Financial News Release

Target Reports Fourth Quarter and Fiscal 2011 Earnings
02/23/12
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Full year Adjusted EPS of $4.41 represents a 14.3% Increase

Full Year GAAP EPS of $4.28 Sets Another Annual Record

MINNEAPOLIS--(BUSINESS WIRE)--Feb. 23, 2012-- Target Corporation (NYSE: TGT) today reported fourth quarter net earnings of $981 million, or $1.45 per share, and full year net earnings of $2,929 million, or $4.28 per share. Adjusted earnings per share, a measure we believe is useful in providing period-to-period comparisons of the results of our U.S. operations, were $1.49 in the fourth quarter and $4.41 for the full year, representing increases of 8.3 percent and 14.3 percent, respectively. Fourth quarter results were at the high end of our most recent guidance. A reconciliation of non-GAAP financial measures to GAAP measures is provided in the tables attached to this press release. All earnings per share figures refer to diluted earnings per share.

“Target generated strong financial performance in 2011, overcoming sluggish economic growth, restrained consumer spending and an intensely promotional holiday season,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “For the full year, our U.S. businesses generated 14.3 percent growth in adjusted earnings per share, and we experienced our strongest growth in comparable-store sales since 2007. As we look ahead to 2012, we’ll continue to focus on bringing our “Expect More. Pay Less.” brand promise to life for our guests, providing unique, well-designed merchandise while driving value and loyalty with initiatives like 5% Rewards and REDcard Free Shipping. In addition, we’ll continue to invest in our store, online and mobile channels, open our first CityTarget locations in July and prepare for the opening of our first Canadian Target stores in early 2013.”

Fiscal 2012 Earnings Guidance

For fiscal 2012, the company expects adjusted EPS of $4.55 to $4.75 and GAAP EPS of $4.05 to $4.25. The 50 cent difference between these two ranges represents the EPS impact on the year of the expected expenses related to the Canadian market entry.

In first quarter 2012, the company expects adjusted EPS of $0.97 to $1.07 and GAAP EPS of $0.88 to $0.98. The 9 cent difference between these two ranges represents the EPS impact in the quarter of the expected expenses related to the Canadian market entry.

U.S. Retail Segment Results

As the company first reported in its sales release on February 2, 2012, Target’s sales in fourth quarter 2011 increased 3.3 percent to $20.9 billion from $20.3 billion a year ago, due to a 2.2 percent increase in comparable-store sales and the contribution from new stores. Segment earnings before interest expense and income taxes (EBIT) were $1,625 million in the fourth quarter of 2011, an increase of 1.1 percent from $1,608 million in 2010.

Fourth quarter 2011 U.S. Retail Segment EBITDA and EBIT margin rates were 10.3 percent and 7.8 percent, respectively, compared with 10.6 percent and 7.9 percent in 2010. Fourth quarter gross margin rate declined to 28.4 percent in 2011 from 28.7 percent in 2010, reflecting the impact of the company’s integrated growth strategies partially offset by underlying rate improvements within categories. The retail segment fourth quarter selling, general and administrative (SG&A) expense rate was 18.1 percent in 2011, unchanged from 2010.

Fiscal 2011 sales increased 4.1 percent to $68.5 billion from $65.8 billion in 2010, due to a 3.0 percent increase in comparable-store sales and the contribution from new stores. Full-year retail segment EBIT increased 2.9 percent to $4.8 billion in 2011 from $4.6 billion in 2010.

Full year 2011 retail segment EBITDA and EBIT margin rates were 10.0 percent and 7.0 percent, respectively, compared with 10.2 percent and 7.0 percent in 2010. Gross margin rate for fiscal 2011 was 30.1 percent compared with 30.5 percent in 2010, reflecting the company’s integrated growth strategies partially offset by underlying rate improvements within categories.

U.S. Credit Card Segment Results

Fourth quarter average receivables decreased 7.6 percent to $6.4 billion in 2011 from $6.9 billion in 2010. Average receivables directly funded by Target decreased 8.2 percent in the fourth quarter to $2.7 billion from $3.0 billion in 2010.

Fourth quarter portfolio spread to LIBOR was 6.9 percent in 2011 compared with 9.5 percent in 2010, as last year’s performance benefited from an $85 million reduction in the allowance for doubtful accounts. Segment profit for the quarter was $98 million in 2011, compared with $151 million in fourth quarter 2010. Annualized segment pre-tax return on invested capital was 14.3 percent in fourth quarter 2011, compared with 20.3 percent in 2010.

Average receivables for fiscal 2011 decreased 11.1 percent to $6.3 billion from $7.1 billion in 2010. Average receivables directly funded by Target decreased 9.3 percent to $2.5 billion from $2.8 billion in 2010.

Fiscal 2011 spread to LIBOR was 10.5 percent, compared with 8.5 percent in 2010. Full-year 2011 segment profit increased to $606 million from $541 million in 2010. The year-end allowance for doubtful accounts decreased to $430 million in 2011 from $690 million in 2010, reflecting improving portfolio risk levels and a 7.1 percent decrease in year-end receivables. Full-year segment pre-tax return on invested capital was 24.1 percent in 2011 compared with 19.5 percent in 2010.

Canadian Segment Results

Fourth quarter and full-year 2011 EBIT were $(40) million and $(122) million, respectively, due to start-up expenses and depreciation related to the company’s expected market entry in 2013. Consolidated expenses related to investments in Target’s Canadian market entry reduced Target’s earnings per share by approximately 6 cents in fourth quarter 2011 and 17 cents for fiscal 2011.1

1 These amounts include interest expense and tax expense that are not included in the segment measure of profit. A reconciliation of non-GAAP measures is included in the tables attached to this release.

Interest Expense and Taxes

Net interest expense for the quarter was $292 million, including $87 million due to early extinguishment of non-recourse debt collateralized by credit-card receivables and $19 million of interest on capitalized leases related to Target’s Canadian market entry. Net interest expense was $190 million in fourth quarter 2010.

Full-year interest expense was $866 million in 2011, including $87 million due to early extinguishment of non-recourse debt collateralized by credit-card receivables and $44 million of interest on capitalized leases related to Target’s Canadian market entry. Net interest expense was $757 million in 2010.

The company’s effective income tax rate was 30.3 percent in fourth quarter 2011 and 34.3 percent for full-year 2011. Both fourth quarter and full-year 2011 effective income tax rates reflect the favorable resolution of various income tax matters. These tax items increased EPS by approximately 10 cents per share in fourth quarter 2011, and approximately 12 cents per share for full-year 2011. In 2010, the favorable resolution of various income tax matters increased fourth quarter EPS by approximately 7 cents and increased full-year EPS by approximately 14 cents.

Share Repurchase

In fourth quarter 2011, the company repurchased approximately 3.1 million shares of its common stock at an average price of $52.35, for a total investment of $161 million. For the full year, the company acquired approximately 37.2 million shares of its common stock at an average price per share of $50.89, for a total investment of approximately $1.9 billion. Shares acquired in 2011 represent 5.3 percent of shares outstanding at the beginning of the fiscal year.

Miscellaneous

Target Corporation will webcast its fourth quarter earnings conference call at 9:30 a.m. CST today. Investors and the media are invited to listen to the call through the company’s website at http://www.target.com/investors (click on “Events + Presentations” and then “Archives + Webcasts”). A telephone replay of the call will be available beginning at approximately 11:30 a.m. CST today through the end of business on February 24, 2012. The replay number is (800) 642-1687 (passcode: 20428291).

Statements in this release regarding expected store openings and fiscal 2012 earnings guidance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements speak only as of the date they are made and are subject to risks and uncertainties which could cause the company's actual results to differ materially. The most important risks and uncertainties are described in Item 1A of the company's Form 10-K for the fiscal year ended January 29, 2011.

In addition to the GAAP results provided in this release, the company provides adjusted diluted earnings per share for the three and twelve months ended January 28, 2012 and January 29, 2011. 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. Management believes adjusted EPS is useful in providing period-to-period comparisons of the results of our U.S. operations. Adjusted EPS should not be considered in isolation or as a substitution for analysis of the company’s results as reported under GAAP. Other companies may calculate adjusted EPS differently than the company does, limiting the usefulness of the measure for comparative purposes.

About Target

Minneapolis-based Target Corporation (NYSE:TGT) serves guests at 1,763 stores across the United States and at Target.com. The company plans to open its first stores in Canada in 2013. In addition, the company operates a credit card segment that offers branded proprietary credit card products. Since 1946, Target has given 5 percent of its income through community grants and programs; today, that giving equals more than $3 million a week. For more information about Target’s commitment to corporate responsibility, visit Target.com/hereforgood.

For more information, visit Target.com/Pressroom.

 
TARGET CORPORATION
 
Consolidated Statements of Operations
    Three Months Ended         Twelve Months Ended    
January 28,     January 29, January 28,     January 29,
(millions, except per share data) (unaudited)     2012     2011     Change     2012     2011     Change
Sales $ 20,937 $ 20,277 3.3 % $ 68,466 $ 65,786 4.1 %
Credit card revenues       351         384       (8.8 )         1,399         1,604       (12.8 )  
Total revenues 21,288 20,661 3.0 69,865 67,390 3.7
Cost of sales 14,986 14,458 3.7 47,860 45,725 4.7
Selling, general and administrative expenses 3,876 3,720 4.2 14,106 13,469 4.7
Credit card expenses 162 167 (3.2 ) 446 860 (48.2 )
Depreciation and amortization       564         538       4.7           2,131         2,084       2.3    
Earnings before interest expense and income taxes 1,700 1,778 (4.4 ) 5,322 5,252 1.3
Net interest expense
Nonrecourse debt collateralized
by credit card receivables 17 19 (8.0 ) 72 83 (12.8 )
Other interest expense 276 172 60.2 797 677 17.8
Interest income       (1 )       (1 )     (25.3 )         (3 )       (3 )     22.4    
Net interest expense       292         190       53.8           866         757       14.4    
Earnings before income taxes 1,408 1,588 (11.3 ) 4,456 4,495 (0.9 )
Provision for income taxes       427         553       (22.8 )         1,527         1,575       (3.1 )  
Net earnings     $ 981       $ 1,035       (5.2 ) %     $ 2,929       $ 2,920       0.3   %
Basic earnings per share     $ 1.46       $ 1.46       0.2   %     $ 4.31       $ 4.03       6.9   %
Diluted earnings per share     $ 1.45       $ 1.45       0.3   %     $ 4.28       $ 4.00       7.0   %
Weighted average common shares outstanding
Basic 669.7 708.1 (5.4 ) % 679.1 723.6 (6.2 ) %
Diluted       675.0         714.4       (5.5 ) %       683.9         729.4       (6.2 ) %
 
Subject to reclassification
 
 
TARGET CORPORATION
 
Consolidated Statements of Financial Position
    January 28,     January 29,
(millions)     2012     2011
Assets (unaudited)
Cash and cash equivalents, including short-term investments of $194 and $1,129 $ 794 $ 1,712
Credit card receivables, net of allowance of $430 and $690 5,927 6,153
Inventory 7,918 7,596
Other current assets       1,810         1,752  
Total current assets 16,449 17,213
Property and equipment
Land 6,122 5,928
Buildings and improvements 26,837 23,081
Fixtures and equipment 5,141 4,939
Computer hardware and software 2,468 2,533
Construction-in-progress 963 567
Accumulated depreciation       (12,382 )       (11,555 )
Property and equipment, net 29,149 25,493
Other noncurrent assets       1,032         999  
Total assets     $ 46,630       $ 43,705  
Liabilities and shareholders' investment
Accounts payable $ 6,857 $ 6,625
Accrued and other current liabilities 3,644 3,326
Unsecured debt and other borrowings 3,036 119
Nonrecourse debt collateralized by credit card receivables       750         -  
Total current liabilities 14,287 10,070
Unsecured debt and other borrowings 13,447 11,653
Nonrecourse debt collateralized by credit card receivables 250 3,954
Deferred income taxes 1,191 934
Other noncurrent liabilities       1,634         1,607  
Total noncurrent liabilities 16,522 18,148
Shareholders' investment
Common stock 56 59
Additional paid-in capital 3,487 3,311
Retained earnings 12,959 12,698
Accumulated other comprehensive loss       (681 )       (581 )
Total shareholders' investment       15,821         15,487  
Total liabilities and shareholders' investment     $ 46,630       $ 43,705  
Common shares outstanding       669.3         704.0  
 
Subject to reclassification
 
 

TARGET CORPORATION

 
Consolidated Statements of Cash Flows
    Twelve Months Ended
January 28,     January 29,
(millions) (unaudited)     2012     2011
Operating activities
Net earnings $ 2,929 $ 2,920
Reconciliation to cash flow
Depreciation and amortization 2,131 2,084
Share-based compensation expense 90 109
Deferred income taxes 371 445
Bad debt expense 154 528
Non-cash (gains)/losses and other, net 22 (145 )
Changes in operating accounts:
Accounts receivable originated at Target (187 ) (78 )
Inventory (322 ) (417 )
Other current assets (150 ) (124 )
Other noncurrent assets 43 (212 )
Accounts payable 232 115
Accrued and other current liabilities 218 149
Other noncurrent liabilities       (97 )       (103 )
Cash flow provided by operations       5,434         5,271  
Investing activities
Expenditures for property and equipment (4,368 ) (2,129 )
Proceeds from disposal of property and equipment 37 69
Change in accounts receivable originated at third parties 259 363
Other investments       (108 )       (47 )
Cash flow required for investing activities       (4,180 )       (1,744 )
Financing activities
Additions to short-term debt 1,500 -
Additions to long-term debt 1,994 1,011
Reductions of long-term debt (3,125 ) (2,259 )
Dividends paid (750 ) (609 )
Repurchase of stock (1,842 ) (2,452 )
Stock option exercises and related tax benefit 89 294
Other       (6 )       -  
Cash flow required for financing activities       (2,140 )       (4,015 )
Effect of exchange rate changes on cash and cash equivalents     (32 )       -  
Net decrease in cash and cash equivalents (918 ) (488 )
Cash and cash equivalents at beginning of period       1,712         2,200  
Cash and cash equivalents at end of period     $ 794       $ 1,712  
 

Subject to reclassification

 
 
TARGET CORPORATION
 
U.S. Retail Segment
 
U.S. Retail Segment Results     Three Months Ended       Twelve Months Ended    
January 28,     January 29, January 28,     January 29,
(millions) (unaudited)     2012     2011     Change   2012     2011     Change
Sales $ 20,937 $ 20,277 3.3 % $ 68,466 $ 65,786 4.1 %
Cost of sales       14,986         14,458       3.7         47,860         45,725     4.7
Gross margin 5,951 5,819 2.3 20,606 20,061 2.7

SG&A expenses(a)

      3,786         3,677       2.9         13,774         13,367     3.0
EBITDA 2,165 2,142 1.1 6,832 6,694 2.1
Depreciation and amortization       540         534       1.2         2,067         2,065     0.1  
EBIT     $ 1,625       $ 1,608       1.1   %   $ 4,765       $ 4,629     2.9 %
EBITDA is earnings before interest expense, income taxes, depreciation and amortization.
EBIT is earnings before interest expense and income taxes.

(a) Effective with the October 2010 nationwide launch of our 5% REDcard Rewards loyalty program, we changed the formula under which the U.S. Retail Segment charges the U.S. Credit Card Segment to better align with the attributes of this program. In the three and twelve months ended January 28, 2012, loyalty program charges were $70 million and $258 million, respectively, compared with $42 million and $102 million in the corresponding periods ended January 29, 2011. 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 Twelve Months Ended
January 28, January 29, January 28, January 29,
(unaudited)     2012     2011     2012     2011
Gross margin rate 28.4 % 28.7 % 30.1 % 30.5 %
SG&A expense rate 18.1 % 18.1 % 20.1 % 20.3 %
EBITDA margin rate 10.3 % 10.6 % 10.0 % 10.2 %
Depreciation and amortization expense rate 2.6 % 2.6 % 3.0 % 3.1 %
EBIT margin rate       7.8 %       7.9 %     7.0 %       7.0 %
U.S. Retail Segment rate analysis metrics are computed by dividing the applicable amount by sales.
 
Comparable-Store Sales Three Months Ended Twelve Months Ended
January 28, January 29, January 28, January 29,
(unaudited)     2012     2011     2012     2011
Comparable-store sales change 2.2 % 2.4 % 3.0 % 2.1 %
Drivers of changes in comparable-store sales:
Number of transactions 0.4 % 1.6 % 0.4 % 2.0 %
Average transaction amount 1.8 % 0.8 % 2.6 % 0.1 %
Units per transaction 0.9 % 3.6 % 2.3 % 2.5 %
Selling price per unit       0.9 %       (2.7 )%     0.3 %       (2.3 )%
The comparable-store sales increases or decreases above are calculated by comparing sales in fiscal year periods with comparable prior year periods of equivalent length.
 
REDcard Penetration Three Months Ended Twelve Months Ended
January 28, January 29, January 28, January 29,
(unaudited)     2012     2011     2012     2011
Target Credit Cards 7.4 % 6.3 % 6.8 % 5.2 %
Target Debit Cards       3.4 %       1.1 %     2.5 %       0.7 %
Total Store REDcard Penetration       10.8 %       7.4 %     9.3 %       5.9 %
Represents the percentage of Target store sales that are paid for using REDcards.
 
Number of Stores and Retail Square Feet Number of Stores Retail Square Feet(a)
January 28, January 29, January 28, January 29,
(unaudited)     2012     2011     2012     2011
Target general merchandise stores 637 1,037 76,999 127,292
Expanded food assortment stores 875 462 114,218 61,823
SuperTarget stores       251         251       44,503         44,503  
Total       1,763         1,750       235,720         233,618  

(a) In thousands; reflects total square feet, less office, distribution center and vacant space.

 
Subject to reclassification
 
TARGET CORPORATION
 
U.S. Credit Card Segment
 
U.S. Credit Card Segment Results     Three Months Ended     Three Months Ended     Twelve Months Ended     Twelve Months Ended
January 28, 2012 January 29, 2011 January 28, 2012 January 29, 2011
Amount     Annualized Amount     Annualized Amount     Annualized Amount     Annualized

(unaudited)

    (in millions)     Rate(d)       (in millions)     Rate(d)       (in millions)     Rate(d)       (in millions)     Rate(d)
Finance charge revenue $ 282 17.6 % $ 313 18.1 % $ 1,131 17.9 % $ 1,302 18.3 %
Late fees and other revenue 46 2.9 45 2.6 179 2.8 197 2.8
Third party merchant fees       23         1.4           26           1.5           89       1.4           105       1.5  
Total revenues       351         21.9           384           22.2           1,399       22.1           1,604       22.6  
Bad debt expense 87 5.4 83 4.8 154 2.4 528 7.4
Operations and marketing expenses(a) 145 9.0 126 7.3 550 8.7 433 6.1
Depreciation and amortization       4         0.2           5           0.3           17       0.3           19       0.3  
Total expenses       236         14.7           214           12.4           721       11.4           980       13.8  
EBIT 115 7.2 170 9.8 678 10.7 624 8.8

Interest expense on nonrecourse debt collateralized by credit card receivables

      17                 19                   72                 83        
Segment profit     $ 98               $ 151                 $ 606               $ 541        

Average gross credit card receivables funded by Target(b)

$ 2,725 $ 2,968 $ 2,514 $ 2,771
Segment pretax ROIC(c)       14.3 %               20.3 %                 24.1 %               19.5 %      
(a) See footnote (a) to our U.S. Retail Segment Results table for an explanation of REDcard Rewards loyalty program charges.
(b) Amounts represent the portion of average gross credit card receivables funded by Target. These amounts exclude $3,673 million and $3,801 million for the three and twelve months ended January 28, 2012, respectively, and $3,959 million and $4,335 million for the three and twelve months ended January 29, 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.
(d) As an annualized percentage of average gross credit card receivables.
 
Spread Analysis - Total Portfolio Three Months Ended Three Months Ended Twelve Months Ended Twelve Months Ended
January 28, 2012 January 29, 2011 January 28, 2012 January 29, 2011
Yield Yield Yield Yield
Amount Annualized Amount Annualized Amount Annualized Amount Annualized
(unaudited)     (in millions)     Rate       (in millions)     Rate       (in millions)     Rate       (in millions)     Rate
EBIT $ 115 7.2 % (c) $ 170 9.8 % (c) $ 678 10.7 % (c) $ 624 8.8 % (c)
LIBOR(a) 0.3 % 0.3 % 0.2 % 0.3 %
Spread to LIBOR(b)     $ 111         6.9 % (c)     $ 165           9.5 % (c)     $ 663       10.5 % (c)     $ 604       8.5 % (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 earned finance charge revenue at rates tied to the Prime Rate, and the interest rate on all nonrecourse debt securitized by credit card receivables is tied to LIBOR.
(c) As a percentage of average gross credit card receivables.
 
Receivables Rollforward Analysis Three Months Ended Twelve Months Ended

January 28,

January 29,

January 28,

January 29,

(millions) (unaudited)     2012     2011     Change       2012       2011     Change
Beginning gross credit card receivables $ 6,144 $ 6,730 (8.7 ) % $ 6,843 $ 7,982 (14.3 ) %
Charges at Target 1,750 1,404 24.7 5,098 3,699 37.8
Charges at third parties 1,306 1,457 (10.4 ) 5,192 5,815 (10.7 )
Payments (3,077 ) (2,933 ) 4.9 (11,653 ) (11,283 ) 3.3
Other       234         185           26.4           877           630       39.3  
Period-end gross credit card receivables     $ 6,357       $ 6,843           (7.1 ) %     $ 6,357         $ 6,843       (7.1 ) %
Average gross credit card receivables     $ 6,398       $ 6,926           (7.6 ) %     $ 6,314         $ 7,106       (11.1 ) %

Accounts with three or more payments (60+ days) past due as a percentage of period-end gross credit card receivables

      3.3 %       4.2 %                 3.3 %         4.2 %      

Accounts with four or more payments (90+ days) past due as a percentage of period-end gross credit card receivables

      2.3 %       3.1 %                 2.3 %         3.1 %      
 
Allowance for Doubtful Accounts Three Months Ended   Twelve Months Ended

January 28,

January 29,

January 28,

January 29,

(millions) (unaudited)     2012     2011       Change       2012       2011     Change
Allowance at beginning of period $ 431 $ 775 (44.4 ) % $ 690 $ 1,016 (32.1 ) %
Bad debt expense 87 83 4.3 154 528 (70.8 )
Write-offs(a) (124 ) (208 ) (40.4 ) (572 ) (1,007 ) (43.2 )
Recoveries(a) 36 40 (9.9 ) 158 153 3.0
Allowance at end of period     $ 430       $ 690           (37.7 ) %     $ 430         $ 690       (37.7 ) %

As a percentage of period-end gross credit card receivables

      6.8 %       10.1 %                 6.8 %         10.1 %      

Net write-offs as a percentage of average gross credit card receivables (annualized)

      5.5 %       9.7 %                 6.6 %         12.0 %      
(a) Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period principal collections on previously written-off balances. These amounts combined represent net write-offs.
 
Subject to reclassification
 
 
TARGET CORPORATION
 
Canadian Segment
 
Canadian Segment Results     Three Months Ended     Twelve Months Ended

January 28,

   

January 29,

January 28,

   

January 29,

(millions) (unaudited)     2012     2011     2012     2011
Sales $ - $ - $ - $ -
Cost of sales       -         -       -         -
Gross margin - - - -
SG&A expenses(a)       20         -       74         -
EBITDA (20 ) - (74 ) -
Depreciation and amortization(b)       20         -       48         -
EBIT     $ (40 )     $ -     $ (122 )     $ -

 

EBITDA is earnings/(loss) before interest expense, income taxes, depreciation and amortization.

EBIT is earnings/(loss) before interest expense and income taxes.

(a) SG&A expenses include our Canadian Segment start-up costs. These costs consisted primarily of compensation, benefits and consulting expenses.

(b) Depreciation and amortization result from depreciation of capital lease assets and leasehold interests acquired in our Zellers asset purchase. For the three and twelve months ended January 28, 2012, the lease payment obligation also gave rise to $19 million and $44 million of interest expense, respectively, recorded in our consolidated statements of operations.

Subject to reclassification

 
TARGET CORPORATION
 
Reconciliation of Non-GAAP Financial Measures
 
    Three Months Ended         Twelve Months Ended  
January 28,     January 29, January 28,     January 29,
(unaudited)     2012     2011     Change       2012   2011     Change  
GAAP diluted earnings per share $ 1.45 $ 1.45 0.3 % $ 4.28 $ 4.00 7.0 %
Adjustments       0.04       (0.07 )               0.13     (0.14 )        
Adjusted diluted earnings per share     $ 1.49     $ 1.38       8.3 %     $ 4.41   $ 3.86       14.3 %
A detailed reconciliation is provided below.
 
 
    Three Months Ended January 28, 2012     Three Months Ended January 29, 2011

 

 

  U.S.  

 

 

 

 

 

    Consolidated

 

  U.S.  

 

 

 

 

 

    Consolidated

 

U.S.

Credit

Total

GAAP

U.S.

Credit

Total

GAAP

(millions, except per share data) (unaudited)

   

Retail

  Card  

U.S.

 

Canada

 

Other

      Total    

Retail

  Card  

U.S.

 

Canada

 

Other

      Total
Segment profit $ 1,625 $ 98 $ 1,723 $ (40 ) $ - $ 1,683 $ 1,608 $ 151 $ 1,759 $ - $ - $ 1,759
Other net interest expense(a)   169     19       87     (d)     275   171     -     -           171

Earnings before income taxes

1,554 (59 ) (87 ) 1,408 1,588 - - 1,588
Provision for income taxes(b)   545     (16 )     (102 )   (e)     427   602     -     (49 )   (e)     553
Net earnings $ 1,009   $ (43 )   $ 15         $ 981 $ 986   $ -   $ 49         $ 1,035
Diluted earnings per share(c)             $ 1.49   $ (0.06 )   $ 0.02         $ 1.45         $ 1.38   $ -   $ 0.07         $ 1.45
                                                   
Twelve Months Ended January 28, 2012 Twelve Months Ended January 29, 2011

 

 

U.S.

 

 

 

Consolidated

 

U.S.

 

 

 

Consolidated

 

U.S.

Credit

Total

GAAP

U.S.

Credit

Total

GAAP

(millions, except per share data) (unaudited)

   

Retail

  Card  

U.S.

 

Canada

 

Other

      Total    

Retail

  Card  

U.S.

 

Canada

 

Other

      Total
Segment profit $ 4,765 $ 606 $ 5,371 $ (122 ) $ - $ 5,250 $ 4,629 $ 541 $ 5,169 $ - $ - $ 5,169
Other net interest expense(a)   663   44     87   (d)   794   674     -     -           674
Earnings before income taxes 4,708 (166 ) (87 ) 4,456 4,495 - - 4,495
Provision for income taxes(b)   1,690     (47 )     (117 )   (e)     1,527   1,677     -     (102 )   (e)     1,575
Net earnings $ 3,018   $ (119 )   $ 30         $ 2,929 $ 2,818   $ -   $ 102         $ 2,920
Diluted earnings per share(c)             $ 4.41   $ (0.17 )   $ 0.04         $ 4.28             $ 3.86   $ -   $ 0.14         $ 4.00
Note: Our segment measure of profit is used by management to evaluate the return 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 diluted EPS impact of our 2013 Canadian market entry, favorable resolution of various income tax matters and the loss on early retirement of debt. We believe this information is useful in providing period-to-period comparisons of the results of our U.S. operations. 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 segment profit. For the three and twelve months ended January 28, 2012, U.S. Credit Card segment profit included $17 million and $72 million of interest expense on nonrecourse debt collateralized by credit card receivables, respectively, compared with $19 million and $83 million in the respective prior year periods. These amounts, along with other interest expense, equal consolidated GAAP interest expense.

(b) In 2011, taxes are allocated to our business segments based on income tax rates applicable to the operations of the segment for the period.

(c) For the three and twelve months ended January 28, 2012, weighted average diluted shares outstanding were 675.0 million and 683.9 million, respectively, and for the three and twelve months ended January 29, 2011, weighted average diluted shares outstanding were 714.4 million and 729.4 million, respectively.

(d) Represents the loss on early retirement of debt.
(e) Represents reductions to income tax expense due to favorable resolution of income tax matters that in the aggregate were significant during the three and twelve months ended January 28, 2012 and January 29, 2011. The twelve months ended January 28, 2012 includes income tax expense reductions of $15 million in the first three quarters of 2011 that were not significant to those periods. The three and twelve months ended January 28, 2012 also include the tax effect of the loss on early retirement of debt, of $32 million in both periods.
Subject to reclassification
 

Source: Target Corporation

Target Corporation
John Hulbert
Investors
612-761-6627
or
Eric Hausman
Financial Media
612-761-2054
or
Target Media Hotline
612-696-3400