Target 2006 Annual Report Download

Download and view the complete annual report

Please find the complete 2006 Target annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 76

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76

Expect More.
Pay Less.
Target Corporation Annual Report 2006

Table of contents

  • Page 1
    Expect More. Pay Less. Target Corporation Annual Report 2006

  • Page 2
    ...05 '06 Total Revenues (millions) 2006 Growth %: 13.1% Five-year CAGR: 12.5% Earnings Before Interest Expense and Income Taxes (EBIT) (millions) 2006 Growth %: 17.3% Five-year CAGR: 17.7% 2006 Capital Expenditures ($3.9 billion) • New Stores • Remodels & Expansions • Information Technology...

  • Page 3
    ...our guests and turns a brief shopping list into a full shopping cart. It is the excitement of finding great quality and design at an incredible price, the surprise in viewing our innovative marketing, and the pleasure of shopping in a clean, bright store. Above all, it is our brand promise- defining...

  • Page 4
    ... services operation, to support our disciplined pace of growth and increase our productivity; • We remained focused on leveraging the benefits of our highly integrated, multichannel strategy, which combines our retail stores, our online business and our credit card operations, to give our guests...

  • Page 5
    ... future, we remain confident in our direction and believe that Target is well positioned to build on our past success and generate profitable market share growth for many years to come. Sincerely, Bob Ulrich, Chairman and Chief Executive Officer Board of Directors Change During the past year, we...

  • Page 6
    ... deliver the outstanding shopping experience our guests expect. To preserve our brand's integrity and freshness, we are committed to delighting our guests through an integrated and innovative approach to merchandising, presentation, service, store design, marketing and community involvement.

  • Page 7
    ... partnerships, signature national brands and high-quality owned brands. During 2006, we introduced a number of new merchandise initiatives to maintain our freshness and relevance to our guests: • We launched GO International, a series of limited-edition apparel collections featuring high-fashion...

  • Page 8
    ... in our general merchandise stores as well as add new SuperTarget locations. And, through our frequent introductions of new owned-brand products, we continue to increase our food penetration and reinforce our promise of quality, freshness and value. During 2006, we introduced a number of new...

  • Page 9
    ... differentiated advertising strategy, and it communicates our balanced message of design and value to our guests. Each week, it is distributed to more than 50 million households, driving increased traffic to E X P E C T M O R E . PAY L E S S . Community As a good corporate citizen, Target works to...

  • Page 10
    ...using lenticulargraphic technology. These innovative campaigns help solidify Target's unique brand and reinforce our strategic focus on balancing great merchandise design with outstanding value. Value in the Cards Our "Expect More. Pay Less." brand promise extends to Target Financial Services, where...

  • Page 11
    ... . PAY L E S S . GO International GO International is Target's bold new approach to delivering great style - and exceptional value - to our guests. Through a series of limited-time partnerships with renowned fashion designers, Target is consistently delighting our guests with fun, innovative, trend...

  • Page 12
    ... value to our guests through its services, marketing and merchandising strategies. Given the increasing importance of this channel, we remain focused on developing new online opportunities and leveraging the synergies between our stores and Target.com. For example, we continue to test new product...

  • Page 13
    ...our brand promise. Through our innovative merchandising; Fast, Fun and Friendly team; in-stock reliability; and devotion to clean, inviting, convenient stores, we demonstrate our commitment to superior guest service and strive to deliver a consistently outstanding experience for Target guests. "The...

  • Page 14
    ... E . PAY L E S S . C9 by Champion To meet our guests' increasing demand for highperformance activewear, we have broadened our assortment in both men's and women's apparel. In addition, we remain focused on technical innovation, superior quality, fashion and affordability as we position Target to be...

  • Page 15
    ... giving totals more than $3 million each week. Nationwide, Target team members volunteer millions of hours annually to more than 7,000 programs that strengthen families and build healthier communities. Signature programs include: • Take Charge of Education, a school fund-raising initiative...

  • Page 16
    ... and economic well-being of the global communities in which we do business is integral to our strategy, our reputation and our performance. As we continue to strive to deliver superior value for our guests, our team members, our communities and our shareholders, we remain firmly committed to these...

  • Page 17
    ... 67,819 $0 - $100 Alaska Arkansas Hawaii Kentucky Maine Mississippi Vermont West Virginia Wyoming Group Total Total 0 6 0 12 4 4 0 5 2 33 1,488 0 745 0 1,383 503 489 0 626 187 3,933 192,064 Sales per capita is defined as sales by state (based on 52 weeks of sales) divided by state population. 15

  • Page 18
    ... sales) SG&A rate (% of sales) EBIT margin (% of revenues) Other: Common shares outstanding (in millions) Cash flow provided by operations (in millions) Retail square feet (in thousands) Square footage growth Total number of stores General merchandise SuperTarget Total number of distribution centers...

  • Page 19
    ... 55403 (Zip Code) TARGET CORPORATION Registrant's telephone number, including area code: 612/304-6073 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value $.0833 per share Preferred Share Purchase Rights...

  • Page 20
    (This page has been left blank intentionally.)

  • Page 21
    ... With Accountants on Accounting and Financial Disclosure. Controls and Procedures. Other Information. 9 11 11 21 22 48 48 48 PA R T I I Directors, Executive Officers and Corporate Governance. Executive Compensation. Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 22
    ... our branded proprietary credit card products (REDcard), we strengthen the bond with our guests, drive incremental sales and contribute meaningfully to earnings. We also operate a fully integrated on-line business, Target.com. Although Target.com is small relative to our overall size, its sales are...

  • Page 23
    ... company-paid benefits to our team members, including a pension plan, 401(k) plan, medical and dental plans, a retiree medical plan, short-term and long-term disability insurance, paid vacation, tuition reimbursement, various team member assistance programs, life insurance and merchandise discounts...

  • Page 24
    ...our Board of Directors and Board committees are also available free of charge in print upon request or at www.Target.com (click on ''Investors'' and ''Corporate Governance''). Item 1A. Risk Factors. A description of risk factors and cautionary statements relating to forward-looking information is...

  • Page 25
    ... 29 distribution centers have a total of 41,460 thousand square feet. PA R T I We own our corporate headquarters buildings located in Minneapolis, Minnesota, and we lease and own additional office space elsewhere in the United States. Our international merchandise sourcing operations headquartered...

  • Page 26
    ... held several positions in Employee Relations at Target. Executive Vice President, Stores since September 2006. Group Vice President from September 2005 to September 2006. Group Director from February 2002 to September 2005. Executive Vice President and Chief Information Officer since March 2007...

  • Page 27
    ... information with respect to purchases of Target common stock made during the fourteen weeks ended February 3, 2007, by Target or any ''affiliated purchaser'' of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act. Total Number of Shares Purchased as Part of Publicly Announced Program...

  • Page 28
    ...over the same period. The Peer Group index consists of 38 general merchandise, food and drug retailers and is weighted by the market capitalization of each component company. The graph assumes the investment of $100 in Target common stock, the S&P 500 Index and the Peer Group on February 2, 2002 and...

  • Page 29
    ... on our Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data. 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, as well as gift card breakage...

  • Page 30
    ... in comparable stores and growth in net credit card revenues. We do not expect inflation/deflation to have a significant effect on sales growth in 2007. Subsequent to year end, we changed our definition of comparable-store sales to include sales from our on-line business because we believe...

  • Page 31
    ...our REDcard products, the Target Visa and the Target Card. Our credit card program strategically supports our core retail operations and remains an important contributor to our overall profitability. Our credit card revenues are comprised of finance charges, late fees and other revenues. In addition...

  • Page 32
    ...We offer new account discounts and rewards programs on our REDcard products. These discounts and rewards are redeemable only on purchases made at Target. The discounts associated with our REDcard products are included as reductions in sales in our Consolidated Statements of Operations and were $104...

  • Page 33
    ... million in 2006 compared to $4,451 million in 2005, primarily due to higher earnings from continuing operations. We continue to fund our growth and execute our share repurchase program through a combination of internally-generated funds and debt financing. Our year-end gross receivables were $6,711...

  • Page 34
    ... We expect to continue to execute our share repurchase program primarily in open market transactions, subject to market conditions, and to complete the total program by year-end 2008 or sooner. Our financing strategy is to ensure liquidity and access to capital markets, to manage our net exposure to...

  • Page 35
    ... open two distribution centers in 2007. Number of Stores February 3, 2007 1,311 177 1,488 Opened 94 19 113 Closed (a) 22 - 22 January 28, 2006 1,239 158 1,397 PA R T I I Target general merchandise stores SuperTarget stores Total Retail Square Feet (b) (thousands) Target general merchandise stores...

  • Page 36
    ... Board of Directors. The following items in our consolidated financial statements require significant estimation or judgment: Inventory and cost of sales We use the retail inventory method to account for substantially all of our inventory and the related cost of sales. Under this method, inventory...

  • Page 37
    .... Management believes the resolution of the foregoing matters will not have a material impact on our consolidated financial statements. Income taxes are further described in Note 23. Pension and postretirement health care accounting We fund and maintain a qualified defined benefit pension plan. We...

  • Page 38
    ... the measurement date provisions of SFAS No. 158, ''Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)'' (SFAS 158), as discussed below in the 2006 Adoptions section. In 2006, we increased our discount rate by...

  • Page 39
    ..., changing consumer credit markets, changing wages, health care and other benefit costs, shifting capital markets and general economic conditions, hiring and retaining effective team members, sourcing merchandise from domestic and international vendors, investing in new business strategies, the...

  • Page 40
    ... Executive Vice President and Chief Financial Officer Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements The Board of Directors and Shareholders Target Corporation We have audited the accompanying consolidated statements of financial position of Target...

  • Page 41
    ... of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Target Corporation and subsidiaries as of February 3, 2007 and January 28, 2006, and the related consolidated statements of operations, cash flows and shareholders' investment for...

  • Page 42
    Consolidated Statements of Operations (millions, except per share data) Sales Net credit card revenues Total revenues Cost of sales Selling, general and administrative expenses Credit card expenses Depreciation and amortization Earnings from continuing operations before interest expense and income ...

  • Page 43
    ... and outstanding at February 3, 2007; 874,074,850 shares issued and outstanding at January 28, 2006. Preferred Stock Authorized 5,000,000 shares, $.01 par value; no shares were issued or outstanding at February 3, 2007 or January 28, 2006. See accompanying Notes to Consolidated Financial Statements...

  • Page 44
    ... Other investments Proceeds from sale of discontinued operations Cash flow (required for) / provided by investing activities Financing activities Additions to long-term debt Reductions of long-term debt Dividends paid Repurchase of stock Stock option exercises and related tax benefit Other Cash flow...

  • Page 45
    ... SFAS 158, net of taxes of $152 Dividends declared Repurchase of stock Stock options and awards February 3, 2007 Common Stock Shares 911.8 - - - (28.9) 7.7 890.6 - - - (23.1) 6.6 874.1 - - Stock Par Value $76 - - - (3) 1 74 - - - (2) 1 73 - - Additional Paid-in Capital $1,530 - - - - 280 1,810...

  • Page 46
    ... to Consolidated Financial Statements 1. Summary of Accounting Policies Organization Target Corporation (the Corporation or Target) operates large-format general merchandise and food discount stores in the United States and a fully integrated on-line business, Target.com. Our credit card operations...

  • Page 47
    ... credit card revenues. Target retail store sales charged to our credit cards totaled $3,961 million, $3,655 million and $3,269 million in 2006, 2005, and 2004, respectively. We offer new account discounts and rewards programs on our REDcard products. These discounts are redeemable only on purchases...

  • Page 48
    ... on the sale of discontinued operations of $1,238 million, net of taxes of $761 million, during 2004. There were no assets or liabilities of Marshall Field's or Mervyn's included in our Consolidated Statements of Financial Position at February 3, 2007 or January 28, 2006. 7. Earnings per Share Basic...

  • Page 49
    ... any debt securities issued by the Trust, or a related trust, in our Consolidated Statements of Financial Position. Notwithstanding this accounting treatment, the receivables transferred to the Trust are not available to general creditors of Target. Upon termination of the securitization program and...

  • Page 50
    ...or pay for merchandise until the merchandise is ultimately sold to a guest. Revenues under this program are included in sales in the Consolidated Statements of Operations, but the merchandise received under the program is not included in inventory in our Consolidated Statements of Financial Position...

  • Page 51
    ... 3,000 team members who are designated highly-compensated under the Internal Revenue Code and have given their consent to be insured. (b) Prepaid pension expense at February 3, 2007 includes the effect of our adoption of SFAS No. 158, ''Employers' Accounting for Defined Benefit Pension and Other...

  • Page 52
    ... benefits Taxes payable (a) Gift card liability (b) Workers' compensation and general liability (c) Other Total February 3, 2007 $ 674 450 338 154 1,142 $2,758 January 28, 2006 $ 602 366 294 142 789 $2,193 (a) Taxes payable consist of real estate, team member withholdings and sales tax liabilities...

  • Page 53
    ... and a floating interest rate set at 1-month LIBOR plus 0.06 percent. Refer to Note 10 for further description of our accounts receivable financing program. The total amount of debt backed by credit card receivables held in the Target Credit Card Master Trust or related trusts was $1,750 million at...

  • Page 54
    ... and fair market value adjustments recorded in long-term debt, are: (millions) Required principal payments 2007 $1,355 2008 $1,517 2009 $751 2010 $2,236 2011 $107 Most of our long-term debt obligations contain covenants related to secured debt levels. In addition, our credit facility contains...

  • Page 55
    ... life of buildings and leasehold improvements are limited by the expected lease term. Rent expense on buildings, included in selling, general and administrative expenses, includes rental payments based on a percentage of retail sales over contractual levels for certain stores. Total rent expense...

  • Page 56
    ...080) (287) (103) (11) (1,481) $ (507) The change in the 2006 year end deferred tax balance includes the effect of adopting SFAS No. 158, ''Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R),'' in addition to...

  • Page 57
    ...2006 Total program-to-date Total Number of Shares Purchased 28.4 23.1 19.5 71.0 Average Price Paid per Share $44.77 51.88 50.16 $48.56 Total Investment $1,276 1,197 977 $3,450 Of the shares reacquired in 2006, a portion was delivered upon settlement of prepaid forward contracts. The prepaid forward...

  • Page 58
    26. Share-Based Compensation We maintain a long-term incentive plan for key team members and non-employee members of our Board of Directors. Our long-term incentive plan allows us to grant equity-based compensation awards, including stock options, performance share unit awards, restricted stock unit...

  • Page 59
    ... interest rate Expected life in years Grant date weighted average fair value Performance share units grant date weighted average fair value Restricted stock units grant date weighted average fair value Compensation expense recognized in Statements of Operations (millions) Related income tax benefit...

  • Page 60
    ...the returns of these plans. These investment vehicles 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. The total change in fair value for contracts indexed to our own common stock...

  • Page 61
    ... of defined benefit pension and other postretirement benefit plans (collectively postretirement benefit plans) to: recognize the funded status of their postretirement benefit plans in the statement of financial position, measure the fair value of plan assets and benefit obligations as of the date of...

  • Page 62
    ... value of plan assets at beginning of measurement period Actual return on plan assets Employer contribution Participant contributions Benefits paid Fair value of plan assets at end of measurement period Funded status 2006 2005 Nonqualified Plans 2006 2005 Postretirement Health Care Benefits 2006...

  • Page 63
    ... the Consolidated Statements of Operations. Other information related to defined benefit pension plans is as follows: (millions) Accumulated benefit obligation (ABO) for all plans (a) Projected benefit obligation for pension plans with an ABO in excess of plan assets (b) Total ABO for pension plans...

  • Page 64
    ... net periodic benefit expense for years ended October 31: Pension Benefits Discount rate Expected long-term rate of return on plan assets Average assumed rate of compensation increase 2006 5.75% 8.00% 3.50% 2005 5.75% 8.00% 2.75% 2004 6.25% 8.00% 3.25% Postretirement Health Care Benefits 2006 5.75...

  • Page 65
    ... Postretirement Health Care Benefits $12 13 13 14 14 78 (millions) 2007 2008 2009 2010 2011 2012-2016 29. Quarterly Results (Unaudited) PA R T I I Due to the seasonal nature of our business, fourth quarter operating results typically represent a substantially larger share of total year revenues...

  • Page 66
    ..., our internal control over financial reporting. For the Report of Management on Internal Control and the Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting, see Item 8, Financial Statements and Supplementary Data. Item 9B. Other Information. Not...

  • Page 67
    ... and Director Compensation, of Target's Proxy Statement to be filed on or about April 9, 2007, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Equity Compensation Plan Information Number of Securities to...

  • Page 68
    ... Target Corporation and Bank One Trust Company, N.A. (3) Registrant agrees to furnish to the Commission on request copies of other instruments with respect to long-term debt. Executive Short-Term Incentive Plan (4) Amended and Restated Director Stock Option Plan of 1995 Supplemental Pension Plan...

  • Page 69
    ... Long-Term Incentive Plan Director Retirement Program (11) Deferred Compensation Trust Agreement Five-year credit agreement dated as of June 9, 2005 among Target Corporation, Bank of America, N.A. as Administrative Agent and the Banks listed therein (12) Statements re: Computations of Ratios List of...

  • Page 70
    ... behalf of Target and in the capacities and on the dates indicated. 1APR200416063806 Dated: March 15, 2007 Robert J. Ulrich Chairman of the Board and Chief Executive Officer 1APR200416064753 Douglas A. Scovanner Executive Vice President, Chief Financial Officer and Chief Accounting Officer STEPHEN...

  • Page 71
    ... of Period $451 $387 $352 Column C Additions Charged to Cost, Expenses, Revenues 380 466 451 Column D Column E Description Allowance for doubtful accounts: 2006 2005 2004 Sales returns reserves: 2006 2005 2004 Deductions (314) (402) (416) Balance at End of Period $517 $451 $387 $ 11 $ 11...

  • Page 72
    ..., dated August 4, 2000 between Target Corporation and Bank One Trust Company, N.A. Executive Short-Term Incentive Plan Amended and Restated Director Stock Option Plan of 1995 Supplemental Pension Plan I Amended and Restated Executive Long-Term Incentive Plan of 1981 Supplemental Pension Plan II...

  • Page 73
    ... 12 TARGET CORPORATION Computations of Ratios of Earnings to Fixed Charges for each of the Five Years in the Period Ended February 3, 2007 Fiscal Year Ended (millions of dollars) Ratio of Earnings to Fixed Charges: Earnings: Net earnings Earnings from discontinued operations, net of taxes Gain...

  • Page 74
    ... 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 Stock Exchange Shareholder Assistance For assistance regarding individual stock records, lost certificates, name or address changes...

  • Page 75
    ..., President, Marketing, Strategy & Innovation, The Coca-Cola Company (1) (4) (5) (7) Robert J. Ulrich Chairman and Chief Executive Officer, Target (1) (1) (2) (3) (4) (5) (6) (7) Executive Committee Audit Committee Compensation Committee Corporate Responsibility Committee Finance Committee...

  • Page 76
    1000 Nicollet Mall Minneapolis, MN 55403 612.304.6073 Target.com