TARGET CORP - Interim / Quarterly Report 2000

10-Q 1 a10-q.htm FORM 10-Q Prepared by MERRILL CORPORATION www.edgaradvantage.com QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended April 29, 2000

Commission file number 1-6049

User-specified TAGGED TABLE

Target Corporation
(Exact name of registrant as specified in its charter)
Minnesota	41-0215170
(State of incorporation or organization)	(I.R.S. Employer Identification No.)
777 Nicollet Mall Minneapolis, Minnesota	55402-2055
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code	(612) 370-6948
N/A
(Former name, former address and former fiscal year, if changed since last report.)

end of user-specified TAGGED TABLE

The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

The number of shares outstanding of common stock as of April 29, 2000 was 454,997,822.

ZEQ.=1,SEQ=1,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=433640,FOLIO='blank',FILE='DISK021:[00STP0.00STP2370]BA2370A.;22',USER='HVANHEE',CD=';8-JUN-2000;14:56' Generated by Merrill Corporation (www.merrillcorp.com)

TABLE OF CONTENTS

TARGET CORPORATION

User-specified TAGGED TABLE

PART I	FINANCIAL INFORMATION:	PAGE NO.
	Item 1 - Financial Statements
	Consolidated Results of Operations for the Three Months and Twelve Months ended April 29, 2000 and May 1, 1999	1
	Consolidated Statements of Financial Position at April 29, 2000, January 29, 2000 and May 1, 1999	2
	Consolidated Statements of Cash Flows for the Three Months ended April 29, 2000 and May 1, 1999	3
	Notes to Consolidated Financial Statements	4-5
	Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	6-8
PART II	OTHER INFORMATION:
	Item 4 - Submission of Matters to a Vote of Security Holders	9
	Item 6 - Exhibits and Reports on Form 8-K	9-10
	Signature	11
	Exhibit Index	12

end of user-specified TAGGED TABLE ZEQ.=1,SEQ=2,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=186146,FOLIO='blank',FILE='DISK021:[00STP0.00STP2370]BG2370A.;12',USER='CPULLIA',CD=';9-JUN-2000;12:41' Generated by Merrill Corporation (www.merrillcorp.com)

PART I. FINANCIAL INFORMATION

CONSOLIDATED RESULTS OF OPERATIONS

TARGET CORPORATION

User-specified TAGGED TABLE

(Millions, except per share data) — (Unaudited)	Three Months Ended — April 29, 2000	May 1, 1999	Twelve Months Ended — April 29, 2000	May 1, 1999
Sales	$ 7,613	$ 7,033	$ 33,792	$	30,946
Net credit revenues	133	125	498		472
Total revenues	7,746	7,158	34,290		31,418
Cost of sales	5,203	4,851	23,381		21,570
Selling, general and administrative expense	1,834	1,690	7,634		7,042
Depreciation and amortization	224	206	872		802
Interest expense	96	94	395		396
Earnings before income taxes and extraordinary charges	389	317	2,008		1,608
Provision for income taxes	150	123	778		612
Net earnings before extraordinary charges	239	194	1,230		996
Extraordinary charges from purchase and redemption of debt, net of tax	-	-	41		25
Net earnings	$ 239	$ 194	$ 1,189	$	971
Earnings before extraordinary charges	$ .52	$ .43	$ 2.74	$	2.21
Extraordinary charges	-	-	(.09	)	(.05	)
Basic earnings per share	$ .52	$ .43	$ 2.65	$	2.16
Earnings before extraordinary charges	$ .52	$ .41	$ 2.65	$	2.11
Extraordinary charges	-	-	(.09	)	(.05	)
Diluted earnings per share	$ .52	$ .41	$ 2.56	$	2.06
Dividends declared per common share	$ .10	$ .10	$ .40	$	.37
Weighted average common shares outstanding:
Basic	455.2	442.4	444.5		440.9
Diluted	460.6	469.5	463.4		468.0

end of user-specified TAGGED TABLE

See accompanying Notes to Consolidated Financial Statements.

ZEQ.=1,SEQ=3,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=466682,FOLIO='1',FILE='DISK021:[00STP0.00STP2370]DE2370A.;13',USER='HVANHEE',CD=';6-JUN-2000;14:55'

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

TARGET CORPORATION

User-specified TAGGED TABLE

(Millions)	April 29, 2000
	(Unaudited)			(Unaudited)
Assets
Cash and cash equivalents	$ 301	$	220	$	246
Retained securitized receivables	1,575		1,837		1,360
Inventory	3,908		3,798		3,779
Other	753		628		692
Total current assets	6,537		6,483		6,077
Property and equipment	14,033		13,824		12,925
Accumulated depreciation	(3,948	)	(3,925	)	(3,796	)
Property and equipment, net	10,085		9,899		9,129
Other	806		761		780
Total assets	$ 17,428	$	17,143	$	15,986
Liabilities and shareholders' investment
Accounts payable	$ 3,154	$	3,514	$	2,917
Current portion of long-term debt and notes payable	581		498		199
Other	1,625		1,838		1,345
Total current liabilities	5,360		5,850		4,461
Long-term debt	5,172		4,521		5,216
Deferred income taxes and other	929		910		875
Convertible preferred stock, net	-		-		10
Shareholders' investment	5,967		5,862		5,424
Total liabilities and shareholders' investment	$ 17,428	$	17,143	$	15,986
Common shares outstanding	455.0		455.8		442.1

end of user-specified TAGGED TABLE * The January 29, 2000 Consolidated Statement of Financial Position is condensed from the audited financial statement.

See accompanying Notes to Consolidated Financial Statements.

ZEQ.=2,SEQ=4,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=659948,FOLIO='2',FILE='DISK021:[00STP0.00STP2370]DE2370B.;11',USER='HVANHEE',CD=';6-JUN-2000;14:55'

Generated by Merrill Corporation (www.merrillcorp.com)

CONSOLIDATED STATEMENTS OF CASH FLOWS

TARGET CORPORATION

User-specified TAGGED TABLE

(Millions) — (Unaudited)	Three Months Ended — April 29, 2000	May 1, 1999
Operating activities
Net earnings	$ 239	$	194
Reconciliation to cash flow:
Depreciation and amortization	224		206
Deferred tax provision	75		101
Other non-cash items affecting earnings	37		40
Changes in operating accounts providing/(requiring) cash:
Retained securitized receivables	262		296
Inventory	(110	)	(304	)
Other current assets	(221	)	(146	)
Other assets	-		(86	)
Accounts payable	(360	)	(233	)
Accrued liabilities	(95	)	(208	)
Income taxes payable	(116	)	(100	)
Cash flow required by operations	(65	)	(240	)
Investing activities
Expenditures for property and equipment	(428	)	(362	)
Proceeds from disposals of property and equipment	6		5
Cash flow required by investing activities	(422	)	(357	)
Net financing requirements	(487	)	(597	)
Financing activities
Increase in notes payable, net	231		854
Additions to long-term debt	500		-
Reductions of long-term debt	(13	)	(148	)
Dividends paid	(46	)	(49	)
Repurchase of stock	(123	)	(102	)
Other	19		33
Cash flow provided by financing activities	568		588
Net increase/(decrease) in cash and cash equivalents	81		(9	)
Cash and cash equivalents at beginning of period	220		255
Cash and cash equivalents at end of period	$ 301	$	246

end of user-specified TAGGED TABLE

Amounts in this statement are presented on a cash basis and therefore may differ from those shown elsewhere in this 10-Q report.

See accompanying Notes to Consolidated Financial Statements.

ZEQ.=1,SEQ=5,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=794796,FOLIO='3',FILE='DISK021:[00STP0.00STP2370]DG2370A.;16',USER='HVANHEE',CD=';6-JUN-2000;14:55' Generated by Merrill Corporation (www.merrillcorp.com)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TARGET CORPORATION

Accounting Policies

The accompanying consolidated financial statements should be read in conjunction with the financial statement disclosures contained in our 1999 Annual Shareholders' Report throughout pages 24-37. The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data. In the opinion of management, all adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature.

Due to the seasonal nature of the retail industry, quarterly earnings are not necessarily indicative of the results that may be expected for the full fiscal year.

Per Share Data

References to earnings per share relate to diluted earnings per share.

User-specified TAGGED TABLE

	Basic EPS
	Three Months Ended		Twelve Months Ended				Three Months Ended			Twelve Months Ended
	April 29, 2000	May 1, 1999	April 29, 2000		May 1, 1999		April 29, 2000		May 1, 1999	April 29, 2000		May 1, 1999
Net earnings*	$ 239	$ 194	$	1,230	$	996	$	239	$ 194	$	1,230	$	996
Less: ESOP net earnings adjustment	-	(5	)	(13	)	(19	)	-	(1	)	(3	)	(6	)
Adjusted net earnings*	$ 239	$ 189	$	1,217	$	977	$	239	$ 193	$	1,227	$	990
Weighted average common shares outstanding	455.2	442.4		444.5		440.9		455.2	442.4		444.5		440.9
Performance shares	-	-		-		-		-	.3		-		.6
Stock options	-	-		-		-		5.4	6.7		5.5		5.9
Assumed conversion of ESOP preferred shares	-	-		-		-		-	20.1		13.4		20.6
Total common equivalent shares outstanding	455.2	442.4		444.5		440.9		460.6	469.5		463.4		468.0
Earnings per share*	$ .52	$ .43	$	2.74	$	2.21	$	.52	$ .41	$	2.65	$	2.11

end of user-specified TAGGED TABLE * Before extraordinary charges

Share Repurchase Program

In March 2000, our Board of Directors authorized the repurchase of $1 billion of our common stock, in addition to the $1 billion authorized in January 1999. Repurchases are made primarily in open market transactions, subject to market conditions. Our program also includes the sale of put options that entitle the holder to sell shares of our common stock to us, on a specified date and at a specified price, if the holder exercises the option.

In first quarter 2000, we repurchased 2.1 million shares of our common stock at a total cost of $126 million ($60.63 per share), net of the premium from exercised and expired put options. The $6.9 million of premiums received from the sale of 1.1 million put options during first quarter 2000 were recorded in retained earnings. The put options on 1.6 million shares outstanding at the end of first quarter entitle

ZEQ.=1,SEQ=6,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=248234,FOLIO='4',FILE='DISK021:[00STP0.00STP2370]DI2370A.;18',USER='HVANHEE',CD=';8-JUN-2000;15:02'

their holders to sell shares of our common stock to us at prices ranging from $56 to $75 per share on specific dates in May through October 2000.

Since the inception of our share repurchase program, we have repurchased a total of 11.5 million shares of our common stock at a total cost of $713 million ($62.23 per share), net of the premium from exercised and expired put options.

Long-term Debt

During the first quarter, we issued $500 million of long-term debt bearing interest at 7.50 percent, maturing in February 2005. Proceeds were used for general corporate purposes.

Segment Disclosures (Millions)

Revenues by segment were as follows:

User-specified TAGGED TABLE

	Three Months Ended — April 29, 2000	May 1, 1999	% Change
Target	$ 6,115	$ 5,482	11.5	%
Mervyn's	891	911	(2.3	)
Department Stores	667	695	(4.0	)
Other	73	70	4.6
Total	$ 7,746	$ 7,158	8.2	%

end of user-specified TAGGED TABLE

Pre-tax segment profit and the reconciliation to pre-tax earnings were as follows:

User-specified TAGGED TABLE

	Three Months Ended — April 29, 2000	May 1, 1999		% Change
Target	$ 467	$	370	25.9	%
Mervyn's	46		45	3.1
Department Stores	29		48	(39.3	)
Total pre-tax segment profit	542		463	17.0
Securitization adjustment (interest equivalent)	(12	)	(12	)
Interest expense	(96	)	(94	)
Other	(45	)	(40	)
Earnings before income taxes	$ 389	$	317	22.6	%

end of user-specified TAGGED TABLE

ZEQ.=2,SEQ=7,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=607461,FOLIO='5',FILE='DISK021:[00STP0.00STP2370]DI2370A.;18',USER='HVANHEE',CD=';8-JUN-2000;15:02'

MANAGEMENT'S DISCUSSION AND ANALYSIS

TARGET CORPORATION

ANALYSIS OF OPERATIONS

First quarter 2000 net earnings were $239 million, or $.52 per share, compared with $194 million, or $.41 per share, for the same period last year.

Revenues and Comparable-Store Sales

Total revenues for the quarter increased 8.2 percent to $7,746 million compared with $7,158 million for the same period a year ago. Total comparable-store sales (sales from stores open longer than one year) increased 3.0 percent. Our revenue growth in the first quarter reflected Target's strong comparable-store sales growth and new store expansion.

Year-over-year changes in comparable-store sales by business segment were as follows:

User-specified TAGGED TABLE

Target	Three Months Percentage Change — 4.7	%
Mervyn's	(1.8	)
Department Stores	(4.9	)
Total	3.0	%

end of user-specified TAGGED TABLE

Gross Margin Rate

Our gross margin rate increased primarily due to substantial rate expansion at Target, resulting from improved markup and markdowns. This increase was partially offset, on a total company basis, by the business mix impact of strong growth at Target, our lowest gross margin rate division.

Operating Expense Rate

Our operating expense rate was essentially even with the same period last year, as modest expense pressure was offset by the overall growth of Target, our lowest expense rate division.

Pre-tax Segment Profit

Our first quarter pre-tax segment profit increased 17 percent to $542 million compared with $463 million for the same period a year ago. Pre-tax segment profit is earnings before LIFO, securitization effects, interest, other expense, and unusual items. Target provided substantially all of our pre-tax profit growth in first quarter 2000 with a 26 percent pre-tax profit increase. Mervyn's pre-tax profit increased 3 percent compared with last year; the Department Stores' pre-tax profit decreased 39 percent due to weak sales performance.

ZEQ.=3,SEQ=8,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=306841,FOLIO='6',FILE='DISK021:[00STP0.00STP2370]DI2370B.;11',USER='HVANHEE',CD=';8-JUN-2000;15:02'

Other Performance Factors

Our proprietary guest credit programs strategically support our core retail operations and are an integral component of each business segment. Therefore, credit contribution is reflected in each business segment's pre-tax profit. Net of all expenses, including bad debt expense, pre-tax contribution from our credit operations for the first quarter increased over the prior year, principally due to continued growth of the Target Guest Card.

Our Consolidated Results of Operations include reductions of finance charge revenue and bad debt expense related to sold securitized receivables. For analytical purposes, the amounts that represent payments to holders of our sold securitized receivables are included in our pre-tax earnings reconciliation in the Notes to Consolidated Financial Statements as "interest equivalent". In first quarter, the total of interest expense and interest equivalent was $108 million, $2 million higher than first quarter last year, due to higher average funded balances, partially offset by a lower average portfolio interest rate.

The last-in, first-out (LIFO) provision, included in cost of retail sales, was zero for both first quarter 2000 and 1999. The cumulative LIFO provision was $53 million at April 29, 2000 and January 29, 2000, and $60 million at May 1, 1999.

The estimated annual effective income tax rate was 38.5 percent in first quarter 2000 compared to 38.8 percent in first quarter 1999.

ANALYSIS OF FINANCIAL CONDITION

Our financial condition remains strong. We continue to fund the growth in our business through a combination of internally generated funds, debt and sold securitized receivables.

At April 29, 2000, working capital was $1,177 million, a 27 percent decrease from a year ago, principally due to an increase in current liabilities to fund the growth in our business. Retained securitized receivables increased $215 million, or 16 percent, over last year reflecting continued growth of the Target Guest Card. Inventory increased $129 million, or 3 percent, over last year due to new store growth at Target. The inventory growth was more than fully funded by a $237 million, or 8 percent, increase in accounts payable.

Capital expenditures for the first three months of 2000 were $428 million, compared with $362 million for the same period a year ago. Investment in Target accounted for 90 percent of first quarter 2000 capital expenditures.

Our share repurchase program is described in the Notes to Consolidated Financial Statements. The reduction in shares outstanding and incremental interest expense related to the share repurchase program had an insignificant impact on earnings per share.

ZEQ.=4,SEQ=9,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=127271,FOLIO='7',FILE='DISK021:[00STP0.00STP2370]DI2370B.;11',USER='HVANHEE',CD=';8-JUN-2000;15:02'

STORE DATA

During the quarter, we opened a total of 16 new Target stores, including two relocations. In addition, we closed five Target stores. At April 29, 2000, our number of stores and retail square feet were as follows:

User-specified TAGGED TABLE

	Number of Stores — April 29, 2000	Jan 29, 2000	May 1, 1999	Retail Square Feet* — April 29, 2000	Jan 29, 2000	May 1, 1999
Target	921	912	859	104,390	102,945	95,812
Mervyn's	267	267	268	21,635	21,635	21,729
Department Stores	64	64	63	14,175	14,060	13,890
Total	1,252	1,243	1,190	140,200	138,640	131,431

end of user-specified TAGGED TABLE * In thousands, reflects total square feet, less office, warehouse and vacant space

OUTLOOK FOR FISCAL YEAR 2000

For the remainder of 2000, we expect strong growth in sales, comprised of mid-single-digit comparable store sales growth and new store growth at Target. Our gross margin rate is expected to be essentially even with 1999 for the remainder of the year, and our operating expense rate is expected to benefit modestly from the leveraging of fixed costs. We expect a pre-tax profit margin rate essentially even with last year. We also expect to continue to grow credit's contribution during 2000 by acquiring new accounts and leveraging operating expenses.

The total of interest expense and interest equivalent is expected to be moderately higher than 1999 due to higher average funded balances.

FORWARD-LOOKING STATEMENTS

The preceding Management's Discussion and Analysis contains forward-looking statements regarding our performance, liquidity and the adequacy of our capital resources. Those statements are based on our current assumptions and expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. We caution that the forward-looking statements are qualified by the risks and challenges posed by increased competition, shifting consumer demand, changing consumer credit markets, changing capital markets and general economic conditions, hiring and retaining effective team members, sourcing merchandise from domestic and international vendors, investing in new business strategies, achieving our growth objectives, and other risks and uncertainties. As a result, while we believe that there is a reasonable basis for the forward-looking statements, you should not place undue reliance on those statements. You are encouraged to review Exhibit (99)C attached to our Form 10-K Report for the year ended January 29, 2000, which contains additional important factors that may cause actual results to differ materially from those predicted in the forward-looking statements.

ZEQ.=5,SEQ=10,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=745404,FOLIO='8',FILE='DISK021:[00STP0.00STP2370]DI2370B.;11',USER='HVANHEE',CD=';8-JUN-2000;15:02' Generated by Merrill Corporation (www.merrillcorp.com)

PART II. OTHER INFORMATION

User-specified TAGGED TABLE

Item 4. — a)	Submission of Matters to a Vote of Security Holders — The Company held its Annual Shareholders' Meeting on May 17, 2000.
b)	(1).	The shareholders voted for four director nominees for three-year terms. The vote was as follows:
		Name of Candidate	For	Withheld
		Richard M. Kovacevich	400,979,092	2,797,804
		George W. Tamke	400,798,639	2,978,257
		Solomon D. Trujillo	400,911,159	2,865,737
		Robert J. Ulrich	400,700,804	3,076,092
		There were no abstentions and no broker non-votes.
	(2).	The shareholders voted to approve the appointment of Ernst & Young LLP as independent auditors of the Corporation for fiscal year 2000. The vote was 401,476,390 for, 821,147 against and 1,479,359 abstentions. There were no broker
non-votes.
Item 6.	Exhibits and Reports on Form 8-K
a)	Exhibits
	(1).	Form of Underwriting Agreement for debt securities
	(2).	Not applicable
	(4).	Instruments defining the rights of security holders, including indentures. Registrant agrees to furnish the Commission on request copies of instruments with respect to long-term debt.
	(10).	Not applicable
	(11).	Not applicable
	(12).	Statements re Computations of Ratios
	(15).	Not applicable
	(18).	Not applicable
	(19).	Not applicable
	(22).	Not applicable
	(23).	Not applicable

end of user-specified TAGGED TABLE

ZEQ.=1,SEQ=11,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=300835,FOLIO='9',FILE='DISK021:[00STP0.00STP2370]JA2370A.;12',USER='HVANHEE',CD=';8-JUN-2000;15:07' User-specified TAGGED TABLE

	(24).	Not applicable
	(27).	Financial Data Schedule
b)	Reports on Form 8-K: Form 8-K filed January 31, 2000, relating to the name change from Dayton Hudson Corporation to Target Corporation.

end of user-specified TAGGED TABLE

ZEQ.=2,SEQ=12,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=525084,FOLIO='10',FILE='DISK021:[00STP0.00STP2370]JA2370A.;12',USER='HVANHEE',CD=';8-JUN-2000;15:07' Generated by Merrill Corporation (www.merrillcorp.com)

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

User-specified TAGGED TABLE

Dated: June 9, 2000	TARGET CORPORATION — By:	/s/ Douglas A. Scovanner Douglas A. Scovanner Executive Vice President, Finance, Chief Financial Officer and Chief Accounting Officer

end of user-specified TAGGED TABLE

ZEQ.=1,SEQ=13,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=224315,FOLIO='11',FILE='DISK021:[00STP0.00STP2370]JC2370A.;9',USER='HVANHEE',CD=';8-JUN-2000;15:07' Generated by Merrill Corporation (www.merrillcorp.com)

Exhibit Index

(1) . Form of Underwriting Agreement for debt securities (12) . Statements re Computations of Ratios (27) . Financial Data Schedule

ZEQ.=1,SEQ=14,EFW="2016971",CP="TARGET CORPORATION",DN="1",CHK=402511,FOLIO='12',FILE='DISK021:[00STP0.00STP2370]KA2370A.;7',USER='HVANHEE',CD=';8-JUN-2000;15:08'

Generated by Merrill Corporation (www.merrillcorp.com)

QuickLinks

TOC_BEGIN TABLE OF CONTENTS TOC_END TOC_BEGIN

MANAGEMENT'S DISCUSSION AND ANALYSIS

TOC_END SEQ=,FILE='QUICKLINK',USER=CPULLIA,SEQ=,EFW="2016971",CP="TARGET CORPORATION",DN="1"

AI assistant

TARGET CORP Interim / Quarterly Report 2000

30059_10-q_2000-06-09_3e7e331b-9b76-4593-92e4-2dff74e74eff.zip

AI assistant

TARGET CORP — Interim / Quarterly Report 2000

30059_10-q_2000-06-09_3e7e331b-9b76-4593-92e4-2dff74e74eff.zip

More from TARGET CORP

TARGET CORP Interim / Quarterly Report 2000