Neiman Marcus 2008 Annual Report Download - page 42

Table of Contents
Inflation and Deflation
We believe changes in revenues and net earnings that have resulted from inflation or deflation have not been material during
the periods presented. In recent years, we have experienced certain inflationary conditions related to 1) increases in product costs
primarily due to changes in foreign currency exchange rates that have reduced the purchasing power of the U.S. dollar and 2)
increases in SG&A. We purchase a substantial portion of our inventory from foreign suppliers whose costs are affected by the
fluctuation of their local currency against the dollar or who price their merchandise in currencies other than the dollar. Fluctuations in
the Euro-U.S. dollar exchange rate affect us most significantly; however, we source goods from numerous countries and thus are
affected by changes in numerous currencies and, generally, by fluctuations in the U.S. dollar relative to such currencies. Accordingly,
changes in the value of the dollar relative to foreign currencies may increase our cost of goods sold and if we are unable to pass such
cost increases to our customers, our gross margins, and ultimately our earnings, would decrease. Foreign currency fluctuations could
have a material adverse effect on our business, financial condition and results of operations in the future. We attempt to offset the
effects of inflation through price increases and control of expenses, although our ability to increase prices may be limited by
competitive factors. We attempt to offset the effects of merchandise deflation, which has occurred on a limited basis in recent years,
through control of expenses. There is no assurance, however, that inflation or deflation will not materially affect our operations in the
future. LIQUIDITY AND CAPITAL RESOURCES
Our cash requirements consist principally of:
• the funding of our merchandise purchases;
• capital expenditures for new store construction, store renovations and upgrades of our management information systems;
• debt service requirements;
• income tax payments; and
• obligations related to our Pension Plan.
Our primary sources of short-term liquidity are comprised of cash on hand, availability under our Asset-Based Revolving
Credit Facility and vendor financing. The amounts of cash on hand and borrowings under the Asset-Based Revolving Credit Facility
are influenced by a number of factors, including revenues, working capital levels, vendor terms, the level of capital expenditures, cash
requirements related to financing instruments and debt service obligations, Pension Plan funding obligations and tax payment
obligations, among others. As to vendor financing, some of our vendors have experienced serious cash flow issues, reductions in
available credit from banks, factors or other financial institutions, or increases in the cost of capital as a result of current economic
conditions. To counteract their cash flow problems, our vendors may attempt to increase their prices, pass through increased costs,
alter historical credit and payment terms available to us or seek other relief. Any of these actions could have an adverse impact on our
relationship with the vendor or constrain the amounts or timing of our purchases from the vendor and, ultimately, have an adverse
impact on our revenues, profitability and liquidity.
Our working capital requirements fluctuate during the fiscal year, increasing substantially during the first and second quarters
of each fiscal year as a result of higher seasonal levels of inventories. We have typically financed the increases in working capital
needs during the first and second fiscal quarters with available cash balances, cash flows from operations and, if necessary, with cash
provided from borrowings under our credit facilities. We have made no borrowings under our Asset-Based Revolving Credit Facility
during fiscal years 2009 or 2008.
We believe that operating cash flows, available vendor financing and amounts available pursuant to our senior secured Asset-
Based Revolving Credit Facility as well as our option to elect PIK Interest under the Senior Notes through October 15, 2010, will be
sufficient to fund our operations, anticipated capital expenditure requirements, debt service obligations, contractual obligations and
commitments and Pension Plan funding requirements through the end of fiscal year 2010.
At August 1, 2009, cash and cash equivalents were $323.4 million compared to $239.2 million at August 2, 2008. Net cash
provided by operating activities was $210.8 million for fiscal year 2009 compared to $285.3 million in fiscal year 2008. Cash flows
provided by operating activities were $74.5 million lower in fiscal year 2009 than in the prior fiscal year primarily due to the lower
levels of revenues and earnings generated in the current year.
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