Ulta 2012 Annual Report Download - page 24

Increases in the demand for, or the price of, raw materials used to build and remodel our stores could hurt our
profitability.
The raw materials used to build and remodel our stores are subject to availability constraints and price volatility
caused by weather, supply conditions, government regulations, general economic conditions and other
unpredictable factors. As a retailer engaged in an active building and remodeling program, we are particularly
vulnerable to increases in construction and remodeling costs. As a result, increases in the demand for, or the price
of, raw materials could have a material adverse effect on our business, financial condition, profitability and cash
flows.
Increases in costs of mailing, paper and printing will affect the cost of our catalog and promotional mailings,
which will reduce our profitability.
Postal rate increases and paper and printing costs affect the cost of our catalog and promotional mailings. In
response to any future increases in mailing costs, we may consider reducing the number and size of certain
catalog editions. In addition, we rely on discounts from the basic postal rate structure, such as discounts for bulk
mailings and sorting by zip code and carrier routes. We are not a party to any long-term contracts for the supply
of paper. The cost of paper fluctuates significantly, and our future paper costs are subject to supply and demand
forces that we cannot control. Future additional increases in postal rates or in paper or printing costs could have a
material adverse effect on our business, financial condition, profitability and cash flows.
Our secured revolving credit facility contains certain restrictive covenants that could limit our operational
flexibility, including our ability to open stores.
We have a $200 million secured revolving credit facility with a term expiring October 2016. Substantially all of
our assets are pledged as collateral for outstanding borrowings under the agreement. Outstanding borrowings
bear interest at the prime rate or Libor plus 1.50% and the unused line fee is 0.225%. The credit facility
agreement contains usual and customary restrictive covenants relating to our management and the operation of
our business. These covenants, among other things, limit our ability to grant liens on our assets, incur additional
indebtedness, pay cash dividends and redeem our stock, enter into transactions with affiliates and merge or
consolidate with another entity. These covenants could restrict our operational flexibility and any failure to
comply with these covenants or our payment obligations would limit our ability to borrow under the credit
facility and, in certain circumstances, may allow the lenders thereunder to require repayment.
We may need to raise additional funds to pursue our growth strategy, and we may be unable to raise capital
when needed, which could have a material adverse effect on our business, financial condition, profitability
and cash flows.
From time to time we may seek additional equity or debt financing to provide for capital expenditures and
working capital consistent with our growth strategy. In addition, if general economic, financial or political
conditions in our markets change, or if other circumstances arise that have a material effect on our cash flow, the
anticipated cash needs of our business as well as our belief as to the adequacy of our available sources of capital
could change significantly. Any of these events or circumstances could result in significant additional funding
needs, requiring us to raise additional capital to meet those needs. If financing is not available on satisfactory
terms or at all, we may be unable to execute our growth strategy as planned and our results of operations may
suffer.
Failure to maintain adequate financial and management processes and controls could lead to errors in our
financial reporting and could harm our ability to manage our expenses.
Reporting obligations as a public company and our anticipated growth are likely to place a considerable strain on
our financial and management systems, processes and controls, as well as on our personnel. In addition, as a
public company we are required to document and test our internal controls over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002 so that our management can periodically certify as to the
effectiveness of our internal controls over financial reporting. As a result, we have been required to improve our
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