Target 2008 Annual Report Download - page 60

operating cash flows on the Consolidated Statements of Cash Flows. The loss of $48 million, net of taxes of
$31 million, has been recorded in accumulated other comprehensive loss and is being recognized as an
adjustment to net interest expense over the same period in which the related interest costs on the debt are
recognized in earnings. During 2007, the amount reclassified into earnings was not material. During 2008, the
amount reclassified into earnings as an increase to interest expense from accumulated other comprehensive
income was $3 million ($5 million pre tax). The amount expected to be reclassified into earnings from
accumulated other comprehensive income for 2009 is expected to be $3 million ($5 million pre tax).
Periodic payments, valuation adjustments and amortization of gains or losses from the termination or
de-designation of derivative contracts are summarized below:
Derivative Contracts – Effect on Results of Operations
(millions)
Income/(Expense)
Type Classification of Income/(Expense) 2008 2007 2006
Interest Rate Swaps Other interest expense $71 $(15) $(22)
Interest Rate Forward (a) Selling, general and administrative —18 —
Total $71 $ 3 $(22)
(a) These derivatives are used to mitigate interest rate exposure on our discounted workers’ compensation and general liability
obligations.
21. Leases
We lease certain retail locations, warehouses, distribution centers, office space, equipment and land.
Assets held under capital lease are included in property and equipment. Operating lease rentals are expensed
on a straight-line basis over the life of the lease. At lease inception, 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 SG&A, includes rental payments based on a percentage
of retail sales over contractual levels for certain stores. Total rent expense was $169 million in 2008,
$165 million in 2007 and $158 million in 2006, including percentage rent expense of $4 million in 2008 and
$5 million in 2007 and 2006. 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 SG&A
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
(millions) Operating Leases Capital Leases
2009 $ 245 $ 30
2010 216 20
2011 157 21
2012 146 22
2013 143 22
After 2013 2,950 138
Total future minimum lease payments (a) $3,857 253
Less: Interest (b) (129)
Present value of future minimum capital lease payments (c) $ 124
(a) Total contractual lease payments include $1,830 million related to options to extend lease terms that are reasonably assured of being
exercised and also includes $164 million of legally binding minimum lease payments for stores that will open in 2009 or later.
(b) Calculated using the interest rate at inception for each lease.
(c) Includes the current portion of $5 million.
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