1000 Nicollet Mall
Minneapolis, MN 55403
612.304.6073
Target.com
Visit our online Annual Report
at Target.com/annualreport.
2013 Annual Report
88088_Cvr.indd 1
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Welcome to our 2013
Annual Report. To explore
the key stories of the past
year and find out more
about what’s in store for the
year ahead, please visit our
online Annual Report at
Target.com/annualreport.
Financial Highlights (Note: 2012 was a 53-week year.)
Total Revenues
IN MILLIONS
(Earnings before interest
expense and income taxes)
EBIT
IN MILLIONS
Net Earnings
IN MILLIONS
Diluted EPS
1
0
3
,
3
7
$
6
9
5
,
2
7
$
5
6
8
,
9
6
$
7
5
3
,
5
6
$
0
9
3
7
6
$
,
2
5
2
,
5
$
2
2
3
,
5
$
1
7
3
,
5
$
3
7
6
,
4
$
0
2
9
,
2
$
9
2
9
,
2
$
9
9
9
,
2
$
9
2
2
,
4
$
8
8
4
,
2
$
2
5
.
4
$
8
2
.
4
$
0
0
.
4
0 $
3
.
3
$
7
0
.
3
$
1
7
9
1
$
,
’09 ’10 ’11 ’12 ’13
’09 ’10 ’11 ’12 ’13
’09 ’10 ’11 ’12 ’13
’09 ’10 ’11 ’12 ’13
2013 Change: –1.0%
Five-year CAGR: 2.3%
2013 Change: –21.3%
Five-year CAGR: –0.8%
2013 Change: –34.3%
Five-year CAGR: –2.3%
2013 Change: –32.1%
Five-year CAGR: 1.4%
Total U.S. Segment Sales: $71.3 Billion
25%
21%
19%
18%
17%
Household Essentials
Food &
Pet Supplies
Apparel &
Accessories
Hardlines
Home Furnishings
& Décor
Target 2013 Annual Report
Directors and Management
DIRECTORS
EXECUTIVE OFFICERS
Roxanne S. Austin
President, Austin
Investment Advisors
(1) (4)
James A. Johnson
Founder and Principal,
Johnson Capital Partners
(2) (3)
Douglas M. Baker Jr.
Chairman and
Chief Executive Officer,
Ecolab, Inc.
(2) (5)
Henrique De Castro
Former Chief Operating
Officer, Yahoo! Inc.
(3) (4)
Calvin Darden
Chairman, Darden
Development Group
(2) (3) (5)
Mary E. Minnick
Partner,
Lion Capital LLP
(1) (3)
Anne M. Mulcahy
Chairman of the
Board of Trustees,
Save the Children
Federation, Inc.
(1) (5)
Derica W. Rice
Executive Vice President,
Global Services and
Chief Financial Officer,
Eli Lilly & Company
(1) (4)
Kenneth L. Salazar
Partner, WilmerHale
(3) (5)
Gregg W. Steinhafel
Chairman,
President and Chief
Executive Officer,
Target Corporation
John G. Stumpf
Chairman,
President and Chief
Executive Officer,
Wells Fargo & Company
(2) (4)
(1) Audit Committee
(2) Compensation Committee
Corporate Responsibility
(3)
Committee
(4) Finance Committee
(5)
Nominating and Governance
Committee
Timothy R. Baer
Executive
Vice President,
General Counsel and
Corporate Secretary
Anthony S. Fisher
President,
Target Canada
Jodeen A. Kozlak
Executive
Vice President,
Human Resources
John J. Mulligan
Executive
Vice President and
Chief Financial Officer
John D. Griffith
Executive
Vice President,
Property Development
Tina M. Schiel
Executive
Vice President,
Stores
Jeffrey J. Jones II
Executive
Vice President and
Chief Marketing Officer
Gregg W. Steinhafel
Chairman,
President and Chief
Executive Officer
Kathryn A. Tesija
Executive
Vice President,
Merchandising and
Supply Chain
Laysha L. Ward
President,
Community Relations
and Target Foundation
OTHER OFFICERS
Janna Adair-Potts
Senior Vice President,
Stores and Distribution,
Target Canada
John Butcher
Senior Vice President,
Merchandising,
Target Canada
Patricia Adams
Senior Vice President,
Merchandising, Apparel
and Accessories
Tom Butterfield
Senior Vice President,
Strategy and Enterprise
Architecture
Aaron Alt
Senior Vice President,
Business Development
and Treasurer
Stacia Andersen
Senior Vice President,
Merchandising, Home
Jose Barra
Senior Vice President,
Merchandising,
Health and Beauty
Stephen Brinkley
Senior Vice President,
Stores
Casey Carl
President, Multichannel,
and Senior Vice
President, Enterprise
Strategy
Tim Curoe
Senior Vice President,
Talent and Organizational
Effectiveness
Barbara Dugan
Senior Vice President,
Human Resources
and Administration,
Target Sourcing
Services
Bryan Everett
Senior Vice President,
Store Operations
Keri Jones
Senior Vice President,
Merchandise Planning
John Morioka
Senior Vice President,
Merchandising
Samir Shah
Senior Vice President,
Stores
Navneet Kapoor
President and
Managing Director,
Target India
Scott Kennedy
President,
Target Financial and
Retail Services
Timothy A. Mantel
President, Target
Sourcing Services
Todd Marshall
Senior Vice President,
Marketing
Scott Nelson
Senior Vice President,
Real Estate
Cary Strouse
Senior Vice President,
Stores
Scott Nygaard
Senior Vice President,
Merchandising,
Hardlines
Mike Robbins
Senior Vice President,
Distribution
Mark Schindele
Senior Vice President,
Merchandising
Operations
Todd Waterbury
Senior Vice President,
Creative
Judy Werthauser
Senior Vice President,
Human Resources,
Headquarters
Jane Windmeier
Senior Vice President,
Global Finance Systems
Juan Galarraga
Senior Vice President,
Stores
Jason Goldberger
Senior Vice President,
Target.com and Mobile
Rick Gomez
Senior Vice President,
Brand and Category
Marketing
Corey Haaland
Senior Vice President,
Financial Planning
Analysis
Cynthia Ho
Senior Vice President,
Target Sourcing
Services
C
Printed on paper with 10 percent
post-consumer fiber by Target
Printing Services, a zero-landfill
facility powered by electrical energy
from wind sources.
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Target 2013 Annual Report
Financial Summary
FINANCIAL RESULTS: (in millions)
Sales
Credit card revenues
Total revenues
Cost of sales
Selling, general and administrative expenses (b)
Credit card expenses
Depreciation and amortization
Gain on receivables transaction
Earnings before interest expense and income taxes (c)
Net interest expense
Earnings before income taxes
Provision for income taxes
Net earnings
PER SHARE:
Basic earnings per share
Diluted earnings per share
Cash dividends declared
FINANCIAL POSITION: (in millions)
Total assets
Capital expenditures
Long‑term debt, including current portion
Net debt (d)
Shareholders’ investment
U.S. SEGMENT FINANCIAL RATIOS:
Comparable sales growth (e)
Gross margin (% of sales)
SG&A (% of sales) (f)
EBIT margin (% of sales) (f)
OTHER:
Common shares outstanding (in millions)
Cash flow provided by operations (in millions)
Revenue per square foot (g)
Retail square feet (in thousands)
Square footage growth
Total number of stores
General merchandise
Expanded food assortment
SuperTarget
CityTarget
Canada
Total number of distribution centers
2013
2012 (a)
2011
2010
2009
2008
$
72,596
$
71,960
$
68,466
$
65,786
$
63,435
$
62,884
–
72,596
51,160
15,375
–
2,223
(391
)
4,229
1,126
3,103
1,132
1,971
3.10
3.07
1.65
44,553
3,453
13,782
13,779
16,231
(0.4%)
29.8%
20.0%
7.0%
632.9
6,520
298
$
$
$
$
$
$
$
$
$
$
$
1,341
73,301
50,568
14,914
467
2,142
)
(161
5,371
762
4,609
1,610
2,999
4.57
4.52
1.38
48,163
3,277
17,648
17,518
16,558
2.7%
29.7%
19.1%
7.8%
645.3
5,325
299
$
$
$
$
$
$
$
$
$
$
$
1,399
69,865
47,860
14,106
446
2,131
–
5,322
866
4,456
1,527
2,929
4.31
4.28
1.15
46,630
4,368
17,483
17,289
15,821
3.0%
30.1%
19.1%
8.0%
669.3
5,434
294
$
$
$
$
$
$
$
$
$
$
$
1,604
67,390
45,725
13,469
860
2,084
–
5,252
757
4,495
1,575
2,920
4.03
4.00
0.92
43,705
2,129
15,726
14,597
15,487
2.1%
30.5%
19.3%
8.0%
704.0
5,271
290
$
$
$
$
$
$
$
$
$
$
$
1,922
65,357
44,062
13,078
1,521
2,023
–
4,673
801
3,872
1,384
2,488
3.31
3.30
0.67
44,533
1,729
16,814
15,288
15,347
(2.5%)
30.5%
20.0%
7.4%
744.6
5,881
287
$
$
$
$
$
$
$
$
$
$
$
2,064
64,948
44,157
12,954
1,609
1,826
–
4,402
866
3,536
1,322
2,214
2.87
2.86
0.62
44,106
3,547
18,752
18,562
13,712
(2.9%)
29.8%
19.9%
7.0%
752.7
4,430
301
$
$
$
$
$
$
$
$
$
$
$
254,243
237,847
235,721
233,618
231,952
222,588
6.9%
1,917
289
1,245
251
8
124
40
0.9%
1,778
391
1,131
251
5
–
40
0.9%
1,763
637
875
251
–
–
37
0.7%
1,750
1,037
462
251
–
–
37
4.2%
1,740
1,381
108
251
–
–
37
7.0%
1,682
1,441
2
239
–
–
34
(a) Consisted of 53 weeks.
(b) Also referred to as SG&A.
(c) Also referred to as EBIT.
(d) Including current portion and short‑term notes payable, net of short‑term investments of $3 million, $130 million, $194 million, $1,129 million, $1,526 million and $190 million, respectively.
Management believes this measure is an indicator of our level of financial leverage because short‑term investments are available to pay debt maturity obligations.
Prior period segment results have been revised to reflect the combination of our historical U.S. Retail Segment and U.S. Credit Card Segment into one U.S. Segment.
(e) See definition of comparable sales in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(f)
(g) Represents U.S. revenue per square foot which is calculated using rolling 13 month average square feet and a rolling four quarters of average revenue. In 2012, revenue per square foot was calculated
excluding the 53rd week in order to provide a more useful comparison to other years. Using total reported revenues for 2012 (including the 53rd week) resulted in revenue per square foot of $304.
Promo 000000
00/00/2014
Target 2013 Annual Report
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Date: 03/12/2014
Date: 03/18/2014
Date: 03/20/2014
Date: 03/25/2014
Date: 04/02/2014
FINAL
RELEASE
04/02/2014
PRO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended February 1, 2014
OR
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
TARGET CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
1000 Nicollet Mall, Minneapolis, Minnesota
(Address of principal executive offices)
41-0215170
(I.R.S. Employer
Identification No.)
55403
(Zip Code)
Securities Registered Pursuant To Section 12(B) Of The Act:
Registrant's telephone number, including area code: 612/304-6073
Title of Each Class
Common Stock, par value $0.0833 per share
Name of Each Exchange on Which Registered
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
No
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
No
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
No
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
No
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.
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
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting
company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
Aggregate market value of the voting stock held by non-affiliates of the registrant on August 3, 2013 was $45,036,171,526, based on the closing
price of $71.50 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 10, 2014 were 633,174,692.
1. Portions of Target's Proxy Statement to be filed on or about April 28, 2014 are incorporated into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 4A
Executive Officers
PART II
Item 5
Item 6
Item 7
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15
Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
Exhibit 12 – Computations of Ratios of Earnings to Fixed Charges for each of the Five Years in the Period
Ended February 1, 2014
2
5
10
11
12
12
12
14
16
16
31
33
65
65
65
65
66
66
66
66
67
71
72
74
1
Item 1. Business
General
PART I
Target Corporation (Target, the Corporation or the Company) was incorporated in Minnesota in 1902. We offer our
customers, referred to as "guests," both everyday essentials and fashionable, differentiated merchandise at discounted
prices. Our ability to deliver a preferred shopping experience to our 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 business and investing in future growth.
We operate as two reportable segments: U.S. and Canadian. Our U.S. Segment includes all of our U.S. retail operations,
which are designed to enable guests to purchase products seamlessly in stores, online or through mobile devices.
The U.S. Segment also includes our credit card servicing activities and certain centralized operating and corporate
activities not allocated to our Canadian Segment. Our Canadian Segment includes all of our Canadian retail operations,
including 124 stores opened during 2013. We currently do not have a digital sales channel within our Canadian Segment.
Prior to the first quarter of 2013, we operated a U.S. Credit Card Segment that offered credit to qualified guests through
our branded credit cards: the Target Credit Card and the Target Visa Credit Card. In the first quarter of 2013, we sold
our U.S. consumer credit card portfolio, and TD Bank Group (TD) now underwrites, funds and owns Target Credit Card
and Target Visa consumer receivables in the U.S. We perform account servicing and primary marketing functions and
earn a substantial portion of the profits generated by the portfolio. Following the sale of our U.S. consumer credit card
portfolio to TD, we combined our historical U.S. Retail Segment and U.S. Credit Card Segment into one U.S. Segment.
Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 6
of the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, for more
information on the credit card receivables transaction and segment change.
Data Breach
During the fourth quarter of 2013, we experienced a data breach in which an intruder stole certain payment card
and other guest information from our network (the Data Breach). For further information about the Data Breach, see
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Financial Highlights
For information about our fiscal years, see Item 8, Financial Statements and Supplemental Data - Note 1, Summary
of Accounting Policies, of this Annual Report on Form 10-K.
For information on key financial highlights and segment financial information, see the items referenced in Item 6,
Selected Financial Data, Item 7, Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8, Financial Statements and Supplemental Data — Note 28, Segment Reporting, of this Annual
Report on Form 10-K.
Seasonality
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 sell a wide assortment of general merchandise and food. Our general merchandise and CityTarget stores offer an
edited food assortment, including perishables, dry grocery, dairy and frozen items, while our SuperTarget stores offer
a full line of food items comparable to traditional supermarkets. Our digital channels include a wide assortment of
general merchandise, including many items found in our stores and a complementary assortment, such as extended
sizes and colors, that are only sold online.
2
A significant portion of our sales is from national brand merchandise. Approximately one-third of 2013 sales related to
our owned and exclusive brands, including but not limited to the following:
Owned Brands
Archer Farms®
Simply Balanced™
Boots & Barkley®
CHEFS®
Circo®
Embark®
Exclusive Brands
Assets® by Sarah Blakely
C9 by Champion®
Carlton®
Chefmate®
Cherokee®
Converse® One Star®
dENiZEN™ from Levi's®
Fieldcrest®
Gilligan & O'Malley®
Market Pantry®
Merona®
Room Essentials®
Smith & Hawken®
Spritz™
Sutton & Dodge®
Threshold™
up & up®
Wine Cube®
Xhilaration®
Genuine Kids from OshKosh®
Giada De Laurentiis™ for Target®
Harajuku Mini for Target®
Just One You made by Carter's
Kid Made Modern®
Kitchen Essentials® from Calphalon®
Liz Lange® for Target
Mossimo Supply Company®
Nate Berkus for Target®
Nick & Nora®
Shaun White
Simply Shabby Chic®
Sonia Kashuk®
Thomas O'Brien®
We also sell merchandise through periodic exclusive design and creative partnerships, and also generate revenue
from in-store amenities such as Target Café, Target Clinic, Target Pharmacy and Target Photo, and leased or licensed
departments such as Target Optical, Pizza Hut, Portrait Studio and Starbucks.
Distribution
The vast majority of merchandise is distributed to our stores through our network of 40 distribution centers, 37 in the
United States and 3 in Canada. General merchandise is shipped to and from our distribution centers by common
carriers. Certain food items and other merchandise is shipped directly to our stores in the U.S. and Canada by vendors
or third party distributors.
Employees
At February 1, 2014, we employed approximately 366,000 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 416,000 team members. 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 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. We believe our team member
relations are good.
Working Capital
Our working capital needs are greater in the months leading up to our peak sales period from Thanksgiving to the end
of December, which we typically finance 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.
Effective inventory management is key to our ongoing success. We use 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.
3
Competition
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 and provide a compelling value proposition largely determine our competitive
position within the retail industry.
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 owned brands.
Geographic Information
The vast majority of our revenues are generated within the United States. During 2013, a modest percentage of our
revenues were generated in Canada. The vast majority of our long-lived assets are located within the United States
and Canada.
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/Investors as soon as reasonably practicable after we file such material with, or furnish it to, the U.S.
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/Investors.
4
Item 1A. Risk Factors
Our business is subject to many risks. Set forth below are the most significant risks that we face.
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
guests’ shopping experience by creating an attractive value proposition through a careful combination of price,
merchandise assortment, convenience, guest service, loyalty programs and marketing efforts. Our ability to create a
personalized guest experience through the collection and use of guest data is increasingly important to our ability to
differentiate from other retailers. Guest perceptions regarding the cleanliness and safety of our stores, the functionality
and reliability of our digital channels, 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 margins and expenses.
We sell many products under our owned and exclusive brands. These brands are an important part of our business
because they differentiate us from other retailers, generally carry higher margins than equivalent national brand products
and represent a significant portion of our overall sales. If one or more of these brands experiences a loss of consumer
acceptance or confidence, our sales and gross margins could be adversely affected.
The continuing migration and evolution of retailing to online and mobile channels has increased our challenges in
differentiating ourselves from other retailers. In particular, consumers are able to quickly and conveniently comparison
shop with digital tools, which can lead to decisions based solely on price. We work with our vendors to offer unique
and distinctive merchandise, and encourage our guests to shop with confidence with our price match policy. Failure
to effectively execute in these efforts, actions by our competitors in response to these efforts or failures of our vendors
to manage their own channels and content could hurt our ability to differentiate ourselves from other retailers and, as
a result, have an adverse effect on sales, gross margins and expenses.
Our continued success is substantially dependent on positive perceptions of Target which, if eroded, could
adversely affect our business and our relationships with our guests and team members.
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 for 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. While reputations may take decades to build, any negative incidents can quickly erode trust and
confidence, particularly if they result in adverse mainstream and social media publicity, governmental investigations
or litigation. Those types of incidents could have an adverse impact on perceptions and lead to tangible adverse effects
on our business, including consumer boycotts, lost sales, loss of new store development opportunities, or team member
retention and recruiting difficulties. For example, we experienced weaker than expected U.S. Segment sales following
the announcement of the Data Breach and are unable to determine whether there will be a long-term impact to our
relationship with our guests and whether we will need to engage in significant promotional or other activities to regain
their trust.
If we are unable to successfully develop and maintain a relevant and reliable multichannel experience for our
guests, our sales, results of operations and reputation could be adversely affected.
Our business has evolved from an in-store experience to interaction with guests across multiple channels (in-store,
online, mobile and social media, among others). Our guests are using computers, tablets, mobile phones and other
devices to shop in our stores and online and provide feedback and public commentary about all aspects of our business.
We currently provide full and mobile versions of our website (Target.com), applications for mobile phones and tablets
and interact with our guests through social media. Multichannel retailing is rapidly evolving and we must keep pace
with changing guest expectations and new developments and technology investments by our competitors. If we are
unable to attract and retain team members or contract with third parties having the specialized skills needed to support
our multichannel efforts, implement improvements to our guest-facing technology in a timely manner, or provide a
convenient and consistent experience for our guests regardless of the ultimate sales channel, our ability to compete
and our results of operations could be adversely affected. In addition, if Target.com and our other guest-facing
technology systems do not appeal to our guests or reliably function as designed, we may experience a loss of guest
5
confidence, lost sales or be exposed to fraudulent purchases, which, if significant, could adversely affect our reputation
and results of operations.
If we fail to anticipate and respond quickly to changing consumer preferences, our sales, gross margins and
profitability could suffer.
decisions and effectively manage
A substantial part of our business is dependent on our ability to make trend-right
our inventory in a broad range of merchandise categories, including apparel, home décor, seasonal offerings, food
and other merchandise. Failure to accurately predict constantly changing consumer tastes, preferences, spending
patterns and other lifestyle decisions, and personalize our offerings to our guests may result in lost sales, spoilage
and increased inventory markdowns, which would lead to a deterioration in our results of operations by hurting our
sales, gross margins and profitability.
Our earnings are highly susceptible to the state of macroeconomic conditions and consumer confidence in
the United States.
Most of our stores and all of our digital sales are in 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 or consumer confidence could
negatively affect our business in many ways, including slowing sales growth or reduction in overall sales, and reducing
gross margins. These same considerations impact the success of our credit card program. Even though we no longer
own a consumer credit card receivables portfolio, we share in the economic performance of the credit card program
with TD. Deterioration in macroeconomic conditions could adversely affect the volume of new credit accounts, the
amount of credit card program balances and the ability of credit card holders to pay their balances. These conditions
could result in us receiving lower profit-sharing payments.
We rely on a large, global and changing workforce of Target team members, contractors and temporary staffing.
If we do not effectively manage our workforce and the concentration of work in certain global locations, our
labor costs and results of operations could be adversely affected.
With approximately 366,000 team members, our workforce costs represent our largest operating expense, and our
business is dependent on our ability to attract, train and retain the appropriate mix of qualified team members, contractors
and temporary staffing. Many 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, collective bargaining efforts, health care and other benefit costs and changing
demographics. If we are unable to attract and retain adequate numbers and an appropriate mix of qualified team
members, contractors and temporary staffing, 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. As of
March 14, 2014, none of our team members were working under collective bargaining agreements. We are periodically
subject to labor organizing efforts. If we become subject to one or more collective bargaining agreements in the future,
it could adversely affect our labor costs and how we operate our business.
We have a concentration of support functions located in India where there has been greater political, financial,
environmental and health instability than the United States. An extended disruption of our operations in India could
adversely affect certain operations supporting stability and maintenance of our digital channels and information
technology development.
If our capital investments in technology, new stores and remodeling existing stores do not achieve appropriate
returns, our competitive position, financial condition and results of operations may be adversely affected.
Our business is becoming increasingly reliant on technology investments and the returns on these investments are
less predictable than building new stores and remodeling existing stores. We are currently making, and will continue
to make, significant technology investments to support our multichannel efforts, implement improvements to our
technology and transform our information processes and computer systems to more efficiently run our
guest-facing
business and remain competitive and relevant to our guests. These technology initiatives might not provide the
anticipated benefits or may provide them on a delayed schedule or at a higher cost. We must monitor and choose the
right investments and implement them at the right pace. Targeting the wrong opportunities, failing to make the best
6
investments, or making an investment commitment significantly above or below our needs could result in the loss of
our competitive position and adversely impact our financial condition or results of operations.
In addition, our growth also depends, in part, on our ability to build new stores 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. Many of our expected new store sites are located in fully developed markets, which are
generally more time-consuming and expensive undertakings than expansion into undeveloped suburban and ex-urban
markets.
Interruptions in our supply chain or increased commodity prices and supply chain costs could adversely
affect our gross margins, expenses and results of operations.
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,
the outbreak of pandemics, labor unrest, transport capacity and costs, port security, weather conditions, natural
disasters 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. In addition, changes in the costs of
procuring commodities used in our merchandise or the costs related to our supply chain, including vendor costs, labor,
fuel, tariffs, currency exchange rates and supply chain transparency initiatives, could have an adverse effect on gross
margins, expenses and 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 and 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.
The data breach we experienced in 2013 has resulted in government inquiries and private litigation, and if our
efforts to protect the security of information about our guests and team members are unsuccessful, future
issues may result in additional costly government enforcement actions and private litigation and our sales
and reputation could suffer.
The nature of our business involves the receipt and storage of information about our guests and team members. We
have a program in place to detect and respond to data security incidents. However, because the techniques used to
obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult
to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive
measures. In addition, hardware, software or applications we develop or procure from third parties may contain defects
in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized
parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deceiving
our team members, contractors and temporary staff. Until the fourth quarter of 2013, all incidents we experienced were
insignificant. The Data Breach we experienced was significant and went undetected for several weeks. We experienced
weaker than expected U.S. Segment sales immediately following the announcement of the Data Breach, and we are
currently facing more than 80 civil lawsuits filed on behalf of guests, payment card issuing banks and shareholders.
In addition, state and federal agencies, including State Attorneys General, the Federal Trade Commission and the
SEC, are investigating events related to the Data Breach, including how it occurred, its consequences and our
responses. Those claims and investigations may have an adverse effect on how we operate our business and our
results of operations.
If we experience additional significant data security breaches or fail to detect and appropriately respond to significant
data security breaches, we could be exposed to additional government enforcement actions and private litigation. In
addition, our guests could further lose confidence in our ability to protect their information, which could cause them to
discontinue using our REDcards or pharmacy services, or stop shopping with us altogether.
7
Our failure to comply with federal, state, local and international laws, or changes in these laws could increase
our costs, reduce our margins and lower our sales.
Our business is subject to a wide array of laws and regulations in the United States, Canada and other countries in
which we operate. Significant workforce-related legislative changes could increase our expenses and adversely affect
our operations. Examples of possible workforce-related legislative changes 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
affecting Medicare reimbursements, privacy and information security, product safety, supply chain transparency, or
environmental protection, among others, could cause our expenses to increase without an ability to pass through any
increased expenses through higher prices. For example, we are currently facing government inquiries related to the
Data Breach that may result in the imposition of fines or other penalties. In addition, any legislative or regulatory
changes adopted in reaction to the recent retail-industry data breaches could increase or accelerate our compliance
costs. Also, our pharmacy and clinic operations are governed by various regulations, and a significant change in, or
our noncompliance with, these regulations could have a material adverse effect on our compliance costs and results
of operations. In addition, if we fail to comply with other applicable laws and regulations, including wage and hour
laws, the Foreign Corrupt Practices Act and local anti-bribery 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
by increasing our costs, reducing our margins and lowering our sales.
Weather conditions where our stores are located may impact consumer shopping patterns, which alone or
together with natural disasters, particularly in areas where our sales are concentrated, could adversely affect
our results of operations.
Uncharacteristic or significant weather conditions can affect consumer shopping patterns, particularly in apparel and
seasonal items, which could lead to lost sales or greater than expected markdowns and adversely affect our short-
term results of operations. In addition, our three largest states by total sales are California, Texas and Florida, areas
where natural disasters are more prevalent. Natural disasters in those states or in other areas where our sales are
concentrated 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 by increasing our costs and lowering our sales.
Changes in our effective income tax rate could adversely affect our net income.
A number of factors influence our effective income tax rate, including changes in tax law, tax treaties, interpretation of
existing laws, and our ability to sustain our reporting positions on examination. Changes in any of those factors could
change our effective tax rate, which could adversely affect our net income. In addition, our operations outside of the
United States may cause greater volatility in our effective tax rate.
If we are unable to access the capital markets or obtain bank credit, our financial position, liquidity and results
of operations could suffer.
We are dependent on a stable, liquid and well-functioning financial system to fund our operations and capital
investments. In particular, we have historically relied on the public debt markets to fund portions of our capital
investments and the commercial paper market and bank credit facilities to fund seasonal needs for working capital.
Our continued access to these markets depends on multiple factors including the condition of debt capital markets,
our operating performance and maintaining strong debt ratings. If rating agencies lower our credit ratings, it could
adversely impact our ability to access the debt markets, our cost of funds and other terms for new debt issuances.
Each of the credit rating agencies reviews its rating periodically, and there is no guarantee our current credit rating will
remain the same. 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 reduce our ability to
meet our capital requirements or fund our working capital needs, and lead to losses on derivative positions resulting
from counterparty failures, which could adversely affect our financial position and results of operations.
A significant disruption in our computer systems and our inability to adequately maintain and update those
systems could adversely affect our operations and our ability to maintain guest confidence.
We rely extensively on our computer systems to manage inventory, process guest transactions, manage guest data,
communicate with our vendors and other third parties, service REDcard accounts and summarize and analyze results,
and on continued and unimpeded access to the internet to use our computer systems. Our systems are subject to
8
damage or interruption from power outages, telecommunications failures, computer viruses and malicious attacks,
security breaches and catastrophic events. If our systems are damaged or fail to function properly, we may incur
substantial repair or replacement costs, experience data loss and impediments to our ability to manage inventories or
process guest transactions, and encounter lost guest confidence, which could adversely affect our results of operations.
The Data Breach we experienced negatively impacted our ability to timely handle customer inquiries, and we
experienced weaker than expected U.S. Segment sales following the announcement of the Data Breach.
We continually make significant technology investments that will help maintain and update our existing computer
systems. Implementing significant system changes increases the risk of computer system disruption. Additionally, the
potential problems and interruptions associated with implementing technology initiatives could disrupt or reduce our
operational efficiency, and could impact the guest experience and guest confidence.
If we do not positively differentiate the Target experience and appeal to our new Canadian guests, our financial
results could be adversely affected.
In fiscal 2013 we opened 124 Target stores in Canada, which was our first retail store expansion outside of the United
States. Our initial sales and operating results in Canada have not met our initial expectations. Improving our sales in
Canada is contingent on our ability to deploy new marketing programs that positively differentiate us from other retailers
in Canada, and achieve market acceptance by Canadian guests. In addition, our sales and operating results in Canada
are dependent on our ability to manage our inventory to offer the expected assortment of merchandise to our Canadian
guests while avoiding overstock situations, and general macroeconomic conditions in Canada. If we do not effectively
execute our marketing program and manage our inventory in Canada, our financial results could be adversely affected.
A disruption in relationships with third parties who provide us services in connection with certain aspects of
our business could adversely affect our operations.
We rely on third parties to support a variety of business functions, including our Canadian supply chain, portions of
our technology development and systems, our multichannel platforms and distribution network operations, credit and
debit card transaction processing, and extensions of credit for our 5% REDcard Rewards loyalty program. If we are
unable to contract with third parties having the specialized skills needed to support those strategies or integrate their
products and services with our business, or if those third parties fail to meet our performance standards and
expectations, including with respect to data security, our reputation, sales and results of operations could be adversely
affected. In addition, we could face increased costs associated with finding replacement providers or hiring new team
members to provide these services in-house.
We experienced a significant data security breach in the fourth quarter of fiscal 2013 and are not yet able to
determine the full extent of its impact and the impact of government investigations and private litigation on
our results of operations, which could be material.
The Data Breach we experienced involved the theft of certain payment card and guest information through unauthorized
access to our network. Our investigation of the matter is ongoing, and it is possible that we will identify additional
information that was accessed or stolen, which could materially worsen the losses and reputational damage we have
experienced. For example, when the intrusion was initially identified, we thought the information stolen was limited to
payment card information, but later discovered that other guest information was also stolen.
We are currently subject to a number of governmental investigations and private litigation and other claims relating to
the Data Breach, and in the future we may be subject to additional investigations and claims of this sort. These
investigations and claims could have a material adverse impact on our results of operations or profitability. Our financial
liability arising from such investigations and claims will depend on many factors, one of which is whether, at the time
of the Data Breach, the portion of our network that handles payment card data was in compliance with applicable
payment card industry standards. While that portion of our network was determined to be compliant by an independent
third-party assessor in the fall of 2013, we expect the forensic investigator working on behalf of the payment card
networks to claim that we were not in compliance. Another factor is whether, and if so to what extent, any fraud losses
or other expenses experienced by cardholders, card issuers and/or the payment card networks on or with respect to
the payment card accounts affected by the Data Breach can be properly attributed to the Data Breach and whether,
and if so to what extent, it would in any event be our legal responsibility. In addition, the governmental agencies
investigating the Data Breach may seek to impose on us fines and/or other monetary relief and/or injunctive relief that
could materially increase our data security costs, adversely impact how we operate our network and collect and use
guest information, and put us at a competitive disadvantage with other retailers.
9
Finally, we believe that the greatest risk to our business arising out of the Data Breach is the negative impact on our
reputation and loss of confidence of our guests, as well as the possibility of decreased participation in our REDcards
Rewards loyalty program which our internal analysis has indicated drives meaningful incremental sales. We
experienced weaker than expected U.S. Segment sales after the announcement of the Data Breach, but are unable
to determine whether there will be a long-term impact to our relationship with our guests or whether we will need to
engage in significant promotional or other activities to regain their trust, which could have a material adverse impact
on our results of operations or profitability.
Item 1B. Unresolved Staff Comments
Not applicable.
10
Item 2. Properties
U.S. Stores at
February 1, 2014
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Canadian Stores at
February 1, 2014
Alberta
British Columbia
Manitoba
New Brunswick
Newfoundland and
Labrador
Northwest Territories
Nova Scotia
Stores
22
3
47
9
262
41
20
3
1
123
54
4
6
91
33
22
19
14
16
5
38
36
59
75
6
36
Stores
14
18
4
3
2
—
4
Retail Sq. Ft.
(in thousands)
3,150 Montana
504 Nebraska
6,264 Nevada
1,165 New Hampshire
34,718 New Jersey
6,215 New Mexico
2,672 New York
440 North Carolina
179 North Dakota
17,345 Ohio
7,398 Oklahoma
695 Oregon
664 Pennsylvania
12,514 Rhode Island
4,377 South Carolina
3,015 South Dakota
2,577 Tennessee
1,660 Texas
2,246 Utah
630 Vermont
4,938 Virginia
4,734 Washington
7,057 West Virginia
10,777 Wisconsin
743 Wyoming
4,736
Total
Retail Sq. Ft.
(in thousands)
1,633 Nunavut
2,047 Ontario
457 Prince Edward Island
320 Quebec
216 Saskatchewan
— Yukon
443
Total
Stores
7
14
19
9
43
10
69
48
4
64
16
19
64
4
19
5
32
149
13
—
57
36
6
39
2
Retail Sq. Ft.
(in thousands)
780
2,006
2,461
1,148
5,701
1,185
9,437
6,360
554
8,002
2,285
2,280
8,384
517
2,359
580
4,114
20,976
1,953
—
7,650
4,194
755
4,773
187
1,793
240,054
Stores
—
50
1
25
3
—
124
Retail Sq. Ft.
(in thousands)
—
5,772
106
2,876
319
—
14,189
11
U.S. Stores and Distribution Centers at February 1, 2014
Owned
Leased
Owned buildings on leased land
Total
(a)
The 37 distribution centers have a total of 50,111 thousand square feet.
Canadian Stores and Distribution Centers at February 1, 2014
Owned
Leased
Total
(a)
The 3 distribution centers have a total of 3,963 thousand square feet.
Stores
1,535
91
167
1,793
Stores
—
124
124
Distribution
Centers (a)
31
6
—
37
Distribution
Centers (a)
3
—
3
We own our corporate headquarters buildings located in and around Minneapolis, Minnesota, and we lease and own
additional office space in Minneapolis and elsewhere in the United States. We lease our Canadian headquarters in
Mississauga, Ontario. Our international sourcing operations include 22 office locations in 14 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 the Capital Expenditures section in Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations and Notes 12 and 20 of the Notes to Consolidated
Financial Statements included in Item 8, Financial Statements and Supplementary Data.
Item 3. Legal Proceedings
No response is required under Item 103 of Regulation S-K, which requires disclosure of legal proceedings that are
material, based on an analysis of the probability and magnitude of the outcome. For a description of other legal
proceedings, including a discussion of litigation and government inquiries related to the Data Breach we
experienced in the fourth quarter of fiscal 2013 in which certain payment card and guest information was stolen
through unauthorized access to our network, see Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 17 of the Notes to Consolidated Financial Statements included in
Item 8, Financial Statements and Supplementary Data.
Item 4. Mine Safety Disclosures
Not applicable.
Item 4A. Executive Officers
Executive officers are elected by, and serve 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.
12
Name
Timothy R. Baer
Anthony S. Fisher
Title and Business Experience
Executive Vice President, General Counsel and Corporate Secretary since March
2007.
Age
53
President, Target Canada since January 2011. Vice President, Merchandise
Operations from February 2010 to January 2011. Divisional Merchandise Manager,
Toys and Sporting Goods, from June 2008 to January 2010.
John D. Griffith
Executive Vice President, Property Development since February 2005.
Jeffrey J. Jones II
Executive Vice President and Chief Marketing Officer since April 2012. Partner and
President of McKinney Ventures LLC from March 2006 to March 2012.
Jodeen A. Kozlak
Executive Vice President, Human Resources since March 2007.
John J. Mulligan
Tina M. Schiel
Executive Vice President and Chief Financial Officer since April 2012. Senior Vice
President, Treasury, Accounting and Operations from February 2010 to April 2012.
Vice President, Pay and Benefits from February 2007 to February 2010.
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.
Gregg W. Steinhafel Chairman of the Board, President and Chief Executive Officer since February 2009.
President and Chief Executive Officer since May 2008. Director since January 2007.
President since August 1999.
Kathryn A. Tesija
Executive Vice President, Merchandising and Supply Chain since October 2012.
Executive Vice President, Merchandising from May 2008 to September 2012.
Laysha L. Ward
President, Community Relations and Target Foundation since July 2008.
39
52
46
50
48
48
59
51
46
13
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 10, 2014, there were 15,875 shareholders of record. Dividends declared per share and the high
and low closing common stock price for each fiscal quarter during 2013 and 2012 are disclosed in Note 29 of the Notes
to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data.
In January 2012, our Board of Directors authorized the repurchase of $5 billion of our common stock, with no stated
expiration for the share repurchase program. We have repurchased 49.1 million shares of our common stock under
this program for a total cash investment of $3.1 billion ($62.99 average price per share).
The table below presents Target common stock purchases made during the three months ended February 1, 2014 by
Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.
Period
November 3, 2013 through
November 30, 2013
December 1, 2013 through January
4, 2014
January 5, 2014 through
February 1, 2014
Total Number
of Shares
Purchased (a)(b)
Average
Price Paid
per Share (a)(b)
Total Number of
Shares Purchased
as Part of the
Current Program (a)
Dollar Value of
Shares that May
Yet Be Purchased
Under the Program
2,406 $
18,310
147,537
—
—
—
49,148,329 $
1,904,324,394
49,148,329
1,904,324,394
49,148,329
1,904,324,394
168,253 $
1,904,324,394
The table above includes shares reacquired upon settlement of prepaid forward contracts. At February 1, 2014, we held asset positions
in prepaid forward contracts for 1 million shares of our common stock, for a total cash investment of $63 million, or an average per share
price of $48.83. No shares were reacquired under such contracts during the fourth quarter. Refer to Notes 23 and 25 of the Notes to
Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data for further details of these
contracts.
The number of shares above includes shares of common stock reacquired from team members who tendered 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 February 1, 2014,168,253 shares were reacquired at an weighted average per share price of $61.91
pursuant to our long-term incentive plan.
49,148,329 $
—
(a)
(b)
14
Sears Holdings Corp
Wal-Mart Stores Inc
Walgreen Co
Sears Holdings Corp
SUPERVALU INC.
Wal-Mart Stores Inc
Walgreen Co
Comparison of Cumulative Five Year Total Return
s
r
a
l
l
o
D
300
250
200
150
100
50
0
2009
Target
S&P 500 Index
Current Peer Group
Previous Peer Group
2010
2011
2012
2013
2014
Fiscal Years Ended
Target
S&P 500 Index
Previous Peer Group
Current Peer Group
$
January 31,
2009
100.00 $
100.00
100.00
100.00
January 30,
2010
167.08 $
133.14
128.10
128.46
January 29,
2011
179.93 $
161.44
146.82
147.71
January 28,
2012
169.27 $
170.04
163.21
164.25
February 2,
2013
211.54 $
199.98
205.64
207.23
February 1,
2014
200.64
240.58
247.92
249.77
The graph above compares the cumulative total shareholder return on our common stock for the last five fiscal years
with (i) the cumulative total return on the S&P 500 Index, (ii) the peer group used in previous filings consisting of 15
online, general merchandise, department store, food and specialty retailers, which are large and meaningful competitors
(Amazon.com, Best Buy, Costco, CVS Caremark, Home Depot, J. C. Penney, Kohl's, Kroger, Lowe's, Macy's, Safeway,
Sears, Supervalu, Walgreens and Walmart) (Previous Peer Group), and (iii) a new peer group consisting of the
companies in the Previous Peer Group excluding Supervalu. The change in peer groups was made to be consistent
with the retail peer group used for our definitive Proxy Statement to be filed on or about April 28, 2014.
Prepared by S&P Capital IQ
4/7/2014
Both peer groups are 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, the Previous Peer Group and the Current Peer Group
on January 31, 2009, and reinvestment of all dividends.
15
Item 6. Selected Financial Data
(millions, except per share data)
2013
2012 (a)
2011
2010
2009
2008
As of or for the Year Ended
Financial Results:
Total revenues (b)
Net earnings
Per Share:
Basic earnings per share
Diluted earnings per share
Cash dividends declared per share
Financial Position:
Total assets
Long-term debt, including current portion
$
72,596 $
1,971
73,301 $
2,999
69,865 $
67,390 $
65,357 $
64,948
2,929
2,920
2,488
2,214
3.10
3.07
1.65
44,553
13,782
4.57
4.52
1.38
4.31
4.28
1.15
4.03
4.00
0.92
3.31
3.30
0.67
2.87
2.86
0.62
48,163
17,648
46,630
17,483
43,705
15,726
44,533
16,814
44,106
18,752
Note: This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of
Operations, included in Item 7 of this Report, and our consolidated financial statements and notes thereto, included in Item 8 of this Report.
(a)
Consisted of 53 weeks.
(b)
For 2013, total revenues include sales generated by our U.S. and Canadian retail operations. For 2012 and prior, total revenues include
sales generated by our U.S. retail operations and credit card revenues.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Fiscal 2013 included the following notable items:
• GAAP earnings per share were $3.07, including dilution of $1.13 related to the Canadian Segment.
• Adjusted earnings per share were $4.38 on a comparable sales decrease of 0.4 percent.
• We paid dividends of $1,006 million and repurchased 21.9 million of our shares for $1,474 million.
• We opened 124 stores in Canada, marking the biggest single-year store opening cycle in the Company's history
and first year of international retail operations.
• We completed the sale of our U.S. consumer credit card portfolio to TD in March 2013 and recognized a gain of
$391 million.
• We used $1.4 billion of the net proceeds received from the sale of our U.S. consumer credit card portfolio to
repurchase, at market value, $970 million of debt.
Sales were $72,596 million for 2013, an increase of $636 million or 0.9 percent from the prior year. Consolidated
earnings before interest expense and income taxes for 2013 decreased by $1,142 million or 21.3 percent from 2012
to $4,229 million. Cash flow provided by operations was $6,520 million, $5,325 million and $5,434 million for 2013,
2012 and 2011, respectively. In connection with the sale of our U.S. credit card receivables, we received cash of $5.7
billion. Of this amount, $2.7 billion is included in cash flow provided by operations and $3.0 billion is included in cash
flow provided by investing activities.
Earnings Per Share
Percent Change
$
GAAP diluted earnings per share
Adjustments
7.9%
Adjusted diluted earnings per share
Note: We have disclosed adjusted diluted earnings per share ("Adjusted EPS"), a non-GAAP metric, which excludes the impact of certain matters
not related to our routine retail operations, including the impact of our Canadian market entry. Management believes that Adjusted EPS is meaningful
in order to provide period-to-period comparisons of our operating results. A reconciliation of non-GAAP financial measures to GAAP measures is
provided on page 25.
(a)
4.52 $
0.24
4.76 $
(8.0)%
$
Consisted of 53 weeks.
2012 (a)
2013
3.07 $
1.31
4.38 $
2011
4.28
0.13
4.41
2013/2012
(32.1)%
2012/2011
5.6%
16
Data Breach
Description of Event
As previously disclosed, we experienced a data breach in which an intruder stole certain payment card and other guest
information from our network (the Data Breach). Based on our investigation to date, we believe that the intruder
accessed and stole payment card data from approximately 40 million credit and debit card accounts of guests who
shopped at our U.S. stores between November 27 and December 15, 2013, through malware installed on our point-
of-sale system in our U.S. stores. On December 15, we removed the malware from virtually all registers in our U.S.
stores. Payment card data used in transactions made by 56 additional guests in the period between December 16 and
December 17 was stolen prior to our disabling malware on one additional register that was disconnected from our
system when we completed the initial malware removal on December 15. In addition, the intruder stole certain guest
information, including names, mailing addresses, phone numbers or email addresses, for up to 70 million individuals.
Our investigation of the matter is ongoing, and we are supporting law enforcement efforts to identify the responsible
parties.
Expenses Incurred and Amounts Accrued
In the fourth quarter of 2013, we recorded $61 million of pretax Data Breach-related expenses, and expected insurance
proceeds of $44 million, for net expenses of $17 million ($11 million after tax), or $0.02 per diluted share. These
expenses were included in our Consolidated Statements of Operations as Selling, General and Administrative Expenses
(SG&A), but were not part of our segment results. Expenses include costs to investigate the Data Breach, provide
credit-monitoring services to our guests, increase staffing in our call centers, and procure legal and other professional
services.
The $61 million of fourth quarter expenses also includes an accrual related to the expected payment card networks’
claims by reason of the Data Breach. The ultimate amount of these claims will likely include amounts for incremental
counterfeit fraud losses and non-ordinary course operating expenses (such as card reissuance costs) that the payment
card networks believe they or their issuing banks have incurred. In order for us to have liability for such claims, we
believe that a court would have to find among other things that (1) at the time of the Data Breach the portion of our
network that handles payment card data was noncompliant with applicable data security standards in a manner that
contributed to the Data Breach, and (2) the network operating rules around reimbursement of operating costs and
counterfeit fraud losses are enforceable. While an independent third-party assessor found the portion of our network
that handles payment card data to be compliant with applicable data security standards in the fall of 2013, we expect
the forensic investigator working on behalf of the payment card networks nonetheless to claim that we were not in
compliance with those standards at the time of the Data Breach. We base that expectation on our understanding that,
in cases like ours where prior to a data breach the entity suffering the breach had been found by an independent third-
party assessor to be fully compliant with those standards, the network-approved forensic investigator nonetheless
regularly claims that the breached entity was not in fact compliant with those standards. As a result, we believe it is
probable that the payment card networks will make claims against us. We expect to dispute the payment card networks’
anticipated claims, and we think it is likely that our disputes would lead to settlement negotiations consistent with the
experience of other entities that have suffered similar payment card breaches. We believe such negotiations would
effect a combined settlement of both the payment card networks' counterfeit fraud loss allegations and their non-
ordinary course operating expense allegations. We based our year-end accrual on the expectation of reaching
negotiated settlements of the payment card networks’ anticipated claims and not on any determination that it is probable
we would be found liable on these claims were they to be litigated. Currently, we can only reasonably estimate a loss
associated with settlements of the networks' expected claims for non-ordinary course operating expenses. The year-
end accrual does not include any amounts associated with the networks' expected claims for alleged incremental
counterfeit fraud losses because the loss associated with settling such claims, while probable in our judgment, is not
reasonably estimable, in part because we have not yet received third-party fraud reporting from the payment card
networks. We are not able to reasonably estimate a range of possible losses in excess of the year-end accrual related
to the expected settlement of the payment card networks’ claims because the investigation into the matter is ongoing
and there are significant factual and legal issues to be resolved. We believe that the ultimate amount paid on payment
card network claims could be material to our results of operations in future periods.
17
Litigation and Governmental Investigations
In addition, more than 80 actions have been filed in courts in many states and other claims have been or may be
asserted against us on behalf of guests, payment card issuing banks, shareholders or others seeking damages or
other related relief, allegedly arising out of the Data Breach. State and federal agencies, including the State Attorneys
General, the Federal Trade Commission and the SEC are investigating events related to the Data Breach, including
how it occurred, its consequences and our responses. Although we are cooperating in these investigations, we may
be subject to fines or other obligations, which may have an adverse effect on how we operate our business and our
results of operations. While a loss from these matters is reasonably possible, we cannot reasonably estimate a range
of possible losses because our investigation into the matter is ongoing, the proceedings remain in the early stages,
alleged damages have not been specified, there is uncertainty as to the likelihood of a class or classes being certified
or the ultimate size of any class if certified, and there are significant factual and legal issues to be resolved. Further,
we do not believe that a loss from these matters is probable; therefore, we have not recorded a loss contingency
liability for litigation, claims and governmental investigations in the fourth quarter. See Note 17 of the Notes to
Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data.
Future Costs
We expect to incur significant investigation, legal and professional services expenses associated with the Data Breach
in future periods. We will recognize these expenses as services are received. We also expect to incur additional
expenses associated with incremental fraud and reissuance costs on Target REDcards.
Insurance Coverage
To limit our exposure to Data Breach losses, we maintain $100 million of network-security insurance coverage, above
a $10 million deductible. This coverage and certain other insurance coverage may reduce our exposure. We will pursue
recoveries to the maximum extent available under the policies. As of February 1, 2014, we have recorded a $44 million
receivable for costs we believe are reimbursable and probable of recovery under our insurance coverage, which
partially offsets the $61 million of expense relating to the Data Breach.
Future Capital Investments
We plan to accelerate a previously planned investment of approximately $100 million to equip our proprietary REDcards
and all of our U.S. store card readers with chip-enabled smart-card technology by the first quarter of 2015.
In addition, we may accelerate or make additional investments in our information technology systems, but we are
unable to estimate such investments because the nature and scope has not yet been determined. We do not expect
such amounts to be material to any fiscal period.
Effect on Sales and Guest Loyalty
We believe the Data Breach adversely affected our fourth quarter U.S. Segment sales. Prior to our December 19,
2013 announcement of the Data Breach, our U.S. Segment fourth quarter comparable sales were positive, followed
by meaningfully negative comparable sales results following the announcement. Comparable sales began to recover
in January 2014. The collective interaction of year-over-year changes in the retail calendar (e.g., the number of days
between Thanksgiving and Christmas), combined with the broad array of competitive, consumer behavioral and weather
factors makes any quantification of the precise impact of the Data Breach on sales infeasible.
Fourth quarter sales penetration on our REDcards was 20.9 percent, up 5.4 percentage points from 2012. While the
rate of increase slowed following the Data Breach, year-over-year penetration continued to grow.
We know our guests' confidence in Target and the broader U.S. payment system has been shaken. We are committed
to, and actively engaged in, activities to restore their confidence. We cannot predict the length or extent of any ongoing
impact to sales.
Credit Card Receivables Transaction
In March 2013, we sold our entire U.S. consumer credit card portfolio to TD and recognized a gain of $391 million.
This transaction was accounted for as a sale, and the receivables are no longer reported in our Consolidated Statements
of Financial Position. Consideration received included cash of $5.7 billion, equal to the gross (par) value of the
18
outstanding receivables at the time of closing, and a $225 million beneficial interest asset. The beneficial interest
asset effectively represents a receivable for the present value of future profit-sharing we expect to receive on the
receivables sold. Based on historical payment patterns, we estimate that the beneficial interest asset will be reduced
over a four-year period following the sale, with larger reductions in the early years. As of February 1, 2014, a $127
million beneficial interest asset remained. Concurrent with the sale of the portfolio, we repaid the nonrecourse debt
collateralized by credit card receivables (2006/2007 Series Variable Funding Certificate) at par of $1.5 billion, resulting
in net cash proceeds of $4.2 billion.
TD now underwrites, funds and owns Target Credit Card and Target Visa consumer receivables in the U.S. TD controls
risk management policies and oversees regulatory compliance, and we perform account servicing and primary
marketing functions. We earn a substantial portion of the profits generated by the Target Credit Card and Target Visa
portfolios. Income from the TD profit-sharing arrangement and our related account servicing expenses are classified
within SG&A expenses in the U.S. Segment.
Beginning with the first quarter of 2013, we no longer report a U.S. Credit Card Segment.
Analysis of Results of Operations
U.S. Segment
Percent Change
$
U.S. Segment Results
(dollars in millions)
Sales
Cost of sales
Gross margin
SG&A expenses (b)
EBITDA
Depreciation and amortization
EBIT
Note: Prior period segment results have been revised to reflect the combination of our historical U.S. Retail Segment and U.S. Credit Card
Segment into one U.S. Segment. Quarterly and full-year historical information for the three most recently completed years reflecting the results
for the U.S. Segment and Canadian Segment are attached as Exhibit (99) to our current report on Form 8-K filed April 16, 2013.
Note: See Note 28 to our Consolidated Financial Statements for a reconciliation of our segment results to earnings before income taxes.
(a)
2013/2012
(0.9)%
(1.0)
(0.7)
3.8
(8.9)
(2.4)
(11.3)%
2012 (a)
71,960 $
50,568
21,392
13,759
7,633
2,044
5,589 $
2012/2011
5.1%
5.7
3.8
5.2
1.4
(1.9)
2.7%
2013
71,279 $
50,039
21,240
14,285
6,955
1,996
4,959 $
2011
68,466
47,860
20,606
13,079
7,527
2,084
5,443
Consisted of 53 weeks.
SG&A includes credit card revenues and expenses for all periods presented prior to the March 2013 sale of our U.S. consumer credit
card portfolio to TD. For 2013, SG&A also includes $653 million of profit-sharing income from the arrangement with TD.
$
(b)
U.S. Segment Rate Analysis
Twelve Months Ended February 2, 2013
2013 U.S. Segment Change vs. 2012
Twelve Months
Ended
February 1,
2014
U.S. Segment,
as revised
Impact of
Historical U.S.
Credit Card
Segment(a)
Historical
U.S. Retail
Segment
U.S. Segment,
as revised
Historical
U.S. Retail
Segment
Gross margin rate
SG&A expense rate
EBITDA margin rate
Depreciation and amortization
expense rate
EBIT margin rate
29.8%
20.0
9.8
2.8
7.0
29.7%
19.1
10.6
2.8
7.8
— pp
29.7%
0.1pp
0.1pp
(0.8)
0.8
—
0.8
19.9
9.8
2.8
7.0
0.9
(0.8)
—
(0.8)
0.1
—
—
—
19
U.S. Segment Rate Analysis
Twelve Months Ended January 28, 2012
2012 U.S. Segment Change vs. 2011
Twelve Months
Ended
February 2,
2013
U.S. Segment,
as revised
Impact of
Historical U.S.
Credit Card
Segment(a)
Historical
U.S. Retail
Segment
U.S. Segment,
as revised
Historical
U.S. Retail
Segment
Gross margin rate
SG&A expense rate
EBITDA margin rate
Depreciation and amortization
expense rate
EBIT margin rate
29.7%
19.1
10.6
2.8
7.8
30.1%
19.1
11.0
3.0
8.0
— pp
30.1%
(0.4)pp
(0.4)pp
(1.0)
1.0
—
1.0
20.1
10.0
3.0
7.0
—
(0.4)
(0.2)
(0.2)
(1.0)
0.6
(0.2)
0.8
Rate analysis metrics are computed by dividing the applicable amount by sales.
(a)
Represents the impact of combining the historical U.S. Credit Card Segment and the U.S. Retail Segment into one U.S. Segment.
Compared with the historical U.S. Retail Segment results for the same period, segment results, as revised, reflect lower SG&A rates and
increased EBIT and EBITDA margin rates resulting from the inclusion of credit card profits, net of expenses, within SG&A compared with
historical U.S. Segment results for the same period.
Sales
Sales include merchandise sales, net of expected returns, and gift card breakage. Refer to Note 2 of the Notes to
Consolidated Financial Statements for a definition of gift card breakage. The decrease in sales in 2013 reflects the
impact of an additional week in 2012 and a decline in comparable sales, partially offset by the contribution from new
stores. Sales growth in 2012 resulted from higher comparable sales, the contribution from new stores and a
1.7 percentage point benefit from an additional week in the fiscal year. Inflation did not materially affect sales in any
period presented.
Comparable sales is a measure that highlights the performance of our existing stores and digital sales by measuring
the change in sales for a period over the comparable, prior-year period of equivalent length. The method of calculating
comparable sales varies across the retail industry. As a result, our comparable sales calculation is not necessarily
comparable to similarly titled measures reported by other companies. Comparable sales include all sales, except sales
from stores open less than thirteen months.
Comparable Sales
Comparable sales change
Drivers of change in comparable sales:
Number of transactions
Average transaction amount
Selling price per unit
Units per transaction
2013
(0.4)%
(2.7)%
2.3 %
1.6 %
0.7 %
2012
2.7%
0.5%
2.3%
1.3%
1.0%
U.S. Sales by Product Category
Percentage of Sales
2011
3.0%
0.4%
2.6%
0.3%
2.3%
2011
25%
19
19
19
18
2013
25%
18
19
21
17
2012
25%
18
19
20
18
100%
100%
100%
Household essentials (a)
Hardlines (b)
Apparel and accessories (c)
Food and pet supplies (d)
Home furnishings and décor (e)
Total
Includes pharmacy, beauty, personal care, baby care, cleaning and paper products.
Includes electronics (including video game hardware and software), music, movies, books, computer software, sporting goods and toys.
(a)
(b)
20
(c)
(d)
(e)
Includes apparel for women, men, boys, girls, toddlers, infants and newborns, as well as intimate apparel, jewelry,
Includes dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce and pet supplies.
Includes furniture, lighting, kitchenware, small appliances, home décor, bed and bath, home improvement, automotive and seasonal
merchandise such as patio furniture and holiday décor.
accessories and shoes.
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.
Credit is offered by TD to qualified guests through Target-branded credit cards: the Target Credit Card and the Target
Visa Credit Card (Target Credit Cards). Additionally, we offer a branded proprietary Target Debit Card. Collectively, we
refer to these products as REDcards®. Guests receive a 5 percent discount on virtually all purchases when they use
a REDcard at Target. We monitor the percentage of sales that are paid for using REDcards (REDcard Penetration)
because our internal analysis has indicated that a meaningful portion of incremental purchases on our REDcards are
also incremental sales for Target.
REDcard Penetration
Target Credit Cards
Target Debit Card
Total store REDcard Penetration
2013
9.3%
9.9
19.3%
2012
7.9%
5.7
13.6%
2011
6.8%
2.5
9.3%
Note: The sum of Target Credit Cards and Target Debit Card penetration may not equal Total store REDcard Penetration due to rounding.
Gross Margin Rate
Our gross margin rate was 29.8 percent in 2013, 29.7 percent in 2012 and 30.1 percent in 2011. The 2013 increase
is primarily the result of a change in vendor contracts regarding payments received in support of marketing programs.
Increases to the rate were offset by our integrated growth strategies of our 5 percent REDcard Rewards loyalty program
and our store remodel program.
The 2013 change to certain merchandise vendor contracts resulted in more vendor consideration being recognized
as a reduction of our cost of sales rather than a reduction of SG&A. This change increased our gross margin rate for
2013, with an equal and offsetting increase in our SG&A rate, and has no impact on EBITDA or EBIT margin rates.
21
Selling, General and Administrative Expense Rate
(a) Represents revised U.S. Segment results.
Our SG&A expense rate was 20.0 percent in 2013, and 19.1 percent in both 2012 and 2011. The increase in 2013
resulted from a smaller contribution from our credit card portfolio, investments in technology and supply chain in support
of multichannel initiatives, changes in merchandise vendor contracts described on the previous page, and other
increases. Increases were partially offset by the benefit from our company-wide expense optimization efforts and
favorable incentive compensation and store hourly payroll. During 2012, investments in technology and supply chain
were offset by improvements in store hourly payroll and disciplined expense management across the Company.
Store Data
Change in Number of Stores
Beginning store count
Opened
Closed
Relocated
Ending store count
Number of stores remodeled during the year
Number of Stores and
Retail Square Feet
Target general merchandise stores
Expanded food assortment stores
SuperTarget stores
CityTarget stores
2013
1,778
19
(4)
—
1,793
100
2012
1,763
23
(5)
(3)
1,778
252
Number of Stores
Retail Square Feet (a)
February 1,
2014
February 2,
2013
February 1,
2014
February 2,
2013
289
1,245
251
8
1,793
391
1,131
251
5
1,778
33,843
160,891
44,500
820
240,054
46,584
146,249
44,500
514
237,847
In thousands, reflects total square feet less office, distribution center and vacant space.
Total
(a)
22
Canadian Segment
Canadian Segment Results
(dollars in millions)
Sales
Cost of sales
Gross margin
SG&A expenses
EBITDA
Depreciation and amortization
EBIT
Canadian Segment Rate Analysis
Gross margin rate
SG&A expense rate
EBITDA margin rate
Depreciation and amortization expense rate
EBIT margin rate
2013
1,317 $
1,121
196
910
(714)
227
(941) $
2012
— $
—
—
272
(272)
97
(369) $
$
$
Percent Change
2011
—
—
—
74
(74)
48
(122)
2013/2012
n/a
n/a
n/a
234.9
162.6
133.6
155.0%
2012/2011
n/a
n/a
n/a
268.7
268.7
103.2
203.5%
2013
14.9%
69.1
(54.2)
17.3
(71.5)
Note: Rate analysis metrics are computed by dividing the applicable amount by sales.
Due to the start-up nature of our Canadian Segment, the rates above may not be indicative of future results.
Sales
Sales include merchandise sales, net of expected returns, and gift card breakage. Refer to Note 2 of the Notes to
Consolidated Financial Statements for a definition of gift card breakage.
We opened 124 Canadian Target general merchandise stores during 2013 with 14.2 million total retail square feet.
Canadian sales of $1,317 million represent a partial year of operation, with approximately 55 percent of the stores
opened during the first half of the year, 20 percent during the third quarter and the remaining 25 percent during the
fourth quarter.
Credit is offered to guests by Royal Bank of Canada (RBC) through our co-branded credit card: the Target RBC
MasterCard. Additionally, we offer a proprietary Target Debit Card. Consistent with our branded payment products in
the U.S., these payment products are referred to as REDcards. Guests receive a 5 percent discount on virtually all
purchases when they use a REDcard at Target.
REDcard Penetration
Target Credit Cards
Target Debit Card
Total store REDcard Penetration
Gross Margin Rate
2013
1.4%
1.5
2.9%
The gross margin rate of 14.9 percent reflects efforts to clear excess inventory following lower than anticipated sales
and supply chain start-up challenges.
Selling, General and Administrative Expense Rate
In addition to operating expenses during 2013, our Canadian Segment SG&A expense for 2013, 2012 and 2011
included start-up costs including compensation, benefits and third-party service expenses.
23
Other Performance Factors
Consolidated Selling, General and Administrative Expenses
In addition to our selling, general and administrative expenses recorded within our segments, we recorded certain
other expenses during 2013. These expenses included a $23 million workforce-reduction charge primarily related to
severance and benefits costs, a $22 million charge related to part-time team member health benefit changes, $19
million in impairment charges related to certain parcels of undeveloped land, and $17 million of Data Breach-related
costs, net of expected insurance proceeds. Additional information about these items is provided within the
Reconciliation of Non-GAAP Financial Measures to GAAP Measures on page 25.
Net Interest Expense
Net interest expense was $1,126 million in 2013. This increase of 47.7 percent, or $364 million, from 2012 was due
to a $445 million loss on early retirement of debt in 2013, partially offset by the benefit from 2013 debt reductions.
Net interest expense was $762 million for 2012. This decrease of 12.0 percent, or $104 million, from 2011 was primarily
due to an $87 million loss on early retirement of debt in 2011.
Provision for Income Taxes
Our effective income tax rate increased to 36.5 percent in 2013, from 34.9 percent in 2012, which was driven by the
net effect of increased losses related to Canadian operations combined with a lower year-over-year benefit from the
favorable resolution of various income tax matters. The resolution of various income tax matters reduced tax expense
by $16 million and $58 million in 2013 and 2012, respectively. A tax rate reconciliation is provided in Note 21 to our
Consolidated Financial Statements.
Our effective income tax rate increased to 34.9 percent in 2012, from 34.3 percent in 2011, primarily due to a lower
benefit associated with the favorable resolution of various income tax matters, combined with the effect of increased
losses related to Canadian operations. Various income tax matters were resolved in 2012 and 2011 which reduced
tax expense by $58 million and $85 million, respectively.
24
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share, which excludes
the impact of our 2013 Canadian market entry, the gain on receivables transaction, favorable resolution of various
income tax matters, the loss on early retirement of debt and other matters presented below. We believe this information
is useful in providing period-to-period comparisons of the results of our U.S. operations. This measure is not in
accordance with, or an alternative for, generally accepted accounting principles in the United States. The most
comparable GAAP measure is diluted earnings per share. Non-GAAP adjusted EPS should not be considered in
isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate non-
GAAP adjusted EPS differently than we do, limiting the usefulness of the measure for comparisons with other
companies.
(millions, except per share data)
Pretax
GAAP diluted earnings per share
Adjustments
2013
Net of
Tax
Per
Share
Amounts
$
3.07
Pretax
2012
Net of
Tax
Per
Share
Amounts
$
4.52
Pretax
2011
Net of
Tax
Per
Share
Amounts
$
4.28
$
447
$
315
$
0.48
$
166
$
119
$
Total Canadian losses (a)
$ 1,018
$
723
$
Loss on early retirement of debt
Gain on receivables transaction (b)
445
(391)
270
(247)
Reduction of beneficial interest asset
Other (c)
Data Breach related costs, net of
insurance receivable (d)
Resolution of income tax matters
Adjusted diluted earnings per share
98
64
17
—
61
40
11
(16)
1.13
0.42
(0.38)
0.09
0.06
0.02
(0.03)
$
4.38
—
(152)
—
—
—
—
—
(97)
—
—
—
—
(0.15)
—
—
—
(58)
(0.09)
$
4.76
87
—
—
—
—
—
0.17
0.08
—
—
—
—
55
—
—
—
—
(85)
(0.12)
$
4.41
Note: A non-GAAP financial measures summary is provided on page 16. The sum of the non-GAAP adjustments may not equal the total adjustment
amounts due to rounding.
(a) Total Canadian losses include interest expense of $77 million, $78 million and $44 million for 2013, 2012 and 2011, respectively.
(b) 2013 adjustment represents consideration received in the first quarter from the sale of our U.S. credit card receivables in excess of the recorded
amount of the receivables. Consideration included a beneficial interest asset of $225 million. The 2012 adjustment represents the gain on receivables
held for sale.
(c) Other includes a $23 million workforce-reduction charge primarily related to severance and benefits costs, a $22 million charge related to part-
time team member health benefit changes and $19 million in impairment charges related to certain parcels of undeveloped land.
(d) For 2013, we recorded $61 million of pretax Data Breach-related expenses, and expected insurance proceeds of $44 million, for net pretax
expenses of $17 million.
Analysis of Financial Condition
Liquidity and Capital Resources
Our period-end cash and cash equivalents balance was $695 million compared with $784 million in 2012. Short-term
investments (highly liquid investments with an original maturity of three months or less from the time of purchase) of
$3 million and $130 million were included in cash and cash equivalents at the end of 2013 and 2012, respectively. Our
investment policy is designed to preserve principal and liquidity of our short-term investments. 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 dollar limits on our investments in individual funds or instruments.
Cash Flows
Our 2013 operations were funded by both internally generated funds and proceeds from the sale of our consumer
credit card receivables portfolio. Cash flow provided by operations was $6,520 million in 2013 compared with $5,325
million in 2012. Our cash flows, combined with our prior year-end cash position, allowed us to pay current debt maturities,
invest in the business, pay dividends and repurchase shares under our share repurchase program.
Concurrent with the sale of our U.S. credit card portfolio described in Note 6 of the Notes to Consolidated Financial
Statements included in Item 8, Financial Statements and Supplementary Data, we repaid the nonrecourse debt
collateralized by credit card receivables (2006/2007 Series Variable Funding Certificate) at par of $1.5 billion. Also
25
during the first quarter of 2013, we used $1.4 billion of the net proceeds received from the sale to repurchase, at market
value, $970 million of debt. We have applied additional proceeds from the sale to reduce our debt and repurchase
shares.
Year-end inventory levels increased from $7,903 million in 2012 to $8,766 million in 2013, about half of which was for
our 2013 Canadian market entry. Accounts payable increased by $627 million, or 8.9 percent over the same period.
Share Repurchases
During the first quarter of 2012, we completed a $10 billion share repurchase program authorized by our Board of
Directors in November 2007, and began repurchasing shares under a new $5 billion program authorized by our Board
of Directors in January 2012. During 2013, we repurchased 21.9 million shares of our common stock for a total
investment of $1,474 million ($67.41 per share). We did not repurchase any shares during the second half of 2013
due to our performance and desire to maintain our strong investment grade credit ratings. During 2012, we repurchased
32.2 million shares of our common stock for a total investment of $1,900 million ($58.96 per share).
Dividends
We paid dividends totaling $1,006 million in 2013 and $869 million in 2012, for an increase of 15.8 percent. We declared
dividends totaling $1,051 million ($1.65 per share) in 2013, for an increase of 16.4 percent over 2012. We declared
dividends totaling $903 million ($1.38 per share) in 2012, an increase of 16.2 percent over 2011. We have paid dividends
every quarter since our 1967 initial public offering, and it is our intent to continue to do so in the future.
Short-term and Long-term Financing
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. Our ability to access the long-term debt and commercial paper markets has provided
us with ample sources of liquidity. Our continued access to these markets depends on multiple factors, including the
condition of debt capital markets, our operating performance and maintaining strong debt ratings. As of February 1,
2014, our credit ratings were as follows:
Credit Ratings
Long-term debt
Commercial paper
Moody's
A2
P-1
Standard and Poor's
A+
A-1
Fitch
A-
F2
If our credit ratings were lowered, our ability to access the debt markets, our cost of funds and other terms for new
debt issuances could be adversely impacted. Each credit rating agency reviews its rating periodically and there is no
guarantee our current credit ratings will remain the same as described above. Our Standard and Poor’s rating currently
carries a negative outlook, and we believe that our recent operating performance may cause Standard and Poor’s to
lower their long-term debt rating by one level.
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 was 4.7x in 2013, 6.1x in 2012 and 5.9x in 2011. Refer to Exhibit (12) for a description of
how the gain on sale of our U.S. credit card receivable portfolio and loss on early retirement of debt affected the 2013
calculation.
In 2013, we funded our peak sales season working capital needs through internally generated funds and the issuance
of commercial paper. In 2012, we funded our peak sales season working capital needs through internally generated
funds.
26
Commercial Paper
(dollars in millions)
Maximum daily amount outstanding during the year
Average amount outstanding during the year
Amount outstanding at year-end
Weighted average interest rate
$
$
2013
1,465
408
80
0.13%
$
2012
970
120
970
0.16%
2011
1,211
244
—
0.11%
We have additional liquidity through a committed $2.25 billion revolving credit facility obtained in October 2011, which
was amended during 2013 to extend the expiration date to October 2018. No balances were outstanding at any time
during 2013 or 2012 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 February 1, 2014, 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 continue to be adequate to maintain operations, finance anticipated expansion
and strategic initiatives, fund obligations incurred as a result of the Data Breach and any related future technology
enhancements, pay dividends and continue purchases under our share repurchase program for the foreseeable future.
We continue to anticipate ample access to commercial paper and long-term financing.
Capital Expenditures
Capital Expenditures
(millions)
New stores
Store remodels and expansions
Information technology, distribution and other
$
2013
2012
Total
U.S. Canada
536 $ 1,451 $ 1,987 $
281
—
1,069
1,185
281
116
U.S. Canada
Total
673 $
417 $ 1,090 $ 2,058
690
982
—
690
515
1,497
1,289
1,021
2011
Total
Total
$ 1,886 $ 1,567 $ 3,453 $ 2,345 $
932 $ 3,277 $ 4,368
Capital expenditures increased in 2013 from the prior year due to Canadian expenditures in advance of 2013 store
openings, partially offset by fewer remodels and new stores in the U.S . The decrease in capital expenditures in 2012
from the prior year was primarily driven by the 2011 purchase of Zellers leases in Canada and fewer 2012 U.S. store
remodels, partially offset by continued investment in new stores in the U.S. and Canada and technology and
multichannel investments. We expect approximately $2.4 to $2.7 billion of capital expenditures in 2014, reflecting an
estimated $2.1 to $2.3 billion in our U.S. Segment, including the previously discussed acceleration of our investment
in chip-enabled smart card technology, and approximately $0.3 to $0.4 billion in our Canadian Segment.
27
Commitments and Contingencies
Contractual Obligations as of
February 1, 2014
(millions)
Recorded contractual obligations:
Long-term debt (a)
Capital lease obligations (b)
Real estate liabilities (c)
Deferred compensation (d)
Tax contingencies (e)
Loss contingencies (f)
Unrecorded contractual obligations:
Interest payments – long-term debt
Operating leases (b)
Real estate obligations (g)
Purchase obligations (h)
Future contributions to retirement plans (i)
Contractual obligations
(a)
Payments Due by Period
Less than
1-3
Total
1 Year
Years
3-5
Years
After 5
Years
$ 11,708 $
1,001 $
778 $
2,453 $
5,313
144
522
—
—
8,618
4,103
305
1,317
—
204
144
46
—
—
590
187
289
828
—
390
—
99
—
—
1,145
359
16
301
—
307
—
111
—
—
917
330
—
61
—
7,476
4,412
—
266
—
—
5,966
3,227
—
127
—
$ 32,030 $
3,289 $
3,088 $
4,179 $ 21,474
Represents principal payments only, and excludes any fair market value adjustments recorded in long-term debt under derivative and hedge
accounting rules. See Note 18 of the Notes to Consolidated Financial Statements for further information.
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Total contractual lease payments include $3,740 million and $2,105 million of capital and operating lease payments, respectively, related
to options to extend the lease term that are reasonably assured of being exercised. These payments also include $80 million and $135 million
of legally binding minimum lease payments for stores that are expected to open in 2014 or later for capital and operating leases, respectively.
Capital lease obligations include interest. See Note 20 of the Notes to Consolidated Financial Statements for further information.
Real estate liabilities include costs incurred but not paid related to the construction or remodeling of real estate and facilities.
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.
Estimated tax contingencies of $241 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. See Note 21 of the Notes to Consolidated Financial Statements for
further information.
Estimated loss contingencies, including those related to the Data Breach, are not included in the table above because we are not able to
make reasonably reliable estimates of the period of cash settlement. See Note 17 of the Notes to Consolidated Financial Statements for
further information.
Real estate obligations include commitments for the purchase, construction or remodeling of real estate and facilities.
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. (Note: we expect to
extend certain merchandise contracts during the first quarter of 2014, which could increase our minimum purchase commitment by
approximately $1,500 million.) 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.
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 February 1, 2014. 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.
Off Balance Sheet Arrangements: Other than the unrecorded contractual obligations above, we do not have any
arrangements or relationships with entities that are not consolidated into the financial statements.
Critical Accounting Estimates
Our analysis of operations and financial condition is based on our consolidated financial statements prepared in
accordance with 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
28
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 the majority of our 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. The cost of our
inventory includes the amount we pay to our suppliers to acquire inventory, freight costs incurred in connection with
the delivery of product to our distribution centers and stores, and import costs, reduced by vendor income and cash
discounts. The majority of our distribution center operating costs, including compensation and benefits, are expensed
to cost of sales in the period incurred. 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 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, including changing consumer demand, guest 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 $8,766 million and $7,903 million at February 1, 2014 and February 2, 2013,
respectively, and is further described in Note 10 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 $555 million and
$621 million at February 1, 2014 and February 2, 2013, respectively, and is described further in Note 4 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 amounts may not be recoverable. The evaluation is performed at the lowest level of identifiable
cash flows independent of other assets. An impairment loss would be recognized when estimated undiscounted future
cash flows from the operation and/or disposition of the assets are less than their carrying amount. 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. We recorded
impairments of $77 million, $37 million and $43 million in 2013, 2012 and 2011, respectively, and are described further
in Note 12. As of February 1, 2014, a 10 percent decrease in the fair value of assets we intend to sell or close would
result in additional impairment of $7 million in 2013. Historically, we have not realized material losses upon sale of
long-lived assets.
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 $576 million and $627 million at February 1, 2014 and February 2, 2013, respectively. We believe that
the amounts accrued are appropriate; 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 $28 million in 2013. Historically, adjustments to our estimates have not
been material. Refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for further disclosure of
the market risks associated with these exposures. We maintain insurance coverage to limit our exposure to certain
events, including network security matters. As of February 1, 2014, we have recognized a $44 million insurance-
recovery receivable relating to the Data Breach because we believe recovery is probable. However, it is possible that
the insurance carriers could dispute our claims and that we may be unable to collect the recorded receivable.
29
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 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 appropriate. Liabilities for uncertain tax positions, including interest and penalties, were
$241 million and $280 million at February 1, 2014 and February 2, 2013, respectively. We believe the resolution of
these matters will not have a material adverse impact on our consolidated financial statements. As of February 1, 2014
we had foreign net operating loss carryforwards of $1,466 million which are available to offset future income. These
carryforwards are primarily related to the start-up operations of the Canadian Segment and expire between 2031 and
2033. We establish a valuation allowance for any portion of our deferred tax assets that we believe will not be realized.
We have evaluated the positive and negative evidence and consider it more likely than not that these carryforwards
will be fully utilized prior to expiration. Therefore, we have not established a valuation allowance. Income taxes are
described further in Note 21 of the Notes to Consolidated Financial Statements.
Pension and postretirement health care accounting: We maintain a funded qualified, defined benefit pension plan,
as well as several smaller and unfunded 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 and the level of benefits varies depending on team
members' full-time or part-time status, date of hire and/or length of service. The benefit obligation and related expense
for these plans are determined based on actuarial calculations using assumptions about the expected long-term rate
of return, the discount rate and compensation growth rates. The assumptions used to determine the period-end benefit
obligation also establish the expense for the next year, with adjustments made for any significant plan or participant
changes.
Our expected long-term rate of return on plan assets of 8.0 percent is determined by the portfolio composition, historical
long-term investment performance and current market conditions. Our compound annual rate of return on qualified
plans' assets was 10.4 percent, 8.3 percent, 7.2 percent and 9.2 percent for the 5-year, 10-year, 15-year and 20-year
periods, respectively. A one percentage point decrease in our expected long-term rate of return would increase annual
expense by $29 million.
The discount rate used to determine benefit obligations is adjusted annually based on the interest rate for long-term
high-quality corporate bonds, using yields for maturities that are in line with the duration of our pension liabilities. Our
benefit obligation and related expense will fluctuate with changes in interest rates. A 0.5 percentage point decrease
to the weighted average discount rate would increase annual expense by $30 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 26 of the Notes to Consolidated Financial
Statements.
Legal and other contingencies: We are exposed to other 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. When a loss is probable, we record an accrual based on the reasonably estimable
loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated
range of loss and disclose the estimated range. We do not record liabilities for reasonably possible loss contingencies,
but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range.
If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining
such a range. Historically, adjustments to our estimates have not been material.
We believe the accruals recorded in our consolidated financial statements properly reflect loss exposures that are both
probable and reasonably estimable. With the exception of Data Breach-related loss exposures, we do not believe any
of the currently identified claims or litigation will materially affect 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, it may cause 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.
For Data Breach-related exposures, we are unable to reasonably estimate a range of probable loss in excess of the
recorded payment card network contingent losses. We believe that losses from the payment card networks in
excess of the amounts recorded in fiscal 2013 are reasonably possible, and that these losses could be material to
our results of operations in future periods, but we are unable to estimate a range of such reasonably possible
30
losses. We are also unable to estimate a range of reasonably possible losses arising from Data Breach-related
litigation and governmental investigations. See Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations and Note 17 of the Notes to the Consolidated Financial Statements included in
Item 8, Financial Statements and Supplementary Data for further information on the Data Breach-related
contingencies.
New Accounting Pronouncements
We do not expect that any recently issued accounting pronouncements will have a material effect on our financial
statements.
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: our financial performance,
statements regarding the adequacy of and costs associated with our sources of liquidity, the fair value and amount of
the beneficial interest asset, the continued execution of our share repurchase program, our expected capital
expenditures, the impact of changes in the expected effective income tax rate on net income, the expected compliance
with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends,
contributions and payments related to our pension and postretirement health care plans, the expected returns on
pension plan assets, the effects of macroeconomic conditions, the adequacy of our reserves for general liability, workers'
compensation and property loss, the expected outcome of, and adequacy of our reserves for, investigations, inquiries,
claims and litigation, including those related to the Data Breach, expected insurance recoveries, expected changes
to our contractual obligations, the expected ability to recognize deferred tax assets and liabilities, including foreign net
operating loss carryforwards, and the resolution of tax matters.
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
At February 1, 2014, our exposure to market risk was primarily from interest rate changes on our debt obligations,
some of which are at a LIBOR-plus floating-rate. Our interest rate exposure is primarily due to the extent by which our
floating rate debt obligations differ from our floating rate short term investments. At February 1, 2014, our floating rate
debt exceeded our floating rate short term investments by approximately $1 billion. As a result, based on our balance
sheet position at February 1, 2014, the annualized effect of a 0.1 percentage point increase in floating interest rates
on our floating rate debt obligations, net of our short-term investments, would be to decrease earnings before income
taxes by approximately $1 million. In general, we expect our floating rate debt to exceed our floating rate short-term
investments over time, but that may vary in different interest rate environments. See further description of our debt
and derivative instruments in Notes 18 and 19 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 February 1, 2014, the annualized
effect of a 0.5 percentage point decrease in interest rates would be to decrease earnings before income taxes by
$8 million.
In addition, we are exposed to market return fluctuations on our qualified defined benefit pension plans. A 0.5 percentage
point decrease to the weighted average discount rate would increase annual expense by $30 million. 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
50 percent of the interest rate exposure of our funded status.
31
As more fully described in Note 13 and Note 25 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.
There have been no other material changes in our primary risk exposures or management of market risks since the
prior year.
32
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.
Gregg W. Steinhafel
Chairman, President and Chief Executive Officer
March 14, 2014
John J. Mulligan
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 February 1, 2014 and February 2, 2013, and the related consolidated statements of operations, comprehensive
income, cash flows, and shareholders' investment for each of the three years in the period ended February 1, 2014. These financial
statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial
statements 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 February 1, 2014 and February 2, 2013, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended February 1, 2014, in conformity with U.S. generally accepted
accounting principles.
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 February 1, 2014, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and
our report dated March 14, 2014, expressed an unqualified opinion thereon.
Minneapolis, Minnesota
March 14, 2014
33
Report of Management on Internal Control over Financial Reporting
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
February 1, 2014, based on the framework in Internal Control—Integrated Framework (1992), issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework). 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 February 1, 2014, has been audited by Ernst & Young LLP, the independent
registered public accounting firm who has also audited our consolidated financial statements, as stated in their report which appears
on this page.
Gregg W. Steinhafel
Chairman, President and Chief Executive Officer
March 14, 2014
John J. Mulligan
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 February 1,
2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (1992 Framework) (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 February 1,
2014, 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 February 1, 2014 and February 2, 2013,
and the related consolidated statements of operations, comprehensive income, cash flows and shareholders' investment for each
of the three years in the period ended February 1, 2014, and our report dated March 14, 2014, expressed an unqualified opinion
thereon.
Minneapolis, Minnesota
March 14, 2014
34
Consolidated Statements of Operations
(millions, except per share data)
Sales
Credit card revenues
Total revenues
Cost of sales
Selling, general and administrative expenses
Credit card expenses
Depreciation and amortization
Gain on receivables transaction
Earnings before interest expense and income taxes
Net interest expense
Earnings before income taxes
Provision for income taxes
Net earnings
Basic earnings per share
Diluted earnings per share
Weighted average common shares outstanding
2013
72,596 $
—
72,596
51,160
15,375
—
2,223
(391)
4,229
1,126
3,103
1,132
1,971 $
3.10 $
3.07 $
$
$
$
$
2012
2011
71,960 $
68,466
1,341
73,301
50,568
14,914
467
2,142
(161)
5,371
762
4,609
1,610
2,999 $
4.57 $
4.52 $
1,399
69,865
47,860
14,106
446
2,131
—
5,322
866
4,456
1,527
2,929
4.31
4.28
679.1
4.8
Basic
Dilutive effect of share-based awards(a)
Diluted
635.1
6.7
656.7
6.6
683.9
(a) Excludes 2.3 million, 5.0 million and 15.5 million share-based awards for 2013, 2012 and 2011, respectively, because their effects were antidilutive.
641.8
663.3
See accompanying Notes to Consolidated Financial Statements.
35
Consolidated Statements of Comprehensive Income
(millions)
Net earnings
Other comprehensive income/(loss), net of tax
Pension and other benefit liabilities, net of provision/(benefit) for taxes
of $71, $58 and $(56)
Currency translation adjustment and cash flow hedges, net of provision/
(benefit) for taxes of $11, $8 and $(11)
Other comprehensive income/(loss)
Comprehensive income
See accompanying Notes to Consolidated Financial Statements.
2013
1,971 $
2012
2,999 $
2011
2,929
110
(425)
(315)
1,656 $
92
13
105
(83)
(17)
(100)
3,104 $
2,829
$
$
36
Consolidated Statements of Financial Position
(millions, except footnotes)
February 1,
2014
February 2,
2013
Assets
Cash and cash equivalents, including short-term investments of $3 and $130
Credit card receivables, held for sale
$
695 $
—
Inventory
Other current assets
Total current assets
Property and equipment
Land
Buildings and improvements
Fixtures and equipment
Computer hardware and software
Construction-in-progress
Accumulated depreciation
Property and equipment, net
Other noncurrent assets
Total assets
Liabilities and shareholders' investment
Accounts payable
Accrued and other current liabilities
Current portion of long-term debt and other borrowings
Total current liabilities
Long-term debt and other borrowings
Deferred income taxes
Other noncurrent liabilities
Total noncurrent liabilities
Shareholders' investment
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Pension and other benefit liabilities
Currency translation adjustment and cash flow hedges
Total shareholders' investment
784
5,841
7,903
1,860
16,388
6,206
28,653
5,362
2,567
1,176
(13,311)
30,653
1,122
48,163
7,056
3,981
2,994
14,031
14,654
1,311
1,609
17,574
54
3,925
13,155
(532)
(44)
16,558
48,163
$
$
8,766
2,112
11,573
6,234
30,356
5,583
2,764
843
(14,402)
31,378
1,602
44,553 $
7,683 $
3,934
1,160
12,777
12,622
1,433
1,490
15,545
53
4,470
12,599
(422)
(469)
16,231
44,553 $
Total liabilities and shareholders' investment
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 632,930,740 shares issued and outstanding at February 1, 2014; 645,294,423
shares issued and outstanding at February 2, 2013.
Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding at February 1, 2014 or February 2, 2013.
$
See accompanying Notes to Consolidated Financial Statements.
37
Consolidated Statements of Cash Flows
(millions)
Operating activities
Net earnings
Adjustments to reconcile net earnings to cash provided by operations:
2013
2012
2011
$
1,971 $
2,999 $
2,929
Depreciation and amortization
Share-based compensation expense
Deferred income taxes
Bad debt expense (a)
Gain on receivables transaction
Loss on debt extinguishment
Noncash (gains)/losses and other, net
Changes in operating accounts:
Accounts receivable originated at Target
Proceeds on sale of accounts receivable originated at Target
Inventory
Other current assets
Other noncurrent assets
Accounts payable
Accrued and other current liabilities
Other noncurrent liabilities
Cash provided by operations
Investing activities
Expenditures for property and equipment
Proceeds from disposal of property and equipment
Change in accounts receivable originated at third parties
Proceeds from sale of accounts receivable originated at third parties
Cash paid for acquisitions, net of cash assumed
Other investments
Cash required for investing activities
Financing activities
Change in commercial paper, net
Additions to short-term debt
Reductions of short-term debt
Additions to long-term debt
Reductions of long-term debt
Dividends paid
Repurchase of stock
Stock option exercises and related tax benefit
Other
Cash required for financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental information
Interest paid, net of capitalized interest
Income taxes paid
Noncash financing activities
$
$
2,223
110
(254)
41
(391)
445
82
157
2,703
(885)
(267)
19
625
(9)
(50)
6,520
(3,453)
86
121
3,002
(157)
130
(271)
(890)
—
—
—
(3,463)
(1,006)
(1,461)
456
—
(6,364)
26
(89)
784
695 $
1,120 $
1,386
2,142
105
(14)
206
(161)
—
14
(217)
—
15
(123)
(98)
199
138
120
5,325
(3,277)
66
254
—
—
102
(2,855)
970
—
(1,500)
1,971
(1,529)
(869)
(1,875)
360
(16)
(2,488)
8
(10)
794
784 $
2,131
90
371
154
—
—
22
(187)
—
(322)
(150)
43
232
218
(97)
5,434
(4,368)
37
259
—
—
(108)
(4,180)
—
1,500
—
1,994
(3,125)
(750)
(1,842)
89
(6)
(2,140)
(32)
(918)
1,712
794
775 $
1,603
816
1,109
Property and equipment acquired through capital lease obligations
211
282
1,388
Includes net write-offs of credit card receivables prior to the sale of our U.S. consumer credit card receivables on March 13, 2013, and bad
debt expense on credit card receivables during the twelve months ended February 2, 2013.
See accompanying Notes to Consolidated Financial Statements.
(a)
38
Consolidated Statements of Shareholders' Investment
Common
Stock
Shares
Stock
Par
Value
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income/(Loss)
Total
(millions, except footnotes)
January 29, 2011
Net earnings
Other comprehensive income
Dividends declared
Repurchase of stock
Stock options and awards
January 28, 2012
Net earnings
Other comprehensive income
Dividends declared
Repurchase of stock
Stock options and awards
February 2, 2013
Net earnings
Other comprehensive income
Dividends declared
Repurchase of stock
Stock options and awards
704.0 $
—
—
—
(37.2)
2.5
669.3 $
—
—
—
(32.2)
8.2
645.3 $
—
—
59 $
—
—
—
(3)
—
56 $
—
—
—
(3)
1
54 $
—
—
—
(21.9)
9.5
632.9 $
—
(2)
1
53 $
3,311 $ 12,698 $
—
—
—
—
176
2,929
—
(777)
(1,891)
—
3,487 $ 12,959 $
—
—
—
—
438
2,999
—
(903)
(1,900)
—
3,925 $ 13,155 $
—
—
—
—
545
1,971
—
(1,051)
(1,476)
—
February 1, 2014
Dividends declared per share were $1.65, $1.38 and $1.15 in 2013, 2012 and 2011, respectively.
4,470 $ 12,599 $
See accompanying Notes to Consolidated Financial Statements.
(581) $ 15,487
—
2,929
(100)
—
(100)
(777)
— (1,894)
—
176
(681) $ 15,821
—
105
—
2,999
105
(903)
— (1,903)
—
439
(576) $ 16,558
—
1,971
(315)
(315)
— (1,051)
— (1,478)
—
546
(891) $ 16,231
39
Notes to Consolidated Financial Statements
1. Summary of Accounting Policies
Organization Target Corporation (Target, the Corporation, or the Company) operates two reportable segments: U.S.
and Canadian. Our U.S. Segment includes all of our U.S. retail operations, including digital sales. The U.S. Segment
also includes our U.S. credit card servicing activities and certain centralized operating and corporate activities not
allocated to our Canadian Segment. In 2013, following the sale of our U.S. consumer credit card portfolio to TD Bank
Group (TD), we combined our historical U.S. Retail Segment and U.S. Credit Card Segment into one U.S. Segment.
Our Canadian Segment includes all of our Canadian retail operations, including 124 stores opened in 2013. We
currently do not have a digital sales channel in Canada.
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.
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 2013 ended February 1, 2014 and consisted
of 52 weeks. Fiscal 2012 ended February 2, 2013, and consisted of 53 weeks. Fiscal 2011 ended January 28, 2012,
and consisted of 52 weeks. Fiscal 2014 will end January 31, 2015, and will consist of 52 weeks.
Accounting policies Our accounting policies are disclosed in the applicable Notes to the Consolidated Financial
Statements.
2. Revenues
Our retail stores generally record revenue at the point of sale. Sales from our online and mobile applications include
shipping revenue and are recorded upon delivery to the guest. Total revenues do not include sales tax because we
are 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 $29 million, $25 million and $22 million in 2013, 2012 and 2011, respectively.
Revenue from gift card sales is recognized upon gift card redemption. Our gift cards do not expire. 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 any period presented.
Guests receive a 5 percent discount on virtually all purchases and receive free shipping at Target.com when they use
their REDcard. The discounts associated with loyalty programs are included as reductions in sales in our Consolidated
Statements of Operations and were $833 million, $583 million and $340 million in 2013, 2012 and 2011, respectively.
40
3. Cost of Sales and Selling, General and Administrative Expenses
The following table illustrates the primary items classified in each major expense category:
Cost of Sales
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
Import costs
Selling, General and Administrative Expenses
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
U.S. credit cards servicing expenses and profit
sharing
Litigation and defense costs and related insurance
recovery
Other administrative costs
Note: 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. 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. We have not
historically had significant write-offs for these receivables.
5. Advertising Costs
Advertising costs, which primarily consist of newspaper circulars, internet advertisements and media broadcast, are
expensed at first showing or distribution of the advertisement, and are recorded net of related vendor income.
Advertising Costs
(millions)
Gross advertising costs
Vendor income (a)
Net advertising costs
(a)
sales rather than offsetting certain advertising expenses.
2013
1,744 $
76
1,668 $
$
$
2012
1,653 $
231
1,422 $
2011
1,589
229
1,360
A 2013 change to certain merchandise vendor contracts resulted in more vendor funding being recognized as a reduction of our cost of
6. Credit Card Receivables Transaction
In March 2013, we sold our entire U.S. consumer credit card portfolio to TD and recognized a gain of $391 million.
This transaction was accounted for as a sale, and the receivables are no longer reported in our Consolidated Statements
of Financial Position. Consideration received included cash of $5.7 billion, equal to the gross (par) value of the
outstanding receivables at the time of closing, and a $225 million beneficial interest asset. Concurrent with the sale
of the portfolio, we repaid the nonrecourse debt collateralized by credit card receivables (2006/2007 Series Variable
Funding Certificate) at par of $1.5 billion, resulting in net cash proceeds of $4.2 billion.
41
TD now underwrites, funds and owns Target Credit Card and Target Visa receivables in the U.S. TD controls risk
management policies and oversees regulatory compliance, and we perform account servicing and primary marketing
functions. We earn a substantial portion of the profits generated by the Target Credit Card and Target Visa portfolios.
Income from the TD profit-sharing arrangement and our related account servicing expenses are classified within SG&A
expenses in the U.S. Segment.
The U.S. Segment earned credit card revenues prior to the close of the transaction, and earned $653 million of profit-
sharing from TD during 2013. On a consolidated basis, this profit-sharing income is offset by a $98 million reduction
in the beneficial interest asset, for a net $555 million impact.
The $225 million beneficial interest asset recognized at the close of the transaction effectively represents a receivable
for the present value of future profit-sharing we expect to receive on the receivables sold. It was reduced during 2013
by $96 million of profit-sharing payments related to sold receivables and a $2 million revaluation adjustment. As of
February 1, 2014, a $127 million beneficial interest asset remains and is recorded within other current assets and
other noncurrent assets in our Consolidated Statements of Financial Position. Based on historical payment patterns,
we estimate that the remaining beneficial interest asset will be reduced over the next three years.
Prior to the sale, credit card revenues were recognized according to the contractual provisions of each credit card
agreement. When accounts were written off, uncollected finance charges and late fees were recorded as a reduction
of credit card revenues. Target retail sales charged on our credit cards totaled $5,807 million and $4,686 million in
2012 and 2011, respectively.
Historically, our credit card receivables were recorded at par value less an allowance for doubtful accounts. As of
February 2, 2013, our consumer credit card receivables were recorded at the lower of cost (par) or fair value because
they were classified as held for sale. Lower of cost (par) or fair value was determined on a segmented basis using the
delinquency and credit-quality segmentation we have historically used to determine the allowance for doubtful accounts.
Many nondelinquent balances were recorded at cost (par) because fair value exceeded cost. Delinquent balances
were generally recorded at fair value, which reflected our expectation of losses on these receivables.
7. Canadian Leasehold Acquisition
During 2011, we purchased the leasehold interests in 189 sites operated by Zellers in Canada, in exchange for $1,861
million. In addition, we sold our right to acquire the leasehold interests in 54 of these sites to third-parties for a total of
$225 million. These transactions resulted in a final net purchase price of $1,636 million, which was included in
expenditures for property and equipment in the Consolidated Statements of Cash Flows.
As a result of the acquisition, the following net assets were recorded in our Canadian Segment: buildings and
improvements of $2,887 million; finite-lived intangible assets of $23 million; unsecured debt and other borrowings of
$1,274 million.
8. 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).
42
Fair Value Measurements –
Recurring Basis
(millions)
Assets
Cash and cash equivalents
Short-term investments
Other current assets
Interest rate swaps (a)
Prepaid forward contracts
Beneficial interest asset (b)
Other noncurrent assets
Interest rate swaps (a)
Company-owned life insurance
investments (c)
Beneficial interest asset (b)
Total
Liabilities
Other current liabilities
Interest rate swaps (a)
Other noncurrent liabilities
Interest rate swaps (a)
Total
Fair Value at February 1, 2014
Fair Value at February 2, 2013
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
3 $
— $
— $
130 $
— $
—
73
—
—
—
—
76 $
1
—
—
62
305
—
368 $
—
—
71
—
—
56
127 $
—
73
—
—
—
—
4
—
—
85
269
—
203 $
358 $
— $
— $
— $
— $
2 $
— $
— $
39 $
39 $
— $
— $
— $
— $
54 $
56 $
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
(a)
(b)
(c)
There was one interest rate swap designated as an accounting hedge at February 1, 2014 and February 2, 2013. See Note 19 for additional
information on interest rate swaps.
A rollforward of the Level 3 beneficial interest asset is included in Note 6.
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 $790 million at February 1, 2014 and $817 million at February 2,
2013.
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).
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 EBIT yield would impact our fair value estimate by
approximately $20 million. A one percentage point change in the forecasted discount rate would impact our fair
value estimate by approximately $4 million. As described in Note 6, 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 similar impact on the estimated fair value.
The carrying amount and estimated fair value of debt, a significant financial instrument not measured at fair value in
the Consolidated Statements of Financial Position, was $11,758 million and $13,184 million, respectively, at February
1, 2014, and $15,618 million and $18,143 million, respectively, at February 2, 2013. 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. These amounts exclude unamortized swap valuation adjustments and
capital lease obligations.
43
As of February 2, 2013, our consumer credit card 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 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. Refer
to Note 6 for more information on our credit card receivables transaction.
The carrying amounts of accounts payable and certain accrued and other current liabilities approximate fair value due
to their short terms.
9. Cash Equivalents
Cash equivalents include highly liquid investments with an original maturity of three months or less from the time of
purchase. These investments were $3 million and $130 million at February 1, 2014 and February 2, 2013, respectively.
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 $347 million and $371 million at February 1, 2014
and February 2, 2013, respectively.
10. Inventory
The majority of our inventory is 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. The cost of our inventory includes the
amount we pay to our suppliers to acquire inventory, freight costs incurred in connection with the delivery of product
to our distribution centers and stores, and import costs, reduced by vendor income and cash discounts. The majority
of our distribution center operating costs, including compensation and benefits, are expensed in the period incurred.
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
inventory retail value. 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
taken as a reduction of the retail value of inventory.
Certain other inventory is recorded at the lower of cost or market using the cost method. The valuation allowance for
inventory valued under a cost method was not material to our Consolidated Financial Statements as of the end of
fiscal 2013 or 2012.
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. Activity under this program is included in sales and cost of 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 $1,833 million, $1,800 million and $1,736 million in 2013,
2012 and 2011, respectively.
11. Other Current Assets
Other Current Assets
(millions)
Pharmacy, income tax and other receivables
Vendor income receivable
Prepaid expenses
Deferred taxes
Other
Total
44
February 1,
2014
792 $
555
272
177
316
2,112 $
$
$
February 2,
2013
478
621
310
193
258
1,860
12. Property and Equipment
Property and equipment is depreciated 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 and capital lease amortization expense for 2013,
2012 and 2011 was $2,198 million, $2,120 million and $2,107 million, respectively. For income tax purposes, accelerated
depreciation methods are generally used. Repair and maintenance costs are expensed as incurred. Facility pre-opening
costs, including supplies and payroll, are expensed as incurred.
Estimated Useful Lives
Buildings and improvements
Fixtures and equipment
Computer hardware and software
Life (Years)
8-39
2-15
2-7
Long-lived assets are reviewed for impairment when events or changes in circumstances, such as a decision to relocate
or close a store or make significant software changes, indicate that the asset's carrying value may not be recoverable.
For asset groups classified as held for sale, the carrying value is compared to the fair value less cost to sell. We
estimate fair value by obtaining market appraisals, valuations from third party brokers or other valuation techniques.
Impairments of $77 million, $37 million and $43 million in 2013, 2012 and 2011, respectively, were recorded in selling,
general and administrative expenses on the Consolidated Statements of Income, primarily from completed or planned
store closures and software changes.
13. Other Noncurrent Assets
Other Noncurrent Assets
(millions)
Deferred taxes
Goodwill and intangible assets
Company-owned life insurance investments (a)
Interest rate swaps (b)
Other
February 1,
2014
469 $
357
305
62
409
1,602 $
$
$
February 2,
2013
206
224
269
85
338
1,122
Total
(a)
(b)
Company-owned life insurance policies on approximately 4,000 team members who have been 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.
See Notes 8 and 19 for additional information relating to our interest rate swaps.
14. Goodwill and Intangible Assets
Goodwill increased to $151 million at February 1, 2014 from $59 million at February 2, 2013 due to three 2013
acquisitions. No impairments were recorded in 2013, 2012 or 2011 as a result of the goodwill impairment tests
performed.
Intangible Assets
Leasehold
Acquisition Costs
Other (a)
Total
(millions)
Gross asset
Accumulated amortization
Net intangible assets
(a)
$
February 1,
2014
241 $
(130)
111 $
February 2,
2013
237 $
(120)
117 $
$
February 1,
2014
212 $
(117)
February 2,
2013
149 $
(101)
95 $
48 $
February 1,
2014
453 $
(247)
206 $
February 2,
2013
Other intangible assets relate primarily to acquired customer lists and trademarks.
386
(221)
165
45
We use the straight-line method to amortize leasehold acquisition costs primarily over 9 to 39 years and other definite-
lived intangibles over 3 to 15 years. The weighted average life of leasehold acquisition costs and other intangible
assets was 26 years and 7 years, respectively, at February 1, 2014. Amortization expense was $25 million, $22 million,
and $24 million in 2013, 2012 and 2011, respectively.
Estimated Amortization Expense
(millions)
Amortization expense
15. Accounts Payable
2014
2015
2016
2017
2018
$
27 $
25 $
22 $
16 $
11
At February 1, 2014 and February 2, 2013, we reclassified book overdrafts of $733 million and $564 million, respectively,
to accounts payable and $81 million and $82 million to accrued and other current liabilities.
16. Accrued and Other Current Liabilities
Accrued and Other Current Liabilities
(millions)
Wages and benefits
Real estate, sales and other taxes payable
Gift card liability (a)
Dividends payable
Project costs accrual
Straight-line rent accrual (b)
Income tax payable
Workers' compensation and general liability (c)
Interest payable
Other
February 1,
2014
887 $
669
$
521
272
256
248
221
152
85
623
3,934 $
$
February 2,
2013
938
624
503
232
347
235
272
160
91
579
3,981
Total
(a)
(b)
(c)
Gift card liability represents the amount of unredeemed gift cards, net of estimated breakage.
Straight-line rent accrual represents the amount of rent expense recorded that exceeds cash payments remitted in connection with operating
leases.
See footnote (a) to the Other Noncurrent Liabilities table in Note 22 for additional detail.
17. Commitments and Contingencies
Data Breach
In the fourth quarter of 2013, we experienced a data breach in which an intruder stole certain payment card and other
guest information from our network (the Data Breach). Based on our investigation to date, we believe that the intruder
accessed and stole payment card data from approximately 40 million credit and debit card accounts of guests who
shopped at our U.S. stores between November 27 and December 15, 2013, through malware installed on our point-
of-sale system in our U.S. stores. On December 15, we removed the malware from virtually all registers in our U.S.
stores. Payment card data used in transactions made by 56 additional guests in the period between December 16 and
December 17 was stolen prior to our disabling malware on one additional register that was disconnected from our
system when we completed the initial malware removal on December 15. In addition, the intruder stole certain guest
information, including names, mailing addresses, phone numbers or email addresses, for up to 70 million individuals.
Our investigation of the matter is ongoing, and we are supporting law enforcement efforts to identify the responsible
parties.
Expenses Incurred and Amounts Accrued
In the fourth quarter of 2013, we recorded $61 million of pretax Data Breach-related expenses, and expected insurance
proceeds of $44 million, for net expenses of $17 million ($11 million after tax), or $0.02 per diluted share. These
expenses were included in our Consolidated Statements of Operations as Selling, General and Administrative Expenses
46
(SG&A), but were not part of our segment results. Expenses include costs to investigate the Data Breach, provide
credit-monitoring services to our guests, increase staffing in our call centers, and procure legal and other professional
services.
The $61 million of fourth quarter expenses also include an accrual for the estimated probable loss related to the
expected payment card networks’ claims by reason of the Data Breach. The ultimate amount of these claims will likely
include amounts for incremental counterfeit fraud losses and non-ordinary course operating expenses (such as card
reissuance costs) that the payment card networks believe they or their issuing banks have incurred. In order for us to
have liability for such claims, we believe that a court would have to find among other things that (1) at the time of the
Data Breach the portion of our network that handles payment card data was noncompliant with applicable data security
standards in a manner that contributed to the Data Breach, and (2) the network operating rules around reimbursement
of operating costs and counterfeit fraud losses are enforceable. While an independent third-party assessor found the
portion of our network that handles payment card data to be compliant with applicable data security standards in the
fall of 2013, we expect the forensic investigator working on behalf of the payment card networks nonetheless to claim
that we were not in compliance with those standards at the time of the Data Breach. We base that expectation on our
understanding that, in cases like ours where prior to a data breach the entity suffering the breach had been found by
an independent third-party assessor to be fully compliant with those standards, the network-approved forensic
investigator nonetheless regularly claims that the breached entity was not in fact compliant with those standards. As
a result, we believe it is probable that the payment card networks will make claims against us. We expect to dispute
the payment card networks’ anticipated claims, and we think it is probable that our disputes would lead to settlement
negotiations consistent with the experience of other entities that have suffered similar payment card breaches. We
believe such negotiations would effect a combined settlement of both the payment card networks' counterfeit fraud
loss allegations and their non-ordinary course operating expense allegations. We based our year-end accrual on the
expectation of reaching negotiated settlements of the payment card networks’ anticipated claims and not on any
determination that it is probable we would be found liable on these claims were they to be litigated. Currently, we can
only reasonably estimate a loss associated with settlements of the networks' expected claims for non-ordinary course
operating expenses. The year-end accrual does not include any amounts associated with the networks' expected
claims for alleged incremental counterfeit fraud losses because the loss associated with settling such claims, while
probable in our judgment, is not reasonably estimable, in part because we have not yet received third-party fraud
reporting from the payment card networks. We are not able to reasonably estimate a range of possible losses in excess
of the year-end accrual related to the expected settlement of the payment card networks’ claims because the
investigation into the matter is ongoing and there are significant factual and legal issues to be resolved. We believe
that it is reasonably possible that the ultimate amount paid on payment card network claims could be material to our
results of operations in future periods.
Litigation and Governmental Investigations
In addition, more than 80 actions have been filed in courts in many states and other claims have been or may be
asserted against us on behalf of guests, payment card issuing banks, shareholders or others seeking damages or
other related relief, allegedly arising out of the Data Breach. State and federal agencies, including the State Attorneys
General, the Federal Trade Commission and the SEC are investigating events related to the Data Breach, including
how it occurred, its consequences and our responses. Although we are cooperating in these investigations, we may
be subject to fines or other obligations. While a loss from these matters is reasonably possible, we cannot reasonably
estimate a range of possible losses because our investigation into the matter is ongoing, the proceedings remain in
the early stages, alleged damages have not been specified, there is uncertainty as to the likelihood of a class or classes
being certified or the ultimate size of any class if certified, and there are significant factual and legal issues to be
resolved. Further, we do not believe that a loss from these matters is probable; therefore, we have not recorded a loss
contingency liability for litigation, claims and governmental investigations in 2013. We will continue to evaluate
information as it becomes known and will record an estimate for losses at the time or times when it is both probable
that a loss has been incurred and the amount of the loss is reasonably estimable.
Future Costs
We expect to incur significant investigation, legal and professional services expenses associated with the Data Breach
in future periods. We will recognize these expenses as services are received. We also expect to incur additional
expenses associated with incremental fraud and reissuance costs on Target REDcards.
47
Insurance Coverage
To limit our exposure to Data Breach losses, we maintain $100 million of network-security insurance coverage, above
a $10 million deductible. This coverage and certain other insurance coverage may reduce our exposure. We will pursue
recoveries to the maximum extent available under the policies. As of February 1, 2014, we have recorded a $44 million
receivable for costs we believe are reimbursable and probable of recovery under our insurance coverage, which
partially offsets the $61 million of expense relating to the Data Breach.
Other Contingencies
We are exposed to other 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 these identified claims or litigation will be material to our results of
operations, cash flows or financial condition.
Commitments
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 $1,317 million and $1,472 million at February 1, 2014 and February 2, 2013, respectively.
These purchase obligations are primarily due within three years and recorded as liabilities when inventory is received.
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. Real estate
obligations, which include commitments for the purchase, construction or remodeling of real estate and facilities, were
$449 million and $1,128 million at February 1, 2014 and February 2, 2013, respectively. These real estate obligations
are primarily due within one year, a portion of which are recorded as liabilities.
We issue letters of credit and surety bonds in the ordinary course of business. Trade letters of credit totaled $1,441
million and $1,539 million at February 1, 2014 and February 2, 2013, respectively, a portion of which are reflected in
accounts payable. Standby letters of credit and surety bonds, relating primarily to insurance and regulatory
requirements, totaled $500 million and $486 million at February 1, 2014 and February 2, 2013, respectively.
18. Notes Payable and Long-Term Debt
At February 1, 2014, the carrying value and maturities of our debt portfolio were as follows:
Debt Maturities
(dollars in millions)
Due 2014-2018
Due 2019-2023
Due 2024-2028
Due 2029-2033
Due 2034-2038
Due 2039-2043
Total notes and debentures
Swap valuation adjustments
Capital lease obligations
Less: Amounts due within one year
Long-term debt
(a)
Reflects the weighted average stated interest rate as of year-end.
48
February 1, 2014
Rate (a)
Balance
4.5% $
4.0
6.7
6.5
6.8
4.0
5.1
4,232
2,215
252
769
2,740
1,470
11,678
53
1,971
(1,080)
$
12,622
Required Principal Payments
(millions)
Total required principal payments
2014
1,001 $
$
2015
2016
2017
27 $
751 $
2,251 $
2018
201
Concurrent with the sale of our U.S. consumer credit card receivables portfolio, we repaid $1.5 billion of nonrecourse
debt collateralized by credit card receivables (the 2006/2007 Series Variable Funding Certificate). We also used $1.4
billion of proceeds from the transaction to repurchase, at market value, an additional $970 million of debt during the
first quarter of 2013.
We periodically obtain short-term financing under our commercial paper program, a form of notes payable.
Commercial Paper
(dollars in millions)
Maximum daily amount outstanding during the year
Average amount outstanding during the year
Amount outstanding at year-end
Weighted average interest rate
2013
2012
2011
$ 1,465
$
408
80
970
120
970
$ 1,211
244
—
0.13%
0.16%
0.11%
In October 2011, we entered into a five-year $2.25 billion revolving credit facility, which was amended in 2013 to
extend the expiration date to October 2018. No balances were outstanding at any time during 2013 or 2012.
In June 2012, we issued $1.5 billion of unsecured fixed rate debt at 4.0% that matures in July 2042. Proceeds from
this issuance were used for general corporate purposes.
Substantially all of our outstanding borrowings are senior, unsecured obligations. 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, which have
no practical effect on our ability to pay dividends.
19. Derivative Financial Instruments
Our derivative instruments primarily consist of interest rate swaps, which are used to mitigate our interest rate risk.
We have counterparty credit risk resulting from our derivative instruments, primarily with large global financial
institutions. We monitor this concentration of counterparty credit risk on an ongoing basis. See Note 8 for a description
of the fair value measurement of our derivative instruments and their classification on the Consolidated Statements
of Financial Position.
As of February 1, 2014 and February 2, 2013, one swap was designated as a fair value hedge for accounting purposes,
and no ineffectiveness was recognized in 2013 or 2012.
Outstanding Interest Rate Swap Summary
February 1, 2014
(dollars in millions)
Weighted average rate:
Pay
Receive
Weighted average maturity
Notional
Designated
Pay Floating
De-Designated
Pay Floating
Pay Fixed
three-month LIBOR
one-month LIBOR
3.8%
1.0%
0.5 years
5.7% one-month LIBOR
2.5 years
$
350
$
500
$
2.5 years
500
49
Classification and
Fair Value
(millions)
Designated:
Assets
Liabilities
Classification
Feb 1,
2014
Feb 2,
2013
Classification
Feb 1,
2014
Feb 2,
2013
De-designated:
Other current assets
Total
Other noncurrent assets
$
Other current liabilities
82 Other noncurrent liabilities
89
Other current assets $
Other noncurrent assets
—
3
4
1 $
—
—
62
63 $
N/A $ — $
N/A
—
—
39
39 $
$
—
—
2
54
56
Periodic payments, valuation adjustments and amortization of gains or losses on our derivative contracts had the
following impact on our Consolidated Statements of Operations:
Derivative Contracts – Effect on Results of Operations
(millions)
Type of Contract
Interest rate swaps
Classification of Income/(Expense)
Net interest expense
2013
2012
$
29 $
44 $
2011
41
The amount remaining on unamortized hedged debt valuation gains from terminated or de-designated interest rate
swaps that will be amortized into earnings over the remaining lives of the underlying debt totaled $52 million, $75
million and $111 million, at the end of 2013, 2012 and 2011, respectively.
20. 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 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 assets 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 and others include rental payments adjusted periodically for inflation.
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 SG&A, consistent with similar costs for owned locations.
Rent income received from tenants who rent properties is recorded as a reduction to SG&A expense.
Rent Expense
(millions)
Property and equipment
Software
Rent income (a)
Total rent expense
(a)
2013
194 $
33
(12)
215 $
$
$
2012
194 $
33
(85)
142 $
2011
193
33
(61)
165
Rent income in 2013, 2012, and 2011 includes $4 million, $75 million and $51 million, respectively, related to sites acquired in our Canadian
leasehold acquisition that were being subleased back to Zellers for various terms, which all ended by March 31, 2013.
Total capital lease interest expense was $116 million, $109 million and $69 million in 2013, 2012 and 2011, respectively,
including interest expense on Canadian capitalized leases of $77 million, $78 million and $44 million, respectively, and
is included within net interest expense on the Consolidated Statements of Operations.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 50
years. Certain leases also include options to purchase the leased property. Assets recorded under capital leases as
of February 1, 2014 and February 2, 2013 were $2,106 million and $2,038 million, respectively.
50
Future Minimum Lease Payments
(millions)
Operating Leases (a)
Capital Leases (b) Rent Income
204 $
(6) $
2014
2015
2016
2017
2018
After 2018
Total future minimum lease payments
Less: Interest (c)
Present value of future minimum capital
lease payments (d)
$
$
187 $
185
174
168
162
3,227
4,103 $
Total
385
378
362
321
309
(5)
(4)
(4)
(3)
(14)
7,625
(36) $
9,380
198
192
157
150
4,412
5,313 $
(3,342)
$
1,971
(a)
(b)
(c)
(d)
Total contractual lease payments include $2,105 million related to options to extend lease terms that are reasonably assured of being
exercised and also includes $135 million of legally binding minimum lease payments for stores that are expected to open in 2014 or later.
Capital lease payments include $3,740 million related to options to extend lease terms that are reasonably assured of being exercised and
also includes $80 million of legally binding minimum payments for stores opening in 2014 or later.
Calculated using the interest rate at inception for each lease.
Includes the current portion of $77 million.
21. Income Taxes
Earnings before income taxes were $3,103 million, $4,609 million and $4,456 million during 2013, 2012 and 2011,
respectively, including losses incurred by our foreign entities of ($881) million, ($309) million, and ($11) million. Our
foreign entities are subject to tax outside of the U.S.
Tax Rate Reconciliation
Federal statutory rate
State income taxes, net of the federal tax benefit
International
Other
Effective tax rate
2013
35.0%
3.1
0.3
(1.9)
36.5%
2012
35.0%
2.0
(0.6)
(1.5)
2011
35.0%
1.0
(0.7)
(1.0)
34.9%
34.3%
Certain discrete state income tax items reduced our effective tax rate by 0.5 percentage points, 1.0 percentage
points, and 2.0 percentage points in 2013, 2012 and 2011, respectively.
Provision for Income Taxes
(millions)
Current:
Federal
State
International
Total current
Deferred:
Federal
State
International
Total deferred
Total provision
2013
2012
2011
$
1,213 $
148
25
1,386
66
2
(322)
(254)
1,132 $
$
1,471 $
1,069
135
18
1,624
124
14
(152)
(14)
74
13
1,156
427
—
(56)
371
1,610 $
1,527
51
Net Deferred Tax Asset/(Liability)
(millions)
Gross deferred tax assets:
Accrued and deferred compensation
Foreign operating loss carryforward
Accruals and reserves not currently deductible
Self-insured benefits
Other
Allowance for doubtful accounts and lower of cost or fair value adjustment on credit
card receivables held for sale
Total gross deferred tax assets
Gross deferred tax liabilities:
Property and equipment
Inventory
Other
Deferred credit card income
Total gross deferred tax liabilities
Total net deferred tax asset/(liability)
February 1,
2014
February 2,
2013
$
$
509 $
394
348
231
193
—
1,675
(2,062)
(270)
(130)
—
(2,462)
(787) $
537
189
352
249
123
67
1,517
(1,995)
(210)
(133)
(91)
(2,429)
(912)
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.
At February 1, 2014, we had foreign net operating loss carryforwards of $1,466 million which are available to offset
future income. These carryforwards are primarily related to the start-up operations of the Canadian Segment and
expire between 2031 and 2033. We have evaluated the positive and negative evidence and consider it more likely
than not that these carryforwards will be fully utilized prior to expiration.
We have not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested
outside the U.S. These accumulated net earnings relate to certain ongoing operations and were $77 million at
February 1, 2014 and $52 million at February 2, 2013. It is not practicable to determine the income tax liability that
would be payable if such earnings were repatriated.
We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. The U.S.
Internal Revenue Service has completed exams on the U.S. federal income tax returns for years 2010 and prior. With
few exceptions, we are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for
years before 2003.
Reconciliation of Liability for Unrecognized Tax Benefits
(millions)
Balance at beginning of period
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Balance at end of period
2013
216 $
15
28
(57)
(19)
183 $
$
$
2012
236 $
10
19
(42)
(7)
216 $
2011
302
12
31
(101)
(8)
236
If we were to prevail on all unrecognized tax benefits recorded, $120 million of the $183 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 benefits are recorded within income tax expense. During
52
the years ended February 1, 2014, February 2, 2013 and January 28, 2012, we recorded a net benefit from the reversal
of accrued penalties and interest of $1 million, $16 million and $12 million, respectively. As of February 1, 2014,
February 2, 2013 and January 28, 2012 total accrued interest and penalties were $58 million, $64 million and $82
million, respectively.
It is reasonably possible that the amount of the unrecognized tax benefits 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.
22. Other Noncurrent Liabilities
Other Noncurrent Liabilities
(millions)
Deferred compensation
Workers' compensation and general liability (a)
Income tax
Pension and postretirement health care benefits
Other
Total
(a)
February 1,
2014
491 $
424
174
115
286
1,490 $
$
$
February 2,
2013
479
467
180
170
313
1,609
We retain a substantial portion of the risk related to 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.
23. Share Repurchase
We repurchase shares primarily through open market transactions under a $5 billion share repurchase program
authorized by our Board of Directors in January 2012. During the first quarter of 2012, we completed a $10 billion
share repurchase program that was authorized by our Board of Directors in November 2007.
Share Repurchases
(millions, except per share data)
Total number of shares purchased
Average price paid per share
Total investment
2013
21.9
67.41 $
1,474 $
$
$
2012
32.2
58.96 $
1,900 $
2011
37.2
50.89
1,894
Of the shares reacquired, a portion was delivered upon settlement of prepaid forward contracts as follows:
Settlement of Prepaid Forward Contracts (a)
(millions)
Total number of shares purchased
Total cash investment
Aggregate market value (b)
2013
0.2
14 $
17 $
$
$
2012
0.5
25 $
29 $
2011
1.0
52
52
(a)
(b)
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 25.
At their respective settlement dates.
24. 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. The 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 18.7
million and 24.9 million at February 1, 2014 and February 2, 2013, respectively.
53
Compensation expense associated with share-based awards is recognized on a straight-line basis over the shorter
of the vesting period or the minimum required service period. Total share-based compensation expense recognized
in the Consolidated Statements of Operations was $110 million, $105 million and $90 million in 2013, 2012 and 2011,
respectively. The related income tax benefit was $43 million, $42 million and $35 million in 2013, 2012 and 2011,
respectively.
Stock Options
Through 2013, we granted nonqualified stock options to certain team members that generally vest and become
exercisable annually in equal amounts over a four-year period and expire 10 years after the grant date. We previously
granted options with a ten-year term to the non-employee members of our Board of Directors that vest immediately,
but are not exercisable until one year after the grant date. We used a Black-Scholes valuation model to estimate the
fair value of the options at the grant date.
Stock Option Activity
Stock Options
February 2, 2013
Granted
Expired/forfeited
Exercised/issued
February 1, 2014
(a)
Total Outstanding
Number of
Options (a)
Exercise
Price (b)
34,458 $
226
(745)
(9,085)
24,854 $
50.60 $
69.56
53.14
46.51
52.19 $
Intrinsic
Value (c)
366
Number of
Options (a)
Exercisable
Exercise
Price (b)
21,060 $
48.25 $
Intrinsic
Value (c)
273
136
16,824 $
50.64 $
109
(b)
(c)
In thousands.
Weighted average per share.
Represents stock price appreciation subsequent to the grant date, in millions.
Black-Scholes Model Valuation Assumptions
Dividend yield
Volatility (a)
Risk-free interest rate (b)
Expected life in years (c)
Stock options grant date fair value
(a)
2013
2.4%
22%
1.4%
2012
2.4%
23%
1.0%
2011
2.5%
27%
1.0%
5.5
5.5
$ 11.14 $ 9.70 $ 9.20
5.5
(b)
(c)
Volatility represents an average of market estimates for implied volatility of Target common stock.
The risk-free interest rate is an interpolation of the relevant U.S. Treasury security maturities as of each applicable grant date.
The expected life is estimated based on an analysis of options already exercised and any foreseeable trends or changes in recipients'
behavior.
Stock Option Exercises
(millions)
Cash received for exercise price
Intrinsic value
Income tax benefit
$
2013
422 $
197
77
2012
331 $
139
55
2011
93
27
11
At February 1, 2014, there was $37 million of total unrecognized compensation expense related to nonvested stock
options, which is expected to be recognized over a weighted average period of 1.1 years. The weighted average
remaining life of exercisable options is 5.3 years, and the weighted average remaining life of all outstanding options
is 6.2 years. The total fair value of options vested was $53 million, $68 million and $75 million in 2013, 2012 and 2011,
respectively.
Performance Share Units
We issue performance share units to certain team members that represent shares potentially issuable in the future.
Issuance is based upon our performance relative to a retail peer group over a three-year performance period on certain
54
measures including domestic market share change, return on invested capital and EPS growth. The fair value of
performance share units is calculated based on the stock price on the date of grant. The weighted average grant date
fair value for performance share units was $57.22, $58.61 and $48.63 in 2013, 2012 and 2011, respectively.
Performance Share Unit Activity
Total Nonvested Units
Assumes attainment of maximum payout rates as set forth in the performance criteria based in thousands of share units. Applying actual
or expected payout rates, the number of outstanding units at February 1, 2014 was 1,515 thousand.
Weighted average per unit.
(b)
The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be
issued. Future compensation expense for unvested awards could reach a maximum of $127 million assuming payout
of all unvested awards. The unrecognized expense is expected to be recognized over a weighted average period of
1.2 years. The fair value of performance share units vested and converted was $14 million in 2013, $16 million in 2012
and was not significant in 2011.
Restricted Stock
We issue restricted stock units and performance-based restricted stock units with three-year cliff vesting from the grant
date (collectively restricted stock) to certain team members. The final number of shares issued under performance-
based restricted stock units will be based on our total shareholder return relative to a retail peer group over a three-
year performance period. We also regularly issue restricted stock units to our Board of Directors, which vest quarterly
over a one-year period and are settled in shares of Target common stock upon departure from the Board. The fair
value for restricted stock is calculated based on the stock price on the date of grant, incorporating an analysis of the
total shareholder return performance measure where applicable. The weighted average grant date fair value for
restricted stock was $62.76, $60.44 and $49.42 in 2013, 2012 and 2011, respectively.
Restricted Stock Activity
Total Nonvested Units
Performance
Share Units (a)
Grant Date
Fair Value (b)
51.53
1,256 $
2,036
(145)
(277)
2,870 $
57.22
56.42
51.49
55.37
Restricted
Stock (a)
2,895 $
Grant Date
Fair Value (b)
56.12
1,686
(130)
(516)
3,935 $
62.76
57.19
54.26
58.98
February 2, 2013
Granted
Forfeited
Vested
February 1, 2014
(a)
February 2, 2013
Granted
Forfeited
Vested
February 1, 2014
(a)
Represents the number of restricted stock units, in thousands. For performance-based restricted stock units, assumes attainment of maximum
payout rates as set forth in the performance criteria based in thousands of share units. Applying actual or expected payout rates, the number
of outstanding restricted stock units at February 1, 2014 was 3,551 thousand.
Weighted average per unit.
(b)
The expense recognized each period is partially dependent upon our estimate of the number of shares that will ultimately
be issued. At February 1, 2014, there was $139 million of total unrecognized compensation expense related to restricted
stock, which is expected to be recognized over a weighted average period of 1.3 years. The fair value of restricted
stock vested and converted to shares of Target common stock was $28 million, $11 million and $9 million in 2013,
2012 and 2011, respectively.
55
25. Defined Contribution Plans
Team members who meet eligibility requirements can participate in a defined contribution 401(k) plan by investing up
to 80 percent of their compensation, as limited by statute or regulation. Generally, we match 100 percent of each team
member's contribution up to 5 percent of total compensation. Company match contributions are made to funds
designated by the participant.
In addition, we maintain a nonqualified, unfunded deferred compensation plan for approximately 3,000 current and
retired team members whose participation in our 401(k) plan is limited by statute or regulation. These team members
choose from a menu of crediting rate alternatives that are the same as the investment choices in our 401(k) plan,
including Target common stock. We credit an additional 2 percent per year to the accounts of all active participants,
excluding members of our management executive committee, in part to recognize the risks inherent to their participation
in this plan. We also maintain a nonqualified, unfunded deferred compensation plan that was frozen during 1996,
covering approximately 60 participants, most of whom are retired. In this plan, deferred compensation earns returns
tied to market levels of interest rates plus an additional 6 percent return, with a minimum of 12 percent and a maximum
of 20 percent, as determined by the plan's terms. Our total liability under these plans was $520 million and $505 million
at February 1, 2014 and February 2, 2013, respectively.
We mitigate some of our risk of offering the nonqualified plans through investing in vehicles, including company-owned
life insurance and prepaid forward contracts in our own common stock, that offset a substantial portion of our economic
exposure to the returns of these plans. These investment vehicles are general corporate assets and are marked to
market with the related gains and losses recognized in the Consolidated Statements of Operations in the period they
occur.
The total change in fair value for contracts indexed to our own common stock recognized in earnings was pretax
income/(loss) of $(5) million, $14 million and $(4) million in 2013, 2012 and 2011, respectively. During 2013 and 2012,
we invested $23 million and $19 million, respectively, in such investment instruments, and this activity is included in
the Consolidated Statements of Cash Flows within other investing activities. Adjusting our position in these investment
vehicles may involve repurchasing shares of Target common stock when settling the forward contracts as described
in Note 23. The settlement dates of these instruments are regularly renegotiated with the counterparty.
Prepaid Forward Contracts on Target
Common Stock
(millions, except per share data)
February 2, 2013
February 1, 2014
Number of
Shares
Contractual Price
Paid per Share
Contractual Fair
Value
1.2 $
1.3 $
45.46 $
48.81 $
73 $
73 $
Total Cash
Investment
54
63
Plan Expenses
(millions)
401(k) plan matching contributions expense
Nonqualified deferred compensation plans
Benefits expense (a)
Related investment income (b)
Nonqualified plan net expense
(a)
2013
229 $
2012
218 $
2011
197
41
(23)
18 $
78
(43)
35 $
38
(10)
28
$
$
(b)
Includes market-performance credits on accumulated participant account balances and annual crediting for additional benefits earned during
the year.
Includes investment returns and life-insurance proceeds received from company-owned life insurance policies and other investments used
to economically hedge the cost of these plans.
26. Pension and Postretirement Health Care Plans
We have qualified defined benefit pension plans covering team members who meet age and service requirements,
including in certain circumstances, date of hire. Effective January 1, 2009, our U.S. qualified defined benefit pension
plan was closed to new participants, with limited exceptions. We also have unfunded nonqualified pension plans for
team members with qualified plan compensation restrictions. Eligibility for, and the level of, these benefits varies
depending on each team members' date of hire, length of service and/or team member compensation. Upon early
56
retirement and prior to Medicare eligibility, team members also become eligible for certain health care benefits if they
meet minimum age and service requirements and agree to contribute a portion of the cost.
Change in Projected Benefit Obligation
Pension Benefits
Qualified Plans
Nonqualified Plans
Postretirement
Health Care Benefits
(millions)
Benefit obligation at beginning of period
Service cost
Interest cost
Actuarial (gain)/loss
Participant contributions
Benefits paid
Plan amendments
Benefit obligation at end of period
2013
3,164 $
117
136
(125)
1
(122)
2
3,173 $
$
$
2012
3,015 $
120
137
107
1
(126)
(90)
3,164 $
2013
2012
37 $
1
1
—
—
(4)
—
35 $
38 $
1
2
—
—
(3)
(1)
37 $
2013
121 $
6
2
(3)
5
(14)
(44)
73 $
2012
100
10
3
18
5
(12)
(3)
121
Change in Plan Assets
Pension Benefits
Qualified Plans
Nonqualified Plans
Postretirement
Health Care Benefits
(millions)
2013
2012
2013
2012
2013
2012
Fair value of plan assets at beginning of
period
$
Actual return on plan assets
Employer contributions
Participant contributions
Benefits paid
Fair value of plan assets at end of
period
Benefit obligation at end of period
3,223 $
161
4
1
(122)
3,267
3,173
2,921 $
305
122
1
(126)
3,223
3,164
Funded/(underfunded) status
$
94 $
59 $
— $
—
4
—
(4)
—
35
(35) $
— $
—
3
—
(3)
—
37
(37) $
— $
—
9
5
(14)
—
73
(73) $
—
—
7
5
(12)
—
121
(121)
Recognition of Funded/(Underfunded) Status
(millions)
Other noncurrent assets
Accrued and other current liabilities
Other noncurrent liabilities
Net amounts recognized
(a)
Includes postretirement health care benefits.
Qualified Plans
Nonqualified Plans (a)
2013
112 $
(2)
(16)
94 $
$
$
2012
81 $
(1)
(21)
59 $
2013
— $
(9)
(99)
(108) $
2012
—
(9)
(149)
(158)
The following table summarizes the amounts recorded in accumulated other comprehensive income, which have not
yet been recognized as a component of net periodic benefit expense:
Amounts in Accumulated Other Comprehensive Income
(millions)
Net actuarial loss
Prior service credits
Amounts in accumulated other comprehensive income
Pension Plans
2013
792 $
(80)
712 $
$
$
2012
947 $
(91)
856 $
Postretirement
Health Care Plans
2013
2012
49 $
(62)
(13) $
58
(34)
24
57
The following table summarizes the changes in accumulated other comprehensive income for the years ended
February 1, 2014 and February 2, 2013, related to our pension and postretirement health care plans:
Change in Accumulated Other Comprehensive Income
(millions)
January 28, 2012
Net actuarial loss
Amortization of net actuarial losses
Amortization of prior service costs and transition
Plan amendments
February 2, 2013
Net actuarial gain
Amortization of net actuarial losses
Amortization of prior service costs and transition
Plan amendment
February 1, 2014
Pension Benefits
Postretirement
Health Care Benefits
Pretax Net of Tax
Pretax Net of Tax
$
1,027 $
623 $
3 $
23
(103)
—
(91)
856
(52)
(103)
11
—
13
(63)
—
(56)
517
(32)
(62)
7
—
$
712 $
430 $
18
(4)
10
(3)
24
(3)
(6)
16
(44)
(13) $
2
11
(2)
6
(2)
15
(2)
(4)
10
(27)
(8)
The following table summarizes the amounts in accumulated other comprehensive income expected to be amortized
and recognized as a component of net periodic benefit expense in 2014:
Expected Amortization of Amounts in Accumulated Other Comprehensive Income
(millions)
Pretax
Net of Tax
Net actuarial loss
Prior service credits
Total amortization expense
$
$
70 $
(27)
43 $
43
(16)
27
The following table summarizes our net pension and postretirement health care benefits expense for the years 2013,
2012 and 2011:
Net Pension and Postretirement Health Care
Benefits Expense
(millions)
Service cost benefits earned during the period
Interest cost on projected benefit obligation
Expected return on assets
Amortization of losses
Amortization of prior service cost
Settlement and Special Termination Charges
Total
Pension Benefits
2013
118 $
137
(235)
103
(11)
3
115 $
$
$
2012
121 $
139
(220)
103
—
—
143 $
2011
117 $
137
(206)
67
(2)
—
113 $
Postretirement
Health Care Benefits
2013
2012
2011
6 $
2
—
6
(16)
—
(2) $
10 $
3
—
3
(10)
—
6 $
10
4
—
4
(10)
—
8
Prior service cost amortization is determined using the straight-line method over the average remaining service period
of team members expected to receive benefits under the plan.
58
Defined Benefit Pension Plan Information
(millions)
Accumulated benefit obligation (ABO) for all plans (a)
Projected benefit obligation for pension plans with an ABO in excess of plan assets (b)
Total ABO for pension plans with an ABO in excess of plan assets
(a)
(b)
The present value of benefits earned to date assuming no future salary growth.
The present value of benefits earned to date by plan participants, including the effect of assumed future salary increases.
$
2013
3,149 $
54
48
2012
3,140
59
53
Assumptions
Benefit Obligation Weighted Average Assumptions
Discount rate
Average assumed rate of compensation increase
Pension Benefits
2013
4.77%
3.00
2012
4.40%
3.00
Postretirement
Health Care Benefits
2013
3.30%
n/a
2012
2.75%
n/a
Net Periodic Benefit Expense Weighted Average
Assumptions
Pension Benefits
Postretirement
Health Care Benefits
Discount rate
Expected long-term rate of return on plan assets
2012
2011
2013
4.40% 4.65% 5.50%
8.00
8.00
8.00
2012
2011
2013
2.75% 3.60% 4.35%
n/a
n/a
n/a
Average assumed rate of compensation increase
3.00
3.50
4.00
n/a
n/a
n/a
The weighted average assumptions used to measure net periodic benefit expense each year are the rates as of the
beginning of the year (i.e., the prior measurement date). Based on a stable asset allocation, our most recent compound
annual rate of return on qualified plans' assets was 10.4 percent, 8.3 percent, 7.2 percent, and 9.2 percent for the 5-
year, 10-year, 15-year and 20-year time periods, respectively.
The market-related value of plan assets, which is used in calculating expected return on assets in net periodic benefit
cost, is determined each year by adjusting the previous year's value by expected return, benefit payments and cash
contributions. The market-related value is adjusted for asset gains and losses in equal 20 percent adjustments over
a five-year period.
We review the expected long-term rate of return on an annual basis, and revise it as appropriate. Additionally, we
monitor the mix of investments in our portfolio to ensure alignment with our long-term strategy to manage pension cost
and reduce volatility in our assets. Our expected annualized long-term rate of return assumptions as of February 1,
2014 were 8.0 percent for domestic and international equity securities, 5.0 percent for long-duration debt securities,
8.0 percent for balanced funds and 9.5 percent for other investments. These estimates are a judgmental matter in
which we consider the composition of our asset portfolio, our historical long-term investment performance and current
market conditions.
An increase in the cost of covered health care benefits of 7.5 percent was assumed for 2013 and 7.0 percent is assumed
for 2014. The rate will be reduced to 5.0 percent in 2019 and thereafter.
Health Care Cost Trend Rates – 1% Change
(millions)
1% Increase 1% Decrease
Effect on total of service and interest cost components of net periodic postretirement
health care benefit expense
Effect on the health care component of the accumulated postretirement benefit
obligation
$
1 $
5
(1)
(5)
59
Plan Assets
Our asset allocation policy is designed to reduce the long-term cost of funding our pension obligations. The plan invests
with both passive and active investment managers depending on the investment's asset class. The plan also seeks
to reduce the risk associated with adverse movements in interest rates by employing an interest rate hedging program,
which may include the use of interest rate swaps, total return swaps and other instruments.
Asset Category
Domestic equity securities (a)
International equity securities
Debt securities
Balanced funds
Other (b)
Total
(a)
Current Targeted
Actual Allocation
Allocation
19%
12
25
30
14
2013
21%
12
26
28
13
2012
20%
11
27
29
13
100%
100%
100%
(b)
Equity securities include our common stock in amounts substantially less than 1 percent of total plan assets as of February 1, 2014 and
February 2, 2013.
Other assets include private equity, mezzanine and high-yield debt, natural resources and timberland funds, multi-strategy hedge funds,
derivative instruments and a 5 percent allocation to real estate.
Fair Value Measurements
(millions)
Cash and cash equivalents
Common collective trusts (a)
Government securities (b)
Fixed income (c)
Balanced funds (d)
Private equity funds (e)
Other (f)
Total plan assets
Fair Value at February 1, 2014
Level 2
Level 3
Level 1
Fair Value at February 2, 2013
Total
Level 1
Level 2
Level 3
Total
174 $
5 $
169 $
$
150 $
1,000
6 $
—
144 $
1,000
282
541
903
221
—
—
—
—
170
$ 3,267 $
—
6 $
282
541
903
—
43
2,913 $
— $
—
—
—
—
221
878
296
560
925
236
154
127
348 $ 3,223 $
—
—
—
—
—
—
878
296
560
925
—
32
5 $
2,860 $
—
—
—
—
—
236
122
358
(a)
(b)
(c)
(d)
(e)
(f)
Passively managed index funds with holdings in domestic and international equities.
Investments in government securities and passively managed index funds with holdings in long-term government bonds.
Investments in corporate bonds, mortgage-backed securities and passively managed index funds with holdings in long-term corporate
bonds.
Investments in equities, nominal and inflation-linked fixed income securities, commodities and public real estate.
Includes investments in venture capital, mezzanine and high-yield debt, natural resources and timberland funds.
Investments in multi-strategy hedge funds (including domestic and international equity securities, convertible bonds and other alternative
investments), real estate and derivative investments.
Level 3 Reconciliation
(millions)
2012
Private equity funds $
Other
2013
Private equity funds $
Other
(a)
Actual Return on Plan Assets (a)
Relating to
Assets Still Held
at the Reporting
Date
Relating to
Assets Sold
During the
Period
Purchases,
Sales and
Settlements
Transfer in
and/or out
of Level 3
Balance at
End of
Period
17 $
4
7 $
14
25 $
—
26 $
1
(89) $
3
(48) $
(10)
— $
—
— $
—
236
122
221
127
Balance at
Beginning of
Period
283 $
115
236 $
122
Represents realized and unrealized gains (losses) from changes in values of those financial instruments only for the period in which the
instruments were classified as Level 3.
60
Position
Cash and cash equivalents
Equity securities
Valuation Technique
These investments are cash holdings and investment vehicles valued using the
Net Asset Value (NAV) provided by the administrator of the fund. The NAV for the
investment vehicles is based on the value of the underlying assets owned by the
fund minus applicable costs and liabilities, and then divided by the number of
shares outstanding.
Valued at the closing price reported on the major market on which the individual
securities are traded.
Common collective trusts/
balanced funds/ certain
multi-strategy hedge funds
Valued using the NAV provided by the administrator of the fund. The NAV is a
quoted transactional price for participants in the fund, which do not represent an
active market.
Fixed income and government
securities
Valued using matrix pricing models and quoted prices of securities with similar
characteristics.
Private equity/ real estate/
certain multi-strategy hedge
funds/ other
Valued by deriving Target's proportionate share of equity investment from audited
financial statements. Private equity and real estate investments require
significant judgment on the part of the fund manager due to the absence of
quoted market prices, inherent lack of liquidity, and the long term of such
investments. Certain multi-strategy hedge funds represent funds of funds that
include liquidity restrictions and for which timely valuation information is not
available.
Contributions
Our obligations to plan participants can be met over time through a combination of company contributions to these
plans and earnings on plan assets. In 2013 we made no contributions to our qualified defined benefit pension plans.
In 2012, we made discretionary contributions of $122 million. We are not required to make any contributions in 2014.
However, depending on investment performance and plan funded status, we may elect to make a contribution. We
expect to make contributions in the range of $5 million to $6 million to our postretirement health care benefit plan in
2014.
Estimated Future Benefit Payments
Benefit payments by the plans, which reflect expected future service as appropriate, are expected to be paid as follows:
Estimated Future Benefit Payments
(millions)
Pension
Benefits
Postretirement
Health Care Benefits
2014
2015
2016
2017
2018
2019-2023
$
152 $
159
169
178
188
1,058
6
6
7
8
8
45
61
27. Accumulated Other Comprehensive Income
(millions)
February 2, 2013
Other comprehensive (loss)/income before
reclassifications
Amounts reclassified from AOCI
Cash Flow
Hedges
Currency
Translation
Adjustment
Pension and
Other
Benefit
Total
$
(29)
$
(15) $
(532)
$ (576)
—
4 (a)
(429)
—
60
50
(b)
(369)
54
February 1, 2014
(a)
(b)
$ (891)
Represents gains and losses on cash flow hedges, net of $2 million of taxes, which are recorded in net interest expense on the Consolidated
Statements of Operations.
Represents amortization of pension and other benefit liabilities, net of $32 million of taxes, which is recorded in SG&A expenses on the
Consolidated Statements of Operations. See Note 26 for additional information.
(444) $
(422)
(25)
$
$
28. Segment Reporting
Our segment measure of profit is used by management to evaluate the return on our investment and to make operating
decisions.
Business Segment Results
2013
2012 (a)
2011
(millions)
Sales
Cost of sales
Selling, general and
administrative expenses (b)
Depreciation and amortization
Segment profit
Gain on receivables
transaction (c)
Reduction of beneficial interest
asset (b)
Other (d)
Data Breach related costs, net of
insurance receivable (e)
Earnings before interest expense
and income taxes
Net interest expense
Earnings before income taxes
U.S. Canadian
Total
U.S. Canadian
Total
U.S. Canadian
Total
$ 71,279 $
1,317 $ 72,596
$ 71,960 $
— $ 71,960
$ 68,466 $
— $ 68,466
50,039
1,121
51,160
50,568
—
50,568
47,860
14,285
1,996
910
227
15,196
2,223
13,759
2,044
272
97
14,031
13,079
2,142
2,084
—
74
48
47,860
13,153
2,131
$
4,959 $
(941) $
4,017
$
5,589 $
(369) $
5,219
$
5,443 $
(122) $
5,322
391
(98)
(64)
(17)
4,229
1,126
$
3,103
152
—
—
—
5,371
762
—
—
—
—
5,322
866
$
4,609
$
4,456
Note: The sum of the segment amounts may not equal the total amounts due to rounding.
Note: Certain operating expenses are incurred on behalf of our Canadian Segment, but are included in our U.S. Segment because those costs are
not allocated internally and generally come under the responsibility of our U.S. management team.
Note: Through fiscal 2012, we operated as three business segments: U.S. Retail, U.S. Credit Card and Canadian. Following the sale of our credit
card receivables portfolio described in Note 6, we operate as two segments: U.S. and Canadian. Prior period segment results have been revised
to reflect the combination of our historical U.S. Retail Segment and U.S. Credit Card Segment into one U.S. Segment.
(a)
Consisted of 53 weeks.
Our U.S. Segment includes all TD profit-sharing amounts in segment profit; however, under GAAP, some amounts received from TD reduce
the beneficial interest asset and are not recorded in consolidated earnings. Segment SG&A expenses plus these amounts equal consolidated
SG&A expenses.
Represents the gain on receivables transaction recorded in our Consolidated Statements of Operations, plus, for 2012, the difference
between bad debt expense and net write-offs for the fourth quarter. Refer to Note 6 for more information on our credit card receivables
transaction.
Includes a $23 million workforce-reduction charge primarily related to severance and benefits costs, a $22 million charge related to part-
time team member health benefit changes, and $19 million in impairment charges related to certain parcels of undeveloped land.
Refer to Note 17 for more information on Data Breach related costs.
(b)
(c)
(d)
(e)
62
Total Assets by Segment
(millions)
U.S.
Canadian
Total segment assets
Unallocated assets (a)
Total assets
(a)
February 1,
2014
38,128 $
6,254
44,382 $
171
44,553 $
$
$
$
February 2,
2013
43,289
4,722
48,011
152
48,163
At February 1, 2014, represents the beneficial interest asset of $127 million and insurance receivable related to the Data Breach of $44
million. At February 2, 2013, represents the net adjustment to eliminate our allowance for doubtful accounts and record our credit card
receivables at lower of cost (par) or fair value.
Capital Expenditures by Segment
(millions)
U.S.
Canadian
Total
(a)
Consisted of 53 weeks.
29. Quarterly Results (Unaudited)
2013
1,886 $
1,567
3,453 $
2012(a)
2,345 $
932
3,277 $
2011
2,476
1,892
4,368
$
$
Due to the seasonal nature of our business, fourth quarter operating results typically represent a substantially larger
share of total year revenues and earnings because they include our peak sales period from Thanksgiving through the
end of December. We follow the same accounting policies for preparing quarterly and annual financial data. The table
below summarizes quarterly results for 2013 and 2012:
Quarterly Results
First Quarter
Second Quarter
Third Quarter
(millions, except per share data)
2013
2012
2013
2012
2013
2012
$ 16,706 $ 16,537
330
—
$ 17,117 $ 16,451
328
—
$ 17,258 $ 16,601
328
—
16,706
11,563
16,867
11,541
17,117
11,745
16,779
11,297
17,258
12,133
16,929
11,569
21,516
15,719
22,726
16,160
2013
Fourth Quarter
2012 (a)
$ 21,516 $ 22,370
356
—
Total Year
2013
2012 (a)
$ 72,596 $ 71,960
— 1,341
73,301
72,596
51,160
50,568
Sales
Credit card revenues
Total revenues
Cost of sales
Selling, general and administrative
expenses
Credit card expenses
Depreciation and amortization
Gain on receivables transaction
Earnings before interest expense
and income taxes
Net interest expense
Earnings before income taxes
Provision for income taxes
Net earnings
Basic earnings per share
Diluted earnings per share
Dividends declared per share
Closing common stock price:
High
Low
3,590
3,392
3,698
3,588
3,853
3,704
4,235
4,229
15,375
14,914
—
536
(391)
1,408
629
779
$
$
281
498 $
0.78 $
0.77
0.36
70.67
60.85
120
529
—
1,285
184
1,101
404
697
1.05
1.04
0.30
58.86
50.33
—
542
—
1,132
171
961
$
$
350
611 $
0.96 $
0.95
0.43
73.32
68.29
108
531
—
1,255
184
1,071
367
704
1.07
1.06
0.36
61.95
54.81
—
569
—
703
165
538
$
$
197
341 $
0.54 $
0.54
0.43
106
542
(156)
1,164
192
972
335
637
0.97
0.96
0.36
—
576
—
986
161
825
$
$
305
520 $
0.82 $
0.81
0.43
71.99
62.13
65.44
60.62
66.89
56.64
135
539
(5)
1,668
204
1,464
503
961
1.48
1.47
0.36
64.48
58.57
—
2,223
(391)
4,229
1,126
3,103
1,132
467
2,142
(161)
5,371
762
4,609
1,610
$ 1,971 $ 2,999
4.57
3.10 $
$
3.07
1.65
4.52
1.38
73.32
56.64
65.44
50.33
Note: Per share amounts are computed independently for each of the quarters presented. The sum of the quarters may not equal the total year
amount due to the impact of changes in average quarterly shares outstanding and all other quarterly amounts may not equal the total year due to
rounding.
(a)
The fourth quarter and total year 2013 consisted of 13 weeks and 52 weeks, respectively, compared with 14 weeks and 53 weeks in the
comparable prior-year periods.
63
U.S. Sales by Product Category (a)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
Household essentials
Hardlines
Apparel and accessories
Food and pet supplies
Home furnishings and décor
Total
(a)
As a percentage of sales.
2013
27%
2012
26%
2013
27%
2012
27%
2013
26%
2012
26%
2013
22%
2012
21%
2013
25%
2012
25%
15
20
22
16
16
20
21
17
15
20
20
18
100%
100%
100%
15
20
20
15
20
21
14
20
21
24
17
19
24
18
18
18
19
21
18
19
20
18
100%
18
100%
19
100%
18
100%
19
100%
17
100%
18
100%
64
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Changes in Internal Control Over Financial Reporting
We have continued to expand our implementation of enterprise resource planning software from SAP AG, including
the implementation in November 2013 of functionality of accounting for leases, real estate and personal property
taxes, and expenses associated with common area maintenance at Target store locations. There have been no
other changes in our internal control over financial reporting during the most recently completed fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, we conducted an evaluation, under supervision and with
the participation of management, including the chief executive officer and chief financial officer, of the effectiveness
of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the
Securities Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, our chief executive officer
and chief financial officer concluded that our disclosure controls and procedures are effective. Disclosure controls and
procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that
are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in reports filed under the Exchange Act is accumulated and communicated
to our management, including our principal executive and principal financial officers, or persons performing similar
functions, as appropriate, to allow timely decisions regarding required disclosure.
For the Report of Management on Internal Control and the Report of Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting, see Item 8, Financial Statements and Supplementary Data.
Item 9B. Other Information
Not applicable.
PART III
Certain information required by Part III is incorporated by reference from Target's definitive Proxy Statement to be filed
on or about April 28, 2014. Except for those portions specifically incorporated in this Form 10-K by reference to Target's
Proxy Statement, no other portions of the Proxy Statement are deemed to be filed as part of this Form 10-K.
Item 10. Directors, Executive Officers and Corporate Governance
The following sections of Target's Proxy Statement to be filed on or about April 28, 2014, are incorporated herein by
reference:
Item One--Election of Directors
•
• Stock Ownership Information--Section 16(a) Beneficial Ownership Reporting Compliance
• General Information About Corporate Governance and the Board of Directors
Business Ethics and Conduct
Committees
• Questions and Answers About Our Annual Meeting and Voting-Question 14
See also Item 4A, Executive Officers of Part I hereof.
65
Item 11. Executive Compensation
The following sections of Target's Proxy Statement to be filed on or about April 28, 2014, are incorporated herein by
reference:
• Compensation Discussion and Analysis
• Executive Compensation Tables
•
• Compensation Committee Report
Item One--Election of Directors--Director Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following sections of Target's Proxy Statement to be filed on or about April 28, 2014, are incorporated herein by
reference:
• Stock Ownership Information--
•
•
Beneficial Ownership of Directors and Officers
Beneficial Ownership of Target’s Largest Shareholders
• Executive Compensation Tables--Equity Compensation Plan Information
Item 13. Certain Relationships and Related Transactions, and Director Independence
The following sections of Target's Proxy Statement to be filed on or about April 28, 2014, are incorporated herein by
reference:
• General Information About Corporate Governance and the Board of Directors--
•
•
•
Policy on Transactions with Related Persons
Director Independence
Committees
Item 14. Principal Accountant Fees and Services
The following section of Target's Proxy Statement to be filed on or about April 28, 2014, is incorporated herein by
reference:
• Ratification of Appointment of Ernst & Young LLP As Independent Registered Public Accounting Firm-Audit
and Non-Audit Fees
66
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following information required under this item is filed as part of this report:
a)
Financial Statements
Consolidated Statements of Operations for the Years Ended February 1, 2014, February 2, 2013 and January 28,
2012
Consolidated Statements of Comprehensive Income for the Years ended February 1, 2014, February 2, 2013 and
January 28, 2012
Consolidated Statements of Financial Position at February 1, 2014 and February 2, 2013
Consolidated Statements of Cash Flows for the Years Ended February 1, 2014, February 2, 2013 and January 28,
2012
Consolidated Statements of Shareholders' Investment for the Years Ended February 1, 2014, February 2, 2013
and January 28, 2012
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
Financial Statement Schedules
None.
Other schedules have not been included either because they are not applicable or because the information is included
elsewhere in this Report.
67
b)
Exhibits
(2)A †
B †
C
D
E †
F ‡
G ‡
(3)A
B
(4)A
B
C
(10)A *
B *
C *
D *
E *
F *
G *
H *
I *
J *
K *
L *
M *
N
Amended and Restated Transaction Agreement dated September 12, 2011 among Zellers Inc.,
Hudson's Bay Company, Target Corporation and Target Canada Co. (1)
First Amending Agreement dated January 20, 2012 to Amended and Restated Transaction
Agreement among Zellers Inc., Hudson's Bay Company, Target Corporation and Target
Canada Co. (2)
Second Amending Agreement dated June 18, 2012 to Amended and Restated Transaction
Agreement among Zellers Inc., Hudson's Bay Company, Target Corporation and Target
Canada Co. (3)
Third Amending Agreement dated June 18, 2012 to Amended and Restated Transaction
Agreement among Zellers Inc., Hudson's Bay Company, Target Corporation and Target
Canada Co. (4)
Fourth Amending Agreement dated December 14, 2012 to Amended and Restated Transaction
Agreement among Zellers Inc., Hudson's Bay Company, Target Corporation and Target
Canada Co. (5)
Purchase and Sale Agreement dated October 22, 2012 among Target National Bank, Target
Receivables LLC, Target Corporation and TD Bank USA, N.A. (6)
First Amendment to Purchase and Sale Agreement dated March 13, 2013 among Target National
Bank, Target Receivables LLC, Target Corporation and TD Bank USA, N.A. (7)
Amended and Restated Articles of Incorporation (as amended through June 9, 2010) (8)
By-Laws (as amended through September 9, 2009) (9)
Indenture, dated as of August 4, 2000 between Target Corporation and Bank One Trust Company,
N.A. (10)
First Supplemental Indenture dated as of May 1, 2007 to Indenture dated as of August 4, 2000
between Target Corporation and The Bank of New York Trust Company, N.A. (as successor in
interest to Bank One Trust Company N.A.) (11)
Target agrees to furnish to the Commission on request copies of other instruments with respect to
long-term debt.
Target Corporation Officer Short-Term Incentive Plan (12)
Target Corporation Long-Term Incentive Plan (as amended and restated effective June 8, 2011)
(13)
Target Corporation SPP I (2011 Plan Statement) (as amended and restated effective June 8, 2011)
(14)
Target Corporation SPP II (2011 Plan Statement) (as amended and restated effective June 8,
2011) (15)
Target Corporation SPP III (2014 Plan Statement) (as amended and restated effective January 1,
2014)
Target Corporation Officer Deferred Compensation Plan (as amended and restated effective
June 8, 2011) (16)
Target Corporation Officer EDCP (2014 Plan Statement) (as amended and restated effective
January 1, 2014)
Target Corporation Deferred Compensation Plan Directors (17)
Target Corporation DDCP (2013 Plan Statement) (as amended and restated effective December 1,
2013)
Target Corporation Officer Income Continuance Policy Statement (as amended and restated
effective June 8, 2011) (18)
Target Corporation Executive Excess Long Term Disability Plan (as restated effective January 1,
2010 (19)
Director Retirement Program (20)
Target Corporation Deferred Compensation Trust Agreement (as amended and restated effective
January 1, 2009) (21)
Five-Year Credit Agreement dated as of October 14, 2011 among Target Corporation, Bank of
America, N.A. as Administrative Agent and the Banks listed therein (22)
68
O
P *
Q *
R *
S *
T *
U *
V *
W *
X *
Y
Z
(12)
(21)
(23)
(24)
(31)A
(31)B
(32)A
(32)B
Extension and Amendment dated August 28, 2012 to Five-Year Credit Agreement among Target
Corporation, Bank of America, N.A. as Administrative Agent and the Banks listed therein (23)
Target Corporation 2011 Long-Term Incentive Plan (24)
Amendment to Target Corporation Deferred Compensation Trust Agreement (as amended and
restated effective January 1, 2009) (25)
Form of Executive Non-Qualified Stock Option Agreement (26)
Form of Executive Restricted Stock Unit Agreement
Form of Executive Performance-Based Restricted Stock Unit Agreement
Form of Executive Performance Share Unit Agreement
Form of Non-Employee Director Non-Qualified Stock Option Agreement (27)
Form of Non-Employee Director Restricted Stock Unit Agreement (28)
Form of Cash Retention Award (29)
Credit Card Program Agreement dated October 22, 2012 among Target Corporation, Target
Enterprise, Inc. and TD Bank USA, N.A. (30)
Second Extension and Amendment dated September 3, 2013 to Five-Year Credit Agreement
among Target Corporation, Bank of America, N.A. as Administrative Agent and the Banks listed
therein (31)
Statements of Computations of Ratios of Earnings to Fixed Charges
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Powers of Attorney
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of the Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Copies of exhibits will be furnished upon written request and payment of Registrant's reasonable expenses in furnishing
the exhibits.
_____________________________________________________________________
†
‡
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Excludes the Disclosure Letter and Schedule A referred to in the agreement, Exhibits A and B to the First Amending Agreement, and
Exhibit A to the Fourth Amending Agreement which Target Corporation agrees to furnish supplementally to the Securities and
Exchange Commission upon request.
Excludes Schedules A through N, Annex A and Exhibits A-1 through C-2 referred to in the agreement and First Amendment, which Target
Corporation agrees to furnish supplementally to the Securities and Exchange Commission upon request.
Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the
Securities and Exchange Commission.
Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form 10-K.
Incorporated by reference to Exhibit (2)A to Target's Form 10-Q Report for the quarter ended October 29, 2011.
Incorporated by reference to Exhibit (2)B to Target's Form 10-K Report for the year ended January 28, 2012.
Incorporated by reference to Exhibit (2)C to Target's Form 10-Q Report for the quarter ended July 28, 2012.
Incorporated by reference to Exhibit (2)D to Target's Form 10-Q Report for the quarter ended July 28, 2012.
Incorporated by reference to Exhibit (2)E to Target's Form 10-K Report for the year ended February 2, 2013.
Incorporated by reference to Exhibit (2)E to Target's Form 10-Q Report for the quarter ended October 27, 2012.
Incorporated by reference to Exhibit (2)G to Target's Form 8-K Report filed March 13, 2013.
69
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
Incorporated by reference to Exhibit (3)A to Target's Form 8-K Report filed June 10, 2010.
Incorporated by reference to Exhibit (3)B to Target's Form 8-K Report filed September 10, 2009.
Incorporated by reference to Exhibit 4.1 to Target's Form 8-K Report filed August 10, 2000.
Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K Report filed May 1, 2007.
Incorporated by reference to Appendix A to the Registrant's Proxy Statement filed April 30, 2012.
Incorporated by reference to Exhibit (10)B to Target's Form 10-Q Report for the quarter ended July 30, 2011.
Incorporated by reference to Exhibit (10)C to Target's Form 10-Q Report for the quarter ended July 30, 2011.
Incorporated by reference to Exhibit (10)D to Target's Form 10-Q Report for the quarter ended July 30, 2011.
Incorporated by reference to Exhibit (10)F to Target's Form 10-Q Report for the quarter ended July 30, 2011.
Incorporated by reference to Exhibit (10)I to Target's Form 10-K Report for the year ended February 3, 2007.
Incorporated by reference to Exhibit (10)J to Target's Form 10-Q Report for the quarter ended July 30, 2011.
Incorporated by reference to Exhibit (10)A to Target's Form 10-Q Report for the quarter ended October 30, 2010.
Incorporated by reference to Exhibit (10)O to Target's Form 10-K Report for the year ended January 29, 2005.
Incorporated by reference to Exhibit (10)O to Target's Form 10-K Report for the year ended January 31, 2009.
Incorporated by reference to Exhibit (10)O to Target's Form 10-Q Report for the quarter ended October 29, 2011.
Incorporated by reference to Exhibit (10)AA to Target's Form 10-Q Report for the quarter ended October 27, 2012.
Incorporated by reference to Appendix A to Target's Proxy Statement filed April 28, 2011.
Incorporated by reference to Exhibit (10)AA to Target's Form 10-Q Report for the quarter ended July 30, 2011.
Incorporated by reference to Exhibit (10)R to Target's Form 10-K Report for the year ended February 2, 2013.
Incorporated by reference to Exhibit (10)EE to Target's Form 8-K Report filed January 11, 2012.
Incorporated by reference to Exhibit (10)V to Target’s Form 10-K Report for year ended February 2, 2013.
Incorporated by reference to Exhibit (10)W to Target’s Form 10-K Report for year ended February 2, 2013.
Incorporated by reference to Exhibit (10)X to Target’s Form 10-Q/A Report filed July 29, 2013.
Incorporated by reference to Exhibit (10)Y to Target’s Form 10-Q Report filed November 27, 2013.
70
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Target has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
TARGET CORPORATION
By:
Dated: March 14, 2014
John J. Mulligan
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
___________________________________________________________________________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following
persons on behalf of Target and in the capacities and on the dates indicated.
Dated: March 14, 2014
Gregg W. Steinhafel
Chairman of the Board, Chief Executive Officer
and President
Dated: March 14, 2014
John J. Mulligan
Executive Vice President, Chief Financial Officer and
Chief Accounting Officer
ROXANNE S. AUSTIN
DOUGLAS M. BAKER, JR.
CALVIN DARDEN
HENRIQUE DE CASTRO
JAMES A. JOHNSON
MARY E. MINNICK
ANNE M. MULCAHY
DERICA W. RICE
KENNETH L. SALAZAR
JOHN G. STUMPF
Constituting a majority of the Board of Directors
John J. Mulligan, by signing his name hereto, does hereby sign this document pursuant to powers of attorney duly
executed by the Directors named, filed with the Securities and Exchange Commission on behalf of such Directors, all
in the capacities and on the date stated.
By:
Dated: March 14, 2014
John J. Mulligan
Attorney-in-fact
71
Exhibit Index
Exhibit
(2)A
Description
Amended and Restated Transaction Agreement dated September 12,
2011 among Zellers Inc., Hudson's Bay Company, Target Corporation and
Target Canada Co.
Manner of Filing
Incorporated by Reference
(2)B
(2)C
(2)D
(2)E
(2)F
(2)G
(3)A
(3)B
(4)A
(4)B
(4)C
(10)A
(10)B
(10)C
(10)D
(10)E
(10)F
(10)G
(10)H
(10)I
(10)J
(10)K
First Amending Agreement dated January 20, 2012 to Amended and
Restated Transaction Agreement among Zellers Inc., Hudson's Bay
Company, Target Corporation and Target Canada Co.
Second Amending Agreement dated June 18, 2012 to Amended and
Restated Transaction Agreement among Zellers Inc., Hudson's Bay
Company, Target Corporation and Target Canada Co.
Third Amending Agreement dated June 18, 2012 to Amended and
Restated Transaction Agreement among Zellers Inc., Hudson's Bay
Company, Target Corporation and Target Canada Co.
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Fourth Amending Agreement dated December 14, 2012 to Amended and
Restated Transaction Agreement among Zellers Inc., Hudson's Bay
Company, Target Corporation and Target Canada Co.
Purchase and Sale Agreement dated October 22, 2012 among Target
National Bank, Target Receivables LLC, Target Corporation and TD Bank
USA, N.A.
First Amendment to Purchase and Sale Agreement dated March 13, 2013
among Target National Bank, Target Receivables LLC, Target Corporation
and TD Bank USA, N.A.
Filed Electronically
Incorporated by Reference
Incorporated by Reference
Amended and Restated Articles of Incorporation (as amended June 9,
2010)
Incorporated by Reference
By-Laws (as amended through September 9, 2009)
Indenture, dated as of August 4, 2000 between Target Corporation and
Bank One Trust Company, N.A.
First Supplemental Indenture dated as of May 1, 2007 to Indenture dated
as of August 4, 2000 between Target Corporation and The Bank of New
York Trust Company, N.A. (as successor in interest to Bank One Trust
Company N.A.)
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Target agrees to furnish to the Commission on request copies of other
instruments with respect to long-term debt.
Filed Electronically
Target Corporation Officer Short-Term Incentive Plan
Target Corporation Long-Term Incentive Plan (as amended and restated
effective June 8, 2011)
Target Corporation SPP I (2011 Plan Statement) (as amended and
restated effective June 8, 2011)
Target Corporation SPP II (2011 Plan Statement) (as amended and
restated effective June 8, 2011)
Target Corporation SPP III (2014 Plan Statement) (as amended and
restated effective January 1, 2014)
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Target Corporation Officer Deferred Compensation Plan (as amended and
restated effective June 8, 2011)
Incorporated by Reference
Target Corporation Officer EDCP (2014 Plan Statement) (as amended and
restated effective January 1, 2014)
Incorporated by Reference
Target Corporation Deferred Compensation Plan Directors
Target Corporation DDCP (2013 Plan Statement) (as amended and
restated effective December 1, 2013)
Target Corporation Officer Income Continuance Policy Statement (as
amended and restated effective June 8, 2011)
Target Corporation Executive Excess Long Term Disability Plan (as
restated effective January 1, 2010)
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
(10)L
Director Retirement Program
72
(10)M
(10)N
(10)O
(10)P
(10)Q
(10)R
(10)S
(10)T
(10)U
(10)V
(10)W
(10)X
(12)
(21)
(23)
(24)
(31)A
(31)B
(32)A
(32)B
Target Corporation Deferred Compensation Trust Agreement (as
amended and restated effective January 1, 2009)
Five-Year Credit Agreement dated as of October 14, 2011 among Target
Corporation, Bank of America, N.A. as Administrative Agent and the
Banks listed therein
Extension and Amendment dated August 28, 2012 to Five-Year Credit
Agreement among Target Corporation, Bank of America, N.A. as
Administrative Agent and the Banks listed therein
Target Corporation 2011 Long-Term Incentive Plan
Amendment to Target Corporation Deferred Compensation Trust
Agreement (as amended and restated effective January 1, 2009)
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Form of Executive Non-Qualified Stock Option Agreement
Form of Executive Restricted Stock Unit Agreement
Filed Electronically
Filed Electronically
Form of Executive Performance-Based Restricted Stock Unit Agreement
Incorporated by Reference
Form of Executive Performance Share Unit Agreement
Incorporated by Reference
Form of Non-Employee Director Non-Qualified Stock Option Agreement
Incorporated by Reference
Form of Non-Employee Director Restricted Stock Unit Agreement
Form of Cash Retention Award
Filed Electronically
Filed Electronically
Statements of Computations of Ratios of Earnings to Fixed Charges
Filed Electronically
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Powers of Attorney
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Filed Electronically
Certification of the Chief Executive Officer Pursuant to Section 18 U.S.C.
Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed Electronically
Certification of the Chief Financial Officer Pursuant to Section 18 U.S.C.
Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed Electronically
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
73
Exhibit (12)
January 30,
2010
TARGET CORPORATION
Computations of Ratios of Earnings to Fixed Charges for each of the
Five Years in the Period Ended February 1, 2014
Ratio of Earnings to Fixed Charges
(dollars in millions)
Earnings from continuing operations
before income taxes
Capitalized interest, net
Adjusted earnings from continuing
operations before income taxes
Fixed charges:
Interest expense (a)
Interest portion of rental expense
Total fixed charges
Earnings from continuing operations
before income taxes and fixed
charges (b)
February 1,
2014
February 2,
2013
Fiscal Year Ended
January 28,
2012
January 29,
2011
$3,103
$4,609
$4,456
$4,495
$3,872
(14)
(12)
5
2
(9)
3,089
4,597
4,461
4,497
3,863
718
110
828
799
111
910
797
111
908
776
110
886
830
105
935
$3,917
$5,507
$5,369
$5,383
$4,798
Ratio of earnings to fixed charges
(a) Includes interest on debt and capital leases (including capitalized interest) and amortization of debt issuance costs. Excludes
interest income, the loss on early retirement of debt and interest associated with uncertain tax positions, which is recorded within
income tax expense.
(b) Includes the impact of the loss on early retirement of debt and the gain on sale of our U.S. credit card receivables portfolio.
6.08
6.05
4.73
5.91
5.13
74
84275_Target_Annual_Report_Guts_1.indd 14
4/3/13 10:15 PM
Target 2013 Annual Report
Shareholder Information
ANNUAL MEETING
The Annual Meeting of Shareholders is
scheduled for June 11, 2014 at 1:30 p.m.
(Central Daylight Time) at Union Station,
400 South Houston Street, Dallas, TX 75202.
TRANSFER AGENT,
REGISTRAR
AND DIVIDEND
DISBURSING AGENT
Computershare
SHAREHOLDER
INFORMATION
Quarterly and annual shareholder information
(including the Form 10‑Q and Form 10‑K
Annual Report, which are filed with the
Securities and Exchange Commission) is
available at no charge to shareholders.
To obtain copies of these materials, you
may send an e‑mail to Investorrelations@
Target.com, call 1‑800‑775‑3110, or write to:
Senior Director, Investor Communications
(TPN‑1145), Target Corporation,
1000 Nicollet Mall, Minneapolis, MN 55403.
These documents as well as other
information about Target Corporation,
including our Business Conduct Guide,
Corporate Governance Guidelines,
Corporate Responsibility Report and
Board of Director Committee Position
Descriptions, are also available on the
Internet at Target.com/investors.
State Street Bank and Trust Company
TRUSTEE,
EMPLOYEE
SAVINGS 401(K) AND
PENSION PLANS
STOCK EXCHANGE
LISTING
Trading Symbol: TGT
New York Stock Exchange.
SHAREHOLDER
ASSISTANCE
For assistance regarding individual stock
records, lost certificates, name or address
changes, dividend or tax questions,
call Computershare at 1‑800‑794‑9871,
access their website at https://www‑us.
computershare.com/investor/contact,
or write to: Computershare, P.O. Box 30170,
College Station, TX 77842‑3170.
DIRECT STOCK
PURCHASE /
DIVIDEND
REINVESTMENT
PLAN
Computershare administers a direct service
investment plan that allows interested
investors to purchase Target Corporation
stock directly, rather than through a broker,
and become a registered shareholder of the
company. The program offers many features
including dividend reinvestment. For detailed
information regarding this program, call
Computershare toll free at 1‑800‑794‑9871
or write to: Computershare, P.O. Box 30170,
College Station, TX 77842‑3170.
© 2014 Target Brands, Inc. The Bullseye Design, Bullseye Dog, Cartwheel, CityTarget, Expect More. Pay Less., SuperTarget and Target are trademarks of Target Brands, Inc.
Directors and Management
Target 2013 Annual Report
DIRECTORS
Roxanne S. Austin
Interim Board Chair
and President, Austin
Investment Advisors
(1) (4)
Douglas M. Baker Jr.
Chairman and
Chief Executive Officer,
Ecolab, Inc.
(2) (5)
Henrique De Castro
Former Chief Operating
Officer, Yahoo! Inc.
(3) (4)
Calvin Darden
Chairman, Darden
Development Group
(2) (3) (5)
James A. Johnson
Founder and Principal,
Johnson Capital Partners
(2) (3)
Mary E. Minnick
Partner,
Lion Capital LLP
(1) (3)
Anne M. Mulcahy
Chairman of the
Board of Trustees,
Save the Children
Federation, Inc.
(1) (5)
Derica W. Rice
Executive Vice President,
Global Services and
Chief Financial Officer,
Eli Lilly & Company
(1) (4)
OTHER OFFICERS
Janna Adair-Potts
Senior Vice President,
Stores and Distribution,
Target Canada
John Butcher
Senior Vice President,
Merchandising,
Target Canada
Patricia Adams
Executive Vice
President, Apparel
and Home
Aaron Alt
Senior Vice President,
Business Development
and Treasurer
Stacia Andersen
Senior Vice President,
Apparel and
Accessories
Jose Barra
Executive Vice
President,
Essentials and
Hardlines
Stephen Brinkley
Senior Vice President,
Stores
Tom Butterfield
Senior Vice President,
Strategy and Enterprise
Architecture
Casey Carl
President, Multichannel,
and Senior Vice
President, Enterprise
Strategy
Tim Curoe
Senior Vice President,
Talent and Organizational
Effectiveness
Barbara Dugan
Senior Vice President,
Human Resources
and Administration,
Target Sourcing
Services
EXECUTIVE OFFICERS
Kenneth L. Salazar
Partner, WilmerHale
(3)
Timothy R. Baer
Chief Legal Officer and
Corporate Secretary
Robert DeRodes
Chief Information
Officer
John D. Griffith
Executive
Vice President,
Property Development
John G. Stumpf
Chairman,
President and Chief
Executive Officer,
Wells Fargo & Company
(2) (4)
(1) Audit Committee
(2) Compensation Committee
Corporate Responsibility
(3)
Committee
(4) Finance Committee
(5)
Nominating and Governance
Committee
Jeffrey J. Jones II
Chief Marketing Officer
Tina M. Schiel
Chief Stores Officer
Jodeen A. Kozlak
Chief Human
Resources Officer
John J. Mulligan
Interim President and
Chief Executive Officer,
and Chief Financial
Officer
Kathryn A. Tesija
Chief Merchandising
and Supply Chain
Officer
Laysha L. Ward
President,
Community Relations
and Target Foundation
Bryan Everett
Senior Vice President,
Store Operations
Christina Hennington
Senior Vice President,
Health and Beauty
Timothy A. Mantel
Senior Vice President,
Grocery
Mark Schindele
President, Target
Canada
Juan Galarraga
Senior Vice President,
Stores
Peter Glusker
Senior Vice President,
New Business
Integration and
Operations
Jason Goldberger
Senior Vice President,
Target.com and Mobile
Rick Gomez
Senior Vice President,
Brand and Category
Marketing
Corey Haaland
Senior Vice President,
Financial Planning
Analysis
Cynthia Ho
Senior Vice President,
Target Sourcing
Services
Keri Jones
Executive Vice
President, Merchandise
Planning and
Operations
Navneet Kapoor
President and
Managing Director,
Target India
Scott Kennedy
President,
Target Financial and
Retail Services
Stephanie Lucy
Senior Vice President,
Merchandise
Planning, Apparel and
Accessories, and Home
Todd Marshall
Senior Vice President,
Marketing
Samir Shah
Senior Vice President,
Stores
Cary Strouse
Senior Vice President,
Stores
Todd Waterbury
Senior Vice President,
Creative
Judy Werthauser
Senior Vice President,
Human Resources,
Headquarters
Jane Windmeier
Senior Vice President,
Global Finance Systems
John Morioka
Senior Vice President,
Merchandise Planning,
Essentials and
Hardlines
Scott Nelson
Senior Vice President,
Property Development
Scott Nygaard
Senior Vice President,
Merchandising,
Hardlines
Mike Robbins
Senior Vice President,
Distribution
Jill Sando
Senior Vice President,
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