Nordstrom 2014 Annual Report Download - page 26

Table of Contents
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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 January 31, 2015, our ROIC decreased to 12.6% compared with 13.6%
for the 12 fiscal months ended February 1, 2014. Our ROIC decreased compared with the prior year primarily due to the acquisition of Trunk
Club in addition to ongoing store expansion and increased technology investments.
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
January 31, 2015 February 1, 2014 February 2, 2013 January 28, 2012 January 29, 2011
Net earnings $720 $734 $735 $683 $613
Add: income tax expense 465 455 450 436 378
Add: interest expense 139 162 162 132 128
Earnings before interest and income tax
expense 1,324 1,351 1,347 1,251 1,119
Add: rent expense 137 125 105 78 62
Less: estimated depreciation on
capitalized operating leases1(74) (67) (56) (42) (32)
Net operating profit 1,387 1,409 1,396 1,287 1,149
Less: estimated income tax expense2(544)(539) (530) (501) (439)
Net operating profit after tax $843 $870 $866 $786 $710
Average total assets3$8,860 $8,398 $8,274 $7,890 $7,091
Less: average non-interest-bearing
current liabilities4(2,730) (2,430) (2,262) (2,041) (1,796)
Less: average deferred property
incentives3(502)(489) (494) (504) (487)
Add: average estimated asset base of
capitalized operating leases51,058 929 724 555 425
Average invested capital $6,686 $6,408 $6,242 $5,900 $5,233
Return on assets 8.1%8.7% 8.9% 8.7% 8.6%
ROIC 12.6%13.6% 13.9% 13.3% 13.6%
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 January 31, 2015, February 1, 2014, February 2, 2013, January 28, 2012
and January 29, 2011.
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.