Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 The Neiman Marcus Group, Inc. 50 289K
4: EX-10.15 Credit Agreement Dated April 7, 1995 90 229K
2: EX-10.4 Employment Agreement With Burton M. Tansky 14 29K
3: EX-10.5 Termination and Change of Control Agreement 3 12K
5: EX-11.1 Computation of Earnings Per Share 2± 8K
6: EX-21.1 Subsidiaries 1 6K
7: EX-23.1 Consent of Deloitte & Touche LLP 1 6K
8: EX-27.1 Financial Data Schedule 1 8K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 3, 1996
COMMISSION FILE NUMBER 1-9659
------------------------
THE NEIMAN MARCUS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
27 BOYLSTON STREET, CHESTNUT HILL, 02167
MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
DELAWARE 95-4119509
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
REGISTRANT'S TELEPHONE NUMBER AND AREA CODE: 617-232-0760
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of September 6, 1996 was $500,482,247.
There were 38,003,702 shares of Common Stock outstanding as of September 6,
1996.
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THE NEIMAN MARCUS GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 3, 1996
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TABLE OF CONTENTS
PAGE NO.
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PART I
Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 3
Item 3. Legal Proceedings....................................................... 4
Item 4. Submission of Matters to a Vote of Security Holders..................... 4
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters............................................................... 4
Item 6. Selected Financial Data................................................. 5
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 6
Item 8. Financial Statements and Supplementary Data............................. 11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 11
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 11
Item 11. Executive Compensation.................................................. 14
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 24
Item 13. Certain Relationships and Related Transactions.......................... 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 26
Signatures.........................................................................
i
PART I
ITEM 1. BUSINESS
GENERAL
The Neiman Marcus Group, Inc. (together with its operating divisions and
subsidiaries, the "Company") is a Delaware corporation which commenced
operations in August 1987. Harcourt General, Inc. ("Harcourt General"), a
Delaware corporation based in Chestnut Hill, Massachusetts, owns approximately
59% of the outstanding Common Stock of the Company ("Common Stock") and 100% of
the outstanding 6% Cumulative Convertible Preferred Stock ("6% Preferred Stock")
and 9 1/4% Cumulative Redeemable Preferred Stock ("9 1/4% Preferred Stock," and
together with the 6% Preferred Stock, "Preferred Stock") of the Company. In
addition, two of Harcourt General's directors and virtually all of its officers
and corporate staff, including its Chairman and its Chief Executive Officer,
occupy similar positions with the Company. For more information about the
relationship between the Company and Harcourt General, see Note 1 to the Summary
Compensation Table (in Item 11), Item 12, and Notes 6 and 7 to the Consolidated
Financial Statements in Item 14 below. Harcourt General is a public company
subject to the reporting requirements of the Securities Exchange Act of 1934.
For further information about Harcourt General, reference may be made to the
reports filed by Harcourt General from time to time with the Securities and
Exchange Commission.
On September 10, 1996, the Company authorized the filing of a Registration
Statement (the "Registration Statement") with the Securities and Exchange
Commission (Registration No. 333-11721) for a public offering of 8,000,000
shares of the Company's Common Stock, excluding 1,200,000 shares subject to an
underwriters' over-allotment option (the "Offering"). The proceeds from the
Offering will be used by the Company to purchase all of its outstanding
Preferred Stock from Harcourt General at a total purchase price of approximately
$416.4 million, representing 98% of the aggregate stated value of the Preferred
Stock, plus accrued and unpaid dividends on the Preferred Stock through the date
of the closing of the Offering. The total purchase price will be paid with
$135.0 million in shares of Common Stock valued at the public offering price
(the "Stock Payment") and the remainder payable in cash (the "Cash Payment").
The Cash Payment will be funded with the net proceeds of the public offering
and, if necessary, with borrowings under the Company's revolving credit
agreement. To the extent that the underwriters exercise their over-allotment
option, the amount of required borrowings under the Company's revolving credit
agreement will be decreased, and if the amount of the net proceeds from the
Offering exceeds the amount of the Cash Payment, the excess proceeds from the
Offering will be used to pay down amounts outstanding under the Company's
revolving credit facility. After the consummation of the Offering and the
transactions related thereto, Harcourt General will continue to be the majority
shareholder of the Company. For additional information concerning the Offering
and the transactions related thereto, reference may be made to Note 13 to the
Consolidated Financial Statements in Item 14 below and to the Registration
Statement as it may be amended from time to time.
BUSINESS OVERVIEW
The Company, operating through Neiman Marcus Stores, Bergdorf Goodman and
NM Direct, is a high end specialty retailer. The 30 Neiman Marcus stores are in
premier retail locations in major markets nationwide and the two Bergdorf
Goodman stores, the main store and the Bergdorf Goodman Men store, are located
in Manhattan at 58th Street and Fifth Avenue. Neiman Marcus Stores and Bergdorf
Goodman offer high end fashion apparel and accessories primarily from leading
designers. NM Direct, the Company's direct marketing operation, offers a mix of
apparel and home furnishings which is complementary to the Neiman Marcus Stores
merchandise, and it publishes the Horchow catalogues and the world famous Neiman
Marcus Christmas Catalogue.
DESCRIPTION OF OPERATIONS
Neiman Marcus Stores. Neiman Marcus Stores offer women's and men's
apparel, fashion accessories, shoes, cosmetics, furs, precious jewelry,
decorative home accessories, fine china, crystal and silver, gourmet food
products and children's apparel and gift items. In fiscal 1996, 24% of Neiman
Marcus Stores sales were generated from Texas, 30% from the West, 16.5% from the
Midwest, 16.5% from the Northeast and 11% from
1
the Southeast and the remainder through its store catalogues and clearance
centers. Three of the Neiman Marcus stores had revenues of over $100 million in
fiscal 1996 and ten additional stores had revenues over $50 million. No Neiman
Marcus store accounted for more than 7.5% of Neiman Marcus Stores revenues in
fiscal 1996. The average size of the Neiman Marcus stores is approximately
142,000 gross square feet, and the stores range in size from 90,000 gross square
feet to 269,000 gross square feet.
Bergdorf Goodman. The Company operates two Bergdorf Goodman stores in
Manhattan at 58th Street and Fifth Avenue, which is among the most prestigious
and well known retail locations in the world. The main Bergdorf Goodman store
consists of 250,000 gross square feet. The core of Bergdorf Goodman's offerings
includes high end women's apparel and unique fashion accessories from leading
designers. Bergdorf Goodman also features traditional and contemporary
decorative home accessories, precious jewelry, gifts and gourmet foods. Bergdorf
Goodman Men, which opened in August 1990, consists of 66,000 gross square feet
and is dedicated to men's apparel and accessories.
NM Direct. NM Direct offers customers throughout the country the
opportunity to purchase upscale quality designed and crafted merchandise with
the convenience of at-home shopping. NM Direct mailed 71 different catalogues
during fiscal 1996, with an approximate average circulation of 1.25 million
households per catalogue. The total number of catalogues mailed during fiscal
1996 was approximately 89 million. NM Direct primarily offers women's apparel
under the Neiman Marcus name and, through its Horchow catalogue, offers hard
goods such as quality home furnishings, tabletop, linens and decorative
accessories. NM Direct also offers a broad range of more modestly priced items
through its Trifles and Grand Finale lines and continues to publish the world
famous Neiman Marcus Christmas Catalogue.
The Company also operates several small clearance centers which provide an
efficient and controlled outlet for the sale of marked down merchandise from
Neiman Marcus Stores, Bergdorf Goodman and NM Direct.
For additional information concerning the stores operated by the Company,
see Item 2 below.
DISTRIBUTION AND LOGISTICS
In January 1996, the Company commenced operations at its 465,000 square
foot National Service Center ("NSC") in Longview, Texas, consolidating
distribution operations for those Neiman Marcus stores which previously had been
handled by several separate facilities in the Dallas area. The Company also
contracts with a third party in Totowa, New Jersey for the provision of
distribution services to those stores not served by the NSC.
NM Direct distributes its goods from its warehouse and distribution center
in Las Colinas, Texas, near Dallas. By arranging for vendors to "drop-ship"
goods such as furniture, other hard goods and gourmet food directly to the
customer, NM Direct reduces the amount of inventory warehousing. The Company has
contracted with third party carriers to provide NM Direct with 2-day delivery
service with no additional charge to the customer, and it utilizes its carrier
services to automate the process of shipping and invoicing for drop-shipped
merchandise.
COMPETITION
The specialty retail industry is highly competitive and fragmented.
Moreover, the Company's apparel business is especially dependent upon its
designer resources. The Company competes with large specialty retailers,
traditional and better department stores, national apparel chains, designer
boutiques, individual specialty apparel stores and direct marketing firms.
The Company competes for customers principally on the basis of quality,
assortment and presentation of merchandise, customer service, sales and
marketing programs and value, and for quality merchandise and assortment
principally based on relationships with designer resources and purchasing power.
Neiman Marcus Stores and Bergdorf Goodman also compete for customers on the
basis of store ambience, and for real estate opportunities principally on the
basis of their ability to attract customers. NM Direct competes principally on
the basis of quality, assortment and presentation of merchandise, customer
service, price and speed of delivery.
2
EMPLOYEES
At August 3, 1996, Neiman Marcus Stores had 11,000 employees, of whom 3,100
were part-time, Bergdorf Goodman had 1,040 employees, of whom 40 were part-time,
and NM Direct had 1,100 employees, of whom 500 were part-time. All employee
numbers are approximate. None of the employees of Neiman Marcus Stores or NM
Direct are subject to collective bargaining agreements. Approximately 12.1% of
the Bergdorf Goodman employees are subject to collective bargaining agreements.
The Company believes that its relations with its employees are generally good.
The Company's staffing requirements fluctuate during the year as a result of the
seasonality of the retail apparel industry and, accordingly, the Company
generally adds 3,000 to 3,500 more seasonal employees in the second quarter.
CAPITAL EXPENDITURES; SEASONALITY; LIQUIDITY
For information on capital expenditures, seasonality and liquidity, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 below.
ITEM 2. PROPERTIES
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The Company's corporate headquarters are located at Harcourt General's
leased facility in Chestnut Hill, Massachusetts. The operating headquarters for
Neiman Marcus Stores, Bergdorf Goodman and NM Direct are located in Dallas, New
York City, and Las Colinas, Texas, respectively. The aggregate square footage
used in the Company's operations is approximately as follows:
OWNED
SUBJECT TO
OWNED GROUND LEASE LEASED TOTAL
--------- ------------ --------- ---------
Stores.............................. 348,000 1,931,000 2,297,000 4,576,000
Distribution, Support and
Office Facilities and Clearance
Centers........................... 1,170,000 0 634,000 1,804,000
Leases for Neiman Marcus stores, including renewal options, range from 30
to 99 years. The lease on the Bergdorf Goodman main store expires in 2050, and
the lease on the Bergdorf Goodman Men store expires in 2010, with two 10-year
renewal options. Leases are generally at fixed rentals, and a majority of leases
provide for additional rentals based on sales in excess of predetermined levels.
The Company owns approximately 50 acres of land in Las Colinas, Texas where its
705,000 square foot NM Direct facility is located and also owns approximately 34
acres of land in Longview, Texas where the NSC is located. For further
information on the Company's properties, see "Operating Leases" in Note 11 of
the Notes to the Consolidated Financial Statements in Item 14 below.
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The following table sets forth the location, year operations began and
gross square footage of each Neiman Marcus and Bergdorf Goodman store:
NEIMAN MARCUS STORES
CALENDAR GROSS
YEAR SQUARE
LOCATIONS OPENED FEET
--------- -------- ---------
Dallas (Downtown)....................................... 1907 269,000
Dallas (NorthPark)...................................... 1965 218,000
Houston (Galleria)...................................... 1969 206,000
Bal Harbour, Florida.................................... 1971 94,000
Atlanta................................................. 1972 154,000
St. Louis............................................... 1974 143,000
Northbrook, Illinois.................................... 1976 143,000
Fort Worth.............................................. 1977 119,000
Washington, D.C......................................... 1977 130,000
Newport Beach, California............................... 1978 124,000
Beverly Hills........................................... 1979 170,000
3
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CALENDAR GROSS
YEAR SQUARE
LOCATIONS OPENED FEET
--------- -------- ---------
Dallas (Prestonwood).................................... 1979 123,000
Westchester, New York................................... 1980 138,000
Las Vegas............................................... 1981 103,000
Oak Brook, Illinois..................................... 1981 119,000
San Diego............................................... 1981 106,000
Fort Lauderdale......................................... 1982 92,000
San Francisco........................................... 1982 195,000
Houston (Town & Country)................................ 1983 153,000
Chicago (Michigan Avenue)............................... 1983 188,000
Boston.................................................. 1984 108,000
Palo Alto, California................................... 1985 120,000
McLean, Virginia........................................ 1989 130,000
Denver.................................................. 1990 90,000
Minneapolis............................................. 1991 122,000
Scottsdale, Arizona..................................... 1991 116,000
Troy, Michigan.......................................... 1992 157,000
Short Hills, New Jersey................................. 1995 137,000
King of Prussia, Pennsylvania........................... 1996 145,000
Paramus, New Jersey..................................... 1996 148,000
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Total................................................... 4,260,000
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BERGDORF GOODMAN
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Bergdorf Goodman Main Store............................. 1901 250,000
Bergdorf Goodman Men.................................... 1990 66,000
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Total................................................... 316,000
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In addition, the Company plans to open a 160,000 square foot Neiman Marcus
store in Honolulu in August 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company presently is engaged in various legal actions which are
incidental to the ordinary conduct of its business. The Company believes that
any liability arising as a result of these actions and proceedings will not have
a material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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The Company's Common Stock is traded on the New York Stock Exchange under
the symbol NMG. The following table indicates the quarterly price range of the
Common Stock for the past two fiscal years:
1996 1995
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QUARTER HIGH LOW HIGH LOW
------- ------ ------ ------ ------
First........................................... $18.88 $14.63 $15.50 $13.50
Second.......................................... $23.50 $17.13 $15.00 $13.00
Third........................................... $23.13 $17.25 $15.50 $13.00
Fourth.......................................... $30.13 $23.63 $15.88 $13.25
4
The Company had 12,164 common shareholders of record at September 6, 1996.
Beginning with the third quarter of fiscal 1995, the Company eliminated its
quarterly cash dividend on its Common Stock which previously had been $.05 per
share per quarter. The Company currently does not intend to resume paying cash
dividends on its Common Stock. The Company's revolving credit agreement contains
restrictions on the Company's ability to pay dividends and make other
distributions.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below have been derived
from the Company's audited Consolidated Financial Statements for each of the
five years in the period ended August 3, 1996, and are qualified by reference
to, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 below, the
Consolidated Financial Statements in Item 14 below, and the other financial
information included elsewhere herein.
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FISCAL YEAR ENDED
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AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3,
1992 1993 1994 1995 1996(1)
---------- ---------- ---------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $1,484,945 $1,667,825 $1,789,461 $1,888,249 $2,075,003
Cost of goods sold including buying
and occupancy costs............................ 1,025,670 1,120,561 1,210,262 1,276,776 1,416,296
Selling, general and administrative
expenses(2).................................... 366,873 412,044 420,667 448,956 485,533
Corporate expenses............................... 13,116 11,898 13,411 12,465 13,719
---------- ---------- ---------- ---------- ----------
Operating earnings(2)............................ 79,286 123,322 145,121 150,052 159,455
Interest expense(2).............................. (32,408) (29,589) (31,878) (33,958) (28,228)
Other income(3).................................. -- 21,741 -- -- --
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes and accounting change............. 46,878 115,474 113,243 116,094 131,227
Income taxes..................................... 19,220 48,499 47,562 48,759 53,803
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations
before accounting change....................... 27,658 66,975 65,681 67,335 77,424
Loss from discontinued operations
net of taxes (including loss on
disposal of $9,873 in 1995)(4)................. (5,806) (8,402) (49,755) (11,727) --
---------- ---------- ---------- ---------- ----------
Earnings before accounting change................ 21,852 58,573 15,926 55,608 77,424
Change in accounting for postretirement
health care benefits, net...................... -- (11,199) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings..................................... 21,852 47,374 15,926 55,608 77,424
Dividends and accretion on redeemable
preferred stocks(5)............................ (29,197) (29,068) (29,080) (29,092) (29,104)
---------- ---------- ---------- ---------- ----------
Net earnings (loss) applicable to
common shareholders............................ $ (7,345) $ 18,306 $ (13,154) $ 26,516 $ 48,320
========== ========== ========== ========== ==========
Weighted average shares outstanding.............. 35,551 37,577 37,946 37,999 38,218
========== ========== ========== ========== ==========
Amounts per share applicable to
common shareholders:
Earnings (loss) from continuing operations
before accounting change..................... $ (.05) $ 1.00 $ .96 $ 1.01 $ 1.26
Loss from discontinued operations.............. (.16) (.22) (1.31) (.31) --
Accounting change.............................. -- (.30) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)............................ $ (.21) $ .48 $ (.35) $ .70 $ 1.26
========== ========== ========== ========== ==========
5
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AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3,
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- --------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Accounts receivable(2)........................... $ 220,388 $ 309,572 $ 362,236 $ 150,110 $ 165,442
Inventories...................................... 307,100 362,567 345,145 359,092 443,948
Property and equipment, net...................... 422,243 416,519 410,913 423,583 457,625
Total assets..................................... 1,141,438 1,278,574 1,323,128 1,108,437 1,252,350
Total debt(6).................................... 345,490 422,299 485,672 256,306 325,197
Redeemable preferred stocks(5)................... 399,562 401,510 403,470 405,442 407,426
Common shareholders' equity...................... (2,919) 24,358 3,716 26,547 75,607
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(1) Fiscal 1996 was a 53-week year.
(2) In March 1995 the Company sold all of its Neiman Marcus credit card
receivables to a trust in exchange for certificates representing undivided
interests in such receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Review of Financial
Condition" in Item 7. The securitization resulted in a decrease in finance
charge income (which is recorded as an offset to selling, general and
administrative expenses) and a resulting decrease in operating earnings in
fiscal 1995 and 1996. To provide a meaningful comparison of selling, general
and administrative expenses and operating earnings in fiscal 1995 and 1996
to such items in fiscal 1992 through 1994, the following chart shows each
item as if the securitization had not occurred:
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FISCAL YEAR ENDED
-----------------------
AUGUST
JULY 29, 3,
1995 1996
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Selling, general and administrative expenses................................... $441,856 $466,493
Operating earnings............................................................. $157,152 $178,495
The securitization also had the effect of reducing accounts receivable in
fiscal 1995 by approximately $246 million.
(3) Represents settlement of several disputes with Carter Hawley Hale Stores,
Inc., which had operated the Neiman Marcus and Bergdorf Goodman businesses
prior to 1987.
(4) Reflects the operations of Contempo Casuals, which was sold by the Company
on June 30, 1995. See Note 2 to the Consolidated Financial Statements.
(5) After the consummation of the Offering and the transactions related thereto,
no shares of Preferred Stock will be outstanding.
(6) Includes obligations under capital leases. See Note 5 to the Consolidated
Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's financial performance reflects a favorable environment for
the sale of high end merchandise as well as the strong competitive position of
its three operating entities: Neiman Marcus Stores, Bergdorf Goodman and NM
Direct. Revenues from continuing operations exceeded $2.0 billion for the first
time in fiscal 1996, increasing 16.0% over revenues of $1.8 billion in fiscal
1994. Earnings from continuing operations increased 17.9% from $65.7 million to
$77.4 million during the same period.
Approximately 75% of the Company's revenues are generated by Neiman Marcus
Stores with the balance split approximately equally between Bergdorf Goodman and
NM Direct. In fiscal 1995, the Company solidified its focus on the high end
specialty retail market with the sale of its Contempo Casuals operations, which
is reflected in the Company's financial statements as a discontinued operation.
Revenue growth over the last three fiscal years at Neiman Marcus Stores and
Bergdorf Goodman can be attributed primarily to increases in comparable store
sales during such periods and two new store openings in fiscal 1996. Since
August 1995, the Company has opened three new Neiman Marcus stores, adding
430,000 gross square feet in the Northeast market. The Company also plans to
open a new Neiman Marcus store in Honolulu's Ala Moana Center in August 1998,
which will add approximately 160,000 gross square feet. In fiscal 1996, average
sales per gross square foot reached an all-time high of $380 at Neiman Marcus
Stores and $786 at Bergdorf Goodman, representing a 12.4% and 8.3% increase,
respectively, over fiscal 1994 levels. The Company has consistently focused on
renovating and modernizing its stores to improve productivity, while
concurrently aiming to improve average transaction amounts and comparable sales
growth with programs which are designed to increase the customers' awareness of
other merchandise offerings in the store and serve more of their merchandise
needs. In addition, to meet the demand of their customers for fine merchandise,
over the past two fiscal years Neiman Marcus Stores and Bergdorf Goodman have
placed a greater emphasis on higher quality merchandise at higher opening price
point ranges.
6
In fiscal 1996, the Company's operating earnings rose to $159.5 million
from $150.1 million in fiscal 1995 and $145.1 million in fiscal 1994. The
comparability of these results, however, is affected by the Company's
securitization of its credit card receivables in fiscal 1995 as part of the
Company's overall financing strategy. The sale of these credit card receivables
resulted in a decrease in finance charge income (which is recorded as an offset
to selling, general and administrative expenses) and a resulting decrease in the
Company's operating earnings. This reduction amounted to $19.0 million in fiscal
1996 and $7.1 million in fiscal 1995. Management believes that the fiscal 1997
reduction will be comparable to the reduction experienced in fiscal 1996. The
securitization, however, also reduced interest expense during fiscal 1995 and
1996 as the proceeds were used to repay outstanding debt.
The Company utilizes the LIFO method of accounting for valuing its
inventories, which provides a better matching of revenues with expenses than the
FIFO method which is used by some specialty retail companies. The most important
factors contributing to differences between the LIFO and FIFO methods include
the rate of inflation, inventory levels and markdowns. As a result of these
factors, operating earnings were $0.7 million higher in fiscal 1996, $10.4
million higher in fiscal 1995, and $2.4 million lower in fiscal 1994 than they
would have been using the FIFO method.
Because a substantial portion of the Company's selling, general and
administrative expenses is made up of fixed charges, comparable sales increases
improve the Company's operating profit margin. Management believes that various
programs designed to increase sales, coupled with improved technologies in
merchandising and selling information systems, have contributed to the Company's
increased operating earnings, and will continue to improve productivity and
profitability in the future.
In fiscal 1995, revenues at NM Direct were adversely affected by weak
demand for its apparel merchandise. As a result, NM Direct repositioned its
merchandise assortment, placing greater emphasis on hard goods and home
furnishings and less emphasis on its Horchow apparel offerings. NM Direct may
increase its revenues by selectively entering international markets. NM Direct
entered the catalogue market in Japan in fiscal 1995 with its Horchow catalogue
and is introducing the Neiman Marcus Christmas Catalogue in Japan this holiday
season. NM Direct's results are significantly affected by fluctuations in the
cost of paper and postage. In particular, in fiscal 1995, increased paper and
postage costs had a significant effect on the operating results of NM Direct. In
response, NM Direct reduced the page count and number of its catalogues and
repositioned its merchandise mix as discussed above. These initiatives resulted
in increased revenues and operating earnings in fiscal 1996 for NM Direct.
In addition to opening new stores, the Company continues to make
significant capital investments that it believes will result in increased
productivity. In particular, during fiscal 1994, 1995 and 1996, the Company
invested approximately $90.0 million in remodeling its existing store base. In
fiscal 1997, major projects will include (i) commencing a full remodeling and
expansion of the Fashion Island store in Newport Beach, California and
continuing a partial remodeling and expansion of the Beverly Hills store; (ii)
completing a major renovation of the first floor of Bergdorf Goodman Men, which
will add a new main entrance on Fifth Avenue and greatly improve the
departmental adjacencies and flow of the main floor and (iii) constructing a
beauty salon and spa in the newly acquired ninth floor of the Bergdorf Goodman
main store which will permit expansion of the decorative home business into the
approximately 4,000 square feet of space currently occupied by the existing
beauty salon.
In addition, in fiscal 1996, the Company began operating a new distribution
center for Neiman Marcus Stores, which consolidated the distribution function
previously provided by several older facilities in the Dallas area. In fiscal
1995, the Company completed the expansion of its direct marketing distribution
and fulfillment center for NM Direct and closed its other NM Direct distribution
centers. The Company expects that these facilities will provide future cost
savings and operational efficiencies.
In connection with the repurchase of the Preferred Stock in connection with
the Offering, the Company will incur a nonrecurring, non-cash charge to earnings
applicable to common shareholders. The amount of this charge is dependent upon
the price at which the Common Stock will be sold in the Offering. The Company
will report such amount in its Quarterly Report on Form 10-Q for the quarter in
which such charge is incurred. For additional information concerning this
charge, see Note 13 to the Consolidated Financial Statements in Item 14 below.
7
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OPERATING RESULTS
In fiscal 1996, the reporting period included 53 weeks as compared to 52
weeks in each of fiscal years 1995 and 1994.
FISCAL YEAR ENDED
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JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ---------
(DOLLARS IN MILLIONS)
REVENUES
Neiman Marcus Stores............................. $1,311.5 $1,398.8 $1,566.7
Bergdorf Goodman................................. 229.5 241.5 251.9
NM Direct........................................ 248.5 247.9 256.4
-------- -------- --------
Total............................................ $1,789.5 $1,888.2 $2,075.0
======== ======== ========
OPERATING EARNINGS(1)
Neiman Marcus Stores............................. $ 119.8 $ 132.3 $ 134.0
Bergdorf Goodman................................. 10.3 16.6 16.5
NM Direct........................................ 28.4 13.7 22.7
Corporate expenses............................... (13.4) (12.5) (13.7)
-------- -------- --------
Total............................................ $ 145.1 $ 150.1 $ 159.5
======== ======== ========
OPERATING PROFIT MARGINS(1)
Neiman Marcus Stores............................. 9.1% 9.5% 8.6%
Bergdorf Goodman................................. 4.5% 6.9% 6.6%
NM Direct........................................ 11.4% 5.5% 8.9%
Total(2)......................................... 8.1% 7.9% 7.7%
<FN>
---------------
(1) In fiscal 1995 and fiscal 1996 operating earnings and operating profit
margins include the impact of the Company's credit card receivables
securitization. For comparison purposes, excluding the impact of the
Company's credit card receivables securitization, operating earnings for
Neiman Marcus Stores and NM Direct would have been $138.3 and $14.8 in
fiscal 1995 and $150.4 and $25.4 in fiscal 1996, respectively and the
operating profit margins would have been 9.9% and 6.0% in fiscal 1995 and
9.6% and 9.9% in fiscal 1996, respectively. See "Review of Financial
Condition" below.
(2) After corporate expenses.
FISCAL 1996 VERSUS FISCAL 1995
Revenues in fiscal 1996 increased 9.9% to $2.08 billion from $1.89 billion
in fiscal 1995. The revenue growth was primarily attributable to a 5.4% increase
in comparable sales and, to a lesser extent, the opening of two new Neiman
Marcus stores during the year. Additionally, fiscal 1996 included 53 weeks,
while fiscal 1995 consisted of 52 weeks. The 53rd week is not included in
comparable sales.
Cost of goods sold increased 10.9% to $1.42 billion in fiscal 1996,
primarily due to higher sales volume. As a percentage of revenues, cost of goods
sold was 68.3% in fiscal 1996 compared to 67.6% in fiscal 1995. The higher
percentage is primarily due to higher markdowns during the holiday season.
Selling, general and administrative expenses increased 8.1% to $485.5
million in fiscal 1996 from $449.0 million in fiscal 1995, primarily due to new
store openings, higher selling costs and lower finance charge income. As a
percentage of revenues, selling, general and administrative expenses were 23.4%
in fiscal 1996 compared to 23.8% in fiscal 1995. The Company's securitization of
its credit card receivables, which was completed in March 1995, reduced finance
charge income, and thereby increased selling, general and administrative
expenses, by approximately $19.0 million in fiscal 1996 and $7.1 million in
fiscal 1995.
8
Corporate expenses, which consist primarily of charges for salaries,
benefits and overhead for the individuals who provide services under the
intercompany services agreement with Harcourt General, legal fees and
professional fees, increased $1.2 million in fiscal 1996 to $13.7 million,
compared to $12.5 million in the prior year. The increase is primarily
attributable to higher compensation expense resulting from the Company's
employees accepting the cash value of certain stock options rather than
exercising such options for shares of Common Stock.
Operating earnings increased to $159.5 million in fiscal 1996 from $150.1
million in the prior year. The increase is attributable to higher sales volume
at each of the Company's operating entities, partially offset by the full year
impact of the credit card receivables securitization. Operating earnings at NM
Direct improved significantly in comparison to fiscal 1995, due to increased
revenues and lower paper and postage expenses.
Interest expense decreased 16.9% to $28.2 million in fiscal 1996, primarily
due to lower debt levels resulting from the use of the proceeds from the
Company's credit card receivables securitization in March 1995 to pay down
outstanding debt.
The Company's effective income tax rate decreased to 41% in fiscal 1996
from 42% in fiscal 1995. The decrease was attributable to lower state income
taxes.
FISCAL 1995 VERSUS FISCAL 1994
Revenues in fiscal 1995 increased to $1.89 billion from $1.79 billion in
fiscal 1994. The 5.5% increase was attributable to comparable sales growth
resulting from increased transaction volume and a higher average transaction
amount at both Neiman Marcus Stores and Bergdorf Goodman. Revenues at NM Direct
were essentially flat compared to fiscal 1994.
Cost of goods sold increased 5.5% to $1.28 billion in fiscal 1995,
primarily due to incremental merchandise sold. Neiman Marcus Stores and Bergdorf
Goodman both experienced improved gross profit through increased transaction
volume and higher average transaction amounts, partially offset by higher
markdowns. The improvements at Neiman Marcus Stores and Bergdorf Goodman were
offset by lower gross profit at NM Direct, primarily as a result of lower retail
markups and higher markdowns. As a percentage of revenues, cost of goods sold
was unchanged at 67.6% in fiscal 1995 compared to fiscal 1994.
Selling, general and administrative expenses increased 6.7% in fiscal 1995
to $449.0 million. The increase was a result of both higher sales volume and
higher sales promotion expenses. As a percentage of revenues, selling, general
and administrative expenses were 23.8% in fiscal 1995 compared to 23.5% in
fiscal 1994. The securitization of the Company's credit card receivables, which
was completed in March 1995, had the effect of reducing finance charge income by
$7.1 million in fiscal 1995.
Corporate expenses decreased 7.1% to $12.5 million in fiscal 1995 compared
to fiscal 1994. This decrease was primarily due to lower fees under the
intercompany services agreement with Harcourt General and lower professional
fees.
Operating earnings increased to $150.1 million from $145.1 million in the
prior year. Neiman Marcus Stores and Bergdorf Goodman operating earnings
improved primarily as a result of increased transaction volume. NM Direct
operating earnings decreased substantially primarily as a result of higher paper
and postage costs in fiscal 1995.
Interest expense increased 6.5% in fiscal 1995 to $34.0 million, reflecting
higher interest rates on bank borrowings and higher average outstanding
borrowings during the first half of fiscal 1995.
The Company's effective income tax rate was unchanged at 42% in fiscal
1995.
The loss from discontinued operations of $11.7 million in fiscal 1995
included $1.9 million of after-tax Contempo Casuals operating losses and an
after-tax loss on disposal of $9.9 million. In fiscal 1994, the after-tax loss
from discontinued Contempo Casuals operations was $49.8 million, which included
an after-tax restructuring charge of $28.1 million.
9
REVIEW OF FINANCIAL CONDITION
In fiscal 1996, the Company had sufficient cash flows from operations and
its revolving credit agreement to finance its working capital needs, capital
expenditures and preferred dividend requirements. Operating activities provided
net cash of $42.7 million in fiscal 1996 compared to $105.7 million in fiscal
1995. Despite the increase in net earnings from $55.6 million in fiscal 1995 to
$77.4 million in fiscal 1996, cash provided by operations decreased primarily
due to higher inventory levels and accounts receivable balances attributable to
new Neiman Marcus stores.
The Company's capital expenditures consisted principally of construction of
new stores and a new distribution and service center, and renovations of
existing stores. The Company opened new Neiman Marcus stores in Short Hills, New
Jersey in August 1995, in King of Prussia, Pennsylvania in February 1996 and in
Paramus, New Jersey in August 1996. Capital expenditures were $85.7 million in
fiscal 1996, $93.5 million in fiscal 1995 and $65.1 million in fiscal 1994.
Additional store renovation plans include the remodeling of certain Neiman
Marcus stores and the expansion and remodeling of both Bergdorf Goodman stores.
Capital expenditures are currently estimated to approximate $75.0 million in
fiscal 1997.
During fiscal 1996, the Company increased its bank borrowings by $109.9
million which included borrowings made in May 1996 to repay $40.0 million of
senior notes. At August 3, 1996, the Company had $340.0 million available under
its $500.0 million revolving credit facility, which expires in April 2000. In
August 1996, an additional $52.0 million of senior notes were paid on maturity
through borrowings under the revolving credit facility. The Company believes
that following the consummation of the Offering and the transactions completed
thereby, it will have sufficient financial resources to fund its planned capital
expenditures, operating requirements, and the retirement of the Company's
remaining $80.0 million of senior notes which become due in December 1996.
Beginning with the third quarter of fiscal 1995, the Company eliminated its
quarterly cash dividend on the Common Stock (previously $.05 per share per
quarter). Elimination of this dividend conserves approximately $7.6 million of
cash annually for use in the Company's operations. In fiscal 1996, the Company
paid aggregate dividends of $27.1 million on the Preferred Stock. The
consummation of the Offering and the related transactions will eliminate the
required future dividend and sinking fund payments on the Preferred Stock.
In March 1995, the Company sold all of its Neiman Marcus credit card
receivables through a subsidiary to a trust in exchange for certificates
representing undivided interests in such receivables. Certificates representing
an undivided interest in $246.0 million of these receivables were sold to third
parties in a public offering of $225.0 million 7.60% Class A certificates and
$21.0 million 7.75% Class B certificates. The Company's subsidiary will retain
the remaining undivided interest in the receivables not represented by the Class
A and Class B certificates. A portion of that interest is subordinated to the
Class A and Class B certificates. The Company will continue to service all
receivables for the trust. This sale had the effect of decreasing accounts
receivable and outstanding debt by $246.0 million.
SEASONALITY
The specialty retail industry is seasonal in nature, and a
disproportionately high level of the Company's sales and earnings typically are
generated in the fall and holiday selling seasons. The Company's working capital
requirements and inventories increase substantially in the first quarter in
anticipation of the holiday selling season.
IMPACT OF INFLATION
The Company has adjusted selling prices to maintain certain profit levels
and will continue to do so as competitive conditions permit. In general,
management believes that the impact of inflation or of changing prices has not
had a material effect on the Company's results of operations during the last
three fiscal years, except as discussed above in "Overview" with respect to the
LIFO method of inventory valuation.
10
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The Statement establishes a fair value-based method of
accounting for stock-based compensation plans, which may be recognized or
disclosed at the Company's option. The Company will adopt the disclosure
approach under SFAS 123 beginning in fiscal year 1997.
In June 1996, the FASB issued Statement of Financial Accounting Standard
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS 125), which is effective for transactions
entered into after December 31, 1996. The Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. The effect of adopting SFAS 125 is not expected
to be material to the Company's financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary data set forth in
Item 14 are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors
Below are the names, ages at September 6, 1996, and principal occupations
for the last five years of each director of the Company.
Class I Directors -- Terms expire at 1998 Annual Meeting
Richard A. Smith -- 71
Director since 1987 Chairman of the Board of the Company and of
Harcourt General; Chairman of the Board, President
(until November 1, 1995) and Chief Executive
Officer of GC Companies, Inc. since December 1993;
Chief Executive Officer of the Company and of
Harcourt General until December 1991; Director of
Harcourt General, GC Companies, Inc., Liberty
Mutual Insurance Company, Liberty Mutual Fire
Insurance Company, Liberty Financial Companies,
Inc., Bank of Boston Corporation and its principal
subsidiary, The First National Bank of Boston. Mr.
Smith is the father of Robert A. Smith, Group Vice
President of the Company and a director of Harcourt
General.
Robert J. Tarr, Jr. -- 52
Director since 1987 President, Chief Executive Officer (since December
1991) and Chief Operating Officer of the Company
and of Harcourt General; Director of Harcourt
General, Open Market, Inc. and John Hancock Mutual
Life Insurance Company.
11
Class II Directors -- Terms expire at 1999 Annual Meeting
Walter J. Salmon -- 65
Director since 1987 Stanley Roth, Sr. Professor of Retailing, Graduate
School of Business Administration, Harvard
University; Director of Hannaford Bros. Co., The
Quaker Oats Company, Circuit City Stores, Inc.,
Luby's Cafeterias, Inc. and Harrah's Entertainment,
Inc.
Matina S. Horner -- 57
Director since 1993 Executive Vice President of the Teachers Insurance
and Annuity Association-College Retirement Equities
Fund (TIAA-CREF) and President Emerita of Radcliffe
College since 1989; President of Radcliffe College
for 17 years prior thereto; Director of Boston
Edison Company.
Class III Director -- Term expires at 1997 Annual Meeting
Jean Head Sisco -- 71
Director since 1987 Partner in Sisco Associates, international
management consultants; Director of Textron, Inc.,
Sante Fe Pacific Gold Corp., Washington Mutual
Investors Fund, Chiquita Brands International,
Inc., The American Funds Tax-Exempt Series I and
K-Tron International, Inc.
B. Executive Officers Who Are Not Directors
Below are the names, ages at September 6, 1996, and principal occupations
for the last five years of each executive officer of the Company who is not also
a director of the Company. All such persons have been elected to serve until the
next annual election of officers and their successors are elected or until their
earlier resignation or removal.
John R. Cook -- 55 Senior Vice President and Chief Financial Officer
of the Company and of Harcourt General since
September 1992; Senior Vice President -- Finance
and Administration and Chief Financial Officer of
NACCO Industries, Inc. prior thereto.
Stephen C. Elkin -- 53 Chairman and Chief Executive Officer of Bergdorf
Goodman since May 1994; President and Chief
Operating Officer of Bergdorf Goodman prior
thereto.
Peter Farwell -- 53 Vice President -- Corporate Relations of the
Company and of Harcourt General.
Bernie Feiwus -- 48 President and Chief Executive Officer of NM Direct
since October 1991; Executive Vice President of
Neiman Marcus -- Horchow Mail Order Division from
March 1991 to October 1991.
Eric P. Geller -- 49 Senior Vice President and General Counsel of the
Company and of Harcourt General since May 1992;
Secretary of the Company since January 1992 and of
Harcourt General since December 1991; Vice
President, Associate General Counsel and Assistant
Secretary of the Company and of Harcourt General
prior thereto.
Paul F. Gibbons -- 45 Vice President and Treasurer of the Company and of
Harcourt General since August 1992; Vice President
and Treasurer of GC Companies, Inc. since March
1994; Vice President -- Taxation of the Company and
of Harcourt General prior to August 1992.
12
Gerald T. Hughes -- 39 Vice President -- Human Resources of the Company
and of Harcourt General since June 1994; Associate
General Counsel of the Company and of Harcourt
General with responsibility for labor and
employment matters from August 1992 to June 1994;
Labor Counsel of the Company and of Harcourt
General prior thereto.
Dawn Mello -- 64 President of Bergdorf Goodman since May 1994 and
from 1983 to 1989; Executive Vice President and
Creative Director Worldwide of Guccio Gucci SpA
from October 1989 to May 1994.
Michael F. Panutich -- 48 Vice President -- General Auditor of the Company
and of Harcourt General since June 1993; Vice
President -- Accounting of the Company and of
Harcourt General prior thereto.
Stephen C. Richards -- 40 Vice President and Controller of the Company and of
Harcourt General since June 1993; Vice President
and Controller of GC Companies, Inc. since January
1994; Partner, Deloitte & Touche prior to June
1993.
Gerald A. Sampson -- 55 President and Chief Operating Officer of Neiman
Marcus Stores since April 1993; Chairman of May
Company California, a division of May Department
Stores Company, from 1991 to January 1993.
Craig B. Sawin -- 40 Vice President -- Planning and Analysis of the
Company and of Harcourt General.
Robert A. Smith -- 37 Group Vice President of the Company since January
1992 and of Harcourt General since December 1991;
President and Chief Operating Officer of GC
Companies, Inc. since November 1, 1995; Vice
President -- Corporate Development of the Company
from March 1989 to January 1992; Vice
President -- Corporate Development of Harcourt
General from December 1988 to December 1991;
Director of Harcourt General. Mr. Smith is the son
of Richard A. Smith, the Chairman of the Company
and of Harcourt General.
Burton M. Tansky -- 58 Chairman and Chief Executive Officer of Neiman
Marcus Stores since May 1994; Chairman and Chief
Executive Officer of Bergdorf Goodman from February
1992 to May 1994; Vice Chairman of Bergdorf Goodman
from February 1991 to February 1992.
C. Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. The Company believes that all filing requirements
applicable to its insiders were complied with during fiscal 1996.
13
ITEM 11. EXECUTIVE COMPENSATION
[Enlarge/Download Table]
SUMMARY COMPENSATION TABLE(1)
The following table provides information on the compensation provided by
the Company during fiscal 1996, 1995 and 1994 to the Company's Chief Executive
Officer and the five most highly paid executive officers of the Company during
fiscal 1996.
LONG-TERM
COMPENSATION(2)
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
----------------------------------------------- RESTRICTED
OTHER ANNUAL STOCK ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(3) ($)(4) ($)(5) (#) ($)(6)
--------------------------- ------ -------- -------- ------------- ---------- ------- ------------
R. J. Tarr, Jr.(1) 1996 -- -- -- -- -- --
President, Chief Executive 1995 -- -- -- -- -- --
Officer and Chief Operating 1994 -- -- -- -- -- --
Officer
B. Tansky 1996 $650,000 $292,500 -- $153,750 -- $16,866
Chairman and Chief 1995 $600,000 $230,640 $160,339 -- 25,000 $14,560
Executive Officer of 1994 $543,750 $122,640 -- -- 21,500 $10,647
Neiman Marcus Stores
G. Sampson 1996 $475,000 $190,000 -- -- 12,000 $12,854
President and Chief 1995 $450,000 $150,480 -- $ 71,875 -- $12,687
Operating Officer of 1994 $431,250 $172,500 -- -- 10,000 $ 6,421
Neiman Marcus Stores
S. Elkin 1996 $480,000 -- -- $115,313 -- $17,170
Chairman and Chief 1995 $450,000 $ 22,500 -- -- 20,000 $15,812
Executive Officer of 1994 $391,875 $ 65,262 -- -- 10,000 $ 9,650
Bergdorf Goodman
D. Mello(7) 1996 $350,000 $ 67,900 -- $ 53,813 -- $ 8,496
President of 1995 $325,000 $ 50,000 -- -- 15,000 $ 2,418
Bergdorf Goodman 1994 $ 50,416 $ 28,438 -- -- -- $ 612
B. Feiwus 1996 $325,000 $126,750 -- $ 76,875 10,000 $10,026
President and Chief 1995 $300,000 -- -- -- 10,000 $ 7,314
Executive Officer of NM 1994 $275,000 $ 88,000 -- -- 7,500 $ 5,883
Direct
<FN>
---------------
(1) Under the terms of an Intercompany Services Agreement, Harcourt General
provides certain management, accounting, financial, legal, tax, personnel
and other corporate services to the Company, including the services of
certain senior officers of Harcourt General who are also senior officers of
the Company, in consideration of a fee based on Harcourt General's direct
and indirect costs of providing the corporate services. The level of
services and fees are subject to the approval of the Special Review
Committee of the Board of Directors of the Company, which consists solely
of directors who are independent of Harcourt General. During fiscal 1996,
1995 and 1994, the Company paid or accrued approximately $6.9 million, $6.5
million and $6.9 million, respectively, to Harcourt General for all of its
services under the Intercompany Services Agreement. With the exception of
Mr. Tarr, the senior officers of Harcourt General, who derive all of their
compensation directly from Harcourt General, are not included in this
table. Mr. Tarr is also the President and Chief Executive Officer of
Harcourt General. All of Mr. Tarr's cash and non-cash compensation is paid
by Harcourt General pursuant to Mr. Tarr's employment agreement with
Harcourt General. Of the amounts paid by the Company to Harcourt General
under the Intercompany Services Agreement for fiscal 1996, 1995 and 1994,
approximately $2.3 million, $2.4 million and $2.3 million, respectively,
were attributable to Mr. Tarr's services. These amounts include costs
related to Mr. Tarr's base compensation, bonuses, benefits and amounts
necessary to fund his retirement benefits, all of which are direct
obligations of Harcourt General.
(2) The Company does not have a long-term compensation program that includes
long-term incentive payouts. No stock appreciation rights were granted to
any of the named executive officers during the years reported in the table.
During fiscal 1996, certain named executive officers surrendered vested
options to purchase shares of Common Stock in consideration of payments
from the Company representing the
14
difference between the closing price of the Common Stock on the New York
Stock Exchange on the respective dates on which the options were
surrendered and the various option exercise prices. For additional
information concerning these transactions, see "Aggregated Option/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values,"
below.
(3) Bonus payments are reported with respect to the year in which the related
services were performed.
(4) No disclosure regarding items included in this category is required unless
the amounts in any year for any named executive officer exceed the lesser
of $50,000 or 10% of the annual salary and bonus for the named executive
officer. Of the $160,339 reported with respect to Mr. Tansky in this column
for fiscal 1995, $140,236 was attributable to relocation-related
reimbursements paid by the Company in fiscal 1995 in connection with his
position as Chairman and Chief Executive Officer of Neiman Marcus Stores
(Mr. Tansky previously was Chairman and Chief Executive Officer of Bergdorf
Goodman).
(5) Calculated by multiplying the closing price of the Common Stock on the New
York Stock Exchange on the date of grant by the number of shares awarded.
Twenty percent of an award of restricted Common Stock are freed from the
restrictions on transfer each year, commencing one year after the date of
grant, provided that the recipient continues to be employed by the Company
on the anniversary date of the grant. Holders of restricted stock are
entitled to vote their restricted shares. In the event of termination of
employment for any reason, other than death or permanent disability,
restricted shares are forfeited by the holders and revert to the Company.
At the end of fiscal 1996, the named executive officers' restricted stock
holdings and market values (based on the New York Stock Exchange closing
price of $27.375 for the Common Stock at fiscal year end) were as follows:
Mr. Tansky -- 10,000 shares ($273,750); Mr. Sampson -- 4,000 shares
($109,500); Mr. Elkin -- 8,500 shares ($232,688); Ms. Mello -- 3,500 shares
($95,813) and Mr. Feiwus -- 5,400 shares ($147,825). The restricted shares
held by Mr. Tansky and Ms. Mello were granted in fiscal 1996, the
restricted shares held by Mr. Sampson were granted in fiscal 1995, and the
restricted shares held by Messrs. Elkin and Feiwus were granted in fiscal
1996 and fiscal 1992.
(6) The items accounted for in this column include the cost to the Company of
matching contributions under (a) the Company's Key Employee Deferred
Compensation Plan or the Employee Savings Plan (401(k) Plan) and (b) group
life insurance premiums. For fiscal 1996, such amounts for each of the
named executive officers were, respectively, as follows: Mr.
Tansky -- $13,146 and $3,720; Mr. Sampson -- $9,351 and $3,503; Mr.
Elkin -- $7,538 and $9,632; Ms. Mello -- $6,000 and $2,496; and Mr.
Feiwus -- $4,844 and $5,182.
(7) Ms. Mello rejoined the Company in May 1994. As a condition of employment,
Ms. Mello was guaranteed a minimum bonus of $50,000 for fiscal 1995.
15
OPTION GRANTS IN LAST FISCAL YEAR(1)
[Enlarge/Download Table]
The following table provides information regarding options granted under
the Company's 1987 Stock Incentive Plan during the fiscal year ended August 3,
1996 to the executive officers named in the Summary Compensation Table.
INDIVIDUAL GRANTS
----------------------------------
% OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#)(3) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- -------- ---------- -------- --------
R. Tarr(4).......................... -- -- -- -- -- --
B. Tansky(5)........................ -- -- -- -- -- --
G. Sampson.......................... 12,000 9.33% $15.375 9/09/05 $116,031 $294,045
S. Elkin(5)......................... -- -- -- -- -- --
D. Mello(5)......................... -- -- -- -- -- --
B. Feiwus(5)........................ 10,000 7.78% $15.375 9/09/05 $ 96,693 $245,038
<FN>
---------------
(1) No stock appreciation rights were granted to any named executive officer
during fiscal 1996.
(2) These potential realizable values are based on assumed rates of appreciation
required by applicable regulations of the Securities and Exchange
Commission.
(3) All option grants are non-qualified stock options having a term of 10 years
and one day. They become exercisable at the rate of 20% on each of the first
five anniversary dates of the grant.
(4) None of the executive officers of Harcourt General who are also officers of
the Company, including Mr. Tarr, participate in the Company's 1987 Stock
Incentive Plan.
(5) Each of Messrs. Tansky, Elkin, Feiwus, and Ms. Mello, received grants of
restricted stock in fiscal 1996. For details, see the Summary Compensation
Table and Note 5 thereto, above.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
[Enlarge/Download Table]
The following table provides information regarding the number and value of
stock options held at August 3, 1996 by the executive officers named in the
Summary Compensation Table.
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
AUGUST 3, 1996(#) AUGUST 3, 1996($)
--------------------- -----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#)(1) REALIZED($)(2) UNEXERCISABLE UNEXERCISABLE(3)
---- ----------------- -------------- --------------------- -----------------
R. Tarr, Jr.(4)......... -- -- -- --
B. Tansky............... -- -- 46,600/39,900 $629,100/531,462
G. Sampson.............. -- -- 4,000/18,000 $ 51,500/221,250
S. Elkin................ 4,649 $ 36,695 46,350/26,000 $570,900/346,750
D. Mello................ 1,500 $ 18,000 1,500/12,000 $ 19,500/156,000
B. Feiwus............... 16,711 $105,354 0/24,500 $ 0/312,688
<FN>
---------------
(1) The number of shares listed in this column for each of the named executive
officers represents the surrender of vested options to purchase shares of
Common Stock at various exercise prices. The Company paid the executive
officers the respective amounts shown in the second column of this table in
connection with such surrenders. Those amounts were calculated based on the
difference between the
16
closing price of the Common Stock on the New York Stock Exchange on the
respective dates on which the options were surrendered and the various
option exercise prices.
(2) Represents the difference between the closing price of the Common Stock on
The New York Stock Exchange on the date of exercise and the option exercise
price.
(3) The value of unexercised in-the-money options is calculated by multiplying
the number of underlying shares by the difference between the closing price
of the Common Stock on the New York Stock Exchange at fiscal year end
($27.375) and the option exercise price for those shares. These values have
not been realized. The closing price of the Common Stock on the New York
Stock Exchange on September 6, 1996 was $32.625.
(4) None of the executive officers of Harcourt General who are also officers of
the Company, including Mr. Tarr, participate in the Company's 1987 Stock
Incentive Plan.
DIRECTORS COMPENSATION
Directors who are not affiliated with the Company or Harcourt General each
receive an annual retainer of $20,000 and a fee of $1,500 per Board of Directors
meeting attended, plus travel and incidental expenses (an aggregate of $3,348 in
fiscal 1996) incurred in attending meetings and carrying out their duties as
directors. They also receive a fee of $500 (the Chairperson receives $1,000) for
each committee meeting attended. If a director is unable to attend a meeting in
person but participates by telephone, he or she receives one-half of the fee
that would otherwise be payable.
PENSION PLANS
The Company maintains a funded, qualified pension plan known as The Neiman
Marcus Group, Inc. Retirement Plan (the "Retirement Plan"). Most non-union
employees over age 21 who have completed one year of service with 1,000 or more
hours participate in the Retirement Plan, which pays benefits upon retirement or
termination of employment. The Retirement Plan is a "career-average" plan, under
which a participant earns each year a retirement annuity equal to 1% of his or
her compensation for the year up to the Social Security wage base and 1.5% of
his or her compensation for the year in excess of such wage base. Benefits under
the Retirement Plan become fully vested after five years of service with the
Company.
The Company also maintains a Supplemental Executive Retirement Plan (the
"SERP"). The SERP is an unfunded, nonqualified plan under which benefits are
paid from the Company's general assets to supplement Retirement Plan benefits
and Social Security. Executive, administrative and professional employees (other
than those employed as salespersons) with an annual base salary at least equal
to a self-adjusting minimum ($100,000 as of August 3, 1996) are eligible to
participate. At normal retirement age (age 65), a participant with 25 or more
years of service is entitled to payments under the SERP sufficient to bring his
or her combined annual benefit from the Retirement Plan and SERP, computed as a
straight life annuity, up to 50% of the participant's highest consecutive 60
month average of annual pensionable earnings, less 60% of his or her estimated
annual primary Social Security benefit. If the participant has fewer than 25
years of service, the combined benefit is proportionately reduced. In computing
the combined benefit, "pensionable earnings" means base salary, including any
salary which may have been deferred. Benefits under the SERP become fully vested
after five years of service with the Company.
The following table shows the estimated annual pension benefits payable to
employees in various compensation and years of service categories. The estimated
benefits apply to an employee retiring at age 65 in 1996 who elects to receive
his or her benefit in the form of a straight life annuity. These benefits
include amounts attributable to both the Retirement Plan and the SERP and are in
addition to any retirement benefits that might be received from Social Security.
17
[Enlarge/Download Table]
ESTIMATED ANNUAL RETIREMENT BENEFITS
UNDER RETIREMENT PLAN AND SERP(1)
AVERAGE TOTAL YEARS OF SERVICE
PENSIONABLE -------------------------------------------------------------
EARNINGS 5 10 15 20 25 OR MORE
----------- ------- -------- -------- -------- ----------
$300,000............................. $30,000 $ 60,000 $ 90,000 $120,000 $150,000
400,000............................. 40,000 80,000 120,000 160,000 200,000
500,000............................. 50,000 100,000 150,000 200,000 250,000
600,000............................. 60,000 120,000 180,000 240,000 300,000
700,000............................. 70,000 140,000 210,000 280,000 350,000
800,000............................. 80,000 160,000 240,000 320,000 400,000
<FN>
---------------
(1) The amounts actually payable will be lower than the amounts shown above,
since the above amounts will be reduced by 60% of the participant's
estimated primary Social Security benefit.
[Enlarge/Download Table]
The following table shows the pensionable earnings and credited years of
service for the executive officers named in the Summary Compensation Table as of
August 3, 1996 and years of service creditable at age 65. Credited service may
not exceed 25 years for purpose of calculating retirement benefits under any of
the Company's retirement plans.
PENSIONABLE EARNINGS YEARS OF SERVICE
FOR YEAR ENDED -------------------------------
NAME AUGUST 3, 1996 AT AUGUST 3, 1996 AT AGE 65
---- -------------------- ----------------- ---------
R. Tarr, Jr.(1)......................... -- -- --
B. Tansky............................... $650,000 --(2) 20(2)
G. Sampson.............................. 475,000 --(3) 20(3)
S. Elkin................................ 480,000 18 25
D. Mello................................ 350,000 15 15
B. Feiwus............................... 325,000 16 25
<FN>
---------------
(1) Mr. Tarr does not participate in the Company's Retirement Plan or SERP.
(2) Under Mr. Tansky's employment agreement with the Company, for purposes of
determining his retirement benefits under the SERP, Mr. Tansky will be
credited with 5/3 times his years of service with the Company provided (i)
he remains continuously employed by the Company until his 65th birthday or
(ii) the Company fails to extend his employment beyond January 31, 2000 in a
manner set forth in his February 1, 1997 employment agreement; otherwise,
Mr. Tansky's accrued service under the SERP will be calculated in the normal
manner. Mr. Tansky is 58 years old.
(3) For purposes of determining Mr. Sampson's retirement benefits under the
SERP, Mr. Sampson will be credited with 20/13 times his years of service
with the Company provided he remains continuously employed by the Company
until his 65th birthday; otherwise, Mr. Sampson's accrued service under the
SERP will be calculated in the normal manner. Mr. Sampson is 55 years old.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Burton Tansky. The Company and Mr. Tansky have entered into successive
employment agreements (effective May 1, 1994 and February 1, 1997) pursuant to
which Mr. Tansky is employed as Chairman and Chief Executive Officer of Neiman
Marcus Stores through January 31, 2000. In the event Mr. Tansky is terminated
without cause within 24 months of a change of control of the Company, or if
within 24 months of such a change of control Mr. Tansky resigns because he is
not permitted to continue in a position comparable in duties and
responsibilities to that which he held prior to the change of control, Mr.
Tansky will be entitled to receive his then-current base compensation for 18
months. If the Company terminates Mr. Tansky's employment during the term of the
Employment Agreement for any reason other than for cause or other than because
of his total disability or death, Mr. Tansky will continue to receive his base
compensation and benefits
18
until January 31, 2001 or for 18 months following termination, whichever is
greater. If the Company determines not to extend Mr. Tansky's employment beyond
January 31, 2000, the Company will pay to Mr. Tansky his then-current base
compensation through January 31, 2001, which amount will be reduced by any
amounts earned by him from other employment between August 1, 2000 and January
31, 2001, and the Company will credit Mr. Tansky with service pursuant to the
SERP as if he had remained employed by the Company until age 65.
Gerald A. Sampson. Pursuant to an agreement between Mr. Sampson and the
Company, effective September 1996, Mr. Sampson is entitled to receive severance
payments in the event his employment with the Company is terminated in certain
situations. If the Company terminates Mr. Sampson's employment other than for
cause or other than due to his total disability or death, Mr. Sampson shall have
the right to receive an amount equal to his then-current annual base salary,
payable in 12 monthly installments. Mr. Sampson will also be entitled to receive
such payments if his employment is terminated by a successor to the Company
within 24 months of a change of control of the Company without cause or other
than due to his total disability or death, or if within 24 months of such a
change of control Mr. Sampson resigns because he is not permitted to continue in
a position comparable in duties and responsibilities to that which he held prior
to the change of control. Beginning six months following the date of a covered
termination or resignation, all amounts to be paid under such agreement shall be
reduced by the amount Mr. Sampson receives as compensation or severance related
to other employment. Mr. Sampson has agreed to provide the Company with 3 months
advance notice of his intent to resign from the Company provided that such
resignation does not follow a change of control of the Company.
Stephen C. Elkin. Pursuant to an agreement between Mr. Elkin and Bergdorf
Goodman, effective September 1993, Mr. Elkin is entitled to receive severance
payments in the event his employment with Bergdorf Goodman is terminated in
certain situations. If the Company terminates Mr. Elkin's employment other than
for cause or other than due to his total disability or death, he will receive an
amount equal to one and one half times his then-current base salary, which
amount will be paid to him in 18 monthly installments following such termination
but will be reduced by any amounts received by him from other employment during
the period beginning six months following his termination and ending at the end
of the 18 month period. Mr. Elkin will also be entitled to receive such payments
in the event his employment is terminated without cause within 24 months of a
change of control of either Bergdorf Goodman or the Company, or in the event he
resigns within 24 months of a change of control because he is not permitted to
continue in a position comparable in duties and responsibilities to that which
he held before the change of control.
Dawn Mello. Pursuant to an agreement between Ms. Mello and Bergdorf
Goodman, effective May 1994, Ms. Mello is entitled to receive severance payments
in the event her employment with Bergdorf Goodman is terminated in certain
situations. If the Company terminates Ms. Mello's employment other than for
cause or other than due to her total disability or death, Ms. Mello will receive
an amount equal to her then-current annual salary, which amount will be paid in
12 monthly installments following such termination but will be reduced by any
amounts received by her from other employment during the period beginning six
months and ending 12 months following such termination.
Bernie Feiwus. Pursuant to an agreement between Mr. Feiwus and NM Direct,
effective October 1995, Mr. Feiwus is entitled to receive severance payments in
the event his employment with NM Direct is terminated in certain situations. If
the Company terminates Mr. Feiwus' employment without cause within 24 months of
a change of control of the Company or of NM Direct, or if within 24 months after
such a change of control Mr. Feiwus resigns his employment because he is not
permitted to continue in a position comparable in duties and responsibilities to
that which he held before the change of control, he will receive an amount equal
to one and one half times his then-current annual base salary, which amount will
be paid in 18 monthly installments following such termination but will be
reduced by any amounts received by him from other employment during the period
beginning six months and ending 18 months following such termination.
19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, Richard A. Smith, Chairman of the Board of Directors of
the Company, served on the Boards of Directors of Liberty Mutual Insurance
Company and Liberty Mutual Fire Insurance Company (collectively, "Liberty
Mutual"). Gary L. Countryman, who served as a director of the Company and the
Chairman of the Company's Compensation Committee until his resignation from
these positions on January 19, 1996, is the Chairman and Chief Executive Officer
of Liberty Mutual. Liberty Mutual underwrites most of the Company's insurance
policies. These insurance policies contain terms which, in the judgment of
management, are no less favorable than could be obtained from other insurance
companies. During fiscal 1996, the Company paid to Liberty Mutual an aggregate
of approximately $2.2 million in premiums and administrative fees.
------------------------
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934, each as amended, that might incorporate future filings, including this
Form 10-K, in whole or in part, the following Compensation Committee Report on
Executive Compensation and Stock Performance Graph shall not be deemed to be
incorporated by reference into any such filings, nor shall such sections of this
Report be deemed to be incorporated into any future filings made by the Company
under the Securities Act of 1933 or the Securities Exchange Act of 1934.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of Walter J. Salmon (Chairman),
Matina S. Horner and Jean Head Sisco. The members of the Compensation Committee
are all independent directors.
The principal responsibility of the Committee is to review the performance
of, and determine the compensation for, the executive officers of the Company
who are not also executive officers of Harcourt General. The individuals in this
group include Messrs. Tansky, Sampson, Elkin, Feiwus and Ms. Mello, all of whom
are named executive officers in the Summary Compensation Table. The compensation
of Harcourt General's executive officers, most of whom are also executive
officers of the Company, is determined by Harcourt General's Compensation
Committee.
Compensation Policies
The principal objectives of the Company's executive compensation program
are to reward competitively its executive officers in order to attract and
retain excellent management and to provide incentives that will most sharply
focus the attention of those individuals on the goal of increasing the
profitability of the Company and its operating divisions over both the short and
long terms.
Early in each fiscal year, the Committee considers the recommendations of
the Chief Executive Officer, which are supported by data generated by the
Company's Human Resources Department, for each component of compensation of the
Company's executive officers. The Committee reviews those recommendations and
then approves them or makes such modifications as it deems appropriate.
The principal components of the Company's compensation program are:
Base Salary
Base salary is determined with reference both to salary survey
information from recognized compensation consulting firms and to each
executive officer's level of responsibility, experience and performance.
The salary survey data is used to establish benchmark amounts for both base
salary and total cash compensation for each executive position. Comparisons
are made to a range of retail companies or to divisions within such
companies, with the principal selection criteria for comparisons being
similar revenues to the division within the Company. While there are no
hard and fast rules which bind the Committee, the Company generally sets
its salary and total cash compensation benchmarks (assuming that maximum
bonuses are achieved) for executive officers at the 75th percentile of the
comparison
20
group of companies in order to compete for and retain the best management
talent available. Because the Company competes for executive talent with a
broad range of companies, the Committee does not limit its comparison
information for compensation purposes to the companies included in the peer
group in the Stock Performance Graph.
The Committee reviews in detail the base salary levels for each of the
principal executive officers of the Company. While the Committee uses the
benchmarks as a reference point, a particular individual's base salary may
vary from the benchmark depending upon his or her salary history,
experience, individual performance, contractual obligations of the Company,
guidelines established by the Chief Executive Officer with respect to
salary increases for the entire Company and the subjective judgment of the
Committee.
Annual Incentive Plan
The determination of annual bonuses is based principally on the
achievement of performance objectives by the operating division for which
the executive is responsible and the individual executive's own
performance. For some executive officers, a small component of their bonus
eligibility depends on the Company's overall performance.
Shortly after the beginning of each fiscal year, the Compensation
Committee considers the recommendations of the Chief Executive Officer for
the Company's and each division's performance goals for the current year,
the executive officers who should participate in the annual incentive plan
for that year, and the maximum bonus values attainable by them. The
Committee approves those recommendations with such modifications as it
deems appropriate.
For fiscal 1996, the plan provided for maximum bonuses ranging from
35% to 45% of base salary. Eligibility for the divisional performance
component of the bonus was determined based on a weighting of several
factors, the most important of which was operating earnings before
corporate expenses. Other factors included return on net assets and working
capital as a percentage of sales. Similar factors will be used by the
Committee in determining bonuses for fiscal 1997. In addition, each of the
Company's executive officers prepares and reaches agreement with the Chief
Executive Officer on individual performance goals which must be achieved in
addition to the performance targets in order for an executive to receive
his or her full bonus. Individual performance goals typically include
achievement of specific tasks.
The bonuses actually awarded to the executive officers for fiscal 1996
were determined by an assessment of all of these factors, as well as
certain subjective factors.
Absent extraordinary circumstances, if the financial performance
targets are exceeded, bonus awards are not increased over the maximum bonus
values established by the Committee. If the performance targets are not
met, bonus awards will, in all probability, be reduced at the discretion of
the Committee. If the Company and/or the relevant division falls
sufficiently short of its performance target, there is a presumption that
bonuses would not be paid absent special circumstances. Factors such as the
performance of a business unit for which the executive officer is
responsible and achievement of individual performance goals are considered
in the decision to award a bonus. If corporate and/or division performance
targets are met, but an individual falls short of his or her performance
goals, the individual's bonus could be reduced or eliminated in the
discretion of the Committee.
The bonus program is intended to put substantial amounts of total cash
compensation at risk with the intent of focusing the attention of the
executives on achieving both the Company's and their division's performance
goals and their individual goals, thereby contributing to profitability and
building shareholder value.
Stock Incentives
The Committee's purpose in awarding equity based incentives,
principally in the form of stock options which vest over a five year period
and terminate ten years from the date of grant and in the form
21
of restricted stock which vests over a five year period, is to achieve as
much as possible an identity of interest between the executives and the
long term interest of the stockholders. The principal factors considered in
determining which executive officers (including the named executive
officers) were awarded equity based compensation in the 1996 fiscal year,
and in determining the types and amounts of such awards, were salary
levels, equity awards granted to executives at competing retail companies,
as well as the performance, experience and level of responsibility of each
executive.
Compensation of the Chief Executive Officer
Mr. Tarr is also the Chief Executive Officer of Harcourt General, which
owns a majority of the outstanding Common Stock. All of Mr. Tarr's cash and
non-cash compensation is paid directly by Harcourt General to Mr. Tarr pursuant
to an employment agreement between Mr. Tarr and Harcourt General which was
approved by the Harcourt General Compensation Committee and became effective in
November 1991. Mr. Tarr receives no compensation directly from the Company.
However, pursuant to the Intercompany Services Agreement between the Company and
Harcourt General, Harcourt General provides certain management and other
corporate services to the Company, including Mr. Tarr's services as Chief
Executive Officer. During fiscal 1996, the Company paid or accrued approximately
$6.9 million to Harcourt General for all of its services under the Intercompany
Services Agreement, of which approximately $2.3 million was attributable to Mr.
Tarr's services. While the Special Review Committee of the Company reviews each
year the appropriateness of the charges by Harcourt General to the Company under
the Intercompany Services Agreement, neither this Committee nor the Special
Review Committee plays any role in determining the compensation that Mr. Tarr,
or any other executive officer of Harcourt General, receives from Harcourt
General.
Compliance with the Internal Revenue Code
The Internal Revenue Code (the "Code") generally disallows a tax deduction
to public companies for compensation in excess of $1 million per year which is
not "performance based" paid to each of the executive officers named in the
Summary Compensation Table. The Committee and the Board of Directors recently
approved The Neiman Marcus Group 1997 Incentive Plan, subject to approval by the
stockholders of the Company at the 1997 Annual Meeting. If this Plan is approved
by the stockholders, it will allow the Committee to continue to award stock
incentives and cash bonuses based on objective criteria and consistent with past
practice. The stock incentives and cash bonuses awarded under the Plan will be
characterized as "performance based" compensation and therefore will be fully
deductible by the Company.
The Committee will continue to monitor the requirements of the Code and to
determine what actions should be taken by the Company in order to preserve the
tax deduction for executive compensation to the maximum extent, consistent with
the Company's continuing goals of providing the executives of the Company with
appropriate incentives and rewards for their performance.
COMPENSATION COMMITTEE
Walter J. Salmon, Chairman
Matina S. Horner
Jean Head Sisco
22
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Common Stock against the cumulative total return during the five
fiscal years ended August 3, 1996 of (i) the Standard & Poor's 500 Index and
(ii) a peer group index consisting of Tiffany & Co. and Nordstrom, Inc. The
graph assumes a $100 investment in the Company's Common Stock and in each index
company at August 3, 1991, and that all dividends were reinvested. The common
stocks of the companies in the peer group index have been weighted annually to
reflect relative stock market capitalization. The comparisons provided in this
graph are not intended to be indicative of possible future performance of the
Company's stock.
STOCK PERFORMANCE GRAPH
[Download Table]
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
THE NEIMAN MARCUS GROUP, INC., S&P 500 INDEX, AND PEER INDEX
THE NEIMAN
MEASUREMENT PERIOD MARCUS GROUP, S&P 500 IN-
(FISCAL YEAR COVERED) INC. DEX PEER INDEX
--------------------- ------------- ----------- ----------
03-AUG-91 100.00 100.00 100.00
01-AUG-92 83.67 113.54 62.36
31-JUL-93 91.04 123.20 61.48
30-JUL-94 96.97 129.03 94.49
29-JUL-95 98.47 161.79 89.93
03-AUG-96 172.13 194.77 101.62
23
[Enlarge/Download Table]
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of September 6, 1996, with
respect to the beneficial ownership of the Common Stock by (i) each person known
to the Company to own beneficially more than 5% of the outstanding shares of
Common Stock; (ii) each executive officer named in the Summary Compensation
Table; (iii) each director of the Company; and (iv) all directors and current
executive officers of the Company as a group.
NUMBER PERCENT
OF SHARES OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) STOCK
------------------------------------ ---------- ---------
Harcourt General, Inc.(2)...................................... 22,572,360 59.40%
27 Boylston Street
Chestnut Hill, MA 02167
Gabelli Funds, Inc.(3)......................................... 5,391,800 14.19%
One Corporate Center
Rye, NY 10580
Neuberger & Berman, L.P.(4).................................... 2,384,300 6.27%
605 Third Avenue
New York, NY 10158
Burton M. Tansky(5)............................................ 69,900 *
Gerald A. Sampson(6)........................................... 29,400 *
Stephen Elkin(7)............................................... 77,380 *
Dawn Mello(8).................................................. 8,000 *
Bernie Feiwus(9)............................................... 29,784 *
Matina S. Horner............................................... -- *
Walter J. Salmon............................................... 8,942 *
Jean Head Sisco................................................ 1,134 *
Richard A. Smith(10)........................................... -- *
Robert J. Tarr, Jr.(10)........................................ -- *
All current executive officers and directors as a group (19
persons)(11)................................................. 224,540 *
<FN>
---------------
* Less than 1%.
(1) Unless otherwise indicated in the following footnotes, each stockholder
referred to above has sole voting and investment power with respect to the
shares listed.
(2) Harcourt General holds approximately 59% of the outstanding Common Stock
and 100% of the outstanding 6% Preferred Stock. At August 3, 1996, each
share of 6% Preferred Stock was convertible into 9.12 shares of Common
Stock at a price of $41.12 per share of Common Stock. The closing price of
the Common Stock on the New York Stock Exchange on September 6, 1996 was
$32.625. Harcourt General also holds 100% of the outstanding 9 1/4%
Preferred Stock, which has no conversion rights.
Richard A. Smith, Chairman of the Board of Directors of the Company and of
Harcourt General, his sister, Nancy L. Marks, and certain members of their
families may be regarded as controlling persons of Harcourt General, and
therefore of the Company. The shares of Harcourt General Class B Stock and
Harcourt General Common Stock beneficially owned by or for the benefit of
the Smith family constitute approximately 28% of the aggregate number of
outstanding equity securities of Harcourt General. Each share of Harcourt
General voting stock entitles the holder thereof to one vote on all matters
submitted to Harcourt General's stockholders, except that each share of
Harcourt General Class B Stock (virtually all of which is owned by the
Smith family) entitles the holder thereof to ten votes on the election of
directors at any Harcourt General stockholders' meeting under certain
circumstances. Accordingly, as to any elections in which the Harcourt
General Class B Stock would carry ten votes per share at a Harcourt General
stockholders' meeting, the Smith family would have approximately 80% of the
combined voting power of the Harcourt General voting securities.
Under the definition of "beneficial ownership" in Rule 13d-3 of the Rules
and Regulations promulgated under the Securities Exchange Act of 1934, as
amended, the Smith family and the members of Harcourt General's Board of
Directors may be deemed to be the beneficial owners of the securities of
24
the Company beneficially owned by Harcourt General in that they may be
deemed to share with Harcourt General the power to direct the voting and/or
disposition of such securities. However, this information should not be
deemed to constitute an admission that any such person or group of persons
is the beneficial owner of such securities.
Assuming the completion of the Offering and the related transactions,
Harcourt General will continue to own a majority of the issued and
outstanding shares of Common Stock.
(3) The information reported is based on a Schedule 13G dated July 10, 1995
filed with the Securities and Exchange Commission (the "Commission") by the
Gabelli Funds, Inc. and its affiliates (collectively, the "Gabelli
Affiliates"). The Gabelli Affiliates have sole voting power with respect to
5,115,900 shares and sole dispositive power with respect to all of the
shares shown in the table.
(4) The information reported is based on a Schedule 13G dated February 12, 1996
filed with the Commission by Neuberger & Berman, L.P. Neuberger & Berman
has sole voting power with respect to 215,700 shares shown in the table.
(5) Includes 59,900 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
10,000 shares of restricted stock over which Mr. Tansky has voting but not
dispositive power.
(6) Includes 8,400 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
4,000 shares of restricted stock over which Mr. Sampson has voting but not
dispositive power.
(7) Includes 54,350 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
8,500 shares of restricted stock over which Mr. Elkin has voting but not
dispositive power.
(8) Includes 4,500 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
3,500 shares of restricted stock over which Ms. Mello has voting but not
dispositive power.
(9) Includes 6,500 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
5,400 shares of restricted stock over which Mr. Feiwus has voting but not
dispositive power.
(10) The members of the Board of Directors of Harcourt General, including
Messrs. Smith and Tarr, may be deemed to be the beneficial owners of the
securities of the Company owned by Harcourt General. However, this
information should not be deemed to be an admission that any such person or
group is the beneficial owner of such securities.
(11) Excludes the beneficial ownership of securities of the Company which may be
deemed to be attributed to Messrs. Smith and Tarr (see Notes 2 and 10
above). Includes 133,650 shares of Common Stock which are subject to
outstanding options exercisable within 60 days of September 6, 1996. Also
includes 31,400 shares of restricted stock over which individuals in the
group have voting but not dispositive power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH PRINCIPAL STOCKHOLDER -- INTERCOMPANY SERVICES AGREEMENT
See Note 1 to the Summary Compensation Table in Item 11 above.
TRANSACTIONS WITH DIRECTORS
See "Compensation Committee Interlocks and Insider Participation" in Item
11 above.
25
TRANSACTIONS WITH OFFICERS
During fiscal 1996 and through September 6, 1996, the maximum aggregate
principal amount of loans that Mr. Sampson had outstanding from the Company was
$227,891. These loans were incurred pursuant to the Company's Key Executive
Stock Purchase Loan Plan (the "Loan Plan"). These loans were used by Mr. Sampson
to purchase 15,000 shares of Common Stock in the open market and to discharge
certain tax liabilities incurred in connection with the release of restrictions
on Common Stock previously granted to Mr. Sampson. The loans are secured by a
pledge of the purchased shares and they bear interest at an annual rate of 5%,
payable quarterly. Pursuant to the terms of the Loan Plan, the loans will become
due and payable seven months after Mr. Sampson's employment with the Company
terminates. No other officer of the Company had outstanding loans under the Loan
Plan in excess of $60,000 during fiscal 1996 or subsequent thereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(A)(1) CONSOLIDATED FINANCIAL STATEMENTS
The documents listed below are filed as part of this Form 10-K:
[Download Table]
PAGE IN
FORM 10-K
---------
Independent Auditors' Report...................................... F-2
Consolidated Balance Sheets....................................... F-3
Consolidated Statements of Operations............................. F-4
Consolidated Statements of Cash Flows............................. F-5
Consolidated Statements of Common Shareholders' Equity............ F-6
Notes to Consolidated Financial Statements........................ F-7
14(A)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The report and schedule listed below are filed as part of this Form 10-K:
[Download Table]
PAGE IN
FORM 10-K
---------
Independent Auditors' Report on Consolidated Financial Statement
Schedule........................................................ F-18
Schedule II -- Valuation and Qualifying Accounts and Reserves..... F-19
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission have been omitted because
the information is disclosed in the Consolidated Financial Statements or because
such schedules are not required or are not applicable.
14(A)(3) EXHIBITS
The exhibits filed as part of this Annual Report on Form 10-K are listed in
the Exhibit Index immediately preceding the exhibits. Each management contract
and compensation plan filed as an exhibit to this Form 10-K in response to Item
14(c) of Form 10-K is identified with an asterisk in the Exhibit Index.
14(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
August 3, 1996.
26
[Enlarge/Download Table]
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Cash Flows................................................. F-5
Consolidated Statements of Common Shareholders' Equity................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
Independent Auditors' Report on Consolidated Financial Statement Schedule............. F-18
Schedule II -- Valuation and Qualifying Accounts and Reserves......................... F-19
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Neiman Marcus Group, Inc.
Chestnut Hill, Massachusetts
We have audited the accompanying consolidated balance sheets of The Neiman
Marcus Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and
the related consolidated statements of operations, common shareholders' equity
and cash flows for each of the three fiscal years in the period ended August 3,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Neiman
Marcus Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended August 3, 1996, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
August 29, 1996,
(September 10, 1996 as to Note 13)
F-2
THE NEIMAN MARCUS GROUP, INC.
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CONSOLIDATED BALANCE SHEETS
JULY 29, AUGUST 3,
1995 1996
---------- ----------
(DOLLAR AMOUNTS IN
THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and equivalents.............................................. $ 13,695 $ 12,659
Accounts receivable, less allowance for doubtful accounts of
$6,100 and $5,800.............................................. 150,110 165,442
Merchandise inventories........................................... 359,092 443,948
Deferred income taxes............................................. 17,102 21,666
Other current assets.............................................. 38,410 45,368
---------- ----------
TOTAL CURRENT ASSETS...................................... 578,409 689,083
---------- ----------
PROPERTY AND EQUIPMENT
Land, buildings and improvements.................................. 342,551 396,541
Fixtures and equipment............................................ 200,664 271,852
Construction in progress.......................................... 84,956 36,431
---------- ----------
628,171 704,824
Less accumulated depreciation and amortization.................... 204,588 247,199
---------- ----------
PROPERTY AND EQUIPMENT, NET....................................... 423,583 457,625
---------- ----------
OTHER ASSETS........................................................ 106,445 105,642
---------- ----------
$1,108,437 $1,252,350
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term liabilities..... $ 11,859 $ 35,576
Accounts payable.................................................. 170,672 192,146
Accrued liabilities............................................... 152,049 146,326
---------- ----------
TOTAL CURRENT LIABILITIES................................. 334,580 374,048
---------- ----------
LONG-TERM LIABILITIES
Notes and debentures.............................................. 242,000 292,000
Other long-term liabilities....................................... 69,056 69,940
---------- ----------
TOTAL LONG-TERM LIABILITIES............................... 311,056 361,940
---------- ----------
DEFERRED INCOME TAXES............................................... 30,812 33,329
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCKS (redemption value $424,923)............. 405,442 407,426
COMMON STOCK
Common stock -- $.01 par value
Authorized -- 100,000,000 shares
Issued and outstanding -- 37,959,646 and 38,003,702 shares..... 380 380
ADDITIONAL PAID-IN CAPITAL.......................................... 82,366 83,106
ACCUMULATED DEFICIT................................................. (56,199) (7,879)
---------- ----------
$1,108,437 $1,252,350
========== ==========
See Notes to Consolidated Financial Statements.
F-3
THE NEIMAN MARCUS GROUP, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
----------------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
Revenues............................................... $1,789,461 $1,888,249 $2,075,003
Cost of goods sold including buying and occupancy
costs................................................ 1,210,262 1,276,776 1,416,296
Selling, general and administrative expenses........... 420,667 448,956 485,533
Corporate expenses..................................... 13,411 12,465 13,719
---------- ---------- ----------
Operating earnings..................................... 145,121 150,052 159,455
Interest expense....................................... 31,878 33,958 28,228
---------- ---------- ----------
Earnings from continuing operations before income
taxes................................................ 113,243 116,094 131,227
Income taxes........................................... 47,562 48,759 53,803
---------- ---------- ----------
Earnings from continuing operations.................... 65,681 67,335 77,424
Loss from discontinued operations, net of taxes
(including loss on disposal of $9,873 in 1995)....... (49,755) (11,727) --
---------- ---------- ----------
Net earnings........................................... 15,926 55,608 77,424
Dividends and accretion on redeemable preferred
stocks............................................... (29,080) (29,092) (29,104)
---------- ---------- ----------
Net earnings (loss) applicable to common
shareholders......................................... $ (13,154) $ 26,516 $ 48,320
========== ========== ==========
Weighted average shares outstanding.................... 37,946 37,999 38,218
========== ========== ==========
Amounts per share applicable to common shareholders:
Earnings from continuing operations.................. $ .96 $ 1.01 $ 1.26
Loss from discontinued operations.................... (1.31) (.31) --
---------- ---------- ----------
Net earnings (loss).................................. $ (.35) $ .70 $ 1.26
========== ========== ==========
See Notes to Consolidated Financial Statements.
F-4
THE NEIMAN MARCUS GROUP, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
-----------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ----------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................... $ 15,926 $ 55,608 $ 77,424
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................................ 48,086 48,397 56,305
Deferred income taxes........................................ (7,131) 259 (2,047)
Change in net assets of discontinued operations.............. 22,162 8,317 --
Other........................................................ 4,963 (3,479) 2,447
Changes in current assets and liabilities:
Accounts receivable.......................................... (52,664) (34,584) (15,332)
Merchandise inventories...................................... 17,422 (38,709) (84,856)
Accounts payable and accrued liabilities..................... (1,975) 63,005 15,751
Other........................................................ (13,203) 6,846 (6,958)
-------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................... 33,586 105,660 42,734
-------- --------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Additions to property and equipment............................ (65,074) (93,514) (85,736)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of debt............................................. 73,800 17,065 109,917
Repayment of debt.............................................. (11,307) (247,276) (41,571)
Proceeds from receivables securitization....................... -- 245,965 --
Common stock issued............................................ 100 112 740
Dividends paid................................................. (34,709) (30,917) (27,120)
-------- --------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES........... 27,884 (15,051) 41,966
-------- --------- --------
CASH AND EQUIVALENTS
Decrease during the year....................................... (3,604) (2,905) (1,036)
Beginning balance.............................................. 20,204 16,600 13,695
-------- --------- --------
Ending balance................................................. $ 16,600 $ 13,695 $ 12,659
======== ========= ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest..................................................... $ 31,504 $ 34,466 $ 27,816
======== ========= ========
Income taxes................................................. $ 34,258 $ 17,614 $ 56,523
======== ========= ========
See Notes to Consolidated Financial Statements.
F-5
THE NEIMAN MARCUS GROUP, INC.
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CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ---------- -----------
(IN THOUSANDS)
Balance -- August 1, 1993............................ 37,938 $379 $82,154 $(58,175)
Net earnings......................................... -- -- -- 15,926
Accretion of redeemable preferred stock.............. -- -- -- (1,960)
Common dividends..................................... -- -- -- (7,589)
Preferred dividends.................................. -- -- -- (27,120)
Other equity transactions............................ 13 1 100 --
------ ---- ------- --------
Balance -- July 30, 1994............................. 37,951 380 82,254 (78,918)
Net earnings......................................... -- -- -- 55,608
Accretion of redeemable preferred stock.............. -- -- -- (1,972)
Common dividends..................................... -- -- -- (3,797)
Preferred dividends.................................. -- -- -- (27,120)
Other equity transactions............................ 9 -- 112 --
------ ---- ------- --------
Balance -- July 29, 1995............................. 37,960 380 82,366 (56,199)
Net earnings......................................... -- -- -- 77,424
Accretion of redeemable preferred stock.............. -- -- -- (1,984)
Preferred dividends.................................. -- -- -- (27,120)
Other equity transactions............................ 44 -- 740 --
------ ---- ------- --------
Balance -- August 3, 1996............................ 38,004 $380 $83,106 $ (7,879)
====== ==== ======= ========
See Notes to Consolidated Financial Statements.
F-6
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF REPORTING
The Company's specialty retailing businesses include Neiman Marcus Stores,
NM Direct and Bergdorf Goodman. The consolidated financial statements include
the accounts of all of the Company's wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The Company's
fiscal year ends on the Saturday closest to July 31. In fiscal 1996, the
reporting period included 53 weeks as compared to 52 weeks in each of fiscal
years 1995 and 1994.
CASH AND EQUIVALENTS
Cash and equivalents consist of cash and highly liquid investments with
maturities of three months or less from the date of purchase.
MERCHANDISE INVENTORIES
Inventories are stated at the lower of cost or market. Substantially all of
the Company's inventories are valued using the retail method on the last-in,
first-out (LIFO) basis. While the Company believes that the LIFO method provides
a better matching of costs and revenues, some specialty retailers use the
first-in, first-out (FIFO) method and, accordingly, the Company has provided the
following data for comparative purposes.
If the FIFO method of inventory valuation had been used to value all
inventories, merchandise inventories would have been $13.5 million and $14.2
million higher than reported at August 3, 1996 and July 29, 1995, respectively.
As a result of using the LIFO valuation method, net earnings were $0.4 million
higher in 1996, $6.0 million higher in 1995, and $1.4 million lower in 1994 than
they would have been using the FIFO method.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on a straight-line basis over
the shorter of the estimated useful lives of the related assets or the lease
term. Buildings and improvements are depreciated over 15 to 30 years while
fixtures and equipment are depreciated over 2 to 15 years.
When property and equipment are retired or have been fully depreciated, the
cost and the related accumulated depreciation are eliminated from the respective
accounts. Gains or losses arising from dispositions are reported as income or
expense.
Intangibles are amortized on a straight-line basis over their estimated
useful lives, not exceeding 40 years. Amortization expense was $3.7 million in
1996, $3.7 million in 1995 and $3.8 million in 1994.
In 1996 the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and determined that no impairment loss need be
recognized. On an annual basis the Company compares the carrying value of its
long-lived assets against projected undiscounted cash flows to determine any
impairment and to evaluate the reasonableness of the depreciation or
amortization periods.
INCOME TAXES
Income taxes are calculated in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." SFAS 109
requires the asset and liability method of accounting for income taxes.
F-7
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECEIVABLES AND FINANCE CHARGE INCOME
The Company's credit operations generate finance charge income, which is
recognized as income when earned and is recorded as a reduction of selling,
general and administrative expenses. Finance charge income amounted to $47.7
million in 1996, $55.9 million in 1995 and $54.3 million in 1994. The
securitization of the Company's credit card receivables, which was completed in
March 1995, had the effect of reducing finance charge income by $19.0 million in
1996 and $7.1 million in 1995.
Concentration of credit risk with respect to trade receivables is limited
due to the large number of customers to whom the Company extends credit. Ongoing
credit evaluation of customers' financial position is performed, and collateral
is not required as a condition of extending credit. The Company maintains
reserves for potential credit losses.
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per share information reflects the earnings and losses of
the Company applicable to common shareholders. The dividend and accretion
requirements of the redeemable preferred stocks are deducted from earnings from
continuing operations of the Company to arrive at net earnings (loss) applicable
to common shareholders. Earnings (loss) per common share is based upon the
weighted average number of common and, when dilutive, common equivalent shares
outstanding during the year.
PREOPENING EXPENSES
Costs associated with the opening of new stores are expensed as incurred.
SIGNIFICANT ESTIMATES
In the process of preparing its consolidated financial statements, the
Company estimates the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources. The primary
estimates underlying the Company's consolidated financial statements include
allowances for doubtful accounts, accruals for pension and postretirement
benefits and other matters. Actual results could differ from these estimates.
Management bases its estimates on historical experience and on various
assumptions which are believed to be reasonable under the circumstances.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
2. DISCONTINUED OPERATIONS
On June 30, 1995, the Company sold its Contempo Casuals operations to The
Wet Seal, Inc. for approximately $1.0 million of Wet Seal Class A Common Stock
and $100,000 in cash. The consolidated financial statements have been restated
to present Contempo Casuals as a discontinued operation.
The losses from discontinued operations recorded for the fiscal years ended
1995 and 1994 are net of applicable income tax benefits of $1.3 million and
$36.0 million, respectively. The loss on disposal in 1995 of $9.9 million is net
of $7.1 million of applicable income tax benefits.
Revenues related to the discontinued Contempo Casuals operations were
$207.2 million in 1995 and $303.4 million in 1994.
F-8
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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3. OTHER ASSETS
Other assets consisted of the following:
AUGUST
JULY 29, 3,
1995 1996
-------- --------
(IN THOUSANDS)
Trademarks................................................... $ 73,000 $ 73,000
Goodwill..................................................... 22,729 22,729
Other assets................................................. 35,805 38,677
-------- --------
131,534 134,406
Accumulated amortization..................................... (25,089) (28,764)
-------- --------
$106,445 $105,642
======== ========
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4. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
JULY 29, AUGUST 3,
1995 1996
-------- ---------
(IN THOUSANDS)
Accrued salaries and related charges......................... $ 29,878 $ 26,336
Self-insurance reserves...................................... 27,433 27,860
Income taxes payable......................................... 17,957 17,285
Other........................................................ 76,781 74,845
-------- --------
$152,049 $146,326
======== ========
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5. LONG-TERM LIABILITIES
Long-term liabilities consisted of the following:
INTEREST JULY 29, AUGUST 3,
RATE 1995 1996
---------- -------- ---------
(IN THOUSANDS)
Revolving credit agreement (a).................... Variable $ 77,100 $186,500
Senior notes (b).................................. Various 172,000 132,000
Capital lease obligations (c)..................... 7.63-10.25% 7,206 6,697
Other long-term liabilities (d)................... Various 66,609 72,319
-------- --------
Total long-term liabilities....................... 322,915 397,516
Less current maturities........................... (11,859) (35,576)
-------- --------
$311,056 $361,940
======== ========
<FN>
(a) The Company has a five year, $500 million revolving credit facility which
expires in April, 2000. The Company may terminate this agreement at any
time on three business days' notice. The rate of interest payable (5.9% at
August 3, 1996) varies according to one of four pricing options selected by
the Company. The revolving credit facility contains, among other
restrictions, provisions limiting the issuance of additional debt, the
amount and type of investments and the payment of dividends.
In addition to its revolving credit facility, the Company borrows from
other banks on an uncommitted basis. Such borrowings are included in notes
payable and current maturities of long-term liabilities and amounted to
$26.5 million at August 3, 1996 and $7.1 million at July 29, 1995.
F-9
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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(b) Senior notes consisted of the following:
INTEREST RATE DUE PRINCIPAL AMOUNT
------------- --- ----------------
(IN THOUSANDS)
9.59% August 1996 $52,000
9.24% December 1996 $40,000
Variable December 1996 $40,000
The notes have no sinking fund requirements. All fixed rate senior notes
may be redeemed at any time at a premium plus accrued interest. The
variable rate note bears interest at LIBOR plus 0.7% (6.0% at August 3,
1996) and is adjusted semiannually. The notes are classified as long-term,
since the Company has the ability and intent to repay them upon maturity
through borrowings on the revolving credit facility.
(c) The amount of assets under capital leases included in property and
equipment net of amortization was $3.5 million at August 3, 1996 and $4.0
million at July 29, 1995.
(d) Other long-term liabilities consisted primarily of certain employee benefit
obligations, postretirement health care benefits and the liability for
certain scheduled rent increases.
The aggregate maturities of all long-term liabilities and capital lease
obligations are $35.6 million in 1997, $5.6 million in 1998, $5.8 million in
1999, $297.9 million in 2000, $6.1 million in 2001 and $46.5 million thereafter.
6. REDEEMABLE PREFERRED STOCKS
The Company is authorized to issue up to 50,000,000 shares of preferred
stock. The Company's issued and outstanding preferred stocks consist of
1,000,000 shares of 6% Cumulative Convertible Preferred Stock (6% Preferred
Stock) and 500,000 shares of 9 1/4% Cumulative Redeemable Preferred Stock
(9 1/4% Preferred Stock), all of which are owned by Harcourt General, Inc.
(Harcourt General).
The 6% Preferred Stock is entitled to receive cumulative dividends at an
annual rate of 6% on its $374.9 million stated value, to a class vote on certain
matters, to convert on a per share basis into approximately 9.12 shares of
Common Stock subject to certain antidilution adjustments and, upon liquidation
of the Company, is entitled to receive a liquidation distribution equal to its
stated value, together with any accrued and unpaid dividends, before any
distribution to any junior class of stock. The conversion price of the 6%
Preferred Stock at August 3, 1996 was approximately $41.12 per share of Common
Stock acquired upon such conversion; the market value per share of Common Stock
on August 3, 1996 was $27.38. The 6% Preferred Stock may be redeemed by the
Company at a premium over its stated value under certain conditions through
September 1997. Commencing in September 1997 (when a sinking fund for this
purpose commences), the Company is required to redeem annually not less than 5%
of the 6% Preferred Stock at a redemption value of $374.92 per share plus any
accrued dividends. The difference between the redemption value and the carrying
value is being accreted over a thirty-year period.
The 9 1/4% Preferred Stock has a stated value of $100 per share and is
entitled to receive cumulative dividends at an annual rate of 9 1/4% on its
aggregate stated value of $50 million. The 9 1/4% Preferred Stock is not
redeemable until July 31, 1998 except under certain limited circumstances, is
redeemable at a premium for a twelve month period beginning July 31, 1998, and
at par thereafter and must be redeemed in full by July 31, 2001. The 9 1/4%
Preferred Stock has a liquidation preference equal to its stated value plus
accrued and unpaid dividends. The 9 1/4% Preferred Stock ranks equal to the 6%
Preferred Stock and is senior to the Common Stock of the Company with respect to
dividends and the distribution of assets upon liquidation or dissolution of the
Company. If dividends payable on the 9 1/4% Preferred Stock are in arrears for
six full quarters or any mandatory redemption is in arrears, the holders of the
9 1/4% Preferred Stock, voting together as one class with other series of the
Company's preferred stock, shall be entitled to elect two members to the
F-10
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's Board of Directors. The 9 1/4% Preferred Stock also contains
restrictions regarding the issuance of senior securities and the consolidation
or merger of the Company and sales of assets.
7. COMMON SHAREHOLDERS' EQUITY
OWNERSHIP BY AND RELATIONSHIP WITH HARCOURT GENERAL
Harcourt General owns approximately 22.6 million shares of Common Stock and
all of the outstanding Redeemable Preferred Stocks. The shares presently owned
by Harcourt General represent approximately 67% of the voting power and fully
converted equity of the Company.
The Company and Harcourt General are parties to an agreement pursuant to
which Harcourt General provides certain management, accounting, financial,
legal, tax and other corporate services to the Company. The fees for these
services are based on Harcourt General's costs and are subject to the approval
of a committee of directors of the Company who are independent of Harcourt
General. This agreement may be terminated by either party on 180 days' notice.
Charges to the Company under this agreement were $6.9 million in 1996, $6.5
million in 1995 and $6.9 million in 1994.
The Company's Chairman of the Board; President, Chief Executive Officer and
Chief Operating Officer; Senior Vice President and Chief Financial Officer;
Senior Vice President and General Counsel; as well as certain other officers,
serve in similar capacities with Harcourt General. The first two named officers
also serve as directors of both companies.
COMMON STOCK
Common Stock is entitled to dividends as declared by the Board of
Directors, and each share carries one vote. Holders of Common Stock have no
cumulative voting, conversion, redemption or preemptive rights.
COMMON STOCK INCENTIVE PLAN
The Company has established a common stock incentive plan allowing for the
granting of stock options, stock appreciation rights (SARs) and stock-based
awards to its employees. The aggregate number of shares of Common Stock that may
be issued pursuant to the plan is 1.3 million shares. At August 3, 1996, there
were 179,060 shares of Common Stock available for grant under the plan.
Options outstanding at August 3, 1996 were granted at prices (not less than
100% of the fair market value on the date of the grant) varying from $11.63 to
$19.27 per share and expire between 1996 and 2005. There were 93 employees with
options outstanding at August 3, 1996. The weighted average exercise price for
all outstanding shares at August 3, 1996 was $14.41.
The Company has allowed SAR treatment in connection with the exercise of
certain options. Optionees allowed SAR treatment surrender an exercisable option
in exchange for an amount of cash equal to the excess of the market price of the
Common Stock at the time of surrender over the option exercise price.
F-11
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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Option activity was as follows:
YEARS ENDED
---------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- ------- --------
Options outstanding -- beginning of year............ 684,136 666,348 784,864
Granted........................................... 214,100 228,050 128,600
SAR surrenders.................................... (43,715) (13,470) (202,192)
Exercised......................................... (10,401) (1,644) (2,900)
Canceled.......................................... (177,772) (94,420) (55,295)
-------- ------- --------
Options outstanding -- end of year.................. 666,348 784,864 653,077
======== ======= ========
Exercisable options -- end of year.................. 294,800 356,064 239,247
======== ======= ========
8. INCOME TAXES
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Income tax expense was as follows:
YEARS ENDED
---------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
------- ------- ---------
(IN THOUSANDS)
Current:
Federal............................................. $37,800 $39,965 $47,517
State............................................... 8,736 9,136 8,333
------- ------- -------
46,536 49,101 55,850
------- ------- -------
Deferred:
Federal............................................. 1,835 668 (1,588)
State............................................... (809) (1,010) (459)
------- ------- -------
1,026 (342) (2,047)
------- ------- -------
Income tax expense.................................... $47,562 $48,759 $53,803
======= ======= =======
The Company's effective income tax rate was 41% in 1996 and 42% in 1995 and
1994. The difference between the statutory federal tax rate and the effective
tax rate is due primarily to state income taxes.
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Significant components of the Company's net deferred income tax liability
stated on a gross basis were as follows:
JULY 29, AUGUST 3,
1995 1996
-------- --------
(IN THOUSANDS)
Gross deferred income tax assets:
Financial accruals and reserves.............................. $22,297 $19,468
Employee benefits............................................ 22,471 25,941
Inventories.................................................. 3,256 8,006
Deferred lease payments...................................... 3,735 3,481
Other........................................................ 3,960 3,566
------- -------
Total deferred tax assets............................ 55,719 60,462
------- -------
F-12
THE NEIMAN MARCUS GROUP, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JULY 29, AUGUST 3,
1995 1996
-------- --------
(IN THOUSANDS)
Gross deferred income tax liabilities:
Excess tax depreciation...................................... (57,257) (59,128)
Pension accrual.............................................. (5,933) (7,178)
Other assets previously deducted on tax return............... (6,239) (5,819)
-------- --------
Total deferred tax liabilities....................... (69,429) (72,125)
-------- --------
Net deferred tax liability..................................... $(13,710) $(11,663)
======== ========
9. PENSION PLANS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time employees. The Company also sponsors an unfunded
supplemental executive retirement plan which provides certain employees
additional pension benefits. Benefits under the plans are based on the
employees' years of service and compensation over defined periods of employment.
The Company's general funding policy is to contribute amounts that are
deductible for federal income tax purposes. Pension plan assets consist
primarily of equity and fixed income securities.
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Components of net pension expense were as follows:
YEARS ENDED
--------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
Service cost......................................... $ 4,800 $ 5,800 $ 5,700
Interest cost on projected benefit obligation........ 7,200 7,900 8,300
Actual return on assets.............................. (2,700) (7,500) (12,100)
Net amortization and deferral........................ (3,000) 1,200 5,700
------- ------- --------
Net pension expense.................................. $ 6,300 $ 7,400 $ 7,600
======= ======= ========
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The accounting assumptions used in the computation of pension expense were
as follows:
1994 1995 1996
------- ------- -------
Discount rate........................................ 7.5% 7.5% 7.5%
Long-term rate of return on plan assets.............. 9.0% 9.0% 9.0%
Rate of increases in future compensation levels...... 5.0% 5.0% 5.0%
F-13
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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The plans' funded status and amounts recognized in the consolidated balance
sheets were as follows:
JULY 29, 1995 AUGUST 3, 1996
-------------------- ---------------------
FUNDED UNFUNDED FUNDED UNFUNDED
PLAN PLAN PLAN PLAN
------- -------- -------- --------
(IN THOUSANDS)
Vested benefit obligation................ $73,600 $ 11,400 $ 90,500 $ 13,200
======= ======== ======== ========
Accumulated benefit obligation........... $77,200 $ 13,400 $ 94,000 $ 15,300
======= ======== ======== ========
Projected benefit obligation............. $91,700 $ 23,100 $108,000 $ 25,200
Pension plan assets at fair value........ 91,300 -- 106,600 --
------- -------- -------- --------
Underfunded projected obligation......... (400) (23,100) (1,400) (25,200)
Net amortization and deferral............ 12,600 2,600 16,200 3,100
Unrecognized net obligation at transition
and unrecognized prior service cost.... 2,200 3,900 1,900 3,500
------- -------- -------- --------
Pension asset (liability) recognized in
the consolidated balance sheets........ $14,400 $(16,600) $ 16,700 $(18,600)
======= ======== ======== ========
The Company has a qualified defined contribution 401(k) plan, which covers
substantially all employees. Employees make contributions to the plan, and the
Company matches 25% of an employee's contribution up to a maximum of 6% of the
employee's compensation. Company contributions for the years ended August 3,
1996, July 29, 1995 and July 30, 1994 were $2.3 million, $2.2 million, and $1.9
million, respectively.
10. POSTRETIREMENT HEALTH CARE BENEFITS
Retirees and active employees hired prior to March 1, 1989 are eligible for
certain limited postretirement health care benefits if they have met certain
service and minimum age requirements. The cost of these benefits is accrued
during the years in which an employee provides services. The Company paid
postretirement health care benefit claims of $1.2 million during 1996, $1.4
million during 1995 and $1.8 million during 1994.
[Enlarge/Download Table]
The actuarial present value of accumulated postretirement health care
benefit obligations and the amounts recognized in the consolidated balance
sheets were as follows:
JULY 29, AUGUST 3,
1995 1996
------- ---------
(IN THOUSANDS)
Retirees......................................................... $11,364 $11,692
Fully eligible active plan participants.......................... 1,470 3,488
Other active plan participants................................... 3,943 3,587
------- -------
Accumulated postretirement benefit obligation.................... 16,777 18,767
Unrecognized net gain............................................ 2,350 1,003
------- -------
Total.................................................. $19,127 $19,770
======= =======
F-14
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[Enlarge/Download Table]
The periodic postretirement health care benefit cost was as follows:
YEARS ENDED
-----------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
Net periodic cost:
Service cost.......................................... $ 286 $ 300 $ 222
Interest cost on accumulated benefit obligation....... 1,288 1,249 1,621
------ ------ ------
Total......................................... $1,574 $1,549 $1,843
====== ====== ======
A health care cost trend rate of 10% was assumed in measuring the
accumulated postretirement health care benefit obligation at August 3, 1996,
gradually declining to 5% by the year 2002. Measurement of the accumulated
postretirement health care benefit obligation was based on an assumed 7.5%
discount rate in 1996, 1995 and 1994. An increase of 1% in the health care cost
trend rate would increase the accumulated postretirement health care benefit
obligation as of August 3, 1996 by $2.2 million. The effect of this change on
the annual net periodic postretirement health care benefit cost would be an
increase of approximately $262,000.
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company's operations are conducted primarily in leased properties which
include retail stores, distribution centers and other facilities. Substantially
all leases are for periods of up to thirty years with renewal options at fixed
rentals, except that certain leases provide for additional rent based on
revenues in excess of predetermined levels.
[Enlarge/Download Table]
Rent expense under operating leases was as follows:
YEARS ENDED
-----------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
Minimum rent.......................................... $28,600 $29,300 $29,200
Rent based on revenues................................ 9,100 8,400 10,700
------- ------- -------
Total rent expense.......................... $37,700 $37,700 $39,900
======= ======= =======
Future minimum lease payments, excluding renewal options, under operating
leases are as follows: 1997 -- $30.8 million; 1998 -- $29.4 million;
1999 -- $28.5 million; 2000 -- $28.4 million; 2001 -- $27.8 million; all years
thereafter -- $520.6 million.
LITIGATION
The Company is involved in various suits and claims in the ordinary course
of business. Management does not believe that the disposition of any such suits
and claims will have a material adverse effect upon the results of operations or
the financial position of the Company.
LETTERS OF CREDIT
The Company had approximately $5.0 million of outstanding irrevocable
letters of credit relating to purchase commitments at August 3, 1996.
F-15
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
reported and disclosed in the consolidated financial statements, and as
discussed below.
SECURITIZATION OF CREDIT CARD RECEIVABLES
In March 1995 the Company sold all of its Neiman Marcus credit card
receivables through a subsidiary to a trust in exchange for certificates
representing undivided interests in such receivables. Certificates representing
an undivided interest in $246.0 million of these receivables were sold to third
parties in a public offering of $225.0 million of 7.60% Class A certificates and
$21.0 million of 7.75% Class B certificates. The Company used the proceeds from
this offering to pay down existing debt. The Company's subsidiary will retain
the remaining undivided interest in the receivables not represented by the Class
A and Class B certificates. A portion of that interest is subordinated to the
Class A and Class B certificates. The Company will continue to service all
receivables for the trust.
In anticipation of the securitization, the Company entered into several
forward interest rate lock agreements. The agreements allowed the Company to
establish a weighted average effective rate of approximately 8.0% on the
certificates issued as part of the securitization. During March 1995, the
Company paid $5.4 million to settle all of its interest rate lock agreements.
INTEREST RATE SWAP
During September 1991, the Company entered into an interest rate swap
agreement having a notional principal amount of $50.0 million that effectively
fixed the interest rate on $50.0 million of the Company's variable rate debt at
8.94%. The amount to be paid or received is accrued as interest rates change and
is recognized over the life of the agreement. The interest rate swap matures in
September 1996. The fair value of the interest rate swap is the amount at which
it could be settled, based on estimates obtained from dealers. The estimated
unrealized pre-tax loss on the interest rate swap was approximately $0.7 million
at August 3, 1996, $1.5 million at July 29, 1995 and $2.8 million at July 30,
1994. This amount changes during the life of the swap as a function of maturity,
interest rates and the credit standing of the parties to the swap agreement. The
incremental pre-tax interest expense incurred due to the interest rate swap
agreement was $1.2 million in 1996, $1.0 million in 1995 and $2.3 million in
1994.
13. COMPANY PUBLIC OFFERING
On September 10, 1996, the Company authorized the filing of a Registration
Statement with the Securities and Exchange Commission for a public offering of
8,000,000 shares of the Company's Common Stock (excluding 1,200,000 shares
subject to an over-allotment option). The Company will purchase all of its
outstanding preferred stock from Harcourt General at a total purchase price of
approximately $416.4 million, representing 98% of the aggregate stated value of
the preferred stock, plus accrued and unpaid dividends on the preferred stock
through the date of the closing of the offering. The total purchase price will
be paid with $135.0 million in shares of the Company's Common Stock valued at
the public offering price and the remainder payable in cash. Such cash payment
will be funded with the net proceeds of the public offering, together with
borrowings under the Company's revolving credit agreement. After the
consummation of the above transactions, Harcourt General will continue to be the
majority shareholder of the Company.
In connection with the repurchase of the preferred stock, the Company will
incur a charge to earnings applicable to common shareholders comprised of two
components: (i) an amount representing the difference between the book value of
the preferred stock and the total purchase price, and (ii) an amount related to
the conversion of the 6% Preferred Stock that is exchanged with Harcourt General
for Common Stock, representing the fair value of shares to be issued to Harcourt
General in excess of the number of shares that would have been issued in
accordance with the conversion terms of the 6% Preferred Stock.
F-16
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED AUGUST 3, 1996
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN MILLIONS EXCEPT FOR PER SHARE DATA)
Revenues..................................... $489.9 $625.4 $474.1 $485.6 $2,075.0
====== ====== ====== ====== ========
Gross profit................................. $171.8 $186.5 $153.3 $147.1 $ 658.7
====== ====== ====== ====== ========
Net earnings................................. 25.0 22.8 18.8 10.8 77.4
Preferred dividends and accretion............ (7.3) (7.3) (7.3) (7.2) (29.1)
------ ------ ------ ------ --------
Net earnings applicable to common
shareholders............................... $ 17.7 $ 15.5 $ 11.5 $ 3.6 $ 48.3
====== ====== ====== ====== ========
Amounts per share applicable to common
shareholders:
Net earnings............................... $ .47 $ .41 $ .30 $ .09 $ 1.26
====== ====== ====== ====== ========
YEAR ENDED JULY 29, 1995
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
Revenues..................................... $462.3 $589.5 $415.7 $420.7 $1,888.2
====== ====== ====== ====== ========
Gross profit................................. $165.0 $184.2 $135.3 $127.0 $ 611.5
====== ====== ====== ====== ========
Earnings from continuing operations.......... $ 21.6 $ 25.0 $ 11.1 $ 9.6 $ 67.3
Earnings (loss) from discontinued operations,
net........................................ (1.8) 1.5 (11.4) -- (11.7)
------ ------ ------ ------ --------
Net earnings (loss).......................... 19.8 26.5 (.3) 9.6 55.6
Preferred dividends and accretion............ (7.3) (7.3) (7.3) (7.2) (29.1)
------ ------ ------ ------ --------
Net earnings (loss) applicable to common
shareholders............................... $ 12.5 $ 19.2 $ (7.6) $ 2.4 $ 26.5
====== ====== ====== ====== ========
Amounts per share applicable to common
shareholders:
Continuing operations...................... $ .38 $ .47 $ .10 $ .06 $ 1.01
Discontinued operations, net............... (.05) .04 (.30) -- (.31)
------ ------ ------ ------ --------
Net earnings (loss)........................ $ .33 $ .51 $ (.20) $ .06 $ .70
====== ====== ====== ====== ========
Dividends.................................. $ .05 $ .05 $ -- $ -- $ .10
====== ====== ====== ====== ========
In the fourth quarter, the effect of adjusting the LIFO reserve for
inventories to actual amounts increased net earnings by $3.9 million in 1996 and
$10.9 million in 1995.
F-17
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Neiman Marcus Group, Inc.
Chestnut Hill, Massachusetts
We have audited the consolidated financial statements of The Neiman Marcus
Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and for
each of the three years in the period ended August 3, 1996, and have issued our
report thereon dated August 29, 1996, (September 10, 1996 as to Note 13); such
financial statements and report are included in your 1996 Annual Report to
Stockholders. Our audits also included the financial statement schedule of The
Neiman Marcus Group, Inc. and subsidiaries, listed in Item 14 of this Annual
Report on Form 10-K. This financial statement schedule is the responsibility of
the Corporation's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 29, 1996
(September 10, 1996 as to Note 13)
F-18
SCHEDULE II
THE NEIMAN MARCUS GROUP, INC.
[Enlarge/Download Table]
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED AUGUST 3, 1996, JULY 29, 1995 AND JULY 30, 1994
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT CHARGES TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(A) PERIOD
----------- ---------- ---------- ---------- ------------- ----------
Year Ended August 3, 1996
Allowance for doubtful accounts
(deducted from accounts
receivable)....................... $ 6,100 $20,007 $0 $(20,307) $ 5,800
Year Ended July 29, 1995
Allowance for doubtful accounts
(deducted from accounts
receivable)....................... $13,700 $27,025 $0 $(34,625)(B) $ 6,100
Year Ended July 30, 1994
Allowance for doubtful accounts
(deducted from accounts
receivable)....................... $ 9,500 $24,716 $0 $(20,516) $13,700
<FN>
---------------
(A) Write-off of uncollectible accounts, net of recoveries.
(B) Includes $10.3 million in fiscal 1995 related to the securitization of the
Company's credit card receivables.
F-19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE NEIMAN MARCUS GROUP, INC.
By: /s/ ROBERT J. TARR, JR.
----------------------------------
Robert J. Tarr, Jr., President,
Chief Executive Officer and Chief
Operating Officer
Dated: September 20, 1996
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the following capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Principal Executive Officer:
/s/ ROBERT J. TARR, JR. President, Chief Executive September 20, 1996
---------------------------- Officer, Chief Operating
Robert J. Tarr, Jr. Officer and Director
Principal Financial Officer:
/s/ JOHN R. COOK Senior Vice President and September 20, 1996
---------------------------- Chief Financial Officer
John R. Cook
Principal Accounting Officer:
/s/ STEPHEN C. RICHARDS Vice President and Controller September 20, 1996
----------------------------
Stephen C. Richards
Directors:
/s/ RICHARD A. SMITH September 20, 1996
----------------------------
Richard A. Smith
/s/ MATINA S. HORNER September 20, 1996
----------------------------
Matina S. Horner
/s/ WALTER J. SALMON September 20, 1996
---------------------------
Walter J. Salmon
/s/ JEAN HEAD SISCO September 20, 1996
---------------------------
Jean Head Sisco
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EXHIBIT INDEX
PAGE NO.
--------
3.1 (a) Restated Certificate of Incorporation of the Company, incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the twenty-six week period ended August 1, 1987.
3.1 (b) Certificate of Designation and Terms of 9 1/4% Cumulative Redeemable
Preferred Stock, incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended August 3, 1991.
3.2 By-Laws of the Company, as amended, incorporated herein by reference
to the Company's Annual Report on Form 10-K for the fiscal year ended
August 1, 1992.
*10.1 Intercompany Services Agreement, dated as of July 24, 1987, between
Harcourt General and the Company, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the twenty-six week
period ended August 1, 1987.
*10.2 1987 Stock Incentive Plan, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the twenty-six week period
ended August 1, 1987.
*10.3 Employment Agreement between the Company and Burton M. Tansky dated
May 1, 1994, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended July 30, 1994.
*10.4 Employment Agreement between the Company and Burton M. Tansky
effective February 1, 1997.
*10.5 Termination and Change of Control Agreement between the Company and
Gerald A. Sampson dated September 10, 1996.
*10.6 Termination Agreement between Bergdorf Goodman, Inc. and Stephen C.
Elkin, effective September 1993, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993.
*10.7 Termination Agreement between Bergdorf Goodman, Inc. and Dawn Mello,
effective May 1994, incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended July 30, 1994.
*10.8 Change of Control Agreement between the Company and Bernie Feiwus,
effective October 1995, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended July
29, 1995.
*10.9 Key Executive Stock Purchase Loan Plan, as amended, incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended July 30, 1994.
*10.10 Supplemental Executive Retirement Plan, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended July 30, 1988.
*10.11 Description of the Company's Executive Life Insurance Plan,
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended August 1, 1992.
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PAGE NO.
--------
*10.12 Supplementary Executive Medical Plan, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended July 31, 1993.
*10.13 Key Employee Deferred Compensation Plan, as amended, incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended July 30, 1994.
10.14 Stock Purchase Agreement between the Company and Harcourt General,
dated October 14, 1991 and effective as of August 2, 1991, relating
to the Company's 9 1/4% Preferred Stock, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended August 3, 1991.
10.15 Credit Agreement dated as of April 7, 1995 among the Company, the
Banks listed therein and Morgan Guaranty Trust Company of New York,
as Agent.
10.16 Receivables Purchase Agreement, dated as of March 1, 1995, between
the Company and Neiman Marcus Funding Corporation, incorporated
herein by reference to Exhibit 10.1 to Registration Statement on Form
S-3 of Neiman Marcus Group Credit Card Master Trust dated March 3,
1995 (Registration No. 33-88098).
10.17 Pooling and Servicing Agreement, dated as of March 1, 1995, between
Neiman Marcus Funding Corporation, the Company and The Chase
Manhattan Bank, N.A., incorporated herein by reference to Exhibit 4.1
to Registration Statement on Form S-3 of Neiman Marcus Group Credit
Card Master Trust dated March 3, 1995 (Registration No. 33-88098).
10.18 Series 1995-1 Supplement to the Pooling and Servicing Agreement,
dated as of March 1, 1995, among Neiman Marcus Funding Corporation,
the Company and The Chase Manhattan Bank, N.A., incorporated herein
by reference to Exhibit 4.2 to Registration Statement on Form S-3 of
Neiman Marcus Group Credit Card Master Trust dated March 3, 1995
(Registration No. 33-88098).
11.1 Computation of Weighted Average Number of Shares Outstanding Used in
Determining Primary and Fully-Diluted Earnings Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
99.1 Dividend Reinvestment and Common Stock Purchase Plan, incorporated
herein by reference to the Company's Registration Statement on Form
S-3 dated September 17, 1990 (Registration No. 33-36419).
<FN>
---------------
* Exhibits filed pursuant to Item 14(c) of Form 10-K.
Dates Referenced Herein and Documents Incorporated by Reference
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