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The power of one. One vision. One brand.
TARGET CORPORATION ANNUAL REPORT 2004

Table of contents

  • Page 1
    The power of one. One vision. One brand. TARGET CORPORATION ANNUAL REPORT 2004

  • Page 2
    ... 1,200 160 $1.51 1.00 $1.06 $1.21 1.50 900 120 600 80 . 50 300 40 '00 '01 '02 '03 '04 '00 '01 '02 '03 '04 '00 '01 '02 '03 '04 Diluted EPS Number of Stores Retail Square Feet (millions) 01 Report to Shareholders 04 Business Review 16 Financial Review 40 Shareholder Information...

  • Page 3
    ...'s business units for aggregate pretax cash proceeds of approximately $4.9 billion, • Our Board's authorization of a $3 billion share repurchase program, which we expect to complete within a 2 to 3 year time horizon, • Our introduction of a new Target store prototype that enhances our guests...

  • Page 4
    ... and supply chain capabilities to reduce merchandise lead times and speed product to our shelves. We also steadfastly adhere to a comprehensive remodel program for existing stores and continue to improve our store format every few years by incorporating innovative, new design features that add to...

  • Page 5
    ... overall market share in 2004 was 9%. With just over 1300 stores in the continental United States, we believe that Target has ample opportunity for profitable growth for many years. We expect to continue to enjoy meaningful gains in market share, reflecting both new store growth and increased sales...

  • Page 6
    .... Through careful nurturing and an intense focus on consistency and coordination throughout our organization, Target has built a strong, distinctive brand. At the core of our brand is our commitment to deliver the right balance of differentiation and value through our "Expect More. Pay Less." brand...

  • Page 7
    to provide newness and excitement through design innovation and continuous improvement; and to offer greater convenience, value, reliability and speed by leveraging our company's resources effectively. By accomplishing these objectives, we continue to delight our guests. 5

  • Page 8
    ...Expect More. Pay Less. For more than a decade, Target's "Expect More. Pay Less." brand promise has been integral to our strategy and to our communications with our guests. It is interwoven with our merchandising and marketing, our store environment, our guest service and our systems and distribution...

  • Page 9
    ...-end. • We increased the square footage of our SuperTarget stores at more than double the rate of growth in our general merchandise stores and reinforced our commitment to delivering both differentiation and value with the initiation of our new "Eat Well. Pay Less." signing and marketing campaign...

  • Page 10
    ... not limited to merchandising at Target. We believe that our guests' entire shopping experience, whether in our stores or on-line, should reflect this brand promise. As a result, we dedicate considerable resources to delivering superior guest service, in-stock reliability, and an environment within...

  • Page 11
    ... loyal guests, supporting schools through our Take Charge of Education program, exclusive access to fashion tips and information about products sold at Target and convenient, on-line account administration. Also, in 2004, we introduced the Target Business Card - offering enhanced reporting features...

  • Page 12
    ... pursuit of new merchandising concepts, brands and design partnerships, • Commitment to keep our stores fresh by maintaining a disciplined schedule for remodels and development of new prototype formats, • Creative approach to marketing and community relations, and • Application of technology...

  • Page 13
    ... consistent with Target's updated brand image. In our new stores, our prototype review process produces significant architectural and interior design changes every few years that enhance our guests' shopping experience. In our latest iteration, unveiled in 2004, we realigned merchandise adjacencies...

  • Page 14
    ...ll see A" "MINI DIV Target Wake-up Call A fun and innovative way to welcome our guests to the holiday season and convey the excitement of our distinctive merchandise and great values. LOWCOST. See. Spot. Save. Displaying our signature style, this marketing campaign clearly conveys the compelling...

  • Page 15
    ... in a unique, engaging style, and balances our focus on great merchandise design with outstanding value. During 2004, our innovation in marketing produced several new programs to delight our guests and strengthen our communities: • In May, Target set up shop for a five-week stay in The Hamptons at...

  • Page 16
    ... in support of education, the arts, social services and other vital community partnerships that strengthen families and build healthy, solid communities. In addition, we help our community partners by volunteering our time, experience and corporate knowledge. For example, we're lending our marketing...

  • Page 17
    ... by our team, • Generating profitable growth for our shareholders over time, and • Investing in programs that strengthen our communities. For decades, this vision, combined with disciplined management and effective corporate governance, has guided our company, contributed to the strength...

  • Page 18
    ... per share Cash dividends declared Financial Position: (in millions) Total assets Capital expenditures Long-term debt Net debt* Shareholders' investment Financial Ratios: Revenues per square foot** Comparable store sales growth Gross margin rate (% of sales) SG&A rate (% of sales) EBIT margin (% of...

  • Page 19
    .... This vendor income primarily represented advertising reimbursements. Analysis of Continuing Operations Revenues and Comparable-store Sales Sales include merchandise sales, net of expected returns, from our stores and our on-line business. Total revenues include sales and net credit card revenues...

  • Page 20
    ... to new store growth. In 2005, we expect depreciation and amortization to increase in line with our sales growth. Credit Card Contribution We offer credit to qualified guests through our branded credit cards: the Target Visa and proprietary Target Card. Our credit card products strategically support...

  • Page 21
    ..., share repurchases, growth in receivables, maturities of long-term debt, and other cash requirements, including seasonal buildup in inventories. A key to our liquidity and access to capital markets is maintaining strong investment-grade debt ratings. Credit Ratings Analysis of Financial Condition...

  • Page 22
    ..., were for new stores, expansions and remodels. Other capital investments were for information system hardware and software, distribution capacity and other infrastructure to support store growth. Number of Stores January 29, 2005 Target General Merchandise Stores SuperTarget Stores Total 1,172 136...

  • Page 23
    ... point change in equity market returns on our non-qualified defined contribution plans (inclusive of the effect of derivative instruments used to hedge or manage these exposures) would not be significant. The annualized effect of a one percentage point decrease in the return on pension plan assets...

  • Page 24
    ... health care accounting We fund and maintain a qualified defined-benefit pension plan 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 25
    ..., changing 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...

  • Page 26
    ...share data) Sales Net credit card revenues Total revenues Cost of sales Selling, general and administrative expense Credit card... operations Diluted earnings per share Weighted average common shares outstanding: Basic Diluted See Notes to Consolidated Financial Statements throughout pages 28-37...

  • Page 27
    ...and equipment, net Other non-current assets Non-current assets of discontinued operations Total assets Liabilities and shareholders' investment Accounts payable Accrued liabilities Income taxes payable Current portion of long-term debt and notes payable Current liabilities of discontinued operations...

  • Page 28
    ... fixed assets Change in accounts receivable originated at third parties Proceeds from sale of discontinued operations Cash flow provided by/(required for) investing activities Financing activities Decrease in notes payable, net Additions to long-term debt Reductions of long-term debt Dividends paid...

  • Page 29
    ... rights. Terms of the plan provide for a distribution of one preferred share purchase right for each outstanding share of our common stock. Each right will entitle shareholders to buy one twelve-hundredth of a share of a new series of junior participating preferred stock at an exercise price of...

  • Page 30
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of Accounting Policies Organization Target Corporation operates large-format general merchandise discount stores in the United States and a much smaller, rapidly growing on-line business. Additionally, our credit card operations represent an ...

  • Page 31
    ... stores and distribution centers to an investment consortium including Sun Capital Partners, Inc., Cerberus Capital Management, L.P., and Lubert-Adler/Klaff and Partners, L.P. and to sell Mervyn's credit card receivables to GE Consumer Finance, a unit of General Electric Company, for total cash...

  • Page 32
    ...: 2004 Prepaid pension expense Cash value of life insurance Goodwill and intangible assets Other Total $ 711 439 206 155 $1,511 2003 $ 580 363 229 205 $1,377 In addition to vendor income, other receivables relate primarily to pharmacy receivables and merchandise sourcing services provided to third...

  • Page 33
    ...the required annual goodwill impairment analysis. No impairments were recorded in 2004, 2003 and 2002 as a result of the tests performed. Accounts Payable Our accounting policy is to reduce accounts payable when checks to vendors clear the bank from which they were drawn. Outstanding checks included...

  • Page 34
    ... the effect of equity market returns on our non-qualified defined contribution plans as discussed on page 34. At January 29, 2005 and January 31, 2004, interest rate swaps were outstanding in notional amounts totaling $2,850 million and $2,150 million, respectively. The change in market value of an...

  • Page 35
    ...previous repurchase programs that were authorized by our Board of Directors in January 1999 and March 2000. We repurchased 29 million shares at an average price per share of $44.68 during 2004, at a total cost of $1,290 million. Stock-based Compensation We maintain a long-term incentive plan for key...

  • Page 36
    ... to the results of either our 401(k) plan investment choices, including Target stock, or in the case of a frozen plan, market levels of interest rates, plus an additional return determined by the terms of each plan. We recognized benefits expense for these non-qualified plans of $63 million and $86...

  • Page 37
    ...and hours worked per year requirements. We also have unfunded non-qualified pension plans for employees who have qualified plan compensation restrictions. Benefits are provided based upon years of service and the employee's compensation. Retired employees also become eligible for certain health care...

  • Page 38
    ... service, as appropriate, are expected to be paid: Pension Benefits $ 59 62 66 70 75 $476 Postretirement Health Care Benefits $ 8 8 8 9 9 $53 Our rate of return on qualified plans' assets has averaged 4.9 percent and 10.2 percent per year over the 5-year and 10-year periods, respectively, ending...

  • Page 39
    ...may not equal the total year amount due to the impact of changes in average quarterly shares outstanding. (e) Our common stock is listed on the New York Stock Exchange and Pacific Exchange. At March 21, 2005, there were 18,030 registered shareholders and the closing common stock price was $50.28 per...

  • Page 40
    ... and Chief Financial Officer Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting The Board of Directors and Shareholders Target Corporation We have audited management's assessment, included in the accompanying Report of Management on Internal Control...

  • Page 41
    ..., Community Relations Jane P. Windmeier Senior Vice President, Finance 39 Timothy R. Baer Senior Vice President, General Counsel and Corporate Secretary Todd V. Blackwell Executive Vice President, Human Resources, Assets Protection, TSS/AMC Bart Butzer Executive Vice President, Stores Michael...

  • Page 42
    ... Financial Officer required by Section 302 of the Sarbanes Oxley Act of 2002. Transfer Agent, Registrar and Dividend Disbursing Agent Mellon Investor Services Trustee, Employee Savings 401(k) and Pension Plans State Street Bank and Trust Company Stock Exchange Listings Trading symbol: TGT New York...

  • Page 43
    ... Vermont West Virginia Group Total Total 4 3 0 3 10 1,308 492 364 0 375 1,231 165,015 For purposes of this schedule, market share is defined as Target sales by state as a percentage of U.S. General Merchandise Store sales, including department stores, discount stores, supercenters and warehouse...

  • Page 44
    TARGET CORPORATION 1000 NICOLLET MALL MINNEAPOLIS, MN 55403 612.304.6073 WWW.TARGET.COM