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Organization Target Corporation (Target, the Corporation, or the Company) operates three reportable segments: U.S. Retail, U.S. Credit Card and Canadian. Our U.S. Retail Segment includes all of our merchandising operations, including our fully integrated online business. Our U.S. Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards; the Target Visa Credit Card and the Target Credit Card (Target Credit Cards). Additionally, we offer a branded proprietary Target Debit Card. Collectively, we refer to these products as REDcards®, which strengthen the bond with our guests, drive incremental sales and contribute to our results of operations. Our Canadian Segment was initially reported in the first quarter of 2011 as a result of our purchase of leasehold interests in Canada from Zellers, Inc. (Zellers). This segment includes costs incurred in the U.S. and Canada related to our planned 2013 Canadian retail market entry.
Consolidation The consolidated financial statements include the balances of the Corporation and its subsidiaries after elimination of intercompany balances and transactions. All material subsidiaries are wholly owned. We consolidate variable interest entities where it has been determined that the Corporation is the primary beneficiary of those entities' operations, including a bankruptcy remote subsidiary through which we sell certain accounts receivable as a method of providing funding for our accounts receivable.
Use of estimates The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions affecting reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates.
Fiscal year Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal 2011 ended January 28, 2012, and consisted of 52 weeks. Fiscal 2010 ended January 29, 2011, and consisted of 52 weeks. Fiscal 2009 ended January 30, 2010, and consisted of 52 weeks. Fiscal 2012 will end February 2, 2013, and will consist of 53 weeks.
Accounting policies Our accounting policies are disclosed in the applicable Notes to the Consolidated Financial Statements.
Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation.
Our retail stores generally record revenue at the point of sale. Sales from our online business include shipping revenue and are recorded upon delivery to the guest. Total revenues do not include sales tax as we consider ourselves a pass-through conduit for collecting and remitting sales taxes. Generally, guests may return merchandise within 90 days of purchase. Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales. Commissions earned on sales generated by leased departments are included within sales and were $22 million in 2011, $20 million in 2010 and $18 million in 2009.
Revenue from gift card sales is recognized upon gift card redemption. Our gift cards do not have expiration dates. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in 2011, 2010 and 2009.
Credit card revenues are recognized according to the contractual provisions of each credit card agreement. When accounts are written off, uncollected finance charges and late fees are recorded as a reduction of credit card revenues. Target retail sales charged on our credit cards totaled $4,686 million, $3,455 million and $3,328 million in 2011, 2010 and 2009, respectively.
In October 2010, guests began to receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com. The discounts associated with loyalty programs are included as reductions in sales in our Consolidated Statements of Operations and were $340 million in 2011, $162 million in 2010 and $94 million in 2009.
Cost of Sales and Selling, General and Administrative Expenses
12 Months Ended
Jan. 28, 2012
Cost of Sales and Selling, General and Administrative Expenses
Cost of Sales and Selling, General and Administrative Expenses
3. Cost of Sales and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in each major expense category:
Cost of Sales
Selling, General and Administrative Expenses
Total cost of products sold including
• Freight expenses associated with moving
merchandise from our vendors to our
distribution centers and our retail stores, and
among our distribution and retail facilities
• Vendor income that is not reimbursement of
specific, incremental and identifiable costs
Inventory shrink
Markdowns
Outbound shipping and handling expenses
associated with sales to our guests
Payment term cash discounts
Distribution center costs, including compensation
and benefits costs
Compensation and benefit costs including
• Stores
• Headquarters
Occupancy and operating costs of retail and
headquarters facilities
Advertising, offset by vendor income that is a
reimbursement of specific, incremental and
identifiable costs
Pre-opening costs of stores and other facilities
Other administrative costs
Note: The classification of these expenses varies across the retail industry.
We receive consideration for a variety of vendor-sponsored programs, such as volume rebates, markdown allowances, promotions and advertising allowances and for our compliance programs, referred to as "vendor income." Vendor income reduces either our inventory costs or SG&A expenses based on the provisions of the arrangement. Promotional and advertising allowances are intended to offset our costs of promoting and selling merchandise in our stores. Under our compliance programs, vendors are charged for merchandise shipments that do not meet our requirements (violations), such as late or incomplete shipments. These allowances are recorded when violations occur. Substantially all consideration received is recorded as a reduction of cost of sales.
We establish a receivable for vendor income that is earned but not yet received. Based on provisions of the agreements in place, this receivable is computed by estimating the amount earned when we have completed our performance. We perform detailed analyses to determine the appropriate level of the receivable in the aggregate. The majority of year-end receivables associated with these activities are collected within the following fiscal quarter. We have not historically had significant write-offs for these receivables.
Advertising costs are expensed at first showing or distribution of the advertisement and were $1,360 million in 2011, $1,292 million in 2010 and $1,167 million in 2009. Vendor income that offset advertising expenses was $256 million, $216 million and $179 million in 2011, 2010 and 2009, respectively. Newspaper circulars, internet advertisements and media broadcast made up the majority of our advertising costs in all three years.
Basic earnings per share (EPS) is calculated as net earnings divided by the weighted average number of common shares outstanding during the period. Diluted EPS includes the potentially dilutive impact of share-based awards outstanding at period end, consisting of the incremental shares assumed to be issued upon the exercise of stock options and the incremental shares assumed to be issued under performance share and restricted stock unit arrangements.
Earnings Per Share (millions, except per share data)
2011
2010
2009
Net earnings
$
2,929
$
2,920
$
2,488
Basic weighted average common shares outstanding
679.1
723.6
752.0
Dilutive impact of share-based awards (a)
4.8
5.8
2.8
Diluted weighted average common shares outstanding
683.9
729.4
754.8
Basic earnings per share
$
4.31
$
4.03
$
3.31
Diluted earnings per share
$
4.28
$
4.00
$
3.30
(a)
Excludes 15.5 million, 10.9 million and 22.9 million share-based awards for 2011, 2010 and 2009, respectively, because their effects were antidilutive.
In January 2011, we entered into an agreement to purchase the leasehold interests in up to 220 sites in Canada operated by Zellers, in exchange for $1,861 million. We have completed this real estate acquisition with the selection of 189 Zellers sites. We believe this transaction will allow us to open 125 to 135 Target stores in Canada, primarily during 2013. We sold our right to acquire the leasehold interests in 54 sites to third-party retailers and landlords, for a total of $225 million. These transactions resulted in a final net purchase price of $1,636 million, which is included in expenditures for property and equipment in the Consolidated Statement of Cash Flows.
At the time of acquisition, we recorded the assets in our Canadian Segment at their estimated fair values.
Leasehold Acquisition Summary (millions)
Balance Sheet Classification
Total
Assets
Capital lease assets
Buildings and improvements
$
2,887
Intangible assets (a)
Other noncurrent assets
23
Total assets
2,910
Liabilities
Capital lease obligations
Unsecured debt and other borrowings
$
1,274
(a)
Amortization period of acquired intangible assets range from 3 to 13 years.
The acquired sites are being subleased back to Zellers for terms through March 2013, or earlier, at our option.
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).
Fair Value Measurements – Recurring Basis
Fair Value at January 28, 2012
Fair Value at January 29, 2011
(millions)
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Assets
Cash and cash equivalents
Short-term investments
$
194
$
—
$
—
$
1,129
$
—
$
—
Other current assets
Interest rate swaps (a)
—
20
—
—
—
—
Prepaid forward contracts
69
—
—
63
—
—
Other noncurrent assets
Interest rate swaps (a)
—
114
—
—
139
—
Company-owned life insurance investments (b)
—
371
—
—
358
—
Total
$
263
$
505
$
—
$
1,192
$
497
$
—
Liabilities
Other current liabilities
Interest rate swaps (a)
$
—
$
7
$
—
$
—
$
—
$
—
Other noncurrent liabilities
Interest rate swaps (a)
—
69
—
—
54
—
Total
$
—
$
76
$
—
$
—
$
54
$
—
(a)
There was one interest rate swap designated as an accounting hedge at January 28, 2012, and none at January 29, 2011. See Note 20 for additional information on interest rate swaps.
(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 $669 million at January 28, 2012, and $645 million at January 29, 2011.
Position
Valuation Technique
Short-term investments
Cash equivalents approximate fair value because maturities are less than three months.
Prepaid forward contracts
Initially valued at transaction price. Subsequently valued by reference to the market price of Target common stock.
Interest rate swaps
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.
Company-owned life insurance investments
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.
Fair Value Measurements – Nonrecurring Basis
Other current assets
Property and equipment
(millions)
Long-lived assets held for sale
Long-lived assets held and used (a)
Measured during the year ended January 28, 2012:
Carrying amount
$
12
$
126
Fair value measurement
11
89
Gain/(loss)
$
(1
)
$
(37
)
Measured during the year ended January 29, 2011:
Carrying amount
$
9
$
127
Fair value measurement
7
101
Gain/(loss)
$
(2
)
$
(26
)
(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 current market interest rates for similar types of financial instruments.
Financial Instruments Not Measured at Fair Value
January 28, 2012
January 29, 2011
(millions)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial assets
Other current assets
Marketable securities (a)
$
35
$
35
$
32
$
32
Other non current assets
Marketable securities (a)
6
6
4
4
Total
$
41
$
41
$
36
$
36
Financial liabilities
Total debt (b)
$
15,680
$
18,142
$
15,241
$
16,661
Total
$
15,680
$
18,142
$
15,241
$
16,661
(a)
Held-to-maturity 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.
Based on various inputs and assumptions, including discussions with third parties in the context of our intended sale, we believe the gross balance of our credit card receivables approximates fair value at January 28, 2012. The carrying amounts of accounts payable and certain accrued and other current liabilities approximate fair value at January 28, 2012.
Cash equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase. These investments were $194 million and $1,129 million at January 28, 2012, and January 29, 2011, respectively. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions. These receivables typically settle in less than five days and were $330 million at January 28, 2012, and $313 million at January 29, 2011. Payables due to Visa resulting from the use of Target Visa Cards are included within cash equivalents and were $35 million and $36 million at January 28, 2012, and January 29, 2011, respectively.
Credit card receivables are recorded net of an allowance for doubtful accounts and are our only significant class of financing receivables. Substantially all past-due accounts accrue finance charges until they are written off. Accounts are written off when they become 180 days past due.
Age of Credit Card Receivables
January 28, 2012
January 29, 2011
(millions)
Amount
Percent of
Receivables
Amount
Percent of
Receivables
Current
$
5,791
91.1
%
$
6,132
89.6
%
1-29 days past due
260
4.1
292
4.3
30-59 days past due
97
1.5
131
1.9
60-89 days past due
62
1.0
79
1.1
90+ days past due
147
2.3
209
3.1
Period-end gross credit card receivables
$
6,357
100
%
$
6,843
100
%
Allowance for Doubtful Accounts
The allowance for doubtful accounts is recognized in an amount equal to the anticipated future write-offs of existing receivables and includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs on the entire credit card portfolio collectively based on historical experience of delinquencies, risk scores, aging trends and industry risk trends.
Allowance for Doubtful Accounts (millions)
2011
2010
2009
Allowance at beginning of period
$
690
$
1,016
$
1,010
Bad debt expense
154
528
1,185
Write-offs (a)
(572
)
(1,007
)
(1,287
)
Recoveries (a)
158
153
108
Allowance at end of period
$
430
$
690
$
1,016
(a)
Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period principal collections on previously written-off balances. These amounts combined represent net write-offs.
Deterioration of the macroeconomic conditions in the United States could adversely affect the risk profile of our credit card receivables portfolio based on credit card holders' ability to pay their balances. If such deterioration were to occur, it could lead to an increase in bad debt expense. We monitor both the credit quality and the delinquency status of the credit card receivables portfolio. We consider accounts 30 or more days past due as delinquent, and we update delinquency status daily. We also monitor risk in the portfolio by assigning internally generated scores to each account and by obtaining current FICO scores, a nationally recognized credit scoring model, for a statistically representative sample of accounts each month. The credit-quality segmentation presented below is consistent with the approach used in determining our allowance for doubtful accounts.
Receivables Credit Quality (millions)
January 28,
2012
January 29,
2011
Nondelinquent accounts (Current and 1-29 days past due)
FICO score of 700 or above
$
2,882
$
2,819
FICO score of 600 to 699
2,463
2,737
FICO score below 600
706
868
Total nondelinquent accounts
6,051
6,424
Delinquent accounts (30+ days past due)
306
419
Period-end gross credit card receivables
$
6,357
$
6,843
Under certain circumstances, we offer cardholder payment plans that meet the accounting definition of a troubled debt restructuring (TDR). These plans modify finance charges, minimum payments and/or extend payment terms. Modified terms do not change the balance of the loan. These concessions are made on an individual cardholder basis for economic or legal reasons specific to each individual cardholder's circumstances. Cardholders are not allowed additional charges while participating in a payment plan. As of January 28, 2012, and January 29, 2011, there were 118 thousand and 151 thousand modified contracts with outstanding receivables of $276 million and $400 million, respectively.
Troubled Debt Restructurings (millions)
2011
2010
2009
Average receivables
$
330
$
445
$
526
Finance charges
20
30
39
Troubled Debt Restructurings Defaulted During the Period (a) (dollars in millions, contracts in thousands)
2011
2010
2009
Number of contracts
13
28
59
Amount defaulted (b)
$
37
$
96
$
199
(a)
Includes loans modified within the twelve months prior to each respective period end.
(b)
Represents account balance at the time of default. We define default as not paying the full fixed payment amount for two consecutive billing cycles.
Receivables in cardholder payment plans that meet the definition of a TDR are treated consistently with other receivables in determining our allowance for doubtful accounts. Accounts that complete their assigned payment plan are no longer considered TDRs. Payments received on troubled debt restructurings are first applied to finance charges and fees, then to the unpaid principal balance.
Funding for Credit Card Receivables
As a method of providing funding for our credit card receivables, we sell, on an ongoing basis, all of our consumer credit card receivables to Target Receivables LLC (TR LLC), formerly known as Target Receivables Corporation (TRC), a wholly owned, bankruptcy remote subsidiary. TR LLC then transfers the receivables to the Target Credit Card Master Trust (the Trust), which from time to time will sell debt securities to third parties, either directly or through a related trust. These debt securities represent undivided interests in the Trust assets. TR LLC uses the proceeds from the sale of debt securities and its share of collections on the receivables to pay the purchase price of the receivables to the Corporation.
We consolidate the receivables within the Trust and any debt securities issued by the Trust, or a related trust, in our Consolidated Statements of Financial Position. The receivables transferred to the Trust are not available to general creditors of the Corporation.
During 2006 and 2007, we sold an interest in our credit card receivables by issuing a Variable Funding Certificate. Parties who hold the Variable Funding Certificate receive interest at a variable short-term market rate. The Variable Funding Certificate matures in 2012 and 2013.
In the second quarter of 2008, we sold a 47 percent interest in our credit card receivables to JPMorgan Chase (JPMC). Under the terms of this arrangement, TR LLC repaid JPMC $226 million and $566 million during 2011 and 2010, respectively. In addition, we repaid the remaining principal balance on the note payable to JPMC in January 2012, including a make-whole premium, for $2,854 million, resulting in an $87 million loss on early retirement of debt, which was recorded within interest expense and excluded from segment profit.
All interests in our Credit Card Receivables issued by the Trust are accounted for as secured borrowings. Interest and principal payments are satisfied provided the cash flows from the Trust assets are sufficient and are nonrecourse to the general assets of the Corporation. If the cash flows are less than the periodic interest, the available amount, if any, is paid with respect to interest. Interest shortfalls will be paid to the extent subsequent cash flows from the assets in the Trust are sufficient. Future principal payments will be made from the third party's pro rata share of cash flows from the Trust assets.
Securitized Borrowings
January 28, 2012
January 29, 2011
(millions)
Debt Balance
Collateral
Debt Balance
Collateral
2008 Series (a)
$
—
$
—
$
2,954
$
3,061
2006/2007 Series
1,000
1,266
1,000
1,266
Total
$
1,000
$
1,266
$
3,954
$
4,327
(a)
The debt balance for the 2008 Series is net of a 7% discount from JPMC. The unamortized portion of this discount was $107 million as of January 29, 2011.
Substantially all inventory and the related cost of sales are accounted for under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. Inventory is stated at the lower of LIFO cost or market. Cost includes purchase price as reduced by vendor income. Inventory is also reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated based on inventory levels, markup rates and internally measured retail price indices.
Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value inventory. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market because permanent markdowns are currently taken as a reduction of the retail value of inventory.
We routinely enter into arrangements with vendors whereby we do not purchase or pay for merchandise until the merchandise is ultimately sold to a guest. Activity under this program is included in sales and cost of sales in the Consolidated Statements of Operations, but the merchandise received under the program is not included in inventory in our Consolidated Statements of Financial Position because of the virtually simultaneous purchase and sale of this inventory. Sales made under these arrangements totaled $1,630 million in 2011, $1,581 million in 2010 and $1,470 million in 2009.
Property and equipment is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We amortize leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably assured at the date the leasehold improvements are acquired. Depreciation expense for 2011, 2010 and 2009 was $2,107 million, $2,060 million and $1,999 million, respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred and were $666 million in 2011, $726 million in 2010 and $632 million in 2009. Facility pre-opening costs, including supplies and payroll, are expensed as incurred.
Estimated Useful Lives
Life (in years)
Buildings and improvements
8-39
Fixtures and equipment
3-15
Computer hardware and software
4-7
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the asset's carrying value may not be recoverable. Impairments of $38 million in 2011, $28 million in 2010 and $49 million in 2009 were recorded as a result of the reviews performed. Additionally, due to project scope changes, we wrote off capitalized construction-in-progress costs of $5 million in 2011, $6 million in 2010 and $37 million in 2009.
Company-owned life insurance policies on approximately 4,000 team members who have been designated highly compensated under the Internal Revenue Code and have given their consent to be insured. Amounts are presented net of loans that are secured by some of these policies.
(b)
See Notes 8 and 20 for additional information relating to our interest rate swaps.
Goodwill totaled $59 million at January 28, 2012 and January 29, 2011. No material impairments were recorded in 2011, 2010 or 2009, as a result of the goodwill impairment tests performed.
Intangible Assets
Leasehold Acquisition Costs
Other (a)
Total
(millions)
January 28,
2012
January 29,
2011
January 28,
2012
January 29,
2011
January 28,
2012
January 29,
2011
Gross asset
$
243
$
227
$
146
$
121
$
389
$
348
Accumulated amortization
(119
)
(111
)
(87
)
(73
)
(206
)
(184
)
Net intangible assets
$
124
$
116
$
59
$
48
$
183
$
164
(a)
Other intangible assets relate primarily to acquired customer lists and trademarks.
We use the straight-line method to amortize leasehold acquisition costs over 9 to 39 years and other definite-lived intangibles over 3 to 15 years. The weighted average life of leasehold acquisition costs and other intangible assets was 28 years and 5 years, respectively, at January 28, 2012. Amortization expense for 2011, 2010 and 2009 was $24 million, each year.
Purchase obligations, which include all legally binding contracts, such as firm commitments for inventory purchases, merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts, were $1,396 million and $1,907 million at January 28, 2012 and January 29, 2011, respectively. We issue inventory purchase orders, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments. If we choose to cancel a purchase order, we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation. We also issue trade letters of credit in the ordinary course of business, which are not obligations given they are conditioned on terms of the letter of credit being met.
Trade letters of credit totaled $1,516 million and $1,522 million at January 28, 2012 and January 29, 2011, respectively, a portion of which are reflected in accounts payable. Standby letters of credit, relating primarily to retained risk on our insurance claims, totaled $66 million and $71 million at January 28, 2012 and January 29, 2011, respectively.
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. 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 will be material to our results of operations, cash flows or financial condition.
At January 28, 2012, the carrying value and maturities of our debt portfolio were as follows:
Debt Maturities
January 28, 2012
(millions)
Rate (a)
Balance
Due fiscal 2012-2016
2.8
%
$
6,281
Due fiscal 2017-2021
4.8
4,604
Due fiscal 2022-2026
8.7
64
Due fiscal 2027-2031
6.8
680
Due fiscal 2032-2036
6.3
551
Due fiscal 2037
6.8
3,500
Total notes and debentures
4.6
15,680
Swap valuation adjustments
114
Capital lease obligations
1,689
Less:
Amounts due within one year
(3,786
)
Long-term debt
$
13,697
(a)
Reflects the weighted-average stated interest rate as of year-end.
Required principal payments on notes and debentures over the next five years are as follows:
Required Principal Payments (millions)
2012
2013
2014
2015
2016
Unsecured
$
3,001
$
501
$
1,001
$
27
$
751
Nonrecourse
750
250
—
—
—
Total required principal payments
$
3,751
$
751
$
1,001
$
27
$
751
We periodically obtain short-term financing under our commercial paper program, a form of notes payable.
Commercial Paper (millions)
2011
2010
Maximum daily amount outstanding during the year
$
1,211
$
—
Average amount outstanding during the year
244
—
Amount outstanding at year-end
—
—
Weighted average interest rate
0.11
%
—
In October 2011, we entered into a five-year $2.25 billion revolving credit facility with a group of banks. The new facility replaced our existing credit agreement and will expire in October 2016. No balances were outstanding at any time during 2011 or 2010 under this or the prior revolving credit facility.
In January 2012, we issued $1 billion of fixed rate debt at 2.9% that matures in January 2022 and $1.5 billion of floating rate debt at three-month LIBOR plus 3 basis points that matures in January 2013. In July 2011, we issued $350 million of fixed rate debt at 1.125% and $650 million of floating rate debt at three-month LIBOR plus 17 basis points, both of which mature in July 2014. In July 2010, we issued $1 billion of fixed rate debt at 3.875% that matures in July 2020.
As further explained in Note 10, we maintain an accounts receivable financing program through which we sell credit card receivables to a bankruptcy remote, wholly owned subsidiary, which in turn transfers the receivables to a Trust. The Trust, either directly or through related trusts, sells debt securities to third parties.
Nonrecourse Debt Collateralized by Credit Card Receivables (millions)
2011
2010
Balance at beginning of period
$
3,954
$
5,375
Issued
—
—
Accretion (a)
41
45
Repaid (b)
(2,995
)
(1,466
)
Balance at end of period
$
1,000
$
3,954
(a)
Represents the accretion of the 7 percent discount on the 47 percent interest in credit card receivables sold to JPMC.
(b)
Includes repayments of $226 million and $566 million for the 2008 series of secured borrowings during 2011 and 2010 due to declines in gross credit card receivables and payment of $2,769 million, excluding the make-whole premium, to repurchase and retire in full this series of secured borrowings.
Other than debt backed by our credit card receivables, substantially all of our outstanding borrowings are senior, unsecured obligations. Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants, which have no practical effect on our ability to pay dividends.
Historically our derivative instruments have primarily consisted of interest rate swaps, which are used to mitigate our interest rate risk. We have counterparty credit risk resulting from our derivative instruments, primarily with large global financial institutions. We monitor this concentration of counterparty credit risk on an ongoing basis. See Note 8 for a description of the fair value measurement of our derivative instruments.
In July 2011, in conjunction with our $350 million fixed rate debt issuance, we entered into an interest rate swap with a matching notional amount, under which we pay a variable rate and receive a fixed rate. This swap has been designated as a fair value hedge for accounting purposes. At the inception of the hedge, we assessed whether the swap was highly effective in offsetting changes in fair value of the hedged item and concluded the hedge was perfectly effective. Therefore, no ineffectiveness was recorded in 2011. We had no derivative instruments designated as accounting hedges in 2010 or 2009.
Outstanding Interest Rate Swap Summary
January 28, 2012
Designated Swap
De-designated Swaps
(dollars in millions)
Pay Floating
Pay Floating
Pay Fixed
Weighted average rate:
Pay
three-month LIBOR
one-month LIBOR
2.6%
Receive
1.0%
5.0%
one-month LIBOR
Weighted average maturity
2.5 years
2.4 years
2.4 years
Notional
$350
$1,250
$1,250
Derivative Contracts – Type, Statement of Financial Position Classification and Fair Value (millions)
Asset
Liability
Type of Contract
Classification
Jan. 28,
2012
Jan. 29,
2011
Classification
Jan. 28,
2012
Jan. 29,
2011
Designated as hedging instrument:
Interest rate swap
Other noncurrent assets
$
3
$
—
N/A
$
—
$
—
Not designated as hedging instruments:
Interest rate swaps
Other current assets
20
—
Other current liabilities
7
—
Interest rate swaps
Other noncurrent assets
111
139
Other noncurrent liabilities
69
54
Total
$
134
$
139
$
76
$
54
Periodic payments, valuation adjustments and amortization of gains or losses on our derivative contracts had the following impact on our Consolidated Statement of Operations:
Derivative Contracts – Effect on Results of Operations (millions)
Type of Contract
Classification of Income/(Expenses)
2011
2010
2009
Interest rate swaps
Other interest expense
$
41
$
51
$
65
The amount remaining on unamortized hedged debt valuation gains from terminated or de-designated interest rate swaps that will be amortized into earnings over the remaining lives of the underlying debt totaled $111 million, $152 million and $197 million, at the end of 2011, 2010 and 2009, respectively.
We lease certain retail locations, warehouses, distribution centers, office space, land, equipment and software. Assets held under capital leases are included in property and equipment. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date we take possession of the property. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured. The exercise of lease renewal options is at our sole discretion. The expected lease term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of leased buildings and leasehold improvements is limited by the expected lease term.
Rent expense is included in SG&A expenses. Some of our lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Certain leases require us to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These expenses are classified in SG&A, consistent with similar costs for owned locations. Sublease income received from tenants who rent properties is recorded as a reduction to SG&A expense.
Rent Expense (millions)
2011
2010
2009
Property and equipment
$
193
$
188
$
187
Software
33
25
27
Sublease income (a)
(61
)
(13
)
(13
)
Total rent expense
$
165
$
200
$
201
(a)
Sublease income in 2011 includes $51 million related to sites acquired in our Canadian leasehold acquisition that are being subleased to Zellers through March 2013, or earlier, at our option.
Total capital lease interest expense was $69 million in 2011 (including $44 million of interest expense on Canadian capitalized leases), $16 million in 2010, and $10 million in 2009 and is included within other interest expense on the Consolidated Statements of Operations.
Most long-term leases include one or more options to renew, with renewal terms that can extend the lease term from one to 50 years. Certain leases also include options to purchase the leased property. Assets recorded under capital leases as of January 28, 2012 and January 29, 2011 were $1,752 million and $380 million, respectively.
Future Minimum Lease Payments (millions)
Operating Leases (a)
Capital Leases (b)
Sublease Income
Total
2012
$
194
$
122
$
(84
)
$
232
2013
197
118
(12
)
303
2014
157
123
(6
)
274
2015
151
121
(5
)
267
2016
144
120
(4
)
260
After 2016
3,045
3,736
(71
)
6,710
Total future minimum lease payments
$
3,888
$
4,340
$
(182
)
$
8,046
Less: Interest (c)
(2,651)
Present value of future minimum capital lease payments (d)
$
1,689
(a)
Total contractual lease payments include $1,910 million related to options to extend lease terms that are reasonably assured of being exercised and also includes $171 million of legally binding minimum lease payments for stores that are expected to open in 2012 or later.
(b)
Capital lease payments include $2,894 million related to options to extend lease terms that are reasonably assured of being exercised.
(c)
Calculated using the interest rate at inception for each lease.
(d)
Includes the current portion of $22 million.
The acquisition of leasehold interests in Canada contributed additional discounted future minimum capital lease payments of $1.3 billion, reflected in the table above.
State income taxes, net of the federal tax benefit
1.0
1.4
2.8
International
(0.7)
(0.6)
(0.3)
Other
(1.0)
(0.7)
(1.8)
Effective tax rate
34.3%
35.1%
35.7%
Certain discrete state income tax items reduced our effective tax rate by 2.0 percentage points, 2.4 percentage points and 0.7 percentage points in 2011, 2010 and 2009, respectively.
Provision for Income Taxes (millions)
2011
2010
2009
Current:
Federal
$
1,069
$
1,086
$
877
State
74
40
141
International
13
4
2
Total current
1,156
1,130
1,020
Deferred:
Federal
427
388
339
State
—
57
25
International
(56
)
—
—
Total deferred
371
445
364
Total provision
$
1,527
$
1,575
$
1,384
Net Deferred Tax Asset/(Liability) (millions)
January 28,
2012
January 29,
2011
Gross deferred tax assets:
Accrued and deferred compensation
$
489
$
451
Allowance for doubtful accounts
157
229
Accruals and reserves not currently deductible
347
373
Self-insured benefits
257
251
Foreign operating loss carryforward
43
—
Other
149
67
Total gross deferred tax assets
1,442
1,371
Gross deferred tax liabilities:
Property and equipment
(1,930
)
(1,607
)
Deferred credit card income
(102
)
(145
)
Inventory
(162
)
(77
)
Other
(109
)
(97
)
Total gross deferred tax liabilities
(2,303
)
(1,926
)
Total net deferred tax liability
$
(861
)
$
(555
)
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and liabilities are recognized in income at the enactment date.
At January 28, 2012, foreign net operating loss carryforwards of $166 million are available to offset future income. These carryforwards expire in 2031 and are expected to be fully utilized prior to expiration.
We have not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside the U.S. These accumulated net earnings relate to ongoing operations and were $300 million at January 28, 2012 and $333 million at January 29, 2011. It is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested.
We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations for years before 2010 and, with few exceptions, are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2003.
Reconciliation of Liability for Unrecognized Tax Benefits (millions)
2011
2010
2009
Balance at beginning of period
$
302
$
452
$
434
Additions based on tax positions related to the current year
12
16
119
Additions for tax positions of prior years
31
68
47
Reductions for tax positions of prior years
(101
)
(222
)
(61
)
Settlements
(8
)
(12
)
(87
)
Balance at end of period
$
236
$
302
$
452
If we were to prevail on all unrecognized tax benefits recorded, $155 million of the $236 million reserve would benefit the effective tax rate. In addition, the reversal of accrued penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the years ended January 28, 2012, January 29, 2011 and January 30, 2010, we recorded a benefit from the reversal of accrued penalties and interest of $12 million, $28 million and $10 million, respectively. We had accrued for the payment of interest and penalties of $82 million at January 28, 2012, $95 million at January 29, 2011 and $127 million at January 30, 2010.
It is reasonably possible that the amount of the unrecognized tax benefits with respect to our other unrecognized tax positions will increase or decrease during the next twelve months; however, an estimate of the amount or range of the change cannot be made at this time.
The January 30, 2010 liability for uncertain tax positions included $133 million for tax positions for which the ultimate deductibility was highly certain, but for which there was uncertainty about the timing of such deductibility. During 2010, we filed a tax accounting method change that resolved the uncertainty surrounding the timing of deductions for these tax positions, resulting in a $133 million decrease to our liability for unrecognized tax benefits and no impact on income tax expense in 2010.
We retain a substantial portion of the risk related to certain general liability and workers' compensation claims. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We estimate our ultimate cost based on analysis of historical data and actuarial estimates. General liability and workers' compensation liabilities are recorded at our estimate of their net present value.
We repurchase shares primarily through open market transactions under a $10 billion share repurchase plan authorized by our Board of Directors in November 2007. As of January 28, 2012, we have $279 million remaining capacity on this authorization. In January 2012, our Board of Directors authorized a new $5 billion share repurchase plan. We expect to begin repurchasing shares under this new authorization upon completion of the current program.
Share Repurchases (millions, except per share data)
2011
2010
2009
Total number of shares purchased
37.2
47.8
9.9
Average price paid per share
$
50.89
$
52.44
$
48.54
Total investment
$
1,894
$
2,508
$
479
Of the shares reacquired, a portion was delivered upon settlement of prepaid forward contracts as follows:
Settlement of Prepaid Forward Contracts (a) (millions)
2011
2010
2009
Total number of shares purchased
1.0
1.1
1.5
Total cash investment
$
52
$
56
$
56
Aggregate market value (b)
$
52
$
61
$
60
(a)
These contracts are among the investment vehicles used to reduce our economic exposure related to our nonqualified deferred compensation plans. The details of our positions in prepaid forward contracts have been provided in Note 26.
We maintain a long-term incentive plan (the Plan) for key team members and non-employee members of our Board of Directors. Our long-term incentive plan allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). The number of unissued common shares reserved for future grants under the Plan was 32.5 million at January 28, 2012 and 17.5 million at January 29, 2011.
Total share-based compensation expense recognized in the Consolidated Statements of Operations was $90 million, $109 million and $103 million in 2011, 2010 and 2009, respectively. The related income tax benefit was $35 million, $43 million and $40 million in 2011, 2010 and 2009, respectively.
Stock Options
We grant nonqualified stock options to certain team members under the Plan that generally vest and become exercisable annually in equal amounts over a four-year period and expire 10 years after the grant date. We also grant options with a ten-year term to the non-employee members of our Board of Directors which vest immediately, but are not exercisable until one year after the grant date.
Stock Option Activity
Stock Options
Total Outstanding
Exercisable
Number of
Options (a)
Exercise
Price (b)
Intrinsic
Value (c)
Number of
Options (a)
Exercise
Price (b)
Intrinsic
Value (c)
January 29, 2011
34,650
$
46.87
$
288
20,813
$
47.06
$
172
Granted
7,485
48.90
Expired/forfeited
(1,690
)
49.16
Exercised/issued
(2,291
)
40.38
January 28, 2012
38,154
$
47.59
$
166
23,283
$
47.06
$
121
(a)
In thousands.
(b)
Weighted average per share.
(c)
Represents stock price appreciation subsequent to the grant date, in millions.
We use a Black-Scholes valuation model to estimate the fair value of the options at grant date based on the assumptions noted in the following table. Volatility represents an average of market estimates for implied volatility of Target common stock. The expected life is estimated based on an analysis of options already exercised and any foreseeable trends or changes in recipients' behavior. The risk-free interest rate is an interpolation of the relevant U.S. Treasury security maturities as of each applicable grant date.
Valuation Assumptions
2011
2010
2009
Dividend yield
2.5
%
1.8
%
1.4
%
Volatility
27
%
26
%
31
%
Risk-free interest rate
1.0
%
2.1
%
2.7
%
Expected life in years
5.5
5.5
5.5
Stock options grant date fair value
$
9.20
$
12.51
$
14.18
Stock Option Exercises (millions)
2011
2010
2009
Cash received for exercise price
$
93
$
271
$
62
Intrinsic value
27
132
21
Income tax benefit
11
52
8
Compensation expense associated with stock options is recognized on a straight-line basis over the shorter of the vesting period or the minimum required service period. At January 28, 2012, there was $109 million of total unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted average period of 1.4 years. The weighted average remaining life of currently exercisable options is 5.0 years, and the weighted average remaining life of all outstanding options is 6.6 years. The total fair value of options vested was $75 million, $87 million and $85 million in 2011, 2010 and 2009, respectively.
Performance Share Units
We have issued performance share units to certain team members annually since January 2003. These units represent shares potentially issuable in the future. Issuance is based upon our performance relative to a retail peer group over a three-year performance period on two measures: domestic market share change and EPS growth. The fair value of performance share units is calculated based on the stock price on the date of grant. The weighted average grant date fair value for performance share units was $48.63 in 2011, $52.62 in 2010 and $27.18 in 2009.
Performance Share Unit Activity
Total Nonvested Units
Performance
Share Units (a)
Grant Date
Price (b)
January 29, 2011
1,984
$42.10
Granted
476
48.63
Forfeited
(908
)
49.09
Vested
—
—
January 28, 2012
1,552
$39.93
(a)
Assumes attainment of maximum payout rates as set forth in the performance criteria based in thousands of share units. Applying actual or expected payout rates, the number of outstanding units at January 28, 2012 was 1,128 thousand.
(b)
Weighted average per unit.
Compensation expense associated with unvested performance share units is recognized on a straight-line basis over the shorter of the vesting period or the minimum required service period. The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. Future compensation expense for currently unvested awards could reach a maximum of $19 million assuming payout of all unvested awards. The unrecognized expense is expected to be recognized over a weighted average period of 0.8 years. The fair value of performance share units vested and converted was not significant in 2011, 2010 and 2009.
Restricted Stock
We issue restricted stock units and restricted stock awards (collectively restricted stock) to certain team members with three-year cliff vesting from the date of grant. We also regularly issue restricted stock units to our Board of Directors, which vest quarterly over a one-year period and are settled in shares of Target common stock upon departure from the Board. Restricted stock units represent shares potentially issuable in the future whereas restricted stock awards represent shares issued upon grant that are restricted. The fair value for restricted stock units and restricted stock awards is calculated based on the stock price on the date of grant. The weighted average grant date fair value for restricted stock was $49.42 in 2011, $55.17 in 2010 and $49.41 in 2009.
Restricted Stock Activity
Total Nonvested Units
Restricted
Stock (a)
Grant Date
Price (b)
January 29, 2011
1,138
$48.29
Granted
816
49.42
Forfeited
(99
)
46.03
Vested
(245
)
34.25
January 28, 2012
1,610
$50.76
(a)
Represents the number of restricted stock units and restricted stock awards, in thousands.
(b)
Weighted average per unit.
Compensation expense associated with unvested restricted stock is recognized on a straight-line basis over the shorter of the vesting period or the minimum required service period. The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. At January 28, 2012, there was $44 million of total unrecognized compensation expense related to restricted stock, which is expected to be recognized over a weighted average period of 1.3 years. The fair value of restricted stock vested and converted was $9 million in 2011, $3 million in 2010 and $12 million in 2009.
Team members who meet certain eligibility requirements can participate in a defined contribution 401(k) plan by investing up to 80 percent of their compensation, as limited by statute or regulation. Generally, we match 100 percent of each team member's contribution up to 5 percent of total compensation. Company match contributions are made to funds designated by the participant.
In addition, we maintain a nonqualified, unfunded deferred compensation plan for approximately 3,500 current and retired team members whose participation in our 401(k) plan is limited by statute or regulation. These team members choose from a menu of crediting rate alternatives that are the same as the investment choices in our 401(k) plan, including Target common stock. We credit an additional 2 percent per year to the accounts of all active participants, excluding members of our management executive committee, in part to recognize the risks inherent to their participation in a plan of this nature. We also maintain a nonqualified, unfunded deferred compensation plan that was frozen during 1996, covering substantially fewer than 100 participants, most of whom are retired. In this plan, deferred compensation earns returns tied to market levels of interest rates plus an additional 6 percent return, with a minimum of 12 percent and a maximum of 20 percent, as determined by the plan's terms.
We mitigate some of our risk of offering the nonqualified plans through investing in vehicles, including company-owned life insurance and prepaid forward contracts in our own common stock, that offset a substantial portion of our economic exposure to the returns of these plans. These investment vehicles are general corporate assets and are marked to market with the related gains and losses recognized in the Consolidated Statements of Operations in the period they occur.
The total change in fair value for contracts indexed to our own common stock recognized in earnings was pretax income/(loss) of $(4) million in 2011, $4 million in 2010 and $36 million in 2009. During 2011 and 2010, we invested $61 million and $41 million, respectively, in such investment instruments, and this activity is included in the Consolidated Statements of Cash Flows within other investing activities. Adjusting our position in these investment vehicles may involve repurchasing shares of Target common stock when settling the forward contracts as described in Note 24. The settlement dates of these instruments are regularly renegotiated with the counterparty.
Prepaid Forward Contracts on Target Common Stock
Contractual
Price Paid
per Share
(millions, except per share data)
Number of
Shares
Contractual
Fair Value
Total Cash
Investment
January 29, 2011
1.2
$
44.09
$
63
$
51
January 28, 2012
1.4
$
44.21
$
69
$
61
Plan Expenses (millions)
2011
2010
2009
401(k) Plan:
Matching contributions expense
$
197
$
190
$
178
Nonqualified Deferred Compensation Plans:
Benefits expense (a)
$
38
$
63
$
83
Related investment income (b)
(10
)
(31
)
(77
)
Nonqualified plan net expense
$
28
$
32
$
6
(a)
Includes market-performance credits on accumulated participant account balances and annual crediting for additional benefits earned during the year.
(b)
Includes investment returns and life-insurance proceeds received from company-owned life insurance policies and other investments used to economically hedge the cost of these plans.
We have qualified defined benefit pension plans covering team members who meet age and service requirements, including in certain circumstances, date of hire. We also have unfunded nonqualified pension plans for team members with qualified plan compensation restrictions. Eligibility for, and the level of, these benefits varies depending on team members' date of hire, length of service and/or team member compensation. Upon early retirement and prior to Medicare eligibility, team members also become eligible for certain health care benefits if they meet minimum age and service requirements and agree to contribute a portion of the cost. Effective January 1, 2009, our qualified defined benefit pension plan was closed to new participants, with limited exceptions.
Pension Benefits
Change in Projected Benefit Obligation
Postretirement
Health Care Benefits
Qualified Plans
Nonqualified Plans
(millions)
2011
2010
2011
2010
2011
2010
Benefit obligation at beginning of period
$
2,525
$
2,227
$
31
$
33
$
94
$
87
Service cost
116
114
1
1
10
9
Interest cost
135
127
2
2
4
4
Actuarial (gain)/loss
349
160
7
(2
)
—
3
Participant contributions
1
2
—
—
6
6
Benefits paid
(111
)
(105
)
(3
)
(3
)
(14
)
(15
)
Benefit obligation at end of period
$
3,015
$
2,525
$
38
$
31
$
100
$
94
Pension Benefits
Change in Plan Assets
Postretirement
Health Care Benefits
Qualified Plans
Nonqualified Plans
(millions)
2011
2010
2011
2010
2011
2010
Fair value of plan assets at beginning of period
$
2,515
$
2,157
$
—
$
—
$
—
$
—
Actual return on plan assets
364
308
—
—
—
—
Employer contributions
152
153
3
3
8
9
Participant contributions
1
2
—
—
6
6
Benefits paid
(111
)
(105
)
(3
)
(3
)
(14
)
(15
)
Fair value of plan assets at end of period
2,921
2,515
—
—
—
—
Benefit obligation at end of period
3,015
2,525
38
31
100
94
Funded/(underfunded) status
$
(94
)
$
(10
)
$
(38
)
$
(31
)
$
(100
)
$
(94
)
Recognition of Funded/(Underfunded) Status
Qualified Plans
Nonqualified Plans (a)
(millions)
2011
2010
2011
2010
Other noncurrent assets
$
3
$
5
$
—
$
—
Accrued and other current liabilities
(1
)
(1
)
(9
)
(11
)
Other noncurrent liabilities
(96
)
(14
)
(129
)
(114
)
Net amounts recognized
$
(94
)
$
(10
)
$
(138
)
$
(125
)
(a)
Includes postretirement health care benefits.
The following table summarizes the amounts recorded in accumulated other comprehensive income, which have not yet been recognized as a component of net periodic benefit expense:
Amounts in Accumulated Other Comprehensive Income
Postretirement
Health Care Plans
Pension Plans
(millions)
2011
2010
2011
2010
Net actuarial loss
$
1,027
$
895
$
44
$
48
Prior service credits
—
(1
)
(41
)
(51
)
Amounts in accumulated other comprehensive income
$
1,027
$
894
$
3
$
(3
)
The following table summarizes the changes in accumulated other comprehensive income for the years ended January 28, 2012 and January 29, 2011, related to our pension and postretirement health care plans:
Change in Accumulated Other Comprehensive Income
Postretirement
Health Care Benefits
Pension Benefits
(millions)
Pretax
Net of tax
Pretax
Net of tax
January 30, 2010
$
895
$
544
$
(12
)
$
(7
)
Net actuarial loss
40
25
3
2
Amortization of net actuarial losses
(44
)
(27
)
(4
)
(3
)
Amortization of prior service costs and transition
3
1
10
6
January 29, 2011
$
894
$
543
$
(3
)
$
(2
)
Net actuarial loss
198
120
—
—
Amortization of net actuarial losses
(67
)
(41
)
(4
)
(2
)
Amortization of prior service costs and transition
2
1
10
6
January 28, 2012
$
1,027
$
623
$
3
$
2
The following table summarizes the amounts in accumulated other comprehensive income expected to be amortized and recognized as a component of net periodic benefit expense in 2012:
Expected Amortization of Amounts in Accumulated Other Comprehensive Income (millions)
Pretax
Net of tax
Net actuarial loss
$
106
$
64
Prior service credits
(10
)
(6
)
Total amortization expense
$
96
$
58
The following table summarizes our net pension and postretirement health care benefits expense for the years 2011, 2010 and 2009:
Net Pension and Postretirement Health Care Benefits Expense
Postretirement
Health Care Benefits
Pension Benefits
(millions)
2011
2010
2009
2011
2010
2009
Service cost of benefits earned during the period
$
117
$
115
$
100
$
10
$
9
$
7
Interest cost on projected benefit obligation
137
129
125
4
4
6
Expected return on assets
(206
)
(191
)
(177
)
—
—
—
Amortization of losses
67
44
24
4
4
2
Amortization of prior service cost
(2
)
(3
)
(2
)
(10
)
(10
)
(2
)
Total
$
113
$
94
$
70
$
8
$
7
$
13
Prior service cost amortization is determined using the straight-line method over the average remaining service period of team members expected to receive benefits under the plan.
Defined Benefit Pension Plan Information (millions)
2011
2010
Accumulated benefit obligation (ABO) for all plans (a)
$
2,872
$
2,395
Projected benefit obligation for pension plans with an ABO in excess of plan assets (b)
55
47
Total ABO for pension plans with an ABO in excess of plan assets
48
42
(a)
The present value of benefits earned to date assuming no future salary growth.
(b)
The present value of benefits earned to date by plan participants, including the effect of assumed future salary increases.
Assumptions
Weighted average assumptions used to determine benefit obligations as of the measurement date were as follows:
Weighted Average Assumptions
Postretirement
Health Care Benefits
Pension Benefits
2011
2010
2011
2010
Discount rate
4.65
%
5.50
%
3.60
%
4.35
%
Average assumed rate of compensation increase
3.50
%
4.00
%
n/a
n/a
Weighted average assumptions used to determine net periodic benefit expense for each fiscal year were as follows:
Weighted Average Assumptions
Postretirement
Health Care Benefits
Pension Benefits
2011
2010
2009
2011
2010 (a)
2009 (a)
Discount rate
5.50
%
5.85
%
6.50
%
4.35
%
4.85
%
6.50
%
Expected long-term rate of return on plan assets
8.00
%
8.00
%
8.00
%
n/a
n/a
n/a
Average assumed rate of compensation increase
4.00
%
4.00
%
4.25
%
n/a
n/a
n/a
(a)
Due to the remeasurement from the plan amendment in the third quarter of 2009, the discount rate was decreased from 6.50 percent to 4.85 percent.
The discount rate used to measure net periodic benefit expense each year is the rate as of the beginning of the year (e.g., the prior measurement date). With an essentially stable asset allocation over the following time periods, our most recent compound annual rate of return on qualified plans' assets was 5.1 percent, 7.8 percent and 8.3 percent for the 5-year, 10-year and 15-year periods, respectively.
The market-related value of plan assets, which is used in calculating expected return on assets in net periodic benefit cost, is determined each year by adjusting the previous year's value by expected return, benefit payments and cash contributions. The market-related value is adjusted for asset gains and losses in equal 20 percent adjustments over a five- year period.
Our expected annualized long-term rate of return assumptions as of January 28, 2012 were 8.5 percent for domestic and international equity securities, 5.5 percent for long-duration debt securities, 8.5 percent for balanced funds and 10.0 percent for other investments. These estimates are a judgmental matter in which we consider the composition of our asset portfolio, our historical long-term investment performance and current market conditions. We review the expected long-term rate of return on an annual basis, and revise it as appropriate. Additionally, we monitor the mix of investments in our portfolio to ensure alignment with our long-term strategy to manage pension cost and reduce volatility in our assets.
An increase in the cost of covered health care benefits of 7.5 percent was assumed for 2011 and is assumed for 2012. The rate will be reduced to 5.0 percent in 2019 and thereafter.
Health Care Cost Trend Rates – 1% Change (millions)
1% Increase
1% Decrease
Effect on total of service and interest cost components of net periodic postretirement health care benefit expense
$
1
$
(1
)
Effect on the health care component of the accumulated postretirement benefit obligation
7
(7
)
Plan Assets
Our asset allocation policy is designed to reduce the long-term cost of funding our pension obligations. The plan invests with both passive and active investment managers depending on the investment's asset class. The plan also seeks to reduce the risk associated with adverse movements in interest rates by employing an interest rate hedging program, which may include the use of interest rate swaps, total return swaps and other instruments.
Actual Allocation
Asset Category
Current targeted
allocation
2011
2010
Domestic equity securities (a)
19
%
19
%
18
%
International equity securities
12
11
10
Debt securities
25
29
25
Balanced funds
30
25
26
Other (b)
14
16
21
Total
100
%
100
%
100
%
(a)
Equity securities include our common stock in amounts substantially less than 1 percent of total plan assets as of January 28, 2012 and January 29, 2011.
(b)
Other assets include private equity, mezzanine and high-yield debt, natural resources and timberland funds, multi-strategy hedge funds, derivative instruments and a 4 percent allocation to real estate.
Fair Value Measurements
Fair Value at January 28, 2012
Fair Value at January 29, 2011
(millions)
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Cash and cash equivalents
$
263
$
11
$
252
$
—
$
195
$
—
$
195
$
—
Common collective trusts (a)
653
—
653
—
490
—
490
—
Equity securities (b)
—
—
—
—
36
36
—
—
Government securities (c)
356
—
356
—
259
—
259
—
Fixed income (d)
466
—
466
—
397
—
397
—
Balanced funds (e)
744
—
744
—
596
—
596
—
Private equity funds (f)
283
—
—
283
327
—
—
327
Other (g)
156
—
41
115
130
—
3
127
Total
$
2,921
$
11
$
2,512
$
398
$
2,430
$
36
$
1,940
$
454
Contributions in transit (h)
—
85
Total plan assets
$
2,921
$
2,515
(a)
Passively managed index funds with holdings in domestic and international equities.
(b)
Investments in U.S. small-, mid- and large-cap companies.
(c)
Investments in government securities and passively managed index funds with holdings in long-term government bonds.
(d)
Investments in corporate bonds, mortgage-backed securities and passively managed index funds with holdings in long-term corporate bonds.
(e)
Investments in equities, nominal and inflation-linked fixed income securities, commodities and public real estate.
(f)
Includes investments in venture capital, mezzanine and high-yield debt, natural resources and timberland funds.
(g)
Investments in multi-strategy hedge funds (including domestic and international equity securities, convertible bonds and other alternative investments), real estate and derivative investments.
(h)
Represents $20 million in contributions to equity securities and $65 million in contributions to balanced funds held by investment managers, but not yet invested in the respective funds as of January 29, 2011.
Level 3 Reconciliation
Actual return on plan assets (a)
(millions)
Balance at
beginning of
period
Relating to
assets still held
at the reporting
date
Relating to
assets sold
during the
period
Purchases,
sales and
settlements
Transfer in
and/or out of
Level 3
Balance at
end of period
2010
Private equity funds
$
336
$
28
$
12
$
(49
)
$
—
$
327
Other
119
7
2
(1
)
—
127
2011
Private equity funds
$
327
$
(6
)
$
26
$
(64
)
$
—
$
283
Other
127
9
—
(21
)
—
115
(a)
Represents realized and unrealized gains (losses) from changes in values of those financial instruments only for the period in which the instruments were classified as Level 3.
Position
Valuation Technique
Cash and cash equivalents
These investments are cash holdings and investment vehicles valued using the Net Asset Value (NAV) provided by the administrator of the fund. The NAV for the investment vehicles is based on the value of the underlying assets owned by the fund minus applicable costs and liabilities, and then divided by the number of shares outstanding.
Equity securities
Valued at the closing price reported on the major market on which the individual securities are traded.
Common collective trusts/balanced funds/certain multi-strategy hedge funds
Valued using the NAV provided by the administrator of the fund. The NAV is a quoted transactional price for participants in the fund, which do not represent an active market.
Fixed income and government securities
Valued using matrix pricing models and quoted prices of securities with similar characteristics.
Valued by deriving Target's proportionate share of equity investment from audited financial statements. Private equity and real estate investments require significant judgment on the part of the fund manager due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such investments. Certain multi-strategy hedge funds represent funds of funds that include liquidity restrictions and for which timely valuation information is not available.
Contributions
Our obligations to plan participants can be met over time through a combination of company contributions to these plans and earnings on plan assets. In 2011 and 2010, we made discretionary contributions of $152 million and $153 million, respectively, to our qualified defined benefit pension plans. We are not required to make any contributions in 2012. However, depending on investment performance and plan funded status, we may elect to make a contribution. We expect to make contributions in the range of $5 million to $10 million to our postretirement health care benefit plan in 2012.
Estimated Future Benefit Payments
Benefit payments by the plans, which reflect expected future service as appropriate, are expected to be paid as follows:
Our Canadian Segment was initially reported in our first quarter 2011 financial results, in connection with entering into an agreement to purchase leasehold interests in Canada as disclosed in Note 7.
Our segment measure of profit is used by management to evaluate the return on our investment and to make operating decisions.
Business Segment Results
2011
2010
2009
(millions)
U.S.
Retail
U.S.
Credit
Card
Canadian
Total
U.S.
Retail
U.S.
Credit
Card
Canadian
Total
U.S.
Retail
U.S.
Credit
Card
Canadian
Total
Sales/Credit card revenues
$
68,466
$
1,399
$
—
$
69,865
$
65,786
$
1,604
$
—
$
67,390
$
63,435
$
1,922
$
—
$
65,357
Cost of sales
47,860
—
—
47,860
45,725
—
—
45,725
44,062
—
—
44,062
Bad debt expense (a)
—
154
—
154
—
528
—
528
—
1,185
—
1,185
Selling, general and administrative/Operations and marketing expenses (a)(b)
13,774
550
74
14,398
13,367
433
—
13,801
12,989
425
—
13,414
Depreciation and amortization
2,067
17
48
2,131
2,065
19
—
2,084
2,008
14
—
2,023
Earnings/(loss) before interest expense and income taxes
4,765
678
(122
)
5,322
4,629
624
—
5,252
4,376
298
—
4,673
Interest expense on nonrecourse debt collateralized by credit card receivables
—
72
—
72
—
83
—
83
—
97
—
97
Segment profit/(loss)
$
4,765
$
606
$
(122
)
$
5,250
$
4,629
$
541
$
—
$
5,169
$
4,376
$
201
$
—
$
4,576
Unallocated (income) and expenses
Other interest expense
797
677
707
Interest income
(3
)
(3
)
(3
)
Earnings before income taxes
$
4,456
$
4,495
$
3,872
Note: The sum of the segment amounts may not equal the total amounts due to rounding.
(a)
The combination of bad debt expense and operations and marketing expenses, less amounts the U.S. Retail Segment charges the U.S. Credit Card Segment for loyalty programs, within the U.S. Credit Card Segment represent credit card expenses on the Consolidated Statements of Operations.
(b)
Effective with the October 2010 nationwide launch of our new 5% REDcard Rewards loyalty program, we changed the formula under which the U.S. Retail Segment charges the U.S. Credit Card Segment to better align with the attributes of the new program. Loyalty program charges were $258 million in 2011, $102 million in 2010 and $89 million in 2009. In all periods these amounts were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment.
Due to the seasonal nature of our business, fourth quarter operating results typically represent a substantially larger share of total year revenues and earnings because they include our peak sales period from Thanksgiving through the end of December. We follow the same accounting policies for preparing quarterly and annual financial data. The table below summarizes quarterly results for 2011 and 2010:
Quarterly Results
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
(millions, except per share data)
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
Sales
$
15,580
$
15,158
$
15,895
$
15,126
$
16,054
$
15,226
$
20,937
$
20,277
$
68,466
$
65,786
Credit card revenues
355
435
345
406
348
379
351
384
1,399
1,604
Total revenues
15,935
15,593
16,240
15,532
16,402
15,605
21,288
20,661
69,865
67,390
Cost of sales
10,838
10,412
10,872
10,293
11,165
10,562
14,986
14,458
47,860
45,725
Selling, general and administrative expenses
3,233
3,143
3,473
3,263
3,525
3,345
3,876
3,720
14,106
13,469
Credit card expenses
88
280
86
214
109
198
162
167
446
860
Depreciation and amortization
512
516
509
496
546
533
564
538
2,131
2,084
Earnings before interest expense and income taxes
1,264
1,242
1,300
1,266
1,057
967
1,700
1,778
5,322
5,252
Net interest expense
Nonrecourse debt collateralized by credit card receivables
19
23
18
21
18
20
17
19
72
83
Other interest expense
164
165
174
165
184
175
276
172
797
677
Interest income
—
(1
)
(1
)
(1
)
(2
)
(1
)
(1
)
(1
)
(3
)
(3
)
Net interest expense
183
187
191
185
200
194
292
190
866
757
Earnings before income taxes
1,081
1,055
1,109
1,081
857
773
1,408
1,588
4,456
4,495
Provision for income taxes
392
384
405
402
302
238
427
553
1,527
1,575
Net earnings
$
689
$
671
$
704
$
679
$
555
$
535
$
981
$
1,035
$
2,929
$
2,920
Basic earnings per share
$
0.99
$
0.91
$
1.03
$
0.93
$
0.82
$
0.75
$
1.46
$
1.46
$
4.31
$
4.03
Diluted earnings per share
0.99
0.90
1.03
0.92
0.82
0.74
1.45
1.45
4.28
4.00
Dividends declared per share
0.25
0.17
0.30
0.25
0.30
0.25
0.30
0.25
1.15
0.92
Closing common stock price:
High
55.39
58.05
51.81
57.13
55.56
55.05
54.75
60.77
55.56
60.77
Low
49.10
48.64
46.33
49.00
46.44
50.72
48.51
53.48
46.33
48.64
Note: Per share amounts are computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding and all other quarterly amounts may not equal the total year due to rounding.
TARGET CORPORATION
Schedule II—Valuation and Qualifying Accounts
Fiscal Years 2011, 2010 and 2009
(millions)
Column A
Column B
Column C
Column D
Column E
Description
Balance at
Beginning of
Period
Additions
Charged to
Cost, Expenses
Deductions
Balance at End
of Period
Allowance for doubtful accounts:
2011
$
690
154
(414
)
$
430
2010
$
1,016
528
(854
)
$
690
2009
$
1,010
1,185
(1,179
)
$
1,016
Sales returns reserves (a):
2011
$
38
1,238
(1,238
)
$
38
2010
$
41
1,146
(1,149
)
$
38
2009
$
29
1,118
(1,106
)
$
41
(a)
These amounts represent the gross margin effect of sales returns during the respective years. Expected merchandise returns after year-end for sales made before year-end were $98 million, $97 million and $99 million for 2011, 2010 and 2009, respectively.
Organization Target Corporation (Target, the Corporation, or the Company) operates three reportable segments: U.S. Retail, U.S. Credit Card and Canadian. Our U.S. Retail Segment includes all of our merchandising operations, including our fully integrated online business. Our U.S. Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards; the Target Visa Credit Card and the Target Credit Card (Target Credit Cards). Additionally, we offer a branded proprietary Target Debit Card. Collectively, we refer to these products as REDcards®, which strengthen the bond with our guests, drive incremental sales and contribute to our results of operations. Our Canadian Segment was initially reported in the first quarter of 2011 as a result of our purchase of leasehold interests in Canada from Zellers, Inc. (Zellers). This segment includes costs incurred in the U.S. and Canada related to our planned 2013 Canadian retail market entry.
Consolidation
Consolidation The consolidated financial statements include the balances of the Corporation and its subsidiaries after elimination of intercompany balances and transactions. All material subsidiaries are wholly owned. We consolidate variable interest entities where it has been determined that the Corporation is the primary beneficiary of those entities' operations, including a bankruptcy remote subsidiary through which we sell certain accounts receivable as a method of providing funding for our accounts receivable.
Use of Estimates
Use of estimates The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions affecting reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates.
Fiscal Year
Fiscal year Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal 2011 ended January 28, 2012, and consisted of 52 weeks. Fiscal 2010 ended January 29, 2011, and consisted of 52 weeks. Fiscal 2009 ended January 30, 2010, and consisted of 52 weeks. Fiscal 2012 will end February 2, 2013, and will consist of 53 weeks.
Accounting Policies
Accounting policies Our accounting policies are disclosed in the applicable Notes to the Consolidated Financial Statements.
Reclassifications
Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation.
Revenues Policy
Our retail stores generally record revenue at the point of sale. Sales from our online business include shipping revenue and are recorded upon delivery to the guest. Total revenues do not include sales tax as we consider ourselves a pass-through conduit for collecting and remitting sales taxes. Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales. Revenue from gift card sales is recognized upon gift card redemption. Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions. Credit card revenues are recognized according to the contractual provisions of each credit card agreement. When accounts are written off, uncollected finance charges and late fees are recorded as a reduction of credit card revenues. The discounts associated with loyalty programs are included as reductions in sales in our Consolidated Statements of Operations.
Cost of Sales
Cost of Sales
Total cost of products sold including
• Freight expenses associated with moving
merchandise from our vendors to our
distribution centers and our retail stores, and
among our distribution and retail facilities
• Vendor income that is not reimbursement of
specific, incremental and identifiable costs
Inventory shrink
Markdowns
Outbound shipping and handling expenses
associated with sales to our guests
Payment term cash discounts
Distribution center costs, including compensation
and benefits costs
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses
Compensation and benefit costs including
• Stores
• Headquarters
Occupancy and operating costs of retail and
headquarters facilities
Advertising, offset by vendor income that is a
reimbursement of specific, incremental and
identifiable costs
Pre-opening costs of stores and other facilities
Other administrative costs
Consideration Received from Vendors
Vendor income reduces either our inventory costs or SG&A expenses based on the provisions of the arrangement. Promotional and advertising allowances are intended to offset our costs of promoting and selling merchandise in our stores. Vendors are charged for merchandise shipments that do not meet our requirements (violations), such as late or incomplete shipments. These allowances are recorded when violations occur. Substantially all consideration received is recorded as a reduction of cost of sales.
We establish a receivable for vendor income that is earned but not yet received. This receivable is computed by estimating the amount earned when we have completed our performance.
Advertising Costs
Advertising costs are expensed at first showing or distribution of the advertisement.
Earnings per Share
Basic earnings per share (EPS) is calculated as net earnings divided by the weighted average number of common shares outstanding during the period. Diluted EPS includes the potentially dilutive impact of share-based awards outstanding at period end, consisting of the incremental shares assumed to be issued upon the exercise of stock options and the incremental shares assumed to be issued under performance share and restricted stock unit arrangements.
Fair Value Measurements
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).
Position
Valuation Technique
Short-term investments
Cash equivalents approximate fair value because maturities are less than three months.
Prepaid forward contracts
Initially valued at transaction price. Subsequently valued by reference to the market price of Target common stock.
Interest rate swaps
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.
Company-owned life insurance investments
Includes investments in separate accounts that are valued based on market rates credited by the insurer.
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.
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 current market interest rates for similar types of financial instruments.
Cash Equivalents
Cash equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions.
Credit Card Receivables
Credit card receivables are recorded net of an allowance for doubtful accounts and are our only significant class of financing receivables. Substantially all past-due accounts accrue finance charges until they are written off. Accounts are written off when they become 180 days past due. The allowance for doubtful accounts is recognized in an amount equal to the anticipated future write-offs of existing receivables and includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs on the entire credit card portfolio collectively based on historical experience of delinquencies, risk scores, aging trends and industry risk trends. Under certain circumstances, we offer cardholder payment plans that meet the accounting definition of a troubled debt restructuring (TDR). These plans modify finance charges, minimum payments and/or extend payment terms. Modified terms do not change the balance of the loan. These concessions are made on an individual cardholder basis for economic or legal reasons specific to each individual cardholder's circumstances. Cardholders are not allowed additional charges while participating in a payment plan. We consolidate the receivables within the Trust and any debt securities issued by the Trust, or a related trust, in our Consolidated Statements of Financial Position. All interests in our Credit Card Receivables issued by the Trust are accounted for as secured borrowings.
Inventory
Substantially all inventory and the related cost of sales are accounted for under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. Inventory is stated at the lower of LIFO cost or market. Cost includes purchase price as reduced by vendor income. Inventory is also reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated based on inventory levels, markup rates and internally measured retail price indices.
Property and Equipment
Property and equipment is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We amortize leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably assured at the date the leasehold improvements are acquired. Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the asset's carrying value may not be recoverable.
Intangible Assets
We use the straight-line method to amortize leasehold acquisition costs over 9 to 39 years and other definite-lived intangibles over 3 to 15 years.
Commitments and Contingencies
We do not consider purchase orders to be firm inventory commitments. We also issue trade letters of credit in the ordinary course of business, which are not obligations given they are conditioned on terms of the letter of credit being met.
Leases
Assets held under capital leases are included in property and equipment. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date we take possession of the property. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured. The exercise of lease renewal options is at our sole discretion. The expected lease term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of leased buildings and leasehold improvements is limited by the expected lease term.
Rent expense is included in SG&A expenses. Certain leases require us to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These expenses are classified in SG&A, consistent with similar costs for owned locations. Sublease income received from tenants who rent properties is recorded as a reduction to SG&A expense.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and liabilities are recognized in income at the enactment date. We have not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside the U.S. It is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested.
General Liability and Workers' Compensation Liabilities
General liability and workers' compensation liabilities are recorded at our estimate of their net present value.
Share-Based Compensation
We use a Black-Scholes valuation model to estimate the fair value of the options at grant date based on the assumptions noted in the following table. Volatility represents an average of market estimates for implied volatility of Target common stock. The expected life is estimated based on an analysis of options already exercised and any foreseeable trends or changes in recipients' behavior. The risk-free interest rate is an interpolation of the relevant U.S. Treasury security maturities as of each applicable grant date. Compensation expense associated with stock options is recognized on a straight-line basis over the shorter of the vesting period or the minimum required service period. The fair value of performance share units is calculated based on the stock price on the date of grant. Compensation expense associated with unvested performance share units is recognized on a straight-line basis over the shorter of the vesting period or the minimum required service period. The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. The fair value for restricted stock units and restricted stock awards is calculated based on the stock price on the date of grant. Compensation expense associated with unvested restricted stock is recognized on a straight-line basis over the shorter of the vesting period or the minimum required service period. The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued.
Pension and Postretirement Health Care Plans
Prior service cost amortization is determined using the straight-line method over the average remaining service period of team members expected to receive benefits under the plan. The discount rate used to measure net periodic benefit expense each year is the rate as of the beginning of the year (e.g., the prior measurement date). The market-related value of plan assets, which is used in calculating expected return on assets in net periodic benefit cost, is determined each year by adjusting the previous year's value by expected return, benefit payments and cash contributions. The market-related value is adjusted for asset gains and losses in equal 20 percent adjustments over a five- year period.
Position
Valuation Technique
Cash and cash equivalents
These investments are cash holdings and investment vehicles valued using the Net Asset Value (NAV) provided by the administrator of the fund. The NAV for the investment vehicles is based on the value of the underlying assets owned by the fund minus applicable costs and liabilities, and then divided by the number of shares outstanding.
Equity securities
Valued at the closing price reported on the major market on which the individual securities are traded.
Common collective trusts/balanced funds/certain multi-strategy hedge funds
Valued using the NAV provided by the administrator of the fund. The NAV is a quoted transactional price for participants in the fund, which do not represent an active market.
Fixed income and government securities
Valued using matrix pricing models and quoted prices of securities with similar characteristics.
Valued by deriving Target's proportionate share of equity investment from audited financial statements. Private equity and real estate investments require significant judgment on the part of the fund manager due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such investments. Certain multi-strategy hedge funds represent funds of funds that include liquidity restrictions and for which timely valuation information is not available.
Segment Reporting
Our segment measure of profit is used by management to evaluate the return on our investment and to make operating decisions. Loyalty program charges were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment.
Earnings Per Share (millions, except per share data)
2011
2010
2009
Net earnings
$
2,929
$
2,920
$
2,488
Basic weighted average common shares outstanding
679.1
723.6
752.0
Dilutive impact of share-based awards (a)
4.8
5.8
2.8
Diluted weighted average common shares outstanding
683.9
729.4
754.8
Basic earnings per share
$
4.31
$
4.03
$
3.31
Diluted earnings per share
$
4.28
$
4.00
$
3.30
(a)
Excludes 15.5 million, 10.9 million and 22.9 million share-based awards for 2011, 2010 and 2009, respectively, because their effects were antidilutive.
There was one interest rate swap designated as an accounting hedge at January 28, 2012, and none at January 29, 2011. See Note 20 for additional information on interest rate swaps.
(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 $669 million at January 28, 2012, and $645 million at January 29, 2011.
Fair Value Measurements - Nonrecurring Basis
Fair Value Measurements – Nonrecurring Basis
Other current assets
Property and equipment
(millions)
Long-lived assets held for sale
Long-lived assets held and used (a)
Measured during the year ended January 28, 2012:
Carrying amount
$
12
$
126
Fair value measurement
11
89
Gain/(loss)
$
(1
)
$
(37
)
Measured during the year ended January 29, 2011:
Carrying amount
$
9
$
127
Fair value measurement
7
101
Gain/(loss)
$
(2
)
$
(26
)
(a)
Primarily relates to real estate and buildings intended for sale in the future but not currently meeting the held for sale criteria.
Financial Instruments Not Measured at Fair Value
Financial Instruments Not Measured at Fair Value
January 28, 2012
January 29, 2011
(millions)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial assets
Other current assets
Marketable securities (a)
$
35
$
35
$
32
$
32
Other non current assets
Marketable securities (a)
6
6
4
4
Total
$
41
$
41
$
36
$
36
Financial liabilities
Total debt (b)
$
15,680
$
18,142
$
15,241
$
16,661
Total
$
15,680
$
18,142
$
15,241
$
16,661
(a)
Held-to-maturity 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.
Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period principal collections on previously written-off balances. These amounts combined represent net write-offs.
Receivables Credit Quality
Receivables Credit Quality (millions)
January 28,
2012
January 29,
2011
Nondelinquent accounts (Current and 1-29 days past due)
FICO score of 700 or above
$
2,882
$
2,819
FICO score of 600 to 699
2,463
2,737
FICO score below 600
706
868
Total nondelinquent accounts
6,051
6,424
Delinquent accounts (30+ days past due)
306
419
Period-end gross credit card receivables
$
6,357
$
6,843
Troubled Debt Restructurings
Troubled Debt Restructurings (millions)
2011
2010
2009
Average receivables
$
330
$
445
$
526
Finance charges
20
30
39
Troubled Debt Restructurings Defaulted During the Period
Troubled Debt Restructurings Defaulted During the Period (a) (dollars in millions, contracts in thousands)
2011
2010
2009
Number of contracts
13
28
59
Amount defaulted (b)
$
37
$
96
$
199
(a)
Includes loans modified within the twelve months prior to each respective period end.
(b)
Represents account balance at the time of default. We define default as not paying the full fixed payment amount for two consecutive billing cycles.
Information of Securitized Borrowings
Securitized Borrowings
January 28, 2012
January 29, 2011
(millions)
Debt Balance
Collateral
Debt Balance
Collateral
2008 Series (a)
$
—
$
—
$
2,954
$
3,061
2006/2007 Series
1,000
1,266
1,000
1,266
Total
$
1,000
$
1,266
$
3,954
$
4,327
(a)
The debt balance for the 2008 Series is net of a 7% discount from JPMC. The unamortized portion of this discount was $107 million as of January 29, 2011.
Company-owned life insurance policies on approximately 4,000 team members who have been designated highly compensated under the Internal Revenue Code and have given their consent to be insured. Amounts are presented net of loans that are secured by some of these policies.
(b)
See Notes 8 and 20 for additional information relating to our interest rate swaps.
Reflects the weighted-average stated interest rate as of year-end.
Principal payments on notes and debentures over next five years
Required Principal Payments (millions)
2012
2013
2014
2015
2016
Unsecured
$
3,001
$
501
$
1,001
$
27
$
751
Nonrecourse
750
250
—
—
—
Total required principal payments
$
3,751
$
751
$
1,001
$
27
$
751
Commercial Paper Program
Commercial Paper (millions)
2011
2010
Maximum daily amount outstanding during the year
$
1,211
$
—
Average amount outstanding during the year
244
—
Amount outstanding at year-end
—
—
Weighted average interest rate
0.11
%
—
Nonrecourse Debt Collateralized by Credit Card Receivables Activity
Nonrecourse Debt Collateralized by Credit Card Receivables (millions)
2011
2010
Balance at beginning of period
$
3,954
$
5,375
Issued
—
—
Accretion (a)
41
45
Repaid (b)
(2,995
)
(1,466
)
Balance at end of period
$
1,000
$
3,954
(a)
Represents the accretion of the 7 percent discount on the 47 percent interest in credit card receivables sold to JPMC.
(b)
Includes repayments of $226 million and $566 million for the 2008 series of secured borrowings during 2011 and 2010 due to declines in gross credit card receivables and payment of $2,769 million, excluding the make-whole premium, to repurchase and retire in full this series of secured borrowings.
Sublease income in 2011 includes $51 million related to sites acquired in our Canadian leasehold acquisition that are being subleased to Zellers through March 2013, or earlier, at our option.
Future Minimum Lease Payments
Future Minimum Lease Payments (millions)
Operating Leases (a)
Capital Leases (b)
Sublease Income
Total
2012
$
194
$
122
$
(84
)
$
232
2013
197
118
(12
)
303
2014
157
123
(6
)
274
2015
151
121
(5
)
267
2016
144
120
(4
)
260
After 2016
3,045
3,736
(71
)
6,710
Total future minimum lease payments
$
3,888
$
4,340
$
(182
)
$
8,046
Less: Interest (c)
(2,651)
Present value of future minimum capital lease payments (d)
$
1,689
(a)
Total contractual lease payments include $1,910 million related to options to extend lease terms that are reasonably assured of being exercised and also includes $171 million of legally binding minimum lease payments for stores that are expected to open in 2012 or later.
(b)
Capital lease payments include $2,894 million related to options to extend lease terms that are reasonably assured of being exercised.
(c)
Calculated using the interest rate at inception for each lease.
Share repurchases through open market transactions
Share Repurchases (millions, except per share data)
2011
2010
2009
Total number of shares purchased
37.2
47.8
9.9
Average price paid per share
$
50.89
$
52.44
$
48.54
Total investment
$
1,894
$
2,508
$
479
Summary of shares reacquired upon settlement of prepaid forward contracts
Settlement of Prepaid Forward Contracts (a) (millions)
2011
2010
2009
Total number of shares purchased
1.0
1.1
1.5
Total cash investment
$
52
$
56
$
56
Aggregate market value (b)
$
52
$
61
$
60
(a)
These contracts are among the investment vehicles used to reduce our economic exposure related to our nonqualified deferred compensation plans. The details of our positions in prepaid forward contracts have been provided in Note 26.
Represents stock price appreciation subsequent to the grant date, in millions.
Stock options valuation assumptions
Valuation Assumptions
2011
2010
2009
Dividend yield
2.5
%
1.8
%
1.4
%
Volatility
27
%
26
%
31
%
Risk-free interest rate
1.0
%
2.1
%
2.7
%
Expected life in years
5.5
5.5
5.5
Stock options grant date fair value
$
9.20
$
12.51
$
14.18
Stock Options Exercises
Stock Option Exercises (millions)
2011
2010
2009
Cash received for exercise price
$
93
$
271
$
62
Intrinsic value
27
132
21
Income tax benefit
11
52
8
Performance Share Unit Activity
Performance Share Unit Activity
Total Nonvested Units
Performance
Share Units (a)
Grant Date
Price (b)
January 29, 2011
1,984
$42.10
Granted
476
48.63
Forfeited
(908
)
49.09
Vested
—
—
January 28, 2012
1,552
$39.93
(a)
Assumes attainment of maximum payout rates as set forth in the performance criteria based in thousands of share units. Applying actual or expected payout rates, the number of outstanding units at January 28, 2012 was 1,128 thousand.
(b)
Weighted average per unit.
Restricted stock activity
Restricted Stock Activity
Total Nonvested Units
Restricted
Stock (a)
Grant Date
Price (b)
January 29, 2011
1,138
$48.29
Granted
816
49.42
Forfeited
(99
)
46.03
Vested
(245
)
34.25
January 28, 2012
1,610
$50.76
(a)
Represents the number of restricted stock units and restricted stock awards, in thousands.
Includes market-performance credits on accumulated participant account balances and annual crediting for additional benefits earned during the year.
(b)
Includes investment returns and life-insurance proceeds received from company-owned life insurance policies and other investments used to economically hedge the cost of these plans.
Pension and Postretirement Health Care Plans (Tables)
12 Months Ended
Jan. 28, 2012
Pension and Postretirement Health Care Plans
Schedule of change in projected benefit obligation
Pension Benefits
Change in Projected Benefit Obligation
Postretirement
Health Care Benefits
Qualified Plans
Nonqualified Plans
(millions)
2011
2010
2011
2010
2011
2010
Benefit obligation at beginning of period
$
2,525
$
2,227
$
31
$
33
$
94
$
87
Service cost
116
114
1
1
10
9
Interest cost
135
127
2
2
4
4
Actuarial (gain)/loss
349
160
7
(2
)
—
3
Participant contributions
1
2
—
—
6
6
Benefits paid
(111
)
(105
)
(3
)
(3
)
(14
)
(15
)
Benefit obligation at end of period
$
3,015
$
2,525
$
38
$
31
$
100
$
94
Schedule of change in plan assets
Pension Benefits
Change in Plan Assets
Postretirement
Health Care Benefits
Qualified Plans
Nonqualified Plans
(millions)
2011
2010
2011
2010
2011
2010
Fair value of plan assets at beginning of period
$
2,515
$
2,157
$
—
$
—
$
—
$
—
Actual return on plan assets
364
308
—
—
—
—
Employer contributions
152
153
3
3
8
9
Participant contributions
1
2
—
—
6
6
Benefits paid
(111
)
(105
)
(3
)
(3
)
(14
)
(15
)
Fair value of plan assets at end of period
2,921
2,515
—
—
—
—
Benefit obligation at end of period
3,015
2,525
38
31
100
94
Funded/(underfunded) status
$
(94
)
$
(10
)
$
(38
)
$
(31
)
$
(100
)
$
(94
)
Amounts recognized in Balance Sheet
Recognition of Funded/(Underfunded) Status
Qualified Plans
Nonqualified Plans (a)
(millions)
2011
2010
2011
2010
Other noncurrent assets
$
3
$
5
$
—
$
—
Accrued and other current liabilities
(1
)
(1
)
(9
)
(11
)
Other noncurrent liabilities
(96
)
(14
)
(129
)
(114
)
Net amounts recognized
$
(94
)
$
(10
)
$
(138
)
$
(125
)
(a)
Includes postretirement health care benefits.
Amounts recorded in accumulated other comprehensive income, not yet recognized as component of net periodic benefit expense
Amounts in Accumulated Other Comprehensive Income
Postretirement
Health Care Plans
Pension Plans
(millions)
2011
2010
2011
2010
Net actuarial loss
$
1,027
$
895
$
44
$
48
Prior service credits
—
(1
)
(41
)
(51
)
Amounts in accumulated other comprehensive income
$
1,027
$
894
$
3
$
(3
)
Changes in AOCI, Pension and Other Post Retirement Plans
Change in Accumulated Other Comprehensive Income
Postretirement
Health Care Benefits
Pension Benefits
(millions)
Pretax
Net of tax
Pretax
Net of tax
January 30, 2010
$
895
$
544
$
(12
)
$
(7
)
Net actuarial loss
40
25
3
2
Amortization of net actuarial losses
(44
)
(27
)
(4
)
(3
)
Amortization of prior service costs and transition
3
1
10
6
January 29, 2011
$
894
$
543
$
(3
)
$
(2
)
Net actuarial loss
198
120
—
—
Amortization of net actuarial losses
(67
)
(41
)
(4
)
(2
)
Amortization of prior service costs and transition
2
1
10
6
January 28, 2012
$
1,027
$
623
$
3
$
2
Amounts in accumulated other comprehensive income expected to be recognized as component of net periodic benefit expense in 2012
Expected Amortization of Amounts in Accumulated Other Comprehensive Income (millions)
Pretax
Net of tax
Net actuarial loss
$
106
$
64
Prior service credits
(10
)
(6
)
Total amortization expense
$
96
$
58
Net Pension and Postretirement Health Care Benefits Expense
Net Pension and Postretirement Health Care Benefits Expense
Postretirement
Health Care Benefits
Pension Benefits
(millions)
2011
2010
2009
2011
2010
2009
Service cost of benefits earned during the period
$
117
$
115
$
100
$
10
$
9
$
7
Interest cost on projected benefit obligation
137
129
125
4
4
6
Expected return on assets
(206
)
(191
)
(177
)
—
—
—
Amortization of losses
67
44
24
4
4
2
Amortization of prior service cost
(2
)
(3
)
(2
)
(10
)
(10
)
(2
)
Total
$
113
$
94
$
70
$
8
$
7
$
13
Defined Benefit Pension Plan Information
Defined Benefit Pension Plan Information (millions)
2011
2010
Accumulated benefit obligation (ABO) for all plans (a)
$
2,872
$
2,395
Projected benefit obligation for pension plans with an ABO in excess of plan assets (b)
55
47
Total ABO for pension plans with an ABO in excess of plan assets
48
42
(a)
The present value of benefits earned to date assuming no future salary growth.
(b)
The present value of benefits earned to date by plan participants, including the effect of assumed future salary increases.
Weighted average assumptions used to determine benefit obligations
Weighted Average Assumptions
Postretirement
Health Care Benefits
Pension Benefits
2011
2010
2011
2010
Discount rate
4.65
%
5.50
%
3.60
%
4.35
%
Average assumed rate of compensation increase
3.50
%
4.00
%
n/a
n/a
Weighted average assumptions used to determine net periodic benefit cost
Weighted Average Assumptions
Postretirement
Health Care Benefits
Pension Benefits
2011
2010
2009
2011
2010 (a)
2009 (a)
Discount rate
5.50
%
5.85
%
6.50
%
4.35
%
4.85
%
6.50
%
Expected long-term rate of return on plan assets
8.00
%
8.00
%
8.00
%
n/a
n/a
n/a
Average assumed rate of compensation increase
4.00
%
4.00
%
4.25
%
n/a
n/a
n/a
(a)
Due to the remeasurement from the plan amendment in the third quarter of 2009, the discount rate was decreased from 6.50 percent to 4.85 percent.
Effect of a one percent change in assumed health care cost trend rates
Health Care Cost Trend Rates – 1% Change (millions)
1% Increase
1% Decrease
Effect on total of service and interest cost components of net periodic postretirement health care benefit expense
$
1
$
(1
)
Effect on the health care component of the accumulated postretirement benefit obligation
7
(7
)
Target and actual allocation of defined benefit Plan Assets
Actual Allocation
Asset Category
Current targeted
allocation
2011
2010
Domestic equity securities (a)
19
%
19
%
18
%
International equity securities
12
11
10
Debt securities
25
29
25
Balanced funds
30
25
26
Other (b)
14
16
21
Total
100
%
100
%
100
%
(a)
Equity securities include our common stock in amounts substantially less than 1 percent of total plan assets as of January 28, 2012 and January 29, 2011.
(b)
Other assets include private equity, mezzanine and high-yield debt, natural resources and timberland funds, multi-strategy hedge funds, derivative instruments and a 4 percent allocation to real estate.
Fair value of pension plan assets, by asset category
Fair Value Measurements
Fair Value at January 28, 2012
Fair Value at January 29, 2011
(millions)
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Cash and cash equivalents
$
263
$
11
$
252
$
—
$
195
$
—
$
195
$
—
Common collective trusts (a)
653
—
653
—
490
—
490
—
Equity securities (b)
—
—
—
—
36
36
—
—
Government securities (c)
356
—
356
—
259
—
259
—
Fixed income (d)
466
—
466
—
397
—
397
—
Balanced funds (e)
744
—
744
—
596
—
596
—
Private equity funds (f)
283
—
—
283
327
—
—
327
Other (g)
156
—
41
115
130
—
3
127
Total
$
2,921
$
11
$
2,512
$
398
$
2,430
$
36
$
1,940
$
454
Contributions in transit (h)
—
85
Total plan assets
$
2,921
$
2,515
(a)
Passively managed index funds with holdings in domestic and international equities.
(b)
Investments in U.S. small-, mid- and large-cap companies.
(c)
Investments in government securities and passively managed index funds with holdings in long-term government bonds.
(d)
Investments in corporate bonds, mortgage-backed securities and passively managed index funds with holdings in long-term corporate bonds.
(e)
Investments in equities, nominal and inflation-linked fixed income securities, commodities and public real estate.
(f)
Includes investments in venture capital, mezzanine and high-yield debt, natural resources and timberland funds.
(g)
Investments in multi-strategy hedge funds (including domestic and international equity securities, convertible bonds and other alternative investments), real estate and derivative investments.
(h)
Represents $20 million in contributions to equity securities and $65 million in contributions to balanced funds held by investment managers, but not yet invested in the respective funds as of January 29, 2011.
Reconciliation of assets' fair value using significant unobservable inputs (Level 3)
Level 3 Reconciliation
Actual return on plan assets (a)
(millions)
Balance at
beginning of
period
Relating to
assets still held
at the reporting
date
Relating to
assets sold
during the
period
Purchases,
sales and
settlements
Transfer in
and/or out of
Level 3
Balance at
end of period
2010
Private equity funds
$
336
$
28
$
12
$
(49
)
$
—
$
327
Other
119
7
2
(1
)
—
127
2011
Private equity funds
$
327
$
(6
)
$
26
$
(64
)
$
—
$
283
Other
127
9
—
(21
)
—
115
(a)
Represents realized and unrealized gains (losses) from changes in values of those financial instruments only for the period in which the instruments were classified as Level 3.
Business Segment Results and Total Assets by Segment
Business Segment Results
2011
2010
2009
(millions)
U.S.
Retail
U.S.
Credit
Card
Canadian
Total
U.S.
Retail
U.S.
Credit
Card
Canadian
Total
U.S.
Retail
U.S.
Credit
Card
Canadian
Total
Sales/Credit card revenues
$
68,466
$
1,399
$
—
$
69,865
$
65,786
$
1,604
$
—
$
67,390
$
63,435
$
1,922
$
—
$
65,357
Cost of sales
47,860
—
—
47,860
45,725
—
—
45,725
44,062
—
—
44,062
Bad debt expense (a)
—
154
—
154
—
528
—
528
—
1,185
—
1,185
Selling, general and administrative/Operations and marketing expenses (a)(b)
13,774
550
74
14,398
13,367
433
—
13,801
12,989
425
—
13,414
Depreciation and amortization
2,067
17
48
2,131
2,065
19
—
2,084
2,008
14
—
2,023
Earnings/(loss) before interest expense and income taxes
4,765
678
(122
)
5,322
4,629
624
—
5,252
4,376
298
—
4,673
Interest expense on nonrecourse debt collateralized by credit card receivables
—
72
—
72
—
83
—
83
—
97
—
97
Segment profit/(loss)
$
4,765
$
606
$
(122
)
$
5,250
$
4,629
$
541
$
—
$
5,169
$
4,376
$
201
$
—
$
4,576
Unallocated (income) and expenses
Other interest expense
797
677
707
Interest income
(3
)
(3
)
(3
)
Earnings before income taxes
$
4,456
$
4,495
$
3,872
Note: The sum of the segment amounts may not equal the total amounts due to rounding.
(a)
The combination of bad debt expense and operations and marketing expenses, less amounts the U.S. Retail Segment charges the U.S. Credit Card Segment for loyalty programs, within the U.S. Credit Card Segment represent credit card expenses on the Consolidated Statements of Operations.
(b)
Effective with the October 2010 nationwide launch of our new 5% REDcard Rewards loyalty program, we changed the formula under which the U.S. Retail Segment charges the U.S. Credit Card Segment to better align with the attributes of the new program. Loyalty program charges were $258 million in 2011, $102 million in 2010 and $89 million in 2009. In all periods these amounts were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment.
Nonrecourse debt collateralized by credit card receivables
19
23
18
21
18
20
17
19
72
83
Other interest expense
164
165
174
165
184
175
276
172
797
677
Interest income
—
(1
)
(1
)
(1
)
(2
)
(1
)
(1
)
(1
)
(3
)
(3
)
Net interest expense
183
187
191
185
200
194
292
190
866
757
Earnings before income taxes
1,081
1,055
1,109
1,081
857
773
1,408
1,588
4,456
4,495
Provision for income taxes
392
384
405
402
302
238
427
553
1,527
1,575
Net earnings
$
689
$
671
$
704
$
679
$
555
$
535
$
981
$
1,035
$
2,929
$
2,920
Basic earnings per share
$
0.99
$
0.91
$
1.03
$
0.93
$
0.82
$
0.75
$
1.46
$
1.46
$
4.31
$
4.03
Diluted earnings per share
0.99
0.90
1.03
0.92
0.82
0.74
1.45
1.45
4.28
4.00
Dividends declared per share
0.25
0.17
0.30
0.25
0.30
0.25
0.30
0.25
1.15
0.92
Closing common stock price:
High
55.39
58.05
51.81
57.13
55.56
55.05
54.75
60.77
55.56
60.77
Low
49.10
48.64
46.33
49.00
46.44
50.72
48.51
53.48
46.33
48.64
Note: Per share amounts are computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding and all other quarterly amounts may not equal the total year due to rounding.
Defined Contribution Plans (Details) (USD $) In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Jan. 28, 2012 individual
Jan. 29, 2011
Jan. 30, 2010
Defined Contribution Plans
Maximum invested percentage of compensation by participants in defined contribution 401(k) plan
80.00%
Percentage match by company to team member's contribution
100.00%
Maximum employer contribution match, percentage of total compensation
5.00%
Nonqualified unfunded deferred compensation plan for members whose participation in 401(k) plan is limited, number of employees (in number of individuals)
3,500
Unfunded nonqualified deferred compensation plan for members whose participation in 401(k) plan is limited, percent credited to accounts of active participants
2.00%
Nonqualified unfunded deferred compensation plan frozen in 1996, number of current active and retired participants (in number of individuals)
100
Nonqualified unfunded deferred compensation plan frozen in 1996, additional rate of return above market levels (as a percent)
6.00%
Nonqualified unfunded deferred compensation plan frozen in 1996, minimum rate of return (as a percent)
12.00%
Nonqualified unfunded deferred compensation plan frozen in 1996, maximum rate of return (as a percent)
20.00%
Change in fair value for contracts indexed to Target common stock, recognized in earnings, pretax
$ (4)
$ 4
$ 36
Prepaid Forward Contracts on Target Common Stock
Repurchase of stock (in shares)
37.2
47.8
9.9
401 (k) Defined Contribution Plan
Matching contribution expense
197
190
178
Nonqualified Deferred Compensation Plans
Benefits expense
38
63
83
Related investment income
(10)
(31)
(77)
Nonqualified plan net expense
28
32
6
Prepaid forward contracts
Prepaid Forward Contracts on Target Common Stock
Investments in contracts indexed to Target common stock
61
41
Number of Shares
1.4
1.2
Contractual Price Paid per Share (in dollars per share)
