Target 2008 Annual Report Download

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Target Corporation Annual Report 2008
Expect more outstanding value. More great brands. More thoughtful
innovation. More exceptional design and unique style. More of the smart,
strategic approach and consistent financial discipline that have made
us a retail leader for decades. Balance that with an unwavering focus
on delighting our guests. Make their lives easier and their communities
stronger. Create an unforgettable shopping experience. Anticipate what
they want, know what they need, and always make sure they pay less.

Table of contents

  • Page 1
    ...for decades. Balance that with an unwavering focus on delighting our guests. Make their lives easier and their communities stronger. Create an unforgettable shopping experience. Anticipate what they want, know what they need, and always make sure they pay less. Target Corporation Annual Report 2008

  • Page 2
    Financial Highlights Continuing Operations

  • Page 3
    ... ensures that we deliver more value for our guests, team members, shareholders and communities over time. a ne w da y. ne w w a ys to sa ve Temporary Price Cut t he ne w r oom se r vic e 23-oz. Archer Farms® Blueberry Granola with Flax cerea 1·· 4·· 64-oz. Market Pantry ® orange juice l

  • Page 4
    ...opened 114 total new stores, or 91 stores net of relocations and rebuilds, including our first stores in Alaska. We also continued to invest in technology, distribution and other infrastructure to capture increased efficiencies, support key strategic initiatives, such as perishable food distribution...

  • Page 5
    ... maintain maximum financial and strategic flexibility, we team members and the value of investing in our communities to improve the quality of life. Our legacy of community giving - both in terms of financial support and team member volunteer hours - is a hallmark of our brand and a differentiating...

  • Page 6
    Expect More. Pay Less. Our merchandise and marketing deliver on our "Expect More. Pay Less." strategy through the right balance of products, prices and messaging. Throughout our stores and online, we offer a balance of good, better and best merchandise with varied price points, providing guests with...

  • Page 7
    ... within our general merchandise stores and by continuing to open additional SuperTarget locations. To support our expanded food assortment and improve quality and freshness for our guests, we initiated the self-distribution of perishable food in 2008. In 2009, we will open our second Target-owned...

  • Page 8
    ... raw-material management in our development process to improve quality, deliver cost savings, shorten lead times and increase our ability to respond quickly to business and market trends; • • Strategically plan our business with vendors to realize lower Improve business planning transparency and...

  • Page 9
    ... and development, and sourcing infrastructure, Target is able to effectively increase our speed to market with the latest trends while ensuring products meet our stringent quality and safety standards. inventory across the chain, increasing sales and profitability. This new segmentation strategy...

  • Page 10
    .... Our innovations are the result of our vast guest research, competitive analysis and careful consideration of financial and strategic implications, which result in balanced, thoughtful risk-taking. Target's comprehensive negotiations strategy is key to our ability to deliver the latest trends at...

  • Page 11
    ... marketing strategies and meaningful online experiences. In addition, we are leveraging Target.com to drive store traffic by adding more of our store assortment online, allowing guests to research, locate and incorporate store-only items in their shopping lists and gift registries. Mobile technology...

  • Page 12
    ... we plan to open in 2009 and 2010. Smart Investments and Store Planning We are committed to creating value for our shareholders over time by thoughtfully managing and strategically investing in our business. In 2008, we remained dedicated to the preservation of our strong credit ratings as a key...

  • Page 13

  • Page 14
    ... $3 million a week - to support education, the arts, social services and volunteerism. Target team members around the world have volunteered millions of hours for programs that strengthen families and communities. The following are just a few of our efforts: • Take Charge of Education: Target has...

  • Page 15
    ...become civically engaged, which ultimately improves the communities in which we do business. • Target has supported sound corporate governance practices for decades. We manage our operations thoughtfully, with a well-defined corporate governance strategy and a tradition of continuity in leadership...

  • Page 16
    ... guests receive in each of our stores every day. Our in-store service is reinforced by our world-class supply chain. At year-end, we operated 34 distribution centers across the United States. In addition to the expansion of our food distribution centers and Target.com fulfillment centers, in 2009 we...

  • Page 17
    2008 Sales Per Capita YEAR- END STORE COUNT AND SQUARE FOOTAGE BY STATE No. of Stores Retail Sq. Ft. (in thousands) No. of Stores Retail Sq. Ft. (in thousands) Sales per Capita Group Sales per Capita Group Over $300 Colorado Minnesota North Dakota Group Total 41 73 4 118 6,089 10,481 554 17,124...

  • Page 18
    .... See definition of comparable-store sales in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. New account and loyalty rewards redeemed by our guests reduce reported sales. Our Retail Segment charges these discounts to our Credit Card Segment, and...

  • Page 19
    ...the closing price of $44.68 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...

  • Page 20
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  • Page 21
    ... Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Exhibits and Financial Statement...

  • Page 22
    ... Target Corporation (the Corporation or Target) was incorporated in Minnesota in 1902. We operate as two reportable segments: Retail and Credit Card. Our Retail Segment includes all of our merchandising operations, including our large-format general merchandise and food discount stores in the United...

  • Page 23
    .... These company-paid benefits include 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. Working Capital...

  • Page 24
    ... health of the U.S. economy. In addition, a significant portion of our total sales is derived from stores located in five states: California, Texas, Florida, Minnesota and Illinois, resulting in further dependence on local economic conditions in these states. The success of our credit card business...

  • Page 25
    ... could adversely affect our sales and results of operations. If our merchandise offerings, including food, drug and children's products, do not meet applicable safety standards or our guests' expectations regarding safety, we could experience lost sales, experience increased costs and be exposed to...

  • Page 26
    ...operations. Our effective income tax rate is influenced by a number of factors, including statutory tax rates, the valuation of deferred tax assets and liabilities, and, due to the method by which we economically hedge our deferred compensation liabilities, changes in capital market returns. Changes...

  • Page 27
    ...(b) The 34 distribution centers have a total of 46,030 thousand square feet. 1,442 73 167 1,682 27 6 1 34 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 28...

  • Page 28
    ... officers named and any other executive officer or member of the Board of Directors nor any arrangement or understanding pursuant to which any person was selected as an officer. The service period of each officer in the positions listed and other business experience for the past five years is listed...

  • Page 29
    ... and Chief Financial Officer since February 2000. President, Target Financial Services since March 2003. Chief Executive Officer since May 2008. President since August 1999. Director since January 2007. Chairman of the Board since February 2009. Executive Vice President, Merchandising since May...

  • Page 30
    .... At January 31, 2009, we held asset positions in prepaid forward contracts for 2.2 million shares of our common stock, for a total cash investment of $88 million, or an average per share price of $39.98. Refer to Notes 24 and 26 of the Notes to Consolidated Financial Statements for further details...

  • Page 31
    ...) over the same period. The Peer Group index consists of 36 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 January 31, 2004...

  • Page 32
    ... 103 stores net of 14 relocations and one closing. Management's Discussion and Analysis is based on our Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data. Analysis of Results of Operations Retail Segment Retail Segment Results (millions) Sales Cost of sales...

  • Page 33
    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 sales for the Retail Segment for the 2008 year were $62,884 million, compared with $61,471 million in ...

  • Page 34
    ... approximately $28 million. Store Data Number of Stores February 2, 2008 Opened Closed (a) January 31, 2009 Retail Square Feet (b) (thousands) February 2, 2008 Opened Closed (a) January 31, 2009 Target general merchandise stores 1,381 85 (23) 1,443 SuperTarget stores 210 29 - 239 Total 1,591 114 (23...

  • Page 35
    ...collateralized by credit card receivables. (c) ROIC is return on invested capital, and this rate equals our segment profit divided by average receivables funded by Target, expressed as an annualized rate. (d) As an annualized percentage of average receivables. Spread Analysis - Total Portfolio EBIT...

  • Page 36
    .... Segment ROIC benefited from a slightly higher percentage of third party funding of our credit card receivables. We implemented a terms change to our portfolio, effective in April 2009, that establishes a minimum annual percentage rate (APR) applied to a receivables balance as a finance charge...

  • Page 37
    ... compensation plans. Gains and losses from these investments are not taxable. The increase in the 2007 effective rate from the prior year was primarily due to lower capital market returns on these investments as compared to 2006. Workforce Reduction In 2008, we recorded a $47 million charge related...

  • Page 38
    ... rated securitized receivables exclude the interest in our credit card receivables sold to JPMC. At January 31, 2009 and February 2, 2008, there were no amounts outstanding under our commercial paper program. We fund our peak sales season working capital needs through our commercial paper program...

  • Page 39
    open in 2009 and later years. Net property and equipment increased $1,661 million in 2008 following an increase of $2,664 million in 2007. Capital Expenditures New stores Remodels and expansions Information technology, distribution and other Total Percentage of Capital Expenditures 2008 2007 2006 66...

  • Page 40
    .... Our senior management has discussed the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors. The following items in our consolidated financial statements require significant estimation or judgment: Inventory and cost of sales We use the...

  • Page 41
    ... level of, these benefits varies depending on team members' full-time or part-time status, date of hire and/or length of service. Our expected long-term rate of return on plan assets is determined by the portfolio composition, historical long-term investment performance and current market conditions...

  • Page 42
    ... investments, pay dividends on our common stock and fund the $1.3 billion of debt that is maturing in 2009, all without the need to access the term debt capital markets during the year. Our expectation is for earnings per share (diluted) in the first two quarters of 2009 to be well below 2008 levels...

  • Page 43
    ... rate, and EBITDA and EBIT; for our Credit Card Segment, our outlook for future write-offs of current receivables, profit, and the allowance for doubtful accounts; the expected cash generated from operations in 2009; our expected capital expenditures and the number of stores to be opened in 2009...

  • Page 44
    ... The Board of Directors and Shareholders Target Corporation We have audited the accompanying consolidated statements of financial position of Target Corporation and subsidiaries (the Corporation) as of January 31, 2009 and February 2, 2008, and the related consolidated statements of operations, cash...

  • Page 45
    ... the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Target Corporation and subsidiaries as of January 31, 2009 and February 2, 2008, and the related consolidated statements of operations, cash flows and shareholders...

  • Page 46
    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 47
    ... debt collateralized by credit card receivables Deferred income taxes Other noncurrent liabilities Total noncurrent liabilities Shareholders' investment Common stock Additional paid-in-capital Retained earnings Accumulated other comprehensive loss Total shareholders' investment Total liabilities and...

  • Page 48
    ... Share-based compensation expense Deferred income taxes Bad debt provision Loss on disposal of property and equipment, net Other non-cash items affecting earnings Changes in operating accounts providing / (requiring) cash: Accounts receivable originated at Target Inventory Other current assets...

  • Page 49
    ...net 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 Net earnings Other comprehensive income Pension and other benefit liability adjustments...

  • Page 50
    ... of Accounting Policies Organization Target Corporation (the Corporation or Target) operates two reportable segments: Retail and Credit Card. Our Retail Segment includes all of our merchandising operations, including the operation of our large-format general merchandise and food discount stores in...

  • Page 51
    3. Cost of Sales and Selling, General and Administrative Expenses During the first quarter of 2008, we reviewed our Consolidated Statements of Operations cost classification policy, primarily related to distribution and other supply chain costs that were previously classified within selling, general...

  • Page 52
    ...of pension and postretirement plan amounts, net of related taxes. Significant items affecting other comprehensive income/ (loss) are shown in the Consolidated Statements of Shareholders' Investment. 8. Fair Value Measurements In the first quarter of 2008, we adopted SFAS 157 for financial assets and...

  • Page 53
    ... equivalents Marketable securities Other current assets Prepaid forward contracts Interest rate forward Interest rate swaps Other noncurrent assets Interest rate swaps Company-owned life insurance investments Other noncurrent liabilities Interest rate swaps Total Fair Value at Jan. 31, 2009 Using...

  • Page 54
    ...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 55
    ... assets Interest rate swaps (b) Prepaid pension expense Other Total January 31, 2009 $305 231 163 1 162 $862 February 2, 2008 $ 578 208 215 394 164 $1,559 (a) Company-owned life insurance policies on approximately 4,000 team members who are designated highly compensated under the Internal Revenue...

  • Page 56
    ... assets Total Jan. 31, Feb. 2, 2009 2008 $ 325 (154) $ 171 $ 292 (144) $ 148 (a) Other intangible assets relate primarily to acquired trade names and customer lists. Amortization is computed on intangible assets with definite useful lives using the straight-line method over estimated useful lives...

  • Page 57
    ..., we maintain an accounts receivable financing program through which we sell credit card receivables to a bankruptcy remote, wholly owned subsidiary, which in turn transfers the receivables to a trust. The trust, either directly or through related trusts, sells debt securities to third parties. The...

  • Page 58
    ... value of total notes and debentures, using a discounted cash flow analysis based on our current market interest rates for similar types of financial instruments, was $17,553 million at January 31, 2009. Required principal payments on notes and debentures over the next five years, excluding capital...

  • Page 59
    ...interest rate swaps outstanding was: Outstanding Interest Rate Swap Characteristic Summary At January 31, 2009: Weighted average rate: Pay Receive Weighted average maturity Pay Floating one-month LIBOR 5.0% fixed 5.4 years Pay Fixed 2.6% fixed one-month LIBOR 5.4 years In 2008, 2007 and 2006, total...

  • Page 60
    ...de-designation of derivative contracts are summarized below: Derivative Contracts - Effect on Results of Operations (millions) Income/(Expense) Type Interest Rate Swaps Interest Rate Forward (a) Total Classification of Income/(Expense) Other interest expense Selling, general and administrative 2008...

  • Page 61
    ... market risk in deferred compensation plans. Gains and losses from these investments are not taxable. The increase in the 2007 effective rate from the prior year was primarily due to lower capital market returns on these investments as compared to 2006. Provision for Income Taxes: Expense (Benefit...

  • Page 62
    ... effect on our results of operations or our financial position. 23. Other Noncurrent Liabilities Other Noncurrent Liabilities (millions) Income tax liability Workers' compensation and general liability Pension and postretirement health care benefits Deferred compensation Other Total January 31, 2009...

  • Page 63
    ... Total Cost (millions) $ 514 502 506 $ 1,522 25. 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, stock...

  • Page 64
    ... 0.8% 23% 4.7% 5.5 $16.52 $49.98 $57.60 Total share-based compensation expense recognized in the Consolidated Statements of Operations was $72 million, $73 million, and $99 million in 2008, 2007, and 2006, respectively. The related income tax benefit was $28 million, $28 million, and $39 million in...

  • Page 65
    ... of our economic exposure to 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...

  • Page 66
    ... changes in unrealized gains and losses on prepaid forward contracts and realized gains and losses on company-owned life insurance policies. 27. Pension and Postretirement Health Care Plans We have qualified defined benefit pension plans covering all U.S. team members who meet age and service...

  • Page 67
    ... value of plan assets, and funded status and amounts recognized in our Consolidated Statement of Financial Position for our postretirement benefit plans: Change in Projected Benefit Obligation (millions) Benefit obligation at beginning of measurement period (a) Effect of SFAS 158 adoption Service...

  • Page 68
    ... years 2008, 2007 and 2006: Net Pension and Postretirement Health Care Benefits Expense (millions) Service cost benefits earned during the period Interest cost on projected benefit obligation Expected return on assets Amortization of losses Amortization of prior service cost Total Pension Benefits...

  • Page 69
    ... time periods, our annualized rate of return on qualified plans' assets has averaged 6.3 percent, 5.7 percent and 8.8 percent for the 5-year, 10-year and 15-year periods, respectively, ended January 31, 2009. An increase in the cost of covered health care benefits of 9 percent was assumed for 2008...

  • Page 70
    ... securities include our common stock in amounts substantially less than 1 percent of total plan assets as of January 31, 2009 and February 2, 2008. Our expected annualized long-term rate of return assumptions as of January 31, 2009 were 8.5 percent for domestic and international equity securities...

  • Page 71
    ...Card Segment represent credit card expenses on the Consolidated Statement of Operations. (b) New account and loyalty rewards redeemed by our guests reduce reported sales. Our Retail Segment charges the cost of these discounts to our Credit Card Segment, and the reimbursements of $117 million in 2008...

  • Page 72
    ... filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There were no changes in our internal...

  • Page 73
    ... General Information About the Board of Directors - Board Meetings and Committees, of Target's Proxy Statement to be filed on or about April 13, 2009, are incorporated herein by reference. See also Item 4A, Executive Officers of Part I hereof. Item 11. Executive Compensation Executive and Director...

  • Page 74
    ...Statement) Amended and Restated Deferred Compensation Plan Directors (8) Target Corporation DDCP (2009 Plan Statement) Target Corporation Officer Income Continuance Policy Statement (as amended and restated November 12, 2008) Executive Excess Long Term Disability Plan (9) Director Retirement Program...

  • Page 75
    ... restated effective January 1, 2009) 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 (11) ‡ Note Purchase Agreement dated May 5, 2008 among Target Corporation, Target Receivables Corporation...

  • Page 76
    ...thereunto duly authorized. TARGET CORPORATION By: 1APR200416064753 Dated: March 13, 2009 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 by the...

  • Page 77
    ... Beginning of Period $570 $517 $451 Column C Additions Charged to Cost, Expenses, Revenues 1,251 481 380 Column D Column E Description Allowance for doubtful accounts: 2008 2007 2006 Sales returns reserves: 2008 2007 2006 Deductions (811) (428) (314) Balance at End of Period $1,010 $ 570 $ 517...

  • Page 78
    ...Officer Income Continuance Policy Statement (as amended and restated November 12, 2008) Executive Excess Long Term Disability Plan Director Retirement Program Target Corporation Deferred Compensation Trust Agreement (as amended and restated effective January 1, 2009) Five-Year Credit Agreement dated...

  • Page 79
    ... 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to Section 906 of the SarbanesOxley Act of 2002 Filed Electronically Filed Electronically Filed Electronically Filed Electronically 59

  • Page 80
    Exhibit 12 TARGET CORPORATION Computations of Ratios of Earnings to Fixed Charges for each of the Five Years in the Period Ended January 31, 2009 Ratio of Earnings to Fixed Charges (millions) Earnings from continuing operations before income taxes Capitalized interest Adjusted earnings from ...

  • Page 81
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  • Page 82
    ..., Corporate Responsibility Report and Board of Director Committee Position Descriptions, are also available on the internet at 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...

  • Page 83
    2008 Directors & Management DIRECTORS Roxanne S. Austin President, Austin Investment Advisors (1) (2) (5) (7) EXECUTIVE OFFICERS Timothy R. Baer Executive Vice President, Corporate Secretary and General Counsel Michael R. Francis Executive Vice President, Marketing and Chief Marketing Officer John ...

  • Page 84
    1000 Nicollet Mall Minneapolis, MN 55403 612.304.6073 Target.com