**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

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

 

### **For the Quarterly PeriodEnded October 30, 2004**

### ** **

**OR**

 

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

 

**Commissionfile no. 1-9659**

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

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

YES ý          NOo

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).

 

YES ý          NOo

 

As of December 1, 2004,the number of outstanding shares of each of the issuer’s classes of commonstock was:

 
| **Class**                             | ** ** | **Outstanding  Shares** |
|---------------------------------------|------------|-------------------------|
| Class A Common  Stock, $.01 Par Value |       | 29,372,487              |
| Class B Common  Stock, $.01 Par Value |       | 19,422,379              |

 

 

----

 

**THENEIMAN MARCUS GROUP, INC.**

 

**INDEX**

 
| Part I.    | Financial Information                                                                                                 |
|------------|-----------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                  |
| Item 1.    | Condensed  Consolidated Balance Sheets as of October 30, 2004,

July 31, 2004 and  November 1, 2003                   |
|       |                                                                                                                  |
|       | Condensed  Consolidated Statements of Earnings for the Thirteen

Weeks  Ended October 30, 2004 and November 1, 2003   |
|       |                                                                                                                  |
|       | Condensed  Consolidated Statements of Cash Flows for the Thirteen

Weeks  Ended October 30, 2004 and November 1, 2003 |
|       |                                                                                                                  |
|       | Notes  to Condensed Consolidated Financial Statements                                                                 |
|       |                                                                                                                  |
| Item  2.   | Management’s  Discussion and Analysis of Financial Condition

and  Results of Operations                         |
|       |                                                                                                                  |
| Item  3.   | Quantitative  and Qualitative Disclosures About Market Risk                                                           |
|       |                                                                                                                  |
| Item  4.   | Controls  and Procedures                                                                                              |
|       |                                                                                                                  |
| Part II.   | Other  Information                                                                                                    |
|       |                                                                                                                  |
| Item 1.    | Legal Proceedings                                                                                                     |
|       |                                                                                                                  |
| Item  2.   | Unregistered  Sales of Equity and Use of Proceeds                                                                     |
|       |                                                                                                                  |
| Item 6.    | Exhibits                                                                                                              |
|       |                                                                                                                  |
| Signatures |                                                                                                                  |

 

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**THE NEIMAN MARCUS GROUP, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

 
| **(in thousands)**                                                           | ** ** | **October 30,  2004** | ** ** | **July 31,  2004** | ** ** | **November 1,  2003** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|-----------------------|------------|
|                                                                         |       |                  |       |               |       |                  |       |
| **ASSETS**                                                                   |       |                  |       |               |       |                  |       |
| Current assets:                                                              |       |                  |       |               |       |                  |       |
| Cash and cash  equivalents                                                   |       | $                     | 258,367    |               | $          | 368,367               |       | $ | 127,524 |   |
| Undivided  interests in NMG Credit Card Master Trust                         |       | —                |       | —             |       | 314,138               |       |
| Accounts  receivable, net of allowance of $11,132, $10,078 and $432          |       | 641,236               |       | 551,687            |       | 33,075                |       |
| Merchandise  inventories                                                     |       | 881,266               |       | 720,277            |       | 830,319               |       |
| Other current  assets                                                        |       | 72,429                |       | 65,835             |       | 73,345                |       |
| Total current  assets                                                        |       | 1,853,298             |       | 1,706,166          |       | 1,378,401             |       |
|                                                                         |       |                  |       |               |       |                  |       |
| Property and  equipment, net                                                 |       | 706,078               |       | 693,772            |       | 674,970               |       |
| Other assets                                                                 |       | 128,112               |       | 145,812            |       | 112,655               |       |
| Total assets                                                                 |       | $                     | 2,687,488  |               | $          | 2,545,750             |       | $ | 2,166,026 |   |
|                                                                         |       |                  |       |               |       |                  |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                               |       |                  |       |               |       |                  |       |
| Current  liabilities:                                                        |       |                  |       |               |       |                  |       |
| Accounts payable                                                             |       | $                     | 293,344    |               | $          | 289,282               |       | $ | 266,889 |   |
| Accrued  liabilities                                                         |       | 347,232               |       | 286,833            |       | 323,188               |       |
| Notes payable  and current maturities of long-term liabilities               |       | 4,200                 |       | 1,563              |       | 2,252                 |       |
| Current portion  of borrowings under Credit Card Facility                    |       | 225,000               |       | 150,000            |       | —                |       |
| Total current  liabilities                                                   |       | 869,776               |       | 727,678            |       | 592,329               |       |
|                                                                         |       |                  |       |               |       |                  |       |
| Long-term  liabilities:                                                      |       |                  |       |               |       |                  |       |
| Notes and  debentures                                                        |       | 249,762               |       | 249,757            |       | 249,739               |       |
| Borrowings under  Credit Card Facility                                       |       | —                |       | 75,000             |       | —                |       |
| Other long-term  liabilities                                                 |       | 115,469               |       | 112,455            |       | 114,463               |       |
| Total long-term  liabilities                                                 |       | 365,231               |       | 437,212            |       | 364,202               |       |
|                                                                         |       |                  |       |               |       |                  |       |
| Minority  interest                                                           |       | 11,474                |       | 10,298             |       | 9,700                 |       |
|                                                                         |       |                  |       |               |       |                  |       |
| Common stocks                                                                |       | 496                   |       | 492                |       | 488                   |       |
| Additional  paid-in capital                                                  |       | 505,573               |       | 491,849            |       | 471,328               |       |
| Accumulated  other comprehensive loss                                        |       | (3,068                | )          | (4,536             | )          | (25,642               | )          |
| Retained  earnings                                                           |       | 963,431               |       | 905,330            |       | 775,667               |       |
| Treasury stock, at cost (764,631 shares, 710,227  shares and 699,777 shares) |       | (25,425               | )          | (22,573            | )          | (22,046               | )          |
| Total  shareholders’ equity                                             |       | 1,441,007             |       | 1,370,562          |       | 1,199,795             |       |
| Total  liabilities and shareholders’ equity                             |       | $                     | 2,687,488  |               | $          | 2,545,750             |       | $ | 2,166,026 |   |

 

*See Notes to Condensed Consolidated FinancialStatements.*

 

1

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**THENEIMAN MARCUS GROUP, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS**

**(UNAUDITED)**

 
| ** **                                                                   | ** ** | **Thirteen Weeks Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------|------------|
| **(in thousands, except per share  data)**                                   | ** ** | **October 30,  2004**    | ** ** | **November 1,  2003** | ** ** |
|                                                                         |       |                     |       |   |   |
| Revenues                                                                     |       | $                        | 907,936    |   | $ | 818,769 |   |
| Cost of goods  sold including buying and occupancy costs                     |       | 554,710                  |       | 510,350 |   |
| Selling, general  and administrative expenses                                |       | 227,963                  |       | 211,130 |   |
| Loss on  disposition of Chef’s Catalog                                  |       | 15,348                   |       | — |   |
|                                                                         |       |                     |       |   |   |
| Operating  earnings                                                          |       | 109,915                  |       | 97,289 |   |
|                                                                         |       |                     |       |   |   |
| Interest  expense, net                                                       |       | 4,037                    |       | 3,462 |   |
|                                                                         |       |                     |       |   |   |
| Earnings before  income taxes and minority interest                          |       | 105,878                  |       | 93,827 |   |
|                                                                         |       |                     |       |   |   |
| Income taxes                                                                 |       | 40,975                   |       | 36,592 |   |
|                                                                         |       |                     |       |   |   |
| Earnings before  minority interest                                           |       | 64,903                   |       | 57,235 |   |
|                                                                         |       |                     |       |   |   |
| Minority  interest in net earnings of subsidiaries                           |       | (787                     | )          | (1,010 | ) |
|                                                                         |       |                     |       |   |   |
| Net earnings                                                                 |       | $                        | 64,116     |   | $ | 56,225 |   |
|                                                                         |       |                     |       |   |   |
| Weighted average  number of common and common equivalent shares outstanding: |       |                     |       |   |   |
| Basic                                                                        |       | 48,226                   |       | 47,624 |   |
| Diluted                                                                      |       | 49,133                   |       | 48,396 |   |
|                                                                         |       |                     |       |   |   |
| Earnings per  share:                                                         |       |                     |       |   |   |
| Basic                                                                        |       | $                        | 1.33       |   | $ | 1.18 |   |
| Diluted                                                                      |       | $                        | 1.30       |   | $ | 1.16 |   |

 

*SeeNotes to Condensed Consolidated Financial Statements.*

 

2

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**THE NEIMAN MARCUS GROUP, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| **(in thousands)**                                                                               | ** **            | **Thirteen Weeks Ended** | ** **            |
|--------------------------------------------------------------------------------------------------|-----------------------|--------------------------|-----------------------|
| ** **                                                                                       | **October 30,  2004** | ** **               | **November 1,  2003** | ** ** |
|                                                                                             |                  |                     |                  |   |   |
| **CASH  FLOWS - OPERATING ACTIVITIES**                                                           |                  |                     |                  |   |   |
| Net earnings                                                                                     |                  | $                        | 64,116                |   | $ | 56,225 |   |
| Adjustments to  reconcile net earnings to net cash provided by (used for) operating  activities: |                  |                     |                  |   |   |
| Depreciation                                                                                     |                  | 23,075                   |                  | 21,288 |   |
| Loss on  disposition of Chef’s Catalog                                                      |                  | 15,348                   |                  | — |   |
| Minority  interest                                                                               |                  | 787                      |                  | 1,010 |   |
| Other -  primarily costs related to defined benefit pension and other long-term  benefit plans   |                  | 8,230                    |                  | 8,645 |   |
|                                                                                             |                  | 111,556                  |                  | 87,168 |   |
| Changes in  operating assets and liabilities:                                                    |                  |                     |                  |   |   |
| Increase in  accounts receivable                                                                 |                  | (89,549                  | )                     | (10,480 | ) |
| Increase in  merchandise inventories                                                             |                  | (160,989                 | )                     | (143,257 | ) |
| Increase in  accounts payable and accrued liabilities                                            |                  | 65,401                   |                  | 61,566 |   |
| Other                                                                                            |                  | (1,377                   | )                     | 13,118 |   |
| **Net  cash (used for) provided by operating activities**                                        |                  | (74,958                  | )                     | 8,115 |   |
|                                                                                             |                  |                     |                  |   |   |
| **CASH  FLOWS - INVESTING ACTIVITIES**                                                           |                  |                     |                  |   |   |
| Capital  expenditures                                                                            |                  | (35,381                  | )                     | (22,073 | ) |
| Transactions  related to undivided interests in NMG Credit Card Master Trust:                    |                  |                     |                  |   |   |
| Purchases of  held-to-maturity securities                                                        |                  | —                   |                  | (303,326 | ) |
| Maturities of  held-to-maturity securities                                                       |                  | —                   |                  | 231,753 |   |
| **Net  cash used for investing activities**                                                      |                  | (35,381                  | )                     | (93,646 | ) |
|                                                                                             |                  |                     |                  |   |   |
| **CASH  FLOWS - FINANCING ACTIVITIES**                                                           |                  |                     |                  |   |   |
| Proceeds from  borrowings                                                                        |                  | 2,750                    |                  | 1,000 |   |
| Acquisitions of  treasury stock                                                                  |                  | (2,851                   | )                     | (7,026 | ) |
| Proceeds from  stock-based compensation awards                                                   |                  | 6,864                    |                  | 12,293 |   |
| Cash dividends  paid                                                                             |                  | (6,314                   | )                     | — |   |
| Distribution  paid                                                                               |                  | (110                     | )                     | (162 | ) |
| **Net  cash provided by financing activities**                                                   |                  | 339                      |                  | 6,105 |   |
|                                                                                             |                  |                     |                  |   |   |
| **CASH  AND CASH EQUIVALENTS**                                                                   |                  |                     |                  |   |   |
| Decrease during  the period                                                                      |                  | (110,000                 | )                     | (79,426 | ) |
| Beginning  balance                                                                               |                  | 368,367                  |                  | 206,950 |   |
| Ending balance                                                                                   |                  | $                        | 258,367               |   | $ | 127,524 |   |
|                                                                                             |                  |                     |                  |   |   |
| **SUPPLEMENTAL  SCHEDULE OF CASH FLOW INFORMATION**                                              |                  |                     |                  |   |   |
| Cash paid during  the period for:                                                                |                  |                     |                  |   |   |
| Interest                                                                                         |                  | $                        | 1,170                 |   | $ | 174 |   |
| Income taxes                                                                                     |                  | $                        | 2,311                 |   | $ | 586 |   |

 

*See Notes to CondensedConsolidated Financial Statements.*

 

3

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**THENEIMAN MARCUS GROUP, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**(UNAUDITED)**

 

1.     Basis of Presentation

 

We have prepared the Condensed Consolidated FinancialStatements of The Neiman Marcus Group, Inc. and its subsidiaries in accordancewith generally accepted accounting principles for interim financial informationand the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, these financial statements donot include all of the information and footnotes required by accountingprinciples generally accepted for complete financial statements. Therefore,these financial statements should be read in conjunction with our Annual Reporton Form 10-K for the fiscal year ended July 31, 2004.

 

Our fiscal year ends onthe Saturday closest to July 31.  Allreferences to the first quarter of 2005 relate to the thirteen weeks endedOctober 30, 2004 and all references to the first quarter of 2004 relate to thethirteen weeks ended November 1, 2003. All references to 2005 relate to the fifty-two weeks ending July 30,2005.

 

In our opinion, the accompanying unaudited CondensedConsolidated Financial Statements contain all adjustments, consisting of normalrecurring adjustments, necessary to present fairly our financial position,results of operations and cash flows for the applicable interim periods.  The results of operations for these periodsare not necessarily comparable to, or indicative of, results of any otherinterim period or for the fiscal year as a whole.

 

**We are required to make estimatesand assumptions about future events in preparing financial statements inconformity with generally accepted accounting principles.  These estimates and assumptions affect theamounts of assets, liabilities, revenues and expenses and the disclosure ofgain and loss contingencies at the date of the Condensed Consolidated FinancialStatements.  We evaluate our estimatesand judgments on an ongoing basis and predicate those estimates and judgmentson historical experience and on various other factors that we believe to bereasonable under the circumstances.  Wemake adjustments to our assumptions and judgments when facts and circumstancesdictate.  Since future events and theireffects cannot be determined with absolute certainty, actual results may differfrom the estimates used in preparing the accompanying Condensed ConsolidatedFinancial Statements.**

** **

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

** **

•                              Revenuerecognition;

 

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

 

•                              Recognitionof income and expenses related to our securitization program;

 

•                              Determinationof impairment of long-lived assets;

 

•                              Recognitionof advertising and catalog costs;

 

•                              Measurementof liabilities related to our loyalty programs;

 

•                              Recognition of income taxes; and

 

•                              Measurement of accrualsfor litigation, general liability, workers’ compensation and health insurance,short-term disability, pension and postretirement health care benefits.

 

A description of ourcritical accounting policies is included in our Annual Report on Form 10-K forthe fiscal year ended July 31, 2004.

 

4

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***Stock-Based Compensation***.  We account for stock-based compensationawards to employees in accordance with Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations. Accordingly, we have recognized no compensation expense forstock options since all options granted had an exercise price equal to themarket value of our common stock on the grant date.

 

The following tableillustrates the effect on net earnings and earnings per share as if we hadapplied the fair value recognition provisions of SFAS No. 123 tostock-based employee compensation using the Black-Scholes option-pricing modelfor the first quarter of 2005 and 2004:

 
| **(in thousands, except per share  data)**                                                                       | ** **            | **Thirteen Weeks Ended** | ** **            |
|------------------------------------------------------------------------------------------------------------------|-----------------------|--------------------------|-----------------------|
| ** **                                                                                                       | **October 30,  2004** | ** **               | **November 1,  2003** | ** ** |
|                                                                                                             |                  |                     |                  |   |   |
| Net earnings:                                                                                                    |                  |                     |                  |   |   |
| As reported                                                                                                      |                  | $                        | 64,116                |   | $ | 56,225 |   |
| Less:  stock-based employee compensation expense determined under fair value based  method, net of related taxes |                  | (1,962                   | )                     | (2,042 | ) |
| Pro forma                                                                                                        |                  | $                        | 62,154                |   | $ | 54,183 |   |
|                                                                                                             |                  |                     |                  |   |   |
| Basic earnings  per share:                                                                                       |                  |                     |                  |   |   |
| As reported                                                                                                      |                  | $                        | 1.33                  |   | $ | 1.18 |   |
| Pro forma                                                                                                        |                  | $                        | 1.29                  |   | $ | 1.14 |   |
|                                                                                                             |                  |                     |                  |   |   |
| Diluted earnings  per share:                                                                                     |                  |                     |                  |   |   |
| As reported                                                                                                      |                  | $                        | 1.30                  |   | $ | 1.16 |   |
| Pro forma                                                                                                        |                  | $                        | 1.27                  |   | $ | 1.12 |   |

 

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.  In addition, the Black-Scholesoption-pricing model has inherent limitations in calculating the fair value ofstock options for which no active market exists since the model does notconsider the inability to sell or transfer options, vesting requirements and areduced exercise period upon termination of employment - all of which wouldreduce the fair value of the options.

 

5

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***Reclassification*.**  A substantial portion of the points earned bycustomers in connection with our loyalty programs are redeemed for giftcards.  At the time the qualifying salesgiving rise to the loyalty program points are made, we defer the portion of therevenues on the qualifying sales transactions equal to our estimate of theretail value of the gift cards to be issued upon conversion of the points togift cards.  Beginning in the firstquarter of 2005, we began to record the deferral of revenues related to giftcards awards under our loyalty programs as a reduction of revenues. Previously,we charged such amounts to selling, general and administrative expenses(SG&A).  In addition, we now chargethe cost of all other awards under our loyalty programs to cost of goods sold(COGS) rather than SG&A.  Thesechanges in classification do not impact the previously reported operatingearnings, net income or earnings per share amounts.

 

The following tablepresents quarterly and annual information giving recognition to the changes inclassification related to our loyalty programs:

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

 

**2.**               Loss on Disposition of Chef’s Catalog

** **

In November 2004, we soldour Chef’s Catalog direct marketing business to a private equity firm.  Chef’s Catalog is a multi-channel retailer ofprofessional-quality kitchenware with revenues in 2004 of approximately $73million.  At October 30, 2004, Chef’sCatalog had net tangible assets, primarily inventory, of $12.5 million and netintangible assets of $17.2 million.  Wereceived proceeds, net of selling costs, of $14.4 million from the sale.  As the carrying value of the Chef’s Catalogassets exceeded the fair value of such assets as determined by the sale, weincurred a pre-tax loss of $15.3 million in the first quarter of 2005 relatedto the disposition of Chef’s Catalog.

 

3.               OperatingSegments

 

We have identified two reportablesegments: Specialty Retail Stores and Direct Marketing.  The Specialty Retail Stores segment includesall of our Neiman Marcus and Bergdorf Goodman retail stores, including NeimanMarcus clearance stores.  The DirectMarketing segment conducts both print catalog and online operations under theNeiman Marcus, Horchow and Bergdorf Goodman brand names.  Other includes the operations of Kate SpadeLLC and Gurwitch Products, LLC (the Brand Development Companies) and corporateexpenses.

 

6

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The following table sets forth theinformation for our reportable segments:

 
| **(in thousands)**                          | ** ** | **Thirteen Weeks Ended** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|
| **October 30, 2004**                   | ** ** | **November 1,  2003**    | ** ** |
| REVENUES:                                   | ** ** | ** **               | ** ** | ** ** | ** ** |
| Specialty Retail  Stores                    |       | $                        | 736,890    |   | $ | 664,474 |   |
| Direct Marketing                            |       | 139,799                  |       | 128,006 |   |
| Other                                       |       | 31,247                   |       | 26,289 |   |
| Total                                       |       | $                        | 907,936    |   | $ | 818,769 |   |
|                                        |       |                     |       |   |   |
| OPERATING  EARNINGS:                        |       |                     |       |   |   |
| Specialty Retail  Stores                    |       | $                        | 120,189    |   | $ | 91,109 |   |
| Direct Marketing                            |       | 11,358                   |       | 10,624 |   |
| Other                                       |       | (6,284                   | )          | (4,444 | ) |
| Loss on  disposition of Chef’s Catalog |       | (15,348                  | )          | — |   |
| Total                                       |       | $                        | 109,915    |   | $ | 97,289 |   |

 

4.     Stock Repurchase Program

 

In prior years, our Boardof Directors authorized various stock repurchase programs and increases in thenumber of shares subject to repurchase. In the first quarter of 2005, we repurchased 54,404 shares at an averagepurchase price of $52.40.  As of October30, 2004, approximately 1.2 million shares remain available for repurchaseunder our stock repurchase programs.

 

5.     Earnings per Share

 

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

 
| **(in thousands of shares)**                           | ** **            | **Thirteen Weeks Ended** | ** **            |
|--------------------------------------------------------|-----------------------|--------------------------|-----------------------|
| ** **                                             | **October 30,  2004** | ** **               | **November 1,  2003** | ** ** |
|                                                   |                  |                     |                  |   |   |
| Weighted average  shares outstanding                   |                  | 48,730                   |                  | 48,078 |   |
| Less: shares of  non-vested restricted stock           |                  | (504                     | )                     | (454 | ) |
| Shares for  computation of basic EPS                   |                  | 48,226                   |                  | 47,624 |   |
|                                                   |                  |                     |                  |   |   |
| Effect of  dilutive stock options and restricted stock |                  | 907                      |                  | 772 |   |
| Shares for  computation of diluted EPS                 |                  | 49,133                   |                  | 48,396 |   |
|                                                   |                  |                     |                  |   |   |
| Shares  represented by antidilutive stock options      |                  | 569                      |                  | 28 |   |

 

We did not includeantidilutive stock options in the computation of diluted EPS because theexercise price of those options was greater than the average market price ofthe common shares.

 

7

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6.     Undivided Interests in NMG Credit Card Master Trust

 

Pursuant to a revolvingcredit card securitization program (the Credit Card Facility), we transfersubstantially all of our credit card receivables to a wholly-owned subsidiary,Neiman Marcus Funding Corporation, which in turn sells such receivables to theNeiman Marcus Credit Card Master Trust (Trust). At the inception of the Credit Card Facility in September 2000, theTrust issued certificates representing undivided interests in the credit cardreceivables to third-party investors in the face amount of $225 million (SoldInterests).  We hold certificatesrepresenting interests in the credit card portfolio equal to the excess of thebalance of the credit card portfolio over $225 million (RetainedInterests).  In order to maintain thecommitted level of securitized assets, the Trust uses cash collections on thesecuritized receivables to purchase new credit card balances from us inaccordance with the terms of the Credit Card Facility.

 

From the inception of theCredit Card Facility until December 2003, our transfers and sales of creditcard receivables pursuant to the terms of the Credit Card Facility wereaccounted for as sales (Off-Balance Sheet Accounting).  As a result, we removed $225 million ofcredit card receivables from our balance sheet at the inception of the CreditCard Facility and our $225 million repayment obligation to the holders of thecertificates representing the Sold Interests was not required to be shown as aliability on our consolidated balance sheet. During the period the transfers and sales qualified for Off-BalanceSheet Accounting, our Retained Interests were shown as “Undivided interests inNMG Credit Card Master Trust” on our consolidated balance sheets.

 

Beginning in December2003, our transfers to the Trust ceased to qualify for Off-Balance SheetAccounting.  Rather, credit cardreceivables transferred to the Trust after November 2003 remain on our balancesheet and are recorded as secured borrowings (Financing Accounting).  The transition period from Off-Balance SheetAccounting to Financing Accounting (Transition Period) lasted approximatelyfour months (December 2003 to March 2004). During the Transition Period, we allocated cash collections on ourcredit card receivables to the previous Sold Interests and Retained Interestsuntil such time as those balances were reduced to zero and we recorded aliability for our repayment obligation to the holders of the $225 million ofcertificates representing the Sold Interests.

 

A reconciliation of theoutstanding balance of our accounts receivable to the balances recorded atOctober 30, 2004 and November 1, 2003 is as follows:

 
| **(in millions)**                                                            | ** ** | **October 30,  2004** | ** ** | **November 1,  2003** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
|                                                                         |       |                  |       |                  |       |
| Credit card  receivables, net                                                |       | $                     | 602.9      |                  | $          | 539.1 |   |
| Other  receivables                                                           |       | 38.3                  |       | 33.1                  |       |
|                                                                         |       | 641.2                 |       | 572.2                 |       |
| Less: Sold  Interests originally qualifying for Off-Balance Sheet Accounting |       | —                |       | (225.0                | )          |
| Net balance                                                                  |       | $                     | 641.2      |                  | $          | 347.2 |   |
|                                                                         |       |                  |       |                  |       |
| Amounts reflected  in the balance sheet:                                     |       |                  |       |                  |       |
| Undivided  interests in NMG Credit Card Master Trust                         |       | $                     | —     |                  | $          | 314.1 |   |
| Accounts  receivable, net                                                    |       | 641.2                 |       | 33.1                  |       |
|                                                                         |       | $                     | 641.2      |                  | $          | 347.2 |   |
|                                                                         |       |                  |       |                  |       |
| Current portion  of borrowings under Credit Card Facility                    |       | $                     | 225.0      |                  | $          | — |   |

 

After the TransitionPeriod, our entire credit card portfolio is included in accounts receivable inour consolidated balance sheet and the $225 million repayment obligation isshown as a liability.

 

8

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7.     Employee Benefit Plans

 

***Descriptionof Benefit Plans.*** We sponsor a defined benefit pension plan (Pension Plan) coveringsubstantially all full-time employees. We also sponsor an unfunded supplemental executive retirement plan (SERPPlan) that provides additional pension benefits to certain employees.  Benefits under both plans are based on theemployees’ years of service and compensation over defined periods ofemployment.  Pension Plan assets consistprimarily of equity and fixed income securities.

 

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

 

***Costsof Benefits. ***Thecomponents of the expenses incurred under our Pension Plan, SERP Plan and PostretirementPlan are as follows:

** **
| **(in thousands)**                                  | ** ** | **Thirteen Weeks Ended** | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|
| **October 30,  2004**                               | ** ** | **November 1,  2003**    | ** ** |
|                                                |       |                     |       |   |   |
| Pension Plan:                                       |       |                     |       |   |   |
| Service cost                                        |       | $                        | 3,196      |   | $ | 3,168 |   |
| Interest cost                                       |       | 4,636                    |       | 4,823 |   |
| Expected return  on plan assets                     |       | (4,712                   | )          | (4,835 | ) |
| Net amortization  of losses and prior service costs |       | 1,208                    |       | 933 |   |
| Pension Plan  expense                               |       | $                        | 4,328      |   | $ | 4,089 |   |
|                                                |       |                     |       |   |   |
| SERP Plan:                                          |       |                     |       |   |   |
| Service cost                                        |       | $                        | 361        |   | $ | 340 |   |
| Interest cost                                       |       | 1,014                    |       | 974 |   |
| Net amortization of losses and prior service costs  |       | 384                      |       | 366 |   |
| SERP Plan expense                                   |       | $                        | 1,759      |   | $ | 1,680 |   |
|                                                |       |                     |       |   |   |
| Postretirement Plan:                                |       |                     |       |   |   |
| Service cost                                        |       | $                        | 15         |   | $ | 20 |   |
| Interest cost                                       |       | 318                      |       | 384 |   |
| Net amortization of losses                          |       | 26                       |       | 110 |   |
| Postretirement expense                              |       | $                        | 359        |   | $ | 514 |   |

 

***FundingPolicy and Plan Assets.*** Our policy is to fund the Pension Plan at or above the minimum requiredby law.  In 2004, we made voluntarycontributions of $30.0 million in the second quarter and $15.0 million in thefourth quarter for the plan year ended July 31, 2003.  Based upon currently available information,we will not be required to make contributions to the Pension Plan for eitherthe 2004 or 2005 plan years.

 

**8.     Commitments and Contingencies**

** **

**We are involved in various suits and claims in the ordinarycourse of business.  We do not believethat the disposition of any such suits or claims will have a material adverseeffect upon our consolidated results of operations, cash flows or financial position.**

** **

**9**

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** **

**ITEM2.**          MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

**EXECUTIVEOVERVIEW**

 

**Company Profile**

** **

The Neiman Marcus Group,Inc., together with its operating divisions and subsidiaries, is a high-endspecialty retailer.  Our operationsinclude the Specialty Retail Stores segment and the Direct Marketingsegment.  Our Specialty Retail Storessegment consists primarily of Neiman Marcus and Bergdorf Goodman stores.  Our Direct Marketing segment conducts bothprint catalog and online operations under the brand names of Neiman Marcus,Horchow and Bergdorf Goodman (beginning in September 2004).  We recently sold our Chef’s Catalogoperations, as more fully described in Note 2 to the Condensed ConsolidatedFinancial Statements.

 

We own a 51 percentinterest in Gurwitch Products, LLC, which distributes and markets the LauraMercier cosmetic line, and a 56 percent interest in Kate Spade LLC, amanufacturer and retailer of high-end designer handbags and accessories.  Gurwitch Products, LLC and Kate Spade LLC arehereafter referred to collectively as the “Brand Development Companies.”

 

Our fiscal year ends onthe Saturday closest to July 31.  Allreferences to the first quarter of 2005 relate to the thirteen weeks endedOctober 30, 2004 and all references to the first quarter of 2004 relate to thethirteen weeks ended November 1, 2003. All references to 2005 relate to the fifty-two weeks ending July 30,2005.

 

The information containedin this “Management’s Discussion and Analysis of Financial Condition andResults of Operations” (MD&A) should be read in conjunction with our AnnualReport on Form 10-K for the fiscal year ended July 31, 2004.  Unless otherwise specified, the meanings ofall defined terms in MD&A are consistent with the meanings of such terms asdefined in the Notes to the Condensed Consolidated Financial Statements.

 

**Overview of the Business**

 

We believe that ourunique product assortment of luxury, designer and fashion merchandise, coupledwith our sales promotion activities and our commitment to superior customerservice, have been critical to our success in the past.  In addition, we believe these factors arecritical to our future growth and success.

 

We conduct our sellingactivities in two primary selling seasons, Fall and Spring.  Sales and margins increase and decreaseduring each selling season due to the results of in-store marketing towards thebeginning of each season, sales on a marked down basis towards the end of eachseason and the effects of the December holiday season.  As a result of the seasonality of our sellingactivities, inventory management is critical to our success.

 

Inherent in thesuccessful execution of our business plans, particularly our inventorymanagement strategy, is our ability both to predict the fashion trends thatwill be of interest to our customers and to anticipate future spending patternsof our customer base.  Accordingly, wemonitor the sales performance of our inventories throughout each season.  We seek to order additional goods tosupplement our original purchasing decisions when the level of customer demandis higher than originally anticipated.  However,in certain merchandise categories, particularly fashion apparel, our ability topurchase additional goods can be limited. This can result in lost sales in the event of higher than anticipateddemand for the fashion goods offered or a higher than anticipated level ofconsumer spending.  Conversely, in theevent we buy fashion goods that are not accepted by our customer or the levelof consumer spending is less than we anticipated, we typically incur a higherthan anticipated level of markdowns, net of vendor allowances, to sell thegoods that remain at the end of the season, resulting in lower operatingprofits.  We believe that the experienceof our merchandising and selling organizations help to minimize the inherentrisk in predicting fashion trends and related demand.

 

10

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**First Quarter Fiscal Year 2005Highlights**

 

Diluted earnings pershare for the first quarter of 2005 increased 12.1 percent to $1.30 from $1.16in the prior year period.  Othersignificant highlights for the first quarter of 2005 include:

 

•                  **Revenues** – Our revenues for the first quarter of 2005 were$907.9 million compared to $818.8 million in the prior year period.  Total revenues increased 10.9 percent in thefirst quarter of 2005 while comparable revenues increased 11.4 percent.  We have experienced double digit percentageincreases in comparable store sales in the last five consecutive quarters.

 

•                  **Margins** – Margins increased to 38.9 percent of revenues inthe first quarter of 2005 from 37.7 percent in the first quarter of 2004.  This increase is reflective of the high levelof acceptance and demand for the fashion goods we offer as well as ourpurchasing efforts that resulted in the close alignment of purchases tocustomer demand.  These factors resultedin a lower level of markdowns in the current quarter.

 

•                  **Selling, general and administrative expenses** – Selling,general and administrative (SG&A) expenses decreased to 25.1 percent ofrevenues from 25.8 percent in the first quarter 2004.  This decrease was attributable to both theleveraging of fixed expenses over the higher revenue base and the control andcontainment of variable expenses.

 

•                  **Loss on disposition of Chef’s Catalog**– In the first quarterof 2005, we incurred a pre-tax loss of $15.3 million related to the sale of our Chef’s Catalog direct marketingbusiness.

 

•                  **Operating earnings**– Operating earnings increased 13.0percent in the first quarter of 2005, representing 12.1 percent of our revenuescompared to 11.9 percent in first quarter of 2004.  Excluding the loss on disposition of Chef’sCatalog, operating earnings were 13.8 percent of our revenues for the firstquarter of 2005.  Operating earnings were16.3 percent of revenues for our Specialty Retail Stores and 8.1 percent ofrevenues for Direct Marketing.

 

**OPERATINGRESULTS**

 

**Performance Summary**

 

Thefollowing table sets forth certain items expressed as percentages of net salesfor the periods indicated.

 
| ** **                                                                          | ** ** | **Thirteen Weeks Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                          | ** ** | **October 30,  2004**    | ** ** | **November 1,  2003** | ** ** |
|                                                                                |       |                     |       |   |   |
| Revenues                                                                            |       | 100.0                    | %          | 100.0 | % |
| Cost of goods  sold including buying and occupancy costs                            |       | 61.1                     |       | 62.3 |   |
| Selling, general  and administrative expenses                                       |       | 25.1                     |       | 25.8 |   |
| Loss on  disposition of Chef’s Catalog                                         |       | 1.7                      |       | — |   |
| Operating  earnings                                                                 |       | 12.1                     |       | 11.9 |   |
| Interest  expense, net                                                              |       | 0.4                      |       | 0.4 |   |
| Earnings before  income taxes, minority interest and change in accounting principle |       | 11.7                     |       | 11.5 |   |
| Income taxes                                                                        |       | 4.5                      |       | 4.5 |   |
| Earnings before  minority interest                                                  |       | 7.2                      |       | 7.0 |   |
| Minority  interest in net earnings of subsidiaries                                  |       | (0.1                     | )          | (0.1 | ) |
| Net earnings                                                                        |       | 7.1                      | %          | 6.9 | % |

 

11

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Set forth in thefollowing table is certain summary information with respect to our operationsfor the periods indicated.

 
| **(dollars in millions)**                   | ** **            | **Thirteen Weeks Ended** | ** **            |
|---------------------------------------------|-----------------------|--------------------------|-----------------------|
| ** **                                  | **October 30,  2004** | ** **               | **November 1,  2003** | ** ** |
|                                        |                  |                     |                  |   |   |
| REVENUES                                    |                  |                     |                  |   |   |
| Specialty Retail  Stores                    |                  | $                        | 736.9                 |   | $ | 664.5 |   |
| Direct Marketing                            |                  | 139.8                    |                  | 128.0 |   |
| Other (1)                                   |                  | 31.2                     |                  | 26.3 |   |
| Total                                       |                  | $                        | 907.9                 |   | $ | 818.8 |   |
|                                        |                  |                     |                  |   |   |
| OPERATING  EARNINGS                         |                  |                     |                  |   |   |
| Specialty Retail  Stores                    |                  | $                        | 120.2                 |   | $ | 91.1 |   |
| Direct Marketing                            |                  | 11.3                     |                  | 10.6 |   |
| Other (1)                                   |                  | (6.3                     | )                     | (4.4 | ) |
| Loss on  disposition of Chef’s Catalog |                  | (15.3                    | )                     | — |   |
| Total                                       |                  | $                        | 109.9                 |   | $ | 97.3 |   |
|                                        |                  |                     |                  |   |   |
| OPERATING PROFIT  MARGIN                    |                  |                     |                  |   |   |
| Specialty Retail  Stores                    |                  | 16.3                     | %                     | 13.7 | % |
| Direct Marketing                            |                  | 8.1                      | %                     | 8.3 | % |
| Total                                       |                  | 12.1                     | %                     | 11.9 | % |
|                                        |                  |                     |                  |   |   |
| COMPARABLE REVENUES  (2)                    |                  |                     |                  |   |   |
| Specialty Retail  Stores (3)                |                  | 11.1                     | %                     | 9.6 | % |
| Direct Marketing  (4)                       |                  | 13.1                     | %                     | 13.2 | % |
| Total (3), (4)                              |                  | 11.4                     | %                     | 10.9 | % |
|                                        |                  |                     |                  |   |   |
| STORE COUNT                                 |                  |                     |                  |   |   |
|                                        |                  |                     |                  |   |   |
| Neiman Marcus  and Bergdorf Goodman stores: |                  |                     |                  |   |   |
| Open at  beginning of period                |                  | 37                       |                  | 37 |   |
| Opened during  the period                   |                  | —                   |                  | — |   |
| Open at end of  period                      |                  | 37                       |                  | 37 |   |
| Clearance  centers:                         |                  |                     |                  |   |   |
| Open at  beginning of period                |                  | 14                       |                  | 14 |   |
| Opened during  the period                   |                  | —                   |                  | — |   |
| Open at end of  period                      |                  | 14                       |                  | 14 |   |

 

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

 

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

 

**(3)**          The calculation of the changes in comparable revenues has been adjustedto give recognition to the change in classification of revenues deferred inconnection with our loyalty programs, as more fully described in Note 1 to theCondensed Consolidated Financial Statements.

** **

**(4)**          The calculation of the changes in comparable revenues has been adjustedto exclude the revenues of Chef’s Catalog for all periods prior to our sale ofthese operations in November 2004, as more fully described in Note 2 to theCondensed Consolidated Financial Statements.

** **

**12**

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** **

**Thirteen Weeks Ended October 30, 2004 Compared toThirteen Weeks Ended November 1, 2003**

** **

***Revenues.**** *Our revenues for thefirst quarter of 2005 of $907.9 million increased $89.1 million, or 10.9percent, from $818.8 million in the first quarter of 2004.

 

Comparable revenues inthe first quarter of 2005 increased 11.4 percent compared to the prior yearperiod.  Comparable revenues increased11.1 percent for Specialty Retail Stores and 13.1 percent for DirectMarketing.  Comparable revenues in thefirst quarter of 2004 increased by 10.9 percent.

 

Revenues increased in thefirst quarter of 2005 compared to the prior year at all our operatingcompanies, consistent with a higher level of consumer spending, in general,with a higher increase coming from the affluent luxury customer served by thecompany.  In addition, we believe the increasesin comparable revenues were driven by sales events conducted by our SpecialtyRetail Stores and by the growth of internet sales for Direct Marketing.  In the first quarter of 2005, internet salesby Direct Marketing, excluding Chef’s Catalog, were $60.7 million, an increaseof 42.7 percent from the first quarter of 2004.

 

***Grossmargin.***  Grossmargin was 38.9 percent of revenues for the first quarter of  2005 compared to 37.7 percent in the prioryear period.  The increase in grossmargin was primarily due to higher product margins and a decrease in buying andoccupancy costs as a percentage of revenues.

 

We incurred a lower levelof net markdowns at both our Specialty Retail Stores and Direct Marketingduring the first quarter of 2005 resulting in higher product margins.  Net markdowns decreased as a percentage ofrevenues by 0.2 percent in the first quarter of 2005 compared to the prior yearperiod.  For Specialty Retail Stores,full-price sales increased in the first quarter of 2005 compared to the prioryear period.  We believe the lower levelof markdowns was due to the higher level of sales generated during the quarterand our continued emphasis on both inventory management and full-price selling.

 

Consistent with industrybusiness practice, we receive allowances from certain of our vendors in supportof the merchandise we purchase for resale. We receive certain allowances to reimburse us for markdowns taken and/orto support the gross margins earned in connection with the sales of the vendor’smerchandise.  We recognize these allowancesas an increase to gross margin when the allowances are earned and approved bythe vendor.  Other allowances we receiverepresent reductions to the amounts paid to acquire the merchandise.  We recognize these allowances as a reductionin the cost of the acquired merchandise resulting in an increase to grossmargin at the time the goods are sold. The amount of vendor reimbursements we received did not have asignificant impact on the year-over-year change in gross margin in the firstquarter of 2005.

 

A significant portion ofour buying and occupancy costs are fixed in nature.  Buying and occupancy costs decreased as apercentage of revenues during the first quarter of 2005 compared to the prioryear period primarily due to the leveraging of fixed expenses, includingpayroll expenses, depreciation, rent and related occupancy expenses over thehigher level of revenues we generated during the first quarter of 2005.

 

***Selling,general and administrative expenses*.**  SG&A expenses were 25.1 percent ofrevenues in the first quarter of 2005 compared to 25.8 percent of revenues inthe prior year period.

 

The net decrease inSG&A expenses as a percentage of revenues in the first quarter of 2005 wasprimarily due to 1) productivity improvements for our Specialty Retail Storesin various expense categories, including payroll and advertising, as a resultof the higher level of revenues in the first quarter of 2005, as well as thecontrol and containment of variable expenses, 2) lower costs for incentivecompensation compared to the prior year period, 3) a lower level of bad debtexpense related to our credit card portfolio and 4) lower costs related tostore remodels.

 

The decreases in SG&Aexpenses as a percentage of revenues were partially offset by 1) higher catalogand other marketing costs incurred by our Direct Marketing operations inconnection with the planned increase in catalog circulation and web-basedmarketing prior to the holiday season and 2) higher professional fees.

 

***Losson disposition of Chef’s Catalog*.**  In November 2004, we sold our Chef’s Catalogdirect marketing business to a private equity firm.  Chef’s Catalog is a multi-channel retailer ofprofessional-quality kitchenware with revenues in 2004 of approximately $73million.  At October 30, 2004, Chef’sCatalog had net tangible assets, primarily inventory, of $12.5 million and netintangible assets of $17.2 million.  Wereceived proceeds, net of selling costs, of $14.4 million from the sale. As thecarrying value of the Chef’s Catalog assets exceeded the fair value of suchassets as determined by the sale, we incurred a pre-tax loss of $15.3 millionin the first quarter of 2005 related to the disposition of Chef’s Catalog.

 

13

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***Segmentoperating earnings.*** Operating earnings for our Specialty Retail Stores segment were $120.2million for the first quarter of 2005 compared to $91.1 million for the prioryear period.  This 31.9 percent increasewas primarily the result of increased sales, reduced markdowns and netdecreases in both buying and occupancy expenses and SG&A expenses aspercentages of revenues.

 

Operating earnings forDirect Marketing increased to $11.3 million in the first quarter of 2005 from$10.6 million for the prior year period, primarily as a result of increasedrevenues, reduced markdowns and net decreases in buying and occupancy costs asa percentage of revenues offset, in part, by higher SG&A expenses as apercentage of revenues primarily related to higher catalog production andweb-based marketing costs.

 

***Interestexpense, net*.**  Netinterest expense was $4.0 million in the first quarter of 2005 and $3.5 millionfor the prior year period.

 

***Incometaxes.***  Oureffective income tax rate was 38.7 percent for the first quarter of 2005 and39.0 percent for the prior year period.

 

**Outlook**

 

Based on currentestimates, we anticipate percentage increases in comparable store revenues of 8to 10 percent for our second quarter ending January 29, 2005.  The accuracy of our assumptions and forecastsis subject to uncertainties and circumstances beyond our control.  Consequently, actual results could differmaterially from the forecasted results. See “Factors That May Affect Future Results” for a discussion of itemsand events that could cause our actual results to vary from our expectations.

 

**Inflation and Deflation**

** **

We believe changes inrevenues and net earnings that have resulted from inflation or deflation havenot been material during the periods presented. In recent years, we have experienced certain inflationary conditionsrelated to 1) increases in product costs due primarily to changes in foreigncurrency exchange rates that have reduced the purchasing power of the U.S.dollar and 2) increases in SG&A.  We attemptto offset the effects of inflation through control of expenses and priceincreases, although our ability to increase prices may be limited bycompetitive factors.  We attempt tooffset the effects of merchandise deflation, which has occurred on a limitedbasis in recent years, through control of expenses.  There is no assurance, however, thatinflation or deflation will not materially affect our operations in the future.

 

**LIQUIDITY AND CAPITALRESOURCES**

** **

Our cash requirementsconsist principally of 1) the funding of our accounts receivable andmerchandise purchases, 2) capital expenditures for new store growth, storerenovations and upgrades of our management information systems, 3) debt servicerequirements and 4) obligations related to our Pension Plan.  Our working capital requirements fluctuateduring the year, increasing substantially during the first and second quartersof each fiscal year as a result of higher seasonal levels of accountsreceivable and inventory.  We typicallyfinance the increases in working capital needs during the first and secondfiscal quarters with cash flows from operations, cash provided from the CreditCard Facility and borrowings under the Credit Agreement.

 

Our primary sources ofshort-term liquidity are comprised of cash on hand and availability under our$350 million unsecured revolving credit agreement.  As of October 30, 2004, we had cash and cashequivalents of $258.4 million and no outstanding borrowings under our creditagreement.  Our cash and cash equivalentsconsisted principally of invested cash and store operating cash.  At November 1, 2003, we had cash and cashequivalents of $127.5 million and no outstanding borrowings under a previous$300 million unsecured revolving credit facility.  The amount of cash on hand and borrowingsunder the credit facility are influenced by a number of factors, includingrevenues, accounts receivable and inventory levels, vendor terms, the level ofcapital expenditures, cash requirements related to financing instruments,Pension Plan funding obligations and tax payment obligations, among others.

 

14

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We believe thatoperating cash flows, currently available vendor financing and amountsavailable pursuant to our credit agreement and our $225 million Credit CardFacility should be sufficient to fund our operations, debt service, PensionPlan funding requirements, contractual obligations and commitments andcurrently anticipated capital expenditure requirements through the end of2005.  In addition, we anticipatenegotiating a new credit card facility to replace the Credit Card Facilityprior to the final payoff of our borrowings in September 2005.

 

We generated cash fromoperations (net earnings as adjusted for non-cash charges) of $111.6 million inthe first quarter of 2005 compared to $87.2 million in prior year period.  However, we used cash of $75.0 million inconducting our operating activities in the first quarter of 2005, primarily infunding the seasonal increase in our accounts receivable and merchandiseinventories.  Both accounts receivableand inventories were higher at the end of the first quarter of 2005 compared to2004 consistent with our higher sales levels. As shown in the condensed consolidated statement of cash flows, wegenerated cash of $8.1 million in connection with our operating activities inthe first quarter of 2004.  Thedetermination of operating cash flows for the prior year was impacted by theOff-Balance Sheet Accounting for the credit card securitization program,whereby the $71.6 million increase in the Retained Interests during the firstquarter of 2004 impacted cash flows from investing activities rather thanoperating activities.  As adjusted forthe change in Retained Interests, cash used for operating activities was $63.5million in the first quarter of 2004.

 

Net cash used forinvesting activities was $35.4 million in the first quarter of 2005 compared to$93.6 million in the prior year period. The decrease in cash used for investing activities in the first quarterof 2005 was primarily due to the impact of the discontinuance of Off-BalanceSheet Accounting, offset by a higher level of capital expenditures.

 

Capital expenditures were$35.4 million in the first quarter of 2005 and $22.1 million in the prior yearperiod.  We currently project capitalexpenditures for 2005 to be approximately $160 million to $170 millionprimarily for new store construction, store renovations and upgrades toinformation systems, including warehousing systems to support our DirectMarketing operation and a new human capital management system.  We are currently remodeling our stores inNewport Beach, Los Angeles, San Francisco and Houston.  We expect to complete the expansion andrenovation of the Newport Beach and Los Angeles stores in the spring of fiscalyear 2005 and the San Francisco and Houston stores in the spring of fiscal2006.

 

**FinancingStructure**

 

Ourmajor sources of funds are comprised of vendor financing, the $350 millioncredit agreement, the $225 million Credit Card Facility, $125 million seniorunsecured notes, $125 million senior unsecured debentures, operating leases andcapital leases.

 

AtOctober 30, 2004, we had $225.0 million borrowings under our Credit CardFacility.  Repayment of this obligationbegins in April 2005 in six monthly installments of $37.5 million.  Borrowings pursuant to the Credit CardFacility bear interest at the contractually-defined rate of one month LIBORplus 0.27 percent (2.14 percent at October 30, 2004) and are payable monthly tothe holders of the Class A Certificates. We anticipate negotiating a new credit card facility to replace theCredit Card Facility prior to the final payoff of our borrowings in September2005.

 

Inthe second quarter of 2004, our Board of Directors initiated a quarterly cashdividend of $0.13 per share.  We declareddividends on October 30, 2004 aggregating $6.4 million.  These dividends were paid in November 2004.

 

In prior years, our Boardof Directors authorized various stock repurchase programs and increases in thenumber of shares subject to repurchase. In the first quarter of 2005, we repurchased 54,404 shares at an averagepurchase price of $52.40.  As of October30, 2004, approximately 1.2 million shares remain available for repurchaseunder the stock repurchase programs.

 

15

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**Off-BalanceSheet Arrangements**

 

Pursuant to a revolvingcredit card securitization program, we transfer substantially all of our creditcard receivables to a wholly-owned subsidiary, Neiman Marcus FundingCorporation, which in turn sells such receivables to the Neiman Marcus CreditCard Master Trust (Trust).  At theinception of the Credit Card Facility in September 2000, the Trust issuedcertificates representing undivided interests in the credit card receivables tothird-party investors in the face amount of $225 million (Sold Interests).  We hold certificates representing interestsin the credit card portfolio equal to the excess of the balance of the creditcard portfolio over $225 million (Retained Interests).  In order to maintain the committed level ofsecuritized assets, the Trust uses cash collections on the securitizedreceivables to purchase new credit card balances from us in accordance with theterms of the Credit Card Facility. Beginning in April 2005, cash collections will be used by the Trust torepay the $225 million principal balance of the Class A Certificates in sixmonthly installments of $37.5 million.

 

From the inception of theCredit Card Facility until December 2003, our transfers and sales of creditcard receivables pursuant to the terms of the Credit Card Facility wereaccounted for as sales (Off-Balance Sheet Accounting).  As a result, we removed the $225 million ofcredit card receivables sold from our balance sheet at the inception of theCredit Card Facility and our $225 million repayment obligation to the holdersof the certificates representing the Sold Interests was not required to beshown as a liability on our consolidated balance sheet.  During the period the transfers and salesqualified for Off-Balance Sheet Accounting, the Retained Interests were shownas “Undivided interests in NMG Credit Card Master Trust” on the consolidatedbalance sheets.

 

Beginning in December2003, our transfers to the Trust ceased to qualify for Off-Balance Sheet Accounting.  Rather, credit card receivables transferredto the Trust after November 2003 remain on our balance sheet and are recordedas secured borrowings (Financing Accounting). As of October 30, our entire credit card portfolio is included inaccounts receivable and the $225 million of outstanding borrowings under theCredit Card Facility are shown as a liability in the condensed consolidatedbalance sheet.

 

Oursecuritization of credit card receivables is more fully described in Note 6 ofthe Notes to Condensed Consolidated Financial Statements.

 

**OTHERMATTERS**

 

**Factors That May Affect Future Results**

##  

**Mattersdiscussed in MD&A include forward-looking statements.  We make these forward-looking statementsbased on our expectations and beliefs concerning future events, as well ascurrently available data.  Theseforward-looking statements involve a number of risks and uncertainties and,therefore, are not guarantees of future performance.  A variety of factors could cause our actualresults to differ materially from the anticipated or expected results expressedin our forward-looking statements. Factors that could affect future performance include, but are notlimited, to:**

** **

**Politicaland General Economic Conditions**

** **

**•**                  current political and general economic conditions orchanges in such conditions;

** **

**•**                  terrorist activities in the United States;

** **

**•**                  political, social, economic, or other eventsresulting in the short or long-term disruption in business at our stores,distribution centers or offices;

** **

**CustomerDemographic Issues**

** **

**•**                  changes in the demographic or retail environment;

** **

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

** **

**•**                  changes in consumer preferences or fashion trends;

** **

**•**                  changes in our relationships with key customers;

** **

**•**                  changes in our proprietary credit card arrangementthat adversely impact our ability to provide consumer credit;

** **

**16**

----

** **

**MerchandiseProcurement and Supply Chain Considerations**

** **

**•**                  changes in our relationships with designers, vendorsand other sources of merchandise, including adverse changes in their financialviability;

** **

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

** **

**•**                  changes in foreign currency exchange rates;

** **

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

** **

**Industryand Competitive Factors**

** **

**•**                  competitive responses to our marketing,merchandising and promotional efforts and/or inventory liquidations by vendorsor other retailers;

** **

**•**                  seasonality of the retail business;

** **

**•**                  adverse weather conditions or natural disasters,particularly during peak selling seasons;

** **

**•**                  delays in anticipated store openings andrenovations;

** **

**EmployeeConsiderations**

** **

**•**                  changes in key management personnel;

** **

**•**                  changes in our relationships with certain of our keysales associates;

** **

**Legaland Regulatory Issues**

** **

**•**                  changes in government or regulatory requirementsincreasing our costs of operations;

** **

**•**                  litigation that may have an adverse effect on ourfinancial results or reputation;

** **

**OtherFactors**

** **

**•**                  impact of funding requirements related to ournoncontributory defined benefit pension plan;

** **

**•**                  the design and implementation of new informationsystems as well as enhancements of existing systems.

** **

**Weundertake no obligation to update or revise (publicly or otherwise) anyforward-looking statements to reflect subsequent events, new information orfuture circumstances.**

** **

**Critical Accounting Policies**

** **

The preparation ofcondensed financial statements in conformity with generally accepted accountingprinciples requires us to make estimates and assumptions about futureevents.  These estimates and assumptions affectamounts of assets, liabilities, revenues and expenses and the disclosure ofgain and loss contingencies at the date of the Condensed Consolidated FinancialStatements.  Our current estimates aresubject to change if different assumptions as to the outcome of future eventswere made.  We evaluate our estimates andjudgments on an ongoing basis and predicate those estimates and judgments onhistorical experience and on various other factors that we believe are reasonableunder the circumstances.  We makeadjustments to our assumptions and judgments when facts and circumstancesdictate.  Since future events and theireffects cannot be determined with absolute certainty, actual results may differfrom the estimates we used in preparing the accompanying Condensed ConsolidatedFinancial Statements.

 

**See Note 1 of the Notes to Condensed Consolidated FinancialStatements in Item 1 for a summary of our critical accounting policies.  A complete description of our criticalaccounting policies is included in our Annual Report to Shareholders on Form10-K for the fiscal year ended July 31, 2004.**

** **

We have changed the basisof presentation of certain prior year amounts and calculations presented inthis quarterly report to conform to the current year presentation.

 

17

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***Reclassification*.**  As more fully described in Note 1, asubstantial portion of the points earned by customers in connection with ourloyalty programs are redeemed for gift cards. At the time the qualifying sales giving rise to the loyalty programpoints are made, we defer the portion of the revenues on the qualifying salestransactions equal to our estimate of the retail value of the gift cards to beissued upon conversion of the points to gift cards.  Beginning in the first quarter of 2005, webegan to record the deferral of revenues related to gift cards awards under ourloyalty programs as a reduction of revenues. Previously, we charged suchamounts to selling, general and administrative expenses.  In addition, we now charge the cost of allother awards under our loyalty programs to cost of goods sold rather thanSG&A.  These changes inclassification do not impact the previously reported operating earnings, net incomeor earnings per share amounts.

 

***Changesin Comparable Revenues.*** As more fully described in Note 2, we have sold our Chef’s Catalogoperations.  The changes in comparablerevenues have been adjusted 1) to exclude the revenues of Chef’s Catalogoperations for all periods prior to the sale and 2) to give recognition to thechange in classification of revenues deferred in connection with our loyaltyprograms and are summarized below:

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

 

18

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**ITEM3.          QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

The market risk inherentin our financial instruments represents the potential loss arising from adversechanges in interest rates and foreign currency exchange rates.  We do not enter into derivative financialinstruments for trading purposes.  Weseek to manage exposure to adverse interest rate changes through our normaloperating and financing activities. We are exposed to interest rate riskthrough our securitization and borrowing activities, which are described inNotes 2 and 5 to our Consolidated Financial Statements in our Annual Report onForm 10-K for the fiscal year ended July 31, 2004.

 

As of October 30, 2004,we had no borrowings outstanding under our revolving credit agreement.  Future borrowings under our revolving creditagreement, to the extent of outstanding borrowings, would be affected byinterest rate changes.

 

Our outstanding long-termdebt as of October 30, 2004 is at fixed interest rates and would not beaffected by interest rate changes.  Basedupon quoted prices, the fair value of our senior notes and debentures (facevalue of $250 million) was $278.9 million as of October 30, 2004.

 

Pursuant to ourproprietary credit card securitization program that begins to expire inSeptember 2005, we have sold substantially all of our credit card receivablesthrough a subsidiary in exchange for certificates representing undividedinterests in such receivables.  We soldthe Class A Certificates, which have an aggregate principal value of $225million, 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 October 30, 2004, we estimatea 100 basis point increase in LIBOR would result in an approximate annualincrease of $2.25 million in the interest distributions to the Class ACertificate Holders.

 

We use derivativefinancial instruments to manage foreign currency risk related to theprocurement of merchandise inventories from foreign sources.  We enter into foreign currency contractsdenominated in the euro and British pound. We had foreign currency contracts inthe form of forward exchange contracts in the amount of approximately $31.5million as of October 30, 2004.  Themarket risk inherent in these instruments was not material to our consolidatedfinancial position, results of operations or cash flows in the first quarter of2005.

 

**Theeffects of changes in the U.S. equity and bond markets serve to increase ordecrease the value of Pension Plan assets, resulting in an increase or decreasein our cash funding obligation.  We seekto manage exposure to adverse equity and bond returns by maintainingdiversified investment portfolios and utilizing professional investmentmanagers.**

** **

Based on a review of ourfinancial instruments outstanding at October 30, 2004 that are sensitive tomarket risks, we have determined that there was no material market riskexposure to our consolidated financial position, results of operations, or cashflows as of such date.

 

19

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**ITEM4.**                             CONTROLS AND PROCEDURES

 

In accordance with ExchangeAct Rules 13a-15 and 15d-15, we carried out an evaluation, under thesupervision and with the participation of the Chief Executive Officer and ChiefFinancial Officer, as well as other key members of our management, of theeffectiveness of our disclosure controls and procedures as of the end of theperiod covered by this report. Based on that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective, as of the end of the period covered by this report,to provide reasonable assurance that information we are required to disclose inour reports filed or submitted under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission’s rules and forms.

 

In the ordinary course ofbusiness, we routinely enhance our information systems by either upgrading ourcurrent systems or implementing new systems. No change in our internal controls occured during the quarter endedOctober 30, 2004 that has materially affected, or is reasonably likely tomaterially affect, our internal controls over financial reporting.

 

20

----

 

**THENEIMAN MARCUS GROUP, INC.**

 

**PART II**

 

**ITEM 1.                  LEGALPROCEEDINGS**

 

Note 8 of the Notes toCondensed Consolidated Financial Statements in Part I, Item 1 is incorporatedherein by reference as if fully restated herein.  Note 8 contains forward-looking statementsthat are subject to the risks and uncertainties discussed in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Factors That May Affect Future Results.”

 

**ITEM 2.                  UNREGISTERDSALES OF EQUITY AND SECURITIES AND USE OF PROCEEDS**

###### ** **

Thefollowing table indicates our stock repurchases of equity securities in thefirst quarter of 2005:

 
| **First Quarter 2005**                | ** ** | **Total Number   of Shares   Purchased** | ** ** | **Average  Price Paid   Per Share** | ** ** | **Total Number   of Shares  Purchased as  Part of  Publicly   Announced  Plans or   Programs** | ** ** | **Maximum  Number of  Shares that   May Yet Be  Purchased  under the  Plans or  Programs** | ** ** |
|---------------------------------------|------------|------------------------------------------|------------|-------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | ** **                               | ** ** | ** **                          | ** ** | ** **                                                                                     | ** ** | ** **                                                                                 | ** ** |
| August 2004                           |       |                                     |       |                                |       |                                                                                           |       |                                                                                       | ** ** |
| (8/1/04 to  8/28/04)                  |       | 15,100                                   |       | $                                   | 49.52      |                                                                                           | —     |                                                                                       | 1,199,273  | ** ** |
|                                  |       |                                     |       |                                |       |                                                                                           |       |                                                                                       | ** ** |
| September 2004   (8/29/04 to 10/2/04) |       | 18,954                                   |       | $                                   | 52.11      |                                                                                           | —     |                                                                                       | 1,180,319  | ** ** |
|                                  |       |                                     |       |                                |       |                                                                                           |       |                                                                                       | ** ** |
| October 2004   (10/3/04 to 10/30/04)  |       | 20,350                                   |       | $                                   | 54.70      |                                                                                           | —     |                                                                                       | 1,159,969  | ** ** |

 

**ITEM 6.                  EXHIBITS**

** **
| 3.1    | Restated Certificate of  Incorporation of the Company, incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q for the quarter ended January 26, 2002.                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                       |
| 3.2    | Bylaws of the Company,  incorporated herein by reference to the Company’s Annual Report on Form 10-K  for the fiscal year ended August 2, 2003.                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                       |
| 4.1    | Certificates of  Designation with respect to Series A Junior Participating Preferred Stock,  Series B Junior Participating Preferred Stock and Series C Junior  Participating Preferred Stock, incorporated herein by reference to the  Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004. |
|   |                                                                                                                                                                                                                                                                                                                       |
| 4.2    | Indenture, dated as of  May 27, 1998, between the Company and The Bank of New York, as trustee (the “Indenture”),  incorporated herein by reference to the Company’s Annual Report on Form 10-K  for the fiscal year ended July 31, 2004.                                                                   |
|   |                                                                                                                                                                                                                                                                                                                       |
| 4.3    | Form of 6.65 percent  Senior Note Due 2008, dated May 27, 1998, issued by the Company pursuant to  the Indenture, incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                              |

 

21

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| 4.4    | Form of 7.125 percent  Senior Note Due 2008, dated May 27, 1998, issued by the Company pursuant to  the Indenture, incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                                                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.5    | Amended and Restated  Rights Agreement, dated as of August 8, 2002, between the Company and Mellon  Investor Services LLC, as Rights Agent, incorporated herein by reference to  the Company’s Annual Report on Form 10-K for the fiscal year ended August 3,  2002.                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.1*  | The Neiman Marcus  Group, Inc. 1987 Stock Incentive Plan, incorporated herein by reference to  the Company’s Annual Report on Form 10-K for the fiscal year ended August 3,  2002.                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.2*  | The Neiman Marcus  Group, Inc. 1997 Incentive Plan, as amended, incorporated herein by reference  to the Company’s Form S-8 dated Mary 28, 2003.                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.3*  | Employment Agreement  between the Company and Burton M. Tansky, effective as of August 3, 2003,  incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q  for the quarter ended November 1, 2003.                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.4*  | Confidentiality, Non-Competition  and Termination Benefits Agreement between the Company and Phillip L. Maxwell  dated November 20, 2002, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended August 3, 2002.                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.5*  | Supplemental Executive  Retirement Plan, incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended August 3, 2002.                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.6*  | Description of the  Company’s Executive Life Insurance Plan, incorporated herein by reference to  the Company’s Annual Report on Form 10-K for the fiscal year ended August 3,  2002.                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.7*  | Supplementary Executive  Medical Plan, incorporated herein by reference to the Company’s Annual Report  on Form 10-K for the fiscal year ended August 3, 2002.                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.8*  | Key Employee Deferred  Compensation Plan, incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended August 3, 2002.                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.9*  | Deferred Compensation  Plan for Non-Employee Directors, as amended, incorporated herein by reference  to the Company’s Annual Report on Form 10-K for the fiscal year ended July  31, 2004.                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.10* | Confidentiality, Non-Competition  and Termination Benefits Agreement between Bergdorf Goodman, Inc. and James  J. Gold dated May 3, 2004, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.11* | Confidentiality, Non-Competition  and Termination Benefits Agreement between the Company and Karen W. Katz  dated November 20, 2002, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended August 3, 2002.                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.12  | Credit Agreement dated  as of June 9, 2004 among the Company, the Lenders parties thereof, Bank of  America, N.A., as Syndication Agent, Wachovia Bank, N.A., Wells Fargo Bank  National Association, and BNP Paribas, as Documentation Agents, and JPMorgan  Chase Bank, as Administrative Agent, incorporated herein by reference to the  Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.13  | Neiman Marcus Group  Credit Card Master Trust Series 2000-1 Class A Purchase Agreement, dated July  12, 2000, incorporated herein by reference to the Company’s Annual Report on  Form 10-K for the fiscal year ended July 29, 2000.                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.14  | Receivables Purchase  Agreement dated as of July 2, 2000 between Bergdorf Goodman, Inc. and Neiman  Marcus Funding Corporation, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 29, 2000.                                                                                                                                                                    |

 

22

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| 10.15  | Receivables Purchase  Agreement, dated as of March 1, 1995, and amended and restated as of July 2,  2000 between the Company and Neiman Marcus Funding Corporation, incorporated  herein by reference to the Company’s Annual Report on Form 10-K for the  fiscal year ended July 29, 2000.                                                                                   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.16  | Pooling and Servicing  Agreement, dated as of March 1, 1995, and amended and restated as of July 2,  2000 between Neiman Marcus Funding Corporation, the Company, and The Bank of  New York, incorporated herein by reference to the Company’s Annual Report on  Form 10-K for the fiscal year ended July 29, 2000.                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.17  | Series 2000-1 Supplement,  dated as of July 2, 2000, to the Pooling and Servicing Agreement, dated as of  March 1, 1995, and amended and restated as of July 2, 2000 among Neiman  Marcus Funding Corporation, the Company, and The Bank of New York,  incorporated herein by reference to the Company’s Annual Report on Form 10-K  for the fiscal year ended July 29, 2000. |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.18  | Trustee Resignation and  Agent Appointment Agreement dated as of July 2, 2000 by and among the  Company, Neiman Marcus Funding Corporation, The Chase Manhattan Bank, and The  Bank of New York, incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended July 29, 2000.                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.19  | Amended and Restated  Agreement and Plan of Merger, dated as of July 1, 1999, among The Neiman  Marcus Group, Inc., Harcourt General, Inc., and Spring Merger Corporation,  incorporated herein by reference to the Company’s Definitive Schedule 14A  dated August 10, 1999.                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.20  | Amended and Restated  Distribution Agreement, dated as of July 1, 1999, between Harcourt General,  Inc. and The Neiman Marcus Group, Inc., incorporated herein by reference to  the Company’s Definitive Schedule 14A dated August 10, 1999.                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.21  | Agreement, dated as of  September 1, 1999, among the Company and certain holders of the Company’s  Class B Common Stock, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 31, 1999.                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.22* | Confidentiality, Non-Competition  and Termination Benefits Agreement between the Company and Nelson A. Bangs  dated May 21, 2003, incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended August 2, 2003.                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.23* | Confidentiality, Non-Competition  and Termination Benefits Agreement between the Company and James E. Skinner  dated November 20, 2002, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended August 3, 2002.                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.24* | Confidentiality, Non-Competition  and Termination Benefits Agreement between the Company and Marita O’Dea dated  November 20, 2002, incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended August 3, 2002.                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.25* | Confidentiality, Non-Competition  and Termination Benefits Agreement between the Company and Brendan L. Hoffman  dated January 29, 2003, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended August 3, 2002.                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.26* | Description of Director  Compensation.  (1)                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.27* | Form of 2002 Purchased  Restricted Stock Unit Agreement, incorporated herein by reference to the  Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.28* | Form of 2003 Purchased  Restricted Stock Unit Agreement, incorporated herein by reference to the  Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.29* | Form of 2002 Restricted  Stock Unit Agreement, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.30* | Form of 2003 Restricted  Stock Unit Agreement, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                                                                                                                                         |

 

23

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| 10.31* | Form of Non-Qualified  Stock Option Agreement, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                |
| 10.32* | Form of Regular  Restricted Stock Agreement, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                            |
|   |                                                                                                                                                                                                                                                                |
| 10.33* | Form of Retention  Restricted Stock Agreement, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                          |
|   |                                                                                                                                                                                                                                                                |
| 10.34* | Form of Purchased  Restricted Stock Agreement, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                          |
|   |                                                                                                                                                                                                                                                                |
| 10.35* | Form of Non-Qualified  Stock Option Agreement with incremental vesting, incorporated herein by  reference to the Company’s Annual Report on Form 10-K for the fiscal year  ended July 31, 2004.                                                                |
|   |                                                                                                                                                                                                                                                                |
| 10.36* | Confidentiality, Non-Competition  and Termination Benefits Agreement between the Company and Steven P. Dennis  dated September 9, 2004, incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the fiscal year ended July 31, 2004. |
|   |                                                                                                                                                                                                                                                                |
| 10.37* | Description of annual  incentives set by the Compensation Committee of the Board of Directors for  the 2005 fiscal year, incorporated herein by reference to the Company’s  Current Report on Form 8-K dated September 24, 2004.                               |
|   |                                                                                                                                                                                                                                                                |
| 10.38* | The Neiman Marcus  Group, Inc. Key Employee Bonus Plan, incorporated herein by reference to the  Company’s Current Report on Form 8-K for dated September 24, 2004.                                                                                            |
|   |                                                                                                                                                                                                                                                                |
| 10.39* | Form of Restricted  Stock Unit Agreement. (1)                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                |
| 10.40* | Form of Matching  Restricted Stock Unit Agreement.  (1)                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                |
| 12.1   | Computation of Ratio of  Earnings to Fixed Charges (Unaudited), incorporated herein by reference to  the Company’s Annual Report on Form 10-K for the fiscal year ended July 31,  2004.                                                                        |
|   |                                                                                                                                                                                                                                                                |
| 14.1   | The Neiman Marcus  Group, Inc. Code of Ethics and Conduct, incorporated herein by reference to  the Company’s Annual Report on Form 10-K for the fiscal year ended July 31,  2004.                                                                             |
|   |                                                                                                                                                                                                                                                                |
| 14.2   | The Neiman Marcus  Group, Inc. Code of Ethics for Financial Professionals, incorporated herein  by reference to the Company’s Annual Report on Form 10-K for the fiscal year  ended August 2, 2003.                                                            |
|   |                                                                                                                                                                                                                                                                |
| 18.1   | Letter regarding Change  in Accounting Principle, incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q for the quarter ended October 30, 1999.                                                                                     |
|   |                                                                                                                                                                                                                                                                |
| 21.1   | Subsidiaries of the  Company, incorporated herein by reference to the Company’s Annual Report on  Form 10-K for the fiscal year ended July 31, 2004.                                                                                                           |
|   |                                                                                                                                                                                                                                                                |
| 23.1   | Consent of Deloitte  & Touche LLP, incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended July 31, 2004.                                                                                                  |
|   |                                                                                                                                                                                                                                                                |
| 31.1   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.  (1)                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                |
| 31.2   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.  (1)                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                |
| 32     | Certifications of Chief  Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.  (1)                                                                                                                        |
|   |                                                                                                                                                                                                                                                                |
|        |
| (1)    | Filed herewith                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                |
| *      | Management contract or  compensatory plan or arrangement.                                                                                                                                                                                                           |

 

 

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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 undersignedhereunto duly authorized.

 

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

 
| **Signature**         | ** ** | **Title**                       | ** **                     | **Date** |
|-----------------------|------------|---------------------------------|--------------------------------|----------|
|                  |       |                            |                           |     |
|                  |       |                            |                           |     |
| /s/ T. Dale Stapleton |       |                            | Vice President and  Controller |     | December 6, 2004 |
| T. Dale Stapleton     |       | and Duly Authorized  Officer    |                           |     |
|                  |       | (principal accounting  officer) |                           |     |
|                       |            |                                 |                                |          |  |

 

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