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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549 
FORM 10-Q
 
ý     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended May 2,October 31, 2015
 
OR
 
o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to            
 
Commission file no. 333-133184-12
 
Neiman Marcus Group LTD LLC
(Exact name of registrant as specified in its charter) 
Delaware20-3509435
(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 o  No ý
(Note: The registrant is a voluntary filer and not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. Although not subject to these filing requirements, the registrant has filed all reports that would have been required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months had the registrant been subject to such requirements.)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ý  No 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 ý

     


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NEIMAN MARCUS GROUP LTD LLC
 
INDEX
 
   Page
Part I.Financial Information 
    
 
    
  
    
  
    
  
    
  
    
 
    
 
    
 
    
Part II.Other Information 
    
 
    
 
    
 
    
 
    
 
    
 
    
 
    
  



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NEIMAN MARCUS GROUP LTD LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
 May 2,
2015
 August 2,
2014
 May 3,
2014
(in thousands, except units) (Successor) (Successor) (Successor) October 31,
2015
 August 1,
2015
 November 1,
2014
      
ASSETS  
  
  
  
  
  
Current assets:  
  
  
  
  
  
Cash and cash equivalents $82,211
 $196,476
 $115,818
 $58,582
 $72,974
 $81,577
Merchandise inventories 1,173,262
 1,069,632
 1,053,450
 1,350,377
 1,154,844
 1,280,752
Deferred income taxes 33,883
 39,049
 41,340
 40,393
 30,714
 37,081
Other current assets 108,507
 104,617
 147,370
 129,401
 126,169
 107,296
Total current assets 1,397,863
 1,409,774
 1,357,978
 1,578,753
 1,384,701
 1,506,706
            
Property and equipment, net 1,439,657
 1,390,266
 1,363,521
 1,504,390
 1,477,886
 1,409,144
Intangible assets, net 3,625,450
 3,652,984
 3,702,526
 3,569,650
 3,598,562
 3,696,979
Goodwill 2,267,897
 2,148,627
 2,148,627
 2,272,571
 2,272,483
 2,292,626
Other assets 140,578
 160,075
 167,570
 134,493
 142,130
 155,331
Total assets $8,871,445
 $8,761,726
 $8,740,222
 $9,059,857
 $8,875,762
 $9,060,786
            
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
  
Current liabilities:  
  
  
  
  
  
Accounts payable $280,285
 $375,085
 $261,928
 $323,237
 $342,999
 $372,616
Accrued liabilities 457,504
 452,172
 438,906
 468,653
 465,402
 475,299
Current portion of long-term debt 29,426
 29,426
 29,426
 29,426
 29,426
 29,426
Total current liabilities 767,215
 856,683
 730,260
 821,316
 837,827
 877,341
            
Long-term liabilities:  
  
  
  
  
  
Long-term debt 4,708,612
 4,580,521
 4,632,824
 4,884,005
 4,681,309
 4,803,218
Deferred income taxes 1,500,914
 1,540,076
 1,566,554
 1,463,766
 1,471,091
 1,538,082
Other long-term liabilities 439,994
 351,852
 319,052
 487,236
 471,791
 412,456
Total long-term liabilities 6,649,520
 6,472,449
 6,518,430
 6,835,007
 6,624,191
 6,753,756
            
Membership unit (1 unit issued and outstanding at May 2, 2015, August 2, 2014 and May 3, 2014) 
 
 
Membership unit (1 unit issued and outstanding at October 31, 2015, August 1, 2015 and November 1, 2014) 
 
 
Member capital 1,584,106
 1,584,106
 1,583,256
 1,584,106
 1,584,106
 1,584,106
Accumulated other comprehensive (loss) earnings (43,144) (17,429) 303
Accumulated other comprehensive loss (50,900) (51,228) (20,530)
Accumulated deficit (86,252) (134,083) (92,027) (129,672) (119,134) (133,887)
Total member equity 1,454,710
 1,432,594
 1,491,532
 1,403,534
 1,413,744
 1,429,689
Total liabilities and member equity $8,871,445
 $8,761,726
 $8,740,222
 $9,059,857
 $8,875,762
 $9,060,786
 
See Notes to Condensed Consolidated Financial Statements.


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NEIMAN MARCUS GROUP LTD LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 Thirteen weeks ended
 May 2,
2015
 May 3,
2014
 Thirteen weeks ended
(in thousands) (Successor) (Successor) October 31,
2015
 November 1,
2014
        
Revenues $1,220,100
 $1,164,720
 $1,164,900
 $1,186,492
Cost of goods sold including buying and occupancy costs (excluding depreciation) 755,034
 748,961
 736,074
 728,394
Selling, general and administrative expenses (excluding depreciation) 285,689
 271,430
 285,342
 286,317
Income from credit card program (11,899) (13,222) (13,287) (14,123)
Depreciation expense 48,070
 36,639
 55,890
 43,508
Amortization of intangible assets 16,035
 36,017
 15,353
 36,017
Amortization of favorable lease commitments 13,640
 13,525
 13,612
 13,494
Other expenses 5,571
 8,418
 17,098
 19,800
        
Operating earnings 107,960
 62,952
 54,818
 73,085
        
Interest expense, net 72,844
 82,222
 71,685
 72,610
        
Earnings (loss) before income taxes 35,116
 (19,270) (16,867) 475
        
Income tax expense (benefit) 15,296
 (11,266) (6,329) 279
        
Net earnings (loss) $19,820
 $(8,004) $(10,538) $196

See Notes to Condensed Consolidated Financial Statements.




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NEIMAN MARCUS GROUP LTD LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE LOSS
(UNAUDITED)

  Thirty-nine
weeks ended
 Twenty-six
weeks ended
  
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
  November 2,
2013
(in thousands) (Successor) (Successor)  (Predecessor)
        
Revenues $3,928,416
 $2,597,513
  $1,129,138
Cost of goods sold including buying and occupancy costs (excluding depreciation) 2,502,553
 1,801,885
  685,408
Selling, general and administrative expenses (excluding depreciation) 894,666
 575,995
  266,388
Income from credit card program (40,752) (28,451)  (14,653)
Depreciation expense 136,590
 73,331
  34,239
Amortization of intangible assets 66,764
 72,034
  7,251
Amortization of favorable lease commitments 40,675
 27,050
  4,469
Other expenses 28,080
 74,008
  113,900
        
Operating earnings 299,840
 1,661
  32,136
        
Interest expense, net 217,919
 160,081
  37,315
        
Earnings (loss) before income taxes 81,921
 (158,420)  (5,179)
        
Income tax expense (benefit) 34,090
 (66,393)  7,919
        
Net earnings (loss) $47,831
 $(92,027)  $(13,098)
  Thirteen weeks ended
(in thousands) October 31,
2015
 November 1,
2014
     
Net earnings (loss) $(10,538) $196
     
Other comprehensive earnings (loss):  
  
Foreign currency translation adjustments, net of tax 116
 
Change in unrealized loss on financial instruments, net of tax 823
 (1,191)
Change in unrealized loss on unfunded benefit obligations, net of tax (611) (1,910)
Total other comprehensive earnings (loss) 328
 (3,101)
     
Total comprehensive loss $(10,210) $(2,905)

See Notes to Condensed Consolidated Financial Statements.


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NEIMAN MARCUS GROUP LTD LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(UNAUDITED)
  Thirteen weeks ended
  May 2,
2015
 May 3,
2014
(in thousands) (Successor) (Successor)
     
Net earnings (loss) $19,820
 $(8,004)
     
Other comprehensive (loss) earnings:  
  
Foreign currency translation adjustments, net of tax (15,707) 
Change in unrealized loss on financial instruments, net of tax 925
 588
Change in unrealized loss on unfunded benefit obligations, net of tax (57) 
Total other comprehensive (loss) earnings (14,839) 588
     
Total comprehensive earnings (loss) $4,981
 $(7,416)
See Notes to Condensed Consolidated Financial Statements.


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NEIMAN MARCUS GROUP LTD LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(UNAUDITED)

  Thirty-nine
weeks ended
 Twenty-six
weeks ended
  
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
  November 2,
2013
(in thousands) (Successor) (Successor)  (Predecessor)
        
Net earnings (loss) $47,831
 $(92,027)  $(13,098)
        
Other comprehensive (loss) earnings:  
     
Foreign currency translation adjustments, net of tax (21,684) 
  
Change in unrealized loss on financial instruments, net of tax (2,007) 303
  610
Reclassification of realized loss on financial instruments to earnings, net of tax 
 
  224
Change in unrealized loss on unfunded benefit obligations, net of tax (2,024) 
  490
Total other comprehensive (loss) earnings (25,715) 303
  1,324
        
Total comprehensive earnings (loss) $22,116
 $(91,724)  $(11,774)
See Notes to Condensed Consolidated Financial Statements.


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NEIMAN MARCUS GROUP LTD LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Thirty-nine
weeks ended
 
Acquisition and
Twenty-six
weeks ended
  Thirteen
weeks ended
 May 2,
2015
 May 3,
2014
  November 2,
2013
 Thirteen weeks ended
(in thousands) (Successor) (Successor)  (Predecessor) October 31,
2015
 November 1,
2014
    
CASH FLOWS - OPERATING ACTIVITIES  
  
   
  
  
Net earnings (loss) $47,831
 $(92,027)  $(13,098) $(10,538) $196
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:  
  
   
Adjustments to reconcile net earnings (loss) to net cash used for operating activities:  
  
Depreciation and amortization expense 262,446
 183,405
  48,425
 90,998
 99,150
Loss on debt extinguishment 
 7,882
  
Deferred income taxes (49,207) (119,637)  (6,326) (17,201) (25,596)
Non-cash charges related to acquisitions 10,159
 145,062
  
Other 8,417
 4,235
  6,525
 4,293
 3,539
 279,646
 128,920
  35,526
 67,552
 77,289
Changes in operating assets and liabilities, excluding net assets acquired:  
  
   
  
  
Merchandise inventories (72,215) 105,014
  (142,417) (195,448) (169,264)
Other current assets 141
 46,556
  12,111
 (3,208) 1,885
Other assets 378
 3,226
  (1,484) 1,373
 (852)
Accounts payable and accrued liabilities (115,235) (178,840)  107,091
 (21,622) (10,702)
Deferred real estate credits 30,098
 589
  1,484
 9,267
 2,420
Payment of deferred compensation in connection with the Acquisition 
 (16,623)  
Net cash provided by operating activities 122,813
 88,842
  12,311
Net cash used for operating activities (142,086) (99,224)
           
CASH FLOWS - INVESTING ACTIVITIES  
  
   
  
  
Capital expenditures (183,016) (75,629)  (35,959) (74,950) (56,361)
Acquisition of Neiman Marcus Group LTD LLC 
 (3,388,585)  
Acquisition of MyTheresa (181,727) 
  
 
 (181,727)
Proceeds from sale of foreign e-commerce retailer 
 35,000
  
Net cash used for investing activities (364,743) (3,429,214)  (35,959) (74,950) (238,088)
           
CASH FLOWS - FINANCING ACTIVITIES  
  
   
  
  
Borrowings under senior secured asset-based revolving credit facility 480,000
 170,000
  
 250,000
 230,000
Repayment of borrowings under senior secured asset-based revolving credit facility (330,000) (125,000)  
 (40,000) 
Borrowings under senior secured term loan facility 
 2,950,000
  
Repayment of borrowings under senior secured term loan facility (22,070) (14,732)  
 (7,356) (7,357)
Borrowings under former senior secured asset-based revolving credit facility 
 
  130,000
Repayment of borrowings under former senior secured asset-based revolving credit facility 
 (145,000)  
Repayment of borrowings under former senior secured term loan facility 
 (2,433,096)  (126,904)
Borrowings under cash pay notes 
 960,000
  
Borrowings under PIK toggle notes 
 600,000
  
Debt issuance costs paid (265) (178,606)  
 
 (230)
Cash equity contributions 
 1,556,500
  
Net cash provided by financing activities 127,665
 3,340,066
  3,096
 202,644
 222,413
           
CASH AND CASH EQUIVALENTS  
  
   
  
  
Decrease during the period (114,265) (306)  (20,552) (14,392) (114,899)
Beginning balance 196,476
 116,124
  136,676
 72,974
 196,476
Ending balance $82,211
 $115,818
  $116,124
 $58,582
 $81,577
           
Supplemental Schedule of Cash Flow Information  
  
   
  
  
Cash paid during the period for:  
  
   
  
  
Interest $230,751
 $124,809
  $40,789
 $98,470
 $97,825
Income taxes $58,416
 $36,415
  $7,544
 $3,527
 $255
Non-cash activities:  
  
   
  
  
Equity contribution from management $
 $26,756
  $
Contingent earn-out obligation incurred in connection with acquisition of MyTheresa $50,043
 $
  $
 $
 $50,043
See Notes to Condensed Consolidated Financial Statements.

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NEIMAN MARCUS GROUP LTD LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1.             Basis of Presentation
 
Neiman Marcus Group LTD LLC (the Company) is a luxury omni-channel retailer conducting store and online operations principally under the Neiman Marcus, Bergdorf Goodman and MyTheresa brand names.  References to “we,” “our” and “us” are used to refer to the Company or collectively to the Company and its subsidiaries, as appropriate to the context.

On October 25, 2013, the Company merged with and into Mariposa Merger Sub LLC (Mariposa) pursuant to an Agreement and Plan of Merger, dated September 9, 2013, by and among Neiman Marcus Group, Inc. (f/k/a NM Mariposa Holdings, Inc.) (Parent), Mariposa and the Company, with the Company surviving the merger (the Acquisition).  As a result of the Acquisition and the Conversion (as defined below), the Company is now a direct subsidiary of Mariposa Intermediate Holdings LLC (Holdings), which in turn is a direct subsidiary of Parent. Parent is owned by fundsentities affiliated with Ares Management, L.P. and Canada Pension Plan Investment Board (together, the Sponsors) and certain co-investors.  On October 28, 2013, the Company and NMG (as defined below) each converted from a Delaware corporation to a Delaware limited liability company (the Conversion).  Previously, the Company was a subsidiary of Newton Holding, LLC, which was controlled by investment funds affiliated with TPG Global, LLC (collectively with its affiliates, TPG) and Warburg Pincus LLC (together with TPG, the Former Sponsors).  On October 28, 2013, the Company and NMG (as defined below) each converted from a Delaware corporation to a Delaware limited liability company (the Conversion).
 
The Company’s operations are conducted through its direct wholly owned subsidiary, The Neiman Marcus Group LLC (NMG).

In October 2014, we acquired MyTheresa, a luxury retailer headquartered in Munich, Germany. The operations of MyTheresa are conducted primarily through the mytheresa.com global luxury website.

The accompanying Condensed Consolidated Financial Statements are presented as “Predecessor” or “Successor” to indicate whether they relate toset forth financial information of the period preceding the Acquisition or the period succeeding the Acquisition, respectively.Company and its subsidiaries on a consolidated basis.  All significant intercompany accounts and transactions have been eliminated.

Our fiscal year ends on the Saturday closest to July 31.  Like many other retailers, we follow a 4-5-4 reporting calendar, which means that each fiscal quarter consists of thirteen weeks divided into periods of four weeks, five weeks and four weeks.  All references to (i) the thirdfirst quarter of fiscal year 2016 relate to the thirteen weeks ended October 31, 2015 and (ii) the first quarter of fiscal year 2015 relate to the thirteen weeks ended May 2, 2015, (ii) the third quarter of fiscal year 2014 relate to the thirteen weeks ended May 3, 2014, (iii) year-to-date fiscal 2015 relate to the thirty-nine weeks ended May 2, 2015 and (iv) year-to-date fiscal 2014 relate to the thirty-nine weeks ended May 3, 2014 (consisting of the twenty-six weeks ended May 3, 2014 of the Successor and the thirteen weeks ended November 2, 2013 of the Predecessor).1, 2014.
 
We have prepared the accompanying Condensed Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and Rule 10-01 of Regulation S-X of the Securities Act of 1933, as amended.  Accordingly, these financial statements do not include all of the information and footnotes required by GAAP 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 August 2, 2014.1, 2015.  In our opinion, the accompanying 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 luxury retail industry is seasonal in nature, with higher sales typically generated in the fall and holiday selling seasons.  Due to seasonal and other factors, the results of operations for the thirdfirst quarter of fiscal year 20152016 are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year as a whole.
 
A detailed description of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended August 2, 2014.1, 2015.

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

Use of Estimates.  We are required to make estimates and assumptions about future events in preparing our financial statements in conformity with GAAP.  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 accompanying 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 assumptions on an ongoing basis and predicate those estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances.  We make adjustments to our estimates and assumptions when facts and circumstances

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dictate.  Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates and assumptions used in preparing the accompanying Condensed Consolidated Financial Statements.

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

allocation of the price paid to acquire the Company and MyTheresa (as described below) to our assets and liabilities as of the acquisition datesdate (as more fully described in Notes 2 and 3)Note 2)
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 intangible and long-lived assets;
measurement of liabilities related to our loyalty program;
recognition of income taxes; and
measurement of accruals for general liability, workers’ compensation and health insurance claims and pension and postretirement health care benefits.
Segments. We believe thatconduct our customers have allocated a higher portion of their luxury spending to online retailing in recent years and that our customers increasingly expect a seamless shopping experience across our in-storespecialty retail store and online channels, and we expect these trends to continue for the foreseeable future. As a result, we have made investments and redesigned processes to integrate our shopping experience across channels so that it is consistent with our customers' shopping preferences and expectations. In particular, we have invested and continue to invest in technology and systems that further our omni-channel retailing capabilities, and in fiscal year 2014, we realigned the management and merchandising responsibilities for our Neiman Marcus brandoperations on an omni-channel basis. With the acceleration of omni-channel retailing andAs our past and ongoing investments in our omni-channel retail model, we believe the growth in our total comparable revenues and results of operations are the best measures of our ongoing performance. As a result, effective August 3, 2014, we began viewing and reporting our specialty retail storesstore and online operations ashave similar economic characteristics, products, services and customers, our operations constitute a single omni-channel reportingreportable segment.
 
Recent Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board (the FASB)(FASB) issued guidance to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards.recognition. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most recent revenue recognition guidance. This new guidance is currently anticipated to be effective for us no earlier than the first quarter of fiscal year 20182019 using one of two retrospective application methods. We are currently evaluating which application method to adopt and the impact of adopting this new accounting guidance on our Condensed Consolidated Financial Statements.

We do not expect that any other recently issued accounting pronouncements will have a material impact on our Condensed Consolidated Financial Statements.



2.The Acquisition
The Acquisition was completed on October 25, 2013 and was financed by:

borrowings of $75.0 million under our senior secured asset-based revolving credit facility (as amended, the Asset-Based Revolving Credit Facility);
borrowings of $2,950.0 million under our senior secured term loan facility (as amended, the Senior Secured Term Loan Facility and, together with the Asset-Based Revolving Credit Facility, the Senior Secured Credit Facilities);
issuance of $960.0 million aggregate principal amount of 8.00% senior cash pay notes due 2021 (the Cash Pay Notes);
issuance of $600.0 million aggregate principal amount of 8.75%/9.50% senior PIK toggle notes due 2021 (the PIK Toggle Notes); and

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$1,583.3 million of equity investments from Parent funded by direct and indirect equity investments from the Sponsors, certain co-investors and management.
The Acquisition occurred simultaneously with:

the closing of the financing transactions and equity investments described previously;
the termination of our former $700.0 million senior secured asset-based revolving credit facility (the Former Asset-Based Revolving Credit Facility); and
the termination of our former $2,560.0 million senior secured term loan facility (the Former Senior Secured Term Loan Facility and, together with the Former Asset-Based Revolving Credit Facility, the Former Senior Secured Credit Facilities).
We have accounted for the Acquisition in accordance with the provisions of FASB Accounting Standards Codification Topic 805, Business Combinations, whereby the purchase price paid to effect the Acquisition was allocated to state the acquired assets and liabilities at fair value.  The Acquisition and the preliminary allocation of the purchase price were recorded for accounting purposes as of November 2, 2013, the end of our first quarter of fiscal year 2014.

In connection with the allocation of the purchase price, we made estimates of the fair values of our long-lived and intangible assets based upon assumptions related to the future cash flows, discount rates and asset lives utilizing currently available information, and in some cases, valuation results from independent valuation specialists.  As of November 2, 2013, we recorded preliminary purchase accounting adjustments to increase the carrying value of our property and equipment and inventory, to revalue intangible assets for our tradenames, customer lists and favorable lease commitments and to revalue our long-term benefit plan obligations, among other things. We revised these preliminary purchase accounting adjustments during the second, third and fourth quarters of fiscal year 2014 as additional information became available. The final purchase accounting adjustments, as reflected in our Consolidated Balance Sheet as of August 2, 2014, were as follows (in millions):
Consideration payable to former equity holders (including $26.8 million management rollover) 
 $3,382.7
Capitalized transaction costs 
 32.7
Total consideration paid to effect the Acquisition 
 3,415.4
    
Net assets acquired at historical cost 
 821.9
    
Adjustments to state acquired assets at fair value: 
  
(1) Increase carrying value of merchandise inventories$129.6
  
(2) Increase carrying value of property and equipment457.7
  
(3) Revalue intangible assets: 
  
Tradenames739.3
  
Other definite-lived intangible assets, primarily customer lists492.1
  
Favorable lease commitments799.8
  
(4) Change in carrying values of other assets and liabilities(67.0)  
(5) Write-off of historical deferred lease credits102.3
  
(6) Write-off of historical debt issuance costs(31.3)  
(7) Write-off of historical goodwill(1,263.4)  
(8) Settlement of unvested Predecessor stock options (Note 10)51.5
  
(9) Tax impact of valuation adjustments and other tax benefits(965.7)  
Total adjustments to state acquired assets at fair value 
 444.9
Net assets acquired at fair value 
 1,266.8
    
Excess purchase price related to the Acquisition recorded as goodwill 
 $2,148.6

The accompanying Condensed Consolidated Financial Statements as of May 3, 2014 and for the thirteen and twenty-six weeks then ended have been recast to reflect the final purchase accounting adjustments reflected in our Consolidated Balance Sheet as of August 2, 2014.


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3.             MyTheresa Acquisition

In October 2014, we acquired MyTheresa, a luxury retailer headquartered in Munich, Germany. The operations of MyTheresa are conducted primarily conducted through the MyTheresa.commytheresa.com global luxury website. As of the time of the acquisition, the annual revenues of MyTheresa were approximately $130 million. The purchase price paid to acquire MyTheresa, net of cash acquired, was $181.7 million, which was financed through a combination of cash and debt. In addition, the MyTheresa purchase agreement contains contingent earn-out payments of up to €27.5 million per year for operating performance for each of calendar years 2015 and 2016.
During
The accompanying Condensed Consolidated Balance Sheet as of November 1, 2014 has been recast to reflect the third quarterfinal purchase accounting adjustments reflected in our Condensed Consolidated Balance Sheet as of fiscal year 2015, we finalized the allocation of the purchase price paid to the acquired assets and liabilities of MyTheresa. Acquired intangible assets and the contingent earn-out obligation at fair value are as follows:

(in millions) 
Acquisition
Fair Value
   
Customer lists $18.8
Tradenames 74.8
Goodwill 140.0
Contingent earn-out obligation 50.0
August 1, 2015. MyTheresa results of operations are included in our condensed consolidated results of operations effectivebeginning in the second quarter of fiscal year 2015.


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4.3.             Fair Value Measurements
 
Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.  Assets and liabilities are classified using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows:

Level 1 — Unadjusted quoted prices for identical instruments traded in active markets.
Level 2 — Observable market-based inputs or unobservable inputs corroborated by market data.
Level 3 — Unobservable inputs reflecting management’s estimates and assumptions.
The following table shows the Company’s financial assets that are required to be measured at fair value on a recurring basis in our Condensed Consolidated Balance Sheets:
 
Fair Value
Hierarchy
 May 2,
2015
 August 2,
2014
 May 3,
2014
(in thousands)   (Successor) (Successor) (Successor) 
Fair Value
Hierarchy
 October 31,
2015
 August 1,
2015
 November 1,
2014
        
Other long-term assets:    
  
  
    
  
  
Interest rate caps Level 2 $106
 $1,132
 $2,000
 Level 2 $
 $21
 $529
            
Other long-term liabilities:            
Contingent earn-out obligation Level 3 $45,661
 $
 $
 Level 3 $53,809
 $51,251
 $50,043
 
The fair value of the interest rate caps are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves.  In addition, the fair value of the interest rate caps includes consideration of the counterparty’s non-performance risk.

The fair value of the contingent earn-out obligation incurred in connection with the acquisition of MyTheresa was estimated as of the acquisition date using a valuation model that measured the present value of the probable cash payments to be made. The significant unobservable inputs used in the fair value measurement arebased upon the forecasted operating performance of MyTheresa and thea discount rate that captures the risk associated with the obligation. We update our assumptions based on new developments and adjust the carrying value of the obligation to its estimated fair value at each reporting date.
 

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The carrying values of cash and cash equivalents, credit card receivables and accounts payable approximate fair value due to their short-term nature.  We determine the fair value of our long-term debt on a non-recurring basis, which results are summarized as follows:
 
May 2, 2015
(Successor)
 
August 2, 2014
(Successor)
 
May 3, 2014
(Successor)
 October 31, 2015 August 1, 2015 November 1, 2014
(in thousands) 
Fair Value
Hierarchy
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Fair Value
Hierarchy
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
            
Long-term debt:    
  
  
  
  
  
    
  
  
  
  
  
Asset-Based Revolving Credit Facility Level 2 $150,000
 $150,000
 $
 $
 $45,000
 $45,000
 Level 2 $340,000
 $340,000
 $130,000
 $130,000
 $230,000
 $230,000
Senior Secured Term Loan Facility Level 2 2,905,842
 2,920,371
 2,927,912
 2,907,797
 2,935,268
 2,935,268
 Level 2 2,891,129
 2,824,286
 2,898,485
 2,887,616
 2,920,555
 2,887,699
Cash Pay Notes Level 2 960,000
 1,034,400
 960,000
 994,800
 960,000
 1,046,400
 Level 2 960,000
 999,600
 960,000
 1,021,200
 960,000
 1,027,200
PIK Toggle Notes Level 2 600,000
 648,120
 600,000
 633,000
 600,000
 657,000
 Level 2 600,000
 626,220
 600,000
 639,120
 600,000
 643,500
2028 Debentures Level 2 122,196
 125,320
 122,035
 127,500
 121,982
 125,156
 Level 2 122,302
 126,250
 122,250
 124,531
 122,089
 129,094
 
We estimated the fair value of long-term debt using (i) prevailing market rates for debt of similar remaining maturities and credit risk for the senior secured asset-based revolving credit facility (as amended, the Asset-Based Revolving Credit Facility) and the senior secured term loan facility (as amended, the Senior Secured Term Loan Facility and, together with the Asset-Based Revolving Credit Facility, the Senior Secured Credit FacilitiesFacilities) and (ii) quoted market prices of the same or similar issues for the $960.0 million aggregate principal amount of 8.00% Senior Cash Pay Notes due 2021 (the Cash Pay Notes), the $600.0 million aggregate principal amount of 8.75%/9.50% Senior PIK Toggle Notes due 2021 (the PIK Toggle Notes) and the $125.0 million aggregate

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principal amount of 7.125% Debentures due 2028 (the 2028 Debentures and, together with the Cash Pay Notes and the PIK Toggle Notes, the Notes).
 
In connection with purchase accounting, we made estimates of the fair value of our long-lived and intangible assets based upon assumptions related to the future cash flows, discount rates and asset lives utilizing currently available information, and in some cases, valuation results from independent valuation specialists (Level 3 determination of fair value).  We also measure certain non-financial assets at fair value on a non-recurring basis, primarily long-lived assets, intangible assets and goodwill, in connection with our periodic evaluations of such assets for potential impairment.


5.4.     Intangible Assets, Net and Goodwill
 
 May 2,
2015
 August 2,
2014
 May 3,
2014
(in thousands) (Successor) (Successor) (Successor) October 31,
2015
 August 1,
2015
 November 1,
2014
            
Favorable lease commitments, net $1,054,092
 $1,094,767
 $1,108,291
 $1,026,828
 $1,040,440
 $1,081,273
Other definite-lived intangible assets, net 536,960
 587,519
 623,537
 505,928
 521,275
 570,254
Tradenames 2,034,398
 1,970,698
 1,970,698
 2,036,894
 2,036,847
 2,045,452
Intangible assets, net $3,625,450
 $3,652,984
 $3,702,526
 $3,569,650
 $3,598,562
 $3,696,979
            
Goodwill $2,267,897
 $2,148,627
 $2,148,627
 $2,272,571
 $2,272,483
 $2,292,626

Intangible Assets Subject to Amortization. Our definite-lived intangible assets, which primarily consist of customer lists, are amortized using accelerated methods which reflect the pattern in which we receive the economic benefit of the asset, currently estimated at 6six to 16 years (weighted average life of 13 years from acquisition)the respective acquisition dates).  Favorable lease commitments are amortized straight-line over the remaining lives of the leases, ranging from two to 55 years (weighted average life of 30 years from acquisition)the respective acquisition dates).

Total amortization of all intangible assets recorded in connection with acquisitions for the current and next five fiscal years is currently estimated as follows (in thousands):
May 3, 2015 through August 1, 2015$28,815
2016110,939
2017105,031
201899,138
201996,014
202089,354

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November 1, 2015 through July 30, 2016$82,716
2017105,701
201899,755
201996,631
202089,970
202184,027


At May 2,October 31, 2015, accumulated amortization was $174.6$206.2 million for other definite-lived intangible assets and $81.2$108.7 million for favorable lease commitments.

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


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6.5.             Long-term Debt
 
The significant components of our long-term debt are as follows:
 
Interest
Rate
 May 2,
2015
 August 2,
2014
 May 3,
2014
(in thousands)   (Successor) (Successor) (Successor) 
Interest
Rate
 October 31,
2015
 August 1,
2015
 November 1,
2014
            
Asset-Based Revolving Credit Facility variable $150,000
 $
 $45,000
 variable $340,000
 $130,000
 $230,000
Senior Secured Term Loan Facility variable 2,905,842
 2,927,912
 2,935,268
 variable 2,891,129
 2,898,485
 2,920,555
Cash Pay Notes 8.00% 960,000
 960,000
 960,000
 8.00% 960,000
 960,000
 960,000
PIK Toggle Notes 8.75%/9.50% 600,000
 600,000
 600,000
 8.75%/9.50% 600,000
 600,000
 600,000
2028 Debentures 7.125% 122,196
 122,035
 121,982
 7.125% 122,302
 122,250
 122,089
Total debt   4,738,038
 4,609,947
 4,662,250
   4,913,431
 4,710,735
 4,832,644
Less: current portion of Senior Secured Term Loan Facility   (29,426) (29,426) (29,426)   (29,426) (29,426) (29,426)
Long-term debt   $4,708,612
 $4,580,521
 $4,632,824
   $4,884,005
 $4,681,309
 $4,803,218
Asset-Based Revolving Credit FacilityOn October 25, 2013, Neiman Marcus Group LTD LLC entered into a credit agreement and related security and other agreements for the Asset-Based Revolving Credit Facility. At May 2,October 31, 2015, we had a senior securedthe Asset-Based Revolving Credit Facility providingprovided for a maximum committed borrowing capacity of $900.0 million. The Asset-Based Revolving Credit Facility matures on October 25, 2018.  On May 2,October 31, 2015, we had $150.0$340.0 million of borrowings outstanding under this facility, no outstanding letters of credit and $660.0$470.0 million of unused borrowing availability.
 
Availability under the Asset-Based Revolving Credit Facility is subject to a borrowing base.  The Asset-Based Revolving Credit Facility includes borrowing capacity available for letters of credit (up to $150.0 million, with any such issuance of letters of credit reducing the amount available under the Asset-Based Revolving Credit Facility on a dollar-for-dollar basis) and for borrowings on same-day notice.  The borrowing base is equal to at any time the sum of (a) 90% of the net orderly liquidation value of eligible inventory, net of certain reserves, plus (b) 90% of the amounts owed by credit card processors in respect of eligible credit card accounts constituting proceeds from the sale or disposition of inventory, less certain reserves, plus (c) 100% of segregated cash held in a restricted deposit account.  To the extent that excess availability is not equal to or greater than the greater of (a) 10% of the lesser of (1) the aggregate revolving commitments and (2) the borrowing base and (b) $50.0 million, we will be required to maintain a fixed charge coverage ratio.
 
The Asset-Based Revolving Credit Facility permits us to increase commitments under the Asset-Based Revolving Credit Facility or add one or more incremental term loans to the Asset-Based Revolving Credit Facility by an amount not to exceed $200.0 million. However, the lenders are under no obligation to provide any such additional commitments or loans, and any increase in commitments or incremental term loans will be subject to customary conditions precedent.  If we were to request any such additional commitments and the existing lenders or new lenders were to agree to provide such commitments, the size of the Asset-Based Revolving Credit Facility could be increased to up to $1,100.0 million, but our ability to borrow would still be limited by the amount of the borrowing base.  The cash proceeds of any incremental term loans may be used for working capital and general corporate purposes.

At May 2,October 31, 2015, borrowings under the Asset-Based Revolving Credit Facility bore interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Deutsche Bank AG New York Branch (the administrative agent), (2) the federal funds effective rate plus ½ of 1.00% and (3) the adjusted one-month LIBOR plus 1.00%, or (b) LIBOR, subject to certain adjustments, in each case plus an applicable margin (1.25% at May 2,October 31, 2015).  The applicable margin is up to 0.75% with respect to base rate borrowings and up to 1.75% with respect to LIBOR borrowings.  The applicable margin is subject to adjustment based on the average historical excess availability under the Asset-Based Revolving Credit Facility. The weighted average interest rate on the outstanding borrowings pursuant to the Asset-Based Revolving Credit Facility was 1.78%1.45% at May 2,October 31, 2015.  In addition, we are required to pay a commitment fee in respect of unused commitments at a rate of 0.25% per annum.  We must also pay customary letter of credit fees and agency fees.


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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 aggregate revolving commitments and (b) the borrowing base, we will be required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount.  If the excess availability under the Asset-Based Revolving Credit Facility is less than the greater of (a) 10% of the lesser of (1) the aggregate revolving commitments and (2) the borrowing base and (b) $50.0 million for a period of five or more consecutive business days, funds held in a collection account maintained with the agent would be applied to repay the loans and other obligations and cash collateralize letters of credit.  We would then be required to make daily deposits in the collection account maintained with the agent under the Asset-Based Revolving Credit Facility.

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We may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time without premium or penalty other than customary “breakage”breakage costs with respect to LIBOR loans.  There is no scheduled amortization under the Asset-Based Revolving Credit Facility; the principal amount of the revolving loans outstanding thereunder will be due and payable in full on October 25, 2018, unless extended.
 
The Asset-Based Revolving Credit Facility is guaranteed by Holdings and each of our current and future direct and indirect wholly owned subsidiaries (subsidiary guarantors) other than (a) unrestricted subsidiaries, (b) certain immaterial subsidiaries, (c) foreign subsidiaries and any domestic subsidiary of a foreign subsidiary, (d) certain holding companies of foreign subsidiaries, (e) captive insurance subsidiaries, not for profit subsidiaries, or a subsidiary which is a special purpose entity for securitization transactions or like special purposes and (f) any subsidiary that is prohibited by applicable law or contractual obligation from acting as a guarantor or which would require governmental approval to provide a guarantee. At May 2,October 31, 2015, the assets of non-guarantor subsidiaries, primarily NMG Germany GmbH (through which we conduct the operations of MyTheresa), aggregated $249.9were $266.5 million, or 2.8%2.9% of consolidated total assets. All obligations under the Asset-Based Revolving Credit Facility, and the guarantees of those obligations, are secured, subject to certain significant exceptions, by substantially all of the assets of Holdings, the Company and the subsidiary guarantors.
The Asset-Based Revolving Credit Facility contains covenants limiting, among other things, dividends and other restricted payments, investments, loans, advances and acquisitions, and prepayments or redemptions of other indebtedness.  These covenants permit such restricted actions in an unlimited amount, subject to the satisfaction of certain payment conditions, principally that we must have (x) pro forma excess availability under the Asset-Based Revolving Credit Facility for each day of the 30-day period prior to such actions, which exceeds the greater of $90.0 million or 15% of the lesser of (a) the revolving commitments under the Asset-Based Revolving Credit Facility and (b) the borrowing base and (y) a pro forma fixed charge coverage ratio of at least 1.0 to 1.0, unless pro forma excess availability for each day of the 30-day period prior to such actions under the Asset-Based Revolving Credit Facility would exceed the greater of (1) $200.0 million and (2) 25% of the lesser of (i) the aggregate revolving commitments under the Asset-Based Revolving Credit Facility and (ii) the borrowing base.  The Asset-Based Revolving Credit Facility also contains customary affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50.0 million.
For a more detailed description of the Asset-Based Revolving Credit Facility, refer to Note 78 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 2, 2014.1, 2015.
 
Senior Secured Term Loan Facility.  On October 25, 2013, weNeiman Marcus Group LTD LLC entered into a credit agreement and related security and other agreements for the $2,950.0 million Senior Secured Term Loan Facility. At May 2,October 31, 2015 (after giving effect to the Refinancing Amendment described below), the outstanding balance under the Senior Secured Term Loan Facility was $2,905.8$2,891.1 million. The principal amount of the loans outstanding is due and payable in full on October 25, 2020.
 
The Senior Secured Term Loan Facility permits us to increase the term loans or add a separate tranche of term loans by an amount not to exceed $650.0 million plus an unlimited amount that would result (a) in the case of any incremental term loan facility to be secured equally and ratably with the term loans, a senior secured first lien net leverage ratio equal to or less than 4.25 to 1.00, and (b) in the case of any incremental term loan facility to be secured on a junior basis to the term loans, to be subordinated in right of payment to the term loans or unsecured and pari passu in right of payment with the term loans, a total net leverage ratio equal to or less than the total net leverage ratio as of October 25, 2013.

On March 13, 2014, we entered into a refinancing amendment with respect to the Senior Secured Term Loan Facility (the Refinancing Amendment). The Refinancing Amendment provided for an immediate reduction in the interest rate margin applicable to the loans outstanding under the Senior Secured Term Loan Facility from (a) 4.00% to 3.25% for LIBOR borrowings and (b) 3.00% to 2.25% for base rate borrowings. In addition, the interest rate margin in the event of a step down based on our senior secured first lien net leverage, as defined in the credit agreement governing the Senior Secured Term Loan Facility, was reduced from (1) 3.75% to 3.00% for LIBOR borrowings and (2) 2.75% to 2.00% for base rate borrowings. Substantially all other terms are

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consistent with the credit agreement governing the Senior Secured Term Loan Facility as of October 25, 2013, including the amortization schedule and maturity dates. In connection with the Refinancing Amendment, we incurred costs of $29.5 million, which were capitalized as debt issuance costs (included in other assets). In addition, we incurred a loss on debt extinguishment of $7.9 million, which primarily consisted of the write-off of debt issuance costs, previously incurred in connection with the initial issuance of the Senior Secured Term Loan Facility, allocable to lenders that no longer participate in the Senior Secured Term Loan Facility subsequent to the refinancing. The loss on debt extinguishment was recorded in the third quarter of fiscal year 2014 as a component of interest expense.
 
At May 2,October 31, 2015, borrowings under the Senior Secured Term Loan Facility bore interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Credit Suisse AG (the administrative agent), (2) the federal funds effective rate plus ½ of 1.00% and (3) the adjusted one-month LIBOR plus 1.00%, or (b) an adjusted LIBOR (for a period equal to the relevant interest period, and in any event, never less than 1.00%), subject to certain adjustments, in each case plus an applicable margin.  The applicable margin is up to 2.25% with respect to base rate borrowings and up to 3.25%

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with respect to LIBOR borrowings.  The applicable margin is subject to adjustment based on our senior secured first lien net leverage ratio.  The applicable margin with respect to outstanding LIBOR borrowings was 3.25% at May 2,October 31, 2015.  The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 4.25% at May 2,October 31, 2015.
 
Subject to certain exceptions and reinvestment rights, the Senior Secured Term Loan Facility requires that 100% of the net cash proceeds from certain asset sales and debt issuances and 50% (which percentage will be reduced to 25% if our senior secured first lien net leverage ratio, as defined in the credit agreement governing the Senior Secured Term Loan Facility, is equal to or less than 4.0 to 1.0 but greater than 3.5 to 1.0 and will be reduced to 0% if our senior secured first lien net leverage ratio is equal to or less than 3.5 to 1.0) from excess cash flow, as defined in the credit agreement governing the Senior Secured Term Loan Facility, for each of our fiscal years (commencing with the period endingended July 26, 2015) must be used to prepay outstanding term loans under ourthe Senior Secured Term Loan Facility at 100% of the principal amount to be prepaid, plus accrued and unpaid interest. We were not required to prepay any outstanding term loans pursuant to the annual excess cash flow requirements for fiscal year 2014.2015.
 
We may repay all or any portion of the Senior Secured Term Loan Facility at any time, subject to redeployment costs in the case of prepayment of LIBOR borrowings other than the last day of the relevant interest period. The Senior Secured Term Loan Facility amortizes in equal quarterly installments in an amount equal to 1.00% per annum of the principal amount outstanding as of the Refinancing Amendment, less certain voluntary or mandatory prepayments, with the remaining balance due at final maturity.
 
OurThe Senior Secured Term Loan Facility is guaranteed by Holdings and each of our current and future subsidiary guarantors other than (a) unrestricted subsidiaries, (b) certain immaterial subsidiaries, (c) foreign subsidiaries and any domestic subsidiary of a foreign subsidiary, (d) certain holding companies of foreign subsidiaries, (e) captive insurance subsidiaries, not for profit subsidiaries, or a subsidiary which is a special purpose entity for securitization transactions or like special purposes and (f) any subsidiary that is prohibited by applicable law or contractual obligation from acting as a guarantor or which would require governmental approval to provide a guarantee. As of May 2,At October 31, 2015, the assets of non-guarantor subsidiaries, primarily NMG Germany GmbH (through which we conduct the operations of MyTheresa), aggregated $249.9were $266.5 million, or 2.8%2.9% of consolidated total assets. All obligations under the Senior Secured Term Loan Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of Holdings, the Company and the subsidiary guarantors.
The credit agreement governing the Senior Secured Term Loan Facility contains a number of negative covenants and covenants related to the security arrangements for the Senior Secured Term Loan Facility.  The credit agreement also contains customary affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50.0 million.
For a more detailed description of the Senior Secured Term Loan Facility, refer to Note 78 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 2, 2014.1, 2015.
 
Cash Pay Notes.  In connection with the Acquisition, weNeiman Marcus Group LTD LLC, along with Mariposa Borrower, Inc. as co-issuer, incurred indebtedness in the form of $960.0 million aggregate principal amount of 8.00% Senior Cash Pay Notes due 2021.  Interest on the Cash Pay Notes is payable semi-annually in arrears on each April 15 and October 15.  The Cash Pay Notes are guaranteed by the same entities that guarantee the Senior Secured Term Loan Facility, other than Holdings.  The Cash Pay Notes are unsecured and the guarantees are full and unconditional.  The Cash Pay Notes mature on October 15, 2021.

We may redeem the Cash Pay Notes, in whole or in part, at any time orand from time to time prior to October 15, 2016, at a price equal to 100% of the principal amount of the Cash Pay Notes redeemed plus accrued and unpaid interest up to the redemption date plus the applicable premium. In addition, we may redeem up to 40% in the aggregate principal amount of the Cash Pay Notes with the

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net proceeds of certain equity offerings at any time and from time to time before October 15, 2016 at a redemption price equal to 108.00% of the face amount thereof, plus accrued and unpaid interest up to the date of redemption, so long as at least 50% of the original aggregate principal amount of the Cash Pay Notes remain outstanding after such redemption and such redemption occurs within 120 days of the equity offering. On and after October 15, 2016, we may redeem the Cash Pay Notes, in whole or in part, at the redemption prices set forth in the indenture governing the Cash Pay Notes.

For a more detailed description of the Cash Pay Notes, refer to Note 78 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 2, 2014.1, 2015.

PIK Toggle Notes.  In connection with the Acquisition, weNeiman Marcus Group LTD LLC, along with Mariposa Borrower, Inc. as co-issuer, incurred indebtedness in the form of $600.0 million aggregate principal amount of our 8.75%/9.50% Senior PIK Toggle Notes due 2021. The PIK Toggle Notes are guaranteed by the same entities that guarantee the Senior Secured Term Loan Facility, other than Holdings. The PIK Toggle Notes are unsecured and the guarantees are full and unconditional. The PIK Toggle Notes mature

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on October 15, 2021. Interest on the PIK Toggle Notes is payable semi-annually in arrears on each April 15 and October 15.  Interest on the PIK Toggle Notes was paid entirely in cash for the first two interest payments and now may be paid (i) entirely in cash (Cash Interest), (ii) entirely by increasing the principal amount of the PIK Toggle Notes by the relevant interest (PIK Interest), or (iii) 50% in Cash Interest and 50% in PIK Interest, subject to certain restrictions on the timing and number of elections of PIK Interest or partial PIK Interest payments.  Cash Interest on the PIK Toggle Notes accrues at a rate of 8.75% per annum.  PIK Interest on the PIK Toggle Notes accrues at a rate of 9.50% per annum.

We may redeem the PIK Toggle Notes, in whole or in part, at any time and from time to time prior to October 15, 2016, at a price equal to 100% of the principal amount of the PIK Toggle Notes redeemed plus accrued and unpaid interest up to the redemption date plus the applicable premium. In addition, we may redeem up to 40% in the aggregate principal amount of the PIK Toggle Notes with the net proceeds of certain equity offerings at any time and from time to time before October 15, 2016 at a redemption price equal to 108.75% of the face amount thereof, plus accrued and unpaid interest up to the date of redemption, so long as at least 50% of the original aggregate principal amount of the PIK Toggle Notes remain outstanding after such redemption and such redemption occurs within 120 days of the equity offering. On and after October 15, 2016, we may redeem the PIK Toggle Notes, in whole or in part, at the redemption prices set forth in the indenture governing the PIK Toggle Notes.

For a more detailed description of the PIK Toggle Notes, refer to Note 78 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 2, 2014.1, 2015.

2028 Debentures.  We haveNMG has outstanding $125.0 million aggregate principal amount of our 7.125% Senior Debentures due 2028.  The 2028 Debentures are secured by a first lien security interest on certain collateral subject to liens granted under the Senior Secured Credit Facilities.  The 2028 Debentures are guaranteed on an unsecured, senior basis by the Company.  The guarantee is full and unconditional.  At May 2,October 31, 2015, our non-guarantor subsidiaries consisted principally of Bergdorf Goodman, Inc., through which we conduct the operations of our Bergdorf Goodman stores, NM Nevada Trust, which holds legal title to certain real property and intangible assets used by us in conducting our operations, and NMG Germany GmbH, through which we conduct the operations of MyTheresa.  The 2028 Debentures include certain restrictive covenants and a cross-acceleration provision in respect of any other indebtedness that has an aggregate principal amount exceeding $15.0 million.  The 2028 Debentures mature on June 1, 2028.
 
For a more detailed description of the 2028 Debentures, refer to Note 78 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 2, 2014.
Former Asset-Based Revolving Credit Facility.  In connection with the Acquisition, we repaid all outstanding obligations of $145.0 million under the Former Asset-Based Revolving Credit Facility and terminated the facility on October 25, 2013.  This facility was replaced by the Asset-Based Revolving Credit Facility.
Former Senior Secured Term Loan Facility.  In connection with the Acquisition, we repaid the outstanding balance of $2,433.1 million under our Former Senior Secured Term Loan Facility on October 25, 2013.  This facility was replaced by the Senior Secured Term Loan Facility.

15

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Maturities of Long-term Debt.  AnnualAt October 31, 2015, annual maturities of long-term debt outstanding at May 2, 2015 during the current and next five fiscal years and thereafter are as follows (in millions):
May 3, 2015 through August 1, 2015$7.4
201629.4
November 1, 2015 through July 30, 2016$22.1
201729.4
29.4
201829.4
29.4
2019179.4
369.4
202029.4
29.4
20212,751.4
Thereafter4,433.6
1,682.3
 
The previous table does not reflect future excess cash flow prepayments, if any, that may be required under the Senior Secured Term Loan Facility.
 

12

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Interest Expense.  The significant components of interest expense are as follows:
  Quarter-to-date Year-to-date
  
Thirteen
weeks ended
 
Thirteen
weeks ended
 
Thirty-nine
weeks ended
 
Twenty-six
weeks ended
  
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
 May 2,
2015
 May 3,
2014
  November 2,
2013
(in thousands) (Successor) (Successor) (Successor) (Successor)  (Predecessor)
            
Asset-Based Revolving Credit Facility $402
 $33
 $1,117
 $291
  $75
Senior Secured Term Loan Facility 31,326
 34,003
 94,310
 71,286
  3,687
Cash Pay Notes 19,200
 18,986
 57,600
 38,400
  2,773
PIK Toggle Notes 13,125
 12,979
 39,375
 26,250
  1,896
2028 Debentures 2,227
 2,227
 6,680
 4,454
  2,226
Former Asset-Based Revolving Credit Facility 
 
 
 
  477
Former Senior Secured Term Loan Facility 
 
 
 
  22,521
Amortization of debt issue costs 6,143
 5,845
 18,417
 10,990
  2,466
Other, net 923
 570
 2,100
 1,094
  1,334
Capitalized interest (502) (303) (1,680) (566)  (140)
  $72,844
 $74,340
 $217,919
 $152,199
  $37,315
Loss on debt extinguishment 
 7,882
 
 7,882
  
Interest expense, net $72,844
 $82,222
 $217,919
 $160,081
  $37,315
We recorded interest expense of $8.4 million during the first quarter of fiscal year 2014 related to debt incurred as a result of the Acquisition.
  Thirteen weeks ended
(in thousands) October 31,
2015
 November 1,
2014
     
Asset-Based Revolving Credit Facility $874
 $230
Senior Secured Term Loan Facility 31,169
 31,579
Cash Pay Notes 19,200
 19,200
PIK Toggle Notes 13,125
 13,125
2028 Debentures 2,227
 2,227
Amortization of debt issue costs 6,143
 6,131
Other, net (1,053) 118
Interest expense, net $71,685
 $72,610


7.6.             Derivative Financial Instruments
 
At May 2,October 31, 2015, we had outstanding floating rate debt obligations of $3,055.8$3,231.1 million. In April 2014, we entered into interest rate cap agreements (at a cost of $2.0 million) for an aggregate notional amount of $1,400.0 million to hedge the variability of our cash flows related to a portion of our floating rate indebtedness. The interest rate cap agreements effectively cap LIBOR at 3.00% from December 2014 through December 2016 with respect to the $1,400.0 million notional amount of such agreements. In the event LIBOR is less than 3.00%, we will pay interest at the lower LIBOR rate. In the event LIBOR is higher than 3.00%, we will pay interest at the capped rate of 3.00%. On May 2,October 31, 2015, the fair value of our interest rate caps was $0.1 million.negligible.
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. Losses of $0.4 millionNo gains or losses were realized in the first quarter of fiscal year 2014. No gainsyears 2016 or losses were realized in the third quarter of fiscal years 2015 and 2014, year-to-date fiscal 2015 or the twenty-six weeks ended May 3, 2014.2015.


16

Table of Contents


8.7.             Income Taxes
 
Our effective income tax rates are as follows:
  Quarter-to-date Year-to-date
  
Thirteen
weeks ended
 
Thirteen
weeks ended
 
Thirty-nine
weeks ended
 
Twenty-six
weeks ended
  
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
 May 2,
2015
 May 3,
2014
  November 2,
2013
  (Successor) (Successor) (Successor) (Successor)  (Predecessor)
            
Effective income tax rate 43.6% 58.5% 41.6% 41.9%  152.9%
  Thirteen weeks ended
  October 31,
2015
 November 1,
2014
  
 
Effective income tax rate 37.5% 58.7%

Our effective income tax ratesrate on the loss for the thirdfirst quarter of fiscal year 2015 and year-to-date2016 exceeded the federal statutory tax rate of 35.0% due primarily to state income taxes. Our effective income tax rate on the earnings for the first quarter of fiscal year 2015 exceeded the federal statutory tax rate due primarily to the non-deductible portion of transaction and other costs incurred in connection with ourthe MyTheresa acquisition of MyTheresa and state income taxes. Our effective income tax rates for the third quarter of fiscal year 2014, the twenty-six weeks ended May 3, 2014 and the first quarter of fiscal year 2014 exceeded the federal statutory tax rates due to the non-deductible portion of transaction costs incurred in connection with the Acquisition, state income taxes and the lack of a U.S. tax benefit related to the losses from our prior investment in a foreign e-commerce retailer.
 
At May 2,October 31, 2015, the gross amount of unrecognized tax benefits was $2.0 million ($1.3 million of which would impact our effective tax rate, if recognized).  We classify interest and penalties as a component of income tax expense and our liability for accrued interest and penalties was $4.6$4.9 million at May 2,October 31, 2015, $5.1$4.8 million at August 2, 20141, 2015 and $5.0$5.2 million at May 3,November 1, 2014.
 
We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions.  The Internal Revenue Service (IRS) is currently auditing our fiscal year 2012 and short-year 2013 federal income tax returns. With respect to state, local and foreign jurisdictions, with limited exceptions, we are no longer subject to income tax audits for fiscal years before 2011.  We believe our recorded tax liabilities as of May 2,October 31, 2015 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.
 

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Subsequent to the Acquisition, Parent and its subsidiaries, including the Company, file U.S. federal income taxes as a consolidated group.  The Company has elected to be treated as a corporation for U.S. federal income tax purposes and all operations of Parent are conducted through Holdings and its subsidiaries, including the Company. Income taxes incurred by Parent are presented as ifreflected by the Company and its subsidiaries are separate taxpayers from Parent.in the preparation of our Condensed Consolidated Financial Statements. There are no differences between the Company's and Parent's current and deferred income taxes.


9.8.             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 were frozen.  Retirees and active employees hired prior to March 1, 1989 are eligible for certain limited postretirement health care benefits (Postretirement Plan) if they meet certain service and minimum age requirements.  We also sponsor an unfunded key employee deferred compensation plan, which provides certain employees with additional benefits.

17

Table of Contents


Obligations for our employee benefit plans, included in other long-term liabilities, are as follows:
 May 2,
2015
 August 2,
2014
 May 3,
2014
(in thousands) (Successor) (Successor) (Successor) October 31,
2015
 August 1,
2015
 November 1,
2014
            
Pension Plan $197,358
 $189,890
 $162,958
 $219,865
 $218,612
 $197,062
SERP Plan 109,515
 113,787
 108,481
 110,050
 111,157
 109,803
Postretirement Plan 10,777
 10,945
 14,643
 9,058
 9,121
 10,932
 317,650
 314,622
 286,082
 338,973
 338,890
 317,797
Less: current portion (5,814) (6,602) (5,754) (6,016) (6,724) (5,814)
Long-term portion of benefit obligations $311,836
 $308,020
 $280,328
 $332,957
 $332,166
 $311,983
 
Funding Policy and Plan Status.  Our policy is to fund the Pension Plan at or above the minimum level required by law.  In fiscal year 2014,2015, we were not required to make contributions to the Pension Plan. As of May 2,October 31, 2015, we do not believe we will be required to make contributions to the Pension Plan for fiscal year 2015.2016.  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.

Cost of Benefits. The components of the expenses we incurred under our Pension Plan, SERP Plan and Postretirement Plan are as follows:
  Quarter-to-date Year-to-date
  
Thirteen
weeks ended
 
Thirteen
weeks ended
 
Thirty-nine
weeks ended
 
Twenty-six
weeks ended
  
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
 May 2,
2015
 May 3,
2014
  November 2,
2013
(in thousands) (Successor) (Successor) (Successor) (Successor)  (Predecessor)
            
Pension Plan:  
  
       
Interest cost $6,382
 $6,420
 $19,146
 $12,201
  $5,781
Expected return on plan assets (6,234) (6,167) (18,702) (12,333)  (6,401)
Net amortization of losses 
 
 
 
  1,095
Pension Plan expense (income) $148
 $253
 $444
 $(132)  $475
            
SERP Plan:  
  
       
Interest cost $1,126
 $1,200
 $3,378
 $2,304
  $1,104
SERP Plan expense $1,126
 $1,200
 $3,378
 $2,304
  $1,104
            
Postretirement Plan:  
  
       
Service cost $3
 $7
 $9
 $12
  $5
Interest cost 113
 173
 339
 315
  142
Net amortization of prior service cost 
 
 
 
  (321)
Net amortization of (gains) losses (93) 
 (279) 
  35
Postretirement Plan expense (income) $23
 $180
 $69
 $327
  $(139)


10.Stock-Based Compensation
Predecessor

Stock Options. Predecessor had equity-based management arrangements, which authorized equity awards to be granted to certain management employees. At the time of the Acquisition, Predecessor stock options for 101,730 shares were outstanding, consisting of vested options for 67,899 shares and unvested options for 33,831 shares.  In connection with the Acquisition, previously unvested options became fully vested on October 25, 2013.
All Predecessor stock options were subject to settlement in connection with the Acquisition in amounts equal to the excess of the per share merger consideration over the exercise prices of such options.  The fair value of the consideration payable to holders of Predecessor stock options aggregated $187.4 million. Of such amount, $135.9 million represented the fair value of previously vested options, which was included in the consideration paid by the Sponsors to acquire the Company.  The remaining $51.5 million

18

Table of Contents


represented the fair value of previously unvested options. Such amount was expensed in the results of operations of the Successor for the second quarter of fiscal year 2014.
Successor

Stock Options.  Subsequent to the Acquisition, Parent established various incentive plans pursuant to which eligible employees, consultants and non-employee directors are eligible to receive stock-based awards.  Under the incentive plans, Parent is authorized to grant stock options, restricted stock and other types of awards that are valued in whole or in part by reference to, or are payable or otherwise based on, the shares of common stock of Parent. Charges with respect to options issued by Parent pursuant to the incentive plans are reflected by the Company in the preparation of our Condensed Consolidated Financial Statements.

Co-Invest Options.  In connection with the Acquisition, certain executive officers of the Company rolled over a portion of the amounts otherwise payable in settlement of their Predecessor stock options into stock options of Parent representing a total of 56,979 shares of common stock of Parent (the Co-Invest Options).
The number of Co-Invest Options issued upon conversion of Predecessor stock options was equal to the product of (a) the number of shares subject to the applicable Predecessor stock options multiplied by (b) the ratio of the per share merger consideration over the fair market value of a share of Parent, which was approximately 3.1x (the Exchange Ratio).  The exercise price of each Predecessor stock option was adjusted by dividing the original exercise price of the Predecessor stock option by the Exchange Ratio.  Following the conversion, the exercise prices of the Co-Invest Options range from $180 to $644 per share.  As of the date of the Acquisition, the aggregate intrinsic value of the Co-Invest Options equaled the intrinsic value of the rolled over Predecessor stock options. The Co-Invest Options are fully vested and are exercisable at any time prior to the applicable expiration dates related to the original grant of the Predecessor options.  The Co-Invest Options contain sale and repurchase provisions.

Non-Qualified Stock Options.  Pursuant to the terms of the incentive plans, Parent granted time-vested and performance-vested non-qualified stock options to certain executive officers, non-executive officers and non-employee directors of the Company. These non-qualified stock options will expire no later than the tenth anniversary of the grant date and each grant consists of options to purchase an equal number of shares of Parent’s Class A common stock and Class B common stock.

Accounting for Successor Stock Options. Prior to an initial public offering (IPO), Parent generally has the right to repurchase shares issued upon exercise of vested stock options at the fair market value and shares underlying vested unexercised stock options for the difference between the fair market value of the underlying share and the exercise price in the event the optionee ceases to be an employee of the Company. However, if the optionee voluntarily leaves the Company without good reason or is terminated for cause, the repurchase price is the lesser of the exercise price of such options or the fair value of such awards at the employee termination date. In the event of the retirement of the optionee, the repurchase price is the fair value at the retirement date. Parent's repurchase rights expire upon completion of an IPO.

With respect to the Co-Invest Options, the fair value of such options at the Acquisition date was $36.3 million. Of such amount, $9.5 million represented the fair value of options held by Retirement Eligible Optionees for which a liability was established at the Acquisition date. The remaining value of $26.8 million represented the fair value of options held by non-retirement eligible optionees and such amount was credited to Successor equity.

At May 2, 2015, the aggregate number of co-invest, time-vested and performance-vested options held by Retirement Eligible Optionees aggregated 99,910 options. The recorded liability with respect to such options was $22.2 million at May 2, 2015, $15.8 million at August 2, 2014 and $14.3 million at May 3, 2014. We recognize compensation expense, which is included in selling, general and administrative expenses, for stock options on a straight-line basis over the vesting/performance periods.
  Thirteen weeks ended
(in thousands) October 31,
2015
 November 1,
2014
     
Pension Plan:  
  
Interest cost $5,429
 $6,382
Expected return on plan assets (5,807) (6,234)
Pension Plan expense (income) $(378) $148
     
SERP Plan:  
  
Interest cost $892
 $1,126
SERP Plan expense $892
 $1,126
     
Postretirement Plan:  
  
Service cost $1
 $3
Interest cost 71
 113
Net amortization of gains (146) (93)
Postretirement Plan expense (income) $(74) $23


19

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The following table sets forth certain summary information with respect to our stock options for the periods indicated.
  Quarter-to-date Year-to-date
  
Thirteen
weeks ended
 
Thirteen
weeks ended
 
Thirty-nine
weeks ended
 
Twenty-six
weeks ended
  
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
 May 2,
2015
 May 3,
2014
  November 2,
2013
(in thousands, except number of options and per option price) (Successor) (Successor) (Successor) (Successor)  (Predecessor)
            
Stock compensation expense $2,135
 $2,376
 $6,405
 $4,752
  $2,548
            
Stock option grants:  
  
  
     
Number of options granted 2,240
 12,008
 8,243
 157,992
  
Weighted average grant date fair value $363
 $407
 $335
 $407
  $
            
Stock option exercises:  
  
  
     
Number of options exercised 
 
 118
 
  65
Weighted average exercise price $
 $
 $577
 $
  $1,557


11.  Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss by component (amounts are recorded net of related income taxes):
(in thousands) 
Foreign
Currency
Translation
Adjustments
 
Unrealized
Losses on
Financial
Instruments
 
Unfunded
Benefit
Obligations
 Total
Successor:    
  
  
Balance, August 2, 2014 $
 $(954) $(16,475) $(17,429)
Other comprehensive loss 
 (1,191) (1,910) (3,101)
Balance, November 1, 2014 $
 $(2,145) $(18,385) $(20,530)
Other comprehensive loss (5,977) (1,741) (57) (7,775)
Balance, January 31, 2015 $(5,977) $(3,886) $(18,442) $(28,305)
Other comprehensive (loss) earnings (15,707) 925
 (57) (14,839)
Balance, May 2, 2015 $(21,684) $(2,961) $(18,499) $(43,144)

12.Income from Credit Card Program
We maintain a proprietary credit card program through which credit is extended to customers and have a related marketing and servicing alliance with affiliates of Capital One Financial Corporation (Capital One).  Pursuant to our agreement with Capital One (the Program Agreement), Capital One currently offers credit cards and non-card payment plans under both the “Neiman Marcus” and “Bergdorf Goodman” brand names.  Effective July 1, 2013, we amended and extended the Program Agreement to July 2020 (renewable thereafter for three-year terms), subject to early termination provisions.
We receive payments from Capital One based on sales transacted on our proprietary credit cards.  We may receive additional payments based on the profitability of the portfolio as determined under the Program Agreement depending on a number of factors, including credit losses.  In addition, we receive payments from Capital One for marketing and servicing activities we provide to Capital One.


2014

Table of Contents


13.Other Expenses
Other expenses consists of the following components:
  Quarter-to-date Year-to-date
  
Thirteen
weeks ended
 
Thirteen
weeks ended
 
Thirty-nine
weeks ended
 
Twenty-six
weeks ended
  
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
 May 2,
2015
 May 3,
2014
  November 2,
2013
(in thousands) (Successor) (Successor) (Successor) (Successor)  (Predecessor)
            
Costs incurred in connection with the Acquisition:  
  
       
Change-in-control cash payments due to Former Sponsors and management $
 $
 $
 $
  $80,457
Stock-based compensation for accelerated vesting of Predecessor stock options (including non-cash charges of $15.4 million) 
 
 
 51,510
  
Other, primarily professional fees 
 
 
 1,732
  28,942
Total transaction costs 
 
 
 53,242
  109,399
MyTheresa acquisition costs 376
 
 11,814
 
  
Expenses related to cyber-attack, net of insurance recovery 1,321
 4,477
 4,121
 8,565
  
Equity in loss of foreign e-commerce retailer 
 1,550
 
 3,613
  1,523
Management fee due to Former Sponsors 
 
 
 
  2,823
Accretion of contingent earn-out obligation 1,672
 
 3,326


  
Other non-recurring expenses 2,202
 2,391
 8,819
 8,588
  155
Other expenses $5,571
 $8,418
 $28,080
 $74,008
  $113,900

We discovered in January 2014 that malicious software (malware) was clandestinely installed on our computer systems. In year-to-date fiscal 2015, we incurred investigative, legal and other expenses in connection with a cyber-attack. We expect to incur additional expenses related to the cyber-attack in the foreseeable future. Such expenses are not currently estimable but could be material to our future results of operations.

In the third quarter of fiscal year 2014, we sold our investment in a foreign e-commerce retailer, which was previously accounted for under the equity method, for $35.0 million, which amount equaled the carrying value of our investment.

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

21

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one with respect to Ms. Monjazeb, with the California Court of Appeal, asserting that the trial court did not have jurisdiction to change its earlier determination of the enforceability of the arbitration agreement. The appeal with respect to Mr. Pinela has been fully briefed,On June 29, 2015, after briefing and oral argument, the California Court of Appeal issued its order affirming the trial court's denial of our motion to compel arbitration and awarding Mr. Pinela his costs of appeal. On July 13, 2015, we filed our petition for rehearing with the California Court of Appeal, which was denied on July 29, 2015. On August 10, 2015, we filed our petition for review with the California Supreme Court, and Mr. Pinela filed his answer on August 31, 2015. On September 16, 2015, the California Supreme Court denied our petition for review. On October 6, 2015, the case was transferred back to the trial court. On November 16, 2015, Mr. Pinela filed a motion to stay the proceedings in the trial court until after the appellate court resolves Ms. Tanguilig’s appeal. On December 10, 2015, the hearing on Mr. Pinela's motion to stay and a case management conference were held, on June 9, 2015.and the trial court judge issued an order granting the motion and issuing a stay. The appeal with respect to Ms. Monjazeb was dismissed since final approval of the class action settlement (as described below) washad been granted.

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

In Ms. Monjazeb's class action, a settlement was reached at a mediation held on January 25, 2014, and the court granted final approval of the settlement after the final approval hearing held on September 18, 2014. Notwithstanding the settlement of the Monjazeb class action, Ms. Tanguilig filed a motion on January 26, 2015 seeking to recover catalyst attorneys' fees from the Company. A hearing was held on February 24, 2015, and the court issued an order on February 25, 2015 allowing Ms. Tanguilig to proceed with her motion to recover catalyst attorneys' fees related to the Monjazeb settlement. On April 8, 2015, Ms. Tanguilig filed her motion for catalyst attorneys' fees. Briefing is underway, and theA hearing on the motion is set for June 18,was held on July 23, 2015 and the motion was denied by the court on July 28, 2015. We will continue to vigorously contest this motion.

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Based upon the settlement agreement with respect to Ms. Monjazeb's class action claims, we recorded our currently estimable liabilities with respect to both Ms. Monjazeb's and Ms. Tanguilig's employment class actions litigation claims in fiscal year 2014, which amount was not material to our financial condition or results of operations. With respect to the Monjazeb matter, the settlement funds have been paid by the Company and have been disbursed by the claims administrator in accordance with the settlement. We will continue to evaluate the Tanguilig matter, and our recorded reserve for such matter, based on subsequent events, new information and future circumstances.

In addition to the foregoing matters, the National Labor Relations Board (NLRB) has been pursuing a complaint alleging that the Mandatory Arbitration Agreement’s class action prohibition violates employees’ rights to engage in concerted activity, which was submitted to an administrative law judge (ALJ) for determination on a stipulated record. Recently, theThe ALJ issued a recommended decision and order finding that the Company's Arbitration Agreement and class action waiver violated the National Labor Relations Act.Act (NLRA). The matter has now beenwas transferred to the NLRB for further consideration and decision. On August 4, 2015, the NLRB affirmed the ALJ's decision and ordered the Company not to maintain and/or enforce the provisions of the Arbitration Agreement found to violate the NLRA and to take affirmative steps to effectuate the NLRA's policies. On August 12, 2015, we filed our petition for review of the NLRB's order with the U.S. Court of Appeals for the Fifth Circuit. On September 23, 2015, the NLRB filed a motion to hold our case in abeyance pending the Court's decisions in two other cases, which the NLRB argued presented identical issues to those before the Court in our case. On October 2, 2015, the Court issued an order granting the NLRB's motion to stay our case.

On August 7, 2014, a putative class action complaint was filed against The Neiman Marcus Group LLC in Los Angeles County Superior Court by a customer, Linda Rubenstein, in connection with the Company's Last Call stores in California. Ms. Rubenstein alleges that the Company has violated various California consumer protection statutes by implementing a marketing and pricing strategy that suggests that clothing sold at Last Call stores in California was originally offered for sale at full-line Neiman Marcus stores when allegedly, it was not, and is allegedly of inferior quality to clothing sold at the full-line stores. Ms. Rubenstein also alleges that the Company lacks adequate information to support its comparative pricing labels. On September 12, 2014, we removed the case to the U.S. District Court for the Central District of California. On October 17, 2014, we filed a motion to dismiss the complaint, which the court granted on December 12, 2014. In its order dismissing the complaint, the court granted Ms. Rubenstein leave to file an amended complaint. Ms. Rubenstein filed her first amended complaint on December 22, 2014. On January 6, 2015, we filed a motion to dismiss the first amended complaint, which the court granted on March 2, 2015. In its order dismissing the first amended complaint, the court granted Ms. Rubenstein leave to file a second amended complaint, which she filed on March 17, 2015. On April 6, 2015, we filed a motion to dismiss the second amended complaint. On May 12, 2015, the court granted our motion to dismiss the second amended complaint in its entirety, without leave to amend, and on June 9, 2015, Ms. Rubenstein filed a notice to appeal the court's ruling. The appeal is pending and a briefing schedule was recently set, with full briefing to be completed in February 2016.

On February 2, 2015, a putative class action complaint was filed against Bergdorf Goodman, Inc. in the Supreme Court of the State of New York, County of New York, by Marney Zaslav. Ms. Zaslav seeks monetary relief and alleges that she and other similarly

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situated individuals were misclassified as interns exempt from minimum wage requirements instead of as employees and, therefore, were not provided with proper compensation under the New York Labor Law. The Company is vigorously defending this matter.

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

Cyber-Attack Class Actions Litigation. Three class actions relating to a cyber-attack on our computer systems in 2013 (the Cyber-Attack) were filed in January 2014 and later voluntarily dismissed by the plaintiffs between February and April 2014. The plaintiffs had alleged negligence and other claims in connection with their purchases by payment cards and sought monetary and injunctive relief. Melissa Frank v. The Neiman Marcus Group, LLC, et al., was filed in the U.S. District Court for the Eastern District of New York on January 13, 2014 but was voluntarily dismissed by the plaintiff on April 15, 2014, without prejudice to her right to re-file a complaint. Donna Clark v. Neiman Marcus Group LTD LLC was filed in the U.S. District Court for the Northern District of Georgia on January 27, 2014 but was voluntarily dismissed by the plaintiff on March 11, 2014, without prejudice to her right to re-file a complaint. Christina Wong v. The Neiman Marcus Group, LLC, et al., was filed in the U.S. District Court for the Central District of California on January 29, 2014, but was voluntarily dismissed by the plaintiff on February 10, 2014, without prejudice to her right to re-file a complaint. Three additional putative class actions relating to the Cyber-Attack were filed in March and April 2014, also alleging negligence and other claims in connection with plaintiffs’ purchases by payment cards. Two of the cases, Katerina Chau v. Neiman Marcus Group LTD Inc., filed in the U.S. District Court for the Southern District of California on March 14, 2014, and Michael Shields v. The Neiman Marcus Group, LLC, filed in the U.S. District Court for the Southern District of

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California on April 1, 2014, were voluntarily dismissed, with prejudice as to Chau and without prejudice as to Shields. The third case, Hilary Remijas v. The Neiman Marcus Group, LLC, was filed on March 12, 2014 in the U.S. District Court for the Northern District of Illinois. On June 2, 2014, an amended complaint in the Remijas case was filed, which added three plaintiffs (Debbie Farnoush and Joanne Kao, California residents; and Melissa Frank, a New York resident) and asserted claims for negligence, implied contract, unjust enrichment, violation of various consumer protection statutes, invasion of privacy and violation of state data breach laws. The Company moved to dismiss the Remijas amended complaint on July 2, 2014. On September 16, 2014, the court granted the Company's motion to dismiss the Remijas case on the grounds that the plaintiffs lacked standing due to their failure to demonstrate an actionable injury. On September 25, 2014, plaintiffs appealed the district court's order dismissing the case to the Seventh Circuit Court of Appeals. Oral argument was held on January 23, 2015. On July 20, 2015, the Seventh Circuit Court of Appeals reversed the district court's ruling and remanded the case to the district court for further proceedings. On August 3, 2015, we filed a petition for rehearing en banc. On September 17, 2015, the Seventh Circuit Court of Appeals denied our petition for rehearing. The district court held a status conference on October 29, 2015 and set a decision is pending.supplemental briefing schedule on the remaining portion of our previously filed motion to dismiss that had not been addressed by the court, and scheduled a status hearing for December 15, 2015. Andrew McClease v. The Neiman Marcus Group, LLC was filed in the U.S. District Court for the Eastern District of North Carolina on December 30, 2014, alleging negligence and other claims in connection with Mr. McClease's purchase by payment card. On March 9, 2015, the McClease case was voluntarily dismissed without prejudice by stipulation of the parties.

In addition to class actions litigation, payment card companies and associations may require us to reimburse them for unauthorized card charges and costs to replace cards and may also impose fines or penalties in connection with the security incident, and enforcement authorities may also impose fines or other remedies against us. We have also incurred other costs associated with this security incident, including legal fees, investigative fees, costs of communications with customers and credit monitoring services provided to our customers. At this point, we are unable to predict the developments in, outcome of, and economic and other consequences of pending or future litigation or regulatory investigations related to, and other costs associated with, this matter. We will continue to evaluate these matters based on subsequent events, new information and future circumstances.
 
Other.  We had no outstanding irrevocable letters of credit relating to purchase commitments and insurance and other liabilities at May 2,October 31, 2015.  We had approximately $3.1$3.3 million in surety bonds at May 2,October 31, 2015 relating primarily to merchandise imports and state sales tax and utility requirements.
 

15.10.  Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss by component (amounts are recorded net of related income taxes):
(in thousands) 
Foreign
Currency
Translation
Adjustments
 
Unrealized
Losses on
Financial
Instruments
 
Unfunded
Benefit
Obligations
 Total
     
  
  
Balance, August 1, 2015 $(16,886) $(2,826) $(31,516) $(51,228)
Other comprehensive earnings (loss) 116
 823
 (611) 328
Balance, October 31, 2015 $(16,770) $(2,003) $(32,127) $(50,900)

11.Stock-Based Awards
Stock Options.  Subsequent to the Acquisition, Parent established various incentive plans pursuant to which eligible employees, consultants and non-employee directors are eligible to receive stock-based awards.  Under the incentive plans, Parent is authorized to grant stock options, restricted stock and other types of awards that are valued in whole or in part by reference to, or are payable or otherwise based on, the shares of common stock of Parent. Charges with respect to options issued by Parent pursuant to the incentive plans are reflected by the Company in the preparation of our Condensed Consolidated Financial Statements.

Co-Invest Options.  In connection with the Acquisition, certain executive officers of the Company rolled over a portion of the amounts otherwise payable in settlement of their pre-Acquisition stock options into stock options of Parent representing options to purchase a total of 56,979 shares of Class A common stock and 56,979 shares of Class B common stock of Parent (the Co-Invest Options).
The number of Co-Invest Options issued upon conversion of pre-Acquisition stock options was equal to the product of (a) the number of shares subject to the applicable pre-Acquisition stock options multiplied by (b) the ratio of the per share merger

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consideration over the fair market value of a share of Parent, which was approximately 3.1x (the Exchange Ratio).  The exercise price of each pre-Acquisition stock option was adjusted by dividing the original exercise price of the pre-Acquisition stock option by the Exchange Ratio.  Following the conversion, the exercise prices of the Co-Invest Options range from $180 to $644 per share.  As of the date of the Acquisition, the aggregate intrinsic value of the Co-Invest Options equaled the intrinsic value of the rolled over pre-Acquisition stock options. The Co-Invest Options are fully vested and are exercisable at any time prior to the applicable expiration dates related to the original grant of the pre-Acquisition options.  The Co-Invest Options contain sale and repurchase provisions.

Non-Qualified Stock Options.  Pursuant to the terms of the incentive plans, Parent granted time-vested and performance-vested non-qualified stock options to certain executive officers, employees and non-employee directors of the Company. These non-qualified stock options will expire no later than the tenth anniversary of the grant date and each grant consists of options to purchase an equal number of shares of Parent’s Class A common stock and Class B common stock.

Accounting for Stock Options. Prior to an initial public offering (IPO), Parent generally has the right to repurchase shares issued upon exercise of vested stock options at the fair market value and shares underlying vested unexercised stock options for the difference between the fair market value of the underlying share and the exercise price in the event the optionee ceases to be an employee of the Company. However, other than with respect to the Co-Invest Options, if the optionee voluntarily leaves the Company without good reason (as defined in the incentive plans) or is terminated for cause, the repurchase price is the lesser of the exercise price of such options or the fair value of such awards at the employee termination date. For certain optionees, in the event of the retirement of the optionee, the repurchase price is the fair value at the retirement date. Parent's repurchase rights expire upon completion of an IPO, including with respect to the Co-Invest Options.

As a result of Parent's repurchase rights prior to an IPO, we currently account for stock options issued to certain optionees who will become retirement eligible prior to the expiration of their stock options (Retirement Eligible Optionees) using the liability method. Under the liability method, we recognize the estimated liability for option awards held by Retirement Eligible Optionees over the vesting periods of such awards and the liability for the vested/earned options is adjusted to its estimated fair value through compensation expense at each balance sheet date. With respect to time-vested options held by non-Retirement Eligible Optionees, such options are effectively forfeited should the optionee voluntarily leave the Company without good reason or be terminated for cause prior to an IPO. As a result, we currently record no expense or liability with respect to such options. With respect to performance-vested options, such options are effectively forfeited should the optionee voluntarily leave the Company without good reason or be terminated for cause prior to achievement of the performance condition. As a result, we currently record no expense or liability with respect to such options.

With respect to the Co-Invest Options, the fair value of such options at the Acquisition date was $36.3 million. Of such amount, $9.5 million represented the fair value of options held by Retirement Eligible Optionees for which a liability was established at the Acquisition date. The remaining value of $26.8 million represented the fair value of options held by non-Retirement Eligible Optionees and such amount was credited to equity.

At October 31, 2015, an aggregate of 54,678 Co-Invest Options and time-vested options were held by Retirement Eligible Optionees. The recorded liability with respect to such options was $17.8 million at October 31, 2015, $15.9 million at August 1, 2015 and $17.9 million at November 1, 2014. We recognize compensation expense, which is included in selling, general and administrative expenses, for stock options on a straight-line basis over the vesting/performance periods.

The following table sets forth certain summary information with respect to our stock options for the periods indicated.
  Thirteen weeks ended
(in thousands, except number of options and per option price) October 31,
2015
 November 1,
2014
     
Stock compensation expense $1,953
 $2,135
     
Stock option grants:  
  
Number of options granted 
 6,003
Weighted average grant date fair value $
 $325

For a more detailed description of our stock-based awards, refer to Note 14 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 1, 2015.


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12.Income from Credit Card Program
We maintain a proprietary credit card program through which credit is extended to customers and have a related marketing and servicing alliance with affiliates of Capital One Financial Corporation (Capital One).  Pursuant to our agreement with Capital One (the Program Agreement), Capital One currently offers credit cards and non-card payment plans under both the “Neiman Marcus” and “Bergdorf Goodman” brand names.  Effective July 1, 2013, we amended and extended the Program Agreement to July 2020 (renewable thereafter for three-year terms), subject to early termination provisions.
We receive payments from Capital One based on sales transacted on our proprietary credit cards.  We may receive additional payments based on the profitability of the portfolio as determined under the Program Agreement depending on a number of factors including credit losses.  In addition, we receive payments from Capital One for marketing and servicing activities we provide to Capital One. We recognize income from our credit card program when earned.


13.Other Expenses
Other expenses consists of the following components:
  Thirteen weeks ended
(in thousands) October 31,
2015
 November 1,
2014
     
Expenses incurred in connection with strategic growth initiatives $14,376
 $2,186
MyTheresa acquisition costs 2,544
 10,989
Expenses related to cyber-attack, net of insurance recovery 178
 4,301
Other expenses 
 2,324
Total $17,098
 $19,800

We incurred costs in connection with our Organizing for Growth and NMG One strategic growth initiatives aggregating $14.4 million in the first quarter of fiscal year 2016. In connection with Organizing for Growth, we eliminated approximately 500 positions across our stores, divisions and facilities on October 1, 2015 and incurred $10.2 million of severance costs.

In October 2014, we acquired MyTheresa, a luxury retailer headquartered in Munich, Germany.

We discovered in January 2014 that malicious software (malware) was clandestinely installed on our computer systems. In the first quarter of fiscal year 2016 and the first quarter of fiscal year 2015, we incurred investigative, legal and other expenses in connection with a cyber-attack. We expect to incur ongoing costs related to the cyber-attack for the foreseeable future. Such expenses are not currently estimable but could be material to our future results of operations.

14.  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 is subject to automatic release if the requirements for legal defeasance or covenant defeasance of the 2028 Debentures are satisfied, or if NMG’s obligations under the indenture governing the 2028 Debentures are discharged.  Currently, the Company’s non-guarantor subsidiaries under the 2028 Debentures consist principally of (i) Bergdorf Goodman, Inc., through which we conduct the operations of our Bergdorf Goodman stores, (ii) NM Nevada Trust, which holds legal title to certain real property and intangible assets used by NMG in conducting its operations and (iii) NMG Germany GmbH, through which we conduct the operations of MyTheresa.
 

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The following condensed consolidating financial information represents the financial information of the Company and its non-guarantor subsidiaries under the 2028 Debentures, prepared on the equity basis of accounting.  The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the non-guarantor subsidiaries operated as independent entities.

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May 2, 2015
 (Successor)
 October 31, 2015
(in thousands) Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated
ASSETS  
  
  
  
  
  
  
  
  
  
Current assets:  
  
  
  
  
  
  
  
  
  
Cash and cash equivalents $
 $70,490
 $11,721
 $
 $82,211
 $
 $45,514
 $13,068
 $
 $58,582
Merchandise inventories 
 988,955
 184,307
 
 1,173,262
 
 1,128,592
 221,785
 
 1,350,377
Other current assets 
 127,129
 15,363
 (102) 142,390
 
 154,918
 18,640
 (3,764) 169,794
Total current assets 
 1,186,574
 211,391
 (102) 1,397,863
 
 1,329,024
 253,493
 (3,764) 1,578,753
Property and equipment, net 
 1,325,068
 114,589
 
 1,439,657
 
 1,378,343
 126,047
 
 1,504,390
Intangible assets, net 
 641,446
 2,984,004
 
 3,625,450
 
 610,471
 2,959,179
 
 3,569,650
Goodwill 
 1,669,365
 598,532
 
 2,267,897
 
 1,611,364
 661,207
 
 2,272,571
Other assets 
 139,203
 1,375
 
 140,578
 
 133,160
 1,333
 
 134,493
Intercompany notes receivable 
 150,000
 
 (150,000) 
 
 189,841
 
 (189,841) 
Investments in subsidiaries 1,454,710
 3,572,692
 
 (5,027,402) 
 1,403,534
 3,593,643
 
 (4,997,177) 
Total assets $1,454,710
 $8,684,348
 $3,909,891
 $(5,177,504) $8,871,445
 $1,403,534
 $8,845,846
 $4,001,259
 $(5,190,782) $9,059,857
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
  
  
  
  
  
Current liabilities:  
  
  
  
  
  
  
  
  
  
Accounts payable $
 $246,696
 $33,589
 $
 $280,285
 $
 $284,815
 $38,422
 $
 $323,237
Accrued liabilities 
 366,369
 91,237
 (102) 457,504
 
 366,676
 105,741
 (3,764) 468,653
Current portion of long-term debt 
 29,426
 
 
 29,426
 
 29,426
 
 
 29,426
Total current liabilities 
 642,491
 124,826
 (102) 767,215
 
 680,917
 144,163
 (3,764) 821,316
Long-term liabilities:  
  
  
  
  
  
  
  
  
  
Long-term debt 
 4,708,612
 
 
 4,708,612
 
 4,884,005
 
 
 4,884,005
Intercompany notes payable 
 
 150,000
 (150,000) 
 
 
 189,841
 (189,841) 
Deferred income taxes 
 1,485,902
 15,012
 
 1,500,914
 
 1,447,245
 16,521
 
 1,463,766
Other long-term liabilities 
 392,633
 47,361
 
 439,994
 
 430,145
 57,091
 
 487,236
Total long-term liabilities 
 6,587,147
 212,373
 (150,000) 6,649,520
 
 6,761,395
 263,453
 (189,841) 6,835,007
Total member equity 1,454,710
 1,454,710
 3,572,692
 (5,027,402) 1,454,710
 1,403,534
 1,403,534
 3,593,643
 (4,997,177) 1,403,534
Total liabilities and member equity $1,454,710
 $8,684,348
 $3,909,891
 $(5,177,504) $8,871,445
 $1,403,534
 $8,845,846
 $4,001,259
 $(5,190,782) $9,059,857

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  August 1, 2015
(in thousands) Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated
ASSETS  
  
  
  
  
Current assets:  
  
  
  
  
Cash and cash equivalents $
 $53,162
 $19,812
 $
 $72,974
Merchandise inventories 
 970,295
 184,549
 
 1,154,844
Other current assets 
 138,966
 18,082
 (165) 156,883
Total current assets 
 1,162,423
 222,443
 (165) 1,384,701
Property and equipment, net 
 1,359,118
 118,768
 
 1,477,886
Intangible assets, net 
 625,937
 2,972,625
 
 3,598,562
Goodwill 
 1,611,365
 661,118
 
 2,272,483
Other assets 
 140,776
 1,354
 
 142,130
Intercompany notes receivable 
 150,028
 
 (150,028) 
Investments in subsidiaries 1,413,744
 3,617,680
 
 (5,031,424) 
Total assets $1,413,744
 $8,667,327
 $3,976,308
 $(5,181,617) $8,875,762
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
Current liabilities:  
  
  
  
  
Accounts payable $
 $291,089
 $51,910
 $
 $342,999
Accrued liabilities 
 380,255
 85,312
 (165) 465,402
Current portion of long-term debt 
 29,426
 
 
 29,426
Total current liabilities 
 700,770
 137,222
 (165) 837,827
Long-term liabilities:  
  
  
  
  
Long-term debt 
 4,681,309
 
 
 4,681,309
Intercompany notes payable 
 
 150,028
 (150,028) 
Deferred income taxes 
 1,454,278
 16,813
 
 1,471,091
Other long-term liabilities 
 417,226
 54,565
 
 471,791
Total long-term liabilities 
 6,552,813
 221,406
 (150,028) 6,624,191
Total member equity 1,413,744
 1,413,744
 3,617,680
 (5,031,424) 1,413,744
Total liabilities and member equity $1,413,744
 $8,667,327
 $3,976,308
 $(5,181,617) $8,875,762

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  November 1, 2014
(in thousands) Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated
ASSETS  
  
  
  
  
Current assets:  
  
  
  
  
Cash and cash equivalents $
 $66,120
 $15,457
 $
 $81,577
Merchandise inventories 
 1,090,010
 190,742
 
 1,280,752
Other current assets 
 133,596
 10,781
 
 144,377
Total current assets 
 1,289,726
 216,980
 
 1,506,706
Property and equipment, net 
 1,293,245
 115,899
 
 1,409,144
Intangible assets, net 
 672,338
 3,024,641
 
 3,696,979
Goodwill 
 1,669,364
 623,262
 
 2,292,626
Other assets 
 153,561
 1,770
 
 155,331
Investments in subsidiaries 1,429,689
 3,765,133
 
 (5,194,822) 
Total assets $1,429,689
 $8,843,367
 $3,982,552
 $(5,194,822) $9,060,786
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
Current liabilities:  
  
  
  
  
Accounts payable $
 $331,236
 $41,380
 $
 $372,616
Accrued liabilities 
 376,310
 98,989
 
 475,299
Current portion of long-term debt 
 29,426
 
 
 29,426
Total current liabilities 
 736,972
 140,369
 
 877,341
Long-term liabilities:  
  
  
  
  
Long-term debt 
 4,803,218
 
 
 4,803,218
Deferred income taxes 
 1,512,485
 25,597
 
 1,538,082
Other long-term liabilities 
 361,003
 51,453
 
 412,456
Total long-term liabilities 
 6,676,706
 77,050
 
 6,753,756
Total member equity 1,429,689
 1,429,689
 3,765,133
 (5,194,822) 1,429,689
Total liabilities and member equity $1,429,689
 $8,843,367
 $3,982,552
 $(5,194,822) $9,060,786

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  Thirteen weeks ended October 31, 2015
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $920,714
 $244,186
 $
 $1,164,900
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 586,857
 149,217
 
 736,074
Selling, general and administrative expenses (excluding depreciation) 
 237,025
 48,317
 
 285,342
Income from credit card program 
 (11,886) (1,401) 
 (13,287)
Depreciation expense 
 50,853
 5,037
 
 55,890
Amortization of intangible assets and favorable lease commitments 
 15,467
 13,498
 
 28,965
Other expenses 
 14,586
 2,512
 
 17,098
Operating earnings 
 27,812
 27,006
 
 54,818
Interest expense, net 
 67,677
 4,008
 
 71,685
Intercompany royalty charges (income) 
 34,823
 (34,823) 
 
Foreign currency loss (gain) 
 
 (195) 195
 
Equity in loss (earnings) of subsidiaries 10,538
 (58,200) 
 47,662
 
Earnings (loss) before income taxes (10,538) (16,488) 58,016
 (47,857) (16,867)
Income tax expense (benefit) 
 (6,090) (184) (55) (6,329)
Net earnings (loss) $(10,538) $(10,398) $58,200
 $(47,802) $(10,538)
Total other comprehensive earnings (loss), net of tax 328
 328
 
 (328) 328
Total comprehensive earnings (loss) $(10,210) $(10,070) $58,200
 $(48,130) $(10,210)

  Thirteen weeks ended November 1, 2014
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $970,415
 $216,077
 $
 $1,186,492
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 603,191
 125,203
 
 728,394
Selling, general and administrative expenses (excluding depreciation) 
 246,667
 39,650
 
 286,317
Income from credit card program 
 (12,740) (1,383) 
 (14,123)
Depreciation expense 
 39,398
 4,110
 
 43,508
Amortization of intangible assets and favorable lease commitments 
 35,786
 13,725
 
 49,511
Other expenses 
 19,800
 
 
 19,800
Operating earnings 
 38,313
 34,772
 
 73,085
Interest expense, net 
 72,610
 
 
 72,610
Intercompany royalty charges (income) 
 35,295
 (35,295) 
 
Equity in loss (earnings) of subsidiaries (196) (70,067) 
 70,263
 
Earnings (loss) before income taxes 196
 475
 70,067
 (70,263) 475
Income tax expense 
 279
 
 
 279
Net earnings (loss) $196
 $196
 $70,067
 $(70,263) $196
Total other comprehensive earnings (loss), net of tax (3,101) (3,101) 
 3,101
 (3,101)
Total comprehensive earnings (loss) $(2,905) $(2,905) $70,067
 $(67,162) $(2,905)






23

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  Thirteen weeks ended October 31, 2015
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS—OPERATING ACTIVITIES  
  
  
  
  
Net earnings (loss) $(10,538) $(10,398) $58,200
 $(47,802) $(10,538)
Adjustments to reconcile net earnings (loss) to net cash used for operating activities:  
  
  
  
  
Depreciation and amortization expense 
 72,463
 18,535
 
 90,998
Deferred income taxes 
 (16,904) (297) 
 (17,201)
Other 
 1,871
 2,282
 140
 4,293
Intercompany royalty income payable (receivable) 
 30,868
 (30,868) 
 
Equity in loss (earnings) of subsidiaries 10,538
 (58,200) 
 47,662
 
Changes in operating assets and liabilities, net 
 (128,536) (81,102) 
 (209,638)
Net cash used for operating activities 
 (108,836) (33,250) 
 (142,086)
CASH FLOWS—INVESTING ACTIVITIES  
  
  
  
  
Capital expenditures 
 (61,997) (12,953) 
 (74,950)
Net cash used for investing activities 
 (61,997) (12,953) 
 (74,950)
CASH FLOWS—FINANCING ACTIVITIES  
  
  
  
  
Borrowings under Asset-Based Revolving Credit Facility 
 250,000
 
 
 250,000
Repayment of borrowings 
 (47,356) 
 
 (47,356)
Intercompany notes payable (receivable) 
 (39,459) 39,459
 
 
Net cash provided by financing activities 
 163,185
 39,459
 
 202,644
CASH AND CASH EQUIVALENTS  
  
  
  
  
Decrease during the period 
 (7,648) (6,744) 
 (14,392)
Beginning balance 
 53,162
 19,812
 
 72,974
Ending balance $
 $45,514
 $13,068
 $
 $58,582


24

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August 2, 2014
 (Successor)
(in thousands) Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated
ASSETS  
  
  
  
  
Current assets:  
  
  
  
  
Cash and cash equivalents $
 $195,004
 $1,472
 $
 $196,476
Merchandise inventories 
 953,936
 115,696
 
 1,069,632
Other current assets 
 131,894
 11,772
 
 143,666
Total current assets 
 1,280,834
 128,940
 
 1,409,774
Property and equipment, net 
 1,275,264
 115,002
 
 1,390,266
Intangible assets, net 
 708,125
 2,944,859
 
 3,652,984
Goodwill 
 1,669,364
 479,263
 
 2,148,627
Other assets 
 158,637
 1,438
 
 160,075
Investments in subsidiaries 1,432,594
 3,560,258
 
 (4,992,852) 
Total assets $1,432,594
 $8,652,482
 $3,669,502
 $(4,992,852) $8,761,726
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
Current liabilities:  
  
  
  
  
Accounts payable $
 $343,783
 $31,302
 $
 $375,085
Accrued liabilities 
 375,640
 76,532
 
 452,172
Current portion of long-term debt 
 29,426
 
 
 29,426
Total current liabilities 
 748,849
 107,834
 
 856,683
Long-term liabilities:  
  
  
  
  
Long-term debt 
 4,580,521
 
 
 4,580,521
Deferred income taxes 
 1,540,076
 
 
 1,540,076
Other long-term liabilities 
 350,442
 1,410
 
 351,852
Total long-term liabilities 
 6,471,039
 1,410
 
 6,472,449
Total member equity 1,432,594
 1,432,594
 3,560,258
 (4,992,852) 1,432,594
Total liabilities and member equity $1,432,594
 $8,652,482
 $3,669,502
 $(4,992,852) $8,761,726

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May 3, 2014
 (Successor)
(in thousands) Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated
ASSETS  
  
  
  
  
Current assets:  
  
  
  
  
Cash and cash equivalents $
 $80,109
 $35,709
 $
 $115,818
Merchandise inventories 
 927,443
 126,007
 
 1,053,450
Other current assets 
 177,977
 10,733
 
 188,710
Total current assets 
 1,185,529
 172,449
 
 1,357,978
Property and equipment, net 
 1,248,659
 114,862
 
 1,363,521
Intangible assets, net 
 743,941
 2,958,585
 
 3,702,526
Goodwill 
 1,669,364
 479,263
 
 2,148,627
Other assets 
 166,112
 1,458
 
 167,570
Investments in subsidiaries 1,491,532
 3,624,515
 
 (5,116,047) 
Total assets $1,491,532
 $8,638,120
 $3,726,617
 $(5,116,047) $8,740,222
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
Current liabilities:  
  
  
  
  
Accounts payable $
 $238,957
 $22,971
 $
 $261,928
Accrued liabilities 
 360,941
 77,965
 
 438,906
Current portion of long-term debt 
 29,426
 
 
 29,426
Total current liabilities 
 629,324
 100,936
 
 730,260
Long-term liabilities:  
  
  
  
  
Long-term debt 
 4,632,824
 
 
 4,632,824
Deferred income taxes 
 1,566,554
 
 
 1,566,554
Other long-term liabilities 
 317,886
 1,166
 
 319,052
Total long-term liabilities 
 6,517,264
 1,166
 
 6,518,430
Total member equity 1,491,532
 1,491,532
 3,624,515
 (5,116,047) 1,491,532
Total liabilities and member equity $1,491,532
 $8,638,120
 $3,726,617
 $(5,116,047) $8,740,222

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Thirteen weeks ended May 2, 2015
 (Successor)
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $977,352
 $242,748
 $
 $1,220,100
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 605,313
 149,721
 
 755,034
Selling, general and administrative expenses (excluding depreciation) 
 237,511
 48,178
 
 285,689
Income from credit card program 
 (10,603) (1,296) 
 (11,899)
Depreciation expense 
 40,308
 7,762
 
 48,070
Amortization of intangible assets and favorable lease commitments 
 15,496
 14,179
 
 29,675
Other expenses 
 3,899
 1,672
 
 5,571
Operating earnings 
 85,428
 22,532
 
 107,960
Interest expense, net 
 72,407
 437
 
 72,844
Intercompany royalty charges (income) 
 35,624
 (35,624) 
 
Foreign currency loss (gain) 
 
 17,748
 (17,748) 
Equity in (earnings) loss of subsidiaries (19,820) (45,095) 
 64,915
 
Earnings (loss) before income taxes 19,820
 22,492
 39,971
 (47,167) 35,116
Income tax expense (benefit) 
 15,561
 (5,124) 4,859
 15,296
Net earnings (loss) $19,820
 $6,931
 $45,095
 $(52,026) $19,820
Total other comprehensive (loss) earnings, net of tax (14,839) 868
 (2,818) 1,950
 (14,839)
Total comprehensive earnings (loss) $4,981
 $7,799
 $42,277
 $(50,076) $4,981

  
Thirteen weeks ended May 3, 2014
 (Successor)
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $976,197
 $188,523
 $
 $1,164,720
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 636,890
 112,071
 
 748,961
Selling, general and administrative expenses (excluding depreciation) 
 236,426
 35,004
 
 271,430
Income from credit card program 
 (12,066) (1,156) 
 (13,222)
Depreciation expense 
 32,304
 4,335
 
 36,639
Amortization of intangible assets and favorable lease commitments 
 35,817
 13,725
 
 49,542
Other expenses 
 6,868
 1,550
 
 8,418
Operating earnings 
 39,958
 22,994
 
 62,952
Interest expense, net 
 82,222
 
 
 82,222
Intercompany royalty charges (income) 
 33,733
 (33,733) 
 
Equity in loss (earnings) of subsidiaries 8,004
 (56,727) 
 48,723
 
(Loss) earnings before income taxes (8,004) (19,270) 56,727
 (48,723) (19,270)
Income tax benefit 
 (11,266) 
 
 (11,266)
Net (loss) earnings $(8,004) $(8,004) $56,727
 $(48,723) $(8,004)
Total other comprehensive earnings (loss), net of tax 588
 588
 
 (588) 588
Total comprehensive (loss) earnings $(7,416) $(7,416) $56,727
 $(49,311) $(7,416)


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Thirty-nine weeks ended May 2, 2015
 (Successor)
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $3,203,081
 $725,335
 $
 $3,928,416
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 2,041,854
 460,699
 
 2,502,553
Selling, general and administrative expenses (excluding depreciation) 
 755,932
 138,734
 
 894,666
Income from credit card program 
 (36,633) (4,119) 
 (40,752)
Depreciation expense 
 120,028
 16,562
 
 136,590
Amortization of intangible assets and favorable lease commitments 
 66,678
 40,761
 
 107,439
Other expenses 
 24,323
 3,757
 
 28,080
Operating earnings 
 230,899
 68,941
 
 299,840
Interest expense, net 
 215,675
 2,244
 
 217,919
Intercompany royalty charges (income) 
 114,650
 (114,650) 
 
Foreign currency loss (gain) 
 
 23,940
 (23,940) 
Equity in (earnings) loss of subsidiaries (47,831) (165,244) 
 213,075
 
Earnings (loss) before income taxes 47,831
 65,818
 157,407
 (189,135) 81,921
Income tax expense (benefit) 
 35,373
 (7,837) 6,554
 34,090
Net earnings (loss) $47,831
 $30,445
 $165,244
 $(195,689) $47,831
Total other comprehensive (loss) earnings, net of tax (25,715) (4,031) (4,298) 8,329
 (25,715)
Total comprehensive earnings (loss) $22,116
 $26,414
 $160,946
 $(187,360) $22,116

  
Twenty-six weeks ended May 3, 2014
 (Successor)
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $2,187,471
 $410,042
 $
 $2,597,513
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 1,539,019
 262,866
 
 1,801,885
Selling, general and administrative expenses (excluding depreciation) 
 501,483
 74,512
 
 575,995
Income from credit card program 
 (25,958) (2,493) 
 (28,451)
Depreciation expense 
 64,510
 8,821
 
 73,331
Amortization of intangible assets and favorable lease commitments 
 71,634
 27,450
 
 99,084
Other expenses 
 70,395
 3,613
 
 74,008
Operating (loss) earnings 
 (33,612) 35,273
 
 1,661
Interest expense, net 
 160,081
 
 
 160,081
Intercompany royalty charges (income) 
 74,725
 (74,725) 
 
Equity in loss (earnings) of subsidiaries 92,027
 (109,998) 
 17,971
 
(Loss) earnings before income taxes (92,027) (158,420) 109,998
 (17,971) (158,420)
Income tax benefit 
 (66,393) 
 
 (66,393)
Net (loss) earnings $(92,027) $(92,027) $109,998
 $(17,971) $(92,027)
Total other comprehensive earnings (loss), net of tax 303
 303
 
 (303) 303
Total comprehensive (loss) earnings $(91,724) $(91,724) $109,998
 $(18,274) $(91,724)



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Thirteen weeks ended November 2, 2013
 (Predecessor)
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $926,436
 $202,702
 $
 $1,129,138
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 568,665
 116,743
 
 685,408
Selling, general and administrative expenses (excluding depreciation) 
 229,935
 36,453
 
 266,388
Income from credit card program 
 (13,271) (1,382) 
 (14,653)
Depreciation expense 
 31,057
 3,182
 
 34,239
Amortization of intangible assets and favorable lease commitments 
 8,773
 2,947
 
 11,720
Other expenses 
 112,377
 1,523
 
 113,900
Operating (loss) earnings 
 (11,100) 43,236
 
 32,136
Interest expense, net 
 37,315
 
 
 37,315
Intercompany royalty charges (income) 
 32,907
 (32,907) 
 
Equity in loss (earnings) of subsidiaries 13,098
 (76,143) 
 63,045
 
(Loss) earnings before income taxes (13,098) (5,179) 76,143
 (63,045) (5,179)
Income tax expense 
 7,919
 
 
 7,919
Net (loss) earnings $(13,098) $(13,098) $76,143
 $(63,045) $(13,098)
Total other comprehensive earnings (loss), net of tax 1,324
 1,324
 
 (1,324) 1,324
Total comprehensive (loss) earnings $(11,774) $(11,774) $76,143
 $(64,369) $(11,774)

  Thirteen weeks ended November 1, 2014
(in thousands) Company NMG Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS—OPERATING ACTIVITIES  
  
  
  
  
Net earnings (loss) $196
 $196
 $70,067
 $(70,263) $196
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities:  
  
  
  
  
Depreciation and amortization expense 
 81,315
 17,835
 
 99,150
Deferred income taxes 
 (25,596) 
 
 (25,596)
Other 
 3,518
 21
 
 3,539
Intercompany royalty income payable (receivable) 
 35,295
 (35,295) 
 
Equity in loss (earnings) of subsidiaries (196) (70,067) 
 70,263
 
Changes in operating assets and liabilities, net 
 (322,577) 146,064
 
 (176,513)
Net cash provided by (used for) operating activities 
 (297,916) 198,692
 
 (99,224)
CASH FLOWS—INVESTING ACTIVITIES  
  
  
  
  
Capital expenditures 
 (53,381) (2,980) 
 (56,361)
Acquisition of MyTheresa 
 
 (181,727) 
 (181,727)
Net cash used for investing activities 
 (53,381) (184,707) 
 (238,088)
CASH FLOWS—FINANCING ACTIVITIES  
  
  
  
  
Borrowings under Asset-Based Revolving Credit Facility 
 230,000
 
 
 230,000
Repayment of borrowings 
 (7,357) 
 
 (7,357)
Debt issuance costs paid 
 (230) 
 
 (230)
Net cash provided by financing activities 
 222,413
 
 
 222,413
CASH AND CASH EQUIVALENTS  
  
  
  
  
Increase (decrease) during the period 
 (128,884) 13,985
 
 (114,899)
Beginning balance 
 195,004
 1,472
 
 196,476
Ending balance $
 $66,120
 $15,457
 $
 $81,577




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Thirty-nine weeks ended May 2, 2015
 (Successor)
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS—OPERATING ACTIVITIES  
  
  
  
  
Net earnings (loss) $47,831
 $30,445
 $165,244
 $(195,689) $47,831
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:  
  
  
  
  
Depreciation and amortization expense 
 205,123
 57,323
 
 262,446
Deferred income taxes 
 (40,431) (8,776) 
 (49,207)
Non-cash charges related to acquisitions 
 
 10,159
 
 10,159
Other 
 2,381
 23,422
 (17,386) 8,417
Intercompany royalty income payable (receivable) 
 114,650
 (114,650) 
 
Equity in (earnings) loss of subsidiaries (47,831) (165,244) 
 213,075
 
Changes in operating assets and liabilities, net 
 (79,796) (77,037) 
 (156,833)
Net cash provided by operating activities 
 67,128
 55,685
 
 122,813
CASH FLOWS—INVESTING ACTIVITIES  
  
  
  
  
Capital expenditures 
 (169,307) (13,709) 
 (183,016)
Acquisition of MyTheresa 
 
 (181,727) 
 (181,727)
Net cash used for investing activities 
 (169,307) (195,436) 
 (364,743)
CASH FLOWS—FINANCING ACTIVITIES  
  
  
  
  
Borrowings under Asset-Based Revolving Credit Facility 
 480,000
 
 
 480,000
Repayment of borrowings 
 (352,070) 
 
 (352,070)
Intercompany notes (receivable) payable 
 (150,000) 150,000
 
 
Debt issuance costs paid 
 (265) 
 
 (265)
Net cash (used for) provided by financing activities 
 (22,335) 150,000
 
 127,665
CASH AND CASH EQUIVALENTS  
  
  
  
  
(Decrease) increase during the period 
 (124,514) 10,249
 
 (114,265)
Beginning balance 
 195,004
 1,472
 
 196,476
Ending balance $
 $70,490
 $11,721
 $
 $82,211


30

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  Acquisition and Twenty-six weeks ended May 3, 2014
(Successor)
(in thousands) Company NMG Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS—OPERATING ACTIVITIES  
  
  
  
  
Net (loss) earnings $(92,027) $(92,027) $109,998
 $(17,971) $(92,027)
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:  
  
  
  
  
Depreciation and amortization expense 
 147,134
 36,271
 
 183,405
Loss on debt extinguishment 
 7,882
 
 
 7,882
Deferred income taxes 
 (119,637) 
 
 (119,637)
Non-cash charges related to the Acquisition 
 145,062
 
 
 145,062
Other 
 834
 3,401
 
 4,235
Intercompany royalty income payable (receivable) 
 74,725
 (74,725) 
 
Equity in loss (earnings) of subsidiaries 92,027
 (109,998) 
 17,971
 
Changes in operating assets and liabilities, net 
 26,123
 (66,201) 
 (40,078)
Net cash provided by operating activities 
 80,098
 8,744
 
 88,842
CASH FLOWS—INVESTING ACTIVITIES  
  
  
  
  
Capital expenditures 
 (66,515) (9,114) 
 (75,629)
Acquisition of Neiman Marcus Group LTD LLC 
 (3,388,585) 
 
 (3,388,585)
Proceeds from sale of foreign e-commerce retailer 
 
 35,000
 
 35,000
Net cash (used for) provided by investing activities 
 (3,455,100) 25,886
 
 (3,429,214)
CASH FLOWS—FINANCING ACTIVITIES  
  
  
  
  
Borrowings under Asset-Based Revolving Credit Facility 
 170,000
 
 
 170,000
Borrowings under Senior Secured Term Loan Facility 
 2,950,000
 
 
 2,950,000
Borrowings under Cash Pay Notes 
 960,000
 
 
 960,000
Borrowings under PIK Toggle Notes 
 600,000
 
 
 600,000
Repayment of borrowings 
 (2,717,828) 
 
 (2,717,828)
Debt issuance costs paid 
 (178,606) 
 
 (178,606)
Cash equity contributions 
 1,556,500
 
 
 1,556,500
Net cash provided by financing activities 
 3,340,066
 
 
 3,340,066
CASH AND CASH EQUIVALENTS  
  
  
  
  
(Decrease) increase during the period 
 (34,936) 34,630
 
 (306)
Beginning balance 
 115,045
 1,079
 
 116,124
Ending balance $
 $80,109
 $35,709
 $
 $115,818


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Thirteen weeks ended November 2, 2013
 (Predecessor)
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS—OPERATING ACTIVITIES  
  
  
  
  
Net (loss) earnings $(13,098) $(13,098) $76,143
 $(63,045) $(13,098)
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:  
  
  
  
  
Depreciation and amortization expense 
 42,296
 6,129
 
 48,425
Deferred income taxes 
 (6,326) 
 
 (6,326)
Other 
 5,068
 1,457
 
 6,525
Intercompany royalty income payable (receivable) 
 32,907
 (32,907) 
 
Equity in loss (earnings) of subsidiaries 13,098
 (76,143) 
 63,045
 
Changes in operating assets and liabilities, net 
 21,469
 (44,684) 
 (23,215)
Net cash provided by operating activities 
 6,173
 6,138
 
 12,311
CASH FLOWS—INVESTING ACTIVITIES  
  
  
  
  
Capital expenditures 
 (30,051) (5,908) 
 (35,959)
Net cash used for investing activities 
 (30,051) (5,908) 
 (35,959)
CASH FLOWS—FINANCING ACTIVITIES  
  
  
  
  
Borrowings under Former Asset-Based Revolving Credit Facility 
 130,000
 
 
 130,000
Repayment of borrowings 
 (126,904) 
 
 (126,904)
Net cash provided by financing activities 
 3,096
 
 
 3,096
CASH AND CASH EQUIVALENTS  
  
  
  
  
(Decrease) increase during the period 
 (20,782) 230
 
 (20,552)
Beginning balance 
 135,827
 849
 
 136,676
Ending balance $
 $115,045
 $1,079
 $
 $116,124


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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 August 2, 2014.1, 2015.  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.

Forward-Looking Statements

This discussionQuarterly Report on Form 10-Q contains forward‑looking statements. In many cases, forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “plan,” “predict,” “expect,” “estimate,” “intend,” “would,” “will,” “could,” “should,” “anticipate,” “believe,” “project” or “continue” or the negative thereof or other similar expressions.
The forward-looking statements contained in this Quarterly Report on Form 10-Q reflect our views as of the date of this Quarterly Report on Form 10-Q and are based on our expectations and beliefs concerning future events, as well as currently available data as of the date of this Quarterly Report on Form 10-Q. While we believe there is a reasonable basis for our forward-looking statements, they involve a number of risks, uncertainties, assumptions and changes in circumstances that may cause our actual results, performance or achievements to differ significantly from those expressed or implied in any forward-looking statement. Therefore, these statements are not guarantees of future events, results, performance or achievements and you should not rely on them. A variety of factors could cause our actual results to differ materially from the anticipated or expected results expressed in our forward-looking statements. Please see “Other Matters — Factors That May Affect Future Results”that could cause our actual results to differ from our expectations include, but are not limited to:
economic conditions that negatively impact consumer spending and demand for a discussionour merchandise;
our failure to anticipate, identify and respond effectively to changing consumer demands, fashion trends and consumer shopping preferences, which could adversely affect our business, financial condition and results of operations;
the highly competitive nature of the luxury retail industry;
our failure to successfully execute our omni‑channel plans, which could adversely affect our business, financial condition and results of operations;
the success of our advertising and marketing programs;
the success of the expansion and growth of our retail stores, which are subject to numerous risks, some of which are beyond our control;
our inability to successfully maintain a relevant and reliable omni‑channel experience for our customers, which could adversely affect our financial performance and brand image;
costs associated with our expansion and growth strategies, which could adversely affect our business and performance;
a significant portion of our revenue is from our stores in four states, which exposes us to downturns or catastrophic occurrences in those states;
our dependency on our relationships with certain designers, vendors and other sources of merchandise;
a breach in information privacy, which could negatively impact our operations;
our dependency on positive perceptions of our company, which, if eroded, could adversely affect our customer and employee relationships;
the loss of, or disruption in, one or more of our distribution facilities, which could adversely affect our business and operations;
our failure to comply with, or developments in, laws, rules or regulations, which could affect our business or results of operations;

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our substantial indebtedness, which could adversely affect our business, financial condition and results of operations and our ability to fulfill our obligations with respect to such indebtedness;
the restrictions in our debt agreements that may limit our flexibility in operating our business; and
other risks, uncertainties and assumptions relating tofactors set forth in Part I - Item 1A "Risk Factors" in our forward-looking statements.Annual Report on Form 10-K for the fiscal year ended August 1, 2015 as filed with the Securities and Exchange Commission on September 22, 2015.
    
Business OverviewThe foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. Each of the forward-looking statements contained in this Quarterly Report on Form 10-Q speaks only as of the date of this Quarterly Report on Form 10-Q. 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.
 
We are a luxury retailer conducting operations principally under the Neiman Marcus, Bergdorf Goodman and MyTheresa brand names. Overview
 
The Company is a subsidiary of Neiman Marcus Group, Inc. (f/k/a NM Mariposa Holdings, Inc.), a Delaware corporation (Parent), which is owned by fundsentities affiliated with Ares Management, L.P. and Canada Pension Plan Investment Board (together, the Sponsors) and certain co-investors.  The Company’s operations are conducted through its wholly owned subsidiary, The Neiman Marcus Group LLC (NMG).  The Sponsors acquired the Company on October 25, 2013 (the Acquisition).  Prior to the Acquisition, we were owned by Newton Holding, LLC, which was controlled by investment funds affiliated with TPG Global, LLC (collectively with its affiliates, TPG) and Warburg Pincus LLC (together with TPG, the Former Sponsors).  The accompanying Condensed Consolidated Financial StatementsReferences made to "we," "our" and "us" are presented as “Predecessor” or “Successor”used to indicate whether they relaterefer to the period precedingCompany or collectively to the Acquisition orCompany and its subsidiaries, as appropriate to the period succeeding the Acquisition, respectively.  The Acquisition and the allocation of the purchase price have been recorded for accounting purposes as of November 2, 2013, the end of our first quarter of fiscal year 2014.context.

We believe thatconduct our customers have allocated a higher portion of their luxury spending to online retailing in recent years and that our customers increasingly expect a seamless shopping experience across our in-storespecialty retail store and online channels, and we expect these trends to continue for the foreseeable future. As a result, we have made investments and redesigned processes to integrate our shopping experience across channels so that it is consistent with our customers' shopping preferences and expectations. In particular, we have invested and continue to invest in technology and systems that further our omni-channel retailing capabilities, and in fiscal year 2014, we realigned the management and merchandising responsibilities for our Neiman Marcus brandoperations on an omni-channel basis. With the acceleration of omni-channel retailing andAs our past and ongoing investments in our omni-channel retail model, we believe the growth in our total comparable revenues and results of operations are the best measures of our ongoing performance. As a result, effective August 3, 2014, we began viewing and reporting our specialty retail storesstore and online operations ashave similar economic characteristics, products, services and customers, our operations constitute a single omni-channel reportingreportable segment.
 
Our fiscal year ends on the Saturday closest to July 31.  Like many other retailers, we follow a 4-5-4 reporting calendar, which means that each fiscal quarter consists of thirteen weeks divided into periods of four weeks, five weeks and four weeks.  All references to (1) the thirdfirst quarter of fiscal year 2016 relate to the thirteen weeks ended October 31, 2015 and (2) the first quarter of fiscal year 2015 relate to the thirteen weeks ended May 2, 2015, (2) the third quarter of fiscal year 2014 relate to the thirteen weeks ended May 3, 2014, (3) year-to-date fiscal 2015 relate to the thirty-nine weeks ended May 2, 2015 and (4) year-to-date fiscal 2014 relate to the thirty-nine weeks ended May 3, 2014 (consisting of the twenty-six weeks ended May 3, 2014 of the Successor and the thirteen weeks ended November 2, 2013 of the Predecessor). We have prepared our presentation and discussion of the results of operations for the thirty-nine weeks ended May 3, 2014 by adding the operations and cash flows for the Predecessor thirteen-week period ended November 2, 2013 and the Successor twenty-six week period ended May 3,1, 2014. Although this combined presentation does not comply with GAAP, we believe that it assists readers in understanding and assessing the trends and significant changes in our results of operations, provides a more meaningful method of comparison and does not impact the drivers of the financial changes between the relevant periods. The combined results of operations have not been prepared on a pro forma basis under applicable regulations and may not reflect the actual results we would have achieved absent the Acquisition and may not be predictive of future results of operations.

Certain amounts presented in tables are subject to rounding adjustments and, as a result, the totals in such tables may not sum.

Strategic Growth Initiatives

We are investing in strategies to grow our revenues and profits. In October 2014, we acquired MyTheresa to expand our international footprint. Additional strategies we are pursuing include:

investments in technology to enhance the customer shopping experiences in both our online and store operations;
investments in NMG One, a new merchandising system that will enable us to purchase, share, manage and sell our inventories across channels more efficiently. We expect to substantially complete the implementation of NMG One in calendar year 2016;
capital investments to remodel our existing stores as well as to open new stores in select markets such as New York City and Long Island, New York; and
re-engineering our costs to optimize our resources and organizational processes through a comprehensive review project we refer to as Organizing for Growth. In connection with Organizing for Growth, we eliminated approximately 500 positions across our stores, divisions and facilities in the Acquisition, the Company incurred substantial new indebtedness, in part in replacementfirst quarter of former indebtedness.  See “Liquidity and Capital Resources.”  In addition, the purchase price paid in connection with the Acquisition has been allocated to state the acquired assets and liabilities at fair value.  The purchase accounting adjustments increased the carryingfiscal year 2016.


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value of our property and equipment and inventory, revalued our intangible assets related to our tradenames, customer lists and favorable lease commitments and revalued our long-term benefit plan obligations, among other things.  As a result, our Successor financial statements subsequent to the Acquisition are not necessarily comparable to our Predecessor financial statements.

Summary of Results of Operations
 
A summary of our results of operations is as follows:

Revenues - Our revenues for the thirdfirst quarter of fiscal year 2016 were $1,164.9 million, a decrease of 1.8% compared to the first quarter of fiscal year 2015. Comparable revenues for the first quarter of fiscal year 2016 were $1,115.5 million compared to $1,181.1 million in the first quarter of fiscal year 2015, were $1,220.1 million, an increaserepresenting a decrease of 4.8% compared to5.6%. In the thirdfirst quarter of fiscal year 2014. Comparable revenues for the third quarter of fiscal year 2015 were $1,169.0 million compared to $1,143.9 million in the third quarter of fiscal year 2014, representing an increase of 2.2%. In the third quarter of fiscal year 2015,2016, revenues generated by our online operations aggregated $330.4 million, representing a comparable increasewere $315.3 million. Comparable revenues from our online operations in the first quarter of 13.3%fiscal year 2016, which exclude revenues from MyTheresa, increased 3.3% from the thirdfirst quarter of the prior year. Revenues from MyTheresa

We believe the lower levels of $44.8 million are includedrevenues in the revenues generated by our online operations for the thirdfirst quarter of fiscal year 2015 but are excluded from all calculations2016 were impacted by a number of comparable revenues.
factors, including:

Our revenues for year-to-date fiscal 2015 were $3,928.4 million, an increaseincreased uncertainty in global capital markets;
increased volatility in both U.S. and global capital markets; and
a strengthening of 5.4% compared to year-to-date fiscal 2014. Comparable revenues for year-to-date fiscal 2015 were $3,826.8 million compared to $3,662.6 millionthe U.S. dollar against international currencies, most notably the Euro, and a decrease in year-to-date fiscal 2014, representing an increase of 4.5%. Revenues generatedspending by our online operations aggregated $1,014.0 million in year-to-date fiscal 2015, representing a comparable increase of 14.6% from year-to-date fiscal 2014. Revenues from MyTheresa of $80.6 million are included in the revenues generated by our online operations for year-to-date fiscal 2015 but are excluded from all calculations of comparable revenues.international customers.

Cost of goods sold including buying and occupancy costs (excluding depreciation) (COGS) - Compared to the prior year, COGS as a percentage of revenues for the third quarter and year-to-date fiscal 2015, compared to the corresponding periods of fiscal year 2014, were:

  Thirteen weeks ended Thirty-nine weeks ended
  May 2,
2015
 May 3,
2014
 May 2,
2015
 May 3,
2014
  (Successor) (Successor) (Successor) (Combined)
COGS, as reported 61.9% 64.3% 63.7% 66.7%
COGS, before purchase accounting adjustments 61.6% 61.7% 63.5% 63.2%

As a result of purchase accounting adjustments to revalue acquired inventories and subsequent sale of a portion of the acquired inventories, COGS was increased by $3.5 million180 basis points in the thirdfirst quarter of fiscal year 2015 (related to the MyTheresa acquisition) and $30.6 million in the third quarter of fiscal year 2014 (related to the Acquisition).

Compared to the prior year, COGS before purchase accounting adjustments decreased by 0.1% of revenues in the third quarter of fiscal year 2015 and increased by 0.3% of revenues in year-to-date fiscal 2015. The decrease in COGS in the third quarter of fiscal year 2015 is primarily attributable to the leveraging of buying and occupancy costs on higher revenues.2016. The increase in COGS in year-to-datethe first quarter of fiscal 2015year 2016 is primarily attributable to (1) decreased product margins due primarily to higher deliverymarkdowns and processing netpromotional costs incurred on lower than expected revenues and (2) deleveraging of buying and occupancy costs.

At May 2,October 31, 2015, on-hand inventories totaled $1,173.3$1,350.4 million, an 11.4%a 5.4% increase from May 3,November 1, 2014.  At May 2, 2015, the carrying value of our on-hand inventories included inventories acquired in connection with the October 2014 acquisition of MyTheresa. Excluding the acquired MyTheresa inventories, on-hand inventories at May 2, 2015 increased by 8.1% from the prior year. Based on our current inventory position, we will continueWe are working aggressively to closely monitor and align our inventory levels and purchases with anticipated future customer demand.

Selling, general and administrative expenses (excluding depreciation) (SG&A) - SG&A increased by 0.1%as a percentage of revenues compared toincreased 40 basis points in the thirdfirst quarter of fiscal year 2014 and 0.2% of revenues2016 compared to year-to-datethe first quarter of fiscal 2014.year 2015. The higher levels of SG&A expenses, as a percentage of revenues, primarily reflect (1) higher expenses driven by the recent expansionselling costs, including online marketing, incurred on lower than expected revenues, net of our small format stores, the remodels of our full-line storesexpense savings realized in connection with Organizing for Growth and the acquisition ofother efficiency initiatives, and (2) a higher expense rate attributable to MyTheresa, partially offset by (2)(3) lower current incentive compensation costs.

Liquidity - Net cash provided byused for our operating activities was $122.8$142.1 million in year-to-datethe first quarter of fiscal 2015year 2016 compared to $101.2$99.2 million in year-to-datethe first quarter of fiscal 2014.year 2015.  We held cash balances of $82.2$58.6 million at May 2,October 31, 2015 compared to $115.8$81.6 million at May 3,

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November 1, 2014.  At May 2,October 31, 2015, we had $150.0$340.0 million of borrowings outstanding under the Asset-Based Revolving Credit Facility, no outstanding letters of credit and $660.0$470.0 million of unused borrowing availability.

MyTheresa acquisition - In October 2014, we acquired MyTheresa, a luxury retailer headquartered in Munich, Germany. The operations of MyTheresa are primarily conducted through the MyTheresa.com global luxury website. As of the time of the acquisition, the annual revenues of MyTheresa were approximately $130 million. The purchase price paid to acquire MyTheresa, net of cash acquired, was $181.7 million, which was financed through a combination of cash and debt. In addition, the MyTheresa purchase agreement contains contingent earn-out payments of up to €27.5 million per year for operating performance for each of calendar years 2015 and 2016.

Outlook -

Economic conditions in the luxury retail industry have been and will continue to be impacted by a number of factors, including the rate of economic growth, changes and the volatility in both the U.S. and global capital markets, changesa strengthening of the U.S. dollar against international currencies, most notably the Euro, fluctuations in the housing market, unemployment levels,crude oil and fuel prices, uncertainty regarding governmental spending and tax policies and overall consumer confidence. Such factors may adversely impact our future results of operations. As a result, we intend to operate our business in a way that balances these economic conditions and current business trends with our long-term initiatives and growth strategies.


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RESULTS OF OPERATIONSResults of Operations
 
Performance Summary
 
The following table sets forth certain items expressed as percentages of net revenues for the periods indicated.
  Quarter-to-date Year-to-date
  
Thirteen
weeks ended
 
Thirteen
weeks ended
 Thirty-nine
weeks ended
 Thirty-nine
weeks ended
 
Twenty-six
weeks ended
 
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
 May 2,
2015
 May 3,
2014
 May 3,
2014
 
November 2,
2013
  (Successor) (Successor) (Successor) (Combined) (Successor) (Predecessor)
             
Revenues 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold including buying and occupancy costs (excluding depreciation) 61.9
 64.3
 63.7
 66.7
 69.4
 60.7
Selling, general and administrative expenses (excluding depreciation) 23.4
 23.3
 22.8
 22.6
 22.2
 23.6
Income from credit card program (1.0) (1.1) (1.0) (1.2) (1.1) (1.3)
Depreciation expense 3.9
 3.1
 3.5
 2.9
 2.8
 3.0
Amortization of intangible assets 1.3
 3.1
 1.7
 2.1
 2.8
 0.6
Amortization of favorable lease commitments 1.1
 1.2
 1.0
 0.8
 1.0
 0.4
Other expenses 0.5
 0.7
 0.7
 5.0
 2.8
 10.1
Operating earnings 8.8
 5.4
 7.6
 0.9
 0.1
 2.8
Interest expense, net 6.0
 7.1
 5.5
 5.3
 6.2
 3.3
Earnings (loss) before income taxes 2.9
 (1.7) 2.1
 (4.4) (6.1) (0.5)
Income tax expense (benefit) 1.3
 (1.0) 0.9
 (1.6) (2.6) 0.7
Net earnings (loss) 1.6 % (0.7)% 1.2 % (2.8)% (3.5)% (1.2)%

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  Thirteen weeks ended
  October 31,
2015
 November 1,
2014
     
Revenues 100.0 % 100.0 %
Cost of goods sold including buying and occupancy costs (excluding depreciation) 63.2
 61.4
Selling, general and administrative expenses (excluding depreciation) 24.5
 24.1
Income from credit card program (1.1) (1.2)
Depreciation expense 4.8
 3.7
Amortization of intangible assets 1.3
 3.0
Amortization of favorable lease commitments 1.2
 1.1
Other expenses 1.5
 1.7
Operating earnings 4.7
 6.2
Interest expense, net 6.2
 6.1
Earnings (loss) before income taxes (1.4) 0.0
Income tax expense (benefit) (0.5) 0.0
Net earnings (loss) (0.9)% 0.0 %


Set forth in the following table is certain summary information with respect to our operations for the periods indicated.
  Quarter-to-date Year-to-date
  
Thirteen
weeks ended
 
Thirteen
weeks ended
 Thirty-nine
weeks ended
 Thirty-nine
weeks ended
 
Twenty-six
weeks ended
 
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
 May 2,
2015
 May 3,
2014
 May 3,
2014
 
November 2,
2013
(in millions, except sales per square foot and store count) (Successor) (Successor) (Successor) (Combined) (Successor) (Predecessor)
             
CHANGE IN COMPARABLE REVENUES (1)  
        
Total revenues 2.2% 5.9% 4.5% 5.7% 5.7% 5.7%
Online revenues 13.3% 12.4% 14.6% 13.3% 14.1% 11.2%
             
SALES PER SQUARE FOOT (2) $140
 $140
 $457
 $446
 $308
 $138
             
STORE COUNT  
  
  
  
    
Neiman Marcus and Bergdorf Goodman full-line stores open at end of period 43
 43
 43
 43
 43
 43
Last Call stores open at end of period 42
 36
 42
 36
 36
 36
             
NON-GAAP FINANCIAL MEASURES  
  
        
EBITDA (3) $185.7
 $149.1
 $543.9
 $252.2
 $174.1
 $78.1
Adjusted EBITDA (3) $202.6
 $194.4
 $602.7
 $587.1
 $390.0
 $197.2
  Thirteen weeks ended
(in millions, except sales per square foot and store count) October 31,
2015
 November 1,
2014
     
Change in Comparable Revenues (1)    
Total revenues (5.6)% 5.5%
Online revenues 3.3 % 14.6%
     
Store Count  
  
Neiman Marcus and Bergdorf Goodman full-line stores open at end of period 43
 43
Last Call stores open at end of period 43
 41
     
Sales per square foot (2) $133
 $144
Percentage of revenues transacted online 27.1 % 22.5%
     
Capital expenditures (3) $75.0
 $56.4
Depreciation expense 55.9
 43.5
Rent expense and related occupancy costs 28.5
 28.0
     
Non-GAAP Financial Measures  
  
EBITDA (4) $139.7
 $166.1
Adjusted EBITDA (4) $164.3
 $194.3
 
(1)Comparable revenues include (1)(i) revenues derived from our retail stores open for more than fifty-two weeks, including stores that have been relocated or expanded, and (2)(ii) revenues from our online operations.  Comparable revenues exclude revenues of (1)(i) closed stores, (2)(ii) designer websites created and operated pursuant to contractual arrangements with certain designer brands that had expired by the first quarter of fiscal year 2015 and (3)(iii) MyTheresa, which was acquired in October 2014. 
 
(2) Sales per square foot are calculated as net salesrevenues of our Neiman Marcus and Bergdorf Goodman full-line stores for the applicable period divided by weighted average square footage.  Weighted average square footage includes a percentage of period-end square footage for new and closed stores equal to the percentage of the period during which they were open. Our small format stores (Last Call

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(3)Amounts represent gross capital expenditures and CUSP) are not included in this calculation.exclude developer contributions of $10.6 million and $1.6 million, respectively, for the periods presented.
 
(3)(4) For an explanation of EBITDA and Adjusted EBITDA as measures of our operating performance and a reconciliation to net earnings (loss), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.”

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Key Factors Affecting Our Results
 
Revenues.  We generate our revenues from the sale of luxury merchandise.  Components of our revenues include:

Sales of merchandise—Revenues are recognized at the later of the point-of-sale or the delivery of goods to the customer.  Revenues are reduced when our customers return goods previously purchased.  We maintain reserves for anticipated sales returns primarily based on our historical trends.  Revenues exclude sales taxes collected from our customers.
Delivery and processing—We generate revenues from delivery and processing charges related to certain merchandise deliveries to our customers.
 
Our revenues can be affected by the following factors:

general economic conditions;and industry conditions, including inflation, deflation, changes related to the value of the U.S. dollar relative to foreign currencies, interest rates and rates of economic growth, current and expected unemployment levels and government fiscal and monetary policies;
the performance of the financial, equity and credit markets;
consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt and consumer behaviors towards incurring and paying debt;
changes in prices for commodities and energy, including fuel;
current and expected tax rates and policies;
changes in the level of consumer spending generally and, specifically, on luxury goods;
our ability to anticipate, identify and respond effectively to changing consumer demands, fashion trends and consumer shopping preferences and acquire goods meeting customers’ tastes and preferences;
changes in the level of full-price sales;
changes in the level and timing of promotional events conducted;
changes in the level of delivery and processing revenues collected from our customers;
our ability to successfully implement our expansion and growth strategies; and
changes in the composition and the rate of growth of our sales transacted in store and online.
 
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 Financial Statements 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.  Our net earningsEarnings are negatively impacted when merchandise is marked down.  With the introduction of new fashions in the first and third fiscal quarters of each fiscal year and our emphasis on full-price selling in these quarters, a lower level of markdowns and higher margins are characteristic of these quarters.

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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 $55.0$5.8 million, or 1.4%0.5% of revenues, in year-to-datethe first quarter of fiscal 2015year 2016 and $52.0$6.0 million, or 1.4%0.5% of revenues, in year-to-datethe first quarter of fiscal 2014.year 2015.  The amounts of vendor allowances we receive fluctuate based on the level of markdowns taken and did not have a significant impact on the year-over-year change in gross margin during year-to-datethe first quarter of fiscal 2015year 2016 and 2014.

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

our ability to order an appropriate amount of merchandise to match customer demand and the related impact on the level of net markdowns and promotions costs incurred;
customer acceptance of and demand for the merchandise we offer in a given season and the related impact of such factors on the level of full-price sales;
factors affecting revenues generally, including pricing and promotional strategies, product offerings and actions taken by competitors;
changes in delivery and processing costs and our ability to pass such costs on to our customers;
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 reporting period.
 
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 SG&A expenses is variable in nature and is dependent on the revenues we generate.
 
Advertising costs consist primarily of (i) online marketing costs, (ii) advertising costs incurred related to the production of the photographic content for our websites and (iii) costs incurred related to the production, printing and distribution of our print catalogs and other promotional materials mailed to our customers.  We receive advertising allowances from certain of our merchandise vendors.  Substantially all the advertising allowances we receive represent reimbursements of direct, specific and incremental costs that we incur to promote the vendor’s merchandise in connection with our various advertising programs, primarily catalogs and other print media.  Advertising allowances fluctuate based on the level of advertising expenses incurred and are recorded as a reduction of our advertising costs when earned.  Advertising allowances aggregatedwere approximately $47.9$21.3 million, or 1.2%1.8% of revenues, in year-to-datethe first quarter of fiscal 2015year 2016 and $47.4$20.8 million, or 1.3%1.8% of revenues, in year-to-datethe first quarter of fiscal 2014.year 2015.
 
We also receive allowances from certain merchandise vendors in connection with compensation programs for employees who sell the vendor’s merchandise.  These allowances are netted against the related compensation expenses that we incur.  Amounts received from vendors related to compensation programs were $59.3$18.1 million, or 1.5%1.6% of revenues, in year-to-datethe first quarter of fiscal 2015year 2016 and $56.4$19.8 million, or 1.5%1.7% of revenues, in year-to-datethe first quarter of fiscal 2014.year 2015.
 
Changes in our SG&A expenses are affected primarily by the following factors:

changes in the level of our revenues;

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changes in the number of sales associates, which are due primarily due to new store openings and expansion of existing stores, and the health care and related benefits expenses incurred as a result of such changes;
changes in expenses incurred in connection with our advertising and marketing programs; and
changes in expenses related to employee benefits due to general economic conditions such as rising health care costs.
 
Income from credit card program.  We maintain a proprietary credit card program through which credit is extended to customers and have a related marketing and servicing alliance with affiliates of Capital One.  Pursuant to the Program Agreement, Capital One currently offers credit cards and non-card payment plans under both the "Neiman Marcus" and "Bergdorf Goodman" brand names.

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

increase or decrease based upon the level of utilization of our proprietary credit cards by our customers;
increase or decrease based upon the overall profitability and performance of the credit card portfolio due to the level of bad debts incurred or changes in interest rates, among other factors;
increase or decrease based upon future changes to our historical credit card program in response to changes in regulatory requirements or other changes related to, among other things, the interest rates applied to unpaid balances and the assessment of late fees; and
decrease based upon the level of future marketing and other services we provide to Capital One.

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Effective income tax rate. Our effective income tax rate may fluctuate from period to period due to a variety of factors, including changes in our assessment of certain tax contingencies, valuation allowances, changes in federal, state and stateforeign tax laws, outcomes of administrative audits, the impact of accounting for stock-based compensation, changes in our corporate structure, the impact of other discrete or non-recurring items and the mix of earnings among our U.S. and international operations, where the statutory rates are generally lower than in the United States. As a result, our effective income tax rate may vary significantly from the federal statutory tax rate.

While our future effective income tax rate will depend on the factors described above, we currently anticipate that our effective income tax rate in future periods will be closer to our historical effective income tax rates at approximately 39.2%.

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.  Marketing activities designed to stimulate customer purchases, a lower level of markdowns and higher margins are characteristic for this quarter.  TheOur 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-downmarked down basis.  As a result, margins are typically lower in theour second fiscal quarter.  However, due to the seasonal increase in revenues that occurs during the holiday season, theour 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.  Marketing activities designed to stimulate customer purchases, a lower level of markdowns and higher margins are again characteristic for this quarter.  Revenues are generally the lowest in theour fourth fiscal quarter with a focus on promotional activities offering Spring season goods to customers on a marked-downmarked down basis, resulting in lower margins during the quarter.  Our working capital requirements are typically lower in theour 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, our success depends in large part on our ability to anticipate and identify fashion trends and consumer shopping preferences and to identify and react effectively to rapidly changing consumer demands in a timely manner.

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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 opportunities in the event of higher than anticipated demand for the merchandise we offer or a higher than anticipated level of consumer spending.  Conversely, in the event we buy merchandise that is not accepted by our customers or the level of consumer spending is less than we anticipated, we could incur a higher than anticipated level of markdowns, net of vendor allowances, resulting in lower operating profits.  Any failure on our part to anticipate, identify and respond effectively to these changes could adversely affect our business, financial condition and results of operations.
 

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Results of Operations for the Thirteen Weeks Ended May 2,October 31, 2015 Compared to the Thirteen Weeks Ended May 3,November 1, 2014
 
Revenues.  Our revenues for the thirdfirst quarter of fiscal year 2016 of $1,164.9 million decreased by $21.6 million, or 1.8%, from $1,186.5 million in the first quarter of fiscal year 2015. Comparable revenues for the first quarter of fiscal year 2016 were $1,115.5 million compared to $1,181.1 million in the first quarter of fiscal year 2015, representing a decrease of $1,220.1 million increased by $55.4 million, or 4.8%, from $1,164.7 million in the third quarter of fiscal year 2014. Comparable revenues for the third quarter of fiscal year 2015 were $1,169.0 million compared to $1,143.9 million in the third quarter of fiscal year 2014, representing an increase of 2.2%5.6%.  New stores generated revenues of $6.3 million and MyTheresa generated revenues of $44.8 million in the third quarter of fiscal year 2015.  In addition, revenues generated by our online operations aggregated $330.4 million, representing a comparable increasewere $315.3 million. Comparable revenues from our online operations in the first quarter of 13.3%fiscal year 2016, which exclude revenues from MyTheresa, increased 3.3% from the thirdfirst quarter of the prior year. Revenues from MyTheresa are includedChanges in comparable revenues for our last five fiscal quarters were:
Fiscal year 2016
First quarter(5.6)%
Fiscal year 2015
Fourth quarter1.9
Third quarter2.2
Second quarter5.6
First quarter5.5

In the first quarter of fiscal year 2016 and the third and fourth quarters of fiscal year 2015, we generated by our online operations but are excluded from all calculationslower levels of comparable revenues.revenue increases than in our first and second quarters of fiscal year 2015. We believe the lower levels of comparable revenues were impacted by a number of factors including increased uncertainty in global capital markets, increased volatility in both U.S. and global capital markets and a strengthening of the U.S. dollar against international currencies, most notably the Euro, and a decrease in spending by international customers. We believe that these factors began having a more significant impact beginning in our third quarter of fiscal year 2015 and, as a result, growth in our comparable revenues versus prior year periods began decreasing at such time, a trend which has continued into our first fiscal quarter of 2016.

Cost of goods sold including buying and occupancy costs (excluding depreciation). COGS forincreased to 63.2% of revenues in the thirdfirst quarter of fiscal year 2015 compared to2016 from 61.4% of revenues in the thirdfirst quarter of fiscal year 2014 were:2015. Compared to the prior year, COGS as a percentage of revenues increased by 180 basis points due primarily to:

decreased product margins of approximately 150 basis points due primarily to higher markdowns and promotional costs incurred on lower than expected revenues; and
  Thirteen weeks ended
  
May 2, 2015
(Successor)
 
May 3, 2014
(Successor)
(in millions, except percentages) $ % of revenues $ % of revenues
         
COGS, as reported $755.0
 61.9 % $749.0
 64.3 %
Less: amortization of inventory step-up (3.5) (0.3) (30.6) (2.6)
COGS, before purchase accounting adjustments $751.5
 61.6 % $718.4
 61.7 %

As a result of purchase accounting adjustments to revalue acquired inventories and subsequent sale of a portion of the acquired inventories, COGS was increased by $3.5 million, or 0.3% of revenues, in the third quarter of fiscal year 2015 (related to the MyTheresa acquisition) and $30.6 million, or 2.6% of revenues, in the third quarter of fiscal year 2014 (related to the Acquisition).
COGS before purchase accounting adjustments decreased to 61.6% of revenues in the third quarter of fiscal year 2015 from 61.7% of revenues in the third quarter of fiscal year 2014. The decrease in COGS before purchase accounting adjustments of 0.1% of revenues was primarily due to the leveragingdeleveraging of buying and occupancy costs on higher revenues.of approximately 30 basis points.

Selling, general and administrative expenses (excluding depreciation).  SG&A expenses as a percentage of revenues increased to 23.4%24.5% of revenues in the thirdfirst quarter of fiscal year 20152016 compared to 23.3%24.1% of revenues in the thirdfirst quarter of fiscal year 2014.  The net increase in2015.  SG&A expenses by 0.1%as a percentage of revenues increased by 40 basis points in the thirdfirst quarter of fiscal year 2015 was2016 due primarily due to:

higher selling costs, including online marketing, of approximately 60 basis points incurred on lower than expected revenues, net of expense savings realized in connection with Organizing for Growth and other efficiency initiatives; and
expenses of approximately 0.4% of revenues driven by the recent expansion of our small format stores, the remodels of our full-line stores and the acquisition of20 basis points attributable to a higher expense rate at MyTheresa; partially offset by
lower current incentive compensation costs of approximately 0.4% of revenues.30 basis points.

Income from credit card program. Income from our credit card program was $11.9 million, or 1.0% of revenues, in the third quarter of fiscal year 2015 compared to $13.2$13.3 million, or 1.1% of revenues, in the thirdfirst quarter of fiscal year 2014,2016 compared to $14.1 million, or 1.2% of revenues, in the first quarter of fiscal year 2015, reflecting the decrease in income generated by our credit card portfolio.

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Depreciation and amortization expenses. Depreciation expense was $48.1$55.9 million, or 3.9%4.8% of revenues, in the thirdfirst quarter of fiscal year 20152016 compared to $36.6$43.5 million, or 3.1%3.7% of revenues, in the thirdfirst quarter of fiscal year 2014. The increase in depreciation2015. Depreciation expense by 0.8%as a percentage of revenues increased by 110 basis points in the thirdfirst quarter of fiscal year 2015 was2016 due primarily due to a higher levelslevel of capital spending.spending since the Acquisition as well as higher asset values attributable to fair value adjustments to our assets recorded in connection with the purchase price allocation to reflect the Acquisition. Amortization of intangible assets (primarily customer lists and favorable lease commitments) aggregated $29.7was $29.0 million, or 2.4%2.5% of revenues, in the thirdfirst quarter of fiscal year 20152016 compared to $49.5 million, or 4.3%4.2% of revenues, in the thirdfirst quarter of fiscal year 2014. The decrease in amortization2015. Amortization expense by 1.9%as a percentage of revenues decreased by 170 basis points in the thirdfirst quarter of fiscal year 2015 was2016 due to lower amortization charges with respect to our customer lists in the thirdfirst quarter of fiscal year 2015.2016. Our customer lists are amortized using accelerated methods which reflect the pattern in which we receive the economic benefit of the asset.
 
Other expenses. Other expenses for the thirdfirst quarter of fiscal year 2015 aggregated $5.62016 were $17.1 million, or 0.5%1.5% of revenues, compared to $8.4$19.8 million, or 0.7%1.7% of revenues, in the thirdfirst quarter of fiscal year 2014.2015. Other expenses consisted of the following components:
  Thirteen weeks ended
(in millions) October 31,
2015
 November 1,
2014
     
Expenses incurred in connection with strategic growth initiatives $14.4
 $2.2
MyTheresa acquisition costs 2.5
 11.0
Expenses related to cyber-attack, net of insurance recovery 0.2
 4.3
Other expenses 
 2.3
Total $17.1
 $19.8

We incurred costs in connection with our Organizing for Growth and NMG One strategic growth initiatives aggregating $14.4 million in the thirdfirst quarter of fiscal year 2015 include (i) costs associated with our ongoing investments in our omni-channel initiative, (ii) costs incurred in2016. In connection with theOrganizing for Growth, we eliminated approximately 500 positions across our stores, divisions and facilities on October 1, 2015 and incurred $10.2 million of severance costs.

In October 2014, we acquired MyTheresa, acquisition and (iii) investigative, legal and other expenses, net of insurance recovery, related to the cyber-attack on our systemsa luxury retailer headquartered in Munich, Germany.

We discovered in January 2014 (the Cyber-Attack). Other expenses inthat malicious software (malware) was clandestinely installed on our computer systems. In the thirdfirst quarter of fiscal year 2014

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include (i) investigative, legal2016 and other expenses incurred in connection with the Cyber-Attack, (ii) costs associated with ongoing investments in our omni-channel initiative and (iii) other non-recurring expenses.

Operating earningsIn the thirdfirst quarter of fiscal year 2015, we generated operating earnings of $108.0 million, or 8.8% of revenues, comparedincurred investigative, legal and other expenses in connection with a cyber-attack. We expect to $63.0 million, or 5.4% of revenues, in the third quarter of fiscal year 2014. Costs and expensesincur ongoing costs related to the acquisitions aggregated $5.5 million, or 0.5%cyber-attack for the foreseeable future. Such expenses are not currently estimable but could be material to our future results of revenues, in the third quarter of fiscal year 2015 and $30.6 million, or 2.6% of revenues, in the third quarter of fiscal year 2014.operations.

Interest expense.  Net interest expense was $72.8$71.7 million, or 6.0%6.2% of revenues, in the thirdfirst quarter of fiscal year 20152016 and $82.2$72.6 million, or 7.1%6.1% of revenues, for the third quarter of fiscal year 2014. Excluding the $7.9 million loss on debt extinguishment, net interest expense decreased by $1.5 million in the thirdfirst quarter of fiscal year 2015. The significant components of interest expense are as follows:
 Thirteen weeks ended
 May 2,
2015
 May 3,
2014
 Thirteen weeks ended
(in millions) (Successor) (Successor) October 31,
2015
 November 1,
2014
        
Asset-Based Revolving Credit Facility $0.4
 $
 $0.9
 $0.2
Senior Secured Term Loan Facility 31.3
 34.0
 31.2
 31.6
Cash Pay Notes 19.2
 19.0
 19.2
 19.2
PIK Toggle Notes 13.1
 13.0
 13.1
 13.1
2028 Debentures 2.2
 2.2
 2.2
 2.2
Amortization of debt issue costs 6.1
 5.8
 6.1
 6.1
Other, net 0.9
 0.6
 (1.1) 0.1
Capitalized interest (0.5) (0.3)
 $72.8
 $74.3
Loss on debt extinguishment 
 7.9
Interest expense, net $72.8
 $82.2
 $71.7
 $72.6
  

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Income tax expense (benefit).  Our effective income tax rate was 43.6% on the earnings37.5% for the thirdfirst quarter of fiscal year 20152016 and 58.5% on the loss58.7% for the thirdfirst quarter of fiscal year 2014.2015. Our effective income tax rates exceeded the federal statutory tax rate of 35.0% due primarily due to:

state income taxes; and
with respect to the thirdfirst quarter of fiscal year 2015, the non-deductible portion of transaction and other costs incurred in connection with our acquisition of MyTheresa; and
with respect to the third quarter of fiscal year 2014, the lack of a U.S. tax benefit related to the losses from our prior investment in a foreign e-commerce retailer.
MyTheresa acquisition.
We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions.  The Internal Revenue Service (IRS) is currently auditing our fiscal year 2012 and short-year 2013 federal income tax returns.  With respect to state, local and foreign jurisdictions, with limited exceptions, we are no longer subject to income tax audits for fiscal years before 2011.  We believe our recorded tax liabilities as of May 2,October 31, 2015 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.


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Results of Operations for the Thirty-nine WeeksEnded May 2, 2015 Compared to the Thirty-nine Weeks Ended May 3, 2014
Revenues.  Our revenues for year-to-date fiscal 2015 of $3,928.4 million increased by $201.7 million, or 5.4%, from $3,726.7 million in year-to-date fiscal 2014.  Comparable revenues for year-to-date fiscal 2015 were $3,826.8 million compared to $3,662.6 million in year-to-date fiscal 2014, representing an increase of 4.5%. New stores generated revenues of $20.0 million and MyTheresa generated revenues of $80.6 million in year-to-date fiscal 2015. In addition, revenues generated by our online operations aggregated $1,014.0 million, representing a comparable increase of 14.6% from the prior year fiscal period. Revenues from MyTheresa are included in revenues generated by our online operations but are excluded from all calculations of comparable revenues.

Cost of goods sold including buying and occupancy costs (excluding depreciation). COGS for year-to-date fiscal 2015 compared to year-to-date fiscal 2014 were:

  Thirty-nine weeks ended
  
May 2, 2015
(Successor)
 
May 3, 2014
(Combined)
(in millions, except percentages) $ % of revenues $ % of revenues
         
COGS, as reported $2,502.6
 63.7 % $2,487.3
 66.7 %
Less: amortization of inventory step-up (6.8) (0.2) (129.6) (3.5)
COGS, before purchase accounting adjustments $2,495.8
 63.5 % $2,357.7
 63.2 %

As a result of purchase accounting adjustments to revalue acquired inventories and subsequent sale of a portion of the acquired inventories, COGS was increased by $6.8 million, or 0.2% of revenues, in year-to-date fiscal 2015 (related to the MyTheresa acquisition) and $129.6 million, or 3.5% of revenues, in year-to-date fiscal 2014 (related to the Acquisition).
COGS before purchase accounting adjustments increased to 63.5% of revenues in year-to-date fiscal 2015 from 63.2% of revenues in year-to-date fiscal 2014. The increase in COGS before purchase accounting adjustments of 0.3% of revenues was primarily due to higher delivery and processing net costs due to the free shipping/free returns policy we implemented on October 1, 2013 for our Neiman Marcus and Bergdorf Goodman brands.

Selling, general and administrative expenses (excluding depreciation).  SG&A expenses as a percentage of revenues increased to 22.8% of revenues in year-to-date fiscal 2015 compared to 22.6% of revenues in year-to-date fiscal 2014.  The net increase in SG&A expenses by 0.2% of revenues in year-to-date fiscal 2015 was primarily due to:

higher expenses of approximately 0.4% of revenues driven by the recent expansion of our small format stores, the remodels of our full-line stores and the acquisition of MyTheresa; partially offset by
lower current incentive compensation requirements of approximately 0.2% of revenues. 
Income from credit card program. Income from our credit card program was $40.8 million, or 1.0% of revenues, in year-to-date fiscal 2015 compared to $43.1 million, or 1.2% of revenues, in year-to-date fiscal 2014, reflecting the decrease in income generated by our credit card portfolio.
Depreciation and amortization expenses. Depreciation expense was $136.6 million, or 3.5% of revenues, in year-to-date fiscal 2015 compared to $107.6 million, or 2.9% of revenues, in year-to-date fiscal 2014. The increase in depreciation expense by 0.6% of revenues in year-to-date fiscal 2015 was primarily due to (i) higher asset values attributable to fair value adjustments to our assets recorded in connection with the purchase price allocation to reflect the Acquisition and (ii) higher capital spending. Amortization of intangible assets (primarily customer lists and favorable lease commitments) aggregated $107.4 million, or 2.7% of revenues, in year-to-date fiscal 2015 compared to $110.8 million, or 3.0% of revenues, in year-to-date fiscal 2014. The decrease in amortization expense by 0.3% of revenues in year-to-date fiscal 2015 was due to lower amortization charges with respect to our customer lists in year-to-date fiscal 2015.
Other expenses. Other expenses for year-to-date fiscal 2015 aggregated $28.1 million, or 0.7% of revenues, compared to $187.9 million, or 5.0% of revenues, in year-to-date fiscal 2014.  Other expenses in year-to-date fiscal 2015 include (i) costs incurred in connection with the MyTheresa acquisition, (ii) costs associated with our ongoing investments in our omni-channel initiative, (iii) investigative, legal and other expenses, net of insurance recovery, incurred in connection with the Cyber-Attack discovered in January 2014 and (iv) other non-recurring expenses. Other expenses in year-to-date fiscal 2014 include (i) transaction costs related

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to the Acquisition, (ii) investigative, legal and other expenses, net of insurance recovery, incurred in connection with the Cyber-Attack, (iii) costs associated with ongoing investments in our omni-channel initiative and (iv) other non-recurring expenses.

Operating earningsIn year-to-date fiscal 2015, we generated operating earnings of $299.8 million, or 7.6% of revenues, compared to $33.8 million, or 0.9% of revenues, in year-to-date fiscal 2014. Costs and expenses related to the acquisitions aggregated $22.0 million, or 0.6% of revenues, in year-to-date fiscal 2015 and $292.3 million, or 7.8% of revenues, in year-to-date fiscal 2014.
Interest expense.  Net interest expense was $217.9 million, or 5.5% of revenues, in year-to-date fiscal 2015 and $197.4 million, or 5.3% of revenues, for year-to-date fiscal 2014. Excluding the $7.9 million loss on debt extinguishment, net interest expense increased by $28.4 million primarily due to the higher level of indebtedness incurred in connection with the Acquisition.  The significant components of interest expense are as follows:
 Thirty-nine weeks ended
 May 2,
2015
 May 3,
2014
(in millions)(Successor) (Combined)
    
Asset-Based Revolving Credit Facility$1.1
 $0.4
Senior Secured Term Loan Facility94.3
 75.0
Cash Pay Notes57.6
 41.2
PIK Toggle Notes39.4
 28.1
2028 Debentures6.7
 6.7
Former Asset-Based Revolving Credit Facility
 0.5
Former Senior Secured Term Loan Facility
 22.5
Amortization of debt issue costs18.4
 13.5
Other, net2.1
 2.4
Capitalized interest(1.7) (0.7)
 $217.9
 $189.5
Loss on debt extinguishment
 7.9
Interest expense, net$217.9
 $197.4
Income tax expense (benefit).  Our effective income tax rate was 41.6% on the earnings for year-to-date fiscal 2015, 41.9% on the loss for the twenty-six weeks ended May 3, 2014 and 152.9% on the loss for the first quarter of fiscal year 2014. Our effective income tax rate for year-to-date fiscal 2015 exceeded the federal statutory tax rate primarily due to:
non-deductible portion of transaction and other costs incurred in connection with our acquisition of MyTheresa; and
state income taxes.
Our effective income tax rates for year-to-date fiscal 2014 exceeded the federal statutory tax rates primarily due to:
non-deductible portion of transaction costs incurred in connection with the Acquisition;
state income taxes; and
the lack of a U.S. tax benefit related to the losses from our prior investment in a foreign e-commerce retailer.

Non-GAAP Financial Measures
 
To supplement our financial information presented in accordance with U.S. generally accepted accounting principles (GAAP), we use EBITDA and Adjusted EBITDA to monitor and evaluate the performance of our business and believe the presentation of these measures enhances investors’ ability to analyze trends in our business and evaluate our performance relative to other companies in our industry. We define (i) EBITDA as earnings before interest, taxes, depreciation and amortization and (ii) Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, further adjusted to eliminate the effects of items management does not believe are representative of our ongoing performance. These financial metrics are not presentations made in accordance with GAAP.
 
EBITDA and Adjusted EBITDA should not be considered as alternatives to operating earnings or net earnings (loss) as measures of operating performance. In addition, EBITDA and Adjusted EBITDA are not presented as and should not be considered as alternatives to cash flows as measures of liquidity. EBITDA and Adjusted EBITDA have important limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

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These limitations include the fact that:

EBITDA and Adjusted EBITDA:

exclude certain tax payments that may represent a reduction in cash available to us;
in the case of Adjusted EBITDA, exclude certain adjustments for purchase accounting;
do not reflect changes in, or cash requirements for, our working capital needs, capital expenditures or contractual commitments;
do not reflect our significant interest expense; and
do not reflect the cash requirements necessary to service interest or principal payments on our debt.

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and

other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as comparative measures.
 

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In calculating these financial measures, we make certain adjustments that are based on assumptions and estimates that may prove inaccurate. In addition, in the future we may incur expenses similar to those eliminated in this presentation. The following table reconciles net earnings (loss) as reflected in our Condensed Consolidated Statements of Operations prepared in accordance with GAAP to EBITDA and Adjusted EBITDA:
  Quarter-to-date Year-to-date
  
Thirteen
weeks ended
 
Thirteen
weeks ended
 
Thirty-nine
weeks ended
 Thirty-nine
weeks ended
 
Twenty-six
weeks ended
 
Thirteen
weeks ended
  May 2,
2015
 May 3,
2014
 May 2,
2015
 May 3,
2014
 May 3,
2014
 November 2,
2013
(dollars in millions) (Successor) (Successor) (Successor) (Combined) (Successor) (Predecessor)
             
Net earnings (loss) $19.8
 $(8.0) $47.8
 $(105.1) $(92.0) $(13.1)
Income tax expense (benefit) 15.3
 (11.3) 34.1
 (58.5) (66.4) 7.9
Interest expense, net 72.8
 82.2
 217.9
 197.4
 160.1
 37.3
Depreciation expense 48.1
 36.6
 136.6
 107.6
 73.3
 34.2
Amortization of intangible assets and favorable lease commitments 29.7
 49.5
 107.4
 110.8
 99.1
 11.7
EBITDA $185.7
 $149.1
 $543.9
 $252.2
 $174.1
 $78.1
EBITDA as a percentage of revenues 15.2% 12.8% 13.8% 6.8% 6.7% 6.9%
Amortization of inventory step-up and other impacts of acquisitions 6.2
 33.5
 15.0
 136.2
 135.3
 0.8
Transaction and other costs 2.0
 
 15.1
 162.6
 53.2
 109.4
Non-cash stock-based compensation 2.1
 2.4
 6.4
 7.3
 4.8
 2.5
Equity in loss of foreign e-commerce retailer 
 1.6
 
 5.1
 3.6
 1.5
Expenses related to cyber-attack 1.3
 4.5
 4.1
 8.6
 8.6
 
Management fee due to Former Sponsors 
 
 
 2.8
 
 2.8
Expenses incurred in connection with openings of new stores/remodels of existing stores 3.0
 1.0
 9.3
 3.6
 1.8
 1.8
Other non-recurring expenses 2.2
 2.4
 8.8
 8.7
 8.6
 0.2
Adjusted EBITDA $202.6
 $194.4
 $602.7
 $587.1
 $390.0
 $197.2
Adjusted EBITDA as a percentage of revenues 16.6% 16.7% 15.3% 15.8% 15.0% 17.5%


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Adjusted EBITDA as a percentage of revenues decreased by 0.1% of revenues in the third quarter of fiscal year 2015 compared to the third quarter of fiscal year 2014. This decrease was primarily driven by an increase in SG&A expenses driven by the recent expansion of our small format stores and the acquisition of MyTheresa, partially offset by lower current incentive compensation costs.
  Thirteen weeks ended
  October 31,
2015
 November 1,
2014
(dollars in millions)    
     
Net earnings (loss) $(10.5) $0.2
Income tax expense (benefit) (6.3) 0.3
Interest expense, net 71.7
 72.6
Depreciation expense 55.9
 43.5
Amortization of intangible assets and favorable lease commitments 29.0
 49.5
EBITDA $139.7
 $166.1
EBITDA as a percentage of revenues 12.0% 14.0%
     
Incremental rent expense 2.7
 2.8
Transaction and other costs 2.5
 11.0
Non-cash stock-based compensation 2.0
 2.1
Expenses related to cyber-attack 0.2
 4.3
Expenses incurred in connection with openings of new stores / remodels of existing stores 2.9
 3.5
Expenses incurred in connection with strategic initiatives 14.4
 2.2
Other expenses 
 2.3
Adjusted EBITDA $164.3
 $194.3
Adjusted EBITDA as a percentage of revenues 14.1% 16.4%

Adjusted EBITDA as a percentage of revenues decreased by 0.5%230 basis points in the first quarter of revenues in year-to-date fiscal 2015year 2016 compared to the year-to-datefirst quarter of fiscal 2014.year 2015. This decrease was driven primarily driven by:

by (1) an increase in COGS before purchase accounting adjustments, primarily driven by higher deliverymarkdowns and processingpromotional costs, (2) deleveraging of buying and occupancy costs on lower than expected revenues and (3) higher selling costs as a result of higher online marketing to drive revenues, net costs;of expense savings realized in connection with Organizing for Growth and

an increase in SG&A expenses driven by the recent expansion of our small format stores and the acquisition of MyTheresa, other efficiency initiatives, partially offset by (4) lower current incentive compensation costs.

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LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
 
Our liquidity requirements consist principally of:

the funding of our merchandise purchases;
operating expense requirements;
debt service requirements;
capital expenditures for expansion and growth strategies, including new store construction, store remodels and upgrades of our management information systems;
income tax payments; and
obligations related to our defined benefit pension plan (Pension Plan).
 
Our primary sources of short-term liquidity are comprised of cash on hand, availability under the Asset-Based Revolving Credit Facility and vendor payment terms.  The amounts of cash on hand and borrowings under the Asset-Based Revolving Credit Facility are influenced by a number of factors, including revenues, working capital levels, vendor terms, the level of capital expenditures, cash requirements related to financing instruments and debt service obligations, Pension Plan funding obligations and tax payment obligations, among others.
 
Our working capital requirements fluctuate during the fiscal year, increasing substantially during the first and second quarters of each fiscal year as a result of higher seasonal levels of inventories.  We have typically financed our cash requirements with available cash balances, cash flows from operations and, if necessary, with cash provided from borrowings under ourthe Asset-Based Revolving Credit Facility.  We have $150.0had $340.0 million of outstanding borrowings under ourthe Asset-Based Revolving Credit Facility at May 2,as of October 31, 2015.
 
We believe that operating cash flows, cash balances, available vendor payment terms and amounts available pursuant to the Asset-Based Revolving Credit Facility will be sufficient to fund our cash requirements through the end of fiscal year 2015,2016, including merchandise purchases, anticipated capital expenditure requirements, debt service requirements, income tax payments and obligations related to our Pension Plan.
 
Cash provided byNet cash used for our operating activities was $122.8$142.1 million in year-to-datethe first quarter of fiscal 2015year 2016 compared to $101.2net cash used for our operating activities of $99.2 million in year-to-datethe first quarter of fiscal 2014.year 2015.  We held cash balances of $82.2$58.6 million at May 2,October 31, 2015 compared to $115.8$81.6 million at May 3,November 1, 2014. The increase in net cash used for our operating activities in the first quarter of fiscal year 2016 was due primarily to the impacts of our revenues being below our expectations, including (i) lower cash generated from our operating activities and (ii) a higher net investment in our merchandise inventories.
 
Net cash used for investing activities was $364.7$75.0 million in year-to-datethe first quarter of fiscal 2015year 2016 and $3,465.2$238.1 million in year-to-datethe first quarter of fiscal 2014.year 2015.  In year-to-datethe first quarter of fiscal year 2015, net cash used for investing activities includesincluded cash payments of $181.7 million incurred in connection with the MyTheresa acquisition. In year-to-date fiscal 2014, net cash used for investing activities consisted primarily of payments of $3,388.6 million made in connection with the Acquisition.  Capital expenditures aggregated $183.0were $75.0 million in year-to-datethe first quarter of fiscal 2015year 2016 and $111.6$56.4 million in year-to-datethe first quarter of fiscal 2014.year 2015. Currently, we project gross capital expenditures for fiscal year 20152016 to be approximately $270$320 to $285$350 million.  Net of developer contributions, capital expenditures for fiscal year 20152016 are projected to be approximately $240$270 to $255$300 million.

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Net cash provided by financing activities was $127.7$202.6 million in year-to-datethe first quarter of fiscal 2015year 2016 comprised primarily of net borrowings under our Asset-Based Revolving Credit Facility due to fund the MyTheresa acquisition and seasonal working capital requirements. Net cash provided by financing activities was $3,343.2$222.4 million in year-to-datethe first quarter of fiscal 2014year 2015 comprised primarily of borrowings under our Asset-Based Revolving Credit Facility of $200.0 million to fund the proceeds from net increases in debt incurred in connection with the AcquisitionMyTheresa acquisition and cash equity contributions received in connection with the Acquisition.$30.0 million to fund seasonal working capital requirements.

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


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Financing Structure at May 2,October 31, 2015
 
Our major sources of funds are comprised of the $900.0 million Asset-Based Revolving Credit Facility, the $2,905.8$2,891.1 million Senior Secured Term Loan Facility, $960.0 million Cash Pay Notes, $600.0 million PIK Toggle Notes, $125.0 million 2028 Debentures (each as described in more detail below), vendor payment terms and operating leases.
 
Asset-Based Revolving Credit Facility.  At May 2,October 31, 2015, the Asset-Based Revolving Credit Facility provided for a maximum committed borrowing capacity of $900.0 million.  The Asset-Based Revolving Credit Facility matures on October 25, 2018.  As of May 2,October 31, 2015, we had $150.0$340.0 million of borrowings outstanding under this facility, no outstanding letters of credit and $660.0$470.0 million of unused borrowing availability.
 
Availability under the Asset-Based Revolving Credit Facility is subject to a borrowing base.  The Asset-Based Revolving Credit Facility includes borrowing capacity available for letters of credit (up to $150.0 million, with any such issuance of letters of credit reducing the amount available under the Asset-Based Revolving Credit Facility on a dollar-for-dollar basis) and for borrowings on same-day notice.  The borrowing base is equal to at any time the sum of (a) 90% of the net orderly liquidation value of eligible inventory, net of certain reserves, plus (b) 90% of the amounts owed by credit card processors in respect of eligible credit card accounts constituting proceeds from the sale or disposition of inventory, less certain reserves, plus (c) 100% of segregated cash held in a restricted deposit account.  To the extent that excess availability is not equal to or greater than the greater of (a) 10% of the lesser of (1) the aggregate revolving commitments and (2) the borrowing base and (b) $50.0 million, we will be required to maintain a fixed charge coverage ratio.

The weighted average interest rate on the outstanding borrowings pursuant to the Asset-Based Revolving Credit Facility was 1.78%1.45% at May 2,October 31, 2015.
 
See Note 65 of the Notes to Condensed Consolidated Financial Statements in Part I — Item 1 for a further description of the terms of the Asset-Based Revolving Credit Facility.
 
Senior Secured Term Loan Facility.  At May 2,October 31, 2015, the outstanding balance under the Senior Secured Term Loan Facility was $2,905.8$2,891.1 million.  The principal amount of the loans outstanding is due and payable in full on October 25, 2020.
 
Depending on our senior secured first lien net leverage ratio (as defined in the credit agreement governing the Senior Secured Term Loan Facility), we could be required to prepay outstanding term loans from a certain portion of our annual excess cash flow (as defined in the credit agreement governing the Senior Secured Term Loan Facility).  Required excess cash flow payments commence at 50% of our annual excess cash flow (which percentage will be reduced to (a) 25% if our senior secured first lien net leverage ratio (as defined in the credit agreement governing the Senior Secured Term Loan Facility) is equal to or less than 4.0 to 1.0 but greater than 3.5 to 1.0 and (b) 0% if our senior secured first lien net leverage ratio is equal to or less than 3.5 to 1.0).  We also must offer to prepay outstanding term loans at 100% of the principal amount to be prepaid, plus accrued and unpaid interest, with the proceeds of certain asset sales and debt issuances, subject to certain exceptions and reinvestment rights.

The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 4.25% at May 2,October 31, 2015.
 
See Note 65 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 for a further description of the terms of the Senior Secured Term Loan Facility.
 
Cash Pay Notes.  We have outstanding $960.0 million aggregate principal amount of 8.00% Senior Cash Pay Notes. OurNotes due 2021. The Cash Pay Notes mature on October 15, 2021.

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See Note 65 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 for a further description of the terms of the Cash Pay Notes.

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

See Note 65 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 for a further description of the terms of the PIK Toggle Notes.

2028 Debentures.  We have outstanding $125.0 million aggregate principal amount of 7.125% 2028 Debentures.  OurSenior Debentures due 2028.  The 2028 Debentures mature on June 1, 2028.

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See Note 65 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 for a further description of the terms of the 2028 Debentures.

Interest Rate Caps.rate caps.  At May 2,October 31, 2015, we had outstanding floating rate debt obligations of $3,055.8$3,231.1 million.  We have entered into interest rate cap agreements which effectively cap LIBOR at 3.00% for an aggregate notional amount of $1,400.0 million from December 2014 through December 2016 to hedge the variability of our cash flows related to a portion of our floating rate indebtedness.  In the event LIBOR is less than the capped rate, we will pay interest at the lower LIBOR rate.  In the event LIBOR is higher than the capped rate, we will pay interest at the capped rate.


OTHER MATTERS
Factors That May Affect Future Results
Matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements.  In many cases, forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “plan,” “predict,” “expect,” “estimate,” “intend,” “would,” “will,” “could,” “should,” “anticipate,” “believe,” “project” or “continue” or the negative thereof or other similar expressions.  The forward-looking statements contained herein reflect our views as of the date of this report and are based on our expectations and beliefs concerning future events, as well as currently available data as of the date of this report.  While we believe there is a reasonable basis for our forward-looking statements, they involve a number of risks and uncertainties, assumptions and changes in circumstances that may cause our actual results, performance or achievements to differ significantly from those expressed or implied in any forward-looking statement.  Therefore, these statements are not guarantees of future events, results, performance or achievements and you should not rely on them.  A variety of factors could cause our actual results to differ materially from the anticipated or expected results expressed in our forward-looking statements.  Factors that could affect future performance include, but are not limited, to:
General Economic and Political Conditions

weakness in domestic and global capital markets and other economic conditions and the impact of such conditions on our ability to obtain credit;
general economic and political conditions or changes in such conditions including relationships between the United States and the countries from which we source our merchandise;
economic, political, social or other events resulting in the short- or long-term disruption in business at our stores, distribution centers or offices;

Leverage Considerations

the effects of incurring a substantial amount of indebtedness under our Senior Secured Credit Facilities and the Notes;
the ability to refinance our indebtedness under our Senior Secured Credit Facilities and the Notes and the effects of any refinancing;
the effects upon us of complying with the covenants contained in the credit agreements governing our Senior Secured Credit Facilities and the indentures governing the Notes;
restrictions on the terms and conditions of the indebtedness under our Senior Secured Credit Facilities and the Notes may place on our ability to respond to changes in our business or to take certain actions;

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Customer Considerations

changes in our relationships with customers due to, among other things, our failure to protect customer data, comply with regulations surrounding information security and privacy, provide quality service and competitive loyalty programs or provide credit pursuant to our proprietary credit card arrangement;
changes in consumer confidence resulting in a reduction of discretionary spending on goods;
changes in the demographic or retail environment;
changes in consumer preferences or fashion trends; 
Industry and Competitive Factors

competitive responses to our loyalty program, marketing, merchandising and promotional efforts or inventory liquidations by vendors or other retailers;
changes in the financial viability of our competitors;
seasonality of the retail business;
adverse weather conditions or natural disasters, particularly during peak selling seasons;
delays in anticipated store openings and renovations;
our success in enforcing our intellectual property rights;

Merchandise Procurement and Supply Chain Considerations

changes in our relationships with designers, vendors and other sources of merchandise, including changes in the level of merchandise and/or changes in the form in which such merchandise is made available to us for resale;
delays in receipt of merchandise ordered due to work stoppages or other causes of delay in connection with either the manufacture or shipment of such merchandise;
changes in foreign currency exchange or inflation rates;
significant increases in paper, printing and postage costs;
Employee Considerations

changes in key management personnel and our ability to retain key management personnel;
changes in our relationships with certain of our buyers or key sales associates and our ability to retain our buyers or key sales associates;
Legal and Regulatory Issues

changes in government or regulatory requirements increasing our costs of operations;
litigation that may have an adverse effect on our financial results or reputation;
Other Factors

terrorist activities in the United States and elsewhere;
the impact of funding requirements related to our Pension Plan;
our ability to provide credit to our customers pursuant to our proprietary credit card arrangement, including any future changes in the terms of such arrangement and/or legislation impacting the extension of credit to our customers;

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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 August 2, 2014 as filed with the Securities and Exchange Commission on September 25, 2014.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business.  Each of the forward-looking statements contained in this report speaks only as of the date of this report. 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 GAAP requires us to make estimates and assumptions about future events.  These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of 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 assumptions on an ongoing basis and predicate those estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances.  We make adjustments to our estimates and assumptions when facts and circumstances dictate.  Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates and assumptions 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 August 2, 2014.1, 2015.
 
Recent Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board (the FASB)(FASB) issued guidance to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards.recognition. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most recent revenue recognition guidance. This new guidance is currently anticipated to be effective for us no earlier than the first quarter of fiscal year 20182019 using one of two retrospective application methods. We are currently evaluating which application method to adopt and the impact of adopting this new accounting guidance on our Condensed Consolidated Financial Statements.

We do not expect that any other recently issued accounting pronouncements will have a material impact on our Condensed Consolidated Financial Statements.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We discussed our market 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 August 2, 20141, 2015 as filed with the Securities and Exchange Commission on September 25, 2014.22, 2015.  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 Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation as of May 2,October 31, 2015, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our management, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 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 and within the time periods specified in the Securities and Exchange Commission’s rules and forms.

b. Changes in Internal Control over Financial Reporting.

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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 May 2,October 31, 2015 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 the subheadings "Employment and Consumer Class Actions Litigation" and “Cyber-Attack Class Actions Litigation” in Note 149 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 is incorporated herein by reference as if fully restated herein.  Note 149 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.Forward-Looking Statements.
 

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 August 2, 20141, 2015 as filed with the Securities and Exchange Commission on September 25, 2014.22, 2015. These risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or results of operations.


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.
 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
None.
 

ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable.
 

ITEM 5.  OTHER INFORMATION
 
Not applicable.


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ITEM 6.  EXHIBITS
Exhibit  Method of Filing
3.1Certificate of Formation of the Company, dated as of October 28, 2013. Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 2013.
    
3.2Amended and Restated Limited Liability Company Agreement of the Company, dated as of October 28, 2013. Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.
    
31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
    
31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
    
32.1Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
    
101.INSXBRL Instance Document Furnished herewith electronically.
    
101.SCHXBRL Taxonomy Extension Schema Document Furnished herewith electronically.
    
101.CALXBRL Taxonomy Extension Calculation Linkbase Document Furnished herewith electronically.
    
101.DEFXBRL Taxonomy Extension Definition Linkbase Document Furnished herewith electronically.
    
101.LABXBRL Taxonomy Extension Labels Linkbase Document Furnished herewith electronically.
    
101.PREXBRL Taxonomy Extension Presentation 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 GROUP LTD LLC
(Registrant) 
Signature Title Date
     
/s/ T. Dale Stapleton Senior Vice President June 11,December 14, 2015
T. Dale Stapleton and Chief Accounting Officer  
  (on behalf of the registrant and  
  as principal accounting officer)  


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