10-K 1 a2201861z10-k.htm 10-K

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

(Mark One)    

ý

 

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

For the fiscal year ended January 29, 2011

OR

o

 

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

For the transition period from                                    to                                     

Commission file number 1-6049



LOGO

TARGET CORPORATION
(Exact name of registrant as specified in its charter)

Minnesota
(State or other jurisdiction of
incorporation or organization)
  41-0215170
(I.R.S. Employer
Identification No.)

1000 Nicollet Mall, Minneapolis, Minnesota
(Address of principal executive offices)

 

55403
(Zip Code)

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

Securities Registered Pursuant To Section 12(B) Of The Act:

Title of Each Class   Name of Each Exchange on Which Registered
Common Stock, par value $0.0833 per share   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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 ý No o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, 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 ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  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 ý

Aggregate market value of the voting stock held by non-affiliates of the registrant on July 31, 2010 was $37,014,234,947, based on the closing price of $51.32 per share of Common Stock as reported on the New York Stock Exchange Composite Index.

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 March 7, 2011 were 693,063,352.

DOCUMENTS INCORPORATED BY REFERENCE

1.    Portions of Target's Proxy Statement to be filed on or about April 28, 2011 are incorporated into Part III.


TABLE OF CONTENTS

PART I    
      Item 1   Business   2
      Item 1A   Risk Factors   4
      Item 1B   Unresolved Staff Comments   8
      Item 2   Properties   9
      Item 3   Legal Proceedings   10
      Item 4   Reserved   10
      Item 4A   Executive Officers   10

PART II

 

 
      Item 5   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   12
      Item 6   Selected Financial Data   14
      Item 7   Management's Discussion and Analysis of Financial Condition and Results of Operations   14
      Item 7A   Quantitative and Qualitative Disclosures About Market Risk   29
      Item 8   Financial Statements and Supplementary Data   31
      Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   66
      Item 9A   Controls and Procedures   66
      Item 9B   Other Information   66

PART III

 

 
      Item 10   Directors, Executive Officers and Corporate Governance   67
      Item 11   Executive Compensation   67
      Item 12   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   67
      Item 13   Certain Relationships and Related Transactions, and Director Independence   67
      Item 14   Principal Accountant Fees and Services   67

PART IV

 

 
      Item 15   Exhibits and Financial Statement Schedules   68

Signatures

 

71
Schedule II – Valuation and Qualifying Accounts   72
Exhibit Index   73
Exhibit 12 – Computations of Ratios of Earnings to Fixed Charges for each of the Five Years in the Period Ended January 29, 2011   75

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PART I

Item 1.    Business

General

        Target Corporation (the Corporation or Target) was incorporated in Minnesota in 1902. We operate as two reportable segments: Retail and Credit Card.

        Our Retail Segment includes all of our merchandising operations, including our fully integrated online business. We offer both everyday essentials and fashionable, differentiated merchandise at discounted prices. Our ability to deliver a shopping experience that is preferred by our customers, referred to as "guests," is supported by our strong supply chain and technology infrastructure, a devotion to innovation that is ingrained in our organization and culture, and our disciplined approach to managing our current business and investing in future growth. As a component of the Retail Segment, our online presence is designed to enable guests to purchase products seamlessly either online or by locating them in one of our stores with the aid of online research and location tools. Our online shopping site offers similar merchandise categories to those found in our stores, excluding food items and household essentials.

        Our Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards, the Target Visa and the Target Card. Additionally, we offer a branded proprietary Target Debit Card. Collectively, these REDcards® help strengthen the bond with our guests, drive incremental sales and contribute to our results of operations.

Financial Highlights

        Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal year 2010 ended January 29, 2011, and consisted of 52 weeks. Fiscal year 2009 ended January 30, 2010, and consisted of 52 weeks. Fiscal year 2008 ended January 31, 2009, and consisted of 52 weeks.

        For information on key financial highlights, see the items referenced in Item 6, Selected Financial Data, and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.

Seasonality

        Due to the seasonal nature of our business, a larger share of annual revenues and earnings traditionally occurs in the fourth quarter because it includes the peak sales period from Thanksgiving to the end of December.

Merchandise

        We operate Target general merchandise stores, the majority of which offer a wide assortment of general merchandise and a more limited food assortment than traditional supermarkets. During 2009 and 2010 we completed store remodels that enabled us to offer an expanded food assortment in many of our general merchandise stores. The expanded food assortment includes some perishables and some additional dry, dairy and frozen items. In addition, we operate SuperTarget® stores with general merchandise items and a full line of food items comparable to that of traditional supermarkets. Target.com offers a wide assortment of general merchandise including many items found in our stores and a complementary assortment, such as extended sizes and colors, sold only online. A significant portion of our sales is from national brand merchandise. We also sell many products under our owned and exclusive brands. Owned brands include merchandise sold under private-label brands including, but not limited to, Archer Farms®, Archer Farms® Simply Balanced™, Boots & Barkley®, choxie®, Circo®, Durabuilt®, Embark®, Gilligan & O'Malley®, itsoTM, Market Pantry®, Merona®, Play Wonder®, Room Essentials®,

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Smith & Hawken®, Sutton & Dodge®, Target Home™, Vroom®, up & up™, Wine Cube® and Xhilaration®. In addition, we sell merchandise under exclusive licensed and designer brands including, but not limited to, C9 by Champion®, Chefmate®, Cherokee®, Converse® One Star®, Eddie Bauer®, Fieldcrest®, Genuine Kids by OshKosh®, Kitchen Essentials® from Calphalon®, Liz Lange® for Target®, Michael Graves Design™, Mossimo®, Nick & Nora®, Simply Shabby Chic®, Sonia Kashuk® and Thomas O'Brien® Vintage Modern. We also sell merchandise through unique programs such as ClearRxSM, GO International® and The Great SaveSM. Additionally, we generate revenue from in-store amenities such as Target CaféSM, Target Clinic®, Target Pharmacy® and Target Photo®, and from leased or licensed departments such as Target Optical®, Pizza Hut, Portrait Studio and Starbucks.

        Effective inventory management is key to our ongoing success. We utilize various techniques including demand forecasting and planning and various forms of replenishment management. We achieve effective inventory management by being in-stock in core product offerings, maintaining positive vendor relationships, and carefully planning inventory levels for seasonal and apparel items to minimize markdowns.

   
Sales by Product Category
  Percentage of Sales


 
 
  2010
  2009
  2008
 
   

Household essentials

  24 % 23 % 22 %

Hardlines

  20   22   22  

Apparel and accessories

  20   20   20  

Home furnishings and décor

  19   19   21  

Food and pet supplies

  17   16   15  
   

Total

  100 % 100 % 100 %
   

Household essentials includes pharmacy, beauty, personal care, baby care, cleaning and paper products.

Hardlines includes electronics (including video game hardware and software), music, movies, books, computer software, sporting goods and toys.

Apparel and accessories includes apparel for women, men, boys, girls, toddlers, infants and newborns. It also includes intimate apparel, jewelry, accessories and shoes.

Home furnishings and décor includes furniture, lighting, kitchenware, small appliances, home décor, bed and bath, home improvement, automotive and seasonal merchandise such as patio furniture and holiday décor.

Food and pet supplies includes dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce and pet supplies.

Distribution

        The vast majority of our merchandise is distributed through our network of distribution centers. We operated 37 distribution centers, including 4 food distribution centers, at January 29, 2011. General merchandise is shipped to and from our distribution centers by common carriers. In addition, third parties distribute certain food items. Merchandise sold through Target.com is distributed through our own distribution network, through third parties, or shipped directly from vendors.

Employees

        At January 29, 2011, we employed approximately 355,000 full-time, part-time and seasonal employees, referred to as "team members." During our peak sales period from Thanksgiving to the end of December, our employment levels peaked at approximately 400,000 team members. We consider our team member relations to be good. We offer a broad range of company-paid benefits to our team members. Eligibility for, and the level of, these benefits varies, depending on team members' full-time or part-time status, compensation level, date of hire

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and/or length of service. These company-paid benefits include a pension plan, 401(k) plan, medical and dental plans, a retiree medical plan, disability insurance, paid vacation, tuition reimbursement, various team member assistance programs, life insurance and merchandise discounts.

Working Capital

        Because of the seasonal nature of our business, our working capital needs are greater in the months leading up to our peak sales period from Thanksgiving to the end of December. The increase in working capital during this time is typically financed with cash flow provided by operations and short-term borrowings.

        Additional details are provided in the Liquidity and Capital Resources section in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Competition

        In our Retail Segment, we compete with traditional and off-price general merchandise retailers, apparel retailers, Internet retailers, wholesale clubs, category specific retailers, drug stores, supermarkets and other forms of retail commerce. Our ability to positively differentiate ourselves from other retailers largely determines our competitive position within the retail industry.

        In our Credit Card Segment, our primary mission is to deliver financial products and services that drive sales and deepen guest relationships at Target. Our financial products compete with those of other issuers for market share of sales volume. Our ability to positively differentiate the value of our financial products primarily through our rewards programs, terms, credit line management, and guest service determines our competitive position among credit card issuers.

Intellectual Property

        Our brand image is a critical element of our business strategy. Our principal trademarks, including Target, SuperTarget and our "Bullseye Design," have been registered with the U.S. Patent and Trademark Office. We also seek to obtain and preserve intellectual property protection for our private-label brands.

Geographic Information

        Substantially, all of our revenues are generated and long-lived assets are located within the United States.

Available Information

        Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at www.Target.com (click on "Investors" and "SEC Filings") as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Our Corporate Governance Guidelines, Business Conduct Guide, Corporate Responsibility Report and the position descriptions for our Board of Directors and Board committees are also available free of charge in print upon request or at www.Target.com (click on "Investors" and "Corporate Governance").

Item 1A.    Risk Factors

        Our business is subject to a variety of risks. The most important of these is our ability to remain relevant to our guests with a brand they trust. Meeting our guests' expectations requires us to manage various strategic, operational, compliance, and financial risks. Set forth below are the most significant risks that we face.

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If we are unable to positively differentiate ourselves from other retailers, our results of operations could be adversely affected.

        The retail business is highly competitive. In the past we have been able to compete successfully by differentiating our shopping experience by creating an attractive value proposition through a careful combination of price, merchandise assortment, convenience, guest service and marketing efforts. Guest perceptions regarding the cleanliness and safety of our stores, our in-stock levels and other factors also affect our ability to compete. No single competitive factor is dominant, and actions by our competitors on any of these factors could have an adverse effect on our sales, gross margin and expenses.

If we fail to anticipate and respond quickly to changing consumer preferences, our sales, gross margin and profitability could suffer.

        A substantial part of our business is dependent on our ability to make trend-right decisions in apparel, home décor, seasonal offerings, food and other merchandise. Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions may result in lost sales, spoilage and increased inventory markdowns, which would lead to a deterioration in our results of operations.

Our continued success is substantially dependent on positive perceptions of Target, including our owned and exclusive brands.

        We believe that one of the reasons our guests prefer to shop at Target and our team members choose Target as a place of employment is the reputation we have built over many years of serving our four primary constituencies: guests, team members, the communities in which we operate and shareholders. To be successful in the future, we must continue to preserve, grow and leverage the value of Target's reputation. Reputational value is based in large part on perceptions of subjective qualities, and even isolated incidents that erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation, can have an adverse impact on these perceptions and lead to tangible adverse affects on our business, including consumer boycotts, loss of new store development opportunities, or team member recruiting difficulties.

        In addition, we sell many products under our owned and exclusive brands, such as Market Pantry, up & up, Target Home, Merona and Mossimo. These brands generally carry higher margins than national brand products, and represent a growing portion of our overall sales, totaling approximately one-third of sales in 2010. If one or more of these brands experiences a loss of consumer acceptance or confidence, our sales and gross margin rate could be adversely affected.

We are highly susceptible to the state of macroeconomic conditions and consumer confidence in the United States.

        All of our stores are located within the United States, making our results highly dependent on U.S. consumer confidence and the health of the U.S. economy. In addition, a significant portion of our total sales is derived from stores located in five states: California, Texas, Florida, Minnesota and Illinois, resulting in further dependence on local economic conditions in these states. Deterioration in macroeconomic conditions and consumer confidence could negatively affect our business in many ways, including slowing sales growth or reduction in overall sales, and reducing gross margins.

        In addition to the impact of macroeconomic conditions on our retail sales, these same considerations impact the success of our Credit Card Segment. Deterioration in macroeconomic conditions can adversely affect cardholders' ability to pay their balances, and we may not be able to fully anticipate and respond to changes in the risk profile of our cardholders when extending credit, resulting in higher bad debt expense. Demand for consumer credit is also impacted by consumer choices regarding payment methods, and our performance could be adversely affected by consumer decisions to use debit cards or other forms of payment.

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If we do not effectively manage our large and growing workforce, our results of operations could be adversely affected.

        With approximately 355,000 team members, our workforce costs represent our largest operating expense, and our business is dependent on our ability to attract, train and retain a growing number of qualified team members. Many of those team members are in entry-level or part-time positions with historically high turnover rates. Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, prevailing wage rates, health care and other benefit costs and changing demographics. If we are unable to attract and retain adequate numbers of qualified team members, our operations, guest service levels and support functions could suffer. Those factors, together with increasing wage and benefit costs, could adversely affect our results of operations.

Lack of availability of suitable locations in which to build new stores could slow our growth, and difficulty in executing plans for new stores, expansions and remodels could increase our costs and capital requirements.

        Our future growth is dependent, in part, on our ability to build new stores and expand and remodel existing stores in a manner that achieves appropriate returns on our capital investment. We compete with other retailers and businesses for suitable locations for our stores. In addition, for many sites we are dependent on a third party developer's ability to acquire land, obtain financing and secure the necessary zoning changes and permits for a larger project, of which our store may be one component. Turmoil in the financial markets may make it difficult for third party developers to obtain financing for new projects. Local land use and other regulations applicable to the types of stores we desire to construct may affect our ability to find suitable locations and also influence the cost of constructing, expanding and remodeling our stores. A significant portion of our expected new store sites are located in fully developed markets, which is generally a more time-consuming and expensive undertaking than expansion into undeveloped suburban and ex-urban markets.

Interruptions with our vendors and within our supply chain could adversely affect our results.

        We are dependent on our vendors to supply merchandise in a timely and efficient manner. If a vendor fails to deliver on its commitments, whether due to financial difficulties or other reasons, we could experience merchandise out-of-stocks that could lead to lost sales. In addition, a large portion of our merchandise is sourced, directly or indirectly, from outside the United States, with China as our single largest source. Political or financial instability, trade restrictions, increased tariffs, currency exchange rates, the outbreak of pandemics, labor unrest, transport capacity and costs, port security or other events that could slow port activities and affect foreign trade are beyond our control and could disrupt our supply of merchandise and/or adversely affect our results of operations.

Failure to address product safety concerns could adversely affect our sales and results of operations.

        If our merchandise offerings, including food, drug and children's products, do not meet applicable safety standards or our guests' expectations regarding safety, we could experience lost sales, experience increased costs and be exposed to legal and reputational risk. All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety standards. Events that give rise to actual, potential or perceived product safety concerns, including food or drug contamination, could expose us to government enforcement action or private litigation and result in costly product recalls and other liabilities. In addition, negative guest perceptions regarding the safety of the products we sell could cause our guests to seek alternative sources for their needs, resulting in lost sales. In those circumstances, it may be difficult and costly for us to regain the confidence of our guests.

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If we fail to protect the security of personal information about our guests, we could be subject to costly government enforcement actions or private litigation and our reputation could suffer.

        The nature of our business involves the receipt and storage of personal information about our guests. If we experience a data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our guests could lose confidence in our ability to protect their personal information, which could cause them to discontinue usage of our credit card products, decline to use our pharmacy services, or stop shopping at our stores altogether. Such events could lead to lost future sales and adversely affect our results of operations.

Our failure to comply with federal, state or local laws, or changes in these laws could increase our expenses.

        Our business is subject to a wide array of laws and regulations. Significant legislative changes that affect our relationship with our workforce could increase our expenses and adversely affect our operations. Examples of possible legislative changes affecting our relationship with our workforce include changes to an employer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage requirements, and health care mandates. In addition, changes in the regulatory environment regarding topics such as banking and consumer credit, Medicare reimbursements, privacy and information security, product safety or environmental protection, among others, could cause our expenses to increase without an ability to pass through any increased expenses through higher prices. In addition, if we fail to comply with applicable laws and regulations, particularly wage and hour laws, we could be subject to legal risk, including government enforcement action and class action civil litigation, which could adversely affect our results of operations.

Given the geographic concentration of our stores, natural disasters could adversely affect our results of operations.

        Our three largest states, by total sales, are California, Texas and Florida, areas where hurricanes and earthquakes are prevalent. Such events could result in significant physical damage to or closure of one or more of our stores or distribution centers, and cause delays in the distribution of merchandise from our vendors to our distribution centers and stores, which could adversely affect our results of operations.

Changes in our effective income tax rate could affect our results of operations.

        Our effective income tax rate is influenced by a number of factors. Changes in the tax laws, the interpretation of existing laws, or our failure to sustain our reporting positions on examination could adversely affect our effective tax rate. In addition, our effective income tax rate generally bears an inverse relationship to capital market returns due to the tax-free nature of investment vehicles used to economically hedge our deferred compensation liabilities.

If we are unable to access the capital markets or obtain bank credit, our growth plans, liquidity and results of operations could suffer.

        We are dependent on a stable, liquid and well-functioning financial system to fund our operations and growth plans. In particular, we have historically relied on the public debt markets to raise capital for new store development and other capital expenditures, the commercial paper market and bank credit facilities to fund seasonal needs for working capital, and the asset-backed securities markets to partially fund our accounts receivable portfolio. In addition, we use a variety of derivative products to manage our exposure to market risk, principally interest rate and equity price fluctuations. Disruptions or turmoil in the financial markets could adversely affect our ability to meet our capital requirements, fund our working capital needs or lead to losses on derivative positions resulting from counterparty failures.

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A significant disruption in our computer systems could adversely affect our operations.

        We rely extensively on our computer systems to manage inventory, process guest transactions and summarize results. Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches and catastrophic events. If our systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to manage inventories or process guest transactions, which could adversely affect our results of operations.

        In 2011 we expect to migrate our online presence (Target.com) from a platform currently operated by Amazon, Inc. to our own proprietary platform. If this new platform does not function as designed, we may experience a loss of guest confidence, data security breaches, lost sales or be exposed to fraudulent purchases.

Our announced plan to expand retail operations into Canada could adversely affect our financial results.

        Our plan to enter the Canadian retail market is our first expansion of retail operations outside of the United States. Our ability to convert the leased locations that we acquire from Zellers Inc. to Target stores depends in large measure upon our ability to negotiate acceptable modifications to existing lease terms, remodel existing assets and recruit, hire and retain qualified team members. In addition, access to local suppliers of certain types of goods may limit our ability to offer a full assortment of merchandise in certain markets. The effective execution of our strategy is also contingent on our ability to design new marketing and promotional programs that positively differentiate us from other retailers in Canada. If we do not effectively execute our expansion plans for Canada, our financial performance could be adversely affected.

Item 1B.    Unresolved Staff Comments

    Not applicable.

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Item 2.    Properties

        At January 29, 2011, we had 1,750 stores in 49 states and the District of Columbia:

       
 
  Number of Stores
    
Retail Sq. Ft.
(in thousands)

   
  Number of Stores
   
Retail Sq. Ft.
(in thousands)

 
       

Alabama

    20     2,867  

Montana

    7     780  

Alaska

    3     504  

Nebraska

    14     2,006  

Arizona

    48     6,363  

Nevada

    19     2,461  

Arkansas

    9     1,165  

New Hampshire

    9     1,148  

California

    248     32,818  

New Jersey

    43     5,671  

Colorado

    42     6,275  

New Mexico

    9     1,024  

Connecticut

    20     2,672  

New York

    66     9,000  

Delaware

    3     413  

North Carolina

    47     6,168  

District of Columbia

    1     179  

North Dakota

    4     554  

Florida

    125     17,552  

Ohio

    63     7,868  

Georgia

    55     7,517  

Oklahoma

    14     2,022  

Hawaii

    3     541  

Oregon

    19     2,318  

Idaho

    6     664  

Pennsylvania

    60     7,822  

Illinois

    87     11,895  

Rhode Island

    4     517  

Indiana

    33     4,377  

South Carolina

    18     2,224  

Iowa

    22     3,015  

South Dakota

    5     580  

Kansas

    19     2,577  

Tennessee

    32     4,096  

Kentucky

    13     1,525  

Texas

    148     20,838  

Louisiana

    15     2,108  

Utah

    12     1,818  

Maine

    5     630  

Vermont

         

Maryland

    36     4,663  

Virginia

    56     7,454  

Massachusetts

    34     4,437  

Washington

    35     4,098  

Michigan

    59     7,036  

West Virginia

    6     755  

Minnesota

    73     10,456  

Wisconsin

    37     4,482  

Mississippi

    6     743  

Wyoming

    2     187  

Missouri

    36     4,735                  
       

             

Total

    1,750     233,618  
                   

        The following table summarizes the number of owned or leased stores and distribution centers at January 29, 2011:

     
   
  Stores
    
Distribution
Centers
(b)
 
     
 

Owned

    1,500     29  
 

Leased

    84     8  
 

Combined (a)

    166      
     
 

Total

    1,750     37  
     
(a)
Properties within the "combined" category are primarily owned buildings on leased land.
(b)
The 37 distribution centers have a total of 48,022 thousand square feet.

        We own our corporate headquarters buildings located in Minneapolis, Minnesota, and we lease and own additional office space in the United States. Our international sourcing operations have 27 office locations in 18 countries, all of which are leased. We also lease office space in Bangalore, India, where we operate various support functions. Our properties are in good condition, well maintained and suitable to carry on our business.

        For additional information on our properties, see also the Capital Expenditures section in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 13 and 21 of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data.

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Item 3.    Legal Proceedings

        The following governmental enforcement proceedings relating to environmental matters are reported pursuant to instruction 5(C) of Item 103 of Regulation S-K because they involve potential monetary sanctions in excess of $100,000:

            We were a defendant in a civil lawsuit filed by the California Attorney General and a number of California District Attorneys in June 2009 alleging that we did not handle and dispose of certain unsold products as hazardous waste and that we violated California's hazardous waste laws. A settlement was reached in this case on January 27, 2011, which obligates Target to pay $22.5 million and consent to an injunction regarding future compliance with all California hazardous waste laws. The settlement was approved by the Alameda County Superior Court and judgment was entered on March 2, 2011.

            We are the subject of an ongoing Environmental Protection Agency (EPA) investigation for alleged violations of the Clean Air Act (CAA). In March 2009, the EPA issued a Finding of Violation (FOV) related to alleged violations of the CAA, specifically the National Emission Standards for Hazardous Air Pollutants (NESHAP) promulgated by the EPA for asbestos. The FOV pertains to the remodeling of 36 Target stores that occurred between January 1, 2003 and October 28, 2007. The EPA FOV process is ongoing and no specific relief has been sought to date by the EPA.

        The American Jobs Creation Act of 2004 requires SEC registrants to disclose if they have been required to pay certain penalties for failing to disclose to the Internal Revenue Service their participation in listed transactions. We have not been required to pay any of the penalties set forth in Section 6707A(e)(2) of the Internal Revenue Code.

Item 4.    Reserved

Item 4A.    Executive Officers

        The executive officers of Target as of March 7, 2011 and their positions and ages are as follows:

   
 
Name
  Title
  Age
 
   
Timothy R. Baer   Executive Vice President, General Counsel and Corporate Secretary     50  
Michael R. Francis   Executive Vice President and Chief Marketing Officer     48  
John D. Griffith   Executive Vice President, Property Development     49  
Beth M. Jacob   Executive Vice President, Technology Services and Chief Information Officer     49  
Jodeen A. Kozlak   Executive Vice President, Human Resources     47  
Tina M. Schiel   Executive Vice President, Stores     45  
Douglas A. Scovanner   Executive Vice President and Chief Financial Officer     55  
Terrence J. Scully   President, Financial and Retail Services     58  
Gregg W. Steinhafel   Chairman of the Board, President and Chief Executive Officer     56  
Kathryn A. Tesija   Executive Vice President, Merchandising     48  
Laysha L. Ward   President, Community Relations and Target Foundation     43  
   

        Each officer is elected by and serves at the pleasure of the Board of Directors. There is neither a family relationship between any of the officers named and any other executive officer or member of the Board of Directors nor any arrangement or understanding pursuant to which any person was selected as an officer. The service period of each officer in the positions listed and other business experience for the past five years is listed below.

Timothy R. Baer   Executive Vice President, General Counsel and Corporate Secretary since March 2007. Senior Vice President, General Counsel and Corporate Secretary from June 2004 to March 2007.

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Michael R. Francis   Executive Vice President and Chief Marketing Officer since August 2008. Executive Vice President, Marketing from January 2003 to August 2008.

John D. Griffith

 

Executive Vice President, Property Development since February 2005.

Beth M. Jacob

 

Executive Vice President and Chief Information Officer since January 2010. Senior Vice President and Chief Information Officer from July 2008 to January 2010. Vice President, Guest Operations, Target Financial Services from August 2006 to July 2008. Vice President, Guest Contact Centers, Target Financial Services from September 2003 to August 2006.

Jodeen A. Kozlak

 

Executive Vice President, Human Resources since March 2007. Senior Vice President, Human Resources from February 2006 to March 2007. Vice President, Human Resources and Employee Relations General Counsel from November 2005 to February 2006.

Tina M. Schiel

 

Executive Vice President, Stores since January 2011. Senior Vice President, New Business Development from February 2010 to January 2011. Senior Vice President, Stores from February 2001 to February 2010.

Douglas A. Scovanner

 

Executive Vice President and Chief Financial Officer since February 2000.

Terrence J. Scully

 

President, Financial and Retail Services since March 2003.

Gregg W. Steinhafel

 

Chief Executive Officer since May 2008. President since August 1999. Director since January 2007. Chairman of the Board since February 2009.

Kathryn A. Tesija

 

Executive Vice President, Merchandising since May 2008. Senior Vice President, Merchandising from July 2001 to May 2008.

Laysha L. Ward

 

President, Community Relations and Target Foundation since July 2008. Vice President, Community Relations from February 2003 to July 2008.

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PART II

Item 5.    Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Our common stock is listed on the New York Stock Exchange under the symbol "TGT." We are authorized to issue up to 6,000,000,000 shares of common stock, par value $0.0833, and up to 5,000,000 shares of preferred stock, par value $0.01. At March 7, 2011, there were 17,247 shareholders of record. Dividends declared per share and the high and low closing common stock price for each fiscal quarter during 2010 and 2009 are disclosed in Note 29 of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data.

        In November 2007, our Board of Directors authorized the repurchase of $10 billion of our common stock. Since the inception of this share repurchase program, we have repurchased 151.4 million common shares for a total cash investment of $7,827 million ($51.70 per share).

        The table below presents information with respect to Target common stock purchases made during the three months ended January 29, 2011, by Target or any "affiliated purchaser" of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.

 

 
 
   
   
   
  Approximate
 
 
   
   
  Total Number of
  Dollar Value of
 
 
   
   
  Shares Purchased
  Shares that May
 
 
  Total Number
  Average
  as Part of
  Yet Be Purchased
 
 
  of Shares
  Price Paid
  Publicly Announced
  Under the
 
Period
  Purchased (a)
  per Share (a)
  Program (a)
  Program
 
   

October 31, 2010 through
November 27, 2010

    1,632,664   $ 52.05     145,434,588   $ 2,501,898,442  

November 28, 2010 through
January 1, 2011

    97,151   (b)   54.12     145,518,341     2,497,365,556  

January 2, 2011 through
January 29, 2011

    5,872,428     55.31     151,390,769     2,172,553,879  
   

    7,602,243     54.60     151,390,769     2,172,553,879  
   
(a)
The table above includes shares reacquired upon settlement of prepaid forward contracts. For the three months ended January 29, 2011, 0.3 million shares were reacquired through these contracts. At January 29, 2011, we held asset positions in prepaid forward contracts for 1.2 million shares of our common stock, for a total cash investment of $51 million, or an average per share price of $44.09. Refer to Notes 24 and 26 of the Notes to Consolidated Financial Statements for further details of these contracts.
(b)
The number of shares above includes shares of common stock reacquired from team members who wish to tender owned shares to satisfy the tax withholding on equity awards as part of our long-term incentive plans or to satisfy the exercise price on stock option exercises. For the three months ended January 29, 2011, 13,398 shares were reacquired at an average per share price of $59.72 pursuant to our long-term incentive plan.

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Comparison of Cumulative Five Year Total Return

GRAPHIC

   
 
    
Fiscal Years Ended
 
 
  January 28,
2006

  February 3,
2007

  February 2,
2008

  January 31,
2009

  January 30,
2010

  January 29,
2011

 
   

Target

  $ 100.00   $ 114.24   $ 106.01   $ 58.78   $ 98.20   $ 105.76  

S&P 500 Index

    100.00     115.32     113.24     68.66     91.41     110.85  

Peer Group

    100.00     112.67     105.89     77.34     105.84     126.16  
   

            The graph above compares the cumulative total shareholder return on our common stock for the last five fiscal years with the cumulative total return on the S&P 500 Index and a peer group consisting of the companies comprising the S&P 500 Retailing Index and the S&P 500 Food and Staples Retailing Index (Peer Group) over the same period. The Peer Group index consists of 40 general merchandise, food and drug retailers and is weighted by the market capitalization of each component company. The graph assumes the investment of $100 in Target common stock, the S&P 500 Index and the Peer Group on January 28, 2006, and reinvestment of all dividends.

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Item 6.    Selected Financial Data

   
 
    
As of or for the Year Ended
 
(millions, except per share data)
  2010
  2009
  2008
  2007
  2006(a)
  2005
 
   

Financial Results:

                                     

Total revenues

  $ 67,390   $ 65,357   $ 64,948   $ 63,367   $ 59,490   $ 52,620  

Net earnings

    2,920     2,488     2,214     2,849     2,787     2,408  

Per Share:

                                     

Basic earnings per share

    4.03     3.31     2.87     3.37     3.23     2.73  

Diluted earnings per share

    4.00     3.30     2.86     3.33     3.21     2.71  

Cash dividends declared per share

    0.92     0.67     0.62     0.54     0.46     0.38  

Financial Position:

                                     

Total assets

    43,705     44,533     44,106     44,560     37,349     34,995  

Long-term debt, including current portion

    15,726     16,814     18,752     16,590     10,037     9,872  
   
(a)
Consisted of 53 weeks.

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

        Our 2010 Retail Segment sales increased 3.7 percent over last year due to a 2.1 percent comparable-store increase combined with the contribution from new stores. Our Retail Segment EBITDA and EBIT increased 4.9 percent and 5.8 percent, respectively, compared with the prior year. In the Credit Card Segment, we achieved a significant increase in segment profit primarily due to declining bad debt expense driven by improved trends in key measures of risk.

        Cash flow provided by operations was $5,271 million, $5,881 million and $4,430 million for 2010, 2009 and 2008, respectively. We opened 13 new stores and 76 new stores in 2010 and 2009, respectively. In 2010 we remodeled 341 stores, significantly more than the 67 stores we remodeled in 2009. Additionally, during 2010 and 2009 we repurchased 47.8 million and 9.9 million shares of our common stock for a total cash investment of $2,508 million ($52.44 per share) and $479 million ($48.54 per share), respectively.

        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., in exchange for C$1,825 million (Canadian dollars), due in two payments, one in May 2011 and one in September 2011. We believe this transaction will allow us to open 100 to 150 Target stores in Canada, primarily during 2013. We expect that renovation of these stores will require an investment of over C$1 billion, a portion of which may be funded by landlords. At January 29, 2011 the value of C$1.00 approximated the value of $1.00.

        Additionally, in January 2011, we announced our plan to actively pursue the sale of our credit card receivables portfolio. As of January 29, 2011 the gross balance of our credit card receivables portfolio was $6,843 million, of which $3,954 million was funded by third parties and $2,889 million was funded by Target. Refer to Note 10 of the Notes to Consolidated Financial Statements for further description of historical financing transactions related to our credit card receivables.

        Management's Discussion and Analysis is based on our Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data.

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Analysis of Results of Operations

Retail Segment

   
 
   
   
   
    
Percent Change
 
Retail Segment Results
(millions)
   
   
   
 
  2010
  2009
  2008
  2010/2009
  2009/2008
 
   

Sales

  $ 65,786   $ 63,435   $ 62,884     3.7 %   0.9 %

Cost of sales

    45,725     44,062     44,157     3.8     (0.2 )
   

Gross margin

    20,061     19,373     18,727     3.5     3.5  

SG&A expenses (a)

    13,367     12,989     12,838     2.9     1.2  
   

EBITDA

    6,694     6,384     5,889     4.9     8.4  

Depreciation and amortization

    2,065     2,008     1,808     2.8     11.0  
   

EBIT

  $ 4,629   $ 4,376   $ 4,081     5.8 %   7.3 %
   

EBITDA is earnings before interest expense, income taxes, depreciation and amortization.

EBIT is earnings before interest expense and income taxes.

(a)
Loyalty Program discounts are recorded as reductions to sales in our Retail Segment. Effective with the October 2010 nationwide launch of our new 5% REDcard Rewards loyalty program, we changed the formula under which our Credit Card segment reimburses our Retail Segment to better align with the attributes of the new program. These reimbursed amounts were $102 million in 2010, $89 million in 2009 and $117 million in 2008. In all periods these amounts were recorded as reductions to SG&A expenses within the Retail Segment and increases to operations and marketing expenses within the Credit Card Segment.

   
  
Retail Segment Rate Analysis
  2010
  2009
  2008
 
   

Gross margin rate

    30.5 %   30.5 %   29.8 %

SG&A expense rate

    20.3     20.5     20.4  

EBITDA margin rate

    10.2     10.1     9.4  

Depreciation and amortization expense rate

    3.1     3.2     2.9  

EBIT margin rate

    7.0     6.9     6.5  
   

Retail Segment rate analysis metrics are computed by dividing the applicable amount by sales.

Sales

        Sales include merchandise sales, net of expected returns, from our stores and our online business, as well as gift card breakage. Refer to Note 2 of the Notes to Consolidated Financial Statements for a definition of gift card breakage. Total sales for the Retail Segment for 2010 were $65,786 million, compared with $63,435 million in 2009 and $62,884 million in 2008. All periods were 52-week years. Growth in total sales between 2010 and 2009 resulted from higher comparable-store sales and additional stores opened, whereas between 2009 and 2008, growth in total sales resulted from sales from additional stores opened, partially offset by lower comparable-store sales. In 2010, deflation affected sales growth by approximately 0.2 percentage points, compared with a deflationary impact of approximately 3.6 percentage points in 2009 and an inflationary impact of 2.2 percentage points in 2008.

   
 
    
Percentage of Sales


 
Sales by Product Category

 
  2010
  2009
  2008
 
   

Household essentials

    24 %   23 %   22 %

Hardlines

    20     22     22  

Apparel and accessories

    20     20     20  

Home furnishings and décor

    19     19     21  

Food and pet supplies

    17     16     15  
   

Total

    100 %   100 %   100 %
   

        Refer to the Merchandise section in Item 1, Business, for a description of our product categories.

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        Comparable-store sales is a measure that indicates the performance of our existing stores by measuring the growth in sales for such stores for a period over the comparable, prior-year period of equivalent length. The method of calculating comparable-store sales varies across the retail industry. As a result, our comparable-store sales calculation is not necessarily comparable to similarly titled measures reported by other companies.

Comparable-store sales are sales from our online business and stores open longer than one year, including:

    sales from stores that have been remodeled or expanded while remaining open
    sales from stores that have been relocated to new buildings of the same format within the same trade area, in which the new store opens at about the same time as the old store closes

Comparable-store sales do not include:

    sales from general merchandise stores that have been converted, or relocated within the same trade area, to a SuperTarget store format
    sales from stores that were intentionally closed to be remodeled, expanded or reconstructed
   
 
Comparable-Store Sales
  2010
  2009
  2008
 
   

Comparable-store sales change

    2.1 % (2.5)%       (2.9) %

Drivers of changes in comparable-store sales:

                   
 

Number of transactions

    2.0 % (0.2)%       (3.1) %
 

Average transaction amount

    0.1 % (2.3)%       0.2 %
   

Units per transaction

    2.5 % (1.5)%       (2.1) %
   

Selling price per unit

    (2.3) % (0.8)%       2.3 %
   

The comparable-store sales increases or decreases above are calculated by comparing sales in fiscal year periods with comparable prior fiscal year periods of equivalent length.

        In 2010, the change in comparable-store sales was driven by an increase in the number of transactions and a slight increase in the average transaction amount, reflecting an increase in units per transaction largely offset by a decrease in selling price per unit. In 2009, the change in comparable-store sales was driven by a decline in the average transaction amount, primarily due to a decrease in the number of units per transaction, as well as a slight decrease in the number of transactions. The collective interaction of a broad array of macroeconomic, competitive and consumer behavioral factors, as well as sales mix, and transfer of sales to new stores makes further analysis of sales metrics infeasible.

        Beginning April 2010, all new qualified credit card applicants receive the Target Card, and we no longer issue the Target Visa to credit card applicants. Existing Target Visa cardholders are not affected. Beginning October 2010, guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com.

        We monitor the percentage of store sales that are paid for using REDcards (REDcard Penetration), because our internal analysis has indicated that a meaningful portion of the incremental purchases on our REDcards are also incremental sales for Target, with the remainder of the incremental purchases on the REDcards representing a shift in tender type.

   
  
REDcard Penetration
  2010
  2009
  2008
 
   

Target credit penetration

    5.2 %   5.2 %   6.2 %

Target debit penetration

    0.7 %   0.4 %   0.3 %
   

Total store REDcard penetration

    5.9 %   5.6 %   6.5 %
   

        Since launching our new 5% REDcard Rewards program in October 2010, we have experienced an increase in REDcard penetration. REDcard penetration for the fourth quarter of 2010 was 7.4 percent compared to 5.6 percent in the fourth quarter of 2009.

Gross Margin Rate

        Gross margin rate represents gross margin (sales less cost of sales) as a percentage of sales. See Note 3 of the Notes to Consolidated Financial Statements for a description of costs included in cost of sales. Markup is the

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difference between an item's cost and its retail price (expressed as a percentage of its retail price). Factors that affect markup include vendor offerings and negotiations, vendor income, sourcing strategies, market forces like raw material and freight costs, and competitive influences. Markdowns are the reduction in the original or previous price of retail merchandise. Factors that affect markdowns include inventory management, competitive influences and economic conditions.

        Our gross margin rate was 30.5 percent in 2010, unchanged from prior year, as margin rates within categories were generally stable and the impact of sales mix was essentially neutral. There were no other significant variances in the drivers of gross margin rate.

        Our gross margin rate was 30.5 percent in 2009, compared with 29.8 percent in 2008. Our 2009 gross margin rate benefitted from rate improvements within categories, partially offset by the mix impact of faster sales growth in lower margin rate categories (generally product categories of household essentials and food). The impact of rate performance within merchandise categories on gross margin rate was an approximate 1.1 percentage point increase for 2009. This increase is the result of improved markups and reduced markdowns. The impact of sales mix on gross margin rate was an approximate 0.4 percentage point reduction.

Selling, General and Administrative Expense Rate

        Our selling, general and administrative (SG&A) expense rate represents SG&A expenses as a percentage of sales. See Note 3 of the Notes to Consolidated Financial Statements for a description of costs included in SG&A expenses. SG&A expenses exclude depreciation and amortization, as well as expenses associated with our credit card operations, which are reflected separately in our Consolidated Statements of Operations.

        SG&A expense rate was 20.3 percent in 2010 compared with 20.5 percent in 2009 and 20.4 percent in 2008. The change in the rate in 2010 was primarily due to favorable leverage of overall compensation expenses. The change in the SG&A expense rate in 2009 was primarily driven by an approximate 0.4 percentage point impact from an increase in incentive compensation due to better than expected 2009 performance compared with 2008 results, which was partially offset by an approximate 0.2 percentage point impact from sustained productivity gains in our stores.

Depreciation and Amortization Expense Rate

        Our depreciation and amortization expense rate represents depreciation and amortization expense as a percentage of sales. In 2010, our depreciation and amortization expense rate was 3.1 percent compared with 3.2 percent in 2009 and 2.9 percent in 2008. The rate was essentially unchanged from the same period last year. In 2009 the increase in the rate was primarily due to accelerated depreciation on assets that were replaced as part of our remodel program.

Store Data

   
Number of Stores
   
   
   
   
 
 
  General
merchandise

  Expanded food
assortment

  SuperTarget
  Total
 
   

January 30, 2010

    1,381     108     251     1,740  

Opened

        13         13  

Format conversion

    (341 )   341          

Closed (a)

    (3 )           (3 )
   

January 29, 2011

    1,037     462     251     1,750  
   

Retail Square Feet (b)
(thousands)

                         

January 30, 2010

    172,735     14,714     44,503     231,952  

Opened

        1,958         1,958  

Format conversion

    (45,138 )   45,151         13  

Closed (a)

    (305 )           (305 )
   

January 29, 2011

    127,292     61,823     44,503     233,618  
   
(a)
Includes 1 store relocation in the same trade area and 2 stores closed without replacement.
(b)
Reflects total square feet less office, distribution center and vacant space.

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Credit Card Segment

        We offer credit to qualified guests through the Target Visa and the Target Card. Our credit card program supports our core retail operations and remains an important contributor to our overall profitability and engagement with our guests. Beginning April 2010, all new qualified credit card applicants receive the Target Card, and we no longer issue the Target Visa to credit card applicants. Existing Target Visa cardholders are not affected. Beginning October 2010, guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com. This new REDcard Rewards program replaced the existing rewards program in which account holders received an initial 10 percent-off coupon for opening the account and earned points toward a 10 percent-off coupon on subsequent purchases. These changes are intended to simplify the program and to generate profitable incremental retail sales.

        Credit card revenues are comprised of finance charges, late fees and other revenue, and third party merchant fees, or the amounts received from merchants who accept the Target Visa credit card.

   
 
Credit Card Segment Results

(dollars in millions)
  2010   2009   2008  
  Amount
  Rate (d)
  Amount
  Rate (d)
  Amount
  Rate (d)
 
   

Finance charge revenue

  $ 1,302     18.3 % $ 1,450     17.4 % $ 1,451     16.7 %

Late fees and other revenue

    197     2.8     349     4.2     461     5.3  

Third party merchant fees

    105     1.5     123     1.5     152     1.7  
   

Total revenues

    1,604     22.6     1,922     23.0     2,064     23.7  
   

Bad debt expense

    528     7.4     1,185     14.2     1,251     14.4  

Operations and marketing expenses (a)

    433     6.1     425     5.1     474     5.4  

Depreciation and amortization

    19     0.3     14     0.2     17     0.2  
   

Total expenses

    980     13.8     1,624     19.4     1,742     20.0  
   

EBIT

    624     8.8     298     3.5     322     3.7  

Interest expense on nonrecourse debt collateralized by credit card receivables

    83           97           167        
   

Segment profit

  $ 541         $ 201         $ 155        
   

Average receivables funded by Target (b)

  $ 2,771         $ 2,866         $ 4,192        

Segment pretax ROIC (c)

    19.5 %         7.0 %         3.7 %      
   
(a)
Loyalty Program discounts are recorded as reductions to sales in our Retail Segment. Effective with the October 2010 nationwide launch of our new 5% REDcard Rewards loyalty program, we changed the formula under which our Credit Card segment reimburses our Retail Segment to better align with the attributes of the new program. These reimbursed amounts were $102 million in 2010, $89 million in 2009 and $117 million in 2008. In all periods these amounts were recorded as reductions to SG&A expenses within the Retail Segment and increases to operations and marketing expenses within the Credit Card Segment.
(b)
Amounts represent the portion of average gross credit card receivables funded by Target. For 2010, 2009 and 2008, these amounts exclude $4,335 million, $5,484 million and $4,503 million, respectively, of receivables funded by nonrecourse debt collateralized by credit card receivables.
(c)
ROIC is return on invested capital, and this rate equals our segment profit divided by average gross credit card receivables funded by Target, expressed as an annualized rate.
(d)
As an annualized percentage of average gross credit card receivables.

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Spread Analysis – Total Portfolio
(dollars in millions)
  2010   2009   2008  
  Amount
  Rate
  Amount
  Rate
  Amount
  Rate
 
   

EBIT

  $ 624     8.8 (c) $ 298     3.5 (c) $ 322     3.7 (c)

LIBOR (a)

          0.3 %         0.3 %         2.3 %

Spread to LIBOR (b)

  $ 604     8.5 (c) $ 270     3.2 (c) $ 118     1.4 (c)
   
(a)
Balance-weighted one-month LIBOR.
(b)
Spread to LIBOR is a metric used to analyze the performance of our total credit card portfolio because the majority of our portfolio earned finance charge revenue at rates tied to the Prime Rate, and the interest rate on all nonrecourse debt securitized by credit card receivables is tied to LIBOR.
(c)
As a percentage of average gross credit card receivables.

            Our primary measure of segment profit in our Credit Card Segment is the EBIT generated by our total credit card receivables portfolio less the interest expense on nonrecourse debt collateralized by credit card receivables. We analyze this measure of profit in light of the amount of capital we have invested in our credit card receivables. In addition, we measure the performance of our overall credit card receivables portfolio by calculating the dollar Spread to LIBOR at the portfolio level. This metric approximates overall financial performance of the entire credit card portfolio we manage by measuring the difference between EBIT earned on the portfolio and a hypothetical benchmark rate financing cost applied to the entire portfolio. The interest rate on all nonrecourse debt securitized by credit card receivables is tied to LIBOR.

            Effective April 2009, we implemented a terms change to our portfolio that established a minimum annual percentage rate (APR) applied to cardholder account balances. Under these terms, finance charges accrue at a fixed APR if the benchmark Prime Rate is less than 6%; if the Prime Rate is greater than 6%, finance charges accrue at the benchmark Prime Rate, plus a spread. Because the Prime Rate was less than 6% during 2009, the majority of our portfolio accrued finance charges at a fixed APR subsequent to this terms change. As a result of regulatory actions that impact our portfolio, effective January 2010, we implemented a second terms change that converted the minimum APR for the majority of our accounts to a variable rate, and we eliminated penalty pricing for all current, or nondelinquent accounts. Penalty pricing is the charging of a higher interest rate for a period of time, generally 12 months, and is triggered when a cardholder repeatedly fails to make timely payments. Additionally, beginning in August 2010 late fee limitations went into effect that resulted in reduced late fee revenue.

            In 2010, Credit Card Segment profit increased to $541 million from $201 million, driven mostly by favorability in bad debt expense. The reduction in our investment in the portfolio combined with these results produced a strong improvement in segment ROIC. Segment revenues were $1,604 million, a decrease of $318 million, or 16.5 percent, from the prior year, which was primarily driven by lower average receivables as well as reduced late fees. Segment expenses were $980 million, a decrease of $644 million, or 39.7 percent, from prior year driven primarily by lower bad debt expense due to lower actual and expected write-offs. Segment interest expense on nonrecourse debt declined due to a decrease in nonrecourse debt securitized by credit card receivables.

            In 2009, Credit Card Segment profit increased to $201 million from $155 million as a result of improved portfolio performance (Spread to LIBOR) and significantly lower funding costs. The reduction in our investment in the portfolio combined with these results produced a strong improvement in segment ROIC. Segment revenues were $1,922 million, a decrease of $143 million, or 6.9 percent, from the prior year. The decrease in revenue was driven by a lower Prime Rate, lower average receivables, higher finance charge and late-fee write-offs, and lower late fees due to fewer delinquent accounts offset by the positive impacts of the terms changes implemented in late 2008 and April 2009. Segment expenses were $1,624 million, a decrease of $118 million, or 6.8 percent, from prior year driven by lower bad debt and operations and marketing expenses, on both a dollar and rate basis. Segment interest expense benefited from a significantly lower LIBOR rate compared to the prior year.

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Receivables Rollforward Analysis
   
   
   
   
Percent Change
 
(millions)
  2010
  2009
  2008
  2010/2009
  2009/2008
 
   

Beginning gross credit card receivables

  $ 7,982   $ 9,094   $ 8,624     (12.2 )%   5.4 %

Charges at Target

    3,699     3,553     4,207     4.1     (15.5 )

Charges at third parties

    5,815     6,763     8,542     (14.0 )   (20.8 )

Payments

    (11,283 )   (12,065 )   (13,482 )   (6.5 )   (10.5 )

Other

    630     637     1,203     (1.1 )   (47.1 )
   

Period-end gross credit card receivables

  $ 6,843   $ 7,982   $ 9,094     (14.3 )%   (12.2 )%
   

Average gross credit card receivables

  $ 7,106   $ 8,351   $ 8,695     (14.9 )%   (4.0 )%
   

Accounts with three or more payments (60+ days) past due as a percentage of period-end credit card receivables

    4.2 %   6.3 %   6.1 %            
   

Accounts with four or more payments (90+ days) past due as a percentage of period-end gross credit card receivables

    3.1 %   4.7 %   4.3 %            
   

 

   
Allowance for Doubtful Accounts
   
   
   
   
Percent Change
 
(millions)
  2010
  2009
  2008
  2010/2009
  2009/2008
 
   

Allowance at beginning of period

  $ 1,016   $ 1,010   $ 570     0.6 %   77.1 %

Bad debt expense

    528     1,185     1,251     (55.4 )   (5.3 )

Write-offs (a)

    (1,007 )   (1,287 )   (912 )   (21.8 )   41.1  

Recoveries (a)

    153     108     101     40.2     8.3  
   

Allowance at end of period

  $ 690   $ 1,016   $ 1,010     (32.1 )%   0.6 %
   

As a percentage of period-end gross credit card receivables

    10.1 %   12.7 %   11.1 %            
   

Net write-offs as a percentage of average gross credit card receivables (annualized)

    12.0 %   14.1 %   9.3 %            
   
(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.

        Our 2010 period-end gross credit card receivables were $6,843 million compared to $7,982 million in 2009, a decrease of 14.3 percent. Average gross credit card receivables in 2010 decreased 14.9 percent compared with 2009 levels. In response to regulatory changes and credit card industry trends, we have undertaken risk management and underwriting initiatives that have reduced available credit lines for higher-risk cardholders. Additionally, we have experienced an increase in payment rates and a decrease in charges at third-parties.

        Our 2009 period-end gross credit card receivables were $7,982 million compared with $9,094 million in 2008, a decrease of 12.2 percent. Average gross credit card receivables in 2009 decreased 4.0 percent compared with 2008 levels. This change was driven by the tighter risk management and underwriting initiatives described above, fewer new accounts being opened, and a decrease in charge activity resulting from reductions in card usage by our guests, partially offset by the impact of lower payment rates.

Other Performance Factors

Net Interest Expense

        Net interest expense, which includes the interest expense on nonrecourse debt collateralized by credit card receivables detailed in the Credit Card Segment Results above, was $757 million for 2010, decreasing 5.5 percent, or $44 million from 2009 due to lower average debt balances and a $16 million charge related to the early retirement of long-term debt in 2009, partially offset by a higher average portfolio interest rate of 5.3 percent in 2010, compared with 4.8 percent in 2009. In 2009, net interest expense was $801 million, decreasing 7.5 percent, or $65 million from 2008. This decline was due to a lower average portfolio interest rate of 4.8 percent in 2009, compared with 5.3 percent in 2008, partially offset by a $16 million charge related to the early retirement of long-term debt.

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Provision for Income Taxes

        Our effective income tax rate was 35.1 percent in 2010 and 35.7 percent in 2009. The decrease in the effective rate between periods is primarily due to the favorable resolution of various income tax matters, which reduced income tax expense by approximately $100 million.

        Our effective income tax rate was 35.7 percent in 2009 and 37.4 percent in 2008. The decrease in the effective rate between periods is primarily due to nontaxable capital market returns on investments used to economically hedge the market risk in deferred compensation plans in 2009, compared with nondeductible losses in 2008. The 2009 effective income tax rate is also lower due to federal and state discrete items.

Analysis of Financial Condition

Liquidity and Capital Resources

        Our period end cash and cash equivalents balance was $1,712 million compared with $2,200 million in 2009. Marketable securities of $1,129 million and $1,617 million were included in cash and cash equivalents at the end of 2010 and 2009, respectively. Our investment policy is designed to preserve principal and liquidity of our marketable securities. This policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less. We also place certain limitations on the aggregate dollars invested and percentage of total fund value held when making short-term investment decisions.

        Our 2010 operations were funded by both internally and externally generated funds. Cash flow provided by operations was $5,271 million in 2010 compared with $5,881 million in 2009. This cash flow, combined with our prior year-end cash position and the debt issuance described below, allowed us to fund capital expenditures of $2,129 million and pay off $2,259 million of debt. In addition, in 2010 we increased our share repurchases and raised dividends paid to our shareholders.

        Our 2010 period-end gross credit card receivables were $6,843 million compared with $7,982 million in 2009, a decrease of 14.3 percent. Average gross credit card receivables in 2010 decreased 14.9 percent compared with 2009 levels. This change was driven by the factors indicated in the Credit Card Segment above. This trend and the factors influencing it are likely to continue into 2011. Due to the decrease in gross credit card receivables, Target Receivables LLC (TR LLC), formerly known as Target Receivables Corporation (TRC), using cash flows from the receivables, repaid an affiliate of JPMorgan Chase (JPMC) $566 million and $163 million during 2010 and 2009, respectively, under the terms of our agreement with them as described in Note 10 of the Notes to Consolidated Financial Statements. To the extent the receivables balance continues to decline, TR LLC expects to continue to pay JPMC a prorata portion of principal collections such that the portion owned by JPMC would not exceed 47 percent.

        Year-end inventory levels increased $417 million, or 5.8 percent from 2009. Inventory levels were higher to support traffic-driving strategic initiatives, such as our expanded food assortment in general merchandise stores and pharmacy, in addition to comparatively higher retail square footage. Accounts payable increased by $115 million, or 1.8 percent over the same period.

        During 2010, we repurchased 47.8 million shares of our common stock for a total cash investment of $2,508 million ($52.44 per share) under a $10 billion share repurchase plan authorized by our Board of Directors in November 2007. In 2009, we repurchased 9.9 million shares of our common stock for a total cash investment of $479 million ($48.54 per share).

        We paid dividends totaling $609 million in 2010 and $496 million in 2009, an increase of 22.7 percent. We declared dividends totaling $659 million ($0.92 per share) in 2010, an increase of 31.1 percent over 2009. In 2009, we declared dividends totaling $503 million ($0.67 per share), an increase of 6.8 percent over 2008. We have paid dividends every quarter since our first dividend was declared following our 1967 initial public offering, and it is our intent to continue to do so in the future.

        Our financing strategy is to ensure liquidity and access to capital markets, to manage our net exposure to floating interest rate volatility, and to maintain a balanced spectrum of debt maturities. Within these parameters, we seek to minimize our borrowing costs. As described in Note 19, in July 2010, we issued $1 billion of long-term debt at 3.875% that matures in July 2020. There were no amounts issued in 2009.

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        Our ability to access the long-term debt, commercial paper and securitized debt markets has provided ample sources of liquidity to Target in the past. Our continued access to these markets depends on multiple factors including the economic environment, our operating performance and maintaining strong debt ratings. The ratings assigned to our debt by the credit rating agencies affect both the pricing and terms of any new financing. As of January 29, 2011 our credit ratings were as follows:

   
Credit Ratings
   
  Standard and
Poor's

   
 
 
  Moody's
  Fitch
 
   

Long-term debt

    A2     A+     A  

Commercial paper

    P-1     A-1     F1  

Securitized receivables (a)

    Aa2     n/a     n/a  
   
(a)
These rated securitized receivables exclude the interest in our credit card receivables sold to JPMC.

        If our credit ratings were lowered, our ability to access the debt markets and our cost of funds for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit rating will remain the same as described above.

        As a measure of our financial condition we monitor our interest coverage ratio, representing the ratio of pretax earnings before fixed charges to fixed charges. Fixed charges include interest expense and the interest portion of rent expense. Our interest coverage ratio as calculated by the SEC's applicable rules was 6.1x in 2010, 5.1x in 2009 and 4.3x in 2008.

        At January 29, 2011 and January 30, 2010, there were no amounts outstanding under our commercial paper program. In past years, we funded our peak sales season working capital needs through our commercial paper program and then used the cash generated from that sales season to repay the commercial paper issued. In 2010 and 2009 we funded our working capital needs through internally generated funds and the long-term debt issuance indicated above.

   
  
Commercial Paper
(millions)
  2010
  2009
 
   

Maximum daily amount outstanding during the year

  $   $ 112  

Average amount outstanding during the year

        1  

Amount outstanding at year-end

         

Weighted average interest rate

        0.2 %
   

        An additional source of liquidity is available to us through a committed $2 billion unsecured revolving credit facility obtained through a group of banks in April 2007, which will expire in April 2012. No balances were outstanding at any time during 2010 or 2009 under this facility.

        Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, at January 29, 2011, no notes or debentures contained provisions requiring acceleration of payment upon a debt rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control; and (ii) our long-term debt ratings are either reduced and the resulting rating is non-investment grade, or our long-term debt ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.

        We believe our sources of liquidity will be adequate to maintain operations and to finance anticipated expansion and strategic initiatives during 2011, including our plan to enter the Canadian retail market by paying C$1,825 million to purchase the leasehold interests in up to 220 sites currently operated by Zellers Inc. We may issue new long-term debt for these and other initiatives, and we anticipate ample access to long-term financing. Further, in January 2011, we announced our plan to actively pursue the sale of our credit card receivables portfolio, which may provide additional funding. As of January 29, 2011 the gross balance of our credit card receivables

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portfolio was $6,843 million, of which $3,954 million was funded by third parties and $2,889 million was funded by Target.

Capital Expenditures

        Capital expenditures were $2,129 million in 2010 compared with $1,729 million in 2009 and $3,547 million in 2008. This increase was driven by higher capital expenditures for remodels partially offset by reduced expenditures for new stores. Our 2010 capital expenditures include $482 million related to stores that will open in 2011 and later years. Net property and equipment increased $213 million in 2010 following a decrease of $475 million in 2009.

   
  
Capital Expenditures
(millions)
  2010
  2009
  2008
 
   

New stores

  $ 574   $ 899   $ 2,341  

Remodels and expansions

    966     294     284  

Information technology, distribution and other

    589     536     922  
   

Total

  $ 2,129   $ 1,729   $ 3,547  
   

        In connection with the previously described agreement to purchase leasehold interests in Canada, we expect that renovation of these stores will require an investment of over C$1 billion, primarily during 2012 and 2013, a portion of which may be funded by landlords.

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Commitments and Contingencies

        At January 29, 2011, our contractual obligations were as follows:

   
 
    
Payments Due by Period
 
Contractual Obligations

(millions)
 
  Total
  Less than
1 Year

  1-3
Years

  3-5
Years

  After 5
Years

 
   

Recorded Contractual Obligations:

                               
 

Long-term debt (a)

                               
   

Unsecured

  $ 11,287   $ 106   $ 2,002   $ 28   $ 9,151  
   

Nonrecourse

    4,061         4,061          
 

Capital lease obligations (b)

    617     32     66     62     457  
 

Real estate liabilities (c)

    65     65              
 

Deferred compensation (d)

    440     44     96     106     194  
 

Tax contingencies (e)

                     

Unrecorded Contractual Obligations:

                               
 

Interest payments – long-term debt

                               
   

Unsecured

    10,080     678     1,214     1,127     7,061  
   

Nonrecourse (f)

    101     32     69          
 

Operating leases (b)

    3,954     190     376     288     3,100  
 

Real estate obligations (g)

    243     209     34          
 

Purchase obligations (h)

    1,907     713     747     348     99  
 

Payment for Canadian leasehold interests (i)

    1,825     1,825              
 

Future contributions to retirement plans (j)

                     
   

Contractual obligations

  $ 34,580   $ 3,894   $ 8,665   $ 1,959   $ 20,062  
   
(a)
Required principal payments only. Excludes fair market value adjustments recorded in long-term debt, as required by derivative and hedging accounting rules. Principal includes the 47 percent interest in credit card receivables sold to JPMC at the principal amount. In the event of a decrease in the receivables principal balance, accelerated repayment of this obligation may occur.
(b)
Total contractual lease payments include $1,949 million of operating lease payments related to options to extend the lease term that are reasonably assured of being exercised. These payments also include $28 million and $241 million of legally binding minimum lease payments for stores opening in 2011 or later for capital and operating leases, respectively. Capital lease obligations include interest.
(c)
Real estate liabilities include costs incurred but not paid related to the construction or remodeling of real estate and facilities.
(d)
Deferred compensation obligations include commitments related to our nonqualified deferred compensation plans. The timing of deferred compensation payouts is estimated based on payments currently made to former employees and retirees, forecasted investment returns, and the projected timing of future retirements.
(e)
Estimated tax contingencies of $397 million, including interest and penalties, are not included in the table above because we are not able to make reasonably reliable estimates of the period of cash settlement.
(f)
These payments vary with LIBOR and are calculated assuming LIBOR of 0.25 percent plus a spread, for each year outstanding.
(g)
Real estate obligations include commitments for the purchase, construction or remodeling of real estate and facilities.
(h)
Purchase obligations include all legally binding contracts such as firm minimum commitments for inventory purchases, merchandise royalties, equipment purchases, marketing related contracts, software acquisition/license commitments and service contracts. We issue inventory purchase orders in the normal course of business, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments; therefore, they are excluded from the table above. If we choose to cancel a purchase order, we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation. We also issue trade letters of credit in the ordinary course of business, which are excluded from this table as these obligations are conditioned on terms of the letter of credit being met.
(i)
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., in exchange for C$1,825 million. At January 29, 2011 the value of C$1.00 approximated the value of $1.00. This commitment does not include future minimum lease payments on sites that may be selected in 2011.
(j)
We have not included obligations under our pension and postretirement health care benefit plans in the contractual obligations table above because no additional amounts are required to be funded as of January 29, 2011. Our historical practice regarding these plans has been to contribute amounts necessary to satisfy minimum pension funding requirements, plus periodic discretionary amounts determined to be appropriate.

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    Off Balance Sheet Arrangements    We do not have any arrangements or relationships with entities that are not consolidated into the financial statements or financial guarantees that are reasonably likely to materially affect our liquidity or the availability of capital resources.

    Critical Accounting Estimates

            Our analysis of operations and financial condition is based on our consolidated financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP). Preparation of these consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements, reported amounts of revenues and expenses during the reporting period and related disclosures of contingent assets and liabilities. In the Notes to Consolidated Financial Statements, we describe the significant accounting policies used in preparing the consolidated financial statements. Our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could differ under other assumptions or conditions. However, we do not believe there is a reasonable likelihood that there will be a material change in future estimates or assumptions. Our senior management has discussed the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors. The following items in our consolidated financial statements require significant estimation or judgment:

    Inventory and cost of sales    We use the retail inventory method to account for substantially our entire inventory and the related cost of sales. Under this method, inventory is stated at cost using the last-in, first-out (LIFO) method as determined by applying a cost-to-retail ratio to each merchandise grouping's ending retail value. Cost includes the purchase price as adjusted for vendor income. Since inventory value is adjusted regularly to reflect market conditions, our inventory methodology reflects the lower of cost or market. We reduce inventory for estimated losses related to shrink and markdowns. Our shrink estimate is based on historical losses verified by ongoing physical inventory counts. Historically, our actual physical inventory count results have shown our estimates to be reliable. Markdowns designated for clearance activity are recorded when the salability of the merchandise has diminished. Inventory is at risk of obsolescence if economic conditions change. Relevant economic conditions include changing consumer demand, customer preferences, changing consumer credit markets or increasing competition. We believe these risks are largely mitigated because our inventory typically turns in less than three months. Inventory was $7,596 million and $7,179 million at January 29, 2011 and January 30, 2010, respectively, and is further described in Note 11 of the Notes to Consolidated Financial Statements.

    Vendor income receivable    Cost of sales and SG&A expenses are partially offset by various forms of consideration received from our vendors. This "vendor income" is earned for a variety of vendor-sponsored programs, such as volume rebates, markdown allowances, promotions and advertising allowances, as well as for our compliance programs. We establish a receivable for the vendor income that is earned but not yet received. Based on the agreements in place, this receivable is computed by estimating when we have completed our performance and when the amount is earned. The majority of all year-end vendor income receivables are collected within the following fiscal quarter, and we do not believe there is a reasonable likelihood that the assumptions used in our estimate will change significantly. Historically, adjustments to our vendor income receivable have not been material. Vendor income receivable was $517 million and $390 million at January 29, 2011 and January 30, 2010, respectively, and is described further in Note 4 of the Notes to Consolidated Financial Statements.

    Allowance for doubtful accounts    When receivables are recorded, we recognize an allowance for doubtful accounts in an amount equal to anticipated future write-offs. This allowance includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs based on historical experience of delinquencies, risk scores, aging trends and industry risk trends. Substantially all accounts continue to accrue finance charges until they are written off. Accounts are automatically written off when they become 180 days past due. Management believes the allowance for doubtful accounts is adequate to cover anticipated losses in our credit card accounts receivable under current conditions; however, unexpected, significant deterioration in any of the

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    factors mentioned above or in general economic conditions could materially change these expectations. During 2010, we continued risk management and underwriting initiatives that reduced available credit lines for higher-risk cardholders. In addition, we experienced an increase in payment rates and a decrease in charge activity from reductions in card usage by our guests. As a result of these trends, our allowance for doubtful accounts related to our credit card receivables decreased $326 million, from $1,016 million, or 12.7 percent of gross credit card receivables, at January 30, 2010 to $690 million, or 10.1 percent of gross credit card receivables, at January 29, 2011. Credit card receivables and our allowance for doubtful accounts are described in Note 10 of the Notes to Consolidated Financial Statements.

    Long-lived assets    Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset group are less than the carrying amount of the asset group. Asset groups have identifiable cash flows independent of other asset groups. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using discounted cash flows or independent opinions of value, as appropriate. A 10 percent decrease in the fair value of assets we intend to sell as of January 29, 2011 would result in additional impairment of approximately $12 million in 2010. Historically, we have not realized material losses upon sale of long-lived assets.

    Goodwill and intangible assets    We evaluate goodwill and intangible assets for impairment annually, or whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable. Discounted cash flow models are used in determining fair value of goodwill and intangible assets. Growth rates for sales and profits are determined using inputs from our long-range planning process. We also make estimates of discount rates, perpetuity growth rates, and other factors. As of January 29, 2011 and January 30, 2010, we had $223 million and $239 million of goodwill and intangible assets, respectively. While we currently believe that the fair value of our goodwill and intangible assets exceeds its carrying value, materially different assumptions regarding future performance of our businesses or other factors could result in impairment losses.

    Insurance/self-insurance    We retain a substantial portion of the risk related to certain general liability, workers' compensation, property loss and team member medical and dental claims. However, we maintain stop-loss coverage to limit the exposure related to certain risks. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We use actuarial methods which consider a number of factors to estimate our ultimate cost of losses. General liability and workers' compensation liabilities are recorded at our estimate of their net present value; other liabilities referred to above are not discounted. Our workers' compensation and general liability accrual was $628 million and $653 million at January 29, 2011 and January 30, 2010, respectively. We believe that the amounts accrued are adequate; however, our liabilities could be significantly affected if future occurrences or loss developments differ from our assumptions. For example, a 5 percent increase or decrease in average claim costs would impact our self-insurance expense by approximately $30 million in 2010. Historically, adjustments to our estimates have not been material. Refer to Item 7A for further disclosure of the market risks associated with these exposures.

    Income taxes    We pay income taxes based on the tax statutes, regulations and case law of the various jurisdictions in which we operate. Significant judgment is required in determining the timing and amounts of deductible and taxable items and in evaluating the ultimate resolution of tax matters in dispute with tax authorities. The benefits of uncertain tax positions are recorded in our financial statements only after determining whether it is likely the uncertain tax positions would withstand challenge by taxing authorities. We periodically reassess these probabilities, and record any changes in the financial statements as deemed appropriate. Liabilities for tax positions considered uncertain, including interest and penalties, were $397 million and $579 million at January 29, 2011 and January 30, 2010, respectively. We believe the resolution of these matters will not have a material adverse impact on our consolidated financial statements. Income taxes are described further in Note 22 of the Notes to Consolidated Financial Statements.

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    Pension and postretirement health care accounting    We fund and maintain a qualified defined benefit pension plan. We also maintain several smaller nonqualified plans and a postretirement health care plan for certain current and retired team members. The costs for these plans are determined based on actuarial calculations using the assumptions described in the following paragraphs. Eligibility for, and the level of, these benefits varies depending on team members' full-time or part-time status, date of hire and/or length of service.

            Our expected long-term rate of return on plan assets is determined by the portfolio composition, historical long-term investment performance and current market conditions. Benefits expense recorded during the year is partially dependent upon the long-term rate of return used. A one percentage point decrease in the expected long-term rate of return used to determine net pension and postretirement health care benefits expense would increase annual expense by approximately $24 million.

            The discount rate used to determine benefit obligations is adjusted annually based on the interest rate for long-term high-quality corporate bonds as of the measurement date, using yields for maturities that are in line with the duration of our pension liabilities. Therefore, these liabilities fluctuate with changes in interest rates. Historically, this same discount rate has also been used to determine net pension and postretirement health care benefits expense for the following plan year. Benefits expense recorded during the year is partially dependent upon the discount rates used, and a 0.5 percentage point decrease to the weighted average discount rate used to determine net pension and postretirement health care benefits expense would increase annual expense by approximately $23 million.

            Based on our experience, we use a graduated compensation growth schedule that assumes higher compensation growth for younger, shorter-service pension-eligible team members than it does for older, longer-service pension-eligible team members.

            Pension and postretirement health care benefits are further described in Note 27 of the Notes to Consolidated Financial Statements.

    Legal 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. Historically, adjustments to our estimates have not been material. 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 matters will have a material adverse impact on our results of operations, cash flows or financial condition. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there may be a material adverse impact on the results of operations, cash flows or financial condition for the period in which the ruling occurs, or future periods.

    New Accounting Pronouncements

    Recent Adoptions

            In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140" (SFAS 166), codified in the Transfers and Servicing accounting principles, which amends the derecognition guidance in former FASB Statement No. 140 and eliminates the exemption from consolidation for qualifying special-purpose entities. We adopted this guidance at the beginning of 2010 and adoption had no impact on our consolidated net earnings, cash flows or financial position.

            In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)" (SFAS 167), codified in the Consolidation accounting principles, which amends the consolidation guidance applicable to variable interest entities. The amendments significantly affected the overall consolidation analysis under former FASB Interpretation No. 46(R). We adopted this guidance at the beginning of 2010 and the adoption had no impact on our consolidated net earnings, cash flows or financial position.

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    Outlook

            Our outlook is based on the application of business judgment in light of current business trends, our assumptions regarding the macroeconomic environment, and estimates of the impact of current initiatives, the most significant of which are our store remodel program, the new 5 percent REDcard Rewards program, and our planned Canadian expansion.

            In the Retail Segment, we expect that comparable-store sales will increase in the 4 to 5 percent range in 2011. We expect that our store remodel program will contribute incremental comparable-store sales, and net of the adverse impact of remodel disruption, this impact will grow to a run rate of about 1.5 percentage points as we progress through the year. Separately we expect that the sales contribution of our 5% REDcard Rewards program will grow more rapidly in its importance, adding up to 2 percentage points to our same store sales growth later in 2011. These estimates are based on extrapolations of the current performance of these programs.

            In 2011 we expect to produce a full-year EBIT margin rate consistent with 2010, due to favorable leverage of SG&A and depreciation and amortization expenses offsetting the gross margin rate declines associated with our store remodel and new rewards strategies. This offsetting impact is unlikely to occur in the spring, particularly in the first quarter, resulting in modest pressure on EBIT margin rate in the spring, and modest favorability on this measure in the fall.

            In our Credit Card Segment, we expect receivables will continue to decline in 2011, with the pace of the decline moderating as the year progresses. We expect that the allowance for doubtful accounts will continue to decline in 2011 as well, due to this decline in receivables and expected continued improvement in portfolio risks. We also expect measures of our rate of portfolio profitability to remain strong in 2011. Additionally, in January 2011 we announced our plan to actively pursue the sale of our credit card receivables portfolio. As of January 29, 2011 the gross balance of our credit card receivables portfolio was $6,843 million, of which $3,954 million was funded by third parties and $2,889 million was funded by Target.

            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., in exchange for C$1,825 million, due in two payments, one in May 2011 and one in September 2011. We believe this transaction will allow us to open 100 to 150 Target stores in Canada, primarily during 2013. We expect that renovation of these stores will require an investment of over C$1 billion, a portion of which may be funded by landlords. Our direct costs associated with entry into Canada may add expenses equating to an earnings per share (EPS) equivalent in the range of $0.10 for 2011, an estimate that will continue to evolve over time. We currently believe the aggregate effect of our Canadian expansion could result in a $0.15 to $0.20 unfavorable impact on 2011 EPS, reflecting direct incremental expenses and the indirect impact of the Canadian investment on the pace of share repurchase. We expect that the 2012 dilutive EPS impact of the Canadian expansion will exceed the 2011 dilutive EPS impact, due primarily to a full year of lease-related expenses.

            We expect 2011 capital expenditures related to our U.S. retail operations to be approximately $2.5 billion, driven primarily by a larger remodel program. We expect to open 21 new stores in the U.S. in 2011, adding approximately 15 new locations net of closings and relocations.

            We also expect to continue to execute against our share repurchase plan, although at a slower pace due to our Canadian expansion, investing in the range of $1.5 billion to $2.0 billion during 2011. The timing and amount of share repurchase activity will be dependent on market conditions and the amount of future net earnings and cash flows.

            We expect our 2011 effective tax rate to be in the range of 36 to 37 percent.

    Forward-Looking Statements

            This report contains forward-looking statements, which are based on our current assumptions and expectations. These statements are typically accompanied by the words "expect," "may," "could," "believe," "would," "might," "anticipates," or words of similar import. The principal forward-looking statements in this report include: For our Retail Segment, our outlook for sales, comparable-store sales trends, including the impact of our store remodel and 5% REDcard Rewards programs, and EBIT margin rates; for our Credit Card Segment, our outlook for year-end gross credit card receivables, future write-offs of current receivables, rate of portfolio

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    profitability, the allowance for doubtful accounts, improvement in portfolio risks, and the pursuit of a portfolio sale; on a consolidated basis, details on the expected investment in Canada and its impact on our results, statements regarding the adequacy of our sources of liquidity, the continued execution of our share repurchase program, our expected capital expenditures and the number of stores to be opened in 2011, the expected effective income tax rate, the expected compliance with debt covenants, our intentions regarding future dividends, our expected future share-based compensation expense, our expected return on plan assets, our expected expense, contributions and benefit payments related to our pension and postretirement health care plans, the adequacy of our reserves for general liability, workers' compensation, property loss, and team member medical and dental, the potential impact of changes in our critical accounting estimates, the expected outcome of claims and litigation, and the resolution of tax uncertainties.

            All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth on our description of risk factors in Item 1A to this Form 10-K, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

            Our exposure to market risk results primarily from interest rate changes on our debt obligations, some of which are at a LIBOR-plus floating rate, and on our credit card receivables, the majority of which are assessed finance charges at a Prime based floating rate. To manage our net interest margin, we generally maintain levels of floating-rate debt to generate similar changes in net interest expense as finance charge revenues fluctuate. The degree of floating asset and liability matching may vary over time and in different interest rate environments. At January 29, 2011, the amount of floating-rate credit card assets exceeded the amount of net floating-rate debt obligations by approximately $2 billion. As a result, based on our balance sheet position at January 29, 2011, the annualized effect of a 0.1 percentage point decrease in floating interest rates on our floating rate debt obligations, net of our floating rate credit card assets and marketable securities, would be to decrease earnings before income taxes by approximately $2 million. See further description in Note 20 of the Notes to Consolidated Financial Statements.

            We record our general liability and workers' compensation liabilities at net present value; therefore, these liabilities fluctuate with changes in interest rates. Periodically, in certain interest rate environments, we economically hedge a portion of our exposure to these interest rate changes by entering into interest rate forward contracts that partially mitigate the effects of interest rate changes. Based on our balance sheet position at January 29, 2011, the annualized effect of a 0.5 percentage point decrease in interest rates would be to decrease earnings before income taxes by approximately $10 million.

            In addition, we are exposed to market return fluctuations on our qualified defined benefit pension plans. The annualized effect of a one percentage point decrease in the return on pension plan assets would decrease plan assets by $25 million at January 29, 2011. The value of our pension liabilities is inversely related to changes in interest rates. To protect against declines in interest rates we hold high-quality, long-duration bonds and interest rate swaps in our pension plan trust. At year-end, we had hedged approximately 55 percent of the interest rate exposure of our funded status.

            As more fully described in Note 14 and Note 26 of the Notes to Consolidated Financial Statements, we are exposed to market returns on accumulated team member balances in our nonqualified, unfunded deferred compensation plans. We control the risk of offering the nonqualified plans by making investments in life insurance contracts and prepaid forward contracts on our own common stock that offset a substantial portion of our economic exposure to the returns on these plans. The annualized effect of a one percentage point change in market returns on our nonqualified defined contribution plans (inclusive of the effect of the investment vehicles used to manage our economic exposure) would not be significant.

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            We do not currently have significant direct exposure to foreign currency rates as all of our stores are located in the United States, and the vast majority of imported merchandise is purchased in U.S. dollars. Our previously described agreement to purchase leasehold interests in Canada will expose us to market risk associated with foreign currency exchange rate fluctuations between the Canadian dollar and the U.S. dollar beginning in 2011.

            Overall, there have been no material changes in our primary risk exposures or management of market risks since the prior year.

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Item 8.   Financial Statements and Supplementary Data

Report of Management on the Consolidated Financial Statements

         Management is responsible for the consistency, integrity and presentation of the information in the Annual Report. The consolidated financial statements and other information presented in this Annual Report have been prepared in accordance with accounting principles generally accepted in the United States and include necessary judgments and estimates by management.

         To fulfill our responsibility, we maintain comprehensive systems of internal control designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with established procedures. The concept of reasonable assurance is based upon recognition that the cost of the controls should not exceed the benefit derived. We believe our systems of internal control provide this reasonable assurance.

         The Board of Directors exercised its oversight role with respect to the Corporation's systems of internal control primarily through its Audit Committee, which is comprised of independent directors. The Committee oversees the Corporation's systems of internal control, accounting practices, financial reporting and audits to assess whether their quality, integrity and objectivity are sufficient to protect shareholders' investments.

         In addition, our consolidated financial statements have been audited by Ernst & Young LLP, independent registered public accounting firm, whose report also appears on this page.

GRAPHIC   GRAPHIC

Gregg W. Steinhafel
Chief Executive Officer and President
March 11, 2011

 

Douglas A. Scovanner
Executive Vice President and
Chief Financial Officer

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

The Board of Directors and Shareholders
Target Corporation

         We have audited the accompanying consolidated statements of financial position of Target Corporation and subsidiaries (the Corporation) as of January 29, 2011 and January 30, 2010, and the related consolidated statements of operations, cash flows, and shareholders' investment for each of the three years in the period ended January 29, 2011. Our audits also included the financial statement schedule listed in Item 15(a). These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

         We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Target Corporation and subsidiaries at January 29, 2011 and January 30, 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 29, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

         We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Corporation's internal control over financial reporting as of January 29, 2011, based on criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2011, expressed an unqualified opinion thereon.

GRAPHIC

Minneapolis, Minnesota
March 11, 2011

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Report of Management on Internal Control

         Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we assessed the effectiveness of our internal control over financial reporting as of January 29, 2011, based on the framework in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we conclude that the Corporation's internal control over financial reporting is effective based on those criteria.

         Our internal control over financial reporting as of January 29, 2011, has been audited by Ernst & Young LLP, the independent registered accounting firm who has also audited our consolidated financial statements, as stated in their report which appears on this page.

GRAPHIC   GRAPHIC

Gregg W. Steinhafel
Chief Executive Officer and President
March 11, 2011

 

Douglas A. Scovanner
Executive Vice President and
Chief Financial Officer

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and Shareholders
Target Corporation

         We have audited Target Corporation and subsidiaries' (the Corporation) internal control over financial reporting as of January 29, 2011, based on criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Corporation's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation's internal control over financial reporting based on our audit.

         We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

         A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

         Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

         In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of January 29, 2011, based on the COSO criteria.

         We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Target Corporation and subsidiaries as of January 29, 2011 and January 30, 2010, and the related consolidated statements of operations, cash flows and shareholders' investment for each of the three years in the period ended January 29, 2011, and our report dated March 11, 2011, expressed an unqualified opinion thereon.

GRAPHIC

Minneapolis, Minnesota
March 11, 2011

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Consolidated Statements of Operations

   
  
(millions, except per share data)
  2010
  2009
  2008
 
   

Sales

  $ 65,786   $ 63,435   $ 62,884  

Credit card revenues

    1,604     1,922     2,064  
   

Total revenues

    67,390     65,357     64,948  

Cost of sales

    45,725     44,062     44,157  

Selling, general and administrative expenses

    13,469     13,078     12,954  

Credit card expenses

    860     1,521     1,609  

Depreciation and amortization

    2,084     2,023     1,826  
   

Earnings before interest expense and income taxes

    5,252     4,673     4,402  

Net interest expense

                   
 

Nonrecourse debt collateralized by credit card receivables

    83     97     167  
 

Other interest expense

    677     707     727  
 

Interest income

    (3 )   (3 )   (28 )
   

Net interest expense

    757     801     866  
   

Earnings before income taxes

    4,495     3,872     3,536  

Provision for income taxes

    1,575     1,384     1,322  
   

Net earnings

  $ 2,920   $ 2,488   $ 2,214  
   

Basic earnings per share

  $ 4.03   $ 3.31   $ 2.87  
   

Diluted earnings per share

  $ 4.00   $ 3.30   $ 2.86  
   

Weighted average common shares outstanding

                   
 

Basic

    723.6     752.0     770.4  
 

Diluted

    729.4     754.8     773.6  
   

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Statements of Financial Position

   
(millions, except footnotes)
    
January 29,
2011

  January 30,
2010

 
   

Assets

             

Cash and cash equivalents, including marketable securities of $1,129 and $1,617

  $ 1,712   $ 2,200  

Credit card receivables, net of allowance of $690 and $1,016

    6,153     6,966  

Inventory

    7,596     7,179  

Other current assets

    1,752     2,079  
   
 

Total current assets

    17,213     18,424  

Property and equipment

             
 

Land

    5,928     5,793  
 

Buildings and improvements

    23,081     22,152  
 

Fixtures and equipment

    4,939     4,743  
 

Computer hardware and software

    2,533     2,575  
 

Construction-in-progress

    567     502  
 

Accumulated depreciation

    (11,555 )   (10,485 )
   
 

Property and equipment, net

    25,493     25,280  

Other noncurrent assets

    999     829  
   

Total assets

  $ 43,705   $ 44,533  
   

Liabilities and shareholders' investment

             

Accounts payable

  $ 6,625   $ 6,511  

Accrued and other current liabilities

    3,326     3,120  

Unsecured debt and other borrowings

    119     796  

Nonrecourse debt collateralized by credit card receivables

        900  
   
 

Total current liabilities

    10,070     11,327  

Unsecured debt and other borrowings

    11,653     10,643  

Nonrecourse debt collateralized by credit card receivables

    3,954     4,475  

Deferred income taxes

    934     835  

Other noncurrent liabilities

    1,607     1,906  
   
 

Total noncurrent liabilities

    18,148     17,859  

Shareholders' investment

             
 

Common stock

    59     62  
 

Additional paid-in-capital

    3,311     2,919  
 

Retained earnings

    12,698     12,947  
 

Accumulated other comprehensive loss

    (581 )   (581 )
   
 

Total shareholders' investment

    15,487     15,347  
   

Total liabilities and shareholders' investment

  $ 43,705   $ 44,533  
   

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 704,038,218 shares issued and outstanding at January 29, 2011; 744,644,454 shares issued and outstanding at January 30, 2010.

Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding at January 29, 2011 or January 30, 2010.

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

   
  
(millions)
  2010
  2009
  2008
 
   

Operating activities

                   

Net earnings

  $ 2,920   $ 2,488   $ 2,214  

Reconciliation to cash flow

                   
 

Depreciation and amortization

    2,084     2,023     1,826  
 

Share-based compensation expense

    109     103     72  
 

Deferred income taxes

    445     364     91  
 

Bad debt expense

    528     1,185     1,251  
 

Non-cash (gains)/losses and other, net

    (145 )   143     316  
 

Changes in operating accounts:

                   
   

Accounts receivable originated at Target

    (78 )   (57 )   (458 )
   

Inventory

    (417 )   (474 )   77  
   

Other current assets

    (124 )   (129 )   (99 )
   

Other noncurrent assets

    (212 )   (114 )   (55 )
   

Accounts payable

    115     174     (389 )
   

Accrued and other current liabilities

    149     257     (230 )
   

Other noncurrent liabilities

    (103 )   (82 )   (186 )
   

Cash flow provided by operations

    5,271     5,881     4,430  
   

Investing activities

                   
 

Expenditures for property and equipment

    (2,129 )   (1,729 )   (3,547 )
 

Proceeds from disposal of property and equipment

    69     33     39  
 

Change in accounts receivable originated at third parties

    363     (10 )   (823 )
 

Other investments

    (47 )   3     (42 )
   

Cash flow required for investing activities

    (1,744 )   (1,703 )   (4,373 )
   

Financing activities

                   
 

Reductions of short-term notes payable

            (500 )
 

Additions to long-term debt

    1,011         3,557  
 

Reductions of long-term debt

    (2,259 )   (1,970 )   (1,455 )
 

Dividends paid

    (609 )   (496 )   (465 )
 

Repurchase of stock

    (2,452 )   (423 )   (2,815 )
 

Stock option exercises and related tax benefit

    294     47     43  
 

Other

            (8 )
   

Cash flow required for financing activities

    (4,015 )   (2,842 )   (1,643 )
   

Net increase/(decrease) in cash and cash equivalents

    (488 )   1,336     (1,586 )

Cash and cash equivalents at beginning of year

    2,200     864     2,450  
   

Cash and cash equivalents at end of year

  $ 1,712   $ 2,200   $ 864  
   

Cash paid for income taxes was $1,259, $1,040 and $1,399 during 2010, 2009 and 2008, respectively. Cash paid for interest (net of interest capitalized) was $752, $805 and $873 during 2010, 2009 and 2008, respectively.

See accompanying Notes to Consolidated Financial Statements.

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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
 
   

February 2, 2008

    818.7     $68     $2,656     $12,761     $(134 )   $(44 ) $ 15,307  

Net earnings

                2,214             2,214  
 

Other comprehensive income/(loss)

                                           
   

Pension and other benefit liability adjustments, net of taxes of $242

                    (376 )       (376 )
   

Net change on cash flow hedges, net of taxes of $2

                        (2 )   (2 )
                                           
 

Total comprehensive income

                                        1,836  

Dividends declared

                (471 )           (471 )

Repurchase of stock

    (67.2 )   (5 )       (3,061 )           (3,066 )

Stock options and awards

    1.2         106                 106  
   

January 31, 2009

    752.7   $ 63   $ 2,762   $ 11,443   $ (510 ) $ (46 ) $ 13,712  

Net earnings

                2,488             2,488  
 

Other comprehensive income/(loss)

                                           
   

Pension and other benefit liability adjustments, net of taxes of $17

                    (27 )       (27 )
   

Net change on cash flow hedges, net of taxes of $2

                        4     4  
   

Currency translation adjustment, net of taxes of $0

                        (2 )   (2 )
                                           
 

Total comprehensive income

                                        2,463  

Dividends declared

                (503 )           (503 )

Repurchase of stock

    (9.9 )   (1 )       (481 )           (482 )

Stock options and awards

    1.8         157                 157  
   

January 30, 2010

    744.6   $ 62   $ 2,919   $ 12,947   $ (537 ) $ (44 ) $ 15,347  

Net earnings

                2,920             2,920  
 

Other comprehensive income/(loss)

                                           
   

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  
   

Dividends declared per share were $0.92, $0.67 and $0.62 in 2010, 2009 and 2008, respectively.

See accompanying Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

1. Summary of Accounting Policies

Organization    Target Corporation (Target or the Corporation) operates two reportable segments: Retail and Credit Card. Our Retail Segment includes all of our merchandising operations, including our fully integrated online business. Our Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards, the Target Visa and the Target Card. Additionally, we offer a branded proprietary Target Debit Card. Collectively, these REDcards strengthen the bond with our guests, drive incremental sales and contribute to our results of operations.

Consolidation    The consolidated financial statements include the balances of the Corporation and its subsidiaries after elimination of intercompany balances and transactions. All material subsidiaries are wholly owned. We consolidate variable interest entities where it has been determined that the Corporation is the primary beneficiary of those entities' operations. The variable interest entity consolidated is a bankruptcy-remote subsidiary through which we sell certain accounts receivable as a method of providing funding for our accounts receivable.

Use of estimates    The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions affecting reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates.

Fiscal year    Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal year 2010 ended January 29, 2011, and consisted of 52 weeks. Fiscal year 2009 ended January 30, 2010, and consisted of 52 weeks. Fiscal year 2008 ended January 31, 2009, and consisted of 52 weeks.

Reclassifications    Certain prior year amounts have been reclassified to conform to the current year presentation. Accounting policies applicable to the items discussed in the Notes to the Consolidated Financial Statement are described in the respective notes.

2. Revenues

        Our retail stores generally record revenue at the point of sale. Sales from our online business include shipping revenue and are recorded upon delivery to the guest. Total revenues do not include sales tax as we consider ourselves a pass-through conduit for collecting and remitting sales taxes. Generally, guests may return merchandise within 90 days of purchase. Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales. Commissions earned on sales generated by leased departments are included within sales and were $20 million in 2010, $18 million in 2009 and $19 million in 2008.

        Revenue from gift card sales is recognized upon gift card redemption. Our gift cards do not have expiration dates. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in 2010, 2009 and 2008.

        Credit card revenues are recognized according to the contractual provisions of each credit card agreement. When accounts are written off, uncollected finance charges and late fees are recorded as a reduction of credit card revenues. Target retail sales charged on our credit cards totaled $3,455 million, $3,328 million and $3,948 million in 2010, 2009 and 2008, respectively.

        Beginning April 2010, all new qualified credit card applicants receive the Target Card, and we no longer issue the Target Visa to credit card applicants. Existing Target Visa cardholders are not affected. Beginning October 2010, guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com. Target's REDcards include the Target Credit Card, Target Visa Credit Card and

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Target Debit Card. This new REDcard Rewards program replaced the existing rewards program in which account holders received an initial 10 percent-off coupon for opening the account and earned points toward a 10 percent-off coupon on subsequent purchases. These changes are intended to simplify the program and to generate profitable incremental retail sales. The discounts associated with our REDcard Rewards program are included as reductions in sales in our Consolidated Statements of Operations and were $162 million in 2010, $94 million in 2009 and $114 million in 2008.

3. Cost of Sales and Selling, General and Administrative Expenses

        The following table illustrates the primary costs classified in each major expense category:

 
  
Cost of Sales
  Selling, General and Administrative Expenses
 

Total cost of products sold including
•   Freight expenses associated with moving
    merchandise from our vendors to our
    distribution centers and our retail stores, and
    among our distribution and retail facilities
•   Vendor income that is not reimbursement of
    specific, incremental and identifiable costs
Inventory shrink
Markdowns
Outbound shipping and handling expenses
    associated with sales to our guests
Payment term cash discounts
Distribution center costs, including compensation
    and benefits costs

 

Compensation and benefit costs including
•   Stores
•   Headquarters
Occupancy and operating costs of retail and
    headquarters facilities
Advertising, offset by vendor income that is a
    reimbursement of specific, incremental and
    identifiable costs
Pre-opening costs of stores and other facilities
Other administrative costs

 

The classification of these expenses varies across the retail industry.

4. Consideration Received from Vendors

        We receive consideration for a variety of vendor-sponsored programs, such as volume rebates, markdown allowances, promotions and advertising allowances and for our compliance programs, referred to as "vendor income." Vendor income reduces either our inventory costs or SG&A expenses based on the provisions of the arrangement. Promotional and advertising allowances are intended to offset our costs of promoting and selling merchandise in our stores. Under our compliance programs, vendors are charged for merchandise shipments that do not meet our requirements (violations), such as late or incomplete shipments. These allowances are recorded when violations occur. Substantially all consideration received is recorded as a reduction of cost of sales.

        We establish a receivable for vendor income that is earned but not yet received. Based on provisions of the agreements in place, this receivable is computed by estimating the amount earned when we have completed our performance. We perform detailed analyses to determine the appropriate level of the receivable in the aggregate. The majority of year-end receivables associated with these activities are collected within the following fiscal quarter.

5. Advertising Costs

        Advertising costs are expensed at first showing or distribution of the advertisement and were $1,292 million in 2010, $1,167 million in 2009 and $1,233 million in 2008. Advertising vendor income that offset advertising expenses was approximately $216 million, $179 million and $188 million in 2010, 2009 and 2008, respectively. Newspaper circulars and media broadcast made up the majority of our advertising costs in all three years.

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6. 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 stock-based awards outstanding at period end, consisting of the incremental shares assumed to be issued upon the exercise of stock options and the incremental shares assumed to be issued under performance share and restricted stock unit arrangements.

   
  
Earnings Per Share
(millions, except per share data)
  2010
  2009
  2008
 
   

Net earnings

  $ 2,920   $ 2,488   $ 2,214  

Basic weighted average common shares outstanding

    723.6     752.0     770.4  

Dilutive impact of stock-based awards

    5.8     2.8     3.2  
   

Diluted weighted average common shares outstanding

    729.4     754.8     773.6  
   

Basic earnings per share

  $ 4.03   $ 3.31   $ 2.87  

Diluted earnings per share

  $ 4.00   $ 3.30   $ 2.86  
   

        For the 2010, 2009 and 2008 EPS computations, 10.9 million, 22.9 million and 17.4 million stock options, respectively, were excluded from the calculation of weighted average shares for diluted EPS because their effects were antidilutive.

7. Other Comprehensive Income/(Loss)

        Other comprehensive income/(loss) includes revenues, expenses, gains and losses that are excluded from net earnings under GAAP and are recorded directly to shareholders' investment. In 2010, 2009 and 2008, other comprehensive income/(loss) included gains and losses on certain hedge transactions, foreign currency translation adjustments and amortization of pension and postretirement plan amounts, net of related taxes. Significant items affecting other comprehensive income/(loss) are shown in the Consolidated Statements of Shareholders' Investment.

8. 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).

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

   
 
    
Fair Value at January 29, 2011
   
   
   
 
 
  Fair Value at January 30, 2010  
Fair Value Measurements – Recurring Basis
(millions)
 
  Level 1
  Level 2
  Level 3
  Level 1
  Level 2
  Level 3
 
   

Assets

                                     

Cash and cash equivalents

                                     
 

Marketable securities

  $ 1,129   $   $   $ 1,617   $   $  

Other current assets

                                     
 

Prepaid forward contracts

    63             79          

Other noncurrent assets

                                     
 

Interest rate swaps (a)

        139             131      
 

Company-owned life insurance investments (b)

        358             319      
   
 

Total

  $ 1,192   $ 497   $   $ 1,696   $ 450   $  
   

Liabilities

                                     

Other noncurrent liabilities

                                     
 

Interest rate swaps

  $   $ 54   $   $   $ 23   $  
   
 

Total

  $   $ 54   $   $   $ 23   $  
   
(a)
There were no interest rate swaps designated as accounting hedges at January 29, 2011 or January 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 $645 million at January 29, 2011 and $620 million at January 30, 2010.

   
    
Position
  Valuation Technique
   
 

Marketable securities

  Initially valued at transaction price. Carrying value of cash equivalents (including money market funds) 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.

   

        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 held for sale and held and used in the following table were determined using available market prices at the measurement date based on recent investments or pending transactions of similar assets, third-party independent appraisals, valuation multiples or public comparables, less cost to sell where appropriate. We classify these measurements as Level 2. The fair value measurement of an intangible asset was determined using unobservable inputs that reflect our own

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assumptions regarding how market participants price the intangible assets at the measurement date. We classify these measurements as Level 3.

   
  
Fair Value Measurements – Nonrecurring Basis

   
   
 
 
  Other current assets   Property and equipment   Other noncurrent assets  
 
  Long-lived assets held for sale
  Long-lived assets held and used (a)
 
(millions)
  Intangible asset
 
   

Measured during the year ended January 29, 2011:

                   
 

Carrying amount

  $ 9   $ 127   $  
 

Fair value measurement

    7     101      
   
 

Gain/(loss)

  $ (2 ) $ (26 ) $  
   

Measured during the year ended January 30, 2010:

                   
 

Carrying amount

  $ 74   $ 98   $ 6  
 

Fair value measurement

    57     66      
   
 

Gain/(loss)

  $ (17 ) $ (32 ) $ (6 )
   
(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 Measured at Fair Value
    
January 29, 2011
  January 30, 2010  
(millions)
  Carrying
Amount

  Fair
Value

  Carrying
Amount

  Fair
Value

 
   

Financial assets

                         

Other current assets

                         
 

Marketable securities (a)

  $ 32   $ 32   $ 27   $ 27  

Other noncurrent assets

                         
 

Marketable securities (a)

    4     4     5     5  
   
 

Total

  $ 36   $ 36   $ 32   $ 32  
   

Financial liabilities

                         

Total debt (b)

  $ 15,241   $ 16,661   $ 16,447   $ 17,487  
   
 

Total

  $ 15,241   $ 16,661   $ 16,447   $ 17,487  
   
(a)
Amounts include held-to-maturity government and money market 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, 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 January 29, 2011.

9. Cash Equivalents

        Cash equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions. These receivables typically settle in less than five days and were $313 million at January 29, 2011 and January 30, 2010. Payables due to Visa resulting from the use of Target Visa Cards are included within cash equivalents and were $36 million and $40 million at January 29, 2011 and January 30, 2010, respectively.

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

   
Age of Credit Card Receivables
    
  2010   2009  
(dollars in millions)
  Amount
  Percent of
Receivables

  Amount
  Percent of
Receivables

 
   

Current

  $ 6,132     89.6%   $ 6,935     86.9%  

1-29 days past due

    292     4.3%     337     4.2%  

30-59 days past due

    131     1.9%     206     2.6%  

60-89 days past due

    79     1.1%     133     1.6%  

90+ days past due

    209     3.1%     371     4.7%  
   

Period-end gross credit card receivables

  $ 6,843     100%   $ 7,982     100%  
   

Allowance for Doubtful Accounts

        The allowance for doubtful accounts is recognized in an amount equal to the anticipated future write-offs of existing receivables and includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs on the entire credit card portfolio collectively based on historical experience of delinquencies, risk scores, aging trends and industry risk trends.

   
Allowance for Doubtful Accounts
(millions)
  2010
  2009
 
   

Allowance at beginning of period

  $ 1,016   $ 1,010  

Bad debt expense

    528     1,185  

Write-offs (a)

    (1,007 )   (1,287 )

Recoveries (a)

    153     108  
   

Allowance at end of period

  $ 690   $ 1,016  
   
(a)
Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period principal collections on previously written-off balances. These amounts combined represent net write-offs.

        Deterioration of the macroeconomic conditions in the United States 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, most recently in

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January 2011. The credit quality segmentation presented below is consistent with the approach used in determining our allowance for doubtful accounts.

   
Receivables Credit Quality
(millions)

  2010
  2009
 
   

Nondelinquent accounts (Current and 1 - 29 days past due)

             
 

FICO score of 700 or above

  $ 2,819   $ 2,886  
 

FICO score of 600 to 699

    2,737     3,114  
 

FICO score below 600

    868     1,272  
   

Total nondelinquent accounts

    6,424     7,272  

Delinquent accounts (30+ days past due)

    419     710  
   

Period-end gross credit card receivables

  $ 6,843   $ 7,982  
   

        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 5.9 percent at January 29, 2011 and 6.7 percent at January 30, 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.

        In 2005, we entered into a public securitization of our credit card receivables. Note holders participating in this securitization were entitled to receive annual interest payments based on LIBOR plus a spread. The final payment on this securitization was made in April of 2010 as discussed in Note 19.

        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 $566 million during 2010 and $163 million during 2009 under the terms of this agreement. No payments were made during 2008.

        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

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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.

        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.

   
 
  2010   2009  
Securitized Borrowings
(millions)
 
  Debt Balance
  Collateral
  Debt Balance
  Collateral
 
   

2008 Series (a)

  $ 2,954   $ 3,061   $ 3,475   $ 3,652  

2006/2007 Series

    1,000     1,266     1,000     1,266  

2005 Series

            900     1,154  
   

Total

  $ 3,954   $ 4,327   $ 5,375   $ 6,072  
   
(a)
The debt balance for the 2008 Series is net of a 7% discount from JPMC. The unamortized portion of this discount was $107 million and $177 million as of January 29, 2011, and January 30, 2010, respectively.

11. Inventory

        Substantially our entire inventory and the related cost of sales are accounted for under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. Inventory is stated at the lower of LIFO cost or market. Cost includes purchase price as reduced by vendor income. Inventory is also reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated based on inventory levels, markup rates and internally measured retail price indices.

        Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value inventory. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market because permanent markdowns are currently taken as a reduction of the retail value of inventory.

        We routinely enter into arrangements with vendors whereby we do not purchase or pay for merchandise until the merchandise is ultimately sold to a guest. Revenues under this program are included in sales in the Consolidated Statements of Operations, but the merchandise received under the program is not included in inventory in our Consolidated Statements of Financial Position because of the virtually simultaneous purchase and sale of this inventory. Sales made under these arrangements totaled $1,581 million in 2010, $1,470 million in 2009 and $1,538 million in 2008.

12. Other Current Assets

   
Other Current Assets
(millions)
  January 29,
2011

  January 30,
2010

 
   

Vendor income receivable

  $ 517   $ 390  

Other receivables (a)

    405     526  

Deferred taxes

    379     724  

Other

    451     439  
   

Total

  $ 1,752   $ 2,079  
   
(a)
Includes pharmacy receivables and income taxes receivable.

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    13. Property and Equipment

            Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives or lease terms if shorter. We amortize leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably assured at the date the leasehold improvements are acquired. Depreciation expense for 2010, 2009 and 2008 was $2,060 million, $1,999 million and $1,804 million, respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred and were $726 million in 2010, $632 million in 2009 and $609 million in 2008. Facility pre-opening costs, including supplies and payroll, are expensed as incurred.

   
Estimated Useful Lives
  Life (in years)
 
   
Buildings and improvements     8-39  
Fixtures and equipment     3-15  
Computer hardware and software     4-7  
   

            Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the asset's carrying value may not be recoverable. Impairments of $28 million in 2010, $49 million in 2009 and $2 million in 2008 were recorded as a result of the reviews performed. Additionally, due to project scope changes, we wrote off capitalized construction in progress costs of $6 million in 2010, $37 million in 2009 and $26 million in 2008.

    14. Other Noncurrent Assets

   
Other Noncurrent Assets
(millions)

  January 29,
2011

  January 30,
2010

 
   

Company-owned life insurance investments (a)

  $ 358   $ 319  

Goodwill and intangible assets

    223     239  

Interest rate swaps (b)

    139     131  

Other

    279     140  
   

Total

  $ 999   $ 829  
   
(a)
Company-owned life insurance policies on approximately 4,000 team members who are designated highly compensated under the Internal Revenue Code and have given their consent to be insured. Amounts are presented net of loans that are secured by some of these policies.
(b)
See Notes 8 and 20 for additional information relating to our interest rate swaps.

    15. Goodwill and Intangible Assets

            Goodwill and intangible assets are recorded within other noncurrent assets. Goodwill totaled $59 million at January 29, 2011 and January 30, 2010. Goodwill and indefinite-lived intangible assets are not amortized; instead, they are tested for impairment annually and whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable. Definite-lived intangible assets are amortized over their expected economic useful life and are tested for impairment whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable. Discounted cash flow models are used in determining fair value

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    for the purposes of the required goodwill and intangible assets impairment tests. No material impairments were recorded in 2010, 2009 or 2008 as a result of the tests performed.

   
 
  Leasehold Acquisition Costs   Other (a)   Total  
Intangible Assets
 
 
(millions)
 
  Jan. 29,
2011

  Jan. 30,
2010

  Jan. 29,
2011

  Jan. 30,
2010

  Jan. 29,
2011

  Jan. 30,
2010

 
   

Gross asset

  $ 227   $ 246   $ 121   $ 101   $ 348   $ 347  

Accumulated amortization

    (111 )   (110 )   (73 )   (57 )   (184 )   (167 )
   

Net intangible assets

  $ 116   $ 136   $ 48   $ 44   $ 164   $ 180  
   
(a)
Other intangible assets relate primarily to acquired customer lists and trademarks.

            Amortization is computed on definite-lived intangible assets using the straight-line method over estimated useful lives that typically range from 9 to 39 years for leasehold acquisition costs and from 3 to 15 years for other intangible assets. The weighted average life of leasehold acquisition costs and other intangible assets was 29 years and 4 years, respectively, at January 29, 2011. Amortization expense for 2010, 2009 and 2008 was $24 million, $24 million and $21 million, respectively.

   
Estimated Amortization Expense
(millions)

  2011
  2012
  2013
  2014
  2015
 
   

Amortization expense

  $ 22   $ 16   $ 13   $ 11   $ 11  
   

    16. Accounts Payable

            We reclassify book overdrafts to accounts payable at period end. Overdrafts reclassified to accounts payable were $558 million at January 29, 2011 and $518 million at January 30, 2010.

    17. Accrued and Other Current Liabilities

   
Accrued and Other Current Liabilities
(millions)

  January 29,
2011

  January 30,
2010

 
   

Wages and benefits

  $ 921   $ 959  

Taxes payable (a)

    497     490  

Gift card liability (b)

    422     387  

Straight-line rent accrual (c)

    200     185  

Dividends payable

    176     127  

Workers' compensation and general liability

    158     163  

Income tax payable

    144     24  

Interest payable

    103     105  

Other

    705     680  
   

Total

  $ 3,326   $ 3,120  
   
(a)
Taxes payable consist of real estate, team member withholdings and sales tax liabilities.
(b)
Gift card liability represents the amount of gift cards that have been issued but have not been redeemed, net of estimated breakage.
(c)
Straight-line rent accrual represents the amount of rent expense recorded that exceeds cash payments remitted in connection with operating leases.

    18. Commitments and Contingencies

            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., in exchange for C$1,825 million (Canadian dollars), due in two payments, one in May 2011 and one in September 2011. We believe this transaction will allow us to open 100 to 150 Target stores in

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    Canada, primarily during 2013. We expect that renovation of these stores will require an investment of over C$1 billion, a portion of which may be funded by landlords. At January 29, 2011 the value of C$1.00 approximated the value of $1.00.

            Purchase obligations, which include all legally binding contracts, such as firm commitments for inventory purchases, merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts, were approximately $1,907 million and $2,016 million at January 29, 2011 and January 30, 2010, respectively. We issue inventory purchase orders, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments. If we choose to cancel a purchase order, we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation. We also issue trade letters of credit in the ordinary course of business, which are not obligations given they are conditioned on terms of the letter of credit being met.

            Trade letters of credit totaled $1,522 million and $1,484 million at January 29, 2011 and January 30, 2010, respectively, a portion of which are reflected in accounts payable. Standby letters of credit, relating primarily to retained risk on our insurance claims, totaled $71 million and $72 million at January 29, 2011 and January 30, 2010, respectively.

            We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders and other constituents. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of the currently identified claims or litigation matters will have a material adverse impact on our results of operations, cash flows or financial condition.

    19. Notes Payable and Long-Term Debt

            We obtain short-term financing throughout the year under our commercial paper program, a form of notes payable.

   
Commercial Paper
(millions)
  2010
  2009
 
   

Maximum daily amount outstanding during the year

  $   $ 112  

Average amount outstanding during the year

        1  

Amount outstanding at year-end

         

Weighted average interest rate

        0.2%  
   

            An additional source of liquidity is available to us through a committed $2 billion unsecured revolving credit facility obtained through a group of banks in April 2007, which will expire in April 2012. No balances were outstanding at any time during 2010 or 2009 under this credit facility.

            In July 2010, we issued $1 billion of long-term debt at 3.875% that matures in July 2020. There were no amounts issued in 2009.

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        As further explained in Note 10, we maintain an accounts receivable financing program through which we sell credit card receivables to a bankruptcy remote, wholly owned subsidiary, which in turn transfers the receivables to a Trust. The Trust, either directly or through related trusts, sells debt securities to third parties. The following summarizes this activity for 2009 and 2010.

   
Nonrecourse Debt Collateralized by Credit Card Receivables
(millions)
  2010
  2009
 
   

Balance at beginning of period

  $ 5,375   $ 5,490  
 

Issued

         
 

Accretion (a)

    45     48  
 

Repaid (b)

    (1,466 )   (163 )
   

Balance at end of period

  $ 3,954   $ 5,375  
   
(a)
Represents the accretion of the 7 percent discount on the 47 percent interest in credit card receivables sold to JPMC.
(b)
Includes repayments of $566 million and $163 million for the 2008 series of secured borrowings during 2010 and 2009 due to declines in gross credit card receivables and payment of $900 million to repurchase and retire in full the 2005 series of secured borrowings at par in April 2010, that otherwise would have matured in October 2010.

        Other than debt backed by our credit card receivables and other immaterial borrowings, all of our outstanding borrowings are senior, unsecured obligations.

        At January 29, 2011, the carrying value and maturities of our debt portfolio, including unamortized hedged debt valuation gains from terminated or de-designated interest rate swaps, were as follows:

   
 
  January 29, 2011  
Debt Maturities
(millions)
 
  Rate (a)
  Balance
 
   
 

Due fiscal 2011-2015

    3.2 % $ 6,090  
 

Due fiscal 2016-2020

    5.4     4,299  
 

Due fiscal 2021-2025

    8.9     120  
 

Due fiscal 2026-2030

    6.7     326  
 

Due fiscal 2031-2035

    6.6     906  
 

Due fiscal 2036-2037

    6.8     3,500  
   

Total notes and debentures

    5.0     15,241  

Unamortized swap valuation adjustments

          152  

Capital lease obligations

          333  

Less:

             
 

Amounts due within one year

          (119 )
   

Long-term debt

        $ 15,607  
   
(a)
Reflects the weighted average stated interest rate as of year-end.

        Required principal payments on notes and debentures over the next five years, excluding capital lease obligations, are as follows:

   
Required Principal Payments (a)
(millions)

  2011
  2012
  2013
  2014
  2015
 
   

Unsecured

  $ 106   $ 1,501   $ 501   $ 1   $ 27  

Nonrecourse

        750     3,311          
   

Total required principal payments

  $ 106   $ 2,251   $ 3,812   $ 1   $ 27  
   
(a)
The required principal payments presented in this table do not consider the potential accelerated repayment requirements under our agreement with JPMC in the event of a decrease in credit card receivables.

        Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants.

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20. 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 two global financial institutions. We monitor this concentration of counterparty credit risk on an ongoing basis.

        Prior to 2009, the majority of our derivative instruments qualified for fair value hedge accounting treatment. The changes in market value of an interest rate swap, as well as the offsetting change in market value of the hedged debt, were recognized within earnings in the current period. We assessed at the inception of the hedge whether the hedging derivatives were highly effective in offsetting changes in fair value or cash flows of hedged items. Ineffectiveness resulted when changes in the market value of the hedged debt were not completely offset by changes in the market value of the interest rate swap. For those derivatives whose terms met the conditions of the "short-cut method," 100 percent hedge effectiveness was assumed. There was no ineffectiveness recognized in 2010, 2009 or 2008 related to our derivative instruments. As detailed below, at January 29, 2011, there were no derivative instruments designated as accounting hedges.

        During the first quarter of 2008, we terminated certain "pay floating" interest rate swaps with a combined notional amount of $3,125 million for cash proceeds of $160 million, which are classified within other operating cash flows in the Consolidated Statements of Cash Flows. These swaps were designated as hedges; therefore, concurrent with their terminations, we were required to stop making market value adjustments to the associated hedged debt. Gains realized upon termination will be amortized into earnings over the remaining life of the associated hedged debt.

        Additionally, during 2008, we de-designated certain "pay floating" interest rate swaps, and upon de-designation, these swaps no longer qualified for hedge accounting treatment. As a result of the de-designation, the unrealized gains on these swaps determined at the date of de-designation will be amortized into earnings over the remaining lives of the previously hedged items.

        In 2010, 2009 and 2008, total net gains amortized into net interest expense for terminated and de-designated swaps were $45 million, $60 million and $55 million, respectively. The amount remaining on unamortized hedged debt valuation gains from terminated and de-designated interest rate swaps that will be amortized into earnings over the remaining lives of the previously hedged debt totaled $152 million, $197 million and $263 million, at the end of 2010, 2009 and 2008, respectively.

        Simultaneous to the de-designations during 2008, we entered into "pay fixed" swaps to economically hedge the risks associated with the de-designated "pay floating" swaps. These swaps are not designated as hedging instruments and along with the de-designated "pay floating" swaps are measured at fair value on a quarterly basis.

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Changes in fair value measurements are a component of net interest expense on the Consolidated Statements of Operations.

 
Outstanding Interest Rate Swap Summary
(dollars in millions)

 
  January 29, 2011
 
  Pay Floating
  Pay Fixed
 

Weighted average rate:

       
 

Pay

  one-month LIBOR   2.6% fixed
 

Receive

  5.0% fixed   one-month LIBOR

Weighted average maturity

  3.4 years   3.4 years

Notional

  $1,250   $1,250
 

   
Derivative Contracts – Types, Balance Sheet Classifications and Fair Values
(millions)
 
 
  Asset   Liability  
 
   
  Fair Value At    
  Fair Value At  
Type
  Classification
  Jan. 29,
2011

  Jan. 30,
2010

  Classification
  Jan. 29,
2011

  Jan. 30,
2010

 
   

Not designated as hedging instruments:

                                 

Interest rate swaps

  Other noncurrent assets   $ 139   $ 131   Other noncurrent liabilities   $ 54   $ 23  
   

Total

      $ 139   $ 131       $ 54   $ 23  
   

        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
(millions)
 
 
   
  Income/(Expense)  
Type
  Classification
  2010
  2009
  2008
 
   

Interest rate swaps

  Other interest expense   $ 51   $ 65   $ 71  
   

Total

      $ 51   $ 65   $ 71  
   

21. Leases

        We lease certain retail locations, warehouses, distribution centers, office space, land, equipment and software. Assets held under capital leases are included in property and equipment. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date we take possession of the property. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured. The exercise of lease renewal options is at our sole discretion. The expected lease term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of leased buildings and leasehold improvements is limited by the expected lease term.

        Rent expense is included in SG&A expenses. Some of our lease agreements include rental payments based on a percentage of retail sales over contractual levels. Certain leases require us to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These expenses are classified in

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SG&A, consistent with similar costs for owned locations. Sublease income received from tenants who rent properties is recorded as a reduction to SG&A expense.

   
Rent Expense
(millions)
  2010
  2009
  2008
 
   
 

Property and equipment

  $ 188   $ 187   $ 184  
 

Software

    25     27     24  
 

Sublease income

    (13 )   (13 )   (15 )
   

Total rent expense

  $ 200   $ 201   $ 193  
   

        Most long-term leases include one or more options to renew, with renewal terms that can extend the lease term from one to more than 50 years. Certain leases also include options to purchase the leased property.

   
Future Minimum Lease Payments
(millions)
  Operating Leases (a)
  Capital Leases
  Sublease Income
  Total
 
   

2011

  $ 190   $ 31   $ (11 ) $ 210  

2012

    189     32     (8 )   213  

2013

    187     32     (7 )   212  

2014

    147     32     (6 )   173  

2015

    141     30     (6 )   165  

After 2015

    3,100     432     (35 )   3,497  
   

Total future minimum lease payments

  $ 3,954   $ 589   $ (73 ) $ 4,470  

Less: Interest (b)

          (256 )            
   

Present value of future minimum capital lease payments (c)

        $ 333              
   
(a)
Total contractual lease payments include $1,949 million related to options to extend lease terms that are reasonably assured of being exercised and also includes $241 million of legally binding minimum lease payments for stores that will open in 2011 or later.
(b)
Calculated using the interest rate at inception for each lease.
(c)
Includes the current portion of $12 million.

        The future minimum lease payments above do not include any payments associated with the leases that may be acquired under our agreement with Zellers Inc., described in Note 18.

22. Income Taxes

        Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and liabilities are recognized in income at the enactment date. We have not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside the U.S. Such amounts are not significant.

   
Tax Rate Reconciliation
  2010
  2009
  2008
 
   

Federal statutory rate

    35.0 %   35.0 %   35.0 %

State income taxes, net of federal tax benefit

    1.4     2.8     3.8  

Other

    (1.3 )   (2.1 )   (1.4 )
   

Effective tax rate

    35.1 %   35.7 %   37.4 %
   

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        Certain discrete state tax items reduced the impact of the state income tax rate, net of federal benefit, by 2.4 percentage points, 0.7 percentage points, and 0.6 percentage points in 2010, 2009, and 2008, respectively.

   
Provision for Income Taxes
(millions)
  2010
  2009
  2008
 
   

Current:

                   
 

Federal

  $ 1,086   $ 877   $ 1,034  
 

State/other

    44     143     197  
   

Total current

    1,130     1,020     1,231  
   

Deferred:

                   
 

Federal

    388     339     88  
 

State/other

    57     25     3  
   

Total deferred

    445     364     91  
   

Total provision

  $ 1,575   $ 1,384   $ 1,322  
   

 

   
Net Deferred Tax Asset/(Liability)
(millions)
  January 29,
2011

  January 30,
2010

 
   

Gross deferred tax assets:

             
 

Accrued and deferred compensation

  $ 451   $ 538  
 

Allowance for doubtful accounts

    229     393  
 

Accruals and reserves not currently deductible

    373     380  
 

Self-insured benefits

    251     260  
 

Other

    67     92  
   

Total gross deferred tax assets

    1,371     1,663  
   

Gross deferred tax liabilities:

             
 

Property and equipment

    (1,607 )   (1,543 )
 

Deferred credit card income

    (145 )   (166 )
 

Other

    (174 )   (64 )
   

Total gross deferred tax liabilities

    (1,926 )   (1,773 )
   

Total net deferred tax asset/(liability)

  $ (555 ) $ (110 )
   

        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 2009 and, with few exceptions, are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2003.

   
Reconciliation of Unrecognized Tax Benefit Liabilities
(millions)
  2010
  2009
 
   

Balance at beginning of period

  $ 452   $ 434  

Additions based on tax positions related to the current year

    16     119  

Additions for tax positions of prior years

    68     47  

Reductions for tax positions of prior years

    (222 )   (61 )

Settlements

    (12 )   (87 )
   

Balance at end of period

  $ 302   $ 452  
   

        If the Corporation were to prevail on all unrecognized tax benefit liabilities recorded, approximately $198 million of the $302 million reserve would benefit the effective tax rate. In addition, the reversal of accrued penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefit liabilities are recorded within income tax expense. During the years ended January 29, 2011 and January 30, 2010, we recorded a net benefit from the reversal of accrued penalties and interest of approximately $28 million and $10 million, respectively. During the year ended January 31, 2009, we recorded a net expense for accrued penalties

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and interest of approximately $33 million. We had accrued for the payment of interest and penalties of approximately $95 million at January 29, 2011 and $127 million at January 30, 2010.

        The January 30, 2010 liability for uncertain tax positions included $133 million for tax positions for which the ultimate deductibility was highly certain, but for which there was uncertainty about the timing of such deductibility. During 2010, we filed a tax accounting method change that resolved the uncertainty surrounding the timing of deductions for these tax positions, resulting in a $133 million decrease to our unrecognized tax benefit liability and no impact on income tax expense in 2010.

        In addition, we resolved various state income tax matters in 2010, resulting in a reduction of approximately $80 million to our unrecognized tax benefit liability, which also reduced tax expense in 2010. It is reasonably possible that the amount of the unrecognized tax benefit liabilities with respect to our other unrecognized tax positions will increase or decrease during the next twelve months; however an estimate of the amount or range of the change cannot be made at this time.

        During 2009, we filed income tax returns that included tax accounting method changes allowed under applicable tax regulations. These changes resulted in a substantial increase in tax deductions related to property and equipment, resulting in an increase in noncurrent deferred income tax liabilities of approximately $300 million and a corresponding increase in current income taxes receivable, which is classified as other current assets in the Consolidated Statements of Financial Position. These changes did not affect income tax expense for 2009.

23. Other Noncurrent Liabilities

   
Other Noncurrent Liabilities
(millions)
  January 29,
2011

  January 30,
2010

 
   

General liability and workers' compensation (a)

  $ 470   $ 490  

Deferred compensation

    396     353  

Income tax

    313     579  

Pension and postretirement health care benefits

    128     178  

Other

    300     306  
   

Total

  $ 1,607   $ 1,906  
   
(a)
We retain a substantial portion of the risk related to certain general liability and workers' compensation claims. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We estimate our ultimate cost based on analysis of historical data and actuarial estimates. General liability and workers' compensation liabilities are recorded at our estimate of their net present value.

24. Share Repurchase

        In November 2007, our Board of Directors approved a share repurchase program totaling $10 billion that replaced a prior program. In November 2008, we announced that, in light of our business outlook, we were temporarily suspending our open-market share repurchase program. In January 2010, we resumed open-market purchases of shares under this program.

        Share repurchases for the last three years, repurchased primarily through open market transactions, were as follows:

   
  
Share Repurchases
(millions, except per share data)
  Total Number of
Shares Purchased

  Average Price
Paid per Share

  Total Investment
 
   

2008

    67.2   $ 50.49   $ 3,395  

2009

    9.9     48.54     479  

2010

    47.8     52.44     2,508  
   

Total

    124.9   $ 51.08   $ 6,382  
   

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

   
Settlement of Prepaid Forward Contracts (a)
(millions)
  Total Cash
Investment

  Aggregate
Market Value 
(b)
 
   

2008

  $ 249   $ 251  

2009

    56     60  

2010

    56     61  
   

Total

  $ 361   $ 372  
   
(a)
These contracts are among the investment vehicles used to reduce our economic exposure related to our nonqualified deferred compensation plans. The details of our positions in prepaid forward contracts have been provided in Note 26.
(b)
At their respective settlement dates.

        Our share repurchases during 2008 included 30 million shares that were acquired through the exercise of call options.

   
Call Option Repurchase Details
 
 
  Number of
Options
Exercised

   
  (amounts per share)    
 
 
  Exercise
Date

  Total Cost
(millions)

 
Series
  Premium (a)
  Strike Price
  Total
 
   

Series I

    10,000,000     April 2008   $ 11.04   $ 40.32   $ 51.36   $ 514  

Series II

    10,000,000     May 2008     10.87     39.31     50.18     502  

Series III

    10,000,000     June 2008     11.20     39.40     50.60     506  
   

Total

    30,000,000         $ 11.04   $ 39.68   $ 50.71   $ 1,522  
   
(a)
Paid in January 2008.

25. Share-Based Compensation

        We maintain a long-term incentive plan (the Plan) for key team members and non-employee members of our Board of Directors. Our long-term incentive plan allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). The number of unissued common shares reserved for future grants under the Plan was 17,552,454 at January 29, 2011 and 21,450,009 at January 30, 2010.

        Total share-based compensation expense recognized in the Consolidated Statements of Operations was $109 million, $103 million and $72 million in 2010, 2009 and 2008, respectively. The related income tax benefit was $43 million, $40 million and $28 million in 2010, 2009 and 2008, respectively.

Stock Options

        We grant nonqualified stock options to certain team members under the Plan that generally vest and become exercisable annually in equal amounts over a four-year period and expire 10 years after the grant date. We also grant options to the non-employee members of our Board of Directors which vest immediately and become exercisable after one year with a term equal to the lesser of 10 years from date of grant or 5 years following

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departure from the Board. Starting in 2010, the options granted to our Board of Directors vest quarterly over a one-year period.

   
Stock Option Activity
  Stock Options (a)  
 
  Total Outstanding   Exercisable  
 
  No. of
Options 
(b)
  Exercise Price (c)
  Intrinsic Value (d)
  No. of Options (b)
  Exercise Price (c)
  Intrinsic Value (d)
 
   

January 30, 2010

    38,242   $ 44.05   $ 331     22,453   $ 44.59   $ 189  

Granted

    4,584     55.33                          

Expired/forfeited

    (956 )   44.87                          

Exercised/issued

    (7,220 )   37.57                          
   

January 29, 2011

    34,650   $ 46.87   $ 288     20,813   $ 47.06   $ 172  
   
(a)
Includes stock appreciation rights granted to certain non-U.S. team members.
(b)
In thousands.
(c)
Weighted average per share.
(d)
Represents stock price appreciation subsequent to the grant date, in millions.

        We use a Black-Scholes valuation model to estimate the fair value of the options at grant date based on the assumptions noted in the following table. Volatility represents an average of market estimates for implied volatility of Target common stock. The expected life is estimated based on an analysis of options already exercised and any foreseeable trends or changes in recipients' behavior. The risk-free interest rate is an interpolation of the relevant U.S. Treasury security maturities as of each applicable grant date.

   
 
Valuation Assumptions
  2010
  2009
  2008
 
   
 

Dividend yield

    1.8 %   1.4 %   1.9 %
 

Volatility

    26 %   31 %   47 %
 

Risk-free interest rate

    2.1 %   2.7 %   1.5 %
 

Expected life in years

    5.5     5.5     5.5  

Stock options grant date fair value

  $ 12.51   $ 14.18   $ 12.87  
   

 

   
  
Stock Option Exercises
(in millions)
  2010
  2009
  2008
 
   

Cash received for exercise price

  $ 271   $ 62   $ 31  

Intrinsic value

    132     21     14  

Income tax benefit