Target 2008 Annual Report Download - page 51

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During the first quarter of 2008, we reviewed our Consolidated Statements of Operations cost
classification policy, primarily related to distribution and other supply chain costs that were previously
classified within selling, general and administrative expenses (SG&A). The review was prompted by changes
within our supply chain processes and infrastructure, primarily the opening of our own food distribution
network. As a result of this review, we have reclassified certain costs within our Consolidated Statements of
Operations. The most significant change is that distribution center costs are now presented within cost of
sales, as opposed to SG&A. We have reclassified all prior periods to conform to the current year presentation.
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
distribution centers and our retail stores, and Occupancy and operating costs of retail and
among our distribution and retail facilities headquarters facilities
Vendor income that is not reimbursement of Advertising, offset by vendor income that is a
specific, incremental and identifiable costs reimbursement of specific, incremental and
Inventory shrink identifiable costs
Markdowns Pre-opening costs of stores and other facilities
Outbound shipping and handling expenses Other administrative costs
associated with sales to our guests
Terms cash discount
Distribution center costs, including compensation
and benefits costs
The classification of these expenses varies across the retail industry.
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 SG&A 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 charged for merchandise
shipments that do not meet our requirements (violations), such as late or incomplete shipments. These
allowances are recorded when violations occur. Substantially all consideration received is recorded as a
reduction of cost of sales.
We establish a receivable for vendor income that is earned but not yet received. Based on provisions of
the agreements in place, this receivable is computed by estimating the amount earned when we have
completed our performance. We perform detailed analyses to determine the appropriate level of the
receivable in the aggregate. The majority of year-end receivables associated with these activities are collected
within the following fiscal quarter.
Advertising costs are expensed at first showing or distribution of the advertisement and were
$1,233 million in 2008, $1,195 million in 2007 and $1,170 million in 2006. Advertising vendor income that offset
advertising expenses was approximately $143 million, $123 million and $118 million for 2008, 2007 and 2006,
respectively. Newspaper circulars and media broadcast made up the majority of our advertising costs in all
three years.
31
PART II
3. Cost of Sales and Selling, General and Administrative Expenses
4. Consideration Received from Vendors
5. Advertising Costs