Neiman Marcus 2008 Annual Report Download - page 14

Table of Contents
financing. Based on current economic conditions and our recent operating performance, our long-term debt ratings were downgraded
in fiscal year 2009 by all three independent rating agencies. A significant increase in the costs we incur in order to finance our
operations may have a material adverse impact on our business results and financial condition.
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.
We are highly leveraged. As of August 1, 2009, the principal amount of NMG's total indebtedness was approximately
$2,984.9 million, the unused borrowing availability under the $600.0 million Asset-Based Revolving Credit Facility was $468.5
million and the outstanding letters of credit were $32.8 million. 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;
• limit NMG's ability to obtain credit from our vendors and/or the vendors' factors; 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 August 1, 2009, NMG had approximately
$1,625.0 million principal amount of floating rate debt, consisting of outstanding borrowings under the Senior Secured Term Loan
Facility (including $26.6 million of borrowings classified as current liabilities). In addition, NMG has an Asset-Based Revolving
Credit Facility that provides committed financing of up to $600.0 million, subject to a borrowing base. As of August 1, 2009, NMG
had no borrowings outstanding under this facility, $32.8 million of outstanding letters of credit and $468.5 million of unused
borrowing availability. 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 our exposure to interest rate increases related to a portion of our floating rate
indebtedness.
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