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## Pre-tax Segment Profit and as a Percent of Revenues 

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In 2001, the $67 million pre-tax loss related to the required adoption of a new accounting standard applicable to securitized accounts receivable. The $27 million interest equivalent represented payments accrued to holders of sold securitized receivables prior to August 22, 2001 (discussed in detail in the Notes to Consolidated Financial Statements under Accounts Receivable and Receivable-backed Securities on page 31). 

## Interest Expense 

In 2003, interest expense was $559 million, $29 million lower than in 2002. The decrease was due to a lower average portfolio interest rate and a smaller loss on debt called or repurchased, partially offset by higher average debt outstanding. The average portfolio interest rate in 2003 was 4.9 percent compared with 5.6 percent in 2002. The $297 million of debt called or repurchased during 2003 resulted in a loss of $15 million (approximately $.01 per share) and had an average interest rate of 7.8 percent and an average remaining life of 20 years. 

In 2002, interest expense was $588 million, $88 million higher than the total of interest expense and interest equivalent in 2001. The increase was due to higher average debt outstanding and a greater loss on the early call or repurchase of debt, partially offset by a lower average portfolio interest rate. The average portfolio interest rate in 2002 was 5.6 percent compared with 6.4 percent in 2001. (For analytical purposes, the amounts that represented payments accrued to holders of sold securitized receivables prior to August 22, 2001 were considered interest equivalent as discussed in the Notes to Consolidated Financial Statements on page 31. After that date, such payments constituted interest expense.) In 2002 and 2001, we incurred losses of $34 million ($.02 per share) and $9 million (less than $.01 per share) from the early call or repurchase of $266 million and $144 million of debt, respectively. The debt called or repurchased had an average interest rate of 8.8 percent and 9.2 percent, respectively, and had an average remaining life of 19 years and 7 years, respectively. 

We adopted SFAS No. 145, GLYPH<210>Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical CorrectionsGLYPH<211> in the first quarter of 2002. Under SFAS No. 145, gains and losses from the early extinguishment of debt are required to be included in interest expense and are not reflected as an extraordinary item. Prior year extraordinary items have been reclassified to reflect this change. The adoption of SFAS No. 145 had no impact on net earnings, cash flows or financial position. The requirements of SFAS No. 145 are discussed under New Accounting Pronouncements on page 25. 

Excluding the effect of any early call or repurchase of debt, we expect interest expense in 2004 to remain essentially flat to 2003, as average debt outstanding and the average portfolio interest rate are not expected to change significantly. 

## Credit Card Operations 

Through our proprietary store-brand credit card programs, some of which have been available for decades, and our Target Visa credit card that was introduced nationally in 2001, we offer credit to qualified guests in each of our business segments. Our credit card programs strategically support our core retail operations and are an integral component of each business segment. Our credit card products support earnings growth by driving sales at our stores and through improvements in our credit card financial performance. 

Our credit card revenues are primarily derived from finance charges, late fees and other revenues. Intracompany merchant fees are fees charged to our retail operations on a basis similar to fees charged by third-party credit card issuers. These fees are eliminated in consolidation. Third-party merchant fees are paid to us by merchants that have accepted the Target Visa credit card. In 2003, our credit card revenues increased to $1,479 million from $1,297 million, or 14 percent, due to continued growth in the Target Visa credit card portfolio. In 2002, our credit card revenues increased to $1,297 million from $899 million, or 44 percent, due primarily to additional revenues earned from the Target Visa credit card portfolio. 

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