 31,374 $ 703,266
NOTE 10. OTHER INCOME
In the first quarter of fiscal year 2008, we recorded a pension curtailment gain of $32.5 million, or 0.7% of revenues, as a
result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007.
NOTE 11. STOCK-BASED COMPENSATION
The Company has approved equity-based management arrangements, which authorize equity awards to be granted to certain
management employees for up to 87,992 shares of the common stock of the Company. Options generally vest over four to five years
and expire six to eight years from the date of grant.
The exercise prices of certain of our options escalate at a 10% compound rate per year (Accreting Options) until the earlier to
occur of (i) exercise, (ii) a defined anniversary of the date of grant (four to five years) or (iii) the occurrence of a change in control.
However, in the event the Sponsors cause the sale of shares of the Company to an unaffiliated entity, the exercise price will cease to
accrete at the time of the sale with respect to a pro rata portion of the accreting options. The exercise price with respect to all other
options (Fixed Price Options) is fixed at the grant date.
Stock Option Modification. In the second quarter of fiscal year 2010, the Compensation Committee approved 1) a tender
offer for outstanding Accreting Options to purchase 26,614 shares (Eligible Options), 2) the extension of the option term with respect
to Fixed Price Options for 25,236 shares to October 6, 2017 and 3) the modification of additional Fixed Price Options to purchase
1,378 shares. In the third quarter of fiscal year 2010, the Compensation Committee approved 1) the modification of Accreting
Options to purchase 8,502 shares and 2) the extension of the option term with respect to Fixed Price Options for 7,269 shares to
October 6, 2015. The stock option modifications effected in both the second and third quarters of fiscal year 2010 are collectively
referred to as the Modification Transactions. The Modification Transactions were taken in response to declines in capital markets and
general economic conditions that resulted in the exercise prices for the prior options being in excess of the estimated fair value of our
common stock.
In connection with the modifications of the Accreting Options, option holders were allowed to tender their Eligible Options
for new options at an exchange rate of 1.5 Eligible Options to 1.0 new option. The new options issued 1) have an initial exercise price
of $1,000 per share, which exercise price will escalate at a 10% compound rate per year through the fourth anniversary of the grant
date, 2) vest over four years and 3) generally expire eight years after the grant date. The tender offer
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