What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-09 compared with 2021-03-10 · 136 added, 153 removed, 941 unchanged (23% of the section changed)

10 unchanged sentences

Coronavirus (COVID-19)

Dermstore Sale

Cost of Sales and Selling, General and Administrative Expenses

6 unchanged sentences

Other Noncurrent Assets

Goodwill and Intangible Assets

Accrued and Other Current Liabilities

19 unchanged sentences

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 Board of Directors exercised its oversight role with respect to the Corporation's systems of internal control primarily through its Audit & Risk 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.

/s/ Michael J.

Cornell /s/ Michael J.

Chairman and Chief Executive Officer

6 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Target Corporation (the Corporation) as of January 30, 2021 and February 1, 2020, the related consolidated statements of operations, comprehensive income, cash flows and shareholders' investment for each of the three years in the period ended January 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation at January 30, 2021 and February 1, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 30, 2021, in conformity with U.S.

We have audited the accompanying consolidated statements of financial position of Target Corporation (the Corporation) as of January 29, 2022 and January 30, 2021, the related consolidated statements of operations, comprehensive income, cash flows and shareholders' investment for each of the three years in the period ended January 29, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation at January 29, 2022 and January 30, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 29, 2022, in conformity with U.S.

generally accepted accounting principles.

27 unchanged sentences

Further, the inventory process is supported by a number of automated and IT dependent controls that elevate the importance of the IT general controls that support the underlying information systems utilized to process transactions.

In addition, in March 2020, as a result of COVID-19, the Company temporarily suspended physical inventory counts at its stores.

The Company resumed physical inventory counts in June 2020 using a statistical sampling method.

Historically, the Company counted nearly all of its stores annually.

How We Addressed the Matter in Our Audit

2 unchanged sentences

Our audit procedures included, among others, testing the processing scenarios of the automated controls by evaluating configuration settings and performing a transaction walkthrough for each scenario.

In addition, we evaluated the design and tested the effectiveness of controls over the Company’s modified store inventory count process, including the determination of the number of stores counted and evaluation of the results from the sample it counted.

Our audit procedures also included, among others, testing the key inputs into the RIM calculation, including purchases, sales, shortage, and price changes (markdowns) by comparing the key inputs back to source information such as third-party vendor invoices, third-party inventory count information and cash receipts.

We performed extensive analytical procedures.

For example, we performed store square footage analytics to predict ending inventory values at each store location, as well as predictive markdown analytics based on inquiries held with members of the merchant organization to assess the level of price changes within a category.

For example, we performed multiple linear regression analysis to predict ending inventory values at each store and distribution center location, as well as predictive markdown analytics based on inquiries held with members of the merchant organization to assess the level of price changes within a category.

In addition, we tested the existence of inventories by observing physical inventory counts for a sample of stores and distribution centers.

26 unchanged sentences

Our internal control over financial reporting as of January 29, 2022, 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.

/s/ Michael J.

Cornell /s/ Michael J.

Chairman and Chief Executive Officer

8 unchanged sentences

In our opinion, Target Corporation (the Corporation) maintained, in all material respects, effective internal control over financial reporting as of January 29, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Corporation as of January 30, 2021 and February 1, 2020, the related consolidated statements of operations, comprehensive income, cash flows and shareholders' investment for each of the three years in the period ended January 30, 2021, and the related notes and our report dated March 10, 2021 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Corporation as of January 29, 2022 and January 30, 2021, the related consolidated statements of operations, comprehensive income, cash flows and shareholders' investment for each of the three years in the period ended January 29, 2022, and the related notes and our report dated March 9, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

74 unchanged sentences

Consolidated Statements of Financial Position

(millions, except footnotes) January 30, 2021 February 1, 2020

(millions, except footnotes) January 29, 2022 January 30, 2021

Cash and cash equivalents $ 5,911 $ 8,511

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471,274,073 shares issued and outstanding as of January 29, 2022;

504,198,962 shares issued and outstanding as of February 1, 2020.

500,877,129 shares issued and outstanding as of January 30, 2021.

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

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Deferred income taxes 522 ( 184 ) 178

Gain on Dermstore sale ( 335 ) — —

Loss on debt extinguishment — 512 10

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Cash provided by operating activities—discontinued operations

Cash provided by operations 10,525 7,117 5,973

Cash provided by operating activities 8,625 10,525 7,117

Investing activities

1 unchanged sentence

Proceeds from disposal of property and equipment 27 42 63

Proceeds from Dermstore sale 356 — —

Other investments 7 16 20

7 unchanged sentences

Cash required for financing activities ( 8,071 ) ( 2,000 ) ( 3,152 )

Net increase / (decrease) in cash and cash equivalents

Net (decrease) / increase in cash and cash equivalents

( 2,600 ) 5,934 1,021

26 unchanged sentences

Net earnings — — — 4,368 — 4,368

Other comprehensive loss — — — — ( 63 ) ( 63 )

Other comprehensive income — — — — 112 112

Dividends declared — — — ( 1,367 ) — ( 1,367 )

1 unchanged sentence

Stock options and awards 2.4 — 103 — — 103

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

January 30, 2021 500.9 $ 42 $ 6,329 $ 8,825 $ ( 756 ) $ 14,440

Net earnings — — — 6,946 — 6,946

4 unchanged sentences

January 29, 2022 471.3 $ 39 $ 6,421 $ 6,920 $ ( 553 ) $ 12,827

We declared $ 2.70 , $ 2.62 , and $ 2.54 dividends per share for the twelve months ended January 30, 2021, February 1, 2020, and February 2, 2019, respectively.

We declared $ 3.38 , $ 2.70 , and $ 2.62 dividends per share for the twelve months ended January 29, 2022, January 30, 2021, and February 1, 2020, respectively.

See accompanying Notes to Consolidated Financial Statements .

11 unchanged sentences

All material subsidiaries are wholly owned.

We consolidate variable interest entities where it has been determined that Target is the primary beneficiary of those entities' operations.

Use of estimates The preparation of our consolidated financial statements in conformity with U.S.

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Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years.

Fiscal 2020, 2019 and 2018 ended January 30, 2021, February 1, 2020, and February 2, 2019, respectively, and consisted of 52 weeks.

Fiscal 2021, 2020, and 2019 ended January 29, 2022, January 30, 2021, and February 1, 2020, respectively, and consisted of 52 weeks.

Fiscal 2022 will end January 28, 2023, and will consist of 52 weeks.

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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.

The COVID-19 pandemic continues to evolve.

In 2020 and 2021, governments took various measures in response to COVID-19, such as mandating the closure of certain businesses at times and encouraging or requiring citizens to avoid large gatherings.

To date, virtually all of our stores, digital channels, and distribution centers have remained open.

Throughout 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 growth throughout the year;

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

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, we recorded $ 226 million of purchase order cancellation fees in Cost of Sales.

Since the onset of the COVID-19 pandemic, we have experienced strong comparable sales growth and significant volatility in our sales category and channel mix, including same-day fulfillment options.

Note 4 presents sales by category.

We have taken various actions, including accelerating purchases of certain merchandise in our core categories and, early in the pandemic, slowing or canceling purchase orders, primarily for Apparel and Accessories.

As a result of these actions, we recorded $ 226 million of purchase order cancellation fees in Cost of Sales in 2020.

Dermstore Sale

In February 2021, we sold our wholly owned subsidiary Dermstore LLC (Dermstore) for $ 356 million in cash and recognized a $ 335 million pretax gain, which is included in Net Other (Income) / Expense.

Dermstore represented less than 1 percent of our consolidated revenues, operating income and net assets.

TARGET CORPORATION

31 unchanged sentences

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

As of January 30, 2021, February 1, 2020, and February 2, 2019, the liability for estimated returns was $ 139 million, $ 117 million, and $ 116 million, respectively.

As of January 29, 2022, and January 30, 2021, the liability for estimated returns was $ 165 million and $ 139 million, respectively.

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.

10 unchanged sentences

Gift Card Liability Activity

February 1, 2020 Gift Cards

January 30, 2021 Gift Cards

Issued During

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Guests receive a 5 percent discount on nearly all purchases and receive free shipping at Target.com when they use their Target Debit Card, Target Credit Card, or Target MasterCard (RedCards).

The discount is included as a sales reduction and was $ 1.1 billion, $ 962 million, and $ 953 million in 2020, 2019, and 2018, respectively.

Target Circle program members earn 1 percent rewards on nearly all non-RedCard purchases.

As of January 30, 2021, deferred revenue of $ 72 million related to this loyalty program was included in Accrued and Other Current Liabilities.

Amounts related to this program were insignificant at February 1, 2020.

As of January 29, 2022, and January 30, 2021, deferred revenue of $ 89 million and $ 72 million, respectively, related to this loyalty program was included in Accrued and Other Current Liabilities.

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.

Other – Includes advertising, Shipt membership and service revenues, rental income, and other miscellaneous revenues, none of which are individually significant.

Other – Includes advertising, Shipt membership and service revenues, commissions earned on third-party sales through Target.com, rental income, and other miscellaneous revenues.

Cost of Sales and Selling, General and Administrative Expenses

35 unchanged sentences

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." Additionally, under our compliance programs, vendors are charged for merchandise shipments that do not meet our requirements (violations), such as late or incomplete shipments.

We receive consideration for a variety of vendor-sponsored programs such as volume rebates, markdown allowances, promotions, and advertising activities and for our compliance programs, referred to as "vendor income." Additionally, under our compliance programs, vendors are charged for merchandise shipments that do not meet our requirements (violations), such as late or incomplete shipments.

Substantially all vendor income is recorded as a reduction of Cost of Sales.

2 unchanged sentences

The majority of the 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.

Not e 10 provides additional information.

Note 11 provides additional information.

Advertising Costs

Advertising costs, which primarily consist of newspaper circulars, digital advertisements, and media broadcast, are generally expensed at first showing or distribution of the advertisement.

Advertising costs, which primarily consist of digital advertisements and media broadcast, are generally expensed at first showing or distribution of the advertisement.

Reimbursements from vendors that are for specific, incremental, and identifiable advertising costs are recognized as offsets of these advertising costs within Selling, General and Administrative Expenses (SG&A Expenses).

6 unchanged sentences

Fair Value Measurements - Recurring Basis Fair Value as of

(millions) Classification Pricing Category January 30, 2021 February 1, 2020

(millions) Classification Measurement Level January 29, 2022 January 30, 2021

Short-term investments (a)

2 unchanged sentences

Other Current Assets Level 1 35 38

Equity securities (c)

Interest rate swaps (c)

Other Current Assets Level 2 17 —

Interest rate swaps (d)

Interest rate swaps (c)

Other Noncurrent Assets Level 2 135 188

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Subsequently valued by reference to the market price of Target common stock.

(d) Valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads).

See Note 17 for additional information on interest rate swaps.

In 2020 and 2019, we recorded pretax losses of $ 19 million and $ 41 million, respectively, related to our investment in Casper within Net Other (Income) / Expense.

We sold our investment during 2020.

TARGET CORPORATION

2020 Form 10-K 43

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Significant Financial Instruments Not Measured at Fair Value (a)

As of January 30, 2021 As of February 1, 2020

As of January 29, 2022 As of January 30, 2021

(millions) Carrying

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

TARGET CORPORATION

2021 Form 10-K 46

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Cash and Cash Equivalents

3 unchanged sentences

Cash and Cash Equivalents

January 30, 2021 February 1, 2020

January 29, 2022 January 30, 2021

Cash $ 349 $ 307

Short-term investments 7,644 1,810

Receivables from third-party financial institutions for credit and debit card transactions

Short-term investments 4,985 7,644

Cash and Cash Equivalents (a)

1 unchanged sentence

(a) We have access to these funds without any significant restrictions, taxes or penalties.

As of January 30, 2021, and February 1, 2020, we reclassified book overdrafts of $ 240 million and $ 209 million, respectively, to Accounts Payable and $ 24 million and $ 23 million, respectively, to Accrued and Other Current Liabilities.

As of January 29, 2022, and January 30, 2021, we reclassified book overdrafts of $ 366 million and $ 240 million, respectively, to Accounts Payable and $ 19 million and $ 24 million, respectively, to Accrued and Other Current Liabilities.

The vast majority of our inventory is accounted for under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method.

9 unchanged sentences

Other Current Assets

January 30, 2021 February 1, 2020

January 29, 2022 January 30, 2021

Accounts and other receivables $ 835 $ 631

2 unchanged sentences

Other 237 286

Total $ 1,592 $ 1,333

Other Current Assets $ 1,760 $ 1,592

TARGET CORPORATION

5 unchanged sentences

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 certain at the date the leasehold improvements are acquired.

Depreciation expense for 2020, 2019, and 2018 was $ 2.5 billion, $ 2.6 billion, and $ 2.5 billion, respectively, including depreciation expense included in Cost of Sales.

Total depreciation expense, including depreciation expense included in Cost of Sales, was $ 2.6 billion, $ 2.5 billion, and $ 2.6 billion for 2021, 2020, and 2019, respectively.

For income tax purposes, accelerated depreciation methods are generally used.

5 unchanged sentences

Computer hardware and software 2 - 7

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 a project, or make significant software changes—indicate that the asset's carrying value may not be recoverable.

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, office, or distribution center, discontinue a project, or make significant software changes—indicate that the asset's carrying value may not be recoverable.

We recognized impairment losses of $ 87 million, $ 62 million, and $ 23 million during 2021, 2020, and 2019, respectively.

4 unchanged sentences

Other Noncurrent Assets

January 30, 2021 February 1,

Goodwill and intangible assets $ 668 $ 686

Company-owned life insurance investments, net of loans 450 418

January 29, 2022 January 30, 2021

Goodwill and intangible assets (a)

Company-owned life insurance investments, net of loans (b)

Other 375 268

Total $ 1,386 $ 1,358

Goodwill and Intangible Assets

Goodwill totaled $ 631 million and $ 633 million as of January 30, 2021, and February 1, 2020, respectively.

Other Noncurrent Assets $ 1,501 $ 1,386

(a) Goodwill totaled $ 631 million as of both January 29, 2022, and January 30, 2021.

No impairments were recorded in 2021, 2020, or 2019 as a result of the annual goodwill impairment tests performed.

Intangible assets, net of accumulated amortization, totaled $ 37 million and $ 53 million as of January 30, 2021, and February 1, 2020, respectively, and primarily related to trademarks and customer relationships.

We use both accelerated and straight-line methods to amortize definite-lived intangible assets over 4 to 15 years.

The weighted average life of intangible assets was 8 years as of January 30, 2021.

Amortization expense was $ 15 million, $ 13 million, and $ 14 million in 2020, 2019, and 2018, respectively, and is estimated to be less than $ 15 million annually through 2025.

(b) Note 23 provides more information on company-owned life insurance investments.

TARGET CORPORATION

4 unchanged sentences

Accrued and Other Current Liabilities

January 30, 2021 February 1, 2020

January 29, 2022 January 30, 2021

Wages and benefits $ 1,620 $ 1,677

Real estate, sales, and other taxes payable 1,103 601

Gift card liability, net of estimated breakage

Income tax payable 473 129

Real estate, sales, and other taxes payable

Dividends payable 424 341

3 unchanged sentences

Other 1,310 1,507

Total $ 6,122 $ 4,406

Accrued and Other Current Liabilities $ 6,098 $ 6,122

(a) We retain a substantial portion of the risk related to general liability and workers' compensation claims.

1 unchanged sentence

General liability and workers' compensation liabilities are recorded at our estimate of their net present value.

Note 20 provides the noncurrent balance of these liabilities.

Commitments and Contingencies

8 unchanged sentences

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.

Purchase obligations, which include all legally binding contracts such as merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/license commitments, firm minimum commitments for inventory purchases, and service contracts, were $ 785 million and $ 676 million as of January 30, 2021, and February 1, 2020, respectively.

These purchase obligations are primarily due within three years and recorded as liabilities when goods are received or services rendered.

Real estate obligations, which include legally binding minimum lease payments for leases signed but not yet commenced, and commitments for the purchase, construction, or remodeling of real estate and facilities, were $ 2.1 billion and $ 1.4 billion as of January 30, 2021, and February 1, 2020, respectively.

Over half of these real estate obligations are due within five years , a portion of which are recorded as liabilities.

Purchase obligations, which include all legally binding contracts such as merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/license commitments, firm minimum commitments for inventory purchases, and service contracts, were $ 944 million and $ 785 million as of January 29, 2022, and January 30, 2021, respectively.

These purchase obligations are primarily due within three years and recorded as liabilities when goods are received or services are rendered.

Real estate obligations, which include legally binding minimum lease payments for leases signed but not yet commenced, and commitments for the purchase, construction, or remodeling of real estate and facilities, were $ 2.5 billion and $ 2.1 billion as of January 29, 2022, and January 30, 2021, respectively.

Over half of these real estate obligations are due within one year , a portion of which are recorded as liabilities.

We issue inventory purchase orders in the ordinary course of business, which represent authorizations to purchase that are cancelable by their terms.

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We also issue letters of credit and surety bonds in the ordinary course of business.

Trade letters of credit totaled $ 2.0 billion and $ 1.5 billion as of January 30, 2021, and February 1, 2020, respectively, a portion of which are reflected in Accounts Payable.

Standby letters of credit and surety bonds, primarily related to insurance and regulatory requirements, totaled $ 472 million and $ 468 million as of January 30, 2021, and February 1, 2020, respectively.

Trade letters of credit totaled $ 2.6 billion and $ 2.0 billion as of January 29, 2022, and January 30, 2021, respectively, a portion of which are reflected in Accounts Payable.

Standby letters of credit and surety bonds, primarily related to insurance and regulatory requirements, totaled $ 517 million and $ 472 million as of January 29, 2022, and January 30, 2021, respectively.

Commercial Paper and Long-Term Debt

17 unchanged sentences

Total required principal payments $ 63 $ — $ 1,000 $ 1,500 $ 2,000

In October 2020, we repurchased $ 1.77 billion of debt before its maturity at a market value of $ 2.25 billion.

In January 2022, we issued unsecured fixed rate debt of $ 1.0 billion at 1.950 percent that matures in January 2027 and $ 1.0 billion at 2.950 percent that matures in January 2052.

Furthermore, we repaid $ 1.0 billion of 2.900 percent unsecured fixed rate debt at maturity.

In October 2020, we repurchased $ 1.77 billion of unsecured fixed rate debt before its maturity at a market value of $ 2.25 billion.

We recognized a loss on early retirement of $ 512 million, which was recorded in Net Interest Expense.

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.

In January 2020, we issued $ 750 million of 10 -year unsecured fixed rate debt at 2.350 percent, and separately, we redeemed $ 1.0 billion of 3.875 percent unsecured fixed rate debt before its maturity.

In January 2020, we issued $ 750 million of 10 -year unsecured fixed rate debt at 2.350 percent, and separately, we repurchased $ 1.0 billion of 3.875 percent unsecured fixed rate debt before its maturity.

We recognized a loss on early retirement of approximately $ 10 million, which was recorded in Net Interest Expense.

In March 2019, we issued $ 1.0 billion of 10 -year unsecured fixed rate debt at 3.375 percent, and in June 2019, we repaid $ 1.0 billion of 2.3 percent unsecured fixed rate debt at maturity.

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

Commercial Paper

(dollars in millions)

2020 2019 2018

Maximum daily amount outstanding during the year $ — $ 744 $ 658

Average amount outstanding during the year — 41 63

Amount outstanding at year-end — — —

Weighted average interest rate — % 2.36 % 2.00 %

No balances were outstanding under our commercial paper program at any time during 2021 or 2020.

In 2021, we obtained a committed $ 3.0 billion unsecured revolving credit facility that will expire in October 2026.

This new facility replaced our $ 2.5 billion unsecured revolving credit facility that was set to expire October 2023.

No balances were outstanding under either facility at any time during 2021, 2020, or 2019.

TARGET CORPORATION

2 unchanged sentences

NOTES Index to Financial Statements

We have a committed $ 2.5 billion unsecured revolving credit facility that expires in October 2023.

No balances were outstanding at any time during 2020, 2019, or 2018.

Substantially all of our outstanding borrowings are senior, unsecured obligations.

8 unchanged sentences

The agreements have a weighted average remaining maturity of 5.9 years.

As of January 30, 2021, and February 1, 2020, interest rate swaps with notional amounts totaling $ 1.5 billion were designated as fair value hedges, and all were considered to be perfectly effective under the shortcut method during 2020 and 2019.

As of January 30, 2021, 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.

As of January 29, 2022, and January 30, 2021, interest rate swaps with notional amounts totaling $ 1.5 billion were designated as fair value hedges, and all were considered to be perfectly effective under the shortcut method during 2021 and 2020.

As of January 29, 2022, we were party to forward-starting interest rate swaps with notional amounts totaling $ 2.15 billion to hedge the interest rate exposure of anticipated future debt issuances during the next three years.

We designated these derivative financial instruments as cash flow hedges.

As of January 30, 2021, a $ 5 million gain was recorded in Accumulated Other Comprehensive Loss and will be reclassified to Net Interest Expense when the forecasted transaction affects earnings.

As of January 29, 2022, a $ 75 million gain was recorded in Accumulated Other Comprehensive Loss and will be reclassified to Net Interest Expense as we record interest expense on the associated debt.

Effect of Hedges on Debt

January 30, 2021 February 1, 2020

January 29, 2022 January 30, 2021

Long-term debt and other borrowings

14 unchanged sentences

Certain leases also include options to purchase the leased property.

The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain 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.

The depreciable life of leased assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of our lease agreements require reimbursement of real estate taxes, common area maintenance, and insurance, as well as rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

6 unchanged sentences

NOTES Index to Financial Statements

Classification January 30, 2021 February 1, 2020

Classification January 29, 2022 January 30, 2021

Operating Operating Lease Assets $ 2,556 $ 2,227

7 unchanged sentences

We use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

(a) Finance lease assets are recorded net of accumulated amortization of $ 550 million and $ 441 million as of January 30, 2021, and February 1, 2020, respectively.

(a) Finance lease assets are recorded net of accumulated amortization of $ 670 million and $ 550 million as of January 29, 2022, and January 30, 2021, respectively.

Classification 2021 2020 2019

9 unchanged sentences

Net lease cost $ 564 $ 484 $ 407

(a) 2020 includes $ 44 million of short-term leases and variable lease costs.

Short-term and variable lease costs were insignificant for 2019 and 2018.

(a) 2021 and 2020 include $ 64 million and $ 44 million, respectively, of short-term and variable lease costs.

Short-term and variable lease costs were insignificant for 2019.

(b) Supply chain-related amounts are included in Cost of Sales.

(c) Sublease income excludes rental income from owned properties of $ 48 million, $ 48 million, and $ 47 million for 2020, 2019, and 2018, respectively, which is included in Other Revenue.

(c) Sublease income excludes rental income from owned properties of $ 48 million for each of 2021, 2020, and 2019, which is included in Other Revenue.

TARGET CORPORATION

14 unchanged sentences

(a) Operating lease payments include $ 942 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $ 290 million of legally binding minimum lease payments for leases signed but not yet commenced.

(b) Finance lease payments include $ 160 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $ 1.1 billion of legally binding minimum lease payments for leases signed but not yet commenced.

Lease Term and Discount Rate January 30, 2021 February 1, 2020

(b) Finance lease payments include $ 126 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $ 840 million of legally binding minimum lease payments for leases signed but not yet commenced.

Lease Term and Discount Rate January 29, 2022 January 30, 2021

Weighted average remaining lease term (years)

26 unchanged sentences

Effective tax rate 22.0 % 21.2 % 22.0 %

(a) Represents the discrete benefit of the final adjustment to remeasure certain of our net deferred tax liabilities at the lower U.S.

corporate income tax rate enacted by the Tax Cuts and Jobs Act of 2017 (Tax Act).

Provision for Income Taxes

14 unchanged sentences

Net Deferred Tax Asset / (Liability)

January 30, 2021 February 1, 2020

January 29, 2022 January 30, 2021

Gross deferred tax assets:

11 unchanged sentences

Total gross deferred tax liabilities ( 3,750 ) ( 3,227 )

Total net deferred tax liability $ ( 970 ) $ ( 1,114 )

Total net deferred tax liability (a)

$ ( 1,561 ) $ ( 970 )

(a) $ 6 million and $ 20 million of the balance as of January 29, 2022, and January 30, 2021, respectively, is included in Other Noncurrent Assets.

We file a U.S.

13 unchanged sentences

If we were to prevail on all unrecognized tax benefits recorded, $ 67 million of the $ 125 million reserve would benefit the effective tax rate.

In addition, the reversal of accrued penalties and interest would also benefit the effective tax rate.

In addition, the reversal of accrued interest and penalties would also benefit the effective tax rate.

Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense.

During the years ended January 30, 2021, February 1, 2020, and February 2, 2019, we recorded an expense / (benefit) from accrued penalties and interest of $( 12 ) million, $( 2 ) million, and $ 3 million, respectively.

As of January 30, 2021, February 1, 2020, and February 2, 2019 total accrued interest and penalties were $ 12 million, $ 27 million, and $ 32 million, respectively.

During 2021, 2020, and 2019, we recorded an expense / (benefit) from accrued interest and penalties of $ 1 million, $( 12 ) million, and $( 2 ) million, respectively.

As of January 29, 2022, January 30, 2021, and February 1, 2020, total accrued interest and penalties were $ 13 million, $ 12 million, and $ 27 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;

6 unchanged sentences

Other Noncurrent Liabilities

January 30, 2021 February 1, 2020

January 29, 2022 January 30, 2021

Deferred compensation $ 572 $ 549

Deferred occupancy income (a)

Income and other taxes payable 436 194

Workers' compensation and general liability 350 341

Income and other taxes payable 139 436

Pension benefits 45 57

Total $ 1,939 $ 1,724

Other Noncurrent Liabilities $ 1,629 $ 1,939

(a) To be amortized evenly through 2038.

13 unchanged sentences

Share-based compensation expense recognized in SG&A Expenses was $ 238 million, $ 210 million, and $ 152 million, and the related income tax benefit was $ 45 million, $ 39 million, and $ 27 million, in 2021, 2020, and 2019, respectively.

TARGET CORPORATION

2021 Form 10-K 56

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Restricted Stock Units

2 unchanged sentences

We also regularly issue restricted stock units to our Board of Directors, which vest quarterly over a 1-year period and are settled in shares of Target common stock upon departure from the Board.

The fair value for restricted stock units 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 fair value for restricted stock units is calculated based on our 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 units was $ 186.98 , $ 110.80 , and $ 80.01 in 2021, 2020, and 2019, respectively.

TARGET CORPORATION

2020 Form 10-K 53

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Restricted Stock Unit Activity Total Nonvested Units

Fair Value (b)

February 1, 2020 4,316 $ 72.93

January 30, 2021 4,364 $ 88.99

Granted 1,273 186.98

11 unchanged sentences

We issue performance share units to certain team members that represent shares potentially issuable in the future.

Issuance is based upon our performance, generally relative to a retail peer group, over a 3-year performance period on certain measures primarily including sales growth, after-tax 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.

Issuance is based upon our performance, generally relative to a retail peer group, over a 3-year or 4-year performance period on certain measures primarily including sales growth, after-tax return on invested capital, and earnings per share growth.

The fair value of performance share units is calculated based on our stock price on the date of grant.

The weighted average grant date fair value for performance share units was $ 179.58 , $ 106.00 , and $ 86.81 in 2021, 2020, and 2019, respectively.

2 unchanged sentences

Fair Value (b)

February 1, 2020 3,575 $ 72.80

January 30, 2021 2,788 $ 87.93

Granted 384 179.58

6 unchanged sentences

(b) Weighted average per unit.

TARGET CORPORATION

2021 Form 10-K 57

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

The expense recognized each period is partially dependent upon our estimate of the number of shares that will ultimately be issued.

3 unchanged sentences

Stock Options

In May 2017, we granted price-vested stock options to certain team members.

Additionally, through 2013, we granted nonqualified stock options to certain team members.

In the past, we granted stock options to certain team members.

All outstanding stock options are vested and currently exercisable.

TARGET CORPORATION

2020 Form 10-K 54

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Stock Option Activity Stock Options

Total Outstanding & Exercisable

February 1, 2020 2,478 $ 55.72 $ 136 714 $ 56.02 $ 39

January 30, 2021 467 $ 55.81 $ 59

Expired/forfeited — —

18 unchanged sentences

We credit an additional 2 percent per year to the accounts of all active participants, excluding executive officers, in part to recognize the risks inherent to their participation in this plan.

We also maintain a frozen, unfunded, nonqualified deferred compensation plan covering approximately 50 participants.

Our total liability under these plans was $ 602 million and $ 551 million as of January 30, 2021, and February 1, 2020, respectively.

We also maintain a frozen, unfunded, nonqualified deferred compensation plan covering less than 50 participants.

Our total liability under these plans was $ 632 million and $ 602 million as of January 29, 2022, and January 30, 2021, respectively.

We mitigate our risk of offering the nonqualified plans through investing in company-owned life insurance and prepaid forward contracts that substantially offset our economic exposure to the returns of these plans.

These investments 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.

TARGET CORPORATION

2021 Form 10-K 58

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Plan Expenses

7 unchanged sentences

Nonqualified plans net expense $ 32 $ 28 $ 27

TARGET CORPORATION

2020 Form 10-K 55

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Pension Plans

18 unchanged sentences

2027 - 2031 1,322

TARGET CORPORATION

2021 Form 10-K 59

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Cost of Plans

8 unchanged sentences

Total $ 71 $ 96 $ 46

TARGET CORPORATION

2020 Form 10-K 56

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Benefit Obligation Weighted Average Assumptions 2021 2020

3 unchanged sentences

Net Periodic Benefit Expense Weighted Average Assumptions 2021 2020 2019

2020 2019 2018

Discount rate 2.84 % 3.13 % 4.28 %

10 unchanged sentences

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.

TARGET CORPORATION

2021 Form 10-K 60

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Benefit Obligation

4 unchanged sentences

Interest cost 95 117 1 1

Actuarial loss (a)

Actuarial (gain) / loss (a)

( 247 ) 144 ( 4 ) 7

Participant contributions 5 7 — —

2 unchanged sentences

$ 4,305 $ 4,594 $ 72 $ 74

(a) 2020 and 2019 actuarial losses relate to the decreases in the weighted average discount rate.

(a) The actuarial (gain) / loss was primarily driven by changes in the weighted average discount rate.

(b) Accumulated benefit obligation—the present value of benefits earned to date assuming no future salary growth—is materially consistent with the projected benefit obligation in each period presented.

TARGET CORPORATION

2020 Form 10-K 57

FINANCIAL STATEMENTS Table of Contents

NOTES Index to Financial Statements

Change in Plan Assets Qualified Plan Nonqualified and International Plans

11 unchanged sentences

The plan also seeks to reduce the risk associated with adverse movements in interest rates by employing an interest rate hedging program, which includes the use of derivative instruments.

Asset Category Current Targeted Actual Allocation

Allocation 2020 2019

Asset Category Current Targeted Allocation Actual Allocation

Domestic equity securities (a)

11 unchanged sentences

Fair Value Measurements Fair Value at

(millions) Pricing Category January 31, 2021 January 31, 2020

(millions) Measurement Level January 31, 2022 January 31, 2021

Cash and cash equivalents Level 1 $ 8 $ 19

14 unchanged sentences

(b) Investments in corporate and municipal bonds.

(c) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

(c) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

4 unchanged sentences

A credit risk adjustment is made on each swap using observable market credit spreads.

Option derivatives - Valued at transaction price initially.

Option derivatives - Initially valued at transaction price.

Subsequent valuations are based on observable inputs to the valuation model (e.g., underlying investments).

8 unchanged sentences

Amounts in Accumulated Other Comprehensive Loss (a)

$ 985 $ 1,125

(a) $ 583 million and $ 735 million, net of tax, at the end of 2021 and 2020, respectively.

7 unchanged sentences

Adjustment Pension Total

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

Other comprehensive income before reclassifications, net of tax

January 30, 2021 $ ( 3 ) $ ( 18 ) $ ( 735 ) $ ( 756 )

Other comprehensive income / (loss) before reclassifications, net of tax

52 ( 1 ) 69 120

Amounts reclassified from AOCI, net of tax — (a)

6 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-K

Item 8. Financial Statements and Supplementary Data