Credit Card Receivables

6 Months Ended

Jul. 30, 2011

Credit Card Receivables

Credit Card Receivables

5.  Credit Card Receivables

Credit card receivables are recorded net of an allowance for doubtful accounts and are our only significant class of receivables. Substantially all accounts continue to accrue finance charges until they are written off. All past due accounts were incurring finance charges at July 30, 2011, January 29, 2011, and July 31, 2010. Accounts are written off when they become 180 days past due.

Age of Credit Card Receivables	July 30, 2011			January 29, 2011				July 31, 2010
			Percent of			Percent of				Percent of
(dollars in millions)	Amount		Receivables	Amount		Receivables		Amount		Receivables
Current	$	5,671	91.4%	$	6,132	89.6	%	$	6,167	88.3%
1-29 days past due	242		3.9	292		4.3		312		4.5
30-59 days past due	101		1.6	131		1.9		162		2.3
60-89 days past due	60		1.0	79		1.1		101		1.4
90+ days past due	128		2.1	209		3.1		246		3.5
Period-end gross credit card receivables	$	6,202	100%	$	6,843	100	%	$	6,988	100%

Allowance for Doubtful Accounts

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

Allowance for Doubtful Accounts	Three Months Ended				Six Months Ended
(millions)	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
Allowance at beginning of period	$   565		$   930		$   690		$  1,016
Bad debt expense	15		138		27		335
Write-offs(a)	(142	)	(256	)	(326	)	(573	)
Recoveries(a)	42		39		89		73
Allowance at end of period	$   480		$   851		$   480		$   851

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

Deterioration of the macroeconomic conditions in the United States would adversely affect the risk profile of our credit card receivables portfolio based on credit card holders’ ability to pay their balances. If such deterioration were to occur, it would lead to an increase in bad debt expense. The Corporation monitors both the credit quality and the delinquency status of the credit card receivables portfolio. We consider accounts 30 or more days past due as delinquent, and we update delinquency status daily. We also monitor risk in the portfolio by assigning internally generated scores to each account and by periodically obtaining a statistically representative sample of current FICO scores, a nationally recognized credit scoring model. We update these FICO scores monthly. The credit quality segmentation presented below is consistent with the approach used in determining our allowance for doubtful accounts.

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

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

Funding for Credit Card Receivables

As a method of providing funding for our credit card receivables, we sell, on an ongoing basis, all of our consumer credit card receivables to Target Receivables LLC (TR LLC), formerly known as Target Receivables Corporation (TRC), a wholly owned, bankruptcy remote subsidiary. TR LLC then transfers the receivables to the Target Credit Card Master Trust (the Trust), which from time to time will sell debt securities to third parties, either directly or through a related trust. These debt securities represent undivided interests in the Trust assets. TR LLC uses the proceeds from the sale of debt securities and its share of collections on the receivables to pay the purchase price of the receivables to the Corporation.

We consolidate the receivables within the Trust and any debt securities issued by the Trust, or a related trust, in our Consolidated Statements of Financial Position based upon the applicable accounting guidance. The receivables transferred to the Trust are not available to general creditors of the Corporation.

During 2006 and 2007, we sold an interest in our credit card receivables by issuing a Variable Funding Certificate. Parties who hold the Variable Funding Certificate receive interest at a variable short-term market rate. The Variable Funding Certificate matures in 2012 and 2013.

In the second quarter of 2008, we sold an interest in our credit card receivables to JPMorgan Chase (JPMC). The interest sold represented 47 percent of the receivables portfolio at the time of the transaction. In the event of a decrease in the receivables principal amount such that JPMC’s interest in the entire portfolio would exceed 47 percent for three consecutive months, TR LLC (using the cash flows from the assets in the Trust) would be required to pay JPMC a pro rata amount of principal collections such that the portion owned by JPMC would not exceed 47 percent, unless JPMC provides a waiver. Conversely, at the option of the Corporation, JPMC may be required to fund an increase in the portfolio to maintain their 47 percent interest up to a maximum principal balance of $4.2 billion. Due to declines in gross credit card receivables, TR LLC repaid JPMC $226 million and $421 million during first six months of 2011 and 2010, respectively.

If a three-month average of monthly finance charge excess (JPMC’s prorata share of finance charge collections less write-offs and specified expenses) is less than 2 percent of the outstanding principal balance of JPMC’s interest, the Corporation must implement mutually agreed-upon underwriting strategies. If the three-month average finance charge excess falls below 1 percent of the outstanding principal balance of JPMC’s interest, JPMC may compel the Corporation to implement underwriting and collections activities, provided those activities are compatible with the Corporation’s systems, as well as consistent with similar credit card receivable portfolios managed by JPMC. If the Corporation fails to implement the activities, JPMC has the right to cause the accelerated repayment of the note payable issued in the transaction. As noted in the preceding paragraph, payments would be made solely from the Trust assets.  In the first quarter of 2011, this agreement was amended to allow the Corporation to prepay the principal balance on the note payable to JPMC between September 30, 2011 and January 31, 2012. If we elect to prepay the outstanding balance, we will be required to pay a make-whole premium ranging from $85 million to $103 million, dependent upon the prepayment date.

All interests in our Credit Card Receivables issued by the Trust are accounted for as secured borrowings. Interest and principal payments are satisfied provided the cash flows from the Trust assets are sufficient and are nonrecourse to the general assets of the Corporation. If the cash flows are less than the periodic interest, the available amount, if any, is paid with respect to interest. Interest shortfalls will be paid to the extent subsequent cash flows from the assets in the Trust are sufficient. Future principal payments will be made from the third party’s prorata share of cash flows from the Trust assets.

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

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