What changed in this filing

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Item 1. Financial Statements

2020-08-28 compared with 2020-05-29 · 88 added, 57 removed, 323 unchanged (31% of the section changed)

1 unchanged sentence

Consolidated Statements of Operations

Three Months Ended

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

Three Months Ended Six Months Ended

(millions, except per share data) (unaudited) August 1,

2020 August 3,

2019 August 1,

2020 August 3,

Sales $ 22,696 $ 18,183 $ 42,067 $ 35,584

4 unchanged sentences

Depreciation and amortization (exclusive of depreciation included in cost of sales)

542 561 1,119 1,142

Operating income

2,300 1,324 2,768 2,458

Net interest expense 122 120 239 246

24 unchanged sentences

Consolidated Statements of Comprehensive Income

Three Months Ended

(millions) (unaudited) May 2,

Three Months Ended Six Months Ended

(millions) (unaudited) August 1,

2020 August 3,

2019 August 1,

2020 August 3,

Net earnings $ 1,690 $ 938 $ 1,974 $ 1,733

10 unchanged sentences

Consolidated Statements of Financial Position

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

(millions, except footnotes) (unaudited) August 1,

2020 February 1,

2020 August 3,

Cash and cash equivalents $ 7,284 $ 2,577 $ 1,656

31 unchanged sentences

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

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.

500,252,831 , 504,198,962 and 511,335,375 shares issued and outstanding at August 1, 2020, February 1, 2020, and August 3, 2019, respectively.

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

6 unchanged sentences

Consolidated Statements of Cash Flows

Three Months Ended

(millions) (unaudited) May 2,

Six Months Ended

(millions) (unaudited) August 1,

2020 August 3,

Operating activities

12 unchanged sentences

Accrued and other liabilities 822 ( 127 )

Cash provided by operating activities—continuing operations 5,116 2,810

Cash provided by operating activities—discontinued operations

Cash provided by operations 5,116 2,812

9 unchanged sentences

Repurchase of stock ( 706 ) ( 662 )

Accelerated share repurchase pending final settlement — ( 400 )

Stock option exercises 7 24

Cash provided by / (required for) financing activities 993 ( 1,328 )

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

Net increase in cash and cash equivalents 4,707 100

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

56 unchanged sentences

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.

Net earnings — — — 1,690 — 1,690

Other comprehensive income — — — — 21 21

Dividends declared — — — ( 344 ) — ( 344 )

Stock options and awards 0.4 — 42 — — 42

August 1, 2020 500.3 $ 42 $ 6,248 $ 7,121 $ ( 833 ) $ 12,578

We declared $ 0.68 and $ 0.66 dividends per share for the three months ended August 1, 2020, and August 3, 2019, respectively, and $ 2.62 per share for the fiscal year ended February 1, 2020.

See accompanying Notes to Consolidated Financial Statements .

34 unchanged sentences

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.

Throughout the six months ended August 1, 2020, guest shopping patterns changed significantly and unpredictably in reaction to the COVID-19 pandemic.

Four of our five core merchandise categories have experienced significant sales grow th year-to-date ;

however, sales of Apparel and Accessories declined significantly in the first quarter before rebounding in the second quarter.

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.

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

TARGET CORPORATION

4 unchanged sentences

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).

Revenues Three Months Ended

(millions) May 2,

Revenues Three Months Ended Six Months Ended

(millions) August 1,

2020 August 3,

2019 August 1,

2020 August 3,

Apparel and accessories (a)

1 unchanged sentence

Beauty and household essentials (b)

6,158 5,076 12,069 10,047

Food and beverage (c)

4,186 3,460 8,761 7,182

Hardlines (d)

3,608 2,503 6,582 4,889

Home furnishings and décor (e)

4,625 3,457 7,889 6,458

Other 35 31 63 62

Sales 22,696 18,183 42,067 35,584

Credit card profit sharing 158 168 324 328

Other 121 71 199 137

Other revenue 279 239 523 465

8 unchanged sentences

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

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.

As of August 1, 2020, February 1, 2020, and August 3, 2019, the accrual for estimated returns was $ 201 million, $ 117 million, and $ 131 million, respectively.

Other than as described below, we have not historically had notable adjustments to our returns estimates.

From March 26, 2020 to April 26, 2020, we did not accept in-store merchandise returns and exchanges to protect our team members from COVID-19.

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

Our returns estimate for sales during the suspension period included significant assumptions, including the impact of the lengthened return period, sales mix, and recent changes in guest returns behavior.

At May 2, 2020, the returns reserve totaled $ 398 million.

After resuming guest returns, we received fewer returns than originally expected.

During the second quarter, we reduced our estimate of sales returns, which increased sales by $ 146 million and operating income by $ 110 million.

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

1 unchanged sentence

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

Revenue Recognized From Beginning Liability May 2,

Revenue Recognized From Beginning Liability August 1,

Gift card liability (a)

12 unchanged sentences

Fair Value Measurements - Recurring Basis Fair Value at

(millions) Classification Pricing Category May 2,

(millions) Classification Pricing Category August 1,

2020 February 1,

2020 August 3,

Short-term investments Cash and Cash Equivalents Level 1 $ 6,370 $ 1,810 $ 796

3 unchanged sentences

Interest rate swaps Other Noncurrent Assets Level 2 239 137 108

Interest rate swaps Other Current Liabilities Level 2 — — 1

Interest rate swaps Other Noncurrent Liabilities Level 2 12 — —

2 unchanged sentences

Significant Financial Instruments Not Measured at Fair Value (a)

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

August 1, 2020 February 1, 2020 August 3, 2019

Value Carrying

7 unchanged sentences

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 $ 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).

We recognized impairment charges of $ 25 million and $ 60 million during the three and six months ended August 1, 2020, respectively.

We recognized impairment charges of $ 10 million and $ 13 million during the three and six months ended August 3, 2019, respectively.

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

Commercial Paper and Long-Term Debt

1 unchanged sentence

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.

No balances were outstanding at any time during the six months ended August 1, 2020.

For the six months ended August 3, 2019, the maximum amount outstanding was $ 744 million, and the average daily amount outstanding was $ 74 million at a weighted average annual interest rate of 2.4 percent, with no balance outstanding as of August 3, 2019.

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

1 unchanged sentence

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

Derivative Financial Instruments

Our derivative instruments consist of interest rate swaps used to mitigate interest rate risk.

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

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

TARGET CORPORATION

2 unchanged sentences

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.

Derivative Financial Instruments

Our derivative instruments consist of interest rate swaps used to mitigate interest rate risk.

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

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

As of August 1, 2020, and August 3, 2019, we were party to interest rate swaps with notional amounts totaling $ 1.5 billion.

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 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.

All of the agreements are designated as fair value hedges, and all were perfectly effective during the three and six months ended August 1, 2020, and August 3, 2019.

As of August 1, 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.

As of August 1, 2020, a $ 12 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,

(millions) August 1,

2020 February 1,

Current portion of long-term debt and other borrowings

Carrying amount of hedged debt $ — $ — $ 999

Cumulative hedging adjustments, included in carrying amount — — ( 1 )

2020 August 3,

Long-term debt and other borrowings

1 unchanged sentence

Cumulative hedging adjustments, included in carrying amount 239 137 108

Effect of Hedges on Net Interest Expense Three Months Ended

(millions) May 2,

Effect of Hedges on Net Interest Expense Three Months Ended Six Months Ended

(millions) August 1,

2020 August 3,

2019 August 1,

2020 August 3,

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

2 unchanged sentences

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

(millions, except per share data) May 2,

Share Repurchase Activity Three Months Ended Six Months Ended

(millions, except per share data) August 1,

2020 August 3,

Number of shares purchased — 4.3 5.7 7.9

1 unchanged sentence

Total investment $ — $ 341 $ 609 $ 618

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.

(a) This table includes activity related to the ASR arrangement entered in first quarter 2019 because final settlement occurred in second quarter 2019.

Under the ASR arrangement, we repurchased 4.2 million shares for a total cash investment of $ 340 million.

We did not enter into any new ASR arrangements during second quarter 2019.

In March 2020, we suspended share repurchase activity.

TARGET CORPORATION

2 unchanged sentences

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 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

(millions) Classification May 2,

Net Pension Benefits Expense Three Months Ended Six Months Ended

(millions) Classification August 1,

2020 August 3,

2019 August 1,

2020 August 3,

Service cost benefits earned SG&A Expenses $ 25 $ 23 $ 51 $ 46

12 unchanged sentences

Amounts reclassified from AOCI, net of tax

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

August 1, 2020 $ ( 21 ) $ ( 19 ) $ ( 793 ) $ ( 833 )

TARGET CORPORATION

3 unchanged sentences

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