Edgar Filing: TARGET CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2011

Commission File Number 1-6049

TARGET CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota		41-0215170
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
1000 Nicollet Mall, Minneapolis, Minnesota		55403
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 612/304-6073

Former name, former address and former fiscal year, if changed since last report: N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller Reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

Indicate the number of shares outstanding of each of registrant’s classes of common stock, as of the latest practicable date. Total shares of common stock, par value $0.0833, outstanding at November 18, 2011 were 671,596,926.

TARGET CORPORATION

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
		Consolidated Statements of Operations	1
		Consolidated Statements of Financial Position	2
		Consolidated Statements of Cash Flows	3
		Consolidated Statements of Shareholders’ Investment	4
		Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 4.	Controls and Procedures		27

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		28
Item 1A.	Risk Factors		28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		28
Item 3.	Defaults Upon Senior Securities		28
Item 4.	Reserved		28
Item 5.	Other Information		28
Item 6.	Exhibits		29


Signature			30
Exhibit Index			31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


Consolidated Statements of Operations
	Three Months Ended						Nine Months Ended
	October 29,			October 30,				October 29,			October 30,
(millions, except per share data) (unaudited)	2011			2010				2011			2010
Sales	$	16,054		$	15,226			$	47,529		$	45,509
Credit card revenues	348			379				1,048			1,220
Total revenues	16,402			15,605				48,577			46,729
Cost of sales	11,165			10,562				32,874			31,267
Selling, general and administrative expenses	3,525			3,345				10,230			9,749
Credit card expenses	109			198				283			693
Depreciation and amortization	546			533				1,568			1,545
Earnings before interest expense and income taxes	1,057			967				3,622			3,475
Net interest expense
Nonrecourse debt collateralized by credit card receivables	18			20				55			64
Other interest expense	184			175				522			505
Interest income	(2		)	(1		)		(3		)	(2		)
Net interest expense	200			194				574			567
Earnings before income taxes	857			773				3,048			2,908
Provision for income taxes	302			238				1,100			1,023
Net earnings	$	555		$	535			$	1,948		$	1,885
Basic earnings per share	$	0.82		$	0.75			$	2.85		$	2.59
Diluted earnings per share	$	0.82		$	0.74			$	2.84		$	2.57
Weighted average common shares outstanding
Basic	673.2			715.4				682.2			728.8
Diluted	678.3			721.0				686.9			734.4

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Financial Position
	October 29,			January 29,			October 30,
(millions)	2011			2011			2010
Assets	(unaudited)						(unaudited)
Cash and cash equivalents, including marketable securities of $66, $1,129 and $349	$	821		$	1,712		$	936
Credit card receivables, net of allowance of $431, $690 and $775	5,713			6,153			5,955
Inventory	9,890			7,596			9,550
Other current assets	1,948			1,752			1,905
Total current assets	18,372			17,213			18,346
Property and equipment
Land	6,069			5,928			5,891
Buildings and improvements	26,850			23,081			23,101
Fixtures and equipment	5,153			4,939			4,908
Computer hardware and software	2,457			2,533			2,461
Construction-in-progress	546			567			448
Accumulated depreciation	(12,035		)	(11,555		)	(11,219		)
Property and equipment, net	29,040			25,493			25,590
Other noncurrent assets	1,035			999			1,013
Total assets	$	48,447		$	43,705		$	44,949
Liabilities and shareholders’ investment
Accounts payable	$	8,053		$	6,625		$	7,761
Accrued and other current liabilities	3,273			3,326			3,179
Unsecured debt and other borrowings	2,313			119			814
Nonrecourse debt collateralized by credit card receivables	500			—			36
Total current liabilities	14,139			10,070			11,790
Unsecured debt and other borrowings	12,897			11,653			11,737
Nonrecourse debt collateralized by credit card receivables	3,259			3,954			3,943
Deferred income taxes	1,199			934			814
Other noncurrent liabilities	1,689			1,607			1,786
Total noncurrent liabilities	19,044			18,148			18,280
Shareholders’ investment
Common stock	56			59			59
Additional paid-in capital	3,431			3,311			3,128
Retained earnings	12,340			12,698			12,254
Accumulated other comprehensive loss	(563		)	(581		)	(562		)
Total shareholders’ investment	15,264			15,487			14,879
Total liabilities and shareholders’ investment	$	48,447		$	43,705		$	44,949
Common shares outstanding	671.4			704.0			707.9

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows
	Nine Months Ended
	October 29,			October 30,
(millions) (unaudited)	2011			2010
Operating activities
Net earnings	$	1,948		$	1,885
Reconciliation to cash flow
Depreciation and amortization	1,568			1,545
Share-based compensation expense	61			77
Deferred income taxes	397			249
Bad debt expense	67			445
Non-cash (gains)/losses and other, net	76			(112		)
Changes in operating accounts:
Accounts receivable originated at Target	120			241
Inventory	(2,294		)	(2,371		)
Other current assets	(131		)	(61		)
Other noncurrent assets	49			(113		)
Accounts payable	1,428			1,250
Accrued and other current liabilities	(360		)	(141		)
Other noncurrent liabilities	46			(42		)
Cash flow provided by operations	2,975			2,852
Investing activities
Expenditures for property and equipment	(3,750		)	(1,607		)
Proceeds from disposal of property and equipment	7			36
Change in accounts receivable originated at third parties	253			325
Other investments	(114		)	(70		)
Cash flow required for investing activities	(3,604		)	(1,316		)
Financing activities
Change in commercial paper, net	1,211			—
Additions to long-term debt	1,000			997
Reductions of long-term debt	(272		)	(1,450		)
Dividends paid	(549		)	(432		)
Repurchase of stock	(1,693		)	(2,055		)
Stock option exercises and related tax benefit	66			133
Other	1			7
Cash flow required for financing activities	(236		)	(2,800		)
Effect of exchange rate changes on cash and cash equivalents	(26		)	—
Net decrease in cash and cash equivalents	(891		)	(1,264		)
Cash and cash equivalents at beginning of period	1,712			2,200
Cash and cash equivalents at end of period	$	821		$	936

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Shareholders’ Investment

											Accumulated Other
											Comprehensive
											Income/(Loss)
											Pension and			Derivative
											Other			Instruments,
	Common		Stock			Additional					Benefit			Foreign
	Stock		Par			Paid-in		Retained			Liability			Currency
(millions, except footnotes)	Shares		Value			Capital		Earnings			Adjustments			and Other			Total
January 30, 2010	744.6		$	62		$	2,919	$	12,947		$	(537	)	$	(44	)	$	15,347
Net earnings	—		—			—		2,920			—			—			2,920
Other comprehensive income
Pension and other benefit liability adjustments, net of taxes of $4	—		—			—		—			(4		)	—			(4		)
Cash flow hedges, net of taxes of $2	—		—			—		—			—			3			3
Currency translation adjustment, net of taxes of $1	—		—			—		—			—			1			1
Total comprehensive income																	2,920
Dividends declared	—		—			—		(659		)	—			—			(659		)
Repurchase of stock	(47.8	)	(4		)	—		(2,510		)	—			—			(2,514		)
Stock options and awards	7.2		1			392		—			—			—			393
January 29, 2011	704.0		$	59		$	3,311	$	12,698		$	(541	)	$	(40	)	$	15,487
(unaudited)
Net earnings	—		—			—		1,948			—			—			1,948
Other comprehensive income
Pension and other benefit liability adjustments, net of taxes of $16	—		—			—		—			25			—			25
Cash flow hedges, net of taxes of $2	—		—			—		—			—			2			2
Currency translation adjustment, net of taxes of $6	—		—			—		—			—			(9		)	(9		)
Total comprehensive income																	1,966
Dividends declared	—		—			—		(576		)	—			—			(576		)
Repurchase of stock	(34.1	)	(3		)	—		(1,730		)	—			—			(1,733		)
Stock options and awards	1.5		—			120		—			—			—			120
October 29, 2011	671.4		$	56		$	3,431	$	12,340		$	(516	)	$	(47	)	$	15,264

Dividends declared per share were $0.30 and $0.25 for the three months ended October 29, 2011 and October 30, 2010, respectively. For the fiscal year ended January 29, 2011, dividends declared per share were $0.92.

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

1. Accounting Policies

The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statement disclosures contained in the 2010 Form 10-K for Target Corporation (Target or the Corporation). The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data. See the notes in our Form 10-K for the fiscal year ended January 29, 2011, for those policies. In the opinion of management, all adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature.

Assets and liabilities of operations with functional currencies other than the U.S. dollar are translated at period-end exchange rates. Income statement accounts are translated using exchange rates prevailing during the period. Translation adjustments are reflected within accumulated other comprehensive income in shareholders’ equity. Gains and losses from foreign currency transactions are included in net earnings. During the nine months ended October 29, 2011 the value of $1.00 ranged from C$0.94 (Canadian dollars) to C$1.05 and averaged C$0.98. On October 29, 2011, $1.00 was equivalent to C$0.99.

Due to the seasonal nature of our business, quarterly revenues, expenses, earnings and cash flows are not necessarily indicative of the results that may be expected for the full year. All amounts are in U.S. dollars unless otherwise stated.

2. 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.

Earnings Per Share	Three Months Ended				Nine Months Ended
	October 29,		October 30,		October 29,		October 30,
(millions, except per share data)	2011		2010		2011		2010
Net earnings	$	555	$	535	$	1,948	$	1,885
Basic weighted average common shares outstanding	673.2		715.4		682.2		728.8
Dilutive impact of share-based awards(a)	5.1		5.6		4.7		5.6
Diluted weighted average common shares outstanding	678.3		721.0		686.9		734.4
Basic earnings per share	$	0.82	$	0.75	$	2.85	$	2.59
Diluted earnings per share	$	0.82	$	0.74	$	2.84	$	2.57

(a) Excludes 13.9 million and 15.6 million share-based awards for the three and nine months ended October 29, 2011, respectively, and 10.7 million and 11.3 million share-based awards for the three and nine months ended October 30, 2010 because their effects were antidilutive.

3. Canadian Leasehold Acquisition

In January 2011, we entered into an agreement to purchase the leasehold interests in up to 220 sites in Canada currently operated by Zellers Inc. (Zellers), in exchange for C$1,825 million. We have completed this real estate acquisition with the selection of 84 additional Zellers sites, bringing the total number of sites selected to 189, which includes the initial group of 105 sites selected in the second quarter of 2011. 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.

We recorded the acquired assets in our Canadian Segment at their estimated fair values.

Leasehold Acquisition Summary		Third Quarter			Total
(millions)	Balance Sheet Classification	2011			Transaction
Assets
Capital lease assets	Buildings and improvements		$	515	$	2,887
Intangible assets(a)	Other noncurrent assets		23		23
Total assets			538		2,910
Liabilities
Capital lease obligations	Unsecured debt and other borrowings		$	255	$	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.

4. Fair Value Measurements

Fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

The following table presents financial assets and liabilities measured at fair value on a recurring basis:

Fair Value Measurements -	Fair Value at						Fair Value at						Fair Value at
Recurring Basis	October 29, 2011						January 29, 2011						October 30, 2010
(millions)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents
Marketable securities	$	66	$	—	$	—	$	1,129	$	—	$	—	$	349	$	—	$	—
Other current assets
Prepaid forward contracts	70		—		—		63		—		—		62		—		—
Other	—		6		—		—		—		—		—		—		—
Other noncurrent assets
Interest rate swaps(a)	—		136		—		—		139		—		—		172		—
Company-owned life insurance investments(b)	—		365		—		—		358		—		—		352		—
Total	$	136	$	507	$	—	$	1,192	$	497	$	—	$	411	$	524	$	—
Liabilities
Other noncurrent liabilities
Interest rate swaps(a)	—		71		—		—		54		—		—		80		—
Total	$	—	$	71	$	—	$	—	$	54	$	—	$	—	$	80	$	—

(a)	There was one interest rate swap designated as an accounting hedge at October 29, 2011, and no interest rate swaps designated as accounting hedges at January 29, 2011 or October 30, 2010.
(b)	Company-owned life insurance investments consist of equity index funds and fixed income assets. Amounts are presented net of loans that are secured by some of these policies of $665 million at October 29, 2011, $645 million at January 29, 2011 and $636 million at October 30, 2010.

*Position*		*Valuation Technique*
Marketable securities		Initially valued at transaction price. Subsequently valued at carrying value, as cash equivalents (including money market funds) approximate fair value because maturities are less than three months.

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 -	Other current assets						Property and equipment
Nonrecurring Basis	Long-lived assets held for sale						Long-lived assets held and used(a)
(millions)	Three Months Ended			Nine Months Ended			Three Months Ended			Nine Months Ended
Measured during the period ended October 29, 2011:
Carrying amount	$	6		$	17		$	7		$	97
Fair value measurement	5			15			6			64
Gain/(loss)	$	(1	)	$	(2	)	$	(1	)	$	(33)
Measured during the period ended October 30, 2010:
Carrying amount	$	—		$	2		$	25		$	73
Fair value measurement	—			2			23			63
Gain/(loss)	$	—		$	—		$	(2	)	$	(10)

(a) Primarily relates to real estate and buildings intended for sale in the future but not currently meeting the held for sale criteria.

The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the Consolidated Statements of Financial Position. The fair value of marketable securities is determined using available market prices at the reporting date. The fair value of debt is generally measured using a discounted cash flow analysis based on our current market interest rates for similar types of financial instruments.

Financial Instruments Not	October 29, 2011				January 29, 2011				October 30, 2010
Measured at Fair Value	Carrying		Fair		Carrying		Fair		Carrying		Fair
(millions)	Amount		Value		Amount		Value		Amount		Value
Financial assets
Other current assets
Marketable securities(a)	$	78	$	78	$	32	$	32	$	73	$	73
Other noncurrent assets
Marketable securities(a)	—		—		4		4		—		—
Total	$	78	$	78	$	36	$	36	$	73	$	73
Financial liabilities
Total debt(b)	$	17,228	$	19,793	$	15,241	$	16,661	$	16,037	$	17,880
Total	$	17,228	$	19,793	$	15,241	$	16,661	$	16,037	$	17,880

(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, we believe the gross balance of our credit card receivables approximates fair value at October 29, 2011. The carrying amounts of accounts payable and certain accrued and other current liabilities also approximate fair value at October 29, 2011.

5. Credit Card Receivables

Credit card receivables are recorded net of an allowance for doubtful accounts and are our only significant class of receivables. Substantially all accounts continue to accrue finance charges until they are written off. All past due accounts were incurring finance charges at October 29, 2011, January 29, 2011, and October 30, 2010. Accounts are written off when they become 180 days past due.

Age of Credit Card Receivables	October 29, 2011			January 29, 2011			October 30, 2010
			Percent of			Percent of			Percent of
(dollars in millions)	Amount		Receivables	Amount		Receivables	Amount		Receivables
Current	$	5,568	90.6 %	$	6,132	89.6 %	$	5,947	88.4 %
1-29 days past due	266		4.3	292		4.3	298		4.4
30-59 days past due	109		1.8	131		1.9	157		2.3
60-89 days past due	64		1.1	79		1.1	94		1.4
90+ days past due	137		2.2	209		3.1	234		3.5
Period-end gross credit card receivables	$	6,144	100 %	$	6,843	100 %	$	6,730	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	Three Months Ended						Nine Months Ended
(millions)	October 29, 2011			October 30, 2010			October 29, 2011			October 30, 2010
Allowance at beginning of period	$	480		$	851		$	690		$	1,016
Bad debt expense	40			110			67			445
Write-offs(a)	(122		)	(226		)	(448		)	(799		)
Recoveries(a)	33			40			122			113
Allowance at end of period	$	431		$	775		$	431		$	775

(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 would 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 would lead to an increase in bad debt expense. The Corporation monitors 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 periodically obtaining a statistically representative sample of current FICO scores, a nationally recognized credit scoring model. We update these FICO scores monthly. The credit-quality segmentation presented below is consistent with the approach used in determining our allowance for doubtful accounts.

Receivables Credit Quality	October 29,		January 29,		October 30,
(millions)	2011		2011		2010
Nondelinquent accounts (Current and 1-29 days past due)
FICO score of 700 or above	$	2,775	$	2,819	$	2,709
FICO score of 600 to 699	2,404		2,737		2,677
FICO score below 600	655		868		859
Total nondelinquent accounts	5,834		6,424		6,245
Delinquent accounts (30+ days past due)	310		419		485
Period-end gross credit card receivables	$	6,144	$	6,843	$	6,730

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 October 29, 2011 and October 30, 2010 there were 125,875 and 155,836 modified contracts with outstanding receivables of $304 million and $421 million, respectively.

Troubled Debt Restructurings	Three Months Ended				Nine Months Ended
	October 29,		October 30,		October 29,		October 30,
(millions)	2011		2010		2011		2010
Average receivables	$	313	$	425	$	344	$	456
Finance charges	$	5	$	7	$	16	$	23

Troubled Debt Restructurings	Three Months Ended				Nine Months Ended
Defaulted During the Period(a)	October 29,		October 30,		October 29,		October 30,
(millions, except contracts)	2011		2010		2011		2010
Number of contracts	6,290		13,753		17,990		42,972
Amount defaulted(b)	$	18	$	46	$	53	$	138

(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 removed from the TDR population. 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 based upon the applicable accounting guidance. 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 an interest in our credit card receivables to JPMorgan Chase (JPMC). The interest sold represented 47 percent of the receivables portfolio at the time of the transaction. In the event of a decrease in the receivables principal amount such that JPMC’s interest in the entire portfolio would exceed 47 percent for three consecutive months, TR LLC (using the cash flows from the assets in the Trust) would be required to pay JPMC a pro rata amount of principal collections such that the portion owned by JPMC would not exceed 47 percent, unless JPMC provides a waiver. Conversely, at the option of the Corporation, JPMC may be required to fund an increase in the portfolio to maintain their 47 percent interest up to a maximum principal balance of $4.2 billion. Due to declines in gross credit card receivables, TR LLC repaid JPMC $226 million and $530 million during the first nine months of 2011 and 2010, respectively.

If a three-month average of monthly finance charge excess (JPMC’s pro rata share of finance charge collections less write-offs and specified expenses) is less than 2 percent of the outstanding principal balance of JPMC’s interest, the Corporation must implement mutually agreed-upon underwriting strategies. If the three-month average finance charge excess falls below 1 percent of the outstanding principal balance of JPMC’s interest, JPMC may compel the Corporation to implement underwriting and collections activities, provided those activities are compatible with the Corporation’s systems, as well as consistent with similar credit card receivable portfolios managed by JPMC. If the Corporation fails to implement the activities, JPMC has the right to cause the accelerated repayment of the note payable issued in the transaction. As noted in the preceding paragraph, payments would be made solely from the Trust assets. We have the right to prepay the principal balance on the note payable to JPMC through January 31, 2012. If we elect to prepay the outstanding balance, we will be required to pay a make-whole premium ranging from $85 million to $95 million, dependent upon the prepayment date.

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		October 29, 2011				January 29, 2011				October 30, 2010
		Debt				Debt				Debt
(millions)		Balance		Collateral		Balance		Collateral		Balance		Collateral
2008 Series(a)	$		2,759	$	2,828	$	2,954	$	3,061	$	2,979	$	3,098
2006/2007 Series		1,000		1,266		1,000		1,266		1,000		1,266
Total	$		3,759	$	4,094	$	3,954	$	4,327	$	3,979	$	4,364

(a) The debt balance for the 2008 Series is net of a 7% discount from JPMC. The unamortized portion of this discount was $69 million, $107 million and $119 million as of October 29, 2011, January 29, 2011, and October 30, 2010, respectively.

6. Commitments and Contingencies

As a result of our second and third quarter 2011 acquisition of leases from Zellers, we have assumed additional future minimum lease payments of $3.5 billion, with a net present value of $1.3 billion, at October 29, 2011.

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.

7. Notes Payable and Long-Term Debt

We obtain short-term financing from time to time under our commercial paper program, a form of notes payable. As of October 29, 2011, $1,211 million was outstanding under this program. There were no amounts outstanding under our

commercial paper program at January 29, 2011 or October 30, 2010. During the three and nine months ended October 29, 2011 the maximum amount outstanding was $1,211 million and the average amount outstanding was $351 million and $227 million, respectively. There were no amounts outstanding under our commercial paper program at any time during the three or nine months ended October 30, 2010.

In July 2011, we issued $350 million of unsecured fixed rate debt at 1.125% and $650 million of unsecured floating rate debt at three-month LIBOR plus 17 basis points that matures in July 2014. Proceeds from this issuance were used for general corporate purposes.

In October 2011, we entered into a five-year $2.25 billion unsecured 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 the first three quarters of 2011 or 2010 under this or previously existing revolving credit facilities.

In addition, TR LLC has made payments to JPMC to reduce its interest in our credit card receivables as described in Note 5, Credit Card Receivables.

8. Derivative Financial Instruments

Derivative financial instruments are reported at fair value on the Consolidated Statements of Financial Position. Historically our derivative instruments have primarily consisted of interest rate swaps. We use these derivatives to mitigate our interest rate risk. We have counterparty credit risk resulting from our derivative instruments. This risk lies primarily with large global financial institutions. We monitor this concentration of counterparty credit risk on an ongoing basis.

During 2008, we terminated or de-designated certain interest rate swaps that were accounted for as hedges. Total net gains amortized into net interest expense for terminated or de-designated swaps were $10 million and $11 million during the three months ended October 29, 2011 and October 30, 2010, respectively. Total net gains amortized into net interest expense for terminated or de-designated swaps were $31 million and $34 million during the nine months ended October 29, 2011 and October 30, 2010, respectively. 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 $122 million, $152 million and $164 million, at October 29, 2011, January 29, 2011 and October 30, 2010, respectively.

Periodic payments, valuation adjustments and amortization of gains or losses from the termination or de-designation of derivative contracts are summarized below:

Derivative Contracts - Effect on Results of Operations		Three Months Ended				Nine Months Ended
	Classification of	October 29,		October 30,		October 29,		October 30,
(millions)	Income/(Expenses)	2011		2010		2011		2010
Interest rate swaps	Other interest expense	$	10	$	12	$	32	$	40

In July 2011, in conjunction with the $350 million fixed rate debt issuance, we entered into an interest rate swap with a notional amount of $350 million, under which we pay a variable rate and receive a fixed rate. This swap has been designated as a fair value hedge, and there was no ineffectiveness recognized related to this hedge during the three or nine months ended October 29, 2011. There were no derivative instruments designated as hedges as of October 30, 2010. See Note 4, Fair Value Measurements, for a description of the fair value measurement of derivative contracts and their classification on the Consolidated Statements of Financial Position.

9. Income Taxes

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.

We accrue for the effects of uncertain tax positions and the related potential penalties and interest.

During the third quarter of 2010, we recorded a reduction to income tax expense of $45 million due to the favorable resolution of various state income tax matters.

Subsequent to the end of the third quarter of 2011, we favorably resolved various state income tax matters, which will be recorded as a reduction to income tax expense of approximately $50 million in our fourth quarter 2011 Statement of Operations.

10. Share Repurchase

We repurchase shares primarily through open market transactions under a $10 billion share repurchase plan authorized by our Board of Directors in November 2007.

Share Repurchases	Three Months Ended					Nine Months Ended
(millions, except per share data)	October 29, 2011			October 30, 2010		October 29, 2011		October 30, 2010
Total number of shares purchased	4.5			15.2		34.1		40.2
Average price paid per share	$	50.45	$		52.29	$	50.76	$	52.04
Total investment	$	226	$		793	$	1,733	$	2,093

Of the shares reacquired, a portion was delivered upon settlement of prepaid forward contracts as follows:

Settlement of Prepaid Forward Contracts(a)	Three Months Ended				Nine Months Ended
(millions)	October 29, 2011		October 30, 2010		October 29, 2011		October 30, 2010
Total number of shares purchased	0.5		0.5		0.8		0.8
Total cash investment	$	26	$	24	$	40	$	39
Aggregate market value(b)	$	26	$	26	$	40	$	42

(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 11.

(b) At their respective settlement dates.

11. Pension, Postretirement Health Care and Other Benefits

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.

Net Pension and	Pension Benefits												Postretirement Health Care Benefits
Postretirement Health	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
Care Benefits Expense	Oct. 29,			Oct. 30,			Oct. 29,			Oct. 30,			Oct. 29,			Oct. 30,			Oct. 29,			Oct. 30,
(millions)	2011			2010			2011			2010			2011			2010			2011			2010
Service cost	$	29		$	29		$	87		$	87		$	3		$	2		$	7		$	7
Interest cost	34			32			103			96			1			1			3			3
Expected return on assets	(51		)	(48		)	(153		)	(144		)	—			—			—			—
Recognized losses	16			11			50			33			1			1			3			3
Recognized prior service cost	—			—			(2		)	(1		)	(3		)	(2		)	(7		)	(7		)
Total	$	28		$	24		$	85		$	71		$	2		$	2		$	6		$	6

Even though we are not required by law to make any contributions, we may elect to make contributions depending on investment performance and the pension plan funded status in 2011.

Our unfunded, nonqualified deferred compensation plan is offered to 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 a pretax gain of $6 million and $1 million during the three months ended October 29, 2011 and October 30, 2010, respectively, and a pretax gain of $3 million and $1 million for the nine months ended October 29, 2011 and October 30, 2010, respectively. For the nine months ended October 29, 2011 and October 30, 2010, we invested approximately $44 million and $26 million, respectively, in such investment instruments. 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 10.

At October 29, 2011, January 29, 2011 and October 30, 2010, our outstanding interest in contracts indexed to our common stock was as follows:

Prepaid Forward Contracts on Target
Common Stock	October 29,		January 29,		October 30,
(millions, except per share data)	2011		2011		2010
Number of shares	1.3		1.2		1.2
Average price paid per share	$	43.78	$	44.09	$	43.87
Fair value	$	70	$	63	$	62
Total cash investment	$	55	$	51	$	53

12. Segment Reporting

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.

Our segment measure of profit is used by management to evaluate the return we are achieving on our investment and to make operating decisions.

Business Segment Results		Three Months Ended October 29, 2011													Three Months Ended October 30, 2010
						U.S.											U.S.
		U.S.				Credit									U.S.		Credit
(millions)		Retail				Card				Canadian			Total		Retail		Card			Canadian		Total
Sales/Credit card revenues		$		16,054		$		348		$		—	$	16,402	$	15,226	$		379	$	—	$	15,605
Cost of sales		11,165				—				—			11,165		10,562		—			—		10,562
Bad debt expense(a)		—				40				—			40		—		110			—		110
Selling, general and administrative/ Operations and marketing expenses(a), (b)		3,433				143				18			3,594		3,319		114			—		3,433
Depreciation and amortization		525				4				17			546		529		5			—		533
Earnings/(loss) before interest expense and income taxes		931				161				(35)			1,057		816		150			—		967
Interest expense on nonrecourse debt collateralized by credit card receivables		—				18				—			18		—		20			—		20
Segment profit/(loss)		$		931		$		143		$		(35)	$	1,039	$	816	$		130	$	—	$		947
Unallocated (income) and expenses
Other interest expense													184									175
Interest income													(2)									(1)
Earnings before income taxes													$	857								$		773


	Nine Months Ended October 29, 2011														Nine Months Ended October 30, 2010
					U.S.												U.S.
	U.S.				Credit										U.S.		Credit
(millions)	Retail				Card				Canadian				Total		Retail		Card			Canadian		Total
Sales/Credit card revenues	$		47,529		$		1,048		$		—		$	48,577	$	45,509	$	1,220		$	—	$	46,729
Cost of sales	32,874				—				—				32,874		31,267		—			—		31,267
Bad debt expense(a)	—				67				—				67		—		445			—		445
Selling, general and administrative/ Operations and marketing expenses(a), (b)	9,988				405				53				10,446		9,689		307			—		9,997
Depreciation and amortization	1,527				13				28				1,568		1,532		14			—		1,545
Earnings/(loss) before interest expense and income taxes	3,140				563				(81)				3,622		3,021		454			—		3,475
Interest expense on nonrecourse debt collateralized by credit card receivables	—				55				—				55		—		64			—		64
Segment profit/(loss)	$			3,140	$			508	$			(81)	$	3,567	$	3,021	$		390	$	—	$		3,411
Unallocated (income) and expenses
Other interest expense													522									505
Interest income													(3)									(2)
Earnings before income taxes													$	3,048								$		2,908