Neiman Marcus 2007 Annual Report Download - page 15

Table of Contents
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 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 NMG's 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 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 which may prevent us from meeting 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 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.
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