Nordstrom 2010 Annual Report Download - page 35

Nordstrom, Inc. and subsidiaries 27
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. When analyzed in conjunction with our net
earnings and total assets and compared to return on assets (net earnings divided by average total assets), it provides investors with a useful tool to
evaluate our ongoing operations and our management of assets from period to period. ROIC is one of our key financial metrics, and we also incorporate
it into our executive incentive measures. We believe that overall performance as measured by ROIC correlates directly to shareholders’ return over the
long term. For the 12 fiscal months ended January 29, 2011, our ROIC increased to 13.6% compared with 12.1% for the 12 fiscal months ended January 30,
2010. ROIC is not a measure of financial performance under GAAP, 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 with similarly titled measures reported by other companies. The closest
measure calculated using GAAP amounts is return on assets, which increased to 8.6% from 7.1% for the 12 fiscal months ended January 29, 2011,
compared with the 12 fiscal months ended January 30, 2010. The following is a comparison of return on assets to ROIC:
12 fiscal months ended
January 29, 2011 January 30, 2010
Net earnings $613 $441
Add: income tax expense 378 255
Add: interest expense 128 138
Earnings before interest and income tax expense 1,119 834
Add: rent expense 62 43
Less: estimated depreciation on capitalized
operating leases1 (32) (23)
Net operating profit 1,149 854
Estimated income tax expense2 (439) (313)
Net operating profit after tax (NOPAT) $710 $541
Average total assets3 $7,091 $6,197
Less: average non-interest-bearing current liabilities4 (1,796) (1,562)
Less: average deferred property incentives3 (487) (462)
Add: average estimated asset base of capitalized
operating leases5 425 311
Average invested capital $5,233 $4,484
Return on assets 8.6% 7.1%
ROIC 13.6% 12.1%
1Capitalized operating leases is our best estimate of the asset base we would record for our operating leases as if we had classified them as capital or purchased the property. Asset base
is calculated as described in footnote 5 below.
2Based upon our effective tax rate multiplied by the net operating profit for the 12 fiscal months ended January 29, 2011 and January 30, 2010.
3Based upon the trailing 12-month average.
4Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, and other current liabilities.
5Based 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 increased compared with the prior year primarily due to an increase in our earnings before interest and income taxes. This was partly offset
by an increase in our average invested capital, attributable primarily to growth in cash and cash equivalents.
ROIC = Net Operating Profit After Taxes (NOPAT)
Average Invested Capital