Neiman Marcus 2005 Annual Report Download - page 16

operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond
our control, will affect its ability to make these payments.
If NMG does not generate sufficient cash flow from operations to satisfy the debt service obligations, NMG may have to
undertake alternative financing plans, such as refinancing or restructuring its indebtedness, selling assets, reducing or delaying capital
investments or seeking to raise additional capital. Our ability to restructure or refinance its debt will depend on the condition of the
capital markets and our financial condition at such time. Any refinancing of NMG's debt could be at higher interest rates and may require
it to comply with more onerous covenants, which could further restrict its business operations. The terms of existing or future debt
instruments may restrict NMG from adopting some of these alternatives. In addition, any failure to make payments of interest and
principal on NMG's outstanding indebtedness on a timely basis would likely result in a reduction of NMG's credit rating, which could
harm its ability to incur additional indebtedness on acceptable terms.
Contractual limitations on NMG's ability to execute any necessary alternative financing plans could exacerbate the effects of any
failure to generate sufficient cash flow to satisfy its debt service obligations. The Asset-Based Revolving Credit Facility permits NMG to
borrow up to $600.0 million; however, NMG's ability to borrow thereunder is limited by a borrowing base, which at any time will equal
the lesser of 80% of eligible inventory valued at the lower of cost or market value and 85% of the net orderly liquidation value of the
eligible inventory, less certain reserves. In addition, our ability to borrow under this facility is limited by a minimum liquidity condition,
providing that, if less than $60.0 million is available at any time, NMG is not permitted to borrow any additional amounts under the
Asset-Based Revolving Credit Facility unless NMG's pro forma ratio of consolidated EBITDA to consolidated Fixed Charges (as such
terms are defined in the credit agreement for the senior secured asset-based revolving credit facility) is at least 1.1 to 1.0. Our ability to
meet this financial ratio may be affected by events beyond our control, and we cannot assure you that we will meet this ratio.
NMG's inability to generate sufficient cash flow to satisfy its debt service obligations, or to refinance its obligations at all or on
commercially reasonable terms, would have an adverse effect, which could be material, on NMG's business, financial condition and
results of operations.
The terms of NMG's Asset-Based Revolving Credit Facility and Senior Secured Term Loan Facility and the indentures governing
the Senior Notes, the Senior Subordinated Notes and the 2028 Debentures may restrict NMG's current and future operations,
particularly its ability to respond to changes in its business or to take certain actions.
The credit agreements governing NMG's Asset-Based Revolving Credit Facility and Senior Secured Term Loan Facility credit
facilities and the indentures governing the Senior Notes, the Senior Subordinated Notes and the 2028 Debentures contain, and any future
indebtedness of NMG would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions,
including restrictions on NMG's ability to engage in acts that may be in its best long-term interests. The indentures governing the Senior
Notes, the Senior Subordinated Notes and the 2028 Debentures and the credit agreements governing the senior secured credit facilities
include covenants that, among other things, restrict NMG's ability to:
• incur additional indebtedness;
• pay dividends on NMG's capital stock or redeem, repurchase or retire its capital stock or indebtedness;
• make investments;
• create restrictions on the payment of dividends or other amounts to NMG from NMG's restricted subsidiaries;
• engage in transactions with its affiliates;
• sell assets, including capital stock of NMG's subsidiaries;
• consolidate or merge;
• create liens; and
• enter into sale and lease back transactions.
In addition, NMG's ability to borrow under the Asset-Based Revolving Credit Facility is limited by a borrowing base and a
minimum liquidity condition, as described above.
Moreover, NMG's Asset-Based Revolving Credit Facility provides discretion to the agent bank acting on behalf of the
13