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 July 30, 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 incorporation or organization)		(I.R.S. Employer 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 August 22, 2011 were 675,227,176.

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	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Reserved	25
Item 5.	Other Information	25
Item 6.	Exhibits	26


Signature		27
Exhibit Index		28

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Operations

	Three Months Ended						Six Months Ended
	July 30,			July 31,			July 30,			July 31,
(millions, except per share data) (unaudited)	2011			2010			2011			2010
Sales	$	15,895		$	15,126		$	31,475		$	30,283
Credit card revenues	345			406			700			841
Total revenues	16,240			15,532			32,175			31,124
Cost of sales	10,872			10,293			21,710			20,705
Selling, general and administrative expenses	3,473			3,263			6,705			6,405
Credit card expenses	86			214			174			494
Depreciation and amortization	509			496			1,022			1,012
Earnings before interest expense and income taxes	1,300			1,266			2,564			2,508
Net interest expense
Nonrecourse debt collateralized by credit card receivables	18			21			37			44
Other interest expense	174			165			338			330
Interest income	(1		)	(1		)	(1		)	(1		)
Net interest expense	191			185			374			373
Earnings before income taxes	1,109			1,081			2,190			2,135
Provision for income taxes	405			402			797			785
Net earnings	$	704		$	679		$	1,393		$	1,350
Basic earnings per share	$	1.03		$	0.93		$	2.03		$	1.84
Diluted earnings per share	$	1.03		$	0.92		$	2.02		$	1.82
Weighted average common shares outstanding
Basic	680.8			731.1			686.7			735.5
Diluted	685.1			736.6			691.2			741.1

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Financial Position

	July 30,		January 29,		July 31,
(millions)	2011		2011		2010
Assets	(unaudited)				(unaudited)
Cash and cash equivalents, including marketable securities of $116, $1,129 and $972	$	890	$	1,712	$	1,540
Credit card receivables, net of allowance of $480, $690 and $851	5,722		6,153		6,137
Inventory	7,926		7,596		7,728
Other current assets	1,521		1,752		1,840
Total current assets	16,059		17,213		17,245
Property and equipment
Land	5,999		5,928		5,845
Buildings and improvements	26,092		23,081		22,568
Fixtures and equipment	4,906		4,939		4,602
Computer hardware and software	2,392		2,533		2,432
Construction-in-progress	571		567		772
Accumulated depreciation	(11,587)		(11,555)		(10,818)
Property and equipment, net	28,373		25,493		25,401
Other noncurrent assets	1,067		999		1,009
Total assets	$	45,499	$	43,705	$	43,655
Liabilities and shareholders’ investment
Accounts payable	$	6,519	$	6,625	$	6,228
Accrued and other current liabilities	3,721		3,326		3,057
Unsecured debt and other borrowings	1,130		119		782
Nonrecourse debt collateralized by credit card receivables	250		—		33
Total current liabilities	11,620		10,070		10,100
Unsecured debt and other borrowings	12,661		11,653		11,693
Nonrecourse debt collateralized by credit card receivables	3,499		3,954		4,044
Deferred income taxes	969		934		740
Other noncurrent liabilities	1,644		1,607		1,810
Total noncurrent liabilities	18,773		18,148		18,287
Shareholders’ investment
Common stock	56		59		60
Additional paid-in capital	3,385		3,311		3,085
Retained earnings	12,213		12,698		12,690
Accumulated other comprehensive loss	(548)		(581)		(567)
Total shareholders’ investment	15,106		15,487		15,268
Total liabilities and shareholders’ investment	$	45,499	$	43,705	$	43,655
Common shares outstanding	675.2		704.0		722.6

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows

	Six Months Ended
	July 30,			July 31,
(millions) (unaudited)	2011			2010
Operating activities
Net earnings	$	1,393		$	1,350
Reconciliation to cash flow
Depreciation and amortization	1,022			1,012
Share-based compensation expense	44			52
Deferred income taxes	122			148
Bad debt expense	27			335
Non-cash (gains)/losses and other, net	62			(39		)
Changes in operating accounts:
Accounts receivable originated at Target	143			241
Inventory	(330		)	(549		)
Other current assets	80			5
Other noncurrent assets	16			(118		)
Accounts payable	(119		)	(283		)
Accrued and other current liabilities	(129		)	(247		)
Other noncurrent liabilities	5			(79		)
Cash flow provided by operations	2,336			1,828
Investing activities
Expenditures for property and equipment	(2,379		)	(991		)
Proceeds from disposal of property and equipment	2			32
Change in accounts receivable originated at third parties	261			254
Other investments	(19		)	(20		)
Cash flow required for investing activities	(2,135		)	(725		)
Financing activities
Additions to long-term debt	1,000			997
Reductions of long-term debt	(238		)	(1,339		)
Dividends paid	(346		)	(252		)
Repurchase of stock	(1,493		)	(1,285		)
Stock option exercises and related tax benefit	34			116
Other	20			—
Cash flow required for financing activities	(1,023		)	(1,763		)
Net decrease in cash and cash equivalents	(822		)	(660		)
Cash and cash equivalents at beginning of period	1,712			2,200
Cash and cash equivalents at end of period	$	890		$	1,540

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Shareholders’ Investment

											Accumulated Other Comprehensive Income/(Loss)
(millions, except footnotes)	Common Stock Shares		Stock Par Value			Additional Paid-in Capital		Retained Earnings			Pension and Other Benefit Liability Adjustments			Derivative Instruments, Foreign Currency 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		)
Net change on 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	—		—			—		1,393			—			—			1,393
Other comprehensive income
Pension and other benefit liability adjustments, net of taxes of $11	—		—			—		—			16			—			16
Net change on cash flow hedges, net of taxes of $1	—		—			—		—			—			2			2
Currency translation adjustment, net of taxes of $9	—		—			—		—			—			15			15
Total comprehensive income																	1,426
Dividends declared	—		—			—		(374		)	—			—			(374		)
Repurchase of stock	(29.7	)	(3		)	—		(1,504		)	—			—			(1,507		)
Stock options and awards	0.9		—			74		—			—			—			74
July 30, 2011	675.2		$	56		$	3,385	$	12,213		$	(525	)	$	(23	)	$	15,106

Dividends declared per share were $0.30 and $0.25 for the three months ended July 30, 2011 and July 31, 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 six months ended July 30, 2011 the value of $1.00 ranged from C$0.94 (Canadian dollars) to C$1.00 and averaged C$0.97. On July 30, 2011, $1.00 was equivalent to C$0.96.

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				Six Months Ended
(millions, except per share data)	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
Net earnings	$	704	$	679	$	1,393	$	1,350
Basic weighted average common shares outstanding	680.8		731.1		686.7		735.5
Dilutive impact of share-based awards(a)	4.3		5.5		4.5		5.6
Diluted weighted average common shares outstanding	685.1		736.6		691.2		741.1
Basic earnings per share	$	1.03	$	0.93	$	2.03	$	1.84
Diluted earnings per share	$	1.03	$	0.92	$	2.02	$	1.82

(a) Excluded 18.5 million and 16.5 million share-based awards for the three and six months ended July 30, 2011, respectively, and 11.6 million share-based awards for both the three and six months ended July 31, 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 believe this transaction will allow us to open 125 to 135 Target stores in Canada, primarily during 2013. During the second quarter of 2011, we paid one-half of the purchase price and selected 105 sites.

We recorded the acquired assets in our Canadian Segment at their preliminary estimated fair values. The final allocation of the purchase price will be determined when the asset acquisition is completed in the third quarter of 2011. In the second quarter of 2011, we recorded capital lease assets, included in property and equipment, of $2,393 million and capital lease obligations, included in unsecured debt and other borrowings, of $1,012 million.

The acquired assets were subleased back to Zellers for terms through March 2013, or earlier at our option.

We have the right to select up to 115 additional leases before our final payment in the third quarter of 2011. We have also entered into an agreement with a third party retailer to sell our right to acquire leasehold interests in up to 39 of these sites.

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 —
Recurring Basis	Fair Value at July 30, 2011						Fair Value at January 29, 2011						Fair Value at July 31, 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	$	116	$	—	$	—	$	1,129	$	—	$	—	$	972	$	—	$	—
Other current assets
Prepaid forward contracts	74		—		—		63		—		—		73		—		—
Other	—		6		—		—		—		—		—		—		—
Other noncurrent assets
Interest rate swaps(a)	—		140		—		—		139		—		—		164		—
Company-owned life insurance investments(b)	—		366		—		—		358		—		—		341		—
Total	$	190	$	512	$	—	$	1,192	$	497	$	—	$	1,045	$	505	$	—
Liabilities
Other noncurrent liabilities
Interest rate swaps(a)	$	—	$	68	$	—	$	—	$	54	$	—	$	—	$	66	$	—
Total	$	—	$	68	$	—	$	—	$	54	$	—	$	—	$	66	$	—

(a) There was one interest rate swap designated as an accounting hedge at July 30, 2011, and no interest rate swaps designated as accounting hedges at January 29, 2011 or July 31, 2010.

(b) Company-owned life insurance investments consist of equity index funds and fixed income assets. Amounts are presented net of loans that are secured by some of these policies of $656 million at July 30, 2011, $645 million at January 29, 2011 and $624 million at July 31, 2010.

*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 — Nonrecurring Basis	Other current assets						Property and equipment
	Long-lived assets held for sale						Long-lived assets held and used(a)
(millions)	Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended
Measured during the period ended July 30, 2011:
Carrying amount	$	9		$	11		$	68		$	97
Fair value measurement	8			10			44			65
Gain/(loss)	$	(1	)	$	(1	)	$	(24	)	$	(32	)
Measured during the period ended July 31, 2010:
Carrying amount	$	2		$	2		$	39		$	62
Fair value measurement	2			2			34			54
Gain/(loss)	$	—		$	—		$	(5	)	$	(8	)

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

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

Financial Instruments Not	July 30, 2011				January 29, 2011				July 31, 2010
Measured at Fair Value	Carrying		Fair		Carrying		Fair		Carrying		Fair
(millions)	Amount		Value		Amount		Value		Amount		Value
Financial assets
Other current assets
Marketable securities(a)	$	23	$	23	$	32	$	32	$	24	$	24
Other noncurrent assets
Marketable securities(a)	—		—		4		4		—		—
Total	$	23	$	23	$	36	$	36	$	24	$	24
Financial liabilities
Total debt(b)	$	16,035	$	17,931	$	15,241	$	16,661	$	16,135	$	17,953
Total	$	16,035	$	17,931	$	15,241	$	16,661	$	16,135	$	17,953

(a) Held-to-maturity government-issued investments that are held to satisfy the regulatory requirements of Target Bank and Target National Bank.

(b) Represents the sum of nonrecourse debt collateralized by credit card receivables and unsecured debt and other borrowings excluding unamortized swap valuation adjustments and capital lease obligations.

The carrying amounts of credit card receivables, net of allowance, accounts payable, and certain accrued and other current liabilities approximate fair value at July 30, 2011.

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 July 30, 2011, January 29, 2011, and July 31, 2010. Accounts are written off when they become 180 days past due.

Age of Credit Card Receivables	July 30, 2011			January 29, 2011				July 31, 2010
			Percent of			Percent of				Percent of
(dollars in millions)	Amount		Receivables	Amount		Receivables		Amount		Receivables
Current	$	5,671	91.4%	$	6,132	89.6	%	$	6,167	88.3%
1-29 days past due	242		3.9	292		4.3		312		4.5
30-59 days past due	101		1.6	131		1.9		162		2.3
60-89 days past due	60		1.0	79		1.1		101		1.4
90+ days past due	128		2.1	209		3.1		246		3.5
Period-end gross credit card receivables	$	6,202	100%	$	6,843	100	%	$	6,988	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				Six Months Ended
(millions)	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
Allowance at beginning of period	$ 565		$ 930		$ 690		$ 1,016
Bad debt expense	15		138		27		335
Write-offs(a)	(142	)	(256	)	(326	)	(573	)
Recoveries(a)	42		39		89		73
Allowance at end of period	$ 480		$ 851		$ 480		$ 851

(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
(millions)	July 30, 2011	January 29, 2011	July 31, 2010
Nondelinquent accounts (Current and 1 – 29 days past due)
FICO score of 700 or above	$ 2,786	$ 2,819	$ 2,789
FICO score of 600 to 699	2,500	2,737	2,782
FICO score below 600	627	868	908
Total nondelinquent accounts	5,913	6,424	6,479
Delinquent accounts (30+ days past due)	289	419	509
Period-end gross credit card receivables	$ 6,202	$ 6,843	$ 6,988

Under certain circumstances, we offer cardholder payment plans that modify finance charges and minimum payments, which meet the accounting definition of a troubled debt restructuring (TDR). These concessions are made on an individual cardholder basis for economic or legal reasons specific to each individual cardholder’s circumstances. As a percentage of period-end gross receivables, receivables classified as TDRs were 5.4 percent at July 30, 2011, 5.9 percent at January 29, 2011 and 6.3 percent at July 31, 2010. Receivables classified as TDRs are treated consistently with other aged receivables in determining our allowance for doubtful accounts.

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 $421 million during first six months of 2011 and 2010, respectively.

If a three-month average of monthly finance charge excess (JPMC’s prorata 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. In the first quarter of 2011, this agreement was amended to allow the Corporation to prepay the principal balance on the note payable to JPMC between September 30, 2011 and 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 $103 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 prorata share of cash flows from the Trust assets.

Securitized Borrowings	July 30, 2011				January 29, 2011				July 31, 2010
	Debt				Debt				Debt
(millions)	Balance		Collateral		Balance		Collateral		Balance		Collateral
2008 Series(a)	$	2,749	$	2,828	$	2,954	$	3,061	$	3,077	$	3,212
2006/2007 Series	1,000		1,266		1,000		1,266		1,000		1,266
Total	$	3,749	$	4,094	$	3,954	$	4,327	$	4,077	$	4,478

(a) The debt balance for the 2008 Series is net of a 7% discount from JPMC. The unamortized portion of this discount was $79 million, $107 million and $134 million as of July 30, 2011, January 29, 2011, and July 31, 2010, respectively.

6. Commitments and Contingencies

Due to our second quarter acquisition of leases from Zellers, we have future minimum lease payments of $2.9 billion, with a net present value of $1.0 billion, at July 30, 2011 which is reflected as capital lease obligations within unsecured debt and other borrowings in the Consolidated Statement of Financial Position. We also have the obligation to pay Zellers the remaining purchase price of C$912.5 million in the third quarter of 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. There were no amounts outstanding under our commercial paper program at July 30, 2011, January 29, 2011, or July 31, 2010. During the three and six months ended July 30, 2011 the maximum amount outstanding was $850 million and the average amount outstanding was $329 million and $164 million, respectively. There were no amounts outstanding under our commercial paper program at any time during the three or six months ended July 31, 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 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 July 30, 2011 and July 31, 2010, respectively. Total net gains amortized into net interest expense for terminated or de-designated swaps were $20 million and $22 million during the six months ended July 30, 2011 and July 31, 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 $132 million, $152 million and $175 million, at July 30, 2011, January 29, 2011 and July 31, 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				Six Months Ended
(millions)	Classification of Income/(Expense)	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
Interest rate swaps	Other interest expense	$	11	$	13	$	22	$	28

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 six months ended July 30, 2011. There were no derivative instruments designated as hedges as of July 31, 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.

We expect that within the next twelve months $12 million to $60 million of unrecognized tax benefits will be recognized as several issues may be resolved. If these issues are favorably resolved, they would result in a corresponding reduction to income tax expense of approximately the same amount.

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 (millions, except per share data)	Total Number of Shares Purchased	Average Price Paid per Share		Total Investment
First quarter 2010	7.5	$	52.27	$	394
Second quarter 2010	17.6	51.72		907
Year-to-date 2010	25.1	$	51.89	$	1,301

First quarter 2011	15.4	$	53.32	$	819
Second quarter 2011	14.3	48.11		688
Year-to-date 2011	29.7	$	50.81	$	1,507

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

Settlement of Prepaid Forward Contracts(a) (millions)	Total Number of Shares Reacquired	Total Cash Investment		Aggregate Market Value(b)
First quarter 2010	0.3	$	15	$	16
Second quarter 2010	—	—		—
Year-to-date 2010	0.3	$	15	$	16

First quarter 2011	0.1	$	7	$	7
Second quarter 2011	0.2	7		7
Year-to-date 2011	0.3	$	14	$	14

(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						Six Months Ended						Three Months Ended						Six Months Ended
Care Benefits Expense	July 30,			July 31,			July 30,			July 31,			July 30,			July 31,			July 30,			July 31,
(millions)	2011			2010			2011			2010			2011			2010			2011			2010
Service cost	$	29		$	29		$	58		$	58		$	2		$	3		$	4		$	5
Interest cost	35			32			69			64			1			1			2			2
Expected return on assets	(51		)	(48		)	(102		)	(96		)	—			—			—			—
Recognized losses	18			11			34			22			1			1			2			2
Recognized prior service cost	(1		)	—			(2		)	(1		)	(2		)	(3		)	(4		)	(5		)
Total	$	30		$	24		$	57		$	47		$	2		$	2		$	4		$	4

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 pretax income/(loss) of $4 million and $(7) million during the three months ended July 30, 2011 and July 31, 2010, respectively, and a pretax loss of $3 million and $1 million for the six months ended July 30, 2011 and July 31, 2010, respectively. For the six months ended July 30, 2011 and July 31, 2010, we invested approximately $29 million and $11 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 July 30, 2011, January 29, 2011 and July 31, 2010, our outstanding interest in contracts indexed to our common stock was as follows:

Prepaid Forward Contracts on Target Common Stock		Contractual
(millions, except per share data)	Number of Shares	Price Paid per Share		Fair Value		Total Cash Investment
July 31, 2010	1.4	$	43.49	$	73	$	62
January 29, 2011	1.2	44.09		63		51
July 30, 2011	1.4	45.43		74		65

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 measure of profit for each segment is a measure that management considers analytically useful in measuring the return we are achieving on our investment.

Business Segment Results	Three Months Ended July 30, 2011										Three Months Ended July 31, 2010
	U.S.		U.S. Credit								U.S.		U.S. Credit
(millions)	Retail		Card		Canadian			Total			Retail		Card		Canadian		Total
Sales/Credit card revenues	$	15,895	$	345	$	—		$	16,240		$	15,126	$	406	$	—	$	15,532
Cost of sales	10,872		—		—			10,872			10,293		—		—		10,293
Bad debt expense(a)	—		15		—			15			—		138		—		138
Selling, general and administrative/ Operations and marketing expenses(a), (b)	3,382		137		25			3,544			3,246		93		—		3,339
Depreciation and amortization	494		4		11			509			491		5		—		496
Earnings/(loss) before interest expense and income taxes	1,147		189		(36		)	1,300			1,096		170		—		1,266
Interest expense on nonrecourse debt collateralized by credit card receivables	—		18		—			18			—		21		—		21
Segment profit/(loss)	$	1,147	$	171	$	(36	)	1,282			$	1,096	$	149	$	—	$	1,245
Unallocated (income) and expenses
Other interest expense								174									165
Interest income								(1		)							(1		)
Earnings before income taxes								$	1,109								$	1,081

	Six Months Ended July 30, 2011										Six Months Ended July 31, 2010
	U.S.		U.S. Credit								U.S.		U.S. Credit
(millions)	Retail		Card		Canadian			Total			Retail		Card		Canadian		Total
Sales/Credit card revenues	$	31,475	$	700	$	—		$	32,175		$	30,283	$	841	$	—	$	31,124
Cost of sales	21,710		—		—			21,710			20,705		—		—		20,705
Bad debt expense(a)	—		27		—			27			—		335		—		335
Selling, general and administrative/ Operations and marketing expenses(a), (b)	6,554		262		36			6,852			6,370		193		—		6,563
Depreciation and amortization	1,002		9		11			1,022			1,003		9		—		1,012
Earnings/(loss) before interest expense and income taxes	2,209		402		(47		)	2,564			2,205		304		—		2,508
Interest expense on nonrecourse debt collateralized by credit card receivables	—		37		—			37			—		44		—		44
Segment profit/(loss)	$	2,209	$	365	$	(47	)	2,527			$	2,205	$	260	$	—	2,465
Unallocated (income) and expenses
Other interest expense								338									330
Interest income								(1		)							(1		)
Earnings before income taxes								$	2,190								$	2,135

(a) The combination of bad debt expense and operations and marketing expenses, less amounts reimbursed to the U.S. Retail Segment, within the U.S. Credit Card Segment represent credit card expenses on the Consolidated Statements of Operations.

(b) Loyalty Program discounts are recorded as reductions to sales in our U.S. Retail Segment. Effective with the October 2010 nationwide launch of our new 5% REDcard Rewards loyalty program, we changed the formula under which our U.S. Credit Card Segment reimburses our U.S. Retail Segment to better align with the attributes of the new program. In the three and six months ended July 30, 2011, these reimbursed amounts were $66 million and $115 million compared with $17 million and $34 million in the corresponding periods in 2010. 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.

Note: The sum of the segment amounts may not equal the total amounts due to rounding.

Total Assets by Segment
(millions)	July 30, 2011		January 29, 2011		July 31, 2010
U.S. Retail	$	36,823	$	37,324	$	37,182
U.S. Credit Card	5,931		6,381		6,473
Canadian	2,745		—		—
Total	$	45,499	$	43,705	$	43,655

Substantially all of our revenues are generated in, and long-lived assets are located in, the United States. However, as we expand our operations, an increasing proportion of our business will be in Canada.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

Consolidated revenues were $16,240 million for the three months ended July 30, 2011, an increase of $708 million or 4.6 percent from the same period in the prior year. Consolidated earnings before interest expense and income taxes for second quarter 2011 increased by $34 million or 2.7 percent over second quarter 2010 to $1,300 million. Cash flow provided by operations was $2,336 million and $1,828 million for the six months ended July 30, 2011 and July 31, 2010, respectively.

Our financial results for the second quarter of 2011 in our U.S. Retail Segment reflect increased sales of 5.1 percent over the same period last year due to a 3.9 percent comparable-store increase combined with the contribution from new stores. Our second quarter 2011 U.S. Retail Segment EBITDA and EBIT margin rates remained largely consistent with the prior year. We opened 9 new stores in the second quarter of 2011 (7 net of 2 relocations). During the three months ended July 31, 2010, we opened 3 new stores.

In the U.S. Credit Card Segment, we achieved an increase in segment profit primarily due to declining bad debt expense driven by improved trends in key measures of risk in our accounts receivable portfolio.

Our Canadian Segment was initially reported in our first quarter 2011 financial results, as a result of entering 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 (Canadian dollars). We believe this transaction will allow us to open 125 to 135 Target stores in Canada, primarily during 2013. During the second quarter of 2011, we paid one-half of the purchase price and selected 105 sites. We have the right to select up to 115 additional leases in advance of the second payment in third quarter 2011. During the three and six months ended July 30, 2011, start-up costs totaled $25 million and $36 million, respectively, and primarily consisted of compensation, benefits and consulting expenses. These expenses are reported in SG&A expense within the consolidated statement of operations.

Analysis of Results of Operations

U.S. Retail Segment

U.S. Retail Segment Results

Three Months Ended

Six Months Ended

July 30,

July 31,

Percent

July 30,

July 31,

Percent

(millions)

2011

2010

Change

2011

2010

Change

Sales