Your friend, Liz, loves to shop at Target and is now interested in investing in
the company. Tom, another friend, has told her that Target’s debt structure is
risky with obligations of nearly 74% of total assets. Liz sees that debt on the
balance sheet is 65% of total assets and is confused by Tom’s comment. Write an
explanation to Liz discussing the debt structure of Target and why Tom thinks
Target is risky. Be sure to explain clearly what information appears on
financial statements, as well as what information does not appear directly on
the financial statements. Use the information below in your discussion and
respond to at least two of your fellow students’ postings.
At fiscal
year-end February 2, 2008, Target Corporation had the following assets and
liabilities on its balance sheet (in millions):
|
Current
liabilities |
$11,782 |
|
Long-term
debt |
15,126 |
|
Other
liabilities |
2,345 |
|
Total
assets |
44,560 |
Target
reported the following information on leases in the notes to the financial
statements:
Total rent expense was $165 million in 2007, $158 million in
2006, and $154 in 2005, including percentage rent expense of $5 million in 2007,
2006, and 2005. Most long-term leases include one or more options to renew,
with renewal terms that can extend the lease term one to more than fifty years.
Certain leases also include options to purchase the leased
property.
Future minimum lease payments required under noncancellable
lease agreements existing at February 2, 2008, were:
|
Future Minimum
Lease Payments (in Millions) |
Operating
Leases |
Capital
Leases |
|
2008 |
$ 239 |
$ 12 |
|
2009 |
187 |
16 |
|
2010 |
173 |
16 |
|
2011 |
129 |
16 |
|
2010 |
123 |
17 |
|
After
2010 |
2, 843 |
155 |
|
Total future
minimum lease payments |
$3694 (a) |
$232 |
|
Less: Interest
(b) |
|
(105) |
|
Present value
of 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 include $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 of each lease.
(c) Includes current portion of $4
million.