Fair Value Measurements

12 Months Ended

Feb. 02, 2013

Fair Value Measurements

Fair Value Measurements

9. Fair Value Measurements

Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

Fair Value Measurements – Recurring Basis	Fair Value at February 2, 2013						Fair Value at January 28, 2012
(millions)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents
Short-term investments	$	130	$	—	$	—	$	194	$	—	$	—
Other current assets
Interest rate swaps (a)		—		4		—		—		20		—
Prepaid forward contracts		73		—		—		69		—		—
Other noncurrent assets
Interest rate swaps (a)		—		85		—		—		114		—
Company-owned life insurance investments (b)		—		269		—		—		371		—
Total	$	203	$	358	$	—	$	263	$	505	$	—
Liabilities
Other current liabilities
Interest rate swaps (a)	$	—	$	2	$	—	$	—	$	7	$	—
Other noncurrent liabilities
Interest rate swaps (a)	$	—	$	54	$	—	$	—	$	69	$	—
Total	$	—	$	56	$	—	$	—	$	76	$	—

(a)

There was one interest rate swap designated as an accounting hedge at February 2, 2013 and January 28, 2012. See Note 21 for additional information on interest rate swaps.

(b)

Company-owned life insurance investments consist of equity index funds and fixed income assets. Amounts are presented net of nonrecourse loans that are secured by some of these policies. These loan amounts were $817 million at February 2, 2013 and $669 million at January 28, 2012.

Position	Valuation Technique
Short-term investments	Carrying value approximates fair value because maturities are less than three months.
Prepaid forward contracts	Initially valued at transaction price. Subsequently valued by reference to the market price of Target common stock.
Interest rate swaps	Valuation models are calibrated to initial trade price. Subsequent valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit-risk adjustment is made on each swap using observable market credit spreads.
Company-owned life insurance investments	Includes investments in separate accounts that are valued based on market rates credited by the insurer.

The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the Consolidated Statements of Financial Position. The fair value of marketable securities is determined using available market prices at the reporting date and would be classified as Level 1. The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for similar types of financial instruments and would be classified as Level 2.

Financial Instruments Not Measured at Fair Value	February 2, 2013				January 28, 2012
(millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Other current assets
Marketable securities (a)	$	61	$	61	$	35	$	35
Other noncurrent assets
Marketable securities (a)		4		4		6		6
Total	$	65	$	65	$	41	$	41
Financial liabilities
Total debt (b)	$	15,618	$	18,143	$	15,680	$	18,142
Total	$	15,618	$	18,143	$	15,680	$	18,142

(a)

Represents held-to-maturity investments and cash equivalents that are held to satisfy the regulatory requirements of Target Bank and Target National Bank.

(b)

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

As of February 2, 2013, our consumer credit card receivables are recorded at the lower of cost (par) or fair value because they are classified as held for sale. We estimated the fair value of our consumer credit card portfolio to be approximately $6.3 billion using a cash flow-based, economic-profit model using Level 3 inputs, including the forecasted performance of the portfolio and a market-based discount rate. We used internal data to forecast expected payment patterns and write-offs, revenue, and operating expenses (credit EBIT yield) related to the credit card portfolio. Changes in macroeconomic conditions in the United States could affect the estimated fair value used in our lower of cost (par) or fair value assessment, which could cause gains or losses on our receivables held for sale. A one percentage point change in the forecasted credit EBIT yield would impact our fair value estimate by approximately $37 million. A one percentage point change in the forecasted discount rate would impact our fair value estimate by approximately $8 million. Refer to Note 7 for more information on our credit card receivables transaction. As of January 28, 2012, we estimated that the fair value of our credit card receivables approximated par value.

The carrying amounts of accounts payable and certain accrued and other current liabilities approximate fair value due to their short-term nature.