Washington, D.C. 20549

For the quarterly period ended October 29, 2016

Commission File Number 1-6049

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: 612/304-6073

Former name, former address and former fiscal year, if changed since last report: N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Large accelerated filer   x   Accelerated filer   o   Non-accelerated filer   o   Smaller Reporting company   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).                 Yes  o No  x

Indicate the number of shares outstanding of each of registrant's classes of common stock, as of the latest practicable date. Total shares of common stock, par value $0.0833, outstanding at November 17, 2016 were 561,695,464.

TARGET CORPORATION

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

See accompanying Notes to Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial Statements.

Common Stock Authorized 6,000,000,000 shares, $.0833 par value; 563,676,785 , 602,226,517 and 618,604,168 shares issued and outstanding at October 29, 2016 , January 30, 2016 and October 31, 2015 , respectively.

Preferred Stock Authorized 5,000,000 shares, $.01 par value; no shares were issued or outstanding at October 29, 2016 , January 30, 2016 or October 31, 2015 .

See accompanying Notes to Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements (unaudited)

1. Accounting Policies

These financial statements should be read in conjunction with the financial statement disclosures in our 2015 Form 10-K. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. Certain prior-year amounts have been reclassified to conform to the current year presentation. Unless otherwise noted, amounts presented within the Notes to Consolidated Financial Statements refer to our continuing operations.

Due to the seasonal nature of our business, quarterly revenues, expenses, earnings, and cash flows are not necessarily indicative of the results that may be expected for the full year.

2. Revenues

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) . This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue for the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.

We must adopt the standard no later than the first quarter of 2018, which begins on February 4, 2018. We do not plan to early adopt the standard. Companies may use either a full retrospective or a modified retrospective approach to adopt the standard.

While we are still evaluating the standard, including our adoption method, we do not expect the standard to materially affect our consolidated net income, financial position or cash flows.

3. Discontinued Operations

As part of a March 2016 settlement between Target Canada Co. and certain other wholly owned subsidiaries of Target (collectively, Canada Subsidiaries) and all of their former landlords, we agreed to subordinate a portion of our intercompany claims and make certain cash contributions to the Target Canada Co. estate in exchange for a full release from our obligations under guarantees of certain leases of the Canada Subsidiaries. The settlement was contingent upon the Canada Subsidiaries' creditors' and the court's approval of a plan of compromise and arrangement to complete the controlled, orderly, and timely wind-down of the Canada Subsidiaries (Plan). During the second quarter of 2016, a Plan was approved. The net pretax financial impact of the settlement and Plan was materially consistent with amounts previously recorded in our financial statements. For the nine months ended October 29, 2016, net earnings from discontinued operations primarily reflect tax benefits from investment losses in Canada recognized upon court approval of the Plan. During the three and nine months ended October 29, 2016, we received $21 million and $182 million , respectively, from the Target Canada Co. estate. During the second quarter of 2016, we made cash contributions of $27 million to the Target Canada Co. estate.

4. Restructuring Initiatives

In 2015, we initiated a series of headquarters workforce reductions intended to increase organizational effectiveness and provide cost savings that can be reinvested in our growth initiatives. As a result, we recorded $21 million and $135 million of severance and other benefits-related charges within selling, general, and administrative expenses (SG&A) during the three and nine months ended October 31, 2015, respectively. The vast majority of these expenses required cash expenditures and were not included in our segment results. An accrual for restructuring costs of $14 million was included in other current liabilities as of October 31, 2015. No balance remained as of October 29, 2016.

5. 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).

(a) See Note 9 for additional information on interest rate swaps.

(a) The carrying amounts of certain other current assets, accounts payable, and certain accrued and other current liabilities approximate fair value due to their short-term nature.

(b) The carrying amount and estimated fair value of debt exclude unamortized swap valuation adjustments and capital lease obligations.

6. Notes Payable and Long-Term Debt

We obtain short-term financing from time to time under our commercial paper program, a form of notes payable. For the three and nine months ended October 29, 2016, the maximum amount outstanding was $89 million and the average daily amounts outstanding were $3 million and $1 million , respectively, at a weighted average annual interest rate of 0.43 percent . At October 29, 2016, $89 million was outstanding. No balances were outstanding at any time during 2015.

In April 2016, we issued unsecured fixed rate debt of $1 billion at 2.5% that matures in April 2026 and $1 billion at 3.625% that matures in April 2046. During the first half of 2016, we used cash on hand and proceeds from these issuances to repurchase $1,389 million of debt before its maturity at a market value of $1,800 million . We recognized a loss on early retirement of approximately $422 million , which was recorded in net interest expense in our Consolidated Statements of Operations.

In October 2016, we obtained a committed $2.5 billion revolving credit facility that expires in October 2021. This new unsecured revolving credit facility replaced a $2.25 billion unsecured revolving credit facility that was scheduled to expire in October 2018. No balances were outstanding under either credit facility at any time during 2016 or 2015 .

7. Goodwill and Intangible Assets

We review long-lived assets for impairment when events or changes in circumstances, such as a decision to discontinue a business, indicate that the asset's carrying value may not be recoverable. We also review goodwill for impairment when events or circumstances indicate it is more likely than not the fair value of a reporting unit is below its carrying value. During the third quarter 2015, we announced our decision to wind down certain noncore operations. As a result, we recorded a $35 million pretax impairment loss, which included approximately $23 million of intangible assets and $12 million of goodwill. These costs were included in SG&A on our Consolidated Statements of Operations, but were not included in our segment results.

8. Property and Equipment

We review long-lived assets for impairment when events or changes in circumstances-such as a decision to relocate or close a store, make significant software changes or discontinue projects-indicate that the asset's carrying value may not be recoverable. We recognized impairment losses during each of the periods presented, primarily resulting from discontinued projects, store closures, and completed or planned land sales.

(a) Substantially all of the impairments are recorded in selling, general and administrative expense on the Consolidated Statements of Operations.

(b) For the three and nine months ended October 31, 2015, represents long-lived asset impairments from our decision to wind down certain noncore operations. These costs were not included in our segment results.

9. Derivative Financial Instruments

Our derivative instruments primarily consist of interest rate swaps, which we use to mitigate interest rate risk. As a result of our use of derivative instruments, we have counterparty credit exposure to large global financial institutions. We monitor this concentration of counterparty credit risk on an ongoing basis. See Note 5 for a description of the fair value measurement of our derivative instruments and their classification on the Consolidated Statements of Financial Position.

As of October 29, 2016 and October 31, 2015 , interest rate swaps with notional amounts totaling $1,000 million and $1,250 million , respectively, were designated fair value hedges. No ineffectiveness was recognized during the three and nine months ended October 29, 2016 or October 31, 2015 .

As of October 29, 2016 , one interest rate swap with a notional amount of $250 million was not designated a fair value hedge because it was de-designated concurrent with the repurchase of debt during the first half of 2016. As of October 31, 2015 , two interest rate swaps, each with a notional amount of $500 million , were not designated fair value hedges. These two interest rate swaps had largely offsetting terms and matured during the second quarter of 2016.

The amount remaining on unamortized hedged debt valuation gains from terminated or de-designated interest rate swaps that will be amortized into earnings over the remaining lives of the underlying debt totaled $6 million , $15 million , and $20 million , at October 29, 2016 , January 30, 2016 , and October 31, 2015 , respectively.

Periodic payments, valuation adjustments, and amortization of gains or losses on our derivative contracts had the following effect on our Consolidated Statements of Operations:

10. Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

We must adopt the standard no later than the first quarter of 2019, which begins on February 3, 2019. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

While we are still evaluating the standard, we plan to early adopt the standard during the second half of 2017.  Our ability to early adopt is contingent on system readiness, including software procured from third-party providers. While we continue to assess all potential impacts, we believe the most significant impact relates to our accounting for retail-store and office-space real estate leases, which will be recorded as assets and liabilities on our balance sheet upon adoption. We do not believe the new standard will have a notable impact on our liquidity. The standard will have no impact on our debt-covenant compliance under our current agreements.

11. Share Repurchase

In September 2016, our Board of Directors authorized a new $5 billion share repurchase program. We will begin repurchasing shares under this new authorization upon completion of the current $10 billion program, under which we have repurchased 133.1 million shares of common stock through October 29, 2016 at an average price of $70.52 , for a total investment of $9.4 billion , excluding the initial share delivery and $350 million prepayment under the accelerated shares repurchase agreement (ASR) described below.

During the third quarter of 2016, we entered into an ASR to repurchase $250 to $350 million of our common stock under the existing $10 billion share repurchase program. Under the agreement, we prepaid $350 million and received an initial delivery of 3.4 million shares, which were retired, resulting in a $230 million reduction to shareholders' investment. As of October 29, 2016, $20 million was included in the Consolidated Statement of Financial Position as an additional reduction to shareholders' investment because the minimum repurchase was $250 million . The remaining $100 million was included in other current assets. The ASR was not accounted for as a derivative instrument.

In November 2016, the ASR settled. We received an additional 1.3 million shares, which were retired, and $36 million for the remaining amount not settled in shares. In total, we repurchased 4.6 million shares under the ASR for a total cash investment of $314 million ( $67.67 per share).

Note: Accelerated share repurchase activity in 2016 is omitted because the transaction was not fully settled as of October 29, 2016. Also excludes shares withheld to settle employee statutory tax withholding related to the vesting of share-based awards.

(a) Includes 0.2 million and 0.1 million shares delivered upon the noncash settlement of prepaid contracts during the nine months ended October 29, 2016 and October 31, 2015, respectively. These contracts had an original cash investment of $12 million and $3 million , respectively, and aggregate market value of $13 million and $7 million . These contracts are among the investment vehicles used to reduce our economic exposure related to our nonqualified deferred compensation plans. Note 13 provides the details of our positions in prepaid forward contracts.

12. Share-Based Compensation

During the first quarter of 2016, we adopted Accounting Standards Update (ASU) No. 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). As a result of adoption, we recognized $18 million of excess tax benefits related to share-based payments in our provision for income taxes for the nine months ended October 29, 2016. These items were historically recorded in additional paid-in capital. In addition, for each period presented, cash flows related to excess tax benefits are classified as an operating activity along with other income tax cash flows. Cash paid on employees' behalf related to shares withheld for tax purposes is classified as a financing activity. Retrospective application of the cash flow presentation resulted in increases to both net cash provided by operations and net cash required for financing activities of $79 million for the nine months ended October 31, 2015. Compensation expense each period continues to reflect estimated forfeitures.

13. Pension and Other Benefits

Pension Benefits

We provide pension plan benefits to certain eligible team members.

Other Benefits

We offer unfunded nonqualified deferred compensation plans to certain team members. We mitigate some of our risk of these plans through investing in vehicles, including company-owned life insurance and prepaid forward contracts in our own common stock, that offset a substantial portion of our economic exposure to the returns of these plans. These investment vehicles 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.

The total change in fair value for contracts indexed to our own common stock recognized in earnings was pretax loss of $3 million and $2 million for the three and nine months ended October 29, 2016 , respectively, and pretax (loss)/income of $(2) million and $2 million for the three and nine months ended October 31, 2015 , respectively. During the nine months ended October 29, 2016 and October 31, 2015 , we made no investments in prepaid forward contracts in our own common stock. Adjusting our position in these investment vehicles may involve repurchasing shares of Target common stock when settling the forward contracts as described in Note 11. The settlement dates of these instruments are regularly renegotiated with the counterparty. At October 29, 2016 , January 30, 2016 and October 31, 2015 , we held asset positions in prepaid forward contracts for 0.4 million shares of our common stock, for a total cash investment of $17 million , $18 million and $18 million ( $41.11 per share) and a contractual fair value of $28 million , $32 million and $34 million , respectively.

14. Accumulated Other Comprehensive (Loss) / Income

(a) Represents gains and losses on cash flow hedges, net of $2 million of taxes.

(b) Represents amortization of pension and other benefit liabilities, net of $9 million of taxes.

15. Segment Reporting

Our segment measure of profit is used by management to evaluate performance and make operating decisions. 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, online or through mobile devices.

Note: Amounts may not foot due to rounding.

(a) Refer to Note 7 and Note 8.

(b) Refer to Note 4.

(c) For the three months ended October 29, 2016, represents items related to the December 2015 sale of our former pharmacy and clinic businesses to CVS. For the three and nine months ended October 31, 2015, represents legal, professional services, and other costs related to the 2013 data breach.

(d) The sum of segment SG&A expenses, restructuring costs, pharmacy transaction-related costs, data breach-related costs, and impairments equal consolidated SG&A expenses.

(a) Represents the insurance receivable related to the 2013 data breach.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

Third quarter 2016 includes the following notable items:

Sales were $16,441 million for the three months ended October 29, 2016 , a decrease of $1,172 million or 6.7 percent from the same period in the prior year. The decrease is primarily due to the December 2015 sale of our pharmacy and clinic businesses (Pharmacy Transaction), which generated $1,112 million of sales during the three months ended October 31, 2015. Operating cash flow provided by continuing operations was $2,770 million and $3,035 million for the nine months ended October 29, 2016 and October 31, 2015 , respectively. The operating cash flow decrease is due to the payment of approximately $500 million of taxes during the first quarter of 2016, primarily related to the Pharmacy Transaction.

Note: Amounts may not foot due to rounding. Adjusted diluted earnings per share from continuing operations (Adjusted EPS), a non-GAAP metric, excludes the impact of certain items not related to our routine retail operations. Management believes that Adjusted EPS is meaningful to provide period-to-period comparisons of our operating results. A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 18.

We report after-tax return on invested capital (ROIC) from continuing operations because we believe ROIC provides a meaningful measure of the effectiveness of our capital allocation over time. For the trailing twelve months ended October 29, 2016 , ROIC was 16.3 percent, compared with 13.0 percent for the trailing twelve months ended October 31, 2015 . Excluding the net gain on the Pharmacy Transaction, ROIC was 14.3 percent for the trailing twelve months ended October 29, 2016 . A reconciliation of ROIC is provided on page 19.

Analysis of Results of Operations

Segment Results

Note: We operate as a single segment which includes all of our continuing operations, excluding net interest expense and certain other discretely managed items. Our segment operations are designed to enable guests to purchase products seamlessly in stores, online, or through mobile devices. See Note 15 of our Financial Statements for a reconciliation of our segment results to earnings before income taxes.

(a) Sales include $1,112 million and $3,240 million related to our former pharmacy and clinic businesses for the three and nine months ended October 31, 2015, respectively, and cost of sales include $885 million and $2,572 million , respectively. The December 2015 sale of these businesses to CVS had no notable impact on EBITDA or EBIT.

(b) SG&A includes $168 million and $489 million of net profit-sharing income under our credit card program agreement for the three and nine months ended October 29, 2016 , respectively, and $166 million and $477 million for the three and nine months ended October 31, 2015 , respectively.

Note: Rate analysis metrics are computed by dividing the applicable amount by sales.

(a) Excluding sales of our former pharmacy and clinic businesses, EBITDA margin rates were 9.2 percent and 10.7 percent for the three and nine months ended October 31, 2015, respectively, and EBIT margin rates were 5.8 percent and 7.3 percent, respectively.

Sales

Sales include merchandise sales, net of expected returns, from our stores and digital channels, and gift card breakage. Digital channel sales include all sales initiated through mobile applications and our conventional websites. Digital channel sales may be fulfilled through our distribution centers or our stores.

(a) Excluding sales of our former pharmacy and clinic businesses, stores and digital channels sales were 97.1 percent and 2.9 percent of total sales, respectively, for both the three and nine months ended October 31, 2015.

(a) Pharmacy represented six percent of total sales for the three and nine months ended October 31, 2015.

Comparable sales is a measure that highlights the performance of our stores and digital channels by measuring the change in sales for a period over the comparable, prior-year period of equivalent length. Comparable sales include all sales, except sales from stores open less than 13 months, digital acquisitions that we have owned less than 13 months, stores that have been closed, and digital acquisitions that we no longer operate. We removed pharmacy and clinic sales from the 2015 sales amounts when calculating 2016 comparable sales. Comparable sales measures vary across the retail industry. As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies.

Note: Amounts may not foot due to rounding.

Note: Amounts may not foot due to rounding.

The collective interaction of a broad array of macroeconomic, competitive, and consumer behavioral factors, as well as sales mix, and transfer of sales to new stores makes further analysis of sales metrics infeasible.

We monitor the percentage of sales that are paid for using REDcards (REDcard Penetration) because our internal analysis has indicated that a meaningful portion of the incremental purchases on REDcards are also incremental sales for Target, with the remainder representing a shift in tender type. Guests receive a 5 percent discount on virtually all purchases when they use a REDcard at Target.