1
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 27, 2001
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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 March 6, 2001 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 $27,730,691
Class B Common Stock, $.01 Par Value $19,941,432
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THE NEIMAN MARCUS GROUP, INC.
I N D E X
Part I. FINANCIAL INFORMATION Page
Number
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Item 1. Condensed Consolidated Balance Sheets as of January 27, 2001,
July 29, 2000 and January 29, 2000 1
Condensed Consolidated Statements of Earnings for the Twenty-Six
and Thirteen Weeks ended January 27, 2001 and January 29, 2000 2
Condensed Consolidated Statements of Cash Flows for the Twenty-
Six Weeks ended January 27, 2001 and January 29, 2000 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
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
January 27, July 29, January 29,
2001 2000 2000
----------- ----------- -----------
(Restated)
ASSETS
Current assets:
Cash and equivalents $ 113,404 $ 175,385 $ 58,179
Undivided interests in NMG
Credit Card Master Trust 303,061 211,581 241,923
Accounts receivable, net 23,610 19,279 69,586
Merchandise inventories 613,997 575,344 538,138
Deferred income taxes 26,078 26,078 21,815
Other current assets 59,953 61,671 52,767
----------- ----------- -----------
Total current assets 1,140,103 1,069,338 982,408
Property and equipment, net 551,826 539,735 522,608
Other assets 146,723 152,984 156,716
----------- ----------- -----------
Total assets $ 1,838,652 $ 1,762,057 $ 1,661,732
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 822 $ 787 $ 953
Accounts payable 297,239 270,957 228,407
Accrued liabilities 255,730 220,562 227,676
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Total current liabilities 553,791 492,306 457,036
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Long-term liabilities:
Notes and debentures 249,675 329,663 284,651
Other long-term liabilities 75,428 73,954 73,624
Deferred income taxes 31,510 31,510 32,038
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Total long-term liabilities 356,613 435,127 390,313
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Minority interest 8,156 8,882 6,472
Shareholders' equity:
Common stock 480 475 488
Additional paid-in capital 427,972 422,186 459,654
Other comprehensive income (1,364) -- --
Retained earnings 493,004 403,081 347,769
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Total shareholders'equity 920,092 825,742 807,911
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Total liabilities and shareholders'
equity $ 1,838,652 $ 1,762,057 $ 1,661,732
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See Notes to Condensed Consolidated Financial Statements.
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THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
For the Twenty-Six Weeks Ended For the Thirteen Weeks Ended
(In thousands except ------------------------------ ----------------------------
for per share amounts) January 27, 2001 January 29, 2000 January 27, 2001 January 29, 2000
---------------- ---------------- ---------------- ----------------
(Restated) (Restated)
Revenues $ 1,640,557 $ 1,546,426 $ 900,836 $ 878,082
Cost of goods sold, including
buying and occupancy costs 1,062,576 1,005,757 613,679 589,365
Selling, general and
administrative expenses 416,151 388,757 213,139 209,917
Corporate expenses 8,220 7,767 3,933 4,219
----------- ----------- ----------- -----------
Operating earnings 153,610 144,145 70,085 74,581
Interest expense (8,351) (12,789) (4,073) (6,003)
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Earnings before income taxes,
minority interest and
cumulative effect of
accounting change 145,259 131,356 66,012 68,578
Income taxes (55,198) (49,915) (25,084) (26,059)
----------- ----------- ----------- -----------
Earnings before minority
interest and cumulative
effect of accounting change 90,061 81,441 40,928 42,519
Minority interest in net earnings
of subsidiaries (1,998) (2,742) (994) (1,263)
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Earnings before cumulative
effect of accounting change 88,063 78,699 39,934 41,256
Cumulative effect of accounting
change, net 1,860 -- -- --
----------- ----------- ----------- -----------
Net earnings $ 89,923 $ 78,699 $ 39,934 $ 41,256
=========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding:
Basic 47,032 48,844 47,119 48,610
=========== =========== =========== ===========
Diluted 47,538 49,035 47,621 48,888
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Earnings per share:
Basic:
Earnings before accounting
change $ 1.87 $ 1.61 $ 0.85 $ 0.85
Accounting change 0.04 -- -- --
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Basic net earnings $ 1.91 $ 1.61 $ 0.85 $ 0.85
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Diluted:
Earnings before accounting
change $ 1.85 $ 1.60 $ 0.84 $ 0.84
Accounting change 0.04 -- -- --
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Diluted net earnings $ 1.89 $ 1.60 $ 0.84 $ 0.84
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See Notes to Condensed Consolidated Financial Statements.
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THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands) Twenty-Six Weeks Ended
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January 27, January 29,
2001 2000
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(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 89,923 $ 78,699
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 40,986 36,886
Accounting change, net (1,860) --
Minority interest 1,998 2,742
Other items 3,309 (10,549)
Changes in current assets and liabilities:
Accounts receivable (4,331) (10,269)
Merchandise inventories (35,653) 7,114
Other current assets 1,718 335
Accounts payable and
accrued liabilities 61,692 77,507
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Net cash provided by operating
activities 157,782 182,465
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (50,125) (42,792)
Purchases of held-to-maturity securities (595,768) (444,765)
Maturities of held-to-maturity securities 504,288 373,493
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Net cash used for investing activities (141,605) (114,064)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings -- 10,000
Repayment of debt (80,000) --
Repurchase of common stock -- (10,012)
Distributions paid (3,949) (2,435)
Repayment of receivables securitization -- (37,500)
Other financing activities 5,791 534
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Net cash used for financing activities (78,158) (39,413)
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CASH AND EQUIVALENTS
Increase (decrease) during the period (61,981) 28,988
Beginning balance 175,385 29,191
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Ending balance $ 113,404 $ 58,179
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See Notes to Condensed Consolidated Financial Statements.
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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 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 944,500 shares of common stock were not included in
the computation of diluted EPS for the twenty-six and thirteen weeks
ended January 27, 2001, because the exercise price of those options was
greater than the average market price of the common shares. Options to
purchase 975,080 and 572,230 shares of common stock were not included in
the computation of diluted EPS for the twenty-six and thirteen weeks
ended January 29, 2000, respectively, because the exercise price of
these options was greater than the average market price of the common
shares.
Twenty-Six Weeks Ended Thirteen Weeks Ended
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(In thousands of shares) January 27, January 29, January 27, January 29,
2001 2000 2001 2000
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Shares for computation
of basic EPS 47,032 48,844 47,119 48,610
Effect of assumed option
exercises 506 191 502 278
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Shares for computation of
diluted EPS 47,538 49,035 47,621 48,888
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3. ACCOUNTING FOR DERIVATIVE INSTRUMENTS 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
January 27, 2001, the Company had contracts outstanding to purchase the
equivalent of $49.7 million at contract rates, maturing at various dates
through February 2002. The cumulative effect of the accounting change
resulted in a net gain of $1.9 million or $0.04 per share in the first
quarter.
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THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. COMPREHENSIVE INCOME
Total comprehensive income amounted to $88.6 million for the six months
ended January 27, 2001. Comprehensive income differs from net income
primarily due to unrealized gains or losses on the Company's forward
currency exchange contracts, less reclassification for realized gains or
losses included in net earnings.
5. 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.
The following tables set forth the information for the Company's
reportable segments:
(in thousands) Twenty-Six Weeks Twenty-Six Weeks Thirteen Weeks Thirteen Weeks
Ended January 27, Ended January 29, Ended January 27, Ended January 29,
2001 2000 2001 2000
---------------- ---------------- ---------------- ----------------
REVENUES
Specialty Retail Stores $ 1,375,388 $ 1,313,168 $ 750,861 $ 746,683
Direct Marketing 219,075 201,229 125,603 115,087
Other 46,094 32,029 24,372 16,312
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Total $ 1,640,557 $ 1,546,426 $ 900,836 $ 878,082
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OPERATING EARNINGS
Specialty Retail Stores $ 148,263 $ 139,840 $ 65,537 $ 72,056
Direct Marketing 14,102 12,547 7,515 7,548
Other (8,755) (8,242) (2,967) (5,023)
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Total $ 153,610 $ 144,145 $ 70,085 $ 74,581
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6. NEW ACCOUNTING STANDARD
In September 2000, the Emerging Issues Task Force 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
fourth quarter of fiscal 2001, with all prior periods reclassified to
comply with the guidelines of the consensus.
7. AGREEMENT WITH HARCOURT GENERAL
On November 14, 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 services to the Company. The Company is in the process of
establishing these functions internally.
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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 TWENTY-SIX WEEKS ENDED JANUARY 27, 2001 COMPARED
WITH THE TWENTY-SIX WEEKS ENDED JANUARY 29, 2000
Revenues in the twenty-six weeks ended January 27, 2001 increased $94.1 million
or 6.1% over revenues in the twenty-six weeks ended January 29, 2000. The
increase in revenues was primarily attributable to overall comparable sales
growth of 5.5%. Specialty retail store revenues in the twenty-six weeks ended
January 27, 2001 increased $62.2 million or 4.7% over the prior year. Direct
marketing revenues in the twenty-six weeks ended January 27, 2001 increased
$17.8 million or 8.9% over the prior year.
Cost of goods sold including buying and occupancy costs increased $56.8 million
or 5.6% to $1.1 billion compared to the same period last year, primarily due to
increased sales. As a percentage of revenues, cost of goods sold decreased to
64.8% from 65.0% in the prior year, due primarily to overall higher markups on
goods sold.
Selling, general and administrative expenses increased $27.4 million or 7.0% to
$416.2 million. As a percentage of revenues, selling, general and administrative
expenses increased to 25.4% from 25.1% in the prior year. This increase is
primarily attributable to expenses incurred in expanding the Brand Development
initiative and to a lesser extent, higher selling and sales promotion expenses.
Interest expense decreased 34.7% to $8.4 million in the twenty-six weeks ended
January 27, 2001 from $12.8 million in the prior year. The decrease resulted
primarily from lower average outstanding borrowings during the period as well as
lower interest rates.
On November 14, 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 services to the Company.
The Company is in the process of establishing these functions internally. The
Company does not believe that the termination will have a material effect on
results of operations.
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED JANUARY 27, 2001 COMPARED
WITH THE THIRTEEN WEEKS ENDED JANUARY 29, 2000
Revenues in the thirteen weeks ended January 27, 2001 increased $22.8 million or
2.6% over revenues in the thirteen weeks ended January 29, 2000. The increase in
revenues was primarily attributable to comparable sales growth of 9.1% at NM
Direct as well as higher sales from the Brand Development Initiative, which
includes the Kate Spade and Laura Mercier brands. Specialty retail store
revenues in the thirteen weeks ended January 27, 2001 increased $4.2 million or
0.6% over the prior year. Direct marketing revenues in the thirteen weeks ended
January 27, 2001 increased $10.5 million or 9.1% over the prior year.
Costs of goods sold including buying and occupancy costs increased $24.3 million
to $613.7 million in the thirteen week period ended January 27, 2001 compared to
the same period last year, primarily due to increased sales and markdowns. As a
percentage of revenues, cost of goods sold increased to 68.1% from 67.1% in the
prior year, primarily due to higher markdowns.
Selling, general and administrative expenses increased 1.5% to $213.1 million
from $209.9 million in the prior year, primarily due to higher sales volume. As
a percentage of revenues, selling, general and administrative expenses decreased
to 23.7% from 23.9% from the prior year. The prior year amounts included
significantly higher performance-based compensation expenses.
Interest expense decreased 32.2% to $4.1 million in the thirteen weeks ended
January 27, 2001. The decrease resulted primarily from lower average outstanding
borrowings during the period.
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THE NEIMAN MARCUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY SINCE JULY 29, 2000
During the twenty-six weeks ended January 27, 2001, 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 $157.8 million during the first
twenty-six weeks of fiscal 2001 compared to $182.5 million in the same period
last year. The primary items affecting working capital in 2001 were increases in
merchandise inventories of $35.7 million and accounts payable and accrued
liabilities of $61.7 million. The increases in inventories and accounts payable
are primarily due to earlier receipts of spring merchandise and the new Palm
Beach store, as well as lower than planned sales in the period.
Capital expenditures were $50.1 million during the twenty-six week period ended
January 27, 2001 as compared to $42.8 million in the prior year period. Capital
expenditures were primarily related to new store openings and major remodels.
Capital expenditures are expected to approximate $150.0 million during fiscal
2001.
The Company decreased its bank borrowing by $80.0 million since July 29, 2000.
At January 27, 2001 the Company had $450.0 million available under its revolving
credit facility. Also during the period, 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.
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.
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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 19, 2001. The
following matters were voted upon at the meeting:
1. Election of two Class I directors.
Richard A. Smith (Class B) Robert A. Smith (Class B)
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For 14,237,924 For 14,232,220
Withheld 240,791 Withheld 246,495
2. Ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP as the Company's independent auditors for
the 2001 fiscal year.
For 38,602,912
Against 57,577
Abstain 218,391
3. Stockholder proposal concerning cumulative voting in the
election of directors.
For 11,369,826
Against 24,030,935
Abstain 328,309
Non-voting 3,155,063
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THE NEIMAN MARCUS GROUP, INC.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
None.
(b) REPORTS ON FORM 8-K.
On November 20, 2000, the Company filed a report on Form 8-K
reporting that Harcourt General, Inc. had notified the Company
of the termination of the Amended and Restated Intercompany
Services Agreement effective May 14, 2001.
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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
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Principal Financial Senior Vice President and March 12, 2001
Officer: Chief Financial Officer
/s/ John R. Cook
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John R. Cook
Principal Accounting Vice President and Controller March 12, 2001
Officer:
/s/ Catherine N. Janowski
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Catherine N. Janowski
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