Neiman Marcus 2006 Annual Report Download - page 110

Long-lived Assets. Property and equipment are stated at cost less accumulated depreciation. For financial reporting purposes, we
compute depreciation principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements
are depreciated over five to 30 years while fixtures and equipment are depreciated over three to 15 years. Leasehold improvements are
amortized over the shorter of the asset life or the lease term. Costs incurred for the development of internal computer software are
capitalized and amortized using the straight-line method over three to ten years.
To the extent we remodel or otherwise replace or dispose of property and equipment prior to the end of the assigned depreciable
lives, we could realize a loss or gain on the disposition. To the extent assets continue to be used beyond their assigned depreciable lives,
no depreciation expense is incurred. We reassess the depreciable lives of our long-lived assets in an effort to reduce the risk of significant
losses or gains at disposition and utilization of assets with no depreciation charges. The reassessment of depreciable lives involves
utilizing historical remodel and disposition activity and forward-looking capital expenditure plans. In fiscal year 2005, we made
adjustments to rent and depreciation aggregating approximately $5.0 million, or 0.1% of revenues, in connection with our review of the
amortization periods assigned to our leased property and equipment and deferred real estate credits.
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.
Purchase Accounting. We accounted for the Acquisition in accordance with the provisions of Statement of Financial
Accounting Standards No. 141, "Business Combinations," (SFAS 141) whereby the purchase price paid to effect the Acquisition was
allocated to state the acquired assets and liabilities at fair value. The Acquisition and the allocation of the purchase price were recorded as
of October 1, 2005, the beginning of our October 2005 accounting period. In connection with the purchase price allocation, we made
estimates of the fair values of our long-lived and intangible assets based upon assumptions related to future cash flows, discount rates and
asset lives. As of October 29, 2005, we recorded preliminary purchase accounting adjustments to increase the carrying value of our
property and equipment and inventory, to establish intangible assets for our tradenames, customer lists and favorable lease commitments
and to revalue our long-term benefit plan obligations, among other things. We revised these preliminary purchase accounting adjustments
during the second, third and fourth quarters of fiscal year 2006 as additional information became available. The final purchase accounting
adjustments are reflected in our July 29, 2006 consolidated balance sheet.
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.
To the extent that our estimates are not realized, future assessments could result in impairment charges. In the fourth quarter of fiscal year
2007, we recorded a $11.5 million pretax impairment charge related to the writedown to fair value in the net carrying value of the Horchow tradename based upon
lower anticipated future revenues associated with the brand.
Customer lists are amortized using the straight-line method over their estimated useful lives, ranging from 5 to 26 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):
2008 $ 72,254
2009 72,254
2010 72,254
2011 61,543
2012 48,898
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