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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
__________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended August 1, 1998
Commission File Number 1-9659
_______________
THE NEIMAN MARCUS GROUP, INC.
(Exact name of registrant as specified in its charter)
27 Boylston Street, Chestnut Hill, Massachusetts 02467
(Address of principal executive offices) (Zip Code)
Delaware 95-4119509
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Registrant's telephone number and area code: 617-232-0760
_______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each Exchange on which Registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
_______________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of October 15, 1998 was $407,958,109.
There were 48,944,377 shares of Common Stock outstanding as of October 15,
1998.
_________________________________________________
Documents Incorporated by Reference
Portions of the Company's 1998 Annual Report to Shareholders are
incorporated by reference in Parts I, II and IV of this Report.
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THE NEIMAN MARCUS GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 1, 1998
TABLE OF CONTENTS
Page No.
PART I
Item 1. Business 1
Item 2. Properties 4
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 5
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 5
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 5
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 6
PART III
Item 10. Directors and Executive Officers of the Registrant 6
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 23
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 26
Signatures S-1
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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, currently owns
approximately 54% of the outstanding Common Stock of the Company. Four of
Harcourt General's senior officers - its Chairman and Chief Executive Officer,
its two Presidents and Co-Chief Operating Officers, and its Senior Vice
President and Chief Financial Officer - are directors of the Company, and
virtually all of Harcourt General's officers and corporate staff occupy
similar positions with the Company. For more information about the
relationship between the Company and Harcourt General, see Note 1 to the
Summary Compensation Table in Item 11, Item 12, and Notes 3, 7 and 8 to the
Consolidated Financial Statements in Item 14 below. Harcourt General is a
public company subject to the reporting requirements of the Securities
Exchange Act of 1934. For further information about Harcourt General,
reference may be made to the reports filed by Harcourt General from time to
time with the Securities and Exchange Commission.
Business Overview
The Company, operating through Neiman Marcus Stores, Bergdorf Goodman and NM
Direct, is a high-end specialty retailer. The 31 Neiman Marcus stores are in
premier retail locations in major markets nationwide, and the two Bergdorf
Goodman stores, the main store and the Bergdorf Goodman Men store, are located
in Manhattan at 58th Street and Fifth Avenue. Neiman Marcus Stores and
Bergdorf Goodman offer high-end fashion apparel and accessories primarily from
leading designers. NM Direct, the Company's direct marketing operation,
offers a mix of apparel and home furnishings which is complementary to the
Neiman Marcus Stores merchandise. NM Direct also publishes the Horchow
catalogues, the world famous Neiman Marcus Christmas Book, and Chef's Catalog,
a leading direct marketer of gourmet cookware and high-end kitchenware which
was acquired in January 1998.
Description of Operations
Neiman Marcus Stores
Neiman Marcus Stores offer women's and men's apparel, fashion accessories,
shoes, cosmetics, furs, precious and designer jewelry, decorative home
accessories, fine china, crystal and silver, gourmet food products, children's
apparel and gift items. A relatively small portion of Neiman Marcus Stores'
customers accounts for a significant percentage of its retail sales.
The Company currently operates 31 Neiman Marcus stores, located in Arizona
(Scottsdale); California (five stores: Beverly Hills, Newport Beach, Palo
Alto, San Diego and San Francisco);
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Colorado (Denver); the District of Columbia; Florida (two stores: Fort
Lauderdale and Bal Harbour); Georgia (Atlanta); Hawaii (Honolulu); Illinois
(three stores: Chicago, Northbrook and Oak Brook); Missouri (St. Louis);
Massachusetts (Boston); Minnesota (Minneapolis); Michigan (Troy); Nevada
(Las Vegas); New Jersey (two stores: Short Hills and Paramus); New York
(Westchester); Pennsylvania (King of Prussia); Texas (six stores: three in
Dallas, one in Fort Worth and two in Houston); and Virginia (McLean). The
average size of these 31 stores is approximately 143,000 gross square feet, and
they range in size from 90,000 gross square feet to 269,000 gross square feet.
The Company opened its Neiman Marcus store in Hawaii in September 1998. The
Company plans to open new Neiman Marcus stores in Palm Beach, Florida in 2000,
Coral Gables, Florida in 2001, Houston, Texas in 2001, Plano, Texas in 2002,
and Tampa, Florida in 2002. The Plano store will replace the existing store
located in the Prestonwood Mall in Dallas, and the Houston store will replace
the existing Houston Town & Country store.
In October 1997, the Company announced plans to test a new retailing format,
called The Galleries of Neiman Marcus, which will offer precious and designer
jewelry, gifts and home accessories. The Company plans to test this format by
opening stores of approximately 10,000 to 15,000 gross square feet each. The
first of these stores is expected to open in Beachwood, Ohio (near Cleveland)
in November 1998, with subsequent openings in Phoenix and Seattle in 1999.
Bergdorf Goodman
The Company operates two Bergdorf Goodman stores in Manhattan at 58th Street
and Fifth Avenue. The main Bergdorf Goodman store consists of 250,000 gross
square feet. The core of Bergdorf Goodman's offerings includes high-end
women's apparel and unique fashion accessories from leading designers.
Bergdorf Goodman also features traditional and contemporary decorative home
accessories, precious and fashion jewelry, gifts, and gourmet foods. Bergdorf
Goodman Men consists of 66,000 gross square feet and is dedicated to fine
men's apparel and accessories. During 1999, the Company expects to add
approximately 15,000 square feet of selling space to the main Bergdorf Goodman
store by adding selling space below the first floor on the plaza level.
NM Direct
NM Direct operates an upscale direct marketing business, which primarily
offers women's apparel under the Neiman Marcus name and, through its Horchow
catalogue, offers quality home furnishings, tabletop, linens and decorative
accessories. NM Direct also offers a broad range of more modestly priced
items through its Trifles and Grand Finale lines and annually publishes the
world famous Neiman Marcus Christmas Book. The Company acquired Chef's
Catalog, a leading direct marketer of gourmet cookware and high-end
kitchenware, in January 1998, and has consolidated those operations into NM
Direct.
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Clearance Centers
The Company operates seven clearance centers which average 25,000 gross square
feet each. These stores provide an efficient and controlled outlet for the
sale of marked down merchandise from Neiman Marcus Stores, Bergdorf Goodman
and NM Direct. The Company expects to open two additional clearance centers
during fiscal 1999.
Competition
The specialty retail industry is highly competitive and fragmented. The
Company competes with large specialty retailers, traditional and better
department stores, national apparel chains, designer boutiques, individual
specialty apparel stores and direct marketing firms.
The Company competes for customers principally on the basis of quality,
assortment and presentation of merchandise, customer service, sales and
marketing programs and value. In addition, the Company competes for quality
merchandise and assortment principally based on relationships with designer
resources and purchasing power. The Company's apparel business is especially
dependent upon its relationship with these designer resources. Neiman Marcus
Stores and Bergdorf Goodman compete for customers on the basis of store
ambience. Neiman Marcus Stores competes with other retailers for real estate
opportunities, principally on the basis of its ability to attract customers.
NM Direct competes principally on the basis of quality, assortment and
presentation of merchandise, customer service, price and speed of delivery.
Employees
At August 1, 1998, Neiman Marcus Stores had approximately 11,800 employees,
Bergdorf Goodman had approximately 1,100 employees, and NM Direct had
approximately 1,400 employees. The Company's staffing requirements fluctuate
during the year as a result of the seasonality of the retail apparel industry
and, accordingly, the Company expects to add approximately 1,700 more seasonal
employees in the second quarter of fiscal 1999. None of the employees of
Neiman Marcus Stores or NM Direct are subject to collective bargaining
agreements. Approximately 18% of the Bergdorf 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 and liquidity, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 below.
Executive Officers of the Registrant
The information set forth under the heading "Executive Officers" in Item 10
below is incorporated herein.
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Item 2. Properties
The Company's corporate headquarters are located at Harcourt General's leased
facility in Chestnut Hill, Massachusetts. The operating headquarters for
Neiman Marcus Stores, Bergdorf Goodman and NM Direct are located in Dallas,
New York City and Las Colinas, Texas, respectively. The aggregate gross
square footage used in the Company's operations is approximately as follows:
Owned
Subject to
Owned Ground Lease Leased Total
Neiman Marcus and Bergdorf
Goodman Stores......................... 348,000 2,112,000 2,297,000 4,757,000
Distribution, Support and
Office Facilities, Clearance
Centers, and Chef's Catalog Stores..... 1,169,000 0 754,000 1,923,000
Leases for the Company's stores, including renewal options, range from 30 to 99
years. The lease on the Bergdorf Goodman main store expires in 2050, and the
lease on the Bergdorf Goodman Men's store expires in 2010, with two 10-year
renewal options. Leases are generally at fixed rentals, and a majority of
leases provide for additional rentals based on sales in excess of predetermined
levels. The Company owns approximately 34 acres of land in
Longview, Texas, where its National Service Center, the principal distribution
facility for Neiman Marcus Stores, is located in a 464,000 square foot
facility, and also owns approximately 50 acres of land in Las Colinas, Texas,
where its 705,000 square foot NM Direct warehouse and distribution facility is
located. For further information on the Company's properties, see "Operating
Leases" in Note 13 of the Notes to the Consolidated Financial Statements in
Item 14 below. For more information about the Company's plans to open
additional stores, see "Description of Operations" in Item 1 above.
Item 3. Legal Proceedings
The Company presently is engaged in various legal actions which are incidental
to the ordinary conduct of its business. The Company believes that any
liability arising as a result of these actions and proceedings will not have a
material adverse effect on the Company's financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information contained under the captions "Stock Information" and "Shares
Outstanding" on page 47 of the 1998 Annual Report is incorporated herein.
Beginning with the third quarter of fiscal 1995, the Company eliminated the
quarterly cash dividend on its Common Stock. The Company currently does not
intend to resume paying cash dividends on its Common Stock.
Item 6. Selected Financial Data
The response to this Item is contained in the 1998 Annual Report under the
caption "Selected Financial Data" on page 45 and is incorporated herein.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The response to this Item is contained in the 1998 Annual Report under the
caption "Management's Discussion and Analysis" on pages 23 through 27 and is
incorporated herein.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The market risk inherent in the Company's financial instruments and position
represents the potential loss arising from adverse changes in interest rates.
The Company does not enter into financial instruments for trading purposes.
At August 1, 1998, the fair value of the Company's fixed-rate debt was
estimated at $251.6 million using quoted market prices and comparable
publicly-traded issues. The carrying value at August 1, 1998 exceeded such
fair value by approximately $1.2 million. Market risk is estimated as the
potential change in fair value resulting from a hypothetical 10% adverse
change in interest rates, and amounted to approximately $16.0 million at
August 1, 1998.
The Company had approximately $35.0 million of variable rate borrowings
outstanding under its revolving credit agreement, which approximated fair
value, at August 1, 1998. A hypothetical 10% adverse change in interest rates
for this variable rate debt would have an approximate $0.2 million negative
effect on the Company's earnings and cash flows.
For additional information about the Company's financial instruments, see
Notes 1, 6 and 14 of the Notes to Consolidated Financial Statements,
beginning, respectively, on pages 32, 35, and 42 of the 1998 Annual Report.
5
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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
Directors
Set forth below are the names, ages at October 15, 1998, and principal
occupations for the last five years of each director of the Company.
Class I Directors - Terms expire at 2001 Annual Meeting of Stockholders
Richard A. Smith - 73; Director since 1987
Chairman of the Company and of Harcourt General; Chief Executive Officer
of the Company and of Harcourt General since January 1997 and prior to
December 1991; Chairman, President (until November 1995) and Chief
Executive Officer of GC Companies, Inc. since December 1993; Director of
Harcourt General and GC Companies, Inc. Mr. Smith is the father of
Robert A. Smith, President and Chief Operating Officer and a director of
the Company, and President and Co-Chief Operating Officer and a director
of Harcourt General, and is the father-in-law of Brian J. Knez, a
director of the Company and President and Co-Chief Operating Officer and
a director of Harcourt General.
Robert A. Smith - 39; Director since 1997
President and Chief Operating Officer of the Company and President and
Co-Chief Operating Officer of Harcourt General since January 1997; Group
Vice President of the Company and of Harcourt General prior thereto;
President and Chief Operating Officer of GC Companies, Inc. since
November 1995; Director of Harcourt General. Mr. Smith is the son of
Richard A. Smith, Chairman and Chief Executive Officer of the Company
and of Harcourt General, and is the brother-in-law of Brian J. Knez, a
director of the Company and President and Co-Chief Operating Officer and
a director of Harcourt General.
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Class II Directors - Terms expire at 1999 Annual Meeting of Stockholders
Matina S. Horner, Ph.D. - 59; 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; Director of Boston Edison
Company.
Brian J. Knez - 41; Director since 1998
President and Co-Chief Operating Officer of Harcourt General since
January 1997; President and Chief Executive Officer of Harcourt Brace &
Company since May 1995; President of the Scientific, Technical, Medical
and Professional Group of Harcourt Brace prior thereto; Director of
Harcourt General and Open Market, Inc. Mr. Knez is the son-in-law of
Richard A. Smith, Chairman and Chief Executive Officer of the Company
and of Harcourt General, and the brother-in-law of Robert A. Smith,
President and Chief Operating Officer and a director of the Company and
President and Co-Chief Operating Officer and a director of Harcourt
General.
Walter J. Salmon - 67; Director since 1987
Stanley Roth Sr. Professor of Retailing (Emeritus since 1997), Graduate
School of Business Administration, Harvard University; Director of
Hannaford Bros. Co., The Quaker Oats Company, Circuit City Stores, Inc.,
Luby's Cafeterias, Inc., Harrah's Entertainment, Inc., Cole National
Corporation and PetsMart, Inc.
Class III Directors - Terms expire at 2000 Annual Meeting of Stockholders
John R. Cook - 57; Director since 1998
Senior Vice President and Chief Financial Officer of the Company and of
Harcourt General.
Jean Head Sisco - 73; Director since 1987
Partner in Sisco Associates, international management consultants;
Director of Textron, Inc., Newmont Mining Corporation and its principal
subsidiary, Newmont Gold Company, Washington Mutual Investors Fund,
Chiquita Brands International, Inc., The American Funds Tax-Exempt
Series I and K-Tron International, Inc.
Vincent M. O'Reilly - 61; Director since 1997
Distinguished Senior Lecturer, Carroll School of Management, Boston
College since October 1997; Executive Vice Chairman of Coopers & Lybrand
from October 1994 until October 1997; Chief Operating Officer or Deputy
Chairman of Coopers & Lybrand from 1988 to October 1994; Director of
Eaton Vance Corp. and Teradyne, Inc.
Executive Officers
Set forth below are the names, ages at October 15, 1998, and principal
occupations for the last five years of each executive officer of the Company
who is not also a director of the Company.
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All such persons have been elected to serve until the next annual election of
officers and their successors are elected or until their earlier resignation or
removal.
Burton M. Tanksy - 60
Executive Vice President of the Company (since February 1998) and
Chairman and Chief Executive Officer of Neiman Marcus Stores since May
1994; Chairman and Chief Executive Officer of Bergdorf Goodman prior
thereto.
Gerald A. Sampson - 57
President and Chief Operating Officer of Neiman Marcus Stores.
Stephen C. Elkin - 55
Chairman and Chief Executive Officer of Bergdorf Goodman since May 1994;
President and Chief Operating Officer of Bergdorf Goodman prior thereto.
Dawn Mello - 67
President of Bergdorf Goodman since May 1994 and from 1983 to 1989;
Executive Vice President and Creative Director Worldwide of Guccio Gucci
SpA from October 1989 to May 1994.
Bernie Feiwus - 50
President and Chief Executive Officer of NM Direct.
Eric P. Geller - 51
Senior Vice President, General Counsel and Secretary of the Company and
of Harcourt General.
Peter Farwell - 55
Vice President - Corporate Relations of the Company and of Harcourt
General.
Paul F. Gibbons - 47
Vice President and Treasurer of the Company and of Harcourt General.
Gerald T. Hughes - 41
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
prior thereto.
Catherine N. Janowski - 37
Vice President and Controller of the Company and of Harcourt General
since November 1997; Director, Corporate Accounting of the Company and
of Harcourt General prior thereto.
Michael F. Panutich - 50
Vice President - General Auditor of the Company and of Harcourt General.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers and persons who own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission and the
New York Stock Exchange. The Company believes that all filing requirements
applicable to its insiders were complied with during fiscal 1998.
[Remainder of Page Intentionally Left Blank]
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Item 11. Executive Compensation
Summary Compensation Table (1)
The following table provides information on the compensation provided by the Company during fiscal 1998,
1997 and 1996 to the Company's Chief Executive Officer and the five most highly paid executive officers of
the Company during fiscal 1998.
Long-Term Compensation
(2)
Annual Compensation Awards
Other Annual Restricted All Other
Name and Fiscal Salary Bonus Compensation Stock Awards Options Compensation
Principal Position Year ($) ($)(3) ($)(4) ($)(5) (#) ($)(6)
Richard A. Smith (1) 1998 -- -- -- -- -- --
Chairman and Chief
Executive Officer of the 1997 -- -- -- -- -- --
Company
1996 -- -- -- -- -- --
Burton M. Tansky 1998 $ 807,968 $ 470,000 -- $ 260,206 20,200 $ 20,227
Executive Vice President
of the Company and 1997 $ 750,000 $ 292,500 -- -- 10,000 $ 19,357
Chairman and Chief
Executive Officer of 1996 $ 650,000 $ 292,500 -- $ 153,750 -- $ 16,866
Neiman Marcus Stores
Gerald A. Sampson 1998 $ 520,000 $ 220,000 -- $ 125,163 9,600 $ 14,126
President and Chief
Operating Officer of 1997 $ 500,000 $ 174,000 -- -- 6,500 $ 14,070
Neiman Marcus Stores
1996 $ 475,000 $ 190,000 -- -- 12,000 $ 12,854
Stephen C. Elkin 1998 $ 495,000 $ 210,000 -- $ 125,163 9,600 $ 13,883
Chairman and Chief
Executive Officer of 1997 $ 480,000 $ 185,000 -- -- -- $ 10,771
Bergdorf Goodman
1996 $ 480,000 -- -- $ 115,313 -- $ 17,170
Dawn Mello 1998 $ 385,000 $ 140,000 -- $ 59,288 4,700 $ 10,289
President of Bergdorf
Goodman 1997 $ 365,000 $ 110,000 -- -- 4,000 $ 9,210
1996 $ 350,000 $ 67,900 -- $ 53,813 -- $ 8,496
Bernie Feiwus 1998 $ 375,000 $ 35,000 -- $ 125,163 9,600 $ 10,899
President and Chief
Executive Officer of NM 1997 $ 345,000 $ 115,000 -- -- 6,000 $ 10,697
Direct
1996 $ 325,000 $ 135,000 -- $ 76,875 10,000 $ 10,026
10
(1) Under the terms of an Intercompany Services Agreement, Harcourt General
provides certain management, accounting, financial, legal, tax, human
resources and other corporate services to the Company, including the
services of certain senior officers of Harcourt General who are also
senior officers of the Company, in consideration of a fee based on
Harcourt General's direct and indirect costs of providing the corporate
services. The level of Harcourt General services and fees are subject
to the approval of the Special Review Committee of the Board of
Directors of the Company, which consists entirely of directors who are
independent of Harcourt General. During fiscal 1998, 1997 and 1996, the
Company paid or accrued approximately $5.4 million, $5.7 million and
$6.9 million, respectively, to Harcourt General for all of its services
under the Intercompany Services Agreement. With the exception of Mr.
Smith, Chief Executive Officer of both the Company and of Harcourt
General, the senior officers of Harcourt General (all of whom, including
Mr. Smith, derive all of their compensation directly from Harcourt
General) are not included in this table. Of the amounts payable under
the Intercompany Services Agreement for fiscal 1998 and 1997,
approximately $448,000 and $365,000, respectively, were attributable to
Mr. Smith's services. These amounts include costs related to base
compensation, bonuses, benefits and amounts necessary to fund retirement
benefits, all of which are direct obligations of Harcourt General.
(2) Other than restricted stock, stock options and stock appreciation rights
which may be granted under the Company's 1997 Incentive Plan, the
Company does not have a long-term compensation program for its executive
officers that includes long-term incentive payouts.
(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
since no amounts in any of the fiscal years reported for any of the
named executive officers exceed the lesser of $50,000, or 10% of the
annual salary and bonus for the named executive officer.
(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. For restricted Common Stock granted in fiscal 1998,
the restrictions lapse upon the achievement of specified performance
targets or, if the specified targets are not reached within five years
of the date of grant, then on the eighth anniversary of the date of
grant. The specified performance targets have not yet been attained.
For restricted Common Stock granted in all prior fiscal years, 20%
of an award of restricted Common Stock are freed from the
restrictions 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 1998, the named executive officers'
restricted stock holdings and market values (based on the New York Stock
Exchange closing price of $33.00 for the Company's Common Stock at
fiscal year end) were as follows: Mr. Tansky - 13,900 shares ($458,700);
Mr. Sampson - 5,800 shares ($191,400); Mr. Elkin - 8,300 shares
($273,900); Ms. Mello - 3,900 shares ($128,700) and Mr. Feiwus - 6,800
shares ($224,400). The closing price of the Company's Common Stock on
the New York Stock Exchange on October 15, 1998 was $18.25.
(6) The items accounted for in this column include the cost to the Company
of matching contributions under (a) the Company's Key Employee Deferred
Compensation Plan and (b) group life insurance premiums. For fiscal
1998, such amounts for each of the named executive officers were,
respectively, as follows: Mr. Tansky - $16,507 and $3,720; Mr. Sampson
- $10,406 and $3,720; Mr. Elkin - $10,200 and $3,683; Ms. Mello - $7,425
and $2,864; and Mr. Feiwus - $7,350 and $3,549.
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Option Grants in Last Fiscal Year (1)
The following table provides information regarding options granted under the
Company's 1997 Incentive Plan during the fiscal year ended August 1, 1998 to
the executive officers named in the Summary Compensation Table.
Individual Grants
--------------------------------------------
Potential
% of Realizable Value
Number of Total at Assumed
Securities Options Annual Rates of
Underlying Granted to Exercise Stock Price
Options Employees or Base Appreciation
Granted in Fiscal Price Expiration for Option Term (2)
Name (#) Year ($/Sh) Date 5% ($) 10%($)
- -------- ---------- --------- -------- ---------- -------- ----------
R. Smith (3) -- -- -- -- -- --
B. Tansky 20,200 6.20% $32.9375 9/10/07 $418,427 $1,060,377
G. Sampson 9,600 2.95% $32.9375 9/10/07 $198,856 $503,941
S. Elkin 9,600 2.95% $32.9375 9/10/07 $198,856 $503,941
D. Mello 4,700 1.44% $32.9375 9/10/07 $ 97,357 $246,721
B. Feiwus 9,600 2.95% $32.9375 9/10/07 $198,856 $503,941
(1) No stock appreciation rights were granted to any named executive officer
during fiscal 1998. 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.
All options were granted at fair market value measured by the closing
price of the Common Stock on the New York Stock Exchange on the date of
grant.
(2) These potential realizable values are based on assumed rates of
appreciation required by applicable regulations of the Securities and
Exchange Commission. The closing price of the Company's Common Stock on
the New York Stock Exchange on October 15, 1998 was $18.25.
(3) None of the executive officers of Harcourt General who are also officers
of the Company, including Mr. Smith, participate in the Company's 1997
Incentive Plan.
[Remainder of Page Intentionally Left Blank]
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Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table provides information regarding the number and value of
stock options held at August 1, 1998 by the executive officers named in the
Summary Compensation Table.
Number of
Securities Underlying Value of
Unexercised Unexercised
Options/SARs at In-the-Money
August 1, 1998(#) Options/SARs at
Exercisable/ August 1, 1998($)
Name Shares Acquired Value Unexercisable Exercisable/
- ---- on Exercise (#) Realized ($) -------------------- Unexercisable (1)
--------------- ------------ ---------------------
R. Smith (2) -- -- -- --
B. Tansky -- -- 74,200/42,500 $1,381,325 / $267,063
G. Sampson -- -- 14,100/24,000 $ 232,600 / $164,500
S. Elkin (3) 11,850 $230,412 50,500/19,600 $ 952,000 / $186,600
D. Mello -- -- 8,300/13,900 $ 139,688 / $112,044
B. Feiwus -- -- 14,200/25,900 $ 242,500 / $208,600
(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 ($33.00) 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
15, 1998 was $18.25.
(2) None of the executive officers of Harcourt General who are also officers
of the Company, including Mr. Smith, participate in the Company's 1997
Incentive Plan.
(3) The Company paid Mr. Elkin $230,412 with respect to the surrender of
vested options to purchase 11,850 shares of Common Stock at a weighted
average exercise price of $17.25. That amount was calculated based on
the difference between the closing price of the Common Stock on the New
York Stock Exchange on the respective dates Mr. Elkin surrendered the
options, and the various option exercise prices.
[Remainder of Page Intentionally Left Blank]
13
[PAGE]
Directors Compensation
Directors who are not employees of the Company or Harcourt General ("Non-
Employee Directors") each receive (i) an annual cash retainer, subject to
deferral as described below, of $20,000, (ii) a fee of $2,000 per Board of
Directors meeting attended, (iii) a fee of $750 (the Chairperson receives
$1,500) for each committee meeting attended, and (iv) reimbursement for travel
and incidental expenses (an aggregate of $4,440 in fiscal 1998) incurred in
attending meetings and carrying out their duties as directors. If a Non-
Employee 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.
In June 1998, the Board of Directors increased the annual retainer payable to
its Non-Employee Directors by authorizing grants of stock-based units in an
aggregate amount equal to the value of the annual cash retainer. Grants are
made quarterly, with the number of stock-based units in each grant calculated
on the basis of the trailing five day average of the closing price of the
Company's Common Stock at the end of each fiscal quarter. The value of each
Non-Employee Director's stock-based units will be payable only in cash when
the Non-Employee Director ceases to serve as a member of the Board of
Directors of the Company. These stock-based units are accounting entries only,
and do not carry voting or dispositive rights.
The Company offers Non-Employee Directors the right to elect to receive the
cash portion of their fees on a deferred basis (i) in the form of cash with
interest at a rate equal to the average of the top rates paid by major New
York banks on primary new issues of three-month negotiable certificates of
deposit as quoted on the last business day of the fiscal quarter, or (ii) in
the form of stock-based units, calculated on the basis of the trailing five
day average of the closing price of the Company's Common Stock at the end of
each fiscal quarter. For fiscal 1998, Dr. Horner elected to receive all of
her fees on a deferred basis using the stock based method and Mrs. Sisco
elected to receive 50% of her fees on a deferred basis using the
stock based method.
Pension Plans
The Company maintains a funded, qualified pension plan known as The Neiman
Marcus Group, Inc. Retirement Plan (the "Retirement Plan"). Most non-union
employees over age 21 who have completed one year of service with 1,000 or
more hours participate in the Retirement Plan, which pays benefits upon
retirement or termination of employment. The Retirement Plan is a "career-
average" plan, under which a participant earns each year a retirement annuity
equal to 1% of his or her compensation for the year up to the Social Security
wage base and 1.5% of his or her compensation for the year in excess of such
wage base. Benefits under the Retirement Plan become fully vested after five
years of service with the Company.
The Company also maintains a Supplemental Executive Retirement Plan (the
"SERP"). The SERP is an unfunded, nonqualified plan under which benefits are
paid from the Company's general assets to supplement Retirement Plan benefits
and Social Security. Executive, administrative and professional employees
(other than those employed as salespersons) with an annual base salary at
least equal to a minimum established by the Company ($160,000 as of
14
[PAGE]
August 1, 1998) are eligible to participate. At normal retirement age (age 65),
a participant with 25 or more years of service is entitled to payments under the
SERP sufficient to bring his or her combined annual benefit from the
Retirement Plan and SERP, computed as a straight life annuity, up to 50% of
the participant's highest consecutive 60 month average of annual pensionable
earnings, less 60% of his or her estimated annual primary Social Security
benefit. If the participant has fewer than 25 years of service, the combined
benefit is proportionately reduced. Benefits under the SERP become fully
vested after five years of service with the Company.
The following table, which includes benefits under the Retirement Plan and the
SERP, shows the estimated annual pension benefits payable to employees in
various compensation and years of service categories. The estimated benefits
apply to an employee retiring at age 65 in 1998 who elects to receive his or
her benefit in the form of a straight life annuity. The amounts actually
payable will be lower than the amounts shown below, since such amounts will be
reduced by 60% of the participant's estimated primary Social Security benefit.
Estimated Annual Retirement Benefits
Under Retirement Plan and SERP
Average Total Years of Service
Pensionable
Earnings 5 10 15 20 25
-------- ------- ------- ------- --------- --------
$300,000 $30,000 $60,000 $90,000 $ 120,000 $150,000
400,000 40,000 80,000 120,000 160,000 200,000
500,000 50,000 100,000 150,000 200,000 250,000
600,000 60,000 120,000 180,000 240,000 300,000
700,000 70,000 140,000 210,000 280,000 350,000
800,000 80,000 160,000 240,000 320,000 400,000
900,000 90,000 180,000 270,000 360,000 450,000
The following table shows the pensionable earnings and credited years of
service for the executive officers named in the Summary Compensation Table as
of August 1, 1998 and years of service creditable at age 65.
Pensionable Earnings
for Year Ended Years of Service(2)
Name August 1, 1998(1) at August 1,1998 at Age 65
- ---- ----------------- ---------------- ---------
R. Smith (3) -- -- --
B. Tansky $808,000 --(4) 20 (4)
G. Sampson 520,000 --(5) 20 (5)
S. Elkin 495,000 20 29
D. Mello 385,000 17 15
B. Feiwus 375,000 18 33
__________
15
[PAGE]
(1) In computing the combined benefit under the Retirement Plan and SERP,
"pensionable earnings" means, with respect to the Retirement Plan, base
salary and any bonus and, with respect to the SERP, base salary only.
The amounts shown above include base salary only. For the amount of
bonus included in pensionable earnings under the Retirement Plan see the
Summary Compensation Table in Item 11 above. With respect to both the
Retirement Plan and the SERP, deferred base salary and/or deferred bonus
amounts are included in benefit calculations.
(2) The years of credited service set forth in the table reflect years of
credited service under the Retirement Plan, which is a "career average
plan" with no limitation on years of credited service. However,
credited service under the SERP may not exceed 25 years.
(3) Mr. Smith does not participate in the Company's Retirement Plan or SERP.
(4) Under Mr. Tansky's employment agreement with the Company, for purposes
of determining his retirement benefits under the SERP, Mr. Tansky will
be credited with 5/3 times his years of service with the Company
provided (i) he remains continuously employed by the Company until his
65th birthday or (ii) the Company fails to extend his employment beyond
January 31, 2000; otherwise, Mr. Tansky's accrued service under the SERP
will be calculated in the normal manner. Mr. Tansky is 60 years old.
(5) For purposes of determining Mr. Sampson's retirement benefits under the
SERP, Mr. Sampson will be credited with 20/13 times his years of service
with the Company provided he remains continuously employed by the
Company until his 65th birthday; otherwise, Mr. Sampson's accrued
service under the SERP will be calculated in the normal manner. Mr.
Sampson is 57 years old.
Employment and Severance Agreements
Burton Tansky
Pursuant to an agreement between Mr. Tansky and the Company, effective
February 1997, Mr. Tansky was employed as Chairman and Chief Executive Officer
of Neiman Marcus Stores through January 31, 2000. Mr. Tansky also was named
Executive Vice President of the Company in February 1998. In the event Mr.
Tansky is terminated without cause within 24 months of a change of control of
the Company, or if within 24 months of such a change of control Mr. Tansky
resigns because he is not permitted to continue in a position comparable in
duties and responsibilities to that which he held prior to the change of
control, Mr. Tansky will be entitled to receive his then-current base
compensation for 18 months. If the Company terminates Mr. Tansky's employment
during the term of the Employment Agreement for any reason other than for
cause or other than because of his total disability or death, Mr. Tansky will
continue to receive his base compensation and benefits until January 31, 2001
or for 18 months following termination, whichever is greater. If the Company
determines not to extend Mr. Tansky's employment beyond January 31, 2000, the
Company will pay to Mr. Tansky his then-current base compensation through
January 31, 2001, which amount will be reduced by any amounts earned by him
from other employment between August 1, 2000 and January 31, 2001, and the
Company will credit Mr. Tansky with service pursuant to the SERP as if he had
remained employed by the Company until age 65.
16
[PAGE]
Gerald A. Sampson
Pursuant to an agreement between Mr. Sampson and the Company effective
September 1998, which replaced a similar agreement dated September 1996, Mr.
Sampson is entitled to receive severance payments in the event his employment
with the Company is terminated in certain situations. If the Company
terminates Mr. Sampson's employment other than for cause or other than due to
his total disability or death, Mr. Sampson shall have the right to receive an
amount equivalent to one and one-half times his then-current base
compensation, payable in 18 monthly installments. Mr. Sampson will also be
entitled to receive such payments if his employment is terminated by a
successor to the Company within 24 months of a change of control of the
Company without cause or other than due to his total disability or death, or
if within 24 months of such a change of control Mr. Sampson resigns because he
is not permitted to continue in a position comparable in duties and
responsibilities to that which he held prior to the change of control.
Beginning six months following the date of a covered termination or
resignation, all amounts to be paid under such agreement shall be reduced by
the amount Mr. Sampson receives as compensation or severance related to other
employment. Mr. Sampson has agreed to provide the Company with three months
advance notice of his intent to resign from the Company provided that such
resignation does not follow a change of control of the Company.
Stephen C. Elkin
Pursuant to an agreement between Mr. Elkin and Bergdorf Goodman, effective
September 1993, Mr. Elkin is entitled to receive severance payments in the
event his employment with Bergdorf Goodman is terminated in certain
situations. If the Company terminates Mr. Elkin's employment other than for
cause or other than due to his total disability or death, he will receive an
amount equal to one and one half times his then-current base salary, which
amount will be paid to him in 18 monthly installments following such
termination but will be reduced by any amounts received by him from other
employment during the period beginning six months following his termination
and ending at the end of the 18 month period. Mr. Elkin will also be entitled
to receive such payments in the event his employment is terminated without
cause within 24 months of a change of control of either Bergdorf Goodman or
the Company, or in the event he resigns within 24 months of a change of
control because he is not permitted to continue in a position comparable in
duties and responsibilities to that which he held before the change of
control.
Dawn Mello
Pursuant to an agreement between Ms. Mello and Bergdorf Goodman, effective May
1994, Ms. Mello is entitled to receive severance payments in the event her
employment with Bergdorf Goodman is terminated in certain situations. If the
Company terminates Ms. Mello's employment other than for cause or other than
due to her total disability or death, Ms. Mello will receive an amount equal
to her then-current annual salary, which amount will be paid in 12 monthly
installments following such termination but will be reduced by any amounts
received by her from other employment during the period beginning six months
and ending 12 months following such termination.
17
[PAGE]
Bernie Feiwus
Pursuant to an agreement between Mr. Feiwus and NM Direct, effective October
1995, Mr. Feiwus is entitled to receive severance payments in the event his
employment with NM Direct is terminated in certain situations. If the Company
terminates Mr. Feiwus' employment without cause within 24 months of a change
of control of the Company or of NM Direct, or if within 24 months after such a
change of control Mr. Feiwus resigns his employment because he is not
permitted to continue in a position comparable in duties and responsibilities
to that which he held before the change of control, he will receive an amount
equal to one and one half times his then-current annual base salary, which
amount will be paid in 18 monthly installments following such termination but
will be reduced by any amounts received by him from other employment during
the period beginning six months and ending 18 months following such
termination.
--------------------
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934, each as amended, that might incorporate future filings, including
this Form 10-K, in whole or in part, the following Compensation Committee
Report on Executive Compensation and Stock Performance Graph shall not be
deemed to be incorporated by reference into any such filings, nor shall such
sections of this Report be deemed to be incorporated into any future filings
made by the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
Compensation Committee Report on Executive Compensation
Introduction
The Compensation Committee is composed of Walter J. Salmon (Chairman), Matina
S. Horner, Vincent M. O'Reilly and Jean Head Sisco. The members of the
Compensation Committee are all independent directors.
The principal responsibility of the Committee is to review the performance of,
and determine the compensation for, the executive officers of the Company who
are not also executive officers of Harcourt General. The individuals in this
group include Messrs. Tansky, Sampson, Elkin, Feiwus and Ms. Mello, all of
whom are named executive officers in the Summary Compensation Table. The
compensation of Harcourt General's executive officers, most of whom are also
executive officers of the Company, is determined by Harcourt General's
Compensation Committee.
Compensation Policies
The principal objectives of the Company's executive compensation program are
to (i) reward competitively its executive officers, (ii) attract and retain
individuals important to the success of the Company, (iii) provide incentives
that will motivate those executives, and (iv) reward the Company's executives
for achieving the business objectives of the Company and its operating
divisions over both the short and long terms.
18
[PAGE]
The Committee makes annual and long term incentives a significant component of
the Company's executive officers' total compensation. The Committee also
increases the variable risk and reward of such incentive compensation in
proportion to an executive's level of responsibility in the Company.
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 and/or outside compensation consultants,
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 (i) base
salary, (ii) annual incentive bonus, and (iii) stock incentives.
Base Salary.
For fiscal 1998, base salary was determined with reference both to
salary survey information from recognized compensation consulting firms
and to each executive officer's level of responsibility, experience and
performance. The salary survey data was used to establish benchmark
amounts for both base salary and total cash compensation for each
executive position. Comparisons were made to a broad range of domestic
publicly held "upscale" specialty retailing companies. Because the
Company competes for executive talent with a broad range of companies,
the Committee did not limit its comparison information for compensation
purposes to the companies included in the peer group in the Stock
Performance Graph. For fiscal 1998, the Committee generally set its
salary and total cash compensation benchmarks (assuming that maximum
bonuses would be achieved) for executive officers at the middle range of
the comparison group of companies.
The Committee reviewed in detail the base salary levels for each of the
named executive officers of the Company. While the Committee used the
benchmarks described above as a reference point, a particular
individual's base salary may vary from the benchmark depending upon his
or her salary history, experience, individual performance, guidelines
established by the Chief Executive Officer with respect to salary
increases for the entire Company, and the subjective judgment of the
Committee.
Annual Incentive Bonus.
The annual incentive bonus program is intended to put substantial
amounts of total cash compensation at risk with the intent of focusing
the attention of the executives on achieving both the Company's and
their division's performance goals and their individual goals, thereby
contributing to profitability and building shareholder value. For
fiscal 1998 the named executive officers' cash bonus opportunity for
performance at the level of meeting the fiscal 1998 budget ranged from 7
1/2% to 11 3/4% of base salary, and increased to a range of 30% to 47%
of base salary for performance above the fiscal 1998 budget. For
superior performance in excess of the fiscal 1998 budget, cash bonus
19
[PAGE]
opportunities ranged from 60% to 94% of base salary. The determination
of annual bonuses for the named executive officers for fiscal 1998 was
based principally on (i) the achievement of performance objectives by
the operating division for which the executive was responsible, (ii) the
individual executive's own performance, and (iii) the Company's overall
performance. 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 for Neiman Marcus Stores and
Bergdorf Goodman, and growth in the number of customer accounts for NM
Direct. The individual performance goals for each of the Company's
named executive officers included the achievement of certain specified
tasks.
Although the bonuses actually awarded to the named executive officers
for fiscal 1998 were determined by an assessment of all of these
factors, as well as certain subjective factors, had the Company and/or
the relevant division fallen sufficiently short of its performance
target, there was a presumption that bonuses would not be paid absent
special circumstances. Moreover, even if the Company and/or the
relevant divisions achieved their respective performance targets, the
Committee had the discretion to reduce or eliminate an individual's
bonus had an individual fallen short of his or her performance goals.
In September 1998 the Compensation Committee established the Company's
and each division's performance goals for fiscal 1999 and determined the
executive officers who should participate in the annual incentive plan
for that year and their respective bonus award opportunities. For
fiscal 1999 the named executive officers' cash bonus opportunity for
performance at the level of meeting the fiscal 1999 budget will range
from 7 1/2% to 12 1/2% of base salary, and will increase to a range of 30%
to 50% of base salary for performance above the fiscal 1999 budget which
would represent a significant improvement over the Company's fiscal 1998
results. For superior performance in excess of the fiscal 1999 budget,
cash bonus opportunities will range from 60% to 100% of base salary. If
performance is below the fiscal 1999 budget, the Committee may reduce
cash bonus awards or not grant them at all.
Stock Incentives.
In 1997 the Committee restructured the Company's long term stock
incentive program to provide for increased capital accumulation
opportunities for executive officers. The Committee's purpose in
awarding equity based incentives is to achieve as much as possible an
identity of interest between the Company's executives and the long term
interest of the stockholders. For fiscal 1998, the principal factors
considered in determining which executives (including the named
executive officers) were awarded equity based compensation, and in
determining the types and amounts of such awards, included salary
levels, equity awards granted to executives at competing retail
companies, and the performance, experience, and level of responsibility
of each executive.
The Company granted two kinds of equity based incentives in fiscal 1998
(i) non-qualified stock options, and (ii) performance accelerated
20
[PAGE]
restricted stock. Non-qualified stock options vest over a five year
period and terminate 10 years from the date of grant. The restrictions
on performance accelerated restricted stock lapse upon the earlier of
(i) the achievement of specified business objectives (including without
limitation improvements in operating earnings and return on net assets)
within five years of the date of grant, or (ii) the eighth anniversary
of the date of grant.
Compensation of the Chief Executive Officer
During fiscal 1998, Mr. Smith also served as the Chief Executive Officer of
Harcourt General, which owns a majority of the outstanding Common Stock of the
Company. Mr. Smith received all of his cash and non-cash compensation from
Harcourt General and not from the Company. However, pursuant to the
Intercompany Services Agreement between the Company and Harcourt General,
Harcourt General provides certain management and other corporate services to
the Company, including the services of Mr. Smith as Chief Executive Officer.
During fiscal 1998, the Company paid or accrued approximately $5.4 million to
Harcourt General for all of its services under the Intercompany Services
Agreement, of which approximately $448,000 was attributable to Mr. Smith's
services. While the Special Review Committee of the Company reviews each year
the appropriateness of the charges by Harcourt General to the Company under
the Intercompany Services Agreement, neither this Committee nor the Special
Review Committee plays any role in determining the compensation that Mr. Smith
or any other executive officer of Harcourt General receives from Harcourt
General.
Compliance with the Internal Revenue Code
The Internal Revenue Code (the "Code") generally disallows a tax deduction to
public companies for compensation in excess of $1 million per year which is
not "performance based" paid to each of the executive officers named in the
Summary Compensation Table. During fiscal 1997, the Committee, the Board of
Directors and the stockholders of the Company approved The Neiman Marcus Group
1997 Incentive Plan. This Plan allows the Committee to continue to award stock
incentives and cash bonuses based on objective criteria. It is expected that
the stock incentives and cash bonuses awarded under the Plan will be
characterized as "performance based" compensation and therefore will be fully
deductible by the Company. The Company expects that the executive officers of
the Company will agree to defer income in fiscal 1998 and future years if and
to the extent that their compensation is not deductible by the Company under
the Code. The Committee will continue to monitor the requirements of the Code
to determine what actions should be taken by the Company in order to preserve
the tax deduction for executive compensation to the maximum extent, consistent
with the Company's continuing goals of providing the executives of the Company
with appropriate incentives and rewards for their performance.
COMPENSATION COMMITTEE
Walter J. Salmon, Chairman
Matina S. Horner
Vincent M. O'Reilly
Jean Head Sisco
21
[PAGE]
Stock Performance Graph
The following graph compares the total cumulative return over five years on
the Company's Common Stock to the total cumulative return over the same period
of the common stocks of companies in (i) the Standard & Poor's 500 Index, and
(ii) a peer group index consisting of Tiffany & Co., Nordstrom, Inc., and Saks
Holdings, Inc. ("SHI"). The graph assumes that the value of the investment in
the Company's Common Stock and each index was $100 at July 31, 1993, and that
all dividends were reinvested. SHI, which began trading on the NYSE on May
22, 1996 and accordingly is included in the peer group index commencing as of
the end of the Company's 1996 fiscal year, ceased trading on September 17,
1998 upon the completion of the merger of SHI and Proffitt's, Inc. (now known
as Saks Incorporated). For comparative purposes, the value of an investment
in SHI as of May 22, 1996 is set at an amount equal to the average of the
cumulative total returns of the other members of the peer group index as of
that same date ($165.46). The common stocks of the companies in the peer
group index have been weighted annually at the beginning of each fiscal year
to reflect relative stock market capitalization. The comparisons provided in
this graph are not intended to be indicative of possible future performance of
the Company's stock.
July 31, 1993 July 30, 1994 July 29, 1995 August 3, 1996 August 2, 1997 August 1, 1998
------------- ------------- ------------- -------------- -------------- --------------
The Neiman Marcus Group, Inc. $100.00 $106.51 $108.16 $189.06 $196.54 $232.15
S&P 500 Index $100.00 $104.73 $107.39 $129.28 $194.31 $233.36
Peer Index $100.00 $154.07 $146.83 $165.46 $199.35 $226.81
--------------------
22
[PAGE]
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of October 15, 1998, with
respect to the beneficial ownership of the Common Stock by (i) each person
known to the Company to own beneficially more than 5% of the outstanding
shares of Common Stock; (ii) each executive officer named in the Summary
Compensation Table; (iii) each director of the Company; and (iv) all directors
and current executive officers of the Company as a group.
Number Percent
of Shares of Common
Name of Beneficial Owner Owned (1) Stock
------------------------ --------- ---------
Harcourt General, Inc. (2) 26,429,502 54.0%
27 Boylston Street
Chestnut Hill, MA 02467
Gabelli Funds, Inc. (3) 4,475,500 9.1%
One Corporate Center
Rye, NY 10580
PRIMECAP Management Company (4) 4,069,100 8.3%
225 South Lake Avenue
Pasadena, CA 91101
Neuberger & Berman, LLC (5) 3,050,850 6.2%
605 Third Avenue
New York, NY 10158
Burton M. Tansky (6) 134,940 *
Gerald A. Sampson (7) 65,038 *
Stephen Elkin (8) 82,697 *
Dawn Mello (9) 19,963 *
Bernie Feiwus (10) 32,155 *
Matina S. Horner (11) 1,591 *
Vincent M. O'Reilly (11) 946 *
Walter J. Salmon (11) 10,088 *
Jean Head Sisco (11) 2,095 *
Richard A. Smith (2) (12) -- *
Robert A. Smith (2) (12) -- *
Brian J. Knez (2) (12) -- *
John R. Cook -- *
All current executive officers and directors as a
group (19 persons)(13) 357,046 *
__________
* Less than 1%.
(1) Unless otherwise indicated in the following footnotes, each stockholder
referred to above has sole voting and dispositive power with respect to
the shares listed.
(2) Richard A. Smith, Chairman and Chief Executive Officer of the Company
and of Harcourt General, his sister, Nancy L. Marks, and certain members
of their families (including Robert A. Smith, President and Chief
Operating Officer and a director of the Company and President and Co-
Chief Operating Officer of Harcourt General, and Brian J. Knez, a
director of the Company and President and Co-Chief Operating Officer of
Harcourt General) may be regarded as controlling persons of Harcourt
General, and therefore of the Company. The shares of Harcourt General
Class B Stock and Harcourt General Common Stock
23
[PAGE]
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 13D dated August 18,
1997 filed with the Securities and Exchange Commission (the
"Commission") by the Gabelli Funds, Inc. and its affiliates
(collectively, the "Gabelli Affiliates"). The Gabelli Affiliates have
sole voting power with respect to 4,372,500 shares and sole dispositive
power with respect to all of the shares reported in the table.
(4) The information reported is as of August 31, 1998 and was provided to the
Company by PRIMECAP Management Company ("PMC"). Of the shares attributed
to PMC, PMC has sole voting and sole dispositive power over 939,100
shares. PMC has shared dispositive power over 3,130,000 shares attributed
to Vanguard/PRIMECAP Fund, Inc.
(5) The information reported is based on a Schedule 13G dated February 10,
1998 filed with the Commission by Neuberger & Berman, LLC. Neuberger &
Berman, LLC has sole voting power with respect to 880,450 shares
reported in the table, and does not have sole dispositive power over any
of the shares reported in the table.
(6) Includes 89,540 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
21,900 shares of restricted stock over which Mr. Tansky has voting but
not dispositive power.
(7) Includes 21,720 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
9,600 shares of restricted stock over which Mr. Sampson has voting but
not dispositive power.
(8) Includes 56,420 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
11,600 shares of restricted stock over which Mr. Elkin has voting but
not dispositive power. Also includes 7,533 shares of Common Stock
allocated to Mr. Elkin under the Company's Employee Savings Plan ("ESP")
as to which Mr. Elkin shares voting power with the trustee of the ESP.
(9) Includes 5,540 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
5,200 shares of restricted stock over which Ms. Mello has voting but not
dispositive power.
(10) Includes 22,820 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
7,800 shares of restricted stock over which Mr. Feiwus has voting but
not dispositive power. Also includes 535 shares of Common Stock
allocated to Mr. Feiwus under the ESP as to which Mr. Feiwus shares
voting power with the trustee of the ESP.
24
[PAGE]
(11) Dr. Horner, Mr. O'Reilly, Professor Salmon and Mrs. Sisco hold,
respectively, 1,591, 146, 146, and 961 Common Stock based units which
are included in the table. These directors do not have voting or
dispositive power with respect to these Common Stock based units. For
additional information concerning these Common Stock based units, see
"Directors' Compensation."
(12) The members of the Board of Directors of Harcourt General, including
Richard A. Smith, Robert A. Smith, and Brian J. Knez, 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.
(13) Excludes the beneficial ownership of securities of the Company which may
be deemed to be attributed to Richard A. Smith, Robert A. Smith, and
Brian J. Knez (see Notes 2 and 12 above). Includes (i) 196,040 shares
of Common Stock which are subject to outstanding options exercisable
within 60 days of October 15, 1998, (ii) 56,100 shares of restricted
stock over which individuals in the group have voting but not
dispositive power, (iii) 8,068 shares of Common Stock allocated to
individuals in the group under the ESP as to which such individuals
share voting power with the trustee of the ESP, and (iv) the 2,844
Common Stock based units referred to in Note 11 above.
[Remainder of Page Intentionally Left Blank]
25
[PAGE]
Item 13. Certain Relationships and Related Transactions
Transactions with Principal Stockholder - Intercompany Services Agreement
See Note 1 to the Summary Compensation Table in Item 11 above.
Transactions with Officers
During fiscal 1998 and through October 15, 1998, Messrs. Tansky, Sampson,
Elkin and Feiwus had outstanding loans under the Company's Key Executive Stock
Purchase Loan Plan (the "Loan Plan") in the respective maximum aggregate
principal amounts of $367,595, $536,589, $160,306, and $193,315. At August 1,
1998, the outstanding amounts of such loans were as follows: Mr. Tansky - $0;
Mr. Sampson - $457,894; Mr. Elkin - $116,487; and Mr. Feiwus - $0. In
accordance with the provisions of the Loan Plan, these loans were used to
acquire shares of Common Stock either in the open market or pursuant to stock
option exercises and to discharge certain tax liabilities incurred in
connection with the release of restrictions on previous grants of restricted
Common Stock. The loans are secured by a pledge of the purchased shares and
bear interest at an annual rate of five percent, payable quarterly. Pursuant to
the terms of the Loan Plan, each executive officer's loan will become due and
payable seven months after his employment with the Company terminates. No
other officer of the Company had outstanding loans under the Loan Plan in
excess of $60,000 during fiscal 1998 or subsequent thereto.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
14(a)(1) Consolidated Financial Statements
The documents listed below are incorporated herein by reference to the 1998
Annual Report, and are incorporated herein by reference into Item 8 hereof:
Consolidated Balance Sheets -August 1, 1998 and August 2, 1997.
Consolidated Statements of Earnings for the fiscal years ended August 1,
1998, August 2, 1997, and August 3, 1996.
Consolidated Statements of Cash Flows for the fiscal years ended August
1, 1998, August 2, 1997, and August 3, 1996.
Consolidated Statements of Common Shareholders' Equity for the fiscal
years ended August 1, 1998, August 2, 1997, and August 3, 1996.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
26
[PAGE]
14(a)(2) Consolidated Financial Statement Schedules
The document and schedule listed below are filed as part of this Form 10-K:
Document/Schedule Page in
----------------- Form 10-K
---------
Independent Auditors' Report F-1
on Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying F-2
Accounts and Reserves
All other schedules for which provision is made in the applicable regulations
of the Securities and Exchange Commission have been omitted because the
information is disclosed in the Consolidated Financial Statements or because
such schedules are not required or are not applicable.
14(a)(3) Exhibits
The exhibits filed as part of this Annual Report are listed in the Exhibit
Index immediately preceding the exhibits. The Company has identified with an
asterisk in the Exhibit Index each management contract and compensation plan
filed as an exhibit to this Form 10-K in response to Item 14(c) of Form 10-K.
14(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
August 1, 1998.
27
[PAGE]
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders of
The Neiman Marcus Group, Inc.
Chestnut Hill, MA
We have audited the consolidated financial statements of The Neiman Marcus
Group, Inc. and subsidiaries as of August 1, 1998 and August 2, 1997, and for
each of the three fiscal years in the period ended August 1, 1998, and have
issued our report thereon dated August 27, 1998; such financial statements and
report are included in your 1998 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of The Neiman Marcus Group, Inc. and subsidiaries, listed
in Item 14. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 27, 1998
F-1
[PAGE]
THE NEIMAN MARCUS GROUP, INC. SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED AUGUST 1, 1998
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
___________________
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts - Deductions - End
Description of Period Expenses (A) of Period
________________________________________________________________________________________________
YEAR ENDED AUGUST 1, 1998
Allowance for doubtful accounts $1,700 2,771 - 2,671 $1,800
(deducted from accounts receivable)
YEAR ENDED AUGUST 2, 1997
Allowance for doubtful accounts $1,300 2,815 - 2,415 $1,700
(deducted from accounts receivable)
YEAR ENDED AUGUST 3, 1996
Allowance for doubtful accounts
(deducted from accounts receivable) $1,512 2,385 - 2,597 $1,300
(A) Write-off of uncollectible accounts net of recoveries.
F-2
[PAGE]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE NEIMAN MARCUS GROUP, INC.
By: /s/ Richard A. Smith
Richard A. Smith
Chairman and Chief Executive Officer
Dated: October 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the following capacities and on the dates indicated.
Signature Title Date
Principal Executive Officer:
/s/ Richard A. Smith Chairman and Chief October 28, 1998
Richard A. Smith Executive Officer
Principal Financial Officer:
/s/ John R. Cook Senior Vice President and October 28, 1998
John R. Cook Chief Financial Officer
Principal Accounting Officer:
/s/ Catherine N. Janowski Vice President and October 28, 1998
Catherine N. Janowski Controller
S-1
[PAGE]
Directors:
/s/ Richard A. Smith October 28, 1998
Richard A. Smith
/s/ Matina S. Horner October 28, 1998
Matina S. Horner
/s/ Vincent M. O'Reilly October 23, 1998
Vincent M. O'Reilly
/s/ Walter J. Salmon October 28, 1998
Walter J. Salmon
/s/ Jean Head Sisco October 28, 1998
Jean Head Sisco
/s/ Robert A. Smith October 28, 1998
Robert A. Smith
/s/ Brian J. Knez October 28, 1998
Brian J. Knez
/s/ John R. Cook October 28, 1998
John R. Cook
S-2
[PAGE]
EXHIBIT INDEX
3.1 (a) Restated Certificate of Incorporation of the Company, incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended January 31, 1998.
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.
4.1 Indenture, dated as of May 27, 1988, between the Company and The
Bank of New York, as trustee (the "Indenture").
4.2 Form of 6.65% Senior Note Due 2008, dated May 27, 1998, issued by
the Company pursuant to the Indenture.
4.3 Form of 7.125% Senior Note Due 2008, dated May 27, 1998, issued
by the Company pursuant to the Indenture.
*10.1 Intercompany Services Agreement, dated as of July 24, 1987,
between Harcourt General and the Company, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
twenty-six week period ended August 1, 1987.
*10.2 1987 Stock Incentive Plan, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the twenty-six week
period ended August 1, 1987.
*10.3 The Neiman Marcus Group, Inc. 1997 Incentive Plan, incorporated
herein by reference to Exhibit A to the Company's Definitive
Schedule 14A dated December 10, 1996 and filed with the Securities
and Exchange Commission.
*10.4 Employment Agreement between the Company and Burton M. Tansky
effective February 1, 1997, incorporated herein by reference to
the Company's Annual Report on From 10-K for the fiscal year
ended August 3, 1996.
E-1
[PAGE]
*10.5 Termination and Change of Control Agreement between the Company
and Gerald A. Sampson dated September 17, 1998.
*10.6 Termination Agreement between Bergdorf Goodman, Inc. and Stephen
C. Elkin, effective September 1993, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 1993.
*10.7 Termination Agreement between Bergdorf Goodman, Inc. and Dawn
Mello, effective May 1994, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended
July 30, 1994.
*10.8 Change of Control Agreement between the Company and Bernie
Feiwus, effective October 1995, incorporated herein by reference
to the Company's Annual Report on Form 10-K for the fiscal year
ended July 29, 1995.
*10.9 Key Executive Stock Purchase Loan Plan, as amended, incorporated.
herein by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended August 2, 1997.
*10.10 Supplemental Executive Retirement Plan, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended July 30, 1988.
*10.11 Description of the Company's Executive Life Insurance Plan,
incorporated herein by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended August 1, 1992.
*10.12 Supplementary Executive Medical Plan, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 1993.
*10.13 Key Employee Deferred Compensation Plan, as amended, incorporated
herein by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended July 30, 1994.
E-2
[PAGE]
*10.14 Deferred Compensation Plan For Non-Employee Directors, as
amended.
10.15 Credit Agreement dated as of October 29, 1997 among the Company,
the Banks parties thereto, Bank of America National Trust and
Savings Association, as Syndication Agent, The Chase Manhattan
Bank, as Documentation Agent, and Morgan Guaranty Trust Company
of New York, as Administrative Agent, incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 1, 1997.
10.16 Receivables Purchase Agreement, dated as of March 1, 1995,
between the Company and Neiman Marcus Funding Corporation,
incorporated herein by reference to Exhibit 10.1 to Registration
Statement on Form S-3 of Neiman Marcus Group Credit Card Master
Trust dated March 3,1995 (Registration No. 33-88098).
10.17 Pooling and Servicing Agreement, dated as of March 1, 1995,
between Neiman Marcus Funding Corporation, the Company and The
Chase Manhattan Bank, N.A., incorporated herein by reference to
Exhibit 4.1 to Registration Statement on Form S-3 of Neiman Marcus
Group Credit Card Master Trust dated March 3, 1995 (Registration
No. 33-88098).
10.18 Series 1995-1 Supplement to the Pooling and Servicing Agreement,
dated as of March 1, 1995, among Neiman Marcus Funding
Corporation, the Company and The Chase Manhattan Bank, N.A.,
incorporated herein by reference to Exhibit 4.2 to Registration
Statement on Form S-3 of Neiman Marcus Group Credit Card Master
Trust dated March 3, 1995 (Registration No. 33-88098).
10.19 Exchange and Repurchase Agreement between The Neiman Marcus
Group, Inc. and Harcourt General, Inc., incorporated herein by
Reference to Exhibit 10.1 to Registration Statement on Form S-3 of
The Neiman Marcus Group, Inc. dated October 10, 1996 (Registration
No. 333-11721).
13.1 The following sections of the 1998 Annual Report to Shareholders
("1998 Annual Report") which are expressly incorporated by
reference into this Annual Report on Form 10-K:
E-3
[PAGE]
Management's Discussion and Analysis of Financial Condition
and Results of Operations at pages 23 through 27 of the 1998
Annual Report.
Consolidated Financial Statements and the Notes thereto at
pages 28 through 43 of the 1998 Annual Report.
Independent Auditors' Report at page 44 of the 1998 Annual
Report.
The information appearing under the caption "Selected
Financial Data" on page 45 of the 1998 Annual Report.
The information appearing under the captions "Stock
Information" and "Shares Outstanding" on page 47 of the 1998
Annual Report.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
99.1 Dividend Reinvestment and Common Stock Purchase Plan,
incorporated herein by reference to the Company's
Registration Statement on Form S-3 dated September 17, 1990
(Registration No. 33-36419). __________
* Exhibits filed pursuant to Item 14(c) of Form 10-K.