SEC Info - Target Corp. - ‘10-Q’ for 10/30/21

Operating activities

Net earnings

i 5,402

i 2,988

Adjustments to reconcile net earnings to cash provided by operating activities:

Depreciation and amortization

i 1,952

i 1,848

Share-based compensation expense

i 187

i 161

Deferred income taxes

i 233

i 26

Gain on Dermstore sale

( i 335)

i —

Loss on extinguishment of debt

i —

i 512

Noncash losses / (gains) and other, net

i 18

i 124

Changes in operating accounts:

Inventory

( i 4,305)

( i 3,720)

Other assets

( i 117)

( i 174)

Accounts payable

i 3,284

i 4,287

Accrued and other liabilities

( i 722)

i 992

Cash provided by operating activities

i 5,597

i 7,044

Investing activities

Expenditures for property and equipment

( i 2,483)

( i 2,009)

Proceeds from disposal of property and equipment

i 23

i 27

Proceeds from Dermstore sale

i 356

i —

Other investments

i 14

( i 3)

Cash required for investing activities

( i 2,090)

( i 1,985)

Financing activities

Additions to long-term debt

i —

i 2,480

Reductions of long-term debt

( i 112)

( i 2,395)

Dividends paid

( i 1,116)

( i 1,002)

Repurchase of stock

( i 5,042)

( i 741)

Stock option exercises

i 5

i 18

Cash required for financing activities

( i 6,265)

( i 1,640)

Net (decrease) / increase in cash and cash equivalents

( i 2,758)

i 3,419

Cash and cash equivalents at beginning of period

i 8,511

i 2,577

Cash and cash equivalents at end of period

i 5,753

i 5,996

Supplemental information

Leased assets obtained in exchange for new finance lease liabilities

i 234

i 344

Leased assets obtained in exchange for new operating lease liabilities

i 482

i 186

See accompanying Notes to Consolidated Financial Statements.


TARGET CORPORATION						Q3 2021 Form 10-Q			4


			FINANCIAL STATEMENTS			Table of Contents
						Index to Notes

Consolidated Statements of Shareholders’ Investment

Common

Stock

Additional

Accumulated Other

Stock

Par

Paid-in

Retained

Comprehensive

(millions) (unaudited)

Value

Capital

Earnings

(Loss) / Income

Total

February 1, 2020

i 504.2

i 42

i 6,226

i 6,433

( i 868)

i 11,833

Net earnings

—

i 284

—

i 284

Other comprehensive income

—

i 14

Dividends declared

—

( i 333)

—

( i 333)

Repurchase of stock

( i 5.7)

—

( i 609)

—

( i 609)

Stock options and awards

i 1.4

—

( i 20)

—

( i 20)

May 2, 2020

i 499.9

i 42

i 6,206

i 5,775

( i 854)

i 11,169

Net earnings

—

i 1,690

—

i 1,690

Other comprehensive income

—

i 21

Dividends declared

—

( i 344)

—

( i 344)

Stock options and awards

i 0.4

—

i 42

—

i 42

August 1, 2020

i 500.3

i 42

i 6,248

i 7,121

( i 833)

i 12,578

Net earnings

—

i 1,014

—

i 1,014

Other comprehensive income

—

i 36

Dividends declared

—

( i 346)

—

( i 346)

Stock options and awards

i 0.5

—

i 37

—

i 37

i 500.8

i 42

i 6,285

i 7,789

( i 797)

i 13,319

Net earnings

—

i 1,380

—

i 1,380

Other comprehensive income

—

i 41

Dividends declared

—

( i 344)

—

( i 344)

Stock options and awards

i 0.1

—

i 44

—

i 44

i 500.9

i 42

i 6,329

i 8,825

( i 756)

i 14,440


TARGET CORPORATION						Q3 2021 Form 10-Q			5


			FINANCIAL STATEMENTS			Table of Contents
						Index to Notes

Consolidated Statements of Shareholders’ Investment

Common

Stock

Additional

Accumulated Other

Stock

Par

Paid-in

Retained

Comprehensive

(millions) (unaudited)

Value

Capital

Earnings

(Loss) / Income

Total

i 500.9

i 42

i 6,329

i 8,825

( i 756)

i 14,440

Net earnings

—

i 2,097

—

i 2,097

Other comprehensive income

—

i 31

Dividends declared

—

( i 343)

—

( i 343)

Repurchase of stock

( i 6.1)

( i 1)

—

( i 1,207)

—

( i 1,208)

Stock options and awards

i 1.3

—

( i 58)

—

( i 58)

May 1, 2021

i 496.1

i 41

i 6,271

i 9,372

( i 725)

i 14,959

Net earnings

—

i 1,817

—

i 1,817

Other comprehensive income

—

i 12

Dividends declared

—

( i 445)

—

( i 445)

Repurchase of stock

( i 6.6)

—

( i 1,544)

—

( i 1,544)

Stock options and awards

i 0.2

—

i 61

—

i 61

July 31, 2021

i 489.7

i 41

i 6,332

i 9,200

( i 713)

i 14,860

Net earnings

—

i 1,488

—

i 1,488

Other comprehensive income

—

i 26

Dividends declared

—

( i 439)

—

( i 439)

Repurchase of stock

( i 8.8)

( i 1)

—

( i 2,180)

—

( i 2,181)

Stock options and awards

i —

—

i 49

—

i 49

i 480.9

i 40

i 6,381

i 8,069

( i 687)

i 13,803

We declared $ i 0.90 and $ i 0.68 dividends per share for the three months ended October 30, 2021, and October 31, 2020, respectively, and $ i 2.70 per share for the fiscal year ended January 30, 2021.

See accompanying Notes to Consolidated Financial Statements.


TARGET CORPORATION						Q3 2021 Form 10-Q			6


			FINANCIAL STATEMENTS			Table of Contents
			INDEX			Index to Notes


TARGET CORPORATION						Q3 2021 Form 10-Q			7


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

Notes to Consolidated Financial Statements (unaudited)

1. i Accounting Policies

These unaudited condensed consolidated financial statements are prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (U.S. GAAP) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in our 2020 Form 10-K.

We use the same accounting policies in preparing quarterly and annual financial statements.

We operate as a single segment that is designed to enable guests to purchase products seamlessly in stores or through our digital channels. Nearly all of our revenues are generated in the U.S. The vast majority of our long-lived assets are located within the U.S.

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.

2. i Coronavirus (COVID-19)

The novel coronavirus (COVID-19) pandemic continues to evolve. In 2020, states and cities took 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, virtually all of our stores, digital channels, and distribution centers have remained open.

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, during the quarter ended May 2, 2020, we recorded $ i 216 million of purchase order cancellation fees in Cost of Sales.

3. i Dermstore Sale

In February 2021, we sold our wholly owned subsidiary Dermstore LLC (Dermstore) for $ i 356 million in cash and recognized a $ i 335 million pretax gain, which is included in Net Other (Income) / Expense. Dermstore has historically represented less than 1 percent of our consolidated revenues, operating income, and net assets.


TARGET CORPORATION						Q3 2021 Form 10-Q			8


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

4. i Revenues

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).

Revenues

Three Months Ended

Nine Months Ended

(millions)

Apparel and accessories (a)

i 4,364

i 3,927

i 13,384

i 10,630

Beauty and household essentials (b)

i 6,980

i 6,103

i 20,070

i 18,172

Food and beverage (c)

i 5,074

i 4,397

i 14,617

i 13,158

Hardlines (d)

i 3,841

i 3,377

i 11,654

i 9,959

Home furnishings and décor (e)

i 4,989

i 4,506

i 14,147

i 12,395

Other

i 42

i 26

i 123

i 89

Sales

i 25,290

i 22,336

i 73,995

i 64,403

Credit card profit sharing

i 184

i 164

i 527

i 488

Other

i 178

i 132

i 487

i 331

Other revenue

i 362

i 296

i 1,014

i 819

Total revenue

i 25,652

i 22,632

i 75,009

i 65,222

(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 and 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. As of October 30, 2021, January 30, 2021, and October 31, 2020, the accrual for estimated returns was $ i 210 million, $ i 139 million, and $ i 182 million, respectively.

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

Gift Card Liability Activity

January 30,
2021

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

Revenue Recognized From Beginning Liability

October 30,
2021

(millions)

Gift card liability (a)

i 1,035

i 502

( i 631)

i 906

(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. Under the agreement, we receive a percentage of the profits generated by the Target Credit Card and Target MasterCard receivables in exchange for performing account servicing and primary marketing functions. TD underwrites, funds, and owns Target Credit Card and Target MasterCard receivables, controls risk management policies, and oversees regulatory compliance.


TARGET CORPORATION						Q3 2021 Form 10-Q			9


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

5. i Fair Value Measurements

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

Financial Instruments Measured On a Recurring Basis

Fair Value

(millions)

Classification

Pricing Category

Assets

Short-term investments

Cash and Cash Equivalents

Level 1

i 4,818

i 7,644

i 5,089

Prepaid forward contracts

Other Current Assets

Level 1

i 44

i 38

i 32

Equity securities

Other Current Assets

Level 1

i —

i 19

Interest rate swaps

Other Current Assets

Level 2

i 12

i —

Interest rate swaps

Other Noncurrent Assets

Level 2

i 116

i 188

i 205

Liabilities

Interest rate swaps

Other Noncurrent Liabilities

Level 2

i —

i 3

Significant Financial Instruments Not Measured at Fair Value (a)

(millions)

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Long-term debt, including current portion (b)

i 10,605

i 12,300

i 10,643

i 12,787

i 10,641

i 12,787

(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.

6. i Property and Equipment

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 charges of $ i 3 million and $ i 84 million during the three and nine months ended October 30, 2021, respectively. We recognized impairment charges of $ i 2 million and $ i 62 million during the three and nine months ended October 31, 2020, respectively. These impairment charges are included in Selling, General and Administrative Expenses (SG&A).

7. i Commercial Paper and Long-Term Debt

In October 2021, we obtained a committed $ i 3.0 billion unsecured revolving credit facility that will expire in October 2026. This new facility replaced our $ i 2.5 billion unsecured revolving credit facility that was set to expire in October 2023. i i No / balances were outstanding under either credit facility at any time during 2021 or 2020.

8. i 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 5 to the Consolidated Financial Statements provides the fair value and classification of these instruments.

As of October 30, 2021, January 30, 2021, and October 31, 2020, we were party to interest rate swaps with notional amounts totaling $ i i i 1.5 / / billion. We pay a floating rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were considered to be perfectly effective under the shortcut method during the three and nine months ended October 30, 2021, and October 31, 2020.


TARGET CORPORATION						Q3 2021 Form 10-Q			10


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

As of October 30, 2021, we were party to forward-starting interest rate swaps with notional amounts totaling $ i 1.25 billion. As of January 30, 2021, and October 31, 2020, we were party to forward-starting interest rate swaps with notional amounts totaling $ i i 250 / million. We use these derivative financial instruments, which have been designated as cash flow hedges, to hedge the interest rate exposure of anticipated future debt issuances during the next three years. As of October 30, 2021, Accumulated Other Comprehensive Loss (AOCI) included a gain of $ i 15 million that will be reclassified and reduce Net Interest Expense as we record interest expense on the associated debt.

Effect of Hedges on Debt

(millions)

Long-term debt and other borrowings

Carrying amount of hedged debt

i 1,609

i 1,677

i 1,696

Cumulative hedging adjustments, included in carrying amount

i 114

i 183

i 203

Effect of Hedges on Net Interest Expense

Three Months Ended

Nine Months Ended

(millions)

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

Interest rate swap designated as fair value hedges

( i 40)

( i 36)

( i 69)

i 66

Hedged debt

i 40

i 36

i 69

( i 66)

Total

i —

9. i 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 arrangements, and other privately negotiated transactions with financial institutions.

Share Repurchase Activity

Three Months Ended

Nine Months Ended

(millions, except per share data)

Number of shares purchased

i 8.8

i —

i 21.5

i 5.7

Average price paid per share

i 246.80

i —

i 226.93

i 107.58

Total investment

i 2,184

i —

i 4,884

i 609

10. i Pension Benefits

We provide pension plan benefits to eligible team members.

Net Pension Benefits Expense

Three Months Ended

Nine Months Ended

(millions)

Classification

Service cost benefits earned

SG&A

i 25

i 73

i 76

Interest cost on projected benefit obligation

Net Other (Income) / Expense

i 24

i 30

i 72

i 89

Expected return on assets

Net Other (Income) / Expense

( i 60)

( i 61)

( i 178)

( i 182)

Amortization of losses

Net Other (Income) / Expense

i 28

i 32

i 85

i 96

Amortization of prior service cost

Net Other (Income) / Expense

i 2

( i 3)

i 1

( i 9)

Settlement charges

Net Other (Income) / Expense

i —

i 1

i —

i 1

Total

i 19

i 24

i 53

i 71


TARGET CORPORATION						Q3 2021 Form 10-Q			11


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

11. i Accumulated Other Comprehensive Loss

Change in Accumulated Other Comprehensive Loss

Cash Flow
Hedges

Currency Translation Adjustment

Pension

Total

(millions)

( i 3)

( i 18)

( i 735)

( i 756)

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

i 7

( i 1)

i —

i 6

Amounts reclassified from AOCI, net of tax

i —

i 63