Neiman Marcus 2006 Annual Report Download - page 7

• the closing of our new senior secured asset-based revolving credit facility (Asset-Based Revolving Credit Facility);
• the closing of our new senior secured term loan facility (Senior Secured Term Loan Facility);
• the call for redemption of, the deposit into a segregated account of the estimated amount of the redemption payment related
to, and the ratable provision of security pursuant to the terms thereof for, the 2008 Notes;
• the ratable provision of security for the 2028 debentures (2028 Debentures) pursuant to the terms thereof;
• the termination of our existing $350 million unsecured revolving credit facility; and
• the equity investments described above.
We refer to these transactions, including the merger and our payment of any costs related to these transactions and certain related
transactions as the "Transactions." See "Management's Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources" for a description of our senior secured credit facilities and senior and senior subordinated notes.
Prior to the Acquisition, the Company had no independent assets or operations. After the Acquisition, the Company
represents the Successor to NMG since the Company's sole asset is its investment in NMG and its operations consist solely of the
operating activities of NMG as well as costs incurred by the Company related to its investment in NMG. For periods prior to the
Acquisition, NMG is deemed to be the predecessor to the Company. As a result, for periods prior to the Transactions, the financial
statements of the Company consist of the financial statements of NMG for such periods. The accompanying consolidated statements
of earnings and cash flows present our results of operations and cash flows for the periods preceding the Acquisition (Predecessor) and
the periods succeeding the Acquisition (Successor), respectively. All references to "we" and "our" relate to the Company for periods
subsequent to the Transactions and to NMG for periods prior to the Transactions.
We have prepared our discussion of the results of operations for the fiscal year ended July 29, 2006 by combining the earnings and cash
flows for the Predecessor nine-week period ended October 1, 2005 and the Successor forty-three week period ended July 29, 2006. Although this combined
presentation does not comply with generally accepted accounting principles (GAAP), we believe that it provides a meaningful method of comparison. The
combined operating results have not been prepared on a pro forma basis under applicable regulations and may not reflect the actual results we would have
achieved absent the Transactions.
In connection with the Transactions, we incurred significant indebtedness and became highly leveraged. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources." In addition, the purchase
price paid in connection with the Acquisition was allocated to state the acquired assets and liabilities at fair value at the Acquisition date.
The purchase accounting adjustments increased the carrying values of our property and equipment and inventory, established intangible
assets for our tradenames, customer lists and favorable lease commitments and revalued our long-term benefit plan obligations, among
other things. Subsequent to the Transactions, interest expense and non-cash depreciation and amortization charges have significantly
increased. As a result, our successor financial statements subsequent to the Transactions are not comparable to our predecessor financial
statements.
Discontinued Operations
Gurwitch Products, L.L.C. On July 27, 2006, we sold our majority interest in Gurwitch Products, L.L.C. to Alticor Inc., for
pretax net cash proceeds of approximately $40.8 million (Gurwitch Disposition). Gurwitch Products, L.L.C. designs and markets the
Laura Mercier cosmetics line and had revenues of approximately $59.0 million (after intercompany eliminations) in fiscal year 2006. The
net assets of Gurwitch Products, L.L.C. were sold for their net carrying value (after purchase accounting adjustments made in connection
with the Transactions to state such assets at fair value).
Kate Spade LLC. In April 2005, the minority investor in Kate Spade LLC exercised the put option with respect to the sale of
the full amount of its 44% stake in such company to NMG. In October 2006, we entered into an agreement to settle the put option
whereby we purchased the interest held by the minority investor for approximately $59.4 million.
In November 2006, we entered into a definitive agreement to sell 100% of the ownership interests in Kate Spade LLC to Liz
Claiborne, Inc. (consisting of both our original 56% interest and the 44% minority interest subsequently purchased by NMG) for
pretax net cash proceeds of approximately $121.5 million. Both the purchase of the minority interest
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