Fair Value Measurements – Recurring Basis | |||||||||||||||||||
Fair Value at February 1, 2014 | Fair Value at February 2, 2013 | ||||||||||||||||||
(millions) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets | |||||||||||||||||||
Cash and cash equivalents | |||||||||||||||||||
Short-term investments | $ | 3 | $ | — | $ | — | $ | 130 | $ | — | $ | — | |||||||
Other current assets | |||||||||||||||||||
Interest rate swaps (a) | — | 1 | — | — | 4 | — | |||||||||||||
Prepaid forward contracts | 73 | — | — | 73 | — | — | |||||||||||||
Beneficial interest asset (b) | — | — | 71 | — | — | — | |||||||||||||
Other noncurrent assets | |||||||||||||||||||
Interest rate swaps (a) | — | 62 | — | — | 85 | — | |||||||||||||
Company-owned life insurance investments (c) | — | 305 | — | — | 269 | — | |||||||||||||
Beneficial interest asset (b) | — | — | 56 | — | — | — | |||||||||||||
Total | $ | 76 | $ | 368 | $ | 127 | $ | 203 | $ | 358 | $ | — | |||||||
Liabilities | |||||||||||||||||||
Other current liabilities | |||||||||||||||||||
Interest rate swaps (a) | $ | — | $ | — | $ | — | $ | — | $ | 2 | $ | — | |||||||
Other noncurrent liabilities | |||||||||||||||||||
Interest rate swaps (a) | $ | — | $ | 39 | $ | — | $ | — | $ | 54 | $ | — | |||||||
Total | $ | — | $ | 39 | $ | — | $ | — | $ | 56 | $ | — |
(a) | There was one interest rate swap designated as an accounting hedge at February 1, 2014 and February 2, 2013. See Note 19 for additional information on interest rate swaps. |
(b) | A rollforward of the Level 3 beneficial interest asset is included in Note 6. |
(c) | Company-owned life insurance investments consist of equity index funds and fixed income assets. Amounts are presented net of nonrecourse loans that are secured by some of these policies. These loan amounts were $790 million at February 1, 2014 and $817 million at February 2, 2013. |
Valuation Technique |
Short-term investments - Carrying value approximates fair value because maturities are less than three months. |
Prepaid forward contracts - Initially valued at transaction price. Subsequently valued by reference to the market price of 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). |
Company-owned life insurance investments - Includes investments in separate accounts that are valued based on market rates credited by the insurer. |
Beneficial interest asset - Valued using a cash-flow based economic-profit model, which includes inputs of the forecasted performance of the receivables portfolio and a market-based discount rate. Internal data is used 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. A one percentage point change in the forecasted EBIT yield would impact our fair value estimate by approximately $20 million. A one percentage point change in the forecasted discount rate would impact our fair value estimate by approximately $4 million. As described in Note 6, this beneficial interest asset effectively represents a receivable for the present value of future profit-sharing we expect to receive on the receivables sold. As a result, a portion of the profit-sharing payments we receive from TD will reduce the beneficial interest asset. As the asset is reduced over time, changes in the forecasted credit EBIT yield and the forecasted discount rate will have a similar impact on the estimated fair value. |