**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

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

 

**For the Quarterly Period Ended April 30, 2005**

 

**OR**

 

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

 

**Commission file no. 1-9659**

 

**The Neiman Marcus Group, Inc.**

(Exact name of registrant asspecified in its charter)

 
| **Delaware**                                               | ** ** | **95-4119509**       |
|------------------------------------------------------------|------------|----------------------|
| (State or  other jurisdiction of                           |       | (I.R.S.  Employer    |
| incorporation  or organization)                            |       | 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 whether theregistrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

| YES ý |   | NO o |
|------------|--------|------|

 

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

 

| YES ý |   | NO o |
|------------|--------|------|

 

As of June 3, 2005, the number of outstanding shares of each ofthe issuer’s classes of common stock was:

 
| **Class**                                 | ** ** | **Outstanding Shares** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| Class A Common Stock, $.01 Par Value |       |                   | 29,525,199 |   |
| Class B Common Stock, $.01 Par Value |       |                   | 19,422,379 |   |

 

 

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**THE NEIMANMARCUS GROUP, INC.**

 

#### **INDEX**

 
| Part I.  | Financial Information                                                                                                                       |   |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                        |   |
| Item 1.       | Condensed Consolidated Balance Sheets as of  April 30, 2005, July 31, 2004 and May 1, 2004                                   |   |
|          |                                                                                                                                        |   |
|          | Condensed Consolidated Statements of  Earnings for the Thirteen Weeks and Thirty-Nine Weeks Ended April 30,  2005 and May 1, 2004 |   |
|          |                                                                                                                                        |   |
|          | Condensed Consolidated Statements of Cash  Flows for the Thirty-Nine Weeks Ended April 30, 2005 and May 1,  2004                  |   |
|          |                                                                                                                                        |   |
|          | 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 2.       | Unregistered Sales of Equity Securities and  Use of Proceeds                                                                                |   |
|          |                                                                                                                                        |   |
| Item 6.       | Exhibits                                                                                                                                    |   |
|          |                                                                                                                                        |   |
| Signatures    |                                                                                                                                        |

 

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**THE NEIMANMARCUS GROUP, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

 
| **(in thousands)**                                                           | ** ** | **April 30,  2005** | ** ** | **July 31,  2004**       | ** ** | **May 1,  2004** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------------|------------|-----------------------|------------|
| ** **                                                                   | ** ** | ** **               | ** ** | **(As Restated, See Note 9)** | ** ** |
| **ASSETS**                                                                   |       |                     |       |                          |       |                  |       |
| Current  assets:                                                             |       |                     |       |                          |       |                  |       |
| Cash and  cash equivalents                                                   |       | $                        | 337,589    |                          | $          | 368,367               |       | $ | 311,985 |   |
| Restricted  cash                                                             |       | 37,500                   |       | —                        |       | —                |       |
| Accounts  receivable, net of allowance of $11,956, $10,078 and $11,104       |       | 666,455                  |       | 551,687                       |       | 599,581               |       |
| Merchandise  inventories                                                     |       | 788,915                  |       | 720,277                       |       | 715,539               |       |
| Other  current assets                                                        |       | 49,715                   |       | 65,835                        |       | 46,372                |       |
| Total  current assets                                                        |       | 1,880,174                |       | 1,706,166                     |       | 1,673,477             |       |
|                                                                         |       |                     |       |                          |       |                  |       |
| Property and  equipment, net                                                 |       | 821,810                  |       | 750,483                       |       | 743,852               |       |
| Other assets                                                                 |       | 137,822                  |       | 160,999                       |       | 119,442               |       |
| Total assets                                                                 |       | $                        | 2,839,806  |                          | $          | 2,617,648             |       | $ | 2,536,771 |   |
|                                                                         |       |                     |       |                          |       |                  |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                               |       |                     |       |                          |       |                  |       |
| Current  liabilities:                                                        |       |                     |       |                          |       |                  |       |
| Accounts  payable                                                            |       | $                        | 246,971    |                          | $          | 289,282               |       | $ | 234,264 |   |
| Accrued  liabilities                                                         |       | 352,526                  |       | 286,833                       |       | 316,305               |       |
| Notes  payable and current maturities of long-term liabilities               |       | 200                      |       | 1,563                         |       | 1,237                 |       |
| Current  portion of borrowings under Credit Card Facility                    |       | 187,500                  |       | 150,000                       |       | 37,500                |       |
| Total  current liabilities                                                   |       | 787,197                  |       | 727,678                       |       | 589,306               |       |
|                                                                         |       |                     |       |                          |       |                  |       |
| Long-term  liabilities:                                                      |       |                     |       |                          |       |                  |       |
| Notes and  debentures                                                        |       | 249,773                  |       | 249,757                       |       | 249,751               |       |
| Borrowings  under Credit Card Facility                                       |       | —                   |       | 75,000                        |       | 187,500               |       |
| Deferred  real estate credits                                                |       | 74,429                   |       | 71,898                        |       | 73,208                |       |
| Other  long-term liabilities                                                 |       | 133,114                  |       | 112,455                       |       | 97,307                |       |
| Total  long-term liabilities                                                 |       | 457,316                  |       | 509,110                       |       | 607,766               |       |
|                                                                         |       |                     |       |                          |       |                  |       |
| Minority  interest                                                           |       | 13,498                   |       | 10,298                        |       | 12,799                |       |
|                                                                         |       |                     |       |                          |       |                  |       |
| Common  stocks                                                               |       | 497                      |       | 492                           |       | 493                   |       |
| Additional  paid-in capital                                                  |       | 511,338                  |       | 491,849                       |       | 484,151               |       |
| Accumulated  other comprehensive loss                                        |       | (3,432                   | )          | (4,536                        | )          | (26,752               | )          |
| Retained  earnings                                                           |       | 1,099,053                |       | 905,330                       |       | 891,054               |       |
| Treasury  stock, at cost (768,731 shares, 710,227 shares and 699,777 shares) |       | (25,661                  | )          | (22,573                       | )          | (22,046               | )          |
| Total  shareholders’ equity                                             |       | 1,581,795                |       | 1,370,562                     |       | 1,326,900             |       |
| Total  liabilities and shareholders’ equity                             |       | $                        | 2,839,806  |                          | $          | 2,617,648             |       | $ | 2,536,771 |   |

 

*See Notes to Condensed Consolidated FinancialStatements.*

 

1

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**THE NEIMANMARCUS GROUP, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS**

**(UNAUDITED)**

 
| ** **                                                                   | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **(in thousands, except per share data)**                                    | ** ** | **April 30,  2005** | ** ** | **May 1,  2004**       | ** ** | **April 30,  2005** | ** ** | **May 1,  2004** | ** ** |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Revenues                                                                     |       | $                        | 933,372    |                        | $          | 873,167 |   | $ | 2,970,533 |   | $ | 2,740,303 |   |
| Cost of  goods sold including buying and occupancy costs                     |       | 576,204                  |       | 544,663                     |       | 1,892,904 |   | 1,773,999 |   |
| Selling, general and administrative  expenses                                |       | 222,516                  |       | 208,909                     |       | 698,054 |   | 659,420 |   |
| Loss on  disposition of Chef’s Catalog                                  |       | —                   |       | —                      |       | 15,348 |   | — |   |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Operating  earnings                                                          |       | 134,652                  |       | 119,595                     |       | 364,227 |   | 306,884 |   |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Interest  expense, net                                                       |       | 2,933                    |       | 4,589                       |       | 10,948 |   | 11,814 |   |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Earnings  before income taxes and minority interest                          |       | 131,719                  |       | 115,006                     |       | 353,279 |   | 295,070 |   |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Income taxes                                                                 |       | 50,713                   |       | 44,852                      |       | 136,014 |   | 107,576 |   |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Earnings  before minority interest                                           |       | 81,006                   |       | 70,154                      |       | 217,265 |   | 187,494 |   |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Minority  interest in net earnings of subsidiaries                           |       | (1,231                   | )          | (1,305                      | )          | (2,787 | ) | (3,249 | ) |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Net earnings                                                                 |       | $                        | 79,775     |                        | $          | 68,849 |   | $ | 214,478 |   | $ | 184,245 |   |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Weighted  average number of common and common equivalent shares outstanding: |       |                     |       |                        |       |   |   |   |   |
| Basic                                                                        |       | 48,390                   |       | 48,208                      |       | 48,309 |   | 47,929 |   |
| Diluted                                                                      |       | 49,695                   |       | 49,124                      |       | 49,427 |   | 48,806 |   |
|                                                                         |       |                     |       |                        |       |   |   |   |   |
| Earnings per  share:                                                         |       |                     |       |                        |       |   |   |   |   |
| Basic                                                                        |       | $                        | 1.65       |                        | $          | 1.43 |   | $ | 4.44 |   | $ | 3.84 |   |
| Diluted                                                                      |       | $                        | 1.61       |                        | $          | 1.40 |   | $ | 4.34 |   | $ | 3.78 |   |

 

*See Notesto Condensed Consolidated Financial Statements.*

 

2

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**THE NEIMAN MARCUS GROUP, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                                          | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| **(in thousands)**                                                                                  | ** ** | **April 30,  2005**    | ** ** | **May 1,  2004** | ** ** |
| ** **                                                                                          | ** ** | ** **                  | ** ** | **(As Restated,  See Note 9)** | ** ** |
| **CASH  FLOWS - OPERATING ACTIVITIES**                                                              |       |                        |       |   |   |
| Net earnings                                                                                        |       | $                           | 214,478    |   | $ | 184,245 |   |
| Adjustments  to reconcile net earnings to net cash provided by (used for) operating  activities:    |       |                        |       |   |   |
| Depreciation                                                                                        |       | 79,338                      |       | 73,093 |   |
| Loss on  disposition of Chef’s Catalog                                                         |       | 15,348                      |       | — |   |
| Minority  interest                                                                                  |       | 2,787                       |       | 3,249 |   |
| Other –  primarily costs related to defined benefit pension and other long-term  benefit plans |       | 27,222                      |       | 24,367 |   |
|                                                                                                |       | 339,173                     |       | 284,954 |   |
| Changes in  operating assets and liabilities:                                                       |       |                        |       |   |   |
| Decrease in  undivided interests                                                                    |       | —                      |       | 242,565 |   |
| Increase in  accounts receivable                                                                    |       | (114,270                    | )          | (576,986 | ) |
| Increase in  merchandise inventories                                                                |       | (78,955                     | )          | (28,477 | ) |
| Decrease in  other current assets                                                                   |       | 10,530                      |       | 27,803 |   |
| Decrease  (increase) in other assets                                                                |       | 12,276                      |       | (4,550 | ) |
| Increase in  accounts payable and accrued liabilities                                               |       | 38,763                      |       | 35,347 |   |
| Increase in  deferred real estate credits                                                           |       | 2,531                       |       | 2,866 |   |
| Funding of  defined benefit pension plan                                                            |       | (20,000                     | )          | (30,000 | ) |
| **Net cash  provided by (used for) operating activities**                                           |       | 190,048                     |       | (46,478 | ) |
|                                                                                                |       |                        |       |   |   |
| **CASH  FLOWS - INVESTING ACTIVITIES**                                                              |       |                        |       |   |   |
| Capital  expenditures                                                                               |       | (150,830                    | )          | (83,152 | ) |
| Increase in  cash restricted for repayment of borrowings under Credit Card Facility                 |       | (37,500                     | )          | — |   |
| Proceeds  from sale of Chef’s Catalog                                                          |       | 14,419                      |       | — |   |
| **Net cash  used for investing activities**                                                         |       | (173,911                    | )          | (83,152 | ) |
|                                                                                                |       |                        |       |   |   |
| **CASH  FLOWS - FINANCING ACTIVITIES**                                                              |       |                        |       |   |   |
| Proceeds  from borrowings                                                                           |       | 7,750                       |       | 2,000 |   |
| Repayment of  debt                                                                                  |       | (9,113                      | )          | (1,500 | ) |
| Borrowings  under Credit Card Facility                                                              |       | —                      |       | 225,000 |   |
| Repayment of  borrowings under Credit Card Facility                                                 |       | (37,500                     | )          | — |   |
| Acquisitions  of treasury stock                                                                     |       | (3,088                      | )          | (7,026 | ) |
| Proceeds  from stock-based compensation awards                                                      |       | 16,432                      |       | 23,235 |   |
| Cash  dividends paid                                                                                |       | (20,042                     | )          | (6,312 | ) |
| Distributions  paid                                                                                 |       | (1,354                      | )          | (732 | ) |
| **Net cash  (used for) provided by financing activities**                                           |       | (46,915                     | )          | 234,665 |   |
|                                                                                                |       |                        |       |   |   |
| **CASH AND  CASH EQUIVALENTS**                                                                      |       |                        |       |   |   |
| (Decrease)  increase during the period                                                              |       | (30,778                     | )          | 105,035 |   |
| Beginning  balance                                                                                  |       | 368,367                     |       | 206,950 |   |
| Ending  balance                                                                                     |       | $                           | 337,589    |   | $ | 311,985 |   |
|                                                                                                |       |                        |       |   |   |
| **SUPPLEMENTAL  SCHEDULE OF CASH FLOW INFORMATION**                                            |       |                        |       |   |   |
| Cash paid  during the period for:                                                                   |       |                        |       |   |   |
| Interest                                                                                            |       | $                           | 12,992     |   | $ | 9,050 |   |
| Income taxes                                                                                        |       | $                           | 98,942     |   | $ | 70,657 |   |

 

*See Notes to Condensed Consolidated FinancialStatements.*

 

3

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**THE NEIMANMARCUS GROUP, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

1.               Basis ofPresentation

 

We have prepared theCondensed Consolidated Financial Statements of The Neiman Marcus Group, Inc.and its subsidiaries (Company) in accordance with generally accepted accountingprinciples for interim financial information and the instructions to Form 10-Qand Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of theinformation and footnotes required by accounting principles generally acceptedfor complete financial statements. Therefore, these financial statements shouldbe read in conjunction with our amendment to the Annual Report on Form 10-K/Afor the fiscal year ended July 31, 2004.

 

Our fiscal year ends on the Saturday closestto July 31.  All references to thethird quarter of 2005 relate to the thirteen weeks ended April 30, 2005and all references to the third quarter of 2004 relate to the thirteen weeksended May 1, 2004.  All referencesto 2005 relate to the thirty-nine weeks ended April 30, 2005 and allreferences to 2004 relate to the thirty-nine weeks ended May 1, 2004.

 

In our opinion, theaccompanying unaudited Condensed Consolidated Financial Statements contain alladjustments, consisting of normal recurring adjustments, necessary to presentfairly our financial position, results of operations and cash flows for theapplicable interim periods.  The resultsof operations for these periods are not necessarily comparable to, orindicative of, results of any other interim period or for the fiscal year as awhole.

 

**We are required to make estimatesand assumptions about future events in preparing financial statements inconformity with generally accepted accounting principles.  These estimates and assumptions affect theamounts of assets, liabilities, revenues and expenses and the disclosure ofgain and loss contingencies at the date of the Condensed Consolidated FinancialStatements.  While we believe that ourpast estimates and assumptions have been materially accurate, our currentestimates are subject to change if different assumptions as to the outcome offuture events were made. We evaluate our estimates and judgments on an ongoingbasis and predicate those estimates and judgments on historical experience andon various other factors that we believe to be reasonable under thecircumstances.  We make adjustments toour assumptions and judgments when facts and circumstances dictate.  Since future events and their effects cannotbe determined with absolute certainty, actual results may differ from theestimates used in preparing the accompanying Condensed Consolidated FinancialStatements.**

** **

Certain prior period balances have beenreclassified to conform to the current period presentation.

 

**We believe the following criticalaccounting policies, among others, encompass the more significant judgments andestimates used in the preparation of our 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;

 

•                              Determinationof impairment of long-lived assets;

 

•                              Recognitionof income and expenses related to our previous securitization program;

 

•                              Recognitionof advertising and catalog costs;

 

•                              Measurementof liabilities related to our loyalty programs;

 

•                              Recognition of income taxes; and

 

•                              Measurementof accruals for litigation, general liability, workers’ compensation and healthinsurance, short-term disability, pension and postretirement health carebenefits.

 

A description of our critical accountingpolicies is included in our amendment to the Annual Report on Form 10-K/Afor the fiscal year ended July 31, 2004.

 

4

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***Stock-BasedCompensation***. We account for stock-based compensation awards to employees inaccordance with Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees,” and related interpretations. Accordingly, wehave recognized compensation expense on our restricted stock and purchasedrestricted stock awards but have not recognized compensation expense for stockoptions since all options granted had an exercise price equal to the marketvalue of our common stock on the grant date.

 

The following table illustrates the effect onnet earnings and earnings per share as if we had applied the fair valuerecognition provisions of SFAS No. 123 to stock-based employee compensationusing the Black-Scholes option-pricing model for 2005 and 2004:

 
| ** **                                                                                                       | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **(in thousands, except per share data)**                                                                        | ** ** | **April 30,  2005** | ** ** | **May 1,  2004**       | ** ** | **April 30,  2005** | ** ** | **May 1,  2004** | ** ** |
|                                                                                                             |       |                     |       |                        |       |   |   |   |   |
| Net  earnings:                                                                                                   |       |                     |       |                        |       |   |   |   |   |
| As reported                                                                                                      |       | $                        | 79,775     |                        | $          | 68,849 |   | $ | 214,478 |   | $ | 184,245 |   |
| Add:  stock-based employee compensation recorded under intrinsic value method, net  of related taxes             |       | 1,343                    |       | 866                         |       | 3,646 |   | 2,233 |   |
| Less:  stock-based employee compensation expense determined under fair value based  method, net of related taxes |       | (3,434                   | )          | (3,076                      | )          | (9,846 | ) | (8,644 | ) |
| Pro forma                                                                                                        |       | $                        | 77,684     |                        | $          | 66,639 |   | $ | 208,278 |   | $ | 177,834 |   |
|                                                                                                             |       |                     |       |                        |       |   |   |   |   |
| Basic  earnings per share:                                                                                       |       |                     |       |                        |       |   |   |   |   |
| As reported                                                                                                      |       | $                        | 1.65       |                        | $          | 1.43 |   | $ | 4.44 |   | $ | 3.84 |   |
| Pro forma                                                                                                        |       | $                        | 1.61       |                        | $          | 1.38 |   | $ | 4.31 |   | $ | 3.71 |   |
|                                                                                                             |       |                     |       |                        |       |   |   |   |   |
| Diluted  earnings per share:                                                                                     |       |                     |       |                        |       |   |   |   |   |
| As reported                                                                                                      |       | $                        | 1.61       |                        | $          | 1.40 |   | $ | 4.34 |   | $ | 3.78 |   |
| Pro forma                                                                                                        |       | $                        | 1.56       |                        | $          | 1.36 |   | $ | 4.21 |   | $ | 3.64 |   |

 

The effects on pro forma net earnings andearnings per share of expensing the estimated fair value of stock options arenot necessarily representative of the effects on reported net earnings forfuture periods due to such factors as the vesting periods of stock options andthe potential issuance of additional stock options in future years.  In addition, the Black-Scholes option-pricingmodel has inherent limitations in calculating the fair value of stock optionsfor which no active market exists since the model does not consider theinability to sell or transfer options, vesting requirements and a reducedexercise period upon termination of employment - all of which would reduce thefair value of the options.

 

5

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***Reclassification – LoyaltyPrograms*.**  Asubstantial portion of the points earned by customers in connection with ourloyalty programs are redeemed for gift cards. At the time the qualifying sales giving rise to the loyalty programpoints are made, we defer the portion of the revenues on the qualifying salestransactions equal to our estimate of the retail value of the gift cards to beissued upon conversion of the points to gift cards.   Beginning in the first quarter of 2005, webegan to record the deferral of revenues related to gift card awards under ourloyalty programs as a reduction of revenues. Previously, we charged such amounts to selling, general andadministrative expenses (SG&A).  Inaddition, we now charge the cost of all other awards under our loyalty programsto cost of goods sold (COGS) rather than SG&A. These changes inclassification do not impact the previously reported operating earnings, netincome or earnings per share amounts.

 

The following table presents quarterly andannual information giving recognition to the changes in classification relatedto our loyalty programs:

 
| **(in thousands)**     | ** ** | **Revenues** | ** ** | **COGS** | ** ** | **SG&A** | ** ** |
|------------------------|------------|--------------|------------|----------|------------|--------------|------------|
|                   |       |         |       |     |       |         |       |
| **Fiscal  Year 2004:** |       |         |       |     |       |         |       |
| First  quarter         |       | $            | 818,769    |     | $          | 510,350      |       | $ | 211,130 |   |
| Second  quarter        |       | 1,048,367    |       | 718,985  |       | 239,381      |       |
| Third  quarter         |       | 873,167      |       | 544,663  |       | 208,909      |       |
| Fourth  quarter        |       | 784,468      |       | 553,231  |       | 189,033      |       |
| Total                  |       | $            | 3,524,771  |     | $          | 2,327,229    |       | $ | 848,453 |   |
|                   |       |         |       |     |       |         |       |
| **Fiscal  Year 2003:** |       |         |       |     |       |         |       |
| First  quarter         |       | $            | 727,832    |     | $          | 455,307      |       | $ | 197,281 |   |
| Second quarter         |       | 934,844      |       | 655,459  |       | 220,981      |       |
| Third quarter          |       | 718,557      |       | 465,160  |       | 181,565      |       |
| Fourth  quarter        |       | 699,120      |       | 502,510  |       | 179,981      |       |
| Total                  |       | $            | 3,080,353  |     | $          | 2,078,436    |       | $ | 779,808 |   |

 

***Recent AccountingPronouncements.*** In December 2004, the Financial Accounting Standards Board (FASB) issuedSFAS No. 123R, “Share-Based Payment.”  Thisstandard is a revision of SFAS No. 123, “Accounting for Stock-BasedCompensation,” and supersedes Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees,” and its related implementation guidance. SFAS No.123R requires all share-based payments to employees, including grants ofemployee stock options, to be recognized in the financial statements based ontheir fair values and is effective for the first interim period or annualreporting period beginning after June 15, 2005.  We expect to adopt SFAS No. 123R in the firstquarter of our fiscal year 2006. We are in the process of evaluating the impactof the adoption of SFAS No. 123R.  Theadoption of SFAS No. 123R will reduce reported net income and earnings pershare because we will be required to recognize compensation expense for ourstock options.

 

6

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**2.**               Losson Disposition of Chef’s Catalog

** **

In November 2004, we sold our Chef’sCatalog direct marketing business to a private equity firm.  Chef’s Catalog is a multi-channel retailer ofprofessional-quality kitchenware with revenues of approximately $73 million infiscal year 2004.  At October 30,2004, Chef’s Catalog had net tangible assets, primarily inventory, of $12.5million and net intangible assets of $17.2 million.  We received proceeds, net of selling costs,of $14.4 million from the sale.  As thecarrying value of the Chef’s Catalog assets exceeded the net proceeds from thesale, we incurred a pre-tax loss of $15.3 million in the first quarter of 2005related to the disposition of Chef’s Catalog.

 

3.               OperatingSegments

 

We have identified tworeportable segments: Specialty Retail Stores and Direct Marketing.  Our Specialty Retail Stores segment includesall of our Neiman Marcus and Bergdorf Goodman retail stores, including NeimanMarcus clearance stores.  Our DirectMarketing segment conducts both print catalog and online operations under theNeiman Marcus, Horchow and Bergdorf Goodman brand names and, until itsdisposition in November 2004, the Chef’s Catalog brand name.  Other includes the operations of Kate SpadeLLC and Gurwitch Products, LLC (the Brand Development Companies).

 

Both the Specialty RetailStores and Direct Marketing segments, as well as Kate Spade LLC and GurwitchProducts, LLC, derive their revenues from the sales of high-end fashionapparel, accessories, cosmetics and fragrances from leading designers, preciousand fashion jewelry and decorative home accessories.

 

The following table setsforth the information for our reportable segments:

 
| ** **                                  | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **(in thousands)**                          | ** ** | **April 30,  2005** | ** ** | **May 1,  2004**       | ** ** | **April 30,  2005** | ** ** | **May 1,  2004** | ** ** |
| REVENUES:                                   |       |                     |       |                        |       |   |   |   |   |
| Specialty  Retail Stores                    |       | $                        | 766,877    |                        | $          | 717,562 |   | $ | 2,415,749 |   | $ | 2,213,811 |   |
| Direct  Marketing                           |       | 130,532                  |       | 126,204                     |       | 458,514 |   | 445,694 |   |
| Other                                       |       | 35,963                   |       | 29,401                      |       | 96,270 |   | 80,798 |   |
| Total                                       |       | $                        | 933,372    |                        | $          | 873,167 |   | $ | 2,970,533 |   | $ | 2,740,303 |   |
|                                        |       |                     |       |                        |       |   |   |   |   |
| OPERATING  EARNINGS:                        |       |                     |       |                        |       |   |   |   |   |
| Specialty  Retail Stores                    |       | $                        | 125,832    |                        | $          | 114,283 |   | $ | 343,781 |   | $ | 276,447 |   |
| Direct  Marketing                           |       | 16,780                   |       | 9,791                       |       | 55,943 |   | 45,086 |   |
| Other                                       |       | 4,572                    |       | 4,750                       |       | 10,241 |   | 11,821 |   |
| Subtotal                                    |       | 147,184                  |       | 128,824                     |       | 409,965 |   | 333,354 |   |
| Corporate  expenses                         |       | (12,532                  | )          | (9,229                      | )          | (30,390 | ) | (26,470 | ) |
| Loss on  disposition of Chef’s Catalog |       | —                   |       | —                      |       | (15,348 | ) | — |   |
| Total                                       |       | $                        | 134,652    |                        | $          | 119,595 |   | $ | 364,227 |   | $ | 306,884 |   |

 

4.               StockRepurchase Program

 

In prior years, our Board of Directorsauthorized various stock repurchase programs and increases in the number ofshares subject to repurchase.  In thethird quarter of 2005, we did not repurchase any shares.  In the second quarter of 2005, we repurchased4,100 shares at an average price of $57.60. In the first quarter of 2005, we repurchased 54,404 shares at an averageprice of $52.40.  As of April 30,2005, approximately 1.2 million shares remain available for repurchase underour stock repurchase programs.

 

7

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5.               Earningsper Share

 

The weighted average shares used in computingbasic and diluted earnings per share (EPS) are presented in the tablebelow.  We made no adjustments to netearnings for the computations of basic and diluted EPS during the periods presented.

 
| ** **                                             | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|--------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **(in thousands of shares)**                           | ** ** | **April 30,  2005** | ** ** | **May 1,  2004**       | ** ** | **April 30,  2005** | ** ** | **May 1,  2004** | ** ** |
|                                                   |       |                     |       |                        |       |   |   |   |   |
| Weighted  average shares outstanding                   |       | 48,945                   |       | 48,557                      |       | 48,847 |   | 48,313 |   |
| Less: shares  of non-vested restricted stock           |       | (555                     | )          | (349                        | )          | (538 | ) | (384 | ) |
| Shares for  computation of basic EPS                   |       | 48,390                   |       | 48,208                      |       | 48,309 |   | 47,929 |   |
|                                                   |       |                     |       |                        |       |   |   |   |   |
| Effect of  dilutive stock options and restricted stock |       | 1,305                    |       | 916                         |       | 1,118 |   | 877 |   |
| Shares for  computation of diluted EPS                 |       | 49,695                   |       | 49,124                      |       | 49,427 |   | 48,806 |   |
|                                                   |       |                     |       |                        |       |   |   |   |   |
| Shares  represented by antidilutive stock options      |       | —                   |       | —                      |       | 190 |   | 9 |   |

 

We do not include antidilutive stock optionsin the computation of diluted EPS because the exercise price of those optionsis greater than the average market price of the common shares.

 

6.               UndividedInterests in NMG Credit Card Master Trust

 

Pursuant to a revolving credit cardsecuritization program (the Credit Card Facility), we transfer substantiallyall of our credit card receivables to a wholly-owned subsidiary, Neiman MarcusFunding Corporation, which in turn sells such receivables to the Neiman MarcusCredit Card Master Trust (Trust).  At theinception of the Credit Card Facility in September 2000, the Trust issuedcertificates representing undivided interests in the credit card receivables tothird-party investors in the face amount of $225 million (Sold Interests).  We hold certificates representing interestsin the credit card portfolio equal to the excess of the balance of the creditcard portfolio over $225 million (Retained Interests).  In order to maintain the committed level ofsecuritized assets, the Trust uses cash collections on the securitizedreceivables to purchase new credit card balances from us in accordance with theterms of the Credit Card Facility.

 

From the inception of the Credit CardFacility until December 2003, our transfers and sales of credit cardreceivables pursuant to the terms of the Credit Card Facility were accountedfor as sales (Off-Balance Sheet Accounting). As a result, we removed $225 million of credit card receivables from ourbalance sheet at the inception of the Credit Card Facility and the Trust’s $225million repayment obligation to the holders of the certificates representingthe Sold Interests was not shown as a liability on our consolidated balancesheet.

 

Beginning in December 2003, transfers tothe Trust ceased to qualify for Off-Balance Sheet Accounting. Rather, creditcard receivables transferred to the Trust after November 2003 remain onour balance sheet and our borrowings collateralized by those accountsreceivable are recorded as liabilities on our balance sheet (FinancingAccounting).  The transition period fromOff-Balance Sheet Accounting to Financing Accounting (Transition Period) lastedapproximately four months (December 2003 to March 2004).  During the Transition Period, we allocatedcash collections on our credit card receivables to the previous Sold Interestsand Retained Interests until such time as those balances were reduced to zeroand we recorded a liability for our repayment obligation to the holders of the$225 million of certificates representing the Sold Interests.  At the end of the Transition Period, ourentire credit card portfolio was included in accounts receivable in ourconsolidated balance sheet and the $225 million repayment obligation was shownas a liability.

 

8

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As of the start of the Transition Period in December 2003,the carrying value of the Sold and Retained Interests exceeded face value byapproximately $7.6 million as a result of the application of the provisions ofcurrent accounting rules related to the calculation of the gains on saleof the previous Sold Interests and the valuation of both Sold and RetainedInterests.  During the Transition Period,the $7.6 million premium was amortized as a reduction of our net earnings fromour credit card portfolio (recorded as a reduction of selling, general andadministrative expenses in the consolidated statements of earnings).  Of the $7.6 million premium, $2.3 million wasamortized in the third quarter of 2004.

 

Beginning in March 2005, cashcollections were used by the Trust to begin repayment of the $225 millionprincipal balance of the Class A Certificates in six monthly installmentsof $37.5 million.  As of April 30,2005, the Trust had made the first installment repayment of $37.5 million toreduce the principal balance of the Class A Certificates to $187.5million.  In addition, we held cash of$37.5 million at April 30, 2005, generated from collections received in April 2005on our credit card receivables, restricted to the payment of the secondinstallment repayment required to be made by the Trust in May 2005.

 

7.               EmployeeBenefit Plans

 

***Description of Benefit Plans.***  We sponsor a defined benefit pension plan(Pension Plan) covering substantially all full-time employees.  We also sponsor an unfunded supplementalexecutive retirement plan (SERP Plan) that provides additional pension benefitsto certain employees.  Benefits underboth plans are based on the employees’ years of service and compensation overdefined periods of employment.  PensionPlan assets consist primarily of equity and fixed income securities.

 

Retirees andactive employees hired prior to March 1, 1989 are eligible to participatein a plan providing certain limited postretirement health care benefits(Postretirement Plan) if they have met certain service and minimum agerequirements.

 

***Costs of Benefits. ***The componentsof the expenses incurred under our Pension Plan, SERP Plan and PostretirementPlan are as follows:

 
| ** **                                          | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **(in thousands)**                                  | ** ** | **April 30,  2005** | ** ** | **May 1,  2004**       | ** ** | **April 30,  2005** | ** ** | **May 1,  2004** | ** ** |
|                                                |       |                     |       |                        |       |   |   |   |   |
| Pension  Plan:                                      |       |                     |       |                        |       |   |   |   |   |
| Service cost                                        |       | $                        | 3,196      |                        | $          | 2,366 |   | $ | 9,588 |   | $ | 8,469 |   |
| Interest  cost                                      |       | 4,636                    |       | 3,603                       |       | 13,907 |   | 12,894 |   |
| Expected  return on plan assets                     |       | (4,712                   | )          | (3,612                      | )          | (14,137 | ) | (12,928 | ) |
| Net  amortization of losses and prior service costs |       | 1,208                    |       | 698                         |       | 3,626 |   | 2,498 |   |
| Pension Plan  expense                               |       | $                        | 4,328      |                        | $          | 3,055 |   | $ | 12,984 |   | $ | 10,933 |   |
|                                                |       |                     |       |                        |       |   |   |   |   |
| SERP Plan:                                          |       |                     |       |                        |       |   |   |   |   |
| Service cost                                        |       | $                        | 361        |                        | $          | 342 |   | $ | 1,084 |   | $ | 1,024 |   |
| Interest  cost                                      |       | 1,014                    |       | 978                         |       | 3,042 |   | 2,930 |   |
| Net  amortization of losses and prior service costs |       | 384                      |       | 366                         |       | 1,151 |   | 1,099 |   |
| SERP Plan  expense                                  |       | $                        | 1,759      |                        | $          | 1,686 |   | $ | 5,277 |   | $ | 5,053 |   |
|                                                |       |                     |       |                        |       |   |   |   |   |
| Postretirement  Plan:                               |       |                     |       |                        |       |   |   |   |   |
| Service cost                                        |       | $                        | 15         |                        | $          | 20 |   | $ | 44 |   | $ | 60 |   |
| Interest  cost                                      |       | 318                      |       | 386                         |       | 954 |   | 1,156 |   |
| Net  amortization of losses                         |       | 26                       |       | 110                         |       | 79 |   | 331 |   |
| Postretirement  Plan expense                        |       | $                        | 359        |                        | $          | 516 |   | $ | 1,077 |   | $ | 1,547 |   |

 

9

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***Funding Policy and Plan Assets.***  Our policy is to fund the Pension Plan at orabove the minimum required by law.  Inthe third quarter of 2005, we made a voluntary contribution of $20.0 millionfor the plan year ended July 31, 2004. In 2004, we made voluntary contributions of $30.0 million in the secondquarter for the plan year ended July 31, 2003 and $15.0 million in thefourth quarter for the plan year ended July 31, 2004.  Based upon currently available information,we will not be required to make contributions to the Pension Plan for eitherthe 2004 or 2005 plan years.

 

***Effect of Medicare Subsidy on PostretirementPlan.  ***InDecember 2003, the U.S Congress enacted the Medicare Prescription Drug, Improvementand Modernization Act of 2003 (Act) that will provide a prescription drugsubsidy, beginning in 2006, to companies that sponsor postretirement healthcare plans that provide drug benefits. Based upon the provisions of the legislation enacted in January 2005, wereviewed the provisions of our Postretirement Plan with our actuaries todetermine whether the benefits offered by our plan meet the statutorydefinition of “actuarially equivalent” prescription drug benefits that qualifyfor the federal subsidy.  Based upon thisreview, we believe that our benefits qualify for the subsidy.  We expect to avail ourselves of the benefitof the subsidy although we are still evaluating the manner in which we and/orthe participants in the Postretirement Plan will receive the subsidy.

 

As of July 31,2004, the projected benefit obligation for our Postretirement Plan, using adiscount rate of 6.25 percent, was approximately $21.0 million.  In accordance with the provisions of the FASBStaff Position 106-2, “Accounting and Disclosure Requirements Related to theMedicare Prescription Drug, Improvement and Modernization Act of 2003,” werevalued our projected benefit obligation as of January 31, 2005 to 1)incorporate the benefit associated with the federal subsidy we expect toreceive and 2) reduce the discount rate to 5.75 percent.  The revised obligation as January 31, 2005 isapproximately $19.1 million, reflecting a reduction of approximately $2.6million for the impact of the federal subsidy, offset by an increase ofapproximately $0.8 million for the change in discount rate.

 

**8.**               Commitments and Contingencies

** **

**We are involved in various suitsand claims in the ordinary course of business. We do not believe that the disposition of any such suits or claims willhave a material adverse effect upon our consolidated results of operations,cash flows or financial position.**

** **

**9.**               Restatements

** **

##### ***Construction Allowances.***  We receiveallowances from developers related to the construction of our stores.  These allowances are recorded as deferredreal estate credits and are recognized as a reduction of rent expense on astraight-line basis over the lease term. Prior to 2005, we recorded these allowances as a reduction of capitalexpenditures and, as a result, the carrying values of our property andequipment.  We have corrected the errorsin the classification of construction allowances and, as a result, we haverestated our balance sheets at May 1, 2004 and July 31, 2004 and ourstatement of cash flows for the thirty-nine weeks ended May 1, 2004.

##### ** **

***RetainedInterests. ***Pursuantto the terms of the Credit Card Facility, as more fully described in Note 6,our Retained Interests fluctuate monthly based on the underlying balance of ourcredit card receivables.  We previouslyreflected the changes in our Retained Interests in the determination of cashflows from investing activities.  We havedetermined that such presentation is not in accordance with generally acceptedaccounting principles and have corrected such error by restating our statementsof cash flows to include the changes in the Retained Interests in thedetermination of cash flows from operating activities.

 

10

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##### **The following table summarizes the impact of theserestatements in our previously issued financial statements:**

##### ** **

| ** **                                            | ** ** | ** **                   | ** ** | **Restatements**             | ** ** | ** **                          | ** ** |
|-------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|-------------------------------------|------------|
| ** **                                            | ** ** | **As  Originally  Reported** | ** ** | **Construction  Allowances** | ** ** | **Changes in  Retained  Interests** | ** ** | **As  Restated** | ** ** |
| **Fiscal Year 2004**                                  |       |                         |       |                         |       |                                |       |   |   |
| **Consolidated Balance Sheet:**                       | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Property and  equipment, net                          |       | $                            | 693,772    |                         | $          | 56,711                              |       | $ | — |   | $ | 750,483 |   |
| Other assets                                          |       | 145,812                      |       | 15,187                       |       | —                              |       | 160,999 |   |
| Total assets                                          |       | 2,545,750                    |       | 71,898                       |       | —                              |       | 2,617,648 |   |
| Deferred  real estate credits                         |       | —                       |       | 71,898                       |       | —                              |       | 71,898 |   |
| Total long-term  liabilities                          |       | 437,212                      |       | 71,898                       |       | —                              |       | 509,110 |   |
|                                                  |       |                         |       |                         |       |                                |       |   |   |
| **Third Quarter 2004**                                |       |                         |       |                         |       |                                |       |   |   |
| **Consolidated Balance Sheet:**                       | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Property and  equipment, net                          |       | $                            | 685,928    |                         | $          | 57,924                              |       | $ | — |   | $ | 743,852 |   |
| Other assets                                          |       | 104,158                      |       | 15,284                       |       | —                              |       | 119,442 |   |
| Total assets                                          |       | 2,463,563                    |       | 73,208                       |       | —                              |       | 2,536,771 |   |
| Deferred  real estate credits                         |       | —                       |       | 73,208                       |       | —                              |       | 73,208 |   |
| Total  long-term liabilities                          |       | 534,558                      |       | 73,208                       |       | —                              |       | 607,766 |   |
|                                                  |       |                         |       |                         |       |                                |       |   |   |
| **Consolidated  Statement of Cash Flows:**            | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Net cash used  for operating activities               |       | $                            | (291,289   | )                            | $          | 2,246                               |       | $ | 242,565 |   | $ | (46,478 | ) |
| Net cash  provided by (used for) investing activities |       | 161,659                      |       | (2,246                       | )          | (242,565                            | )          | (83,152 | ) |

 

**10.**         Recent Developments 

** **

***Sale ofCompany.**** *OnMarch 16, 2005, we announced that we were exploring various strategicalternatives to enhance shareholder value, including a possible sale of theCompany, and that we had retained Goldman Sachs & Co. as the financialadvisor to assist us in the review.

** **

**On May 1, 2005, our Board ofDirectors approved a definitive agreement to sell the Company to an investmentgroup consisting of Texas Pacific Group and Warburg Pincus LLC. **Under the terms of the agreement, Texas Pacific Groupand Warburg Pincus will acquire all of the outstanding Class A and Class Bshares of the Company for $100.00 per share in cash, representing a transactionvalue of approximately $5.1 billion. Each of the investors will own equal stakes in the Company uponcompletion of the transaction. Completion of this transaction is contingent upon regulatory review andapproval by the Company’s shareholders and is expected to occur by November 1,2005.

** **

**11**

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** **

**10.**         Recent Developments (continued)

** **

***Sale ofCredit Card Portfolio.***  As contemplated in the negotiations that ledto the sale of the Company for approximately $5.1 billion, we entered into astrategic alliance with HSBC-North America’s Retail Services (HSBC) on June 8,2005 to support and enhance our credit card operations.  In connection with this transaction, HSBCwill purchase the private label credit card accounts and related assets of bothNeiman Marcus and Bergdorf Goodman, as well as the outstanding balancesassociated with such accounts, for an amount equal to the face value of theoutstanding receivables and accumulated accounts receivable collections.  We expect to close this transaction by July 31,2005, subject to customary review and closing conditions, for a purchase priceof approximately $640 million, of which we will receive net cash proceeds ofapproximately $527 million and HSBC will assume $113 million of outstandingliabilities under our Credit Card Facility. In addition, we will receive on-going payments based on credit salesgenerated under the agreement.  We willcontinue to handle key customer service functions including new accountprocessing, transaction authorization, billing adjustments, collection servicesand customer inquiries.

** **

***Litigation.***  On May 4,2005, a purported class action complaint, *NECA-IBEW Pension Fund(The Decatur Plan) v. The Neiman Marcus Group, Inc. et al.* (CA No. 3-05CV-0898B), was filed by a putative stockholder of the Company in federal courtin the Northern District of Texas against the Company and its directorschallenging the proposed merger.

** **

**The complaint alleges a cause ofaction for breach of fiduciary duty against our directors, claiming, amongother things, that the merger consideration to be paid to the Company’sstockholders in the merger is grossly inadequate and unfair and that thedefendants failed to maximize shareholder value through a proper sale of theCompany and its assets.  In addition, thecomplaint alleges that the Company’s directors breached their fiduciary dutiesin connection with the approval of the merger by, among other things, tailoringthe transaction to serve the interests of the defendants and the family ofRichard A. Smith, Chairman of our board of directors and the Company’s largeststockholder, rather than structuring the merger to obtain the highest price forour stockholders, depriving public stockholders of the value of certain assetsof the Company (primarily the Company’s credit card division), failing torealize the financial benefits from a separate sale of the Company’s creditcard division, not engaging in a fair process of negotiating at arm’s lengthand structuring a preferential deal for Company insiders.  The complaint seeks, among other things,injunctive relief to enjoin the consummation of the merger, rescind any actionstaken to effect the merger, direct the defendants to sell or auction theCompany for the highest possible price, and impose a constructive trust infavor of plaintiffs upon any benefits improperly received by defendants.**

** **

**The lawsuit is in its preliminarystage.  We believe that the lawsuit iswithout merit and intend to defend vigorously against it.**

 

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

** **

**EXECUTIVEOVERVIEW**

 

**Company Profile**

** **

The Neiman Marcus Group, Inc., together with its operatingdivisions and subsidiaries, is a high-end specialty retailer.  Our operations include the Specialty RetailStores segment and the Direct Marketing segment.  Our Specialty Retail Stores segment consistsprimarily of Neiman Marcus and Bergdorf Goodman stores.  Our Direct Marketing segment conducts bothprint catalog and online operations under the brand names of Neiman Marcus,Horchow and Bergdorf Goodman and until its disposition in November 2004,the Chef’s Catalog brand name.  In November 2004,we sold our Chef’s Catalog operations, as more fully described in Note 2 to theCondensed Consolidated Financial Statements.

 

We own a 51 percent interest in Gurwitch Products, LLC, whichdistributes and markets the Laura Mercier cosmetic line, and a 56 percentinterest in Kate Spade LLC, a manufacturer and retailer of high-end designerhandbags and accessories.  GurwitchProducts, LLC and Kate Spade LLC are hereafter referred to collectively as the “BrandDevelopment Companies.”

 

Our fiscal year ends on the Saturday closest to July 31.  All references to the third quarter of 2005relate to the thirteen weeks ended April 30, 2005 and all references tothe third quarter of 2004 relate to the thirteen weeks ended May 1,2004.  All references to 2005 relate tothe thirty-nine weeks ended April 30, 2005 and all references to 2004relate to the thirty-nine weeks ended May 1, 2004.

 

The informationcontained in this “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” (MD&A) should be read in conjunction with ourAnnual Report on Form 10-K/A for the fiscal year ended July 31,2004.  Unless otherwise specified, themeanings of all defined terms in MD&A are consistent with the meanings ofsuch terms as defined in the Notes to the Condensed Consolidated FinancialStatements.

 

**Overview of the Business**

 

We believe that our unique product assortment of luxury, designer andfashion merchandise, coupled with our sales promotion activities and ourcommitment to superior customer service, have been critical to our success inthe past.  In addition, we believe thesefactors are critical to our future growth and success.

 

We conduct our selling activities in two primary selling seasons – Falland Spring.  The Fall Season is comprisedof our first and second fiscal quarters and the Spring Season is comprised ofour third and fourth fiscal quarters.   The first quarter is generally characterized by a higher level offull-price selling with a focus on the initial introduction of Fall Seasonfashions.  Aggressive in-store marketingactivities designed to stimulate customer buying, a lower level of markdownsand higher margins are characteristic of this quarter.  The second quarter is more focused onpromotional activities related to the December holiday season, the earlyintroduction of resort season collections from certain designers and the saleof Fall Season goods on a marked down basis. As a result, margins are typically lower in the second quarter.  However, due to the seasonal increase insales that occurs during the holiday season, the second quarter is typicallythe quarter in which our sales are the highest and in which expenses are thelowest as a percentage of revenues.  Ourworking capital requirements are also the greatest in the first and secondquarters as a result of higher seasonal levels of accounts receivable andinventory.

 

Similarly, the third quarter is generally characterized by a higherlevel of full-price selling with a focus on the initial introduction of SpringSeason fashions.  Aggressive in-storemarketing activities designed to stimulate customer buying, a lower level ofmarkdowns and higher margins are again characteristic of this quarter.  Sales are generally the lowest in the fourthquarter and are focused on promotional activities offering Spring Season goodsto the customer on a marked down basis, resulting in lower margins during thequarter.  As a result of the seasonalityof our selling activities, inventory management is critical to our success.

 

Inherent in the successful execution of our business plans,particularly our inventory management strategy, is our ability both to predictthe fashion trends that will be of interest to our customers and to anticipatethe future spending patterns of our customer base.  Accordingly, we monitor the sales performanceof our inventories throughout each season. We seek to order additional goods to supplement our original purchasingdecisions when the level of customer demand is higher than originallyanticipated.  However, in certainmerchandise categories, particularly fashion apparel, our ability to purchaseadditional goods can be limited.  Thiscan result in lost sales in the event of higher than anticipated demand for thefashion

 

13

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goods offered or a higher than anticipated level of consumerspending.  Conversely, in the event webuy fashion goods that are not accepted by our customer or the level ofconsumer spending is less than we anticipated, we typically incur a higher thananticipated level of markdowns, net of vendor allowances, to sell the goodsthat remain at the end of the season, resulting in lower operatingprofits.  We believe that the experienceof our merchandising and selling organizations helps to minimize the inherentrisk in predicting fashion trends and related demand.

 

**Third Quarter Fiscal Year 2005 Highlights**

 

Diluted earnings per share for the third quarter of 2005 increased 15.0percent to $1.61 from $1.40 in the prior year period. Other significanthighlights for the third quarter of 2005 include:

 

•                  **Revenues** – Our revenues for the third quarter of 2005 were$933.4 million compared to $873.2 million in the prior year period.  Revenues increased 6.9 percent in the thirdquarter of 2005 while comparable revenues increased 8.0 percent.  Year to date, revenues have increased 8.4percent while comparable revenues have increased 9.9 percent.  For Specialty Retail Stores, our sales persquare foot for the last twelve trailing months increased to $564 as of April 2005compared to $517 as of April 2004.

 

•                  **Gross margins** – Margins increased to 38.3 percent ofrevenues in the third quarter of 2005 from 37.6 percent in the third quarter of2004.  Year to date, margins haveincreased to 36.3 percent of revenues from 35.3 percent in the prior yearperiod.  These increases are reflectiveof the high level of acceptance and demand for the fashion goods we offer aswell as our efforts to align purchases and customer demand.

 

•                  **Selling, general and administrative expenses** – Selling,general and administrative (SG&A) expenses decreased to 23.8 percent ofrevenues in the third quarter of 2005 from 23.9 percent in the third quarter of2004 and to 23.5 percent of revenues year to date from 24.1 percent in theprior year period.

 

•                  **Operating earnings**– Operating earnings increased 12.6percent in the third quarter of 2005, representing 14.4 percent of our revenuescompared to 13.7 percent in the third quarter of 2004.  Year to date, operating earnings increased18.7 percent, representing 12.3 percent of our revenues for 2005 compared to11.2 percent in 2004.  Operating earningswere 16.4 percent of revenues in the third quarter and 14.2 percent year todate for our Specialty Retail Stores and 12.9 percent of revenues in the thirdquarter and 12.2 percent year to date for Direct Marketing.

 

**Recent Developments**

 

***Sale of Company.**** *On March 16, 2005, we announced that we wereexploring various strategic alternatives to enhance shareholder value,including a possible sale of the Company, and that we had retained GoldmanSachs & Co. as the financial advisor to assist us in the review.

** **

**On May 1, 2005, our Board of Directors approved adefinitive agreement to sell the Company to an investment group consisting ofTexas Pacific Group and Warburg Pincus LLC. **Underthe terms of the agreement, Texas Pacific Group and Warburg Pincus will acquireall of the outstanding Class A and Class B shares of The NeimanMarcus Group for $100.00 per share in cash, representing a transaction value ofapproximately $5.1 billion.  Each of theinvestors will own equal stakes in the company upon completion of thetransaction.  Completion of thistransaction is contingent upon regulatory review and approval by the Company’sshareholders and is expected to occur by November 1, 2005.

 

***Sale of Credit Card Portfolio.***  Ascontemplated in the negotiations that led to the sale of the Company forapproximately $5.1 billion, we entered into a strategic alliance with HSBC-NorthAmerica’s Retail Services (HSBC) on June 8, 2005 to support and enhanceour credit card operations.  Inconnection with this transaction, HSBC will purchase the private label creditcard accounts and related assets of both Neiman Marcus and Bergdorf Goodman, aswell as the outstanding balances associated with such accounts, for an amountequal to the face value of the outstanding receivables and accumulated accountsreceivable collections.  We expect toclose this transaction by July 31, 2005, subject to customary review andclosing conditions, for a purchase price of approximately $640 million, ofwhich we will receive net cash proceeds of approximately $527 million and HSBCwill assume $113 million of outstanding liabilities under our Credit Card Facility.  In addition, we will receive on-goingpayments based on credit sales generated under the agreement.  We will continue to handle key customerservice functions including new account processing, transaction authorization,billing adjustments, collection services and customer inquiries.

** **

##### **SeeNote 10 to the Condensed Consolidated Financial Statements for furtherdiscussion.**

 

14

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**OPERATINGRESULTS**

 

**Performance Summary**

 

The following table sets forth certainitems expressed as percentages of net sales for the periods indicated.

 
| ** **                                               | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|----------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                               | ** ** | **April 30,  2005** | ** ** | **May 1,  2004**       | ** ** | **April 30,  2005** | ** ** | **May 1,  2004** | ** ** |
|                                                     |       |                     |       |                        |       |   |   |   |   |
| Revenues                                                 |       | 100.0                    | %          | 100.0                       | %          | 100.0 | % | 100.0 | % |
| Cost of goods  sold including buying and occupancy costs |       | 61.7                     |       | 62.4                        |       | 63.7 |   | 64.7 |   |
| Selling,  general and administrative expenses            |       | 23.8                     |       | 23.9                        |       | 23.5 |   | 24.1 |   |
| Loss on  disposition of Chef’s Catalog              |       | —                   |       | —                      |       | 0.5 |   | — |   |
| Operating  earnings                                      |       | 14.4                     |       | 13.7                        |       | 12.3 |   | 11.2 |   |
| Interest  expense, net                                   |       | 0.3                      |       | 0.5                         |       | 0.4 |   | 0.4 |   |
| Earnings  before income taxes and minority interest      |       | 14.1                     |       | 13.2                        |       | 11.9 |   | 10.8 |   |
| Income taxes                                             |       | 5.4                      |       | 5.1                         |       | 4.6 |   | 3.9 |   |
| Earnings  before minority interest                       |       | 8.7                      |       | 8.0                         |       | 7.3 |   | 6.8 |   |
| Minority  interest in net earnings of subsidiaries       |       | (0.1                     | )          | (0.1                        | )          | (0.1 | ) | (0.1 | ) |
| Net earnings                                             |       | 8.6                      | %          | 7.9                         | %          | 7.2 | % | 6.7 | % |

 

15

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Set forth in the following table is certain summary information withrespect to our operations for the periods indicated.

 
| ** **                                  | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **(dollars in millions)**                   | ** ** | **April 30,  2005** | ** ** | **May 1,  2004**       | ** ** | **April 30,  2005** | ** ** | **May 1,  2004** | ** ** |
|                                        |       |                     |       |                        |       |   |   |   |   |
| REVENUES                                    |       |                     |       |                        |       |   |   |   |   |
| Specialty  Retail Stores                    |       | $                        | 766.9      |                        | $          | 717.6 |   | $ | 2,415.7 |   | $ | 2,213.8 |   |
| Direct  Marketing                           |       | 130.5                    |       | 126.2                       |       | 458.5 |   | 445.7 |   |
| Other (1)                                   |       | 36.0                     |       | 29.4                        |       | 96.3 |   | 80.8 |   |
| Total                                       |       | $                        | 933.4      |                        | $          | 873.2 |   | $ | 2,970.5 |   | $ | 2,740.3 |   |
|                                        |       |                     |       |                        |       |   |   |   |   |
| OPERATING  EARNINGS                         |       |                     |       |                        |       |   |   |   |   |
| Specialty  Retail Stores                    |       | $                        | 125.8      |                        | $          | 114.3 |   | $ | 343.8 |   | $ | 276.5 |   |
| Direct  Marketing                           |       | 16.8                     |       | 9.8                         |       | 55.9 |   | 45.1 |   |
| Other (1)                                   |       | 4.6                      |       | 4.7                         |       | 10.2 |   | 11.8 |   |
| Subtotal                                    |       | 147.2                    |       | 128.8                       |       | 409.9 |   | 333.4 |   |
| Corporate  expenses                         |       | (12.5                    | )          | (9.2                        | )          | (30.4 | ) | (26.5 | ) |
| Loss on  disposition of Chef’s Catalog |       | —                   |       | —                      |       | (15.3 | ) | — |   |
| Total                                       |       | $                        | 134.7      |                        | $          | 119.6 |   | $ | 364.2 |   | $ | 306.9 |   |
|                                        |       |                     |       |                        |       |   |   |   |   |
| OPERATING  PROFIT MARGIN                    |       |                     |       |                        |       |   |   |   |   |
| Specialty  Retail Stores                    |       | 16.4                     | %          | 15.9                        | %          | 14.2 | % | 12.5 | % |
| Direct  Marketing                           |       | 12.9                     | %          | 7.8                         | %          | 12.2 | % | 10.1 | % |
| Total                                       |       | 14.4                     | %          | 13.7                        | %          | 12.3 | % | 11.2 | % |
|                                        |       |                     |       |                        |       |   |   |   |   |
| COMPARABLE  REVENUES (2)                    |       |                     |       |                        |       |   |   |   |   |
| Specialty  Retail Stores (3)                |       | 6.5                      | %          | 22.2                        | %          | 9.1 | % | 13.7 | % |
| Direct  Marketing (4)                       |       | 16.8                     | %          | 14.4                        | %          | 15.3 | % | 18.5 | % |
| Total (3),  (4)                             |       | 8.0                      | %          | 22.0                        | %          | 9.9 | % | 14.9 | % |
|                                        |       |                     |       |                        |       |   |   |   |   |
| SALES PER  SQUARE FOOT                      |       |                     |       |                        |       |   |   |   |   |
| Specialty  Retail Stores                    |       | $                        | 141        |                        | $          | 133 |   | $ | 445 |   | $ | 411 |   |
|                                        |       |                     |       |                        |       |   |   |   |   |
| STORE COUNT                                 |       |                     |       |                        |       |   |   |   |   |
| Neiman  Marcus and Bergdorf Goodman stores: |       |                     |       |                        |       |   |   |   |   |
| Open at  beginning of period                |       | 37                       |       | 37                          |       | 37 |   | 37 |   |
| Opened  during the period                   |       | —                   |       | —                      |       | — |   | — |   |
| Open at end  of period                      |       | 37                       |       | 37                          |       | 37 |   | 37 |   |
| Clearance  centers:                         |       |                     |       |                        |       |   |   |   |   |
| Open at  beginning of period                |       | 15                       |       | 14                          |       | 14 |   | 14 |   |
| Opened  during the period                   |       | —                   |       | —                      |       | 1 |   | — |   |
| Open at end  of period                      |       | 15                       |       | 14                          |       | 15 |   | 14 |   |

 

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(1)          Otherincludes the operations of the Brand Development Companies.

 

(2)          Comparablerevenues include 1) revenues derived from our retail stores open for more than52 weeks, including stores that have been relocated or expanded, 2) revenuesfrom our Direct Marketing operations and 3) wholesale revenues from our BrandDevelopment Companies.

 

**(3)**          The calculation of the changes in comparablerevenues has been adjusted to give recognition to the change in classificationof revenues deferred in connection with our loyalty programs, as more fullydescribed in Note 1 to the Condensed Consolidated Financial Statements.

** **

**(4)**          The calculation of the changes in comparablerevenues has been adjusted to exclude the revenues of Chef’s Catalog for allperiods prior to our sale of these operations in November 2004, as morefully described in Note 2 to the Condensed Consolidated Financial Statements.

 

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**Thirteen Weeks Ended April 30,2005 Compared to Thirteen Weeks Ended May 1, 2004**

 

***Revenues.**** *Our revenues for thethird quarter of 2005 of $933.4 million increased $60.2 million, or 6.9percent, from $873.2 million in the third quarter of 2004.

 

Comparable revenues of $927.7 million in the third quarter of 2005increased 8.0 percent compared to the prior year period.  Comparable revenues increased 6.5 percent forSpecialty Retail Stores and 16.8 percent for Direct Marketing.  Comparable revenues in the third quarter of2004 increased by 22.0 percent.

 

Revenues increased in the third quarter of 2005 compared to the prioryear at all our operating companies, consistent with a higher level of consumerspending, in general, with a higher increase coming from the affluent luxurycustomer served by the Company.  Inaddition, we believe the increases in comparable revenues were driven by salesevents conducted by our Specialty Retail Stores and by the growth of internetsales for Direct Marketing.  In the thirdquarter of 2005, internet sales by Direct Marketing were $73.8 million, anincrease of 47.4 percent from the third quarter of 2004.

 

***Gross margin.***  Our gross margin was 38.3 percent of revenuesfor the third quarter of 2005 compared to 37.6 percent in the prior yearperiod.  The increase in gross marginfrom the prior year period was due primarily to:

 

•                  theincrease in product margins by approximately 0.8 percent of revenues; offset by

 

•                  anincrease in buying and occupancy costs by approximately 0.2 percent ofrevenues.

 

We generated higher product margins during the third quarter of2005.  We believe this increase inproduct margins was due primarily to:

 

•                  thehigher level of full-price sales generated during the quarter by our SpecialtyRetail Stores;

 

•                  highermargins realized by Direct Marketing after the disposition of Chef’s Catalog,which generated lower margins than our other Direct Marketing brands; and

 

•                  ourcontinued emphasis on inventory management.

 

Consistent with industry business practice, we receive allowances fromcertain of our vendors in support of the merchandise we purchase forresale.  We receive certain allowances toreimburse us for markdowns taken and/or to support the gross margins earned inconnection with the sales of the vendor’s merchandise.  We recognize these allowances as an increaseto gross margin when the allowances are earned and approved by the vendor.  Other allowances we receive representreductions to the amounts paid to acquire the merchandise.  We recognize these allowances as a reductionin the cost of the acquired merchandise resulting in an increase to grossmargin at the time the goods are sold. As a percentage of revenues, the level of vendor allowances we receivedin the third quarter of 2005 was consistent with the prior year and did nothave a significant impact on the year-over-year change in the gross margin werealized in the third quarter of 2005.

 

A significant portion of our buying and occupancy costs are fixed innature.  Buying and occupancy costsincreased as a percentage of revenues during the third quarter of 2005 comparedto the prior year period primarily due to higher depreciation and rent expensesas a percentage of revenues due to:

 

•                  ahigher level of capital spending in recent years; and

 

•                  adjustmentsto rent and depreciation aggregating approximately $2.6 million, or 0.3 percentof revenues, made in connection with our review of the amortization periodsassigned to our leased property and equipment and deferred real estate credits.

 

***Selling, general and administrative expenses*.**  SG&A expenses were 23.8 percent ofrevenues in the third quarter of 2005 compared to 23.9 percent of revenues inthe prior year period.

 

17

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The net decrease in SG&A expenses as a percentage of revenues inthe third quarter of 2005 was primarily due to:

 

•            adecrease in marketing and advertising costs by approximately 0.5 percent ofrevenues primarily due to the elimination of expenditures for Chef’s Catalog,which were higher as a percentage of revenues than our other Direct Marketingbrands; and

 

•            anincrease in the net income generated by our credit card portfolio byapproximately 0.1 percent of revenues consistent with the increase in oursales.

 

In addition, SG&A expense declined as a percentage of revenues inthe third quarter of 2005 compared to the prior year period by approximately0.3 percent due to a $2.3 million reduction in the income generated by ourcredit card portfolio in the third quarter of 2004 related to the requiredamortization of the premium associated with the carrying values of the Retainedand Sold Interests, as more fully described in Note 6 of the Notes to CondensedConsolidated Financial Statements.

 

These decreases in SG&A expenses, as a percentage of revenues, werepartially offset by:

 

•                  higheremployee benefit expenses, including medical and pension expenses, byapproximately 0.3 percent of revenues;

 

•                  anincrease in costs, primarily payroll, by approximately 0.2 percent ofrevenues,  incurred by our DirectMarketing and the Brand Development Companies in support of new businessinitiatives and the expansion of Kate Spade operations; and

 

•                  theincrease in professional fees and other costs incurred in connection with theproposed sale of the Company by approximately 0.1 percent of revenues.

 

***Segment operating earnings.***  Operating earnings for our Specialty RetailStores segment were $125.8 million for the third quarter of 2005 compared to$114.3 million for the prior year period. This 10.1 percent increase was primarily the result of increasedrevenues and gross margins and net decreases in SG&A expenses as apercentage of revenues, offset by increases in buying and occupancy expenses asa percentage of revenues.

 

Operating earnings for Direct Marketing increased to $16.8 million inthe third quarter of 2005 from $9.8 million for the prior year period,primarily as a result of increased revenues and gross margins and net decreasesin both buying and occupancy costs and SG&A expenses as percentages ofrevenues.

 

***Interest expense, net*.**  Net interest expense was $2.9 million in thethird quarter of 2005 and $4.6 million for the prior year period.  The decrease in net interest expense isprimarily due to increases in 1) investment income generated by higher cashbalances and 2) capitalized interest charges associated with store constructionand remodeling activities.

 

***Income taxes.***  Our effective income tax rate was 38.5percent for the third quarter of 2005 and 39.0 percent for the prior yearperiod.

 

**Thirty-Nine Weeks Ended April 30,2005 Compared to Thirty-Nine Weeks Ended May 1, 2004**

** **

***Revenues.**** *Our revenues for2005 of $2,970.5 million increased $230.2 million, or 8.4 percent, from$2,740.3 million in 2004.

 

Comparable revenues of $2,942.8 million in 2005 increased 9.9 percentcompared to the prior year period. Comparable revenues increased 9.1 percent for Specialty Retail Storesand 15.3 percent for Direct Marketing. Comparable revenues in 2004 increased by 14.9 percent.

 

Excluding the revenues from our Chef’s Catalog operations in 2004,revenues increased in 2005 compared to the prior year at all our operatingcompanies, consistent with a higher level of consumer spending, in general,with a higher increase coming from the affluent luxury customer served by theCompany.  In addition, we believe theincreases in comparable revenues were driven by sales events conducted by ourSpecialty Retail Stores and by the growth of internet sales for DirectMarketing.  In 2005, internet sales byDirect Marketing, excluding Chef’s Catalog, were $233.1 million, an increase of46.8 percent from 2004.

 

18

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***Gross margin.***  Gross margin was 36.3 percent of revenues in2005 compared to 35.3 percent in the prior year period.  The increase in gross margin was dueprimarily to:

 

•                  theincrease in product margins by approximately 0.9 percent of revenues; and

 

•                  adecrease in buying and occupancy costs by approximately 0.2 percent ofrevenues.

 

We generated higher product margins at both our Specialty Retail Storesand our Direct Marketing operations during 2005.  We believe the increase in product margins atour Specialty Retail Stores was due primarily to the higher level of full-pricesales generated for the period, a lower level of net markdowns and ourcontinued emphasis on inventory management. We also generated higher product margins in our Direct Marketingoperations in 2005 subsequent to our disposition of Chef’s Catalog in November 2004.  Chef’s Catalog generated lower margins thanour other Direct Marketing brands. However, we have incurred a higher level of net markdowns in 2005 forDirect Marketing due primarily to lower than anticipated sales in our catalogoperations during the December holiday season.

 

Consistent with industry business practice, we receive allowances fromcertain of our vendors in support of the merchandise we purchase forresale.  We receive certain allowances toreimburse us for markdowns taken and/or to support the gross margins earned inconnection with the sales of the vendor’s merchandise.  We recognize these allowances as an increaseto gross margin when the allowances are earned and approved by the vendor.  Other allowances we receive representreductions to the amounts paid to acquire the merchandise.  We recognize these allowances as a reductionin the cost of the acquired merchandise resulting in an increase to grossmargin at the time the goods are sold. While the dollar value of the vendor reimbursements we receiveddecreased slightly as a percentage of revenues in 2005 compared to the prioryear period, primarily due to a higher level of full-price selling, thisdecrease did not have a significant impact on the year-over-year change in thegross margin we realized in 2005.

 

A significant portion of our buying and occupancy costs are fixed innature.  Buying and occupancy costsdecreased as a percentage of revenues during 2005 compared to the prior yearperiod primarily due to the leveraging of fixed expenses, including payrollexpenses and depreciation, over the higher level of revenues we generatedduring 2005.  Included in buying andoccupancy costs in 2005 are adjustments to rent and depreciation aggregatingapproximately $4.8 million, or 0.2 percent of revenues, made in the second andthird quarters of 2005 in connection with our review of the amortizationperiods assigned to our leased property and equipment and deferred real estatecredits.

 

***Selling, general and administrative expenses*.**  SG&A expenses were 23.5 percent ofrevenues in 2005 compared to 24.1 percent of revenues in the prior year period.

 

The net decrease in SG&A expenses as a percentage of revenues in2005 was primarily due to:

 

•                  adecrease in marketing and advertising costs by approximately 0.3 percent ofrevenues, primarily due to the elimination of expenditures for Chef’s Catalogwhich were higher as a percentage of revenues than for our other DirectMarketing brands;

 

•                  a decreasein incentive compensation by approximately 0.2 percent of revenues; and

 

•                  anincrease in the net income generated by our credit card portfolios byapproximately 0.1 percent of revenues consistent with the increase in our salesrevenues.

 

In addition, SG&A expense declined as a percentage of revenues in2005 by approximately 0.3 percent due to a $7.6 million reduction in the incomegenerated by our credit card portfolio in 2004 related to the requiredamortization of the premium associated with the carrying value of the Retainedand Sold Interests, as more fully described in Note 6 of the Notes to CondensedConsolidated Financial Statements.

 

These decreases in SG&A expenses as a percentage of revenues, werepartially offset by:

 

•                  anincrease in costs, primarily payroll, by approximately 0.2 percent of revenuesincurred by Direct Marketing and the Brand Development Companies in support ofnew business initiatives and the expansion of Kate Spade operations;

 

•                  anincrease in employee benefit expenses, including medical and pension expenses,by approximately 0.1 percent of revenues; and

 

19

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•                  a$3.7 million reduction in SG&A expenses recorded in the second quarter of2004 for the favorable impact of conclusions of certain sales tax and unclaimedproperty examinations for which the agreed-on settlements were less than theamounts we previously estimated.

 

***Loss on disposition of Chef’s Catalog*.**   In November 2004, we sold our Chef’sCatalog direct marketing business to a private equity firm.  Chef’s Catalog is a multi-channel retailer ofprofessional-quality kitchenware with revenues of approximately $73 million infiscal year 2004.  At October 30,2004, Chef’s Catalog had net tangible assets, primarily inventory, of $12.5million and net intangible assets of $17.2 million.  We received proceeds, net of selling costs,of $14.4 million from the sale. As the carrying value of the Chef’s Catalogassets exceeded the net proceeds from the sale, we incurred a pre-tax loss of$15.3 million in the first quarter of 2005 related to the disposition of Chef’sCatalog.

 

***Segment operating earnings.***  Operating earnings for our Specialty RetailStores segment were $343.8 million for 2005 compared to $276.5 million for theprior year period.  This 24.4 percentincrease was primarily the result of increased sales and margins and netdecreases in both buying and occupancy expenses and SG&A expenses as apercentage of revenues.

 

Operating earnings for Direct Marketing increased to $55.9 million in2005 from $45.1 million for the prior year period, primarily as a result ofincreased revenues and margins and a decrease in SG&A expenses as apercentage of revenues.

 

***Interest expense, net*.**  Net interest expense was $10.9 million in 2005and $11.8 million for the prior year period.

 

The net decrease in net interest expense was due to increases in:

 

•                     interestincome generated by higher cash balances;

 

•                     capitalizedinterest charges associated with store construction and remodeling activities,offset by;

 

•                  anincrease in the interest expense attributable to the monthly distributions tothe holders of the Sold Interests that began to be charged to interest expensein December 2003 as a result of the discontinuance of Off-Balance SheetAccounting.

 

***Income taxes.***  Our effective income tax rate was 38.5percent for 2005 and 36.5 percent for the prior year period.  In the second quarter of 2004, the Companyrecognized a net income tax benefit of $7.5 million related to favorablesettlements associated with previous state tax filings.  Excluding this benefit, the effective taxrate was 39.0 percent for 2004.

 

**Outlook**

 

Based on current estimates, we anticipate increases in comparable storerevenues of 5 to 7 percent for our fourth quarter ending July 30,2005.  Comparable revenues increased by12.6 percent in our quarter ended July 31, 2004.  The accuracy of our assumptions and forecastsis subject to uncertainties and circumstances beyond our control.  Consequently, actual results could differ materiallyfrom the forecasted results.  See “FactorsThat May Affect Future Results” for a discussion of items and events thatcould cause our actual results to vary from our expectations.

 

**Inflationand Deflation**

 

We believe changes in revenues and net earnings that have resulted frominflation or deflation have not been material during the periodspresented.  In recent years, we haveexperienced certain inflationary conditions related to 1) increases in productcosts due primarily to changes in foreign currency exchange rates that havereduced the purchasing power of the U.S. dollar and 2) increases inSG&A.  We attempt to offset theeffects of inflation through control of expenses and price increases, althoughour ability to increase prices may be limited by competitive factors.  We attempt to offset the effects ofmerchandise deflation, which has occurred on a limited basis in recent years,through control of expenses.  There is noassurance, however, that inflation or deflation will not materially affect ouroperations in the future.

 

20

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**LIQUIDITY ANDCAPITAL RESOURCES**

** **

Our cash requirements consist principally of:

 

•                  thefunding of our accounts receivable and merchandise purchases;

 

•                  capitalexpenditures for new store growth, store renovations and upgrades of ourmanagement information systems;

 

•                  debtservice requirements; and

 

•                  obligationsrelated to our Pension Plan.

 

Our working capital requirements fluctuate during the year, increasingsubstantially during the first and second quarters of each fiscal year as aresult of higher seasonal levels of accounts receivable and inventory.   We typically finance the increases inworking capital needs during the first and second fiscal quarters with cashflows from operations, cash provided from the Credit Card Facility andborrowings under our $350 million unsecured Credit Agreement.

 

Our primary sources ofshort-term liquidity are comprised of cash on hand and availability under ourCredit Agreement.  As of April 30,2005, we had cash and cash equivalents of $337.6 million and no outstandingborrowings under our Credit Agreement. Our cash and cash equivalents consisted principally of invested cash andstore operating cash.  At May 1,2004, we had cash and cash equivalents of $312.0 million and no outstandingborrowings under a previous $300 million unsecured revolving creditfacility.  The amount of cash on hand andborrowings under the credit facility are influenced by a number of factors,including revenues, accounts receivable and inventory levels, vendor terms, thelevel of capital expenditures, cash requirements related to financinginstruments, Pension Plan funding obligations and tax payment obligations,among others.

 

We believe that operatingcash flows, currently available vendor financing and amounts available pursuantto our Credit Agreement should be sufficient to fund our operations and debtservice requirements, including repayment of the $225 million Credit CardFacility, Pension Plan funding requirements, contractual obligations andcommitments and currently anticipated capital expenditure requirements throughthe end of 2005.

 

We generated cash from operations, prior to changes in operating assetsand liabilities, of $339.2 million in 2005 compared to $285.0 million in prioryear period.  This $54.2 million increasein cash generated from operations was due to higher sales and earnings levelsrealized in 2005.  Net cash provided byoperating activities was $190.0 million in 2005.  In the presentation of net cash flows usedfor operating activities in 2004 of $46.5 million in the accompanying statementof cash flows, the cash generated from operations was reduced by the increasein the undivided interests in the NMG Credit Card Master Trust and accountsreceivable from $265.7 million at August 2, 2003 to $599.6 million at May 1,2004.  This increase in accountsreceivable is attributable both to a higher investment in accounts receivabledue to higher revenues during 2005 and the discontinuance of Off-Balance SheetAccounting beginning in December 2003, as more fully described in Note 6of the Notes to Condensed Consolidated Financial Statements.

 

Net cash used for investing activities was $173.9 million in 2005compared to $83.2 million in the prior year period.  The increase in cash used for investingactivities in 2005 was primarily due to a higher level of capital expendituresin 2005 and the $37.5 million of cash restricted as of April 30, 2005 for therepayment of the outstanding indebtedness on our Credit Card Facility, offsetby $14.4 million of proceeds from the sale of Chef’s Catalog in 2005.

 

Capital expenditures were $150.8 million in 2005 and $83.2 million inthe prior year period.  We incurredcapital expenditures in the third quarter of 2005 related to the ongoingconstruction of new stores in San Antonio, Texas and Boca Raton, Florida andthe remodels of our San Francisco, Houston, Los Angeles and Newport Beachstores.  We currently project capital expendituresfor 2005 to be approximately $200 million to $210 million primarily for newstore construction, store renovations and upgrades to information systems,including warehousing systems to support our Direct Marketing operation and anew human capital management system.  In supportof our store construction and renovation activities, we expect to receiveconstruction allowances of $20 million to $25 million in 2005.  We completed the renovation of our store inNewport Beach in the third quarter of 2005 and we are currently remodeling ourstores in Los Angeles, San Francisco and Houston.  We expect to complete the expansion andrenovation of the Los Angeles store in the fourth quarter of 2005 and the SanFrancisco and Houston stores in the spring of fiscal year 2006.  We expect to open our San Antonio and BocaRaton stores in the first quarter of fiscal year 2006.

 

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**Financing Structure**

 

Our major sources of funds are comprisedof vendor financing, the $350 million unsecured Credit Agreement, the $225million Credit Card Facility, $125 million senior unsecured notes, $125 millionsenior unsecured debentures, operating leases and capital leases.

 

At April 30, 2005,we had $187.5 million borrowings under our Credit Card Facility.  Repayment of this obligation began in April 2005in six monthly installments of $37.5 million. Borrowings pursuant to the Credit Card Facility bear interest at thecontractually-defined rate of one month LIBOR plus 0.27 percent (3.22 percentat April 30, 2005) and are payable monthly to the holders of the Class ACertificates.

 

In the second quarter of 2005, our Boardof Directors increased our quarterly cash dividend to $0.15 per share from$0.13 per share in the prior year quarter. We declared dividends on April 29, 2005 aggregating $7.4million.  These dividends were paid in May 2005.

 

In prior years, our Board of Directors authorized various stockrepurchase programs and increases in the number of shares subject torepurchase.  We did not repurchase anyshares in the third quarter of 2005.  Asof April 30, 2005, approximately 1.2 million shares remain available forrepurchase under the stock repurchase programs.

 

**Off-Balance Sheet Arrangements**

 

Pursuant to a revolving Credit Card Facility, we transfer substantiallyall of our credit card receivables to a wholly-owned subsidiary, Neiman MarcusFunding Corporation, which in turn sells such receivables to the Neiman MarcusCredit Card Master Trust (Trust).  At theinception of the Credit Card Facility in September 2000, the Trust issuedcertificates representing undivided interests in the credit card receivables tothird-party investors in the face amount of $225 million (Sold Interests).  We hold certificates representing interestsin the credit card portfolio equal to the excess of the balance of the creditcard portfolio over $225 million (Retained Interests).  In order to maintain the committed level ofsecuritized assets, the Trust uses cash collections on the securitizedreceivables to purchase new credit card balances from us in accordance with theterms of the Credit Card Facility.

 

From the inception of the Credit Card Facility until December 2003,our transfers and sales of credit card receivables pursuant to the terms of theCredit Card Facility were accounted for as sales (Off-Balance SheetAccounting).  As a result, we removed the$225 million of credit card receivables sold from our balance sheet at theinception of the Credit Card Facility and our $225 million repayment obligationto the holders of the certificates representing the Sold Interests was notrequired to be shown as a liability on our consolidated balance sheet.

 

As more fully described in Note 6 of the Notes to CondensedConsolidated Financial Statements, beginning in December 2003, subsequenttransfers to the Trust ceased to qualify for Off-Balance Sheet Accounting.  Rather, credit card receivables transferredto the Trust after November 2003 remain on our balance sheet and arerecorded as secured borrowings.  Ourentire credit card portfolio is now included in accounts receivable and theoutstanding borrowings under the Credit Card Facility are shown as a liabilityin our condensed consolidated balance sheet.

 

Beginning in March 2005, cash collections were used by the Trustto begin repayment of the $225 million principal balance of the Class ACertificates in six monthly installments of $37.5 million.  As of April 30, 2005, the Trust had madethe first installment repayment of $37.5 million to reduce the principalbalance of the Class A Certificates to $187.5 million.  In addition, we held cash of $37.5 million atApril 30, 2005, generated from collections received in April 2005 onour credit card receivables, restricted to the payment of the secondinstallment repayment required to be made by the Trust in May 2005.

 

22

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**OTHERMATTERS**

 

**FactorsThat May Affect Future Results**

 

Mattersdiscussed in MD&A include forward-looking statements.  Forward-looking statements generally can beidentified by the use of forward-looking terminology such as “may,” “will,” “plan,”“project,” “predict,” “expect,” “estimate,” “intend,” “would,” “could,” “should,”“anticipate,” or “believe.”  We makethese forward-looking statements based on our expectations and beliefs concerningfuture events, as well as currently available data.  These forward-looking statements involve anumber of risks and uncertainties and, therefore, are not guarantees of futureperformance.  A variety of factors couldcause our actual results to differ materially from the anticipated or expectedresults expressed in our forward-looking statements.  Factors that could affect future performanceinclude, but are not limited, to:

 

**Political and General Economic Conditions**

** **

**•**                  currentpolitical and general economic conditions or changes in such conditions;

** **

**•**                  terroristactivities in the United States;

** **

**•**                  political,social, economic, or other events resulting in the short or long-termdisruption in business at our stores, distribution centers or offices;

** **

**Customer Demographic Issues**

** **

**•**                  changesin the demographic or retail environment;

** **

**•**                  changesin consumer confidence resulting in a reduction of discretionary spending ongoods that are, or are perceived to be, “luxuries”;

** **

**•**                  changesin consumer preferences or fashion trends;

** **

**•**                  changesin our relationships with key customers;

** **

**•**                  changesin our proprietary credit card arrangement that adversely impact our ability toprovide consumer credit;

** **

**Merchandise Procurement and Supply Chain Considerations**

** **

**•**                  changesin our relationships with designers, vendors and other sources of merchandise,including adverse changes in their financial viability;

** **

**•**                  delays in receipt of merchandise ordered due to workstoppages and/or other causes of delay in connection with either the manufactureor shipment of such merchandise;

** **

**•**                  changesin foreign currency exchange rates;

** **

**•**                  significant increases in paper, printing and postagecosts;

** **

**Industry and Competitive Factors**

** **

**•**                  competitiveresponses to our marketing, merchandising and promotional efforts and/orinventory liquidations by vendors or other retailers;

** **

**•**                  seasonalityof the retail business;

** **

**•**                  adverseweather conditions or natural disasters, particularly during peak sellingseasons;

** **

**•**                  delaysin anticipated store openings and renovations;

** **

**Employee Considerations**

** **

**•**                  changesin key management personnel;

** **

**•**                  changesin our relationships with certain of our key sales associates;

** **

**Legal and Regulatory Issues**

** **

**•**                  changesin government or regulatory requirements increasing our costs of operations;

 

23

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**•**                  litigationthat may have an adverse effect on our financial results or reputation;

** **

**Other Factors**

** **

**•**                  impactof funding requirements related to our noncontributory defined benefit pensionplan; and

** **

**•**                  thedesign and implementation of new information systems as well as enhancements ofexisting systems.

** **

**We undertake no obligation to update or revise (publicly orotherwise) any forward-looking statements to reflect subsequent events, newinformation or future circumstances.**

** **

**Critical AccountingPolicies**

** **

The preparation of condensed financial statements in conformity withgenerally accepted accounting principles requires us to make estimates andassumptions about future events.  Theseestimates and assumptions affect amounts of assets, liabilities, revenues andexpenses and the disclosure of gain and loss contingencies at the date of theCondensed Consolidated Financial Statements. While we believe that our past estimates and assumptions have been materiallyaccurate, our current estimates are subject to change if different assumptionsas to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis andpredicate those estimates and judgments on historical experience and on variousother factors that we believe are reasonable under the circumstances.  We make adjustments to our assumptions andjudgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolutecertainty, actual results may differ from the estimates we used in preparingthe accompanying Condensed Consolidated Financial Statements.

 

**See Note 1 of the Notes toCondensed Consolidated Financial Statements in Item 1 for a summary of ourcritical accounting policies.  A completedescription of our critical accounting policies is included in our amendment tothe Annual Report to Shareholders on Form 10-K/A for the fiscal year endedJuly 31, 2004.**

** **

***Reclassification – Loyalty Programs*.**  As more fully described in Note 1, asubstantial portion of the points earned by customers in connection with ourloyalty programs are redeemed for gift cards. At the time the qualifying sales giving rise to the loyalty programpoints are made, we defer the portion of the revenues on the qualifying salestransactions equal to our estimate of the retail value of the gift cards to beissued upon conversion of the points to gift cards.   Beginning in the first quarter of 2005, webegan to record the deferral of revenues related to gift card awards under ourloyalty programs as a reduction of revenues. Previously, we charged such amounts to selling, general andadministrative expenses.  In addition, wenow charge the cost of all other awards under our loyalty programs to cost ofgoods sold rather than SG&A.  Thesechanges in classification do not impact the previously reported operatingearnings, net income or earnings per share amounts.

 

***Changes in Comparable Revenues.***  As more fully described in Note 2, we havesold our Chef’s Catalog operations.  Thechanges in comparable revenues have been adjusted 1) to exclude the revenues ofChef’s Catalog operations for all periods prior to the sale and 2) to giverecognition to the change in classification of revenues deferred in connectionwith our loyalty programs and are summarized below:

 
| ** **             | ** ** | **Total** | ** ** | **Specialty  Retail Stores** | ** ** | **Direct  Marketing** | ** ** |
|------------------------|------------|-----------|------------|------------------------------|------------|-----------------------|------------|
|                   |       |      |       |                         |       |                  |       |
| **Fiscal  Year 2004:** |       |      |       |                         |       |                  |       |
| First  quarter         |       | 10.9      | %          | 9.6                          | %          | 13.2                  | %          |
| Second  quarter        |       | 12.7      | %          | 10.2                         | %          | 25.7                  | %          |
| Third  quarter         |       | 22.0      | %          | 22.2                         | %          | 14.4                  | %          |
| Fourth  quarter        |       | 12.6      | %          | 11.3                         | %          | 21.7                  | %          |
| Fiscal year  2004      |       | 14.4      | %          | 13.1                         | %          | 19.2                  | %          |
|                   |       |      |       |                         |       |                  |       |
| **Fiscal  Year 2003:** |       |      |       |                         |       |                  |       |
| First  quarter         |       | 6.3       | %          | 5.0                          | %          | 15.7                  | %          |
| Second quarter         |       | 0.9       | %          | (2.1                         | )%         | 18.7                  | %          |
| Third quarter          |       | 1.6       | %          | (0.6                         | )%         | 14.8                  | %          |
| Fourth  quarter        |       | 9.0       | %          | 6.3                          | %          | 22.3                  | %          |
| Fiscal year 2003       |       | 4.1       | %          | 1.8                          | %          | 17.8                  | %          |

 

24

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

 

The market risk inherent in our financial instruments represents thepotential loss arising from adverse changes in interest rates and foreigncurrency exchange rates.  We do not enterinto derivative financial instruments for trading purposes.  We seek to manage exposure to adverseinterest rate changes through our normal operating and financing activities. Weare exposed to interest rate risk through our securitization and borrowingactivities, which are described in Notes 2 and 5 to our Consolidated FinancialStatements in our amendment to the Annual Report on Form 10-K/A for thefiscal year ended July 31, 2004.

 

As of April 30, 2005, we had no borrowings outstanding under ourCredit Agreement.  Future borrowingsunder our Credit Agreement, to the extent of outstanding borrowings, would beaffected by interest rate changes.

 

Our outstanding long-term debt as of April 30, 2005 is at fixedinterest rates and would not be affected by interest rate changes.  Based upon quoted prices, the fair value ofour senior notes and debentures (face value of $250 million) was $273.9 millionas of April 30, 2005.

 

Pursuant to our proprietary credit card securitization program thatbegins to expire in September 2005, we have sold substantially all of ourcredit card receivables through a subsidiary in exchange for certificatesrepresenting undivided interests in such receivables.  We sold the Class A Certificates, whichhave an aggregate principal value of $225 million, to investors. The holders ofthe Class A Certificates are entitled to monthly interest distributionsfrom the Trust at the contractually-defined rate of one month LIBOR plus 0.27percent annually.  The distributions tothe Class A Certificate holders are payable from the finance charge incomegenerated by the credit card receivables held by the Trust.   At April 30, 2005, we estimate a 100 basispoint increase in LIBOR would result in an approximate annual increase of $2.25million in the interest distributions to the Class A Certificate holders.

 

We use derivative financial instruments to manage foreign currency riskrelated to the procurement of merchandise inventories from foreignsources.  We enter into foreign currencycontracts denominated in the euro and British pound. We had foreign currencycontracts in the form of forward exchange contracts in the amount ofapproximately $35.7 million as of April 30, 2005.  The market risk inherent in these instrumentswas not material to our consolidated financial position, results of operationsor cash flows in the third quarter of 2005.

 

**The effects of changes in the U.S. equity and bond marketsserve to increase or decrease the value of Pension Plan assets, resulting in anincrease or decrease in our cash funding obligation.  We seek to manage exposure to adverse equityand bond returns by maintaining diversified investment portfolios and utilizingprofessional investment managers.**

** **

Based on a review of ourfinancial instruments outstanding at April 30, 2005 that are sensitive tomarket risks, we have determined that there was no material market riskexposure to our consolidated financial position, results of operations, or cashflows as of such date.

 

**ITEM4.  CONTROLSAND PROCEDURES**

 

In accordance with Exchange Act Rules 13a-15 and 15d-15, wecarried out an evaluation, under the supervision and with the participation ofthe Chief Executive Officer and Chief Financial Officer, as well as other keymembers of our management, of the effectiveness of our disclosure controls andprocedures as of the end of the period covered by this report. Based on thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures were effective, as of the end ofthe period covered by this report, to provide reasonable assurance thatinformation we are required to disclose in our reports filed or submitted underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms.

 

In the ordinary course of business, we routinely enhance ourinformation systems by either upgrading our current systems or implementing newsystems.  No change in our internalcontrols occurred during the quarter ended April 30, 2005 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrols over financial reporting.

 

25

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**PART II**

 

**ITEM 1.****                             LEGAL PROCEEDINGS**

 

We are involved in various suits and claims in the ordinary course ofbusiness.  We do not believe that thedisposition of any such suits or claims will have a material adverse effectupon our consolidated results of operations, cash flows or financialposition.  This belief is subject to therisks and uncertainties discussed in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations – Factors That May AffectFuture Results.”

 

**On May 4, 2005, a purported class action complaint, *NECA-IBEW Pension Fund (The Decatur Plan) v. The Neiman Marcus Group, Inc.et al.* (CA No. 3-05 CV-0898B), was filed by a putativestockholder of the Company in federal court in the Northern District of Texasagainst the Company and its directors challenging the proposed merger.**

** **

**The complaint alleges a cause of action for breach offiduciary duty against our directors, claiming, among other things, that the mergerconsideration to be paid to the Company’s stockholders in the merger is grosslyinadequate and unfair and that the defendants failed to maximize shareholdervalue through a proper sale of the Company and its assets.  In addition, the complaint alleges that theCompany’s directors breached their fiduciary duties in connection with theapproval of the merger by, among other things, tailoring the transaction toserve the interests of the defendants and the family of Richard A. Smith,Chairman of our board of directors and the Company’s largest stockholder,rather than structuring the merger to obtain the highest price for ourstockholders, depriving public stockholders of the value of certain assets ofthe Company (primarily the Company’s credit card division), failing to realizethe financial benefits from a separate sale of the Company’s credit carddivision, not engaging in a fair process of negotiating at arm’s length andstructuring a preferential deal for Company insiders.  The complaint seeks, among other things,injunctive relief to enjoin the consummation of the merger, rescind any actionstaken to effect the merger, direct the defendants to sell or auction theCompany for the highest possible price, and impose a constructive trust infavor of plaintiffs upon any benefits improperly received by defendants.**

** **

**The lawsuit is in its preliminary stage.  We believe that the lawsuit is without meritand intend to defend vigorously against it.**

** **

###### **ITEM2.**                             UNREGISTERED SALES OF EQUITY SECURITIES ANDUSE OF PROCEEDS

###### ** **

The following table indicates ourrepurchases of equity securities in the third quarter of 2005:

 
| **Third Quarter 2005**                   | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average  Price Paid  Per Share** | ** ** | **Total Number  of Shares  Purchased as  Part of  Publicly  Announced  Plans or  Programs (1)** | ** ** | **Maximum  Number of  Shares that  May Yet Be  Purchased  under the  Plans or  Programs** | ** ** |
|------------------------------------------|------------|----------------------------------------|------------|------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
|                                     |       |                                   |       |                               |       |                                                                                                 |       |                                                                                           |       |
| February 2005  (1/30/05 to 2/26/05) |       | —                                 |       | —                             |       | —                                                                                               |       | 1,155,869                                                                                      |       |
|                                     |       |                                   |       |                               |       |                                                                                                 |       |                                                                                           |       |
| March 2005  (2/27/05 to 4/2/05)     |       | —                                 |       | —                             |       | —                                                                                               |       | 1,155,869                                                                                      |       |
|                                     |       |                                   |       |                               |       |                                                                                                 |       |                                                                                           |       |
| April 2005  (4/3/05 to 4/30/05)     |       | —                                 |       | —                             |       | —                                                                                               |       | 1,155,869                                                                                      |       |

 

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(1)  In April 2000, the Board of Directors authorized up to4.0 million shares to be repurchased, with no expiration date.

 

26

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**ITEM 6.  EXHIBITS**

 
| 2.1    |   | Agreement and Plan of Merger, dated May 1,  2005, among The Neiman Marcus Group, Inc., Newton Acquisition, Inc.,  and Newton Merger Sub, Inc., incorporated herein by reference to the  Company’s Current Report on Form 8-K dated May 4, 2005.                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 3.1    |   | Restated Certificate of Incorporation of  the Company, incorporated herein by reference to the Company’s Quarterly  Report on Form 10-Q for the quarter ended January 26, 2002.                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 3.2    |   | Bylaws of the Company, incorporated herein  by reference to the Company’s Current Report on Form 8-K dated April 8,  2005.                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.1    |   | Certificates of Designation with respect to  Series A Junior Participating Preferred Stock, Series B Junior  Participating Preferred Stock and Series C Junior Participating  Preferred Stock, incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended July 31, 2004. |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.2    |   | Indenture, dated as of May 27, 1998,  between the Company and The Bank of New York, as trustee (the “Indenture”),  incorporated herein by reference to the Company’s Annual Report on Form 10-K  for the fiscal year ended July 31, 2004.                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.3    |   | Form of 6.65 percent Senior Note Due  2008, dated May 27, 1998, issued by the Company pursuant to the  Indenture, incorporated herein by reference to the Company’s Annual Report on  Form 10-K for the fiscal year ended July 31, 2004.                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.4    |   | Form of 7.125 percent Senior Note Due  2008, dated May 27, 1998, issued by the Company pursuant to the  Indenture, incorporated herein by reference to the Company’s Annual Report on  Form 10-K for the fiscal year ended July 31, 2004.                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.5    |   | Amended and Restated Rights Agreement,  dated as of August 8, 2002, between the Company and Mellon Investor  Services LLC, as Rights Agent, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended August 3,  2002.                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.6    |   | First Amendment to the Amended and Restated  Rights Agreement, dated as of May 1, 2005, between The Neiman Marcus  Group, Inc. and other parties signatory thereto, incorporated herein by  reference to the Company’s Current Report on Form 8-K dated May 4,  2005.                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.43* |   | Change of Control Termination Protection  Agreement between the Company and Burton M. Tansky dated April 1, 2005.  (1)                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.44* |   | Form of Change of Control Termination  Protection Agreement between the Company and certain eligible executives,  including the named executive officers, dated April 1, 2005, (1)                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.45* |   | The Neiman Marcus Group, Inc.  Executive Change of Control Severance Plan dated April 1, 2005, (1)                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.46* |   | The Neiman Marcus Group, Inc. General  Change of Control Severance Plan dated April 1, 2005. (1)                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 31.1   |   | Certification of Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 31.2   |   | Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 32     |   | Certifications of Chief Executive Officer  and Chief Financial Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. (1)                                                                                                                                                                                                         |

 

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| (1)    |   | Filed herewith.                                           |
|--------|--------|-----------------------------------------------------------|
|   |   |                                                      |
| *      |   | Management contract or compensatory plan or  arrangement. |

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, asamended, the registrant has duly caused this report to be signed on its behalfby the undersigned hereunto duly authorized.

 

 
|   | THE NEIMAN MARCUS GROUP, INC. |   |
|--------|-------------------------------|--------|
|   | (Registrant)                  |   |

 
| **Signature**         | ** ** | **Title**                      | ** **                    | **Date** | ** **        |
|-----------------------|------------|--------------------------------|-------------------------------|----------|-------------------|
|                  |       |                           |                          |     |              |
| /s/ T. Dale Stapleton |       |                           | Vice President and Controller |     | June 9, 2005 |   |
| T. Dale Stapleton     |       | and Duly Authorized Officer    |                          |     |              |
|                  |       | (principal accounting officer) |                          |     |              |
|                       |            |                                |                               |          |                   |  |

 

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