-----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, UO+nF848JR8TG5DGCQWcpjfRKgOvy2kAkdf7dXy/jL2/LRsAfsnriREorAdg0TNk WRPZBGv6p3uB6RJmnAtl3w== 0000819539-95-000017.txt : 19951027 0000819539-95-000017.hdr.sgml : 19951027 ACCESSION NUMBER: 0000819539-95-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950729 FILED AS OF DATE: 19951026 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: 1934 Act SEC FILE NUMBER: 001-09659 FILM NUMBER: 95584591 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 FORM 10-K FOR FISCAL YEAR ENDED 7/29/95 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 July 29, 1995 Commission File Number 1-9659 THE NEIMAN MARCUS GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 95-4119509 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 27 Boylston Street, Chestnut Hill, Massachusetts 02167 (Address of principal executive offices) (Zip Code) 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 20, 1995 was $309,254,138. There were 38,008,693 shares of Common Stock outstanding as of October 20, 1995. _______________________________ Documents Incorporated by Reference Portions of the Registrant's 1995 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV of this Report. ii THE NEIMAN MARCUS GROUP, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JULY 29, 1995 TABLE OF CONTENTS PART I Page No. Item 1. Business 1 Item 2. Properties 3 Item 3. Legal Proceedings 4 Item 4. Submission of Matters to a Vote of Security Holders 4 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 4 Item 6. Selected Financial Data 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Item 8. Financial Statements and Supplementary Data 5 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 5 PART III Item 10. Directors and Executive Officers of the Registrant 5 Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 25 Item 13. Certain Relationships and Related Transactions 28 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 28 Signatures 30 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 65% of the fully converted equity of the Company; two of its directors and nearly all of its officers and corporate staff employees 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) and Item 12 below, and Notes 5 and 6 to the Consolidated Financial Statements which are incorporated herein by reference. 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. During fiscal 1995, the Company disposed of its Contempo Casuals subsidiary. For additional information on this transaction, reference is made to "Discontinued Operations" below, and to Note 2 to the Consolidated Financial Statements which are incorporated herein by reference. Description of Operations Neiman Marcus Stores Neiman Marcus Stores, based in Dallas, Texas, is a high fashion, specialty retailer which offers high quality women's and men's apparel, fashion accessories, precious jewelry, decorative home accessories, fine china, crystal and silver, and epicurean products. A relatively small portion of Neiman Marcus Stores' customers accounts for a significant percentage of its retail sales. The Company operates 28 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 (Short Hills - opened August 1995); New York (Westchester); Texas (six stores: three in Dallas, one in Fort Worth and two in Houston); and Virginia (McLean). The average size of these stores is 141,000 gross square feet, and the stores range in size from 90,000 gross square feet to 269,000 gross square feet. The Company plans to open new Neiman Marcus Stores in King of Prussia, Pennsylvania and Paramus, New Jersey in 1996, and in Honolulu, Hawaii in 1999. Bergdorf Goodman Bergdorf Goodman is a high fashion, exclusive retailer of high quality women's and men's apparel, fashion accessories, precious jewelry, decorative home accessories, fine china, crystal and silver. It operates two leased stores at Fifth Avenue and 58th Street in New York City. The original store, consisting of 250,000 gross square feet, is dedicated to women's apparel and accessories, home furnishings and gifts. Bergdorf Goodman Men, which opened in August 1990, consists of 66,000 gross square feet and is dedicated to men's apparel and accessories. A relatively small portion of Bergdorf Goodman's customers accounts for a significant percentage of its retail sales. In addition, Bergdorf Goodman has an important direct marketing business which is operated by NM Direct. NM Direct NM Direct operates a state-of-the-art direct marketing business which distributes its own catalogues as well as those of Neiman Marcus and Horchow. NM Direct offers a wide array of apparel, home furnishings and gift items to its domestic and international mail order customers. 84 NM Direct catalogues were mailed during fiscal 1995, with an approximate average circulation of 1.2 million households per catalogue. Competition The Company's specialty store operations compete with numerous specialty retail stores and department stores for both customers and merchandise. The Company believes that the principal competitive factors for specialty store operations are customer service, quality of merchandise, merchandise assortment, store ambience and price. The Company's direct marketing operations compete with numerous other retail and direct marketing operations for both customers and merchandise. The Company believes that the principal competitive factors for its direct marketing operations are customer service, price, merchandise quality and assortment and catalogue presentation. Employees At July 29, 1995, Neiman Marcus Stores had approximately 10,100 employees, of whom approximately 2,700 were part-time, Bergdorf Goodman had approximately 1,200 employees, of whom approximately 35 were part-time, and NM Direct had approximately 1,100 employees, of whom approximately 600 were part-time. None of the employees of Neiman Marcus Stores or NM Direct are subject to collective bargaining agreements. Approximately 12% of the Bergdorf 2 Goodman employees are subject to collective bargaining agreements. The Company believes that its relations with its employees are generally good. Capital Expenditures; Seasonality; Liquidity For information on capital expenditures, seasonality, liquidity and other financial information, reference is made to the "Management's Discussion and Analysis" section on pages 25 through 27 of the Annual Report to Stockholders for the fiscal year ended July 29, 1995 (the "1995 Annual Report"), which is incorporated herein by reference. Discontinued Operations On June 30, 1995, the Company sold its Contempo Casuals subsidiary to The Wet Seal, Inc. ("Wet Seal") for approximately $1.0 million of Wet Seal common stock and $100,000 in cash. While a subsidiary of the Company, Contempo Casuals operated a chain of retail stores which sold moderately priced fashion apparel and accessories primarily for young women between the ages of 15 and 21. For additional information on this transaction, reference is made to Note 2 of the Notes to the Consolidated Financial Statements on page 33 of the 1995 Annual Report, which is incorporated herein by reference. 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 Irving, Texas, respectively. At July 29, 1995, the square footage used in the Company's operations was approximately as follows: ----------------------------------------------- Owned Subject to Owned Ground Lease Leased Total ----------------------------------------------- Stores 348,000 1,630,000 2,402,000 4,380,000 Distribution Centers and Office 585,000 94,000 765,000 1,444,000 Facilities - ----------------------------------------------------------------- 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 3 renewal options. Leases are generally at fixed rentals, except that certain leases provide for additional rentals based on sales in excess of predetermined levels. The Company also owns approximately 50 acres of land in Irving, Texas where its NM Direct operations are located. For further information on the Company's properties, see "Operating Leases" in Note 10 of the Notes to the Consolidated Financial Statements on pages 36 and 37 of the 1995 Annual Report, which is incorporated herein by reference. NM Direct and Bergdorf Goodman's direct marketing operations are located at the Company's 585,000 square foot facility in Irving, Texas. The Company plans to open a 464,000 square foot distribution center for Neiman Marcus Stores in Longview, Texas in 1996 to replace certain of its existing distribution centers. Item 3. LEGAL PROCEEDINGS The Company is involved in various suits and claims in the ordinary course of business. The Company does not believe that the disposition of any such suits or claims will have a material adverse effect upon the continuing operations or financial condition of the Company. 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 following information contained in the 1995 Annual Report is incorporated herein by reference: (i) "Stock Information" and "Shares Outstanding" on page 41 of the 1995 Annual Report; and (ii) "Dividends" in Note 12 of the Notes to the Consolidated Financial Statements on page 38 of the 1995 Annual Report. The Company eliminated the quarterly dividend payable on its Common Stock following the dividend which was paid on January 31, 1995. 4 Item 6. SELECTED FINANCIAL DATA The response to this Item is contained in the 1995 Annual Report under the caption "Selected Financial Data" on page 40 and is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The response to this Item is contained in the 1995 Annual Report under the caption "Management's Discussion and Analysis" on pages 25 through 27 and is incorporated herein by reference. 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. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT A. Directors Below are the name, age, 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 - 70 Director since 1987 Chairman of the Board of the Company and of Harcourt General; Chairman of the Board, President and Chief Executive Officer of GC Companies, Inc. since December 1993; Chief Executive Officer of the Company and of Harcourt General until November 26, 1991; Director of Harcourt General, GC Companies, Inc., Liberty Mutual Insurance 5 Company, Liberty Mutual Fire Insurance Company, Liberty Financial Companies, Inc., Bank of Boston Corporation and its principal subsidiary, The First National Bank of Boston. Mr. Smith is the father of Robert A. Smith, Group Vice President of the Company. Robert J. Tarr, Jr. - 51 Director since 1987 President, Chief Executive Officer (since November 26, 1991) and Chief Operating Officer of the Company and of Harcourt General; Director of Harcourt General and GC Companies, Inc. Class II Directors - Terms expire at 1996 Annual Meeting Walter J. Salmon - 64 Director since 1987 Stanley Roth, Sr. Professor of Retailing and Senior Associate Dean, External Relations, Graduate School of Business Administration, Harvard University; Director of Hannaford Bros. Co., The Quaker Oats Company, Circuit City Stores, Inc., Luby's Cafeterias, Inc. and Harrah s Entertainment, Inc. Matina S. Horner - 56 Director since 1993 Executive Vice President of the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) and President Emerita of Radcliffe College since 1989; President of Radcliffe College for 17 years prior thereto; Director of Boston Edison Company. Class III Directors - Terms expire at 1997 Annual Meeting Gary L. Countryman - 56 Director since 1987 Chairman (since April 1991) and Chief Executive Officer of Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company; President of those companies through March 1992; Director of Liberty Financial Companies, Inc. (Chairman), Director of Boston Edison Company, Bank of Boston Corporation and its principal subsidiary, The First National Bank of Boston. Jean Head Sisco - 70 Director since 1987 Partner in Sisco Associates, international management consultants; Director of Textron, Inc., Sante Fe Pacific Gold Corp., Washington Mutual Investors Fund, Chiquita Brands International, Inc., The American Funds Tax-Exempt Series I and K-Tron International, Inc. 6 B. Executive Officers Who Are Not Directors Below are the name, age and principal occupations for the last five years of each executive officer of the Company who is not also a director of the Company. All such persons have been elected to serve until the next annual election of officers and their successors are elected or until their earlier resignation or removal. John R. Cook - 54 Senior Vice President and Chief Financial Officer of the Company and of Harcourt General since September 1992; Senior Vice President - Finance and Administration and Chief Financial Officer of NACCO Industries, Inc. prior thereto. Stephen C. Elkin - 52 Chairman and Chief Executive Officer of Bergdorf Goodman since May 1994; President and Chief Operating Officer of Bergdorf Goodman from December 1990 to May 1994; Vice Chairman and Chief Operating Officer of Bergdorf Goodman prior thereto. Peter Farwell - 52 Vice President - Corporate Relations of the Company and of Harcourt General. Bernie Feiwus - 47 President and Chief Executive Officer of NM Direct since October 1991; Executive Vice President of Neiman Marcus - Horchow Mail Order Division from March 1991 to October 1991; Senior Vice President - Sales Promotion Director of Neiman Marcus prior thereto. Eric P. Geller - 48 Senior Vice President and General Counsel of the Company and of Harcourt General since May 1992; Secretary of the Company since January 1992 and of Harcourt General since December 1991; Vice President, Associate General Counsel and Assistant Secretary of the Company and of Harcourt General prior thereto. Paul F. Gibbons - 44 Vice President and Treasurer of the Company and of Harcourt General since August 1992; Vice President and Treasurer of GC Companies, Inc. since March 1994; Vice President - Taxation of the Company and of Harcourt General prior to August 1992. 7 Gerald T. Hughes - 38 Vice President - Human Resources of the Company and of Harcourt General since June 1994; Associate General Counsel of the Company and of Harcourt General with responsibility for labor and employment matters from August 1992 to June 1994; Labor Counsel of the Company and of Harcourt General prior thereto. Dawn Mello - 64 President of Bergdorf Goodman since May 1994 and from 1983 to 1989; Executive Vice President and Creative Director Worldwide of Guccio Gucci SpA from October 1989 to May 1994. Michael F. Panutich - 47 Vice President - General Auditor of the Company and of Harcourt General since June 1993; Vice President - Accounting of the Company and of Harcourt General prior thereto. Stephen C. Richards - 40 Vice President and Controller of the Company and of Harcourt General since June 1993; Vice President and Controller of GC Companies, Inc. since January 1994; Partner, Deloitte & Touche prior to June 1993. Gerald A. Sampson - 54 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; Chairman of Kaufmann's, a division of May Department Stores Company, prior thereto. Craig B. Sawin - 39 Vice President - Planning and Analysis of the Company and of Harcourt General. Robert A. Smith - 36 Group Vice President of the Company since January 1992 and of Harcourt General since December 1991; Vice President - Corporate Development of the Company from March 1989 to January 1992; Vice President - Corporate Development of Harcourt General from December 1988 to December 1991; Director of Harcourt General. Mr. Smith is the son of Richard A. Smith, the Chairman of the Company. 8 Burton M. Tansky - 57 Chairman and Chief Executive Officer of Neiman Marcus Stores since May 1994; Chairman and Chief Executive Officer of Bergdorf Goodman from February 1992 to May 1994; Vice Chairman of Bergdorf Goodman from February 1991 to February 1992; President of Saks Fifth Avenue prior thereto. C. Section 16 Reports 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 1995. 9 Item 11. EXECUTIVE COMPENSATION Summary Compensation Table(1) The following table provides information on the compensation provided by the Company during fiscal 1995, 1994 and 1993 to the Company's Chief Executive Officer and the five most highly paid executive officers of the Company during fiscal 1995. Annual Compensation
Long-Term Compensation (2) ------------------------- Awards ------------------------- Other Restricted All Other Name and Fiscal Salary Bonus Annual Stock Awards Options Compensation Principal Year ($) ($) (3) Compensation ($) (5) (#) ($) (6) Position ($) (4) ----------------------------------------------------------------------------------------------- R. J. Tarr, 1995 -- -- -- -- -- -- Jr. (1) President and 1994 -- -- -- -- -- -- Chief Executive 1993 -- -- -- -- -- -- Officer B. Tansky 1995 $600,000 $230,640 $160,339 -- 25,000 $14,560 Chairman and Chief 1994 $543,750 $122,640 -- -- 21,500 $10,647 Executive Officer of Neiman Marcus 1993 $500,000 $150,000 -- -- 10,000 $ 3,701 Stores G. Sampson (7) 1995 $450,000 $150,480 -- $71,875 -- $12,687 President and Chief 1994 $431,250 $172,500 -- -- 10,000 $ 6,421 Operating Officer of 1993 $147,115 -- -- -- -- $ 1,724 Neiman Marcus Stores S. Elkin 1995 $450,000 $22,500 -- -- 20,000 $15,812 Chairman and Chief 1994 $391,875 $65,262 -- -- 10,000 $ 9,650 Executive Officer of Bergdorf Goodman 1993 $355,000 $84,313 -- -- 10,000 $ 7,283 D. Mello (8) 1995 $325,000 $50,000 -- -- 15,000 $ 2,418 President of Bergdorf 1994 $50,416 $28,438 -- -- -- $ 612 Goodman 1993 -- -- -- -- -- -- B. Feiwus 1995 $300,000 -- -- -- 10,000 $ 7,314 President and Chief 1994 $275,000 $88,000 -- -- 7,500 $ 5,883 Executive Officer of NM 1993 $245,000 $87,500 -- -- 5,000 $ 4,679 Direct ----------------------------------------------------------------------------------------------- (1) Under the terms of an Intercompany Services Agreement, Harcourt General provides certain management, accounting, financial, legal, tax, personnel and other corporate services to the Company, including the services of certain senior officers of Harcourt General who are also senior officers of the Company, in 10 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. During fiscal 1995, 1994 and 1993, the Company paid or accrued approximately $6.5 million, $6.9 million and $7.2 million, respectively, to Harcourt General for all of its services under the Intercompany Services Agreement. With the exception of Mr. Tarr, the senior officers of Harcourt General, who derive all of their compensation directly from Harcourt General, are not included in this table. Mr. Tarr is also the President and Chief Executive Officer of Harcourt General. All of Mr. Tarr's cash and non-cash compensation is paid by Harcourt General pursuant to Mr. Tarr's employment agreement with Harcourt General. Of the amounts paid by the Company to Harcourt General under the Intercompany Services Agreement for fiscal 1995, 1994 and 1993, approximately $2.4 million, $2.3 million and $2.1 million, respectively, were attributable to Mr. Tarr's services. These amounts include costs related to Mr. Tarr's base compensation, bonuses, benefits and amounts necessary to fund his retirement benefits, all of which are direct obligations of Harcourt General. (2) The Company does not have a long-term compensation program that includes long-term incentive payouts. No stock appreciation rights were granted to any of the named executive officers during the years reported in the table. (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 amount in any year exceeds 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 is attributable to relocation-related reimbursements paid by the Company in fiscal 1995 in connection with his new position as Chairman and Chief Executive Officer of Neiman Marcus Stores (Mr. Tansky previously was Chairman and Chief Executive Officer of Bergdorf Goodman). (5) Calculated by multiplying the closing price of the Company's Common Stock on the New York Stock Exchange on the date of grant by the number of shares awarded. Twenty percent of an award of restricted Common Stock are freed from the restrictions on transfer each year, commencing one year after the date of grant, provided that the recipient continues to be employed by the Company on the anniversary date of the grant. Holders of restricted stock are entitled to vote their restricted shares. In the event of termination of employment for any reason, other than death or permanent disability, restricted shares are forfeited by the holders and revert to the Company. At the end of fiscal 1995, the named executive officers' restricted stock holdings and market values (based on the New York Stock Exchange closing price of $15.375 for the Company's Common Stock at fiscal year end) were as follows: Mr. Sampson - 5,000 shares ($76,875); Mr. 11 Elkin - 2,000 shares ($30,750) and Mr. Feiwus - 800 Shares (12,300). The restricted shares held by Mr. Sampson were granted in fiscal 1995 and the restricted shares held by Messrs. Elkin and Feiwus were granted in fiscal 1993. (6) The items accounted for in this column include the cost to the Company of matching contributions under (a) the Company's Key Employee Deferred Compensation Plan or the Employee Savings Plan (401 (k) Plan) and (b) group life insurance premiums. For fiscal 1995, such amounts for each of the named executive officers were, respectively as follows: Mr. Tansky - $10,840 and $3,720; Mr. Sampson - $9,339 and $3,348; Mr. Elkin - $7,341 and $8,471; Ms. Mello - $0 and $2,418; and Mr. Feiwus - $2,625 and $4,689. (7) Mr. Sampson's employment with the Company commenced in April 1993. (8) Ms. Mello rejoined the Company in May 1994. As a condition of employment, Ms. Mello was guaranteed a minimum bonus of $50,000 for fiscal 1995.
12 Option Grants in Last Fiscal Year(1) The following table provides information regarding options granted under the Company's 1987 Stock Incentive Plan during the fiscal year ended July 29, 1995 to the executive officers named in the Summary Compensation Table.
Individual Grants --------------------------------------- Potential % of Realized Value Number of Total at Assumed Securities Options Annual Rates of Underlying Granted to Exercise Stock Price Options Employees or Base Appreciation Granted in Fiscal Price Expiration for Option Term (2) Name (#) (3) Year ($/Sh) Date 5% ($) 10% ($) --------------------------------------------------------------------------------------------- R. Tarr, Jr.(4) -- -- -- -- -- -- B. Tansky 25,000 10.96% $14.375 9/20/04 $226,009 $572,751 G. Sampson (5) -- -- -- -- -- -- S. Elkin 20,000 8.77% $14.375 9/20/04 $180,807 $458,201 D. Mello 15,000 6.58% $14.375 9/20/04 $135,605 $343,651 B. Feiwus 10,000 4.39% $14.375 9/20/04 $ 90,404 $229,100 ---------------------------------------------------------------------------------------------- (1) No stock appreciation rights were granted to any named executive officer during fiscal 1995. (2) These potential realizable values are based on assumed rates of appreciation required by applicable regulations of the Securities and Exchange Commission. (3) All option grants are non-qualified stock options having a term of 10 years and one day. They become exercisable at the rate of 20% on each of the first five anniversary dates of the grant. (4) None of the executive officers of Harcourt General who are also officers of the Company, including Mr. Tarr, participate in the Company's 1987 Stock Incentive Plan. (5) Mr. Sampson received a grant of 5,000 shares of restricted stock in fiscal 1995. See Note 5 to the Summary Compensation Table.
13 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table provides information regarding the number and value of stock options held at July 29, 1995 by the executive officers named in the Summary Compensation Table. None of the named executive officers exercised any stock options or stock appreciation rights during fiscal 1995.
Number of Value of Securities Underlying Unexercised Unexercised In-the-Money Options/SARs at Options/SARs at July 29, 1995(#) July 29, 1995 ($) Exercisable/ Exercisable/ Name Unexercisable Unexercisable (1) R. Tarr, Jr.(2) -- -- B. Tansky 29,300/57,200 $45,388/77,175 G. Sampson 2,000/ 8,000 $ 1,750/ 7,000 S. Elkin 40,799/36,200 $32,850/51,650 D. Mello 0/15,000 $ 0/15,000 B. Feiwus 11,711/19,500 $12,063/26,375 (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 ($15.375) 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 20, 1995 was $18.75. (2) None of the executive officers of Harcourt General who are also officers of the Company, including Mr. Tarr, participate in the Company's 1987 Stock Incentive Plan.
Directors Compensation Directors who are not affiliated with the Company or Harcourt General each receive an annual retainer of $20,000 and a fee of $1,500 per Board of Directors meeting attended, plus travel and incidental expenses (an aggregate of $2,756 in fiscal 1995) incurred in attending meetings and carrying out their 14 duties as directors. They also receive a fee of $500 (the Chairmen receive $1,000) for each committee meeting attended. If a director is unable to attend a meeting in person but participates by telephone, he or she receives one-half of the fee that would otherwise be payable. Mr. Countryman receives his director fees on a deferred basis. The Company maintains an account to record the accrual of Mr. Countryman's deferred fees, which accrues interest at a rate equal to that paid on 90-day certificates of deposit issued by The First National Bank of Boston from time to time. 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, non- qualified plan under which benefits are paid from the Company's general assets to supplement Retirement Plan benefits and Social Security. Executive, administrative and professional employees (other than those employed as salespersons) with an annual base salary at least equal to a self-adjusting minimum ($100,000 as of July 29, 1995) are eligible to participate. At normal retirement age (age 65), a participant with 25 or more years of service is entitled to payments under the SERP sufficient to bring his or her combined annual benefit from the Retirement Plan and SERP, computed as a straight life annuity, up to 50% of the participant's highest consecutive 60 month average of annual pensionable earnings, less 60% of his or her estimated annual primary Social Security benefit. If the participant has fewer than 25 years of service, the combined benefit is proportionately reduced. In computing the combined benefit, "pensionable earnings" means base salary, including any salary which may have been deferred. Benefits under the SERP become fully vested after five years of service with the Company. The following table shows the estimated annual pension benefits payable to employees in various compensation and years of service categories. The 15 estimated benefits apply to an employee at age 65 in 1995 who elects to receive his or her benefit in the form of a straight life annuity. These benefits include amounts attributable to both Retirement Plan and the SERP and are in addition to any retirement benefits that might be received from Social Security. Estimated Annual Retirement Benefits Under Retirement Plan and SERP (1)
--------------------------------------------------------------------------------------- Average Pensionable Earnings Total Years of Service --------------------------------------------------------------------------------------- 25 5 10 15 20 or more $ 300,000....... $30,000 $60,000 $90,000 $120,000 $150,000 400,000....... 40,000 80,000 120,000 160,000 200,000 500,000....... 50,000 100,000 150,000 200,000 250,000 600,000....... 60,000 120,000 180,000 240,000 300,000 700,000....... 70,000 140,000 210,000 280,000 350,000 ___________________________ (1) The amounts actually payable will be lower than the amounts shown above, since the above amounts will be reduced by 60% of the participant's estimated primary Social Security benefit.
The following table shows the pensionable earnings and credited years of service for the executive officers named in the Summary Compensation Table as of July 29, 1995 and years of service creditable at age 65. Credited service may not exceed 25 years for purpose of calculating retirement benefits under any of the Company's retirement plans.
-------------------------------------------------------------- Pensionable Earnings Years of Service for Year Ended at July at Name July 29, 1995 29, 1995 Age 65 -------------------------------------------------------------- R. Tarr, Jr.(1) . . --- ---- B. Tansky . . . . . $600,000 --(2) 20(2) G. Sampson. . . . . 450,000 --(3) 20(3) S. Elkin . . . . . 450,000 17 25 D. Mello . . . . . 325,000 14 15 B. Feiwus . . . . 300,000 15.5 25 ___________________________ 16 (1) Mr. Tarr does not participate in the Company's Retirement Plan or SERP. (2) Under Mr. Tansky's employment agreement with the Company, for purposes of determining his retirement benefits under the SERP, Mr. Tansky will be credited with 5/3 times his years of service with the Company provided he remains continuously employed by the Company until his 65th birthday; otherwise, Mr. Tansky's accrued service under the SERP will be calculated in the normal manner. Mr. Tansky is 57 years old. (3) For purposes of determining Mr. Sampson's retirement benefits under the SERP, Mr. Sampson will be credited with 20/13 times his years of service with the Company provided he remains continuously employed by the Company until his 65th birthday; otherwise, Mr. Sampson's accrued service under the SERP will be calculated in the normal manner. Mr. Sampson is 54 years old.
Employment and Severance Agreements Burton Tansky In connection with Mr. Tansky's appointment as Chairman and Chief Executive Officer of Neiman Marcus Stores in May 1994, the Company and Mr. Tansky entered into a new employment agreement which provides for Mr. Tansky's employment as Chairman and Chief Executive Officer of Neiman Marcus Stores through January 31, 1997. 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 through July 31, 1998, which amount will be reduced by any amounts earned by him between August 1, 1997 and July 31, 1998 from other employment. 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, 1997 or for 18 months following termination, whichever is greater. If the Company determines not to extend Mr. Tansky's employment beyond January 31, 1997, the Company will pay to Mr. Tansky his then-current base compensation through July 31, 1998, which amount will be reduced by any amounts earned by him between August 1, 1997 and July 31, 1998 from other employment. 17 Stephen C. Elkin Pursuant to an agreement between Mr. Elkin and Bergdorf Goodman, effective September 1993, Mr. Elkin is entitled to receive severance payments in the event his employment with Bergdorf Goodman is terminated in certain situations. If the Company terminates Mr. Elkin's employment other than for cause or other than due to his total disability or death, he will receive an amount equal to one and one half times his then-current base salary, which amount will be paid to him in 18 monthly installments following such termination but will be reduced by any amounts received by him from other employment during the period beginning six months following his termination and ending at the end of the 18 month period. Mr. Elkin will also be entitled to receive such payments in the event his employment is terminated without cause within 24 months of a change of control of either Bergdorf Goodman or the Company, or in the event he resigns within 24 months of a change of control because he is not permitted to continue in a position comparable in duties and responsibilities to that which he held before the change of control. Dawn Mello Pursuant to an agreement between Ms. Mello and Bergdorf Goodman, effective May 1994, Ms. Mello is entitled to receive severance payments in the event her employment with Bergdorf Goodman is terminated in certain situations. If the Company terminates Ms. Mello's employment other than for cause or other than due to her total disability or death, Ms. Mello will receive an amount equal to her then-current annual salary, which amount will be paid in 12 monthly installments following such termination but will be reduced by any amounts received by her from other employment during the period beginning six months and ending 12 months following such termination. In the event of a change of control of either Bergdorf Goodman or the Company, and in the event that prior to November 1, 1996 Ms. Mello resigns because she is not permitted to continue in a position comparable in duties and responsibilities to that which she held before such change of control, Ms. Mello will be entitled to receive such payments; provided, however, that such payments shall cease on November 1, 1996. 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 18 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 of 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. Compensation Committee Interlocks and Insider Participation During fiscal 1995, Richard A. Smith, Chairman of the Board of Directors of the Company, served on the Boards of Directors of Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company (collectively, "Liberty Mutual"). Gary L. Countryman, a director of the Company and the Chairman of the Company's Compensation Committee, is the Chairman and Chief Executive Officer of Liberty Mutual. Liberty Mutual underwrites most of the Company's insurance policies. These insurance policies contain terms which, in the judgment of management, are no less favorable than could be obtained from other insurance companies. During fiscal 1995, the Company paid to Liberty Mutual an aggregate of $2.0 million in premiums and administrative fees. _________________ Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, that might incorporate future filings, including this Form 10-K, in whole or in part, the following Compensation Committee Report on Executive Compensation and Stock Performance Graph shall not be deemed to be incorporated by reference into any such filings, nor shall such sections of this Report be deemed to be incorporated into any future filings made by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934. Compensation Committee Report on Executive Compensation The Compensation Committee is composed of Gary L. Countryman (Chairman), Matina S. Horner, Walter J. Salmon and Jean Head Sisco. The members of the Compensation Committee are all independent directors. The principal responsibility of the Committee is to review the performance of, and determine the compensation for, the executive officers of the Company who are not also executive officers of Harcourt General. The individuals in this group include Messrs. Tansky, Sampson, Elkin, Feiwus, and Ms. Mello, all of whom are named executive officers in the Summary Compensation Table. The 19 compensation of Harcourt General's executive officers, most of whom are also executive officers of the Company, is determined by Harcourt General's Compensation Committee. Compensation Policies The principal objectives of the Company's executive compensation program are to reward competitively its executive officers in order to attract and retain excellent management and to provide incentives that will most sharply focus the attention of those individuals on the goal of increasing the profitability of the Company and its operating divisions over both the short and long terms. Early in each fiscal year, the Committee considers the recommendations of the Chief Executive Officer, which are supported by data generated by the Company's Human Resources Department, for each component of compensation of the Company's executive officers. The Committee reviews those recommendations and then approves them or makes such modifications as it deems appropriate. The principal components of the Company's compensation program are: Base Salary: This is determined with reference both to salary survey information from recognized compensation consulting firms and to each executive officer's level of responsibility, experience and performance. The salary survey data is used to establish benchmark amounts for both base salary and total cash compensation for each executive position. Comparisons are made to a range of retail companies or to divisions within such companies, with the principal selection criteria for comparisons being similar revenues to the division within the Company. While there are no hard and fast rules which bind the Committee, the Company generally sets its salary and total cash compensation benchmarks (assuming that maximum bonuses are achieved) for executive officers at the 75th percentile of the comparison group of companies in order to compete for and retain the best management talent available. Because the Company competes for executive talent with a broad range of U.S. companies, the Committee does not limit its comparison information for compensation to the companies included in the peer groups in the Stock Performance Graph. 20 The Committee reviews in detail the base salary levels for each of the principal executive officers of the Company. While the Committee uses the benchmarks as a reference point, a particular individual's base salary may vary from the benchmark depending upon his or her salary history, experience, individual performance, contractual obligations of the Company, guidelines established by the Chief Executive Officer with respect to salary increases for the entire Company and the subjective judgment of the Committee. Annual Incentive Plan: The determination of annual bonuses is based principally on the achievement of performance objectives by the operating division for which the executive is responsible and the individual executive's own performance. For some executive officers, a small component of their bonus eligibility depends on the Company's overall performance. Shortly after the beginning of each fiscal year, the Compensation Committee considers the recommendations of the Chief Executive Officer for the Company's and each division's performance goals for the current year, the executive officers who should participate in the annual incentive plan for that year, and the maximum bonus values attainable by them. The Committee reviews those recommendations and then approves them or makes such modifications as it deems appropriate. For fiscal 1995, the plan provided for maximum bonuses ranging from 35% to 45% of base salary. Eligibility for the divisional performance component of the bonus was determined based on a weighting of several factors, the most important of which was operating earnings before corporate expenses. Other factors included return on net assets and working capital as a percentage of sales. Similar factors will be used by the Committee in determining bonuses for fiscal 1996. In addition, each of the Company's executive officers prepares and reaches agreement with the Chief Executive Officer on individual performance goals which must be achieved in addition to the performance targets in order for an executive to receive his or her full bonus. Individual performance goals typically include achievement of specific tasks. 21 The bonuses actually awarded to the executive officers for fiscal 1995 were determined by an assessment of all of these factors, as well as certain subjective factors. The Company guaranteed Ms. Mello a minimum bonus of $50,000 for fiscal 1995 as a condition of employment. Absent extraordinary circumstances, if the financial performance targets are exceeded, bonus awards are not increased over the maximum bonus values established by the Committee. If the performance targets are not met, bonus awards will, in all probability, be reduced at the discretion of the Committee. If the Company and/or the relevant division falls sufficiently short of its performance targets, there is a presumption that bonuses would not be paid absent special circumstances. Depending on the individual executive officer, factors such as the performance of a business unit or units for which the executive officer is responsible and achievement of individual performance goals are considered in the decision to award a bonus. If corporate and/or division performance targets are met, but an individual falls short of his or her performance goals, the individual's bonus could be reduced or eliminated in the discretion of the Committee. The bonus program is intended to put substantial amounts of total cash compensation at risk with the intent of focusing the attention of the executives on achieving both the Company's and their division's performance goals and their individual goals, thereby contributing to profitability and building shareholder value. Stock Incentives: The Committee's purpose in awarding equity based incentives, principally in the form of restricted stock which vests over a five year period and stock options which vest over a five year period and terminate ten years from the date of grant, 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 1995 fiscal year, and in determining the types and amounts of such awards, were salary levels, equity awards granted to executives at competing retail companies, special circumstances such as promotions as well as the performance, experience and level of responsibility of each executive. 22 Compensation of the Chief Executive Officer Mr. Tarr is also the Chief Executive Officer of Harcourt General, which owns approximately 65% of the fully converted equity of the Company. All of Mr. Tarr's cash and non- cash compensation is paid directly by Harcourt General to Mr. Tarr pursuant to an employment agreement between Mr. Tarr and Harcourt General which was approved by the Harcourt General Compensation Committee and became effective in November, 1991. Mr. Tarr receives no compensation directly from the Company. However, pursuant to the Intercompany Services Agreement between the Company and Harcourt General, Harcourt General provides certain management and other corporate services to the Company, including Mr. Tarr's services as Chief Executive Officer. During fiscal 1995, the Company paid or accrued approximately $6.5 million to Harcourt General for all of its services under the Intercompany Services Agreement, of which approximately $2.4 million was attributable to Mr. Tarr's services. While the Special Review Committee of the Company reviews each year the appropriateness of the charges by Harcourt General to the Company under the Intercompany Services Agreement, neither this Committee nor the Special Review Committee plays any role in determining the compensation that Mr. Tarr, or any other executive officer of Harcourt General, receives from Harcourt General. Compliance with 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 paid to each of the executive officers named in the Summary Compensation Table. The Company does not anticipate that any of its executive officers will receive cash compensation in excess of this deductibility limit in fiscal 1996. Under transition provisions of the Code, compensation resulting from awards under the Company's 1987 Stock Incentive Plan is not subject to the deductibility limit at this time. 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 Gary L. Countryman, Chairman Matina S. Horner Walter J. Salmon Jean Head Sisco 23 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 July 29, 1995 of: (i) the Standard & Poor's 500 Index, (ii) a new peer group index, consisting of two companies in the specialty retail business, Nordstrom, Inc. and Tiffany & Co., and (iii) a peer group index previously used by the Company, consisting of Nordstrom, Tiffany and The Limited, Inc. The new peer group index was determined in view of the Company's disposition of Contempo Casuals in fiscal 1995. The graph assumes a $100 investment in the Company's Common Stock and in each index at August 4, 1990 and that all dividends were reinvested. The common stocks of the companies in the peer group indices 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 Common Stock. Stock Performance Graph Comparison of Five-Year Cumulative Total Return The Neiman Marcus Group, Inc., S&P 500 Index, and Peer Index
---------------------------------------------------------------- The Neiman Marcus S&P 500 Old Peer New Peer Group Inc Index Index Index ---------------------------------------------------------------- 04-Aug-90 100 100 100 100 03-Aug-91 102.87 119.63 156.07 151.08 01-Aug-92 86.07 135.83 110.6 95 31-Jul-93 93.66 147.4 106.35 94.3 30-Jul-94 99.76 154.38 119 145.43 29-Jul-95 101.3 193.59 123.83 139.04 ----------------------------------------------------------------
24 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information, as of October 20, 1995, with respect to the beneficial ownership of the Common Stock of the Company 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. Harcourt General beneficially owns all of the outstanding shares of the 6% Cumulative Convertible Preferred Stock, $1.00 par value (the "Preferred Stock"), of the Company. - ------------------------------------------------------------------
Number Percent Name and Address of Shares of Common of Beneficial Owner Owned(1) Stock - ------------------------------------------------------------------ Harcourt General, Inc.(2) 21,440,960 56.5% 27 Boylston Street Chestnut Hill, MA 02167 Gabelli Funds, Inc.(3) 5,391,800 14.2% One Corporate Center Rye, NY 10580 Burton M. Tansky(4) 50,600 * Gerald A. Sampson(5) 25,000 * Stephen Elkin(6) 74,029 * Dawn Mello(7) 6,500 * Bernie Feiwus(8) 23,284 * Gary L. Countryman - * Matina S. Horner - * Walter J. Salmon 8,942 * Jean Head Sisco 1,134 * Richard A. Smith(9) - * Robert J. Tarr, Jr.(9) - * All current executive officers and directors as a group (20 persons)(10) 189,489 * _____________________ * Less than 1%. 25 (1) Unless otherwise indicated in the following footnotes, each stockholder referred to above has sole voting and investment power with respect to the shares listed. (2) Harcourt General's holdings of Common Stock and Preferred Stock comprise approximately 65% of the voting power and fully converted equity of the Company. Each share of Preferred Stock is convertible into 8.99 shares of Common Stock at a price of $41.70 per share of Common Stock. The closing price of the Common Stock on the New York Stock Exchange on October 20, 1995 was $18.75 per share. Richard A. Smith, Chairman of the Board of Directors of the Company and of Harcourt General, his sister, Nancy L. Marks, and certain members of their families may be regarded as controlling persons of Harcourt General, and therefore of the Company. The shares of Harcourt General Class B Stock and Harcourt General Common Stock beneficially owned by or for the benefit of the Smith family constitute approximately 28% of the aggregate number of outstanding equity securities of Harcourt General. Each share of Harcourt General voting stock entitles the holder thereof to one vote on all matters submitted to Harcourt General's stockholders, except that each share of Harcourt General Class B Stock (virtually all of which is owned by the Smith family) entitles the holder thereof to ten votes on the election of directors at any Harcourt General stockholders' meeting under certain circumstances. Accordingly, as to any elections in which the Harcourt General Class B Stock would carry ten votes per share at a Harcourt General stockholders' meeting, the Smith family would have approximately 80% of the combined voting power of the Harcourt General voting securities. Under the definition of "beneficial ownership" in Rule 13d-3 of the Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended, the Smith family and the members of Harcourt General's Board of Directors may be deemed to be the beneficial owners of the securities of 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 July 10, 1995 filed with the Securities and Exchange Commission by the Gabelli Funds, Inc. and its affiliates (collectively, the "Gabelli Affiliates"). The Gabelli Affiliates have sole voting power with respect to 5,115,900 shares and sole dispositive power with respect to all of the shares shown in the table. 26 (4) Includes 40,600 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 20, 1995. Also includes 10,000 shares of restricted stock over which Mr. Tansky has voting but not dispositive power. (5) Includes 4,000 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 20, 1995. Also includes 4,000 shares of restricted stock over which Mr. Sampson has voting but not dispositive power. (6) Includes 50,999 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 20, 1995. Also includes 8,500 shares of restricted stock over which Mr. Elkin has voting but not dispositive power. (7) Includes 3,000 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 20, 1995. Also includes 3,500 shares of restricted stock over which Ms. Mello has voting but not dispositive power. (8) Includes 16,711 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 20, 1995. Also includes 5,400 shares of restricted stock over which Mr. Feiwus has voting but not dispositive power. (9) The members of the Board of Directors of Harcourt General, including Messrs. Smith and Tarr, may be deemed to be the beneficial owners of the securities of the Company owned by Harcourt General. However, this information should not be deemed to be an admission that any such person or group is the beneficial owner of such securities. (10) Excludes the beneficial ownership of securities of the Company which may be deemed to be attributed to Messrs. Smith and Tarr (see Notes 2 and 9 above). Includes 115,310 shares of Common Stock which are subject to outstanding options exercisable within 60 days of October 20, 1995. Also includes 31,400 shares of restricted stock over which individuals in the group have voting but not dispositive power.
27 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Principal Stockholder - Intercompany Services Agreement See Note 1 to the Summary Compensation Table in Item 11 above. Transactions with Directors See "Compensation Committee Interlocks and Insider Participation" in Item 11 above. Transactions with Officers In November 1994, Mr. Sampson received a loan from the Company in the principal amount of $221,258 under its Key Executive Stock Purchase Loan Plan (the "Loan Plan") to purchase 15,000 shares of the Company's Common Stock in the open market. The loan is secured by a pledge of the purchased shares and bears interest at an annual rate of 5%, payable quarterly. Pursuant to the terms of the Loan Plan, the loan will become due and payable seven months after Mr. Sampson's employment with the Company terminates. No other officer of the Company had an outstanding loan under the Loan Plan in excess of $60,000 during fiscal 1995 or subsequent thereto. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 14(a)(1) Financial Statements The documents listed below are incorporated by reference to the Company's 1995 Annual Report to Shareholders and are incorporated by reference into Item 8 hereof: Consolidated Balance Sheets at July 29, 1995 and July 30, 1994. Consolidated Statements of Operations for the fiscal years ended July 29, 1995, July 30, 1994 and July 31, 1993. Consolidated Statements of Cash Flows for the fiscal years ended July 29, 1995, July 30, 1994 and July 31, 1993. 28 Consolidated Statements of Common Shareholders' Equity for the fiscal years ended July 29, 1995, July 30, 1994 and July 31, 1993. Notes to Consolidated Financial Statements. Independent Auditors' Report. 14(a)(2) Consolidated Financial Statement Schedules The documents and schedules listed below are filed as part of this Form 10-K: Page in Form 10-K Independent Auditors' Report on Consolidated Financial Statement Schedules F-1 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 Registrant 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. 14(b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended July 29, 1995. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE NEIMAN MARCUS GROUP, INC. BY: /s/Robert J. Tarr, Jr. Robert J. Tarr, Jr. President, Chief Executive Officer and Chief Operating Officer Dated: October 24, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the following capacities and on the dates indicated. Signature Title Date Principal Executive Officer: /s/Robert J. Tarr, Jr. President, Robert J. Tarr, Jr. Chief Executive October 24, 1995 Officer, Chief Operating Officer and Director Principal Financial Officer: /s/John R. Cook Senior Vice October 24, 1995 John R. Cook President and Chief Financial Officer Principal Accounting Officer: /s/Stephen C. Richards Vice President October 24, 1995 Stephen C. Richards and Controller 30 Directors Date /s/Richard A. Smith October 24, 1995 Richard A. Smith - ---------------------- Gary L. Countryman /s/Matina S. Horner October 18, 1995 Matina S. Horner /s/Walter J. Salmon October 19, 1995 Walter J. Salmon /s/Jean Head Sisco October 15, 1995 Jean Head Sisco 31 EXHIBIT INDEX Page No. 3.1(a) Restated Certificate of Incorporation of the Company, incorporated herein by reference to the Company's Annual Report on Form 10-K for the twenty-six week period ended August 1, 1987. 3.1(b) Certificate of Designation and Terms of 9-1/4% Cumulative Redeemable Preferred Stock, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 3, 1991. 3.2 By-Laws of the Company, as amended, incorporated herein by reference to the Company's Annual Report on Form 10- K for the fiscal year ended August 1, 1992. *10.1 Intercompany Services Agreement, dated as of July 24, 1987, between Harcourt General and the Company, incorporated herein by reference to the Company's Annual Report on Form 10-K for the twenty-six week period ended August 1, 1987. *10.2 1987 Stock Incentive Plan, incorporated herein by reference to the Company's Annual Report on Form 10-K for the twenty-six week period ended August 1, 1987. *10.3 Key Executive Stock Purchase Loan Plan, as amended, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 30, 1994. *10.4 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. *10.5 Employment Agreement between the Company and Burton M. Tansky dated May 1, 1994, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 30, 1994. 10.6 Stock Purchase Agreement between the Company and Harcourt General, dated October 14, 1991 and effective as of August 2, 1991, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 3, 1991. *10.7 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. *10.8 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. *10.9 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. *10.10 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. *10.11 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. *10.12 Deferred Compensation Agreement between the Company and Gary L. Countryman, dated August 27, 1987, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 30, 1994. *10.13 Change of Control Agreement between the Company and Bernie Feiwus, effective October 1995. 11.1 Computation of Weighted Average Number of Shares Outstanding Used in Determining Primary and Fully-Diluted Earnings Per Share. 2 13.1 1995 Annual Report to Stockholders (which is not deemed to be filed except to the extent that portions thereof are expressly incorporated by reference in this Annual Report on Form 10-K). 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 (File No. 33-36419). ________________ *Exhibits filed pursuant to Item 14(c) of Form 10-K. 3 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The Neiman Marcus Group, Inc. and Subsidiaries We have audited the consolidated financial statements of The Neiman Marcus Group, Inc. and subsidiaries as of July 29, 1995 and July 30, l994, and for each of the three years in the period ended July 29, 1995, and have issued our report thereon dated September 8, l995; such financial statements and report are included in your l995 Annual Report to Stockholders 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 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 September 8, l995 F-1 SCHEDULE II THE NEIMAN MARCUS GROUP, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED JULY 29, 1995, JULY 30, 1994 AND JULY 31, 1995 (in thousands) - --------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E - -------------------------------------------------------------------------------------------------- Balance at Charges to Charged to Balance at Beginning Costs and Other Deductions End of Description of Period Expenses Accounts Describe (A) Period YEAR ENDED JULY 29, 1995 Allowance for doubtful accounts (deducted from accounts receivable) $13,700 $27,025 $0 ($34,625)(B) $6,100 YEAR ENDED JULY 30, 1994 Allowance for doubtful accounts (deducted from accounts receivable) $9,500 $24,716 $0 ($20,516) $13,700 YEAR ENDED JULY 31, 1993 Allowance for doubtful accounts (deducted from accounts receivable) $3,592 $21,794 $0 ($15,886) $9,500 - ------------------------------------------------------------------------------------------------- (A) Write-off of uncollectible accounts, net of recoveries. (B) Includes $10.3 million relating to the securitization of the Company's credit card receivables.
F-2 EX-10 2 EXHIBIT 10.13/CHANGE OF CONTROL - FEIWUS CHANGE OF CONTROL AGREEMENT 1. This is a Change of Control Agreement between Bernie Feiwus (the Executive ) and NM Direct (also referred to as the Company ). For the purposes of this Agreement, the Company includes The Neiman Marcus Group, Inc. 2. Although the Executive is employed at-will by NM Direct, the Company values the Executive s services and wishes to provide some protection should the Executive s services be terminated under certain circumstances. Therefore, in recognition of the Executive s value and in consideration of the Executive s agreeing to remain employed at NM Direct, the Company is willing to enter into this Change of Control Agreement. 3. a. If the Executive s services are terminated without cause within 24 months following a change of control of NM Direct, as a change of control is defined in paragraph 4.b., or if within 24 months after a change of such control, the Executive resigns his employment because he is not permitted to continue in a position comparable in duties and responsibilities to that which he held before a change of control, the Executive will receive a termination package consisting of an amount equivalent to one and one half times his then-current, one year, base salary, which amount would be paid in 18 regular, monthly installments following such termination. b. Notwithstanding the payment obligation set forth in 3.a., should the Executive be engaged in employment (including contract employment or self-employment) of any kind, during the period beginning 6 months after the covered termination or resignation following a change of control, the salary obligation will be reduced, dollar-for-dollar, by the amount the Executive earns through such employment. 4. For purposes of this Agreement, a. For cause means, that in the reasonable judgment of the Company, the Executive: (1) failed to devote this full time, loyalty, best efforts, skills, knowledge and ability to the performance of his duties; (2) committed an act of malfeasance or failed to render services exclusively to the Company; or (3) engaged in conduct detrimental to the best interests of the Company. b. Change of control means: (i) the sale of all or substantially all of the assets of NM Direct to an entity other than Harcourt General, Inc. or an entity wholly owned, or controlled by the Company or Harcourt General, Inc.; (ii) the sale of all or substantially all of the assets of the Company to an entity other than Harcourt General, Inc. or an entity wholly owned or controlled by the Company or Harcourt General, Inc.; or (iii) any person, entity or group having greater voting power in the election of Company directors than Harcourt General, Inc. 5. Payment of the amounts set forth in paragraph 3 constitutes full satisfaction of all financial obligations of the Company to the Executive (if any) which arise from or relate in any way to the Executive s separation from employment, including the right to severance pay, attending a change of control of the Company. However, nothing in this paragraph affects any earned, vested rights that the Executive may have under the applicable provisions of: (i) any life insurance policy or plan (group or otherwise) maintained for the Executive by the Company or (ii) any other employee benefit pension plan, as defined by Section 3 of ERISA, then in effect and in which the Executive is participating under the terms of such plan. 6. The invalidity of all or any part or provision of any section of this Change of Control Agreement will not render invalid the remainder of this Agreement or the remainder of such sections or any other of its provisions. 7. This Change of Control Agreement contains the entire agreement and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the termination of the Executive s employment due to a change of control. The Agreement may not be changed orally. It may be changed only by written agreement signed by the party against whom any waiver, charge, amendment, modification or discharge is sought. 8. The Change of Control Agreement will be construed as to both validity and performance and enforced in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to the principles of conflicts of laws thereof. NM DIRECT By: /S/ ROBERT A. SMITH BERNIE FEIWUS By: /S/ BERNIE FEIWUS EX-11 3 EXHIBIT 11.1/COMPUTATION OF WEIGHTED AVERAGE EXHIBIT 11.1 THE NEIMAN MARCUS GROUP, INC. JULY 29, 1995 COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN DETERMINING PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (in thousands)
- ------------------------------------------------------------------------------------------ PRIMARY July 29, 1995 July 30, 1994 July 31, 1993 - ------------------------------------------------------------------------------------------ 1. Weighted average number of common shares outstanding 37,958 37,946 37,577 2. Assumed exercise of certain stock options based on average market value 25 0 (B) 120 3. Weighted average number of shares used in primary per share computations 37,983 37,946 37,697 FULLY DILUTED (A) 1. Weighted average number of common shares outstanding 37,958 37,946 37,577 2. Assumed exercise of certain stock options based on higher of average or closing market value 34 0 (B) 142 3. Weighted average number of shares used in fully diluted per share computations 37,992 37,946 37,719 - ----------------------------------------------------------------------------------------- (A)The calculation is submitted in accordance with 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%. (B)Inclusion of assumed exercises of stock options would be anti-dilutive.
EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains a summary of financial information extracted from the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Operations and is qualified in its entirety by references to such financial statements. 1,000 YEAR JUL-29-1995 JUL-29-1995 13695 0 156210 6100 359092 578409 628171 204588 1108437 374580 202000 380 405442 0 26167 1108437 1888249 1888249 1276776 1738197 0 27025 33958 116094 48759 67335 (11727) 0 0 55608 .70 .70
EX-23 5 EXHIBIT 23.1 IND. AUDITOR'S CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We hereby consent to the incorporation by reference in the prospectuses constituting part of the Registration Statements on Form S-3 (No. 33-36419) and Form S-8 (No. 33-35299) of The Neiman Marcus Group, Inc. of our reports dated September 8, l995, appearing in and incorporated by reference in the Annual Report to Shareholders on Form 10-K of The Neiman Marcus Group, Inc. for the fiscal year ended July 29, l995. We also consent to the incorporation by reference into the foregoing Prospectuses of our Independent Auditors' Report which appears on Page F-1 of the Form 10-K for the fiscal year ended July 29, l995. We also consent to the reference to us under the headings "Experts" in such prospectuses. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Boston, Massachusetts October 25, l995 EX-13 6 NMG 1995 ANNUAL REPORT NEIMAN MARCUS STORES * NM DIRECT * BERGDORF GOODMAN AND BERGDORF GOODMAN MEN * The entities that make up The Neiman Marcus Group are focused exclusively on the high-end segment of the specialty retailing marketplace, serving affluent customers from around the world. Neiman Marcus Stores is a world-renowned franchise with 28 stores nationwide and a long tradition of leadership in high fashion retailing. NM Direct is a state-of-the-art direct marketing operation enhancing customer lifestyles with the latest in stylish apparel and home furnishings. Bergdorf Goodman and Bergdorf Goodman Men are known for elegance and exclusive designer fashion showcased at their preeminent retail locations on Fifth Avenue and 58th Street in New York City. With its collection of valuable brand equities, The Neiman Marcus Group is committed to exceeding customer expectations by providing the utmost in distinctive merchandise and unsurpassed service to discerning customers worldwide. The Neiman Marcus Group AT-A-GLANCE The Neiman Marcus Group, Inc. - -------------------------------------------------------------------------------- RESULTS FROM CONTINUING OPERATIONS - ---------------------------------- THE NEIMAN MARCUS GROUP
YEARS ENDED AVERAGE ----------------------------------------------------------- COMPOUND JULY 29, JULY 30, JULY 31, AUGUST 1, AUGUST 3, ANNUAL (IN MILLIONS EXCEPT FOR PER SHARE AMOUNTS) 1995 1994 1993 1992 1991 GROWTH RATE - --------------------------------------------------------------------------------------------------------------------------- Revenues $1,888.2 $1,789.5 $1,667.8 $1,484.9 $1,407.2 7.6% Operating earnings 150.1 145.1 123.3 79.3 52.9 29.8% Earnings (loss) per share applicable to common shareholders $ 1.01 $ 0.96 $ 1.00 $ (0.05) $ (0.77) n/a - ---------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- 1995 REVENUE BREAKDOWN [PIE CHART] REVENUE GROWTH* [BAR GRAPH] OPERATING MARGIN [LINE GRAPH] - ------------------------------------------------------------------------------- TABLE OF CONTENTS 2 AT-A-GLANCE 4 LETTER TO OUR SHAREHOLDERS 7 DESIGNER FEATURE 24 FINANCIAL SECTION 41 SHAREHOLDER INFORMATION 42 DIRECTORS AND OFFICERS 43 MISSION STATEMENT 2 STORE LOCATIONS - --------------------------------------------------------------------------------------- NEIMAN MARCUS STORES
YEAR GROSS OPERATIONS STORE LOCATIONS BEGAN SQ. FEET - --------------------------------------------------------------------------------------- Dallas (Downtown) 1907 269,000 Dallas (NorthPark) 1965 218,000 Houston (Galleria) 1969 206,000 Bal Harbour, Florida 1971 94,000 Atlanta 1972 154,000 St. Louis 1974 143,000 Northbrook, Illinois 1976 143,000 Fort Worth 1977 119,000 Washington, D.C. 1977 130,000 Newport Beach, California 1978 124,000 Beverly Hills 1979 170,000 Dallas (Prestonwood) 1979 123,000 Westchester, New York 1980 138,000 Las Vegas 1981 103,000 Oak Brook, Illinois 1981 119,000 San Diego 1981 106,000 Fort Lauderdale 1982 92,000 San Francisco 1982 195,000 Houston (Town & Country) 1983 153,000 Chicago (Michigan Avenue) 1983 188,000 Boston 1984 111,000 Palo Alto, California 1985 120,000 McLean, Virginia 1989 130,000 Denver 1990 90,000 Minneapolis 1991 122,000 Scottsdale, Arizona 1991 116,000 Troy, Michigan 1992 157,000 Short Hills, New Jersey August 1995 137,000 TOTAL 3,970,000 - --------------------------------------------------------------------------------------- FUTURE NEIMAN MARCUS STORES - --------------------------------------------------------------------------------------- King of Prussia, Pennsylvania 1996 145,000 Paramus, New Jersey 1996 148,000 Honolulu, Hawaii 1999 160,000 TOTAL 453,000 - --------------------------------------------------------------------------------------- BERGDORF GOODMAN - --------------------------------------------------------------------------------------- New York City 1901 250,000 New York City (Men) 1990 66,000 TOTAL 316,000 - ---------------------------------------------------------------------------------------
REVENUES AND OPERATING EARNINGS - ---------------------------------------------------------- NEIMAN MARCUS STORES
OPERATING (IN MILLIONS) REVENUES EARNINGS* - ---------------------------------------------------------- 1995 $1,398.8 $132.3 1994 $1,311.5 $119.8 1993 $1,219.0 $ 98.6 1992 $1,084.8 $ 70.5 1991 $1,028.4 $ 50.5 - ---------------------------------------------------------- *prior to corporate expenses
NEIMAN MARCUS STORES SALES PER GROSS SQUARE FOOT [LINE GRAPH] NM DIRECT
OPERATING (IN MILLIONS) REVENUES EARNINGS* - ---------------------------------------------------------- 1995 $247.9 $13.7 1994 $248.5 $28.4 1993 $229.7 $23.8 1992 $201.0 $14.2 1991 $180.1 $10.0 - ---------------------------------------------------------- *prior to corporate expenses
BERGDORF GOODMAN
OPERATING (IN MILLIONS) REVENUES EARNINGS* - ---------------------------------------------------------- 1995 $241.5 $16.6 1994 $229.5 $10.3 1993 $219.1 $12.8 1992 $199.1 $ 7.7 1991 $198.7 $ 3.9 - ---------------------------------------------------------- *prior to corporate expenses
3 LETTER TO OUR SHAREHOLDERS The Neiman Marcus Group, Inc. - -------------------------------------------------------------------------------- Fiscal 1995 was a year of considerable accomplishment for The Neiman Marcus Group. Despite the challenging conditions that continue to affect our industry, we achieved a record financial performance. Importantly, we also streamlined our operations to focus exclusively on the upscale segment of the specialty retailing market. Both Neiman Marcus Stores and Bergdorf Goodman experienced strong gains in revenues and operating earnings, more than offsetting depressed results at our NM Direct mail order business. Total revenues from continuing operations for The Neiman Marcus Group in 1995 increased 5.5% to $1.89 billion. Operating earnings grew to $150.1 million, a 3.4% increase over 1994's level. Earnings from continuing operations in the current year were $67.3 million, compared to $65.7 million in the prior year. After preferred dividends, The Neiman Marcus Group had earnings from continuing operations applicable to common shareholders of $1.01 per share, compared to $0.96 per share in 1994. These financial results do not include results of the Contempo Casuals junior women's retail chain, which was sold to The Wet Seal, Inc. in June 1995. The Neiman Marcus Group recorded an after-tax loss from discontinued Contempo operations of $11.7 million in 1995, or $0.31 per share, compared to an after-tax loss of $49.8 million, or $1.31 per share, in fiscal 1994. The 1994 loss included a $28.1 million after-tax restructuring charge at Contempo. With the sale of Contempo Casuals, our remaining operations are clearly focused on the high-end sector of the specialty retailing industry. Future demographic trends will reflect the aging of the U.S. population and the movement of a large group of individuals into their peak earning years, thereby expanding this sector of the market, which represents the core customer group for Neiman Marcus and Bergdorf Goodman. We are confident that our specialty retailing businesses will benefit from these trends, further building upon their well-established positions in the marketplace. NEIMAN MARCUS STORES Neiman Marcus Stores maintained its strong momentum over the past year -- evidence that our operating strategies are on target. We are continuing efforts to broaden our customer base by expanding assortments in a number of areas including career apparel and casual sportswear while still maintaining a very strong commitment to the high-end designer business. These efforts are supported by an enhanced calendar of in-store special events and sales promotion activities. Total revenues at Neiman Marcus Stores grew to $1.40 billion in 1995, a 6.7% increase over revenues of $1.31 billion in 1994, with particularly strong sales of fine apparel, cosmetics, precious jewelry and accessories. Operating earnings rose 10.4% to $132.3 million from $119.8 million in the prior year, reflecting both higher revenues and tight expense controls. Operating margins improved to 9.5% from 9.1% in 1994. NM DIRECT NM Direct's mail order operations had revenues of $247.9 million in 1995, essentially the same as 1994. A total of 84 catalogues were mailed during the year with an average circulation of 1.2 million households per book. The mail order business was affected by sluggish demand for apparel throughout fiscal 1995 as well as significant increases in postage and paper costs that took effect in the spring season. To 4 minimize the impact of these factors, we reduced page count and circulation for a number of our catalogues. However, the combined effect of soft revenues and higher operating expenses caused operating earnings for the full year to decline to $13.7 million, a substantial decrease from NM Direct's record operating earnings level of $28.4 million in 1994. While higher paper and postage expenses will continue in fiscal 1996, we are working to minimize that impact by modifying catalogue formats and eliminating marginal merchandise categories from a number of our books in order to reduce page count. We are also hopeful that improved demand will contribute to a rebound in NM Direct's performance in 1996. BERGDORF GOODMAN Bergdorf Goodman had a strong performance in 1995, with operating earnings growing 61.2% to $16.6 million from $10.3 million last year. The gain reflects a 5.2% increase in revenues to $241.5 million, with operating margins growing to 6.9% from 4.5% in the prior year. Merchandise categories that exhibited exceptional strength during the year include fashion accessories, footwear and decorative home items. Bergdorf Goodman Men contributed to profits for the first time in fiscal 1995, aided by particularly strong sales of tailored men's clothing. Revenues at Bergdorf Goodman Men are now in excess of $40 million, and we expect the store's momentum to continue as its client base expands further. As fiscal 1995 drew to a close, we entered a heightened period of expansion for Neiman Marcus Stores, initiated with the opening of a new Neiman Marcus in The Mall at Short Hills, New Jersey. That store, which is 137,000 square feet in size, had a successful opening in mid-August. We are confident that the Short Hills location will be an important one, given the high concentration of consumers in the area who appreciate the quality of merchandise and level of service Neiman Marcus has to offer. Additional expansion plans over the next several years include the opening of a new Neiman Marcus store in King of Prussia, Pennsylvania, just outside Philadelphia. That location is slated to open in the spring of 1996, followed by a fall 1996 opening of a Neiman Marcus store in Paramus, New Jersey. These new stores will strengthen our presence in the Northeast considerably, and we look forward to the growth that will result. Also over the past year, we were able to finalize plans to build a new Neiman Marcus store at the Ala Moana Center in Honolulu, Hawaii, which is expected to open in calendar 1999. Fiscal 1995 marked the completion of remodeling activity at Neiman Marcus stores in Westchester, New York; Northbrook, Illinois; and NorthPark in suburban Dallas. We will begin work on a major remodeling program in our Beverly Hills store during the coming year. In addition, Neiman Marcus Stores broke ground this year on a new 464,000 square-foot national service and distribution center located in Longview, Texas. That facility, which will be completed in early 1996, will consolidate the distribution function currently being handled by several separate facilities in the Dallas area, resulting in cost savings and improved efficiencies. 5 [PICTURE] [CAPTION: ROBERT J. TARR, JR., PRESIDENT AND CHIEF EXECUTIVE OFFICER (LEFT) AND RICHARD A. SMITH, CHAIRMAN] Capital expenditures in 1995 totaled $93.5 million compared to expenditures of $65.1 million in 1994. As a result of planned building activity, 1996 capital expenditure requirements for The Neiman Marcus Group should approximate $100 million. The majority of those funds will be devoted to the new stores in King of Prussia and Paramus, as the bulk of our major renovation activity has been completed. The Neiman Marcus Group has $172.0 million of privately placed debt maturing over the next two years. Also, in fiscal 1998 the Company will be required to begin redeeming $18.7 million annually of its $374.9 million 6% preferred stock. To accommodate the Company's operating and financial requirements going forward, in March of 1995 The Neiman Marcus Group issued $246.0 million of fixed-rate certificates backed by Neiman Marcus credit card receivables. This issue served to fund the balance of our planned capital programs, pre-fund the maturing privately placed debt and provide the Company with cash to ease future borrowing needs. However, the financing will reduce the finance charge income earned on our credit card receivables going forward. Our Company is now well positioned to accomplish its store expansion and remodeling goals while fulfilling its financial obligations over the next several years. We expect fiscal 1996 to be a year of ongoing growth for The Neiman Marcus Group. With our Company now focused exclusively on the upscale segment of the market, our mandate is clear. We will continue to improve our operations, develop our physical facilities, refine our merchandising strategies and strengthen our designer relationships in order to solidify our market position as the retailer of choice for high-end consumers. We have chosen to highlight The Neiman Marcus Group's unique position in the upscale retailing market by featuring a number of prominent designer resources in this year's annual report. In the pages that follow, those designers share their views on high-end retailing -- what distinguishes this segment of the market and what it takes to be successful within it. Given our Company's ongoing commitment to providing customers with the ultimate in quality and service, we are convinced that the future will bring continued progress for The Neiman Marcus Group. Sincerely, /S/ RICHARD A. SMITH /S/ ROBERT J. TARR, JR. RICHARD A. SMITH ROBERT J. TARR, JR. Chairman President and Chief Executive Officer September 29, 1995 6 GIORGIO ARMANI MANOLO BLAHNIK DONNA KARAN BARRY KIESELSTEIN-CORD MIUCCIA PRADA JIL SANDER RICHARD TYLER ERMENEGILDO ZEGNA From Giorgio Armani, the fashion icon with an undisputed mastery of innovative yet timeless design, to Ermenegildo Zegna and his company's reputation for impeccable tailoring and fine style, the individuals featured on the pages that follow represent some of the leading talents in fashion design today. We, as retailers, pride ourselves on the strong relationships that we've developed with these industry leaders and others like them, who provide us with the merchandise valued by our customers. It is a working partnership vital to our success. With the comments that follow, these leading designers offer their unique viewpoints on what distinguishes high-end specialty retailing, and we offer our own thoughts on how Neiman Marcus, NM Direct and Bergdorf Goodman have worked to become the preeminent retailers in this segment of the market. We extend our sincere thanks to all of those who participated in this annual report -- not only for sharing their views on the industry but also for sharing their talents and vision season after season -- the elements that continue to inspire our customers worldwide. The Neiman Marcus Group 7 [PICTURE] GIORGIO ARMANI 8 MANAGING THE PARADOX OF FASHION "I WOULD SAY THAT THE FUNDAMENTAL CHALLENGE FOR A FASHION DESIGNER IS TO MANAGE PARADOX -- TO BE THE SAME BUT DIFFERENT, TO PROVIDE SECURITY AND A THRILL AT THE SAME TIME, TO USE A FAMILIAR LANGUAGE TO SAY SOMETHING NEW. FOR THE RETAILER, THE TASK IS NOT SO DIFFERENT. BUT ADD TO IT -- IN THE CASE OF THAT DISTINCTLY AMERICAN PHENOMENON CALLED THE LUXURY SPECIALTY STORE -- THE CHALLENGE OF PRESENTING A WHOLE WORLD OF STYLE AND FASHION, ENCOMPASSING WILDLY DIVERGENT POINTS OF VIEW, WHILE ALWAYS BEING ITSELF. AS A DESIGNER WITH AN IMPORTANT, OFTEN ANCHORING, PRESENCE IN NEIMAN MARCUS AND BERGDORF GOODMAN STORES, I TRUST THOSE STORES NOT ONLY TO CONVEY MY IMAGE, BUT TO ENHANCE IT THROUGH THE TOTAL SHOPPING EXPERIENCE THEY OFFER THEIR CUSTOMERS." /S/ GIORGIO ARMANI Our stores receive nearly $100 million of merchandise from Giorgio Armani annually. As our largest single resource, the Armani label has a special meaning for Neiman Marcus and Bergdorf Goodman customers. Our challenge as retailers is to select, edit and present that merchandise in a way that reflects Armani's unique style as well as that of our stores. Meeting that challenge daily are talented merchants who edit and coordinate collections from a variety of resources that differ from each other but can still work together to create a distinct statement. We design our stores to offer a convenient shopping experience with just the right amount of drama and excitement through enticing displays and special events like trunk shows and designer appearances. Our customers rely upon us to edit and present the very best in designer merchandise in a way that allows them to fulfill their own very special needs. The Neiman Marcus Group 9 [PICTURE] MANOLO BLAHNIK 10 CULTIVATING A REPUTATION FOR EXCELLENCE "NEIMAN MARCUS AND BERGDORF GOODMAN SELL LUXURY GOODS BETTER THAN ANYONE ELSE IN THE WORLD; THEY ARE THE FIRST PLACE A WOMAN GOES TO SEE THE LATEST AND THE BEST IN FASHION MERCHANDISE BECAUSE THEY HAVE CULTIVATED A REPUTATION FOR EXCELLENCE. TRADITION IS THE REAL POINT OF NEIMAN MARCUS AND BERGDORF GOODMAN AND ALWAYS HAS BEEN. WHAT DISTINGUISHES A TRULY EXCEPTIONAL SPECIALTY RETAILER, THOUGH, IS A CONSTANT EFFORT TO CHALLENGE THEMSELVES AND THEIR DESIGNER RESOURCES TO STRETCH BEYOND, TO IMPROVE UPON WHAT WAS DONE LAST SEASON, TO EXTEND THE TRADITION. MANOLO BLAHNIK HAS BEEN PART OF THIS EFFORT AT NEIMAN MARCUS AND BERGDORF GOODMAN FOR MANY YEARS AND IS VERY PROUD TO BE A PART OF THEIR WORLD." /S/ MANOLO BLAHNIK At The Neiman Marcus Group, we believe consistency is the key to success. Like Manolo Blahnik, our stores have maintained an unwavering commitment to bringing customers nothing but the very best in merchandise selection and service. Knowing they will find that consistent level of quality is what entices customers back into our stores time and again and what ultimately makes a one- time shopper a loyal customer. Bergdorf Goodman first opened its doors in 1901, with Neiman Marcus following in 1907 -- both committed to building a reputation for offering the finest service and merchandise available. In the century that has followed, neither has rested on that reputation but instead works to exceed customer expectations year after year. The Neiman Marcus Group 11 [PICTURE] DONNA KARAN 12 COMMUNICATING WITH THE CUSTOMER "WITHOUT QUESTION, THE MOST IMPORTANT ISSUE FACING HIGH-END DESIGNERS AND RETAILERS TODAY IS EXCITING CUSTOMERS, GETTING THEM INTO THE STORES BY MAKING SHOPPING FUN AGAIN. THAT GOES BACK TO SERVICE AND COMMUNICATION -- EDUCATING CUSTOMERS ABOUT THE MERCHANDISE AND HOW IT CAN WORK FOR THEIR LIFESTYLES. I MAKE A POINT OF REACHING OUT TO THE CUSTOMER DIRECTLY -- THROUGH FILMS, CATALOGUES AND NEWSLETTERS AND BY CONDUCTING IN-STORE SEMINARS FOR SALES ASSOCIATES TO HELP THEM EDUCATE THE CONSUMER ABOUT MY PRODUCTS. AND I MEET CUSTOMERS PERSONALLY THROUGH STORE VISITS AND TRUNK SHOWS. I CAN'T THINK OF ANYTHING MORE IMPORTANT THAN GIVING THE CONSUMER THAT ONE-ON-ONE ATTENTION." /S/ DONNA KARAN At The Neiman Marcus Group, we also believe that communication with our customers is critical. Each sales associate at Neiman Marcus and Bergdorf Goodman is trained to develop and nurture their own client base through frequent direct communication. Sales associates are supported by state-of-the-art point-of-sale systems that allow them to record and readily access customer information including designer preferences, sizes, important dates and upcoming events. In this way, the sales associate and customer establish a true working relationship, allowing the associate to suggest products appropriate to the customer's lifestyle. NM Direct establishes customer panels to gather feedback on products and services and uses that information to improve its merchandising efforts and customer service activities. We wholeheartedly agree with Donna Karan -- communication is the key. The Neiman Marcus Group 13 [PICTURE] BARRY KIESELSTEIN-CORD 14 RISING ABOVE THE FICKLENESS OF FASHION "LUXURY DESIGNERS AND MANUFACTURERS MUST CONTINUALLY RISE ABOVE THE SHORT-LIVED TRENDS TOO OFTEN EVIDENT IN MASS MARKET FASHION. WE PRODUCE HIGH STYLE -- NOT TRENDY FASHION -- THAT IS APPRECIATED BY THE UPSCALE CONSUMER. THE WELL-INFORMED CLIENT IS READILY ABLE TO DIFFERENTIATE BETWEEN THE QUALITIES OF HIGH-END VERSUS MASS MARKET MERCHANDISE." /S/ BARRY KIESELSTEIN-CORD Neiman Marcus and Bergdorf Goodman are well positioned as the upscale retailers of choice among those customers who demand high style and exquisite workmanship in fashion apparel and accessories produced by innovative designers such as Barry Kieselstein-Cord. Our stores and mail order operations have made a significant commitment to designer apparel and accessories and boast the broadest and deepest selections of classic assortments with a modern edge. Maintaining that focus and commitment will prove key to our continued success. The Neiman Marcus Group 15 [PICTURE] MIUCCIA PRADA 16 TRANSMITTING FASHION CONCEPTS "THE DISTINGUISHING FACTORS IN A DESIGNER COLLECTION WHICH INVITE A CUSTOMER TO SHOP ARE VERY SUBTLE AND PERSONAL. IT IS LESS IMPORTANT FOR MYSELF AS A DESIGNER TO FOCUS ON WHAT MIGHT MAKE PRADA SELL THAN TO TRY AND TRANSMIT A CONCEPT AND 'FEELING' ABOUT FASHION THAT WILL BE UNDERSTOOD AND APPRECIATED." /S/ MIUCCIA PRADA At Neiman Marcus and Bergdorf Goodman we have worked hard to create the ideal environment which effectively showcases designer merchandise -- to support an atmosphere that helps convey the 'feeling' that imaginative designers like Mrs. Prada are promoting with their fashion merchandise. We have invested a significant amount of capital to upgrade our in-store environment, creating a comfortable residential-like surrounding. The resulting store interiors are understated and elegant -- without being overwhelming -- allowing the designers' distinct and individual messages to stand out, entice and inspire our customers. The Neiman Marcus Group 17 [PICTURE] JIL SANDER 18 COMMITTING TO A CONCEPT "IN BUILDING MY COMPANY AND ESTABLISHING A CLEAR IDENTITY OVER THE PAST 25 YEARS, I HAVE ALWAYS BEEN DRIVEN BY A SEARCH FOR QUALITY, PURITY, INNOVATION AND EXCLUSIVITY IN ALL ASPECTS OF THE DESIGN PROCESS -- FROM FABRIC RESEARCH THOUGH MARKETING AND DISTRIBUTION. I BELIEVE THAT ONE IS DISTINGUISHED THROUGH A CLARITY OF VISION ABOUT WHO ONE IS AND WHAT THEY REPRESENT WHICH IS, IN TURN, ULTIMATELY PERCEIVED AND UNDERSTOOD BY THE CONSUMER." /S/ JIL SANDER In the same way that a focused designer like Jil Sander maintains clarity of vision and continuity of concept to establish an identity in the marketplace, a retailer must sustain a level of consistency to build a loyal customer following. In a challenging retail environment, The Neiman Marcus Group has remained solidly committed to the high-end segment of the retail market. As a result, customers today clearly identify our stores with upscale designer merchandise, outstanding quality and unsurpassed customer service. We are confident that our brand names, Neiman Marcus, NM Direct and Bergdorf Goodman, represent valuable assets -- brand equities that, like Jil Sander, clearly stand for something special in the minds of consumers. The Neiman Marcus Group 19 [PICTURE] RICHARD TYLER 20 BUILDING LONG-TERM RELATIONSHIPS "DOING MULTIPLE SPECIAL EVENTS AROUND THE COUNTRY HAS SHOWN US THAT THE NEIMAN MARCUS GROUP HAS THE STRONGEST RELATIONSHIPS WITH OUR CLIENTS NATIONWIDE. BECAUSE OF THEIR FAMILIARITY WITH THAT CUSTOMER BASE, THE STORES' EXECUTIVES HAVE BEEN INSTRUMENTAL IN LAUNCHING AND BUILDING MY COLLECTIONS, ENCOURAGING ME THAT THERE IS A LARGE MARKET OF MEN AND WOMEN WHO APPRECIATE OUR LEVEL OF QUALITY. TODAY, A DESIGNER'S NAME ALONE CANNOT SELL CLOTHES -- THE CUSTOMER DEMANDS QUALITY WORKMANSHIP AND GREAT STYLE AS WELL. THE PEOPLE OF THE NEIMAN MARCUS GROUP ARE WHAT MAKE THE STORES SUCH GREAT PARTNERS. THEY'RE CLEARLY NOT IN BUSINESS FOR THE SHORT-RUN AND HAVE PROVEN THEY'RE OUR LONG-TERM PARTNERS." /S/ RICHARD TYLER Quality and value have different meanings for different people. For example, Neiman Marcus and Bergdorf Goodman customers associate value with high quality product lines that have limited distribution or with designer merchandise that is exclusive to Neiman Marcus or Bergdorf Goodman. This is where working partnerships with important designer resources like Richard Tyler become so critical. Neiman Marcus and Bergdorf Goodman have cultivated a loyal group of customers with an appreciation for high-end merchandise. With the strength of an established working partnership, many designers, in turn, respond with exclusive items and earlier deliveries to satisfy our customers' needs and exceed their expectations. The Neiman Marcus Group 21 [PICTURE] ERMENEGILDO ZEGNA 22 EMPHASIZING CUSTOMER SERVICE "THE SINGULAR FACTOR THAT MOST DISTINGUISHES A HIGH-END SPECIALTY STORE MUST BE ONE OF SERVICE. A RETAILER MAY HAVE THE BEST GOODS IN THE WORLD AND THE GREATEST DISPLAYS IN THE WORLD, BUT IF THE LEVEL OF SERVICE IS NOT ON A PAR WITH THESE OTHER ELEMENTS OF THE MIX, THE BATTLE TO WIN THE CUSTOMER IS LOST. A HIGH-END SPECIALTY RETAILER MUST MAINTAIN AN EXTREMELY HIGH LEVEL OF SERVICE SO THAT THE CUSTOMER HAS CONFIDENCE THAT ALL ASPECTS OF THE SHOPPING EXPERIENCE -- FROM THE PRODUCT ITSELF, TO ITS DISPLAY, TO THE MANNER IN WHICH THAT PRODUCT IS ULTIMATELY DELIVERED -- REPRESENT THE UTMOST IN QUALITY." /S/ ERMENEGILDO ZEGNA At The Neiman Marcus Group, we have made significant investments in customer service, including intensified training and increases in the number of sales associates in our stores. Neiman Marcus ensures that service remains exceptional through continuous training and ongoing surveys to monitor customer satisfaction. At Bergdorf Goodman Men, shoppers are greeted at the door by an associate and personally accompanied throughout the store if they so desire, a program that has worked exceptionally well. All of our sales associates and direct marketing representatives are trained to make product knowledge and customer service their top priority, and their level of dedication runs high. The Neiman Marcus Group 23 -------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS 25 CONSOLIDATED STATEMENTS OF OPERATIONS 28 CONSOLIDATED BALANCE SHEETS 29 CONSOLIDATED STATEMENTS OF CASH FLOWS 30 CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 32 INDEPENDENT AUDITORS' REPORT 39 STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS 39 SELECTED FINANCIAL DATA 40 -------------------------------------------------- 24 MANAGEMENT'S DISCUSSION AND ANALYSIS The Neiman Marcus Group, Inc. - -------------------------------------------------------------------------------- OPERATING RESULTS In June 1995, the Company sold its Contempo Casuals subsidiary to The Wet Seal, Inc. The Company's consolidated operating results have been restated to reflect Contempo Casuals as a discontinued operation.
Years ended ----------------------------------------- Revenues JULY 29, July 30, July 31, (in millions) 1995 1994 1993 - ------------------------------------------------------------------------ Neiman Marcus Stores $1,398.8 $1,311.5 $1,219.0 NM Direct 247.9 248.5 229.7 Bergdorf Goodman 241.5 229.5 219.1 ----------------------------------------- Total $1,888.2 $1,789.5 $1,667.8 - ------------------------------------------------------------------------
Years ended ----------------------------------------- Operating earnings JULY 29, July 30, July 31, (in millions) 1995 1994 1993 - ------------------------------------------------------------------------ Neiman Marcus Stores $132.3 $119.8 $ 98.6 NM Direct 13.7 28.4 23.8 Bergdorf Goodman 16.6 10.3 12.8 Corporate expenses (12.5) (13.4) (11.9) ----------------------------------------- Total $150.1 $145.1 $123.3 - ------------------------------------------------------------------------
NEIMAN MARCUS STORES Operating earnings at Neiman Marcus Stores increased $12.5 million, or 10.4%, in 1995, and operating margins improved to 9.5% from 9.1% in 1994. Higher transaction volume and an increase in the average sale amount per transaction contributed to the improvement in operating earnings. NM DIRECT Operating earnings declined $14.7 million in 1995 at NM Direct to $13.7 million. Reduced demand for apparel merchandise along with higher paper and postage costs caused the lower earnings in the current year. BERGDORF GOODMAN Operating earnings at Bergdorf Goodman increased $6.3 million, or 61.2%, in 1995. Operating margins in 1995 improved to 6.9% compared to 4.5% in the previous year, principally because of an increase in the average sale amount and higher finance charge income. OPERATING RESULTS: 1995 VERSUS 1994 Revenues in 1995 increased 5.5% to $1.89 billion from $1.79 billion in 1994. The increase was a result of increased transaction volume and a higher average sale amount at both Neiman Marcus Stores and Bergdorf Goodman. Revenues at NM Direct were essentially flat compared to 1994. Cost of goods sold increased 5.5% to $1.28 billion in 1995, primarily due to incremental merchandise sold. As a percentage of revenues, cost of goods sold was unchanged at 67.6% compared to 1994. Neiman Marcus Stores and Bergdorf Goodman both experienced improved gross profit through increased transaction volume and higher average sale amounts, partially offset by higher markdowns. The improvements at Neiman Marcus Stores and Bergdorf Goodman were offset by lower gross profit at NM Direct, primarily as a result of lower retail markups and higher markdowns. Due to deflation in the Company's LIFO index in 1995, the Company recognized a credit of $10.4 million, which had the effect of improving gross profit. In 1994, the impact of the LIFO method of accounting reduced gross profit by $2.4 million. Selling, general and administrative expenses increased 6.7% in 1995 to $449.0 million. The increase was a result of both higher sales volume and higher sales promotion expenses. As a percentage of revenues, selling, general and administrative expenses were 23.8% in 1995 compared to 23.5% in 1994. The securitization of the Company's credit card receivables, which was completed in March 1995, had the effect of reducing finance charge income by $7.1 million in 1995. Corporate expenses decreased 7.1% in 1995 to $12.5 million compared to 1994. The decrease was primarily due to lower Harcourt General management fees and lower professional fees. 25 MANAGEMENT'S DISCUSSION AND ANALYSIS The Neiman Marcus Group, Inc. - -------------------------------------------------------------------------- Interest expense increased 6.5% in 1995 to $34.0 million, reflecting higher interest rates on bank borrowings and higher average outstanding borrowings during the first half of 1995. The Company's effective income tax rate was unchanged at 42% in 1995. The loss from discontinued operations of $11.7 million in 1995 included $1.9 million of after-tax Contempo Casuals operating losses and an after-tax loss on disposal of $9.9 million. In 1994, the after-tax loss from discontinued Contempo Casuals operations was $49.8 million, which included an after-tax restructuring charge of $28.1 million. OPERATING RESULTS: 1994 VERSUS 1993 Revenues for the year ended July 30, 1994 increased 7.3% to $1.79 billion from $1.67 billion in 1993. The increase resulted from comparable store increases at both Neiman Marcus Stores and Bergdorf Goodman as well as higher revenues at NM Direct. Cost of goods sold increased 8.0% to $1.21 billion in 1994, primarily due to incremental merchandise sold. As a percentage of revenues, cost of goods sold increased slightly to 67.6% in 1994 from 67.2% in 1993, primarily due to higher markdowns. The LIFO method of accounting had the effect of decreasing gross profit by $2.4 million in 1994 and increasing gross profit by $3.7 million in 1993. Selling, general and administrative expenses increased 2.1% in 1994 to $420.7 million. The increase was a result of volume-related selling expenses and higher sales promotion expenses. As a percentage of revenues, selling, general and administrative expenses improved to 23.5% from 24.7% in 1993. Corporate expenses increased 12.7% in 1994 compared to 1993 due to higher professional service fees associated with corporate activities in 1994. Interest expense increased 7.7% in 1994, reflecting higher interest rates on bank borrowings and a higher level of average outstanding debt between periods. The Company's effective income tax rate was 42% in both 1994 and 1993. The after-tax loss from discontinued Contempo Casuals operations in 1994 of $49.8 million included $28.1 million of after-tax restructuring charges. The after-tax loss from discontinued Contempo Casuals operations in 1993 was $8.4 million. In fiscal 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Accounting for Postretirement Health Care Benefits" (SFAS 106), which mandated a change in accounting for employee postretirement health care benefits. The adoption of SFAS 106 resulted in an after-tax charge to earnings of $11.2 million, or $0.30 per share. REVIEW OF FINANCIAL CONDITION In 1995, the Company generated sufficient cash flow from operating activities to fund a substantial portion of its capital growth, operating working capital and dividend requirements. Operating activities provided net cash of $105.7 million in 1995 compared to $33.6 million in 1994. The current year increase in cash provided by operations was primarily due to higher earnings and increases in accounts payable and accrued expenses, partially offset by higher inventory levels. The Company's investing activities consist principally of capital expenditures for store renovations and construction of new stores. Capital expenditures were $93.5 million in 1995 and $65.1 million in 1994. In 1995, the Company's capital expenditures included major renovations at three existing stores, continued construction of three new stores, expansion of its mail order facility, and commencement of construction on a national distribution center. In August 1995, the Company opened its Short Hills, New Jersey store and expects to open stores in King of Prussia, Pennsylvania in the spring of 1996 and Paramus, New Jersey in the fall of 1996. Capital expenditures are currently estimated to approximate $100.0 million in fiscal 1996. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS The Neiman Marcus Group, Inc. - ------------------------------------------------------------------------- The Company's financing activities during the year included incremental borrowings of approximately $17.1 million on the Company's revolving credit facilities, the securitization of $246.0 million of its credit card receivables and the payment of $30.9 million of dividends. 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 those 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 all of the proceeds of this offering to pay down existing debt. The Company's subsidiary will retain the remaining undivided interest in the receivables not represented by the Class A and Class B certificates. A portion of that interest is subordinated to the Class A and Class B certificates. The Company will continue to service all receivables for the trust. Beginning with the third quarter of fiscal 1995, the Company eliminated its quarterly cash dividend on its Common Stock (previously $.05 per share per quarter). Elimination of this dividend will conserve approximately $7.6 million of cash annually. In April 1995, the Company replaced its $300 million revolving credit facility and its six $25 million revolving credit facilities with a five-year, $500 million revolving credit facility. At July 29, 1995, the Company had $430 million available under this new agreement. The Company believes that internally generated funds along with amounts available under the revolving credit facility will be sufficient to fund its planned capital growth, operating working capital, preferred dividend requirements and the payment of $172.0 million of privately placed debt that will be maturing over the next two years. SEASONALITY The Company's business is seasonal in nature. The second quarter, which includes the holiday season, has historically accounted for approximately 30% of the Company's revenues and a majority of its net earnings. Inventories typically increase in the first quarter. IMPACT OF INFLATION The Company's financial statements are prepared on a historical cost basis under generally accepted accounting principles. The Company values substantially all of its inventory using the last-in-first-out (LIFO) cost flow assumption Thus, the cost of merchandise sold approximates current cost. 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 the impact of inflation or of changing prices does not have a material effect on the Company's results of operations. RECENT ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting Impairment of Long-Lived Assets" (SFAS 121), which is effective for fiscal years beginning after December 31, 1995. SFAS 121 addresses the accounting for potential impairment of long- lived assets. The effect of implementing SFAS 121 is not expected to be material to the Company's financial position or results of operations. 27 CONSOLIDATED STATEMENTS OF OPERATIONS The Neiman Marcus Group, Inc. - -----------------------------------------------------------------------------------------------------------
Years ended ----------------------------------------------- JULY 29, July 30, July 31, (in thousands except for per share data) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------- Revenues $1,888,249 $1,789,461 $1,667,825 Cost of goods sold including buying and occupancy costs 1,276,776 1,210,262 1,120,561 Selling, general and administrative expenses 448,956 420,667 412,044 Corporate expenses 12,465 13,411 11,898 ----------------------------------------------- Operating earnings 150,052 145,121 123,322 Interest expense (33,958) (31,878) (29,589) Other income - - 21,741 ----------------------------------------------- Earnings from continuing operations before income taxes and accounting change 116,094 113,243 115,474 Income taxes 48,759 47,562 48,499 ----------------------------------------------- Earnings from continuing operations before accounting change 67,335 65,681 66,975 Discontinued operations, net of taxes: Loss from operations (1,854) (49,755) (8,402) Loss on disposal (9,873) - - ----------------------------------------------- Loss from discontinued operations (11,727) (49,755) (8,402) ----------------------------------------------- Earnings before accounting change 55,608 15,926 58,573 Change in accounting for postretirement health care benefits, net - - (11,199) Net earnings 55,608 15,926 47,374 Dividends and accretion on redeemable preferred stocks (29,092) (29,080) (29,068) ----------------------------------------------- Net earnings (loss) applicable to common shareholders $ 26,516 $ (13,154) $ 18,306 ----------------------------------------------- Amounts per share applicable to common shareholders: Earnings from continuing operations before accounting change $ 1.01 $ .96 $ 1.00 Loss from discontinued operations (.31) (1.31) (.22) Accounting change - - (.30) ----------------------------------------------- Net earnings (loss) $ .70 $ (.35) $ .48 - -----------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 28 CONSOLIDATED BALANCE SHEETS The Neiman Marcus Group, Inc. - ---------------------------------------------------------------------------------------------------
JULY 29, July 30, (dollar amounts in thousands) 1995 1994 - --------------------------------------------------------------------------------------------------- Assets CURRENT ASSETS Cash and equivalents $ 13,695 $ 16,600 Accounts receivable, less allowance for doubtful accounts of $6,100 and $13,700 150,110 362,236 Merchandise inventories 359,092 345,145 Deferred income taxes 17,102 24,317 Other current assets 38,410 51,741 --------------------------------- TOTAL CURRENT ASSETS 578,409 800,039 --------------------------------- PROPERTY AND EQUIPMENT Land, buildings and improvements 342,551 379,256 Fixtures and equipment 200,664 210,703 Construction in progress 84,956 50,456 --------------------------------- 628,171 640,415 Less accumulated depreciation and amortization 204,588 229,502 --------------------------------- PROPERTY AND EQUIPMENT, NET 423,583 410,913 --------------------------------- OTHER ASSETS 106,445 112,176 --------------------------------- $1,108,437 $1,323,128 ================================= Liabilities and Shareholders' Equity CURRENT LIABILITIES Notes payable and current maturities of long-term liabilities $ 51,859 $ 116,619 Accounts payable 170,672 164,281 Accrued liabilities 152,049 153,625 --------------------------------- TOTAL CURRENT LIABILITIES 374,580 434,525 --------------------------------- LONG-TERM LIABILITIES Notes and debentures 202,000 368,667 Other long-term liabilities 69,056 74,982 --------------------------------- TOTAL LONG-TERM LIABILITIES 271,056 443,649 --------------------------------- DEFERRED INCOME TAXES 30,812 37,768 COMMITMENTS AND CONTINGENCIES REDEEMABLE PREFERRED STOCKS (redemption value $424,923) 405,442 403,470 COMMON STOCK Common stock - $.01 par value Authorized - 100,000,000 shares Issued and outstanding - 37,959,646 and 37,951,227 shares 380 380 ADDITIONAL PAID-IN CAPITAL 82,366 82,254 Accumulated deficit (56,199) (78,918) --------------------------------- $1,108,437 $1,323,128 - ---------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 29 CONSOLIDATED STATEMENTS OF CASH FLOWS The Neiman Marcus Group, Inc. - -----------------------------------------------------------------------------------------------------------------
Years ended ----------------------------------------------- JULY 29, July 30, July 31, (in thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 55,608 $ 15,926 $ 47,374 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Cumulative effect of accounting change - - 11,199 Depreciation and amortization 48,397 60,832 59,227 Deferred income taxes 259 (7,131) 4,743 Change in net assets of discontinued operation 8,317 - - Other income - - (20,755) Other (3,479) 14,379 3,181 Changes in current assets and liabilities: Accounts receivable (34,584) (52,664) (87,657) Merchandise inventories (38,709) 17,422 (55,467) Accounts payable and accrued liabilities 63,005 (1,975) 38,617 Other 6,846 (13,203) (9,758) ----------------------------------------------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 105,660 33,586 (9,296) ----------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (93,514) (65,074) (56,325) ----------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings of debt 17,065 73,800 77,200 Repayment of debt (247,276) (11,307) (646) Proceeds from receivables securitization 245,965 - - Common stock issued 112 100 16,484 Dividends paid (30,917) (34,709) (34,633) ----------------------------------------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (15,051) 27,884 58,405 ----------------------------------------------- CASH AND EQUIVALENTS Decrease during the year (2,905) (3,604) (7,216) Beginning balance 16,600 20,204 27,420 ----------------------------------------------- Ending balance $ 13,695 $ 16,600 $ 20,204 ----------------------------------------------- SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 36,112 $ 31,504 $ 28,514 ----------------------------------------------- Income taxes $ 17,614 $ 34,258 $ 26,796 - -----------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 30 CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY The Neiman Marcus Group, Inc. - -------------------------------------------------------------------------
Common Stock Additional ----------------- Paid-in Accumulated (in thousands) Shares Amount Capital Deficit - ----------------------------------------------------------------------------------------------------------- BALANCE - AUGUST 1, 1992 36,872 $369 $65,680 $(68,968) Net earnings - - - 47,374 Accretion of redeemable preferred stock - - - (1,948) Common dividends - - - (7,513) Preferred dividends - - - (27,120) Shares issued under dividend reinvestment plan 1,036 10 15,659 - Other equity transactions 30 - 815 - ---------------------------------------------------------- BALANCE - JULY 31, 1993 37,938 379 82,154 (58,175) Net earnings - - - 15,926 Accretion of redeemable preferred stock - - - (1,960) Common dividends - - - (7,589) Preferred dividends - - - (27,120) Other equity transactions 13 1 100 - ---------------------------------------------------------- BALANCE - JULY 30, 1994 37,951 380 82,254 (78,918) Net earnings - - - 55,608 Accretion of redeemable preferred stock - - - (1,972) Common dividends - - - (3,797) Preferred dividends - - - (27,120) Other equity transactions 9 - 112 - ---------------------------------------------------------- BALANCE - JULY 29, 1995 37,960 $380 $82,366 $(56,199) - -----------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc. - --------------------------------------------------------------------------- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF REPORTING The Company's specialty retailing businesses include Neiman Marcus, 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. The consolidated financial statements have been restated to reflect Contempo Casuals as a discontinued operation. CASH AND EQUIVALENTS Cash and equivalents consists of cash and highly liquid investments with maturities of three months or less from the date of purchase. MERCHANDISE INVENTORIES Inventories are stated at the lower of cost or market. Substantially all of the Company's inventories are valued using the retail method on the last-in, first-out (LIFO) basis. While the Company believes that the LIFO method provides a better matching of costs and revenues, some specialty retailers use the 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 $14.2 million and $24.6 million higher than reported at July 29, 1995 and July 30, 1994, respectively. The LIFO valuation method had the effect of increasing net earnings by $6.0 million in 1995, decreasing net earnings by $1.4 million in 1994 and increasing net earnings by $2.2 million in 1993. DEPRECIATION AND AMORTIZATION Depreciation and amortization are provided on a straight-line basis over the shorter of the estimated useful lives of the related assets or the lease term. Buildings and improvements are depreciated over 15 to 30 years while fixtures and equipment are depreciated over 2 to 15 years. When property and equipment are retired or have been fully depreciated, the cost and the related accumulated depreciation are eliminated from the respective accounts. Gains or losses arising from dispositions are reported as income or expense. Intangibles are amortized on a straight-line basis over their estimated useful lives, not exceeding 40 years. Amortization expense was $3.7 million in 1995, $3.8 million in 1994 and $3.7 million in 1993. INCOME TAXES Beginning in fiscal 1994, income taxes are calculated in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the asset and liability method of accounting for income taxes. Prior to fiscal 1994, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. The effects of adopting SFAS 109 were not material to the Company's results of operations or financial position. 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 $55.9 million in 1995, $54.3 million in 1994 and $36.3 million in 1993. The securitization of the Company's credit card receivables, which closed in March 1995, had the effect of reducing finance charge income by $7.1 million in 1995. Finance charge income in future periods will also be reduced (See Note 11). Concentration of credit risk with respect to trade receivables is limited due to the large number of customers to whom the Company extends credit. Ongoing credit evaluation of customers' financial position is performed, and collateral is not required as a condition of extending credit. The Company maintains reserves for potential credit losses. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Earnings (loss) per share information reflects the earnings and losses of the Company applicable to common shareholders. The dividend and accretion requirements of the redeemable preferred stocks are deducted from the earnings from continuing operations of the Company to arrive at net earnings (loss) applicable to common shareholders. Earnings (loss) per common share is based upon the weighted average number of common and, when dilutive, common equivalent shares outstanding during the year. Weighted average shares outstanding amounted to 38.0 million in 1995, 37.9 million in 1994 and 37.6 million in 1993. PREOPENING EXPENSES Costs associated with the opening of new stores are expensed as incurred. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc. - ---------------------------------------------------------------------------- NOTE 2 DISCONTINUED OPERATIONS On June 30, 1995, the Company sold its Contempo Casuals subsidiary to The Wet Seal, Inc. (Wet Seal) for $1.0 million of Wet Seal Class A common stock and $100,000 in cash. Contempo operates a chain of retail stores which sells moderately priced fashion apparel and accessories primarily for young women between the ages of 15 and 21. The losses from discontinued operations recorded for the fiscal years ended 1995, 1994 and 1993 are net of applicable income tax benefits of $1.3 million, $36.0 million and $6.1 million, respectively. The loss on disposal in 1995 of $9.9 million is net of $7.1 million of applicable income tax benefits. Revenues related to the discontinued Contempo Casuals operations were $207.2 million in 1995, $303.4 million in 1994 and $349.1 million in 1993. NOTE 3 OTHER ASSETS Other assets consisted of the following:
JULY 29, July 30, (in thousands) 1995 1994 - ---------------------------------------------------------- Trademarks $ 73,000 $ 73,000 Goodwill 22,729 30,874 Other 35,805 32,341 ------------------------------ 131,534 136,215 Accumulated amortization (25,089) (24,039) ------------------------------ $106,445 $112,176 - ----------------------------------------------------------
NOTE 4 LONG-TERM LIABILITIES Long-term liabilities consisted of the following:
Interest July 29, July 30, (in thousands) Rate 1995 1994 - -------------------------------------------------------------------------- Revolving credit agreement (a) Variable $ 70,000 $ 306,000 Senior notes (b) Various 172,000 172,000 Capital lease obligations (c) 7.63 - 10.25% 7,206 7,672 Other long-term liabilities (d) Various 73,709 74,596 ------------------------------------------ Total long-term liabilities 322,915 560,268 Less current maturities (51,859) (116,619) ------------------------------------------ $271,056 $ 443,649 - -------------------------------------------------------------------------- (a) In April 1995, the Company replaced its $300 million revolving credit facility and its six $25 million revolving credit facilities with a five-year $500 million revolving credit facility. The Company may terminate this agreement at any time on three business days' notice. The rate of interest payable (6.2% at July 29, 1995) varies according to one of four pricing options selected by the Company. The agreement contains, among other restrictions, provisions limiting the issuance of additional debt, the amount and type of investments and the payment of dividends.
- -------------------------------------------------------------------------------- (b) Senior notes consisted of the following:
PRINCIPAL AMOUNT INTEREST RATE DUE (IN THOUSANDS) - ---------------------------------------------------------------------- 9.89% May 1996 $40,000 9.59% August 1996 $52,000 9.24% December 1996 $40,000 Variable December 1996 $40,000 - ----------------------------------------------------------------------
The notes have no sinking fund requirements. All fixed rate senior notes may be redeemed at any time at a premium plus accrued interest. The variable rate note bears interest at LIBOR plus 0.7% (6.6% at July 29, 1995) and is adjusted semi-annually. (c) The amount of assets under capital leases included in property and equipment net of amortization was $4.0 million at July 29, 1995 and $4.4 million at July 30, 1994. (d) Other long-term liabilities consisted primarily of certain employee benefit obligations, postretirement health care benefits and a liability for certain scheduled rent increases. The aggregate maturities of all long-term liabilities and capital lease obligations are $51.9 million in 1996, $135.9 million in 1997, $4.0 million in 1998, $3.7 million in 1999, $73.7 million in 2000 and $53.7 million thereafter. NOTE 5 REDEEMABLE PREFERRED STOCKS The Company's authorized and outstanding preferred stocks consist of 1,000,000 shares of 6% Cumulative Convertible Preferred Stock (6% Preferred Stock) and 500,000 shares of 9 1/4% Cumulative Redeemable Preferred Stock (9 1/4% Preferred Stock), all of which are owned by Harcourt General, Inc. (Harcourt General). 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc. - ----------------------------------------------------------------------------- The 6% Preferred Stock is entitled to receive cumulative dividends at an annual rate of 6% on its $374.9 million stated value, to a class vote on certain matters, to convert on a per share basis into approximately 8.99 shares of Common Stock subject to certain antidilution adjustments and, upon liquidation of the Company, to receive a liquidation distribution equal to its stated value, together with any accrued and unpaid dividends, before any distribution to any junior class of stock. The conversion price of the 6% Preferred Stock at July 29, 1995 was approximately $41.70 per share of Common Stock acquired upon such conversion; the market value of NMG Common Stock on July 29, 1995 was $15.38. The 6% Preferred Stock may be redeemed by the Company at a premium over its stated value under certain conditions through September 1997. Beginning in September 1997 (when a sinking fund for this purpose commences), the Company is required to redeem annually not less than 5% of the 6% Preferred Stock at a redemption value of $374.92 per share plus any accrued dividends. The difference between the redemption value and the carrying value is being accreted over a thirty-year period. The 9 1/4% Preferred Stock has a stated value of $100 per share, is not redeemable until July 31, 1998 except under certain limited circumstances, and must be redeemed in full by July 2001. The Company may be required to purchase the 9 1/4% Preferred Stock at its stated value plus accrued dividends if a change in control of the Company occurs. The 9 1/4% Preferred Stock is senior to the Common Stock of the Company with respect to dividends and the distribution of assets upon liquidation or dissolution of the Company. If dividends payable on the 9 1/4% Preferred Stock are in arrears for six full quarters or any mandatory redemption is in arrears, the holders of the 9 1/4% Preferred Stock, voting together as one class with other series of the Company's preferred stock, shall be entitled to elect two members to the Company's Board of Directors. The terms of the 9 1/4% Preferred Stock also contain restrictions regarding the consolidation or merger of the Company and the sale of assets. NOTE 6 SHAREHOLDERS' EQUITY OWNERSHIP BY AND RELATIONSHIP WITH HARCOURT GENERAL Harcourt General owns 21.4 million shares of Common Stock and all of the outstanding Redeemable Preferred Stocks. The shares presently owned by Harcourt General represent approximately 65% of the voting power and fully-converted equity of the Company. The Company and Harcourt General are parties to an agreement pursuant to which Harcourt General provides certain management, accounting, financial, legal, tax and other corporate services to the Company. The fees for these services are based on Harcourt General's costs and are subject to the approval of a committee of directors of the Company who are unaffiliated with Harcourt General. This agreement may be terminated by either party on 180 days' notice. Charges to the Company under this agreement were $6.5 million in 1995, $6.9 million in 1994 and $7.2 million in 1993. The Company's Chairman of the Board; President and Chief Executive Officer; Senior Vice President and Chief Financial Officer; and Senior Vice President and General Counsel, as well as certain other Officers, serve in similar capacities with Harcourt General. The first two named Officers also serve as directors of both companies. COMMON STOCK Common Stock is entitled to dividends as declared by the Board of Directors, and each share carries one vote. Holders of Common Stock have no cumulative voting, conversion, redemption or preemptive rights. COMMON STOCK INCENTIVE PLAN The Company has established a Common Stock incentive plan allowing for the granting of stock options, stock appreciation rights and stock-based awards. The aggregate number of shares of Common Stock that may be issued pursuant to the plan is 1.3 million shares. Options outstanding at July 29, 1995 were granted at prices (not less than 100% of the fair market value on the date of the grant) ranging from $11.63 to $19.27 per share and expire between 1995 and 2004. There were 108 employees with options outstanding at July 29, 1995. The weighted average exercise price for all outstanding options at July 29, 1995 was $14.47. At July 29, 1995, there were 306,720 shares of Common Stock available for grants under the plan. Option activity was as follows:
Years ended ----------------------------------------- JULY 29, July 30, July 31, 1995 1994 1993 - --------------------------------------------------------------------------- Options outstanding - beginning of year 666,348 684,136 573,360 Granted 228,050 214,100 179,350 Exercised (15,114) (54,116) (14,937) Canceled (94,420) (177,772) (53,637) ----------------------------------------- Options outstanding - end of year 784,864 666,348 684,136 ----------------------------------------- Exercisable options - end of year 356,064 294,800 332,296 - ---------------------------------------------------------------------------
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc. - ------------------------------------------------------------------------------ NOTE 7 INCOME TAXES Income tax expense was as follows:
Years ended ------------------------------------ JULY 29, July 30, July 31, (in thousands) 1995 1994 1993 - ----------------------------------------------------------- Current: Federal $39,965 $37,800 $35,799 State 9,136 8,736 7,662 ------------------------------------ 49,101 46,536 43,461 ------------------------------------ Deferred: Federal 668 1,835 3,905 State (1,010) (809) 1,133 ------------------------------------ (342) 1,026 5,038 ------------------------------------ Income tax expense $48,759 $47,562 $48,499 - -----------------------------------------------------------
The Company's effective income tax rate was 42% in 1995, 1994 and 1993. The difference between the statutory federal tax rate and the effective tax rate is primarily due to state income taxes. Significant components of the Company's net deferred income tax liability stated on a gross basis were as follows:
JULY 29, July 30, (in thousands) 1995 1994 - ------------------------------------------------------------------------- Gross deferred income tax assets: Financial accruals and reserves $ 22,297 $ 29,088 Employee benefits 22,471 22,712 Deferred lease payments 3,735 6,349 Other 7,216 6,938 ------------------------------- Total deferred tax assets 55,719 65,087 ------------------------------- Gross deferred income tax liabilities: Excess tax depreciation (57,257) (65,782) Pension accrual (5,933) (6,324) Other items previously deducted on tax return (6,239) (6,432) ------------------------------- Total deferred tax liabilities (69,429) (78,538) ------------------------------- Net deferred tax liability $(13,710) $(13,451) - -------------------------------------------------------------------------
NOTE 8 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 these plans are based on the employee's years of service and compensation prior to retirement. The Company's general funding policy is to contribute amounts that are deductible for federal income tax purposes. Pension plan assets consist primarily of equity and fixed income securities. Components of net pension expense were as follows:
Years ended ------------------------------ JULY 29, July 30, July 31, (in thousands) 1995 1994 1993 - ----------------------------------------------------------- Service cost $ 5,800 $ 4,800 $ 4,400 Interest cost on projected benefit obligation 7,900 7,200 6,600 Actual return on assets (7,500) (2,700) (6,700) Net amortization and deferral 1,200 (3,000) 2,200 ------------------------------ Net pension expense $ 7,400 $ 6,300 $ 6,500 - -----------------------------------------------------------
The accounting assumptions used in the computation of pension expense were as follows:
1995 1994 1993 - ------------------------------------------------------------ Discount rate 7.5% 7.5% 8.5% 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% 6.0% - ------------------------------------------------------------
35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc. - -------------------------------------------------------------------------------- The plans' funded status and amounts recognized in the consolidated balance sheets were as follows:
July 29, 1995 July 30,1994 Funded Unfunded Funded Unfunded (in thousands) Plan Plan Plan Plan - ------------------------------------------------------------------------------------------------------------------------ Vested benefit obligation $61,600 $ 11,400 $68,500 $ 12,100 -------------------------------------------------------- Accumulated benefit obligation $71,200 $ 13,400 $70,600 $ 13,400 -------------------------------------------------------- Projected benefit obligation $91,700 $ 23,100 $85,900 $ 20,200 Pension plan assets at fair value 91,300 - 77,600 - -------------------------------------------------------- Underfunded projected obligation (400) (23,100) (8,300) (20,200) Net amortization and deferral 12,600 2,600 19,300 2,800 Unrecognized net obligation at transition and unrecognized prior service cost 2,200 3,900 4,300 2,800 -------------------------------------------------------- Pension asset (liability) recognized in the balance sheets $14,400 $(16,600) $15,300 $(14,600) - ------------------------------------------------------------------------------------------------------------------------
NOTE 9 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. Beginning in fiscal 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106). This statement requires accrual of postretirement health care benefits during the years in which an employee provides services. The Company paid postretirement health care benefit claims of $1.4 million during 1995 and $1.8 million during 1994. 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 ------------------------------ JULY 29, July 30, (in thousands) 1995 1994 - ------------------------------------------------------------------------ Retirees $11,364 $11,986 Fully eligible active plan participants 1,470 1,550 Other active plan participants 3,943 4,158 Unrecognized net gain 2,350 1,929 ------------------------------ Total $19,127 $19,623 - ------------------------------------------------------------------------
The periodic postretirement health care benefit cost was as follows:
Years ended ----------------------------- JULY 29, July 30, (in thousands) 1995 1994 - --------------------------------------------------------------- Net periodic cost: Service cost $ 300 $ 286 Interest cost on accumulated benefit obligation 1,249 1,288 ----------------------------- Total $1,549 $1,574 - ---------------------------------------------------------------
The assumed health care cost trend rate used in measuring the accumulated postretirement health care benefit obligation was 16% in 1994 and 15% in 1995, gradually declining to 5% by the year 2006. Measurement of the accumulated postretirement health care benefit obligation was based on an assumed 7.5% discount rate in both 1995 and 1994. An increase of 1% in the health care cost trend rate would increase the accumulated postretirement health care benefit obligation as of July 29, 1995 by $2.3 million. The effect of this change on the annual net periodic postretirement health care benefit cost would be an increase of approximately $242,000. NOTE 10 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. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc. - ------------------------------------------------------------------------------- Rent expense under operating leases was as follows:
Years ended ------------------------------------- JULY 29, July 30, July 31, (in thousands) 1995 1994 1993 - ------------------------------------------------------------- Minimum rent $29,300 $28,600 $29,100 Rent based on revenues 8,400 9,100 7,900 ------------------------------------- Total rent expense $37,700 $37,700 $37,000 - -------------------------------------------------------------
Future minimum lease payments, excluding renewal options, under operating leases are as follows: 1996 - $30.0 million; 1997 - $28.5 million; 1998 - $27.8 million; 1999 - $26.9 million; 2000 - $26.3 million; and all years thereafter - $536.9 million. LITIGATION When the Company was formed as part of the restructuring of Carter Hawley Hale Stores, Inc. (CHH), now Broadway Stores, Inc., in August 1987, it entered into a variety of agreements with CHH. The Company and CHH negotiated a settlement of certain disputes between them, which became effective in October 1992. In connection with the settlement, the Company paid CHH $7.7 million and was discharged as guarantor of certain CHH employee benefits. In light of this settlement, the Company re-evaluated its liabilities to CHH and recognized a gain during the first quarter of 1993 of $20.8 million on settlement of these liabilities. This gain is recorded as other income in the 1993 consolidated statement of operations. The Company is involved in various other 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 continuing operations of the Company. LETTERS OF CREDIT The Company had approximately $3.0 million of outstanding irrevocable letters of credit relating to purchase commitments at July 29, 1995. NOTE 11 FINANCIAL INSTRUMENTS SECURITIZATION OF CREDIT CARD RECEIVABLES On March 15, 1995, the Company sold all of its Neiman Marcus credit card receivables through a subsidiary to a trust in exchange for five-year certificates representing undivided interests in such receivables. Certificates representing an undivided interest in $246.0 million of those receivables were sold to third parties in a public offering of $225.0 million of 7.60% Class A certificates and $21.0 million of 7.75% Class B certificates. The Company used the proceeds from this offering to pay down existing debt. The Company's subsidiary will retain the remaining undivided interest in the receivables not represented by the Class A and Class B certificates. A portion of that interest is subordinated to the Class A and Class B certificates. The Company will continue to service all receivables for the trust. In anticipation of the securitization, the Company entered into several forward interest rate lock agreements. The agreements allowed the Company to establish a weighted average effective rate of approximately 8.0% on the certificates issued as part of the securitization. On March 15, 1995, the Company paid $5.4 million to settle all of its interest rate lock agreements. INTEREST RATE SWAP During September 1991, the Company entered into an interest rate swap agreement having a notional principal amount of $50.0 million that effectively fixed the interest rate on $50.0 million of the Company's variable rate debt at 8.94%. The amount to be paid or received is accrued as interest rates change and is recognized over the life of the agreement. The interest rate swap matures in September 1996. The fair value of the interest rate swap is the amount at which it could be settled, based on estimates obtained from dealers. The estimated unrealized pre-tax loss on the interest rate swap was approximately $1.5 million at July 29, 1995, $2.8 million at July 30, 1994 and $6.6 million at July 31, 1993. This amount changes during the life of the swap as a function of maturity, interest rates and the credit standing of the parties to the swap agreement. The incremental pre-tax interest expense incurred due to the interest rate swap agreement was $1.0 million in 1995, $2.3 million in 1994 and $2.4 million in 1993. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc. - ----------------------------------------------------------------------------- NOTE 12 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED JULY 29, 1995 ------------------------------------------------------------- FIRST SECOND THIRD FOURTH (in millions except for per share data) QUARTER QUARTER QUARTER QUARTER TOTAL - ------------------------------------------------------------------------------------------------------------------- Revenues $462.3 $589.5 $415.7 $420.7 $1,888.2 ------------------------------------------------------------- Gross profit $165.0 $184.2 $135.3 $127.0 $ 611.5 ------------------------------------------------------------- Earnings from continuing operations $ 21.6 $ 25.0 $ 11.1 $ 9.6 $ 67.3 Earnings (loss) from discontinued operations (1.8) 1.5 (11.4) - (11.7) ------------------------------------------------------------- Net earnings (loss) 19.8 26.5 (.3) 9.6 55.6 Preferred dividends and accretion (7.3) (7.3) (7.3) (7.2) (29.1) ------------------------------------------------------------- Net earnings (loss) applicable to common shareholders $ 12.5 $ 19.2 $ (7.6) $ 2.4 $ 26.5 ------------------------------------------------------------- Amounts per share applicable to common shareholders: Continuing operations $ .38 $ .47 $ .10 $ .06 $ 1.01 Discontinued operations $ (.05) $ .04 $ (.30) $ - $ (.31) ------------------------------------------------------------- Net earnings (loss) $ .33 $ .51 $ (.20) $ .06 $ .70 ------------------------------------------------------------- Dividends $ .05 $ .05 $ - $ - $ .10 - -------------------------------------------------------------------------------------------------------------------
Year ended July 30, 1994 --------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total - ---------------------------------------------------------------------------------------------------------------------- Revenues $429.9 $557.8 $399.7 $402.0 $1,789.5 --------------------------------------------------------- Gross profit $153.6 $175.3 $132.2 $118.1 $ 579.2 --------------------------------------------------------- Earnings from continuing operations $ 21.4 $ 25.4 $ 13.2 $ 5.7 $ 65.7 Earnings (loss) from discontinued operations (6.2) (3.9) (32.0) (7.7) (49.8) --------------------------------------------------------- Net earnings (loss) 15.2 21.5 (18.8) (2.0) 15.9 Preferred dividends and accretion (7.3) (7.3) (7.3) (7.2) (29.1) --------------------------------------------------------- Net earnings (loss) applicable to common shareholders $ 7.9 $ 14.2 $(26.1) $ (9.2) $ (13.2) --------------------------------------------------------- Amounts per share applicable to common shareholders: Continuing operations $ .37 $ .47 $ .15 $ (.04) $ .96 Discontinued operations $ (.16) $ (.10) $ (.84) $ (.20) $ (1.31) --------------------------------------------------------- Net earnings (loss) $ .21 $ .37 $ (.69) $ (.24) $ (.35) --------------------------------------------------------- Dividends $ .05 $ .05 $ .05 $ .05 $ .20 - ---------------------------------------------------------------------------------------------------------------------- In the fourth quarter, the effect of the LIFO method of accounting for inventories increased net earnings by $10.9 million in 1995 and by $3.1 million in 1994.
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc. - ----------------------------------------------------------------------------- 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 July 29, 1995 and July 30, 1994 and the related consolidated statements of operations, common shareholders' equity and cash flows for each of the three years in the period ended July 29, 1995. 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 July 29, 1995 and July 30, 1994 and the results of their operations and their cash flows for each of the three years in the period ended July 29, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP BOSTON, MASSACHUSETTS SEPTEMBER 8, 1995 STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENT The management of the Neiman Marcus, Group, Inc. and it 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 Auditor's 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 soley 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. JOHN R. COOK STEPHEN C. RICHARDS SENIOR VICE PRESIDENT AND VICE PRESIDENT AND CHIEF FINANCIAL OFFICER CONTROLLER 39 SELECTED FINANCIAL DATA (UNAUDITED) The Neiman Marcus Group, Inc. - -------------------------------------------------------------------------
Years Ended - ------------------------------------------------------------------------------------------------- July 29, July 30, July 31, August 1, August 3, (in millions except for per 1995 1994 1993 1992 1991 share data) - ------------------------------------------------------------------------------------------------- OPERATING RESULTS: Revenues $1,888.2 $1,789.5 $1,667.8 $1,484.9 $1,407.2 ------------------------------------------------------------- Earnings (loss) from continuing operations before accounting change 67.3 65.7 67.0 27.7 (1.5) Earnings (loss) from discontinued operations (11.7) (49.8) (8.4) (5.8) (10.8) ------------------------------------------------------------- Earnings before accounting change 55.6 15.9 58.6 21.9 9.3 Cumulative effect of accounting change (a) -- -- (11.2) -- -- ------------------------------------------------------------- Net earnings 55.6 15.9 47.4 21.9 9.3 ------------------------------------------------------------- Net earnings (loss) applicable to common shareholders 26.5 (13.2) 18.3 (7.3) (15.1) ------------------------------------------------------------- Amounts per share applicable to common shareholders Continuing Operations $ 1.01 $ .96 $ 1.00 $ (.05) $ (.77) Discontinued Operations (.31) (1.31) (.22) (.16) .32 Accounting Change -- -- (.30) -- -- -------------------------------------------------------------- Net earnings (loss) $ .70 $ (.35) $ .48 $ (.21) $ (.45) -------------------------------------------------------------- Common dividends $ .10 $ .20 $ .20 $ .20 $ .20 -------------------------------------------------------------- Financial Position: Total Assets $1,108.4 $1,323.1 $1,278.6 $1,141.4 $1,072.2 Long-term liabilities $ 271.1 $ 443.6 $ 449.4 $ 414.2 $ 382.4 Redeemable preferred Stocks $ 405.4 $ 403.5 $ 401.5 $ 399.6 $ 397.6 - --------------------------------------------------------------------------------------------------- The selected financial data should be read in conjunction with the consolidated financial statements contained elsewhere in this report. (a) The cumulative effect of accounting change reflects the change in accounting for postretirement health care benefits, net of applicable income taxes.
40 SHAREHOLDER INFORMATION The Neiman Marcus Group, Inc. - -------------------------------------------------------------------------- Requests for general information or published financial information should be made in writing to the Corporate Relations Department, The Neiman Marcus Group, Inc., Post Office Box 9187, Chestnut Hill, MA 02167-9187, (617) 232-0760. Transfer Agent and Registrar The First National Bank of Boston 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 19, 1996 at 10:00 a.m. at the Company's corporate headquarters, 27 Boylston Street, Chestnut Hill, Massachusetts. 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. - -----------------------------------------------------------------
1995 1994 - ----------------------------------------------------------------- Quarter High Low High Low ----------------------------------- First $15.50 $13.50 $16.63 $13.88 Second $15.00 $13.00 $19.25 $15.75 Third $15.50 $13.00 $17.38 $15.00 Fourth $15.88 $13.25 $16.63 $14.75 - -----------------------------------------------------------------
Shares Outstanding The Neiman Marcus Group has 38.0 million common shares outstanding. Harcourt General, Inc. owns approximately 56.5% of NMG's outstanding common equity and 100% of the Company's redeemable preferred stocks. The Neiman Marcus Group had 12,686 common shareholders of record at July 29, 1995. Corporate Address The Neiman Marcus Group, Inc. 27 Boylston Street Post Office Box 9187 Chestnut Hill, MA 02167-9187 (617) 232-0760 The Neiman Marcus Group is an Equal Opportunity Employer. 41 DIRECTORS AND OFFICERS The Neiman Marcus Group, Inc. - -------------------------------------------------------------------------------- DIRECTORS RICHARD A. SMITH (1, 2) Chairman of the Board GARY L. COUNTRYMAN (1, 2, 3, 4, 5) Chairman and Chief Executive Officer Liberty Mutual Insurance Company MATINA HORNER, PH.D. (2, 3, 4, 5) Executive Vice President Teachers Insurance and Annuity Association- College Retirement Equities Fund WALTER J. SALMON (2, 3, 4, 5) Roth Professor of Retailing Graduate School of Business Harvard University JEAN HEAD SISCO (2, 3, 4, 5) Partner Sisco Associates ROBERT J. TARR, JR. (1, 2) President, Chief Executive Officer and Chief Operating Officer EXECUTIVE OFFICERS RICHARD A. SMITH Chairman of the Board ROBERT J. TARR, JR. President, Chief Executive Officer and Chief Operating Officer JOHN R. COOK Senior Vice President and Chief Financial Officer ERIC P. GELLER Senior Vice President, General Counsel and Secretary ROBERT A. SMITH Group Vice President OPERATING OFFICERS NEIMAN MARCUS BURTON M. TANSKY Chairman and Chief Executive Officer GERALD A. SAMPSON President and Chief Operating Officer NM DIRECT B.D. FEIWUS President and Chief Executive Officer BERGDORF GOODMAN STEPHEN C. ELKIN Chairman and Chief Executive Officer DAWN MELLO President STAFF OFFICERS PETER FARWELL Vice President - Corporate Relations PAUL F. GIBBONS Vice President and Treasurer GERALD T. HUGHES Vice President - Human Resources MICHAEL F. PANUTICH Vice President - General Auditor STEPHEN C. RICHARDS Vice President and Controller CRAIG B. SAWIN Vice President - Planning and Analysis (1) EXECUTIVE COMMITTEE (2) NOMINATING COMMITTEE (3) AUDIT COMMITTEE (4) COMPENSATION COMMITTEE (5) SPECIAL REVIEW COMMITTEE All Executive and Staff Officers hold similar positions at Harcourt General, Inc. Richard A. Smith, Robert J. Tarr, Jr., and Robert A. Smith are Directors of Harcourt General, Inc. Portrait of Barry Kieselstein-Cord (page 14), courtesy of Oberto Gili DESIGN: BELK MIGNOGNA ASSOCIATES, NEW YORK 42 OUR MISSION is to be the leading specialty retailer of fine merchandise to discerning, fashion-conscious customers from around the world. We will strive to exceed customer expectations for service, quality and value as we build upon our long-standing tradition of excellence. As we pursue this mission, we are guided by the following important values. - We will maintain an uncompromising commitment to quality and the highest levels of customer service in all of our businesses and endeavors. - We will adhere to the highest levels of integrity and ethical standards in dealing with constituencies, including customers, suppliers, and employees. - We will aspire to achieve a leadership position in every one of our operating businesses. - Our management decisions will emphasize long-term benefits to the value of our businesses, not short-term gains. - We will employ capable, motivated people; follow sound management practices; utilize new technology efficiently; and reinvest earnings and additional capital as required to grow our businesses and maintain the corporation's financial health. - We will strive to maximize the potential of all employees and maintain a professionally challenging work environment. - We will be socially and environmentally responsible and support worthwhile causes, especially in those communities in which we operate. EX-21 7 EXHIBIT 21.1 SUBSIDIARIES Exhibit 21.1 THE NEIMAN MARCUS GROUP, INC. SUBSIDIARIES
--------------------------------------------------------------------------------------------------------------- JURISDICTION OF NAME OF SUBSIDIARY 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. C.C. Group Limited Hong Kong The Neiman Marcus Group, Inc. (50%) Ermine Trading Corporation (50%) Ermine Trading Corporation California The Neiman Marcus Group, Inc. Last Call, Inc. New Jersey The Neiman Marcus Group, Inc. Neiman Marcus Funding Corporation Delaware The Neiman Marcus Group, Inc. Neiman Marcus Holiday Express, Inc. Delaware The Neiman Marcus Group, Inc. Neiman Marcus Holdings, Inc. 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%) Pastille, Inc. Delaware The Neiman Marcus Group, Inc. Pastille By Mail, Inc. Delaware The Neiman Marcus Group, Inc. ---------------------------------------------------------------------------------------------------------------
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