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 April 28, 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.)
1618 Main Street, Dallas, TX 75201
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(Address of principal executive offices) (Zip Code)
(214) 741-6911
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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 June 5, 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 27,727,837
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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PAGE
Part I. FINANCIAL INFORMATION NUMBER
Item 1. Condensed Consolidated Balance Sheets as of April 28, 2001,
July 29, 2000 and April 29, 2000 1
Condensed Consolidated Statements of Earnings for the Thirty-Nine
and Thirteen Weeks ended April 28, 2001 and April 29, 2000 2
Condensed Consolidated Statements of Cash Flows for the Thirty-
Nine Weeks ended April 28, 2001 and April 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 6. Exhibits and Reports on Form 8-K 8
Signatures 9
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THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
April 28, July 29, April 29,
2001 2000 2000
----------- ----------- -----------
(Restated)
ASSETS
Current assets:
Cash and equivalents $ 76,439 $ 175,385 $ 54,025
Undivided interests in NMG
Credit Card Master Trust 277,660 211,581 333,823
Accounts receivable, net 24,215 19,279 72,944
Merchandise inventories 696,191 575,344 622,871
Deferred income taxes 26,078 26,078 21,815
Other current assets 41,830 61,671 36,404
----------- ----------- -----------
Total current assets 1,142,413 1,069,338 1,141,882
Property and equipment, net 565,396 539,735 524,291
Other assets 144,141 152,984 154,121
----------- ----------- -----------
Total assets $ 1,851,950 $ 1,762,057 $ 1,820,294
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 1,541 $ 787 $ 3,120
Accounts payable 274,065 270,957 260,605
Accrued liabilities 250,783 220,562 244,328
----------- ----------- -----------
Total current liabilities 526,389 492,306 508,053
----------- ----------- -----------
Long-term liabilities:
Notes and debentures 249,680 329,663 379,657
Other long-term liabilities 75,831 73,954 72,642
Deferred income taxes 31,510 31,510 32,038
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Total long-term liabilities 357,021 435,127 484,337
----------- ----------- -----------
Minority interest 9,522 8,882 8,326
Shareholders' equity:
Common stock 477 475 480
Additional paid-in capital 429,309 422,186 426,149
Other comprehensive income (1,954) -- --
Retained earnings 531,186 403,081 392,949
----------- ----------- -----------
Total shareholders' equity 959,018 825,742 819,578
----------- ----------- -----------
Total liabilities and shareholders'
equity $ 1,851,950 $ 1,762,057 $ 1,820,294
=========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
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THE NEIMAN MARCUS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
For the thirty-nine weeks ended For the thirteen weeks ended
(In thousands except -------------------------------- ---------------------------------
for per share amounts) April 28, 2001 April 29, 2000 April 28, 2001 April 29, 2000
-------------- -------------- -------------- --------------
(Restated) (Restated)
Revenues $ 2,322,102 $ 2,230,255 $ 681,545 $ 683,829
Cost of goods sold, including
buying and occupancy costs 1,503,757 1,432,877 441,181 427,120
Selling, general and
administrative expenses 585,569 561,302 169,418 172,545
Corporate expenses 12,697 12,169 4,477 4,402
----------- ----------- ----------- -----------
Operating earnings 220,079 223,907 66,469 79,762
Interest expense (11,869) (17,827) (3,518) (5,038)
----------- ----------- ----------- -----------
Earnings before income taxes,
minority interest and
cumulative effect of
accounting change 208,210 206,080 62,951 74,724
Income taxes (79,120) (78,310) (23,922) (28,395)
----------- ----------- ----------- -----------
Earnings before minority
interest and cumulative
effect of accounting change 129,090 127,770 39,029 46,329
Minority interest in net earnings
of subsidiaries (2,845) (3,891) (847) (1,149)
----------- ----------- ----------- -----------
Earnings before cumulative
effect of accounting change 126,245 123,879 38,182 45,180
Cumulative effect of accounting
change, net 1,860 -- -- --
----------- ----------- ----------- -----------
Net earnings $ 128,105 $ 123,879 $ 38,182 $ 45,180
=========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding:
Basic 47,077 48,695 47,251 47,908
=========== =========== =========== ===========
Diluted 47,574 48,907 47,708 48,130
=========== =========== =========== ===========
Earnings per share:
Basic:
Earnings before accounting
change $ 2.68 $ 2.54 $ 0.81 $ 0.94
Accounting change 0.04 -- -- --
----------- ----------- ----------- -----------
Basic net earnings $ 2.72 $ 2.54 $ 0.81 $ 0.94
=========== =========== =========== ===========
Diluted:
Earnings before accounting
change $ 2.65 $ 2.53 $ 0.80 $ 0.94
Accounting change 0.04 -- -- --
----------- ----------- ----------- -----------
Diluted net earnings $ 2.69 $ 2.53 $ 0.80 $ 0.94
=========== =========== =========== ===========
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) Thirty-nine weeks ended
--------------------------
April 28, April 29,
2001 2000
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(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $128,105 $ 123,879
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 61,418 54,142
Accounting change, net (1,860) --
Minority interest 2,845 3,891
Other items 4,414 (8,944)
Changes in current assets and liabilities:
Accounts receivable (4,936) (13,627)
Merchandise inventories (117,847) (77,619)
Other current assets 19,841 16,698
Accounts payable and accrued liabilities 33,873 126,103
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Net cash provided by operating
activities 125,853 224,523
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (82,650) (60,364)
Purchases of held-to-maturity securities (822,458) (709,170)
Maturities of held-to-maturity securities 756,379 658,498
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Net cash used for investing activities (148,729) (111,036)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 754 107,150
Repayment of debt (80,000) --
Repurchase of common stock -- (44,611)
Distributions paid (3,949) (2,435)
Repayment of receivables securitization -- (150,000)
Exercises of stock options 5,647 569
Other financing activities 1,478 674
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Net cash used for financing activities (76,070) (88,653)
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CASH AND EQUIVALENTS
Increase (decrease) during the period (98,946) 24,834
Beginning balance 175,385 29,191
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Ending balance $ 76,439 $ 54,025
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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 both the thirty-nine and thirteen weeks
ended April 28, 2001, because the exercise price of those options was
greater than the average market price of the common shares. Options to
purchase 971,850 shares of common stock were not included in the
computation of diluted EPS for both the thirty-nine and thirteen weeks
ended April 29, 2000, because the exercise price of those options was
greater than the average market price of the common shares.
Thirty-nine weeks ended Thirteen weeks ended
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(In thousands of shares) April 28, April 29, April 28, April 29,
2001 2000 2001 2000
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Shares for computation
of basic EPS 47,077 48,695 47,251 47,908
Effect of diluted stock
options and nonvested
stock under common
stock incentive plans 497 212 457 222
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Shares for computation of
diluted EPS 47,574 48,907 47,708 48,130
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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 April 28, 2001, the
Company had contracts outstanding to purchase the equivalent of $39.7
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 $126.2 million for the thirty-nine
weeks ended April 28, 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) Thirty-nine weeks ended Thirteen weeks ended
-------------------------- ----------------------
April 28, April 29, April 28, April 29,
2001 2000 2001 2000
---------- ---------- --------- ----------
(Restated) (Restated)
REVENUES
Specialty Retail Stores $1,948,021 $1,894,142 $572,633 $580,974
Direct Marketing 307,045 286,431 87,970 85,202
Other 67,036 49,682 20,942 17,653
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Total $2,322,102 $2,230,255 $681,545 $683,829
========== ========== ======== ========
OPERATING EARNINGS
Specialty Retail Stores $ 212,094 $ 220,467 $ 63,831 $ 80,627
Direct Marketing 20,845 19,613 6,743 7,066
Other (12,860) (16,173) (4,105) (7,931)
---------- ---------- -------- --------
Total $ 220,079 $ 223,907 $ 66,469 $ 79,762
========== ========== ======== ========
6. NEW ACCOUNTING STANDARDS
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.
As of April 1, 2001, the Company adopted SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," a replacement of SFAS No. 125 with the same title. SFAS 140
retains most of the provisions of SFAS No. 125 but revises the standards
for securitizations and other transfers of financial assets and collateral
and requires certain additional disclosures. The Company recognizes gains
and losses on transfers of financial assets (the securitization of its
credit card portfolio) that qualify as sales and recognizes as assets
certain financial components that are retained as a result of such sales.
The Company services and administers the credit card portfolio for a
servicing fee equal to the contractually specified servicing fee of 2% of
the investor interest.
The assets recognized consist primarily of the retained interest in
receivables sold and the retained rights to future interest income from
the serviced assets in excess of the contractually specified servicing fee
(interest-only strips). Such assets are classified on the balance sheet as
Undivided Interests in NMG Credit Card Master Trust. The Company retains
certain subordinated interests that serve as a credit enhancement to
outside investors. The Company reinvests all cash collections on
securitized accounts in additional balances, and as such maintains the
committed level of securitized assets.
The retained interest in receivables sold is initially recorded at the date
of the sale by allocating the previous carrying amount between the assets
sold and the retained interests based on their relative fair values. Due to
the short term revolving nature of the credit card portfolio, the carrying
value of the Company's retained interest approximates its fair value.
The adoption of SFAS 140 did not materially affect the Company's results of
operations or financial position.
7. AGREEMENT WITH HARCOURT GENERAL
On May 14, 2001, the Company's Amended and Restated Intercompany Services
Agreement with Harcourt General terminated. Under the agreement, Harcourt
General provided certain management, accounting, financial, legal, tax and
other corporate services to the Company. While the Company is establishing
these functions internally, Harcourt General is continuing to provide
certain services on a transition basis.
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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 THIRTY-NINE WEEKS ENDED APRIL 28, 2001 COMPARED
WITH THE THIRTY-NINE WEEKS ENDED APRIL 29, 2000
Revenues in the thirty-nine weeks ended April 28, 2001 increased $91.8 million
or 4.1% over revenues in the thirty-nine weeks ended April 29, 2000. The
increase in revenues was primarily attributable to overall comparable sales
growth of 3.4%. Specialty retail store revenues in the thirty-nine weeks ended
April 28, 2001 increased $53.9 million or 2.8% over the prior year. Direct
marketing revenues in the thirty-nine weeks ended April 28, 2001 increased $20.6
million or 7.2% over the prior year.
Cost of goods sold including buying and occupancy costs increased $70.9 million
or 4.9% to $1.5 billion compared to the same period last year, primarily due to
increased sales. As a percentage of revenues, cost of goods sold increased to
64.8% from 64.2% in the prior year, due primarily to higher markdowns.
Selling, general and administrative expenses increased $24.3 million or 4.3% to
$585.6 million. This increase is primarily due to higher selling and sales
promotion expenses and expenses incurred in expanding the Brand Development
Initiative. As a percentage of revenues, selling, general and administrative
expenses were 25.2%, unchanged from the prior year.
Interest expense decreased 33.4% to $11.9 million in the thirty-nine weeks ended
April 28, 2001 from $17.8 million in the prior year. The decrease resulted
primarily from lower average outstanding borrowings during the period as well as
lower interest rates.
On May 14, 2001, the Amended and Restated Intercompany Services Agreement with
Harcourt General was terminated. Under the agreement, Harcourt General provided
certain management, accounting, financial, legal, tax and other corporate
services to the Company. While the Company is establishing these functions
internally, Harcourt General is continuing to provide certain services on a
transition basis. 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 APRIL 28, 2001 COMPARED WITH
THE THIRTEEN WEEKS ENDED APRIL 29, 2000
Revenues in the thirteen weeks ended April 28, 2001 decreased $2.3 million or
0.3% from revenues in the thirteen weeks ended April 29, 2000. Comparable
revenues decreased by 1.4%. Specialty retail store revenues in the thirteen
weeks ended April 28, 2001 decreased $8.3 million or 1.4% from the prior year.
Direct marketing revenues in the thirteen weeks ended April 28, 2001 increased
$2.8 million or 3.2% over the prior year.
Costs of goods sold including buying and occupancy costs increased $14.1 million
or 3.3% to $441.2 million in the thirteen week period ended April 28, 2001
compared to the same period last year. As a percentage of revenues, cost of
goods sold increased to 64.7% from 62.5% in the prior year. This increase was
primarily due to higher markdowns.
Selling, general and administrative expenses decreased 1.8% to $169.4 million
from $172.5 million in the prior year. As a percentage of revenues, selling,
general and administrative expenses decreased to 24.9% from 25.2% in the prior
year. This decrease reflects ongoing cost reductions to help offset lower sales
growth, lower spending on e-commerce activities and lower performance-based
compensation expenses.
Interest expense decreased 30.2% to $3.5 million in the thirteen weeks ended
April 28, 2001. The decrease resulted primarily from lower average outstanding
borrowings as well as lower interest rates during the period. In the fiscal 2000
quarter, the Company used proceeds from borrowings to repay $150.0 million of
certificates sold to third parties under its securitization. Such repayment was
ultimately financed with a new securitization in July 2000.
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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 thirty-nine weeks ended April 28, 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 $125.9 million during the first
thirty-nine weeks of fiscal 2001 compared to $224.5 million in the same period
last year. The primary item affecting working capital in 2001 was an increase in
merchandise inventories of $117.8 million. The increase in inventories was
primarily due to lower than planned sales and to a lesser extent, the opening of
the new Palm Beach store.
Capital expenditures were $82.7 million during the thirty-nine week period ended
April 28, 2001 as compared to $60.4 million in the prior year period. Capital
expenditures were primarily related to new store openings and major remodels.
Capital expenditures are expected to approximate $125.0 million during fiscal
2001.
The Company decreased its bank borrowings by $80.0 million since July 29, 2000.
At April 28, 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.
In the fiscal 2000 period, the Company used proceeds from its credit facility to
repay $150.0 million of the $246 million of certificates sold to third parties
under its former securitization. The Company's undivided interests in the NMG
Credit Card Master Trust increased by such repayment. The Company ultimately
financed the repayment of the certificates with a new securitization in July
2000.
The Company believes that it will have sufficient resources to fund its planned
capital growth and operating requirements.
RECENT ACCOUNTING PRONOUNCEMENTS
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.
As of April 1, 2001, the Company adopted SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," a
replacement of SFAS No. 125 with the same title. SFAS 140 retains most of the
provisions of SFAS No. 125 but revises the standards for securitizations and
other transfers of financial assets and collateral and requires certain
additional disclosures. The Company recognizes gains and losses on transfers of
financial assets (the securitization of its credit card portfolio) that qualify
as sales and recognizes as assets certain financial components that are retained
as a result of such sales. The Company services and administers the credit card
portfolio for a servicing fee equal to the contractually specified servicing fee
of 2% of the investor interest.
The assets recognized consist primarily of the retained interest in receivables
sold and the retained rights to future interest income from the serviced assets
in excess of the contractually specified servicing fee (interest-only strips).
Such assets are classified on the balance sheet as Undivided Interests in NMG
Credit Card Master Trust. The Company retains certain subordinated interests
that serve as a credit enhancement to outside investors. The Company reinvests
all cash collections on securitized accounts in additional balances, and as such
maintains the committed level of securitized assets.
The retained interest in receivables sold is initially recorded at the date of
the sale by allocating the previous carrying amount between the assets sold and
the retained interests based on their relative fair values. Due to the short
term revolving nature of the credit card portfolio, the carrying value of the
Company's retained interest approximates its fair value.
The adoption of SFAS 140 did not materially affect the Company's results of
operations or financial position.
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 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
---------
None.
(b) Reports on Form 8-K.
--------------------
The Company did not file any reports on Form 8K during the
thirteen-week period ended April 28, 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
--------- ----- ----
Principal Financial Senior Vice President and June 12, 2001
Officer: Chief Financial Officer
/s/ John R. Cook
-------------------------
John R. Cook
Principal Accounting Vice President and Controller June 12, 2001
Officer:
/s/ Catherine N. Janowski
-------------------------
Catherine N. Janowski
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