TARGET CORP

Notes to Consolidated Financial Statements (unaudited)

1. Accounting Policies

These unaudited condensed consolidated financial statements are prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States (U.S.) generally accepted accounting principles (GAAP) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in our most recent Form 10-K.

We use the same accounting policies in preparing quarterly and annual financial statements.

Certain prior-year amounts have been reclassified to conform to the current-year presentation.

We operate as a single segment that includes all of our operations, which are designed to enable guests to purchase products seamlessly in stores or through our digital channels. Nearly all of our revenues are generated in the U.S. The vast majority of our long-lived assets are located within the U.S.

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. Net Sales

Merchandise sales represent the vast majority of our revenues. We also earn revenues from a variety of other sources, most notably advertising revenue and credit card profit-sharing income.

(a)Includes apparel for women, men, young adults, kids, toddlers, and babies, as well as jewelry, accessories, and shoes.

(b)Includes skin and bath care, cosmetics, hair care, oral care, deodorant, and shaving products.

(c)Includes dry and perishable grocery, including snacks, candy, beverages, deli, bakery, meat, produce, and food service (primarily Starbucks) in our stores.

(d)Includes electronics, including video games and consoles, toys, sporting goods, entertainment, and luggage.

(e)Includes bed and bath, home décor, school/office supplies, storage, small appliances, kitchenware, greeting cards, party supplies, furniture, lighting, home improvement, and seasonal merchandise.

(f)Includes household cleaning, paper products, over-the-counter healthcare, vitamins and supplements, baby gear, and pet supplies.

Merchandise sales —We record almost all retail store revenues at the point of sale. Digitally originated sales may include shipping revenue and are recorded upon delivery to the guest or upon guest pickup at the store. Sales are recognized net of expected returns, which we estimate using historical return patterns and our expectation of future returns. As of November 1, 2025, February 1, 2025, and November 2, 2024, the accrual for estimated returns was $187 million, $172 million, and $204 million, respectively.

Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.

(a)Included in Accrued and Other Current Liabilities.

(b)Net of estimated breakage.

Advertising revenue — Primarily represents revenue related to certain advertising services provided via our Roundel digital advertising business offering. Roundel services are classified as either Net Sales or as a reduction of Cost of Sales or Selling, General, and Administrative (SG&A) Expenses, depending on the nature of the advertising arrangement.

Credit card profit sharing — We receive payments under a credit card program agreement with TD Bank Group (TD). Under the agreement, we receive a percentage of the profits generated by the Target Circle credit card receivables in exchange for performing account servicing and primary marketing functions. TD underwrites, funds, and owns Target Circle credit card receivables, controls risk management policies, and oversees regulatory compliance.

Other — Includes commissions earned on third-party sales through our Target Plus third-party digital marketplace, Target Circle 360 membership revenue, Shipt membership and service revenues, rental income, and other miscellaneous revenues.

3. Interchange Fee Settlements

In March 2025, we entered into settlement agreements to resolve credit card interchange fee litigation matters in which we were a plaintiff. As a result of these lump-sum settlements, during the first quarter of 2025, we recorded gains within SG&A Expenses of $593 million, net of legal fees.

4. Business Transformation Costs

In May 2025, we announced a multi-year initiative to transform various aspects of our business—including our organizational structure, processes, and technology—to enable greater agility and optimize the use of the Company's assets. Costs incurred in connection with our business transformation initiative include the following:

•Severance and Related Costs — In October 2025, we reduced our headquarters workforce. As a result, we recognized $115 million of severance and related costs within SG&A during the three and nine months ended November 1, 2025. The majority of these costs are expected to be paid during the fourth quarter of 2025.

•Asset-Related Charges — For the three and nine months ended November 1, 2025, we recognized $46 million of impairments and other charges associated with the termination of a commercial partnership. Note 6 provides additional information regarding impairment charges.

5. Fair Value Measurements

Fair value measurements are reported in one of three levels reflecting the significant inputs used to determine fair value.

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

(b)The fair value of long-term debt is estimated using Level 2 inputs based on quoted prices for the instruments. Where quoted prices are not available, fair value is estimated using discounted cash flows and market-based expectations for interest rates. These amounts exclude commercial paper, fair value hedge adjustments, and lease liabilities.

6. Property and Equipment

We review long-lived assets for impairment when store performance expectations, events, or changes in circumstances—such as a decision to relocate or close a store, office, or distribution center, discontinue a project, or make significant software changes—indicate that the asset’s carrying value may not be recoverable. We recognized impairment charges of $35 million and $69 million for the three and nine months ended November 1, 2025, and $1 million and $37 million for the three and nine months ended November 2, 2024. These impairment charges are included in SG&A Expenses.

7. Supplier Finance Programs

We have arrangements with several financial institutions to act as our paying agents to certain vendors. The arrangements also permit the financial institutions to provide vendors with an option, at our vendors' sole discretion, to elect to receive early payment of our payment obligations from the financial institutions at a discounted amount. A vendor’s election to receive early payment does not change the amount that we must remit to the financial institutions or our payment date, which is up to 120 days from the invoice date.

We do not pay any fees or pledge any security to these financial institutions under these arrangements. The arrangements can be terminated by either party with notice ranging up to 120 days.

Our outstanding vendor obligations eligible for early payment under these arrangements totaled $3.4 billion, $3.7 billion, and $4.7 billion as of November 1, 2025, February 1, 2025, and November 2, 2024, respectively, and are included within Accounts Payable on our Consolidated Statements of Financial Position. These outstanding vendor obligations do not represent actual early payments made under supplier finance programs, which have historically been lower.

8. Commercial Paper and Long-Term Debt

Our unsecured long-term debt issuances during the nine months ended November 1, 2025 were as follows:

Our unsecured long-term debt repayments during the nine months ended November 1, 2025 were as follows:

We obtain short-term financing from time to time under our commercial paper program. There wasno commercial paper outstanding at any time during the three and nine months ended November 1, 2025, or November 2, 2024.

In October 2025, we obtained a new committed $1.0 billion 364-day unsecured revolving credit facility that will expire in October 2026 and terminated our prior 364-day facility. No balances were outstanding under our credit facilities at any time during 2025 or 2024.

9. Derivative Financial Instruments

Our derivative instruments consist of interest rate swaps used to mitigate interest rate risk. As a result, we have counterparty credit exposure to large global financial institutions, which we monitor on an ongoing basis. Note 5 to the Consolidated Financial Statements provides the fair value and classification of these instruments.

We were party to interest rate swaps with notional amounts totaling $2.20 billion as of November 1, 2025, February 1, 2025, and November 2, 2024. We pay a floating rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were considered to be perfectly effective under the shortcut method during the three and nine months ended November 1, 2025, and November 2, 2024.

10. Share Repurchase

We periodically repurchase shares of our common stock under a board-authorized repurchase program through a combination of open market transactions, accelerated share repurchase arrangements, and other privately negotiated transactions with financial institutions.

(a) Amounts include applicable excise tax and commissions.

11. Pension Benefits

We provide pension plan benefits to eligible team members.

12. Accumulated Other Comprehensive Loss

Note: Amounts are net of tax.

13. Segment Reporting

Our Chief Operating Decision Maker—our Chief Executive Officer—monitors our consolidated operating income and net earnings to evaluate performance and make operating decisions. We operate as a single segment that includes all of our operations, which are designed to enable guests to purchase products seamlessly in stores or through our digital channels. Virtually all of our consolidated revenues are generated in the United States. The vast majority of our properties and equipment are located within the United States.

(a)For the three and nine months ended November 1, 2025, includes $161 million related to business transformation costs described in Note 4. For the nine months ended November 1, 2025, includes $593 million of pretax net gains related to settlements of credit card interchange fee litigation matters. Note 3 provides additional information.