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 October 31, 1998
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 02467
(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 4, 1998, there were 49,003,455 outstanding shares of the
issuer's common stock, $.01 par value.
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THE NEIMAN MARCUS GROUP, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of October 31, 1998,
August 1, 1998 and November 1, 1997 1
Condensed Consolidated Statements of Earnings for the Thirteen
Weeks ended October 31, 1998 and November 1, 1997 2
Condensed Consolidated Statements of Cash Flows for the Thirteen
Weeks Ended October 31, 1998 and November 1, 1997 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 27.1 10
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<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands)
October 31, August 1, November 1,
1998 1998 1997
----------- ----------- -----------
Assets
<S> <C> <C> <C>
Current assets:
Cash and equivalents $ 24,661 $ 56,644 $ 18,537
Undivided interests in NMG
Credit Card Master Trust 180,504 138,867 177,268
Accounts receivable, net 59,592 53,571 64,692
Merchandise inventories 646,176 499,068 569,733
Deferred income taxes 24,058 24,058 19,049
Other current assets 53,733 61,188 47,531
----------- ----------- -----------
Total current assets 988,724 833,396 896,810
Property and equipment, net 494,974 479,256 457,952
Other assets 123,577 125,140 97,218
----------- ----------- -----------
Total assets $ 1,607,275 $ 1,437,792 $ 1,451,980
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 5,973 $ 5,963 $ 71,466
Accounts payable 211,826 201,490 207,643
Accrued liabilities 206,688 180,809 183,885
----------- ----------- -----------
Total current liabilities 424,487 388,262 462,994
Long-term liabilities:
Notes and debentures 409,622 284,617 300,000
Other long-term liabilities 69,477 71,083 69,735
----------- ----------- -----------
479,099 355,700 369,735
----------- ----------- -----------
Deferred income taxes 37,139 37,139 31,902
Common stock 490 498 499
Additional paid-in capital 466,200 481,295 485,686
Retained earnings 199,860 174,898 101,164
----------- ----------- -----------
Total liabilities and shareholders'
equity $ 1,607,275 $ 1,437,792 $ 1,451,980
=========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1<PAGE>
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<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
(In thousands except for Thirteen Weeks Ended
per share data) October 31, November 1,
1998 1997
----------- -----------
<S> <C> <C>
Revenues $ 587,113 $ 580,499
Cost of goods sold including buying and
occupancy costs 384,888 376,127
Selling, general and administrative expenses 151,886 141,183
Corporate expenses 3,281 3,138
----------- -----------
Operating earnings 47,058 60,051
Interest expense (6,136) (5,729)
----------- -----------
Earnings before income taxes 40,922 54,322
Income taxes (15,960) (21,729)
----------- -----------
Net earnings $ 24,962 $ 32,593
=========== ===========
Weighted average number
of common and common
equivalent shares
outstanding:
Basic 49,460 49,905
============ ===========
Diluted 49,574 50,096
============ ===========
Earnings per share:
Basic $ .50 $ .65
=========== ===========
Diluted $ .50 $ .65
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2<PAGE>
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<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands) Thirteen Weeks Ended
--------------------------
October 31, November 1,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 24,962 $ 32,593
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 16,136 15,747
Other items 202 1,692
Changes in current assets and liabilities:
Accounts receivable (6,021) (9,651)
Merchandise inventories (147,108) (109,321)
Other current assets 7,455 6,808
Accounts payable and
accrued liabilities 34,623 68,846
----------- ----------
Net cash (used for) provided by operating
activities (69,751) 6,714
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (30,492) (18,767)
Purchases of held-to-maturity securities (160,652) (164,817)
Maturities of held-to-maturity securities 119,015 115,890
----------- ----------
Net cash used for investing activities (72,129) (67,694)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 125,000 62,656
Repurchase of common stock (15,356) -
Other financing activities 253 -
----------- ----------
Net cash provided by financing activities 109,897 62,656
----------- ----------
CASH AND EQUIVALENTS
Increase (decrease) during the period (31,983) 1,676
Beginning balance 56,644 16,861
---------- ----------
Ending balance $ 24,661 $ 18,537
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3 <PAGE>
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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 historically have not been indicative of the results
for a full year.
2. 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 October 31, 1998, $14.5 million at August
1, 1998 and $17.0 million at November 1, 1997. The FIFO method would
have increased net earnings by $.6 million and $1.2 million during the
thirteen weeks ended October 31, 1998 and November 1, 1997,
respectively.
3. Stock repurchase program
------------------------
In December 1997, the Board of Directors of the Company authorized the
repurchase of up to one million shares of common stock in the open
market. In September 1998, the Company's Board of Directors authorized
an increase in the stock repurchase program to 1.5 million shares.
During the thirteen weeks ended October 31, 1998, the Company
repurchased 827,000 shares at an average price of $18.57 per share. At
October 31, 1998 there were 512,900 shares remaining under this
program.
4. Earnings per share
------------------
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share," the weighted average shares
used in computing basic and diluted earnings per share (EPS) are as
presented in the table below. No adjustments were made to net earnings
for the computations of basic and diluted EPS during the periods
presented.
Options to purchase 430,850 and 438,350 shares of common stock were not
included in the computation of diluted EPS for the thirteen weeks ended
October 31, 1998 and November 1, 1997, respectively, because the
exercise price of those options was greater than the average market
price of the common shares.
4 <PAGE>
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THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
4. Earnings per share (continued)
------------------
<CAPTION>
(In thousands of shares) Thirteen Weeks Ended
--------------------------
October 31, November 1,
1998 1997
----------- -----------
<S> <C> <C>
Shares for computation
of basic EPS 49,460 49,905
Effect of assumed
option exercises 114 191
----------- -----------
Shares for computation
of diluted EPS 49,574 50,096
=========== ===========
</TABLE>
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 October 31, 1998 Compared
- ------------------------------------------------------------------------------
with the Thirteen Weeks Ended November 1, 1997
- ----------------------------------------------
Revenues in the thirteen weeks ended October 31, 1998 increased $6.6 million
or 1.1% over revenues in the thirteen weeks ended November 1, 1997. The
increase in revenues was primarily attributable to sales from Chef's Catalog,
acquired in January 1998, and the new Neiman Marcus store in Hawaii. Total
comparable sales for the Company decreased 2.3%. Comparable sales decreased
1.7% at Neiman Marcus Stores, 7.4% at Bergdorf Goodman and 1.1% at NM Direct.
Cost of goods sold including buying and occupancy costs increased $8.8 million
or 2.3% to $384.9 million compared to the same period last year, primarily due
to increased sales. As a percentage of revenues, cost of goods sold increased
to 65.6% from 64.8% in the prior year, due primarily to lower overall
comparable sales and, to a lesser extent, to lower margins on sales by Chef's
Catalog, acquired in January 1998, and higher markdowns at Bergdorf Goodman.
Selling, general and administrative expenses increased 7.5% to $151.8 million
from $141.2 million in 1997. As a percentage of revenues, selling, general
and administrative expenses increased to 25.9% from 24.3% in the prior year.
The increase is primarily attributable to lower overall comparable sales, pre-
opening costs incurred in the period and, to a lesser extent, higher selling
and sales promotion expenses.
Interest expense increased 7.1% to $6.1 million in the thirteen weeks ended
October 31, 1998 from $5.7 million in the prior year. The increase resulted
from a higher effective interest rate on borrowings resulting from the
issuance of fixed rate debt in May 1998, as well as higher average outstanding
borrowings.
Changes in Financial Condition and Liquidity Since August 1, 1998
- -----------------------------------------------------------------
During the thirteen weeks ended October 31, 1998, the Company financed its
working capital needs and capital expenditures primarily with cash from its
revolving credit facility. 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 for operating activities was $69.8 million during the first
thirteen weeks of fiscal 1999. The primary items affecting working capital
were increases in merchandise inventories of $147.1 million and accounts
payable and accrued liabilities of $34.6 million. The seasonal increases in
inventories and accounts payable are primarily due to the upcoming holiday
selling season.
Capital expenditures were $30.5 million during the thirteen week period ended
October 31, 1998 as compared to $18.8 million in the prior year period. The
Company purchased a building adjacent to its Neiman Marcus store on Union
Square in San Francisco for a future expansion of this store. Capital
expenditures also include existing store renovations and completion of the
construction of the new Neiman Marcus store in Honolulu, Hawaii. Capital
expenditures are expected to approximate $120.0 million during fiscal 1999.
The Company increased its bank borrowings by $125.0 million since August 1,
1998. At October 31, 1998 the Company had $490 million available under its
revolving credit facility. Additionally the Company repurchased 827,000
shares of its common stock during the thirteen weeks ended October 31, 1998 at
an average price of $18.57 per share. The Company believes that it will have
sufficient resources to fund its planned capital expenditures and its
operating requirements.
6 <PAGE>
THE NEIMAN MARCUS GROUP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year 2000 Date Conversion
- -------------------------
The Company has completed its assessment of its hardware and software systems,
including the embedded systems in the Company's buildings, property and
equipment, and is implementing plans to ensure that the operations of such
systems will not be adversely affected by the Year 2000 date change.
The Company is presently in the process of renovating non-compliant systems
and implementing converted and replaced systems for substantially all of its
hardware and software systems. The Company estimates that its efforts to make
these systems Year 2000 compliant are approximately 75% complete, with
substantial completion of the Year 2000 project currently anticipated for
February 1999.
The Company has established an ongoing program to communicate with its
significant suppliers and vendors to determine the extent to which the
Company's systems and operations are vulnerable to those third parties'
failure to rectify their own Year 2000 issues. Based on response to the
Company's inquiries, the Company has identified those suppliers and vendors
most at risk for failing to achieve Year 2000 compliance on a timely basis and
is monitoring their continuing progress. The Company is not presently aware
of any significant exposure arising from potential third party failures.
However, there can be no assurance that the systems of other companies on
which the Company's systems or operations rely will be timely converted or
that any failure of such parties to achieve Year 2000 compliance would not
have an adverse effect on the Company's results of operations.
The Company has engaged both internal and external resources to assess,
reprogram, test and implement its systems for Year 2000 compliance. Based on
management's current estimates, the costs of Year 2000 remediation, including
system renovation, modifications and enhancements, which have been and will be
expensed as incurred, are not expected to be material to the results of
operations or the financial position of the Company. Additionally, such
expenditures have not adversely affected the Company's ability to continue its
investment in new technology in connection with its ongoing systems
development plans.
Management presently believes the Company's most reasonably likely worst case
Year 2000 scenario could arise from a business interruption caused by
governmental agencies, utility companies, telecommunication service companies,
shipping companies or other service providers outside the Company's control.
There can be no assurance that such providers will not suffer business
interruption caused by a Year 2000 issue. Such an interruption could have a
material adverse effect on the Company's results of operations.
The Company is in the process of developing a contingency plan for continuing
operations in the event of Year 2000 failures, and the current target for
completing that plan is December 1998.
Forward-looking Statements
- --------------------------
Statements in this report referring to the expected future plans and
performance of the Company are forward-looking statements. Actual future
results may differ materially from such statements. Factors that could affect
future performance include, but are not limited to: changes in economic
conditions or consumer confidence; changes in consumer preferences or fashion
trends; delays in anticipated store openings; adverse weather conditions,
particularly during peak selling seasons; changes in demographic or retail
environments; competitive influences; failure of the Company or third parties
to be Year 2000 compliant; significant increases in paper, printing and
postage costs; and changes in the Company's relationships with designers and
other resources.
7 <PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
--------
27.1 Financial data schedule.
(b) Reports on Form 8-K.
-------------------
The Company did not file any reports on Form 8-K during the
thirteen week period ended October 31, 1998.
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 11, 1998
Officer: Chief Financial Officer
/s/ John R. Cook
Principal Accounting Vice President and Controller December 11, 1998
Officer:
/s/ Catherine N. Janowski
Catherine N. Janowski
9 <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
Earnings and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> OCT-31-1998
<CASH> 24,661
<SECURITIES> 180,504
<RECEIVABLES> 61,392
<ALLOWANCES> 1,800
<INVENTORY> 646,176
<CURRENT-ASSETS> 988,724
<PP&E> 842,797
<DEPRECIATION> 347,823
<TOTAL-ASSETS> 1,607,275
<CURRENT-LIABILITIES> 424,487
<BONDS> 409,622
0
0
<COMMON> 490
<OTHER-SE> 666,060
<TOTAL-LIABILITY-AND-EQUITY> 1,607,275
<SALES> 587,113
<TOTAL-REVENUES> 587,113
<CGS> 384,888
<TOTAL-COSTS> 540,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 520
<INTEREST-EXPENSE> 6,136
<INCOME-PRETAX> 40,922
<INCOME-TAX> 15,960
<INCOME-CONTINUING> 24,962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,962
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
