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 January 30, 1999
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 March 8, 1999, there were 49,009,914 outstanding shares of the issuer's
common stock, $.01 per 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
January 30, 1999, August 1, 1998 and January 31, 1998 1
Condensed Consolidated Statements of Earnings
for the Twenty-Six and Thirteen Weeks Ended
January 30, 1999 and January 31, 1998 2
Condensed Consolidated Statements of Cash Flows
for the Twenty-Six Weeks Ended January 30, 1999
and January 31, 1998 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 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit 27.1 12
<PAGE>
<TABLE>
<CAPTION>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
January 30, August 1, January 31,
(In thousands) 1999 1998 1998
----------- ---------- ----------
<S> <C> <C> <C>
Assets
Current assets:
Cash and equivalents $ 80,600 $ 56,644 $ 22,916
Undivided interests in
NMG Credit Card Master Trust 203,282 138,867 200,159
Accounts receivable, net 58,914 53,571 59,389
Merchandise inventories 495,810 499,068 444,355
Deferred income taxes 24,058 24,058 19,049
Other current assets 60,229 61,188 70,885
----------- ---------- -----------
Total current assets 922,893 833,396 816,753
Property and equipment, net 505,456 479,256 461,884
Other assets 123,973 125,140 124,691
----------- ----------- -----------
Total assets $1,552,322 $1,437,792 $1,403,328
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 5,932 $ 5,963 $ 5,874
Accounts payable 186,920 201,490 180,060
Accrued liabilities 209,099 180,809 173,256
----------- ----------- -----------
Total current liabilities 401,951 388,262 359,190
----------- ----------- -----------
Long-term liabilities:
Notes and debentures 344,628 284,617 325,000
Other long-term liabilities 70,147 71,083 70,946
Deferred income taxes 37,139 37,139 31,902
----------- ----------- -----------
Total long-term liabilities 451,914 392,839 427,848
----------- ----------- -----------
Minority interest 1,098 - -
Shareholders' equity:
Common stock 490 498 498
Additional paid-in capital 466,412 481,295 481,098
Retained earnings 230,457 174,898 134,694
----------- ----------- -----------
Total liabilities and shareholders'
equity $1,552,322 $1,437,792 $1,403,328
=========== ============ ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except Twenty-Six Weeks Ended Thirteen Weeks Ended
----------------------- ------------------------
for per share amounts) January 30, January 31, January 30, January 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $1,376,267 $1,288,886 $789,154 $ 708,387
Cost of goods sold including
buying and occupancy costs 932,642 863,160 547,754 487,033
Selling, general and
administrative expenses 332,981 297,010 181,095 155,827
Corporate expenses 6,973 6,695 3,692 3,557
----------- ----------- ----------- -----------
Operating earnings 103,671 122,021 56,613 61,970
Interest expense 13,135 11,816 6,999 6,087
----------- ---------- ----------- ----------
Earnings before income taxes
and minority interest 90,536 110,205 49,614 55,883
Income taxes 35,309 44,082 19,349 22,353
----------- ----------- ----------- -----------
Earnings before minority
interest 55,227 66,123 30,265 33,530
Minority interest in net loss
of subsidiary 332 - 332 -
----------- ----------- ----------- -----------
Net earnings $55,559 $66,123 $30,597 $33,530
=========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding:
Basic 49,233 49,833 49,006 49,809
=========== =========== =========== ===========
Diluted 49,347 49,995 49,108 49,963
=========== =========== =========== ===========
Earnings per share:
Basic $ 1.13 $ 1.33 $ .62 $ .67
=========== =========== =========== ===========
Diluted $ 1.13 $ 1.32 $ .62 $ .67
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2 <PAGE>
<TABLE>
<CAPTION>
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands) Twenty-Six Weeks Ended
----------------------
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $55,559 $ 66,123
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 32,893 31,404
Minority interest (332) -
Other items 3,677 3,411
Changes in current assets and liabilities:
Accounts receivable (4,239) (3,387)
Merchandise inventories 4,126 21,707
Other current assets 973 (13,682)
Accounts payable and
accrued liabilities 9,283 19,632
---------- ----------
Net cash provided by operating activities 101,940 125,208
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (55,900) (36,641)
Acquisition of Chef's Catalog - (31,000)
Acquisition of Gurwitch Bristow Products, net
of cash acquired (2,778) -
Purchases of held-to-maturity securities (397,009) (272,094)
Maturities of held-to-maturity securities 332,594 200,276
---------- ----------
Net cash used by investing activities (123,093) (139,459)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 60,000 25,000
Repurchase of common stock (15,356) (4,694)
Other financing activities 465 -
---------- ----------
Net cash provided by financing activities 45,109 20,306
---------- ----------
CASH AND EQUIVALENTS
Increase during the period 23,956 6,055
Beginning balance 56,644 16,861
---------- ----------
Ending balance $ 80,600 $ 22,916
========== ==========
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.
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 and, 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 $16.5 million at January 30, 1999, by $14.5 million at August 1, 1998
and by $19.0 million at January 31, 1998. The FIFO valuation method would
have increased net earnings by $1.2 million and $2.4 million during the
twenty-six weeks ended January 30, 1999 and January 31, 1998,
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 twenty-six weeks ended January 30, 1999, the Company
repurchased 827,000 shares at an average price of $18.57 per share under
this stock repurchase program, and 512,900 shares were remaining under
this program at January 30, 1999.
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 to net earnings were made for the
computations of basic and diluted EPS during the periods presented.
Options to purchase 896,300 shares of common stock were not included in
the computation of diluted EPS for the twenty-six and thirteen weeks ended
January 30, 1999. Options to purchase 434,350 shares of common stock were
not included in the computation of diluted EPS for the twenty-six and
thirteen weeks ended January 31, 1998. These options were not included
because the exercise price of those options was greater than the average
market price of the common shares.
4 <PAGE>
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
4. Earnings per share (continued)
(In thousands of shares) Twenty-Six Weeks Ended Thirteen Weeks Ended
---------------------- --------------------
January 30, January 31, January 30, January 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares for computation of
basic EPS 49,233 49,833 49,006 49,809
Effect of assumed option
exercises 114 162 102 154
----------- ---------- --------- -----------
Shares for computation of
diluted EPS 49,347 49,995 49,108 49,963
=========== ========== ========= ===========
</TABLE>
5. Acquisition of Gurwitch Bristow Products
On November 2, 1998, the Company acquired a 51 percent interest in Gurwitch
Bristow Products for approximately $6.7 million in cash. Gurwitch Bristow
Products manufactures and markets the Laura Mercier cosmetic lines.
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the results of operations of Gurwitch Bristow Products for
the period from November 2, 1998 are included in the accompanying consolidated
financial statements. The $5.3 million excess of cost over the estimated fair
value of net assets acquired was allocated to goodwill, which will be
amortized on a straight-line basis over 30 years. Assets acquired and
liabilities assumed have been recorded at their estimated fair values.
6. Subsequent event
On February 1, 1999, the Company acquired a 56 percent interest in Kate Spade
LLC for approximately $33.6 million in cash. Kate Spade is a manufacturer and
marketer of high-end fabric and leather handbags and accessories.
5<PAGE>
THE NEIMAN MARCUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Twenty-Six Weeks Ended January 30, 1999 Compared
with the Twenty-Six Weeks Ended January 31, 1998
Revenues in the twenty-six weeks ended January 30, 1999 increased $87.4
million or 6.8% over revenues in the twenty-six weeks ended January 31, 1998.
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
which opened in September 1998. Total comparable sales for the Company
increased 1.9%. Comparable sales increased 2.8% at Neiman Marcus Stores,
decreased 2.1% at Bergdorf Goodman, and decreased 0.3% at NM Direct.
Cost of goods sold including buying and occupancy costs increased 8.0% to
$932.6 million during the twenty-six week period ended January 30, 1999
compared to the same period last year, primarily due to increased sales. As a
percentage of revenues, cost of goods sold increased to 67.8% from 67.0% in
the prior year, due primarily to higher markdowns across all divisions.
Selling, general and administrative expenses increased 12.1% to $333.0 million
from $297.0 million in 1998. As a percentage of revenues, selling, general
and administrative expenses increased to 24.2% from 23.0% in the prior year.
The increase is primarily attributable to higher selling and sales promotion
expenses and pre-opening costs.
Interest expense increased 11.2% to $13.1 million in the twenty-six weeks
ended January 30, 1999 from $11.8 million in the prior year. The increase
resulted from a higher effective interest rate in borrowings resulting from
the issuance of fixed rate debt in May 1998, as well as higher average
outstanding borrowings.
The Company's effective income tax rate is estimated to be 39.0% in fiscal
l999 as compared to 40.0% in fiscal 1998.
Results of Operations for the Thirteen Weeks Ended January 30, 1999
Compared with the Thirteen Weeks ended January 31, 1998
Revenues in the thirteen weeks ended January 30, 1999 increased $80.8 million
or 11.4% over revenues in the thirteen weeks ended January 31, 1998. The
increase in revenues was primarily attributable to a comparable sales increase
of 6.4% at NM Stores, the new Neiman Marcus store in Hawaii and sales from
Chef's Catalog, acquired in January 1998. Total comparable sales for the
Company increased 5.3%. Comparable sales increased 6.4% at Neiman Marcus
Stores, increased 3.0% at Bergdorf Goodman, and decreased 0.4% at NM Direct.
Cost of goods sold including buying and occupancy costs increased 12.5% to
$547.8 million in the thirteen week period ended January 30, 1999 compared to
the same period last year, primarily due to increased sales and higher
markdowns. As a percentage of revenues, cost of goods sold was 69.4% in l999
compared to 68.8% in l998. The increase in the 1999 quarter is primarily due
to higher markdowns.
Selling, general and administrative expenses increased 16.2% to $181.1 million
in the 1999 period from $155.8 million in 1998, primarily due to higher sales
volume and higher sales promotion expenses. As a percentage of revenues,
selling, general and administrative expenses were 22.9% in 1999 and 22.0% in
1998.
6<PAGE>
THE NEIMAN MARCUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Interest expense increased 15.0% to $7.0 million in the 1999 period. The
increase resulted from a higher effective 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 twenty-six weeks ended January 30, 1999, the Company financed its
working capital needs and capital expenditures primarily with cash provided
from operations and 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 provided by operating activities was $101.9 million during the
twenty-six weeks ended January 30, 1999. The primary items affecting working
capital were an increase in accounts receivable of $4.2 million, a decrease in
merchandise inventories of $4.1 million and an increase in accounts payable
and accrued liabilities of $9.3 million.
Capital expenditures were $55.9 million during the twenty-six weeks ended
January 30, 1999 as compared to $36.6 million for the same period in fiscal
1998. 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 $110.0 million during fiscal 1999.
In November 1998, the Company acquired a 51 percent interest in Gurwitch
Bristow Products for approximately $6.7 million in cash. In February 1999,
the Company acquired a 56 percent interest in Kate Spade LLC for approximately
$33.6 million in cash. Both acquisitions were funded primarily through
borrowings under the Company's revolving credit facility.
The Company increased its bank borrowings by $60.0 million since August 1,
1998. At January 30, 1999, the Company had $555.0 million available under its
revolving credit facility. Additionally, the Company repurchased 827,000
shares of its common stock during the twenty-six weeks ended January 30, 1999
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.
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 its 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 July
1999.
7<PAGE>
THE NEIMAN MARCUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 responses 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 result 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 June 1999.
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: change 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 relationship with designers and
other resources.
8<PAGE>
THE NEIMAN MARCUS GROUP, INC.
Part II
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on January 15, 1999.
The following matters were voted upon at the meeting:
1. Election of three Class II directors for terms of one year.
Matina S. Horner Brian J. Knez
For 43,109,004 For 43,101,347
Against 47,387 Against 55,044
Walter J. Salmon
For 43,118,438
Against 37,953
2. Ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP as the Company's independent auditors
for the 1999 fiscal year.
For 43,122,522
Against 17,325
Abstain 16,543
3. Stockholder proposal concerning cumulative voting in the
election of directors.
For 4,170,378
Against 35,989,688
Abstain 101,951
Non-voting 2,894,373
9<PAGE>
THE NEIMAN MARCUS GROUP, INC.
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 January 30, 1999.
10<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 March 11, 1999
Officer: Chief Financial Officer
S/John R. Cook
John R. Cook
Principal Accounting Vice President and Controller March 11, 1999
Officer:
S/Catherine N. Janowski
Catherine N. Janowski
11<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> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JAN-30-1999
<CASH> 80,600
<SECURITIES> 203,282
<RECEIVABLES> 60,614
<ALLOWANCES> 1,700
<INVENTORY> 495,810
<CURRENT-ASSETS> 922,893
<PP&E> 865,253
<DEPRECIATION> 359,797
<TOTAL-ASSETS> 1,552,322
<CURRENT-LIABILITIES> 401,951
<BONDS> 344,628
0
0
<COMMON> 490
<OTHER-SE> 696,869
<TOTAL-LIABILITY-AND-EQUITY> 1,552,322
<SALES> 1,376,267
<TOTAL-REVENUES> 1,376,267
<CGS> 932,642
<TOTAL-COSTS> 1,272,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 894
<INTEREST-EXPENSE> 13,135
<INCOME-PRETAX> 90,536
<INCOME-TAX> 35,309
<INCOME-CONTINUING> 55,559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,559
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
