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 May 3, 1997
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 June 10, 1997, there were outstanding 49,873,074 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
May 3, 1997, August 3, 1996 and April 27, 1996 1
Condensed Consolidated Statements of Earnings
for the Thirty-Nine and Thirteen Weeks Ended
May 3, 1997 and April 27, 1996 2
Condensed Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended May 3, 1997
and April 27, 1996 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 10.1 -
Exhibit 11.1 10
Exhibit 27.1 11
<PAGE>
<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
May 3, August 3, April 27,
(In thousands) 1997 1996 1996
Assets
<S> <C> <C> <C>
Current assets:
Cash and equivalents $ 21,122 $ 12,659 $ 10,832
Undivided interests in
NMG Credit Card Master Trust 151,055 114,392 143,304
Accounts receivable, net 60,438 51,050 57,169
Merchandise inventories 490,062 443,948 421,803
Deferred income taxes 21,666 21,666 17,102
Other current assets 40,812 45,368 41,195
Total current assets 785,155 689,083 691,405
Property and equipment, net 451,104 457,625 455,939
Intangibles and other assets 100,171 105,642 105,660
Total assets $1,336,430 $1,252,350 $1,253,004
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 8,797 $ 35,576 $ 31,460
Accounts payable 164,484 192,146 174,314
Accrued liabilities 159,838 146,326 152,264
Total current liabilities 333,119 374,048 358,038
Long-term liabilities:
Notes and debentures 360,000 292,000 317,000
Other long-term liabilities 69,268 69,940 68,026
Total long-term liabilities 429,268 361,940 385,026
Commitments and contingencies
Deferred income taxes 33,329 33,329 30,812
Redeemable preferred stocks - 407,426 406,930
Common stock 499 380 380
Additional paid-in capital 485,656 83,106 83,174
Retained earnings (accumulated
deficit) 54,559 (7,879) (11,356)
Total liabilities and shareholders'
equity $1,336,430 $1,252,350 $1,253,004
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
(In thousands except Thirty-Nine Weeks Ended Thirteen Weeks Ended
for per share amounts) May 3, April 27, May 3, April 27,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $1,712,582 $1,589,381 $ 506,532 $ 474,059
Cost of goods sold including
buying and occupancy costs 1,155,034 1,077,796 343,834 320,771
Selling, general and
administrative expenses 396,270 367,990 118,360 111,428
Corporate expenses 9,933 9,449 3,137 3,114
Operating earnings 151,345 134,146 41,201 38,746
Interest expense (20,439) (21,144) (6,086) (6,887)
Earnings before income taxes 130,906 113,002 35,115 31,859
Income taxes (53,671) (46,331) (14,397) (13,062)
Net earnings 77,235 66,671 20,718 18,797
Dividends and accretion on
redeemable preferred stocks (6,201) (21,828) - (7,276)
Loss on redemption of
redeemable preferred stocks (22,361) - - -
Net earnings applicable
to common shareholders $ 48,673 $ 44,843 $ 20,718 $ 11,521
Weighted average number of
common and common equiva-
lent shares outstanding 46,439 38,184 50,026 38,224
Net earnings per common share $ 1.05 $ 1.17 $ .41 $ .30
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2 <PAGE>
<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands) Thirty-Nine Weeks Ended
May 3, April 27,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 77,235 $ 66,671
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 44,364 41,827
Other items 1,763 (492)
Changes in assets and liabilities:
Accounts receivable (9,388) (11,520)
Merchandise inventories (46,114) (62,711)
Other current assets 4,556 (2,785)
Accounts payable and
accrued liabilities (15,671) 3,857
Net cash provided by
operating activities 56,745 34,847
CASH FLOWS USED BY INVESTING ACTIVITIES
Capital expenditures (35,086) (70,781)
Purchases of held-to-maturity securities (457,784) (411,754)
Maturities of held-to-maturity securities 421,121 372,911
Net cash used by investing activities (71,749) (109,624)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 173,500 93,250
Repayment of debt (132,000) (1,047)
Issuance of common stock 269,189 51
Payment of redemption of
preferred stock (281,426) -
Dividends paid (5,796) (20,340)
Net cash provided by financing activities 23,467 71,914
CASH AND EQUIVALENTS
Increase (decrease) during the period 8,463 (2,863)
Beginning balance 12,659 13,695
Ending balance $ 21,122 $ 10,832
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 in the Company's Annual Report on Form l0-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 historically have not been indicative of the results for a full
year. Fiscal year 1997 will have 52 weeks, while fiscal year 1996 had 53
weeks. The 53rd week in fiscal year 1996 was included in the 1996 fourth
quarter operating results.
Certain prior period amounts have been reclassified to conform to current
period presentation.
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. In addition to the net proceeds, on November 12,
1996 the Company paid Harcourt General 3.9 million shares of the Company's
common stock (valued at $135.0 million at $35.00 per share) and completed
the exchange for all of the Company s issued and outstanding preferred
stocks. 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. In connection
with the transaction, the Company incurred a non-recurring charge to net
earnings applicable to common shareholders of $22.4 million.
Had the public offering and repurchase of the preferred stocks taken place
at the beginning of the thirty-nine week periods ended May 3, 1997 and
April 27, 1996, net earnings per share applicable to common shareholders
for those periods would have been $1.54 and $1.33, respectively. Had
the public offering and repurchase of the preferred stocks taken place at
the beginning of the thirteen week periods ended May 3, 1997 and
April 27, 1996, net earnings per share applicable to common shareholders
for those periods would have been $.41 and $.38, 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 and, accordingly, the
Company has provided the following data for comparative purposes.
4<PAGE>
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Merchandise Inventories (continued)
If the FIFO method of inventory valuation had been used to value all
inventories, merchandise inventories would have been higher than reported
by $19.5 million at May 3, 1997, by $13.5 million at August 3, 1996 and by
$20.2 million at April 27, 1996. The FIFO valuation method would have
increased net earnings by $3.5 million during each of the thirty-nine
weeks ended May 3, 1997 and April 27, 1996.
4. Undivided interests in NMG Credit Card Master Trust
In March 1995, NMG 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. During the quarter ended May 3,
1997 the Company began to segregate its undivided interests in NMG Credit
Card Master Trust from its accounts receivable on the consolidated balance
sheets. The undivided interests in NMG Credit Card Master Trust include
the interests retained by NMG's subsidiary which are represented by the
Class C Certificate ($54.0 million) and the Seller's Certificate (the
excess of the total receivables transferred to the trust over the portion
represented by certificates sold to investors and the Class C
Certificate). The undivided interests in NMG Credit Card Master Trust
represent securities which the Company intends to hold to maturity in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Due
to the short-term revolving nature of the credit card portfolio, the
carrying value of the Company's undivided interest in the NMG Credit Card
Master Trust approximates fair value.
5. New accounting standards
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (SFAS 125). This statement
provides consistent guidance for distinguishing transfers of financial
assets (e.g. securitizations) that are sales from transfers that are
secured borrowings. The effect of adopting SFAS 125 was not material to
the Company's financial position or results of operations.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). Under the new standard, which must be adopted for periods
ending after December 15, 1997, the Company will be required to change the
method used to compute earnings per share and to restate prior periods
presented. A dual presentation of basic and diluted earnings per share
will be required. The basic earnings per share calculation, which will
replace primary earnings per share, will exclude the dilutive impact of
stock options and other common share equivalents. The diluted earnings
per share calculation, which will replace fully diluted earnings per
share, will include common share equivalents. Under SFAS 128, basic and
diluted earnings per share for the thirteen week period ended May 3, 1997
would have been, respectively, $.42 and $.41, and both basic and diluted
earnings per share for the thirty-nine week period would have been $1.05.
5<PAGE>
THE NEIMAN MARCUS GROUP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Continuing Operations for the Thirty-Nine Weeks Ended May 3, l997
Compared with the Thirty-Nine Weeks Ended April 27, 1996
Revenues in the thirty-nine weeks ended May 3, l997 increased $123.2 million
or 7.8% over revenues in the thirty-nine weeks ended April 27, 1996.
Comparable sales for the period increased 4.4%. New Neiman Marcus stores
opened in King of Prussia, Pennsylvania in February 1996 and Paramus, New
Jersey in August 1996 also contributed to the increase.
Cost of goods sold including buying and occupancy costs increased 7.2% to
$1.16 billion during the thirty-nine week period ended May 3, 1997 compared to
the same period last year, primarily due to higher sales volume. As a
percentage of revenues, cost of goods sold was 67.4% in l997 compared to 67.8%
in l996. The lower percentage is primarily due to proportionately lower
buying and occupancy costs, and to improved gross margins at Bergdorf Goodman.
Selling, general and administrative expenses increased 7.7% to $396.3 million
from $368.0 million in 1996, primarily due to new store openings and higher
selling costs for the thirty-nine week period. As a percentage of revenues,
selling, general and administrative expenses were essentially unchanged at
23.1% in 1997 compared to 23.2% in 1996.
Interest expense decreased 3.3% to $20.4 million in the 1997 period. Higher
average borrowings were offset by a lower effective interest rate which
resulted from the repayment at maturity of the Company's fixed rate senior
notes with borrowings under its revolving credit agreement.
The Company's effective income tax rate is estimated to be 41.0% in fiscal
l997, unchanged from fiscal 1996.
Results of Continuing Operations for the Thirteen Weeks Ended May 3, l997
Compared with the Thirteen Weeks ended April 27, l996
Revenues in the thirteen weeks ended May 3, l997 increased $32.5 million or
6.8% over revenues in the thirteen weeks ended April 27, 1996. The primary
factors contributing to the revenue increase were the opening of a new Neiman
Marcus store in Paramus, New Jersey in August 1996 and a 9.9% increase in
revenues at NM Direct. Comparable sales for the period increased 4.5%.
Cost of goods sold including buying and occupancy costs increased 7.2% in the
thirteen week period ended May 3, 1997 compared to the same period last year,
primarily due to higher sales volume. As a percentage of revenues, cost of
goods sold was 67.9% in l997 compared to 67.7% in l996. The increase in the
1997 quarter is primarily due to higher markdowns.
Selling, general and administrative expenses increased 6.2% in the 1997
period, primarily due to higher sales volume and the additional Neiman Marcus
store in Paramus, New Jersey. As a percentage of revenues, selling, general
and administrative expenses were essentially unchanged at 23.4% in 1997 and
23.5% in 1996.
6<PAGE>
THE NEIMAN MARCUS GROUP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Interest expense decreased 11.6% to $6.1 million in the 1997 period. Higher
average borrowings were offset by a lower effective interest rate which
resulted from the repayment at maturity of the Company's fixed rate senior
notes with borrowings under its revolving credit agreement.
Changes in Financial Condition and Liquidity since August 3, 1996
During the thirty-nine weeks ended May 3, 1997, the Company financed its
working capital needs, capital expenditures and preferred dividend
requirements primarily with cash provided from its revolving credit agreement.
The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
Condensed Consolidated Statement of Cash Flows.
Net cash provided by operating activities was $56.7 million during the thirty-
nine weeks ended May 3, l997. The primary item affecting working capital was
an increase in merchandise inventories ($46.1 million).
Capital expenditures were $35.1 million during the thirty-nine weeks ended May
3, 1997 as compared to $70.8 million for the same period in fiscal 1996. The
Company's capital expenditures consisted principally of renovations of
existing stores. The Company opened new Neiman Marcus stores in King of
Prussia, Pennsylvania in February 1996 and in Paramus, New Jersey in August
1996. Capital expenditures are expected to approximate $55.0 million during
the current fiscal year, and will include remodeling of certain Neiman Marcus
stores and both Bergdorf Goodman stores as well as initial expenditures
related to a new Neiman Marcus store in Hawaii, expected to open in 1998.
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 the Company's 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 has eliminated all future
preferred dividend and sinking fund requirements.
The Company increased its bank borrowings by $173.5 million since August 3,
1996, which included borrowings in August 1996 and December 1996 to repay $52
million and $80 million, respectively, of senior notes at maturity. At May 3,
1997, the Company had $140.0 million available under its revolving credit
facility. The Company believes that it will have sufficient resources to fund
its planned capital growth and operating requirements.
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 aggregate quarterly dividends of $20.3 million on
its preferred stocks in the thirty-nine weeks ended April 27, 1996.
7<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 The Neiman Marcus Group, Inc. 1997 Incentive Plan,
incorporated herein by reference to Exhibit A to the
Company's Definitive Schedule 14A (Definitive Proxy
Statement and Definitive Additional Materials), dated
December 10, 1996 and filed with the Securities and
Exchange Commission.
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 May 3, 1997.
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 June 17, 1997
Officer: Chief Financial Officer
S/John R. Cook
John R. Cook
Principal Accounting Vice President and Controller June 17, 1997
Officer:
S/Stephen C. Richards
Stephen C. Richards
9<PAGE>
<TABLE>
EXHIBIT 11.1
THE NEIMAN MARCUS GROUP, INC.
<CAPTION>
Computation of weighted average number of shares outstanding used in determining primary and
fully diluted earnings per share:
(Shares in 000's) Thirty-nine Weeks Ended Thirteen weeks Ended
May 3, April 27, May 3, April 27,
1997 1996 1997 1996
Primary
<S> <C> <C> <C> <C>
1. Weighted average number of
common shares outstanding 46,259 37,998 49,873 38,003
2. Assumed exercise of certain
stock options based on
average market value 180 186 153 221
3. Weighted average number of
shares used in primary per
share computations 46,439 38,184 50,026 38,224
Fully diluted (A)
1. Weighted average number of
common shares outstanding 46,259 37,998 49,873 38,003
2. Assumed exercise of all
dilutive options based on
higher of average or
closing market value 180 212 153 268
3. Weighted average number of
shares used in fully diluted
per share computations 46,439 38,210 50,026 38,271
(A) This calculation is submitted in accordance with Securities Exchange Act of l934
Release No. 9083 although not required by Footnote 2 to Paragraph l4 of APB
Opinion No. l5 because it results in dilution of less than 3%.
</TABLE>
<PAGE>
<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
statement.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-2-1997
<PERIOD-END> MAY-3-1997
<CASH> 21,122
<SECURITIES> 151,055
<RECEIVABLES> 66,833
<ALLOWANCES> 6,395
<INVENTORY> 490,062
<CURRENT-ASSETS> 785,155
<PP&E> 738,139
<DEPRECIATION> 287,035
<TOTAL-ASSETS> 1,336,430
<CURRENT-LIABILITIES> 333,119
<BONDS> 360,000
0
0
<COMMON> 499
<OTHER-SE> 540,215
<TOTAL-LIABILITY-AND-EQUITY> 1,336,430
<SALES> 1,712,582
<TOTAL-REVENUES> 1,712,582
<CGS> 1,155,034
<TOTAL-COSTS> 1,561,237
<OTHER-EXPENSES> 22,361
<LOSS-PROVISION> 14,461
<INTEREST-EXPENSE> 20,439
<INCOME-PRETAX> 130,906
<INCOME-TAX> 53,671
<INCOME-CONTINUING> 77,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,235
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
