**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**ý****                ****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the Quarterly Period Ended January 31,2004**

 

**OR**

 

**o****                                ****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission file no.1-9659**

 

| **The  Neiman Marcus Group, Inc.**                                 |
|--------------------------------------------------------------------|
| (Exact name of registrant as specified in its charter)             |
|                                                               |   |   |
| **Delaware**                                                       |   | **95-4119509** |
| (State or other jurisdiction of  incorporation or organization)    |   | (I.R.S. Employer  Identification No.) |
|                                                               |   |   |
| **One Marcus Square  1618 Main Street  Dallas, Texas  75201** |
| (Address of principal executive offices)                           |
|                                                               |   |   |
| **(214) 741-6911**                                                 |
| (Registrant’s telephone number, including area code)          |

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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   ý                  NOo

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 

YES   ý                  NOo

 

As of March 3, 2004, thenumber of outstanding shares of each of the issuer’s classes of common stockwas:

 

| **Class**                             |   | **Outstanding  Shares** |
|---------------------------------------|--------|-------------------------|
| Class A  Common Stock, $.01 Par Value |   | 29,300,863              |
| Class B  Common Stock, $.01 Par Value |   | 19,941,833              |

 

 

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**THE NEIMAN MARCUSGROUP, INC.**

 

**INDEX**

 
| Part I.       | Financial  Information                                                                                                                  |   |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                    |   |
| Item 1.       | Condensed Consolidated Balance Sheets as of  January 31, 2004, August 2, 2003 and February 1, 2003                                      |   |
|          |                                                                                                                                    |   |
|          | Condensed Consolidated Statements of  Earnings for the Thirteen Weeks and Twenty-Six Weeks Ended January 31, 2004  and February 1, 2003 |   |
|          |                                                                                                                                    |   |
|          | Condensed Consolidated Statements of Cash  Flows for the Twenty-Six Weeks Ended January 31, 2004 and February 1, 2003                   |   |
|          |                                                                                                                                    |   |
|          | Notes to Condensed Consolidated Financial  Statements                                                                                   |   |
|          |                                                                                                                                    |   |
| Item 2.       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                             |   |
|          |                                                                                                                                    |   |
| Item 3.       | Quantitative and Qualitative Disclosures  About Market Risk                                                                             |   |
|          |                                                                                                                                    |   |
| Item 4.       | Controls and Procedures                                                                                                                 |   |
|          |                                                                                                                                    |   |
| Part II.      | Other Information                                                                                                                       |   |
|          |                                                                                                                                    |   |
| Item 1.       | Legal  Proceedings                                                                                                                      |   |
|          |                                                                                                                                    |   |
| Item 4.  | Submission of Matters to a Vote of Security  Holders                                                                                    |   |
|          |                                                                                                                                    |   |
| Item 6.       | Exhibits and Reports on Form 8-K                                                                                                        |   |
|          |                                                                                                                                    |   |
| Signatures    |                                                                                                                                    |   |

 

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**THENEIMAN MARCUS GROUP, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

** **
| **(in thousands)**                                                                                 |   | **January  31,  2004** |      | **August 2,  2003** |   | **February  1,  2003** |   |
|----------------------------------------------------------------------------------------------------|--------|------------------------|-----------|---------------------|--------|------------------------|--------|
|                                                                                               |   |                   |      |                |   |                   |   |
| **ASSETS**                                                                                         |   |                   |      |                |   |                   |   |
| Current assets:                                                                                    |   |                   |      |                |   |                   |   |
| Cash and cash equivalents                                                                          |   | $                      | 251,658   |                | $      | 206,950                |   | $ | 161,229 |   |
| Undivided interests in NMG Credit Card  Master Trust                                               |   | 164,652                |      | 243,145             |   | 295,321                |   |
| Accounts receivable, net                                                                           |   | 321,005                |      | 22,595              |   | 22,271                 |   |
| Merchandise inventories                                                                            |   | 658,177                |      | 687,062             |   | 654,309                |   |
| Other current assets                                                                               |   | 75,985                 |      | 86,369              |   | 70,964                 |   |
| Total current assets                                                                               |   | 1,471,477              |      | 1,246,121           |   | 1,204,094              |   |
|                                                                                               |   |                   |      |                |   |                   |   |
| Property and equipment, net                                                                        |   | 674,139                |      | 674,185             |   | 678,131                |   |
| Other assets                                                                                       |   | 112,380                |      | 114,124             |   | 119,405                |   |
| Total assets                                                                                       |   | $                      | 2,257,996 |                | $      | 2,034,430              |   | $ | 2,001,630 |   |
|                                                                                               |   |                   |      |                |   |                   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                      |   |                   |      |                |   |                   |   |
| Current liabilities:                                                                               |   |                   |      |                |   |                   |   |
| Notes payable and current maturities of  long-term liabilities                                     |   | $                      | 845       |                | $      | 1,241                  |   | $ | 2,246 |   |
| Accounts payable                                                                                   |   | 227,121                |      | 262,909             |   | 258,360                |   |
| Accrued liabilities                                                                                |   | 304,103                |      | 266,259             |   | 282,259                |   |
| Total current liabilities                                                                          |   | 532,069                |      | 530,409             |   | 542,865                |   |
|                                                                                               |   |                   |      |                |   |                   |   |
| Long-term liabilities:                                                                             |   |                   |      |                |   |                   |   |
| Notes and debentures                                                                               |   | 249,745                |      | 249,733             |   | 249,722                |   |
| Borrowings under Credit Card Facility                                                              |   | 111,326                |      | —              |   | —                 |   |
| Other long-term liabilities                                                                        |   | 90,884                 |      | 108,234             |   | 109,206                |   |
| Total long-term liabilities                                                                        |   | 451,955                |      | 357,967             |   | 358,928                |   |
|                                                                                               |   |                   |      |                |   |                   |   |
| Minority interest                                                                                  |   | 10,729                 |      | 8,206               |   | 9,044                  |   |
|                                                                                               |   |                   |      |                |   |                   |   |
| Common stocks                                                                                      |   | 492                    |      | 479                 |   | 482                    |   |
| Additional paid-in capital                                                                         |   | 481,598                |      | 458,520             |   | 446,461                |   |
| Accumulated other comprehensive loss                                                               |   | (25,326                | )         | (25,573             | )      | (12,270                | )      |
| Retained earnings                                                                                  |   | 828,525                |      | 719,442             |   | 671,140                |   |
| Treasury stock, at cost (699,777 shares at  January 31, 2004 and 524,177 shares at August 2, 2003) |   | (22,046                | )         | (15,020             | )      | (15,020                | )      |
| Total shareholders’ equity                                                                    |   | 1,263,243              |      | 1,137,848           |   | 1,090,793              |   |
| Total liabilities and shareholders’ equity                                                    |   | $                      | 2,257,996 |                | $      | 2,034,430              |   | $ | 2,001,630 |   |

 

*See Notes to Condensed Consolidated FinancialStatements.*

 

1

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**THE NEIMAN MARCUSGROUP, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS**

**(UNAUDITED)**

 
|                                                                                |   | **Thirteen  Weeks Ended** |      | **Twenty-Six  Weeks Ended** |   |
|-------------------------------------------------------------------------------------|--------|---------------------------|-----------|-----------------------------|--------|
| **(in thousands, except per share data)**                                           |   | **January  31,  2004**    |      | **February  1,  2003**      |   | **January  31,  2004** |   | **February  1,  2003** |   |
|                                                                                |   |                      |      |                        |   |   |   |   |   |
| Revenues                                                                            |   | $                         | 1,054,124 |                        | $      | 938,467 |   | $ | 1,878,987 |   | $ | 1,672,550 |   |
|                                                                                |   |                      |      |                        |   |   |   |   |   |   |   |   |   |
| Cost of goods sold including buying and  occupancy costs                            |   | 717,165                   |      | 654,578                     |   | 1,225,577 |   | 1,108,509 |   |
| Selling, general and administrative  expenses                                       |   | 246,958                   |      | 225,485                     |   | 466,121 |   | 430,393 |   |
|                                                                                |   |                      |      |                        |   |   |   |   |   |
| Operating earnings                                                                  |   | 90,001                    |      | 58,404                      |   | 187,289 |   | 133,648 |   |
|                                                                                |   |                      |      |                        |   |   |   |   |   |
| Interest expense, net                                                               |   | 3,764                     |      | 4,345                       |   | 7,225 |   | 7,939 |   |
| Earnings before income taxes, minority interest  and change in accounting principle |   | 86,237                    |      | 54,059                      |   | 180,064 |   | 125,709 |   |
| Income taxes                                                                        |   | 26,132                    |      | 20,813                      |   | 62,724 |   | 48,398 |   |
| Earnings before minority interest and  change in accounting principle               |   | 60,105                    |      | 33,246                      |   | 117,340 |   | 77,311 |   |
| Minority interest in net earnings of  subsidiaries                                  |   | (934                      | )         | (769                        | )      | (1,944 | ) | (1,509 | ) |
|                                                                                |   |                      |      |                        |   |   |   |   |   |
| Earnings before change in accounting  principle                                     |   | 59,171                    |      | 32,477                      |   | 115,396 |   | 75,802 |   |
|                                                                                |   |                      |      |                        |   |   |   |   |   |
| Change in accounting principle – writedown  of intangible assets, net of taxes |   | —                    |      | —                      |   | — |   | (14,801 | ) |
| Net earnings                                                                        |   | $                         | 59,171    |                        | $      | 32,477 |   | $ | 115,396 |   | $ | 61,001 |   |
|                                                                                |   |                      |      |                        |   |   |   |   |   |
| Weighted average number of common and  common equivalent shares outstanding:        |   |                      |      |                        |   |   |   |   |   |
| Basic                                                                               |   | 47,954                    |      | 47,558                      |   | 47,789 |   | 47,627 |   |
| Diluted                                                                             |   | 48,897                    |      | 47,850                      |   | 48,647 |   | 47,910 |   |
|                                                                                |   |                      |      |                        |   |   |   |   |   |
| Basic earnings per share:                                                           |   |                      |      |                        |   |   |   |   |   |
| Earnings before change in accounting  principle                                     |   | $                         | 1.23      |                        | $      | 0.68 |   | $ | 2.41 |   | $ | 1.59 |   |
| Change in accounting principle – writedown  of intangible assets, net of taxes |   | —                    |      | —                      |   | — |   | (0.31 | ) |
| Basic earnings per share                                                            |   | $                         | 1.23      |                        | $      | 0.68 |   | $ | 2.41 |   | $ | 1.28 |   |
|                                                                                |   |                      |      |                        |   |   |   |   |   |
| Diluted earnings per share:                                                         |   |                      |      |                        |   |   |   |   |   |
| Earnings before change in accounting  principle                                     |   | $                         | 1.21      |                        | $      | 0.68 |   | $ | 2.37 |   | $ | 1.58 |   |
| Change in accounting principle – writedown  of intangible assets, net of taxes |   | —                    |      | —                      |   | — |   | (0.31 | ) |
| Diluted earnings per share                                                          |   | $                         | 1.21      |                        | $      | 0.68 |   | $ | 2.37 |   | $ | 1.27 |   |

 

*See Notes to Condensed Consolidated FinancialStatements.*

 

2

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**THE NEIMAN MARCUS GROUP,INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
|                                                                                               |   | **Twenty-Six  Weeks Ended** |    |
|----------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
| **(in thousands)**                                                                                 |   | **January  31,  2004**      |    | **February  1,  2003** |   |
|                                                                                               |   |                        |    |   |   |
| **CASH FLOWS – OPERATING ACTIVITIES**                                                         |   |                        |    |   |   |
| Net earnings                                                                                       |   | $                           | 115,396 |   | $ | 61,001 |   |
| Change in accounting – non-cash writedown  of intangible assets, net of taxes                 |   | —                      |    | 14,801 |   |
| Earnings before change in accounting  principle                                                    |   | 115,396                     |    | $ | 75,802 |   |
| Adjustments to reconcile net earnings to  net cash (used for) provided by operating activities:    |   |                        |    |   |   |
| Depreciation                                                                                       |   | 46,192                      |    | 39,749 |   |
| Minority interest                                                                                  |   | 1,944                       |    | 1,509 |   |
| Other – primarily costs related to defined  benefit pension and other long-term benefit plans |   | 20,125                      |    | 8,360 |   |
|                                                                                               |   | 183,657                     |    | 125,420 |   |
| Changes in operating assets and  liabilities:                                                      |   |                        |    |   |   |
| Increase in accounts receivable                                                                    |   | (298,410                    | )       | (2,493 | ) |
| Decrease in merchandise inventories                                                                |   | 28,885                      |    | 2,535 |   |
| (Decrease) increase in accounts payable and  accrued liabilities                                   |   | (3,410                      | )       | 27,910 |   |
| Contribution to defined benefit pension  plan                                                      |   | (30,000                     | )       | (2,880 | ) |
| Other                                                                                              |   | 7,023                       |    | (5,638 | ) |
| **NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES**                                           |   | (112,255                    | )       | 144,854 |   |
|                                                                                               |   |                        |    |   |   |
| **CASH FLOWS – INVESTING ACTIVITIES**                                                         |   |                        |    |   |   |
| Capital expenditures                                                                               |   | (46,146                     | )       | (64,715 | ) |
| Transactions related to undivided interests  in NMG Credit Card Master Trust:                      |   |                        |    |   |   |
| Purchases of held-to-maturity securities                                                           |   | (240,808                    | )       | (553,355 | ) |
| Maturities of held-to-maturity securities                                                          |   | 318,721                     |    | 468,489 |   |
| **NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES**                                           |   | 31,767                      |    | (149,581 | ) |
|                                                                                               |   |                        |    |   |   |
| **CASH FLOWS – FINANCING ACTIVITIES**                                                         |   |                        |    |   |   |
| Proceeds from borrowings                                                                           |   | 1,000                       |    | 81,051 |   |
| Repayment of debt                                                                                  |   | (1,000                      | )       | (80,000 | ) |
| Borrowings under Credit Card Facility                                                              |   | 111,326                     |    | — |   |
| Acquisitions of treasury stock                                                                     |   | (7,026                      | )       | (15,020 | ) |
| Proceeds from exercises of stock options  and restricted stock grants                              |   | 21,560                      |    | 1,287 |   |
| Distributions paid                                                                                 |   | (664                        | )       | — |   |
| **NET CASH PROVIDED BY (USED FOR)  FINANCING ACTIVITIES**                                     |   | 125,196                     |    | (12,682 | ) |
|                                                                                               |   |                        |    |   |   |
| **CASH AND CASH EQUIVALENTS**                                                                      |   |                        |    |   |   |
| Increase (decrease) during the period                                                              |   | 44,708                      |    | (17,409 | ) |
| Beginning balance                                                                                  |   | 206,950                     |    | 178,638 |   |
| Ending balance                                                                                     |   | $                           | 251,658 |   | $ | 161,229 |   |
|                                                                                               |   |                        |    |   |   |
| **SUPPLEMENTAL SCHEDULE OF CASH FLOW  INFORMATION**                                                |   |                        |    |   |   |
| Cash paid during the period for:                                                                   |   |                        |    |   |   |
| Interest                                                                                           |   | $                           | 8,918   |   | $ | 9,197 |   |
| Income taxes                                                                                       |   | $                           | 51,935  |   | $ | 31,791 |   |

 

*See Notes to Condensed Consolidated FinancialStatements.*

 

3

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**THE NEIMAN MARCUSGROUP, INC.**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

 

The CondensedConsolidated Financial Statements of The Neiman Marcus Group, Inc. andsubsidiaries (the Company) have been prepared in accordance with generallyaccepted accounting principles for interim financial information and theinstructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedfor complete financial statements. Therefore, the financial statements should be read in conjunction withthe Company’s Annual Report on Form 10-K for the fiscal year ended August 2,2003.

 

The Company’sfiscal year ends on the Saturday closest to July 31.  All references to the second quarter of 2004 relate to thethirteen weeks ended January 31, 2004 and all references to the second quarterof 2003 relate to the thirteen weeks ended February 1, 2003.  All references to 2004 relate to thetwenty-six weeks ended January 31, 2004 and all references to 2003 relate tothe twenty-six weeks ended February 1, 2003.

 

In the opinionof management, the accompanying unaudited condensed consolidated financialstatements contain all adjustments, consisting of normal recurring adjustments(as well as a change in accounting principle made in the first quarter of 2003as more fully described in Note 9) necessary to present fairly the financialposition, results of operations and cash flows of the Company for theapplicable interim periods.  The resultsof operations for these periods are not necessarily comparable to, or indicativeof, results of any other interim period or for the fiscal year as a whole.

 

The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions about future events.  Theseestimates and assumptions affect the amounts of assets, liabilities, revenuesand expenses and the disclosure of gain and loss contingencies at the date ofthe condensed consolidated financial statements.

 

The Company evaluates its estimates and judgments on an ongoing basisand predicates those estimates and judgments on historical experience and onvarious other factors that are believed to be reasonable under thecircumstances.  Management makesadjustments to its assumptions and judgments when facts and circumstancesdictate.  Since future events and theireffects cannot be determined with absolute certainty, actual results may differfrom the estimates used by the Company in preparing the accompanying condensedconsolidated financial statements.

 

Management of the Company believes the following critical accountingpolicies, among others, encompass the more significant judgments and estimatesused in preparation of its financial statements:

 

•              Revenuerecognition;

 

•              Valuation of merchandise inventories,including determination of original retail values, recognition of markdowns andvendor allowances, estimation of inventory shrinkage, and determination of costof goods sold;

 

•              Recognition ofincome and expenses related to the Company’s securitization program;

 

•              Determination ofimpairment of long-lived assets;

 

•              Recognition ofadvertising and catalog costs;

 

•              Recognition of costsrelated to the Company’s loyalty programs;

 

•              Recognition ofincome taxes; and

 

•              Measurement ofaccruals for litigation, general liability, workers’ compensation and healthinsurance as well as short-term disability, pension and postretirement healthcare benefits.

 

A descriptionof the Company’s critical accounting policies is included in the Company’sAnnual Report on Form  10-K for thefiscal year ended August 2, 2003.

 

4

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***Stock-BasedCompensation***. The Company accounts for stock-based compensation awards to employees inaccordance with Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees,” and related interpretations. Accordingly, nocompensation expense has been recognized for stock options since all optionsgranted had an exercise price equal to the market value of the Company’s commonstock on the grant date.

 

The followingtable illustrates the effect on net earnings and earnings per share as if theCompany had applied the fair value recognition provisions of SFAS No. 123to stock-based employee compensation using the Black-Scholes option-pricingmodel for the thirteen weeks and twenty-six weeks ended January 31, 2004 andFebruary 1, 2004:

 
|                                                                                                            |   | **Thirteen  Weeks Ended** |   | **Twenty-Six  Weeks Ended** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|-----------------------------|--------|
| **(in thousands, except per share data)**                                                                       |   | **January  31,  2004**    |   | **February  1,  2003**      |   | **January  31,  2004** |   | **February  1,  2003** |   |
|                                                                                                            |   |                      |   |                        |   |   |   |   |   |
| Net earnings:                                                                                                   |   |                      |   |                        |   |   |   |   |   |
| As reported                                                                                                     |   | $                         | 59,171 |                        | $      | 32,477 |   | $ | 115,396 |   | $ | 61,001 |   |
| Less: stock-based employee compensation  expense determined under fair value based method, net of related taxes |   | (2,158                    | )      | (1,962                      | )      | (4,201 | ) | (3,946 | ) |
| Pro forma                                                                                                       |   | $                         | 57,013 |                        | $      | 30,515 |   | $ | 111,195 |   | $ | 57,055 |   |
|                                                                                                            |   |                      |   |                        |   |   |   |   |   |
| Basic earnings per share:                                                                                       |   |                      |   |                        |   |   |   |   |   |
| As reported                                                                                                     |   | $                         | 1.23   |                        | $      | 0.68 |   | $ | 2.41 |   | $ | 1.28 |   |
| Pro forma                                                                                                       |   | $                         | 1.19   |                        | $      | 0.64 |   | $ | 2.33 |   | $ | 1.20 |   |
|                                                                                                            |   |                      |   |                        |   |   |   |   |   |
| Diluted earnings per share:                                                                                     |   |                      |   |                        |   |   |   |   |   |
| As reported                                                                                                     |   | $                         | 1.21   |                        | $      | 0.68 |   | $ | 2.37 |   | $ | 1.27 |   |
| Pro forma                                                                                                       |   | $                         | 1.17   |                        | $      | 0.64 |   | $ | 2.29 |   | $ | 1.19 |   |

 

The effects onpro forma net earnings and earnings per share of expensing the estimated fairvalue of stock options are not necessarily representative of the effects onreported net earnings for future periods due to such factors as the vestingperiods of stock options and the potential issuance of additional stock optionsin future years.  In addition, theBlack-Scholes option-pricing model has inherent limitations in calculating thefair value of stock options for which no active market exists since the modeldoes not consider the inability to sell or transfer options, vestingrequirements and a reduced exercise period upon termination of employment - allof which would reduce the fair value of the options.

 

5

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2.             Operating Segments

 

The Companyhas identified two reportable segments: Specialty Retail Stores and DirectMarketing.  The Specialty Retail Storessegment includes all Neiman Marcus and Bergdorf Goodman retail stores,including Neiman Marcus clearance stores. The Direct Marketing segment conducts both print catalog and onlineoperations under the Neiman Marcus, Horchow and Chef’s Catalog brandnames.  Other includes the operations ofKate Spade LLC and Gurwitch Products, LLC (the Brand Development Companies) andcorporate expenses.

 

The followingtable sets forth the information for the Company’s reportable segments:

 
|                    |   | **Thirteen  Weeks Ended** |      | **Twenty-Six  Weeks Ended** |   |
|-------------------------|--------|---------------------------|-----------|-----------------------------|--------|
| **(in thousands)**      |   | **January  31,  2004**    |      | **February  1,   2003**     |   | **January  31,  2004** |   | **February  1,  2003** |   |
|                    |   |                      |      |                        |   |   |   |   |   |
| REVENUES:               |   |                      |      |                        |   |   |   |   |   |
| Specialty Retail Stores |   | $                         | 837,532   |                        | $      | 756,097 |   | $ | 1,508,100 |   | $ | 1,357,218 |   |
| Direct Marketing        |   | 191,484                   |      | 161,269                     |   | 319,490 |   | 275,634 |   |
| Other                   |   | 25,108                    |      | 21,101                      |   | 51,397 |   | 39,698 |   |
| Total                   |   | $                         | 1,054,124 |                        | $      | 938,467 |   | $ | 1,878,987 |   | $ | 1,672,550 |   |
|                    |   |                      |      |                        |   |   |   |   |   |
| OPERATING EARNINGS:     |   |                      |      |                        |   |   |   |   |   |
| Specialty Retail Stores |   | $                         | 72,799    |                        | $      | 43,826 |   | $ | 163,909 |   | $ | 117,671 |   |
| Direct Marketing        |   | 24,760                    |      | 17,984                      |   | 35,383 |   | 25,401 |   |
| Other                   |   | (7,558                    | )         | (3,406                      | )      | (12,003 | ) | (9,424 | ) |
| Total                   |   | $                         | 90,001    |                        | $      | 58,404 |   | $ | 187,289 |   | $ | 133,648 |   |

 

3.             Cash DividendProgram

 

In the secondquarter of 2004, the Company’s Board of Directors initiated a quarterly cashdividend of $0.13 per share.  As ofJanuary 31, 2004, the Company had dividends payable in the amount of $6.3million, included in accrued liabilities in the accompanying condensedconsolidated balance sheet, which were paid in February 2004.  The Company has not paid dividends since1995.

 

4.             Stock RepurchaseProgram

 

In prioryears, the Company’s Board of Directors authorized various stock repurchaseprograms and increases in the number of shares subject to repurchase.  During the first quarter of 2004, the Companyrepurchased 175,600 shares at an average purchase price of $40.01.  As of January 31, 2004, approximately 1.2million shares remain authorized for repurchase under the Company’s stockrepurchase programs.

 

6

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5.             Earnings per Share

 

The weightedaverage shares used in computing basic and diluted earnings per share (EPS) arepresented in the table below.  Noadjustments were made to net earnings for the computations of basic and dilutedEPS during the periods presented.

 
|                                                   |   | **Thirteen  Weeks Ended** |   | **Twenty-Six  Weeks Ended** |   |
|--------------------------------------------------------|--------|---------------------------|--------|-----------------------------|--------|
| **(in thousands of shares)**                           |   | **January  31,  2004**    |   | **February  1,  2003**      |   | **January  31,  2004** |   | **February  1,  2003** |   |
|                                                   |   |                      |   |                        |   |   |   |   |   |
| Weighted average shares outstanding                    |   | 48,304                    |   | 47,855                      |   | 48,191 |   | 47,918 |   |
| Less: shares of non-vested restricted stock            |   | (350                      | )      | (297                        | )      | (402 | ) | (291 | ) |
| Shares for computation of basic EPS                    |   | 47,954                    |   | 47,558                      |   | 47,789 |   | 47,627 |   |
|                                                   |   |                      |   |                        |   |   |   |   |   |
| Effect of dilutive stock options and  restricted stock |   | 943                       |   | 292                         |   | 858 |   | 283 |   |
| Shares for computation of diluted EPS                  |   | 48,897                    |   | 47,850                      |   | 48,647 |   | 47,910 |   |
|                                                   |   |                      |   |                        |   |   |   |   |   |
| Shares represented by antidulutive stock  options      |   | —                    |   | 1,955                       |   | 14 |   | 1,956 |   |

 

Antidilutivestock options are not included in the computation of diluted EPS when theexercise price of those options is greater than the average market price of thecommon shares.

 

6.             UndividedInterests in NMG Credit Card Master Trust

 

Pursuant to arevolving credit card securitization program (the Credit Card Facility), theCompany transfers substantially all of its credit card receivables to awholly-owned subsidiary, Neiman Marcus Funding Corporation, which in turn sellssuch receivables to the Neiman Marcus Credit Card Master Trust (Trust).  At the inception of the Credit Card Facilityin September 2000, the Trust issued certificates representing undividedinterests in the credit card receivables to third-party investors in the faceamount of $225 million (Sold Interests) and to the Company in an aggregateamount equal to the excess of the balance of the credit card portfolio over$225 million (Retained Interests).  Inorder to maintain the committed level of securitized assets, cash collectionson the securitized receivables are used by the Trust to purchase new creditcard balances from the Company in accordance with the terms of the Credit CardFacility.

 

From itsinception until December 2003, the Company’s transfers and sales of credit cardreceivables pursuant to the terms of the Credit Card Facility were accountedfor as sales in accordance with generally accepted accounting principles(Off-Balance Sheet Accounting).  As aresult, $225 million of credit card receivables were removed from the Company’sbalance sheet at the inception of the Credit Card Facility and the Company’s$225 million repayment obligation to the holders of the certificatesrepresenting the Sold Interests was not required to be shown as a liability onthe Company’s balance sheet.  During theperiod the transfers and sales qualified for Off-Balance Sheet Accounting, theRetained Interests were shown as “Undivided interests in NMG Credit Card MasterTrust” on the Company’s condensed consolidated balance sheets.

 

7

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Beginning inApril 2005, cash collections will be used by the Trust to repay the $225million principal balance of the Class A Certificates in six monthlyinstallments of $37.5 million (Amortization Period).  As a result of certain provisions in the securitizationagreement, the Company holds certain rights to repurchase the Class ACertificates (Repurchase Option) subsequent to the commencement of theAmortization Period and, therefore, has the ability to regain effective controlover the credit card receivables held by the Trust at the time the RepurchaseOption becomes exercisable.  The Companybelieves that the Repurchase Option will become exercisable in September 2005.

 

Transfers tothe Trust ceased to qualify for Off-Balance Sheet Accounting beginning inDecember 2003 since the contractual life of the receivables transferred afterNovember 2003 is estimated to extend to September 2005 when the RepurchaseOption becomes exercisable.  Rather,these transfers are recorded as secured borrowings by the Company (FinancingAccounting).  As a consequence, thecredit card receivables generated after November 2003 remain on the Company’sbalance sheet and the Company will be required to record a liability for itsrepayment obligation to the holders of the $225 million of certificatesrepresenting the Sold Interests.  Thetransition period from Off-Balance Sheet Accounting to Financing Accounting(Transition Period) will last approximately four months (December 2003 to March2004).  During the Transition Period,cash collections of receivables are allocated to the previous Sold Interestsand Retained Interests until such time as those balances have been reduced tozero.

 

Areconciliation of the outstanding balance of the Company’s accounts receivablesto the balances recorded by the Company at January 31, 2004, August 2, 2003 andFebruary 1, 2003 is as follows:

 
| **(in millions)**                                                            |   | **January  31,  2004** |   | **August 2,  2003** |   | **February  1,  2003** |   |
|------------------------------------------------------------------------------|--------|------------------------|--------|---------------------|--------|------------------------|--------|
|                                                                         |   |                   |   |                |   |                   |   |
| Credit card receivables                                                      |   | $                      | 570.6  |                | $      | 468.1                  |   | $ | 520.3 |   |
| Other receivables                                                            |   | 28.8                   |   | 22.6                |   | 22.3                   |   |
|                                                                         |   | 599.4                  |   | 490.7               |   | 542.6                  |   |
| Less: Sold Interests originally qualifying  for Off-Balance Sheet Accounting |   | (225.0                 | )      | (225.0              | )      | (225.0                 | )      |
| Add: debt brought back onto the balance  sheet                               |   | 111.3                  |   | —              |   | —                 |   |
| Off-Balance sheet amount                                                     |   | (113.7                 | )      | (225.0              | )      | (225.0                 | )      |
|                                                                         |   |                   |   |                |   |                   |   |
| Net balance                                                                  |   | $                      | 485.7  |                | $      | 265.7                  |   | $ | 317.6 |   |
|                                                                         |   |                   |   |                |   |                   |   |
| Amounts reflected in the Company’s balance  sheet:                      |   |                   |   |                |   |                   |   |
| Undivided interests in NMG Credit Card  Master Trust                         |   | $                      | 164.7  |                | $      | 243.1                  |   | $ | 295.3 |   |
| Accounts receivable                                                          |   | 321.0                  |   | 22.6                |   | 22.3                   |   |
|                                                                         |   | $                      | 485.7  |                | $      | 265.7                  |   | $ | 317.6 |   |
|                                                                         |   |                   |   |                |   |                   |   |
| Borrowings under Credit Card Facility                                        |   | $                      | (111.3 | )                   | $      | —                 |   | $ | — |   |

 

Uponcompletion of the Transition Period, the Company’s entire credit card portfoliowill be included in accounts receivable in its condensed consolidated balancesheet and the $225 million repayment obligation will be shown as a liability.

 

As of thestart of the Transition Period in December 2003, the carrying value of theRetained Interests exceeded face value by approximately $7.6 million as aresult of the application of the provisions of current accounting rules relatedto the calculation of the gains on sale of the previously Sold Interests andthe valuation of both Sold and Retained Interests.  During the Transition Period, the $7.6 million premium is beingamortized as a reduction of the Company’s net earnings from its credit cardportfolio (recorded as a reduction of selling, general and administrativeexpenses in the condensed consolidated statements of earnings).  Of the $7.6 million premium, $5.3 million wasamortized in the second quarter of 2004 and the remaining $2.3 million will beamortized in the third quarter of 2004.

 

8

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7.             Employee BenefitPlans

 

The Companysponsors a defined benefit pension plan (Pension Plan) covering substantiallyall full-time employees. The Company also sponsors an unfundedsupplemental executive retirement plan (SERP Plan) which provides certainemployees additional pension benefits. Benefits under both plans are based on the employees’ years of serviceand compensation over defined periods of employment.  Pension Plan assets consist primarily of equity and fixed incomesecurities.

 

Retirees andactive employees hired prior to March 1, 1989 are eligible for certain limitedpostretirement health care benefits (Postretirement Plan) if they have metcertain service and minimum age requirements.

 

Expensesassociated with the Company’s employee benefit plans are as follows:

 
|                |   | **Thirteen  Weeks Ended** |   | **Twenty-Six  Weeks Ended** |   |
|---------------------|--------|---------------------------|--------|-----------------------------|--------|
| **(in thousands)**  |   | **January  31,  2004**    |   | **February  1,  2003**      |   | **January  31,  2004** |   | **February  1,  2003** |   |
|                |   |                      |   |                        |   |   |   |   |   |
| Pension Plan        |   | $                         | 3,789  |                        | $      | 1,855 |   | $ | 7,879 |   | $ | 4,291 |   |
| SERP Plan           |   | $                         | 1,686  |                        | $      | 1,038 |   | $ | 3,367 |   | $ | 2,075 |   |
| Postretirement Plan |   | $                         | 516    |                        | $      | 544 |   | $ | 1,030 |   | $ | 1,087 |   |

 

At August 1, 2003, the funded status of the Company’s employee benefitplans was as follows:

 
| **(in  thousands)**           |   | **Pension  Plan** |    | **SERP  Plan** |   | **Postretirement   Plan** |   |
|-------------------------------|--------|-------------------|---------|----------------|--------|---------------------------|--------|
|                          |   |              |    |           |   |                      |   |
| Projected benefit obligations |   | $                 | 244,997 |           | $      | 57,638                    |   | $ | 24,907 |   |
| Fair value of assets          |   | 183,044           |    | —         |   | —                    |   |
| Underfunded status            |   | $                 | 61,953  |           | $      | 57,638                    |   | $ | 24,907 |   |

 

The Companyhad cumulative unrecognized expense for the Pension Plan of $76.5 million atAugust 1, 2003 primarily related to the delayed recognition of differencesbetween the Company’s actuarial assumptions and actual results, which hascontributed to the $62.0 million underfunded status of the Pension Plan atAugust 1, 2003.  In addition, theCompany had cumulative unrecognized expense for the SERP Plan andPostretirement Plan aggregating $25.1 million at August 1, 2003.

 

The Company’spolicy is to fund the Pension Plan at or above the minimum required bylaw.  In the third quarter of 2003, theCompany made a required contribution of $11.5 million and a voluntarycontribution of $13.5 million to the Pension Plan for the plan year ended July31, 2002.  In addition, the Company madecontributions of $5.8 million in 2003 for the plan year ending July 31,2003.  In the second quarter of 2004, theCompany made a $30 million voluntary contribution to the Pension Plan for the planyear ended July 31, 2003.  Based uponcurrently available information, the Company will not be required to make anyadditional contributions in 2004 or 2005 to the Pension Plan for the plan yearsending July 31, 2003 and July 31, 2004.

 

8.             Commitments and Contingencies

 

The Company is involved in various suits and claims in the ordinarycourse of business.  Management does notbelieve that the disposition of any such suits or claims will have a materialadverse effect upon the consolidated results of operations, cash flows or thefinancial position of the Company.

 

9

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9.             Change in Accounting Principle – Writedown ofIntangible Assets

 

As of the beginning of the first quarter of 2003, the Company adopted theprovisions of Statement of Financial Accounting Standards (SFAS) No. 142,“Goodwill and Other Intangible Assets.” SFAS No. 142 established a new fair value-based accounting model for thevaluation of goodwill and indefinite-lived intangible assets recorded inconnection with business combinations. Pursuant to the provisions of SFAS No. 142, goodwill andindefinite-lived intangible assets are measured for impairment by applying afair value-based test at least annually and are not amortized.

 

In connection with the adoption of the provisions of SFAS No. 142, theCompany engaged third-party appraisal experts to assist with the determinationof the fair value of its goodwill and intangible assets.  For each of the Company’s operatingsegments, a summary of the intangible assets recorded by the Company as of thebeginning of the first quarter of 2003 in accordance with the cost-basedaccounting model established by previous accounting principles and theadjustment required to adopt the fair value model of SFAS No. 142 is asfollows:

 
| **(in  thousands)**         |   | **Carrying  Value at****August 4,  2002** |    | **SFAS  No. 142****Adjustment** |   | **Adjusted  Carrying****Value** |   |
|-----------------------------|--------|-------------------------------------------|---------|---------------------------------|--------|---------------------------------|--------|
|                        |   |                                      |    |                            |   |                            |   |
| **Direct Marketing**        |   |                                      |    |                            |   |                            |   |
| Goodwill                    |   | $                                         | 23,747  |                            | $      | —                          |   | $ | 23,747 |   |
| Indefinite-lived tradenames |   | 60,732                                    |    | (24,066                         | )      | 36,666                          |   |
|                        |   |                                      |    |                            |   |                            |   |
| **Other**                   |   |                                      |    |                            |   |                            |   |
| Indefinite-lived tradenames |   | 32,945                                    |    | —                          |   | 32,945                          |   |
|                        |   | $                                         | 117,424 |                            | $      | (24,066                         | )      | $ | 93,358 |   |

 

The $24.1 million writedown in the carrying value of theindefinite-lived assets of the Company’s Direct Marketing segment is reflectedas a change in accounting principle ($14.8 million, net of taxes) in theaccompanying condensed consolidated statements of earnings for the firstquarter of 2003.

 

10.           Income Taxes

 

The Company’s effective income tax rate was 34.8 percent for 2004 and38.5 percent for 2003.  In the secondquarter of 2004, the Company recognized a net income tax benefit of $7.5million related to favorable settlements associated with previous state taxfilings.  Excluding this benefit, theeffective tax rate was 39.0 percent for 2004 and 38.5 percent for 2003.  This increase in the effective tax rate isprimarily due to higher state income taxes.

 

10

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**ITEM 2.****          MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**FACTORS THAT MAY AFFECT FUTURE RESULTS**

Mattersdiscussed in Management’s Discussion and Analysis of Financial Condition andResults of Operations include forward-looking statements, including statementsregarding the Company’s objectives and expectations concerning, among otherthings, its:

 

•      productivity and profitability;

 

•      merchandising and marketing strategies;

 

•      inventory performance;

 

•      store renovation and expansion plans;

 

•      capital expenditures;

 

•      liquidity; and

 

•      development of management informationsystems.

 

 

Theseforward-looking statements are made based on management’s expectations andbeliefs concerning future events, as well as on assumptions made by and datacurrently available to management. These forward-looking statements involve a number of risks anduncertainties and are not guarantees of future performance.  A variety of factors could cause theCompany’s actual results to differ materially from the anticipated or expectedresults expressed in these forward-looking statements.  Factors that could affect future performanceinclude, but are not limited, to:

 

 

•      current political and economic conditions;

 

•      changes in political and economic conditionsthat may occur in the future;

 

•      terrorist activities in the United States, aswell as the potential escalation in the international war on terrorism;

 

•      political, social, economic or other eventsresulting in the short or long-term disruption in business at the Company’sstores, distribution centers or offices;

 

•      changes in consumer confidence resulting in areduction of discretionary spending on goods that are, or are perceived to be,“luxuries”;

 

•      changes in demographic or retailenvironments;

 

•      changes in consumer preferences or fashiontrends;

 

•      competitive responses to the Company’smarketing, merchandising and promotional efforts and/or inventory liquidationsby vendors or other retailers;

 

•      changes in the Company’s relationships withits key customers;

 

•      delays in the receipt of merchandise ordered bythe Company due to work stoppages and/or other causes of delay in connectionwith either the manufacture or shipment of such merchandise;

 

•      seasonality of the retail business;

 

•      adverse weather conditions, particularlyduring peak selling seasons;

 

•      delays in anticipated store openings;

 

•      natural disasters;

 

•      significant increases in paper, printing andpostage costs;

 

•      litigation that may have an adverse effect onthe financial results or reputation of the Company;

 

•      changes in the Company’s relationships withdesigners, vendors and other sources of merchandise;

 

•      the financial viability of the Company’sdesigners, vendors and other sources of merchandise;

 

•      the design and implementation of newinformation systems as well as enhancement of existing systems;

 

11

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•      changes in foreign currency exchange rates;

 

•      impact of funding requirements related to theCompany’s noncontributory defined benefit pension plan;

 

•      changes in the Company’s relationships withcertain of its key sales associates;

 

•      changes in key management personnel;

 

•      changes in the Company’s proprietary creditcard arrangement that adversely impact its ability to provide consumer credit;or

 

•      changes in government or regulatoryrequirements increasing the Company’s costs of operations.

 

TheCompany undertakes no obligation to update or revise (publicly or otherwise)any forward-looking statements to reflect subsequent events, new information orfuture circumstances.

 

**CRITICALACCOUNTING POLICIES**

 

The preparation of condensedfinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions about futureevents.  These estimates and assumptionsaffect amounts of assets, liabilities, revenues and expenses and the disclosureof gain and loss contingencies at the date of the condensed consolidatedfinancial statements.  The amountscurrently estimated by the Company are subject to change if differentassumptions as to the outcome of future events were made.  The Company evaluates its estimates andjudgments on an ongoing basis and predicates those estimates and judgments onhistorical experience and on various other factors that are believed to bereasonable under the circumstances. Management makes adjustments to its assumptions and judgments when factsand circumstances dictate.  Since futureevents and their effects cannot be determined with absolute certainty, actualresults may differ from the estimates used by the Company in preparing theaccompanying condensed consolidated financial statements.

 

SeeNote 1 of the Notes to Condensed Consolidated Financial Statements in Item 1for a summary of the Company’s critical accounting policies.  A description of the Company’s criticalaccounting policies is included in the Company’s Annual Report to Shareholderson Form 10-K for the fiscal year ended August 2, 2003.

 

**OVERVIEW**

 

The Neiman Marcus Group, Inc.,together with its operating divisions and subsidiaries, is a high-end specialtyretailer.  The Company’s operationsinclude the Specialty Retail Stores segment and the Direct Marketingsegment.  The Specialty Retail Storessegment consists primarily of Neiman Marcus and Bergdorf Goodman stores.  The Direct Marketing segment conducts bothprint catalog and online operations under the Neiman Marcus, Horchow and Chef’sCatalog brand names.

 

The following table sets forthcertain items expressed as percentages of net sales for the periods indicated.

 
|                                                                                |   | **Thirteen  Weeks Ended** |   | **Twenty-Six  Weeks Ended** |   |
|-------------------------------------------------------------------------------------|--------|---------------------------|--------|-----------------------------|--------|
|                                                                                |   | **January  31,  2004**    |   | **February  1,  2003**      |   | **January  31,  2004** |   | **February  1,  2003** |   |
| Revenues                                                                            |   | 100.0                     | %      | 100.0                       | %      | 100.0 | % | 100.0 | % |
| Cost of goods sold including buying and  occupancy costs                            |   | 68.0                      |   | 69.7                        |   | 65.2 |   | 66.3 |   |
| Selling, general and administrative  expenses                                       |   | 23.4                      |   | 24.0                        |   | 24.8 |   | 25.7 |   |
| Operating earnings                                                                  |   | 8.5                       |   | 6.3                         |   | 10.0 |   | 8.0 |   |
| Interest expense, net                                                               |   | 0.4                       |   | 0.5                         |   | 0.4 |   | 0.5 |   |
| Earnings before income taxes, minority  interest and change in accounting principle |   | 8.2                       |   | 5.8                         |   | 9.6 |   | 7.5 |   |
| Income taxes                                                                        |   | 2.5                       |   | 2.2                         |   | 3.3 |   | 2.9 |   |
| Earnings before minority interest and  change in accounting principle               |   | 5.7                       |   | 3.6                         |   | 6.2 |   | 4.6 |   |
| Minority interest in net earnings of  subsidiaries                                  |   | (0.1                      | )      | (0.1                        | )      | (0.1 | ) | (0.1 | ) |
| Earnings before change in accounting  principle                                     |   | 5.6                       |   | 3.5                         |   | 6.1 |   | 4.5 |   |
| Change in accounting principle – writedown  of intangible assets, net of taxes |   | —                    |   | —                      |   | — |   | (0.9 | ) |
| Net earnings                                                                        |   | 5.6                       | %      | 3.5                         | %      | 6.1 | % | 3.6 | % |

 

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**Operating Results**

 

Set forth in the followingtable is certain summary information with respect to the Company’s operationsfor the periods indicated.

 
|                                       |   | **Thirteen  Weeks Ended** |    | **Twenty-Six  Weeks Ended** |   |
|--------------------------------------------|--------|---------------------------|---------|-----------------------------|--------|
| **(dollars in millions)**                  |   | **January  31,  2004**    |    | **February  1,  2003**      |   | **January  31,  2004** |   | **February  1,  2003** |   |
|                                       |   |                      |    |                        |   |   |   |   |   |
| REVENUES                                   |   |                      |    |                        |   |   |   |   |   |
| Specialty Retail Stores                    |   | $                         | 837.5   |                        | $      | 756.1 |   | $ | 1,508.1 |   | $ | 1,357.2 |   |
| Direct Marketing                           |   | 191.5                     |    | 161.3                       |   | 319.5 |   | 275.6 |   |
| Other (1)                                  |   | 25.1                      |    | 21.1                        |   | 51.4 |   | 39.7 |   |
| Total                                      |   | $                         | 1,054.1 |                        | $      | 938.5 |   | $ | 1,879.0 |   | $ | 1,672.5 |   |
|                                       |   |                      |    |                        |   |   |   |   |   |
| OPERATING EARNINGS                         |   |                      |    |                        |   |   |   |   |   |
| Specialty Retail Stores                    |   | $                         | 72.8    |                        | $      | 43.8 |   | $ | 163.9 |   | $ | 117.6 |   |
| Direct Marketing                           |   | 24.8                      |    | 18.0                        |   | 35.4 |   | 25.4 |   |
| Other (1)                                  |   | (7.6                      | )       | (3.4                        | )      | (12.0 | ) | (9.4 | ) |
| Total                                      |   | $                         | 90.0    |                        | $      | 58.4 |   | $ | 187.3 |   | $ | 133.6 |   |
|                                       |   |                      |    |                        |   |   |   |   |   |
| OPERATING PROFIT MARGIN                    |   |                      |    |                        |   |   |   |   |   |
| Specialty Retail Stores                    |   | 8.7                       | %       | 5.8                         | %      | 10.9 | % | 8.7 | % |
| Direct Marketing                           |   | 13.0                      | %       | 11.2                        | %      | 11.1 | % | 9.3 | % |
| Total                                      |   | 8.5                       | %       | 6.3                         | %      | 10.0 | % | 8.0 | % |
|                                       |   |                      |    |                        |   |   |   |   |   |
| COMPARABLE REVENUES (2)                    |   |                      |    |                        |   |   |   |   |   |
| Specialty Retail Stores                    |   | 10.5                      | %       | (2.1                        | )%     | 10.0 | % | 0.9 | % |
| Direct Marketing                           |   | 18.7                      | %       | 11.7                        | %      | 15.9 | % | 12.0 | % |
| Total                                      |   | 12.2                      | %       | 0.5                         | %      | 11.5 | % | 2.8 | % |
|                                       |   |                      |    |                        |   |   |   |   |   |
| STORE COUNT (3)                            |   |                      |    |                        |   |   |   |   |   |
| Neiman Marcus and Bergdorf Goodman stores: |   |                      |    |                        |   |   |   |   |   |
| Open at beginning of period                |   | 37                        |    | 37                          |   | 37 |   | 35 |   |
| Opened during the period                   |   | —                    |    | —                      |   | — |   | 2 |   |
| Open at end of period                      |   | 37                        |    | 37                          |   | 37 |   | 37 |   |
| Clearance centers:                         |   |                      |    |                        |   |   |   |   |   |
| Open at beginning of period                |   | 14                        |    | 12                          |   | 14 |   | 12 |   |
| Opened during the period                   |   | —                    |    | 1                           |   | — |   | 1 |   |
| Open at end of period                      |   | 14                        |    | 13                          |   | 14 |   | 13 |   |

 

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(1)   Other includes the operations of the BrandDevelopment Companies and corporate expenses.

 

(2)   Comparable revenues include 1) revenues derived fromthe Company’s retail stores open for more than 52 weeks, including stores thathave been relocated or expanded, 2) revenues from the Company’s DirectMarketing operations and 3) revenues from the Company’s Brand DevelopmentCompanies.

 

(3)   The Company’s Neiman Marcus Galleries storeshave been excluded.  The Companypreviously opened three Galleries stores in the second quarter of fiscal year1999 and in the first quarter of fiscal year 2000.  One of these stores was closed in the third quarter of fiscal2002 and the remaining two stores were closed in the second quarter of 2004.

 

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**THIRTEENWEEKS ENDED JANUARY 31, 2004 COMPARED TO THIRTEEN WEEKS ENDED FEBRUARY 1, 2003**

 

*Revenues. *Revenues for the second quarter of 2004 of$1,054.1 million increased $115.6 million, or 12.3 percent, from $938.5 millionin the prior year period.

 

Comparable revenues in thesecond quarter of 2004 increased 12.2 percent compared to the prior yearperiod.  Comparable revenues increased10.5 percent for Specialty Retail Stores and 18.7 percent for Direct Marketing.  The Company believes the increases in itscomparable revenues were the result of a higher level of consumer spending, ingeneral, during the holiday season, with a higher increase coming from theaffluent luxury customer served by the Company, In addition, the Company believesthe increases in its comparable revenues were also driven by sales eventsconducted by its Specialty Retail Stores and by the growth of internet salesfor Direct Marketing.  Comparablerevenues in the second quarter of 2003 increased by 0.5 percent.

 

Comparable revenues for theBrand Development Companies increased in the second quarter of 2004, withincreases for both Kate Spade LLC and Gurwitch Products, LLC.

 

*Gross margin.*  Gross margin was 32.0 percent of revenuesfor the second quarter of 2004 compared to 30.3 percent for the second quarterof 2003.  The higher product marginsrealized by the Company in the second quarter of 2004 were a function of 1) alower level of markdowns required to be taken during the second quarter of 2004as a result of higher sales levels both before and during the holiday seasonand 2) the discontinuance of various promotional sales activities conducted bythe Company in the prior year.

 

Consistent with industrybusiness practice, the Company receives allowances from certain of its vendorsin support of the merchandise purchased by the Company for resale.  The Company receives the majority of theallowances at the end of its second and fourth quarters.  The amounts of vendor reimbursementsreceived by the Company did not have a significant impact on the year-over-yearchange in gross margin in the second quarter of 2004.

 

*Selling, general and administrative expenses*.  Selling, general and administrative expenses(SG&A) were 23.4 percent of revenues in the second quarter of 2004 comparedto 24.0 percent of revenues in the second quarter of 2003.

 

The net decrease in SG&A asa percentage of revenues in the second quarter of 2004 was primarily due to 1)productivity improvements in various expense categories, including payroll andadvertising, as a result of the higher level of sales during the quarter, 2) ahigher level of income generated by the Company’s credit card portfolio, 3) theimpact of conclusions of certain sales tax and unclaimed property examinationsfor which the agreed-on settlements were less than the amounts previouslyestimated by the Company and 4) lower preopening costs.  In the second quarter of 2003, the Companyincurred preopening expenses of $2.8 million related to the opening of a newclearance center store and the grand opening of the remodeled and expandedNeiman Marcus store in Las Vegas.

 

The decreases in SG&A werepartially offset by 1) higher costs for incentive compensation as a result ofthe increased operating profits generated by the Company and 2) a $5.3 millionreduction in the income generated by the Company’s credit card portfolio due tothe required amortization of the premium associated with the carrying value ofthe Retained Interests during the Transition Period, as more fully described inNote 6 of the Notes to Condensed Consolidated Financial Statements.

 

*Segment operating earnings*.  Operating earnings for the Specialty RetailStores segment were $72.8 million in the second quarter of 2004 compared to$43.8 million in the second quarter of 2003. This increase was primarily the result of increased sales, reducedmarkdowns and a net decrease in SG&A expenses as percentages of revenues.

 

Operating earnings for DirectMarketing increased to $24.8 million in the second quarter of 2004 from $18.0million in the second quarter of 2003, primarily as a result of increasedsales, reduced markdowns and net decreases in both buying and occupancyexpenses and SG&A expenses as percentage of revenues.

 

*Interest expense, net*.  Net interest expense was $3.8 million forthe second quarter of 2004 compared to $4.3 million for the second quarter of2003.  The Company incurred noborrowings on its revolving credit facility to fund seasonal working capitalrequirements in the second quarter of 2004. During the second quarter of 2003, the Company had outstandingborrowings on its revolving credit facility of $80 million, all of which wererepaid prior to the end of the quarter.

 

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*Income taxes.*  The Company’s effective income tax rate was30.3 percent for the second quarter of 2004 and 38.5 percent for the secondquarter of 2003.   In the second quarterof 2004, the Company recognized a net income tax benefit of $7.5 millionrelated to favorable settlements associated with previous state taxfilings.  Excluding this benefit, theeffective tax rate was 39.0 percent in the second quarter of 2004.

 

**TWENTY-SIXWEEKS ENDED JANUARY 31, 2004 COMPARED TO TWENTY-SIX WEEKS ENDED****FEBRUARY 1,2003**

 

*Revenues. *Revenues for 2004 of $1,879.0 million increased$206.4 million, or 12.3 percent, from $1,672.6 million in the prior yearperiod.

 

Comparable revenues in 2004increased 11.5 percent compared to the prior year period.  Comparable revenues increased 10.0 percentfor Specialty Retail Stores and 15.9 percent for Direct Marketing.  The Company believes the increases in itscomparable revenues were the result of a higher level of consumer spending, ingeneral, both before and during the holiday season, with a higher increase comingfrom the affluent luxury customer served by the Company.  In addition, the Company believes theincreases in its comparable revenues were also driven by sales events conductedby its Specialty Retail Stores and by the growth of internet sales and an increasein catalog productivity for Direct Marketing. Comparable revenues in 2003 increased by 2.8 percent.

 

Comparable revenues for theBrand Development Companies increased in 2004, with increases for both KateSpade LLC and Gurwitch Products, LLC.

 

*Gross margin.*  Gross margin was 34.8 percent of revenuesfor 2004 compared to 33.7 percent for 2003. The increase in gross margin was primarily due to higher product marginsand a decrease in buying and occupancy costs as a percentage of revenues.

 

The higher product marginsrealized by the Company were a function of a lower level of markdowns requiredto be taken during the second quarter of 2004 as a result of higher saleslevels both before and during the holiday season and the discontinuance ofvarious promotional sales activities conducted by the Company in the prioryear.  Consistent with industry businesspractice, the Company receives allowances from certain of its vendors insupport of the merchandise purchased by the Company for resale.  The Company receives the majority of theallowances at the end of its second and fourth quarters.  The amounts of vendor reimbursementsreceived by the Company did not have a significant impact on the year-over-yearchange in gross margin in 2004.

 

A significant portion of theCompany’s buying and occupancy costs are fixed in nature.  Buying and occupancy costs decreased as apercentage of revenues in 2004 compared to the prior year period primarily dueto an increase in revenues.

 

*Selling, general and administrative expenses*.  Selling, general and administrative expenses(SG&A) were 24.8 percent of revenues in 2004 compared to 25.7 percent ofrevenues in 2003.

 

The net decrease in SG&A asa percentage of revenues in 2004 was primarily due to 1) productivityimprovements in various expense categories, including payroll and advertising,as a result of the higher level of sales during the year, 2) reduced preopeningcosts, 3) a higher level of income generated by the Company’s credit cardportfolio and 4) the impact of conclusions on certain sales tax and unclaimedproperty examinations for which the agreed-on settlements were less than theamounts previously estimated by the Company. In 2003, the Company incurred preopening expenses of $6.8 million inconnection with the opening of two Neiman Marcus stores in Florida in the firstquarter of 2003, the opening of a new clearance center store in the secondquarter of 2003 and the grand opening of the remodeled and expanded NeimanMarcus store in Las Vegas in second quarter of 2003.

 

The decreases in SG&A werepartially offset by 1) higher costs for incentive compensation as a result ofthe increased operating profits generated by the Company and 2) a $5.3 millionreduction in the income generated by the Company’s credit card portfolio due tothe required amortization of the premium associated with the carrying value ofthe Retained Interests during the Transition Period, as more fully described inNote 6 of the Notes to Condensed Consolidated Financial Statements.

 

*Segment operating earnings*.  Operating earnings for the Specialty RetailStores segment were $163.9 million in 2004 compared to $117.6 million in2003.  This increase was primarily theresult of increased sales, reduced markdowns and net decreases in both buyingand occupancy expenses and SG&A expenses as percentages of revenues.

 

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Operating earnings for DirectMarketing increased to $35.4 million in 2004 from $25.4 million in 2003,primarily as a result of increased sales and net decreases in both buying andoccupancy expenses and SG&A expenses as percentage of revenues offset, inpart, by higher markdowns.

 

*Interest expense, net*.  Net interest expense was $7.2 million for2004 compared to $7.9 million for 2003. As a result of a higher level of cash generated by operations, theCompany incurred no borrowings on its revolving credit facility to fundseasonal working capital requirements in the second quarter of 2004.  Seasonal borrowings under the Company’srevolving credit facility reached $80 million in the second quarter of 2003 andwere repaid prior to the end of the quarter.

 

*Income taxes.*  The Company’s effective income tax rate was34.8 percent for 2004 and 38.5 percent for 2003.  In the second quarter of 2004, the Company recognized a netincome tax benefit of $7.5 million related to favorable settlements associatedwith previous state tax filings. Excluding this benefit, the effective tax rate was 39.0 percent for 2004and 38.5 percent for 2003.  Thisincrease in the effective tax rate is primarily due to higher state incometaxes.

 

**SEASONALITY**

 

The Company’s business, likethat of most retailers, is subject to seasonal influences, with adisproportionately higher level of revenues and net earnings realized duringthe fall season, which includes the second quarter holiday selling season.  In light of these patterns, SG&Aexpenses are typically higher as a percentage of net revenues during the first,third and fourth quarters of each year, and working capital needs are greaterin the first and second quarters of each year. The increases in working capital needs during the first and secondquarter have typically been financed with cash flows from operations,borrowings under the Company’s revolving credit facility and cash provided fromthe Company’s Credit Card Facility.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The Company’s cash requirementsconsist principally of 1) the funding of its merchandise purchases, 2) capitalexpenditures for new store growth, store renovations and upgrades of itsmanagement information systems, 3) debt service requirements and 4) obligationsrelated to its defined benefit pension plan. The Company’s working capital requirements fluctuate during the year, increasingsubstantially during the fall season as a result of higher planned seasonalinventory levels.

 

The Company generated cash fromoperations (net earnings as adjusted for non-cash charges) of $183.7 million in2004 compared to $125.4 million in 2003. This $58.3 million increase in cash generated was due to the highersales and earnings levels realized in 2004. In presenting the net cash flows from operating activities for 2004, thecash impact of the increase in earnings was affected by 1) the voluntary cashcontribution of $30 million made to the Company’s defined benefit pension planin the second quarter of 2004 and 2) the increase in recorded accountsreceivable from $22.6 million at August 2, 2003 to $321.0 million at January31, 2004.  The increase in accountsreceivable is attributable to both a higher investment in accounts receivabledue to higher sales levels during the second quarter of 2004 and thediscontinuance of Off-Balance Sheet Accounting beginning in December 2003, asmore fully described in Note 6 of the Notes to Condensed Consolidated FinancialStatements.

 

The discontinuance ofOff-Balance Sheet Accounting for the newly generated accounts receivable hadthe impact of increasing accounts receivable by $298.4 million for the amountof transfers to the Trust no longer qualifying for Off-Balance SheetAccounting.  The Company’s total creditcard and other accounts receivable portfolio increased from $490.7 million atAugust 2, 2003 to $599.4 million at January 31, 2004.  This $108.7 million increase is shown in the 2004 condensedconsolidated statement of cash flow as follows:

 
| Operating activities:                                                      |   |   |   |
|----------------------------------------------------------------------------|--------|--------|--------|
| Increase in accounts receivable                                            |   | $      | (298.4 | ) |
| Investing activities:                                                      |   |   |   |
| Purchases of held-to-maturity securities  (Retained Interests)             |   | (240.8 | )      |
| Maturities of hold-to-maturity securities  (Retained Interests)            |   | 318.7  |   |
| Financing activities:                                                      |   |   |   |
| Borrowings under Credit Card Facility                                      |   | 111.3  |   |
| Change in other comprehensive income                                       |   | 0.5    |   |
|                                                                       |   |   |   |
| Net increase in total credit card and other  accounts receivable portfolio |   | $      | (108.7 | ) |

 

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As of January 31, 2004, theCompany had cash and cash equivalents of $251.7 million and no outstandingborrowings under the Company’s $300 million unsecured revolving creditfacility.  At February 1, 2003, theCompany had cash and cash equivalents of $161.2 million and during the secondquarter of 2003 repaid $80 million previously borrowed under the revolvingcredit facility to fund seasonal working capital requirements.  The amount of cash on hand and borrowingsunder the revolving credit facility are influenced by a number of factors,including sales, accounts receivable, inventory levels, vendor terms, the levelof capital expenditures, cash requirements related to financing instruments,pension plan funding obligations and the Company’s tax obligations, amongothers.

 

In the second quarter of 2004,the Company made a $30 million voluntary contribution to the Pension Plan forthe plan year ended July 31, 2003. Based upon currently available information, the Company will not berequired to make any additional contributions in 2004 or 2005 to the PensionPlan for the plan years ending July 31, 2003 and July 31, 2004.

 

The Company currently projectscapital expenditures for 2004 to be approximately $130 million to $140 million,primarily for store renovations and upgrades to information systems, with themajority of the expenditures anticipated for the latter half of 2004.

 

**FINANCINGSTRUCTURE**

 

In the second quarter of 2004,the Company’s Board of Directors initiated a quarterly cash dividend of $0.13per share.  As of January 31, 2004, theCompany had dividends payable in the amount of $6.3 million, included inaccrued liabilities in the accompanying condensed balance sheet, which werepaid in February 2004. The Company has not paid dividends since 1995.

 

In prior years, the Company’sBoard of Directors authorized various stock repurchase programs and increasesin the number of shares subject to repurchase. During the first quarter of 2004, the Company repurchased 175,600 sharesat an average purchase price of $40.01. As of January 31, 2003, approximately 1.2 million shares remainedauthorized for repurchase under the Company’s stock repurchase programs.

 

The Company’s principalcommercial obligations are comprised of senior notes, senior debentures,borrowings under the Credit Card Facility, capital lease obligations, operatinglease obligations, construction commitments, pension plan funding obligations,short-term merchandise purchase commitments, common area maintenance costs, taxand insurance obligations and contingent rent payments.

 

Management believes thatoperating cash flows, currently available vendor financing and amountsavailable pursuant to its revolving credit facility and its Credit Card Facilityshould be sufficient to fund the Company’s operations, debt service, PensionPlan funding requirements, contractual obligations and currently anticipatedcapital expenditure requirements through the end of 2004.

 

**OFF-BALANCESHEET ARRANGEMENTS**

 

Pursuant to a revolving creditcard securitization program (the Credit Card Facility), the Company transferssubstantially all of its credit card receivables to a wholly-owned subsidiary,Neiman Marcus Funding Corporation, which in turn sells such receivables to theNeiman Marcus Credit Card Master Trust (Trust).  At the inception of the Credit Card Facility in September 2000,the Trust issued certificates representing undivided interests in the creditcard receivables to third-party investors in the face amount of $225 million(Sold Interests) and to the Company in an aggregate amount equal to the excessof the balance of the credit card portfolio over $225 million (RetainedInterests).  In order to maintain thecommitted level of securitized assets, cash collections on the securitizedreceivables are used by the Trust to purchase new credit card balances from theCompany in accordance with the terms of the Credit Card Facility.

 

From its inception untilDecember 2003, the Company’s transfers and sales of credit card receivablespursuant to the terms of the Credit Card Facility were accounted for as salesin accordance with generally accepted accounting principles (Off-Balance SheetAccounting).  As a result, $225 millionof credit card receivables were removed from the Company’s balance sheet at theinception of the Credit Card Facility and the Company’s $225 million repaymentobligation to the holders of the certificates representing the Sold Interestswas not required to be shown as a liability on the Company’s balancesheet.  During the period the transfersand sales qualified for Off-Balance Sheet Accounting, the Retained Interestswere shown as

 

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“Undivided interests in NMGCredit Card Master Trust” on the Company’s condensed consolidated balancesheets.

 

Beginning in April 2005, cashcollections will be used by the Trust to repay the $225 million principalbalance of the Class A Certificates in six monthly installments of $37.5million (Amortization Period).  As aresult of certain provisions in the securitization agreement, the Company holdscertain rights to repurchase the Class A Certificates (Repurchase Option)subsequent to the commencement of the Amortization Period and, therefore, hasthe ability to regain effective control over the credit card receivables heldby the Trust at the time the Repurchase Option becomes exercisable.  The Company believes that the RepurchaseOption will become exercisable in September 2005.

 

Transfers to the Trust ceasedto qualify for Off-Balance Sheet Accounting beginning in December 2003 sincethe contractual life of the receivables transferred after November 2003 isestimated to extend to September 2005 when the Repurchase Option becomesexercisable.  Rather, these transfersare recorded as secured borrowings by the Company (Financing Accounting).  As a consequence, the credit cardreceivables generated after November 2003 remain on the Company’s balance sheetand the Company will be required to record a liability for its repaymentobligation to the holders of the $225 million of certificates representing theSold Interests.  The transition periodfrom Off-Balance Sheet Accounting to Financing Accounting (Transition Period)will last approximately four months (December 2003 to March 2004).  During the Transition Period, cashcollections of receivables are allocated to the previous Sold Interests andRetained Interests until such time as those balances have been reduced to zero.

 

Upon completion of theTransition Period, the Company’s entire credit card portfolio will be includedin accounts receivable in its consolidated balance sheet and the $225 millionrepayment obligation will be shown as a liability.

 

**OUTLOOK**

 

Based on current estimates, theCompany anticipates comparable store revenues to increase in the 14 to 16percent range for its third quarter ending May 1, 2004.  The accuracy of these assumptions and of theresulting forecasts is subject to uncertainties and circumstances beyond theCompany’s control.  Consequently, actualresults could differ materially from the forecasted results.  See “Factors That May Affect Future Results”for a discussion of items and events that could cause actual results to varyfrom the Company’s expectations.

 

**INFLATIONAND DEFLATION**

 

The Companybelieves changes in revenues and net earnings that have resulted from inflationor deflation have not been material during the periods presented.  The Company attempts to offset the effectsof inflation, which has occurred in recent years in SG&A, through controlof expenses and price increases, although the Company’s ability to increaseprices may be limited by competitive factors. The Company attempts to offset the effects of merchandise deflation,which has occurred on a limited basis in recent years, through control ofexpenses.  There is no assurance,however, that inflation or deflation will not materially affect the Company inthe future.

 

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**ITEM 3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

The market risk inherent in theCompany’s financial instruments represents the potential loss arising fromadverse changes in interest rates and foreign currency exchange rates.  The Company does not enter into derivativefinancial instruments for trading purposes. The Company seeks to manage exposure to adverse interest rate changesthrough its normal operating and financing activities.  The Company is exposed to interest rate riskthrough its securitization and borrowing activities, which are described inNotes 2 and 5 to the Consolidated Financial Statements in the Company’s AnnualReport on Form 10-K for the fiscal year ended August 2, 2003.

 

As of January 31, 2004, theCompany had no borrowings outstanding under its revolving credit agreement.  Future borrowings under the Company’srevolving credit facility, to the extent of outstanding borrowings, would beaffected by interest rate changes.

 

The Company’s outstandinglong-term debt as of January 31, 2004 is at fixed interest rates and would notbe affected by interest rate changes. Based upon quoted prices, the fair value of the Company’s senior notesand debentures was $277.8 million as of January 31, 2004.

 

Pursuant to a its outstandingCredit Card Facility that begins to expire in September 2005, the Company soldsubstantially all of its credit card receivables through a subsidiary inexchange for certificates representing undivided interests in suchreceivables.  The Class A Certificates,which have an aggregate principal value of $225 million, were sold tothird-party investors. The holders of the Class A Certificates are entitled tomonthly interest distributions from the Trust at the contractually-defined rateof one month LIBOR plus 0.27 percent annually. The distributions to the Class A Certificate holders are payable fromthe finance charge income generated by the credit card receivables held by theTrust.  At January 31, 2004, the Companyestimates a 100 basis point increase in LIBOR would result in an approximateannual decrease of $2.25 million in pretax income to the Company from itscredit card portfolio.

 

The Company uses derivativefinancial instruments to manage foreign currency risk related to theprocurement of merchandise inventories from foreign sources.  The Company enters into foreign currencycontracts denominated in the euro and British pound. The Company had foreigncurrency contracts in the form of forward exchange contracts in the amount ofapproximately $44.4 million as of January 31, 2004.  The market risk inherent in these instruments was not material tothe Company’s consolidated financial condition, results of operations, or cashflows during the second quarter of 2004.

 

Theeffects of changes in the U.S. equity and bond markets serve to increase ordecrease the value of pension plan assets, resulting in increased or decreasedcash funding by the Company.  TheCompany seeks to manage exposure to adverse equity and bond returns bymaintaining diversified investment portfolios and utilizing professional investmentmanagers.

 

Based on a review of theCompany’s financial instruments outstanding at January 31, 2004 that aresensitive to market risks, the Company has determined that there was nomaterial market risk exposure to the Company’s consolidated financial position,results of operations, or cash flows as of such date.

 

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**ITEM 4.  CONTROLS ANDPROCEDURES**

 

In accordance with Rules 13a-15and 15d-15 of the Securities Exchange Act of 1934, as amended (Exchange Act),the Company carried out an evaluation, under the supervision and with theparticipation of the Chief Executive Officer and Chief Financial Officer, aswell as other key members of the Company’s management, of the effectiveness ofits disclosure controls and procedures as of the end of the period covered bythis report. Based on that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures were effective, as of the end of the period covered by this report,to provide reasonable assurance that information required to be disclosed inits reports filed or submitted under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission’s rules and forms.

 

In the ordinary course of business, theCompany routinely enhances its information systems by either upgrading itscurrent systems or implementing new systems. No change occurred in the Company’s internal controls concerningfinancial reporting during the quarter ended January 31, 2004 that hasmaterially affected, or is reasonably likely to materially affect, theCompany’s internal controls over financial reporting.

 

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**THE NEIMAN MARCUSGROUP, INC.**

 

PART II

 

Item 1.    Legal Proceedings

 

Note 8 of the Notes toCondensed Consolidated Financial Statements in Part I, Item 1 is incorporatedherein by reference as if fully restated herein.  Note 8 contains forward-looking statements that are subject tothe risks and uncertainties discussed in “Management’s Discussion and Analysisof Financial Condition and Results of Operations – Factors That May AffectFuture Results.”

 

Item 4.  Submission of Matters to a Vote of SecurityHolders

 

1.     TheAnnual Meeting of Shareholders of the Company was held on January 16,2004.  Four Class B directors wereelected to serve for three-year terms expiring at the 2007 Annual Meeting ofShareholders as follows:

 

|               |   | **Votes  Cast For** |   | **Votes  Withheld** |   | **Broker  Non-Votes** |   |
|--------------------|--------|---------------------|--------|---------------------|--------|-----------------------|--------|
|               |   |                |   |                |   |                  |   |
| Richard A. Smith   |   | 15,774,309          |   | 120,624             |   | 0                     |   |
| Robert A. Smith    |   | 15,775,289          |   | 119,622             |   | 0                     |   |
| Paula Stern        |   | 15,808,263          |   | 86,670              |   | 0                     |   |
| Gary L. Countryman |   | 15,785,181          |   | 109,752             |   | 0                     |   |

 

Only holdersof Class B Common Stock are entitled to vote on the election of the Class Bdirectors.

 

There were noabstentions with respect to the election of directors.

 

2.     Approvalof The Neiman Marcus Group, Inc. Key Employee Bonus Plan:

 
| For     |   | 38,056,725 |   |
|---------|--------|------------|--------|
| Against |   | 1,436,990  |   |
| Abstain |   | 74,279     |   |

 

3.     Ratificationof the appointment by the Board of Directors of Deloitte & Touche LLP asthe Company’s independent auditors for the 2004 fiscal year:

 
| For     |   | 41,331,863 |   |
|---------|--------|------------|--------|
| Against |   | 677,070    |   |
| Abstain |   | 61,306     |   |

 

4.     Stockholderproposal concerning cumulative voting in the election of directors:

 
| For              |   | 15,599,851 |   |
|------------------|--------|------------|--------|
| Against          |   | 23,524,227 |   |
| Abstain          |   | 443,916    |   |
| Broker Non-Votes |   | 2,502,247  |   |

 

 

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Item 6.    Exhibitsand Reports on Form 8–K

 

(a)           Exhibits.

 

31.1         Certificationof Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of2002. (1)

 

31.2         Certificationof Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of2002. (1)

 

32            Certificationsof Chief Executive Officer and Chief Financial Officer pursuant to Section 906of the Sarbanes Oxley Act of 2002. (1)

 

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(1)           Filedherewith.

 

(b)           Reports on Form 8-K

 

On November 6,2003, the Company filed a Current Report on Form 8-K under Item 9 to discloseunder Regulation FD the Company’s press release dated November 6, 2003announcing revenue results for the four weeks and thirteen weeks ended November1, 2003.

 

On December 3,2003, the Company filed a Current Report on Form 8-K under Item 9 to discloseunder Regulation FD the Company’s press release dated December 3, 2003announcing financial results for the fiscal first quarter ended November 1,2003.

 

On December 3,2003, the Company filed a Current Report on Form 8-K under Item 9 to discloseunder Regulation FD the Company’s press release dated December 3, 2003announcing revenue results for the four weeks ended November 29, 2003.

 

On January 8,2004, the Company filed a Current Report on Form 8-K under Item 9 to discloseunder Regulation FD the Company’s press release dated January 8, 2004announcing revenue results for the five weeks ended January 3, 2004.

 

On January 20,2004, the Company filed a Current Report on Form 8-K under Item 9 to discloseunder Regulation FD the Company’s press release dated January 16, 2004announcing that the Company’s Board of Directors initiated a quarterly cashdividend.

 

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SIGNATURES

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, as amended, the registrant has duly causedthis report to be signed on its behalf by the undersigned hereunto dulyauthorized.

 

 
|                   |   | THE NEIMAN  MARCUS GROUP, INC.  |                           |     |
|------------------------|--------|---------------------------------|--------------------------------|----------|
|                   |   |                            |                           |     |
|                   |   |                            |                           |     |
|                   |   |                            |                           |     |
| **Signature**          |   | **Title**                       |                           | **Date** |
|                   |   |                            |                           |     |
| /s/ T. Dale  Stapleton |   |                            | Vice  President and Controller |     | March 8,  2004 |
| T. Dale  Stapleton     |   | (principal  accounting officer) |                           |     |
|                        |        |                                 |                                |          |  |

 

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