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 February 1, 1997
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 March 10, 1997, there were 49,872,399 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
February 1, 1997, August 3, 1996 and
January 27, 1996 1
Condensed Consolidated Statements of Earnings
for the Twenty-Six and Thirteen Weeks ended
February 1, 1997 and January 27, 1996 2
Condensed Consolidated Statements of Cash
Flows for the Twenty-Six Weeks ended
February 1, 1997 and January 27, 1996 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 9
Signatures 10
Exhibit 11.1 11
Exhibit 27.1 12
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
February 1, August 3, January 27,
(In thousands) 1997 1996 1996
Assets
Current assets:
Cash and equivalents $ 23,780 $ 12,659 $ 38,239
Accounts receivable, net 238,525 165,442 224,014
Merchandise inventories 415,927 443,948 348,733
Deferred income taxes 21,666 21,666 17,102
Other current assets 53,511 45,368 47,959
Total current assets 753,409 689,083 676,047
Property and equipment, net 452,317 457,625 451,974
Intangibles and other assets 103,355 105,642 105,340
Total assets $1,309,081 $1,252,350 $1,233,361
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current
maturities of long-term
liabilities $ 8,807 $ 35,576 $ 21,167
Accounts payable 151,814 192,146 148,549
Accrued liabilities 155,685 146,326 155,714
Total current liabilities 316,306 374,048 325,430
Long-term liabilities:
Notes and debentures 370,000 292,000 342,000
Other long-term liabilities 69,476 69,940 68,031
Total long-term liabilities 439,476 361,940 410,031
Deferred income taxes 33,329 33,329 30,812
Redeemable preferred stocks - 407,426 406,434
Common stock 499 380 380
Additional paid-in capital 485,631 83,106 83,151
Retained earnings (accumulated
deficit) 33,840 (7,879) (22,877)
Total liabilities and
shareholders' equity $1,309,081 $1,252,350 $1,233,361
See Notes to Condensed Consolidated Financial Statements.
THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except for Twenty-Six Weeks Ended Thirteen Weeks Ended
per share amounts) February 1, January 27, February 1, January 27,
1997 1996 1997 1996
Revenues $1,206,050 $1,115,322 $ 661,947 $ 625,424
Cost of goods sold
including buying and
occupancy costs 811,200 757,025 460,621 438,942
Selling, general and
administrative expenses 277,910 256,562 146,856 137,694
Corporate expenses 6,796 6,335 3,551 3,403
Operating earnings 110,144 95,400 50,919 45,385
Interest expense 14,353 14,257 7,505 7,425
Earnings before
income taxes 95,791 81,143 43,414 37,960
Income taxes 39,274 33,269 17,800 15,132
Net earnings 56,517 47,874 25,614 22,828
Dividends and accretion
on redeemable
preferred stocks (6,201) (14,552) - (7,276)
Loss on redemption
of redeemable
preferred stocks (22,361) - - -
Net earnings applicable
to common shareholders $ 27,955 $ 33,322 $ 25,614 $ 15,552
Weighted average number
of common and common
equivalent shares
outstanding 44,627 38,163 49,653 38,238
Amounts per share
applicable to common
shareholders:
Net earnings $ .63 $ .87 $ .52 $ .41
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
February 1, January 27,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 56,517 $ 47,874
Adjustments to reconcile net earnings
to net cash provided by (used for) operations:
Depreciation and amortization 30,425 26,844
Other items (284) 727
Changes in current assets and liabilities:
Accounts receivable (73,083) (73,904)
Merchandise inventories 28,021 10,359
Other current assets (8,143) (9,549)
Accounts payable and
accrued liabilities (32,494) (18,458)
Net cash provided by (used for)
operating activities 959 (16,107)
CASH FLOWS USED BY INVESTING ACTIVITIES
Capital expenditures (23,279) (52,986)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 183,500 107,900
Repayment of debt (132,000) (731)
Issuance of common stock 269,163 28
Payment on redemption of preferred stocks (281,426) -
Dividends paid (5,796) (13,560)
Net cash provided by financing activities 33,441 93,637
CASH AND EQUIVALENTS
Increase during the period 11,121 24,544
Beginning balance 12,659 13,695
Ending balance $ 23,780 $ 38,239
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. Company public offering
On October 17, 1996, the Company completed a public offering of 8.0
million shares of its common stock at a price of $35.00 per share. The
net proceeds from the offering ($267.3 million) were used by the Company
to partially fund the repurchase of all of the Company's issued and
outstanding preferred stocks from Harcourt General, Inc., the Company's
majority shareholder. In addition to the net proceeds, on November 12,
1996 the Company paid Harcourt General 3.9 million shares of the Company's
common stock (valued at $135.0 million at $35.00 per share) and completed
the exchange for all of the Company's issued and outstanding preferred
stocks. The total consideration paid by the Company to Harcourt General
in connection with the repurchase was $416.4 million, plus accrued and
unpaid dividends through the date of the public offering. In connection
with the transaction, the Company incurred a non-recurring charge to net
earnings applicable to common shareholders of $22.4 million.
Had the public offering and repurchase of the preferred stocks taken place
at the beginning of the twenty-six week periods ended February 1, 1997 and
January 27, 1996, net earnings per share applicable to common shareholders
for those periods would have been $1.13 and $.96, respectively. Had the
public offering and repurchase of the preferred stocks taken place at the
beginning of the thirteen week periods ended February 1, 1997 and January
27, 1996, net earnings per share applicable to common shareholders for
those periods would have been $.51 and $.46, respectively.
3. 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 February 1, 1997, $13.5 million at August 3, 1996 and
$18.2 million at January 27, 1996. The FIFO method would have increased
net earnings by $2.3 million during the twenty-six weeks ended February 1,
1997 and $2.4 million during the twenty-six weeks ended January 27, 1996.
4
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. New accounting standard
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (SFAS 125). This statement
provides consistent guidance for distinguishing transfers of financial
assets (e.g. securitizations) that are sales from transfers that are
secured borrowings. The effect of adopting SFAS 125 was not material to
the Company's financial position or results of operations.
5
THE NEIMAN MARCUS GROUP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Continuing Operations for the Twenty-six Weeks Ended February 1, 1997
Compared with the Twenty-six Weeks Ended January 27, 1996
Revenues in the twenty-six weeks ended February 1, 1997 increased $90.7
million or 8.1% over revenues in the twenty-six weeks ended January 27, 1996.
The increase resulted primarily from a comparable sales increase of 4.4% and
the opening of new Neiman Marcus stores in King of Prussia, Pennsylvania in
February 1996 and Paramus, New Jersey in August 1996.
Cost of goods sold, including buying and occupancy costs, increased $54.2
million or 7.2% compared to the same period last year. The increase was
primarily due to the higher sales volume. As a percentage of revenues, cost
of goods sold, including buying and occupancy costs, decreased to 67.3% in the
first half of fiscal 1997 compared to 67.9% in the first half of fiscal 1996.
The lower percentage was principally due to lower markdowns during the fiscal
1997 holiday season as compared to fiscal 1996.
Selling, general and administrative expenses increased 8.3% to $277.9 million
from $256.6 million in fiscal 1996 primarily due to higher sales volume and
the expenses of the two new stores. As a percentage of revenues, selling,
general and administrative expenses were essentially unchanged at 23.0% in
fiscal 1997 and 1996.
Interest expense increased 1.0% to $14.4 million in the fiscal 1997 period.
Higher average borrowings were offset by 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.
The Company's effective income tax rate is expected to be 41% in fiscal 1997,
unchanged from fiscal 1996.
Results of Continuing Operations for the Thirteen Weeks Ended February 1, 1997
Compared with the Thirteen Weeks Ended January 27, 1996
Revenues in the thirteen weeks ended February 1, 1997 increased $36.5 million
or 5.8% over revenues in the thirteen weeks ended January 27, 1996. The
increase was primarily due to the opening of new Neiman Marcus stores in King
of Prussia, Pennsylvania and Paramus, New Jersey and comparable sales
increases at Neiman Marcus Stores and Bergdorf Goodman, offset in part by a
5.7% decrease in sales at NM Direct.
Cost of goods sold, including buying and occupancy costs, increased $21.7
million or 4.9% during the quarter ended February 1, 1997 compared to the same
period in fiscal 1996. As a percentage of revenues, cost of goods sold,
including buying and occupancy costs, was 69.6% in 1997 compared to 70.2% in
fiscal 1996. The improved margins in the fiscal 1997 quarter were principally
due to lower markdowns during the fiscal 1997 holiday season as compared to
fiscal 1996.
6
THE NEIMAN MARCUS GROUP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative expenses increased by $9.2 million or 6.7%
to $146.9 million in the thirteen weeks ended February 1, 1997 compared to the
thirteen weeks ended January 27, 1996, primarily due to the two new stores and
higher selling costs. As a percentage of revenues, selling, general and
administrative expenses were up slightly to 22.2% in the fiscal 1997 quarter
compared to 22.0% in the 1996 quarter.
Interest expense increased 1.1% to $7.5 million in the thirteen weeks ended
February 1, 1997 compared to the 1996 quarter. Higher average borrowings were
offset by a lower effective interest rate which resulted from the repayment of
the Company s fixed rate senior notes with borrowings under its revolving
credit agreement.
Changes in Financial Condition and Liquidity since August 3, 1996
During the first six months of fiscal 1997, the Company financed its working
capital needs, capital expenditures and preferred dividend requirements
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 $1.0 million during the twenty-
six weeks ended February 1, 1997. The primary items affecting working capital
were a seasonal increase in accounts receivable ($73.1 million) and a decrease
in accounts payable and accrued liabilities ($32.5 million), partially offset
by a seasonal decrease in merchandise inventories ($28.0 million).
Capital expenditures were $23.3 million during the first half of fiscal 1997
as compared to $53.0 million in the first half of fiscal 1996. The Company s
capital expenditures consisted principally of renovations to existing stores.
The Company opened a new Neiman Marcus store in Paramus, New Jersey in August
1996. Capital expenditures are expected to approximate $65.0 million during
the current fiscal year, and will include remodeling of certain Neiman Marcus
stores and both Bergdorf Goodman stores.
In October 1996, the Company issued 8.0 million shares of common stock to the
public at $35.00 per share. The net proceeds were used on November 12, 1996,
together with 3.9 million shares of the Company's common stock and borrowings
of approximately $20.0 million, to purchase all of its outstanding redeemable
preferred stocks and pay accrued and unpaid dividends. The repurchase of the
preferred stock will result in a reduction of dividend payments of $21.3
million in fiscal 1997 compared to fiscal 1996, eliminate all future preferred
dividend requirements, as well as eliminate impending sinking fund
requirements.
The Company increased its bank borrowings by $183.5 million since August 3,
1996, which included borrowings made in August 1996 and December 1996 to repay
$52 million and $80 million, respectively, of senior notes at maturity. At
February 1, 1997, the Company had $130.0 million available under its revolving
credit facility. The Company believes that it will have sufficient resources
to fund its planned capital growth and operating requirements.
7
THE NEIMAN MARCUS GROUP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company declared the final aggregate quarterly dividends on its preferred
stocks in the first quarter of fiscal 1997, and paid such dividends of $5.8
million on November 12, 1996 concurrent with the repurchase of these preferred
stocks. The Company paid aggregate quarterly dividends of $13.6 million on
its preferred stocks in the first half of fiscal 1996.
8
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on January 17, 1997.
The following matters were voted upon at the meeting:
1. Election of Jean Head Sisco as a Class III Director for a term
of three years.
For 47,778,460
Against 75,694
Election of Vincent M. O'Reilly as a Class III Director for a
term of three years.
For 47,787,516
Against 66,638
2. Adoption of the Company's 1997 Incentive Plan.
For 40,748,182
Against 4,360,142
Abstain 96,254
Non-voting 2,649,576
3. Ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP as the Company's independent auditors for
the 1997 fiscal year.
For 47,809,152
Against 21,917
Abstain 23,085
4. Stockholder proposal to increase disclosure on compensation of
executive officers.
For 888,023
Against 42,721,244
Abstain 1,595,311
Non-voting 2,649,576
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11.1 Computation of weighted average number of shares outstanding
used in determining primary and fully diluted earnings per
share.
27.1 Financial data schedule.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on November 25, 1996
describing in Item 5 (Other Events) the repurchase of its
preferred stocks from Harcourt General, together with pro
forma financial information.
9
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 17, l997
Officer: Chief Financial Officer
/s/ John R. Cook
John R. Cook
Principal Accounting Vice President and Controller March 17, l997
Officer:
/s/ Stephen C. Richards
Stephen C. Richards
10