UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended August 2, 2014

OR

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

For the transition period from                  to

Commission file no. 333-133184-12

Neiman Marcus Group LTD LLC

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	20-3509435 (I.R.S. Employer Identification No.)
1618 Main Street Dallas, Texas (Address of principal executive offices)	75201 (Zip code)

Registrant’s telephone number, including area code: (214) 743-7600

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨  No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ý  No ¨

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 ¨  No ý

(Note: The registrant is a voluntary filer and not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. Although not subject to these filing requirements, the registrant has filed all reports that would have been required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months had the registrant been subject to such requirements.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý  No ¨

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. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ¨  No ý

The registrant is privately held. There is no trading in the registrant's membership units and therefore an aggregate market value based on the registrant's membership units is not determinable.

NEIMAN MARCUS GROUP LTD LLC

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 2, 2014

TABLE OF CONTENTS

		Page No.
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	23
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosures	26
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	54
Item 8.	Financial Statements and Supplementary Data	54
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	54
Item 9A.	Controls and Procedures	54
Item 9B.	Other Information	55
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	56
Item 11.	Executive Compensation	61
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	84
Item 13.	Certain Relationships and Related Transactions, and Director Independence	88
Item 14.	Principal Accounting Fees and Services	89
PART IV
Item 15.	Exhibits, Financial Statement Schedules	90
Signatures	Signatures	94

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PART I

ITEM 1.     BUSINESS

Business Overview

We are one of the largest luxury, multi-branded, omni-channel fashion retailers in the world. We offer distinctive merchandise to a highly loyal and affluent customer base. With a history of over 100 years in retailing, the Neiman Marcus and Bergdorf Goodman brands are recognized as synonymous with fashion, luxury and style. We have established ourselves as a leading fashion authority among luxury consumers and are a premier retail partner for many of the world’s most exclusive designers. In fiscal year 2014, we generated revenues of $4.8 billion, which was an increase of 4.1% from fiscal year 2013, operating earnings of $41.0 million, or 0.8% of revenues, and Adjusted EBITDA of $677.6 million, or 14.0% of revenues. For an explanation of Adjusted EBITDA as a measure of our operating performance and a reconciliation to net (loss) earnings, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measure — EBITDA and Adjusted EBITDA."

In our omni-channel retailing model, we operate in both the in-store and online retail channels to provide our customers with the ability to shop “anytime, anywhere, any device.” We believe this omni-channel model maximizes the recognition of our brands and strengthens our customer relationships. We are investing and plan to continue to invest resources to further enhance the customer’s seamless shopping experience across channels, which is consistent with our customers’ expectations as well as our core value of exceptional customer service. We report our store operations as our Specialty Retail Stores segment and our direct-to-consumer operations as our Online segment.

We currently operate 41 Neiman Marcus full-line stores in prime retail locations in major U.S. markets, including U.S. gateway cities that draw customers from all over the world. In addition, we operate two Bergdorf Goodman stores in landmark locations on Fifth Avenue in New York City. Neiman Marcus and Bergdorf Goodman cater to a highly affluent customer, offering distinctive luxury women’s and men’s apparel and accessories, handbags, cosmetics, shoes and designer and precious jewelry. In addition, we operate 38 off-price, smaller format stores under the brand Last Call^® catering to an aspirational, price-sensitive yet fashion-minded customer. We also operate six smaller format stores under the brand CUSP^® catering to a younger customer focused on contemporary fashion.

We complement our in-store operations with direct-to-consumer sales through our Online business, which currently generates annual revenues of over $1.1 billion, primarily through our e-commerce websites under the brands Neiman Marcus^®, Bergdorf Goodman^®, Last Call^®, CUSP^® and Horchow^®. Our well-established, online operation expands the reach of our brands beyond the trading area of our U.S. retail stores. In addition, we have taken recent steps to globalize our Neiman Marcus brand. In 2012, we launched international shipping to over 100 countries, including Canada, Japan, Australia, Russia and several countries in the Middle East. Almost 40% of our online Neiman Marcus customers for fiscal year 2014 were located outside of the trade areas of our existing full-line store locations. We also use our online operations as selling and marketing tools to increase the visibility and exposure of our brands and generate customer traffic within our retail stores.

The Acquisition

On April 22, 2005, the Company (formerly Neiman Marcus Group LTD Inc. and Neiman Marcus, Inc.) was formed and incorporated in the state of Delaware by investment funds affiliated with TPG Global, LLC (together with its affiliates, TPG) and Warburg Pincus LLC (together with TPG, the Former Sponsors) for purposes of acquiring NMG (as defined below) on October 6, 2005. From such date until the Acquisition (as defined below) by our Sponsors (as defined below), the Company was a subsidiary of Newton Holding, LLC.     

On October 25, 2013, the Company merged with and into Mariposa Merger Sub LLC (Mariposa) pursuant to an Agreement and Plan of Merger, dated September 9, 2013, by and among NM Mariposa Holdings, Inc. (Parent), Mariposa and the Company, with the Company surviving the merger (the Acquisition). As a result of the Acquisition and Conversion (as defined below), the Company is now a direct subsidiary of Mariposa Intermediate Holdings LLC (Holdings), which in turn is a direct subsidiary of Parent. Parent is owned by private investments funds affiliated with Ares Management, L.P. (Ares) and Canada Pension Plan Investment Board (CPPIB, and together with Ares, the Sponsors) and certain co-investors. On October 28, 2013, the Company and NMG each converted from a Delaware corporation to a Delaware limited liability company (the Conversion).

The Company's operations are conducted through its wholly owned subsidiary, The Neiman Marcus Group LLC (formerly The Neiman Marcus Group, Inc.) (NMG).    

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The Acquisition was financed by:

• borrowings of $75.0 million under our senior secured asset-based revolving credit facility (Asset-Based Revolving Credit Facility);

• borrowings of $2,950.0 million under our senior secured term loan facility (Senior Secured Term Loan Facility and, together with the Asset-Based Revolving Credit Facility, the Senior Secured Credit Facilities);

• issuance of $960.0 million aggregate principal amount of 8.00% senior cash pay notes due 2021 (Cash Pay Notes);

• issuance of $600.0 million aggregate principal amount of 8.75%/9.50% senior PIK toggle notes due 2021 (PIK Toggle Notes); and

• $1,583.3 million of equity investments from Parent funded by direct and indirect equity investments from the Sponsors, certain co-investors and management.

The Acquisition occurred simultaneously with:

• the closing of the financing transactions and equity investments described previously;

• the termination of our former $700.0 million senior secured asset-based revolving credit facility (Former Asset-Based Revolving Credit Facility); and

• the termination of our former $2,560.0 million senior secured term loan facility (Former Senior Secured Term Loan Facility and, together with the Former Asset-Based Revolving Credit Facility, the Former Senior Secured Credit Facilities).

The accompanying Consolidated Financial Statements are presented as "Predecessor" or "Successor" to indicate whether they relate to the period preceding the Acquisition or the period succeeding the Acquisition, respectively. The Acquisition and the allocation of the purchase price have been recorded for accounting purposes as of November 2, 2013, the end of our first quarter of fiscal year 2014. All significant intercompany accounts and transactions have been eliminated.

We have prepared our discussion of the results of operations for the fiscal year ended August 2, 2014 by comparing the results of operations of the Predecessor for the fiscal year ended August 3, 2013 to the combined amounts obtained by adding the operations and cash flows for the Predecessor thirteen week period ended November 2, 2013 and the Successor thirty-nine week period ended August 2, 2014. Although this combined presentation does not comply with U.S. generally accepted accounting principles (GAAP), we believe that it provides a meaningful method of comparison. The combined operating results have not been prepared on a pro forma basis under applicable regulations and may not reflect the actual results we would have achieved absent the Acquisition and may not be predictive of future results of operations.

Our fiscal year ends on the Saturday closest to July 31.  Like many other retailers, we follow a 4-5-4 reporting calendar, which means that each fiscal quarter consists of thirteen weeks divided into periods of four weeks, five weeks and four weeks.  This resulted in an extra week in fiscal year 2013 (the 53^rd week). All references to fiscal year 2014 relate to the combined fifty-two weeks ended August 2, 2014 (calculated as described in the paragraph above). All references to fiscal year 2013 relate to the fifty-three weeks ended August 3, 2013 and all references to fiscal year 2012 relate to the fifty-two weeks ended July 28, 2012.  References to fiscal year 2015 and years thereafter relate to our fiscal years for such periods.

In connection with the Acquisition, we incurred significant indebtedness and became highly leveraged. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." In addition, the purchase price paid in connection with the Acquisition has been allocated to state the acquired assets and liabilities at fair value. The purchase accounting adjustments increased the carrying value of our property and equipment and inventory, revalued intangible assets for our tradenames, customer lists and favorable lease commitments and revalued our long-term benefit plan obligations, among other things. Subsequent to the Acquisition, interest expense and non-cash depreciation and amortization charges have increased significantly. As a result, our Successor financial statements subsequent to the Acquisition are not necessarily comparable to our Predecessor financial statements.

Our Market and Competitive Strengths

We operate in the luxury apparel and accessories segment of the retail industry and market and sell merchandise, both in-store and online. Our luxury-branded fashion vendors include, among others, Chanel, Gucci, Prada, David Yurman, Ermenegildo Zegna, Giorgio Armani, Michael Kors, Brunello Cucinelli, Valentino, Christian Louboutin, Van Cleef & Arpels

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and Tom Ford. Luxury and fashion brands intentionally maintain limited distribution of their merchandise to maximize brand exclusivity and to facilitate the sale of their goods at premium prices. Our omni-channel model offers our designers a distinctive distribution channel that adheres to their standards with respect to brand image and customer service. As a result, we believe we are the largest worldwide partner to many luxury brands. Additionally, we often work with less mature brands that are emerging in the fashion and luxury industry. We have a long history of identifying, developing and nurturing these emerging brands. This combination of established and new designers distinguishes our merchandise assortment and customer shopping experience.

We believe the following strengths differentiate us from our competitors.

One of the largest luxury, multi-branded, omni-channel retailers enabling us to reach the wealthiest consumers worldwide

We are one of the largest luxury, multi-branded, omni-channel fashion retailers in the world with what we believe to be two of the most globally recognized and reputable luxury brands—Neiman Marcus and Bergdorf Goodman. With a history of over 100 years in retailing, our iconic brands are recognized as synonymous with fashion, luxury and style. We have an extensive omni-channel platform across our brands. Our significant investments in our omni-channel model enable our customers to shop “anytime, anywhere, any device.” Our stores are located in prime locations in metropolitan markets, including U.S. gateway cities that draw customers from around the world such as New York City, Miami, Los Angeles, San Francisco and Las Vegas. Our online operation enables us to reach the world’s wealthiest consumers, which is critical to addressing the needs of our evolving global, fashion-conscious luxury consumers. We believe that our size, our reach, our reputation and our long-term relationships with designers allow us to obtain a better brand selection and a higher allocation of top merchandise.

Highly productive store base offering our customers a differentiated and personalized shopping experience

We have a highly profitable and productive store base in many of the country’s most prestigious locations. The combined store productivity of our Neiman Marcus and Bergdorf Goodman stores was $579 per foot for fiscal year 2014. Our shopping experience is highly differentiated. We offer our customers a curated selection of merchandise tailored to local aesthetics. Each of our stores is individually designed by market and provides a sumptuous shopping environment with high-end finishings, artwork and, in most cases, in-store restaurants. When combined with our strong selling culture, our stores provide our customers with a luxurious and enjoyable shopping experience.

Through Bergdorf Goodman, we believe we are the premier luxury multi-branded retailer in New York City, providing our customers with a shopping experience that we believe to be unlike any other. Located in landmark Fifth Avenue locations near Central Park and The Plaza Hotel, we believe Bergdorf Goodman represents an iconic shopping destination in Manhattan for both U.S. and international customers. The stores offer ultra-luxury merchandise and provide a desirable showcase for both established and emerging fashion brands.

Exceptional real estate locations with favorable terms for full-line stores

We believe our full-line stores have the highest quality locations across the United States, a footprint that would be challenging to replicate. Our full-line stores are situated among the highest-end luxury boutiques and upscale retailers in the most prestigious shopping centers, malls and other metropolitan shopping destinations that are frequented by the wealthiest of customers. We believe that our brand, reputation and strength in the luxury market have allowed us to obtain our premier locations on favorable terms. Our real estate strategy with respect to our full-line stores allows us to obtain favorable pricing, resulting in an attractive rent structure.

Leader in luxury online retailing with the largest assortment of luxury brands

We believe that we were one of the first major luxury fashion online retailers in the world, which positions us well as a leader in this evolving channel. Our online operation currently accounts for annual revenues of over $1.1 billion, which we believe makes it one of the largest luxury, multi-branded online platforms. This represents a compounded annual growth rate of approximately 15% since fiscal year 2011. We believe that our scale and success allow us to provide our customers with an assortment of luxury merchandise online that is unmatched by other U.S. luxury and premium multi-branded retailers. Furthermore, our online data analytics capabilities allow us to tailor our marketing and provide our customers with a highly personalized shopping experience.  At approximately 24% of our total revenues in fiscal year 2014, our online retailing operation represents a critical component of our integrated omni-channel strategy.

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Leading portfolio of established and emerging luxury and fashion brands

As a leading fashion authority among luxury consumers, we carry many of the world’s most exclusive designers. We have highly skilled merchandising teams for each of our brands, which enable us to optimize each brand and offer curated assortments that are customized at the store level based on our extensive local market knowledge and online data analytics. As a result, we offer a broad selection of highly differentiated and distinctive luxury merchandise to fully address our customers’ lifestyle needs. We have long-standing, 25+ year relationships with most of our largest vendors. In addition, we also have a long history of identifying, developing and nurturing emerging design talent. We believe that these relationships with both established and emerging designers allow us to obtain a better brand selection, including in some instances merchandise and brands that are exclusive to us, and superior allocation of merchandise, providing our customers with a distinctive shopping experience.

Customer service led organization fosters strong customer relationships and loyalty and drives sales

We maintain superior customer service initiatives that enable us to engage with our customers and cultivate long-term relationships and customer loyalty to increase sales.

InCircle^® Loyalty Program:  We believe we were among the first retailers to adopt a customer loyalty program, and we believe that our InCircle loyalty program helps drive incremental sales as our InCircle members visit our stores more frequently and spend significantly more than other customers. Approximately 40% of our total revenues in fiscal year 2014 were generated by 147,000 InCircle members who achieved reward status.  Our InCircle program focuses on our most active customers to drive engagement, resulting in an increased number of transactions and sales by offering attractive member benefits such as private in-store events, special exclusive offers, as well as the ability to earn gift cards.

Our Sales Associates:  Our sales associates provide exceptional and differentiated customer service, instilling and reinforcing our culture of relationship-based service recognized by our customers. We have empowered our sales force with technology by rolling out to them over 8,000 smart phones and tablets, which further enhances customer communication and engagement. Our emphasis is on building long-term customer relationships rather than transactional-based results, which has led to consistently strong customer service scores.

Components of Our Omni-channel Retailing Model

A description of the components of our integrated, omni-channel retailing model follows:

Specialty Retail Stores.  Our specialty retail store operations (Specialty Retail Stores) consist primarily of our 41 Neiman Marcus stores and two Bergdorf Goodman stores. Specialty Retail Stores accounted for 76.3% of our total revenues in fiscal year 2014, 77.8% of our total revenues in fiscal year 2013 and 79.8% of our total revenues in fiscal year 2012.

• Neiman Marcus Stores.  Neiman Marcus stores offer distinctive luxury merchandise, including women’s couture and designer apparel, contemporary sportswear, handbags, fashion accessories, shoes, cosmetics, men’s clothing and furnishings, precious and designer jewelry, decorative home accessories, fine china, crystal and silver, children’s apparel and gift items. We locate our Neiman Marcus stores at carefully selected venues in major metropolitan markets across the United States. We design our stores to provide a feeling of residential luxury by blending art and architectural details from the communities in which our stores are located.

• Bergdorf Goodman Stores.  Bergdorf Goodman is a premier luxury retailer in New York City well known for its high luxury merchandise, sumptuous shopping environment and landmark Fifth Avenue locations. Like Neiman Marcus, Bergdorf Goodman features high-end apparel, handbags, fashion accessories, shoes, precious and designer jewelry, cosmetics, gift items and decorative home accessories.

• Small Format Stores.  Also included in our Specialty Retail Stores segment are small format stores we operate under the Last Call and CUSP brands. We operate 38 off-price stores under the Last Call brand. These stores offer off-price goods purchased directly for resale as well as end-of-season clearance goods from our Neiman Marcus stores, Bergdorf Goodman stores and online operation. In addition, we operate six stores under the CUSP name. CUSP is a smaller store format (6,000 to 11,000 square feet) that targets a younger, fashion savvy customer with a contemporary point of view. Sales from our Neiman Marcus Last Call and CUSP stores account for less than 10% of our total revenues.

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Online.  To complement the operations of our retail stores, our upscale direct-to-consumer retailing operation (Online) conducts online sales of fashion apparel, handbags, shoes, accessories and home furnishings through the Neiman Marcus and Bergdorf Goodman brands and online sales of home furnishings and accessories through the Horchow brand. Additionally, we operate a website under the Last Call brand that features off-price fashion goods and augments and complements the operations of our Last Call stores. We also run an established online business for the CUSP brand which caters to a younger customer focused on contemporary fashion. We regularly send e-mails to approximately 9.2 million e-mail addresses, alerting our customers to our newest merchandise and the latest fashion trends. In addition to our activities in the United States, we launched international shipping to over 100 countries in 2012. Online generated 23.7% of our total revenues in fiscal year 2014, 22.2% of our total revenues in fiscal year 2013 and 20.2% of our total revenues in fiscal year 2012.

We also conduct catalog sales through the Neiman Marcus and Horchow brands. Over 1.5 million customers made a purchase through one of our websites or catalogs in fiscal year 2014. Our catalog business circulated approximately 39 million catalogs in fiscal year 2014, a decrease of approximately 2.0% from the prior year. With the growth of internet revenues, we have reduced catalog circulation in recent years and expect flat to declining catalog circulation in the foreseeable future.

Between 2005 and 2014, we created and maintained e-commerce websites pursuant to contractual arrangements with certain designer brands. Pursuant to these arrangements, we purchased and maintained inventory from each designer that was showcased on that designer's website and bore all responsibilities related to the fulfillment of goods purchased on the designer's website. All of these contractual arrangements will have expired by the end of the first quarter of fiscal year 2015 and will not be renewed. Revenues generated from the operation of the designer websites aggregated $83.5 million in fiscal year 2014, $66.5 million in fiscal year 2013 and $48.6 million in fiscal year 2012.

For more information about our reportable segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 16 of the Notes to Consolidated Financial Statements in Item 15.

Recent Development. On September 12, 2014, we entered into an agreement to acquire the MyTheresa.com global online luxury website and the Theresa flagship specialty store in Munich, Germany. The purchase price is approximately €150 million, subject to certain adjustments and an "earn-out" of up to €27.5 million per year for operating performance for each of calendar years 2015 and 2016. The transaction is expected to close later this calendar year, subject to regulatory approvals and other customary closing conditions. We plan to finance the acquisition through a combination of cash and debt.

Customer Service and Marketing

We believe that excellent customer service contributes to increased loyalty and purchases by our customers. We are committed to providing our customers with a premier shopping experience whether in-store or online. Our customer service model is supported by:

• omni-channel marketing programs designed to promote customer awareness of our offerings of the latest fashion trends;

• our InCircle loyalty program designed to cultivate long-term relationships with our customers; 

• knowledgeable, professional and well-trained sales associates; 

• customer-friendly websites; and

• a proprietary credit card program facilitating the extension of credit to our customers.

We believe we offer our customers fair and liberal return policies consistent with the practices of other luxury and specialty retailers. We believe these policies help to cultivate long-term relationships with our customers.

Marketing Programs.  We conduct a wide variety of omni-channel marketing programs that allow us to engage with our customers in multiple ways. We use our marketing programs to develop and maintain relationships with customers, communicate fashion trends and information and generate excitement about our brands. The programs include in-store and online events, social promotions and targeted communications leveraging digital and traditional media.

We maintain an active calendar of events to promote our sales efforts. The activities include integrated in-store and online promotions of the merchandise of selected designers or merchandise categories. Many of these events are connected to our InCircle^® loyalty program. In addition, events include seasonal in-store and online trunk shows by leading designers featuring the newest fashions from the designer and participation in charitable functions and partnerships in each of our

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markets. Trunk shows and in-store promotions at our Neiman Marcus and Bergdorf Goodman stores feature a variety of national and international vendors such as Chanel, Prada, Tom Ford, Lanvin, Oscar de la Renta and Christian Louboutin.

Neiman Marcus and Bergdorf Goodman’s social media platforms include blogs, Twitter feeds and Facebook pages. Social content includes insider fashion news, designer profiles, product promotion, customer service and event support. Posts and replies to customers are updated multiple times per day. Each platform is designed to reinforce our position as a fashion leader as well as to highlight the expertise and insider knowledge of our fashion directors and merchants.

Through our print media programs, we mail various publications to our customers communicating upcoming in-store events, new merchandise offerings and fashion trends. In connection with these programs, Neiman Marcus produces The Book^®approximately eight times each year. The Book is a high-quality publication featuring the latest fashion trends that is mailed on a targeted basis to our customers and has a yearly printing of approximately 1.8 million copies. Our other print publications include the Bergdorf Goodman Magazine and specific designer mailers.

In addition to print publications, we leverage our websites and online advertising through banner ads and paid searches, among other things, to communicate and connect with customers looking for fashion information and products online. We believe that the online and print catalog operations offer the customer an omni-channel shopping experience allowing our customers to choose the channel that best fits their needs at any given time.

Loyalty Program.  We maintain a loyalty program under the InCircle^® brand name designed to cultivate long-term relationships with our customers. Our loyalty program focuses on our most active customers. This program includes marketing features, including private in-store events, as well as the ability to accumulate points for qualifying purchases. Increased points are periodically offered in connection with promotional and other events. Upon attaining specified point levels, points are automatically redeemed for gift cards. Approximately 40% of our total revenues in fiscal year 2014 were generated by our InCircle loyalty program members who achieved reward status.

Sales Associates.  Our sales associates instill and reinforce a culture of relationship-based service recognized by our customers. We compensate our sales associates primarily on a commission basis and provide them with training in the areas of customer service, selling skills and product knowledge. Our sales associates participate in active clienteling programs, utilizing both print and digital media, designed to maintain contact with our customers between store visits and to ensure that our customers are aware of the latest merchandise offerings and fashion trends. We have equipped our sales force with technology by rolling out to them over 8,000 smart phones and tablets, which further enhances our customer communication and engagement. We empower our sales associates to act as personal shoppers and, in many cases, as the personal style advisor to our customers. In our online operations, customers may interact with knowledgeable sales associates using online chat capabilities offered on our websites or by dialing a toll-free telephone number.

Customer-friendly Websites.  We believe that we offer a high level of service to customers shopping online through easy-to-use site navigation, site speed and functionality and many customer-friendly features such as runway videos of apparel, detailed product descriptions, sizing information, interviews with designers and multiple angle shots of merchandise. In addition, we place high importance on quick, accurate product delivery and an efficient and friendly call center.

Proprietary Credit Card Program.  We maintain a proprietary credit card program through which credit is extended to customers and have a related marketing and servicing alliance with affiliates of Capital One Financial Corporation (Capital One). Pursuant to an agreement with Capital One (the Program Agreement), Capital One offers proprietary credit card accounts to our customers under both the “Neiman Marcus” and “Bergdorf Goodman” brand names.

We receive payments from Capital One based on sales transacted on our proprietary credit cards. We may receive additional payments based on the profitability of the portfolio as determined under the Program Agreement depending on a number of factors including credit losses. In addition, we receive payments from Capital One for marketing and servicing activities we provide to Capital One.

In connection with the Program Agreement, we have changed and may continue to change the terms of credit offered to our customers. In addition, Capital One has discretion over certain policies and arrangements with credit card customers and may change these policies and arrangements in ways that affect our relationships with these customers. Any such changes in our credit card arrangements may adversely affect our credit card program and ultimately, our business. The Program Agreement terminates July 2020 (renewable thereafter for three-year terms), subject to early termination provisions.

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Historically, our customers holding a proprietary credit card have tended to shop more frequently and have a higher level of spending than customers paying with cash or third party credit cards. In fiscal years 2014 and 2013, approximately 40% of our revenues were transacted through our proprietary credit cards.

We utilize data captured through our proprietary credit card program in connection with promotional events and customer relationship programs to target specific customers based upon their past spending patterns for certain brands, merchandise categories and store locations.

Merchandise

Our merchandising functions are responsible for the determination of the merchandise assortment and quantities to be purchased for each of our brands and, in the case of Neiman Marcus and Last Call stores, for the allocation of merchandise to each store. We currently have approximately 400 merchandise buyers and merchandise planners.

Effective April 2014, we merged the merchant and planning teams previously responsible for our Neiman Marcus stores and Neiman Marcus website. The new combined omni-channel merchandising team is now responsible for inventory procurement for both channels. The integration of the merchandising responsibilities for our Neiman Marcus brand represents a significant enhancement of our omni-channel capabilities and elevates our ability to deliver a superior shopping experience to our customers.

We carry a broad selection of highly differentiated and distinctive luxury merchandise carefully curated by our highly-skilled merchandising groups. We believe our merchandising experience and in-depth knowledge of our customers and the markets within which we operate allow us to select an appropriate merchandise assortment that is tailored to fully address our customers’ lifestyle needs.

Our percentages of revenues by major merchandise category are as follows:

	Fiscal year ended		Fiscal year ended		Fiscal year ended
	August 2, 2014		August 3, 2013		July 28, 2012
	(Combined)		(Predecessor)		(Predecessor)
Women’s Apparel	31	%	31	%	34	%
Women’s Shoes, Handbags and Accessories	28		27		25
Men’s Apparel and Shoes	12		12		12
Designer and Precious Jewelry	11		12		11
Cosmetics and Fragrances	11		11		11
Home Furnishings and Décor	5		5		6
Other	2		2		1
	100	%	100	%	100	%

Substantially all of our merchandise is delivered to us by our vendors as finished goods and is manufactured in numerous locations, including Europe and the United States and, to a lesser extent, China, Mexico and South America.

Our major merchandise categories are as follows:

Women’s Apparel:  Women’s apparel consists of dresses, eveningwear, suits, coats and sportswear separates—skirts, pants, blouses, jackets and sweaters. We work with women’s apparel vendors to present the merchandise and highlight the best of the vendor’s product. Our primary women’s apparel vendors include Chanel, Gucci, Prada, Giorgio Armani, St. John, Akris and Brunello Cucinelli.

Women’s Shoes, Handbags and Accessories:  Women’s accessories include belts, gloves, scarves, hats and sunglasses and complement our shoes and handbags assortments. Our primary vendors in this category include Christian Louboutin, Chanel, Manolo Blahnik, Prada, Saint Laurent, Jimmy Choo and Tory Burch in ladies shoes and Chanel, Prada, Gucci, Bottega Veneta, Balenciaga and Celine in handbags.

Men’s Apparel and Shoes:  Men’s apparel and shoes include suits, dress shirts and ties, sport coats, jackets, trousers, casual wear and eveningwear as well as business and casual footwear. Bergdorf Goodman has a fully dedicated men’s store on

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Fifth Avenue in New York. Our primary vendors in this category include Ermenegildo Zegna, Brioni, Giorgio Armani, Tom Ford, Brunello Cucinelli and Burberry in men’s clothing and sportswear and Ermenegildo Zegna, Brioni, Prada, Ferragamo, Gucci and Tom Ford in men’s furnishings and shoes.

Designer and Precious Jewelry:  Our designer and precious jewelry offering includes women’s necklaces, bracelets, rings, earrings and watches that are selected to complement our apparel merchandise offering. Our primary vendors in this category include David Yurman, John Hardy and Ippolita in designer jewelry and Chanel and Van Cleef & Arpels in precious jewelry. We often sell precious jewelry that has been consigned to us from the vendor.

Cosmetics and Fragrances:  Cosmetics and fragrances include facial and skin cosmetics, skin therapy and lotions, soaps, fragrances, candles and beauty accessories. Our primary vendors of cosmetics and beauty products include La Mer, Chanel, Sisley, Bobbi Brown, La Prairie, Estee Lauder, Laura Mercier and Tom Ford.

Home Furnishings and Décor:  Home furnishings and décor include linens, tabletop, kitchen accessories, furniture, rugs, decorative items (frames, candlesticks, vases and sculptures) as well as collectables. Merchandise for the home complements our apparel offering in terms of quality and design. Our primary vendors in this category include Jay Strongwater, MacKenzie-Childs and Baccarat.

Vendor Relationships

Our merchandise assortment consists of a broad selection of highly differentiated and distinctive luxury goods purchased from both well-known luxury-branded fashion vendors as well as new and emerging designers. We communicate with our vendors frequently, providing feedback on current demand for their products, suggesting changes to specific product categories or items and gaining insight into their future fashion direction. Certain designers sell their merchandise, or certain of their design collections, exclusively to us and other designers sell to us pursuant to their limited distribution policies. Our relationships and purchasing power with designers allow us to obtain a broad selection of quality merchandise. Our women’s and men’s apparel and fashion accessories businesses are especially dependent upon our relationships with these designer resources. We monitor and evaluate the sales and profitability performance of each vendor and adjust our future purchasing decisions from time to time based upon the results of this analysis. We have no guaranteed supply arrangements with our principal merchandising sources. In addition, our vendor base is diverse, with only two vendors representing more than 5% of the cost of our total purchases in fiscal year 2014. These vendors represented 7.0% and 5.1% of our total purchases in fiscal year 2014. The breadth of our sourcing helps mitigate risks associated with a single brand or designer.

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. We also receive advertising allowances from certain of our merchandise vendors, substantially all of which represent reimbursements of direct, specified and incremental costs we incur to promote the vendors’ merchandise. In addition, we receive allowances from certain merchandise vendors in conjunction with compensation allowances for employees who sell the vendors’ merchandise. For more information related to allowances received from vendors, see Note 1 of the Notes to Consolidated Financial Statements in Item 15.

To expand our product assortment, we offer certain merchandise, primarily precious jewelry, which has been consigned to us from the vendor. As of August 2, 2014 and August 3, 2013, we held consigned inventories with a cost basis of approximately $376.8 million and $358.9 million, respectively. Consigned inventories are not reflected in our Consolidated Balance Sheets as we do not take title to consigned merchandise.

Inventory Management

The majority of the merchandise we purchase is initially received at one of our centralized distribution facilities. To support our Specialty Retail Stores, we utilize distribution facilities in Longview, Texas and Pittston, Pennsylvania and three regional service centers. We also operate two distribution facilities in the Dallas-Fort Worth area to support our online operation.

Our distribution facilities are linked electronically to our various merchandising staffs to facilitate the distribution of goods to our stores. We utilize electronic data interchange (EDI) technology with certain of our vendors, which is designed to move merchandise onto the selling floor quickly and cost-effectively by allowing vendors to deliver floor-ready merchandise to the distribution facilities. In addition, we utilize high-speed automated conveyor systems capable of scanning the bar-coded labels on incoming cartons of merchandise and directing the cartons to the proper processing areas. Many types of merchandise are processed in the receiving area and immediately “cross docked” to the shipping dock for delivery to the stores. Certain processing areas are staffed with personnel equipped with hand-held radio frequency terminals that can scan a vendor’s bar

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code and transmit the necessary information to a computer to record merchandise on hand. We utilize third party carriers to distribute our merchandise to individual stores.

With respect to the Specialty Retail Stores, the majority of the merchandise is held in our retail stores. We primarily operate on a pre-distribution model through which we allocate merchandise on our initial purchase orders to each store. This merchandise is shipped from our vendors to our distribution facilities for delivery to designated stores. We closely monitor the inventory levels and assortments in our retail stores to facilitate reorder and replenishment decisions, satisfy customer demand and maximize sales. Transfers of goods between stores are made primarily at the direction of merchandising personnel and, to a lesser extent, by store management primarily to fulfill customer requests.

We also maintain inventories at the Longview and Pittston distribution facilities. The goods held at these distribution facilities consist primarily of goods held in limited assortment or quantity by our stores and replenishment goods available to stores achieving high initial sales levels. With our “locker stock” inventory management program, we maintain a portion of our most in-demand and high fashion merchandise at our distribution facility. For products stored in locker stock, we can ship replenishment merchandise to the stores that demonstrate the highest customer demand. In addition, our sales associates can use the program to ship items directly to our customers, thereby improving customer service and increasing productivity. This program also helps us to restock inventory at individual stores more efficiently, to maximize the opportunity for full-price selling and to minimize the potential risks related to excess inventories.

The two distribution centers supporting our online operations facilitate the receipt and storage of inventories from vendors, fulfill customer orders on a timely and efficient basis and receive, research and resolve customer returns.

In connection with our omni-channel approach to retailing, we implemented technologies and processes in fiscal year 2012 whereby certain inventories were made available to both our in-store and online channels. For these merchandise categories, our sales associates are able to fulfill customer demand originating in-stores from the inventories held in their assigned store, other stores or the distribution and warehouse facilities supporting both our store and online channels. Conversely, website orders can be fulfilled from our distribution and warehouse facilities as well as from our retail stores. We are expanding and will continue to expand our capabilities to share inventories across our store and online channels in fiscal year 2015 and beyond.

Capital Investments

We make capital investments annually to support our long-term business goals and objectives. We invest capital in new and existing stores, e-commerce websites, distribution and support facilities as well as information technology.

We invest capital in the development and construction of new stores in both existing and new markets. We are focused on operating only in attractive markets that can profitably support our stores as well as maintaining the quality of our stores and, consequently, our brand. We conduct extensive demographic, marketing and lifestyle research to identify attractive retail markets with a high concentration of our target customers prior to our decision to construct a new store. In addition to the construction of new stores, we also invest in the on-going maintenance of our stores to ensure an elegant shopping experience for our customers. Capital expenditures for existing stores include 1) expenditures to maintain the ambiance and luxurious shopping experience within our stores, 2) designer shops within our stores to deepen our relationships with our designers and increase the visibility of select fashion brands, 3) ongoing investments in technology to support our omni-channel efforts and improve the overall in-store customer experience, 4) minor renovations of certain areas within the store, including in-store “shop in shops”, and 5) major remodels and renovations and store expansions.

We also believe capital investments for information technology in our stores, websites, distribution facilities and support functions are necessary to support our business strategies. As a result, we are continually upgrading our information systems to improve efficiency and productivity.

In the past three fiscal years, we have made capital expenditures aggregating $473.3 million related primarily to:

• the construction of a new store in Walnut Creek, California (opened in fiscal year 2012) and a distribution facility in Pittston, Pennsylvania; 

• e-commerce and technology investments; 

• enhancements to merchandising and store systems; and 

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• the renovation of our main Bergdorf Goodman store on Fifth Avenue in New York City and Neiman Marcus stores in Bal Harbour, Florida, Chicago, Illinois and Oak Brook, Illinois.

Currently, we project gross capital expenditures for fiscal year 2015 to be approximately $310 to $330 million. Net of developer contributions, capital expenditures for fiscal year 2015 are projected to be approximately $275 to $295 million.

We receive allowances from developers related to the construction of our stores thereby reducing our cash investment in these stores. We received construction allowances aggregating $5.7 million in fiscal year 2014, $7.2 million in fiscal year 2013 and $10.6 million in fiscal year 2012.

Competition

The specialty retail industry is highly competitive and fragmented. We compete for customers with specialty retailers, luxury and premium multi-branded retailers, national apparel chains, vendor-owned proprietary boutiques, individual specialty apparel stores and online retailers. We compete 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. Retailers that compete with us for distribution of luxury fashion brands include Saks Fifth Avenue, Nordstrom, Bloomingdale’s, Barneys New York, Net-a-Porter, vendor boutiques and other national, regional and local retailers.

We believe we differ from other national retailers by our approach to omni-channel retailing, distinctive merchandise assortments, which we believe are more upscale than other luxury and premium multi-branded retailers, excellent customer service, prime real estate locations, premier online websites and elegant shopping environments. We believe we differentiate ourselves from regional and local luxury and premium retailers through our omni-channel approach to business, strong national brand, diverse product selection, loyalty program, customer service, prime shopping locations and strong vendor relationships that allow us to offer the top merchandise from each vendor. Vendor-owned proprietary boutiques and specialty stores carry a much smaller selection of brands and merchandise, lack the overall shopping experience we provide and have a limited number of retail locations.

Employees

As of September 19, 2014, we had approximately 16,500 employees. Our staffing requirements fluctuate during the year as a result of the seasonality of the retail industry. We hire additional temporary associates and increase the hours of part-time employees during seasonal peak selling periods. Except for certain employees of Bergdorf Goodman representing less than 1% of our total employees, none of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are good.

Seasonality

Our business, like that of most retailers, is affected by seasonal fluctuations in customer demand, product offerings and working capital expenditures. For additional information on seasonality, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview—Seasonality.”

Intellectual Property

We own certain tradenames and service marks, including the “Neiman Marcus” and “Bergdorf Goodman” marks, that are important to our overall business strategy. These marks are valuable assets that consumers associate with luxury goods.

Regulation

The credit card operations that are conducted under our arrangements with Capital One are subject to 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 our proprietary credit cards, credit to our customers is also provided primarily through third parties. Any regulation or change in the regulation of credit arrangements that would materially limit the availability of credit to our customer base could adversely affect our results of operations or financial condition.

Our practices, as well as those of our competitors, are subject to review in the ordinary course of business by the Federal Trade Commission and are subject to numerous federal and state laws. Additionally, we are subject to certain customs,

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anti-corruption laws, truth-in-advertising and other laws, including consumer protection regulations that regulate retailers generally and/or govern the importation, promotion and sale of merchandise. We undertake to monitor changes in these laws and believe that we are in material compliance with all applicable state and federal regulations with respect to such practices.

Additional Information

We make our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and related amendments, available free of charge through our website at www.neimanmarcusgroup.com as soon as reasonably practicable after we electronically file such material with (or furnish such material to) the Securities and Exchange Commission (SEC).  The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be part of this Annual Report on Form 10-K.

Copies of the reports and other information we file with the SEC may also be examined by the public without charge at 100 F Street, N.E., Room 1580, Washington D.C., 20549, or on the internet at http://sec.gov. Copies of all or a portion of such materials can be obtained from the SEC upon payment of prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information.

ITEM 1A.     RISK FACTORS

Risks Related to Our Business and Industry

Economic conditions may negatively impact demand for our merchandise.

A number of factors affect the level of consumer spending on merchandise that we offer, including, among other things:

• general economic and industry conditions, including inflation, deflation, changes related to interest rates, rates of economic growth and government fiscal and monetary policies; 

• the performance of the financial, equity and credit markets; 

• consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt and consumer behaviors towards incurring and paying debt; and 

• current and expected tax rates and policies.

The merchandise we sell consists of luxury retail goods. The purchase of these goods by customers is discretionary, and therefore highly dependent upon the level of consumer spending, particularly among affluent customers. During an actual or perceived economic downturn, fewer customers may shop with us and those who do shop may limit the amounts of their purchases. Deterioration in domestic and global economic conditions leading to reductions in consumer spending have had a significant adverse impact on our business in the past. While economic conditions have improved since the severe downturn we experienced in calendar years 2008 and 2009, domestic and global economic conditions remain volatile. The recurrence of adverse economic conditions could have an adverse effect on our results of operations and continued growth.

If we fail to anticipate, identify and respond effectively to changing consumer demands, fashion trends and consumer shopping preferences, our results of operations may be adversely affected.

We make decisions regarding the purchase of our merchandise well in advance of the season in which it will be sold. For example, women’s apparel, men’s apparel, shoes and handbags are typically ordered six to nine months in advance of the date the products will be offered for sale, while jewelry and other categories are typically ordered three to six months in advance of such date. Our success depends in large part on our ability to anticipate, identify and respond effectively to changing consumer demands, fashion trends and consumer shopping preferences and any failure by us to do so could adversely affect our results of operations.

If our sales during any season are significantly lower than we anticipated, we may not be able to adjust our expenditures for inventory and other expenses in a timely fashion and may be left with unsold inventory. If that occurs, we may be forced to rely on markdowns or promotional sales to dispose of excess inventory, which could have an adverse effect on our gross margins and results of operations. Conversely, if we fail to purchase a sufficient quantity of merchandise, we may not

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have an adequate supply of products to meet consumer demand, thereby causing us to lose sales or adversely affect our customer relationships.

The specialty retail industry is highly competitive.

The specialty retail industry is highly competitive and fragmented. We compete for customers with luxury and premium multi-branded retailers, designer-owned proprietary boutiques, specialty retailers, national apparel chains, individual specialty apparel stores and online retailers. Many of our competitors have greater financial resources than we do.

Competition to attract new customers, maintain relationships with existing customers and obtain merchandise from key designers is strong in both in-store and online channels . We compete for customers principally on the basis of quality and fashion, customer service, value, assortment and presentation of merchandise, marketing and customer loyalty programs and store and online ambiance. Our failure to compete successfully based on these and other factors may have an adverse effect on our results of operations.

Online retailing is rapidly evolving and we expect competition in online markets to intensify in the future. With the expansion of online retailing, we believe our overall business has become and will continue to become more complex. These changes have forced us to develop new expertise in response to the new challenges, risks and uncertainties inherent in the delivery of an integrated omni-channel retailing model. For example, we face the risk that our online operations might cannibalize a significant portion of our specialty retail store sales. Through our omni-channel strategy, we seek to attract as many new customers as possible to both channels. We also continually analyze trends in our online and in-store channels, as well as the relationships between these channels, to maximize opportunities to drive incremental sales.

A number of other competitive factors could have an adverse effect on our business, results of operations and financial condition, including:

• competitive pricing strategies, including discounting of prices and/or the discounting or elimination of revenues collected for delivery and processing or other services;

• expansion of product or service offerings by existing competitors; 

• entry by new competitors into markets in which we currently operate; and 

• alteration of the distribution channels used by designers for the sale of their goods to consumers.

Our business and performance may be affected by our ability to implement our expansion and growth strategies.

To maintain and grow our position as a leading luxury retailer, we must make ongoing investments to support our business goals and objectives. We make capital investments in our new and existing stores, websites, and distribution and support facilities, as well as in information technology. We also incur expenses for headcount, advertising and marketing, professional fees and other costs in support of our growth initiatives. Costs incurred in connection with our business goals and objectives require us to anticipate our customers’ needs, trends within our industry and our competitors’ actions. In addition, we must successfully execute the strategies identified to support our business goals and objectives. If we fail to identify appropriate business goals and objectives or if we fail to execute the actions required to accomplish these goals and objectives, our revenues, customer base and results of operations could be adversely affected.

We routinely evaluate the need to expand and/or remodel our existing stores. In undertaking store expansions or remodels, we must complete the expansion or remodel in a timely, cost effective manner, minimize disruptions to our existing operations and succeed in creating an improved shopping environment. In addition, new store openings involve certain risks, including constructing, furnishing and supplying a store in a timely and cost effective manner, accurately assessing the demographic or retail environment at a given location, negotiating favorable lease terms, hiring and training quality staff, obtaining necessary permits and zoning approvals, obtaining commitments from a core group of vendors to supply the new store, integrating the new store into our distribution network and building customer awareness and loyalty. Failure to execute on these or other aspects of our store expansion and remodeling strategy could adversely affect our revenues and results of operations.

Our online retailing operation represents a critical element of our omni-channel strategy and its growth may replace, rather than be incremental to, our specialty retail store sales. While we recognize that our online sales cannot be entirely incremental to sales through our retail specialty stores, we seek to attract as many new customers as possible to both our channels and if we are not successful in doing so, this could adversely affect our revenues and results of operations.

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We are dependent on our relationships with certain designers, vendors and other sources of merchandise.

Our relationships with established and emerging designers are a key factor in our success as a retailer of high-fashion merchandise and a substantial portion of our revenues is attributable to our sales of designer merchandise. Many of our key vendors limit the number of retail channels they use to sell their merchandise. We have no guaranteed supply arrangements with our principal sources of merchandise. Accordingly, there can be no assurance that such sources will continue to meet our quality, style and volume requirements. In addition, any decline in the quality or popularity of our top designer brands could adversely affect our business. Moreover, nearly all of our top designer brands are sold by competing retailers, and many of our top designers also have their own proprietary retail stores and websites. In addition, virtually all of our designers currently make their merchandise available to us through wholesale arrangements. Some designers make their merchandise available to all or select retailers on a concession basis, whereby the designer merchandises their boutique within the retailer’s store and pays the retailer a pre-determined percentage of the revenues derived from the sale of the designer’s merchandise by the retailer. In fiscal year 2014, less than 1% of our revenues represented concession revenues.

If one or more of our top designers were to 1) limit the supply of merchandise made available to us for resale on a wholesale basis, 2) increase the supply of merchandise made available to our competitors, 3) increase the supply of merchandise made available to their own proprietary retail stores and websites or significantly increase the number of their proprietary retail stores, 4) convert the distribution of goods made available to us from our current wholesale arrangement to a concession arrangement or 5) exit the wholesale distribution of their goods to retailers, our business could be adversely affected.

During periods of adverse changes in general economic, industry or competitive conditions, some of our designers and vendors may experience serious cash flow issues, reductions in available credit from banks, factors or other financial institutions, or increases in the cost of capital. In response, such designers and vendors may attempt to increase their prices, alter historical credit and payment terms available to us or take other actions. Any of these actions could have an adverse impact on our relationship with such designers or vendors, or constrain the amounts or timing of our purchases from such designers or vendors, and, ultimately, have an adverse effect on our revenues, results of operations and liquidity.

A breach in information privacy could negatively impact our operations.

The protection of our customer, employee and company data is critically important to us. We utilize customer data captured through both our proprietary credit card programs and our in-store and online activities. Our customers have a high expectation that we will adequately safeguard and protect their personal information. Despite our security measures, our information technology and infrastructure may be vulnerable to criminal cyber-attacks or security incidents due to employee error, malfeasance or other vulnerabilities. Any such incident could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. In addition, we outsource certain functions, such as customer communication platforms and credit card transaction processing, and these relationships allow for the storage and processing of customer information by third parties, which could result in security breaches impacting our customers.

We discovered in January 2014 that malicious software (malware) was clandestinely installed on our computer systems (the Cyber-Attack). Based on information from our forensic investigation, it appears that the malware actively attempted to collect payment card data from July 16, 2013 through October 30, 2013 at 77 of our 85 stores, on different dates at each store within this time period. During that time period, information from approximately 350,000 customer payment cards could have been potentially collected by the malware.

We are actively cooperating with the U.S. Secret Service in its investigation into the Cyber-Attack. In testimony before Congress in February 2014, a Secret Service official explained that the attack on our systems was exceedingly sophisticated, and was unprecedented in the manner in which it was customized to defeat our defenses and remain undetected. The Secret Service official also testified that we used a robust security plan to protect customer data, but that, given its level of sophistication, the attacker nevertheless succeeded in having malware operate on our systems.

In light of the Cyber-Attack, we have taken steps to further strengthen the security of our computer systems, and continue to assess, maintain and enhance the ongoing effectiveness of our information security systems. Nevertheless, there can be no assurance that we will not suffer a similar criminal attack in the future, that unauthorized parties will not gain access to personal information, or that any such incident will be discovered in a timely way. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures.

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As described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we incurred costs in fiscal year 2014 associated with this security incident, including legal fees, investigative fees, costs of communications with customers and credit monitoring services. In the future, payment card companies and associations may require us to reimburse them for unauthorized card charges and costs to replace cards and may also impose fines or penalties in connection with the Cyber-Attack, and federal and state enforcement authorities may also impose fines or other remedies against us. We expect to incur additional costs to investigate and remediate the matter in the foreseeable future. Such costs are not currently estimable but could be material to our future operating results.

As described in Note 15 of the Notes to Consolidated Financial Statements in Item 15, the Cyber-Attack has given rise to putative class action litigation on behalf of customers and regulatory investigations. At this point, we are unable to predict the developments in, outcome of, and economic and other consequences of pending or future litigation or government inquiries related to this matter. Any future criminal cyber-attack or data security incident may result in additional regulatory investigations, legal proceedings or liability under laws that protect the privacy of personal information, all of which may damage our reputation and relationships with our customers and adversely affect our business, operating results and financial condition.

Our continued success is substantially dependent on positive perceptions of our company, which, if eroded, could adversely affect our customer and employee relationships.

We have a reputation associated with a high level of integrity, customer service and quality merchandise, which is one of the reasons customers shop with us and employees choose us as a place of employment. To be successful in the future, we must continue to preserve, grow and leverage the value of our reputation. Reputational value is based in large part on perceptions. While reputations may take decades to build, negative incidents can quickly erode trust and confidence, particularly if they result in adverse mainstream and social media publicity, governmental investigations or litigation. Any significant damage to our reputation could negatively impact sales, diminish customer trust, reduce employee morale and productivity and lead to difficulties in recruiting and retaining qualified employees.

Conditions in the countries where we source our merchandise and international trade conditions could adversely affect us.

A substantial majority of our merchandise is manufactured overseas, mostly in Europe and, to a lesser extent, China, Mexico and South America, and delivered to us by our vendors as finished goods. As a result, political or financial instability, labor strikes, natural disasters or other events resulting in the disruption of trade or transportation from other countries or the imposition of additional regulations relating to foreign trade could cause significant delays or interruptions in the supply of our merchandise or increase our costs, either of which could have an adverse effect on our business. If we are forced to source merchandise from other countries, such merchandise might be more expensive or of a different or inferior quality from the ones we now sell. If we were unable to adequately replace the merchandise we currently source with merchandise produced elsewhere, our business could be adversely affected.

Our business is affected by foreign currency fluctuations and inflation.

We purchase a substantial portion of our inventory from foreign suppliers whose costs are affected by the fluctuation of their local currency against the U.S. dollar or who price their merchandise in currencies other than the U.S. dollar. We source goods from numerous countries and thus are affected by changes in numerous other currencies and, generally, by fluctuations in the value of the U.S. dollar relative to such currencies. Fluctuations in the Euro-U.S. dollar exchange rate can affect us most significantly. Changes in the value of the U.S. dollar relative to foreign currencies may increase the retail prices of goods offered for sale and/or increase our cost of goods sold.

Further, we have experienced certain inflationary effects in our cost base due to increases in selling, general and administrative expenses, particularly with regard to employee health care and other benefits, and increases in fuel prices, which impact freight and transportation costs. Inflation can harm our margins and profitability if we are unable to increase prices or cut costs to offset the effects of inflation in our cost base.

If our customers reduce their levels of spending in response to increases in retail prices and/or we are unable to cut costs, our revenues and profit margins may decrease. Accordingly, foreign currency fluctuations and inflation could have an adverse effect on our business and results of operations.

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We depend on the success of our advertising and marketing programs.

Our marketing and advertising costs, net of allowances, amounted to $144.4 million for fiscal year 2014. Our business depends on attracting an adequate volume of customers who are likely to purchase our merchandise. We have a significant number of marketing initiatives and regularly fine-tune our approach and adopt new ones. However, there can be no assurance that we will be able to execute effectively our advertising and marketing programs in the future and any failure to do so could adversely affect our business and results of operations.

Our InCircle loyalty program is designed to cultivate long-term relationships with our customers and enhance the quality of service we provide to our customers. We must constantly monitor and update the terms of this loyalty program so that it continues to meet the demands and needs of our customers and remain competitive with loyalty programs offered by other luxury and premium multi-branded retailers. Approximately 40% of our total revenues in fiscal year 2014 were generated by our InCircle loyalty program members. If our InCircle loyalty program were to fail to provide competitive rewards and quality service to our customers, our business and results of operations could be adversely affected.

A material disruption in our information systems could adversely affect our business or results of operations.

We rely on our information systems to process transactions, summarize our operating results and manage our business. Our information systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism and usage errors by our employees. If our information systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer loss of critical data and interruptions or delays in our operations. To keep pace with changing technology, we must continuously implement new information technology systems as well as enhance our existing systems. Moreover, the successful execution of some of our growth strategies, in particular the expansion of our omni-channel and online capabilities, is dependent on the design and implementation of new systems and technologies and/or the enhancement of existing systems.

The reliability and capacity of our information systems is critical to our operations and the implementation of our growth initiatives. Any material disruption in our information systems, or delays or difficulties in implementing or integrating new systems or enhancing current systems, could have an adverse effect on our business, in particular our online operation, and results of operations.

We outsource certain business processes to third party vendors, which subjects us to risks, including disruptions in business and increased costs.

We outsource certain technology-related processes to third parties. These include credit card authorization and processing, insurance claims processing, payroll processing, record keeping for retirement and benefit plans and certain information technology functions. In addition, we depend on third-party vendors for delivery of our products from manufacturers and to our customers. We review outsourcing alternatives on a regular basis and may decide to outsource additional processes in the future. If third-party providers fail to meet our performance standards and expectations, including with respect to data security, our reputation, sales and results of operations could be adversely affected. In addition, we could face increased costs associated with finding replacement vendors or hiring new employees to provide these services in-house.

The loss of senior management or attrition among our buyers or key sales associates could adversely affect our business.

Our success in the specialty retail industry is dependent on our senior management team, buyers and key sales associates. We rely on the experience of our senior management and their specific knowledge relating to us and our industry would be difficult to replace. If we were to lose a portion of our buyers or key sales associates, our ability to benefit from long-standing relationships with key designers or to provide relationship-based customer service could suffer. We may not be able to retain our current senior management team, buyers or key sales associates and the loss of any of these individuals could adversely affect our business.

Changes in our credit card arrangements and regulations with respect to those arrangements could adversely impact our business.

We maintain a proprietary credit card program through which credit is extended to customers and have a related marketing and servicing alliance with affiliates of Capital One. Pursuant to the Program Agreement, Capital One currently offers credit cards and non-card payment plans under both the "Neiman Marcus" and "Bergdorf Goodman" brand names.

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Pursuant to the Program Agreement, we receive payments from Capital One based on sales transacted on our proprietary credit cards. We may receive additional payments based on the profitability of the portfolio as determined under the Program Agreement depending on a number of factors, including credit losses. In addition, we receive payments from Capital One for marketing and servicing activities we provide to Capital One.

In connection with the Program Agreement, we have changed and may continue to change the terms of credit offered to our customers. In addition, Capital One has discretion over certain policies and arrangements with credit card customers and may change these policies and arrangements in ways that affect our relationships with these customers. Moreover, changes in credit card use, payment patterns and default rates may result from a variety of economic, legal, social and other factors that we cannot control or predict with certainty. Any such changes in our credit card arrangements may adversely affect our credit card program and ultimately, our business.

Credit card operations such as our proprietary program through Capital One are subject to 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. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted in July 2010, increased the regulatory requirements affecting providers of consumer credit. These changes significantly restructured regulatory oversight and other aspects of the financial industry, created a new federal agency to supervise and enforce consumer lending laws and regulations and expanded state authority over consumer lending. Any regulation or change in the regulation of credit arrangements that would materially limit the availability of credit to our customer base could adversely affect our business.

We are subject to risks associated with owning and leasing substantial amounts of real estate.

We own or lease substantial amounts of real estate, primarily our retail stores and office facilities, and many of the stores we own are subject to ground leases or operating covenants. Accordingly, we are subject to all of the risks associated with owning and leasing real estate. In particular, the value of the relevant assets could decrease, or costs to operate stores could increase, because of changes in the supply or demand of available store locations, demographic trends or the overall investment climate for real estate. Pursuant to the operating covenants in certain of our leases, we could be required to continue to operate a store that no longer meets our performance expectations, requirements or current operating strategies. The terms of our real estate leases, including renewal options, range from two to 130 years. We believe that we have been able to lease real estate on favorable terms, but there is no guarantee that we will be able to continue to negotiate these terms in the future. If we are not able to enter into new leases or renew existing leases on terms acceptable to us, our business and results of operations could be adversely affected.

We are dependent on a limited number of distribution facilities. The loss of, or disruption in, one or more of our distribution facilities could adversely affect our business and operations.

We operate a limited number of distribution facilities. Our ability to meet the needs of our retail stores and online operations depends on the proper operation of these distribution facilities. Although we believe that we have appropriate contingency plans, unforeseen disruptions in operations due to fire, weather conditions, natural disasters or for any other reason may result in the loss of inventory and/or delays in the delivery of merchandise to our stores and customers. In addition, we could incur higher costs and longer lead times associated with the distribution of our products during the time it takes to reopen or replace a damaged facility. Any of the foregoing factors could adversely affect our business and results of operations.

Our business may be adversely affected by catastrophic events and extreme or unseasonable weather conditions.

Unforeseen events, including war, terrorism and other international conflicts, public health issues and natural disasters such as earthquakes, hurricanes or tornadoes, whether occurring in the United States or abroad, could disrupt our supply chain operations, international trade or result in political or economic instability. Any of the foregoing events could result in property losses, reduce demand for our products or make it difficult or impossible to obtain merchandise from our suppliers.

Extreme weather conditions in the areas in which our stores are located, particularly in markets where we have multiple stores, could adversely affect our business. For example, heavy snowfall, rainfall or other extreme weather conditions over a prolonged period might make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could render a portion of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions could adversely affect our business.

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Legislation and regulatory developments could affect our business or results of operations.

We are subject to customs, anti-corruption laws, truth-in-advertising, intellectual property, labor and other laws, including consumer protection regulations, credit card regulations, environmental laws and zoning and occupancy ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise, regulate wage and hour matters with respect to our employees and govern the operation of our retail stores and warehouse facilities. Although we undertake to monitor changes in these laws, if these laws or the interpretation of these laws change without our knowledge, or are violated by importers, designers, manufacturers or distributors, we could experience delays in shipments and receipt of goods, suffer damage to our reputation or be subject to fines or other penalties under the controlling regulations, any of which could adversely affect our business or results of operations.

If we are unable to enforce our intellectual property rights, or if we are accused of infringing on a third party’s intellectual property rights, our business or results of operations may be adversely affected.

We and our subsidiaries currently own our tradenames and service marks, including the “Neiman Marcus” and “Bergdorf Goodman” marks. Our tradenames and service marks are registered in the United States and in various foreign countries. The laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. The loss or reduction of any of our significant proprietary rights could have an adverse effect on our business.

Additionally, third parties may assert claims against us alleging infringement, misappropriation or other violations of their tradename or other proprietary rights, whether or not the claims have merit. Such claims could be time consuming and expensive to defend and we could be required to cease using the tradename or other rights or sell the allegedly infringing products. This could have an adverse effect on our business or results of operations and cause us to incur significant litigation costs and expenses.

Risks Related to Our Indebtedness

Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our indebtedness.

As a result of our substantial indebtedness incurred in connection with the Acquisition, a significant amount of our cash flow will be used to pay interest and principal on our outstanding indebtedness, and we may not generate sufficient cash flow from operations, or have future borrowings available under our Asset-Based Revolving Credit Facility, to enable us to repay our indebtedness or to fund our other liquidity needs.  As of August 2, 2014, the principal amount of our total indebtedness was approximately $4,612.9 million, and we had unused commitments under our Asset-Based Revolving Credit Facility available to us of $720.0 million, subject to a borrowing base.

Our current indebtedness could adversely affect our business, financial condition and results of operations by:

• making it more difficult for us to satisfy our obligations with respect to our debt;

• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, execution of our business and growth strategies or other general corporate requirements;

• requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes and future growth;

• increasing our vulnerability to general adverse economic, industry and competitive conditions and government regulations;

• exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our Senior Secured Credit Facilities, are at variable rates of interest;

• limiting our flexibility in planning for and reacting to changes in the industry in which we compete and to changing business and economic conditions;

• placing us at a disadvantage compared to other, less leveraged competitors and affecting our ability to compete; and

• increasing our cost of borrowing.

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In addition, suppliers or other parties with which we maintain business relationships may experience uncertainty about our future and seek alternative relationships with third parties or seek to alter their business relationships with us.

Additional financing, if required, may not be available on commercially reasonable terms, if at all. In addition, our ability to borrow under our Asset-Based Revolving Credit Facility is subject to significant conditions, as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Asset-Based Revolving Credit Facility.”

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory and other factors beyond our control.  We might not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness.  We may not be able to obtain loans or other debt financings.  We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations.  The credit agreements governing our Senior Secured Credit Facilities and the indentures governing the Notes will restrict our ability to dispose of assets and use the proceeds from such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due.  We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations under our indebtedness.

If we cannot make scheduled payments on our debt, we will be in default and holders of the Notes and the lenders under our Senior Secured Credit Facilities could declare all outstanding principal and interest to be due and payable, the lenders under our Senior Secured Credit Facilities could terminate their commitments to loan additional money to us and we could be forced into bankruptcy or liquidation.

The terms of the indentures governing the Notes and the credit agreements governing our Senior Secured Credit Facilities restrict our current and future operations, which could harm our long-term interests.

The indentures governing the Notes and the credit agreements governing our Senior Secured Credit Facilities contain a number of restrictive covenants that impose significant operating and financial restrictions on us and limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:

• incur additional indebtedness and guarantee indebtedness;

• pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;

• prepay, redeem or repurchase certain indebtedness;

• make loans and investments;

• sell or otherwise dispose of assets;

• incur liens;

• enter into transactions with affiliates;

• alter the businesses we conduct;

• designate any of our subsidiaries as unrestricted subsidiaries;

• enter into agreements restricting our subsidiaries’ ability to pay dividends; and

• consolidate, merge or sell all or substantially all of our assets.

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As a result of all of these restrictions, we may be:

• limited in how we conduct our business;

• unable to raise additional debt or equity financing to operate during general economic or business downturns; or

• unable to compete effectively or to take advantage of new business opportunities.

These restrictions might hinder our ability to grow in accordance with our strategy.

In addition, the springing financial covenant in the credit agreement governing our Asset-Based Revolving Credit Facility requires the maintenance of a minimum fixed charge coverage ratio, which covenant is triggered when excess availability under our Asset-Based Revolving Credit Facility is less than the greater of $50.0 million and 10% of the Line Cap, as defined in the credit agreement, then in effect.  Our ability to meet the financial covenant could be affected by events beyond our control.

A breach of the covenants under the indentures governing the Notes or under the credit agreements governing our Senior Secured Credit Facilities could result in an event of default under the applicable debt document.  Such a default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision.  In addition, an event of default under the credit agreements governing our Senior Secured Credit Facilities would permit the lenders under our Senior Secured Credit Facilities to terminate all commitments to extend further credit under the facilities.  Furthermore, if we were unable to repay the amounts due and payable under our Senior Secured Credit Facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness.  In the event our lenders or holders of the Notes accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.

Based on the foregoing factors, the operating and financial restrictions and covenants in our current debt agreements and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage in other business activities.

We are a holding company with no operations and may not have access to sufficient cash to make payments on our outstanding indebtedness.

We are a holding company and do not have any direct operations. Our only significant assets are the equity interests we directly and indirectly hold in our subsidiaries.  As a result, we are dependent upon dividends and other payments from our subsidiaries to generate the funds necessary to meet our outstanding debt service and other obligations and such dividends may be restricted by law or the instruments governing our indebtedness, including the indentures governing the Notes, the credit agreements governing our Senior Secured Credit Facilities or other agreements of our subsidiaries.  Our subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness.  In addition, our subsidiaries are separate and distinct legal entities and, except for our existing and future subsidiaries that will be the guarantors of our indebtedness, any payments on dividends, distributions, loans or advances to us by our subsidiaries could be subject to legal and contractual restrictions on dividends.  In addition, payments to us by our subsidiaries will be contingent upon our subsidiaries’ earnings.  Additionally, we may be limited in our ability to cause any future joint ventures to distribute their earnings to us.  Subject to certain qualifications, our subsidiaries are permitted under the terms of our indebtedness to incur additional indebtedness that may restrict payments from those subsidiaries to us.  There can be no assurance that agreements governing the current and future indebtedness of our subsidiaries will permit those subsidiaries to provide us with sufficient cash to fund payments of principal, premiums, if any, and interest on our indebtedness when due.  In the event that we do not receive distributions or other payments from our subsidiaries, we may be unable to make required payments on our debt.

Despite our level of indebtedness after the Acquisition, we and our subsidiaries may still incur substantially more debt. This could further exacerbate the risks to our financial condition described above.

We and our subsidiaries may incur significant additional indebtedness in the future.  Although the indentures governing the Notes and the credit agreements governing our Senior Secured Credit Facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial.  As of August 2, 2014, our Asset-Based Revolving Credit Facility provides for borrowings of the lesser of unused commitments of $720.0 million, subject to the borrowing base.  Additionally, (i) our Senior Secured Term Loan Facility may be increased by an amount equal to (x) $650.0 million plus (y) an unlimited amount so long as, in the case of new indebtedness secured on a pari passu basis with

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our Senior Secured Term Loan Facility, on a pro forma basis our maximum senior secured first lien net leverage ratio, as defined in the credit agreement, does not exceed 4.25 to 1.00, and in the case of new indebtedness secured on a junior basis to our Senior Secured Term Loan Facility, subordinated in right of payment to our Senior Secured Term Loan Facility or, in the case of certain incremental equivalent loan debt, unsecured and pari passu in right of payment with our Senior Secured Term Loan Facility, on a pro forma basis our maximum total net leverage ratio, as defined in the credit agreement, does not exceed 7.00 to 1.00, in each case subject to certain conditions and (ii) our Asset-Based Revolving Credit Facility can be increased by up to $300.0 million.  If new debt is added to our current debt levels, the related risks that we and the guarantors now face would increase.  See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The amount of borrowings permitted under our Asset-Based Revolving Credit Facility may fluctuate significantly, which may adversely affect our liquidity, results of operations and financial position.

The amount of borrowings permitted at any time under our Asset-Based Revolving Credit Facility is limited to a periodic borrowing base valuation of our accounts receivable and domestic inventory. As a result, our access to credit under our Asset-Based Revolving Credit Facility is potentially subject to significant fluctuations depending on the value of the borrowing base eligible assets as of any measurement date, as well as certain discretionary rights of the administrative agent of our Asset-Based Revolving Credit Facility in respect of the calculation of such borrowing base value.  Our inability to borrow under or the early termination of our Asset-Based Revolving Credit Facility may adversely affect our liquidity, results of operations and financial position.

We may elect to pay interest on the PIK Toggle Notes in the form of PIK Interest or partial PIK Interest rather than in the form of Cash Interest.

In the future, we may elect to pay either 50% or all of the interest due on the PIK Toggle Notes for such period in PIK Interest by either increasing the principal amount of the outstanding PIK Toggle Notes or by issuing new PIK Toggle Notes for the entire amount of the interest payment, thereby increasing the aggregate principal amount of the PIK Toggle Notes.  We may elect to pay interest in the form of PIK Interest or partial PIK Interest on up to six interest payments in the aggregate on any interest payment date in respect of the third interest payment in April 2015 through the tenth interest payment in October 2018.  If we make such future interest payments in the form of PIK Interest or partial PIK Interest, the principal amount of the outstanding PIK Toggle Notes would be increased, which in turn would further increase our substantial indebtedness.  See “—Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our indebtedness.”

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our Senior Secured Credit Facilities are at variable rates of interest and expose us to interest rate risk.  Interest rates are currently at historically low levels.  If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed may remain the same, and our net earnings and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Assuming all revolving loans are fully drawn (and to the extent that LIBOR is in excess of the 1.00% floor rate with respect to our Senior Secured Term Loan Facility), each quarter point change in interest rates would result in a $9.3 million change in annual interest expense on the indebtedness under our Senior Secured Credit Facilities.  In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments to reduce interest rate volatility.  However, it is possible that we will not maintain interest rate swaps with respect to any of our variable rate indebtedness.  Alternatively, any swaps we enter into may not fully or effectively mitigate our interest rate risk.

A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.

Our debt currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes in our business, warrant.  Any downgrade by either S&P or Moody’s may increase the interest rate on our Senior Secured Credit Facilities or result in higher borrowing costs.  Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing.

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Risks Related to Our Organization and Structure

Because NMG accounts for substantially all of our operations, we are subject to all risks applicable to NMG and dependent upon NMG’s distributions to us.

Neiman Marcus Group LTD LLC is a holding company and, accordingly, substantially all of our operations are conducted through NMG and its subsidiaries. As a result, we depend on the distribution of earnings, loans or other payments by our subsidiaries to us and are subject to all risks applicable to NMG and to limitations on the ability of NMG and its subsidiaries to make such distributions, including under the terms of our Senior Secured Credit Facilities and applicable law.

We are controlled by the Sponsors, whose interests as equity holders may conflict with those of the lenders under our Senior Secured Credit Facilities and the holders of the Notes.

Following the Acquisition, we are controlled by the Sponsors.  The Sponsors control the election of a majority of our directors and thereby have the power to control our affairs and policies, including the appointment of management, the issuance of additional stock and the declaration and payment of dividends.  The Sponsors do not have any liability for any obligations under our indebtedness and their interests may be in conflict with those of the lenders under our Senior Secured Credit Facilities and the holders of the Notes.  For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the Sponsors may pursue strategies that favor equity investors over debt investors.  In addition, our equity holders may have an interest in pursuing acquisitions, divestitures, financing or other transactions that, in their judgment, could enhance their equity investments, even though such transactions may involve risk to holders of our debt.  Additionally, the Sponsors may make investments in businesses that directly or indirectly compete with us, or may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. 

ITEM 1B.     UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.     PROPERTIES

Our main corporate headquarters are located at the Downtown Neiman Marcus store location in Dallas, Texas.  Other operating headquarters are located in Dallas, Texas and New York, New York.

Properties that we use in our operations include Neiman Marcus stores, Bergdorf Goodman stores, Last Call stores and distribution, support and office facilities. As of September 19, 2014, the approximate aggregate square footage of the properties used in our operations was as follows:

	Owned	Owned Subject to Ground Lease	Leased	Total
Neiman Marcus Stores	856,000	2,362,000	2,294,000	5,512,000
Bergdorf Goodman Stores	—	—	316,000	316,000
Last Call Stores and Other	—	—	1,022,000	1,022,000
Distribution, Support and Office Facilities	1,330,000	150,000	1,336,000	2,816,000

Neiman Marcus Stores.  As of September 19, 2014, we operated 41 Neiman Marcus stores, with an aggregate total property size of approximately 5,512,000 square feet.  The following table sets forth certain details regarding each Neiman Marcus store:

Neiman Marcus Stores

Locations	Fiscal Year Operations Began	Gross Store Sq. Feet	Locations	Fiscal Year Operations Began	Gross Store Sq. Feet
Dallas, Texas (Downtown)(1)	1908	129,000	Denver, Colorado(3)*	1991	90,000
Dallas, Texas (NorthPark)(2)*	1965	218,000	Scottsdale, Arizona(2)*	1992	114,000
Houston, Texas (Galleria)(3)*	1969	224,000	Troy, Michigan(3)*	1993	157,000
Bal Harbour, Florida(2)	1971	97,000	Short Hills, New Jersey(3)*	1996	137,000
Atlanta, Georgia(2)*	1973	206,000	King of Prussia, Pennsylvania(3)*	1996	145,000
St. Louis, Missouri(2)	1975	145,000	Paramus, New Jersey(3)*	1997	141,000
Northbrook, Illinois(3)	1976	144,000	Honolulu, Hawaii(3)	1999	181,000
Fort Worth, Texas(2)	1977	119,000	Palm Beach, Florida(2)	2001	53,000
Washington, D.C.(2)*	1978	130,000	Plano, Texas (Willow Bend)(4)*	2002	156,000
Newport Beach, California(3)*	1978	153,000	Tampa, Florida(3)*	2002	96,000
Beverly Hills, California(1)*	1979	185,000	Coral Gables, Florida(2)*	2003	136,000
Westchester, New York(2)*	1981	138,000	Orlando, Florida(4)*	2003	95,000
Las Vegas, Nevada(2)	1981	174,000	San Antonio, Texas(4)*	2006	120,000
Oak Brook, Illinois(2)	1982	98,000	Boca Raton, Florida(2)	2006	136,000
San Diego, California(2)	1982	106,000	Charlotte, North Carolina(3)	2007	80,000
Fort Lauderdale, Florida(3)*	1983	92,000	Austin, Texas(3)	2007	80,000
San Francisco, California(4)*	1983	252,000	Natick, Massachusetts(4)*	2008	103,000
Chicago, Illinois (Michigan Ave.)(2)	1984	188,000	Topanga, California(3)*	2009	120,000
Boston, Massachusetts(2)	1984	111,000	Bellevue, Washington(2)	2010	125,000
Palo Alto, California(3)*	1986	120,000	Walnut Creek, California(3)	2012	88,000
McLean, Virginia(4)*	1990	130,000

(1)           Owned subject to partial ground lease.

(2)           Leased.

(3)           Owned buildings on leased land.

(4)           Owned.

*              Mortgaged to secure our Senior Secured Credit Facilities and the 2028 Debentures.

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Bergdorf Goodman Stores.  We operate two Bergdorf Goodman stores, both of which are located in Manhattan at 58^th Street and Fifth Avenue. The following table sets forth certain details regarding these stores:

Bergdorf Goodman Stores

Locations	Fiscal Year Operations Began	Gross Store Sq. Feet
New York City (Main)(1)	1901	250,000
New York City (Men’s)(1)*	1991	66,000

(1)           Leased.

*              Mortgaged to secure our senior secured credit facilities and the 2028 Debentures.

Last Call Stores.  As of September 19, 2014, we operated 38 Last Call stores that average approximately 26,000 square feet each in size.

Distribution, Support and Office Facilities.  We own approximately 41 acres of land in Longview, Texas, where our primary distribution facility is located.  The Longview facility is the principal merchandise processing and distribution facility for Neiman Marcus stores.  In the spring of 2013, we opened a new 198,000 square feet distribution facility in Pittston, Pennsylvania to support the future growth and initiatives of the Company.  The new facility in Pittston replaced the distribution facility we previously utilized in Dayton, New Jersey.  We lease four regional service centers in New York, Florida, Texas and California.

We also own approximately 50 acres of land in Irving, Texas, where our online operating headquarters and distribution facility are located.  In addition, we currently utilize another regional distribution facility in Dallas, Texas to support our online operation.

Lease Terms.  We lease a significant percentage of our stores and, in certain cases, the land upon which our stores are located.  The terms of these leases, assuming all outstanding renewal options are exercised, range from two to 130 years.  The lease on the Bergdorf Goodman Main Store expires in 2050, with no renewal options, and the lease on the Bergdorf Goodman Men’s Store expires in 2020, with a 10-year renewal option.  Most leases provide for monthly fixed rentals or contingent rentals based upon revenues in excess of stated amounts and normally require us to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs.

For further information on our properties and lease obligations, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 15 of the Notes to Consolidated Financial Statements in Item 15. 

ITEM 3.     LEGAL PROCEEDINGS

Employment and Consumer Class Actions Litigation.  On April 30, 2010, a Class Action Complaint for Injunction and Equitable Relief was filed against the Company, Newton Holding, LLC, TPG Capital, L.P. and Warburg Pincus LLC in the United States District Court for the Central District of California by Sheila Monjazeb, individually and on behalf of other members of the general public similarly situated. On July 12, 2010, all defendants except for the Company were dismissed without prejudice, and on August 20, 2010, this case was dismissed by Ms. Monjazeb and refiled in the Superior Court of California for San Francisco County. This complaint, along with a similar class action lawsuit originally filed by Bernadette Tanguilig in 2007, alleges that the Company has engaged in various violations of the California Labor Code and Business and Professions Code, including without limitation, by (1) asking employees to work “off the clock,” (2) failing to provide meal and rest breaks to its employees, (3) improperly calculating deductions on paychecks delivered to its employees and (4) failing to provide a chair or allow employees to sit during shifts. The Monjazeb and Tanguilig class actions have been deemed “related” cases and are pending before the same trial court judge.  On October 24, 2011, the court granted the Company’s motion to compel Ms. Monjazeb and Juan Carlos Pinela (a co-plaintiff in the Tanguilig case) to arbitrate their individual claims in accordance with the Company’s Mandatory Arbitration Agreement, foreclosing their ability to pursue a class action in court. However, the court’s order compelling arbitration did not apply to Ms. Tanguilig because she is not bound by the Mandatory Arbitration Agreement.  Further, the court determined that Ms. Tanguilig could not be a class representative of employees who are subject to the Mandatory Arbitration Agreement, thereby limiting the putative class action to those associates who were employed between December 2003 and July 15, 2007 (the effective date of our Mandatory Arbitration Agreement).  Following the court’s order, Ms. Monjazeb and Mr. Pinela filed demands for arbitration with the American Arbitration Association (AAA) seeking to arbitrate not only their individual claims, but also class claims, which the Company asserted violated the class action

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waiver in the Mandatory Arbitration Agreement. This led to further proceedings in the trial court, a stay of the arbitrations, and a decision by the trial court, on its own motion, to reconsider its order compelling arbitration. The trial court ultimately decided to vacate its order compelling arbitration due to a recent California appellate court decision.  Following this ruling, the Company timely filed two separate appeals, one with respect to Mr. Pinela and one with respect to Ms. Monjazeb, with the Court of Appeal, asserting that the trial court did not have jurisdiction to change its earlier determination of the enforceability of the arbitration agreement. The appeal with respect to Mr. Pinela has been fully briefed and awaits the setting of a date for oral argument. The appeal with respect to Ms. Monjazeb will be dismissed once final approval of the class action settlement is granted (as described below).

Notwithstanding the appeal, the trial court decided to set certain civil penalty claims asserted by Ms. Tanguilig for trial on April 1, 2014. In these claims, Ms. Tanguilig sought civil penalties under the Private Attorneys General Act based on the Company's alleged failure to provide employees with meal periods and rest breaks in compliance with California law. On December 10, 2013, the Company filed a motion to dismiss all of Ms. Tanguilig’s claims, including the civil penalty claims, based on her failure to bring her claims to trial within five years as required by California law. After several hearings, on February 28, 2014, the court dismissed all of Ms. Tanguilig’s claims in the case and vacated the April 1, 2014 trial date. The court has awarded the Company its costs of suit in connection with the defense of Ms. Tanguilig’s claims, but denied its request of an attorneys’ fees award from Ms. Tanguilig. Ms. Tanguilig filed a notice of appeal from the dismissal of all her claims, as well as a second notice of appeal from the award of costs, both of which are pending before the Court of Appeal. Should the Court of Appeal reverse the trial court’s dismissal of all of Ms. Tanguilig’s claims, the litigation will resume, and Ms. Tanguilig will seek class certification of the claims asserted in her Third Amended Complaint. If this occurs, the scope of her class claims will likely be reduced by the class action settlement and release in the Monjazeb case (as described below); however, that settlement does not cover claims asserted by Ms. Tanguilig for alleged Labor Code violations from approximately December 19, 2003 to August 20, 2006 (the beginning of the settlement class period in the Monjazeb case). No date has been set for oral argument in Ms. Tanguilig’s appeals.

In Ms. Monjazeb's class action, a settlement was reached at a mediation held on January 25, 2014. After several hearings, the trial court granted preliminary approval of the settlement on May 6, 2014 and directed that notice of settlement be given to the settlement class. The deadline for class members to opt out of the settlement was August 11, 2014. The final approval hearing was held on September 18, 2014. The court stated that final approval of the settlement would be granted, but required plaintiff's counsel to submit additional information to support plaintiff's motion for attorney's fees.

In addition, the National Labor Relations Board (NLRB) has been pursuing a complaint alleging that the Mandatory Arbitration Agreement’s class action prohibition violates employees’ rights to engage in concerted activity, which was submitted to an administrative law judge (ALJ) for determination on a stipulated record. Recently, the ALJ issued a recommended decision and order finding that the Company's Arbitration Agreement and class action waiver violated the National Labor Relations Act. The matter has now been transferred to the NLRB for further consideration and decision.

On December 6, 2013, a third putative class action was filed against the Company in the San Diego Superior Court by a former employee. The case is entitled Marisabella Newton v. Neiman Marcus Group, Inc., et al., and the complaint alleges claims similar to those made in the Monjazeb case. After filing an answer to the complaint in the Newton case and responding to discovery, we reached a settlement of Ms. Newton's individual claims and a dismissal of her class allegations, subject to court approval. The court approved the settlement and dismissed the case on August 25, 2014.

We will continue to vigorously defend our interests in these matters. Based upon the pending settlement agreement with respect to Ms. Monjazeb's class action claims, we recorded our currently estimable liabilities with respect to both Ms. Monjazeb's and Ms. Tanguilig's employment class actions litigation claims in fiscal year 2014, which amount was not material to our financial condition or results of operations. We will continue to evaluate these matters, and our recorded reserves for such matters, based on subsequent events, new information and future circumstances.

On August 7, 2014, a putative class action complaint was filed against The Neiman Marcus Group LLC in Los Angeles County Superior Court by a customer, Linda Rubenstein, in connection with the Company's Last Call stores in California. Ms. Rubenstein alleges that the Company has violated various California consumer protection statutes by implementing a marketing and pricing strategy that suggests that clothing sold at Last Call stores in California was originally offered for sale at full-line Neiman Marcus stores when allegedly, it was not, and is allegedly of inferior quality to clothing sold at the full-line stores. On September 12, 2014, we removed the case to the United States District Court for the Central District of California. We will vigorously defend our interests in this matter. We will continue to evaluate this matter based on subsequent events, new information and future circumstances.

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We are currently involved in various other legal actions and proceedings that arose in the ordinary course of business.  With respect to the matters described above as well as all other current outstanding litigation involving us, we believe that any liability arising as a result of such litigation will not have a material adverse effect on our financial position, results of operations or cash flows.

Cyber-Attack Class Actions Litigation. Three class actions relating to the Cyber-Attack were filed in January 2014 and later voluntarily dismissed by the plaintiffs between February and April 2014. The plaintiffs had alleged negligence and other claims in connection with their purchases by payment cards. Melissa Frank v. The Neiman Marcus Group, LLC, et al., was filed in the United States District Court for the Eastern District of New York on January 13, 2014 but was voluntarily dismissed by the plaintiff on April 15, 2014, without prejudice to her right to re-file a complaint. Donna Clark v. Neiman Marcus Group LTD LLC was filed in the United States District Court for the Northern District of Georgia on January 27, 2014 but was voluntarily dismissed by the plaintiff on March 11, 2014, without prejudice to her right to re-file a complaint. Christina Wong v. The Neiman Marcus Group, LLC, et al., was filed in the United States District Court for the Central District of California on January 29, 2014, but was voluntarily dismissed by the plaintiff on February 10, 2014, without prejudice to her right to re-file a complaint. Three new putative class actions relating to the Cyber-Attack were filed in March and April 2014, also alleging negligence and other claims in connection with plaintiffs’ purchases by payment cards. Two of the cases, Katerina Chau v. Neiman Marcus Group LTD, Inc., filed in the United States District Court for the Southern District of California on March 14, 2014, and Michael Shields v. The Neiman Marcus Group, LLC, filed in the United States District Court for the Southern District of California on April 1, 2014, were voluntarily dismissed, with prejudice as to Chau and without prejudice as to Shields. The third case, Hilary Remijas v. The Neiman Marcus Group, LLC, was filed on March 12, 2014 in the Northern District of Illinois. On June 2, 2014, an amended complaint in the Remijas case was filed, which added three plaintiffs (Debbie Farnoush and Joanne Kao, California residents; and Melissa Frank, a New York resident) and asserted claims for negligence, implied contract, unjust enrichment, violation of various consumer protection statutes, invasion of privacy and violation of state data breach laws. The Company moved to dismiss the Remijas amended complaint on July 2, 2014. On September 16, 2014, the court granted the Company’s motion to dismiss the Remijas case on the grounds that the plaintiffs lacked standing due to their failure to demonstrate an actionable injury.

In addition, payment card companies and associations may require us to reimburse them for unauthorized card charges and costs to replace cards and may also impose fines or penalties in connection with the security incident, and enforcement authorities may also impose fines or other remedies against us. We have also incurred other costs associated with this security incident, including legal fees, investigative fees, costs of communications with customers and credit monitoring services provided to our customers. At this point, we are unable to predict the developments in, outcome of, and economic and other consequences of pending or future litigation or regulatory investigations related to, and other costs associated with, this matter. We will continue to evaluate these matters based on subsequent events, new information and future circumstances.

ITEM 4.          MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Subsequent to the Acquisition and the Conversion, our membership unit is privately held and there is no established public trading market for such unit.

Dividends

We do not expect to make any dividends, distributions or other similar payments to Holdings in the foreseeable future.

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ITEM 6.     SELECTED FINANCIAL DATA

The following selected financial data is qualified in entirety by our Consolidated Financial Statements (and the Notes thereto) contained in Item 15 and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7.

	August 2, 2014		August 3, 2013 (1)		July 28, 2012		July 30, 2011		July 31, 2010
(in millions, except per share data)	(Successor)		(Predecessor)		(Predecessor)		(Predecessor)		(Predecessor)
FINANCIAL POSITION
Cash and cash equivalents	$	196.5	$	136.7	$	49.3	$	321.6	$	421.0
Merchandise inventories	1,069.6		1,018.8		939.8		839.3		790.5
Total current assets	1,409.8		1,286.0		1,143.7		1,302.7		1,360.1
Property and equipment, net	1,390.3		901.8		894.5		873.2		905.8
Total assets	8,761.7		5,300.2		5,201.9		5,364.8		5,532.3
Total current liabilities	856.7		776.7		725.2		662.2		662.5
Long-term debt, excluding current maturities	4,580.5		2,697.1		2,781.9		2,681.7		2,879.7
Cash dividends per share	$	—	$	—	$	435.0	$	—	$	—

	Thirty-nine weeks ended				Thirteen weeks ended				Fiscal year ended				Fiscal year ended			Fiscal year ended				Fiscal year ended
	August 2, 2014				November 2, 2013				August 3, 2013 (1)				July 28, 2012			July 30, 2011				July 31, 2010
(in millions)	(Successor)				(Predecessor)				(Predecessor)				(Predecessor)			(Predecessor)				(Predecessor)
OPERATING RESULTS
Revenues	$	3,710.2			$	1,129.1			$	4,648.2			$	4,345.4		$	4,002.3			$	3,692.8
Cost of goods sold including buying and occupancy costs (excluding depreciation)	2,563.3				685.4				2,995.4				2,794.7			2,589.3				2,417.6
Selling, general and administrative expenses (excluding depreciation)	840.5				266.5				1,047.8				1,006.9			924.3				878.1
Income from credit card program	(40.7		)		(14.7		)		(53.4		)		(51.6		)	(46.0		)		(59.1		)
Depreciation and amortization	262.0				46.0				188.9				180.2			194.9				215.1
Operating earnings	8.8			(2)	32.1			(3)	446.4				403.6			329.7				231.8
(Loss) earnings before income taxes	(223.9		)	(2)	(5.2		)		277.4			(4)	228.3			49.3			(5)	(5.3		)
Net (loss) earnings	$	(134.1	)	(2)	$	(13.1	)		$	163.7		(4)	$	140.1		$	31.6		(5)	$	(1.8	)

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	Thirty-nine weeks ended				Thirteen weeks ended				Fiscal year ended			Fiscal year ended			Fiscal year ended			Fiscal year ended
	August 2, 2014				November 2, 2013				August 3, 2013 (1)			July 28, 2012			July 30, 2011			July 31, 2010
(in millions, except number of stores and sales per square foot)	(Successor)				(Predecessor)				(Predecessor)			(Predecessor)			(Predecessor)			(Predecessor)
OTHER OPERATING DATA
Net capital expenditures (6)	$	132.3			$	36.0			$	139.3		$	142.2		$	83.7		$	44.3
Depreciation expense	113.3				34.2				141.5			130.1			132.4			141.8
Rent expense and related occupancy costs	79.6				24.1				96.7			91.9			87.6			85.0
Change in comparable revenues (7)	5.4		%		5.7		%		4.9		%	7.9		%	8.1		%	(0.1		)%
Number of full-line stores open at period end	43				43				43			44			43			43
Sales per square foot (8)	$	441			$	138			$	552		$	535		$	505		$	466
NON-GAAP FINANCIAL MEASURE
EBITDA (9)	$	270.8		(2)	$	78.1		(3)	$	635.3		$	583.8		$	524.7		$	446.9
EBITDA as a percentage of revenues	7.3		%		6.9		%		13.7		%	13.4		%	13.1		%	12.1		%
Adjusted EBITDA (9)	$	484.4			$	193.2			$	671.5		$	603.1		$	533.4		$	460.3
Adjusted EBITDA as a percentage of revenues	13.1		%		17.1		%		14.4		%	13.9		%	13.3		%	12.5		%

(1) Fiscal year 2013 consists of the fifty-three weeks ended August 3, 2013. All other fiscal years presented consist of fifty-two weeks.

(2) For the thirty-nine weeks ended August 2, 2014, operating earnings and EBITDA include other expenses of $76.3 million primarily due to transaction costs related to the Acquisition and the investigation of the Cyber-Attack.

For the thirty-nine weeks ended August 2, 2014, loss before income taxes and net loss include a loss on debt extinguishment of $7.9 million, which primarily consists of the write-off of debt issuance costs incurred in connection with the initial issuance of the Senior Secured Term Loan Facility allocable to lenders that no longer participate in the Senior Secured Term Loan Facility subsequent to the refinancing. The total loss on debt extinguishment was recorded as a component of interest expense.

(3) For the thirteen weeks ended November 2, 2013, operating earnings and EBITDA include other expenses of $113.7 million primarily due to transaction costs related to the Acquisition.

(4) For fiscal year 2013, earnings before income taxes and net earnings include a loss on debt extinguishment of $15.6 million, which included 1) costs of $10.7 million related to the tender for and redemption of our Senior Subordinated Notes and 2) the write-off of $4.9 million of debt issuance costs related to the extinguished debt facilities.  The total loss on debt extinguishment was recorded as a component of interest expense.

(5) For fiscal year 2011, earnings before income taxes and net earnings include a loss on debt extinguishment of $70.4 million, which included 1) costs of $37.9 million related to the tender for and redemption of our Senior Notes and 2) the write-off of $32.5 million of debt issuance costs related to the extinguished debt facilities. The total loss on debt extinguishment was recorded as a component of interest expense.

(6) Amounts are net of developer contributions of $5.7 million, $0.0 million, $7.2 million, $10.6 million, $10.5 million and $14.4 million, respectively, for the periods presented.

(7) Comparable revenues include 1) revenues derived from our retail stores open for more than fifty-two weeks, including stores that have been relocated or expanded and 2) revenues from our online operation.  Comparable revenues exclude revenues of closed stores.  We closed our Neiman Marcus store in Minneapolis in January 2013.  The calculation of the change in comparable revenues for fiscal year 2013 is based on revenues for the fifty-two weeks ended July 27, 2013 compared to revenues for the fifty-two weeks ended July 28, 2012.

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(8) Sales per square foot are calculated as Neiman Marcus stores and Bergdorf Goodman stores net sales divided by weighted average square footage.  Weighted average square footage includes a percentage of year-end square footage for new and closed stores equal to the percentage of the year during which they were open.  Our small format stores (Last Call and CUSP) are not included in this calculation.  Sales per square foot for fiscal year 2013 are based on revenues for the fifty-two weeks ended July 27, 2013.

(9) For an explanation of EBITDA and Adjusted EBITDA as measures of our operating performance and a reconciliation to net earnings, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Non-GAAP Financial Measure — EBITDA and Adjusted EBITDA.”

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

EXECUTIVE OVERVIEW

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and related notes.  Unless otherwise specified, the meanings of all defined terms in Management’s Discussion and Analysis of Financial Condition and Results of Operations are consistent with the meanings of such terms as defined in the Notes to Consolidated Financial Statements.  This discussion contains forward-looking statements.  Please see “—Other Matters—Factors That May Affect Future Results” for a discussion of the risks, uncertainties and assumptions relating to these statements.

Business Overview

We are a luxury, multi-branded, omni-channel fashion retailer conducting integrated store and online operations principally under the Neiman Marcus and Bergdorf Goodman brand names. We report our store operations as our Specialty Retail Stores segment and our direct-to-consumer operations as our Online segment.

The Company is a subsidiary of NM Mariposa Holdings, Inc., a Delaware corporation (Parent), which is owned by private investment funds affiliated with Ares Management, L.P. (Ares) and Canada Pension Plan Investment Board (CPPIB, and together with Ares, the Sponsors) and certain co-investors.  The Company’s operations are conducted through its wholly owned subsidiary, The Neiman Marcus Group LLC (NMG).  The Sponsors acquired the Company in a leveraged transaction on October 25, 2013 (the Acquisition).  Prior to the Acquisition, we were owned by Newton Holding, LLC, which was controlled by investment funds affiliated with TPG Global, LLC (together with its affiliates, TPG) and Warburg Pincus LLC (together with TPG, the Former Sponsors).  The accompanying Consolidated Financial Statements are presented as “Predecessor” or “Successor” to indicate whether they relate to the period preceding the Acquisition or the period succeeding the Acquisition, respectively.  The Acquisition and the allocation of the purchase price have been recorded for accounting purposes as of November 2, 2013, the end of our first quarter of fiscal year 2014.

We have prepared our discussion of the results of operations for the fiscal year ended August 2, 2014 by comparing the results of operations of the Predecessor for the fiscal year ended August 3, 2013 to the combined amounts obtained by adding the operations and cash flows for the Predecessor thirteen week period ended November 2, 2013 and the Successor thirty-nine week period ended August 2, 2014. Although this combined presentation does not comply with U.S. generally accepted accounting principles (GAAP), we believe that it provides a meaningful method of comparison. The combined operating results have not been prepared on a pro forma basis under applicable regulations and may not reflect the actual results we would have achieved absent the Acquisition and may not be predictive of future results of operations.

We believe that our customers have allocated a higher portion of their luxury spending to online retailing in recent years and that our customers' expectations of a seamless shopping experience across our in-store and online channels have increased, and we expect these trends will continue for the foreseeable future. As a result, we have made investments and redesigned processes to integrate our shopping experience across channels consistent with our customers' shopping preferences and expectations. In particular, we have invested and continue to invest in technology and systems that further our omni-channel selling capabilities and in fiscal year 2014, we realigned the merchandising responsibilities for our Neiman Marcus brand into a single team responsible for inventory procurement for both our store and online channels. With the acceleration of omni-channel retailing and our past and ongoing investments in omni-channel initiatives, we believe the growth in our total comparable revenues and operating results are the best measures of our ability to grow our brands. As a result, we are re-evaluating our current segment reporting practices and anticipate that we may begin to report a single "omni-channel" reporting segment in the future.

Our fiscal year ends on the Saturday closest to July 31.  Like many other retailers, we follow a 4-5-4 reporting calendar, which means that each fiscal quarter consists of thirteen weeks divided into periods of four weeks, five weeks and four weeks.  This resulted in an extra week in fiscal year 2013 (the 53^rd week). All references to fiscal year 2014 relate to the combined fifty-two weeks ended August 2, 2014 (calculated as described above). All references to fiscal year 2013 relate to the fifty-three weeks ended August 3, 2013 and all references to fiscal year 2012 relate to the fifty-two weeks ended July 28, 2012.  References to fiscal year 2015 and years thereafter relate to our fiscal years for such periods.

In connection with the Acquisition, the Company incurred substantial new indebtedness, in part in replacement of former indebtedness.  See “Liquidity and Capital Resources.”  In addition, the purchase price paid in connection with the

30

Acquisition has been allocated to state the acquired assets and liabilities at fair value.  The purchase accounting adjustments increased the carrying value of our property and equipment and inventory, revalued our intangible assets related to our tradenames, customer lists and favorable lease commitments and revalued our long-term benefit plan obligations, among other things.  As a result, our Successor financial statements subsequent to the Acquisition are not necessarily comparable to our Predecessor financial statements.

Summary of Operating Results

A summary of our operating results is as follows:

• Revenues - Our revenues for fiscal year 2014 were $4,839.3 million, an increase of 4.1% compared to fiscal year 2013. Our revenues for fiscal year 2013 were $4,648.2 million, an increase of 7.0% as compared to fiscal year 2012. Revenues generated in the 53^rd week of fiscal year 2013 were $61.9 million. For Specialty Retail Stores, our sales per square foot increased to $579 for the fifty-two weeks ended August 2, 2014 from $552 for the fifty-two weeks ended July 27, 2013.

Increases in comparable revenues by quarter for fiscal year 2014 are as follows:

	Specialty Retail Stores		Online		Total
First fiscal quarter	4.5	%	10.4	%	5.7	%
Second fiscal quarter	2.6		15.1		5.5
Third fiscal quarter	4.2		11.7		5.9
Fourth fiscal quarter	2.3		13.7		4.9
Total fiscal year 2014	3.4		12.9		5.5

Revenues in the 53^rd week of fiscal year 2013 are not included in our calculations of comparable revenues.

• Cost of goods sold including buying and occupancy costs (excluding depreciation) (COGS) - COGS as a percentage of revenues for fiscal year 2014 compared to fiscal year 2013 were:

	Fiscal year ended
	August 2, 2014		August 3, 2013
	(Combined)		(Predecessor)
COGS, as reported	67.1	%	64.4	%
COGS, before purchase accounting adjustments	64.4	%	64.4	%

As a result of purchase accounting adjustments to revalue our inventories at the Acquisition date by $129.6 million, COGS were increased by $99.0 million in the second quarter of fiscal year 2014 and by $30.6 million in the third quarter of fiscal year 2014 in connection with the sale of the acquired inventories.

Compared to the prior year, COGS before purchase accounting adjustments remained flat, primarily due to 1) increased product margins as a result of lower markdowns and promotional costs and 2) leveraging of buying and occupancy costs on higher revenues, partially offset by 3) higher delivery and processing net costs attributable to the implementation of free shipping/free returns for our Neiman Marcus and Bergdorf Goodman brands on October 1, 2013. 

At August 2, 2014, on-hand inventories totaled $1,069.6 million, a 5.0% increase from August 3, 2013. Based on our current inventory position, we will continue to closely monitor and align our inventory levels and purchases with anticipated customer demand.

• Selling, general and administrative expenses (excluding depreciation) (SG&A) - SG&A represented 22.9% of revenues in fiscal year 2014, an increase of 0.4% of revenues compared to fiscal year 2013. The higher level of SG&A expenses, as a percentage of revenues, primarily reflects 1) higher marketing and selling costs incurred primarily in support of the growth of our online operation and 2) higher current and long-term incentive compensation requirements, partially offset by 3) leveraging of payroll and other costs on higher revenues.

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• Operating earnings - Our operating earnings in fiscal year 2014 compared to fiscal year 2013 were:

	Fiscal year ended
	August 2, 2014			August 3, 2013
(in millions)	(Combined)			(Predecessor)
Specialty Retail Stores	$	426.9		$	411.4
Online	160.7			157.7
Corporate expenses	(56.0		)	(46.7		)
Other expenses	(190.1		)	(23.1		)
Corporate depreciation/amortization charges	(170.9		)	(52.9		)
Corporate amortization of inventory step-up	(129.6		)	—
Total operating earnings	$	41.0		$	446.4

Estimated operating earnings generated in the 53^rd week of fiscal year 2013 were $10.7 million.

Operating earnings for our Specialty Retail Stores segment increased by 0.2% to 11.6% of Specialty Retail Stores revenues in fiscal year 2014 compared to fiscal year 2013. This increase was driven by increased product margins as a result of lower markdowns and promotional costs, net of higher current incentive compensation costs.

For our Online segment, operating earnings decreased by 1.3% to 14.0% of Online revenues in fiscal year 2014 compared to fiscal year 2013. This decrease was driven by 1) higher delivery and processing net costs attributable to the implementation of free shipping/free returns for our Neiman Marcus and Bergdorf Goodman brands on October 1, 2013, partially offset by 2) increased product margins as a result of lower markdowns and promotional costs.

We incurredother expenses of $190.1 million, or 3.9% of revenues, in fiscal year 2014.  These expenses consisted primarily of costs incurred in connection with the Acquisition and costs incurred related to the Cyber-Attack.

Corporate depreciation and amortization charges increased in fiscal year 2014 due to higher asset values attributable to fair value adjustments to our assets recorded in connection with the purchase price allocation to reflect the Acquisition.

• Liquidity - Net cash provided by our operating activities was $295.7 million in fiscal year 2014 compared to $349.4 million in fiscal year 2013. In connection with the Acquisition, we incurred cash payments of approximately $147.3 million to fund costs and expenses incurred as a result of the Acquisition. We held cash balances of $196.5 million at August 2, 2014 compared to $136.7 million at August 3, 2013. At August 2, 2014, we had no borrowings outstanding under the Asset-Based Revolving Credit Facility, no outstanding letters of credit and $720.0 million of unused borrowing availability. We believe that cash generated from our operations along with our cash balances and available sources of financing will enable us to meet our anticipated cash obligations during the next twelve months.

• Recent development - On September 12, 2014, we entered into an agreement to acquire the MyTheresa.com global online luxury website and the Theresa flagship specialty store in Munich, Germany. The purchase price is approximately €150 million, subject to certain adjustments and an "earn-out" of up to €27.5 million per year for operating performance for each of calendar years 2015 and 2016. The transaction is expected to close later this calendar year, subject to regulatory approvals and other customary closing conditions. We plan to finance the acquisition through a combination of cash and debt.

• Outlook - Economic conditions continue to improve and we believe will continue to be impacted by a number of factors, including the rate of economic growth, a rising stock market, a slowly improving housing market, high unemployment levels, uncertainty regarding governmental spending and tax policies and overall consumer confidence. As a result, we intend to operate our business in a way that balances these economic conditions and current business trends with our long-term initiatives and growth strategies.

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OPERATING RESULTS

Performance Summary

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

	Thirty-nine weeks ended		Thirteen weeks ended		Fiscal year ended		Fiscal year ended		Fiscal year ended
	August 2, 2014		November 2, 2013		August 2, 2014		August 3, 2013 (a)		July 28, 2012
	(Successor)		(Predecessor)		(Combined)		(Predecessor)		(Predecessor)
Revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold including buying and occupancy costs (excluding depreciation)	69.1		60.7		67.1		64.4		64.3
Selling, general and administrative expenses (excluding depreciation)	22.7		23.6		22.9		22.5		23.2
Income from credit card program	(1.1	)	(1.3	)	(1.1	)	(1.1	)	(1.2	)
Depreciation expense	3.1		3.0		3.0		3.0		3.0
Amortization of intangible assets	2.9		0.6		2.4		0.6		0.7
Amortization of favorable lease commitments	1.1		0.4		0.9		0.4		0.4
Other expenses	2.1		10.1		3.9		0.5		0.3
Operating earnings	0.2		2.8		0.8		9.6		9.3
Interest expense, net	6.3		3.3		5.6		3.6		4.0
(Loss) earnings before income taxes	(6.0	)	(0.5	)	(4.7	)	6.0		5.3
Income tax (benefit) expense	(2.4	)	0.7		(1.7	)	2.4		2.0
Net (loss) earnings	(3.6	)%	(1.2	)%	(3.0	)%	3.5	%	3.2	%

(a) Percentages related to fiscal year 2013 include the operating results of the 53^rd week.  Summary financial information with respect to the 53^rd week of fiscal year 2013 is as follows:

(in millions)	Specialty Retail		Online		Total
Revenues	$	47.5	$	14.4	$	61.9
Operating earnings	8.2		3.2		10.7
EBITDA	10.2		3.6		13.6

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Set forth in the following table is certain summary information with respect to our operations for the periods indicated (figures may not sum due to rounding).

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 2, 2014			August 3, 2013 (1)			July 28, 2012
(in millions, except sales per square foot and store count)	(Successor)			(Predecessor)			(Combined)			(Predecessor)			(Predecessor)
REVENUES
Specialty Retail Stores	$	2,801.5		$	889.3		$	3,690.8		$	3,616.9		$	3,466.6
Online	908.7			239.8			1,148.5			1,031.3			878.8
Total	$	3,710.2		$	1,129.1		$	4,839.3		$	4,648.2		$	4,345.4
OPERATING EARNINGS
Specialty Retail Stores	$	288.6		$	138.2		$	426.9		$	411.4		$	391.2
Online	126.9			33.8			160.7			157.7			132.4
Corporate expenses	(43.1		)	(12.9		)	(56.0		)	(46.7		)	(53.2		)
Other expenses	(76.3		)	(113.7		)	(190.1		)	(23.1		)	(11.5		)
Corporate depreciation/amortization charges	(157.7		)	(13.2		)	(170.9		)	(52.9		)	(55.3		)
Corporate amortization of inventory step-up	(129.6		)	—			(129.6		)	—			—
Total	$	8.8		$	32.1		$	41.0		$	446.4		$	403.6
OPERATING PROFIT MARGIN
Specialty Retail Stores	10.3		%	15.5		%	11.6		%	11.4		%	11.3		%
Online	14.0		%	14.1		%	14.0		%	15.3		%	15.1		%
Total	0.2		%	2.8		%	0.8		%	9.6		%	9.3		%
CHANGE IN COMPARABLE REVENUES (2)
Specialty Retail Stores	3.0		%	4.5		%	3.4		%	2.2		%	6.0		%
Online	13.6		%	10.4		%	12.9		%	15.7		%	16.1		%
Total	5.4		%	5.7		%	5.5		%	4.9		%	7.9		%
SALES PER SQUARE FOOT (3)
Specialty Retail Stores	$	441		$	138		$	579		$	552		$	535
STORE COUNT
Neiman Marcus and Bergdorf Goodman full-line stores:
Open at beginning of period	43			43			43			44			43
Opened during the period	—			—			—			—			1
Closed during the period	—			—			—			(1		)	—
Open at end of period	43			43			43			43			44
Last Call stores:
Open at beginning of period	36			36			36			33			30
Opened during the period	2			—			2			3			4
Closed during the period	—			—			—			—			(1		)
Open at end of period	38			36			38			36			33
NON-GAAP FINANCIAL MEASURES
EBITDA (4)	$	270.8		$	78.1		$	348.9		$	635.3		$	583.8
Adjusted EBITDA (4)	$	484.4		$	193.2		$	677.6		$	671.5		$	603.1

(1) Fiscal year 2013 consists of the fifty-three weeks ended August 3, 2013, except where noted. In fiscal year 2013, we generated revenues of $61.9 million and EBITDA of $13.6 million in the 53^rd week.

(2) Comparable revenues include 1) revenues derived from our retail stores open for more than fifty-two weeks, including stores that have been relocated or expanded and 2) revenues from our online operation.  Comparable revenues exclude revenues of closed stores.  We closed our Neiman Marcus store in Minneapolis in January 2013.  The calculation of

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the change in comparable revenues for fiscal year 2013 is based on revenues for the fifty-two weeks ended July 27, 2013 compared to revenues for the fifty-two weeks ended July 28, 2012.

(3) Sales per square foot are calculated as Neiman Marcus stores and Bergdorf Goodman stores net sales divided by weighted average square footage.  Weighted average square footage includes a percentage of year-end square footage for new and closed stores equal to the percentage of the year during which they were open.  Our small format stores (Last Call and CUSP) are not included in this calculation.  The calculation of sales per square foot for fiscal year 2013 is based on revenues for the fifty-two weeks ended July 27, 2013.

(4) For an explanation of EBITDA and Adjusted EBITDA as measures of our operating performance and a reconciliation to net (loss) earnings, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measure — EBITDA and Adjusted EBITDA.”

Factors Affecting Our Results

Revenues.  We generate our revenues from the sale of high-end merchandise. Components of our revenues include:

• Sales of merchandise—Revenues are recognized at the later of the point-of-sale or the delivery of goods to the customer. Revenues are reduced when customers return goods previously purchased. We maintain reserves for anticipated sales returns primarily based on our historical trends. Revenues exclude sales taxes collected from our customers.

• Delivery and processing—We generate revenues from delivery and processing charges related to certain merchandise deliveries to our customers.

Our revenues can be affected by the following factors:

• general economic conditions; 

• changes in the level of consumer spending generally and, specifically, on luxury goods;

• our ability to acquire goods meeting customers’ tastes and preferences;

• changes in the level of full-price sales; 

• changes in the level and timing of promotional events conducted;

• changes in the level of delivery and processing revenues collected from our customers; 

• our ability to successfully implement our expansion and growth strategies; and 

• the rate of growth in internet revenues.

In addition, our revenues are seasonal, as discussed below under “—Seasonality.”

Cost of goods sold including buying and occupancy costs (excluding depreciation).  COGS consists of the following components:

• Inventory costs—We utilize the retail inventory method of accounting. 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 our inventories. The cost of the inventory reflected on the Consolidated Balance Sheets is decreased by charges to cost of goods sold at average cost and the retail value of the inventory is lowered through the use of markdowns. Earnings are negatively impacted when merchandise is marked down. With the introduction of new fashions in the first and third fiscal quarters of each fiscal year and our emphasis on full-price selling in these quarters, a lower level of markdowns and higher margins are characteristic of these quarters. 

• Buying costs—Buying costs consist primarily of salaries and expenses incurred by our merchandising and buying operations. 

• Occupancy costs—Occupancy costs consist primarily of rent, property taxes and operating costs of our retail, distribution and support facilities. A significant portion of our buying and occupancy costs are fixed in nature and are not dependent on the revenues we generate. 

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• Delivery and processing costs—Delivery and processing costs consist primarily of delivery charges we pay to third party carriers and other costs related to the fulfillment of customer orders not delivered at the point-of-sale.

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. Certain allowances are received to reimburse us for markdowns taken or to support the gross margins that we earn in connection with the sales of the vendor’s merchandise. These allowances result in an increase to gross margin when we earn the allowances and they are approved by the vendor. Other allowances we receive represent reductions to the amounts we pay to acquire the merchandise. These allowances reduce the cost of the acquired merchandise and are recognized at the time the goods are sold. We received vendor allowances of $93.5 million (including $5.0 million for the Predecessor prior to the Acquisition) in fiscal year 2014, $90.2 million in fiscal year 2013 and $92.5 million in fiscal year 2012. The amounts of vendor allowances we receive fluctuate based on the level of markdowns taken and did not have a significant impact on the year-over-year change in gross margin during fiscal years 2014, 2013 or 2012.

Changes in our COGS as a percentage of revenues can be affected by the following factors:

• our ability to order an appropriate amount of merchandise to match customer demand and the related impact on the level of net markdowns and promotions costs incurred; 

• customer acceptance of and demand for the merchandise we offer in a given season and the related impact of such factors on the level of full-price sales; 

• factors affecting revenues generally, including pricing and promotional strategies, product offerings and actions taken by competitors; 

• changes in delivery and processing costs and our ability to pass such costs onto the customer; 

• changes in occupancy costs primarily associated with the opening of new stores or distribution facilities; and 

• the amount of vendor reimbursements we receive during the fiscal year.

Selling, general and administrative expenses (excluding depreciation).  SG&A principally consists of costs related to employee compensation and benefits in the selling and administrative support areas and advertising and marketing costs. A significant portion of our selling, general and administrative expenses is variable in nature and is dependent on the revenues we generate.

Advertising costs consist primarily of 1) online marketing costs, 2) advertising costs incurred related to the production of the photographic content for our websites and 3) costs incurred related to the production, printing and distribution of our print catalogs and other promotional materials mailed to our customers. We receive advertising allowances from certain of our merchandise vendors. Substantially all the advertising allowances we receive represent reimbursements of direct, specific and incremental costs that we incur to promote the vendor’s merchandise in connection with our various advertising programs, primarily catalogs and other print media. Advertising allowances fluctuate based on the level of advertising expenses incurred and are recorded as a reduction of our advertising costs when earned. Advertising allowances aggregated approximately $51.4 million (including $20.0 million for the Predecessor prior to the Acquisition) in fiscal year 2014, $55.0 million in fiscal year 2013 and $53.1 million in fiscal year 2012.

We also receive allowances from certain merchandise vendors in conjunction with compensation programs for employees who sell the vendor’s merchandise. These allowances are netted against the related compensation expense that we incur. Amounts received from vendors related to compensation programs were $73.9 million (including $18.5 million for the Predecessor prior to the Acquisition) in fiscal year 2014, $72.2 million in fiscal year 2013 and $65.1 million in fiscal year 2012.

Changes in our selling, general and administrative expenses are affected primarily by the following factors:

• changes in the number of sales associates primarily due to new store openings and expansion of existing stores, including increased health care and related benefits expenses; 

• changes in expenses incurred in connection with our advertising and marketing programs; and 

• changes in expenses related to employee benefits due to general economic conditions such as rising health care costs.

Income from credit card program.  We maintain a proprietary credit card program through which credit is extended to customers and have a related marketing and servicing alliance with affiliates of Capital One.  Pursuant to the Program

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Agreement, Capital One currently offers credit cards and non-card payment plans under both the "Neiman Marcus" and "Bergdorf Goodman" brand names.

Pursuant to the Program Agreement, we receive payments from Capital One based on sales transacted on our proprietary credit cards.  We recognize income from our credit card program when earned. In the future, the income from our credit card program may:

• increase or decrease based upon the level of utilization of our proprietary credit cards by our customers; 

• increase or decrease based upon the overall profitability and performance of the credit card portfolio due to the level of bad debts incurred or changes in interest rates, among other factors; 

• increase or decrease based upon future changes to our historical credit card program in response to changes in regulatory requirements or other changes related to, among other things, the interest rates applied to unpaid balances and the assessment of late fees; and 

• decrease based upon the level of future services we provide to Capital One.

Seasonality

We conduct our selling activities in two primary selling seasons—Fall and Spring. The Fall season is comprised of our first and second fiscal quarters and the Spring season is comprised of our third and fourth fiscal quarters.

Our first fiscal quarter is generally characterized by a higher level of full-price sales with a focus on the initial introduction of Fall season fashions. Aggressive marketing activities designed to stimulate customer purchases, a lower level of markdowns and higher margins are characteristic of this quarter. The second fiscal quarter is more focused on promotional activities related to the December holiday season, the early introduction of resort season collections from certain designers and the sale of Fall season goods on a marked down basis. As a result, margins are typically lower in the second fiscal quarter. However, due to the seasonal increase in revenues that occurs during the holiday season, the second fiscal quarter is typically the quarter in which our revenues are the highest and in which expenses as a percentage of revenues are the lowest. Our working capital requirements are also the greatest in the first and second fiscal quarters as a result of higher seasonal requirements.

Our third fiscal quarter is generally characterized by a higher level of full-price sales with a focus on the initial introduction of Spring season fashions. Aggressive marketing activities designed to stimulate customer purchases, a lower level of markdowns and higher margins are again characteristic of this quarter. Revenues are generally the lowest in the fourth fiscal quarter with a focus on promotional activities offering Spring season goods to customers on a marked down basis, resulting in lower margins during the quarter. Our working capital requirements are typically lower in the third and fourth fiscal quarters compared to the other quarters.

A large percentage of our merchandise assortment, particularly in the apparel, fashion accessories and shoe categories, is ordered months in advance of the introduction of such goods. For example, women’s apparel, men’s apparel, shoes and handbags are typically ordered six to nine months in advance of the products being offered for sale while jewelry and other categories are typically ordered three to six months in advance. As a result, inherent in the successful execution of our business plans is our ability both to predict the fashion trends that will be of interest to our customers and to anticipate future spending patterns of our customer base.

We monitor the sales performance of our inventories throughout each season. We seek to order additional goods to supplement our original purchasing decisions when the level of customer demand is higher than originally anticipated. However, in certain merchandise categories, particularly fashion apparel, our ability to purchase additional goods can be limited. This can result in lost sales in the event of higher than anticipated demand for the fashion goods we offer or a higher than anticipated level of consumer spending. Conversely, in the event we buy fashion goods that are not accepted by the customer or the level of consumer spending is less than we anticipated, we typically incur a higher than anticipated level of markdowns, net of vendor allowances, resulting in lower operating profits. We believe that the experience of our merchandising and selling organizations helps to minimize the inherent risk in predicting fashion trends.

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Fiscal Year Ended August 2, 2014 (Combined) Compared to Fiscal Year Ended August 3, 2013 (Predecessor)

Revenues.  Our revenues for fiscal year 2014 of $4,839.3 million increased by $191.1 million, or 4.1%, from $4,648.2 million in fiscal year 2013. The increase in revenues was due to increases in comparable revenues resulting from a higher level of customer demand, most notably in our Online segment. New stores generated revenues of $12.9 million in fiscal year 2014.

Comparable revenues for fiscal year 2014 were $4,826.4 million compared to $4,574.6 million for the fifty-two weeks ended July 27, 2013, representing an increase of 5.5%. Changes in comparable revenues, by quarter and by reportable segment, were:

	Fiscal year 2014						Fiscal year 2013
	Specialty Retail Stores		Online		Total		Specialty Retail Stores		Online		Total
First fiscal quarter	4.5	%	10.4	%	5.7	%	3.5	%	13.5	%	5.4	%
Second fiscal quarter	2.6		15.1		5.5		2.0		17.9		5.3
Third fiscal quarter	4.2		11.7		5.9		0.7		15.1		3.6
Fourth fiscal quarter	2.3		13.7		4.9		2.6		15.6		5.4
Total fiscal year	3.4		12.9		5.5		2.2		15.7		4.9

Cost of goods sold including buying and occupancy costs (excluding depreciation).  COGS for fiscal year 2014 was 67.1% of revenues compared to 64.4% of revenues for fiscal year 2013. COGS is further analyzed as follows:

	Fiscal year ended
	August 2, 2014 (Combined)					August 3, 2013 (Predecessor)
(in millions, except percentages)	$			% of revenues		$		% of revenues
COGS, as reported	$	3,248.7		67.1	%	$	2,995.4	64.4	%
Less: amortization of inventory step-up	(129.6		)	(2.7	)	—		—
COGS, before purchase accounting adjustments	$	3,119.1		64.4	%	$	2,995.4	64.4	%

In connection with purchase accounting, we valued the acquired inventories to their estimated fair value at the Acquisition date, which resulted in an increase in the carrying value of the acquired inventories by $129.6 million. As the acquired inventories were sold, they were charged to COGS at their Acquisition date fair values. COGS were increased by $129.6 million in fiscal year 2014 as a result of the sale of our acquired inventories, which resulted in the increase of COGS as a percentage of revenues by 2.7%.

COGS before purchase accounting adjustments were 64.4% of revenues in both fiscal year 2014 and fiscal year 2013. COGS before purchase accounting adjustments, as a percentage of revenues, was comparable to the prior fiscal year primarily due to:

• increased product margins of approximately 0.4% of revenues primarily due to lower markdowns and promotional costs; and

• the leveraging of buying and occupancy costs on higher revenues by 0.1% of revenues; offset by

• higher delivery and processing net costs of approximately 0.5% of revenues as a result of lower shipping and handling revenues collected from our customers.  On October 1, 2013, we implemented free shipping/free returns for our Neiman Marcus and Bergdorf Goodman brands.

Selling, general and administrative expenses (excluding depreciation).  SG&A expenses as a percentage of revenues increased to 22.9% of revenues in fiscal year 2014 compared to 22.5% of revenues in fiscal year 2013. The net increase in SG&A expenses by 0.4% of revenues in fiscal year 2014 was primarily due to:

• higher marketing and selling costs of approximately 0.3% of revenues incurred primarily in support of the growth of our online operation; and

• higher current and long-term incentive compensation requirements of approximately 0.2% of revenues; partially offset by

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• favorable payroll and other costs of approximately 0.2% of revenues primarily due to the leveraging of these expenses on higher revenues.

Income from credit card program.  Income from our credit card program was $55.3 million, or 1.1% of revenues, in fiscal year 2014 compared to $53.4 million, or 1.1% of revenues, in fiscal year 2013.

Depreciation and amortization expenses.  Depreciation expense was $147.6 million, or 3.0% of revenues, in fiscal year 2014 compared to $141.5 million, or 3.0% of revenues, in fiscal year 2013. Amortization of intangible assets (primarily customer lists and favorable lease commitments) aggregated $160.3 million, or 3.3% of revenues, in fiscal year 2014 compared to $47.4 million, or 1.0% of revenues, in fiscal year 2013. The increases in depreciation and amortization expenses by 2.3% of revenues in fiscal year 2014 were due to higher asset values attributable to fair value adjustments to our assets recorded in connection with the purchase price allocation to reflect the Acquisition.

Other expenses.  Other expenses in fiscal year 2014 aggregated $190.1 million, or 3.9% of revenues, compared to $23.1 million, or 0.5% of revenues, in fiscal year 2013.  The increase in other expenses in fiscal year 2014 was primarily due to $162.7 million in transaction costs related to the Acquisition. In addition, we incurred approximately $12.6 million of expenses in fiscal year 2014 for costs related to the investigation of the Cyber-Attack, including legal fees, investigative fees, costs of communications with customers and credit monitoring services provided to customers. We expect to incur additional costs to investigate and remediate the Cyber-Attack in the foreseeable future. Such costs are not currently estimable but could be material to our future operating results.

Operating earnings.  We generated operating earnings of $41.0 million, or 0.8% of revenues, in fiscal year 2014 compared to operating earnings of $446.4 million, or 9.6% of revenues, in fiscal year 2013. An analysis of our operating earnings is as follows:

	Fiscal year ended
	August 2, 2014			August 3, 2013
(in millions)	(Combined)			(Predecessor)
Specialty Retail Stores (1)	$	426.9		$	411.4
Online (1)	160.7			157.7
Corporate expenses	(56.0		)	(46.7		)
Other expenses	(190.1		)	(23.1		)
Corporate depreciation/amortization charges	(170.9		)	(52.9		)
Corporate amortization of inventory step-up	(129.6		)	—
Total operating earnings	$	41.0		$	446.4

(1) Segment operating earnings for our Specialty Retail Stores and Online segments do not reflect the impact of adjustments related to the application of purchase accounting including depreciation/amortization of long-term assets and amortization of inventory step-up.

Operating earnings for our Specialty Retail Stores segment were $426.9 million, or 11.6% of Specialty Retail Stores revenues, in fiscal year 2014 compared to $411.4 million, or 11.4% of Specialty Retail Stores revenues, for the prior fiscal year. The increase in operating margin as a percentage of revenues for our Specialty Retail Stores segment was primarily due to:

• increased product margins primarily due to lower markdowns and promotional costs; partially offset by 

• higher current incentive compensation requirements.

Operating earnings for our Online segment were $160.7 million, or 14.0% of Online revenues, in fiscal year 2014 compared to $157.7 million, or 15.3% of Online revenues, for the prior fiscal year. The decrease in operating margin as a percentage of revenues for our Online segment was primarily the result of:

• higher delivery and processing net costs as a result of our implementation of free shipping/free returns for our Neiman Marcus and Bergdorf Goodman brands on October 1, 2013 and the resulting lower shipping and handling revenues collected from our customers; partially offset by

• leveraging of buying and occupancy costs and SG&A expenses on the higher level of revenues, net of marketing and selling costs incurred primarily in support of the growth of our online operation.

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Corporate expenses, which are included in SG&A expenses, were $56.0 million in fiscal year 2014 compared to $46.7 million in fiscal year 2013. The increase in corporate expenses relates primarily to 1) favorable adjustments recorded in fiscal year 2013 related to our long-term incentive compensation plans and 2) a higher level of spending in the current year related to the continued investment in and expansion of our omni-channel capabilities.

Corporate depreciation/amortization charges, which are included in depreciation and amortization expenses, represent 1) the depreciation on the step-up in the carrying values of our property and equipment recorded in connection with purchase accounting and 2) the amortization of finite-lived intangible assets, primarily customer lists and favorable lease commitments, established in connection with purchase accounting. The increase in these charges from $52.9 million in fiscal year 2013 to $170.9 million in fiscal year 2014, as well as the $129.6 million amortization of inventory step-up recorded as a component of COGS in fiscal year 2014, are attributable to fair value adjustments to our assets recorded in connection with the purchase price allocation to reflect the Acquisition.

Interest expense.  Net interest expense was $270.1 million, or 5.6% of revenues, in fiscal year 2014 and $169.0 million, or 3.6% of revenues, for the prior fiscal year, reflecting the higher level of indebtedness incurred in connection with the Acquisition. The significant components of interest expense are as follows:

	Fiscal year ended
	August 2, 2014			August 3, 2013
(in thousands)	(Combined)			(Predecessor)
Asset-Based Revolving Credit Facility	$	386		$	—
Senior Secured Term Loan Facility	106,505			—
Cash Pay Notes	60,329			—
PIK Toggle Notes	41,240			—
2028 Debentures	8,906			9,004
Former Asset-Based Revolving Credit Facility	477			1,453
Former Senior Secured Term Loan Facility	22,521			108,489
Senior Subordinated Notes	—			19,031
Amortization of debt issue costs	19,583			8,404
Other, net	2,995			7,214
Capitalized interest	(770		)	(237		)
	$	262,172		$	153,358
Loss on debt extinguishment	7,882			15,597
Interest expense, net	$	270,054		$	168,955

In connection with the Refinancing Amendment with respect to the Senior Secured Term Loan Facility in fiscal year 2014, we incurred a loss on debt extinguishment of $7.9 million, which primarily consisted of the write-off of debt issuance costs incurred in connection with the initial issuance of the facility allocable to lenders that no longer participate in the facility subsequent to the refinancing.

In connection with the retirement of the Senior Subordinated Notes in fiscal year 2013, we incurred a loss on debt extinguishment of $15.6 million, which included 1) costs of $10.7 million related to the tender for and redemption of the Senior Subordinated Notes and 2) the write-off of $4.9 million of debt issuance costs related to the initial issuance of the Senior Subordinated Notes.

Income tax expense.  Our effective income tax rate for fiscal year 2014 was 35.8% compared to 41.0% for fiscal year 2013.  Our effective income tax rates exceeded the federal statutory rate primarily due to state income taxes and the non-deductible portion of transaction costs incurred in connection with the Acquisition in fiscal year 2014.

We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. During the second quarter of fiscal year 2013, the Internal Revenue Service (IRS) began its audit of our fiscal year 2010 and 2011 federal income tax returns and closed its audit of our fiscal year 2008 and 2009 income tax returns. During the second quarter of fiscal year 2014, the IRS began its audit of our fiscal year 2012 federal income tax return. With respect to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for fiscal years before 2009. We believe our recorded tax liabilities as of August 2, 2014 are sufficient to cover any potential assessments to be made by the IRS or other taxing authorities upon the completion of their examinations and we will continue to review our recorded tax liabilities for potential audit assessments based upon subsequent events, new information and future circumstances. We believe it is reasonably possible that additional adjustments in the amounts of our unrecognized tax benefits could occur within

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the next twelve months as a result of settlements with tax authorities or expiration of statutes of limitation. At this time, we do not believe such adjustments will have a material impact on our Consolidated Financial Statements.

Fiscal Year Ended August 3, 2013 (Predecessor) Compared to Fiscal Year Ended July 28, 2012 (Predecessor)

Revenues.  Our revenues for fiscal year 2013 of $4,648.2 million increased by $302.8 million, or 7.0%, from $4,345.4 million in fiscal year 2012. The increase in revenues was due to increases in comparable revenues resulting from a higher level of customer demand, most notably in our Online segment, and revenues generated in the 53^rd week of fiscal year 2013. New stores generated revenues of $41.2 million for the fifty-two weeks ended July 27, 2013 while revenues for the 53^rd week were $61.9 million.

Comparable revenues for the fifty-two weeks ended July 27, 2013 were $4,545.1 million compared to $4,331.8 million in fiscal year 2012, representing an increase of 4.9%. Changes in comparable revenues, by quarter and by reportable segment, were:

	Fiscal year 2013						Fiscal year 2012
	Specialty Retail Stores		Online		Total		Specialty Retail Stores		Online		Total
First fiscal quarter	3.5	%	13.5	%	5.4	%	6.4	%	15.2	%	8.0	%
Second fiscal quarter	2.0		17.9		5.3		7.8		13.5		9.0
Third fiscal quarter	0.7		15.1		3.6		4.3		17.5		6.7
Fourth fiscal quarter	2.6		15.6		5.4		5.3		18.8		7.9
Total fiscal year	2.2		15.7		4.9		6.0		16.1		7.9

Cost of goods sold including buying and occupancy costs (excluding depreciation).  COGS for fiscal year 2013 was 64.4% of revenues compared to 64.3% of revenues for fiscal year 2012. The increase in COGS of 0.1% of revenues in fiscal year 2013 was primarily due to:

• decreased product margins of approximately 0.1% of revenues due to higher promotional costs and markdowns as a result of lower than expected customer demand; and 

• higher delivery and processing net costs of approximately 0.1% of revenues as a result of lower revenues collected from our customers; partially offset by 

• the leveraging of buying and occupancy costs on higher revenues by 0.1% of revenues; and 

• the improvement in product margins related to the impact of the 53^rd week revenues, comprised primarily of full-price sales, of approximately 0.1% of revenues.

Selling, general and administrative expenses (excluding depreciation).  SG&A expenses as a percentage of revenues decreased to 22.5% of revenues in fiscal year 2013 compared to 23.2% of revenues in fiscal year 2012. The decrease in SG&A expenses by 0.7% of revenues in fiscal year 2013 was primarily due to:

• favorable payroll and other costs of approximately 0.4% of revenues primarily due to the leveraging of these expenses on higher revenues; 

• lower current incentive compensation costs of approximately 0.3% of revenues; and 

• adjustments of long-term incentive compensation costs of approximately 0.2% of revenues; partially offset by 

• higher planned selling and online marketing costs of approximately 0.2% of revenues incurred in connection with the continuing expansion of our e-commerce and omni-channel capabilities.

Income from credit card program.  Income from our credit card program was $53.4 million, or 1.1% of revenues, in fiscal year 2013 compared to $51.6 million, or 1.2% of revenues, in fiscal year 2012.

Depreciation and amortization expenses.  Depreciation expense was $141.5 million, or 3.0% of revenues, in fiscal year 2013 compared to $130.1 million, or 3.0% of revenues, in fiscal year 2012.

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Amortization of intangible assets (primarily customer lists and favorable lease commitments) aggregated $47.4 million, or 1.0% of revenues, in fiscal year 2013 compared to $50.1 million, or 1.1% of revenues, in fiscal year 2012. The decrease in amortization expense is primarily due to certain short-lived intangible assets becoming fully amortized.

Other expenses. Other expenses in fiscal year 2013 aggregated $23.1 million, or 0.5% of revenues, compared to $11.5 million, or 0.3% of revenues, in fiscal year 2012. The increase in other expenses in fiscal year 2013 was primarily due to $13.1 million of our equity in the losses of our investment in a foreign e-commerce retailer.

Operating earnings.  Total operating earnings in fiscal year 2013 were $446.4 million, or 9.6% of revenues, compared to $403.6 million, or 9.3% of revenues, in fiscal year 2012. An analysis of our operating earnings is as follows:

	Fiscal year ended
(in millions)	August 3, 2013			July 28, 2012
Specialty Retail Stores (1)	$	411.4		$	391.2
Online (1)	157.7			132.4
Corporate expenses	(46.7		)	(53.2		)
Other expenses	(23.1		)	(11.5		)
Corporate depreciation/amortization charges	(52.9		)	(55.3		)
Total operating earnings	$	446.4		$	403.6

(1) Segment operating earnings for our Specialty Retail Stores and Online segments do not reflect either the impact of adjustments to revalue our assets and liabilities to estimated fair value in connection with purchase accounting.

Operating earnings for our Specialty Retail Stores segment were $411.4 million, or 11.4% of Specialty Retail Stores revenues, in fiscal year 2013 compared to $391.2 million, or 11.3% of Specialty Retail Stores revenues, for the prior fiscal year. The increase in operating margin as a percentage of revenues for our Specialty Retail Stores segment was primarily due to:

• lower SG&A expenses primarily due to lower current incentive compensation costs; partially offset by 

• decreased product margins as a result of higher promotional costs and markdowns.

Operating earnings for our Online segment were $157.7 million, or 15.3% of Online revenues, in fiscal year 2013 compared to $132.4 million, or 15.1% of Online revenues, for the prior fiscal year. The increase in operating margin as a percentage of revenues for our Online segment was primarily the result of:

• leveraging of buying and occupancy costs and SG&A expenses, net of investments in marketing expenses to support our growth strategies, on the higher level of revenues; partially offset by

• lower product margins as a result of higher promotional costs and markdowns; 

• higher delivery and processing net costs as a result of lower revenues collected from our customers; and 

• higher depreciation expense.

Corporate expenses, which are included in SG&A expenses, were $46.7 million in fiscal year 2013 compared to $53.2 million in fiscal year 2012. The decrease in corporate expenses relates primarily to favorable adjustments recorded in fiscal year 2013 related to our long-term incentive compensation plans.

Corporate depreciation/amortization charges, which are included in depreciation and amortization expenses, were $52.9 million in fiscal year 2013 compared to $55.3 million in fiscal year 2012. The decrease in corporate depreciation/amortization charges is primarily due to certain short-lived intangible assets becoming fully amortized.

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Interest expense.  Net interest expense was $169.0 million, or 3.6% of revenues, in fiscal year 2013 and $175.2 million, or 4.0% of revenues, for the prior fiscal year. Excluding the $15.6 million loss on debt extinguishment, net interest expense decreased by $21.9 million in fiscal year 2013 primarily attributable to the effects of the refinancing transactions executed in the second quarter of fiscal year 2013. The significant components of interest expense are as follows:

	Fiscal year ended
(in thousands)	August 3, 2013			July 28, 2012
2028 Debentures	$	9,004		$	8,906
Former Asset-Based Revolving Credit Facility	1,453			1,052
Former Senior Secured Term Loan Facility	108,489			98,989
Senior Subordinated Notes	19,031			51,873
Amortization of debt issue costs	8,404			8,457
Other, net	7,214			7,040
Capitalized interest	(237		)	(1,080		)
	$	153,358		$	175,237
Loss on debt extinguishment	15,597			—
Interest expense, net	$	168,955		$	175,237

Income tax expense.  Our effective income tax rate for fiscal year 2013 was 41.0% compared to 38.7% for fiscal year 2012.  Our effective income tax rates exceeded the federal statutory rate primarily due to:

• state income taxes; and 

• the lack of a U.S. tax benefit related to the losses from our investment in a foreign e-commerce retailer in fiscal year 2013.

Non-GAAP Financial Measure — EBITDA and Adjusted EBITDA

We present the financial performance measures of earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA because we use these measures to monitor and evaluate the performance of our business and believe the presentation of these measures will enhance investors’ ability to analyze trends in our business, evaluate our performance relative to other companies in our industry and evaluate our ability to service our debt.  EBITDA and Adjusted EBITDA are not prepared in accordance with GAAP.  Our computations of EBITDA and Adjusted EBITDA may vary from others in our industry.  In addition, we use performance targets based on Adjusted EBITDA as a component of the measurement of incentive compensation as described under “Executive Compensation—Compensation Discussion and Analysis—2014 Executive Officer Compensation.”

The non-GAAP measures of EBITDA and Adjusted EBITDA contain some, but not all, adjustments that are taken into account in the calculation of the components of various covenants in the credit agreements and indentures governing our Senior Secured Credit Facilities, the Cash Pay Notes and the PIK Toggle Notes, as applicable.  EBITDA and Adjusted EBITDA should not be considered as alternatives to operating earnings or net (loss) earnings as measures of operating performance.  In addition, EBITDA and Adjusted EBITDA are not prepared in accordance with, and should not be considered as alternatives to, cash flows as measures of liquidity.  EBITDA and Adjusted EBITDA have important limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.  For example, EBITDA and Adjusted EBITDA:

• do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; 

• do not reflect changes in, or cash requirements for, our working capital needs;

• do not reflect our considerable interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; 

• exclude tax payments that represent a reduction in available cash; and 

• do not reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future; and

• exclude certain expenses that we do not consider to be indicative of our core operations even though we may expend cash for those expenses in the current period and/or future periods.

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The following table reconciles net (loss) earnings as reflected in our Consolidated Statements of Operations prepared in accordance with GAAP to EBITDA and Adjusted EBITDA (figures may not sum due to rounding):

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended			Fiscal year ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 2, 2014			August 3, 2013			July 28, 2012			July 30, 2011			July 31, 2010
(dollars in millions)	(Successor)			(Predecessor)			(Combined)			(Predecessor)			(Predecessor)			(Predecessor)			(Predecessor)
Net (loss) earnings	$	(134.1	)	$	(13.1	)	$	(147.2	)	$	163.7		$	140.1		$	31.6		$	(1.8	)
Income tax (benefit) expense	(89.8		)	7.9			(81.9		)	113.7			88.3			17.7			(3.5		)
Interest expense, net	232.7			37.3			270.1			169.0			175.2			280.5			237.1
Depreciation expense	113.3			34.2			147.6			141.5			130.1			132.4			141.8
Amortization of intangible assets and favorable lease commitments	148.6			11.7			160.3			47.4			50.1			62.5			73.3
EBITDA	$	270.8		$	78.1		$	348.9		$	635.3		$	583.8		$	524.7		$	446.9
EBITDA as a percentage of revenues	7.3		%	6.9		%	7.2		%	13.7		%	13.4		%	13.1		%	12.1		%
Other expenses	76.3			113.7			190.1			23.1			11.5			10.0			9.2
Amortization of inventory step-up	129.6			—			129.6			—			—			—			—
Non-cash stock-based compensation expense	6.3			2.5			8.8			9.7			6.9			3.9			10.1
Advisory fees and other	1.4			(1.1		)	0.2			3.4			0.9			(5.2		)	(5.9		)
Adjusted EBITDA	$	484.4		$	193.2		$	677.6		$	671.5		$	603.1		$	533.4		$	460.3
Adjusted EBITDA as a percentage of revenues	13.1		%	17.1		%	14.0		%	14.4		%	13.9		%	13.3		%	12.5		%

Inflation and Deflation

We believe changes in revenues and net earnings that have resulted from inflation or deflation have not been material during the past three fiscal years. In recent years, we have experienced certain inflationary conditions in our cost base due primarily to changes in foreign currency exchange rates that have reduced the purchasing power of the U.S. dollar and, to a lesser extent, to increases in selling, general and administrative expenses, particularly with regard to employee benefits, and increases in fuel prices and costs impacted by increases in fuel prices, such as freight and transportation costs.

We purchase a substantial portion of our inventory from foreign suppliers whose costs are affected by the fluctuation of their local currency against the dollar or who price their merchandise in currencies other than the dollar. We source goods from numerous countries and thus are affected by changes in numerous currencies and, generally, by fluctuations in the U.S. dollar relative to such currencies. Fluctuations in the Euro-U.S. dollar exchange rate affect us most significantly. Changes in the value of the dollar relative to foreign currencies may increase the retail prices of goods offered for sale and/or increase our cost of goods sold. If our customers reduce their levels of spending in response to increases in retail prices and/or we are unable to pass such cost increases to our customers, our revenues, gross margins, and ultimately our earnings, could decrease. Foreign currency fluctuations could have a material adverse effect on our business, financial condition and results of operations in the future. 

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LIQUIDITY AND CAPITAL RESOURCES

Our cash requirements consist principally of:

• the funding of our merchandise purchases; 

• debt service requirements; 

• capital expenditures for expansion and growth strategies, including new store construction, store renovations and upgrades of our management information systems; 

• income tax payments; and 

• obligations related to our defined benefit pension plan (Pension Plan).

Our primary sources of short-term liquidity are comprised of cash on hand, availability under the Asset-Based Revolving Credit Facility and vendor payment terms. The amounts of cash on hand and borrowings under the Asset-Based Revolving Credit Facility are influenced by a number of factors, including revenues, working capital levels, vendor terms, the level of capital expenditures, cash requirements related to financing instruments and debt service obligations, Pension Plan funding obligations and tax payment obligations, among others.

Our working capital requirements fluctuate during the fiscal year, increasing substantially during the first and second quarters of each fiscal year as a result of higher seasonal levels of inventories. We have typically financed our cash requirements with available cash balances, cash flows from operations and, if necessary, with cash provided from borrowings under our Asset-Based Revolving Credit Facility. We have no outstanding borrowings under our Asset-Based Revolving Credit Facility at August 2, 2014.

We believe that operating cash flows, cash balances, available vendor payment terms and amounts available pursuant to the Asset-Based Revolving Credit Facility will be sufficient to fund our cash requirements through the end of fiscal year 2015, including merchandise purchases, anticipated capital expenditure requirements, debt service requirements, income tax payments and obligations related to our Pension Plan.

Cash and cash equivalents were $196.5 million at August 2, 2014 compared to $136.7 million at August 3, 2013, an increase of $59.8 million. Net cash provided by our operating activities was $295.7 million in fiscal year 2014 compared to $349.4 million in fiscal year 2013. The decrease in cash provided by our operating earnings is primarily attributable to costs incurred in connection with the Acquisition partially offset by higher levels of cash generated from operating activities. In connection with the Acquisition, we incurred cash payments of approximately $147.3 million to fund costs and expenses incurred as a result of the Acquisition. 

Net cash used for investing activities was $3,527.6 million in fiscal year 2014 compared to $156.5 million in fiscal year 2013. The increase in net cash used for investing activities was primarily due to the Acquisition. We incurred capital expenditures in both fiscal years 2014 and 2013 related to remodels of our Michigan Avenue and Oak Brook Neiman Marcus stores and information technology enhancements. Currently, we project gross capital expenditures for fiscal year 2015 to be approximately $310 to $330 million. Net of developer contributions, capital expenditures for fiscal year 2015 are projected to be approximately $275 to $295 million.

Net cash provided by financing activities was $3,291.7 million in fiscal year 2014 compared to net cash used of $105.4 million in fiscal year 2013. Proceeds from debt incurred in connection with the Acquisition, net of debt issuance costs, aggregated $4,437.6 million and cash equity contributions received in connection with the Acquisition aggregated $1,556.5 million. Also in connection with the Acquisition, we repaid outstanding borrowings under our Former Asset-Based Revolving Credit Facility and Former Senior Secured Term Loan Facility. Net cash used for financing activities in fiscal year 2013 reflects the impact of the refinancing transactions executed during the second quarter of fiscal year 2013 related to our former credit facilities.

Subject to applicable restrictions in our credit agreements and indentures, we or our affiliates, at any time and from time to time, may purchase, redeem or otherwise retire our outstanding debt securities, including through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we, or any of our affiliates, may determine.

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Financing Structure at August 2, 2014

Our major sources of funds are comprised of vendor payment terms, the $800.0 million Asset-Based Revolving Credit Facility, the $2,927.9 million Senior Secured Term Loan Facility, $960.0 million Cash Pay Notes, $600.0 million PIK Toggle Notes, $125.0 million 2028 Debentures and operating leases.

On October 25, 2013, in connection with the Acquisition, we executed the following transactions:

• repaid the $2,433.1 million outstanding under the Former Senior Secured Term Loan Facility and terminated the facility;

• repaid the obligations under the Former Asset-Based Revolving Credit Facility and terminated the facility;

• entered into the Senior Secured Term Loan Facility in an initial outstanding principal amount of $2,950.0 million;

• entered into the Asset-Based Revolving Credit Facility with a maximum committed borrowing capacity of $800.0 million; and

• incurred indebtedness in the form of 1) $960.0 million in aggregate principal amount of the Cash Pay Notes and 2) $600.0 million in aggregate principal amount of the PIK Toggle Notes.

The purpose of the above transactions was in part to facilitate the Acquisition by the Sponsors on October 25, 2013.

Asset-Based Revolving Credit Facility.  At August 2, 2014, we had an Asset-Based Revolving Credit Facility providing for a maximum committed borrowing capacity of $800.0 million.  The Asset-Based Revolving Credit Facility matures on October 25, 2018.  On August 2, 2014, we had no borrowings outstanding under this facility, no outstanding letters of credit and $720.0 million of unused borrowing availability.

Availability under the Asset-Based Revolving Credit Facility is subject to a borrowing base.  The Asset-Based Revolving Credit Facility includes borrowing capacity available for letters of credit (up to $150.0 million, with any such issuance of letters of credit reducing the amount available under the Asset-Based Revolving Credit Facility on a dollar-for-dollar basis) and for borrowings on same-day notice.  The borrowing base is equal to at any time the sum of (a) 90% of the net orderly liquidation value of eligible inventory, net of certain reserves, plus (b) 90% of the amounts owed by credit card processors in respect of eligible credit card accounts constituting proceeds from the sale or disposition of inventory, less certain reserves, plus (c) 100% of segregated cash.  We must at all times maintain excess availability of at least the greater of (a) 10% of the lesser of (1) the aggregate revolving commitments and (2) the borrowing base and (b) $50.0 million, but we are not required to maintain a fixed charge coverage ratio unless excess availability is below such levels.

See Note 7 of the Notes to Consolidated Financial Statements in Item 15, which contains a further description of the terms of the Asset-Based Revolving Credit Facility.

Senior Secured Term Loan Facility.  At August 2, 2014, the outstanding balance under the Senior Secured Term Loan Facility was $2,927.9 million.  The principal amount of the loans outstanding is due and payable in full on October 25, 2020.

 Depending on our senior secured first lien net leverage ratio as defined in the credit agreement governing the Senior Secured Term Loan Facility, we could be required to prepay outstanding term loans from a certain portion of our annual excess cash flow, as defined in the credit agreement.  Required excess cash flow payments commence at 50% of our annual excess cash flow (which percentage will be reduced to 25% if our senior secured first lien net leverage ratio is equal to or less than 4.0 to 1.0 but greater than 3.5 to 1.0 and will be reduced to 0% if our senior secured first lien net leverage ratio is equal to or less than 3.5 to 1.0).  We also must offer to prepay outstanding term loans at 100% of the principal amount to be prepaid, plus accrued and unpaid interest, with the proceeds of certain asset sales under certain circumstances.

The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 4.25% at August 2, 2014.

See Note 7 of the Notes to Consolidated Financial Statements in Item 15, which contains a further description of the terms of the Senior Secured Term Loan Facility.

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Cash Pay Notes.  We have outstanding $960.0 million aggregate principal amount of 8.00% Cash Pay Notes. Our Cash Pay Notes mature on October 15, 2021.

See Note 7 of the Notes to Consolidated Financial Statements in Item 15, which contains a further description of the terms of the Cash Pay Notes.

PIK Toggle Notes.  We have outstanding $600.0 million aggregate principal amount of 8.75%/9.50% PIK Toggle Notes. Our PIK Toggle Notes mature on October 15, 2021.

See Note 7 of the Notes to Consolidated Financial Statements in Item 15, which contains a further description of the terms of the Cash Pay Notes.

2028 Debentures.  We have outstanding $125.0 million aggregate principal amount of 7.125% 2028 Debentures (the 2028 Debentures). Our 2028 Debentures mature on June 1, 2028.

See Note 7 of the Notes to Consolidated Financial Statements in Item 15, which contains a further description of the terms of the 2028 Debentures.

Interest Rate Caps.  At August 2, 2014, we had outstanding floating rate debt obligations of $2,927.9 million. We have entered into interest rate cap agreements which cap LIBOR at 2.50% for an aggregate notional amount of $1,000.0 million from December 2012 through December 2014 and at 3.00% for an aggregate notional amount of $1,400.0 million from December 2014 through December 2016 to hedge the variability of our cash flows related to a portion of our floating rate indebtedness. In the event LIBOR is less than the capped rate, we will pay interest at the lower LIBOR rate. In the event LIBOR is higher than the capped rate, we will pay interest at the capped rate.

Contractual Obligations and Commitments

The following table summarizes our estimated significant contractual cash obligations at August 2, 2014:

	Payments Due by Period
(in thousands)	Total		Fiscal Year 2015		Fiscal Years 2016-2017		Fiscal Years 2018-2019		Fiscal Year 2020 and Beyond
Contractual obligations:
Senior Secured Term Loan Facility (1)	$	2,927,912	$	29,426	$	58,853	$	58,853	$	2,780,780
Cash Pay Notes	960,000		—		—		—		960,000
PIK Toggle Notes	600,000		—		—		—		600,000
2028 Debentures	125,000		—		—		—		125,000
Interest requirements (2)	2,021,000		262,200		550,100		618,400		590,300
Lease obligations	906,400		64,600		122,300		105,700		613,800
Minimum pension funding obligation (3)	171,200		—		13,700		48,100		109,400
Other long-term liabilities (4)	75,200		6,600		14,000		15,200		39,400
Construction and purchase commitments (5)	1,550,700		1,431,800		118,900		—		—
	$	9,337,412	$	1,794,626	$	877,853	$	846,253	$	5,818,680

(1) The above table does not reflect voluntary prepayments or future excess cash flow prepayments, if any, that may be required under the Senior Secured Term Loan Facility.

(2) The cash obligations for interest requirements reflect (a) interest requirements on our fixed-rate debt obligations at their contractual rates, with interest paid entirely in cash with respect to the PIK Toggle Notes, and (b) interest requirements on floating rate debt obligations at rates in effect at August 2, 2014.  Borrowings pursuant to the Senior Secured Term Loan Facility bear interest at floating rates, primarily based on LIBOR, but in no event less than a floor rate of 1.00%, plus applicable margins.  As a consequence of the LIBOR floor rate, we estimate that a 1% increase in LIBOR would not significantly impact our annual interest requirements during fiscal year 2015.

(3) At August 2, 2014 (the most recent measurement date), our actuarially calculated projected benefit obligation for our Pension Plan was $592.9 million and the fair value of the assets was $403.0 million resulting in a net liability of $189.9 million, which is included in other long-term liabilities at August 2, 2014.  Our policy is to fund the Pension

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Plan at or above the minimum amount required by law.  We made no voluntary contributions to our Pension Plan in fiscal year 2014 and made voluntary contributions of $25.0 million in fiscal year 2013.  As of August 2, 2014, we do not believe we will be required to make contributions to the Pension Plan for fiscal year 2015.

(4) Included in other long-term liabilities at August 2, 2014 are our liabilities for our SERP and Postretirement Plans aggregating $118.1 million.  Our scheduled obligations with respect to our SERP Plan and Postretirement Plan liabilities consist of expected benefit payments through 2024, as currently estimated using information provided by our actuaries.  Also included in other long-term liabilities at August 2, 2014 are our liabilities related to 1) uncertain tax positions (including related accruals for interest and penalties) of $7.6 million and 2) other obligations aggregating $31.8 million, primarily for employee benefits.  Future cash obligations related to these liabilities are not currently estimable.

(5)Construction commitments relate primarily to obligations pursuant to contracts for the construction of new stores and the renovation of existing stores expected as of August 2, 2014.  These amounts represent the gross construction costs and exclude developer contributions of approximately $97.5 million, which we expect to receive pursuant to the terms of the construction contracts.

In the normal course of our business, we issue purchase orders to vendors/suppliers for merchandise.  Our purchase orders are not unconditional commitments but, rather represent executory contracts requiring performance by the vendors/suppliers, including the delivery of the merchandise prior to a specified cancellation date and the compliance with product specifications, quality standards and other requirements.  In the event of the vendor’s failure to meet the agreed upon terms and conditions, we may cancel the order.

The following table summarizes the expiration of our other significant commercial commitments outstanding at August 2, 2014:

	Amount of Commitment by Expiration Period
(in thousands)	Total		Fiscal Year 2015		Fiscal Years 2016-2017		Fiscal Years 2018-2019		Fiscal Years 2020 and Beyond
Other commercial commitments:
Asset-Based Revolving Credit Facility (1)	$	800,000	$	—	$	—	$	800,000	$	—
Surety bonds	4,739		4,573		166		—		—
	$	804,739	$	4,573	$	166	$	800,000	$	—

(1) As of August 2, 2014, we had no borrowings outstanding under our Asset-Based Revolving Credit Facility, no outstanding letters of credit and $720.0 million of unused borrowing availability.  Our working capital requirements are greatest in the first and second fiscal quarters as a result of higher seasonal requirements.  See “—Financing Structure at August 2, 2014—Asset-Based Revolving Credit Facility” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality.”

In addition to the items presented above, our other principal commercial commitments are comprised of common area maintenance costs, tax and insurance obligations and contingent rent payments.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements, other than operating leases entered into in the normal course of business, during fiscal year 2014. See Note 15 of the Notes to Consolidated Financial Statements in Item 15 for more information about our operating leases. 

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OTHER MATTERS

Factors That May Affect Future Results

Matters discussed in this Annual Report on Form 10-K include forward-looking statements.  Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “plan,” “predict,” “expect,” “estimate,” “intend,” “would,” “could,” “should,” “anticipate,” “believe,” “project” or “continue.”  We make these forward-looking statements based on our expectations and beliefs concerning future events, as well as currently available data.  While we believe there is a reasonable basis for our forward-looking statements, they involve a number of risks and uncertainties.  Therefore, these statements are not guarantees of future performance and you should not rely on them.  A variety of factors could cause our actual results to differ materially from the anticipated or expected results expressed in our forward-looking statements.  Factors that could affect future performance include, but are not limited, to:

General Economic and Political Conditions

• weakness in domestic and global capital markets and other economic conditions and the impact of such conditions on our ability to obtain credit; 

• general economic and political conditions or changes in such conditions including relationships between the United States and the countries from which we source our merchandise; 

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

Leverage Considerations

• the effects of incurring a substantial amount of indebtedness under our Senior Secured Credit Facilities and the Notes; 

• the ability to refinance our indebtedness under our Senior Secured Credit Facilities and the Notes and the effects of any refinancing; 

• the effects upon us of complying with the covenants contained in the credit agreements governing our Senior Secured Credit Facilities and the indentures governing the Notes; 

• restrictions on the terms and conditions of the indebtedness under our Senior Secured Credit Facilities and the Notes may place on our ability to respond to changes in our business or to take certain actions;

Customer Considerations

• changes in our relationships with customers due to, among other things, our failure to protect customer data, comply with regulations surrounding information security and privacy, provide quality service and competitive loyalty programs or provide credit pursuant to our proprietary credit card arrangement;

• changes in consumer confidence resulting in a reduction of discretionary spending on goods; 

• changes in the demographic or retail environment; 

• changes in consumer preferences or fashion trends;

Industry and Competitive Factors

• competitive responses to our loyalty program, marketing, merchandising and promotional efforts or inventory liquidations by vendors or other retailers; 

• changes in the financial viability of our competitors; 

• seasonality of the retail business; 

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

• delays in anticipated store openings and renovations; 

• our success in enforcing our intellectual property rights;

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Merchandise Procurement and Supply Chain Considerations

• changes in our relationships with designers, vendors and other sources of merchandise, including changes in the level of goods and/or changes in the form in which such goods are made available to us for resale; 

• delays in receipt of merchandise ordered due to work stoppages or other causes of delay in connection with either the manufacture or shipment of such merchandise; 

• changes in foreign currency exchange or inflation rates; 

• significant increases in paper, printing and postage costs;

Employee Considerations

• changes in key management personnel and our ability to retain key management personnel; 

• changes in our relationships with certain of our buyers or key sales associates and our ability to retain our buyers or key sales associates;

Legal and Regulatory Issues

• changes in government or regulatory requirements increasing our costs of operations; 

• litigation that may have an adverse effect on our financial results or reputation;

Other Factors

• terrorist activities in the United States and elsewhere; 

• the impact of funding requirements related to our Pension Plan;

• our ability to provide credit to our customers pursuant to our proprietary credit card program arrangement, including any future changes in the terms of such arrangement and/or legislation impacting the extension of credit to our customers; 

• the design and implementation of new information systems as well as enhancements of existing systems; and 

• other risks, uncertainties and factors set forth in this Annual Report on Form 10-K, including those set forth in Item 1A, “Risk Factors.”

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business.  Except to the extent required by law, we undertake 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

Our accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements in Item 15 of this Annual Report.  As disclosed in Note 1 of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions about future events.  These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of our audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K.  Our current estimates are subject to change if different assumptions as to the outcome of future events were made.  We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances.  We make adjustments to our assumptions and judgments when facts and circumstances dictate.  Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying audited Consolidated Financial Statements.

We believe the following critical accounting policies encompass the more significant judgments and estimates used in the preparation of our audited Consolidated Financial Statements.

Revenues.  Revenues include sales of merchandise and services and delivery and processing revenues related to merchandise sold. Revenues are recognized at the later of the point of sale or the delivery of goods to the customer. Revenues

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associated with gift cards are recognized at the time of redemption by the customer. Revenues exclude sales taxes collected from our customers.

Revenues are reduced when customers return goods previously purchased. We maintain reserves for anticipated sales returns primarily based on our historical trends related to returns by our customers. Our reserves for anticipated sales returns aggregated $38.9 million at August 2, 2014 and $37.4 million at August 3, 2013. As the vast majority of merchandise returns are made in less than 30 days after the sales transaction, we believe the risk that differences between our estimated and actual returns is minimal and will not have a material impact on our Consolidated Financial Statements.

Merchandise Inventories and Cost of Goods Sold.  We utilize the retail inventory method of accounting. 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 our inventories. The cost of the inventory reflected on the Consolidated Balance Sheets is decreased by charges to cost of goods sold at average cost and the retail value of the inventory is lowered through the use of markdowns. Earnings are negatively impacted when merchandise is marked down. As we adjust the retail value of our inventories through the use of markdowns to reflect market conditions, our merchandise inventories are stated at the lower of cost or market.

The areas requiring significant management judgment related to the valuation of our 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) determination of original retail values for merchandise held for sale, 2) identification of declines in perceived value of inventories and processing the appropriate retail value markdowns and 3) overly optimistic or conservative estimation of shrinkage. In prior years, we have not made material changes to our estimates of shrinkage or markdown requirements on inventories held as of the end of our fiscal years. We do not believe that changes in the assumptions and estimates, if any, used in the valuation of our inventories at August 2, 2014 will have a material effect on our future operating performance.

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. Certain allowances are received to reimburse us for markdowns taken or to support the gross margins that we earn in connection with the sales of the vendor’s merchandise. These allowances result in an increase to gross margin when we earn the allowances and they are approved by the vendor. Other allowances we receive represent reductions to the amounts we pay to acquire the merchandise. These allowances reduce the cost of the acquired merchandise and are recognized at the time the goods are sold. We received vendor allowances of $93.5 million (including $5.0 million for the Predecessor period prior to the Acquisition) in fiscal year 2014, $90.2 million in fiscal year 2013 and $92.5 million in fiscal year 2012. The amounts of vendor allowances we receive fluctuate based on the level of markdowns taken and did not have a significant impact on the year-over-year change in gross margin during any of the periods presented.

Long-lived Assets.  Property and equipment are stated at cost less accumulated depreciation. For financial reporting purposes, we compute depreciation principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over five to 30 years while fixtures and equipment are depreciated over three to 15 years. Leasehold improvements are amortized over the shorter of the asset life or the lease term (which may include renewal periods when exercise of the renewal option is at our discretion and exercise of the renewal option is considered reasonably assured). Costs incurred for the development of internal computer software are capitalized and amortized using the straight-line method over three to ten years.

We assess the recoverability of the carrying values of our store assets, consisting of property and equipment, customer lists and favorable lease commitments, annually and upon the occurrence of certain events. The recoverability assessment requires judgment and estimates of future store generated cash flows. The underlying estimates of cash flows include estimates for future revenues, gross margin rates and store expenses. To the extent our estimates for revenue growth and gross margin improvement are not realized, future annual assessments could result in impairment charges.

Indefinite-lived Intangible Assets and Goodwill.  Indefinite-lived intangible assets, such as tradenames and goodwill, are not subject to amortization. Rather, we assess the recoverability of indefinite-lived intangible assets and goodwill in the fourth quarter of each fiscal year and upon the occurrence of certain events.

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The recoverability assessment with respect to each of our indefinite-lived intangible assets requires us to estimate the fair value of the asset as of the assessment date. Such determination is made using discounted cash flow techniques. Significant inputs to the valuation model include:

• future revenue, cash flow and/or profitability projections; 

• growth assumptions for future revenues as well as future gross margin rates, expense rates, capital expenditures and other estimates; 

• estimated market royalty rates that could be derived from the licensing of our tradenames to third parties to establish the cash flows accruing to the benefit of the Company as a result of our ownership of our tradenames; and 

• rates, based on our estimated weighted average cost of capital, used to discount the estimated cash flow projections to their present value (or estimated fair value).

If the recorded carrying value of the tradename exceeds its estimated fair value, an impairment charge is recorded to write the tradename down to its estimated fair value. We currently estimate that the fair value of our tradenames decreases by approximately $382 million for each 0.5% decrease in market royalty rates and by approximately $96 million for each 0.25% increase in the weighted average cost of capital.

The assessment of the recoverability of the goodwill associated with our Neiman Marcus stores, Bergdorf Goodman stores, Last Call stores and online reporting units involves a two-step process. The first step requires the comparison of the estimated enterprise fair value of each of our reporting units to its recorded carrying value. We estimate the enterprise fair value based on discounted cash flow techniques. If the recorded carrying value of a reporting unit exceeds its estimated enterprise fair value in the first step, a second step is performed in which we allocate the enterprise fair value to the fair value of the reporting unit’s net assets. The second step of the impairment testing process requires, among other things, the estimation of the fair values of substantially all of our tangible and intangible assets. Any enterprise fair value in excess of amounts allocated to such net assets represents the implied fair value of goodwill for that reporting unit. If the recorded goodwill balance for a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded to write goodwill down to its fair value. We currently estimate that a 5% decrease in the estimated fair value of the net assets of each of our reporting units as compared to the values used in the preparation of these financial statements would decrease the excess of fair value over the carrying value by approximately $326 million. In addition, we currently estimate that the fair value of our goodwill decreases by approximately $276 million for each 0.25% increase in the discount rate used to estimate fair value.

The impairment testing process related to our indefinite-lived intangible assets is subject to inherent uncertainties and subjectivity. The use of different assumptions, estimates or judgments with respect to the estimation of the projected future cash flows and the determination of the discount rate used to reduce such projected future cash flows to their net present value could materially increase or decrease any related impairment charge. We believe our estimates are appropriate based upon current market conditions and the best information available at the assessment date. However, future impairment charges could be required if we do not achieve our current revenue and profitability projections or the weighted average cost of capital increases.

Leases.  We lease certain retail stores and office facilities. Stores we own are often subject to ground leases. The terms of our real estate leases, including renewal options, range from two to 130 years. Most leases provide for monthly fixed minimum rentals or contingent rentals based upon sales in excess of stated amounts and normally require us to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs. For leases that contain predetermined, fixed calculations of minimum rentals, we recognize rent expense on a straight-line basis over the lease term. We recognize contingent rent expenses when it is probable that the sales thresholds will be reached during the year.

Benefit Plans.  We sponsor a defined benefit Pension Plan, an unfunded supplemental executive retirement plan (SERP Plan) which provides certain employees additional pension benefits and a postretirement plan providing eligible employees limited postretirement health care benefits (Postretirement Plan). In calculating our obligations and related expense, we make various assumptions and estimates, after consulting with outside actuaries and advisors. The annual determination of expense involves calculating the estimated total benefits ultimately payable to plan participants. We use the traditional unit credit method in recognizing pension liabilities. The Pension Plan, SERP Plan and Postretirement Plan are valued annually as of the end of each fiscal year. As of the third quarter of fiscal year 2010, benefits offered to all employees under our Pension Plan and SERP Plan were frozen.

 Significant assumptions related to the calculation of our obligations include the discount rates used to calculate the present value of benefit obligations to be paid in the future, the expected long-term rate of return on assets held by our Pension

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Plan and the health care cost trend rate for the Postretirement Plan. We review these assumptions annually based upon currently available information, including information provided by our actuaries.

Significant assumptions utilized in the calculation of our projected benefit obligations as of August 2, 2014 and future expense requirements for our Pension Plan, SERP Plan and Postretirement Plan, and sensitivity analysis related to changes in these assumptions, are as follows:

					Using Sensitivity Rate
	Actual Rate		Sensitivity Rate Increase/(Decrease)		(Decrease)/ Increase in Liability (in millions)			Increase in Expense (in millions)
Pension Plan:
Discount rate	4.35	%	0.25	%	$	(20.3	)	$	0.5
Expected long-term rate of return on plan assets	6.50	%	(0.50	)%	N/A			$	1.9
SERP Plan:
Discount rate	4.20	%	0.25	%	$	(3.2	)	$	0.1
Postretirement Plan:
Discount rate	4.25	%	0.25	%	$	(0.3	)	$	—
Ultimate health care cost trend rate	5.00	%	1.00	%	$	1.4		$	0.1

Stock Compensation.  At the date of grant, the stock option exercise price equals or exceeds the fair market value of Parent's common stock.  Because Parent is privately held and there is no public market for its common stock, the fair market value of Parent's common stock is determined by our Compensation Committee at the time option grants are awarded.  In determining the fair market value of Parent's common stock, the Compensation Committee considers such factors as any recent transactions involving Parent's common stock, the Company’s actual and projected financial results, the principal amount of the Company’s indebtedness, valuations of the Company performed by third parties and other factors it believes are material to the valuation process.

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016, which is effective for us as of the first quarter of fiscal year 2018 using one of two retrospective application methods. We are currently evaluating the application method and the impact of adopting this new accounting guidance on our Consolidated Financial Statements.

We do not expect that any other recently issued accounting pronouncements will have a material impact on our financial statements.

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ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our financial instruments represents the potential loss arising from adverse changes in interest rates. We do not enter into derivative financial instruments for trading purposes. We seek to manage exposure to adverse interest rate changes through our normal operating and financing activities. We are exposed to interest rate risk through our borrowing activities, which are described in Note 7 of the Notes to Consolidated Financial Statements.

At August 2, 2014, we had outstanding floating rate debt obligations of $2,927.9 million consisting of outstanding borrowings under our Senior Secured Term Loan Facility. Borrowings pursuant to the Senior Secured Term Loan Facility bear interest at floating rates, primarily based on LIBOR, but in no event less than a floor rate of 1.00%, plus applicable margins. The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 4.25% at August 2, 2014. A further description of the terms of the Senior Secured Term Loan Facility are set forth in Note 7 of the Notes to Consolidated Financial Statements.

We have entered into interest rate cap agreements which cap LIBOR at 2.50% for an aggregate notional amount of $1,000.0 million from December 2012 through December 2014 and at 3.00% for an aggregate notional amount of $1,400.0 million from December 2014 through December 2016 to hedge the variability of our cash flows related to a portion of our floating rate indebtedness. In the event LIBOR is less than the capped rate, we will pay interest at the lower LIBOR rate. In the event LIBOR is higher than the capped rate, we will pay interest at the capped rate. As of August 2, 2014, three-month LIBOR was 0.23%. As a consequence of the LIBOR floor rate described above, we estimate that a 1% increase in LIBOR would not significantly impact our annual interest requirements during fiscal year 2015.

The effects of changes in the U.S. equity and bond markets serve to increase or decrease the value of pension plan assets, resulting in increased or decreased cash funding by us. We seek to manage exposure to adverse equity and bond returns by maintaining diversified investment portfolios and utilizing professional investment managers.

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-50 at the end of this Annual Report on Form 10-K:

Index	Page Number
Management’s Report on Internal Control Over Financial Reporting	F-2
Reports of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheets	F-5
Consolidated Statements of Operations	F-6
Consolidated Statements of Comprehensive (Loss) Earnings	F-7
Consolidated Statements of Cash Flows	F-8
Consolidated Statements of Member Equity / Stockholders’ Equity	F-9
Notes to Consolidated Financial Statements	F-11

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

None.

ITEM 9A.  CONTROLS AND PROCEDURES

a. Disclosure Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation as of August 2, 2014, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our management, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and

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Rule 15d-15(e) under the Exchange Act).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, accumulated, processed, summarized, reported and communicated on a timely basis within the time periods specified in the SEC’s rules and forms.

b. Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f).  Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of August 2, 2014.  During its assessment, management did not identify any material weaknesses in our internal control over financial reporting.  Our independent registered public accounting firm, Ernst & Young LLP, has audited our Consolidated Financial Statements and has issued an attestation report on the effectiveness of our internal controls over financial reporting as of August 2, 2014.

c. Changes in Internal Control Over Financial Reporting

In the ordinary course of business, we routinely enhance our information systems by either upgrading our current systems or implementing new systems.  No change occurred in our internal controls over financial reporting during the quarter ended August 2, 2014 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. 

ITEM 9B.     OTHER INFORMATION

None.

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PART III

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth certain information regarding the Company’s executive officers and members of the Board of Directors of Parent (the Parent Board), the sole member of Holdings, which in turn is the sole member of the Company, as of August 2, 2014.

Name	Age	Position with Company
Karen W. Katz	57	Director, President and Chief Executive Officer
James E. Skinner	61	Executive Vice President, Chief Operating Officer, and Chief Financial Officer
James J. Gold	50	President, Chief Merchandising Officer
John E. Koryl	44	President, Neiman Marcus Stores and Online
Joshua G. Schulman	42	President of Bergdorf Goodman
Wanda M. Gierhart	50	Senior Vice President, Chief Marketing Officer
Wayne A. Hussey	63	Senior Vice President, Properties and Store Development
Michael R. Kingston	47	Senior Vice President and Chief Information Officer
Thomas J. Lind	58	Senior Vice President, Corporate Business Strategy, Properties and Store Development
Tracy M. Preston	48	Senior Vice President and General Counsel
Stacie R. Shirley	45	Senior Vice President, Finance and Treasurer
T. Dale Stapleton	56	Senior Vice President and Chief Accounting Officer
Joseph N. Weber	47	Senior Vice President, Chief Human Resources Officer
Nora Aufreiter	54	Director
Norman Axelrod	62	Director
Philippe Bourguignon	66	Director
Adam Brotman	44	Director
Shane Feeney	44	Director
Vic Gundotra	46	Director
David Kaplan	46	Director
Scott Nishi	39	Director
Adam Stein	38	Director

Executive Officers

Karen W. Katz.  Ms. Katz has served as our Director, President and Chief Executive Officer since October 6, 2010. She served as Executive Vice President and as a member of the Office of the Chairman from October 2007 until October 6, 2010. From December 2002 to October 6, 2010, she served as President and Chief Executive Officer of Neiman Marcus Stores. Ms. Katz formerly served on the board of directors of Pier 1 Imports, Inc. Since joining us in 1985, Ms. Katz has been in charge of a variety of our business units and has demonstrated strong and consistent leadership. She has an extensive understanding of our customers and the retail industry that enables her to promote a unified direction for both the Board of Directors and management.

James E. Skinner.  Mr. Skinner serves as our Executive Vice President, Chief Operating Officer, and Chief Financial Officer. In 2007 he was appointed a member of the Office of the Chairman and elected Chief Operating Officer and Executive Vice President in 2010. From October 2005 to October 2007, he served as Senior Vice President and Chief Financial Officer. From October 2001 to October 2005, he served as Senior Vice President and Chief Financial Officer of The Neiman Marcus Group, Inc. From August 2000 through December 2000, Mr. Skinner served as Senior Vice President and Chief Financial Officer of Caprock Communications Corp. and from 1994 until 2000 he served as Executive Vice President, Chief Financial Officer and Treasurer of CompUSA Inc. Mr. Skinner serves on the board of directors of Fossil, Inc., a global design, marketing and distribution company that specializes in consumer fashion accessories.

James J. Gold.  In April 2014, Mr. Gold was elected President, Chief Merchandising Officer with responsibility for leading our merchandising and planning organization for Neiman Marcus Stores and online. His prior service includes President and Chief Executive Officer of Specialty Retail from October 2010 to April 2014 and from May 2004 to October 2010, President and Chief Executive Officer of Bergdorf Goodman. Mr. Gold served as Senior Vice President, General Merchandise Manager of Neiman Marcus Stores from December 2002 to May 2004, as Division Merchandise Manager from June 2000 to December 2002, and as Vice President of the Neiman Marcus Last Call Clearance Division from March 1997 to June 2000.

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John E. Koryl.  Mr. Koryl was elected President, Neiman Marcus Stores and Online in April 2014 responsible for store operations and sales, e-commerce domestic and international operations and sales, site merchandising, site optimization and customer care. From June 2011 to April 2014, he served as President of Neiman Marcus Direct. From August 2009 until June 2011, he held the position of Senior Vice President, eCommerce Marketing & Analytics at Williams-Sonoma, Inc., a premier specialty retailer of home furnishings. From September 2006 until August 2009, he was Senior Director, Marketing Solutions with eBay, Inc., an online auction and shopping website, and held various other managerial positions with eBay, Inc. since June 2005. Mr. Koryl is also currently a director of Guitar Center Holdings, Inc., a musical instruments retailer, and has previously served on the board of Petco Animal Supplies, Inc.

Joshua G. Schulman.  Mr. Schulman joined us as President of Bergdorf Goodman on May 7, 2012. From 2007 until February 2012, Mr. Schulman was Chief Executive Officer of Jimmy Choo, Ltd, a fashion designer and retailer. From 2005 until 2007, he served as President of Kenneth Cole New York and in senior executive roles at Gap, Inc. as Managing Director/International Strategic Alliances and Senior Vice President/International Merchandising and Product Development, both fashion design and retailing companies. Previously he served in senior executive roles at Gucci Group NV, a fashion designer and retailer, from 1997 to 2005.

Wanda M. Gierhart.  Ms. Gierhart joined us in August 2009 as Senior Vice President, Chief Marketing Officer. From 2007 to 2009, she served as President and Chief Executive Officer of TravelSmith Outfitters, Inc., a travel apparel and accessory retailer, and from 2004 to 2006 she served as Executive Vice President, Chief Marketing and Merchandising Officer of Design Within Reach, Inc., a multichannel furniture retailer.

Wayne A. Hussey.  Mr. Hussey has served as our Senior Vice President, Properties and Store Development since October 22, 2007. From May 1999 to October 2007, he served as Senior Vice President, Properties and Store Development of Neiman Marcus Stores. Mr. Hussey retired effective August 1, 2014.

Michael R. Kingston.  Mr. Kingston has served as Senior Vice President and Chief Information Officer since April 23, 2012. Prior to joining us on April 23, 2012, he served as Executive Vice President, Enterprise Transformation and Technology for Ann Inc., the parent company of Ann Taylor Stores Corp., a women’s apparel retailer, from 2011 to 2012. Prior to that position, he served as Senior Vice President, Chief Information Officer of Ann Inc. from May 2006 to December 2010. From February 2003 until May 2006, he served as Vice President, Applications for Coach, Inc., a designer and maker of luxury handbags and accessories.

Thomas J. Lind.  Mr. Lind was appointed Senior Vice President, Corporate Strategy, Properties and Store Development effective August 1, 2014 upon the retirement of Mr. Hussey. He was appointed Senior Vice President, Corporate Strategies in July 2013 and from 2010 to July 2013 he served as Senior Vice President, Program Management. Since joining us in 1983, he has served in various executive positions including Senior Vice President, Managing Director, Last Call from 2009 until 2010; Senior Vice President, Director of Stores and Store Operations from 2006 until 2009; and Senior Vice President, Director of Stores from 2000 until 2006. From August 2012 until July 2013, Mr. Lind was on assignment as Chief Operating Officer of Glamour Sales Holdings Limited, a privately held e-commerce company based in Hong Kong.

Tracy M. Preston.  Ms. Preston joined us as Senior Vice President and General Counsel on February 18, 2013. From January 2002 until February 2013, she held various positions, including Chief Compliance Officer and Chief Counsel for global supply chain, global human resources and litigation, at Levi Strauss & Co. Previously she was a partner with the law firm of Orrick, Herrington & Sutcliffe LLP.

Stacie R. Shirley.  Ms. Shirley was elected Senior Vice President, Finance and Treasurer in September 2010. From December 2001 until September 2010, she served as Vice President, Finance and Treasurer. Ms. Shirley served as Vice President, Finance and Treasurer at CompUSA Inc. from 1999 to 2001.

T. Dale Stapleton.  In September 2010, Mr. Stapleton was elected Senior Vice President and Chief Accounting Officer. From August 2001 to September 2010, he served as Vice President and Controller. Mr. Stapleton served as Vice President and Controller at CompUSA Inc. from 1999 to 2000.

Joseph N. Weber.  Mr. Weber joined us on September 4, 2012 as Senior Vice President, Chief Human Resources Officer. Prior to joining us, he held various positions at Bank of America Corporation since 2006, most recently Head, Human Resources Europe, Middle East, Africa, Latin America and Canada. Previously he was with Dell, Inc. from 2000 until 2006 and General Electric Company from 1995 until 2000.

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Directors

Information pertaining to Ms. Katz may be found above in the section entitled “—Executive Officers.”

Nora Aufreiter. Ms. Aufreiter has served as a member of our Parent Board since January 2014. She is a Director Emeritus of McKinsey and Company, retiring in June 2014 after more than 27 years as a Director and senior partner. During her years at McKinsey, Nora worked with major retailers, financial institutions and other consumer-facing companies in the U.S., Canada and internationally. Over the course of her career she led the North American Retail practice, the Toronto office, as well as McKinsey’s Digital, Omni Channel and Branding service lines. Nora also serves on the board of directors of Cadillac Fairview, one of North America’s largest owners, operators and developers of commercial real estate, and on the board of directors of Scotiabank, Canada's most international bank with operations in over 55 countries. Ms. Aufreiter began her career at Bank of America as a corporate finance officer. She has an M.B.A. from the Harvard Business School and a H.B.A. from The University of Western Ontario’s Ivey School of Business. Ms. Aufreiter’s digital, omni channel, branding and retail experience will greatly enhance the Parent Board’s effectiveness.

Norman Axelrod. Mr. Axelrod has served a member of our Parent Board since October 2013. Beginning in 1988, Mr. Axelrod served as Chief Executive Officer and a member of the board of directors of Linens ‘n Things, Inc., a retailer of home textiles, housewares and decorative home accessories, was appointed as Chairman of its board of directors in 1997, and served in such capacities until its acquisition in February 2006. Mr. Axelrod is also the Chairman of the boards of directors of Guitar Center Holdings, Inc., a musical instruments retailer, and the parent entity of Floor and Decor Outlets of America, Inc., a specialty retailer of hard surface flooring and related accessories, and serves on the boards of directors of the parent entities of Smart & Final Stores LLC, a warehouse‑style food and supply retailer, 99 Cents Only Stores LLC, a deep‑discount retailer, and Jaclyn, Inc., a handbags and apparel company. Mr. Axelrod has also previously served as the Chairman of the boards of directors of GNC Holdings, Inc., National Bedding Company LLC, and Simmons Company and as a member of the boards of directors of Reebok International Ltd. and Maidenform Brands, Inc. Mr. Axelrod, through his consulting entity, NAX 18, LLC, has provided consulting services to certain Ares entities. Mr. Axelrod received a B.S. in Management and Marketing from Lehigh University where he graduated summa cum laude and an M.B.A. from New York University. Mr. Axelrod’s vast experience led to the conclusion that he should serve as a member of our board of directors.

Philippe Bourguignon. Mr. Bourguignon was elected a member of our Parent Board on April 30, 2014. He serves as Vice Chairman of Revolution Places LLC and CEO of Exclusive Resorts. He also acts as Chairman of Miraval Resort, an acclaimed resort located in northern Tucson, Arizona. Prior to joining Revolution Places, Mr. Bourguignon was co-CEO of the Davos-based World Economic Forum in 2003 and 2004 and Chairman and CEO of Euro Disney. He served previously as chairman and CEO of Club Med. Mr. Bourguignon began his career in tourism with the Accor group, one of the largest hotel groups in the world. During his 14-year tenure with Accor, he served as vice president of Development for Asia/Middle East and executive vice president of North America before being promoted to president of Accor for the Asia/Pacific region. Mr. Bourguignon currently serves on the board of directors of Vinfolio, Inc. He previously served as a member of the board of directors for Zipcar and eBay. Mr. Bourguignon’s qualifications to serve on our board of directors include his broad-based knowledge of luxury brands, entrepreneurial spirit and keen sense of business acumen.

Adam Brotman. Mr. Brotman was elected as a member of our Parent Board in April 2014. He is chief digital officer for Starbucks Coffee Company where he serves as a key member of Starbucks senior leadership team. Prior to joining Starbucks in April 2009, Mr. Brotman held several key leadership positions at leading digital media companies, and most recently was CEO of Barefoot Yoga Company. He served as Senior Vice President at Corbis, and founded PlayNetwork, Inc., a leading provider of in-store digital media and entertainment services for businesses worldwide. Mr. Brotman holds a Bachelor of Arts degree from the University of California, Los Angeles, and a Juris Doctor from the University of Washington. He serves on several corporate and non-profit boards including the University of Washington Master of Communication in Digital Media advisory board. He previously served on the board of directors of PlayNetwork, Inc. Mr. Brotman’s vast experience in today’s technology and social media is a great asset to our omni-channel brand.

Shane Feeney.Mr. Feeney has served a member of our Parent Board since October 2013. He is a Managing Director and Head of Direct Private Equity at CPPIB Equity. In 2010, Mr. Feeney joined CPPIB Equity from Bridgepoint Capital Limited in London, U.K. Prior to joining Bridgepoint Capital Limited, Mr. Feeney was a partner and founding member of Hermes Private Equity Limited’s direct investing business where he was involved in several U.K. private equity investments between 2003 and 2009. From 1998 through 2003, Mr. Feeney was an Associate Director with Morgan Grenfell Private Equity Limited in London where he worked on numerous European private equity transactions from origination to exit across multiple industry sectors. Mr. Feeney previously served on the board of directors of the parent entities of 99 Cents Only Stores LLC, Air Distribution Technologies, Inc., The Gates Corporation and Livingston International, Inc., and Tomkins Building Products, Inc. Mr. Feeney has also served on the board of directors of Tomkins Building Products, Inc. Mr. Feeney received a B.A. in

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Economics from Dartmouth College and an M.B.A. from INSEAD. Mr. Feeney’s financial expertise, as well as experience as a private equity investor evaluating and managing investments in companies across various industries and as a member of the boards of directors of other private companies, led to the conclusion that he should serve as a member of our board of directors.

Vic Gundotra. Mr. Gundotra was elected a member of our Parent Board on April 30, 2014. He served as senior vice president at Google from 2011 until April 2014, heading up the company’s social initiatives, including Google+. He joined Google in 2007 as vice president of engineering, where he was responsible for mobile application development, including product management and marketing. He also led the company’s developer evangelism and application development efforts. Prior to Google, Mr. Gundotra spent 15 years at Microsoft, Inc. where he worked on a variety of products and operating systems, including Windows 3.0, NT, Windows XP, and Vista. He was recognized by MIT as a “Young Innovator under 35” for his work in sparking Microsoft’s change from Win32 to the .NET programming model. More recently, Mr. Gundotra was general manager of Microsoft’s developer outreach efforts worldwide, including evangelism and strategy for products like Windows Vista, Visual Studio, Microsoft Office, Microsoft CRM and Windows Mobile. He holds several patents in the area of distributed computing and identity-based access to cloud resources. Mr. Gundotra’s technological background will greatly enhance our omni-channel initiatives.

David B. Kaplan. Mr. Kaplan has served as a member of our Parent Board since October 2013, including as Chairman since December 2013. Mr. Kaplan is a Co‑Founder of Ares and a Director and Senior Partner of Ares Management GP LLC, Ares’ general partner. He is a Senior Partner of Ares, Co‑Head of its Private Equity Group and a member of its Management Committee. Mr. Kaplan joined Ares in 2003 from Shelter Capital Partners, LLC, where he was a Senior Principal from June 2000 to April 2003. From 1991 through 2000, Mr. Kaplan was affiliated with, and a Senior Partner of, Apollo Management, L.P. and its affiliates, during which time he completed multiple private equity investments from origination through exit. Prior to Apollo Management, L.P., Mr. Kaplan was a member of the Investment Banking Department at Donaldson, Lufkin & Jenrette Securities Corp., an investment banking and securities firm. Mr. Kaplan currently serves as Chairman of the boards of directors of the parent entities of 99 Cents Only Stores LLC, a deep‑discount retailer, and Smart & Final Stores LLC, a warehouse‑style food and supply retailer, and as a member of the board of directors of Floor and Décor Outlets of America, Inc., a specialty retailer of hard surface flooring and related accessories, and Guitar Center Holdings, Inc., a musical instruments retailer. Mr. Kaplan’s previous public company board of directors experience includes Maidenform Brands, Inc., an intimate apparel retailer, where he served as the company’s Chairman, GNC Holdings, Inc., a specialty retailer of health and wellness products, Dominick’s Supermarkets, Inc., a grocery retailer, Stream Global Services, Inc., a business process outsourcing provider, Orchard Supply Hardware Stores Corporation, a home improvement retailer, and Allied Waste Industries Inc., a waste services company. Mr. Kaplan also serves on the Board of Directors of Cedars‑Sinai Medical Center, is a Trustee of the Center for Early Education, is a Trustee of the Marlborough School and serves on the President’s Advisory Group of the University of Michigan. Mr. Kaplan graduated with High Distinction, Beta Gamma Sigma, from the University of Michigan, School of Business Administration with a B.B.A. concentrating in Finance. Mr. Kaplan’s over 20 years of experience managing investments in, and serving on the boards of directors of, companies operating in various industries led to the conclusion that he should serve as a member of our board of directors.

Scott Nishi. Mr. Nishi has served as a member of our Parent Board since September 2013. He is a Principal in the Direct Private Equity group of CPPIB Equity. Mr. Nishi serves on the board of directors of the parent entity of 99 Cents Only Stores. Mr. Nishi joined CPPIB Equity in 2007 from Oliver Wyman, a management consultancy where he advised consumer, healthcare and technology companies. Previously, Mr. Nishi was at Launchworks, a venture capital firm that invested in early stage technology companies. Mr. Nishi holds an MBA from the Richard Ivey School of Business at the University of Western Ontario and a B.Sc. from the University of British Columbia. Mr. Nishi’s financial expertise, as well as experience as a private equity investor evaluating and managing investments in companies across various industries led to the conclusion that he should serve as a member of our board of directors.

Adam L. Stein. Mr. Stein has served as a member of our Parent Board since September 2013. Mr. Stein is a Partner in the Private Equity Group of Ares. Prior to joining Ares in 2000, Mr. Stein was a member of the Global Leveraged Finance Group at Merrill Lynch & Co., a financial services firm, where he participated in the execution of leveraged loan, high yield bond and mezzanine financing transactions across various industries. Mr. Stein serves on the boards of directors of the parent entities of Floor and Decor Outlets of America, Inc., a specialty retailer of hard surface flooring and related accessories, 99 Cents Only Stores LLC, a deep‑discount retailer, Smart & Final Stores LLC, a warehouse‑style food and supply retailer, Marietta Corporation and as a member of the board of directors of Guitar Center Holdings, Inc., a musical instruments retailer. Mr. Stein previously served on the board of directors of Maidenform Brands, Inc. Mr. Stein also serves on the Advisory Board of the Los Angeles Food Bank. Mr. Stein received a B.B.A., with distinction, in Business Administration with a concentration in Finance from Emory University’s Goizueta Business School. Mr. Stein’s experience working with and serving as a director of various companies in the retail industry controlled by private equity sponsors led to the conclusion that he should serve as a member of our board of directors.

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Board Composition and Terms

As of August 2, 2014, the Parent Board was composed of ten directors. Each director serves for annual terms until his or her successor is elected and qualified, or until such director’s earlier death, resignation or removal.

Pursuant to the terms of the Stockholders Agreement, dated October 25, 2013, by and among our Parent, our Sponsors and the other security holders party thereto (the Stockholders Agreement), each of our Sponsors has the right to designate three members of the Parent Board and to jointly designate two independent members of the Parent Board, in each case for so long as they or their respective affiliates own at least 25% of the then outstanding shares of Parent’s Class A Common Stock, par value $0.001 per share (Class A Common Stock). The Stockholders Agreement also provides for the election of the current chief executive officer of Parent to the Parent Board and, to the extent permitted by applicable laws and regulations and subject to certain exceptions, for equal representation on the boards of directors of our subsidiaries with respect to directors designated by our Sponsors and the appointment of at least one of the directors designated by each Sponsor to each committee of the Parent Board. For additional detail regarding the Stockholders Agreement, see “Certain Relationships and Related Transactions, and Director Independence-Stockholders Agreement.”

Committees of the Board of Directors

The Parent Board has established an Audit Committee, Compensation Committee, Capital Committee and an Information Technology Committee.

Audit Committee

The members of the Audit Committee are Messrs. Stein and Nishi. The Audit Committee assists the Parent Board in its oversight of (i) our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) any independent registered public accounting firm engaged by us and (iv) our internal audit function.

The Parent Board has not affirmatively determined whether any of the members of the Audit Committee meet the criteria set forth in the rules and regulations of the SEC for an “audit committee financial expert” because at the present time the Parent Board believes that the members of the Audit Committee are collectively capable of analyzing and evaluating our financial statements and understanding the internal controls and procedures for financial reporting.

Compensation Committee

The members of the Compensation Committee are Mr. Feeney and Mr. Kaplan, who serves as its Chairman. The Compensation Committee (i) oversees the discharge of the responsibilities of the Parent Board relating to compensation of our officers and other key employees, (ii) reviews and evaluates our overall compensation philosophy, (iii) oversees our equity-based incentive plans and other compensation and benefit plans and (iv) prepares the compensation committee report on executive compensation included in this report.

Capital Committee

The members of the Capital Committee are Messrs. Bourguignon, Nishi, Stein and Axelrod, who serves as its Chairman. The Capital Committee assists the Parent Board in its oversight of major capital investment decisions and with ensuring that our investments effectively support our business objectives and strategies.

Information Technology Committee

The members of the Information Technology Committee are Messrs. Brotman and Gundotra and Ms. Aufreiter, who serves as its Chairperson. The Capital Committee assists the Parent Board with ensuring that our information technology strategy and investments are aligned with our overall goals and objectives.

Compensation Committee Interlocks and Insider Participation

As noted above, the members of the Compensation Committee are currently Mr. Feeney and Mr. Kaplan, who serves as its Chairman. Prior to the Acquisition, Jonathan Coslet, John Danhakl, and Kewsong Lee served as members of our Compensation Committee. To our knowledge, there were no interrelationships involving members of the Compensation Committee or other directors requiring disclosure.

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Code of Ethics

We have adopted a Code of Ethics and Conduct, which is applicable to all our directors, officers and employees. We have also adopted a Code of Ethics for Financial Professionals that applies to all professionals serving in a finance, accounting, treasury, tax or investor relations role throughout our organization, including the Chief Executive Officer, the Chief Financial Officer and the Chief Accounting Officer. Both the Code of Ethics and Conduct and the Code of Ethics for Financial Professionals may be accessed through our website at www.neimanmarcusgroup.com under the “Investor Information—Corporate Governance—Governance Documents” section.

We have established a means for employees, customers, suppliers, or other interested parties to submit confidential and anonymous reports of suspected or actual violations of the Code of Conduct relating, among other things, to:

• accounting practices, internal accounting controls, or auditing matters and procedures;

• theft or fraud of any amount;

• performance and execution of contracts;

• conflicts of interest;

• violations of securities and antitrust laws; and

• violations of the Foreign Corrupt Practices Act.

Any employee or other interested party may call 1-866-384-4277 toll-free to submit a report. This number is operational 24 hours a day, seven days a week.

Section 16(a) Beneficial Ownership Reporting Compliance

In light of our status as a privately held company, Section 16(a) of the Securities Exchange Act of 1934, as amended, does not apply to our directors, executive officers or significant owners of our equity securities.

ITEM 11.     EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis is designed to provide an understanding of our compensation philosophy, core principles and arrangements that are applicable to the executive officers identified in the Summary Compensation Table (referred to as the named executive officers).

Compensation Philosophy and Objectives.  We have been in business over a century and are one of the largest luxury, multi-branded, omni-channel fashion retailers in the world.  Our continued success depends on the skills of talented executives who are dedicated to achieving solid financial performance, providing outstanding service to our customers and managing our assets wisely.  Our compensation program, comprised of base salary, annual bonus, long-term incentives and benefits, is designed to meet the following objectives:

• Recruit and retain executives who possess exceptional ability, experience and vision to sustain and promote our preeminence in the marketplace.

• Motivate and reward the achievement of our short- and long-term goals and operating plans.

• Align the interests of our executives with the financial and strategic objectives of Parent's stockholders.

• Provide total compensation opportunities that meet the expectations of a highly skilled executive team, are aligned and consistent with our underlying performance and are competitive with the compensation practices and levels offered by companies with whom we compete for executive talent.

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Individual Compensation Components

Base Salary. Base salary is intended to provide a base level of compensation commensurate with an executive’s job title, role, tenure and experience. We utilize base salary as a building block of our compensation program, establishing a salary range for particular positions based on survey data and job responsibilities. Being competitive in base salary is a minimum requirement to recruit and retain skilled executives. Specifically, base salary levels of the named executive officers are determined based on a combination of factors, including our compensation philosophy, market compensation data, competition for key executive talent, the named executive officer’s experience, leadership, achievement of specified business objectives, individual performance, our overall budget for merit increases and attainment of our financial goals. Salaries are reviewed before the end of each fiscal year as part of our performance and compensation review process as well as at other times to recognize a promotion or change in job responsibilities. Merit increases are usually awarded to the named executive officers in the same percentage range as all employees and are based on overall performance and competitive market data except in those situations where individual performance and other factors justify awarding increases above or below this range. Merit increases typically range between two and eight percent.

In addition, Ms. Katz and Messrs. Skinner and Gold have employment agreements that set a minimum salary, more fully described under the heading “Employment and Other Compensation Agreements” in this section.

Annual Incentive Bonus. Annual bonus incentives tied to short-term objectives form the second building block of our compensation program and are designed to provide incentives to achieve certain financial goals of the Company. Financial goals, which are used to determine annual bonus incentives for all employees, emphasize profitability and asset management. The Compensation Committee believes that a significant portion of annual cash compensation for the named executive officers should be at risk and tied to our operational and financial results. “Pay for performance” for the named executive officers has been significantly enhanced in recent years by putting a larger percentage of their potential compensation at risk as part of the annual bonus incentive program.

All named executive officers are eligible to be considered for annual bonus incentives. Threshold, target and maximum annual performance incentives, stated as a percentage of base salary, are established for each of the named executive officers at the beginning of each fiscal year. The objectives set for Ms. Katz and other senior officers with broad corporate responsibilities are based on our overall financial results. When an employee has responsibility for a particular business unit or division, the performance goals are heavily weighted toward the operational performance of that unit or division. Actual awards earned by the named executive officers are determined based on an assessment of our overall performance and a review of each named executive officer’s contribution to our overall performance. Other components may also be considered from time to time at the discretion of the Compensation Committee.

The employment agreements of Ms. Katz and Messrs. Skinner and Gold contain provisions regarding target levels and the payment of annual incentives and are described in more detail more fully described under the heading “Employment and Other Compensation Agreements” in this section.

Long-term Incentives. Long-term incentives in the form of stock options are intended to promote sustained high performance and to align our executives’ interests with those of our equity investors. The Compensation Committee believes that stock options create value for the executives if the value of our Company increases. This creates a direct correlation between the interests of our executives and the interests of our equity investors.

Equity awards become effective on the date of grant, which typically coincides with the date of approval by the Compensation Committee or the date of a new hire or a promotion. We have no set practice as to when the Company makes equity grants, and we evaluate from time to time whether grants should be made.

We made initial stock option grants on November 5, 2013 under the NM Mariposa Holdings, Inc. Management Equity Incentive Plan (the Management Incentive Plan) to the named executive officers and seventeen (17) other senior officers. The initial stock option grants were made following the Acquisition to retain the senior management team and enable them to share in our growth along with our equity investors. The initial stock option grants were awarded at an exercise price of $1,000 per share and consisted of time-vested non-qualified stock options and performance-vested non-qualified stock options. Each grant of non-qualified stock options consists of options to purchase an equal number of shares of Class A Common Stock and Parent’s Class B Common Stock, par value $0.001 per share (Class B Common Stock). Twenty percent (20%) of the time-vested non-qualified options vest and become exercisable on each of the first five anniversaries of the date of the grant becoming fully vested and exercisable on the fifth anniversary date of the grant and expire on the tenth anniversary date of the grant. The performance-vested non-qualified options vest on the achievement of certain performance hurdles.

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Risk Assessment of Compensation Policies and Programs

We have reviewed our compensation policies and programs for all employees, including the named executive officers, and we do not believe that these policies and practices create risks that are reasonably likely to have a material adverse effect on the Company.  The three major components of our overall compensation program were reviewed and the following conclusions were made:

• Base salaries are determined by an industry peer group analysis and on the overall experience of each individual.  Merit increases are based on financial as well as individual performance and are generally kept within a specified percentage range for all employees, including the named executive officers.

• Because of our non-public status, long-term incentive awards in the form of stock option grants can be exercised but the shares must be held until such time as there is a liquidity event or a public market exists for Parent's common stock, thereby aligning the interests of participants with those of our equity investors.

• Annual incentive bonus awards are based on our Adjusted EBITDA and sales. For Bergdorf Goodman, annual incentive bonus awards are based on Adjusted EBITDA and sales of both the Company as a whole and Bergdorf Goodman specifically. The annual incentive bonus awards are all set at the beginning of each fiscal year based on the achievement of goals that the Compensation Committee believes will be challenging. Maximum target payouts are capped at a pre-established percentage of base salary.

The Compensation Committee has discretionary authority to adjust incentive plan payouts and the granting of stock option awards, which may further reduce any business risk associated with such plan payouts and stock option grants.  The Compensation Committee also monitors compensation policies and programs to determine whether risk management objectives are being met.

Executive Officer Compensation

Process for Evaluating Executive Officer Performance

Role of the Compensation Committee. The Compensation Committee is responsible for determining the compensation of our named executive officers and for establishing, implementing and monitoring adherence to our executive compensation philosophy. The Compensation Committee charter authorizes the committee to retain and terminate compensation consultants to provide advice with respect to compensation of the named executive officers. The Compensation Committee is further authorized to approve the fees the Company will pay, and terms of engagement of, any consultant it may retain.

The Compensation Committee considers input from our CEO and compensation consultants in making determinations regarding our executive compensation program and the individual contribution of each of our named executive officers. The CEO does not play a role in decisions affecting her own compensation. The CEO’s performance and compensation are reviewed and determined solely by the Compensation Committee.

In developing and reviewing the executive incentive programs, the Compensation Committee considers the business risks inherent in program designs to ensure that they do not incentivize executives to take unacceptable levels of business risk for the purpose of increasing their incentive plan awards. The Committee intends for the plan design to be conservative in this respect and that the compensation components provide appropriate checks and balances to encourage executive incentives to be consistent with the interests of our equity investors. The Compensation Committee believes that the mix of compensation components used in the determination of our named executive officers’ total compensation does not encourage our named executive officers to take undesirable risks relating to the business. For further information, see “Risk Assessment of Compensation Policies and Programs” above.

Role of Management. As part of our annual planning process, the CEO, with assistance from external consultants, develops and recommends a compensation program for all executive officers. Based on performance assessments, the CEO attends a meeting of the Compensation Committee held for the purpose of considering each individual executive’s annual compensation and recommends the base salary and any incentive bonus awards or long-term incentive awards, if applicable, for each of the executive officers, including the named executive officers. The CEO does not participate in the portion of the Compensation Committee meeting during which her own compensation is discussed and does not provide recommendations with respect to her own compensation package.

Role of the Compensation Consultants. The Compensation Committee generally retains services of compensation consultants for limited purposes. Management retains an independent compensation consultant, Haigh & Company, to provide

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comparative market data regarding executive compensation to assist the Compensation Committee in establishing reference points for the base salary, annual incentive and long-term incentive components of our compensation package. They also provide information regarding general market trends in compensation, compensation practices of other retail companies and regulatory and compliance developments. The fees paid to Haigh & Company for their services in fiscal year 2014 did not exceed $120,000. Haigh & Company has no other affiliations with, and provides no other services to, us.

2014 Executive Officer Compensation

Ultimately, our named executive officers’ total compensation is based on the level of performance of the Company and/or the Company’s applicable business unit or division.  The Compensation Committee uses its discretion in making decisions on the overall compensation packages of our executive officers based on current market conditions, business trends and overall Company performance.

We have identified an industry peer group that includes the 14 companies listed below for purposes of benchmarking the compensation of our named executive officers. These companies are intended to represent our competitors for business and talent. Their executive compensation programs are compared to ours, as well as the compensation of individual executives if the jobs are sufficiently similar to make the comparison meaningful. The comparison data is generally intended to ensure that the compensation of our named executive officers, both individually and as a whole, is appropriately competitive relative to our performance. We believe that this practice is appropriate in light of the high level of commitment, job demands and the expected performance contribution required from each of our executive officers. We generally target our direct compensation to be positioned between the 50^th and 75^th percentile levels of the compensation packages received by executives in our peer group of industry related companies. In the third quarter of fiscal year 2014, Haigh & Company conducted a benchmarking review of the compensation of all of our officers, including that of the named executive officers. No significant changes in design or levels of executive compensation were made during fiscal year 2014 as a result of the review.

Abercrombie & Fitch	L Brands (formerly Limited)
Ann Inc.	Michael Kors
Coach	Macy's
The Gap	Nordstrom
Hudson's Bay	Ralph Lauren
Kate Spade	Tiffany & Co.
Kohl’s	Williams-Sonoma

In addition to the select companies above, we also review various third party compensation survey reports.

Base Salary. The table below shows the salaries for fiscal years 2013 and 2014, including the percentage increase, for each of the named executive officers. Salary increase for the named executive officers in fiscal year 2014 were based on individual contributions to our overall performance, economic and market conditions, general movement of salaries in the marketplace and operating results. Ms. Katz did not receive a salary increase for fiscal year 2014.

	2013 Base Salary ($)	2014 Base Salary ($)	Percent Increase (%)
Karen W. Katz	1,070,000	1,070,000	N/A
James E. Skinner	720,000	750,000	4.2
James J. Gold	770,000	800,000	3.9
John E. Koryl	512,000	550,000	7.4
Joshua G. Schulman (1)	500,000	510,000	2.0

(1) Mr. Schulman’s 2013 base salary represents the amount of his salary at the time his employment began on May 7, 2012.

Amounts actually earned by each of the named executive officers in fiscal years 2012, 2013 and 2014 are listed in the Summary Compensation Table.

Annual Incentive Bonus.  In determining annual incentive bonus amounts for the named executive officers, the Compensation Committee considers their performance relative to the pre-established goals that are set at the beginning of the year. The pre-established goals for fiscal year 2014 for each of our named executive officers are discussed under the heading

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“Corporate Performance Targets” that follows. The Compensation Committee set the threshold, target and maximum performance targets at levels they believed were challenging based on historical company performance and industry and market conditions. Goals were established at the division and business unit levels where appropriate for each of the named executive officers. As it relates to our annual incentive compensation program, this performance assessment is a key variable in determining the amount of total compensation paid to our named executive officers. Fiscal year 2014 target annual incentives and relative performance weights for the named executive officers were as follows:

			Overall				Bergdorf Goodman
Name	Target Bonus As Percent of Base Salary		Adjusted EBITDA		Sales		Adjusted EBITDA		Sales
Karen W. Katz	125	%	70	%	30	%	—		—
James E. Skinner	75	%	70	%	30	%	—		—
James J. Gold	75	%	70	%	30	%	—		—
John E. Koryl	60	%	70	%	30	%	—		—
Joshua G. Schulman	60	%	35	%	15	%	35	%	15	%

Ms. Katz, the individual with the greatest overall responsibility for company performance, was granted the largest incentive opportunity in comparison to her base salary to weight her annual cash compensation mix more heavily towards performance-based compensation. Since Mr. Schulman has responsibility over Bergdorf Goodman, his performance goals include the operational performance of Bergdorf Goodman.

Corporate Performance Targets.  At the end of each fiscal year, the Compensation Committee evaluates the Company’s performance against the financial and strategic performance targets set at the beginning of the fiscal year. For fiscal year 2014, the bonus metrics for the named executive officers were based on the following:

Named Executive Officer	Bonus Metrics
Ms. Katz and Messrs. Skinner, Gold and Koryl	Ÿ Consolidated Adjusted EBITDA and sales for Neiman Marcus Group LTD LLC
Mr. Schulman	Ÿ    Consolidated Adjusted EBITDA and sales for Neiman Marcus Group LTD LLC
	Ÿ    Adjusted EBITDA and sales for Bergdorf Goodman

Metrics used for each executive, as well as the relative weights assigned to the metrics, are based on strategic business drivers of the particular business unit or division that the executive manages. Bonus metrics related to threshold, target and maximum annual incentive bonus payouts for fiscal year 2014, as well as actual amounts achieved and actual payout percentages for fiscal year 2014 are as follows:

	Threshold		Target		Maximum		Achieved		Payout As Percent of Target
Neiman Marcus Group
Sales (in millions)	$	4,761	$	4,902	$	5,039	$	4,839	66.6	%
Adjusted EBITDA (in millions)	$	657	$	697	$	737	$	678	63.8	%
Bergdorf Goodman
Sales (in millions)	$	626	$	639	$	659	$	627	30.0	%
Adjusted EBITDA (in millions)	$	124	$	130	$	136	$	130	96.4	%

The definition of Adjusted EBITDA is explained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

2014 Annual Incentive Bonus.   Actual operating performance for fiscal year 2014 for all operating divisions was below performance targets set at the beginning of the year (as shown in the table above). Annual incentive amounts are to be paid to Messrs. Koryl and Schulman based on the payout percentages set forth in the table above. Ms. Katz and Messrs. Skinner and Gold have minimum threshold, target and maximum percentages of incentive payouts pursuant to their employment agreements more fully described under "Employment and Other Compensation Agreements." The Compensation Committee did not exercise their discretion to adjust the actual payout amounts. Actual amounts paid are listed in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation.”

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Predecessor Stock Options. At the time of the Acquisition, the Company had outstanding vested and unvested stock options (referred to as Predecessor stock options). In connection with the Acquisition, all unvested stock options became fully vested on October 25, 2013 and, along with all outstanding vested stock options, all such Predecessor stock options (other than the Co-Invest Stock Options described below) were settled and cancelled in exchange for an amount equal to the excess of the per share merger consideration over the exercise prices of such stock options. Amounts paid to each of the named executive officers are described under "Option Exercises and Stock Vested."

Co-Invest Stock Options. At the time of the Acquisition, certain management employees including the named executive officers elected to exchange a portion of their Predecessor stock options for stock options to purchase shares of Parent (the Co-Invest Stock Options). The Co-Invest Stock Options are fully vested. The number of stock options and exercise prices were adjusted pursuant to an exchange ratio in connection with the Acquisition. The Co-Invest Stock Options are exercisable at any time prior to the applicable expiration dates related to the original grant of the Predecessor stock options. The Co-Invest Options contain sale and repurchase provisions.

Stock Options. On November 5, 2013, Parent granted 72,206 time-vested non-qualified stock options and 72,206 performance vested non-qualified stock options to the named executive officers and seventeen (17) certain other executive officers pursuant to the Management Incentive Plan. Each grant of non-qualified stock options consists of options to purchase an equal number of shares of Class A Common Stock and Class B Common Stock. Twenty percent (20%) of the time-vested non-qualified stock options vest and become exercisable on each of the first five anniversaries of the date of the grant becoming fully vested and exercisable on the fifth anniversary date of the grant. The performance-vested options vest on the achievement of certain performance hurdles. These non-qualified stock options were granted at an exercise price of $1,000 per share and such options will expire no later than the tenth anniversary of the grant date. The non-qualified stock options contain repurchase provisions in the event of the participant’s termination of employment.

Cash Incentive Plan. In 2005 the Company adopted the Neiman Marcus Group LTD LLC Cash Incentive Plan (the Cash Incentive Plan) following the acquisition by the Former Sponsors, to aid in the retention of certain key executives, including the named executive officers. The Cash Incentive Plan provided for a $14 million cash bonus pool to be shared by the participants based on the number of eligible stock options granted to each participant. In accordance with the terms of the Cash Incentive Plan, each participant became eligible for a cash bonus upon a change of control. As a result of the Acquisition, cash amounts were paid to each participant, including the named executive officers. Actual amounts paid to each of the named executive officers can be found in the “Summary Compensation Table.”

Other Compensation Components

We maintain the following compensation components to provide a competitive total rewards package that supports retention of key executives.

Health and Welfare Benefits. Executive officers are eligible to participate under the same plans as all other eligible employees for medical, dental, vision, disability and life insurance. These benefits are intended to be competitive with benefits offered in the retail industry.

Pension Plan. Prior to 2008, most non-union employees over age 21 who had completed one year of service with 1,000 or more hours participated in our defined benefit pension plan (referred to as the Pension Plan), which paid benefits upon retirement or termination of employment. The Pension Plan is a “career-accumulation” plan, under which a participant earns each year a retirement annuity equal to one percent of his or her compensation for the year up to the Social Security wage base and 1.5 percent of his or her compensation for the year in excess of such wage base. A participant becomes fully vested after five years of service with us. Effective as of December 31, 2007, eligibility and benefit accruals under the Pension Plan were frozen for all participants except for those “Rule of 65” employees who elected to continue participation in the Pension Plan. “Rule of 65” employees included only those active employees who had completed at least 10 years of service and whose combined years of service and age equaled at least 65 as of December 31, 2007. Ms. Katz was a “Rule of 65” employee as of December 31, 2007, and elected to continue participation in the Pension Plan. For Messrs. Skinner and Gold, benefits and accruals under the Pension Plan were frozen effective as of December 31, 2007. Effective August 1, 2010, all benefits and accruals under the Pension Plan were frozen and all remaining participants were moved into our Retirement Savings Plan (referred to as the RSP). Ms. Katz’s benefits and accruals under the Pension Plan were moved into the RSP effective December 31, 2010.

Savings Plans. Effective January 1, 2008, a new enhanced 401(k) plan, our RSP was established and offered to all employees, including the named executive officers, as the primary retirement plan. Benefits and accruals under a previous 401(k) plan, our Employee Savings Plan (referred to as the ESP), were frozen as well as benefits and accruals under the Pension

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Plan. All future and current employees who were not already enrolled in the ESP were automatically enrolled in the RSP. “Rule of 65” employees, as described above, were given a choice to either continue participation in the Pension Plan and the ESP or freeze what was earned under those plans through December 31, 2007 and participate in the RSP. The RSP is a tax-qualified defined contribution 401(k) plan that allows participants to contribute up to the limit prescribed by the Internal Revenue Service on a pre-tax basis. The Company matches 100% of the first 3% and 50% of the next 3% of pay that is contributed to the RSP. All employee contributions to the RSP are fully vested upon contribution. Company matching contributions vest after two years of service. The Company matched 100% of the first 2% and 25% of the next 4% of pay that was contributed to the ESP. All employee contributions to the ESP were fully vested upon contribution. Company matching contributions vested after three years of service. Effective August 1, 2010, benefits and accruals under the ESP were frozen for the remaining “Rule of 65” active employees and such participants were moved into the RSP. Messrs. Koryl and Schulman became eligible to participate in the RSP one year after their respective hire dates.

Supplemental Retirement Plan and Key Employee Deferred Compensation Plan. U.S. tax laws limit the amount of benefits that we can provide under our tax-qualified plans. We maintain our Supplemental Executive Retirement Plan (referred to as the SERP Plan) and our Key Employee Deferred Compensation Plan (referred to as the KEDC Plan), which are unfunded, non-qualified arrangements intended to provide the named executive officers and certain other key employees with additional benefits, including the benefits that they would have received under the RSP if the tax law limitations did not apply and if certain other components of compensation could be included in calculation of benefits under our tax-qualified plans. Prior to 2008, executive, administrative and professional employees (other than those employed as salespersons) with an annual base salary at least equal to a minimum established by the Company were eligible to participate in the SERP Plan. Similar to the Pension Plan, effective December 31, 2007, eligibility and benefit accruals under the SERP Plan were frozen for all participants not meeting the “Rule of 65” and such participants were moved into our Defined Contribution Supplemental Executive Retirement Plan (DC SERP). Effective August 1, 2010, all benefits and accruals under the SERP Plan for “Rule of 65” employees were frozen and such participants were moved into the DC SERP. SERP Plan related benefits are more fully described under “Pension Benefits.”

Participation in the KEDC Plan is limited to employees whose base salary is in excess of $300,000 and who meet other stated criteria. Amounts in excess of those benefits provided under the 401(k) plans are credited to the account balances of each KEDC Plan participant. KEDC Plan benefits are more fully described under “Non-qualified Deferred Compensation.”

As a result of the Acquisition, all amounts held by participants in the DC SERP and the KEDC were paid to participants effective October 25, 2013.

Matching Gift Program. All employees, including the named executive officers, may participate in our matching gift program. Under the program, we will match charitable contributions by employees up to a maximum of $2,000 per qualifying organization on a two-for-one basis in each calendar year. For any contribution made to a qualifying organization in which the employee has an active involvement (as evidenced by service on the organization’s governing body or in one of its working committees), the basis of our matching contribution may, upon application by the employee, be increased to a level greater than two-for-one.

Perquisites. We provide perquisites and other personal benefits that we believe are reasonable and consistent with the nature of individual responsibilities to provide a competitive level of total compensation to our executives. We believe the level of perquisites is within an acceptable range of what is offered by a group of industry related companies. The Compensation Committee believes that these benefits are aligned with the Company’s desire to attract and retain highly skilled management talent for the benefit of all stockholders. The value of these benefits to the named executive officers is set forth in the Summary Compensation Table under the column “All Other Compensation” and details about each benefit are set forth in a table following the Summary Compensation Table.

Compensation Following Employment Termination or Change of Control

Employment Agreements.To support the continuity of senior leadership, we have employment agreements with Ms. Katz and Messrs. Skinner and Gold which provide, among other things, for payments to the executive following a termination of employment by the executive for “good reason” or a termination of the executive’s employment by us without “cause.” The triggering events constituting “good reason” and “cause” were negotiated to provide protection to us for certain terminations of employment that could cause harm to us as well as to provide protection to the executive. The employment agreements also provide for certain payments to the executives upon death or “disability.” For a detailed description of the terms of the employment agreements, see “Employment and Other Compensation Agreements.”

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Confidentiality, Non-Competition and Termination Benefits Agreements.Each of Messrs. Koryl and Schulman is a party to a confidentiality, non-competition and termination benefits agreement with us. The confidentiality, non-competition and termination benefits agreements provide for severance benefits if the employment of the affected individual is terminated other than for death, “disability,” or “cause.” These agreements provide for a severance payment equal to one and one-half annual base salary of the named executive officer, payable over an eighteen month period, and reimbursement for COBRA premiums for the same period. The employment agreements of Ms. Katz and Messrs. Skinner and Gold contain similar provisions as described more fully under the heading “Employment and Other Compensation Agreements” in this section.

Other.We have change of control provisions in our Management Incentive Plan that allow the Board or Compensation Committee to accelerate the vesting of equity awards.

Consideration of Tax and Accounting Treatment of Compensation

Accounting for Stock-Based Compensation.We account for stock-based payments in accordance with the provisions of ASC Topic 718, “Compensation-Stock Compensation.” When setting equity compensation, the Compensation Committee considers the estimated cost for financial reporting purposes of any equity compensation it is considering. However, the accounting impact does not have a material impact on the design of our equity compensation plan.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

THE COMPENSATION COMMITTEE

David Kaplan, Chairman

Shane Feeney

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Summary Compensation Table

The following table sets forth the annual compensation for the President and Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated executive officers who were serving as executive officers at the end of fiscal year 2014 (referred to as the named executive officers).

Name and Principal Position	Fiscal Year	Salary ($)	Bonus ($)(1)	Option Awards ($)(2)	Non-Equity Incentive Plan Compensation ($)(3)	Change in Pension Value ($)(4)	All Other Compensation ($)(5)	Total ($)
Karen W. Katz President and Chief Executive Officer	2014	1,070,000	—	20,452,674	958,988	798,000	3,325,621	26,605,283
	2013	1,070,000	—	1,379,327	799,667	5,944	719,068	3,974,006
	2012	1,070,000	—	3,877,404	1,503,992	1,248,121	2,076,088	9,775,605
James E. Skinner Executive Vice President, Chief Operating Officer, and Chief Financial Officer	2014	750,000	250,000	4,748,306	385,875	133,000	1,476,457	7,743,638
	2013	720,000	—	618,319	358,094	2,021	256,828	1,955,262
	2012	720,000	—	2,095,894	759,024	182,384	1,027,624	4,784,926
James J. Gold President, Chief Merchandising Officer	2014	800,000	100,000	6,574,044	411,600	156,000	2,890,940	10,932,584
	2013	770,000	—	808,571	227,415	—	233,135	2,039,121
	2012	770,000	—	2,095,894	669,958	278,000	1,088,650	4,902,502
John E. Koryl President, Neiman Marcus Stores and Online	2014	550,000	100,000	3,652,700	213,510	—	624,542	5,140,752
	2013	512,000	54,992	523,193	320,008	—	29,261	1,439,454
	2012	500,000	—	3,439,457	334,581	—	325,523	4,599,561
Joshua G. Schulman President, Bergdorf Goodman	2014	510,000	100,000	3,652,700	216,036	—	275,445	4,754,181
	2013	500,000	40,502	380,504	59,498	—	8,215	988,719
	2012	117,308	—	2,171,464	—	—	527	2,289,299

(1) The amounts for Messrs. Skinner, Gold, Koryl and Schulman for fiscal year 2014 represent a transaction bonus awarded for their efforts in the success of the Acquisition.

(2) The amounts reflect the aggregate grant date fair value for the awards computed in accordance with ASC Topic 718. Assumptions used in calculating the fiscal year 2014 amounts are described under the caption Stock-Based Compensation in Note 12 of the Notes to Consolidated Financial Statements. These amounts reflect the grant date fair value and do not represent the actual value that may be realized by the named executive officers.

(3) The amounts reported in the Non-Equity Incentive Plan Compensation column reflect the actual amounts earned under the performance-based annual cash incentive compensation plan described under “Compensation Discussion and Analysis.”

(4) The amounts in this column represent the change in the actuarial value of the named executive officers’ benefits under our retirement and supplemental executive retirement plans from August 3, 2013 to August 2, 2014. This “change in the actuarial value” is the difference between the fiscal year 2013 and fiscal year 2014 present value of the pension benefits accumulated as of year-end by the named executive officers, assuming that benefit is not paid until age 65. These amounts were computed using the same assumptions used for financial statement reporting purposes under ASC Subtopic 715-30, “Defined Benefit Plans-Pension” as described in Note 10 of the Notes to Consolidated Financial Statements.

(5) Includes all items listed in the following table entitled “All Other Compensation.” The value of perquisites and other personal benefits is provided in this column and in the footnotes below even if the amount is less than the reporting threshold established by the SEC.

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The table below sets forth all other compensation for each of the named executive officers.

All Other Compensation	Karen W. Katz ($)		James E. Skinner ($)		James J. Gold ($)		John E. Koryl ($)		Joshua G. Schulman ($)
401(k) plan contributions paid by us	$	11,700	$	11,700	$	8,349	$	11,700	$	9,125
Deferred compensation plan match	50,650		26,292		—		—		—
DC SERP contributions paid by us	350,073		135,024		110,330		69,702		—
Group term life insurance	3,124		4,322		1,685		923		816
Financial counseling/tax preparation	4,600		5,000		5,000		—		—
Long-term disability	1,480		1,480		1,480		1,480		1,480
Transition benefit (1)	7,650		—		—		—		—
New York travel reimbursement (2)	23,866		—		12,531		—		—
Cash Incentive Plan payout (3)	2,208,866		1,104,309		1,104,309		494,800		264,024
Gross-ups for New York non-resident taxes (4)	663,612		188,330		1,647,256		45,937		—
Totals	$	3,325,621	$	1,476,457	$	2,890,940	$	624,542	$	275,445

(1) Transition benefit paid to highly compensated and grandfathered employees or “Rule of 65” employees as a result of the freeze of the SERP Plan.

(2) Includes an annual payment of $15,000 in lieu of reimbursement for New York accommodations paid pursuant to Ms. Katz’s employment contract. The employment contract also includes a gross-up provision for the payment of income taxes incurred pursuant to such annual payment.

(3) Payout of the Cash Incentive Plan as a result of the Acquisition. For a more detailed discussion, see “Cash Incentive Plan.”

(4) The amounts shown represent gross-up payments made in connection with New York non-resident taxes.

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GRANTS OF PLAN-BASED AWARDS

The following table sets forth the non-equity incentive plan awards to our named executive officers for fiscal year 2014 that could have been payable pursuant to our annual cash incentive plan and equity awards granted pursuant to our long-term equity plans.

					All Other Option Awards
					Number of Securities Underlying Options (#)		Exercise Or Base Price of Option Awards ($)(5)	Grant Date Fair Value of Stock and Option Awards ($)(6)
		Estimated Possible Future Payouts Under Non-Equity Incentive Plan Awards (1)
Name	Grant Date	Threshold ($)	Target ($)	Maximum ($)
Katz, Karen W.	11/21/2013	535,000	1,337,500	2,675,000	—		—	—
	11/5/2013	—	—	—	25,099	(2)	1,000.00	10,226,337
	11/5/2013	—	—	—	25,099	(3)	1,000.00	10,226,337
					5,699	(4)	363.08	—
					9,211	(4)	450.26	—
					4,556	(4)	644.37	—
Skinner, James E.	11/21/2013	187,500	562,500	1,125,000	—		—	—
	11/5/2013	—	—	—	5,827	(2)	1,000.00	2,374,153
	11/5/2013	—	—	—	5,827	(3)	1,000.00	2,374,153
					1,551	(4)	363.08	—
					4,979	(4)	450.26	—
					2,042	(4)	644.37	—
Gold, James J.	11/21/2013	200,000	600,000	1,200,000	—		—	—
	11/5/2013	—	—	—	8,068	(2)	1,000.00	3,287,226
	11/5/2013	—	—	—	8,067	(3)	1,000.00	3,286,818
					1,375	(4)	363.08	—
					4,979	(4)	450.26	—
					2,671	(4)	644.37	—
Koryl, John E.	11/21/2013	82,500	330,000	660,000	—		—	—
	11/5/2013	—	—	—	4,482	(2)	1,000.00	1,826,146
	11/5/2013	—	—	—	4,483	(3)	1,000.00	1,826,554
					5,164	(4)	450.26	—
Schulman, Joshua G.	11/21/2013	76,500	306,000	612,000	—		—	—
	11/5/2013	—	—	—	4,482	(2)	1,000.00	1,826,146
	11/7/2012	—	—	—	4,483	(3)	1,000.00	1,826,554
					3,407	(4)	576.59	—

(1) Non-equity incentive plan awards represent the threshold, target and maximum opportunities under our performance-based annual cash incentive compensation plan for fiscal year 2014. The actual amounts earned under this plan are disclosed in the Summary Compensation Table. For a detailed discussion of the annual incentive awards for fiscal year 2014, see “Annual Incentive Bonus.”

(2) Represents time-vested non-qualified stock options awarded to each of the named executive officers in fiscal year 2014. The time-vested options vest 20% on each of the first five anniversaries of the date of the grant becoming fully vested on the fifth anniversary date of the grant and expire on the tenth anniversary of the grant date. For a detailed discussion, see “Long-Term Incentives” and “Stock Options.”

(3) Represents performance vested non-qualified stock options awarded to each of the named executive officers in fiscal year 2014. The performance-vested non-qualified options vest on the achievement of certain performance and expire on November 5, 2023. For a detailed discussion, see “Long-term Incentives” and “Stock Options.”

(4) Represents non-qualified Co-Invest stock options rolled over from Predecessor stock options as a result of the Acquisition with number of options and exercise prices adjusted pursuant to an exchange ratio. The Co-Invest stock options are fully vested and exercisable at any time prior to the expiration dates related to the original grant of the Predecessor stock options. For a detailed discussion, see “Co-Invest Stock Options” and “Predecessor stock options.”

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(5) Because we are privately held and there is no public market for Parent’s common stock, the fair market value of Parent’s common stock is determined by our Compensation Committee at the time option grants are awarded. In determining the fair market value of Parent’s common stock, the Compensation Committee considers such factors as any recent transactions involving Parent's common stock, the Company’s actual and projected financial results, the principal amount of the Company’s indebtedness, valuations of the Company performed by third parties and other factors it believes are material to the valuation process.

(6) For new option awards in fiscal year 2014, these amounts reflect the aggregate grant date fair value for the awards computed in accordance with ASC Topic 718. The assumptions used in calculating these amounts are described under the caption Stock-Based Compensation in Note 12 of the Notes to Consolidated Financial Statements.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table sets forth certain information regarding the total number and aggregate value of stock options held by each of our named executive officers at the end of fiscal year 2014.

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)		Option Expiration Date
Karen W. Katz	5,699	—	(1)	363.08	(1)	9/30/2017
	9,211	—	(1)	450.26	(1)	10/1/2018
	4,556	—	(1)	644.37	(1)	11/7/2019
	—	25,099	(2)	1,000.00	(2)	11/5/2023
	—	25,099	(3)	1,000.00	(3)	11/5/2023
James E. Skinner	1,551	—	(1)	363.08	(1)	9/30/2017
	4,979	—	(1)	450.26	(1)	10/1/2018
	2,042	—	(1)	644.37	(1)	11/7/2019
	—	5,827	(2)	1,000.00	(2)	11/5/2023
	—	5,827	(3)	1,000.00	(3)	11/5/2023
James J. Gold	1,375	—	(1)	363.08	(1)	9/30/2017
	4,979	—	(1)	450.26	(1)	10/1/2018
	2,671	—	(1)	644.37	(1)	11/7/2019
	—	8,068	(2)	1,000.00	(2)	11/5/2023
	—	8,067	(3)	1,000.00	(3)	11/5/2023
John E. Koryl	5,164	—	(1)	450.26	(1)	10/1/2018
	—	4,482	(2)	1,000.00	(2)	11/5/2023
	—	4,483	(3)	1,000.00	(3)	11/5/2023
Joshua G. Schulman	3,407	—	(1)	576.59	(1)	5/25/2019
	—	4,482	(2)	1,000.00	(2)	11/5/2023
	—	4,483	(3)	1,000.00	(3)	11/5/2023

(1) Non-qualified Co-Invest stock options rolled over from Predecessor stock options as a result of the Acquisition with number of options and exercise prices adjusted pursuant to an exchange ratio. The Co-Invest stock options are fully vested and exercisable at any time prior to the expiration dates related to the original grant of the Predecessor stock options. Co-Invest stock options and Predecessor stock options are more fully described in the sections entitled “Co-Invest Stock Options” and “Predecessor stock options.”

(2) Non-qualified stock options designated as time-vested stock options granted on November 5, 2013 at an exercise price of $1,000. Each grant of time-vested stock options consists of options to purchase an equal number of shares of Class A Common Stock and Class B Common Stock. The time-vested stock options expire on the tenth anniversary of the grant date.

(3) Non-qualified stock options designated as performance vested stock options granted on November 5, 2013 at an exercise price of $1,000. The performance stock options vest on the achievement of certain performance hurdles and expire on the tenth anniversary of the grant date. Each grant of performance-vested non-qualified stock options consists of options to purchase an equal number of shares of Class A Common Stock and Class B Common Stock.

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OPTION EXERCISES AND STOCK VESTED

Each exercise of stock options for our named executive officers that occurred during fiscal year 2014 occurred in connection with the Acquisition. As a result, the following table lists the value realized by our named executive officers as a result of the vesting of unvested Predecessor stock options on the effective date of the Acquisition and the settlement and cancellation of all Predecessor stock options (other than the Co-Invest Stock Options) in exchange for an amount equal to the excess of the per share merger consideration over the exercise prices of such stock options.

	Option Awards
Name	Number of Shares Acquired on Exercise (#)(1)	Value Realized on Exercise ($)
Karen W. Katz	12,966	24,808,200
James E. Skinner	7,010	13,417,384
James J. Gold	7,066	13,529,412
John E. Koryl	2,907	4,270,356
Joshua G. Schulman	1,816	2,172,126

(1) Represents the number of shares underlying Predecessor stock options that were settled and cancelled in exchange for an amount equal to the excess of the per share merger consideration over the exercise prices of such stock options in connection with the Acquisition. Any unvested Predecessor stock options accelerated and vested on the effective date of the Acquisition in accordance with their terms.

PENSION BENEFITS

The following table sets forth certain information with respect to retirement payments and benefits under the Pension Plan and the SERP Plan for each of our named executive officers.

Name	Plan Name	Number of Years Credited Service (#)(1)		Present Value of Accumulated Benefit ($)(2)	Payments During Last Fiscal Year ($)
Karen W. Katz	Pension Plan	25	(3)	515,000	—
	SERP Plan	26	(3)	4,329,000	—
James E. Skinner	Pension Plan	7	(4)	198,000	—
	SERP Plan	7	(4)	636,000	—
James J. Gold	Pension Plan	17	(4)	219,000	—
	SERP Plan	17	(4)	622,000	—
John E. Koryl	Pension Plan	—		—	—
	SERP Plan	—		—	—
Joshua G. Schulman	Pension Plan	—		—	—
	SERP Plan	—		—	—

(1) Computed as of August 2, 2014, which is the same pension measurement date used for financial statement reporting purposes with respect to our Consolidated Financial Statements and notes thereto.

(2) For purposes of calculating the amounts in this column, retirement age was assumed to be the normal retirement age of the later of age 65 or the fifth anniversary of the individual’s date of hire, as defined in the Pension Plan. A description of the valuation method and all material assumptions applied in quantifying the present value of accumulated benefit is set forth in Note 10 of the Notes to Consolidated Financial Statements.

(3) Pursuant to the terms of Ms. Katz’s employment agreement, she will be entitled to an additional one year of credit for each full year of service after she has reached the 25-year maximum set forth in the SERP Plan with all service frozen as of December 31, 2010. In addition, if her employment is terminated by us for any reason other than death, “disability,” “cause” or for non-renewal of her employment term, or if she terminates her employment with us for “good reason” or “retirement” and she has not yet reached 65, her SERP Plan benefit will not be reduced solely by reason of her failure to reach 65 as of the termination date. Ms. Katz’s employment agreement also provides that the amount credited to her under the DC SERP shall not be less than the present value of the additional benefits she would have

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accrued under the SERP Plan after December 31, 2010 had the SERP Plan remained in effect through the end of her employment term. The value of Ms. Katz’s benefit with all service is $4,329,000. The value with 25 years of service under the SERP Plan is $4,142,000, therefore, the value of the additional years of service in excess of her actual service is $187,000.

(4) Effective December 31, 2007, benefit accruals for Messrs. Skinner and Gold under the Pension Plan and the SERP Plan were frozen, as further described below.

The Pension Plan is a funded, tax-qualified pension plan. Prior to 2008, most non-union employees over age 21 who had completed one year of service with 1,000 or more hours were eligible to participate in the Pension Plan, which paid benefits upon retirement or termination of employment. Effective as of December 31, 2007, eligibility and benefit accruals under the Pension Plan were frozen for all participants except for those “Rule of 65” employees who elected to continue participating in the Pension Plan. The Pension Plan is a “career-accumulation” plan, under which a participant earns each year a retirement annuity equal to one percent of his or her compensation for the year up to the Social Security wage base and 1.5 percent of his or her compensation for the year in excess of such wage base. “Compensation” for this purpose generally includes salary, bonuses, commissions and overtime but not in excess of the limits imposed upon annual compensation under the Code Section 401(a)(17) (the IRS Limit). The IRS limit for 2014 is $260,000, increased from $255,000 for 2013, and is adjusted annually for cost-of-living increases. Benefits under the Pension Plan become fully vested after five years of service with us. Effective August 1, 2010, benefit accruals were frozen for the remaining “Rule of 65” employees and such participants were given the opportunity to participate in the RSP.

The SERP Plan is an unfunded, non-qualified plan under which benefits are paid from our general assets to supplement Pension Plan benefits and Social Security. Prior to 2008, executive, administrative and professional employees (other than those employed as salespersons) with an annual base salary at least equal to a minimum established by the Company were eligible to participate. Similar to the Pension Plan, effective December 31, 2007, eligibility and benefit accruals under the SERP Plan were frozen for all participants except for those “Rule of 65” employees who elected to continue participating in the Pension Plan. At normal retirement age (the later of age 65 and the fifth anniversary of the participant’s date of hire), an eligible participant with 25 or more years of service is entitled to full benefits in the form of monthly payments under the SERP Plan computed as a straight life annuity, equal to 50 percent of the participant’s average monthly compensation for the highest consecutive 60 months preceding retirement less 60 percent of his or her estimated annual primary Social Security benefit, offset by the benefit accrued by the participant under the Pension Plan. The amount is then adjusted actuarially to determine the actual monthly payments based on the time and form of payment. For this purpose, “compensation” includes salary but does not include bonuses. If the participant has fewer than 25 years of service, the combined benefit is proportionately reduced. Benefits under the SERP Plan become fully vested after five years of service. The SERP Plan is designed to comply with the requirements of Section 409A of the Code. Along with the Pension Plan and the ESP, benefit accruals under the SERP Plan were frozen for the remaining “Rule of 65” employees effective August 1, 2010 and those remaining participants were given the opportunity to participate in the DC SERP.

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NON-QUALIFIED DEFERRED COMPENSATION

The amounts reported in the table below represent deferrals, distributions and Company matching contributions credited pursuant to the KEDC Plan and Company contributions credited pursuant to the DC SERP (the Executive Contributions). As a result of the Acquisition, all amounts then held by participants in the DC SERP and the KEDC were paid out effective October 25, 2013. The aggregate balance at fiscal year-end consists of amounts earned and contributed since October 26, 2013.

Name		Executive Contributions in Last Fiscal Year ($)(1)	Registrant Contributions in Last Fiscal Year ($)	Aggregate Earnings in Last Fiscal Year ($)	Aggregate Withdrawals / Distributions ($)	Aggregate Balance at Last Fiscal Year- End ($)
Karen W. Katz	KEDC	205,548	50,650	18,556	2,379,391	93,705
	DC SERP	—	350,073	11,300	1,241,358	201,068
James E. Skinner	KEDC	70,011	26,292	6,545	806,781	46,096
	DC SERP	—	135,024	6,592	831,528	49,142
James J. Gold	KEDC	—	—	—	—	—
	DC SERP	—	110,330	6,807	835,632	52,210
John E. Koryl	KEDC	—	—	—	—	—
	DC SERP	—	69,702	393	56,149	18,190
Joshua G. Schulman	KEDC	—	—	—	—	—
	DC SERP	—	—	—	—	—

(1) The amounts reported as Executive Contributions in Last Fiscal Year are also included as Salary in the Summary Compensation Table.

The KEDC Plan allows eligible employees to elect to defer up to 15% of base pay and up to 15% of annual performance bonus each year. Eligible employees generally are those employees who have completed one year of service with us, have annual base pay of at least $300,000 and are otherwise designated as eligible by our employee benefits committee; provided, however, that effective January 1, 2008, only those persons who were eligible for the KEDC as of January 1, 2007 are permitted to continue participating in the KEDC. No new participants will be added. We also credit a matching contribution each pay period equal to (A) the sum of 1) 100% of the sum of the employee’s KEDC Plan deferrals and the maximum RSP deferral that the employee could have made under such plan for such pay period, to the extent that such sum does not exceed 2% of the employee’s compensation for such pay period, and 2) 25% of the sum of the employee’s KEDC Plan deferrals and the maximum RSP, as applicable, deferral that the employee could have made under such plan for such pay period, to the extent that such sum does not exceed the next 4% of the employee’s compensation for such pay period, minus (B) the maximum possible match the employee could have received under the RSP, as applicable, for such pay period. Such amounts are credited to a bookkeeping account for the employee and are fully vested with respect to matching contributions made for calendar years prior to 2008. Amounts attributable to matching contributions, plus interest thereon, for calendar years on and after 2008 are subject to forfeiture in the event the employee is terminated for cause. Accounts are credited monthly with interest at an annual rate equal to the prime interest rate published in The Wall Street Journal on the last business day of the preceding calendar quarter. Amounts credited to an employee’s account become payable to the employee upon separation from service, death, unforeseeable emergency, or change of control of us. In the event of separation of service, payment is made in a lump sum in the calendar quarter following the calendar quarter in which the separation occurs although if the employee is eligible for retirement upon such separation, payment may be deferred until the following year or the nine subsequent years, and may be made in a lump sum or in installments over a period of up to ten years, depending upon the distribution form elected by the employee. There is no separate funding for the amounts payable under the KEDC Plan, rather we make payment from its general assets.

The DC SERP is an unfunded, non-qualified deferred compensation plan under which benefits are paid from our general assets to provide eligible employees with the opportunity to receive employer contributions on the portion of their eligible compensation that exceeds the IRS Limit. Eligible employees generally are those employees who have completed one year of service with the Company, who have annual base pay of at least 80% of the IRS Limit (or were eligible to participate in the SERP Plan as of December 31, 2007 and ceased to be eligible to participate in the SERP Plan as of January 1, 2008), and who are otherwise designated as eligible by our employee benefits committee. We will make transitional and non-transitional credits to the accounts of eligible participants each pay period. Transitional credits apply only to participants who were eligible to participate in the SERP Plan as of December 31, 2007 but ceased participating in the SERP Plan as of that date and became a

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participant in the DC SERP on January 1, 2008. The amount of a transitional credit is the product of a participant’s eligible compensation in excess of the IRS Limit and an applicable percentage ranging from 0% to 6% depending upon the age of the participant. Non-transitional credits apply to all eligible participants. The amount of a non-transitional credit is the product of a participant’s eligible compensation in excess of the IRS Limit and 10.5%. All transitional and non-transitional credits are credited to a bookkeeping account and vest upon the earlier of 1) an eligible employee’s attainment of five years of service, 2) an eligible employee’s attainment of age 65, 3) an eligible employee’s death, 4) an eligible employee’s disability, and 5) a change of control (as defined in the DC SERP) while in our employ. Notwithstanding the preceding, amounts credited to an account are subject to forfeiture in the event the employee is terminated for cause. Accounts are credited monthly with interest at an annual rate equal to the prime interest rate published in The Wall Street Journal on the last business day of the preceding calendar quarter. Vested amounts credited to an employee’s account become payable in the form of five annual installments beginning upon the later of the employee’s separation from service and age 55, or such later age as the employee may elect. Upon the employee’s death or “disability” or upon a change of control of us, vested amounts credited to an employee’s account will be paid in a single lump sum.

Employment and Other Compensation Agreements

We have entered into employment agreements with Karen W. Katz, James E. Skinner, and James J. Gold. Each of Messrs. Koryl and Schulman is a party to a confidentiality, non-competition and termination benefits agreement, discussed below.

Employment Agreement with Ms. Katz

In connection with the Acquisition, we entered into a new employment agreement with Karen Katz which became effective on October 25, 2013 and will extend until the fourth anniversary thereof and thereafter be subject to automatic one-year renewals of the term if neither party submits a notice of termination at least three months prior to the end of the then-current term. The agreement may be terminated by either party on three months’ notice, subject to severance obligations in the event of termination under certain circumstances described herein. Pursuant to the agreement, her base salary will not be less than $1,070,000 unless the reduction is pursuant to action taken by our reducing the annual salaries of all senior executives by substantially equal amounts or percentages.

Ms. Katz’s agreement also provides that she will participate in our annual incentive bonus plan. The actual amounts will be determined according to the terms of the annual incentive bonus program and will be payable at the discretion of the Compensation Committee. However, Ms. Katz’s agreement provides for a minimum bonus of 50% of her base salary if threshold performance targets are achieved. If applicable goals are met at target level she will be entitled to 125% of base salary while her maximum bonus will be 250% of base salary contingent on the applicable goals being met.

Additionally, Ms. Katz is entitled to receive reimbursement of up to $5,000 for financial and tax planning advice as well as a lump sum cash payment during each year of the employment term in the amount of $15,000 in lieu of any reimbursement of hotel or other lodging expenses incurred in connection with business trips to New York, plus an amount necessary to gross-up such payment for income tax purposes and also provides for reimbursement of liability for any New York state and city taxes, on an after-tax basis.

The agreement provides that Ms. Katz shall be entitled to an additional one year of credit in the SERP Plan for each full year of service. In addition, if 1) during the term, her employment is terminated by the Company for any reason other than death, “disability,” or “cause” (as defined in the employment agreement), 2) during the term, she terminates her employment for “good reason” or “retirement” (as defined in the employment agreement), or 3) her employment terminates upon expiration of the term following the provision by us of a notice of non-renewal, and, in any such case, on the date of such termination she has not yet reached age 65, her SERP Plan benefit shall not be reduced according to the terms of the SERP Plan solely by reason of her failure to reach age 65 as of the termination date. During the employment term, she will accrue benefits under DC SERP provided that the amounts credited to her account as of the last day of her employment term shall not be less than the present value of the additional benefits she would have accrued under the SERP Plan had it remained in effect.

If we terminate Ms. Katz’s employment without “cause” or if she resigns for “good reason” or due to “retirement” or following her receipt of a notice of non-renewal from us relating to the employment term, she will be entitled to receive, subject to her execution and non-revocation of a waiver and release agreement, 1) an amount of annual incentive pay equal to a prorated portion of her target bonus amount for the year in which the employment termination date occurs, and 2) a lump sum equal to (A) 18 times (or 12 times in the case of non-renewal by us) the monthly COBRA premium applicable to Ms. Katz, plus (B) six times the monthly premium if Ms. Katz elected coverage as a retiree under our group medical plan for retired employees in effect under our group medical plan, other than in the case of non-renewal by the us, plus (C) two times (or one

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times in the case of non-renewal by us) the sum of her base salary and target bonus, at the level in effect as of the employment termination date (collectively the “Severance Payment”). Ms. Katz is also entitled to continuation of certain benefits for a two-year period following a termination of her employment for any reason as set forth more fully in her employment agreement.

If Ms. Katz retires from the Company, she will be entitled to receive, subject to her execution of a waiver and release agreement, a lump sum equal to one times the sum of her base salary and target bonus, at the level in effect as of the employment termination date (the “Retirement Payment”).

Ms. Katz will be required to repay the Severance Payment or Retirement Payment, as applicable, if she violates certain restrictive covenants in her agreement or if she is found to have engaged in certain acts of wrongdoing, all as further described in the agreement.

If Ms. Katz’s employment terminates before the end of the term due to her death or “disability” we will pay her or her estate, as applicable, 1) any unpaid salary through the date of termination and any bonus payable for the preceding fiscal year that has otherwise not already been paid, 2) any accrued but unused vacation days, 3) any reimbursement for business travel and other expenses to which she is entitled, and 4) an amount of annual incentive pay equal to a prorated portion of her target bonus amount for the year in which the employment termination date occurs.

Ms. Katz’s agreement also contains obligations on her part regarding non-competition and non-solicitation of employees following the termination of her employment for any reason, confidential information and non-disparagement of us and our business. The non-competition agreement generally prohibits Ms. Katz during employment and for a period of two years after termination from becoming a director, officer, employee or consultant for any competing business that owns or operates a luxury specialty retail store. The agreement also requires that she disclose and assign to us any trademarks or inventions developed by her which relate to her employment by us or to our business.

Employment Agreements with Mr. Skinner and Mr. Gold

In connection with the Acquisition, we entered into new employment agreements with James E. Skinner, Executive Vice President, Chief Operating Officer, and Chief Financial Officer, and James J. Gold, President, Specialty Retail, each of which became effective on October 25, 2013. Each of the employment agreements is for a four-year term with automatic extensions of one year unless either party provides three months’ written notice of non-renewal. Mr. Skinner’s annual base salary will not be less than $720,000 and Mr. Gold’s annual base salary will not be less than $770,000, in each case, unless the reduction is pursuant to a reduction of the annual salaries of all senior executives by substantially equal amounts or percentages. Each executive will participate in the Company’s annual incentive bonus program with a target bonus of 75% of his base salary and a maximum of 150% of his base salary. The actual incentive bonus will be determined according to the terms of the annual incentive bonus program and will be payable based on the achievement of performance objectives, as determined at the discretion of the board of directors of the Company. Additionally, each executive is entitled to receive reimbursement of up to $5,000 for financial and tax planning advice.

If we terminate either executive’s employment without “cause” or if either executive resigns for “good reason” or following the non-renewal of his employment by us, such terminated executive will be entitled to receive, subject to his execution and non-revocation of a waiver and release agreement, (i) an amount of annual incentive pay equal to a prorated portion of his target bonus amount for the year in which the employment termination date occurs, and (ii) a lump sum equal to (A) 18 times (or 12 times in the case of non-renewal by us) the monthly COBRA premium applicable to the executive, and (B) 1.5 times (or one times in the case of non-renewal by us) the sum of his base salary and target bonus, at the level in effect as of the employment termination date.

The agreements also contain obligations regarding non-competition and non-solicitation of employees for 18 months following the termination of the executive’s employment for any reason, confidential information and non-disparagement of us and our business. The agreements also require that each executive disclose and assign to us any trademarks or inventions developed by the executive that relate to his employment by us or to our business.

If either executive’s employment terminates before the end of the term due to his death or “disability,” we will pay him or his estate, as applicable, accrued obligations and an amount of annual incentive pay equal to a prorated portion of his target bonus amount for the year in which the employment termination date occurs.

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Confidentiality, Non-Competition and Termination Benefits Agreements

Messrs. Koryl and Schulman are each a party to a confidentiality, non-competition and termination benefits agreement that will provide for severance benefits if the employment of the affected individual is terminated by the Company other than in the event of death, “disability” or termination for “cause.” These agreements provide for a severance payment equal to one and one-half annual base salary payable over an eighteen-month period, and reimbursement for COBRA premiums for the same period. Each confidentiality, non-competition and termination benefits agreement contains restrictive covenants as a condition to receipt of any payments payable thereunder.

Potential Payments Upon Termination or Change-in-Control

The tables below show certain potential payments that would have been made to the other named executive officers if his or her employment had terminated on August 2, 2014 under various scenarios, including a change of control. Because the payments to be made to a named executive officer depend on several factors, the actual amounts to be paid out upon a named executive officer’s termination of employment can only be determined at the time of an executive’s separation from us.

Karen W. Katz

Executive Benefits and Payments Upon Separation	Retirement ($)(1)		Termination due to death ($)(2)		Termination due to disability ($)(3)		Termination without cause or for good reason ($)(4)		Change in Control ($)(5)
Compensation:
Severance	$	—	$	—	$	—	$	4,815,000	$	—
Bonus	—		1,337,500		1,337,500		1,337,500		—
Benefits & Perquisites:
Retirement Plan Enhancement	187,000		—		—		—		—
DC SERP	201,068		201,068		201,068		201,068		201,068
Deferred Compensation Plan	93,705		93,705		93,705		93,705		93,705
Long-Term Disability	—		—		240,000		—		—
Health and Welfare Benefits	—		—		—		59,135		—
Life Insurance Benefits	—		1,000,000		—		6,838		—
Total	$	481,773	$	2,632,273	$	1,872,273	$	6,513,246	$	294,773

(1) Represents the SERP Plan enhancement provided in Ms. Katz’s employment agreement and a lump sum payout under the deferred compensation plans. See “Non-qualified Deferred Compensation” for a more detailed discussion of the deferred compensation plans.

(2) Represents Ms. Katz’s target bonus, a lump sum payout under the deferred compensation plan and defined contribution plan, and a lump sum basic life insurance benefit payment of $1,000,000 payable by the Company’s life insurance provider to Ms. Katz’s beneficiaries upon her death.

(3) Represents Ms. Katz’s target bonus, lump sum payout under the deferred compensation plan and defined contribution plan, and long-term disability payments of $20,000 per month for twelve months payable from the Company’s long-term disability insurance provider.

(4) Represents a lump sum payment of two times target bonus and two times base salary, one times target bonus and a lump sum payout under the deferred compensation plan and defined contribution plan. The amount included for health and welfare benefits represents a lump-sum payment equal to the value of 18 months of COBRA premiums and six months of retiree medical premiums. Calculations were based on COBRA rates currently in effect. The amount included for life insurance represents coverage for a period of two years at the same benefit level in effect at the time of termination. See “Employment and Other Compensation Agreements” in this section.

(5) Represents a lump sum payout under the deferred compensation plan and defined contribution plan.

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James E. Skinner

Executive Benefits and Payments Upon Separation	Retirement ($)(1)		Termination due to death ($)(2)		Termination due to disability ($)(3)		Termination without cause or for good reason ($)(4)		Change in Control ($)(5)
Compensation:
Severance	$	—	$	—	$	—	$	2,488,750	$	—
Bonus	—		562,500		562,500		562,500		—
Benefits & Perquisites:
DC SERP	49,142		49,142		49,142		49,142		49,142
Deferred Compensation Plan	46,096		46,096		46,096		46,096		46,096
Long-Term Disability	—		—		240,000		—		—
Health and Welfare Benefits	—		—		—		46,013		—
Life Insurance Benefits	—		1,000,000		—		—		—
Total	$	95,238	$	1,657,738	$	897,738	$	3,192,501	$	95,238

(1) Represents a lump sum payout under the deferred compensation plans. See “Non-qualified Deferred Compensation” for a more detailed discussion.

(2) Represents Mr. Skinner’s target bonus, a lump sum payout under the deferred compensation plan and defined contribution plan, and a lump sum basic life insurance benefit payment of $1,000,000 payable by the Company’s life insurance provider to Mr. Skinner’s beneficiaries upon his death.

(3) Represents Mr. Skinner’s target bonus, lump sum payout under the deferred compensation plan and defined contribution plan, and long-term disability payments of $20,000 per month for twelve months payable from the Company’s long-term disability insurance provider.

(4) Represents 1.5 times Mr. Skinner’s base salary payable over an eighteenth month period, a lump sum payment of target bonus, 1.5 times target bonus, the portion of the salary payment that is exempt from 409A of the Code, a lump sum payout under the deferred compensation and defined contribution plans. The amount included for health and welfare benefits represents eighteen months of COBRA premiums. Calculations were based on COBRA rates currently in effect. See “Employment and Other Compensation Agreements” in this section.

(5) Represents a lump sum payout under the deferred compensation plan and defined contribution plan.

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James J. Gold

Executive Benefits and Payments Upon Separation	Retirement ($)(1)		Termination due to death ($)(2)		Termination due to disability ($)(3)		Termination without cause or for good reason ($)(4)		Change in Control ($)(5)
Compensation:
Severance	$	—	$	—	$	—	$	2,620,000	$	—
Bonus	—		600,000		600,000		600,000		—
Benefits & Perquisites:
DC SERP	52,210		52,210		52,210		52,210		52,210
Deferred Compensation Plan	—		—		—		—		—
Long-Term Disability	—		—		240,000		—		—
Health and Welfare Benefits	—		—		—		58,538		—
Life Insurance Benefits	—		1,000,000		—		—		—
Total	$	52,210	$	1,652,210	$	892,210	$	3,330,748	$	52,210

(1) Represents a lump sum payout under the deferred compensation plan. See “Non-qualified Deferred Compensation” for a more detailed discussion.

(2) Represents Mr. Gold’s target bonus, a lump sum payout under the defined contribution plan and a lump sum basic life insurance benefit payment of $1,000,000 payable by the Company’s life insurance provider to Mr. Gold’s beneficiaries upon his death.

(3) Represents Mr. Gold’s target bonus, lump sum payout under the defined contribution plan, and long-term disability payments of $20,000 per month for twelve months payable from the Company’s long-term disability insurance provider.

(4) Represents 1.5 times Mr. Gold’s base salary payable over an eighteen month period, a lump sum payment of target bonus, 1.5 times target bonus, the portion of the salary payment that is exempt from 409A of the Code, a lump sum payout under the defined contribution plan. The amount included for health and welfare benefits represents eighteen months of COBRA premiums. Calculations were based on COBRA rates currently in effect. See “Employment and Other Compensation Agreements” in this section.

(5) Represents a lump sum payout under the defined contribution plan.

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Executive Benefits and Payments Upon Separation	Retirement ($)(1)		Termination due to death ($)(1)(2)		Termination due to disability ($)(1)(3)		Termination without cause or for good reason ($)(1)(4)		Change in Control ($)(1)(5)
John E. Koryl
Compensation:
Severance	$	—	$	—	$	—	$	825,000	$	—
Benefits & Perquisites:
DC SERP	18,190		18,190		18,190		18,190		18,190
Long-Term Disability	—		—		240,000		—		—
Health and Welfare Benefits	—		—		—		58,538		—
Life Insurance Benefits	—		1,000,000		—		—		—
Total	$	18,190	$	1,018,190	$	258,190	$	901,728	$	18,190
Joshua G. Schulman
Compensation:
Severance	$	—	$	—	$	—	$	765,000	$	—
Benefits & Perquisites:
Long-Term Disability	—		—		240,000		—		—
Health and Welfare Benefits	—		—		—		32,882		—
Life Insurance Benefits	—		1,000,000		—		—		—
Total	$	—	$	1,000,000	$	240,000	$	797,882	$	—

(1) Represents a lump sum payout under the DC SERP. See “Non-qualified Deferred Compensation” for a detailed discussion.

(2) Represents a lump sum basic life insurance benefit payment of $1,000,000 payable by the Company’s life insurance provider to each of Messrs. Koryl and Schulman upon their death.

(3) Represents long-term disability payments of $20,000 per month for twelve months payable from the Company’s long-term disability insurance provider.

(4) Represents a lump sum payment of 1.5 times base salary for each of Messrs. Koryl and Schulman. The amount included for health and welfare benefits represents a continuation of COBRA benefits for a period of eighteen months. Calculations were based on COBRA rates currently in effect. See “Employment and Other Compensation Agreements” in this section.

(5) Represents a lump sum payout to Mr. Koryl under the DC SERP.

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DIRECTOR COMPENSATION

The Parent Board sets the compensation for each director who is not an officer of or otherwise employed by us (a “non-executive director”). Non-executive directors who are employed by Ares or CPPIB do not receive compensation for their services as directors. Ms. Aufreiter and Messrs. Axelrod, Bourguignon, Brotman and Gundotra are not employed by Ares or CPPIB and are the only directors who earned compensation for services as a director for fiscal year 2014. Pursuant to board service agreements entered into between Parent and each of the non-executive officers, each non-executive director will receive an annual fee of $50,000 for their service as a director on the Parent board. Such fee will be prorated for the actual number of days served in any quarter and is paid in arrears following the end of each quarter. The non-executive directors will also be reimbursed for any out-of-pocket expenses. Actual fees earned in fiscal year 2014 are set forth in the Summary Compensation table below. Mr. Axelrod became a director on the effective date of the Acquisition. Ms. Aufreiter was elected to the Parent Board on January 29, 2014, and Messrs. Bourguignon, Brotman and Gundotra were elected on April 30, 2014. Also, each non-executive director received 393 time-vested stock options and 393 performance-vested stock options to purchase Class A Common Stock and Class B Common Stock at an aggregate exercise price of $1,000 per share of Class A Common Stock and Class B Common Stock. The stock options were granted under Parent’s Management Equity Incentive Plan on the same terms and conditions as the named executive officers.

Director Summary Compensation Table

Name	Fees Earned or Paid in Cash ($)	Option Awards ($)(1)	Total ($)
Nora Aufreiter	25,549	320,248	345,797
Norman Axelrod	38,736	320,248	358,984
Philippe Bourguignon	13,049	320,248	333,297
Adam Brotman	13,049	320,248	333,297
Vic Gundotra	13,049	320,248	333,297

(1) The amounts reflect the aggregate grant date fair value for the awards computed in accordance with ASC Topic 718. Assumptions used in calculating the fiscal year 2014 amounts are described under the caption Stock-Based Compensation in Note 12 of the Notes to Consolidated Financial Statements. These amounts reflect the grant date fair value and do not represent the actual value that may be realized by the named executive officers.

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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information regarding equity compensation plans of Parent approved by stockholders and equity compensation plans of Parent not approved by stockholders as of August 2, 2014.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by stockholders	213,941	(1)	$	858.26	27,649	(1)
Equity compensation plans not approved by stockholders	—		—		—
Total	213,941		$	858.26	27,649

(1) This number represents shares of Class A Common Stock and Class B Common Stock issuable under the Management Incentive Plan that was approved by a majority of the shares of common stock of Parent on October 25, 2013 and the NM Mariposa Holdings, Inc. Vice President Long Term Incentive Plan (the VP Long Term Incentive Plan) that was approved by a majority of the shares of common stock of Parent on February 25, 2014. The Management Incentive Plan became effective on October 25, 2013 and will expire on October 25, 2023 and the VP Long Term Incentive Plan became effective on February 25, 2014 and will expire on February 25, 2024.

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of September 19, 2014, certain information relating to the beneficial ownership of the common stock of Parent, the sole member of Holdings, which in turn is the sole member of the Company, by (i) each person or group known by us to own beneficially more than 5% of the outstanding shares of Class A Common Stock and Class B Common Stock, (ii) each of our directors, (iii) each of our named executive officers and (iv) all of our executive officers and directors as a group. Shares issuable upon the exercise of Parent’s stock options on September 19, 2014 or within 60 days thereafter are considered outstanding and to be beneficially owned by the person holding such options for the purpose of computing such person’s percentage beneficial ownership, but are not deemed outstanding for the purposes of computing the percentage of beneficial ownership of any other person. The percentages of shares outstanding provided in the table below are based on 1,557,350 shares of Class A Common Stock and 1,557,350 shares of Class B Common Stock outstanding as of September 19, 2014.

Name of Beneficial Owner (1)(2)	Number of Shares of Class A Common Stock Beneficially Owned	Percent of Class A Common Stock Beneficially Owned		Number of Shares of Class B Common Stock Beneficially Owned		Percent of Class B Common Stock Beneficially Owned
Affiliates of Ares Management, L.P. (3)	907,350	58.26	%	1,130,400	(4)	72.58	%
CPP Investment Board (USRE) Inc. (5)	907,350	58.26	%	684,300		43.94	%
Norman Axelrod (6)	—	—		—		—
Nora Aufreiter (6)	—	—		—		—
Phillip Bourguignon (6)	—	—		—		—
David Kaplan (7)	—	—		—		—
Adam Stein (7)	—	—		—		—
Scott Nishi (8)	—	—		—		—
Shane Feeney (8)	—	—		—		—
Adam Brotman (9)	—	—		—		—
Vic Gundotra	—	—		—		—
Karen W. Katz (10)	24,485	1.57	%	24,485		1.57	%
James E. Skinner (11)	9,737	0.63	%	9,737		0.63	%
James J. Gold (12)	10,638	0.68	%	10,638		0.68	%
Joshua G. Schulman (13)	4,303	0.28	%	4,303		0.28	%
John E. Koryl (14)	6,060	0.39	%	6,060		0.39	%
All current executive officers and directors as a group (21 persons) (6)	—	—		—		—

(1) Except as otherwise noted, the address of each beneficial owner is c/o Neiman Marcus, 1618 Main Street, Dallas, Texas 75201.

(2) Pursuant to the terms of the Stockholders Agreement, each of our Sponsors has the right to designate three members of the Parent Board and to jointly designate two independent members of the Parent Board, in each case for so long as they or their respective affiliates own at least 25% of the then outstanding shares of Class A Common Stock. Each stockholder that is a party to the Stockholders Agreement has agreed to vote their shares of common stock in favor of such designees. The Stockholders Agreement also contains significant transfer restrictions and certain rights of first offer, tag-along rights, and drag-along rights. As a result, each of our Sponsors may be deemed to be the beneficial owner of the Class A Common Stock and Class B Common Stock directly owned by the other parties to the Stockholders Agreement, including the other Sponsor. While our Sponsors have shared beneficial ownership of the shares of Parent’s common stock directly owned by the other parties to the Stockholders Agreement, each of our Sponsors expressly disclaims beneficial ownership of the shares of Class A Common Stock and Class B Common Stock directly held by the other Sponsor, and, as a result, such shares have not been included in the table above for purposes of calculating the number of shares beneficially owned by affiliates of Ares Management, L.P. (Ares Management) or CPP Investment Board (USRE) Inc.

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For additional detail regarding the Stockholders Agreement, see “Certain Relationships and Related Transactions, and Director Independence-Stockholders Agreement.”

(3) Represents shares of Parent’s common stock held directly by Ares Corporate Opportunities Fund III, L.P. (ACOF III), Ares Corporate Opportunities Fund IV, L.P (ACOF IV) and ACOF Mariposa Holdings LLC (ACOF Mariposa). The manager of ACOF III is ACOF Operating Manager III, LLC (ACOF Operating Manager III), and the sole member of ACOF Operating Manager III is Ares Management LLC (Ares Management LLC). The sole member of ACOF Mariposa is ACOF IV, the manager of ACOF IV is ACOF Operating Manager IV, LLC (ACOF Operating Manager IV), and the sole member of ACOF Operating Manager IV is Ares Management LLC.

The sole member of Ares Management LLC is Ares Management Holdings L.P. (Ares Management Holdings) and the general partner of Ares Management Holdings is Ares Holdings Inc. (Ares Holdings), whose sole stockholder is Ares Management. The general partner of Ares Management is Ares Management GP LLC (Ares Management GP) and the sole member of Ares Management GP is Ares Partners Holdco LLC (Ares Partners and, together with ACOF III, ACOF IV, ACOF Mariposa, ACOF Operating Manager III, ACOF Operating Manager IV, Ares Management LLC, Ares Management Holdings, Ares Holdings, Ares Management, and Ares Management GP, the Ares Entities). Ares Partners is managed by a board of managers, which is composed of Michael Arougheti, David Kaplan, John Kissick, Antony Ressler and Bennett Rosenthal. Decisions by Ares Partners’ board of managers generally are made by a majority of the members, which majority, subject to certain conditions, must include Antony Ressler. Each of the Ares Entities (other than each of ACOF III, ACOF IV and ACOF Mariposa with respect to the shares held directly by it) and the members of Ares Partners’ board of managers and the other directors, officers, partners, stockholders, members and managers of the Ares Entities expressly disclaims beneficial ownership of the shares of Parent’s common stock. The address of each Ares Entity is 2000 Avenue of the Stars, 12th Floor, Los Angeles, California 90067.

(4) 223,050 of these shares of Class B Common Stock are subject to (i) a call right that allows CPP Investment Board (USRE) Inc. to repurchase such shares at any time for de minimis consideration and (ii) a proxy set forth in the Stockholders Agreement which may be exercised if ACOF Mariposa fails to take certain actions requested by CPP Investment Board (USRE) Inc. to elect or remove the directors of Parent or certain other matters.

(5) CPP Investment Board (USRE) Inc. is a wholly owned subsidiary of Canada Pension Plan Investment Board (CPPIB). CPPIB is managed by a board of directors. Because the board of directors acts by consensus/majority approval, none of the directors of the board of directors has sole voting or dispositive power with respect to the shares of common stock of Parent owned by CPP Investment Board (USRE) Inc. The address of each of CPP Investment Board (USRE) Inc. and CPPIB is c/o Canada Pension Plan Investment Board, One Queen Street East, Suite 2500, Toronto, ON, M5C 2W5.

(6) Excludes shares of Class A Common Stock and Class B Common Stock in which such person(s) have a pecuniary interest that are deemed to be beneficially owned by our Sponsors by virtue of the Stockholders Agreement.

(7) The address of Messrs. Kaplan and Stein is c/o Ares Management LLC, 2000 Avenue of the Stars, 12th Floor, Los Angeles, California 90067. Mr. Kaplan is a Senior Partner of Ares Management GP and a Senior Partner of Ares Management, Co-Head of its Private Equity Group and a member of its board of managers. Mr. Stein is a Senior Partner in the Private Equity Group of Ares Management. Messrs. Kaplan and Stein each expressly disclaim beneficial ownership of the shares of Parent’s common stock owned by the Ares Entities.

(8) The address of Messrs. Feeney and Nishi is c/o Canada Pension Plan Investment Board, One Queen Street East, Suite 2600, Toronto, ON, M5C 2W5. Mr. Feeney is Vice President and Head of Direct Private Equity at CPPIB Equity. Mr. Nishi is a Principal at CPPIB Equity. Messrs. Feeney and Nishi each expressly disclaim beneficial ownership of the shares of Parent’s common stock owned by CPP Investment Board (USRE) Inc.

(9) Mr. Brotman’s address is c/o of Starbucks, 2401 Utah Avenue S, Seattle, Washington 98134.

(10) Consists of 24,485 shares of Class A Common Stock and Class B Common Stock issuable to Ms. Katz upon the exercise of options which are currently exercisable or which will become exercisable within 60 days of September 19, 2014.

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(11) Consists of 9,737 shares of Class A Common Stock and Class B Common Stock issuable to Mr. Skinner upon the exercise of options which are currently exercisable or which will become exercisable within 60 days of September 19, 2014.

(12) Consists of 10,638 shares of Class A Common Stock and Class B Common Stock issuable to Mr. Gold upon the exercise of options which are currently exercisable or which will become exercisable within 60 days of September 19, 2014.

(13) Consists of 4,303 shares of Class A Common Stock and Class B Common Stock issuable to Mr. Schulman upon the exercise of options which are currently exercisable or which will become exercisable within 60 days of September 19, 2014.

(14) Consists of 6,060 shares of Class A Common Stock and Class B Common Stock issuable to Mr. Koryl upon the exercise of options which are currently exercisable or which will become exercisable within 60 days of September 19, 2014.

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ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Stockholders Agreement

Upon completion of the Acquisition, Parent entered into the Stockholders Agreement. Pursuant to the terms of the Stockholders Agreement, each of our Sponsors has the right to designate three members of the Parent Board and to jointly designate two independent members of the Parent Board, in each case for so long as they or their respective affiliates own at least 25% of the then outstanding shares of Class A Common Stock. The Stockholders Agreement also provides for the election of the current chief executive officer of Parent to the Parent Board and, to the extent permitted by applicable laws and regulations and subject to certain exceptions, for equal representation on the boards of directors of our subsidiaries with respect to directors designated by our Sponsors and the appointment of at least one of the directors designated by each Sponsor to each committee of the Parent Board.

In addition, certain significant corporate actions require either (i) the approval of a majority of directors on the Parent Board, including at least one director designated by each of our Sponsors or (ii) the approval of our Sponsors, in each case subject to the requirement that the applicable Sponsor and its affiliates own at least 25% of the then outstanding shares of Class A Common Stock. These actions include the incurrence of additional indebtedness over $10 million in the aggregate outstanding at any time (subject to certain exceptions), the issuance or sale of any of our capital stock over $25 million in the aggregate (subject to certain exceptions), the sale, transfer or acquisition of any assets with a value of over $10 million outside the ordinary course of business, the declaration or payment of dividends (subject to certain exceptions), entering into any merger, reorganization or recapitalization (subject to certain exceptions), amendments to Parent’s charter or bylaws, approval of our annual budget and other similar actions.

The Stockholders Agreement also contains significant transfer restrictions and certain rights of first offer, tag-along rights, and drag-along rights. In addition, the Stockholders Agreement contains registration rights that, among other things, require Parent to register common stock held by the stockholders who are parties to the Stockholders Agreement if Parent registers for sale, either for its own account or for the account of others, shares of its common stock, subject to certain exceptions.

Under the Stockholders Agreement, certain affiliate transactions, including certain affiliate transactions between Parent, on the one hand, and our Sponsors or any of their respective affiliates, on the other hand, require either the approval of (i) a majority of disinterested directors or (ii) the holders of a majority of the shares of Class A Common Stock held by certain institutional stockholders who are parties to the Stockholders Agreement.

Management Services Agreements

Upon completion of the Acquisition, NMG and Parent entered into management services agreements with affiliates of our Sponsors (the Management Services Agreements). Under each of the Management Services Agreements, affiliates of our Sponsors provide NMG and Parent with certain management and financial services. In exchange for such services, NMG and Parent have agreed to reimburse affiliates of our Sponsors for certain expenses and provide customary indemnification. Upon completion of the Acquisition, NMG and Parent reimbursed affiliates of our Sponsors for their expenses incurred in connection with the Acquisition in an aggregate amount of $17.4 million in fiscal year 2014.

Former Sponsors’ Management Services Agreement

In connection with our acquisition of NMG on October 6, 2005 (the Prior Acquisition), we entered into a management services agreement with affiliates of our Former Sponsors (the Former Sponsors’ Management Services Agreement). Under the Former Sponsors’ Management Services Agreement, affiliates of[our Former Sponsors agreed to provide us with consulting and management advisory services in exchange for an aggregate annual management fee equal to the lesser of (i) 0.25% of consolidated annual revenue and (ii) $10 million. The Former Sponsors’ Management Services Agreement also included customary exculpation and indemnification provisions in favor of our Former Sponsors and their affiliates. Pursuant to the terms of the Former Sponsors’ Management Services Agreement, we paid a one-time success fee to our Former Sponsors of $48.6 million upon completion of the Acquisition and the Former Sponsors’ Management Services Agreement automatically terminated. Management fees to the Former Sponsors in fiscal year 2014 were $2.8 million.

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Parent Subscription Agreement

In April 2014, Parent entered into a subscription agreement with Nora Aufreiter, who is a member of the Parent Board. Pursuant to the terms of this subscription agreement, Ms. Aufreiter purchased 750 shares of Class A Common Stock and 750 shares of Class B Common Stock for an aggregate purchase price of $750,000.

Director Independence

Though not formally considered by the Parent Board because we are not a listed issuer, we have evaluated the independence of the members of the Parent Board using the independence standards of the New York Stock Exchange. We believe that Ms. Aufreiter and Messrs. Axelrod, Bourguignon, Kaplan, Stein, Nishi, Feeney, Brotman and Gundotra are independent directors within the meaning of the listing standards of the New York Stock Exchange.

Certain Charter and By-Laws Provisions

Parent’s Certificate of Incorporation and Amended and Restated By-Laws contain provisions limiting our directors’ obligations in respect of corporate opportunities.

Review, Approval or Ratification of Transactions with Related Persons

Although we have not adopted formal procedures for the review, approval or ratification of transactions with related persons, the Parent Board reviews potential transactions with those parties we have identified as related parties prior to the consummation of the transaction, and we adhere to the general policy that such transactions should only be entered into if they are approved by the Parent Board, in accordance with applicable law, and in accordance with the restrictions on affiliate transactions in the Stockholders Agreement.

ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES

The Audit Committee pre-approves the use of audit and audit-related services following approval of the independent registered public accounting firm’s audit plan. All services detailed in the audit plan are considered pre-approved. If, during the course of the audit, the independent registered public accounting firm expects fees to exceed the approved fee estimate, those fees must be approved in advance by the Audit Committee.

Principal Accounting Fees and Services

Audit Fees.  The aggregate fees billed for the audits of the Company’s annual financial statements for the fiscal years ended August 2, 2014 and August 3, 2013 and for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q were $2,321,000 and $1,685,000, respectively.

Audit-Related Fees.  The aggregate fees billed for audit-related services for the fiscal years ended August 2, 2014 and August 3, 2013 were $265,000 and $264,000, respectively. These fees related to accounting research and consultation services.

Tax Fees.  The aggregate fees billed for tax services for the fiscal years ended August 2, 2014 and August 3, 2013 were $874,000 and $168,000, respectively. These fees are related to tax compliance and planning.

All Other Fees.  The aggregate fees billed for all other services not included above for the fiscal years ended August 2, 2014 and August 3, 2013 totaled approximately $404,000 and $46,000, respectively.  These fees primarily related to permitted advisory services.

The Audit Committee has considered and concluded that the provision of permissible non-audit services is compatible with maintaining our independent registered public accounting firm’s independence.

89

PART IV

ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

	Page Number
Reports of Independent Registered Public Accounting Firm	F-3
Schedule II—Valuation and Qualifying Accounts and Reserves	95

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

3.Exhibits

Note Regarding Corporate Names

Exhibit titles and references to previous filings below refer to entities by their historical names at the time the documents filed in the respective exhibits were created or filed, as applicable.  In some cases, entities’ names have subsequently changed:

• Newton Acquisition, Inc. was renamed Neiman Marcus, Inc. in February 2006;

• Newton Acquisition Merger Sub, Inc. merged with and into The Neiman Marcus Group, Inc. in October 2005, with The Neiman Marcus Group, Inc. continuing as the surviving corporation;

• Neiman Marcus, Inc. was renamed Neiman Marcus Group LTD Inc. on August 28, 2013;

• Neiman Marcus Group LTD Inc. was renamed Neiman Marcus Group LTD LLC on October 28, 2013; and

• The Neiman Marcus Group, Inc. was renamed The Neiman Marcus Group LLC on October 28, 2013. 

Exhibit		Method of Filing
2.1	Agreement and Plan of Merger, dated as of September 9, 2013, among Neiman Marcus Group LTD Inc., NM Mariposa Holdings, Inc., and Mariposa Merger Sub LLC.	Incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 11, 2013.
2.2	First Amendment to Agreement and Plan of Merger, dated as of October 24, 2013, among Neiman Marcus Group LTD Inc., NM Mariposa Holdings, Inc. and Mariposa Merger Sub LLC.	Filed herewith.
3.1	Certificate of Formation of the Company, dated as of October 28, 2013.	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 2, 2013.
3.2	Amended and Restated Limited Liability Company Agreement of the Company, dated as of October 28, 2013.	Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on October 29, 2013.
4.1	Senior Cash Pay Notes Indenture, dated as of October 21, 2013, between Mariposa Merger Sub LLC, Mariposa Borrower, Inc. and U.S. Bank National Association, as trustee.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
4.2	Senior PIK Toggle Notes Indenture, dated as of October 21, 2013, between Mariposa Merger Sub LLC, Mariposa Borrower, Inc. and U.S. Bank National Association, as trustee.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.

90

4.3	Indenture, dated as of May 27, 1998, between The Neiman Marcus Group, Inc. and The Bank of New York, as trustee.	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 2009.
4.4	Form of 7.125% Senior Debentures Due 2028, dated May 27, 1998.	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 2009.
4.5	First Supplemental Indenture, dated as of July 11, 2006, to the Indenture, dated as of May 27, 1998, among The Neiman Marcus Group, Inc., Neiman Marcus, Inc., and The Bank of New York Trust Company, N.A., as successor trustee.	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 30, 2011.
4.6	Second Supplemental Indenture, dated as of August 14, 2006, to the Indenture, dated as of May 27, 1998, among The Neiman Marcus Group, Inc., Neiman Marcus, Inc., and The Bank of New York Trust Company, N.A., as successor trustee.	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 30, 2011.
4.7	First Supplemental Indenture, dated as of October 25, 2013, to the Senior Cash Pay Notes Indenture, dated as of October 21, 2013, among the Company (as successor by merger of Mariposa Merger Sub LLC), Mariposa Borrower, Inc., each of the subsidiary guarantors named therein and U.S. Bank National Association, as trustee.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
4.8	First Supplemental Indenture, dated as of October 25, 2013, to the Senior PIK Toggle Notes Indenture, dated as of October 21, 2013, among the Company (as successor by merger of Mariposa Merger Sub LLC), Mariposa Borrower, Inc., each of the subsidiary guarantors named therein and U.S. Bank National Association, as trustee.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
10.1	Term Loan Credit Agreement, dated as of October 25, 2013, among Mariposa Intermediate Holdings LLC, the Company (as successor by merger to Mariposa Merger Sub LLC), the subsidiaries of the Company from time to time party thereto, Credit Suisse AG, Cayman Islands Branch, as Administrative and Collateral Agent, and the lenders thereunder.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
10.2	Refinancing Amendment, dated March 13, 2014, among the Company as Borrower, Mariposa Intermediate Holdings LLC, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent, and the banks and other financial institutions party thereto as lenders.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on March 13, 2014.
10.3	Revolving Credit Agreement, dated as of October 25, 2013, among Mariposa Intermediate Holdings LLC, the Company (as successor by merger to Mariposa Merger Sub LLC), the subsidiaries of the Company from time to time party thereto, Deutsche Bank AG New York Branch, as Administrative and Collateral Agent, and the lenders thereunder.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
10.4	Employment Agreement, dated as of October 25, 2013, by and among The Neiman Marcus Group LLC, the Company and Karen Katz.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
10.5	Employment Agreement, dated as of October 25, 2013, by and among The Neiman Marcus Group LLC, the Company and James E. Skinner.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
10.6	Employment Agreement, dated as of October 25, 2013, by and among The Neiman Marcus Group LLC, the Company and James J. Gold.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
10.7	NM Mariposa Holdings, Inc. Management Equity Incentive Plan dated October 25, 2013.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
10.8	Form of NM Mariposa Holdings, Inc. Co-Invest Options Non-Qualified Stock Option Agreement pursuant to the NM Mariposa Holdings, Inc. Management Equity Incentive Plan.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.

91

10.9	Form of NM Mariposa Holdings, Inc. Time-Vested Option Non-Qualified Stock Option Agreement pursuant to the NM Mariposa Holdings, Inc. Management Equity Incentive Plan.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
10.10	Form of NM Mariposa Holdings, Inc. Performance-Vested Option Non-Qualified Stock Option Agreement pursuant to the NM Mariposa Holdings, Inc. Management Equity Incentive Plan.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
10.11	Second Amended and Restated Credit Card Program Agreement, dated as of July 15, 2013, by and among The Neiman Marcus Group, Inc., Bergdorf Goodman, Inc., and Capital One, National Association. (1)	Incorporated herein by reference to the Company’s Amendment No. 1 to the Form S-1 Registration Statement dated August 7, 2013.
10.12	Second Amended and Restated Servicing Agreement, dated as of July 15, 2013, between The Neiman Marcus Group, Inc. and Capital One, National Association. (1)	Incorporated herein by reference to the Company’s Amendment No. 1 to the Form S-1 Registration Statement dated August 7, 2013.
10.13	Form of Confidentiality, Non-Competition and Termination Benefits Agreement by and between The Neiman Marcus Group, Inc. and certain eligible key employees.	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 30, 2010.
10.14	Form of Amendment to the Confidentiality, Non-Competition and Termination Benefits Agreement effective as of January 1, 2009 by and between The Neiman Marcus Group, Inc., a Delaware corporation, and certain eligible key employees.	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.15	The Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan amended and restated effective January 1, 2008.	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 26, 2008.
10.16	Amendment No. 1 effective as of January 1, 2009 to The Neiman Marcus Group, Inc. Key Employee Deferred Compensation Plan.	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.17	The Neiman Marcus Group, Inc. Supplemental Executive Retirement Plan as amended and restated effective January 1, 2009.	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.18	The Neiman Marcus Group, Inc. Defined Contribution Supplemental Executive Retirement Plan, as amended and restated effective as of January 1, 2008.	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 2, 2008.
10.19	Amendment No. 1 effective January 1, 2009 to the Amended and Restated Neiman Marcus Group, Inc. Defined Contribution Supplemental Executive Retirement Plan.	Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2009.
10.20	Amendment No. 2 to the Amended and Restated Neiman Marcus Group, Inc. Defined Contribution Supplemental Executive Retirement Plan dated July 17, 2010.	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2010.
10.21	Amendment No. 1 to The Neiman Marcus Group, Inc. Defined Contribution Supplemental Executive Retirement Plan dated July 17, 2010.	Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2010.
10.22	Management Services Agreement, dated October 25, 2013, by and among NM Mariposa Holdings, Inc., The Neiman Marcus Group, Inc. and ACOF Operating Manager III, LLC.	Filed herewith.
10.23	Management Services Agreement, dated October 25, 2013, by and among NM Mariposa Holdings, Inc., The Neiman Marcus Group, Inc. and ACOF Operating Manager IV, LLC.	Filed herewith.

92

10.24	Management Services Agreement, dated October 25, 2013, by and among NM Mariposa Holdings, Inc., The Neiman Marcus Group, Inc. and CPPIB Equity Investments Inc.	Filed herewith.
10.25	Director Services Agreement, dated January 29, 2014, by and between NM Mariposa Holdings, Inc. and Nora Aufreiter.	Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended February 1, 2014.
10.26	Director Services Agreement, dated April 30, 2014, by and between NM Mariposa Holdings, Inc. and Philippe Bourguignon.	Filed herewith.
10.27	Director Services Agreement, dated April 30, 2014, by and between NM Mariposa Holdings, Inc. and Adam Brotman.	Filed herewith.
10.28	Director Services Agreement, dated April 30, 2014, by and between NM Mariposa Holdings, Inc. and Vic Gundotra.	Filed herewith.
12.1	Computation of Ratio of Earnings to Fixed Charges.	Filed herewith.
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 August 3, 2013.

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 July 31, 2010.
21.1	Subsidiaries of the Company.	Filed herewith.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished herewith.
101.INS	XBRL Instance Document	Furnished herewith electronically.
101.SCH	XBRL Taxonomy Extension Schema Document	Furnished herewith electronically.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Furnished herewith electronically.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Furnished herewith electronically.
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document	Furnished herewith electronically.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Furnished herewith electronically.

(1) Portions of these exhibits have been omitted pursuant to a request for confidential treatment.

93

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Management’s Report on Internal Control Over Financial Reporting	F-2
Reports of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheets	F-5
Consolidated Statements of Operations	F-6
Consolidated Statements of Comprehensive (Loss) Earnings	F-7
Consolidated Statements of Cash Flows	F-8
Consolidated Statements of Member Equity / Stockholders’ Equity	F-9
Notes to Consolidated Financial Statements	F-11
Schedule II - Valuation and Qualifying Accounts and Reserves	95

F-1

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

We are responsible for the integrity and objectivity of the financial and operating information contained in this Annual Report, including the consolidated financial statements covered by the Report of Independent Registered Public Accounting Firm. These statements were prepared in conformity with generally accepted accounting principles and include amounts that are based on our best estimates and judgment.

We maintain a system of internal controls, which provides management with reasonable assurance that transactions are recorded and executed in accordance with its authorizations, assets are properly safeguarded and accounted for, and records are maintained so as to permit preparation of financial statements in accordance with generally accepted accounting principles. This system includes written policies and procedures, an organizational structure that segregates duties, financial reviews and a comprehensive program of periodic audits by the internal auditors. We have also instituted policies and guidelines, which require employees to maintain a high level of ethical standards.

In addition, the Audit Committee of the Board of Directors meets periodically with management, the internal auditors and the independent registered public accounting firm to review internal accounting controls, audit results and accounting principles and practices and annually recommends to the Board of Directors the selection of the independent registered public accounting firm.

We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Under our supervision and with the participation of other key members of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of August 2, 2014. During its assessment, management did not identify any material weaknesses in our internal control over financial reporting.

Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an unqualified attestation report on the effectiveness of our internal controls over financial reporting as of August 2, 2014.

KAREN W. KATZ

President and Chief Executive Officer

JAMES E. SKINNER

Executive Vice President, Chief Operating Officer and Chief Financial Officer

T. DALE STAPLETON

Senior Vice President and Chief Accounting Officer

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Member of Neiman Marcus Group LTD LLC

We have audited the accompanying consolidated balance sheets of Neiman Marcus Group LTD LLC (the Company) (formerly Neiman Marcus Group LTD Inc.) as of August 2, 2014 (Successor) and August 3, 2013 (Predecessor), and the related (i) consolidated statements of operations and consolidated statements of comprehensive (loss) earnings for the thirty-nine weeks ended August 2, 2014 (Successor), the thirteen weeks ended November 2, 2013 (Predecessor), and for each of the two years in the period ended August 3, 2013 (Predecessor), (ii) consolidated statements of cash flows for the Acquisition and thirty-nine weeks ended August 2, 2014 (Successor), the thirteen weeks ended November 2, 2013 (Predecessor) and for each of the two years in the period ended August 3, 2013 (Predecessor), (iii) consolidated statement of member equity for the thirty-nine weeks ended August 2, 2014 (Successor), and (iv) consolidated statements of stockholders’ equity for the thirteen weeks ended November 2, 2013 (Predecessor) and for each of the two years in the period ended August 3, 2013 (Predecessor). Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Neiman Marcus Group LTD LLC at August 2, 2014 (Successor) and August 3, 2013 (Predecessor), and the (i) consolidated results of its operations for the thirty-nine weeks ended August 2, 2014 (Successor), the thirteen weeks ended November 2, 2013 (Predecessor), and for each of the two years in the period ended August 3, 2013 (Predecessor) and (ii) its cash flows for the Acquisition and thirty-nine weeks ended August 2, 2014 (Successor), the thirteen weeks ended November 2, 2013 (Predecessor) and for each of the two years in the period ended August 3, 2013 (Predecessor), in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Neiman Marcus Group LTD LLC’s internal control over financial reporting as of August 2, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated September 25, 2014 expressed an unqualified opinion thereon.

/S/ ERNST & YOUNG LLP

Dallas, Texas

September 25, 2014

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Member of Neiman Marcus Group LTD LLC

We have audited Neiman Marcus Group LTD LLC’s (formerly Neiman Marcus Group LTD Inc.) internal control over financial reporting as of August 2, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Neiman Marcus Group LTD LLC’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Neiman Marcus Group LTD LLC maintained, in all material respects, effective internal control over financial reporting as of August 2, 2014, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Neiman Marcus Group LTD LLC as of August 2, 2014 (Successor) and August 3, 2013 (Predecessor), and the related (i) consolidated statements of operations and consolidated statements of comprehensive (loss) earnings for the thirty-nine weeks ended August 2, 2014 (Successor), the thirteen weeks ended November 2, 2013 (Predecessor), and for each of the two years in the period ended August 3, 2013 (Predecessor), (ii) consolidated statements of cash flows for the Acquisition and thirty-nine weeks ended August 2, 2014 (Successor), the thirteen weeks ended November 2, 2013 (Predecessor) and for each of the two years in the period ended August 3, 2013 (Predecessor), (iii) consolidated statement of member equity for the thirty-nine weeks ended August 2, 2014 (Successor), and (iv) consolidated statements of stockholders’ equity for the thirteen weeks ended November 2, 2013 (Predecessor) and for each of the two years in the period ended August 3, 2013 (Predecessor), and our report dated September 25, 2014, expressed an unqualified opinion thereon.

/S/ ERNST & YOUNG LLP

Dallas, Texas

September 25, 2014

F-4

NEIMAN MARCUS GROUP LTD LLC

CONSOLIDATED BALANCE SHEETS

	August 2, 2014			August 3, 2013
(in thousands, except units/shares)	(Successor)			(Predecessor)
ASSETS
Current assets:
Cash and cash equivalents	$	196,476		$	136,676
Merchandise inventories	1,069,632			1,018,839
Deferred income taxes	39,049			27,645
Other current assets	104,617			102,817
Total current assets	1,409,774			1,285,977
Property and equipment, net	1,390,266			901,844
Favorable lease commitments, net	1,094,767			340,053
Other definite-lived intangible assets, net	587,519			210,690
Tradenames	1,970,698			1,231,405
Goodwill	2,148,627			1,263,433
Other assets	160,075			66,839
Total assets	$	8,761,726		$	5,300,241
LIABILITIES AND MEMBER/STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	375,085		$	386,538
Accrued liabilities	452,172			390,168
Current portion of long-term debt	29,426			—
Total current liabilities	856,683			776,706
Long-term liabilities:
Long-term debt	4,580,521			2,697,077
Deferred income taxes	1,540,076			639,381
Deferred real estate credits	4,460			104,366
Other long-term liabilities	347,392			251,673
Total long-term liabilities	6,472,449			3,692,497
Predecessor:
Common stock (par value $0.01 per share, 4,000,000 shares authorized and 1,019,728 shares issued and outstanding at August 3, 2013)	—			10
Successor:
Membership unit (1 unit issued and outstanding at August 2, 2014)	—			—
Additional paid-in capital	1,584,106			1,005,833
Accumulated other comprehensive loss	(17,429		)	(107,529		)
Accumulated deficit	(134,083		)	(67,276		)
Total member/stockholders' equity	1,432,594			831,038
Total liabilities and member/stockholders' equity	$	8,761,726		$	5,300,241

See Notes to Consolidated Financial Statements.

F-5

NEIMAN MARCUS GROUP LTD LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 3, 2013			July 28, 2012
(in thousands)	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
Revenues	$	3,710,193		$	1,129,138		$	4,648,249		$	4,345,374
Cost of goods sold including buying and occupancy costs (excluding depreciation)	2,563,273			685,408			2,995,363			2,794,713
Selling, general and administrative expenses (excluding depreciation)	840,454			266,543			1,047,796			1,006,902
Income from credit card program	(40,672		)	(14,653		)	(53,373		)	(51,571		)
Depreciation expense	113,334			34,239			141,515			130,119
Amortization of intangible assets	108,052			7,251			29,559			32,245
Amortization of favorable lease commitments	40,574			4,469			17,877			17,878
Other expenses	76,347			113,745			23,125			11,514
Operating earnings	8,831			32,136			446,387			403,574
Interest expense, net	232,739			37,315			168,955			175,237
(Loss) earnings before income taxes	(223,908		)	(5,179		)	277,432			228,337
Income tax (benefit) expense	(89,825		)	7,919			113,733			88,251
Net (loss) earnings	$	(134,083	)	$	(13,098	)	$	163,699		$	140,086

See Notes to Consolidated Financial Statements.

F-6

NEIMAN MARCUS GROUP LTD LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) EARNINGS

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 3, 2013			July 28, 2012
(in thousands)	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
Net (loss) earnings	$	(134,083	)	$	(13,098	)	$	163,699		$	140,086
Other comprehensive (loss) earnings:
Change in unrealized loss on financial instruments, net of tax	(954		)	610			(513		)	(3,779		)
Reclassification of realized loss on financial instruments to earnings, net of tax	—			224			2,106			2,011
Change in unrealized loss on unfunded benefit obligations, net of tax	(16,475		)	490			39,670			(73,979		)
Total other comprehensive (loss) earnings	(17,429		)	1,324			41,263			(75,747		)
Total comprehensive (loss) earnings	$	(151,512	)	$	(11,774	)	$	204,962		$	64,339

See Notes to Consolidated Financial Statements.

F-7

NEIMAN MARCUS GROUP LTD LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS 

	Acquisition and Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 3, 2013			July 28, 2012
(in thousands)	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
CASH FLOWS - OPERATING ACTIVITIES
Net (loss) earnings	$	(134,083	)	$	(13,098	)	$	163,699		$	140,086
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization expense	279,077			48,425			197,355			188,699
Loss on debt extinguishment	7,882			—			15,597			—
Equity in loss of foreign e-commerce retailer	3,613			1,523			13,125			1,514
Deferred income taxes	(117,874		)	(6,326		)	(19,439		)	(10,094		)
Non-cash charges related to the Acquisition	145,062			—			—			—
Other	4,931			5,002			5,633			7,004
	188,608			35,526			375,970			327,209
Changes in operating assets and liabilities:
Merchandise inventories	88,832			(142,417		)	(79,022		)	(100,483		)
Other current assets	74,480			12,111			27,664			(10,810		)
Other assets	2,554			(1,484		)	2,495			(4,495		)
Accounts payable and accrued liabilities	(57,638		)	107,091			42,604			62,611
Deferred real estate credits	3,172			1,484			4,697			15,059
Payment of deferred compensation in connection with the Acquisition	(16,623		)	—			—			—
Funding of defined benefit pension plan	—			—			(25,049		)	(29,281		)
Net cash provided by operating activities	283,385			12,311			349,359			259,810
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures	(138,007		)	(35,959		)	(146,505		)	(152,838		)
Acquisition of Neiman Marcus Group LTD LLC	(3,388,585		)	—			—			—
Investment in foreign e-commerce retailer	35,000			—			(10,000		)	(29,421		)
Net cash used for investing activities	(3,491,592		)	(35,959		)	(156,505		)	(182,259		)
CASH FLOWS - FINANCING ACTIVITIES
Borrowings under senior secured asset-based revolving credit facility	170,000			—			—			—
Repayment of borrowings under senior secured asset-based revolving credit facility	(170,000		)	—			—			—
Borrowings under senior secured term loan facility	2,950,000			—			—			—
Repayment of borrowings under senior secured term loan facility	(22,089		)	—			—			—
Borrowings under former senior secured asset-based revolving credit facility	—			130,000			100,000			175,000
Repayment of borrowings under former senior secured asset-based revolving credit facility	(145,000		)	—			(185,000		)	(75,000		)
Borrowings under former senior secured term loan facility	—			—			500,000			—
Repayment of borrowings under former senior secured term loan facility	(2,433,096		)	(126,904		)	—			—
Repayment of borrowings under senior subordinated notes	—			—			(510,668		)	—
Borrowings under cash pay notes	960,000			—			—			—
Borrowings under PIK toggle notes	600,000			—			—			—
Distributions to stockholders	—			—			—			(449,295		)
Debt issuance costs paid	(178,606		)	—			(9,763		)	(594		)
Cash equity contributions	1,557,350			—			—			—
Net cash provided by (used for) financing activities	3,288,559			3,096			(105,431		)	(349,889		)
CASH AND CASH EQUIVALENTS
Increase (decrease) during the year	80,352			(20,552		)	87,423			(272,338		)
Beginning balance	116,124			136,676			49,253			321,591
Ending balance	$	196,476		$	116,124		$	136,676		$	49,253
Supplemental Schedule of Cash Flow Information
Cash paid (received) during the period for:
Interest	$	159,335		$	40,789		$	153,131		$	164,700
Income taxes	$	(6,769	)	$	7,544		$	111,085		$	78,854
Non-cash activities:
Equity contribution from management	$	26,756		$	—		$	—		$	—

See Notes to Consolidated Financial Statements.

F-8

NEIMAN MARCUS GROUP LTD LLC

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)	Common stock		Additional paid-in capital			Accumulated other comprehensive (loss) earnings			Retained (deficit) earnings			Total stockholders’ equity
Predecessor:
BALANCE AT JULY 30, 2011	$	10	$	1,438,393		$	(73,045	)	$	(371,061	)	$	994,297
Stock-based compensation expense	—		6,914			—			—			6,914
Stock option exercises and other	—		(712		)	—			—			(712		)
Distributions to stockholders	—		(449,295		)	—			—			(449,295		)
Comprehensive earnings:
Net earnings	—		—			—			140,086			140,086
Adjustments for fluctuations in fair market value of financial instruments, net of tax of ($2,457)	—		—			(3,779		)	—			(3,779		)
Reclassification to earnings, net of tax of $1,307	—		—			2,011			—			2,011
Change in unfunded benefit obligations, net of tax of ($48,099)	—		—			(73,979		)	—			(73,979		)
Total comprehensive earnings												64,339
BALANCE AT JULY 28, 2012	10		995,300			(148,792		)	(230,975		)	615,543
Stock-based compensation expense	—		9,710			—			—			9,710
Stock option exercises and other	—		823			—			—			823
Comprehensive earnings:
Net earnings	—		—			—			163,699			163,699
Adjustments for fluctuations in fair market value of financial instruments, net of tax of ($333)	—		—			(513		)	—			(513		)
Reclassification to earnings, net of tax of $1,369	—		—			2,106			—			2,106
Change in unfunded benefit obligations, net of tax of $25,792	—		—			39,670			—			39,670
Total comprehensive earnings												204,962
BALANCE AT AUGUST 3, 2013	10		1,005,833			(107,529		)	(67,276		)	831,038
Stock-based compensation expense	—		2,548			—			—			2,548
Stock option exercises and other	—		125			—			—			125
Comprehensive loss:
Net loss	—		—			—			(13,098		)	(13,098		)
Adjustments for fluctuations in fair market value of financial instruments, net of tax of $396	—		—			610			—			610
Reclassification to earnings, net of tax of $145	—		—			224			—			224
Change in unfunded benefit obligations, net of tax of $319	—		—			490			—			490
Total comprehensive loss												(11,774		)
BALANCE AT NOVEMBER 2, 2013	$	10	$	1,008,506		$	(106,205	)	$	(80,374	)	$	821,937

F-9

NEIMAN MARCUS GROUP LTD LLC

CONSOLIDATED STATEMENT OF MEMBER EQUITY

(in thousands)	Additional paid-in capital		Accumulated other comprehensive loss			Retained deficit			Total member equity
Successor:
Equity contributions	$	1,584,106	$	—		$	—		$	1,584,106
Comprehensive loss:
Net loss	—		—			(134,083		)	(134,083		)
Adjustments for fluctuations in fair market value of financial instruments, net of tax of ($616)	—		(954		)	—			(954		)
Change in unfunded benefit obligations, net of tax of ($10,623)	—		(16,475		)	—			(16,475		)
Total comprehensive loss									(151,512		)
BALANCE AT AUGUST 2, 2014	$	1,584,106	$	(17,429	)	$	(134,083	)	$	1,432,594

See Notes to Consolidated Financial Statements.

F-10

NEIMAN MARCUS GROUP LTD LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Company is a luxury retailer conducting integrated store and online operations principally under the Neiman Marcus and Bergdorf Goodman brand names.  References to “we,” “our” and “us” are used to refer to the Company or to the Company and its subsidiaries, as appropriate to the context. On October 25, 2013, the Company (formerly Neiman Marcus Group LTD Inc.) merged with and into Mariposa Merger Sub LLC (Mariposa) pursuant to an Agreement and Plan of Merger, dated September 9, 2013, by and among NM Mariposa Holdings, Inc. (Parent), Mariposa and the Company, with the Company surviving the merger (the Acquisition).  As a result of the Acquisition and the Conversion (as defined below), the Company is now a direct subsidiary of Mariposa Intermediate Holdings LLC (Holdings), which in turn is a direct subsidiary of Parent. Parent is owned by private investment funds affiliated with Ares Management, L.P. and Canada Pension Plan Investment Board (together, the Sponsors) and certain co-investors.  On October 28, 2013, the Company and NMG (as defined below) each converted from a Delaware corporation to a Delaware limited liability company (the Conversion). Previously, the Company was a subsidiary of Newton Holding, LLC, which was controlled by investment funds affiliated with TPG Global, LLC (together with its affiliates, TPG) and Warburg Pincus LLC (together with TPG, the Former Sponsors). 

The Company’s operations are conducted through its wholly owned subsidiary, The Neiman Marcus Group LLC (formerly The Neiman Marcus Group, Inc.) (NMG).

The accompanying Consolidated Financial Statements are presented as “Predecessor” or “Successor” to indicate whether they relate to the period preceding the Acquisition or the period succeeding the Acquisition, respectively.  All significant intercompany accounts and transactions have been eliminated. 

Our fiscal year ends on the Saturday closest to July 31.  Like many other retailers, we follow a 4-5-4 reporting calendar, which means that each fiscal quarter consists of thirteen weeks divided into periods of four weeks, five weeks and four weeks.  This resulted in an extra week in fiscal year 2013 (the 53^rd week). All references to fiscal year 2014 relate to the combined period comprised of the thirty-nine weeks ended August 2, 2014 of the Successor and the thirteen weeks ended November 2, 2013 of the Predecessor, all references to fiscal year 2013 relate to the fifty-three weeks ended August 3, 2013 of the Predecessor and all references to fiscal year 2012 relate to the fifty-two weeks ended July 28, 2012 of the Predecessor.

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

ESTIMATES AND CRITICAL ACCOUNTING POLICIES

We are required to make estimates and assumptions about future events in preparing our financial statements in conformity with generally accepted accounting principles. These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the Consolidated Financial Statements.

While we believe that our past estimates and assumptions have been materially accurate, the amounts currently estimated are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances. We make adjustments to our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying Consolidated Financial Statements.

Purchase Accounting.  We have accounted for the Acquisition in accordance with the provisions of Accounting Standards Codification Topic 805, Business Combinations, whereby the purchase price paid to effect the Acquisition has been allocated to state the acquired assets and liabilities at fair value.  The Acquisition and the allocation of the purchase price have been recorded for accounting purposes as of November 2, 2013, the end of our first quarter of fiscal year 2014.  In connection with the purchase price allocation, we have made estimates of the fair values of our long-lived and intangible assets based upon assumptions related to the future cash flows, discount rates and asset lives utilizing currently available information, and in some cases, valuation results from independent valuation specialists, which resulted in increases in the carrying value of our property and equipment and inventory, the revaluation of intangible assets for our tradenames, customer lists and favorable lease commitments and the revaluation of our long-term benefit plan obligations, among other things.

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Cash and Cash Equivalents.  Cash and cash equivalents primarily consist of cash on hand in our stores, deposits with banks and overnight investments with banks and financial institutions. Cash equivalents are stated at cost, which approximates fair value. Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable includes outstanding checks not yet presented for payment of $45.6 million at August 2, 2014 and $46.3 million at August 3, 2013.

Merchandise Inventories and Cost of Goods Sold.  We utilize the retail inventory method of accounting.  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 our inventories.  The cost of the inventory reflected on the Consolidated Balance Sheets is decreased by charges to cost of goods sold at average cost and the retail value of the inventory is lowered through the use of markdowns.  Earnings are negatively impacted when merchandise is marked down.  As we adjust the retail value of our inventories through the use of markdowns to reflect market conditions, our merchandise inventories are stated at the lower of cost or market.

The areas requiring significant management judgment related to the valuation of our 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) determination of original retail values for merchandise held for sale, 2) identification of declines in perceived value of inventories and processing the appropriate retail value markdowns and 3) overly optimistic or conservative estimation of shrinkage. In prior years, we have not made material changes to our estimates of shrinkage or markdown requirements on inventories held as of the end of our fiscal years.

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. Certain allowances are received to reimburse us for markdowns taken or to support the gross margins that we earn in connection with the sales of the vendor’s merchandise. These allowances result in an increase to gross margin when we earn the allowances and they are approved by the vendor. Other allowances we receive represent reductions to the amounts we pay to acquire the merchandise. These allowances reduce the cost of the acquired merchandise and are recognized at the time the goods are sold. The amounts of vendor allowances we receive fluctuate based on the level of markdowns taken and did not have a significant impact on the year-over-year change in gross margin during fiscal years 2014, 2013 or 2012. We received vendor allowances of $88.5 million for the thirty-nine weeks ended August 2, 2014; $5.0 million for the thirteen weeks ended November 2, 2013; $90.2 million in fiscal year 2013; and $92.5 million in fiscal year 2012.

We obtain certain merchandise, primarily precious jewelry, on a consignment basis to expand our product assortment. Consignment merchandise held by us with a cost basis of $376.8 million at August 2, 2014 and $358.9 million at August 3, 2013 is not reflected in our Consolidated Balance Sheets.

Cost of goods sold also includes delivery charges we pay to third party carriers and other costs related to the fulfillment of customer orders not delivered at the point-of-sale.

Long-lived Assets.  Property and equipment are stated at cost less accumulated depreciation. In connection with the Acquisition, the cost basis of the acquired property and equipment was adjusted to its estimated fair value. For financial reporting purposes, we compute depreciation principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over five to 30 years while fixtures and equipment are depreciated over three to 15 years. Leasehold improvements are amortized over the shorter of the asset life or the lease term (which may include renewal periods when exercise of the renewal option is at our discretion and exercise of the renewal option is considered reasonably assured). Costs incurred for the development of internal computer software are capitalized and amortized using the straight-line method over three to ten years.

We assess the recoverability of the carrying values of our store assets, consisting of property and equipment, customer lists and favorable lease commitments, annually and upon the occurrence of certain events. The recoverability assessment requires judgment and estimates of future store generated cash flows.

Intangible Assets Subject to Amortization.  Prior to the Acquisition, Predecessor definite-lived intangible assets, primarily customer lists, were amortized over their estimated useful lives, ranging from four to 24 years (weighted average life of 13 years from the October 6, 2005 acquisition by the Former Sponsors).  Predecessor favorable lease commitments were amortized over the remaining lives of the leases, ranging from nine to 49 years (weighted average life of 33 years from the October 6, 2005 acquisition by the Former Sponsors).

F-12

Subsequent to the Acquisition, Successor definite-lived intangible assets, primarily customer lists, are amortized over their estimated useful lives, currently estimated at 12 to 16 years (weighted average life of 14 years from the Acquisition). Successor favorable lease commitments are amortized over the remaining lives of the leases, currently estimated at two to 55 years (weighted average life of 30 years from the Acquisition). Total amortization of all intangible assets recorded in connection with the Acquisition for the next five fiscal years is currently estimated as follows (in thousands):

2015	$	131,783
2016	105,737
2017	100,937
2018	95,928
2019	92,313

Indefinite-lived Intangible Assets and Goodwill.  Indefinite-lived intangible assets, such as our Neiman Marcus and Bergdorf Goodman tradenames and goodwill, are not subject to amortization. Rather, we assess the recoverability of indefinite-lived intangible assets and goodwill in the fourth quarter of each fiscal year and upon the occurrence of certain events.

The recoverability assessment with respect to each of our indefinite-lived intangible assets requires us to estimate the fair value of the asset as of the assessment date.  Such determination is made using discounted cash flow techniques (Level 3 determination of fair value).  Significant inputs to the valuation model include:

• future revenue, cash flow and/or profitability projections;

• growth assumptions for future revenues as well as future gross margin rates, expense rates, capital expenditures and other estimates;

• estimated market royalty rates that could be derived from the licensing of our tradenames to third parties to establish the cash flows accruing to the benefit of the Company as a result of our ownership of our tradenames; and

• rates, based on our estimated weighted average cost of capital, used to discount the estimated cash flow projections to their present value (or estimated fair value).

If the recorded carrying value of the tradename exceeds its estimated fair value, an impairment charge is recorded to write the tradename down to its estimated fair value.

The assessment of the recoverability of the goodwill associated with our Neiman Marcus stores, Bergdorf Goodman stores, Last Call stores and Online reporting units involves a two-step process.  The first step requires the comparison of the estimated enterprise fair value of each of our reporting units to its recorded carrying value.  We estimate the enterprise fair value based on discounted cash flow techniques (Level 3 determination of fair value).  If the recorded carrying value of a reporting unit exceeds its estimated enterprise fair value in the first step, a second step is performed in which we allocate the enterprise fair value to the fair value of the reporting unit’s net assets.  The second step of the impairment testing process requires, among other things, the estimation of the fair values of substantially all of our tangible and intangible assets.  Any enterprise fair value in excess of amounts allocated to such net assets represents the implied fair value of goodwill for that reporting unit.  If the recorded goodwill balance for a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded to write goodwill down to its fair value.

The impairment testing process related to our indefinite-lived intangible assets is subject to inherent uncertainties and subjectivity.  The use of different assumptions, estimates or judgments with respect to the estimation of the projected future cash flows and the determination of the discount rate used to reduce such projected future cash flows to their net present value could materially increase or decrease any related impairment charge.  We believe our estimates are appropriate based upon current market conditions and the best information available at the assessment date.  However, future impairment charges could be required if we do not achieve our current revenue and profitability projections or the weighted average cost of capital increases. No impairment charges related to our tradenames and goodwill were recorded in fiscal years 2014, 2013 or 2012.

Leases.  We lease certain retail stores and office facilities. Stores we own are often subject to ground leases.  The terms of our real estate leases, including renewal options, range from two to 130 years.  Most leases provide for monthly fixed minimum rentals or contingent rentals based upon sales in excess of stated amounts and normally require us to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs.  For leases that contain predetermined, fixed calculations of minimum rentals, we recognize rent expense on a straight-line basis over the lease term.  We recognize contingent rent expenses when it is probable that the sales thresholds will be reached during the year.

F-13

 We receive allowances from developers related to the construction of our stores.  We record these allowances as deferred real estate credits, which we recognize as a reduction of rent expense on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased asset.  We received construction allowances aggregating $5.7 million for the thirty-nine weeks ended August 2, 2014, $7.2 million in fiscal year 2013 and $10.6 million in fiscal year 2012.

Benefit Plans.  We sponsor a defined benefit pension plan (Pension Plan), an unfunded supplemental executive retirement plan (SERP Plan) which provides certain employees additional pension benefits and a postretirement plan providing eligible employees limited postretirement health care benefits (Postretirement Plan). In calculating our obligations and related expense, we make various assumptions and estimates, after consulting with outside actuaries and advisors.  The annual determination of expense involves calculating the estimated total benefits ultimately payable to plan participants.  We use the traditional unit credit method in recognizing pension liabilities.  The Pension Plan, SERP Plan and Postretirement Plan are valued annually as of the end of each fiscal year. As of the third quarter of fiscal year 2010, benefits offered to all employees under our Pension Plan and SERP Plan were frozen.

Significant assumptions related to the calculation of our obligations include the discount rates used to calculate the present value of benefit obligations to be paid in the future, the expected long-term rate of return on assets held by the Pension

Plan and the health care cost trend rate for the Postretirement Plan, as more fully described in Note 10 of the Notes to Consolidated Financial Statements.  We review these assumptions annually based upon currently available information, including information provided by our actuaries.

Our obligations related to our employee benefit plans are included in other long-term liabilities.

Self-insurance and Other Employee Benefit Reserves.  We use estimates in the determination of the required accruals for general liability, workers’ compensation and health insurance.  We base these estimates upon an examination of historical trends, industry claims experience and independent actuarial estimates.  Although we do not expect that we will ultimately pay claims significantly different from our estimates, self-insurance reserves could be affected if future claims experience differs significantly from our historical trends and assumptions.

Derivative Financial Instruments.  We enter into derivative financial instruments, primarily interest rate cap agreements, to hedge the variability of our cash flows related to a portion of our floating rate indebtedness.  The derivative financial instruments are recorded at estimated fair value at each balance sheet date and included in assets or liabilities in our Consolidated Balance Sheets.

Revenues.  Revenues include sales of merchandise and services and delivery and processing revenues related to merchandise sold. Revenues are recognized at the later of the point of sale or the delivery of goods to the customer. Revenues associated with gift cards are recognized at the time of redemption by the customer. Revenues exclude sales taxes collected from our customers.

Revenues are reduced when customers return goods previously purchased. We maintain reserves for anticipated sales returns primarily based on our historical trends related to returns by our customers. Our reserves for anticipated sales returns aggregated $38.9 million at August 2, 2014 and $37.4 million at August 3, 2013.

Buying and Occupancy Costs.  Our buying costs consist primarily of salaries and expenses incurred by our merchandising and buying operations. Occupancy costs primarily include rent, property taxes and operating costs of our retail, distribution and support facilities and exclude depreciation expense.

Selling, General and Administrative Expenses (excluding depreciation).  Selling, general and administrative expenses are comprised principally of the costs related to employee compensation and benefits in the selling and administrative support areas and advertising and marketing costs.

We receive allowances from certain merchandise vendors in conjunction with compensation programs for employees who sell the vendors’ merchandise. These allowances are netted against the related compensation expense that we incur. Amounts received from vendors related to compensation programs were $55.4 million for the thirty-nine weeks ended August 2, 2014, $18.5 million for the thirteen weeks ended November 2, 2013, $72.2 million in fiscal year 2013 and $65.1 million in fiscal year 2012.

We incur costs to advertise and promote the merchandise assortment offered through our store and online operations.  We expense advertising costs for print media costs and promotional materials mailed to our customers at the time of mailing to

F-14

the customer.  We amortize the costs of print catalogs during the periods we expect to generate revenues from such catalogs, generally three to six months. We expense the costs incurred to produce the photographic content on our websites, as well as website design and web marketing costs, as incurred.  Net marketing and advertising expenses were $109.8 million for the thirty-nine weeks ended August 2, 2014, $34.6 million for the thirteen weeks ended November 2, 2013, $126.9 million in fiscal year 2013 and $106.5 million in fiscal year 2012.

Consistent with industry practice, we receive advertising allowances from certain of our merchandise vendors. Substantially all the advertising allowances we receive represent reimbursements of direct, specific and incremental costs that we incur to promote the vendor’s merchandise in connection with our various advertising programs, primarily catalogs and other print media.  Advertising allowances fluctuate based on the level of advertising expenses incurred and are recorded as a reduction of our advertising costs when earned.  Advertising allowances aggregated approximately $31.4 million for the thirty-nine weeks ended August 2, 2014, $20.0 million for the thirteen weeks ended November 2, 2013, $55.0 million in fiscal year 2013 and $53.1 million in fiscal year 2012.

Income from Credit Card Program.  We maintain a proprietary credit card program through which credit is extended to customers and have a related marketing and servicing alliance with affiliates of Capital One Financial Corporation (Capital One).  Pursuant to our agreement with Capital One (the Program Agreement), Capital One currently offers credit cards and non-card payment plans under both the "Neiman Marcus" and "Bergdorf Goodman" brand names. Effective July 1, 2013, we amended and extended the Program Agreement to July 2020 (renewable thereafter for three-year terms), subject to early termination provisions.

Pursuant to the Program Agreement, we receive payments from Capital One based on sales transacted on our proprietary credit cards.  We may receive additional payments based on the profitability of the portfolio as determined under the Program Agreement depending on a number of factors including credit losses.  In addition, we receive payments from Capital One for marketing and servicing activities we provide to Capital One. 

We recognize income from our credit card program when earned.  In the future, the income from our credit card program may:

• increase or decrease based upon the level of utilization of our proprietary credit cards by our customers;

• increase or decrease based upon the overall profitability and performance of the credit card portfolio due to the level of bad debts incurred or changes in interest rates, among other factors;

• increase or decrease based upon future changes to our historical credit card program in response to changes in regulatory requirements or other changes related to, among other things, the interest rates applied to unpaid balances and the assessment of late fees; and

• decrease based upon the level of future services we provide to Capital One.

Gift Cards.  The gift cards sold to our customers have no stated expiration dates and, in some cases, are subject to actual and/or potential escheatment rights in various of the jurisdictions in which we operate.  Unredeemed gift cards aggregated $43.1 million at August 2, 2014 and $36.3 million at August 3, 2013.

We recognized gift card breakage of $1.3 million for the thirty-nine weeks ended August 2, 2014, $0.3 million for the thirteen weeks ended November 2, 2013, $1.9 million in fiscal year 2013 and $2.5 million in fiscal year 2012 as a component of revenues.

Loyalty Program.  We maintain a customer loyalty program in which customers earn points for qualifying purchases.  Upon reaching specified levels, points are redeemed for awards, primarily gift cards.  The estimates of the costs associated with the loyalty program require us to make assumptions related to customer purchasing levels and redemption rates.  At the time the qualifying sales giving rise to the loyalty program points are made, we defer the portion of the revenues on the qualifying sales transactions equal to the estimated retail value of the gift cards to be redeemed upon conversion of the earned points to gift cards.  We record the deferral of revenues related to gift card awards under our loyalty program as a reduction of revenues.

Income Taxes.   We use the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  We are routinely under audit by federal, state or local authorities in the area of income taxes.  We regularly evaluate the likelihood of realization of tax benefits derived from positions we have taken in various federal and state filings after

F-15

consideration of all relevant facts, circumstances and available information.  If we believe it is more likely than not that our position will be sustained, we recognize the benefit we believe is cumulatively greater than 50% likely to be realized.

Recent Accounting Pronouncements.  In May 2014, the Financial Accounting Standards Board (FASB) issued guidance to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016, which is effective for us as of the first quarter of fiscal year 2018 using one of two retrospective application methods. We are currently evaluating the application method and the impact of adopting this new accounting guidance on our Consolidated Financial Statements.

We do not expect that any other recently issued accounting pronouncements will have a material impact on our financial statements.

NOTE 2. THE ACQUISITION

The Acquisition was completed on October 25, 2013 and was financed by:

• borrowings of $75.0 million under our senior secured asset-based revolving credit facility (Asset-Based Revolving Credit Facility);

• borrowings of $2,950.0 million under our senior secured term loan facility (Senior Secured Term Loan Facility and, together with the Asset-Based Revolving Credit Facility, the Senior Secured Credit Facilities);

• issuance of $960.0 million aggregate principal amount of 8.00% senior cash pay notes due 2021 (Cash Pay Notes);

• issuance of $600.0 million aggregate principal amount of 8.75%/9.50% senior PIK toggle notes due 2021 (PIK Toggle Notes); and

• $1,583.3 million of equity investments from Parent funded by direct and indirect equity investments from the Sponsors, certain co-investors and management.

The Acquisition occurred simultaneously with:

• the closing of the financing transactions and equity investments described previously;

• the termination of our former $700.0 million senior secured asset-based revolving credit facility (Former Asset-Based Revolving Credit Facility); and

• the termination of our former $2,560.0 million senior secured term loan facility (Former Senior Secured Term Loan Facility and, together with the Former Asset-Based Revolving Credit Facility, the Former Senior Secured Credit Facilities).

We have accounted for the Acquisition in accordance with the provisions of FASB Accounting Standards Codification Topic 805, Business Combinations, whereby the purchase price paid to effect the Acquisition has been allocated to state the acquired assets and liabilities at fair value.  The Acquisition and the allocation of the purchase price have been recorded for accounting purposes as of November 2, 2013, the end of our first quarter of fiscal year 2014. 

In connection with the purchase price allocation, we have made estimates of the fair values of our long-lived and intangible assets based upon assumptions related to the future cash flows, discount rates and asset lives utilizing currently available information, and in some cases, valuation results from independent valuation specialists.  As of August 2, 2014, we have recorded purchase accounting adjustments to increase the carrying value of our property and equipment and inventory, to revalue intangible assets for our tradenames, customer lists and favorable lease commitments and to revalue our long-term benefit plan obligations, among other things.

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The purchase price has been allocated as follows (in millions):

Consideration payable to former equity holders (including $26.8 million management rollover)				$	3,382.7
Capitalized transaction costs				32.7
Total consideration paid to effect the Acquisition				3,415.4
Net assets acquired at historical cost				821.9
Adjustments to state acquired assets at fair value:
1) Increase carrying value of merchandise inventories	$	129.6
2) Increase carrying value of property and equipment	457.7
3) Revalue intangible assets:
Tradenames	739.3
Other definite-lived intangible assets, primarily customer lists	492.1
Favorable lease commitments	799.8
4) Change in carrying values of other assets and liabilities	(67.0		)
5) Write-off historical deferred lease credits	102.3
6) Write-off historical debt issuance costs	(31.3		)
7) Write-off historical goodwill	(1,263.4		)
8) Settlement of unvested Predecessor stock options (Note 12)	51.5
9) Tax impact of valuation adjustments and other tax benefits	(965.7		)
Total adjustments to state acquired assets at fair value				444.9
Net assets acquired at fair value				1,266.8
Excess purchase price related to the Acquisition recorded as goodwill				$	2,148.6

Pro Forma Financial Information. The following unaudited pro forma results of operations assume that the Acquisition occurred on July 29, 2012. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the Acquisition had actually occurred on that date, nor the results that may be obtained in the future.

	Fiscal years ended
(in thousands)	August 2, 2014		August 3, 2013
Revenues	$	4,839,331	$	4,648,249
Net earnings (loss)	36,501		(118,315		)

Pro forma adjustments for fiscal year 2014 consist primarily of 1) the reversal of $162.7 million of transaction costs incurred in connection with the Acquisition, 2) the reversal of the historical non-cash charges of $129.6 million to cost of goods sold related to the sale of our acquired inventories that were valued at their fair values as of the Acquisition date and 3) adjustments to depreciation and amortization charges aggregating $26.5 million, partially offset by 4) interest expense of $29.8 million.

Pro forma adjustments for fiscal year 2013 consist primarily of 1) depreciation and amortization charges aggregating $159.8 million, 2) interest expense of $130.9 million and 3) non-cash charges of $129.6 million to cost of goods sold related to the step-up in carrying value of our inventories as of the Acquisition date.

NOTE 3. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.  Assets and liabilities are classified using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows:

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• Level 1 — Unadjusted quoted prices for identical instruments traded in active markets.

• Level 2 — Observable market-based inputs or unobservable inputs corroborated by market data.

• Level 3 — Unobservable inputs reflecting management’s estimates and assumptions.

The following table shows the Company’s financial assets that are required to be measured at fair value on a recurring basis in our Consolidated Balance Sheets:

	Fair Value Hierarchy	August 2, 2014		August 3, 2013
(in thousands)		(Successor)		(Predecessor)
Other long-term assets:
Interest rate caps	Level 2	$	1,132	$	29

The fair value of the interest rate caps are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves.  In addition, the fair value of the interest rate caps includes consideration of the counterparty’s non-performance risk.

The carrying values of cash and cash equivalents, credit card receivables and accounts payable approximate fair value due to their short-term nature.  We determine the fair value of our long-term debt on a non-recurring basis, which results are summarized as follows:

		August 2, 2014 (Successor)				August 3, 2013 (Predecessor)
(in thousands)	Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt:
Senior Secured Term Loan Facility	Level 2	$	2,927,912	$	2,907,797	$	—	$	—
Cash Pay Notes	Level 2	960,000		994,800		—		—
PIK Toggle Notes	Level 2	600,000		633,000		—		—
2028 Debentures	Level 2	122,035		127,500		122,077		125,625
Former Asset-Based Revolving Credit Facility	Level 2	—		—		15,000		15,000
Former Senior Secured Term Loan Facility	Level 2	—		—		2,560,000		2,566,400

We estimated the fair value of long-term debt using prevailing market rates for debt of similar remaining maturities and credit risk for our revolving and term loan facilities and quoted market prices of the same or similar issues for the Cash Pay Notes, the PIK Toggle Notes and the $125.0 million aggregate principal amount of 7.125% Debentures due 2028 (the 2028 Debentures and, together with the Cash Pay Notes and the PIK Toggle Notes, the Notes).

In connection with purchase accounting, we have made estimates of the fair value of our long-lived and intangible assets based upon assumptions related to the future cash flows, discount rates and asset lives utilizing currently available information, and in some cases, valuation results from independent valuation specialists (Level 3 determination of fair value). We also measure certain non-financial assets at fair value on a non-recurring basis, primarily long-lived assets, intangible assets and goodwill, in connection with our periodic evaluations of such assets for potential impairment.

NOTE 4.  PROPERTY AND EQUIPMENT, NET

The significant components of our property and equipment, net are as follows:

	August 2, 2014		August 3, 2013
(in thousands)	(Successor)		(Predecessor)
Land, buildings and improvements	$	1,047,556	$	1,017,463
Fixtures and equipment	373,033		904,879
Construction in progress	83,395		49,648
	1,503,984		1,971,990
Less: accumulated depreciation and amortization	113,718		1,070,146
Property and equipment, net	$	1,390,266	$	901,844

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NOTE 5.  GOODWILL AND INTANGIBLE ASSETS, NET

The significant components of our intangible assets and goodwill are as follows:

(in thousands)	Favorable Lease Commitments			Other Definite-lived Intangible Assets			Tradenames			Goodwill
Predecessor:
Balance at July 28, 2012	$	357,930		$	239,694		$	1,231,960		$	1,263,433
Amortization	(17,877		)	(29,004		)	(555		)	—
Balance at August 3, 2013	340,053			210,690			1,231,405			1,263,433
Amortization	(4,469		)	(7,251		)	—			—
Balance at November 2, 2013	$	335,584		$	203,439		$	1,231,405		$	1,263,433
Successor:
Balance at November 2, 2013	$	1,135,341		$	695,571		$	1,970,698		$	2,148,627
Amortization	(40,574		)	(108,052		)	—			—
Balance at August 2, 2014	$	1,094,767		$	587,519		$	1,970,698		$	2,148,627
Total accumulated amortization at August 2, 2014	$	40,574		$	108,052

NOTE 6.  ACCRUED LIABILITIES

The significant components of accrued liabilities are as follows:

	August 2, 2014		August 3, 2013
(in thousands)	(Successor)		(Predecessor)
Accrued salaries and related liabilities	$	81,079	$	74,395
Amounts due customers	125,950		113,412
Self-insurance reserves	38,732		37,626
Interest payable	61,164		18,677
Sales returns reserves	38,869		37,370
Sales taxes	22,817		25,306
Other	83,561		83,382
Total	$	452,172	$	390,168

NOTE 7.  LONG-TERM DEBT

The significant components of our long-term debt are as follows:

	Interest Rate	August 2, 2014			August 3, 2013
(in thousands)		(Successor)			(Predecessor)
Senior Secured Term Loan Facility	variable	$	2,927,912		$	—
Cash Pay Notes	8.00%	960,000			—
PIK Toggle Notes	8.75%/9.50%	600,000			—
2028 Debentures	7.125%	122,035			122,077
Former Asset-Based Revolving Credit Facility	variable	—			15,000
Former Senior Secured Term Loan Facility	variable	—			2,560,000
Total debt		4,609,947			2,697,077
Less: current portion of Senior Secured Term Loan Facility		(29,426		)	—
Long-term debt		$	4,580,521		$	2,697,077

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Asset-Based Revolving Credit Facility.  On October 25, 2013, we entered into a credit agreement and related security and other agreements for a senior secured Asset-Based Revolving Credit Facility providing for a maximum committed borrowing capacity of $800.0 million. The Asset-Based Revolving Credit Facility matures on October 25, 2018.  On August 2, 2014, we had no borrowings outstanding under this facility, no outstanding letters of credit and $720.0 million of unused borrowing availability.

Availability under the Asset-Based Revolving Credit Facility is subject to a borrowing base.  The Asset-Based Revolving Credit Facility includes borrowing capacity available for letters of credit (up to $150.0 million, with any such issuance of letters of credit reducing the amount available under the Asset-Based Revolving Credit Facility on a dollar for dollar basis) and for borrowings on same-day notice.  The borrowing base is equal to at any time the sum of (a) 90% of the net orderly liquidation value of eligible inventory, net of certain reserves, plus (b) 90% of the amounts owed by credit card processors in respect of eligible credit card accounts constituting proceeds from the sale or disposition of inventory, less certain reserves, plus (c) 100% of segregated cash held in a restricted deposit account.  We must at all times maintain excess availability of at least the greater of (a) 10% of the lesser of (1) the aggregate revolving commitments and (2) the borrowing base and (b) $50.0 million, but we are not required to maintain a fixed charge coverage ratio unless excess availability is below such levels.

The Asset-Based Revolving Credit Facility permits us to increase commitments under the Asset-Based Revolving Credit Facility or add one or more incremental term loans to the Asset-Based Revolving Credit Facility by an amount not to exceed $300.0 million. However, the lenders are under no obligation to provide any such additional commitments or loans, and any increase in commitments or incremental term loans will be subject to customary conditions precedent.  If we were to request any such additional commitments and the existing lenders or new lenders were to agree to provide such commitments, the size of the Asset-Based Revolving Credit Facility could be increased to up to $1,100.0 million, but our ability to borrow would still be limited by the amount of the borrowing base.  The cash proceeds of any incremental term loans may be used for working capital and general corporate purposes.

At August 2, 2014, borrowings under the Asset-Based Revolving Credit Facility bore interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of 1) the prime rate of Deutsche Bank AG New York Branch (the administrative agent), 2) the federal funds effective rate plus ½ of 1.00% or 3) the adjusted one-month LIBOR plus 1.00% or (b) LIBOR, subject to certain adjustments, in each case plus an applicable margin.  The applicable margin is up to 0.75% with respect to base rate borrowings and up to 1.75% with respect to LIBOR borrowings.  The applicable margin is subject to adjustment based on the historical excess availability under the Asset-Based Revolving Credit Facility. In addition, we are required to pay a commitment fee in respect of unused commitments 0.25% per annum.  We must also pay customary letter of credit fees and agency fees.

If at any time the aggregate amount of outstanding revolving loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Asset-Based Revolving Credit Facility exceeds the lesser of (a) the commitment amount and (b) the borrowing base, we will be required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount.  If the amount available under the Asset-Based Revolving Credit Facility is less than the greater of (a) 10% of the lesser of (1) the aggregate revolving commitments and (2) the borrowing base and (b) $50.0 million, funds held in a collection account maintained with the agent would be applied to repay certain loans and, if an event of default has occurred, cash collateralize letters of credit.  We would then be required to make daily deposits in the collection account maintained with the agent under the Asset-Based Revolving Credit Facility.

We may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time without premium or penalty other than customary “breakage” costs with respect to LIBOR loans.  There is no scheduled amortization under the Asset-Based Revolving Credit Facility; the principal amount of the revolving loans outstanding thereunder will be due and payable in full on October 25, 2018, unless extended.

Our Asset-Based Revolving Credit Facility is guaranteed by Holdings and each of our current and future direct and indirect wholly owned subsidiaries (subsidiary guarantors) other than (a) unrestricted subsidiaries, (b) certain immaterial subsidiaries, (c) foreign subsidiaries and any domestic subsidiary of a foreign subsidiary, (d) certain holding companies of foreign subsidiaries, (e) captive insurance subsidiaries, not for profit subsidiaries, or a subsidiary which is a special purpose entity for securitization transactions or like special purposes and (f) any subsidiary that is prohibited by applicable law or contractual obligation from acting as a guarantor or which would require governmental approval to provide a guarantee (unless such approval has been received). Currently, we do not conduct any material operations through subsidiaries that do not guarantee the Asset-Based Revolving Credit Facility. All obligations under the Asset-Based Revolving Credit Facility, and the guarantees of those obligations, are secured, subject to certain significant exceptions, by substantially all of the assets of Holdings, the Company and the subsidiary guarantors, including:

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• a first-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by the Company or the subsidiary guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges for sales of inventory by the Company and the subsidiary guarantors, certain related assets and proceeds of the foregoing;

• a second-priority pledge of 100% of the Company’s capital stock and certain of the capital stock held by Holdings, the Company or any subsidiary guarantor (which pledge, in the case of any foreign subsidiary is limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary); and

• a second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of Holdings, the Company and each subsidiary guarantor, including a significant portion of the Company’s owned real property and equipment.

Capital stock and other securities of a subsidiary of the Company that are owned by the Company or any subsidiary guarantor will not constitute collateral under the Asset-Based Revolving Credit Facility to the extent that such securities cannot secure NMG’s 2028 Debentures or other secured public debt obligations without requiring the preparation and filing of separate financial statements of such subsidiary in accordance with applicable SEC rules.  As a result, the collateral under the Asset-Based Revolving Credit Facility will include shares of capital stock or other securities of subsidiaries of the Company or any subsidiary guarantor only to the extent that the applicable value of such securities (on a subsidiary-by-subsidiary basis) is less than 20% of the aggregate principal amount of the 2028 Debentures or other secured public debt obligations of the Company.

The facility contains covenants limiting dividends and other restricted payments, investments, loans, advances and acquisitions, and prepayments or redemptions of other indebtedness.  These covenants permit such restricted actions in an unlimited amount, subject to the satisfaction of certain payment conditions, principally that we must have pro forma excess availability under the Asset-Based Revolving Credit Facility, which exceeds the greater of $90.0 million or 15% of the lesser of (a) the revolving commitments under the facility and (b) the borrowing base. In addition, if pro forma excess availability under the Asset-Based Revolving Credit Facility is equal to or less than the greater of 1) $200.0 million or 2) 25% of the lesser of (i) the revolving commitments under the facility and (ii) the borrowing base, we must have a pro forma ratio of consolidated EBITDA to consolidated fixed charges of at least 1.0 to 1.0.  The Asset-Based Revolving Credit Facility also contains customary affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50.0 million.

Senior Secured Term Loan Facility.  On October 25, 2013, we entered into a credit agreement and related security and other agreements for the $2,950.0 million Senior Secured Term Loan Facility. At August 2, 2014, the outstanding balance under our Senior Secured Term Loan Facility (after giving effect to the Refinancing Amendment discussed below) was $2,927.9 million. The principal amount of the loans outstanding is due and payable in full on October 25, 2020.

The Senior Secured Term Loan Facility permits the Company to increase the term loans or add a separate tranche of term loans by an amount not to exceed $650.0 million plus an unlimited amount that would result (a) in the case of any incremental term loan facility to be secured equally and ratably with the term loans, a senior secured first lien net leverage ratio equal to or less than 4.25 to 1.00 and (b) in the case of any incremental term loan facility to be secured on a junior basis to the term loans, to be subordinated in right of payment to the term loans or, in the case of certain incremental equivalent loan debt, to be unsecured and pari passu in right of payment to the term loans, a total net leverage ratio equal to the total net leverage ratio as of October 25, 2013.

On March 13, 2014, we entered into a refinancing amendment with respect to the Senior Secured Term Loan Facility (the Refinancing Amendment). The Refinancing Amendment provided for an immediate reduction in the interest rate margin applicable to the loans outstanding under the Senior Secured Term Loan Facility from (a) 4.00% to 3.25% for LIBOR borrowings and (b) 3.00% to 2.25% for base rate borrowings. In addition, the interest rate margin in the event of a step down based on our senior secured net first lien leverage, as defined in the credit agreement, was reduced from 1) 3.75% to 3.00% for LIBOR borrowings and 2) 2.75% to 2.00% for base rate borrowings. Substantially all other terms are consistent with the October 25, 2013 credit agreement, including the amortization schedule and maturity dates. In connection with the Refinancing Amendment, we incurred costs of $29.5 million which were capitalized as debt issuance costs (included in other assets). In addition, we incurred a loss on debt extinguishment of $7.9 million, which primarily consisted of the write-off of debt issuance costs, previously incurred in connection with the initial issuance of the Senior Secured Term Loan Facility, allocable to lenders that no longer participate in the Senior Secured Term Loan Facility subsequent to the refinancing. The loss on debt extinguishment was recorded in the third quarter of fiscal year 2014 as a component of interest expense.

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At August 2, 2014, borrowings under the Senior Secured Term Loan Facility bore interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the higher of 1) the prime rate of Credit Suisse AG (the administrative agent), 2) the federal funds effective rate plus ½ of 1.00% and 3) the adjusted one-month LIBOR plus 1.00% or (b) an adjusted LIBOR (for a period equal to the relevant interest period, and in any event, never less than 1.00%), subject to certain adjustments, in each case plus an applicable margin.  The applicable margin is up to 2.25% with respect to base rate borrowings and up to 3.25% with respect to LIBOR borrowings.  The applicable margin is subject to adjustment based on the senior secured first lien net leverage ratio.  The applicable margin with respect to outstanding LIBOR borrowings was 3.25% at August 2, 2014.  The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 4.25% at August 2, 2014.

Subject to certain exceptions and reinvestment rights, our Senior Secured Term Loan Facility requires that 100% of the net cash proceeds from certain asset sales and debt issuances and 50% (subject to step downs based on our senior secured first lien net leverage ratio) from excess cash flow, as defined in the credit agreement, for each of our fiscal years (commencing with the period ending July 26, 2015) must be used to pay down outstanding borrowings under our Senior Secured Term Loan Facility.

Depending on the Company’s senior secured first lien net leverage ratio as defined in the credit agreement governing the Senior Secured Term Loan Facility, we could be required to prepay outstanding term loans from a certain portion of our annual excess cash flow, as defined in the credit agreement.  Required excess cash flow payments commence at 50% of our annual excess cash flow (which percentage will be reduced to 25% if our senior secured first lien net leverage ratio is equal to or less than 4.0 to 1.0 but greater than 3.5 to 1.0 and will be reduced to 0% if our senior secured first lien net leverage ratio is equal to or less than 3.5 to 1.0).  For fiscal year 2014, we were not required to prepay any outstanding term loans pursuant to the annual excess cash flow requirements. We also must offer to prepay outstanding term loans at 100% of the principal amount to be prepaid, plus accrued and unpaid interest, with the net cash proceeds of certain asset sales under certain circumstances.

We may repay all or any portion of the outstanding Senior Secured Term Loan Facility at any time, subject to redeployment costs in the case of prepayment of LIBOR borrowings other than the last day of the relevant interest period and in the event of certain repayments, conversions or replacements of the term loans under the Senior Secured Term Loan Facility that directly or indirectly result in a reduction of the "effective" interest rate applicable to such term loans or any applicable replacement tranche of debt prior to March 13, 2015, a payment of 1.00% of the aggregate principal amount of the term loans so repaid, converted or replaced. The Senior Secured Term Loan Facility amortizes in equal quarterly installments in an amount equal to 1.00% per annum of the principal amount outstanding as of the Refinancing Amendment, less any voluntary or mandatory prepayments, with the remaining balance due at final maturity.

Our Senior Secured Term Loan Facility is guaranteed by Holdings and each of our current and future subsidiary guarantors other than (a) unrestricted subsidiaries, (b) certain immaterial subsidiaries, (c) foreign subsidiaries and any domestic subsidiary of a foreign subsidiary, (d) certain holding companies of foreign subsidiaries, (e) captive insurance subsidiaries, not for profit subsidiaries, or a subsidiary which is a special purpose entity for securitization transactions or like special purposes and (f) any subsidiary that is prohibited by applicable law or contractual obligation from acting as a guarantor or which would require governmental approval to provide a guarantee (unless such approval has been received). All obligations under the Senior Secured Term Loan Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of Holdings, the Company and the subsidiary guarantors, including:

• a first‑priority pledge of 100% of the Company's capital stock and certain of the capital stock held by the Company, Holdings or any subsidiary guarantor (which pledge, in the case of any foreign subsidiary is limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary);

• a first‑priority security interest in, and mortgages on, substantially all other tangible and intangible assets of the Company, Holdings and each subsidiary guarantor, including a significant portion of the Company’s owned real property and equipment, but excluding, among other things, the collateral described in the following bullet point; and

• a second‑priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by the Company or the subsidiary guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges for sales of inventory by the Company and the subsidiary guarantors, certain related assets and proceeds of the foregoing.

Capital stock and other securities of a subsidiary of the Company that are owned by the Company or any subsidiary guarantor will not constitute collateral under the Senior Secured Term Loan Facility to the extent that such securities cannot

F-22

secure the 2028 Debentures or other secured public debt obligations without requiring the preparation and filing of separate financial statements of such subsidiary in accordance with applicable SEC rules. As a result, the collateral under the Senior Secured Term Loan Facility will include shares of capital stock or other securities of subsidiaries of the Company or any subsidiary guarantor only to the extent that the applicable value of such securities (on a subsidiary-by-subsidiary basis) is less than 20% of the aggregate principal amount of the 2028 Debentures or other secured public debt obligations of the Company.

The credit agreement governing the Senior Secured Term Loan Facility contains a number of negative covenants and covenants related to the security arrangements for the Senior Secured Term Loan Facility.  The credit agreement also contains customary affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50.0 million.

Cash Pay Notes.  In connection with the Acquisition, we incurred indebtedness in the form of $960.0 million aggregate principal amount of 8.00% senior Cash Pay Notes. Interest on the Cash Pay Notes is payable semi-annually in arrears on each April 15 and October 15.  The Cash Pay Notes were assumed by us as a result of the Acquisition and are guaranteed by the same entities that guarantee the Senior Secured Term Loan Facility.  The Cash Pay Notes are unsecured and the guarantees are full and unconditional.  Our Cash Pay Notes mature on October 15, 2021.

We may redeem the Cash Pay Notes, in whole or in part, at any time prior to October 15, 2016, at a price equal to 100% of the principal amount of the Cash Pay Notes redeemed plus accrued and unpaid interest up to the redemption date plus the applicable premium. In addition, we may redeem up to 40% in the aggregate principal amount of the Cash Pay Notes with the net proceeds of certain equity offerings at any time and from time to time on or before October 15, 2016 at a redemption price equal to 108.00% of the face amount thereof, plus accrued and unpaid interest up to the date of redemption, so long as at least 50% of the original aggregate principal amount of the Cash Pay Notes remain outstanding after such redemption. On and after October 15, 2016, we may redeem the Cash Pay Notes, in whole or in part, at the redemption price set forth in the Cash Pay Notes indenture.

The Cash Pay Notes include certain restrictive covenants that limit our ability to, among other things: (i) incur additional debt or issue certain preferred stock, (ii) pay dividends, redeem stock or make other distributions, (iii) make other restricted payments or investments, (iv) create liens on assets, (v) transfer or sell assets, (vi) create restrictions on payment of dividends or other amounts by us to our restricted subsidiaries, (vii) engage in mergers or consolidations, (viii) engage in certain transactions with affiliates and (ix) designate our subsidiaries as unrestricted subsidiaries. The Cash Pay Notes also contain a cross-acceleration provision in respect of other indebtedness that has an aggregate principal amount exceeding $50.0 million.

PIK Toggle Notes.  In connection with the Acquisition, we incurred indebtedness in the form of $600.0 million aggregate principal amount of our 8.75%/9.50% senior PIK Toggle Notes. The PIK Toggle Notes were assumed by us as a result of the Acquisition and are guaranteed by the same entities that guarantee the Senior Secured Term Loan Facility. The PIK Toggle Notes are unsecured and the guarantees are full and unconditional. Our PIK Toggle Notes mature on October 15, 2021.

Interest on the PIK Toggle Notes is payable semi-annually in arrears on each April 15 and October 15.  Interest on the PIK Toggle Notes will be paid entirely in cash for the first two interest payments and thereafter may be paid (i) entirely in cash (Cash Interest), (ii) entirely by increasing the principal amount of the PIK Toggle Notes by the relevant interest (PIK Interest), or (iii) 50% in Cash Interest and 50% in PIK Interest, subject to certain restrictions on the timing and number of elections of PIK Interest or partial PIK Interest payments.  Cash Interest on the PIK Toggle Notes accrues at a rate of 8.75% per annum.  PIK Interest on the PIK Toggle Notes accrues at a rate of 9.50% per annum.

We may redeem the PIK Toggle Notes, in whole or in part, at any time prior to October 15, 2016, at a price equal to 100% of the principal amount of the PIK Toggle Notes redeemed plus accrued and unpaid interest up to the redemption date plus the applicable premium. In addition, we may redeem up to 40% in the aggregate principal amount of the PIK Toggle Notes with the net proceeds of certain equity offerings at any time and from time to time on or before October 15, 2016 at a redemption price equal to 108.75% of the face amount thereof, plus accrued and unpaid interest up to the date of redemption, so long as at least 50% of the original aggregate principal amount of the PIK Toggle Notes remain outstanding after such redemption. On and after October 15, 2016, we may redeem the PIK Toggle Notes, in whole or in part, at the redemption price set forth in the PIK Toggle Notes indenture.

The PIK Toggle Notes include certain restrictive covenants that limit our ability to, among other things: (i) incur additional debt or issue certain preferred stock, (ii) pay dividends, redeem stock or make other distributions, (iii) make other restricted payments or investments, (iv) create liens on assets, (v) transfer or sell assets, (vi) create restrictions on payment of dividends or other amounts by us to our restricted subsidiaries, (vii) engage in mergers or consolidations, (viii) engage in

F-23

certain transactions with affiliates and (ix) designate our subsidiaries as unrestricted subsidiaries. The PIK Toggle Notes also contain a cross-acceleration provision in respect of other indebtedness that has an aggregate principal amount exceeding $50.0 million.

2028 Debentures.  NMG has outstanding $125.0 million aggregate principal amount of its 7.125% 2028 Debentures.  NMG equally and ratably secures its 2028 Debentures by a first lien security interest on certain collateral subject to liens granted under the Senior Secured Credit Facilities constituting (a) 1) 100% of the capital stock of certain of NMG’s existing and future domestic subsidiaries and 2) 100% of the non-voting stock and 65% of the voting stock of certain of NMG’s existing and future foreign subsidiaries and (b) certain of NMG’s principal properties that include approximately half of NMG’s full-line stores, in each case, to the extent required by the terms of the indenture governing the 2028 Debentures. The 2028 Debentures contain covenants that restrict NMG’s ability to create liens and enter into sale and lease back transactions.  The collateral securing the 2028 Debentures will be released upon the release of liens on such collateral under the Senior Secured Credit Facilities and any other debt (other than the 2028 Debentures) secured by such collateral.  Capital stock and other securities of a subsidiary of NMG that are owned by NMG or any subsidiary will not constitute collateral under the 2028 Debentures to the extent such property does not constitute collateral under the Senior Secured Credit Facilities as described above.  The 2028 Debentures are guaranteed on an unsecured, senior basis by us.  Our guarantee is full and unconditional.  Our guarantee of the 2028 Debentures is subject to automatic release if the requirements for legal defeasance or covenant defeasance of the 2028 Debentures are satisfied, or if NMG’s obligations under the indenture governing the 2028 Debentures are discharged.  Currently, our non-guarantor subsidiaries consist principally of Bergdorf Goodman, Inc., through which NMG conducts the operations of its Bergdorf Goodman stores, and NM Nevada Trust, which holds legal title to certain real property and intangible assets used by NMG in conducting its operations.  The 2028 Debentures include certain restrictive covenants and a cross-acceleration provision in respect of any other indebtedness that has an aggregate principal amount exceeding $15.0 million.  Our 2028 Debentures mature on June 1, 2028.

Former Asset-Based Revolving Credit Facility.  In connection with the Acquisition, we repaid all outstanding obligations of $145.0 million under the Former Asset-Based Revolving Credit Facility and terminated the facility on October 25, 2013.  This facility was replaced by the Asset-Based Revolving Credit Facility.

Former Senior Secured Term Loan Facility.  In connection with the Acquisition, we repaid the outstanding balance of $2,433.1 million under our Former Senior Secured Term Loan Facility on October 25, 2013.  This facility was replaced by the Senior Secured Term Loan Facility.

Retirement of Previously Outstanding Senior Subordinated Notes.  In November 2012, we repurchased and cancelled $294.2 million principal amount of Senior Subordinated Notes through a tender offer and redeemed the remaining $205.8 million principal amount of Senior Subordinated Notes on December 31, 2012 (after which no Senior Subordinated Notes remained outstanding).  NMG’s payments to holders of the Senior Subordinated Notes in the tender offer and redemption (including transaction costs), taken together, aggregated approximately $510.7 million.

In connection with the retirement of the Senior Subordinated Notes, we incurred a loss on debt extinguishment of $15.6 million, which included 1) costs of $10.7 million related to the tender for and redemption of the Senior Subordinated Notes and 2) the write-off of $4.9 million of debt issuance costs related to the initial issuance of the Senior Subordinated Notes. The total loss on debt extinguishment was recorded in the second quarter of fiscal year 2013 as a component of interest expense.

Maturities of Long-Term Debt.  At August 2, 2014, annual maturities of long-term debt during the next five fiscal years and thereafter are as follows (in millions):

2015	$	29.4
2016	29.4
2017	29.4
2018	29.4
2019	29.4
Thereafter	4,462.9

The previous table does not reflect future excess cash flow prepayments, if any, that may be required under the Senior Secured Term Loan Facility.

F-24

Interest expense. The significant components of interest expense are as follows:

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 3, 2013			July 28, 2012
(in thousands)	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
Asset-Based Revolving Credit Facility	$	311		$	75		$	—		$	—
Senior Secured Term Loan Facility	102,818			3,687			—			—
Cash Pay Notes	57,556			2,773			—			—
PIK Toggle Notes	39,344			1,896			—			—
2028 Debentures	6,680			2,226			9,004			8,906
Former Asset-Based Revolving Credit Facility	—			477			1,453			1,052
Former Senior Secured Term Loan Facility	—			22,521			108,489			98,989
Senior Subordinated Notes	—			—			19,031			51,873
Amortization of debt issue costs	17,117			2,466			8,404			8,457
Other, net	1,661			1,334			7,214			7,040
Capitalized interest	(630		)	(140		)	(237		)	(1,080		)
	$	224,857		$	37,315		$	153,358		$	175,237
Loss on debt extinguishment	7,882			—			15,597			—
Interest expense, net	$	232,739		$	37,315		$	168,955		$	175,237

We recorded interest expense of $8.4 million during the thirteen weeks ended November 2, 2013 related to debt incurred as a result of the Acquisition. 

NOTE 8.  DERIVATIVE FINANCIAL INSTRUMENTS

At August 2, 2014, we had outstanding floating rate debt obligations of $2,927.9 million.  In August 2011, we entered into interest rate cap agreements (at a cost of $5.8 million) for an aggregate notional amount of $1,000.0 million to hedge the variability of our cash flows related to a portion of our floating rate indebtedness. The interest rate cap agreements cap LIBOR at 2.50% from December 2012 through December 2014 with respect to the $1,000.0 million notional amount of such agreements.  In the event LIBOR is less than 2.50%, we will pay interest at the lower LIBOR rate.  In the event LIBOR is higher than 2.50%, we will pay interest at the capped rate of 2.50%.

In April 2014, we entered into additional interest rate cap agreements (at a cost of $2.0 million) for an aggregate notional amount of $1,400.0 million to hedge the variability of our cash flows related to a portion of our floating rate indebtedness once the current interest rate cap agreements expire in December 2014. The interest rate cap agreements cap LIBOR at 3.00% from December 2014 through December 2016 with respect to the $1,400.0 million notional amount of such agreements. In the event LIBOR is less than 3.00%, we will pay interest at the lower LIBOR rate. In the event LIBOR is higher than 3.00%, we will pay interest at the capped rate of 3.00%. On August 2, 2014, the fair value of our interest rate caps was $1.1 million.

Gains and losses realized due to the expiration of applicable portions of the interest rate caps are reclassified to interest expense at the time our quarterly interest payments are made.  A summary of the recorded amounts related to our interest rate caps reflected in our Consolidated Statements of Operations is as follows:

	Thirty-nine weeks ended		Thirteen weeks ended		Fiscal year ended		Fiscal year ended
	August 2, 2014		November 2, 2013		August 3, 2013		July 28, 2012
(in thousands)	(Successor)		(Predecessor)		(Predecessor)		(Predecessor)
Realized hedging losses — included in interest expense, net	$	—	$	369	$	3,475	$	3,318

F-25

NOTE 9.  INCOME TAXES

The significant components of income tax (benefit) expense are as follows:

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 3, 2013			July 28, 2012
(in thousands)	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
Current:
Federal	$	23,432		$	12,100		$	114,632		$	84,800
State	4,617			2,145			18,540			13,545
	28,049			14,245			133,172			98,345
Deferred:
Federal	(98,443		)	(5,291		)	(18,648		)	(8,307		)
State	(19,431		)	(1,035		)	(791		)	(1,787		)
	(117,874		)	(6,326		)	(19,439		)	(10,094		)
Income tax (benefit) expense	$	(89,825	)	$	7,919		$	113,733		$	88,251

A reconciliation of income tax (benefit) expense to the amount calculated based on the federal and state statutory rates is as follows:

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 3, 2013			July 28, 2012
(in thousands)	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
Income tax (benefit) expense at statutory rate	$	(78,365	)	$	(1,814	)	$	97,101		$	79,918
State income taxes, net of federal income tax benefit	(9,256		)	635			11,672			8,672
Unbenefitted losses of foreign subsidiary	1,265			533			4,594			530
Tax (benefit) expense related to tax settlements and other changes in tax liabilities	(1,101		)	133			525			(1,137		)
Impact of non-taxable income	(4		)	(10		)	(13		)	(18		)
Impact of non-deductible expenses	(2,354		)	8,514			683			1,000
Other	(10		)	(72		)	(829		)	(714		)
Total	$	(89,825	)	$	7,919		$	113,733		$	88,251
Effective tax rate	40.1		%	(152.9		)%	41.0		%	38.7		%

Our effective income tax rates for the thirty-nine weeks ended August 2, 2014 and fiscal years 2013 and 2012 exceeded the federal statutory tax rate primarily due to state income taxes and the lack of a U.S. tax benefit related to the losses from our investment in a foreign e-commerce retailer. Our effective income tax rate on the loss for the thirteen weeks ended November 2, 2013 exceeded the federal statutory tax rate due to the non-deductible portion of transaction costs incurred in connection with the Acquisition, state income taxes and the lack of a U.S. tax benefit related to the losses from our investment in a foreign e-commerce retailer.

F-26

Significant components of our net deferred income tax asset (liability) are as follows:

	August 2, 2014			August 3, 2013
(in thousands)	(Successor)			(Predecessor)
Deferred income tax assets:
Accruals and reserves	$	32,675		$	25,909
Employee benefits	162,748			128,225
Other	30,316			20,298
Total deferred tax assets	$	225,739		$	174,432
Deferred income tax liabilities:
Inventory	$	(6,312	)	$	(8,110	)
Depreciation and amortization	(272,796		)	(69,167		)
Intangible assets	(1,405,933		)	(696,056		)
Other	(41,725		)	(12,835		)
Total deferred tax liabilities	(1,726,766		)	(786,168		)
Net deferred income tax liability	$	(1,501,027	)	$	(611,736	)
Net deferred income tax asset (liability):
Current	$	39,049		$	27,645
Non-current	(1,540,076		)	(639,381		)
Total	$	(1,501,027	)	$	(611,736	)

The net deferred tax liability of $1,501.0 million at August 2, 2014 increased from $611.7 million at August 3, 2013.  This increase was comprised primarily of 1) $930.5 million increase in deferred tax liabilities related to purchase accounting adjustments and 2) $41.2 million increase in deferred tax assets related to employee benefits and other items. We believe it is more likely than not that we will realize the benefits of our recorded deferred tax assets.

At August 2, 2014, the gross amount of unrecognized tax benefits was $2.5 million, $1.7 million of which would impact our effective tax rate, if recognized. We classify interest and penalties as a component of income tax expense and our liability for accrued interest and penalties was $5.1 million at August 2, 2014 and $5.5 million at August 3, 2013. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	August 2, 2014			August 3, 2013
(in thousands)	(Successor)			(Predecessor)
Balance at beginning of fiscal year	$	3,461		$	3,564
Gross amount of decreases for prior year tax positions	(1,072		)	(281		)
Gross amount of increases for current year tax positions	154			178
Balance at ending of fiscal year	$	2,543		$	3,461

We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions.  During the second quarter of fiscal year 2013, the Internal Revenue Service (IRS) began its audit of our fiscal year 2010 and 2011 federal income tax returns and closed its audit of our fiscal year 2008 and 2009 income tax returns.  During the second quarter of fiscal year 2014, the IRS began its audit of our fiscal year 2012 federal income tax return. With respect to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for fiscal years before 2009.  We believe our recorded tax liabilities as of August 2, 2014 are sufficient to cover any potential assessments to be made by the IRS or other taxing authorities upon the completion of their examinations and we will continue to review our recorded tax liabilities for potential audit assessments based upon subsequent events, new information and future circumstances.  We believe it is reasonably possible that additional adjustments in the amounts of our unrecognized tax benefits could occur within the next twelve months as a result of settlements with tax authorities or expiration of statutes of limitation.  At this time, we do not believe such adjustments will have a material impact on our Consolidated Financial Statements.

Subsequent to the Acquisition, Parent and its subsidiaries, including the Company, will file U.S. federal income taxes as a consolidated group. The Company has elected to be treated as a corporation for U.S. federal income tax purposes and all operations of Parent are conducted through the Company and its subsidiaries. Income taxes are presented as if the Company

F-27

and its subsidiaries are separate taxpayers from Parent. There are no differences between the Company's and Parent's current and deferred income taxes. 

NOTE 10.  EMPLOYEE BENEFIT PLANS

Description of Benefit Plans.  We currently maintain defined contribution plans consisting of a retirement savings plan (RSP) and a defined contribution supplemental executive retirement plan (Defined Contribution SERP Plan).  As of January 1, 2011, employees make contributions to the RSP and we match an employee’s contribution up to a maximum of 6% of the employee’s compensation subject to statutory limitations for a potential maximum match of 75% of employee contributions.  We also sponsor an unfunded key employee deferred compensation plan, which provides certain employees with additional benefits.  Our aggregate expense related to these plans was approximately $23.5 million for the thirty-nine weeks ended August 2, 2014, $7.1 million for the thirteen weeks ended November 2, 2013, $30.4 million in fiscal year 2013 and $29.3 million in fiscal year 2012.

In addition, we sponsor a defined benefit pension plan (Pension Plan) and an unfunded supplemental executive retirement plan (SERP Plan) which provides certain employees additional pension benefits.  As of the third quarter of fiscal year 2010, benefits offered to all participants in our Pension Plan and SERP Plan were frozen.  Retirees and active employees hired prior to March 1, 1989 are eligible for certain limited postretirement health care benefits (Postretirement Plan) if they meet certain service and minimum age requirements.

Obligations for our employee benefit plans, included in other long-term liabilities, are as follows:

	August 2, 2014			August 3, 2013
(in thousands)	(Successor)			(Predecessor)
Pension Plan	$	189,890		$	104,018
SERP Plan	113,787			103,854
Postretirement Plan	10,945			12,429
	314,622			220,301
Less: current portion	(6,602		)	(6,542		)
Long-term portion of benefit obligations	$	308,020		$	213,759

As of August 2, 2014, we have $16.5 million (net of taxes of $10.6 million) of adjustments to state such obligations at fair value recorded as increases to accumulated other comprehensive loss.

Funding Policy and Status.  Our policy is to fund the Pension Plan at or above the minimum required by law.  In fiscal years 2014 and 2013, we were not required to make contributions to the Pension Plan; however, we made a voluntary contribution to our Pension Plan of $25.0 million in fiscal year 2013.  As of August 2, 2014, we do not believe we will be required to make contributions to the Pension Plan for fiscal year 2015.  We will continue to evaluate voluntary contributions to our Pension Plan based upon the unfunded position of the Pension Plan, our available liquidity and other factors.

The funded status of our Pension Plan, SERP Plan and Postretirement Plan is as follows:

	Pension Plan						SERP Plan				Postretirement Plan
	Fiscal years						Fiscal years				Fiscal years
	2014			2013			2014		2013		2014		2013
(in thousands)	(Successor)			(Predecessor)			(Successor)		(Predecessor)		(Successor)		(Predecessor)
Projected benefit obligation	$	592,918		$	489,856		$	113,787	$	103,854	$	10,945	$	12,429
Fair value of plan assets	(403,028		)	(385,838		)	—		—		—		—
Accrued obligation	$	189,890		$	104,018		$	113,787	$	103,854	$	10,945	$	12,429

F-28

Cost of Benefits.  The components of the expenses we incurred under our Pension Plan, SERP Plan and Postretirement Plan are as follows:

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 3, 2013			July 28, 2012
(in thousands)	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
Pension Plan:
Interest cost	$	19,516		$	5,781		$	21,243		$	24,761
Expected return on plan assets	(18,499		)	(6,401		)	(26,381		)	(27,097		)
Net amortization of losses	—			1,095			6,287			2,616
Pension Plan expense	$	1,017		$	475		$	1,149		$	280
SERP Plan:
Interest cost	$	3,653		$	1,104		$	4,037		$	4,816
Net amortization of losses	—			—			522			—
SERP Plan expense	$	3,653		$	1,104		$	4,559		$	4,816
Postretirement Plan:
Service cost	$	19		$	5		$	34		$	35
Interest cost	520			142			650			780
Net amortization of prior service cost	—			(321		)	(1,556		)	(1,556		)
Net amortization of losses	—			35			589			423
Postretirement Plan expense (income)	$	539		$	(139	)	$	(283	)	$	(318	)

For purposes of determining pension expense, the expected return on plan assets is calculated using the market related value of plan assets.  The market related value of plan assets does not immediately recognize realized gains and losses.  Rather, these effects of realized gains and losses are deferred initially and amortized over three years in the determination of the market related value of plan assets.  At August 2, 2014, the fair value of plan assets exceeded the market related value by $8.1 million.

Benefit Obligations.  Our obligations for the Pension Plan, SERP Plan and Postretirement Plan are valued annually as of the end of each fiscal year.  Changes in our obligations pursuant to our Pension Plan, SERP Plan and Postretirement Plan during fiscal years 2014 and 2013 are as follows:

	Pension Plan						SERP Plan						Postretirement Plan
	Fiscal years						Fiscal years						Fiscal years
	2014			2013			2014			2013			2014			2013
(in thousands)	(Successor)			(Predecessor)			(Successor)			(Predecessor)			(Successor)			(Predecessor)
Projected benefit obligations:
Beginning of year	$	489,856		$	565,852		$	103,854		$	117,562		$	12,429		$	17,466
Service cost	—			—			—			—			24			34
Interest cost	25,297			21,243			4,757			4,037			662			650
Actuarial loss (gain):
Pre-Acquisition	62,603			(64,616		)	4,484			(13,565		)	2,329			(4,308		)
Post-Acquisition	36,837			—			5,044			—			(3,765		)	—
Benefits paid, net	(21,675		)	(32,623		)	(4,352		)	(4,180		)	(734		)	(1,413		)
End of year	$	592,918		$	489,856		$	113,787		$	103,854		$	10,945		$	12,429

In connection with the Acquisition, the obligations and assets related to our benefit plans were valued at their fair values as of the date of the Acquisition, resulting in a $66.5 million increase in the carrying value of our long-term benefit obligations primarily due to changes in assumed mortality of plan participants.

In July 2013, the employee benefits committee of the Company approved the offer of lump sum distributions or annuity distributions (for balances in excess of $5,000 but less than $30,000) for certain vested terminated participants in our Pension Plan.  Distributions to the vested terminated participants were approximately $14.2 million during the fourth quarter of fiscal year 2013.

F-29

A summary of expected benefit payments related to our Pension Plan, SERP Plan and Postretirement Plan is as follows:

	Pension		SERP		Postretirement
(in thousands)	Plan		Plan		Plan
Fiscal year 2015	$	22,141	$	5,940	$	663
Fiscal year 2016	23,698		6,099		705
Fiscal year 2017	25,253		6,549		692
Fiscal year 2018	26,809		6,870		692
Fiscal year 2019	28,255		6,953		647
Fiscal years 2020-2024	160,805		36,227		3,203

Pension Plan Assets and Investment Valuations. Assets held by our Pension Plan aggregated $403.0 million at August 2, 2014 and $385.8 million at August 3, 2013.  The Pension Plan’s investments are stated at fair value or estimated fair value, as more fully described below.  Purchases and sales of securities are recorded on the trade date.  Interest income is recorded on the accrual basis.  Dividends are recorded on the ex-dividend date.

Assets held by our Pension Plan are invested in accordance with the provisions of our approved investment policy.  The Pension Plan’s strategic asset allocation was structured to reduce volatility through diversification and enhance return to approximate the amounts and timing of the expected benefit payments.  The asset allocation for our Pension Plan at the end of fiscal years 2014 and 2013 and the target allocation for fiscal year 2015, by asset category, are as follows:

	Pension Plan
	Allocation at		Allocation at		2015
	July 31, 2014		July 31, 2013		Target Allocation
Equity securities	60	%	62	%	60	%
Fixed income securities	40	%	38	%	40	%
Total	100	%	100	%	100	%

Changes in the assets held by our Pension Plan in fiscal years 2014 and 2013 are as follows:

	Fiscal years
	2014			2013
(in thousands)	(Successor)			(Predecessor)
Fair value of assets at beginning of year	$	385,838		$	389,899
Actual return on assets	38,865			3,513
Contribution	—			25,049
Benefits paid	(21,675		)	(32,623		)
Fair value of assets at end of year	$	403,028		$	385,838

Pension Plan investments in mutual funds and U.S. government securities are classified as Level 1 investments within the fair value hierarchy. Investments in mutual funds are valued at fair value based on quoted market prices, which represent the net asset value of the shares held by the Pension Plan at year-end. U.S. government securities are stated at fair value as determined by quoted market prices. 

Pension Plan investments in corporate debt securities, common/collective trusts and certain other investments are classified as Level 2 investments within the fair value hierarchy.  Common/collective trusts are valued at net asset value based on the underlying investments of such trust as determined by the sponsor of the trust.  Common/collective trusts can be redeemed daily.  Other Level 2 investments are valued using updated quotes from market makers or broker-dealers recognized as market participants, information from market sources integrating relative credit information, observed market movements and sector news, all of which is applied to pricing applications and models.

Pension Plan investments in hedge funds and limited partnership interests are classified as Level 3 investments within the fair value hierarchy.  Hedge funds are valued at estimated fair value based on net asset value as determined by the respective fund manager based on the valuation of the underlying securities.  Limited partnership interests in venture capital investments are valued at estimated fair value based on net asset value as determined by the respective fund investment

F-30

manager.  The hedge funds and limited partnerships allocate gains, losses and expenses to the Pension Plan as described in the agreements.

Hedge funds and limited partnership interests are redeemable at net asset value to the extent provided in the documentation governing the investments.  Redemption of these investments may be subject to restrictions including lock-up periods where no redemptions are allowed, restrictions on redemption frequency and advance notice periods for redemptions.  As of August 2, 2014, certain of these investments are subject to a lock-up period of ten months, certain of these investments are subject to restrictions on redemption frequency, ranging from monthly to every three years and certain of these investments are subject to advance notice requirements, ranging from 30-day notification to 180-day notification.

Investment securities, in general, are exposed to various risks such as interest rate, credit and overall market volatility.  Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits.  The valuation methods previously described above may produce a fair value calculation that may not be indicative of net realized value or reflective of future fair values.

The following tables set forth by level, within the fair value hierarchy, the Pension Plan’s assets at fair value as of August 2, 2014 and August 3, 2013.

	August 2, 2014 (Successor)
(in thousands)	Level 1		Level 2		Level 3		Total
Equity securities:
Common/collective trusts	$	—	$	57,132	$	—	$	57,132
Hedge funds	—		—		180,681		180,681
Limited partnership interests	—		—		4,546		4,546
Fixed income securities:
Corporate debt securities	—		85,411		—		85,411
Mutual funds	39,331		—		—		39,331
U.S. government securities	27,971		—		—		27,971
Other	—		7,956		—		7,956
Total investments	$	67,302	$	150,499	$	185,227	$	403,028

	August 3, 2013 (Predecessor)
(in thousands)	Level 1		Level 2		Level 3		Total
Equity securities:
Common/collective trusts	$	—	$	59,457	$	—	$	59,457
Hedge funds	—		—		176,951		176,951
Limited partnership interests	—		—		4,197		4,197
Fixed income securities:
Corporate debt securities	—		34,204		—		34,204
Mutual funds	93,033		—		—		93,033
U.S. government securities	12,630		—		—		12,630
Other	—		5,366		—		5,366
Total investments	$	105,663	$	99,027	$	181,148	$	385,838

F-31

The table below sets forth a summary of changes in the fair value of our Pension Plan’s Level 3 investment assets for fiscal years 2014 and 2013.

	Fiscal years
	2014			2013
(in thousands)	(Successor)			(Predecessor)
Balance, beginning of year	$	181,148		$	132,074
Purchases	80,529			133,462
Sales	(89,668		)	(96,672		)
Realized gains	9,459			15,257
Unrealized losses relating to investments sold	(4,019		)	(17,041		)
Unrealized gains relating to investments still held	7,778			14,068
Balance, end of year	$	185,227		$	181,148

Assumptions.  Significant assumptions related to the calculation of our obligations pursuant to our employee benefit plans include the discount rates used to calculate the present value of benefit obligations to be paid in the future, the expected long-term rate of return on assets held by our Pension Plan and the health care cost trend rate for the Postretirement Plan.  We review these assumptions annually based upon currently available information.  The assumptions we utilized in calculating the projected benefit obligations and periodic expense of our Pension Plan, SERP Plan and Postretirement Plan are as follows:

	July 31, 2014		November 2, 2013		July 31, 2013		July 31, 2012
Pension Plan:
Discount rate	4.35	%	4.80	%	4.70	%	3.80	%
Expected long-term rate of return on plan assets	6.50	%	6.50	%	6.50	%	7.00	%
SERP Plan:
Discount rate	4.20	%	4.60	%	4.50	%	3.60	%
Postretirement Plan:
Discount rate	4.25	%	4.80	%	4.70	%	3.80	%
Initial health care cost trend rate	8.00	%	8.00	%	8.00	%	8.00	%
Ultimate health care cost trend rate	5.00	%	8.00	%	8.00	%	8.00	%

Discount rate.  The assumed discount rate utilized is based on a broad sample of Moody’s high quality corporate bond yields as of the measurement date.  The projected benefit payments are matched with the yields on these bonds to determine an appropriate discount rate for the plan.  The discount rate is utilized principally in calculating the present values of our benefit obligations and related expenses.

Expected long-term rate of return on plan assets.  The assumed expected long-term rate of return on assets is the weighted average rate of earnings expected on the funds invested or to be invested by the Pension Plan to provide for the plan’s obligations.  At August 2, 2014, the expected long-term rate of return on plan assets was 6.5%.  We estimate the expected average long-term rate of return on assets based on historical returns, our future asset performance expectations using currently available market and other data and the advice of our outside actuaries and advisors.  To the extent the actual rate of return on assets realized over the course of a year is greater than the assumed rate, that year’s annual pension expense is not affected.  Rather this gain reduces future pension expense over a period of approximately 25 years.  To the extent the actual rate of return on assets is less than the assumed rate, that year’s annual pension expense is likewise not affected.  Rather this loss increases pension expense over approximately 25 years.

Health care cost trend rate.  The assumed health care cost trend rate represents our estimate of the annual rates of change in the costs of the health care benefits currently provided by the Postretirement Plan.  The health care cost trend rate implicitly considers estimates of health care inflation, changes in health care utilization and delivery patterns, technological advances and changes in the health status of the plan participants.

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Significant assumptions utilized in the calculation of our projected benefit obligations as of August 2, 2014 and future expense requirements for our Pension Plan, SERP Plan and Postretirement Plan, and sensitivity analysis related to changes in these assumptions, are as follows:

					Using Sensitivity Rate
	Actual Rate		Sensitivity Rate  Increase/(Decrease)		(Decrease)/ Increase in Liability (in millions)			Increase in Expense (in millions)
Pension Plan:
Discount rate	4.35	%	0.25	%	$	(20.3	)	$	0.5
Expected long-term rate of return on plan assets	6.50	%	(0.50	)%	N/A			$	1.9
SERP Plan:
Discount rate	4.20	%	0.25	%	$	(3.2	)	$	0.1
Postretirement Plan:
Discount rate	4.25	%	0.25	%	$	(0.3	)	$	—
Ultimate health care cost trend rate	5.00	%	1.00	%	$	1.4		$	0.1

NOTE 11.  DISTRIBUTIONS TO FORMER STOCKHOLDERS

On March 28, 2012, the Board of Directors of NMG declared a cash dividend (the 2012 Dividend) of $435 per share of its outstanding common stock resulting in total distributions to our former stockholders and certain former option holders (including related expenses) of $449.3 million.  The 2012 Dividend was paid on March 30, 2012 to former stockholders of record at the close of business on March 28, 2012.

NOTE 12.  STOCK-BASED COMPENSATION

Predecessor

Stock Options.  The Predecessor had equity-based management arrangements, which authorized equity awards to be granted to certain management employees. At the time of the Acquisition, Predecessor stock options for 101,730 shares were outstanding, consisting of vested options for 67,899 shares and unvested options for 33,831 shares.  In connection with the Acquisition, previously unvested options became fully vested at October 25, 2013.

All Predecessor stock options were subject to settlement in connection with the Acquisition in amounts equal to the excess of the per share merger consideration over the exercise prices of such options.  The fair value of the consideration payable to holders of Predecessor stock options aggregated $187.4 million, of such amount $135.9 million represented the fair value of previously vested options which amount was included in the consideration paid by the Sponsors to acquire the Company.  The remaining $51.5 million represented the fair value of previously unvested options, such amount was expensed in the results of operations of the Successor for the second quarter of fiscal year 2014.

We recognized compensation expense for Predecessor stock options on a straight-line basis over the vesting period.  We recognized non-cash stock compensation expense of $2.5 million in the first quarter of fiscal year 2014, $9.7 million in fiscal year 2013 and $6.9 million in fiscal year 2012, which is included in selling, general and administrative expenses. 

Successor

Stock Options.  Subsequent to the Acquisition, Parent established various incentive plans pursuant to which eligible employees, consultants and non-employee directors are eligible to receive stock-based awards.  Under the incentive plans, Parent is authorized to grant stock options, restricted stock and other types of awards that are valued in whole or in part by reference to, or are payable or otherwise based on, the shares of common stock of Parent. Charges with respect to options issued by Parent pursuant to the incentive plans are reflected by the Company in the preparation of our Consolidated Financial Statements.

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Co-Invest Options.  In connection with the Acquisition, certain executive officers of the Company rolled over a portion of the amounts otherwise payable in settlement of their Predecessor stock options into stock options of Parent. Specifically, upon the consummation of the Acquisition, Predecessor stock options were rolled over and converted into stock options for 56,979 shares of Parent (the Co-Invest Options). 

The number of Co-Invest Options issued upon conversion of Predecessor stock options was equal to the product of (a) the number of shares subject to the applicable Predecessor stock options multiplied by (b) the ratio of the per share merger consideration over the fair market value of a share of Parent, which was approximately 3.1x (the Exchange Ratio).  The exercise price of each Predecessor stock option was adjusted by dividing the original exercise price of the Predecessor stock option by the Exchange Ratio.  Following the conversion, the exercise prices of the Co-Invest Options range from $180 to $644 per share.  As of the date of the Acquisition, the aggregate intrinsic value of the Co-Invest Options equaled the intrinsic value of the rolled over Predecessor stock options. The Co-Invest Options are fully vested and are exercisable at any time prior to the applicable expiration dates related to the original grant of the Predecessor options. The Co-Invest Options contain sale and repurchase provisions.

Non-Qualified Stock Options.  Pursuant to the terms of the incentive plans, Parent granted 81,607 time-vested non-qualified stock options and 76,385 performance-vested non-qualified stock options to certain executive officers and non-employee directors of the Company in fiscal year 2014.  Each grant of non-qualified stock options consists of options to purchase an equal number of shares of Parent’s Class A common stock and Class B common stock.  These non-qualified stock options were granted at an exercise price of $1,000 per share and such options will expire no later than the tenth anniversary of the grant date.

Accounting for Successor Stock Options. Parent generally has the right to call shares issued upon exercise of vested stock options at the fair market value and vested unexercised stock options for the difference between the fair market value of the underlying share and the exercise price in the event the optionee ceases to be an employee of the Company. However, if the optionee voluntarily leaves the Company without good reason or is terminated for cause, the repurchase price is the lesser of the exercise price of such options or the fair value of such awards at the employee termination date. In the event of the retirement of the optionee, the repurchase price is fair value at the retirement date. As a result of these repurchase rights, the Company accounts for stock options issued to optionees who will become retirement eligible prior to the expiration of their stock options (Retirement Eligible Optionees) using the liability method. Under the liability method, the Company establishes the estimated liability for option awards held by Retirement Eligible Optionees over the vesting/performance periods of such awards and the liability for the vested/earned options is adjusted to its estimated fair value through compensation expense at each balance sheet date. We recognized compensation expense of $6.3 million for the thirty-nine weeks ended August 2, 2014, which is included in selling, general and administrative expenses. With respect to options held by non-retirement eligible optionees, such options are effectively forfeited should the optionee voluntarily leave the Company without good reason or be terminated for cause. As a result, the Company records no expense or liability with respect to such options currently.

With respect to the Co-Invest Options, the fair value of such options at the Acquisition date was $36.3 million. Of such amount, $9.5 million represented the fair value of options held by Retirement Eligible Optionees for which a liability was established at the Acquisition date. The remaining value of $26.8 million represented the fair value of options held by non-retirement eligible optionees and such amount was credited to Successor equity.

Outstanding Stock Options.  A summary of Successor stock option activity is as follows:

	Thirty-nine weeks ended August 2, 2014
	Shares		Weighted Average Exercise Price		Weighted Average Remaining  Contractual Life (years)
Outstanding at November 2, 2013	—		$	—
Co-Invest Options rollover	56,979		468
Granted	157,992		1,000
Forfeited	(1,030	)	1,000
Outstanding at August 2, 2014	213,941		$	858	8.0
Options exercisable at end of fiscal year	56,979		$	468	4.2

At August 2, 2014, the aggregate number of co-invest, time-vested and performance-vested options held by Retirement Eligible Optionees aggregated 99,910 options and the recorded liability with respect to such options was $15.8 million.

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Grant Date Fair Value of Stock Options.  At the date of grant, the stock option exercise price equals or exceeds the fair market value of Parent's common stock.  Because Parent is privately held and there is no public market for its common stock, the fair market value of Parent's common stock is determined by our Compensation Committee at the time option grants are awarded (Level 3 determination of fair value).  In determining the fair market value of Parent's common stock, the Compensation Committee considers such factors as any recent transactions involving Parent's common stock, the Company’s actual and projected financial results, the principal amount of the Company’s indebtedness, valuations of the Company performed by third parties and other factors it believes are material to the valuation process.

We use the Black-Scholes option-pricing model to determine the fair value of our options as of the date of grant. We used the following assumptions to estimate the fair value for stock options at grant date:

Weighted average exercise price	$	1,000
Weighted term in years	5
Weighted average volatility	45.12		%
Risk-free interest rate	1.39		%
Dividend yield	—
Weighted average fair value	$	407

Expected volatility is based on estimates of implied volatility of our peer group.

NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table summarizes the changes in accumulated other comprehensive loss by component (amounts are recorded net of related income taxes):

(in thousands)	Unrealized Losses on Financial Instruments			Unfunded Benefit Obligations			Total
Predecessor:
Balance, August 3, 2013	$	(3,999	)	$	(103,530	)	$	(107,529	)
Other comprehensive earnings before reclassifications	610			490			1,100
Amounts reclassified from accumulated other comprehensive loss (1)	224			—			224
Balance, November 2, 2013	$	(3,165	)	$	(103,040	)	$	(106,205	)
Successor:
Balance, November 2, 2013	$	—		$	—		$	—
Other comprehensive loss before reclassifications	(954		)	(16,475		)	(17,429		)
Balance, August 2, 2014	$	(954	)	$	(16,475	)	$	(17,429	)

(1) The amounts reclassified from accumulated other comprehensive loss are recorded within interest expense on the Consolidated Statements of Operations. 

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NOTE 14. OTHER EXPENSES

Other expenses consists of the following components:

	Thirty-nine weeks ended		Thirteen weeks ended		Fiscal year ended		Fiscal year ended
	August 2, 2014		November 2, 2013		August 3, 2013		July 28, 2012
(in thousands)	(Successor)		(Predecessor)		(Predecessor)		(Predecessor)
Costs incurred in connection with the Acquisition:
Change-in-control cash payments due to Former Sponsors and management	$	—	$	80,457	$	—	$	—
Stock-based compensation for accelerated vesting of Predecessor stock options (including non-cash charges of $15.4 million)	51,510		—		—		—
Other, primarily professional fees	1,812		28,942		—		—
Total transaction costs	53,322		109,399		—		—
Costs related to criminal cyber-attack	12,587		—		—		—
Equity in loss of foreign e-commerce retailer	3,613		1,523		13,125		1,514
Management fee due to Former Sponsors	—		2,823		10,000		10,000
Other non-recurring expenses	6,825		—		—		—
Other expenses	$	76,347	$	113,745	$	23,125	$	11,514

In the third quarter of fiscal year 2014, we sold our investment in a foreign e-commerce retailer, which was previously accounted for under the equity method, for $35.0 million, which amount equaled the carrying value of our investment.

We discovered in January 2014 that malicious software (malware) was clandestinely installed on our computer systems. In the thirty-nine weeks ended August 2, 2014, we incurred costs related to the investigation of a criminal cyber-attack on our systems, including legal fees, investigative fees, costs of communications with customers and credit monitoring services provided to customers. We expect to incur additional costs to investigate and remediate the cyber-attack in the foreseeable future. Such costs are not currently estimable but could be material to our future operating results.

NOTE 15.  COMMITMENTS AND CONTINGENCIES

Leases.  We lease certain property and equipment under various operating leases.  The leases provide for monthly fixed rentals and/or contingent rentals based upon sales in excess of stated amounts and normally require us to pay real estate taxes, insurance, common area maintenance costs and other occupancy costs.  Generally, the leases have primary terms ranging from two to 99 years and include renewal options ranging from two to 80 years.

Rent expense and related occupancy costs under operating leases is as follows:

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 3, 2013			July 28, 2012
(in thousands)	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
Minimum rent	$	47,800		$	15,200		$	60,100		$	58,300
Contingent rent	22,600			6,900			28,200			25,600
Other occupancy costs	9,400			4,000			16,300			14,800
Amortization of deferred real estate credits	(200		)	(2,000		)	(7,900		)	(6,800		)
Total rent expense	$	79,600		$	24,100		$	96,700		$	91,900

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Future minimum rental commitments, excluding renewal options, under non-cancelable leases for the next five fiscal years and thereafter are as follows (in thousands):

2015	$	64,600
2016	63,100
2017	59,200
2018	56,200
2019	49,500
Thereafter	613,800

Employment and Consumer Class Actions Litigation.  On April 30, 2010, a Class Action Complaint for Injunction and Equitable Relief was filed against the Company, Newton Holding, LLC, TPG Capital, L.P. and Warburg Pincus LLC in the United States District Court for the Central District of California by Sheila Monjazeb, individually and on behalf of other members of the general public similarly situated. On July 12, 2010, all defendants except for the Company were dismissed without prejudice, and on August 20, 2010, this case was dismissed by Ms. Monjazeb and refiled in the Superior Court of California for San Francisco County. This complaint, along with a similar class action lawsuit originally filed by Bernadette Tanguilig in 2007, alleges that the Company has engaged in various violations of the California Labor Code and Business and Professions Code, including without limitation, by (1) asking employees to work “off the clock,” (2) failing to provide meal and rest breaks to its employees, (3) improperly calculating deductions on paychecks delivered to its employees and (4) failing to provide a chair or allow employees to sit during shifts. The Monjazeb and Tanguilig class actions have been deemed “related” cases and are pending before the same trial court judge.  On October 24, 2011, the court granted the Company’s motion to compel Ms. Monjazeb and Juan Carlos Pinela (a co-plaintiff in the Tanguilig case) to arbitrate their individual claims in accordance with the Company’s Mandatory Arbitration Agreement, foreclosing their ability to pursue a class action in court. However, the court’s order compelling arbitration did not apply to Ms. Tanguilig because she is not bound by the Mandatory Arbitration Agreement.  Further, the court determined that Ms. Tanguilig could not be a class representative of employees who are subject to the Mandatory Arbitration Agreement, thereby limiting the putative class action to those associates who were employed between December 2003 and July 15, 2007 (the effective date of our Mandatory Arbitration Agreement).  Following the court’s order, Ms. Monjazeb and Mr. Pinela filed demands for arbitration with the American Arbitration Association (AAA) seeking to arbitrate not only their individual claims, but also class claims, which the Company asserted violated the class action waiver in the Mandatory Arbitration Agreement. This led to further proceedings in the trial court, a stay of the arbitrations, and a decision by the trial court, on its own motion, to reconsider its order compelling arbitration. The trial court ultimately decided to vacate its order compelling arbitration due to a recent California appellate court decision.  Following this ruling, the Company timely filed two separate appeals, one with respect to Mr. Pinela and one with respect to Ms. Monjazeb, with the Court of Appeal, asserting that the trial court did not have jurisdiction to change its earlier determination of the enforceability of the arbitration agreement. The appeal with respect to Mr. Pinela has been fully briefed and awaits the setting of a date for oral argument. The appeal with respect to Ms. Monjazeb will be dismissed once final approval of the class action settlement is granted (as described below).

Notwithstanding the appeal, the trial court decided to set certain civil penalty claims asserted by Ms. Tanguilig for trial on April 1, 2014. In these claims, Ms. Tanguilig sought civil penalties under the Private Attorneys General Act based on the Company's alleged failure to provide employees with meal periods and rest breaks in compliance with California law. On December 10, 2013, the Company filed a motion to dismiss all of Ms. Tanguilig’s claims, including the civil penalty claims, based on her failure to bring her claims to trial within five years as required by California law. After several hearings, on February 28, 2014, the court dismissed all of Ms. Tanguilig’s claims in the case and vacated the April 1, 2014 trial date. The court has awarded the Company its costs of suit in connection with the defense of Ms. Tanguilig’s claims, but denied its request of an attorneys’ fees award from Ms. Tanguilig. Ms. Tanguilig filed a notice of appeal from the dismissal of all her claims, as well as a second notice of appeal from the award of costs, both of which are pending before the Court of Appeal. Should the Court of Appeal reverse the trial court’s dismissal of all of Ms. Tanguilig’s claims, the litigation will resume, and Ms. Tanguilig will seek class certification of the claims asserted in her Third Amended Complaint. If this occurs, the scope of her class claims will likely be reduced by the class action settlement and release in the Monjazeb case (as described below); however, that settlement does not cover claims asserted by Ms. Tanguilig for alleged Labor Code violations from approximately December 19, 2003 to August 20, 2006 (the beginning of the settlement class period in the Monjazeb case). No date has been set for oral argument in Ms. Tanguilig’s appeals.

In Ms. Monjazeb's class action, a settlement was reached at a mediation held on January 25, 2014. After several hearings, the trial court granted preliminary approval of the settlement on May 6, 2014 and directed that notice of settlement be given to the settlement class. The deadline for class members to opt out of the settlement was August 11, 2014. The final

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approval hearing was held on September 18, 2014. The court stated that final approval of the settlement would be granted, but required plaintiff's counsel to submit additional information to support plaintiff's motion for attorney's fees.

In addition, the National Labor Relations Board (NLRB) has been pursuing a complaint alleging that the Mandatory Arbitration Agreement’s class action prohibition violates employees’ rights to engage in concerted activity, which was submitted to an administrative law judge (ALJ) for determination on a stipulated record. Recently, the ALJ issued a recommended decision and order finding that the Company's Arbitration Agreement and class action waiver violated the National Labor Relations Act. The matter has now been transferred to the NLRB for further consideration and decision.

On December 6, 2013, a third putative class action was filed against the Company in the San Diego Superior Court by a former employee. The case is entitled Marisabella Newton v. Neiman Marcus Group, Inc., et al.,and the complaint alleges claims similar to those made in the Monjazeb case. After filing an answer to the complaint in the Newton case and responding to discovery, we reached a settlement of Ms. Newton's individual claims and a dismissal of her class allegations, subject to court approval. The court approved the settlement and dismissed the case on August 25, 2014.

We will continue to vigorously defend our interests in these matters. Based upon the pending settlement agreement with respect to Ms. Monjazeb's class action claims, we recorded our currently estimable liabilities with respect to both Ms. Monjazeb's and Ms. Tanguilig's employment class actions litigation claims in fiscal year 2014, which amount was not material to our financial condition or results of operations. We will continue to evaluate these matters, and our recorded reserves for such matters, based on subsequent events, new information and future circumstances.

On August 7, 2014, a putative class action complaint was filed against The Neiman Marcus Group LLC in Los Angeles County Superior Court by a customer, Linda Rubenstein, in connection with the Company's Last Call stores in California. Ms. Rubenstein alleges that the Company has violated various California consumer protection statutes by implementing a marketing and pricing strategy that suggests that clothing sold at Last Call stores in California was originally offered for sale at full-line Neiman Marcus stores when allegedly, it was not, and is allegedly of inferior quality to clothing sold at the full-line stores. On September 12, 2014, we removed the case to the United States District Court for the Central District of California. We will vigorously defend our interests in this matter. We will continue to evaluate this matter based on subsequent events, new information and future circumstances.

We are currently involved in various other legal actions and proceedings that arose in the ordinary course of business. With respect to the matters described above as well as all other current outstanding litigation involving us, we believe that any liability arising as a result of such litigation will not have a material adverse effect on our financial position, results of operations or cash flows.

Cyber-Attack Class Actions Litigation. Three class actions relating to a criminal cyber-attack on our computer systems in 2013 (the Cyber-Attack) were filed in January 2014 and later voluntarily dismissed by the plaintiffs between February and April 2014. The plaintiffs had alleged negligence and other claims in connection with their purchases by payment cards. Melissa Frank v. The Neiman Marcus Group, LLC, et al., was filed in the United States District Court for the Eastern District of New York on January 13, 2014 but was voluntarily dismissed by the plaintiff on April 15, 2014, without prejudice to her right to re-file a complaint. Donna Clark v. Neiman Marcus Group LTD LLC was filed in the United States District Court for the Northern District of Georgia on January 27, 2014 but was voluntarily dismissed by the plaintiff on March 11, 2014, without prejudice to her right to re-file a complaint. Christina Wong v. The Neiman Marcus Group, LLC, et al., was filed in the United States District Court for the Central District of California on January 29, 2014, but was voluntarily dismissed by the plaintiff on February 10, 2014, without prejudice to her right to re-file a complaint. Three new putative class actions relating to the Cyber-Attack were filed in March and April 2014, also alleging negligence and other claims in connection with plaintiffs’ purchases by payment cards. Two of the cases, Katerina Chau v. Neiman Marcus Group LTD, Inc., filed in the United States District Court for the Southern District of California on March 14, 2014, and Michael Shields v. The Neiman Marcus Group, LLC, filed in the United States District Court for the Southern District of California on April 1, 2014, were voluntarily dismissed, with prejudice as to Chau and without prejudice as to Shields. The third case, Hilary Remijas v. The Neiman Marcus Group, LLC, was filed on March 12, 2014 in the Northern District of Illinois. On June 2, 2014, an amended complaint in the Remijas case was filed, which added three plaintiffs (Debbie Farnoush and Joanne Kao, California residents; and Melissa Frank, a New York resident) and asserted claims for negligence, implied contract, unjust enrichment, violation of various consumer protection statutes, invasion of privacy and violation of state data breach laws. The Company moved to dismiss the Remijas amended complaint on July 2, 2014. On September 16, 2014, the court granted the Company's motion to dismiss the Remijas case on the grounds that the plaintiffs lacked standing due to their failure to demonstrate an actionable injury.

In addition, payment card companies and associations may require us to reimburse them for unauthorized card charges and costs to replace cards and may also impose fines or penalties in connection with the security incident, and enforcement

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authorities may also impose fines or other remedies against us. We have also incurred other costs associated with this security incident, including legal fees, investigative fees, costs of communications with customers and credit monitoring services provided to our customers. At this point, we are unable to predict the developments in, outcome of, and economic and other consequences of pending or future litigation or regulatory investigations related to, and other costs associated with, this matter. We will continue to evaluate these matters based on subsequent events, new information and future circumstances.

Other.  We had no outstanding irrevocable letters of credit relating to purchase commitments and insurance and other liabilities at August 2, 2014.  We had approximately $4.7 million in surety bonds at August 2, 2014 relating primarily to merchandise imports and state sales tax and utility requirements.

NOTE 16.  SEGMENT REPORTING

We have identified two reportable segments: Specialty Retail Stores and Online.  The Specialty Retail Stores segment aggregates the activities of our Neiman Marcus and Bergdorf Goodman retail stores, including our Last Call stores.  The Online segment conducts online and supplemental print catalog operations under the Neiman Marcus, Bergdorf Goodman, Last Call and Horchow brand names.  Both the Specialty Retail Stores and Online segments derive their revenues from the sales of high-end fashion apparel, accessories, cosmetics and fragrances from leading designers, precious and fashion jewelry and decorative home accessories.

Operating earnings for the segments include 1) revenues, 2) cost of sales, 3) direct selling, general and administrative expenses, 4) other direct operating expenses, 5) income from credit card program and 6) depreciation expense for the respective segment.  Items not allocated to our operating segments include those items not considered by management in measuring the assets and profitability of our segments.  These amounts include 1) corporate expenses including, but not limited to, treasury, investor relations, legal and finance support services and general corporate management, 2) charges related to the application of purchase accounting including amortization of long-term assets (primarily favorable lease commitments and customer lists) and other non-cash items, 3) interest expense and 4) other expenses.  These items, while often related to the operations of a segment, are not considered by segment operating management, corporate operating management and the chief operating decision maker in assessing segment operating performance.  The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies (except with respect to purchase accounting adjustments not allocated to the operating segments).

We believe that our customers have allocated a higher portion of their luxury spending to online retailing in recent years and that our customers' expectations of a seamless shopping experience across our in-store and online channels have increased, and we expect these trends will continue for the foreseeable future. As a result, we have made investments and redesigned processes to integrate our shopping experience across channels consistent with our customers' shopping preferences and expectations. In particular, we have invested and continue to invest in technology and systems that further our omni-channel selling capabilities and in fiscal year 2014, we realigned the merchandising responsibilities for our Neiman Marcus brand into a single team responsible for inventory procurement for both our store and online channels. With the acceleration of omni-channel retailing and our past and ongoing investments in omni-channel initiatives, we believe the growth in our total comparable revenues and operating results are the best measures of our ability to grow our brands. As a result, we are re-evaluating our current segment reporting practices and anticipate that we may begin to report a single "omni-channel" reporting segment in the future.

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The following tables set forth the information for our reportable segments:

	Thirty-nine weeks ended			Thirteen weeks ended			Fiscal year ended			Fiscal year ended
	August 2, 2014			November 2, 2013			August 3, 2013			July 28, 2012
(in thousands)	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
REVENUES
Specialty Retail Stores	$	2,801,533		$	889,295		$	3,616,938		$	3,466,628
Online	908,660			239,843			1,031,311			878,746
Total	$	3,710,193		$	1,129,138		$	4,648,249		$	4,345,374
OPERATING EARNINGS
Specialty Retail Stores	$	288,649		$	138,203		$	411,435		$	391,197
Online	126,916			33,801			157,703			132,360
Corporate expenses	(43,064		)	(12,932		)	(46,720		)	(53,175		)
Other expenses	(76,347		)	(113,745		)	(23,125		)	(11,514		)
Corporate depreciation/amortization charges	(157,688		)	(13,191		)	(52,906		)	(55,294		)
Corporate amortization of inventory step-up	(129,635		)	—			—			—
Total	$	8,831		$	32,136		$	446,387		$	403,574
CAPITAL EXPENDITURES
Specialty Retail Stores	$	112,780		$	28,831		$	119,065		$	126,485
Online	25,227			7,128			27,440			26,353
Total	$	138,007		$	35,959		$	146,505		$	152,838
DEPRECIATION AND AMORTIZATION EXPENSE
Specialty Retail Stores	$	83,132		$	26,439		$	111,964		$	106,288
Online	21,140			6,329			24,081			18,660
Corporate depreciation/amortization charges	157,688			13,191			52,906			55,294
Total	$	261,960		$	45,959		$	188,951		$	180,242

	August 2, 2014		August 3, 2013		July 28, 2012
(in thousands)	(Successor)		(Predecessor)		(Predecessor)
ASSETS
Tangible assets of Specialty Retail Stores	$	2,278,036	$	1,818,888	$	1,777,112
Tangible assets of Online	285,581		219,230		200,553
Corporate assets:
Intangible assets related to Specialty Retail Stores	4,422,929		2,604,600		2,651,481
Intangible assets related to Online	1,378,682		440,981		441,536
Other	396,498		216,542		131,173
Total	$	8,761,726	$	5,300,241	$	5,201,855

F-40

The following table presents our revenues by merchandise category as a percentage of net sales:

	Thirty-nine weeks ended		Thirteen weeks ended		Fiscal year ended		Fiscal year ended
	August 2, 2014		November 2, 2013		August 3, 2013		July 28, 2012
	(Successor)		(Predecessor)		(Predecessor)		(Predecessor)
Women’s Apparel	30	%	33	%	31	%	34	%
Women’s Shoes, Handbags and Accessories	28		27		27		25
Men’s Apparel and Shoes	12		11		12		12
Designer and Precious Jewelry	11		10		12		11
Cosmetics and Fragrances	11		12		11		11
Home Furnishings and Décor	6		5		5		6
Other	2		2		2		1
	100	%	100	%	100	%	100	%

NOTE 17.  CONDENSED CONSOLIDATING FINANCIAL INFORMATION

2028 Debentures.  All of NMG’s obligations under the 2028 Debentures are guaranteed by the Company.  The guarantee by the Company is full and unconditional.  The Company’s guarantee of the 2028 Debentures is subject to automatic release if the requirements for legal defeasance or covenant defeasance of the 2028 Debentures are satisfied, or if NMG’s obligations under the indenture governing the 2028 Debentures are discharged.  Currently, the Company’s non-guarantor subsidiaries under the 2028 Debentures consist principally of Bergdorf Goodman, Inc., through which NMG conducts the operations of its Bergdorf Goodman stores, and NM Nevada Trust, which holds legal title to certain real property and intangible assets used by NMG in conducting its operations.

The following condensed consolidating financial information represents the financial information of the Company and its non-guarantor subsidiaries under the 2028 Debentures, prepared on the equity basis of accounting.  The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the non-guarantor subsidiaries operated as independent entities.

F-41

	August 2, 2014 (Successor)
(in thousands)	Company		NMG		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	195,004	$	1,472	$	—		$	196,476
Merchandise inventories	—		953,936		115,696		—			1,069,632
Other current assets	—		131,894		11,772		—			143,666
Total current assets	—		1,280,834		128,940		—			1,409,774
Property and equipment, net	—		1,275,264		115,002		—			1,390,266
Goodwill	—		1,669,364		479,263		—			2,148,627
Intangible assets, net	—		708,125		2,944,859		—			3,652,984
Other assets	—		158,637		1,438		—			160,075
Investments in subsidiaries	1,432,594		3,560,258		—		(4,992,852		)	—
Total assets	$	1,432,594	$	8,652,482	$	3,669,502	$	(4,992,852	)	$	8,761,726
LIABILITIES AND MEMBER EQUITY
Current liabilities:
Accounts payable	$	—	$	343,783	$	31,302	$	—		$	375,085
Accrued liabilities	—		375,640		76,532		—			452,172
Current portion of long-term debt	—		29,426		—		—			29,426
Total current liabilities	—		748,849		107,834		—			856,683
Long-term liabilities:
Long-term debt	—		4,580,521		—		—			4,580,521
Deferred income taxes	—		1,540,076		—		—			1,540,076
Other long-term liabilities	—		350,442		1,410		—			351,852
Total long-term liabilities	—		6,471,039		1,410		—			6,472,449
Total member equity	1,432,594		1,432,594		3,560,258		(4,992,852		)	1,432,594
Total liabilities and member equity	$	1,432,594	$	8,652,482	$	3,669,502	$	(4,992,852	)	$	8,761,726

F-42

	August 3, 2013 (Predecessor)
(in thousands)	Company		NMG		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	135,827	$	849	$	—		$	136,676
Merchandise inventories	—		909,332		109,507		—			1,018,839
Other current assets	—		117,313		13,149		—			130,462
Total current assets	—		1,162,472		123,505		—			1,285,977
Property and equipment, net	—		795,798		106,046		—			901,844
Goodwill	—		1,107,753		155,680		—			1,263,433
Intangible assets, net	—		245,756		1,536,392		—			1,782,148
Other assets	—		38,835		28,004		—			66,839
Investments in subsidiaries	831,038		1,845,022		—		(2,676,060		)	—
Total assets	$	831,038	$	5,195,636	$	1,949,627	$	(2,676,060	)	$	5,300,241
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	354,249	$	32,289	$	—		$	386,538
Accrued liabilities	—		319,358		70,810		—			390,168
Total current liabilities	—		673,607		103,099		—			776,706
Long-term liabilities:
Long-term debt	—		2,697,077		—		—			2,697,077
Deferred income taxes	—		639,381		—		—			639,381
Other long-term liabilities	—		354,533		1,506		—			356,039
Total long-term liabilities	—		3,690,991		1,506		—			3,692,497
Total stockholders’ equity	831,038		831,038		1,845,022		(2,676,060		)	831,038
Total liabilities and stockholders’ equity	$	831,038	$	5,195,636	$	1,949,627	$	(2,676,060	)	$	5,300,241

F-43

	Thirty-nine weeks ended August 2, 2014 (Successor)
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	3,103,810		$	606,383		$	—		$	3,710,193
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			2,164,594			398,679			—			2,563,273
Selling, general and administrative expenses (excluding depreciation)	—			729,533			110,921			—			840,454
Income from credit card program	—			(36,795		)	(3,877		)	—			(40,672		)
Depreciation expense	—			100,097			13,237			—			113,334
Amortization of intangible assets and favorable lease commitments	—			107,450			41,176			—			148,626
Other expenses	—			72,734			3,613			—			76,347
Operating (loss) earnings	—			(33,803		)	42,634			—			8,831
Interest expense, net	—			232,739			—			—			232,739
Intercompany royalty charges (income)	—			106,783			(106,783		)	—			—
Equity in loss (earnings) of subsidiaries	134,083			(149,417		)	—			15,334			—
(Loss) earnings before income taxes	(134,083		)	(223,908		)	149,417			(15,334		)	(223,908		)
Income tax benefit	—			(89,825		)	—			—			(89,825		)
Net (loss) earnings	$	(134,083	)	$	(134,083	)	$	149,417		$	(15,334	)	$	(134,083	)
Total other comprehensive (loss) earnings, net of tax	(17,429		)	(17,429		)	—			17,429			(17,429		)
Total comprehensive (loss) earnings	$	(151,512	)	$	(151,512	)	$	149,417		$	2,095		$	(151,512	)

	Thirteen weeks ended November 2, 2013 (Predecessor)
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	926,436		$	202,702		$	—		$	1,129,138
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			568,665			116,743			—			685,408
Selling, general and administrative expenses (excluding depreciation)	—			230,090			36,453			—			266,543
Income from credit card program	—			(13,271		)	(1,382		)	—			(14,653		)
Depreciation expense	—			31,057			3,182			—			34,239
Amortization of intangible assets and favorable lease commitments	—			8,773			2,947			—			11,720
Other expenses	—			112,222			1,523			—			113,745
Operating (loss) earnings	—			(11,100		)	43,236			—			32,136
Interest expense, net	—			37,315			—			—			37,315
Intercompany royalty charges (income)	—			32,907			(32,907		)	—			—
Equity in loss (earnings) of subsidiaries	13,098			(76,143		)	—			63,045			—
(Loss) earnings before income taxes	(13,098		)	(5,179		)	76,143			(63,045		)	(5,179		)
Income tax expense	—			7,919			—			—			7,919
Net (loss) earnings	$	(13,098	)	$	(13,098	)	$	76,143		$	(63,045	)	$	(13,098	)
Total other comprehensive earnings (loss), net of tax	1,324			1,324			—			(1,324		)	1,324
Total comprehensive (loss) earnings	$	(11,774	)	$	(11,774	)	$	76,143		$	(64,369	)	$	(11,774	)

F-44

	Fiscal year ended August 3, 2013 (Predecessor)
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	3,875,580		$	772,669		$	—		$	4,648,249
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			2,500,640			494,723			—			2,995,363
Selling, general and administrative expenses (excluding depreciation)	—			911,850			135,946			—			1,047,796
Income from credit card program	—			(48,635		)	(4,738		)	—			(53,373		)
Depreciation expense	—			127,606			13,909			—			141,515
Amortization of intangible assets and favorable lease commitments	—			35,092			12,344			—			47,436
Other expenses	—			10,000			13,125			—			23,125
Operating earnings	—			339,027			107,360			—			446,387
Interest expense, net	—			168,952			3			—			168,955
Intercompany royalty charges (income)	—			130,459			(130,459		)	—			—
Equity in (earnings) loss of subsidiaries	(163,699		)	(237,816		)	—			401,515			—
Earnings (loss) before income taxes	163,699			277,432			237,816			(401,515		)	277,432
Income tax expense	—			113,733			—			—			113,733
Net earnings (loss)	$	163,699		$	163,699		$	237,816		$	(401,515	)	$	163,699
Total other comprehensive earnings (loss), net of tax	41,263			41,263			—			(41,263		)	41,263
Total comprehensive earnings (loss)	$	204,962		$	204,962		$	237,816		$	(442,778	)	$	204,962

	Fiscal year ended July 28, 2012 (Predecessor)
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	3,607,190		$	738,184		$	—		$	4,345,374
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			2,319,516			475,197			—			2,794,713
Selling, general and administrative expenses (excluding depreciation)	—			880,677			126,225			—			1,006,902
Income from credit card program	—			(46,957		)	(4,614		)	—			(51,571		)
Depreciation expense	—			116,142			13,977			—			130,119
Amortization of intangible assets and favorable lease commitments	—			37,224			12,899			—			50,123
Other expenses	—			10,000			1,514			—			11,514
Operating earnings	—			290,588			112,986			—			403,574
Interest expense, net	—			175,232			5			—			175,237
Intercompany royalty charges (income)	—			204,181			(204,181		)	—			—
Equity in (earnings) loss of subsidiaries	(140,086		)	(317,162		)	—			457,248			—
Earnings (loss) before income taxes	140,086			228,337			317,162			(457,248		)	228,337
Income tax expense	—			88,251			—			—			88,251
Net earnings (loss)	$	140,086		$	140,086		$	317,162		$	(457,248	)	$	140,086
Total other comprehensive (loss) earnings, net of tax	(75,747		)	(75,747		)	—			75,747			(75,747		)
Total comprehensive earnings (loss)	$	64,339		$	64,339		$	317,162		$	(381,501	)	$	64,339

F-45

	Acquisition and Thirty-nine weeks ended August 2, 2014 (Successor)
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS—OPERATING ACTIVITIES
Net (loss) earnings	$	(134,083	)	$	(134,083	)	$	149,417		$	(15,334	)	$	(134,083	)
Adjustments to reconcile net (loss) earnings to net cash provided by (used for) operating activities:
Depreciation and amortization expense	—			224,664			54,413			—			279,077
Loss on debt extinguishment	—			7,882			—			—			7,882
Equity in loss of foreign e-commerce retailer	—			—			3,613			—			3,613
Deferred income taxes	—			(117,874		)	—			—			(117,874		)
Non-cash charges related to the Acquisition	—			145,062			—			—			145,062
Other	—			4,878			53			—			4,931
Intercompany royalty income payable (receivable)	—			106,783			(106,783		)	—			—
Equity in loss (earnings) of subsidiaries	134,083			(149,417		)	—			15,334			—
Changes in operating assets and liabilities, net	—			216,411			(121,634		)	—			94,777
Net cash provided by (used for) operating activities	—			304,306			(20,921		)	—			283,385
CASH FLOWS—INVESTING ACTIVITIES
Capital expenditures	—			(124,321		)	(13,686		)	—			(138,007		)
Acquisition of Neiman Marcus Group LTD LLC	—			(3,388,585		)	—			—			(3,388,585		)
Investment in foreign e-commerce retailer	—			—			35,000			—			35,000
Net cash (used for) provided by investing activities	—			(3,512,906		)	21,314			—			(3,491,592		)
CASH FLOWS—FINANCING ACTIVITIES
Borrowings under Asset-Based Revolving Credit Facility	—			170,000			—			—			170,000
Borrowings under Senior Secured Term Loan Facility	—			2,950,000			—			—			2,950,000
Borrowings under Cash Pay Notes	—			960,000			—			—			960,000
Borrowings under PIK Toggle Notes	—			600,000			—			—			600,000
Repayment of borrowings	—			(2,770,185		)	—			—			(2,770,185		)
Debt issuance costs paid	—			(178,606		)	—			—			(178,606		)
Cash equity contributions	—			1,557,350			—			—			1,557,350
Net cash provided by financing activities	—			3,288,559			—			—			3,288,559
CASH AND CASH EQUIVALENTS
Increase during the period	—			79,959			393			—			80,352
Beginning balance	—			115,045			1,079			—			116,124
Ending balance	$	—		$	195,004		$	1,472		$	—		$	196,476

F-46

	Thirteen weeks ended November 2, 2013 (Predecessor)
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS—OPERATING ACTIVITIES
Net (loss) earnings	$	(13,098	)	$	(13,098	)	$	76,143		$	(63,045	)	$	(13,098	)
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization expense	—			42,296			6,129			—			48,425
Equity in loss of foreign e-commerce retailer	—			—			1,523			—			1,523
Deferred income taxes	—			(6,326		)	—			—			(6,326		)
Other	—			5,068			(66		)	—			5,002
Intercompany royalty income payable (receivable)	—			32,907			(32,907		)	—			—
Equity in loss (earnings) of subsidiaries	13,098			(76,143		)	—			63,045			—
Changes in operating assets and liabilities, net	—			21,469			(44,684		)	—			(23,215		)
Net cash provided by operating activities	—			6,173			6,138			—			12,311
CASH FLOWS—INVESTING ACTIVITIES
Capital expenditures	—			(30,051		)	(5,908		)	—			(35,959		)
Net cash used for investing activities	—			(30,051		)	(5,908		)	—			(35,959		)
CASH FLOWS—FINANCING ACTIVITIES
Borrowings under Former Asset-Based Revolving Credit Facility	—			130,000			—			—			130,000
Repayment of borrowings	—			(126,904		)	—			—			(126,904		)
Net cash provided by financing activities	—			3,096			—			—			3,096
CASH AND CASH EQUIVALENTS
(Decrease) increase during the period	—			(20,782		)	230			—			(20,552		)
Beginning balance	—			135,827			849			—			136,676
Ending balance	$	—		$	115,045		$	1,079		$	—		$	116,124

F-47

	Fiscal year ended August 3, 2013 (Predecessor)
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS - OPERATING ACTIVITIES
Net earnings (loss)	$	163,699		$	163,699		$	237,816		$	(401,515	)	$	163,699
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization expense	—			171,102			26,253			—			197,355
Loss on debt extinguishment	—			15,597			—			—			15,597
Equity in loss of foreign e-commerce retailer	—			—			13,125			—			13,125
Deferred income taxes	—			(19,439		)	—			—			(19,439		)
Other	—			5,785			(152		)	—			5,633
Intercompany royalty income payable (receivable)	—			130,459			(130,459		)	—			—
Equity in (earnings) loss of subsidiaries	(163,699		)	(237,816		)	—			401,515			—
Changes in operating assets and liabilities, net	—			95,260			(121,871		)	—			(26,611		)
Net cash provided by operating activities	—			324,647			24,712			—			349,359
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures	—			(131,697		)	(14,808		)	—			(146,505		)
Investment in foreign e-commerce retailer	—			—			(10,000		)	—			(10,000		)
Net cash used for investing activities	—			(131,697		)	(24,808		)	—			(156,505		)
CASH FLOWS - FINANCING ACTIVITIES
Borrowings under Former Asset-Based Revolving Credit Facility	—			100,000			—			—			100,000
Borrowings under Former Senior Secured Term Loan Facility	—			500,000			—			—			500,000
Repayment of borrowings	—			(695,668		)	—			—			(695,668		)
Debt issuance costs paid	—			(9,763		)	—			—			(9,763		)
Net cash used for financing activities	—			(105,431		)	—			—			(105,431		)
CASH AND CASH EQUIVALENTS
Increase (decrease) during the period	—			87,519			(96		)	—			87,423
Beginning balance	—			48,308			945			—			49,253
Ending balance	$	—		$	135,827		$	849		$	—		$	136,676

F-48

	Fiscal year ended July 28, 2012 (Predecessor)
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS - OPERATING ACTIVITIES
Net earnings (loss)	$	140,086		$	140,086		$	317,162		$	(457,248	)	$	140,086
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization expense	—			161,823			26,876			—			188,699
Equity in loss of foreign e-commerce retailer	—			—			1,514			—			1,514
Deferred income taxes	—			(10,094		)	—			—			(10,094		)
Other	—			6,884			120			—			7,004
Intercompany royalty income payable (receivable)	—			204,181			(204,181		)	—			—
Equity in (earnings) loss of subsidiaries	(140,086		)	(317,162		)	—			457,248			—
Changes in operating assets and liabilities, net	—			29,830			(97,229		)	—			(67,399		)
Net cash provided by operating activities	—			215,548			44,262			—			259,810
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures	—			(138,216		)	(14,622		)	—			(152,838		)
Investment in foreign e-commerce retailer	—			—			(29,421		)	—			(29,421		)
Net cash used for investing activities	—			(138,216		)	(44,043		)	—			(182,259		)
CASH FLOWS - FINANCING ACTIVITIES
Borrowings under Former Asset-Based Revolving Credit Facility	—			175,000			—			—			175,000
Repayment of borrowings	—			(75,000		)	—			—			(75,000		)
Distributions to stockholders	—			(449,295		)	—			—			(449,295		)
Debt issuance costs paid	—			(594		)	—			—			(594		)
Net cash used for financing activities	—			(349,889		)	—			—			(349,889		)
CASH AND CASH EQUIVALENTS
(Decrease) increase during the period	—			(272,557		)	219			—			(272,338		)
Beginning balance	—			320,865			726			—			321,591
Ending balance	$	—		$	48,308		$	945		$	—		$	49,253

F-49

NOTE 18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

	Fiscal year 2014
(in millions)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total
	(Predecessor)			(Successor)			(Successor)			(Successor)
Revenues	$	1,129.1		$	1,432.8		$	1,164.7		$	1,112.7		$	4,839.3
Gross profit (1)	$	443.7		$	379.8		$	415.7		$	351.5		$	1,590.7
Net loss (2) (3)	$	(13.1	)	$	(84.0	)	$	(8.0	)	$	(42.1	)	$	(147.2	)

	Fiscal year 2013 (Predecessor)
Revenues	$	1,068.5	$	1,362.4	$	1,098.3	$	1,119.0	$	4,648.2
Gross profit (1)	$	423.1	$	440.7	$	435.0	$	354.1	$	1,652.9
Net earnings (4)	$	49.6	$	40.4	$	70.8	$	2.9	$	163.7

(1) Gross profit includes revenues less cost of goods sold including buying and occupancy costs (excluding depreciation).

(2) For fiscal year 2014, net loss includes $162.7 million of transaction costs incurred in connection with the Acquisition and a $7.9 million pretax charge related to a loss on debt extinguishment recorded in the third quarter.

(3) Depreciation and amortization expense for the second, third and fourth quarters of fiscal year 2014 are based on the fair values of the acquired assets determined in connection with the finalization of the purchase price allocation in the fourth quarter. As a result, depreciation and amortization expense for the second and third quarters, as well as the net loss of such periods, differ from previously disclosed amounts as follows:

	Fiscal year 2014
(in millions)	Second Quarter			Third Quarter
	(Successor)			(Successor)
Net loss, as reported	$	(68.0	)	$	(2.7	)
Depreciation and amortization expense, net of tax	(16.0		)	(5.3		)
Net loss, as adjusted	$	(84.0	)	$	(8.0	)

(4) For fiscal year 2013, net earnings include a $15.6 million pretax charge related to a loss on debt extinguishment recorded in the second quarter.

NOTE 19. SUBSEQUENT EVENT

On September 12, 2014, we entered into an agreement to acquire the MyTheresa.com global online luxury website and the Theresa flagship specialty store in Munich, Germany. The purchase price is approximately €150 million, subject to certain adjustments and an "earn-out" of up to €27.5 million per year for operating performance for each of calendar years 2015 and 2016. The transaction is expected to close later this calendar year, subject to regulatory approvals and other customary closing conditions. We plan to finance the acquisition through a combination of cash and debt.

F-50

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		NEIMAN MARCUS GROUP LTD LLC
		By:	/S/ JAMES E. SKINNER
			James E. Skinner Executive Vice President, Chief Operating Officer and Chief Financial Officer
Dated:	September 25, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ KAREN W. KATZ	President and Chief Executive Officer, Director	September 25, 2014
Karen W. Katz
/s/ JAMES E. SKINNER	Executive Vice President, Chief Operating Officer and Chief Financial Officer	September 25, 2014
James E. Skinner
	(principal financial officer)
/s/ T. DALE STAPLETON	Senior Vice President and Chief Accounting Officer	September 25, 2014
T. Dale Stapleton
	(principal accounting officer)
/s/ NORA AUFREITER	Director	September 25, 2014
Nora Aufreiter
/s/ NORMAN AXELROD	Director	September 25, 2014
Norman Axelrod
/s/ PHILIPPE BOURGUIGNON	Director	September 25, 2014
Philippe Bourguignon
/s/ ADAM BROTMAN	Director	September 25, 2014
Adam Brotman
/s/ SHANE FEENEY	Director	September 25, 2014
Shane Feeney
/s/ VIC GUNDOTRA	Director	September 25, 2014
Vic Gundotra
/s/ DAVID KAPLAN	Director	September 25, 2014
David Kaplan
/s/ SCOTT NISHI	Director	September 25, 2014
Scott Nishi
/s/ ADAM STEIN	Director	September 25, 2014
Adam Stein

94

SCHEDULE II

Neiman Marcus Group LTD LLC

Valuation and Qualifying Accounts and Reserves

(in thousands)

Three years ended August 2, 2014

Column A	Column B		Column C				Column D				Column E
			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions				Balance at End of Period
Reserve for estimated sales returns
Thirty-nine weeks ended August 2, 2014 (Successor)	$	53,741	$	597,721	$	—	$	(612,593	)	(A)	$	38,869
Thirteen weeks ended November 2, 2013 (Predecessor)	$	37,370	$	196,601	$	—	$	(180,230	)	(A)	$	53,741
Year ended August 3, 2013 (Predecessor)	$	34,015	$	739,968	$	—	$	(736,613	)	(A)	$	37,370
Year ended July 28, 2012 (Predecessor)	$	28,558	$	694,632	$	—	$	(689,175	)	(A)	$	34,015
Reserves for self-insurance
Thirty-nine weeks ended August 2, 2014 (Successor)	$	36,632	$	58,064	$	—	$	(55,964	)	(B)	$	38,732
Thirteen weeks ended November 2, 2013 (Predecessor)	$	37,626	$	17,380	$	—	$	(18,374	)	(B)	$	36,632
Year ended August 3, 2013 (Predecessor)	$	36,187	$	74,643	$	—	$	(73,204	)	(B)	$	37,626
Year ended July 28, 2012 (Predecessor)	$	34,969	$	64,532	$	—	$	(63,314	)	(B)	$	36,187

(A) Gross margin on actual sales returns, net of commissions.

(B) Claims and expenses paid, net of employee contributions.

95