Target 2013 Annual Report Download - page 23

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Litigation and Governmental Investigations
In addition, more than 80 actions have been filed in courts in many states and other claims have been or may be
asserted against us on behalf of guests, payment card issuing banks, shareholders or others seeking damages or
other related relief, allegedly arising out of the Data Breach. State and federal agencies, including the State Attorneys
General, the Federal Trade Commission and the SEC are investigating events related to the Data Breach, including
how it occurred, its consequences and our responses. Although we are cooperating in these investigations, we may
be subject to fines or other obligations, which may have an adverse effect on how we operate our business and our
results of operations. While a loss from these matters is reasonably possible, we cannot reasonably estimate a range
of possible losses because our investigation into the matter is ongoing, the proceedings remain in the early stages,
alleged damages have not been specified, there is uncertainty as to the likelihood of a class or classes being certified
or the ultimate size of any class if certified, and there are significant factual and legal issues to be resolved. Further,
we do not believe that a loss from these matters is probable; therefore, we have not recorded a loss contingency
liability for litigation, claims and governmental investigations in the fourth quarter. See Note 17 of the Notes to
Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data.
Future Costs
We expect to incur significant investigation, legal and professional services expenses associated with the Data Breach
in future periods. We will recognize these expenses as services are received. We also expect to incur additional
expenses associated with incremental fraud and reissuance costs on Target REDcards.
Insurance Coverage
To limit our exposure to Data Breach losses, we maintain $100 million of network-security insurance coverage, above
a $10 million deductible. This coverage and certain other insurance coverage may reduce our exposure. We will pursue
recoveries to the maximum extent available under the policies. As of February 1, 2014, we have recorded a $44 million
receivable for costs we believe are reimbursable and probable of recovery under our insurance coverage, which
partially offsets the $61 million of expense relating to the Data Breach.
Future Capital Investments
We plan to accelerate a previously planned investment of approximately $100 million to equip our proprietary REDcards
and all of our U.S. store card readers with chip-enabled smart-card technology by the first quarter of 2015.
In addition, we may accelerate or make additional investments in our information technology systems, but we are
unable to estimate such investments because the nature and scope has not yet been determined. We do not expect
such amounts to be material to any fiscal period.
Effect on Sales and Guest Loyalty
We believe the Data Breach adversely affected our fourth quarter U.S. Segment sales. Prior to our December 19,
2013 announcement of the Data Breach, our U.S. Segment fourth quarter comparable sales were positive, followed
by meaningfully negative comparable sales results following the announcement. Comparable sales began to recover
in January 2014. The collective interaction of year-over-year changes in the retail calendar (e.g., the number of days
between Thanksgiving and Christmas), combined with the broad array of competitive, consumer behavioral and weather
factors makes any quantification of the precise impact of the Data Breach on sales infeasible.
Fourth quarter sales penetration on our REDcards was 20.9 percent, up 5.4 percentage points from 2012. While the
rate of increase slowed following the Data Breach, year-over-year penetration continued to grow.
We know our guests' confidence in Target and the broader U.S. payment system has been shaken. We are committed
to, and actively engaged in, activities to restore their confidence. We cannot predict the length or extent of any ongoing
impact to sales.
Credit Card Receivables Transaction
In March 2013, we sold our entire U.S. consumer credit card portfolio to TD and recognized a gain of $391 million.
This transaction was accounted for as a sale, and the receivables are no longer reported in our Consolidated Statements
of Financial Position. Consideration received included cash of $5.7 billion, equal to the gross (par) value of the