Target 2015 Annual Report Download - page 22

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Earnings€Per€Share From
Continuing Operations
Percent Change
2015 2014 2013 2015/2014 2014/2013
GAAP diluted earnings per share $5.25 $3.83 $4.20 37.2%(8.8)%
Adjustments (0.56) 0.39 0.09
Adjusted€diluted€earnings€per€share $4.69 $4.22 $4.29 11.3%(1.7)%
Note:€€Adjusted diluted earnings per share from continuing operations (Adjusted EPS), a non-GAAP metric, excludes the impact of certain matters
not related to our routine retail operations and the impact of our discontinued Canadian operations. Management believes that Adjusted EPS is
meaningful to provide period-to-period comparisons of our operating results. A reconciliation of non-GAAP financial measures to GAAP measures
is provided on page€23.
We report after-tax return on invested capital (ROIC) from continuing operations as we believe ROIC provides a
meaningful measure of the effectiveness of our capital allocation over time. For the trailing twelve months ended
January€30, 2016, ROIC was 16.0 percent, compared with 12.4 percent for the trailing twelve months ended January€31,
2015. Excluding the net gain on the sale of our pharmacy and clinic businesses, ROIC was 13.9 percent for the trailing
twelve months ended January 30, 2016. A reconciliation of ROIC is provided on page 24.
Pharmacies and Clinics Transaction
In December 2015, we closed the previously announced sale of our pharmacy and clinic businesses to CVS for cash
consideration of $1.9 billion. CVS now operates the pharmacy and clinic businesses in our stores under a perpetual
operating agreement, subject to termination in limited circumstances. No profit-sharing arrangement exists, but CVS
will make an annual, inflation-adjusted occupancy-related payment to us, starting at $20 million to $25 million in the
first year of the agreement. We also entered into a development agreement with CVS through which we may jointly
develop small-format stores.
In connection with the sale, we recognized a pretax gain of $620 million, which we recorded outside of segment results
and excluded from Adjusted EPS. We also recorded deferred income of $694 million, which we will amortize into
income evenly over the 23-year weighted average remaining accounting useful life of our stores.
During 2015, we used a portion of the $1.9 billion cash consideration to repurchase shares of our common stock and
settle approximately $200 million of retained pharmacy and clinic net liabilities. We expect to use the remaining proceeds
to pay approximately $500 million of related taxes and repurchase shares.
Had this transaction closed prior to this year, our 2015 reported sales and cost of goods sold would have been lower
by approximately $3.8 billion and $3.1 billion, respectively, with no notable effect on EBITDA or EBIT.
This transaction is expected to be accretive to EPS in every period following the closing, and should add 50 basis
points or more to ROIC over time. In addition, due to the lower sales base without a significant effect on profits, we
expect the transaction to have a favorable impact on our EBITDA and EBIT margin rates.
Refer to Note 6 of the Financial Statements for additional information about the transaction.
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