Neiman Marcus Group LTD LLC - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - Neiman Marcus Group LTD LLC	exhibit321-q3fy17.htm
EX-31.2 - EXHIBIT 31.2 - Neiman Marcus Group LTD LLC	exhibit312-q3fy17.htm
EX-31.1 - EXHIBIT 31.1 - Neiman Marcus Group LTD LLC	exhibit311-q3fy17.htm

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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 29, 2017

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)



Delaware	20-3509435
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1618 Main Street Dallas, Texas	75201
(Address of principal executive offices)	(Zip code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth 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)	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

Item 1.		Condensed Consolidated Balance Sheets as of April 29, 2017, July 30, 2016 and April 30, 2016	1

		Condensed Consolidated Statements of Operations for the Thirteen Weeks and Thirty-nine Weeks Ended April 29, 2017 and April 30, 2016	2

		Condensed Consolidated Statements of Comprehensive Earnings (Loss) for the Thirteen Weeks and Thirty-nine Weeks Ended April 29, 2017 and April 30, 2016	3

		Condensed Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended April 29, 2017 and April 30, 2016	4

		Notes to Condensed Consolidated Financial Statements	5

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.		Quantitative and Qualitative Disclosures about Market Risk	59

Item 4.		Controls and Procedures	59

Part II.	Other Information

Item 1.		Legal Proceedings	59

Item 1A.		Risk Factors	60

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 3.		Defaults Upon Senior Securities	60

Item 4.		Mine Safety Disclosures	60

Item 5.		Other Information	60

Item 6.		Exhibits	61

Signature			62

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NEIMAN MARCUS GROUP LTD LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



(in thousands, except units)	April 29, 2017			July 30, 2016			April 30, 2016

ASSETS
Current assets:
Cash and cash equivalents	$	53,615		$	61,843		$	76,282
Credit card receivables	48,681			38,813			52,731
Merchandise inventories	1,231,210			1,125,325			1,200,913
Other current assets	155,662			108,065			109,436
Total current assets	1,489,168			1,334,046			1,439,362

Property and equipment, net	1,600,759			1,588,121			1,547,739
Intangible assets, net	3,011,656			3,244,502			3,515,585
Goodwill	2,069,082			2,072,818			2,276,041
Other long-term assets	26,981			17,401			16,340
Total assets	$	8,197,646		$	8,256,888		$	8,795,067

LIABILITIES AND MEMBER EQUITY
Current liabilities:
Accounts payable	$	213,709		$	317,736		$	264,727
Accrued liabilities	441,182			492,646			486,681
Current portion of long-term debt	29,426			29,426			29,426
Total current liabilities	684,317			839,808			780,834

Long-term liabilities:
Long-term debt, net of debt issuance costs	4,849,225			4,584,281			4,685,966
Deferred income taxes	1,242,518			1,296,793			1,458,281
Other long-term liabilities	634,667			592,875			452,414
Total long-term liabilities	6,726,410			6,473,949			6,596,661

Membership unit (1 unit issued and outstanding at April 29, 2017, July 30, 2016 and April 30, 2016)	—			—			—
Member capital	1,587,086			1,584,216			1,584,216
Accumulated other comprehensive loss	(109,467		)	(115,841		)	(48,646		)
Accumulated deficit	(690,700		)	(525,244		)	(117,998		)
Total member equity	786,919			943,131			1,417,572
Total liabilities and member equity	$	8,197,646		$	8,256,888		$	8,795,067

See Notes to Condensed Consolidated Financial Statements.

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NEIMAN MARCUS GROUP LTD LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Thirteen weeks ended						Thirty-nine weeks ended
(in thousands)	April 29, 2017			April 30, 2016			April 29, 2017			April 30, 2016

Revenues	$	1,111,435		$	1,169,292		$	3,586,118		$	3,821,149
Cost of goods sold including buying and occupancy costs (excluding depreciation)	730,543			743,471			2,412,903			2,505,837
Selling, general and administrative expenses (excluding depreciation)	265,566			274,777			849,880			862,773
Income from credit card program	(15,053		)	(15,010		)	(45,471		)	(44,634		)
Depreciation expense	55,694			59,616			169,791			169,157
Amortization of intangible assets	12,126			13,978			38,630			43,426
Amortization of favorable lease commitments	13,379			13,421			40,476			40,570
Other expenses (income)	10,908			(634		)	22,937			24,512
Impairment charges	—			—			153,772			—

Operating earnings (loss)	38,272			79,673			(56,800		)	219,508

Interest expense, net	73,718			72,675			219,998			215,855

Earnings (loss) before income taxes	(35,446		)	6,998			(276,798		)	3,653

Income tax expense (benefit)	(10,572		)	3,208			(111,342		)	2,517

Net earnings (loss)	$	(24,874	)	$	3,790		$	(165,456	)	$	1,136

See Notes to Condensed Consolidated Financial Statements.

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NEIMAN MARCUS GROUP LTD LLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(UNAUDITED)



	Thirteen weeks ended						Thirty-nine weeks ended
(in thousands)	April 29, 2017			April 30, 2016			April 29, 2017			April 30, 2016

Net earnings (loss)	$	(24,874	)	$	3,790		$	(165,456	)	$	1,136

Other comprehensive earnings:
Foreign currency translation adjustments, before tax	2,993			8,253			(6,053		)	3,812
Change in unrealized gain (loss) on financial instruments, before tax	(3,068		)	660			18,272			1,756
Reclassification of realized loss on financial instruments to earnings, before tax	2,015			167			4,133			234
Change in unrealized loss on unfunded benefit obligations, before tax	542			(146		)	(5,286		)	(1,298		)
Tax effect related to items of other comprehensive earnings	(748		)	(3,060		)	(4,692		)	(1,922		)
Total other comprehensive earnings	1,734			5,874			6,374			2,582

Total comprehensive earnings (loss)	$	(23,140	)	$	9,664		$	(159,082	)	$	3,718

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
(in thousands)	April 29, 2017			April 30, 2016

CASH FLOWS - OPERATING ACTIVITIES
Net earnings (loss)	$	(165,456	)	$	1,136
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization expense	267,286			271,582
Impairment charges	153,772			—
Deferred income taxes	(99,880		)	15,785
Other	3,078			3,354
	158,800			291,857
Changes in operating assets and liabilities:
Merchandise inventories	(89,949		)	(44,670		)
Other current assets	(19,609		)	(35,888		)
Accounts payable and accrued liabilities	(145,282		)	(95,992		)
Deferred real estate credits	32,502			32,275
Funding of defined benefit pension plan	(6,600		)	—
Net cash provided by (used for) operating activities	(70,138		)	147,582

CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures	(161,486		)	(231,993		)
Acquisition of MyTheresa	—			(896		)
Net cash used for investing activities	(161,486		)	(232,889		)

CASH FLOWS - FINANCING ACTIVITIES
Borrowings under senior secured asset-based revolving credit facility	730,000			495,000
Repayment of borrowings under senior secured asset-based revolving credit facility	(460,000		)	(360,000		)
Repayment of borrowings under senior secured term loan facility	(22,070		)	(22,069		)
Payment of contingent earn-out obligation	(22,857		)	(27,185		)
Debt issuance costs paid	(5,359		)	—
Net cash provided by financing activities	219,714			85,746

Effect of exchange rate changes on cash and cash equivalents	3,682			2,869

CASH AND CASH EQUIVALENTS
Increase (decrease) during the period	(8,228		)	3,308
Beginning balance	61,843			72,974
Ending balance	$	53,615		$	76,282

Supplemental Schedule of Cash Flow Information
Cash paid during the period for:
Interest	$	245,130		$	231,950
Income taxes	$	699		$	16,106
Non-cash - investing and financing activities:
Property and equipment acquired through developer financing obligations	$	35,142		$	—

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.

The Company is a subsidiary of Mariposa Intermediate Holdings LLC ("Holdings"), which in turn is a subsidiary of 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. The Sponsors acquired the Company on October 25, 2013 (the "Acquisition").

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

In October 2014, we acquired MyTheresa, a luxury retailer headquartered in Munich, Germany. The operations of MyTheresa are conducted primarily through the mytheresa.com 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 third quarter of fiscal year 2017 relate to the thirteen weeks ended April 29, 2017, (ii) the third quarter of fiscal year 2016 relate to the thirteen weeks ended April 30, 2016, (iii) year-to-date fiscal 2017 relate to the thirty-nine weeks ended April 29, 2017 and (iv) year-to-date fiscal 2016 relate to the thirty-nine weeks ended April 30, 2016.

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 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 third quarter of fiscal year 2017 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 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 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:


•	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.

Newly Adopted Accounting Pronouncements. In April 2015, the Financial Accounting Standards Board (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. We adopted this guidance in the fourth quarter of fiscal year 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 April 29, 2017, July 30, 2016, and April 30, 2016. Unamortized debt issuance costs of $108.4 million as of April 30, 2016 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 April 29, 2017, July 30, 2016 and April 30, 2016. Current deferred tax assets of $42.0 million as of April 30, 2016 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. We adopted this guidance in the first quarter of fiscal year 2017 on a prospective basis. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements.

In January 2017, the FASB issued guidance to simplify how an entity is required to test goodwill for impairment. The new standard allows (i) entities to perform annual, or interim, goodwill impairment testing by comparing the reporting unit's fair value with its carrying amount and (ii) recognize impairment charges for the amount by which the carrying amount exceeds the reporting unit’s fair value. Pursuant to prior guidance, a goodwill impairment loss was determined by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill, an entity had to perform procedures to determine the fair value of its assets and liabilities at the impairment testing date consistent with procedures that are required in determining the fair value of assets acquired and liabilities assumed in a business combination. To the extent the fair value of our reporting units exceeds the carrying value in future periods, we plan to adopt this guidance at that time.

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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. We are currently evaluating this guidance and will provide additional disclosure related to its impact on our Consolidated Financial Statements as well as our expected method of adoption after we have completed the evaluation process. This new guidance is effective for us no earlier than the first quarter of fiscal year 2019.

In May 2017, the FASB issued guidance to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The standard requires modification accounting only if changes in the terms or conditions results in changes of the fair value, the vesting conditions or the classification of the award as an equity instrument or a liability. This new guidance is effective for us as of the first quarter of fiscal year 2019.

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.

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 contained contingent earn-out payments to the sellers aggregating up to €55.0 million based on operating performance for calendar years 2015 and 2016. In March 2017, we paid $26.9 million, or €25.5 million, to the sellers as a result of MyTheresa's operating performance for calendar year 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. As of April 29, 2017, the Company has no further obligation related to the contingent earn-out payments to the sellers of MyTheresa.

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.

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The following table shows the Company’s financial 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 29, 2017		July 30, 2016		April 30, 2016

Assets:
Interest rate swaps (included in other long-term assets)	Level 2	$	7,308	$	—	$	—

Liabilities:
Interest rate swaps (included in current liabilities)	Level 2	$	—	$	—	$	906
Interest rate swaps (included in other long-term liabilities)	Level 2	—		13,167		—
Contingent earn-out obligation (included in accrued liabilities)	Level 3	—		26,264		27,445
Stock-based award liability (included in other long-term liabilities)	Level 3	3,225		5,500		19,753

The fair value of the interest rate swaps is estimated using industry standard valuation models using market-based observable inputs, including interest rate curves.

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 captured the risk associated with the obligation. We updated our assumptions based on new developments and adjusted the carrying value of the obligation to its estimated fair value at each reporting date. As of April 29, 2017, the Company has no further obligation related to the contingent earn-out payments as both contingent earn-out payments have been paid.

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 29, 2017				July 30, 2016				April 30, 2016
(in thousands)	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	$	435,000	$	435,000	$	165,000	$	165,000	$	265,000	$	265,000
Senior Secured Term Loan Facility	Level 2	2,846,989		2,266,916		2,869,059		2,705,896		2,876,416		2,748,789
Cash Pay Notes	Level 2	960,000		567,533		960,000		818,995		960,000		835,200
PIK Toggle Notes	Level 2	600,000		326,718		600,000		480,000		600,000		498,000
2028 Debentures	Level 2	122,623		97,216		122,463		120,325		122,409		113,125

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

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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 adjusted the carrying 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). Subsequent to the Acquisition, we determine the fair value of our long-lived and intangible assets on a non-recurring basis in connection with our periodic evaluations of such assets for potential 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 29, 2017		July 30, 2016		April 30, 2016

Favorable lease commitments, net	$	943,581	$	985,534	$	999,343
Other definite-lived intangible assets, net	412,916		451,722		477,996
Tradenames	1,655,159		1,807,246		2,038,246
Intangible assets, net	$	3,011,656	$	3,244,502	$	3,515,585

Goodwill	$	2,069,082	$	2,072,818	$	2,276,041

Intangible Assets Subject to Amortization. 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 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):



April 30, 2017 through July 29, 2017	$	24,920
2018	97,606
2019	94,860
2020	88,164
2021	82,317
2022	82,487

At April 29, 2017, accumulated amortization was $187.5 million for favorable lease commitments and $286.6 million for other definite-lived intangible 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.

5. Impairment Charges

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. These impairment assessments are performed for each of our four reporting units — Neiman Marcus, Bergdorf Goodman, Last Call and MyTheresa.

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Since fiscal year 2016, we have experienced declines in our operating results and we believe our operating results have been 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 in the U.S.; and


•	the continuation of low global prices for 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, 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 as of the fourth quarter of fiscal year 2016.

Impairment charges recorded were as follows:



	Thirteen weeks ended
(in thousands)	January 28, 2017		July 30, 2016
Tradenames	$	150,106	$	228,877
Goodwill	—		199,218
Property and equipment	2,189		25,426
Other definite-lived intangible assets	1,477		12,634
Total	$	153,772	$	466,155

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.

6. Long-term Debt

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



(in thousands)	Interest Rate	April 29, 2017			July 30, 2016			April 30, 2016

Asset-Based Revolving Credit Facility	variable	$	435,000		$	165,000		$	265,000
Senior Secured Term Loan Facility	variable	2,846,989			2,869,059			2,876,416
Cash Pay Notes	8.00%	960,000			960,000			960,000
PIK Toggle Notes	8.75%/9.50%	600,000			600,000			600,000
2028 Debentures	7.125%	122,623			122,463			122,409
Total debt		4,964,612			4,716,522			4,823,825
Less: current portion of Senior Secured Term Loan Facility		(29,426		)	(29,426		)	(29,426		)
Less: unamortized debt issuance costs		(85,961		)	(102,815		)	(108,433		)
Long-term debt, net of debt issuance costs		$	4,849,225		$	4,584,281		$	4,685,966

Asset-Based Revolving Credit Facility. On October 27, 2016, we entered into an amendment of the Asset-Based Revolving Credit Facility (the "ABL Refinancing Amendment"). As amended, the maximum committed borrowing capacity under the Asset-Based Revolving Credit Facility remains at $900.0 million 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

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repaid or the maturity date thereof has not been extended to October 25, 2021 or later). At April 29, 2017, we had $435.0 million of borrowings outstanding under this facility, $1.8 million of outstanding letters of credit and $373.3 million of unused borrowing availability. As of June 13, 2017, outstanding borrowings under the Asset-Based Revolving Credit Facility have been reduced by $140.0 million to $295.0 million increasing our unused borrowing availability to $513.3 million.

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 $1,100.0 million, but our ability to borrow would still be limited by the amount of the borrowing base. The cash proceeds of any incremental term loans may be used for working capital and general corporate purposes.

At April 29, 2017, 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 of 0.75% with respect to base rate borrowings and 1.75% with respect to LIBOR borrowings at April 29, 2017. The applicable margin is based on the average historical excess availability under the Asset-Based Revolving Credit 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 2.74% at April 29, 2017. In addition, we are required to pay a commitment fee in respect of unused commitments at a rate of 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 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. 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, 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 29, 2017, the assets of non-guarantor subsidiaries, primarily (i) NMG Germany GmbH, through which we conduct the operations of MyTheresa, (ii) NMG International LLC, a holding company with respect to our foreign operations and (iii) Nancy Holdings LLC, which holds legal title to certain real

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property used by us in conducting our operations, aggregated $378.2 million, or 4.6% 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 9 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2016.

Senior Secured Term Loan Facility. On October 25, 2013, we entered into a credit agreement and related security and other agreements for the $2,950.0 million Senior Secured Term Loan Facility. At April 29, 2017, the outstanding balance under the Senior Secured Term Loan Facility was 2,847.0 million. The principal amount of the loans outstanding is due and payable in full on October 25, 2020.

The Senior Secured Term Loan Facility permits us to increase the term loans or add a separate tranche of term loans by an amount not to exceed $650.0 million plus an unlimited amount that would result (a) in the case of any incremental term loan facility to be secured equally and ratably with the term loans, a senior secured first lien net leverage ratio equal to or less than 4.25 to 1.00, and (b) in the case of any incremental term loan facility to be secured on a junior basis to the term loans, to be subordinated in right of payment to the term loans or unsecured and pari passu in right of payment with the term loans, a total net leverage ratio equal to or less than the total net leverage ratio as of October 25, 2013.

At April 29, 2017, 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 29, 2017. The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 4.25% at April 29, 2017.

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 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 of $7.4 million, less certain voluntary and 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

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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 29, 2017, the assets of non-guarantor subsidiaries, primarily (i) NMG Germany GmbH, through which we conduct the operations of MyTheresa, (ii) NMG International LLC, a holding company with respect to our foreign operations and (iii) Nancy Holdings LLC, which holds legal title to certain real property used by us in conducting our operations, aggregated $378.2 million, or 4.6% 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 9 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended 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. At April 29, 2017, the redemption price at which we may redeem the Cash Pay Notes, in whole or in part, as set forth in the indenture governing the Cash Pay 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 9 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended 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 April 29, 2017, 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, subject to certain restrictions, 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. 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. Interest on the PIK Toggle Notes was paid entirely in cash for the first seven interest payments. We elected to pay the October 2017 interest payment in the form of PIK Interest. We may elect to pay interest in the form of PIK Interest or partial PIK Interest on each of our semi-annual interest payments due in April 2018 and October 2018. If we elect PIK Interest or partial PIK Interest with respect to these interest payments, we must deliver a notice of such election to the trustee no later than one day prior to the beginning of the relevant semi-annual interest period. We will evaluate our financial position prior to each future interest period to determine the appropriate election at that time.

For a more detailed description of the PIK Toggle Notes, refer to Note 9 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2016.

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 29, 2017, our non-guarantor subsidiaries consisted 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 us in conducting our operations; (iii) NMG Germany GmbH, through which we conduct the operations of MyTheresa; (iv) NMG International LLC, a holding company with respect to our foreign operations; and (v) Nancy Holdings LLC, which holds legal title to certain real property used by us in conducting our operations. The 2028 Debentures include certain restrictive covenants and a cross-acceleration provision in respect of any other indebtedness that has an aggregate principal amount exceeding $15.0 million. The 2028 Debentures mature on June 1, 2028.

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For a more detailed description of the 2028 Debentures, refer to Note 9 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2016.

Maturities of Long-term Debt. At April 29, 2017, annual maturities of long-term debt during the current and next five fiscal years and thereafter are as follows (in millions):



April 30, 2017 through July 29, 2017	$	7.4
2018	29.4
2019	29.4
2020	29.4
2021	3,186.4
2022	1,560.0
Thereafter	122.6

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, net. The significant components of interest expense are as follows:



	Thirteen weeks ended						Thirty-nine weeks ended
(in thousands)	April 29, 2017			April 30, 2016			April 29, 2017			April 30, 2016

Asset-Based Revolving Credit Facility	$	2,241		$	798		$	4,811		$	2,407
Senior Secured Term Loan Facility	32,732			31,011			95,567			93,269
Cash Pay Notes	19,200			19,200			57,600			57,600
PIK Toggle Notes	13,310			13,125			39,560			39,375
2028 Debentures	2,227			2,227			6,680			6,680
Amortization of debt issue costs	6,125			6,143			18,389			18,429
Capitalized interest	(1,219		)	(1,345		)	(4,463		)	(4,644		)
Other, net	(898		)	1,516			1,854			2,739
Interest expense, net	$	73,718		$	72,675		$	219,998		$	215,855

7. Derivative Financial Instruments

Interest Rate Swaps. At April 29, 2017, we had outstanding floating rate debt obligations of $3,282.0 million. In April and June of 2016, we entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $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 from December 2016 to October 2020. As a result of the April 2016 swap agreements, our effective interest rate as to $700.0 million of floating rate indebtedness will be fixed at 4.912% 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 fair value of our interest rate swap agreements was a gain of $7.3 million at April 29, 2017, which amount is included in other long-term assets, a loss of $13.2 million at July 30, 2016, which amount is included in other long-term liabilities, and a loss of $0.9 million at April 30, 2016, which amount is included in current liabilities. The interest rate swap agreements expire in October 2020.

We 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. The 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.

Interest Rate Caps. 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 capped LIBOR related to our Senior Secured Term Loan Facility at 3.00% from December

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2014 through December 2016 with respect to the $1,400.0 million notional amount of such agreements. The interest rate cap agreements expired in December 2016.

Gains and losses realized due to the expiration of applicable portions of the interest rate caps were reclassified to interest expense at the time our quarterly interest payments were made. No losses were realized in the third quarter of fiscal year 2017, $0.2 million in the third quarter of fiscal year 2016, $1.4 million in year-to-date fiscal 2017 and $0.2 million in year-to-date fiscal 2016.

8. Income Taxes

Our effective income tax rates are as follows:



	Thirteen weeks ended				Thirty-nine weeks ended
	April 29, 2017		April 30, 2016		April 29, 2017		April 30, 2016

Effective income tax rate	29.8	%	45.8	%	40.2	%	68.9	%

Our effective income tax rate on the loss for the third quarter of fiscal year 2017 was less than the federal statutory tax rate of 35% due primarily to:


•	adjustments to prior year recorded tax benefits upon finalization of our federal income tax return for fiscal year 2016; and


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


•	state income taxes.

Our effective income tax rate on the earnings for the third 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.

Our effective income tax rate on the loss for year-to-date fiscal 2017 exceeded the federal statutory tax rate of 35% due primarily to:


•	state income taxes;


•	the benefit associated with the release of certain tax reserves for settled tax matters; and


•	lower foreign tax rates associated with the MyTheresa operations.

Our effective income tax rate on the earnings for year-to-date fiscal 2016 exceeded the federal statutory tax rate 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


•	reductions in our estimated tax reserves due to the expiration of statutes of limitations.

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At April 29, 2017, the gross amount of unrecognized tax benefits was $1.0 million ($0.7 million of which would impact our effective tax rate, if recognized). We classify interest and penalties as a component of income tax expense (benefit) and our liability for accrued interest and penalties was $0.3 million at April 29, 2017, $0.4 million at July 30, 2016 and $4.1 million at April 30, 2016.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. The Internal Revenue Service ("IRS") finalized 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 2012. We believe our recorded tax liabilities as of April 29, 2017 are sufficient to cover any potential assessments made by the IRS or other taxing authorities 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 to the amounts of our unrecognized tax benefits could occur within the next 12 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 in current and deferred income taxes between the Company and Parent.

9. Employee Benefit Plans

Description of Benefit Plans. We currently maintain defined contribution plans consisting of a retirement savings plan ("RSP") and a defined contribution supplemental executive retirement plan ("Defined Contribution SERP Plan"). In addition, we sponsor a defined benefit pension plan ("Pension Plan") and an unfunded supplemental executive retirement plan ("SERP Plan") 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.

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



(in thousands)	April 29, 2017			July 30, 2016			April 30, 2016

Pension Plan	$	295,982		$	299,676		$	219,108
SERP Plan	119,275			118,484			109,213
Postretirement Plan	8,150			8,600			8,986
	423,407			426,760			337,307
Less: current portion	(6,553		)	(7,345		)	(6,016		)
Long-term portion of benefit obligations	$	416,854		$	419,415		$	331,291

Funding Policy and Status. Our policy is to fund the Pension Plan at or above the minimum level required by law. In fiscal year 2016, we were not required to make contributions to the Pension Plan. As of April 29, 2017, we believe we will be required to contribute $10.7 million to the Pension Plan in fiscal year 2017, of which $6.6 million was funded during year-to-date fiscal 2017.

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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
(in thousands)	April 29, 2017			April 30, 2016			April 29, 2017			April 30, 2016

Pension Plan:
Interest cost	$	4,870		$	5,429		$	14,610		$	16,287
Expected return on plan assets	(5,331		)	(5,807		)	(15,993		)	(17,421		)
Net amortization of losses	663			—			1,989			—
Pension Plan expense (income)	$	202		$	(378	)	$	606		$	(1,134	)

SERP Plan:
Interest cost	$	784		$	892		$	2,352		$	2,676
Net amortization of losses	23			—			69			—
SERP Plan expense	$	807		$	892		$	2,421		$	2,676

Postretirement Plan:
Service cost	$	—		$	1		$	—		$	3
Interest cost	55			71			165			213
Net amortization of gains	(146		)	(146		)	(438		)	(438		)
Postretirement Plan income	$	(91	)	$	(74	)	$	(273	)	$	(222	)

10. Commitments and Contingencies

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

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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.

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 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 in the similar case on September 9, 2016, which was granted on January 13, 2017. That case is now pending before the Supreme Court, 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

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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 was fully briefed and oral argument was held on February 17, 2017. On April 18, 2017, the Court of Appeal reversed the lower court's ruling, holding that the plaintiff's allegations were sufficient to proceed past the pleadings stage of litigation. The case has been transferred back to the district court and given a trial date of July 24, 2018.

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 June 27, 2016, the court granted the motion 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 Ninth 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 U.S. Supreme Court granted certiorari of the Morris decision, and the Ninth Circuit appeal is currently stayed pending the Supreme Court's decision. On April 14, 2017, the plaintiffs filed a motion for class certification, which is set for hearing on July 3, 2017. The district court has set a trial date in the matter of February 6, 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. At a status conference on April 17, 2017, the court maintained the stay and set a further status conference for September 5, 2017.

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. At a status conference on April 17, 2017, the court maintained the stay and set a further status conference for September 5, 2017.

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. The Company appealed the decision to the Illinois Supreme Court, and review was denied on January 25, 2017. The case was returned to the trial court for further proceedings. On June 9, 2017, the court granted preliminary approval of settlement.

In addition, we are currently involved in various other legal actions and proceedings that arose in the ordinary course of business. We believe that any liability arising as a result of such ordinary course matters will not have a material adverse effect on our financial condition, 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

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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 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. The parties jointly requested, and the court granted, an extension of time for filing a responsive pleading, which was due on December 28, 2016. On February 9, 2017, the court denied the parties' request for another extension of time, dismissed the case without prejudice, and stated that plaintiffs could file a motion to reinstate. On March 8, 2017, plaintiffs filed a motion to reinstate, which the court granted on March 16, 2017. On March 17, 2017, plaintiffs filed a motion seeking preliminary approval of a class action settlement resolving this action. The court has not yet ruled on the plaintiffs' motion for preliminary approval.

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

Other. We had $1.8 million in outstanding irrevocable letters of credit at April 29, 2017. We had approximately $3.6 million in surety bonds at April 29, 2017 relating primarily to merchandise imports and state sales tax and utility requirements.

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11. Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss by component (amounts are recorded net of related income taxes):



(in thousands)	Foreign Currency Translation Adjustments			Unrealized Gains (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	)
Other comprehensive earnings (loss)	(8,575		)	10,989			327			2,741
Amounts reclassified from accumulated other comprehensive loss	—			929			—			929
Balance, January 28, 2017	$	(25,247	)	$	4,937		$	(90,891	)	$	(111,201	)
Other comprehensive earnings (loss)	2,045			(1,866		)	330			509
Amounts reclassified from accumulated other comprehensive loss	—			1,225			—			1,225
Balance, April 29, 2017	$	(23,202	)	$	4,296		$	(90,561	)	$	(109,467	)

The amounts reclassified from accumulated other comprehensive loss are recorded within interest expense on the Condensed Consolidated Statements of Operations.

12. Stock-Based Awards

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 purchase a total of 56,979 shares of common stock of Parent (the "Co-Invest Options").

The number of Co-Invest Options issued upon conversion of 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.

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 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. 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

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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.

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, 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. In periods in which the estimated fair value of 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 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.

At April 29, 2017, an aggregate of 41,714 Co-Invest Options and time-vested options were held by Retirement Eligible Optionees. The recorded liability with respect to such options was $1.5 million at April 29, 2017, $5.5 million at July 30, 2016 and $19.8 million at April 30, 2016.

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
(in actuals)	April 29, 2017		April 30, 2016		April 29, 2017		April 30, 2016

Stock option grants:
Number of options granted	856		—		9,971		4,268
Weighted average grant date fair value	$	54	$	—	$	149	$	341

Stock option exercises:
Number of options exercised	—		—		609		626
Weighted average exercise price	$	—	$	—	$	180	$	1,205

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

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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.

At April 29, 2017, 24,350 shares of unvested restricted common stock were outstanding. The recorded liability with respect to such shares was $1.7 million at April 29, 2017.

Stock Compensation Expense (Benefit). The following table summarizes our stock-based compensation expense (benefit):



	Thirteen weeks ended					Thirty-nine weeks ended
(in thousands)	April 29, 2017			April 30, 2016		April 29, 2017			April 30, 2016

Stock compensation expense (benefit):
Stock options	$	(635	)	$	—	$	(958	)	$	3,880
Restricted stock	840			—		1,680			—
Total	$	205		$	—	$	722		$	3,880

For a more detailed description of our stock-based awards, refer to Note 15 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 30, 2016.

13. 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.

14. Other Expenses (Income)

Other expenses (income) consist of the following components:



	Thirteen weeks ended					Thirty-nine weeks ended
(in thousands)	April 29, 2017		April 30, 2016			April 29, 2017		April 30, 2016

Expenses incurred in connection with strategic initiatives	$	8,309	$	3,599		$	17,011	$	21,870
MyTheresa acquisition costs	2,584		80			3,286		4,408
Net gain from facility closure	—		(5,446		)	—		(5,446		)
Other expenses	15		1,133			2,640		3,680
Total	$	10,908	$	(634	)	$	22,937	$	24,512

We incurred professional fees and other costs in connection with our strategic initiatives, including Organizing for Growth, NMG One and the evaluation of potential strategic alternatives, aggregating $8.3 million in the third quarter of fiscal year 2017, $3.6 million in the third quarter of fiscal year 2016, $17.0 million in year-to-date fiscal 2017 and $21.9 million in year-to-date fiscal 2016. In connection with Organizing for Growth, we eliminated approximately 90 positions in August 2016 and approximately 500 positions in October 2015 across our stores, divisions and facilities. We incurred severance costs of $3.3 million in year-to-date fiscal 2017 and $10.2 million in year-to-date fiscal 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. The final earn-out obligation was paid in March 2017.

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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.

15. 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 Note 6 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 guarantee 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 (i) NMG Germany GmbH, through which we conduct the operations of MyTheresa, (ii) NMG International LLC, a holding company with respect to our foreign operations and (iii) Nancy Holdings LLC, which holds legal title to certain real property used by us in conducting our operations and described below under "— Results of Operations and Financial Condition of Unrestricted Subsidiaries". The non-guarantor subsidiary Nancy Holdings LLC had no assets or operations prior to March 10, 2017.

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 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 29, 2017
(in thousands)	Company		NMG		Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	41,700	$	924	$	10,991		$	—		$	53,615
Credit card receivables	—		47,801		—		880			—			48,681
Merchandise inventories	—		978,201		181,474		71,535			—			1,231,210
Other current assets	—		145,531		7,557		3,595			(1,021		)	155,662
Total current assets	—		1,213,233		189,955		87,001			(1,021		)	1,489,168
Property and equipment, net	—		1,345,614		151,787		103,358			—			1,600,759
Intangible assets, net	—		522,952		2,420,493		68,211			—			3,011,656
Goodwill	—		1,412,147		537,263		119,672			—			2,069,082
Other long-term assets	—		25,144		1,837		—			—			26,981
Intercompany notes receivable	—		—		—		—			—			—
Investments in subsidiaries	786,919		3,549,644		—		—			(4,336,563		)	—
Total assets	$	786,919	$	8,068,734	$	3,301,335	$	378,242		$	(4,337,584	)	$	8,197,646
LIABILITIES AND MEMBER EQUITY
Current liabilities:
Accounts payable	$	—	$	202,716	$	—	$	10,993		$	—		$	213,709
Accrued liabilities	—		336,864		77,992		27,347			(1,021		)	441,182
Current portion of long-term debt	—		29,426		—		—			—			29,426
Total current liabilities	—		569,006		77,992		38,340			(1,021		)	684,317
Long-term liabilities:
Long-term debt, net of debt issuance costs	—		4,849,225		—		—			—			4,849,225
Intercompany notes payable	—		—		—		—			—			—
Deferred income taxes	—		1,234,045		—		8,473			—			1,242,518
Other long-term liabilities	—		629,539		5,361		(233		)	—			634,667
Total long-term liabilities	—		6,712,809		5,361		8,240			—			6,726,410
Total member equity	786,919		786,919		3,217,982		331,662			(4,336,563		)	786,919
Total liabilities and member equity	$	786,919	$	8,068,734	$	3,301,335	$	378,242		$	(4,337,584	)	$	8,197,646

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	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
Credit card receivables	—		35,165		—		3,648		—			38,813
Merchandise inventories	—		917,138		145,518		62,669		—			1,125,325
Other current assets	—		94,498		15,082		1,256		(2,771		)	108,065
Total current assets	—		1,086,592		161,536		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		3,541,121		—		—		(4,484,252		)	—
Total assets	$	943,131	$	8,062,064	$	3,647,332	$	288,070	$	(4,683,709	)	$	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, net of debt issuance costs	—		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		3,536,129		4,992		(4,484,252		)	943,131
Total liabilities and member equity	$	943,131	$	8,062,064	$	3,647,332	$	288,070	$	(4,683,709	)	$	8,256,888

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	April 30, 2016
(in thousands)	Company		NMG		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	56,257	$	994	$	19,031	$	—		$	76,282
Credit card receivables	—		50,099		—		2,632		—			52,731
Merchandise inventories	—		991,226		156,897		52,790		—			1,200,913
Other current assets	—		97,198		11,696		1,920		(1,378		)	109,436
Total current assets	—		1,194,780		169,587		76,373		(1,378		)	1,439,362
Property and equipment, net	—		1,405,802		139,900		2,037		—			1,547,739
Intangible assets, net	—		581,975		2,857,054		76,556		—			3,515,585
Goodwill	—		1,611,365		537,263		127,413		—			2,276,041
Other long-term assets	—		13,959		2,381		—		—			16,340
Intercompany notes receivable	—		—		196,686		—		(196,686		)	—
Investments in subsidiaries	1,417,572		3,797,514		—		—		(5,215,086		)	—
Total assets	$	1,417,572	$	8,605,395	$	3,902,871	$	282,379	$	(5,413,150	)	$	8,795,067
LIABILITIES AND MEMBER EQUITY
Current liabilities:
Accounts payable	$	—	$	225,277	$	28,943	$	10,507	$	—		$	264,727
Accrued liabilities	—		353,205		82,009		52,845		(1,378		)	486,681
Current portion of long-term debt	—		29,426		—		—		—			29,426
Total current liabilities	—		607,908		110,952		63,352		(1,378		)	780,834
Long-term liabilities:
Long-term debt, net of debt issuance costs	—		4,685,966		—		—		—			4,685,966
Intercompany notes payable	—		—		—		196,686		(196,686		)	—
Deferred income taxes	—		1,445,168		—		13,113		—			1,458,281
Other long-term liabilities	—		448,781		3,633		—		—			452,414
Total long-term liabilities	—		6,579,915		3,633		209,799		(196,686		)	6,596,661
Total member equity	1,417,572		1,417,572		3,788,286		9,228		(5,215,086		)	1,417,572
Total liabilities and member equity	$	1,417,572	$	8,605,395	$	3,902,871	$	282,379	$	(5,413,150	)	$	8,795,067

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	Thirteen weeks ended April 29, 2017
(in thousands)	Company			NMG			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	872,880		$	168,430		$	70,125		$	—		$	1,111,435
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			574,929			109,267			46,347			—			730,543
Selling, general and administrative expenses (excluding depreciation)	—			215,561			30,277			19,728			—			265,566
Income from credit card program	—			(13,788		)	(1,265		)	—			—			(15,053		)
Depreciation expense	—			51,134			3,793			767			—			55,694
Amortization of intangible assets and favorable lease commitments	—			13,578			11,564			363			—			25,505
Other expenses	—			8,535			—			2,373			—			10,908
Operating earnings	—			22,931			14,794			547			—			38,272
Interest expense, net	—			73,761			—			(43		)	—			73,718
Intercompany royalty charges (income)	—			36,646			(36,646		)	—			—			—
Equity in loss (earnings) of subsidiaries	24,874			(52,145		)	—			—			27,271			—
Earnings (loss) before income taxes	(24,874		)	(35,331		)	51,440			590			(27,271		)	(35,446		)
Income tax benefit	—			(10,457		)	—			(115		)	—			(10,572		)
Net earnings (loss)	$	(24,874	)	$	(24,874	)	$	51,440		$	705		$	(27,271	)	$	(24,874	)
Total other comprehensive earnings (loss), net of tax	1,734			(311		)	—			2,045			(1,734		)	1,734
Total comprehensive earnings (loss)	$	(23,140	)	$	(25,185	)	$	51,440		$	2,750		$	(29,005	)	$	(23,140	)



	Thirteen weeks ended April 30, 2016
(in thousands)	Company			NMG			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	930,333		$	182,386		$	56,573		$	—		$	1,169,292
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			590,735			115,407			37,329			—			743,471
Selling, general and administrative expenses (excluding depreciation)	—			225,972			31,729			17,076			—			274,777
Income from credit card program	—			(13,604		)	(1,406		)	—			—			(15,010		)
Depreciation expense	—			53,983			5,415			218			—			59,616
Amortization of intangible assets and favorable lease commitments	—			14,198			12,056			1,145			—			27,399
Other expenses (income)	—			(1,822		)	—			1,188			—			(634		)
Operating earnings (loss)	—			60,871			19,185			(383		)	—			79,673
Interest expense, net	—			72,734			(1,399		)	1,340			—			72,675
Intercompany royalty charges (income)	—			36,690			(36,690		)	—			—			—
Equity in loss (earnings) of subsidiaries	(3,790		)	(56,146		)	—			—			59,936			—
Earnings (loss) before income taxes	3,790			7,593			57,274			(1,723		)	(59,936		)	6,998
Income tax expense (benefit)	—			3,803			—			(595		)	—			3,208
Net earnings (loss)	$	3,790		$	3,790		$	57,274		$	(1,128	)	$	(59,936	)	$	3,790
Total other comprehensive earnings (loss), net of tax	5,874			414			—			5,460			(5,874		)	5,874
Total comprehensive earnings (loss)	$	9,664		$	4,204		$	57,274		$	4,332		$	(65,810	)	$	9,664

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	Thirty-nine weeks ended April 29, 2017
(in thousands)	Company			NMG			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	2,840,506		$	555,092		$	190,520		$	—		$	3,586,118
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			1,914,889			375,186			122,828			—			2,412,903
Selling, general and administrative expenses (excluding depreciation)	—			696,407			99,779			53,694			—			849,880
Income from credit card program	—			(41,461		)	(4,010		)	—			—			(45,471		)
Depreciation expense	—			156,215			12,238			1,338			—			169,791
Amortization of intangible assets and favorable lease commitments	—			41,653			34,815			2,638			—			79,106
Other expenses	—			21,222			—			1,715			—			22,937
Impairment charges	—			153,772			—			—			—			153,772
Operating earnings (loss)	—			(102,191		)	37,084			8,307			—			(56,800		)
Interest expense, net	—			219,830			—			168			—			219,998
Intercompany royalty charges (income)	—			113,090			(113,090		)	—			—			—
Equity in loss (earnings) of subsidiaries	165,456			(157,614		)	—			—			(7,842		)	—
Earnings (loss) before income taxes	(165,456		)	(277,497		)	150,174			8,139			7,842			(276,798		)
Income tax expense (benefit)	—			(112,041		)	—			699			—			(111,342		)
Net earnings (loss)	$	(165,456	)	$	(165,456	)	$	150,174		$	7,440		$	7,842		$	(165,456	)
Total other comprehensive earnings (loss), net of tax	6,374			10,408			—			(4,034		)	(6,374		)	6,374
Total comprehensive earnings (loss)	$	(159,082	)	$	(155,048	)	$	150,174		$	3,406		$	1,468		$	(159,082	)



	Thirty-nine weeks ended April 30, 2016
(in thousands)	Company			NMG			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	3,066,164		$	608,082		$	146,903		$	—		$	3,821,149
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			2,009,842			403,191			92,804			—			2,505,837
Selling, general and administrative expenses (excluding depreciation)	—			715,211			103,533			44,029			—			862,773
Income from credit card program	—			(40,362		)	(4,272		)	—			—			(44,634		)
Depreciation expense	—			153,200			15,285			672			—			169,157
Amortization of intangible assets and favorable lease commitments	—			43,961			36,347			3,688			—			83,996
Other expenses	—			19,351			—			5,161			—			24,512
Operating earnings	—			164,961			53,998			549			—			219,508
Interest expense, net	—			215,777			(6,687		)	6,765			—			215,855
Intercompany royalty charges (income)	—			115,445			(115,445		)	—			—			—
Equity in loss (earnings) of subsidiaries	(1,136		)	(170,327		)	—			—			171,463			—
Earnings (loss) before income taxes	1,136			4,066			176,130			(6,216		)	(171,463		)	3,653
Income tax expense (benefit)	—			2,930			—			(413		)	—			2,517
Net earnings (loss)	$	1,136		$	1,136		$	176,130		$	(5,803	)	$	(171,463	)	$	1,136
Total other comprehensive earnings (loss), net of tax	2,582			421			—			2,161			(2,582		)	2,582
Total comprehensive earnings (loss)	$	3,718		$	1,557		$	176,130		$	(3,642	)	$	(174,045	)	$	3,718

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	Thirty-nine weeks ended April 29, 2017
(in thousands)	Company			NMG			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS - OPERATING ACTIVITIES
Net earnings (loss)	$	(165,456	)	$	(165,456	)	$	150,174		$	7,440		$	7,842		$	(165,456	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization expense	—			216,257			47,053			3,976			—			267,286
Impairment charges	—			153,772			—			—			—			153,772
Deferred income taxes	—			(97,690		)	—			(2,190		)	—			(99,880		)
Other	—			(2,780		)	2,235			3,623			—			3,078
Intercompany royalty income payable (receivable)	—			113,090			(113,090		)	—			—			—
Equity in loss (earnings) of subsidiaries	165,456			(157,614		)	—			—			(7,842		)	—
Changes in operating assets and liabilities, net	—			(139,652		)	(63,739		)	(25,547		)	—			(228,938		)
Net cash provided by (used for) operating activities	—			(80,073		)	22,633			(12,698		)	—			(70,138		)
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures	—			(133,547		)	(22,645		)	(5,294		)	—			(161,486		)
Investment in subsidiaries	—			(27,042		)	—			27,042			—			—
Net cash provided by (used for) investing activities	—			(160,589		)	(22,645		)	21,748			—			(161,486		)
CASH FLOWS - FINANCING ACTIVITIES
Borrowings under Asset-Based Revolving Credit Facility	—			730,000			—			—			—			730,000
Repayment of borrowings	—			(482,070		)	—			—			—			(482,070		)
Payment of contingent earn-out obligation	—			—			—			(22,857		)	—			(22,857		)
Debt issuance costs paid	—			(5,359		)	—			—			—			(5,359		)
Net cash provided by (used for) financing activities	—			242,571			—			(22,857		)	—			219,714
Effect of exchange rate changes on cash and cash equivalents	—			—			—			3,682			—			3,682
CASH AND CASH EQUIVALENTS
Increase (decrease) during the period	—			1,909			(12		)	(10,125		)	—			(8,228		)
Beginning balance	—			39,791			936			21,116			—			61,843
Ending balance	$	—		$	41,700		$	924		$	10,991		$	—		$	53,615

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	Thirty-nine weeks ended April 30, 2016
(in thousands)	Company			NMG			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS - OPERATING ACTIVITIES
Net earnings (loss)	$	1,136		$	1,136		$	176,130		$	(5,803	)	$	(171,463	)	$	1,136
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization expense	—			215,590			51,632			4,360			—			271,582
Deferred income taxes	—			19,681			—			(3,896		)	—			15,785
Other	—			(1,231		)	(7,403		)	11,988			—			3,354
Intercompany royalty income payable (receivable)	—			115,445			(115,445		)	—			—			—
Equity in loss (earnings) of subsidiaries	(1,136		)	(170,327		)	—			—			171,463			—
Changes in operating assets and liabilities, net	—			(26,894		)	(66,735		)	(50,646		)	—			(144,275		)
Net cash provided by (used for) operating activities	—			153,400			38,179			(43,997		)	—			147,582
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures	—			(193,573		)	(37,891		)	(529		)	—			(231,993		)
Acquisition of MyTheresa	—			—			—			(896		)	—			(896		)
Investment in subsidiaries	—			(30,204		)	—			30,204			—			—
Net cash provided by (used for) investing activities	—			(223,777		)	(37,891		)	28,779			—			(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
Effect of exchange rate changes on cash and cash equivalents	—			—			—			2,869			—			2,869
CASH AND CASH EQUIVALENTS
Increase (decrease) during the period	—			3,095			288			(75		)	—			3,308
Beginning balance	—			53,162			706			19,106			—			72,974
Ending balance	$	—		$	56,257		$	994		$	19,031		$	—		$	76,282

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Results of Operations and Financial Condition of Unrestricted Subsidiaries. On March 10, 2017, the Board of Directors of Parent designated certain of our subsidiaries as “unrestricted subsidiaries” for purposes of the indenture governing the Cash Pay Notes and the indenture governing the PIK Toggle Notes. These subsidiaries were previously or simultaneously designated as "unrestricted subsidiaries" under the Asset-Based Revolving Credit Facility and the Senior Secured Term Loan Facility. At April 29, 2017, the unrestricted subsidiaries consisted primarily of (i) NMG Germany GmbH, through which we conduct the operations of MyTheresa and (ii) Nancy Holdings LLC, which holds legal title to certain real property located in McLean, Virginia, San Antonio, Texas and Longview, Texas used by us in conducting our operations.

Pursuant to the terms of the indentures governing the Cash Pay Notes and the PIK Toggle Notes, we are presenting the following financial information with respect to the unrestricted subsidiaries separate from the Company and its restricted subsidiaries. The unrestricted subsidiary Nancy Holdings LLC had no assets or operations prior to March 10, 2017. The financial information of NMG Germany GmbH as of July 30, 2016 and as of and for the thirteen weeks and thirty-nine weeks ended April 30, 2016 was substantially the same as the financial information presented for “Non-Guarantor Subsidiaries” for such periods included in the tables above in this Note 15. The difference in net earnings of the unrestricted subsidiaries for the thirteen weeks and thirty-nine weeks ended April 29, 2017 compared to the net earnings of the non-guarantor subsidiaries for such periods, as presented in the tables above in this Note 15, consisted primarily of a net interest income of approximately $1.4 million per fiscal quarter associated with an intercompany note payable by the MyTheresa unrestricted subsidiaries and held by NMG International LLC, which is a non-guarantor restricted subsidiary.

This information may not necessarily be indicative of the financial condition and results of operations of the unrestricted subsidiaries had they operated as independent entities during the periods presented.

Information with respect to the unrestricted subsidiaries with respect to the Cash Pay Notes and PIK Toggle Notes is as follows:



(in thousands)	April 29, 2017

Total assets	$	378,173
Net assets	127,839



	Thirteen weeks ended			Thirty-nine weeks ended
(in thousands)	April 29, 2017			April 29, 2017

Revenues	$	70,125		$	190,520
Net earnings (loss)	(710		)	3,147

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16. Condensed Consolidating Financial Information (with respect to NMG's obligations under the 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; (iii) NMG Germany GmbH, through which we conduct the operations of MyTheresa; (iv) NMG International LLC, a holding company with respect to our foreign operations; and (v) Nancy Holdings LLC, which holds legal title to certain real property used by NMG in conducting its operations and described in Note 15 under "— Results of Operations and Financial Condition of Unrestricted Subsidiaries". The non-guarantor subsidiary Nancy Holdings LLC had no assets or operations prior to March 10, 2017.

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 29, 2017
(in thousands)	Company		NMG		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	41,700	$	11,915	$	—		$	53,615
Credit card receivables	—		47,801		880		—			48,681
Merchandise inventories	—		978,201		253,009		—			1,231,210
Other current assets	—		145,531		11,152		(1,021		)	155,662
Total current assets	—		1,213,233		276,956		(1,021		)	1,489,168
Property and equipment, net	—		1,345,614		255,145		—			1,600,759
Intangible assets, net	—		522,952		2,488,704		—			3,011,656
Goodwill	—		1,412,147		656,935		—			2,069,082
Other long-term assets	—		25,144		1,837		—			26,981
Investments in subsidiaries	786,919		3,549,644		—		(4,336,563		)	—
Total assets	$	786,919	$	8,068,734	$	3,679,577	$	(4,337,584	)	$	8,197,646
LIABILITIES AND MEMBER EQUITY
Current liabilities:
Accounts payable	$	—	$	202,716	$	10,993	$	—		$	213,709
Accrued liabilities	—		336,864		105,339		(1,021		)	441,182
Current portion of long-term debt	—		29,426		—		—			29,426
Total current liabilities	—		569,006		116,332		(1,021		)	684,317
Long-term liabilities:
Long-term debt, net of debt issuance costs	—		4,849,225		—		—			4,849,225
Deferred income taxes	—		1,234,045		8,473		—			1,242,518
Other long-term liabilities	—		629,539		5,128		—			634,667
Total long-term liabilities	—		6,712,809		13,601		—			6,726,410
Total member equity	786,919		786,919		3,549,644		(4,336,563		)	786,919
Total liabilities and member equity	$	786,919	$	8,068,734	$	3,679,577	$	(4,337,584	)	$	8,197,646

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	July 30, 2016
(in thousands)	Company		NMG		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	39,791	$	22,052	$	—		$	61,843
Credit card receivables	—		35,165		3,648		—			38,813
Merchandise inventories	—		917,138		208,187		—			1,125,325
Other current assets	—		94,498		13,567		—			108,065
Total current assets	—		1,086,592		247,454		—			1,334,046
Property and equipment, net	—		1,440,968		147,153		—			1,588,121
Intangible assets, net	—		566,084		2,678,418		—			3,244,502
Goodwill	—		1,412,146		660,672		—			2,072,818
Other long-term assets	—		15,153		2,248		—			17,401
Investments in subsidiaries	943,131		3,541,121		—		(4,484,252		)	—
Total assets	$	943,131	$	8,062,064	$	3,735,945	$	(4,484,252	)	$	8,256,888
LIABILITIES AND MEMBER EQUITY
Current liabilities:
Accounts payable	$	—	$	257,047	$	60,689	$	—		$	317,736
Accrued liabilities	—		373,108		119,538		—			492,646
Current portion of long-term debt	—		29,426		—		—			29,426
Total current liabilities	—		659,581		180,227		—			839,808
Long-term liabilities:
Long-term debt, net of debt issuance costs	—		4,584,281		—		—			4,584,281
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		14,597		—			6,473,949
Total member equity	943,131		943,131		3,541,121		(4,484,252		)	943,131
Total liabilities and member equity	$	943,131	$	8,062,064	$	3,735,945	$	(4,484,252	)	$	8,256,888

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	April 30, 2016
(in thousands)	Company		NMG		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	56,257	$	20,025	$	—		$	76,282
Credit card receivables	—		50,099		2,632		—			52,731
Merchandise inventories	—		991,226		209,687		—			1,200,913
Other current assets	—		97,198		12,238		—			109,436
Total current assets	—		1,194,780		244,582		—			1,439,362
Property and equipment, net	—		1,405,802		141,937		—			1,547,739
Intangible assets, net	—		581,975		2,933,610		—			3,515,585
Goodwill	—		1,611,365		664,676		—			2,276,041
Other long-term assets	—		13,959		2,381		—			16,340
Investments in subsidiaries	1,417,572		3,797,514		—		(5,215,086		)	—
Total assets	$	1,417,572	$	8,605,395	$	3,987,186	$	(5,215,086	)	$	8,795,067
LIABILITIES AND MEMBER EQUITY
Current liabilities:
Accounts payable	$	—	$	225,277	$	39,450	$	—		$	264,727
Accrued liabilities	—		353,205		133,476		—			486,681
Current portion of long-term debt	—		29,426		—		—			29,426
Total current liabilities	—		607,908		172,926		—			780,834
Long-term liabilities:
Long-term debt, net of debt issuance costs	—		4,685,966		—		—			4,685,966
Deferred income taxes	—		1,445,168		13,113		—			1,458,281
Other long-term liabilities	—		448,781		3,633		—			452,414
Total long-term liabilities	—		6,579,915		16,746		—			6,596,661
Total member equity	1,417,572		1,417,572		3,797,514		(5,215,086		)	1,417,572
Total liabilities and member equity	$	1,417,572	$	8,605,395	$	3,987,186	$	(5,215,086	)	$	8,795,067

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	Thirteen weeks ended April 29, 2017
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	872,880		$	238,555		$	—		$	1,111,435
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			574,929			155,614			—			730,543
Selling, general and administrative expenses (excluding depreciation)	—			215,561			50,005			—			265,566
Income from credit card program	—			(13,788		)	(1,265		)	—			(15,053		)
Depreciation expense	—			51,134			4,560			—			55,694
Amortization of intangible assets and favorable lease commitments	—			13,578			11,927			—			25,505
Other expenses	—			8,535			2,373			—			10,908
Operating earnings	—			22,931			15,341			—			38,272
Interest expense, net	—			73,761			(43		)	—			73,718
Intercompany royalty charges (income)	—			36,646			(36,646		)	—			—
Equity in loss (earnings) of subsidiaries	24,874			(52,145		)	—			27,271			—
Earnings (loss) before income taxes	(24,874		)	(35,331		)	52,030			(27,271		)	(35,446		)
Income tax benefit	—			(10,457		)	(115		)	—			(10,572		)
Net earnings (loss)	$	(24,874	)	$	(24,874	)	$	52,145		$	(27,271	)	$	(24,874	)
Total other comprehensive earnings (loss), net of tax	1,734			(311		)	2,045			(1,734		)	1,734
Total comprehensive earnings (loss)	$	(23,140	)	$	(25,185	)	$	54,190		$	(29,005	)	$	(23,140	)



	Thirteen weeks ended April 30, 2016
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	930,333		$	238,959		$	—		$	1,169,292
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			590,735			152,736			—			743,471
Selling, general and administrative expenses (excluding depreciation)	—			225,972			48,805			—			274,777
Income from credit card program	—			(13,604		)	(1,406		)	—			(15,010		)
Depreciation expense	—			53,983			5,633			—			59,616
Amortization of intangible assets and favorable lease commitments	—			14,198			13,201			—			27,399
Other expenses (income)	—			(1,822		)	1,188			—			(634		)
Operating earnings	—			60,871			18,802			—			79,673
Interest expense, net	—			72,734			(59		)	—			72,675
Intercompany royalty charges (income)	—			36,690			(36,690		)	—			—
Equity in loss (earnings) of subsidiaries	(3,790		)	(56,146		)	—			59,936			—
Earnings (loss) before income taxes	3,790			7,593			55,551			(59,936		)	6,998
Income tax expense (benefit)	—			3,803			(595		)	—			3,208
Net earnings (loss)	$	3,790		$	3,790		$	56,146		$	(59,936	)	$	3,790
Total other comprehensive earnings (loss), net of tax	5,874			414			5,460			(5,874		)	5,874
Total comprehensive earnings (loss)	$	9,664		$	4,204		$	61,606		$	(65,810	)	$	9,664

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	Thirty-nine weeks ended April 29, 2017
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	—		$	2,840,506		$	745,612		$	—		$	3,586,118
Cost of goods sold including buying and occupancy costs (excluding depreciation)	—			1,914,889			498,014			—			2,412,903
Selling, general and administrative expenses (excluding depreciation)	—			696,407			153,473			—			849,880
Income from credit card program	—			(41,461		)	(4,010		)	—			(45,471		)
Depreciation expense	—			156,215			13,576			—			169,791
Amortization of intangible assets and favorable lease commitments	—			41,653			37,453			—			79,106
Other expenses	—			21,222			1,715			—			22,937
Impairment charges	—			153,772			—			—			153,772
Operating earnings (loss)	—			(102,191		)	45,391			—			(56,800		)
Interest expense, net	—			219,830			168			—			219,998
Intercompany royalty charges (income)	—			113,090			(113,090		)	—			—
Equity in loss (earnings) of subsidiaries	165,456			(157,614		)	—			(7,842		)	—
Earnings (loss) before income taxes	(165,456		)	(277,497		)	158,313			7,842			(276,798		)
Income tax expense (benefit)	—			(112,041		)	699			—			(111,342		)
Net earnings (loss)	$	(165,456	)	$	(165,456	)	$	157,614		$	7,842		$	(165,456	)
Total other comprehensive earnings (loss), net of tax	6,374			10,408			(4,034		)	(6,374		)	6,374
Total comprehensive earnings (loss)	$	(159,082	)	$	(155,048	)	$	153,580		$	1,468		$	(159,082	)



	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	—			215,777			78			—			215,855
Intercompany royalty charges (income)	—			115,445			(115,445		)	—			—
Equity in loss (earnings) of subsidiaries	(1,136		)	(170,327		)	—			171,463			—
Earnings (loss) before income taxes	1,136			4,066			169,914			(171,463		)	3,653
Income tax expense (benefit)	—			2,930			(413		)	—			2,517
Net earnings (loss)	$	1,136		$	1,136		$	170,327		$	(171,463	)	$	1,136
Total other comprehensive earnings (loss), net of tax	2,582			421			2,161			(2,582		)	2,582
Total comprehensive earnings (loss)	$	3,718		$	1,557		$	172,488		$	(174,045	)	$	3,718

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	Thirty-nine weeks ended April 29, 2017
(in thousands)	Company			NMG			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS—OPERATING ACTIVITIES
Net earnings (loss)	$	(165,456	)	$	(165,456	)	$	157,614		$	7,842		$	(165,456	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization expense	—			216,257			51,029			—			267,286
Impairment charges	—			153,772			—			—			153,772
Deferred income taxes	—			(97,690		)	(2,190		)	—			(99,880		)
Other	—			(2,780		)	5,858			—			3,078
Intercompany royalty income payable (receivable)	—			113,090			(113,090		)	—			—
Equity in loss (earnings) of subsidiaries	165,456			(157,614		)	—			(7,842		)	—
Changes in operating assets and liabilities, net	—			(139,652		)	(89,286		)	—			(228,938		)
Net cash provided by (used for) operating activities	—			(80,073		)	9,935			—			(70,138		)
CASH FLOWS—INVESTING ACTIVITIES
Capital expenditures	—			(133,547		)	(27,939		)	—			(161,486		)
Investment in subsidiaries	—			(27,042		)	27,042			—			—
Net cash used for investing activities	—			(160,589		)	(897		)	—			(161,486		)
CASH FLOWS—FINANCING ACTIVITIES
Borrowings under Asset-Based Revolving Credit Facility	—			730,000			—			—			730,000
Repayment of borrowings	—			(482,070		)	—			—			(482,070		)
Payment of contingent earn-out obligation	—			—			(22,857		)	—			(22,857		)
Debt issuance costs paid	—			(5,359		)	—			—			(5,359		)
Net cash provided by (used for) financing activities	—			242,571			(22,857		)	—			219,714
Effect of exchange rate changes on cash and cash equivalents	—			—			3,682			—			3,682
CASH AND CASH EQUIVALENTS
Increase (decrease) during the period	—			1,909			(10,137		)	—			(8,228		)
Beginning balance	—			39,791			22,052			—			61,843
Ending balance	$	—		$	41,700		$	11,915		$	—		$	53,615

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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		$	1,136		$	170,327		$	(171,463	)	$	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	—			(1,231		)	4,585			—			3,354
Intercompany royalty income payable (receivable)	—			115,445			(115,445		)	—			—
Equity in loss (earnings) of subsidiaries	(1,136		)	(170,327		)	—			171,463			—
Changes in operating assets and liabilities, net	—			(26,894		)	(117,381		)	—			(144,275		)
Net cash provided by (used for) operating activities	—			153,400			(5,818		)	—			147,582
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
Effect of exchange rate changes on cash and cash equivalents	—			—			2,869			—			2,869
CASH AND CASH EQUIVALENTS
Decrease 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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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 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;


•	our ability 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;


•	the success of our advertising and marketing programs;


•	the success of the expansion, growth and remodel of our retail stores, which are subject to numerous risks, some of which are beyond our control;


•	costs associated with our expansion and growth strategies, which could adversely affect our performance and results of operations;


•	the significance of the portion of our revenues from our stores in four states, which exposes us to catastrophic occurrences and economic circumstances unique to those states, such as the impact of fluctuations in the global prices of crude oil in our Texas markets;


•	our dependence on positive perceptions of our company, which, if eroded, could adversely affect our customer, employee and vendor relationships;


•	our dependence on our relationships with certain designers, vendors and other sources of merchandise as they relate to, among other things: (i) the manner in which goods are available to us, (ii) the levels of merchandise made available to us and (iii) the pricing and payment terms with respect to our purchases;


•	a breach in information privacy, which could negatively impact our operations;

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•	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;


•	the loss of, or disruption in, one or more of our distribution facilities, which could adversely affect our business and operations;


•	inflation and foreign currency fluctuations, primarily fluctuations in the U.S. dollar against the Euro and British pound, 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;


•	our substantial indebtedness, which could adversely affect our business, financial condition, results of operations, credit ratings and ability to obtain additional debt financing, 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 our ability to pursue future strategic investments and initiatives; 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 July 30, 2016 as filed with the Securities and Exchange Commission on September 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., 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"). 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.

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

Investments and Strategic 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:


•	capital investments to remodel our existing stores as well as to open new stores in select markets such as Fort Worth, Texas (opened 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 store operations; and

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•	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 90 positions in the first quarter of fiscal year 2017 and approximately 500 positions in the first quarter of fiscal year 2016 across our stores, divisions and facilities.

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 operations more efficiently. The implementation of NMG One was significant in scale and complexity, and during year-to-date fiscal 2017, we have experienced and continue to experience issues with respect to the functionality and capabilities of certain portions of the new system. These issues primarily relate to the processing of inventory receipts at our distribution centers, the timely payment of certain merchandise receipts, the transfer of inventories to our stores and the presentation of inventories on our websites. These issues have prevented us from fulfilling certain customer demand in both our stores and websites.

As a result of these implementation issues, we believe:

•our revenues have been adversely impacted;

•incremental markdowns have been incurred;

•higher provisions for estimated inventory shrinkage have been required;

•additional incremental costs, primarily for consulting services, have been incurred; and

•significant internal resources have been allocated to address these issues.

Based on available data, we estimate that these issues resulted in unrealized revenues of approximately $55 to $65 million during year-to-date fiscal 2017. However, we believe the full impact of the NMG One implementation issues on our revenues is likely greater because there are a number of ways in which our business has been disrupted that we cannot directly track or measure.

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 until resolved, which we expect to occur by the end of fiscal year 2017. These issues have also affected our financial reporting processes and required us to apply supplemental and manual controls to provide adequate control over financial reporting. See "Item 4. Controls and Procedures — Changes in Internal Control over Financial Reporting."

Summary of Results of Operations

A summary of our results of operations is as follows:

•

Revenues — Our revenues for the third quarter of fiscal year 2017 were $1,111.4 million, a decrease of 4.9% compared to the third quarter of fiscal year 2016. Comparable revenues for the third quarter of fiscal year 2017 decreased 4.9% compared to the third quarter of fiscal year 2016. Our year-to-date fiscal 2017 revenues were $3,586.1 million, a decrease of 6.2% compared to year-to-date fiscal 2016. Comparable revenues for year-to-date fiscal 2017 decreased 6.6% compared to year-to-date fiscal 2016.

We believe the lower levels of revenues in the third quarter of fiscal year 2017 and year-to-date fiscal 2017 compared to the corresponding periods of fiscal year 2016 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 in the U.S.;


•	the continuation of low global prices for 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.

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•	Cost of Goods Sold Including Buying and Occupancy Costs (Excluding Depreciation) ("COGS") — Compared to the corresponding periods of the prior year, COGS as a percentage of revenues increased 210 basis points in the third quarter of fiscal year 2017 and 170 basis points in year-to-date fiscal 2017. The increases in COGS, as a percentage of revenues, were primarily attributable to:


•	decreased product margins due primarily to:


•	higher markdowns, promotional costs and other costs incurred on lower than expected revenues;


•	higher requirements for estimated inventory shrinkage due in part to implementation issues experienced in connection with NMG One; and


•	higher delivery and processing costs; and


•	the deleveraging of buying and occupancy costs.

At April 29, 2017, consolidated inventories totaled $1,231.2 million, a 2.5% increase from April 30, 2016. We have 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") — Compared to the corresponding periods of the prior year, SG&A as a percentage of revenues increased 40 basis points in the third quarter of fiscal year 2017 and 110 basis points in year-to-date fiscal 2017. The higher levels of SG&A expenses, as a percentage of revenues, were primarily attributable to:


•	the deleveraging of a significant portion of our SG&A expenses, primarily payroll and benefits;


•	higher levels of expenses incurred in connection with investments in technology, costs related to the opening of new stores, the remodeling of existing stores and the growth of our international footprint through MyTheresa; and


•	with respect to year-to-date fiscal 2017, higher credit card chargebacks and other fees; partially offset by


•	lower levels of marketing costs.

•

Impairment Charges — Based upon (i) the continuation of adverse economic and business trends, (ii) revisions to our anticipated future operating results and (iii) increases in the weighted average cost of capital used in estimating the fair value of our tradenames and our reporting units under a discounted cash flow model, we determined certain of our tradenames, property and equipment and other definite-lived intangible assets to be impaired and recorded impairment charges in the second quarter of fiscal year 2017 aggregating $153.8 million.

Liquidity — We held cash balances and credit card receivables of $102.3 million at April 29, 2017 compared to $129.0 million at April 30, 2016. At April 29, 2017, we had $435.0 million of borrowings outstanding under the Asset-Based Revolving Credit Facility, $1.8 million of outstanding letters of credit and $373.3 million of unused borrowing availability. As of June 13, 2017, outstanding borrowings under the Asset-Based Revolving Credit Facility have been reduced by $140.0 million to $295.0 million increasing our unused borrowing availability to $513.3 million. We believe that cash generated from our operations along with our existing cash balances and available sources of financing will enable us to meet our anticipated cash obligations during the next 12 months.

Outlook — We previously announced that the Company had begun a process to explore and evaluate potential strategic alternatives. At this time, any exploration of, and conversations regarding, a partial or full sale of the Company have terminated.

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 domestic and 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. We believe such factors are currently negatively impacting our operations and may continue to have an adverse impact on our future results of operations. As a result, we intend to operate our business and manage our cash requirements in a way that balances these economic conditions and current business trends with our long-term initiatives and growth strategies.

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Results of 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
	April 29, 2017		April 30, 2016		April 29, 2017		April 30, 2016

Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold including buying and occupancy costs (excluding depreciation)	65.7		63.6		67.3		65.6
Selling, general and administrative expenses (excluding depreciation)	23.9		23.5		23.7		22.6
Income from credit card program	(1.4	)	(1.3	)	(1.3	)	(1.2	)
Depreciation expense	5.0		5.1		4.7		4.4
Amortization of intangible assets	1.1		1.2		1.1		1.1
Amortization of favorable lease commitments	1.2		1.1		1.1		1.1
Other expenses (income)	1.0		(0.1	)	0.6		0.6
Impairment charges	—		—		4.3		—
Operating earnings (loss)	3.4		6.8		(1.6	)	5.7
Interest expense, net	6.6		6.2		6.1		5.6
Earnings (loss) before income taxes	(3.2	)	0.6		(7.7	)	0.1
Income tax expense (benefit)	(1.0	)	0.3		(3.1	)	0.1
Net earnings (loss)	(2.2	)%	0.3	%	(4.6	)%	—	%

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
(dollars in millions, except sales per square foot and store count)	April 29, 2017			April 30, 2016			April 29, 2017			April 30, 2016

Change in comparable revenues (1)
Total revenues	(4.9		)%	(5.0		)%	(6.6		)%	(4.2		)%
Online revenues	2.1		%	5.3		%	0.5		%	4.9		%

Store count
Neiman Marcus and Bergdorf Goodman full-line stores open at end of period	44			44			44			44
Last Call stores open at end of period	41			42			41			42

Sales per square foot (2)	$	118		$	127		$	387		$	425
Percentage of revenues transacted online	32.0		%	29.7		%	30.9		%	28.9		%

Capital expenditures (3)	$	47.5		$	78.2		$	161.5		$	232.0
Depreciation expense	55.7			59.6			169.8			169.2
Rent expense and related occupancy costs	26.6			26.6			82.7			85.5

Non-GAAP financial measures (4)
EBITDA	$	119.5		$	166.7		$	192.1		$	472.7
Adjusted EBITDA	$	135.9		$	173.2		$	385.6		$	520.4

(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 closed stores, including our Last Call store in Primm, Nevada, which we closed in January 2016, and our Last Call store in Ontario Mills, California, which we closed in January 2017. As MyTheresa was acquired in October 2014, comparable revenues for the first quarter of fiscal year 2016 exclude revenues from MyTheresa. Comparable revenues for fiscal year 2016 include revenues from MyTheresa beginning in the second quarter of fiscal year 2016.

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(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 million for the thirteen weeks ended April 30, 2016, $32.5 million for the thirty-nine weeks ended April 29, 2017 and $32.3 million for the thirty-nine weeks ended April 30, 2016. There were no developer contributions for the thirteen weeks ended April 29, 2017.


(4)	For an explanation of EBITDA and Adjusted EBITDA as measures of our operating performance and a reconciliation to net earnings (loss), see “— 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 — 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 — 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 interest rates and foreign currency exchange rates, rates of economic growth, current and expected unemployment levels and government fiscal and monetary policies;


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


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


•	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;


•	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 in the U.S.;


•	the continuation of low global prices for 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;


•	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 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;


•	changes in the composition and the rate of growth of our sales transacted in store and online.

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

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Cost of Goods Sold Including Buying and Occupancy Costs (Excluding Depreciation). COGS consists of the following components:

•

Inventory costs — We utilize the retail inventory method of accounting. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio, for various groupings of similar items, to the retail value of our inventories. The cost of the inventory reflected in 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.

Inventory costs are also decreased by charges to cost of goods sold for estimates of shrinkage that has occurred between physical count dates.


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


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


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

Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise we purchase for resale. Certain allowances are received to reimburse us for markdowns taken or to support the gross margins that we earn in connection with the sales of the vendor’s merchandise. These allowances result in an increase to gross margin when we earn the allowances and they are approved by the vendor. Other allowances we receive represent reductions to the amounts we pay to acquire the merchandise. These allowances reduce the cost of the acquired merchandise and are recognized at the time the goods are sold. We received vendor allowances of $4.9 million, or 0.4% of revenues, in the third quarter of fiscal year 2017, $5.9 million, or 0.5% of revenues, in the third quarter of fiscal year 2016, $46.4 million, or 1.3% of revenues, in year-to-date fiscal 2017 and $58.0 million, or 1.5% of revenues, in year-to-date fiscal 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-date fiscal 2017 and 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, General and 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

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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 reduction of our advertising costs when earned. Advertising allowances were approximately $17.6 million, or 1.6% of revenues, in the third quarter of fiscal year 2017, $17.5 million, or 1.5% of revenues, in the third quarter of fiscal year 2016, $46.6 million, or 1.3% of revenues, in year-to-date fiscal 2017 and $49.1 million, or 1.3% of revenues, in year-to-date fiscal 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 $15.8 million, or 1.4% of revenues, in the third quarter of fiscal year 2017, $17.9 million, or 1.5% of revenues, in the third quarter of fiscal year 2016, $48.5 million, or 1.4% or revenues, in year-to-date fiscal 2017 and $53.7 million, or 1.4%, of revenues, in year-to-date fiscal 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 Program. We maintain a proprietary credit card program through which credit is extended to customers and have a related marketing and servicing alliance with affiliates of Capital One. Pursuant to the Program Agreement, Capital One currently offers credit cards and non-card payment plans under both the "Neiman Marcus" and "Bergdorf Goodman" brand names.

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


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


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


•	decrease based upon contractual changes to our allocable share of the profits generated by the credit card portfolio triggered by credit ratings as determined by various rating agencies;


•	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.

Since fiscal year 2016, we have experienced declines in our operating results and we believe our operating results have been 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 in the U.S.; and


•	the continuation of low global prices for 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.

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In the second quarter of fiscal year 2017, we concluded that it was appropriate to assess the recoverability of the carrying values of our indefinite-lived intangible assets and goodwill as well as our store assets as a result of (i) the continuation of adverse economic and business trends, (ii) revisions to our anticipated future operating results and (iii) increases in the weighted average cost of capital used in estimating the fair value of our tradenames and our reporting units under a discounted cash flow model. In the second quarter of fiscal year 2017, we recorded impairment charges of $153.8 million to state certain of our intangible and long-lived assets, primarily related to our Neiman Marcus brand, to their estimated fair value. 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. 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, 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.

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 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.

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Results of Operations for the Thirteen Weeks Ended April 29, 2017 Compared to the Thirteen Weeks Ended April 30, 2016

Revenues. Our revenues for the third quarter of fiscal year 2017 of $1,111.4 million decreased by $57.9 million, or 4.9%, from $1,169.3 million in the third quarter of fiscal year 2016. Comparable revenues for the third quarter of fiscal year 2017 were $1,110.2 million compared to $1,167.5 million in the third quarter of fiscal year 2016, representing a decrease of 4.9%.

We believe the lower levels of revenues in the third quarter of fiscal year 2017 compared to the third quarter of fiscal year 2016 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 in the U.S.;


•	the continuation of low global prices for 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.

In addition, revenues generated by our online operations were $355.2 million, or 32.0% of consolidated revenues. Comparable revenues from our online operations for the third quarter of fiscal year 2017 increased 2.1% from the third quarter of the prior year.

Cost of Goods Sold Including Buying and Occupancy Costs (Excluding Depreciation). COGS as a percentage of revenues increased to 65.7% of revenues in the third quarter of fiscal year 2017 from 63.6% of revenues in the third quarter of fiscal year 2016. Compared to the prior year, COGS as a percentage of revenues increased by 210 basis points due primarily to:


•	decreased product margins of approximately 160 basis points due primarily to:


•	higher markdowns, promotional costs and other costs of approximately 100 basis points incurred on lower than expected revenues;


•	higher requirements for estimated inventory shrinkage of approximately 20 basis points due in part to implementation issues experienced in connection with NMG One; and


•	higher delivery and processing costs of approximately 20 basis points; and


•	the deleveraging of buying and occupancy costs of approximately 50 basis points.

Selling, General and Administrative Expenses (Excluding Depreciation). SG&A expenses as a percentage of revenues increased to 23.9% of revenues in the third quarter of fiscal year 2017 compared to 23.5% of revenues in the third quarter of fiscal year 2016. SG&A expenses as a percentage of revenues increased by 40 basis points in the third quarter of fiscal year 2017 due primarily to:


•	the deleveraging of a significant portion of our SG&A expenses, primarily payroll and benefits, of approximately 50 basis points on the lower level of revenues; and


•	higher levels of expenses of approximately 20 basis points incurred in connection with investments in technology, costs related to the opening of new stores, the remodeling of existing stores and the growth of our international footprint through MyTheresa; partially offset by


•	lower levels of marketing costs of approximately 30 basis points.

Income From Credit Card Program. Income from our credit card program was $15.1 million, or 1.4% of revenues, in the third quarter of fiscal year 2017 compared to $15.0 million, or 1.3% of revenues, in the third quarter of fiscal year 2016. Compared to the prior year, income from our credit card program as a percentage of revenues increased by 10 basis points due primarily to an increase in the overall profitability of the credit card portfolio.

Depreciation and Amortization Expenses. Depreciation expense was $55.7 million, or 5.0% of revenues, in the third quarter of fiscal year 2017 compared to $59.6 million, or 5.1% of revenues, in the third quarter of fiscal year 2016.

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Amortization of intangible assets (primarily customer lists and favorable lease commitments) was $25.5 million, or 2.3% of revenues, in the third quarter of fiscal year 2017 compared to $27.4 million, or 2.3% of revenues, in the third quarter of fiscal year 2016.

Other Expenses (Income). Other expenses for the third quarter of fiscal year 2017 were $10.9 million, or 1.0% of revenues, compared to other income of $0.6 million, or 0.1% of revenues, in the third quarter of fiscal year 2016. Other expenses (income) consisted of the following components:



	Thirteen weeks ended
(in millions)	April 29, 2017		April 30, 2016

Expenses incurred in connection with strategic initiatives	$	8.3	$	3.6
MyTheresa acquisition costs	2.6		0.1
Net gain from facility closure	—		(5.4		)
Other expenses	—		1.1
Total	$	10.9	$	(0.6	)

We incurred professional fees and other costs in connection with our strategic initiatives, including Organizing for Growth, NMG One and the evaluation of potential strategic alternatives, aggregating $8.3 million in the third quarter of fiscal year 2017 and $3.6 million in the third quarter of fiscal year 2016. In connection with Organizing for Growth, we eliminated approximately 90 positions in August 2016 and approximately 500 positions in October 2015 across our stores, divisions and facilities.

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. Net interest expense was $73.7 million in the third quarter of fiscal year 2017 and $72.7 million for the third quarter of fiscal year 2016. The significant components of interest expense are as follows:



	Thirteen weeks ended
(in millions)	April 29, 2017			April 30, 2016

Asset-Based Revolving Credit Facility	$	2.2		$	0.8
Senior Secured Term Loan Facility	32.7			31.0
Cash Pay Notes	19.2			19.2
PIK Toggle Notes	13.3			13.1
2028 Debentures	2.2			2.2
Amortization of debt issue costs	6.1			6.1
Capitalized interest	(1.2		)	(1.3		)
Other, net	(0.9		)	1.5
Interest expense, net	$	73.7		$	72.7

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Income Tax Expense (Benefit). Our effective income tax rate was 29.8% on the loss for the third quarter of fiscal year 2017 and 45.8% on the earnings for the third quarter of fiscal year 2016.

Our effective income tax rate on the loss for the third quarter of fiscal year 2017 was less than the federal statutory tax rate of 35% due primarily to:


•	adjustments to prior year recorded tax benefits upon finalization of our federal income tax return for fiscal year 2016; and


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


•	state income taxes.

Our effective income tax rate on the earnings for the third 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.

Results of Operations for the Thirty-nine Weeks Ended April 29, 2017 Compared to the Thirty-nine Weeks Ended April 30, 2016

Revenues. Our revenues for year-to-date fiscal 2017 of $3,586.1 million decreased by $235.0 million, or 6.2%, from $3,821.1 million in year-to-date fiscal 2016. Comparable revenues for year-to-date fiscal 2017 were $3,565.8 million compared to $3,816.6 million in year-to-date fiscal 2016, representing a decrease of 6.6%. Changes in comparable revenues for our last seven fiscal quarters were:



Fiscal year 2017
Third quarter	(4.9	)%
Second quarter	(6.8	)
First quarter	(8.0	)

Fiscal year 2016
Fourth quarter	(4.1	)
Third quarter	(5.0	)
Second quarter	(2.4	)
First quarter	(5.6	)

In the last seven quarters ended April 29, 2017, we generated negative comparable revenue increases. We believe the lower levels of revenues in year-to-date fiscal 2017 compared to year-to-date fiscal 2016 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 in the U.S.;


•	the continuation of low global prices for 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.

In addition, revenues generated by our online operations were $1,108.8 million, or 30.9% of consolidated revenues. Comparable revenues from our online operations in year-to-date fiscal 2017 increased 0.5% from the prior year fiscal period.

Cost of Goods Sold Including Buying and Occupancy Costs (Excluding Depreciation). COGS as a percentage of revenues increased to 67.3% of revenues in year-to-date fiscal 2017 from 65.6% of revenues in year-to-date fiscal 2016. Compared to the prior year, COGS as a percentage of revenues increased by 170 basis points due primarily to:

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•	decreased product margins of approximately 140 basis points due primarily to:


•	higher markdowns and promotional costs of approximately 90 basis points incurred on lower than expected revenues;


•	higher requirements for estimated inventory shrinkage of approximately 30 basis points due in part to implementation issues experienced in connection with NMG One; and


•	higher delivery and processing costs of approximately 20 basis points; and


•	the deleveraging of buying and occupancy costs of approximately 30 basis points.

Selling, General and Administrative Expenses (Excluding Depreciation). SG&A expenses as a percentage of revenues increased to 23.7% of revenues in year-to-date fiscal 2017 compared to 22.6% of revenues in year-to-date fiscal 2016. SG&A expenses as a percentage of revenues increased by 110 basis points in year-to-date fiscal 2017 due primarily to:


•	the deleveraging of a significant portion of our SG&A expenses, primarily payroll and benefits, of approximately 55 basis points on the lower level of revenues;


•	higher levels of expenses of approximately 25 basis points incurred in connection with investments in technology, costs related to the opening of new stores, the remodeling of existing stores and the growth of our international footprint through MyTheresa; and


•	higher credit card chargebacks and other fees of approximately 20 basis points; partially offset by


•	lower levels of marking costs of approximately 10 basis points.

Income From Credit Card Program. Income from our credit card program was $45.5 million, or 1.3% of revenues, in year-to-date fiscal 2017 compared to $44.6 million, or 1.2% of revenues, in year-to-date fiscal 2016. Compared to the prior year, income from our credit card program as a percentage of revenues increased by 10 basis points due primarily to an increase in the overall profitability of the credit card portfolio.

Depreciation and Amortization Expenses. Depreciation expense of $169.8 million, or 4.7% of revenues, in year-to-date fiscal 2017 stayed relatively flat compared to $169.2 million, or 4.4% of revenues, in year-to-date fiscal 2016.

Amortization of intangible assets (primarily customer lists and favorable lease commitments) was $79.1 million, or 2.2% of revenues, in year-to-date fiscal 2017 compared to $84.0 million, or 2.2% of revenues, in year-to-date fiscal 2016.

Other Expenses (Income). Other expenses for year-to-date fiscal 2017 aggregated $22.9 million, or 0.6% of revenues, compared to $24.5 million, or 0.6% of revenues, in year-to-date fiscal 2016. Other expenses consisted of the following components:



	Thirty-nine weeks ended
(in millions)	April 29, 2017		April 30, 2016

Expenses incurred in connection with strategic initiatives	$	17.0	$	21.9
MyTheresa acquisition costs	3.3		4.4
Net gain from facility closure	—		(5.4		)
Other expenses	2.6		3.7
Total	$	22.9	$	24.5

We incurred professional fees and other costs in connection with our strategic initiatives, including Organizing for Growth, NMG One and the evaluation of potential strategic alternatives, aggregating $17.0 million in year-to-date fiscal 2017 and $21.9 million in year-to-date fiscal 2016. In connection with Organizing for Growth, we eliminated approximately 90 positions in August 2016 and approximately 500 positions in October 2015 across our stores, divisions and facilities. We incurred severance costs of $3.3 million in year-to-date fiscal 2017 and $10.2 million in year-to-date fiscal 2016.

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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.

Impairment Charges. In the second quarter of fiscal year 2017, we concluded that it was appropriate to assess the recoverability of the carrying values of our indefinite-lived intangible assets and goodwill as well as our store assets as a result of (i) the continuation of adverse economic and business trends, (ii) revisions to our anticipated future operating results and (iii) increases in the weighted average cost of capital used in estimating the fair value of our tradenames and our reporting units under a discounted cash flow model. In the second quarter of fiscal year 2017, we recorded impairment charges of $153.8 million to state certain of our intangible and long-lived assets, primarily related to our Neiman Marcus brand, to their estimated fair value.

Interest Expense, net. Net interest expense was $220.0 million, or 6.1% of revenues, in year-to-date fiscal 2017 and $215.9 million, or 5.6% of revenues, in year-to-date fiscal 2016. The significant components of interest expense are as follows:



	Thirty-nine weeks ended
(in millions)	April 29, 2017			April 30, 2016

Asset-Based Revolving Credit Facility	$	4.8		$	2.4
Senior Secured Term Loan Facility	95.6			93.3
Cash Pay Notes	57.6			57.6
PIK Toggle Notes	39.6			39.4
2028 Debentures	6.7			6.7
Amortization of debt issue costs	18.4			18.4
Capitalized interest	(4.5		)	(4.6		)
Other, net	1.9			2.7
Interest expense, net	$	220.0		$	215.9

Income Tax Expense (Benefit). Our effective income tax rate was 40.2% on the loss for year-to-date fiscal 2017 and 68.9% on the earnings for year-to-date fiscal 2016. Our effective income tax rate on the loss for year-to-date fiscal 2017 exceeded the federal statutory tax rate due primarily to:


•	state income taxes;


•	the benefit associated with the release of certain tax reserves for settled tax matters; and


•	lower foreign tax rates associated with the MyTheresa operations.

Our effective income tax rate on the earnings for year-to-date fiscal 2016 exceeded the federal statutory tax rate 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


•	reductions in our estimated tax reserves due to the expiration of statutes of limitations.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. The Internal Revenue Service finalized 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 2012. We believe our recorded tax liabilities as of April 29, 2017 are sufficient to cover any potential assessments made by the IRS or other taxing authorities 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 to the amounts of our unrecognized tax benefits could occur within the next 12 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.

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Non-GAAP Financial Measures

To supplement our financial information presented in accordance with 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


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

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In calculating these financial measures, we make certain adjustments that are based on assumptions and estimates that may prove inaccurate. In addition, in the future we may incur expenses similar to those eliminated in this presentation. The following table reconciles net earnings (loss) as reflected in our Condensed Consolidated Statements of Operations prepared in accordance with GAAP to EBITDA and Adjusted EBITDA:



	Thirteen weeks ended						Thirty-nine weeks ended
(dollars in millions)	April 29, 2017			April 30, 2016			April 29, 2017			April 30, 2016

Net earnings (loss)	$	(24.9	)	$	3.8		$	(165.5	)	$	1.1
Income tax expense (benefit)	(10.6		)	3.2			(111.3		)	2.5
Interest expense, net	73.7			72.7			220.0			215.9
Depreciation expense	55.7			59.6			169.8			169.2
Amortization of intangible assets and favorable lease commitments	25.5			27.4			79.1			84.0
EBITDA	$	119.5		$	166.7		$	192.1		$	472.7
EBITDA as a percentage of revenues	10.7		%	14.3		%	5.4		%	12.4		%

Impairment charges	—			—			153.8			—
Incremental rent expense related to purchase accounting adjustments	2.4			2.5			7.4			7.9
Non-cash stock-based compensation expense	0.2			—			0.7			3.9
Expenses incurred in connection with openings of new stores / remodels of existing stores	3.0			4.6			8.7			11.5
Expenses incurred in connection with strategic initiatives	8.3			3.6			17.0			21.9
MyTheresa acquisition costs	2.6			0.1			3.3			4.4
Net gain from facility closure	—			(5.4		)	—			(5.4		)
Other expenses	—			1.1			2.6			3.7
Adjusted EBITDA	$	135.9		$	173.2		$	385.6		$	520.4
Adjusted EBITDA as a percentage of revenues	12.2		%	14.8		%	10.8		%	13.6		%

Adjusted EBITDA as a percentage of revenues decreased by 260 basis points in the third quarter of fiscal year 2017 compared to the third quarter of fiscal year 2016 and decreased by 280 basis points in year-to-date fiscal 2017 compared to year-to-date fiscal 2016. These decreases were driven primarily by (i) an increase in COGS driven primarily by higher requirements for markdowns, promotional costs and other costs, (ii) the deleveraging of a significant portion of our buying and occupancy costs and SG&A expenses, primarily payroll and benefits on lower revenues and (iii) higher levels of expenses incurred in connection with our investments in technology, costs related to the opening of new stores, the remodeling of existing stores and growth strategies, partially offset by (iv) lower marketing costs and (v) 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 and continue to experience issues with respect to the functionality and capabilities of certain portions of the new system. These issues primarily relate to the processing of inventory receipts at our distribution centers, the timely payment of certain merchandise receipts, the transfer of inventories to our stores and the presentation of inventories on our websites. These issues have prevented us from fulfilling certain customer demand in both our stores and websites.

As a result of these implementation issues, we believe:

•our revenues have been adversely impacted;

•incremental markdowns have been incurred;

•higher provisions for estimated inventory shrinkage have been required;

•additional incremental costs, primarily for consulting services, have been incurred; and

•significant internal resources have been allocated to address these issues.

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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").

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 $435.0 million of outstanding borrowings under the Asset-Based Revolving Credit Facility as of April 29, 2017 compared to $265.0 million as of April 30, 2016. As of June 13, 2017, outstanding borrowings under the Asset-Based Revolving Credit Facility have been reduced by $140.0 million to $295.0 million increasing our unused borrowing availability to $513.3 million.

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 during the next 12 months, including merchandise purchases, operating expenses, anticipated capital expenditure requirements, debt service requirements, income tax payments and obligations related to our Pension Plan.

Net cash used for our operating activities was $70.1 million in year-to-date fiscal 2017 compared to cash provided by operating activities of $147.6 million in year-to-date fiscal 2016. In year-to-date fiscal 2017, the increase in net cash used for operating activities was driven by (i) the decline in cash generated by our operating activities on a lower level of revenues and (ii) higher working capital requirements. The higher working capital requirements were driven by higher inventories and a lower level of accounts payable experienced as a result of NMG One implementation issues. Additionally, required fundings made to our Pension Plan were $6.6 million in fiscal year 2017. We held cash balances and credit card receivables of $102.3 million at April 29, 2017 compared to $129.0 million at April 30, 2016.

Net cash used for investing activities, primarily representing capital expenditures, was $161.5 million in year-to-date fiscal 2017 and $232.9 million in year-to-date fiscal 2016. The decrease in capital expenditures in year-to-date fiscal 2017 reflects lower spending for NMG One, the construction of new stores and the remodeling of existing stores.

Currently, we project capital expenditures for fiscal year 2017 to be approximately $210 to $220 million. Net of developer contributions, capital expenditures for fiscal year 2017 are projected to be approximately $165 to $175 million. We have and will continue to manage the level of capital spending in a way that balances current economic conditions and business trends with our long-term initiatives and growth strategies.

Net cash provided by financing activities of $219.7 million in year-to-date fiscal 2017 was comprised primarily of (i) net borrowings of $270.0 million under our Asset-Based Revolving Credit Facility due to seasonal working capital requirements as well

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as a reduction in accounts payable experienced as a result of NMG One implementation issues, partially offset by (ii) payment of $22.9 million for the contingent earn-out obligation for calendar year 2016, (iii) repayments of borrowings of $22.1 million under our Senior Secured Term Loan Facility and (iv) $5.4 million paid for debt issuance costs related to the ABL Refinancing Amendment. Net cash provided by financing activities of $85.7 million in year-to-date fiscal 2016 was comprised primarily of (i) net borrowings of $135.0 million under our Asset-Based Revolving Credit Facility due to seasonal working capital requirements, partially offset by (ii) payment of $27.2 million for the contingent earn-out obligation for calendar year 2015 and (iii) repayments of borrowings of $22.1 million under our Senior Secured Term Loan Facility.

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 29, 2017

Our major sources of funds are comprised of the $900.0 million Asset-Based Revolving Credit Facility, the $2,847.0 million Senior Secured Term Loan Facility, $960.0 million Cash Pay Notes, $600.0 million PIK Toggle Notes, $125.0 million 2028 Debentures (each as described in more detail below), vendor payment terms and operating leases.

Asset-Based Revolving Credit Facility. 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 remains at $900.0 million 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, 2021 or later). At April 29, 2017, we had $435.0 million of borrowings outstanding under this facility, $1.8 million of outstanding letters of credit and $373.3 million of unused borrowing availability. As of June 13, 2017, outstanding borrowings under the Asset-Based Revolving Credit Facility have been reduced by $140.0 million to $295.0 million increasing our unused borrowing availability to $513.3 million.

The weighted average interest rate on the outstanding borrowings pursuant to the Asset-Based Revolving Credit Facility was 2.74% at April 29, 2017.

See Note 6 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 29, 2017, the outstanding balance under the Senior Secured Term Loan Facility was $2,847.0 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 29, 2017.

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See Note 6 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. The Cash Pay Notes mature on October 15, 2021.

See Note 6 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 and Note 15 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 for a description of certain subsidiaries that we have designated as "Unrestricted Subsidiaries" under the indenture governing 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. 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, subject to certain restrictions, may be paid (i) entirely in cash, (ii) entirely by increasing the principal amount of the PIK Toggle Notes by the relevant interest payment amount, or (iii) 50% in Cash Interest and 50% in PIK Interest. 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. Interest on the PIK Toggle Notes was paid entirely in cash for the first seven interest payments. We elected to pay the October 2017 interest payment in the form of PIK Interest. We may elect to pay interest in the form of PIK Interest or partial PIK Interest on each of our semi-annual interest payments due in April 2018 and October 2018. If we elect PIK Interest or partial PIK Interest with respect to these interest payments, we must deliver a notice of such election to the trustee no later than one day prior to the beginning of the relevant semi-annual interest period. We will evaluate our financial position prior to each future interest period to determine the appropriate election at that time.

See Note 6 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 and Note 15 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 for a description of certain subsidiaries that we have designated as "Unrestricted Subsidiaries" under the indenture governing the PIK Toggle Notes.

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

See Note 6 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 Swaps. At April 29, 2017, we had outstanding floating rate debt obligations of $3,282.0 million. In April and June of 2016, we entered into floating to fixed interest rate swap agreements for an aggregate notional amount of $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 from December 2016 to October 2020. As a result of the April 2016 swap agreements, our effective interest rate as to $700.0 million of floating rate indebtedness will be fixed at 4.912% 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.

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.

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A complete description of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended July 30, 2016.

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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 July 30, 2016 as filed with the Securities and Exchange Commission on September 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 29, 2017, 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.

b. Changes in Internal Control Over Financial Reporting.

In the first quarter of fiscal year 2017, we launched implementation of an integrated merchandising and distribution system, NMG One. This implementation was not in response to an identified control deficiency or weakness. The implementation was 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 is in the process of updating 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 experienced in year-to-date fiscal 2017, and continue to experience, related to the implementation and discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Investments and Strategic Initiatives," management also applied, and expects to continue to apply, certain supplemental and manual controls and processes to provide adequate control over financial reporting during the period of transition from our legacy system to the new NMG One system. Management will continue to monitor and evaluate the effectiveness of these controls and processes during the transition period and consider the need for additional measures that may be required to address deficiencies related to the implementation.

Other than as described above, there have been no changes in our internal controls over financial reporting during the quarter ended April 29, 2017 that have materially affected, or are 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 10 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 is incorporated herein

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by reference as if fully restated herein. Note 10 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

There have been no material changes to the risk factors described in Part I - Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended July 30, 2016 as filed with the Securities and Exchange Commission on September 26, 2016 or in Part II — Item 1A "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended January 28, 2017 as filed with the Securities and Exchange Commission on March 14, 2017. These risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or results of operations.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS



Exhibit		Method of Filing
3.1	Certificate of Formation of the Company, dated as of October 28, 2013.	Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 2013.

3.2	Amended and Restated Limited Liability Company Agreement of the Company, dated as of October 28, 2013.	Incorporated herein by reference to the Company's Current Report on Form 8-K filed on October 29, 2013.


31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

31.2	Certification of 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.

32.1	Certification 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.INS	XBRL Instance Document	Filed herewith electronically.

101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith electronically.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith electronically.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith electronically.

101.LAB	XBRL Taxonomy Extension Labels Linkbase Document	Filed herewith electronically.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith electronically.

Table of Contents

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 13, 2017
T. Dale Stapleton	and Chief Accounting Officer
	(on behalf of the registrant and
	as principal accounting officer)

Neiman Marcus Group LTD LLC - FORM 10-Q - June 13, 2017

Attached files

Neiman Marcus Group LTD LLC Reports