Target 2007 Annual Report Download - page 55

on a straight-line basis over the life of the lease. At the inception of a lease, we determine the lease term by
assuming the exercise of those renewal options that are reasonably assured because of the significant
economic penalty that exists for not exercising those options. The exercise of lease renewal options is at our
sole discretion. The expected lease term is used to determine whether a lease is capital or operating and is
used to calculate straight-line rent expense. Additionally, the depreciable life of buildings and leasehold
improvements is limited by the expected lease term.
Rent expense on buildings, which is included in selling, general and administrative expenses, includes
rental payments based on a percentage of retail sales over contractual levels for certain stores. Total rent
expense was $165 million in 2007, $158 million in 2006 and $154 million in 2005, including percentage rent
expense of $5 million in 2007, 2006 and 2005. Certain leases require us to pay real estate taxes, insurance,
maintenance and other operating expenses associated with the leased premises. These expenses are
classified in selling, general and administrative expenses consistent with similar costs for owned locations.
Most long-term leases include one or more options to renew, with renewal terms that can extend the lease
term from one to more than fifty years. Certain leases also include options to purchase the leased property.
Future minimum lease payments required under noncancelable lease agreements existing at February 2,
2008 were as follows:
Future Minimum Lease Payments
(millions) Operating Leases Capital Leases
2008 $ 239 $ 12
2009 187 16
2010 173 16
2011 129 16
2012 123 17
After 2012 2,843 155
Total future minimum lease payments $3,694 (a) 232
Less: Interest (b) (105)
Present value of future minimum capital lease payments $ 127 (c)
(a) Total contractual lease payments include $1,721 million related to options to extend lease terms that are reasonably assured of being
exercised and also includes $98 million of legally binding minimum lease payments for stores that will open in 2008 or later.
(b) Calculated using the interest rate at inception for each lease.
(c) Includes the current portion of $4 million.
22. Income Taxes
We account for income taxes under the asset and liability method. We have recognized deferred tax
assets and liabilities for the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary
differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and
liabilities are recognized in income at the enactment date. We have not recorded deferred taxes when
earnings from foreign operations are considered to be indefinitely invested outside the U. S. Such amounts
are not significant. In the Consolidated Statements of Financial Position, the current deferred tax asset
balance is the net of all current deferred tax assets and current deferred tax liabilities. The noncurrent deferred
tax liability is the net of all noncurrent deferred tax assets and noncurrent deferred tax liabilities.
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PART II