Neiman Marcus 2013 Annual Report Download - page 109

Table of Contents
Subsequent to the Acquisition, Successor definite-lived intangible assets, primarily customer lists, are amortized over their estimated useful lives,
currently estimated at 12 to 16 years (weighted average life of 14 years from the Acquisition). Successor favorable lease commitments are amortized over the
remaining lives of the leases, currently estimated at two to 55 years (weighted average life of 30 years from the Acquisition). Total amortization of all
intangible assets recorded in connection with the Acquisition for the next five fiscal years is currently estimated as follows (in thousands):
2015 $ 131,783
2016 105,737
2017 100,937
2018 95,928
2019 92,313
Indefinite-lived Intangible Assets and Goodwill. Indefinite-lived intangible assets, such as our Neiman Marcus and Bergdorf Goodman 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 our indefinite-lived intangible assets requires us to estimate the fair value of the asset as of the
assessment date. Such determination is made using discounted cash flow techniques (Level 3 determination of fair value). Significant inputs to the valuation
model include:
• future revenue, cash flow and/or profitability projections;
• growth assumptions for future revenues as well as future gross margin rates, expense rates, capital expenditures and other estimates;
• estimated market royalty rates that could be derived from the licensing of our tradenames to third parties 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 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 assessment of the recoverability of the goodwill associated with our Neiman Marcus stores, Bergdorf Goodman stores, Last Call stores and
Online 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 determination of fair value). 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 fair value of goodwill for that reporting unit. If the recorded goodwill balance for a reporting unit exceeds the implied fair value
of goodwill, an impairment charge is recorded to write goodwill down to its fair value.
The impairment testing process related to our indefinite-lived intangible assets is subject to inherent uncertainties and subjectivity. The use of
different assumptions, estimates or judgments with respect to the estimation of the projected future cash flows and the determination of the discount rate used
to reduce such projected future cash flows to their net present value 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 or the weighted average cost of capital increases. No
impairment charges related to our tradenames and goodwill were recorded in fiscal years 2014, 2013 or 2012.
Leases. We lease certain retail stores and office facilities. Stores we own are often subject to ground leases. The terms of our real estate leases,
including renewal options, range from two to 130 years. Most leases provide for monthly fixed minimum rentals or contingent rentals based upon sales in
excess of stated amounts and normally require us to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs. For leases
that contain predetermined, fixed calculations of minimum rentals, we recognize rent expense on a straight-line basis over the lease term. We recognize
contingent rent expenses when it is probable that the sales thresholds will be reached during the year.
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