Neiman Marcus 2012 Annual Report Download - page 106

Table of Contents
· 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 in order 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 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 2013, 2012 or 2011. At August 3, 2013, the estimated
fair values of each of our indefinite-lived intangible assets exceeded their recorded values by over 35%.
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 121 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.
We receive allowances from developers related to the construction of our stores. We record these allowances as deferred real estate credits, which we
recognize as a reduction of rent expense on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased asset.
We received construction allowances aggregating $7.2 million in fiscal year 2013, $10.6 million in fiscal year 2012 and $10.5 million in fiscal year 2011.
Benefit Plans. We sponsor a defined benefit pension plan (Pension Plan), an unfunded supplemental executive retirement plan (SERP Plan) which
provides certain employees additional pension benefits and a postretirement plan providing eligible employees limited postretirement health care benefits
(Postretirement Plan). In calculating our obligations and related expense, we make various assumptions and estimates, after consulting with outside actuaries
and advisors. The annual determination of expense involves calculating the estimated total benefits ultimately payable to plan participants. We use the
projected unit credit method in recognizing pension liabilities. The Pension Plan, SERP Plan and Postretirement Plan are valued annually as of the end of each
fiscal year. As of the third quarter of fiscal year 2010, benefits offered to all employees under our Pension Plan and SERP Plan have been frozen.
Significant assumptions related to the calculation of our obligations include the discount rates used to calculate the present value of benefit obligations
to be paid in the future, the expected long-term rate of return on assets held by the Pension
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