Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm															31
Consolidated Statements of Operations															34
Consolidated Statements of Comprehensive Income															35
Consolidated Statements of Financial Position															36
Consolidated Statements of Cash Flows															37
Consolidated Statements of Shareholders' Investment															38
Notes to Consolidated Financial Statements															39
Note 1						Summary of Accounting Policies			39
Note 2						Revenues			40
Note 3						Cost of Sales and Selling, General and Administrative Expenses			41
Note 4						Consideration Received from Vendors			42
Note 5						Advertising Costs			42
Note 6						Fair Value Measurements			42
Note 7						Cash and Cash Equivalents			43
Note 8						Inventory			43
Note 9						Other Current Assets			43
Note 10						Property and Equipment			44
Note 11						Other Noncurrent Assets			44
Note 12						Goodwill and Intangible Assets			44
Note 13						Accrued and Other Current Liabilities			45
Note 14						Commitments and Contingencies			45
Note 15						Commercial Paper and Long-Term Debt			46
Note 16						Derivative Financial Instruments			47
Note 17						Leases			47
Note 18						Incomes Taxes			50
Note 19						Other Noncurrent Liabilities			52
Note 20						Share Repurchase			52
Note 21						Share-Based Compensation			52
Note 22						Defined Contribution Plans			55
Note 23						Pension Plans			55
Note 24						Accumulated Other Comprehensive Income			59
Note 25						Quarterly Results (Unaudited)			59

TARGET CORPORATION						2019 Form 10-K			30

			FINANCIAL STATEMENTS			Table of Contents
			REPORTS			Index to Financial Statements

Report of Management on the Consolidated Financial Statements

Management is responsible for the consistency, integrity, and presentation of the information in the Annual Report. The consolidated financial statements and other information presented in this Annual Report have been prepared in accordance with accounting principles generally accepted in the United States and include necessary judgments and estimates by management.

To fulfill our responsibility, we maintain comprehensive systems of internal control designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with established procedures. The concept of reasonable assurance is based upon recognition that the cost of the controls should not exceed the benefit derived. We believe our systems of internal control provide this reasonable assurance.

The Board of Directors exercised its oversight role with respect to the Corporation's systems of internal control primarily through its Audit Committee, which is comprised of independent directors. The Committee oversees the Corporation's systems of internal control, accounting practices, financial reporting and audits to assess whether their quality, integrity, and objectivity are sufficient to protect shareholders' investments.

In addition, our consolidated financial statements have been audited by Ernst & Young LLP, independent registered public accounting firm, whose report also appears on this page.

/s/ Brian C. Cornell						/s/ Michael J. Fiddelke
Brian C. Cornell Chairman and Chief Executive Officer March 11, 2020						Michael J. Fiddelke Executive Vice President and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Target Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Target Corporation (the Corporation) as of February 1, 2020 and February 2, 2019, the related consolidated statements of operations, comprehensive income, cash flows and shareholders' investment for each of the three years in the period ended February 1, 2020, 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 February 1, 2020 and February 2, 2019, and the results of its operations and its cash flows for each of the three years in the period ended February 1, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Corporation's internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 11, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the Corporation’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

TARGET CORPORATION						2019 Form 10-K			31

			FINANCIAL STATEMENTS			Table of Contents
			REPORTS			Index to Financial Statements

			Valuation of Inventory and related Cost of Sales
Description of the Matter			At February 1, 2020, the Corporation's inventory was $8,992 million. As described in Note 8 to the consolidated financial statements, the Corporation accounts for the vast majority of its inventory under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. RIM is an averaging method that has been widely used in the retail industry due to its practicality. Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the inventory retail value.
			Auditing inventory requires extensive audit effort including significant involvement of more experienced audit team members, including the involvement of our information technology (IT) professionals, given the relatively higher level of automation impacting the inventory process including the involvement of multiple information systems used to capture the high volume of transactions processed by the Corporation. 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.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Corporation’s inventory process, including the underlying IT general controls. For example, we tested automated controls performed by the Corporation’s information systems and controls over the completeness of data transfers between information systems used in performing the Corporation’s RIM calculation. 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.
			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. In addition, 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.
			Valuation of Vendor Income Receivables
Description of the Matter			At February 1, 2020, the Corporation’s vendor income receivables totaled $464 million. As discussed in Note 4 of the consolidated financial statements, the Corporation receives consideration for a variety of vendor-sponsored programs, which are primarily recorded as a reduction of cost of sales when earned. The Corporation records a receivable for amounts earned but not yet received.
			Auditing the Corporation's vendor income receivables was complex due to the estimation required in measuring the receivables. The estimate was sensitive to significant assumptions, such as forecasted vendor income collections, and estimating the time period over which the collections have been earned, which is primarily based on historical trending and data.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Corporation’s vendor income receivable process, including controls over management’s review of the significant assumptions described above.
			To test the estimated vendor income receivables, we performed audit procedures that included, among others, assessing the estimation methodology used by management and evaluating the forecasted vendor income collections and the time period over which collections have been earned as used in the receivable estimation model. For a sample of the vendor rebates and concessions, we evaluated the nature and source of the inputs used and the terms of the contractual agreements. We recalculated the amount of the vendor income earned based on the inputs and the terms of the agreements. In addition, we recalculated the time period over which the vendor income collection had been earned to assess the accuracy of management’s estimates. We also performed sensitivity analyses of significant assumptions to evaluate the significance of changes in the receivables that would result from changes in assumptions.

/s/ Ernst & Young LLP

We have served as the Corporation's auditor since 1931.

Minneapolis, Minnesota

March 11, 2020

TARGET CORPORATION						2019 Form 10-K			32

			FINANCIAL STATEMENTS			Table of Contents
			REPORTS			Index to Financial Statements

Report of Management on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we assessed the effectiveness of our internal control over financial reporting as of February 1, 2020, based on the framework in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our assessment, we conclude that the Corporation's internal control over financial reporting is effective based on those criteria.

Our internal control over financial reporting as of February 1, 2020, 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/ Brian C. Cornell						/s/ Michael J. Fiddelke
Brian C. Cornell Chairman and Chief Executive Officer March 11, 2020						Michael J. Fiddelke Executive Vice President and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Target Corporation

Opinion on Internal Control over Financial Reporting

We have audited Target Corporation’s internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Target Corporation (the Corporation) maintained, in all material respects, effective internal control over financial reporting as of February 1, 2020, 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 February 1, 2020 and February 2, 2019, the related consolidated statements of operations, comprehensive income, cash flows and shareholders' investment for each of the three years in the period ended February 1, 2020, and the related notes and our report dated March 11, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

March 11, 2020

TARGET CORPORATION						2019 Form 10-K			33

			FINANCIAL STATEMENTS			Table of Contents
						Index to Financial Statements

Consolidated Statements of Operations

(millions, except per share data)			2019			2018			2017
Sales			$	77,130		$	74,433		$	71,786
Other revenue			982			923			928
Total revenue			78,112			75,356			72,714
Cost of sales			54,864			53,299			51,125
Selling, general and administrative expenses			16,233			15,723			15,140
Depreciation and amortization (exclusive of depreciation included in cost of sales)			2,357			2,224			2,225
Operating income			4,658			4,110			4,224
Net interest expense			477			461			653
Net other (income) / expense			(9)			(27)			(59)
Earnings from continuing operations before income taxes			4,190			3,676			3,630
Provision for income taxes			921			746			722
Net earnings from continuing operations			3,269			2,930			2,908
Discontinued operations, net of tax			12			7			6
Net earnings			$	3,281		$	2,937		$	2,914
Basic earnings per share
Continuing operations			$	6.39		$	5.54		$	5.32
Discontinued operations			0.02			0.01			0.01
Net earnings per share			$	6.42		$	5.55		$	5.32
Diluted earnings per share
Continuing operations			$	6.34		$	5.50		$	5.29
Discontinued operations			0.02			0.01			0.01
Net earnings per share			$	6.36		$	5.51		$	5.29
Weighted average common shares outstanding
Basic			510.9			528.6			546.8
Diluted			515.6			533.2			550.3
Antidilutive shares			—			—			4.1

Note: Per share amounts may not foot due to rounding.

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION						2019 Form 10-K			34

			FINANCIAL STATEMENTS			Table of Contents
						Index to Financial Statements

Consolidated Statements of Comprehensive Income

(millions)			2019			2018			2017
Net earnings			$	3,281		$	2,937		$	2,914
Other comprehensive (loss) / income, net of tax
Pension and other benefit liabilities, net of tax			(65)			(52)			2
Currency translation adjustment and cash flow hedges, net of tax			2			(6)			6
Other comprehensive (loss) / income			(63)			(58)			8
Comprehensive income			$	3,218		$	2,879		$	2,922

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION						2019 Form 10-K			35

			FINANCIAL STATEMENTS			Table of Contents
						Index to Financial Statements

Consolidated Statements of Financial Position

(millions, except footnotes)			February 1, 2020			February 2, 2019
Assets
Cash and cash equivalents			$	2,577		$	1,556
Inventory			8,992			9,497
Other current assets			1,333			1,466
Total current assets			12,902			12,519
Property and equipment
Land			6,036			6,064
Buildings and improvements			30,603			29,240
Fixtures and equipment			6,083			5,912
Computer hardware and software			2,692			2,544
Construction-in-progress			533			460
Accumulated depreciation			(19,664)			(18,687)
Property and equipment, net			26,283			25,533
Operating lease assets			2,236			1,965
Other noncurrent assets			1,358			1,273
Total assets			$	42,779		$	41,290
Liabilities and shareholders' investment
Accounts payable			$	9,920		$	9,761
Accrued and other current liabilities			4,406			4,201
Current portion of long-term debt and other borrowings			161			1,052
Total current liabilities			14,487			15,014
Long-term debt and other borrowings			11,338			10,223
Noncurrent operating lease liabilities			2,275			2,004
Deferred income taxes			1,122			972
Other noncurrent liabilities			1,724			1,780
Total noncurrent liabilities			16,459			14,979
Shareholders' investment
Common stock			42			43
Additional paid-in capital			6,226			6,042
Retained earnings			6,433			6,017
Accumulated other comprehensive loss			(868)			(805)
Total shareholders' investment			11,833			11,297
Total liabilities and shareholders' investment			$	42,779		$	41,290

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 504,198,962 shares issued and outstanding as of February 1, 2020; 517,761,600 shares issued and outstanding as of February 2, 2019.

Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding during any period presented.

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION						2019 Form 10-K			36

			FINANCIAL STATEMENTS			Table of Contents
						Index to Financial Statements

Consolidated Statements of Cash Flows

(millions)			2019			2018			2017
Operating activities
Net earnings			$	3,281		$	2,937		$	2,914
Earnings from discontinued operations, net of tax			12			7			6
Net earnings from continuing operations			3,269			2,930			2,908
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation and amortization			2,604			2,474			2,476
Share-based compensation expense			147			132			112
Deferred income taxes			178			322			(188)
Loss on debt extinguishment			10			—			123
Noncash losses / (gains) and other, net			29			95			208
Changes in operating accounts:
Inventory			505			(900)			(348)
Other assets			18			(299)			(156)
Accounts payable			140			1,127			1,307
Accrued and other liabilities			199			89			419
Cash provided by operating activities—continuing operations			7,099			5,970			6,861
Cash provided by operating activities—discontinued operations			18			3			74
Cash provided by operations			7,117			5,973			6,935
Investing activities
Expenditures for property and equipment			(3,027)			(3,516)			(2,533)
Proceeds from disposal of property and equipment			63			85			31
Cash paid for acquisitions, net of cash assumed			—			—			(518)
Other investments			20			15			(55)
Cash required for investing activities			(2,944)			(3,416)			(3,075)
Financing activities
Additions to long-term debt			1,739			—			739
Reductions of long-term debt			(2,069)			(281)			(2,192)
Dividends paid			(1,330)			(1,335)			(1,338)
Repurchase of stock			(1,565)			(2,124)			(1,046)
Stock option exercises			73			96			108
Cash required for financing activities			(3,152)			(3,644)			(3,729)
Net (decrease) / increase in cash and cash equivalents			1,021			(1,087)			131
Cash and cash equivalents at beginning of period			1,556			2,643			2,512
Cash and cash equivalents at end of period			$	2,577		$	1,556		$	2,643
Supplemental information
Interest paid, net of capitalized interest			$	492		$	476		$	678
Income taxes paid			696			373			934
Leased assets obtained in exchange for new finance lease liabilities			379			130			139
Leased assets obtained in exchange for new operating lease liabilities			464			246			212

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION						2019 Form 10-K			37

			FINANCIAL STATEMENTS			Table of Contents
						Index to Financial Statements

Consolidated Statements of Shareholders' Investment

(millions)			Common Stock Shares			Stock Par Value			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) / Income			Total
January 28, 2017			556.2			$	46		$	5,661		$	5,846		$	(638)		$	10,915
Net earnings			—			—			—			2,914			—			2,914
Other comprehensive income			—			—			—			—			8			8
Dividends declared			—			—			—			(1,356)			—			(1,356)
Repurchase of stock			(17.6)			(1)			—			(1,026)			—			(1,027)
Stock options and awards			3.1			—			197			—			—			197
Reclassification of tax effects to retained earnings			—			—			—			117			(117)			—
February 3, 2018			541.7			$	45		$	5,858		$	6,495		$	(747)		$	11,651
Net earnings			—			—			—			2,937			—			2,937
Other comprehensive loss			—			—			—			—			(58)			(58)
Dividends declared			—			—			—			(1,347)			—			(1,347)
Repurchase of stock			(27.2)			(2)			—			(2,068)			—			(2,070)
Stock options and awards			3.3			—			184			—			—			184
February 2, 2019			517.8			$	43		$	6,042		$	6,017		$	(805)		$	11,297
Net earnings			—			—			—			3,281			—			3,281
Other comprehensive loss			—			—			—			—			(63)			(63)
Dividends declared			—			—			—			(1,345)			—			(1,345)
Repurchase of stock			(16.0)			(1)			—			(1,520)			—			(1,521)
Stock options and awards			2.4			—			184			—			—			184
February 1, 2020			504.2			$	42		$	6,226		$	6,433		$	(868)		$	11,833

We declared $2.62, $2.54, and $2.46 dividends per share for the twelve months ended February 1, 2020, February 2, 2019, and February 3, 2018, respectively.

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION						2019 Form 10-K			38

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Notes to Consolidated Financial Statements

1. Summary of Accounting Policies

Organization We are a general merchandise retailer selling products to our guests through our stores and digital channels.

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

Consolidation The consolidated financial statements include the balances of Target and its subsidiaries after elimination of intercompany balances and transactions. All material subsidiaries are wholly owned. We consolidate variable interest entities where it has been determined that Target is the primary beneficiary of those entities' operations.

Use of estimates The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions affecting reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates.

Fiscal year Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal 2019 and 2018 ended February 1, 2020, and February 2, 2019, respectively, and consisted of 52 weeks. Fiscal 2017 ended February 3, 2018, and consisted of 53 weeks. Fiscal 2020 will end January 30, 2021, and will consist of 52 weeks.

Accounting policies Our accounting policies are disclosed in the applicable Notes to the Consolidated Financial Statements. Certain prior-year amounts have been reclassified to conform to the current year presentation.

TARGET CORPORATION						2019 Form 10-K			39

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

2. 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 (millions)			2019			2018			2017
Apparel and accessories (a)(f)			$	14,304		$	13,434		$	13,323
Beauty and household essentials (b)(f)			20,616			19,296			18,364
Food and beverage (c)			15,039			14,585			14,256
Hardlines (d)			12,595			12,709			12,062
Home furnishings and décor (e)			14,430			14,298			13,672
Other			146			111			109
Sales			77,130			74,433			71,786
Credit card profit sharing			680			673			694
Other			302			250			234
Other revenue			982			923			928
Total revenue			$	78,112		$	75,356		$	72,714

(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.

*(f)*We reclassified certain baby gear sales totaling $1,570 million and $1,339 million for the fiscal years ended February 2, 2019, and February 3, 2018, respectively, from Apparel and Accessories to Beauty and Household Essentials.

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. Total revenues do not include sales tax because we are a pass-through conduit for collecting and remitting sales taxes. Generally, guests may return national brand merchandise within 90 days of purchase and owned and exclusive brands within one year of purchase. Sales are recognized net of expected returns, which we estimate using historical return patterns and our expectation of future returns. As of February 1, 2020, February 2, 2019, and February 3, 2018, the liability for estimated returns was $117 million, $116 million, and $110 million, respectively. We have not historically had material adjustments to our returns estimates.

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. Under the vast majority of these arrangements, which represent less than 5 percent of consolidated sales, we record revenue and related costs gross. We concluded that we are the principal in these transactions for a number of reasons, most notably because we 1) control the overall economics of the transactions, including setting the sales price and realizing the majority of cash flows from the sale, 2) control the relationship with the customer, and 3) are responsible for fulfilling the promise to provide goods to the customer. Merchandise received under these arrangements is not included in Inventory because the purchase and sale of this inventory are virtually simultaneous.

TARGET CORPORATION						2019 Form 10-K			40

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance. Our gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions.

Gift Card Liability Activity			February 2, 2019						Gift Cards Issued During Current Period But Not Redeemed (b)						Revenue Recognized From Beginning Liability						February 1, 2020
(millions)
Gift card liability (a)			$	840					$	719					$	(624)					$	935

(a)Included in Accrued and Other Current Liabilities.

(b)Net of estimated breakage.

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 $962 million, $953 million, and $933 million in 2019, 2018, and 2017, respectively.

Target Circle program members earn 1 percent rewards on nearly all non-RedCard purchases. Revenue related to reward redemptions and deferred revenue under this loyalty program were immaterial to our Consolidated Financial Statements for the year ended February 1, 2020.

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.

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

3. Cost of Sales and Selling, General and Administrative Expenses

The following table illustrates the primary items classified in each major expense category:

Cost of Sales			Selling, General and Administrative Expenses
Total cost of products sold including • Freight expenses associated with moving merchandise from our vendors to and between our distribution centers and our retail stores • Vendor income that is not reimbursement of specific, incremental, and identifiable costs Inventory shrink Markdowns Outbound shipping and handling expenses associated with sales to our guests Payment term cash discounts Distribution center costs, including compensation and benefits costs and depreciation Compensation and benefit costs associated with shipment of merchandise from stores Import costs			Compensation and benefit costs for stores and headquarters, except ship from store costs classified as cost of sales Occupancy and operating costs of retail and headquarters facilities Advertising, offset by vendor income that is a reimbursement of specific, incremental, and identifiable costs Pre-opening and exit costs of stores and other facilities Credit cards servicing expenses Costs associated with accepting 3rd party bank issued payment cards Litigation and defense costs and related insurance recovery Other administrative costs

Note: The classification of these expenses varies across the retail industry.

TARGET CORPORATION						2019 Form 10-K			41

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

4. Consideration Received from Vendors

We receive consideration for a variety of vendor-sponsored programs, such as volume rebates, markdown allowances, promotions, and advertising allowances and for our compliance programs, referred to as "vendor income." 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.

We establish a receivable for vendor income that is earned but not yet received. Based on historical trending and data, this receivable is computed by forecasting vendor income collections, and estimating the amount earned. 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. Historically, adjustments to our vendor income receivable have not been material.

5. 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 (millions)			2019			2018			2017
Gross advertising costs			$	1,647		$	1,494		$	1,476
Vendor income			—			—			(19)
Net advertising costs			$	1,647		$	1,494		$	1,457

6. Fair Value Measurements

Fair value measurements are reported in one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

Fair Value Measurements - Recurring Basis												Fair Value as of
(millions)			Classification			Pricing Category			February 1, 2020						February 2, 2019
Assets
Short-term investments (a)			Cash and Cash Equivalents			Level 1			$	1,810					$	769
Prepaid forward contracts (b)			Other Current Assets			Level 1			23						19
Interest rate swaps (c)			Other Noncurrent Assets			Level 2			137						10
Liabilities
Interest rate swaps (c)			Other Current Liabilities			Level 2			—						3

(a)Carrying value approximates fair value because maturities are less than three months.

(b)Initially valued at transaction price. Subsequently valued by reference to the market price of Target common stock.

(c)Valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). See Note 16 for additional information on interest rate swaps.

We recorded a $41 million pretax impairment charge within Net Other (Income) / Expense related to our investment in Casper Sleep Inc. for which we determined the fair value had declined to $39 million as of February 1, 2020.

TARGET CORPORATION						2019 Form 10-K			42

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Significant Financial Instruments not Measured at Fair Value (a)			As of February 1, 2020												As of February 2, 2019
(millions)			Carrying Amount			Fair Value						Carrying Amount			Fair Value
Long-term debt, including current portion (b)			$	9,992		$	11,864					$	10,247		$	10,808

(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.

7. Cash and Cash Equivalents

Cash equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions. These receivables typically settle in five days or less.

Cash and Cash Equivalents (millions)			February 1, 2020			February 2, 2019
Cash			$	326		$	359
Short-term investments			1,810			769
Receivables from third-party financial institutions for credit and debit card transactions			441			428
Cash and cash equivalents (a)			$	2,577		$	1,556

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

As of February 1, 2020 and February 2, 2019, we reclassified book overdrafts of $209 million and $242 million, respectively, to Accounts Payable and $23 million and $25 million, respectively, to Accrued and Other Current Liabilities.

8. Inventory

The vast majority of our inventory is accounted for under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. Inventory is stated at the lower of LIFO cost or market. Inventory cost includes the amount we pay to our suppliers to acquire inventory, freight costs incurred to deliver product to our distribution centers and stores, and import costs, reduced by vendor income and cash discounts. Distribution center operating costs, including compensation and benefits, are expensed in the period incurred. Inventory is also reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated based on inventory levels, markup rates, and internally measured retail price indices.

Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the inventory retail value. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market because permanent markdowns are taken as a reduction of the retail value of inventory.

9. Other Current Assets

Other Current Assets (millions)			February 1, 2020			February 2, 2019
Income tax and other receivables			$	498		$	632
Vendor income receivable			464			468
Prepaid expenses			154			157
Other			217			209
Total			$	1,333		$	1,466

TARGET CORPORATION						2019 Form 10-K			43

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

10. Property and Equipment

Property and equipment, including assets acquired under finance leases, is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We amortize leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably certain at the date the leasehold improvements are acquired. Depreciation expense for 2019, 2018, and 2017 was $2,591 million, $2,460 million, and $2,462 million, respectively, including depreciation expense included in Cost of Sales. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred. Facility pre-opening costs, including supplies and payroll, are expensed as incurred.

Estimated Useful Lives			Life (Years)
Buildings and improvements			8-39
Fixtures and equipment			2-15
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 recognized impairment losses of $23 million, $92 million, and $91 million during 2019, 2018, and 2017, respectively. The impairment losses primarily resulted from store impairments and planned or completed store closures, and for 2017, also included supply chain changes. For asset groups classified as held for sale, measurement of an impairment loss is based on the excess of the carrying amount of the asset group over its fair value. We estimate fair value by obtaining market appraisals, obtaining valuations from third-party brokers, or using other valuation techniques. Impairments are recorded in Selling, General and Administrative Expenses.

11. Other Noncurrent Assets

Other Noncurrent Assets (millions)			February 1, 2020			February 2, 2019
Goodwill and intangible assets			$	686		$	699
Company-owned life insurance investments, net of loans			418			380
Other			254			194
Total			$	1,358		$	1,273

12. Goodwill and Intangible Assets

Goodwill totaled $633 million as of February 1, 2020 and February 2, 2019. No impairments were recorded in 2019, 2018, or 2017 as a result of the annual goodwill impairment tests performed.

Intangible assets, net of accumulated amortization, totaled $53 million and $66 million as of February 1, 2020, and February 2, 2019, respectively, 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 February 1, 2020. Amortization expense was $13 million, $14 million, and $14 million in 2019, 2018, and 2017, respectively, and is estimated to be less than $15 million annually through 2024.

TARGET CORPORATION						2019 Form 10-K			44

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

13. Accrued and Other Current Liabilities

Accrued and Other Current Liabilities (millions)			February 1, 2020			February 2, 2019
Wages and benefits			$	1,158		$	1,229
Gift card liability, net of estimated breakage			935			840
Real estate, sales, and other taxes payable			601			601
Dividends payable			333			331
Current portion of operating lease liabilities			200			166
Workers' compensation and general liability (a)			155			142
Interest payable			69			62
Other			955			830
Total			$	4,406		$	4,201

(a)We retain a substantial portion of the risk related to general liability and workers' compensation claims. We estimate our ultimate cost based on analysis of historical data and actuarial estimates. General liability and workers' compensation liabilities are recorded at our estimate of their net present value.

14. Commitments and Contingencies

Contingencies

We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders and other constituents. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies, but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition.

Commitments

Purchase obligations, which include all legally binding contracts such as firm commitments for inventory purchases, merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/license commitments, and service contracts, were $676 million and $992 million as of February 1, 2020 and February 2, 2019, 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 $1,403 million and $1,134 million as of February 1, 2020 and February 2, 2019, respectively. Over half of these real estate obligations are due within five years, a portion of which are recorded as liabilities.

We issue letters of credit and surety bonds in the ordinary course of business. Trade letters of credit totaled $1,544 million and $1,746 million as of February 1, 2020 and February 2, 2019, respectively, a portion of which are reflected in accounts payable. Standby letters of credit and surety bonds, relating primarily to insurance and regulatory requirements, totaled $468 million and $403 million as of February 1, 2020 and February 2, 2019, respectively.

TARGET CORPORATION						2019 Form 10-K			45

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

15. Commercial Paper and Long-Term Debt

As of February 1, 2020, the carrying value and maturities of our debt portfolio were as follows:

Debt Maturities			February 1, 2020
(dollars in millions)			Rate (a)			Balance
Due 2020-2024			3.8		%	$	2,205
Due 2025-2029			3.3			2,180
Due 2030-2034			4.2			1,305
Due 2035-2039			6.8			1,109
Due 2040-2044			4.0			1,466
Due 2045-2049			3.7			1,727
Total notes and debentures			4.1			9,992
Swap valuation adjustments						137
Finance lease liabilities						1,370
Less: Amounts due within one year						(161)
Long-term debt and other borrowings						$	11,338

(a)Reflects the dollar weighted average stated interest rate as of year-end.

Required Principal Payments (millions)			2020			2021			2022			2023			2024
Total required principal payments			$	94		$	1,056		$	63		$	—		$	1,000

In January 2020, we issued $750 million of 10-year unsecured fixed rate debt at 2.350 percent, and separately, we redeemed $1,000 million 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 $1,000 million of 10-year unsecured fixed rate debt at 3.375 percent, and in June 2019, we repaid $1,000 million of 2.3 percent unsecured fixed rate debt at maturity.

In October 2017, we issued $750 million of 30-year unsecured fixed rate debt at 3.9 percent. In addition to debt repaid at its maturity during 2017, during October 2017, we redeemed $344 million of debt before its maturity at a value of $463 million. We recognized a loss on early retirement of approximately $123 million, which was recorded in Net Interest Expense.

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

Commercial Paper (dollars in millions)			2019			2018			2017
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		%	—		%

We have a committed $2.5 billion revolving credit facility that expires in October 2023. No balances were outstanding under our credit facility at any time during 2019, 2018, or 2017.

Substantially all of our outstanding borrowings are senior, unsecured obligations. Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants, which have no practical effect on our ability to pay dividends.

TARGET CORPORATION						2019 Form 10-K			46

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

16. 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 6 provides the fair value and classification of these instruments.

During 2019, we entered into interest rate swaps with a total notional amount of $1,000 million. Under the swap agreements, we pay a floating rate equal to 1-month London Interbank Offered Rate (LIBOR) and receive a weighted average fixed rate of 2.5 percent. The agreements have a weighted average remaining maturity of 9.2 years. Under the two previously existing swap agreements, each with a notional of $250 million, which mature during 2024 and 2026, respectively, we pay a floating rate equal to 1-month LIBOR and receive a weighted average fixed rate of 2.9 percent. As of February 1, 2020 and February 2, 2019, interest rate swaps with notional amounts totaling $1,500 million were designated as fair value hedges, and all were perfectly effective during 2019 and 2018.

Effect of Hedges on Debt (millions)			February 1, 2020			February 2, 2019
Current portion of long-term debt and other borrowings
Carrying amount of hedged debt			$	—		$	996
Cumulative hedging adjustments, included in carrying amount			—			(3)
Long-term debt and other borrowings
Carrying amount of hedged debt			1,630			508
Cumulative hedging adjustments, included in carrying amount			137			10

Effect of Hedges on Net Interest Expense (millions)			2019			2018			2017
Gain (loss) on fair value hedges recognized in Net Interest Expense
Interest rate swap designated as fair value hedges			$	130		$	13		$	(10)
Hedged debt			(130)			(13)			10
Total			$	—		$	—		$	—

17. Leases

We lease certain retail stores, warehouses, distribution centers, office space, land, and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. We combine lease and nonlease components for new and reassessed leases.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 50 years or more. The exercise of lease renewal options is at our sole discretion. 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. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We rent or sublease certain real estate to third parties. Our lease and sublease portfolio consists mainly of operating leases with CVS Pharmacy Inc. (CVS) for space within our stores.

TARGET CORPORATION						2019 Form 10-K			47

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Leases (millions)			Classification			February 1, 2020			February 2, 2019
Assets
Operating			Operating Lease Assets			$	2,236		$	1,965
Finance			Buildings and Improvements, net of Accumulated Depreciation (a)			1,180			872
Total leased assets						$	3,416		$	2,837
Liabilities
Current
Operating			Accrued and Other Current Liabilities			$	200		$	166
Finance			Current Portion of Long-term Debt and Other Borrowings			67			53
Noncurrent
Operating			Noncurrent Operating Lease Liabilities			2,275			2,004
Finance			Long-term Debt and Other Borrowings			1,303			968
Total lease liabilities						$	3,845		$	3,191

Note: 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 $441 million and $371 million as of February 1, 2020 and February 2, 2019, respectively.

Lease Cost (millions)			Classification			2019			2018			2017
Operating lease cost (a)			SG&A Expenses			$	287		$	251		$	221
Finance lease cost
Amortization of leased assets			Depreciation and Amortization (b)			82			65			63
Interest on lease liabilities			Net Interest Expense			51			42			42
Sublease income (c)			Other Revenue			(13)			(11)			(9)
Net lease cost						$	407		$	347		$	317

(a)Includes short-term leases and variable lease costs, which are immaterial.

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

(c)Sublease income excludes rental income from owned properties of $48 million, $47 million, and $47 million for 2019, 2018, and 2017, respectively, which is included in Other Revenue.

TARGET CORPORATION						2019 Form 10-K			48

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Maturity of Lease Liabilities (millions)			Operating Leases (a)			Finance Leases (b)			Total
2020			$	284		$	121		$	405
2021			278			127			405
2022			274			127			401
2023			270			125			395
2024			261			120			381
After 2024			1,838			1,270			3,108
Total lease payments			$	3,205		$	1,890		$	5,095
Less: Interest			730			520
Present value of lease liabilities			$	2,475		$	1,370

(a)Operating lease payments include $901 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $275 million of legally binding minimum lease payments for leases signed but not yet commenced.

(b)Finance lease payments include $118 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $462 million of legally binding minimum lease payments for leases signed but not yet commenced.

Lease Term and Discount Rate			February 1, 2020			February 2, 2019
Weighted average remaining lease term (years)
Operating leases			13.2			14.2
Finance leases			15.4			15.4
Weighted average discount rate
Operating leases			3.71		%	3.91		%
Finance leases			4.23		%	4.64		%

Other Information (millions)			2019			2018			2017
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases			$	254		$	231		$	198
Operating cash flows from finance leases			49			45			42
Financing cash flows from finance leases			57			80			45

TARGET CORPORATION						2019 Form 10-K			49

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

18. Income Taxes

Earnings from continuing operations before income taxes were $4,190 million, $3,676 million, and $3,630 million during 2019, 2018, and 2017, respectively, including $653 million, $565 million, and $566 million earned by our foreign entities subject to tax outside of the U.S. During 2019, we reached an agreement with the IRS on certain tax positions related to our global sourcing operations, and as a result, we reclassified $169 million and $156 million of previously disclosed 2018 and 2017 earnings, respectively, from foreign to domestic to conform to the current period classification.

Tax Rate Reconciliation – Continuing Operations			2019			2018			2017
Federal statutory rate			21.0		%	21.0		%	33.7		%
State income taxes, net of the federal tax benefit			3.7			3.6			2.2
International			(1.4)			(1.3)			(4.6)
Tax Act (a)			—			(1.0)			(9.5)
Excess tax benefit related to share-based payments			(0.4)			(0.3)			(0.1)
Federal tax credits			(0.8)			(1.1)			(0.8)
Other			(0.1)			(0.6)			(1.0)
Effective tax rate			22.0		%	20.3		%	19.9		%

(a)Represents the discrete benefit of remeasuring our net deferred tax liabilities at the new lower U.S. corporate income tax rate.

Provision for Income Taxes (millions)			2019			2018			2017
Current:
Federal			$	536		$	257		$	746
State			169			116			105
International			38			51			59
Total current			743			424			910
Deferred:
Federal			150			263			(229)
State			29			57			27
International			(1)			2			14
Total deferred			178			322			(188)
Total provision			$	921		$	746		$	722

In December 2017, the U.S. government enacted the Tax Cuts and Jobs Act tax reform legislation (the Tax Act), which among other matters reduced the U.S. corporate income tax rate from 35 percent to 21 percent effective January 1, 2018.

In 2017, we recorded a provisional $343 million net tax benefit primarily related to the remeasurement of certain deferred tax assets and liabilities, including $372 million of benefit from the new lower rate, partially offset by $29 million of deferred income tax expense from our foreign operations. During 2018, we completed our Tax Act accounting and recorded adjustments to previously-recorded provisional amounts, resulting in a $36 million tax benefit primarily related to the remeasurement of deferred tax assets and liabilities.

Beginning with 2018, we are subject to a new tax on global intangible low-taxed income that is imposed on foreign earnings. We have made an accounting election to record this tax as a period cost and thus have not adjusted any of the deferred tax assets or liabilities of our foreign subsidiaries for the new tax. Net impacts of this new tax were immaterial and are included in our provision for income taxes for 2019 and 2018.

TARGET CORPORATION						2019 Form 10-K			50

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Net Deferred Tax Asset / (Liability) (millions)			February 1, 2020			February 2, 2019
Gross deferred tax assets:
Accrued and deferred compensation			$	264		$	248
Accruals and reserves not currently deductible			169			181
Self-insured benefits			124			114
Deferred occupancy income			148			157
Lease liabilities			1,000			823
Other			58			40
Total gross deferred tax assets			1,763			1,563
Gross deferred tax liabilities:
Property and equipment			(1,767)			(1,557)
Leased assets			(880)			(731)
Inventory			(156)			(140)
Other			(74)			(95)
Total gross deferred tax liabilities			(2,877)			(2,523)
Total net deferred tax liability			$	(1,114)		$	(960)

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and liabilities are recognized at the enactment date. We recognized a net tax benefit of $36 million and $372 million in 2018 and 2017, respectively, primarily because we remeasured our net deferred tax liabilities using the new lower U.S. corporate tax rate.

Beginning in 2017, due to changes effected by the Tax Act and other reasons, we have not asserted indefinite reinvestment in our foreign operations. Because of this change, we recorded a deferred tax charge of $29 million during 2017.

We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. The U.S. Internal Revenue Service (IRS) has completed exams on the U.S. federal income tax returns for years 2017 and prior. With few exceptions, we are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2013.

Reconciliation of Liability for Unrecognized Tax Benefits (millions)			2019			2018			2017
Balance at beginning of period			$	300		$	325		$	153
Additions based on tax positions related to the current year			28			58			112
Additions for tax positions of prior years			13			10			142
Reductions for tax positions of prior years			(69)			(91)			(71)
Settlements			(112)			(2)			(11)
Balance at end of period			$	160		$	300		$	325

As a result of the 2019 agreement with the IRS on certain tax positions related to our global sourcing operations, we reclassified $149 million of our liability for unrecognized tax benefits to taxes payable. This settlement had an insignificant effect on 2019 income tax expense.

TARGET CORPORATION						2019 Form 10-K			51

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

If we were to prevail on all unrecognized tax benefits recorded, $113 million of the $160 million reserve would benefit the effective tax rate. In addition, the reversal of accrued penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the years ended February 1, 2020, February 2, 2019, and February 3, 2018, we recorded an expense / (benefit) from accrued penalties and interest of $(2) million, $3 million, and $(12) million, respectively. As of February 1, 2020, February 2, 2019, and February 3, 2018 total accrued interest and penalties were $27 million, $32 million, and $29 million, respectively.

It is reasonably possible that the amount of the unrecognized tax benefits with respect to our other unrecognized tax positions will increase or decrease during the next twelve months; however, an estimate of the amount or range of the change cannot be made at this time.

19. Other Noncurrent Liabilities

Other Noncurrent Liabilities (millions)			February 1, 2020			February 2, 2019
Deferred occupancy income (a)			$	539		$	570
Deferred compensation			493			472
Workers' compensation and general liability			310			281
Income tax			180			312
Pension benefits			107			40
Other			95			105
Total			$	1,724		$	1,780

(a)To be amortized evenly through 2038.

20. 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.

In an ASR arrangement, in exchange for an up-front payment, we receive an initial delivery of shares of our common stock and at settlement may receive additional shares, cash, or a combination of both. The total number of shares ultimately repurchased and, therefore, the average repurchase price paid per share, is determined upon settlement of the ASR based on the volume-weighted average price of our common stock during the term of the contract, less an agreed-upon discount. We retire shares in the period they are received and account for the up-front payment as a reduction to Shareholders’ Investment.

Share Repurchase Activity (millions, except per share data)			2019			2018			2017
Total number of shares purchased			16.0			27.2			17.6
Average price paid per share			$	95.07		$	75.88		$	58.44
Total investment			$	1,518		$	2,067		$	1,026

21. Share-Based Compensation

We maintain a long-term incentive plan (the Plan) for key team members and non-employee members of our Board of Directors. The Plan allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, share-based awards). The number of unissued common shares reserved for future grants under the Plan was 16.9 million as of February 1, 2020.

TARGET CORPORATION						2019 Form 10-K			52

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Compensation expense associated with share-based awards is recognized on a straight-line basis over the required service period and reflects estimated forfeitures. Share-based compensation expense recognized in Selling, General and Administrative Expenses was $152 million, $134 million, and $115 million in 2019, 2018, and 2017, respectively. The related income tax benefit was $27 million, $26 million, and $26 million in 2019, 2018, and 2017, respectively.

Restricted Stock Units

We issue restricted stock units and performance-based restricted stock units generally with 3-year cliff or 4-year graduated vesting from the grant date (collectively restricted stock units) to certain team members. The final number of shares issued under performance-based restricted stock units is based on our total shareholder return relative to a retail peer group over a 3-year performance period. 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 weighted average grant date fair value for restricted stock units was $80.01, $72.65, and $56.19 in 2019, 2018, and 2017, respectively.

Restricted Stock Unit Activity			Total Nonvested Units
			Restricted Stock (a)			Grant Date Fair Value (b)
February 2, 2019			3,815			$	66.86
Granted			2,157			80.01
Forfeited			(556)			71.74
Vested			(1,100)			66.76
February 1, 2020			4,316			$	72.93

(a)Represents the number of shares of restricted stock units, in thousands. For performance-based restricted stock units, assumes attainment of maximum payout rates as set forth in the performance criteria. Applying actual or expected payout rates, the number of outstanding restricted stock units and performance-based restricted stock units as of February 1, 2020 was 4,278 thousand.

(b)Weighted average per unit.

The expense recognized each period is partially dependent upon our estimate of the number of shares that will ultimately be issued. As of February 1, 2020, there was $149 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a weighted average period of 2.5 years. The fair value of restricted stock units vested and converted to shares of Target common stock was $89 million, $119 million, and $87 million in 2019, 2018, and 2017, respectively.

Performance Share Units

We issue performance share units to certain team members that represent shares potentially issuable in the future. Issuance is based upon our performance, 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. The weighted average grant date fair value for performance share units was $86.81, $70.94, and $55.93 in 2019, 2018, and 2017, respectively.

TARGET CORPORATION						2019 Form 10-K			53

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Performance Share Unit Activity			Total Nonvested Units
			Performance Share Units (a)			Grant Date Fair Value (b)
February 2, 2019			3,623			$	67.47
Granted			1,447			86.81
Forfeited			(875)			66.64
Vested			(620)			72.32
February 1, 2020			3,575			$	72.80

(a)Represents the number of performance share units, in thousands. Assumes attainment of maximum payout rates as set forth in the performance criteria. Applying actual or expected payout rates, the number of outstanding performance share units as of February 1, 2020 was 1,944 thousand.

(b)Weighted average per unit.

The expense recognized each period is partially dependent upon our estimate of the number of shares that will ultimately be issued. Future compensation expense for unvested awards could reach a maximum of $158 million assuming payout of all unvested awards. The unrecognized expense is expected to be recognized over a weighted average period of 2.1 years. The fair value of performance share units vested and converted to shares of Target common stock was $50 million in 2019, $43 million in 2018, and $30 million in 2017.

Stock Options

In May 2017, we granted price-vested stock options (price-vested options) to certain team members, which have met the market condition and will become exercisable in 2020 pending service condition achievement. Shares received upon exercise, net of exercise costs and taxes, are subject to a 1-year post-exercise holding period. The fair value of the price-vested options was estimated using a lattice model.

Through 2013, we granted nonqualified stock options to certain team members. All are vested and currently exercisable.

Stock Option Activity			Stock Options
			Total Outstanding																		Exercisable
			Number of Options (a)			Exercise Price (b)			Intrinsic Value (c)						Number of Options (a)			Exercise Price (b)			Intrinsic Value (c)
February 2, 2019			3,990			$	55.49		$	63					2,039			$	55.38		$	32
Granted			—			—
Expired/forfeited			(188)			55.63
Exercised/issued			(1,324)			55.03
February 1, 2020			2,478			$	55.72		$	136					714			$	56.02		$	39

(a)In thousands.

(b)Weighted average per share.

(c)Represents stock price appreciation subsequent to the grant date, in millions.

Stock Option Exercises (millions)			2019			2018			2017
Cash received for exercise price			$	73		$	96		$	109
Intrinsic value			59			50			34
Income tax benefit			15			12			13

As of February 1, 2020, there was $1 million of total unrecognized compensation expense related to price-vested options, which is expected to be recognized over a weighted average period of 0.3 years. The weighted average remaining life of exercisable options is 2.1 years, and the weighted average remaining life of all outstanding options is 3.5 years. No options vested in 2019, 2018 or 2017.

TARGET CORPORATION						2019 Form 10-K			54

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

22. Defined Contribution Plans

Team members who meet eligibility requirements can participate in a defined contribution 401(k) plan by investing up to 80 percent of their eligible earnings, as limited by statute or regulation. We match 100 percent of each team member's contribution up to 5 percent of eligible earnings. Company match contributions are made to funds designated by the participant, none of which are based on Target common stock.

In addition, we maintain an unfunded, nonqualified deferred compensation plan for a broad management group whose participation in our 401(k) plan is limited by statute or regulation. These team members choose from a menu of crediting rate alternatives that are generally the same as the investment choices in our 401(k) plan, but also includes a fund based on Target common stock. 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 $551 million and $517 million as of February 1, 2020 and February 2, 2019, 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. See Notes 6 and 11 for additional information.

Plan Expenses
(millions)			2019			2018			2017
401(k) plan matching contributions expense			$	237		$	229		$	219
Nonqualified deferred compensation plans
Benefits expense			80			18			83
Related investment expense (income)			(53)			6			(48)
Nonqualified plan net expense			$	27		$	24		$	35

23. Pension Plans

We have a U.S. qualified defined benefit pension plan covering team members who meet age and service requirements, including date of hire in certain circumstances. Effective January 1, 2009, our qualified defined benefit pension plan was closed to new participants, with limited exceptions. We also have unfunded nonqualified pension plans for team members with qualified plan compensation restrictions, as well as international plans. Eligibility for, and the level of, these benefits varies depending on each team member's date of hire, length of service and/or team member compensation.

Funded Status			Qualified Plan												Nonqualified and International Plans
(millions)			2019			2018						2019			2018
Projected benefit obligations			$	4,492		$	3,905					$	66		$	53
Fair value of plan assets			4,430			3,915						11			10
Funded / (underfunded) status			$	(62)		$	10					$	(55)		$	(43)

Contributions and Estimated Future Benefit Payments

Our obligations to plan participants can be met over time through a combination of company contributions to these plans and earnings on plan assets. We are not required to make any contributions to our qualified defined benefit pension plan in 2020. However, depending on investment performance and plan funded status, we may elect to make a contribution.

TARGET CORPORATION						2019 Form 10-K			55

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Estimated Future Benefit Payments (millions)			Pension Benefits
2020			$	304
2021			207
2022			216
2023			224
2024			232
2025-2029			1,266

Cost of Plans

Net Pension Benefits Expense
(millions)			Classification			2019			2018			2017
Service cost benefits earned			SG&A Expenses			$	93		$	95		$	86
Interest cost on projected benefit obligation			Net Other (Income) / Expense			149			146			140
Expected return on assets			Net Other (Income) / Expense			(248)			(246)			(250)
Amortization of losses			Net Other (Income) / Expense			62			82			61
Amortization of prior service cost			Net Other (Income) / Expense			(11)			(11)			(11)
Settlement charges			Net Other (Income) / Expense			1			4			1
Total						$	46		$	70		$	27

Assumptions

Benefit Obligation Weighted Average Assumptions
			2019			2018
Discount rate			3.13		%	4.28		%
Average assumed rate of compensation increase			3.00			3.00

Net Periodic Benefit Expense Weighted Average Assumptions
			2019			2018			2017
Discount rate			4.28		%	3.93		%	4.40		%
Expected long-term rate of return on plan assets			6.30			6.30			6.55
Average assumed rate of compensation increase			3.00			3.00			3.00

The weighted average assumptions used to measure net periodic benefit expense each year are the rates as of the beginning of the year (i.e., the prior measurement date). Our most recent compound annual rate of return on qualified plan assets was 6.6 percent, 9.0 percent, 7.2 percent, and 6.3 percent for the 5-year, 10-year, 15-year, and 20-year time periods, respectively.

The market-related value of plan assets is used in calculating the expected return on assets. Historical differences between expected and actual returns are deferred and recognized in the market-related value over a 5-year period from the year in which they occur.

We review the expected long-term rate of return annually and revise it as appropriate. Additionally, we monitor the mix of investments in our portfolio to ensure alignment with our long-term strategy to manage pension cost and reduce volatility in our assets. Our 2019 expected annualized long-term rate of return assumptions were 6.5 percent for domestic equity securities, 8.0 percent for international equity securities, 4.5 percent for long-duration debt securities, 8.0 percent for diversified funds, and 7.0 percent for other investments. These estimates are a judgmental matter in which we consider the composition of our asset portfolio, our historical long-term investment performance, and current market conditions.

TARGET CORPORATION						2019 Form 10-K			56

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Benefit Obligation

Change in Projected Benefit Obligation			Qualified Plan												Nonqualified and International Plans
(millions)			2019			2018						2019			2018
Benefit obligation at beginning of period			$	3,905		$	4,061					$	53		$	63
Service cost			90			93						3			2
Interest cost			146			145						3			1
Actuarial (gain) / loss			615			(167)						11			(1)
Participant contributions			11			6						—			—
Benefits paid			(275)			(233)						(4)			(12)
Benefit obligation at end of period (a)			$	4,492		$	3,905					$	66		$	53

(a)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.

Plan Assets

Change in Plan Assets			Qualified Plan												Nonqualified and International Plans
(millions)			2019			2018						2019			2018
Fair value of plan assets at beginning of period			$	3,915		$	4,107					$	10		$	11
Actual return on plan assets			729			(65)						—			(1)
Employer contributions			50			100						5			12
Participant contributions			11			6						—			—
Benefits paid			(275)			(233)						(4)			(12)
Fair value of plan assets at end of period			$	4,430		$	3,915					$	11		$	10

Our asset allocation policy is designed to reduce the long-term cost of funding our pension obligations. The plan invests with both passive and active investment managers depending on the investment. The plan also seeks to reduce the risk associated with adverse movements in interest rates by employing an interest rate hedging program, which may include the use of interest rate swaps, total return swaps, and other instruments.

Asset Category			Current Targeted			Actual Allocation
			Allocation			2019			2018
Domestic equity securities (a)			15		%	14		%	13		%
International equity securities			10			10			9
Debt securities			45			46			47
Diversified funds			25			25			24
Other (b)			5			5			7
Total			100		%	100		%	100		%

(a)Equity securities include our common stock in amounts substantially less than 1 percent of total plan assets in both periods presented.

(b)Other assets include private equity, mezzanine and high-yield debt, natural resources and timberland funds, multi-strategy hedge funds, derivative instruments, and real estate.

TARGET CORPORATION						2019 Form 10-K			57

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

Fair Value Measurements						Fair Value at
(millions)			Pricing Category			January 31, 2020						January 31, 2019
Cash and cash equivalents			Level 1			$	12					$	3
Derivatives			Level 2			18						12
Government securities (a)			Level 2			604						631
Fixed income (b)			Level 2			1,330						1,123
						1,964						1,769
Investments valued using NAV per share (c)
Fixed income						64						54
Private equity funds						75						84
Cash and cash equivalents						163						100
Common collective trusts						961						828
Diversified funds						1,109						952
Other						105						138
Total plan assets						$	4,441					$	3,925

(a)Investments in government securities and long-term government bonds.

(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. 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.

Position						Valuation Technique
Cash and cash equivalents						Carrying value approximates fair value.
Derivatives						Swap derivatives - Valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. Option derivatives - Valued at transaction price initially. Subsequent valuations are based on observable inputs to the valuation model (e.g., underlying investments).
Government securities and fixed income						Valued using matrix pricing models and quoted prices of securities with similar characteristics.

Amounts Included in Shareholders' Investment

Amounts in Accumulated Other Comprehensive Loss
(millions)			2019			2018
Net actuarial loss			$	1,138		$	1,060
Prior service credits			(13)			(24)
Amounts in Accumulated Other Comprehensive Loss (a)(b)			$	1,125		$	1,036

(a)$837 million and $772 million, net of tax, at the end of 2019 and 2018, respectively.

(b)We expect 2020 net pension expense to include amortization expense of $116 million ($86 million, net of tax) related to net actuarial loss and prior service credit balances included in Accumulated Other Comprehensive Loss.

TARGET CORPORATION						2019 Form 10-K			58

			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Financial Statements

24. Accumulated Other Comprehensive Loss

(millions)			Cash Flow Hedges						Currency Translation Adjustment						Pension						Total
February 2, 2019			$	(13)					$	(20)					$	(772)					$	(805)
Other Comprehensive Income / (Loss) before reclassifications, net of tax			—						1						(104)						(103)
Amounts reclassified from AOCL, net of tax			1			(a)			—						39			(b)			40
February 1, 2020			$	(12)					$	(19)					$	(837)					$	(868)

(a)Represents amortization of gains and losses on cash flow hedges, net of taxes, which is recorded in Net Interest Expense.

(b)Represents amortization of pension gains and losses, net of $13 million of taxes, which is recorded in Net Other (Income)/Expense. See Note 23 for additional information.

25. Quarterly Results (Unaudited)

Due to the seasonal nature of our business, fourth quarter operating results typically represent a substantially larger share of total year revenues and earnings because they include the November and December holiday sales period. We follow the same accounting policies for preparing quarterly and annual financial data. The table below summarizes quarterly results for 2019 and 2018:

Quarterly Results			First Quarter												Second Quarter												Third Quarter												Fourth Quarter												Total Year
(millions, except per share data)			2019			2018						2019			2018						2019			2018						2019			2018						2019			2018
Sales			$	17,401		$	16,556					$	18,183		$	17,552					$	18,414		$	17,590					$	23,133		$	22,734					$	77,130		$	74,433
Other revenue			226			225						239			224						251			231						265			243						982			923
Total revenue			17,627			16,781						18,422			17,776						18,665			17,821						23,398			22,977						78,112			75,356
Cost of sales			12,248			11,625						12,625			12,239						12,935			12,535						17,056			16,900						54,864			53,299
Selling, general and administrative expenses			3,663			3,545						3,912			3,865						4,153			3,937						4,504			4,376						16,233			15,723
Depreciation and amortization (exclusive of depreciation included in cost of sales)			581			570						561			539						575			530						640			584						2,357			2,224
Operating income			1,135			1,041						1,324			1,133						1,002			819						1,198			1,117						4,658			4,110
Net interest expense			126			121						120			115						113			115						118			110						477			461
Net other (income) / expense			(12)			(7)						(13)			(4)						(12)			(9)						29			(7)						(9)			(27)
Earnings from continuing operations before income taxes			1,021			927						1,217			1,022						901			713						1,051			1,014						4,190			3,676
Provision for income taxes			229			210						279			223						195			97						218			216						921			746
Net earnings from continuing operations			792			717						938			799						706			616						833			798						3,269			2,930
Discontinued operations, net of tax			3			1						—			—						8			6						1			1						12			7
Net earnings			$	795		$	718					$	938		$	799					$	714		$	622					$	834		$	799					$	3,281		$	2,937
Basic earnings per share
Continuing operations			$	1.54		$	1.34					$	1.83		$	1.50					$	1.38		$	1.17					$	1.64		$	1.53					$	6.39		$	5.54
Discontinued operations			—			—						—			—						0.02			0.01						—			—						0.02			0.01
Net earnings per share			$	1.54		$	1.34					$	1.83		$	1.50					$	1.40		$	1.18					$	1.65		$	1.54					$	6.42		$	5.55
Diluted earnings per share
Continuing operations			$	1.53		$	1.33					$	1.82		$	1.49					$	1.37		$	1.16					$	1.63		$	1.52					$	6.34		$	5.50
Discontinued operations			—			—						—			—						0.02			0.01						—			—						0.02			0.01
Net earnings per share			$	1.53		$	1.33					$	1.82		$	1.49					$	1.39		$	1.17					$	1.63		$	1.52					$	6.36		$	5.51
Dividends declared per share			$	0.64		$	0.62					$	0.66		$	0.64					$	0.66		$	0.64					$	0.66		$	0.64					$	2.62		$	2.54

Note: Per share amounts are computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding and all other quarterly amounts may not equal the total year due to rounding.

TARGET CORPORATION						2019 Form 10-K			59

			SUPPLEMENTAL INFORMATION			Table of Contents
						Index to Financial Statements