Adjustment to Method of Accounting for Certain Land Leases and Early Adoption of FAS 123R - Revised Accounting for Stock-Based Compensation
MINNEAPOLIS, Feb. 3 /PRNewswire-FirstCall/ -- Target Corporation
(NYSE: TGT) today provided background information on two accounting matters
which will reduce its earnings for the fourth quarter and full year 2004.
Financial results for these periods are expected to be released to the public
before the market opens on February 17, 2005.
Accounting for Certain Land Leases
After consultation with its external auditors, Target Corporation will
adjust its method of accounting for leases related to a specific category of
owned store locations which are located on leased land. The effect will be a
$65 million non-cash adjustment, primarily attributable to an increase in
Target's year-end straight-line rent accrual, which will increase the
Company's pre-tax occupancy costs for the fourth quarter and full year 2004
and will reduce earnings per share by approximately 4 cents. Of the
$65 million pre-tax expense to be recorded in the fourth quarter of 2004,
$10 million pre-tax, or less than 1 cent per share, is attributable to the
current year and $55 million pre-tax, or approximately 4 cents per share, is
related to prior periods. Prior years' financial results will not be restated
due to the immateriality of this issue to the results of operations and
statement of financial position for the current year or any individual prior
year. The adjustment will not affect historical or future cash flows or
timing of payments under related leases.
For many years, Target has utilized a 39 year depreciable life for
substantially all its store buildings, including its owned stores located on
leased land. Separately, in these circumstances, Target used the original
term of the land lease, which was often less than 39 years, for calculating
its straight-line rent expense. This accounting adjustment results in Target
using a time period for its straight-line rent expense calculation that equals
or exceeds the time period used for depreciation.
Accounting for Stock-Based Compensation
Separately, Target Corporation has decided to early adopt, in the fourth
quarter of 2004, SFAS 123R, which modifies SFAS 123, "Accounting for
Stock-Based Compensation". This revised accounting standard requires that all
stock-based compensation, including grants of employee stock options, be
accounted for using a fair-value-based method. The expected impact of the
adoption of this accounting change on Target Corporation 2004 diluted earnings
per share is a reduction of 2 to 3 cents, with the expense being incurred in
approximately equal quarterly amounts throughout the year. The impact on
fiscal 2005 diluted earnings per share is expected to be a similar reduction,
resulting in an immaterial year-over-year differential.
In the first quarter of 2003, Target adopted SFAS 123 in accordance with
the prospective transition method. Under this guidance, the fair-value-based
method was applied prospectively to stock awards granted subsequent to
February 1, 2003, the last day of our 2002 fiscal year.
Under the revised standard, Target is electing the modified retrospective
transition method. As a result, all prior period financial statements are
being restated to recognize compensation cost in the amounts previously
reported in the pro forma footnote disclosures under the provisions of SFAS
123. Restatements will be included, as appropriate, in Target's 2004 year-end
earnings release and 2004 Form 10-K.
Sales results for the corporation for the month of January 2005 are
included in a separate release which was also issued today, February 3, 2005.
Forward-looking statements in this release should be read in conjunction
with the cautionary statements in Exhibit (99)C to the company's 2003 Form
Target Corporation's continuing operations include large, general
merchandise discount stores, as well as an on-line business called Target.com.
The company currently operates 1,308 Target stores in 47 states.
Target Corporation news releases are available at http://www.target.com or
SOURCE Target Corporation
/CONTACT: investor, Susan Kahn, +1-612-761-6735, or financial media,
Cathy Wright, +1-847-615-1538, both of Target Corporation/
/Web site: http://www.target.com /