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Nordstrom, Inc. and subsidiaries 29
Adjusted Debt to EBITDAR (Non-GAAP financial measure)
We define Adjusted Debt to Earnings before Interest, Income Taxes, Depreciation, Amortization and Rent (“EBITDAR”) as follows:
Adjusted Debt
Adjusted Debt to EBITDAR = EBITDAR
Adjusted Debt to EBITDAR is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our current goal
is to manage debt levels to maintain an investment grade credit rating as well as operate with an efficient capital structure for our size, growth plans
and industry. Investment grade credit ratings are important to maintaining access to a variety of short-term and long-term sources of funding, and we
rely on these funding sources to continue to grow our business. We believe a higher ratio, among other factors, could result in rating agency
downgrades. In contrast, we believe a lower ratio would result in a higher cost of capital and could negatively impact shareholder returns. As of both
January 30, 2010 and January 31, 2009, our Adjusted Debt to EBITDAR was 2.5.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should not be considered a substitute for debt to net earnings,
net earnings or debt as determined in accordance with GAAP. In addition, Adjusted Debt to EBITDAR does have limitations:
x Adjusted Debt is not exact, but rather our best estimate of the total company debt we would hold if we had purchased the property
and issued debt associated with our operating leases;
x EBITDAR does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments,
including leases, or the cash requirements necessary to service interest or principal payments on our debt; and
x Other companies in our industry may calculate Adjusted Debt to EBITDAR differently than we do, limiting its usefulness as a
comparative measure.
To compensate for these limitations, we analyze Adjusted Debt to EBITDAR in conjunction with other GAAP financial and performance measures
impacting liquidity, including operating cash flows, capital spending and net earnings. The closest GAAP measure is debt to net earnings, which was 5.9
and 6.3 for 2009 and 2008, respectively. The following is a reconciliation of debt to net earnings and Adjusted Debt to EBITDAR:
20091 20081
Debt2 $2,613 $2,513
Add: rent expense x 83 341 298
Adjusted Debt $2,954 $2,811
Net earnings 441 401
Add: income tax expense 255 247
Add: interest expense, net 138 131
Earnings before interest and income taxes 834 779
Add: depreciation and amortization of buildings and equipment 313 302
Add: rent expense 43 37
EBITDAR $1,190 $1,118
Debt to Net Earnings 5.9 6.3
Adjusted Debt to EBITDAR 2.5 2.5
1The components of adjusted debt are as of the end of 2009 and 2008, while the components of EBITDAR are for the 12 months ended January 30, 2010 and January 31, 2009.
2Debt included $275 of commercial paper borrowings outstanding as of January 31, 2009. There were no outstanding commercial paper borrowings as of January 30, 2010.
3The multiple of eight times rent expense used to calculate adjusted debt is our best estimate of the debt we would record for our leases that are classified as operating if they had met the
criteria for a capital lease, or if we had purchased the property.