SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended November 2, 1996
Commission File Number 1-9659
THE NEIMAN MARCUS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4119509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02167
(Address of principal executive offices) (Zip Code)
(617) 232-0760
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
As of December 11, 1996, there were 49,871,309 outstanding shares of the
issuer's common stock, $.01 par value.
<PAGE>
THE NEIMAN MARCUS GROUP, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of November 2, 1996
and August 3, 1996 and Pro Forma Condensed Consolidated
Balance Sheet as of November 2, 1996 1
Condensed Consolidated Statements of Earnings for the Thirteen
Weeks ended November 2, 1996 and October 28, 1995 2
Condensed Consolidated Statements of Cash Flows for the Thirteen
Weeks Ended November 2, 1996 and October 28, 1995 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
Exhibit 11.1 10
Exhibit 27.1 11
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<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands) Pro Forma
November 2, November 2, August 3,
1996 1996 1996
(Note 2)
Assets
<S> <C> <C> <C>
Current assets:
Cash and equivalents $ 16,819 $ 24,100 $ 12,659
Accounts receivable, net 218,576 218,576 165,442
Merchandise inventories 533,901 533,901 443,948
Deferred income taxes 21,666 21,666 21,666
Other current assets 44,413 44,413 45,368
Total current assets 835,375 842,656 689,083
Advance payment on redemption
of preferred stocks - 260,000 -
Property and equipment, net 456,148 456,148 457,625
Intangibles and other assets 105,142 105,142 105,642
Total assets $1,396,665 $1,663,946 $ 1,252,350
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 34,082 $ 34,082 $ 35,576
Accounts payable 176,725 176,725 192,146
Accrued liabilities 178,518 184,314 146,326
Total current liabilities 389,325 395,121 374,048
Long-term liabilities:
Notes and debentures 409,941 390,000 292,000
Other long-term liabilities 69,714 69,714 69,940
Total long-term liabilities 479,655 459,714 361,940
Deferred income taxes 33,329 33,329 33,329
Redeemable preferred stocks - 416,426 407,426
Common stock 499 460 380
Additional paid-in capital 485,631 350,670 83,106
Retained earnings (accumulated deficit) 8,226 8,226 (7,879)
Total liabilities and shareholders'
equity $1,396,665 $1,663,946 $ 1,252,350
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands except for Thirteen Weeks Ended
per share data) November 2, October 28,
1996 1995
<S> <C> <C>
Revenues $ 544,103 $ 489,898
Cost of goods sold including buying and
occupancy costs 350,579 318,083
Selling, general and administrative expenses 131,054 118,868
Corporate expenses 3,245 2,932
Operating earnings 59,225 50,015
Interest expense (6,848) (6,832)
Earnings before income taxes 52,377 43,183
Income taxes (21,475) (18,137)
Net earnings 30,902 25,046
Dividends and accretion on
redeemable preferred stocks (6,201) (7,276)
Loss on redemption of redeemable preferred
stocks (22,361) -
Net earnings applicable to common
shareholders $ 2,340 $ 17,770
Weighted average number of common and common
equivalent shares outstanding 39,601 38,088
Amounts per share applicable to common shareholders:
Net earnings $ .06 $ .47
See Notes to Condensed Consolidated Financial Statements.
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2<PAGE>
<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) Thirteen Weeks Ended
November 2, October 28,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 30,902 $ 25,046
Adjustments to reconcile net earnings
to net cash used by operations:
Depreciation and amortization 14,966 13,114
Other items (645) 1,811
Changes in current assets and liabilities:
Accounts receivable (53,134) (48,569)
Merchandise inventories (89,953) (118,040)
Other current assets 955 (9,573)
Accounts payable and
accrued liabilities 15,251 42,657
Net cash used by operating activities (81,658) (93,554)
CASH FLOWS USED BY INVESTING ACTIVITIES
Capital expenditures (12,570) (24,825)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 148,506 124,400
Repayment of debt (52,000) (318)
Issuance of common stock 269,163 3
Advance payment on redemption
of preferred stocks (260,000) -
Dividends paid - (6,780)
Net cash provided by financing activities 105,669 117,305
CASH AND EQUIVALENTS
Increase (decrease) during the period 11,441 (1,074)
Beginning balance 12,659 13,695
Ending balance $ 24,100 $ 12,621
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3<PAGE>
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of presentation
The Condensed Consolidated Financial Statements of The Neiman Marcus
Group, Inc. (the Company) are submitted in response to the requirements
of Form 10-Q and should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form
10-K. In the opinion of management, these statements contain all
adjustments, consisting only of normal recurring accruals, necessary for
a fair presentation of the results for the interim periods presented.
The retail industry is seasonal in nature, and the results of operations
for these periods have historically not been indicative of the results
for a full year.
2. Company public offering
On October 17, 1996 the Company completed a public offering of 8.0
million shares of its common stock at a price of $35.00 per share. The
net proceeds from the offering ($267.3 million) were used by the Company
to partially fund the repurchase of all of the Company's issued and
outstanding preferred stocks from Harcourt General, Inc., the Company's
majority shareholder. The total consideration paid by the Company to
Harcourt General in connection with the repurchase was $416.4 million,
plus accrued and unpaid dividends through the date of the public
offering. Of the total consideration, $260.0 million in cash was
advanced during October 1996. In addition to the advance, on November
12, 1996 the Company paid Harcourt General $27.2 million in cash and 3.9
million shares of the Company's common stock (valued at $135.0 million
at $35.0 per share) and completed the exchange for all of the Company's
issued and outstanding preferred stocks. In connection with the
transaction, the Company incurred a non-recurring charge to net earnings
applicable to common shareholders of $22.4 million.
The effect of the repurchase is shown on the accompanying Pro Forma
Condensed Consolidated Balance Sheet. Had the public offering and
repurchase of the preferred stocks taken place at the beginning of the
thirteen week periods ended November 2, 1996 and October 28, 1995, net
earnings per share applicable to common shareholders for those periods
would have been $.62 and $.50, respectively.
3. 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 first-in, first-out (FIFO) method.
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 higher than
reported by $15.5 million at November 2, 1996, $16.2 million at October
28, 1995 and $13.5 million at August 3, 1996. The FIFO method would
have increased net earnings by $1.2 million during each of the thirteen
weeks ended November 2, 1996 and the thirteen weeks ended October 28,
1995.
4<PAGE>
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. Selected balance sheet information
The following interim balance sheet information as of October 28, 1995
is presented forcomparative purposes:
Accounts receivable, net $198,679
Merchandise inventories 477,132
Total current assets 753,517
Property and equipment, net 436,418
Total assets 1,295,859
Total current liabilities 379,131
Long-term notes and debentures 367,000
Redeemable preferred stocks 405,938
Common shareholders' equity 45,077
5<PAGE>
THE NEIMAN MARCUS GROUP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Thirteen Weeks Ended November 2, l996
Compared with the Thirteen Weeks Ended October 28, 1995
Revenues in the thirteen weeks ended November 2, 1996 increased $54.2 million
or 11.1% over revenues in the thirteen weeks ended October 28, 1995. The
revenue growth was primarily attributable to a 6.8% increase in comparable
sales and the opening of two new Neiman Marcus stores in King of Prussia,
Pennsylvania in February 1996 and Paramus, New Jersey in August 1996.
Comparable sales at Neiman Marcus Stores increased 7.7%, while NM Direct
revenues increased 8.0% over the prior year and revenues at Bergdorf Goodman
increased only slightly.
Cost of goods sold including buying and occupancy costs increased $32.5
million or 10.2% to $350.6 million compared to the same period last year,
primarily due to revenue growth. As a percentage of revenues, cost of goods
sold decreased to 64.4% from 64.9% in the prior year, reflecting improved
gross margins at both NM Direct and Bergdorf Goodman.
Selling, general and administrative expenses increased 10.3% to $131.1 million
from $118.9 million in 1996. The increase is primarily attributable to
revenue growth and the two new Neiman Marcus stores. As a percentage of
revenues, selling, general and administrative expenses decreased to 24.1% from
24.3% in the prior year.
Interest expense remained essentially flat at $6.8 million in the thirteen
weeks ended November 2, 1996. The Company's average debt outstanding
increased over the prior year, however the repayment of senior notes with
borrowings from its revolving credit agreement resulted in a lower effective
interest rate.
The Company's effective income tax rate is expected to be 41% in fiscal 1997,
compared to 42% in the thirteen weeks ended October 28, 1995.
6<PAGE>
THE NEIMAN MARCUS GROUP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition and Liquidity Since August 3,1996
The Company had sufficient cash flows from operations and its revolving credit
agreement to finance its working capital needs, capital expenditures and
preferred dividend requirements during the thirteen week period ended November
2, 1996. The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
Condensed Consolidated Statements of Cash Flows.
Net cash used in operating activities was $81.7 million during the first
quarter of fiscal 1997. Net earnings before depreciation and amortization for
the thirteen week period provided cash of $45.9 million, which was offset by
changes in working capital of $126.9 million. The primary items affecting
working capital were increases in accounts receivable ($53.1 million),
merchandise inventories ($90.0 million) and accounts payable and accrued
liabilities ($15.3 million). The increase in accounts receivable was
primarily due to the increase in revenues during the period, while the
increase in inventories is primarily due to preparation for the holiday
selling season and the two new stores in King of Prussia and Paramus.
Capital expenditures were $12.6 million during the thirteen week period ended
November 2, 1996 as compared to $24.8 million in the prior year period. The
Company's capital expenditures consisted principally of existing store
renovations. The Company opened a new Neiman Marcus store in Paramus, New
Jersey in August 1996. Additional store renovation plans include the
remodeling of certain Neiman Marcus stores and both Bergdorf Goodman stores.
Capital expenditures are expected to approximate $75.0 million during fiscal
1997.
In October 1996, the Company issued 8.0 million shares of common stock to the
public at $35.00 per share. The net proceeds were used on November 12, 1996,
together with 3.9 million shares of common stock and borrowings of
approximately $20.0 million, to purchase all of its outstanding redeemable
preferred stocks and pay accrued and unpaid dividends. The repurchase of the
preferred stock will result in a reduction of dividend payments of $21.3
million in fiscal 1997 compared to fiscal 1996, and is expected to conserve
approximately $27.1 million of cash annually as well as eliminate impending
sinking fund requirements.
The Company increased its bank borrowings by $148.5 million since August 3,
1996, which included borrowings made in August 1996 to repay $52.0 million of
senior notes at maturity. At November 2, 1996 the Company had $190 million
available under its revolving credit facility. The Company believes that it
will have sufficient resources to fund its planned capital growth, operating
requirements and the retirement of its remaining $80.0 million of senior notes
which become due in December 1996.
The Company declared the final aggregate quarterly dividends on its preferred
stocks in the first quarter of fiscal 1997, and paid such dividends of $5.8
million on November 12, 1996 concurrent with the repurchase of these preferred
stocks. The Company paid $6.8 million in aggregate quarterly dividends on its
preferred stocks during the first quarter of fiscal 1996.
7<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Computation of weighted average number of shares outstanding
used in determining primary and fully diluted earnings per
share.
27.1 Financial data schedule.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
quarter ended November 2, 1996.
The Company filed a report on Form 8-K on November 25, 1996
describing in Item 5 (Other Events) of Form 8-K the repurchase
of its preferred stocks from Harcourt General and including
pro forma financial information.
8<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
THE NEIMAN MARCUS GROUP, INC.
Signature Title Date
Principal Financial Senior Vice President and December 13, 1996
Officer: Chief Financial Officer
/s/ John R. Cook
John R. Cook
Principal Accounting Vice President and Controller December 13, 1996
Officer:
/s/ Stephen C. Richards
Stephen C. Richards
9<PAGE>
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EXHIBIT 11.1
<CAPTION>
THE NEIMAN MARCUS GROUP, INC.
Computation of weighted average number of shares outstanding used in determining primary and fully
diluted earnings per share:
Thirteen Weeks Ended
(Shares in 000's) November 2, October 28,
1996 1995
Primary
<S> <C> <C>
1. Weighted average number of
common shares outstanding 39,413 37,984
2. Assumed exercise of certain
stock options based on average
market value 188 104
3. Weighted average number of
shares used in primary per
share computations 39,601 38,088
Fully diluted (A)
1. Weighted average number of
common shares outstanding 39,413 37,984
2. Assumed exercise of all dilutive
options based on higher of average
or closing market value 190 135
3. Weighted average number of
shares used in fully diluted
per share computations 39,603 38,119
(A) This calculation is submitted in accordance with the Securities Exchange Act of 1934 Release No.
9083 although not required by Footnote 2 to Paragraph 14 of APB Opinion No. 15 because it results in
dilution of less than 3%.
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-02-1997
<PERIOD-END> NOV-02-1996
<CASH> 24,100
<SECURITIES> 0
<RECEIVABLES> 225,376
<ALLOWANCES> 6,800
<INVENTORY> 533,901
<CURRENT-ASSETS> 842,656
<PP&E> 716,664
<DEPRECIATION> 260,516
<TOTAL-ASSETS> 1,663,946
<CURRENT-LIABILITIES> 395,121
<BONDS> 390,000
416,426
0
<COMMON> 460
<OTHER-SE> 358,896
<TOTAL-LIABILITY-AND-EQUITY> 1,663,946
<SALES> 544,103
<TOTAL-REVENUES> 544,103
<CGS> 350,579
<TOTAL-COSTS> 484,878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,487
<INTEREST-EXPENSE> 6,848
<INCOME-PRETAX> 52,377
<INCOME-TAX> 21,475
<INCOME-CONTINUING> 30,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,902
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
