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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 OCTOBER 28, 2000
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Commission File Number 1-9659
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THE NEIMAN MARCUS GROUP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 95-4119509
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 BOYLSTON STREET, CHESTNUT HILL, MA 02467
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(Address of principal executive offices) (Zip Code)
(617) 232-0760
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(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
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As of December 7, 2000, the number of outstanding shares of each of the issuer's
classes of common stock was:
CLASS OUTSTANDING SHARES
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Class A Common Stock, $.01 Par Value 27,613,640
Class B Common Stock, $.01 Par Value 19,941,432
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THE NEIMAN MARCUS GROUP, INC.
I N D E X
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<TABLE>
<CAPTION>
PAGE
Part I. FINANCIAL INFORMATION NUMBER
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<S> <C> <C>
Item 1. Condensed Consolidated Balance Sheets as of October 28, 2000,
July 29, 2000 and October 30, 1999 1
Condensed Consolidated Statements of Earnings for the Thirteen
Weeks ended October 28, 2000 and October 30, 1999 2
Condensed Consolidated Statements of Cash Flows for the Thirteen
Weeks Ended October 28, 2000 and October 30, 1999 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-7
Part II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
Exhibit 27.1
</TABLE>
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THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
October 28, July 29, October 30,
2000 2000 1999
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(Restated)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 26,652 $ 175,385 $ 37,222
Undivided interests in NMG
Credit Card Master Trust 274,334 211,581 177,497
Accounts receivable, net 31,174 19,279 74,564
Merchandise inventories 735,032 575,344 683,148
Deferred income taxes 26,078 26,078 21,815
Other current assets 51,783 61,671 49,313
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Total current assets 1,145,053 1,069,338 1,043,559
Property and equipment, net 546,804 539,735 526,255
Other assets 149,646 152,984 159,935
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Total assets $1,841,503 $1,762,057 $1,729,749
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 805 $ 787 $ 937
Accounts payable 331,819 270,957 268,209
Accrued liabilities 271,635 220,562 233,235
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Total current liabilities 604,259 492,306 502,381
Long-term liabilities:
Notes and debentures 249,669 329,663 339,646
Other long-term liabilities 74,526 73,954 75,813
Deferred income taxes 31,510 31,510 32,038
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Total long-term liabilities 355,705 435,127 447,497
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Minority interest 6,552 8,882 5,315
Shareholders' equity:
Common stock 478 475 490
Additional paid-in capital 424,321 422,186 467,553
Other comprehensive income (2,884) - -
Retained earnings 453,072 403,081 306,513
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Total shareholders' equity 874,987 825,742 774,556
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Total liabilities and shareholders'
equity $1,841,503 $1,762,057 $1,729,749
========== =========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
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THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
(In Thousands Except for Thirteen Weeks Ended
per share data) -------------------------
October 28, October 30,
2000 1999
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(Restated)
<S> <C> <C>
Revenues $ 739,721 $ 668,344
Cost of goods sold including buying and
occupancy costs 448,897 416,392
Selling, general and administrative expenses 203,012 178,840
Corporate expenses 4,287 3,548
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Operating earnings 83,525 69,564
Interest expense 4,278 6,786
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Earnings before income taxes, minority interest 79,247 62,778
and cumulative effect of accounting change
Income taxes 30,114 23,856
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Earnings before minority interest
and cumulative effect of accounting change 49,133 38,922
Minority interest in net earnings of subsidiaries (1,004) (1,479)
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Earnings before cumulative effect of
accounting change 48,129 37,443
Cumulative effect of accounting change for
accounting for derivative instruments and
hedging activities, net 1,860 -
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Net earnings $ 49,989 $ 37,443
========= =========
Weighted average number of common
and common equivalent shares outstanding:
Basic 46,987 49,042
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Diluted 47,555 49,122
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Earnings per share:
Basic:
Earnings before accounting change $ 1.02 $ 0.76
Accounting change 0.04 0.00
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Basic net earnings $ 1.06 $ 0.76
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Diluted:
Earnings before accounting change $ 1.01 $ 0.76
Accounting change 0.04 0.00
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Diluted net earnings $ 1.05 $ 0.76
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In Thousands) Thirteen Weeks Ended
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October 28, October 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 49,989 $ 37,443
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 20,384 17,463
Accounting change, net (1,860) -
Minority interest 1,004 1,479
Other 1,862 (7,542)
Changes in current assets and liabilities:
Accounts receivable (11,895) (15,247)
Merchandise inventories (156,688) (137,896)
Other current assets 9,888 (2,771)
Accounts payable and
accrued liabilities 109,122 124,262
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Net cash provided by operating
activities 21,806 17,191
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (25,977) (28,529)
Purchases of held-to-maturity securities (274,509) (174,358)
Maturities of held-to-maturity securities 211,756 130,012
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Net cash used for investing activities (88,730) (72,875)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings - 65,000
Repayment of debt (80,000) -
Repurchase of common stock - (1,555)
Distributions paid (3,949) -
Other financing activities 2,140 270
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Net cash (used for) provided by financing activities (81,809) 63,715
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CASH AND EQUIVALENTS
Increase (decrease) during the period (148,733) 8,031
Beginning balance 175,385 29,191
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Ending balance $ 26,652 $ 37,222
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements of The Neiman Marcus Group,
Inc. (the Company) are submitted in response to the requirements of Form
10-Q and should be read in conjunction with the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-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.
Prior year amounts have been restated for leased department sales and the
sales returns reserve to conform with the current presentation.
2. EARNINGS PER SHARE
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings per Share," the weighted average shares used in
computing basic and diluted earnings per share (EPS) are as presented in
the table below. No adjustments were made to net earnings for the
computations of basic and diluted EPS during the periods presented.
Options to purchase 989,500 and 784,440 shares of common stock were not
included in the computation of diluted EPS for the thirteen weeks ended
October 28, 2000, and October 30, 1999, respectively, because the exercise
price of those options was greater than the average market price of the
common shares.
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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(In thousands of shares) October 28, October 30,
2000 1999
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<S> <C> <C>
Shares for computation of basic EPS 46,987 49,042
Effect of assumed option exercises 568 80
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Shares for computation of diluted EPS 47,555 49,122
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</TABLE>
3. ACCOUNTING FOR DERIVATIVE INSTUMENTS AND HEDGING
In the first quarter of fiscal 2001 the Company adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company's policy is to enter into
forward foreign currency exchange contracts to minimize foreign currency
exposure related to forecasted purchases of certain of its inventories.
Under this standard, such contracts have been designated as and are
accounted for as cash flow hedges. The settlement terms of the forward
contracts, including amount, currency and maturity, correspond with the
payment terms for the merchandise inventories. Consequently, no amounts
were included in earnings resulting from hedge ineffectiveness. Changes in
the fair value of forward contracts designated as cash flow hedges are
recorded as a component of other comprehensive income, and are recognized
in earnings upon the sale of the hedged inventory. At October 28, 2000
the Company had contracts outstanding to purchase the equivalent of $36.9
million at contract rates, maturing at various dates through August 2001.
The cumulative effect of the accounting change resulted in a net gain of
$1.9 million or $0.04 per share.
4. OPERATING SEGMENTS
The Company has two reportable business segments: specialty retail stores
and direct marketing. The specialty retail stores segment includes all the
operations of Neiman Marcus Stores and Bergdorf Goodman. Direct marketing
includes the operations of Neiman Marcus Direct, which publishes NM by
Mail, the Horchow catalogues, Chef's Catalog and the Neiman Marcus
Christmas Catalogue. Other includes unallocated corporate expenses, costs
incurred to launch the Company's e-commerce business and operations which
do not meet the quantitative thresholds of Statement of Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information."
The Company's senior management evaluates the performance of the Company's
assets on a consolidated basis. Therefore, separate financial information
for the Company's assets on a segment basis is not presented.
4
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THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. OPERATING SEGMENTS (CONTINUED)
The following tables set forth the information for the Company's reportable
segments:
<TABLE>
<CAPTION>
(In Thousands) Thirteen weeks Thirteen weeks
Ended October 28, 2000 Ended October 30, 1999
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<S> <C> <C>
REVENUES
Specialty Retail Stores $624,527 $566,486
Direct Marketing 93,472 86,141
Other 21,722 15,717
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Total $739,721 $668,344
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OPERATING EARNINGS
Specialty Retail Stores $ 82,726 $ 67,784
Direct Marketing 6,587 4,999
Other (5,788) (3,219)
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Total $ 83,525 $ 69,564
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</TABLE>
5. NEW ACCOUNTING STANDARD
In September 2000, the Emerging Issues Task Force ("EITF") reached a final
consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees
and Costs." The Consensus stated that a seller of goods should classify
amounts billed to the customer for shipping and handling as revenue and the
costs incurred by the seller for performing such services as an element of
expense. The consensus is required to be applied in the second quarter of
fiscal year 2001, with all prior periods reclassified to comply with the
guidelines in the consensus. The Company is currently evaluating the impact
of this issue on their financial statements and believes that there will be
a required reclassification to implement the consensus.
6. SUBSEQUENT EVENT
On November 20, 2000, Harcourt General notified the Company of the
termination of the Amended and Restated Intercompany Services Agreement
effective May 14, 2001. Under the agreement, Harcourt General provides
certain management, accounting, financial, legal, tax and other corporate
service to the Company.
5
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THE NEIMAN MARCUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED OCTOBER 28, 2000 COMPARED
WITH THE THIRTEEN WEEKS ENDED OCTOBER 30, 1999
Revenues in the thirteen weeks ended October 28, 2000 increased $71.4 million or
10.7% over revenues in the thirteen weeks ended October 30, 1999. The increase
in revenues was primarily attributable to comparable sales growth. Specialty
retail stores revenues in the thirteen weeks ended October 28, 2000, which
included Sunday store openings at Bergdorf Goodman beginning September 10, 2000,
increased $58.0 million or 10.2% over the prior year. Direct marketing revenues
in the thirteen weeks ended October 28, 2000 increased $7.3 million or 8.5% over
the prior year.
Cost of goods sold including buying and occupancy costs increased $32.5 million
or 7.8% to $448.9 million compared to the same period last year, primarily due
to increased sales. As a percentage of revenues, cost of goods sold decreased to
60.7% from 62.3% in the prior year, due primarily to lower markdowns and higher
mark-ups on goods sold.
Selling, general and administrative expenses increased $24.2 million or 13.5% to
$203.0 million. As a percentage of revenues, selling, general and administrative
expenses increased to 27.4% from 26.8% in the prior year. The increase is
primarily attributable to higher expenses incurred expanding the Brand
Development initiative, e-commerce and systems-related costs, and to a lesser
extent, pre-opening costs.
Interest expense decreased 37.0% to $4.3 million in the thirteen weeks ended
October 28, 2000 from $6.8 million in the prior year. The decrease resulted from
lower average outstanding borrowings.
On November 20, 2000, Harcourt General notified the Company of the termination,
effective May 14, 2001, of the Amended and Restated Intercompany Services
Agreement. Under the agreement, Harcourt General provides certain management,
accounting, financial, legal, tax and other corporate service to the Company.
The Company does not believe that the termination will have a material effect on
results of operations.
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY SINCE JULY 29, 2000
During the thirteen weeks ended October 28, 2000, the Company financed its
working capital needs and capital expenditures primarily with cash from
operations and borrowings under 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 $21.8 million during the first
thirteen weeks of fiscal 2001 compared to $17.2 million in the same period last
year. The primary items affecting working capital in 2001 were increases in
merchandise inventories of $156.7 million and accounts payable and accrued
liabilities of $109.1 million. The seasonal increases in inventories and
accounts payable are primarily due to the holiday selling season.
Capital expenditures were $26.0 million during the thirteen week period ended
October 28, 2000 as compared to $28.5 million in the prior year period. Capital
expenditures were primarily related to new store openings and major remodels.
Capital expenditures are expected to approximate $175.0 million during fiscal
2001.
The Company decreased its bank borrowings by $80.0 million since July 29, 2000.
At October 28, 2000 the Company had $450.0 million available under its revolving
credit facility. Also during the quarter, Kate Spade LLC, a majority-owned
subsidiary of the Company, distributed $3.9 million to its minority
shareholders.
The Company believes that it will have sufficient resources to fund its planned
capital growth and operating requirements.
6
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THE NEIMAN MARCUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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: changes in economic conditions or consumer
confidence; changes in consumer preferences or fashion trends; delays in
anticipated store openings; adverse weather conditions, particularly during peak
selling seasons; changes in demographic or retail environments; competitive
influences; significant increases in paper, printing and postage costs; and
changes in the Company's relationships with designers and other resources.
7
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THE NEIMAN MARCUS GROUP, INC.
PART II
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27.1 Financial data schedule.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the thirteen week period
ended October 28, 2000. On November 20, 2000, the Company filed a
report on Form 8-K reporting the termination, effective May 14,
2001, by Harcourt General of the Amended and Restated
Intercompany Services Agreement between the two parties.
8
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SIGNATURES
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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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
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<S> <C> <C>
Principal Financial Senior Vice President and December 8, 2000
Officer: Chief Financial Officer
/s/ John R. Cook
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John R. Cook
Principal Accounting Vice President and Controller December 8, 2000
Officer:
/s/ Catherine N. Janowski
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Catherine N. Janowski
</TABLE>
9
