Nordstrom 2011 Annual Report Download - page 33

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Nordstrom, Inc. and subsidiaries 33
Adjusted Debt to EBITDAR (Non-GAAP financial measure)
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
January 28, 2012, our Adjusted Debt to EBITDAR was 2.4 compared with 2.2 as of January 29, 2011. The increase was primarily the result of increased
levels of debt as a result of new borrowings during 2011, a portion of which was done in anticipation of pre-funding our next debt maturity in April
2012 for our $500 securitized Series 2007-2 Class A & B Notes.
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:
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;
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
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 measure calculated using GAAP amounts is debt
to net earnings, which was 5.3 and 4.5 for 2011 and 2010. The following is a comparison of debt to net earnings and Adjusted Debt to EBITDAR:
20111 20101
Debt $3,647 $2,781
Add: rent expense x 82 627 500
Less: fair value hedge adjustment included in long–term debt (72) (25)
Adjusted Debt $4,202 $3,256
Net earnings 683 613
Add: income tax expense 436 378
Add: interest expense, net 130 127
Earnings before interest and income taxes 1,249 1,118
Add: depreciation and amortization expenses 371 327
Add: rent expense 78 62
Add: non–cash acquisition–related charges 21 -
EBITDAR $1,719 $1,507
Debt to Net Earnings 5.3 4.5
Adjusted Debt to EBITDAR 2.4 2.2
1The components of Adjusted Debt are as of January 28, 2012 and January 29, 2011, while the components of EBITDAR are for the 12 months ended January 28, 2012 and
January 29, 2011.
2The multiple of eight times rent expense used to calculate Adjusted Debt is a commonly used method of estimating the debt we would record for our leases that are classified as
operating if they had met the criteria for a capital lease, or we had purchased the property.