Académique Documents
Professionnel Documents
Culture Documents
TABLE OF CONTENTS
Company Background.........................................................................................................3
Overview of the Annual Report...........................................................................................5
The Business Environment..................................................................................................5
The Auditors.........................................................................................................................7
SEC Form 10-K Report.......................................................................................................8
Industry Background..........................................................................................................11
Operating Activities...........................................................................................................12
Analysis of Operating Activities........................................................................................16
Investing Activities............................................................................................................17
Analysis of Investing Activities.........................................................................................19
Debt Financing...................................................................................................................21
Equity Financing................................................................................................................28
Analysis of Financing Activities........................................................................................33
Comparison to Industry Benchmarks.................................................................................36
Appendix:
Statement of Cash Flows...................................................................................................37
Income Statement...............................................................................................................42
Balance Sheet.....................................................................................................................47
Introduction
TargetCorporation is a retail industry that had developed its first site in Roseville
Minnesota in 1962 before founding in other Target corporations around the United States. Target
is listed as number three in retail compared to other competitors such as Wal-Mart and Kroger
and Costco who are Targets main competitors. Target has expanded over time now having stores
in Canada among the rest of the stores in the United States. Target the preferred shopping
destination for our guests by delivering outstanding value"(Target 2013). Target has expanded in
retail over the years now having corporations in Canada and also serving our communities for
years with retail integrity, an innovation for improving the TargetCorporation based on the needs
of the people.
Company Background
Target was founded by its original owner George Draper Dayton in 1902 the store opened
under the name of Dayton dry goods which began incorporated that same year 1902, in
Roseville, MN today the company has an internet website for their customers to shop and
address their concerns their address is www.Target.com and their corporate address is 1000
Nicolle mall Minneapolis, MN 55403.
Target
presently used Ernst & Young LLP to conduct their internal control over their financial reporting
which has been issued by the committee of sponsoring organizations of tread way commission
( The COSO criteria ) Their responsibility include the assessment and effectiveness of the
internal control over financial reporting which accompanies the report of management on
internal control over the financial reporting. They conduct audits which are in accordance with
the standards of the public company accounting oversight board of the United States of America
also they have audit, within the standards of the public company accounting oversight board of
the United States of America.
For the last three years this firm has provided Target with consolidated statements on
their financial position. Target has grown tremendously since their beginning, today they are
considered a discounted retail giant their service expands across all lines of service such as their
grocery, pharmacy, in store retail, and online catalogs service. Target SIC code is 5531, Target
presently has 1,763 stores nationwide and 124 located in Canada with their average size ranges
14,189 sq. feet.
Formerly, the company named Dayton Hudson now operates their division of Marshall
Fields, Mervyns and the Target stores they also have 40 distribution centers, 3 of which are in
located in Canada. Target is famously known for their Bulls eye symbol which is a registered
trade mark they officially became Target in 1962 after the company went through several name
changes advertising the bulls eye in a red and white color their aim was to hit the center of the
bulls eye logo because the store would do the same in terms of their goods and services within
the community. The ticker symbol for this company is TGT (common stock) the listed shares are
shown on the NASDAQ and the market watch also the NYSE. Targets board of directors list is
one of the most impressive of its kind Gregg Steinhafel, chairman, chief executive officer and
president has a total annual compensation of 1,500,000 USD. Under his membership there are 66
affiliated members Douglas M. Baker from Ecolab Inc. Kenneth L Salazar US, Department of
the interior, William C. Rhodes, from Auto Zone Inc. All are board members who comprised
from a diverse business background. Targets ranks # 20 of the top 50 companies for diversity
and # 29 most admired company. Target owns several subsidiaries which includes 1. Target.com
2 Target Brands, 3 Target commercial interiors, 4.
Target has also extended their price match services because they want their customers to
have a great value they recently announced that they are committed to hiring 100,000 veterans by
the year 2020. Target Products are vast; merchandize range from home and dcor sells at 18% to
apparel and accessories 19% food and pet supplies at 20% just to name a few of the various
items sold. Target exclusive brands products differentiate them from other retailers.
Targets MD&A reports states that their managers believe their U.S. operations increased
14.3 percent to $ 4.41 in 2011 from $ 3.56 in the prior year after launching their 5% RED card
reward loyalty program charges were $ 258 million in 2011 increase to their operations and
market expenses were within the U.S. credit card segment. Report of management on the
consolidated financial statements, has been prepared in accordance with the accounting
principles which are accepted in the United States which includes judgments and estimates by
their management, its their responsibility to fulfill a comprehensive system of internal control to
assure that the assets are safeguarded and transactions are executed. In addition, Target
consolidated financial statements have been audited by Ernst & Young LLP. An independent
registered public accounting firm. Target has several executive officers just to name a few are
Tina M. Schiel serves as executive vice president, stores and Laysha L. Ward president of
community relations and Target foundation.
Target currently has and claim against them for copied designs for maternity pants made
by Destination Maternity and U.S. District judge Anita B Brody of the eastern district of
Pennsylvania granted Target a motion to stay in federal court because Target plans to show the
pants are invalid.
According to the article Destination Maternity says that Target and their brand of clothes
for pregnant women infringed on two of its patents for maternity pants, Target intends to file for
inter parties review, based on prior Japanese art which will show that the patents are invalid.
Target was hit with a law suit because hackers had breached their systems and
comprised 40 million of their customers credit and debit cards information in the report states
where Target failure to implement correct security measures case is currently pending, However,
a secret service official testified that the data breach was highly technical prompting Mr.
Steinhafel to reply that any retailer would not be able to with stand that type of technology.
Currently under Steinhafel direction Target is pushing for new chip technology on their cards and
replace the old magnetic strips as used today their goal date to have this done is by 2015. With all
the fallout behind the breach Target decided to replace Steinhafel with CFO John Mulligan who
will serve as interim CEO. Target currently will focus on things that previously defined them
which are fashion and innovation trends. Target is currently looking to develop a strategic and
competitive vision because of the magnitude of the breach by building more presence in urban
markets and offer more fresh groceries with natural and holistic options.
Target is committed to corporate responsibility: Especially after
last years credit breach which took place during the Thanksgiving, and Christmas shopping
season today Target encourages their team members to conduct themselves and business
practices with integrity and honesty, there are 22 corporate policies and each employee is
expected to know and comply.
The Auditors
Auditors are essential for any company that is large or small or looking for ways of
improvement within their organization. Target corporation uses an accounting firm known as
Ernest and Young, LLC"(Target Brands 2013). Therefore, Ernest and Young, LLC was helps
with the auditing of Targets financial statements. The Ernest and young accounting firm works in
the accordance of the United States standard of public accounting oversight board (TargetBrands,
2013). The auditing firm for this Target has been involved with the statements and cash flow
operations since 2012. The accounting firm audit opinion was signed in the city of Minneapolis,
MN. Ernest Young accounting company is a large company that is placed as number 10 in
Americas most private companies. (Forbes 2013) "Ernest and Young has 175,000 employees and
was founded in 1903 as the headquarters is in New York, NY"(Forbes 2013). The use of the
accounting firm uses multiple measures including consolidated statements of operation, cash
flow statements, and statements of shareholder investments, etc.( Target brands, 2013).
However, an example of a financial statement that the firm of Ernest Young would analyze can
be seen in the table below.
SEC Form 10-K Report
The form 10-K report offers a wealth of information for the analysis of both potential and
current investors. The information included in a 10-K report ranges from general business
background information to detailed financial information that reports the companys financial
standing at the end of the fiscal year. In reviewing the most recent 10-K report for Target, for the
fiscal year ending February 2, 2013, there are several parts that are very important, however for
the purpose of this report, three major parts stood out as being most informative and helpful to
potential investors.
Although Target is a well-known national retail chain,as with any investment, it is
important to understand what you are investing in. Targets 10-K report offers a Business section
under Part I, Item 1. Included in this section of the 10-K report are items such as general
business model and function, financial highlights, as well as merchandise sales broken down by
category, amongst several other items. Specifically, the General Business section of Item 1
describes the corporations business segments as well as practices. It identifies three reportable
business segments, U.S. Retail, U.S. Credit Card and Canadian, and includes the different
products and services offered by both U.S. segments of the corporation. In addition this section
also offers consumers insight into their business strategy, their approach to customer service, and
their dedication to properly managing their current business while focusing on future growth.
This is valuable information to an investor and should not be overlooked. Investors want to be
an owner of a company that produces returns, and the business model provides an overview of
how the company intends to maximize profits. (Hudspeth, 2012)
The Analysis of Financial Condition section also provides some very useful information
in regards to the liquidity and capital resources for the corporation. In addition to the financial
results reported in the 10-K form, this section gives a detailed explanation of the financial
transactions that greatly affected the items being reported on the companys financial statements.
It is information that might not be readily available or discernable to investors.
A share repurchase transaction totaling $10 billion dollars was completed in 2012, and a
new effort to repurchase shares worth $5 billion dollars began in 2012. (Target.com)This would
be useful information as a share repurchase can mean a number of different things. In general a
share buyback is a positive thing for current investors and can signify to potential investors a
share-holder friendly management team that is seeking to increase the percentage of equity each
shareholder represents in the corporation. (Kennon) When a company reduces the amount of
shares issued to the public, it increases the value of each of the remaining publicly traded shares.
While this generally may be a good practice from investors standpoint, if a company pays too
much for its own stock it can be harmful for the organization. (Kennon) Companies in this
situation should evaluate other more beneficial options for both the company and investors.
After getting background information on the organization it would be vital for an investor
to read and attempt to make sense of the financial information that is reported on the companys
financial statement. While background information is important to the overall decision to invest,
the companys actual performance is what drives most investors to buy, or not to buy stocks.
Reading the statements provided in the 10-K report is one of the best ways for investors to
understand what is happening within the organization financially, and can help investors stave off
a potential loss of earnings if there are any red flags in their reporting. (Krantz, 2012)
Different financial statements within the 10-K form focus on different financial areas of
the organization. For instance the operating results of an organization can be found on the
Income Statement, which provides investors the ability to judge a companys past performance,
while also assessing their future cash flows. (Way) Investors can then hone in on the information
they are interested in and make a reasonable decision after reviewing that information.
The 10-K report to the Securities and Exchange Commission is required by law, and is an
annual report geared toward regulators prepared and presented annually. This document varies
greatly from the standard annual report for many organizations, however due to a law called
Regulation Fair Disclosure (Reg-FD), many organizations have opted to either include in or
replace their annual report with the 10-K report. (Terzo) For Target, the major difference is in the
way the information is presented. While the annual report has much of the same general
business information that is important in the 10-K report noted previously, the information is
reported in a user friendly way accompanied by graphics to enhance the effect of the information
being presented. Because the annual report is geared toward current investors, it is important for
this to be made as comprehendible as possible.
Another way in which the 10-K report and the companys annual report differ is in the
presentation of the financial information. The 10-K report is very straight forward and detailed
in the amount of information provided. In contrast, the financial information found in the
primary annual report gives a comprehensible financial outlook. While the 10-K report is
available as part of the annual report, it is not the focus of the information that is going out to
current shareholders.
Industry Background
Targets industry background is in is in retail. Targets Corporation had started as a small
company and then expanded around the United States and Canada. Target had started in 1902
and has expanded "and now operates in over 100 locations in the Canadian Subsidiary."
(Wikipedia 2014) However, retail stores have always been sustainable in society. Target however,
is ranked as number three on the top 100 retail stores. The Target administrators of the
cooperation have always looked for ways to satisfy its customers through organizational skills,
trend, and affordability. Also "Target continually reinvents its stores, including layout,
presentation and merchandise assortment, to create an engaging shopping experience"(Target
2013). Target is also known for having a general Target store and super Target store that includes
a supermarket. Target Corporation has been in competition with rivals Wal-Mart who is listed as
number one in company retail and Kroger. "Target and its larger grocery-carrying incarnation,
super Target, have carved out a niche by offering more upscale, trend-driven merchandise than
rivals Wal-Mart and Kmart. Target also issues its proprietary Target credit card, good only at
Target (Hoover's 2014). Target has expanded by the needs of the customers causing Target to be
one of the top retails stores without having to expand or have as many supercenters like WalMart. Therefore, Target is very know and has ranking in many areas. Some of the areas that
Target is ranked in are: #36 in FORTUNE 500 (May 2013) S&P 500 (March 31, 2014) #184 in
FT Global 500 (July 2013) #36 in FORTUNE 1000 (May 2013) (Hoover's 2014). Therefore, the
major trends and development that is happening in this industry is expanding the retail stores for
accessibility for the customers; also allowing the current fashion trends to be able to be marketed
for customers of all ages. "Since 1946, the corporation has given 5 percent of its income to
communities through grants and a variety of programs like Take Charge of Education".
Operating Activities
Targets operating activities are the daily processes that generate income. These processes
demonstrate the companys core business values and provide the majority of the companys cash
flow and will determine if the company is profitable or not.
2013
2012
Sales Revenue
73,301.0
69,865.0
53.18B
50.44B
Operating expenses
5,371,000
5,322,000
Income Taxes
1,610,000
1,527,000
Net Income
2,999,000
2,929,000
4.52
4.28
Targets sales revenue increased from 2012 to 2013; however that doesnt mean that the
company is absolutely doing better. Target stores generally record revenue at the point of sale,
online and mobile applications including shipping revenue sales are recorded upon delivery to
the guest. Total revenues do not include sales tax because of the pass through nature of collecting
and remitting sales tax, the company allows returns up to 90 days after purchase. Revenues of
Target are recognized net of expected returns that are estimated using historical return patterns as
a percentage of sales. Gift card sales are only recognized at the time of the redemption on the
card. Discounts associated with loyalty programs such as Targets REDcard are included as a
reduction in sales. The REDcard allows Target customers to receive a 5% discount and free
shipping when shopping at Target.com. Targets sales also increased due to the amount of new
store sales and in addition to a higher comparable-store sales.
Targets cost of goods sold refers to the inventory costs of goods it has sold during a
period. The increase to Targets cost of goods sold means that Target has a higher expense in cost
including: labor, supplies, shipping costs, cost of packaging, freight, also cost of the factory
where goods are manufactured. From 2012 to 2013 price inflation and other market changes
caused prices to change, this cost is seen for Target as its cost of goods sold increased by 2.74
billion dollars.
Targets operating expenses increased from 2012 to 2013 by 510,000 million dollars.
Perhaps the breach of security from the year end 2013 made an impact on this by requiring
unexpected expense for the heightened security. There are several factors that can be investigated
regarding the higher operating expense for Target like employee wages, which differs throughout
the United States, and research and developments funds.
Income taxes increased 83,000 million dollars for Target over the 2012-13 year. The
income taxes shown on the income statement are an estimation of what Target thinks the expense
is, not the actual paid income tax.
The net income increased despite the increases to expenses, net income increased by 70,
000 million from 2012 to 2013. Targets net income is the bottom line earnings for the company,
by taking all expenses away from revenue. According to BusinessWeek, a key factor to Targets
net income increase is in the percentage of sales devoted to SGA (Selling, General &
Administrative Expense) cost from 20.67% to 21.08%. Moreover, the SGA breaks down into
sales of specific items such as credit, warranty and advertising expenses. Additionally, this
expense covers the salaries of non-sales personnel, rent, heat, and lights. Earnings per share
indicate a slight increase of .24, due to the net income increase. As stated by Corporate Target,
beginning with the first quarter of 2013, income from the profit-sharing arrangement, net of
account servicing expenses, will be recognized as an offset to selling, general and administrative
(SG&A) expenses, and we will no longer report a U.S. Credit Card Segment.
Year End Balance Sheet
Allowance for bad debts as a percentage of ending accounts receivable
(gross)
2013
0
2012
(430M)
5.84B
5.93B
7.9B
7.92B
272M
257M
1.11B
1.19B
The Allowance for bad debts of ending accounts receivable for Target is not recorded for
2013, however 2012 shows that -430 million went into this account. Basically what that number
is showing is that the amount of accounts receivable that went bad and was not paid. Increases to
the bad debt expensive generally come from periodic loan-loss provisions and tends to smooth
bank earnings. The balance in accounts receivables decreased slighting from 2012 to 2013,
which could be indicating a sell off of bad debt or less debt owed to Target.
The balance in inventory decrease suggests Target is holding onto its inventory longer
than previously recorded metrics. This measure is calculated by using the inventory turnover
ratio; the inventory turnover is what shows how quickly a company can convert its inventory into
cash and profits. Because Target is facing a decrease in inventory turnover it could lead to
increased storage, insurance, and maintenance costs. The inventory ratio is calculated by taking
the cost of goods sold divided by the average inventory.
Targets balance of income taxes payable increased by 15 million dollars from 2012 to
2013. This accounts to the funds in an account in the current liabilities section on the balance
sheet that must be paid to the Government within one year. The balance in deferred income taxes
show that Target found income but the taxes on it has not been realized yet.
2012
29.73%
30.10%
7.46%
7.77%
4.17%
4.28%
----
11.55%
Inventory Turnover
6.40%
6.04%
Asset Turnover
1.49%
1.47%
18.63%
12.09%
Receivables Turnover
Gross profit margins represent the difference between net sales and the cost of sales, the
better the GPM the greater chance for positive bottom line. Target is showing a decrease in the
gross profit margin from 2012-2013. This decrease has the potential to impact the Redcard
loyalty program; however Target did change merchandise vendors in 2013 so there could be an
increase moving forward to the gross profit margin.
Operating profit margin also declined showing less revenue after paying for variable
costs. A decrease in the profit margin can identify a difficulty in paying for fixed costs and
interest on debt. If the profit margin shows an increase it will show that Target is earning more
per dollar of sales. The net profit margin also declined, sharing the common impact of the
earning per dollar for the company. Receivables turnover ratio is equal to revenue divided by
receivables; Target only shows data for 2012. The receivable ratio is in the group of efficiency
ratios, if the receivable ratio is high it shows that the companys profits are higher.
Inventory turnover shows a decline from 2012-2013 by .36%, this suggests that perhaps
Target found efficient ways of selling inventory in lessor time. In other words, Target is selling
its merchandise without it having to sit on the shelf for a long time.
Asset turnover ratio shows how well a company is generating revenues per dollar of
assets. The increase for Target shows efficiency in deployment of assets for the company. Finally
the rate of return on total stockholders equity shows 6.54% increase from 2012-2013.
The return on equity (ROE) from 2012-2014 went up and down from 12.09% to 18.59%,
although Target increased the return on equity from 2012 to 2013 by 6.54% it went back down to
12.14% in 2014.
Investing Activities
Target has made a commitment to continued improvement of its facilities as well as
construction on new stores in its United States segment. The non-current account balances listed
below, and retrieved from the Consolidated Statement of Financial Position for 2012 indicate the
largest percentage changes were found in the Construction in Progress, Accumulated
Depreciation and Buildings and Improvement, accounts respectively. The increases in
Construction in Progress and Buildings and Improvement can be attributed to the organizations
commitment to expansion and growth, which was noted in the companys 10-K form. The
increase in accumulated depreciation is most likely due to continued depreciation charges of noncurrent assets (Hawawini & Viallet, 2011).
6,206
28,653
6,122
5,362
1.37
6.76
Improvement
Fixtures and
5,362
5,141
4.29
Equipment
Computer and Software
Construction-in-
2,567
1,176
2,488
963
4.01
22.11
Account
Land
Buildings and
Percentage
Change
Progress
Targets proportion of non-current assets to total assets for the last two years indicates
that the company prefers to invest the majority of their assets into long term capital expenditures
such as property and equipment. The proportion or percentage of non-current assets total assets
for 2012 and 2011 were 63% and 62% respectively. In comparison to its current assets, the noncurrent assets are much higher. This could also be due to the increase in store improvements and
new construction projects, as previously noted that the company has committed itself to ensure
continued growth and profitability.
Through the footnotes to the financial statements, the company has identified the use of a
straight-line depreciation method when accounting for non-current assets. The straight-line
depreciation method is the most basic form of accounting for non-current assets, resulting in
depreciation charges being equal each year (Hawawini & Viallet, 2011). Utilizing a straight-line
Canadian
Total
2012
5,019
557
(369)
5,206
2011
4,765
606
(122)
5,250
The U.S. Retail segment of the company generates a large majority of the profits reported
in this section. The U.S. Retail segment made up 96% and 90% of the total profits for 2012 and
2011 respectively. In reviewing the additional segment information reported by Target, the U.S.
Retail segment also makes up the vast majority of the organizations total assets as well. With a
figure in the millions of $37,404 for 2012 of the $48,163, reported on the Consolidated
Statement of Financial Position. In regards to capital expenditures, the U.S. Retail segment also
leads in this area. This tells us that Targets main focus is on continuing the growth and
development of the U.S. market and has devoted a great deal of its capital to doing so.
The 10-K form allows investors the ability to assess future performance for various
reported segments of a company. For instance in the Target 10-K, the Management Discussion
and Analysis section gave insight into the profit losses reported for the Canadian segment of the
company. As previously noted for 2011 and 2012, the Canadian segment reported losses in
millions in the amounts of $122 and $369 respectively. The company entered the Canadian
market in 2013, so the losses reported for 2011 and 2012 were due mainly to start-up costs
related to this venture. Target is hopeful that the losses will be recouped as they begin to
establish themselves within the Canadian market.
Debt Financing
In this section, Targets debt financing will be cross referenced for the years 2014 and
2013 to get an understanding of the companys debt financing and how its used by its
management. Reviewing Targets debt financing will show how the company is managing its
debts while staying profitable. According to investopedia.com, debt financing is defined as
When a firm raises money for working capital or capital expenditures by selling bonds, bills, or
notes to individual and/or institutional investors. In return for lending the money, the individuals
or institutions become creditors and receive a promise that the principal and interest on the debt
will be repaid. (investopedia.com)In this section, Targets debt financing is referenced in their
balance sheet under liabilities. Targets liabilities consists of the following sub-sections: accounts
payable, short/current long term debt, long term debt, other liabilities, and deferred long term
liability charges. The fore mentioned sub-sections will be furthered defined for Target in the
coming sections of this report.
Accounts payable
As defined on Wikipedia.org, accounts payable is defined as money owed by a business
to its suppliers shown as a liability on a companys balance sheet (Wikipedia.com). In 2014,
Target accounts payable as listed at $11,617,000,000 and in 2013 it was listed at
$11,037,000,000. Between the two years there has been an increase in the amount of
$580,000,000 in accounts payable suggesting the company is making significant changes to
improve its financial structure, inventories, and to improve the operational cycle in the company.
Short/Current long term debt
As defined by Hawawini, short-term debt includes notes payable, bank overdrafts,
drawings on lines of credit, and short-term promissory notes. The portion of any long-term debt
due within a year is also a short-term obligation and is recorded in the balance sheet as a shortterm borrowing (Hawawini, 2011, pp. 39). In 2014, Target short/current long term debt was
$1,160,000,000 and in 2013 it was $2,994,000,000. Between the two years there has been a
decrease of $1,834,000,000 which suggests that the company is concentrating on lowering its
short-term debt to improve its debt ratio and profitability.
Long-term debt
As defined on investopedia.com, long-term debt is loans and financial obligations
lasting over one year (investopedia.com). In 2014, Target long-term debt was $12,622,000,000
and in 2013 it was $14,654,000,000. There was a decrease of $2,032,000,000 between the two
years which suggest that the company is concentrating on lowering its long-term debt to improve
its debt ratio, increase profitability, and it shows that the company finances is in good standing.
Other liabilities
As defined on investopedia.com, Other liabilities consist of obligations which are not
going to be paid off within a year, but are not included as a long-term liability. These liabilities
are part of the total liabilities and are deemed not important enough to be identified each amount
individually. (investopedia.com) In 2014, Target other liabilities was $1,490,000,000 and in
2013 it was $1,609,000,000. There was a decrease of $119,000,000 which suggests that the
company has made enough capital to pay off some of its debts and to improve its debt ratio.
Deferred long-term liability charges
As defined on investopedia.com, Deferred long-term liability charges are charges that
are most often made up of deferred-tax liabilities that are to be paid more than one year in the
future. Deferred long-term liabilities are also considered forward contract obligations like swap
contracts or derivative products (investopedia.com). In 2014, Target deferred long-term liability
charges was $1,433,000,000 and in 2013 it was $1,311,000,000. There was an increase of
$122,000,000 during the two year period.
The total current liabilities add up to $12,777,000,000 for 2014 and $14,031,000,000 for
2013. The non-current liabilities add up to $15,545,000,000 for 2014 and $17,574,000,000 for
2013.The total liabilities from 2013 to 2014 have decreased by $3,283,000,000 which implies
that Targets profit margin has increase and the company is doing well.
According to edgar-online.com (through SEC filings), the table listed below shows the
interest-bearing liabilities for current and non-current liabilities for Target:
Fair Value
Measurement
s Recurring
Basis
(millions)
Assets
Cash and cash
equivalents
Short-term
investments
Other current
assets
Interest rate
swaps (a)
Prepaid
forward
contracts
Beneficial
interest asset (b)
Other
noncurrent
assets
Interest rate
swaps (a)
Companyowned life
insurance
investments (c)
Beneficial
interest asset (b)
Total
Liabilities
Other current
liabilities
Interest rate
swaps (a)
Other
noncurrent
liabilities
Interest rate
Leve
l1
Level 2
Level 3
Level 1
130
Level 2
Level 3
73
73
71
62
85
305
269
56
7
6
368
127
203
358
39
54
swaps (a)
Total
(b)
(c)
39
56
There was one interest rate swap designated as an accounting hedge at February 01, 2014
and February 02, 2013. See Note 19 for additional information on interest rate swaps.
A rollforward of the Level 3 beneficial interest asset is included in Note 6.
Company-owned life insurance investments consist of equity index funds and fixed income
assets. Amounts are presented net of nonrecourse loans that are secured by some of these
policies. These loan amounts were $790 million at February 01, 2014 and $817 million at
February 02, 2013.
Lease commitments
Over the next five years Target does have lease commitments that it has obligations too.
Targetlease retail locations, warehouses, distribution centers, office space, land, equipment and
software. Over the next five years the table below shows the lease payments Target has agreed to
in contract, taken from edgar-online.com (through SEC filings):
Future
Minimu
m Lease
Payment
s
(millions)
2014
2015
2016
2017
2018
After
2018
187
185
174
168
162
3,227
204
198
192
157
150
4,412
Rent Income
(6
(5
(4
(4
(3
(14
Total
) $
)
)
)
)
)
385
378
362
321
309
7,625
Total
future
minimum
lease
payments
Less:
Interest (c)
Present
value of
future
minimum
capital
lease
payments
4,103
5,313
(36 )
9,380
(3,342)
$
1,971
Total contractual lease payments include $2,105 million related to options to extend lease
terms that are reasonably assured of being exercised and also includes $135 million of
legally binding minimum lease payments for stores that are expected to open in 2014 or
later.
Capital lease payments include $3,740 million related to options to extend lease terms that
are reasonably assured of being exercised and also includes $80 million of legally binding
minimum payments for stores opening in 2014 or later.
Calculated using the interest rate at inception for each lease.
Includes the current portion of $77 million.
Pension and Post-retirement benefit obligation
Target does have a Pension and Post-retirement benefit program that helps individuals to
save for retirement. Listed below is a table taken from edgar-online.com (through SEC filings)
that explains Target contributions from 2012 through 2023.
Contributions
Our obligations to plan participants can be met over time through a combination of
company contributions to these plans and earnings on plan assets. In 2013 we made no
contributions to our qualified defined benefit pension plans. In 2012, we made discretionary
contributions of $122 million . We are not required to make any contributions in 2014. However,
depending on investment performance and plan funded status, we may elect to make a
contribution. We expect to make contributions in the range of $5 million to $6 million to our
postretirement health care benefit plan in 2014.
Estimated Future Benefit Payments
Benefit payments by the plans, which reflect expected future service as appropriate, are
expected to be paid as follows:
Pension
Benefits
$
152
159
169
178
188
1,058
Postretirement
Health Care
Benefits
6
6
7
8
8
45
Overall, the debt financing activities for Target has been moving in a positive direction.
Target has paid on most of its liabilities over the past year except for deferred long-term liability
charges where the companys value has increase from the prior year. With that said, Target was
still able to show positive figures from 2013 to 2014 with a decrease in total liabilities of
$3,283,000,000.
Contingent liabilities
During the fourth quarter of 2013 there was a data breach that jeopardized 40 million
credit and debit card accounts of guest who shopped at the U.S. stores. The investigation is still
being looked into and Target is working with law enforcement efforts to identify the responsible
parties. According to edgar-online.com (through SEC filings), Target recorded $61 million of
pretax Data Breach-related expenses, and expected insurance proceeds of $44 million, for net
expenses of $17 million ($11 million after tax), or $0.02 per diluted share(edgar-online.com).
According to a Statement issued in edgar-online.com, Target expects to receive significant
investigation, legal and professional services expenses associated with the data breach and will
recognize the expenses as the services are received. Target also expects to gain additional
expenses associated with incremental fraud and reissuance costs on their Target
REDcards.(Edgar-online.com)
Equity Financing
In this section, Targets equity financing will be cross compared for the years 2014 and
2013 to get an understanding of the companys gains and how it managed to achieve its equity.
Reviewing Targets equity holdings will show how the company is managing its finances.
According to Hawawini, Owners equity is the difference between a firms assets and its
liabilities. (Hawawini, 2011, pp. 17) In this section, Targets stockholders equity is referenced in
their balance sheet. Targets stockholders equity consists of the following sub-sections: common
stock, retained earnings, capital surplus, and other stockholder equity. The fore mentioned subsections will be furthered defined for Target in the coming sections of this report.
Common Stock
Retained Earnings
According to investorwords.com, retained earnings is defined as Earnings not paid out
as dividends but instead reinvested in the core business or used to pay off debt.
(investorwords.com) In 2014, Targets retained earnings was $12,599,000,000 and in 2013 the
retained earnings was $13,155,000,000. From 2013 to 2014 there was a decrease in the dollar
amount of $556,000,000 that the company can use in their reserve.
Capital Surplus
According to investopedia.com, capital surplus is defined as Equity which cannot
otherwise be classified as capital stock or retained earnings. It's usually created from a stock
issued at a premium over par value. (investopedia.com) In 2014, Targets capital surplus was
4,470,000,000 and in 2013 the capital surplus was 3.925,000,000. From 2013 to 2014 there was
an increase in capital surplus.
Other Stockholder Equity
when deciding to buy more stocks or sale their current stocks. Listed below is a graph from
dividendgrowthinvestor.com that shows the Targets dividend growth from 2004 to 2013.
Also reported on dividendsgrowthinvestor.com, the dividend payout ratio has increased from 13
% in 2004 to 29.20% in 2013. The expansion in the payout ratio has enabled dividend growth to
be faster than EPS growth over the past decade. A lower payout is always a plus, since it leaves
room for consistent dividend growth minimizing the impact of short-term fluctuations in
earnings (Dividendsgrowthinvestor.com).
Equity financing activities
To briefly summarize Targets equity financing activities for the past year and beyond,
dividendgrowthinvestor.com has cited the following off its reports:
Future growth would likely be focused on expanding same-store sales and renovating
existing stores.
Future growth could be realized by the increased penetration of the RED Card.
The company is Targeting middle-class and upper income consumers, which are more
interested in quality and diversity of product offerings, rather than simply looking at the
lowest prices.
It has in essence managed to differentiate itself from Wal-Mart (WMT).
The company also is on track to bring the number of stores in Canada, which could
increase long-term profits.
Target Stores has a goal of earning $8/share by 2017, which would be driven by 5% sales
growth in US, share repurchases, store openings in Canada, as well as square footage
growth.
employee members of our Board of Directors that vest immediately, but are not exercisable until
one year after the grant date. We used a Black-Scholes valuation model to estimate the fair value
of the options at the grant date. (Edgar-online.com)
Stock Option
Activity
February 2,
2013
Granted
Expired/forfeite
d
Exercised/issue
d
February 1,
2014
Stock Options
Total Outstanding
Numbe
Exercis
Intrinsi
r of
e
c
Option
Price (b)
Value (c)
s (a)
34,458
$ 50.6
$ 366
0
226
69.56
(745 )
53.14
(9,085 )
24,854
Numbe
r of
Option
s (a)
21,060
Exercisable
Exercis
Intrinsic
e
Value (c)
Price (b)
$
48.2
5
273
50.6
4
109
46.51
$
52.1
9
136
16,824
(Feb. 3. 2014)
IV. Quarter
(Nov. 2,
2013)
III. Quarter
-1.97 %
(Aug. 3,
2013)
II. Quarter
-1.2 %
(May 3,
2013)
I. Quarter
0.77 %
4.14 %
Y / Y Total Liabilities
Change
Leverage Ratio MRQ
Overall Ranking
Seq. Equity Change
-10.39 %
-9.06 %
-10.46 %
-8.57 %
1.74
# 253
0.46 %
1.87
# 295
0.85 %
1.76
# 282
-3.03 %
1.68
# 281
-0.23 %
-6.27 %
7.37 %
1.54 %
-12.31 %
Y / Y Equity Change
(Feb. 3. 2013)
IV. Quarter
4.66
%
2.58
%
1.91
# 310
1.26
%
-4.88
%
Depreciation
Adjustments To Net Income
Changes In Accounts Receivables
Changes In Liabilities
Changes In Inventories
Changes In Other Operating Activities
2,223,000
33,000
157,000
566,000
(885,000)
2,455,000
2,142,000
150,000
(217,000)
457,000
15,000
(221,000)
2,131,000
637,000
(187,000)
353,000
(322,000)
(107,000)
6,520,000
5,325,000
5,434,000
Bonds payable
Target has bonds payable in the amount of $11.8 billion and according to
morningstar.com, there is a number of bonds with the maturity date ranging from 2014 to 2042.
Stock outstanding market price
Financial ratios
Targets Rate of return on total assets for 2014 is 4.33% and for 2013 is 6.30%.
o According to csimarket.com, In (FY 2014) Target's ROA decreased compare to
previous year to 4.42 %, due to detoriation of net income -34.28 % to $1,971.00
million, from $2,999.00 million a year ago, as TGT's assets were $44,553.00
million (csimarket.com).
Targets Rate of return on total stockholders equity for 2014 is 12.09% and for 2013 is
18.63%.
o According to csimarket.com, In (FY 2014) ROE decreased compare to previous
year to 12.14 %, due to detoriation of net income (csimarket.com).
Targets Dividend payout ratio for 2014 is 53.09% and for 2013 is 24.49%.
o According to csimarket.com, Despite year on year detoriation of EPS, Target
increased dividend to $1.57 and raised dividend payout ratio to 51.14%
(csimarket.com).
Targets Times interest earned for 2014 is 5.73% and for 2013 is 9.84%.
o According to csimarket.com, Target's interest coverage ratio sequentially
decreased to 5.73 a new company low. Due to increase of interest expenses
(csimarket.com).
Targets Current ratio for 2014 is 0.9058% and for 2013 is 1.168%.
o According to ycharts.com, A current ratio of one means that book value of
current assets is exactly the same as book value of current liabilities. In general,
investors look for a company with a current ratio of 2:1, meaning current assets
twice as large as current liabilities. A current ratio less than one indicates the
company might have problems meeting short-term financial obligations. If the
ratio is too high, the company may not be efficiently using its current assets or
short term financing facilities (ycharts.com).
Targets Quick ratio for 2014 is 0.08% and for 2013 is 0.08%.
o According to csimarket.com, On the trailing twelve months basis Despite year
on year decrease in Target's average Current Liabilities to $12,777 million, Quick
Appendix
Statement of Cash Flows
2012
2011
2010
Operating activities
Net earnings
105
90
109
(14)
371
445
206
154
528
(161) -
14
(145)
22
2012
2011
2010
Inventory
15
(98)
43
(212)
Accounts payable
199
232
115
138
218
149
120
(97)
(103)
(322) (417)
Investing activities
Expenditures for property and equipment
66
37
69
254
259
363
Other investments
102
(108) (47)
Financing activities
Change in commercial paper, net
970
1,500
(1,500)
1971
1,994 1,011
2012
2011
2010
Dividends paid
Repurchase of stock
360
89
294
Other
(16)
(6)
(32)
(10)
(918) (488)
794
1,712 2,200
$784
$794
$1,712
$775
$816
$752
Supplemental information
282
1,388 176
Revenues
EBIT
2012
$73,301
$5,371
2011
$69,865
$5,322
2010
$67,390
$5,252
2009
$65,357
$4,673
Net Earnings
Net Earnings Per Share, Diluted
$2,999
$2,929
$4.52
$4.28
Average Common Shares
Outstanding, Diluted
663.3
683.9
* all dollar amounts in millions, except per share amounts
$2,920
$4.00
$2,488
$3.30
729.4
754.8
2010
2009
$2,929
$2,920
$2,488
2,131
2,084
2,023
90
109
103
371
445
364
154
528
1,185
22
(145)
143
(187)
(78)
(57)
Inventory
(322)
(417)
(474)
(150)
(124)
(129)
43
(212)
(114)
Operating activities
Net earnings
Reconciliation to cash flow
Depreciation and amortization
Share-based compensation expense
Accounts payable
232
115
174
218
149
257
(97)
(103)
(82)
5,434
5,271
5,881
69
33
259
363
(10)
(108)
(47)
Financing activities
Additions to short-term debt
1,500
1,994
1,011
(609)
(496)
(1,842) (2,452)
(423)
89
294
47
Other
(6)
(918)
(488)
1,336
1,712
2,200
864
2013
2012
2011
02/01/2014
02/01/2013
01/31/2012
01/31/2011
Stmt Source
N/A
10-K
10-K
10-K
01/31/2014
03/14/2014
03/20/2013
03/20/2013
Original
Updated
Updated
Updated
Currency Code
USD
USD
USD
USD
Total Revenue
Cost of Revenue
Gross Profit
Selling,General and
Administrative
72,596.0
51,160.0
21,436.0
15,375.0
Depreciation,Amortization 2,223.0
and Depletion
73,301.0
50,568.0
22,733.0
69,865.0
48,306.0
21,559.0
67,390.0
46,585.0
20,805.0
14,914.0
14,106.0
13,469.0
2,142.0
2,131.0
2,084.0
467.0
0.0
0.0
Depreciation and
Amortization
Special Income/Charges
0.0
Operating Expenses
17,207.0
17,362.0
16,237.0
15,553.0
Operating Income
4,229.0
5,371.0
5,322.0
5,252.0
-1,126.0
Pretax Income
Provision for Income Tax
Net Income
3,103.0
1,132.0
1,971.0
-762.0
4,609.0
1,610.0
2,999.0
-866.0
4,456.0
1,527.0
2,929.0
-757.0
4,495.0
1,575.0
2,920.0
1.58
1.32
1.10
0.84
Tax Rate
0.364808
0.349317
0.342684
0.350389
3.10
4.57
4.31
4.03
3.07
4.52
4.28
4.00
Basic EPS
Basic Weighted Average
Shares
Basic EPS from Continuing
Operations
Basic EPS,Continuing and
Discontinued
Diluted EPS
Balance Sheet
2014 Q4
2013 Q3
2013 Q2
2013 Q1
02/01/2014
10/31/2013
07/31/2013
04/30/2013
N/A
N/A
N/A
N/A
01/31/2014
10/31/2013
07/31/2013
04/30/2013
Original
Original
Original
Original
USD
USD
USD
USD
695.0
706.0
1,018.0
1,819.0
Currency Code
Assets
Cash, Equiv and Short Term
Investments
Cash and Cash Equivalents
Short Term Investments
Receivables
1,347.0
0.0
0.0
0.0
8,766.0
10,376.0
8,441.0
8,099.0
272.0
0.0
0.0
0.0
177.0
0.0
0.0
0.0
177.0
0.0
0.0
0.0
316.0
2,071.0
1,944.0
1,939.0
11,573.0
13,153.0
11,403.0
11,857.0
Net Property,Plant,and
Equipment
31,378.0
31,726.0
31,405.0
31,074.0
357.0
0.0
0.0
0.0
305.0
0.0
0.0
0.0
62.0
0.0
0.0
0.0
469.0
0.0
0.0
0.0
409.0
1,494.0
1,354.0
1,303.0
32,980.0
33,220.0
32,759.0
32,377.0
Other Receivables
Taxes Receivable
Inventories
Gross Property,Plant,and
Equipment
Land and Improvements
Buildings and Improvements
Machinery,Furniture/Equipment
Construction in Progress
Accumulated Depreciation
Goodwill and Other Intangible
Assets
Goodwill
Other Intangible Assets
Investments and Advances
Derivative Assets,Non-Current
Total Assets
44,553.0
46,373.0
44,162.0
44,234.0
8,845.0
8,806.0
7,078.0
6,721.0
Accrued Expenses,Current
2,772.0
3,623.0
3,705.0
3,915.0
Current Debt
1,160.0
2,122.0
1,833.0
523.0
12,777.0
14,551.0
12,616.0
11,159.0
12,622.0
12,665.0
12,655.0
13,691.0
1,924.0
1,466.0
1,331.0
1,295.0
Employee Benefits
539.0
0.0
0.0
0.0
460.0
1,535.0
1,540.0
1,569.0
15,545.0
15,666.0
15,526.0
16,555.0
Total Liabilities
28,322.0
30,217.0
28,142.0
27,714.0
53.0
53.0
53.0
53.0
12,599.0
12,353.0
12,285.0
12,873.0
4,470.0
4,403.0
4,335.0
4,159.0
-891.0
-653.0
-653.0
-565.0
Capital Stock
Common Stock
Retained Earnings
Additional Paid in Capital
Accum Gains/ Losses Not
Affecting RE
16,231.0
16,156.0
16,020.0
16,520.0
44,553.0
46,373.0
44,162.0
44,234.0
632.93
631.76
630.92
641.25
2014
2013
2012
2011
02/01/2014
02/01/2013
01/31/2012
01/31/2011
N/A
10-K
10-K
10-K
01/31/2014
03/14/2014
03/20/2013
03/20/2013
Original
Updated
Updated
Updated
USD
USD
USD
USD
1,971.0
2,999.0
2,929.0
2,920.0
Currency Code
Net Income
54.0
-161.0
0.0
0.0
2,223.0
2,142.0
2,131.0
2,084.0
-254.0
-14.0
371.0
445.0
233.0
325.0
266.0
492.0
2,860.0
-217.0
-187.0
-78.0
-885.0
15.0
-322.0
-417.0
616.0
337.0
450.0
264.0
-267.0
-123.0
-150.0
-124.0
0.0
0.0
0.0
0.0
-31.0
22.0
-54.0
-315.0
6,520.0
5,325.0
5,434.0
5,271.0
-3,367.0
-3,211.0
-4,331.0
-2,060.0
-157.0
0.0
0.0
0.0
Depreciation,Amortization
and Depletion
Deferred Taxes
Other Non-Cash Items
Asset Impairment Charge
Stock-Based Compensation
Change in Receivables
Change in Inventories
Change in Pay/Accrued Exp
Change in Payables
Change In Account Payable
Change in Accrued Expenses
Business
Purchase/Sale of
Investments,Net
130.0
102.0
-108.0
-47.0
3,123.0
254.0
259.0
363.0
-271.0
-2,855.0
-4,180.0
-1,744.0
-4,353.0
-88.0
369.0
-1,248.0
-1,461.0
-1,875.0
-1,842.0
-2,452.0
-1,006.0
-869.0
-750.0
-609.0
456.0
360.0
89.0
294.0
0.0
-16.0
-6.0
0.0
-6,364.0
-2,488.0
-2,140.0
-4,015.0
Sale of Investments
Sale of Long Term
Investments
Issuance/Payments of
Debt,Net
Issuance/Payments of LT
Debt,Net
Payments to Settle Long Term
Debt
Proceeds or Issuance of Long
Term Debt
Issuance/Payments of ST
Debt,Net
Payments to Settle Short Term
Debt
Proceeds or Issuance of Short
Term Debt
Issuance/Payments of
Common Stock,Net
Payments for Common Stock
Cash Dividends Paid
Proceeds from Stock Option
Exercised
Other Financing Changes, Net
Cash Flow from Financing
Activities
784.0
794.0
1,712.0
2,200.0
695.0
784.0
794.0
1,712.0
-89.0
-10.0
-918.0
-488.0
3,067.0
2,048.0
1,066.0
3,142.0
26.0
8.0
-32.0
0.0
Change in Cash
References
Dune, L., Matlack, C., & Riley, M. (2014, January 1). Missed Alarms and 40 Million
Stolen Credit Card Numbers: How Target Blew It. . Retrieved , from
http://www.businessweek.com/articles/2014-03-13/target-missed-alarms-in-epic-hack-of-creditcard-data
Ernest & Young. (2014, January 1). . Retrieved , from
http://www.forbes.com/companies/ernst-young/
Item 8. Financial Statements and Supplementary Data. (2014, January 1). . Retrieved ,
from https://corporate.target.com/annual-reports/2012/10-K/10-K-part-II/Item-8-FinancialStatements-and-Supplementary-Data
Income statement. (2014, January 1). . Retrieved , from http://finance.yahoo.com/q/is?
s=TGT+Income+Statement&annual
Long-Term Investment Activity Analysis. (2014, January 1). . Retrieved , from
http://www.stock-analysis-on.net/NYSE/Company/Target-Corp/Ratios/Long-term-InvestmentActivity
National Retail Federation. (2014, January 1). . Retrieved , from
http://www.stores.org/2013/Top-100-Retailers
Profitability Analysis. (2014, January 1). . Retrieved , from http://www.stock-analysison.net/NYSE/Company/Target-Corp/Ratios/Profitability
http://smallbusiness.chron.com/decreasing-inventory-turnover-mean-21667.html. (2014,
January 1). . Retrieved , from http://smallbusiness.chron.com/decreasing-inventory-turnovermean-21667.html
Target Corporation. (2014, January 1). . Retrieved April 1, 2014, from
http://www.marketwatch.com/investing/stock/tgt/financials
Target Corporation Competition. (2014, January 1). . Retrieved , from
http://www.hoovers.com/companyinformation/cs/competition.Target_Corporation.d874c3aa052df19e.html