Target 2012 Annual Report Download - page 58

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Position Valuation Technique
Short-term Carrying value approximates fair value because maturities are less than three months.
investments
Prepaid forward Initially valued at transaction price. Subsequently valued by reference to the market price of
contracts Target common stock.
Interest rate swaps Valuation models are calibrated to initial trade price. Subsequent 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.
Company-owned life Includes investments in separate accounts that are valued based on market rates credited by
insurance the insurer.
investments
The following table presents the carrying amounts and estimated fair values of financial instruments not measured
at fair value in the Consolidated Statements of Financial Position. The fair value of marketable securities is
determined using available market prices at the reporting date and would be classified as Level 1. The fair value of
debt is generally measured using a discounted cash flow analysis based on current market interest rates for similar
types of financial instruments and would be classified as Level 2.
February 2, 2013 January 28, 2012
Financial Instruments Not Measured at Fair Value
Carrying Fair Carrying Fair
(millions) Amount Value Amount Value
Financial assets
Other current assets
Marketable securities (a) $61$61$35$35
Other noncurrent assets
Marketable securities (a) 44 66
Total $65$65$41$41
Financial liabilities
Total debt (b) $15,618 $18,143 $15,680 $18,142
Total $15,618 $18,143 $15,680 $18,142
(a) Represents held-to-maturity investments and cash equivalents that are held to satisfy the regulatory requirements of Target Bank and Target
National Bank.
(b) Represents the sum of nonrecourse debt collateralized by credit card receivables and unsecured debt and other borrowings, excluding
unamortized swap valuation adjustments and capital lease obligations.
As of February 2, 2013, our consumer credit card receivables are recorded at the lower of cost (par) or fair value
because they are classified as held for sale. We estimated the fair value of our consumer credit card portfolio to be
approximately $6.3 billion using a cash flow-based, economic-profit model using Level 3 inputs, including the
forecasted performance of the portfolio and a market-based discount rate. We used internal data to forecast
expected payment patterns and write-offs, revenue, and operating expenses (credit EBIT yield) related to the credit
card portfolio. Changes in macroeconomic conditions in the United States could affect the estimated fair value used
in our lower of cost (par) or fair value assessment, which could cause gains or losses on our receivables held for
sale. A one percentage point change in the forecasted credit EBIT yield would impact our fair value estimate by
approximately $37 million. A one percentage point change in the forecasted discount rate would impact our fair
value estimate by approximately $8 million. Refer to Note 7 for more information on our credit card receivables
transaction. As of January 28, 2012, we estimated that the fair value of our credit card receivables approximated par
value.
The carrying amounts of accounts payable and certain accrued and other current liabilities approximate fair value
due to their short-term nature.
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