Target 2006 Annual Report Download - page 49

8. Other Comprehensive Income/(Loss)
Other comprehensive income/(loss) includes revenues, expenses, gains and losses that are excluded
from net earnings under GAAP and are recorded directly to shareholders’ investment. In 2006, 2005 and
2004, other comprehensive income/(loss) included gains and losses on certain hedge transactions and the
change in our minimum pension liability, net of related taxes. These amounts were not material in any year
presented.
9. Cash Equivalents
Cash equivalents include highly liquid investments with an original maturity of three months or less
from the time of purchase. We carry these investments at cost, which approximates market value. These
investments were $281 million and $1,172 million at February 3, 2007 and January 28, 2006,
respectively. Also included in cash equivalents are proceeds due from credit and debit card transactions with
settlement terms of less than five days. Credit and debit card receivables included within cash equivalents
were $355 million and $290 million at February 3, 2007 and January 28, 2006, respectively.
10. Accounts Receivable
Accounts receivable are recorded net of an allowance for expected losses. The allowance, recognized
in an amount equal to the anticipated future write-offs, was $517 million at February 3, 2007 and
$451 million at January 28, 2006. We estimate future write-offs based on delinquencies, risk scores, aging
trends, industry risk trends and our historical experience. Substantially all accounts continue to accrue
finance charges until they are written off. Total accounts receivable past due ninety days or more and still
accruing finance charges were $236 million at February 3, 2007 and $174 million at January 28, 2006.
Accounts are written off when they become 180 days past due.
As a method of providing funding for our accounts receivable, we sell on an ongoing basis all of our
consumer credit card receivables to Target Receivables Corporation (TRC), a wholly-owned bankruptcy
remote subsidiary. TRC then transfers the receivables to the Target Credit Card Master Trust (the Trust), which
from time to time will sell debt securities to third parties either directly or through a related trust. These debt
securities represent undivided interests in the Trust assets. The servicer of the receivables, Target National
Bank, a wholly-owned subsidiary of Target, holds a 2 percent undivided interest in the Trust assets. In
addition, TRC retains an undivided interest in the Trust assets that is not represented by either the debt
securities sold to third parties or the 2 percent held by Target National Bank. TRC uses the proceeds from the
sale of debt securities and its share of collections on the receivables to pay the purchase price of the
receivables to Target.
The accounting guidance for such transactions, SFAS No. 140, ‘‘Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities (a replacement of SFAS No. 125),’’ requires the
inclusion of the receivables within the Trust and any debt securities issued by the Trust, or a related trust, in
our Consolidated Statements of Financial Position. Notwithstanding this accounting treatment, the
receivables transferred to the Trust are not available to general creditors of Target. Upon termination of the
securitization program and repayment of all debt securities issued from time to time by the Trust, or a related
trust, any remaining assets could be distributed to Target in a liquidation of TRC.
11. Inventory
Substantially all of our inventory and the related cost of sales are accounted for under the retail
inventory accounting method (RIM) using the last-in, first-out (LIFO) method. Inventory is stated at the lower
of LIFO cost or market. Cost includes purchase price as adjusted for vendor income. Inventory is also
reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated based on
inventory levels, markup rates and internally measured retail price indices. At February 3, 2007 and
January 28, 2006, our inventories valued at LIFO approximate those inventories as if they were valued at
FIFO.
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PART II