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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
                                ---------------
 
(MARK ONE)
 
        
   /X/                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                                  SECURITIES EXCHANGE ACT OF 1934
                       FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
                                           OR
   / /                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                                  SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM --------- TO --------- COMMISSION FILE NUMBER 1-6049 ------------------------ DAYTON HUDSON 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.) 777 NICOLLET MALL, MINNEAPOLIS, 55402-2055 MINNESOTA (Address of principal executive (Zip Code) offices)
Registrant's telephone number, including area code: 612/370-6948 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------- -------------------------------------- Common Stock, par value $.1667 per New York Stock Exchange share Pacific Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE 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 ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / Aggregate market value of the voting stock held by non-affiliates of the Registrant on March 20, 1998 was $19,584,392,909, based on the closing price of $42.53 per share of Common Stock as reported on the New York Stock Exchange--Composite Index and $2,636.25 per share of Series B ESOP Convertible Preferred Stock as determined by Duff & Phelps. (Excluded from this figure is the voting stock held by Registrant's Directors and Executive Officers.) Indicate the number of shares outstanding of each of Registrant's classes of common stock, as of the latest practicable date. March 20, 1998: 438,699,386 shares of common stock, par value $.1667. All references to Common Stock in this Form 10-K reflect the Registrant's April 1998 two-for-one Common Stock split. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Registrant's 1997 Annual Report to Shareholders are incorporated into Parts I and II. 2. Portions of Registrant's Proxy Statement dated April 14, 1998 are incorporated into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. The first paragraph of Fourth Quarter Results, Page 20; Analysis of Financial Condition, Page 21; Performance Objectives, Page 22; Guest Credit, Page 23; Business Segment Comparisons, excluding years 1992-1994, Page 25; first textual paragraph of Summary of Accounting Policies--Organization, Page 26; Quarterly Results (Unaudited), Page 35; the information relating to store locations on Page 16 and the information relating to number of employees on Page 37, excluding years 1992-1994, of Registrant's 1997 Annual Report to Shareholders are incorporated herein by reference. Registrant was incorporated in Minnesota in 1902. ITEM 2. PROPERTIES. Leases, Page 31 and the list of store locations on Page 16 of Registrant's 1997 Annual Report to Shareholders are incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS. Commitments and Contingencies, Page 29 of Registrant's 1997 Annual Report to Shareholders is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. Not Applicable. 1 ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of the Registrant as of April 1, 1998 and their positions and ages, are as follows:
NAME TITLE AGE - ---------------------------------------------- ---------------------------------------------- --- Robert J. Ulrich.............................. Chairman, Chief Executive Officer, Chairman of 54 the Executive Committee and Director of Registrant; Chairman and Chief Executive Officer of Target (a division of Registrant) Kenneth B. Woodrow............................ President of Target 53 Larry V. Gilpin............................... Executive Vice President Team, Guest and 54 Community Relations of Target Robert G. McMahon............................. Senior Vice President, Property Development of 49 Target John E. Pellegrene............................ Executive Vice President, Marketing of Target 61 Gregg W. Steinhafel........................... Executive Vice President, Merchandising of 43 Target Bart Butzer................................... President of Mervyn's (a subsidiary of 42 Registrant) Shannon M. Buscho............................. Executive Vice President, Stores of Mervyn's 46 Linda L. Ahlers............................... President of the Department Store Division (a 47 division of Registrant) James T. Hale................................. Senior Vice President, General Counsel and 57 Secretary of Registrant Douglas A. Scovanner.......................... Senior Vice President and Chief Financial 42 Officer of Registrant Vivian M. Stephenson.......................... Senior Vice President and Chief Information 60 Officer of Registrant Gerald L. Storch.............................. President, Credit and Senior Vice President, 41 Strategic Business Development of Registrant JoAnn Bogdan.................................. Controller and Chief Accounting Officer of 45 Registrant
Each officer is elected by and serves at the pleasure of the Board of Directors. There is no family relationship between any of the officers named nor is there any arrangement or understanding pursuant to which any person was selected as an officer. The period of service of each officer in the positions listed and other business experience as of April 1, 1998 is set forth below. ROBERT J. ULRICH Chairman of the Board, Chief Executive Officer, Chairman of the Executive Committee and Director of Registrant since 1994. Chairman and Chief Executive Officer of Target since 1987. KENNETH B. WOODROW President of Target since 1994, Vice Chairman of Target from 1993 to 1994 and Executive Vice President of Target from 1989 to 1993. 2 LARRY V. GILPIN Executive Vice President of Target since 1995 and Senior Vice President of Target from 1981 to 1995. ROBERT G. MCMAHON Senior Vice President of Target since 1991 and Vice President of Target from 1990 to 1991. JOHN E. PELLEGRENE Executive Vice President of Target since 1995 and Senior Vice President of Target from 1988 to 1995. GREGG W. STEINHAFEL Executive Vice President of Target since 1994 and Senior Vice President and General Merchandise Manager of Target from 1987 to 1994. BART BUTZER President of Mervyn's since March 1997 and Regional Senior Vice President of Target from 1991 to 1997. SHANNON M. BUSCHO Executive Vice President, Stores of Mervyn's since December 1996 and Senior Vice President, Stores of Mervyn's from January 1996 to December 1996. She has held various management positions at Mervyn's for over five years and was first elected a Vice President in 1994. LINDA L. AHLERS President of the Department Store Division since February 1996 and Executive Vice President, Merchandising of the Department Store Division from August 1995 to February 1996. Senior Vice President of Target from 1989 to 1995. JAMES T. HALE Senior Vice President, Secretary and General Counsel of Registrant since 1981. DOUGLAS A. SCOVANNER Senior Vice President and Chief Financial Officer of Registrant since 1994. Treasurer of Registrant in 1994. Senior Vice President, Finance of Fleming Companies, Inc. (a food wholesaler) from 1992 to 1994. Vice President and Treasurer of Coca-Cola Enterprises, Inc. (a soft drink bottler) from 1986 to 1992. VIVIAN M. STEPHENSON Senior Vice President of Registrant since 1995. Senior Vice President, MIS of Mervyn's from 1994 to 1995 and Vice President, MIS of Mervyn's from 1990 to 1994. GERALD L. STORCH President, Credit and Senior Vice President, Strategic Business Development of Registrant since May 1997. Senior Vice President of Registrant since 1993. Principal with McKinsey & Company (a consulting firm) from 1982 to 1993. JOANN BOGDAN Controller and Chief Accounting Officer of Registrant since 1993. Assistant Controller of Registrant from 1988 to 1993. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Dividends Declared Per Share and Common Stock price, Page 35 of Registrant's 1997 Annual Report to Shareholders are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The Data on years 1993-1997 in the Summary Financial and Operating Data (excluding 1992 and Other Data), Page 37. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's Discussion and Analysis, Pages 17-24 and the second textual paragraph of Post-retirement Health Care Benefits, Page 34 of Registrant's 1997 Annual Report to Shareholders are incorporated herein by reference. 3 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Pages 25-35 and 37 (excluding years 1992-1994 on Page 25 and 1992 and Other Data in the Summary Financial and Operating Data on Page 37) and the Report of Independent Auditors, Page 36 of Registrant's 1997 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Election of Directors, Pages 6-11 of Registrant's Proxy Statement dated April 14, 1998, is incorporated herein by reference. See also Item X of Part I hereof. ITEM 11. EXECUTIVE COMPENSATION. Executive Compensation, Pages 12-17, Report of the Compensation Committee on Executive Compensation, pages 18-22 and Director Compensation, Page 10 of Registrant's Proxy Statement dated April 14, 1998, are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. How many shares do the Corporation's directors and officers own? Page 4 and Who are the largest owners of the Corporation's shares? Page 5 of Registrant's Proxy Statement dated April 14, 1998, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Not Applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. a) FINANCIAL STATEMENTS: Consolidated Results of Operations for the Years Ended January 31, 1998, February 1, 1997 and February 3, 1996. Consolidated Statements of Financial Position at January 31, 1998 and February 1, 1997. Consolidated Statements of Cash Flows for the Years Ended January 31, 1998, February 1, 1997 and February 3, 1996. Consolidated Statements of Shareholders' Investment for the Years Ended January 31, 1998, February 1, 1997 and February 3, 1996. Information which is an integral part of the financial statements: Notes to Consolidated Financial Statements on Pages 25 - 27, 29, 31 and 33-35 (excluding years 1992-1994 on Page 25) and the Report of Independent Auditors on Page 36 in Registrant's 1997 Annual Report to Shareholders. 4 The Registrant, through its special purpose subsidiary, Dayton Hudson Receivables Corporation ("DHRC") entered into a securitization transaction under which it transfers, on an ongoing basis, substantially all of its credit card receivables to a trust. Separate financial information is filed for DHRC in its separate Annual Report on Form 10-K. b) REPORTS ON FORM 8-K Form 8-K dated January 8, 1998, reporting December 1997 sales results. c) EXHIBITS (2) Not applicable (3)A. Restated Articles of Incorporation (as amended July 17, 1996). Incorporated by reference to Exhibit (3)A. to Registrant's Form 10-Q Report for the quarter ended August 3, 1996. B. By-Laws (as amended through September 13, 1995). Incorporated by reference to Exhibit (3)B. to Registrant's Form 10-K Report for the year ended February 3, 1996. (4)A. Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, as amended. Incorporated by reference to Exhibit A to Exhibit 1 to Registrant's Form 8-K Report dated September 12, 1996. B. Certificate of Designation, Preference and Rights of Series B ESOP Convertible Preferred Stock. Incorporated by reference to Exhibit (3)A. to Registrant's Form 10-K Report for the year ended January 30, 1993. C. Instruments defining the rights of security holders, including indentures. Registrant agrees to furnish the Commission on request copies of instruments with respect to long-term debt. (9) Not applicable (10)A. Executive Incentive Plan (PTOC&EVA) (a) B. Director Stock Option Plan of 1995 (b) C. Executive Incentive Plan (Personal Score) (c) D. Excess Benefit Plan (d) E. Supplemental Pension Plan I (e) F. Executive Long-Term Incentive Plan of 1981, as amended and restated (f) G. Supplemental Pension Plan II (g) H. Supplemental Pension Plan III (h) I. Deferred Compensation Plan Senior Management Group (i) J. Deferred Compensation Plan Directors (j) K. Income Continuance Policy (k) L. SMG Income Continuance Policy (l) M. SMG Executive Deferred Compensation Plan (m) N. Director Deferred Compensation Plan (n) (11) Not applicable (12) Statements re Computations of Ratios (13) 1997 Annual Report to Shareholders (only those portions specifically incorporated by reference herein shall be deemed filed with the Commission) (16) Not applicable (18) Not applicable
5 (21) List of Subsidiaries (22) Not applicable (23) Consent of Independent Auditors (24) Powers of Attorney (27)A. Financial Data Schedules for the fiscal year ended January 31, 1998. B. Restated Financial Data Schedules for the periods ended May 3, 1997, August 2, 1997 and November 1, 1997. C. Restated Financial Data Schedules for the fiscal years ended February 3, 1996 and February 1, 1997 and for the periods ended May 4, 1996, April 3, 1996 and November 2, 1996. (99)A. Registrant's Form 11-K Report B. Registrant's Proxy Statement dated April 14, 1998 (only those portions specifically incorporated by reference shall be deemed filed with the Commission)(o) C. Cautionary Statements Relating to Forward-Looking Information
Copies of exhibits will be furnished upon written request and payment of Registrant's reasonable expenses in furnishing the exhibits. - ------------------------ (a) Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated April 19, 1995. (b) Incorporated by reference to Exhibit B to Registrant's Proxy Statement dated April 19, 1995. (c) Incorporated by reference to Exhibit (10)C. to Registrant's Form 10-K Report for the year ended January 29, 1994. (d) Incorporated by reference to Exhibit (10)D. to Registrant's Form 10-K Report for the year ended January 30, 1993 (the "1992 10-K"). (e) Incorporated by reference to Exhibit (10)E. to Registrant's Form 10-K Report for the year ended February 1, 1997. (f) Incorporated by reference to Exhibit (10)B. to Registrant's Form 10-Q Report for the quarter ended October 29, 1994. (g) Incorporated by reference to Exhibit (10)G. to the Registrant's Form 10-K Report for the year ended February 1, 1997. (h) Incorporated by reference to Exhibit (10)H. to the Registrant's Form 10-K Report for the year ended February 1, 1997. (i) Incorporated by reference to Exhibit (10)I. to the Registrant's Form 10-K Report for the year ended February 1, 1997. (j) Incorporated by reference to Exhibit (10)J. to the Registrant's Form 10-K Report for the year ended February 1, 1997. (k) Incorporated by reference to Exhibit (10)A. to Registrant's 1992 10-K. (l) Incorporated by reference to Exhibit (10)B. to Registrant's 1992 10-K. (m) Incorporated by reference to Exhibit (10)M. to the Registrant's Form 10-K Report for the year ended February 1, 1997. (n) Incorporated by reference to Exhibit (10)N. to the Registrant's Form 10-K Report for the year ended February 1, 1997. (o) Incorporated by reference to Registrant's Proxy Statement dated April 14, 1998 (only those portions specifically incorporated by reference shall be deemed filed with the Commission). 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. DAYTON HUDSON CORPORATION By: /s/ DOUGLAS A. SCOVANNER ----------------------------------------- Douglas A. Scovanner SENIOR VICE PRESIDENT AND CHIEF FINANCIAL Dated: April 15, 1998 OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ BOB ULRICH -------------------------------------- Robert J. Ulrich CHAIRMAN OF THE BOARD AND CHIEF Dated: April 15, 1998 EXECUTIVE OFFICER /s/ DOUGLAS A. SCOVANNER -------------------------------------- Douglas A. Scovanner SENIOR VICE PRESIDENT AND CHIEF Dated: April 15, 1998 FINANCIAL OFFICER /s/ J.A. BOGDAN -------------------------------------- JoAnn Bogdan CONTROLLER AND CHIEF ACCOUNTING Dated: April 15, 1998 OFFICER
LIVIO D. DESIMONE SUSAN A. MCLAUGHLIN ROGER A. ENRICO ANNE M. MULCAHY WILLIAM W. GEORGE STEPHEN W. SANGER MICHELE J. HOOPER JAMES A. SOLOMON D. TRUJILLO Directors JOHNSON ROBERT J. ULRICH RICHARD M. KOVACEVICH
Douglas A. Scovanner, by signing his name hereto, does hereby sign this document pursuant to powers of attorney duly executed by the Directors named, filed with the Securities and Exchange Commission on behalf of such Directors, all in the capacities and on the date stated, such persons being all of the Directors of the Registrant. By: /s/ DOUGLAS A. SCOVANNER ----------------------------------------- Douglas A. Scovanner Dated: April 15, 1998 ATTORNEY-IN-FACT
7

                                                                    EXHIBIT (12)

                  DAYTON HUDSON CORPORATION AND SUBSIDIARIES
            COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES AND
      RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS


                            (Millions of Dollars)

Fiscal Year Ended --------------------------------------------------------- JAN. 31, Feb. 1, Feb. 3, Jan. 28, Jan. 29, 1998 1997 1996 1995 1994 -------- ------- ------- -------- -------- RATIO OF EARNINGS TO FIXED CHARGES: Earnings: Consolidated net earnings before extraordinary charge................................................ $ 801 $ 474 $ 311 $ 434 $ 375 Income taxes............................................ 524 309 190 280 232 ------ ------ ------ ------ ------ Total earnings before extraordinary charge............ 1,326 783 501 714 607 ------ ------ ------ ------ ------ Fixed charges: Interest expense........................................ 437 464 461 439 459 Interest portion of rental expense...................... 59 59 59 56 45 ------ ------ ------ ------ ------ Total fixed charges................................... 495 523 520 495 504 ------ ------ ------ ------ ------ Less: Capitalized interest.................................... (16) (16) (14) (7) (5) ------ ------ ------ ------ ------ Fixed charges in earnings............................. 480 507 506 488 499 ------ ------ ------ ------ ------ Earnings available for fixed charges.................... $1,806 $1,290 $1,007 $1,202 $1,106 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings before extraordinary charge to fixed charges...................................... 3.65 2.46 1.94 2.43 2.19 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS: Total fixed charges, as above........................... $ 495 $ 523 $ 520 $ 495 $ 504 Dividends on preferred stock (pre-tax basis)........................................ 27 37 37 39 39 ------ ------ ------ ------ ------ Total fixed charges and preferred stock dividends..................................... 531 560 557 534 543 ------ ------ ------ ------ ------ Earnings available for fixed charges and preferred stock dividends.......................... $1,806 $1,290 $1,007 $1,202 $1,106 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings before extraordinary charge to fixed charges and preferred stock dividends............ 3.40 2.30 1.81 2.25 2.04 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------


                           1997 Results
Target Mervyn's Department Stores ---------------------- ------------------------------------ ------------------------------------- In millions 1997 1996 1995 In millions 1997 1996 1995 In millions 1997 1996 1995 - ----------- ------- ------- ------- ----------- ------- ------- ------- ----------- ------- ------- ------- $20,368 $17,853 $15,807 $4,227 $4,369 $4,516 $3,162 $3,149 $3,193 $ 1,287 $ 1,048 $ 721 $ 280 $ 272 $ 117 $ 240 $ 151 $ 192 796 736 670 269 300 295 65 65 64 87,158 79,360 71,108 21,810 24,518 24,113 14,090 14,111 13,870
- ---------- *In thousands, reflects total square feet, less office, warehouse and vacant space.
Target Locations (at year end) Mervyn's Locations (at year end) Department Store Locations (at year end) -------------------------------------------- --------------------------------------- ---------------------------- Retail Sq. Ft. No. of Retail Sq. Ft. No. of Retail Sq. Ft. No. of Retail Sq. Ft. No. of in Thousands Stores in Thousands Stores in Thousands Stores in Thousands Stores ------------- -------- -------------- ------- ------------ ------ ------------ ------ AL 117 1 NE 1,072 9 AZ 1,207 15 Dayton's AZ 2,451 23 NV 841 8 CA 9,784 126 MN 3,080 13 AR 186 2 NJ 509 4 CO 854 11 ND 297 3 CA 15,289 138 NM 730 7 ID 83 1 SD 102 1 CO 2,355 22 NY 717 6 LA 459 6 WI 373 3 FL 6,846 62 NC 2,161 20 MI 1,176 15 Hudson's GA 2,795 26 ND 437 4 MN 1,132 9 MI 4,619 20 ID 406 4 OH 2,598 23 NV 495 7 OH 187 1 IL 5,457 48 OK 790 8 NM 266 3 Marshall Field's IN 2,836 30 OR 1,174 11 OK 270 3 IL 4,173 17 IA 1,769 17 SC 393 4 OR 551 7 IN 246 2 KS 1,106 9 SD 391 4 TX 3,344 42 OH 431 2 KY 1,134 11 TN 1,945 19 UT 760 8 TX 155 1 LA 203 2 TX 8,848 82 WA 1,429 16 WI 427 2 MD 1,509 13 UT 1,055 6 Total 21,810 269 Total MI 4,796 45 VA 2,153 18 DSD 14,090 65 MN 5,372 46 WA 2,401 23 MS 116 1 WI 2,337 22 MO 1,382 13 WY 182 2 MT 299 3 Total 87,158 796
MAJOR MARKETS - ------------------------------------------------------------------------------------------------------------------------------------ Greater Los Angeles 69 Seattle/Tacoma 12 Greater Los Angeles 49 Chicago 16 Chicago 33 Indianapolis 11 San Francisco Bay Area 29 Detroit 11 Minneapolis/St. Paul 32 St. Louis 11 Dallas/Ft. Worth 12 Minneapolis/St.Paul 11 San Francisco Bay Area 26 Tampa/St. Petersburg 11 San Diego 12 Employees: 35,000 Detroit 23 Employees: 166,000 Phoenix 11 Dallas/Ft. Worth 22 Detroit 9 Atlanta 21 Houston 9 Houston 21 Minneapolis/St. Paul 9 Greater Miami 19 Seattle/Tacoma 9 Denver 15 Greater Salt Lake City 8 Phoenix 15 Denver 6 San Diego 13 Employees: 29,000
16 ANALYSIS OF OPERATIONS Our net earnings were $751 million in 1997, compared with $463 million in 1996 and $311 million in 1995. Earnings per share were $1.59 in 1997, $.97 in 1996 and $.65 in 1995. (References to earnings per share refer to diluted earnings per share. Earnings per share, dividends per share and common shares outstanding have been restated to reflect our April 1998 two-for-one common share split.) In 1997, earnings included two unusual items, a pre-tax securitization gain of $45 million ($.06 per share) and an extraordinary charge, net of tax, for the purchase and redemption of debt of $51 million ($.11 per share). In 1996, earnings were net of a pre-tax real estate repositioning charge of $134 million ($.18 per share) and an extraordinary charge, net of tax, for the purchase and redemption of debt of $11 million ($.03 per share). Earnings per share excluding all unusual items were $1.64 in 1997, $1.18 in 1996 and $.65 in 1995. Pre-tax segment profit increased 23 percent in 1997 to $1,807 million, compared with $1,471 million in 1996 and $1,030 million in 1995. Pre-tax segment profit is first-in first-out (FIFO) earnings before securitization effects, interest, corporate and other expense, and unusual items. All three operating companies contributed to our pre-tax profit growth: Target improved 23 percent; Mervyn's 3 percent; and DSD 59 percent. We expect continued growth in profitability in 1998. - - Target's pre-tax profit rose 23 percent in 1997 to $1,287 million. Target's full-year profit margin rate increased to 6.3 percent in 1997 from 5.9 percent in 1996, reflecting continued strong sales momentum and modest improvement in both gross margin and operating expense rates. Although guest credit is a small part of Target's overall profit, it contributed to growth in sales and earnings. In 1998, we expect our profit margin rate to remain essentially unchanged while total revenues are expected to grow due to mid-single-digit comparable-store sales increases combined with new store sales growth. - - Mervyn's pre-tax profit improved 3 percent in 1997 to $280 million, despite lost revenue and profits from the 31 net stores closed in 1997. Mervyn's gross margin rate was modestly better than the prior year reflecting improved markup, partially offset by higher markdowns. Mervyn's also experienced a strong improvement in results from guest credit. Mervyn's expense rate was essentially even with last year. In 1997, as planned, Mervyn's exited the Florida and Georgia markets and closed seven additional under-performing stores. These changes better position us to compete more effectively in our primary markets. Mervyn's also initiated a store remodel program in 1997. We plan to remodel approximately ten additional stores in 1998. We expect continued modest improvement in our profit margin rate in 1998 and low single-digit comparable-store sales increases. - - DSD's pre-tax profit was $240 million, a 59 percent increase over 1996, primarily due to a significant improvement in the operating expense rate. During 1997, we intensified our focus on distinctive merchandise assortments, broadened our assortment of owned brands, enhanced guest service and eliminated more than $50 million in expenses. By continuing these initiatives we expect to further improve profitability in 1998. Comparable-store sales are expected to grow in the low single digits in 1998 and gross margin rate is expected to increase modestly. REVENUES In 1997, our total and comparable-store revenues increased 9 percent and 5 percent, respectively. Revenues include retail sales, finance charges, late fees and other revenues. Comparable-store revenues are revenues from stores open longer than one year. Target's revenue growth reflected strong comparable-store revenues and new store expansion. Mervyn's 1997 total revenues declined due to stores closed. Mervyn's comparable-store revenue growth reflected continued focus on merchandising and marketing initiatives. DSD's total revenues were even with 1996, also reflecting closed stores, while comparable-store revenues increased slightly over the prior year. Increased finance charge and late fee revenues at all three operating divisions also contributed to revenue growth. We expect comparable-store revenues to increase at all three divisions in 1998. 17 Revenue growth in 1996 reflected a combination of new store and comparable-store growth at Target, somewhat offset by Mervyn's total and comparable-store revenue decline. DSD's comparable-store revenue decline was due to a reduction in promotional days in 1996. The impact of inflation on our consolidated operations was minimal and, as a result, the overall comparable-store revenue increase closely approximated real growth.
- ----------------------------------------------------------------------------- Revenue Growth 1997 1996* - ----------------------------------------------------------------------------- All Comp. All Comp. Stores Stores Stores Stores - ----------------------------------------------------------------------------- Target 14% 6% 13% 6% Mervyn's (3) 3 (3) (4) DSD -- 1 (1) (4) - ----------------------------------------------------------------------------- Total 9% 5% 8% 3% - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
- ----------------------------------------------------------------------------- Revenues Per Square Foot** - ----------------------------------------------------------------------------- (Dollars) 1997 1996 1995* - ----------------------------------------------------------------------------- Target $244 $235 $230 Mervyn's 187 179 190 DSD 224 223 230 - -----------------------------------------------------------------------------
- ---------- *Excludes the effect of 53rd week in 1995. **Thirteen-month average retail square feet. GROSS MARGIN RATE In 1997, our overall gross margin rate was essentially even with the prior year. Gross margin includes cost of retail sales and excludes buying and occupancy costs. Strong growth at Target, our lowest gross margin rate division, continues to impact our business mix. - - TARGET'S gross margin rate increased modestly due to improved markup, partially offset by higher markdowns. In 1998, we anticipate the gross margin rate to be essentially even with 1997. - - MERVYN'S gross margin rate improved modestly for the year reflecting improved markup, partially offset by higher markdowns. In 1998, we expect Mervyn's gross margin rate to further increase as we continue to improve the quality and trend content of our merchandise. - - DSD'S gross margin rate increased over 1996 due to improved markup, partially offset by higher markdowns. In 1998, we anticipate DSD's gross margin rate will increase modestly. In 1996, overall gross margin rate improved, reflecting strong gross margin rate improvement at Target and Mervyn's, somewhat offset by a slight rate deterioration at DSD and the growing impact of Target's lower gross margin rate structure. The LIFO provision, included in cost of retail sales, was as follows:
- ----------------------------------------------------------------------------- LIFO PROVISION: (EXPENSE)/CREDIT - ----------------------------------------------------------------------------- (Millions of Dollars, except Per Share Data) 1997 1996 1995 - ----------------------------------------------------------------------------- Target $ -- $ -- $ -- Mervyn's -- 5 (12) DSD (6) (14) (5) Total $ (6) $ (9) $ (17) Per Share $ (.01) $(.01) $(.02) - -----------------------------------------------------------------------------
The LIFO provision is calculated based on inventory levels, markup rates and internally generated retail price indices. The 1997 LIFO charge at DSD resulted from slight retail price inflation and lower inventory levels. In 1996, the LIFO credit at Mervyn's resulted principally from higher markup and lower inventory levels, while the LIFO charge at DSD resulted primarily from exiting the electronics business and the sale of stores in Texas. OPERATING EXPENSE RATE Our overall operating expense rate improved in 1997 due primarily to changes outlined below and the favorable effect of Target's increased impact on our overall expense rate structure. Operating expense includes selling, publicity and administrative expenses (excluding start-up and corporate and other expense), depreciation and amortization, buying and occupancy costs, and taxes other than income taxes. 18 - - TARGET'S operating expense rate improved in 1997 reflecting continued savings in the second year of a three-year program to remove $200 million from operating expenses. In 1998, expense reduction will remain a priority; however, ongoing wage rate pressures within our competitive markets may challenge our ability to fully realize our planned 1998 savings of $60 to $70 million. - - MERVYN'S operating expense rate was essentially even with 1996 and we expect a similar rate in 1998. - - DSD'S significant operating expense rate improvement in 1997 resulted from expense reduction initiatives. In 1998, we expect DSD's operating expense rate to be essentially unchanged from 1997. The operating expense rate in 1996 improved over 1995 due to significant cost reductions at Mervyn's and Target, and the favorable effect of Target's increased impact on the overall expense rate structure. INTEREST EXPENSE We view payments to holders of our sold securitized receivables as an "interest equivalent." In 1997, combined interest expense and interest equivalent was $18 million lower than 1996 due to a lower average portfolio rate and lower average funded balances. In 1996, interest expense and interest equivalent was $15 million higher than 1995 as higher average funded balances were only partially offset by a lower average portfolio rate. Combined interest expense and interest equivalent in 1998 is expected to be similar to 1997. During 1997, we repurchased $503 million of high-coupon debt for $583 million, resulting in an after-tax extraordinary charge of $51 million ($.11 per share). The replacement of this debt with lower interest rate financing will reduce interest expense going forward. The debt repurchased had an average interest rate of 9.4 percent and an average remaining life of approximately 18 years. INCOME TAX RATE The effective tax rate was 39.5 percent in both 1997 and 1996, and 38.0 percent in 1995. The effective tax rate in 1997 and 1996 reflects a more normalized rate, while lower earnings in 1995 caused permanent differences to have a greater impact. Our 1998 tax rate is expected to approximate the 1997 rate. REAL ESTATE REPOSITIONING CHARGE In 1996, we recorded a pre-tax charge of $134 million ($.18 per share) for real estate repositioning at Mervyn's and DSD to strengthen competitive positions and achieve improved long-term results. The charge included $114 million for Mervyn's to sell or close its 25 stores in Florida and Georgia and approximately ten other under-performing stores throughout the chain. Also included was a net charge of $20 million for DSD's sale of its Texas stores and the closure of two other stores. To date, Mervyn's has exited the Florida and Georgia markets and closed seven other under-performing stores, while DSD has sold three Texas stores and closed two other stores. Exit costs incurred during 1997 (approximately $17 million) were charged against the reserve; the reserve remaining at year-end 1997 was $25 million. We expect to sell or close the remaining stores within the next year. SECURITIZATION During third quarter 1997, Dayton Hudson Receivables Corporation (DHRC), a special-purpose subsidiary, sold to the public $400 million of securitized receivables. This issue of asset-backed securities has an expected maturity of five years and a stated rate of 6.25 percent. Proceeds from the sale were used for general corporate purposes, including funding the growth of receivables. As required by Statement of Financial Accounting Standards (SFAS) No. 125, this transaction resulted in a pre-tax gain of $32 million. Total year results also include an additional $13 million pre-tax gain attributable to the application of SFAS No. 125 to our 1995 securitization. Combined, these gains total $45 million ($.06 per share). Our Consolidated Results of Operations include reductions of finance charge revenues and bad debt expense, which reduce earnings by $33 million in 1997, $25 million in 1996 and $10 million in 1995. These amounts represent payments to holders of our sold securitized receivables, and are included in our pre-tax earnings reconciliation on page 25 as interest equivalent, below pre-tax segment profit. While outstanding, our current $800 million of sold securitized receivables will result in approximately $12 million of interest equivalent per quarter. In third quarter 1998, our 1995 securitization will mature and result in a pre-tax charge, based on our current assessments, of $30 to $35 million. This charge would be offset by the gain related to a new sale of securitized receivables, if market conditions support a transaction at that time. 19 YEAR 2000/INFORMATION SYSTEMS We have invested heavily in information services (IS) in the past two years. We consolidated our IS operations in 1996 and have begun to develop and implement common systems across all three divisions to better leverage our resources. As a result of our common systems initiatives, the growth in our IS expense has substantially outpaced our revenue growth. We have assessed key operational, information and financial systems as a part of a comprehensive plan of action to address the risk of the year 2000 date conversion. We have developed plans and implemented procedures to effect required modifications to our existing systems and equipment, and we are working closely with our hardware and software vendors to ensure existing and newly installed systems are year 2000 ready. We are also working with our business partners to mitigate the risk to us if they are not ready for the year 2000. Year 2000 related costs are expensed as incurred. As of January 31, 1998, expense related to year 2000 conversion was immaterial. Year 2000 costs would have been significantly higher if not for our recent, substantial common systems development. We estimate expenditures necessary to complete the year 2000 readiness program will be approximately $40 million over the next two years, with most of the spending occurring in 1998. We believe we are positioned to achieve year 2000 readiness on a timely basis. Although we do not anticipate incurring material costs beyond our estimate above, the scope of this issue is difficult to predict with certainty and there can be no assurance that we, or our business partners, will successfully complete every phase of year 2000 conversion on a timely basis, or that material additional expenses will not be incurred. In first quarter 1998, we will adopt Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The initial impact of the adoption will shift certain IS development spending from expense to capital, and increase 1998 pre-tax earnings by approximately $60 million ($.08 per share), net of first year depreciation. The annual benefit is expected to diminish significantly over the next few years. Net IS expense growth in 1998 is expected to be similar to our revenue growth, due to the combination of ongoing systems development and implementation, year 2000 related costs and the effects of software capitalization. FOURTH QUARTER RESULTS Due to the seasonal nature of the retail industry, fourth quarter operating results typically represent a substantially larger share of the total year revenues and earnings due to the inclusion of the holiday shopping season. Fourth quarter 1997 net earnings were $356 million, compared with $214 million in 1996. Earnings per share after extraordinary charges were $.76 for the quarter, compared with $.45 in 1996. Fourth quarter 1996 results were unfavorably affected by the real estate repositioning charge previously discussed. - - TARGET'S pre-tax profit increased 12 percent over fourth quarter 1996, reflecting a 14 percent total revenue increase and an improved operating expense rate, partially offset by a lower gross margin rate due to higher markdowns. Comparable-store revenues increased 6 percent. - - MERVYN'S pre-tax profit decreased 2 percent in the quarter, although profit increased slightly when 1996 profits from stores closed in 1997 are excluded. Total revenues for the quarter declined 2 percent while comparable-store revenues increased 6 percent. The gross margin rate was somewhat below 1996 due to higher markdowns. The operating expense rate improved primarily due to lower occupancy costs and improved store productivity. - - DSD'S fourth quarter pre-tax profit increased 81 percent over 1996. Total revenue growth was essentially unchanged while comparable-store revenues grew 2 percent. The gross margin rate improved slightly and the operating expense rate decreased significantly due to improved store productivity and other expense reduction initiatives. 20 ANALYSIS OF FINANCIAL CONDITION Our financial condition remains strong. Cash flow from operations was $1,795 million, driven by earnings growth, strong inventory control and accounts payable leveraging. Internally generated funds continue to be the most important component of our capital resources and, along with our ability to access a variety of financial markets, provide funding for our expansion plans. We continue to fund the growth in our business through a combination of retained earnings, debt and sold securitized receivables. During 1997, average total receivables increased 13 percent, or $248 million, principally due to growth of the Target Guest Card. In 1997, the number of Target Guest Card holders grew significantly to over nine million accounts at year end compared with five million in 1996. Retained securitized receivables decreased during the third quarter, as a result of the $400 million sale of securitized receivables. In 1998, we expect continued growth of the Target Guest Card which will benefit sales growth and credit profitability. Inventory levels increased $220 million in 1997. The majority of this growth was funded by the $199 million increase in accounts payable over the same period. Capital expenditures were $1,354 million in 1997, compared with $1,301 million in 1996. Investment in Target accounted for 85 percent of 1997 capital expenditures, with 6 percent at Mervyn's and 9 percent at DSD. Net property and equipment increased $658 million, reflecting capital invested offset by depreciation. During 1997, Target opened 60 net stores, Mervyn's closed 31 net stores and DSD opened two stores and closed two stores. Approximately 64 percent of total expenditures was for new stores. Other capital investments were for distribution, information systems and other infrastructure to support store growth. Over the past five years, Target's retail square footage has grown at a compound annual rate of approximately 10 percent. We expect to continue to expand in the range of 8 to 10 percent annually for the foreseeable future. Capital expenditures in 1998 are expected to approximate $1.6 billion for the construction of new stores, remodeling of existing stores and other capital support. The majority of new store capital continues to be invested in Target. In the upcoming year, Target plans to open approximately 60 net new stores in new and existing markets. Expansion plans for Target in 1998 include new stores in the greater New York City and Philadelphia markets. We will also open stores in New Jersey, Virginia, Maryland and other states. Our plans include major remodels of approximately ten Mervyn's stores and new fixtures at the remaining stores to create additional vendor shops. Mervyn's and DSD do not plan to open any new stores in 1998. Our financing strategy is to ensure liquidity and access to capital markets, to manage the amount of floating-rate debt and to maintain a balanced spectrum of debt maturities. Within these parameters, we seek to minimize our cost of borrowing. The average rate on our financings, including interest equivalent on sold securitized receivables, decreased to 8.1 percent in 1997 from 8.3 percent in 1996. This rate is expected to decline further in 1998. A key to the Corporation's liquidity and capital markets access is maintaining strong investment-grade debt ratings. Our ratings are sufficient to support commercial paper levels well in excess of our $305 million outstanding at year end. Further liquidity is provided by $1.6 billion of committed lines of credit obtained through a group of 29 banks. Going forward, we expect that continued profit increases and cash flow from operations will allow us to fund our planned capital expenditures while maintaining or improving our debt ratings.
- ----------------------------------------------------------------------------- Credit Ratings - ----------------------------------------------------------------------------- Standard Duff & Moody's and Poor's Phelps - ----------------------------------------------------------------------------- Long-term Debt Baa1 BBB+ A- Commercial Paper P-2 A-2 D-1- Sold Securitized Receivables Aaa AAA N/A - -----------------------------------------------------------------------------
21 PERFORMANCE OBJECTIVES SHAREHOLDER RETURN Our primary objective is to maximize shareholder value over time through a combination of share price appreciation and dividend income while maintaining a prudent and flexible capital structure. Our total return to shareholders approximated 94 percent in fiscal 1997 and has averaged 25 percent and 23 percent per year over the last five and ten years, respectively. MEASURING VALUE CREATION We measure value creation internally using a form of Economic Value Added (EVA), which we define as after-tax segment profit less a capital charge for all investment employed. The capital charge is an estimate of our after-tax cost of capital adjusted for the age of our stores, recognizing mature stores inherently have higher returns than newly opened stores. We estimate the after-tax cost of capital for our retail business is 10 percent, while our credit operations' after-tax cost of capital is estimated to be 6 percent as a result of its ability to support higher debt levels. We expect to generate returns in excess of these costs of capital, thereby producing EVA. EVA is used to evaluate our performance and to guide capital investment decisions. A significant portion of executive incentive compensation is tied to the achievement of targeted levels of annual EVA improvement. FINANCIAL OBJECTIVES We believe managing our business with a focus on EVA helps achieve our objective of annual earnings per share growth of 15 percent or more over time. We plan to produce these results, while maintaining a year-end debt ratio for our retail operations within a range of 45 percent to 55 percent, which will allow efficient capital market access to fund our growth. We ended 1997 with a retail debt ratio of 45 percent. In evaluating our debt level, we separate retail operations from credit operations due to their inherently different financial characteristics. We view the appropriate capitalization of our credit business to be 88 percent debt and 12 percent equity, similar to ratios of comparable credit card businesses.
- ----------------------------------------------------------------------------- Debt Ratio* 1997 1996 1995 - ----------------------------------------------------------------------------- Retail 45% 50% 53% Credit 88% 88% 88% Total Debt Ratio 54% 57% 60% - -----------------------------------------------------------------------------
- ---------- *Includes the impact of off-balance sheet operating leases and sold securitized receivables as if they were debt. 22 GUEST CREDIT We offer proprietary credit in each of our business segments. These credit programs strategically support our core retail operations and are an integral component of each business segment. The programs contribute to our earnings growth by driving sales at each of our business segments and through growth in credit contribution. As such, credit contribution shown below is reflected in each business segment's pre-tax profit on a receivables serviced basis (which includes both retained and sold securitized receivables). In contrast, our consolidated financial statements reflect only our retained securitized receivables. In 1997, pre-tax contribution from credit increased 29 percent over the prior year, compared to the growth in average receivables serviced of 13 percent. The improved credit performance reflects continued growth of the Target Guest Card, along with strong revenue increases associated with changes in credit terms and expansion of our guest loyalty programs at all three divisions. The revenue favorability was partially offset by an increase in bad debt expense. In 1998, we plan to continue to grow guest credit's contribution and EVA by acquiring new accounts, refining guest loyalty programs, controlling bad debt expense and leveraging operating expenses.
- ----------------------------------------------------------------------------- Credit Contribution (Millions of Dollars) 1997 1996 1995 - ----------------------------------------------------------------------------- Revenues: Finance charge and late fee revenues $ 501 $ 403 $ 313 Merchant and deferred billing fees 86 72 75 - ----------------------------------------------------------------------------- Total revenues 587 475 388 - ----------------------------------------------------------------------------- Expenses: Bad debt 190 149 104 Other 125 116 105 - ----------------------------------------------------------------------------- Total expenses 315 265 209 - ----------------------------------------------------------------------------- Pre-tax Contribution $ 272 $ 210 $ 179 - ----------------------------------------------------------------------------- Average receivables serviced: Target $ 644 $ 453 $ 313 Mervyn's 812 799 791 DSD 707 663 615 - ----------------------------------------------------------------------------- Total average receivables serviced $2,163 $1,915 $1,719 Total year-end receivables serviced $2,424 $2,184 $1,919 - -----------------------------------------------------------------------------
Merchant fees are the fees charged to our retail operations on a basis similar to fees charged by third-party credit cards. Deferred billing fees are charged for carrying non-revenue-earning revolving balances. Both the merchant and deferred billing fees are intercompany transfer prices that are eliminated in consolidation. Other expenses are those associated with the acquisition, retention and servicing of accounts. The year-end allowance for doubtful accounts was $168 million, 6.9 percent of year-end receivables serviced, an increase of 1.5 percentage points from the prior year. 23 PRE-TAX SEGMENT PROFIT AND EBITDA Pre-tax segment profit is first-in first-out (FIFO) earnings before securitization effects, interest, corporate and other expense, and unusual items. EBITDA is pre-tax segment profit before depreciation and amortization. Management uses pre-tax segment profit and EBITDA, among other standards, to measure divisional operating performance. EBITDA supplements, and is not intended to represent a measure of performance in accordance with, disclosures required by generally accepted accounting principles. It is included as a tool for analyzing our results.
- ----------------------------------------------------------------------------- PRE-TAX SEGMENT PROFIT AS A PERCENT OF REVENUES - ----------------------------------------------------------------------------- Target Mervyn's DSD - ----------------------------------------------------------------------------- 1997 6.3% 6.6% 7.6% 1996 5.9 6.2 4.8 1995* 4.6 2.6 6.0 - ----------------------------------------------------------------------------- EBITDA as a Percent of Revenues - ----------------------------------------------------------------------------- 1997 8.5% 9.6% 11.6% 1996 8.0 9.7 8.6 1995* 6.6 5.9 9.6 - -----------------------------------------------------------------------------
- ---------- *Consisted of 53 weeks Forward-Looking Statements The preceding Management's Discussion and Analysis contains forward- looking statements regarding the Company's performance, liquidity and the adequacy of its capital resources. Those statements are based on management's current assumptions and expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The Company cautions that the forward-looking statements are qualified by the risks of increased competition, shifting consumer demand, changing consumer credit markets and general economic conditions, hiring and retaining effective team members, sourcing merchandise from domestic and international vendors, preparing for the impact of year 2000, and other risks and uncertainties. As a result, while management believes that there is a reasonable basis for the forward-looking statements, undue reliance should not be placed on those statements. Readers are encouraged to review Exhibit 99.2 attached to the Company's Form 10-K Report for the year ended January 31, 1998 which contains additional important factors that may cause actual results to differ materially from those predicted in the forward-looking statements. 24 Notes to Consolidated Financial Statements
Business Segment Comparisons (Millions of Dollars) 1997 1996 1995* 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------- Revenues Target $20,368 $17,853 $15,807 $13,600 $11,743 $10,393 Mervyn's 4,227 4,369 4,516 4,561 4,436 4,510 Department Store Division 3,162 3,149 3,193 3,150 3,054 3,024 Total revenues $27,757 $25,371 $23,516 $21,311 $19,233 $17,927 Pre-tax segment profit - ------------------------------------------------------------------------------------------------------------------------------- Target $ 1,287 $ 1,048 $ 721 $ 732 $ 600 $ 576 Mervyn's 280 272 117 198 172 280 Department Store Division 240 151 192 259 246 239 - ------------------------------------------------------------------------------------------------------------------------------- Total pre-tax segment profit $ 1,807 $ 1,471 $ 1,030 $ 1,189 $ 1,018 $ 1,095 - ------------------------------------------------------------------------------------------------------------------------------- LIFO provision (expense)/credit (6) (9) (17) 19 91 (9) Real estate repositioning charge -- (134) -- -- -- -- Securitization adjustments: Interest equivalent (33) (25) (10) -- -- -- SFAS 125 gain 45 -- -- -- -- -- Interest expense, net (416) (442) (442) (426) (446) (437) Corporate and other (71) (78) (60) (68) (56) (38) - ------------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes and extraordinary charges $ 1,326 $ 783 $ 501 $ 714 $ 607 $ 611 - ------------------------------------------------------------------------------------------------------------------------------- Assets Target $ 9,487 $ 8,257 $ 7,330 $ 6,247 $ 5,495 $ 4,913 Mervyn's 2,281 2,658 2,776 2,917 2,750 3,042 Department Store Division 2,188 2,296 2,309 2,392 2,240 2,292 Corporate and other 235 178 155 141 293 90 - ------------------------------------------------------------------------------------------------------------------------------- Total assets $ 14,191 $ 13,389 $12,570 $ 11,697 $ 10,778 $ 10,337 - ------------------------------------------------------------------------------------------------------------------------------- Depreciation and amortization Target $ 437 $ 377 $ 328 $ 294 $ 264 $ 236 Mervyn's 126 151 150 145 146 135 Department Store Division 128 119 113 108 104 104 Corporate and other 2 3 3 1 1 1 - ------------------------------------------------------------------------------------------------------------------------------- Total depreciation and amortization $ 693 $ 650 $ 594 $ 548 $ 515 $ 476 - ------------------------------------------------------------------------------------------------------------------------------- Capital expenditures Target $ 1,155 $ 1,048 $ 1,067 $ 842 $ 716 $ 571 Mervyn's 72 79 273 146 180 294 Department Store Division 124 173 161 96 80 72 Corporate and other 3 1 21 11 2 1 - ------------------------------------------------------------------------------------------------------------------------------- Total capital expenditures $ 1,354 $ 1,301 $ 1,522 $ 1,095 $ 978 $ 938 - ------------------------------------------------------------------------------------------------------------------------------- Segment EBITDA Target $ 1,724 $ 1,425 $ 1,049 $ 1,026 $ 864 $ 812 Mervyn's 406 423 267 343 318 415 Department Store Division 368 270 305 367 350 343 - ------------------------------------------------------------------------------------------------------------------------------- Total Segment EBITDA $ 2,498 $ 2,118 $ 1,621 $ 1,736 $ 1,532 $ 1,570 - -------------------------------------------------------------------------------------------------------------------------------
- ---------- *Consisted of 53 Weeks Each operating division's assets and operating results include the retained securitized receivables held by Dayton Hudson Receivables Corporation and Retailers National Bank in 1993-1997, as well as related income and expenses. 25
CONSOLIDATED RESULTS OF OPERATIONS (Millions of Dollars, Except Per Share Data) 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Revenues $ 27,757 $ 25,371 $ 23,516 Costs and Expenses Cost of retail sales, buying and occupancy 20,320 18,628 17,527 Selling, publicity and administrative 4,532 4,289 4,043 Depreciation and amortization 693 650 594 Interest expense, net 416 442 442 Taxes other than income taxes 470 445 409 Real estate repositioning charge -- 134 -- - ----------------------------------------------------------------------------------------------- Total Costs and Expenses 26,431 24,588 23,015 - ----------------------------------------------------------------------------------------------- Earnings Before Income Taxes and Extraordinary Charges 1,326 783 501 Provision for Income Taxes 524 309 190 - ----------------------------------------------------------------------------------------------- Net Earnings Before Extraordinary Charges $ 802 $ 474 $ 311 Extraordinary Charges from Purchase and Redemption of Debt, Net of Tax 51 11 -- - ----------------------------------------------------------------------------------------------- Net Earnings $ 751 $ 463 $ 311 - ----------------------------------------------------------------------------------------------- Basic Earnings Per Share Earnings Before Extraordinary Charges $ 1.80 $ 1.05 $ .67 Extraordinary Charges (.12) (.03) -- - ----------------------------------------------------------------------------------------------- Basic Earnings Per Share $ 1.68 $ 1.02 $ .67 - ----------------------------------------------------------------------------------------------- Diluted Earnings Per Share Earnings Before Extraordinary Charge $ 1.70 $ 1.00 $ .65 Extraordinary Charges (.11) (.03) -- - ----------------------------------------------------------------------------------------------- Diluted Earnings Per Share $ 1.59 $ .97 $ .65 - ----------------------------------------------------------------------------------------------- Average Common Shares Outstanding (Millions) Basic 436.1 433.3 431.0 Diluted 463.7 460.9 458.3 - -----------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements throughout pages 25--36 Summary of Accounting Policies Organization Dayton Hudson Corporation is a general merchandise retailer. Our operating divisions consist of Target, Mervyn's and the Department Store Division (DSD). Target, an upscale discount chain located in 39 states, contributed 74 percent of our 1997 revenues. Mervyn's, a middle-market promotional department store located in 14 states in the West, South and Midwest, contributed 15 percent of revenues. DSD, a traditional department store located in nine states in the upper Midwest, contributed 11 percent of revenues. Consolidation The financial statements include the balances of the Corporation and its subsidiaries after elimination of material intercompany balances and transactions. All material subsidiaries are wholly owned. Use of Estimates The preparation of our financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates. Fiscal Year The Corporation's fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years rather than to calendar years.
- --------------------------------------------------------------------------- Fiscal Year Ended Weeks - --------------------------------------------------------------------------- 1997 January 31, 1998 52 1996 February 1, 1997 52 1995 February 3, 1996 53 - ---------------------------------------------------------------------------
Revenues Finance charge and late fee revenues on internal credit sales were $459 million on sales of $4.2 billion in 1997, $346 million on sales of $3.8 billion in 1996 and $292 million on sales of $3.8 billion in 1995. Leased department sales were $165 million, $162 million and $153 million in 1997, 1996 and 1995, respectively. EARNINGS PER SHARE In 1997, Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (EPS) was issued; all EPS amounts herein have been restated to reflect its adoption. Basic EPS (which replaces Primary) is net earnings, less dividend requirements on the Employee Stock Ownership Plan (ESOP) preferred shares, divided by the average number of common shares outstanding during the period. 26 Diluted EPS (which replaces Fully Diluted) assumes conversion of the ESOP preferred shares into common shares and net earnings are adjusted for expense required to fund the ESOP debt service, which results from the assumed replacement of the ESOP preferred dividends with common stock dividends. References to earnings per share herein relate to Diluted EPS. On April 30, 1998, we will distribute to shareholders of record as of April 10, 1998, one additional share of common stock for each share owned, resulting in a two-for-one common share split. All earnings per share, dividends per share and common shares outstanding reflect this share split and the three-for-one share split in 1996.
Basic EPS Diluted EPS - ----------------------------------------------------------------------------------------------------- (Millions, Except Per Share Data) 1997 1996 1995 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- Net earnings* $ 802 $ 474 $ 311 $ 802 $ 474 $ 311 Less: ESOP net earnings adjustment (20) (20) (20) (13) (14) (14) - ----------------------------------------------------------------------------------------------------- Adjusted net earnings* $ 782 $ 454 $ 291 $ 789 $ 460 $ 297 - ----------------------------------------------------------------------------------------------------- Weighted Average Common Shares Outstanding 436.1 433.3 431.0 436.1 433.3 431.0 Performance Shares -- -- -- 1.3 1.7 1.9 Stock Options -- -- -- 3.9 2.4 .8 Assumed conversion of ESOP preferred shares -- -- -- 22.4 23.5 24.6 - ----------------------------------------------------------------------------------------------------- Total common equivalent shares outstanding 436.1 433.3 431.0 463.7 460.9 458.3 - ----------------------------------------------------------------------------------------------------- Earnings Per Share* $ 1.80 $ 1.05 $ .67 $ 1.70 $ 1.00 $ .65 - -----------------------------------------------------------------------------------------------------
- ---------- *Before extraordinary charges ADVERTISING COSTS Advertising costs, included in selling, publicity and administrative expenses, are expensed as incurred and were $679 million, $634 million and $670 million for 1997, 1996 and 1995, respectively. REAL ESTATE REPOSITIONING CHARGE In 1996, we recorded a pre-tax charge of $134 million ($.18 per share) for real estate repositioning at Mervyn's and DSD to strengthen competitive positions and achieve improved long-term results. The charge included $114 million for Mervyn's to sell or close its 25 stores in Florida and Georgia and approximately ten other under-performing stores throughout the chain. Also included was a net charge of $20 million for DSD's disposition of its Texas stores and the closure of two other stores. To date, Mervyn's has exited the Florida and Georgia markets and closed seven other under-performing stores, while DSD sold three Texas stores and closed two other stores. Exit costs incurred during 1997 (approximately $17 million) were charged against the reserve; the reserve remaining at year end 1997 was $25 million. IMPACT OF YEAR 2000 Year 2000 related costs are expensed as incurred. In 1997, 1996 and 1995, year 2000 related expenses were immaterial. INCOME TAXES
Reconciliation of tax rates is as follows: - ----------------------------------------------------------------------------- Percent of Earnings Before Income Taxes 1997 1996 1995 - ----------------------------------------------------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 4.5 4.6 4.9 Dividends on preferred stock (.5) (.8) (1.1) Work opportunity tax credit (.1) -- (.5) Other .6 .7 (.3) - ----------------------------------------------------------------------------- Effective tax rate 39.5% 39.5% 38.0% - -----------------------------------------------------------------------------
The components of the provision for income taxes were:
- ----------------------------------------------------------------------------- Income Tax Provision: Expense/(Benefit) (Millions of Dollars) 1997 1996 1995 - ----------------------------------------------------------------------------- Current: Federal $ 488 $ 344 $ 158 State 99 72 38 - ----------------------------------------------------------------------------- 587 416 196 - ----------------------------------------------------------------------------- Deferred: Federal (55) (89) (5) State (8) (18) (1) - ----------------------------------------------------------------------------- (63) (107) (6) - ----------------------------------------------------------------------------- Total $ 524 $ 309 $ 190 - -----------------------------------------------------------------------------
The components of the net deferred tax asset/(liability) were:
- ----------------------------------------------------------------------------- Net Deferred Tax Asset/(Liability) January 31, February 1, (Millions of Dollars) 1998 1997 - ----------------------------------------------------------------------------- Gross deferred tax assets: Self-insured benefits $ 117 $ 109 Deferred compensation 103 85 Postretirement health care obligation 42 44 Valuation allowance 52 49 Inventory 46 -- Other 115 108 - ----------------------------------------------------------------------------- 475 395 - ----------------------------------------------------------------------------- Gross deferred tax liabilities: Property and equipment (306) (288) Inventory -- (15) Other (49) (35) - ----------------------------------------------------------------------------- (355) (338) - ----------------------------------------------------------------------------- Total $ 120 $ 57 - -----------------------------------------------------------------------------
27
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - ----------------------------------------------------------------------------- January 31, February 1, (Millions of Dollars) 1998 1997 - ----------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 211 $ 201 Retained securitized receivables 1,555 1,720 Merchandise inventories 3,251 3,031 Other 544 488 - ----------------------------------------------------------------------------- Total Current Assets 5,561 5,440 Property and Equipment Land 1,712 1,557 Buildings and improvements 6,497 5,943 Fixtures and equipment 2,915 2,652 Construction-in-progress 389 317 Accumulated depreciation (3,388) (3,002) - ----------------------------------------------------------------------------- Property and Equipment, net 8,125 7,467 Other 505 482 - ----------------------------------------------------------------------------- Total Assets $ 14,191 $ 13,389 - ----------------------------------------------------------------------------- Liabilities and Shareholders' Investment Current Liabilities Accounts payable $ 2,727 $ 2,528 Accrued liabilities 1,346 1,168 Income taxes payable 210 182 Current portion of long-term debt and notes payable 273 233 - ----------------------------------------------------------------------------- Total Current Liabilities 4,556 4,111 Long-Term Debt 4,425 4,808 Deferred Income Taxes and Other 720 630 Convertible Preferred Stock, Net 30 50 Shareholders' Investment Convertible preferred stock 280 271 Common stock 73 72 Additional paid-in-capital 196 146 Retained earnings 3,930 3,348 Loan to ESOP (19) (47) - ----------------------------------------------------------------------------- Total Shareholders' Investment 4,460 3,790 - ----------------------------------------------------------------------------- Total Liabilities and Shareholders' Investment $ 14,191 $ 13,389 - -----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements throughout pages 25--36 28 Notes to Consolidated Financial Statements Cash Equivalents Cash equivalents represent short-term investments with a maturity of three months or less from the time of purchase. RETAINED SECURITIZED RECEIVABLES Through its special purpose subsidiary, Dayton Hudson Receivables Corporation (DHRC), the Company transfers, on an on-going basis, substantially all of its receivables to a trust in return for certificates representing undivided interests in the trust's assets. DHRC owns the undivided interest in the trust's assets, other than the sold securitized receivables and the 5 percent of trust assets held by Retailers National Bank (RNB), a wholly owned subsidiary of the Corporation that also services the receivables. The undivided interests held by DHRC and RNB, as well as related income and expenses, are reflected in each operating division's assets and operating results based on the origin of the credit sale giving rise to the receivable. In third quarter 1997, DHRC sold to the public $400 million of securitized receivables. This issue of asset-backed securities has an expected maturity of five years and a stated rate of 6.25 percent. Proceeds from the sale were used for general corporate purposes, including funding the growth of receivables. As required by SFAS No. 125, the transaction resulted in a pre-tax gain of $32 million. Total year results also include an additional $13 million pre-tax gain attributable to the application of SFAS No. 125 to our 1995 securitization. Combined, these gains total $45 million ($.06 per share). The net impact from these sales is a reduction of revenues and bad debt expense. As of year end, $800 million of securitized receivables have been sold to investors and DHRC has borrowed $100 million of debt secured by receivables. The fair value of the retained securitized receivables, classified as available for sale, was $1,555 million and $1,720 million at year end 1997 and 1996, respectively. The fair value of the retained securitized receivables was lower than the aggregate receivables value by $126 million and $119 million at year end 1997 and 1996, respectively, due to our estimates of ultimate collectibility. Write-downs have been included in selling, publicity and administrative expenses in our consolidated results of operations. INVENTORIES Inventories and the related cost of sales are accounted for by the retail inventory accounting method using the last-in, first-out (LIFO) basis and are stated at the lower of LIFO cost or market. The cumulative LIFO provision was $92 million and $86 million at January 31, 1998 and February 1, 1997, respectively. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives. Buildings and improvements are depreciated over eight to 55 years. Furniture and fixtures are depreciated over three to eight years. Accelerated depreciation methods are generally used for income tax purposes. In first quarter 1996, the Corporation adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of." The impairment loss recorded upon adoption, as well as any further impairment losses recorded, were not material to our financial statements. INTERNAL USE SOFTWARE We will adopt Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" in first quarter 1998. We expect the impact of this adoption to result in expense savings, and somewhat higher capital spending, at all three divisions. As a result, we estimate 1998 pre-tax earnings will increase by approximately $60 million ($.08 per share), net of first year depreciation. ACCOUNTS PAYABLE Outstanding drafts included in accounts payable were $452 million and $414 million at year-end 1997 and 1996, respectively. COMMITMENTS AND CONTINGENCIES Commitments for the purchase, construction, lease or remodeling of real estate, facilities and equipment were approximately $397 million at January 31, 1998. We are exposed to claims and litigation arising out of the ordinary course of business. Management, after consulting with legal counsel, believes the currently identified claims and litigation will not have a material adverse effect on our results of operations or our financial condition taken as a whole. We have historically deducted for income tax purposes the inventory shortage expense accrued for book purposes, in a manner consistent with industry practice. With respect to our 1983 tax return, the IRS challenged the practice of deducting accrued shortage not verified with a year-end physical inventory. In June 1997, the United States Tax Court returned a judgment on this issue in favor of the IRS. We continue to strongly believe that our accrual practice is correct and have appealed this decision to the United States Court of Appeals for the Eighth Circuit. In order to stop further interest accrual, we paid the tax and interest assessed by the IRS in second quarter 1997, without impact to our results of operations. Our appeal was heard during the first quarter of 1998, and we expect the Court to issue its decision within the next year. Consolidated Statements of Cash Flows 29
(Millions of Dollars) 1997 1996 1995 - ------------------------------------------------------------------------------------------- Operating Activities Net earnings before extraordinary charges $ 802 $ 474 $ 311 Reconciliation to cash flow: Depreciation and amortization 693 650 594 Deferred tax provision (63) (107) (6) Other noncash items affecting earnings 43 11 52 Changes in operating accounts providing/(requiring) cash: Retained securitized receivables (235) (210) (100) Sold securitized receivables 400 -- 400 Merchandise inventories (220) (13) (241) Accounts payable 199 281 286 Accrued liabilities 182 275 (88) Income taxes payable 62 55 (38) Other (68) 42 (9) - ------------------------------------------------------------------------------------------- Cash Flow Provided by Operations 1,795 1,458 1,161 - ------------------------------------------------------------------------------------------- Investing Activities Expenditures for property and equipment (1,354) (1,301) (1,522) Proceeds from disposals of property and equipment 123 103 17 - ------------------------------------------------------------------------------------------- Cash Flow Required for Investing Activities (1,231) (1,198) (1,505) - ------------------------------------------------------------------------------------------- Net Financing Sources/(Requirements) 564 260 (344) - ------------------------------------------------------------------------------------------- Financing Activities (Decrease)/increase in notes payable, net (127) (416) 501 Additions to long-term debt 375 700 150 Reductions of long-term debt (690) (414) (210) Principal payments received on loan to ESOP 22 40 57 Dividends paid (165) (155) (148) Other 31 11 22 - ------------------------------------------------------------------------------------------- Cash Flow (Used for)/Provided by Financing Activities (554) (234) 372 - ------------------------------------------------------------------------------------------- Net Increase in Cash and Cash Equivalents 10 26 28 Cash and Cash Equivalents at Beginning of Year 201 175 147 - ------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 211 $ 201 $ 175 - -------------------------------------------------------------------------------------------
Amounts presented herein are on a cash basis and therefore may differ from those shown in other sections of this Annual Report. Cash paid for income taxes was $454 million, $352 million and $229 million during 1997, 1996 and 1995, respectively. Cash paid for interest (including interest capitalized) was $485 million, $434 million and $451 million during 1997, 1996 and 1995, respectively. See Notes to Consolidated Financial Statements throughout pages 25--36. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LEASES Assets held under capital leases are included in property and equipment and are charged to depreciation and interest over the life of the lease. Operating leases are not capitalized and lease rentals are expensed. Rent expense on buildings, classified in buying and occupancy, includes percentage rents that are based on a percentage of retail sales over stated levels. Total rent expense was $143 million, $146 million and $144 million in 1997, 1996 and 1995, respectively. Most of the long-term leases include options to renew, with terms varying from five to 30 years. Certain leases also include options to purchase the property. Future minimum lease payments required under noncancelable lease agreements existing at January 31, 1998 were:
- -------------------------------------------------------------------------- Future Minimum Lease Payments Operating Capital (Millions of Dollars) Leases Leases - -------------------------------------------------------------------------- 1998 $ 111 $ 21 1999 105 21 2000 82 21 2001 75 20 2002 70 20 After 2002 617 138 Total future minimum lease payments $ 1,060 241 Less: Interest* (405) (103) Present value of minimum lease payments $ 655 $ 138** - --------------------------------------------------------------------------
- ---------- *Calculated using the interest rate at inception for each lease (the weighted average interest rate was 9.1 percent.) **Includes current portion of $8 million. LINES OF CREDIT At January 31, 1998, two committed credit agreements totaling $1.6 billion were in place through a group of 29 banks at specified rates. There were no balances outstanding at any time during the year under these agreements. LONG-TERM DEBT AND NOTES PAYABLE At January 31, 1998, $405 million of notes payable were outstanding, $305 million of which were classified as long-term debt as they were supported by our $800 million committed credit agreement that expires in the year 2002. The remaining $100 million is financing provided by the Dayton Hudson Credit Card Master Trust Series 1996-1 Class A variable funding certificate. This certificate is debt of DHRC and is classified in the current portion of long-term debt and notes payable in our Consolidated Statements of Financial Position. The average amount of notes payable outstanding during 1997 was $828 million at a weighted-average interest rate of 5.8 percent. In 1997, we issued the following long-term debt: $100 million at 5.9 percent, maturing in 2037, puttable annually by investors beginning in 1999; $75 million at 5.9 percent, maturing in 2027, puttable annually by investors beginning in 1999; and $200 million at 6.8 percent, maturing in 2028. The proceeds from these issuances were used for general corporate purposes. Also during 1997, we repurchased $503 million of long-term debt with an average remaining life of approximately 18 years and a weighted average interest rate of 9.4 percent. At year end the debt portfolio was as follows:
- ------------------------------------------------------------------------------- Long-term Debt and Notes Payable January 31, 1998 February 1, 1997 (Millions of Dollars) Rate* Balance Rate* Balance - ------------------------------------------------------------------------------- Notes payable 5.7% $ 405 5.6% $ 532 Notes and debentures: Due 1997--2001 8.7 1,052 8.8 1,198 Due 2002--2006 7.6 1,063 7.7 1,087 Due 2007--2011 9.4 478 9.4 649 Due 2012--2016 9.4 48 9.4 141 Due 2017--2021 9.5 485 9.5 608 Due 2022--2026 8.3 654 8.3 700 Due 2027--2037 6.3 375 -- -- - ------------------------------------------------------------------------------- Total notes payable, notes and debentures** 4,560 4,915 Capital lease obligations 138 126 Less: current portion (273) (233) - ------------------------------------------------------------------------------- Long-term debt and notes payable $ 4,425 $ 4,808 - -------------------------------------------------------------------------------
- ---------- *Reflects the weighted-average stated interest rate as of year end. **The estimated fair value of total notes payable, notes and debentures, using a discounted cash flow analysis based on our incremental interest rates for similar types of financial instruments, was $5,025 million at January 31, 1998 and $5,246 at February 1, 1997. Required principal payments on long-term debt and notes payable over the next five years, excluding capital lease obligations, are $265 million in 1998, $147 million in 1999, $388 million in 2000, $352 million in 2001 and $497 million in 2002. DERIVATIVES From time to time we use interest rate swaps to hedge our exposure to interest rate risk. The fair value of the swaps is not reflected in the financial statements and any gain or loss recognized upon termination is amortized over the life of the related debt obligation. The fair value of existing swaps is immaterial. 31 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Convertible Additional Preferred Common Paid-in Retained Loan to (Millions of Dollars, Except Share Data) Stock Stock Capital Earnings ESOP Total - ------------------------------------------------------------------------------------------------------------------------ January 28, 1995 $ 277 $ 72 $ 89 $ 2,882 $ (127) $ 3,193 Consolidated net earnings -- -- -- 311 -- 311 Dividends declared -- -- -- (149) -- (149) Tax benefit on unallocated preferred stock dividends and options -- -- 5 -- -- 5 Conversion of preferred stock and other (20) -- 11 -- -- (9) Net reduction in loan to ESOP -- -- -- -- 47 47 Stock option activity -- -- 5 -- -- 5 - ------------------------------------------------------------------------------------------------------------------------ February 3, 1996 257 72 110 3,044 (80) 3,403 Consolidated net earnings -- -- -- 463 -- 463 Dividends declared -- -- -- (159) -- (159) Tax benefit on unallocated preferred stock dividends and options -- -- 7 -- -- 7 Conversion of preferred stock and other 14 -- 16 -- -- 30 Net reduction in loan to ESOP -- -- -- -- 33 33 Stock option activity -- -- 13 -- -- 13 - ----------------------------------------------------------------------------------------------------------------------- February 1, 1997 271 72 146 3,348 (47) 3,790 Consolidated net earnings -- -- -- 751 -- 751 Dividends declared -- -- -- (169) -- (169) Tax benefit on unallocated preferred stock dividends and options -- -- 17 -- -- 17 Conversion of preferred stock and other 9 -- 18 -- -- 27 Net reduction in loan to ESOP -- -- -- -- 28 28 Stock option activity -- 1 15 -- -- 16 - ------------------------------------------------------------------------------------------------------------------------ January 31, 1998 $ 280 $ 73 $ 196 $ 3,930 $ (19) $ 4,460 - ------------------------------------------------------------------------------------------------------------------------
COMMON STOCK Authorized 3,000,000,000 shares, $.1667 par value; 437,833,456 shares issued and outstanding at January 31, 1998; 434,410,452 shares issued and outstanding at February 1, 1997. PREFERRED STOCK Authorized 5,000,000 shares; Series B ESOP Convertible Preferred Stock $.01 par value, 362,004 shares issued and outstanding at January 31, 1998; 382,921 shares issued and outstanding at February 1, 1997. Each share converts into 60 shares of our common stock, has voting rights equal to the equivalent number of common shares and is entitled to cumulative annual dividends of $56.20. Under certain circumstances, the shares may be redeemed at the election of the Corporation or the ESOP. JUNIOR PREFERRED STOCK RIGHTS In September 1996, we declared a distribution of shares of preferred share purchase rights. Terms of the plan provide for a distribution of one preferred share purchase right for each outstanding share of the Corporation's common stock. Each right will entitle shareholders to buy one six-hundredth of a share of a new series of junior participating preferred stock at an exercise price of $50, subject to adjustment. The rights will be exercisable only if a person or group acquires ownership of 20 percent or more of our common stock or announces a tender offer to acquire 30 percent or more of our common stock. See Notes to Consolidated Financial Statements throughout pages 25--36. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCK OPTION PLAN We have a stock option plan for key employees. Options include Incentive Stock Options, Non-Qualified Stock Options or a combination of the two. A majority of the options vest annually in equal amounts over a four-year period. These options are cumulatively exercisable and expire no later than ten years after the date of the grant. We also have a non-qualified stock option plan for non-employee members of our Board of Directors. Such options become exercisable after one year and have a ten-year term. The typical frequency of stock option grants is once each fiscal year. Due to a change in timing, two annual grant cycles fell into 1996. A performance share and restricted share plan exists for key employees although no grants have been made since 1995. Performance shares are issued to the extent certain financial goals are met over the four-year period from the date of grant. Restricted shares are issued four years from the date of grant. Once issued, performance shares and restricted shares generally vest only upon retirement.
- -------------------------------------------------------------------------------------------- Options, Performance Shares and Restricted Shares Outstanding (Shares in Thousands) - -------------------------------------------------------------------------------------------- OPTIONS ----------------------------------------------- Total Outstanding Currently Exercisable -------------------- ---------------------- Weighted Weighted Number Average Number Average Perform- of Exercise of Exercise ance Restricted Shares Price Shares Price Shares* Shares* - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- January 28, 1995 7,956 $ 10.47 5,026 $ 9.44 1,488 261 Granted 2,985 11.75 Canceled (208) 11.95 Exercised (766) 6.98 - --------------------------------------------------------------------------------------------- February 3, 1996 9,967 $ 11.09 5,372 $ 10.30 1,607 359 Granted 6,539 16.09 Canceled (145) 12.19 Exercised (1,751) 9.67 - --------------------------------------------------------------------------------------------- February 1, 1997 14,610 $ 13.48 4,782 $ 10.88 1,264 311 Granted 2,653 33.63 Canceled (346) 15.02 Exercised (2,450) 10.27 - --------------------------------------------------------------------------------------------- January 31, 1998 14,467 $ 17.69 4,860 $ 13.15 794 212 - ---------------------------------------------------------------------------------------------
*Represents unissued shares
- ---------------------------------------------------------------- Options Outstanding (Shares in Thousands) - ---------------------------------------------------------------- Shares Outstanding at January 31, 1998 Range of Exercise Price - ---------------------------------------------------------------- 593 $ 5.86 -- $10.00 7,626 $10.00 -- $15.00 6,248 $15.00 -- $34.60 - ---------------------------------------------------------------- Total 14,467 $ 5.86 -- $34.60 - ----------------------------------------------------------------
As of January 31, 1998, outstanding options had a weighted-average remaining contractual life of 7.4 years. The number of unissued common shares reserved for future grants under the stock option plans were 7,143,228 at January 31, 1998, and 9,129,094 at February 1, 1997. We apply Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," to account for our stock option and performance share plans. Because the exercise price of the Corporation's employee stock options equals the market price of the underlying stock on the grant date, no compensation expense related to options is recognized. Performance share compensation expense is recognized based on the fair value of the shares at the end of each reporting period. If the Corporation had elected to recognize compensation cost based on the fair value of the options and performance shares at grant date as prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," net earnings would have been the pro forma amounts shown below. Earnings per share calculated under SFAS No. 123 was unchanged from reported earnings per share.
- -------------------------------------------------- Pro Forma Earnings 1997 1996 1995 - -------------------------------------------------- Net Earnings -- as reported $751 $463 $311 Net Earnings -- pro forma $751 $462 $310 - --------------------------------------------------
The Black-Scholes method was used to estimate the fair value of the options at grant date based on the following factors:
1997 1996 1995 - ------------------------------------------------------------------------ Dividend yield 1.0% 1.7% 1.7% Volatility 25% 25% 25% Risk free interest rate 5.4% 6.3% 6.3% Expected life in years 5.6 5.6 5.6 - ------------------------------------------------------------------------ Weighted Average Fair Value at Grant Date $10.52 $ 5.65 $ 3.67 - ------------------------------------------------------------------------
PENSION PLANS We have three defined benefit pension plans that cover all employees who meet certain age, length of service and hours worked per year requirements. Benefits are provided based upon years of service and the employee's compensation. Contributions to the pension plans are made periodically by the Corporation. Annual pension cost is calculated based on benefits that will ultimately be paid to eligible employees. The period over which unrecognized pension costs and credits are amortized, including prior service costs and actuarial gains and losses, is based on the remaining service period for those employees expected to receive pension benefits. 33
- ------------------------------------------------------------------------ Net Pension Expense (Millions of Dollars) 1997 1996 1995 - ------------------------------------------------------------------------ Service cost benefits earned during the period $ 27 $ 26 $ 21 Interest cost on projected benefit obligation 39 37 35 Return on assets (118) (78) (87) Net amortization and deferral 71 36 47 - ------------------------------------------------------------------------ Total $ 19 $ 21 $ 16 - ------------------------------------------------------------------------
- ----------------------------------------------------------------------------- Actuarial Assumptions (As of December 31) 1997 1996 1995 - ----------------------------------------------------------------------------- Discount rate 7-1/4% 7-3/4% 7-1/2% Expected long-term rate of return on plans' assets 9-1/4 9-3/4 9-3/4 Average assumed rate of compensation increase 4-1/4 4-3/4 4-1/2 - -----------------------------------------------------------------------------
- --------------------------------------------------------------- December 31, December 31, Funded Status 1997 1996 - --------------------------------------------------------------- Actuarial present value of Vested benefit obligation $ 500 $ 428 Accumulated benefit obligation 531 455 Projected benefit obligation 610 523 Fair market value of plans' assets* 718 587 - --------------------------------------------------------------- Plans' assets in excess of projected benefit obligation 108 64 Unrecognized prior service cost 3 2 Unrecognized net actuarial gain (33) (21) - --------------------------------------------------------------- Prepaid pension assets $ 78 $ 45 - ---------------------------------------------------------------
*The plans' assets consist primarily of equity and fixed-income securities. EMPLOYEE STOCK OWNERSHIP PLAN We sponsor a defined contribution employee benefit plan. Employees who meet certain eligibility requirements can participate by investing up to 20 percent of their compensation. We match 100 percent of each employee's contribution up to 5 percent of respective total compensation. Our contribution to the plan is invested in the ESOP. It is anticipated that all available ESOP preferred shares (401(k) preferred shares) will be allocated to participants during 1998. The company will provide new common shares to the ESOP to fund the employer match after that date. In 1989, we loaned $379 million to the ESOP at a 9 percent interest rate. Proceeds from the loan were used by the ESOP to purchase 438,353 shares of 401(k) preferred shares. The original issue value of the 401(k) preferred shares of $864.60 per share is guaranteed by the Corporation. Each 401(k) preferred share is convertible into 60 shares of the Corporation's common stock after giving effect to the 1998 and 1996 common share splits. Our contributions to the ESOP, plus dividends paid on all 401(k) preferred shares held by the ESOP, are used to repay the loan principal and interest. Our cash contributions to the ESOP were $3 million in 1997, $23 million in 1996 and $45 million in 1995. Dividends earned on 401(k) preferred shares held by the ESOP were $21 million in 1997, $22 million in 1996 and $23 million in 1995. The dividends on allocated 401(k) preferred shares are paid to participants' accounts in additional 401(k) preferred shares. Benefits expense, calculated based on the shares allocated method, was $17 million in 1997, $31 million in 1996 and $39 million in 1995. Upon a participant's termination, we are required to exchange at fair value each 401(k) preferred share for 60 shares of common stock and cash, if any. At January 31, 1998, 339,646 shares of 401(k) preferred shares were allocated to participants with a fair market value of $764 million. The 401(k) preferred shares and related loan to ESOP are classified as Shareholders' Investment to the extent the preferred shares are permanent equity. The remaining 401(k) preferred shares of $33 million, net of the related loan to ESOP of $3 million at January 31, 1998, represent our maximum cash obligation at year end, measured by the market value difference between the preferred shares and common shares, and is excluded from Shareholders' Investment. POSTRETIREMENT HEALTH CARE BENEFITS Retired employees become eligible for certain health care benefits if they meet minimum age and service requirements and agree to contribute a portion of the cost. The Corporation has the right to modify or terminate these benefits.
- ------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation December 31, December 31, (Millions of Dollars) 1997 1996 - ------------------------------------------------------------------- Retirees $ 50 $ 48 Fully eligible active plan participants 19 18 Other active plan participants 12 10 Prior service cost (3) (4) Unrecognized gain 23 31 - ------------------------------------------------------------------- Accrued Health Care Cost $ 101 $ 103 - -------------------------------------------------------------------
- ------------------------------------------------------------------------ Net Periodic Cost 1997 1996 1995 - ------------------------------------------------------------------------ Service cost benefits earned during the period $ 1 $ 1 $ 1 Interest cost on accumulated benefits 5 5 5 - ------------------------------------------------------------------------ Total $ 6 $ 6 $ 6 - ------------------------------------------------------------------------
An increase in the cost of covered health care benefits of 7 percent is assumed for 1998. The rate is assumed to decrease to 6 percent in the year 2000 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, a 1 percent increase in the health care trend rate would increase the accumulated postretirement benefit obligation by $5 million at January 31, 1998 and the net periodic cost by $.4 million for the year. The discount rate used in determining the accumulated postretirement benefit obligation was 7 1/4 percent for 1997, 7 3/4 percent for 1996 and 7 1/2 percent for 1995. 34 Quarterly Results (Unaudited) The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data. Costs directly associated with revenues, such as cost of goods sold and percentage rent on leased stores, are allocated based on revenues. Certain other costs not directly associated with revenues, such as benefit plan expenses and real estate taxes, are allocated evenly throughout the year. The table below summarizes results by quarter for 1997 and 1996:
(Millions of Dollars, Except Per Share Data) First Quarter Second Quarter Third Quarter Fourth Quarter Total Year - ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Revenues $ 5,889 $ 5,380 $ 6,293 $ 5,751 $ 6,622 $ 6,073 $ 8,953 $ 8,167 $ 27,757 $ 25,371 Gross Profit (a) $ 1,636 $ 1,431 $ 1,707 $ 1,554 $ 1,807 $ 1,621 $ 2,287 $ 2,137 $ 7,437 $ 6,743 Net Earnings Before Extraordinary Charges (b) $ 126 $ 42 $ 141 $ 101 $ 179 $ 116 $ 356 $ 215 $ 802 $ 474 Net Earnings (b)(c) $ 105 $ 41 $ 130 $ 101 $ 160 $ 107 $ 356 $ 214 $ 751 $ 463 Basic Earnings Per Share (b)(c)(d)(e) $ .23 $ .08 $ .29 $ .22 $ .36 $ .24 $ .80 $ .48 $ 1.68 $ 1.02 Diluted Earnings Per Share (b)(c)(d)(e) $ .22 $ .08 $ .27 $ .21 $ .34 $ .23 $ .76 $ .45 $ 1.59 $ .97 - ----------------------------------------------------------------------------------------------------------------------------------- Dividends Declared Per Share (e) $ .08 $ .08 $ .08 $ .08 $ .08 $ .08 $ .09 $ .08 $ .33 $ .32 Common Stock Price (f) High $ 23.00 $ 16.31 $ 32.31 $ 18.31 $ 32.75 $ 18.00 $ 36.84 $ 19.94 $ 36.84 $ 19.94 Low $ 18.94 $ 12.25 $ 23.19 $ 14.56 $ 26.19 $ 15.38 $ 30.78 $ 17.31 $ 18.94 $ 12.25 - -----------------------------------------------------------------------------------------------------------------------------------
(a) Gross profit is revenues less cost of retail sales, buying and occupancy. The LIFO provision, included in gross profit, is analyzed each quarter for estimated changes in year-end inventory levels, markup rates and internally generated retail price indices. A final adjustment is recorded in the fourth quarter for the difference between the prior quarters' estimates and the actual total year LIFO provision. (b) Third quarter 1997 net earnings include a $32 million pre-tax gain, $.04 per basic and diluted share, related to the 1997 securitization transaction. Total year net earnings include a $45 million pre-tax gain, $.06 per basic and diluted share, related to the 1997 and 1995 securitization transactions. (c) In 1997, first, second and third quarter net earnings include extraordinary charges, net of tax, related to the purchase and redemption of debt of $21 million, $11 million and $19 million, respectively, or $.05, $.03 and $.04 per basic share and $.05, $.02 and $.04, per diluted share. In 1996, first, third, and fourth quarter net earnings include extraordinary charges, net of tax, related to the purchase and redemption of debt of $1 million, $9 million and $1 million, respectively, or $.00, $.02, and $.00 per basic and diluted share. (d) Fourth quarter and total year 1996 net earnings before extraordinary charges, net earnings and earnings per share include a pre-tax real estate repositioning charge of $134 million, or $.19 per basic share and $.18 per diluted share. (e) Per share amounts are computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding and/or rounding caused by the 1998 two-for-one common share split and the 1996 three-for-one common share split. (f) The Corporation's common stock is listed on the New York Stock Exchange and Pacific Stock Exchange. At March 20, 1998 there were 11,525 shareholders of record and the common stock price was $42.50 per share ($85.00 on a pre-split basis). 35 Report of Independent Auditors Board of Directors and Shareholders Dayton Hudson Corporation We have audited the accompanying consolidated statements of financial position of Dayton Hudson Corporation and subsidiaries as of January 31, 1998 and February 1, 1997 and the related consolidated results of operations, cash flows and shareholders' investment for each of the three years in the period ended January 31, 1998. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dayton Hudson Corporation and subsidiaries at January 31, 1998 and February 1, 1997 and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 1998 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP - --------------------- Ernst & Young LLP Minneapolis, Minnesota March 3, 1998 - -------------------------------------------------------------------------------- REPORT OF MANAGEMENT Management is responsible for the consistency, integrity and presentation of the information in the Annual Report. The consolidated financial statements and other information presented in this Annual Report have been prepared in accordance with generally accepted accounting principles and include necessary judgments and estimates by management. To fulfill our responsibility, we maintain comprehensive systems of internal control designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with established procedures. The concept of reasonable assurance is based upon a recognition that the cost of the controls should not exceed the benefit derived. We believe our systems of internal control provide this reasonable assurance. The Board of Directors exercises its oversight role with respect to the Corporation's systems of internal control primarily through its Audit Committee, which is comprised of five independent directors. The Committee oversees the Corporation's systems of internal control, accounting practices, financial reporting and audits to ensure their quality, integrity and objectivity are sufficient to protect shareholders' investments. The Committee's report appears on this page. In addition, our consolidated financial statements have been audited by Ernst & Young LLP, independent auditors, whose report also appears on this page. As a part of its audit, Ernst & Young LLP develops and maintains an understanding of the Corporation's internal accounting controls and conducts such tests and employs such procedures as it considers necessary to render its opinion on the consolidated financial statements. Their report expresses an opinion as to the fair presentation, in all material respects, of the consolidated financial statements and is based on independent audits made in accordance with generally accepted auditing standards. /s/ Robert J. Ulrich - -------------------- Robert J. Ulrich Chairman of the Board and Chief Executive Officer /s/ Douglas A. Scovanner - ------------------------ Douglas A. Scovanner Senior Vice President and Chief Financial Officer /s/ JoAnn Bogdan - ----------------- JoAnn Bogdan Controller and Chief Accounting Officer March 3, 1998 - -------------------------------------------------------------------------------- REPORT OF AUDIT COMMITTEE The Audit Committee met three times during fiscal 1997 to review the overall audit scope, plans for internal and independent audits, the Corporation's systems of internal control, emerging accounting issues, officer and director expenses, audit fees and retirement plans. The Committee also met individually with the internal auditors and independent auditors, without management present, to discuss the results of their audits. The Committee encourages the internal and independent auditors to communicate closely with the Committee. Audit Committee results were reported to the full Board of Directors and the Corporation's annual financial statements were reviewed and approved by the Board of Directors before issuance. The Audit Committee also recommended to the Board of Directors that the independent auditors be reappointed for fiscal 1998, subject to the approval of the shareholders at the annual meeting. March 3, 1998 36 SUMMARY FINANCIAL AND OPERATING DATA
(Millions of Dollars, Except Per Share Data) 1997 1996 1995(a) 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA - ---------------------------------------------------------------------------------------------------------------------- Revenues $ 27,757 25,371 23,516 21,311 19,233 17,927 - ---------------------------------------------------------------------------------------------------------------------- Cost of retail sales, buying and occupancy $ 20,320 18,628 17,527 15,636 14,164 13,129 - ---------------------------------------------------------------------------------------------------------------------- Selling, publicity and administrative $ 4,532 4,289 4,043 3,614 3,158 2,961 - ---------------------------------------------------------------------------------------------------------------------- Depreciation and amortization $ 693 650 594 548 515 476 - ---------------------------------------------------------------------------------------------------------------------- Interest expense, net $ 416 442 442 426 446 437 - ---------------------------------------------------------------------------------------------------------------------- Earnings before income taxes and extraordinary charge (c) $ 1,326 783 501 714 607 611 - ---------------------------------------------------------------------------------------------------------------------- Income taxes $ 524 309 190 280 232 228 - ---------------------------------------------------------------------------------------------------------------------- Net earnings (c) (d) $ 751 463 311 434 375 383 - ---------------------------------------------------------------------------------------------------------------------- Financial Position Data - ---------------------------------------------------------------------------------------------------------------------- Working capital $ 1,005 1,329 1,432 1,569 1,436 1,450 - ---------------------------------------------------------------------------------------------------------------------- Property and equipment, net $ 8,125 7,467 7,294 6,385 5,947 5,563 - ---------------------------------------------------------------------------------------------------------------------- Total assets $ 14,191 13,389 12,570 11,697 10,778 10,337 - ---------------------------------------------------------------------------------------------------------------------- Long-term debt $ 4,425 4,808 4,959 4,488 4,279 4,330 - ---------------------------------------------------------------------------------------------------------------------- Shareholders' investment $ 4,460 3,790 3,403 3,193 2,849 2,566 - ---------------------------------------------------------------------------------------------------------------------- Per Common Share Data (b) - ---------------------------------------------------------------------------------------------------------------------- Diluted earnings per share (c) (d) $ 1.59 .97 .65 .92 .80 .80 - ---------------------------------------------------------------------------------------------------------------------- Cash dividend declared $ .33 .32 .30 .28 .27 .26 - ---------------------------------------------------------------------------------------------------------------------- Market price: high $ 36.84 19.94 13.25 14.31 13.94 13.19 low $ 18.94 12.25 10.75 10.88 10.56 9.81 year-end close $ 35.97 18.81 12.50 11.50 11.00 12.94 Common shareholders' investment $ 9.59 8.21 7.47 7.07 6.38 5.80 - ---------------------------------------------------------------------------------------------------------------------- Other Data - ---------------------------------------------------------------------------------------------------------------------- Average common shares outstanding (millions) (b) 436.1 433.3 431.0 429.6 428.8 427.8 - ---------------------------------------------------------------------------------------------------------------------- Diluted average common shares outstanding (millions) (b) 463.7 460.9 458.3 457.4 456.3 455.6 - ---------------------------------------------------------------------------------------------------------------------- Capital expenditures $ 1,354 1,301 1,522 1,095 978 938 - ---------------------------------------------------------------------------------------------------------------------- Number of Stores: Target 796 736 670 611 554 506 Mervyn's 269 300 295 286 276 265 DSD 65 65 64 63 63 63 - ---------------------------------------------------------------------------------------------------------------------- Total stores 1,130 1,101 1,029 960 893 834 - ---------------------------------------------------------------------------------------------------------------------- Total retail square footage (thousands) 123,058 117,989 109,091 101,163 93,947 87,362 - ---------------------------------------------------------------------------------------------------------------------- Number of employees 230,000 218,000 214,000 194,000 174,000 170,000 - ----------------------------------------------------------------------------------------------------------------------
The Summary Financial and Operating Data should be read in conjunction with the Notes to Consolidated Financial Statements on pages 25--36. (a) Consisted of 53 weeks. (b) Earnings per share, dividends per share and common shares outstanding have been adjusted to reflect our April 30, 1998 two-for-one common share split and our 1996 three-for-one common share split. (c) 1997 included a $45 million pre-tax ($.06 per share) gain related to the sales of securitized accounts receivable; 1996 included a pre-tax real estate repositioning charge of $134 million ($.18 per share). (d) Extraordinary charge, net of tax, related to early extinguishment of debt was $51 million ($.11 per share) in 1997, and $11 million ($.02 per share) in 1996. 37

                                                                     EXHIBIT 21

                                       
                           DAYTON HUDSON CORPORATION
                                       
                             LIST OF SUBSIDIARIES


The Associated Merchandising Corporation (NY)
Bullseye Corporation (DE)
Capitol Lounge Corp. (WI)
Clybourn Trading Corp. (WI)
Dayton Credit Company (MN)
Dayton Development Company (MN)
Dayton Hudson Capital Corporation (MN)
Dayton Hudson Corporation (MN)
Dayton Hudson Foundation (a MN not-for-profit organization)
Dayton Hudson Insurance Agency, Inc. (MN)
Dayton Hudson Receivables Corporation (MN)
Dayton's Commercial Interiors, Inc. (MN)
Dayton's Iron Horse Liquors, Inc. (MN)
Dayton's Sioux Falls, Inc. (SD)
DHC Wine & Liquor Shop, Inc. (WI)
Eighth Street Development Company (MN)
Marshall Field's Chicago, Inc. (DE)
Marshall Field of Columbus, Inc. (OH)
Marshall Field's Mayfair, Inc. (WI)
Marshall Field Stores, Inc. (DE)
Mervyn's (CA)
Mervyn's, Inc. (DE)
Retailer's National Bank, N.A.
Retail Properties, Inc. (DE)
Rooftop, Inc. (MN)
Seatamatic, Inc. (NV)
STL of Nebraska, Inc. (MN)
Target Connect, Inc. (MN)
Target Services, Inc. (MN)
Target Stores, Inc. (MN)


     NOTE:     Parenthetical information denotes state of incorporation



                                                                    Exhibit 23



                      Consent of Independent Auditors


We consent to the incorporation by reference in the Annual Report (Form 10-K) 
of Dayton Hudson Corporation of our report dated March 3, 1998, included in 
the 1997 Annual Report to Shareholders of Dayton Hudson Corporation.

We also consent to the incorporation by reference in Registration Statement 
Numbers 33-42364, 333-389 and 333-12915 on Form S-3 and Registration 
Statement Numbers 33-6918, 33-64013, 333-30311 and 333-27435 on Form S-8 of 
our report dated March 3, 1998, with respect to the consolidated financial 
statements incorporated by reference in this Annual Report (Form 10-K) of 
Dayton Hudson Corporation.


                                                  /s/ Ernst & Young LLP
Minneapolis, Minnesota
April 15, 1998



                                       
                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.


                                        /s/ L. DeSimone
                                        --------------------------------------
                                        Livio D. DeSimone


                           DAYTON HUDSON CORPORATION

                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
23rd day of March, 1998.

                                        /s/ Roger A. Enrico
                                        -------------------------------------
                                        Roger A. Enrico
                                       

                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.

                                        /s/ William W. George
                                        -------------------------------------
                                        William W. George
                                       

                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.

                                        /s/ Michele J. Hooper
                                        -------------------------------------
                                        Michele J. Hooper
                                       

                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.

                                        /s/ James A. Johnson
                                        -------------------------------------
                                        James A. Johnson
                                       

                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.

                                        /s/ Richard M. Kovacevich
                                        -------------------------------------
                                        Richard M. Kovacevich
                                       

                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.

                                        /s/ Susan A. McLaughlin
                                        -------------------------------------
                                        Susan A. McLaughlin
                                       

                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.

                                        /s/ Anne M. Mulcahy
                                        -------------------------------------
                                        Anne M. Mulcahy


                                                                              
                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.

                                        /s/ Stephen W. Sanger
                                        -------------------------------------
                                        Stephen W. Sanger
                                       

                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.

                                        /s/ Solomon D. Trujillo
                                        -------------------------------------
                                        Solomon D. Trujillo
                                       

                           DAYTON HUDSON CORPORATION
                                       
                               Power of Attorney
                          of Director and/or Officer

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned director 
and/or officer of DAYTON HUDSON CORPORATION, a Minnesota corporation (the 
"Corporation"), does hereby make, constitute and appoint ROBERT J. ULRICH, 
JAMES T. HALE, DOUGLAS A. SCOVANNER, STEPHEN C. KOWALKE and TIMOTHY R. BAER 
and each or any one of them, the undersigned's true and lawful 
attorneys-in-fact, with power of substitution, for the undersigned and in the 
undersigned's name, place and stead, to sign and affix the undersigned's name 
as director and/or officer of the Corporation to (1) a Form 10-K, Annual 
Report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 
1934, for the fiscal year ended January 31, 1998, or other applicable form, 
including any and all exhibits, schedules, supplements and supporting 
documents thereto, including, but not limited to, the Form 11-K Annual 
Reports of the DHC 401(k) Plan (formerly referred to as the "Supplemental 
Retirement, Savings, and Employee Stock Ownership Plan") and similar plans 
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended 
(the "1934 Act"), and all amendments, supplementations and corrections 
thereto, to be filed by the Corporation with the Securities and Exchange 
Commission (the "SEC"), as required in connection with its registration under 
the 1934 Act, as amended; (2) one or more Form 3, Form 4 or Form 5 pursuant 
to Section 16(a) of the 1934 Act and all amendments, supplementations and 
corrections thereto, to be filed with the SEC as required under the 1934 Act; 
and (3) one or more Registration Statements, on Form S-3, Form S-8, or other 
applicable forms, and all amendments, including post-effective amendments, 
thereto, to be filed by the Corporation with the SEC in connection with the 
registration under the Securities Act of 1933, as amended, of debentures or 
other securities of the Corporation, and to file the same, with all exhibits 
thereto and other supporting documents, with the SEC.

          The undersigned also grants to said attorneys-in-fact, and each of 
them, full power and authority to do and perform any and all acts necessary 
or incidental to the performance and execution of the powers herein expressly 
granted.  This Power of Attorney shall remain in effect until revoked in 
writing by the undersigned.

          IN WITNESS WHEREOF, the undersigned has signed below as of this 
11th day of March, 1998.

                                        /s/ Bob Ulrich
                                        -------------------------------------
                                        Bob Ulrich

 


5 This schedule contains summary financial information extracted from Dayton Hudson Corporation's Form 10K for the year ended January 31, 1998 and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR JAN-31-1998 FEB-02-1997 JAN-31-1998 211 0 1,681 126 3,251 5,561 11,513 3,388 14,191 4,556 4,425 30 0 73 4,387 14,191 27,757 27,757 20,320 20,320 5,552 143 416 1,326 524 802 0 51 0 751 1.68 1.59
 


5 This schedule contains summary financial information extracted from Dayton Hudson Corporations Form 10K for the fiscal years ended February 3, 1996 and February 1, 1997 and Forms 10Q for the quarters ended May 4, 1996, April 3, 1996 and November 2, 1996 and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR YEAR 3-MOS 6-MOS 9-MOS FEB-03-1996 FEB-01-1997 FEB-01-1997 FEB-01-1997 FEB-01-1997 JAN-29-1995 FEB-04-1996 FEB-04-1996 FEB-04-1996 FEB-04-1996 FEB-03-1996 FEB-01-1997 MAY-04-1996 AUG-03-1996 NOV-02-1996 175 201 230 221 204 0 0 0 0 0 1,579 1,839 1,449 1,474 1,652 69 119 66 62 70 3,018 3,031 3,175 3,228 3,949 4,955 5,440 5,005 5,052 5,991 10,224 10,469 10,389 10,401 10,572 2,930 3,002 3,006 2,944 3,038 12,570 13,389 12,785 13,012 14,009 3,523 4,111 3,546 3,520 4,494 4,959 4,808 5,125 5,297 5,235 347 50 51 54 51 0 0 0 0 0 72 72 72 72 72 3,154 3,718 3,363 3,441 3,524 12,570 13,389 12,785 13,012 14,009 23,133 25,371 5,380 11,131 17,204 23,516 25,371 5,380 11,131 17,204 17,527 18,628 3,949 8,146 12,598 17,527 18,628 3,949 8,146 12,598 4,942 5,394 1,234 2,502 3,790 104 124 20 28 54 442 442 109 220 334 501 783 68 235 428 190 309 27 93 169 311 474 41 142 259 0 0 0 0 0 0 11 0 0 10 0 0 0 0 0 311 463 41 142 249 0.67 1.02 0.08 0.35 0.54 0.65 0.97 0.08 0.29 0.52
 


5 This schedule contains summary financial information extracted from Dayton Hudson Corporation's Form 10Q's for the quarters ended May 3, 1997, August 2, 1997 and November 1, 1997 and is qualified in its entirety by reference to such financial statements. 1,000,000 3-MOS 6-MOS 9-MOS JAN-31-1998 JAN-31-1998 JAN-31-1998 FEB-02-1997 FEB-02-1997 FEB-02-1997 MAY-03-1997 AUG-02-1997 NOV-01-1997 237 216 220 0 0 0 1,678 1,686 1,454 131 135 116 3,330 3,363 4,065 5,525 5,539 6,049 10,593 10,920 11,231 3,042 3,171 3,304 13,567 13,775 14,491 4,023 4,047 4,953 5,000 5,072 4,270 44 34 34 0 0 0 73 73 73 3,804 3,913 4,045 13,567 13,775 14,491 5,889 12,182 18,804 5,889 12,182 18,804 4,253 8,839 12,598 4,253 8,839 12,598 1,285 2,623 5,055 36 65 92 107 214 321 208 441 738 82 174 292 126 267 446 0 0 0 21 32 51 0 0 0 105 235 395 0.23 0.56 0.87 0.22 0.49 0.83


                                                                   EXHIBIT 99.C


    CAUTIONARY STATEMENTS RELATING TO FORWARD-LOOKING INFORMATION.

    The Company and its representatives may, from time to time, make written or
    verbal forward-looking statements.  Those statements relate to
    developments, results, conditions or other events the Company expects or
    anticipates will occur in the future.  Without limiting the foregoing,
    those statements may relate to future revenues, earnings, store openings,
    market conditions and the competitive environment.  Forward-looking
    statements are based on management's then current views and assumptions
    and, as a result, are subject to certain risks and uncertainties that could
    cause actual results to differ materially from those projected.

    Any such forward-looking statements are qualified by the following which
    contain certain of the important factors that could cause actual results to
    differ materially from those predicted by the forward-looking statements:

    COMPETITIVE PRESSURES
    The retail business is highly competitive.  Each of our operations competes
    for customers, employees, locations, products, services and other important
    aspects of their businesses with many other local, regional and national
    retailers.  Those  competitors, some of which have a greater market
    presence than the Company,  include traditional and off-price store-based
    retailers, direct mail businesses, entertainment and travel providers and
    other forms of retail commerce.  Unanticipated changes in the pricing and
    other practices of those competitors may impact our expected results.

    CONSUMER TRENDS
    It is difficult to predict what merchandise consumers will demand,
    particularly merchandise that is trend driven.  A substantial part of our
    business is dependent on our ability to make trend right decisions for a
    wide variety of goods and services.  Failure to accurately predict
    constantly changing consumer tastes, preferences, spending patterns and
    other lifestyle decisions could adversely affect short  term results and
    long term relationships with our guests.

    CREDIT OPERATIONS
    The Company's credit operations facilitate sales in our stores and generate
    additional revenue from fees related to extending credit.  Our ability to
    extend credit to our guests depends on many factors including compliance
    with federal and state banking and consumer protection laws, any of which
    may change from time to time.  In addition, changes in credit card use,
    payment patterns and default rates may result from a variety of economic,
    legal, social and other factors that we




    cannot control or predict with certainty.  Changes that adversely impact
    our ability to extend credit and collect payments could negatively affect
    our results.

    GENERAL ECONOMIC CONDITIONS
    General economic factors that are beyond our control impact the Company's
    forecasts and actual performance.  These factors include interest rates,
    recession, inflation, deflation, consumer credit availability, consumer
    debt levels, tax rates and policy, unemployment trends and other matters
    that influence consumer confidence and spending.  Increasing volatility in
    financial markets may cause these factors to change with a greater degree
    of frequency and magnitude.

    LABOR CONDITIONS
    The Company's performance is dependent on attracting and retaining a large
    and growing number of quality team members.  Many of those team members are
    in entry level or part time positions with historically high rates of
    turnover.  Our ability to meet our labor needs while controlling our costs
    is subject to external factors such as unemployment levels, minimum wage
    legislation and changing demographics.

    PRODUCT SOURCING
    The products we sell are sourced from a wide variety of domestic and
    international vendors.  All of our vendors must comply with applicable laws
    and our required standards of conduct.  Our ability to find qualified
    vendors and access products in a timely and efficient manner is a
    significant challenge which is typically even more difficult with respect
    to goods sourced outside the United States.  Trade restrictions, tariffs,
    currency exchange rates, transport capacity and costs and other factors
    significant to this trade are beyond our control and could impact our
    business.

    OTHER FACTORS
    Other factors that could cause actual results to differ materially from 
    those predicted include:  weather, changes in the availability or cost of 
    capital, the availability of  suitable new store locations on acceptable 
    terms, the inability to achieve year 2000 readiness in a timely and 
    cost-effective manner, shifts in the seasonality of shopping patterns, 
    labor strikes or other work interruptions, the impact of excess retail 
    capacity in our markets, material acquisitions or dispositions, the 
    success or failure of significant new business ventures, adverse results 
    in material litigation, natural disasters, the outbreak of war or other 
    significant national or international events.

    The foregoing list of important factors is not exclusive and the Company
    does not undertake to revise any forward-looking statement to reflect
    events or circumstances that occur after the date the statement is made.