-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LX51Wi0M9np2nqr+cuSDXwLzEz1wf7pZFa0+1i+vHWIvDpUTpZrPoDMu/oTlD3FM z/7F58u7Fn6qQFNRJMBY4A== 0000819539-97-000010.txt : 19971030 0000819539-97-000010.hdr.sgml : 19971030 ACCESSION NUMBER: 0000819539-97-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970802 FILED AS OF DATE: 19971029 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEIMAN MARCUS GROUP INC CENTRAL INDEX KEY: 0000819539 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 954119509 STATE OF INCORPORATION: DE FISCAL YEAR END: 0801 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09659 FILM NUMBER: 97702727 BUSINESS ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: P O BOX 9187 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 BUSINESS PHONE: 6172320760 MAIL ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: P O BOX 9187 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 10-K 1 NEIMAN MARCUS GROUP, INC. 1997 FORM 10K 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 2, 1997 Commission File Number 1-9659 _______________ THE NEIMAN MARCUS GROUP, INC. (Exact name of registrant as specified in its charter) 27 Boylston Street, Chestnut Hill, Massachusetts 02167 (Address of principal executive offices) (Zip Code) 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 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 _______________ 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 October 22, 1997 was $824,900,923. There were 49,870,692 shares of Common Stock outstanding as of October 22, 1997. Documents Incorporated by Reference Portions of the Company's 1997 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV of this Report. THE NEIMAN MARCUS GROUP, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 2, 1997 TABLE OF CONTENTS Page No. 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 4 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 4 Item 8. Financial Statements and Supplementary Data 4 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 4 PART III Item 10. Directors and Executive Officers of the Registrant 5 Item 11. Executive Compensation 8 Item 12. Security Ownership of Certain Beneficial Owners and 22 Management Item 13. Certain Relationships and Related Transactions 24 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports 25 on Form 8-K Signatures . . . . . . . . . . . . . . . . . . 27 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 53% of the outstanding Common Stock of the Company. In addition, two of Harcourt General's directors and virtually all of its officers, including its Chairman and 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 2, 7 and 8 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. 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, children's apparel and gift items. A relatively small portion of Neiman Marcus Stores' customers accounts for a significant percentage of its retail sales. As of August 2, 1997, the Company operated 30 Neiman Marcus stores, located in Arizona (Scottsdale); California (five stores: Beverly Hills, Newport Beach, Palo Alto, San Diego and San Francisco); Colorado (Denver); the District of Columbia; Florida (two stores: Fort Lauderdale and Bal Harbour); Georgia (Atlanta); Illinois (three stores: Chicago, Northbrook and Oak Brook); Missouri (St. Louis); Massachusetts (Boston); Minnesota (Minneapolis); Michigan (Troy); Nevada (Las Vegas); New Jersey (two stores: Short Hills and Paramus); New York (Westchester); Pennsylvania (King of Prussia); Texas (six stores: three in Dallas, one in Fort Worth and two in Houston); and Virginia (McLean). 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. A new Neiman Marcus store in 1 Honolulu's Ala Moana Center (160,000 gross square feet) is currently under construction and is expected to open in November 1998. The Company also plans to open new Neiman Marcus stores in Palm Beach, Florida in the fall of 1998 (60,000 gross square feet), Coral Gables, Florida in 2000 (120,000 gross square feet) and Oyster Bay, New York in 2001 (150,000 gross square feet). In addition, the Company plans to open a new store in Plano, Texas in 2001 (145,000 gross square feet) which will replace the existing Prestonwood store (123,000 gross square feet) near Dallas, and a new store at the Memorial City Mall in Houston, Texas (150,000 gross square feet) which will replace the existing Town & Country store (153,000 gross square feet). Bergdorf Goodman. 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. The Company operates two Bergdorf Goodman stores in Manhattan at 58th Street and Fifth Avenue. The main Bergdorf Goodman store consists of 250,000 gross square feet and is dedicated to women's apparel and accessories, home furnishings and gifts. Bergdorf Goodman Men consists of 66,000 gross square feet and is dedicated to high end men's apparel and accessories. NM Direct. NM Direct operates an upscale direct marketing business, which 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 to its domestic and international customers. NM Direct also offers a broad range of more modestly priced items through its Trifles and Grand Finale lines and annually publishes the world famous Neiman Marcus Christmas Catalogue. Clearance Centers. The Company 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. Competition The specialty retail industry is highly competitive and fragmented. 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. In addition, the Company competes for quality merchandise and assortment principally based on relationships with designer resources and purchasing power. The Company's apparel business is especially dependent upon its relationship with these designer resources. 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 2 quality, assortment and presentation of merchandise, customer service, price and speed of delivery. Employees At August 2, 1997, Neiman Marcus Stores had 11,300 employees, of whom 3,310 were part-time, Bergdorf Goodman had 1,050 employees, of whom 45 were part- time, and NM Direct had 1,060 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 17% 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 its 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 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's 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 34 acres of land in Longview, Texas, where its National Service Center, the principal distribution facility for Neiman Marcus Stores, is located in a 465,000 square foot facility, and also owns approximately 50 acres of land in Las Colinas, Texas, where its 705,000 square foot NM Direct warehouse and distribution facility is located. For further information on the Company's properties, see "Operating Leases" in Note 12 of the Notes to the Consolidated Financial Statements in Item 14 below. For more information about plans to open additional Neiman Marcus stores, see "Description of Operations" in Item 1 above. 3 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 The information contained under the captions "Stock Information" and "Shares Outstanding" on page 51 of the 1997 Annual Report is incorporated herein. Beginning with the third quarter of fiscal 1995, the Company eliminated its quarterly cash dividend on its Common Stock. 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 response to this Item is contained in the 1997 Annual Report under the caption "Selected Financial Data" on page 50 and is incorporated herein. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The response to this Item is contained in the 1997 Annual Report under the caption "Management's Discussion and Analysis" on pages 25 though 31 and is incorporated herein. Item 8. Financial Statements and Supplementary Data The Consolidated Financial Statements and supplementary data referred to in Item 14 are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable. 4 PART III Item 10. Directors and Executive Officers of the Registrant A. Directors Below are the names, ages at October 22, 1997, 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 - 72 Chairman of the Board of the Company and of Director since 1987 Harcourt General; Chief Executive Officer of the Company and of Harcourt General since January 15, 1997 and prior to December 1991; Chairman of the Board, President (until November 1995) and Chief Executive Officer of GC Companies, Inc. since December 1993; Director of Harcourt General, GC Companies, Inc., and Steck-Vaughn Publishing Corporation. Mr. Smith is the father of Robert A. Smith, President and Chief Operating Officer and a director of the Company and President and Co-Chief Operating Officer and a director of Harcourt General. Robert A. Smith - 38 President and Chief Operating Officer of the Director since 1997 Company and President and Co-Chief Operating Officer of Harcourt General since January 15, 1997; Group Vice President of the Company and Harcourt General prior thereto; President and Chief Operating Officer of GC Companies, Inc. since November 1995; Director of Harcourt General and Steck-Vaughn Publishing Corporation. Mr. Smith is the son of Richard A. Smith, Chairman of the Board and Chief Executive Officer of the Company and of Harcourt General. Class II Directors Terms expire at 1999 Annual Meeting Walter J. Salmon - 66 Stanley Roth Sr. Professor of Retailing, Emeritus, Director since 1987 Graduate School of Business Administration, Harvard University; Director of Hannaford Bros. Co., The Quaker Oats Company, Circuit City Stores, Inc., Luby s Cafeterias, Inc., Harrah s Entertainment, Inc., Cole National Corporation and PetsMart, Inc. 5 Matina S. Horner - 58 Executive Vice President of the Teachers Insurance Director since 1993 and Annuity Association-College Retirement Equities Fund (TIAA-CREF) and President Emerita of Radcliffe College since 1989; Director of Boston Edison Company. Class III Directors Terms expire at 2000 Annual Meeting Jean Head Sisco - 72 Partner in Sisco Associates, international Director since 1987 management consultants; Director of Textron, Inc., Newmont Mining Corporation and its principal subsidiary, Newmont Gold Company, Washington Mutual Investors Fund, Chiquita Brands International, Inc., The American Funds Tax-Exempt Series I and K- Tron International, Inc. Vincent M. O'Reilly - 60 Distinguished Senior Lecturer, Carroll School of Director since 1997 Management, Boston College since October 1, 1997; Executive Vice Chairman of Coopers & Lybrand from October 1994 until October 1997; Chief Operating Officer or Deputy Chairman of Coopers & Lybrand from 1988 to October 1994. B. Executive Officers Below are the names, ages at October 22, 1997, 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. Burton M. Tansky - 59 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. Gerald A. Sampson - 56 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. Stephen C. Elkin - 54 Chairman and Chief Executive Officer of Bergdorf Goodman since May 1994; President and Chief Operating Officer of Bergdorf Goodman prior thereto. 6 Dawn Mello - 66 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. Bernie Feiwus - 49 President and Chief Executive Officer of NM Direct. John R. Cook - 56 Senior Vice President and Chief Financial Officer of the Company and of Harcourt General. Eric P. Geller - 50 Senior Vice President, General Counsel and Secretary of the Company and of Harcourt General. Peter Farwell - 54 Vice President - Corporate Relations of the Company and of Harcourt General. Paul F. Gibbons - 46 Vice President and Treasurer of the Company and of Harcourt General. Gerald T. Hughes - 40 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. Michael F. Panutich - 49 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 - 42 Vice President and Controller of the Company and of Harcourt General since June 1993; Partner, Deloitte & Touche prior to June 1993. 7 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 1997. Item 11. Executive Compensation Summary Compensation Table (1) The following table provides information on the compensation provided by the Company during fiscal 1997, 1996 and 1995 to the Company's Chief Executive Officers and the five most highly paid executive officers of the Company during fiscal 1997.
Long-Term Compensation Compensation (2) Annual Compensation Awards Restricted Other Annual Stock All Other Name and Fiscal Salary Bonus Compensation Awards Options Compensation Principal Position Year ($) ($)(3) ($)(4) ($)(5) (#) ($)(6) ====================================================================================================== Richard A. Smith (1) 1997 -- -- -- -- -- -- Chairman and Chief Executive Officer 1996 -- -- -- -- -- -- commencing January 15, 1997 1995 -- -- -- -- -- -- B. Tansky 1997 $750,000 $292,500 -- -- 10,000 $ 19,357 Chairman and Chief Executive Officer of 1996 $650,000 $292,500 -- $153,750 -- $ 16,866 Neiman Marcus Stores 1995 $600,000 $230,640 $160,339 -- 25,000 $ 14,560 G. Sampson 1997 $500,000 $174,000 -- -- 6,500 $ 14,070 President and Chief Operating Officer of 1996 $475,000 $190,000 -- -- 12,000 $ 12,854 Neiman Marcus Stores 1995 $450,000 $150,480 -- $ 71,875 -- $ 12,687 S. Elkin 1997 $480,000 $185,000 -- -- -- $ 10,771 Chairman and Chief Executive Officer of 1996 $480,000 -- -- $115,313 -- $ 17,170 Bergdorf Goodman 1995 $450,000 $ 22,500 -- -- 20,000 $ 15,812 D. Mello (7) 1997 $365,000 $110,000 -- -- 4,000 $ 9,210 President of Bergdorf Goodman 1996 $350,000 $ 67,900 -- $ 53,813 -- $ 8,496 1995 $325,000 $ 50,000 -- -- 15,000 $ 2,418 B. Feiwus 1997 $345,000 $115,000 -- -- 6,000 $ 10,697 President and Chief Executive Officer of 1996 $325,000 $135,000 -- $ 76,875 10,000 $ 10,026 NM Direct 1995 $300,000 -- -- -- 10,000 $ 7,314 R. J. Tarr, Jr. (1) 1997 -- -- -- -- -- -- President and Chief Executive Officer 1996 -- -- -- -- -- -- through January 15, 1997 1995 -- -- -- -- -- --
8 (1) Under the terms of an Intercompany Services Agreement, Harcourt General provides certain management, accounting, financial, legal, tax, human resources and other corporate services to the Company, including the services of certain officers of Harcourt General who are also 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 1997, 1996 and 1995, the Company paid or accrued approximately $5.7 million, $6.9 million and $6.5 million, respectively, to Harcourt General for all of its services under the Intercompany Services Agreement. Mr. Smith succeeded Mr. Tarr as Chief Executive Officer of the Company upon Mr. Tarr's resignation effective January 15, 1997. Since both served as Chief Executive Officer of the Company during fiscal 1997, they are required to be named in this table. The other senior officers of Harcourt General, who derive all of their compensation directly from Harcourt General, are not included in this table. Of the amount payable under the Intercompany Services Agreement for fiscal 1997, approximately $365,000 was attributable to Mr. Smith's services and approximately $1.0 million was attributable to Mr. Tarr's services. Of the amounts payable under the Intercompany Services Agreement for fiscal 1996 and 1995, approximately $2.3 million and $2.4 million, respectively, were attributable to Mr. Tarr's services. These amounts include costs related to base compensation, bonuses, benefits and amounts necessary to fund retirement benefits, all of which are direct obligations of Harcourt General. Under the terms of an agreement between Mr. Tarr and Harcourt General dated December 17, 1996, Mr. Tarr is entitled to receive certain compensation, retirement and other payments directly from Harcourt General. None of these amounts will be payable by the Company. (2) Other than restricted stock, stock options and stock appreciation rights which may be granted under the Company's 1997 Incentive Plan, 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. (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 move from New York to Dallas to assume the position of Chairman and Chief Executive Officer of Neiman Marcus Stores, the same position he had previously held with Bergdorf Goodman. (5) Calculated by multiplying the closing price of the Company's Common Stock on the New York Stock Exchange on the date of grant by the number of shares awarded. With respect to awards of restricted stock made through fiscal 1997, twenty percent of each award are freed from the restrictions on transfer each year, commencing one year after the 9 date of grant, provided that the recipient continues to be employed by the Company on the anniversary date of the grant. Holders of such restricted stock are entitled to vote their restricted shares and receive dividends, if any. 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 1997, the named executive officers' restricted stock holdings and market values (based on the New York Stock Exchange closing price of $27.9375 for the Company's Common Stock at fiscal year end) were as follows: Mr. Tansky - 8,000 shares ($223,500); Mr. Sampson - 3,000 shares ($83,813); Mr. Elkin - 6,000 shares ($167,625); Ms. Mello - 2,800 shares ($78,225) and Mr. Feiwus - 4,000 shares ($111,750). The restricted shares held by Mr. Tansky were granted in fiscal 1996, the restricted shares held by Mr. Sampson were granted in fiscal 1995, the restricted shares held by Ms. Mello were granted in fiscal 1996, 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 and (b) group life insurance premiums. For fiscal 1997, such amounts for each of the named executive officers were, respectively, as follows: Mr. Tansky - $15,637 and $3,720; Mr. Sampson - $10,350 and $3,720; Mr. Elkin - $7,200 and $3,571; Ms. Mello - $6,494 and $2,716; and Mr. Feiwus - $7,200 and $3,497. (7) Ms. Mello rejoined the Company in May 1994. As a condition of employment, Ms. Mello was guaranteed a minimum bonus of $50,000 for fiscal 1995. Option Grants in Last Fiscal Year (1) The following table provides information regarding options granted under the Company's 1987 Stock Incentive Plan during the fiscal year ended August 2, 1997 to the executive officers named in the Summary Compensation Table.
Individual Grants --------------------------------------------- % of Potential Number of Total Realizable Value at Securities Options Assumed Annual Underlying Granted to Exercise Rates of Stock Options Employees or Base Price Appreciation Granted in Fiscal Price Expiration for Option Term(2) Name (#)(3) Year ($/Sh) Date ___________________ 5%($) 10%($) ---- -------- --------- -------- ---------- -------- -------- R. Smith (4) -- -- -- -- -- -- B. Tansky 10,000 7.63% $ 33.375 9/11/06 $208,894 $531,912 G. Sampson 6,500 4.96% $ 33.375 9/11/06 $136,431 $345,743 S. Elkin -- -- -- -- -- -- D. Mello 4,000 3.05% $ 33.375 9/11/06 $ 83,957 $212,765 B. Feiwus 6,000 4.58% $ 33.375 9/11/06 $125,936 $319,147 R. Tarr, Jr.(4) -- -- -- -- -- --
__________ 10 (1) No stock appreciation rights were granted to any named executive officer during fiscal 1997. (2) These potential realizable values are based on assumed rates of appreciation required by applicable regulations of the Securities and Exchange Commission. (3) All option grants are non-qualified stock options having a term of 10 years and one day. They become exercisable at the rate of 20% on each of the first five anniversary dates of the grant. (4) None of the executive officers of Harcourt General who are also officers of the Company participated in the Company's 1987 Stock Incentive Plan, nor will these executive officers participate in the Company s 1997 Incentive Plan. Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values The following table provides information regarding the number and value of stock options held at August 2, 1997 by the executive officers named in the Summary Compensation Table.
Number of Value of Securities Underlying Unexercised Unexercised In-the-Money Options/SARs at Options/SARs August 2, 1997(#) August 2, 1997($)(1) ----------------- -------------------- Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized ($) Unexercisable Unexercisable ---- --------------- ------------ ----------------- -------------------- R. Smith (2) -- -- -- -- B. Tansky -- -- 60,900/35,600 $858,344 / $350,875 G. Sampson -- -- 8,400/20,100 $110,775 / $174,350 S. Elkin -- -- 54,350/18,000 $709,972 / $248,375 D. Mello -- -- 4,500/13,000 $ 61,031 / $122,063 B. Feiwus -- -- 6,500/24,000 $ 88,344 / $238,125 R. Tarr, Jr. (2) -- -- -- --
(1) 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 Company's Common Stock on the New York Stock Exchange at fiscal year end ($27.9375) and the option exercise price for those shares. These values have not been realized. The closing price of the Company's Common Stock on the New York Stock Exchange on October 22, 1997 was $35.375. (2) None of the executive officers of Harcourt General who are also officers of the Company participated in the Company's 1987 Stock Incentive Plan, nor will these executive officers participate in the Company's 1997 Incentive Plan. 11 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 $2,000 per Board of Directors meeting attended, plus travel and incidental expenses (an aggregate of $5,413 in fiscal 1997) incurred in attending meetings and carrying out their duties as directors. They also receive a fee of $750 (the Chairperson receives $1,500) 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. The Company offers non-employee directors the alternative of receiving directors' fees on a deferred basis. Those directors may elect to defer receipt of all or a specified portion of their fees (i) in the form of cash with interest at a rate equal to the average of the top rates paid by major New York banks on three month negotiable certificates of deposit, or (ii) in the form of stock based units, the value of each unit initially being equal to the fair market value of one share of Common Stock of the Company on the date the fees would otherwise be payable. To date, Dr. Horner has elected to receive all of her fees on a deferred basis using the stock based method and Mrs. Sisco has elected to receive fifty percent of her fees on a deferred basis using the stock based method. 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 minimum established by the Company ($100,000 as of August 2, 1997) 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. 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 12 estimated benefits apply to an employee retiring at age 65 in 1997 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. The amounts actually payable will be lower than the amounts shown below, since such amounts will be reduced by 60% of the participant's estimated primary Social Security benefit.
Estimated Annual Retirement Benefits Under Retirement Plan and SERP Average Total Years of Service Pensionable ---------------------- Earnings 5 10 15 20 25 -------- -------- -------- -------- -------- $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 80,000 160,000 240,000 320,000 400,000 900,000 90,000 180,000 270,000 360,000 450,000
13 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 2, 1997 and years of service creditable at age 65.
Pensionable Earnings for Year Ended Years of Service(3) Name August 2, 1997(2) at August 2, 1997 at Age 65 ---- ----------------- ----------------- --------- R. Smith(1) -- -- -- B. Tansky $750,000 --(4) 20 (4) G. Sampson 500,000 --(5) 20 (5) S. Elkin 480,000 19 29 D. Mello 365,000 16 15 B. Feiwus 345,000 17 33 R. Tarr, Jr.(1) -- -- --
__________ (1) Mr. Smith does not participate in the Company's Retirement Plan or SERP. Mr. Tarr, who resigned as Chief Executive Officer of the Company, effective January 15, 1997, did not participate in the Company's Retirement Plan or SERP. (2) In computing the combined benefit under the Retirement Plan and SERP, "pensionable earnings" means, with respect to the Retirement Plan, base salary and any bonus and, with respect to the SERP, base salary only. The amounts shown above include base salary only. For the amount of bonus included in pensionable earnings under the Retirement Plan see the Summary Compensation Table in Item 11 above. With respect to both the Retirement Plan and the SERP, deferred base salary and/or deferred bonus amounts are included in benefit calculations. (3) The years of credited service set forth in the table reflect years of credited service under the Retirement Plan, which is a "career average plan" with no limitation on years of credited service. However, credited service under the SERP may not exceed 25 years. (4) 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; otherwise, Mr. Tansky's accrued service under the SERP will be calculated in the normal manner. Mr. Tansky is 59 years old. (5) 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 56 years old. 14 Employment and Severance Agreements Burton Tansky. The Company and Mr. Tansky have entered into an employment agreement, effective 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 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 15 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. _______________ 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, Vincent M. O'Reilly 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 16 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 individuals important to the success of the Company and to provide incentives that will motivate those executives and reward them for achieving the business objectives 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. In September 1997, the Committee considered and adopted modifications to certain elements of the Company's compensation policies. These changes will take effect in fiscal 1998 and are discussed below under the heading "Changes in Compensation Policies." The principal components of the Company's compensation program are: Base Salary For fiscal 1997, base salary was 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 was used to establish benchmark amounts for both base salary and total cash compensation for each executive position. Comparisons were 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. For fiscal 1997, the Committee generally set its salary and total cash compensation benchmarks (assuming that maximum bonuses would be achieved) for executive officers above the 50th percentile of the comparison group of companies. Because the Company competes for executive talent with a broad range of companies, the Committee did not limit its comparison information for compensation purposes to the companies included in the peer groups in the Stock Performance Graph. 17 The Committee reviewed in detail the base salary levels for each of the named executive officers of the Company. While the Committee used the above described 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, 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 annual incentive 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. The determination of annual bonuses for fiscal 1997 was based principally on the achievement of performance objectives by the operating division for which the executive was responsible and the individual executive's own performance. For each of the named executive officers, a component of their bonus eligibility also depended on the Company's overall performance. In September 1997 the Compensation Committee established the Company's and each division's performance goals for fiscal 1998 and determined the executive officers who should participate in the annual incentive plan for that year and their respective bonus award opportunities. For fiscal 1997, the plan provided for maximum bonuses ranging from 35% to 45% of base salary. 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. In addition, each of the Company's named executive officers were required to meet individual performance goals, which typically include achievement of specific tasks, in addition to the performance targets in order to receive his or her full bonus. The bonuses actually awarded to the named executive officers for fiscal 1997 were determined by an assessment of all of these factors, as well as certain subjective factors. Under the annual incentive program in effect for fiscal 1997, even if the financial performance targets were exceeded, bonus awards would not have increased over the maximum bonus values established by the Committee. Since the highest divisional performance targets were not met, the bonus awards granted by the Committee for fiscal 1997 were below the maximum bonus values. If the Company and/or the relevant division fell sufficiently short of its performance target, there was 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 were considered in the decision to award a bonus. 18 If corporate and/or division performance targets were met, but an individual fell short of his or her performance goals, the individual's bonus could have been reduced or eliminated in the discretion of the Committee. Stock Incentives The Committee's purpose in awarding equity based incentives in fiscal 1997 in the form of stock options which vest over a five year period and terminate ten years from the date of grant and 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 1997 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. Changes in Compensation Policies At its meeting in September 1997, the Committee made several changes in elements of the Company's compensation policies that will be applied in fiscal 1998 and in the future to achieve the objectives described above under the "Compensation Policies" heading. First, the Committee determined that it would use for compensation benchmarking purposes a broad range of domestic publicly held "upscale" specialty retailing companies. This group of companies is not limited to those in the Stock Performance Graph peer groups. Second, the Committee determined that for the base salary component of compensation it would target the middle range of salaries for comparable positions in the comparison group of companies. Most important, the Committee determined to make annual and long term incentives a greater portion of total compensation and to increase the variable risk and reward of such incentive compensation in proportion to an executive's level of responsibility in the Company. For example, for fiscal 1998 the named executive officers' cash bonus opportunity for performance at the level of meeting the fiscal 1998 budget will range from 7.5% to 11% of base salary and will increase to a range of 30% to 45% of base salary for performance above the fiscal 1998 budget, which would represent a significant improvement over the Company's fiscal 1997 results. For superior performance in excess of the fiscal 1998 budget, cash bonus opportunities will increase to a range of 60% to 90% of base salary. If performance is below the fiscal 1998 budget, the Committee may reduce cash bonus awards or not grant them at all. Similarly, long term stock incentives will be structured to provide more significant capital accumulation opportunities than in the past, and the vesting of restricted stock awards will take place upon the achievement of specified business objectives which include improvements in operating earnings and return on net assets and may also include other factors as determined by the Committee from time to time. In any event, restricted stock awards will vest eight years after the grant date. 19 Compensation of the Chief Executive Officer Mr. Smith succeeded Mr. Tarr as Chief Executive Officer of the Company upon Mr. Tarr's resignation effective January 15, 1997. While serving as Chief Executive Officer of the Company, each of them also served as the Chief Executive Officer of Harcourt General, which owns a majority of the outstanding Common Stock of the Company. Both Mr. Smith and Mr. Tarr received all of their cash and non-cash compensation from Harcourt General and not 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 the services of Mr. Tarr and then Mr. Smith as Chief Executive Officer. During fiscal 1997, the Company paid or accrued approximately $5.7 million to Harcourt General for all of its services under the Intercompany Services Agreement, of which approximately $1.0 million was attributable to Mr. Tarr's services and approximately $365,000 was attributable to Mr. Smith'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, Mr. Smith 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. During fiscal 1997, the Committee, the Board of Directors and the stockholders of the Company approved The Neiman Marcus Group 1997 Incentive Plan. This Plan allows the Committee to continue to award stock incentives and cash bonuses based on objective criteria. It is expected that 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 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 Vincent M. O'Reilly Jean Head Sisco 20 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 2, 1997 of (i) the Standard & Poor's 500 Index, and (ii) a peer group index used by the Company in the last fiscal year (Old Peer Index) consisting of Tiffany & Co. and Nordstrom, Inc., and (iii) a new peer index (New Peer Index) which includes Saks Holdings, Inc. along with Tiffany and Nordstrom. The graph assumes a $100 investment in the Company's Common Stock and in each index company other than Saks Holdings at August 3, 1991, and that all dividends were reinvested. Saks Holdings began trading on the New York Stock Exchange in May 1996 and, accordingly, is included in the New Peer Index commencing as of the end of the Company's 1996 fiscal year. For comparative purposes, the value of an investment in Saks as of that date is set at an amount equal to the average of the cumulative total returns of the other members of the New Peer Index as of that same date ($165.17). The common stocks of the companies in each 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 Comparison of Five-Year Cumulative Total Return The Neiman Marcus Group, Inc., S&P 500 Index, Old Peer Index, and New Peer Index 01-Aug-92 31-Jul-93 30-Jul-94 29-Jul-95 03-Aug-96 02-Aug-97 Neiman Marcus Group, Inc. $100.00 $108.81 $115.90 $117.69 $205.72 $213.86 S&P 500 Index $100.00 $108.51 $113.65 $142.50 $171.54 $257.84 Old Peer Index $100.00 $ 98.64 $151.29 $143.55 $165.17 $239.24 New Peer Index $100.00 $ 98.64 $151.29 $143.55 $165.17 $202.92
21 Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information, as of October 22, 1997, 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. Robert J. Tarr, Jr., who is listed in the table because he is named in the Summary Compensation Table, resigned as a director and officer of the Company effective January 15, 1997.
Number Percent of Shares of Common Name of Beneficial Owner Owned(1) Stock ------------------------ ---------- --------- Harcourt General, Inc.(2) 26,429,502 53% 27 Boylston Street Chestnut Hill, MA 02167 Gabelli Funds, Inc.(3) 4,475,500 9% One Corporate Center Rye, NY 10580 Burton M. Tansky(4) 92,100 * Gerald A. Sampson(5) 48,606 * Stephen Elkin(6) 85,759 * Dawn Mello(7) 13,600 * Bernie Feiwus(8) 41,045 * Matina S. Horner -- * Vincent M. O Reilly 800 * Walter J. Salmon 8,942 * Jean Head Sisco 1,134 * Richard A. Smith (9) -- * Robert A. Smith (9) -- * Robert J. Tarr, Jr.(10) -- * All current executive officers and directors as a group (18 persons)(11) 291,986 *
__________ * 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) Richard A. Smith, Chairman and Chief Executive Officer of the Company and of Harcourt General, his sister, Nancy L. Marks, and certain members of their families (including Robert A. Smith, President and Chief Operating Officer of the Company and President and Co-Chief Operating Officer of Harcourt General) may be regarded as controlling persons of Harcourt General, and therefore of the Company. The shares 22 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 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. (3) The information reported is based on a Schedule 13G dated August 15, 1997 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 4,372,500 shares and sole dispositive power with respect to all of the shares shown in the table. (4) Includes 74,200 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 22, 1997. Also includes 13,900 shares of restricted stock over which Mr. Tansky has voting but not dispositive power. (5) Includes 14,100 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 22, 1997. Also includes 5,800 shares of restricted stock over which Mr. Sampson has voting but not dispositive power. (6) Includes 58,750 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 22, 1997. Also includes 8,300 shares of restricted stock over which Mr. Elkin has voting but not dispositive power. (7) Includes 8,300 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 22, 1997. Also includes 3,900 shares of restricted stock over which Ms. Mello has voting but not dispositive power. (8) Includes 14,200 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 22, 1997. Also includes 6,800 shares of restricted stock over which Mr. Feiwus has voting but not dispositive power. 23 (9) The members of the Board of Directors of Harcourt General, including Richard A. Smith and Robert A. Smith, 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. (10) Mr. Tarr resigned as a director and officer of the Company effective January 15, 1997. (11) Excludes the beneficial ownership of securities of the Company which may be deemed to be attributed to Richard A. Smith and Robert A. Smith (see Notes 2 and 9 above). Includes 169,550 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 22, 1997. Also includes 38,700 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 Officers During fiscal 1997 and through October 22, 1997, Messrs. Sampson, Elkin and Feiwus had outstanding loans under the Company's Key Executive Stock Purchase Loan Plan (the "Loan Plan") in the respective maximum aggregate principal amounts of $457,894, $94,687 and $193,315. In accordance with the provisions of the Loan Plan, these loans were used to acquire shares of Common Stock either in the open market or pursuant to stock option exercises and to discharge certain tax liabilities incurred in connection with the release of restrictions on previous grants of restricted Common Stock. The loans are secured by a pledge of the purchased shares and bear interest at an annual rate of 5%, payable quarterly. Pursuant to the terms of the Loan Plan, each executive officer's loan will become due and payable seven months after his 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 1997 or subsequent thereto. 24 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 incorporated herein by reference to the Company's 1997 Annual Report to Shareholders and are incorporated herein by reference into Item 8 hereof: Consolidated Balance Sheets -August 2, 1997 and August 3, 1996. Consolidated Statements of Earnings for the fiscal years ended August 2, 1997, August 3, 1996 and July 29, 1995. Consolidated Statements of Cash Flows for the fiscal years ended August 2, 1997, August 3, 1996 and July 29, 1995. Consolidated Statements of Shareholders' Equity for the fiscal years ended August 2, 1997, August 3, 1996 and July 29, 1995. Notes to Consolidated Financial Statements. Independent Auditors' Report. 14(a)(2) Consolidated Financial Statement Schedules The document and schedule listed below are filed as part of this Form 10-K: Page in Form 10-K Independent Auditors' Report on Consolidated Financial Statement F-1 Schedule Schedule II -- Valuation and Qualifying Accounts and Reserves . . . . . . . . F-2 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 are listed in the Exhibit Index immediately preceding the exhibits. The Company has identified with an asterisk in the Exhibit Index 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. 25 14(b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended August 2, 1997. 26 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/ Richard A. Smith Richard A. Smith Chairman of the Board and Chief Executive Officer Dated: October 28, 1997 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/ Richard A. Smith Chairman of the Board, October 28,1997 Richard A. Smith Chief Executive Officer and Director Principal Financial Officer: /s/ John R. Cook Senior Vice President and October 28, 1997 John R. Cook Chief Financial Officer Principal Accounting Officer: /s/ Stephen C. Richards Vice President and October 28, 1997 Stephen C. Richards Controller 27 Directors: /s/ Richard A. Smith October 28, 1997 Richard A. Smith /s/ Matina S. Horner October 16, 1997 Matina S. Horner /s/ Vincent M. O'Reilly October 23, 1997 Vincent M. O'Reilly /s/ Walter J. Salmon October 28, 1997 Walter J. Salmon /s/ Jean Head Sisco October 23, 1997 Jean Head Sisco /s/ Robert A. Smith October 28, 1997 Robert A. Smith 28 EXHIBIT INDEX 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. 3.2 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 The Neiman Marcus Group, Inc. 1997 Incentive Plan, incorporated herein by reference to Exhibit A to the Company's Definitive Schedule 14A dated December 10, 1996 and filed with the Securities and Exchange Commission. *10.4 Employment Agreement between the Company and Burton M. Tansky effective February 1, 1997, incorporated herein by reference to the Company's Annual Report on From 10-K for the fiscal year ended August 3, 1996. *10.5 Termination and Change of Control Agreement between the Company and Gerald A. Sampson dated September 10, 1996, herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 3, 1996. 29 *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. *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. *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 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, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 3, 1996. 30 10.15 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). 10.16 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). 10.17 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). 10.18 Exchange and Repurchase Agreement between The Neiman Marcus Group, Inc. and Harcourt General, Inc., incorporated herein by Reference to Exhibit 10.1 to Registration Statement on Form S-3 of The Neiman Marcus Group, Inc. dated October 10, 1996 (Registration No. 333-11721). 11.1 Computation of Weighted Average Number of Shares Outstanding Used in Determining Primary and Fully-Diluted Earnings Per Share. 13.1 The following sections of the 1997 Annual Report to Shareholders ("1997 Annual Report") which are expressly incorporated by reference into this Annual Report on Form 10-K: Management's Discussion and Analysis of Financial Condition and Results of Operations at pages 25 through 31 of the 1997 Annual Report. Consolidated Financial Statements and the Notes thereto at pages 32 through 48 of the 1997 Annual Report. 31 Independent Auditors Report at page 49 of the 1997 Annual Report. The information appearing under the caption "Selected Financial Data" on page 50 of the 1997 Annual Report. The information appearing under the captions "Stock Information" and "Shares Outstanding" on page 51 of the 1997 Annual Report. 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). __________ * Exhibits filed pursuant to Item 14(c) of Form 10-K. 32 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of The Neiman Marcus Group, Inc. Chestnut Hill, MA We have audited the consolidated financial statements of The Neiman Marcus Group, Inc. and subsidiaries as of August 2, 1997 and August 3, 1996, and for each of the three fiscal years in the period ended August 2, 1997, and have issued our report thereon dated August 28, 1997; such financial statements and report are included in your 1997 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of The Neiman Marcus Group, Inc. and subsidiaries, listed in Item 14. This financial statement schedule is the responsibility of the Company'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 consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Boston, Massachusetts August 28, 1997 F-1
THE NEIMAN MARCUS GROUP, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES THREE YEARS ENDED AUGUST 2, 1997 (In thousands) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions Balance at Charged to Charged to Balance at Beginning Costs and Other Deductions- End Description of Period Expenses Accounts- (A) of Period __________________________________________________________________________________________ YEAR ENDED AUGUST 2, 1997 Allowance for doubtful accounts $1,300 2,815 - 2,415 $1,700 (deducted from accounts receivable) YEAR ENDED AUGUST 3, 1996 Allowance for doubtful accounts $1,512 2,385 - 2,597 $1,300 (deducted from accounts receivable) YEAR ENDED JULY 29, 1995 Allowance for doubtful accounts $ 754 3,777 - 3,019 $1,512 (deducted from accounts receivable) (A) Write-off of uncollectible accounts net of recoveries.
F-2 EX-10.9 2 KEY EXECUTIVE STOCK PURCHASE LOAN PLAN, AS AMENDED EXHIBIT 10.9 THE NEIMAN MARCUS GROUP, INC. AMENDED AND RESTATED KEY EXECUTIVE STOCK PURCHASE LOAN PLAN (As amended through September 8, 1995) l. Purpose. The purpose of the Key Executive Stock Purchase Loan Plan (the "Plan") is to obtain for The Neiman Marcus Group, Inc. (referred to herein as "NMG" and, together with its subsidiaries, as the "Company") the benefits of the additional incentive inherent in the ownership of its securities by selected key executives who are important to the success and growth of the business of the Company and to help the Company obtain and retain the services of such employees. 2. Administration. The Plan shall be administered by a Committee established by the Board of Directors of NMG, consisting of at least three directors. The Committee shall have authority, not inconsistent with the Plan, (a) to determine which of the key executives of the Company shall be eligible to receive stock purchase loans and/or restricted stock tax loans ("Loan Participants"), (b) to determine the time or times when loans shall be made and the amount of each loan, (c) to prescribe the forms of the instruments evidencing loans granted under the Plan and of any other instruments required under the Plan, (d) to adopt, amend and rescind rules and regulations for the administration of the Plan and for its own acts and proceedings, and (e) to decide all questions and settle all controversies and disputes which may arise in connection with the Plan. All decisions, determinations and interpretations of the Committee shall be binding on all parties concerned. 3. Participants. The participants in the Plan shall be such key executives of the Company, whether or not also officers or directors, as may be selected from time to time by the Committee in its discretion. Directors who are not employees shall not be eligible. No loan may be made to a person who is a member of the Committee at the time of grant. 4. Use of Loans; Collateral. Stock purchase loans made pursuant to the Plan shall be used by the Loan Participant solely in connection with (a) the purchase of capital stock of NMG (through exercise of stock options, open market purchases or private transactions) during those periods authorized by the Committee and in accordance with the rules and regulations established by the Committee for the purchase of stock or (b) the satisfaction of any tax withholding obligations arising upon the vesting of any shares of restricted stock ("Restricted Stock Loan"). All such purchases and all resales of capital stock of NMG shall be subject to any applicable requirements of federal and state securities laws. To the extent permitted by law, the Committee may, as a condition to granting a loan hereunder, require that the Loan Participant collateralize the loan by pledging to NMG the securities purchased with the proceeds of the loan and such other collateral as may from time to time be required by Regulation G, as issued by the Board of Governors of the Federal Reserve Board; any such pledge shall be documented by the execution and delivery of a Pledge Agreement in such form, and containing such provisions, not inconsistent herewith, as the Committee shall determine. The Committee may, in its sole discretion, determine to what extent, if any, withdrawal of collateral may be made by a Loan Participant. 5. Amount of Loan; Limitations. The amount of any stock purchase loan granted under the Plan shall not exceed the sum of (a) the price of the securities purchased with the proceeds of the loan, (b) brokerage fees and other similar expenses incurred in connection with such purchase, and (c) in the case of an exercise of a "non-qualified" stock option (i.e., any stock option the exercise of which results in taxable income to the optionee on the date of exercise), that percentage of the difference between the aggregate fair market value of the securities purchased on the date of exercise and the aggregate option exercise price which equals the highest marginal federal income tax rate prevailing on the date of exercise. The amount of any Restricted Stock Loan granted under the Plan shall not exceed an amount equal to the product of (a) the number of shares released from restriction and to which the participant is entitled, times (b) the average of the high and low sales prices of NMG common stock on the release date, times (c) the highest marginal federal income tax rate prevailing on the release date. A Loan Participant may elect to borrow less than the maximum amount allowable, in the Loan Participant's sole discretion. A Loan Participant shall be eligible for more than one loan under the Plan. The Committee shall, subject to the limitations set forth in the following paragraph, determine the aggregate amount of loans which may be made to any Loan Participant. The aggregate unpaid principal amount of all loans outstanding under the Plan shall not, without the approval of the Board of Directors of NMG, exceed $3 million at any time. 6. Note. Each loan made hereunder shall be evidenced by a Promissory Note, in such form and containing such provisions, not inconsistent herewith, as the Committee shall determine. 7. Interest. Any Note issued hereunder shall bear interest at a rate to be determined by the Committee. - 2 - 8. Term of Loan. The unpaid principal amount of any loan (and any unpaid interest thereon) shall become due and payable seven months after a Loan Participant shall cease to be an employee of the Company. 9. Payment of Principal in Cash. The unpaid principal of a loan of a Loan Participant who ceases to be an employee of the Company within four years after the date of the loan for any reason other than (a) involuntary discharge, (b) death or (c) retirement or disability under the circumstances specified in Section 10(b)(iii) shall be repayable only in cash or in shares of NMG whose fair market value (measured as of the close of business on the day prior to repayment) is equal to the outstanding principal balance of the loan, or in a combination of both. 10. Option to Pay Principal in Shares. The unpaid principal balance of a loan of a Loan Participant who ceases to be an employee of the Company (a) more than four years after the date of the loan or (b) at any time during such four-year period by reason of (i) involuntary discharge, (ii) death or (iii) retirement or disability under circumstances entitling the Loan Participant to benefits under a retirement plan or disability insurance plan for employees of the Company, shall be repayable at the option of the Loan Participant either in cash or in that number of shares of securities represented by the outstanding principal balance of the loan, or in a combination of both. The phrase "that number of shares of securities represented by the outstanding principal balance of the loan" under the Plan shall mean the number of shares of securities purchased with a stock purchase loan under the Plan at the time the loan is granted, adjusted to reflect the "anti-dilution" provisions of Section 13 and repayments, if any, previously made by the Loan Participant. 11. Leave of Absence. Whether a leave of absence shall constitute termination of employment for the purpose of any loan granted hereunder shall be determined in each case by the Committee in its sole discretion. A Loan Participant who fails to return to the employ of the Company within 30 days after the expiration of a leave of absence which was not a termination of employment in the Committee's judgment shall be deemed, for purposes of the Plan, to have ceased to be an employee upon the expiration of such 30 day period. 12. Prepayment. Notwithstanding any other provision of the Plan, a Loan Participant who has received a loan shall have the option to repay in cash or in shares of NMG whose fair market value (measured as of the close of business on the day prior to repayment) is equal to the outstanding principal balance of the loan, or in a combination of both, all or any portion of the outstanding balance of the loan at any time before the loan becomes due and payable. 13. Changes in Stock. In the event of a stock dividend, split-up or combination of shares, recapitalization or merger in which NMG is the surviving corporation, or other similar capital change or changes, the resulting number and kind of shares of stock or securities of NMG attributable to "that number of shares of securities represented by the outstanding principal balance of the loan" (as such phrase is used in Section l0) under - 3 - the Plan shall be appropriately adjusted by the Board of Directors of NMG, whose determination shall be binding on all persons. In the event of a consolidation or a merger in which NMG is not the surviving corporation, or in the event of a complete liquidation of NMG, the Board of Directors of NMG may make such adjustments and take such action as it deems appropriate to reflect or anticipate such merger, consolidation or liquidation. 14. Employment Rights. The adoption of the Plan does not confer upon any employee of the Company any right to continued employment with the Company nor does it interfere in any way with the right of the Company to terminate the employment of any of its employees at any time. 15. Transferability. The rights of a Loan Participant under the Plan shall not be transferable except by will or the laws of descent and distribution. 16. Amendment, Modification and Termination of the Plan. The Board of Directors of NMG may at any time terminate and may at any time and from time to time, and in any respect, amend or modify, the Plan; provided, however, that no such action of the Board of Directors of NMG shall in any manner affect any loan theretofore granted under the Plan without the consent of the Loan Participant. 17. Effective Date. The Amended and Restated Key Executive Stock Purchase Loan Plan shall become effective as of September 8, 1995. - 4 - EX-11.1 3 COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES EXHIBIT 11.1 THE NEIMAN MARCUS GROUP, INC. Computation of weighted average number of shares outstanding used in determining primary and fully diluted earnings per share:
Years Ended ------------------------------------- (Shares in 000's) August 2, August 3, July 29, 1997 1996 1995 --------- --------- -------- Primary 1. Weighted average number of common shares outstanding 47,162 38,000 37,958 2. Assumed exercise of certain stock options based on average market value 173 218 25 --------- --------- -------- 3. Weighted average number of shares used in primary per share computations 47,335 38,218 37,983 ========= ========= ======== Fully diluted (A) 1. Weighted average number of common shares outstanding 47,162 38,000 37,958 2. Assumed exercise of all dilutive options based on higher of average or closing market value 173 238 34 --------- -------- -------- 3. Weighted average number of shares used in fully diluted per share computations 47,335 38,238 37,992 ========= ======== ======== (A) This calculation is submitted in accordance with the Securities Exchange Act of 1934 Release No. 9083 although not required by Footnote 2 to Paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
EX-13.1 4 SECTIONS OF THE 1997 ANNUAL REPORT TO SHAREHOLDERS INCORPORATED BY REFERENCE INTO ANNUAL REPORT ON FORM 10-K [START PAGE 25] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Overview The Company's financial performance reflects a continuing 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. Management believes that the Company's success can be attributed to its business strategy, which is designed to increase productivity, sales and operating earnings. Key elements of the strategy include: (i) offering an extensive and carefully edited assortment of high-end fashion merchandise based on strong relationships with designer resources; (ii) providing a high level of customer service and utilizing a variety of clienteling tools; (iii) investing in the Company's store base and supporting infrastructure; (iv) opening new stores; and (v) expanding its customer base by broadening the Company's reach through creative marketing techniques as well as through NM Direct. As a result of the Company's successful implementation of this strategy, revenues rose to $2.2 billion in fiscal 1997, representing a 17.0% increase over revenues of $1.9 billion in fiscal 1995. Net earnings from continuing operations increased 35.5% from $67.3 million to $91.2 million during the same period. Approximately 75% of the Company's revenues are generated by Neiman Marcus Stores with the balance split 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 and new store openings. Since August 1995, the Company has opened three new Neiman Marcus stores, adding 430,000 gross square feet in the Northeast market. The Company has a new Neiman Marcus store under construction in Honolulu's Ala Moana Center (160,000 gross square feet) which the Company expects to open in November 1998. The Company also plans to open new Neiman Marcus stores in Coral Gables, Florida, in 2000 (120,000 gross square feet), in Oyster Bay, New York, in 2001 (140,000 gross square feet), and in Plano, Texas, in 2001 (150,000 gross square feet). The Plano, Texas store will replace an existing store in Prestonwood, Texas. In fiscal 1997, average sales per gross square foot reached an all-time high of $392 at Neiman Marcus Stores and $803 at Bergdorf Goodman, representing increases of 8.9% and 5.1%, respectively, over fiscal 1995 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 three fiscal years Neiman Marcus Stores and Bergdorf Goodman have placed a greater emphasis on higher quality merchandise at higher opening price points. In fiscal 1997, the Company's operating earnings rose to $181.0 million from $159.5 million in fiscal 1996 and $150.1 million in fiscal 1995. 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 both fiscal 1997 and 1996 and $7.1 million in fiscal 1995. Management believes that the fiscal 1998 reduction will be comparable to the reductions experienced in fiscal 1997 and 1996. The securitization, however, also reduced interest expense during these periods as the proceeds were used to repay outstanding debt. [END PAGE 25] [START PAGE 26] 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 $1.5 million lower in fiscal 1997, $0.7 million higher in fiscal 1996 and $10.4 million higher in fiscal 1995 than they would have been using the FIFO method. Because a substantial portion of the Company's selling, general and administrative expenses consists 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. NM Direct increased its revenues and operating earnings in both fiscal 1996 and 1997, in large part due to the successful implementation of certain initiatives established in fiscal 1995, when 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's results are also significantly affected by fluctuation in the costs of paper and postage. In particular, in fiscal 1995, increased paper and postage cost 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. 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 successfully introduced the Neiman Marcus Christmas Catalogue in Japan in the fiscal 1997 holiday season. 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 1995, 1996 and 1997, the Company invested approximately $88 million in remodeling its existing store base. In fiscal 1998, major projects will include (i) continuing construction of a new Neiman Marcus store in Hawaii; (ii) remodeling projects at the Fashion Island (Newport Beach, CA) and Palo Alto Neiman Marcus stores; and (iii) remodeling of the plaza level of the main store of Bergdorf Goodman. 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 continue to provide future cost savings and operational efficiencies. In connection with the repurchase of its redeemable preferred stock in fiscal 1997, the Company incurred a nonrecurring, non-cash charge to earnings applicable to common shareholders of approximately $22.4 million, or approximately $.48 per share. [END PAGE 26] [START PAGE 27] Operating Results In fiscal 1996, the reporting period included 53 weeks as compared to 52 weeks in each of fiscal years 1997 and 1995.
Fiscal Years Ended .............................................. August 2, August 3, July 29, (Dollars in Millions) 1997 1996 1995 REVENUES ---------- ---------- ---------- Neiman Marcus Stores $ 1,696.8 $ 1,566.7 $ 1,398.8 Bergdorf Goodman 253.7 251.9 241.5 NM Direct 259.4 256.4 247.9 ---------- ---------- ---------- Total $ 2,209.9 $ 2,075.0 $ 1,888.2 ========== ========== ========== OPERATING EARNINGS (1) Neiman Marcus Stores $ 151.7 $ 134.0 $ 132.3 Bergdorf Goodman 18.2 16.5 16.6 NM Direct 25.5 22.7 13.7 Corporate expenses (14.4) (13.7) (12.5) ---------- ---------- ---------- Total $ 181.0 $ 159.5 $ 150.1 ========== =========== ========== OPERATING PROFIT MARGINS (1) Neiman Marcus Stores 8.9% 8.6% 9.5% Bergdorf Goodman 7.2% 6.6% 6.9% NM Direct 9.8% 8.9% 5.5% Total (2) 8.2% 7.7% 7.9% ========== =========== ==========
(1) 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 $168.2 and $28.0 in fiscal 1997, $150.4 and $25.4 in fiscal 1996 and $138.3 and $14.8 in fiscal 1995, respectively. See "Review of Financial Condition." (2) After corporate expenses. [END PAGE 27] [START PAGE 28] Fiscal 1997 versus Fiscal 1996 Revenues in fiscal 1997 increased to $2.21 billion from $2.08 billion in fiscal 1996. The 6.5% increase was primarily attributable to comparable sales growth of 5.3% at Neiman Marcus Stores, and to new Neiman Marcus stores opened in King of Prussia, Pennsylvania in February 1996 and Paramus, New Jersey in August 1996. Comparable sales increases at Bergdorf Goodman and NM Direct were 2.1% and 2.9%, respectively. Cost of goods sold increased 6.3% to $1.50 billion in fiscal 1997, primarily due to incremental merchandise sold. As a percentage of revenues, cost of goods sold was 68.1% in fiscal 1997 compared to 68.3% in fiscal 1996. The decrease in fiscal 1997 resulted primarily from improved gross margins across all divisions, and proportionately lower buying and occupancy costs. Selling, general and administrative expenses increased 5.0% in fiscal 1997 to $509.7 million. As a percentage of revenues, selling, general and administrative expenses decreased to 23.1% in fiscal 1997 from 23.4% in fiscal 1996. The proportionate decrease was primarily due to higher revenues. 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 4.7% to $14.4 million in fiscal 1997 compared to fiscal 1996. This increase was primarily due to higher professional fees. Operating earnings increased to $181.0 million from $159.5 million in the prior year. This increase is attributed to higher sales volume, particularly at Neiman Marcus Stores, and improved gross margins. Interest expense decreased 6.7% in fiscal 1997 to $26.3 million. Higher average borrowings were offset by a lower effective interest rate which resulted from the repayment at maturity of the Company's fixed rate senior notes with borrowings under its revolving credit agreement. The Company's effective income tax rate was unchanged at 41% in fiscal 1997. 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. [END PAGE 28] [START PAGE 29] 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. 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. Review of Financial Condition In fiscal 1997, 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 $109.2 million in fiscal 1997 compared to $52.7 million in fiscal 1996. The Company's capital expenditures in fiscal 1997 consisted principally of renovations of existing stores. Capital expenditures were $53.0 million in fiscal 1997, $85.7 million in fiscal 1996 and $93.5 million in fiscal 1995. 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. The Company has a new Neiman Marcus store under construction in Honolulu's Ala Moana Center which is expected to open in November 1998 (160,000 gross square feet), and also plans to open new Neiman Marcus stores in Coral Gables, Florida, in 2000 (120,000 gross square feet), in Oyster Bay, New York, in 2001 (140,000 gross square feet), and in Plano, Texas in 2001 (150,000 gross square feet). The Plano, Texas store will replace an existing store in Prestonwood, Texas. Capital expenditures are currently estimated to approximate $100.0 million for fiscal 1998. [END PAGE 29] [START PAGE 30] In October 1996, the Company issued 8.0 million shares of common stock to the public at $35.00 per share. The net proceeds were used in November 1996, together with 3.9 million shares of the Company's common stock and borrowings of approximately $20.0 million, to purchase all of its outstanding redeemable preferred stock from Harcourt General and pay accrued and unpaid dividends. The repurchase of the preferred stock resulted in a reduction of dividend payments of $21.3 million in fiscal 1997 compared to fiscal 1996 and eliminated all related future preferred dividend and sinking fund requirements. During fiscal 1997, the Company increased its bank borrowings by $113.5 million which included borrowings made in August 1996 and December 1996 to repay $52 million and $80 million, respectively, of senior notes at maturity. At August 2, 1997, the Company had $200.0 million available under its $500.0 million revolving credit facility, which expires in April 2000. The Company is presently evaluating an increase in this revolving credit agreement for approximately $150.0 million. The Company believes that it will have sufficient resources to fund its planned capital growth and operating requirements. The Company declared and paid the final dividends on its preferred stock in the first quarter of fiscal 1997 in the amount of $5.8 million on November 12, 1996 concurrent with the repurchase of this preferred stock. Beginning with the third quarter of fiscal 1995, the Company eliminated its quarterly cash dividend on common stock (previously $.05 per share per quarter). As discussed above, 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 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. [END PAGE 30] [START PAGE 31] Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 128, "Earnings per Share" (SFAS 128). Under the new standard, which must be adopted for periods ending after December 15, 1997, the Company will be required to change the method used to compute earnings per share and to restate prior periods presented. A dual presentation of basic and diluted earnings per share will be required. The basic earnings per share calculation, which will replace primary earnings per share, will exclude the dilutive impact of stock options and other common share equivalents. The diluted earnings per share calculation, which will replace fully diluted earnings per share, will include common share equivalents. The adoption of SFAS 128 will not have a material impact on earnings per share for the three years ended August 2, 1997. In February 1997, the FASB issued Statement of Financial Accounting Standard No. 129, "Disclosure of Information about Capital Structure" (SFAS 129), which must be adopted for periods ending after December 15, 1997. The Statement makes disclosure requirements regarding capital structure applicable to all entities. The Statement contains no change in disclosure requirements for the Company. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"(SFAS 130). The Statement, which must be adopted for periods beginning after December 15, 1997, establishes standards for reporting and display of comprehensive income and its components in consolidated financial statements. The effect of adopting SFAS 130 is not expected to be material to the Company's financial position or results of operations. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131), which must be adopted for periods beginning after December 15, 1997. Under the new standard, companies will be required to report certain information about operating segments in consolidated financial statements. Operating segments will be determined based on the method that management organizes its businesses for making operating decisions and assessing performance. The standard also requires that companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is currently evaluating the effect, if any, of implementing SFAS 131. [END PAGE 31] [START PAGE 32]
Consolidated Balance Sheets August 2, August 3, (Dollar Amounts in Thousands) 1997 1996 ---------- ---------- Assets CURRENT ASSETS Cash and equivalents $ 16,861 $ 12,659 Undivided interests in NMG Credit Card Master Trust 128,341 114,392 Accounts receivable, less allowance for doubtful accounts of $1,700 and $1,300 55,041 51,050 Merchandise inventories 460,412 443,948 Deferred income taxes 19,049 21,666 Other current assets 54,339 45,368 ---------- ---------- TOTAL CURRENT ASSETS 734,043 689,083 ========== ========== PROPERTY AND EQUIPMENT Land, buildings and improvements 428,325 396,541 Fixtures and equipment 300,579 271,852 Construction in progress 26,029 36,431 ---------- ---------- 754,933 704,824 Less accumulated depreciation and amortization 300,800 247,199 ---------- ---------- PROPERTY AND EQUIPMENT, NET 454,133 457,625 ---------- ---------- OTHER ASSETS 99,684 105,642 ---------- ---------- $1,287,860 $1,252,350 ========== ========== Liabilities and Shareholders' Equity CURRENT LIABILITIES Notes payable and current maturities of long-term liabilities $ 8,810 $ 35,576 Accounts payable 174,952 192,146 Accrued liabilities 147,730 146,326 ---------- ---------- TOTAL CURRENT LIABILITIES 331,492 374,048 ---------- ---------- LONG-TERM LIABILITIES Notes and debentures 300,000 292,000 Other long-term liabilities 69,738 69,940 ---------- ---------- TOTAL LONG-TERM LIABILITIES 369,738 361,940 ---------- ---------- DEFERRED INCOME TAXES 31,902 33,329 COMMITMENTS AND CONTINGENCIES REDEEMABLE PREFERRED STOCKS (redeemed for $416,425) -- 407,426 COMMON STOCK Common stock -- $.01 par value Authorized -- 100,000,000 shares Issued and outstanding -- 49,873,347 and 38,003,702 shares 499 380 ADDITIONAL PAID-IN CAPITAL 485,658 83,106 RETAINED EARNINGS (ACCUMULATED DEFICIT) 68,571 (7,879) ---------- ---------- $1,287,860 $1,252,350 ========== ========== See Notes to Consolidated Financial Statements.
[END PAGE 32] [START PAGE 33] Consolidated Statements of Earnings
.............Years Ended............. August 2, August 3, July 29, (In Thousands Except for Per Share Data) 1997 1996 1995 ---------- ---------- ---------- Revenues $2,209,891 $2,075,003 $1,888,249 Cost of goods sold including buying and occupancy costs 1,504,858 1,416,296 1,276,776 Selling, general and administrative expenses 509,687 485,533 448,956 Corporate expenses 14,364 13,719 12,465 ---------- ---------- ---------- Operating earnings 180,982 159,455 150,052 Interest expense 26,330 28,228 33,958 ---------- ---------- ---------- Earnings from continuing operations before income taxes 154,652 131,227 116,094 Income taxes 63,407 53,803 48,759 ---------- ---------- ---------- Earnings from continuing operations 91,245 77,424 67,335 Loss from discontinued operations, net of taxes (including loss on disposal of $9,873) -- -- (11,727) ---------- ---------- ---------- Net earnings 91,245 77,424 55,608 Loss on redemption of redeemable preferred stocks (see Note 2) (22,361) -- -- Dividends and accretion on redeemable preferred stocks (6,201) (29,104) (29,092) ---------- ---------- ---------- Net earnings applicable to common shareholders $ 62,683 $ 48,320 $ 26,516 ========== ========== ========== Weighted average shares outstanding 47,335 38,218 37,999 ========== ========== ========== Amounts per share applicable to common shareholders: Earnings from continuing operations $ 1.32 $ 1.26 $ 1.01 Loss from discontinued operations -- -- (.31) ---------- ---------- ---------- Net earnings per share $ 1.32 $ 1.26 $ .70 ========== ========== ========== See Notes to Consolidated Financial Statements.
[END PAGE 33] [START PAGE 34] Consolidated Statements of Cash Flows
.............Years Ended............. August 2, August 3, July 29, (In Thousands) 1997 1996 1995 --------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 91,245 $ 77,424 $ 55,608 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 59,820 56,305 48,397 Deferred income taxes 1,190 (2,047) 259 Change in net assets of discontinued operations -- -- 8,317 Other 2,199 2,447 (3,479) Changes in current assets and liabilities: Accounts receivable (3,991) (5,401) 5,877 Merchandise inventories (16,464) (84,856) (38,709) Accounts payable and accrued liabilities (15,790) 15,751 63,005 Other (8,971) (6,958) 6,846 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 109,238 52,665 146,121 --------- --------- --------- CASH FLOWS FOR INVESTING ACTIVITIES Additions to property and equipment (53,037) (85,736) (93,514) Purchases of held-to-maturity securities (461,791) (502,604) (210,995) Maturities of held-to-maturity securities 447,842 492,673 170,534 --------- --------- --------- NET CASH USED FOR INVESTING ACTIVITIES (66,986) (95,667) (133,975) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 113,500 109,917 17,065 Repayment of debt (132,000) (41,571) (247,276) Payment of redemption of preferred stock (281,426) -- -- Proceeds from receivables securitization -- -- 245,965 Common stock issued 267,672 740 112 Dividends paid (5,796) (27,120) (30,917) --------- --------- --------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (38,050) 41,966 (15,051) --------- --------- --------- CASH AND EQUIVALENTS Increase/(Decrease) during the year 4,202 (1,036) (2,905) Beginning balance 12,659 13,695 16,600 --------- --------- --------- Ending balance $ 16,861 $ 12,659 $ 13,695 ========= ========= ========= SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 28,441 $ 27,816 $ 34,466 ========= ========= ========= Income taxes $ 63,951 $ 56,523 $ 17,614 ========= ========= ========= See Notes to Consolidated Financial Statements.
[END PAGE 34] [START PAGE 35] Consolidated Statements of Common Shareholders' Equity
Additional Retained Earnings .....Common Stock..... Paid-In (Accumulated (In Thousands) Shares Amount Capital Deficit) -------- --------- ---------- ----------- BALANCE -- JULY 31, 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) Net earnings -- -- -- 91,245 Accretion of redeemable preferred stock -- -- -- (405) Preferred dividends -- -- -- (5,796) Loss on redemption of redeemable preferred stock -- -- -- (8,594) Issuance of common stock 11,857 119 402,161 -- Other equity transactions 12 -- 391 -- -------- ---------- ----------- ------------- BALANCE -- AUGUST 2, 1997 49,873 $ 499 $ 485,658 $ 68,571 ======== ========== ========== ============= See Notes to Consolidated Financial Statements.
[END PAGE 35] [START PAGE 36] Notes to Consolidated Financial Statements NOTE 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 1997 and 1995. 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. Undivided Interests in NMG Credit Card Master Trust In March 1995, the Company sold all of its Neiman Marcus credit card receivables through a subsidiary to The Neiman Marcus Group Credit Card Master Trust (the "Trust") in exchange for certificates representing undivided interests in such receivables. During the quarter ended May 3, 1997 the Company began to segregate its undivided interests in the Trust from its accounts receivable on the consolidated balance sheets. The undivided interests in the Trust include the interests retained by the Company's subsidiary which are represented by the Class C Certificate ($54.0 million) and the Seller's Certificate (the excess of the total receivables transferred to the Trust over the portion represented by certificates sold to investors and the Class C Certificate). The undivided interests in the Trust represent securities which the Company intends to hold to maturity in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Due to the short-term revolving nature of the credit card portfolio, the carrying value of the Company's undivided interests in the Trust approximates fair value. 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 $15.0 million and $13.5 million higher than reported at August 2, 1997 and August 3, 1996, respectively. As a result of using the LIFO valuation method, net earnings were $0.9 million lower in 1997, $0.4 million higher in 1996, and $6.0 million higher in 1995 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. [END PAGE 36] [START PAGE 37] Intangibles are amortized on a straight-line basis over their estimated useful lives, not exceeding 40 years. Amortization expense was $3.7 million in 1997, 1996 and 1995. 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. Revenue Recognition The Company recognizes revenue at point-of-sale or upon shipment. 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 $47.0 million in 1997, $47.7 million in 1996 and $55.9 million in 1995. 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 each of 1997 and 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. In 1997, the Company adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125). The effect of adopting SFAS 125 was not material to the Company's financial position or results of operations. Preopening Expenses Costs associated with the opening of new stores are expensed as incurred. Advertising and Catalogue Costs Direct response advertising relates primarily to the production and distribution of the Company's catalogues and is amortized over the estimated life of the catalogue. All other advertising costs are expensed in the period incurred. Advertising expenses were $108.7 million, $104.2 million and $105.6 million in fiscal 1997, fiscal 1996 and fiscal 1995, respectively. Direct response advertising amounts included in other current assets in the consolidated balance sheets of August 2, 1997 and August 3, 1996 were $6.9 million and $6.0 million, respectively. [END PAGE 37] [START PAGE 38] Earnings Per Common and Common Equivalent Share Earnings per share information reflects the earnings of the Company applicable to common shareholders. The dividend and accretion requirements of the redeemable preferred stocks were deducted from the earnings from continuing operations of the Company to arrive at net earnings applicable to common shareholders. Earnings per common share is based upon the weighted average number of common and, when dilutive, common equivalent shares outstanding during the year. 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 1996 and 1995 financial statements to conform to the 1997 presentation. NOTE 2 Company Public Offering In October 1996, the Company completed a public offering of 8.0 million shares of its common stock at a price of $35.00 per share. The net proceeds from the offering ($267.3 million) were used by the Company to partially fund the repurchase of all of the Company's issued and outstanding preferred stock from Harcourt General, Inc., the Company's majority shareholder. In addition to the net proceeds, on November 12, 1996 the Company issued Harcourt General 3.9 million shares of the Company's common stock (valued at $135.0 million at $35.00 per share) and completed the exchange for all of the Company's issued and outstanding preferred stock. The total consideration paid by the Company to Harcourt General in connection with the repurchase was $416.4 million, representing 98% of the aggregate stated value of the preferred stock, plus accrued and unpaid dividends through the date of the closing of the public offering. In connection with the transaction, the Company incurred a non-recurring charge to net earnings applicable to common shareholders of $22.4 million, comprised of two components: (i) $8.6 million representing the difference between the book value of the preferred stock and the total purchase price, and (ii) $13.8 million representing the fair value of shares 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. Had the public offering and repurchase of the preferred stock taken place at the beginning of the three years ending August 2, 1997, net earnings per share applicable to common shareholders for those periods would have been $1.82, $1.55, and $1.35 in 1997, 1996 and 1995, respectively. [END PAGE 38] [START PAGE 39] NOTE 3 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 loss from discontinued operations in 1995 is net of applicable income tax benefits of $1.3 million. 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. NOTE 4 Other Assets Other assets consisted of the following:
August 2, August 3, (In Thousands) 1997 1996 ---------- ---------- Trademarks $ 73,000 $ 73,000 Goodwill 22,729 22,729 Other 36,394 38,677 ---------- ---------- 132,123 134,406 Accumulated amortization (32,439) (28,764) ---------- ---------- $ 99,684 $ 105,642 ========== ==========
Trademarks and goodwill are amortized over 40 years. Mailing lists (which are included in Other) are amortized over 11 years. NOTE 5 Accrued Liabilities Accrued liabilities consisted of the following:
August 2, August 3, (In Thousands) 1997 1996 ---------- ---------- Accrued salaries and related liabilities $ 29,322 $ 26,336 Self-insurance reserves 23,478 27,860 Income taxes payable 15,551 17,285 Other 79,379 74,845 ---------- ---------- $ 147,730 $ 146,326 ========== ==========
[END PAGE 39} [START PAGE 40] NOTE 6 Long-Term Liabilities Long-term liabilities consisted of the following:
Interest August 2, August 3, (In Thousands) Rate 1997 1996 -------- ---------- ---------- Revolving credit agreement (a) Variable $ 300,000 $ 186,500 Senior notes (b) Various -- 132,000 Capital lease obligations (c) 7.63--10.25% 6,142 6,697 Other long-term liabilities (d) Various 72,406 72,319 -------- ---------- ---------- Total long-term liabilities 378,548 397,516 Less current maturities (8,810) (35,576) ---------- ---------- $ 369,738 $ 361,940 ========== ==========
(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 (6.02% at August 2, 1997) 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. No such borrowings were outstanding at August 2, 1997. (b) Senior notes consisted of the following at August 3, 1996:
Principal Amount Interest Rate Due (In Thousands) ------------- ---------------- 9.59% August 1996 $ 52,000 9.24% December 1996 $ 40,000 Variable December 1996 $ 40,000 ============= ================
The notes were repaid at maturity with borrowings under the revolving credit facility. (c) The amount of assets under capital leases included in property and equipment net of amortization was $3.1 million at August 2, 1997 and $3.5 million at August 3, 1996. (d) Other long-term liabilities consisted primarily of certain employee benefit obligations, postretirement health care benefits and the liability for scheduled rent increases. [END PAGE 40] [START PAGE 41] The aggregate maturities of all long-term liabilities and capital lease obligations are $8.8 million in 1998, $4.1 million in 1999, $304.1 million in 2000, $4.3 million in 2001, $4.6 million in 2002 and $52.6 million thereafter. NOTE 7 Redeemable Preferred Stocks The Company is authorized to issue up to 50,000,000 shares of preferred stock. In fiscal 1997, the Company repurchased its issued and outstanding preferred stocks which consisted of 1,000,000 shares of 6% Cumulative Convertible Preferred Stock and 500,000 shares of 9 1/4% Cumulative Redeemable Preferred Stock, all of which were owned by Harcourt General. NOTE 8 Common Shareholders' Equity Ownership by and Relationship with Harcourt General Harcourt General owns approximately 26.4 million shares of Common Stock, or approximately 53% of the issued and outstanding shares of Common Stock 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 $5.7 million in 1997, $6.9 million in 1996 and $6.5 million in 1995. The Company's Chairman of the Board and Chief Executive Officer; President 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 if and when 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 Plans The Company has established common stock incentive plans allowing for the granting of stock options, stock appreciation rights (SARs) and stock-based awards to its employees. The Company applies Accounting Principles Board (APB) Opinion No. 25 and related Interpretations in accounting for its plans. The Company has adopted the disclosure-only provision of the Statement of Financial Accounting Standards No. 123, "Accounting for [END PAGE 41] [START PAGE 42] Stock-Based Compensation" (SFAS 123). Accordingly, no compensation cost has been recognized for its common stock incentive plans. Had compensation cost for the Company's common stock incentive plans been determined based on the fair value at the grant dates for awards under the plans consistent with the method of SFAS 123, the Company's net earnings and earnings per share would be essentially unchanged. The effects on pro forma net earnings and earnings per share of expensing the estimated fair value of stock options are not necessarily representative of the effects on reported net earnings for future years due to such factors as the vesting period of the stock options and the potential for issuance of additional stock options in future years. In addition, the disclosure requirements of SFAS 123 are presently applicable only to options granted subsequent to July 30, 1995. The Company has adopted the 1997 Incentive Plan (the "1997 Plan") which will be used for all future grants of equity-based awards to employees. All outstanding equity-based awards at August 2, 1997 were granted under the Company's 1987 Stock Incentive Plan. At August 2, 1997, there were 2.5 million shares of Common Stock available for grants under the 1997 Plan. Options outstanding at August 2, 1997 were granted at prices (not less than 100% of the fair market value on the date of the grant) varying from $11.63 to $33.38. There were 100 employees with options outstanding at August 2, 1997. For all outstanding options at August 2, 1997, the weighted average exercise price was $18.21 and the weighted average remaining contractual life was approximately 4.9 years. 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 the surrender over the option exercise price. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions used for grants in 1997 and 1996, respectively:
1997 1996 ------- ------- Expected life (years) 7 7 Expected volatility 31.1% 24.4% Risk-free interest rate 7.0% 7.0% ======= =======
[END PAGE 42] [START PAGE 43] A summary of the status of the Company's 1987 Stock Incentive Plan as of August 2, 1997, and August 3, 1996, and changes during the years ending on those dates is presented below:
.........1997......... .........1996........ ..........1995......... Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ---------- --------- --------- ---------- ---------- --------- OPTIONS Outstanding at beginning of year 653,077 $ 14.41 784,864 $ 14.47 666,348 $ 14.47 Granted 131,050 33.38 128,600 15.38 228,050 14.38 SAR Surrenders (82,207) 14.45 (202,192) 14.95 (13,470) 12.61 Exercised (1,200) 14.53 (2,900) 15.28 (1,644) 12.29 Canceled (39,940) 17.85 (55,295) 15.63 (94,420) 14.47 --------- --------- --------- --------- ---------- -------- Outstanding at end of year 660,780 $ 18.21 653,077 $ 14.41 784,864 $ 14.47 ========= ========= ========= ========= ========== ========= Options exercisable at year-end 273,090 $ 14.21 239,247 $ 14.34 356,064 $ 15.12 ========= ========= ========= ========= ========== =========
NOTE 9 Income Taxes Income tax expense was as follows:
..............Years Ended............ August 2, August 3, July 29, (In Thousands) 1997 1996 1995 Current: --------- ---------- --------- Federal $ 53,292 $ 47,517 $ 39,965 State 8,925 8,333 9,136 --------- ---------- --------- 62,217 55,850 49,101 ========= ========== ========= Deferred: Federal 836 (1,588) 668 State 354 (459) (1,010) --------- ---------- --------- 1,190 (2,047) (342) --------- ---------- --------- Income tax expense $ 63,407 $ 53,803 $ 48,759 ========= ========== =========
[END PAGE 43] [START PAGE 44] The Company's effective income tax rate was 41% in 1997 and 1996 and 42% in 1995. The difference between the statutory federal tax rate and the effective tax rate is due primarily to state income taxes. Significant components of the Company's net deferred income tax liability stated on a gross basis were as follows:
August 2, August 3, (In Thousands) 1997 1996 Gross deferred income tax assets: ----------- ----------- Financial accruals and reserves $ 19,578 $ 19,468 Employee benefits 23,630 25,941 Inventories 8,276 8,006 Deferred lease payments 3,066 3,481 Other 754 3,566 ----------- ----------- Total deferred tax assets 55,304 60,462 ----------- ----------- Gross deferred income tax liabilities: Excess tax depreciation (57,429) (59,128) Pension accrual (4,581) (7,178) Other assets previously deducted on tax return (6,147) (5,819) ----------- ----------- Total deferred tax liabilities (68,157) (72,125) ----------- ----------- Net deferred income tax liability $ (12,853) $ (11,663) =========== ===========
NOTE 10 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. When funding is required, the Company's policy is to contribute amounts that are deductible for federal income tax purposes. Pension plan assets consist primarily of equity and fixed income securities. Components of net pension expense were as follows:
............ Years Ended............. August 2, August 3, July 29, (In Thousands) 1997 1996 1995 --------- --------- --------- Service cost $ 5,591 $ 5,700 $ 5,800 Interest cost on projected benefit obligation 10,055 8,300 7,900 Actual return on assets (40,235) (12,100) (7,500) Net amortization and deferral 33,770 5,700 1,200 --------- --------- --------- Net pension expense $ 9,181 $ 7,600 $ 7,400 ========= ========= =========
[END PAGE 44] [START PAGE 45] The accounting assumptions used in the computation of pension expense were as follows:
1997 1996 1995 --------- ---------- ---------- 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% ========= ========== ==========
The plans' funded status and amounts recognized in the consolidated balance sheets were as follows:
.....August 2, 1997.... .....August 3, 1996..... Funded Unfunded Funded Unfunded (In Thousands) Plan Plan Plan Plan ----------- ---------- ---------- ---------- Vested benefit obligation $ 99,591 $ 15,447 $ 90,500 $ 13,200 ========== ========== ========== ========== Accumulated benefit obligation $ 103,100 $ 19,922 $ 94,000 $ 15,300 ========== ========== ========== ========== Projected benefit obligation $ 119,477 $ 25,199 $ 108,000 $ 25,200 Pension plan assets at fair value 144,288 -- 106,600 -- ---------- ---------- ---------- ---------- Funded (underfunded) projected obligation 24,811 (25,199) (1,400) (25,200) Net amortization and deferral (14,123) 804 16,200 3,100 Unrecognized net obligation at transition and unrecognized prior service cost 1,579 3,156 1,900 3,500 Pension asset (liability) recognized ---------- ---------- ---------- ---------- in the consolidated balance sheets $ 12,267 $ (21,239) $ 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 2, 1997, August 3, 1996 and July 29, 1995 were $2.6 million, $2.3 million, and $2.2 million, respectively. NOTE 11 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 1997, $1.2 million during 1996 and $1.4 million during 1995. [END PAGE 45] [START PAGE 46] The actuarial present value of accumulated postretirement health care benefit obligations and the amounts recognized in the consolidated balance sheets were as follows:
......Years Ended....... August 2, August 3, (In Thousands) 1997 1996 ---------- ---------- Retirees $ 11,202 $ 11,692 Fully eligible active plan participants 3,409 3,488 Other active plan participants 2,944 3,587 ---------- ---------- Accumulated postretirement benefit obligation 17,555 18,767 Unrecognized net gain 1,276 1,003 ---------- ---------- Total $ 18,831 $ 19,770 ========== ==========
The periodic postretirement health care benefit cost was as follows:
.............Years Ended............. August 2, August 3, July 29, (In Thousands) 1997 1996 1995 Net periodic cost: --------- ---------- ---------- Service cost $ 48 $ 222 $ 300 Interest cost on accumulated benefit obligation 819 1,621 1,249 Net amortization and deferral (563) -- -- --------- ---------- ---------- Total $ 304 $ 1,843 $ 1,549 ========= ========== ==========
A health care cost trend rate of 10% was assumed in measuring the accumulated postretirement health care benefit obligation at August 2, 1997, 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 1997, 1996 and 1995. An increase of 1% in the health care cost trend rate would increase the accumulated postretirement health care benefit obligation as of August 2, 1997 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 $180,000. NOTE 12 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. [END PAGE 46] [START PAGE 47] Rent expense under operating leases was as follows:
.............Years Ended.............. August 2, August 3, July 29, (In Thousands) 1997 1996 1995 ---------- ---------- ---------- Minimum rent $ 31,200 $ 29,200 $ 29,300 Rent based on revenues 11,600 10,700 8,400 ---------- ---------- ---------- Total rent expense $ 42,800 $ 39,900 $ 37,700 ========== ========== ===========
Future minimum lease payments, excluding renewal options, under operating leases are as follows: 1998 -- $31.6 million; 1999 -- $30.5 million; 2000 -- $30.2 million; 2001 -- $29.2 million; 2002 -- $29.0 million; all years thereafter -- $515.2 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 consolidated results of operations or the financial position of the Company. Letters of Credit The Company had approximately $2.6 million of outstanding irrevocable letters of credit relating to purchase commitments at August 2, 1997. NOTE 13 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 The Neiman Marcus Group Credit Card Master Trust (the "Trust") in exchange for certificates representing undivided interests in such receivables. Certificates representing undivided interests 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 interests in the receivables not represented by the Class A and Class B certificates. A portion of these interests 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 interest 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. [END PAGE 47] [START PAGE 48] NOTE 14 Quarterly Financial Information (unaudited)
..................Year Ended August 2, 1997............... First Second Third Fourth (In Millions Except for Per Share Data) Quarter Quarter Quarter Quarter Total -------- -------- --------- --------- ---------- Revenues $ 544.1 $ 661.9 $ 506.5 $ 497.3 $ 2,209.8 ======== ======== ========= ========= ========== Gross profit $ 193.5 $ 201.3 $ 162.7 $ 147.5 $ 705.0 ======== ======== ========= ========= ========== Net earnings 30.9 25.6 20.7 14.0 91.2 Loss on redemption of redeemable preferred stocks (22.4) -- -- -- (22.4) Preferred dividends and accretion (6.2) -- -- -- (6.2) Net earnings applicable to -------- -------- --------- --------- ---------- common shareholders $ 2.3 $ 25.6 $ 20.7 $ 14.0 $ 62.6 ======== ======== ========= ========= =========== Amounts per share applicable to common shareholders: Net earnings $ .06 $ .52 $ .41 $ .28 $ 1.32 ======== ======== ========= ========= ========== ...................Year Ended August 3, 1996................ First Second Third Fourth Quarter Quarter Quarter Quarter Total --------- -------- --------- --------- ---------- 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 ======== ======== ========= ========= ===========
In the fourth quarter, the effect of adjusting the LIFO reserve for inventories to actual amounts increased net earnings by $2.7 million in 1997 and $3.9 million in 1996. [END PAGE 48] [START PAGE 49] 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 2, 1997 and August 3, 1996, and the related consolidated statements of earnings, common shareholders' equity and cash flows for each of the three fiscal years in the period ended August 2, 1997. 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 2, 1997 and August 3, 1996, and the results of their operations and their cash flows for each of the three fiscal years in the period ended August 2, 1997, in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Boston, Massachusetts August 28, 1997 Statement of Management's Responsibility for Financial Statements The management of The Neiman Marcus Group, Inc. and its subsidiaries is responsible for the integrity and objectivity of the financial and operating information contained in this Annual Report, including the consolidated financial statements covered by the Independent Auditors' Report. These statements were prepared in conformity with generally accepted accounting principles and include amounts that are based on the best estimates and judgments of management. The Company maintains a system of internal controls which provides management with reasonable assurance that transactions are recorded and executed in accordance with its authorizations, that assets are properly safeguarded and accounted for, and that records are maintained so as to permit preparation of financial statements in accordance with generally accepted accounting principles. This system includes written policies and procedures, an organizational structure that segregates duties, financial reviews and a comprehensive program of periodic audits by the internal auditors. The Company also has instituted policies and guidelines which require employees to maintain a high level of ethical standards. In addition, the Audit Committee of the Board of Directors, consisting solely of outside directors, meets periodically with management, the internal auditors and the independent auditors to review internal accounting controls, audit results and accounting principles and practices and annually recommends to the Board of Directors the selection of independent auditors. /s/ John R. Cook JOHN R. COOK Senior Vice President and Chief Financial Officer /s/ Stephen C. Richards STEPHEN C. RICHARDS Vice President and Controller [END PAGE 49] [START PAGE 50] Selected Financial Data (unaudited)
......................Years Ended....................... August 3, August 3, July 29, July 30, July 31, (In Millions Except for Per Share Data) 1997 1996 (a) 1995 1994 1993 OPERATING RESULTS: --------- --------- --------- --------- --------- Revenues $ 2,209.9 $ 2,075.0 $ 1,888.2 $ 1,789.5 $ 1,667.8 ========= ========= ========= ========= ========= Earnings from continuing operations before accounting change $ 91.2 $ 77.4 $ 67.3 $ 65.7 $ 67.0 Loss from discontinued operations -- -- (11.7) (49.8) (8.4) --------- --------- --------- --------- --------- Earnings before accounting change 91.2 77.4 55.6 15.9 58.6 Cumulative effect of accounting change (b) -- -- -- - (11.2) --------- --------- --------- --------- --------- Net earnings $ 91.2 $ 77.4 $ 55.6 $ 15.9 $ 47.4 ========= ========= ========= ========= ========= Net earnings (loss) applicable to common shareholders $ 62.7 $ 48.3 $ 26.5 $ (13.2) $ 18.3 ========= ========= ========= ========= ========= Amounts per share applicable to common shareholders: Continuing operations $ 1.32 $ 1.26 $ 1.01 $ .96 $ 1.00 Discontinued operations -- -- (.31) (1.31) (.22) Accounting change (b) -- -- -- -- (.30) --------- --------- --------- --------- -------- Net earnings (loss) $ 1.32 $ 1.26 $ .70 $ (.35) $ .48 ========= ========= ========= ========= ======== Common dividends -- $ -- $ .10 $ .20 $ .20 ========= ========= ========= ========= ======== FINANCIAL POSITION: Total assets $ 1,287.9 $ 1,252.4 $ 1,108.4 $ 1,323.1 $1,278.6 Long-term liabilities $ 369.7 $ 361.9 $ 311.1 $ 443.6 $ 449.4 Redeemable preferred stocks $ -- $ 407.4 $ 405.4 $ 403.5 $ 401.5 ========= ========= ========= ========= ========
The selected financial data should be read in conjunction with the Consolidated Financial Statements contained elsewhere in this report. (a) Fiscal 1996 was a 53-week year. (b) The cumulative effect of accounting change reflects the change in accounting for postretirement health care benefits, net of applicable income taxes. [END PAGE 50] [START PAGE 51] Requests for general information or published financial information should be made in writing to: Corporate Relations Department The Neiman Marcus Group, Inc. Post Office Box 9187 Chestnut Hill, MA 02167-9187 (617) 232-0760. Transfer Agent and Registrar BankBoston, N.A. c/o Boston EquiServe Limited Partnership Shareholder Services Division Post Office Box 644, Mail Stop 45-01-05 Boston, MA 02102-0644 (800) 730-4001 Form 10-K The Company's Form 10-K as filed with the Securities and Exchange Commission is available upon written request to the Corporate Relations Department of the Company. Annual Meeting The Annual Meeting of Stockholders will be held on Friday, January 16, 1998 at 10:00 a.m. at the Company's Corporate Headquarters, 27 Boylston Street, Chestnut Hill, Massachusetts. Shares Outstanding The Neiman Marcus Group has 50.0 million common shares outstanding. Harcourt General, Inc. owns approximately 53% of NMG's outstanding common equity. The Neiman Marcus Group had 11,944 common shareholders of record at August 2, 1997. Corporate Address The Neiman Marcus Group, Inc. 27 Boylston Street Post Office Box 9187 Chestnut Hill, MA 02167-9187 (617) 232-0760 Stock Information The Neiman Marcus Group'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.
........1997........ .........1996......... Quarter High Low High Low -------- -------- -------- -------- First $ 35.88 $ 27.13 $ 18.88 $ 14.63 Second $ 36.00 $ 22.75 $ 23.50 $ 17.13 Third $ 28.13 $ 23.88 $ 23.13 $ 17.25 Fourth $ 29.25 $ 24.50 $ 30.13 $ 23.63 ======== ======== ======== ========
[END PAGE 51] EX-21.1 5 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 THE NEIMAN MARCUS GROUP, INC. SUBSIDIARIES ------------
JURISDICTION OF SUBSIDIARY/AFFILIATE INCORPORATION STOCKHOLDER - -------------------- ------------- ----------- Bergdorf Goodman, Inc. New York Neiman Marcus Holdings, Inc. Bergdorf Graphics, Inc. New York Bergdorf Goodman, Inc. Broadcasters, Inc. Texas Neiman Marcus Holdings, Inc. Ermine Trading Corporation California The Neiman Marcus Group, Inc. NM Direct de Mexico, S.A. de C.V. Mexico The Neiman Marcus Group, Inc. (99%) Neiman Marcus Holdings, Inc. (1%) NM Financial Services, Inc. Delaware The Neiman Marcus Group, Inc. NM Nevada Trust Massachusetts The Neiman Marcus Group, Inc. Bergdorf Goodman, Inc. Neiman Marcus Funding Corporation Delaware The Neiman Marcus Group, Inc. Neiman Marcus Holdings, Inc. California The Neiman Marcus Group, Inc. Neiman Marcus Special Events, Inc. Delaware The Neiman Marcus Group, Inc. Pastille By Mail, Inc. Delaware The Neiman Marcus Group, Inc.
EX-23.1 6 CONSENT OF DELOITTE & TOUCHE LLP. EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registrtation Statement No. 33-35299 and No. 333-35829 of the Neiman Marcus Group, Inc. and subsidiaries on Form S-8 of our report dated August 28, 1997, appearing in this Annual Report on Form 10-K of the Neiman Marcus Group, Inc. and subsidiaries for the year ended August 2, 1997. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Boston, Massachusetts October 27, 1997 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet and Consolidated Statement of Earnings and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS AUG-2-1997 AUG-2-1997 16,861 128,341 56,741 1,700 460,412 734,043 754,933 300,800 1,287,860 331,492 300,000 0 0 499 554,229 1,287,860 2,209,891 2,209,891 1,504,858 2,028,909 22,361 2,815 26,330 154,652 63,407 91,245 0 0 0 91,245 1.32 1.32
-----END PRIVACY-ENHANCED MESSAGE-----