Macy's 2014 Annual Report Download - page 25

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ROIC
The Company defines ROIC as adjusted operating income as a percent to average invested capital. Average invested
capital is comprised of an annual two-point (i.e., end of the year presented and the immediately preceding year) average of
gross property and equipment, a capitalized value of non-capitalized leases equal to periodic annual reported net rent
expense multiplied by a factor of eight and a four-point (i.e., end of each quarter within the period presented) average of
other selected assets and liabilities. The calculation of the capitalized value of non-capitalized leases is consistent with
industry and credit rating agency practice and the specified assets are subject to a four-point average to compensate for
seasonal fluctuations.
The following is a tabular reconciliation of the non-GAAP financial measure of ROIC to operating income as a
percent to property and equipment - net, which the Company believes to be the most directly comparable GAAP financial
measure.
2014 2013 2012 2011 2010
(millions, except percentages)
Operating income .............................................................. $ 2,800 $ 2,678 $ 2,661 $ 2,411 $ 1,894
Property and equipment - net ............................................ $ 7,865 $ 8,063 $ 8,308 $ 8,617 $ 9,160
Operating income as a percent to property and
equipment - net .............................................................. 35.6% 33.2% 32.0% 28.0% 20.7%
Operating income .............................................................. $ 2,800 $ 2,678 $ 2,661 $ 2,411 $ 1,894
Add back (deduct) impairments, store closing and
other costs and gain on sale of leases............................. 87 88 5 (25) 25
Add back depreciation and amortization........................... 1,036 1,020 1,049 1,085 1,150
Add back rent expense, net
Real estate...................................................................... 279 268 258 243 235
Personal property ........................................................... 12 11 11 10 10
Deferred rent amortization............................................. 78787
Adjusted operating income................................................ $ 4,221 $ 4,073 $ 3,991 $ 3,732 $ 3,321
Property and equipment - net ............................................ $ 7,865 $ 8,063 $ 8,308 $ 8,617 $ 9,160
Add back accumulated depreciation and amortization...... 5,830 6,007 5,967 6,018 5,916
Add capitalized value of non-capitalized leases................ 2,384 2,296 2,208 2,088 2,016
Add (deduct) other selected assets and liabilities:
Receivables .................................................................... 336 339 322 294 317
Merchandise inventories................................................ 6,155 6,065 5,754 5,596 5,211
Prepaid expenses and other current assets ..................... 443 398 390 409 283
Other assets.................................................................... 784 659 579 528 526
Merchandise accounts payable ...................................... (2,472)(2,520)(2,362)(2,314)(2,085)
Accounts payable and accrued liabilities....................... (2,511)(2,328)(2,333)(2,309)(2,274)
Total average invested capital............................................ $ 18,814 $ 18,979 $ 18,833 $ 18,927 $ 19,070
ROIC.................................................................................. 22.4% 21.5% 21.2% 19.7% 17.4%