Target 2007 Annual Report Download

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Target Corporation Annual Report 2007
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Table of contents

  • Page 1
    uniquely: Target Corporation Annual Report 2007

  • Page 2
    ...2007 Capital Expenditures ($4.4 billion) • New Stores • Remodels & Expansions • Information Technology, Distribution & Other $2,787 $2,849 $2,408 $1,885 $1,619 $1.76 $2.07 $2.71 $3.21 $3.33 22% 34% 22% 19% 3% Earnings from Continuing Operations (millions) 2007 Growth %: 2.2% Five...

  • Page 3
    ... one Target. Our Expect More. Pay Less. brand promise means that we bring outstanding quality and great design together at an incredible price; we combine innovative marketing with clean, bright stores and friendly team members, creating a delightful experience for our guests every time they walk...

  • Page 4
    ...shows in our iconic Bullseye, which today is recognized by 96 percent of Americans. But it's about more than the Bullseye alone. We're constantly finding new and exciting ways to delight our guests - in our stores, online, through our advertising campaigns and our extensive community involvement. 2

  • Page 5
    ... and Friendly. Our team members bring those words to life in our stores by delighting our guests with great service and helping them find the products they want and need, whether it's vitamins or the latest video game. uniquely: Innovative Our GiftCards continue to lead the industry in creativity...

  • Page 6
    ...ever-changing wants and needs of our guests - even our shopping carts and baskets are designed with our guests in mind. We remain true to the fundamentals that make us uniquely Target: clean, wide store aisles, fully stocked shelves, friendly team members and distinctive store exteriors thoughtfully...

  • Page 7
    ... to delight guests with unbeatable values on a variety of offerings, which include: limited-edition collections in apparel, accessories and home, seasonal assortments that capture the latest fashion and trends, food and basic commodities, and exceptional values in our front-of-store treasure trove...

  • Page 8
    ... team members - all to help our guests quickly find what they are looking for, every time they shop at Target. uniquely: Committed Since 1946, we have donated 5 percent of our income to the communities we serve. Today, 5 percent in giving equals more than $3 million every week to support education...

  • Page 9
    uniquely: Designed Since opening our first store in 1962, we have understood that value is more than just low prices. In line with our Expect More. Pay Less. brand promise, we are committed to differentiating ourselves as a design leader by taking fresh and innovative approaches to everything we do ...

  • Page 10
    ...to-shop stores; • We continued to invest in technology and infrastructure, including implementation of enhanced guest-service systems and construction of new perishable-food and general merchandise distribution centers and our second Target.com fulfillment center; • We positioned Target Sourcing...

  • Page 11
    ... to lead the next phase of growth at Target. Our future success depends on our continued ability to fulfill our Expect More. Pay Less. brand promise with passion and discipline, and deliver outstanding value for our guests, team members, shareholders and communities. To maintain our unique position...

  • Page 12
    ... their changing shopping needs, and a convenient array of products and services that includes food, pharmacy and Starbucks. Throughout our stores, guests continue to discover a wide assortment of signature national brands, unique owned brands and new design partnerships that are unmistakably Target...

  • Page 13
    ..., guests can locate our Target brand products right next to the national brands, allowing our busy guests to easily compare our great quality, assortment and price. Tastefully original When it comes to food, we have the same commitment to innovation and value as we do in our general merchandise...

  • Page 14
    ... design and astonishing everyday values. Our ability to deliver an outstanding shopping experience begins with enthusiastic team members. We offer opportunities for continuous growth and development, and equip teams with tools and technology that keep our sales floor well stocked and help guests...

  • Page 15
    ... work to control costs and ensure our stores are in stock with the products our guests want and need. In 2007, we opened two distribution centers, and operated a total of 32 facilities at year end. To support our growing food business, we are opening two perishable-food distribution centers...

  • Page 16
    ...and grants through our International Giving Program that help create accessible, quality educational opportunities for children worldwide • Team members across the country regularly offer hands-on help to more than 7,000 community projects, volunteering hundreds of thousands of hours of their time...

  • Page 17
    ... 63 10 47 3 18 236 2,554 664 1,853 7,718 7,798 1,455 6,039 378 2,224 30,683 $201- $300 Arizona California Florida Illinois Iowa Kansas Maryland Montana Nebraska Nevada New Hampshire Texas Virginia Group Total 45 225 115 82 21 18 32 7 14 15 8 136 49 767 5,800 28,836 15,701 11,035 2,855...

  • 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
    ... per share of Common Stock as reported on the New York Stock Exchange-Composite Index. Indicate the number of shares outstanding of each of registrant's classes of Common Stock, as of the latest practicable date. Total shares of Common Stock, par value $.0833, outstanding at March 11, 2008 were 813...

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

  • Page 21
    ... Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership...

  • Page 22
    ... larger share of total annual revenues and earnings occur in the fourth quarter because it includes the peak sales period from Thanksgiving to the end of December. Merchandise We operate Target general merchandise stores with a wide assortment of general merchandise and a limited assortment of food...

  • Page 23
    ...insurance and merchandise discounts. Eligibility for, and the level of, these benefits varies depending on team members' full-time or part-time status and/or length of service. Working Capital Because of the seasonal nature of our business, our working capital needs are greater in the months leading...

  • Page 24
    ...and Exchange Commission (SEC). Our Corporate Governance Guidelines, Business Conduct Guide, Corporate Responsibility Report and the position descriptions for 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...

  • Page 25
    ...thousand square feet. Distribution Centers 26 5 1 32 (b) 1,352 73 166 1,591 PA R T I We own our corporate headquarters buildings located in Minneapolis, Minnesota, and we lease and own additional office space in the United States. Our international sourcing operations have 34 office locations in...

  • Page 26
    ..., Target Financial Services President and Director Chairman of the Board, Chief Executive Officer, Chairman of the Executive Committee and Director Age 47 45 46 44 40 49 52 55 53 64 Effective May 1, 2008, Robert Ulrich will retire as Chief Executive Officer (CEO). Gregg Steinhafel was named by...

  • Page 27
    ... stock. We intend to complete this share repurchase program within approximately three years through open market transactions and other means. Under the right combination of business results, liquidity and share price, we would expect to complete half, or more, of this program by the end of 2008...

  • Page 28
    ... Staples Retailing Index (Peer Group) over the same period. The Peer Group index consists of 40 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...

  • Page 29
    ... Statements and Supplementary Data. Analysis of Results of Operations Revenues and Comparable-Store Sales Sales include merchandise sales, net of expected returns, from our stores and our online business, as well as gift card breakage. Refer to Note 2 for a definition of gift card breakage. Total...

  • Page 30
    ...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, we receive...

  • Page 31
    ... rates to remain stable throughout 2008 at recent levels, in the range of 4 percent, and our annualized net write-offs as a percentage of average receivables, as we report them quarterly, are not likely to rise much above 7 percent. Credit Card Contribution to EBT (millions) Revenues Finance charges...

  • 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 $108...

  • Page 33
    ... product change from proprietary Target Cards to higher-limit Target Visa cards for a group of higher credit-quality Target Card Guests and the impact of an industry-wide decline in payment rates. Average receivables in 2007 increased 18.1 percent. Given the significant rate of growth of receivables...

  • Page 34
    ... by credit card receivables through the Target Credit Card Master Trust. As of February 2, 2008, $1,500 million of the Variable Funding Certificates were outstanding. Further liquidity is provided by a committed $2 billion unsecured revolving credit facility obtained through a group of banks in...

  • Page 35
    ... billion in capital expenditures, including investments in approximately 116 new stores, adding about 95 new locations, net of relocations and closings, and two distribution centers that will open in 2008. Number of Stores Target general merchandise stores SuperTarget stores Total Retail Square Feet...

  • Page 36
    ... become 180 days past due. Management believes the allowance for doubtful accounts is adequate to cover anticipated losses in our credit card accounts receivable under current conditions; however, significant deterioration in any of the factors mentioned above or in general economic conditions could...

  • Page 37
    ... Note 22. Pension and postretirement health care accounting We fund and maintain a qualified defined benefit pension plan. We also maintain several smaller nonqualified plans and a postretirement health care plan for certain current and retired team members. The costs for these plans are determined...

  • Page 38
    ... 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 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, changes...

  • Page 40
    ... 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 Corporation and subsidiaries...

  • Page 41
    ..., effective internal control over financial reporting as of February 2, 2008, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Target Corporation...

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

  • Page 43
    ... shares issued and outstanding at February 2, 2008; 859,771,157 shares issued and outstanding at February 3, 2007 Preferred Stock Authorized 5,000,000 shares, $.01 par value; no shares were issued or outstanding at February 2, 2008 or February 3, 2007 See accompanying Notes to Consolidated Financial...

  • Page 44
    ... of this Annual Report. Consistent with the provisions of Statement of Financial Accounting Standards (SFAS) No. 95, ''Statement of Cash Flows,'' cash flows related to accounts receivable are classified as either an operating activity or an investing activity, depending on their origin. Cash paid...

  • Page 45
    ...of taxes of $31 Total comprehensive income Cumulative effect of adopting new accounting pronouncements Dividends declared Repurchase of stock Premiums on call options Stock options and awards February 2, 2008 Common Stock Additional Stock Par Paid-in Retained Shares Value Capital Earnings 890.6 $74...

  • 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 online business, Target.com. Our credit card operations...

  • Page 47
    ... credit card revenues. Target retail store sales charged to our credit cards totaled $4,105 million, $3,961 million and $3,655 million in 2007, 2006 and 2005, respectively. We offer new account discounts and rewards programs on our REDcard products, the Target Visa, Target Card and Target Check Card...

  • Page 48
    ... we have completed our performance and the amount earned. 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. 5. Advertising Costs...

  • Page 49
    ...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 50
    ... and intangible assets Other Total February 2, 2008 $ 578 394 215 208 164 $1,559 February 3, 2007 $ 559 325 23 212 93 $1,212 (a) Company-owned life insurance policies on approximately 4,000 team members who are designated highly-compensated under the Internal Revenue Code and have given their...

  • Page 51
    ... intangible assets relate primarily to acquired trade names and customer lists. PA R T I I Amortization is computed on intangible assets with definite useful lives using the straight-line method over estimated useful lives that range from three to 39 years. During 2006, we adjusted the period over...

  • Page 52
    ... of which is in accounts payable. Standby letters of credit, relating primarily to retained risk on our insurance claims, totaled $69 million at February 2, 2008. We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters...

  • Page 53
    ... Trust. At February 2, 2008, the total amount of debt backed by credit card receivables held in the Target Credit Card Master Trust or related trusts, including the Certificates, was $2,400 million. Refer to Note 9 for further description of our accounts receivable financing program. Other than debt...

  • Page 54
    ... reclassified to earnings in 2008. During the fourth quarter of 2007, we purchased and sold call options on our common stock. Refer to Note 24 for additional details of these instruments. 21. Leases We lease certain retail locations, warehouses, distribution centers, office space, equipment and land...

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

  • Page 56
    ... tax assets Accrued and deferred compensation Accruals and reserves not currently deductible Self-insured benefits Allowance for doubtful accounts Other Gross deferred tax liabilities Property and equipment Pension Deferred credit card income Other Total February 2, 2008 $ 466 347 271 220 104...

  • Page 57
    ... the change to have a significant effect on our results of operations or our financial position. 23. Other Noncurrent Liabilities PA R T I I Other Noncurrent Liabilities (millions) Income tax liability Deferred compensation Workers' compensation and general liability Other Total February 2, 2008...

  • Page 58
    ... to our Board of Directors. The number of unissued common shares reserved for future grants under the share-based compensation plans was 36,190,569 at February 2, 2008 and 42,974,387 at February 3, 2007. Share-Based Compensation Awards Stock Options Total Outstanding Currently Exercisable (number of...

  • Page 59
    ... of performance share units will receive shares of our common stock if we meet certain EPS and revenue growth targets and the holders also satisfy service-based vesting requirements. Compensation expense associated with outstanding performance share units is recorded over the life of the awards. The...

  • Page 60
    ... compensation earns returns tied to market levels of interest rates plus an additional 6 percent return, with a minimum of 12 percent and a maximum of 20 percent, as determined by the plan's terms. The American Jobs Creation Act of 2004 added Section 409A to the Internal Revenue Code, changing...

  • Page 61
    ...expense Nonqualified Deferred Compensation Plans Benefits expense Related investment income Nonqualified plan net expense 27. Pension and Postretirement Health Care Benefits We have qualified defined benefit pension plans covering all U.S. team members who meet age and service requirements. We also...

  • Page 62
    ... Service cost Interest cost Actuarial (gain)/loss Participant contributions Benefits paid Plan amendments Benefit obligation at end of measurement period Change in Plan Assets (millions) Fair value of plan assets at beginning of measurement period Effect of SFAS 158 adoption Actual return on plan...

  • Page 63
    ... Health Care Benefits 2007 $ 4 7 - 1 - $12 2006 $ 3 6 - 1 - $10 2005 $ 2 6 - 1 - $ 9 The amortization of prior service cost is determined using the straight-line method over the average remaining service period of team members expected to receive benefits under the plan. Other information related...

  • Page 64
    ... following time periods, our annualized rate of return on qualified plans' assets has averaged 13.6 percent, 8 percent and 10.2 percent for the 5-year, 10-year and 15-year periods, respectively, ending February 2, 2008. An increase in the cost of covered health care benefits of 9 percent was assumed...

  • Page 65
    ... Health Care Benefits $ 9 9 10 10 11 65 PA R T I I 28. Quarterly Results (Unaudited) Due to the seasonal nature of our business, fourth quarter operating results typically represent a substantially larger share of total year revenues and earnings because they include our peak sales period...

  • Page 66
    ...Not Applicable. Item 9A. Controls and Procedures As of the end of the period covered by this annual report, we conducted an evaluation, under supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design...

  • Page 67
    ..., Executive Officers of Part I hereof. Item 11. Executive Compensation Executive and Director Compensation, of Target's Proxy Statement to be filed on or about April 7, 2008, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 68
    ... Consolidated Statements of Shareholders' Investment for the Years Ended February 2, 2008, February 3, 2007 and January 28, 2006 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements Financial Statement Schedules For...

  • Page 69
    ... (17) Five-year credit agreement dated as of April 12, 2007 among Target Corporation, Bank of America, N.A. as Administrative Agent and the Banks listed therein (12) Statements re: Computations of Ratios List of Subsidiaries Consent of Independent Registered Public Accounting Firm Powers of Attorney...

  • Page 70
    ..., thereunto duly authorized. TARGET CORPORATION By: 1APR200416064753 Dated: March 13, 2008 Douglas A. Scovanner Executive Vice President, Chief Financial Officer and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below...

  • Page 71
    TARGET CORPORATION Schedule II-Valuation and Qualifying Accounts Fiscal Years 2007, 2006 and 2005 (millions) Column A Column B Balance at Beginning of Period $517 $451 $387 Column C Additions Charged to Cost, Expenses, Revenues 481 380 466 Column D Column E Description Allowance for doubtful ...

  • Page 72
    ...-Term Incentive Plan Director Retirement Program 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 Statements re: Computations of Ratios List of Subsidiaries...

  • Page 73
    Exhibit 12 TARGET CORPORATION Computations of Ratios of Earnings to Fixed Charges for each of the Five Years in the Period Ended February 2, 2008 Ratio of Earnings to Fixed Charges (dollars in millions) Earnings from continuing operations before income taxes Capitalized interest Adjusted earnings ...

  • Page 74
    ...www.Target.com/investors. 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
    ... as Chief Executive Officer (CEO). The Board of Directors has named Gregg Steinhafel to succeed Mr. Ulrich as CEO. Mr. Ulrich will remain Chairman of the Board through the end of fiscal 2008. © 2008 Target Stores. The Bullseye Design, Bullseye Dog and Target are trademarks of Target Brands, Inc...

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