Neiman Marcus 2009 Annual Report Download - page 13

Table of Contents
ITEM 1A. RISK FACTORS
Risks Related to Recent Economic Conditions
Recent economic conditions have adversely affected, and may continue to adversely affect, our business and results of
operations.
The recent deterioration in economic conditions, both in the domestic and global economies, has had a significant adverse
impact on our business. Instability in the financial markets, tightening of consumer credit and other economic conditions and
uncertainties have caused a reduction in consumer spending. These conditions have had a significant negative impact on our
revenues.
The merchandise we sell consists in large part of luxury retail goods. The purchase of these goods by customers is
discretionary, and therefore highly dependent upon the level of consumer spending, particularly among affluent customers.
Accordingly, sales of these products may continue to be adversely affected by a continuation or worsening of recent economic
conditions, increases in consumer debt levels, uncertainties regarding future economic prospects or a decline in consumer confidence.
During an actual or perceived economic downturn (as a result of increases in consumer debt levels, increases in interest rates, a
tightening of consumer credit, uncertainties regarding future economic performance and tax rates and policies, or a decline in
consumer confidence, among other factors), fewer customers may shop our stores and websites and those who do shop may limit the
amounts of their purchases. As a result, we could be required to take significant additional markdowns and/or increase our marketing
and promotional expenses in response to the lower than anticipated levels of demand for luxury goods. In addition, promotional and/
or prolonged periods of deep discount pricing by our competitors could have a material adverse effect on our business.
We continue to experience a challenging economic and retail environment and expect these conditions will continue in the
near term. We will continue to align our inventory levels and purchases with anticipated lower customer demand. The prolonged
continuation of uncertain market conditions could have a material adverse effect on our business.
Uncertain economic conditions may constrain our ability to obtain credit.
Uncertain economic conditions may constrain our ability to obtain credit. Domestic and global credit and equity markets
have recently undergone significant disruption, making it difficult for many businesses to obtain financing on acceptable terms or at
all. As a result of this disruption, we have experienced an increase in the cost of borrowings necessary to operate our business. If
these conditions continue or become worse, our cost of borrowing could continue to increase. It may also become more difficult to
obtain financing for our operations or to refinance long-term obligations as they become payable. In addition, our borrowing costs can
be affected by independent rating agencies' short and long-term debt ratings, which are based largely on our performance as measured
by credit metrics including interest coverage and leverage ratios. A decrease in these ratings would likely also increase our cost of
borrowing and make it more difficult for us to obtain financing. 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 July 31, 2010, the principal amount of NMG's total indebtedness was approximately
$2,891.0 million, the unused borrowing availability under the $600.0 million Asset-Based Revolving Credit Facility was $508.9
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