Target 2013 Annual Report Download - page 47

42
TD now underwrites, funds and owns Target Credit Card and Target Visa receivables in the U.S. TD controls risk
management policies and oversees regulatory compliance, and we perform account servicing and primary marketing
functions. We earn a substantial portion of the profits generated by the Target Credit Card and Target Visa portfolios.
Income from the TD profit-sharing arrangement and our related account servicing expenses are classified within SG&A
expenses in the U.S. Segment.
The U.S. Segment earned credit card revenues prior to the close of the transaction, and earned $653 million of profit-
sharing from TD during 2013. On a consolidated basis, this profit-sharing income is offset by a $98 million reduction
in the beneficial interest asset, for a net $555 million impact.
The $225 million beneficial interest asset recognized at the close of the transaction effectively represents a receivable
for the present value of future profit-sharing we expect to receive on the receivables sold. It was reduced during 2013
by $96 million of profit-sharing payments related to sold receivables and a $2 million revaluation adjustment. As of
February 1, 2014, a $127 million beneficial interest asset remains and is recorded within other current assets and
other noncurrent assets in our Consolidated Statements of Financial Position. Based on historical payment patterns,
we estimate that the remaining beneficial interest asset will be reduced over the next three years.
Prior to the sale, credit card revenues were recognized according to the contractual provisions of each credit card
agreement. When accounts were written off, uncollected finance charges and late fees were recorded as a reduction
of credit card revenues. Target retail sales charged on our credit cards totaled $5,807 million and $4,686 million in
2012 and 2011, respectively.
Historically, our credit card receivables were recorded at par value less an allowance for doubtful accounts. As of
February 2, 2013, our consumer credit card receivables were recorded at the lower of cost (par) or fair value because
they were classified as held for sale. Lower of cost (par) or fair value was determined on a segmented basis using the
delinquency and credit-quality segmentation we have historically used to determine the allowance for doubtful accounts.
Many nondelinquent balances were recorded at cost (par) because fair value exceeded cost. Delinquent balances
were generally recorded at fair value, which reflected our expectation of losses on these receivables.
7. Canadian Leasehold Acquisition
During 2011, we purchased the leasehold interests in 189 sites operated by Zellers in Canada, in exchange for $1,861
million. In addition, we sold our right to acquire the leasehold interests in 54 of these sites to third-parties for a total of
$225 million. These transactions resulted in a final net purchase price of $1,636 million, which was included in
expenditures for property and equipment in the Consolidated Statements of Cash Flows.
As a result of the acquisition, the following net assets were recorded in our Canadian Segment: buildings and
improvements of $2,887 million; finite-lived intangible assets of $23 million; unsecured debt and other borrowings of
$1,274 million.
8. Fair Value Measurements
Fair value measurements are categorized into 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 available at the measurement
date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by
observable market data).