Neiman Marcus 2008 Annual Report Download - page 107

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expectations with respect to the Horchow brand in light of current operating performance and future operating expectations.
Additionally, in the second quarter of fiscal year 2009, we recorded a $12.1 million pretax impairment charge related to the writedown
to fair value of the Horchow tradename. At August 1, 2009, the recorded amount of the Horchow tradename was $3.9 million.
As more fully described in Note 7, we recorded significant impairment charges in the fiscal year 2009 to writedown our
tradenames and goodwill to estimated fair value.
NOTE 7. 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 1) the significant
declines in the domestic and global financial markets during the first and second quarters of fiscal year 2009 and 2) the determination
that these macroeconomic conditions are significantly impacting our business operations.
Based upon our assessment of economic conditions as of the end of our second quarter, our expectations of future business
conditions and trends, and our projected revenues, earnings and cash flows, 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 current business conditions and 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
Long-lived assets. The recoverability assessment with respect to our long-lived assets (consisting of property and equipment,
customer lists and favorable lease commitments) is performed at the store level. This assessment is based upon the comparison of the
undiscounted cash flows anticipated to be generated from the store to the net carrying value of the store assets. To the extent the
undiscounted store-level cash flows are not sufficient to recover the net carrying value of the store assets, the assets are impaired and
written down to their estimated fair value based upon discounted future cash flows. Based upon the review of our store-level assets
conducted in fiscal year 2009, we identified certain property and equipment to be impaired by $30.3 million.
The recoverability assessment related to store-level assets requires judgments and estimates of future revenues, gross margin
rates and store expenses. We base these estimates upon our past and expected future performance. We believe our estimates are
appropriate in light of 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 or cash flow projections.
Tradenames. 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. 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
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