Item 8. Financial Statements and Supplementary Data
Report of Management on the Consolidated Financial Statements
Management is responsible for the consistency, integrity, and presentation of the information in the Annual Report. The consolidated financial statements and other information presented in this Annual Report have been prepared in accordance with accounting principles generally accepted in the United States and include necessary judgments and estimates by management.
To fulfill our responsibility, we maintain comprehensive systems of internal control designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with established procedures. The concept of reasonable assurance is based upon recognition that the cost of the controls should not exceed the benefit derived. We believe our systems of internal control provide this reasonable assurance.
The Board of Directors exercised its oversight role with respect to the Corporation's systems of internal control primarily through its Audit & Risk Committee, which is comprised of independent directors. The Committee oversees the Corporation's systems of internal control, accounting practices, financial reporting and audits to assess whether their quality, integrity, and objectivity are sufficient to protect shareholders' investments.
In addition, our consolidated financial statements have been audited by Ernst & Young LLP, independent registered public accounting firm, whose report also appears on this page.
Brian C. Cornell
Chair of the Board and Chief Executive Officer
March 8, 2023
Michael J. Fiddelke
Executive Vice President and
Chief Financial Officer
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
海角社区破解版 Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of 海角社区破解版 Corporation (the Corporation) as of January 28, 2023 and January 29, 2022, the related consolidated statements of operations, comprehensive income, cash flows and shareholders' investment for each of the three years in the period ended January 28, 2023, and the related notes (collectively referred to as the 鈥渃onsolidated financial statements鈥). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation at January 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Corporation's internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 8, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the Corporation鈥檚 financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Valuation of Inventory and related Cost of Sales | |
|---|---|
Description of the Matter | At January 28, 2023, the Corporation鈥檚 inventory was $13,499 million. As described in Note 9 to the consolidated financial statements, the Corporation accounts for the vast majority of its inventory under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. RIM is an averaging method that has been widely used in the retail industry due to its practicality. Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the inventory retail value. Auditing inventory requires extensive audit effort including significant involvement of more experienced audit team members, including the involvement of our information technology (IT) professionals, given the relatively higher level of automation impacting the inventory process including the involvement of multiple information systems used to capture the high volume of transactions processed by the Corporation. Further, the inventory process is supported by a number of automated and IT dependent controls that elevate the importance of the IT general controls that support the underlying information systems utilized to process transactions. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Corporation鈥檚 inventory process, including the underlying IT general controls. For example, we tested automated controls performed by the Corporation鈥檚 information systems and controls over the completeness of data transfers between information systems used in performing the Corporation鈥檚 RIM calculation. Our audit procedures included, among others, testing the processing scenarios of the automated controls by evaluating configuration settings and performing a transaction walkthrough for each scenario. Our audit procedures also included, among others, testing the key inputs into the RIM calculation, including purchases, sales, shortage, and price changes (markdowns) by comparing the key inputs back to source information such as third-party vendor invoices, third-party inventory count information and cash receipts. We performed extensive analytical procedures. For example, we performed multiple linear regression analysis to predict ending inventory values at each store and distribution center location, as well as predictive markdown analytics based on inquiries held with members of the merchant organization to assess the level of price changes within a category. In addition, we tested the existence of inventories by observing physical inventory counts for a sample of stores and distribution centers. |
| Valuation of Vendor Income Receivables | |
|---|---|
Description of the Matter | At January 28, 2023, the Corporation鈥檚 vendor income receivable totaled $526 million. As discussed in Note 5 of the consolidated financial statements, the Corporation receives consideration for a variety of vendor-sponsored programs, which are primarily recorded as a reduction of cost of sales when earned. The Corporation records a receivable for amounts earned but not yet received. Auditing the Corporation's vendor income receivable was complex due to the estimation required in measuring the receivable. The estimate was sensitive to significant assumptions, such as forecasted vendor income collections, and estimating the time period over which the collections have been earned, which is primarily based on historical trending and data. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Corporation鈥檚 vendor income receivable process, including controls over management鈥檚 review of the significant assumptions described above. To test the estimated vendor income receivable, we performed audit procedures that included, among others, assessing the estimation methodology used by management and evaluating the forecasted vendor income collections and the time period over which collections have been earned as used in the receivable estimation model. For a sample of the vendor rebates and concessions, we evaluated the nature and source of the inputs used and the terms of the contractual agreements. We recalculated the amount of the vendor income earned based on the inputs and the terms of the agreements. In addition, we recalculated the time period over which the vendor income collection had been earned to assess the accuracy of management鈥檚 estimates. We also performed sensitivity analyses of significant assumptions to evaluate the significance of changes in the receivable that would result from changes in assumptions. |
We have served as the Corporation's auditor since 1931.
Minneapolis, Minnesota
March 8, 2023
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we assessed the effectiveness of our internal control over financial reporting as of January 28, 2023, based on the framework in Internal Control鈥擨ntegrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our assessment, we conclude that the Corporation's internal control over financial reporting is effective based on those criteria.
Our internal control over financial reporting as of January 28, 2023, has been audited by Ernst & Young LLP, the independent registered public accounting firm who has also audited our consolidated financial statements, as stated in their report which appears on this page.
Brian C. Cornell
Chair of the Board and Chief Executive Officer
March 8, 2023
Michael J. Fiddelke
Executive Vice President and
Chief Financial Officer
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
海角社区破解版 Corporation
Opinion on Internal Control Over Financial Reporting
We have audited 海角社区破解版 Corporation鈥檚 internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control鈥擨ntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, 海角社区破解版 Corporation (the Corporation) maintained, in all material respects, effective internal control over financial reporting as of January 28, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Corporation as of January 28, 2023 and January 29, 2022, the related consolidated statements of operations, comprehensive income, cash flows and shareholders' investment for each of the three years in the period ended January 28, 2023, and the related notes and our report dated March 8, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Corporation鈥檚 management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation鈥檚 internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company鈥檚 internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company鈥檚 internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company鈥檚 assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Minneapolis, Minnesota
March 8, 2023
Consolidated Statements of Operations
(millions, except per share data)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Sales | $107,588 | $104,611 | $92,400 |
| Other revenue | 1,532 | 1,394 | 1,161 |
| Total revenue | 109,120 | 106,005 | 93,561 |
| Cost of sales | 82,229 | 74,963 | 66,177 |
| Selling, general and administrative expenses | 20,658 | 19,752 | 18,615 |
| Depreciation and amortization (exclusive of depreciation included in cost of sales) | 2,385 | 2,344 | 2,230 |
| Operating income | 3,848 | 8,946 | 6,539 |
| Net interest expense | 478 | 421 | 977 |
| Net other (income) / expense | (48) | (382) | 16 |
| Earnings before income taxes | 3,418 | 8,907 | 5,546 |
| Provision for income taxes | 638 | 1,961 | 1,178 |
| Net earnings | $2,780 | $6,946 | $4,368 |
| Basic earnings per share | $6.02 | $14.23 | $8.72 |
| Diluted earnings per share | $5.98 | $14.10 | $8.64 |
| Weighted average common shares outstanding | |||
Basic | 462.1 | 488.1 | 500.6 |
Diluted | 464.7 | 492.7 | 505.4 |
| Antidilutive shares | 1.1 | 鈥 | 鈥 |
Note: Per share amounts may not foot due to rounding.
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Comprehensive Income
(millions)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Net earnings | $2,780 | $6,946 | $4,368 |
| Other comprehensive income/ (loss), net of tax | |||
Pension benefit liabilities | (113) | 152 | 102 |
Currency translation adjustment and cash flow hedges | 247 | 51 | 10 |
| Other comprehensive income | 134 | 203 | 112 |
| Comprehensive income | $2,914 | $7,149 | $4,480 |
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Financial Position
(millions, except footnotes)
| January 28, 2023 | January 29, 2022 | |
|---|---|---|
Assets | ||
| Cash and cash equivalents | $2,229 | $5,911 |
| Inventory | 13,499 | 13,902 |
| Other current assets | 2,118 | 1,760 |
Total current assets | 17,846 | 21,573 |
| Property and equipment | ||
Land | 6,231 | 6,164 |
Buildings and improvements | 34,746 | 32,985 |
Fixtures and equipment | 7,439 | 6,407 |
Computer hardware and software | 3,039 | 2,505 |
Construction-in-progress | 2,688 | 1,257 |
Accumulated depreciation | (22,631) | (21,137) |
Property and equipment, net | 31,512 | 28,181 |
| Operating lease assets | 2,657 | 2,556 |
| Other noncurrent assets | 1,320 | 1,501 |
| Total assets | $53,335 | $53,811 |
Liabilities and shareholders' investment | ||
| Accounts payable | $13,487 | $15,478 |
| Accrued and other current liabilities | 5,883 | 6,098 |
| Current portion of long-term debt and other borrowings | 130 | 171 |
Total current liabilities | 19,500 | 21,747 |
| Long-term debt and other borrowings | 16,009 | 13,549 |
| Noncurrent operating lease liabilities | 2,638 | 2,493 |
| Deferred income taxes | 2,196 | 1,566 |
| Other noncurrent liabilities | 1,760 | 1,629 |
Total noncurrent liabilities | 22,603 | 19,237 |
| Shareholders investment | ||
Common stock | 38 | 39 |
Additional paid-in capital | 6,608 | 6,421 |
Retained earnings | 5,005 | 6,920 |
Accumulated other comprehensive loss | (419) | (553) |
Total shareholders鈥 investment | 11,232 | 12,827 |
| Total liabilities and shareholders鈥 investment | $53,335 | $53,811 |
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 460,346,947 shares issued and outstanding as of January 28, 2023; 471,274,073 shares issued and outstanding as of January 29, 2022.
Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding during any period presented.
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
(millions)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
Operating activities | |||
| Net earnings | $2,780 | $6,946 | $4,368 |
| Adjustments to reconcile net earnings to cash provided by operations: | |||
Depreciation and amortization | 2,700 | 2,642 | 2,485 |
Share-based compensation expense | 220 | 228 | 200 |
Deferred income taxes | 582 | 522 | (184) |
Gain on Dermstore sale | 鈥 | (335) | 鈥 |
Loss on debt extinguishment | 鈥 | 鈥 | 512 |
Noncash losses / (gains) and other, net | 172 | 67 | 86 |
Changes in operating accounts: | |||
Inventory | 403 | (3,249) | (1,661) |
Other assets | 22 | (78) | (137) |
Accounts payable | (2,237) | 2,628 | 2,925 |
Accrued and other liabilities | (624) | (746) | 1,931 |
| Cash provided by operating activities | 4,018 | 8,625 | 10,525 |
Investing activities | |||
Expenditures for property and equipment | (5,528) | (3,544) | (2,649) |
Proceeds from disposal of property and equipment | 8 | 27 | 42 |
Proceeds from Dermstore sale | 鈥 | 356 | 鈥 |
Other investments | 16 | 7 | 16 |
| Cash required for investing activities | (5,504) | (3,154) | (2,591) |
Financing activities | |||
Additions to long-term debt | 2,625 | 1,972 | 2,480 |
Reductions of long-term debt | (163) | (1,147) | (2,415) |
Dividends paid | (1,836) | (1,548) | (1,343) |
Repurchase of stock | (2,826) | (7,356) | (745) |
Stock option exercises | 4 | 8 | 23 |
| Cash required for financing activities | (2,196) | (8,071) | (2,000) |
| Net (decrease) / increase in cash and cash equivalents | (3,682) | (2,600) | 5,934 |
| Cash and cash equivalents at beginning of period | 5,911 | 8,511 | 2,577 |
| Cash and cash equivalents at end of period | $2,229 | $5,911 | $8,511 |
Supplemental information | |||
Interest paid, net of capitalized interest | $449 | $414 | $939 |
Income taxes paid | 213 | 2,063 | 1,031 |
Leased assets obtained in exchange for new finance lease liabilities | 224 | 288 | 428 |
Leased assets obtained in exchange for new operating lease liabilities | 329 | 580 | 262 |
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Shareholders鈥 Investment
(millions)
| Common Stock Shares | Stock Par Value | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) / Income | Total | |
|---|---|---|---|---|---|---|
| February 1, 2020 | 504.2 | $42 | $6,226 | $6,433 | $(868) | $11,833 |
| Net earnings | 鈥 | 鈥 | 鈥 | 4,368 | 鈥 | 4,368 |
| Other comprehensive income | 鈥 | 鈥 | 鈥 | 鈥 | 112 | 112 |
| Dividends declared | 鈥 | 鈥 | 鈥 | (1,367) | 鈥 | (1,367) |
| Repurchase of stock | (5.7) | 鈥 | 鈥 | (609) | 鈥 | (609) |
| Stock options and awards | 2.4 | 鈥 | 103 | 鈥 | 鈥 | 103 |
| January 30, 2021 | 500.9 | $42 | $6,329 | $8,825 | $(756) | $14,440 |
| Net earnings | 鈥 | 鈥 | 鈥 | 6,946 | 鈥 | 6,946 |
| Other comprehensive income | 鈥 | 鈥 | 鈥 | 鈥 | 203 | 203 |
| Dividends declared | 鈥 | 鈥 | 鈥 | (1,655) | 鈥 | (1,655) |
| Repurchase of stock | (31.3) | (3) | 鈥 | (7,196) | 鈥 | (7,199) |
| Stock options and awards | 1.7 | 鈥 | 92 | 鈥 | 鈥 | 92 |
| January 29, 2022 | 471.3 | $39 | $6,421 | $6,920 | $(553) | $12,827 |
| Net earnings | 鈥 | 鈥 | 鈥 | 2,780 | 鈥 | 2,780 |
| Other comprehensive income | 鈥 | 鈥 | 鈥 | 鈥 | 134 | 134 |
| Dividends declared | 鈥 | 鈥 | 鈥 | (1,931) | 鈥 | (1,931) |
| Repurchase of stock | (12.5) | (1) | 119 | (2,764) | 鈥 | (2,646) |
| Stock options and awards | 1.5 | 鈥 | 68 | 鈥 | 鈥 | 68 |
| January 28, 2023 | 460.3 | $38 | $6,608 | $5,005 | $(419) | $11,232 |
We declared $4.14, $3.38, and $2.70 dividends per share for the twelve months ended January 28, 2023, January 29, 2022, and January 30, 2021, respectively.
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
- Summary of Accounting Policies
- Dermstore Sale
- Revenues
- Cost of Sales and Selling, General and Administrative Expenses
- Consideration Received from Vendors
- Advertising Costs
- Fair Value Measurements
- Cash and Cash Equivalents
- Inventory
- Other Current Assets
- Property and Equipment
- Other Noncurrent Assets
- Accrued and Other Current Liabilities
- Commitments and Contingencies
- Commercial Paper and Long-Term Debt
- Derivative Financial Instruments
- Leases
- Income Taxes
- Other Noncurrent Liabilities
- Share Repurchase
- Share-Based Compensation
- Defined Contribution Plans
- Pension Plans
- Accumulated Other Comprehensive Income
1. Summary of Accounting Policies
Organization - We are a general merchandise retailer selling products to our guests through our stores and digital channels.
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 United States (U.S.). The vast majority of our long-lived assets are located within the U.S.
Consolidation - The consolidated financial statements include the balances of 海角社区破解版 and its subsidiaries after elimination of intercompany balances and transactions. All subsidiaries are wholly owned.
Use of estimates - The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions affecting reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates.
Fiscal year - Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal 2022, 2021, and 2020 ended January 28, 2023, January 29, 2022, and January 30, 2021, respectively, and consisted of 52 weeks. Fiscal 2023 will end February 3, 2024, and will consist of 53 weeks.
Accounting policies - Our accounting policies are disclosed in the applicable Notes to the Consolidated Financial Statements. Certain prior-year amounts have been reclassified to conform to the current-year presentation.
back to Notes to Consolidated Financial Statements
2. Dermstore Sale
In February 2021, we sold our wholly owned subsidiary Dermstore LLC (Dermstore) for $356 million in cash and recognized a $335 million pretax gain, which is included in Net Other (Income) / Expense. Dermstore represented less than 1 percent of our consolidated revenues, operating income and net assets.
3. Revenues
Merchandise sales represent the vast majority of our revenues. We also earn revenues from a variety of other sources, most notably credit card profit-sharing income from our arrangement with TD Bank Group (TD).
Revenues
(millions)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Apparel and accessories (a) | $17,646 | 17,931 | $14,772 |
| Beauty and household essentials (b) | 29,575 | 27,268 | 24,461 |
| Food and beverage (c) | 22,918 | 20,306 | 18,135 |
| Hardlines (d) | 17,739 | 18,614 | 16,626 |
| Home furnishings and d茅cor (e) | 19,463 | 20,255 | 18,231 |
| Other | 247 | 237 | 175 |
Sales | 107,588 | 104,611 | 92,400 |
| Credit card profit sharing | 734 | 710 | 666 |
| Other | 798 | 684 | 495 |
Other revenue | 1,532 | 1,394 | 1,161 |
| Total revenue | $109,120 | $106,005 | $93,561 |
- Includes apparel for women, men, boys, girls, toddlers, infants and newborns, as well as jewelry, accessories, and shoes.
- Includes beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
- Includes dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and food service in our stores.
- Includes electronics (including video game hardware and software), toys, entertainment, sporting goods, and luggage.
- Includes furniture, lighting, storage, kitchenware, small appliances, home d茅cor, bed and bath, home improvement, school/office supplies, greeting cards and party supplies, and other seasonal merchandise.
Merchandise sales 鈥 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. Total revenues do not include sales tax because we are a pass-through conduit for collecting and remitting sales taxes. Generally, guests may return national brand merchandise within 90 days of purchase and owned and exclusive brands within one year of purchase. Sales are recognized net of expected returns, which we estimate using historical return patterns and our expectation of future returns. As of January 28, 2023, and January 29, 2022, the liability for estimated returns was $174 million and $165 million, respectively.
We routinely enter into arrangements with vendors whereby we do not purchase or pay for merchandise until the merchandise is ultimately sold to a guest. Under the vast majority of these arrangements, which represent less than 5 percent of consolidated sales, we record revenue and related costs gross. We concluded that we are the principal in these transactions for a number of reasons, most notably because we 1) control the overall economics of the transactions, including setting the sales price and realizing the majority of cash flows from the sale, 2) control the relationship with the customer, and 3) are responsible for fulfilling the promise to provide goods to the customer. Merchandise received under these arrangements is not included in Inventory because the purchase and sale of this inventory are virtually simultaneous.
Revenue from 海角社区破解版 gift card sales is recognized upon gift card redemption, which is typically within one year of issuance. Our gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions.
Gift Card Liability Activity
(millions)
| January 29, 2022 | Gift Cards Issued During Current Period But Not Redeemed (b) | Revenue Recognized From Beginning Liability | January 28, 2023 | |
|---|---|---|---|---|
| Gift card liability (a) | $1,202 | $927 | $(889) | $1,240 |
- Included in Accrued and Other Current Liabilities.
- Net of estimated breakage.
Guests receive a 5 percent discount on nearly all purchases and receive free shipping at 海角社区破解版.com when they use their 海角社区破解版 Debit Card, RedCard Reloadable Account, 海角社区破解版 Credit Card, or 海角社区破解版 MasterCard (collectively, RedCards).
海角社区破解版 Circle program members earn 1 percent rewards on nearly all non-RedCard purchases and rewards on various other transactions. As of January 28, 2023, and January 29, 2022, deferred revenue of $112 million and $89 million, respectively, related to this loyalty program was included in Accrued and Other Current Liabilities.
Credit card profit sharing 鈥 We receive payments under a credit card program agreement with TD. Under the agreement, we receive a percentage of the profits generated by the 海角社区破解版 Credit Card and 海角社区破解版 MasterCard receivables in exchange for performing account servicing and primary marketing functions. TD underwrites, funds, and owns 海角社区破解版 Credit Card and 海角社区破解版 MasterCard receivables, controls risk management policies, and oversees regulatory compliance.
Other 鈥 Includes advertising revenue, Shipt membership and service revenues, commissions earned on third-party sales through 海角社区破解版.com, rental income, and other miscellaneous revenues.
4. Cost of Sales and Selling, General and Administrative Expenses
The following table illustrates the primary items classified in each major expense category:
| Cost of Sales | Selling, General and Administrative Expenses |
|---|---|
Total cost of products sold including
Inventory shrink | Compensation and benefit costs for stores and headquarters, except ship from store costs classified as cost of sales |
Note: The classification of these expenses varies across the retail industry.
5. Consideration Received from Vendors
We receive consideration for a variety of vendor-sponsored programs鈥攕uch as volume rebates, markdown allowances, promotions, certain advertising activities, and for our compliance programs鈥攔eferred to as "vendor income." Additionally, under our compliance programs, vendors are charged for merchandise shipments that do not meet our requirements (violations), such as late or incomplete shipments. Substantially all vendor income is recorded as a reduction of Cost of Sales.
We establish a receivable for vendor income that is earned but not yet received. Based on historical trending and data, this receivable is computed by forecasting vendor income collections and estimating the amount earned. The majority of the year-end vendor income receivables are collected within the following fiscal quarter, and we do not believe there is a reasonable likelihood that the assumptions used in our estimate will change significantly. Note 10 provides additional information.
6. Advertising Costs
Advertising costs, which primarily consist of digital advertisements and media broadcast, are generally expensed at first showing or distribution of the advertisement. Reimbursements from vendors that are for specific, incremental, and identifiable advertising costs are recognized as offsets of these advertising costs within Selling, General and Administrative Expenses (SG&A Expenses). Net advertising costs were $1.5 billion in 2022, 2021, and 2020.
7. 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).
Fair Value Measurements - Recurring Basis
(millions)
| Fair Value as of | ||||
|---|---|---|---|---|
| Classification | Measurement Level | January 28, 2023 | January 29, 2022 | |
Assets | ||||
| Short-term investments (a) | Cash and Cash Equivalents | Level 1 | $1,343 | $4,985 |
| Prepaid forward contracts (b) | Other Current Assets | Level 1 | 27 | 35 |
| Interest rate swaps (c) | Other Current Assets | Level 2 | 鈥 | 17 |
| Interest rate swaps (c) | Other Noncurrent Assets | Level 2 | 7 | 135 |
Liabilities | ||||
| Interest rate swaps (c) | Other Noncurrent Liabilities | Level 2 | 81 | 鈥 |
- Carrying value approximates fair value because maturities are less than three months.
- Initially valued at transaction price. Subsequently valued by reference to the market price of 海角社区破解版 common stock.
- Valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). See Note 16 for additional information on interest rate swaps.
Significant Financial Instruments Not Measured at Fair Value (a)
(millions)
| As of January 28, 2023 | As of January 29, 2022 | |||
|---|---|---|---|---|
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |
| Long-term debt, including current portion (b) | $14,141 | $13,688 | $11,568 | $12,808 |
- 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.
- The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2. These amounts exclude commercial paper, unamortized swap valuation adjustments, and lease liabilities.
8. Cash and Cash Equivalents
Cash equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions. These receivables typically settle in five days or less.
Cash and Cash Equivalents
(millions)
| January 28, 2023 | January 29, 2022 | |
|---|---|---|
| Cash | $286 | $349 |
| Receivables from third-party financial institutions for credit and debit card transactions | 600 | 577 |
| Short-term investments | 1,343 | 4,985 |
| Cash and cash equivalents (a) | $2,229 | $5,911 |
- We have access to these funds without any significant restrictions, taxes or penalties.
As of January 28, 2023, and January 29, 2022, we reclassified book overdrafts of $248 million and $366 million, respectively, to Accounts Payable and $14 million and $19 million, respectively, to Accrued and Other Current Liabilities.
9. Inventory
The vast majority of our inventory is accounted for under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. Inventory is stated at the lower of LIFO cost or market. Inventory cost includes the amount we pay to our suppliers to acquire inventory, freight costs incurred to deliver product to our distribution centers and stores, and import costs, reduced by vendor income and cash discounts. Distribution center operating costs, including compensation and benefits, are expensed in the period incurred. Inventory is also reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated based on inventory levels, markup rates, and internally measured retail price indices, and was $132 million and $33 million as of January 28, 2023, and January 29, 2022, respectively.
Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the inventory retail value. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market because permanent markdowns are taken as a reduction of the retail value of inventory.
10. Other Current Assets
Other Current Assets
(millions)
| January 28, 2023 | January 29, 2022 | |
|---|---|---|
| Accounts and other receivables | $1,169 | $835 |
| Vendor income receivable | 526 | 518 |
| Prepaid expenses | 188 | 170 |
| Other | 235 | 237 |
| Other Current Assets | $2,118 | $1,760 |
11. Property and Equipment
Property and equipment, including assets acquired under finance leases, is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We amortize leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the remaining initial lease term, plus any renewals that are reasonably certain at the date the leasehold improvements are acquired. Total depreciation expense, including depreciation expense included in Cost of Sales, was $2.7 billion, $2.6 billion, and $2.5 billion for 2022, 2021, and 2020, respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred. Facility pre-opening costs, including supplies and payroll, are expensed as incurred.
Estimated Useful Lives
| Life (Years) | |
|---|---|
| Buildings and improvements | 8-39 |
| Fixtures and equipment | 2-15 |
| Computer hardware and software | 2-7 |
We review long-lived assets for impairment when performance expectations, events, or changes in circumstances鈥攕uch as a decision to relocate or close a store, office, or distribution center, discontinue a project, or make significant software changes鈥攊ndicate that the asset's carrying value may not be recoverable. We recognized impairment losses of $66 million, $87 million, and $62 million during 2022, 2021, and 2020, respectively. For asset groups classified as held for sale, measurement of an impairment loss is based on the excess of the carrying amount of the asset group over its fair value. We estimate fair value by obtaining market appraisals, obtaining valuations from third-party brokers, or using other valuation techniques. Impairments are recorded in SG&A Expenses.
12. Other Noncurrent Assets
Other Noncurrent Assets
(millions)
| January 28, 2023 | January 29, 2022 | |
|---|---|---|
| Goodwill and intangible assets (a) | $645 | $656 |
| Company-owned life insurance investments, net of loans (b) | 440 | 470 |
| Other | 235 | 375 |
| Other Noncurrent Assets | $1,320 | $1,501 |
- Goodwill totaled $631 million as of both January 28, 2023, and January 29, 2022. No impairments were recorded in 2022, 2021, or 2020 as a result of the annual goodwill impairment tests performed.
- Note 22 provides more information on company-owned life insurance investments.
13. Accrued and Other Current Liabilities
Accrued and Other Current Liabilities
(millions)
| January 28, 2023 | January 29, 2022 | |
|---|---|---|
| Wages and benefits | $1,319 | $1,620 |
| Gift card liability, net of estimated breakage | 1,240 | 1,202 |
| Real estate, sales, and other taxes payable | 772 | 1,042 |
| Dividends payable | 497 | 424 |
| Current portion of operating lease liabilities | 296 | 254 |
| Workers' compensation and general liability (a) | 173 | 169 |
| Interest payable | 94 | 77 |
| Other | 1,492 | 1,310 |
| Accrued and Other Current Liabilities | 5,883 | $6,098 |
- We retain a substantial portion of the risk related to general liability and workers' compensation claims. We estimate our ultimate cost based on analysis of historical data and actuarial estimates. General liability and workers' compensation liabilities are recorded at our estimate of their net present value. Note 19 provides the noncurrent balance of these liabilities.
14. Commitments and Contingencies
Contingencies
We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders and other constituents. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies, but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition.
Commitments
Purchase obligations, which include all legally binding contracts such as merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/license commitments, firm minimum commitments for inventory purchases, and service contracts, were $1.0 billion and $944 million as of January 28, 2023, and January 29, 2022, respectively. These purchase obligations are primarily due within three years and recorded as liabilities when goods are received or services are rendered. Real estate obligations, which include legally binding minimum lease payments for leases signed but not yet commenced, and commitments for the purchase, construction, or remodeling of real estate and facilities, were $5.3 billion and $2.5 billion as of January 28, 2023, and January 29, 2022, respectively. Approximately half of these real estate obligations are due within one year, a portion of which are recorded as liabilities.
We issue inventory purchase orders in the ordinary course of business, which represent authorizations to purchase that are cancellable by their terms. We do not consider purchase orders to be firm inventory commitments. If we choose to cancel a purchase order, we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation.
We also issue letters of credit and surety bonds in the ordinary course of business. Trade letters of credit totaled $1.6 billion and $2.6 billion as of January 28, 2023, and January 29, 2022, respectively, a portion of which are reflected in Accounts Payable. Standby letters of credit and surety bonds, primarily related to insurance and regulatory requirements, totaled $519 million and $517 million as of January 28, 2023, and January 29, 2022, respectively.
15. Commercial Paper and Long-Term Debt
As of January 29, 2022, the carrying value and maturities of our debt portfolio were as follows:
Debt Maturities
(dollars in millions)
| Weighted-Average Interest Rate at January 28, 2023 | January 28, 2023 | January 29, 2022 | |
|---|---|---|---|
| Due 2022 | 鈥% | $鈥 | $63 |
| Due 2023-2027 | 2.6 | 4,582 | 4,578 |
| Due 2028-2032 | 4.6 | 4,297 | 2,807 |
| Due 2033-2037 | 6.8 | 937 | 937 |
| Due 2038-2042 | 4.0 | 1,087 | 1,085 |
| Due 2043-2047 | 3.8 | 1,119 | 1,118 |
| Due 2048-2052 | 3.9 | 2,119 | 980 |
| Total notes and debentures | 14,141 | 11,568 | |
| Swap valuation adjustments | (74) | 77 | |
| Finance lease liabilities | 2,072 | 2,075 | |
| Less: Amounts due within one year | (130) | (171) | |
| Long-term debt and other borrowings | $16,009 | $13,549 |
Required Principal Payments
(millions)
| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | |
|---|---|---|---|---|---|---|
| Total required principal payments | $鈥 | $1,000 | $1,500 | $2,000 | $97 | $9,655 |
In January 2023, we issued unsecured fixed rate debt of $1.15 billion at 4.8 percent that matures in January 2053 and $500 million at 4.4 percent that matures in January 2033. In connection with this issuance, we terminated our remaining forward-starting interest rate swaps. Note 16 provides additional information.
In September 2022, we issued unsecured fixed rate debt of $1.0 billion at 4.5 percent that matures in September 2032. In connection with this issuance, we terminated certain of our forward-starting interest rate swaps. Note 16 provides additional information.
In January 2022, we issued unsecured fixed rate debt of $1.0 billion at 1.95 percent that matures in January 2027 and $1.0 billion at 2.95 percent that matures in January 2052. Furthermore, we repaid $1.0 billion of 2.9 percent unsecured fixed rate debt at maturity.
In October 2020, we repurchased $1.77 billion of unsecured fixed rate debt before its maturity at a market value of $2.25 billion. We recognized a loss on early retirement of $512 million, which was recorded in Net Interest Expense.
In March 2020, we issued unsecured fixed rate debt of $1.5 billion at 2.25 percent that matures in April 2025 and $1.0 billion at 2.65 percent that matures in September 2030.
We obtain short-term financing from time to time under our commercial paper program. For the year ended January 28, 2023, the maximum amount outstanding was $2.3 billion, and the average daily amount outstanding was $709 million, at a weighted average annual interest rate of 2.4 percent. As of January 28, 2023, there was no commercial paper outstanding. No balances were outstanding under our commercial paper program at any time during 2021 or 2020.
In October 2022, we obtained a new committed $1.0 billion 364-day unsecured revolving credit facility that will expire in October 2023. We also extended our existing committed $3.0 billion unsecured revolving credit facility, which now expires in October 2027. No balances were outstanding under either facility at any time during 2022, 2021, or 2020.
Substantially all of our outstanding borrowings are senior, unsecured obligations. Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facilities also contain a debt leverage covenant. We are, and expect to remain, in compliance with these covenants, which have no practical effect on our ability to pay dividends.
16. 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 7 provides the fair value and classification of these instruments.
During 2022, we entered into interest rate swaps with a total notional amount of $950 million. Under the swap agreements, we pay a floating rate equal to the daily Secured Overnight Financing Rate (SOFR) compounded over six months and receive a weighted average fixed rate of 3.1 percent. The agreements have a weighted average remaining maturity of 7.6 years. For other existing swap agreements, with a total notional amount of $1.5 billion, we pay a floating rate equal to 1-month LIBOR and receive a weighted average fixed rate of 2.6 percent. The agreements have a weighted average remaining maturity of 4.9 years. As of January 28, 2023, and January 29, 2022, interest rate swaps with notional amounts totaling $2.45 billion and $1.5 billion were designated as fair value hedges, and all were considered to be perfectly effective under the shortcut method during 2022 and 2021.
During 2022, we were party to forward-starting interest rate swaps to hedge the interest rate exposure of anticipated future debt issuances. We designated these derivative financial instruments as cash flow hedges. In January 2023, we terminated forward-starting interest rate swap agreements that hedged $1.45 billion of the $1.65 billion debt issuance described in Note 15. In September 2022, we terminated forward-starting interest rate swap agreements that hedged $700 million of the $1 billion debt issuance described in Note 15. The resulting gains upon termination of these swap agreements in January 2023 and September 2022 were $310 million and $109 million, respectively, which were recorded in Accumulated Comprehensive Loss (AOCI) and will be recognized as a reduction to Net Interest Expense over the respective term of the debt. The cash flows related to forward-starting interest rate swaps are included within operating activities in the Consolidated Statements of Cash Flows.
Effect of Hedges on Debt
(millions)
| January 28, 2023 | January 29, 2022 | |
|---|---|---|
Long-term debt and other borrowings | ||
| Carrying amount of hedged debt | $2,366 | 1,572 |
| Cumulative hedging adjustments, included in carrying amount | (74) | 77 |
Effect of Hedges on Net Interest Expense
(millions)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
Gain (loss) on fair value hedges recognized in Net Interest Expense | |||
| Interest rate swap designated as fair value hedges | $(151) | $(106) | $46 |
| Hedged debt | 151 | 106 | (46) |
| Gain on cash flow hedges recognized in Net Interest Expense | 4 | 鈥 | 鈥 |
| Total | $4 | $ 鈥 | $ 鈥 |
17. Leases
We lease certain retail stores, warehouses, distribution centers, office space, land, and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. We combine lease and nonlease components for new and reassessed leases.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 50 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. We use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
Certain of our lease agreements require reimbursement of real estate taxes, common area maintenance, and insurance, as well as rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We rent or sublease certain real estate to third parties. Our lease and sublease portfolio consists mainly of operating leases with CVS Pharmacy Inc. (CVS) for space within our stores.
Leases
(millions)
| Classification | January 28, 2023 | January 29, 2022 | |
|---|---|---|---|
Assets | |||
| Operating | Operating Lease Assets | $2,657 | $2,556 |
| Finance | Buildings and Improvements, net of Accumulated Depreciation (a) | 1,673 | 1,652 |
| Total leased assets | $4,330 | $4,208 | |
Liabilities | |||
Current | |||
| Operating | Accrued and Other Current Liabilities | $296 | $254 |
| Finance | Current Portion of Long-term Debt and Other Borrowings | 129 | 108 |
Noncurrent | |||
| Operating | Noncurrent Operating Lease Liabilities | 2,638 | 2,493 |
| Finance | Long-term Debt and Other Borrowings | 1,943 | 1,967 |
| Total lease liabilities | $5,006 | $4,822 | |
- Finance lease assets are recorded net of accumulated amortization of $623 million and $670 million as of January 28, 2023, and January 29, 2022, respectively.
Lease Cost
(millions)
| Classification | 2022 | 2021 | 2020 | |
|---|---|---|---|---|
| Operating lease cost (a) | SG&A Expenses | $467 | $387 | $332 |
Finance lease cost | ||||
Amortization of leased assets | Depreciation and Amortization (b) | 133 | 127 | 105 |
Interest on lease liabilities | Net Interest Expense | 68 | 68 | 62 |
| Sublease income (c) | Other Revenue | (19) | (18) | (15) |
| Net lease cost | $649 | $564 | $484 | |
- 2022, 2021, and 2020 include $101 million, $64 million, and $44 million, respectively, of short-term and variable lease costs.
- Supply chain-related amounts are included in Cost of Sales.
- Sublease income excludes rental income from owned properties of $49 million for 2022, and $48 million for each of 2021 and 2020, which is included in Other Revenue.
Maturity of Lease Liabilities
(millions)
| Operating Leases (a) | Finance Leases (b) | Total | |
|---|---|---|---|
| 2023 | 386 | 194 | 580 |
| 2024 | 379 | 175 | 554 |
| 2025 | 362 | 174 | 536 |
| 2026 | 345 | 175 | 520 |
| 2027 | 331 | 175 | 506 |
| Thereafter | 1,826 | 1,847 | 3,673 |
| Total lease payments | $3,629 | $2,740 | $6,369 |
| Less: Interest | 695 | 668 | |
| Present value of lease liabilities | $2,934 | $2,072 |
- Operating lease payments include $878 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $1.8 billion of legally binding minimum lease payments for leases signed but not yet commenced.
- Finance lease payments include $195 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $813 million of legally binding minimum lease payments for leases signed but not yet commenced.
Lease Term and Discount Rate
| January 28, 2023 | January 29, 2022 | |
|---|---|---|
Weighted average remaining lease term (years) | ||
| Operating leases | 11.4 | 12.2 |
| Finance leases | 15.4 | 15.2 |
Weighted average discount rate | ||
| Operating leases | 3.52% | 3.28% |
| Finance leases | 3.56% | 3.49% |
Other Information
(millions)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
Cash paid for amounts included in the measurement of lease liabilities | |||
| Operating cash flows from operating leases | $364 | $316 | $284 |
| Operating cash flows from finance leases | 63 | 64 | 59 |
| Financing cash flows from finance leases | 100 | 91 | 70 |
18. Income Taxes
Earnings before income taxes were $3.4 billion, $8.9 billion, and $5.5 billion during 2022, 2021, and 2020, respectively, including $1.3 billion, $896 million, and $764 million earned by our foreign entities subject to tax outside of the U.S.
Tax Rate Reconciliation
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Federal statutory rate | 21.0% | 21.0% | 21.0% |
| State income taxes, net of the federal tax benefit | 3.0 | 3.9 | 3.3 |
| International | (2.1) | (1.3) | (1.2) |
| Excess tax benefit related to share-based payments | (1.6) | (0.8) | (1.0) |
| Federal tax credits | (1.5) | (0.5) | (0.6) |
| Other | (0.1) | (0.3) | (0.3) |
| Effective tax rate | 18.7% | 22.0% | 21.2% |
Provision for Income Taxes
(millions)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
Current: | |||
| Federal | $(84) | $1,111 | $1,013 |
| State | 33 | 325 | 281 |
| International | 107 | 3 | 68 |
| Total current | 56 | 1,439 | 1,362 |
Deferred: | |||
| Federal | 501 | 423 | (118) |
| State | 82 | 98 | (64) |
| International | (1) | 1 | (2) |
| Total deferred | 582 | 522 | (184) |
| Total provision | $638 | $1,961 | $1,178 |
Net Deferred Tax Asset / (Liability)
(millions)
| January 28, 2023 | January 29, 2022 | |
|---|---|---|
Gross deferred tax assets: | ||
| Accrued and deferred compensation | $365 | $441 |
| Accruals and reserves not currently deductible | 233 | 211 |
| Self-insured benefits | 156 | 141 |
| Deferred occupancy income | 125 | 133 |
| Lease liabilities | 1,316 | 1,245 |
| Other | 142 | 18 |
| Total gross deferred tax assets | 2,337 | 2,189 |
Gross deferred tax assets: | ||
| Property and equipment | (2,613) | (2,265) |
| Leased assets | (1,115) | (1,089) |
| Inventory | (594) | (266) |
| Other | (205) | (130) |
| Total gross deferred tax liabilities | (4,527) | (3,750) |
| Total net deferred tax liability (a) | $(2,190) | $(1,561) |
- $6 million of the balance as of January 28, 2023, and January 29, 2022, is included in Other Noncurrent Assets.
We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. The U.S. Internal Revenue Service (IRS) has completed exams on the U.S. federal income tax returns for years 2020 and prior. With few exceptions, we are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2015.
Reconciliation of Gross Unrecognized Tax Benefits
(millions)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Balance at beginning of period | $125 | $181 | $160 |
| Additions based on tax positions related to the current year | 115 | 32 | 35 |
| Additions for tax positions of prior years | 21 | 11 | 32 |
| Reductions for tax positions of prior years | (23) | (95) | (36) |
| Settlements | (5) | (4) | (10) |
| Balance at end of period | $233 | $125 | $181 |
If we were to prevail on all unrecognized tax benefits recorded, the amount that would benefit the effective tax rate was $107 million, $67 million, and $99 million as of January 28, 2023, January 29, 2022, and January 30, 2021, respectively. In addition, the reversal of accrued interest and penalties would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During 2022, 2021, and 2020, we recorded an expense / (benefit) from accrued interest and penalties of $(4) million, $1 million, and $(12) million, respectively. As of January 28, 2023, January 29, 2022, and January 30, 2021, total accrued interest and penalties were $7 million, $13 million, and $12 million, respectively.
It is reasonably possible that the amount of the unrecognized tax benefits with respect to our other unrecognized tax positions will increase or decrease during the next twelve months; however, an estimate of the amount or range of the change cannot be made at this time.
19. Other Noncurrent Liabilities
Other Noncurrent Liabilities
(millions)
| January 28, 2023 | January 29, 2022 | |
|---|---|---|
| Deferred compensation | $550 | $572 |
| Deferred occupancy income (a) | 449 | 479 |
| Workers' compensation and general liability | 387 | 350 |
| Income and other taxes payable | 168 | 139 |
| Pension benefits | 37 | 45 |
| Other | 169 | 44 |
| Other Noncurrent Liabilities | $1,760 | $1,629 |
- To be amortized evenly through 2038.
20. 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.
Share Repurchase Activity
(millions, except per share data)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Total number of shares purchased | 12.5 | 31.3 | 5.7 |
| Average price paid per share | $211.57 | $230.07 | $107.58 |
| Total investment | $2,646 | $7,190 | $609 |
21. Share-Based Compensation
We maintain a long-term incentive plan for key team members and non-employee members of our Board of Directors. This plan allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, share-based awards). The number of unissued common shares reserved for future grants under this plan was 32.5 million as of January 28, 2023.
Compensation expense associated with share-based awards is recognized on a straight-line basis over the required service period and reflects estimated forfeitures. Share-based compensation expense recognized in SG&A Expenses was $224 million, $238 million, and $210 million, and the related income tax benefit was $52 million, $45 million, and $39 million, in 2022, 2021, and 2020, respectively.
Restricted Stock Units
We issue restricted stock units and performance-based restricted stock units generally with 3-year cliff or 4-year graduated vesting from the grant date (collectively restricted stock units) to certain team members. The final number of shares issued under performance-based restricted stock units is based on our total shareholder return relative to a retail peer group over a 3-year performance period. We also regularly issue restricted stock units to our Board of Directors, which vest quarterly over a 1-year period and are settled in shares of 海角社区破解版 common stock upon departure from the Board. The fair value for restricted stock units is calculated based on our stock price on the date of grant, incorporating an analysis of the total shareholder return performance measure where applicable. The weighted average grant date fair value for restricted stock units was $208.80, $186.98, and $110.80 in 2022, 2021, and 2020, respectively.
Restricted Stock Unit Activity
| Total Nonvested Units | ||
|---|---|---|
| Restricted Stock (a) | Grant Date Fair Value (b) | |
| January 29, 2022 | 3,599 | $123.74 |
| Granted | 1,591 | 208.80 |
| Forfeited | (291) | 161.64 |
| Vested | (1,578) | 106.64 |
| January 28, 2023 | 3,321 | $167.25 |
- Represents the number of shares of restricted stock units, in thousands. For performance-based restricted stock units, assumes attainment of maximum payout rates as set forth in the performance criteria. Applying actual or expected payout rates, the number of outstanding restricted stock units and performance-based restricted stock units as of January 28, 2023 was 3.25 million.
- Weighted average per unit.
The expense recognized each period is partially dependent upon our estimate of the number of shares that will ultimately be issued. As of January 28, 2023, there was $267 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a weighted average period of 2.6 years. The fair value of restricted stock units vested and converted to shares of 海角社区破解版 common stock was $321 million, $323 million, and $151 million in 2022, 2021, and 2020, respectively.
Performance Share Units
We issue performance share units to certain team members that represent shares potentially issuable in the future. Issuance is based upon our performance, generally relative to a retail peer group, over a 3-year or 4-year performance period on certain measures primarily including sales growth, after-tax return on invested capital, and earnings per share growth. The fair value of performance share units is calculated based on our stock price on the date of grant. The weighted average grant date fair value for performance share units was $216.63, $179.58, and $106.00 in 2022, 2021, and 2020, respectively.
Performance Share Unit Activity
| Total Nonvested Units | ||
|---|---|---|
| Performance Share Units (a) | Grant Date Fair Value (b) | |
| January 29, 2022 | 2,257 | $111.82 |
| Granted | 524 | 216.63 |
| Forfeited | (67) | 159.04 |
| Vested | (827) | 78.32 |
| January 28, 2023 | 1,887 | $152.26 |
- Represents the number of performance share units, in thousands. Assumes attainment of maximum payout rates as set forth in the performance criteria. Applying actual or expected payout rates, the number of outstanding performance share units as of January 28, 2023 was 1.26 million.
- Weighted average per unit.
The expense recognized each period is partially dependent upon our estimate of the number of shares that will ultimately be issued. Future compensation expense for unvested awards could reach a maximum of $120 million assuming payout of all unvested awards. The unrecognized expense is expected to be recognized over a weighted average period of 1.4 years. The fair value of performance share units vested and converted to shares of 海角社区破解版 common stock was $178 million, $127 million, and $82 million in 2022, 2021, and 2020, respectively.
Stock Options
In the past, we granted stock options to certain team members. All outstanding stock options are vested and currently exercisable.
Stock Option Activity
| Stock Options | |||
|---|---|---|---|
| Total Outstanding & Exercisable | |||
| Number of Options (a) | Exercise Price (b) | Intrinsic Value (c) | |
| January 29, 2022 | 210 | $58.17 | $33 |
| Exercised/issued | (88) | 61.07 | |
| January 28, 2023 | 122 | $56.07 | $14 |
- In thousands.
- Weighted average per share.
- Represents stock price appreciation subsequent to the grant date, in millions.
Stock Option Exercises
(millions)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Cash received for exercise price | $4 | $8 | $23 |
| Intrinsic value | 11 | 45 | 161 |
| Income tax benefit | 2 | 11 | 41 |
As of January 28, 2023, there was no unrecognized compensation expense related to stock options. The weighted average remaining life of exercisable and outstanding options is 1.2 years.
22. Defined Contribution Plans
Team members who meet eligibility requirements can participate in a defined contribution 401(k) plan by investing up to 80 percent of their eligible earnings, as limited by statute or regulation. We match 100 percent of each team member's contribution up to 5 percent of eligible earnings. Company match contributions are made to funds designated by the participant, none of which are based on 海角社区破解版 common stock.
In addition, we maintain an unfunded, nonqualified deferred compensation plan for a broad management group whose participation in our 401(k) plan is limited by statute or regulation. These team members choose from a menu of crediting rate alternatives that are generally the same as the investment choices in our 401(k) plan, but also includes a fund based on 海角社区破解版 common stock. We credit an additional 2 percent per year to the accounts of all active participants, excluding members of our executive leadership team, in part to recognize the risks inherent to their participation in this plan. We also maintain a frozen, unfunded, nonqualified deferred compensation plan covering less than 50 participants. Our total liability under these plans was $600 million and $632 million as of January 28, 2023, and January 29, 2022, respectively.
We mitigate our risk of offering the nonqualified plans through investing in company-owned life insurance and prepaid forward contracts that substantially offset our economic exposure to the returns of these plans. These investments 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.
Plan Expenses
(millions)
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| 401(k) plan matching contributions expense | $335 | $307 | $281 |
Nonqualified deferred compensation plans | |||
| Benefits (income) / expense | $(15) | $59 | $86 |
| Related investment (income) / expense | 40 | (27) | (58) |
| Nonqualified plans net expense | $25 | $32 | $28 |
23. Pension Plans
We have a U.S. qualified defined benefit pension plan covering team members who meet eligibility requirements. This plan is closed to new participants. Active participants accrue benefits under a final average pay feature or a cash balance feature. We also have unfunded, nonqualified pension plans for team members with qualified plan compensation restrictions, as well as international plans. Eligibility and the level of benefits under all plans vary depending on each team member's full-time or part-time status, date of hire, age, length of service, and/or compensation.
Funded Status
(millions)
| Qualified Plans | Nonqualified and International Plans | |||
|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |
| Projected benefit obligations | $3,616 | $4,305 | $64 | $72 |
| Fair value of plan assets | 3,691 | 4,433 | 17 | 16 |
| Funded / (underfunded) status | $75 | $128 | $(47) | $(56) |
Contributions and Estimated Future Benefit Payments
Our obligations to plan participants can be met over time through a combination of company contributions to these plans and earnings on plan assets. In 2022 we made a discretionary contribution of $150 million to our qualified defined benefit pension plan. In 2021 we made no contributions to our qualified defined benefit pension plan. We are not required to make any contributions to our qualified defined benefit pension plan in 2023. However, depending on investment performance and plan funded status, we may elect to make a contribution.
Estimated Future Benefit Payments
(millions)
| Pension Benefits | |
|---|---|
| 2023 | $330 |
| 2024 | 232 |
| 2025 | 238 |
| 2026 | 243 |
| 2027 | 249 |
| 2028-2032 | 1,310 |
Cost of Plans
Net Pension Benefits Expense
(millions)
| Classification | 2022 | 2021 | 2020 | |
|---|---|---|---|---|
| Service cost benefits earned | SG&A Expenses | $94 | $100 | $103 |
| Interest cost on projected benefit obligation | Net Other (Income) / Expense | 117 | 96 | 118 |
| Expected return on assets | Net Other (Income) / Expense | (234) | (238) | (242) |
| Amortization of losses | Net Other (Income) / Expense | 61 | 113 | 127 |
| Amortization of prior service cost | Net Other (Income) / Expense | 10 | 鈥 | (11) |
| Settlement charges | Net Other (Income) / Expense | 鈥 | 鈥 | 1 |
| Total | $48 | $71 | $96 |
Assumptions
Benefit Obligation Weighted Average Assumptions
| 2022 | 2021 | |
|---|---|---|
| Discount rate | 4.83% | 3.30% |
| Average assumed rate of compensation increase | 3.00 | 3.00 |
| Cash balance plan interest crediting rate | 4.64 | 4.64 |
Net Periodic Benefit Expense Weighted Average Assumptions
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Discount rate | 3.30% | 2.84% | 3.13% |
| Expected long-term rate of return on plan assets | 5.60 | 5.80 | 6.10 |
| Average assumed rate of compensation increase | 3.00 | 3.00 | 3.00 |
| Cash balance plan interest crediting rate | 4.64 | 4.64 | 4.64 |
The weighted average assumptions used to measure net periodic benefit expense each year are the rates as of the beginning of the year (i.e., the prior measurement date). Our most recent compound annual rate of return on qualified plan assets was 1.2 percent, 4.2 percent, 4.5 percent, and 6.7 percent for the 5-year, 10-year, 15-year, and 20-year time periods, respectively.
The market-related value of plan assets is used in calculating the expected return on assets. Historical differences between expected and actual returns are deferred and recognized in the market-related value over a 5-year period from the year in which they occur.
We review the expected long-term rate of return annually and revise it as appropriate. Additionally, we monitor the mix of investments in our portfolio to ensure alignment with our long-term strategy to manage pension cost and reduce volatility in our assets. Our 2022 expected annualized long-term rate of return assumptions were 6.0 percent for domestic equity securities, 7.0 percent for international equity securities, 3.0 percent for long-duration debt securities, 7.0 percent for diversified funds, and 7.0 percent for other investments. These estimates are a judgmental matter in which we consider the composition of our asset portfolio, our historical long-term investment performance, and current market conditions.
Benefit Obligation
Change in Projected Benefit Obligation
(millions)
| Qualified Plans | Nonqualified and International Plans | |||
|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |
| Benefit obligation at beginning of period | $4,305 | $4,594 | $72 | $74 |
| Service cost | 89 | 94 | 5 | 6 |
| Interest cost | 116 | 95 | 2 | 1 |
| Actuarial gain (a) | (602) | (247) | (9) | (4) |
| Participant contributions | 2 | 5 | 鈥 | 鈥 |
| Benefits paid | (294) | (236) | (6) | (5) |
| Benefit obligation at end of period (b) | $3,616 | $4,305 | $64 | $72 |
- The actuarial gain was primarily driven by changes in the weighted average discount rate.
- Accumulated benefit obligation鈥攖he present value of benefits earned to date assuming no future salary growth鈥攊s materially consistent with the projected benefit obligation in each period presented.
Plan Assets
Change in Plan Assets
(millions)
| Qualified Plans | Nonqualified and International Plans | |||
|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |
| Fair value of plan assets at beginning of period | $4,433 | $4,588 | $16 | $11 |
| Actual return on plan assets | (600) | 76 | (3) | 鈥 |
| Employer contributions | 150 | 鈥 | 10 | 10 |
| Participant contributions | 2 | 5 | 鈥 | 鈥 |
| Benefits paid | (294) | (236) | (6) | (5) |
| Fair value of plan assets at end of period | $3,691 | $4,433 | $17 | $16 |
Our asset allocation policy is designed to reduce the long-term cost of funding our pension obligations. The plan invests with both passive and active investment managers depending on the investment. The plan also seeks to reduce the risk associated with adverse movements in interest rates by employing an interest rate hedging program, which includes the use of derivative instruments.
Asset Category
| Current 海角社区破解版ed Allocation | Actual Allocation | ||
|---|---|---|---|
| 2022 | 2021 | ||
| Domestic equity securities (a) | 12% | 12% | 12% |
| International equity securities | 8 | 8 | 8 |
| Debt securities | 50 | 51 | 50 |
| Diversified funds | 25 | 23 | 25 |
| Other (b) | 5 | 6 | 5 |
| Total | 100% | 100% | 100% |
- Equity securities include our common stock in amounts substantially less than 1 percent of total plan assets in both periods presented.
- Other assets include private equity, mezzanine and high-yield debt, natural resources and timberland funds, derivative instruments, and real estate.
Fair Value Measurements
(millions)
| Fair Value as of | |||
|---|---|---|---|
| Measurement Level | January 31, 2023 | January 31, 2022 | |
| Cash and cash equivalents | Level 1 | $13 | $8 |
| Derivatives | Level 2 | 6 | (9) |
| Government securities (a) | Level 2 | 619 | 740 |
| Fixed income (b) | Level 2 | 1,214 | 1,447 |
| 1,852 | 2,186 | ||
Investments valued using NAV per share (c) | |||
| Fixed Income | 6 | 10 | |
| Private equity funds | 64 | 68 | |
| Cash and cash equivalents | 240 | 100 | |
| Common collective trusts | 594 | 860 | |
| Diversified funds | 844 | 1,105 | |
| Other | 108 | 120 | |
| Total plan assets | $3,708 | $4,449 | |
- Investments in government securities and long-term government bonds.
- Investments in corporate and municipal bonds.
- Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
| Position | Valuation Technique |
|---|---|
| Cash and cash equivalents | Carrying value approximates fair value. |
| Derivatives | Swap derivatives - Valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. Option derivatives - Initially valued at transaction price. Subsequent valuations are based on observable inputs to the valuation model (e.g., underlying investments). |
| Government securities and fixed income | Valued using matrix pricing models and quoted prices of securities with similar characteristics. |
Amounts Included in Shareholders' Investment
Amounts in Accumulated Other Comprehensive Loss
(millions)
| 2022 | 2021 | |
|---|---|---|
| Net actuarial loss | $937 | $783 |
| Prior service credits | 鈥 | 鈥 |
| Amounts in Accumulated Other Comprehensive Loss (a) | $937 | $783 |
- $696 million and $583 million, net of tax, at the end of 2022 and 2021, respectively.
24. Accumulated Other Comprehensive Loss
Change in Accumulated Other Comprehensive Loss
(millions)
| Cash Flow Hedges | Currency Translation Adjustment | Pension | Total | |
|---|---|---|---|---|
| January 29, 2022 | $49 | $(19) | $(583) | $(553) |
| Other comprehensive income / (loss) before reclassifications, net of tax | 254 | (4) | (159) | 91 |
| Amounts reclassified from AOCI, net of tax | (3) (a) | 鈥 | 46 (b) | 43 |
| January 28, 2023 | $300 | $(23) | $(696) | $(419) |
- Represents amortization of gains and losses on cash flow hedges, net of taxes, which is recorded in Net Interest Expense.
- Represents amortization of pension gains and losses, net of $16 million of taxes, which is recorded in Net Other (Income) / Expense. See Note 23 for additional information.
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