Target 2007 Annual Report Download - page 37

actual credit losses, and we believe that the allowance recorded at February 2, 2008 is also sufficient to cover
anticipated losses. Accounts receivable is described in Note 9.
Analysis of long-lived and intangible assets for impairment We review assets at the lowest level for which
there are identifiable cash flows, usually at the store level. The carrying amount of assets is compared with the
expected undiscounted future cash flows to be generated by those assets over their estimated remaining
economic lives. If the undiscounted cash flows are less than the carrying amount of the asset, the asset is
written down to fair value. Impairment testing of intangibles requires a comparison between the carrying value
and the fair value. Discounted cash flow models are used in determining fair value for the purposes of the
required annual impairment analysis. No material impairments were recorded in 2007, 2006 or 2005 as a
result of the tests performed.
Insurance/self-insurance We retain a substantial portion of the risk related to certain general liability,
workers’ compensation, property loss and team member medical and dental claims. Liabilities associated
with these losses include estimates of both claims filed and losses incurred but not yet reported. We estimate
our ultimate cost based on an analysis of historical data and actuarial estimates. General liability and workers’
compensation liabilities are recorded at our estimate of their net present value; other liabilities are not
discounted. We believe that the amounts accrued are adequate, although actual losses may differ from the
amounts provided. We maintain stop-loss coverage to limit the exposure related to certain risks. Refer to
Item 7A for further disclosure of the market risks associated with our insurance policies.
Income taxes We pay income taxes based on the tax statutes, regulations and case law of the various
jurisdictions in which we operate. Significant judgment is required in determining income tax provisions and in
evaluating the ultimate resolution of tax matters in dispute with tax authorities. Historically, our assessments of
the ultimate resolution of tax issues have been materially accurate. The current open tax issues are not
dissimilar in size or substance from historical items. We believe the resolution of these matters will not have a
material impact on our consolidated financial statements. Income taxes are described further in Note 22.
Pension and postretirement health care accounting We fund and maintain a qualified defined benefit
pension plan. We also maintain several smaller nonqualified plans and a postretirement health care plan for
certain current and retired team members. The costs for these plans are determined based on actuarial
calculations using the assumptions described in the following paragraphs.
Our expected long-term rate of return on plan assets is determined by the composition of our asset
portfolio, our historical long-term investment performance and current market conditions.
The discount rate used to determine benefit obligations is adjusted annually based on the interest rate for
long-term high-quality corporate bonds as of the measurement date using yields for maturities that are in line
with the duration of our pension liabilities. Historically, this same discount rate has also been used to
determine pension and postretirement health care expense for the following plan year. Effective February 4,
2007, we adopted the measurement date provisions of SFAS No. 158, ‘‘Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R)’’ (SFAS 158), as discussed below in the 2007 Adoptions section. The discount rates used to determine
benefit obligations and benefits expense are included in Note 27. The amount of benefits expense recorded
during the year is partially dependent upon the discount rates used, and a 0.1 percent increase to the
weighted average discount rate used to determine pension and postretirement health care expenses would
decrease annual expense by approximately $1 million.
Based on our experience, we use a graduated compensation growth schedule that assumes higher
compensation growth for younger, shorter-service pension-eligible team members than it does for older,
longer-service pension-eligible team members. In 2007, we increased the assumed rate of compensation
increase by 0.25 percentage points for the purpose of calculating the February 2, 2008 benefit obligation,
which increased the net periodic benefit cost for 2007 by approximately $2 million.
Pension and postretirement health care benefits are further described in Note 27.
19
PART II