Target 2007 Annual Report Download - page 47

Nearly all of our inventory purchases are in U.S. dollars; therefore, we have immaterial foreign currency
hedging activities.
Additionally, we have investments in prepaid forward contracts in our common stock as described in
Note 26. During 2007, we purchased and sold call options on 30 million shares of our common stock as
described in Note 24.
2. Revenues
Our retail stores generally record revenue at the point of sale. Sales from our online business include
shipping revenue and are recorded upon delivery to the guest. Total revenues do not include sales tax as we
consider ourselves a pass through conduit for collecting and remitting sales taxes. Generally, guests may
return merchandise within 90 days of purchase. Revenues are recognized net of expected returns, which we
estimate using historical return patterns. Commissions earned on sales generated by leased departments are
included within sales and were $16 million in 2007, $15 million in 2006 and $14 million in 2005.
Revenue from gift card sales is recognized upon redemption of the gift card. Our gift cards do not have
expiration dates. Based on historical redemption rates, a small and relatively stable percentage of gift cards
will never be redeemed, referred to as ‘‘breakage.’’ Estimated breakage revenue is recognized over a period
of time in proportion to actual gift card redemptions and was immaterial in 2007, 2006 and 2005.
Credit card revenues are recognized according to the contractual provisions of each applicable credit
card agreement. When accounts are written off, uncollected finance charges and late fees are recorded as a
reduction of credit card revenues. Target retail store sales charged to our credit cards totaled $4,105 million,
$3,961 million and $3,655 million in 2007, 2006 and 2005, respectively. We offer new account discounts and
rewards programs on our REDcard products, the Target Visa, Target Card and Target Check Card. These
discounts are redeemable only on purchases made at Target. The discounts associated with our REDcard
products are included as reductions in sales in our Consolidated Statements of Operations and were
$108 million, $104 million and $97 million in 2007, 2006 and 2005, respectively.
3. Cost of Sales and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in each major expense category:
Cost of Sales Selling, General and Administrative Expenses
Total cost of products sold including Compensation and benefit costs including
• Freight expenses associated with moving • Stores
merchandise from our vendors to our • Headquarters, including buying and
distribution centers and our retail stores, and merchandising
among our distribution and retail facilities • Distribution operations
• Vendor income that is not reimbursement of Occupancy and operating costs of retail,
specific, incremental and identifiable costs distribution and headquarters facilities
Inventory shrink Advertising, offset by vendor income that is a
Markdowns reimbursement of specific, incremental and
Shipping and handling expenses identifiable costs
Terms cash discount Pre-opening costs of stores and other facilities
Other administrative costs
The classification of these expenses varies across the retail industry.
Compensation, benefits and other expenses for buying, merchandising and distribution operations
classified in selling, general and administrative expenses were approximately $1,321 million, $1,274 million
and $1,133 million for 2007, 2006 and 2005, respectively.
4. Consideration Received from Vendors
We receive consideration for a variety of vendor-sponsored programs, such as volume rebates,
markdown allowances, promotions and advertising and for our compliance programs, referred to as ‘‘vendor
income.’’ Vendor income reduces either our inventory costs or selling, general and administrative expenses
based on the provisions of the arrangement. Promotional and advertising allowances are intended to offset
our costs of promoting and selling merchandise in our stores. Under our compliance programs, vendors are
29
PART II