Nordstrom 2013 Annual Report Download - page 26

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Return on Invested Capital (“ROIC”) (Non-GAAP financial measure)
We believe that ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and
believe ROIC is an important component of shareholders’ return over the long term. In addition, we incorporate ROIC in our executive
incentive compensation measures. For the 12 fiscal months ended February 1, 2014, our ROIC decreased to 13.6% compared with 13.9%
for the 12 fiscal months ended February 2, 2013. Our ROIC decreased compared with the prior year primarily due to an increase in our
invested capital as a result of expansion into Manhattan and accelerated Nordstrom Rack store growth.
ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be considered in
addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with
GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be
comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to ROIC is
return on assets. The following is a reconciliation of the components of ROIC and return on assets:
12 Fiscal months ended
February 1, 2014 February 2, 2013 January 28, 2012 January 29, 2011 January 30, 2010
Net earnings $734 $735 $683 $613 $441
Add: income tax expense 455 450 436 378 255
Add: interest expense 162 162 132 128 138
Earnings before interest and income tax
expense 1,351 1,347 1,251 1,119 834
Add: rent expense 125 105 78 62 43
Less: estimated depreciation on
capitalized operating leases1(67) (56) (42) (32) (23)
Net operating profit 1,409 1,396 1,287 1,149 854
Estimated income tax expense2(539)(530) (501) (439) (313)
Net operating profit after tax $870 $866 $786 $710 $541
Average total assets3$8,398 $8,274 $7,890 $7,091 $6,197
Less: average non-interest-bearing
current liabilities4(2,430) (2,262) (2,041) (1,796) (1,562)
Less: average deferred property
incentives3(489)(494) (504) (487) (462)
Add: average estimated asset base of
capitalized operating leases5929 724 555 425 311
Average invested capital $6,408 $6,242 $5,900 $5,233 $4,484
Return on assets 8.7%8.9% 8.7% 8.6% 7.1%
ROIC 13.6%13.9% 13.3% 13.6% 12.1%
1 Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease,
or we had purchased the property. Asset base is calculated as described in footnote 5 below.
2 Based upon our effective tax rate multiplied by the net operating profit for the 12 fiscal months ended February 1, 2014, February 2, 2013, January 28, 2012, January 29, 2011
and January 30, 2010.
3 Based upon the trailing 12-month average.
4 Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, and other current liabilities.
5 Based upon the trailing 12-month average of the monthly asset base. The asset base for each month is calculated as the trailing 12-months of rent expense multiplied by eight.
The multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases described in footnote 1.
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