AutoZone 2014 Annual Report Download - page 101

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Reconciliation of Non-GAAP Financial Measure: Adjusted Debt to EBITDAR
The following table calculates the ratio of adjusted debt to EBITDAR. Adjusted debt to EBITDAR is calculated
as the sum of total debt, capital lease obligations and annual rents times six; divided by net income plus interest,
taxes, depreciation, amortization, rent and share-based compensation expense. The adjusted debt to EBITDAR
ratios are presented in “Selected Financial Data” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”:
Fiscal Year Ended August
(in thousands, except ratios) 2014 2013
(1)
2012 2011 2010
Net income ......................................... $ 1,069,744 $ 1,016,480 $ 930,373 $ 848,974 $ 738,311
Add: Interest expense ....................... 167,509 185,415 175,905 170,557 158,909
Income tax expense ................. 592,970 571,203 522,613 475,272 422,194
EBIT .................................................. 1,830,223 1,773,098 1,628,891 1,494,803 1,319,414
Add: Depreciation expense .............. 251,267 227,251 211,831 196,209 192,084
Rent expense ........................... 253,813 246,340 229,417 213,846 195,632
Share-based expense ............... 39,390 37,307 33,363 26,625 19,120
EBITDAR .......................................... $ 2,374,693 $ 2,283,996 $ 2,103,502 $ 1,931,483 $ 1,726,250
Debt ................................................... $ 4,343,800 $ 4,187,000 $ 3,768,183 $ 3,351,682 $ 2,908,486
Capital lease obligations .................... 119,603 106,171 102,256 86,656 88,280
Rent x 6 .............................................. 1,522,878 1,478,040 1,376,502 1,283,076 1,173,792
Adjusted debt ..................................... $ 5,986,281 $ 5,771,211 $ 5,246,941 $ 4,721,414 $ 4,170,558
Adjusted debt to EBITDAR ............... 2.5 2.5 2.5 2.4 2.4
(1) The fiscal year ended August 31, 2013 consisted of 53 weeks.
Recent Accounting Pronouncements
See Note A of the Notes to Consolidated Financial Statements for a discussion on recent accounting
pronouncements.
Critical Accounting Policies and Estimates
Preparation of our consolidated financial statements requires us to make estimates and assumptions affecting the
reported amounts of assets and liabilities at the date of the financial statements, reported amounts of revenues and
expenses during the reporting period and related disclosures of contingent liabilities. In the notes to our
consolidated financial statements, we describe our significant accounting policies used in preparing the
consolidated financial statements. Our policies are evaluated on an ongoing basis and are drawn from historical
experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could
differ under different assumptions or conditions. Our senior management has identified the critical accounting
policies for the areas that are materially impacted by estimates and assumptions and have discussed such policies
with the Audit Committee of our Board. The following items in our consolidated financial statements represent
our critical accounting policies that require significant estimation or judgment by management:
Inventory Reserves and Cost of Sales
LIFO
We state our inventories at the lower of cost or market using the last-in, first-out (“LIFO”) method for domestic
merchandise and the first-in, first out (“FIFO”) method for Mexico and Brazil inventories. Due to price deflation
on our merchandise purchases, our domestic inventory balances are effectively maintained under the FIFO
method. We do not write up inventory for favorable LIFO adjustments, and due to price deflation, LIFO costs of
our domestic inventories exceed replacement costs by $307.2 million at August 30, 2014, calculated using the
dollar value method.
10-K