Fair Value Measurements

3 Months Ended

May 04, 2013

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

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

Fair Value Measurements - Recurring Basis
	Fair Value at						Fair Value at						Fair Value at
	May 4, 2013						February 2, 2013						April 28, 2012
(millions)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents
Short-term investments	$	1,112	$	—	$	—	$	130	$	—	$	—	$	18	$	—	$	—
Other current assets
Interest rate swaps(a)	—		1		—		—		4		—		—		15		—
Prepaid forward contracts	74		—		—		73		—		—		74		—		—
Beneficial interest asset(b)	—		—		98		—		—		—		—		—		—
Other noncurrent assets
Interest rate swaps(a)	—		83		—		—		85		—		—		104		—
Company-owned life insurance investments(c)	—		285		—		—		269		—		—		372		—
Beneficial interest asset(b)	—		—		110		—		—		—		—		—		—
Total	$	1,186	$	369	$	208	$	203	$	358	$	—	$	92	$	491	$	—
Liabilities
Other current liabilities
Interest rate swaps(a)	$	—	$	—	$	—	$	—	$	2	$	—	$	—	$	5	$	—
Other noncurrent liabilities
Interest rate swaps(a)	—		53		—		—		54		—		—		65		—
Total	$	—	$	53	$	—	$	—	$	56	$	—	$	—	$	70	$	—

(a) There was one interest rate swap designated as an accounting hedge in all periods presented. See Note 5 for additional information on interest rate swaps.

(b) A rollforward of the Level 3 beneficial interest asset is included in Note 2.

(c) 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 $782 million at May 4, 2013, $817 million at February 2, 2013 and $677 million at April 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.
Beneficial interest asset	Valued using a cash-flow based economic-profit model, which includes inputs of the forecasted performance of the receivables portfolio and a market-based discount rate. Internal data is used 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. A one percentage point change in the forecasted credit EBIT yield would impact our fair value estimate by approximately $32 million. A one percentage point change in the forecasted discount rate would impact our fair value estimate by approximately $7 million. As described in Note 2, this beneficial interest asset effectively represents a receivable for the present value of future profit-sharing we expect to receive on the receivables sold. As a result, a portion of the profit-sharing payments we receive from TD will reduce the beneficial interest asset. As the asset is reduced over time, changes in the forecasted credit EBIT yield and the forecasted discount rate will have a smaller impact on the estimated fair value.

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	May 4, 2013				February 2, 2013				April 28, 2012
	Carrying		Fair		Carrying		Fair		Carrying		Fair
(millions)	Amount		Value		Amount		Value		Amount		Value
Financial assets
Other current assets
Marketable securities (a)	$	10	$	10	$	61	$	61	$	43	$	43
Other noncurrent assets
Marketable securities (a)	4		4		4		4		2		2
Total	$	14	$	14	$	65	$	65	$	45	$	45
Financial liabilities
Total debt(b)	$	12,178	$	14,591	$	15,618	$	18,143	$	15,630	$	18,057
Total	$	12,178	$	14,591	$	15,618	$	18,143	$	15,630	$	18,057

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

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

Prior to the March 13, 2013 sale described in Note 2, we owned a portfolio of consumer credit card receivables. As of February 2, 2013, the receivables were recorded at the lower of cost (par) or fair value because they were classified as held for sale. We estimated the fair value of the receivables to be approximately $6.3 billion as of February 2, 2013. As of April 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.