Neiman Marcus 2010 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.
Deterioration in domestic and global economic conditions leading to reductions in consumer spending have had a significant
adverse impact on our business in recent years. While economic conditions have improved in recent quarters, domestic and global
economic conditions remain volatile and we do not anticipate the return of consumer spending to levels achieved in fiscal years 2007
and 2008 in the near-term. The continuation and/or recurrence of these conditions could have a significant negative impact on our
future revenues and results of operations.
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, fewer customers may shop with us and those who do shop may limit the amounts
of their purchases. As a result, we could be required to take significant 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.
Risks Related to Our Structure and NMG's Indebtedness
Because NMG accounts for substantially all of our operations, we are subject to all risks applicable to NMG.
We are a holding company and, accordingly, substantially all of our operations are conducted through NMG and its
subsidiaries. As a result, our cash flow and our ability to service our debt depend upon the earnings of our subsidiaries. In addition,
we depend on the distribution of earnings, loans or other payments by our subsidiaries to us. As a result, we are subject to all risks
applicable to NMG.
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 30, 2011, the principal amount of NMG's total indebtedness was approximately
$2,685.1 million. In addition, NMG had unused borrowing availability under its $700.0 million Asset-Based Revolving Credit Facility
of $615.8 million. As of July 30, 2011, NMG had no borrowings outstanding under this facility and $13.7 million of outstanding
letters of credit. NMG's substantial indebtedness, combined with its lease and other financial obligations and contractual
commitments, could materially and adversely affect NMG's business, financial condition and results of operations by:
• making it more difficult for NMG to satisfy its obligations with respect to its indebtedness, including restrictive
covenants and borrowing conditions, which may lead to an event of default under agreements governing its debt;
• making NMG more vulnerable to adverse changes in general economic, industry and competitive conditions and
government regulation;
• requiring 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 current operations and future growth;
• placing NMG at a competitive disadvantage compared to its competitors that are less leveraged;
• limiting NMG's ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service
requirements, execution of its business strategy or other purposes; and
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