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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 April 30,October 29, 2016
 
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)
 
(in thousands, except units) April 30,
2016
 August 1,
2015
 May 2,
2015
 October 29,
2016
 July 30,
2016
 October 31,
2015
            
ASSETS  
  
  
  
  
  
Current assets:  
  
  
  
  
  
Cash and cash equivalents $76,282
 $72,974
 $82,211
 $42,077
 $61,843
 $58,582
Merchandise inventories 1,200,913
 1,154,844
 1,173,262
 1,325,060
 1,125,325
 1,350,377
Deferred income taxes 41,963
 30,714
 33,883
Other current assets 162,167
 126,169
 108,507
 161,790
 146,878
 129,401
Total current assets 1,481,325
 1,384,701
 1,397,863
 1,528,927
 1,334,046
 1,538,360
            
Property and equipment, net 1,547,739
 1,477,886
 1,439,657
 1,607,499
 1,588,121
 1,504,390
Intangible assets, net 3,515,585
 3,598,562
 3,625,450
 3,218,582
 3,244,502
 3,569,650
Goodwill 2,276,041
 2,272,483
 2,267,897
 2,075,122
 2,072,818
 2,272,571
Other long-term assets 124,773
 142,130
 140,578
 36,246
 17,401
 14,825
Total assets $8,945,463
 $8,875,762
 $8,871,445
 $8,466,376
 $8,256,888
 $8,899,796
            
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
  
Current liabilities:  
  
  
  
  
  
Accounts payable $264,727
 $342,999
 $280,285
 $347,287
 $317,736
 $323,237
Accrued liabilities 486,681
 465,402
 457,504
 485,450
 492,646
 497,930
Current portion of long-term debt 29,426
 29,426
 29,426
 29,426
 29,426
 29,426
Total current liabilities 780,834
 837,827
 767,215
 862,163
 839,808
 850,593
            
Long-term liabilities:  
  
  
  
  
  
Long-term debt 4,794,399
 4,681,309
 4,708,612
 4,772,596
 4,584,281
 4,764,337
Deferred income taxes 1,500,244
 1,471,091
 1,500,914
 1,281,296
 1,296,793
 1,423,373
Other long-term liabilities 452,414
 471,791
 439,994
 627,343
 592,875
 457,959
Total long-term liabilities 6,747,057
 6,624,191
 6,649,520
 6,681,235
 6,473,949
 6,645,669
            
Membership unit (1 unit issued and outstanding at April 30, 2016, August 1, 2015 and May 2, 2015) 
 
 
Membership unit (1 unit issued and outstanding at October 29, 2016, July 30, 2016 and October 31, 2015) 
 
 
Member capital 1,584,216
 1,584,106
 1,584,106
 1,586,606
 1,584,216
 1,584,106
Accumulated other comprehensive loss (48,646) (51,228) (43,144) (114,871) (115,841) (50,900)
Accumulated deficit (117,998) (119,134) (86,252) (548,757) (525,244) (129,672)
Total member equity 1,417,572
 1,413,744
 1,454,710
 922,978
 943,131
 1,403,534
Total liabilities and member equity $8,945,463
 $8,875,762
 $8,871,445
 $8,466,376
 $8,256,888
 $8,899,796
 
See Notes to Condensed Consolidated Financial Statements.


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NEIMAN MARCUS GROUP LTD LLC
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGSOPERATIONS
(UNAUDITED)
 
 Thirteen weeks ended Thirteen weeks ended
(in thousands) April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
        
Revenues $1,169,292
 $1,220,100
 $1,079,107
 $1,164,900
Cost of goods sold including buying and occupancy costs (excluding depreciation) 743,471
 755,034
 699,895
 736,074
Selling, general and administrative expenses (excluding depreciation) 274,777
 285,689
 276,596
 285,342
Income from credit card program (15,010) (11,899) (13,668) (13,287)
Depreciation expense 59,616
 48,070
 56,884
 55,890
Amortization of intangible assets 13,978
 16,035
 13,623
 15,353
Amortization of favorable lease commitments 13,421
 13,640
 13,654
 13,612
Other expenses (income) (634) 5,571
Other expenses 6,818
 17,098
        
Operating earnings 79,673
 107,960
 25,305
 54,818
        
Interest expense, net 72,675
 72,844
 72,083
 71,685
        
Earnings before income taxes 6,998
 35,116
Loss before income taxes (46,778) (16,867)
        
Income tax expense 3,208
 15,296
Income tax benefit (23,265) (6,329)
        
Net earnings $3,790
 $19,820
Net loss $(23,513) $(10,538)

See Notes to Condensed Consolidated Financial Statements.




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

  Thirty-nine weeks ended
(in thousands) April 30,
2016
 May 2,
2015
     
Revenues $3,821,149
 $3,928,416
Cost of goods sold including buying and occupancy costs (excluding depreciation) 2,505,837
 2,502,553
Selling, general and administrative expenses (excluding depreciation) 862,773
 894,666
Income from credit card program (44,634) (40,752)
Depreciation expense 169,157
 136,590
Amortization of intangible assets 43,426
 66,764
Amortization of favorable lease commitments 40,570
 40,675
Other expenses 24,512
 28,080
     
Operating earnings 219,508
 299,840
     
Interest expense, net 215,855
 217,919
     
Earnings before income taxes 3,653
 81,921
     
Income tax expense 2,517
 34,090
     
Net earnings $1,136
 $47,831

See Notes to Condensed Consolidated Financial Statements.


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NEIMAN MARCUS GROUP LTD LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGSLOSS
(UNAUDITED)
 
  Thirteen weeks ended
(in thousands) April 30,
2016
 May 2,
2015
     
Net earnings $3,790
 $19,820
     
Other comprehensive earnings (loss):  
  
Foreign currency translation adjustments, net of tax expense (income) of $2,793 and ($4,859) 5,460
 (15,707)
Change in unrealized loss on financial instruments, net of tax expense of $324 and $597 503
 925
Change in unrealized loss on unfunded benefit obligations, net of tax income of ($57) and ($35) (89) (57)
Total other comprehensive earnings (loss) 5,874
 (14,839)
     
Total comprehensive earnings $9,664
 $4,981
  Thirteen weeks ended
(in thousands) October 29,
2016
 October 31,
2015
     
Net loss $(23,513) $(10,538)
     
Other comprehensive earnings:  
  
Foreign currency translation adjustments, net of tax expense of $1,273 and $53 2,496
 116
Change in unrealized loss on financial instruments, net of tax expense of $1,280 and $529 1,986
 818
Reclassification of realized loss on financial instruments to earnings, net of tax expense of $232 and $3 359
 5
Change in unrealized loss on unfunded benefit obligations, net of tax benefit of ($2,496) and ($394) (3,871) (611)
Total other comprehensive earnings 970
 328
     
Total comprehensive loss $(22,543) $(10,210)
 
See Notes to Condensed Consolidated Financial Statements.


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

  Thirty-nine weeks ended
(in thousands) April 30,
2016
 May 2,
2015
     
Net earnings $1,136
 $47,831
     
Other comprehensive earnings (loss):  
  
Foreign currency translation adjustments, net of tax expense (income) of $1,651 and ($6,554) 2,161
 (21,684)
Change in unrealized loss on financial instruments, net of tax expense (income) of $780 and ($1,291) 1,210
 (2,007)
Change in unrealized loss on unfunded benefit obligations, net of tax income of ($509) and ($1,303) (789) (2,024)
Total other comprehensive earnings (loss) 2,582
 (25,715)
     
Total comprehensive earnings $3,718
 $22,116
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 Thirteen weeks ended
(in thousands) April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
        
CASH FLOWS - OPERATING ACTIVITIES  
  
  
  
Net earnings $1,136
 $47,831
Adjustments to reconcile net earnings to net cash provided by operating activities:  
  
Net loss $(23,513) $(10,538)
Adjustments to reconcile net loss to net cash used for operating activities:  
  
Depreciation and amortization expense 271,582
 262,446
 90,304
 90,998
Deferred income taxes 15,785
 (49,207) (15,996) (17,201)
Other 6,223
 18,576
 (1,902) 4,372
 294,726
 279,646
 48,893
 67,631
Changes in operating assets and liabilities, excluding net assets acquired:  
  
Changes in operating assets and liabilities:  
  
Merchandise inventories (44,670) (72,215) (186,038) (195,448)
Other current assets (35,888) 141
 (14,825) (3,208)
Other assets 2,095
 378
Accounts payable and accrued liabilities (95,992) (115,235) 12,458
 (21,622)
Deferred real estate credits 30,180
 30,098
 7,701
 10,640
Net cash provided by operating activities 150,451
 122,813
Net cash used for operating activities (131,811) (142,007)
        
CASH FLOWS - INVESTING ACTIVITIES  
  
  
  
Capital expenditures (231,993) (183,016) (65,433) (74,950)
Acquisition of MyTheresa (896) (181,727)
Net cash used for investing activities (232,889) (364,743) (65,433) (74,950)
        
CASH FLOWS - FINANCING ACTIVITIES  
  
  
  
Borrowings under senior secured asset-based revolving credit facility 495,000
 480,000
 270,000
 250,000
Repayment of borrowings under senior secured asset-based revolving credit facility (360,000) (330,000) (80,000) (40,000)
Repayment of borrowings under senior secured term loan facility (22,069) (22,070) (7,357) (7,356)
Payment of contingent earn-out obligation (27,185) 
Debt issuance costs paid 
 (265) (5,440) 
Net cash provided by financing activities 85,746
 127,665
 177,203
 202,644
        
Effect of exchange rate changes on cash and cash equivalents 275
 (79)
    
CASH AND CASH EQUIVALENTS  
  
  
  
Increase (decrease) during the period 3,308
 (114,265)
Decrease during the period (19,766) (14,392)
Beginning balance 72,974
 196,476
 61,843
 72,974
Ending balance $76,282
 $82,211
 $42,077
 $58,582
        
Supplemental Schedule of Cash Flow Information  
  
  
  
Cash paid during the period for:  
  
Cash paid (received) during the period for:  
  
Interest $231,950
 $230,751
 $97,949
 $98,470
Income taxes $16,106
 $58,254
 $(119) $3,527
Non-cash activities:  
  
Contingent earn-out obligation incurred in connection with acquisition of MyTheresa $
 $50,043
Non-cash - investing and financing activities:  
  
Property and equipment acquired through developer financing obligations $14,763
 $
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, Last Call 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), theThe Company is now a direct subsidiary of Mariposa Intermediate Holdings LLC ("Holdings"), which in turn is a direct subsidiary of Parent.Neiman Marcus Group, Inc., a Delaware corporation ("Parent"). Parent is owned by entities affiliated with Ares Management, L.P. and Canada Pension Plan Investment Board (together, the "Sponsors") and certain co-investors. Previously,The Sponsors acquired 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").  Onon October 28,25, 2013 the Company and NMG (as defined below) each converted from a Delaware corporation to a Delaware limited liability company (the "Conversion""Acquisition").
 
The Company’sCompany'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 website.

The accompanying Condensed Consolidated Financial Statements set forth financial information of the 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 2017 relate to the thirteen weeks ended October 29, 2016 and (ii) the first quarter of fiscal year 2016 relate to the thirteen weeks ended April 30, 2016, (ii) the third quarter of fiscal year 2015 relate to the thirteen weeks ended May 2, 2015, (iii) year-to-date fiscal 2016 relate to the thirty-nine weeks ended April 30, 2016 and (iv) year-to-date fiscal 2015 relate to the thirty-nine weeks ended May 2,October 31, 2015.
 
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 1, 2015.July 30, 2016.  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 20162017 are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year as a whole.

Certain prior period balances have been reclassified to conform to the current period presentation due primarily to our adoption of recent accounting pronouncements related to the presentation of debt issuance costs and deferred income taxes.
 
A detailed description of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended August 1, 2015.July 30, 2016.

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.



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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 purchase price paid to effect the acquisitions to state the acquired assets and liabilities at fair value as of the acquisition dates; 
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 conduct our specialty retail store and online operations on an omni-channel basis. As our store and online operations have similar economic characteristics, products, services and customers, our operations constitute a single omni-channel reportable segment.
 
RecentNewly Adopted Accounting Pronouncements. In May 2014,April 2015, the Financial Accounting Standards Board (the "FASB") issued guidance to clarify the principles for revenue 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 effective for us no earlier than the first quarter of fiscal year 2019 using one of two retrospective application methods.

In April 2015, the FASB issued guidance to simplify the balance sheet presentation of debt issuance costs. The standard requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt, consistent with the presentation of debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the new guidance. In addition, the FASB issued guidance in August 2015 to clarify the treatment of debt issuance costs related to line of credit arrangements. Companies can continue to present debt issuance costs for line of credit arrangements as an asset and subsequently amortize the deferred issuance cost ratably over the term of the arrangement. This newWe adopted this guidance is effective for us as ofin the firstfourth quarter of fiscal year 2017.2016 on a retrospective basis. Unamortized debt issuance costs, except unamortized debt issuance costs related to our Asset-Based Revolving Credit Facility, are now presented as a direct reduction of long-term debt on the Company's Condensed Consolidated Balance Sheets as of October 29, 2016, July 30, 2016, and October 31, 2015. Unamortized debt issuance costs of $119.7 million as of October 31, 2015 have been reclassified on our Condensed Consolidated Balance Sheet from other assets to a direct reduction of long-term debt.

In November 2015, the FASB issued guidance to simplify the balance sheet presentation of deferred income taxes. The standard requires that deferred tax liabilities and assets be classified as non-current in a balance sheet. We adopted this guidance in the fourth quarter of fiscal year 2016 on a retrospective basis. Deferred taxes previously classified as components of current assets are now classified as long-term liabilities on the Company's Condensed Consolidated Balance Sheets as of October 29, 2016, July 30, 2016 and October 31, 2015. Current deferred tax assets of $40.4 million as of October 31, 2015 have been netted against non-current deferred tax liabilities on our Condensed Consolidated Balance Sheet.

In April 2015, the FASB issued guidance related to the accounting for cloud computing arrangements. Under this guidance, if a cloud computing arrangement includes a software license, the software license element should be accounted for in a manner consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. This newWe adopted this guidance is effective for us as ofin the first quarter of fiscal year 2017.2017 on a prospective basis. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements.

In November 2015, the FASB issued guidance to simplify the balance sheet presentation of deferred income taxes. The standard requires that deferred tax liabilities and assets be classified as non-current in a balance sheet. This new guidance is effective for us as of the first quarter of fiscal year 2018 using either a prospective or retrospective application method.

In February 2016, the FASB issued guidance that requires a lessee to recognize assets and liabilities arising from leases on the balance sheet. Previous GAAP did not require lease assets and liabilities to be recognized for most leases. Additionally, companies are permitted to make an accounting policy election to not recognize lease assets and liabilities for leases with a term of 12 months or less. For both finance leases and operating leases, the lease liability should be initially measured at the present value of the lease payments. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change under this new guidance. This new guidance is effective for us as of the first quarter of fiscal year 2020.

Recent Accounting Pronouncements. In March 2016, the FASB issued guidance to simplify how share-based payments are accounted for and presented in the financial statements, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard allows (i) entities to withhold an amount up to the employees' maximum individual tax rate

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in the relevant jurisdiction without resulting in liability classification of the award and (ii) forfeitures to be either estimated, as required currently, or recognized when they occur. This new guidance is effective for us as of the first quarter of fiscal year 2018.

In May 2014, the FASB issued guidance to clarify the principles for revenue recognition. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance. This new guidance is effective for us no earlier than the first quarter of fiscal year 2019 using one of two retrospective application methods.

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In February 2016, the FASB issued guidance that requires a lessee to recognize assets and liabilities arising from leases on the balance sheet. Previous GAAP did not require lease assets and liabilities to be recognized for most leases. Additionally, companies are permitted to make an accounting policy election not to recognize lease assets and liabilities for leases with a term of 12 months or less. For both finance leases and operating leases, the lease liability should be initially measured at the present value of the remaining contractual lease payments. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change under this new guidance. This new guidance is effective for us as of the first quarter of fiscal year 2020.

With respect to each of the recent accounting pronouncements described above, we are currently evaluating which application methods to adopt and the impact of adopting these new accounting standards on our Condensed Consolidated Financial Statements. In addition, we do not expect that any other recently issued accounting pronouncements will have a material impact on our Condensed Consolidated Financial Statements.


2.             MyTheresa Acquisition

In October 2014, we acquired MyTheresa, a luxury retailer headquartered in Munich, Germany. The operations of MyTheresa are conducted primarily through the mytheresa.com website. 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 to the sellers aggregating up to €55.0 million based on operating performance for calendar years 2015 and 2016. In April 2016, we paid $29.8 million, or €26.5 million, to the sellers as a result of MyTheresa's operating performance for calendar year 2015. The estimated fair value of the remaining earn-out obligation related to operating performance for calendar year 2016 was $27.4$25.5 million, or €24.1€22.6 million, at April 30,October 29, 2016. MyTheresa results of operations are included in our condensed consolidated results of operations beginning in the second quarter of fiscal year 2015.


3.             Fair Value Measurements
 
Certain of our assets and liabilities are required to be measured at fair value on a recurring basis. 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 and liabilities that are required to be measured at fair value on a recurring basis in our Condensed Consolidated Balance Sheets:
(in thousands) 
Fair Value
Hierarchy
 April 30,
2016
 August 1,
2015
 May 2,
2015
 
Fair Value
Hierarchy
 October 29,
2016
 July 30,
2016
 October 31,
2015
                
Assets:    
  
  
Interest rate caps (included in long-term assets) Level 2 $
 $21
 $106
      
Liabilities:            
Interest rate swaps (included in accrued liabilities) Level 2 $906
 $
 $
Interest rate swaps (included in other long-term liabilities) Level 2 $10,523
 $13,167
 $
Contingent earn-out obligation (included in accrued liabilities) Level 3 27,445
 
 
 Level 3 25,454
 26,264
 29,277
Contingent earn-out obligation (included in other long-term liabilities) Level 3 
 51,251
 45,661
 Level 3 
 
 24,532
Stock-based award liability (included in other long-term liabilities) Level 3 4,364
 5,500
 17,826
 
The fair value of the interest rate caps and interest rate swaps areis 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 based upon the forecasted operating performance of MyTheresa and a discount rate that capturescaptured 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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Because Parent is privately held and there is no public market for its common stock, the fair market value of Parent's common stock is determined by the Board of Directors of Parent (the "Parent Board") or the Compensation Committee, as applicable.  In determining the fair market value of Parent's common stock, the Parent Board or the Compensation Committee, as applicable, considers such factors as any recent transactions involving Parent's common stock, the Company’s actual and projected financial results, the principal amount of the Company’s indebtedness, valuations of the Company performed by third parties and other factors it believes are material to the valuation process. Significant inputs to the common stock valuation model are updated as applicable and the carrying value of the obligation is adjusted to its estimated fair value at each reporting date.

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:
 April 30, 2016 August 1, 2015 May 2, 2015 October 29, 2016 July 30, 2016 October 31, 2015
(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 $265,000
 $265,000
 $130,000
 $130,000
 $150,000
 $150,000
 Level 2 $355,000
 $355,000
 $165,000
 $165,000
 $340,000
 $340,000
Senior Secured Term Loan Facility Level 2 2,876,416
 2,748,789
 2,898,485
 2,887,616
 2,905,842
 2,920,371
 Level 2 2,861,703
 2,639,921
 2,869,059
 2,705,896
 2,891,129
 2,824,286
Cash Pay Notes Level 2 960,000
 835,200
 960,000
 1,021,200
 960,000
 1,034,400
 Level 2 960,000
 798,240
 960,000
 818,995
 960,000
 999,600
PIK Toggle Notes Level 2 600,000
 498,000
 600,000
 639,120
 600,000
 648,120
 Level 2 600,000
 474,000
 600,000
 480,000
 600,000
 626,220
2028 Debentures Level 2 122,409
 113,125
 122,250
 124,531
 122,196
 125,320
 Level 2 122,517
 116,191
 122,463
 120,325
 122,302
 126,250

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 Facilities") 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 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 ofadjusted the fair valuecarrying values of our long-lived and intangible assets to their estimated fair values at the acquisition date. The fair value estimates were 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 atSubsequent to the Acquisition, we determine the fair value of our long-lived and intangible assets 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.impairment and record impairment charges when such fair value estimates are lower than the carrying values of the assets.


4.     Intangible Assets, Net and Goodwill
 
(in thousands) April 30,
2016
 August 1,
2015
 May 2,
2015
 October 29,
2016
 July 30,
2016
 October 31,
2015
            
Favorable lease commitments, net $999,343
 $1,040,440
 $1,054,092
 $971,880
 $985,534
 $1,026,828
Other definite-lived intangible assets, net 477,996
 521,275
 536,960
 438,234
 451,722
 505,928
Tradenames 2,038,246
 2,036,847
 2,034,398
 1,808,468
 1,807,246
 2,036,894
Intangible assets, net $3,515,585
 $3,598,562
 $3,625,450
 $3,218,582
 $3,244,502
 $3,569,650
            
Goodwill $2,276,041
 $2,272,483
 $2,267,897
 $2,075,122
 $2,072,818
 $2,272,571

Intangible Assets Subject to Amortization. Our definite-lived intangible assets, which consist primarily 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 six to 16 years (weighted average life of 13 years from the respective acquisition dates).  Favorable lease commitments are amortized straight-line over the remaining lives of the leases, ranging from four to 55 years (weighted average life of 30 years from the respective acquisition dates). Our definite-lived intangible assets, which primarily consist of customer lists, are amortized using accelerated methods which reflect the


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pattern in which we receive the economic benefit of the asset, currently estimated at six to 16 years (weighted average life of 13 years from 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 1, 2016 through July 30, 2016$27,728
2017106,107
October 30, 2016 through July 29, 2017$76,382
2018100,128
97,615
201997,068
94,556
202090,419
87,860
202184,502
81,943
202282,682

At April 30,October 29, 2016, accumulated amortization was $234.5$162.8 million for favorable lease commitments and $262.0 million for other definite-lived intangible assets and $135.4 million for favorable lease commitments.assets.

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 annually in the fourth quarter of each fiscal year and upon the occurrence of certain events.

Impairment of Indefinite-lived Intangible Assets, Goodwill and Long-lived Assets. We assess the recoverability of the carrying values of indefinite-lived intangible assets and goodwill as well as our store assets, consisting of property and equipment, customer lists and favorable lease commitments annually in the fourth quarter of each fiscal year and upon the occurrence of certain events. During fiscal year 2016, we experienced declines in our operating results and we believe our operating results were adversely impacted by a number of factors including, among other things:
volatility in domestic and global economic conditions;
national and global geo-political uncertainty;
the strength of the U.S. dollar against international currencies, most notably the Euro and British pound, and a resulting decrease in tourism and spending by international customers; and
continued low global prices of crude oil and the resulting impact on stakeholders in the oil and gas industries, particularly in the Texas markets in which we have a significant presence.

Based upon our assessment of economic conditions, our expectations of future business conditions and trends and our projected revenues, earnings and cash flows in the fourth quarter of fiscal year 2016, we determined that impairment charges were required to state certain of our intangible and long-lived assets, primarily related to our Neiman Marcus brand, to their estimated fair value. Impairment charges recorded in the fourth quarter of fiscal year 2016 were (in thousands):

Tradenames$228,877
Goodwill199,218
Property and equipment25,627
Other definite-lived intangible assets12,433
Total$466,155

In the first quarter of fiscal year 2017, our revenues and earnings have declined compared to the first quarter of last year as a result of current economic conditions. In response to these trends, we continue to undertake initiatives to help drive revenues and streamline business activities and will continue to closely monitor our financial condition and results of operations. However, there is a risk that we may continue to experience challenging economic conditions and operating pressures, which in turn could increase the risk of additional impairment charges in future periods.


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5.             Long-term Debt
 
The significant components of our long-term debt are as follows:
(in thousands) 
Interest
Rate
 April 30,
2016
 August 1,
2015
 May 2,
2015
 
Interest
Rate
 October 29,
2016
 July 30,
2016
 October 31,
2015
            
Asset-Based Revolving Credit Facility variable $265,000
 $130,000
 $150,000
 variable $355,000
 $165,000
 $340,000
Senior Secured Term Loan Facility variable 2,876,416
 2,898,485
 2,905,842
 variable 2,861,703
 2,869,059
 2,891,129
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% 122,409
 122,250
 122,196
 7.125% 122,517
 122,463
 122,302
Total debt   4,823,825
 4,710,735
 4,738,038
   4,899,220
 4,716,522
 4,913,431
Less: current portion of Senior Secured Term Loan Facility   (29,426) (29,426) (29,426)   (29,426) (29,426) (29,426)
Less: unamortized debt issuance costs (97,198) (102,815) (119,668)
Long-term debt   $4,794,399
 $4,681,309
 $4,708,612
   $4,772,596
 $4,584,281
 $4,764,337
Asset-Based Revolving Credit Facility.  On October 25, 2013, the Company27, 2016, we entered into a credit agreement and related security and other agreements for the Asset-Based Revolving Credit Facility. At April 30, 2016,an amendment of the Asset-Based Revolving Credit Facility provided for a(the "ABL Refinancing Amendment"). As amended, the maximum committed borrowing capacity ofunder the Asset-Based Revolving Credit Facility remains at $900.0 million. Themillion and the Asset-Based Revolving Credit Facility matures on July 25, 2021 (or July 25, 2020 if our obligations under our Senior Secured Term Loan Facility or any permitted refinancing thereof have not been repaid or the maturity date thereof has not been extended to October 25, 2018.2021 or later).  On April 30,October 29, 2016, we had $265.0$355.0 million of borrowings outstanding under this facility, no outstanding letters of credit and $545.0$455.0 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 minimum 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.


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At April 30,October 29, 2016, 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 April 30, 2016).  The applicable margin is up toof 0.75% with respect to base rate borrowings and up to 1.75% with respect to LIBOR borrowings.borrowings at October 29, 2016.  The applicable margin is subject to adjustment based on the average historical excess availability under the Asset-Based Revolving Credit Facility.Facility, and is up to 1.00% with respect to base rate borrowings and up to 2.00% with respect to LIBOR borrowings, in each case with 0.25% step downs based on achievement and maintenance of a certain senior secured first lien net leverage ratio (as defined in the credit agreement governing the Asset-Based Revolving Credit Facility).  The weighted average interest rate on the outstanding borrowings pursuant to the Asset-Based Revolving Credit Facility was 1.69%2.28% at April 30,October 29, 2016.  In addition, we are required to pay a commitment fee in respect of unused commitments at a rate of 0.25%up to 0.375% per annum.  We must also pay customary letter of credit fees and agency fees.

If at any time the aggregate amount of outstanding revolving loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Asset-Based Revolving Credit Facility exceeds the lesser of (a) the 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

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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.
We may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time without premium or penalty other than customary breakage costs with respect to LIBOR loans.  There is no scheduled amortization under the Asset-Based Revolving Credit Facility; theFacility. The principal amount of the revolving loans outstanding thereunder will be due and payable in full on July 25, 2021 (or July 25, 2020 if our obligations under our Senior Secured Term Loan Facility or any permitted refinancing thereof have not been repaid or the maturity date thereof has not been extended to October 25, 2018, unless extended.2021 or later).
 
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 April 30,October 29, 2016, the assets of non-guarantor subsidiaries, primarily NMG Germany GmbH (through which we conduct the operations of MyTheresa), were $282.3$283.8 million, or approximately 3%3.4% 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 89 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 1, 2015.July 30, 2016.
 
Senior Secured Term Loan Facility.  On October 25, 2013, the Companywe entered into a credit agreement and related security and other agreements for the $2,950.0 million Senior Secured Term Loan Facility. At April 30,October 29, 2016, (after giving effect to the Refinancing Amendment described below), the outstanding balance under the Senior Secured Term Loan Facility was $2,876.4$2,861.7 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

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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 consistent with the credit agreement governing the Senior Secured Term Loan Facility as ofAt October 25, 2013, including the amortization schedule and maturity dates.
At April 30,29, 2016, 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% 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 April 30,October 29, 2016.  The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 4.25% at April 30,October 29, 2016.
 

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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 ended July 26, 2015) must be used to prepay outstanding term loans under the 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 2015.2016.
 
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,$7.4 million, less certain voluntary orand mandatory prepayments, with the remaining balance due at final maturity.
 
The 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. At April 30,October 29, 2016, the assets of non-guarantor subsidiaries, primarily NMG Germany GmbH (through which we conduct the operations of MyTheresa), were $282.3$283.8 million, or approximately 3%3.4% 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 89 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 1, 2015.July 30, 2016.
 
Cash Pay Notes.  In connection with the Acquisition, the Company, 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 onAt October 15, 2021.

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We may redeem the Cash Pay Notes, in whole or in part, at any time and from time to time prior to October 15,29, 2016, at a price equal to 100% of the principal amount of the Cash Pay Notes redeemed plus accrued and unpaid interest up to the redemption date plus the applicable premium. In addition, we may redeem up to 40% in the aggregate principal amount of the Cash Pay Notes with the net proceeds of certain equity offeringsprice 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,which we may redeem the Cash Pay Notes, in whole or in part, at the redemption pricesas set forth in the indenture governing the Cash Pay Notes.Notes, was 106.000%. The Cash Pay Notes mature on October 15, 2021.

For a more detailed description of the Cash Pay Notes, refer to Note 89 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 1, 2015.July 30, 2016.

PIK Toggle Notes.  In connection with the Acquisition, the Company, along with Mariposa Borrower, Inc. as co-issuer, incurred indebtedness in the form of $600.0 million aggregate principal amount of 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. At October 29, 2016, the redemption price at which we may redeem the PIK Toggle Notes, in whole or in part, as set forth in the indenture governing the PIK Toggle Notes, was 106.563%. The PIK Toggle Notes mature on October 15, 2021. Interest on the PIK Toggle Notes is payable semi-annually in arrears on each April 15 and October 15.  Interest on the PIK Toggle Notes 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 payment amount ("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 89 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 1, 2015.July 30, 2016.

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2028 Debentures.  NMG 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 April 30,October 29, 2016, 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 89 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 1, 2015.July 30, 2016.

Maturities of Long-term Debt.  At April 30,October 29, 2016, annual maturities of long-term debt during the current and next five fiscal years and thereafter are as follows (in millions):
May 1, 2016 through July 30, 2016$7.4
201729.4
201829.4
2019294.4
202029.4
20212,751.4
Thereafter1,682.4

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October 30, 2016 through July 29, 2017$22.1
201829.4
201929.4
202029.4
20213,106.4
20221,560.0
Thereafter122.5

The previous table does not reflect future excess cash flow prepayments, if any, that may be required under the Senior Secured Term Loan Facility.
 
Interest Expense.Expense, net.  The significant components of interest expense are as follows:
 Thirteen weeks ended Thirty-nine weeks ended Thirteen weeks ended
(in thousands) April 30,
2016
 May 2,
2015
 April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
            
Asset-Based Revolving Credit Facility $798
 $402
 $2,407
 $1,117
 $1,204
 $874
Senior Secured Term Loan Facility 31,011
 31,326
 93,269
 94,310
 30,853
 31,169
Cash Pay Notes 19,200
 19,200
 57,600
 57,600
 19,200
 19,200
PIK Toggle Notes 13,125
 13,125
 39,375
 39,375
 13,125
 13,125
2028 Debentures 2,227
 2,227
 6,680
 6,680
 2,227
 2,227
Amortization of debt issue costs 6,143
 6,143
 18,429
 18,417
 6,143
 6,143
Capitalized interest (1,715) (1,616)
Other, net 1,516
 923
 2,739
 2,100
 1,046
 563
Capitalized interest (1,345) (502) (4,644) (1,680)
Interest expense, net $72,675
 $72,844
 $215,855
 $217,919
 $72,083
 $71,685


6.             Derivative Financial Instruments
 
Interest rate caps.Rate Caps. At April 30,October 29, 2016, we had outstanding floating rate debt obligations of $3,141.4$3,216.7 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 related to our Senior Secured Term Loan Facility 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%. The fair value of our interest rate caps was zero on April 30, 2016.

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 $0.2$0.6 million were realized in the thirdfirst quarter of fiscal year 2016 and in year-to-date fiscal 2016. No gains or2017. Negligible losses were realized in the thirdfirst quarter of fiscal year 2015 or in year-to-date fiscal 2015.2016.


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Interest rate swaps.Rate Swaps. In April and June of 2016, we entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $700.01,400.0 million to limit our exposure to interest rate increases related to a portion of our floating rate indebtedness. These swap agreements hedge a portion of our contractual floating rate interest commitments related to our Senior Secured Term Loan Facility beginning infrom December 2016 and through the expiration of the agreements into October 2020. As a result of the April 2016 swap agreements, our effective interest rate as to the $700.0 million inof floating rate indebtedness will be fixed at 4.912% per month from December 2016 through October 2020. On April 30,As a result of the June 2016 theswap agreements, our effective interest rate as to an additional $700.0 million of floating rate indebtedness will be fixed at 4.7395% from December 2016 to October 2020. The fair value of our interest rate swap agreements, was a loss of $0.9 million, which amount is included in accrued liabilities.other long-term liabilities, was a loss of $10.5 million at October 29, 2016 and $13.2 million at July 30, 2016. The interest rate swap agreements expire in October 2020.

As of the effective date, weWe designated the interest rate swaps as cash flow hedges. As cash flow hedges, unrealized gains on our outstanding interest rate swaps are recognized as assets while unrealized losses are recognized as liabilities. Our interest rate swap agreements are highly, but not perfectly, correlated to the changes in interest rates to which we are exposed. As a result, unrealized gains and losses on our interest rate swap agreements are designated as effective or ineffective. As of the effective date, theThe effective portion of such gains or losses will be recorded as a component of accumulated other comprehensive loss while the ineffective portion of such gains or losses will be recorded as a component of interest expense.


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7.             Income Taxes
 
Our effective income tax rates are as follows:
  Thirteen weeks ended Thirty-nine weeks ended
  April 30,
2016
 May 2,
2015
 April 30,
2016
 May 2,
2015
  
 
 
 
Effective income tax rate 45.8% 43.6% 68.9% 41.6%
  Thirteen weeks ended
  October 29,
2016
 October 31,
2015
  
 
Effective income tax rate 49.7% 37.5%

Our effective income tax rate on the loss for the first quarter of fiscal year 2017 exceeded the federal statutory tax rate of 35.0%35% due primarily to state income taxes, the non-deductible portion of transaction and other costs incurred in connection with the MyTheresa acquisition and the benefit associated with the release of certain tax reserves for settled tax matters. Our effective income tax rate on the loss for the thirdfirst quarter of fiscal year 2016 andexceeded the third quarter of fiscal year 2015federal statutory tax rate due primarily to state income taxes and the non-deductible portion of transaction and other costs incurred in connection with the MyTheresa acquisition.

Our effective income tax rate exceeded the federal statutory tax rate of 35.0% for year-to-date fiscal 2016 and year-to-date fiscal 2015 due primarily to state income taxes and the non-deductible portion of transaction and other costs incurred in connection with the MyTheresa acquisition. In addition, with respect to year-to-date fiscal 2016, the effective income tax rate was impacted by the application of our estimated effective tax rate to our year-to-date quarterly periods (consisting of both loss and income generating periods) and reductions in our estimated tax reserves due to the expiration of statutes of limitations.
 
At April 30,October 29, 2016, the gross amount of unrecognized tax benefits was $0.9$0.8 million ($0.60.5 million of which would impact our effective tax rate, if recognized).  We classify interest and penalties as a component of income tax expensebenefit and our liability for accrued interest and penalties was $4.1$0.1 million at AprilOctober 29, 2016, $0.4 million at July 30, 2016 $4.8and $4.9 million at August 1, 2015 and $4.6 million at May 2,October 31, 2015.
 
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 auditingfinalizing its audits of our fiscal year 2012 and short-year 2013 (prior to the Acquisition) 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 April 30,October 29, 2016 are sufficient to cover any potential assessments to be made by the IRS or other taxing authorities upon the final 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 adjustments into the amounts of our unrecognized tax benefits could occur within the next twelve12 months as a result of settlements with tax authorities or expiration of statutes of limitations.  At this time, we do not believe such adjustments will have a material impact on our Condensed Consolidated Financial Statements.
 
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 reflected by the Company and its subsidiaries in the preparation of our Condensed Consolidated Financial Statements. There are no differences between the Company's and Parent'sin current and deferred income taxes.taxes between the Company and Parent.



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8.             Employee Benefit Plans
 
Description of Benefit Plans.  We currently maintain defined contribution plans consisting of a retirement savings plan (RSP)("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") that 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.

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ObligationsOur obligations for our employee benefit plans, included in other long-term liabilities, are as follows:
(in thousands) April 30,
2016
 August 1,
2015
 May 2,
2015
 October 29,
2016
 July 30,
2016
 October 31,
2015
            
Pension Plan $219,108
 $218,612
 $197,358
 $303,504
 $299,676
 $219,865
SERP Plan 109,213
 111,157
 109,515
 120,325
 118,484
 110,050
Postretirement Plan 8,986
 9,121
 10,777
 8,404
 8,600
 9,058
 337,307
 338,890
 317,650
 432,233
 426,760
 338,973
Less: current portion (6,016) (6,724) (5,814) (6,553) (7,345) (6,016)
Long-term portion of benefit obligations $331,291
 $332,166
 $311,836
 $425,680
 $419,415
 $332,957
 
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 2015,2016, we were not required to make contributions to the Pension Plan. As of April 30,October 29, 2016, we do not believe we will be required to make contributionscontribute $10.6 million to the Pension Plan forin fiscal year 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.2017.

Cost of Benefits. The components of the expenses we incurred under our Pension Plan, SERP Plan and Postretirement Plan are as follows:
 Thirteen weeks ended Thirty-nine weeks ended Thirteen weeks ended
(in thousands) April 30,
2016
 May 2,
2015
 April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
            
Pension Plan:  
  
      
  
Interest cost $5,429
 $6,382
 $16,287
 $19,146
 $4,870
 $5,429
Expected return on plan assets (5,807) (6,234) (17,421) (18,702) (5,331) (5,807)
Net amortization of losses 663
 
Pension Plan expense (income) $(378) $148
 $(1,134) $444
 $202
 $(378)
            
SERP Plan:  
  
      
  
Interest cost $892
 $1,126
 $2,676
 $3,378
 $784
 $892
Net amortization of losses 23
 
SERP Plan expense $892
 $1,126
 $2,676
 $3,378
 $807
 $892
            
Postretirement Plan:  
  
      
  
Service cost $1
 $3
 $3
 $9
 $
 $1
Interest cost 71
 113
 213
 339
 55
 71
Net amortization of gains (146) (93) (438) (279) (146) (146)
Postretirement Plan expense (income) $(74) $23
 $(222) $69
Postretirement Plan income $(91) $(74)


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

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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

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for arbitration with the American Arbitration Association ("AAA") seeking to arbitrate not only their individual claims, but also class claims, which the Company asserted violated the class action waiver in the Mandatory Arbitration Agreement. This led to further proceedings in the trial court, a stay of the arbitrations, and a decision by the trial court, on its own motion, to reconsider its order compelling arbitration. The trial court ultimately decided to vacate its order compelling arbitration due to a recent California appellate court decision.  Following this ruling, the Company timely filed two separate appeals, one with respect to Mr. Pinela and one with respect to Ms. Monjazeb, with the 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. 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, and the trial court judge issued an order granting the motion and issuing a stay, which currently remains in effect. The appeal with respect to Ms. Monjazeb was dismissed since final approval of the class action settlement (as described below) had been granted.

With respect to Ms. Tanguilig's case, the trial court decided to set certain of her civil penalty claims 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 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 complete, and a judicial panel has been assigned. The parties have requested oral argument, but no date has been set.

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. A hearing on the motion was held on July 23, 2015 and the motion was denied by the court on July 28, 2015.

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.

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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. The ALJ issued a recommended decision and order finding that the Company's Arbitration Agreement and class action waiver violated the National Labor Relations Act ("NLRA"). The matter was 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

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June 10, 2016, the NLRB filed an unopposed motion seeking to extend the stay until the deadline for petitioning the U.S. Supreme Court for certiorari has passed in a similar case, and, if such petition is filed, until the Supreme Court resolves that case. On June 20, 2016, the motion was granted. The NLRB filed its petition for certiorari on September 9, 2016, and our case remains stayed.

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 briefing is now complete, subject only to Ms. Rubenstein's filing an optional reply brief due by June 24, 2016.and oral argument is set for February 17, 2017.

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 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. Bergdorf Goodman has vigorously denied these allegations. The Company is vigorously defendingparties recently reached a settlement in principle regarding this matter.

On February 11, 2016, a putative class action first amended complaint was filed against The Neiman Marcus Group, Inc. in the Superior Court of California, Orange County, by Holly Attia and seven other named plaintiffs. They allege claims for failure to pay overtime wages, failure to provide meal and rest breaks, failure to reimburse business expenses, failure to timely pay wages due at termination and failure to provide accurate itemized wage statements. Plaintiffs also allege derivative claims for restitution under California unfair competition law and a representative claim for penalties under the California Labor Code Private Attorney General Act ("PAGA"). Plaintiffs seek to certify a class of all nonexempt employees of the Company in California since December 31, 2011. Plaintiffs seek damages for the alleged Labor Code violations as well as restitution, statutory penalties under PAGA, and attorneys' fees, interest and costs of suit. The Company removed this matter to the U.S. District Court for the Central District of California on March 17, 2016, and subsequently filed a motion to compel arbitration as to all named plaintiffs and requested to stay the PAGA claim on April 20, 2016.claim. On May 31,June 27, 2016, the court vacatedgranted the hearingmotion and compelled arbitration of the individual claims. The court retained jurisdiction of the PAGA claim and stayed that claim pending the outcome of arbitration. On September 8, 2016, the plaintiffs filed a motion for reconsideration of the court's order regarding the arbitration. On October 18, 2016, the court granted the plaintiffs' motion for reconsideration based on a recent decision by the motionsNinth Circuit Court of Appeals in Morris v. Ernst & Young, LLP, and reversed its order granting the motion to compel arbitration. The Company filed an appeal on November 16, 2016. The case will proceed in district court while the appeal is pending. The district court has set for Junea trial date in the matter of February 6, 2016 and noted in planned to rule on the papers, and a decision remains pending. 2018.
On June 1, 2016, a PAGA representative action was filed against The Neiman Marcus Group, Inc. in the Superior Court of California, Orange County, by Xuan Hien Nguyen pleading only PAGA claims and asserting the same factual allegations as the plaintiffs in the Attia matter. On July 21, 2016, Ms. Nguyen filed an amended complaint with no material differences from the original complaint. On August 25, 2016, the Company filed a motion to dismiss or to stay the case. The motion was heard on September 23, 2016. At the hearing, the court granted the Company's motion and stayed the Nguyen case in light of the Attia matter.

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On July 28, 2016, former employee Milca Connolly filed a representative action alleging only PAGA claims against The Neiman Marcus Group in the Superior Court of California, Orange County. Ms. Connolly’s complaint raises PAGA claims substantially identical to those raised in Attia and Nguyen based on allegations of failure to pay overtime and minimum wages, unlawful deductions from wages, failure to provide meal and rest breaks, failure to reimburse business expenses, failure to timely pay wages due at termination and failure to provide accurate itemized wage statements. The Company was served with the Complaint in Connolly on September 8, 2016. On October 11, 2016, the Company filed a motion to dismiss or stay the case in light of the Attia and Nguyen matters. At the hearing on November 18, 2016, the court granted the Company's motion to stay the case.

On September 27, 2016, a dormant Illinois putative class action lawsuit, Catherine Ohle v. Neiman Marcus Group, originally filed in the Circuit Court of Cook County, was revived by an Illinois appeals court when it reversed a June 2014 trial court's order granting summary judgment to the Company and dismissing the matter in its entirety. In Ohle, the plaintiff alleged that the Company’s prior practice of conducting pre-employment credit checks of sales associates and considering credit history as a factor in its hiring decisions violated the Illinois Employee Credit Privacy Act. The appellate court reversed, holding that no exemption applied. On November 1, 2016, the Company appealed the decision to the Illinois Supreme Court. The appeal is now fully briefed, and we await a decision as to whether the Illinois Supreme Court will grant review.

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 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

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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 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. The parties completed supplemental briefing on December 21, 2015. On January 13, 2016, the court denied the Company's motion to dismiss. Our responsive pleading was due on June 10, 2016. The parties jointly requested, and the Court granted, an extension of time for filing a responsive pleading, which is currently due on July 11,December 28, 2016. 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.

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Other.  We had no outstanding irrevocable letters of credit at April 30,October 29, 2016.  We had approximately $3.4$3.6 million in surety bonds at April 30,October 29, 2016 relating primarily to merchandise imports and state sales tax and utility requirements.
 

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)
Other comprehensive loss (3,415) (116) (89) (3,620)
Balance, January 30, 2016 $(20,185) $(2,119) $(32,216) $(54,520)
Other comprehensive earnings (loss) 5,460
 503
 (89) 5,874
Balance, April 30, 2016 $(14,725) $(1,616) $(32,305) $(48,646)
(in thousands) 
Foreign
Currency
Translation
Adjustments
 
Unrealized
Losses on
Financial
Instruments
 
Unfunded
Benefit
Obligations
 Total
     
  
  
Balance, July 30, 2016 $(19,168) $(9,326) $(87,347) $(115,841)
Other comprehensive earnings (loss) 2,496
 1,986
 (3,871) 611
Amounts reclassified from accumulated other comprehensive loss 
 359
 
 359
Balance, October 29, 2016 $(16,672) $(6,981) $(91,218) $(114,871)
 
The amounts reclassified from accumulated other comprehensive loss are recorded within interest expense on the Condensed Consolidated Statements of Operations.


11.      Stock-Based Awards
 
Stock Options.Incentive Plans.  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

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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 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 aggregate 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.date.

Accounting for Stock Options. Prior to an initial public offering ("IPO"), in the event the optionee ceases to be an employee of the Company, 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 on the date of such optionee's termination of employment and the exercise price in the event the optionee ceases to be an employee of the Company.price. 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
19

Table of Parent's repurchase rights prior to an IPO, weContents


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") as variable awards using the liability method.method, as these optionees could receive a cash settlement of their awards at the time of retirement should Parent exercise its repurchase rights with respect to such shares. Under the liability method, we recognize the estimated liability for option awards held by Retirement Eligible Optionees over the vesting periods of such awards andawards. In periods in which the liability for the vested/earned options is adjusted to its estimated fair value throughof our equity increases, we increase our stock compensation liability. Conversely, in periods in which the estimated fair value of our equity decreases, we reduce our stock compensation liability. These increases/decreases are recorded as stock compensation expense at each balance sheet date.and are included in selling, general and administrative expenses. 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 April 30,October 29, 2016, an aggregate of 53,78245,210 Co-Invest Options and time-vested options were held by Retirement Eligible Optionees. The recorded liability with respect to such options was $19.8$4.4 million at AprilOctober 29, 2016, $5.5 million at July 30, 2016 $15.9and $17.8 million at August 1, 2015 and $22.2 million at May 2,October 31, 2015. 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.


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The following table sets forth certain summary information with respect to our stock options for the periods indicated.
 Thirteen weeks ended Thirty-nine weeks ended Thirteen weeks ended
(in thousands, except number of options and per option price) April 30,
2016
 May 2,
2015
 April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
            
Stock compensation expense $
 $2,135
 $3,880
 $6,405
 $1,381
 $1,953
            
Stock option grants:  
  
  
    
  
Number of options granted 
 2,240
 4,268
 8,243
 9,115
 
Weighted average grant date fair value $
 $363
 $341
 $335
 $158
 $
            
Stock option exercises:  
  
  
    
  
Number of options exercised 
 
 626
 118
 609
 
Weighted average exercise price $
 $
 $1,205
 $577
 $180
 $

In September 2016, the Compensation Committee determined that the exercise prices of certain time-vested and performance-vested stock options were higher than the current fair market value of Parent's common stock. In order to enhance the retentive value of these options, the Compensation Committee approved (1) a repricing of 18,225 time-vested and performance-vested stock options to an exercise price of $1,000 per share and (2) modifications to the performance metrics applicable to all performance-vested stock options.

Restricted Stock. On October 27, 2016, Parent approved grants of 26,954 restricted shares of common stock of Parent to certain executive officers and management employees. Subject to continued employment, shares of restricted stock will vest over three or four years in equal increments on each anniversary of December 1, 2016. Each year beginning in calendar 2017, subject to certain limitations, each recipient will have the ability to require Parent to acquire his or her vested shares (the "put right") during the 14-day period following the release of the Company's earnings in respect of its first fiscal quarter (such period, the "put period") for a purchase price equal to the fair market value of Parent's common stock at the beginning of the put period. Except as described below with respect to our Chief Executive Officer, a recipient will forfeit all unvested shares of restricted stock and may not exercise the put right with respect to any vested shares following the termination of his or her employment for any reason. Following a voluntary departure without good reason or a termination for cause, we have the right to repurchase any vested shares of restricted stock at par value ($0.001 per share).

If our Chief Executive Officer's employment is terminated by Parent without cause, by her for good reason (as defined in her employment agreement) or by reason of the non-renewal of her employment agreement, (i) prior to a change in control of Parent, all unvested shares of restricted stock that would have vested in the 12-month period following the date of such termination of employment will accelerate and vest, and (ii) following a change in control but before an IPO, all unvested shares of restricted stock will accelerate and vest. Upon such termination, our Chief Executive Officer will have the ability to exercise the put right with respect to vested shares in the first put period following termination of employment.


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For a more detailed description of our stock-based awards, refer to Note 1415 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended August 1, 2015.July 30, 2016.


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 (Income)
 
Other expenses (income) consistsconsist of the following components:
 Thirteen weeks ended Thirty-nine weeks ended Thirteen weeks ended
(in thousands) April 30,
2016
 May 2,
2015
 April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
            
Expenses incurred in connection with strategic growth initiatives $3,599
 $2,202
 $21,870
 $6,495
 $6,553
 $14,376
MyTheresa acquisition costs 80
 2,048
 4,408
 15,140
Expenses related to cyber-attack, net of insurance recoveries 204
 1,321
 889
 4,121
Net gain from facility closure (5,446) 
 (5,446)

MyTheresa acquisition costs (benefits) (615) 2,544
Other expenses 929
 
 2,791
 2,324
 880
 178
Total $(634) $5,571
 $24,512
 $28,080
 $6,818
 $17,098

We incurred professional fees and other costs in connection with our Organizing for Growth and NMG One strategic growth initiatives aggregating $3.6$6.6 million in the thirdfirst quarter of fiscal year 20162017 and $21.9$14.4 million in year-to-datethe first quarter of fiscal year 2016. In connection with Organizing for Growth, we eliminated approximately 90 positions on August 18, 2016 and approximately 500 positions on October 1, 2015 across our stores, divisions and facilities on October 1, 2015facilities. We incurred severance costs of $3.3 million in the first quarter of fiscal year 2017 and incurred $10.2 million in the first quarter of severance costs.fiscal year 2016.

In October 2014, we acquired MyTheresa, a luxury retailer headquartered in Munich, Germany. Acquisition costs consisted primarily of professional fees as well as adjustments of our earn-out obligations to estimated fair value at each reporting date.

We discovered

14.  Condensed Consolidating Financial Information (with respect to NMG's obligations under the Senior Secured Credit Facilities, Cash Pay Notes and PIK Toggle Notes)

All of NMG’s obligations under the Senior Secured Credit Facilities are guaranteed by Holdings and our current and future direct and indirect wholly owned subsidiaries, subject to exceptions as more fully described in January 2014Note 5 of the Notes to Condensed Consolidated Financial Statements.  All of NMG's obligations under the Cash Pay Notes and the PIK Toggle Notes are guaranteed by the same entities that malicious software (malware) was clandestinely installedguarantee the Senior Secured Credit Facilities, other than Holdings. Currently, the Company’s non-guarantor subsidiaries under the Senior Secured Credit Facilities, Cash Pay Notes and PIK Toggle Notes consist principally of NMG Germany GmbH, through which we conduct the operations of MyTheresa.
The following condensed consolidating financial information represents the financial information of the Company and its non-guarantor subsidiaries under the Senior Secured Credit Facilities, Cash Pay Notes and PIK Toggle Notes prepared on our computer systems. In year-to-date fiscal 2016 and year-to-date fiscal 2015, we incurred investigative, legal and other expensesthe equity basis of accounting.  The information is presented in connectionaccordance with a cyber-attack.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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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.
  October 29, 2016
(in thousands) Company NMG Guarantor Subsidiaries 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
ASSETS  
    
  
  
  
Current assets:  
    
  
  
  
Cash and cash equivalents $
 $32,930
 $590
 $8,557
 $
 $42,077
Merchandise inventories 
 1,075,930
 179,537
 69,593
 
 1,325,060
Other current assets 
 151,961
 7,535
 3,726
 (1,432) 161,790
Total current assets 
 1,260,821
 187,662
 81,876
 (1,432) 1,528,927
Property and equipment, net 
 1,455,501
 148,965
 3,033
 
 1,607,499
Intangible assets, net 
 551,654
 2,593,726
 73,202
 
 3,218,582
Goodwill 
 1,412,146
 537,263
 125,713
 
 2,075,122
Other long-term assets 
 33,111
 3,135
 
 
 36,246
Intercompany notes receivable 
 199,460
 
 
 (199,460) 
Investments in subsidiaries 922,978
 3,398,622
 
 
 (4,321,600) 
Total assets $922,978
 $8,311,315
 $3,470,751
 $283,824
 $(4,522,492) $8,466,376
LIABILITIES AND MEMBER EQUITY  
  
    
  
  
Current liabilities:  
  
    
  
  
Accounts payable $
 $335,959
 $
 $11,328
 $
 $347,287
Accrued liabilities 
 357,641
 76,906
 52,335
 (1,432) 485,450
Current portion of long-term debt 
 29,426
 
 
 
 29,426
Total current liabilities 
 723,026
 76,906
 63,663
 (1,432) 862,163
Long-term liabilities:  
  
    
  
  
Long-term debt 
 4,772,596
 
 
 
 4,772,596
Intercompany notes payable 
 
 
 199,460
 (199,460) 
Deferred income taxes 
 1,269,579
 
 11,717
 
 1,281,296
Other long-term liabilities 
 623,136
 4,207
 
 
 627,343
Total long-term liabilities 
 6,665,311
 4,207
 211,177
 (199,460) 6,681,235
Total member equity 922,978
 922,978
 3,389,638
 8,984
 (4,321,600) 922,978
Total liabilities and member equity $922,978
 $8,311,315
 $3,470,751
 $283,824
 $(4,522,492) $8,466,376

In the third quarter
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Table of fiscal year 2016, we recorded a $5.4 million net gain related to the closure and relocationContents


  July 30, 2016
(in thousands) Company NMG Guarantor Subsidiaries 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
ASSETS  
    
  
  
  
Current assets:  
    
  
  
  
Cash and cash equivalents $
 $39,791
 $936
 $21,116
 $
 $61,843
Merchandise inventories 
 917,138
 145,518
 62,669
 
 1,125,325
Other current assets 
 132,434
 12,311
 4,904
 (2,771) 146,878
Total current assets 
 1,089,363
 158,765
 88,689
 (2,771) 1,334,046
Property and equipment, net 
 1,440,968
 144,186
 2,967
 
 1,588,121
Intangible assets, net 
 566,084
 2,605,413
 73,005
 
 3,244,502
Goodwill 
 1,412,146
 537,263
 123,409
 
 2,072,818
Other long-term assets 
 15,153
 2,248
 
 
 17,401
Intercompany notes receivable 
 196,686
 
 
 (196,686) 
Investments in subsidiaries 943,131
 3,341,664
 
 
 (4,284,795) 
Total assets $943,131
 $8,062,064
 $3,447,875
 $288,070
 $(4,484,252) $8,256,888
LIABILITIES AND MEMBER EQUITY  
  
    
  
  
Current liabilities:  
  
    
  
  
Accounts payable $
 $257,047
 $37,082
 $23,607
 $
 $317,736
Accrued liabilities 
 373,108
 70,488
 51,821
 (2,771) 492,646
Current portion of long-term debt 
 29,426
 
 
 
 29,426
Total current liabilities 
 659,581
 107,570
 75,428
 (2,771) 839,808
Long-term liabilities:  
  
    
  
  
Long-term debt 
 4,584,281
 
 
 
 4,584,281
Intercompany notes payable 
 
 
 196,686
 (196,686) 
Deferred income taxes 
 1,285,829
 
 10,964
 
 1,296,793
Other long-term liabilities 
 589,242
 3,633
 
 
 592,875
Total long-term liabilities 
 6,459,352
 3,633
 207,650
 (196,686) 6,473,949
Total member equity 943,131
 943,131
 3,336,672
 4,992
 (4,284,795) 943,131
Total liabilities and member equity $943,131
 $8,062,064
 $3,447,875
 $288,070
 $(4,484,252) $8,256,888


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Table of our regional service center in New York.Contents


  October 31, 2015
(in thousands) Company NMG Guarantor Subsidiaries 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
ASSETS  
    
  
  
  
Current assets:  
    
  
  
  
Cash and cash equivalents $
 $45,514
 $966
 $12,102
 $
 $58,582
Merchandise inventories 
 1,128,592
 176,784
 45,001
 
 1,350,377
Other current assets 
 114,525
 12,667
 5,973
 (3,764) 129,401
Total current assets 
 1,288,631
 190,417
 63,076
 (3,764) 1,538,360
Property and equipment, net 
 1,378,343
 124,027
 2,020
 
 1,504,390
Intangible assets, net 
 610,471
 2,881,712
 77,467
 
 3,569,650
Goodwill 
 1,611,364
 537,263
 123,944
 
 2,272,571
Other long-term assets 
 13,492
 1,333
 
 
 14,825
Intercompany notes receivable 
 189,841
 
 
 (189,841) 
Investments in subsidiaries 1,403,534
 3,593,643
 
 
 (4,997,177) 
Total assets $1,403,534
 $8,685,785
 $3,734,752
 $266,507
 $(5,190,782) $8,899,796
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
  
Current liabilities:  
  
  
  
  
  
Accounts payable $
 $284,815
 $30,680
 $7,742
 $
 $323,237
Accrued liabilities 
 366,676
 86,246
 48,772
 (3,764) 497,930
Current portion of long-term debt 
 29,426
 
 
 
 29,426
Total current liabilities 
 680,917
 116,926
 56,514
 (3,764) 850,593
Long-term liabilities:  
  
  
  
  
  
Long-term debt 
 4,764,337
 
 
 
 4,764,337
Intercompany notes payable 
 
 
 189,841
 (189,841) 
Deferred income taxes 
 1,406,852
 
 16,521
 
 1,423,373
Other long-term liabilities 
 430,145
 3,282
 24,532
 
 457,959
Total long-term liabilities 
 6,601,334
 3,282
 230,894
 (189,841) 6,645,669
Total member equity 1,403,534
 1,403,534
 3,614,544
 (20,901) (4,997,177) 1,403,534
Total liabilities and member equity $1,403,534
 $8,685,785
 $3,734,752
 $266,507
 $(5,190,782) $8,899,796

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  Thirteen weeks ended October 29, 2016
(in thousands) Company NMG Guarantor Subsidiaries 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $836,605
 $185,064
 $57,438
 $
 $1,079,107
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 544,538
 117,109
 38,248
 
 699,895
Selling, general and administrative expenses (excluding depreciation) 
 225,940
 33,756
 16,900
 
 276,596
Income from credit card program 
 (12,429) (1,239) 
 
 (13,668)
Depreciation expense 
 52,186
 4,420
 278
 
 56,884
Amortization of intangible assets and favorable lease commitments 
 14,432
 11,687
 1,158
 
 27,277
Other expenses (income) 
 8,123
 
 (1,305) 
 6,818
Operating earnings 
 3,815
 19,331
 2,159
 
 25,305
Interest expense, net 
 70,655
 
 1,428
 
 72,083
Intercompany royalty charges (income) 
 34,004
 (34,004) 
 
 
Foreign currency loss (gain) 
 
 
 (3,064) 3,064
 
Equity in loss (earnings) of subsidiaries 23,513
 (56,435) 
 
 32,922
 
Earnings (loss) before income taxes (23,513) (44,409) 53,335
 3,795
 (35,986) (46,778)
Income tax expense (benefit) 
 (22,687) 
 695
 (1,273) (23,265)
Net earnings (loss) $(23,513) $(21,722) $53,335
 $3,100
 $(34,713) $(23,513)
Total other comprehensive earnings (loss), net of tax 970
 (1,526) 
 705
 821
 970
Total comprehensive earnings (loss) $(22,543) $(23,248) $53,335
 $3,805
 $(33,892) $(22,543)

  Thirteen weeks ended October 31, 2015
(in thousands) Company NMG Guarantor Subsidiaries 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $920,714
 $199,966
 $44,220
 $
 $1,164,900
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 586,857
 121,052
 28,165
 
 736,074
Selling, general and administrative expenses (excluding depreciation) 
 237,025
 34,592
 13,725
 
 285,342
Income from credit card program 
 (11,886) (1,401) 
 
 (13,287)
Depreciation expense 
 50,853
 4,808
 229
 
 55,890
Amortization of intangible assets and favorable lease commitments 
 15,467
 12,216
 1,282
 
 28,965
Other expenses 
 14,586
 
 2,512
 
 17,098
Operating earnings (loss) 
 27,812
 28,699
 (1,693) 
 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) 63,522
 (5,506) (47,857) (16,867)
Income tax benefit 
 (6,090) 
 (184) (55) (6,329)
Net earnings (loss) $(10,538) $(10,398) $63,522
 $(5,322) $(47,802) $(10,538)
Total other comprehensive earnings (loss), net of tax 328
 212
 
 (24) (188) 328
Total comprehensive earnings (loss) $(10,210) $(10,186) $63,522
 $(5,346) $(47,990) $(10,210)


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  Thirteen weeks ended October 29, 2016
(in thousands) Company NMG Guarantor Subsidiaries 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS - OPERATING ACTIVITIES  
    
  
  
  
Net earnings (loss) $(23,513) $(21,722) $53,335
 $3,100
 $(34,713) $(23,513)
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities:  
  
  
  
  
  
Depreciation and amortization expense 
 72,761
 16,107
 1,436
 
 90,304
Deferred income taxes 
 (16,539) 
 543
 
 (15,996)
Other 
 (519) (217) (2,957) 1,791
 (1,902)
Intercompany royalty income payable (receivable) 
 34,004
 (34,004) 
 
 
Equity in loss (earnings) of subsidiaries 23,513
 (56,435) 
 
 32,922
 
Changes in operating assets and liabilities, net 
 (141,975) (24,060) (14,669) 
 (180,704)
Net cash provided by (used for) operating activities 
 (130,425) 11,161
 (12,547) 
 (131,811)
CASH FLOWS - INVESTING ACTIVITIES  
  
  
  
  
  
Capital expenditures 
 (53,639) (11,507) (287) 
 (65,433)
Net cash used for investing activities 
 (53,639) (11,507) (287) 
 (65,433)
CASH FLOWS - FINANCING ACTIVITIES  
  
  
  
  
  
Borrowings under Asset-Based Revolving Credit Facility 
 270,000
 
 
 
 270,000
Repayment of borrowings 
 (87,357) 
 
 
 (87,357)
Debt issuance costs paid 
 (5,440) 
 
 
 (5,440)
Net cash provided by financing activities 
 177,203
 
 
 
 177,203
Effect of exchange rate changes on cash and cash equivalents 
 
 
 275
 
 275
CASH AND CASH EQUIVALENTS  
  
  
  
  
  
Decrease during the period 
 (6,861) (346) (12,559) 
 (19,766)
Beginning balance 
 39,791
 936
 21,116
 
 61,843
Ending balance $
 $32,930
 $590
 $8,557
 $
 $42,077


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  Thirteen weeks ended October 31, 2015
(in thousands) Company NMG Guarantor Subsidiaries 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS - OPERATING ACTIVITIES  
    
  
  
  
Net earnings (loss) $(10,538) $(10,398) $63,522
 $(5,322) $(47,802) $(10,538)
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities:  
  
  
  
  
  
Depreciation and amortization expense 
 72,463
 17,024
 1,511
 
 90,998
Deferred income taxes 
 (16,904) 
 (297) 
 (17,201)
Other 
 (2,084) (11) 6,327
 140
 4,372
Intercompany royalty income payable (receivable) 
 34,823
 (34,823) 
 
 
Equity in loss (earnings) of subsidiaries 10,538
 (58,200) 
 
 47,662
 
Changes in operating assets and liabilities, net 
 (128,536) (32,612) (48,490) 
 (209,638)
Net cash provided by (used for) operating activities 
 (108,836) 13,100
 (46,271) 
 (142,007)
CASH FLOWS - INVESTING ACTIVITIES  
  
  
  
  
  
Capital expenditures 
 (61,997) (12,840) (113) 
 (74,950)
Net cash used for investing activities 
 (61,997) (12,840) (113) 
 (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
Effect of exchange rate changes on cash and cash equivalents 
 
 
 (79) 
 (79)
CASH AND CASH EQUIVALENTS  
  
  
  
  
  
Increase (decrease) during the period 
 (7,648) 260
 (7,004) 
 (14,392)
Beginning balance 
 53,162
 706
 19,106
 
 72,974
Ending balance $
 $45,514
 $966
 $12,102
 $
 $58,582



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14.15.  Condensed Consolidating Financial Information (with respect to NMG's obligations under the 2028 Debentures)
 
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.
 
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.
 April 30, 2016 October 29, 2016
(in thousands) Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated
ASSETS  
  
  
  
  
  
  
  
  
  
Current assets:  
  
  
  
  
  
  
  
  
  
Cash and cash equivalents $
 $56,257
 $20,025
 $
 $76,282
 $
 $32,930
 $9,147
 $
 $42,077
Merchandise inventories 
 991,226
 209,687
 
 1,200,913
 
 1,075,930
 249,130
 
 1,325,060
Other current assets 
 190,638
 14,870
 (1,378) 204,130
 
 151,961
 11,261
 (1,432) 161,790
Total current assets 
 1,238,121
 244,582
 (1,378) 1,481,325
 
 1,260,821
 269,538
 (1,432) 1,528,927
Property and equipment, net 
 1,405,802
 141,937
 
 1,547,739
 
 1,455,501
 151,998
 
 1,607,499
Intangible assets, net 
 581,975
 2,933,610
 
 3,515,585
 
 551,654
 2,666,928
 
 3,218,582
Goodwill 
 1,611,365
 664,676
 
 2,276,041
 
 1,412,146
 662,976
 
 2,075,122
Other long-term assets 
 122,392
 2,381
 
 124,773
 
 33,111
 3,135
 
 36,246
Intercompany notes receivable 
 196,686
 
 (196,686) 
 
 199,460
 
 (199,460) 
Investments in subsidiaries 1,417,572
 3,599,450
 
 (5,017,022) 
 922,978
 3,398,622
 
 (4,321,600) 
Total assets $1,417,572
 $8,755,791
 $3,987,186
 $(5,215,086) $8,945,463
 $922,978
 $8,311,315
 $3,754,575
 $(4,522,492) $8,466,376
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
  
  
  
  
  
Current liabilities:  
  
  
  
  
  
  
  
  
  
Accounts payable $
 $225,277
 $39,450
 $
 $264,727
 $
 $335,959
 $11,328
 $
 $347,287
Accrued liabilities 
 353,205
 134,854
 (1,378) 486,681
 
 357,641
 129,241
 (1,432) 485,450
Current portion of long-term debt 
 29,426
 
 
 29,426
 
 29,426
 
 
 29,426
Total current liabilities 
 607,908
 174,304
 (1,378) 780,834
 
 723,026
 140,569
 (1,432) 862,163
Long-term liabilities:  
  
  
  
  
  
  
  
  
  
Long-term debt 
 4,794,399
 
 
 4,794,399
 
 4,772,596
 
 
 4,772,596
Intercompany notes payable 
 
 196,686
 (196,686) 
 
 
 199,460
 (199,460) 
Deferred income taxes 
 1,487,131
 13,113
 
 1,500,244
 
 1,269,579
 11,717
 
 1,281,296
Other long-term liabilities 
 448,781
 3,633
 
 452,414
 
 623,136
 4,207
 
 627,343
Total long-term liabilities 
 6,730,311
 213,432
 (196,686) 6,747,057
 
 6,665,311
 215,384
 (199,460) 6,681,235
Total member equity 1,417,572
 1,417,572
 3,599,450
 (5,017,022) 1,417,572
 922,978
 922,978
 3,398,622
 (4,321,600) 922,978
Total liabilities and member equity $1,417,572
 $8,755,791
 $3,987,186
 $(5,215,086) $8,945,463
 $922,978
 $8,311,315
 $3,754,575
 $(4,522,492) $8,466,376

23
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 August 1, 2015 July 30, 2016
(in thousands) Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated Company NMG 
Non-
 Guarantor
 Subsidiaries
 Eliminations Consolidated
ASSETS  
  
  
  
  
  
  
  
  
  
Current assets:  
  
  
  
  
  
  
  
  
  
Cash and cash equivalents $
 $53,162
 $19,812
 $
 $72,974
 $
 $39,791
 $22,052
 $
 $61,843
Merchandise inventories 
 970,295
 184,549
 
 1,154,844
 
 917,138
 208,187
 
 1,125,325
Other current assets 
 138,966
 18,082
 (165) 156,883
 
 132,434
 17,215
 (2,771) 146,878
Total current assets 
 1,162,423
 222,443
 (165) 1,384,701
 
 1,089,363
 247,454
 (2,771) 1,334,046
Property and equipment, net 
 1,359,118
 118,768
 
 1,477,886
 
 1,440,968
 147,153
 
 1,588,121
Intangible assets, net 
 625,937
 2,972,625
 
 3,598,562
 
 566,084
 2,678,418
 
 3,244,502
Goodwill 
 1,611,365
 661,118
 
 2,272,483
 
 1,412,146
 660,672
 
 2,072,818
Other long-term assets 
 140,776
 1,354
 
 142,130
 
 15,153
 2,248
 
 17,401
Intercompany notes receivable 
 150,028
 
 (150,028) 
 
 196,686
 
 (196,686) 
Investments in subsidiaries 1,413,744
 3,617,680
 
 (5,031,424) 
 943,131
 3,341,664
 
 (4,284,795) 
Total assets $1,413,744
 $8,667,327
 $3,976,308
 $(5,181,617) $8,875,762
 $943,131
 $8,062,064
 $3,735,945
 $(4,484,252) $8,256,888
LIABILITIES AND MEMBER EQUITY  
  
  
  
  
  
  
  
  
  
Current liabilities:  
  
  
  
  
  
  
  
  
  
Accounts payable $
 $291,089
 $51,910
 $
 $342,999
 $
 $257,047
 $60,689
 $
 $317,736
Accrued liabilities 
 380,255
 85,312
 (165) 465,402
 
 373,108
 122,309
 (2,771) 492,646
Current portion of long-term debt 
 29,426
 
 
 29,426
 
 29,426
 
 
 29,426
Total current liabilities 
 700,770
 137,222
 (165) 837,827
 
 659,581
 182,998
 (2,771) 839,808
Long-term liabilities:  
  
  
  
  
  
  
  
  
  
Long-term debt 
 4,681,309
 
 
 4,681,309
 
 4,584,281
 
 
 4,584,281
Intercompany notes payable 
 
 150,028
 (150,028) 
 
 
 196,686
 (196,686) 
Deferred income taxes 
 1,454,278
 16,813
 
 1,471,091
 
 1,285,829
 10,964
 
 1,296,793
Other long-term liabilities 
 417,226
 54,565
 
 471,791
 
 589,242
 3,633
 
 592,875
Total long-term liabilities 
 6,552,813
 221,406
 (150,028) 6,624,191
 
 6,459,352
 211,283
 (196,686) 6,473,949
Total member equity 1,413,744
 1,413,744
 3,617,680
 (5,031,424) 1,413,744
 943,131
 943,131
 3,341,664
 (4,284,795) 943,131
Total liabilities and member equity $1,413,744
 $8,667,327
 $3,976,308
 $(5,181,617) $8,875,762
 $943,131
 $8,062,064
 $3,735,945
 $(4,484,252) $8,256,888

24
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 May 2, 2015 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
 
 114,525
 18,640
 (3,764) 129,401
Total current assets 
 1,186,574
 211,391
 (102) 1,397,863
 
 1,288,631
 253,493
 (3,764) 1,538,360
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 long-term assets 
 139,203
 1,375
 
 140,578
 
 13,492
 1,333
 
 14,825
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
 $8,685,785
 $4,001,259
 $(5,190,782) $8,899,796
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
 135,018
 (3,764) 497,930
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
 173,440
 (3,764) 850,593
Long-term liabilities:  
  
  
  
  
  
  
  
  
  
Long-term debt 
 4,708,612
 
 
 4,708,612
 
 4,764,337
 
 
 4,764,337
Intercompany notes payable 
 
 150,000
 (150,000) 
 
 
 189,841
 (189,841) 
Deferred income taxes 
 1,485,902
 15,012
 
 1,500,914
 
 1,406,852
 16,521
 
 1,423,373
Other long-term liabilities 
 392,633
 47,361
 
 439,994
 
 430,145
 27,814
 
 457,959
Total long-term liabilities 
 6,587,147
 212,373
 (150,000) 6,649,520
 
 6,601,334
 234,176
 (189,841) 6,645,669
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
 $8,685,785
 $4,001,259
 $(5,190,782) $8,899,796

25
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 Thirteen weeks ended April 30, 2016 Thirteen weeks ended October 29, 2016
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $930,333
 $238,959
 $
 $1,169,292
 $
 $836,605
 $242,502
 $
 $1,079,107
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 590,735
 152,736
 
 743,471
 
 544,538
 155,357
 
 699,895
Selling, general and administrative expenses (excluding depreciation) 
 225,972
 48,805
 
 274,777
 
 225,940
 50,656
 
 276,596
Income from credit card program 
 (13,604) (1,406) 
 (15,010) 
 (12,429) (1,239) 
 (13,668)
Depreciation expense 
 53,983
 5,633
 
 59,616
 
 52,186
 4,698
 
 56,884
Amortization of intangible assets and favorable lease commitments 
 14,198
 13,201
 
 27,399
 
 14,432
 12,845
 
 27,277
Other expenses (income) 
 (1,822) 1,188
 
 (634) 
 8,123
 (1,305) 
 6,818
Operating earnings 
 60,871
 18,802
 
 79,673
 
 3,815
 21,490
 
 25,305
Interest expense, net 
 71,335
 1,340
 
 72,675
 
 70,655
 1,428
 
 72,083
Intercompany royalty charges (income) 
 36,690
 (36,690) 
 
 
 34,004
 (34,004) 
 
Foreign currency loss (gain) 
 
 (7,740) 7,740
 
 
 
 (3,064) 3,064
 
Equity in loss (earnings) of subsidiaries (3,790) (59,692) 
 63,482
 
 23,513
 (56,435) 
 32,922
 
Earnings (loss) before income taxes 3,790
 12,538
 61,892
 (71,222) 6,998
 (23,513) (44,409) 57,130
 (35,986) (46,778)
Income tax expense (benefit) 
 3,803
 2,200
 (2,795) 3,208
 
 (22,687) 695
 (1,273) (23,265)
Net earnings (loss) $3,790
 $8,735
 $59,692
 $(68,427) $3,790
 $(23,513) $(21,722) $56,435
 $(34,713) $(23,513)
Total other comprehensive earnings (loss), net of tax 5,874
 414
 515
 (929) 5,874
 970
 (1,526) 705
 821
 970
Total comprehensive earnings (loss) $9,664
 $9,149
 $60,207
 $(69,356) $9,664
 $(22,543) $(23,248) $57,140
 $(33,892) $(22,543)

 Thirteen weeks ended May 2, 2015 Thirteen weeks ended October 31, 2015
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $977,352
 $242,748
 $
 $1,220,100
 $
 $920,714
 $244,186
 $
 $1,164,900
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 605,313
 149,721
 
 755,034
 
 586,857
 149,217
 
 736,074
Selling, general and administrative expenses (excluding depreciation) 
 237,511
 48,178
 
 285,689
 
 237,025
 48,317
 
 285,342
Income from credit card program 
 (10,603) (1,296) 
 (11,899) 
 (11,886) (1,401) 
 (13,287)
Depreciation expense 
 40,308
 7,762
 
 48,070
 
 50,853
 5,037
 
 55,890
Amortization of intangible assets and favorable lease commitments 
 15,496
 14,179
 
 29,675
 
 15,467
 13,498
 
 28,965
Other expenses 
 3,899
 1,672
 
 5,571
 
 14,586
 2,512
 
 17,098
Operating earnings 
 85,428
 22,532
 
 107,960
 
 27,812
 27,006
 
 54,818
Interest expense, net 
 72,407
 437
 
 72,844
 
 67,677
 4,008
 
 71,685
Intercompany royalty charges (income) 
 35,624
 (35,624) 
 
 
 34,823
 (34,823) 
 
Foreign currency loss (gain) 
 
 17,748
 (17,748) 
 
 
 (195) 195
 
Equity in loss (earnings) of subsidiaries (19,820) (45,095) 
 64,915
 
 10,538
 (58,200) 
 47,662
 
Earnings (loss) before income taxes 19,820
 22,492
 39,971
 (47,167) 35,116
 (10,538) (16,488) 58,016
 (47,857) (16,867)
Income tax expense (benefit) 
 15,561
 (5,124) 4,859
 15,296
Income tax benefit 
 (6,090) (184) (55) (6,329)
Net earnings (loss) $19,820
 $6,931
 $45,095
 $(52,026) $19,820
 $(10,538) $(10,398) $58,200
 $(47,802) $(10,538)
Total other comprehensive earnings (loss), net of tax (14,839) 868
 (2,818) 1,950
 (14,839) 328
 212
 (24) (188) 328
Total comprehensive earnings (loss) $4,981
 $7,799
 $42,277
 $(50,076) $4,981
 $(10,210) $(10,186) $58,176
 $(47,990) $(10,210)







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  Thirty-nine weeks ended April 30, 2016
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
Revenues $
 $3,066,164
 $754,985
 $
 $3,821,149
Cost of goods sold including buying and occupancy costs (excluding depreciation) 
 2,009,842
 495,995
 
 2,505,837
Selling, general and administrative expenses (excluding depreciation) 
 715,211
 147,562
 
 862,773
Income from credit card program 
 (40,362) (4,272) 
 (44,634)
Depreciation expense 
 153,200
 15,957
 
 169,157
Amortization of intangible assets and favorable lease commitments 
 43,961
 40,035
 
 83,996
Other expenses 
 19,351
 5,161
 
 24,512
Operating earnings 
 164,961
 54,547
 
 219,508
Interest expense, net 
 209,090
 6,765
 
 215,855
Intercompany royalty charges (income) 
 115,445
 (115,445) 
 
Foreign currency loss (gain) 
 
 (3,715) 3,715
 
Equity in loss (earnings) of subsidiaries (1,136) (165,703) 
 166,839
 
Earnings (loss) before income taxes 1,136
 6,129
 166,942
 (170,554) 3,653
Income tax expense (benefit) 
 2,930
 1,239
 (1,652) 2,517
Net earnings (loss) $1,136
 $3,199
 $165,703
 $(168,902) $1,136
Total other comprehensive earnings (loss), net of tax 2,582
 421
 98
 (519) 2,582
Total comprehensive earnings (loss) $3,718
 $3,620
 $165,801
 $(169,421) $3,718

  Thirty-nine weeks ended May 2, 2015
(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 loss (earnings) 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 earnings (loss), 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





  Thirteen weeks ended October 29, 2016
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS—OPERATING ACTIVITIES  
  
  
  
  
Net earnings (loss) $(23,513) $(21,722) $56,435
 $(34,713) $(23,513)
Adjustments to reconcile net earnings (loss) to net cash used for operating activities:  
  
  
  
  
Depreciation and amortization expense 
 72,761
 17,543
 
 90,304
Deferred income taxes 
 (16,539) 543
 
 (15,996)
Other 
 (519) (3,174) 1,791
 (1,902)
Intercompany royalty income payable (receivable) 
 34,004
 (34,004) 
 
Equity in loss (earnings) of subsidiaries 23,513
 (56,435) 
 32,922
 
Changes in operating assets and liabilities, net 
 (141,975) (38,729) 
 (180,704)
Net cash used for operating activities 
 (130,425) (1,386) 
 (131,811)
CASH FLOWS—INVESTING ACTIVITIES  
  
  
  
  
Capital expenditures 
 (53,639) (11,794) 
 (65,433)
Net cash used for investing activities 
 (53,639) (11,794) 
 (65,433)
CASH FLOWS—FINANCING ACTIVITIES  
  
  
  
  
Borrowings under Asset-Based Revolving Credit Facility 
 270,000
 
 
 270,000
Repayment of borrowings 
 (87,357) 
 
 (87,357)
Debt issuance costs paid 
 (5,440) 
 
 (5,440)
Net cash provided by financing activities 
 177,203
 
 
 177,203
Effect of exchange rate changes on cash and cash equivalents 
 
 275
 
 275
CASH AND CASH EQUIVALENTS  
  
  
  
  
Decrease during the period 
 (6,861) (12,905) 
 (19,766)
Beginning balance 
 39,791
 22,052
 
 61,843
Ending balance $
 $32,930
 $9,147
 $
 $42,077


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  Thirty-nine weeks ended April 30, 2016
(in thousands) Company NMG 
Non-
 Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS—OPERATING ACTIVITIES  
  
  
  
  
Net earnings (loss) $1,136
 $3,199
 $165,703
 $(168,902) $1,136
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities:  
  
  
  
  
Depreciation and amortization expense 
 215,590
 55,992
 
 271,582
Deferred income taxes 
 19,681
 (3,896) 
 15,785
Other 
 (7,918) 12,078
 2,063
 6,223
Intercompany royalty income payable (receivable) 
 115,445
 (115,445) 
 
Equity in loss (earnings) of subsidiaries (1,136) (165,703) 
 166,839
 
Changes in operating assets and liabilities, net 
 (26,894) (117,381) 
 (144,275)
Net cash provided by (used for) operating activities 
 153,400
 (2,949) 
 150,451
CASH FLOWS—INVESTING ACTIVITIES  
  
  
  
  
Capital expenditures 
 (193,573) (38,420) 
 (231,993)
Acquisition of MyTheresa 
 
 (896) 
 (896)
Investment in subsidiaries 
 (30,204) 30,204
 
 
Net cash used for investing activities 
 (223,777) (9,112) 
 (232,889)
CASH FLOWS—FINANCING ACTIVITIES  
  
  
  
  
Borrowings under Asset-Based Revolving Credit Facility 
 495,000
 
 
 495,000
Repayment of borrowings 
 (382,069) 
 
 (382,069)
Payment of contingent earn-out obligation 
 
 (27,185) 
 (27,185)
Intercompany notes payable (receivable) 
 (39,459) 39,459
 
 
Net cash provided by financing activities 
 73,472
 12,274
 
 85,746
CASH AND CASH EQUIVALENTS  
  
  
  
  
Increase during the period 
 3,095
 213
 
 3,308
Beginning balance 
 53,162
 19,812
 
 72,974
Ending balance $
 $56,257
 $20,025
 $
 $76,282


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 Thirty-nine weeks ended May 2, 2015 Thirteen weeks ended October 31, 2015
(in thousands) Company NMG Non-
Guarantor
Subsidiaries
 Eliminations Consolidated Company NMG Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
CASH FLOWS—OPERATING ACTIVITIES  
  
  
  
  
  
  
  
  
  
Net earnings (loss) $47,831
 $30,445
 $165,244
 $(195,689) $47,831
 $(10,538) $(10,398) $58,200
 $(47,802) $(10,538)
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 
 205,123
 57,323
 
 262,446
 
 72,463
 18,535
 
 90,998
Deferred income taxes 
 (40,431) (8,776) 
 (49,207) 
 (16,904) (297) 
 (17,201)
Other 
 2,381
 33,581
 (17,386) 18,576
 
 (2,084) 6,316
 140
 4,372
Intercompany royalty income payable (receivable) 
 114,650
 (114,650) 
 
 
 34,823
 (34,823) 
 
Equity in loss (earnings) of subsidiaries (47,831) (165,244) 
 213,075
 
 10,538
 (58,200) 
 47,662
 
Changes in operating assets and liabilities, net 
 (79,796) (77,037) 
 (156,833) 
 (128,536) (81,102) 
 (209,638)
Net cash provided by operating activities 
 67,128
 55,685
 
 122,813
Net cash used for operating activities 
 (108,836) (33,171) 
 (142,007)
CASH FLOWS—INVESTING ACTIVITIES  
  
  
  
  
  
  
  
  
  
Capital expenditures 
 (169,307) (13,709) 
 (183,016) 
 (61,997) (12,953) 
 (74,950)
Acquisition of MyTheresa 
 
 (181,727) 
 (181,727)
Net cash used for investing activities 
 (169,307) (195,436) 
 (364,743) 
 (61,997) (12,953) 
 (74,950)
CASH FLOWS—FINANCING ACTIVITIES  
  
  
  
  
  
  
  
  
  
Borrowings under Asset-Based Revolving Credit Facility 
 480,000
 
 
 480,000
 
 250,000
 
 
 250,000
Repayment of borrowings 
 (352,070) 
 
 (352,070) 
 (47,356) 
 
 (47,356)
Intercompany notes payable (receivable) 
 (150,000) 150,000
 
 
 
 (39,459) 39,459
 
 
Debt issuance costs paid 
 (265) 
 
 (265)
Net cash provided by (used for) financing activities 
 (22,335) 150,000
 
 127,665
Net cash provided by financing activities 
 163,185
 39,459
 
 202,644
Effect of exchange rate changes on cash and cash equivalents 
 
 (79) 
 (79)
CASH AND CASH EQUIVALENTS  
  
  
  
  
  
  
  
  
  
Increase (decrease) during the period 
 (124,514) 10,249
 
 (114,265)
Decrease during the period 
 (7,648) (6,744) 
 (14,392)
Beginning balance 
 195,004
 1,472
 
 196,476
 
 53,162
 19,812
 
 72,974
Ending balance $
 $70,490
 $11,721
 $
 $82,211
 $
 $45,514
 $13,068
 $
 $58,582




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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 1, 2015.July 30, 2016.  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 Quarterly 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. Factors 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 our 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 remodel, expansion, growth and growthremodel of our retail stores, which are subject to numerous risks, some of which are beyond our control;
our inabilityability to successfully maintain a relevant and reliable omni‑channel experience for our customers, the failure of which could adversely affect our financial performance and brand image;
costs associated with our expansion and growth strategies, which could adversely affect our businessperformance and performance;results of operations;
the significance of the portion of our revenues from our stores in four states, which exposes us to downturnseconomic circumstances unique to or catastrophic occurrences in those states;
our dependence on our relationships with certain designers, vendors and other sources of merchandise;
a breach in information privacy, which could negatively impact our operations;
a material disruption in our information systems, or delays or difficulties in implementing or integrating new systems or enhancing or expanding current systems, or our failure to achieve the anticipated benefits of any new or updated information systems, which could adversely affect our business or results of operations;
our dependence on positive perceptions of our company, which, if eroded, could adversely affect our customer and employee relationships;

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the loss of, or disruption in, one or more of our distribution facilities, which could adversely affect our business and operations;
foreign currency fluctuations and inflation, which could adversely affect our results of 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 factors set forth in Part II – Item 1A "Risk Factors" in this report or in Part I - Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended August 1, 2015July 30, 2016 as filed with the Securities and Exchange Commission on September 22, 2015.26, 2016.
    
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 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.
 
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 entities 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 direct 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").  References made 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.

We are a luxury retailer conducting operations principally under the Neiman Marcus, Bergdorf Goodman, Last Call and MyTheresa brand names. We conduct our specialty retail store and online operations on an omni-channel basis. As our store and online operations have similar economic characteristics, products, services and customers, our operations constitute a single omni-channel reportable 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 (i) the thirdfirst quarter of fiscal year 2017 relate to the thirteen weeks ended October 29, 2016 and (ii) the first quarter of fiscal year 2016 relate to the thirteen weeks ended April 30, 2016, (ii) the third quarter of fiscal year 2015 relate to the thirteen weeks ended May 2, 2015, (iii) year-to-date fiscal 2016 relate to the thirty-nine weeks ended April 30, 2016 and (iv) year-to-date fiscal 2015 relate to the thirty-nine weeks ended May 2,October 31, 2015.

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 Fort Worth, Texas (currently scheduled to open in February 2017) and New York City (currently scheduled to open in fiscal year 2019);
investments in technology to enhance the customer shopping experiences in both our online and Long Island, New York (opened in February 2016);store operations; 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 50090 positions across our stores, divisions and facilities in the first quarter of fiscal year 2016.2017 and approximately 500 positions in the first quarter of fiscal year 2016 across our stores, divisions and facilities.


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In the first quarter of fiscal year 2017, we launched NMG One, an integrated merchandising and distribution system designed to enable us to purchase, share, manage and sell our inventories across our omni-channel more efficiently. The implementation of NMG One is significant in scale and complexity, and we have experienced various issues with respect to the functionality and capabilities of certain portions of the new system. These issues primarily related to the processing of inventory receipts at our distribution centers, the transfers of inventories to our stores and the presentation of inventories on our websites. These issues prevented us from fulfilling certain customer demand in both our stores and websites that we estimate resulted in approximately $30 to $35 million of unrealized revenue. We also incurred additional expenses in amounts that we believe are not material to allocate resources to address these issues. The implementation of NMG One, as well as the identification and the remediation of the issues experienced to date, is ongoing. We expect that these issues will continue to affect our revenues and operating results in the second quarter of fiscal year 2017, though we believe to a lesser extent than in the first quarter.

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 20162017 were $1,169.3$1,079.1 million, a decrease of 4.2%7.4% compared to the thirdfirst quarter of fiscal year 2015.2016. Comparable revenues for the thirdfirst quarter of fiscal year 20162017 decreased 5.0%8.0% compared to the thirdfirst quarter of fiscal year 2015.2016. In the thirdfirst quarter of fiscal year 2016,2017, revenues generated by our online operations were $347.7$315.4 million, or 29.7%29.2% of consolidated revenues. Comparable revenues from our online operations infor the thirdfirst quarter of fiscal year 2016, which included revenues from MyTheresa, increased 5.3%2017 were flat from the thirdfirst quarter of the prior year.

Our year-to-date fiscal 2016 revenues were $3,821.1 million, a decrease of 2.7% compared to year-to-date fiscal 2015. Comparable revenues for year-to-date fiscal 2016 decreased 4.2% compared to year-to-date fiscal 2015. In year-to-date fiscal 2016, revenues generated by our online operations were $1,103.4 million, or 28.9% of consolidated revenues. Comparable revenues from our online operations in year-to-date fiscal 2016, which included revenues from MyTheresa beginning in the second quarter of fiscal year 2016, increased 4.9% from year-to-date fiscal 2015.
 
We believe the lower levels of revenues in the thirdfirst quarter of fiscal year 2016 and in year-to-date fiscal 20162017 compared to the corresponding periodsperiod of fiscal year 20152016 were impacted by a number of factors, including:

uncertainty and volatility in both U.S.domestic and international capital markets;global economic conditions;

the strengtheningstrength of the U.S. dollar against international currencies, most notably the Euro and British pound, and a resulting decrease in tourism and spending by international customers; and
a significant decline in
the continued low global priceprices of crude oil and the resulting impact on stakeholders in the oil and gas industries.industries, particularly in the Texas markets in which we have a significant presence; and

implementation and conversion issues with respect to NMG One, which prevented us from fulfilling certain customer demand both in our stores and websites.

Cost of goods sold including buying and occupancy costs (excluding depreciation) ("COGS") - Compared to the corresponding periodsperiod of the prior year, COGS as a percentage of revenues increased 170 basis points in the thirdfirst quarter of fiscal year 2016 and 190 basis points in year-to-date fiscal 2016.2017. The increasesincrease in COGS, as a percentage of revenues, werewas attributable primarily to (1) to:

decreased product margins due primarily to (1) a shift of certain markdowns in connection with routine promotional events into the first quarter of fiscal year 2017 and (2) higher markdowns and promotional costs incurred on lower than expected revenuesrevenues; and (2)

the deleveraging of buying and occupancy costs.

At April 30,October 29, 2016, consolidated inventories totaled $1,200.9$1,325.1 million, a 2.4% increase1.9% decrease from May 2,October 31, 2015.  We are workinghave and will continue to work aggressively to align our inventory levels and purchases with anticipated future customer demand.

Selling, general and administrative expenses (excluding depreciation) ("SG&A") - SG&A as a percentage of revenues increased 10110 basis points in the thirdfirst quarter of fiscal year 20162017 compared to the corresponding period of the prior year. The higher levels of SG&A expenses, as a percentage of revenues, reflect primarily:

the deleveraging of a significant portion of our SG&A expenses, primarily (1) payroll, incentive compensation and benefits; and

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higher levels of expenses incurred in connection with our strategic initiatives, including investments in technology, costs related to the opening of new stores, (our store in Long Island, New York opened in February 2016), the remodeling of existing stores investments in technology and the growth of our international revenues through MyTheresa and (2) higher selling costs due to higher levels of credit card chargebacks subsequent to regulatory changes effective October 2015 with respect to retailers' liabilities for such losses,MyTheresa; partially offset by (3) payroll, incentive compensation and benefits expense savings realized in connection with Organizing for Growth and other efficiency initiatives.

SG&A as a percentagelower level of revenues decreased 20 basis points in year-to-date fiscal 2016 compared to the corresponding period of the prior year. The lower levels of SG&A expenses, as a percentage of revenues, reflect primarily (1) payroll, incentive compensation and benefits expense savings realized in connection with Organizing for Growth and other efficiency initiatives, partially offset by (2) higher marketing costs, related primarily to our online operations and (3) higher levels of expenses incurred in connection with our strategic initiatives.costs.

Liquidity - Net cash provided byused for our operating activities was $150.5$131.8 million in year-to-datethe first quarter of fiscal 2016year 2017 compared to $122.8$142.0 million in year-to-datethe first quarter of fiscal 2015.2016.  We held cash balances of $76.3$42.1 million at April 30,October 29, 2016 compared to $82.2$58.6 million at May 2,October 31, 2015.  At April 30,October 29, 2016, we had $265.0$355.0 million of borrowings outstanding under the Asset-Based Revolving Credit Facility, no outstanding letters of credit and $545.0$455.0 million of unused borrowing availability.


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Table We believe that cash generated from our operations along with our existing cash balances and available sources of Contents

financing will enable us to meet our anticipated cash obligations during the next 12 months.

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, uncertainty and volatility in both the U.S.domestic and international capital markets,global economic conditions, fluctuations in the exchange rate of the U.S. dollar against international currencies, most notably the Euro and British pound, fluctuations in crude oil and fuel prices, uncertainty regarding governmental spending and tax policies and overall consumer confidence. SuchWe believe such factors are currently negatively impacting our operations and may adverselycontinue to have an adverse impact on 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.

Results of Operations
 
Performance Summary
 
The following table sets forth certain items expressed as percentages of revenues for the periods indicated.
 Thirteen weeks ended Thirty-nine weeks ended Thirteen weeks ended
 April 30,
2016
 May 2,
2015
 April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
            
Revenues 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold including buying and occupancy costs (excluding depreciation) 63.6
 61.9
 65.6
 63.7
 64.9
 63.2
Selling, general and administrative expenses (excluding depreciation) 23.5
 23.4
 22.6
 22.8
 25.6
 24.5
Income from credit card program (1.3) (1.0) (1.2) (1.0) (1.3) (1.1)
Depreciation expense 5.1
 3.9
 4.4
 3.5
 5.3
 4.8
Amortization of intangible assets 1.2
 1.3
 1.1
 1.7
 1.3
 1.3
Amortization of favorable lease commitments 1.1
 1.1
 1.1
 1.0
 1.3
 1.2
Other expenses (income) (0.1) 0.5
 0.6
 0.7
Other expenses 0.6
 1.5
Operating earnings 6.8
 8.8
 5.7
 7.6
 2.3
 4.7
Interest expense, net 6.2
 6.0
 5.6
 5.5
 6.7
 6.2
Earnings before income taxes 0.6
 2.9
 0.1
 2.1
Income tax expense 0.3
 1.3
 0.1
 0.9
Net earnings 0.3 % 1.6 %  % 1.2 %
Loss before income taxes (4.3) (1.4)
Income tax benefit (2.2) (0.5)
Net loss (2.2)% (0.9)%

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Set forth in the following table is certain summary information with respect to our operations for the periods indicated.
 Thirteen weeks ended Thirty-nine weeks ended Thirteen weeks ended
(in millions, except sales per square foot and store count) April 30,
2016
 May 2,
2015
 April 30,
2016
 May 2,
2015
(dollars in millions, except sales per square foot and store count) October 29,
2016
 October 31,
2015
            
Change in comparable revenues (1)    
        
Total revenues (5.0)% 2.2% (4.2)% 4.5% (8.0)% (5.6)%
Online revenues 5.3 % 13.3% 4.9 % 14.6%  % 3.3 %
            
Store count  
  
  
    
  
Neiman Marcus and Bergdorf Goodman full-line stores open at end of period 44
 43
 44
 43
 44
 43
Last Call stores open at end of period 42
 42
 42
 42
 42
 43
            
Sales per square foot (2) $127
 $140
 $425
 $457
 $118
 $133
Percentage of revenues transacted online 29.7 % 27.1% 28.9 % 25.8% 29.2 % 27.1 %
            
Capital expenditures (3) $78.2
 $63.6
 $232.0
 $183.0
 $65.4
 $75.0
Depreciation expense 59.6
 48.1
 169.2
 136.6
 56.9
 55.9
Rent expense and related occupancy costs 26.6
 28.0
 85.5
 85.9
 27.0
 28.5
            
Non-GAAP financial measures  
  
      
  
EBITDA (4) $166.7
 $185.7
 $472.7
 $543.9
 $109.5
 $139.7
Adjusted EBITDA (4) $173.2
 $202.6
 $520.4
 $602.7
 $122.9
 $164.3
 

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(1)Comparable revenues include (i) revenues derived from our retail stores open for more than fifty-two weeks, including stores that have been relocated or expanded, and (ii) revenues from our online operations.  Comparable revenues exclude revenues of (i) closed stores, including our Last Call store in Primm, Nevada, which we closed in January 2016, and (ii) designer websites created and operated pursuant to contractual arrangements with certain designer brands that had expired by the first quarter of fiscal year 2015.2016. As MyTheresa was acquired in October 2014, comparable revenues for the first quarter of fiscal year 20152016 exclude revenues from MyTheresa. Comparable revenues for year-to-date fiscal year 2016 include revenues from MyTheresa beginning in the second quarter of fiscal year 2016.

(2) Sales per square foot are calculated as revenues 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.

(3)Amounts represent gross capital expenditures and exclude developer contributions of $14.2$7.7 million for the thirteen weeks ended April 30,October 29, 2016 $17.6and $10.6 million for the thirteen weeks ended May 2, 2015, $32.3 million for the thirty-nine weeks ended April 30, 2016 and $30.5 million for the thirty-nine weeks ended May 2,October 31, 2015.
 
(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.”

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

Sales of merchandise—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 based primarily on our historical trends.  Revenues exclude sales taxes collected from our customers.
Delivery and processing—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 domestic and global economic and industry conditions, including inflation, deflation, changes related to the value of the U.S. dollar relative to foreign currencies, interest rates and foreign currency exchange rates, rates of economic growth, current and expected unemployment levels and government fiscal and monetary policies;

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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;
national and global geo-political uncertainty;
the strength of the U.S. dollar against international currencies, most notably the Euro and British pound, and a resulting decrease in tourism and spending by international customers;
continued low global prices of crude oil and the resulting impact on stakeholders in the oil and gas industries, particularly in the Texas markets in which we have a significant presence;
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;
a material disruption in our abilityinformation systems, or delays or difficulties in implementing or integrating new systems or enhancing or expanding current systems, or our failure to successfully implement our expansion and growth strategies; andachieve the anticipated benefits of any new or updated information systems;
changes in the composition and the rate of growth of our sales transacted in store and online.
 

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

Cost of goods sold including buyingGoods Sold Including Buying and occupancy costs (excluding depreciation)Occupancy Costs (Excluding Depreciation).  COGS consists of the following components:

Inventory costs—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 onin 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.  Earnings are negatively impacted when merchandise is marked down.  With the introduction of new fashions in the first and third fiscal quarters of each fiscal year and our emphasis on full-price selling in these quarters, a lower level of markdowns and higher margins are characteristic of these quarters.
Buying costs—costs — Buying costs consist primarily of salaries and expenses incurred by our merchandising and buying operations.
Occupancy costs—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—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

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are sold.  We received vendor allowances of $5.9$1.2 million, or 0.5%0.1% of revenues, in the thirdfirst quarter of fiscal year 2016; $7.52017 and $4.7 million, or 0.6%0.4% of revenues, in the thirdfirst quarter of fiscal year 2015; $58.0 million, or 1.5% of revenues, in year-to-date fiscal 2016; and $55.0 million, or 1.4% of revenues, in year-to-date fiscal 2015.2016. The amounts of vendor allowances we receive fluctuate based partially 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 2016year 2017 and 2015.2016.

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 associated primarily with the opening of new stores or distribution facilities; and
the amount of vendor reimbursements we receive during the reporting period.
 
Selling, generalGeneral and administrative expenses (excluding depreciation)Administrative Expenses (Excluding Depreciation).  SG&A consists principally 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 and digital media.  Advertising allowances fluctuate based on the level of advertising expenses incurred and are recorded as a

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reduction of our advertising costs when earned.  Advertising allowances were approximately $17.5$18.4 million, or 1.5%1.7% of revenues, in the thirdfirst quarter of fiscal year 2016; $17.62017 and $21.3 million, or 1.4%1.8% of revenues, in the thirdfirst quarter of fiscal year 2015; $49.1 million, or 1.3% of revenues, in year-to-date fiscal 2016; and $47.9 million, or 1.2% of revenues, in year-to-date fiscal 2015.2016.

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 $17.9$16.5 million, or 1.5% of revenues, in the thirdfirst quarter of fiscal year 2016; $19.42017 and $18.1 million, or 1.6% of revenues, in the thirdfirst quarter of fiscal year 2015; $53.7 million, or 1.4% of revenues, in year-to-date fiscal 2016; and $59.3 million, or 1.5% of revenues, in year-to-date fiscal 2015.2016.

Changes in our SG&A expenses are affected primarily by the following factors:

changes in the level of our revenues;
changes in the number of sales associates, which are due primarily 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 programFrom 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;

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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 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.

Impairment of Indefinite-lived Intangible Assets, Goodwill and Long-lived Assets. We assess the recoverability of the carrying values of indefinite-lived intangible assets and goodwill as well as our store assets, consisting of property and equipment, customer lists and favorable lease commitments annually in the fourth quarter of each fiscal year and upon the occurrence of certain events. During fiscal year 2016, we experienced declines in our operating results and we believe our operating results were adversely impacted by a number of factors including, among other things:
volatility in domestic and global economic conditions;
national and global geo-political uncertainty;
the strength of the U.S. dollar against international currencies, most notably the Euro and British pound, and a resulting decrease in tourism and spending by international customers; and
continued low global prices of crude oil and the resulting impact on stakeholders in the oil and gas industries, particularly in the Texas markets in which we have a significant presence.

Based upon our assessment of economic conditions, our expectations of future business conditions and trends and our projected revenues, earnings and cash flows in the fourth quarter of fiscal year 2016, we determined that impairment charges were required to state certain of our intangible and long-lived assets, primarily related to our Neiman Marcus brand, to their estimated fair value. Accordingly, we recorded impairment charges in the fourth quarter of fiscal year 2016 of $466.2 million.

In the first quarter of fiscal year 2017, our revenues and earnings have declined compared to the first quarter of last year as a result of current economic conditions. In response to these trends, we continue to undertake initiatives to help drive revenues and streamline business activities and will continue to closely monitor our financial condition and results of operations. However, there is a risk that we may continue to experience challenging economic conditions and operating pressures, which in turn could increase the risk of additional impairment charges in future periods.

Effective income tax rate.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 foreign 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 foreign 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.

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.  Our second fiscal quarter is more focused on promotional activities related to the December holiday season, the early introduction of resort season collections from certain designers and the sale of Fall season goods on a marked down basis.  As a result, margins are typically lower in our second fiscal quarter.  However, due to the seasonal increase in revenues that occurs during the holiday season, our 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.
 

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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 our fourth fiscal quarter with a focus on

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promotional activities offering Spring season goods to customers on a marked down basis, resulting in lower margins during the quarter.  Our working capital requirements are typically lower in our 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.
 
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.
 
Results of Operations for the Thirteen Weeks Ended April 30,October 29, 2016 Compared to the Thirteen Weeks Ended May 2,October 31, 2015
 
Revenues.  Our revenues for the thirdfirst quarter of fiscal year 20162017 of $1,169.3$1,079.1 million decreased by $50.8$85.8 million, or 4.2%7.4%, from $1,220.1$1,164.9 million in the thirdfirst quarter of fiscal year 2015. Comparable2016. Changes in comparable revenues for our last five fiscal quarters were:
Fiscal year 2017
First quarter(8.0)%
Fiscal year 2016
First quarter(5.6)
Second quarter(2.4)
Third quarter(5.0)
Fourth quarter(4.1)

In the thirdlast five quarters ended October 29, 2016, we generated negative comparable revenue increases. We believe the lower levels of revenues in the first quarter of fiscal year 2016 decreased 5.0%2017 compared to the third quartercorresponding period of fiscal year 2015.  In addition, revenues2016 were impacted by a number of factors, including:

uncertainty and volatility in domestic and global economic conditions;
the strength of the U.S. dollar against international currencies, most notably the Euro and British pound, and a resulting decrease in tourism and spending by international customers;
continued low global prices of crude oil and the resulting impact on stakeholders in the oil and gas industries, particularly in the Texas markets in which we have a significant presence; and

implementation and conversion issues with respect to NMG One, which prevented us from fulfilling certain customer demand both in our stores and websites.

Revenues generated by our online operations were $347.7$315.4 million, or 29.7%29.2% of consolidated revenues. Comparable revenues from our online operations infor the thirdfirst quarter of fiscal year 2016, which included revenues from MyTheresa, increased 5.3%2017 were flat from the thirdfirst quarter of the prior year.


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Cost of goods sold including buyingGoods Sold Including Buying and occupancy costs (excluding depreciation)Occupancy Costs (Excluding Depreciation). COGS increased to 63.6%64.9% of revenues in the thirdfirst quarter of fiscal year 20162017 from 61.9%63.2% of revenues in the thirdfirst quarter of fiscal year 2015.2016. Compared to the prior year, COGS as a percentage of revenues increased by 170 basis points due primarily to:

decreased product margins of approximately 160130 basis points due primarily to to:
a shift of certain markdowns of approximately 70 basis points in connection with routine promotional events into the first quarter of fiscal year 2017. In the prior year, these promotional events occurred in the second quarter; and
higher markdowns and promotional costs of approximately 60 basis points incurred on lower than expected revenues; and
the deleveraging of buying and occupancy costs of approximately 2040 basis points.

Selling, generalGeneral and administrative expenses (excluding depreciation)Administrative Expenses (Excluding Depreciation).  SG&A expenses as a percentage of revenues increased to 23.5%25.6% of revenues in the thirdfirst quarter of fiscal year 20162017 compared to 23.4%24.5% of revenues in the thirdfirst quarter of fiscal year 2015.2016.  SG&A expenses as a percentage of revenues increased by 10110 basis points in the thirdfirst quarter of fiscal year 20162017 due primarily to:

the deleveraging of a significant portion of our SG&A expenses, primarily payroll, incentive compensation and benefits, of approximately 80 basis points on the lower level of revenues; and
higher levels of expenses of approximately 6050 basis points incurred in connection with our strategic initiatives, including investments in technology, costs related to the opening of new stores, (our store in Long Island, New York opened in February 2016), the remodeling of existing stores investments in technology and the growth of our international revenues through MyTheresa; andpartially offset by
higher sellinga lower level of marketing costs of approximately 20 basis points, duerelated primarily to higher levels of credit card chargebacks subsequent to regulatory changes effective October 2015 with respect to retailers' liabilities for such losses; partially offset by
payroll, incentive compensation and benefits expense savings realized of approximately 70 basis points in connection with Organizing for Growth and other efficiency initiatives.

our online operations.
Income from credit card program.From Credit Card Program. Income from our credit card program was $15.0$13.7 million, or 1.3% of revenues, in the thirdfirst quarter of fiscal year 20162017 compared to $11.9$13.3 million, or 1.0%1.1% of revenues, in the thirdfirst quarter of fiscal year 2015.

2016. Compared to the prior year, income from our credit card program as a percentage of revenues increased by 3020 basis points due primarily to increasesan increase in both the overall profitability of the credit card portfolio and the portion of income contractually allocable to the Company.

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Depreciation and amortization expenses.Amortization Expenses. Depreciation expense was $59.6$56.9 million, or 5.1%5.3% of revenues, in the thirdfirst quarter of fiscal year 20162017 compared to $48.1$55.9 million, or 3.9%4.8% of revenues, in the thirdfirst quarter of fiscal year 2015.2016. The increase in depreciation expense in the thirdfirst quarter of fiscal year 20162017 compared to the thirdfirst quarter of the prior fiscal year was driven by a higher level of capital spending since the Acquisition related to new stores, store remodels and omni-channel initiatives.

Amortization of intangible assets (primarily customer lists and favorable lease commitments) was $27.4$27.3 million, or 2.3%2.5% of revenues, in the thirdfirst quarter of fiscal year 20162017 compared to $29.7$29.0 million, or 2.4%2.5% of revenues, in the thirdfirst quarter of fiscal year 2015.2016. 

Other expenses (income).Expenses. Other incomeexpenses for the thirdfirst quarter of fiscal year 2016 was $0.62017 were $6.8 million, or 0.1%0.6% of revenues, compared to expenses of $5.6$17.1 million, or 0.5%1.5% of revenues, in the thirdfirst quarter of fiscal year 2015.2016. Other expenses (income) consisted of the following components:
 Thirteen weeks ended Thirteen weeks ended
(in millions) April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
        
Expenses incurred in connection with strategic growth initiatives $3.6
 $2.2
 $6.6
 $14.4
MyTheresa acquisition costs 0.1
 2.0
Expenses related to cyber-attack, net of insurance recoveries 0.2
 1.3
Net gain from facility closure (5.4) 
MyTheresa acquisition costs (benefits) (0.6) 2.5
Other expenses 0.9
 
 0.9
 0.2
Total $(0.6) $5.6
 $6.8
 $17.1

We incurred professional fees and other costs in connection with our Organizing for Growth and NMG One strategic growth initiatives aggregating $3.6$6.6 million in the thirdfirst quarter of fiscal year 2017 and $14.4 million in the first quarter of fiscal year 2016. In connection with Organizing for Growth, we eliminated approximately 90 positions on August 18, 2016 and approximately 500 positions on October 1, 2015 across our stores, divisions and facilities. We incurred severance costs of $3.3 million in the first quarter of fiscal year 2017 and $10.2 million in the first quarter of fiscal year 2016.


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In October 2014, we acquired MyTheresa, a luxury retailer headquartered in Munich, Germany. Acquisition costs consisted primarily of professional fees as well as adjustments of our earn-out obligations to estimated fair value at each reporting date.

We discovered in January 2014 that malicious software (malware) was clandestinely installed on our computer systems. In the third quarter of fiscal year 2016 and the third 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.

In the third quarter of fiscal year 2016, we recorded a $5.4 million net gain related to the closure and relocation of our regional service center in New York.

Interest expenseExpense, net.  Net interest expense was $72.7$72.1 million or 6.2% of revenues, in the thirdfirst quarter of fiscal year 20162017 and $72.8$71.7 million or 6.0% of revenues, for the thirdfirst quarter of fiscal year 2015.2016. The significant components of interest expense are as follows:
 Thirteen weeks ended Thirteen weeks ended
(in millions) April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
        
Asset-Based Revolving Credit Facility $0.8
 $0.4
 $1.2
 $0.9
Senior Secured Term Loan Facility 31.0
 31.3
 30.9
 31.2
Cash Pay Notes 19.2
 19.2
 19.2
 19.2
PIK Toggle Notes 13.1
 13.1
 13.1
 13.1
2028 Debentures 2.2
 2.2
 2.2
 2.2
Amortization of debt issue costs 6.1
 6.1
 6.1
 6.1
Capitalized interest (1.7) (1.6)
Other, net 1.5
 0.9
 1.0
 0.6
Capitalized interest (1.3) (0.5)
Interest expense, net $72.7
 $72.8
 $72.1
 $71.7
  
Income tax expense.Tax Benefit.  Our effective income tax rate was 45.8%49.7% for the thirdfirst quarter of fiscal year 20162017 and 43.6%37.5% for the thirdfirst quarter of fiscal year 2015.2016. Our effective income tax ratesrate for the first quarter of fiscal year 2017 exceeded the federal statutory tax rate of 35.0%35% due primarily to:

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Table of Contentsstate income taxes;

the non-deductible portion of transaction and other costs incurred in connection with the MyTheresa acquisition; and

the benefit associated with the release of certain tax reserves for settled tax matters.

Our effective income tax rate for the first quarter of fiscal year 2016 exceeded the federal statutory tax rate due primarily to:

state income taxes; and

the non-deductible portion of transaction and other costs incurred in connection with the 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 auditingfinalizing its audits of our fiscal year 2012 and short-year 2013 (prior to the Acquisition) 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 April 30,October 29, 2016 are sufficient to cover any potential assessments to be made by the IRS or other taxing authorities upon the final 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 adjustments into the amounts of our unrecognized tax benefits could occur within the next twelve12 months as a result of settlements with tax authorities or expiration of statutes of limitations.  At this time, we do not believe such adjustments will have a material impact on our Condensed Consolidated Financial Statements.

Results of Operations for the Thirty-nine WeeksEnded April 30, 2016 Compared to the Thirty-nine Weeks Ended May 2, 2015
Revenues.  Our revenues for year-to-date fiscal 2016 of $3,821.1 million decreased by $107.3 million, or 2.7%, from $3,928.4 million in year-to-date fiscal 2015.  Comparable revenues for year-to-date fiscal 2016 decreased 4.2% compared to the year-to-date fiscal 2015. In addition, revenues generated by our online operations were $1,103.4 million, or 28.9% of consolidated revenues. Comparable revenues from our online operations in year-to-date fiscal 2016, which included the revenues of MyTheresa beginning in the second quarter of fiscal year 2016, increased 4.9% from the prior year fiscal period. Changes in comparable revenues for our last seven fiscal quarters were:
Fiscal year 2016
Third quarter(5.0)%
Second quarter(2.4)
First quarter(5.6)
Fiscal year 2015
Fourth quarter1.9
Third quarter2.2
Second quarter5.6
First quarter5.5

In the last five quarters ended April 30, 2016, we generated lower levels of comparable 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 uncertainty and volatility in both U.S. and international capital markets, the strengthening of the U.S. dollar against international currencies, most notably the Euro, a resulting decrease in tourism and spending by international customers and a significant decline in the global price of crude oil and the resulting impact on stakeholders in the oil and gas industries. 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 third fiscal quarter of 2016.

Cost of goods sold including buying and occupancy costs (excluding depreciation). COGS increased to 65.6% of revenues in year-to-date fiscal 2016 from 63.7% of revenues in year-to-date fiscal 2015. Compared to the prior year, COGS as a percentage of revenues increased by 190 basis points due primarily to:

decreased product margins of approximately 170 basis points due primarily to higher markdowns and promotional costs incurred on lower than expected revenues; and
the deleveraging of buying and occupancy costs of approximately 20 basis points.

Selling, general and administrative expenses (excluding depreciation).  SG&A expenses as a percentage of revenues decreased to 22.6% of revenues in year-to-date fiscal 2016 compared to 22.8% of revenues in year-to-date fiscal 2015.  SG&A expenses as a percentage of revenues decreased by 20 basis points in year-to-date fiscal 2016 due primarily to:

payroll, incentive compensation and benefits expense savings realized of approximately 70 basis points in connection with Organizing for Growth and other efficiency initiatives; partially offset by

39
44



higher marketing costs, related primarily to our online operations, of approximately 30 basis points; and
higher levels of expenses of approximately 20 basis points incurred in connection with our strategic initiatives.

Income from credit card program. Income from our credit card program was $44.6 million, or 1.2% of revenues, in year-to-date fiscal 2016 compared to $40.8 million, or 1.0% of revenues, in year-to-date fiscal 2015.

Compared to the prior year, income from our credit card program as a percentage of revenues increased by 20 basis points due primarily to increases in both the overall profitability of the credit card portfolio and the portion of income contractually allocable to the Company.
Depreciation and amortization expenses. Depreciation expense was $169.2 million, or 4.4% of revenues, in year-to-date fiscal 2016 compared to $136.6 million, or 3.5% of revenues, in year-to-date fiscal 2015. The increase in depreciation expense in year-to-date fiscal 2016 compared to year-to-date fiscal 2015 was driven by a higher level of capital spending since the Acquisition related to new stores, store remodels and omni-channel initiatives.

Amortization of intangible assets (primarily customer lists and favorable lease commitments) was $84.0 million, or 2.2% of revenues, in year-to-date fiscal 2016 compared to $107.4 million, or 2.7% of revenues, in year-to-date fiscal 2015. Amortization expense as a percentage of revenues decreased by 50 basis points in year-to-date fiscal 2016 due to lower amortization charges with respect to our customer lists. 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 year-to-date fiscal 2016 aggregated $24.5 million, or 0.6% of revenues, compared to $28.1 million, or 0.7% of revenues, in year-to-date fiscal 2015.  Other expenses consisted of the following components:
  Thirty-nine weeks ended
(in millions) April 30,
2016
 May 2,
2015
     
Expenses incurred in connection with strategic growth initiatives $21.9
 $6.5
MyTheresa acquisition costs 4.4
 15.1
Expenses related to cyber-attack, net of insurance recoveries 0.9
 4.1
Net gain from facility closure (5.4) 
Other expenses 2.8
 2.3
Total $24.5
 $28.1

We incurred professional fees and other costs in connection with our Organizing for Growth and NMG One strategic growth initiatives aggregating $21.9 million in year-to-date fiscal 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. Acquisition costs consisted primarily of professional fees as well as adjustments of our earn-out obligations to estimated fair value at each reporting date.

We discovered in January 2014 that malicious software (malware) was clandestinely installed on our computer systems. In year-to-date fiscal 2016 and year-to-date fiscal 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.

In the third quarter of fiscal year 2016, we recorded a $5.4 million net gain related to the closure and relocation of our regional service center in New York.
Interest expense.  Net interest expense was $215.9 million, or 5.6% of revenues, in year-to-date fiscal 2016 and $217.9 million, or 5.5% of revenues, for year-to-date fiscal 2015. The significant components of interest expense are as follows:

40



  Thirty-nine weeks ended
(in millions) April 30,
2016
 May 2,
2015
     
Asset-Based Revolving Credit Facility $2.4
 $1.1
Senior Secured Term Loan Facility 93.3
 94.3
Cash Pay Notes 57.6
 57.6
PIK Toggle Notes 39.4
 39.4
2028 Debentures 6.7
 6.7
Amortization of debt issue costs 18.4
 18.4
Other, net 2.7
 2.1
Capitalized interest (4.6) (1.7)
Interest expense, net $215.9
 $217.9
Income tax expense.  Our effective income tax rate was 68.9% for year-to-date fiscal 2016 and 41.6% for year-to-date fiscal 2015. Our effective income tax rates exceeded the federal statutory tax rate of 35.0% due primarily to:

state income taxes;
the non-deductible portion of transaction and other costs incurred in connection with the MyTheresa acquisition;
the impact of the application of our estimated effective tax rate in fiscal year 2016 to our year-to-date quarterly periods (consisting of both loss and income generating periods); and
with respect to year-to-date fiscal 2016, reductions in our estimated tax reserves due to the expiration of statutes of limitations.

Non-GAAP Financial Measures
 
To supplement our financial information presented in accordance with U.S. generally accepted accounting principles ("GAAP"),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 (loss) 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. 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

41



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

45



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 earningsloss as reflected in our Condensed Consolidated Statements of Operations prepared in accordance with GAAP to EBITDA and Adjusted EBITDA:
 Thirteen weeks ended Thirty-nine weeks ended Thirteen weeks ended
(dollars in millions) April 30,
2016
 May 2,
2015
 April 30,
2016
 May 2,
2015
 October 29,
2016
 October 31,
2015
            
Net earnings $3.8
 $19.8
 $1.1
 $47.8
Income tax expense 3.2
 15.3
 2.5
 34.1
Net loss $(23.5) $(10.5)
Income tax benefit (23.3) (6.3)
Interest expense, net 72.7
 72.8
 215.9
 217.9
 72.1
 71.7
Depreciation expense 59.6
 48.1
 169.2
 136.6
 56.9
 55.9
Amortization of intangible assets and favorable lease commitments 27.4
 29.7
 84.0
 107.4
 27.3
 29.0
EBITDA $166.7
 $185.7
 $472.7
 $543.9
 $109.5
 $139.7
EBITDA as a percentage of revenues 14.3% 15.2% 12.4% 13.8% 10.1% 12.0%
            
Amortization of inventory step-up 
 3.5
 
 6.8
Incremental rent expense 2.5
 2.7
 7.9
 8.2
MyTheresa acquisition costs 0.1
 2.0
 4.4
 15.1
Incremental rent expense related to purchase accounting adjustments 2.5
 2.7
Non-cash stock-based compensation 
 2.1
 3.9
 6.4
 1.4
 2.0
Expenses related to cyber-attack, net of insurance recoveries 0.2
 1.3
 0.9
 4.1
Expenses incurred in connection with openings of new stores / remodels of existing stores 4.6
 3.0
 11.5
 9.3
 2.7
 2.9
Expenses incurred in connection with strategic growth initiatives 3.6
 2.2
 21.9
 6.5
 6.6
 14.4
Net gain from facility closure (5.4) 
 (5.4) 
MyTheresa acquisition costs (benefits) (0.6) 2.5
Other expenses 0.9
 
 2.8
 2.3
 0.9
 0.2
Adjusted EBITDA $173.2
 $202.6
 $520.4
 $602.7
 $122.9
 $164.3
Adjusted EBITDA as a percentage of revenues 14.8% 16.6% 13.6% 15.3% 11.4% 14.1%

Adjusted EBITDA as a percentage of revenues decreased by 180270 basis points in the thirdfirst quarter of fiscal year 20162017 compared to the thirdfirst quarter of fiscal year 2015 and decreased by 170 basis points in year-to-date fiscal 2016 compared to year-to-date fiscal 2015. These decreases were2016. This decrease was driven primarily by (1) an increase in COGS driven by a shift of certain markdowns into the first quarter of fiscal year 2017 and higher markdowns and promotional costs, (2) the deleveraging of a significant portion of our buying and occupancy costs and SG&A expenses, primarily payroll, incentive compensation and benefits on lower revenues, (3) higher marketing costs, related primarily to our online operations and (4)(3) higher levels of expenses incurred in connection with our strategic initiatives, partially offset by (5) payroll, incentive compensation(4) lower marketing costs related primarily to our online operations and benefits expense savings realized in connection with Organizing for Growth and other efficiency initiatives and (6)(5) higher income from our credit card program.

Excluded from the calculation of Adjusted EBITDA are the estimated impacts from the launch of our new NMG One integrated merchandising and distribution system in the first quarter of fiscal year 2017. We have experienced various issues with respect to the functionality and capabilities of certain portions of the new system. These issues primarily related to the processing of inventory receipts at our distribution centers, the transfer of inventories to our stores and the presentation of inventories on our websites. These issues prevented us from fulfilling certain customer demand in both our stores and websites that we estimate resulted in approximately $30 to $35 million of unrealized revenue. We also incurred additional expenses in amounts that we believe are not material to allocate resources to address these issues. In addition, we estimate these unrealized revenues adversely impacted our operating earnings and Adjusted EBITDA for the first quarter of fiscal year 2017 by approximately $13 to $16 million.


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Table of Contents


Liquidity 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").

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Table of Contents


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 the Asset-Based Revolving Credit Facility.  We had $265.0$355.0 million of outstanding borrowings under the Asset-Based Revolving Credit Facility as of April 30,October 29, 2016 compared to $150.0$340.0 million as of May 2,October 31, 2015.
 
We believe that operating cash flows, cash balances 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 2016,2017, including merchandise purchases, operating expenses, anticipated capital expenditure requirements, debt service requirements, income tax payments and obligations related to our Pension Plan.
 
Net cash provided byused for our operating activities was $150.5$131.8 million in year-to-datethe first quarter of fiscal 20162017 compared to $122.8$142.0 million in year-to-datethe first quarter of fiscal 2015.2016. We held cash balances of $76.3$42.1 million at April 30,October 29, 2016 compared to $82.2$58.6 million at May 2,October 31, 2015.
 
Net cash used for investing activities, representing capital expenditures, was $232.9$65.4 million in year-to-datethe first quarter of fiscal 20162017 and $364.7$75.0 million in year-to-datethe first quarter of fiscal 2015.  In year-to-date fiscal 2015, net cash used for investing activities included cash payments of $181.7 million incurred in connection with the MyTheresa acquisition. Capital expenditures were $232.0 million in year-to-date fiscal 2016 and $183.0 million in year-to-date fiscal 2015.2016.  Currently, we project capital expenditures for fiscal year 20162017 to be approximately $312$210 to $322$230 million.  Net of developer contributions, capital expenditures for fiscal year 20162017 are projected to be approximately $260$165 to $270$185 million.
 
Net cash provided by financing activities of $85.7$177.2 million in year-to-datethe first quarter of fiscal 2017 and $202.6 million in the first quarter of fiscal 2016 was comprised primarily of net borrowings under our Asset-Based Revolving Credit Facility due to seasonal working capital requirements. Net cash provided by financing activitiesIn the first quarter of $127.7fiscal year 2017, $5.4 million in year-to-date fiscal 2015 was comprised primarily of borrowings under our Asset-Based Revolving Credit Facilitypaid for debt issuance costs related to fund the MyTheresa acquisition and seasonal working capital requirements.ABL Refinancing Amendment.

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 or term loans, 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.

Financing Structure at April 30,October 29, 2016
 
Our major sources of funds are comprised of the $900.0 million Asset-Based Revolving Credit Facility, the $2,876.4$2,861.7 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.
 

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Asset-Based Revolving Credit Facility.  At April 30,On October 27, 2016, we entered into an amendment of the Asset-Based Revolving Credit Facility. As amended, the maximum committed borrowing capacity under the Asset-Based Revolving Credit Facility provided for a maximum committed borrowing capacity ofremains at $900.0 million.  Themillion and the Asset-Based Revolving Credit Facility matures on July 25, 2021 (or July 25, 2020 if our obligations under our Senior Secured Term Loan Facility or any permitted refinancing thereof have not been repaid or the maturity date thereof has not been extended to October 25, 2018.2021 or later). As of April 30,October 29, 2016, we had $265.0$355.0 million of borrowings outstanding under this facility, no outstanding letters of credit and $545.0$455.0 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 minimum fixed charge coverage ratio.


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The weighted average interest rate on the outstanding borrowings pursuant to the Asset-Based Revolving Credit Facility was 1.69%2.28% at April 30,October 29, 2016.
 
See Note 5 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 April 30,October 29, 2016, the outstanding balance under the Senior Secured Term Loan Facility was $2,876.4$2,861.7 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 April 30,October 29, 2016.
 
See Note 5 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 due 2021.Notes. The Cash Pay Notes mature on October 15, 2021.

See Note 5 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 due 2021.Notes. The PIK Toggle Notes mature on October 15, 2021. With respect to any semi-annual interest period, we may currently elect to pay the applicable interest payment (i) entirely in cash, ("Cash Interest"), (ii) entirely by increasing the principal amount of the PIK Toggle Notes by the relevant interest payment amount, ("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.

See Note 5 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% Senior Debentures due 2028.Debentures.  The 2028 Debentures mature on June 1, 2028.


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See Note 5 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 April 30,October 29, 2016, we had outstanding floating rate debt obligations of $3,141.4$3,216.7 million.  We have entered into interest rate cap agreements which effectively cap LIBOR related to our Senior Secured Term Loan Facility 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.

Interest rate swaps.Rate Swaps. In April and June of 2016, we entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $700.0$1,400.0 million to limit our exposure to interest rate increases related to a portion of our floating rate indebtedness. These swap agreements hedge a portion of our contractual floating rate interest commitments related to our Senior Secured Term Loan Facility beginning infrom December 2016 and through the expiration of the agreements into October 2020. As a result of the April 2016 swap agreements, our effective interest rate as to the $700.0 million inof floating rate indebtedness will be fixed at 4.912% per month from December 2016 through October 2020. As a result of the June 2016 swap agreements, our effective interest rate as to an additional $700.0 million of floating rate indebtedness will be fixed at 4.7395% from December 2016 to October 2020. The interest rate swap agreements expire in October 2020.

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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 1, 2015.July 30, 2016.
 
RecentNewly Adopted Accounting Pronouncements. In May 2014,April 2015, the Financial Accounting Standards Board (the "FASB") issued guidance to clarify the principles for revenue 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 effective for us no earlier than the first quarter of fiscal year 2019 using one of two retrospective application methods.

In April 2015, the FASB issued guidance to simplify the balance sheet presentation of debt issuance costs. The standard requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt, consistent with the presentation of debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the new guidance. In addition, the FASB issued guidance in August 2015 to clarify the treatment of debt issuance costs related to line of credit arrangements. Companies can continue to present debt issuance costs for line of credit arrangements as an asset and subsequently amortize the deferred issuance cost ratably over the term of the arrangement. This newWe adopted this guidance is effective for us as ofin the firstfourth quarter of fiscal year 2017.2016 on a retrospective basis. Unamortized debt issuance costs, except unamortized debt issuance costs related to our Asset-Based Revolving Credit Facility, are now presented as a direct reduction of long-term debt on the Company's Condensed Consolidated Balance Sheets as of October 29, 2016, July 30, 2016, and October 31, 2015. Unamortized debt issuance costs of $119.7 million as of October 31, 2015 have been reclassified on our Condensed Consolidated Balance Sheet from other assets to a direct reduction of long-term debt.

In November 2015, the FASB issued guidance to simplify the balance sheet presentation of deferred income taxes. The standard requires that deferred tax liabilities and assets be classified as non-current in a balance sheet. We adopted this guidance in the fourth quarter of fiscal year 2016 on a retrospective basis. Deferred taxes previously classified as components of current assets are now classified as long-term liabilities on the Company's Condensed Consolidated Balance Sheets as of October 29, 2016, July 30, 2016 and October 31, 2015. Current deferred tax assets of $40.4 million as of October 31, 2015 have been netted against non-current deferred tax liabilities on our Condensed Consolidated Balance Sheet.

In April 2015, the FASB issued guidance related to the accounting for cloud computing arrangements. Under this guidance, if a cloud computing arrangement includes a software license, the software license element should be accounted for in a manner consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. This newWe adopted this guidance is effective for us as ofin the first quarter of fiscal year 2017.2017 on a

In November 2015, the FASB issued guidance to simplify the balance sheet presentation
49

Table of deferred income taxes. The standard requires that deferred tax liabilities and assets be classified as non-current in a balance sheet. This new guidance is effective for us as of the first quarter of fiscal year 2018 using either a prospective or retrospective application method.Contents


In February 2016, the FASB issuedprospective basis. The adoption of this guidance that requires a lessee to recognize assets and liabilities arising from leases on the balance sheet. Previous GAAP did not require lease assets and liabilities to be recognized for most leases. Additionally, companies are permitted to make an accounting policy election to not recognize lease assets and liabilities for leases withhave a term of 12 months or less. For both finance leases and operating leases, the lease liability should be initially measured at the present value of the lease payments. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change under this new guidance. This new guidance is effective for us as of the first quarter of fiscal year 2020.material impact on our Condensed Consolidated Financial Statements.

Recent Accounting Pronouncements. In March 2016, the FASB issued guidance to simplify how share-based payments are accounted for and presented in the financial statements, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard allows (i) entities to withhold an amount up to the employees' maximum individual tax rate in the relevant jurisdiction without resulting in liability classification of the award and (ii) forfeitures to be either estimated, as required currently, or recognized when they occur. This new guidance is effective for us as of the first quarter of fiscal year 2018.

In May 2014, the FASB issued guidance to clarify the principles for revenue recognition. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance. This new guidance is effective for us no earlier than the first quarter of fiscal year 2019 using one of two retrospective application methods.

In February 2016, the FASB issued guidance that requires a lessee to recognize assets and liabilities arising from leases on the balance sheet. Previous GAAP did not require lease assets and liabilities to be recognized for most leases. Additionally, companies are permitted to make an accounting policy election not to recognize lease assets and liabilities for leases with a term of 12 months or less. For both finance leases and operating leases, the lease liability should be initially measured at the present value of the remaining contractual lease payments. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change under this new guidance. This new guidance is effective for us as of the first quarter of fiscal year 2020.

With respect to each of the recent accounting pronouncements described above, we are currently evaluating which application methods to adopt and the impact of adopting these new accounting standards on our Condensed Consolidated Financial Statements. In addition, we do not expect that any other recently issued accounting pronouncements will have a material impact on our Condensed Consolidated Financial Statements.



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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 1, 2015July 30, 2016 as filed with the Securities and Exchange Commission on September 22, 2015.26, 2016.  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 April 30,October 29, 2016, under the supervision and with the participation of our Chief Executive Officer and Interim 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 Interim 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.


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b. Changes in Internal Control overOver Financial Reporting.
 
In the ordinary coursefirst quarter of fiscal year 2017, we commenced implementation of an integrated merchandising and distribution system, NMG One. This implementation is not in response to an identified control deficiency or weakness. This implementation is significant in scale and complexity and has resulted in changes to our business processes, primarily related to the procurement, processing, distribution and valuation of our merchandising inventories. In connection with the implementation, management has updated the design and documentation of internal control processes and procedures to align our internal controls with our new business processes and the capabilities of the new system. In response to certain issues that we routinely enhanceexperienced in the first quarter related to the implementation and discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Strategic Growth Initiatives," management also applied, and expects to continue to apply, certain supplemental and manual controls to ensure adequate control over financial reporting during the period of transition from our information systems by either upgrading our current systems or implementinglegacy system to the new systems.  No change occurredNMG One system. Management will continue to monitor, evaluate and update the related processes and internal controls as necessary during the post-implementation period to ensure adequate internal control over financial reporting.

Other than as described above, there have been no changes in our internal controls over financial reporting during the quarter ended April 30,October 29, 2016 that hashave materially affected, or isare 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 9 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 is incorporated herein by reference as if fully restated herein.  Note 9 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 — Forward-Looking Statements.”
 

ITEM 1A.  RISK FACTORS
 
ThereExcept as set forth below, 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 1, 2015July 30, 2016 as filed with the Securities and Exchange Commission on September 22, 2015.26, 2016. 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.

The last paragraph of the risk factor “A material disruption in our information systems could adversely affect our business or results of operations” in our Annual Report on Form 10-K for the fiscal year ended July 30, 2016 is updated as follows:

“To keep pace with changing technology, we must continuously implement new information technology systems as well as enhance our existing systems. Moreover, the successful execution of some of our growth strategies, in particular the expansion of our omni-channel and online capabilities, is dependent on the design and implementation of new systems and technologies and/or the enhancement of existing systems, such as our ongoing implementation of NMG One. Issues related to the implementation of NMG One in the first quarter of fiscal year 2017 resulted in disruptions to our business, required us to reallocate resources to stabilize the newly implemented system and address and mitigate these issues, and adversely affected our results of operations for the first quarter of fiscal year 2017, all as described above under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Strategic Growth Initiatives.”  We expect these issues to continue to affect our business and results of operations in the second quarter, and they may persist into future periods. We may also encounter additional issues in connection with continued implementation, which could further disrupt our business, impair our sales and productivity and force us to reallocate resources and/or incur unanticipated costs, any of which could materially and adversely affect our business and results of operations.

Any material disruption in our information systems, or delays or difficulties in implementing or integrating new systems or enhancing or expanding current systems, or our failure to achieve the anticipated benefits of any new or updated information systems, could have an adverse effect on our business, in particular our online operations, and results of operations.”

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


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
None.
 

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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.
    
10.1Second Amendment to Revolving Credit Agreement, dated as of October 27, 2016 among Neiman Marcus Group LTD LLC, as Borrower, Mariposa Intermediate Holdings LLC, as Holdings, each co-borrower and subsidiary loan party party thereto, each of the banks and other financial institutions party thereto as lenders and/or issuing banks and Deutsche Bank AG New York Branch, as Administrative Agent and Collateral Agent.Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on October 27, 2016.
10.2Form of Restricted Stock Agreement pursuant to the Neiman Marcus Group, Inc. Management Equity Incentive Plan.Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on November 2, 2016.
10.3Form of Restricted Stock Agreement pursuant to the Neiman Marcus Group, Inc. Management Equity Incentive Plan by and between Parent and Karen W. Katz.Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on November 2, 2016.
10.4First Amendment to Neiman Marcus Group, Inc. (f/k/a NM Mariposa Holdings, Inc.) Management Equity Incentive Plan.Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on November 2, 2016.
10.5Consulting Agreement, dated November 25, 2016, by and among The Neiman Marcus Group LLC, Neiman Marcus Group, Inc. and Michael Fung.Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on November 25, 2016.
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 Interim 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 Interim 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 Filed herewith electronically.
    
101.SCHXBRL Taxonomy Extension Schema Document Filed herewith electronically.
    
101.CALXBRL Taxonomy Extension Calculation Linkbase Document Filed herewith electronically.
    
101.DEFXBRL Taxonomy Extension Definition Linkbase Document Filed herewith electronically.
    
101.LABXBRL Taxonomy Extension Labels Linkbase Document Filed herewith electronically.
    
101.PREXBRL Taxonomy Extension Presentation Linkbase Document Filed 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 14,December 13, 2016
T. Dale Stapleton and Chief Accounting Officer  
  (on behalf of the registrant and  
  as principal accounting officer)  


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