**UNITED STATES**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

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

 

### **For the Quarterly PeriodEnded May 3, 2003**

 

**OR**

 

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

 

**Commission file no. 1-9659**

 

**The NeimanMarcus Group, Inc.**

(Exact name ofregistrant as specified in its charter)

 
| **Delaware**                                                     |   | **95-4119509**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

### **One Marcus Square**

### **1618 Main Street**

### **Dallas,Texas  75201**

(Address ofprincipal executive offices)

 

**(214) 741-6911**

(Registrant’stelephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

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

 

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

 

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

 

As of June 5, 2003, thenumber of outstanding shares of each of the issuer’s classes of common stockwas:

 

| **Class**                             |   | **Outstanding Shares** |
|---------------------------------------|--------|-----------------------------|
| Class A Common Stock,  $.01 Par Value |   | 27,913,014                  |
| Class B Common Stock,  $.01 Par Value |   | 19,666,933                  |

 

----

 

**THE NEIMAN MARCUS GROUP, INC.**

 

#### **INDEX**

 
| Part I.                                                                      | Financial Information                                                                                                             |
|------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|
|                                                                         |
| Item  1.                                                                     | Condensed Consolidated Balance Sheets as  of May 3, 2003, August 3, 2002 and April 27, 2002                                       |
|                                                                         |
|                                                                         | Condensed Consolidated Statements of  Earnings for the Thirteen Weeks and Thirty-nine Weeks Ended May 3, 2003 and  April 27, 2002 |
|                                                                         |
|                                                                         | Condensed Consolidated Statements of Cash  Flows for the Thirty-nine Weeks Ended May 3, 2003 and April 27, 2002                   |
|                                                                         |
|                                                                         | 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 6.                                                                      | Exhibits and Reports on Form 8-K                                                                                                  |
|                                                                         |
| Signatures                                                                   |
|                                                                         |
| Certifications Required by Section 302(a)  of the Sarbanes-Oxley Act of 2002 |

 

----

 

**THE NEIMAN MARCUS GROUP, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

 
| **(in thousands, except shares)**                              |   | **May 3,  2003** |      | **August 3,  2002** |   | **April 27,  2002** |   |
|----------------------------------------------------------------|--------|------------------|-----------|---------------------|--------|---------------------|--------|
|                                                           |   |             |      |                |   |                |   |
| **ASSETS**                                                     |   |             |      |                |   |                |   |
| Current  assets:                                               |   |             |      |                |   |                |   |
| Cash  and cash equivalents                                     |   | $                | 133,670   |                | $      | 178,638             |   | $ | 150,059 |   |
| Undivided  interests in NMG Credit Card Master Trust           |   | 279,556          |      | 208,602             |   | 263,614             |   |
| Accounts  receivable, net                                      |   | 25,132           |      | 19,778              |   | 24,975              |   |
| Merchandise  inventories                                       |   | 719,118          |      | 656,844             |   | 635,252             |   |
| Other  current assets                                          |   | 58,681           |      | 63,764              |   | 57,557              |   |
| Total  current assets                                          |   | 1,216,157        |      | 1,127,626           |   | 1,131,457           |   |
|                                                           |   |             |      |                |   |                |   |
| Property  and equipment, net                                   |   | 676,059          |      | 653,166             |   | 647,741             |   |
| Other  assets                                                  |   | 107,851          |      | 126,754             |   | 126,210             |   |
| Total  assets                                                  |   | $                | 2,000,067 |                | $      | 1,907,546           |   | $ | 1,905,408 |   |
|                                                           |   |             |      |                |   |                |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                 |   |             |      |                |   |                |   |
| Current  liabilities:                                          |   |             |      |                |   |                |   |
| Notes  payable and current maturities of long-term liabilities |   | $                | 1,799     |                | $      | 1,098               |   | $ | 1,098 |   |
| Accounts  payable                                              |   | 224,945          |      | 257,560             |   | 227,237             |   |
| Accrued  liabilities                                           |   | 293,145          |      | 259,800             |   | 284,810             |   |
| Total  current liabilities                                     |   | 519,889          |      | 518,458             |   | 513,145             |   |
|                                                           |   |             |      |                |   |                |   |
| Long-term  liabilities:                                        |   |             |      |                |   |                |   |
| Notes  and debentures                                          |   | 249,727          |      | 249,710             |   | 249,704             |   |
| Other  long-term liabilities                                   |   | 87,530           |      | 77,473              |   | 87,389              |   |
| Total  long-term liabilities                                   |   | 337,257          |      | 327,183             |   | 337,093             |   |
|                                                           |   |             |      |                |   |                |   |
| Minority  interest                                             |   | 9,462            |      | 6,592               |   | 9,508               |   |
|                                                           |   |             |      |                |   |                |   |
| Common  stock                                                  |   | 482              |      | 480                 |   | 481                 |   |
| Additional  paid-in capital                                    |   | 447,456          |      | 443,788             |   | 440,267             |   |
| Accumulated  other comprehensive (loss) income                 |   | (11,729          | )         | 906                 |   | 91                  |   |
| Retained  earnings                                             |   | 712,270          |      | 610,139             |   | 604,823             |   |
| Treasury  stock (524,177 shares, at cost)                      |   | (15,020          | )         | —              |   | —              |   |
| Total  shareholders’ equity                               |   | 1,133,459        |      | 1,055,313           |   | 1,045,662           |   |
| Total  liabilities and shareholders’ equity               |   | $                | 2,000,067 |                | $      | 1,907,546           |   | $ | 1,905,408 |   |

 

See Notes to CondensedConsolidated Financial Statements.

 

1

----

 

**THE NEIMAN MARCUS GROUP, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS**

**(UNAUDITED)**

 
|                                                                                |   | **Thirteen  Weeks Ended** |    | **Thirty-Nine  Weeks Ended** |   |
|-------------------------------------------------------------------------------------|--------|---------------------------|---------|------------------------------|--------|
| **(in thousands, except per share data)**                                           |   | **May 3,  2003**          |    | **April 27,  2002**          |   | **May 3,  2003** |   | **April 27,  2002** |   |
|                                                                                |   |                      |    |                         |   |   |   |   |   |
| Revenues                                                                            |   | $                         | 722,917 |                         | $      | 692,741 |   | $ | 2,395,467 |   | $ | 2,281,976 |   |
| Cost  of goods sold including buying and occupancy costs                            |   | 463,713                   |    | 441,412                      |   | 1,572,222 |   | 1,523,068 |   |
| Selling,  general and administrative expenses                                       |   | 187,372                   |    | 179,292                      |   | 617,765 |   | 597,782 |   |
| Effect  of change in vacation policy                                                |   | —                    |    | (16,576                      | )      | — |   | (16,576 | ) |
| Impairment  and other charges                                                       |   | —                    |    | 8,163                        |   | — |   | 10,163 |   |
|                                                                                |   |                      |    |                         |   |   |   |   |   |
| Operating  earnings                                                                 |   | 71,832                    |    | 80,450                       |   | 205,480 |   | 167,539 |   |
|                                                                                |   |                      |    |                         |   |   |   |   |   |
| Interest  expense, net                                                              |   | 4,245                     |    | 3,914                        |   | 12,183 |   | 12,160 |   |
| Earnings  before income taxes, minority interest and change in accounting principle |   | 67,587                    |    | 76,536                       |   | 193,297 |   | 155,379 |   |
| Income  taxes                                                                       |   | 26,020                    |    | 29,084                       |   | 74,419 |   | 59,044 |   |
| Earnings  before minority interest and change in accounting principle               |   | 41,567                    |    | 47,452                       |   | 118,878 |   | 96,335 |   |
| Minority  interest in net earnings of subsidiaries                                  |   | (437                      | )       | (489                         | )      | (1,946 | ) | (2,077 | ) |
|                                                                                |   |                      |    |                         |   |   |   |   |   |
| Earnings  before change in accounting principle                                     |   | 41,130                    |    | 46,963                       |   | 116,932 |   | 94,258 |   |
|                                                                                |   |                      |    |                         |   |   |   |   |   |
| Change  in accounting principle – writedown of intangible assets, net of taxes |   | —                    |    | —                       |   | (14,801 | ) | — |   |
| Net  earnings                                                                       |   | $                         | 41,130  |                         | $      | 46,963 |   | $ | 102,131 |   | $ | 94,258 |   |
|                                                                                |   |                      |    |                         |   |   |   |   |   |
| Weighted  average number of common and common equivalent shares outstanding:        |   |                      |    |                         |   |   |   |   |   |
| Basic                                                                               |   | 47,240                    |    | 47,524                       |   | 47,498 |   | 47,407 |   |
| Diluted                                                                             |   | 47,497                    |    | 48,011                       |   | 47,772 |   | 47,782 |   |
|                                                                                |   |                      |    |                         |   |   |   |   |   |
| Basic  earnings per share:                                                          |   |                      |    |                         |   |   |   |   |   |
| Earnings  before change in accounting principle                                     |   | $                         | 0.87    |                         | $      | 0.99 |   | $ | 2.46 |   | $ | 1.99 |   |
| Change  in accounting principle – writedown of intangible assets, net of taxes |   | —                    |    | —                       |   | (0.31 | ) | — |   |
| Basic  earnings per share                                                           |   | $                         | 0.87    |                         | $      | 0.99 |   | $ | 2.15 |   | $ | 1.99 |   |
|                                                                                |   |                      |    |                         |   |   |   |   |   |
| Diluted  earnings per share:                                                        |   |                      |    |                         |   |   |   |   |   |
| Earnings  before change in accounting principle                                     |   | $                         | 0.87    |                         | $      | 0.98 |   | $ | 2.45 |   | $ | 1.97 |   |
| Change  in accounting principle – writedown of intangible assets, net of taxes |   | —                    |    | —                       |   | (0.31 | ) | — |   |
| Diluted  earnings per share                                                         |   | $                         | 0.87    |                         | $      | 0.98 |   | $ | 2.14 |   | $ | 1.97 |   |

 

SeeNotes to Condensed Consolidated Financial Statements.

 

2

----

 

**THE NEIMAN MARCUS GROUP, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
|                                                                                                |   | **Thirty-Nine  Weeks Ended** |    |
|-----------------------------------------------------------------------------------------------------|--------|------------------------------|---------|
| **(in thousands)**                                                                                  |   | **May 3,  2003**             |    | **April 27,  2002** |   |
| **CASH  FLOWS - OPERATING ACTIVITIES**                                                              |   |                         |    |   |   |
| Net  earnings                                                                                       |   | $                            | 102,131 |   | $ | 94,258 |   |
| Change  in accounting – non-cash writedown of intangible assets, net of taxes                  |   | 14,801                       |    | — |   |
| Earnings  before change in accounting principle                                                     |   | 116,932                      |    | 94,258 |   |
| Adjustments  to reconcile net earnings to net cash provided by operating activities:                |   |                         |    |   |   |
| Depreciation  and amortization                                                                      |   | 57,924                       |    | 62,618 |   |
| Effect  of change in vacation policy                                                                |   | —                       |    | (16,576 | ) |
| Impairment  and other charges                                                                       |   | —                       |    | 10,163 |   |
| Minority  interest                                                                                  |   | 1,946                        |    | 2,077 |   |
| Other  – primarily costs related to defined benefit pension and other long-term  benefit plans |   | 14,168                       |    | 6,829 |   |
| Changes  in operating assets and liabilities:                                                       |   |                         |    |   |   |
| Increase  in accounts receivable                                                                    |   | (5,354                       | )       | (4,268 | ) |
| (Increase)  decrease in merchandise inventories                                                     |   | (62,274                      | )       | 13,615 |   |
| Decrease  in other current assets                                                                   |   | 4,125                        |    | 15,170 |   |
| Increase  in accounts payable and accrued liabilities                                               |   | 21,156                       |    | 28,971 |   |
| Funding  of defined benefit pension plan                                                            |   | (30,760                      | )       | — |   |
| **NET  CASH PROVIDED BY OPERATING ACTIVITIES**                                                      |   | 117,863                      |    | 212,857 |   |
|                                                                                                |   |                         |    |   |   |
| **CASH  FLOWS - INVESTING ACTIVITIES**                                                              |   |                         |    |   |   |
| Capital  expenditures                                                                               |   | (80,817                      | )       | (122,473 | ) |
| Transactions  related to undivided interests in NMG Credit Card Master Trust:                       |   |                         |    |   |   |
| Purchases  of held-to-maturity securities                                                           |   | (747,396                     | )       | (776,950 | ) |
| Maturities  of held-to-maturity securities                                                          |   | 678,003                      |    | 734,053 |   |
| **NET  CASH USED FOR INVESTING ACTIVITIES**                                                         |   | (150,210                     | )       | (165,370 | ) |
|                                                                                                |   |                         |    |   |   |
| **CASH  FLOWS - FINANCING ACTIVITIES**                                                              |   |                         |    |   |   |
| Proceeds  from borrowings                                                                           |   | 81,051                       |    | 130,240 |   |
| Repayment  of debt                                                                                  |   | (80,000                      | )       | (130,000 | ) |
| Acquisition of treasury stock                                                                       |   | (15,020                      | )       | — |   |
| Distributions paid                                                                                  |   | (294                         | )       | (484 | ) |
| Proceeds from exercises of stock options and  restricted stock grants                               |   | 1,642                        |    | 5,518 |   |
| Other equity activities                                                                             |   | —                       |    | 7 |   |
| **NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES**                                            |   | (12,621                      | )       | 5,281 |   |
|                                                                                                |   |                         |    |   |   |
| **CASH  AND CASH EQUIVALENTS**                                                                      |   |                         |    |   |   |
| (Decrease)  increase during the period                                                              |   | (44,968                      | )       | 52,768 |   |
| Beginning  balance                                                                                  |   | 178,638                      |    | 97,291 |   |
| Ending  balance                                                                                     |   | $                            | 133,670 |   | $ | 150,059 |   |
|                                                                                                |   |                         |    |   |   |
| **SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION**                                                  |   |                         |    |   |   |
| Cash  paid during the period for:                                                                   |   |                         |    |   |   |
| Interest                                                                                            |   | $                            | 9,329   |   | $ | 9,825 |   |
| Income  taxes                                                                                       |   | $                            | 42,489  |   | $ | 36,396 |   |

 

See Notes to CondensedConsolidated Financial Statements.

 

3

----

 

**THE NEIMAN MARCUS GROUP, INC.**

**NOTES****TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

1.                                       Basisof Presentation

 

*General -*TheCondensed Consolidated Financial Statements of The Neiman Marcus Group, Inc.and subsidiaries (the Company) have been prepared in accordance with generallyaccepted accounting principles for interim financial information and theinstructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedfor complete financial statements. Therefore, the financial statements should be read in conjunction withthe Company’s Annual Report on Form 10-K for the fiscal year ended August 3,2002.

 

In the opinion ofmanagement, the accompanying unaudited condensed consolidated financialstatements contain all adjustments, consisting only of normal recurringadjustments (as well as changes in accounting principles in 2003 as more fullydescribed in Note 3, the change in vacation policy in 2002 as more fullydescribed in Note 11, and impairment and other charges in 2002 as more fullydescribed in Note 12), necessary to present fairly the financial position,results of operations and cash flows of the Company for the applicable interimperiods.  The results of operations forthese periods are not necessarily comparable to, or indicative of, results ofany other interim period or for the fiscal year as a whole.

 

Certain prior periodbalances have been reclassified to conform to the current period presentation.

 

***Estimates and Critical Accounting Policies***- The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions about future events.  These estimates and assumptions affect the reported amounts ofassets, liabilities, revenues and expenses and the disclosure of gain and losscontingencies at the date of the condensed consolidated financial statements.

** **

**Since future events and theireffects cannot be determined with absolute certainty, actual results willdiffer from management’s estimates.  Theamounts currently estimated by the Company are subject to change if differentassumptions as to the outcome of future events were made.  The Company evaluates its estimates andjudgments on an ongoing basis and predicates those estimates and judgments onhistorical experience and on various other factors that management believes tobe reasonable under the circumstances. Management makes adjustments to its assumptions and judgments when factsand circumstances dictate.**

** **

**Management of the Company believesthe following critical accounting policies, among others, encompass the moresignificant judgments and estimates used in preparation of the Company’sfinancial statements:**

 

**•**                       Revenue recognition;

 

•                       Valuationof merchandise inventories, including determination of original retail values,recognition of markdowns and vendor allowances, estimation of inventoryshrinkage, and determination of cost of sales;

 

•                       Recognitionof income and expenses related to the Company’s securitization program;

 

•                       Determinationof impairment of long-lived assets;

 

•                       Recognitionof advertising and catalogue costs;

 

•                       Recognitionof costs related to the Company’s loyalty programs;

 

•                       Recognitionof income taxes; and

 

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

 

A description of theCompany’s critical accounting policies is included in the Company’s AnnualReport on Form 10-K for the fiscal year ended August 3, 2002.

 

4

----

 

*Terms -*Allreferences to the “third quarter of 2003” and “third quarter of 2002” are tothe Company’s thirteen week fiscal periods ended May 3, 2003 and April 27,2002, respectively.  All references to“year-to-date 2003” and “year-to-date 2002” are to the Company’s thirty-nineweek fiscal periods ended May 3, 2003 and April 27, 2002, respectively.  All references to “2002” are to theCompany’s fiscal year ended August 3, 2002 and all references to “2003” are tothe Company’s fiscal year ending August 2, 2003.

 

*Stock-Based Compensation -*In December 2002, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards (SFAS) No. 148,“Accounting for Stock-Based Compensation – Transition and Disclosure.” Thisstandard amends the transition and disclosure requirements of SFASNo. 123, “Accounting for Stock-Based Compensation.” As permitted by SFASNo. 148, the Company accounts for stock-based compensation awards toemployees in accordance with Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees,” and related interpretations.Accordingly, no compensation expense has been recognized for stock optionssince all options granted had an exercise price equal to the market value ofthe underlying stock on the grant date.

 

The following tableillustrates the effect on net earnings and earnings per share as if the Companyhad applied the fair value recognition provisions of SFAS No. 123 tostock-based employee compensation.

 
|                                                                                                             |   | **Thirteen  Weeks Ended** |   | **Thirty-Nine  Weeks Ended** |   |
|------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|------------------------------|--------|
| **(in thousands, except per share data)**                                                                        |   | **May 3,  2003**          |   | **April 27,  2002**          |   | **May 3,  2003** |   | **April 27,  2002** |   |
|                                                                                                             |   |                      |   |                         |   |   |   |   |   |
| Net  earnings:                                                                                                   |   |                      |   |                         |   |   |   |   |   |
| As  reported                                                                                                     |   | $                         | 41,130 |                         | $      | 46,963 |   | $ | 102,131 |   | $ | 94,258 |   |
| Less:  stock-based employee compensation expense determined under fair value based  method, net of related taxes |   | (2,095                    | )      | (1,635                       | )      | (6,333 | ) | (4,810 | ) |
| Pro  forma                                                                                                       |   | $                         | 39,035 |                         | $      | 45,328 |   | $ | 95,798 |   | $ | 89,448 |   |
|                                                                                                             |   |                      |   |                         |   |   |   |   |   |
| Basic  earnings per share:                                                                                       |   |                      |   |                         |   |   |   |   |   |
| As  reported                                                                                                     |   | $                         | 0.87   |                         | $      | 0.99 |   | $ | 2.15 |   | $ | 1.99 |   |
| Pro  forma                                                                                                       |   | $                         | 0.83   |                         | $      | 0.95 |   | $ | 2.02 |   | $ | 1.89 |   |
|                                                                                                             |   |                      |   |                         |   |   |   |   |   |
| Diluted  earnings per share:                                                                                     |   |                      |   |                         |   |   |   |   |   |
| As  reported                                                                                                     |   | $                         | 0.87   |                         | $      | 0.98 |   | $ | 2.14 |   | $ | 1.97 |   |
| Pro  forma                                                                                                       |   | $                         | 0.82   |                         | $      | 0.94 |   | $ | 2.01 |   | $ | 1.87 |   |

 

The effects on pro formanet earnings and earnings per share of expensing the estimated fair value ofstock options are not necessarily representative of the effects on reported netearnings for future periods due to such factors as the vesting periods of stockoptions and the potential issuance of additional stock options in futureyears.  The fair value of each optiongrant is estimated on the date of the grant using the Black-Scholes optionpricing model.

 

5

----

 

2.                                       OperatingSegments

 

The Company hasidentified two reportable segments: Specialty Retail Stores and DirectMarketing.  The Specialty Retail Storessegment includes all Neiman Marcus and Bergdorf Goodman retail stores,including Neiman Marcus clearance stores. The Direct Marketing segment conducts both print catalogue and onlineoperations under the Neiman Marcus, Horchow and Chef’s Catalogue brandnames.  Other includes the operations ofKate Spade LLC and Gurwitch Bristow Products, LLC (the Brand DevelopmentCompanies) and corporate expenses.

 

The following table setsforth the information for the Company’s reportable segments:

 
|                                |   | **Thirteen  Weeks Ended** |    | **Thirty-Nine  Weeks Ended** |   |
|-------------------------------------|--------|---------------------------|---------|------------------------------|--------|
| **(in thousands)**                  |   | **May 3,  2003**          |    | **April 27,  2002**          |   | **May 3,  2003** |   | **April 27,  2002** |   |
| **REVENUES:**                       |   |                      |    |                         |   |   |   |   |   |
| Specialty  Retail Stores            |   | $                         | 591,268 |                         | $      | 573,360 |   | $ | 1,948,486 |   | $ | 1,880,021 |   |
| Direct  Marketing (1)               |   | 112,767                   |    | 101,749                      |   | 388,401 |   | 347,941 |   |
| Other                               |   | 18,882                    |    | 17,632                       |   | 58,580 |   | 54,014 |   |
| Total                               |   | $                         | 722,917 |                         | $      | 692,741 |   | $ | 2,395,467 |   | $ | 2,281,976 |   |
|                                |   |                      |    |                         |   |   |   |   |   |
| **OPERATING  EARNINGS:**            |   |                      |    |                         |   |   |   |   |   |
| Specialty  Retail Stores            |   | $                         | 67,337  |                         | $      | 67,340 |   | $ | 182,876 |   | $ | 156,485 |   |
| Direct  Marketing (1)               |   | 10,386                    |    | 10,356                       |   | 35,787 |   | 16,310 |   |
| Other                               |   | (5,891                    | )       | (5,659                       | )      | (13,183 | ) | (11,669 | ) |
| Subtotal                            |   | $                         | 71,832  |                         | $      | 72,037 |   | $ | 205,480 |   | $ | 161,126 |   |
| Effect of change in vacation policy |   | —                    |    | 16,576                       |   | — |   | 16,576 |   |
| Impairment and other charges        |   | —                    |    | (8,163                       | )      | — |   | (10,163 | ) |
| Total                               |   | $                         | 71,832  |                         | $      | 80,450 |   | $ | 205,480 |   | $ | 167,539 |   |

 

----

(1)          Direct Marketingincludes the operations of Neiman Marcus Direct and the Company’s onlineoperations.  During 2002, the Companyreclassified its Neiman Marcus Online operations to the Direct Marketingsegment from Other.  Prior year amountshave been reclassified to conform to the current year presentation.

 

3.                                       Changesin Accounting Principles

 

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

 

6

----

 

In connection with theadoption of the provisions of SFAS No. 142, the Company engaged third partyappraisal experts to assist with the determination of the fair value of itsgoodwill and intangible assets.  Foreach of the Company’s operating segments, a summary of the intangible assetsrecorded by the Company as of the beginning of the first quarter of 2003 inaccordance with the cost-based accounting model established by previousaccounting principles and the adjustment required to adopt the fair value modelof SFAS No. 142 is as follows:

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

 

The $24.1 millionwritedown in the carrying value of the indefinite-lived intangible assets ofthe Company’s Direct Marketing segment is reflected as a change in accountingprinciple ($14.8 million, net of taxes) in the accompanying year-to-date 2003Condensed Consolidated Statements of Earnings.

 

The Company ceasedamortization of its goodwill and indefinite-lived intangible assets as of thebeginning of  2003. Amortization expensefor the third quarter of 2002 was approximately $1.2 million and reduceddiluted earnings per share by $0.02 for the period.  Amortization expense for year-to-date 2002 was approximately $4.1million and reduced diluted earnings per share by $0.05 for the period.

 

*Vendor Reimbursements -*The Company receives advertising allowances from certain of its merchandisevendors.  Substantially all theadvertising allowances received represent reimbursements of direct, specificand incremental costs incurred by the Company to promote the vendor’smerchandise in connection with the Company’s various advertising programs,primarily catalogues and other print media. As a result, these allowances are recorded as a reduction of theCompany’s advertising costs included in the selling, general and administrativeexpenses when earned.  Vendor allowancesearned and recorded as a reduction to selling, general and administrativeexpenses aggregated approximately $16.5 million in the third quarter of 2003,$16.0 million in the third quarter of 2002, $47.2 million for year-to-date 2003and $45.0 million for year-to-date 2002.

 

Beginning in the thirdquarter of 2003, the Company began to record the portion of advertisingallowances received by the Company not representing reimbursement of direct,specific and incremental advertising costs as a reduction of the cost ofmerchandise purchased in accordance with the provisions of Emerging Issues TaskForce Issue (EITF) 02-16, “Accounting by a Customer (Including a Reseller) forCash Consideration Received from a Vendor.” Under the new rules, these allowances will be realized and recorded bythe Company as a reduction of cost of sales in future periods as the goods aresold.  These allowances were previouslyrecorded by a reduction of selling, general and administrative expenses whenreceived.

 

As a result of theimplementation of the provisions of EITF 02-16, the Company deferredapproximately $2.0 million of advertising allowances received in the thirdquarter of 2003 that do not represent the reimbursement of direct, specific andincremental advertising costs incurred by the Company.  The Company believes that the impact of theaccounting change related to the implementation of the provisions of EITF 02-16in the third quarter of 2003 will not have a material impact on theyear-to-year comparison of its operating results for 2003 compared to 2002.

 

7

----

 

4.                                       DefinedBenefit Pension Plan

 

The Company has anoncontributory defined benefit pension plan (Pension Plan) coveringsubstantially all full-time employees. Benefits under the Pension Plan are based on the employees’ years ofservice and compensation over defined periods of employment.  Pension Plan assets consist primarily ofequity and fixed income securities.

 

The Company received thefinal valuation of the Pension Plan as of August 1, 2002 from its outsideactuarial firm in March 2003.  A summaryof the assets held by the Pension Plan and the Company’s obligations, ascalculated by its actuaries, as of August 1, 2002 is as follows:

 

| **(in thousands)**                    |   |   |    |
|---------------------------------------|--------|--------|---------|
|                                  |   |   |    |
| Fair  value of plan assets            |   | $      | 145,945 |   |
| Accumulated  benefit obligation (ABO) |   | $      | 175,903 |   |
| Projected  benefit obligation (PBO)   |   | $      | 210,024 |   |
|                                  |   |   |    |
| Minimum  liability                    |   | $      | 29,958  |   |
| Less:  accrued pension cost      |   | (6,108 | )       |
| Additional  minimum liability         |   | $      | 23,850  |   |

 

Upon receipt of theactual calculation of the minimum liability by the Company’s actuaries, theCompany increased its pension liability by $23.8 million to record theadditional minimum liability in the second quarter of 2003 which resulted in adecrease, net of tax, of $14.1 million to accumulated other comprehensiveincome.

 

Pension expense is basedon information provided by the Company’s actuaries that uses assumptions toestimate the total benefits ultimately payable to associates and allocates thiscost to service periods. The actuarial assumptions used to calculate pensioncosts are reviewed annually.  TheCompany recorded pension expense of $3.0 million for the third quarter of 2003and $1.5 million for the third quarter of 2002.  The Company recorded pension expense of $7.5 million foryear-to-date 2003 and $4.5 million for year-to-date 2002.

 

When funding is required,the Company’s policy is to contribute amounts that are deductible for federalincome tax purposes.  In the thirdquarter of 2003, the Company made a required contribution of $11.5 million anda voluntary contribution of $13.5 million to the Pension Plan for the plan yearended July 31, 2002.  In addition, theCompany made contributions of $2.9 million in the second quarter of 2003 and$2.9 million in the third quarter of 2003 for the plan year ending July 31,2003.  Based upon currently availableinformation, the Company believes that it will not be required to make anadditional contribution to the Pension Plan for the plan year ending July 31,2003.

 

5.                                       TreasuryStock

 

In prior years, theCompany’s Board of Directors authorized various stock repurchase programs andincreases in the number of shares subject to repurchase.  During the second quarter of 2003, theCompany repurchased 524,177 shares at an average purchase price of $28.65.  As of May 3, 2003, approximately 1.4 millionshares remained available for repurchase under the Company’s stock repurchaseprograms.

 

8

----

 

6.                                       Earningsper Share

 

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

 
|                                                   |   | **Thirteen  Weeks Ended** |   | **Thirty-Nine  Weeks Ended** |   |
|--------------------------------------------------------|--------|---------------------------|--------|------------------------------|--------|
| **(in  thousands of shares)**                          |   | **May 3,  2003**          |   | **April 27,  2002**          |   | **May 3,  2003** |   | **April 27,  2002** |   |
|                                                   |   |                      |   |                         |   |   |   |   |   |
| Weighted  average shares outstanding                   |   | 47,530                    |   | 47,808                       |   | 47,789 |   | 47,715 |   |
|                                                   |   |                      |   |                         |   |   |   |   |   |
| Less:  shares of non-vested restricted stock           |   | (290                      | )      | (284                         | )      | (291 | ) | (308 | ) |
|                                                   |   |                      |   |                         |   |   |   |   |   |
| Shares  for computation of basic EPS                   |   | 47,240                    |   | 47,524                       |   | 47,498 |   | 47,407 |   |
|                                                   |   |                      |   |                         |   |   |   |   |   |
| Effect  of dilutive stock options and restricted stock |   | 257                       |   | 487                          |   | 274 |   | 375 |   |
| Shares  for computation of diluted EPS                 |   | 47,497                    |   | 48,011                       |   | 47,772 |   | 47,782 |   |
|                                                   |   |                      |   |                         |   |   |   |   |   |
| Shares  represented by antidilutive stock options      |   | 1,937                     |   | 923                          |   | 1,950 |   | 1,240 |   |

 

Antidilutive stockoptions were not included in the computation of diluted EPS because theexercise price of those options was greater than the average market price ofthe common shares.

 

7.                                       UndividedInterests in NMG Credit Card Master Trust

 

Pursuant to a revolvingcredit card securitization program, the Company transfers substantially all ofits credit card receivables to a wholly-owned subsidiary, Neiman Marcus FundingCorporation, which in turn sells such receivables to the Neiman Marcus CreditCard Master Trust (the Trust).  TheTrust issued certificates representing undivided interests in the credit cardreceivables to both third-party investors (Sold Interests) and to the Company(Retained Interests).  The RetainedInterests are shown as “Undivided interests in NMG Credit Card Master Trust” onthe Company’s Condensed Consolidated Balance Sheets.

 

9

----

 

8.                                       DerivativeFinancial Instruments

 

As of May 3, 2003, theCompany had foreign currency contracts in the form of forward exchangecontracts in the amount of approximately $30.2 million. The contracts havevarying maturity dates through February 2004. The settlement terms of the forward contracts, including amount,currency and maturity, correspond with the payment terms for purchases ofmerchandise inventories.  Thesecontracts have been designated and accounted for as cash flow hedges.

 

At May 3, 2003, the fairvalue of the Company’s outstanding foreign currency exchange contracts was anasset of approximately $1.8 million. This amount, net of taxes, is reflected inaccumulated other comprehensive loss.

 

9.                                       Commitmentsand Contingencies

 

TheCompany is involved in various suits and claims in the ordinary course ofbusiness.  Management does not believethat the disposition of any such suits or claims will have a material adverseeffect upon the consolidated results of operations, cash flows or the financialposition of the Company.

 

10.                                 Comprehensive Income

 

Comprehensive(loss) income is defined as the change in equity during a period fromtransactions and other events, except those resulting from investments by anddistributions to stockholders.  Thecomponents of comprehensive (loss) income are as follows:

 
|                                                 |   | **Thirteen  Weeks Ended** |   | **Thirty-Nine  Weeks Ended** |   |
|------------------------------------------------------|--------|---------------------------|--------|------------------------------|--------|
| **(in  thousands)**                                  |   | **May 3,  2003**          |   | **April 27,  2002**          |   | **May 3,  2003** |   | **April 27,  2002** |   |
|                                                 |   |                      |   |                         |   |   |   |   |   |
| Net  earnings                                        |   | $                         | 41,130 |                         | $      | 46,963 |   | $ | 102,131 |   | $ | 94,258 |   |
| Other  comprehensive income (loss):                  |   |                      |   |                         |   |   |   |   |   |
| Unrealized  gain on derivative financial instruments |   | 109                       |   | 545                          |   | 1,149 |   | 1,120 |   |
| Additional  minimum pension liability                |   | —                    |   | —                       |   | (14,149 | ) | — |   |
| Cumulative  translation adjustments                  |   | 432                       |   | —                       |   | 365 |   | — |   |
| Total  other comprehensive income (loss)             |   | 541                       |   | 545                          |   | (12,635 | ) | 1,120 |   |
|                                                 |   |                      |   |                         |   |   |   |   |   |
| Total  comprehensive income                          |   | $                         | 41,671 |                         | $      | 47,508 |   | $ | 89,496 |   | $ | 95,378 |   |

 

10

----

 

 

11.                                 Effect of Change in Vacation Policy

 

During the third quarterof 2002, the Company terminated its prior vacation plan and the Board ofDirectors of the Company approved a new policy related to vacation pay for itsemployees.  The new policy was communicatedto employees during the third quarter of 2002. Pursuant to the new policy, which was effective as of April 28, 2002,eligible employees earn vacation pay ratably over the course of the year inwhich the services are rendered.

 

Pursuant to the previousplan, eligible employees received an annual vacation grant at the beginning ofeach service year. Such grants were made in anticipation of future service;however, eligible employees were allowed to take vacation time to the extent ofthe vacation grant as of the grant date. Further, in the event of termination, an employee was entitled toreceive cash compensation to the extent of the untaken balance of the annualgrant.  As a result, the Companyrecorded vacation expense ratably over the twelve months prior to each annualgrant such that the liability for the annual grant was fully recorded as of thegrant date.

 

With the termination ofthe prior vacation plan, the previously recorded vacation liability of $16.6million, which amount represented the vacation time that would have beengranted to employees on April 28, 2002 pursuant to the previous plan, waseliminated and credited to operating earnings in the third quarter of 2002.

 

12.                                 Impairment and Other Charges

 

In the third quarter of2002, the Company recorded an $8.2 million pretax charge.  The charge related to 1) the write-off ofthe remaining net carrying value of its cost method investment inWeddingChannel.com, Inc. in light of its continued operating losses, 2) thewritedown of the carrying values of the fixed assets of two Neiman MarcusGalleries stores to estimated fair value and 3) the accrual of the estimatedloss associated with the abandonment of excess warehouse space held by theCompany pursuant to a long-term operating lease.

 

In the second quarter of2002, the Company incurred expenses of approximately $2.0 million in connectionwith cost reduction strategies.  Theseexpenses consisted primarily of severance costs and lease termination expensesincurred in connection with the closing of the Neiman Marcus Galleries store inSeattle, Washington.

 

11

----

 

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

 

**FACTORS THAT MAY AFFECT FUTURERESULTS**

 

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

 

**•**                 productivity and profitability;

 

•                  merchandising and marketing strategies;

 

•                  inventory performance;

 

•                  store renovation and expansion plans;

 

•                  capital expenditures;

 

•                  liquidity; and

 

•                  development of management informationsystems.

 

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

 

•                  current political and economic conditions;

 

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

 

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

 

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

 

•                  changes in demographic or retailenvironments;

 

•                  changes in consumer preferences or fashiontrends;

 

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

 

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

 

•                  seasonality of the retail business;

 

•                  adverse weather conditions, particularlyduring peak selling seasons;

 

•                  delays in anticipated store openings;

 

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

 

**•**                  natural disasters;

 

•                  significant increases in paper, printing andpostage costs;

 

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

 

12

----

 

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

 

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

 

•                  changes in foreign currency exchange rates;

 

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

 

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

 

•                  changes in key management personnel;

 

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

 

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

 

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

 

**CRITICAL ACCOUNTING POLICIES**

 

**The preparation of financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions about future events. Since future events and their effects cannot be determined with absolutecertainty, actual results will differ from those estimates.  The amounts currently estimated by theCompany are subject to change if different assumptions as to the outcome offuture events were made.  The Companyevaluates its estimates and judgments on an ongoing basis and predicates thoseestimates and judgments on historical experience and on various other factorsthat are believed to be reasonable under the circumstances.  Management makes adjustments to itsassumptions and judgments when facts and circumstances dictate.  See Note 1 of the Notes to CondensedConsolidated Financial Statements in Part I, Item 1 for a summary of theCompany’s critical accounting policies. A description of the Company’s critical accounting policies is includedin the Company’s Annual Report to Shareholders on Form 10-K for the fiscal yearended August 3, 2002.**

 

13

----

 

**OVERVIEW**

 

The Neiman Marcus Group,Inc., together with its operating divisions and subsidiaries, is a high-endspecialty retailer.  The Company’soperations include the Specialty Retail Stores segment and the Direct Marketingsegment.  The Specialty Retail Storessegment consists primarily of Neiman Marcus and Bergdorf Goodman stores.  The Direct Marketing segment conducts bothprint catalogue and online operations under the Neiman Marcus, Horchow andChef’s Catalogue brand names.

 

For purposes of thefollowing discussion, all references to the “third quarter of 2003” and “thirdquarter of 2002” are to the Company’s thirteen week fiscal periods ended May 3,2003 and April 27, 2002, respectively. All references to “year-to-date 2003” and “year-to-date 2002” are to theCompany’s thirty-nine week fiscal periods ended May 3, 2003 and April 27, 2002,respectively.  All references to “2002”are to the Company’s fiscal year ended August 3, 2002 and all references to“2003” are to the Company’s fiscal year ending August 2, 2003.

 

The following table setsforth certain items expressed as percentages of net sales for the periodsindicated.

 
|                                                                                |   | **Thirteen  Weeks Ended** |   | **Thirty-Nine  Weeks Ended** |   |
|-------------------------------------------------------------------------------------|--------|---------------------------|--------|------------------------------|--------|
|                                                                                |   | **May 3,  2003**          |   | **April 27,  2002**          |   | **May 3,  2003** |   | **April 27,  2002** |   |
|                                                                                |   |                      |   |                         |   |   |   |   |   |
| Revenues                                                                            |   | 100.0                     | %      | 100.0                        | %      | 100.0 | % | 100.0 | % |
| Cost of goods  sold including buying and occupancy costs                            |   | 64.1                      |   | 63.7                         |   | 65.6 |   | 66.7 |   |
| Selling, general  and administrative expenses                                       |   | 25.9                      |   | 25.9                         |   | 25.8 |   | 26.2 |   |
| Effect of change  in vacation policy                                                |   | —                    |   | (2.4                         | )      | — |   | (0.7 | ) |
| Impairment and  other charges                                                       |   | —                    |   | 1.2                          |   | — |   | 0.4 |   |
| Operating  earnings                                                                 |   | 9.9                       |   | 11.6                         |   | 8.6 |   | 7.3 |   |
| Interest  expense, net                                                              |   | 0.6                       |   | 0.6                          |   | 0.5 |   | 0.5 |   |
| Earnings before  income taxes, minority interest and change in accounting principle |   | 9.3                       |   | 11.0                         |   | 8.1 |   | 6.8 |   |
| Income taxes                                                                        |   | 3.6                       |   | 4.2                          |   | 3.1 |   | 2.6 |   |
| Earnings before  minority interest and change in accounting principle               |   | 5.7                       |   | 6.8                          |   | 5.0 |   | 4.2 |   |
| Minority  interest in net earnings of subsidiaries                                  |   | (0.1                      | )      | (0.1                         | )      | (0.1 | ) | (0.1 | ) |
| Earnings before  change in accounting principle                                     |   | 5.7                       |   | 6.8                          |   | 4.9 |   | 4.1 |   |
| Change in  accounting principle – writedown of intangible assets, net of taxes |   | —                    |   | —                       |   | (0.6 | ) | — |   |
| Net earnings                                                                        |   | 5.7                       | %      | 6.8                          | %      | 4.3 | % | 4.1 | % |

 

14

----

 

Set forth in thefollowing table is certain summary information with respect to the Company’soperations for the periods indicated.

 

**OPERATING RESULTS**
|                                        |   | **Thirteen  Weeks Ended** |   | **Thirty-Nine  Weeks Ended** |   |
|---------------------------------------------|--------|---------------------------|--------|------------------------------|--------|
| **(dollars in millions)**                   |   | **May 3,  2003**          |   | **April 27,  2002**          |   | **May 3,  2003** |   | **April 27,  2002** |   |
|                                        |   |                      |   |                         |   |   |   |   |   |
| REVENUES                                    |   |                      |   |                         |   |   |   |   |   |
| Specialty  Retail Stores                    |   | $                         | 591.2  |                         | $      | 573.4 |   | $ | 1,948.5 |   | $ | 1,880.0 |   |
| Direct  Marketing (1)                       |   | 112.8                     |   | 101.7                        |   | 388.4 |   | 348.0 |   |
| Other  (2)                                  |   | 18.9                      |   | 17.6                         |   | 58.6 |   | 54.0 |   |
| Total                                       |   | $                         | 722.9  |                         | $      | 692.7 |   | $ | 2,395.5 |   | $ | 2,282.0 |   |
|                                        |   |                      |   |                         |   |   |   |   |   |
| OPERATING  EARNINGS                         |   |                      |   |                         |   |   |   |   |   |
| Specialty  Retail Stores                    |   | $                         | 67.3   |                         | $      | 67.3 |   | $ | 182.9 |   | $ | 156.5 |   |
| Direct  Marketing (1)                       |   | 10.4                      |   | 10.3                         |   | 35.8 |   | 16.3 |   |
| Other  (2)                                  |   | (5.9                      | )      | (5.6                         | )      | (13.2 | ) | (11.7 | ) |
| Subtotal                                    |   | 71.8                      |   | 72.0                         |   | 205.5 |   | 161.1 |   |
| Effect  of change in vacation policy        |   | —                    |   | 16.6                         |   | — |   | 16.6 |   |
| Impairment  and other charges               |   | —                    |   | (8.1                         | )      | — |   | (10.2 | ) |
| Total                                       |   | $                         | 71.8   |                         | $      | 80.5 |   | $ | 205.5 |   | $ | 167.5 |   |
|                                        |   |                      |   |                         |   |   |   |   |   |
| OPERATING  PROFIT MARGIN                    |   |                      |   |                         |   |   |   |   |   |
| Specialty  Retail Stores                    |   | 11.4                      | %      | 11.7                         | %      | 9.4 | % | 8.3 | % |
| Direct  Marketing (1)                       |   | 9.2                       | %      | 10.1                         | %      | 9.2 | % | 4.7 | % |
| Total                                       |   | 9.9                       | %      | 11.6                         | %      | 8.6 | % | 7.3 | % |
|                                        |   |                      |   |                         |   |   |   |   |   |
| COMPARABLE  REVENUES (3)                    |   |                      |   |                         |   |   |   |   |   |
| Specialty  Retail Stores                    |   | (0.3                      | )%     | (2.6                         | )%     | 0.4 | % | (5.9 | )% |
| Direct  Marketing (1)                       |   | 10.8                      | %      | 1.3                          | %      | 11.6 | % | 0.0 | % |
| Total                                       |   | 1.5                       | %      | (1.9                         | )%     | 2.3 | % | (5.2 | )% |
|                                        |   |                      |   |                         |   |   |   |   |   |
| STORE  COUNT (4)                            |   |                      |   |                         |   |   |   |   |   |
| Neiman  Marcus and Bergdorf Goodman stores: |   |                      |   |                         |   |   |   |   |   |
| Open  at beginning of period                |   | 37                        |   | 35                           |   | 35 |   | 34 |   |
| Opened  during the period                   |   | —                    |   | —                       |   | 2 |   | 1 |   |
| Open  at end of period                      |   | 37                        |   | 35                           |   | 37 |   | 35 |   |
| Clearance  centers:                         |   |                      |   |                         |   |   |   |   |   |
| Open  at beginning of period                |   | 13                        |   | 11                           |   | 12 |   | 10 |   |
| Opened  during the period                   |   | —                    |   | 1                            |   | 1 |   | 2 |   |
| Open  at end of period                      |   | 13                        |   | 12                           |   | 13 |   | 12 |   |

 

----

(1)          Direct Marketingincludes the operations of Neiman Marcus Direct and the Company’s onlineoperations.  During 2002, the Companyreclassified its Neiman Marcus Online operations to the Direct Marketingsegment from Other. Prior year amounts have been reclassified to conform to thecurrent year presentation*.*

 

(2)          Other includes theoperations of the Brand Development Companies and corporate expenses.

 

(3)          Comparable revenuesinclude 1) revenues derived from the Company’s retail stores open for more than52 weeks, including stores that have been relocated or expanded, 2) revenuesfrom the Company’s Direct Marketing operations and 3) revenues from theCompany’s Brand Development Companies.

 

(4)          The Company’s Neiman Marcus Galleries stores have been excluded.

 

15

----

 

**THIRTEEN WEEKS ENDED MAY 3, 2003 COMPARED TO THIRTEEN WEEKSENDED APRIL 27, 2002**

 

*Revenues. *Revenuesfor the third quarter of 2003 of $722.9 million increased $30.2 million, or 4.4percent, from $692.7 million in the prior year period.  The increase in revenues was attributable toboth an increase in comparable revenues and revenues generated by new stores.

 

Comparable revenues inthe third quarter of 2003 increased 1.5 percent compared to the third quarterof 2002.  Comparable revenues decreased0.3 percent for Specialty Retail Stores and increased 10.8 percent for DirectMarketing. The increase in comparable revenues for Direct Marketing wasattributable to increased sales in both the Company’s catalogue and onlinebusinesses.  Comparable revenues in thethird quarter of 2002 declined by 1.9 percent from the prior year period.

 

*Gross margin.*  Gross margin was 35.9 percent of revenues for the third quarterof 2003 compared to 36.3 percent for the third quarter of 2002.  The decrease in gross margin was primarilydue to an increase in markdowns offset, in part, by a decrease in buying andoccupancy costs as a percentage of revenues.

 

Markdowns increased as apercentage of revenues for the third quarter of 2003 compared to the prior yearperiod.  The higher markdowns werenecessary to reduce a build up of inventories in certain merchandise categoriesthat occurred during the quarter as a result of lower than anticipatedsales.  The Company believes that salesin the third quarter of 2003, particularly the earlier weeks, were negativelyimpacted by economic uncertainties due, in part, to the conflict in Iraq aswell as adverse weather conditions in a number of markets in which the Companyoperates.

 

Consistent with industrybusiness practice, the Company receives reimbursements from certain vendors formarkdowns related to the vendor’s merchandise and/or to support the grossmargins earned by the Company in connection with the sale of the vendor’smerchandise.  These reimbursements areincluded as a reduction to cost of goods sold, including buying and occupancycosts, in the period in which the markdowns are incurred or when the Companyotherwise earns such reimbursements.  Asubstantial portion of these vendor reimbursements are received at the end ofthe Company’s second and fourth quarters. The amounts of vendor reimbursements received by the Company did nothave a significant impact on the year-over-year change in gross margin in thethird quarter of 2003.

 

Buying and occupancycosts decreased as a percentage of revenues during the third quarter of  2003 compared to the prior year periodprimarily due to the Company’s improved leveraging of fixed expenses offset, inpart, by an increased ratio of buying and occupancy expenses to revenues forthe Company’s less mature stores.

 

*Selling, general and administrative expenses*.  Selling, general and administrative expenses(SG&A) were 25.9 percent of revenues in the third quarter of 2003 and 25.9percent of revenues in the third quarter of 2002.

 

SG&A increased in thethird quarter of 2003 primarily due to 1) increased advertising costs for theSpecialty Retail Stores segment due to increased costs related to the Company’scustomer loyalty programs as well as a decrease in vendor advertisingallowances recorded as a reduction to advertising expenses as a result ofadopting new accounting rules effective beginning in the third quarter of 2003,2) increased catalogue and advertising costs for the Direct Marketing segmentdue to a planned increase in catalogue circulation, 3) higher payroll costsrelated to the Company’s Specialty Retail Stores segment primarily related tothe Company’s newer stores, and 4) higher retirement and other benefitsexpenses.

 

The increases in SG&A were offset by 1)lower costs related to incentive compensation, 2) lower spending indiscretionary SG&A categories as a result of cost containment programs implementedin the third quarter of 2003, 3) higher income associated with the Company’saccounts receivable portfolio, and 4) the elimination of amortization of theCompany’s intangible assets upon implementation of a new accounting principlein the first quarter of 2003.

 

16

----

 

*Segment operating earnings*.  Operating earnings for the Specialty RetailStores segment were $67.3 million in the third quarter of 2003 and $67.3million in the third quarter of 2002. During the third quarter of 2003, increased sales and reduced buying andoccupancy expenses were offset by increased markdowns and a net increase inSG&A expenses, primarily advertising and payroll,  as percentages of revenues.

 

Operating earnings for Direct Marketing were $10.4 million in the thirdquarter of 2003 and $10.3 million in the third quarter of 2002.  During the third quarter of 2003, increasedsales were offset by increased markdowns and increased catalogue production andcirculation costs due to a planned increase in catalogue circulation in thethird quarter of 2003.

 

*Interest expense, net*.  Net interest expense increased to $4.2million for the third quarter of 2003 from $3.9 million in the third quarter of2002.  The increase in net interest expensefor the third quarter of 2003 reflects a decrease in capitalized interestcharges associated with store construction and reduced investment interestincome.

 

*Income taxes.*  The Company’s effective income tax rate was 38.5 percent for thethird quarter of 2003 and 38.0 percent for the third quarter of 2002.

 

17

----

 

**THIRTY-NINE WEEKS ENDED MAY 3, 2003 COMPARED TO THIRTY-NINEWEEKS ENDED****APRIL 27, 2002**

 

*Revenues. *Revenuesfor year-to-date 2003 of $2.40 billion increased $113.5 million, or 4.9percent, from $2.28 billion in the prior year period.  The increase in revenues was attributable to both an increase incomparable revenues and revenues generated by new stores.

 

Comparable revenues inyear-to-date 2003 increased 2.3 percent compared to the prior year period.  Comparable revenues increased 0.4 percentfor Specialty Retail Stores and 11.6 percent for Direct Marketing.  The increase in comparable revenues forDirect Marketing was attributable to increased sales in both the Company’scatalogue and online businesses. Comparable revenues in year-to-date 2002 declined by 5.2 percent fromthe prior year period.  Sales inSeptember and October 2001 were significantly impacted by a decrease inconsumer spending subsequent to the September 11, 2001 terrorist attacks in theUnited States.

 

Comparable revenues forthe Brand Development Companies increased in year-to-date 2003, with theincrease for Gurwitch Bristow Products, LLC being offset, in part, by adecrease for Kate Spade LLC.

 

In the first quarter of2003, the Company opened two new Neiman Marcus stores in Coral Gables, Florida(September 2002) and Orlando, Florida (October 2002).  In the second quarter of 2003, the Company opened a new clearancestore in the Denver, Colorado area (November 2002) and completed a 60,000square foot expansion and remodel of the Las Vegas Neiman Marcus store.

 

*Gross margin.*  Gross margin was 34.4 percent of revenues in year-to-date 2003compared to 33.3 percent in the prior year period.  The increase in gross margin was primarily due to a decrease inmarkdowns and, to a lesser extent, a decrease in buying and occupancy costs aspercentages of revenues.

 

Markdowns decreased as apercentage of revenues compared to the prior year period.  The Company incurred a lower level ofmarkdowns in the first and second quarters of 2003 compared to the prior yearperiods as higher markdowns were required in the first and second quarters of2002 in connection with additional and more aggressive promotional eventsnecessary to clear inventories in response to declines in retail sales in2002.  However, markdowns increased as apercentage of revenues for the third quarter of 2003 compared to the prior yearperiod.  The higher markdowns werenecessary in the third quarter of 2003 to reduce a build-up of inventories incertain merchandise categories that occurred during the quarter as a result oflower than anticipated sales.  TheCompany believes that sales in the third quarter of 2003, particularly theearlier weeks, were negatively impacted by economic uncertainties due, in part,to the conflict in Iraq as well as adverse weather conditions in a number ofmarkets in which the Company operates.

 

Consistent with industrybusiness practice, the Company receives reimbursements from certain vendors formarkdowns related to the vendor’s merchandise and/or to support the grossmargins earned by the Company in connection with the sale of the vendor’smerchandise.  These reimbursements areincluded as a reduction to cost of goods sold, including buying and occupancycosts, in the period in which the markdowns are incurred or when the Companyotherwise earns such reimbursements.  Asubstantial portion of these vendor reimbursements are received at the end ofthe Company’s second and fourth quarters. The amounts of vendor reimbursements received by the Company did nothave a significant impact on the year-over-year change in gross margin inyear-to-date 2003.

 

Buying and occupancy costs decreased as a percentage of revenues inyear-to-date 2003 compared to the prior year period primarily due to theCompany’s improved leveraging of fixed expenses offset, in part, by anincreased ratio of buying and occupancy expenses to revenues for the Company’sless mature stores.

 

*Selling, general and administrative expenses*.  SG&A expenses were 25.8 percent ofrevenues in year-to-date 2003 compared to 26.2 percent of revenues in the prioryear period.

 

SG&A decreased as apercentage of revenues in year-to-date 2003 primarily due to 1) lower catalogueproduction and circulation costs for the Direct Marketing segment due to aplanned reduction in catalogue circulation in the first and second quarters of2003,  2) the elimination of amortizationof the Company’s intangible assets upon implementation of a new accountingprinciple in the first quarter of 2003, 3) lower costs related to incentivecompensation, and  4) lower spending indiscretionary SG&A expense categories as a result of cost containmentprograms implemented in the third quarter of 2003.

 

18

----

 

The decreases in SG&Awere offset, in part, by 1) higher retirement and other benefits expenses, 2)increased advertising costs for the Specialty Retail Stores segment due toincreased costs related to the Company’s customer loyalty programs as well as adecrease in vendor advertising allowances recorded as a reduction toadvertising expenses as a result to the adoption of new accounting ruleseffective beginning in the third quarter of 2003, 3) higher payroll costsrelated to the Company’s Specialty Retail Stores segment, primarily related tothe Company’s newer stores, and 4) increased pre-opening costs incurred inconnection with the opening of two Neiman Marcus stores in the first quarter of2003, the opening of a new clearance store in the second quarter of 2003, andthe completion of the remodel of the Las Vegas Neiman Marcus store in thesecond quarter of 2003.

 

*Segment operating earnings.*  Operating earnings for the Specialty RetailStores segment were $182.9 million for year-to-date 2003 compared to $156.5million for the prior year period.  Thisincrease was primarily the result of increased sales, reduced markdowns in thefirst and second quarter of 2003 compared to the prior year offset, in part, byincreased SG&A expenses, primarily advertising, payroll and pre-openingexpenses, as percentages of revenues.

 

Operating earnings forDirect Marketing increased to $35.8 million for year-to-date 2003 from $16.3million for the prior year period, primarily as a result of increased sales andlower catalogue production and circulation costs due to the planned reductionin catalogue circulation in the first and second quarters of 2003.

 

*Interest expense, net*.  Net interest expense was $12.2 million foryear-to-date 2003 and $12.2 million for the prior year period.  Net interest expense increased primarily dueto a decrease in capitalized interest charges associated with storeconstruction and reduced investment interest income offset, in part, by reducedinterest costs associated with lower borrowings on the Company’s revolvingcredit facility.  Seasonal borrowingsunder the Company’s revolving credit facility reached $80 million in the thirdquarter of 2003 compared to $130 million in the prior year.

 

*Income taxes.*  The Company’s effective income tax rate was 38.5 percent inyear-to-date 2003 and 38.0 percent in the prior year period.

 

*Change in accounting principle – writedown of intangibleassets, net of taxes. *TheCompany adopted the provisions of SFAS No. 142, “Goodwill and Other IntangibleAssets” as of the beginning of the first quarter of fiscal year 2003.  SFAS No. 142 established a new fairvalue-based accounting model for the valuation of goodwill and indefinite-livedintangible assets recorded in connection with business combinations.  Pursuant to the provisions of SFAS No. 142,goodwill and indefinite-lived intangible assets are measured for impairment byapplying a fair value-based test at least annually and are not amortized.  Based upon its review procedures and thevaluation results of its independent third party appraisal experts, the Companyrecorded a $24.1 million writedown in the carrying value of theindefinite-lived intangible assets of its Direct Marketing segment.  The writedown ($14.8 million, net of taxes)is reflected as a change in accounting principle in the accompanying CondensedConsolidated Statements of Earnings.

 

19

----

 

**QUARTERLY DATA AND SEASONALITY**

 

The specialty retailindustry is seasonal in nature and a disproportionately higher level of theCompany’s revenues and earnings are generated in the fall and holiday sellingseasons.  The Company’s working capitalrequirements and inventories increase substantially in the first quarter ofeach fiscal year in anticipation of the holiday selling season.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company’s cashrequirements consist principally of the funding of its merchandise purchases;capital expenditures for new store growth, store renovations and upgrades ofits management information systems; and debt service requirements andobligations related to its defined benefit pension plan.  The Company’s working capital requirementsfluctuate during the year, increasing substantially during the fall season as aresult of higher planned seasonal inventory levels.

 

For year-to-date 2003,cash provided by operating activities was $117.9 million compared to cashprovided by operating activities of $212.9 million for the prior year period.  Despite an increase in net earnings (beforethe non-cash impact of the accounting change in the first quarter of 2003),cash provided by operating activities decreased in year-to-date 2003 byapproximately $95.0 million compared to the prior year period.  This decrease was primarily the result of ahigher net investment in inventory (inventory less accounts payables) andincreased funding of the Company’s noncontributory defined benefit pension plancompared to the prior year period.  Asignificant portion of the higher net investment in inventories in the currentyear relates to the two new Neiman Marcus stores and one new clearance storesopened since the beginning of 2003.

 

As of May 3, 2003, theCompany had cash and cash equivalents of $133.7 million and no outstandingborrowings under the Company’s $300 million unsecured revolving creditfacility.  During the second quarter of2003, the Company repaid the $80 million previously borrowed to fund seasonalworking capital requirements.  At April27, 2002, the Company had cash and cash equivalents of $150.1 million and nooutstanding borrowings under the Company’s $450 million unsecured revolvingcredit facility.  The $450 millionrevolving credit facility was replaced by the $300 million credit facility inAugust 2002.

 

In prior years, theCompany’s Board of Directors authorized various stock repurchase programs andincreases in the number of shares subject to repurchase.  During the second quarter of 2003, theCompany repurchased 524,177 shares at an average purchase price of $28.65.  As of May 3, 2003, approximately 1.4 millionshares remained available for repurchase under the Company’s stock repurchaseprograms.

 

The Company has anoncontributory defined benefit pension plan (Pension Plan) covering substantiallyall full-time employees.  Benefits underthe Pension Plan are based on the employees’ years of service and compensationover defined periods of employment. Pension Plan assets consist primarily of equity and fixed incomesecurities.  When funding is required,the Company’s policy is to contribute amounts that are deductible for federalincome tax purposes.  In the thirdquarter of 2003, the Company made a required contribution of $11.5 million anda voluntary contribution of $13.5 million to the Pension Plan for the plan yearended July 31, 2002.  In addition, theCompany made contributions of $2.9 million in the second quarter of 2003 and$2.9 million in the third quarter of 2003 for the plan year ending July 31,2003.  Based upon currently availableinformation, the Company believes that it will not be required to make anadditional contribution to the Pension Plan for the plan year ending July 31,2003.

 

The Company currentlyplans to open one new Neiman Marcus store over the next three fiscal years andhas consistently focused on renovating and modernizing its existing stores toimprove productivity. The Company anticipates capital expenditures for fiscalyear 2003 of approximately $95 million to $105 million.

 

20

----

 

**OUTLOOK**

 

Based on currentestimates, the Company anticipates comparable store revenues to increase in therange of 2.0 percent to 4.0 percent for the fourth quarter of 2003.  In addition, the Company anticipates thedecline in gross margin in the fourth quarter of 2003 to approximate thedecline experienced in the third quarter of 2003 primarily as a result of anexpected year over year increase in inventory markdowns.  The accuracy of these assumptions and of theresulting forecasts is subject to uncertainties and circumstances beyond theCompany’s control.  Consequently, actualresults could differ materially from the forecasted results.  See “Factors That May Affect Future Results”for a discussion of items and events that could cause actual results to varyfrom the Company’s expectations.

 

Management believes thatoperating cash flows, currently available vendor financing and amountsavailable pursuant to its $300 million revolving credit facility and its creditcard securitization program should be sufficient to fund the Company’soperations, debt service, pension funding requirements and currentlyanticipated capital expenditure requirements through the end of 2003.

 

**IMPACT OF INFLATION**

 

The Company believeschanges in revenues and net earnings that have resulted from inflation andchanging prices have not been material during the periods presented.  The Company adjusts selling prices tomaintain certain profit levels and will continue to do so in the future aseconomic conditions permit.  There is noassurance, however, that inflation will not materially affect the Company inthe future.

 

21

----

 

**ITEM 3****.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

The market risk inherentin the Company’s financial instruments represents the potential loss arisingfrom adverse changes in interest rates and foreign currency exchangerates.  The Company does not enter intoderivative financial instruments for trading purposes.  The Company seeks to manage exposure toadverse interest rate changes through its normal operating and financingactivities.

 

Future borrowings underthe Company’s revolving credit facility, to the extent of outstandingborrowings, would be affected by interest rate changes.  As of May 3, 2003, the Company had noborrowings outstanding under this facility.

 

The Company’s outstandinglong-term debt as of May 3, 2003 is at fixed interest rates and would not beaffected by interest rate changes.

 

Pursuant to a revolvingcredit card securitization program that begins to expire in September 2005, theCompany sold substantially all of its credit card receivables through asubsidiary in exchange for certificates representing undivided interests insuch receivables.  The Class ACertificates, which have an aggregate principal value of $225 million, weresold to investors. The holders of the Class A Certificates are entitled tomonthly interest distributions from the Trust at the contractually-defined rateof one month LIBOR plus 0.27 percent annually. The distributions to the Class A Certificate holders are payable fromthe finance charge income generated by the credit card receivables held by theTrust.  At May 3, 2003, the Companyestimates a 100 basis point increase in LIBOR would result in an approximateannual decrease of $2.25 million in income to the Company from its RetainedInterests in the credit card portfolio held by the Trust.

 

The Company usesderivative financial instruments to manage foreign currency risk related to theprocurement of merchandise inventories from foreign sources.  The Company enters into foreign currencycontracts denominated in the euro and British pound. The Company had foreigncurrency contracts in the form of forward exchange contracts in the amount ofapproximately $30.2 million as of May 3, 2003. The market risk inherent in these instruments was not material to theCompany’s consolidated financial position, results of operations, or cash flowsfor the third quarter 2003 and year-to-date 2003.

 

Based on a review of theCompany’s financial instruments outstanding at May 3, 2003 that are sensitiveto market risks, the Company has determined that there was no material marketrisk exposure to the Company’s consolidated financial position, results ofoperations, or cash flows as of such date.

 

22

----

 

**ITEM 4****.  CONTROLS AND PROCEDURES**

 

(a)             Evaluation ofDisclosure Controls and Procedures

 

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in its reports filed under the Securities Exchange Actof 1934 (Exchange Act) is recorded, processed, summarized and reported withinrequired time periods. The Company’s Chief Executive Officer and ChiefFinancial Officer, as well as other key members of the Company’s management,evaluated the effectiveness of the disclosure controls and procedures (as suchterm is defined in Rules 13a-14(c) and 15d-14(c) of the Exchange Act) of theCompany as of a date within 90 days before the filing of this quarterly report(the Evaluation Date).  Based on thatevaluation, such officers have concluded that, as of the Evaluation Date, suchcontrols and procedures are effective to ensure that required information willbe disclosed on a timely basis in the Company’s reports filed under theExchange Act.

 

(b)            Changes in InternalControls

 

There have been nosignificant changes to the Company’s internal controls or in other factors thatcould significantly affect the disclosure controls and procedures since theEvaluation Date.

 

23

----

 

**THE NEIMAN MARCUS GROUP, INC.**

 

PARTII

 

Item1.             LegalProceedings

 

Note 9 of the Notes toCondensed Consolidated Financial Statements in Part I, Item 1 is incorporatedherein by reference as if fully restated herein.  Note 9 contains forward-looking statements that are subject tothe risks and uncertainties discussed in “Management’s Discussion and Analysisof Financial Condition and Results of Operations – Factors That May AffectFuture Results.”

 

Item6.             Exhibitsand Reports on Form 8-K

 

(a)                                  Exhibits.

 

None.

 

(b)                                 Reportson Form 8-K

 

On April 10, 2003, theCompany filed a Current Report on Form 8-K under Item 9 to disclose underRegulation FD a press release dated April 10, 2003 announcing revenue resultsfor the five weeks ended April 5, 2003.

 

On May 8, 2003, theCompany filed a Current Report on Form 8-K under Item 9 to disclose underRegulation FD the Company’s press release dated May 8, 2003 announcing revenueresults for the four weeks ended May 3, 2003.

 

24

----

 

SIGNATURES

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, as amended, the registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.

 

 

THE NEIMAN MARCUSGROUP, INC.

 
| **Signature**          |   | **Title**                       |                           | **Date** |         |
|------------------------|--------|---------------------------------|--------------------------------|----------|--------------|
|                   |   |                            |                           |     |         |
| /s/  T. Dale Stapleton |   |                            | Vice President  and Controller |     | June 9, 2003 |   |
| T.  Dale Stapleton     |   | (principal  accounting officer) |                           |     |         |
|                        |        |                                 |                                |          |              |  |

 

25

----

 

CERTIFICATIONREQUIRED BY SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002

 

I,Burton M. Tansky, certify that:

 

1.                                       I have reviewed this Quarterly Report on Form10-Q of The Neiman Marcus Group, Inc.;

 

2.                                       Based on my knowledge, this Quarterly Reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this Quarterly Report;

 

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this Quarterly Report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this Quarterly Report;

 

4.                                       The registrant’s other certifying officer andI are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

(a)          designed such disclosure controls and procedures to ensure that materialinformation relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this Quarterly Report is being prepared;

 

(b)         evaluated the effectiveness of the registrant’s disclosure controls andprocedures as of a date within 90 days prior to the filing date of thisQuarterly Report (the “Evaluation Date”); and

 

(c)          presented in this Quarterly Report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5.                                       The registrant’s other certifying officer andI have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent function):

 

(a)           all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

(b)          any fraud, whether or not material, that involves management or otheremployees who have a significant role in the registrant’s internal controls;and;

 

6.                                       The registrant’s other certifying officer andI have indicated in this Quarterly Report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

 
| /s/ Burton M. Tansky                  |   | June 9, 2003 |
|---------------------------------------|--------|--------------|
| Burton M. Tansky                      |   |
| President and Chief Executive Officer |   |

 

26

----

 

CERTIFICATIONREQUIRED BY SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002

 

I,James E. Skinner, certify that:

 

1.                                       I have reviewed this Quarterly Report on Form10-Q of The Neiman Marcus Group, Inc.;

 

2.                                       Based on my knowledge, this Quarterly Reportdoes not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this Quarterly Report;

 

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this Quarterly Report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this Quarterly Report;

 

4.                                       The registrant’s other certifying officer andI are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

(a)          designed such disclosure controls and procedures to ensure that materialinformation relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this Quarterly Report is being prepared;

 

(b)         evaluated the effectiveness of the registrant’s disclosure controls andprocedures as of a date within 90 days prior to the filing date of thisQuarterly Report (the “Evaluation Date”); and

 

(c)          presented in this Quarterly Report our conclusions about the effectivenessof the disclosure controls and procedures based on our evaluation as of theEvaluation Date;

 

5.                                       The registrant’s other certifying officer andI have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent function):

 

(a)           all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

(b)          any fraud, whether or not material, that involves management or otheremployees who have a significant role in the registrant’s internal controls;and;

 

6.                                       The registrant’s other certifying officer andI have indicated in this Quarterly Report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

 
| /s/ James E. Skinner                              |   | June 9, 2003 |
|---------------------------------------------------|--------|--------------|
| James E. Skinner                                  |   |
| Senior Vice President and Chief Financial Officer |   |

 

27

----