Neiman Marcus 2005 Annual Report Download - page 15

ITEM 1A. RISK FACTORS
Risks Related to Our Structure and NMG's Indebtedness
Because our ownership of NMG accounts for substantially all of our assets and operations, we are subject to all risks applicable
to NMG.
We are a holding company. NMG and its subsidiaries conduct substantially all of our consolidated operations and own
substantially all of our consolidated assets. As a result, we are subject to all risks applicable to NMG. In addition, NMG's Asset-Based
Revolving Credit Facility, NMG's Senior Secured Term Loan Facility and the indentures governing NMG's senior notes and senior
subordinated notes contain provisions limiting NMG's ability to distribute earnings to us, in the form of dividends or otherwise.
NMG has a substantial amount of indebtedness, which may adversely affect NMG's cash flow and its ability to operate the
business, to comply with debt covenants and make payments on its indebtedness.
As a result of the Transactions, we are highly leveraged. As of July 29, 2006, the principal amount of NMG's total indebtedness
was approximately $3,210.2 million and the unused borrowing availability under the $600 million Asset-Based Revolving Credit Facility
was approximately $570.9 million after giving effect to $29.1 million of letters of credit outstanding thereunder. NMG's substantial
indebtedness, combined with its lease and other financial obligations and contractual commitments, could have other important
consequences. For example, it could:
• make it more difficult for NMG to satisfy its obligations with respect to its indebtedness and any failure to comply with the
obligations of any of its debt instruments, including restrictive covenants and borrowing conditions, could result in an event
of default under the agreements governing NMG's indebtedness;
• make NMG more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse
changes in government regulation;
• require NMG to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, thereby
reducing the availability of cash flows to fund working capital, capital expenditures, acquisitions and other general
corporate purposes;
• limit NMG's flexibility in planning for, or reacting to, changes in NMG's business and the industry in which it operates;
• place NMG at a competitive disadvantage compared to its competitors that are less highly leveraged and therefore may be
able to take advantage of opportunities that its leverage prevents it from exploiting; and
• limit NMG's ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service
requirements, execution of its business strategy or other purposes.
Any of the above listed factors could materially adversely affect NMG's business, financial condition and results of operations.
In addition, NMG's interest expense could increase if interest rates increase because the entire amount of the indebtedness under
the senior secured credit facilities bears interest at floating rates. As of July 29, 2006, NMG had approximately $1,875.0 million
principal amount of floating rate debt, consisting of outstanding borrowings under Senior Secured Term Loan Facility. NMG also had at
that date approximately $570.9 million of unused floating rate debt borrowing capacity available under the Asset-Based Revolving Credit
Facility based on a borrowing base of over $600.0 million at that date and after giving effect to $29.1 million used for letters of credit.
Effective December 6, 2005, NMG entered into floating to fixed interest rate swap agreements for an aggregate notional amount of
$1,000.0 million to limit its exposure to interest rate increases related to a portion of its floating rate indebtedness.
To service NMG's indebtedness, it will require a significant amount of cash. NMG's ability to generate cash depends on many
factors beyond its control, and any failure to meet the its debt service obligations could harm its business, financial condition and
results of operations.
NMG's ability to pay interest on and principal of the debt obligations will primarily depend upon NMG's future
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