Target 2010 Annual Report Download - page 40

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Credit Card Segment
We offer credit to qualified guests through the Target Visa and the Target Card. Our credit card program
supports our core retail operations and remains an important contributor to our overall profitability and engagement
with our guests. Beginning April 2010, all new qualified credit card applicants receive the Target Card, and we no
longer issue the Target Visa to credit card applicants. Existing Target Visa cardholders are not affected. Beginning
October 2010, guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a
REDcard at any Target store or on Target.com. This new REDcard Rewards program replaced the existing rewards
program in which account holders received an initial 10 percent-off coupon for opening the account and earned
points toward a 10 percent-off coupon on subsequent purchases. These changes are intended to simplify the
program and to generate profitable incremental retail sales.
Credit card revenues are comprised of finance charges, late fees and other revenue, and third party merchant
fees, or the amounts received from merchants who accept the Target Visa credit card.
Credit Card Segment Results 2010 2009 2008
(dollars in millions) Amount Rate (d) Amount Rate (d) Amount Rate (d)
Finance charge revenue $1,302 18.3% $1,450 17.4% $1,451 16.7%
Late fees and other revenue 197 2.8 349 4.2 461 5.3
Third party merchant fees 105 1.5 123 1.5 152 1.7
Total revenues 1,604 22.6 1,922 23.0 2,064 23.7
Bad debt expense 528 7.4 1,185 14.2 1,251 14.4
Operations and marketing
expenses (a) 433 6.1 425 5.1 474 5.4
Depreciation and amortization 19 0.3 14 0.2 17 0.2
Total expenses 980 13.8 1,624 19.4 1,742 20.0
EBIT 624 8.8 298 3.5 322 3.7
Interest expense on
nonrecourse debt
collateralized by credit card
receivables 83 97 167
Segment profit $ 541 $ 201 $ 155
Average receivables funded by
Target (b) $2,771 $2,866 $4,192
Segment pretax ROIC (c) 19.5% 7.0% 3.7%
(a) Loyalty Program discounts are recorded as reductions to sales in our Retail Segment. Effective with the October 2010 nationwide launch of
our new 5% REDcard Rewards loyalty program, we changed the formula under which our Credit Card segment reimburses our Retail
Segment to better align with the attributes of the new program. These reimbursed amounts were $102 million in 2010, $89 million in 2009
and $117 million in 2008. In all periods these amounts were recorded as reductions to SG&A expenses within the Retail Segment and
increases to operations and marketing expenses within the Credit Card Segment.
(b) Amounts represent the portion of average gross credit card receivables funded by Target. For 2010, 2009 and 2008, these amounts exclude
$4,335 million, $5,484 million and $4,503 million, respectively, of receivables funded by nonrecourse debt collateralized by credit card
receivables.
(c) ROIC is return on invested capital, and this rate equals our segment profit divided by average gross credit card receivables funded by
Target, expressed as an annualized rate.
(d) As an annualized percentage of average gross credit card receivables.
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