Your friend, Liz, loves to shop at Target and is now interestedin investing in the company. Tom, another friend, has told her thatTargetâs debt structure is risky with obligations of nearly 74% oftotal assets. Liz sees that debt on the balance sheet is 65% oftotal assets and is confused by Tomâs comment. Write an explanationto Liz discussing the debt structure of Target and why Tom thinksTarget is risky. Be sure to explain clearly what informationappears on financial statements, as well as what information doesnot appear directly on the financial statements. Use theinformation below in your discussion. At fiscal year-end February2, 2008, Target Corporation had the following assets andliabilities on its balance sheet (in millions): Current liabilities$11,782 Long-term debt 15,126 Other liabilities 2,345 Total assets44,560 Target reported the following information on leases in thenotes to the financial statements: Total rent expense was $165million in 2007, $158 million in 2006, and $154 million in 2005,including percentage rent expense of $5 million in 2007, 2006, and2005. Most long-term leases include one or more options to renew,with renewal terms that can extend the lease term to more than 50years. Certain leases also include options to purchase the leasedproperty. Future minimum lease payments required undernon-cancellable lease agreements existing at February 2, 2008,were: Future Minimum Lease Payments (in Millions) Operating LeasesCapital Leases 2008 $ 239 $ 12 2009 187 16 2010 173 16 2011 129 162010 123 17 After 2010 2, 843 155 Total future minimum leasepayments $3694 (a) $232 Less: Interest (b) (105) Present value ofminimum capital lease payments $127 (c) (a) Total contractual leasepayments include $1,721 million related to options to extend leaseterms that are reasonably assured of being exercised, and alsoinclude $98 million of legally binding minimum lease payments forstores that will open in 2008 or later. (b) Calculated using theinterest rate at inception of each lease. (c) Includes currentportion of $4 million.
Your friend, Liz, loves to shop at Target and is now interestedin investing in the company. Tom, another friend, has told her thatTargetâs debt structure is risky with obligations of nearly 74% oftotal assets. Liz sees that debt on the balance sheet is 65% oftotal assets and is confused by Tomâs comment. Write an explanationto Liz discussing the debt structure of Target and why Tom thinksTarget is risky. Be sure to explain clearly what informationappears on financial statements, as well as what information doesnot appear directly on the financial statements. Use theinformation below in your discussion. At fiscal year-end February2, 2008, Target Corporation had the following assets andliabilities on its balance sheet (in millions): Current liabilities$11,782 Long-term debt 15,126 Other liabilities 2,345 Total assets44,560 Target reported the following information on leases in thenotes to the financial statements: Total rent expense was $165million in 2007, $158 million in 2006, and $154 million in 2005,including percentage rent expense of $5 million in 2007, 2006, and2005. Most long-term leases include one or more options to renew,with renewal terms that can extend the lease term to more than 50years. Certain leases also include options to purchase the leasedproperty. Future minimum lease payments required undernon-cancellable lease agreements existing at February 2, 2008,were: Future Minimum Lease Payments (in Millions) Operating LeasesCapital Leases 2008 $ 239 $ 12 2009 187 16 2010 173 16 2011 129 162010 123 17 After 2010 2, 843 155 Total future minimum leasepayments $3694 (a) $232 Less: Interest (b) (105) Present value ofminimum capital lease payments $127 (c) (a) Total contractual leasepayments include $1,721 million related to options to extend leaseterms that are reasonably assured of being exercised, and alsoinclude $98 million of legally binding minimum lease payments forstores that will open in 2008 or later. (b) Calculated using theinterest rate at inception of each lease. (c) Includes currentportion of $4 million.
