Target Reports Third Quarter 2016 Earnings

Target Corporation (NYSE: TGT) today reported a third quarter 2016 comparable sales decline of 0.2 percent and GAAP earnings per share (EPS) from continuing operations of $1.06, an increase of 39.7 percent from third quarter 2015. Third quarter adjusted earnings per share from continuing operations 2 (Adjusted EPS), which excludes the favorable resolution of income tax matters and certain items related to the pharmacy transaction, was $1.04, an increase of 22.1 percent from third quarter 2015. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.
 
1On Aug. 17, 2016, Target provided third quarter 2016 GAAP EPS from continuing operations and Adjusted EPS guidance of $0.75 to $0.95.
2Adjusted EPS, a non-GAAP financial measure, excludes losses on the early retirement of debt, charges and other financial impacts related to the sale of the pharmacy and clinic businesses to CVS, and the impact of certain discretely managed items and certain other gains and expenses. See the "Miscellaneous" sections of this release, as well as the tables of this release, for additional information about the items that have been excluded from Adjusted EPS.
 

"We are very pleased with our third quarter financial results, which reflect meaningful improvement in our traffic and sales trends and much stronger-than-expected profitability," said Brian Cornell, chairman and CEO of Target. "Favorable gross margin mix and efficient execution by our team drove third quarter EPS performance well beyond our guidance. We also continued to gain market share in key Signature Categories and saw unexpectedly strong sales in the Back-to-School and Back-to-College season. As we move into the biggest quarter of the year, we are pleased with our inventory position and confident that our team will deliver a great guest experience as they bring our merchandising and marketing plans to life throughout the holiday season."

Fourth Quarter and Fiscal 2016 GuidanceTarget raised its expectations for fourth quarter comparable sales and now expects growth in the range of (1.0) percent to 1.0 percent, compared with prior guidance of (2.0) to flat. In the fourth quarter of 2016, Target expects both GAAP EPS from continuing operations and Adjusted EPS of $1.55 to $1.75.

For full-year 2016, Target now expects GAAP EPS from continuing operations of $4.67 to $4.87, compared with prior guidance of $4.36 to 4.76. The Company expects full-year 2016 Adjusted EPS of $5.10 to $5.30, compared with prior guidance of $4.80 to $5.20. The 43-cent difference between these ranges reflects early debt-retirement losses and a small benefit from the resolution of income tax matters.

Fourth quarter and full-year 2016 GAAP EPS from continuing operations may include the impact of unforeseen discrete items which may be excluded in calculating Adjusted EPS. The Company is not currently aware of any such discrete items beyond those already reported in the first, second and third quarters of 2016.

Segment ResultsThird quarter 2016 sales decreased 6.7 percent to $16.4 billion from $17.6 billion last year, reflecting a 0.2 percent decline in comparable sales combined with the removal of pharmacy and clinic sales from this year's results. Comparable digital channel sales grew 26 percent and contributed 0.7 percentage points to comparable sales growth. Segment earnings before interest expense and income taxes (EBIT), which is Target's measure of segment profit, were $1,057 million in third quarter 2016, an increase of 9.9 percent from $962 million in 2015.

Third quarter EBITDA and EBIT margin rates were 9.9 percent and 6.4 percent, respectively, compared with 8.6 percent and 5.5 percent, respectively, in 2015. Third quarter gross margin rate was 30.2 percent, compared with 29.4 percent in 2015, reflecting the benefit of the sale of the Company's pharmacy and clinic businesses and strong Signature Category sales growth. Third quarter SG&A expense rate was 20.3 percent in 2016, compared with 20.7 percent in 2015, reflecting continued expense discipline across the organization.

Interest Expense and Taxes from Continuing OperationsThe Company's third quarter 2016 net interest expense was $142 million, compared with $151 million last year. Third quarter 2016 effective income tax rate from continuing operations was 33.8 percent, compared with 34.3 percent last year. The decrease was due to a variety of factors, none of which was individually significant.

Shareholder ReturnsThe Company returned $1.2 billion to shareholders in third quarter 2016, including:
  • Dividends of $345 million, compared with $352 million in third quarter 2015.
  • Share repurchases totaling $878 million, including:
    • Open market transactions that retired 8.1 million shares of common stock at an average price of $69.73, for a total investment of $564 million.
    • An accelerated share repurchase (ASR) agreement that retired 4.6 million shares of common stock at an average price of $67.67, for a total investment of $314 million. Final settlement of the ASR occurred in November, and 1.3 million of the 4.6 million shares repurchased through the ASR were delivered in the fourth quarter.

In September 2016, Target's Board of Directors authorized a new $5 billion share repurchase program. Repurchases through this program will begin upon completion of the prior $10 billion program. At the end of the third quarter, including the $314 million investment in the ASR, $300 million of capacity remained under the prior program.

For the trailing twelve months through third quarter 2016, after-tax return on invested capital (ROIC) was 16.3 percent, compared with 13.0 percent for the twelve months through third quarter 2015. Excluding the net gain on the sale of the pharmacy and clinic businesses, ROIC for the trailing twelve months through third quarter 2016 was 14.3 percent, reflecting higher profits on a modestly lower base of invested capital. See the "Reconciliation of Non-GAAP Financial Measures" section of this release for additional information about the Company's ROIC calculation.

Conference Call DetailsTarget will webcast its third quarter earnings conference call at 7 a.m. CST today. Investors and the media are invited to listen to the call at Investors.Target.com (hover over "company" then click on "events & presentations" in the "investors" column). A telephone replay of the call will be available beginning at approximately 10:30 a.m. CST today through the end of business on Nov. 18, 2016. The replay number is 855-859-2056 (passcode: 56082205).

MiscellaneousStatements in this release regarding fourth quarter and full-year 2016 earnings per share and comparable sales guidance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties which could cause the Company's actual results to differ materially. The most important risks and uncertainties are described in Item 1A of the Company's Form 10-K for the fiscal year ended Jan. 30, 2016. Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to update any forward-looking statement.

In addition to the GAAP results provided in this release, the Company provides Adjusted EPS for the three and nine-month periods ended Oct. 29, 2016, and Oct. 31, 2015, respectively. The Company also provides ROIC for the twelve-month periods ended Oct. 29, 2016, and Oct. 31, 2015, respectively, 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 the Company and its competitors. Adjusted EPS, capitalized operating lease obligations and operating lease interest are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. Management believes Adjusted EPS is useful in providing period-to-period comparisons of the results of the Company's ongoing retail operations. Management believes ROIC is useful in assessing the effectiveness of its capital allocation over time. The most comparable GAAP measure for Adjusted EPS is diluted EPS from continuing operations. The most comparable GAAP measure for capitalized operating lease obligations and operating lease interest is total rent expense. Adjusted EPS, capitalized operating lease obligations and operating lease interest should not be considered in isolation or as a substitution for analysis of the Company's results as reported under GAAP. Other companies may calculate Adjusted EPS and ROIC differently than the Company does, limiting the usefulness of the measure for comparisons with other companies.

About TargetMinneapolis-based Target Corporation (NYSE: TGT) serves guests at 1,802 stores and at Target.com. Since 1946, Target has given 5 percent of its profit to communities, which today equals more than $4 million a week. For more information, visit Target.com/Pressroom. For a behind-the-scenes look at Target, visit Target.com/abullseyeview or follow @TargetNews on Twitter.

 
TARGET CORPORATION
 
Consolidated Statements of Operations
 
  Three Months Ended     Nine Months Ended  
(millions, except per share data) (unaudited)  

October 29,2016
 

October 31,2015
  Change   October 29,2016   October 31,2015   Change
Sales $ 16,441   $ 17,613 (6.7 )% $ 48,805   $ 52,159 (6.4 )%
Cost of sales     11,471     12,440   (7.8 )     33,757     36,402   (7.3 )
Gross margin 4,970 5,173 (3.9 ) 15,048 15,757 (4.5 )
Selling, general and administrative expenses 3,339 3,736 (10.6 ) 9,741 10,745 (9.3 )
Depreciation and amortization     570     561   1.6       1,686     1,651   2.1  
Earnings from continuing operations before interest expense and income taxes 1,061 876 21.1 3,621 3,361 7.7
Net interest expense     142     151   (6.0 )     864     455   89.8  
Earnings from continuing operations before income taxes 919 725 26.7 2,757 2,906 (5.1 )
Provision for income taxes     311     249   24.9       910     1,006   (9.5 )
Net earnings from continuing operations 608 476 27.7 1,847 1,900 (2.8 )
Discontinued operations, net of tax         73         73     37    
Net earnings   $ 608   $ 549   10.7 %   $ 1,920   $ 1,937   (0.9 )%
Basic earnings per share
Continuing operations $ 1.07 $ 0.76 39.7 % $ 3.16 $ 3.00 5.5 %
Discontinued operations         0.12         0.12     0.06    
Net earnings per share   $ 1.07   $ 0.88   21.1 %   $ 3.29   $ 3.06   7.6 %
Diluted earnings per share
Continuing operations $ 1.06 $ 0.76 39.7 % $ 3.14 $ 2.98 5.5 %
Discontinued operations         0.11         0.12     0.06    
Net earnings per share   $ 1.06   $ 0.87   21.1 %   $ 3.26   $ 3.03   7.6 %
Weighted average common shares outstanding
Basic 570.1 623.7 (8.6 )% 583.5 633.5 (7.9 )%
Dilutive impact of share-based awards     4.7     5.1  

 
      5.0     5.2    
Diluted     574.8     628.8   (8.6 )%     588.5     638.7   (7.9 )%
Antidilutive shares     0.2             0.1        
Dividends declared per share   $ 0.60   $ 0.56   7.1 %   $ 1.76   $ 1.64   7.3 %
 
Note: Per share amounts may not foot due to rounding.
 

Subject to reclassification
 
 
TARGET CORPORATION
 
Consolidated Statements of Financial Position
 
(millions)   October 29,2016   January 30,2016   October 31,2015
  (unaudited)     (unaudited)
Assets
Cash and cash equivalents, including short term investments of $0, $3,008 and $1,154 $ 1,231 $ 4,046 $ 1,977
Inventory 10,057 8,601 10,374
Current assets of discontinued operations 62 322 399
Other current assets     1,492       1,161       2,194  
Total current assets 12,842 14,130 14,944
Property and equipment
Land 6,106 6,125 6,118
Buildings and improvements 27,518 27,059 26,912
Fixtures and equipment 5,467 5,347 5,283
Computer hardware and software 2,538 2,617 2,652
Construction-in-progress 219 315 428
Accumulated depreciation     (16,946 )     (16,246 )     (15,921 )
Property and equipment, net 24,902 25,217 25,472
Noncurrent assets of discontinued operations 17 75 94
Other noncurrent assets     842       840       941  
Total assets   $ 38,603     $ 40,262     $ 41,451  
Liabilities and shareholders' investment
Accounts payable $ 8,250 $ 7,418 $ 8,904
Accrued and other current liabilities 3,662 4,236 3,868
Current portion of long-term debt and other borrowings 729 815 825
Current liabilities of discontinued operations     1       153       261  
Total current liabilities 12,642 12,622 13,858
Long-term debt and other borrowings 12,097 11,945 11,887
Deferred income taxes 920 823 1,135
Noncurrent liabilities of discontinued operations 18 18 36
Other noncurrent liabilities     1,857       1,897       1,279  
Total noncurrent liabilities 14,892 14,683 14,337
Shareholders' investment
Common stock 47 50 52
Additional paid-in capital 5,598 5,348 5,314
Retained earnings 6,031 8,188 8,359
Accumulated other comprehensive loss
Pension and other benefit liabilities (571 ) (588 ) (431 )
Currency translation adjustment and cash flow hedges     (36 )     (41 )     (38 )
Total shareholders' investment     11,069       12,957       13,256  
Total liabilities and shareholders' investment   $ 38,603     $ 40,262     $ 41,451  

Common Stock Authorized 6,000,000,000 shares, $.0833 par value; 563,676,785, 602,226,517 and 618,604,168 shares issued and outstanding at October 29, 2016, January 30, 2016 and October 31, 2015, respectively.
 

Preferred Stock Authorized 5,000,000 shares, $.01 par value; no shares were issued or outstanding at October 29, 2016, January 30, 2016 or October 31, 2015.
 

Subject to reclassification
 
 
TARGET CORPORATION
 
Consolidated Statements of Cash Flows
     
Nine Months Ended
(millions) (unaudited)   October 29,2016   October 31,2015
Operating activities  
Net earnings $ 1,920 $ 1,937
Earnings from discontinued operations, net of tax     73       37  
Net earnings from continuing operations 1,847 1,900
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation and amortization 1,686 1,651
Share-based compensation expense 85 84
Deferred income taxes 83 (111 )
Loss on debt extinguishment 422
Noncash losses and other, net 12 37
Changes in operating accounts
Inventory (1,455 ) (2,096 )
Other assets (13 ) 95
Accounts payable and accrued liabilities     103       1,475  
Cash provided by operating activities—continuing operations 2,770 3,035
Cash provided by operating activities—discontinued operations     111       804  
Cash provided by operations     2,881       3,839  
Investing activities
Expenditures for property and equipment (1,184 ) (1,129 )
Proceeds from disposal of property and equipment 23 21
Proceeds from sale of business 8
Other investments     23       12  
Cash required for investing activities—continuing operations (1,138 ) (1,088 )
Cash provided by investing activities—discontinued operations           19  
Cash required for investing activities     (1,138 )     (1,069 )
Financing activities
Change in commercial paper, net 89
Additions to long-term debt 1,977
Reductions of long-term debt (2,625 ) (72 )
Dividends paid (1,011 ) (1,017 )
Repurchase of stock (3,034 ) (2,196 )
Prepayment of accelerated share repurchase (120 )
Stock option exercises     166       282  
Cash required for financing activities     (4,558 )     (3,003 )
Net decrease in cash and cash equivalents (2,815 ) (233 )
Cash and cash equivalents at beginning of period     4,046       2,210  
Cash and cash equivalents at end of period   $ 1,231     $ 1,977  
 

Subject to reclassification
 
 
TARGET CORPORATION
 
Segment Results

 
  Three Months Ended     Nine Months Ended  

(millions) (unaudited)
  October 29,2016  

October 31,2015 (a)
  Change   October 29,2016  

October 31,2015 (a)
  Change
Sales $ 16,441   $ 17,613 (6.7 )% $ 48,805   $ 52,159 (6.4 )%
Cost of sales     11,471     12,440   (7.8 )     33,757     36,402   (7.3 )
Gross margin 4,970 5,173 (3.9 ) 15,048 15,757 (4.5 )
SG&A expenses (b)     3,343     3,650   (8.4 )     9,741     10,533   (7.5 )
EBITDA 1,627 1,523 6.8 5,307 5,224 1.6
Depreciation and amortization     570     561   1.6       1,686     1,651   2.1  
EBIT   $ 1,057   $ 962   9.9 %   $ 3,621   $ 3,573   1.3 %

Note: We operate as a single segment which includes all of our continuing operations, excluding net interest expense and certain other discretely managed items. Our segment operations are designed to enable guests to purchase products seamlessly in stores, online, or through mobile devices.

(a) Sales include $1,112 million and $3,240 million related to our former pharmacy and clinic businesses for the three and nine months ended October 31, 2015, respectively, and cost of sales include and $885 million and $2,572 million, respectively. The December 2015 sale of these businesses to CVS had no notable impact on EBITDA or EBIT.

(b) SG&A includes $168 million and $489 million of net profit-sharing income under our credit card program agreement for the three and nine months ended October 29, 2016, respectively, and $166 million and $477 million for the three and nine months ended October 31, 2015, respectively.
 
 
  Three Months Ended   Nine Months Ended
Segment Rate Analysis

(unaudited)
  October 29,2016   October 31,2015   October 29,2016   October 31,2015
Gross margin rate 30.2 %   29.4 % 30.8 %   30.2 %
SG&A expense rate 20.3 20.7 20.0 20.2
EBITDA margin rate (a) 9.9 8.6 10.9 10.0
Depreciation and amortization expense rate 3.5 3.2 3.5 3.2
EBIT margin rate (a)   6.4     5.5     7.4     6.8  
Note: Rate analysis metrics are computed by dividing the applicable amount by sales.

(a) Excluding sales of our former pharmacy and clinic businesses, EBITDA margin rates were 9.2 percent and 10.7 percent for the three and nine months ended October 31, 2015, respectively, and EBIT margin rates were 5.8 percent and 7.3 percent, respectively.
 
Three Months Ended Nine Months Ended
Sales by Channel

(unaudited)
  October 29,2016   October 31,

2015 (a)
  October 29,2016   October 31,

2015 (a)
Stores 96.5 % 97.3 % 96.5 % 97.2 %
Digital   3.5     2.7     3.5     2.8  
Total   100 %   100 %   100 %   100 %

(a) Excluding sales of our former pharmacy and clinic businesses, stores and digital channels sales were 97.1 percent and 2.9 percent of total sales, respectively, for the three and nine months ended October 31, 2015.
 
Three Months Ended Nine Months Ended
Comparable Sales

(unaudited)
  October 29,2016   October 31,2015   October 29,2016   October 31,2015
Comparable sales change (0.2 )% 1.9 % % 2.2 %
Drivers of change in comparable sales
Number of transactions (1.2 ) 1.4 (1.0 ) 1.3
Average transaction amount 1.0 0.4 1.0 0.9
Selling price per unit 3.5 2.5 3.0 3.8
Units per transaction   (2.5 )   (2.1 )   (2.0 )   (2.8 )

Note: Amounts may not foot due to rounding.
 
Contribution to Comparable Sales Change

(unaudited)
Three Months Ended Nine Months Ended
  October 29,2016   October 31,2015   October 29,2016   October 31,2015
Stores channel comparable sales change (1.0 )% 1.4 % (0.7 )% 1.6 %
Digital channel contribution to comparable sales change   0.7     0.4     0.6     0.6  
Total comparable sales change   (0.2 )%   1.9 %   %   2.2 %

Note: Amounts may not foot due to rounding.
 
Three Months Ended Nine Months Ended
REDcard Penetration

(unaudited)
  October 29,2016   October 31,

2015 (a)
  October 29,2016   October 31,

2015 (a)
Target Debit Card 12.9 % 12.1 % 12.9 % 12.0 %
Target Credit Cards   11.4     10.2     11.0     9.9  
Total REDcard Penetration   24.3 %   22.3 %   23.9 %   22.0 %
Note: Amounts may not foot due to rounding.

(a) Excluding sales of our former pharmacy and clinic businesses, total REDcard penetration was 23.5 percent and 23.1 percent for the three and nine months ended October 31, 2015, respectively.
 
 

Number of Stores and Retail Square Feet

(unaudited)
  Number of Stores   Retail Square Feet (a)
  October 29,2016   January 30,2016   October 31,2015   October 29,2016   January 30,2016   October 31,2015
170,000 or more sq. ft. 278   278   280 49,685   49,688   50,036
50,000 to 169,999 sq. ft. 1,503 1,505 1,516 189,496 189,677 190,873
49,999 or less sq. ft.   19   9   9   464   174   174
Total   1,800   1,792   1,805   239,645   239,539   241,083

(a) In thousands: reflects total square feet, less office, distribution center and vacant space.
 

Subject to reclassification
 

TARGET CORPORATION

Reconciliation of Non-GAAP Financial Measures

To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share from continuing operations (Adjusted EPS). This metric excludes certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations. This measure is not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The most comparable GAAP measure is diluted earnings per share from continuing operations. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate Adjusted EPS differently than we do, limiting the usefulness of the measure for comparisons with other companies.
 
Adjusted EPS   Three Months Ended  
October 29, 2016   October 31, 2015
(millions, except per share data) (unaudited)   Pretax  

Net ofTax
 

Per ShareAmounts
  Pretax  

Net ofTax
 

Per ShareAmounts
  Change
GAAP diluted earnings per share from continuing operations     $ 1.06     $ 0.76 39.7 %
Adjustments
Restructuring costs (a) $ $ $ $ 21 $ 13 $ 0.02
Impairments (b) 39 29 0.05
Other (c) (4 ) (3 ) 26 20 0.03
Resolution of income tax matters           (5 )     (0.01 )                    
Adjusted diluted earnings per share from continuing operations           $ 1.04             $ 0.86     22.1 %
 
 
Nine Months Ended
October 29, 2016 October 31, 2015
(millions, except per share data) (unaudited)   Pretax  

Net ofTax
 

Per ShareAmounts
  Pretax  

Net ofTax
 

Per ShareAmounts
  Change
GAAP diluted earnings per share from continuing operations $ 3.14 $ 2.98 5.5 %
Adjustments
Loss on early retirement of debt $ 422 $ 257 $ 0.44 $ $ $
Restructuring costs (a) 135 85 0.13
Impairments (b) 39 29 0.05
Other (c) 38 27 0.04
Resolution of income tax matters           (8 )     (0.01 )         (8 )     (0.01 )    
Adjusted diluted earnings per share from continuing operations           $ 3.56             $ 3.18     11.9 %
 
Note: Amounts may not foot due to rounding.

(a) Costs related to our corporate restructuring announced during the first quarter of 2015.

(b) Expenses related to the impairment of long-lived and intangible assets.

(c) For the three and nine months ended October 29, 2016, represents items related to the Pharmacy Transaction. For the three and nine months ended October 31, 2015, represents costs related to the 2013 data breach.
 

We have also disclosed after-tax return on invested capital from 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) (unaudited)   October 29,2016   October 31,2015
Earnings from continuing operations before interest expense and income taxes $ 5,790   $ 4,946
+ Operating lease interest (a)(b)     72     90
Adjusted earnings from continuing operations before interest expense and income taxes 5,862 5,036
- Income tax effect (c)     1,849     1,717
Net operating profit after taxes   $ 4,013   $ 3,319
 
 
Denominator

(dollars in millions) (unaudited)
  October 29,2016   October 31,2015   November 1,2014
Current portion of long-term debt and other borrowings $ 729 $ 825 $ 483
+ Noncurrent portion of long-term debt 12,097 11,887 12,551
+ Shareholders' equity 11,069 13,256 16,373
+ Capitalized operating lease obligations (b)(d) 1,192 1,503 1,639
- Cash and cash equivalents 1,231 1,977 718
- Net assets of discontinued operations     60     197     4,550
Invested capital   $ 23,796   $ 25,298   $ 25,778
Average invested capital (e)   $ 24,547   $ 25,538
                 
After-tax return on invested capital (f)     16.3%     13.0%    

(a) Represents the add-back to operating income to reflect the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as capital 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 31.5% and 34.1% for the trailing twelve months ended October 29, 2016 and October 31, 2015. For the trailing twelve months ended October 29, 2016 and October 31, 2015, includes tax effect of $1,826 million and $1,686 million, respectively, related to EBIT and $23 million and $31 million, respectively, related to operating lease interest.

(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 comparable prior period.

(f) Excluding the net gain on the sale of our pharmacy and clinic businesses, ROIC was 14.3 percent for the trailing twelve months ended October 29, 2016.
 
Capitalized operating lease obligations and operating lease interest are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. 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) (unaudited)   October 29,2016   October 31,2015   November 1,2014
Total rent expense $ 149 $ 188 $ 205
Capitalized operating lease obligations (total rent expense x 8) 1,192 1,503 1,639
Operating lease interest (capitalized operating lease obligations x 6%)     72     90     98
 

Subject to reclassification

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