Target 2003 Annual Report Download

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ON TARGET. FULL SPEED AHEAD.
TARGET CORPORATION ANNUAL REPORT 2003

Table of contents

  • Page 1
    TARGET CORPORATION ANNUAL REPORT 2003 ON TARGET. FULL SPEED AHEAD.

  • Page 2
    ...Retail square feet Number of stores * Consisted of 53 weeks. ** Earnings per share, dividends per share and common shares outstanding reflect our 2000 two-for-one common share split. The Financial Highlights should be read in conjunction with the Notes to Consolidated Financial Statements throughout...

  • Page 3
    ... Corporation's overall strategy and financial performance for decades - providing fashion leadership, management talent, and financial services expertise as well as significant cash flow that has allowed us the luxury of simultaneously pursuing terrific growth opportunities for our Target Stores...

  • Page 4
    ... the Target Visa portfolio, delivering more value to our guests and producing a substantial increase in revenues and receivables balances that accounted for more than 100 percent of our overall credit card operation's annual growth. • And we remained steadfast in our commitment to support programs...

  • Page 5
    ...profit and Target Corporation has delivered nearly an 18 percent increase in average annual earnings per share and a total annualized return to shareholders of about 23 percent. As we look to the future, we are confident in the underlying strategy, growth and profit potential of Target Stores. Based...

  • Page 6
    ...more prominent marketing and in-store presentation, • investing in pharmacy technology and guest communication to improve speed and service and strengthen our relationship with our pharmacy guests, • merchandising and marketing to specific guest segments, such as Mom and Baby and households that...

  • Page 7
    ... high-quality, low-cost standards and meet our speed-to-market objectives. As other companies work to create their own sourcing organizations, we continue to enhance Target's sourcing power, speed new products to our guests and maintain competitive prices. Trusted National Brands As a complement to...

  • Page 8
    ... superior financial performance. Buying Time Consumables We're expanding our selection of consumables with more meal and baking essentials, snacks, beverages and convenience items such as milk and orange juice - making Target an even better onestop-shop for busy guests. Mom and Baby Target is...

  • Page 9
    ...of wait to pay. Specifically, we reiterated our objective to allow no more than two guests in a checkout line at any given time; we increased our investment in cashier training; and we implemented systems that seamlessly give our team members the capability to open additional check lanes when needed...

  • Page 10
    ... of time in our guests' hectic lives, we deliberately invest millions of dollars in systems, team member training and elements of store design that offer our guests greater speed and convenience when they shop in our stores. While our guests appreciate our fast service, they also value the...

  • Page 11
    ... that enhance our brand identity, while maintaining a disciplined capital investment program. We understand that our guests appreciate the chain-wide consistency of Target - our dedication to fast and friendly service as well as clean, fresh, easy-to-shop store environments. Together, these elements...

  • Page 12
    ... our brand. As of year-end, the Target Visa portfolio included more than four billion dollars in accounts receivable and over nine million cards issued and represented a substantial portion of the annual increase in our credit card operation's profit contribution. At Target Financial Services, we...

  • Page 13
    ... Target Visa card, in conjunction with programs such as Take Charge of Education (TCOE) and Target Rewards, delivers meaningful, incremental value and strengthens our bond with our guests. This bond is reinforced through the efforts of our own credit card team members. By maintaining direct access...

  • Page 14
    ... system called Automated Receiving Technology (ART). This program utilizes real-time information Strengthening our Network To support our new store growth and better serve our existing stores, we continue to expand our distribution capacity and invest in leading-edge technologies. Our current...

  • Page 15
    ... team members and our guests identifies the specific aisle and shelf location for incoming merchandise and improves our store discipline and our stores' speed of stocking new product. • And finally, our Web-enabled supply chain tracking system provides end-to-end visibility for merchandise orders...

  • Page 16
    ... and international challenges continue to affect our guests' lives and, therefore, our business. Target contributes over two million dollars a week and thousands of volunteer hours to programs that strengthen families and build stronger communities through education, arts, social services, and...

  • Page 17
    ...choice and using their Target Guest Card or Target Visa card, our guests have directed Target to donate more than $100 million to schools throughout the country. Our team members proudly share and support our giving philosophy by lending their time, talent and financial resources to local charities...

  • Page 18
    Target Market Share Year-end 2003 Store Count and Square Footage by State Market Share Group No. of Stores Retail Sq. Ft. (in thousands) Market Share Group New Hampshire New Mexico New York North Carolina Ohio Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Group Total No. of...

  • Page 19
    ... this review process. Management's Discussion and Analysis is based on our Consolidated Financial Statements as shown on pages 26-29. Revenues and Comparable-store Sales Total revenues include retail sales and 45,000 net credit card revenues. Net credit 37,500 card revenues represent income derived...

  • Page 20
    ... that a number of expenses will increase at a faster pace than sales. These include expenses related to our defined benefit plans, insurance and stock options, which we began expensing during 2003 under the prospective transition method in accordance with Statement of Financial Accounting Standards...

  • Page 21
    ..., due primarily to additional revenues earned from the Target Visa credit card portfolio. $6,000 15.4% 15.4% 14.7% $2,960 $2,676 $2,207 In 2001, the $67 million pre-tax loss related to the required adoption of a new accounting standard applicable to securitized accounts receivable. The $27 million...

  • Page 22
    ...Card Contribution to Segment Profit (millions) Revenues: Finance charges, late fees and other revenues Merchant fees Intracompany Third-party Total revenues Expenses: Bad debt provision Operations and marketing Total expenses Pre-tax credit card contribution As a percent of total average receivables...

  • Page 23
    ...health care accounting We fund and maintain three qualified defined benefit pension plans and maintain certain related non-qualified plans as well. Our pension costs are determined based on actuarial calculations using key assumptions including our expected long-term rate of return on qualified plan...

  • Page 24
    ... total receivables in 2003 increased 21 percent reflecting the substantial growth of the Target Visa credit card portfolio throughout 2002. During 2003, inventory levels increased $583 million, or 12.2 percent. This growth was more than fully funded by the $764 million increase in accounts payable...

  • Page 25
    ...,662 * Required principal payments only. Excludes SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," fair market value adjustments recorded in long-term debt. ** Includes payments on $1.5 billion of floating rate long-term debt secured by credit card receivables, of which...

  • Page 26
    ... Year 10 Year Total Annualized Return Target S&P 500 Peer group Measuring Value Creation We measure value creation internally using a form of Economic Value Added (EVA), which we define as after-tax segment profit less a capital charge for all investment employed. The capital charge is an estimate...

  • Page 27
    ... consumer credit markets, changing health care costs, changing capital markets and general economic conditions, hiring and retaining effective team members, sourcing merchandise from domestic and international vendors, investing in new business strategies, achieving our growth objectives, the review...

  • Page 28
    ...OPERATIONS (millions, except per share data) Sales Net credit card revenues Total revenues Cost of sales Selling, general and administrative expense Credit card expense Depreciation and amortization Interest expense Earnings before income taxes Provision for income taxes Net earnings Basic earnings...

  • Page 29
    ... Liabilities and shareholders' investment Accounts payable Accrued liabilities Income taxes payable Current portion of long-term debt and notes payable Total current liabilities Long-term debt Deferred income taxes and other Shareholders' investment Common stock* Additional paid-in-capital Retained...

  • Page 30
    ...net Other non-cash items affecting earnings Changes in operating accounts providing/(requiring) cash: Accounts receivable Inventory Other current assets Other assets Accounts payable Accrued liabilities Income taxes payable Other Cash flow provided by operations Investing activities Expenditures for...

  • Page 31
    ... Other comprehensive income Total comprehensive income Dividends declared Repurchase of stock Issuance of stock for ESOP Stock options and awards: Tax benefit Proceeds received, net January 31, 2004 Common Stock Shares 897.8 - - (.5) 2.6 Common Stock $75 - - - - Additional Paid-in Capital $ 902...

  • Page 32
    ...2001, net credit card revenues are net of the payments made to holders of publicly held receivable-backed securities. Consideration Received from Vendors We collect vendor income primarily as a result of our promotional, advertising and compliance programs. Promotional and advertising allowances are...

  • Page 33
    ... interests related to the sold securities. This resulted in a pre-tax charge of $67 million ($.05 per share). On August 22, 2001, the Trust's entire portfolio of receivables was reflected on our consolidated financial statements at its fair value, which was based upon the expected performance of...

  • Page 34
    ... pre-funded pension benefits, investments, deferred financing costs and derivatives. The increase in the long-term asset balance is primarily due to pre-funded pension contributions of $200 million partially offset by a $43 million reduction in the value of derivative assets that were outstanding at...

  • Page 35
    ... value of total notes payable and notes and debentures, using a discounted cash flow analysis based on our incremental interest rates for similar types of financial instruments, was $11,720 million at January 31, 2004 and $11,741 million at February 1, 2003. Required principal payments on long-term...

  • Page 36
    ...093 $1,778 (780) $ 998 Capital Leases $ 21 20 19 19 19 166 $264 (106) $158** Net Deferred Tax Asset/(Liability) (millions) Gross deferred tax assets: Self-insured benefits Deferred compensation Inventory Accounts receivable valuation allowance Postretirement health care obligation Other January 31...

  • Page 37
    ... options equaled the market price of the underlying stock on the grant date. The expense related to the intrinsic value of performance-based and restricted stock awards issued was not significant to 2003 net earnings, cash flows or financial position. The pro forma impact of accounting for those...

  • Page 38
    ... of measurement period Actual return on plan assets Employer contribution Benefits paid Fair value of plan assets at end of measurement period Funded status Unrecognized actuarial loss Unrecognized prior service cost Net amount recognized 2003 2002 2003 2002 Postretirement Health Care Benefits 2003...

  • Page 39
    ...used to determine net periodic benefit cost for years ended October 31: Postretirement Health Care Benefits 2003 7.00% n/a n/a 2002 7.25% n/a n/a Pension Benefits 2003 Discount rate Expected long-term rate of return on plan assets Average assumed rate of compensation increase 7.00% 8.50% 4.00% 2002...

  • Page 40
    ...Field's Other Total capital expenditures Segment net assets and shareholders' equity reconciliation Target Mervyn's Marshall Field's Other Total net assets Securitized receivables Marketable securities Current portion of long-term debt and notes payable Long-term debt Deferred income taxes and other...

  • Page 41
    ...may not equal the total year amount due to the impact of changes in average quarterly shares outstanding. (c) Our common stock is listed on the New York Stock Exchange and Pacific Exchange. At March 22, 2004, there were 17,582 registered shareholders and the closing common stock price was $44.22 per...

  • Page 42
    ... and Chief Financial Officer Report of Audit Committee The Audit Committee met six times during fiscal 2003 to review the overall audit scope, plans for internal and independent audits, the Corporation's systems of internal control, emerging accounting issues, audit fees and benefit plans. The...

  • Page 43
    ... Vice President, Investor Relations Tracy Kofski Vice President, Total Compensation Stephen C. Kowalke Vice President and Treasurer Richard J. Kuzmich President, Associated Merchandising Corp. Dale Nitschke President, target.direct Terrence J. Scully President, Target Financial Services Laysha Ward...

  • Page 44
    ... service investment plan that allows interested investors to purchase Target Corporation stock directly, rather than through a broker, and become a registered shareholder of the Company. The program offers many features including dividend reinvestment. For detailed information regarding this program...

  • Page 45
    Expect More. Pay Less.

  • Page 46
    1000 NICOLLET MALL MINNEAPOLIS, MN 55403 612.304.6073 WWW.TARGET.COM