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Neiman Marcus, Inc.
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 09/24/2008
Filed Period 08/02/2008

Table of contents

  • Page 1
    Neiman Marcus, Inc. 10-K Annual report pursuant to section 13 and 15(d) Filed on 09/24/2008 Filed Period 08/02/2008

  • Page 2
    ... jurisdiction of incorporation or organization) 1618 Main Street Dallas, Texas (Address of principal executive offices) 75201 (Zip code) 20-3509435 (I.R.S. Employer Identification No.) Neiman Marcus, Inc. Registrant's telephone number, including area code: (214) 743-7600 Securities registered...

  • Page 3
    ... o The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates of the registrant is zero. The registrant is a privately held corporation. As of September 15, 2008, the registrant had outstanding 1,012,919 shares of its common stock, par value $0.01 per...

  • Page 4
    ... Other information Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accounting Fees and Services Exhibits, Financial...

  • Page 5
    ... Stores. Bergdorf Goodman is a premier luxury retailer in New York City well known for its couture merchandise, opulent shopping environment and landmark Fifth Avenue locations. Bergdorf Goodman features high-end apparel, fashion accessories, shoes, decorative home accessories, precious and designer...

  • Page 6
    ...stock to the Company in exchange for a capital contribution of $900. Holding, the Company and Merger Sub were formed by investment funds affiliated with TPG Capital (formerly Texas Pacific Group) and Warburg Pincus LLC (collectively, the Sponsors) for the purpose of acquiring The Neiman Marcus Group...

  • Page 7
    ... interest in Kate Spade LLC, a designer and marketer of high-end accessories. In April 2005, the minority investor in Kate Spade LLC exercised the put option with respect to the sale of the full amount of its 44% stake in such company to NMG. In October 2006, we entered into an agreement to settle...

  • Page 8
    ...and in-store promotions at our Neiman Marcus and Bergdorf Goodman stores have featured vendors such as Chanel, Giorgio Armani, Oscar de la Renta and Manolo Blahnik. Through our print media programs, we mail various publications to our customers communicating upcoming in-store events, new merchandise...

  • Page 9
    ... the level of our future income under the Program Agreement. Historically, our customers holding a proprietary credit card have tended to shop more frequently and have a higher level of spending than customers paying with cash or third-party credit cards. In fiscal years 2008 and 2007, approximately...

  • Page 10
    ...and shoes include suits, dress shirts and ties, sport coats, jackets, trousers, casual wear and eveningwear as well as business and casual footwear. In recent years, this category has been an area of increased focus. Bergdorf Goodman has a fully dedicated men's store in New York. Our primary vendors...

  • Page 11
    ... 2007. Inventory Management Our merchandising function is decentralized with separate merchandising functions for Neiman Marcus stores, Bergdorf Goodman and Direct Marketing. Each merchandising function is responsible for the determination of the merchandise assortment and quantities to be purchased...

  • Page 12
    ...made capital expenditures aggregating $495 million related primarily to the construction of new stores in San Antonio, Boca Raton, Charlotte, Austin, Natick (suburban Boston) and Topanga (greater Los Angeles area); the renovation and expansion of our main Bergdorf Goodman store in New York City and...

  • Page 13
    ... specialty apparel stores and direct marketing firms. We compete for customers principally on the basis of quality and fashion, customer service, value, assortment and presentation of merchandise, marketing and customer loyalty programs and, in the case of Neiman Marcus and Bergdorf Goodman, store...

  • Page 14
    ... changes in government regulation; require NMG to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of cash flows to fund working capital, capital expenditures, acquisitions and other general corporate purposes; limit...

  • Page 15
    ...debt service obligations. The Asset-Based Revolving Credit Facility permits NMG to borrow up to $600.0 million; however, NMG's ability to borrow thereunder is limited by a borrowing base, which at any time will equal the lesser of 80% of eligible inventory valued at the lower of cost or market value...

  • Page 16
    ... specialty apparel stores and direct marketing firms. We compete for customers principally on the basis of quality and fashion, customer service, value, assortment and presentation of merchandise, marketing and customer loyalty programs and, in the case of Neiman Marcus and Bergdorf Goodman, store...

  • Page 17
    ... in information privacy could negatively impact our operations. The protection of our customer, employee and company data is critically important to us. We utilize customer data captured through both our proprietary credit card programs and our direct marketing activities. Our customers have a high...

  • Page 18
    ... affect our performance. We entered into a five-year program agreement with HSBC in July 2005 which provides for a long-term marketing and servicing alliance under which HSBC offers proprietary credit card accounts to our customers under both the "Neiman Marcus" and "Bergdorf Goodman" brand names...

  • Page 19
    ... may adversely affect our operating income. We advertise and promote in-store events, new merchandise and fashion trends through print catalogs and other promotional materials mailed on a targeted basis to our customers. Significant increases in paper, printing and postage costs could affect the...

  • Page 20
    ... and update the information technology systems supporting our online operations, sales operations or inventory control could prevent our customers from purchasing merchandise on our websites or prevent us from processing and delivering merchandise, which could adversely affect our business. Delays...

  • Page 21
    ... Our corporate headquarters are located at the Downtown Neiman Marcus store location in Dallas, Texas. The operating headquarters for Neiman Marcus, Bergdorf Goodman and Direct Marketing are located in Dallas, Texas; New York, New York; and Irving, Texas, respectively. Properties that we use in...

  • Page 22
    ... to secure our senior secured credit facilities and the 2028 Debentures. We recently opened new stores in Charlotte (80,000 square feet) in September 2006, Austin (80,000 square feet) in March 2007, Natick (102,000 square feet) in September 2007 and Topanga (120,000 square feet) in September...

  • Page 23
    ... at 58th Street and Fifth Avenue. The following table sets forth certain details regarding these stores: Bergdorf Goodman Stores Fiscal Year Operations Began Gross Store Sq. Feet Locations New York City (Main)(1) New York City (Men's)(1)* (1) * Leased. Mortgaged to secure our senior secured credit...

  • Page 24
    ... financial statements to reclassify the operations of Gurwitch Products, L.L.C. and Kate Spade LLC as discontinued operations. (Successor) Fiscal year ended July 28, 2007 (Predecessor) Fiscal year ended July 30, 2005 (in millions) Fiscal year ended August 2, 2008 Forty-three weeks ended...

  • Page 25
    ...Fiscal year ended July 31, 2004 (in millions, except sales per square foot) OTHER OPERATING DATA Capital expenditures Depreciation expense Rent expense and related occupancy costs Change in comparable revenues (6) Number of stores open at period end Sales per square foot NON-GAAP FINANCIAL MEASURE...

  • Page 26
    ... segment consists primarily of Neiman Marcus and Bergdorf Goodman stores. The Direct Marketing segment conducts both online operations and print catalogs under the brand names of Neiman Marcus, Bergdorf Goodman and Horchow. The Company acquired The Neiman Marcus Group, Inc. (NMG) on October 6, 2005...

  • Page 27
    ... customers from both our retail and direct marketing operations. • Our revenues can be affected by the following factors changes in the level of consumer spending generally and, specifically, on luxury goods; changes in the level of full-price sales; changes in the level of promotional events...

  • Page 28
    ...of net markdowns incurred; customer acceptance of and demand for the merchandise we offer in a given season and the related impact of such factors on the level of full-price sales; factors affecting revenues generally; changes in occupancy costs primarily associated with the opening of new stores or...

  • Page 29
    ... proprietary credit cards by our customers; increased or decreased based upon future changes to our historical credit card program related to, among other things, the interest rates applied to unpaid balances and the assessment of late fees; and decreased based upon the level of future services we...

  • Page 30
    ...by a higher level of full-price sales with a focus on the initial introduction of Spring season fashions. Aggressive in-store marketing activities designed to stimulate customer buying, a lower level of markdowns and higher margins are again characteristic of this quarter. Revenues are generally the...

  • Page 31
    ... lower level of customer spending. This weakness in consumer spending continued and deepened during the remainder of fiscal year 2008. In response to the challenges associated with lower demand, we took actions to stimulate sales through promotional and other events; reduce inventory purchases; and...

  • Page 32
    ...of Contents OPERATING RESULTS Performance Summary The following table sets forth certain items expressed as percentages of net revenues for the periods indicated. Fiscal year ended August 2, 2008 (Successor) Fiscal year ended July 28, 2007 (Successor) Fiscal year ended July 29, 2006 (Combined) Forty...

  • Page 33
    ... stores Direct Marketing Total CHANGE IN COMPARABLE REVENUES (2) Specialty Retail stores Direct Marketing Total SALES PER SQUARE FOOT Specialty Retail stores STORE COUNT Neiman Marcus and Bergdorf Goodman stores: Open at beginning of period Opened during the period Open at end of period Clearance...

  • Page 34
    ...2007. New stores generated sales of $86.4 million for the 52 weeks ended July 26, 2008 while revenues for the 53rd week were $49.8 million. Our comparable sales trends were stronger in the first part of fiscal year 2008. We began to experience a lower level of customer spending in the second quarter...

  • Page 35
    ... level of full-price sales in fiscal year 2008 and incurred higher markdowns and sales promotions costs to liquidate on-hand inventories held in excess of sales trends. In addition, our Direct Marketing operations realized lower margins on delivery and processing revenues as a result of discounted...

  • Page 36
    ... in a lower level of full-price sales and higher markdowns; and net increases in advertising and promotion costs; partially offset by lower estimated annual incentive compensation costs. Operating earnings for Direct Marketing were $117.7 million, or 15.7% of Direct Marketing revenues, in fiscal...

  • Page 37
    ...due to increases in comparable revenues, revenues from new stores and an increase in internet revenues generated by our Direct Marketing operations. Revenues increased in fiscal year 2007 compared to the prior fiscal year at all our operating companies. Comparable revenues for fiscal year ended July...

  • Page 38
    ... due to 1) higher internet sales by our Direct Marketing segment, which have a lower expense to revenue ratio than catalog sales and 2) a decrease in costs incurred by our Specialty Retail stores; a decrease of approximately 0.4% of revenues in our payroll and employee benefit costs, primarily due...

  • Page 39
    ...a higher portion of full-price sales and 2) net reductions in expenses as a percentage of revenues, primarily marketing and advertising, insurance, benefits and pre-opening expenses partially offset by higher incentive compensation. Operating earnings for Direct Marketing increased to $116.0 million...

  • Page 40
    ..., or future requirements, for capital expenditures or contractual commitments; does not reflect changes in, or cash requirements for, our working capital needs; does not reflect our considerable interest expense, or the cash requirements necessary to service interest or principal payments, on...

  • Page 41
    ... principally of the funding of our merchandise purchases; capital expenditures for new store construction, store renovations and upgrades of our management information systems; debt service requirements; income tax payments; and obligations related to our Pension Plan. Our primary sources of short...

  • Page 42
    ... sale of Kate Spade. We incurred significant capital expenditures in fiscal 2008 related to the construction of new stores in Natick and Topanga (the greater Los Angeles area) and the remodel of our Atlanta and Westchester stores. We incurred significant capital expenditures in fiscal 2007 related...

  • Page 43
    ... Rate Swaps. NMG uses derivative financial instruments to help manage our interest rate risk. Effective December 6, 2005, NMG entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $1,000.0 million to limit our exposure to interest rate increases related...

  • Page 44
    ...of credit. Our working capital requirements are greatest in the first and second fiscal quarters as a result of higher seasonal requirements. See "Description of Other Indebtedness-Senior Secured Asset-Based Revolving Credit Facility" and "Management's Discussion and Analysis of Financial Conditions...

  • Page 45
    ... inflation rates; significant increases in paper, printing and postage costs; Industry and Competitive Factors competitive responses to our loyalty programs, marketing, merchandising and promotional efforts or inventory liquidations by vendors or other retailers; seasonality of the retail business...

  • Page 46
    ... could impact our business. Except to the extent required by law, we undertake no obligation to update or revise (publicly or otherwise) any forward-looking statements to reflect subsequent events, new information or future circumstances. Critical Accounting Policies Our accounting policies are more...

  • Page 47
    .... Revenues associated with gift cards are recognized at the time of redemption by the customer. Revenues exclude sales taxes collected from our customers. We maintain reserves for anticipated sales returns primarily based on our historical trends related to returns by our retail and direct marketing...

  • Page 48
    ...points for gifts. Generally, points earned in a given year must be redeemed no later than 90 days subsequent to the end of the annual program period. The estimates of the costs associated with the loyalty programs require us to make assumptions related to customer purchasing levels, redemption rates...

  • Page 49
    ... held by the Pension Plan and the average rate of compensation increase by plan participants. We review these assumptions annually based upon currently available information, including information provided by our actuaries. Self-insurance and Other Employee Benefit Reserves. We use estimates in the...

  • Page 50
    ... floating rates. NMG uses derivative financial instruments to help manage our interest rate risk. Effective December 6, 2005, NMG entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $1,000.0 million to limit our exposure to interest rate increases related...

  • Page 51
    ... effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, accumulated, processed, summarized, reported and communicated on a timely basis within the time periods specified in the Securities and Exchange...

  • Page 52
    ... Chief Financial Officer President and Chief Executive Officer of Neiman Marcus Direct President and Chief Executive Officer of Bergdorf Goodman Senior Vice President and General Counsel Senior Vice President and Chief Human Resource Officer Senior Vice President and Chief Information Officer Senior...

  • Page 53
    ... as a Divisional Merchandise Manager of Bergdorf Goodman from October 1998 to August 2000. James J. Gold has been President and Chief Executive Officer of Bergdorf Goodman since May 2004. Mr. Gold served as Senior Vice President, General Merchandise Manager of Neiman Marcus Stores from December 2002...

  • Page 54
    ... Marcus Group, Inc., Attn. Investor Relations, One Marcus Square, 1618 Main Street, Dallas, Texas 75201. We have established a means for employees, customers, suppliers, or other interested parties to submit confidential and anonymous reports of suspected or actual violations of the Company's Code...

  • Page 55
    ...of our financial goals. Salaries are reviewed before the end of each fiscal year as part of our performance and compensation review process as well as at other times to recognize a promotion or change in job responsibilities. Merit increases are usually awarded to the named executive officers in the...

  • Page 56
    ... Plan have an exercise price equal to the fair market value of our common stock on the date of grant. No grants of stock options have been made to the named executive officers since the initial grant in fiscal year 2006 and currently, none are anticipated except in the event of a promotion or new...

  • Page 57
    ... part of our annual planning process, our CEO and our Senior Vice President and Chief Human Resource Officer, with the help of our consultants, develop and recommend a compensation program for all executive officers. Based on a performance assessment, the CEO and the Senior Vice President and Chief...

  • Page 58
    ...versus Company, business unit, and individual target performance levels. • Base Salary On September 18, 2007, the Compensation Committee approved the following salary increases for the named executive officers: Name 2007 Salary ($) Increase (%) 2008 Salary ($) Burton M. Tansky Karen W. Katz James...

  • Page 59
    ...stock options have been made to the named executive officers since the initial grant and none are anticipated except in the event of a promotion or a new hire. The stock options are discussed further beginning on page 61 of this section under the heading "Outstanding Equity Awards at Fiscal Year End...

  • Page 60
    ...life insurance program and a medical reimbursement program. These benefits are included with the perquisites described below. • Retirement Plan Prior to 2008, most non-union employees over age 21 who had completed one year of service with 1,000 or more hours participated in The Neiman Marcus Group...

  • Page 61
    Table of Contents • Supplemental Retirement Plan and Key Employee Deferred Compensation Plan U.S. tax laws limit the amount of benefits that we can provide under our tax-qualified plans. We maintain The Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan (referred to as the SERP) and ...

  • Page 62
    ... payment equal to one and one-half annual base salary of the named executive officer, payable over an eighteen month period, and reimbursement for COBRA premiums for the same period. • Other The Company has change in control provisions in its Management Incentive Plan and its retirement plans...

  • Page 63
    ... Year Salary ($) Bonus ($)(1) Option Awards ($)(2) Non-Equity Incentive Plan Compensation ($)(3) All Other Compensation ($)(5) Total ($) Burton M. Tansky President and Chief Executive Officer Karen W. Katz Executive Vice President and President and Chief Executive Officer Neiman Marcus Stores...

  • Page 64
    59

  • Page 65
    Table of Contents in The Wall Street Journal on the last business day of the preceding calendar quarter plus two percentage points, which averaged approximately 7.5 percent during the year) that exceeds 120 percent of the applicable federal long-term interest rate as follows: $11,369 for Ms. Katz; ...

  • Page 66
    Table of Contents OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END Stock Awards Equity Incentive Plan Awards: Market Number of Value of Unearned Shares or Shares, Units Units of or Other Stock that Rights that have not have not Vested Vested Name Burton M. Tansky Karen W. Katz James E. Skinner ...

  • Page 67
    ... executive officers. Number of Years Credited Service (#)(1) Present Value of Accumulated Benefit ($)(2) Payments During Last Fiscal Year ($) Name Plan Name Burton M. Tansky Karen W. Katz James E. Skinner Brendan L. Hoffman James J. Gold Retirement Plan SERP Retirement Plan SERP Retirement Plan...

  • Page 68
    ...equal to the prime interest rate published in The Wall Street Journal on the last business day of the preceding calendar quarter. Amounts credited to an employee's account become payable to the employee upon separation from service, death, unforeseeable emergency, or change of control of the Company...

  • Page 69
    ...equal to the prime interest rate published in The Wall Street Journal on the last business day of the preceding calendar quarter. Vested amounts credited to an employee's account become payable in the form of five annual installments beginning upon the later of the employee's separation from service...

  • Page 70
    ... developed by him which relate to his employment by the Company or to the Company's business. Employment Agreement with Ms. Katz The employment agreement with Ms. Katz provides that she will act as Chief Executive Officer and President of Neiman Marcus Stores, a division of The Neiman Marcus Group...

  • Page 71
    ...Ms. Katz during employment and for a period of one year from termination from becoming a director, officer, employee or consultant for any competing business that owns or operates a luxury specialty retail store located in the geographic areas of the Company's operations. The agreement also requires...

  • Page 72
    ...Termination due to disability ($)(3)(7) Change in Control ($)(5)(7) Compensation: Severance Bonus Stock Options Benefits & Perquisites: Retirement Plans Cash Incentive Plan Payment Long-Term Disability Health and Welfare Benefits Life Insurance Benefits Total Footnotes: (1) (2) $ - - - 3,172,000...

  • Page 73
    ...twelve months payable from the Company's long-term disability insurance provider. Represents a lump sum payment of two times base salary and two times target bonus. The amount included for health and welfare benefits represents a continuation of COBRA benefits for a period of two years. Calculations...

  • Page 74
    ... ($)(3) Executive Benefits and Payments Upon Separation Change in Control ($)(4)(5) JAMES E. SKINNER Compensation: Severance Benefits & Perquisites: Retirement Plans Deferred Compensation Plan Cash Incentive Plan Payment Long-Term Disability Health and Welfare Benefits Life Insurance Benefits...

  • Page 75
    ... service as a board member. We offer to each of our directors a discount at our stores at the same rate that is available to our employees. In connection with the Acquisition, affiliates of the Sponsors receive an annual management fee equal to the lesser of (i) 0.25% of consolidated annual revenue...

  • Page 76
    ... 76102 Affiliates of TPG Capital, L.P.(2) 301 Commerce Street Suite 3300 Fort Worth, Texas 76102 Affiliates of Warburg Pincus, LLC(3) 466 Lexington Avenue New York, NY 10017 David A. Barr(4) 466 Lexington Avenue New York, NY 10017 James Coulter(5) 345 California Street, Suite 3300 San Francisco, CA...

  • Page 77
    ... York, NY 10019 Jonathan Coslet(5) 345 California Street Suite 3300 San Francisco, CA 94104 John G. Danhakl 11111 Santa Monica Boulevard Suite 2000 Los Angeles, CA 90025 Carrie Wheeler(5) 345 California Street Suite 3300 San Francisco, CA 94104 All current executive officers and directors as a group...

  • Page 78
    ...evaluate all options available, including ratification, revision or termination of such transaction. Related Person Transactions Newton Holding, LLC Limited Liability Company Operating Agreement The investment funds associated with or designated by a Sponsor (Sponsor Funds) and certain investors who...

  • Page 79
    ... nominated by investment funds that are affiliates of Credit Suisse Securities (USA) LLC and Leonard Green Partners) has one vote. Certain major decisions of the board of directors of Newton Holding, LLC require the approval of each of TPG Capital, L.P. and Warburg Pincus and certain other decisions...

  • Page 80
    ... for the audits of the Company's annual financial statements for the fiscal years ended August 2, 2008 and July 28, 2007 and for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q were $1,535,000 and $1,718,000, respectively. Audit-Related Fees. The aggregate fees...

  • Page 81
    ... reference to The Neiman Marcus Group, Inc.'s Current Report on Form 8-K dated May 4, 2005. Purchase, Sale and Servicing Transfer Agreement dated as of June 8, 2005, among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., HSBC Bank Nevada, N.A. and HSBC Finance Corporation, incorporated herein...

  • Page 82
    ... as of May 27, 1998, among The Neiman Marcus Group, Inc., Neiman Marcus, Inc., and The Bank of New York Trust Company, N.A., as successor trustee, incorporated herein by reference to the Company's Current Report on Form 8-K dated August 15, 2006. Employment Agreement dated as of October 6, 2005 by...

  • Page 83
    ...to The Neiman Marcus Group, Inc.'s Current Report on Form 8-K dated October 12, 2005. Newton Acquisition, Inc. Management Equity Incentive Plan, incorporated herein by reference to The Neiman Marcus Group, Inc.'s Current Report on Form 8-K dated December 5, 2005. Stock Option Grant Agreement made as...

  • Page 84
    ... the Neiman Marcus, Inc. Annual Report on Form 10-K for the fiscal year ended July 29, 2006. The Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan, as amended and restated effective January 1, 2008, incorporated herein by reference to the Neiman Marcus, Inc. Quarterly Report on Form...

  • Page 85
    ...Executive Retirement Plan, amended and restated effective as of January 1, 2008. (1) Computation of Ratio of Earnings to Fixed Charges. (1) The Neiman Marcus Group, Inc. Code of Ethics and Conduct, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended...

  • Page 86
    Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Management's Report on Internal Control over Financial Reporting Reports of Independent Registered Public Accounting Firms Consolidated Balance Sheets Consolidated Statements of Earnings Consolidated Statements of Cash Flows ...

  • Page 87
    ... policies and guidelines which require employees to maintain a high level of ethical standards. In addition, the Audit Committee of the Board of Directors meets periodically with management, the internal auditors and the independent registered public accounting firm to review internal accounting...

  • Page 88
    ... REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Neiman Marcus, Inc. Dallas, Texas We have audited the accompanying consolidated balance sheets of Neiman Marcus, Inc. and subsidiaries as of August 2, 2008 and July 28, 2007, and the related...

  • Page 89
    ... Company Accounting Oversight Board (United States), the consolidated balance sheets of Neiman Marcus, Inc. and subsidiaries as of August 2, 2008 and July 28, 2007, and the related consolidated statements of earnings, cash flows, and shareholders' equity for each of the two years in the period ended...

  • Page 90
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Neiman Marcus, Inc. Dallas, Texas We have audited the accompanying consolidated statements of earnings, cash flow and shareholders' equity of Neiman Marcus, Inc. and subsidiaries (the Company) for the forty-three weeks ended...

  • Page 91
    Table of Contents NEIMAN MARCUS, INC. CONSOLIDATED BALANCE SHEETS (Successor) August 2, 2008 (Successor) July 28, 2007 (in thousands, except shares) ASSETS Current assets: Cash and cash equivalents Merchandise inventories Deferred income taxes Other current assets Total current assets Property and...

  • Page 92
    Table of Contents NEIMAN MARCUS, INC. CONSOLIDATED STATEMENTS OF EARNINGS Fiscal year ended August 2, 2008 (Successor) Fiscal year ended July 28, 2007 Forty-three weeks ended July 29, 2006 (Predecessor) Nine weeks ended October 1, 2005 (in thousands) Revenues Cost of goods sold including buying ...

  • Page 93
    ... Capital expenditures Purchases of short-term investments Sales of short-term investments Payment to minority interest holder in Kate Spade LLC Net proceeds from sale of Kate Spade LLC Acquisition of The Neiman Marcus Group, Inc. Proceeds from sale of Gurwitch Products, L.L.C. Net cash used...

  • Page 94
    ... notes and subordinated debt Repayment of senior notes due 2008 Debt issuance costs paid Cash equity contributions Cash dividends paid Proceeds from purchase of common stock, exercises of stock options and restricted stock grants Net cash (used for) provided by financing activities - continuing...

  • Page 95
    ... BALANCE AT JULY 28, 2007 Stock based compensation expense Comprehensive income: Net earnings Adjustments for fluctuations in fair market value of financial instruments, net of tax of ($16,355) Reclassification to earnings, net of tax of ($214) Change in unfunded benefit obligations, net of tax...

  • Page 96
    Other Total comprehensive income BALANCE AT AUGUST 2, 2008 See Notes to Consolidated Financial Statements. - $ 10 - $ 1,418,473 $ 158 (9,164) $ - 267,200 158 112,420 $ 1,676,519 F-10

  • Page 97
    .... The Company is a subsidiary of Newton Holding, LLC (Holding). Holding, the Company and Merger Sub were formed by investment funds affiliated with TPG Capital (formerly Texas Pacific Group) and Warburg Pincus LLC (collectively, the Sponsors) for the purpose of acquiring The Neiman Marcus Group, Inc...

  • Page 98
    ... for clearance goods remaining in ending inventory. The areas requiring significant management judgment related to the valuation of our inventories include 1) setting the original retail value for the merchandise held for sale, 2) recognizing merchandise for which the customer's perception of value...

  • Page 99
    ... recoverability of the carrying values of our store assets annually and upon the occurrence of certain events (e.g., opening a new store near an existing store or announcing plans for a store closing). The recoverability assessment requires judgment and estimates of future store generated cash flows...

  • Page 100
    ...We use the projected unit credit method in recognizing pension liabilities. The Pension and SERP Plans are valued annually as of the end of each fiscal year. Significant assumptions related to the calculation of our obligations include the discount rate used to calculate the present value of benefit...

  • Page 101
    ... our customers; increased or decreased based upon future changes to our historical credit card program related to, among other things, the interest rates applied to unpaid balances and the assessment of late fees; and decreased based upon the level of future services we provide to HSBC. Gift Cards...

  • Page 102
    ...points for gifts. Generally, points earned in a given year must be redeemed no later than 90 days subsequent to the end of the annual program period. The estimates of the costs associated with the loyalty programs require us to make assumptions related to customer purchasing levels, redemption rates...

  • Page 103
    ... real estate credits 9) Increase in long-term benefit obligations, primarily pension obligations 10) Tax impact of purchase accounting adjustments 11) Increase carrying values of assets of Gurwitch Products, L.L.C and Kate Spade LLC. Deemed dividend to management shareholders Net assets acquired...

  • Page 104
    ... interest in Kate Spade LLC, a designer and marketer of high-end accessories. In April 2005, the minority investor in Kate Spade LLC exercised the put option with respect to the sale of the full amount of its 44% stake in such company to NMG. In October 2006, we entered into an agreement to settle...

  • Page 105
    ... their affiliates. NOTE 5. INCOME FROM CREDIT CARD PROGRAM Pursuant to a long-term marketing and servicing alliance with HSBC, HSBC offers credit card and non-card payment plans bearing our brands and we receive ongoing payments from HSBC based on credit card sales and compensation for marketing and...

  • Page 106
    ...million pretax impairment charges related to the writedown to fair value of the net carrying value of the Horchow tradename based upon lower revenues and royalty rate expectations with respect to the Horchow brand in light of current operating performance and future operating expectations. At August...

  • Page 107
    ...follows: (Successor) (in thousands) August 2, 2008 July 28, 2007 Accrued salaries and related liabilities Amounts due customers Self-insurance reserves Sales returns reserves Interest payable Income taxes payable Sales tax Loyalty program liability Other Total NOTE 9. LONG-TERM DEBT The significant...

  • Page 108
    ... in respect of all credit card charges for sales of inventory by NMG and the subsidiary guarantors, certain related assets and proceeds of the foregoing; and a second-priority pledge of 100% of NMG's capital stock and certain of the capital stock held by NMG, the Company or any subsidiary guarantor...

  • Page 109
    ... years 2008 and 2007, NMG was not required to prepay any outstanding term loans pursuant to the annual excess cash flow requirements. If a change of control (as defined in the credit agreement) occurs, NMG will be required to offer to prepay all outstanding term loans, at a prepayment price equal...

  • Page 110
    ... or other secured public debt obligations without requiring the preparation and filing of separate financial statements of such subsidiary in accordance with applicable SEC rules. As a result, the collateral under NMG's Senior Secured Term Loan Facility will include shares of capital stock or other...

  • Page 111
    ...or any direct or indirect parent of NMG to the extent such net proceeds are contributed to NMG. At any time prior to October 15, 2010, NMG also may redeem all or a part of the Senior Notes at a redemption price equal to 100% of the principal amount of Senior Notes redeemed plus an applicable premium...

  • Page 112
    ... certain circumstances, NMG may be required to offer to purchase Senior Subordinated Notes as described below. The Company may from time to time acquire Senior Subordinated Notes by means other than a redemption, whether by tender offer, in open market purchases, through negotiated transactions or...

  • Page 113
    ...- - - 1,625.0 1,321.1 The above table does not reflect future excess cash flow prepayments, if any, that may be required under the Senior Secured Term Loan Facility. Interest Rate Swaps. NMG uses derivative financial instruments to help manage our interest rate risk. Effective December 6, 2005, NMG...

  • Page 114
    ...of grant. A summary of the status of our stock option plan as of August 2, 2008, July 28, 2007 and July 29, 2006 and changes during the periods ended on these dates is as follows: Fiscal year ended August 2, 2008 Weighted Average Exercise Shares Price Fiscal year ended July 28, 2007 Weighted Average...

  • Page 115
    ...the event the Sponsors cause the sale of shares of the Company to an unaffiliated entity, the exercise price will cease to accrete at the time of the sale with respect to a pro rata portion of the accreting options. All grants of stock options have an exercise price equal to the fair market value of...

  • Page 116
    ...) Fiscal year ended July 28, 2007 Forty-three weeks ended July 29, 2006 (Predecessor) Nine weeks ended October 1, 2005 (in thousands) Income tax expense at statutory rate State income taxes, net of federal income tax benefit Tax expense (benefit) related to tax settlements and other changes in tax...

  • Page 117
    ... and ending amounts of unrecognized tax benefits is as follows (in millions): Balance at July 28, 2007 Gross amount of increases for current year tax positions Gross amount of decreases for settlements with tax authorities Balance at August 2, 2008 $ $ 26.7 1.8 (7.2) 21.3 We file income tax returns...

  • Page 118
    ... to March 1, 1989 are eligible for certain limited postretirement health care benefits (Postretirement Plan) if they meet certain service and minimum age requirements. The cost of these benefits is accrued during the years in which an employee provides services. We also maintain defined contribution...

  • Page 119
    ... Plan and Postretirement Plan are as follows: (Successor) Fiscal year ended August 2, 2008 Fiscal year ended July 28, 2007 Forty-three weeks ended July 29, 2006 (Predecessor) Nine weeks ended October 1, 2005 (in thousands) Pension Plan: Service cost Interest cost Expected return on plan assets Net...

  • Page 120
    ...value of benefits payable to plan participants for only services rendered at the valuation date. Our obligations pursuant to our Pension Plan, SERP Plan and Postretirement Plan are as follows: Pension Plan Fiscal years 2008 (in thousands) (Successor) 2007 2008 (Successor) SERP Plan Fiscal years 2007...

  • Page 121
    ...adopted the provisions of Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans" (SFAS 158), in the fourth quarter of fiscal year 2007 resulting in a net decrease in the carrying values of our obligations of $28...

  • Page 122
    ...compensation increase by Pension Plan and SERP Plan participants and the health care cost trend rate for the Postretirement Plan. We review these assumptions annually based upon currently available information. The assumptions we utilized in calculating the projected benefit obligations and periodic...

  • Page 123
    ... certain employees. Performance objectives and targets are based on cumulative EBITDA percentages for three year periods beginning in fiscal year 2006. Earned awards for each completed performance period will be credited to a book account and will earn interest at a contractually defined annual rate...

  • Page 124
    ... both online and print catalog operations under the Neiman Marcus, Bergdorf Goodman and Horchow brand names. Both the Specialty Retail stores and Direct Marketing segments derive their revenues from the sales of high-end fashion apparel, accessories, cosmetics and fragrances from leading designers...

  • Page 125
    ... year ended July 28, 2007 Forty-three weeks ended July 29, 2006 (Predecessor) Nine weeks ended October 1, 2005 (in thousands) REVENUES Specialty Retail stores Direct Marketing Total OPERATING EARNINGS Specialty Retail stores Direct Marketing Subtotal Corporate expenses Amortization of customer...

  • Page 126
    ... Credit Facility and the Senior Secured Term Loan Facility, are guaranteed by the Company and certain of NMG's existing and future domestic subsidiaries (principally, Bergdorf Goodman, Inc. through which NMG conducts the operations of its Bergdorf Goodman stores and NM Nevada Trust which holds...

  • Page 127
    Table of Contents July 28, 2007 (Successor) NonGuarantor Guarantor Subsidiaries Subsidiaries (in thousands) Company NMG Eliminations Consolidated ASSETS Current assets: Cash and cash equivalents Merchandise inventories Other current assets Total current assets Property and equipment, net ...

  • Page 128
    ... (in thousands) Company Consolidated Revenues Cost of goods sold including buying and occupancy costs (excluding depreciation) Selling, general and administrative expenses (excluding depreciation) Income from credit card program Depreciation expense Amortization of customer lists and favorable...

  • Page 129
    ... (in thousands) Company Consolidated Revenues Cost of goods sold including buying and occupancy costs (excluding depreciation) Selling, general and administrative expenses (excluding depreciation) Income from credit card program Depreciation expense Amortization of customer lists and favorable...

  • Page 130
    ... of defined benefit retirement obligations Other, primarily costs related to defined benefit pension and other long-term benefit plans Intercompany royalty income payable (receivable) Equity in earnings of subsidiaries Changes in operating assets and liabilities, net Net cash provided by (used for...

  • Page 131
    ... costs paid Proceeds from purchase of common stock Net cash used for continuing financing activities Net cash used for discontinued operations Net cash used for financing activities CASH AND CASH EQUIVALENTS (Decrease) increase during the period Beginning balance Ending balance $ 111,932 111,932...

  • Page 132
    ...related to defined benefit pension and other long-term benefit plans Intercompany royalty income payable (receivable) Equity in earnings of subsidiaries Changes in operating assets and liabilities, net Net cash provided by continuing operating activities Net cash used for discontinued operations Net...

  • Page 133
    ... primarily costs related to defined benefit pension and other long-term benefit plans Intercompany royalty income payable (receivable) Equity in earnings of subsidiaries Changes in operating assets and liabilities, net Net cash provided by (used for) continuing operating activities Net cash used for...

  • Page 134
    ...conducts the operations of its Bergdorf Goodman stores and NM Nevada Trust which holds legal title to certain real property and intangible assets used by NMG in conducting its operations. Previously, our non-guarantor subsidiaries also included Kate Spade LLC (prior to its sale in December 2006) and...

  • Page 135
    Table of Contents July 28, 2007 (Successor) NonGuarantor Subsidiaries Eliminations (in thousands) Company NMG Consolidated ASSETS Current assets: Cash and cash equivalents Merchandise inventories Other current assets Total current assets Property and equipment, net Goodwill and intangible ...

  • Page 136
    ... (in thousands) Company Consolidated Revenues Cost of goods sold including buying and occupancy costs (excluding depreciation) Selling, general and administrative expenses (excluding depreciation) Income from credit card program Depreciation expense Amortization of customer lists and favorable...

  • Page 137
    ... (in thousands) Company Consolidated Revenues Cost of goods sold including buying and occupancy costs (excluding depreciation) Selling, general and administrative expenses (excluding depreciation) Income from credit card program Depreciation expense Amortization of customer lists and favorable...

  • Page 138
    ... Purchases of short-term investments Sales of short-term investments Net cash used for investing activities CASH FLOWS-FINANCING ACTIVITIES Repayment of borrowings Net cash used for financing activities CASH AND CASH EQUIVALENTS Increase (decrease) during the period Beginning balance Ending balance...

  • Page 139
    ... activities CASH FLOWS-INVESTING ACTIVITIES Capital expenditures Payment to minority interest holder in Kate Spade Net proceeds from sale of Kate Spade Net cash used for continuing investing activities Net cash used for discontinued operations Net cash used for investing activities CASH FLOWS...

  • Page 140
    ...related to defined benefit pension and other long-term benefit plans Intercompany royalty income payable (receivable) Equity in earnings of subsidiaries Changes in operating assets and liabilities, net Net cash provided by continuing operating activities Net cash used for discontinued operations Net...

  • Page 141
    ... primarily costs related to defined benefit pension and other long-term benefit plans Intercompany royalty income payable (receivable) Equity in earnings of subsidiaries Changes in operating assets and liabilities, net Net cash provided by (used for) continuing operating activities Net cash used for...

  • Page 142
    ... buying and occupancy costs (excluding depreciation). For fiscal year 2008, net earnings include 1) $32.5 million of other income related to a one-time pension curtailment gain in the first quarter as a result of our decision to freeze certain Pension and SERP benefits as of December 31, 2007...

  • Page 143
    ... by the undersigned, thereunto duly authorized. NEIMAN MARCUS, INC. By: /s/ NELSON A. BANGS Nelson A. Bangs Senior Vice President and General Counsel Dated: September 24, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 144
    ... to Costs and Other Expenses Accounts Column D Column E Balance at End of Period Description Deductions Year ended August 2, 2008 (Successor)(B) Reserve for estimated sales returns Year ended July 28, 2007 (Successor)(B) Reserve for estimated sales returns Forty-three weeks ended July 29, 2006...

  • Page 145
    Exhibit 10.32 THE NEIMAN MARCUS GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As amended through December 31, 2007 THE NEIMAN MARCUS GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

  • Page 146
    ... "CHH Plan" 1.5. "Code" 1.6. "Committee" 1.7. "Company" 1.8 "Compensation 1.9. "Effective Date" 1.10. "Eligible Employee" 1.11. "Individual Pension Agreement" 1.12. "Minimum Salary" 1.13. "Normal Form" 1.14 "Participant" 1.15. "Participating Employer" 1.16. "Plan" 1.17. "Plan Year" 1.18. "Service...

  • Page 147
    ..., Procedures, etc. 5.3. Information 5.4. Indemnification of Committee Article 6. -AMENDMENTANDTERMINATION 6.1. Amendments 6.2. Termination of Plan Article 7.-MISCELLANEOUS 7.1. Nonassignability 7.2. Limitation on Participants' Rights 7.3. Participants Bound 7.4. Receipt and Release 7.5. Governing...

  • Page 148
    THE NEIMAN MARCUS GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Purpose The Company originally adopted this Plan, effective August 7, 1987, for a select group of management personnel in order to (a) attract, retain and motivate qualified management personnel; (b) facilitate the retirement of ...

  • Page 149
    ...amended from time to time. 1.3. "Board of Directors" means the Board of Directors of the Company. 1.4. "CHH Plan" means the Supplemental Executive Retirement Plan of Carter Hawley Hale Stores, Inc, as in effect on the day before the Effective Date. I.5. "Code" means the Internal Revenue Code of 1986...

  • Page 150
    ... under retirement or other benefit plans or arrangements, or any expense reimbursements, imputed compensation, property, or payments of compensation previously deferred. In the case of an Eligible Employee who was, immediately prior to the Effective Date, employed by Carter Hawley Hale Stores, Inc...

  • Page 151
    ... Participating Employer and an Eligible Employee which provides for payment by the Participating Employer of supplementary retirement benefits, but shall not include any agreement to defer compensation under The Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan or any similar plan or...

  • Page 152
    ... the date of his or her Normal Retirement, Termination of Employment or death, whichever is earliest, was equal to that portion of his compensation for such year that would be subject to tax under Section 3101(a) of the Code without the dollar limitation of Code Section 3121(a)(l), and his or her...

  • Page 153
    ...his or her Normal Retirement Date shall be assumed to be equal to that portion of his or her compensation for the calendar year prior to the year of termination or disability that would be subject to tax under Section 3101(a) of the Code without the dollar limitation of Code Section 3121(a)(1). 1.20...

  • Page 154
    ... Participant as long as he or she remains an employee of a Participating Employer or is entitled to a benefit under the Plan, even though his or her base salary after becoming a Participant later falls below the then applicable base salary level specified in Section 1.10. A Participant will cease to...

  • Page 155
    The Committee may, in its discretion, direct the Participant's Participating Employer to pay to the Participant the present value of any such protected benefits, or to provide for payment of such benefits through another plan, or may direct a combination of the foregoing, in lieu of providing such ...

  • Page 156
    ... Plan will be construed to create a trust or to obligate the Participating Employers or any other person to segregate a fund, purchase an insurance contract, or in any other way currently to fund the future payment of any benefits hereunder, nor will anything herein be construed to give any employee...

  • Page 157
    ...Normal Form. 4.2. Early Retirement Benefit. (a) The amount of the monthly retirement benefit under this Plan payable in the Normal Form to a Participant who has attained age 55 with at least 10 years of Service, and who retires thereafter (but prior to his or her Normal Retirement Date), shall equal...

  • Page 158
    ... in the Normal Form. If the Participant is not eligible for an early retirement benefit under the Basic Plan (or, if applicable, the Augmentation Plan or any Individual Pension Agreement) at the time a benefit becomes payable under this Plan, the monthly benefit under this Plan will be determined...

  • Page 159
    ... at least 5 years of Service, but before he or she has satisfied the requirements for early retirement hereunder, shall be entitled to a monthly benefit payable in the Normal Form, commencing at the same time as the Participant's vested benefit under the Basic Plan, in an amount equal to (a) below...

  • Page 160
    ... lieu of the retirement benefit otherwise payable to him or her in the Normal Form pursuant to Section 4.1, 4.2 or 4.3, retirement benefits of Actuarial Equivalent value payable in any of the optional forms available under the Basic Plan, provided that no optional form of benefit shall be available...

  • Page 161
    ...on the survivor benefit commencement date, and had survived to and died on the day following such commencement date. 4.8. Disability. Any Participant who becomes Totally and Permanently Disabled at a time when he or she has ten or more years of Service but before Normal Retirement Age shall continue...

  • Page 162
    ... to have satisfied the age and service requirements for entitlement to benefits under the CHH Plan and from the Pension Plan for Employees of Carter Hawley Hale Stores, Inc. on the day before the Effective Date, but the Participant's actual age and Service will be taken into account in computing the...

  • Page 163
    ... service and compensation to the time of such subsequent Termination of Employment, but shall be reduced by the Actuarial Equivalent of any payments previously made under the Plan, including lump sum payments or amounts applied to purchase annuity contracts. In no event shall the aggregate benefits...

  • Page 164
    ... by whomever employed. The Committee shall be deemed to be the Plan administrator with responsibility for complying with any reporting and disclosure requirements of ERISA. 5.2. Powers, Duties, Procedures, etc. The Committee shall have such powers and duties, may adopt such rules and tables, may act...

  • Page 165
    ... full and timely information to the Committee on all matters relating to the compensation of Participants, their employment, retirement, death, the cause for termination of employment, and such other pertinent facts as the Committee may require. 5.4. Indemnification of Committee. The Company agrees...

  • Page 166
    ...of employment for, the performance of services by any Eligible Employee (or other employee). The Company reserves the right to terminate this Plan at any time and, in the event of such termination, to pay no benefits to any Participant who has neither completed 5 years of Service nor attained age 65...

  • Page 167
    ... of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Company, any other Participating Employer, and the Committee, and the Committee may require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release...

  • Page 168
    ...for convenience only and are not to be considered in the construction of the provisions hereof. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer, effective as of the first day of August, 1993. THE NEIMAN MARCUS GROUP, INC. By: 24 /s/ Gerald T. Hughes

  • Page 169
    ... (c) is added to the end of Section 1.2, as amended, to read in its entirety as follows: "(c) for December 31, 1997, and each December 31 thereafter, $160,000." IN WITNESS WHEREOF, The Neiman Marcus Group, Inc. has caused this instrument to be executed by its duly authority officer this 31st day of...

  • Page 170
    ... Neiman Marcus Group, Inc. Supplement Executive Retirement Plan, said Plan is hereby amended, effective January 1, 2000 by inserting the following at the end of Section 4.10 thereof: "The Committee may, in its discretion, pay any other benefit in a single lump sum of Actuarial Equivalent value with...

  • Page 171
    ...or any of its affiliates, the term "Participating Employer" shall, for purposes of this Section 1.7, include CHH and its affiliates. IN WITNESS WHEREOF, this Amendment is executed this 20th day of July, 2007. THE NEIMAN MARCUS GROUP, INC. By: 27 /s/ Marita O'Dea Senior Vice President Human Resources

  • Page 172
    ... Employee as of December 31, 2007 whose age as of December 31, 2007 when added to the number of his or her years of Vesting Service under the Basic Plan as of December 31, 2007 was equal to or in excess of 65. SECOND: Article 2 of the Plan is hereby amended by adding the following new Section...

  • Page 173
    ... not for purposes of the calculation of the amount of such benefit. IN WITNESS WHEREOF, this Amendment has been executed this 20th day of December, 2007 to be effective as provided herein. THE NEIMAN MARCUS GROUP, INC. By: /s/ Marita O'Dea Senior Vice President and Chief Human Resource Officer 29

  • Page 174
    Exhibit 10.33 THE AMENDED AND RESTATED NEIMAN MARCUS GROUP, INC. DEFINED CONTRIBUTION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Effective as of January 1, 2008)

  • Page 175
    ...Pay" "Beneficiary" "Board" "Cause" "Change of Control" "Claimant" "Code" "Committee" "Company" "Compensation Limitation" "DB SERP" "Defined Contribution" "Defined Contribution Account" "Disabled" "Effective Date" "Eligible Compensation" "Eligible Employee" "Employee" "Employer" "Enrollment Agreement...

  • Page 176
    ... Deemed Specified Employees Death of Participant Disability of Participant Change of Control Change in Time Theoretical Rate of Return Notional Investment Alternatives Changes of Notional Investment Alternatives, if Applicable Unfunded Status Valuation Defined Contribution Account Statement ARTICLE...

  • Page 177
    Section 10-14 Section 10-15 Section 10-16 Missing Participants Incapacity Section 409A 21 21 22

  • Page 178
    THE NEIMAN MARCUS GROUP, INC. DEFINED CONTRIBUTION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I PURPOSE The Neiman Marcus Group, Inc. (the "Company") adopted The Neiman Marcus Group, Inc. Defined Contribution Supplemental Executive Retirement Plan (the "Plan"), effective as of the Effective Date...

  • Page 179
    ...Enrollment Agreement" means a new Enrollment Agreement executed by a Participant that satisfies the requirements of Section 7-6 below and that changes the time and/or form of a distribution for a particular Plan Year. Section 2-3 "Base Pay" means the base salary payable by an Employer to an Employee...

  • Page 180
    ... the common stock of the Company, $0.01 par value per share. (3) "Majority Stockholder" shall mean, collectively or individually as the context requires, Newton Holding, LLC, TPG Newton III, LLC, TPG Partners IV, L.P., TPG Newton Co-Invest I, LLC, Warburg Pincus Private Equity VIII, L.P., Warburg...

  • Page 181
    ... she is "Code" means the Internal Revenue Code of 1986, as amended. Section 2-10 "Committee" means The Neiman Marcus Group, Inc. Employee Benefits Committee or any successor committee appointed by the Board. Section 2-11 "Company" means The Neiman Marcus Group, Inc. a Delaware corporation, and any...

  • Page 182
    ...to awards or grants under any stock option plan, restricted stock plan, restricted stock unit plan, performance share plan, or similar plan, (12) insurance, (13) (14) other amounts which receive special tax benefits, including premiums for group-term life incentive payments earned through a wellness...

  • Page 183
    ... to any subsequent Plan Year. Section 2-20 Form W-2. "Employee" means any individual who is employed by the Employer whose earnings are reported on Section 2-21 "Employer" means the Company and each Affiliate. An Affiliate may revoke its acceptance of such designation at any time, but until such...

  • Page 184
    ...'s Defined Contribution Account. Section 2-30 "Plan" means this plan, called The Neiman Marcus Group, Inc. Defined Contribution Supplemental Executive Retirement Plan. Section 2-31 December 31. Section 2-32 "Plan Year" means the 12 month period beginning on each January 1 and ending on the following...

  • Page 185
    ...of the Code, is publicly traded on an established securities market or otherwise. Section 2-36 "Transitional Defined Contribution" means the amounts credited to the Plan on behalf of an Eligible Employee by the Company pursuant to Section 4-1(b) below. Section 2-37 "Year of Service" means completion...

  • Page 186
    ... Plan and may employ and rely on such employees of the Employer, legal counsel, accountants, and agents, as it may deem advisable to assist in the administration of the Plan. Section 3-2 Compensation of Committee; Expenses. Members of the Committee shall serve without compensation for their services...

  • Page 187
    ... periodically throughout the Plan Year. The aggregate amount of such Non-Transitional Defined Contributions credited on behalf of each Eligible Employee during each Plan Year will be equal to the product of: (1) Limitation, and (2) (b) that portion of such Eligible Employee's Eligible Compensation...

  • Page 188
    ... Employee at any time during the Plan Year, but remains employed by an Employer, the Company will credit to such Eligible Employee's Defined Contribution Account, at the same time that Defined Contributions are credited to the other Eligible Employees' Defined Contribution Accounts, an amount equal...

  • Page 189
    ... employment with the Employer, to the Defined Contribution Account of such Eligible Employee, a Defined Contribution equal to the amount that the Eligible Employee accrued for the Plan Year ending on the date such Eligible Employee terminated employment, except that no amount will be credited...

  • Page 190
    ... any time, by the Committee, in its sole and absolute discretion; provided, however, that the Committee may not reduce the theoretical rate of return below an annual rate equal to the average prime interest rate published in the Eastern Edition of The Wall Street Journal on the last business day of...

  • Page 191
    ... frequently than quarterly (or such other period as determined by the Committee in its sole discretion), a statement in such form as the Committee deems desirable, setting forth the balance standing to the credit of each Participant in his or her Defined Contribution Account, and adjusted pursuant...

  • Page 192
    ... in the amounts credited to his or her Defined Contribution Account upon the earlier of: (a) (b) (c) (d) or (e) if he or she was an Employee at the time of the Change of Control, the date of a Change of Control. his or her completion of five (5) Years of Service; his or her attainment of age 65; if...

  • Page 193
    ... Employee at the time of his or her Separation From Service and designated, or was deemed to have designated, as his or her distribution commencement date his or her Separation From Service as the time for distribution of the vested amounts credited to his or her Defined Contribution Account...

  • Page 194
    ... commenced benefits under the Plan, at the time of such Change in Control or within five business days thereafter. Section 7-6 Change in Time. (a) Subject to Section 7-6(b) below, a Participant may change the time of a distribution designated in an Enrollment Agreement for a particular Plan Year by...

  • Page 195
    .... If the Board terminates the Plan, Participants shall be entitled to a distribution of their benefit under the Plan if the termination is on account of a permitted distribution event under Treas. Reg. §1.409A-3(j)(4)(ix)(A), (B), (C) or (D) and the requirements, as applicable, of such regulations...

  • Page 196
    ... under Section 502(a) of ERISA. (b) If special circumstances require that the sixty (60) day time period be extended, the Committee will so notify the Claimant and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review.

  • Page 197
    ... Plan. Any amounts payable hereunder shall not be deemed salary or other compensation to a Participant for the purposes of computing benefits to which the Participant may be entitled under any other arrangement established by the Employer for the benefit of its employees. Section 10-3 No Limitation...

  • Page 198
    ... the payment of all individual tax liabilities relating to any such deferrals, credits and benefits. Section 10-8 Unfunded Status of Plan. The Plan is intended to constitute an "unfunded" plan of deferred compensation for Participants. Benefits payable hereunder shall be payable out of the general...

  • Page 199
    ...permitted by applicable law. IN WITNESS WHEREOF, the Company has caused this instrument to be signed in its name and on its behalf by its duly authorized officer, this 10th day of March, 2008. THE NEIMAN MARCUS GROUP, INC. By: /s/ Marita O'Dea Its: Senior Vice President, Chief Human Resource Officer

  • Page 200
    ....1 Neiman Marcus, Inc. Computation of Ratio of Earnings to Fixed Charges (Unaudited) (Successor) Fiscal year ended August 2, 2008 Fiscal year ended July 28, 2007 Forty-three weeks ended July 29, 2006(1) Nine weeks ended October 1, 2005(1) (Predecessor) Fiscal year ended July 30, 2005(1) Fiscal year...

  • Page 201
    ... The Neiman Marcus Group, Inc. Worth Avenue Leasing Company New York New York Delaware Texas Texas Texas Delaware Virginia Massachusetts California Ontario, Canada Delaware Florida 1 Neiman Marcus Holdings, Inc. Bergdorf Goodman, Inc. The Neiman Marcus Group, Inc. NEMA Beverage Holding Corporation...

  • Page 202
    ... and schedule of Neiman Marcus, Inc. and subsidiaries and the effectiveness of internal control over financial reporting of Neiman Marcus, Inc. and subsidiaries included in this Annual Report on Form 10-K for the year ended August 2, 2008. /s/ ERNST & YOUNG LLP Dallas, Texas September 22, 2008...

  • Page 203
    ... of Neiman Marcus, Inc. (which report expresses an unqualified opinion and includes an emphasis-of-a-matter paragraph relating to discontinued operations), appearing in this Annual Report on Form 10-K of Neiman Marcus, Inc. for the year ended August 2, 2008. /s/ DELOITTE & TOUCHE LLP Dallas, Texas...

  • Page 204
    EXHIBIT 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Burton M. Tansky, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Neiman Marcus, Inc.; Based on my knowledge, this report does not contain any untrue statement of...

  • Page 205
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and any fraud, whether or not material, that involves management or other employees who...

  • Page 206
    ... the Registrant's annual report on Form 10-K for the fiscal year ended August 2, 2008: Certification of Chief Executive Officer(1) Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Neiman Marcus, Inc. (the Company) hereby...