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 28, 2012

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 August 20, 2012 were 654,885,290.

TARGET CORPORATION

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Operations	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Statements of Financial Position	3
	Consolidated Statements of Cash Flows	4
	Consolidated Statements of Shareholders’ Investment	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28


Signature		29
Exhibit Index		30

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Operations
	Three Months Ended				Six Months Ended
	July 28,		July 30,		July 28,		July 30,
(millions, except per share data) (unaudited)	2012		2011		2012		2011
Sales	$	16,451	$	15,895	$	32,989	$	31,475
Credit card revenues	328		345		657		700
Total revenues	16,779		16,240		33,646		32,175
Cost of sales	11,297		10,872		22,838		21,710
Selling, general and administrative expenses	3,588		3,473		6,981		6,705
Credit card expenses	108		86		228		174
Depreciation and amortization	531		509		1,060		1,022
Earnings before interest expense and income taxes	1,255		1,300		2,539		2,564
Net interest expense	184		191		366		374
Earnings before income taxes	1,071		1,109		2,173		2,190
Provision for income taxes	367		405		772		797
Net earnings	$	704	$	704	$	1,401	$	1,393
Basic earnings per share	$	1.07	$	1.03	$	2.12	$	2.03
Diluted earnings per share	$	1.06	$	1.03	$	2.10	$	2.02
Weighted average common shares outstanding
Basic	656.7		680.8		661.5		686.7
Diluted	662.9		685.1		667.6		691.2

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income
	Three Months Ended					Six Months Ended
	July 28,			July 30,		July 28,		July 30,
(millions) (unaudited)	2012			2011		2012		2011
Net earnings	$	704		$	704	$	1,401	$	1,393
Other comprehensive (loss)/income, net of tax
Pension and other benefit liabilities, net of taxes of $9, $5, $19 and $11	14			7		28		16
Currency translation adjustment and cash flow hedges, net of taxes of $16, $9, $0 and $10	(25		)	15		1		17
Other comprehensive (loss)/income	(11		)	22		29		33
Comprehensive income	$	693		$	726	$	1,430	$	1,426

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Financial Position
	July 28,			January 28,			July 30,
(millions)	2012			2012			2011
Assets	(unaudited)						(unaudited)
Cash and cash equivalents, including short-term investments of $830, $194 and $116	$	1,442		$	794		$	890
Credit card receivables, net of allowance of $365, $430 and $480	5,540			5,927			5,722
Inventory	7,733			7,918			7,926
Other current assets	1,700			1,810			1,521
Total current assets	16,415			16,449			16,059
Property and equipment
Land	6,137			6,122			5,999
Buildings and improvements	27,394			26,837			26,092
Fixtures and equipment	5,192			5,141			4,906
Computer hardware and software	2,333			2,468			2,392
Construction-in-progress	1,260			963			571
Accumulated depreciation	(12,542		)	(12,382		)	(11,587		)
Property and equipment, net	29,774			29,149			28,373
Other noncurrent assets	1,136			1,032			1,067
Total assets	$	47,325		$	46,630		$	45,499
Liabilities and shareholders’ investment
Accounts payable	$	6,505		$	6,857		$	6,519
Accrued and other current liabilities	3,539			3,644			3,721
Unsecured debt and other borrowings	2,535			3,036			1,130
Nonrecourse debt collateralized by credit card receivables	750			750			250
Total current liabilities	13,329			14,287			11,620
Unsecured debt and other borrowings	14,479			13,447			12,661
Nonrecourse debt collateralized by credit card receivables	750			250			3,499
Deferred income taxes	1,173			1,191			969
Other noncurrent liabilities	1,697			1,634			1,644
Total noncurrent liabilities	18,099			16,522			18,773
Shareholders’ investment
Common stock	54			56			56
Additional paid-in capital	3,721			3,487			3,385
Retained earnings	12,774			12,959			12,213
Accumulated other comprehensive loss
Pension and other benefit liabilities	(596		)	(624		)	(525		)
Currency translation adjustment and cash flow hedges	(56		)	(57		)	(23		)
Total shareholders’ investment	15,897			15,821			15,106
Total liabilities and shareholders’ investment	$	47,325		$	46,630		$	45,499
Common shares outstanding	653.9			669.3			675.2

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows
	Six Months Ended
	July 28,			July 30,
(millions) (unaudited)	2012			2011
Operating activities
Net earnings	$	1,401		$	1,393
Reconciliation to cash flow
Depreciation and amortization	1,060			1,022
Share-based compensation expense	48			44
Deferred income taxes	(92		)	122
Bad debt expense	95			27
Non-cash (gains)/losses and other, net	(1		)	62
Changes in operating accounts:
Accounts receivable originated at Target	116			143
Inventory	185			(330		)
Other current assets	72			80
Other noncurrent assets	(9		)	16
Accounts payable	(352		)	(119		)
Accrued and other current liabilities	(150		)	(129		)
Other noncurrent liabilities	98			5
Cash flow provided by operations	2,471			2,336
Investing activities
Expenditures for property and equipment	(1,603		)	(2,379		)
Proceeds from disposal of property and equipment	18			2
Change in accounts receivable originated at third parties	176			261
Other investments	(18		)	(19		)
Cash flow required for investing activities	(1,427		)	(2,135		)
Financing activities
Additions to long-term debt	1,971			1,000
Reductions of long-term debt	(1,011		)	(238		)
Dividends paid	(399		)	(346		)
Repurchase of stock	(1,130		)	(1,493		)
Stock option exercises and related tax benefit	183			34
Other	(16		)	20
Cash flow required for financing activities	(402		)	(1,023		)
Effect of exchange rate changes on cash and cash equivalents	6			—
Net increase (decrease) in cash and cash equivalents	648			(822		)
Cash and cash equivalents at beginning of period	794			1,712
Cash and cash equivalents at end of period	$	1,442		$	890

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Shareholders’ Investment

	Common		Stock			Additional					Accumulated Other
	Stock		Par			Paid-in		Retained			Comprehensive
(millions, except footnotes)	Shares		Value			Capital		Earnings			Income/(Loss)			Total
January 29, 2011	704.0		$	59		$	3,311	$	12,698		$	(581	)	$	15,487
Net earnings	—		—			—		2,929			—			2,929
Other comprehensive income	—		—			—		—			(100		)	(100		)
Dividends declared	—		—			—		(777		)	—			(777		)
Repurchase of stock	(37.2	)	(3		)	—		(1,891		)	—			(1,894		)
Stock options and awards	2.5		—			176		—			—			176
January 28, 2012	669.3		$	56		$	3,487	$	12,959		$	(681	)	$	15,821
(unaudited)
Net earnings	—		—			—		1,401			—			1,401
Other comprehensive income	—		—			—		—			29			29
Dividends declared	—		—			—		(434		)	—			(434		)
Repurchase of stock	(20.2	)	(2		)	—		(1,152		)	—			(1,154		)
Stock options and awards	4.8		—			234		—			—			234
July 28, 2012	653.9		$	54		$	3,721	$	12,774		$	(652	)	$	15,897

Dividends declared per share were $0.36 and $0.30 for the three months ended July 28, 2012 and July 30, 2011, respectively. For the fiscal year ended January 28, 2012, dividends declared per share were $1.15.

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements (unaudited)

1. Accounting Policies

The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statement disclosures contained in the 2011 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 28, 2012, 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.

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.

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
	July 28,		July 30,		July 28,		July 30,
(millions, except per share data)	2012		2011		2012		2011
Net earnings	$	704	$	704	$	1,401	$	1,393
Basic weighted average common shares outstanding	656.7		680.8		661.5		686.7
Dilutive impact of share-based awards(a)	6.2		4.3		6.1		4.5
Diluted weighted average common shares outstanding	662.9		685.1		667.6		691.2
Basic earnings per share	$	1.07	$	1.03	$	2.12	$	2.03
Diluted earnings per share	$	1.06	$	1.03	$	2.10	$	2.02

(a) Excludes 5.8 million and 8.7 million share-based awards for the three and six months ended July 28, 2012, respectively, and 18.5 million and 16.5 million share-based awards for the three and six months ended July 30, 2011, respectively, because their effects were antidilutive.

3. 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).

Fair Value Measurements - Recurring Basis
	Fair Value at July 28, 2012						Fair Value at January 28, 2012						Fair Value at July 30, 2011
(millions)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents
Short-term investments	$	830	$	—	$	—	$	194	$	—	$	—	$	116	$	—	$	—
Other current assets
Interest rate swaps(a)	—		19		—		—		20		—		—		—		—
Prepaid forward contracts	72		—		—		69		—		—		74		—		—
Other	—		—		—		—		—		—		—		6		—
Other noncurrent assets
Interest rate swaps(a)	—		93		—		—		114		—		—		140		—
Company-owned life
insurance investments(b)	—		386		—		—		371		—		—		366		—
Total	$	902	$	498	$	—	$	263	$	505	$	—	$	190	$	512	$	—
Liabilities
Other current liabilities
Interest rate swaps(a)	$	—	$	7	$	—	$	—	$	7	$	—	$	—	$	—	$	—
Other noncurrent liabilities
Interest rate swaps(a)	—		62		—		—		69		—		—		68		—
Total	$	—	$	69	$	—	$	—	$	76	$	—	$	—	$	68	$	—

(a) There was one interest rate swap designated as an accounting hedge in all periods presented. See Note 7 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 $667 million at July 28, 2012, $669 million at January 28, 2012 and $656 million at July 30, 2011.

Position		Valuation Technique
Short-term investments		Carrying value approximates 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 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 and would be classified as Level 1. 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 and would be classified as Level 2.

Financial Instruments Not Measured at Fair Value	July 28, 2012				January 28, 2012				July 30, 2011
	Carrying		Fair		Carrying		Fair		Carrying		Fair
(millions)	Amount		Value		Amount		Value		Amount		Value
Financial assets
Other current assets
Marketable securities(a)	$	32	$	32	$	35	$	35	$	23	$	23
Other noncurrent assets
Marketable securities(a)	6		6		6		6		—		—
Total	$	38	$	38	$	41	$	41	$	23	$	23
Financial liabilities
Total debt(b)	$	16,647	$	19,666	$	15,680	$	18,142	$	16,035	$	17,931
Total	$	16,647	$	19,666	$	15,680	$	18,142	$	16,035	$	17,931

(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 July 28, 2012. The carrying amounts of accounts payable and certain accrued and other current liabilities also approximate fair value at July 28, 2012.

4. 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.

Age of Credit Card Receivables	July 28, 2012			January 28, 2012				July 30, 2011
			Percent of			Percent of				Percent of
(dollars in millions)	Amount		Receivables	Amount		Receivables		Amount		Receivables
Current	$	5,439	92.2%	$	5,791	91.1	%	$	5,671	91.4%
1-29 days past due	238		4.0	260		4.1		242		3.9
30-59 days past due	77		1.3	97		1.5		101		1.6
60-89 days past due	48		0.8	62		1.0		60		1.0
90+ days past due	103		1.7	147		2.3		128		2.1
Period-end gross credit card receivables	$	5,905	100%	$	6,357	100	%	$	6,202	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
	July 28,			July 30,			July 28,			July 30,
(millions)	2012			2011			2012			2011
Allowance at beginning of period	$	395		$	565		$	430		$	690
Bad debt expense	43			15			95			27
Write-offs(a)	(105		)	(142		)	(232		)	(326)
Recoveries(a)	32			42			72			89
Allowance at end of period	$	365		$	480		$	365		$	480

(a) Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period 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	July 28, 2012					January 28, 2012				July 30, 2011
				Percent of				Percent of				Percent of
(dollars in millions)	Amount			Receivables		Amount		Receivables		Amount		Receivables
Nondelinquent accounts
FICO score of 700 or above	$		2,854	48.3	%	$	2,882	45.4	%	$	2,786	44.9	%
FICO score of 600 to 699	2,251			38.1		2,463		38.7		2,500		40.3
FICO score below 600	572			9.7		706		11.1		627		10.1
Total nondelinquent accounts	5,677			96.1		6,051		95.2		5,913		95.3
Delinquent accounts (30+ days past due)	228			3.9		306		4.8		289		4.7
Period-end gross credit card receivables	$	5,905		100	%	$	6,357	100	%	$	6,202	100	%

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.

Troubled Debt Restructurings	Three Months Ended				Six Months Ended
	July 28,		July 30,		July 28,		July 30,
(dollars in millions, contracts in thousands)	2012		2011		2012		2011
Average receivables	$	232	$	344	$	245	$	360
Finance charges	$	3	$	5	$	7	$	11
Defaults During the Period(a)
Number of contracts	3		6		5		12
Amount defaulted(b)	$	8	$	17	$	15	$	36

(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. As of July 28, 2012 and July 30, 2011 there were 102 thousand and 133 thousand modified contracts with outstanding receivables of $226 million and $334 million, respectively. 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), 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.

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	July 28, 2012				January 28, 2012				July 30, 2011
(millions)	Debt Balance		Collateral		Debt Balance		Collateral		Debt Balance		Collateral
2008 Series	$	—	$	—	$	—	$	—	$	2,749	$	2,828
2006/2007 Series	1,500		1,899		1,000		1,266		1,000		1,266
Total	$	1,500	$	1,899	$	1,000	$	1,266	$	3,749	$	4,094

In March 2012 we amended the 2006/2007 Series Variable Funding Certificate to obtain additional funding of $500 million and to extend the maturity to 2013. Parties who hold the Variable Funding Certificate receive interest at a variable short-term market rate.

5. Commitments and Contingencies

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.

6. 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.

Commercial Paper	Three Months Ended				Six Months Ended
	July 28,		July 30,		July 28,		July 30,
(dollars in millions)	2012		2011		2012		2011
Maximum daily amount outstanding during the period	$	620	$	850	$	620	$	850
Average daily amount outstanding during the period	$	240	$	329	$	201	$	164
Amount outstanding at period-end	$	—	$	—	$	—	$	—
Weighted average interest rate	0.21%		0.12%		0.16%		0.12%

In June 2012, we issued $1.5 billion of unsecured fixed rate debt at 4.0% that matures in July 2042. Proceeds from this issuance were used for general corporate purposes.

7. Derivative Financial Instruments

Historically our derivative instruments have primarily consisted of interest rate swaps, which are used to mitigate interest rate risk. We have counterparty credit risk with large global financial institutions resulting from our derivative instruments. We monitor this concentration of counterparty credit risk on an ongoing basis. See Note 3 for a description of the fair value measurement of our derivative instruments and their classification on the Consolidated Statements of Financial Position.

As of July 28, 2012 and July 30, 2011, one swap was designated as a fair value hedge for accounting purposes, and no ineffectiveness was recognized during the three or six months ended July 28, 2012 or July 30, 2011.

Periodic payments, valuation adjustments and amortization of gains or losses on our derivative contracts had the following effect on our Consolidated Statements of Operations:

Derivative Contracts - Effect on Results of Operations		Three Months Ended				Six Months Ended
(millions)		July 28,		July 30,		July 28,		July 30,
Type of Contract	Classification of Income/(Expense)	2012		2011		2012		2011
Interest rate swaps	Net interest expense	$	9	$	11	$	19	$	22

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 $93 million, $111 million and $132 million, at July 28, 2012, January 28, 2012 and July 30, 2011, respectively.

8. 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 2011 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.

At July 28, 2012, foreign net operating loss carryforwards of approximately $340 million (resulting in a $90 million deferred tax asset) are available to offset future income. These carryforwards expire in 2032 and are expected to be fully utilized prior to expiration.

It is reasonably possible that the amount of our unrecognized tax benefits will significantly 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.

9. Share Repurchase

We repurchase shares primarily through open market transactions under a $5 billion share repurchase program authorized by our Board of Directors in January 2012. During the first quarter of 2012, we completed a $10 billion share repurchase program that was authorized by our Board of Directors in November 2007.

Share Repurchases	Three Months Ended				Six Months Ended
	July 28,		July 30,		July 28,		July 30,
(millions, except per share data)	2012		2011		2012		2011
Total number of shares purchased	9.6		14.3		20.2		29.7
Average price paid per share	$	57.09	$	48.11	$	57.21	$	50.81
Total investment	$	549	$	688	$	1,154	$	1,507

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

Settlement of Prepaid Forward Contracts(a)	Three Months Ended				Six Months Ended
	July 28,		July 30,		July 28,		July 30,
(millions)	2012		2011		2012		2011
Total number of shares purchased	0.2		0.2		0.4		0.3
Total cash investment	$	11	$	7	$	23	$	14
Aggregate market value(b)	$	11	$	7	$	24	$	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 10.

(b) At their respective settlement dates.

10. 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 Postretirement	Pension Benefits												Postretirement Health Care Benefits
Health Care Benefits Expense	Three Months						Six Months						Three Months						Six Months
	Ended						Ended						Ended						Ended
	July 28,			July 30,			July 28,			July 30,			July 28,			July 30,			July 28,			July 30,
(millions)	2012			2011			2012			2011			2012			2011			2012			2011
Service cost benefits earned during the period	$	30		$	29		$	60		$	58		$	2		$	2		$	4		$	4
Interest cost on projected benefit obligation	35			35			70			69			—			1			1			2
Expected return on assets	(55		)	(51		)	(110		)	(102		)	—			—			—			—
Amortization of losses	26			18			52			34			1			1			2			2
Amortization of prior service cost	—			(1		)	—			(2		)	(2		)	(2		)	(4		)	(4		)
Total	$	36		$	30		$	72		$	57		$	1		$	2		$	3		$	4

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.

Our unfunded, nonqualified deferred compensation plan is offered to approximately 3,000 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 of $4 million in each of the three months ended July 28, 2012 and July 30, 2011, and pretax income/(loss) of $15 million and $(3) million for the six months ended July 28, 2012 and July 30, 2011, respectively. For the six months ended July 28, 2012 and July 30,

2011, we invested $13 million and $29 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 9. The settlement dates of these instruments are regularly renegotiated with the counterparty.

Prepaid Forward Contracts on Target Common Stock		Contractual
	Number of	Price Paid		Contractual		Total Cash
(millions, except per share data)	Shares	per Share		Fair Value		Investment
July 30, 2011	1.4	$	45.43	$	74	$	65
January 28, 2012	1.4	44.21		69		61
July 28, 2012	1.2	44.70		72		53

11. Segment Reporting

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

Business Segment Results	Three Months Ended July 28, 2012									Three Months Ended July 30, 2011
			U.S.									U.S.
	U.S.		Credit							U.S.		Credit
(millions)	Retail		Card		Canadian			Total		Retail		Card		Canadian			Total
Sales/Credit card revenues	$	16,451	$	328	$	—		$	16,779	$	15,895	$	345	$	—		$	16,240
Cost of sales	11,297		—		—			11,297		10,872		—		—			10,872
Bad debt expense(a)	—		43		—			43		—		15		—			15
Selling, general and administrative/ Operations and marketing expenses(a), (b)	3,468		139		47			3,653		3,382		137		25			3,544
Depreciation and amortization	505		3		22			531		494		4		11			509
Earnings/(loss) before interest expense and income taxes	1,181		143		(69		)	1,255		1,147		189		(36		)	1,300
Interest expense on nonrecourse debt collateralized by credit card receivables (c)	—		3		—			3		—		18		—			18
Segment profit/(loss)	$	1,181	$	140	$	(69	)	$	1,252	$	1,147	$	171	$	(36	)	$	1,282
Unallocated (income) and expenses:
Other net interest expense (c)								181									173
Earnings before income taxes								$	1,071								$	1,109

Business Segment Results	Six Months Ended July 28, 2012									Six Months Ended July 30, 2011
			U.S.									U.S.
	U.S.		Credit							U.S.		Credit
(millions)	Retail		Card		Canadian			Total		Retail		Card		Canadian			Total
Sales/Credit card revenues	$	32,989	$	657	$	—		$	33,646	$	31,475	$	700	$	—		$	32,175
Cost of sales	22,838		—		—			22,838		21,710		—		—			21,710
Bad debt expense(a)	—		95		—			95		—		27		—			27
Selling, general and administrative/ Operations and marketing expenses(a), (b)	6,762		271		81			7,114		6,554		262		36			6,852
Depreciation and amortization	1,009		7		44			1,060		1,002		9		11			1,022
Earnings/(loss) before interest expense and income taxes	2,380		284		(125		)	2,539		2,209		402		(47		)	2,564
Interest expense on nonrecourse debt collateralized by credit card receivables (c)	—		5		—			5		—		37		—			37
Segment profit/(loss)	$	2,380	$	279	$	(125	)	$	2,534	$	2,209	$	365	$	(47	)	$	2,527
Unallocated (income) and expenses:
Other net interest expense (c)								361									337
Earnings before income taxes								$	2,173								$	2,190

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) Loyalty program charges were $74 million and $66 million for the three months ended July 28, 2012 and July 30, 2011, respectively, and $138 million and $115 million for the six months ended July 28, 2012 and July 30, 2011, respectively. 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.

(c) The combination of interest expense on nonrecourse debt collateralized by credit card receivables and other net interest expense represent net interest expense on the Consolidated Statements of Operations.

Total Assets by Segment	July 28,		January 28,		July 30,
(millions)	2012		2012		2011
U.S. Retail	$	37,724	$	37,108	$	36,823
U.S. Credit Card	5,751		6,135		5,931
Canadian	3,850		3,387		2,745
Total	$	47,325	$	46,630	$	45,499

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

Executive Summary

Consolidated revenues were $16,779 million for the three months ended July 28, 2012, an increase of $539 million or 3.3 percent from the same period in the prior year. Consolidated earnings before interest expense and income taxes for second quarter 2012 decreased by $45 million or 3.5 percent from second quarter 2011 to $1,255 million. Cash flow provided by operations was $2,471 million and $2,336 million for the six months ended July 28, 2012 and July 30, 2011, respectively. Diluted earnings per share in the second quarter increased 3.4 percent to $1.06 from $1.03 in the same period a year ago. Adjusted diluted earnings per share, which we believe is useful in providing period-to-period comparisons of the results of our U.S. operations, increased 4.6 percent to $1.12 in second quarter 2012 from $1.07 in the same period a year ago.

Earnings Per Share	Three Months Ended								Six Months Ended
	July 28		,	July 30		,			July 28		,	July 30		,
	2012			2011			Change		2012			2011			Change
GAAP diluted earnings per share	$	1.06		$	1.03		3.4	%	$	2.10		$	2.02		4.2	%
Adjustments(a)	0.06			0.04					0.13			0.04
Adjusted diluted earnings per share	$	1.12		$	1.07		4.6	%	$	2.23		$	2.06		8.0	%

Note: A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 21.

(a) Adjustments represent the diluted EPS impact of our planned 2013 Canadian market entry and the favorable resolution of various income tax matters.

Our financial results for the second quarter of 2012 in our U.S. Retail Segment reflect increased sales of 3.5 percent over the same period last year due to a 3.1 percent comparable-store increase combined with the contribution from new stores. Our second quarter 2012 U.S. Retail Segment EBITDA and EBIT margin rates remained largely consistent with the prior year.

In the U.S. Credit Card Segment, we experienced a decrease in segment profit due to annualizing over a significant reserve reduction in the prior year and lower finance charge revenue resulting from a smaller portfolio, partially offset by lower interest expense.

During the three and six months ended July 28, 2012, loss before interest expense and income taxes in our Canadian Segment totaled $69 million and $125 million, respectively, comprised of start-up costs and depreciation, compared to $36 million and $47 million during the three and six months ended July 30, 2011, respectively.

Analysis of Results of Operations

U.S. Retail Segment

U.S. Retail Segment Results

Three Months Ended

Six Months Ended

July 28,

July 30,

Percent

July 28,

July 30,

Percent

(dollars in millions)

2012

2011

Change

2012

2011

Change

Sales

16,451

15,895

3.5 %