If we assume that the depreciation on the leased asset
approximatestheprincipalportionofthedebtbeingrepaid,
theadjustedoperatingincomecanbeapproximatedbyadding
backtheimputedinterestexpenseonthedebtvalueofthe
operating lease expense.
ILLUSTRATION 3.3: Adjusting Operating Income for
Operating Leases: Target in 2005
Asaspecialtyretailer,Targetleasesasubstantialnumberof
itsstores, withtheleasesbeingtreatedasoperating leases.
Forthemostrecentfinancialyear,Targethadoperatinglease
expenses of$240million.Thefollowingtablepresents the
operatingleasecommitmentsforthefirmoverthenextfive
yearsandthelumpsumofcommitmentsbeyondthatpointin
time.
Year Commitment ($ millions)
1 146
2 142
3 137
4 117
5 102
6 and beyond2,405