Please help me find details of Target's fiscal 2018 liabilities, calculate the time-earned interest rate, and compare to Kohl's corporation if possible. If not, thank you anyway!

Financial Statement Case F:11-1

Details about a companys liabilities appear in a number of places in the annual report. Use Target Corporations fiscal 2018 financial statements to answer the following questions. ( https://corporate.target.com/_media/TargetCorp/annualreports/2018/pdfs/2018-Target-Annual-Report.pdf )

Requirements

1. Give the breakdown of Targets current liabilities at February 2, 2019.

2. Calculate Targets times-interest-earned ratio for the year ending February 2, 2019. How does Targets ratio compare to Kohls Corporations ratio?

I tried to screenshot as much as I could, I hope this helps a bit more.

Target 2018 Annual Report 2017 2016 2015 Financial Summary FINANCIAL RESULTS in Millione 2018 2014 Salon $ 71.730 $ 60,414 $ 73,717 $ 72,613 Other revenge 923 SON 857 777 Total revenue 78.330 72.714 70.271 74,494 72.618 Cost of 53.290 61.125 40,145 52.241 51,500 Seling general and administrativo pe SG&A) 15.723 15,140 14 217 15,400 14,670 Depreciation and amortation cutive of depreciation nouded hoot of 2224 2.225 2,045 1,000 1.001 Opating income 4.110 4.224 4,804 4,878 4,535 Not interest expens 461 853 991 007 BER Not other incomal expense 027 188 1662 Earnings from continuing operation before income the 3.670 3.600 3001 4,993 Provision Brincome 700 722 1,285 1,602 1.204 Net earnings from continuing operations 2.000 2008 2.000 3,321 2.440 Discontinued operations, net of tax 7 0 08 14.005 Not earningo / oss! 1 2,937 $ 2914 2.734 $ 3.363 1.630 PER SHARE Basic earnings/Goss) per share Continuing operation 5.54 5 5.30 $ 4.61 5.20 330 Discontinued operations 0.01 0.01 0.12 0.07 05.04) Notino/focer share $ 5.55 5.32 $ 4.3 $ 5.35 $ 5 Diluted earnings/Bons per share Continuing option 5.80 5 5.20 4.56 . 5.25 1 3.83 Discontinued ristim 0.01 001 0.12 007 15.30 Not coming toon por share 5.51 3 5.20 S 4.00 5 5.31 $ 2.500 Cathods declared 254 2:40 $ 2.30 $ 2.20 1 1.00 FINANCIAL POSITION in miliona 41,290 50.300 38,724 $ 40,252 141.172 Crotaloudtures + 31510 2.833 $ Long-Form de, including current portion $11.275 111.300 $12.501 $ 12,700 $ 12.725 Net $ 10.000 $10.267 $ Shareholder investment $ 11,297 $ 10,915 $ 12.057 FINANCIAL RATIOS Comparable is gowth 50% 1.3% 10:51 2.1 13 Cromofon 284 28.8% 202 20. 29.1 SGEA of total revenue 20.3 20.8% 20.2% 20.7% 20,0% Operating income megin (of total revenue 6.9 OTHER Commons outstanding in mind 5417 5662 6022 6402 Operating con flow provided by continuing operations in milione) $5,970 $ 5,337 $5.254 15,157 Revenue per square foot 314 200 293 310 Rotal coin thousada 230,561 230,366 230,500 230,530 239,960 Square footage growth 0.15 0.0% Blumber of for 1.044 1.02 1.800 1,792 1.790 Total number of disebution to 40 40 Cortos Tre france yatays 2017,2016 2018 fene Star 2014.09- Cots who The root 2012 and 2018 december 2016 Vorutonoord Ocean 5178 OOOOOOOOO 1-3 3-5 Years 59 1.013 487 59 67 400 Contractual Obligations as of Payments Due by Period February 2, 2019 Less than After 5 (millions) Total 1 Year Years Years Recorded contractual obligations Longterm debt $ 10,336 $ 1,002 $ 2,150 $ 63 $ 7,121 Finance lease liabilities 1,461 98 196 193 974 Operating lease liabilities 2,904 245 470 443 1.746 Deferred compensation 518 116 111 232 Real estate liabilities 121 121 Tax contingencies Unrecorded contractual obligations: Interest payments - long-term debt 5,893 407 724 628 4,134 Purchase obligations 992 532 170 75 215 Real estate obligations Future contributions to retirement plans Contractual obligations $ 23,238 $ 2,951 $ 3,885 $ 1,580 $ 14,822 Represents principal payments only. See Note 16 of the Financial Statements for further information Finance and operating lease payments include $127 million and $778 million, respectively, related to options to extend lease terms that are reasonably certain of being exercised. See Note 18 of the Financial Statements for further information The timing of deferred compensation payouts is estimated based on payments currently made to former employees and retirees and the projected timing of future retirements. Real estate liabilities include costs incurred but not paid related to the construction or remodeling of real estate and facilities. Estimated tax contingencies of $334 million, including interest and penalties and primarily related to continuing operations, are not included in the table above because we are not able to make reasonably reliable estimates of the period of cash settlement. See Note 19 of the Financial Statements for further information Purchase obligations include all legally binding contracts such as firm minimum commitments for inventory purchases, merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/ license commitments, and service contracts. We issue inventory purchase orders in the normal course of business, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments, therefore, they are excluded from the table above. 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 trade letters of credit in the ordinary course of business, which are excluded from this table as these obligations are conditioned on terms of the letter of credit being met Real estate obligations 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. We have not included obligations under our pension plans in the contractual obligations table above because no additional amounts are required to be funded as of February 2, 2019. Our historical practice regarding these plans has been to contribute amounts necessary to satisfy minimum pension funding requirements, plus periodic discretionary amounts determined to be appropriate Off Balance Sheet Arrangements: Other than the unrecorded contractual obligations noted above, we do not have any arrangements or relationships with entities that are not consolidated into the financial statements. Consolidated Statomonts of Comprehensive Income 6 4 2017 2016 (millions) 2018 As Adjusted As Adjusted Net earnings $ 2,937 2,914 $ 2.734 Other comprehensive (loss)/income, net of tax Pension and other benefit liabilities, net of tax (52) 2 (13) Currency translation adjustment and cash flow hedges, net of tax (6) Other comprehensive (loss)/income (58) 8 (9) Comprehensive income 2,8795 2.922 $ 2,725 See accompanying Notes to Consolidated Financial Statements. Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition, leases, and pensions $ $ $ February 3 February 2 2018 (millions, except footnotes) 2019 As Adjusted Assets Cash and cash equivalents 1.556 $ 2,643 Inventory 9.497 8,597 Other current assets 1.466 1,300 Total current assets 12,519 12,540 Property and equipment Land 6,064 6,095 Buildings and improvements 29.240 28,131 Fixtures and equipment 5.912 5,623 Computer hardware and software 2,544 2,645 Construction-in-progress 460 440 Accumulated depreciation (18,687) (18,398) Property and equipment, net 25.533 24,536 Operating lease assets 1.965 1,884 Other noncurrent assets 1,273 1.343 Total assets 41,290 $ 40,303 Liabilities and shareholders investment Accounts payable 9.761 $ 8,677 Accrued and other current liabilities 4.201 4,094 Current portion of long-term debt and other borrowings 1.052 281 Total current liabilities 15,014 13,052 Long-term debt and other borrowings 10.223 11,117 Noncurrent operating lease liabilities 2,004 1.924 Deferred income taxes 972 693 Other noncurrent liabilities 1.780 1.866 Total noncurrent liabilities 14.979 15,600 Shareholders' investment Common stock 43 Additional paid.in capital 6,042 5,858 Retained earnings 6,017 6,495 Accumulated other comprehensive loss (805) (747) Total shareholders' investment 11.297 11,651 Total liabilities and shareholders' Investment $ 41.290 $ 40,303 Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 517,761,600 shares issued and outstanding at February 2, 2019, 541,681,670 shares issued and outstanding at February 3, 2018. Preferred Stock Authorized 5,000,000 shares, $0.01 par value, no shares were issued or outstanding at February 2. 2019 or February 3, 2018 See accompanying Notes to Consolidated Financial Statements Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition leases, and 45 Numerator (dollars in millions) Operating income + Net other income /expense) EBIT Operating lease interest Income taxes Net operating profit after taxes Trailing Twelve Months February 3, February 2 2018 2019 As Adjusted $ 4.110 $ 4.224 27 59 4,137 4.283 83 79 856 867 $ 3,364 $ 3,495 Denominator (dollars in millions) Current portion of long-term debt and other borrowings + Noncurrent portion of long-term debt + Shareholders' equity + Operating lease liabilities Cash and cash equivalents -Net assets of discontinued operations Invested capital Average invested capital February 2 2019 1,052 10.223 11.297 2.170 1.556 February 3. 2018 As Adjusted s 281 11.117 11,651 2.072 2.643 2 $ 22.476 $ 22,689 January 28, 2017 As Adjusted $ 1.729 10,862 10,915 1,970 2.512 62 $ 22,902 $ 23,186 $ 22,831 IR DI After-tax return on invested capital 14.7% 15.4% After-tax return on invested capital excluding discrete impacts of Tax Act 14.6% 13.6% Consisted of 53 weeks Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A Expenses. Operating lease interest is added back to Operating Income in the ROIC calculation to control for differences in capital structure between us and our competitors Calculated using the effective tax rates for continuing operations, which were 20.3 percent and 19.9 percent for the trailing twelve months ended February 2, 2019, and February 3, 2018, respectively. For the trailing twelve months ended February 2, 2019, and February 3, 2018, includes tax effect of 5839 million and $851 million, respectively, related to EBIT, and $17 milion and $16 million, respectively, related to operating lease interest The effective tax rate for the trailing twelve months ended February 2, 2019, and February 3, 2018, includes discrete tax benefits of $36 million and $343 million, respectively, related to the Tax Act Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities on the Consolidated Statements of Financial Position Included in Other Assets and Liabilities on the Consolidated Statements of Financial Position Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period. Adoption of the new lease standard reduced ROIC by approximately 0.5 percentage points for all periods presented 120 fel 10 ol 2 23 Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP, which requires us to make estimates and apply judgments that affect the reported amounts. In the Notes to Consolidated Financial Statements, we describe the significant accounting policies used in preparing the consolidated financial statements. Our management has discussed the development, selection, and disclosure of our critical accounting estimates with the Audit & Finance Committee of our Board of Directors. The following items require significant estimation or judgment: Inventory and cost of sales: The vast majority of our inventory is accounted for under the retail inventory accounting method using the last-in, first-out method. Our inventory is valued at the lower of cost or market. We reduce inventory for estimated losses related to shrink and markdowns. Our shrink estimate is based on historical losses verified by physical inventory counts. Historically. Our actual physical inventory count results have shown our estimates to be reliable, Market adjustments for markdowns are recorded when the salability of the merchandise has diminished. We believe the risk of inventory obsolescence is largely mitigated because our inventory typically turns in less than three months. Inventory was $9.497 million and $8,597 million at February 2, 2019 and February 3, 2018, respectively, and is further described in Note 9 of the Financial Statements. Vendor income: We receive various forms of consideration from our vendors (vendor income), principally eared as a result of volume rebates, markdown allowances, promotions, and advertising allowances. 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 the agreements in place, this receivable is computed by estimating when we have completed our performance and when the amount is 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. Historically. adjustments to our vendor income receivable have not been material. Vendor income receivable was $468 million and $416 million at February 2, 2019 and February 3, 2018, respectively. Vendor income is described further in Note 5 of the Financial Statements Long-lived assets: Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets, which is primarily at the store level. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and/or disposition of the assets are less than their carrying amount. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using discounted cash flows or independent opinions of value, as appropriate. We recorded impairments of $92 million $91 million, and $43 million in 2018, 2017 and 2016, respectively, which are described further in Note 11 of the Financial Statements. We applied the hindsight practical expedient for measurement of lease assets and liabilities, and associated leasehold Improvement assets, in our adoption of ASU No. 2016-02-Leases (Topic 842), which required significant judgment to determine the reasonably certain lease term for existing leases in transition to the new standard. Using hindsight shortened lease terms for many leases. Operating lease assets and liabilities were $1,965 million and $2,170 million, respectively, at February 2, 2019. Finance lease assets and liabilities were $872 million and $1,021 million, respectively, at February 2, 2019. Leases are described further in Notes 2 and 18 of the Financial Statements. Insurance/self-insurance: We retain a substantial portion of the risk related to certain general liability, workers' compensation property loss, and team member medical and dental claims. However, we maintain stop-loss coverage to limit the exposure related to certain risks. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We use actuarial methods which consider a number of factors to estimate our ultimate cost of losses. General liability and workers' compensation liabilities are recorded at our estimate of their net present value; other liabilities referred to above are not discounted. Our workers' compensation and general liability accrual was $423 million and $419 million at February 2, 2019 and February 3, 2018, respectively. We believe that the amounts accrued are appropriate; however, our liabilities could be significantly affected if future occurrences or loss developments differ from our assumptions. For example, a 5 percent increase or decrease in average claim costs would impact our self-insurance expense by $21 million in 2018. Historically, adjustments to our estimates have not been material. Refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for further disclosure of the market risks associated with these exposures. We maintain insurance coverage to limit our exposure to certain events, including network security matters. Income taxes: We pay income taxes based on the tax statutes, regulations, and case law of the various jurisdictions in which we operate. Significant judgment is required in determining the timing and amounts of deductible and taxable items, and in evaluating the ultimate resolution of tax matters in dispute with tax authorities. We recognized the income tax effects of the Tax Act in our 2018 and 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes. Note 19 of the Financial Statements provides additional information, The benefits of uncertain tax positions are recorded in our financial statements only after determining it is likely the uncertain tax positions would withstand challenge by taxing authorities. We periodically reassess these probabilities and record any changes in the financial statements as appropriate. Liabilities for uncertain tax positions, including interest and penalties, were $334 million and $363 million at February 2, 2019 and February 3, 2018, respectively, and primarily relate to continuing operations. We believe the resolution of these matters will not have a material adverse impact on our consolidated financial statements. Income taxes are described further in Note 19 of the Financial Statements Pension accounting: We maintain a funded, qualified defined benefit pension plan, as well as several smaller and unfunded nonqualified plans for certain current and retired team members. The costs for these plans are determined based on actuarial calculations using the assumptions described in the following paragraphs. Eligibility and the level of benefits varies depending on team members' full-time or part-time status, date of hire, age, and/or length of service The benefit obligation and related expense for these plans are determined based on actuarial calculations using assumptions about the expected long-term rate of return, the discount rate, and compensation growth rates. The assumptions, with adjustments made for any significant plan or participant changes, are used to determine the period end benefit obligation and establish expense for the next year. Our 2018 expected long-term rate of return on plan assets of 6.30 percent is determined by the portfolio composition, historical long-term investment performance, and current market conditions. A 1 percentage point decrease in our expected long-term rate of return would increase annual expense by $39 million The discount rate used to determine benefit obligations is adjusted annually based on the interest rate for long-term high-quality corporate bonds, using yields for maturities that are in line with the duration of our pension liabilities. Our benefit obligation and related expense will fluctuate with changes in interest rates. A 1 percentage point decrease to the weighted average discount rate would increase annual expense by $68 million Based on our experience, we use a graduated compensation growth schedule that assumes higher compensation growth for younger, shorter-service pension-eligible team members than it does for older, longer-service pension- eligible team members. Pension benefits are further described in Note 24 of the Financial Statements Legal and other contingencies: We believe the accruals recorded in our consolidated financial statements properly reflect loss exposures that are both probable and reasonably estimable. We do not believe any of the currently identified claims or litigation may materially affect our results of operations, cash flows, or financial condition. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur it may cause a material adverse impact on the results of operations, cash flows, or financial condition for the period in which the ruling occurs, or future periods. Refer to Note 15 of the Financial Statements for further information on contingencies Now Accounting Pronouncements Refer to Note 2, Note 3, and Note 18, of the Financial Statements for a description of new accounting pronouncements related to revenues, leases, and pension expense. We do not expect any other recently issued accounting pronouncements will have a material effect on our financial statements Item 7A. Quantitative and Qualitative Disclosures About Market Risk At February 2, 2019, our exposure to market risk was primarily from interest rate changes on our debt obligations, some of which are at a London Interbank Offered Rate (LIBOR)-plus floating-rate. Our interest rate exposure is primarily due to differences between our floating rate debt obligations compared to our floating rate short-term investments. At February 2, 2019, our fioating rate debt exceeded our floating rate short-term investments by approximately $700 million. Based on our balance sheet position at February 2, 2019, the annualized effect of a 0.1 percentage point increase in floating interest rates on our floating rate debt obligations, net of our floating rate short-term investments, would not be significant. In general, we expect our floating rate debt to exceed our floating rate short-term investments over time, but that may vary in different interest rate environments. See further description of our debt and derivative instruments in Notes 16 and 17 to the Financial Statements. We record our general liability and workers' compensation abilities at net present value; therefore, these liabilities fluctuate with changes in interest rates. Based on our balance sheet position at February 2, 2019, the annualized effect of a 0.5 percentage point decrease in interest rates would be to decrease earnings before income taxes by $6 million. In addition, we are exposed to market return fluctuations on our qualified defined benefit pension plans. The value of our pension liabilities is inversely related to changes in interest rates. A 1 percentage point decrease to the weighted average discount rate would increase annual expense by $68 million. To protect against declines in interest rates, we hold high-quality, long-duration bonds and interest rate swaps in our pension plan trust. At year-end, we had hedged 60 percent of the interest rate exposure of our funded status As more fully described in Notes 12 and 23 to the Financial Statements, we are exposed to market returns on accumulated team member balances in our nonqualified, unfunded deferred compensation plans. We control the risk of offering the nonqualified plans by making investments in life insurance contracts and prepaid forward contracts on our own common stock that substantially offset our economic exposure to the returns on these plans, There have been no other material changes in our primary risk exposures or management of market risks since the prior year. Consolidated Statements of Cash Flows 2017 2016 (millions) 2018 As Adjusted As Adjusted Operating activities Net earnings 2.937 $ 2.914 S 2,734 Earnings from discontinued operations, net of tax 7 6 68 Net earnings from continuing operations 2.930 2.908 2,666 Adjustments to reconcile net earnings to cash provided by operations Depreciation and amortization 2,474 2,476 2.318 Share-based compensation expense 132 112 113 Deferred income taxes 322 (188) 40 Loss on debt extinguishment 123 422 Noncash losses/ (gains) and other, net 95 208 (11) Changes in operating accounts: Inventory (900) (348) 293 Other assets (299) (156) 56 Accounts payable 1.127 1,307 (166) Accrued and other abilities 89 419 (394) Cash provided by operating activities-continuing operations 5,970 6,861 5,337 Cash provided by operating activities--discontinued operations 3 74 107 Cash provided by operations 5,973 6.935 5.444 Investing activities Expenditures for property and equipment (3,516) (2,533) (1.547) Proceeds from disposal of property and equipment 85 31 46 Cash paid for acquisitions, net of cash assumed (518) Other investments 15 (55) 28 Cash required for investing activities (3.416) (3,075) (1473) Financing activities Additions to long-term debt 739 1.977 Reductions of long-term debt (281) (2.192) (2.649) Dividends paid (1.335) (1,338) (1,348) Repurchase of stock 12.124) (1.046) (3.706) Stock option exercises 96 108 221 Cash required for financing activities (3.844) (3.729) (5,505) Net (decrease)/ increase in cash and cash equivalents (1,087) 131 (1.534) Cash and cash equivalents at beginning of period 2.643 2,512 4.046 Cash and cash equivalents at end of period 1,556 $ 2.643 $ 2,512 Supplemental information Interest paid, net of capitalized interest 476 $ 678 $ 999 Income taxes paid 373 934 1,514 Leased assets obtained in exchange for new finance lease liabilities 130 139 252 Leased assets obtained in exchange for new operating lease liabilities 246 212 148 See accompanying Notes to Consolidated Financial Statements. Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition, leases, and pensions Effect of Accounting Standards Adoption on Consolidated Statement of Financial Position 2.643 II Du 111111111111 Effect of the Adoption of February 3 ASC 2016 Topic 606 ASC February 3 As Previously (Revenue Topic 842 (millions) (unaudited) 2018 Reported Recognition) (Leases) As Adjusted Assets Cash and cash equivalents $ 2,643 $ $ Inventory 8,657 (60) 8,597 Other current assets 1,284 60 (24) 1,300 Total current assets 12,564 (24) 12,540 Property and equipment Land 6,095 6,095 Buildings and improvements 28,396 (265) 28,131 Fixtures and equipment 5,623 5,623 Computer hardware and software 2,645 2,645 Construction-in-progress 440 440 Accumulated depreciation (18,181) (217) (18,398) Property and equipment, net 25,018 (482) 24,536 Operating lease assets 1,884 1,884 Other noncurrent assets 1.417 (74) 1,343 Total assets S 38,999 $ 1,304 $ 40.303 Liabilities and shareholders' investment Accounts payable 8,677 $ 8,677 Accrued and other current liabilities 4,254 (14) (146) 4,094 Current portion of long-term debt and other borrowings 270 11 281 Total current liabilities 13,201 (14) (135) 13,052 Long-term debt and other borrowings 11,317 11.117 Noncurrent operating lease liabilities 1,924 Deferred income taxes 713 (24) 693 Other noncurrent liabilities 2,059 (192) 1.8 Total noncurrent liabilities 14,089 1,508 15,600 Shareholders' investment Common stock 45 45 Additional paid in capital 5,858 5,858 Retained earnings 6,553 10 N (69) 6,495 Accumulated other comprehensive loss (747) (747) Total shareholders' Investment 11,709 10 (69) 11,651 Total liabilities and shareholders' investment $ 38,999 $ $ 1,304 $ 40,303 Note: The sum of "As Previously Reported amounts and effects of the adoption of the new standards may not equal "As Adjusted amounts due to rounding Represents estimated merchandise returns, which were reclassified from Inventory to Other Current Assets. Represents prepaid rent reclassified to Operating Lease Assets 10 Represents impact of changes in finance lease terms and related leasehold improvements (net of accumulated depreciation) under the hindsight practical expedient and derecognition of approximately $135 million of non- Target owned properties that were consolidated under previously existing build-to-suit accounting rules. Represents capitalization of operating lease assets and reclassification of leasehold acquisition costs, straight- line rent accrual, and tenant incentives. (200) 1.924 W 0 4 Jalal 10 We establish a receivable for vendor income that is earned but not yet received. Based on provisions of the agreements in place, this receivable is computed by estimating the amount eamed when we have completed our performance. We perform detailed analyses to determine the appropriate level of the receivable in the aggregate. The majority of year- end receivables associated with these activities are collected within the following fiscal quarter. We have not historically had significant write-offs for these receivables. 6. Advertising Costs Advertising costs, which primarily consist of newspaper circulars, digital advertisements, and media broadcast, are generally expensed at first showing or distribution of the advertisement. Advertising Costs (millions) Gross advertising costs Vendor income Net advertising costs 2018 1.494 $ $ 2017 1,476 $ (19) 1.457 $ 2016 1,503 (38) 1,465 $ 1,494 $ 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) c Fair Value Measurements - Recurring Basis Fair Value at Pricing February 2, February 3, (millions) Classification Category 2019 2018 Assets Short-term investments Cash and Cash Equivalents Level 1 $ 769 $ 1,906 Prepaid forward contracts Other Current Assets Level 1 19 23 Interest rate swaps Other Noncurrent Assets Level 2 10 Liabilities Interest rate swaps Other Current Liabilities Level 2 Interest rate swaps Other Noncurrent Liabilities Level 2 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 Target common stock. Valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). See Note 17 for additional information on interest rate swaps. 6 D FC) al Significant Financial Instruments not Measured at Fair Value 2018 2017 Carrying Fair Carrying Fair (millions) Amount Value Amount Value Long-term debt, including current portion 79 $ 10,247 S 10,808 $ 10.440 $ 11,155 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 February 2, February 3, (millions) 2019 2018 Cash 359 $ 337 Short-term investments 769 1,906 Receivables from third-party financial institutions for credit and debit card transactions 428 400 Cash and cash equivalents $ 1.556 $ 2,643 We have access to these funds without any significant restrictions, taxes or penalties. At February 2, 2019 and February 3, 2018, we reclassified book overdrafts of $242 million and $358 million, respectively, to Accounts Payable and $25 million and $29 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 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) Income tax and other receivables Vendor income receivable Prepaid expenses Other February 2 2019 632 $ 468 157 209 1,466 $ February 3, 2018 As Adjusted 513 416 157 214 1,300 Total $ 14. Accrued and Other Current Liabilities $ $ fal February 3 Accrued and Other Current Liabilities February 2 2018 (millions) 2019 As Adjusted Wages and benefits 1,229 $ 1,209 Gift card liability, net of estimated breakage 840 727 Real estate, sales, and other taxes payable 601 670 Dividends payable 331 336 Current portion of operating lease liabilities 166 148 Workers' compensation and general liability 142 141 Interest payable 62 67 Other 830 796 Total 4,201 $ 4,094 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. 15. 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 firm commitments for inventory purchases, merchandise royalties, equipment purchases, marketing-related contracts, software acquisition license commitments, and service contracts, were $992 million and $1,225 million at February 2, 2019 and February 3, 2018, respectively, These purchase obligations are primarily due within three years and recorded as liabilities when goods are received or services 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 $1,134 million and $1,110 million at February 2, 2019 and February 3, 2018, respectively. Over half of these real estate obligations are due within five years, a portion of which are recorded as liabilities We issue letters of credit and surety bonds in the ordinary course of business. Trade letters of credit totaled $1.746 million and $1,757 million at February 2, 2019 and February 3, 2018, respectively, a portion of which are reflected in accounts payable. Standby letters of credit and surety bonds, relating primarily to insurance and regulatory requirements, totaled $403 million and $372 million at February 2, 2019 and February 3, 2018, respectively. 16. Commercial Paper and Long-Term Debt At February 2, 2019, the carrying value and maturities of our debt portfolio were as follows: Rate Debt Maturities (dollars in milions) Due 2019-2023 Due 2024 2028 Due 2029-2033 Due 2034 2038 Due 2039-2043 Due 2044-2048 Total notes and debentures Swap valuation adjustments Finance lease liabilities Less: Amounts due within one year Long-term debt and other borrowings Reflects the weighted average stated interest rate as of year-end. February 2, 2019 Balance 3.4% $ 3,207 3.3 2,179 6.6 561 6.8 1,109 4.0 1,465 3.7 1,726 4.1 10,247 7 1,021 (1.052) $ 10,223 Required Principal Payments (millions) Total required principal payments 2023 2019 $ 1,002 2020 1,094 $ 2021 1,056 S 2022 63 $ In October 2017, we issued unsecured fixed rate debt of $750 million at 3.9 percent that matures in November 2047 In addition to debt repaid at its maturity during 2017, during October 2017, we repurchased $344 million of debt before its maturity at a market value of $463 million. We recognized a loss on early retirement of approximately $123 million, which was recorded in Net Interest Expense in our Consolidated Statements of Operations. In April 2016, we issued unsecured fixed rate debt of $1 billion at 2.5 percent that matures in April 2026 and $1 billion at 3.625 percent that matures in April 2046. In addition to debt repaid at its maturity during 2016, during the first half of 2016, we repurchased $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 We obtain short-term financing from time to time under our commercial paper program. Commercial Paper (dollars in millions) 2018 2017 2016 Maximum daily amount outstanding during the year 658 $ - $ 89 Average amount outstanding during the year 63 1 Amount outstanding at year-end Weighted average interest rate 2.00% 0.43% In October 2018, we extended a committed $2.5 billion revolving credit facility by one year to October 2023, No balances were outstanding under our credit facility at any time during 2018, 2017, or 2016. 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 facility also contains 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. Leases February 2. February 3, (millions) Classification 2019 2018 Assets Operating Operating Lease Assets $ 1,965 $ 1,884 Finance Buildings and improvements, net of Accumulated 872 836 Depreciation Total leased assets 2,837 $ 2,720 Liabilities Current Operating Accrued and Other Current Liabilities 166 $ 148 Finance Current Portion of Long-term Debt and Other Borrowings 53 80 Noncurrent Operating Noncurrent Operating Lease Liabilities 2,004 1.924 Finance Long-term Debt and Other Borrowings 968 885 Total lease liabilities $ 3,191 $ 3,037 Note: As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the incremental borrowing rate on January 31, 2016, for operating leases that commenced prior to that date. Finance lease assets are recorded net of accumulated amortization of $371 million and $317 million as of February 2, 2019 and February 3, 2018, respectively Lease Cost (millions) Classification 2018 2017 2016 Operating lease cost SG&A Expenses $ 251 $ 221 $ 199 Finance lease cost Amortization of leased assets Depreciation and Amortization 65 63 87 Interest on lease liabilities Net Interest Expense 42 42 36 Sublease income Other Revenue (11) (9) (7) Net lease cost 347 S 317 $ 315 Includes short-term leases and variable lease costs, which are immaterial. Supply chain-related amounts are included in Cost of Sales. Sublease income excludes rental income from owned properties of $47 million for 2018, 2017 and 2016, which is included in Other Revenue. a) fel $ Maturity of Lease Liabilities (millions) 2019 2020 2021 2022 2023 After 2023 Total lease payments Less: Interest Operating Leases 245 $ 238 232 228 217 1.746 2,904 $ 734 Finance Leases 98 $ 98 98 99 Total 343 336 330 325 311 2.720 4,365 $ 974 1,461 $ 440 $ Present value of lease liabilities 2.170 S 1,021 Operating lease payments include $778 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $341 million of legally binding minimum lease payments for leases signed but not yet commenced. Finance lease payments include $127 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $193 million of legally binding minimum lease payments for leases signed but not yet commenced. February 2, February 3, 2019 2018 Lease Term and Discount Rate Weighted average remaining lease term (years) Operating leases Finance leases Weighted average discount rate Operating leases Finance leases 14.2 15.4 152 15.4 3.91% 4.64% 3.88% 4.64% Other Information (millions) 2018 2017 2016 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 231 $ 198 $ 188 Operating cash flows from finance leases 45 42 36 Financing cash flows from finance leases 80 45 94 19. Income Taxes In December 2017, the U.S. government enacted the Tax Cuts and Jobs Act tax reform legislation (the Tax Act), which among other matters reduced the U.S. corporate income tax rate from 35 percent to 21 percent effective January 1. 2018 In 2017, we recorded a provisional $343 million net tax benefit primarily related to the remeasurement of certain deferred tax assets and liabilities, including $372 million of benefit from the new lower rate, partially offset by $29 million of deferred income tax expense from our foreign operations. During 2018, we completed our Tax Act accounting and recorded adjustments to previously-recorded provisional amounts, resulting in a $36 million tax benefit primarily related to the remeasurement of deferred tax assets and liabilities Beginning with 2018, we are subject to a new tax on global intangible low-taxed income that is imposed on foreign earnings. We have made an accounting election to record this tax as a period cost and thus have not adjusted any of the deferred tax assets or liabilities of our foreign subsidiaries for the new tax Net impacts of this new tax were immaterial and are included in our provision for income taxes for 2018 February 2 2019 February 3 2018 As Austed $ 262 162 Net Deferred Tax Asset/(Liability) (millions) Gross deferred tax assets: Accrued and deferred compensation Accruals and reserves not currently deductible Self-insured benefits Deferred occupancy income Leased assets Other Total gross deferred tax assets Gross deferred tax liabilities: Property and equipment Inventory Other Total gross deferred tax liabilities Total net deferred tax liability 248 $ 181 114 157 92 40 109 164 87 42 826 832 (1,557) (140) (95) (1,792) 1960) (1.264) (130) (91) (1.485 (659) Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and liabilities are recognized at the enactment date. We recognized a net tax benefit of $36 million and $372 million in 2018 and 2017 respectively. primarily because we remeasured our net deferred tax liabilities using the new lower U.S. corporate tax rate. Beginning in 2017, due to changes effected by the Tax Act and other reasons, we have not asserted indefinite reinvestment in our foreign operations. Because of this change, we recorded a deferred tax charge of $29 million during 2017 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 has completed exams on the U.S. federal income tax returns for years 2015 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 2009 142 Reconciliation of Liability for Unrecognized Tax Benefits (millions) 2018 2017 2016 Balance at beginning of period $ 325 $ 153 $ 153 Additions based on tax positions related to the current year 58 112 12 Additions for tax positions of prior years 10 6 Reductions for tax positions of prior years (91) (16) Settlements (2) (11) (2) Balance at end of period 300 $ 325 5 153 If we were to prevail on all unrecognized tax benefits recorded, $252 million of the $300 million reserve would benefit the effective tax rate. In addition, the reversal of accrued penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the years ended February 2, 2019, February 3, 2018, and January 28, 2017, we recorded an expense/(benefit) from accrued penalties and interest of $3 million, S(12) million, and $1 million, respectively. As of February 2, 2019 February 3, 2018, and January 28, 2017 total accrued interest and penalties were 532 million $29 million, and $45 million, respectively. Target 2018 Annual Report 2017 2016 2015 Financial Summary FINANCIAL RESULTS in Millione 2018 2014 Salon $ 71.730 $ 60,414 $ 73,717 $ 72,613 Other revenge 923 SON 857 777 Total revenue 78.330 72.714 70.271 74,494 72.618 Cost of 53.290 61.125 40,145 52.241 51,500 Seling general and administrativo pe SG&A) 15.723 15,140 14 217 15,400 14,670 Depreciation and amortation cutive of depreciation nouded hoot of 2224 2.225 2,045 1,000 1.001 Opating income 4.110 4.224 4,804 4,878 4,535 Not interest expens 461 853 991 007 BER Not other incomal expense 027 188 1662 Earnings from continuing operation before income the 3.670 3.600 3001 4,993 Provision Brincome 700 722 1,285 1,602 1.204 Net earnings from continuing operations 2.000 2008 2.000 3,321 2.440 Discontinued operations, net of tax 7 0 08 14.005 Not earningo / oss! 1 2,937 $ 2914 2.734 $ 3.363 1.630 PER SHARE Basic earnings/Goss) per share Continuing operation 5.54 5 5.30 $ 4.61 5.20 330 Discontinued operations 0.01 0.01 0.12 0.07 05.04) Notino/focer share $ 5.55 5.32 $ 4.3 $ 5.35 $ 5 Diluted earnings/Bons per share Continuing option 5.80 5 5.20 4.56 . 5.25 1 3.83 Discontinued ristim 0.01 001 0.12 007 15.30 Not coming toon por share 5.51 3 5.20 S 4.00 5 5.31 $ 2.500 Cathods declared 254 2:40 $ 2.30 $ 2.20 1 1.00 FINANCIAL POSITION in miliona 41,290 50.300 38,724 $ 40,252 141.172 Crotaloudtures + 31510 2.833 $ Long-Form de, including current portion $11.275 111.300 $12.501 $ 12,700 $ 12.725 Net $ 10.000 $10.267 $ Shareholder investment $ 11,297 $ 10,915 $ 12.057 FINANCIAL RATIOS Comparable is gowth 50% 1.3% 10:51 2.1 13 Cromofon 284 28.8% 202 20. 29.1 SGEA of total revenue 20.3 20.8% 20.2% 20.7% 20,0% Operating income megin (of total revenue 6.9 OTHER Commons outstanding in mind 5417 5662 6022 6402 Operating con flow provided by continuing operations in milione) $5,970 $ 5,337 $5.254 15,157 Revenue per square foot 314 200 293 310 Rotal coin thousada 230,561 230,366 230,500 230,530 239,960 Square footage growth 0.15 0.0% Blumber of for 1.044 1.02 1.800 1,792 1.790 Total number of disebution to 40 40 Cortos Tre france yatays 2017,2016 2018 fene Star 2014.09- Cots who The root 2012 and 2018 december 2016 Vorutonoord Ocean 5178 OOOOOOOOO 1-3 3-5 Years 59 1.013 487 59 67 400 Contractual Obligations as of Payments Due by Period February 2, 2019 Less than After 5 (millions) Total 1 Year Years Years Recorded contractual obligations Longterm debt $ 10,336 $ 1,002 $ 2,150 $ 63 $ 7,121 Finance lease liabilities 1,461 98 196 193 974 Operating lease liabilities 2,904 245 470 443 1.746 Deferred compensation 518 116 111 232 Real estate liabilities 121 121 Tax contingencies Unrecorded contractual obligations: Interest payments - long-term debt 5,893 407 724 628 4,134 Purchase obligations 992 532 170 75 215 Real estate obligations Future contributions to retirement plans Contractual obligations $ 23,238 $ 2,951 $ 3,885 $ 1,580 $ 14,822 Represents principal payments only. See Note 16 of the Financial Statements for further information Finance and operating lease payments include $127 million and $778 million, respectively, related to options to extend lease terms that are reasonably certain of being exercised. See Note 18 of the Financial Statements for further information The timing of deferred compensation payouts is estimated based on payments currently made to former employees and retirees and the projected timing of future retirements. Real estate liabilities include costs incurred but not paid related to the construction or remodeling of real estate and facilities. Estimated tax contingencies of $334 million, including interest and penalties and primarily related to continuing operations, are not included in the table above because we are not able to make reasonably reliable estimates of the period of cash settlement. See Note 19 of the Financial Statements for further information Purchase obligations include all legally binding contracts such as firm minimum commitments for inventory purchases, merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/ license commitments, and service contracts. We issue inventory purchase orders in the normal course of business, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments, therefore, they are excluded from the table above. 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 trade letters of credit in the ordinary course of business, which are excluded from this table as these obligations are conditioned on terms of the letter of credit being met Real estate obligations 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. We have not included obligations under our pension plans in the contractual obligations table above because no additional amounts are required to be funded as of February 2, 2019. Our historical practice regarding these plans has been to contribute amounts necessary to satisfy minimum pension funding requirements, plus periodic discretionary amounts determined to be appropriate Off Balance Sheet Arrangements: Other than the unrecorded contractual obligations noted above, we do not have any arrangements or relationships with entities that are not consolidated into the financial statements. Consolidated Statomonts of Comprehensive Income 6 4 2017 2016 (millions) 2018 As Adjusted As Adjusted Net earnings $ 2,937 2,914 $ 2.734 Other comprehensive (loss)/income, net of tax Pension and other benefit liabilities, net of tax (52) 2 (13) Currency translation adjustment and cash flow hedges, net of tax (6) Other comprehensive (loss)/income (58) 8 (9) Comprehensive income 2,8795 2.922 $ 2,725 See accompanying Notes to Consolidated Financial Statements. Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition, leases, and pensions $ $ $ February 3 February 2 2018 (millions, except footnotes) 2019 As Adjusted Assets Cash and cash equivalents 1.556 $ 2,643 Inventory 9.497 8,597 Other current assets 1.466 1,300 Total current assets 12,519 12,540 Property and equipment Land 6,064 6,095 Buildings and improvements 29.240 28,131 Fixtures and equipment 5.912 5,623 Computer hardware and software 2,544 2,645 Construction-in-progress 460 440 Accumulated depreciation (18,687) (18,398) Property and equipment, net 25.533 24,536 Operating lease assets 1.965 1,884 Other noncurrent assets 1,273 1.343 Total assets 41,290 $ 40,303 Liabilities and shareholders investment Accounts payable 9.761 $ 8,677 Accrued and other current liabilities 4.201 4,094 Current portion of long-term debt and other borrowings 1.052 281 Total current liabilities 15,014 13,052 Long-term debt and other borrowings 10.223 11,117 Noncurrent operating lease liabilities 2,004 1.924 Deferred income taxes 972 693 Other noncurrent liabilities 1.780 1.866 Total noncurrent liabilities 14.979 15,600 Shareholders' investment Common stock 43 Additional paid.in capital 6,042 5,858 Retained earnings 6,017 6,495 Accumulated other comprehensive loss (805) (747) Total shareholders' investment 11.297 11,651 Total liabilities and shareholders' Investment $ 41.290 $ 40,303 Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 517,761,600 shares issued and outstanding at February 2, 2019, 541,681,670 shares issued and outstanding at February 3, 2018. Preferred Stock Authorized 5,000,000 shares, $0.01 par value, no shares were issued or outstanding at February 2. 2019 or February 3, 2018 See accompanying Notes to Consolidated Financial Statements Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition leases, and 45 Numerator (dollars in millions) Operating income + Net other income /expense) EBIT Operating lease interest Income taxes Net operating profit after taxes Trailing Twelve Months February 3, February 2 2018 2019 As Adjusted $ 4.110 $ 4.224 27 59 4,137 4.283 83 79 856 867 $ 3,364 $ 3,495 Denominator (dollars in millions) Current portion of long-term debt and other borrowings + Noncurrent portion of long-term debt + Shareholders' equity + Operating lease liabilities Cash and cash equivalents -Net assets of discontinued operations Invested capital Average invested capital February 2 2019 1,052 10.223 11.297 2.170 1.556 February 3. 2018 As Adjusted s 281 11.117 11,651 2.072 2.643 2 $ 22.476 $ 22,689 January 28, 2017 As Adjusted $ 1.729 10,862 10,915 1,970 2.512 62 $ 22,902 $ 23,186 $ 22,831 IR DI After-tax return on invested capital 14.7% 15.4% After-tax return on invested capital excluding discrete impacts of Tax Act 14.6% 13.6% Consisted of 53 weeks Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A Expenses. Operating lease interest is added back to Operating Income in the ROIC calculation to control for differences in capital structure between us and our competitors Calculated using the effective tax rates for continuing operations, which were 20.3 percent and 19.9 percent for the trailing twelve months ended February 2, 2019, and February 3, 2018, respectively. For the trailing twelve months ended February 2, 2019, and February 3, 2018, includes tax effect of 5839 million and $851 million, respectively, related to EBIT, and $17 milion and $16 million, respectively, related to operating lease interest The effective tax rate for the trailing twelve months ended February 2, 2019, and February 3, 2018, includes discrete tax benefits of $36 million and $343 million, respectively, related to the Tax Act Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities on the Consolidated Statements of Financial Position Included in Other Assets and Liabilities on the Consolidated Statements of Financial Position Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period. Adoption of the new lease standard reduced ROIC by approximately 0.5 percentage points for all periods presented 120 fel 10 ol 2 23 Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP, which requires us to make estimates and apply judgments that affect the reported amounts. In the Notes to Consolidated Financial Statements, we describe the significant accounting policies used in preparing the consolidated financial statements. Our management has discussed the development, selection, and disclosure of our critical accounting estimates with the Audit & Finance Committee of our Board of Directors. The following items require significant estimation or judgment: Inventory and cost of sales: The vast majority of our inventory is accounted for under the retail inventory accounting method using the last-in, first-out method. Our inventory is valued at the lower of cost or market. We reduce inventory for estimated losses related to shrink and markdowns. Our shrink estimate is based on historical losses verified by physical inventory counts. Historically. Our actual physical inventory count results have shown our estimates to be reliable, Market adjustments for markdowns are recorded when the salability of the merchandise has diminished. We believe the risk of inventory obsolescence is largely mitigated because our inventory typically turns in less than three months. Inventory was $9.497 million and $8,597 million at February 2, 2019 and February 3, 2018, respectively, and is further described in Note 9 of the Financial Statements. Vendor income: We receive various forms of consideration from our vendors (vendor income), principally eared as a result of volume rebates, markdown allowances, promotions, and advertising allowances. 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 the agreements in place, this receivable is computed by estimating when we have completed our performance and when the amount is 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. Historically. adjustments to our vendor income receivable have not been material. Vendor income receivable was $468 million and $416 million at February 2, 2019 and February 3, 2018, respectively. Vendor income is described further in Note 5 of the Financial Statements Long-lived assets: Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets, which is primarily at the store level. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and/or disposition of the assets are less than their carrying amount. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using discounted cash flows or independent opinions of value, as appropriate. We recorded impairments of $92 million $91 million, and $43 million in 2018, 2017 and 2016, respectively, which are described further in Note 11 of the Financial Statements. We applied the hindsight practical expedient for measurement of lease assets and liabilities, and associated leasehold Improvement assets, in our adoption of ASU No. 2016-02-Leases (Topic 842), which required significant judgment to determine the reasonably certain lease term for existing leases in transition to the new standard. Using hindsight shortened lease terms for many leases. Operating lease assets and liabilities were $1,965 million and $2,170 million, respectively, at February 2, 2019. Finance lease assets and liabilities were $872 million and $1,021 million, respectively, at February 2, 2019. Leases are described further in Notes 2 and 18 of the Financial Statements. Insurance/self-insurance: We retain a substantial portion of the risk related to certain general liability, workers' compensation property loss, and team member medical and dental claims. However, we maintain stop-loss coverage to limit the exposure related to certain risks. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We use actuarial methods which consider a number of factors to estimate our ultimate cost of losses. General liability and workers' compensation liabilities are recorded at our estimate of their net present value; other liabilities referred to above are not discounted. Our workers' compensation and general liability accrual was $423 million and $419 million at February 2, 2019 and February 3, 2018, respectively. We believe that the amounts accrued are appropriate; however, our liabilities could be significantly affected if future occurrences or loss developments differ from our assumptions. For example, a 5 percent increase or decrease in average claim costs would impact our self-insurance expense by $21 million in 2018. Historicall