What changed in this filing

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Item 1. Financial Statements

2020-05-29 compared with 2019-11-27 · 191 added, 112 removed, 189 unchanged (62% of the section changed)

2 unchanged sentences

Three Months Ended

Nine Months Ended

(millions, except per share data) (unaudited)

(millions, except per share data) (unaudited) May 2,

Sales $ 19,371 $ 17,401

Other revenue 244 226

10 unchanged sentences

Discontinued operations, net of tax — 3

Net earnings $ 284 $ 795

Basic earnings per share

7 unchanged sentences

Weighted average common shares outstanding

Basic 501.0 515.7

Diluted 505.8 519.5

Antidilutive shares 0.2 0.1

1 unchanged sentence

See accompanying Notes to Consolidated Financial Statements .

TARGET CORPORATION

Q1 2020 Form 10-Q 1

FINANCIAL STATEMENTS Table of Contents

Index to Notes

Consolidated Statements of Comprehensive Income

Three Months Ended

Nine Months Ended

(millions) (unaudited)

(millions) (unaudited) May 2,

Net earnings $ 284 $ 795

Other comprehensive income

4 unchanged sentences

See accompanying Notes to Consolidated Financial Statements .

TARGET CORPORATION

Q1 2020 Form 10-Q 2

FINANCIAL STATEMENTS Table of Contents

Index to Notes

Consolidated Statements of Financial Position

(millions, except footnotes) (unaudited)

(millions, except footnotes) (unaudited) May 2,

2020 February 1,

Cash and cash equivalents $ 4,566 $ 2,577 $ 1,173

Inventory 8,584 8,992 9,060

Other current assets 1,465 1,333 1,374

1 unchanged sentence

Property and equipment

Land 6,034 6,036 6,061

Buildings and improvements 30,756 30,603 29,573

6 unchanged sentences

Other noncurrent assets 1,367 1,358 1,287

Total assets $ 44,806 $ 42,779 $ 40,619

Liabilities and shareholders’ investment

9 unchanged sentences

Shareholders’ investment

Common stock 42 42 43

Additional paid-in capital 6,206 6,226 5,908

4 unchanged sentences

Common Stock Authorized 6,000,000,000 shares, $ 0.0833 par value;

506,677,740 , 517,761,600 and 521,810,597 shares issued and outstanding at November 2, 2019 , February 2, 2019 , and November 3, 2018 , respectively.

499,919,691 , 504,198,962 and 512,312,434 shares issued and outstanding at May 2, 2020, February 1, 2020, and May 4, 2019, respectively.

Preferred Stock Authorized 5,000,000 shares, $ 0.01 par value;

1 unchanged sentence

See accompanying Notes to Consolidated Financial Statements .

TARGET CORPORATION

Q1 2020 Form 10-Q 3

FINANCIAL STATEMENTS Table of Contents

Index to Notes

Consolidated Statements of Cash Flows

Nine Months Ended

(millions) (unaudited)

Three Months Ended

(millions) (unaudited) May 2,

Operating activities

Net earnings $ 284 $ 795

Earnings from discontinued operations, net of tax — 3

6 unchanged sentences

Changes in operating accounts

Inventory 408 438

Other assets 11 17

Accounts payable ( 280 ) ( 1,402 )

Accrued and other liabilities 170 ( 281 )

Cash provided by operating activities—continuing operations

Cash provided by operating activities—discontinued operations

Cash provided by operations 1,284 323

5 unchanged sentences

Financing activities

Change in commercial paper, net

Additions to long-term debt 2,480 994

4 unchanged sentences

Stock option exercises 4 12

Cash required for financing activities

Net decrease in cash and cash equivalents

Cash provided by / (required for) financing activities 1,449 ( 57 )

Net increase / (decrease) in cash and cash equivalents 1,989 ( 383 )

Cash and cash equivalents at beginning of period 2,577 1,556

4 unchanged sentences

See accompanying Notes to Consolidated Financial Statements .

TARGET CORPORATION

Q1 2020 Form 10-Q 4

FINANCIAL STATEMENTS Table of Contents

Index to Notes

Consolidated Statements of Shareholders’ Investment

Accumulated Other

Comprehensive

(millions) (unaudited)

(Loss) / Income

Common Stock Additional Accumulated Other

Stock Par Paid-in Retained Comprehensive

(millions) (unaudited) Shares Value Capital Earnings (Loss) / Income

February 2, 2019 517.8 $ 43 $ 6,042 $ 6,017 $ ( 805 ) $ 11,297

Net earnings — — — 795 — 795

Other comprehensive income — — — — 13 13

2 unchanged sentences

Accelerated share repurchase pending final settlement

( 3.0 ) — ( 153 ) ( 247 ) — ( 400 )

Stock options and awards 1.1 — 19 — — 19

May 4, 2019 512.3 $ 43 $ 5,908 $ 5,958 $ ( 792 ) $ 11,117

Net earnings — — — 938 — 938

Other comprehensive income — — — — 10 10

1 unchanged sentence

Repurchase of stock ( 1.3 ) — 153 ( 94 ) — 59

Accelerated share repurchase pending final settlement

Stock options and awards 0.3 — 53 — — 53

August 3, 2019 511.3 $ 43 $ 6,114 $ 6,461 $ ( 782 ) $ 11,836

Net earnings — — — 714 — 714

Other comprehensive income — — — — 9 9

2 unchanged sentences

Accelerated share repurchase pending final settlement

( 2.5 ) — ( 178 ) ( 272 ) — ( 450 )

Stock options and awards 0.9 — 70 — — 70

November 2, 2019 506.7 $ 42 $ 6,006 $ 6,270 $ ( 773 ) $ 11,545

Net earnings — — — 834 — 834

Other comprehensive loss — — — — ( 95 ) ( 95 )

3 unchanged sentences

February 1, 2020 504.2 $ 42 $ 6,226 $ 6,433 $ ( 868 ) $ 11,833

TARGET CORPORATION

Q1 2020 Form 10-Q 5

FINANCIAL STATEMENTS Table of Contents

Index to Notes

Consolidated Statements of Shareholders’ Investment

Accumulated Other

Comprehensive

(millions) (unaudited)

(Loss) / Income

Common Stock Additional Accumulated Other

Stock Par Paid-in Retained Comprehensive

(millions) (unaudited) Shares Value Capital Earnings (Loss) / Income

February 1, 2020 504.2 $ 42 $ 6,226 $ 6,433 $ ( 868 ) $ 11,833

Other comprehensive income

Dividends declared

Repurchase of stock

Accelerated share repurchase pending final settlement

Stock options and awards

Other comprehensive income

Dividends declared

Repurchase of stock

Stock options and awards

August 3, 2019

Net earnings — — — 284 — 284

Other comprehensive income — — — — 14 14

1 unchanged sentence

Repurchase of stock ( 5.7 ) — — ( 609 ) — ( 609 )

Accelerated share repurchase pending final settlement

Stock options and awards 1.4 — ( 20 ) — — ( 20 )

November 2, 2019

We declared $ 0.66 and $ 0.64 dividends per share for the three months ended November 2, 2019 , and November 3, 2018 , respectively, and $ 2.54 per share for the fiscal year ended February 2, 2019 .

May 2, 2020 499.9 $ 42 $ 6,206 $ 5,775 $ ( 854 ) $ 11,169

We declared $ 0.66 and $ 0.64 dividends per share for the three months ended May 2, 2020, and May 4, 2019, respectively, and $ 2.62 per share for the fiscal year ended February 1, 2020.

See accompanying Notes to Consolidated Financial Statements .

TARGET CORPORATION

Q1 2020 Form 10-Q 6

FINANCIAL STATEMENTS Table of Contents

INDEX Index to Notes

INDEX TO NOTES

Notes to Consolidated Financial Statements

Accounting Policies

Impact of Coronavirus (COVID-19)

Fair Value Measurements

Property and Equipment

Commercial Paper and Long-Term Debt

Derivative Financial Instruments

Share Repurchase

Pension Benefits

Accumulated Other Comprehensive Loss

TARGET CORPORATION

Q1 2020 Form 10-Q 7

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Notes

Notes to Consolidated Financial Statements (unaudited)

10 unchanged sentences

Due to the seasonal nature of our business, quarterly revenues, expenses, earnings, and cash flows are not necessarily indicative of the results that may be expected for the full year.

Impact of Coronavirus (COVID-19)

On March 11, 2020 the World Health Organization declared the novel coronavirus disease (COVID-19) a pandemic, and on March 13, 2020 the United States declared a national emergency.

States and cities have taken various measures in response to COVID-19, including mandating the closure of certain businesses and encouraging or requiring citizens to avoid large gatherings.

To date all of our stores, digital channels, and distribution centers remain open.

Throughout the quarter, guest shopping patterns changed significantly in reaction to the COVID-19 pandemic.

Across our core merchandise categories, sales have grown significantly in Beauty and Household Essentials, Food and Beverage, Hardlines, and Home Furnishings and Décor, while declining significantly in Apparel and Accessories.

Note 3 provides sales by category.

In response to these changes, we have taken many actions, including accelerating purchases of certain merchandise in our core categories and slowing or canceling certain purchase orders, primarily for Apparel and Accessories.

As a result of these actions, during the quarter ended May 2, 2020, we recorded $ 216 million of purchase order cancellation fees in Cost of Sales.

From March 26, 2020, to April 26, 2020, we did not accept in-store merchandise returns and exchanges to protect our team members.

We lengthened the return period for merchandise affected by this change.

We continue to recognize sales net of expected returns.

Our returns estimate for sales during the suspension period includes significant assumptions that, if actual results are substantially different, could result in material adjustments in future periods.

TARGET CORPORATION

Q1 2020 Form 10-Q 8

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Notes

General merchandise sales represent the vast majority of our revenues.

We also earn revenues from a variety of other sources, most notably credit card profit sharing income from our arrangement with TD Bank Group (TD).

Three Months Ended

Nine Months Ended

Revenues Three Months Ended

(millions) May 2,

Apparel and accessories (a)

Beauty and household essentials (a)

Food and beverage

Home furnishings and décor

$ 2,619 $ 3,290

Beauty and household essentials (b)

Food and beverage (c)

Hardlines (d)

Home furnishings and décor (e)

Sales 19,371 17,401

Credit card profit sharing 166 160

1 unchanged sentence

Total revenue $ 19,615 $ 17,627

We reclassified certain non-apparel baby merchandise sales totaling $ 406 million and $ 1,260 million for the three and nine months ended November 2, 2019 , respectively, and $ 403 million and $ 1,166 million for the three and nine months ended November 3, 2018 , respectively, from Apparel and Accessories to Beauty and Household Essentials.

We record almost all retail store revenues at the point of sale.

(a) Includes apparel for women, men, boys, girls, toddlers, infants and newborns, as well as jewelry, accessories, and shoes.

(b) Includes beauty and personal care, baby gear, cleaning, paper products, and pet supplies.

(c) Includes dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and food service in our stores.

(d) Includes electronics (including video game hardware and software), toys, entertainment, sporting goods, and luggage.

(e) Includes furniture, lighting, storage, kitchenware, small appliances, home décor, bed and bath, home improvement, school/office supplies, greeting cards and party supplies, and other seasonal merchandise.

Merchandise sales – We record almost all retail store revenues at the point of sale.

Digitally originated sales may include shipping revenue and are recorded upon delivery to the guest or upon guest pickup at the store.

Sales are recognized net of expected returns, which we estimate using historical return patterns and our expectation of future returns.

As of November 2, 2019 , February 2, 2019 , and November 3, 2018 , the accrual for estimated returns was $ 137 million , $ 116 million , and $ 125 million , respectively.

As of May 2, 2020, February 1, 2020, and May 4, 2019, the accrual for estimated returns was $ 398 million, $ 117 million, and $ 124 million, respectively.

We have not historically had material adjustments to our returns estimates.

Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.

Gift Card Liability Activity

Gift Cards Issued During Current Period But Not Redeemed (a)

Revenue Recognized From Beginning Liability

Gift card liability

Net of estimated breakage.

Gift Card Liability Activity February 1,

2020 Gift Cards Issued During Current Period But Not Redeemed (b)

Revenue Recognized From Beginning Liability May 2,

Gift card liability (a)

$ 935 $ 180 $ ( 335 ) $ 780

(a) Included in Accrued and Other Current Liabilities.

(b) Net of estimated breakage.

Credit card profit sharing – We receive payments under a credit card program agreement with TD.

1 unchanged sentence

TD underwrites, funds, and owns Target Credit Card and Target MasterCard receivables, controls risk management policies, and oversees regulatory compliance.

TARGET CORPORATION

Q1 2020 Form 10-Q 9

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Notes

Fair Value Measurements

Fair value measurements are reported in one of three levels reflecting the valuation techniques used to determine fair value.

Fair Value Measurements - Recurring Basis

Fair Value at

Classification

Pricing Category

Short-term investments

Cash and Cash Equivalents

Prepaid forward contracts

Other Current Assets

Interest rate swaps

Other Noncurrent Assets

Interest rate swaps

Other Current Liabilities

Interest rate swaps

Other Noncurrent Liabilities

Significant Financial Instruments Not Measured at Fair Value (a)

November 2, 2019

Fair Value Measurements - Recurring Basis Fair Value at

(millions) Classification Pricing Category May 2,

2020 February 1,

November 3, 2018

Short-term investments Cash and Cash Equivalents Level 1 $ 3,605 $ 1,810 $ 419

Prepaid forward contracts Other Current Assets Level 1 23 23 21

Equity securities (a)

Other Current Assets Level 1 18 39 80

Interest rate swaps Other Noncurrent Assets Level 2 228 137 23

Interest rate swaps Other Current Liabilities Level 2 — — 1

Interest rate swaps Other Noncurrent Liabilities Level 2 10 — —

(a) Represents our investment in Casper Sleep Inc.

common stock .

Significant Financial Instruments Not Measured at Fair Value (a)

May 2, 2020 February 1, 2020 May 4, 2019

Value Carrying

Long-term debt, including current portion (b)

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

The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2.

$ 12,474 $ 14,781 $ 9,992 $ 11,864 $ 11,243 $ 12,015

(a) The carrying amounts of certain other current assets, commercial paper, accounts payable, and certain accrued and other current liabilities approximate fair value due to their short-term nature.

(b) The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2.

These amounts exclude commercial paper, unamortized swap valuation adjustments, and lease liabilities.

1 unchanged sentence

We review long-lived assets for impairment when store performance expectations, events, or changes in circumstances—such as a decision to relocate or close a store or distribution center, discontinue projects, or make significant software changes—indicate that the asset’s carrying value may not be recoverable.

We recognized impairment charges of $ 7 million and $ 21 million during the three and nine months ended November 2, 2019 , respectively, primarily resulting from store impairments.

We recognized no impairment charges during the three months ended November 3, 2018 , and $ 85 million of impairment charges during the nine months ended November 3, 2018 , primarily resulting from planned store closures.

The impairment charges are recorded in Selling, General and Administrative Expenses.

We recognized impairment charges of $ 35 million and $ 4 million during the three months ended May 2, 2020, and May 4, 2019, respectively.

The impairment charges are recorded in Selling, General and Administrative Expenses (SG&A).

Commercial Paper and Long-Term Debt

In March 2019, we issued $ 1,000 million of 10 -year unsecured fixed rate debt at 3.375 percent, and in June 2019, we repaid $ 1,000 million of unsecured 2.3 percent fixed rate debt at maturity.

Our commercial paper program provides a source of short-term financing.

For the nine months ended November 2, 2019 , the maximum amount outstanding was $ 744 million , and the average daily amount outstanding was $ 55 million at a weighted average annual interest rate of 2.4 percent .

For the nine months ended November 3, 2018 , the maximum amount outstanding was $ 658 million , and the average daily amount outstanding was $ 54 million at a weighted average annual interest rate of 1.9 percent .

As of November 2, 2019 , no balances were outstanding.

As of November 3, 2018 , $ 490 million was outstanding and is classified within Current Portion of Long-Term Debt and Other Borrowings on our Consolidated Statement of Financial Position.

In March 2020, we issued unsecured fixed rate debt of $ 1.5 billion at 2.250 percent that matures in April 2025 and $ 1.0 billion at 2.650 percent that matures in September 2030.

We obtain short-term financing from time to time under our commercial paper program.

No balances were outstanding at any time during the three months ended May 2, 2020.

For the three months ended May 4, 2019, the maximum amount outstanding was $ 744 million, and the average daily amount outstanding was $ 140 million at a weighted average annual interest rate of 2.4 percent, with no balance outstanding as of May 4, 2019.

In April 2020, we obtained a committed $ 900 million 364 -day unsecured revolving credit facility that expires in April 2021.

This new facility is in addition to our $ 2.5 billion unsecured revolving credit facility that expires in October 2023.

No balances were outstanding under either credit facility at any time during 2020 or 2019.

Derivative Financial Instruments

1 unchanged sentence

As a result, we have counterparty credit exposure to large global financial institutions, which we monitor on an ongoing basis.

Note 3 provides the fair value and classification of these instruments.

In March 2019, we entered into interest rate swaps with a total notional amount of $ 1,000 million , and in June 2019, interest rate swaps with a total notional amount of $ 1,000 million matured.

As of November 2, 2019 , and November 3, 2018 , we were party to interest rate swaps with notional amounts totaling $ 1,500 million .

Note 4 to the Consolidated Financial Statements provides the fair value and classification of these instruments.

TARGET CORPORATION

Q1 2020 Form 10-Q 10

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Notes

As of May 2, 2020, and May 4, 2019, we were party to interest rate swaps with notional amounts totaling $ 1.5 billion and$ 2.5 billion, respectively.

We pay a variable rate and receive a fixed rate under each of these agreements.

All of the agreements are designated as fair value hedges, and all were perfectly effective during the three and nine months ended November 2, 2019 , and November 3, 2018 .

All of the agreements are designated as fair value hedges, and all were perfectly effective during the three months ended May 2, 2020, and May 4, 2019.

As of May 2, 2020, we were party to forward-starting interest rate swaps with notional amounts totaling $ 250 million to hedge the interest rate exposure of anticipated future debt issuances.

We designated these derivative financial instruments as cash flow hedges.

We assess, both at inception and on an ongoing basis, whether the derivative financial instrument is highly effective in offsetting changes in cash flows of the hedged item and whether it is probable that the hedged forecasted transaction will occur.

As of May 2, 2020, a $ 10 million loss was recorded in Accumulated Other Comprehensive Loss and will be reclassified to Net Interest Expense when the forecasted transaction affects earnings.

Effect of Hedges on Debt

(millions) May 2,

2020 February 1,

Current portion of long-term debt and other borrowings

4 unchanged sentences

Cumulative hedging adjustments, included in carrying amount 228 137 23

Effect of Hedges on Net Interest Expense

Three Months Ended

Nine Months Ended

Effect of Hedges on Net Interest Expense Three Months Ended

(millions) May 2,

Gain (loss) on fair value hedges recognized in Net Interest Expense

Interest rate swap designated as fair value hedges $ 91 $ 15

Hedged debt ( 91 ) ( 15 )

Total $ — $ —

For the three months ended May 2, 2020 , our effective tax rate was 13.9 percent compared with 22.4 percent for the three months ended May 4, 2019 , as lower pretax earnings in the current year period resulted in a larger tax-rate benefit from discrete items, primarily related to employee share-based compensation.

Share Repurchase

We periodically repurchase shares of our common stock under a board-authorized repurchase program through a combination of open market transactions, accelerated share repurchase (ASR) arrangements, and other privately negotiated transactions with financial institutions.

Share Repurchase Activity

Three Months Ended

Nine Months Ended

(millions, except per share data)

Share Repurchase Activity Three Months Ended

(millions, except per share data) May 2,

Number of shares purchased 5.7 3.6

1 unchanged sentence

Total investment $ 609 $ 277

This table excludes activity related to the ASR arrangements described below because final settlement had not occurred as of November 2, 2019 , and November 3, 2018 , respectively.

During the third quarter of 2019, we entered into an ASR arrangement to repurchase $ 300 to $ 450 million of our common stock.

Under the agreement, we paid $ 450 million and received an initial delivery of 2.5 million shares, which were retired, resulting in a $ 272 million reduction to Retained Earnings.

As of November 2, 2019 , $ 178 million is included in the Consolidated Statement of Financial Position as a reduction to Additional Paid-in Capital.

During the third quarter of 2018, we entered into an ASR arrangement to repurchase $ 325 to $ 450 million of our common stock.

This table excludes activity related to the first quarter 2019 ASR arrangement described below because final settlement had not occurred as of May 4, 2019.

TARGET CORPORATION

Q1 2020 Form 10-Q 11

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Notes

During the first quarter of 2019, we entered into an ASR arrangement to repurchase $ 275 to $ 400 million of our common stock.

Under the agreement, we paid $ 400 million and received an initial delivery of 3.0 million shares, which were retired, resulting in a $ 247 million reduction to Retained Earnings.

As of November 3, 2018 , $ 163 million was included as a reduction to Additional Paid-in Capital.

Upon final settlement in the fourth quarter of 2018, we received an additional 2.2 million shares, which were retired, and $ 3.6 million for the remaining amount not settled in shares.

As of May 4, 2019, $ 153 million was included as a reduction to Additional Paid-in Capital.

Upon final settlement in the second quarter of 2019, we received an additional 1.2 million shares, which were retired, and $ 60 million for the remaining amount not settled in shares.

In total, we repurchased 4.2 million shares under the ASR arrangement for a total cash investment of $ 340 million ($ 80.21 per share).

In March 2020, we suspended share repurchase activity.

Pension Benefits

We provide pension plan benefits to eligible team members.

Net Pension Benefits Expense

Three Months Ended

Nine Months Ended

Classification

Service cost benefits earned

SG&A Expenses

Net Pension Benefits Expense Three Months Ended

(millions) Classification May 2,

Service cost benefits earned SG&A Expenses $ 26 $ 23

Interest cost on projected benefit obligation

Net Other (Income) / Expense 30 37

Expected return on assets

Net Other (Income) / Expense

Amortization of losses

Net Other (Income) / Expense

Amortization of prior service cost

Net Other (Income) / Expense

Settlement charges

Net Other (Income) / Expense

Accumulated Other Comprehensive (Loss) / Income

Change in Accumulated Other Comprehensive Income

Currency Translation Adjustment

Expected return on assets Net Other (Income) / Expense ( 61 ) ( 62 )

Amortization of losses Net Other (Income) / Expense 32 16

Amortization of prior service cost Net Other (Income) / Expense ( 3 ) ( 3 )

Total $ 24 $ 11

Accumulated Other Comprehensive Loss

Change in Accumulated Other Comprehensive Loss Cash Flow

Hedges Currency Translation Adjustment Pension Total

February 1, 2020 $ ( 12 ) $ ( 19 ) $ ( 837 ) $ ( 868 )

Other comprehensive income before reclassifications, net of tax

( 7 ) ( 1 ) — ( 8 )

Amounts reclassified from AOCI, net of tax

November 2, 2019

May 2, 2020 $ ( 19 ) $ ( 20 ) $ ( 815 ) $ ( 854 )

TARGET CORPORATION

Q1 2020 Form 10-Q 12

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

FINANCIAL SUMMARY Index to Notes

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements