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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 August 2, 2003

Commission file number 1-6049

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.)

1000 Nicollet Mall, Minneapolis, Minnesota

 

55403

(Address of principal executive offices)   (Zip Code)

Registrant's telephone number, including area code

 

(612) 304-6073


N/A

(Former name, former address and former fiscal year, if changed since last report.)

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, (2) has been subject to such filing requirements for the past 90 days, and (3) is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

The number of shares outstanding of common stock as of August 2, 2003 was 910,937,907.

TABLE OF CONTENTS

TARGET CORPORATION

PART I FINANCIAL INFORMATION:

 

Item 1 — Financial Statements

 

 

 

Consolidated Results of Operations for the Three Months, Six Months and Twelve Months ended August 2, 2003 and August 3, 2002

 

 

 

Consolidated Statements of Financial Position at August 2, 2003, February 1, 2003 and August 3, 2002

 

 

 

Consolidated Statements of Cash Flows for the Six Months ended August 2, 2003 and August 3, 2002

 

 

 

Notes to Consolidated Financial Statements

 

Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Item 4 — Controls and Procedures

PART II

OTHER INFORMATION:

 

Item 6 — Exhibits and Reports on Form 8-K

 

Signature

 

Exhibit Index


PART I. FINANCIAL INFORMATION

CONSOLIDATED RESULTS OF OPERATIONS   TARGET CORPORATION
(Millions, except per share data)

  Three Months Ended
  Six Months Ended
  Twelve Months Ended
(Unaudited)

  August 2,
2003

  August 3,
2002

  August 2,
2003

  August 3,
2002

  August 2,
2003

  August 3,
2002

Sales   $ 10,642   $ 9,791   $ 20,625   $ 19,127   $ 44,220   $ 41,260
Net credit revenues     342     277     681     535     1,341     953
   
 
 
 
 
 
  Total revenues     10,984     10,068     21,306     19,662     45,561     42,213
   
 
 
 
 
 
Cost of sales     7,245     6,640     14,009     12,962     30,307     28,420
Selling, general and administrative expense     2,473     2,249     4,799     4,376     9,839     8,976
Credit expense     203     171     413     336     842     649
Depreciation and amortization     329     295     646     584     1,274     1,148
Interest expense     156     154     298     289     597     546
   
 
 
 
 
 
Earnings before income taxes     578     559     1,141     1,115     2,702     2,474
Provision for income taxes     220     215     434     426     1,030     942
   
 
 
 
 
 
Net earnings   $ 358   $ 344   $ 707   $ 689   $ 1,672   $ 1,532
   
 
 
 
 
 
Basic earnings per share   $ .39   $ .38   $ .78   $ .76   $ 1.84   $ 1.69
   
 
 
 
 
 
Diluted earnings per share   $ .39   $ .38   $ .77   $ .75   $ 1.83   $ 1.68
   
 
 
 
 
 
Dividends declared per common share   $ .070   $ .060   $ .130   $ .120   $ .250   $ .235
Weighted average common shares outstanding:                                    
  Basic     910.8     907.9     910.5     907.2     909.7     905.1
  Diluted     918.1     913.0     916.6     913.9     915.4     912.4

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION   TARGET CORPORATION
(millions)

  August 2,
2003

  February 1,
2003*

  August 3,
2002

 
 
  (Unaudited)

   
  (Unaudited)

 
Assets                    
Cash and cash equivalents   $ 429   $ 758   $ 1,755  
Accounts receivable, net     5,343     5,565     4,304  
Inventory     4,944     4,760     4,549  
Other     1,257     852     1,112  
   
 
 
 
  Total current assets     11,973     11,935     11,720  
Property and equipment                    
  Property and equipment     22,095     20,936     19,584  
  Accumulated depreciation     (5,890 )   (5,629 )   (5,214 )
   
 
 
 
  Property and equipment, net     16,205     15,307     14,370  
Other     1,456     1,361     1,169  
   
 
 
 
Total assets   $ 29,634   $ 28,603   $ 27,259  
   
 
 
 
Liabilities and shareholders' investment                    
Accounts payable   $ 4,470   $ 4,684   $ 4,187  
Current portion of long-term debt and notes payable     767     975     1,583  
Other     1,724     1,864     2,031  
   
 
 
 
  Total current liabilities     6,961     7,523     7,801  
Long-term debt     11,088     10,186     9,735  
Deferred income taxes and other     1,541     1,451     1,206  
Shareholders' investment     10,044     9,443     8,517  
   
 
 
 
Total liabilities and shareholders' investment   $ 29,634   $ 28,603   $ 27,259  
   
 
 
 
Common shares outstanding     910.9     909.8     908.4  
   
 
 
 

*    The February 1, 2003 Consolidated Statement of Financial Position is condensed from the audited consolidated financial statement.

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS
OF CASH FLOWS
  TARGET CORPORATION
(millions)

  Six Months Ended
 
(Unaudited)

  August 2,
2003

  August 3,
2002

 
Operating activities              
Net earnings   $ 707   $ 689  
Reconciliation to cash flow:              
  Depreciation and amortization     646     584  
  Bad debt provision     261     192  
  Losses on asset sales     24     36  
  Other non-cash items affecting earnings     4     70  
  Changes in operating accounts requiring cash:              
    Accounts receivable     (39 )   (665 )
    Inventory     (184 )   (100 )
    Other current assets     (418 )   (197 )
    Other assets     (76 )   (121 )
    Accounts payable     (214 )   27  
    Accrued liabilities     (61 )   13  
    Income taxes payable     (86 )   20  
  Other     (1 )   19  
   
 
 
Cash flow provided by operations     563     567  
   
 
 
Investing activities              
Expenditures for property and equipment     (1,541 )   (1,479 )
Proceeds from disposals of property and equipment     25     11  
   
 
 
Cash flow required by investing activities     (1,516 )   (1,468 )
   
 
 
Financing activities              
Increase in notes payable, net     692      
Additions to long-term debt     1,200     2,500  
Reductions of long-term debt     (1,167 )   (245 )
Dividends paid     (109 )   (109 )
Other     8     11  
   
 
 
Cash flow provided by financing activities     624     2,157  
   
 
 
Net (decrease)/increase in cash and cash equivalents     (329 )   1,256  
Cash and cash equivalents at beginning of period     758     499  
   
 
 
Cash and cash equivalents at end of period   $ 429   $ 1,755  
   
 
 

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.

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 2002 Annual Report to Shareholders throughout pages 28-36. 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.

Certain prior year amounts have been reclassified to conform to the current year presentation.

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.

New Accounting Pronouncements

During 2002, the Emerging Issues Task Force reached a consensus on Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor." Under the new guidance, if the consideration received represents a payment for assets delivered to the vendor, it should be classified as revenue. If the consideration is a reimbursement of a specific, incremental, identifiable cost incurred in selling the vendor's product, the cost should be characterized as a reduction of that cost incurred. Generally, all other cash consideration received from a vendor should be classified as a reduction of cost of sales. As required, we adopted this guidance in the first quarter of 2003 and its adoption had no material impact on our sales, net earnings, cash flows or financial position.

In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, and is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 had no material impact on our net earnings, cash flows or financial position.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 clarifies the classification and measurement of certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after May 31, 2003, or otherwise for the first interim period beginning after June 15, 2003. We do not believe the adoption of SFAS No. 150 will have a material impact on our net earnings, cash flows or financial position.

Per Share Data

 
  Basic EPS
  Diluted EPS
 
  Three Months
Ended

  Six Months
Ended

  Twelve Months
Ended

  Three Months
Ended

  Six Months
Ended

  Twelve Months
Ended

 
  Aug, 2
2003

  Aug, 3
2002

  Aug, 2
2003

  Aug, 3
2002

  Aug, 2
2003

  Aug, 3
2002

  Aug, 2
2003

  Aug, 3
2002

  Aug, 2
2003

  Aug, 3
2002

  Aug, 2
2003

  Aug, 3
2002

Net earnings   $ 358   $ 344   $ 707   $ 689   $ 1,672   $ 1,532   $ 358   $ 344   $ 707   $ 689   $ 1,672   $ 1,532
Basic weighted average common shares     910.8     907.9     910.5     907.2     909.7     905.1     910.8     907.9     910.5     907.2     909.7     905.1
Stock options                             7.3     5.1     6.1     6.7     5.6     7.3
   
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding     910.8     907.9     910.5     907.2     909.7     905.1     918.1     913.0     916.6     913.9     915.4     912.4
   
 
 
 
 
 
 
 
 
 
 
 
Earnings per share   $ .39   $ .38   $ .78   $ .76   $ 1.84   $ 1.69   $ .39   $ .38   $ .77   $ .75   $ 1.83   $ 1.68
   
 
 
 
 
 
 
 
 
 
 
 

Share Repurchase Program

We maintain a share repurchase program under which our Board of Directors previously authorized the repurchase of $2 billion of our common stock. Since the inception of our share repurchase program, we have repurchased a total of 42 million shares of our common stock at a total cost of $1,223 million ($29.34 per share), net of the premium from exercised and expired put options.

Common stock repurchases under our program have been essentially suspended. Consequently, common stock repurchases did not have a material impact on our second quarter or year-to-date 2003 net earnings and financial position.

Long-term Debt and Derivatives

During the second quarter and first half of 2003, we repurchased $295 million and $297 million, respectively, of long-term debt with a weighted average interest rate of approximately 7.8 percent for each period. These transactions resulted in a pre-tax loss of about $15 million (about $.01 per share), which is included in interest expense in the Consolidated Results of Operations.

During the second quarter, we issued $500 million of long-term debt maturing in June 2013 at 4.00 percent. During the first quarter we issued $500 million of long-term debt maturing in March 2008 at 3.38 percent and $200 million of long-term debt maturing in May 2018 at 4.88 percent. Proceeds from these issuances were used for general corporate purposes.

Also in the first quarter, concurrent with the issuance of the $200 million of long-term debt maturing in 2018, we entered into an interest rate swap with a notional amount of $200 million. The effect of this swap converts our interest expense to a floating rate, initially set at 1.13 percent.

The fair value of our outstanding swaps is reflected in the financial statements as a component of other long-term assets. No ineffectiveness was recognized in the second quarter or year-to-date related to these instruments. At August 2, 2003, the fair value of our existing swaps was $64 million, compared to $110 million at February 1, 2003 and $80 million at August 3, 2002.

Subsequent to August 2, 2003, we entered into two interest rate swaps with notional amounts of $400 million and $500 million. The swaps hedge the fair value of certain debt by swapping a fixed rate to variable, initially set at approximately 1.4 percent and 1.3 percent, respectively. We also terminated an interest rate swap with a notional amount of $400 million. These transactions will not have a material impact on net earnings.

Stock Option Plans

In the first quarter, we adopted SFAS No. 123, "Accounting for Stock-Based Compensation," in accordance with the prospective transition method prescribed in SFAS No. 148 "Accounting For Stock-Based Compensation—Transition and Disclosure." The fair value based method has been applied prospectively to awards granted subsequent to February 1, 2003 (the last day of our 2002 fiscal year). Awards granted in fiscal year 2002 and earlier years will continue to be accounted for under the intrinsic value method, and the pro forma impact of accounting for those awards at fair value will continue to be disclosed until the last of those awards vest in January of 2007. The adoption of this method did not have a material impact on our earnings in the first quarter.

Historically, and through February 1, 2003, we applied the intrinsic value method prescribed in APB No. 25, "Accounting for Stock Issued to Employees," to account for our stock option plans. No compensation expense related to options was recognized because the exercise price of our employee stock options equals the market price of the underlying stock on the grant date. The expense related to the intrinsic value of performance-based and restricted stock awards issued was not significant to second quarter or year-to-date 2003 net earnings, cash flows or financial position. If we had elected to recognize compensation cost based on the fair value of the awards at the grant date, net earnings would have been the pro forma amounts shown below.

 
  Three Months Ended
  Six Months Ended
 
(millions, except per share data)

  August 2,
2003

  August 3,
2002

  August 2,
2003

  August 3,
2002

 
Net earnings—as reported   $ 358   $ 344   $ 707   $ 689  
Stock-based employee compensation expense included in reported net earnings, net of tax     1         2      
Stock-based employee compensation expense determined under fair value based method, net of tax     (9 )   (7 )   (18 )   (16 )
   
 
 
 
 
Net earnings—pro forma   $ 350   $ 337   $ 691   $ 673  
   
 
 
 
 
Earnings per share:                          
  Basic—as reported   $ .39   $ .38   $ .78   $ .76  
   
 
 
 
 
  Basic—pro forma   $ .38   $ .37   $ .76   $ .74  
   
 
 
 
 
  Diluted—as reported   $ .39   $ .38   $ .77   $ .75  
   
 
 
 
 
  Diluted—pro forma   $ .38   $ .37   $ .75   $ .74  
   
 
 
 
 

Accounts Receivable

Accounts receivable is recorded net of an allowance for expected losses. The allowance, estimated from historical portfolio performance and projections of trends, was $411 million at August 2, 2003, compared to $399 million at February 1, 2003 and $332 million at August 3, 2002.

Segment Disclosures (millions)

Revenues by segment were as follows:

 
  Three Months Ended
  Six Months Ended
 
 
  August 2,
2003

  August 3,
2002

  %
Change

  August 2,
2003

  August 3,
2002

  %
Change

 
Target   $ 9,458   $ 8,499   11.3 % $ 18,277   $ 16,528   10.6 %
Mervyn's     821     886   (7.3 )   1,625     1,749   (7.1 )
Marshall Field's     569     589   (3.4 )   1,159     1,214   (4.5 )
Other     136     94   45.8     245     171   43.3  
   
 
 
 
 
 
 
Total   $ 10,984   $ 10,068   9.1 % $ 21,306   $ 19,662   8.4 %
   
 
 
 
 
 
 

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

 
  Three Months Ended
  Six Months Ended
 
 
  August 2,
2003

  August 3,
2002

  %
Change

  August 2,
2003

  August 3,
2002

  %
Change

 
Target   $ 749   $ 708   5.7 % $ 1,483   $ 1,386   7.0 %
Mervyn's     31     59   (46.1 )   55     111   (50.0 )
Marshall Field's     13     18   (30.6 )   32     50   (35.6 )
   
 
 
 
 
 
 
  Total pre-tax segment profit     793     785   1.0     1,570     1,547   1.5  
Interest expense     (156 )   (154 )       (298 )   (289 )    
Other     (59 )   (72 )       (131 )   (143 )    
   
 
 
 
 
 
 
Earnings before income taxes   $ 578   $ 559   3.5 % $ 1,141   $ 1,115   2.4 %
   
 
 
 
 
 
 

MANAGEMENT'S DISCUSSION
AND ANALYSIS
  TARGET CORPORATION

Analysis of Operations

Second quarter 2003 net earnings were $358 million, or $.39 per share, compared with $344 million, or $.38 per share, for the same period last year. First half 2003 net earnings were $707 million, or $.77 per share, compared with $689 million, or $.75 per share for the first half of 2002.

Revenues and Comparable-Store Sales

Total revenues for the quarter increased 9.1 percent to $10,984 million compared with $10,068 million for the same period a year ago. For the six month period ending August 2, 2003, total revenues increased 8.4 percent to $21,306 compared with $19,662 million for the same period a year ago. Our revenue growth reflected Target's new store expansion and comparable-store sales increases, as well as the growth in our credit card operations.

Total comparable-store sales (sales from stores open longer than one year) increased 1.5 percent and 0.7 percent, respectively, for the quarter and six month period ended August 2, 2003.

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

 
  Three Months
Percentage
Change

  Six Months
Percentage
Change

 
Target   2.7 % 1.9 %
Mervyn's   (7.9 ) (7.6 )
Marshall Field's   (2.4 ) (3.7 )
   
 
 
Total   1.5 % 0.7 %
   
 
 

Gross Margin Rate

Gross margin rate represents gross margin (sales less cost of sales) as a percent of sales. In the second quarter, our overall gross margin rate was unfavorable to the prior year, principally due to the mix impact of more rapid growth at Target, our lowest gross margin rate division.

Operating Expense Rate

Operating expense rate represents selling, general and administrative expense as a percent of sales. It includes buying and occupancy, advertising, start-up and other expense, and excludes expenses associated with our credit card operations and depreciation expense because these items are separately disclosed in our Consolidated Results of Operations. In the second quarter and first half of 2003, our operating expense rate was slightly unfavorable to last year due to a lack of sales leverage at all three divisions.

Pre-tax Segment Profit

Our second quarter pre-tax segment profit increased 1.0 percent to $793 million compared with $785 million for the same period a year ago. Pre-tax segment profit in the first half of 2003 increased 1.5 percent to $1,570 million compared with $1,547 million for the same period a year ago. During the second quarter of 2003, Target's pre-tax profit increased 5.7 percent. Mervyn's pre-tax profit declined 46 percent and Marshall Field's pre-tax profit declined 31 percent. We define pre-tax segment profit as earnings before LIFO, interest, other expense and unusual items. A reconciliation of pre-tax segment profit to pre-tax earnings is provided in the Notes to Consolidated Financial Statements.

Other Performance Factors

In the second quarter and first half of 2003, total interest expense was $156 million and $298 million, representing a $2 million and $9 million increase from the second quarter and first half of 2002. The increase in interest expense was due to higher average funded balances, partially offset by the benefit of a lower average portfolio interest rate.

The estimated annual effective income tax rate is 38.0 percent in 2003 compared with 38.2 percent for 2002.

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 and debt.

During the second quarter, total gross receivables increased $1,118 million, or 24 percent, over the second quarter of last year. Inventory increased $395 million, or 8.7 percent, over the second quarter of last year primarily reflecting square footage growth at Target. The inventory growth was partially funded by a $283 million, or 6.8 percent, increase in accounts payable.

Capital expenditures for the first half of 2003 were $1,541 million, compared with $1,479 million for the same period a year ago. Investment in Target stores accounted for 92 percent of current year capital expenditures.

We contributed $100 million to our defined benefit plans in both the first half of 2003 and 2002.

Our share repurchase program is described in the Notes to Consolidated Financial Statements.

Credit Card Operations (millions)

Our credit card programs strategically support our core retail operations and are an integral component of each business segment. Therefore, included in each segment's pre-tax profit is revenue and expense from its credit card operations.

Credit card contribution to pre-tax segment profit was as follows:

 
  Three Months Ended
  Six Months Ended
 
 
  August 2,
2003

  August 3,
2002

  August 2,
2003

  August 3,
2002

 
Revenues                          
Finance charges, late fees and other revenues   $ 322   $ 262   $ 642   $ 506  
Merchant fees                          
  Intracompany     21     23     43     45  
  Third-party     20     15     39     29  
   
 
 
 
 
  Total revenues     363     300     724     580  
   
 
 
 
 
Expenses                          
Bad debt     131     103     261     192  
Operations and marketing     72     68     152     144  
   
 
 
 
 
  Total expenses     203     171     413     336  
   
 
 
 
 
Pre-tax credit card contribution   $ 160   $ 129   $ 311   $ 244  
   
 
 
 
 
As a percent of total average receivables     11.2 %   11.5 %   10.8 %   11.3 %
   
 
 
 
 

Total receivables were as follows:

 
   
   
  August 2,
2003

  August 3,
2002

 
Target              
  Guest Card                     $ 733   $ 865  
  Target Visa     3,890     2,534  
Mervyn's     519     586  
Marshall Field's     612     651  
           
 
 
Total quarter-end receivables   $ 5,754   $ 4,636  
           
 
 
Past Due:              
Accounts with three or more payments past due as a percent of total outstanding receivables:              
  Target Visa     3.5 %   2.4 %
           
 
 
  Proprietary cards     5.2 %   5.2 %
           
 
 
Total past due     4.0 %   3.7 %
           
 
 

The allowance for doubtful accounts on receivables was as follows:

 
  Three Months Ended
  Six Months Ended
 
 
  August 2,
2003

  August 3,
2002

  August 2,
2003

  August 3,
2002

 
Allowance at beginning of period   $ 407   $ 297   $ 399   $ 261  
Bad debt provision     131     103     261     192  
Net write-offs     (127 )   (68 )   (249 )   (121 )
   
 
 
 
 
Allowance at end of period   $ 411   $ 332   $ 411   $ 332  
   
 
 
 
 
As a percent of period-end receivables     7.1 %   7.2 %   7.1 %   7.2 %
   
 
 
 
 

A summary of other credit card contribution information is as follows:

 
  Three Months Ended
  Six Months Ended
 
 
  August 2, 2003
  August 3, 2002
  August 2, 2003
  August 3, 2002
 
Total revenues                          
  Target Visa   $   211   $   136   $   412   $   243     
   
 
 
 
 
  Proprietary cards   $ 152   $ 164   $ 312   $ 337  
   
 
 
 
 

Total revenues as a percent of average receivables (annualized):

  Target Visa       22.1 %     23.6 %     21.8 %     23.7 %
   
 
 
 
 
  Proprietary cards     32.1 %   30.5 %   31.7 %   30.0 %
   
 
 
 
 
Net write-offs                          
  Target Visa   $ 89   $ 27   $ 169   $ 38  
   
 
 
 
 
  Proprietary cards   $ 38   $ 41   $ 80   $ 83  
   
 
 
 
 

Net write-offs as a percent of average receivables (annualized):

  Target Visa     9.3 %   4.8 %   8.9 %   3.7 %
   
 
 
 
 
  Proprietary cards     8.0 %   7.5 %   8.1 %   7.4 %
   
 
 
 
 
Average Receivables                          
  Target Visa   $ 3,820   $ 2,296   $ 3,786   $ 2,052  
  Proprietary cards     1,898     2,150     1,970     2,249  
   
 
 
 
 
Total average receivables   $ 5,718   $ 4,446   $ 5,756   $ 4,301  
   
 
 
 
 

Store Data

During the quarter, we opened a total of 28 new Target stores. Net of relocations and closings, these openings included 20 discount stores and 4 SuperTarget stores. We also opened a new Mervyn's store in Folsom, California. At August 2, 2003, our number of stores and retail square feet were as follows:

 
  Number of Stores
  Retail Square Feet**
 
  August 2,
2003

  Feb. 1,
2003

  August 3,
2002

  August 2,
2003

  Feb. 1,
2003

  August 3,
2002

Target   1,191 * 1,147 * 1,107 * 147,025   140,255   133,861
Mervyn's   266   264   264   21,600   21,425   21,425
Marshall Field's   62   64   64   14,439   14,845   14,954
   
 
 
 
 
 
Total   1,519   1,475   1,435   183,064   176,525   170,240
   
 
 
 
 
 

* Includes 106, 94 and 82 SuperTargets as of August 2, 2003, February 1, 2003 and August 3, 2002, respectively.

** In thousands, reflects total square feet, less office, warehouse and vacant space.

Supplemental Information (millions)

We provide the following supplemental information derived from our financial statements because we believe it provides a meaningful aid to the analysis of our performance by segment. We define segment EBITDA as pre-tax segment profit before depreciation and amortization expense. Our definition of EBITDA and pre-tax segment profit may differ from definitions used by other companies. This presentation is not intended to be a substitute for GAAP reported measures of profitability and
cash flow. A reconciliation of pre-tax segment profit to pre-tax earnings is provided in the Notes to Consolidated Financial Statements. Segment EBITDA and the reconciliation to pre-tax segment profit were as follows:

 
  Three Months Ended
  Six Months Ended
 
 
  August 2,
2003

  August 3,
2002

  %
Change

  August 2,
2003

  August 3,
2002

  %
Change

 
Target   $ 1,012   $ 931   8.7 % $ 1,997   $ 1,830   9.1 %
Mervyn's     58     86   (32.6 )   108     167   (35.3 )
Marshall Field's     42     49   (16.4 )   90     113   (20.5 )
   
 
 
 
 
 
 
  Total segment EBITDA   $ 1,112   $ 1,066   4.2 % $ 2,195   $ 2,110   4.0 %

Segment depreciation and amortization

 

 

(319

)

 

(281

)

 

 

 

(625

)

 

(563

)

 

 
   
 
 
 
 
 
 
Pre-tax segment profit   $ 793   $ 785   1.0 % $ 1,570   $ 1,547   1.5 %
   
 
 
 
 
 
 
Cash flows provided by / (used for):                                  
  Operating activities                   $ 563   $ 567      
  Investing activities                     (1,516 )   (1,468 )    
  Financing activities                     624     2,157      
                   
 
     
Net (decrease)/ increase in cash and cash equivalents                   $ (329 ) $ 1,256      
                   
 
     

Outlook for Fiscal Year 2003

For the full year, we believe that we are well positioned to deliver another year of profitable market share growth. We expect this performance to be driven by increases in Target stores comparable-store sales, contributions from new store growth at Target and continued growth in contribution from our credit card operations, primarily through the Target Visa credit card.

We may or may not enter into long-term debt repurchase transactions during the balance of the year. Excluding the effect, if any, of such transactions, we expect interest expense to be modestly below prior year levels during this period, because we expect the adverse effect on our interest expense of our incremental funding needs will be more than offset by the ongoing benefit of lower interest rates.

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, the outbreak of war and other significant national and international events 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 February 1, 2003, which contains additional important factors that may cause actual results to differ materially from those predicted in the forward-looking statements.

CONTROLS AND PROCEDURES   TARGET CORPORATION

As of the end of the period covered by this quarterly 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 and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the Securities and Exchange Commission (SEC) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation date.


PART II. OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K

  (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)A.

 

Long-Term Incentive Plan of 1999

 

(10)B.

 

Executive Long-Term Incentive Plan of 1981

 

(10)C.

 

Director Stock Option Plan of 1995

 

(11).

 

Not applicable

 

(12).

 

Statements re Computations of Ratios

 

(15).

 

Not applicable

 

(18).

 

Not applicable

 

(19).

 

Not applicable

 

(22).

 

Not applicable

 

(23).

 

Not applicable

 

(24).

 

Not applicable

 

(31)A.

 

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

(31)B.

 

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

(32)A.

 

Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(32)B.

 

Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(99)A.

 

Corporation's 364-Day Credit Agreement dated June 16, 2003(1)

 

(99)B.

 

Corporation's Five-Year Credit Agreement dated June 16, 2003(2)

(1)
Incorporated by reference to Exhibit (99)A to the Registrant's Form 10-Q Report for the period ended August 2, 2003.

(2)
Incorporated by reference to Exhibit (99)B to the Registrant's Form 10-Q Report for the period ended August 2, 2003.

b)
Reports on Form 8-K:


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.

    TARGET CORPORATION  

Dated: September 10, 2003

 

By:

 

 
     
Douglas A. Scovanner
Executive Vice President,
Chief Financial Officer
and Chief Accounting Officer
 


Exhibit Index

Exhibit

  Description
  Manner of Filing
(10)A.   Long-Term Incentive Plan of 1999   Filed Electronically

(10)B.

 

Executive Long-Term Incentive Plan of 1981

 

Filed Electronically

(10)C.

 

Director Stock Option Plan of 1995

 

Filed Electronically

(12).

 

Statements re Computations of Ratios

 

Filed Electronically

(31)A.

 

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

Filed Electronically

(31)B.

 

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

Filed Electronically

(32)A.

 

Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Filed Electronically

(32)B.

 

Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Filed Electronically

(99)A.

 

Corporation's 364-Day Credit Agreement dated June 16, 2003.

 

Incorporated by Reference

(99)B.

 

Corporation's Five-Year Credit Agreement dated June 16, 2003.

 

Incorporated by Reference