-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TexUlCm9VnNwlF9uWPuS06MAGLMMaaDvObnZkdw65SWwMUY+syCvp6XCKpL11vsd k+dTJFsXy+4DuN4zdP7ODQ== 0000819539-99-000002.txt : 19990316 0000819539-99-000002.hdr.sgml : 19990316 ACCESSION NUMBER: 0000819539-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEIMAN MARCUS GROUP INC CENTRAL INDEX KEY: 0000819539 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 954119509 STATE OF INCORPORATION: DE FISCAL YEAR END: 0801 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09659 FILM NUMBER: 99564875 BUSINESS ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: P O BOX 9187 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 BUSINESS PHONE: 6172320760 MAIL ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: P O BOX 9187 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 10-Q 1 THE NEIMAN MARCUS GROUP, INC. 2ND QUARTER 10Q 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. 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
THE NEIMAN MARCUS GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) January 30, August 1, January 31, (In thousands) 1999 1998 1998 ----------- ---------- ---------- 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.
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 ----------- ----------- ----------- ----------- 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.
2
THE NEIMAN MARCUS GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Twenty-Six Weeks Ended ---------------------- January 30, January 31, 1999 1998 ----------- ----------- 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.
3 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 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 ---------- ---------- ---------- ---------- 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 =========== ========== ========= ===========
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 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 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 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 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 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 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 EX-27.1 2 FINANCIAL DATA SCHEDULE/ARTICLE 5
5 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. 1000 6-MOS JUL-31-1999 JAN-30-1999 80,600 203,282 60,614 1,700 495,810 922,893 865,253 359,797 1,552,322 401,951 344,628 0 0 490 696,869 1,552,322 1,376,267 1,376,267 932,642 1,272,596 0 894 13,135 90,536 35,309 55,559 0 0 0 55,559 1.13 1.13
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