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 2, 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 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, 1998, there were 49,759,047 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
May 2, 1998, August 2, 1997 and May 3, 1997 1
Condensed Consolidated Statements of Earnings
for the Thirty-Nine and Thirteen Weeks Ended
May 2, 1998 and May 3, 1997 2
Condensed Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended May 2, 1998
and May 3, 1997 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 27.1 11
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<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
May 2, August 2, May 3,
1998 1997 1997
---------- ----------- ----------
(In thousands)
<S> <C> <C> <C>
Assets
Current assets:
Cash and equivalents $ 13,278 $ 16,861 $ 21,122
Undivided interests in
NMG Credit Card Master Trust 165,906 128,341 151,055
Accounts receivable, net 60,185 55,041 60,438
Merchandise inventories 516,272 460,412 490,062
Deferred income taxes 19,049 19,049 21,666
Other current assets 47,825 54,339 40,812
---------- ---------- ----------
Total current assets 822,515 734,043 785,155
---------- ---------- ----------
Property and equipment, net 469,107 454,133 451,104
Intangibles and other assets 121,677 99,684 100,171
---------- ---------- ----------
Total assets $1,413,299 $1,287,860 $1,336,430
========== ========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 16,488 $ 8,810 $ 8,797
Accounts payable 172,019 174,952 164,484
Accrued liabilities 181,247 147,730 159,838
---------- --------- ----------
Total current liabilities 369,754 331,492 333,119
---------- --------- ----------
Long-term liabilities:
Revolving credit agreement 300,000 300,000 360,000
Other long-term liabilities 71,292 69,738 69,268
---------- --------- ----------
Total long-term liabilities 371,292 369,738 429,268
---------- --------- ----------
Commitments and contingencies
Deferred income taxes 31,902 31,902 33,329
Common stock 499 499 499
Additional paid-in capital 481,196 485,658 485,656
Retained earnings 158,656 68,571 54,559
---------- --------- ----------
Total liabilities and shareholders'
equity $1,413,299 $1,287,860 $1,336,430
========== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<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 2, May 3, May 2, May 3,
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues $1,836,618 $1,712,582 $ 547,732 $ 506,532
Cost of goods sold including
buying and occupancy costs 1,231,597 1,155,034 368,437 343,834
Selling, general and
administrative expenses 427,925 396,270 130,915 118,360
Corporate expenses 10,153 9,933 3,458 3,137
---------- ---------- --------- ---------
Operating earnings 166,943 151,345 44,922 41,201
Interest expense (16,802) (20,439) (4,986) (6,086)
---------- ---------- --------- ---------
Earnings before income taxes 150,141 130,906 39,936 35,115
Income taxes (60,056) (53,671) (15,974) (14,397)
---------- ---------- --------- ---------
Net earnings 90,085 77,235 23,962 20,718
Dividends and accretion on
redeemable preferred stocks - (6,201) - -
Loss on redemption of
redeemable preferred stocks - (22,361) - -
---------- ---------- ---------- ---------
Net earnings applicable
to common shareholders $ 90,085 $ 48,673 $ 23,962 $ 20,718
========== ========== ========== =========
Weighted average number
of common and common
equivalent shares
outstanding:
Basic 49,825 46,259 49,760 49,873
========== ========== ========== =========
Diluted 49,989 46,439 49,957 50,026
========== ========== ========== =========
Earnings per share
applicable to common
shareholders:
Basic $ 1.81 $ 1.05 $ .48 $ .42
=========== ========== ========== =========
Diluted $ 1.80 $ 1.05 $ .48 $ .41
=========== ========== ========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands) Thirty-Nine Weeks Ended
May 2, May 3,
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 90,085 $ 77,235
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 46,516 44,364
Other items 5,227 1,763
Changes in current assets and
liabilities:
Accounts receivable (4,183) (9,388)
Merchandise inventories (50,210) (46,114)
Other current assets 9,378 4,556
Accounts payable and
accrued liabilities 19,942 (15,671)
-------- --------
Net cash provided by
operating activities 116,755 56,745
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (57,679) (35,086)
Acquisition of Chef's Catalog (31,000) -
Purchases of held-to-maturity securities (513,362) (457,784)
Maturities of held-to-maturity securities 475,797 421,121
-------- --------
Net cash used by investing activities (126,244) (71,749)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 10,600 173,500
Repayment of debt - (132,000)
Issuance (repurchase) of common stock (4,694) 269,189
Payment of redemption of preferred stocks - (281,426)
Dividends paid - (5,796)
-------- --------
Net cash provided by financing activities 5,906 23,467
-------- --------
CASH AND EQUIVALENTS
Increase (decrease) during the period (3,583) 8,463
Beginning balance 16,861 12,659
-------- --------
Ending balance $ 13,278 $ 21,122
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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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 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.
Had the Company repurchased its redeemable preferred stocks at the
beginning of the thirteen and thirty-nine week periods ended May 3, 1997,
basic and diluted earnings per share available to common shareholders for
those periods would have been $.42 and $.41, and $1.55 and $1.54,
respectively.
Certain reclassifications have been made to the 1997 financial statements
to conform to the 1998 presentation.
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 $21.0 million at May 2, 1998, by $15.0 million at August 2, 1997 and by
$19.5 million at May 3, 1997. The FIFO method would have increased net
earnings by $3.6 million and $3.5 million during the thirty-nine week
periods ended May 2, 1998 and May 3, 1997, respectively.
3. Acquisition of Chef's Catalog
On January 5, 1998 the Company acquired Chef's Catalog for approximately
$31.0 million in cash. Chef's Catalog is a direct marketer of gourmet
cookware and high-end kitchenware, and its operations are being integrated
with NM Direct. The acquisition has been accounted for by the purchase
method of accounting and, accordingly, the results of operations of Chef's
Catalog for the period from the date of acquisition are included in the
accompanying condensed consolidated financial statements. Intangible
assets, consisting primarily of trademarks, customer lists and goodwill,
will be amortized on a straight-line basis over their estimated useful
lives.
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THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Revolving credit agreement
In October 1997, the Company replaced its existing revolving credit
agreement with a new revolving credit agreement with 20 banks, pursuant to
which the Company may borrow up to $650 million. The new agreement, which
expires in October 2002, may be terminated by the Company at any time on
three business days' notice. The rate of interest payable is determined
according to one of four pricing options. On May 2, 1998, borrowings of
$300 million were outstanding at an interest rate of 5.9% and were
classified as long-term.
5. 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.
During the thirty-nine weeks ended May 2, 1998, the Company repurchased
160,100 shares at an average price of $29.32 per share under this stock
repurchase program.
6. 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 applicable to
common shareholders for the computations of basic and diluted EPS during
the periods presented. All options were included in the computation of
diluted EPS because the exercise price of all options was less than the
average market price of the common shares.
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended Thirteen Weeks Ended
(in thousands May 2, May 3, May 2, May 3,
of shares) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares for computation
of basic EPS 49,825 46,259 49,760 49,873
Effect of assumed
option exercises 164 180 197 153
------ ------ ------ ------
Shares for computation
of diluted EPS 49,989 46,439 49,957 50,026
====== ====== ====== ======
</TABLE>
7. Subsequent event
In May 1998, the Company issued $250 million of senior notes and
debentures to the public. The proceeds of the debt offering will be used
to repay borrowings outstanding on the Company's revolving credit
agreement. The debt is comprised of $125 million 6.65% senior notes due
2008 and $125 million 7.125% senior debentures due 2028. Interest on the
securities is payable semiannually in arrears beginning December 1998.
<PAGE>
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THE NEIMAN MARCUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Thirty-Nine Weeks Ended May 2, l998 Compared
with the Thirty-Nine Weeks Ended May 3, 1997
Revenues in the thirty-nine weeks ended May 2, l998 increased 7.2% to $1.84
billion from $1.71 billion in the thirty-nine weeks ended May 3, 1997.
Comparable sales for the period increased 6.2%. Revenues at both Neiman
Marcus Stores and Bergdorf Goodman increased, reflecting comparable sales
increases of 7.2% and 9.8%, respectively. NM Direct revenues increased in
comparison to the prior year period as a result of sales from Chef's Catalog,
a direct marketer of gourmet cookware and high-end kitchenware, which was
acquired on January 5, 1998.
Cost of goods sold including buying and occupancy costs increased 6.6% to
$1.23 billion during the thirty-nine week period ended May 2, 1998 compared to
$1.16 billion during the same period last year, primarily due to higher sales
volume. As a percentage of revenues, cost of goods sold was 67.1% in fiscal
l998 compared to 67.4% in fiscal l997. The lower percentage is primarily due
to proportionately lower buying and occupancy costs, and to higher markups at
Neiman Marcus Stores and Bergdorf Goodman.
Selling, general and administrative expenses increased 8.0% to $427.9 million
from $396.3 million in fiscal 1997, primarily due to higher selling costs and
increased catalogue circulation for the thirty-nine week period ending May 2,
1998. As a percentage of revenues, selling, general and administrative
expenses were 23.3% and 23.1% in the first thirty-nine weeks of fiscal 1998
and 1997, respectively.
Interest expense decreased 17.8% to $16.8 million in the fiscal 1998 period.
The decrease resulted from lower average borrowings as well as 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.
Results of Operations for the Thirteen Weeks Ended May 2, l998 Compared with
the Thirteen Weeks ended May 3, l997
Revenues in the thirteen weeks ended May 2, l998 increased 8.1% to $547.7
million from $506.5 million in the thirteen weeks ended May 3, 1997.
Comparable sales for the period increased 5.6%. Higher comparable sales at
Neiman Marcus Stores and Bergdorf Goodman in the thirteen weeks ended May 2,
1998 contributed to the increase in revenues over the same period in fiscal
1997. NM Direct also contributed to the increase, as sales generated from the
recently acquired Chef's Catalog more than offset a comparable sales decrease
in the fiscal 1998 period.
Cost of goods sold including buying and occupancy costs increased 7.2% in the
thirteen week period ended May 2, 1998 compared to the same period last year,
primarily due to higher sales volume. As a percentage of revenues, cost of
goods sold was 67.3% in fiscal l998 compared to 67.9% in fiscal l997. The
decrease in the 1998 quarter is primarily due to higher markups at Neiman
Marcus Stores and Bergdorf Goodman.
Selling, general and administrative expenses increased 10.6% in the fiscal
1998 period, primarily due to higher sales volume. As a percentage of
revenues, selling, general and administrative expenses increased to 23.9% in
fiscal 1998 compared to 23.4% in fiscal 1997. This increase relates
principally to higher catalogue circulation costs, and to a lesser extent,<PAGE>
lower finance charge income and pre-opening costs associated with the Neiman
Marcus store under construction in Hawaii.
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THE NEIMAN MARCUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Interest expense decreased 18.1% to $5.0 million in the fiscal 1998 period,
resulting primarily from lower average borrowings outstanding.
Changes in Financial Condition and Liquidity since August 2, 1997
During the thirty-nine weeks ended May 2, 1998, the Company financed its
working capital needs and capital expenditures 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 $116.8 million during the
thirty-nine weeks ended May 2, l998. The primary items affecting working
capital were an increase in merchandise inventories ($50.2 million) offset in
part by an increase in accounts payable and accrued liabilities ($19.9
million).
Capital expenditures were $57.7 million during the thirty-nine weeks ended May
2, 1998 as compared to $35.1 million for the same period in fiscal 1997. The
Company's capital expenditures consisted principally of the construction of a
new Neiman Marcus store in Honolulu, Hawaii, expected to open in September
1998, and renovations of existing Neiman Marcus and Bergdorf Goodman stores.
Capital expenditures are expected to approximate $100.0 million during the
current fiscal year.
In January 1998, the Company acquired Chef's Catalog for approximately $31.0
million in cash. The acquisition was funded through borrowings under the
Company's revolving credit agreement.
The Company increased its bank borrowings by $10.6 million since August 2,
1997. At May 2, 1998, the Company had $350.0 million available under its
revolving credit facility. In May 1998, the Company issued $250 million of
senior notes and debentures to the public. The proceeds of the debt offering
have been used to repay borrowings outstanding on its revolving credit
facility. The Company believes that it will have sufficient resources to fund
its planned capital growth and operating requirements.
Year 2000 Date Conversion
The Company has evaluated the effect of the year 2000 on its computer systems
and is implementing plans to ensure its systems and applications will
effectively process information necessary to support ongoing operations of the
Company in the year 2000 and beyond. The Company is engaging both internal
and external resources to test its systems for year 2000 compliance. The
Company currently anticipates substantially completing the year 2000 project
by January 1999. Based on management's current estimates, the costs of system
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, the Company continues to
invest in new technology in connection with its ongoing systems development
plans.
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THE NEIMAN MARCUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company has initiated formal communications with its significant vendors
to determine the extent to which the Company's interface systems and
operations are vulnerable to those third parties' failure to rectify their own
year 2000 issues. Despite the Company's efforts, it is uncertain whether the
systems of other companies on which the Company's systems rely will be
converted on a timely basis and will not have an adverse effect on the
Company's operations.
Forward-Looking Statements
Statements in this release 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; significant increases in paper, printing
and postage costs; and changes in the Company's relationships with designers
and other resources.
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THE NEIMAN MARCUS GROUP, INC.
PART II
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 filed a Current Report on Form 8-K on March
24, 1998 restating prior period Financial Data Schedules
in order to reflect changes in earnings per share
resulting from the adoption of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share."
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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 15, 1998
Officer: Chief Financial Officer
S/John R. Cook
John R. Cook
Principal Accounting Vice President and Controller June 15, 1998
Officer:
S/Catherine N. Janowski
Catherine N. Janowski<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
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 13,278
<SECURITIES> 165,906
<RECEIVABLES> 61,902
<ALLOWANCES> 1,717
<INVENTORY> 516,272
<CURRENT-ASSETS> 822,515
<PP&E> 799,596
<DEPRECIATION> 330,489
<TOTAL-ASSETS> 1,413,299
<CURRENT-LIABILITIES> 369,754
<BONDS> 300,000
0
0
<COMMON> 499
<OTHER-SE> 639,852
<TOTAL-LIABILITY-AND-EQUITY> 1,413,299
<SALES> 1,836,618
<TOTAL-REVENUES> 1,836,618
<CGS> 1,231,597
<TOTAL-COSTS> 1,669,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,052
<INTEREST-EXPENSE> 16,802
<INCOME-PRETAX> 150,141
<INCOME-TAX> 60,056
<INCOME-CONTINUING> 90,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,085
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.80
</TABLE>
