Target 2012 Annual Report Download - page 44

Income taxes: We pay income taxes based on the tax statutes, regulations and case law of the various
jurisdictions in which we operate. Significant judgment is required in determining the timing and amounts of
deductible and taxable items, and in evaluating the ultimate resolution of tax matters in dispute with tax authorities.
The benefits of uncertain tax positions are recorded in our financial statements only after determining it is likely the
uncertain tax positions would withstand challenge by taxing authorities. We periodically reassess these
probabilities, and record any changes in the financial statements as deemed appropriate. Liabilities for uncertain
tax positions, including interest and penalties, were $280 million and $318 million at February 2, 2013 and
January 28, 2012, respectively. We believe the resolution of these matters will not have a material adverse impact on
our consolidated financial statements. Income taxes are described further in Note 23 of the Notes to Consolidated
Financial Statements.
Pension and postretirement health care accounting: We maintain a funded qualified defined benefit pension plan,
as well as several smaller and unfunded nonqualified plans and a postretirement health care plan for certain current
and retired team members. The costs for these plans are determined based on actuarial calculations using the
assumptions described in the following paragraphs. Eligibility and the level of benefits varies depending on team
members’ full-time or part-time status, date of hire and/or length of service. The benefit obligation and related
expense for these plans are determined based on actuarial calculations using assumptions about the expected
long-term rate of return, the discount rate and compensation growth rates. The assumptions used to determine the
period-end benefit obligation also establish the expense for the next year, with adjustments made for any significant
plan or participant changes.
Our expected long-term rate of return on plan assets of 8.0 percent is determined by the portfolio composition,
historical long-term investment performance and current market conditions. Our compound annual rate of return on
qualified plans’ assets was 5.7 percent, 10.0 percent, 7.8 percent and 9.5 percent for the 5-year, 10-year, 15-year
and 20-year periods, respectively. A one percentage point decrease in our expected long-term rate of return would
increase annual expense by $27 million.
The discount rate used to determine benefit obligations is adjusted annually based on the interest rate for long-term
high-quality corporate bonds, using yields for maturities that are in line with the duration of our pension liabilities.
Our benefit obligation and related expense will fluctuate with changes in interest rates. A 0.5 percentage point
decrease to the weighted average discount rate would increase annual expense by $28 million.
Based on our experience, we use a graduated compensation growth schedule that assumes higher compensation
growth for younger, shorter-service pension-eligible team members than it does for older, longer-service pension-
eligible team members.
Pension and postretirement health care benefits are further described in Note 28 of the Notes to Consolidated
Financial Statements.
Legal contingencies: We are exposed to claims and litigation arising in the ordinary course of business and use
various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders
and other constituents. Historically, adjustments to our estimates have not been material. We believe the recorded
reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We
do not believe that any of the currently identified claims or litigation matters will have a material adverse impact on
our results of operations, cash flows or financial condition. However, litigation is subject to inherent uncertainties,
and unfavorable rulings could occur. If an unfavorable ruling were to occur, there may be a material adverse impact
on the results of operations, cash flows or financial condition for the period in which the ruling occurs, or future
periods.
New Accounting Pronouncements
We do not expect that any recently issued accounting pronouncements will have a material effect on our financial
statements.
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