UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 July 28, 2012
Commission File Number 1-6049
TARGET CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota |
|
41-0215170 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
1000 Nicollet Mall, Minneapolis, Minnesota |
|
55403 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants telephone number, including area code: 612/304-6073
Former name, former address and former fiscal year, if changed since last report: N/A
Indicate by check mark whether 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller Reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Indicate the number of shares outstanding of each of registrants classes of common stock, as of the latest practicable date. Total shares of common stock, par value $0.0833, outstanding at August 20, 2012 were 654,885,290.
TARGET CORPORATION
| ||
| ||
|
1 | |
|
2 | |
|
3 | |
|
4 | |
|
5 | |
|
6 | |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
15 | |
24 | ||
24 | ||
|
|
|
| ||
26 | ||
26 | ||
26 | ||
27 | ||
27 | ||
27 | ||
28 | ||
|
|
|
|
|
|
|
29 | |
|
30 |
|
|
|
|
|
|
|
|
| |||||
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
| ||||
(millions, except per share data) (unaudited) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Sales |
|
$ |
16,451 |
|
$ |
15,895 |
|
$ |
32,989 |
|
$ |
31,475 |
|
Credit card revenues |
|
328 |
|
345 |
|
657 |
|
700 |
| ||||
Total revenues |
|
16,779 |
|
16,240 |
|
33,646 |
|
32,175 |
| ||||
Cost of sales |
|
11,297 |
|
10,872 |
|
22,838 |
|
21,710 |
| ||||
Selling, general and administrative expenses |
|
3,588 |
|
3,473 |
|
6,981 |
|
6,705 |
| ||||
Credit card expenses |
|
108 |
|
86 |
|
228 |
|
174 |
| ||||
Depreciation and amortization |
|
531 |
|
509 |
|
1,060 |
|
1,022 |
| ||||
Earnings before interest expense and income taxes |
|
1,255 |
|
1,300 |
|
2,539 |
|
2,564 |
| ||||
Net interest expense |
|
184 |
|
191 |
|
366 |
|
374 |
| ||||
Earnings before income taxes |
|
1,071 |
|
1,109 |
|
2,173 |
|
2,190 |
| ||||
Provision for income taxes |
|
367 |
|
405 |
|
772 |
|
797 |
| ||||
Net earnings |
|
$ |
704 |
|
$ |
704 |
|
$ |
1,401 |
|
$ |
1,393 |
|
Basic earnings per share |
|
$ |
1.07 |
|
$ |
1.03 |
|
$ |
2.12 |
|
$ |
2.03 |
|
Diluted earnings per share |
|
$ |
1.06 |
|
$ |
1.03 |
|
$ |
2.10 |
|
$ |
2.02 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
656.7 |
|
680.8 |
|
661.5 |
|
686.7 |
| ||||
Diluted |
|
662.9 |
|
685.1 |
|
667.6 |
|
691.2 |
|
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
| |||||
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
| ||||
(millions) (unaudited) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Net earnings |
|
$ |
704 |
|
$ |
704 |
|
$ |
1,401 |
|
$ |
1,393 |
|
Other comprehensive (loss)/income, net of tax |
|
|
|
|
|
|
|
|
| ||||
Pension and other benefit liabilities, net of taxes of $9, $5, $19 and $11 |
|
14 |
|
7 |
|
28 |
|
16 |
| ||||
Currency translation adjustment and cash flow hedges, net of taxes of $16, $9, $0 and $10 |
|
(25 |
) |
15 |
|
1 |
|
17 |
| ||||
Other comprehensive (loss)/income |
|
(11 |
) |
22 |
|
29 |
|
33 |
| ||||
Comprehensive income |
|
$ |
693 |
|
$ |
726 |
|
$ |
1,430 |
|
$ |
1,426 |
|
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
| ||||
|
|
July 28, |
|
January 28, |
|
July 30, |
| |||
(millions) |
|
2012 |
|
2012 |
|
2011 |
| |||
Assets |
|
(unaudited) |
|
|
|
(unaudited) |
| |||
Cash and cash equivalents, including short-term investments of $830, $194 and $116 |
|
$ |
1,442 |
|
$ |
794 |
|
$ |
890 |
|
Credit card receivables, net of allowance of $365, $430 and $480 |
|
5,540 |
|
5,927 |
|
5,722 |
| |||
Inventory |
|
7,733 |
|
7,918 |
|
7,926 |
| |||
Other current assets |
|
1,700 |
|
1,810 |
|
1,521 |
| |||
Total current assets |
|
16,415 |
|
16,449 |
|
16,059 |
| |||
Property and equipment |
|
|
|
|
|
|
| |||
Land |
|
6,137 |
|
6,122 |
|
5,999 |
| |||
Buildings and improvements |
|
27,394 |
|
26,837 |
|
26,092 |
| |||
Fixtures and equipment |
|
5,192 |
|
5,141 |
|
4,906 |
| |||
Computer hardware and software |
|
2,333 |
|
2,468 |
|
2,392 |
| |||
Construction-in-progress |
|
1,260 |
|
963 |
|
571 |
| |||
Accumulated depreciation |
|
(12,542 |
) |
(12,382 |
) |
(11,587 |
) | |||
Property and equipment, net |
|
29,774 |
|
29,149 |
|
28,373 |
| |||
Other noncurrent assets |
|
1,136 |
|
1,032 |
|
1,067 |
| |||
Total assets |
|
$ |
47,325 |
|
$ |
46,630 |
|
$ |
45,499 |
|
Liabilities and shareholders investment |
|
|
|
|
|
|
| |||
Accounts payable |
|
$ |
6,505 |
|
$ |
6,857 |
|
$ |
6,519 |
|
Accrued and other current liabilities |
|
3,539 |
|
3,644 |
|
3,721 |
| |||
Unsecured debt and other borrowings |
|
2,535 |
|
3,036 |
|
1,130 |
| |||
Nonrecourse debt collateralized by credit card receivables |
|
750 |
|
750 |
|
250 |
| |||
Total current liabilities |
|
13,329 |
|
14,287 |
|
11,620 |
| |||
Unsecured debt and other borrowings |
|
14,479 |
|
13,447 |
|
12,661 |
| |||
Nonrecourse debt collateralized by credit card receivables |
|
750 |
|
250 |
|
3,499 |
| |||
Deferred income taxes |
|
1,173 |
|
1,191 |
|
969 |
| |||
Other noncurrent liabilities |
|
1,697 |
|
1,634 |
|
1,644 |
| |||
Total noncurrent liabilities |
|
18,099 |
|
16,522 |
|
18,773 |
| |||
Shareholders investment |
|
|
|
|
|
|
| |||
Common stock |
|
54 |
|
56 |
|
56 |
| |||
Additional paid-in capital |
|
3,721 |
|
3,487 |
|
3,385 |
| |||
Retained earnings |
|
12,774 |
|
12,959 |
|
12,213 |
| |||
Accumulated other comprehensive loss |
|
|
|
|
|
|
| |||
Pension and other benefit liabilities |
|
(596 |
) |
(624 |
) |
(525 |
) | |||
Currency translation adjustment and cash flow hedges |
|
(56 |
) |
(57 |
) |
(23 |
) | |||
Total shareholders investment |
|
15,897 |
|
15,821 |
|
15,106 |
| |||
Total liabilities and shareholders investment |
|
$ |
47,325 |
|
$ |
46,630 |
|
$ |
45,499 |
|
Common shares outstanding |
|
653.9 |
|
669.3 |
|
675.2 |
|
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
| ||||
|
|
Six Months Ended |
| |||||
|
|
July 28, |
|
July 30, |
| |||
(millions) (unaudited) |
|
2012 |
|
2011 |
| |||
Operating activities |
|
|
|
|
| |||
Net earnings |
|
$ |
1,401 |
|
$ |
1,393 |
| |
Reconciliation to cash flow |
|
|
|
|
| |||
Depreciation and amortization |
|
1,060 |
|
1,022 |
| |||
Share-based compensation expense |
|
48 |
|
44 |
| |||
Deferred income taxes |
|
(92 |
) |
122 |
| |||
Bad debt expense |
|
95 |
|
27 |
| |||
Non-cash (gains)/losses and other, net |
|
(1 |
) |
62 |
| |||
Changes in operating accounts: |
|
|
|
|
| |||
Accounts receivable originated at Target |
|
116 |
|
143 |
| |||
Inventory |
|
185 |
|
(330 |
) | |||
Other current assets |
|
72 |
|
80 |
| |||
Other noncurrent assets |
|
(9 |
) |
16 |
| |||
Accounts payable |
|
(352 |
) |
(119 |
) | |||
Accrued and other current liabilities |
|
(150 |
) |
(129 |
) | |||
Other noncurrent liabilities |
|
98 |
|
5 |
| |||
Cash flow provided by operations |
|
2,471 |
|
2,336 |
| |||
Investing activities |
|
|
|
|
| |||
Expenditures for property and equipment |
|
(1,603 |
) |
(2,379 |
) | |||
Proceeds from disposal of property and equipment |
|
18 |
|
2 |
| |||
Change in accounts receivable originated at third parties |
|
176 |
|
261 |
| |||
Other investments |
|
(18 |
) |
(19 |
) | |||
Cash flow required for investing activities |
|
(1,427 |
) |
(2,135 |
) | |||
Financing activities |
|
|
|
|
| |||
Additions to long-term debt |
|
1,971 |
|
1,000 |
| |||
Reductions of long-term debt |
|
(1,011 |
) |
(238 |
) | |||
Dividends paid |
|
(399 |
) |
(346 |
) | |||
Repurchase of stock |
|
(1,130 |
) |
(1,493 |
) | |||
Stock option exercises and related tax benefit |
|
183 |
|
34 |
| |||
Other |
|
(16 |
) |
20 |
| |||
Cash flow required for financing activities |
|
(402 |
) |
(1,023 |
) | |||
Effect of exchange rate changes on cash and cash equivalents |
|
6 |
|
|
| |||
Net increase (decrease) in cash and cash equivalents |
|
648 |
|
(822 |
) | |||
Cash and cash equivalents at beginning of period |
|
794 |
|
1,712 |
| |||
Cash and cash equivalents at end of period |
|
$ |
1,442 |
|
$ |
890 |
| |
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
Common |
|
Stock |
|
Additional |
|
|
|
Accumulated Other |
|
|
| |||||
|
|
Stock |
|
Par |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
|
| |||||
(millions, except footnotes) |
|
Shares |
|
Value |
|
Capital |
|
Earnings |
|
Income/(Loss) |
|
Total |
| |||||
January 29, 2011 |
|
704.0 |
|
$ |
59 |
|
$ |
3,311 |
|
$ |
12,698 |
|
$ |
(581 |
) |
$ |
15,487 |
|
Net earnings |
|
|
|
|
|
|
|
2,929 |
|
|
|
2,929 |
| |||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
(100 |
) |
(100 |
) | |||||
Dividends declared |
|
|
|
|
|
|
|
(777 |
) |
|
|
(777 |
) | |||||
Repurchase of stock |
|
(37.2 |
) |
(3 |
) |
|
|
(1,891 |
) |
|
|
(1,894 |
) | |||||
Stock options and awards |
|
2.5 |
|
|
|
176 |
|
|
|
|
|
176 |
| |||||
January 28, 2012 |
|
669.3 |
|
$ |
56 |
|
$ |
3,487 |
|
$ |
12,959 |
|
$ |
(681 |
) |
$ |
15,821 |
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net earnings |
|
|
|
|
|
|
|
1,401 |
|
|
|
1,401 |
| |||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
29 |
|
29 |
| |||||
Dividends declared |
|
|
|
|
|
|
|
(434 |
) |
|
|
(434 |
) | |||||
Repurchase of stock |
|
(20.2 |
) |
(2 |
) |
|
|
(1,152 |
) |
|
|
(1,154 |
) | |||||
Stock options and awards |
|
4.8 |
|
|
|
234 |
|
|
|
|
|
234 |
| |||||
July 28, 2012 |
|
653.9 |
|
$ |
54 |
|
$ |
3,721 |
|
$ |
12,774 |
|
$ |
(652 |
) |
$ |
15,897 |
|
Dividends declared per share were $0.36 and $0.30 for the three months ended July 28, 2012 and July 30, 2011, respectively. For the fiscal year ended January 28, 2012, dividends declared per share were $1.15.
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements (unaudited)
1. Accounting Policies
The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statement disclosures contained in the 2011 Form 10-K for Target Corporation (Target or the Corporation). The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data. See the notes in our Form 10-K for the fiscal year ended January 28, 2012, for those policies. 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 our business, quarterly revenues, expenses, earnings and cash flows are not necessarily indicative of the results that may be expected for the full year.
2. Earnings Per Share
Basic earnings per share (EPS) is calculated as net earnings divided by the weighted average number of common shares outstanding during the period. Diluted EPS includes the potentially dilutive impact of share-based awards outstanding at period end, consisting of the incremental shares assumed to be issued upon the exercise of stock options and the incremental shares assumed to be issued under performance share and restricted stock unit arrangements.
Earnings Per Share |
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
| ||||
(millions, except per share data) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Net earnings |
|
$ |
704 |
|
$ |
704 |
|
$ |
1,401 |
|
$ |
1,393 |
|
Basic weighted average common shares outstanding |
|
656.7 |
|
680.8 |
|
661.5 |
|
686.7 |
| ||||
Dilutive impact of share-based awards(a) |
|
6.2 |
|
4.3 |
|
6.1 |
|
4.5 |
| ||||
Diluted weighted average common shares outstanding |
|
662.9 |
|
685.1 |
|
667.6 |
|
691.2 |
| ||||
Basic earnings per share |
|
$ |
1.07 |
|
$ |
1.03 |
|
$ |
2.12 |
|
$ |
2.03 |
|
Diluted earnings per share |
|
$ |
1.06 |
|
$ |
1.03 |
|
$ |
2.10 |
|
$ |
2.02 |
|
(a) Excludes 5.8 million and 8.7 million share-based awards for the three and six months ended July 28, 2012, respectively, and 18.5 million and 16.5 million share-based awards for the three and six months ended July 30, 2011, respectively, because their effects were antidilutive.
3. Fair Value Measurements
Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).
Fair Value Measurements - Recurring Basis | ||||||||||||||||||||||||||||
|
|
Fair Value at July 28, 2012 |
|
Fair Value at January 28, 2012 |
|
Fair Value at July 30, 2011 |
| |||||||||||||||||||||
(millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| |||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Short-term investments |
|
$ |
830 |
|
$ |
|
|
$ |
|
|
$ |
194 |
|
$ |
|
|
$ |
|
|
$ |
116 |
|
$ |
|
|
$ |
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest rate swaps(a) |
|
|
|
19 |
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
| |||||||||
Prepaid forward contracts |
|
72 |
|
|
|
|
|
69 |
|
|
|
|
|
74 |
|
|
|
|
| |||||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
| |||||||||
Other noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest rate swaps(a) |
|
|
|
93 |
|
|
|
|
|
114 |
|
|
|
|
|
140 |
|
|
| |||||||||
Company-owned life |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
insurance investments(b) |
|
|
|
386 |
|
|
|
|
|
371 |
|
|
|
|
|
366 |
|
|
| |||||||||
Total |
|
$ |
902 |
|
$ |
498 |
|
$ |
|
|
$ |
263 |
|
$ |
505 |
|
$ |
|
|
$ |
190 |
|
$ |
512 |
|
$ |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Other current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest rate swaps(a) |
|
$ |
|
|
$ |
7 |
|
$ |
|
|
$ |
|
|
$ |
7 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Other noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest rate swaps(a) |
|
|
|
62 |
|
|
|
|
|
69 |
|
|
|
|
|
68 |
|
|
| |||||||||
Total |
|
$ |
|
|
$ |
69 |
|
$ |
|
|
$ |
|
|
$ |
76 |
|
$ |
|
|
$ |
|
|
$ |
68 |
|
$ |
|
|
(a) There was one interest rate swap designated as an accounting hedge in all periods presented. See Note 7 for additional information on interest rate swaps.
(b) Company-owned life insurance investments consist of equity index funds and fixed income assets. Amounts are presented net of loans that are secured by some of these policies of $667 million at July 28, 2012, $669 million at January 28, 2012 and $656 million at July 30, 2011.
Position |
|
Valuation Technique |
Short-term investments |
|
Carrying value approximates fair value because maturities are less than three months. |
|
|
|
Prepaid forward contracts |
|
Initially valued at transaction price. Subsequently valued by reference to the market price of Target common stock. |
|
|
|
Interest rate swaps |
|
Valuation models are calibrated to initial trade price. Subsequent valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. |
|
|
|
Company-owned life insurance investments |
|
Includes investments in separate accounts that are valued based on market rates credited by the insurer. |
The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the Consolidated Statements of Financial Position. The fair value of marketable securities is determined using available market prices at the reporting date and would be classified as Level 1. The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for similar types of financial instruments and would be classified as Level 2.
Financial Instruments Not Measured at Fair Value |
|
July 28, 2012 |
|
January 28, 2012 |
|
July 30, 2011 |
| ||||||||||||
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| ||||||
(millions) |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Amount |
|
Value |
| ||||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Marketable securities(a) |
|
$ |
32 |
|
$ |
32 |
|
$ |
35 |
|
$ |
35 |
|
$ |
23 |
|
$ |
23 |
|
Other noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Marketable securities(a) |
|
6 |
|
6 |
|
6 |
|
6 |
|
|
|
|
| ||||||
Total |
|
$ |
38 |
|
$ |
38 |
|
$ |
41 |
|
$ |
41 |
|
$ |
23 |
|
$ |
23 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total debt(b) |
|
$ |
16,647 |
|
$ |
19,666 |
|
$ |
15,680 |
|
$ |
18,142 |
|
$ |
16,035 |
|
$ |
17,931 |
|
Total |
|
$ |
16,647 |
|
$ |
19,666 |
|
$ |
15,680 |
|
$ |
18,142 |
|
$ |
16,035 |
|
$ |
17,931 |
|
(a) Held-to-maturity investments that are held to satisfy the regulatory requirements of Target Bank and Target National Bank.
(b) Represents the sum of nonrecourse debt collateralized by credit card receivables and unsecured debt and other borrowings, excluding unamortized swap valuation adjustments and capital lease obligations.
Based on various inputs and assumptions, including discussions with third parties in the context of our intended sale, we believe the gross balance of our credit card receivables approximates fair value at July 28, 2012. The carrying amounts of accounts payable and certain accrued and other current liabilities also approximate fair value at July 28, 2012.
4. Credit Card Receivables
Credit card receivables are recorded net of an allowance for doubtful accounts and are our only significant class of financing receivables. Substantially all past-due accounts accrue finance charges until they are written off. Accounts are written off when they become 180 days past due.
Age of Credit Card Receivables |
|
July 28, 2012 |
|
January 28, 2012 |
|
July 30, 2011 |
| ||||||||||
|
|
|
|
Percent of |
|
|
|
Percent of |
|
|
|
Percent of |
| ||||
(dollars in millions) |
|
Amount |
|
Receivables |
|
Amount |
|
Receivables |
|
Amount |
|
Receivables |
| ||||
Current |
|
$ |
5,439 |
|
92.2% |
|
$ |
5,791 |
|
91.1 |
% |
|
$ |
5,671 |
|
91.4% |
|
1-29 days past due |
|
238 |
|
4.0 |
|
260 |
|
4.1 |
|
|
242 |
|
3.9 |
| |||
30-59 days past due |
|
77 |
|
1.3 |
|
97 |
|
1.5 |
|
|
101 |
|
1.6 |
| |||
60-89 days past due |
|
48 |
|
0.8 |
|
62 |
|
1.0 |
|
|
60 |
|
1.0 |
| |||
90+ days past due |
|
103 |
|
1.7 |
|
147 |
|
2.3 |
|
|
128 |
|
2.1 |
| |||
Period-end gross credit card receivables |
|
$ |
5,905 |
|
100% |
|
$ |
6,357 |
|
100 |
% |
|
$ |
6,202 |
|
100% |
|
Allowance for Doubtful Accounts
The allowance for doubtful accounts is recognized in an amount equal to the anticipated future write-offs of existing receivables and includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs on the entire credit card portfolio collectively based on historical experience of delinquencies, risk scores, aging trends and industry risk trends.
Allowance for Doubtful Accounts |
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
| ||||
(millions) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Allowance at beginning of period |
|
$ |
395 |
|
$ |
565 |
|
$ |
430 |
|
$ |
690 |
|
Bad debt expense |
|
43 |
|
15 |
|
95 |
|
27 |
| ||||
Write-offs(a) |
|
(105 |
) |
(142 |
) |
(232 |
) |
(326) |
| ||||
Recoveries(a) |
|
32 |
|
42 |
|
72 |
|
89 |
| ||||
Allowance at end of period |
|
$ |
365 |
|
$ |
480 |
|
$ |
365 |
|
$ |
480 |
|
(a) Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period collections on previously written-off balances. These amounts combined represent net write-offs.
Deterioration of the macroeconomic conditions in the United States could adversely affect the risk profile of our credit card receivables portfolio based on credit card holders ability to pay their balances. If such deterioration were to occur, it could lead to an increase in bad debt expense. We monitor both the credit quality and the delinquency status of the credit card receivables portfolio. We consider accounts 30 or more days past due as delinquent, and we update delinquency status daily. We also monitor risk in the portfolio by assigning internally generated scores to each account and by obtaining current FICO scores, a nationally recognized credit scoring model, for a statistically representative sample of accounts each month. The credit-quality segmentation presented below is consistent with the approach used in determining our allowance for doubtful accounts.
Receivables Credit Quality |
|
July 28, 2012 |
|
January 28, 2012 |
|
July 30, 2011 |
| |||||||||||||
|
|
|
|
Percent of |
|
|
|
Percent of |
|
|
|
Percent of |
| |||||||
(dollars in millions) |
|
Amount |
|
Receivables |
|
Amount |
|
Receivables |
|
Amount |
|
Receivables |
| |||||||
Nondelinquent accounts |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
FICO score of 700 or above |
|
$ |
2,854 |
|
48.3 |
% |
|
$ |
2,882 |
|
45.4 |
% |
|
$ |
2,786 |
|
44.9 |
% |
| |
FICO score of 600 to 699 |
|
2,251 |
|
38.1 |
|
|
2,463 |
|
38.7 |
|
|
2,500 |
|
40.3 |
|
| ||||
FICO score below 600 |
|
572 |
|
9.7 |
|
|
706 |
|
11.1 |
|
|
627 |
|
10.1 |
|
| ||||
Total nondelinquent accounts |
|
5,677 |
|
96.1 |
|
|
6,051 |
|
95.2 |
|
|
5,913 |
|
95.3 |
|
| ||||
Delinquent accounts (30+ days past due) |
|
228 |
|
3.9 |
|
|
306 |
|
4.8 |
|
|
289 |
|
4.7 |
|
| ||||
Period-end gross credit card receivables |
|
$ |
5,905 |
|
100 |
% |
|
$ |
6,357 |
|
100 |
% |
|
$ |
6,202 |
|
100 |
% |
| |
Under certain circumstances, we offer cardholder payment plans that meet the accounting definition of a troubled debt restructuring (TDR). These plans modify finance charges, minimum payments and/or extend payment terms. Modified terms do not change the balance of the loan. These concessions are made on an individual cardholder basis for economic or legal reasons specific to each individual cardholders circumstances. Cardholders are not allowed additional charges while participating in a payment plan.
Troubled Debt Restructurings |
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
| ||||
(dollars in millions, contracts in thousands) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Average receivables |
|
$ |
232 |
|
$ |
344 |
|
$ |
245 |
|
$ |
360 |
|
Finance charges |
|
$ |
3 |
|
$ |
5 |
|
$ |
7 |
|
$ |
11 |
|
Defaults During the Period(a) |
|
|
|
|
|
|
|
|
| ||||
Number of contracts |
|
3 |
|
6 |
|
5 |
|
12 |
| ||||
Amount defaulted(b) |
|
$ |
8 |
|
$ |
17 |
|
$ |
15 |
|
$ |
36 |
|
(a) Includes loans modified within the twelve months prior to each respective period end.
(b) Represents account balance at the time of default. We define default as not paying the full fixed payment amount for two consecutive billing cycles.
Receivables in cardholder payment plans that meet the definition of a TDR are treated consistently with other receivables in determining our allowance for doubtful accounts. Accounts that complete their assigned payment plan are no longer considered TDRs. As of July 28, 2012 and July 30, 2011 there were 102 thousand and 133 thousand modified contracts with outstanding receivables of $226 million and $334 million, respectively. Payments received on troubled debt restructurings are first applied to finance charges and fees, then to the unpaid principal balance.
Funding for Credit Card Receivables
As a method of providing funding for our credit card receivables, we sell, on an ongoing basis, all of our consumer credit card receivables to Target Receivables LLC (TR LLC), a wholly owned, bankruptcy remote subsidiary. TR LLC then transfers the receivables to the Target Credit Card Master Trust (the Trust), which from time to time will sell debt securities to third parties, either directly or through a related trust. These debt securities represent undivided interests in the Trust assets. TR LLC uses the proceeds from the sale of debt securities and its share of collections on the receivables to pay the purchase price of the receivables to the Corporation.
We consolidate the receivables within the Trust and any debt securities issued by the Trust, or a related trust, in our Consolidated Statements of Financial Position. The receivables transferred to the Trust are not available to general creditors of the Corporation.
All interests in our Credit Card Receivables issued by the Trust are accounted for as secured borrowings. Interest and principal payments are satisfied provided the cash flows from the Trust assets are sufficient and are nonrecourse to the general assets of the Corporation. If the cash flows are less than the periodic interest, the available amount, if any, is paid with respect to interest. Interest shortfalls will be paid to the extent subsequent cash flows from the assets in the Trust are sufficient. Future principal payments will be made from the third partys pro rata share of cash flows from the Trust assets.
Securitized Borrowings |
|
July 28, 2012 |
|
January 28, 2012 |
|
July 30, 2011 |
| ||||||||||||
(millions) |
|
Debt Balance |
|
Collateral |
|
Debt Balance |
|
Collateral |
|
Debt Balance |
|
Collateral |
| ||||||
2008 Series |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
2,749 |
|
$ |
2,828 |
|
2006/2007 Series |
|
1,500 |
|
1,899 |
|
1,000 |
|
1,266 |
|
1,000 |
|
1,266 |
| ||||||
Total |
|
$ |
1,500 |
|
$ |
1,899 |
|
$ |
1,000 |
|
$ |
1,266 |
|
$ |
3,749 |
|
$ |
4,094 |
|
In March 2012 we amended the 2006/2007 Series Variable Funding Certificate to obtain additional funding of $500 million and to extend the maturity to 2013. Parties who hold the Variable Funding Certificate receive interest at a variable short-term market rate.
5. Commitments and Contingencies
We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders and other constituents. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of the currently identified claims or litigation will be material to our results of operations, cash flows or financial condition.
6. Notes Payable and Long-Term Debt
We obtain short-term financing from time to time under our commercial paper program, a form of notes payable.
Commercial Paper |
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
| ||||
(dollars in millions) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Maximum daily amount outstanding during the period |
|
$ |
620 |
|
$ |
850 |
|
$ |
620 |
|
$ |
850 |
|
Average daily amount outstanding during the period |
|
$ |
240 |
|
$ |
329 |
|
$ |
201 |
|
$ |
164 |
|
Amount outstanding at period-end |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Weighted average interest rate |
|
0.21% |
|
0.12% |
|
0.16% |
|
0.12% |
|
In June 2012, we issued $1.5 billion of unsecured fixed rate debt at 4.0% that matures in July 2042. Proceeds from this issuance were used for general corporate purposes.
7. Derivative Financial Instruments
Historically our derivative instruments have primarily consisted of interest rate swaps, which are used to mitigate interest rate risk. We have counterparty credit risk with large global financial institutions resulting from our derivative instruments. We monitor this concentration of counterparty credit risk on an ongoing basis. See Note 3 for a description of the fair value measurement of our derivative instruments and their classification on the Consolidated Statements of Financial Position.
As of July 28, 2012 and July 30, 2011, one swap was designated as a fair value hedge for accounting purposes, and no ineffectiveness was recognized during the three or six months ended July 28, 2012 or July 30, 2011.
Periodic payments, valuation adjustments and amortization of gains or losses on our derivative contracts had the following effect on our Consolidated Statements of Operations:
Derivative Contracts - Effect on Results of Operations |
|
Three Months Ended |
|
|
Six Months Ended |
| ||||||||||
(millions) |
|
|
|
July 28, |
|
July 30, |
|
|
July 28, |
|
July 30, |
| ||||
Type of Contract |
|
Classification of Income/(Expense) |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
| ||||
Interest rate swaps |
|
Net interest expense |
|
$ |
9 |
|
$ |
11 |
|
|
$ |
19 |
|
$ |
22 |
|
The amount remaining on unamortized hedged debt valuation gains from terminated or de-designated interest rate swaps that will be amortized into earnings over the remaining lives of the underlying debt totaled $93 million, $111 million and $132 million, at July 28, 2012, January 28, 2012 and July 30, 2011, respectively.
8. Income Taxes
We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations for years before 2011 and, with few exceptions, are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2003.
At July 28, 2012, foreign net operating loss carryforwards of approximately $340 million (resulting in a $90 million deferred tax asset) are available to offset future income. These carryforwards expire in 2032 and are expected to be fully utilized prior to expiration.
It is reasonably possible that the amount of our unrecognized tax benefits will significantly increase or decrease during the next twelve months; however, an estimate of the amount or range of the change cannot be made at this time.
9. Share Repurchase
We repurchase shares primarily through open market transactions under a $5 billion share repurchase program authorized by our Board of Directors in January 2012. During the first quarter of 2012, we completed a $10 billion share repurchase program that was authorized by our Board of Directors in November 2007.
Share Repurchases |
|
Three Months Ended |
|
|
Six Months Ended |
| ||||||||
|
|
July 28, |
|
July 30, |
|
|
July 28, |
|
July 30, |
| ||||
(millions, except per share data) |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
| ||||
Total number of shares purchased |
|
9.6 |
|
14.3 |
|
|
20.2 |
|
29.7 |
| ||||
Average price paid per share |
|
$ |
57.09 |
|
$ |
48.11 |
|
|
$ |
57.21 |
|
$ |
50.81 |
|
Total investment |
|
$ |
549 |
|
$ |
688 |
|
|
$ |
1,154 |
|
$ |
1,507 |
|
Of the shares repurchased, a portion was delivered upon settlement of prepaid forward contracts as follows:
Settlement of Prepaid Forward Contracts(a) |
|
Three Months Ended |
|
|
Six Months Ended |
| ||||||||
|
|
July 28, |
|
July 30, |
|
|
July 28, |
|
July 30, |
| ||||
(millions) |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
| ||||
Total number of shares purchased |
|
0.2 |
|
0.2 |
|
|
0.4 |
|
0.3 |
| ||||
Total cash investment |
|
$ |
11 |
|
$ |
7 |
|
|
$ |
23 |
|
$ |
14 |
|
Aggregate market value(b) |
|
$ |
11 |
|
$ |
7 |
|
|
$ |
24 |
|
$ |
14 |
|
(a) These contracts are among the investment vehicles used to reduce our economic exposure related to our nonqualified deferred compensation plans. The details of our positions in prepaid forward contracts have been provided in Note 10.
(b) At their respective settlement dates.
10. Pension, Postretirement Health Care and Other Benefits
We have qualified defined benefit pension plans covering team members who meet age and service requirements, including in certain circumstances, date of hire. We also have unfunded nonqualified pension plans for team members with qualified plan compensation restrictions. Eligibility for, and the level of, these benefits varies depending on team members date of hire, length of service and/or team member compensation. Upon early retirement and prior to Medicare eligibility, team members also become eligible for certain health care benefits if they meet minimum age and service requirements and agree to contribute a portion of the cost. Effective January 1, 2009, our qualified defined benefit pension plan was closed to new participants, with limited exceptions.
Net Pension and Postretirement |
|
Pension Benefits |
|
Postretirement Health Care Benefits |
| ||||||||||||||||||||
Health Care Benefits Expense |
|
Three Months |
|
Six Months |
|
Three Months |
|
Six Months |
| ||||||||||||||||
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
| ||||||||||||||||
|
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
| ||||||||
(millions) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||||||
Service cost benefits earned during the period |
|
$ |
30 |
|
$ |
29 |
|
$ |
60 |
|
$ |
58 |
|
$ |
2 |
|
$ |
2 |
|
$ |
4 |
|
$ |
4 |
|
Interest cost on projected benefit obligation |
|
35 |
|
35 |
|
70 |
|
69 |
|
|
|
1 |
|
1 |
|
2 |
| ||||||||
Expected return on assets |
|
(55 |
) |
(51 |
) |
(110 |
) |
(102 |
) |
|
|
|
|
|
|
|
| ||||||||
Amortization of losses |
|
26 |
|
18 |
|
52 |
|
34 |
|
1 |
|
1 |
|
2 |
|
2 |
| ||||||||
Amortization of prior service cost |
|
|
|
(1 |
) |
|
|
(2 |
) |
(2 |
) |
(2 |
) |
(4 |
) |
(4 |
) | ||||||||
Total |
|
$ |
36 |
|
$ |
30 |
|
$ |
72 |
|
$ |
57 |
|
$ |
1 |
|
$ |
2 |
|
$ |
3 |
|
$ |
4 |
|
We are not required to make any contributions in 2012. However, depending on investment performance and plan funded status, we may elect to make a contribution.
Our unfunded, nonqualified deferred compensation plan is offered to approximately 3,000 current and retired team members whose participation in our 401(k) plan is limited by statute or regulation. These team members choose from a menu of crediting rate alternatives that are the same as the investment choices in our 401(k) plan, including Target common stock. We credit an additional 2 percent per year to the accounts of all active participants, excluding members of our management executive committee, in part to recognize the risks inherent to their participation in a plan of this nature. We also maintain a nonqualified, unfunded deferred compensation plan that was frozen during 1996, covering substantially fewer than 100 participants, most of whom are retired. In this plan, deferred compensation earns returns tied to market levels of interest rates plus an additional 6 percent return, with a minimum of 12 percent and a maximum of 20 percent, as determined by the plans terms.
We mitigate some of our risk of offering the nonqualified plans through investing in vehicles, including company-owned life insurance and prepaid forward contracts in our own common stock, that offset a substantial portion 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 indexed to our own common stock recognized in earnings was pretax income of $4 million in each of the three months ended July 28, 2012 and July 30, 2011, and pretax income/(loss) of $15 million and $(3) million for the six months ended July 28, 2012 and July 30, 2011, respectively. For the six months ended July 28, 2012 and July 30,
2011, we invested $13 million and $29 million, respectively, in such investment instruments, and this activity is included in the Consolidated Statements of Cash Flows within other investing activities. Adjusting our position in these investment vehicles may involve repurchasing shares of Target common stock when settling the forward contracts as described in Note 9. The settlement dates of these instruments are regularly renegotiated with the counterparty.
Prepaid Forward Contracts on Target Common Stock |
|
|
|
Contractual |
|
|
|
|
| |||
|
|
Number of |
|
Price Paid |
|
Contractual |
|
Total Cash |
| |||
(millions, except per share data) |
|
Shares |
|
per Share |
|
Fair Value |
|
Investment |
| |||
July 30, 2011 |
|
1.4 |
|
$ |
45.43 |
|
$ |
74 |
|
$ |
65 |
|
January 28, 2012 |
|
1.4 |
|
44.21 |
|
69 |
|
61 |
| |||
July 28, 2012 |
|
1.2 |
|
44.70 |
|
72 |
|
53 |
| |||
11. Segment Reporting
Our segment measure of profit is used by management to evaluate the return on our investment and to make operating decisions.
Business Segment Results |
|
Three Months Ended July 28, 2012 |
|
Three Months Ended July 30, 2011 |
| ||||||||||||||||||||
|
|
|
|
U.S. |
|
|
|
|
|
|
|
U.S. |
|
|
|
|
| ||||||||
|
|
U.S. |
|
Credit |
|
|
|
|
|
U.S. |
|
Credit |
|
|
|
|
| ||||||||
(millions) |
|
Retail |
|
Card |
|
Canadian |
|
Total |
|
Retail |
|
Card |
|
Canadian |
|
Total |
| ||||||||
Sales/Credit card revenues |
|
$ |
16,451 |
|
$ |
328 |
|
$ |
|
|
$ |
16,779 |
|
$ |
15,895 |
|
$ |
345 |
|
$ |
|
|
$ |
16,240 |
|
Cost of sales |
|
11,297 |
|
|
|
|
|
11,297 |
|
10,872 |
|
|
|
|
|
10,872 |
| ||||||||
Bad debt expense(a) |
|
|
|
43 |
|
|
|
43 |
|
|
|
15 |
|
|
|
15 |
| ||||||||
Selling, general and administrative/ Operations and marketing expenses(a), (b) |
|
3,468 |
|
139 |
|
47 |
|
3,653 |
|
3,382 |
|
137 |
|
25 |
|
3,544 |
| ||||||||
Depreciation and amortization |
|
505 |
|
3 |
|
22 |
|
531 |
|
494 |
|
4 |
|
11 |
|
509 |
| ||||||||
Earnings/(loss) before interest expense and income taxes |
|
1,181 |
|
143 |
|
(69 |
) |
1,255 |
|
1,147 |
|
189 |
|
(36 |
) |
1,300 |
| ||||||||
Interest expense on nonrecourse debt collateralized by credit card receivables (c) |
|
|
|
3 |
|
|
|
3 |
|
|
|
18 |
|
|
|
18 |
| ||||||||
Segment profit/(loss) |
|
$ |
1,181 |
|
$ |
140 |
|
$ |
(69 |
) |
$ |
1,252 |
|
$ |
1,147 |
|
$ |
171 |
|
$ |
(36 |
) |
$ |
1,282 |
|
Unallocated (income) and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other net interest expense (c) |
|
|
|
|
|
|
|
181 |
|
|
|
|
|
|
|
173 |
| ||||||||
Earnings before income taxes |
|
|
|
|
|
|
|
$ |
1,071 |
|
|
|
|
|
|
|
$ |
1,109 |
|
Business Segment Results |
|
Six Months Ended July 28, 2012 |
|
Six Months Ended July 30, 2011 |
| ||||||||||||||||||||
|
|
|
|
U.S. |
|
|
|
|
|
|
|
U.S. |
|
|
|
|
| ||||||||
|
|
U.S. |
|
Credit |
|
|
|
|
|
U.S. |
|
Credit |
|
|
|
|
| ||||||||
(millions) |
|
Retail |
|
Card |
|
Canadian |
|
Total |
|
Retail |
|
Card |
|
Canadian |
|
Total |
| ||||||||
Sales/Credit card revenues |
|
$ |
32,989 |
|
$ |
657 |
|
$ |
|
|
$ |
33,646 |
|
$ |
31,475 |
|
$ |
700 |
|
$ |
|
|
$ |
32,175 |
|
Cost of sales |
|
22,838 |
|
|
|
|
|
22,838 |
|
21,710 |
|
|
|
|
|
21,710 |
| ||||||||
Bad debt expense(a) |
|
|
|
95 |
|
|
|
95 |
|
|
|
27 |
|
|
|
27 |
| ||||||||
Selling, general and administrative/ Operations and marketing expenses(a), (b) |
|
6,762 |
|
271 |
|
81 |
|
7,114 |
|
6,554 |
|
262 |
|
36 |
|
6,852 |
| ||||||||
Depreciation and amortization |
|
1,009 |
|
7 |
|
44 |
|
1,060 |
|
1,002 |
|
9 |
|
11 |
|
1,022 |
| ||||||||
Earnings/(loss) before interest expense and income taxes |
|
2,380 |
|
284 |
|
(125 |
) |
2,539 |
|
2,209 |
|
402 |
|
(47 |
) |
2,564 |
| ||||||||
Interest expense on nonrecourse debt collateralized by credit card receivables (c) |
|
|
|
5 |
|
|
|
5 |
|
|
|
37 |
|
|
|
37 |
| ||||||||
Segment profit/(loss) |
|
$ |
2,380 |
|
$ |
279 |
|
$ |
(125 |
) |
$ |
2,534 |
|
$ |
2,209 |
|
$ |
365 |
|
$ |
(47 |
) |
$ |
2,527 |
|
Unallocated (income) and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other net interest expense (c) |
|
|
|
|
|
|
|
361 |
|
|
|
|
|
|
|
337 |
| ||||||||
Earnings before income taxes |
|
|
|
|
|
|
|
$ |
2,173 |
|
|
|
|
|
|
|
$ |
2,190 |
|
Note: The sum of the segment amounts may not equal the total amounts due to rounding.
(a) The combination of bad debt expense and operations and marketing expenses, less amounts the U.S. Retail Segment charges the U.S. Credit Card Segment for loyalty programs, within the U.S. Credit Card Segment represent credit card expenses on the Consolidated Statements of Operations.
(b) Loyalty program charges were $74 million and $66 million for the three months ended July 28, 2012 and July 30, 2011, respectively, and $138 million and $115 million for the six months ended July 28, 2012 and July 30, 2011, respectively. In all periods, these amounts were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment.
(c) The combination of interest expense on nonrecourse debt collateralized by credit card receivables and other net interest expense represent net interest expense on the Consolidated Statements of Operations.
Total Assets by Segment |
|
July 28, |
|
January 28, |
|
July 30, |
| |||
(millions) |
|
2012 |
|
2012 |
|
2011 |
| |||
U.S. Retail |
|
$ |
37,724 |
|
$ |
37,108 |
|
$ |
36,823 |
|
U.S. Credit Card |
|
5,751 |
|
6,135 |
|
5,931 |
| |||
Canadian |
|
3,850 |
|
3,387 |
|
2,745 |
| |||
Total |
|
$ |
47,325 |
|
$ |
46,630 |
|
$ |
45,499 |
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Consolidated revenues were $16,779 million for the three months ended July 28, 2012, an increase of $539 million or 3.3 percent from the same period in the prior year. Consolidated earnings before interest expense and income taxes for second quarter 2012 decreased by $45 million or 3.5 percent from second quarter 2011 to $1,255 million. Cash flow provided by operations was $2,471 million and $2,336 million for the six months ended July 28, 2012 and July 30, 2011, respectively. Diluted earnings per share in the second quarter increased 3.4 percent to $1.06 from $1.03 in the same period a year ago. Adjusted diluted earnings per share, which we believe is useful in providing period-to-period comparisons of the results of our U.S. operations, increased 4.6 percent to $1.12 in second quarter 2012 from $1.07 in the same period a year ago.
Earnings Per Share |
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
| ||||||||
|
|
July 28 |
, |
July 30 |
, |
|
|
July 28 |
, |
July 30 |
, |
|
| ||||||
|
|
2012 |
|
2011 |
|
Change |
|
2012 |
|
2011 |
|
Change |
| ||||||
GAAP diluted earnings per share |
|
$ |
1.06 |
|
$ |
1.03 |
|
3.4 |
% |
$ |
2.10 |
|
$ |
2.02 |
|
4.2 |
% | ||
Adjustments(a) |
|
0.06 |
|
0.04 |
|
|
|
0.13 |
|
0.04 |
|
|
| ||||||
Adjusted diluted earnings per share |
|
$ |
1.12 |
|
$ |
1.07 |
|
4.6 |
% |
$ |
2.23 |
|
$ |
2.06 |
|
8.0 |
% | ||
Note: A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 21.
(a) Adjustments represent the diluted EPS impact of our planned 2013 Canadian market entry and the favorable resolution of various income tax matters.
Our financial results for the second quarter of 2012 in our U.S. Retail Segment reflect increased sales of 3.5 percent over the same period last year due to a 3.1 percent comparable-store increase combined with the contribution from new stores. Our second quarter 2012 U.S. Retail Segment EBITDA and EBIT margin rates remained largely consistent with the prior year.
In the U.S. Credit Card Segment, we experienced a decrease in segment profit due to annualizing over a significant reserve reduction in the prior year and lower finance charge revenue resulting from a smaller portfolio, partially offset by lower interest expense.
During the three and six months ended July 28, 2012, loss before interest expense and income taxes in our Canadian Segment totaled $69 million and $125 million, respectively, comprised of start-up costs and depreciation, compared to $36 million and $47 million during the three and six months ended July 30, 2011, respectively.
Analysis of Results of Operations
U.S. Retail Segment
U.S. Retail Segment Results |
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||
|
|
July 28, |
|
July 30, |
|
Percent |
|
July 28, |
|
July 30, |
|
Percent |
| ||||
(dollars in millions) |
|
2012 |
|
2011 |
|
Change |
|
2012 |
|
2011 |
|
Change |
| ||||
Sales |
|
$ |
16,451 |
|
$ |
15,895 |
|
3.5 % |
|
$ |
32,989 |
|
$ |
31,475 |
|
4.8 |
% |
Cost of sales |
|
11,297 |
|
10,872 |
|
3.9 |
|
22,838 |
|
21,710 |
|
5.2 |
| ||||
Gross margin |
|
5,154 |
|
5,023 |
|
2.6 |
|
10,151 |
|
9,765 |
|
3.9 |
| ||||
SG&A expenses(a) |
|
3,468 |
|
3,382 |
|
2.6 |
|
6,762 |
|
6,554 |
|
3.2 |
| ||||
EBITDA |
|
1,686 |
|
1,641 |
|
2.7 |
|
3,389 |
|
3,211 |
|
5.5 |
| ||||
Depreciation and amortization |
|
505 |
|
494 |
|
2.2 |
|
1,009 |
|
1,002 |
|
0.8 |
| ||||
EBIT |
|
$ |
1,181 |
|
$ |
1,147 |
|
2.9 % |
|
$ |
2,380 |
|
$ |
2,209 |
|
7.7 |
% |
EBITDA is earnings before interest expense, income taxes, depreciation and amortization.
EBIT is earnings before interest expense and income taxes.
Note: See Note 11 to our consolidated financial statements for a reconciliation of our segment results to earnings before income taxes. (a) Loyalty program charges were $74 million and $66 million for the three months ended July 28, 2012 and July 30, 2011, respectively, and $138 million and $115 million for the six months ended July 28, 2012 and July 30, 2011, respectively. In all periods, these amounts were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment.
U.S. Retail Segment Rate Analysis |
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||
|
|
|
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
|
|
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
Gross margin rate |
|
|
|
31.3 |
% |
31.6 |
% |
30.8 |
% |
31.0 |
% |
SG&A expense rate |
|
|
|
21.1 |
|
21.3 |
|
20.5 |
|
20.8 |
|
EBITDA margin rate |
|
|
|
10.2 |
|
10.3 |
|
10.3 |
|
10.2 |
|
Depreciation and amortization expense rate |
|
|
|
3.1 |
|
3.1 |
|
3.1 |
|
3.2 |
|
EBIT margin rate |
|
|
|
7.2 |
|
7.2 |
|
7.2 |
|
7.0 |
|
Rate analysis metrics are computed by dividing the applicable amount by sales.
Sales
Sales include merchandise sales, net of expected returns, from our stores and our online business, as well as gift card breakage. See Item 1 in our Form 10-K for the fiscal year ended January 28, 2012 for a description of our product categories.
Sales by Product Category |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
| ||||
|
|
|
|
July 28, |
|
July 30, |
|
|
July 28, |
|
July 30, |
|
|
|
|
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
|
Household essentials |
|
|
|
27 |
% |
26 |
% |
|
27 |
% |
26 |
% |
Hardlines |
|
|
|
15 |
|
16 |
|
|
16 |
|
17 |
|
Apparel and accessories |
|
|
|
20 |
|
21 |
|
|
20 |
|
20 |
|
Food and pet supplies |
|
|
|
20 |
|
18 |
|
|
20 |
|
19 |
|
Home furnishings and décor |
|
|
|
18 |
|
19 |
|
|
17 |
|
18 |
|
Total |
|
|
|
100 |
% |
100 |
% |
|
100 |
% |
100 |
% |
Comparable-store sales is a measure that highlights the performance of our existing stores by measuring the change in sales for such stores for a period over the comparable, prior-year period of equivalent length. The method of calculating comparable-store sales varies across the retail industry. As a result, our comparable-store sales calculation is not necessarily comparable to similarly titled measures reported by other companies.
Comparable-store sales are sales from our online business and stores open longer than one year, including:
· sales from stores that have been remodeled or expanded while remaining open (including our current store remodel program)
· sales from stores that have been relocated to new buildings of the same format within the same trade area, in which the new store opens at about the same time as the old store closes
Comparable-store sales do not include:
· sales from general merchandise stores that have been converted, or relocated within the same trade area, to a SuperTarget store format
· sales from stores that were intentionally closed to be remodeled, expanded or reconstructed
Comparable-Store Sales |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
| ||||
|
|
|
|
July 28, |
|
July 30, |
|
|
July 28, |
|
July 30, |
|
|
|
|
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
|
Comparable-store sales change |
|
|
|
3.1 |
% |
3.9 |
% |
|
4.2 |
% |
2.9 |
% |
Drivers of change in comparable-store sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Number of transactions |
|
|
|
0.7 |
|
0.5 |
|
|
1.3 |
|
0.4 |
|
Average transaction amount |
|
|
|
2.4 |
|
3.5 |
|
|
2.8 |
|
2.6 |
|
Units per transaction |
|
|
|
1.3 |
|
1.8 |
|
|
1.0 |
|
3.1 |
|
Selling price per unit |
|
|
|
1.1 |
|
1.7 |
|
|
1.8 |
|
(0.5 |
) |
The collective interaction of a broad array of macroeconomic, competitive and consumer behavioral factors, as well as sales mix, and transfer of sales to new stores makes further analysis of sales metrics infeasible.
Our U.S. Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards: the Target Visa Credit Card and the Target Credit Card (Target Credit Cards). Additionally, we offer a branded proprietary Target Debit Card. Collectively, we refer to these products as REDcards®. Guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com.
We monitor the percentage of store sales that are paid for using REDcards (REDcard Penetration), because our internal analysis has indicated that a meaningful portion of the incremental purchases on our REDcards are also incremental sales for Target, with the remainder representing a shift in tender type.
REDcard Penetration |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
| ||||
|
|
|
|
July 28, |
|
July 30, |
|
|
July 28, |
|
July 30, |
|
|
|
|
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
|
Target Credit Cards |
|
|
|
7.7 |
% |
6.6 |
% |
|
7.4 |
% |
6.2 |
% |
Target Debit Card |
|
|
|
5.1 |
|
2.1 |
|
|
4.8 |
|
1.9 |
|
Total Store REDcard Penetration |
|
|
|
12.8 |
% |
8.7 |
% |
|
12.2 |
% |
8.1 |
% |
Gross Margin Rate
For the three and six months ended July 28, 2012, our gross margin rate was 31.3 percent and 30.8 percent, respectively, decreasing from 31.6 percent and 31.0 percent in the comparable periods last year. These decreases are the result of our integrated growth strategies of 5% REDcard Rewards and remodel program, which impacted the rate by nearly 0.4 percent in each period, partially offset by underlying rate improvements within categories.
Selling, General and Administrative Expense Rate
For the three and six months ended July 28, 2012, the SG&A expense rate was 21.1 percent and 20.5 percent, respectively, a decrease from 21.3 percent and 20.8 percent in the comparable periods last year. Approximately half of this improvement in each period is due to store hourly payroll expense improvements, and the remainder was spread across several other areas.
SG&A expenses exclude depreciation and amortization, as well as expenses associated with our credit card operations, which are reflected separately in our Consolidated Statements of Operations.
Depreciation and Amortization Expense Rate
For the three and six months ended July 28, 2012, our depreciation and amortization expense rate was 3.1 percent in both periods, compared with 3.1 percent and 3.2 percent in the respective prior year periods.
Store Data
Change in Number of Stores |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
| ||||
|
|
|
|
July 28 |
, |
July 30 |
, |
|
July 28 |
, |
July 30 |
, |
|
|
|
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
|
Beginning store count |
|
|
|
1,764 |
|
1,755 |
|
|
1,763 |
|
1,750 |
|
Opened |
|
|
|
9 |
|
9 |
|
|
12 |
|
15 |
|
Closed |
|
|
|
|
|
|
|
|
(1 |
) |
|
|
Relocated |
|
|
|
(1 |
) (a) |
(2 |
) |
|
(2 |
) (a) |
(3 |
) |
Ending store count |
|
|
|
1,772 |
|
1,762 |
|
|
1,772 |
|
1,762 |
|
(a) One store was closed for relocation and will be opened within the same trade area in the second half of 2012.
For the first two quarters of 2012, we remodeled 220 stores, compared with 263 in the comparable prior year period.
Number of Stores and Retail Square Feet |
|
Number of Stores |
|
|
Retail Square Feet(a) |
| ||||||||
|
|
July 28 |
, |
January 28 |
, |
July 30 |
, |
|
July 28 |
, |
January 28 |
, |
July 30 |
, |
|
|
2012 |
|
2012 |
|
2011 |
|
|
2012 |
|
2012 |
|
2011 |
|
Target general merchandise stores |
|
428 |
|
637 |
|
774 |
|
|
50,974 |
|
76,999 |
|
93,699 |
|
Expanded food assortment stores |
|
1,090 |
|
875 |
|
736 |
|
|
141,020 |
|
114,219 |
|
97,058 |
|
SuperTarget stores |
|
251 |
|
251 |
|
252 |
|
|
44,500 |
|
44,503 |
|
44,681 |
|
CityTarget stores |
|
3 |
|
|
|
|
|
|
314 |
|
|
|
|
|
Total |
|
1,772 |
|
1,763 |
|
1,762 |
|
|
236,808 |
|
235,721 |
|
235,438 |
|
(a) In thousands; reflects total square feet, less office, distribution center and vacant space.
U.S. Credit Card Segment
We offer credit to qualified guests through the Target Credit Cards. Our credit card program supports our core retail operations and remains an important contributor to our overall profitability and engagement with our guests. Credit card revenues are comprised of finance charges, late fees and other revenue, and third party merchant fees, which are amounts received from merchants who accept the Target Visa Credit Card.
U.S. Credit Card Segment Results |
|
|
Three Months Ended |
|
|
Three Months Ended |
| ||||||
|
|
|
July 28, 2012 |
|
|
July 30, 2011 |
| ||||||
|
|
|
|
|
|
Annualized |
|
|
|
|
|
Annualized |
|
(dollars in millions) |
|
|
Amount |
|
|
Rate(d) |
|
|
Amount |
|
|
Rate(d) |
|
Finance charge revenue |
|
|
$ 265 |
|
|
18.0 |
% |
|
$ 278 |
|
|
17.9 |
% |
Late fees and other revenue |
|
|
43 |
|
|
2.8 |
|
|
44 |
|
|
2.8 |
|
Third party merchant fees |
|
|
20 |
|
|
1.4 |
|
|
23 |
|
|
1.5 |
|
Total revenue |
|
|
328 |
|
|
22.2 |
|
|
345 |
|
|
22.2 |
|
Bad debt expense |
|
|
43 |
|
|
2.9 |
|
|
15 |
|
|
1.0 |
|
Operations and marketing expenses(a) |
|
|
139 |
|
|
9.3 |
|
|
137 |
|
|
8.8 |
|
Depreciation and amortization |
|
|
3 |
|
|
0.2 |
|
|
4 |
|
|
0.3 |
|
Total expenses |
|
|
185 |
|
|
12.5 |
|
|
156 |
|
|
10.0 |
|
EBIT |
|
|
143 |
|
|
9.7 |
|
|
189 |
|
|
12.2 |
|
Interest expense on nonrecourse debt collateralized by credit card receivables |
|
|
3 |
|
|
|
|
|
18 |
|
|
|
|
Segment profit |
|
|
$ 140 |
|
|
|
|
|
$ 171 |
|
|
|
|
Average receivables funded by Target(b) |
|
|
$ 4,406 |
|
|
|
|
|
$ 2,398 |
|
|
|
|
Segment pretax ROIC(c) |
|
|
12.7 |
% |
|
|
|
|
28.5 |
% |
|
|
|
U.S. Credit Card Segment Results |
|
|
Six Months Ended |
|
|
Six Months Ended |
| ||||||
|
|
|
July 28, 2012 |
|
|
July 30, 2011 |
| ||||||
|
|
|
|
|
|
Annualized |
|
|
|
|
|
Annualized |
|
(dollars in millions) |
|
|
Amount |
|
|
Rate(d) |
|
|
Amount |
|
|
Rate(d) |
|
Finance charge revenue |
|
|
$ 536 |
|
|
17.9 |
% |
|
$ 570 |
|
|
18.0 |
% |
Late fees and other revenue |
|
|
82 |
|
|
2.7 |
|
|
86 |
|
|
2.7 |
|
Third party merchant fees |
|
|
39 |
|
|
1.3 |
|
|
44 |
|
|
1.4 |
|
Total revenue |
|
|
657 |
|
|
21.9 |
|
|
700 |
|
|
22.1 |
|
Bad debt expense |
|
|
95 |
|
|
3.2 |
|
|
27 |
|
|
0.9 |
|
Operations and marketing expenses(a) |
|
|
271 |
|
|
9.0 |
|
|
262 |
|
|
8.3 |
|
Depreciation and amortization |
|
|
7 |
|
|
0.2 |
|
|
9 |
|
|
0.3 |
|
Total expenses |
|
|
373 |
|
|
12.4 |
|
|
298 |
|
|
9.4 |
|
EBIT |
|
|
284 |
|
|
9.5 |
|
|
402 |
|
|
12.7 |
|
Interest expense on nonrecourse debt collateralized by credit card receivables |
|
|
5 |
|
|
|
|
|
37 |
|
|
|
|
Segment profit |
|
|
$ 279 |
|
|
|
|
|
$ 365 |
|
|
|
|
Average receivables funded by Target(b) |
|
|
$ 4,646 |
|
|
|
|
|
$ 2,451 |
|
|
|
|
Segment pretax ROIC(c) |
|
|
12.0 |
% |
|
|
|
|
29.7 |
% |
|
|
|
Note: See Note 11 to our Consolidated Financial Statements for a reconciliation of our segment results to earnings before income taxes.
(a) See footnote (a) to our U.S. Retail Segment Results table on page 15 for an explanation of our loyalty program charges.
(b) Amounts represent the portion of average gross credit card receivables funded by Target. These amounts exclude $1,500 million and $1,343 million for the three and six months ended July 28, 2012, respectively, and $3,817 million and $3,888 million for the three and six months ended July 30, 2011, respectively, of receivables funded by nonrecourse debt collateralized by credit card receivables.
(c) ROIC is return on invested capital, and this rate equals our segment profit divided by average gross credit card receivables funded by Target, expressed as an annualized rate. This measure has decreased significantly, primarily due to our voluntary retirement of our 2008 series securitization in January 2012, increasing the average receivables funded by Target.
(d) As an annualized percentage of average gross credit card receivables.
Spread Analysis - Total Portfolio |
|
|
Three Months Ended |
|
|
Three Months Ended |
| ||||
|
|
|
July 28, 2012 |
|
|
July 30, 2011 |
| ||||
|
|
|
|
|
Annualized |
|
|
|
|
Annualized |
|
(dollars in millions) |
|
|
Amount |
|
Rate |
|
|
Amount |
|
Rate |
|
EBIT |
|
|
$ 143 |
|
9.7% |
(c) |
|
$ 189 |
|
12.2% |
(c) |
LIBOR(a) |
|
|
|
|
0.2% |
|
|
|
|
0.2% |
|
Spread to LIBOR(b) |
|
|
$ 140 |
|
9.5% |
(c) |
|
$ 186 |
|
12.0% |
(c) |
|
|
|
|
|
|
|
| ||||
|
|
|
Six Months Ended |
|
|
Six Months Ended |
| ||||
|
|
|
July 28, 2012 |
|
|
July 30, 2011 |
| ||||
|
|
|
|
|
Annualized |
|
|
|
|
Annualized |
|
(dollars in millions) |
|
|
Amount |
|
Rate |
|
|
Amount |
|
Rate |
|
EBIT |
|
|
$ 284 |
|
9.5% |
(c) |
|
$ 402 |
|
12.7% |
(c) |
LIBOR(a) |
|
|
|
|
0.2% |
|
|
|
|
0.2% |
|
Spread to LIBOR(b) |
|
|
$ 277 |
|
9.3% |
(c) |
|
$ 395 |
|
12.5% |
(c) |
(a) Balance-weighted one-month LIBOR.
(b) Spread to LIBOR is a metric used to analyze the performance of our total credit card portfolio because the majority of our portfolio earns finance charge revenue at rates tied to the Prime Rate, and the interest rate on all nonrecourse debt collateralized by credit card receivables is tied to LIBOR.
(c) As an annualized percentage of average gross credit card receivables.
Our primary measure of segment profit is the EBIT generated by our total credit card receivables portfolio less the interest expense on nonrecourse debt collateralized by credit card receivables. We also measure the performance of our overall credit card receivables portfolio by calculating the dollar Spread to LIBOR at the portfolio level. This metric approximates overall financial
performance of the entire credit card portfolio we manage by measuring the difference between EBIT earned on the portfolio and a hypothetical benchmark rate financing cost applied to the entire portfolio. The interest rate on all nonrecourse debt collateralized by credit card receivables is tied to LIBOR.
Total revenue decreased primarily due to lower average receivables resulting in reduced finance charge revenue. Segment expense increases were driven by higher bad debt expense primarily attributable to annualizing over a significant reduction in the reserve from the prior year. Interest expense on nonrecourse debt declined from last year due to a decrease in nonrecourse debt collateralized by credit card receivables.
Receivables Rollforward Analysis |
|
|
Three Months Ended |
|
|
Six Months Ended | ||||||
|
|
|
July 28, |
|
|
July 30, |
|
|
July 28, |
|
|
July 30, |
(dollars in millions) |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
Beginning gross credit card receivables |
|
|
$ 5,943 |
|
|
$ 6,286 |
|
|
$ 6,357 |
|
|
$ 6,843 |
Charges at Target |
|
|
1,398 |
|
|
1,140 |
|
|
2,686 |
|
|
2,143 |
Charges at third parties |
|
|
1,206 |
|
|
1,353 |
|
|
2,345 |
|
|
2,603 |
Payments |
|
|
(2,875) |
|
|
(2,792) |
|
|
(5,935) |
|
|
(5,793) |
Other |
|
|
233 |
|
|
215 |
|
|
452 |
|
|
406 |
Period-end gross credit card receivables |
|
|
$ 5,905 |
|
|
$ 6,202 |
|
|
$ 5,905 |
|
|
$ 6,202 |
Average gross credit card receivables |
|
|
$ 5,906 |
|
|
$ 6,215 |
|
|
$ 5,989 |
|
|
$ 6,339 |
Accounts with three or more payments (60+ days) past due as a percentage of period-end gross credit card receivables |
|
|
2.6% |
|
|
3.0% |
|
|
2.6% |
|
|
3.0% |
Accounts with four or more payments (90+ days) past due as a percentage of period-end gross credit card receivables |
|
|
1.7% |
|
|
2.1% |
|
|
1.7% |
|
|
2.1% |
Allowance for Doubtful Accounts |
|
|
Three Months Ended |
|
|
Six Months Ended | ||||||
|
|
|
July 28, |
|
|
July 30, |
|
|
July 28, |
|
|
July 30, |
(dollars in millions) |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
Allowance at beginning of period |
|
|
$ 395 |
|
|
$ 565 |
|
|
$ 430 |
|
|
$ 690 |
Bad debt expense |
|
|
43 |
|
|
15 |
|
|
95 |
|
|
27 |
Write-offs(a) |
|
|
(105) |
|
|
(142) |
|
|
(232) |
|
|
(326) |
Recoveries(a) |
|
|
32 |
|
|
42 |
|
|
72 |
|
|
89 |
Allowance at end of period |
|
|
$ 365 |
|
|
$ 480 |
|
|
$ 365 |
|
|
$ 480 |
As a percentage of period-end gross credit card receivables |
|
|
6.2% |
|
|
7.7% |
|
|
6.2% |
|
|
7.7% |
Net write-offs as an annualized percentage of average gross credit card receivables |
|
|
4.9% |
|
|
6.5% |
|
|
5.3% |
|
|
7.5% |
(a) Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period collections on previously written-off balances. These amounts combined represent net write-offs.
Period-end and average gross credit card receivables have declined because of an increase in payment rates and a decrease in Target Visa Credit Card charges at third parties, partially offset by an increase in charges at Target. The decrease in charges on our credit cards at third parties is primarily due to the fact that we no longer issue new Target Visa accounts.
We are pursuing the sale of our credit card receivables portfolio and will execute a transaction only if appropriate strategic and financial conditions are met. We expect to classify the credit card receivables portfolio as held for sale when a transaction that allows us to meet our objectives has been agreed upon with a potential buyer.
Canadian Segment
During the three and six months ended July 28, 2012, start-up costs totaled $47 million and $81 million, respectively, compared with $25 million and $36 million in the comparable prior-year periods, and primarily consisted of compensation, benefits and third-party service expenses. Additionally, we recorded $22 million and $44 million in depreciation for the three and six months ended July 28, 2012, respectively, compared with $11 million in each of the comparable prior year periods, related to capital lease assets and leasehold interests.
Other Performance Factors
Net Interest Expense
Net interest expense for the three and six months ended July 28, 2012 was $184 million and $366 million, respectively, including $19 million and $38 million, respectively, of interest on Canadian capitalized leases. For the three and six months ended July 30, 2011, net interest expense was $191 million and $374 million, respectively, including $10 million of interest on Canadian capitalized leases in both periods. Net interest expense decreased due to a lower average portfolio interest rate.
Provision for Income Taxes
Our effective income tax rate for the three and six months ended July 28, 2012 was 34.3 percent and 35.5 percent, respectively, down from 36.5 percent and 36.4 percent for the three and six months ended July 30, 2011, respectively. This change is primarily due to an increase in the benefit related to the favorable resolution of various income tax matters, which reduced tax expense by $23 million and $31 million, respectively, in the three and six months ended July 28, 2012, compared with $4 million and $9 million in the corresponding prior year periods.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
Our segment measure of profit is used by management to evaluate the return we are achieving on our investment and to make operating decisions. To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share, which excludes the impact of our planned 2013 Canadian market entry and favorable resolution of various income tax matters. We believe this information is useful in providing period-to-period comparisons of the results of our U.S. operations. This measure is not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The most comparable GAAP measure is diluted earnings per share. Non-GAAP adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate non-GAAP adjusted EPS differently than we do, limiting the usefulness of the measure for comparisons with other companies.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures |
| ||||||||||||||||||
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
| ||||||
|
|
U.S. |
|
Credit |
|
Total |
|
|
|
|
|
Consolidated |
| ||||||
(millions, except per share data) |
|
Retail |
|
Card |
|
U.S. |
|
Canada |
|
Other |
|
GAAP Total |
| ||||||
Three Months Ended July 28, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Segment profit |
|
$ |
1,181 |
|
$ |
140 |
|
$ |
1,321 |
|
$ |
(69) |
|
$ |
|
|
$ |
1,252 |
|
Other net interest expense(a) |
|
|
|
|
|
161 |
|
19 |
|
|
|
181 |
| ||||||
Earnings before income taxes |
|
|
|
|
|
1,160 |
|
(88) |
|
|
|
1,071 |
| ||||||
Provision for income taxes(b) |
|
|
|
|
|
418 |
|
(27) |
|
(23) |
(d) |
367 |
| ||||||
Net earnings |
|
|
|
|
|
$ |
742 |
|
$ |
(61) |
|
$ |
23 |
|
$ |
704 |
| ||
Diluted earnings per share(c) |
|
|
|
|
|
$ |
1.12 |
|
$ |
(0.09) |
|
$ |
0.03 |
|
$ |
1.06 |
| ||
Three Months Ended July 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Segment profit |
|
$ |
1,147 |
|
$ |
171 |
|
$ |
1,318 |
|
$ |
(36) |
|
$ |
|
|
$ |
1,282 |
|
Other net interest expense(a) |
|
|
|
|
|
163 |
|
10 |
|
|
|
173 |
| ||||||
Earnings before income taxes |
|
|
|
|
|
1,155 |
|
(46) |
|
|
|
1,109 |
| ||||||
Provision for income taxes(b) |
|
|
|
|
|
422 |
|
(13) |
|
(4) |
(d) |
405 |
| ||||||
Net earnings |
|
|
|
|
|
$ |
733 |
|
$ |
(33) |
|
$ |
4 |
|
$ |
704 |
| ||
Diluted earnings per share(c) |
|
|
|
|
|
$ |
1.07 |
|
$ |
(0.05) |
|
$ |
0.01 |
|
$ |
1.03 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Six Months Ended July 28, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Segment profit |
|
$ |
2,380 |
|
$ |
279 |
|
$ |
2,659 |
|
$ |
(125) |
|
$ |
|
|
$ |
2,534 |
|
Other net interest expense(a) |
|
|
|
|
|
323 |
|
38 |
|
|
|
361 |
| ||||||
Earnings before income taxes |
|
|
|
|
|
2,336 |
|
(163) |
|
|
|
2,173 |
| ||||||
Provision for income taxes(b) |
|
|
|
|
|
850 |
|
(47) |
|
(31) |
(d) |
772 |
| ||||||
Net earnings |
|
|
|
|
|
$ |
1,486 |
|
$ |
(116) |
|
$ |
31 |
|
$ |
1,401 |
| ||
Diluted earnings per share(c) |
|
|
|
|
|
$ |
2.23 |
|
$ |
(0.17) |
|
$ |
0.05 |
|
$ |
2.10 |
| ||
Six Months Ended July 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
2,209 |
|
$ |
365 |
|
$ |
2,574 |
|
$ |
(47) |
|
$ |
|
|
$ |
2,527 |
|
Other net interest expense(a) |
|
|
|
|
|
327 |
|
10 |
|
|
|
337 |
| ||||||
Earnings before income taxes |
|
|
|
|
|
2,247 |
|
(57) |
|
|
|
2,190 |
| ||||||
Provision for income taxes(b) |
|
|
|
|
|
822 |
|
(16) |
|
(9) |
(d) |
797 |
| ||||||
Net earnings |
|
|
|
|
|
$ |
1,425 |
|
$ |
(41) |
|
$ |
9 |
|
$ |
1,393 |
| ||
Diluted earnings per share(c) |
|
|
|
|
|
$ |
2.06 |
|
$ |
(0.06) |
|
$ |
0.01 |
|
$ |
2.02 |
|
Note: A non-GAAP financial measures summary is provided on page 15. The sum of the non-GAAP adjustments may not equal the total adjustment amounts due to rounding.
(a) Represents interest expense, net of interest income, not included in U.S. Credit Card segment profit. For the three and six months ended July 28, 2012, U.S. Credit Card segment profit included $3 million and $5 million of interest expense on nonrecourse debt collateralized by credit card receivables, compared with $18 million and $37 million in the respective prior year periods. These amounts, along with other net interest expense, equal consolidated GAAP net interest expense.
(b) Taxes are allocated to our business segments based on estimated income tax rates applicable to the operations of the segment for the period.
(c) For the three and six months ended July 28, 2012, average diluted shares outstanding were 662.9 million and 667.6 million, respectively, and for the three and six months ended July 30, 2011, average diluted shares outstanding were 685.1 million and 691.2 million, respectively.
(d) Represents the effect of resolution of income tax matters.
Analysis of Financial Condition
Liquidity and Capital Resources
Our period-end cash and cash equivalents balance was $1,442 million compared with $890 million for the same period in 2011. Short-term investments of $830 million and $116 million were included in cash and cash equivalents at the end of second quarter 2012 and 2011, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less. We also place certain dollar limits on our investments in individual funds or instruments.
Operations during the first six months of 2012 were funded by both internally and externally generated funds. Cash flow provided by operations was $2,471 million for the six months ended July 28, 2012 compared with $2,336 million for the same period in 2011. In June 2012, we issued $1.5 billion of unsecured debt that matures in July 2042. This cash flow, combined with our prior year-end cash position, allowed us to pay current debt maturities, fund capital expenditures, pay dividends and continue purchases under our share repurchase program.
Our period-end gross credit card receivables were $5,905 million at July 28, 2012 compared with $6,202 million at July 30, 2011, a decrease of 4.8 percent. Average gross credit card receivables during the six months ended July 28, 2012 decreased 5.5 percent compared with the six months ended July 30, 2011. This change was driven by the factors indicated in the U.S. Credit Card Segment section above. As of July 28, 2012, $1,500 million of our credit card receivables portfolio was funded by third parties. We are pursuing a sale of our credit card receivables portfolio, which would provide additional liquidity.
During first quarter 2012, we completed the $10 billion share repurchase program authorized by our Board of Directors in November 2007, and we began repurchasing shares under the $5 billion program authorized by our Board of Directors in January 2012. During the three and six months ended July 28, 2012, we repurchased 9.6 million shares and 20.2 million shares, respectively, of our common stock for a total investment of $549 million ($57.09 per share) and $1,153 million ($57.21 per share), respectively. During the three and six months ended July 30, 2011, we repurchased 14.3 million shares and 29.7 million shares, respectively, of our common stock for a total investment of $688 million ($48.11 per share) and $1,507 million ($50.81 per share), respectively.
We paid dividends totaling $198 million and $399 million for the three and six months ended July 28, 2012, and $172 million and $346 million during the three and six months ended July 30, 2011, an increase of 15.1 percent and 15.3 percent, respectively. We declared dividends totaling $235 million ($0.36 per share) in second quarter 2012, an increase of 15.8 percent over the $203 million ($0.30 per share) of declared dividends during the second quarter of 2011. We have paid dividends every quarter since our first dividend was declared following our 1967 initial public offering, and it is our intent to continue to do so in the future.
Our financing strategy is to ensure liquidity and access to capital markets, to manage our net exposure to floating interest rate volatility, and to maintain a balanced spectrum of debt maturities. Within these parameters, we seek to minimize our borrowing costs.
Our ability to access the long-term debt, commercial paper and securitized debt markets has provided us with ample sources of liquidity. Our continued access to these markets depends on multiple factors including the condition of debt capital markets, our operating performance and maintaining strong credit ratings. As of July 28, 2012 our credit ratings were as follows:
Credit Ratings |
Moodys |
Standard and Poors |
Fitch |
Long-term debt |
A2 |
A+ |
A- |
Commercial paper |
P-1 |
A-1 |
F2 |
If our credit ratings were lowered, our ability to access the debt markets, our cost of funds and other terms for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit rating will remain the same as described above.
As a measure of our financial condition we monitor our interest coverage ratio, representing the ratio of pretax earnings before fixed charges to fixed charges. Fixed charges include interest expense and the interest portion of rent expense. Our interest coverage ratio was 5.9x for the first six months of 2012, and 6.0x for the first six months of 2011.
An additional source of liquidity is available to us through a committed $2.25 billion revolving credit facility obtained through a group of banks in October 2011, which will expire in October 2016. No balances were outstanding at any time during the second quarter of 2012 or the second quarter of 2011.
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, at July 28, 2012, no notes or debentures contained provisions requiring acceleration of payment upon a debt rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control; and (ii) our long-term debt ratings are either reduced and the resulting rating is
non-investment grade, or our long-term debt ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.
We believe our sources of liquidity will continue to be adequate to maintain operations, finance anticipated expansion and strategic initiatives, pay dividends and continue purchases under our share repurchase program for the foreseeable future, and we continue to anticipate ample access to commercial paper and long-term financing.
Contractual Obligations and Commitments
A summary of future obligations under our various contractual obligations and commitments as of January 28, 2012 was disclosed in our 2011 10-K. During the three months ended July 28, 2012, there were no material changes outside the ordinary course of business. However, we continually evaluate opportunities to expand our operations, including internal development of new products, programs and technology applications and acquisitions.
New Accounting Pronouncements
We do not expect that any recently issued accounting pronouncements will have a material effect on our financial statements.
Forward-Looking Statements
This report contains forward-looking statements, which are based on our current assumptions and expectations. These statements are typically accompanied by the words expect, may, could, believe, would, might, anticipates, or words of similar import. The principal forward-looking statements in this report include: For our U.S. Credit Card Segment, aggregate portfolio risks and the level of the allowance for doubtful accounts, and the pursuit and timing of a portfolio sale; for our Canadian Segment, our performance and timing of our entry into Canada; on a consolidated basis, statements regarding the adequacy of and costs associated with our sources of liquidity, the continued execution of our share repurchase program, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, contributions related to our pension and postretirement health care plans, the adequacy of our reserves for claims and litigation, the expected outcome of claims and litigation, the expected ability to recognize deferred tax assets and liabilities, including foreign net operating loss carryforwards, and the resolution of tax matters.
All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth on our description of risk factors in Item 1A of our Form 10-K for the fiscal year ended January 28, 2012 and Item 1A of this Form 10-Q, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Form 10-K for the fiscal year ended January 28, 2012.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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 SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the
Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the second quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The following governmental enforcement proceedings relating to environmental matters are reported pursuant to instruction 5(C) of Item 103 of Regulation S-K because they involve potential monetary sanctions in excess of $100,000:
On May 17, 2012 the Environmental Protection Agency (EPA) Environmental Appeals Board issued a final order approving our $400,000 settlement with the EPA regarding the previously disclosed Finding of Violation (FOV) issued in March 2009 related to alleged violations of the Clean Air Act (CAA), specifically the National Emission Standards for Hazardous Air Pollutants (NESHAP) promulgated by the EPA for asbestos. The settlement and FOV pertained to the remodeling of certain Target stores between January 1, 2003 and October 28, 2007.
For a description of other legal proceedings, see Note 5 of the Notes to Consolidated Financial Statements included in Item 1, Financial Statements.
We are including the following revised risk factor, which should be read in conjunction with our description of risk factors in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended January 28, 2012:
If our efforts to protect the security of personal information about our guests and team members are unsuccessful, we could be subject to costly government enforcement actions and private litigation and our reputation could suffer.
The nature of our business involves the receipt and storage of personal information about our guests and team members. We have a program in place to detect and respond to data security incidents. To date, all incidents we have experienced have been insignificant. If we experience a significant data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our guests could lose confidence in our ability to protect their personal information, which could cause them to discontinue usage of our credit card products, decline to use our pharmacy services, or stop shopping at our stores or Target.com altogether. The loss of confidence from a data security breach involving team members could hurt our reputation and cause team member recruiting and retention challenges.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below presents information with respect to Target common stock purchases made during the three months ended July 28, 2012, by Target or any affiliated purchaser of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.
In January 2012, our Board of Directors authorized the repurchase of $5 billion of our common stock. There is no stated expiration for the share repurchase program. Since the inception of this share repurchase program, we have repurchased 15.2 million shares of our common stock, for a total cash investment of $874 million ($57.35 average price per share).
|
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|
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Total Number of |
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Dollar Value of |
| ||
|
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Total Number |
|
Average Price |
|
Shares Purchased |
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Shares that May |
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|
|
of Shares |
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Paid per |
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as Part of the |
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Yet Be Purchased |
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Period |
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Purchased(a)(b) |
|
Share(a) |
|
Current Program(a) |
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Under the Program |
| ||
April 29, 2012 through May 26, 2012 |
|
1,885,751 |
|
$ |
55.76 |
|
7,514,710 |
|
$ |
4,569,631,155 |
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May 27, 2012 through June 30, 2012 |
|
6,471,368 |
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57.41 |
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13,979,280 |
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4,198,507,422 |
| ||
July 1, 2012 through July 28, 2012 |
|
1,268,415 |
|
57.47 |
|
15,247,695 |
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4,125,616,447 |
| ||
|
|
9,625,534 |
|
$ |
57.09 |
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15,247,695 |
|
4,125,616,447 |
| |
(a) The table above includes shares reacquired upon settlement of prepaid forward contracts. For the three months ended July 28, 2012, 0.2 million shares were reacquired through these contracts. At July 28, 2012, we held asset positions in prepaid forward contracts for 1.2 million shares of our common stock, for a total cash investment of $53 million, or $44.70 per share.
(b) The number of shares above includes shares of common stock reacquired from team members who wish to tender owned shares to satisfy the tax withholding on equity awards as part of our long-term incentive plans or to satisfy the exercise price on stock option exercises. For the three months ended July 28, 2012, 8,438 shares were reacquired at an average per share price of $58.16 pursuant to our long-term incentive plan.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
(2)C |
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Second Amending Agreement dated June 18, 2012 to Amended and Restated Transaction Agreement among Zellers Inc., Hudsons Bay Company, Target Corporation and Target Canada Co. |
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(2)D |
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Third Amending Agreement dated June 18, 2012 to Amended and Restated Transaction Agreement among Zellers Inc., Hudsons Bay Company, Target Corporation and Target Canada Co. |
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(3)A |
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Amended and Restated Articles of Incorporation (as amended June 10, 2010)(1) |
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(3)B |
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By-laws (as amended through September 10, 2009)(2) |
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(10)G |
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Target Corporation Officer EDCP (2012 Plan Statement) (as amended and restated effective June 5, 2012) |
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(12) |
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Statements of Computations of Ratios of Earnings to Fixed Charges |
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(31)A |
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Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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(31)B |
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Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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(32)A |
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Certification of the Chief Executive Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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(32)B |
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Certification of the Chief Financial Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS |
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XBRL Instance Document |
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101.SCH |
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XBRL Taxonomy Extension Schema |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase |
(1) Incorporated by reference to Exhibit (3)A to the Registrants Form 8-K Report filed June 10, 2010
(2) Incorporated by reference to Exhibit (3)B to the Registrants Form 8-K Report filed September 10, 2009
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.
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TARGET CORPORATION | |
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Dated: August 23, 2012 |
By: |
/s/ John J. Mulligan |
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John J. Mulligan |
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Executive Vice President, |
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Chief Financial Officer |
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and Chief Accounting Officer |
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(Duly Authorized Officer and |
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Principal Financial Officer) |
Exhibit |
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Description |
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Manner of Filing |
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(2)C |
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Second Amending Agreement dated June 18, 2012 to Amended and Restated Transaction Agreement among Zellers Inc., Hudsons Bay Company, Target Corporation and Target Canada Co. |
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Filed Electronically |
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(2)D |
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Third Amending Agreement dated June 18, 2012 to Amended and Restated Transaction Agreement among Zellers Inc., Hudsons Bay Company, Target Corporation and Target Canada Co. |
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Filed Electronically |
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(3)A |
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Amended and Restated Articles of Incorporation (as amended June 10, 2010) |
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Incorporated by Reference |
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(3)B |
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By-Laws (as amended through September 10, 2009) |
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Incorporated by Reference |
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(10)G |
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Target Corporation Officer EDCP (2012 Plan Statement) (as amended and restated effective June 5, 2012) |
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Filed Electronically |
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(12) |
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Statements of Computations of Ratios of Earnings to Fixed Charges |
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Filed Electronically |
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(31)A |
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Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Filed Electronically |
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(31)B |
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Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Filed Electronically |
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(32)A |
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Certification of the Chief Executive Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Filed Electronically |
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(32)B |
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Certification of the Chief Financial Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Filed Electronically |
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101.INS |
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XBRL Instance Document |
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Filed Electronically |
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101.SCH |
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XBRL Taxonomy Extension Schema |
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Filed Electronically |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase |
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Filed Electronically |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase |
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Filed Electronically |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase |
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Filed Electronically |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase |
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Filed Electronically |
Exhibit (2)C
AGT VERSION
ZELLERS INC.,
HUDSONS BAY COMPANY,
TARGET CORPORATION,
and
TARGET CANADA CO.
SECOND AMENDING AGREEMENT
TO AMENDED AND RESTATED TRANSACTION AGREEMENT
DATED SEPTEMBER 12, 2011
As of June 18, 2012
SECOND AMENDING AGREEMENT
Second Amending Agreement dated June 18, 2012 between Zellers Inc. (Zellers), Hudsons Bay Company (HBC), Target Corporation (Target), and Target Canada Co.
RECITALS:
A. The Parties entered into a Transaction Agreement dated January 12, 2011, which was amended by First Amending Agreement dated February 17, 2011 and which was amended and restated pursuant to an Amended and Restated Transaction Agreement dated September 12, 2011, as amended by a First Amending Agreement dated January 20, 2012 (as amended and restated, the Transaction Agreement).
B. Pursuant to the Transaction Agreement the Parties entered into various Subleases relating to certain Subject Leased Properties (the Subleases).
C. The Parties wish to amend the Transaction Agreement as provided in this amending agreement (the Second Amending Agreement) and provide for the modification of the Vacancy Date (as defined in the Transaction Agreement) and Sublease Expiration Date (as defined in the Subleases) with respect to certain Subleases where such dates fall on days which neither Zellers nor Target Canada are conducting business.
In consideration of the above and the mutual agreements contained in this Second Amending Agreement (the receipt and adequacy of which are acknowledged), the parties agree as follows:
Section 1 Defined Terms.
Capitalized terms used in this Second Amending Agreement that are not defined in it have the meanings given to them in the Transaction Agreement.
Section 2 Vacancy Date and Sublease Expiration Date.
For the purpose of each Sublease referred to below, the Sublease Expiration Date will be the Vacancy Date specified in this Second Amendment Agreement.
Section 3 July Sublease Vacancies.
For the purpose of the Transaction Agreement and each applicable Sublease for which Target Canada has designated July 2, 2012 (but for avoidance of doubt not any Subleases with Designees) as the Sublease Expiration Date (the July Subleases) the Vacancy Date is amended to be June 29, 2012; provided however, that:
(i) |
notwithstanding such amendment payment of all rents, additional rents and other items of adjustment provided in the Transaction Agreement (including without limitation, Section 3.3 but excluding metered utilities) and/or each applicable Sublease will be made between the parties as if the Vacancy Date for each of the July Subleases is July 2, 2012, with all such amounts for such date being allocated to Zellers (the July Leases Adjustment Date); and |
(ii) |
notwithstanding the July Leases Adjustment Date, the June 29, 2012 date shall remain effective with respect to all other allocations of responsibility set forth in the Transaction Agreement and Subleases between the Parties with respect to the July Subleases, including without limitation, the adjustment of metered utilities, the date of surrender of possession, the termination of each July Sublease and the expiry of all of obligations of Zellers thereafter accruing relating to insurance, maintenance and repair of the each such Subject Leased Premises. |
Section 4 Reference to and Effect on the Transaction Agreement
On and after the date of this Second Amending Agreement, any reference to this Agreement in the Transaction Agreement and any reference to the Transaction Agreement in any other agreements will mean the Transaction Agreement as amended by this Second Amending Agreement. Except as specifically amended by this Second Amending Agreement, the provisions of the Transaction Agreement remain in full force and effect.
Section 5 Entire Agreement.
This Second Amending Agreement constitutes the entire agreement between the parties with respect to the amendments contemplated in this Second Amending Agreement and except to the extent restated in this Second Amending Agreement supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties, the purpose of which were to amend the Transaction Agreement. The Parties have not relied and are not relying on any other information, discussion or understanding in implementing the amendments contemplated by this Second Amending Agreement.
Section 6 Successors and Assigns.
This Second Amending Agreement becomes effective when executed by all of the parties. After that time, it is binding upon and enures to the benefit of the parties and their respective successors and permitted assigns.
Section 7 Governing Law.
(a) This Second Amending Agreement is governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.
(b) Each Party irrevocably attorns and submits to the exclusive jurisdiction of the Ontario courts situated in the City of Toronto and waives objection to the venue of any proceeding in such court or that such court provides an inconvenient forum.
Section 8 Counterparts.
This Second Amending Agreement may be executed in any number of counterparts (including counterparts by facsimile) and all such counterparts taken together constitute one and the same instrument.
(Remainder of the page intentionally left blank. Signature page follows.)
IN WITNESS WHEREOF the Parties have executed this Second Amending Agreement.
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ZELLERS INC. | ||
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By: |
/s/ Bruce Moore |
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Authorized Signing Officer |
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Dated: |
June 15, 2012 | |
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HUDSONS BAY COMPANY | ||
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By: |
/s/ Bruce Moore |
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Authorized Signing Officer |
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Dated: |
June 15, 2012 | |
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TARGET CORPORATION | ||
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By: |
/s/ John J. Mulligan |
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Authorized Signing Officer |
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Dated: |
June 14, 2012 | |
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TARGET CANADA CO. | ||
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By: |
/s/ John D. Griffith |
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Authorized Signing Officer |
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Dated: |
June 14, 2012 |
Exhibit (2)D
AGT VERSION
ZELLERS INC.,
HUDSONS BAY COMPANY,
TARGET CORPORATION,
and
TARGET CANADA CO.
THIRD AMENDING AGREEMENT
TO AMENDED AND RESTATED TRANSACTION AGREEMENT
DATED SEPTEMBER 12, 2011
As of June 18, 2012
THIRD AMENDING AGREEMENT
Third Amending Agreement dated June 18, 2012 between Zellers Inc. (Zellers), Hudsons Bay Company (HBC), Target Corporation (Target), and Target Canada Co.
RECITALS:
A. The Parties entered into a Transaction Agreement dated January 12, 2011, which was amended by First Amending Agreement dated February 17, 2011 and which was amended and restated pursuant to an Amended and Restated Transaction Agreement dated September 12, 2011, as amended by a First Amending Agreement dated January 20, 2012 and a Second Amending Agreement dated June 18, 2012 (as amended and restated, the Transaction Agreement).
B. Pursuant to the Transaction Agreement the Parties entered into various Subleases relating to certain Subject Leased Properties (the Subleases).
C. The Parties wish to amend the Transaction Agreement as provided in this amending agreement (the Third Amending Agreement) and provide for the modification of the Vacancy Date (as defined in the Transaction Agreement) and Sublease Expiration Date (as defined in the Subleases) with respect to certain Subleases where such dates fall on days which neither Zellers nor Target Canada are conducting business.
In consideration of the above and the mutual agreements contained in this third Amending Agreement (the receipt and adequacy of which are acknowledged), the parties agree as follows:
Section 1 Defined Terms.
Capitalized terms used in this Third Amending Agreement that are not defined in it have the meanings given to them in the Transaction Agreement.
Section 2 Vacancy Date and Sublease Expiration Date.
For the purpose of each Sublease referred to below, the Sublease Expiration Date will be the Vacancy Date specified in this Third Amendment Agreement.
Section 3 March Sublease Vacancies.
For the purpose of the Transaction Agreement and each applicable Sublease (but for avoidance of doubt not any Subleases with Designees) for which Target Canada has designated March 31, 2013, or for which no date is designated (the March Subleases) the Vacancy Date is amended to be March 28, 2013; provided however, that:
(i) notwithstanding such amendment payment of all rents, additional rents and other items of adjustment provided in the Transaction Agreement (including without limitation, Section 3.3 but excluding metered utilities) and/or each applicable Sublease will be made between the parties as if the Vacancy Date for each of the March Subleases is
March 31, 2012, with all such amounts for such date being allocated to Zellers (the March Leases Adjustment Date); and
(ii) notwithstanding the March Leases Adjustment Date, the March 28, 2013 date shall remain effective with respect to all other allocations of responsibility set forth in the Transaction Agreement and Subleases between the Parties with respect to the applicable March Subleases, including without limitation, the adjustment of metered utilities, the date of surrender of possession, the termination of each March Sublease and the expiry of all of obligations of Zellers thereafter accruing relating to insurance, maintenance and repair of the each such Subject Leased Premises.
Section 4 Reference to and Effect on the Transaction Agreement
On and after the date of this Third Amending Agreement, any reference to this Agreement in the Transaction Agreement and any reference to the Transaction Agreement in any other agreements will mean the Transaction Agreement as amended by this Third Amending Agreement. Except as specifically amended by this Third Amending Agreement, the provisions of the Transaction Agreement remain in full force and effect.
Section 5 Entire Agreement.
This Third Amending Agreement constitutes the entire agreement between the parties with respect to the amendments contemplated in this Third Amending Agreement and except to the extent restated in this Third Amending Agreement supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties, the purpose of which were to amend the Transaction Agreement. The Parties have not relied and are not relying on any other information, discussion or understanding in implementing the amendments contemplated by this Third Amending Agreement.
Section 6 Successors and Assigns.
This Third Amending Agreement becomes effective when executed by all of the parties. After that time, it is binding upon and enures to the benefit of the parties and their respective successors and permitted assigns.
Section 7 Governing Law.
(a) This Third Amending Agreement is governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.
(b) Each Party irrevocably attorns and submits to the exclusive jurisdiction of the Ontario courts situated in the City of Toronto and waives objection to the venue of any proceeding in such court or that such court provides an inconvenient forum.
Section 8 Counterparts.
This Third Amending Agreement may be executed in any number of counterparts (including counterparts by facsimile) and all such counterparts taken together constitute one and the same instrument.
(Remainder of the page intentionally left blank. Signature page follows.)
IN WITNESS WHEREOF the Parties have executed this Third Amending Agreement.
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ZELLERS INC. | |
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By: |
/s/ Bruce Moore |
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Authorized Signing Officer |
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Dated: |
August 9, 2012 |
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HUDSONS BAY COMPANY | |
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By: |
/s/ Bruce Moore |
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Authorized Signing Officer |
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Dated: |
August 9, 2012 |
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TARGET CORPORATION | |
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By: |
/s/ John J. Mulligan |
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Authorized Signing Officer |
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Dated: |
July 16, 2012 |
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TARGET CANADA CO. | |
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By: |
/s/ John D. Griffith |
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Authorized Signing Officer |
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Dated: |
July 16, 2012 |
Exhibit (10)G
TARGET CORPORATION
OFFICER EDCP
(2012 PLAN STATEMENT)
Effective June 5, 2012
as Amended and Restated
TARGET CORPORATION
OFFICER EDCP
(2012 Plan Statement)
TABLE OF CONTENTS
SECTION 1 INTRODUCTION; DEFINITIONS |
1 | ||
1.1 |
Name of Plan; History |
1 | |
1.2 |
Definitions |
1 | |
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1.2.1 |
Account |
1 |
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1.2.2 |
Affiliate |
2 |
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1.2.3 |
Base Salary |
2 |
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1.2.4 |
Beneficiary |
2 |
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1.2.5 |
Board |
2 |
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1.2.6 |
Bonus |
2 |
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1.2.7 |
Certified Earnings |
2 |
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1.2.8 |
Change-in-Control |
2 |
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1.2.9 |
Code |
3 |
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1.2.10 |
[Intentionally left blank.] |
4 |
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1.2.11 |
Company |
4 |
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1.2.12 |
Companys Fiscal Year |
4 |
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1.2.13 |
Crediting Rate Alternative |
4 |
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1.2.14 |
Deferral Credit |
4 |
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1.2.15 |
Disabled |
4 |
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1.2.16 |
Discretionary Credit |
4 |
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1.2.17 |
Earnings Credit |
4 |
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1.2.18 |
EDCP |
4 |
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1.2.19 |
Effective Date |
4 |
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1.2.20 |
Eligible Compensation |
4 |
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1.2.21 |
Employee |
4 |
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1.2.22 |
Enhancement |
4 |
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1.2.23 |
ERISA |
4 |
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1.2.24 |
ESBP |
5 |
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1.2.25 |
ESBP Benefit |
5 |
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1.2.26 |
ESBP Benefit Transfer Credits |
5 |
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1.2.27 |
Newly Eligible Employee |
5 |
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1.2.28 |
Officer |
5 |
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1.2.29 |
Participant |
5 |
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1.2.30 |
Participating Employer |
5 |
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1.2.31 |
Performance Share Award |
5 |
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1.2.32 |
Plan |
5 |
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1.2.33 |
Plan Administrator |
6 |
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1.2.34 |
Plan Rules |
6 |
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1.2.35 |
Plan Statement |
6 |
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1.2.36 |
Plan Year |
6 |
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1.2.37 |
Restoration Match Credit |
6 |
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1.2.38 |
Signing Bonus |
6 |
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1.2.39 |
SPP Benefit |
6 |
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1.2.40 |
SPP Benefit Transfer Credit |
6 |
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1.2.41 |
Specified Employee |
6 |
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1.2.42 |
Target 401(k) Plan |
6 |
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1.2.43 |
Target Pension Plan |
6 |
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1.2.44 |
Termination of Employment |
6 |
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1.2.45 |
Trust |
7 |
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1.2.46 |
Unforeseeable Emergency |
7 |
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1.2.47 |
Valuation Date |
7 |
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1.2.48 |
Year of Service |
7 |
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SECTION 2 PARTICIPATION AND DEFERRAL ELECTIONS |
8 | ||
2.1 |
Eligibility |
8 | |
2.2 |
Special Rules for Participating Employees |
8 | |
2.3 |
Termination of Participation |
8 | |
2.4 |
Rehires and Transfers |
9 | |
2.5 |
Effect on Employment |
9 | |
2.6 |
Condition of Participation |
9 | |
2.7 |
Deferral Elections |
10 | |
2.8 |
Base Salary Deferrals |
10 | |
2.9 |
Bonus Deferrals |
11 | |
2.10 |
Performance Share Award Deferrals |
11 | |
2.11 |
Special Code Section 162(m) Deferral Elections |
11 | |
2.12 |
Cancellation of Deferral Elections |
12 | |
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SECTION 3 CREDITS TO ACCOUNTS |
13 | ||
3.1 |
Elective Deferral Credit |
13 | |
3.2 |
Restoration Match Credit |
13 | |
3.3 |
SPP Benefit Transfer Credits |
13 | |
3.4 |
ESBP Benefit Transfer Credits |
15 | |
3.5 |
Discretionary Credits |
16 | |
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SECTION 4 ADJUSTMENTS OF ACCOUNTS |
17 | ||
4.1 |
Establishment of Accounts |
17 | |
4.2 |
Adjustments of Accounts |
17 | |
4.3 |
Investment Adjustment |
17 | |
4.4 |
Enhancement |
17 | |
4.5 |
Account Adjustments Upon a Change-in-Control or Plan Termination |
18 | |
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SECTION 5 VESTING |
19 | ||
5.1 |
Deferral Credits and Restoration Match Credits |
19 | |
5.2 |
Discretionary Credits |
19 | |
5.3 |
Enhancement |
19 | |
5.4 |
SPP Benefit Transfer Credit |
19 | |
5.5 |
ESBP Benefit Transfer Credit |
19 | |
5.6 |
Failure to Cooperate; Misinformation or Failure to Disclose |
19 | |
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SECTION 6 DISTRIBUTION |
20 | ||
6.1 |
Distribution Elections |
20 | |
6.2 |
General Rule |
20 | |
6.3 |
Six-Month Suspension for Specified Employees |
23 | |
6.4 |
Distribution on Account of Death |
23 | |
6.5 |
Distribution on Account of Unforeseeable Emergency |
23 | |
6.6 |
Designation of Beneficiaries |
23 |
6.7 |
Facility of Payment |
25 |
6.8 |
Tax Withholding |
25 |
6.9 |
Payments Upon Rehire |
25 |
6.10 |
Application for Distribution |
25 |
6.11 |
Acceleration of Distributions |
26 |
6.12 |
Delay of Distributions |
26 |
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SECTION 7 SOURCE OF PAYMENTS; NATURE OF INTEREST |
27 | |
7.1 |
Source of Payments |
27 |
7.2 |
Unfunded Obligation |
27 |
7.3 |
Establishment of Trust |
27 |
7.4 |
Spendthrift Provision |
27 |
7.5 |
Compensation Recovery (Recoupment) |
28 |
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SECTION 8 ADOPTION, AMENDMENT AND TERMINATION |
29 | |
8.1 |
Adoption |
29 |
8.2 |
Amendment |
29 |
8.3 |
Termination and Liquidation |
29 |
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SECTION 9 CLAIM PROCEDURES |
31 | |
9.1 |
Claims Procedure |
31 |
9.2 |
Rules and Regulations |
32 |
9.3 |
Limitations and Exhaustion |
33 |
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SECTION 10 PLAN ADMINISTRATION |
35 | |
10.1 |
Plan Administration |
35 |
10.2 |
Conflict of Interest |
35 |
10.3 |
Service of Process |
36 |
10.4 |
Choice of Law |
36 |
10.5 |
Responsibility for Delegate |
36 |
10.6 |
Expenses |
36 |
10.7 |
Errors in Computations |
36 |
10.8 |
Indemnification |
36 |
10.9 |
Notice |
36 |
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SECTION 11 CONSTRUCTION |
37 | |
11.1 |
ERISA Status |
37 |
11.2 |
IRC Status |
37 |
11.3 |
Rules of Document Construction |
37 |
11.4 |
References to Laws |
37 |
11.5 |
Appendices |
37 |
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APPENDIX A |
38 | |
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APPENDIX B |
41 |
SECTION 1
INTRODUCTION; DEFINITIONS
1.1 Name of Plan; History. This Plan (formerly known as the Target Corporation SMG Executive Officer Deferred Compensation Plan) is a non-qualified, unfunded plan established for the purpose of allowing a select group of management or highly compensated employees to defer the receipt of income. This Plan was originally adopted effective as of January 1, 1997 and was amended at various times thereafter. Effective April 30, 2002, Participants in this Plan who were members of the Companys Corporate Operating Committee received credits under this Plan equal to the present value of their benefit under the supplemental pension plans maintained by the Company. Each subsequent April, the Participant receives annual SPP Benefit Transfer Credits equal to the change in value of his or her benefit under the supplemental pension plans. Effective July 31, 2002, this program was extended to include all officers of the Company. Effective April 30, 2002, Participants in this Plan who were members of the Companys Corporate Operating Committee received credits under this Plan equal to the present value of their benefit under the Companys ESBP. Each subsequent April, Participants received annual credits equal to the change in value of his or her benefit under the ESBP. Effective October 28, 2005, all officers who had not previously received ESBP Benefit Transfer Credits, received a one-time transfer of the present value of their benefit under the ESBP. As of January 28, 2006, a one-time ESBP credit was made to certain executive committee members and no subsequent ESBP Benefit Transfer Credits were made to those receiving the one-time ESBP credit. From time to time, certain participants in the Target Corporation Deferred Compensation Plan Senior Management Group (ODCP) and the Company negotiated to transfer the economic value of their benefit under ODCP to this Plan. Officers eligible to receive performance share awards granted in the fiscal years ending February 1, 2003 and January 31, 2004 had an opportunity to defer receipt of the value of the earned performance shares into this Plan at the end of the performance period. The performance period for the shares granted in 2003 ended February 3, 2007. The performance period for the shares granted in 2004 ended February 2, 2008. Effective January 1, 2005 (and other effective dates as specifically provided), this Plan was operated in compliance with Code section 409A. Effective January 29, 2006, members of the Companys executive committee ceased to be eligible to receive enhanced earnings on their account balances. The Plan, which is intended to comply with Code section 409A, was amended and restated effective January 1, 2009. The Plan was amended and restated to incorporate the Companys recoupment policy effective January 13, 2010. The Plan was amended and restated to reflect Plan administration and amendment changes authorized by the Board on November 10, 2010, to modify the Change in Control definition, and to set forth special provisions that are applicable to certain Participants who transfer to Canada, effective as of June 8, 2011. This Plan Statement, which was amended and restated to reflect the replacement of the Stable Value Crediting Rate Alternative with the Intermediate-Term Bond Crediting Rate Alternative beginning June 6, 2012, is effective June 5, 2012.
1.2 Definitions. When the following terms are used herein with initial capital letters, they shall have the following meanings:
1.2.1 Account. Account means the separate bookkeeping account representing the separate unfunded and unsecured general obligation of the Participating Employers established with respect to each person who is a Participant in this Plan. Within each Participants Account, separate subaccounts shall be maintained to the extent the Plan Administrator determines it to be necessary or desirable for the administration of this Plan.
1.2.2 Affiliate. An Affiliate is the Company and all persons, with whom the Company would be considered a single employer under Code section 414(b) or 414(c).
1.2.3 Base Salary. Base Salary with respect to a Plan Year means Certified Earnings as modified by the rules below:
(a) the limits imposed by Code section 401(a)(17) will not apply;
(b) deferrals under Section 2.8 of this Plan are included as Base Salary; and
(c) Bonus and Signing Bonus amounts are not included as Base Salary.
1.2.4 Beneficiary. Beneficiary means an individual (human being), a trust that is a United Sates person within the meaning of the Code, a person that has been recognized as a charitable organization under Code section 170(b), or the Participants estate designated in accordance with Section 6.7 to receive all or a part of the Participants Account in the event of the Participants death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Participant.
1.2.5 Board. Board is the Board of Directors of the Company, or such committee of the Board of Directors to which the Board of Directors of the Company has delegated the respective authority.
1.2.6 Bonus. Bonus with respect to a Plan Year means that portion of Certified Earnings that is equal to the amount payable under any regular incentive plan of a Participating Employer that is earned, or intended to be earned, over a period of at least a calendar year or fiscal year as modified by the rules below:
(a) the limits imposed by Code section 401(a)(17) will not apply;
(b) deferrals under Section 2.9 of this Plan are included as Bonus; and
(c) Signing Bonus amounts are not included as Bonus.
1.2.7 Certified Earnings. Certified Earnings has the same meaning as the defined term in the Target 401(k) Plan (determined without regard to the 30-day receipt rule); provided, however, Certified Earnings shall not include compensation that is accrued for any period following a Participants Termination of Employment.
1.2.8 Change in Control. Change-in-Control means one of the following:
(a) Individuals who are Continuing Directors cease for any reason to constitute 50% or more of the directors of the Company; or
(b) 30% or more of the outstanding voting power of the Voting Stock of the Company is acquired or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by any Person, other than an entity resulting from a Business Combination in which clauses (x) and (y) of Section 1.2.8(c) apply; or
(c) the consummation of a merger or consolidation of the Company with or into another entity, a statutory share exchange, a sale or other disposition (in one
transaction or a series of transactions) of all or substantially all of the Companys assets or a similar business combination (each, a Business Combination), in each case unless, immediately following such Business Combination, (x) all or substantially all of the beneficial owners (within the meaning of Rule 13d-3 under the Exchange Act) of the Companys Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the voting power of the then outstanding shares of voting stock (or comparable voting equity interests) of the surviving or acquiring entity resulting from such Business Combination (including such beneficial ownership of an entity that, as a result of such transaction, owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries), in substantially the same proportions (as compared to the other beneficial owners of the Companys Voting Stock immediately prior to such Business Combination) as their beneficial ownership of the Companys Voting Stock immediately prior to such Business Combination, and (y) no Person beneficially owns, directly or indirectly, 30% or more of the voting power of the outstanding voting stock (or comparable equity interests) of the surviving or acquiring entity (other than a direct or indirect parent entity of the surviving or acquiring entity, that, after giving effect to the Business Combination, beneficially owns, directly or indirectly, 100% of the outstanding voting stock (or comparable equity interests) of the surviving or acquiring entity); or
(d) approval by the shareholders of a definitive agreement or plan to liquidate or dissolve the Company.
For purposes of this Section 1.2.8:
Continuing Director means an individual (A) who is, as of June 8, 2011, a director of the Company, or (B) who becomes a director of the Company after June 8, 2011, and whose initial appointment, or nomination for election by the Companys shareholders, was approved by at least a majority of the then Continuing Directors; provided, however, that any individual whose initial assumption of office occurs as a result of either an actual or threatened contested election by any Person (other than the Board of Directors) seeking the election of such nominee in which the number of nominees exceeds the number of directors to be elected shall not be a Continuing Director;
Person means any individual, firm, corporation or other entity and shall include any group comprised of any person and any other person with whom such person or any affiliate or associate (as defined in Rule 14a-1(a) of the Exchange Act) of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of any capital stock of the Company;
Voting Stock means all then-outstanding capital stock of the Company entitled to vote generally in the election of directors of the Company; and
Exchange Act means the Securities Exchange Act of 1934, as amended and in effect from time to time, and the regulations promulgated thereunder.
1.2.9 Code. Code means the Internal Revenue Code of 1986, as amended (including, when the context requires, all regulations, interpretations and rulings issued hereunder).
1.2.10 [Intentionally left blank.]
1.2.11 Company. Company means Target Corporation, a Minnesota corporation, or any successor thereto.
1.2.12 Companys Fiscal Year. Companys Fiscal Year means the period commencing on the Sunday that immediately follows the Saturday that is nearest to the last day in January through the Saturday that is nearest to the last day in January in the following year.
1.2.13 Crediting Rate Alternative. Crediting Rate Alternative means a hypothetical investment option used for the purpose of measuring income, gains and losses to the Accounts of Participants (as if the Accounts had in fact been so invested). The Crediting Rate Alternatives shall be designated in writing by the Plan Administrator.
1.2.14 Deferral Credit. A Deferral Credit is the amount credited to a Participants Account pursuant to Section 3.1.
1.2.15 Disabled. A Participant will be Disabled if he or she has become entitled to receive disability income benefits under the provisions of the Social Security Act.
1.2.16 Discretionary Credit. A Discretionary Credit is the amount credited to a Participants Account pursuant to Section 3.5.
1.2.17 Earnings Credit. Earnings Credit means the investment adjustment credited to a Participants Account pursuant to Section 4.3 or Section 4.5 as applicable.
1.2.18 EDCP. EDCP means the Target Corporation EDCP, a non-qualified, unfunded deferred compensation plan maintained by the Company and certain other Affiliates.
1.2.19 Effective Date. The Effective Date of this Plan Statement is June 5, 2012, except as otherwise provided.
1.2.20 Eligible Compensation. Eligible Compensation means, the Base Salary, Bonus and Performance Share Award that the Participant receives or is entitled to receive from his or her Participating Employer for services rendered.
1.2.21 Employee. An Employee is an individual who performs services for a Participating Employer as an employee of the Participating Employer (as classified by the Participating Employer at the time the services are preformed and without regard to any subsequent reclassification) and does not include any individual who is classified an independent contractor.
1.2.22 Enhancement. Enhancement means an additional .1667% of investment earnings per month added to the applicable Crediting Rate Alternatives as provided in Section 4.4.
1.2.23 ERISA. ERISA means the Employee Retirement Income Security Act of 1974, as amended (including, when the context requires, all regulations, interpretations and rulings issued thereunder).
1.2.24 ESBP. ESBP means the Target Corporation Post Retirement Executive Survivor Benefit Plan.
1.2.25 ESBP Benefit. ESBP Benefit means the actuarial lump sum present value of a Participants survivor benefit under the ESBP determined as of a particular determination date under Section 3.4 but without regard to whether the Participant had experienced either an early retirement or normal retirement under the Target Pension Plan as provided under the ESBP. The present value of such survivor benefit will be determined by the Company in its sole and absolute discretion based on such interest rates, mortality factors and other assumptions deemed appropriate by the Company.
1.2.26 ESBP Benefit Transfer Credits. ESBP Benefit Transfer Credits are the initial and annual credits to a Participants Account under Section 3.4.
1.2.27 Newly Eligible Employee. Newly Eligible Employee means an Employee who either (i) was not previously eligible to participate in this Plan or any other non-qualified, deferred compensation plans maintained by a Participating Employer or other Affiliate, (ii) had been paid all amounts previously deferred under all non-qualified, deferred compensation plans maintained by a Participating Employer or other Affiliate and had ceased to be eligible to continue to participate in such plans on or before the date of payment of all amounts due under such plans, or (iii) was not eligible to participate in any non-qualified deferred compensation plans (other than the accrual of earnings) maintained by a Participating Employer or other Affiliate at any time during the 24-month period ending on the date the Employee has again become eligible to participate in the Plan.
1.2.28 Officer. An Officer is a member of the executive committee and any other Employee who is designated and categorized as an officer of the Company by the Companys Chief Executive Officer.
1.2.29 Participant. A Participant is an Employee who becomes a Participant in this Plan in accordance with the provisions of Section 2. An Employee who has become a Participant shall be considered to continue as a Participant in this Plan until the date when the Participant no longer has any Account under this Plan, or the date of the Participants death, if earlier.
1.2.30 Participating Employer. Participating Employer means the Company and each other Affiliate that, with the consent of the Plan Administrator, adopts this Plan. A Participating Employer shall cease to be a Participating Employer on the date it ceases to be an Affiliate.
1.2.31 Performance Share Award. Performance Share Award means a performance share award issued under the Companys Long-Term Incentive Plan of 1999 or the Companys Long-Term Incentive Plan of 2004.
1.2.32 Plan. Plan means the nonqualified, unfunded income deferral program maintained by the Company and established for the benefit of Participants eligible to participate therein, as set forth in this Plan Statement. As used herein, Plan does not refer to the documents pursuant to which this Plan is maintained. That document is referred to herein as the Plan Statement. The Plan shall be referred to as the Target Corporation Officer EDCP (formerly known as the Target Corporation SMG Executive Deferred Compensation Plan).
1.2.33 Plan Administrator. Plan Administrator is the individual designated in Sec. 10.1.1, or, if applicable, its delegate.
1.2.34 Plan Rules. Plan Rules are rules, policies, practices or procedures adopted by the Plan Administrator or its delegate pursuant to Section 10.1.5.
1.2.35 Plan Statement. Plan Statement means this document entitled Target Corporation Officer EDCP (2012 Plan Statement), as adopted by the Company, effective as of June 5, 2012, as the same may be amended from time to time.
1.2.36 Plan Year. Plan Year means the period from January 1 through December 31.
1.2.37 Restoration Match Credit. Restoration Match Credit is the amount credited to a Participants Account pursuant to Section 3.2.
1.2.38 Signing Bonus. Signing Bonus is the cash remuneration earned following a period of employment provided to certain new Employees related to their acceptance of employment with a Participating Employer.
1.2.39 SPP Benefit. SPP Benefit means the amount determined under Appendix A.
1.2.40 SPP Benefit Transfer Credit. SPP Benefit Transfer Credit is the amount credited to a Participants Account under Section 3.3.
1.2.41 Specified Employee. For purposes of complying with the requirements of Code section 409A(a)(2)(B)(i) (relating to the 6 month suspension of certain benefit distributions), an individual is a Specified Employee if on his or her Termination of Employment, the Company or other Affiliate has stock that is traded on an established securities market within the meaning of Code section 409A(a)(2)(B) and such individual is a key employee (defined below). For this purpose, an individual is a key employee during the 12-month period beginning on April 1 immediately following the calendar year in which the individual was employed by the Company and other Affiliates, and satisfied, at any time within such calendar year, the requirements of Code section 416(i)(1)(A)(i), (ii) or (iii) (without regard to Code section 416(i)(5)). An individual will not be treated as a Specified Employee if the individual is not required to be treated as a Specified Employee under Treasury Regulations issued under Code section 409A.
1.2.42 Target 401(k) Plan. Target 401(k) Plan means the tax-qualified defined contribution retirement plan, with a qualified cash or deferred arrangement, established by the Company for the benefit of employees eligible to participate therein, and known as the Target Corporation 401(k) Plan.
1.2.43 Target Pension Plan. Target Pension Plan means the tax qualified defined benefit pension plan, established for the benefit of employees eligible to participate therein, and known as the Target Corporation Pension Plan, including any predecessor plan(s) or successor plan.
1.2.44 Termination of Employment.
(a) For purposes of determining entitlement to or the amount of benefits under the Plan, Termination of Employment means a severance of a Participants
employment relationship with each Participating Employer and all Affiliates, for any reason.
(b) For purposes of determining when a distribution will be made under the Plan, a Termination of Employment will be deemed to occur if, based on the relevant facts and circumstances to the Participant, the Participating Employer, all Affiliates and Participant reasonably anticipate that the level of bona fide future services to be performed by the Participant for the Participating Employer and all Affiliates will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period.
(c) A bona fide leave of absence that is six months or less, or during which an individual retains a reemployment right, will not cause a Termination of Employment. In the case of a leave of absence without a right of reemployment that exceeds the time periods described in this paragraph, a Termination of Employment will be deemed to occur once the leave of absence exceeds six months.
(d) Notwithstanding the foregoing, a Termination of Employment shall not occur unless such termination also qualifies as a separation from service, as defined under Code section 409A and related guidance thereunder.
1.2.45 Trust. Trust means the Target Corporation Deferred Compensation Trust Agreement, dated January 1, 2009 by and between the Company and State Street Bank and Trust Company, as it is amended from time to time, or similar trust agreement.
1.2.46 Unforeseeable Emergency. Unforeseeable Emergency means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participants spouse, or a dependent (within the meaning of Code section 152(a)) of the Participant, loss of the Participants property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, but only if and to the extent such Unforeseeable Emergency constitutes an unforeseeable emergency under Code section 409A.
1.2.47 Valuation Date. Valuation Date means each business day on which the New York Stock Exchange is open.
1.2.48 Year of Service. A Year of Service means each 12-consecutive month period an individual is an Employee after the date the individual is first eligible to participate under this Plan or any other non-qualified deferred compensation plan maintained by a Participating Employer.
SECTION 2
PARTICIPATION AND DEFERRAL ELECTIONS
2.1 Eligibility.
2.1.1 An Employee is eligible to participate in this Plan on the first day of a Plan Year if, on such day, he or she:
(a) is a qualified employee as that term is defined in the Target 401(k) Plan; and
(b) is an Officer.
2.1.2 A Newly Eligible Employee is eligible to participate in this Plan on the date that is 30 days after he or she satisfies the requirements in Section 2.1.1.
2.1.3 An Employee shall, as a condition of participation in this Plan, complete such forms and make such elections in accordance with Plan Rules as the Plan Administrator may require. An Employee who satisfies the requirements of this Section 2.1 is eligible to participate in this Plan in accordance with and subject to the requirements of this Plan.
2.1.4 An Employee who has had a Termination of Employment as defined in Section 1.2.44(b), will not be eligible to make deferral elections for subsequent Plan Years until otherwise notified by the Plan Administrator. Any deferral election in effect at the time of such Termination of Employment will continue to apply with respect to any Eligible Compensation received from a Participating Employer or other Affiliate. Such Employee will still be eligible to receive credits, if any, pursuant to Sections 3.2, 3.3, 3.4 and 3.5.
2.2 Special Rules for Participating Employees. A Participant who transfers employment from one Participating Employer to another Affiliate, whether or not a Participating Employer will, for the duration of the Plan Year in which the transfer occurs, continue to participate in this Plan in accordance with the deferral election in effect at the time of such transfer. A Participant who is simultaneously employed with more than one Participating Employer will participate in this Plan as an Employee of each such Participating Employer on the basis of a single deferral election applied separately to his or her respective, Eligible Compensation from each Participating Employer.
2.3 Termination of Participation. Except as otherwise specifically provided in this Plan Statement or by the Plan Administrator, an Employee who ceases to satisfy the requirements of Section 2.1 is not eligible to continue to participate in the Plan, provided, that any deferral elections in effect, and irrevocable, will continue to apply with respect to any Eligible Compensation received from a Participating Employer or other Affiliate. The Participants Account will continue to be governed by the terms of the Plan until such time as the Participants Account balance is paid in accordance with the terms of the Plan. A Participant or Beneficiary will cease to be such as of the date on which his or her entire Account balance has been distributed.
2.4 Rehires and Transfers.
2.4.1 A Participant who incurs a Termination of Employment and is rehired during the same calendar year will continue Base Salary deferrals for such calendar year in accordance with his or her election in effect immediately prior to the Termination of Employment.
2.4.2 A Participant who incurs a Termination of Employment and is rehired prior to the later of the end of the Plan Year or the date the Bonus for such Plan Year is paid in cash, will continue Bonus Deferrals for such Plan Year in accordance with his or her election in effect immediately prior to the Termination of Employment.
2.4.3 Transfers from Non-Officer Plan. An Employee who is a Participant in the EDCP and is promoted to an Officer position will cease to be eligible to participate in the EDCP and will be eligible to participate in this Plan, subject to the following rules:
(a) The Employee will become a Participant in this Plan immediately upon satisfying the requirements to participate hereunder.
(b) The Employees deferral elections made under the EDCP will transfer to the Plan and continue as an election made under Section 2.
(c) The Employees account maintained under the EDCP will be transferred to the Employees Account under this Plan.
(d) The Employees distribution elections made under the EDCP (including any default distributions) will transfer to this Plan and continue as the distribution elections made under this Plan.
(e) The Employees beneficiary designation made under the EDCP will be treated as the Employees Beneficiary designation under this Plan until changed in accordance with Section 6.7.
2.5 Effect on Employment.
2.5.1 Not a Term of Employment. Neither the terms of this Plan Statement nor the benefits under this Plan (including the continuance thereof) shall be a term of the employment of any Employee.
2.5.2 Not an Employment Contract. This Plan is not and shall not be deemed to constitute a contract of employment between any Participating Employer and any Employee or other person, nor shall anything herein contained be deemed to give any Employee or other person any right to be retained in any Participating Employers employ or in any way limit or restrict any Participating Employers right or power to discharge any Employee or other person at any time and to treat him or her without regard to the effect that such treatment might have upon him or her as a Participant in this Plan.
2.6 Condition of Participation
2.6.1 Cooperation. Each Participant shall cooperate with the Plan Administrator by furnishing any and all information requested by the Plan Administrator in order to facilitate the payment of benefits hereunder and taking such other relevant action as may be requested by the
Plan Administrator. If a Participant refuses to cooperate, neither the Company nor any Participating Employer shall have any further obligation to the Participant under this Plan, other than payment to such Participant of the aggregate amount of Eligible Compensation deferred under Section 3.1.
2.6.2 Plan Terms and Rules. Each Participant, as a condition of participation in this Plan, is bound by all the terms and conditions of this Plan and the Plan Rules.
2.7 Deferral Elections. An Employee who satisfies the eligibility requirements of Section 2 may, at the time and in the manner provided hereunder, elect to defer the receipt of his or her Eligible Compensation.
2.7.1 General Rule. Except as otherwise provided in this Plan, an election shall be made before the beginning of the Plan Year during which the Participant performs services for which the Eligible Compensation is earned. The election must designate the percentage of the Base Salary, Bonus or Performance Share Award which shall be deferred under this Plan. In accordance with Plan Rules, the Plan Administrator will determine the manner and timing required to file a deferral election. No deferral election shall be effective unless prior to the deadline for making such election, the Participant has filed with the Plan Administrator, in accordance with Plan Rules, an insurance consent form permitting the Participating Employer or Company to purchase and maintain life insurance coverage on the Employee with the Participating Employer or Company as the beneficiary. An election to defer Eligible Compensation for the Plan Year or other period is irrevocable once it has been accepted by the Plan Administrator and the deadline for making such election has expired, except as otherwise provided under this Plan.
2.7.2 Newly Eligible Employees. For a Newly Eligible Employee, the deferral election may be made after the first day of a Plan Year provided it is made within 30 days after becoming eligible to participate in this Plan. Such a deferral election by a Newly Eligible Employee is irrevocable once it has been received by the Plan Administrator and the deadline for making such election has expired, except as otherwise provided under this Plan. Such election will be effective with respect to Eligible Compensation payable for services performed after becoming eligible for this Plan and commencing with the next full pay period after the deferral election becomes irrevocable.
2.7.3 Terminations of Employment. A Participant who completes a deferral election in accordance with this Section 2.7, but who has a Termination of Employment prior to the expiration of the deadline for making such election, will be deemed to have made no deferral election for the respective period.
2.8 Base Salary Deferrals. A Participants election to defer Base Salary is subject to the following requirements:
2.8.1 A Base Salary deferral election will be effective with respect to the first paycheck issued during the Plan Year, including for the payroll period that includes the last day of the preceding Plan Year, and such election will remain in effect through the last paycheck issued during the Plan Year.
2.8.2 Except as provided in Section 2.11, the Base Salary deferral percentage may not exceed 80%.
2.9 Bonus Deferrals. A Participants election to defer his or her Bonus is subject to the following requirements:
2.9.1 A Bonus deferral election will be in effect for service periods that begin in the Plan Year immediately following the date the election becomes irrevocable and continue through the end of the Plan Year or if the Bonus is paid after such Plan Year, through the date the Bonus would have been paid in cash. Notwithstanding Section 2.7.2, a Newly Eligible Employee may not elect to defer a Bonus that is payable with respect to a service period that begins before the effective date of the Newly Eligible Employees deferral election.
2.9.2 Except as provided in Section 2.11, a Participants Bonus effective deferral percentage may not exceed 80%.
2.9.3 If the Plan Administrator determines that a Participants Bonus is performance-based compensation within the meaning of Code section 409A, then, consistent with Plan Rules, the Participants deferral election may be made no later than six months before the last day of the performance period during which the Bonus is earned.
2.9.4 If a Participant has a Termination of Employment before the end of the service period for any Bonus, but is still entitled to receive a bonus, the Participants existing Bonus deferral election will continue to apply.
2.10 Performance Share Award Deferrals. A Participants election to defer his or her Performance Share Award is subject to the following requirements:
2.10.1 The election is available for Performance Share Awards issued in the Companys Fiscal Year ending in calendar year 2003 and 2004.
2.10.2 A Participants Performance Share Award deferral percentage may not exceed 100%.
2.10.3 If the Plan Administrator determines that a Participants Performance Share Award is performance-based compensation within the meaning of Code section 409A, then the Participants Performance Share Award deferral election must be made no later than twenty-four (24) months prior to the date the Performance Share Award would otherwise be paid in the form of cash or Company stock, or, if earlier, six (6) months before the end of the period over which the services giving rise to the Performance Share Award were performed.
2.10.4 The Plan Committee as defined under the Companys Long Term Incentive Plan shall determine, in its sole and absolute discretion for each Plan Year during which a Performance Share Award is issued, whether Participants in any group or class are eligible to make deferral elections under this Section 2.10 with respect to a Performance Share Award.
2.11 Special Code Section 162(m) Deferral Elections. Notwithstanding Sections 2.8 and 2.9, a Participant who, prior to the beginning of a Plan Year, is identified by the Plan Administrator as a potential covered employee (within the meaning of Code section 162(m)) for the Companys Fiscal Year either ending in or beginning in the Plan Year may:
2.11.1 Make a Base Salary deferral election for the Plan Year that consists of two parts:
(a) the first part of the election will apply with respect to the first paycheck issued during the applicable Plan Year through the last paycheck issued prior to the end of the Companys Fiscal Year ending in the Plan Year, and
(b) the second part will apply to the paychecks issued after the beginning of the Companys Fiscal Year beginning in such Plan Year and issued prior to the end of such Plan Year.
2.11.2 Make a separate Bonus deferral election for the Plan Year with respect to:
(a) The Bonus amounts that satisfy the requirements of performance-based compensation under Code section 162(m), and
(b) All other Bonus amounts as determined by the Plan Administrator.
The Plan Administrator will set the maximum Bonus deferral percentage in its sole discretion, on a Participant by Participant basis.
2.12 Cancellation of Deferral Elections.
2.12.1 401(k) Hardship. Notwithstanding any provisions in the Plan to the contrary, an election to defer under Sections 2.8, 2.9, and 2.10 will be cancelled to the extent necessary for the Participating Employer to comply with the hardship withdrawal provisions of such Participating Employers 401(k) plan.
(a) An election to defer Base Salary amounts for the Plan Year during which the hardship withdrawal was made will be cancelled. Further, no Base Salary deferral election will be effective for the next Plan Year if the hardship withdrawal occurs after June 30, and on or before December 31 of the calendar year.
(b) Any election to defer Bonus or Performance Share Award amounts in effect at the time of the hardship withdrawal will be cancelled. Further, no deferral election for a Bonus related to service in the next Plan Year will be effective if the hardship withdrawal occurs after June 30, and on or before December 31 of the calendar year.
2.12.2 Unforeseeable Emergency. Notwithstanding any provisions in the Plan to the contrary, an election to defer under Sections 2.8, 2.9, and 2.10 will be cancelled for the remaining portion of the Plan Year in the event the Participant has received a distribution on account of an Unforeseeable Emergency under Section 6.5. The revocation shall be made at the time and in the manner specified in Plan Rules and must otherwise comply with the requirements of Section 6.5.
SECTION 3
CREDITS TO ACCOUNTS
3.1 Elective Deferral Credit. The Plan Administrator shall credit to the Account of each Participant the amount, if any, of Eligible Compensation the Participant elected to defer pursuant to Section 2. Such amount shall be credited as nearly as practicable as of the time or times when the Eligible Compensation would have been paid to the Participant but for the election to defer.
3.2 Restoration Match Credit.
3.2.1 Eligibility for Credit. An Employee who satisfies the eligibility requirements of Section 2.1 during a Plan Year will receive a Restoration Match Credit for the Plan Year if he or she: (i) was actively employed and eligible to participate in this Plan on the last business day of the Plan Year; (ii) has experienced a Termination of Employment as defined under Section 1.2.44(a) during the Plan Year after attaining age 55 and completing five (5) years of vesting service as defined in the Target Pension Plan; (iii) has experienced a Termination of Employment as a result of death; or (iv) has become Disabled during such Plan Year.
3.2.2 Amount of Credit. A Participant who satisfies the requirements of Section 3.2.1 is entitled to a Restoration Match Credit equal to the sum of:
(a) 5% of the Participants Base Salary and Bonus that is deferred under this Plan during the Plan Year; and
(b) 5% of the Participants Plan Year Base Salary and Bonus that is not deferred under this Plan during the Plan Year and that exceeds the compensation limit in effect under Code section 401(a)(17) for such Plan Year;
provided, however, that: (y) no Restoration Match Credit shall be made for Base Salary or Bonus paid prior to the date the Participant became eligible to participate in the Target 401(k) Plan, and (z) the credit under this Section 3.2.2 will not exceed the amount of Deferral Credits made by the Participant under Section 3.1 during the Plan Year.
3.2.3 Crediting to Account. The Plan Administrator shall credit to a Participants Account as of the last business day of the Plan Year the amount of the Restoration Match Credit determined for the Plan Year for that Participant under Section 3.2.2.
3.2.4 Credit Upon Change-in-Control. Upon a Change-in-Control that causes the Plan to be terminated under Section 8.3.2, the Plan Administrator shall credit to a Participants Account as of the date of the Plan termination a Restoration Match Credit determined for the Plan Year for that Participant under Section 3.2.2 through such date. Any subsequent determination of the Restoration Match Credit during the same Plan Year will be made under Section 3.2.2, less any amounts previously credited under this Section 3.2.4.
3.3 SPP Benefit Transfer Credits.
3.3.1 Eligibility. A Participant who satisfies the eligibility requirements of Section 2.1 shall receive an SPP Benefit Transfer Credit under this Plan if he or she: (i) is classified as an Officer of the Company; and (ii) has a vested benefit under the Target Pension Plan, including a vested interest arising on account of the Participants death.
3.3.2 Initial SPP Benefit Transfer Credit.
(a) A Participant who satisfies the requirements of Section 3.3.1 receives an initial SPP Benefit Transfer Credit on or about the April 30 (or immediately preceding business day) immediately following the calendar year in which the Participant becomes eligible under Section 3.3.1, in an amount equal to the actuarial lump sum present value on March 31 (or immediately preceding business day) for the Participants SPP Benefit accrued through the preceding December 31. In the case of Participant who is an executive officer, such transfer will be made and determined on or about the last business day prior to the end of the Companys Fiscal Year.
(b) Upon a Plan termination upon a Change-in-Control under Section 8.3.2, the Plan Administrator shall credit the initial SPP Benefit Transfer Credit to a Participants Account as of the Plan termination effective date in an amount equal to the actuarial lump sum present value on the Plan termination effective date.
3.3.3 Annual SPP Benefit Transfer Credit. A Participant who has received an initial SPP Benefit Transfer Credit under the Plan, who is eligible to receive credits pursuant to Section 3.3.1, and who is employed by a Participating Employer during a Plan Year will receive an annual SPP Benefit Transfer Credit to his or her Account under the Plan as follows:
(a) For each Plan Year, the annual SPP Benefit Transfer Credit will be the difference between (i) the SPP Benefit determined as the last day of the Plan Year expressed as the actuarial lump sum present value on the determination date and (ii) the aggregate amount of the previous SPP Benefit Transfer Credits to the Participants Account increased by assumed earnings at an annual rate equal to the sum of the average of the applicable Stable Value Crediting Rate Alternative for the Plan Year plus two percent (2%) determined from the crediting date through the earlier of June 5, 2012 or the determination date and after June 5, 2012 at an annual rate equal to the sum of the average of the applicable Intermediate-Term Bond Crediting Rate Alternative for the Plan Year plus two percent (2%) from the later of June 5 or the crediting date through the determination date; provided that with respect to periods that a Participant does not receive the Enhancement on their Account, the annual rate will be equal to the average of the applicable Stable Value Crediting Rate Alternative, through June 5, 2012, or the Intermediate-Term Bond Crediting Rate Alternative, after June 5, 2012, as applicable.
(b) If the amount of the annual or final SPP Benefit Transfer Credit is positive, a credit will be made to the Participants Account. If the amount of the SPP Benefit Transfer Credit is negative and if, and only if, (i) the Participant is an executive officer on the determination date, or (ii) the Participant is an Employee and member of the Board, but was formerly an executive officer, then such Participants Account will be debited by such negative amount. The debit will be made prorata among all distribution options of the Plan other than fixed payment dates.
(c) The annual SPP Benefit Transfer Credit (including a negative credit) will be made to the Participants Account as of the April 30 (or immediately preceding
business day) following the determination date. In the case of a Participant who is an executive officer, such transfer will be made and determined on or about the last business day prior to the end of the Companys Fiscal Year.
(d) For purposes of this section, determination date means on or about March 31; provided that in the case of Participant who is an executive officer, determination date shall mean on or about the last business day prior to the end of the Companys Fiscal Year.
(e) Upon a Plan termination on account of a Change-in-Control under Section 8.3.2, the Plan Administrator shall credit to a Participants Account as of the Plan termination effective date an SPP Benefit Transfer Credit as determined in this Section 3.3.3 as of the Plan termination effective date.
(f) Notwithstanding the foregoing, a Participants final SPP Benefit Transfer Credit will be determined within 60 days following his or her Termination of Employment as defined under Section 1.2.44(a).
3.3.4 Forfeiture. A Participants SPP Benefit Transfer Credits under this Section 3.3 and corresponding earnings adjustments under Section 4 are subject to forfeiture at the time and in the amount provided under Sections 3.3.3(b) and 5.4 and Section A-5 of Appendix A.
3.4 ESBP Benefit Transfer Credits.
3.4.1 Eligibility. A Participant who satisfies Section 2.1, who has received an initial ESBP Benefit Transfer Credit under the Plan, who is employed by a Participating Employer during the a Plan Year, and who has provided advance written notice of his retirement/termination date prior to January 11, 2006 will receive an annual ESBP Benefit Transfer Credit to his Account under the Plan.
(a) For each Plan Year, the annual ESBP Benefit Transfer Credit will be the difference between (i) the ESBP Benefit determined as of the last day of the Plan Year as expressed as the actuarial lump sum present value on the determination date, and (ii) the aggregate amount of the previous ESBP Benefit Transfer Credits to the Participants Account increased by earnings at an annual rate equal to the sum of the average of the applicable Stable Value Crediting Rate Alternatives plus two percent (2%), from the crediting dates through the earlier of June 5, 2012 or the determination date and after June 5, 2012 at an annual rate equal to the sum of the average of the applicable Intermediate-Term Bond Crediting Rate Alternative for the Plan Year plus two percent (2%) from the later of June 5 or the crediting date through the determination date.
(b) The credit to the Participants Account will be made as of the April 30 (or immediately preceding business day) following the determination date.
(c) For purposes of this section, determination date means on or about March 30.
(d) Upon a Change-in-Control, the Plan Administrator shall credit to a Participants Account as of the date of the Change-in-Control an ESBP Benefit Transfer Credit as determined in this Section 3.4. as of the date of the Change-in-Control.
(e) Notwithstanding the foregoing, a final annual ESBP Benefit Transfer Credit will be made to the Participants Account 60 days following a Participants Termination of Employment as defined under Section 1.2.44(a).
3.4.2 Forfeiture. A Participant who has a Termination of Employment as defined under Section 1.2.44(a) prior to the attainment of age 55 and completion of 5 Years of Service will forfeit his or her ESBP Benefit Transfer Credits, and an amount of Earnings Credits and Enhancement equal to the investment adjustments that would have been credited on the ESBP Benefit Transfer Credits at the Stable Value Crediting Rate Alternative plus an annual rate of two percent (2%) through the earlier of June 5, 2012 or his or her Termination of Employment and for periods after June 5, 2012, at the Intermediate-Term Bond Crediting Rate Alternative plus an annual rate of two percent (2%). The amount to be forfeited will be made prorata among all distribution options of the Plan.
3.5 Discretionary Credits. The Company in its sole and absolute discretion may determine in writing for each Participant an amount that shall be credited the Participants Account as a Discretionary Credit. Any Discretionary Credit to an executive officer will require the approval of the Compensation Committee of the Board. The Plan Administrator shall credit to a Participants Account the amount of a Participating Employers Discretionary Credit, if any, determined for that Participant under this Section. Such amount shall be credited as nearly as practicable as of the time or times fixed by the Participating Employer when awarding such credit. Any special provisions relating to Discretionary Credits made on behalf of a Participating Employers Employees will be set forth on an exhibit to the Plan Statement.
SECTION 4
ADJUSTMENTS OF ACCOUNTS
4.1 Establishment of Accounts. There shall be established for each Participant an Account which shall be adjusted as provided under Section 4.
4.2 Adjustments of Accounts. On each Valuation Date, the Plan Administrator shall cause the value of the Account (or subaccount) to be increased (or decreased) for distributions, withdrawals, credits, debits and investment income, gains or losses charged to the Account.
4.3 Investment Adjustment. The investment income, gains and losses shall be determined for the Accounts in accordance with the following:
4.3.1 Participant Elections. In accordance with Plan Rules and procedures established by the Plan Administrator, each Participant shall prospectively elect, as part of the initial enrollment process, and from time to time thereafter, one or more Crediting Rate Alternatives that shall be used to measure income, gains and losses until the next Valuation Date.
4.3.2 Default Rate. If a Participant fails to designate one or more Crediting Rate Alternatives to be used to measure income, gains and losses with respect to amounts credited to his or her Account, such amounts will be deemed to be invested in a default Crediting Rate Alternative designated by the Plan Administrator in accordance with Plan Rules.
4.3.3 Crediting. As of each Valuation Date, each Participants Account shall be adjusted for income, gains and losses as if the Account had in fact been invested in the Crediting Rate Alternative(s) so selected.
4.3.4 Responsibility for Investing Adjustments. The Plan Administrator will not be responsible in any manner to any Participant, Beneficiary or other person for any damages, losses or liabilities, costs or expenses of any kind arising in connection with any designation or elimination of a Crediting Rate Alternative or a Participants election of a Crediting Rate Alternative.
4.4 Enhancement.
4.4.1 General Rule. The Account of each Participant who is employed by the Company or other Affiliate for the entire calendar month will be credited by an amount equal to the Enhancement multiplied by the balance of the Account on the first day of the month. On the last business day of each month, this amount will be credited according to the Crediting Rate Alternatives in effect for new Deferral Credits.
4.4.2 Exception. No Enhancement will be credited with respect to the Participant during the remainder of the Companys Fiscal Year in which the Participant becomes an executive committee member or during any of the Companys Fiscal Years beginning after the date the Participant becomes an executive committee member; provided that the Plan Administrator, in its sole discretion, can cause the forfeiture of the Enhancement credited to a Participants Account during the Companys Fiscal Year in which a Participant initially becomes an executive committee member. In addition, no Enhancement will be credited with respect to a Participant for any month in a calendar year following the calendar year in which the Participants employment is transferred to a Canadian Affiliate, unless and until the Participants employment is transferred back to the Company or a U.S. Affiliate.
4.5 Account Adjustments Upon a Change-in-Control or Plan Termination.
4.5.1 In the event of a Plan termination following a Change-in-Control under Section 8.3.2 that causes a Trust to be established and funded pursuant to Section 7.3 where distribution of a Participants Account may not be made from the Trust within 60 days of the event because of restrictions imposed by Code section 409A, then the Participants Account as of the date of such event will no longer receive adjustments determined pursuant to Sections 4.3 and 4.4.
4.5.2 On and after the date of an event described in Section 4.5.1, the Account will have an investment adjustment determined at an annual rate equal to the sum of the 10-Year U.S. Treasury Note plus 2%. The 10-Year U.S. Treasury Note rate will be determined as of the date of the Plan termination under Section 8.3.2, or if no such rate is available on that date, the immediately preceding date such rate is available, and reset each calendar quarter as necessary.
SECTION 5
VESTING
5.1 Deferral Credits and Restoration Match Credits. Deferral Credits and Restoration Match Credits (and related Earnings Credits) of each Participant shall be fully (100%) vested and nonforfeitable at all times except as otherwise provided.
5.2 Discretionary Credits. A Participant will be vested in any Discretionary Credits (and related Earnings Credits) as provided by the Plan Administrator when such amounts are credited to the Participants Account.
5.3 Enhancement.
5.3.1 General Rule. Except as provided under Section 4.4.2, the Enhancement credited to a Participants Account will become fully vested and nonforfeitable upon the earliest occurrence of any of the following events while the Participant is still in the employment of a Participating Employer or other Affiliate: (i) the Participants death; (ii) the last day of the calendar month in which a Participant attains age sixty-five (65) years; (iii) the determination that the Participant is Disabled; (iv) the occurrence of a Change-in-Control; (v) the Participants completion of five (5) Years of Service; or (vi) such other date as provided in writing to a Participant from the Plan Administrator.
5.3.2 Forfeiture. Any forfeiture of the Enhancement will occur as soon as practicable after the Participants Termination of Employment. Forfeiture of the Enhancement that is not vested under Section 5.3.1 is limited to the aggregate amount of the Enhancement credited with respect to such amounts determined without regard to Earnings Credits on such Enhancement. The amount of the Enhancement to be forfeited will be debited prorata against the Participants distribution options.
5.4 SPP Benefit Transfer Credit. A Participant has a forfeiture of the SPP Benefit to the extent there is a debit as provided in Section 3.3 or Appendix A. The forfeiture amount will be debited against a Participants Account. The debit will be made prorata among all distribution options of the Plan.
5.5 ESBP Benefit Transfer Credit. A Participant has a forfeiture of the ESBP Benefit to the extent there is a forfeiture as provided in Section 3.4.2. The forfeiture amount will be debited against a Participants Account. The debit will be made prorata among all the Participants distribution options under the Plan.
5.6 Failure to Cooperate; Misinformation or Failure to Disclose. A Participants Account is subject to forfeiture as provided under Sections 2.6.1.
SECTION 6
DISTRIBUTION
6.1 Distribution Elections. Except as otherwise specifically provided in this Plan, a Participant may irrevocably elect for each Plan Year the form and time of distribution of the credits made to his or her Account for such Plan Year.
6.2 General Rule. A Participants distribution election relating to Deferral Credits must be made prior to the date the Participants deferral election becomes irrevocable. The election shall be made in the form and manner prescribed by Plan Rules. Distribution elections for Base Salary deferrals will also apply to Restoration Match Credits related to the same Plan Year. Earnings Credits and Enhancements will be distributed in the same form and time as in effect for the related Account credit. All Discretionary Credits will be distributed in the form of a single lump sum as of the time determined under Section 6.2.2(b).
6.2.1 Form of Distribution. The Participant may elect among the following forms of distribution.
(a) Installments. A series of annual installments made over either five (5) years or ten (10) years commencing at a time provided under Section 6.2.2(a) or (b). For purposes of Code section 409A, installment payments will be treated as a series of separate payments at all times.
(b) Lump Sum. A single lump sum payment.
6.2.2 Time of Payment. The Participant may elect among the distribution commencement times described in this section; provided that: (y) SPP Benefit Transfer Credits determined pursuant to Appendix A, Section A-4.3 will be distributed as provided in Section 6.2.5(b), and (z) SPP Benefit Transfer Credits, other than those pursuant to Appendix A, Section A-4.3, as well as unvested ESBP Benefit Transfer Credits may not be distributed on a fixed payment date as described in paragraph (c).
(a) Termination of Employment. Within 60 days following the Participants Termination of Employment.
(b) One-Year Anniversary of Termination of Employment. Within 60 days following the one-year anniversary of the Participants Termination of Employment.
(c) Fixed Payment Date. Within 60 days of January 1 of the calendar year elected by the Participant at the time of deferral. If a Participant has a Termination of Employment as defined in Section 1.2.44 prior to the fixed payment date, such amount shall be paid on the earlier of: (i) within 60 days following January 1 in the tenth year following the year of the Termination of Employment, or (ii) January 1 of the calendar year elected by the Participant at the time of deferral. The Plan Administrator will establish Plan Rules, procedures and limitations on establishing the number and times of the fixed payment dates available for Participants to elect.
(d) Payouts in 2008 and 2009. During 2007 and 2008, consistent with transition relief available under Code section 409A, and subject to Plan Rules:
(i) Participants had an opportunity to elect during 2007 to receive a distribution of all or a portion of their Account valued as of December 31, 2007 to be distributed in January 2008.
(ii) Participants had an opportunity to elect during 2007 to receive a distribution of all or a portion of their Bonus Deferral Credits for 2007 and Performance Share Awards in 2004, if any, to be credited under this Plan in 2008, to be distributed on the date such Bonus Deferral Credits or Performance Share Awards would otherwise have been credited to this Plan, or, with respect to such Performance Share Awards, such other date as specified in the election form.
(iii) Participants had an opportunity to elect during 2008 to receive a distribution of all or a portion of their Account valued as of December 31, 2008 to be distributed in January 2009.
(iv) Participants had an opportunity to elect during 2008 to receive a distribution of all or a portion of their Bonus Deferral Credits for 2008, if any, to be credited under this Plan in 2009, to be distributed on the date such Bonus Deferral Credits would otherwise have been credited to this Plan.
6.2.3 Installment Amounts. The amount of the annual installments shall be determined by dividing the amount of the vested portion of the Account as of the most recent Valuation Date preceding the date the installment is being paid by the number of remaining installment payments to be made (including the payment being determined).
6.2.4 Small Benefit. Subject to Section 6.3, in the event that the vested Account balance of a Participant who has died or experienced a Termination of Employment under the Plan is less than the applicable dollar amount under Code section 402(g)(1)(B) for that Plan Year as of the date on which the Plan Administrator makes such determinations, the Plan Administrator (on behalf of the Company) reserves the right to have the Participants entire Account paid in the form of a single lump sum payment, provided the Plan Administrators exercise of discretion (on behalf of the Company) complies with the requirements of Treas. Reg. Sec. 1.409A-3(j)(4)(v).
6.2.5 Default. If for any reason a Participant shall have failed to make a timely designation of the form or time of distribution with respect to credits for a Plan Year (including reasons entirely beyond the control of the Participant), except as provided in Section 6.2.6, the distribution shall be made as indicated below:
(a) In the case of SPP Benefit Transfer Credits, other than those pursuant to Appendix A, Section A-4.3 - a single lump sum within 60 days following the one-year anniversary of the Participants Termination of Employment.
(b) In the case of SPP Benefit Transfer Credits pursuant to Appendix A, Section A-4.3:
(i) Twenty-four (24) monthly installment payments commencing within 60 days following the Participants Termination of Employment;
(ii) Each monthly installment payment will be determined by dividing: (A) the amount of the vested portion of the Account attributable to Appendix A, Section A-4.3 and an amount of Earnings Credits equal to the investment adjustment that would have been credited on such SPP Benefit Transfer Credits at the Stable Value Crediting Rate Alternative through the most recent Valuation Date preceding the earlier of June 5, 2012 or date the installment is due, and after June 5, 2012, at the Intermediate-Term Bond Crediting Rate Alternative through the most recent Valuation Date preceding the date the installment is due, by (B) twenty-four (24), less the number of monthly installment payments that have previously been made from the Plan.
(c) In all other cases - a single lump sum payment within 60 days following the Participants Termination of Employment.
6.2.6 Crediting of Amounts after Benefit Distribution. Notwithstanding any provision in this Plan Statement to the contrary other than Section 6.3:
(a) Deferral and Restoration Match Credits.
(i) Lump Sum Distribution. If Deferral or Restoration Match Credits are due after the complete distribution of the Participants vested Account balance, or subaccount balance to which such Deferral or Restoration Match Credit relate, then such subsequent credits will be made to the Account and paid to the Participant in a single lump sum cash payment within 60 days of being credited to the Account.
(ii) Installment Distribution. If Deferral or Restoration Match Credits are due after a related installment distribution occurs, then such subsequent credits will be made to the Account and included to determine the amount of the remaining scheduled payments as applicable.
(b) SPP or ESBP Benefit Transfer Credit. The SPP Benefit Transfer Credit other than those pursuant to Appendix A, Section A-4.3 or ESBP Benefit Transfer Credit, as applicable, arising after a Participants Termination of Employment pursuant to Sections 3.3.3(f) and 3.4.1(e) shall be distributed in a single lump sum within 60 days following the Termination of Employment.
6.2.7 Vesting in Benefits After the Distribution Date. No portion of a Participants Account will be distributed prior to being vested. Subject to Section 6.3, if Participant is scheduled to receive a distribution of a portion of his or her Account that is not vested, such unvested amount will not be paid until subsequently vested, at which time it will be paid out in accordance with the respective distribution election.
6.2.8 No Spousal Rights. No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Participants designation of a form or time of payment.
6.3 Six-Month Suspension for Specified Employees. Notwithstanding any other provision in this Section 6 to the contrary, if a Participant is a Specified Employee at Termination of Employment, then any distributions arising on account of the Participants Termination of Employment (other than on account of death) that are due shall be suspended and not be made until (6) months have elapsed since such Participants Termination of Employment (or, if earlier, upon the date of the Participants death). Any payments that were otherwise payable during the six-month suspension period referred to in the preceding sentence, will be paid within 60 days after the end of such six-month suspension period.
6.4 Distribution on Account of Death. Upon the death of a Participant, the Participants Account balance will be paid to the Participants Beneficiary in a single lump sum within 90 days following the Participants death.
6.5 Distribution on Account of Unforeseeable Emergency.
6.5.1 When Available. A Participant may receive a distribution from the vested portion of his or her Account (which shall be deemed to include the deferral that would have been made but for the cancellation under Section 6.5.3) if the Plan Administrator determines that such distribution is on account of an Unforeseeable Emergency and the conditions in Section 6.5.2 have been fulfilled. To receive such a distribution, the Participant must request a distribution by filing an application with the Plan Administrator and furnish such supporting documentation as the Plan Administrator may require. In the application, the Participant shall specify the basis for the distribution and the dollar amount to be distributed. If such request is approved by the Plan Administrator, distribution shall be made in a lump sum payment within 60 days following the approval by the Plan Administrator of the completed application.
6.5.2 Limitations. The amount that may be distributed with respect to a Participants Unforeseeable Emergency shall not exceed the amounts necessary to satisfy the emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such Unforeseeable Emergency is or may be relieved through reimbursement or compensation by insurance or otherwise by liquidation of the Participants assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), and/or cancellation of deferrals pursuant to Section 6.5.3, provided the determination of such limitation is consistent with the requirements of Code section 409A(a)(2)(B)(ii).
6.5.3 Cancellation of Deferral Elections. As provided by Section 2.12, in the event of a distribution under Section 6.5.1 the Plan Administrator will cancel the Participants deferral elections for the balance of the applicable Plan Year.
6.6 Designation of Beneficiaries.
6.6.1 Right to Designate or Revoke.
(a) Each Participant may designate one or more primary Beneficiaries or secondary Beneficiaries to receive all or a specified part of such Participants vested Account in the event of such Participants death. If fewer than all designated primary or secondary Beneficiaries predecease the Participant, then the amount
of such predeceased Beneficiarys portion shall be allocated to the remaining primary or secondary Beneficiaries, as the case may be.
(b) The Participant may change or revoke any such designation from time to time without notice to or consent from any spouse, any person named as Beneficiary or any other person.
(c) No such designation, change or revocation shall be effective unless completed and filed with the Plan Administrator in accordance with Plan Rules during the Participants lifetime.
6.6.2 Failure of Designation. If a Participant:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Participant, such Participants vested Account, shall be payable to the first class of the following classes of automatic Beneficiaries:
Participants surviving spouse
Representative of Participants estate
6.6.3 Disclaimers by Beneficiaries. A Beneficiary entitled to a distribution of all or a portion of a deceased Participants vested Account may disclaim an interest therein subject to the Plan Rules.
6.6.4 Special Rules. Unless the Participant has otherwise specified in the Participants Beneficiary designation, the following rules shall apply:
(a) If there is not sufficient evidence that a person designated as a Beneficiary was living at the time of the death of the Participant, it shall be deemed that the Beneficiary was not living at the time of the death of the Participant.
(b) The automatic Beneficiaries specified in Section 6.6.2 and the Beneficiaries designated by the Participant shall become fixed at the time of the Participants death (subject to Section 6.6.3) so that, if a Beneficiary survives the Participant but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiarys estate.
(c) If the Participant designates as a Beneficiary the person who is the Participants spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Participant and such person shall automatically revoke such designation. The foregoing shall not prevent the Participant from designating a former spouse as a beneficiary on a form that is both executed by the Participant and received by the Plan Administrator (i) after the date of the legal termination of the marriage
between the Participant and such former spouse and (ii) during the Participants lifetime.
(d) A finalized marriage (other than a common law marriage) of a Participant subsequent to the date of filing of a Beneficiary designation shall revoke such designation unless the Participants new spouse had previously been designated as the Beneficiary.
(e) Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Participant shall be given effect without regard to whether the relationship to the Participant exists either then or at the Participants death.
(f) Any designation of a Beneficiary only by statement of relationship to the Participant shall be effective only to designate the person or persons standing in such relationship to the Participant at the Participants death.
6.7 Facility of Payment.
6.7.1 Legal Disability. In case of the legal disability, including minority, of an individual entitled to receive any payment under this Plan, payment shall be made, if the Plan Administrator shall be advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal representative of such individual, or
(b) to a person or institution entrusted with the care or maintenance of the incompetent or disable Participant or Beneficiary, provided such person or institution has satisfied the Plan Administrator that the payment will be used for the best interest and assist in the care of such individual, and provided further, that no prior claim for said payment has been made by a duly appointed guardian, conservator or other legal representative of such individual.
6.7.2 Discharge of Liability. Any payment made in accordance with the foregoing provisions of this Section 6.7 shall constitute a complete discharge of any liability or obligation of the Participating Employers under this Plan.
6.8 Tax Withholding. The Participating Employer (or any other person legally obligated to do so) shall withhold the amount of any federal, state or local income tax, payroll tax or other tax that the payer reasonably determines is required to be withheld under applicable law with respect to any amount payable under this Plan. All benefits otherwise due hereunder shall be reduced by the amount to be withheld.
6.9 Payments Upon Rehire. If a Participant who is receiving installment payments or due a deferred lump sum payment under this Plan is rehired, the payments will continue in accordance with the prior distribution elections.
6.10 Application for Distribution. A Participant may be required to make application to receive payment and to complete other forms and furnish other documentation required by the Plan Administrator. Distribution shall not be made to any Beneficiary until such Beneficiary shall have filed an application for benefits in a form acceptable to the Plan Administrator and
such application shall have been approved by the Plan Administrator and the Plan Administrator has determined that the applicant is entitled to payment.
6.11 Acceleration of Distributions. The Plan Administrator in its sole discretion may exercise discretion on behalf of the Company to accelerate the distribution of any payment under this Plan to the extent allowed under Code section 409A.
6.12 Delay of Distributions. The Plan Administrator in its sole discretion may exercise discretion on behalf of the Company to delay the distribution of any payment under this Plan to the extent allowed under Code section 409A, including, but not limited to, as necessary to maximize the Companys tax deductions as allowed pursuant to Code section 162(m) or to avoid violation of federal securities or other applicable law.
SECTION 7
SOURCE OF PAYMENTS; NATURE OF INTEREST
7.1 Source of Payments.
7.1.1 General Assets. Each Participating Employer will pay, from its general assets, the distribution of the Participants Account under Section 6, and all costs, charges and expenses relating thereto.
7.1.2 Trust. Upon a Change-in-Control that causes the Plan to be terminated under Section 8.3.2, the trustee of the Trust will make distributions to Participants and Beneficiaries from the Trust in satisfaction of a Participating Employers obligations to make distributions under this Plan in accordance with and subject to the terms of the Trust to the extent such payments are not otherwise made directly by the Participating Employer.
7.2 Unfunded Obligation. The obligation of the Participating Employers to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of the Participating Employers to make such payments. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, claims or interests in any specific property or assets of the Company or a Participating Employer, nor shall they be beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by the Company.
7.3 Establishment of Trust. The Participating Employers shall have no obligation to establish or maintain any fund, trust or account (other than a bookkeeping account or reserve) for the purpose of funding or paying the benefits promised under this Plan except as provided in the Trust. The Participating Employers may from time to time transfer to the Trust cash, or other marketable securities or other property acceptable to the trustee in accordance with the terms of the Trust. If the Participating Employers have deposited funds in the Trust, such funds shall remain the sole and exclusive property of the Participating Employer that deposited such funds.
7.4 Spendthrift Provision. Except as otherwise provided in this Section 7.4, no Participant or Beneficiary shall have any interest in any Account which can be transferred nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of the Participating Employers. The Plan Administrator shall not recognize any such effort to convey any interest under this Plan. No benefit payable under this Plan shall be subject to attachment, garnishment, or execution following judgment or other legal process before actual payment to such person.
7.4.1 Right to Designate Beneficiary. The power to designate Beneficiaries to receive the Account of a Participant in the event of such Participants death shall not permit or be construed to permit such power or right to be exercised by the Participant so as thereby to anticipate, pledge, mortgage or encumber such Participants Account or any part thereof, and any attempt of a Participant so to exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by the Participating Employers.
7.4.2 Plan Administrators Right to Exercise Discretion. This Section 7.4 shall not prevent the Plan Administrator from exercising, in its discretion, any of the applicable powers and options granted to it under any applicable provision hereof.
7.5 Compensation Recovery (Recoupment). Notwithstanding any other provision of the Plan, a Participant who engaged in intentional misconduct that contributed directly or indirectly, in whole or in part, to the need for a restatement of the Companys consolidated financial statements and who becomes subject to the Companys recoupment policy as adopted by the Compensation Committee of the Companys Board of Directors and amended from time to time (Recoupment Policy) may have all or a portion of his or her benefit under this Plan forfeited and/or all or a portion of any distributions payable to the Participant or his or her Beneficiary recovered by the Company.
7.5.1 Any Deferral Credit and related Earnings Credits resulting from the deferral of Eligible Compensation that is subject to recovery under the Recoupment Policy may be forfeited and, in such event, a corresponding adjustment will be made to the Participants Account balance.
7.5.2 If a Participant has commenced distributions and is subject to a claim for recovery under the Recoupment Policy, then the Company may, subject to any limitations under Code section 409A, retain all or any portion of the Participants (or his or her Beneficiarys) taxable distribution, net of state, federal or foreign tax withholding, to satisfy such claim.
SECTION 8
ADOPTION, AMENDMENT AND TERMINATION
8.1 Adoption. With the prior approval of the Plan Administrator, an Affiliate may adopt the Plan and become a Participating Employer by furnishing to the Plan Administrator a certified copy of a resolution of its board of directors adopting this Plan.
8.2 Amendment.
8.2.1 General Rule. The Company, by action of its Board of Directors, or by action of a person so authorized by resolution of the Board of Directors and subject to any limitations or conditions in such authorization, may at any time amend the Plan, in whole or in part, for any reason, including but not limited to tax, accounting or insurance changes, a result of which may be to terminate the Plan for future deferrals provided, however, that no amendment shall be effective to decrease the benefits, nature or timing thereof payable under the Plan to any Participant with respect to deferrals made (and benefits thereafter accruing) prior to the date of such amendment. Written notice of any amendment shall be given each Participant then participating in the Plan.
8.2.2 Amendment to Benefit of Executive Officer. Any amendment to the benefit of an executive officer under this Plan, to the extent approval of such amendment by the Board would be required by the Securities and Exchange Commission and its regulations or the rules of any applicable securities exchange, will require the approval of the Board.
8.2.3 No Oral Amendments. No modification of the terms of this Plan Statement shall be effective unless it is in writing. No oral representation concerning the interpretation or effect of this Plan Statement shall be effective to amend this Plan Statement.
8.3 Termination and Liquidation.
8.3.1 General Rule.
(a) To the extent necessary or reasonable to comply with any changes in law, the Board may at any time terminate and liquidate this Plan, provided such termination and liquidation satisfies the requirements of Code section 409A.
(b) To the extent that a Participants benefit under the Plan will be immediately included in the income of the Participant, as determined by a court of competent jurisdiction or the Internal Revenue Service, to the extent permitted under Code section 409A, the Board may terminate and liquidate this Plan, in whole or in part, as it relates to the impacted Participant.
8.3.2 Plan Termination and Liquidation on Account of a Change-in-Control. Upon a Change-in-Control, the Plan will terminate and payment of all amounts under the Plan will be accelerated if and to the extent provided in this Section 8.3.2.
(a) The Plan will be terminated effective as of the first date on which there has occurred both (i) a Change-in-Control under Section 1.2.8, and (ii) a funding of the Trust on account of such Change-in-Control (referred to herein as the Plan termination effective date) unless, prior to such Plan termination effective date, the Board affirmatively determines that the Plan will not be terminated as of such
effective date. The Board will be deemed to have taken action to irrevocably terminate the Plan as of the Plan termination effective date by its failure to affirmatively determine that the Plan will not terminate as of such date.
(b) The determination by the Board under paragraph (a) constitutes a determination that such termination will satisfy the requirements of Code section 409A, including an agreement by the Company that it will take such additional action or refrain from taking such action as may be necessary to satisfy the requirements necessary to terminate and liquidate the Plan under paragraph (c) below.
(c) In the event the Board does not affirmatively determine not to terminate the Plan as provided in paragraph (a), such termination shall be subject to either (i) or (ii), as follows:
(i) If the Change-in-Control qualifies as a change in control event for purposes of Code section 409A, payment of all amounts under the Plan will be accelerated and made in a lump sum as soon a administratively practicable but not more than 90 days following the Plan termination effective date, provided the requirements of Treasury Regulation Section 1.409A-3(j)(4)(ix)(B) have been satisfied.
(ii) If the Change-in-Control does not qualify as a change in control event for purposes of Code section 409A, payment of all amounts under the Plan will be accelerated and made in a lump sum as soon as administratively practicable but not more than 60 days following the 12 month anniversary of the Plan termination effective date, provided the requirements of Treasury Regulation Section 1.409A-3(j)(4)(ix)(C) have been satisfied.
SECTION 9
CLAIM PROCEDURES
9.1 Claims Procedure. Until modified by the Plan Administrator, the claim and review procedures set forth in this Section shall be the mandatory claim and review procedures for the resolution of disputes and disposition of claims filed under this Plan. An application for a distribution or withdrawal shall be considered as a claim for the purposes of this Section.
9.1.1 Initial Claim. An individual may, subject to any applicable deadline, file with the Plan Administrator a written claim for benefits under this Plan in a form and manner prescribed by the Plan Administrator.
(a) If the claim is denied in whole or in part, the Plan Administrator shall notify the claimant of the adverse benefit determination within ninety (90) days after receipt of the claim.
(b) The ninety (90) day period for making the claim determination may be extended for ninety (90) days if the Plan Administrator determines that special circumstances require an extension of time for determination of the claim, provided that the Plan Administrator notifies the claimant, prior to the expiration of the initial ninety (90) day period, of the special circumstances requiring an extension and the date by which a claim determination is expected to be made.
9.1.2 Notice of Initial Adverse Determination. A notice of an adverse determination shall set forth in a manner calculated to be understood by the claimant.
(a) The specific reasons for the adverse determinations,
(b) references to the specific provisions of this Plan Statement (or other applicable Plan document) on which the adverse determination is based,
(c) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and
(d) a description of the claim and review procedures, including the time limits applicable to such procedure, and a statement of the claimants right to bring a civil action under ERISA section 502(a) following an adverse determination on review.
9.1.3 Request for Review. Within sixty (60) days after receipt of an initial adverse benefit determination notice, the claimant may file with the Plan Administrator a written request for a review of the adverse determination and may, in connection therewith submit written comments, documents, records and other information relating to the claim benefits. Any request for review of the initial adverse determination not filed within sixty (60) days after receipt of the initial adverse determination notice shall be untimely.
9.1.4 Claim on Review. If the claim, upon review, is denied in whole or in part, the Plan Administrator shall notify the claimant of the adverse benefit determination within sixty (60) days after receipt of such a request for review.
(a) The sixty (60) day period for deciding the claim on review may be extended for sixty (60) days if the Plan Administrator determines that special circumstances require an extension of time for determination of the claim, provided that the Plan Administrator notifies the claimant, prior to the expiration of the initial sixty (60) day period, of the special circumstances requiring an extension and the date by which a claim determination is expected to be made.
(b) In the event that the time period is extended due to a claimants failure to submit information necessary to decide a claim on review, the claimant shall have sixty (60) days within which to provide the necessary information and the period for making the claim determination on review shall be tolled from the date on which the notification of the extension is sent to the claimant until the date on which the claimant responds to the request for additional information or, if earlier, the expiration of sixty (60) days.
(c) The Plan Administrators review of a denied claim shall take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
9.1.5 Notice of Adverse Determination for Claim on Review. A notice of an adverse determination for a claim on review shall set forth in a manner calculated to be understood by the claimant.
(a) the specific reasons for the denial,
(b) references to the specific provisions of this Plan Statement (or other applicable Plan document) on which the adverse determination is based,
(c) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimants claim for benefits,
(d) a statement describing any voluntary appeal procedures offered by the Plan and the claimants right to obtain information about such procedures, and
(e) a statement of the claimants right to bring an action under ERISA section 502(a).
9.2 Rules and Regulations.
9.2.1 Adoption of Rules. Any rule not in conflict or at variance with the provisions hereof may be adopted by the Plan Administrator.
9.2.2 Specific Rules.
(a) No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the established claim procedures. The Plan Administrator may require that any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Plan Administrator upon request.
(b) All decisions on claims and on requests for a review of denied claims shall be made by the Plan Administrator unless delegated as provided for in the Plan, in which case references in this Section 9 to the Plan Administrator shall be treated as references to the Plan Administrators delegate.
(c) Claimants may be represented by a lawyer or other representative at their own expense, but the Plan Administrator reserves the right to require the claimant to furnish written authorization and establish reasonable procedures for determining whether an individual has been authorized to act on behalf of a claimant. A claimants representative shall be entitled to copies of all notices given to the claimant.
(d) The decision of the Plan Administrator on a claim and on a request for a review of a denied claim may be provided to the claimant in electronic form instead of in writing at the discretion of the Plan Administrator.
(e) In connection with the review of a denied claim, the claimant or the claimants representative shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information necessary to make a benefit determination accompanies the filing.
(f) The time period within which a benefit determination will be made shall begin to run at the time a claim or request for review is filed in accordance with the claims procedures, without regard to whether all the information necessary to make a benefit determination accompanies the filing.
(g) The claims and review procedures shall be administered with appropriate safeguards to that benefit claim determinations are made in accordance with governing plan documents and, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants.
(h) The Plan Administrator may, in its discretion, rely on any applicable statute of limitation or deadline as a basis for denial of any claim.
9.3 Limitations and Exhaustion.
9.3.1 Claims. No claim shall be considered under these administrative procedures unless it is filed with the Plan Administrator within two (2) years after the Participant knew (or reasonably should have known) of the general nature of the dispute giving rise to the claim. Every untimely claim shall be denied by the Plan Administrator without regard to the merits of the claim.
9.3.2 Lawsuits. No suit may be brought by or on behalf of any Participant or Beneficiary on any matter pertaining to this Plan unless the action is commenced in the proper forum within two (2) years from the earlier of:
(a) the date the Participant knew (or reasonably should have known) of the general nature of the dispute giving rise to the action, or
(b) the date the claim was denied.
9.3.3 Exhaustion of Remedies. These administrative procedures are the exclusive means for resolving any dispute arising under this Plan. As to such matters:
(a) no Participant or Beneficiary shall be permitted to litigate any such matter unless a timely claim has been filed under these administrative procedures and these administrative procedures have been exhausted, and
(b) determinations by the Plan Administrator (including determinations as to whether the claim was timely filed shall be afforded the maximum deference permitted by law.
9.3.4 Imputed Knowledge. For the purpose of applying the deadlines to file a claim or a legal action, knowledge of all facts that a Participant knew or reasonably should have known shall be imputed to every claimant who is or claims to be a Beneficiary of the Participant or otherwise claims to derive an entitlement by reference to the Participant for the purpose of applying the previously specified periods.
SECTION 10
PLAN ADMINISTRATION
10.1 Plan Administration
10.1.1 Administrator. The Companys Vice President, Pay & Benefits (or any successor thereto) is the administrator of the Plan for purposes of section 3(16)(A) of ERISA. Except as otherwise expressly provided herein, the Plan Administrator shall control and manage the operation and administration of this Plan and make all decisions and determinations.
10.1.2 Authority and Delegation. The Plan Administrator is authorized to:
(a) Appoint one or more individuals or entities and delegate such of his or her powers and duties as he or she deems desirable to any individual or entity, in which case every reference herein made to Plan Administrator shall be deemed to mean or include the individual or entity as to matters within their jurisdiction. Such individual may be an officer or other employee of a Participating Employer or Affiliate, provided that any delegation to an employee of a Participating Employer or Affiliate will automatically terminate when he or she ceases to be an employee. Any delegation may be rescinded at any time; and
(b) Select, employ and compensate from time to time such agents or consultants as the Plan Administrator may deem necessary or advisable in carrying out its duties and to rely on the advice and information provided by them.
10.1.3 Determination. The Plan Administrator shall make such determinations as may be required from time to time in the administration of this Plan. The Plan Administrator shall have the discretionary authority and responsibility to interpret and construe this Plan Statement and to determine all factual and legal questions under this Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amounts of their respective interests. Each decision of the Plan Administrator shall be final and binding upon all parties. Benefits under the Plan will be paid only if the Plan Administrator decides in its discretion that the applicant is entitled to them.
10.1.4 Reliance. The Plan Administrator may act and rely upon all information reported to it hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
10.1.5 Rules and Regulations. Any rule, regulation, policy, practice or procedure not in conflict or at variance with the provisions hereof may be adopted by the Plan Administrator.
10.2 Conflict of Interest. If any individual to whom authority has been delegated or redelegated hereunder shall also be a Participant in this Plan, such Participant shall have no authority with respect to any matter specially affecting such Participants individual interest hereunder or the interest of a person superior to him or her in the organization (as distinguished from the interests of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to other individuals as the case may be, to the exclusion of such Participant, and such Participant shall act only in such Participants individual capacity in connection with any such matter.
10.3 Service of Process. In the absence of any designation to the contrary by the Plan Administrator, the General Counsel of the Company is designated as the appropriate and exclusive agent for the receipt of service of process directed to this Plan in any legal proceeding, including arbitration, involving this Plan.
10.4 Choice of Law. Except to the extent that federal law is controlling, this Plan Statement will be construed and enforced in accordance with the laws of the State of Minnesota.
10.5 Responsibility for Delegate. No person shall be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of the Plan Statement or pursuant to procedures set forth in the Plan Statement.
10.6 Expenses. All expenses of administering the benefits due under this Plan shall be borne by the Participating Employers.
10.7 Errors in Computations. It is recognized that in the operation and administration of the Plan certain mathematical and accounting errors may be made or mistakes may arise by reason of factual errors in information supplied to the Plan Administrator or trustee. The Plan Administrator shall have power to cause such equitable adjustments to be made to correct for such errors as the Plan Administrator, in its sole discretion, considers appropriate. Such adjustments shall be final and binding on all persons.
10.8 Indemnification. In addition to any other applicable provisions for indemnification, the Participating Employers jointly and severally agree to indemnify and hold harmless, to the extent permitted by law, each director, officer and Employee of the Participating Employers against any and all liabilities, losses, costs or expenses (including legal fees) of whatsoever kind and nature which may be imposed on, incurred by or asserted against such person at any time by reason of such persons services as an administrator in connection with this Plan, but only if such person did not act dishonestly, or in bad faith, or in willful violation of the law or regulations under which such liability, loss, cost or expense arises.
10.9 Notice. Any notice required under this Plan Statement may be waived by the person entitled thereto.
SECTION 11
CONSTRUCTION
11.1 ERISA Status. This Plan was adopted and is maintained with the understanding that it is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as provided in section 201(2), section 301(a)(3) and section 401(a)(1) of ERISA. This Plan shall be interpreted and administered accordingly.
11.2 IRC Status. This Plan is intended to be a nonqualified deferred compensation arrangement that will comply in form and operation with the requirements of Code section 409A and this Plan will be construed and administered in a manner that is consistent with and gives effect to such intention.
11.3 Rules of Document Construction. In the event any provision of this Plan Statement is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. The titles given to the various Sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the scope, purpose, meaning or intent of any provision hereof. The provisions of this Plan Statement shall be construed as a whole in such manner as to carry out the provisions thereof and shall not be construed separately without relation to the context.
11.4 References to Laws. Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation unless, under the circumstances, it would be inappropriate to do so.
11.5 Appendices. The Plan provisions that have application to a limited number of Participants or that otherwise do not apply equally to all Participants may be described in an appendix to this Plan Statement. In the event of a conflict between the terms of an appendix and the terms of the remainder of this Plan Statement, the appendix will control.
APPENDIX A
SPP Benefit
A-1 Purpose and Application. The purpose of this Appendix A to this Plan Statement is to establish the rules for determining the amount of the SPP Benefit Transfer Credit under this Plan.
A-2 Background.
A-2.1 Transfer Credits. The Company has adopted and maintained several nonqualified supplemental pension plans to provide retirement income to a select group of highly compensated and key management employees in excess of the retirement income that can be provided under the Target Pension Plan on account of limitations imposed by the Code. Effective April 30, 2002, the Company began converting the accrued supplemental pension benefits of certain participants to credits under this Plan as adjusted annually to reflect changes in such benefits.
A-2.2 Cash Balance Formula. Effective January 1, 2003, the Target Pension Plan was amended to add a cash balance pension plan formula (referred to as the personal pension account). Depending on the date participation commences or an election was made, a Participant who has a benefit under the Target Pension Plan may have his or her accrued benefit under such plan based solely on the final average pay formula (the traditional formula), solely on the personal pension account, or a combination of the traditional formula (frozen as of December 31, 2002) and the personal pension account.
A-3 Definitions.
A-3.1 SPP I SPP I means the Target Corporation SPP I.
A-3.2 SPP II SPP II means the Target Corporation SPP II.
A-3.3 SPP III SPP III means the Target Corporation SPP III.
A-4 SPP Benefit. Each Participants SPP Benefit is equal to the sum of the benefits under Section A-4.1, Section A-4.2 and Section A-4.3.
A-4.1 Traditional Formula Benefit. A Participants SPP Benefit is the excess, if any, of the monthly pension benefit under (a) over the monthly pension benefit under (b):
(a) The monthly pension benefit the Participant would be entitled to under the Target Pension Plan, based on the traditional formula, if such formula were applied
(i) without regard to the maximum benefit limitation required by Code section 415;
(ii) without regard to the maximum compensation limitation under Code section 401(a)(17);
(iii) as if the definition of certified earnings under the Target Pension Plan for a plan year included compensation that would have been paid in the plan year in the absence of the Participants election to defer payment of
the compensation to a later date pursuant to the provisions of a deferred compensation plan;
(iv) without regard to the alternative benefit formula of Sections 4.6(a)(3) and 4.6(b)(2) of the Target Pension Plan.
(b) The monthly pension benefit the Participant is entitled to receive under the Target Pension Plan on account of the traditional formula.
A-4.2 Personal Pension Account. A Participants SPP Benefit includes the excess, if any, of the amount determined under (a) over the amount determined under (b):
(a) The amount that would have been credited each quarter (including both pay credits and interest credits) to the Participants personal pension account under the Target Pension Plan, if such account were applied:
(i) without regard to the maximum benefit limitations required by Code section 415;
(ii) without regard to the maximum compensation limitation under Code section 401(a)(17);
(iii) as if the definition of certified earnings under the Target Pension Plan for a calendar quarter included compensation that would have been paid during such calendar quarter in the absence of the Participants election to defer payment of the compensation to a later date pursuant to the provisions of a deferred compensation plan;
(iv) as if a distribution had been made from such account equal to any SPP Benefit Transfer Credits made under Section 3.3.
(b) The amount of the credits actually made to the Participants personal pension account under the Target Pension Plan.
A-4.3 SPP III. For a Participant who was participating in SPP III, the Participants SPP Benefit includes the actuarial equivalent lump sum present value of the monthly pension benefit under (a) over the monthly pension benefit under (b):
(a) The monthly pension benefits determined under Section A-4.1(a) determined by treating the Participant as five (5) years older than his or her actual age solely for purposes of determining the early reduction factor (but in no case shall the Participants age be deemed to be greater than age 65).
(b) The monthly pension benefits determined under Section A-4.1(a).
A-4.4 Company Determination. The actuarial lump sum present value of a Participants benefit determined under this Appendix A will be determined by the Company, in its sole and absolute discretion, by using such factors and assumptions as the Company considers appropriate in its sole and absolute discretion as of the date of distribution or transfer.
A-5 Forfeiture of SPP III Benefit.
A-5.1 Pre-Age 55 SPP III Forfeiture. A Participant who has a Termination of Employment prior to attaining age 55 will forfeit that portion of his or her SPP Benefit Transfer Credit and Earnings Credit determined under Section A-5.3.
A-5.2 ICP Eligibility SPP III Forfeiture. A Participant who becomes entitled to receive payments under an income continuation plan or policy of an Affiliate on account of his or her Termination of Employment after attaining age 55 will forfeit that portion of his or her SPP Benefit Transfer Credit and Earnings Credit determined under Section A-5.3.
A-5.3 Amount of SPP III Forfeiture. A Participants forfeiture under Sections A-5.1 or A-5.2 is that portion of the SPP Benefit Transfer Credits attributable to his or her SPP Benefit determined under Section A-4.3 of Appendix A, and an amount of Earnings Credits equal to the investment adjustment that would have been credited on such SPP Benefit Transfer Credits at the Stable Value Crediting Rate Alternative through June 5, 2012 and for periods after June 5, 2012, at the Intermediate-Term Bond Crediting Rate Alternative.
APPENDIX B
Participants on Temporary Assignment to Canada
B-1. Purpose; Application. The purpose of this Appendix B to this Plan Statement is to set forth the application of specific provisions or exceptions to the general provisions of the Plan as they relate to those Participants who are transferred to Canada on a temporary assignment as a Seconded Participant.
B-2. Definitions. The following terms when used herein with initial capital letters, have the following meanings:
(a) Letter of Assignment. Letter of Assignment means the written instrument provided to and executed by a Seconded Participant, as amended, that, among other things, establishes the date of the Seconded Participants transfer to Canada.
(b) Participation End Date. Participation End Date means the last day of the full calendar month that includes the 34-month anniversary of the Seconded Participants date of transfer to Canada as a Seconded Participant or, if earlier, the last day of the calendar month that immediately precedes the month during which the Seconded Participant is scheduled, in his or her Letter of Assignment, to return to the United States. The Participation End Date as established by a Seconded Participants Letter of Assignment will become irrevocable on the January 1 of the calendar year that includes such Participation End Date.
(c) Seconded Participant. A Seconded Participant is a Participant under the Plan (i) who is transferred to Canada for a temporary assignment, (ii) who is employed by Target Corporation or a U.S. Affiliate on its U.S. payroll, (iii) who has executed a Letter of Assignment, and (iv) whose employment is seconded to a Canadian Affiliate.
B-3. Eligibility. A Seconded Participant is eligible to participate in the Plan until the last day of the calendar month that includes the Seconded Participants Participation End Date. A Seconded Participant who has ceased to be eligible to participate in the Plan under this Appendix B is again eligible to participate in the Plan as of the first day of the Plan Year following the Plan Year during which the Participant ceased to be a Seconded Participant.
B-4. Deferral Elections. A Participants deferral election for the calendar year that includes the Participation End Date:
(a) may not include an election to defer any Bonus Amount;
(b) may only defer specified dollar amounts of Base Salary for each of the calendar months through the Participation End Date, unless guidance under Section 409A of the Internal Revenue Code allows an alternative (e.g., percentage of Base Salary) election to be made for a partial year); and
(c) may not include any Base Salary deferrals for the calendar months following the Participation End Date.
B-5. Restoration Match Credit. A Seconded Participant who is eligible to receive a Restoration Match Credit under Section 3.2.1 shall be subject to the following rules for the Plan Year that includes such Participants Participation End Date and for each subsequent Plan Year during which the Participant is a Seconded Participant:
(a) For each entire calendar month through the Participation End Date (which includes the calendar month that ends with the Participation End Date), the Seconded Participant shall receive a Restoration Match Credit equal to the amount of the Restoration Match Credit the Seconded Participant would have received if Section 3.2.1(ii) were applicable and the Participation End Date was his or her Termination of Employment.
(b) The amount of the Restoration Match Credit for the Plan Year that includes the Participation End Date, determined without regard to Section B-3, that is in excess of the amount determined in Paragraph (a) shall be paid in cash to the Participant on the last business day of the Plan Year.
(c) For any Plan Year following the Plan Year that includes the Participants Participation End Date and during which the Participant is a Seconded Participant, the Participant will receive a cash payment on the last business day of the Plan Year equal to the Restoration Match Credit the Participant would have received if Section B-3 did not apply.
B-6. Enhancement. A Seconded Participant who is eligible to receive the Enhancement credit under Section 4.4 (and is not subject to exclusion or forfeiture under Section 4.4.2) shall be subject to the following rules for the Plan Year that includes the Participants Participation End Date and for each subsequent Plan Year during which the Participant is a Seconded Participant:
(a) For each entire calendar month through the Participation End Date (which includes the calendar month that ends with the Participation End Date), the Seconded Participant shall be eligible to receive the Enhancement as a credit to his or her Account, subject to the conditions set forth in Section 4.4.
(b) For each calendar month following the Participation End Date during which the Seconded Participant is employed by the Company or an Affiliate for the entire calendar month, the Participant will receive a cash payment on the last day of the calendar year that includes such month in an amount equal to the Enhancement multiplied by the balance of the Account on the first day of the month; provided, however, no cash payment will be made with respect to any period during which the Seconded Participant satisfies the conditions for exclusion or forfeiture under Section 4.4.2. The cash payment under this Paragraph (b) will be made whether or not the Participant would be treated as vested under Section 5.3.
Exhibit (12)
TARGET CORPORATION
Computations of Ratios of Earnings to Fixed Charges for the
Six Months Ended July 28, 2012 and July 30, 2011
and for the Most Recent Five Fiscal Years
Ratio of Earnings to Fixed Charges |
|
Six Months Ended |
|
|
Fiscal Year Ended |
| |||||||||||||||||
|
|
Jul. 28, |
|
Jul. 30, |
|
|
Jan. 28, |
|
Jan. 29, |
|
Jan. 30, |
|
Jan. 31, |
|
Feb. 2, |
| |||||||
(dollars in millions) |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
|
2010 |
|
2009 |
|
2008 |
| |||||||
Earnings from continuing operations before income taxes |
|
$ |
2,173 |
|
$ |
2,190 |
|
|
$ |
4,456 |
|
$ |
4,495 |
|
$ |
3,872 |
|
$ |
3,536 |
|
$ |
4,625 |
|
Capitalized interest, net |
|
(4 |
) |
2 |
|
|
5 |
|
2 |
|
(9 |
) |
(48 |
) |
(66 |
) | |||||||
Adjusted earnings from continuing operations before income taxes |
|
2,169 |
|
2,192 |
|
|
4,461 |
|
4,497 |
|
3,863 |
|
3,488 |
|
4,559 |
| |||||||
Fixed charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest expense(a) |
|
383 |
|
382 |
|
|
797 |
|
776 |
|
830 |
|
956 |
|
747 |
| |||||||
Interest portion of rental expense |
|
56 |
|
58 |
|
|
111 |
|
110 |
|
105 |
|
103 |
|
94 |
| |||||||
Total fixed charges |
|
439 |
|
440 |
|
|
908 |
|
886 |
|
935 |
|
1,059 |
|
841 |
| |||||||
Earnings from continuing operations before income taxes and fixed charges |
|
$ |
2,608 |
|
$ |
2,632 |
|
|
$ |
5,369 |
|
$ |
5,383 |
|
$ |
4,798 |
|
$ |
4,547 |
|
$ |
5,400 |
|
Ratio of earnings to fixed charges |
|
5.94 |
|
5.98 |
|
|
5.91 |
|
6.08 |
|
5.13 |
|
4.29 |
|
6.42 |
|
(a) Includes interest on debt and capital leases (including capitalized interest) and amortization of debt issuance costs. Excludes interest income and interest associated with uncertain tax positions, which is recorded within income tax expense.
Exhibit (31)A
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certifications
I, Gregg W. Steinhafel, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Target Corporation; | ||
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: | ||
|
a. |
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
|
evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
|
disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function): | ||
|
a. |
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
|
b. |
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 23, 2012 |
|
/s/ Gregg W. Steinhafel |
Gregg W. Steinhafel |
Chairman, President and Chief Executive Officer |
Exhibit (31)B
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certifications
I, John J. Mulligan, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Target Corporation; | ||
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: | ||
|
a. |
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
|
evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
|
disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function): | ||
|
a. |
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
|
b. |
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 23, 2012 |
|
/s/ John J. Mulligan |
John J. Mulligan |
Executive Vice President and Chief Financial Officer |
Exhibit (32)A
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
AS ADOPTED PURSUANT TO 18 U.S.C. SECTION 1350
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Target Corporation, a Minnesota corporation (the Company), for the quarter ended July 28, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned officer of the Company certifies pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: August 23, 2012 |
|
/s/ Gregg W. Steinhafel |
Gregg W. Steinhafel |
Chairman, President and Chief Executive Officer |
Exhibit (32)B
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
AS ADOPTED PURSUANT TO 18 U.S.C. SECTION 1350
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Target Corporation, a Minnesota corporation (the Company), for the quarter ended July 28, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned officer of the Company certifies pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: August 23, 2012 |
|
/s/ John J. Mulligan |
John J. Mulligan |
Executive Vice President and Chief Financial Officer |
Share Repurchase (Details) (USD $)
Share data in Millions, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | 12 Months Ended | 1 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 28, 2012
|
Jul. 30, 2011
|
Jul. 28, 2012
|
Jul. 30, 2011
|
Jan. 28, 2012
|
Nov. 30, 2007
2007 Share Repurchase Program
|
Jan. 28, 2012
2012 Share Repurchase Program
|
Jul. 28, 2012
Cash investment
|
Jul. 30, 2011
Cash investment
|
Jul. 28, 2012
Cash investment
|
Jul. 30, 2011
Cash investment
|
Jul. 28, 2012
Prepaid forward contracts market value
|
Jul. 30, 2011
Prepaid forward contracts market value
|
Jul. 28, 2012
Prepaid forward contracts market value
|
Jul. 30, 2011
Prepaid forward contracts market value
|
|
Share Repurchase Information | |||||||||||||||
Amount approved by board of directors for share repurchase program | $ 10,000,000,000 | $ 5,000,000,000 | |||||||||||||
Total Number of Shares Purchased | 9.6 | 14.3 | 20.2 | 29.7 | |||||||||||
Repurchase of stock, average price per share (in dollars per share) | $ 57.09 | $ 48.11 | $ 57.21 | $ 50.81 | |||||||||||
Total Investment | 549,000,000 | 688,000,000 | 1,154,000,000 | 1,507,000,000 | |||||||||||
Stock repurchased, delivered upon settlement of prepaid forward contracts (in shares) | 0.2 | 0.2 | 0.4 | 0.3 | |||||||||||
Repurchase of stock | 1,154,000,000 | 1,894,000,000 | 11,000,000 | 7,000,000 | 23,000,000 | 14,000,000 | |||||||||
Stock repurchased, delivered upon settlement of prepaid forward contracts | $ 11,000,000 | $ 7,000,000 | $ 24,000,000 | $ 14,000,000 |
Credit Card Receivables (Details 2) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 28, 2012
|
Jul. 30, 2011
|
Jul. 28, 2012
|
Jul. 30, 2011
|
|
Allowance for Doubtful Accounts | ||||
Allowance at beginning of period | $ 395 | $ 565 | $ 430 | $ 690 |
Bad debt expense | 43 | 15 | 95 | 27 |
Write-offs | (105) | (142) | (232) | (326) |
Recoveries | 32 | 42 | 72 | 89 |
Allowance at end of period | $ 365 | $ 480 | $ 365 | $ 480 |
Derivative Financial Instruments (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 28, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Contracts - Effect on Results of Operations |
|
Derivative Financial Instruments (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jul. 28, 2012
instrument
|
Jan. 28, 2012
|
Jul. 30, 2011
instrument
|
Jul. 28, 2012
Interest rate swaps
|
Jul. 30, 2011
Interest rate swaps
|
Jul. 28, 2012
Interest rate swaps
|
Jul. 30, 2011
Interest rate swaps
|
|
Derivative Contracts - Effect on Results of Operations | |||||||
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net | $ 9 | $ 11 | $ 19 | $ 22 | |||
Unamortized hedged debt valuation gains from terminated and de-designated interest rate swaps | $ 93 | $ 111 | $ 132 | ||||
Number of derivative instruments designated as accounting hedge | 1 | 1 |
Consolidated Statements of Shareholders' Investment (Parenthetical) (USD $)
|
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Jul. 28, 2012
|
Jul. 30, 2011
|
Jan. 28, 2012
|
|
Consolidated Statements of Shareholders' Investment | |||
Dividends declared per share (in dollars per share) | $ 0.36 | $ 0.30 | $ 1.15 |