Macy's 2015 Annual Report Download - page 26

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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. Certain reclassifications have been made to 2015 amounts to conform to the balance sheet
classifications of such amounts as of the end of 2015. Prior years have not been reclassified and are presented as
previously reported.
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.
2015 2014 2013 2012 2011
(millions, except percentages)
Operating income .............................................................. $ 2,039 $ 2,800 $ 2,678 $ 2,661 $ 2,411
Property and equipment - net ............................................ $ 7,708 $ 7,865 $ 8,063 $ 8,308 $ 8,617
Operating income as a percent to property and
equipment - net .............................................................. 26.5% 35.6% 33.2% 32.0% 28.0%
Operating income .............................................................. $ 2,039 $ 2,800 $ 2,678 $ 2,661 $ 2,411
Add back (deduct) impairments, store closing and
other costs and gain on sale of leases............................. 288 87 88 5 (25)
Add back depreciation and amortization........................... 1,061 1,036 1,020 1,049 1,085
Add back rent expense, net
Real estate ...................................................................... 301 279 268 258 243
Personal property ........................................................... 12 12 11 11 10
Deferred rent amortization............................................. 87878
Adjusted operating income................................................ $ 3,709 $ 4,221 $ 4,073 $ 3,991 $ 3,732
Property and equipment - net ............................................ $ 7,708 $ 7,865 $ 8,063 $ 8,308 $ 8,617
Add back accumulated depreciation and amortization...... 5,457 5,830 6,007 5,967 6,018
Add capitalized value of non-capitalized leases................ 2,568 2,384 2,296 2,208 2,088
Add (deduct) other selected assets and liabilities:
Receivables .................................................................... 338 336 339 322 294
Merchandise inventories ................................................ 6,226 6,155 6,065 5,754 5,596
Prepaid expenses and other current assets ..................... 453 443 398 390 409
Other assets .................................................................... 775 784 659 579 528
Merchandise accounts payable ...................................... (2,366)(2,472)(2,520)(2,362)(2,314)
Accounts payable and accrued liabilities....................... (2,677)(2,511)(2,328)(2,333)(2,309)
Total average invested capital............................................ $ 18,482 $ 18,814 $ 18,979 $ 18,833 $ 18,927
ROIC.................................................................................. 20.1% 22.4% 21.5% 21.2% 19.7%