-----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, LjAyMuwMonqH5nk1GEhGMinccAqpVRhnv7k1bjPTtDL8RWaWLthqoLQhrUSFiif6 +sWFsqSOgGMV1sZsUAcRzA== 0000819539-99-000004.txt : 19990616 0000819539-99-000004.hdr.sgml : 19990616 ACCESSION NUMBER: 0000819539-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990501 FILED AS OF DATE: 19990615 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: 99646351 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 May 1, 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 June 7, 1999, there were 49,016,891 outstanding shares of the issuer's common stock, $.01 par 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 May 1, 1999, August 1, 1998 and May 2, 1998 1 Condensed Consolidated Statements of Earnings for the Thirty-Nine and Thirteen Weeks Ended May 1, 1999 and May 2, 1998 2 Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended May 1, 1999 and May 2, 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 6. Exhibits and Reports on Form 8-K 9 Signatures 10 Exhibit 27.1 11 THE NEIMAN MARCUS GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
May 1, August 1, May 2, (In thousands) 1999 1998 1998 ---------- ----------- ---------- Assets Current assets: Cash and equivalents $ 39,592 $ 56,644 $ 13,278 Undivided interests in NMG Credit Card Master Trust 185,268 138,867 165,906 Accounts receivable, net 63,535 53,571 60,185 Merchandise inventories 570,029 499,068 516,272 Deferred income taxes 24,058 24,058 19,049 Other current assets 43,887 61,188 47,825 ---------- ----------- ---------- Total current assets 926,369 833,396 822,515 Property and equipment, net 506,409 479,256 469,107 Other assets 153,246 125,140 121,677 ---------- ----------- ---------- Total assets $1,586,024 $ 1,437,792 $1,413,299 ---------- ----------- ---------- ---------- ----------- ---------- Liabilities and Shareholders' Equity Current liabilities: Notes payable and current maturities of long-term liabilities $ 13,132 $ 5,963 $ 16,488 Accounts payable 176,378 201,490 172,019 Accrued liabilities 232,436 180,809 181,247 ---------- ----------- ---------- Total current liabilities 421,946 388,262 369,754 ---------- ----------- ---------- Long-term liabilities: Notes and debentures 319,634 284,617 300,000 Other long-term liabilities 70,854 71,083 71,292 Deferred income taxes 37,139 37,139 31,902 ---------- ----------- ---------- Total long-term liabilities 427,627 392,839 403,194 ---------- ----------- ---------- Minority interest 3,578 - - Shareholders' equity: Common stock 491 498 499 Additional paid-in capital 466,697 481,295 481,196 Retained earnings 265,685 174,898 158,656 ---------- ----------- ---------- Total liabilities and shareholders' equity $1,586,024 $1,437,792 $1,413,299 ---------- ----------- ---------- ---------- ----------- ----------
See Notes to Condensed Consolidated Financial Statements. 1 THE NEIMAN MARCUS GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands except Thirty-Nine Weeks Ended Thirteen Weeks Ended ------------------------- -------------------- for per share amounts) May 1, May 2, May 1, May 2, 1999 1998 1999 1998 ------------- ----------- ---------- -------- Revenues $1,988,026 $ 1,836,618 $611,759 $ 547,732 Cost of goods sold including buying and occupancy costs 1,330,058 1,231,597 397,416 368,437 Selling, general and administrative expenses 478,174 427,925 145,193 130,915 Corporate expenses 10,538 10,153 3,565 3,458 ------------- ------------ ---------- --------- Operating earnings 169,256 166,943 65,585 44,922 Interest expense (19,185) (16,802) (6,050) (4,986) ------------- ----------- --------- --------- Earnings before income taxes and minority interest 150,071 150,141 59,535 39,936 Income taxes (58,528) (60,056) (23,219) (15,974) ------------- ------------ ---------- --------- Earnings before minority interest 91,543 90,085 36,316 23,962 Minority interest in net earnings of subsidiaries (756) - (1,088) - ------------- ------------ ---------- --------- Net earnings $ 90,787 $ 90,085 $ 35,228 $ 23,962 ------------- ------------ ---------- --------- ------------- ------------ ---------- --------- Weighted average number of common and common equivalent shares outstanding: Basic 49,159 49,825 49,012 49,760 ------------- ------------ ---------- --------- ------------- ------------ ---------- --------- Diluted 49,263 49,989 49,117 49,957 ------------- ------------ ---------- --------- ------------- ------------ ---------- --------- Earnings per share: Basic $ 1.85 $ 1.81 $ .72 $ .48 ------------- ------------ ---------- --------- ------------- ------------ ---------- --------- Diluted $ 1.84 $ 1.80 $ .72 $ .48 ------------- ------------ ---------- --------- ------------- ------------ ---------- ---------
See Notes to Condensed Consolidated Financial Statements. 2 THE NEIMAN MARCUS GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) Thirty-Nine Weeks Ended ----------------------- May 1, May 2, 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $90,787 $ 90,085 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 49,955 46,516 Minority interest 756 - Other items 5,405 5,227 Changes in current assets and liabilities: Accounts receivable (6,217) (4,183) Merchandise inventories (67,219) (50,210) Other current assets 17,366 9,378 Accounts payable and accrued liabilities 17,453 19,942 -------- ------- Net cash provided by operating activities 108,286 116,755 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (69,778) (57,679) Acquisitions, net of cash acquired (36,754) (31,000) Purchases of held-to-maturity securities (540,889) (513,362) Maturities of held-to-maturity securities 494,488 475,797 -------- ------- Net cash used by investing activities (152,933) (126,244) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 42,200 10,600 Repurchase of common stock (15,356) (4,694) Other financing activities 751 - -------- ------- Net cash provided by financing activities 27,595 5,906 -------- ------- CASH AND EQUIVALENTS Decrease during the period (17,052) (3,583) Beginning balance 56,644 16,861 -------- ------- Ending balance $39,592 $13,278 -------- ------- -------- -------
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. 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 $17.5 million at May 1, 1999, by $14.5 million at August 1, 1998 and by $21.0 million at May 1, 1998. The FIFO method would have increased net earnings by $1.8 million and $3.6 million during the thirty-nine week periods ended May 1, 1999 and May 2, 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 thirty-nine weeks ended May 1, 1999, the Company repurchased 827,000 shares at an average price of $18.57 per share under this stock repurchase program; 512,900 shares were remaining under this program at May 1, 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 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. 4 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Earnings per share (cont'd) Options to purchase 844,960 shares and 404,960 shares of common stock were not included in the computation of diluted EPS for the thirty-nine and thirteen weeks ended May 1, 1999, respectively, because the exercise price of those options was greater than the average market price of the common shares. All options were included in the computation of diluted EPS for the thirty-nine and thirteen weeks ended May 2, 1998 because the exercise price of the options was less than the average market price of the common stock.
Thirty-Nine Weeks Ended Thirteen Weeks Ended ----------------------- -------------------- (in thousands May 1, May 2, May 1, May 2, of shares) 1999 1998 1999 1998 ------- ------- ------- ------- Shares for computation of basic EPS 49,159 49,825 49,012 49,760 Effect of assumed option exercises 104 164 105 197 ------- ------- ------- ------- Shares for computation of diluted EPS 49,263 49,989 49,117 49,957 ------- ------- ------- ------- ------- ------- ------- -------
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 condensed consolidated financial statements. The excess of cost over the estimated fair value of net assets acquired of $5.3 million was allocated to goodwill, which will be amortized on a straight-line basis over 25 years. Assets acquired and liabilities assumed have been recorded at their estimated fair values. 6. Acquisition of Kate Spade LLC 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. The acquisition has been accounted for by the purchase method of accounting; therefore, the results of operations of Kate Spade for the period from February 1, 1999 are included in the accompanying condensed consolidated financial statements. The excess of cost over the estimated fair value of net assets acquired of $32.7 million was allocated to trademarks which will be amortized on a straight-line basis over 25 years. Assets acquired and liabilities assumed have been recorded at their estimated fair values. 7. Subsequent event On May 14, 1999, a committee of independent directors of the Company, and the Boards of Directors of the Company and of Harcourt General, Inc. ("Harcourt General"), approved a series of transactions (the "Transactions") relating to a plan by Harcourt General to spin-off to the holders of Harcourt General's common stock approximately 21.4 million of the approximately 26.4 million shares of the Company's common stock held by Harcourt General in a distribution to be tax free to Harcourt General and its shareholders. The Transactions are expected to be completed late in the third quarter or early in the fourth quarter of the 1999 calendar year, subject to, among other things, approval of the tax-free status of the spin-off by the Internal Revenue Service and approval by the stockholders of the Company of a recapitalization in which, among other things, the approximately 21.4 million shares of the Company's common stock to be distributed will be exchanged for a new class of common 5 7. Subsequent Event (continued) stock of the Company that will have the right to elect approximately 80% of the Company's board of directors, and the remaining shares will have the right to elect approximately 20% of the Company's board of directors. On May 27, 1999, the Company filed a Form 8-K with the Securities and Exchange Commission (the "Commission") in which the Transactions are described in greater detail. For further information regarding the Transactions, reference may be made to the Form 8-K and to such other reports filed by the Company and Harcourt General from time to time with the Commission. 6 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 1, l999 Compared with the Thirty-Nine Weeks Ended May 2, 1998 Revenues in the thirty-nine weeks ended May 1, l999 increased $151.4 million or 8.2% over revenues in the thirty-nine weeks ended May 2, 1998. The increase in revenues was primarily attributable to higher comparable sales, 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 3.2%. Comparable sales increased 4.7% at Neiman Marcus Stores, decreased 4.2% at Bergdorf Goodman, and increased 0.9% at NM Direct. Cost of goods sold including buying and occupancy costs increased 8.0% to $1.33 billion during the thirty-nine week period ended May 1, 1999 compared to $1.23 billion during the same period last year, primarily due to increased sales. As a percentage of revenues, cost of goods sold decreased to 66.9% from 67.1% in the prior year, due primarily to proportionately lower buying and occupancy costs. Selling, general and administrative expenses increased 11.7% to $478.2 million from $427.9 million in fiscal 1998. As a percentage of revenues, selling, general and administrative expenses increased to 24.1% from 23.3% in the prior year. The increase is primarily attributable to higher selling and sales promotion expenses and pre-opening costs. Interest expense increased 14.2% to $19.2 million in the fiscal 1999 period. The increase resulted from higher average borrowings outstanding, as well as a higher effective interest rate which resulted from the issuance of fixed rate debt in May 1998. Results of Operations for the Thirteen Weeks Ended May 1, l999 Compared with the Thirteen Weeks ended May 2, l998 Revenues in the thirteen weeks ended May 1, l999 increased 11.7% to $611.8 million from $547.7 million in the thirteen weeks ended May 2, 1998. Comparable sales for the period increased 6.3%. Higher comparable sales at Neiman Marcus Stores of 9.3% in the thirteen weeks ended May 1, 1999 contributed to the increase in revenues over the same period in fiscal 1998. Cost of goods sold including buying and occupancy costs increased 7.9% to $397.4 million in the thirteen week period ended May 1, 1999 compared to the same period last year, primarily due to increased sales. As a percentage of revenues, cost of goods sold was 65.0% in fiscal l999 compared to 67.3% in fiscal l998. The decrease in the 1999 quarter is primarily due to improved gross margins as well as proportionately lower buying and occupancy costs. Selling, general and administrative expenses increased 10.9% in the fiscal 1999 period, primarily due to higher sales volume and higher sales promotion expenses. In fiscal 1999, the Company shifted the timing of certain sales promotion events into the third quarter. Such events occurred in the fourth quarter in fiscal 1998. As a percentage of revenues, selling, general and administrative expenses decreased to 23.7% in fiscal 1999 compared to 23.9% in fiscal 1998. Interest expense increased 21.3% to $6.1 million in the fiscal 1999 period, resulting primarily from higher average borrowings outstanding and a higher effective interest rate resulting from the issuance of fixed rate debt in May 1998. 7 THE NEIMAN MARCUS GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Changes in Financial Condition and Liquidity since August 1, 1998 During the thirty-nine weeks ended May 1, 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 $108.3 million during the thirty-nine weeks ended May 1, l999. The primary items affecting working capital were an increase in merchandise inventories of $67.2 million offset in part by an increase in accounts payable and accrued liabilities of $17.5 million and a decrease in other assets of $17.4 million. Capital expenditures were $69.8 million during the thirty-nine weeks ended May 1, 1999 as compared to $57.7 million for the same period in fiscal 1998. Capital expenditures include the purchase of a building adjacent to the Neiman Marcus store in Union Square in San Francisco for a future expansion of this store, 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 $42.2 million since August 1, 1998. At May 1, 1999, the Company had $580.0 million available under its revolving credit facility. The Company believes that it will have sufficient resources to fund its planned capital expenditures and 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 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 July 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 responses to the Company's inquiries, the Company has identified those suppliers and vendors which it feels are 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 any adverse effect on the Company's results of operations. 8 THE NEIMAN MARCUS GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year 2000 Date Conversion (continued) 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 reasonable 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 July 1999. 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; 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. 9 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 did not file any reports on Form 8-K during the thirteen week period ended May 1, 1999. The Company filed a report on Form 8-K on May 27, 1999 describing in Item 5 (Other Events) a proposed spin-off by Harcourt General to the holders of its common stock of approximately 21.4 million of the approximately 26.4 million shares of the Company's common stock held by Harcourt General in a tax free distribution. 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 June 11, 1999 Officer: Chief Financial Officer /s/ John R. Cook John R. Cook Principal Accounting Vice President and Controller June 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 the Condensed Consolidated Statement of Earnings and is qualified in its entirety by reference to such financial statements. 1000 9-MOS JUL-30-1999 MAY-01-1999 39,592 185,268 65,238 1,703 570,029 926,369 881,332 374,923 1,586,024 421,946 319,634 0 0 491 732,382 1,586,024 1,988,026 1,988,026 1,330,058 1,818,770 0 1,211 19,185 150,071 58,528 90,787 0 0 0 90,787 1.85 1.84
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