Neiman Marcus 10-Q 2012 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended April 28, 2012

OR

oTRANSITION 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, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark 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 x No o

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

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

There were 1,017,502 shares of the registrant’s common stock, par value $0.01 per share, outstanding at May 29, 2012.

NEIMAN MARCUS, INC.

INDEX

		Page
Part I.	Financial Information
Item 1.	Condensed Consolidated Balance Sheets as of April 28, 2012, July 30, 2011 and April 30, 2011	1
	Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended April 28, 2012 and April 30, 2011	2
	Condensed Consolidated Statements of Operations for the Thirty-Nine Weeks Ended April 28, 2012 and April 30, 2011	3
	Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended April 28, 2012 and April 30, 2011	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42
Part II.	Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
Signature		44

NEIMAN MARCUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except shares)	April 28, 2012			July 30, 2011			April 30, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	64,696		$	321,591		$	522,373
Merchandise inventories	945,792			839,334			845,070
Deferred income taxes	24,059			20,445			22,921
Other current assets	96,351			121,371			87,014
Total current assets	1,130,898			1,302,741			1,477,378
Property and equipment, net	887,916			873,199			877,439
Goodwill	1,263,433			1,263,433			1,263,433
Intangible assets, net	1,841,582			1,879,707			1,894,784
Other assets	76,187			45,689			54,112
Total assets	$	5,200,016		$	5,364,769		$	5,567,146
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	246,511		$	291,311		$	214,968
Accrued liabilities	452,707			370,889			406,562
Total current liabilities	699,218			662,200			621,530
Long-term liabilities:
Long-term debt	2,806,833			2,681,687			2,879,818
Deferred income taxes	665,126			683,908			661,243
Deferred real estate credits	105,817			99,991			101,578
Other long-term liabilities	223,330			242,686			264,663
Total long-term liabilities	3,801,106			3,708,272			3,907,302
Common stock (par value $0.01 per share, 5,000,000 shares authorized and 1,017,502 shares issued and outstanding at April 28, 2012 and 1,014,915 shares issued and outstanding at July 30, 2011 and April 30, 2011)	10			10			10
Additional paid-in capital	993,491			1,438,393			1,435,451
Accumulated other comprehensive loss	(73,892		)	(73,045		)	(87,468		)
Accumulated deficit	(219,917		)	(371,061		)	(309,679		)
Total shareholders’ equity	699,692			994,297			1,038,314
Total liabilities and shareholders’ equity	$	5,200,016		$	5,364,769		$	5,567,146

See Notes to Condensed Consolidated Financial Statements.

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NEIMAN MARCUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Thirteen weeks ended
(in thousands)	April 28, 2012			April 30, 2011
Revenues	$	1,057,727		$	983,815
Cost of goods sold including buying and occupancy costs (excluding depreciation)	629,404			593,496
Selling, general and administrative expenses (excluding depreciation)	249,668			232,948
Income from credit card program	(12,495		)	(12,499		)
Depreciation expense	32,558			31,554
Amortization of intangible assets	7,529			10,607
Amortization of favorable lease commitments	4,469			4,469
Operating earnings	146,594			123,240
Interest expense, net	44,354			51,676
Earnings before income taxes	102,240			71,564
Income tax expense	39,600			25,327
Net earnings	$	62,640		$	46,237

See Notes to Condensed Consolidated Financial Statements.

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NEIMAN MARCUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Thirty-Nine weeks ended
(in thousands)	April 28, 2012			April 30, 2011
Revenues	$	3,340,016		$	3,082,622
Cost of goods sold including buying and occupancy costs (excluding depreciation)	2,097,127			1,949,815
Selling, general and administrative expenses (excluding depreciation)	769,395			709,642
Income from credit card program	(38,393		)	(33,987		)
Depreciation expense	95,713			97,421
Amortization of intangible assets	24,717			34,063
Amortization of favorable lease commitments	13,408			13,408
Operating earnings	378,049			312,260
Interest expense, net	130,533			165,354
Earnings before income taxes	247,516			146,906
Income tax expense	96,372			53,901
Net earnings	$	151,144		$	93,005

See Notes to Condensed Consolidated Financial Statements.

3

NEIMAN MARCUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Thirty-Nine weeks ended
(in thousands)	April 28, 2012			April 30, 2011
CASH FLOWS - OPERATING ACTIVITIES
Net earnings	$	151,144		$	93,005
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expense	140,188			157,477
Deferred income taxes	(21,845		)	(11,797		)
Other	422			(581		)
	269,909			238,104
Changes in operating assets and liabilities:
Merchandise inventories	(106,458		)	(54,554		)
Other current assets	25,020			30,830
Other assets	(5,300		)	(1,597		)
Accounts payable and accrued liabilities	36,934			(12,273		)
Deferred real estate credits	10,975			10,402
Funding of defined benefit pension plan	(25,100		)	(30,000		)
Net cash provided by operating activities	205,980			180,912
CASH FLOWS – INVESTING ACTIVITIES
Capital expenditures	(108,565		)	(65,991		)
Investment in foreign e-commerce retailer	(29,421		)	—
Net cash used for investing activities	(137,986		)	(65,991		)
CASH FLOWS – FINANCING ACTIVITIES
Borrowings under Senior Secured Asset-Based Revolving Credit Facility	150,000			—
Repayment of borrowings	(25,000		)	(7,648		)
Distributions to shareholders	(449,295		)	—
Debt issuance costs paid	(594		)	(5,907		)
Net cash used for financing activities	(324,889		)	(13,555		)
CASH AND CASH EQUIVALENTS
(Decrease) increase during the period	(256,895		)	101,366
Beginning balance	321,591			421,007
Ending balance	$	64,696		$	522,373
Supplemental Schedule of Cash Flow Information
Cash paid during the period for:
Interest	$	133,688		$	167,018
Income taxes	$	47,318		$	19,584

See Notes to Condensed Consolidated Financial Statements.

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NEIMAN MARCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.Basis of Presentation

Neiman Marcus, Inc. (the Company) is a luxury retailer conducting integrated store and direct-to-consumer 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.  We report our store operations as our Specialty Retail Stores segment and our direct-to-consumer operations as our Direct Marketing segment.

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 30, 2011.

In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows for the applicable interim periods.

The specialty retail industry is seasonal in nature, with a higher level of sales typically generated in the fall and holiday selling seasons.  Due to seasonal and other factors, the results of operations for the third quarter of fiscal year 2012 are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year as a whole.

The Company is a subsidiary of Newton Holding, LLC (Holding), which is controlled by investment funds affiliated with TPG Capital (formerly Texas Pacific Group) and Warburg Pincus LLC (collectively, the Sponsors).  The Company’s operations are conducted through its wholly-owned subsidiary, The Neiman Marcus Group, Inc. (NMG).  The Sponsors acquired NMG in a leveraged transaction in October 2005 (the Acquisition).  The accompanying unaudited Condensed Consolidated Financial Statements include the amounts of the Company and its subsidiaries.  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.  All references to the third quarter of fiscal year 2012 relate to the thirteen weeks ended April 28, 2012.  All references to the third quarter of fiscal year 2011 relate to the thirteen weeks ended April 30, 2011.  All references to year-to-date fiscal 2012 relate to the thirty-nine weeks ended April 28, 2012.  All references to year-to-date fiscal 2011 relate to the thirty-nine weeks ended April 30, 2011.

A detailed description of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011.

Use of Estimates.We are required to make estimates and assumptions about future events in preparing 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 unaudited Condensed 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 to be 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 unaudited Condensed Consolidated Financial Statements.

We believe the following critical accounting policies, among others, encompass the more significant judgments and estimates used in the preparation of our unaudited Condensed Consolidated Financial Statements:

·Recognition of revenues;

·Valuation of merchandise inventories, including determination of original retail values, recognition of markdowns and vendor allowances, estimation of inventory shrinkage, and determination of cost of goods sold;

·Determination of impairment of long-lived assets;

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·Recognition of advertising and catalog costs;

·Measurement of liabilities related to our loyalty programs;

·Recognition of income taxes; and

·Measurement of accruals for general liability, workers’ compensation and health insurance claims and pension and postretirement health care benefits.

Fair Value Measurements.  Under generally accepted accounting principles, we are required 1) to measure certain assets and liabilities at fair value or 2) to disclose the fair value of certain assets and liabilities recorded at cost.  Pursuant to these fair value measurement and disclosure requirements, fair value is defined as 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.  The fair value is calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.  In addition, the fair value of liabilities includes consideration of non-performance risk, including our own credit risk and the fair value of assets includes consideration of the counterparty’s non-performance risk.  Each fair value measurement is reported in one of the following three levels:

·Level 1 — valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

·Level 2 — valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·Level 3 — valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.  The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

At April 28, 2012, July 30, 2011 and April 30, 2011, the fair values of cash and cash equivalents, receivables and accounts payable approximated their carrying values due to the short-term nature of these instruments.  See Notes 3 and 4 of the Notes to Condensed Consolidated Financial Statements for the estimated fair values of our long-term debt and derivative financial instruments.

Recent Accounting Pronouncements.  In May 2011, the Financial Accounting Standards Board (FASB) issued guidance related to certain fair value measurements and disclosures.  We adopted this guidance during the third quarter of fiscal year 2012.  The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.

In June 2011, the FASB issued guidance to improve the presentation and prominence of comprehensive income and its components as a result of convergence with International Financial Reporting Standards, which is effective for us as of the first quarter of fiscal year 2013.  We do not expect that the implementation of the presentation requirements of this standard will have a material impact on our Consolidated Financial Statements.

In September 2011, the FASB issued guidance to reduce the complexity and costs associated with interim and annual goodwill impairment tests, by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit.  This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, which is effective for us as of the first quarter of fiscal year 2013.  We do not expect that the implementation of this standard will have a material impact on our Consolidated Financial Statements.

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2.Goodwill and Intangible Assets, Net

(in thousands)	April 28, 2012		July 30, 2011		April 30, 2011
Goodwill	$	1,263,433	$	1,263,433	$	1,263,433
Tradenames	$	1,232,237	$	1,233,070	$	1,233,347
Customer lists, net	246,945		270,829		281,159
Favorable lease commitments, net	362,400		375,808		380,278
Intangible assets, net	$	1,841,582	$	1,879,707	$	1,894,784

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.

Intangible Assets Subject to Amortization.  Customer lists and amortizable tradenames are amortized using the straight-line method over their estimated useful lives, ranging from 4 to 24 years (weighted average life of 13 years from the Acquisition).  Favorable lease commitments are amortized straight-line over the remaining lives of the leases, ranging from 9 to 49 years (weighted average life of 33 years from the Acquisition).  Total estimated amortization of all Acquisition-related intangible assets for the next five fiscal years is currently estimated as follows (in thousands):

2013	$	47,436
2014	46,881
2015	46,615
2016	45,867
2017	44,576

3.Long-term Debt

The significant components of our long-term debt are as follows:

(in thousands)	Interest Rate	April 28, 2012		July 30, 2011		April 30, 2011
Senior Secured Asset-Based Revolving Credit Facility	variable	$	125,000	$	—	$	—
Senior Secured Term Loan Facility	variable	2,060,000		2,060,000		1,505,735
2028 Debentures	7.125%	121,833		121,687		121,638
Senior Notes	9.0%/9.75%	—		—		752,445
Senior Subordinated Notes	10.375%	500,000		500,000		500,000
Long-term debt		$	2,806,833	$	2,681,687	$	2,879,818

In the fourth quarter of fiscal year 2011, we executed the following transactions, collectively referred to as the Refinancing Transactions:

·Amended our Senior Secured Asset-Based Revolving Credit Facility;

·Amended our Senior Secured Term Loan Facility; and

·Repurchased or redeemed $752.4 million principal amount of our Senior Notes.

Senior Secured Asset-Based Revolving Credit Facility.  In May 2011, NMG entered into an amendment and restatement of the Asset-Based Revolving Credit Facility.  As amended, the maximum committed borrowing capacity under the Asset-Based Revolving Credit Facility is $700.0 million and the Asset-Based Revolving Credit Facility matures on May 17, 2016 (or, if earlier, the date that is 45 days prior to the scheduled maturity of NMG’s Senior Secured Term Loan Facility or Senior Subordinated Notes, or any indebtedness refinancing them, unless refinanced as of that date).  The Asset-Based Revolving Credit Facility also provides an uncommitted accordion feature that allows NMG to request the lenders to provide additional capacity in either the form of increased revolving commitments or incremental term loans, subject to a potential total maximum facility of $1,000.0 million.

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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 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) 85% 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.  Excess availability provisions were revised to provide that NMG 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 million, but NMG is not required to maintain a fixed charge coverage ratio.

In the third quarter of fiscal year 2012, NMG incurred borrowings under the Asset-Based Revolving Credit Facility of $150.0 million. On April 28, 2012, NMG had $125.0 million of borrowings outstanding under this facility, $1.8 million of outstanding letters of credit and $503.2 million of unused borrowing availability.

The Asset-Based Revolving Credit Facility provides that NMG has the right at any time to request up to $300 million of additional revolving facility commitments and/or incremental term loans; provided that the aggregate amount of loan commitments under the Asset-Based Revolving Credit Facility may not exceed $1,000 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 NMG were to request any such additional commitments and the existing lenders or new lenders were to agree to provide such commitments, the Asset-Based Revolving Credit Facility size could be increased to up to $1,000 million, but NMG’s ability to borrow would still be limited by the amount of the borrowing base.  Incremental term loans may be exchanged by NMG for any of NMG’s existing senior subordinated notes, or the cash proceeds of any incremental term loans may be used to repurchase any of such notes and may be used for working capital and general corporate purposes.

At April 28, 2012, borrowings under the Asset-Based Revolving Credit Facility bore interest at a rate per annum equal to, at NMG’s option, either (a) a base rate determined by reference to the highest of (i) a defined prime rate, (ii) the federal funds effective rate plus 1/2 of 1% or (iii) a one-month LIBOR rate plus 1% or (b) a LIBOR rate, subject to certain adjustments, in each case plus an applicable margin. Following the amendment and restatement, the applicable margin is up to 1.25% with respect to base rate borrowings and up to 2.25% with respect to LIBOR borrowings, provided that for the first three months after the closing of the Asset-Based Revolving Credit Facility, the applicable margin is 1.00% with respect to base rate borrowings and 2.00% 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.  The interest rate on the outstanding borrowings pursuant to the Asset-Based Revolving Credit Facility was 2.00% at April 28, 2012.  In addition, NMG is required to pay a commitment fee in respect of unused commitments of (a) 0.375% per annum during any applicable period in which the average revolving loan utilization is 40% or more or (b) 0.50% per annum during any applicable period in which the average revolving loan utilization is less than 40%.  NMG 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 (including as a result of reductions to the borrowing base that would result from certain non-ordinary course sales of inventory with a value in excess of $25 million, if applicable), NMG 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.  In addition, at any time when incremental term loans are outstanding, if the aggregate amount outstanding under the Asset-Based Revolving Credit Facility exceeds the reported value of inventory owned by the borrowers and guarantors, NMG will be required to eliminate such excess within a limited period of time.  If the amount available under the Asset-Based Revolving Credit Facility is less than the greater of (i) 12.5% of the lesser of (A) the aggregate revolving commitments and (B) the borrowing base and (ii) $60 million, NMG will be required to repay outstanding loans and, if an event of default has occurred, cash collateralize letters of credit.  NMG would then be required to deposit daily in a collection account maintained with the agent under the Asset-Based Revolving Credit Facility.

NMG 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 May 17, 2016, unless extended, or if earlier, the maturity date of the Senior Secured Term Loan Facility and the Senior Subordinated Notes (subject to certain exceptions).

All obligations under the Asset-Based Revolving Credit Facility are guaranteed by the Company and certain of NMG’s existing and future domestic subsidiaries (principally, Bergdorf Goodman, Inc. through which NMG conducts the operations

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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).  Currently, NMG conducts no operations through subsidiaries that do not guarantee the Asset-Based Revolving Credit Facility.  All obligations under NMG’s 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 the Company, NMG and the subsidiaries that have guaranteed the Asset-Based Revolving Credit Facility (subsidiary guarantors).

The facility contains a number of restrictive covenants including 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 NMG must have pro forma excess availability under the Asset-Based Revolving Credit Facility equal to at least 15% of the lesser of (a) the revolving commitments under the facility and (b) the borrowing base, and NMG’s delivering projections demonstrating that projected excess availability for the next six months will be equal to such thresholds and that NMG has a pro forma ratio of consolidated EBITDA to consolidated Fixed Charges (as such terms are defined in the credit agreement) of at least 1.0 to 1.0 (or 1.1 to 1.0 for dividends or other distributions with respect to any equity interests in NMG, its parent or any subsidiary).  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 million.

For a more detailed description of the Asset-Based Revolving Credit Facility, refer to Note 6 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011.

The fair value of the Asset-Based Revolving Credit Facility approximated its carrying value at April 28, 2012 based on similar rates offered for debt of similar remaining maturities and credit risk (Level 2 determination of fair value).

Senior Secured Term Loan Facility.  In October 2005, NMG entered into a credit agreement and related security and other agreements for a $1,975.0 million Senior Secured Term Loan Facility.  In May 2011, NMG entered into an amendment and restatement (the TLF Amendment) of the Senior Secured Term Loan Facility.  The TLF Amendment increased the amount of borrowings to $2,060.0 million and extended the maturity of the loans to May 16, 2018.  Loans that were not extended under the TLF Amendment were refinanced.  The proceeds of the incremental borrowings under the term loan facility, along with cash on hand, were used to repurchase or redeem the $752.4 million principal amount outstanding of Senior Notes.  The TLF Amendment also provided for an uncommitted incremental facility to request lenders to provide additional term loans, upon certain conditions, including that NMG’s secured leverage ratio (as defined in the TLF Amendment) is less than or equal to 4.50 to 1.00 on a pro forma basis after giving effect to the incremental loans and the use of proceeds thereof.  At April 28, 2012, the outstanding balance under the Senior Secured Term Loan Facility was $2,060.0 million.  The principal amount of the loans outstanding is due and payable in full on May 16, 2018.

At April 28, 2012, borrowings under the Senior Secured Term Loan Facility bore interest at a rate per annum equal to, at NMG’s 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 1/2 of 1.00% and 3) the adjusted one-month LIBOR rate plus 1.00% or (b) an adjusted LIBOR rate (for a period equal to the relevant interest period, and in any event, never less than 1.25%), subject to certain adjustments, in each case plus an applicable margin.  In addition to extending the maturity of a portion of the existing term loans under the Senior Secured Term Loan Facility, the TLF Amendment changed the “applicable margin” used in calculating the interest rate under the term loans. The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 4.75% at April 28, 2012.  The applicable margin with respect to base rate borrowings is 2.50% and the applicable margin with respect to LIBOR borrowings is 3.50%.

The credit agreement governing the Senior Secured Term Loan Facility requires NMG to prepay outstanding term loans with 50% (which percentage will be reduced to 25% if NMG’s total leverage ratio is less than a specified ratio and will be reduced to 0% if NMG’s total leverage ratio is less than a specified ratio) of its annual excess cash flow (as defined in the credit agreement).  For fiscal year 2010, NMG was required to prepay $92.6 million of outstanding term loans pursuant to the annual excess cash flow requirements.  Of such amount, NMG paid $85.0 million in the fourth quarter of fiscal year 2010 and $7.6 million in the first quarter of fiscal year 2011.  We were not required to prepay any outstanding term loans pursuant to the annual excess cash flow requirements for fiscal year 2011.  NMG 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.

NMG may voluntarily prepay outstanding loans under the Senior Secured Term Loan Facility at any time without premium or penalty other than customary “breakage” costs with respect to LIBOR loans.  There is no scheduled amortization under the Senior Secured Term Loan Facility.

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All obligations under the Senior Secured Term Loan Facility are unconditionally guaranteed by the Company and each direct and indirect domestic subsidiary of NMG that guarantees the obligations of NMG under its Asset-Based Revolving Credit Facility.  Currently, NMG conducts no operations through subsidiaries that do not guarantee the Senior Secured Term Loan Facility.  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 the Company, NMG and the subsidiary guarantors.

The credit agreement governing the Senior Secured Term Loan Facility contains a number of negative covenants that are substantially similar to those governing the Senior Subordinated Notes and additional 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 million.

For a more detailed description of the Senior Secured Term Loan Facility, refer to Note 6 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011.

The fair value of the Senior Secured Term Loan Facility was approximately $2,062.6 million at April 28, 2012, $2,018.8 million at July 30, 2011 and $1,502.0 million at April 30, 2011 based on prevailing market rates (Level 2 determination of fair value).

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 NMG’s Senior Secured Credit Facilities.  The 2028 Debentures are guaranteed on an unsecured, senior basis by the Company.  The guarantee by the Company is full and unconditional and joint and several.  Currently, the Company’s 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 million.  NMG’s 2028 Debentures mature on June 1, 2028.

For a more detailed description of the 2028 Debentures, refer to Note 6 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011.

The fair value of the 2028 Debentures was approximately $107.3 million at April 28, 2012, $117.5 million at July 30, 2011 and $120.0 million at April 30, 2011 based on quoted market prices (Level 2 determination of fair value).

Senior Notes.In May 2011, NMG repurchased and cancelled $689.2 million principal amount of the Senior Notes through a tender offer and redeemed the remaining $63.2 million principal amount of notes on June 15, 2011 (after which no Senior Notes remained outstanding).  NMG’s payments to holders of the Senior Notes in the tender offer and redemption, taken together, aggregated approximately $790 million.

Senior Subordinated Notes.NMG has outstanding $500.0 million aggregate principal amount of 10.375% Senior Subordinated Notes under a senior subordinated indenture (Senior Subordinated Indenture).  NMG’s Senior Subordinated Notes mature on October 15, 2015.

The Senior Subordinated Notes are fully and unconditionally guaranteed, on a joint and several unsecured, senior subordinated basis, by each of NMG’s wholly-owned domestic subsidiaries that guarantee NMG’s obligations under its Senior Secured Credit Facilities and by the Company.  The Senior Subordinated Notes and the guarantees thereof are NMG’s and the guarantors’ unsecured, senior subordinated obligations and rank (i) junior to all of NMG’s and the guarantors’ existing and future senior indebtedness, including any borrowings under NMG’s Senior Secured Credit Facilities, and the guarantees thereof and NMG’s 2028 Debentures; (ii) equally with any of NMG’s and the guarantors’ future senior subordinated indebtedness; and (iii) senior to any of NMG’s and the guarantors’ future subordinated indebtedness. In addition, the Senior Subordinated Notes are structurally subordinated to all existing and future liabilities, including trade payables, of NMG’s subsidiaries that are not providing guarantees.

NMG is not required to make any mandatory redemption or sinking fund payments with respect to the Senior Subordinated Notes. The indenture governing the Senior Subordinated Notes contains a number of customary negative covenants and events of defaults, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50 million, which, if any of them occurs, would permit or require the principal, premium, if any, interest

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and any other monetary obligations on all outstanding Senior Subordinated Notes to be due and payable immediately, subject to certain exceptions.

For a more detailed description of the Senior Subordinated Notes, refer to Note 6 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011.

The fair value of the Senior Subordinated Notes was approximately $522.5 million at April 28, 2012, $523.8 million at July 30, 2011 and $527.5 million at April 30, 2011 based on quoted market prices (Level 2 determination of fair value).

Maturities of Long-Term Debt.  At April 28, 2012, annual maturities of long-term debt during the next five fiscal years and thereafter are as follows (in millions):

2013	$	—
2014	—
2015	—
2016	625.0
2017	—
Thereafter	2,181.8

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

Interest Expense. The significant components of interest expense are as follows:

	Thirteen weeks ended						Thirty-Nine weeks ended
(in thousands)	April 28,2012			April 30,2011			April 28,2012			April 30,2011
Asset-Based Revolving Credit Facility	$	240		$	—		$	240		$	—
Senior Secured Term Loan Facility	25,278			14,170			74,475			52,353
2028 Debentures	2,226			2,226			6,679			6,654
Senior Notes	—			16,929			—			50,603
Senior Subordinated Notes	12,969			12,969			38,905			38,764
Amortization of debt issue costs	2,106			3,955			6,350			12,585
Other, net	1,907			1,554			4,984			4,651
Capitalized interest	(372		)	(127		)	(1,100		)	(256		)
Interest expense, net	$	44,354		$	51,676		$	130,533		$	165,354

4.Derivative Financial Instruments

In connection with the Acquisition, we entered into $2,575.0 million of floating rate debt obligations, of which $2,125.0 million was outstanding at the Acquisition date and $2,060.0 million was outstanding at April 28, 2012.

Interest Rate Caps.  Effective January 2010, NMG entered into interest rate cap agreements for an aggregate notional amount of $500.0 million in order to hedge the variability of our cash flows related to a portion of our floating rate indebtedness once our earlier interest rate swap expired in December 2010.  The interest rate cap agreements commenced in December 2010 and will expire in December 2012.  Pursuant to the interest rate cap agreements, NMG has capped LIBOR at 2.50% through December 2012 with respect to the $500.0 million notional amount of such agreements.  In the event LIBOR is less than 2.50%, NMG will pay interest at the lower LIBOR rate.  In the event LIBOR is higher than 2.50%, NMG will pay interest at the capped rate of 2.50%.

Effective August 2011, NMG entered into additional interest rate cap agreements (at a cost of $5.8 million) for an aggregate notional amount of $1,000.0 million in order 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 2012.  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.

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At each balance sheet date, the interest rate caps are recorded at estimated fair value.  The changes in the fair value of the caps are expected to be highly, but not perfectly, effective in offsetting the unpredictability in expected future cash flows on floating rate indebtedness attributable to fluctuations in LIBOR interest rates above 2.50%.  Unrealized gains and losses on the outstanding balances of the interest rate caps are designated as effective or ineffective.  The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive loss while the ineffective portion of such gains or losses is recorded as a component of interest expense.  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.

Fair Value.  The fair values of the interest rate caps are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves (Level 2 determination of fair value).  A summary of the recorded assets with respect to our derivative financial instruments included in our Condensed Consolidated Balance Sheets is as follows:

(in thousands)	April 28, 2012		July 30, 2011		April 30, 2011
Interest rate caps (included in other long-term assets)	$	974	$	76	$	271
Accumulated other comprehensive loss, net of taxes	$	5,515	$	3,824	$	3,902

A summary of the recorded amounts related to our interest rate caps and swaps reflected in our Condensed Consolidated Statements of Operations is as follows:

	Thirteen weeks ended				Thirty-Nine weeks ended
(in thousands)	April 28, 2012		April 30, 2011		April 28, 2012		April 30, 2011
Realized hedging losses — included in interest expense, net	$	930	$	78	$	2,139	$	23,327
Ineffective hedging losses — included in interest expense, net	$	—	$	—	$	—	$	104

The amount of losses recorded in other comprehensive loss at April 28, 2012 that is expected to be reclassified into interest expense in the next twelve months, if interest rates remain unchanged, is approximately $4.4 million.

5.Investment in Foreign E-Commerce Retailer

In the third quarter of fiscal year 2012, NMG made a $29.4 million non-controlling strategic investment in Glamour Sales Holding Limited (Glamour Sales), a privately held e-commerce company based in Hong Kong with leading flash sales websites in Asia.  Through our $29.4 million investment in Glamour Sales, NMG intends to launch a full-price e-commerce website in China by the end of calendar 2012.  This site will feature a mix of full-priced, current season products.  NMG’s 37% investment in the unconsolidated entity is accounted for under the equity method.  The $29.4 million investment is included in other long-term assets within the Condensed Consolidated Balance Sheets.  The investment will be adjusted to reflect subsequent capital contributions, if any, and our equity in earnings / losses of Glamour Sales.

6.Income Taxes

Our effective income tax rate for the third quarter of fiscal year 2012 was 38.7% compared to 35.4% for the third quarter of fiscal year 2011.  Our effective income tax rate for year-to-date fiscal 2012 was 38.9% compared to 36.7% for year-to-date fiscal 2011.  Our effective income tax rates for the third quarter and year-to-date period of fiscal year 2012 and the prior fiscal year periods exceeded the statutory rate primarily due to state income taxes and anticipated settlements with taxing authorities.

At April 28, 2012, the gross amount of unrecognized tax benefits was $4.4 million, all 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 $7.2 million at April 28, 2012, $6.2 million at July 30, 2011 and $6.6 million at April 30, 2011.

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We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions.  The Internal Revenue Service (IRS) began an examination of our fiscal year 2008 federal income tax return in the second quarter of fiscal year 2011 and began an examination of our fiscal year 2009 federal income tax return in the third quarter of fiscal year 2011.  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 2006.  We believe our recorded tax liabilities as of April 28, 2012 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 Condensed Consolidated Financial Statements.

7.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).  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 have been 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.  We also sponsor an unfunded key employee deferred compensation plan, which provides certain employees with additional benefits.

In April 2012, the Investment Committee of the Company approved the offer of lump sum distributions or annuity distributions (for balances in excess of $5,000 but less than $14,000) for certain vested terminated participants in our Pension Plan.  Dependent upon the acceptance of the offer, distributions during the fourth quarter of fiscal year 2012 could aggregate approximately $25 million of the Pension Plan assets, not to exceed estimated annual interest cost of the Pension Plan.

Obligations for our employee benefit plans, included in other long-term liabilities, are as follows:

(in thousands)	April 28, 2012			July 30, 2011			April 30, 2011
Pension Plan	$	73,549		$	98,683		$	123,154
SERP Plan	99,427			99,942			97,802
Postretirement Plan	14,868			15,651			16,790
	187,844			214,276			237,746
Less: current portion	(5,599		)	(6,035		)	(5,568		)
Long-term portion of benefit obligations	$	182,245		$	208,241		$	232,178

As of April 28, 2012, we have $68.4 million (net of taxes of $44.4 million) of adjustments to our benefit obligations recorded as increases to accumulated other comprehensive loss.

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Costs of Benefits.  The components of the expenses we incurred under our Pension Plan, SERP Plan and Postretirement Plan are as follows:

	Thirteen weeks ended						Thirty-Nine weeks ended
(in thousands)	April 28, 2012			April 30, 2011			April 28, 2012			April 30, 2011
Pension Plan:
Interest cost	$	6,190		$	6,054		$	18,570		$	18,162
Expected return on plan assets	(6,774		)	(6,552		)	(20,322		)	(19,658		)
Net amortization of losses	654			544			1,962			1,632
Pension Plan expense	$	70		$	46		$	210		$	136
SERP Plan:
Interest cost	$	1,204		$	1,230		$	3,612		$	3,690
SERP Plan expense	$	1,204		$	1,230		$	3,612		$	3,690
Postretirement Plan:
Service cost	$	8		$	16		$	25		$	46
Interest cost	195			217			585			653
Net amortization of prior service cost	(389		)	(389		)	(1,167		)	(1,167		)
Net amortization of losses	106			173			318			518
Postretirement Plan (income) expense	$	(80	)	$	17		$	(239	)	$	50

Funding Policy and Plan Status.  Our policy is to fund the Pension Plan at or above the minimum required by law.  In fiscal year 2011, we were not required to make contributions to the Pension Plan; however, we made a voluntary contribution to our Pension Plan of $30.0 million in the third quarter of fiscal year 2011.  In the third quarter of fiscal year 2012, we made voluntary contributions to our Pension Plan of $25.1 million and are not required to make contributions to the Pension Plan for the remainder of fiscal year 2012.  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.

8.Distributions to Shareholders

On March 28, 2012, the Board of Directors of NMG declared a cash dividend (the Dividend) of $435 per share of its outstanding common stock resulting in total distributions to our shareholders and certain option holders (including related expenses) of $449.3 million.  In connection with the Dividend, we incurred borrowings under the Asset-Based Revolving Credit Facility of $150.0 million.  These proceeds, along with cash on hand, were used to fund the Dividend.  The Dividend was paid on March 30, 2012 to stockholders of record at the close of business on March 28, 2012.

9.Stock-Based Compensation

The Company has approved equity-based management arrangements, which authorize equity awards to be granted to certain management employees for up to 112,992 shares of the common stock of the Company.  Options generally vest over four to five years and expire six to eight years from the date of grant.

The exercise prices of certain of our options escalate at a 10% compound rate per year (Accreting Options) until the earliest to occur of (i) exercise, (ii) a defined anniversary of the date of grant (four to five years) or (iii) the occurrence of a change of control.  However, in the event the Sponsors cause the sale of shares of the Company to an unaffiliated entity, the exercise price will cease to accrete at the time of the sale with respect to a pro rata portion of the Accreting Options.  The exercise price with respect to all other options (Fixed Price Options) is fixed at the grant date.

Stock Option Modification.  In connection with the payment of the Dividend in the third quarter of fiscal year 2012, the Company adjusted the exercise price of 45,812 unvested options outstanding on the payment date by the per share amount of the Dividend of $435 per share.  Holders of 47,055 vested options received a cash payment in respect of their vested options equal to 50% of the per share amount of the Dividend ($217.50 per share) and a decrease in the exercise price of their vested options for the remaining 50% of the per share amount of the Dividend.  There was no impact to the Company as a result of

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the stock option modification triggered by the payment of the Dividend as the post-modification fair value was less than the pre-modification fair value of both vested and unvested options outstanding.

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 our common stock.  Because we are privately held and there is no public market for our common stock, the fair market value of our 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 value of our common stock, the Compensation Committee considers such factors as 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.

During year-to-date fiscal 2012, we granted 16,740 Fixed Price Options with a weighted average grant date fair value of $940 per option and we granted 9,016 Accreting Options with a weighted average grant date fair value of $712 per option.  During year-to-date fiscal 2011, we granted 10,000 Fixed Price Options with a weighted average grant date fair value of $807 per option and we granted 650 Accreting Options with a weighted average grant date fair value of $720 per option.

During year-to-date fiscal 2012, 3,541 Fixed Price Options were exercised with a weighted average exercise price of $357 per option and 2,963 Accreting Options were exercised with a weighted average exercise price of $1,100 per option.  During year-to-date fiscal 2011, 3,742 Fixed Price Options were exercised with a weighted average exercise price of $361 per option.

We recognize compensation expense for stock options on a straight-line basis over the vesting period.  We recognized non-cash stock compensation expense of $4.9 million in year-to-date fiscal 2012 and $2.8 million in year-to-date fiscal 2011, which is included in selling, general and administrative expenses.

10.Accumulated Other Comprehensive Loss

The following table shows the components of accumulated other comprehensive loss, net of taxes:

(in thousands)	April 28, 2012			July 30, 2011			April 30, 2011
Unrealized loss on financial instruments	$	(5,515	)	$	(3,824	)	$	(3,902	)
Unrealized loss on unfunded benefit obligations	(68,377		)	(69,221		)	(83,566		)
Total accumulated other comprehensive loss	$	(73,892	)	$	(73,045	)	$	(87,468	)

The components of other comprehensive income are:

	Thirty-Nine weeks ended
(in thousands)	April 28, 2012			April 30, 2011
Net earnings from Condensed Consolidated Statements of Operations	$	151,144		$	93,005
Change in unrealized loss on financial instruments	(1,691		)	13,379
Change in unfunded benefit obligations	844			5,427
Total comprehensive income for the period	$	150,297		$	111,811

11.Transactions with Sponsors

Pursuant to a management services agreement with affiliates of the Sponsors, and in exchange for ongoing consulting and management advisory services that are provided to us by the Sponsors and their affiliates, affiliates of the Sponsors receive an aggregate annual management fee equal to the lesser of (i) 0.25% of our consolidated annual revenues or (ii) $10 million.  Affiliates of the Sponsors also receive reimbursement for out-of-pocket expenses incurred by them or their affiliates in connection with services provided pursuant to the agreement.  These management fees are payable quarterly in arrears.  We recorded management fees of $8.4 million during year-to-date fiscal 2012 and $7.7 million during year-to-date fiscal 2011, which are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

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The management services agreement also provides that affiliates of the Sponsors may receive future fees in connection with certain future financing and acquisition or disposition transactions.  The management services agreement includes customary exculpation and indemnification provisions in favor of the Sponsors and their affiliates.

12.Income from Credit Card Program

We have had a marketing and servicing alliance with HSBC Bank Nevada, N.A. and HSBC Private Label Corporation (collectively referred to as HSBC) since July 2005.  On May 1, 2012, affiliates of Capital One Financial Corporation (Capital One) purchased HSBC’s credit card and private label credit card business in the U.S.  In connection with that purchase, HSBC assigned its rights and obligations under our agreement with HSBC to Capital One and our contract partner is now Capital One rather than HSBC.

Pursuant to the agreement with Capital One, which we refer to as the Program Agreement, Capital One offers proprietary credit card accounts to our customers under both the “Neiman Marcus” and “Bergdorf Goodman” brand names.  Our Program Agreement currently extends to July 2015 (renewable thereafter for three-year terms), subject to the early termination provisions thereunder, including those referenced below.

Under the terms of the Program Agreement, Capital One offers credit cards and non-card payment plans and bears substantially all credit risk with respect to sales transacted on the cards bearing our brands.  We receive payments from Capital One based on sales transacted on our proprietary credit cards.  Such payments are subject to annual adjustments, both increases and decreases, based upon the overall annual profitability and performance of the proprietary credit card portfolio.  In addition, we receive payments from Capital One for marketing and servicing activities we provide to Capital One.

The Program Agreement with HSBC included a change of control provision that would permit us to terminate such agreement following a change of control of HSBC, which occurred upon closing of the Capital One transaction. As part of our agreement with HSBC and Capital One relating to the transition of the Program Agreement to Capital One, we have agreed that if we determine to exercise this termination right, we would exercise it during the six month period following the 180th day after the closing of the Capital One transaction, which will occur on October 28, 2012.  We are currently unable to fully evaluate the impact, if any, on the Company of the transition of our Program Agreement from HSBC to Capital One.

13.Commitments and Contingencies

Long-term Incentive Plan.  We have a long-term incentive plan (Long-term Incentive Plan) that provides for a cash incentive payable to certain employees upon a change of control, as defined, subject to the attainment of certain performance objectives.  Performance objectives and targets are based on cumulative EBITDA (as defined in the plan) percentages for rolling three year periods beginning in fiscal year 2006.  Earned awards for each completed performance period will be credited to a book account and will earn interest at a contractually defined annual rate until the award is paid.  Awards will be paid upon a change of control, as defined, or an initial public offering, as defined, subject to the requirement that, in each case, the internal rate of return to the Sponsors is positive.  As of April 28, 2012, the vested participant balance in the Long-Term Incentive Plan aggregated $6.8 million.

Cash Incentive Plan.  We also have a cash incentive plan (Cash Incentive Plan) to aid in the retention of certain key executives.  The Cash Incentive Plan provides for the creation of a $14 million cash bonus pool.  Each participant in the Cash Incentive Plan will be entitled to a cash bonus upon the earlier to occur of a change of control, as defined, or an initial public offering, as defined, subject to the requirement that, in each case, the internal rate of return to the Sponsors is positive.

Litigation.  On April 30, 2010, a Class Action Complaint for Injunction and Equitable Relief was filed 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, against the Company, Newton Holding, LLC, TPG Capital, L.P. and Warburg Pincus, LLC. On July 12, 2010, all defendants except for the Company were dismissed without prejudice, and on August 20, 2010, this case was 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 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.  On October 24, 2011, the court granted the Company’s motion to compel Ms. Monjazeb and a co-plaintiff to participate in the Company’s Mandatory Arbitration Agreement, foreclosing a class action in that case.  The court then determined that Ms. Tanguilig could not represent employees who are subject to our Mandatory Arbitration Agreement, thereby limiting the putative class action to

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those associates who were employed between December 2004 and July 15, 2007 (the effective date of our Mandatory Arbitration Agreement).  Ms. Monjazeb filed a demand for arbitration as a class action, which is prohibited under the Mandatory Arbitration Agreement.  In response to Ms. Monjazeb’s demand for arbitration as a class action, the American Arbitration Association (AAA) referred the resolution of such request back to the arbitrator.  We are in the process of filing a motion to stay the decision of the AAA pending a ruling by the trial court.  We intend to continue vigorously defending our interests in these matters.  Currently, we cannot reasonably estimate the amount of loss, if any, arising from these matters.  We will continue to evaluate these matters 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 all current litigation involving the Company, 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.

Other.  We had approximately $1.8 million of outstanding irrevocable letters of credit relating to purchase commitments and insurance and other liabilities at April 28, 2012.  We had approximately $3.1 million in surety bonds at April 28, 2012 relating primarily to merchandise imports and state sales tax and utility requirements.

14.Segment Reporting

We have identified two reportable segments: Specialty Retail Stores and Direct Marketing.  The Specialty Retail Stores segment aggregates the activities of our Neiman Marcus and Bergdorf Goodman retail stores, including Neiman Marcus Last Call stores.  The Direct Marketing segment conducts both online and print catalog operations under the Neiman Marcus, Bergdorf Goodman, Neiman Marcus Last Call and Horchow brand names.  Both the Specialty Retail Stores and Direct Marketing 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 adjustments made in connection with the Acquisition, including amortization of intangible assets and favorable lease commitments and other non-cash items and 3) interest expense.  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).

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The following tables set forth the information for our reportable segments:

	Thirteen weeks ended						Thirty-Nine weeks ended
(in thousands)	April 28, 2012			April 30, 2011			April 28, 2012			April 30, 2011
REVENUES
Specialty Retail Stores	$	846,924		$	804,433		$	2,670,972		$	2,502,066
Direct Marketing	210,803			179,382			669,044			580,556
Total	$	1,057,727		$	983,815		$	3,340,016		$	3,082,622
OPERATING EARNINGS
Specialty Retail Stores	$	134,758		$	120,906		$	359,567		$	314,020
Direct Marketing	41,660			33,434			106,678			94,601
Corporate expenses	(17,826		)	(16,024		)	(50,071		)	(48,890		)
Amortization of intangible assets and favorable lease commitments	(11,998		)	(15,076		)	(38,125		)	(47,471		)
Total	$	146,594		$	123,240		$	378,049		$	312,260
CAPITAL EXPENDITURES
Specialty Retail Stores	$	29,833		$	19,006		$	89,356		$	52,599
Direct Marketing	5,317			5,750			19,209			13,392
Total	$	35,150		$	24,756		$	108,565		$	65,991
DEPRECIATION EXPENSE
Specialty Retail Stores	$	26,532		$	26,309		$	78,286		$	80,424
Direct Marketing	4,739			3,810			13,527			12,020
Other	1,287			1,435			3,900			4,977
Total	$	32,558		$	31,554		$	95,713		$	97,421

	April 28, 2012		April 30, 2011
ASSETS
Tangible assets of Specialty Retail Stores	$	1,754,906	$	1,647,366
Tangible assets of Direct Marketing	208,766		183,545
Corporate assets:
Intangible assets related to Specialty Retail Stores	2,663,202		2,710,084
Intangible assets related to Direct Marketing	441,813		448,133
Other	131,329		578,018
Total	$	5,200,016	$	5,567,146

18

15.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 and joint and several.  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 Neiman Marcus, Inc. 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 Securities and Exchange Commission’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.

	April 28, 2012
(in thousands)	Company		NMG		Non-GuarantorSubsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	63,841	$	855	$	—		$	64,696
Merchandise inventories	—		825,249		120,543		—			945,792
Other current assets	—		109,129		11,281		—			120,410
Total current assets	—		998,219		132,679		—			1,130,898
Property and equipment, net	—		784,308		103,608		—			887,916
Goodwill	—		1,107,753		155,680		—			1,263,433
Intangible assets, net	—		289,622		1,551,960		—			1,841,582
Other assets	—		74,562		1,625		—			76,187
Investments in subsidiaries	699,692		1,833,698		—		(2,533,390		)	—
Total assets	$	699,692	$	5,088,162	$	1,945,552	$	(2,533,390	)	$	5,200,016
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	216,739	$	29,772	$	—		$	246,511
Accrued liabilities	—		372,376		80,331		—			452,707
Total current liabilities	—		589,115		110,103		—			699,218
Long-term liabilities:
Long-term debt	—		2,806,833		—		—			2,806,833
Deferred income taxes	—		665,126		—		—			665,126
Other long-term liabilities	—		327,396		1,751		—			329,147
Total long-term liabilities	—		3,799,355		1,751		—			3,801,106
Total shareholders’ equity	699,692		699,692		1,833,698		(2,533,390		)	699,692
Total liabilities and shareholders’ equity	$	699,692	$	5,088,162	$	1,945,552	$	(2,533,390	)	$	5,200,016

19

	July 30, 2011
(in thousands)	Company		NMG		Non-GuarantorSubsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	320,865	$	726	$	—		$	321,591
Merchandise inventories	—		747,653		91,681		—			839,334
Other current assets	—		131,179		10,637		—			141,816
Total current assets	—		1,199,697		103,044		—			1,302,741
Property and equipment, net	—		768,581		104,618		—			873,199
Goodwill	—		1,107,753		155,680		—			1,263,433
Intangible assets, net	—		318,072		1,561,635		—			1,879,707
Other assets	—		44,001		1,688		—			45,689
Investments in subsidiaries	994,297		1,819,641		—		(2,813,938		)	—
Total assets	$	994,297	$	5,257,745	$	1,926,665	$	(2,813,938	)	$	5,364,769
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	260,626	$	30,685	$	—		$	291,311
Accrued liabilities	—		296,255		74,634		—			370,889
Total current liabilities	—		556,881		105,319		—			662,200
Long-term liabilities:
Long-term debt	—		2,681,687		—		—			2,681,687
Deferred income taxes	—		683,908		—		—			683,908
Other long-term liabilities	—		340,972		1,705		—			342,677
Total long-term liabilities	—		3,706,567		1,705		—			3,708,272
Total shareholders’ equity	994,297		994,297		1,819,641		(2,813,938		)	994,297
Total liabilities and shareholders’ equity	$	994,297	$	5,257,745	$	1,926,665	$	(2,813,938	)	$	5,364,769

	April 30, 2011
(in thousands)	Company		NMG		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	521,422	$	951	$	—		$	522,373
Merchandise inventories	—		742,749		102,321		—			845,070
Other current assets	—		100,468		9,467		—			109,935
Total current assets	—		1,364,639		112,739		—			1,477,378
Property and equipment, net	—		772,322		105,117		—			877,439
Goodwill	—		1,107,753		155,680		—			1,263,433
Intangible assets, net	—		329,924		1,564,860		—			1,894,784
Other assets	—		52,404		1,708		—			54,112
Investments in subsidiaries	1,038,314		1,835,632		—		(2,873,946		)	—
Total assets	$	1,038,314	$	5,462,674	$	1,940,104	$	(2,873,946	)	$	5,567,146
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	188,292	$	26,676	$	—		$	214,968
Accrued liabilities	—		330,518		76,044		—			406,562
Total current liabilities	—		518,810		102,720		—			621,530
Long-term liabilities:
Long-term debt	—		2,879,818		—		—			2,879,818
Deferred income taxes	—		661,243		—		—			661,243
Other long-term liabilities	—		364,489		1,752		—			366,241
Total long-term liabilities	—		3,905,550		1,752		—			3,907,302
Total shareholders’ equity	1,038,314		1,038,314		1,835,632		(2,873,946		)	1,038,314
Total liabilities and shareholders’ equity	$	1,038,314	$	5,462,674	$	1,940,104	$	(2,873,946	)	$	5,567,146

20

	Thirteen weeks ended April 28, 2012
(in thousands)	Company			NMG			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	881,830		$	175,897		$	—		$	1,057,727
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			528,317			101,087			—			629,404
Selling, general and administrative expenses (excluding depreciation)	—			219,421			30,247			—			249,668
Income from credit card program	—			(11,399		)	(1,096		)	—			(12,495		)
Depreciation expense	—			29,212			3,346			—			32,558
Amortization of intangible assets and favorable lease commitments	—			8,773			3,225			—			11,998
Operating earnings	—			107,506			39,088			—			146,594
Interest expense, net	—			44,353			1			—			44,354
Intercompany royalty charges (income)	—			49,474			(49,474		)	—			—
Equity in (earnings) loss of subsidiaries	(62,640		)	(88,561		)	—			151,201			—
Earnings (loss) before income taxes	62,640			102,240			88,561			(151,201		)	102,240
Income tax expense	—			39,600			—			—			39,600
Net earnings (loss)	$	62,640		$	62,640		$	88,561		$	(151,201	)	$	62,640

	Thirteen weeks ended April 30, 2011
(in thousands)	Company			NMG			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	817,642		$	166,173		$	—		$	983,815
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			496,007			97,489			—			593,496
Selling, general and administrative expenses (excluding depreciation)	—			204,937			28,011			—			232,948
Income from credit card program	—			(11,698		)	(801		)	—			(12,499		)
Depreciation expense	—			28,035			3,519			—			31,554
Amortization of intangible assets and favorable lease commitments	—			11,850			3,226			—			15,076
Operating earnings	—			88,511			34,729			—			123,240
Interest expense, net	—			51,675			1			—			51,676
Intercompany royalty charges (income)	—			47,535			(47,535		)	—			—
Equity in (earnings) loss of subsidiaries	(46,237		)	(82,263		)	—			128,500			—
Earnings (loss) before income taxes	46,237			71,564			82,263			(128,500		)	71,564
Income tax expense	—			25,327			—			—			25,327
Net earnings (loss)	$	46,237		$	46,237		$	82,263		$	(128,500	)	$	46,237

21

	Thirty-Nine weeks ended April 28, 2012
(in thousands)	Company			NMG			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	2,775,949		$	564,067		$	—		$	3,340,016
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			1,747,258			349,869			—			2,097,127
Selling, general and administrative expenses (excluding depreciation)	—			674,425			94,970			—			769,395
Income from credit card program	—			(34,954		)	(3,439		)	—			(38,393		)
Depreciation expense	—			85,433			10,280			—			95,713
Amortization of intangible assets and favorable lease commitments	—			28,450			9,675			—			38,125
Operating earnings	—			275,337			102,712			—			378,049
Interest expense, net	—			130,530			3			—			130,533
Intercompany royalty charges (income)	—			157,484			(157,484		)	—			—
Equity in (earnings) loss of subsidiaries	(151,144		)	(260,193		)	—			411,337			—
Earnings (loss) before income taxes	151,144			247,516			260,193			(411,337		)	247,516
Income tax expense	—			96,372			—			—			96,372
Net earnings (loss)	$	151,144		$	151,144		$	260,193		$	(411,337	)	$	151,144

	Thirty-Nine weeks ended April 30, 2011
(in thousands)	Company			NMG			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	2,556,237		$	526,385		$	—		$	3,082,622
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			1,623,927			325,888			—			1,949,815
Selling, general and administrative expenses (excluding depreciation)	—			622,599			87,043			—			709,642
Income from credit card program	—			(31,506		)	(2,481		)	—			(33,987		)
Depreciation expense	—			86,869			10,552			—			97,421
Amortization of intangible assets and favorable lease commitments	—			37,798			9,673			—			47,471
Operating earnings	—			216,550			95,710			—			312,260
Interest expense, net	—			165,351			3			—			165,354
Intercompany royalty charges (income)	—			149,694			(149,694		)	—			—
Equity in (earnings) loss of subsidiaries	(93,005		)	(245,401		)	—			338,406			—
Earnings (loss) before income taxes	93,005			146,906			245,401			(338,406		)	146,906
Income tax expense	—			53,901			—			—			53,901
Net earnings (loss)	$	93,005		$	93,005		$	245,401		$	(338,406	)	$	93,005

22

	Thirty-Nine weeks ended April 28, 2012
(in thousands)	Company			NMG			Non-Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS—OPERATING ACTIVITIES
Net earnings (loss)	$	151,144		$	151,144		$	260,193		$	(411,337	)	$	151,144
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization expense	—			120,233			19,955			—			140,188
Deferred income taxes	—			(21,845		)	—			—			(21,845		)
Other	—			313			109			—			422
Intercompany royalty income payable (receivable)	—			157,484			(157,484		)	—			—
Equity in (earnings) loss of subsidiaries	(151,144		)	(260,193		)	—			411,337			—
Changes in operating assets and liabilities, net	—			50,055			(113,984		)	—			(63,929		)
Net cash provided by operating activities	—			197,191			8,789			—			205,980
CASH FLOWS—INVESTING ACTIVITIES
Capital expenditures	—			(99,905		)	(8,660		)	—			(108,565		)
Investment in foreign e-commerce retailer	—			(29,421		)	—			—			(29,421		)
Net cash used for investing activities	—			(129,326		)	(8,660		)	—			(137,986		)
CASH FLOWS—FINANCING ACTIVITIES
Borrowings under Senior Secured Asset-Based Revolving Credit Facility	—			150,000			—			—			150,000
Repayment of borrowings	—			(25,000		)	—			—			(25,000		)
Distributions to shareholders	—			(449,295		)	—			—			(449,295		)
Debt issuance costs paid	—			(594		)	—			—			(594		)
Net cash used for financing activities	—			(324,889		)	—			—			(324,889		)
CASH AND CASH EQUIVALENTS
(Decrease) increase during the period	—			(257,024		)	129			—			(256,895		)
Beginning balance	—			320,865			726			—			321,591
Ending balance	$	—		$	63,841		$	855		$	—		$	64,696

	Thirty-Nine weeks ended April 30, 2011
(in thousands)	Company			NMG			Non-Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS—OPERATING ACTIVITIES
Net earnings (loss)	$	93,005		$	93,005		$	245,401		$	(338,406	)	$	93,005
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization expense	—			137,252			20,225			—			157,477
Deferred income taxes	—			(11,797		)	—			—			(11,797		)
Other	—			(872		)	291			—			(581		)
Intercompany royalty income payable (receivable)	—			149,694			(149,694		)	—			—
Equity in (earnings) loss of subsidiaries	(93,005		)	(245,401		)	—			338,406			—
Changes in operating assets and liabilities, net	—			53,673			(110,865		)	—			(57,192		)
Net cash provided by operating activities	—			175,554			5,358			—			180,912
CASH FLOWS—INVESTING ACTIVITIES
Capital expenditures	—			(60,740		)	(5,251		)	—			(65,991		)
Net cash used for investing activities	—			(60,740		)	(5,251		)	—			(65,991		)
CASH FLOWS—FINANCING ACTIVITIES
Repayment of borrowings	—			(7,648		)	—			—			(7,648		)
Debt issuance costs paid	—			(5,907		)	—			—			(5,907		)
Net cash used for financing activities	—			(13,555		)	—			—			(13,555		)
CASH AND CASH EQUIVALENTS
Increase during the period	—			101,259			107			—			101,366
Beginning balance	—			420,163			844			—			421,007
Ending balance	$	—		$	521,422		$	951		$	—		$	522,373

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ITEM 2.  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 Annual Report on Form 10-K for the fiscal year ended July 30, 2011.  Unless otherwise specified, the meanings of all defined terms in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are consistent with the meanings of such terms as defined in the Notes to Condensed 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 our forward-looking statements.

Overview

The Company is a luxury retailer conducting integrated store and direct-to-consumer 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 Direct Marketing segment.

The Company is a subsidiary of Newton Holding, LLC (Holding), which is controlled by investment funds affiliated with TPG Capital (formerly Texas Pacific Group) and Warburg Pincus LLC (collectively, the Sponsors).  The Company’s operations are conducted through its wholly-owned subsidiary, The Neiman Marcus Group, Inc. (NMG).  The Sponsors acquired NMG in a leveraged transaction in October 2005 (the Acquisition).

In the third quarter of fiscal year 2012, NMG made a $29.4 million non-controlling strategic investment in Glamour Sales Holding Limited (Glamour Sales), a privately held e-commerce company based in Hong Kong with leading flash sales websites in Asia.  Through our $29.4 million investment in Glamour Sales, NMG intends to launch a full-price e-commerce website in China by the end of calendar 2012.  This site will feature a mix of full-priced, current season products.  NMG’s 37% investment in the unconsolidated entity is accounted for under the equity method.

On March 28, 2012, the Board of Directors of NMG declared a cash dividend (the Dividend) of $435 per share of its outstanding common stock resulting in total distributions to our shareholders and certain option holders (including related expenses) of $449.3 million.  In connection with the Dividend, we incurred borrowings under the Asset-Based Revolving Credit Facility of $150.0 million.  These proceeds, along with cash on hand, were used to fund the Dividend.  The Dividend was paid on March 30, 2012 to stockholders of record at the close of business on March 28, 2012.

Our fiscal year ends on the Saturday closest to July 31.  Like many other retailers, we follow a 4-5-4 reporting calendar.  All references to the third quarter of fiscal year 2012 relate to the thirteen weeks ended April 28, 2012.  All references to the third quarter of fiscal year 2011 relate to the thirteen weeks ended April 30, 2011.  All references to year-to-date fiscal 2012 relate to the thirty-nine weeks ended April 28, 2012.  All references to year-to-date fiscal 2011 relate to the thirty-nine weeks ended April 30, 2011.

24

Fiscal Year 2012 Summary

A summary of our operating results is as follows:

·Revenues—Our revenues in the third quarter and year-to-date period of fiscal year 2012 were positively impacted by a higher level of customer demand.  As a result, our revenues for the third quarter of fiscal year 2012 were $1,057.7 million, an increase of 7.5% as compared to the third quarter of fiscal year 2011.  Comparable revenues increased by 6.7% in the third quarter of fiscal year 2012.

Our revenues for year-to-date fiscal 2012 were $3,340.0 million, an increase of 8.3% compared to year-to-date fiscal 2011 reflecting an increase in comparable revenues of 7.9%.

For Specialty Retail Stores, our sales per square foot for the last twelve trailing months were $530 as of April 28, 2012, $525 as of January 28, 2012 and $492 as of April 30, 2011.

·Cost of goods sold including buying and occupancy costs (excluding depreciation) (COGS)—COGS represented 59.5% of revenues in the third quarter of fiscal year 2012, an improvement of 0.8% of revenues compared to the third quarter of fiscal year 2011.  COGS represented 62.8% of revenues in year-to-date fiscal 2012, an improvement of 0.5% of revenues compared to year-to-date fiscal 2011.  The decreases in COGS, as percentages of revenues, were primarily due to 1) favorable merchandise mix and higher levels of full-price sales and lower net markdowns and promotions costs and 2) the leveraging of buying and occupancy costs on higher revenues, partially offset by 3) lower delivery and processing net revenues at our Direct Marketing operation.

·Selling, general and administrative expenses (excluding depreciation) (SG&A)—SG&A represented 23.6% of revenues in the third quarter of fiscal year 2012, a slight decrease of 0.1% of revenues compared to the third quarter of fiscal year 2011.  SG&A represented 23.0% of revenues in year-to-date fiscal 2012, which is flat as compared to year-to-date fiscal 2011.  The lower levels of SG&A expenses, as percentages of revenues, primarily reflect 1) favorable payroll and other costs primarily due to leveraging of these expenses on higher revenues, partially offset by 2) a higher level of aggregate spending on corporate initiatives and 3) higher marketing and selling costs.

·Operating earnings—Total operating earnings in the third quarter of fiscal year 2012 were $146.6 million, or 13.9% of revenues.  Total operating earnings in the third quarter of fiscal year 2011 were $123.2 million, or 12.5% of revenues.  Our operating earnings margin increased by 1.4% of revenues in the third quarter of fiscal year 2012 primarily due to:

·a decrease in COGS by 0.8% of revenues, as described above; and

·a decrease in depreciation and amortization expense by 0.6% of revenues reflecting a lower level of capital expenditures in recent years and lower amortization of short-lived intangible assets.

Total operating earnings in year-to-date fiscal 2012 were $378.1 million, or 11.3% of revenues, compared to $312.3 million, or 10.1% of revenues, in year-to-date fiscal 2011.  Our operating earnings margin increased by 1.2% of revenues in year-to-date fiscal 2012 primarily due to:

·a decrease in COGS by 0.5% of revenues, as described above; and

·a decrease in depreciation and amortization expense by 0.7% of revenues reflecting a lower level of capital expenditures in recent years and lower amortization of short-lived intangible assets.

·Liquidity—Net cash provided by our operating activities was $206.0 million in year-to-date fiscal 2012 compared to $180.9 million in year-to-date fiscal 2011.  The $25.1 million increase in net cash provided by our operating activities was primarily due to an increase in net earnings.

We held cash balances of $64.7 million at April 28, 2012 compared to $522.4 million at April 30, 2011.  The $457.7 million decrease in cash was primarily due to 1) $449.3 million of distributions to shareholders and certain option holders as a result of the payment of the Dividend in March 2012, 2) cash used to reduce our long-term debt of $198.2 million during the fourth quarter of fiscal year 2011 and 3) $25.0 million voluntary repayment of borrowings under the Asset-Based Revolving Credit Facility, offset by 4) $150.0 million of

25

proceeds from borrowings under the Asset-Based Revolving Credit Facility in the third quarter of fiscal year 2012.

At April 28, 2012, we had $125.0 million of borrowings outstanding under the Asset-Based Revolving Credit Facility, $1.8 million of outstanding letters of credit and $503.2 million of unused borrowing availability.

·Outlook—While we have experienced more favorable economic conditions in recent quarters, domestic and global economic conditions remain volatile and we do not anticipate the return of consumer spending to levels achieved in fiscal years 2007 and 2008 in the near-term.  At April 28, 2012, on-hand inventories totaled $945.8 million, an 11.9% increase from the prior year fiscal period.  Based on our current inventory position, we anticipate markdown sales as a percentage of total sales in the fourth quarter of fiscal year 2012 will be higher compared to the prior year fiscal period.  We believe the cash generated from our operations along with our cash balances and available sources of financing will enable us to meet our anticipated cash obligations for the remainder of fiscal year 2012.

OPERATING RESULTS

Performance Summary

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

	Thirteen weeks ended				Thirty-Nine weeks ended
	April 28, 2012		April 30, 2011		April 28, 2012		April 30, 2011
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold including buying and occupancy costs (excluding depreciation)	59.5		60.3		62.8		63.3
Selling, general and administrative expenses (excluding depreciation)	23.6		23.7		23.0		23.0
Income from credit card program	(1.2	)	(1.3	)	(1.1	)	(1.1	)
Depreciation expense	3.1		3.2		2.9		3.2
Amortization of intangible assets	0.7		1.1		0.7		1.1
Amortization of favorable lease commitments	0.4		0.5		0.4		0.4
Operating earnings	13.9		12.5		11.3		10.1
Interest expense, net	4.2		5.3		3.9		5.4
Earnings before income taxes	9.7		7.3		7.4		4.8
Income tax expense	3.7		2.6		2.9		1.7
Net earnings	5.9	%	4.7	%	4.5	%	3.0	%

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

	Thirteen weeks ended						Thirty-Nine weeks ended
(in millions, except sales per square foot)	April 28, 2012			April 30, 2011			April 28, 2012			April 30, 2011
REVENUES
Specialty Retail Stores	$	846.9		$	804.4		$	2,671.0		$	2,502.1
Direct Marketing	210.8			179.4			669.0			580.5
Total	$	1,057.7		$	983.8		$	3,340.0		$	3,082.6
OPERATING EARNINGS
Specialty Retail Stores	$	134.7		$	120.9		$	359.6		$	314.0
Direct Marketing	41.7			33.4			106.7			94.6
Corporate expenses	(17.8		)	(16.0		)	(50.1		)	(48.8		)
Amortization of intangible assets and favorable lease commitments	(12.0		)	(15.1		)	(38.1		)	(47.5		)
Total	$	146.6		$	123.2		$	378.1		$	312.3
OPERATING PROFIT MARGIN
Specialty Retail Stores	15.9		%	15.0		%	13.5		%	12.6		%
Direct Marketing	19.8		%	18.6		%	15.9		%	16.3		%
Total	13.9		%	12.5		%	11.3		%	10.1		%
CHANGE IN COMPARABLE REVENUES (1)
Specialty Retail Stores	4.3		%	8.3		%	6.2		%	6.4		%
Direct Marketing	17.5		%	16.1		%	15.2		%	11.0		%
Total	6.7		%	9.7		%	7.9		%	7.3		%
SALES PER SQUARE FOOT (2)
Specialty Retail Stores	$	130		$	125		$	414		$	389
STORE COUNT
Neiman Marcus and Bergdorf Goodman full-line stores:
Open at beginning of period	43			43			43			43
Opened during the period	1			—			1			—
Open at end of period	44			43			44			43
Neiman Marcus Last Call stores:
Open at beginning of period	31			30			30			28
Opened during the period	1			—			2			2
Closed during the period	(1		)	—			(1		)	—
Open at end of period	31			30			31			30
NON-GAAP FINANCIAL MEASURE EBITDA (3)	$	191.2		$	169.9		$	511.9		$	457.2

(1)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 Direct Marketing operation.  Comparable revenues exclude revenues of closed stores.

(2)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 quarter-end square footage for new stores equal to the percentage of the quarter during which they were open.

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

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Factors Affecting Our Results

Revenues. We generate our revenues from the sale of high-end merchandise through our Specialty Retail Stores and our Direct Marketing operation.  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 merchandise delivered 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;

·changes in the level of full-price sales;

·changes in the level 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 Condensed 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.  Hence, earnings are negatively impacted when merchandise is marked down.  With the introduction of new fashions in the first and third fiscal quarters 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.

·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 $53.0 million, or 1.6% of revenues in year-to-date fiscal 2012 and $51.7 million, or 1.7% of revenues, in year-to-date fiscal 2011.  The amounts of vendor allowances we receive fluctuate based

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on the level of markdowns taken and did not have a significant impact on the year-over-year change in gross margin during year-to-date fiscal 2012 and 2011.

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 other actions taken by competitors;

·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 are variable in nature and are dependent on the revenues we generate.

Advertising costs consist primarily of 1) print media costs for promotional materials mailed to our customers, 2) advertising costs incurred related to the production, printing and distribution of our print catalogs and the production of the photographic content for our websites and 3) online marketing costs.  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 $48.7 million, or 1.5% of revenues, in year-to-date fiscal 2012 and $45.2 million, or 1.5% of revenues, in year-to-date fiscal 2011.

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 $48.8 million, or 1.5% of revenues, in year-to-date fiscal 2012 and $46.0 million, or 1.5% of revenues, in year-to-date fiscal 2011.

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.  Pursuant to the marketing and servicing alliance with a third party consumer lender (the Credit Provider) under the terms of the Program Agreement, the Credit Provider offers credit cards and non-card payment plans bearing our brands and we receive income from the Credit Provider (Program Income) consisting of 1) ongoing payments based on net credit card sales and 2) compensation for marketing and servicing activities.  The Program Income is subject to annual adjustments, both increases and decreases, based upon the overall annual profitability and performance of the credit card portfolio.  We recognize Program Income when earned.  In the future, the Program Income may:

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

·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;

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·decrease based upon the level of future services we provide to the Credit Provider; and

·increase or decrease based upon the overall profitability and performance of the credit card portfolio.

For more information related to our Program Agreement and recent changes in the third party consumer lender providing credit pursuant to our Program Agreement, see Note 12 of the Notes to Condensed Consolidated Financial Statements in Part I — Item 1.

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 buying, 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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Thirteen Weeks Ended April 28, 2012 Compared to Thirteen Weeks Ended April 30, 2011

Revenues.Our revenues for the third quarter of fiscal year 2012 of $1,057.7 million increased by $73.9 million, or 7.5%, from $983.8 million in the third quarter of fiscal year 2011.  The increase in revenues was due to increases in comparable revenues resulting from a higher level of customer demand.  New stores generated revenues of $8.4 million in the third quarter of fiscal year 2012.

Comparable revenues for the thirteen weeks ended April 28, 2012 were $1,049.3 million compared to $983.6 million in the third quarter of fiscal year 2011, representing an increase of 6.7%.  Comparable revenues increased in the third quarter of fiscal year 2012 by 4.3% for Specialty Retail Stores and 17.5% for our Direct Marketing operation.

Internet revenues generated by our Direct Marketing operation were $191.0 million for the third quarter of fiscal year 2012, an increase of 21.8% compared to the prior year fiscal period.  Catalog revenues decreased 12.0% compared to the prior year fiscal period as we continue to reduce our catalog circulation and our customers continue to migrate toward online retailing.

Cost of goods sold including buying and occupancy costs (excluding depreciation).  COGS for the third quarter of fiscal year 2012 were 59.5% of revenues compared to 60.3% of revenues for the third quarter of fiscal year 2011.  The decrease in COGS by 0.8% of revenues in the third quarter of fiscal year 2012 was primarily due to:

·increased product margins of approximately 0.9% of revenues driven by favorable merchandise mix and higher levels of full-price sales and lower net markdowns and promotions costs, primarily attributable to our Specialty Retail Stores; and

·the leveraging of buying and occupancy costs by 0.2% of revenues on higher revenues; partially offset by

·lower delivery and processing net revenues of 0.3% of revenues at our Direct Marketing operation.

Selling, general and administrative expenses (excluding depreciation).  SG&A expenses as a percentage of revenues decreased to 23.6% of revenues in the third quarter of fiscal year 2012 compared to 23.7% of revenues in the prior year fiscal period.  The net decrease in SG&A expenses by 0.1% of revenues in the third quarter of fiscal year 2012 was primarily due to:

·favorable payroll and other costs of approximately 0.9% of revenues, primarily due to the leveraging of these expenses on higher revenues; partially offset by

·higher spending incurred primarily in connection with corporate initiatives of approximately 0.7% of revenues; and

·higher marketing and selling costs of approximately 0.1% of revenues primarily due to higher web marketing expenditures at our Direct Marketing operation.

Income from credit card program.  We earned Program Income of $12.5 million, or 1.2% of revenues, in the third quarter of fiscal year 2012 compared to $12.5 million, or 1.3% of revenues, in the third quarter of fiscal year 2011.

Depreciation expense.  Depreciation expense was $32.6 million, or 3.1% of revenues, in the third quarter of fiscal year 2012 compared to $31.6 million, or 3.2% of revenues, in the third quarter of fiscal year 2011.  The decrease in depreciation expense, as a percentage of revenues, resulted primarily from lower levels of capital spending in recent years.

Amortization expense.  Amortization of intangible assets (primarily customer lists and favorable lease commitments) aggregated $12.0 million, or 1.1% of revenues, in the third quarter of fiscal year 2012 compared to $15.1 million, or 1.6% of revenues, in the third quarter of fiscal year 2011.  The decrease in amortization expense is primarily due to certain short-lived intangible assets becoming fully amortized.

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Segment operating earnings.  Segment operating earnings for our Specialty Retail Stores and Direct Marketing segments do not reflect either the impact of adjustments to revalue our assets and liabilities to estimated fair value at the Acquisition date or impairment charges related to declines in fair value subsequent to the Acquisition.  The reconciliation of segment operating earnings to total operating earnings is as follows:

	Thirteen weeks ended
(in millions)	April 28, 2012			April 30, 2011
Specialty Retail Stores	$	134.7		$	120.9
Direct Marketing	41.7			33.4
Corporate expenses	(17.8		)	(16.0		)
Amortization of intangible assets and favorable lease commitments	(12.0		)	(15.1		)
Total operating earnings	$	146.6		$	123.2

Operating earnings for our Specialty Retail Stores segment were $134.7 million, or 15.9% of Specialty Retail Stores revenues, for the third quarter of fiscal year 2012 compared to $120.9 million, or 15.0% of Specialty Retail Stores revenues, for the prior year fiscal period.  The increase in operating margin as a percentage of revenues for Specialty Retail Stores was primarily due to:

·the leveraging of a significant portion of our expenses on the higher level of revenues;

·higher levels of full-price sales and lower net markdowns and promotions costs; and

·lower marketing and selling costs; partially offset by

·higher preopening expenses primarily due to the opening of our Walnut Creek store in March 2012.

Operating earnings for Direct Marketing were $41.7 million, or 19.8% of Direct Marketing revenues, in the third quarter of fiscal year 2012 compared to $33.4 million, or 18.6% of Direct Marketing revenues, for the prior year fiscal period.  The increase in operating margin as a percentage of revenues for Direct Marketing was primarily the result of:

·the leveraging of a significant portion of our expenses on the higher level of revenues; partially offset by

·decreased margins primarily due to lower delivery and processing net revenues, partially offset by favorable product margins; and

·higher marketing and selling costs.

Interest expense. Net interest expense was $44.4 million, or 4.2% of revenues, in the third quarter of fiscal year 2012 and $51.7 million, or 5.3% of revenues, for the prior year fiscal period. The net decrease in interest expense is primarily due to 1) the repurchase and redemption of our Senior Notes in the fourth quarter of fiscal year 2011, partially offset by 2) higher interest expense incurred on the higher Senior Secured Term Loan Facility borrowings. The significant components of interest expense are as follows:

	Thirteen weeks ended
(in thousands)	April 28, 2012			April 30, 2011
Asset-Based Revolving Credit Facility	$	240		$	—
Senior Secured Term Loan Facility	25,278			14,170
2028 Debentures	2,226			2,226
Senior Notes	—			16,929
Senior Subordinated Notes	12,969			12,969
Amortization of debt issue costs	2,106			3,955
Other, net	1,907			1,554
Capitalized interest	(372		)	(127		)
Interest expense, net	$	44,354		$	51,676

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Income tax expense.  Our effective income tax rate for the third quarter of fiscal year 2012 was 38.7% compared to 35.4% for the third quarter of fiscal year 2011.  Our effective income tax rate for the third quarter of fiscal year 2012 and the prior fiscal year period exceeded the statutory rate primarily due to state income taxes and anticipated settlements with taxing authorities.

The Internal Revenue Service (IRS) began an examination of our fiscal year 2008 federal income tax return in the second quarter of fiscal year 2011 and began an examination of our fiscal year 2009 federal income tax return in the third quarter of fiscal year 2011.  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 2006.  We believe our recorded tax liabilities as of April 28, 2012 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 Condensed Consolidated Financial Statements.

Thirty-Nine Weeks Ended April 28, 2012 Compared to Thirty-Nine Weeks Ended April 30, 2011

Revenues.Our revenues for year-to-date fiscal 2012 of $3,340.0 million increased by $257.4 million, or 8.3%, from $3,082.6 million in year-to-date fiscal 2011.  The increase in revenues was due to increases in comparable revenues resulting from a higher level of customer demand.  New stores generated revenues of $13.1 million in year-to-date fiscal 2012.

Comparable revenues for the thirty-nine weeks ended April 28, 2012 were $3,326.9 million compared to $3,082.4 million in year-to-date fiscal 2011, representing an increase of 7.9%. Changes in comparable revenues, by quarter and by reportable segment, were:

	First Fiscal Quarter		Second Fiscal Quarter		Third Fiscal Quarter		Year-to-Date Fiscal 2012
Specialty Retail Stores	6.4	%	7.8	%	4.3	%	6.2	%
Direct Marketing	15.2	%	13.5	%	17.5	%	15.2	%
Total	8.0	%	9.0	%	6.7	%	7.9	%

Internet revenues generated by our Direct Marketing operation were $595.6 million for year-to-date fiscal 2012, an increase of 19.4% compared to the prior year fiscal period.  Catalog revenues decreased 10.2% compared to the prior year fiscal period as we continue to reduce our catalog circulation and our customers continue to migrate toward online retailing.

Cost of goods sold including buying and occupancy costs (excluding depreciation).  COGS for year-to-date fiscal 2012 were 62.8% of revenues compared to 63.3% of revenues for year-to-date fiscal 2011.  The decrease in COGS by 0.5% of revenues in year-to-date fiscal 2012 was primarily due to:

·increased product margins of approximately 0.5% of revenues driven by favorable merchandise mix and higher levels of full-price sales and lower net markdowns and promotions costs, primarily attributable to our Specialty Retail Stores; and

·the leveraging of buying and occupancy costs by 0.2% of revenues on higher revenues; partially offset by

·lower delivery and processing net revenues of 0.2% of revenues at our Direct Marketing operation.

Selling, general and administrative expenses (excluding depreciation).  SG&A expenses as a percentage of revenues were 23.0% of revenues in both year-to-date fiscal 2012 and year-to-date fiscal 2011 periods.  SG&A was comparable to the prior year fiscal period primarily due to:

·favorable payroll and other costs of approximately 0.7% of revenues, primarily due to the leveraging of these expenses on higher revenues; partially offset by

·      ��           higher marketing and selling costs of approximately 0.3% of revenues primarily due to higher web marketing expenditures at our Direct Marketing operation; and

33

·higher spending incurred primarily in connection with corporate initiatives of approximately 0.4% of revenues.

Income from credit card program.  We earned Program Income of $38.4 million, or 1.1% of revenues, in year-to-date fiscal 2012 compared to $34.0 million, or 1.1% of revenues, in year-to-date fiscal 2011.

Depreciation expense.  Depreciation expense was $95.7 million, or 2.9% of revenues, in year-to-date fiscal 2012 compared to $97.4 million, or 3.2% of revenues, in year-to-date fiscal 2011.  The decrease in depreciation expense resulted primarily from lower levels of capital spending in recent years.

Amortization expense.  Amortization of intangible assets (primarily customer lists and favorable lease commitments) aggregated $38.1 million, or 1.1% of revenues, in year-to-date fiscal 2012 compared to $47.5 million, or 1.5% of revenues, in year-to-date fiscal 2011.  The decrease in amortization expense is primarily due to certain short-lived intangible assets becoming fully amortized.

Segment operating earnings. Segment operating earnings for our Specialty Retail Stores and Direct Marketing segments do not reflect either the impact of adjustments to revalue our assets and liabilities to estimated fair value at the Acquisition date or impairment charges related to declines in fair value subsequent to the Acquisition. The reconciliation of segment operating earnings to total operating earnings is as follows:

	Thirty-Nine weeks ended
(in millions)	April 28, 2012			April 30, 2011
Specialty Retail Stores	$	359.6		$	314.0
Direct Marketing	106.7			94.6
Corporate expenses	(50.1		)	(48.8		)
Amortization of intangible assets and favorable lease commitments	(38.1		)	(47.5		)
Total operating earnings	$	378.1		$	312.3

Operating earnings for our Specialty Retail Stores segment were $359.6 million, or 13.5% of Specialty Retail Stores revenues, in year-to-date fiscal 2012 compared to $314.0 million, or 12.6% of Specialty Retail Stores revenues, for the prior year fiscal period.  The increase in operating margin as a percentage of revenues for Specialty Retail Stores was primarily due to:

·the leveraging of a significant portion of our expenses on the higher level of revenues; and

·higher levels of full-price sales and lower net markdowns and promotions costs; partially offset by

·higher preopening expenses primarily due to the opening of our Walnut Creek store in March 2012.

Operating earnings for Direct Marketing were $106.7 million, or 15.9% of Direct Marketing revenues, in year-to-date fiscal 2012 compared to $94.6 million, or 16.3% of Direct Marketing revenues, for the prior year fiscal period.  The decrease in operating margin as a percentage of revenues for Direct Marketing was primarily the result of:

·decreased product margins primarily due to 1) lower delivery and processing net revenues and 2) higher net markdowns and promotions costs incurred in the first and second quarters of fiscal year 2012; and

·higher marketing and selling costs; partially offset by

·the leveraging of a significant portion of our expenses on the higher level of revenues.

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Interest expense.  Net interest expense was $130.5 million, or 3.9% of revenues, in year-to-date fiscal 2012 and $165.4 million, or 5.4% of revenues, for the prior year fiscal period.  The net decrease in interest expense is primarily due to 1) the repurchase and redemption of our Senior Notes in the fourth quarter of fiscal year 2011, partially offset by 2) higher interest expense incurred on the higher Senior Secured Term Loan Facility borrowings.  The significant components of interest expense are as follows:

	Thirty-Nine weeks ended
(in thousands)	April 28, 2012			April 30, 2011
Asset-Based Revolving Credit Facility	$	240		$	—
Senior Secured Term Loan Facility	74,475			52,353
2028 Debentures	6,679			6,654
Senior Notes	—			50,603
Senior Subordinated Notes	38,905			38,764
Amortization of debt issue costs	6,350			12,585
Other, net	4,984			4,651
Capitalized interest	(1,100		)	(256		)
Interest expense, net	$	130,533		$	165,354

Income tax expense.  Our effective income tax rate for year-to-date fiscal 2012 was 38.9% compared to 36.7% for year-to-date fiscal 2011.  Our effective income tax rate for year-to-date fiscal 2012 and the prior fiscal year period exceeded the statutory rate primarily due to state income taxes and anticipated settlements with taxing authorities.

Non-GAAP Financial Measure — EBITDA

We present the financial performance measure of earnings before interest, taxes, depreciation and amortization (EBITDA) because we use this measure to monitor and evaluate the performance of our business and believe the presentation of this measure 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 is not a presentation made in accordance with generally accepted accounting principles in the U.S. (GAAP).  Our computation of EBITDA may vary from others in our industry.

The non-GAAP measure of EBITDA contains some, but not all, adjustments that are taken into account in the calculation of the components of various covenants in the indentures governing NMG’s Senior Secured Asset-Based Revolving Credit Facility, Senior Secured Term Loan Facility and Senior Subordinated Notes.  EBITDA should not be considered as an alternative to operating earnings or net earnings as a measure of operating performance.  In addition, EBITDA is not presented as and should not be considered as an alternative to cash flows as a measure of liquidity.  EBITDA has important limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.  For example, EBITDA:

·does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

·does not reflect changes in, or cash requirements for, our working capital needs;

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

·excludes tax payments that represent a reduction in available cash; and

·does not reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future.

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The following table reconciles net earnings as reflected in our Condensed Consolidated Statements of Operations prepared in accordance with GAAP to EBITDA:

	Thirteen weeks ended						Thirty-Nine weeks ended
(dollars in millions)	April 28, 2012			April 30, 2011			April 28, 2012			April 30, 2011
Net earnings	$	62.6		$	46.2		$	151.1		$	93.0
Income tax expense	39.6			25.3			96.5			53.9
Interest expense, net	44.4			51.7			130.5			165.4
Depreciation expense	32.6			31.6			95.7			97.4
Amortization of intangible assets and favorable lease commitments	12.0			15.1			38.1			47.5
EBITDA	$	191.2		$	169.9		$	511.9		$	457.2
EBITDA as a percentage of revenues	18.1		%	17.3		%	15.3		%	14.8		%

Inflation and Deflation

We believe changes in revenues and net earnings that have resulted from inflation or deflation have not been material during the periods presented.  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.  Fluctuations in the Euro-U.S. dollar exchange rate affect us most significantly; however, 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.  Accordingly, 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.

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 financing.  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 the increases in working

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capital needs during the first and second fiscal quarters with available cash balances, cash flows from operations and, if necessary, with cash provided from borrowings under our credit facilities.  We have made $150.0 million of borrowings under the Asset-Based Revolving Credit Facility during fiscal 2012 and have voluntarily repaid $25.0 million principal amount of borrowings under that facility.  We made no borrowings under the Asset-Based Revolving Credit Facility in fiscal 2011.

We believe that operating cash flows, cash balances, available vendor financing and amounts available pursuant to the Asset-Based Revolving Credit Facility will be sufficient to fund our cash requirements through the remainder of fiscal year 2012, including merchandise purchases, anticipated capital expenditure requirements, debt service requirements, income tax payments and obligations related to our Pension Plan.

At April 28, 2012, cash and cash equivalents were $64.7 million compared to $522.4 million at April 30, 2011.  The $457.7 million decrease in cash was primarily due to 1) $449.3 million of distributions to shareholders and certain option holders as a result of the payment of the Dividend in March 2012, 2) $25.0 million voluntary repayment of borrowings under the Asset-Based Revolving Credit Facility and 3) cash used to reduce our long-term debt of $198.2 million during the fourth quarter of fiscal year 2011, offset by 4) $150.0 million of proceeds from borrowings under the Asset-Based Revolving Credit Facility in the third quarter of fiscal year 2012.  Net cash provided by our operating activities was $206.0 million in year-to-date fiscal 2012 compared to $180.9 million in year-to-date fiscal 2011.  The increase in the net cash provided by our operating activities was primarily due to an increase in net earnings.

Net cash used for investing activities, primarily represented capital expenditures of $108.6 million in year-to-date fiscal 2012 and $66.0 million in year-to-date fiscal 2011.  We incurred capital expenditures in both year-to-date fiscal 2012 and fiscal 2011 related to the construction of our new store in Walnut Creek, California which opened in March 2012.  During year-to-date fiscal 2012, we also incurred capital expenditures for the renovation of portions of our Bergdorf Goodman store in New York City, our Bal Harbour Neiman Marcus store and information technology enhancements.  Currently, we project gross capital expenditures for fiscal year 2012 to be approximately $150 to $160 million.  Net of developer contributions, capital expenditures for fiscal year 2012 are projected to be approximately $140 to $150 million.  In addition, in the third quarter of fiscal year 2012, NMG made a $29.4 million investment in Glamour Sales, a privately held e-commerce company based in Hong Kong.  Through our $29.4 million investment in Glamour Sales, NMG intends to launch a full-price e-commerce website in China by the end of the calendar 2012.

Net cash used for financing activities was $324.9 million in year-to-date fiscal 2012 as compared to $13.6 million in year-to-date fiscal 2011.  Net cash used for financing activities in year-to-date fiscal 2012 includes 1) $449.3 million of distributions to shareholders and certain option holders as a result of the payment of the Dividend in March 2012 to shareholders and option holders on record as of such date, 2) $25.0 million voluntary repayment of borrowings under the Asset-Based Revolving Credit Facility, offset by 3) $150.0 million of proceeds from borrowings under the Asset-Based Revolving Credit Facility.  In year-to-date fiscal 2011, pursuant to the terms of our Senior Secured Term Loan Facility, in the first quarter of fiscal year 2011, we prepaid $7.6 million of outstanding borrowings under that facility from excess cash flow, as defined in the credit agreement that we generated in fiscal year 2010.  We were not required to prepay any outstanding term loans pursuant to the annual excess cash flow requirements for fiscal year 2011.  In addition, in the second quarter of fiscal year 2011, we incurred $5.9 million of debt issuance costs as a result of amending and restating the terms of our Senior Secured Term Loan Facility.

Financing Structure at April 28, 2012

At April 28, 2012, our major sources of funds are comprised of vendor financing, a $700.0 million Asset-Based Revolving Credit Facility, $2,060.0 million Senior Secured Term Loan Facility, $500.0 million Senior Subordinated Notes, $125.0 million 2028 Debentures and operating leases.

Senior Secured Asset-Based Revolving Credit Facility.  In May 2011, NMG entered into an amendment and restatement of the Asset-Based Revolving Credit Facility.  As amended, the maximum committed borrowing capacity under the Asset-Based Revolving Credit Facility is $700.0 million and the Asset-Based Revolving Credit Facility matures on May 17, 2016 (or, if earlier, the date that is 45 days prior to the scheduled maturity of NMG’s Senior Secured Term Loan Facility or Senior Subordinated Notes, or any indebtedness refinancing them, unless refinanced as of that date).  The Asset-Based Revolving Credit Facility also provides an uncommitted accordion feature that allows NMG to request the lenders to provide additional capacity in either the form of increased revolving commitments or incremental term loans, subject to a potential total maximum facility of $1,000.0 million.

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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 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) 85% 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.  Excess availability provisions were revised to provide that NMG 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 million, but NMG is not required to maintain a fixed charge coverage ratio.

In the third quarter of fiscal year 2012, NMG incurred borrowings under the Asset-Based Revolving Credit Facility of $150.0 million.  On April 28, 2012, NMG had $125.0 million of borrowings outstanding under this facility, $1.8 million of outstanding letters of credit and $503.2 million of unused borrowing availability.

At April 28, 2012, borrowings under the Asset-Based Revolving Credit Facility bore interest at a rate per annum equal to, at NMG’s option, either (a) a base rate determined by reference to the highest of (i) a defined prime rate, (ii) the federal funds effective rate plus 1/2 of 1% or (iii) a one-month LIBOR rate plus 1% or (b) a LIBOR rate, subject to certain adjustments, in each case plus an applicable margin. Following the amendment and restatement, the applicable margin is up to 1.25% with respect to base rate borrowings and up to 2.25% with respect to LIBOR borrowings, provided that for the first three months after the closing of the Asset-Based Revolving Credit Facility, the applicable margin is 1.00% with respect to base rate borrowings and 2.00% 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.  The interest rate on the outstanding borrowings pursuant to the Asset-Based Revolving Credit Facility was 2.00% at April 28, 2012.  In addition, NMG is required to pay a commitment fee in respect of unused commitments of (a) 0.375% per annum during any applicable period in which the average revolving loan utilization is 40% or more or (b) 0.50% per annum during any applicable period in which the average revolving loan utilization is less than 40%.  NMG must also pay customary letter of credit fees and agency fees.

NMG is required to pay interest on borrowings pursuant to a specified formula, as well as a commitment fee in respect to unused commitments, as set forth in Note 3 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 and Note 6 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011, which contains a further description of the terms of the Asset-Based Revolving Credit Facility.

Senior Secured Term Loan Facility.  In October 2005, NMG entered into a credit agreement and related security and other agreements for a $1,975.0 million Senior Secured Term Loan Facility.  In May 2011, NMG entered into an amendment and restatement (the TLF Amendment) of the Senior Secured Term Loan Facility.  The TLF Amendment increased the amount of borrowings to $2,060.0 million and extended the maturity of the loans to May 16, 2018.  Loans that were not extended under the TLF Amendment were refinanced.  The proceeds of the incremental borrowings under the term loan facility, along with cash on hand, were used to repurchase or redeem the $752.4 million principal amount outstanding of Senior Notes.  The TLF Amendment also provided for an uncommitted incremental facility to request lenders to provide additional term loans, upon certain conditions, including that NMG’s secured leverage ratio (as defined in the TLF Amendment) is less than or equal to 4.50 to 1.00 on a pro forma basis after giving effect to the incremental loans and the use of proceeds thereof.  At April 28, 2012, the outstanding balance under the Senior Secured Term Loan Facility was $2,060.0 million.  The principal amount of the loans outstanding is due and payable in full on May 16, 2018.

At April 28, 2012, borrowings under the Senior Secured Term Loan Facility bore interest at a rate per annum equal to, at NMG’s 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 1/2 of 1.00% and 3) the adjusted one-month LIBOR rate plus 1.00% or (b) an adjusted LIBOR rate (for a period equal to the relevant interest period, and in any event, never less than 1.25%), subject to certain adjustments, in each case plus an applicable margin.  In addition to extending the maturity of a portion of the existing term loans under the Senior Secured Term Loan Facility, the TLF Amendment changed the “applicable margin” used in calculating the interest rate under the term loans.  The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 4.75% at April 28, 2012.  The applicable margin with respect to base rate borrowings is 2.50% and the applicable margin with respect to LIBOR borrowings is 3.50%.

The credit agreement governing the Senior Secured Term Loan Facility requires NMG to prepay outstanding term loans with 50% (which percentage will be reduced to 25% if NMG’s total leverage ratio is less than a specified ratio and will be reduced to 0% if NMG’s total leverage ratio is less than a specified ratio) of its annual excess cash flow (as defined in the credit agreement).  NMG 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.

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See Note 3 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 and Note 6 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011 for a further description of the terms of the Senior Secured Term Loan Facility.

2028 Debentures.  NMG has outstanding $125.0 million aggregate principal amount of its 7.125% 2028 Debentures.  NMG’s 2028 Debentures mature on June 1, 2028.

See Note 3 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 and Note 6 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011 for a further description of the terms of the 2028 Debentures.

Senior Notes.In May 2011, NMG repurchased and cancelled $689.2 million principal amount of the Senior Notes through a tender offer and redeemed the remaining $63.2 million principal amount of notes on June 15, 2011 (after which no Senior Notes remained outstanding).  NMG’s payments to holders of the Senior Notes in the tender offer and redemption, taken together, aggregated approximately $790 million.

Senior Subordinated Notes.NMG has outstanding $500.0 million aggregate principal amount of 10.375% Senior Subordinated Notes under a senior subordinated indenture (Senior Subordinated Indenture).  NMG’s Senior Subordinated Notes mature on October 15, 2015.

See Note 3 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 and Note 6 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011 for a further description of the terms of the Senior Subordinated Notes.

Interest Rate Caps.  In connection with the Acquisition, we entered into $2,575.0 million of floating rate debt obligations, of which $2,125.0 million was outstanding at the Acquisition date and $2,060.0 million was outstanding at April 28, 2012.  Effective January 2010, NMG entered into interest rate cap agreements in order to hedge the variability of our cash flows related to a portion of our floating rate indebtedness once our earlier interest rate swap expired in December 2010.  The interest rate cap agreements cap LIBOR at 2.50% from December 2010 through December 2012 for an aggregate notional amount of $500.0 million.  Effective August 2011, NMG entered into additional 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.  In the event LIBOR is less than 2.50%, NMG will pay interest at the lower LIBOR rate.  In the event LIBOR is higher than 2.50%, NMG will pay interest at the capped rate of 2.50%.

OTHER MATTERS

Factors That May Affect Future Results

Matters discussed in this Quarterly Report on Form 10-Q 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 place undue reliance 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;

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Customer Considerations

·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;

·changes in our relationships with customers due to, among other things, 1) our failure to provide quality service and competitive loyalty programs, 2) our inability to provide credit pursuant to our proprietary credit card arrangement or 3) our failure to protect customer data or comply with regulations surrounding information security and privacy;

Leverage Considerations

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

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

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

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

Industry and Competitive Factors

·competitive responses to our loyalty programs, 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;

Merchandise Procurement and Supply Chain Considerations

·changes in our relationships with designers, vendors and other sources of merchandise, including adverse changes in their financial viability, cash flows or available sources of funds;

·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 key sales associates and our ability to retain our key sales associates;

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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 Part I — Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011 as filed with the Securities and Exchange Commission on September 20, 2011.

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

The preparation of Condensed Consolidated Financial Statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions about future events.  These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the accompanying Condensed Consolidated Financial Statements.  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 we used in preparing the accompanying Condensed Consolidated Financial Statements.

A complete description of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011.

Recent Accounting Pronouncements.  In May 2011, the Financial Accounting Standards Board (FASB) issued guidance related to certain fair value measurements and disclosures.  We adopted this guidance during the third quarter of fiscal year 2012.  The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.

In June 2011, the FASB issued guidance to improve the presentation and prominence of comprehensive income and its components as a result of convergence with International Financial Reporting Standards, which is effective for us as of the first quarter of fiscal year 2013.  We do not expect that the implementation of the presentation requirements of this standard will have a material impact on our Consolidated Financial Statements.

In September 2011, the FASB issued guidance to reduce the complexity and costs associated with interim and annual goodwill impairment tests, by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit.  This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, which is effective for us as of the first quarter of fiscal year 2013.  We do not expect that the implementation of this standard will have a material impact on our Consolidated Financial Statements.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We discussed our interest rate risk in Part II — Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011 as filed with the Securities and Exchange Commission on September 20, 2011.  There have been no material changes to this risk since that time.

ITEM 4.  CONTROLS AND PROCEDURES

a. Disclosure Controls and Procedures.

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation as of April 28, 2012, 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 design and operating effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 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 Securities and Exchange Commission’s rules and forms.

b. 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 April 28, 2012 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II

ITEM 1.  LEGAL PROCEEDINGS

The information contained under “Litigation” in Note 13 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 is incorporated herein by reference as if fully restated herein.  Note 13 contains forward-looking statements that are subject to the risks and uncertainties discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Matters — Factors That May Affect Future Results.”

ITEM 1A.  RISK FACTORS

There have been no material changes to the risk factors described in Part I — Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended July 30, 2011 as filed with the Securities and Exchange Commission on September 20, 2011.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 5.  OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

Exhibit		Method of Filing
3.1	Amended and Restated Certificate of Incorporation of Neiman Marcus, Inc.	Incorporated herein by reference as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2011.
3.2	Amended and Restated Bylaws of Neiman Marcus, Inc.	Incorporated herein by reference as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2011.
10.1	Amended and Restated Neiman Marcus, Inc. Management Equity Incentive Plan dated March 28, 2012.	Filed herewith electronically
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith electronically
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith electronically
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished herewith electronically
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.LAB	XBRL Taxonomy Extension Labels Linkbase Document	Furnished herewith electronically
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Furnished herewith electronically
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Furnished herewith electronically

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SIGNATURE

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

NEIMAN MARCUS, INC.

(Registrant)

Signature	Title	Date
/s/ T. Dale Stapleton	Senior Vice President and Chief Accounting Officer (on behalf of the registrant and as principal accounting officer)	June 5, 2012
T. Dale Stapleton

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