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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

For the transition period from                                to                               

Commission file no. 1-9659

The Neiman Marcus Group, Inc.

Registrant’s telephone number, including area code: (214) 741-6911

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
None

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x                      No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

         As of September 25, 2002, the aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant was approximately $1,389,072,321.

         As of September 25, 2002, the registrant had outstanding 28,034,916 shares of its Class A Common Stock and 19,941,833 shares of its Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE.

Part III of this report incorporates information from the registrant’s definitive Proxy Statement relating to the registrant’s Annual Meeting of Shareholders to be held on January 21, 2003, which will be filed on or about November 29, 2002.

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THE NEIMAN MARCUS GROUP, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 3, 2002

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PART I

ITEM 1. BUSINESS

Business Overview

The Neiman Marcus Group, Inc. (the Company) is a high-end specialty retailer operating principally through specialty retail stores, consisting of 34 Neiman Marcus stores, two Bergdorf Goodman stores and twelve clearance centers and through direct marketing operations.

The Neiman Marcus stores are in premier retail locations in major markets nationwide and the Bergdorf Goodman stores are located in Manhattan at 58th Street and Fifth Avenue. Both Neiman Marcus and Bergdorf Goodman stores offer high-end fashion apparel and accessories, primarily from leading designers.

Neiman Marcus Direct, the Company’s direct marketing operation, offers a mix of apparel and home furnishings which is complementary to the Neiman Marcus stores’ merchandise through catalogues under the Neiman Marcus brand name. Neiman Marcus Direct also publishes the world-famous Neiman Marcus Christmas Book; the Horchow catalogue, offering quality home furnishings, linens, decorative accessories and tabletop items; and the Chef’s catalogue, offering gourmet cookware and high-end kitchenware. In addition, Neiman Marcus Direct operates the NeimanMarcus.com, Horchow.com and ChefsCatalog.com websites.

For more information about the Company’s business segments, see Note 14 to the Consolidated Financial Statements in Item 14 below.

The Neiman Marcus Group, Inc. is a Delaware corporation which commenced operations in August 1987. Prior to October 22, 1999, Harcourt General, Inc. (Harcourt General), a Delaware corporation based in Chestnut Hill, Massachusetts, owned approximately 54 percent of the outstanding common stock of the Company. On October 22, 1999, Harcourt General distributed to its shareholders approximately 21.4 million of the 26.4 million shares of the Company’s common stock held by Harcourt General and subsequently divested itself entirely of any holdings in the Company’s stock.

Copies of this Annual Report on Form 10-K may be obtained at the Company’s website, www.neimanmarcusgroup.com.

Description of Operations

Specialty Retail Stores. Neiman Marcus stores offer women’s and men’s apparel, fashion accessories, shoes, cosmetics, furs, precious and fashion jewelry, decorative home accessories, fine china, crystal and silver, epicurean gifts, children’s apparel and gift items.

As of October 2, 2002, the Company operated 34 Neiman Marcus stores, located in Arizona (Scottsdale); California (five stores: Beverly Hills, Newport Beach, Palo Alto, San Diego and San Francisco); Colorado (Denver); the District of Columbia; Florida (five stores: Coral Gables, Fort Lauderdale, Palm Beach, Tampa and Bal Harbour); Georgia (Atlanta); Hawaii (Honolulu); Illinois (three stores: Chicago, Northbrook and Oak Brook); Missouri (St. Louis); Massachusetts (Boston); Minnesota (Minneapolis); Michigan (Troy); Nevada (Las Vegas); New Jersey (two stores: Short Hills and Paramus); New York (Westchester); Pennsylvania (King of Prussia); Texas (six stores: two in Dallas, one in Plano, one in Fort Worth and two in Houston); and Virginia (McLean). The average size of these 34 stores is approximately 137,000 gross square feet and they range in size from 53,000 gross square feet to 224,000 gross square feet.

The Company will open a new Neiman Marcus store in Orlando, Florida in October 2002 and plans to open new Neiman Marcus stores in San Antonio, Texas in the third quarter of fiscal year 2005 and Atlanta, Georgia in the third quarter of fiscal year 2006.

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The Company also has stores operating under the name The Galleries of Neiman Marcus in Cleveland, Ohio and Phoenix, Arizona. The Galleries of Neiman Marcus feature precious and fashion jewelry, gifts and decorative home accessories to extend the Neiman Marcus brand into markets that may not be large enough to support full-line stores. In March 2002, the Company closed its Galleries of Neiman Marcus store in Seattle, Washington. The Company continues to evaluate the concept based on the remaining Galleries of Neiman Marcus stores.

The Company operates two Bergdorf Goodman stores in Manhattan at 58th Street and Fifth Avenue. The main Bergdorf Goodman store consists of 250,000 gross square feet and features high-end women’s apparel and unique fashion accessories from leading designers, traditional and contemporary decorative home accessories, precious and fashion jewelry, gifts and gourmet foods. The Bergdorf Goodman Men’s store consists of 66,000 gross square feet and is dedicated to fine men’s apparel and accessories.

The Company operates twelve clearance centers which average approximately 25,000 gross square feet. These stores provide an efficient and controlled outlet for the sale of end-of-season clearance merchandise from Neiman Marcus and Bergdorf Goodman stores and Neiman Marcus Direct. Additionally, the Company purchases off-price merchandise directly from existing vendors to supplement the assortments of the clearance stores.

Direct Marketing. Neiman Marcus Direct, the Company’s upscale direct marketing operation, primarily offers women’s apparel, accessories and home furnishings under the Neiman Marcus name. It also publishes the world-famous Neiman Marcus Christmas Book. Neiman Marcus Direct’s Horchow division offers quality home furnishings, linens, decorative accessories and tabletop items. In January 1998, the Company acquired Chef’s Catalog, a leading direct marketer of gourmet cookware and high-end kitchenware and integrated its operations, including its online business, into those of Neiman Marcus Direct.

In 1999, the Company launched Neiman Marcus Online as an extension of its direct marketing division. Neiman Marcus Direct currently operates the NeimanMarcus.com, Horchow.com and ChefsCatalog.com websites, offering luxury goods, high quality cookware and home furnishings to the online consumer. Through its various divisions, Neiman Marcus Direct provides the Company with a multi-brand, multi-channel focus.

Brand Development Companies. In November 1998, the Company acquired a 51 percent interest in Gurwitch Bristow Products, LLC, which distributes and markets the Laura Mercier cosmetic line, for $6.7 million. In February 1999, the Company acquired a 56 percent interest in Kate Spade LLC, a manufacturer and retailer of high-end designer handbags and accessories, for $33.6 million.

Competition

The specialty retail industry is highly competitive and fragmented. The Company competes with large specialty retailers, traditional and upscale department stores, national apparel chains, designer boutiques, individual specialty apparel stores and direct marketing firms. The Company competes with other retailers for real estate opportunities principally on the basis of its ability to attract customers.

The Company competes for customers principally on the basis of quality and fashion, customer service, value, assortment and presentation of merchandise, marketing and customer loyalty programs and, in the case of Neiman Marcus and Bergdorf Goodman, store ambiance.

Vendor Relationships

The Company competes for quality merchandise and assortment principally based on relationships and purchasing power with designer resources. The Company’s apparel and fashion accessories businesses are especially dependent upon its relationships with these designer resources. The Company also secures certain merchandise, primarily precious jewelry, on a consignment basis in order to expand its product assortment. From time to time, the Company makes advances to certain of its vendors. These advances are typically deducted from amounts paid to vendors at the time merchandise is received or, in the case of advances made for consigned goods, at the time the goods are sold by the Company. As of August 3, 2002, the Company had net outstanding advances to vendors of approximately $35 million.

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Employees

As of September 5, 2002, the Company had approximately 14,300 employees. Neiman Marcus stores had approximately 12,100 employees, Bergdorf Goodman stores had approximately 800 employees, Neiman Marcus Direct had approximately 1,300 employees and Neiman Marcus Group had approximately 60 employees. The Company’s staffing requirements fluctuate during the year as a result of the seasonality of the retail industry. None of the employees of Neiman Marcus stores or Neiman Marcus Direct are subject to collective bargaining agreements. Approximately 19 percent of the Bergdorf Goodman employees are subject to collective bargaining agreements. The Company believes that its relations with its employees are good.

Quarterly Data and Seasonality

For information on quarterly data and seasonality, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 below.

Regulation

The Company’s operations are affected by numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider. In addition to the Company’s proprietary credit cards, credit to the Company’s customers is provided primarily through third parties such as American Express®, Visa®, MasterCard®, Diners Club®, Novus® and Carte Blanche®. Any change in the regulation of credit that would materially limit the availability of credit to the Company’s customer base could adversely affect the Company’s results of operations or financial condition.

The Company’s and its competitors’ practices are also subject to review in the ordinary course of business by the Federal Trade Commission and the Company’s and other retailers’ credit card practices which are subject to numerous federal and state laws. The Company believes that it is currently in material compliance with all applicable state and federal regulations.

Additionally, the Company is subject to certain customs, truth-in-advertising and other laws, including consumer protection regulations, that regulate retailers generally and/or govern the importation, promotion and sale of merchandise. The Company undertakes to monitor changes in these laws and believes that it is in material compliance with applicable laws with respect to such practices.

ITEM 2. PROPERTIES

The Company’s corporate headquarters are located at the Downtown Neiman Marcus store location in Dallas, Texas. The operating headquarters for Neiman Marcus, Bergdorf Goodman and Neiman Marcus Direct are located in Dallas, New York City and Irving, Texas, respectively. As of October 2, 2002, the aggregate gross square footage used in the Company’s operations was approximately as follows:

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Leases for substantially all of the Company’s stores, including renewal options, range from 30 to 99 years. The lease on the Bergdorf Goodman Main Store expires in 2050 and the lease on the Bergdorf Goodman Men’s Store expires in 2010, with two 10-year renewal options. Leases are generally at fixed rentals and a majority of leases provide for additional rentals based on sales in excess of predetermined levels. The Company owns approximately 34 acres of land in Longview, Texas, where its National Service Center is located. The National Service Center occupies a 502,000 square foot facility and is the principal merchandise processing and distribution facility for Neiman Marcus stores. The Company also owns approximately 50 acres of land in Irving, Texas, where its 705,000 square foot Neiman Marcus Direct warehouse and distribution facility is located.

For further information on the Company’s properties, see “Operating Leases” in Note 12 of the Notes to the Consolidated Financial Statements in Item 14 below. For more information about the Company’s plans to open additional stores, see “Description of Operations” in Item 1 above.

ITEM 3. LEGAL PROCEEDINGS

The Company presently is engaged in various legal actions that are incidental to the ordinary conduct of its business. The Company believes that any liability arising as a result of these actions and proceedings will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders of the Company during the quarter ended August 3, 2002.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company’s Class A Common Stock and Class B Common Stock are currently traded on the New York Stock Exchange under the symbols NMG.A and NMG.B, respectively. As of September 5, 2002, there were 9,902 record holders of the Company’s Class A Common Stock and 3,596 record holders of the Company’s Class B Common Stock. Beginning with the third quarter of fiscal year 1995, the Company eliminated the quarterly cash dividend on its common stock. The Company currently does not intend to resume paying cash dividends on its common stock.

The following table indicates the quarterly stock price ranges for the past two fiscal years:

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data is qualified in its entirety by the Consolidated Financial Statements of the Company (and the related Notes thereto) contained elsewhere in this Annual Report on Form 10-K and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The operating results and financial position data for each of the fiscal years ended August 3, 2002, July 28, 2001, July 29, 2000, July 31, 1999 and August 1, 1998, have been derived from the Company’s audited Consolidated Financial Statements. Additionally, fiscal year 2002 includes fifty-three weeks of operations while the other years presented consist of fifty-two weeks of operations.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FACTORS THAT MAY AFFECT FUTURE RESULTS
Matters discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements, including statements regarding the Company’s objectives and expectations concerning, among other things, its:

•		productivity and profitability;
•		merchandising and marketing strategies;
•		inventory performance;
•		store renovation and expansion plans;
•		capital expenditures;
•		liquidity; and
•		development of its management information systems.

These forward-looking statements are made based on management’s expectations and beliefs concerning future events, as well as on assumptions made by and data currently available to management. Therefore, these forward- looking statements involve a number of risks and uncertainties and are not guarantees of future performance. A variety of factors could cause the Company’s actual results to differ materially from the anticipated or expected results expressed in these forward-looking statements. Factors that could affect future performance include, but are not limited, to:

•		current political and economic conditions;
•		changes in political and economic conditions that may occur in the future;
•		continued terrorist activities in the United States, as well as the potential escalation in the international war on terrorism;
•		changes in consumer confidence resulting in a reduction of discretionary spending on goods that are, or are perceived to be, “luxuries”;
•		changes in demographic or retail environments;
•		changes in consumer preferences or fashion trends;
•		competitive responses to the Company’s marketing, merchandising and promotional efforts and/or inventory liquidations by vendors or other retailers;
•		seasonality of the retail business;
•		adverse weather conditions, particularly during peak selling seasons;
•		delays in anticipated store openings;
•		natural disasters;
•		significant increases in paper, printing and postage costs;
•		litigation that may have an adverse effect on the financial results or reputation of the Company;
•		changes in the Company’s relationships with designers, vendors and other sources of merchandise;
•		the financial viability of the Company’s designers, vendors and other sources of merchandise;
•		changes in foreign currency exchange rates;
•		changes in the Company’s relationships with certain of its key sales associates;

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•		changes in key personnel who have been hired or retained by the Company;
•		changes in the Company’s proprietary credit card arrangement that adversely impact its ability to provide consumer credit; or
•		changes in government or regulatory requirements increasing the Company’s cost of operations.

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

CRITICAL ACCOUNTING POLICIES
The Company’s accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements. As disclosed in Note 1 of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, actual results will differ from those estimates. Management makes adjustments to its assumptions and judgments when facts and circumstances dictate. The amounts currently estimated by the Company are subject to change if different assumptions as to the outcome of future events were made. The Company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Management of the Company believes the following critical accounting policies, among others, encompass the more significant judgments and estimates used in preparation of its Consolidated Financial Statements.

Revenue recognition. Revenues from the Company’s retail operations are recognized at the later of the point of sale or the delivery of goods to the customer. Revenues from the Company’s direct marketing operations are recognized when the merchandise is delivered to the customer. Both retail and direct marketing revenues are reduced by a provision for anticipated returns primarily based on the Company’s historical trends related to returns by its customers.

Cost of sales and merchandise inventories. The Company utilizes the retail inventory method of accounting for substantially all of its merchandise inventories. Merchandise inventories are stated at the lower of cost, determined using the first-in, first-out basis, or market using the retail inventory method. The retail inventory method is widely used in the retail industry due to its practicality.

Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio, for various groupings of similar items, to the retail value of inventories. The cost of the inventory reflected on the consolidated balance sheet is decreased by charges to cost of sales at the time the retail value of the inventory is lowered through the use of markdowns. Hence, earnings are negatively impacted as the merchandise is marked down prior to sale.

The areas requiring significant management judgment related to the valuation of the Company’s inventories include 1) setting the original retail value for the merchandise held for sale, 2) recognizing merchandise for which the customer’s perception of value has declined and appropriately marking the retail value of the merchandise down to the perceived value and 3) estimating the shrinkage that has occurred between physical inventory counts. These judgments and estimates, coupled with the averaging processes within the retail method can, under certain circumstances, produce varying financial results. Factors that can lead to different financial results include 1) setting original retail values for merchandise held for sale incorrectly, 2) failure to identify a decline in the perceived value of inventories and to process the appropriate retail value markdowns and 3) overly optimistic or conservative shrinkage estimates. The Company believes it has the appropriate merchandise valuation and pricing controls in place to minimize the risk that its inventory values would be materially misstated.

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Income and expenses related to securitization. Pursuant to applicable accounting principles, the Company’s current credit card securitization program qualifies for sale treatment related to those receivables transferred to third-party investors (Sold Interests). As a result, the Company recognizes a gain or loss equal to the difference between the consideration received for the Sold Interests and the allocated cost basis of the receivables sold. The portion of the credit card receivables that continue to be held by the Company (Retained Interests) are shown as “Undivided interests in NMG Credit Card Trust” on the Company’s consolidated balance sheet.

Assumptions related to the future performance of the Company’s credit card portfolio have a significant impact on the calculation of the gain or loss on the sale of the Sold Interests, the carrying values of Retained Interests and the recognition of income on the Retained Interests. Determining the fair value of the Sold and Retained Interests requires estimates related to: 1) the gross future finance charge collections to be generated by the total portfolio; 2) future finance charge collections allocable to the Sold Interests; 3) future credit losses and 4) discount rates. Items that were considered in making judgments and preparing estimates and factors that might lead to future variations in consolidated financial results in the event of differences between actual and estimated results are as follows:

•		Finance charge income is billed at a contractual rate monthly and warrants little judgment or estimation. The expected credit card customer payment rate is based on historical payment rates adjusted for recent payment rate trends. To the extent credit card customers pay off their balances sooner than estimated, the income earned by the Company is reduced. Conversely, should the credit card customers pay off balances over a longer period of time, the income earned by the Company may increase.
•		The finance charge collections are estimated using the current portfolio yield experience and estimated short-term interest rates over the estimated life of the receivables. To the extent current portfolio yield experience decreases and short-term interest rates increase beyond the estimates, the finance charge collections may be reduced.
•		Credit losses expected from the portfolio are based on historical write-off rates, adjusted for recent write-off trends and increased or decreased to reflect management’s outlook of future trends. To the extent there are positive or negative factors affecting the credit card customers’ ability or intent to pay off the outstanding balance (e.g., level of discretionary income, level of consumer debt, bankruptcy legislation), the actual bad debts to be realized could exceed or be less than the amounts estimated. Credit losses in excess of those embedded in the estimates reduce the income earned by the Company. Conversely, credit losses less than those embedded increase the income earned by the Company.
•		The assumed cash flow discount rates are based on prevailing market interest rates and management’s estimate of an appropriate risk premium for each respective Retained Interest. The actual discount rates used are subject to interest rate fluctuations.

The most sensitive assumptions in calculating the fair values are the credit card customers’ payment rate, the estimate for credit losses, relative interest spreads and the assumed cash flow discount rates.

Impairment of long-lived assets. In evaluating the fair value and future benefits of its long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the estimated undiscounted future cash flows, the Company reduces the carrying value to its fair value, which is generally calculated using discounted future cash flows. Various factors, including future sales growth and profit margins, are included in this analysis. To the extent these future projections or the Company’s strategies change, the conclusion regarding impairment may differ from the Company’s current estimates.

Advertising and catalogue costs. The Company’s direct response advertising relates primarily to the production, printing and distribution of catalogues. These costs are amortized during the periods the expected revenues from such catalogues are expected to be generated, generally three to six months. All other advertising costs, including costs incurred by the Company’s online operations related to website design and advertising, are expensed in the period incurred.

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Loyalty program. The Company maintains customer loyalty programs in which customers receive points annually for qualifying purchases. Upon reaching certain levels, customers may redeem their points for gifts. Generally, points earned in a given year must be redeemed no later than ninety days subsequent to the end of the annual program period. The Company accrues the estimated costs of the anticipated redemptions of the points earned by its customers at the time of the initial customer purchase and charges such costs to selling, general and administrative expense. The estimates of the costs associated with the loyalty programs require the Company to make assumptions related to customer purchasing levels, redemption rates and costs of awards to be chosen by its customers.

Income taxes. The Company does business in various jurisdictions that impose income taxes. Management determines the aggregate amount of income tax expense to accrue and the amount currently payable based upon the tax statutes of each jurisdiction. This process involves adjusting income determined using generally accepted accounting principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities are reflected on the Company’s balance sheet for temporary differences that will reverse in subsequent years. If different judgments had been made, the Company’s tax expense, assets and liabilities could have been different.

Other estimates. Management uses estimates in the determination of the required accruals for general liability, workers’ compensation and health insurance as well as short-term disability, pension and postretirement health care benefits. These estimates are based upon examination of historical trends, industry claims experience and, in certain cases, calculations performed by third-party experts. Projected claims information may change in the future and may require management to revise these accruals.

The Company is periodically involved in various legal actions arising in the normal course of business. Management is required to assess the probability of any adverse judgments as well as the potential range of any losses. Management determines the required accruals after a careful review of the facts of each legal action. The Company’s accruals may change in the future due to new developments in these matters.

OVERVIEW

The Company, together with its operating divisions and subsidiaries, is a high-end specialty retailer. The Company’s operations include the Specialty Retail Stores segment and the Direct Marketing segment.

The Specialty Retail Stores segment consists primarily of Neiman Marcus and Bergdorf Goodman stores. Approximately 83 percent of the Company’s revenues were generated by its Specialty Retail Stores in fiscal year 2002. The Company opened new stores in Palm Beach, Florida in November 2000 and Tampa, Florida in September 2001 and opened a replacement store in Plano, Texas in August 2001. In September 2002, the Company opened a new store in Coral Gables, Florida and in October 2002, the Company expects to open a new store in Orlando, Florida. The Company currently plans to open two new Neiman Marcus stores, one in fiscal year 2005 and one in fiscal year 2006. In fiscal year 2002, average store revenues per gross square foot were $481, down from $511 for fiscal year 2001. The Company has consistently focused on renovating and modernizing its stores to improve productivity. The Company’s strategy is to improve average transaction amounts and comparable revenue growth with carefully edited assortments and marketing and customer loyalty programs that are designed to increase its customers’ awareness of merchandise offerings in its stores.

The Direct Marketing segment conducts both print catalogue and online operations under the Neiman Marcus, Horchow and Chef’s Catalogue brand names.

In November 1998, the Company acquired a 51 percent interest in Gurwitch Bristow Products, LLC, which distributes and markets the Laura Mercier cosmetic line, for $6.7 million. In February 1999, the Company acquired a 56 percent interest in Kate Spade LLC, a manufacturer and retailer of high-end designer handbags and accessories, for $33.6 million.

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The Company’s fiscal year ends on the Saturday closest to July 31. All references to fiscal year 2002 relate to the fifty-three weeks ended August 3, 2002; all references to fiscal year 2001 relate to the fifty-two weeks ended July 28, 2001 and all references to fiscal year 2000 relate to the fifty-two weeks ended July 29, 2000.

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

Set forth in the following table is certain summary information with respect to the Company’s operations for the most recent three fiscal years.

OPERATING RESULTS

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(2)		Other includes the operations of Kate Spade LLC, Gurwitch Bristow Products, LLC and corporate expenses.
(3)		Segment operating earnings for fiscal year 2002 exclude 1) a gain of $16.6 million from the change in vacation policy made by the Company in the third quarter and 2) $13.2 million of impairment and other charges, related primarily to the impairment of certain long-lived assets. Segment operating earnings for fiscal year 2001 exclude a $9.8 million impairment charge related to the Company’s investment in a third-party internet retailer.

FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001

Revenues. Revenues for fiscal year 2002 of $2.95 billion decreased $67.2 million, or 2.2 percent, from $3.02 billion in the prior year. Total revenues for fiscal year 2002 included sales of approximately $36.6 million for the fifty-third week of fiscal 2002.

The decrease in revenues in fiscal year 2002 was primarily attributable to a 4.6 percent decrease in comparable revenues for the fifty-two weeks ended July 27, 2002 compared to the fifty-two weeks ended July 28, 2001. The comparable sales decrease was offset, in part, by the revenues from one new Neiman Marcus store in Tampa, Florida and one new clearance store in Atlanta, Georgia, each of which was opened during the first quarter of fiscal year 2002. In addition, the Company opened a new clearance store in Grapevine, Texas in April 2002.

Comparable revenues for the fifty-two weeks ended July 27, 2002 compared to the fifty-two weeks ended July 28, 2001 decreased 5.3 percent for Specialty Retail Stores, offset, in part by an increase of 0.2 percent for Direct Marketing. The Company believes the decline in comparable revenues for Specialty Retail Stores for the fifty-two weeks ended July 27, 2002 compared to the fifty-two weeks ended July 28, 2001 was due, in part, to 1) the elimination of certain promotional events conducted in fiscal year 2001 in order to lower inventory levels, 2) general economic conditions, 3) the softening in the retail industry that began in fiscal year 2001 and 4) a decrease in retail spending after the events of September 11, 2001. The net increase in comparable revenues for Direct Marketing reflects an increase in revenues from the Company’s online operations offset, in part, by a decline in revenues from the Direct Marketing catalogue operations. As to the Direct Marketing catalogue operations, the Company believes the decrease in its comparable revenues for the fifty-two weeks ended July 27, 2002 compared to the fifty-two weeks ended July 28, 2001 was impacted by 1) the planned reduction in circulation schedules, 2) the elimination of certain catalogues, 3) general economic conditions and 4) a decrease in retail spending after the events of September 11, 2001. Comparable revenues for the Brand Development companies declined in fiscal year 2002 with a decrease for Kate Spade LLC being offset, in part, by an increase for Gurwitch Bristow Products, LLC.

Gross margin. Gross margin was 32.3 percent of revenues for fiscal year 2002 compared to 33.0 percent for fiscal year 2001. The decline in gross margin was primarily due to increases, as a percentage of revenues, in buying and occupancy costs and markdowns offset, in part, by favorable inventory count results in the fourth quarter of fiscal 2002.

A significant portion of the Company’s buying and occupancy costs are fixed in nature. As a result, buying and occupancy costs increased as a percentage of revenues for fiscal year 2002 compared to fiscal year 2001 as a result of the decline in revenues. Additionally, buying and occupancy costs as a percentage of revenues were higher for new stores than for mature stores.

Markdowns increased, as a percentage of revenues, by approximately 0.6 percent in fiscal year 2002 compared to fiscal year 2001. The Company incurred a higher level of markdowns in the first and second quarters of fiscal year 2002 than in the corresponding periods in the prior year in connection with additional and more aggressive promotional events. These fiscal year 2002 events were necessary to clear inventories in response to declines in retail sales. However, markdowns were lower in the third quarter and fourth quarter of fiscal year 2002 than in the same periods in fiscal year 2001. In the third and fourth quarters of fiscal year 2002, the Company was able to eliminate certain markdowns taken in connection with promotional events that were held in the prior year to lower inventory levels in response to the lower-than-anticipated sales levels achieved in the third and fourth quarters of fiscal year 2001.

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Selling, general and administrative expenses.    Selling, general and administrative expenses (SG&A) were 26.3 percent of revenues in fiscal year 2002 compared to 26.2 percent of revenues in fiscal year 2001. The increase in SG&A as a percentage of revenues in the current year was primarily due to 1) higher health care and various tax expenses, 2) a higher ratio of SG&A to revenues for the Company’s less mature stores, 3) an increased level of incentive compensation and 4) higher preopening costs.

The increases in SG&A were partially offset by 1) a lower level of SG&A as a percentage of revenues for the Company’s more mature stores due, in part, to various cost reduction strategies initiated by the Company, 2) lower catalogue production and circulation costs due to the elimination of certain unprofitable catalogues by Direct Marketing and 3) higher income received in connection with the Company’s undivided interests in the NMG Credit Card Master Trust as a result of a decline in interest rates.

Segment operating earnings.    Operating earnings for the Specialty Retail Stores segment were $170.5 million in fiscal year 2002 compared to $201.0 million in fiscal year 2001. This decrease was primarily the result of lower sales and an increase in both buying and occupancy expenses and SG&A expenses as a percentage of revenues derived from the Company’s less mature stores in fiscal 2002. Operating earnings for Direct Marketing increased to $22.8 million in fiscal year 2002 from $11.1 million in fiscal year 2001 primarily as a result of an improvement in the operating performance of the Company’s online operations and the elimination of certain unprofitable catalogues. Operating losses reported as Other were $19.0 million compared to losses of $8.7 million in fiscal 2001. The increase in loss related to Other was primarily due to lower earnings for the Brand Development companies as a result of a decline in earnings at Kate Spade LLC and increased expenses for professional fees, medical expenses and incentive compensation.

Effect of change in vacation policy.    During the third quarter of fiscal year 2002, the Company terminated its prior vacation plan and the Board of Directors of the Company approved a new policy related to vacation pay for its employees. The new policy was communicated to employees during the third quarter of fiscal 2002. Pursuant to the new policy, which was effective as of April 28, 2002, eligible employees earn vacation pay ratably over the course of the year in which the services are rendered.

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

With the termination of the prior vacation plan, the previously recorded vacation liability of $16.6 million, which amount represented the vacation time that would have been granted to employees on April 28, 2002 pursuant to the previous plan, was eliminated and credited to operating earnings in the third quarter of fiscal year 2002. The new policy will not have a material impact on the amount of vacation expense recorded by the Company on an annual basis in the future.

Impairment and other charges.    In the fourth quarter of fiscal year 2002, the Company recorded a $3.1 million pretax impairment charge. The charge related to the write-down of the net carrying values of the fixed assets of three Kate Spade LLC stores to estimated fair value.

In the third quarter of fiscal year 2002, the Company recorded an $8.2 million pretax impairment charge. The charge related to 1) the write-off of the remaining net carrying value of its cost method investment in WeddingChannel.com, Inc. in light of its continued operating losses, 2) the write-down of the carrying values of the fixed assets of two Neiman Marcus Galleries stores to estimated fair value and 3) the accrual of the estimated loss associated with the abandonment of excess warehouse space held by the Company pursuant to a long-term operating lease.

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In the second quarter of fiscal year 2002, the Company incurred expenses of approximately $2.0 million in connection with certain cost reduction strategies. These expenses consisted primarily of severance costs and lease termination expenses incurred in connection with the closing of the Neiman Marcus Galleries store in Seattle, Washington.

Interest expense, net.    Interest expense was $15.4 million for fiscal year 2002 compared to $15.2 million for fiscal year 2001. The increase in net interest expense of $0.2 million was primarily due to increased interest costs associated with borrowings on the Company’s Revolving Credit Facility in the second quarter of fiscal year 2002 and by lower investment interest income offset, in part, by an increase in capitalized interest charges associated with store development.

Income taxes.    The Company’s effective income tax rate was 38 percent in both fiscal year 2002 and fiscal year 2001.

FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000

Revenues. Revenues in fiscal year 2001 increased $89.2 million to $3.02 billion from $2.93 billion in fiscal year 2000. The 3.0 percent increase was primarily attributable to increased comparable revenues and revenue generated by one new store added during the fiscal year. Comparable revenues for fiscal year 2001 increased 1.2 percent for Specialty Retail Stores and 8.0 percent for Direct Marketing.

The Company began to experience a decline in its comparable revenues beginning in the second quarter of fiscal year 2001. Comparable revenues increased by 10.4 percent in the first quarter, increased by 1.7 percent in the second quarter, decreased by 1.4 percent in the third quarter and decreased by 1.5 percent in the fourth quarter. The Company believes the comparable revenue decreases were due primarily to economic conditions and a general softening in the retail industry.

Gross margin.    Gross margin was 33.0 percent of revenues for fiscal year 2001 compared to 34.4 percent of revenues for fiscal year 2000. As a percentage of revenues, the decline in gross margin was primarily due to higher inventory markdowns taken in the fourth quarter of fiscal year 2001 as a result of a general decline in retail sales.

Selling, general and administrative expenses.    As a percentage of revenues, SG&A increased to 26.2 percent for fiscal year 2001 from 26.0 percent for fiscal year 2000. The increase in SG&A as a percentage of revenues was primarily the result of higher marketing costs associated with the selling of markdown inventories, transition costs of approximately $3.0 million related to the corporate headquarters relocation from Chestnut Hill, Massachusetts to Dallas, Texas and the deleveraging of the fixed cost component of SG&A on lower sales in the third and fourth quarters of fiscal 2001. These increases were partially offset by lower incentive compensation in fiscal year 2001 and lower costs incurred in connection with the Company’s online operations conducted by NeimanMarcus.com. NeimanMarcus.com was launched in October 1999.

Segment operating earnings.    Operating earnings were $193.6 million for fiscal year 2001 compared to $248.4 million for fiscal year 2000. Total operating earnings, excluding a $9.8 million impairment charge related to an investment in a third party internet retailer, were $203.4 million in fiscal year 2001.

Operating earnings for Specialty Retail Stores were $201.0 million in fiscal year 2001 compared to $248.5 million in fiscal year 2000. This decrease in operating earnings for Specialty Retail Stores was primarily due to higher inventory markdowns at both Neiman Marcus and Bergdorf Goodman stores in fiscal year 2001. Operating earnings for Direct Marketing were increased to $11.1 million in fiscal year 2001 from $1.7 million in fiscal year 2000 primarily as a result of an improvement in the operating performance of the Company’s online operations.

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Impairment of investment in third-party internet retailer.    During the fourth quarter of fiscal year 2001, the Company recorded an impairment charge of $9.8 million, which represents the Company’s adjustment to state the carrying value of its cost method investment in WeddingChannel.com, Inc. at its estimated fair value. WeddingChannel.com, Inc. is a bridal registry service that supports the Company’s strategic initiative to expand its gift business. At July 28, 2001, the carrying value of the Company’s investment in WeddingChannel.com, Inc. was approximately $3.0 million.

Interest expense, net.    Net interest expense was $15.2 million for fiscal year 2001 compared to $25.4 million for fiscal year 2000. The decrease of $10.2 million was principally due to lower average borrowings and reduced interest rates. In the prior year, the Company had higher average borrowings which resulted primarily from borrowings incurred to repay the Company’s securitization upon maturities during the second half of fiscal year 2000.

Income taxes.    The Company’s effective income tax rate was 38 percent in both fiscal year 2001 and fiscal year 2000.

QUARTERLY DATA AND SEASONALITY

The specialty retail industry is seasonal in nature and a disproportionately higher level of the Company’s revenues and earnings are generated in the fall and holiday selling seasons. The Company’s working capital requirements and inventories increase substantially in the first quarter in anticipation of the holiday selling season.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s cash requirements consist principally of funding inventory growth, capital expenditures for new store growth and renovations, upgrading its management information systems and debt service. As of August 3, 2002, the Company had cash and equivalents of $178.6 million. The Company’s working capital requirements fluctuate during the year, increasing substantially during the fall season as a result of higher planned seasonal inventory levels.

Net cash provided by operating activities was $212.4 million for fiscal year 2002 and $131.9 million for fiscal year 2001. The net cash provided by operating activities in fiscal year 2002 increased from the prior year primarily due to a decline in the growth in the Company’s investment in inventories and increases in accounts payable and accrued liabilities.

Net cash used for investing activities was $137.1 million for fiscal year 2002 and $129.1 million for fiscal year 2001. The net cash used for investing activities increased in fiscal year 2002 principally as a result of increased capital expenditures.

The Company’s capital expenditures in fiscal year 2002 primarily included costs related to the construction of new stores and the renovation of existing stores. Capital expenditures were $149.2 million in fiscal year 2002, $120.0 million in fiscal year 2001 and $89.0 million in fiscal year 2000. During fiscal year 2002, the Company invested approximately $46.3 million to renovate its existing stores. In fiscal year 2002, major projects included store renovations in San Francisco, California; Las Vegas, Nevada; Newport Beach, California and the construction of new stores in Orlando, Florida and Coral Gables, Florida. The Company currently projects capital expenditures for fiscal year 2003 to be approximately $120 million to $130 million primarily for new stores, store renovations and upgrades to information systems.

Net cash provided by financing activities was $6.1 million in fiscal year 2002. Net cash used for financing activities was $80.9 million in fiscal year 2001. In fiscal year 2002, the Company borrowed and repaid $130 million on the Company’s revolving credit facility. During fiscal year 2001, the Company repaid $80 million of borrowings on the Company’s revolving credit facility borrowed in the prior year.

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Effective August 26, 2002, the Company entered into a three-year unsecured revolving credit agreement (the Credit Agreement) with a group of eleven banks that provides for borrowings of up to $300 million. The rate of interest payable is based on one of two pricing options selected by the Company, the level of outstanding borrowings and rating of the Company’s senior unsecured long-term debt by Moody’s and Standard & Poor’s. The pricing options available to the Company are based on either LIBOR plus 0.525 percent to 1.625 percent or a base rate, based on either the Prime Rate or Federal Funds Rate, plus up to .625 percent. Changes in the ratings of the senior unsecured long-term debt do not represent an event of default, accelerate repayment of any outstanding borrowings or alter any other terms of the Credit Agreement. The Credit Agreement contains covenants which require the Company to maintain certain leverage and fixed charge ratios. The Credit Agreement replaces a previous $450 million unsecured credit facility. At August 3, 2002, the Company had no borrowings outstanding under its previous unsecured credit facility.

Pursuant to a revolving credit card securitization program that begins to expire in September 2005, the Company sold substantially all of the Company’s credit card receivables through a subsidiary to the NMG Credit Card Master Trust in exchange for certificates representing undivided interests in such receivables. The Class A Certificates, which have an aggregate principal value of $225 million, were sold to investors. The holders of the Class A Certificates are entitled to monthly interest distributions at the contractually-defined rate of one month LIBOR plus 0.27 percent annually. The distributions to the Class A Certificate holders are payable from the finance charge income generated by the credit card receivables held by the Trust.

In May 1998, the Company issued $250 million of unsecured senior notes and debentures to the public. The debt is comprised of $125 million of 6.65 percent senior notes, due 2008 and $125 million of 7.125 percent senior debentures, due 2028. Interest on the securities is payable semiannually. Based upon quoted prices, the fair value of the Company’s senior notes and debentures was $249.9 million as of August 3, 2002 and $220.6 million as of July 28, 2001.

The following tables summarize significant contractual obligations of the Company as of August 3, 2002:

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As of August 3, 2002, the Company may repurchase up to 1,924,600 shares of common stock pursuant to a prior authorization of the Board of Directors.

Management believes that operating cash flows, currently available vendor financing and amounts available pursuant to its $300 million revolving credit agreement and its credit card securitization program should be sufficient to fund the Company’s operations, debt service and currently anticipated capital expenditure requirements through the end of fiscal year 2003.

IMPACT OF INFLATION

The Company believes changes in revenues and net earnings that have resulted from inflation and changing prices have not been material during the periods presented. The Company adjusts selling prices to maintain certain profit levels and will continue to do so as economic conditions permit. There is no assurance, however, that inflation will not materially affect the Company in the future.

RECENT ACCOUNTING PRONOUNCEMENTS

During June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142, upon adoption, eliminates goodwill amortization and the amortization of other indefinite-lived intangible assets. However, goodwill and indefinite-lived intangibles will be subject to at least an annual assessment for impairment by applying a fair value-based test. The Company will adopt the provisions of SFAS No. 142 as of the beginning of fiscal year 2003. The Company is in the process of finalizing the valuations of its intangible assets established in connection with prior acquisitions. Based upon its review of the procedures and preliminary valuation results of its third party appraisal experts, the Company anticipates recording a pretax charge of approximately $25 to $30 million in the first quarter of fiscal year 2003 as a result of implementing the fair value model of the new accounting standard.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of” and Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale, resolves implementation issues related to Statement No. 121 and expands the reporting of discontinued operations. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company does not expect the implementation of SFAS No. 144 to have a material impact on the Company’s consolidated financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in the Company’s financial instruments represents the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. The Company does not enter into derivative financial instruments for trading purposes.

The Company seeks to manage exposure to adverse interest rate changes through its normal operating and financing activities. The Company is exposed to interest rate risk through its securitization and borrowing activities, which are described in Item 14 below.

Future borrowings under the Company’s Credit Agreement, to the extent of outstanding borrowings, would be affected by interest rate changes. As of August 3, 2002, the Company had no borrowings outstanding under this facility. The Company does not believe that a change of 100 basis points in interest rates would have a material effect on the Company’s consolidated financial condition.

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The Company’s outstanding long-term debt as of August 3, 2002 is at fixed interest rates and would not be affected by interest rate changes. Based upon quoted prices, the fair value of the Company’s senior notes and debentures was $249.9 million as of August 3, 2002 and $220.6 million as of July 28, 2001.

Pursuant to a revolving credit card securitization program that begins to expire in September 2005, the Company sold substantially all of the Company’s credit card receivables through a subsidiary to the NMG Credit Card Master Trust (the Trust) in exchange for certificates representing undivided interests in such receivables. The Class A Certificates, which have an aggregate principal value of $225 million, were sold to investors. The holders of the Class A Certificates are entitled to monthly interest distributions from the Trust at the contractually-defined rate of one month LIBOR plus 0.27 percent annually. The distributions to the Class A Certificate holders are payable from the finance charge income generated by the credit card receivables held by the Trust. At August 3, 2002, the Company estimates a 100 basis point increase in LIBOR would result in an approximate annual decrease of $2.25 million in the income to the Company from its Retained Interests in the credit card portfolio held by the Trust.

The Company uses derivative financial instruments to manage foreign currency risk related to the procurement of merchandise inventories from foreign sources. The Company enters into foreign currency contracts denominated in the euro and British pound. The Company had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $32.7 million as of August 3, 2002 and approximately $46.2 million as of July 28, 2001. The market risk inherent in these instruments was not material to the Company’s consolidated financial condition, results of operations, or cash flows in fiscal year 2002, fiscal year 2001 or fiscal year 2000.

Based on a review of the Company’s financial instruments outstanding at August 3, 2002 that are sensitive to market risks, the Company has determined that there was no material market risk exposure to the Company’s consolidated financial position, results of operations, or cash flows as of such date.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following Consolidated Financial Statements of the Company and supplementary data are included as pages F-1 through F-29 at the end of this Annual Report on Form 10-K:

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

         None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of the Registrant

The information set forth under the headings “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Shareholders is incorporated herein by reference.

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Executive Officers of the Registrant

Set forth below are the names, ages at October 2, 2002 and principal occupations for the last five years of each executive officer of the Company. All such persons have been elected to serve until the next annual election of officers or until their earlier resignation or removal.

Burton M. Tansky — 64
         President and Chief Executive Officer since May 2001. Mr. Tansky served as President and Chief Operating Officer of the Company from December 1998 until May 2001; he served as Executive Vice President of the Company from February 1998 until December 1998 and served as Chairman and Chief Executive Officer of Neiman Marcus Stores from May 1994 until February 1998. He also served as Chairman and Chief Executive Officer of Bergdorf Goodman from 1990 until 1994.

James E. Skinner — 49
         Senior Vice President and Chief Financial Officer since June 28, 2001. Prior to joining the Company, Mr. Skinner served as Senior Vice President and Chief Financial Officer of Caprock Communications Corp. from August 2000 through December 2000; and served as Executive Vice President, Chief Financial Officer and Treasurer for CompUSA Inc. from 1994 until 2000.

Nelson A. Bangs — 49
         Senior Vice President and General Counsel since April 17, 2001. Prior to joining the Company, Mr. Bangs engaged in a private consulting and law practice from January 1999 to April 2001; served as Senior Vice President and General Counsel of Pillowtex Corporation from April 1998 until January 1999; and served as Senior Vice President, General Counsel and Secretary of Dr Pepper/Seven Up, Inc. (and predecessors) prior thereto.

Marita O’Dea — 53
         Vice President, Human Resources since June 19, 2001. Also, Ms. O’Dea has served as Senior Vice President of Human Resources of Neiman Marcus Stores since 1995.

Gerald A. Sampson — 61
         President and Chief Operating Officer of Neiman Marcus Stores for the previous nine years.

Ronald L. Frasch — 53
         Chairman and Chief Executive Officer of Bergdorf Goodman since April 2000. Prior to joining the Company Mr. Frasch served as President of GFT, USA, a manufacturer of designer apparel, from July 1996 until December 1999; and served as President and Chief Executive Officer of Escada USA prior thereto.

Karen W. Katz — 45
         President and Chief Executive Officer of Neiman Marcus Direct since May 2000. Ms. Katz served as Executive Vice President of Neiman Marcus Stores from February 1998 until May 2000; served as Senior Vice President and Director of Neiman Marcus Stores from September 1996 until February 1998; and served as Vice President and General Manager of the Dallas NorthPark Neiman Marcus store prior thereto.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the heading “Executive and Director Compensation” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the heading “Stock Ownership of Certain Beneficial Owners and Management” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Shareholders is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the headings “Certain Relationships and Transactions” and “Executive Compensation – Compensation Committee Interlocks and Insider Participation” in the Company’s definitive Proxy Statement for the 2003 Annual Meeting of Shareholders is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         The following documents are filed as part of this report.

1.

Financial Statements

         The list of financial statements required by this item is set forth in Item 8.

2.

Index to Financial Statement Schedules

All other financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable.

3.

Reports on Form 8-K

The Company did not file any reports on Form 8-K during the quarter ended August 3, 2002.

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4.

Exhibits

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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INDEPENDENT AUDITORS’ REPORT

Board of Directors and Shareholders
The Neiman Marcus Group, Inc.
Dallas, Texas

We have audited the accompanying consolidated balance sheets of The Neiman Marcus Group, Inc. and subsidiaries as of August 3, 2002 and July 28, 2001, and the related consolidated statements of earnings, cash flows, and shareholders’ equity for each of the three years in the period ended August 3, 2002. Our audits also included the financial statement schedule of The Neiman Marcus Group, Inc. and subsidiaries, listed in the Index in Item 14. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Neiman Marcus Group, Inc. and subsidiaries as of August 3, 2002 and July 28, 2001, and the results of their operations and their cash flows for each of the three years in the period ended August 3, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/DELOITTE & TOUCHE LLP

Dallas, Texas
September 10, 2002

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THE NEIMAN MARCUS GROUP, INC.
CONSOLIDATED BALANCE SHEETS