Target 2015 Annual Report Download - page 29

We have also disclosed after-tax return on invested capital for continuing operations (ROIC), which is a ratio based
on GAAP information, with the exception of adjustments made to capitalize operating leases. Operating leases are
capitalized as part of the ROIC calculation to control for differences in capital structure between us and our competitors.
We believe this metric provides a meaningful measure of the effectiveness of our capital allocation over time. Other
companies may calculate ROIC differently than we do, limiting the usefulness of the measure for comparisons with
other companies.
After-Tax Return on Invested Capital
Numerator Trailing Twelve Months
(dollars in millions)
January 30,
2016
January 31,
2015
Earnings from continuing operations before interest expense and
income taxes $5,530 $4,535
+ Operating lease interest (a)(b) 87 89
Adjusted earnings from continuing operations before interest expense
and income taxes 5,617 4,624
- Income taxes (c) 1,827 1,524
Net operating profit after taxes $3,790 $3,100
Denominator
(dollars in millions)€
January 30,
2016
January 31,
2015
February 1,
2014
Current portion of long-term debt and other borrowings $815 $91 $1,143
+ Noncurrent portion of long-term debt 11,945 12,634 11,351
+ Shareholders' equity 12,957 13,997 16,231
+ Capitalized operating lease obligations (b)(d) 1,457 1,490 1,635
- Cash and cash equivalents 4,046 2,210 670
- Net assets of discontinued operations 226 1,479 4,270
Invested capital $22,902 $24,523 $25,420
Average invested capital (e) $23,713 $24,971
After-tax return on invested capital 16.0%(f) 12.4%
(a) Represents the add-back to operating income driven by the hypothetical capitalization of our operating leases, using eight times our trailing
twelve months rent expense and an estimated interest rate of six percent.
(b) See the following Reconciliation of Capitalized Operating Leases table for the adjustments to our GAAP total rent expense to obtain the hypothetical
capitalization of operating leases and related operating lease interest.
(c) Calculated using the effective tax rate for continuing operations, which was 32.5 percent and 33.0 percent for the trailing twelve months ended
January€30, 2016 and January€31, 2015.
(d) Calculated as eight times our trailing twelve months rent expense.
(e) Average based on the invested capital at the end of the current period and the invested capital at the end of the prior period.
(f) 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.
Capitalized operating lease obligations and operating lease interest are not in accordance with, or an alternative for,
GAAP. The most comparable GAAP measure is total rent expense. Capitalized operating lease obligations and
operating lease interest should not be considered in isolation or as a substitution for analysis of our results as reported
under GAAP.
Reconciliation of Capitalized Operating Leases Trailing Twelve Months
(dollars in millions)
January 30,
2016
January 31,
2015
February 1,
2014
Total rent expense $182 $186 $204
Capitalized operating lease obligations (total rent expense x 8) 1,457 1,490 1,635
Operating lease interest (capitalized operating lease obligations x 6%) 87 89 n/a
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