Nordstrom 2006 Annual Report Download - page 37

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Nordstrom, Inc. and subsidiaries 19
Return on Invested Capital (ROIC) (Non-GAAP financial measure) (Dollars in Millions)
In the past two years, we have incorporated Return on Invested Capital (ROIC) into our key financial metrics, and since 2005 have used it as an
executive incentive measure. Overall performance as measured by ROIC correlates directly to shareholders’ return over the long term. For the 12
fiscal months ended February 3, 2007, we improved our ROIC to 20.9% compared to 16.9% for the 12 months ended January 28, 2006. Our ROIC
improved primarily from increased earnings before interest and taxes. See our GAAP ROIC reconciliation below. The closest GAAP measure is return
on assets, which improved to 14.0% from 11.5% for the last 12 months ended February 3, 2007 compared to the 12 months ended January 28, 2006.
We define ROIC as follows:
Net Operating Profit After Taxes (NOPAT)
ROIC =
Average Invested Capital
Numerator = NOPAT
Denominator = Average Invested Capital
Net earnings
Average total assets
+ Income tax expense
- average non-interest-bearing current liabilities
+ Interest expense, net
- average deferred property incentives
= EBIT
+ average estimated asset base of capitalized
operating leases
+ Rent expense
= Average invested capital
- Estimated depreciation on capitalized
operating leases
= Net operating profit
- Estimated income tax expense
= NOPAT
12 fiscal months ended
February 3, 2007
January 28, 2006
Net earnings
$678.0
$551.3
Add: income tax expense
427.7
333.9
Add: interest expense, net
42.7
45.3
Earnings before interest and income tax expense
1,148.4
930.5
Add: rent expense
47.6
41.5
Less: estimated depreciation on capitalized
operating leases1
(25.4)
(22.1)
Net operating profit
1,170.6
949.9
Estimated income tax expense
(452.4)
(358.7)
Net operating profit after taxes
$718.2
$591.2
Average total assets2
$4,854.1
$4,800.7
Less: average non-interest-bearing current liabilities3
(1,424.0)
(1,320.6)
Less: average deferred property incentives2
(357.9)
(364.5)
Add: average estimated asset base of capitalized
operating leases4
361.6
384.7
Average invested capital
$3,433.8
$3,500.3
Return on assets
14.0%
11.5%
ROIC
20.9%
16.9%
1Depreciation based upon estimated asset base of capitalized operating leases as described in Note 4 below.
2Based upon the trailing 12-month average.
3Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, other current liabilities and income taxes payable.
4Based upon the trailing 12-month average of the monthly asset base which is calculated as the trailing 12 months rent expense multiplied by 8.