Nordstrom 2008 Annual Report Download - page 23

Nordstrom, Inc. and subsidiaries 23
Return on Invested Capital (ROIC) (Non-GAAP financial measure)
We define Return on Invested Capital (ROIC) as follows:
We believe that ROIC is a useful financial measure for investors in evaluating our operating performance for the periods presented. When read in
conjunction with our net earnings and total assets and compared to return on assets, it provides investors with a useful tool to evaluate our ongoing
operations and our management of assets from period to period. Over the past several years, we have incorporated ROIC into our key financial metrics,
and since 2005 have used it as an executive incentive measure. Our research has shown historically that overall performance as measured by ROIC
correlates directly to shareholders’ return over the long term. For the 12 fiscal months ended January 31, 2009, our ROIC decreased to 11.6% compared
to 19.4% for the 12 fiscal months ended February 2, 2008. ROIC is not a measure of financial performance under United States GAAP and should not be
considered a substitute for return on assets, net earnings or total assets as determined in accordance with GAAP and may not be comparable to
similarly titled measures reported by other companies. See our ROIC reconciliation to GAAP below. The closest GAAP measure is return on assets, which
decreased to 7.0% from 13.1% for the 12 months ended January 31, 2009 compared to the 12 months ended February 2, 2008. The following is a
reconciliation of return on assets and ROIC:
1Depreciation based upon estimated asset base of capitalized operating leases as described in footnote 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, and other current liabilities.
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.
Our ROIC declined primarily due to a decrease in our earnings before interest and income taxes compared to the prior year as well as an increase in our
average invested capital. The increase in average invested capital compared to the prior year is primarily due to the securitization transaction on
May 1, 2007, which brought the entire portfolio of Nordstrom VISA credit card receivables on-balance sheet as of that date.
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
January 31, 2009 February 2, 2008
Net earnings $401 $715
Add: income tax expense 247 458
Add: interest expense, net 131 74
Earnings before interest and income taxes 779 1,247
Add: rent expense 37 48
Less: estimated depreciation on capitalized
operating leases1 (19) (26)
Net operating profit 797 1,269
Estimated income tax expense (303) (497)
Net operating profit after taxes $494 $772
Average total assets2 $5,768 $5,455
Less: average non-interest-bearing current liabilities3 (1,447) (1,506)
Less: average deferred property incentives2 (400) (359)
Add: average estimated asset base of capitalized
operating leases4 322 395
Average invested capital $4,243 $3,985
Return on assets 7.0% 13.1%
ROIC 11.6% 19.4%