Neiman Marcus 2005 Annual Report Download - page 109

For the forty-three weeks ended July 29, 2006, we recognized non-cash stock compensation expense of $4.0 million, which is
included in selling, general and administrative expenses. The adoption of SFAS No. 123(R) had no impact on our cash flows from
operations or financing activities. At July 29, 2006, unearned non-cash stock-based compensation that we expect to recognize as expense
over the next 5 years aggregates approximately $23.8 million.
Predecessor
Cash dividend program. In the second quarter of 2005, the Predecessor Board of Directors increased the Predecessor quarterly
cash dividend from $0.13 per share to $0.15 per share. In fiscal year 2006, the Predecessor did not declare or pay any dividends. In 2005,
the Predecessor declared dividends aggregating $28.4 million, of which dividends payable of $7.3 million were included in accrued
liabilities in the accompanying consolidated balance sheet as of July 30, 2005 and were paid in August 2005.
Stock Repurchase Program. In prior years, the Predecessor Board of Directors authorized various stock repurchase programs
and increases in the number of shares subject to repurchase. The Predecessor repurchased 58,504 shares at an average price of $52.74 in
fiscal year 2005 and repurchased 175,600 shares at an average purchase price of $40.01 during the first quarter and 10,450 shares at an
average price of $50.48 during the fourth quarter of fiscal year 2004.
Common Stock Incentive Plans. The Predecessor had established common stock incentive plans allowing for the granting of
1) stock options, 2) stock appreciation rights, 3) restricted stock and stock units (restricted stock awards) and 4) other stock-based awards
to our employees. All outstanding Predecessor options and restricted shares as of October 5, 2005 were accelerated in connection with
Transactions resulting in a $19.0 million non-cash charge for stock compensation.
In fiscal years 2005 and 2004, the Predecessor made stock-based awards in the form of 1) restricted stock awards for which there
was no exercise price payable by the employee, 2) purchased restricted stock awards for which the exercise price was equal to 50% of the
fair value of our common stock on the date of grant and 3) matching restricted stock awards pursuant to which restricted stock awards
were granted equal to qualifying stock purchases by the employees. In fiscal year 2005, the Predecessor restricted stock and purchased
restricted stock awards aggregated 261,998 shares at a weighted-average exercise price of $23.82 as of the grant date. In fiscal year 2004,
the Predecessor restricted stock and purchased restricted stock awards aggregated 254,757 shares at a weighted-average exercise price of
$15.89 as of the grant date.
Compensation cost for Predecessor restricted stock and purchased restricted stock awards was recognized in an amount equal to
the difference between the exercise price of the award and fair value at the date of grant. The Predecessor recorded such expense on a
straight-line basis over the expected life of the award with the offsetting entry to additional paid-in capital. For performance accelerated
restricted stock, the expected life was determined based on the best estimate of the number of years from the grant date to the date at
which it was probable that the performance targets would be met (four or five years, depending on the grant). Compensation cost was
calculated as if all instruments granted that were subject only to a service requirement would vest. Compensation expense related to the
Predecessor restricted stock grants was $8.5 million in the nine-weeks ended October 1, 2005, $5.0 million in fiscal year 2005 and
$3.1 million in fiscal year 2004.
A summary of the status of the Predecessor common stock incentive plans as October 1, 2005, July 30, 2005 and July 31,
2004 and changes during the fiscal years ended on those dates are presented in the following table:
October 1, 2005 July 30, 2005 July 31, 2004
Shares
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Exercise
Price
Outstanding at beginning of year 3,050,855 $ 38.12 3,009,155 $ 33.35 3,079,705 $ 29.54
Granted — — 569,161 56.89 903,650 43.33
Exercised (3,050,855 ) 38.12 (376,140 ) 28.38 (780,600 ) 29.34
Canceled — — (151,321 )38.87 (193,600 )35.16
Outstanding at end of year — $ — 3,050,855 $ 38.12 3,009,155 $ 33.37
Exercisable at year end — $ — 717,890 $ 28.76 713,110 $ 28.68
Predecessor options exercised in the period ended October 1, 2005 were cashed out in connection with the Transaction, with the
same economic effect as an exercise and sale for the Transaction consideration.
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