Target 2002 Annual Report Download - page 34

Leases
Assets held under capital leases are included in property and
equipment and are charged to depreciation and interest over the
life of the lease. Operating leases are not capitalized and lease rentals
are expensed. Rent expense on buildings, classified in selling, general
and administrative expense, includes percentage rents that are
based on a percentage of retail sales over stated levels. Total rent
expense was $179 million in 2002, $171 million in 2001 and
$168 million in 2000. Most of the long-term leases include options
to renew, with terms varying from five to 30 years. Certain leases
also include options to purchase the property.
Future minimum lease payments required under noncancelable
lease agreements existing at February 1, 2003, were:
Future Minimum Lease Payments
Operating Capital
(millions) Leases Leases
2003 $ 147 $ 21
2004 140 20
2005 125 19
2006 109 18
2007 99 18
After 2007 908 148
Total future minimum lease payments $1,528 $244
Less: interest*(604) (100)
Present value of minimum lease payments $ 924 $144**
*Calculated using the interest rate at inception for each lease (the weighted
average interest rate was 8.7 percent).
** Includes current portion of $10 million
Owned and Leased Store Locations
At year-end 2002, owned, leased and “combined” (generally an
owned building on leased land) store locations by operating
segment were as follows:
Owned Leased Combined Total
Target 904 96 147 1,147
Mervyn’s 156 61 47 264
Marshall Field’s 51 12 1 64
Total 1,111 169 195 1,475
Income Taxes
Reconciliation of tax rates is as follows:
Percent of Earnings Before Income Taxes
2002 2001 2000
Federal statutory rate 35.0 % 35.0 % 35.0 %
State income taxes,
net of federal tax benefit 3.4 3.3 3.6
Dividends on ESOP stock (.2) (.1) (.2)
Work opportunity tax credits (.2) (.2) (.2)
Other .2 – .2
Effective tax rate 38.2% 38.0% 38.4%
The components of the provision for income taxes were:
Income Tax Provision: Expense/(Benefit)
(millions) 2002 2001 2000
Current:
Federal $ 663 $683 $675
State 111 107 113
774 790 788
Deferred:
Federal 220 43 (1)
State 28 6 2
248 49 1
Total $1,022 $839 $789
The components of the net deferred tax asset/(liability) were:
Net Deferred Tax Asset/(Liability)
February 1, February 2,
(millions) 2003 2002
Gross deferred tax assets:
Self-insured benefits $ 188 $ 172
Deferred compensation 184 160
Inventory 106 138
Accounts receivable valuation allowance 151 99
Postretirement health care obligation 42 41
Other 77 97
748 707
Gross deferred tax liabilities:
Property and equipment (730) (519)
Pension (160) (109)
Other (98) (71)
(988) (699)
Total $(240) $ 8
Stock Option Plans
We have stock option plans for key employees and non-employee
members of our Board of Directors. Our Long-Term Incentive Plans
provide for the granting of stock options, performance share awards,
restricted stock awards, or a combination of awards. Performance
share awards represent shares issuable in the future based upon
attainment of specified levels of future financial performance. A
majority of the awards are non-qualified stock options that vest
annually in equal amounts over a four-year period. These options
expire no later than ten years after the date of the grant. Options
granted to the non-employee members of our Board of Directors
vest after one year and have a ten-year term. The number of
unissued common shares reserved for future grants under the stock
option plans was 24,091,318 at February 1, 2003 and 30,216,305 at
February 2, 2002.
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