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4. Fair Value Measurements
Fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).
The following table presents financial assets and liabilities measured at fair value on a recurring basis:
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Fair Value Measurements — |
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Recurring Basis |
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Fair Value at
July 30, 2011 |
|
Fair Value at
January 29, 2011 |
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Fair Value at
July 31, 2010 |
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(millions) |
|
Level 1 |
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Level 2 |
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Level 3 |
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Level 1 |
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Level 2 |
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Level 3 |
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Level 1 |
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Level 2 |
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Level 3 |
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Assets |
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Cash and cash equivalents |
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|
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|
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Marketable securities |
|
$ |
116 |
|
$ |
— |
|
$ |
— |
|
$ |
1,129 |
|
$ |
— |
|
$ |
— |
|
$ |
972 |
|
$ |
— |
|
$ |
— |
|
Other current assets |
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Prepaid forward contracts |
|
74 |
|
— |
|
— |
|
63 |
|
— |
|
— |
|
73 |
|
— |
|
— |
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Other |
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— |
|
6 |
|
— |
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— |
|
— |
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— |
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— |
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— |
|
— |
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Other noncurrent assets |
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Interest rate swaps(a) |
|
— |
|
140 |
|
— |
|
— |
|
139 |
|
— |
|
— |
|
164 |
|
— |
|
Company-owned life insurance investments(b) |
|
— |
|
366 |
|
— |
|
— |
|
358 |
|
— |
|
— |
|
341 |
|
— |
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Total |
|
$ |
190 |
|
$ |
512 |
|
$ |
— |
|
$ |
1,192 |
|
$ |
497 |
|
$ |
— |
|
$ |
1,045 |
|
$ |
505 |
|
$ |
— |
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Liabilities |
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Other noncurrent liabilities |
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Interest rate swaps(a) |
|
$ |
— |
|
$ |
68 |
|
$ |
— |
|
$ |
— |
|
$ |
54 |
|
$ |
— |
|
$ |
— |
|
$ |
66 |
|
$ |
— |
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Total |
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$ |
— |
|
$ |
68 |
|
$ |
— |
|
$ |
— |
|
$ |
54 |
|
$ |
— |
|
$ |
— |
|
$ |
66 |
|
$ |
— |
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(a) There was one interest rate swap designated as an accounting hedge at July 30, 2011, and no interest rate swaps designated as accounting hedges at January 29, 2011 or July 31, 2010.
(b) Company-owned life insurance investments consist of equity index funds and fixed income assets. Amounts are presented net of loans that are secured by some of these policies of $656 million at July 30, 2011, $645 million at January 29, 2011 and $624 million at July 31, 2010.
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Position |
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Valuation Technique |
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Marketable securities |
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Initially valued at transaction price. Subsequently valued at carrying value, as cash equivalents (including money market funds) approximate fair value because maturities are less than three months. |
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Prepaid forward contracts |
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Initially valued at transaction price. Subsequently valued by reference to the market price of Target common stock. |
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Interest rate swaps |
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Valuation models are calibrated to initial trade price. Subsequent valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. |
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Company-owned life insurance investments |
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Includes investments in separate accounts that are valued based on market rates credited by the insurer. |
Certain assets are measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). The fair value measurements related to long-lived assets in the following table were determined using available market prices at the measurement date based on recent investments or pending transactions of similar assets, third-party independent appraisals, valuation multiples or public comparables, less cost to sell where appropriate. We classify these measurements as Level 2.
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Fair Value Measurements — Nonrecurring Basis |
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Other current assets |
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Property and equipment |
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Long-lived assets held for sale |
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Long-lived assets held and used(a) |
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(millions) |
|
Three Months
Ended |
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Six Months
Ended |
|
Three Months
Ended |
|
Six Months
Ended |
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Measured during the period ended July 30, 2011: |
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Carrying amount |
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$ |
9 |
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$ |
11 |
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$ |
68 |
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$ |
97 |
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|
Fair value measurement |
|
8 |
|
10 |
|
44 |
|
65 |
|
|
Gain/(loss) |
|
$ |
(1 |
) |
$ |
(1 |
) |
$ |
(24 |
) |
$ |
(32 |
) |
|
Measured during the period ended July 31, 2010: |
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Carrying amount |
|
$ |
2 |
|
$ |
2 |
|
$ |
39 |
|
$ |
62 |
|
|
Fair value measurement |
|
2 |
|
2 |
|
34 |
|
54 |
|
|
Gain/(loss) |
|
$ |
— |
|
$ |
— |
|
$ |
(5 |
) |
$ |
(8 |
) |
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(a) Primarily relates to real estate and buildings intended for sale in the future but not currently meeting the held for sale criteria.
The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the Consolidated Statements of Financial Position. The fair value of marketable securities is determined using available market prices at the reporting date. The fair value of debt is generally measured using a discounted cash flow analysis based on our current market interest rates for similar types of financial instruments.
|
Financial Instruments Not |
|
July 30, 2011 |
|
January 29, 2011 |
|
July 31, 2010 |
|
|
Measured at Fair Value |
|
Carrying |
|
Fair |
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Carrying |
|
Fair |
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Carrying |
|
Fair |
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(millions) |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Amount |
|
Value |
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Financial assets |
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Other current assets |
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Marketable securities(a) |
|
$ |
23 |
|
$ |
23 |
|
$ |
32 |
|
$ |
32 |
|
$ |
24 |
|
$ |
24 |
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Other noncurrent assets |
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Marketable securities(a) |
|
— |
|
— |
|
4 |
|
4 |
|
— |
|
— |
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Total |
|
$ |
23 |
|
$ |
23 |
|
$ |
36 |
|
$ |
36 |
|
$ |
24 |
|
$ |
24 |
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Financial liabilities |
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Total debt(b) |
|
$ |
16,035 |
|
$ |
17,931 |
|
$ |
15,241 |
|
$ |
16,661 |
|
$ |
16,135 |
|
$ |
17,953 |
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Total |
|
$ |
16,035 |
|
$ |
17,931 |
|
$ |
15,241 |
|
$ |
16,661 |
|
$ |
16,135 |
|
$ |
17,953 |
|
(a) Held-to-maturity government-issued investments that are held to satisfy the regulatory requirements of Target Bank and Target National Bank.
(b) Represents the sum of nonrecourse debt collateralized by credit card receivables and unsecured debt and other borrowings excluding unamortized swap valuation adjustments and capital lease obligations.
The carrying amounts of credit card receivables, net of allowance, accounts payable, and certain accrued and other current liabilities approximate fair value at July 30, 2011. |