Credit Card Receivables Transaction

In March 2013, we sold our entire U.S. consumer credit card portfolio to TD Bank Group (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 outstanding receivables at the time of closing, and a $225 million beneficial interest asset. Concurrent with the sale, we repaid the nonrecourse debt collateralized by credit card receivables (2006/2007 Series Variable Funding Certificate) at par of $1.5 billion, resulting in net cash proceeds of $4.2 billion.

TD now underwrites, funds and owns Target Credit Card and Target Visa consumer 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. We classify this profit-sharing income in SG&A expense in the U.S. Segment.



Profit-Sharing Arrangement	Three Months Ended						Six Months Ended
(millions)	August 2, 2014			August 3, 2013			August 2, 2014			August 3, 2013 ^(a)
Profit-sharing included in U.S. Segment EBIT	$	167		$	183		$	334		$	288
Reduction of beneficial interest asset ^(b)	(11		)	(29		)	(29		)	(45		)
Net impact to SG&A expense	$	156		$	154		$	305		$	243

^(a) The U.S. Segment also earned credit card revenue prior to the close of the transaction.

^(b) On a consolidated basis, profit-sharing income is offset by reductions of the beneficial interest asset.

The $225 million beneficial interest asset effectively represents a receivable for the present value of future profit-sharing we expect to receive on the receivables sold. Profit-sharing payments reduced the beneficial interest asset by $19 million and $39 million during the three and six months ended August 2, 2014, respectively, and $31 million and $45 million during the three and six months ended August 3, 2013. Revaluation adjustments increased the asset by $8 million and $10 million during the three and six months ended August 2, 2014, respectively, and increased the asset by $2 million during the three months ended August 3, 2013. There was no net revaluation adjustment for the six months ended August 3, 2013. As of August 2, 2014 and August 3, 2013, a beneficial interest asset of $98 million and $180 million, respectively, remains and is recorded within other current assets and other noncurrent assets in our Consolidated Statements of Financial Position.