Neiman Marcus 2008 Annual Report Download - page 48

Table of Contents
• the effects upon us of complying with the covenants contained in our senior secured credit facilities and the indentures
governing our senior notes and senior subordinated notes;
• restrictions the terms and conditions of the indebtedness under our senior secured credit facilities may place on our
ability to respond to changes in our business or to take certain actions;
Other Factors
• impact of funding requirements related to our noncontributory defined benefit pension plan;
• the design and implementation of new information systems as well as enhancements of existing systems; and
• other risks, uncertainties and factors set forth in this Annual Report on Form 10-K, including those set forth in Item 1A,
"Risk Factors."
The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that
could impact our business. Except to the extent required by law, we undertake no obligation to update or revise (publicly or otherwise)
any forward-looking statements to reflect subsequent events, new information or future circumstances.
Critical Accounting Policies
Our accounting policies are more fully described in Note 1 of the notes to our audited consolidated financial statements
appearing elsewhere in this Annual Report. As disclosed in Note 1 of the notes to our audited consolidated financial statements, the
preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and
assumptions about future events. These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses and
the disclosure of gain and loss contingencies at the date of our audited consolidated financial statements appearing elsewhere in this
Annual Report on Form 10-K.
While we believe that our past estimates and assumptions have been materially accurate, the amounts currently estimated are
subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on
an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe to
be reasonable under the circumstances. We make adjustments to our assumptions and judgments when facts and circumstances dictate.
Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in
preparing the accompanying audited consolidated financial statements.
We believe the following critical accounting policies encompass the more significant judgments and estimates used in the
preparation of our audited consolidated financial statements.
Revenues. Revenues include sales of merchandise and services and delivery and processing revenues related to merchandise
sold. Revenues from our Specialty Retail stores are recognized at the later of the point of sale or the delivery of goods to the customer.
Revenues from our Direct Marketing operation are recognized when the merchandise is delivered to the customer. Revenues
associated with gift cards are recognized at the time of redemption by the customer. Revenues exclude sales taxes collected from our
customers.
We maintain reserves for anticipated sales returns primarily based on our historical trends related to returns by our retail and
direct marketing customers. Our reserves for anticipated sales returns aggregated $29.7 million at August 1, 2009 and $45.0 million at
August 2, 2008. As the vast majority of merchandise returns are made in less than 30 days after the sales transaction, we believe the
risk that differences between our estimated and actual returns will have a material impact on our consolidated financial statements is
minimal.
Merchandise Inventories and Cost of Goods Sold. We utilize the retail method of accounting. Under the retail inventory
method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio,
for various groupings of similar items, to the retail value of inventories. The cost of the inventory reflected on the consolidated
balance sheets is decreased by charges to cost of goods sold at the time the retail value of the inventory is lowered through the use of
markdowns. Earnings are negatively impacted when merchandise is marked down. As we adjust the retail value of our inventories
through the use of markdowns to reflect market conditions, our merchandise inventories are stated at the lower of cost or market.
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