Target 2014 Annual Report Download - page 15

affecting Medicare reimbursements, privacy and information security, product safety, payment methods and related
fees, responsible sourcing, supply chain transparency, or environmental protection, among others, could cause our
expenses to increase without an ability to pass through any increased expenses through higher prices. For example,
we are currently facing government inquiries related to the Data Breach that may result in the imposition of fines or
other penalties. In addition, any legislative or regulatory changes adopted in reaction to the recent retail-industry data
breaches could increase or accelerate our compliance costs. Also, our pharmacy and clinic operations are governed
by various regulations, and a significant change in, or our noncompliance with, these regulations could have a material
adverse effect on our compliance costs and results of operations. In addition, if we fail to comply with other applicable
laws and regulations, including wage and hour laws, the Foreign Corrupt Practices Act and local anti-bribery laws, we
could be subject to legal risk, including government enforcement action and class action civil litigation, which could
adversely affect our results of operations by increasing our costs, reducing our margins, and lowering our sales.
Financial Risks
Changes in our effective income tax rate could adversely affect our net income.
A number of factors influence our effective income tax rate, including changes in tax law, tax treaties, interpretation of
existing laws, and our ability to sustain our reporting positions on examination. Changes in any of those factors could
change our effective tax rate, which could adversely affect our net income. In addition, our operations outside of the
United States may cause greater volatility in our effective tax rate.
If we are unable to access the capital markets or obtain bank credit, our financial position, liquidity, and results
of operations could suffer.
We are dependent on a stable, liquid, and well-functioning financial system to fund our operations and capital
investments. In particular, we have historically relied on the public debt markets to fund portions of our capital
investments and the commercial paper market and bank credit facilities to fund seasonal needs for working capital.
Our continued access to these markets depends on multiple factors including the condition of debt capital markets,
our operating performance, and maintaining strong debt ratings. If rating agencies lower our credit ratings, it could
adversely impact our ability to access the debt markets, our cost of funds, and other terms for new debt issuances.
Each of the credit rating agencies reviews its rating periodically, and there is no guarantee our current credit rating will
remain the same. In addition, we use a variety of derivative products to manage our exposure to market risk, principally
interest rate and equity price fluctuations. Disruptions or turmoil in the financial markets could reduce our ability to
meet our capital requirements or fund our working capital needs, and lead to losses on derivative positions resulting
from counterparty failures, which could adversely affect our financial position and results of operations.
If we are unable to make a fair and orderly exit of our Canadian operations, or if our existing reserves are not
adequate to cover our ultimate liability, our financial condition and results of operations could be adversely
affected.
On January 15, 2015, we announced our decision to discontinue our Canadian operations and authorized a filing by
our direct wholly owned subsidiary, Target Canada Co., and certain other subsidiaries under the Companies’ Creditors
Arrangement Act (Canada). During the fourth quarter ended January 31, 2015, we reported pretax losses from our
discontinued Canadian operations, including pretax exit losses, a non-cash pretax impairment charge, and other
operating losses. The losses from discontinued operations include probable losses relating to certain claims that may
be asserted against us as a result of our guaranty of certain obligations of Target Canada Co. or other claims that may
be made against us. Our reserves relating to these matters may not be adequate to cover our ultimate liability, and
amounts beyond our reserves could have a material adverse effect on our financial condition and results of operations.
In addition, we may suffer other losses for which we have not established reserves, although we believe that possibility
is not probable. If we are unable to effectively and efficiently execute the wind-down of our Canadian operations, we
may incur additional costs and cash outflows.
Item 1B. Unresolved Staff Comments
Not applicable.
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