<PAGE>
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
<PAGE>
AT-A-GLANCE The Neiman Marcus Group, Inc.
- --------------------------------------------------------------------------------
<TABLE>
RESULTS FROM CONTINUING OPERATIONS
- ----------------------------------
THE NEIMAN MARCUS GROUP
<CAPTION>
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
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
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
<PAGE>
<TABLE>
STORE LOCATIONS
- ---------------------------------------------------------------------------------------
NEIMAN MARCUS STORES
<CAPTION>
YEAR GROSS
OPERATIONS STORE
LOCATIONS BEGAN SQ. FEET
- ---------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
REVENUES AND OPERATING EARNINGS
- ----------------------------------------------------------
NEIMAN MARCUS STORES
<CAPTION>
OPERATING
(IN MILLIONS) REVENUES EARNINGS*
- ----------------------------------------------------------
<S> <C> <C>
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
- ----------------------------------------------------------
<FN>
*prior to corporate expenses
</TABLE>
NEIMAN MARCUS STORES
SALES PER GROSS
SQUARE FOOT
[LINE GRAPH]
<TABLE>
NM DIRECT
<CAPTION>
OPERATING
(IN MILLIONS) REVENUES EARNINGS*
- ----------------------------------------------------------
<S> <C> <C>
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
- ----------------------------------------------------------
<FN>
*prior to corporate expenses
</TABLE>
<TABLE>
BERGDORF GOODMAN
<CAPTION>
OPERATING
(IN MILLIONS) REVENUES EARNINGS*
- ----------------------------------------------------------
<S> <C> <C>
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
- ----------------------------------------------------------
<FN>
*prior to corporate expenses
</TABLE>
3
<PAGE>
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
<PAGE>
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
<PAGE>
[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
<PAGE>
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
<PAGE>
[PICTURE]
GIORGIO ARMANI
8
<PAGE>
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
<PAGE>
[PICTURE]
MANOLO BLAHNIK
10
<PAGE>
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
<PAGE>
[PICTURE]
DONNA KARAN
12
<PAGE>
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
<PAGE>
[PICTURE]
BARRY KIESELSTEIN-CORD
14
<PAGE>
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
<PAGE>
[PICTURE]
MIUCCIA PRADA
16
<PAGE>
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
<PAGE>
[PICTURE]
JIL SANDER
18
<PAGE>
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
<PAGE>
[PICTURE]
RICHARD TYLER
20
<PAGE>
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
<PAGE>
[PICTURE]
ERMENEGILDO ZEGNA
22
<PAGE>
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
<PAGE>
--------------------------------------------------
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
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS The Neiman Marcus Group, Inc.
- --------------------------------------------------------------------------------
<TABLE>
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.
<CAPTION>
Years ended
-----------------------------------------
Revenues JULY 29, July 30, July 31,
(in millions) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Years ended
-----------------------------------------
Operating earnings JULY 29, July 30, July 31,
(in millions) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS The Neiman Marcus Group, Inc.
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Years ended
-----------------------------------------------
JULY 29, July 30, July 31,
(in thousands except for per share data) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS The Neiman Marcus Group, Inc.
- ---------------------------------------------------------------------------------------------------
<CAPTION>
JULY 29, July 30,
(dollar amounts in thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS The Neiman Marcus Group, Inc.
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Years ended
-----------------------------------------------
JULY 29, July 30, July 31,
(in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY The Neiman Marcus Group, Inc.
- -------------------------------------------------------------------------
<CAPTION>
Common Stock Additional
----------------- Paid-in Accumulated
(in thousands) Shares Amount Capital Deficit
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE>
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
<PAGE>
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.
<TABLE>
NOTE 3
OTHER ASSETS
Other assets consisted of the following:
<CAPTION>
JULY 29, July 30,
(in thousands) 1995 1994
- ----------------------------------------------------------
<S> <C> <C>
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
- ----------------------------------------------------------
</TABLE>
<TABLE>
NOTE 4
LONG-TERM LIABILITIES
Long-term liabilities consisted of the following:
<CAPTION>
Interest July 29, July 30,
(in thousands) Rate 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
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
- --------------------------------------------------------------------------
<FN>
(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.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
(b) Senior notes consisted of the following:
<CAPTION>
PRINCIPAL AMOUNT
INTEREST RATE DUE (IN THOUSANDS)
- ----------------------------------------------------------------------
<S> <C> <C>
9.89% May 1996 $40,000
9.59% August 1996 $52,000
9.24% December 1996 $40,000
Variable December 1996 $40,000
- ----------------------------------------------------------------------
</TABLE>
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
<PAGE>
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.
<TABLE>
Option activity was as follows:
<CAPTION>
Years ended
-----------------------------------------
JULY 29, July 30, July 31,
1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ---------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc.
- ------------------------------------------------------------------------------
NOTE 7
INCOME TAXES
Income tax expense was as follows:
<CAPTION>
Years ended
------------------------------------
JULY 29, July 30, July 31,
(in thousands) 1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------
</TABLE>
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.
<TABLE>
Significant components of the Company's net deferred income tax liability
stated on a gross basis were as follows:
<CAPTION>
JULY 29, July 30,
(in thousands) 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
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)
- -------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
Components of net pension expense were as follows:
<CAPTION>
Years ended
------------------------------
JULY 29, July 30, July 31,
(in thousands) 1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------
</TABLE>
<TABLE>
The accounting assumptions used in the computation of pension expense were as
follows:
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------
<S> <C> <C> <C>
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%
- ------------------------------------------------------------
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc.
- --------------------------------------------------------------------------------
<TABLE>
The plans' funded status and amounts recognized in the consolidated balance
sheets were as follows:
<CAPTION>
July 29, 1995 July 30,1994
Funded Unfunded Funded Unfunded
(in thousands) Plan Plan Plan Plan
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
Years ended
------------------------------
JULY 29, July 30,
(in thousands) 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
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
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
The periodic postretirement health care benefit cost was as follows:
<CAPTION>
Years ended
-----------------------------
JULY 29, July 30,
(in thousands) 1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Net periodic cost:
Service cost $ 300 $ 286
Interest cost on accumulated
benefit obligation 1,249 1,288
-----------------------------
Total $1,549 $1,574
- ---------------------------------------------------------------
</TABLE>
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
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc.
- -------------------------------------------------------------------------------
<TABLE>
Rent expense under operating leases was as follows:
<CAPTION>
Years ended
-------------------------------------
JULY 29, July 30, July 31,
(in thousands) 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
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
- -------------------------------------------------------------
</TABLE>
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
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Neiman Marcus Group, Inc.
- -----------------------------------------------------------------------------
<TABLE>
NOTE 12
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<CAPTION>
YEAR ENDED JULY 29, 1995
-------------------------------------------------------------
FIRST SECOND THIRD FOURTH
(in millions except for per share data) QUARTER QUARTER QUARTER QUARTER TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended July 30, 1994
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------
<FN>
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.
</TABLE>
38
<PAGE>
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
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA (UNAUDITED) The Neiman Marcus Group, Inc.
- -------------------------------------------------------------------------
<CAPTION>
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:
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
40
<PAGE>
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.
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1995 1994
- -----------------------------------------------------------------
Quarter High Low High Low
-----------------------------------
<S> <C> <C> <C> <C>
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
- -----------------------------------------------------------------
</TABLE>
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
<PAGE>
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
<PAGE>
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.
