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2015 Annual Report

Table of contents

  • Page 1
    2015 Annual Report

  • Page 2
    ...of the past year and find out more about what's in store, visit target.com/abullseyeview. You can also view our Annual Report online at target.com/annualreport. Financial Highlights Sales In Millions (Note: Reflects amounts attributable to continuing operations.) EBIT In Millions Net Earnings In...

  • Page 3
    ... CVS Health. This partnership will deliver ongoing value by growing traffic in our store pharmacies. Importantly, the transaction also provided more than $1 billion of net cash to support our capital deployment priorities, including the return of nearly $5 billion to shareholders through dividends...

  • Page 4
    ...square feet. In 2015, sales per square feet decreased by approximately $2 due to the December 2015 sale of our pharmacy and clinic businesses. In 2012, sales per square foot was calculated excluding the 53rd week in order to provide a more useful comparison to other years. Using total reported sales...

  • Page 5
    ...August 1, 2015 was $51,550,988,273, based on the closing price of $81.85 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...

  • Page 6
    ... 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, Financial Statement Schedules...

  • Page 7
    ... segment designed to enable guests to purchase products seamlessly in stores or through our digital sales channels. Prior to the first quarter of 2013, we operated a U.S. Credit Card Segment that offered credit to qualified guests through our branded credit cards. In the first quarter of 2013, we...

  • Page 8
    ...costs. Employees At January 30, 2016, we employed approximately 341,000 full-time, part-time and seasonal employees, referred to as "team members." During the 2015 holiday sales period our employment levels peaked at approximately 390,000 team members. We offer a broad range of company-paid benefits...

  • Page 9
    ... 2014, our discontinued operations generated revenues in Canada. The vast majority of our long-lived assets are located within the United States. Available Information Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed...

  • Page 10
    ... the ultimate sales channel; providing and maintaining digital tools for our guests and team members that have the right features and are reliable and easy to use; working with our vendors to offer unique and distinctive merchandise, offering certain services our guests desire in our stores through...

  • Page 11
    ... media, among others). Our guests are using computers, tablets, mobile phones and other devices to shop in our stores and online and provide feedback and public commentary about all aspects of our business. We currently provide full and mobile versions of our website (Target.com), offer applications...

  • Page 12
    ...on our vendors to supply merchandise to our distribution centers, stores and our guests in a timely and efficient manner. As we continue to add fulfillment capabilities or pursue strategies with different fulfillment requirements, our fulfillment network becomes increasingly complex and operating it...

  • Page 13
    ...and systems, our digital platforms and distribution network operations, credit and debit card transaction processing, extensions of credit for our 5% REDcard Rewards loyalty program, the clinics and pharmacies operated by CVS within our stores, the infrastructure supporting our guest contact centers...

  • Page 14
    ... labor market. If we are unable to attract and retain adequate numbers and an appropriate mix of qualified team members, contractors and temporary staffing, our operations, guest service levels and support functions could suffer. Those factors, together with increasing wage and benefit costs, could...

  • Page 15
    ... system to fund our operations and capital investments. In particular, we have historically relied on the public debt markets to fund portions of our capital investments and the commercial paper market and bank credit facilities to fund seasonal needs for working capital. Our continued access...

  • Page 16
    ...2016 Owned Leased Owned buildings on leased land Total (a) Stores 1,537 103 152 1,792 Distribution Centers (a) 33 7 - 40 The 40 distribution centers have a total of 51,671 thousand square feet. We own our corporate headquarters buildings located in and around Minneapolis, Minnesota, and we lease...

  • Page 17
    ... owned subsidiaries of Target (collectively Canada Subsidiaries), filed for protection under the Companies' Creditors Arrangement Act with the Ontario Superior Court of Justice in Toronto (the Court). The Canada Subsidiaries comprise substantially all of our former Canadian operations and our former...

  • Page 18
    ... and Operations from February 2010 to March 2012. Executive Vice President and Chief Stores Officer since January 2016. Senior Vice President, Stores and Supply Chain Human Resources from February 2015 to January 2016. Senior Vice President, Target Canada Stores and Distribution from March 2014 to...

  • Page 19
    ... program, we have repurchased 94.6 million shares of common stock through January 30, 2016, at an average price of $69.57, for a total investment of $6.6 billion. The table below presents information with respect to Target common stock purchases made during the three months ended January 30, 2016...

  • Page 20
    ... years with the cumulative total return on the S&P 500 Index and a peer group consisting of 18 online, general merchandise, department store, food, and specialty retailers, which are large and meaningful competitors (Amazon.com, Inc., Best Buy Co., Inc., Costco Wholesale Corporation, CVS Health...

  • Page 21
    ... time since second quarter 2013, with purchases of $3,441 million of common stock at an average price of $77.07 per share. Sales were $73,785 million for 2015, an increase of $1,167 million or 1.6 percent from the prior year. Earnings from continuing operations before interest expense and income...

  • Page 22
    ... common stock and settle approximately $200 million of retained pharmacy and clinic net liabilities. We expect to use the remaining proceeds to pay approximately $500 million of related taxes and repurchase shares. Had this transaction closed prior to this year, our 2015 reported sales and cost of...

  • Page 23
    ... operations are designed to enable guests to purchase products seamlessly in stores or through our digital sales channels. Beginning with the first quarter of 2015, segment EBIT includes the impact of the reduction of the beneficial interest asset. For comparison purposes, prior years' segment...

  • Page 24
    ... comparable sales: Number of transactions Average transaction amount Selling price per unit Units per transaction 2015 2.1% 1.3 0.8 3.3 (2.4) 2014 1.3% (0.2) 1.5 3.2 (1.6) 2013 (0.4)% (2.7) 2.3 1.6 0.7 Contribution to Comparable Sales Change Stores channel comparable sales change Digital channel...

  • Page 25
    ...the impact of increased digital channel sales. The 2014 decrease was primarily due to promotional activity. Selling, General and Administrative Expense Rate 20.2% 0.4% 0.2% (0.4)% (0.8)% (0.2)% 20.0% 0.2% 19.6% 2013 SG&A Rate Cost Saving Initiatives Technology Other 2014 SG&A Rate Cost Saving...

  • Page 26
    ...and $35 million in 2015 and 2014, respectively. Note 23 of the Financial Statements provides a tax rate reconciliation. Our effective income tax rate from continuing operations decreased to 33.0 percent in 2014, from 34.6 percent in 2013, driven primarily by the net tax effect of our global sourcing...

  • Page 27
    ... totaling $5.1 billion. The Canada Subsidiaries are executing a liquidation through the CCAA process. Income from discontinued operations, net of tax, was $42 million during 2015. In the fourth quarter of 2015, we reached settlements with two entities that controlled guaranteed leases representing...

  • Page 28
    ...Other companies may calculate non-GAAP adjusted EPS from continuing operations differently than we do, limiting the usefulness of the measure for comparisons with other companies. Prior year amounts have been revised to present Adjusted EPS on a continuing operations basis. 2015 Net of Tax Per Share...

  • Page 29
    ...effective tax rate for continuing operations, which was 32.5 percent and 33.0 percent for the trailing twelve months ended January 30, 2016 and January 31, 2015. (d) Calculated as eight times our trailing twelve months rent expense. (e) Average based on the invested capital at the end of the current...

  • Page 30
    ... increase of 20.6 percent over 2013. We have paid dividends every quarter since our 1967 initial public offering, and it is our intent to continue to do so in the future. Short-term and Long-term Financing Our financing strategy is to ensure liquidity and access to capital markets, to manage our net...

  • Page 31
    ... Canada increased our aftertax cash flows beginning in 2015. We continue to anticipate ample access to commercial paper and long-term financing. Capital Expenditures Capital Expenditures (millions) Information technology, distribution and other New stores Store remodels and expansions Total 2015...

  • Page 32
    ...open in 2016 or later for capital and operating leases, respectively. Capital lease obligations include interest. See Note 22 of the Financial Statements for further information. Deferred compensation obligations include commitments related to our nonqualified deferred compensation plans. The timing...

  • Page 33
    ... the delivery of product to our distribution centers and stores, and import costs, reduced by vendor income and cash discounts. The majority of our distribution center operating costs, including compensation and benefits, are expensed to cost of sales in the period incurred. Since inventory value...

  • Page 34
    ... the Financial Statements. Pension accounting: We maintain a funded qualified, defined benefit pension plan, as well as several smaller and unfunded nonqualified plans for certain current and retired team members. The costs for these plans are determined based on actuarial calculations using the...

  • Page 35
    ... of new accounting pronouncements, our intentions regarding future dividends, contributions and payments related to our pension plan, the expected returns on pension plan assets, the timing and financial impact of discontinuing postretirement health care benefits that were offered to team members...

  • Page 36
    ... million. Based on our balance sheet position at January 30, 2016, the annualized effect of a 0.1 percentage point decrease in floating interest rates on our floating rate short-term investments, net of our debt obligations, would decrease earnings before income taxes by approximately $2 million. In...

  • Page 37
    ... 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...

  • Page 38
    ..., effective internal control over financial reporting as of January 30, 2016, 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 39
    ... Discontinued operations Net earnings / (loss) per share Weighted average common shares outstanding Basic Dilutive effect of share-based awards Diluted Antidilutive shares Note: Per share amounts may not foot due to rounding. See accompanying Notes to Consolidated Financial Statements. $ 2015 73...

  • Page 40
    ... translation adjustment and cash flow hedges, net of provision for taxes of $2, $2, and $11 Other comprehensive income / (loss) Comprehensive (loss) / income See accompanying Notes to Consolidated Financial Statements. 2015 3,363 $ 2014 (1,636) $ 2013 1,971 (27) (3) (30) 3,333 $ (139) 431...

  • Page 41
    ... borrowings Deferred income taxes Noncurrent liabilities of discontinued operations Other noncurrent liabilities Total noncurrent liabilities Shareholders' investment Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Pension and other benefit liabilities...

  • Page 42
    ... Change in commercial paper, net Additions to long-term debt Reductions of long-term debt Dividends paid Repurchase of stock Stock option exercises and related tax benefit Cash required for financing activities Effect of exchange rate changes on cash and cash equivalents Net increase / (decrease) in...

  • Page 43
    ... Repurchase of stock Stock options and awards February 1, 2014 Net loss Other comprehensive loss Dividends declared Repurchase of stock Stock options and awards January 31, 2015 Net earnings Other comprehensive income Dividends declared Repurchase of stock Stock options and awards January 30, 2016...

  • Page 44
    ... national brand merchandise within 90 days of purchase and owned and exclusive brands within one year of purchase. Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales. Commissions earned on sales generated by leased departments...

  • Page 45
    ... was accounted for as a sale, and following the transaction, the inventory and other assets sold are no longer reported in our Consolidated Statement of Financial Position. CVS now operates the pharmacy and clinic businesses in our stores under a perpetual operating agreement. No profit sharing...

  • Page 46
    ..., we use the cost method to account for our equity investment in the Canada Subsidiaries, which has been reflected as zero in our Consolidated Statement of Financial Position at January 30, 2016 and January 31, 2015 based on the estimated fair value of the Canada Subsidiaries' net assets. Income...

  • Page 47
    ... distribution to its creditors, the fair value of Target's equity investment approximates zero. Target Corporation Amounts Receivable from Canada Subsidiaries Prior to deconsolidation, Target Corporation made loans to the Canada Subsidiaries for the purpose of funding its operations and had accounts...

  • Page 48
    ...loans and accounts receivable from Canada Subsidiaries. Income Taxes During 2015, we recognized net tax benefits of $171 million in discontinued operations, which primarily related to our pretax exit costs and change in the estimated tax benefit from our investment losses in Canada. During 2014, we...

  • Page 49
    ... perform account servicing and primary marketing functions. We earn a substantial portion of the profits generated by the Target Credit Card and Target MasterCard portfolios. We earned $641 million, $629 million, and $555 million of net profit-sharing income during 2015, 2014, and 2013, respectively...

  • Page 50
    ... is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2. These amounts exclude unamortized swap valuation adjustments and capital lease obligations. Refer to Note...

  • Page 51
    ... to acquire inventory, freight costs incurred in connection with the delivery of product to our distribution centers and stores, and import costs, reduced by vendor income and cash discounts. The majority of our distribution center operating costs, including compensation and benefits, are expensed...

  • Page 52
    ... and capital lease amortization expense for 2015, 2014, and 2013 was $2,191 million, $2,108 million, and $1,975 million, respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred. Facility pre-opening costs...

  • Page 53
    ...) Wages and benefits Gift card liability, net of estimated breakage Real estate, sales, and other taxes payable Income tax payable Dividends payable Straight-line rent accrual (a) Workers' compensation and general liability (b) Interest payable Project costs accrual Other Total (a) (b) 2016 2017...

  • Page 54
    ... and Contingencies Data Breach As previously reported, in the fourth quarter of 2013, we experienced a data breach in which an intruder stole certain payment card and other guest information from our network (the Data Breach) which resulted in a number of claims against us, several of which have...

  • Page 55
    ... valuation adjustments Capital lease obligations Less: Amounts due within one year Long-term debt (a) January 30, 2016 Rate (a) Balance 4.8% $ 5,268 3.5 2,104 6.7 244 6.5 762 6.7 2,010 4.0 1,471 4.9 11,859 42 859 (815) $ 11,945 Reflects the weighted average stated interest rate as of year-end. 50

  • Page 56
    ... 2015 or 2014. Outstanding Interest Rate Swap Summary Designated (dollars in millions) Weighted average rate: Pay Receive Weighted average maturity Notional (a) January 30, 2016 De-Designated Pay Floating Pay Fixed Pay Floating (a) 1-month LIBOR 5.7% 0.5 years 500 $ 3.8% 1-month LIBOR 0.5 years...

  • Page 57
    ... remaining lives of the underlying debt totaled $15 million, $34 million, and $52 million, at the end of 2015, 2014, and 2013, respectively. 22. Leases We lease certain retail locations, warehouses, distribution centers, office space, land, equipment, and software. Assets held under capital leases...

  • Page 58
    ...to open in 2016 or later. (c) Calculated using the interest rate at inception for each lease. (d) Includes the current portion of $59 million. 23. Income Taxes Earnings from continuing operations before income taxes were $4,923 million, $3,653 million, and $4,121 million during 2015, 2014, and 2013...

  • Page 59
    ... operations to noncurrent assets of discontinued operations, respectively. We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. The U.S. Internal Revenue Service has completed exams on the U.S. federal income tax returns for years 2012...

  • Page 60
    ... program, we have repurchased 94.6 million shares of common stock through January 30, 2016, at an average price of $69.57, for a total investment of $6.6 billion. Share Repurchases (millions, except per share data) Total number of shares purchased (a) Average price paid per share Total investment...

  • Page 61
    ... to Target's success, including total sales growth, digital channel sales growth, EBIT growth, and return on invested capital, over a two-year performance period. The fair value of performance share units is calculated based on the stock price on the date of grant. The weighted average grant date...

  • Page 62
    ...187 In thousands. Weighted average per share. Represents stock price appreciation subsequent to the grant date, in millions. Stock Option Exercises (millions) Cash received for exercise price Intrinsic value Income tax benefit $ 2015 303 $ 159 77 2014 374 $ 143 41 2013 422 197 77 The weighted...

  • Page 63
    ... in a defined contribution 401(k) plan by investing up to 80 percent of their compensation, as limited by statute or regulation. Generally, we match 100 percent of each team member's contribution up to 5 percent of total compensation. Company match contributions are made to funds designated by the...

  • Page 64
    .... Effective January 1, 2009, our U.S. qualified defined benefit pension plan was closed to new participants, with limited exceptions. We also have unfunded nonqualified pension plans for team members with qualified plan compensation restrictions. Eligibility for, and the level of, these benefits...

  • Page 65
    ...2015 109 $ 154 (260) 82 (11) 2014 112 $ 149 (233) 65 (11) - 82 $ 2013 118 137 (235) 103 (11) 3 115 $ 4 78 $ Prior service cost amortization is determined using the straight-line method over the average remaining service period of team members expected to receive benefits under the plan. Defined...

  • Page 66
    ...2014 3.87% 3.00 Net Periodic Benefit Expense Weighted Average Assumptions Discount rate Expected long-term rate of return on plan assets Average assumed rate of compensation increase 2015 3.87% 7.50 3.00 2014 4.77% 7.50 3.00 2013 4.40% 8.00 3.00 The weighted average assumptions used to measure net...

  • Page 67
    ...plans and earnings on plan assets. In 2015 and 2014, we made discretionary contributions of $200 million and $150 million, respectively, to our qualified defined benefit pension plans. We are not required to make any contributions in 2016. However, depending on investment performance and plan funded...

  • Page 68
    ... recorded in net interest expense on the Consolidated Statements of Operations. Represents amortization of pension and other benefit liabilities, net of $14 million of taxes, which is recorded in SG&A expenses on the Consolidated Statements of Operations. See Note 28 for additional information. 63

  • Page 69
    ..., which are designed to enable guests to purchase products seamlessly in stores or through our digital sales channels. Business Segment Results (millions) Sales Cost of sales Gross margin Selling, general, and administrative expenses (e) Depreciation and amortization Segment profit Gain on sale...

  • Page 70
    ... in average quarterly shares outstanding and all other quarterly amounts may not equal the total year due to rounding. U.S. Sales by Product Category (a) Household essentials Hardlines Apparel and accessories Food and pet supplies Home furnishings and décor Total Supplemental information Pharmacy...

  • Page 71
    ... Officers and Corporate Governance The following sections of Target's Proxy Statement to be filed on or about April 25, 2016, are incorporated herein by reference Item One--Election of Directors Stock Ownership Information--Section 16(a) Beneficial Ownership Reporting Compliance General Information...

  • Page 72
    ...'s Proxy Statement to be filed on or about April 25, 2016, are incorporated herein by reference: • Stock Ownership Information-â-¦ Beneficial Ownership of Directors and Officers â-¦ Beneficial Ownership of Target's Largest Shareholders Compensation Tables--Equity Compensation Plan Information...

  • Page 73
    ...Financial Statement Schedules The following information required under this item is filed as part of this report: a Financial Statements Consolidated Statements of Operations for the Years Ended January 30, 2016, January 31, 2015, and February 1, 2014 Consolidated Statements of Comprehensive Income...

  • Page 74
    ... Officer Income Continuance Policy Statement (as amended and restated effective June 8, 2011) (22) Target Corporation Executive Excess Long Term Disability Plan (as restated effective January 1, 2010 (23) Director Retirement Program (24) Target Corporation Deferred Compensation Trust Agreement...

  • Page 75
    ..., 2015 to Credit Card Program Agreement among Target Corporation, Target Enterprise, Inc. and TD Bank USA, N.A. (43) Amended and Restated Target Corporation 2011 Long-Term Incentive Plan (44) Pharmacy Operating Agreement dated December 16, 2015 between Target Corporation and CVS Pharmacy, Inc. Short...

  • Page 76
    ... the Securities and Exchange Commission. Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form 10-K. Incorporated by reference to Exhibit (2)A to Target's Form 10-Q Report for the quarter ended October 29, 2011. Incorporated by reference to Exhibit...

  • Page 77
    ...behalf by the undersigned, thereunto duly authorized. TARGET CORPORATION By: Dated: March 11, 2016 Catherine R. Smith Executive Vice President and Chief Financial Officer _____ Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following...

  • Page 78
    ...hereto, does hereby sign this document pursuant to powers of attorney duly executed by the Directors named, filed with the Securities and Exchange Commission on behalf of such Directors, all in the capacities and on the date stated. By: Dated: March 11, 2016 Catherine R. Smith Attorney-in-fact 73

  • Page 79
    ... Deferred Compensation Plan Directors Target Corporation DDCP (2013 Plan Statement) (as amended and restated effective December 1, 2013) Target Corporation Officer Income Continuance Policy Statement (as amended and restated effective June 8, 2011) Manner of Filing Incorporated by Reference...

  • Page 80
    ...Credit Card Program Agreement among Target Corporation, Target Enterprise, Inc. and TD Bank USA, N.A. Amended and Restated Target Corporation 2011 Long-Term Incentive Plan Pharmacy Operating Agreement dated December 16, 2015 between Target Corporation and CVS Pharmacy, Inc. Short-Term Incentive Plan...

  • Page 81
    ... Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase Filed Electronically Filed Electronically Filed Electronically Filed Electronically Filed Electronically Filed Electronically Filed Electronically...

  • Page 82
    ... at www.target.com/investors. Transfer Agent, Registrar and Dividend Disbursing Agent Wells Fargo Shareowner Services Trustee, Employee Savings 401(K) and Pension Plans Stock Exchange Listing State Street Bank and Trust Company Trading Symbol: TGT New York Stock Exchange Shareholder Assistance...

  • Page 83
    ..., Pay and Benefits Navneet Kapoor President and Managing Director, Target India Scott Kennedy President, Target Financial and Retail Services Carson Landsgard Senior Vice President, Distribution Rodney Lastinger Senior Vice President, Stores Stephanie Lucy Senior Vice President, Merchandise Planning...

  • Page 84
    Visit our online Annual Report at target.com/annualreport. 1000 Nicollet Mall, Minneapolis, MN 55403 612.304.6073