Foot Locker 2011 Annual Report Download - page 37

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The Company estimates the tax effect of the non-GAAP adjustments by applying its effective tax rate to
deductible items. The gain recorded with respect to The Reserve International Liquidity Fund, Ltd. was
recorded with no tax expense due to the fact that the entity that held the investment has a zero statutory
tax rate. During 2009, the provincial tax rates in Canada were reduced, which resulted in a $4 million
reduction in the value of the Company’s net deferred tax assets.
When assessing Return on Invested Capital (‘‘ROIC’’), the Company adjusts its results to reflect its
operating leases as if they qualified for capital lease treatment. Operating leases are the primary financing
vehicle used to fund store expansion and, therefore, we believe that the presentation of these leases as
capital leases is appropriate. Accordingly, the asset base and net income amounts are adjusted to reflect
this in the calculation of ROIC. ROIC, subject to certain adjustments, is also used as a measure in executive
long-term incentive compensation.
The closest GAAP measure is Return on Assets (‘‘ROA’’) and is also represented below. ROA increased to
9.4 percent as compared with 5.9 percent in the prior year reflecting the Company’s overall
performance in 2011.
2011 2010 2009
ROA
(1)
9.4% 5.9% 1.7%
ROIC% (non-GAAP)
(2)
11.8% 8.3% 5.3%
(1) Represents income from continuing operations of $278 million, $169 million, and $47 million divided by average total assets of
$2,973 million, $2,856 million, and $2,847 million for 2011, 2010, and 2009, respectively.
(2) See below for the calculation of ROIC.
2011 2010 2009
(in millions)
EBIT (non-GAAP) $ 446 $ 274 $ 138
+ Rent expense 544 522 526
- Estimated depreciation on capitalized operating leases
(3)
(389) (366) (370)
Net operating profit 601 430 294
- Adjusted income tax expense
(4)
(218) (153) (104)
= Adjusted return after taxes $ 383 $ 277 $ 190
Average total assets $ 2,973 $ 2,856 $ 2,847
- Average cash, cash equivalents and
short-term investments (774) (642) (499)
- Average non-interest bearing current liabilities (519) (461) (425)
- Average merchandise inventories (1,064) (1,048) (1,079)
+ Average estimated asset base of capitalized
operating leases
(3)
1,429 1,443 1,500
+ 13-month average merchandise inventories 1,192 1,177 1,268
= Average invested capital $ 3,237 $ 3,325 $ 3,612
ROIC% 11.8% 8.3% 5.3%
(3) The determination of the capitalized operating leases and the adjustments to income have been calculated on a lease-by-lease
basis and have been consistently calculated in each of the years presented above. Capitalized operating leases represent the
best estimate of the asset base that would be recorded for operating leases as if they had been classified as capital or as if the
property were purchased.
(4) The adjusted income tax expense represents the marginal tax rate applied to net operating profit for each of the
periods presented.
17