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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549


FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended July 29, 2000

Commission file number 1-6049

 
Target Corporation

(Exact name of registrant as specified in its charter)
 
Minnesota
 
41-0215170

(State of incorporation or organization) (I.R.S. Employer Identification No.)
 
777 Nicollet Mall Minneapolis, Minnesota
 
55402-2055

(Address of principal executive offices) (Zip Code)
 
Registrant's telephone number, including area code
 
(612) 370-6948

 
N/A

(Former name, former address and former fiscal year, if changed since last report.)

    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 and (2) has been subject to such filing requirements for the past 90 days.

    The number of shares outstanding of common stock as of July 29, 2000 was 903,187,497.



TABLE OF CONTENTS

TARGET CORPORATION

PART I   FINANCIAL INFORMATION:
    Item 1 - Financial Statements
    Consolidated Results of Operations for the Three Months, Six Months and Twelve Months ended July 29, 2000 and July 31, 1999
    Consolidated Statements of Financial Position at July 29, 2000, January 29, 2000 and July 31, 1999
    Consolidated Statements of Cash Flows for the Six Months ended July 29, 2000 and July 31, 1999
    Notes to Consolidated Financial Statements
    Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
 
PART II
 
 
 
OTHER INFORMATION:
    Item 6 - Exhibits and Reports on Form 8-K
    Signature
    Exhibit Index


PART I. FINANCIAL INFORMATION

CONSOLIDATED RESULTS OF OPERATIONS

TARGET CORPORATION

(Millions, except per share data)

  Three Months Ended

  Six Months Ended

  Twelve Months Ended

 

 
(Unaudited)

  July 29,
2000

  July 31,
1999

  July 29,
2000

  July 31,
1999

  July 29,
2000

  July 31,
1999

 

 
Sales   $ 8,123   $ 7,569   $ 15,736   $ 14,602   $ 34,346   $ 31,642  
Net credit revenues     128     118     261     243     508     476  

 
  Total revenues     8,251     7,687     15,997     14,845     34,854     32,118  

 
Cost of sales     5,593     5,193     10,796     10,044     23,781     21,987  
Selling, general and administrative expense     1,910     1,810     3,744     3,500     7,734     7,219  
Depreciation and amortization     230     212     454     418     890     821  
Interest expense     100     98     196     192     397     393  

 
Earnings before income taxes and extraordinary items     418     374     807     691     2,052     1,698  
Provision for income taxes     161     146     311     269     793     646  

 
Net earnings before extraordinary items     257     228     496     422     1,259     1,052  
Extraordinary gain / (charge) from debt extinguishment, net of tax     1     (4 )   1     (4 )   (36 )   (29 )

 
Net earnings   $ 258   $ 224   $ 497   $ 418   $ 1,223   $ 1,023  

 
Earnings before extraordinary charges   $ .28   $ .25   $ .55   $ .46   $ 1.40   $ 1.17  
Extraordinary charges     -     -     -     -     (.04 )   (.03 )

 
Basic earnings per share   $ .28   $ .25   $ .55   $ .46   $ 1.36   $ 1.14  

 
Earnings before extraordinary charges   $ .28   $ .24   $ .54   $ .45   $ 1.36   $ 1.12  
Extraordinary charges     -     -     -     -     (.04 )   (.03 )

 
Diluted earnings per share   $ .28   $ .24   $ .54   $ .45   $ 1.32   $ 1.09  

 
Dividends declared per common share   $ .05   $ .05   $ .10   $ .10   $ .20   $ .20  
Weighted average common shares outstanding:                                      
  Basic     906.6     882.2     908.5     883.5     895.1     882.6  
  Diluted     915.2     932.7     918.2     935.9     922.4     935.5  

 

See accompanying Notes to Consolidated Financial Statements.


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

TARGET CORPORATION

(Millions)

  July 29,
2000

  January 29,
2000*

  July 31,
1999

 

 
 
  (Unaudited)

   
  (Unaudited)

 
Assets                    
Cash and cash equivalents   $ 339   $ 220   $ 238  
Retained securitized receivables     1,574     1,837     1,363  
Inventory     4,071     3,798     3,973  
Other     683     628     655  

 
  Total current assets     6,667     6,483     6,229  
Property and equipment     14,576     13,824     13,213  
  Accumulated depreciation     (4,116 )   (3,925 )   (3,805 )
   
 
  Property and equipment, net     10,460     9,899     9,408  
Other     805     761     778  

 
Total assets   $ 17,932   $ 17,143   $ 16,415  

 
Liabilities and shareholders' investment                    
Accounts payable   $ 3,347   $ 3,514   $ 3,111  
Current portion of long-term debt and notes payable     1,405     498     219  
Other     1,749     1,838     1,529  

 
  Total current liabilities     6,501     5,850     4,859  
Long-term debt     4,520     4,521     5,178  
Deferred income taxes and other     937     910     888  
Convertible preferred stock, net     -     -     6  
Shareholders' investment     5,974     5,862     5,484  

 
Total liabilities and shareholders' investment   $ 17,932   $ 17,143   $ 16,415  

 
Common shares outstanding     903.2     911.7     881.3  

 
*
The January 29, 2000 Consolidated Statement of Financial Position is condensed from the audited financial statement.

See accompanying Notes to Consolidated Financial Statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS

TARGET CORPORATION

(Millions)

  Six Months Ended

 

 
(Unaudited)

  July 29,
2000

  July 31,
1999

 

 
Operating activities              
Net earnings   $ 496   $ 422  
Reconciliation to cash flow:              
  Depreciation and amortization     454     418  
  Deferred tax provision     44     82  
  Other non-cash items affecting earnings     66     68  
  Changes in operating accounts providing/(requiring) cash:              
    Retained securitized receivables     263     293  
    Inventory     (273 )   (498 )
    Other current assets     (120 )   (88 )
    Other assets     8     (78 )
    Accounts payable     (167 )   (39 )
    Accrued liabilities     (51 )   (124 )
    Income taxes payable     (36 )   1  

 
Cash flow provided by operations     684     457  

 
Investing activities              
Expenditures for property and equipment     (1,052 )   (863 )
Proceeds from disposals of property and equipment     22     13  

 
Cash flow required by investing activities     (1,030 )   (850 )

 
Net financing requirements     (346 )   (393 )

 
Financing activities              
Increase in notes payable, net     819     673  
Additions to long-term debt     500     225  
Reductions of long-term debt     (432 )   (215 )
Dividends paid     (91 )   (98 )
Repurchase of stock     (350 )   (243 )
Other     19     34  

 
Cash flow provided by financing activities     465     376  

 
Net increase/(decrease) in cash and cash equivalents     119     (17 )
Cash and cash equivalents at beginning of period     220     255  

 
Cash and cash equivalents at end of period   $ 339   $ 238  

 

    Amounts in this statement are presented on a cash basis and therefore may differ from those shown elsewhere in this 10-Q report.

See accompanying Notes to Consolidated Financial Statements.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TARGET CORPORATION

Accounting Policies

    The accompanying consolidated financial statements should be read in conjunction with the financial statement disclosures contained in our 1999 Annual Shareholders' Report throughout pages 24-37. The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data. In the opinion of management, all adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature.

    Due to the seasonal nature of the retail industry, quarterly earnings are not necessarily indicative of the results that may be expected for the full fiscal year.

Per Share Data

    On July 19, 2000, we distributed to shareholders of record as of June 30, 2000, 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.

    References to earnings per share relate to diluted earnings per share.

 
  Basic EPS

  Diluted EPS

 

 
 
  Three Months
Ended

  Six Months
Ended

  Twelve Months
Ended

  Three Months
Ended

  Six Months
Ended

  Twelve Months
Ended

 

 
 
  Jul 29,
2000

  Jul 31,
1999

  Jul 29,
2000

  Jul 31,
1999

  Jul 29,
2000

  Jul 31,
1999

  Jul 29,
2000

  Jul 31,
1999

  Jul 29,
2000

  Jul 31,
1999

  Jul 29,
2000

  Jul 31,
1999

 

 
Net earnings*   $ 257   $ 228   $ 496   $ 422   $ 1,259   $ 1,052   $ 257   $ 228   $ 496   $ 422   $ 1,259   $ 1,052  
Less: ESOP net earnings adjustment     -     (4 )   -     (9 )   (9 )   (19 )   -     (1 )   -     (2 )   (2 )   (4 )

 
Adjusted net earnings*   $ 257   $ 224   $ 496   $ 413   $ 1,250   $ 1,033   $ 257   $ 227   $ 496   $ 420   $ 1,257   $ 1,048  

 
Weighted average common shares outstanding     906.6     882.2     908.5     883.5     895.1     882.6     906.6     882.2     908.5     883.5     895.1     882.6  
Performance shares     -     -     -     -     -     -     -     -     -     .3     -     .8  
Stock options     -     -     -     -     -     -     8.4     11.1     9.5     12.3     10.2     11.5  
Put options     -     -     -     -     -     -     .2     -     .2     -     .1     -  
Assumed conversion of ESOP preferred shares     -     -     -     -     -     -     -     39.4     -     39.8     17.0     40.6  

 
Total common equivalent shares outstanding     906.6     882.2     908.5     883.5     895.1     882.6     915.2     932.7     918.2     935.9     922.4     935.5  

 
Earnings per share*   $ .28   $ .25   $ .55   $ .46   $ 1.40   $ 1.17   $ .28   $ .24   $ .54   $ .45   $ 1.36   $ 1.12  

 
*
Before extraordinary charges

Share Repurchase Program

    In March 2000, our Board of Directors authorized the repurchase of $1 billion of our common stock, in addition to the $1 billion authorized in January 1999. Repurchases are made primarily in open market transactions, subject to market conditions. Our program also includes the sale of put options that entitle the holder to sell shares of our common stock to us, on a specified date and at a specified price, if the holder exercises the option.

    In the second quarter and first half of 2000, we repurchased 7.7 and 11.9 million shares of our common stock at a total cost of $229 million ($29.67 per share) and $355 million ($29.90 per share), respectively, net of the premiums from exercised and expired put options. The $6.8 and $13.7 million of premiums received from the sale of put options on 2.3 and 4.5 million shares during the second quarter and first half of 2000, respectively, were recorded in retained earnings. The put options on 4.1 million shares outstanding at the end of second quarter entitle their holders to sell shares of our common stock to us at prices ranging from $27.56 to $37.56 per share on specific dates in August through December 2000.


    Since the inception of our share repurchase program, we have repurchased a total of 30.7 million shares of our common stock at a total cost of $943 million ($30.75 per share), net of the premium from exercised and expired put options.

Long-term Debt

Extinguishment

    During the second quarter, we repurchased $18 million of long-term debt at a weighted average interest rate of 10.0 percent, resulting in an after-tax loss of $2 million. Also during the second quarter, $300 million of puttable long-term debt was extinguished resulting in an after-tax gain of $3 million. The net impact of these transactions was a $1 million gain (less than $.01 per share).

Issuance

    During the first quarter, we issued $500 million of long-term debt bearing interest at 7.50 percent, maturing in February 2005. Subsequent to second quarter 2000, we issued $600 million of additional long-term debt bearing interest at 7.50 percent, maturing in August 2010. The proceeds from these issuances were used for general corporate purposes.

Segment Disclosures (Millions)

    Revenues by segment were as follows:

 
  Three Months Ended
  Six Months Ended
 
 
  July 29,
2000

  July 31,
1999

  %
Change

  July 29,
2000

  July 31,
1999

  %
Change

 
Target   $ 6,541   $ 5,952   9.9 % $ 12,656   $ 11,434   10.7 %
Mervyn's     940     950   (1.0 )   1,831     1,861   (1.6 )
Department Stores     661     687   (3.9 )   1,328     1,382   (3.9 )
Other     109     98   10.3     182     168   7.9  
   
 
 
 
 
 
 
Total   $ 8,251   $ 7,687   7.3 % $ 15,997   $ 14,845   7.8 %
     
 
 
 
 
 
 

    Pre-tax segment profit and the reconciliation to pre-tax earnings were as follows:

 
  Three Months Ended
  Six Months Ended
 
 
  July 29,
2000

  July 31,
1999

  %
Change

  July 29,
2000

  July 31,
1999

  %
Change

 
Target   $ 478   $ 430   11.6 % $ 945   $ 800   18.2 %
Mervyn's     55     45   20.3     101     90   11.7  
Department Stores     35     49   (27.8 )   64     97   (33.4 )
       
 
 
 
 
 
 
  Total pre-tax segment profit     568     524   8.6     1,110     987   12.5  
Securitization adjustment (interest equivalent)     (12 )   (12 )       (24 )   (24 )    
Interest expense     (100 )   (98 )       (196 )   (192 )    
Other     (38 )   (40 )       (83 )   (80 )    
   
 
 
 
 
 
 
Earnings before income taxes and extraordinary items   $ 418   $ 374   12.0 % $ 807   $ 691   16.8 %
       
 
 
 
 
 
 

MANAGEMENT'S DISCUSSION AND ANALYSIS

TARGET CORPORATION

ANALYSIS OF OPERATIONS

    Second quarter 2000 net earnings before extraordinary items were $257 million, or $.28 per share, compared with $228 million, or $.24 per share, for the same period last year. First half 2000 net earnings before extraordinary items were $496 million, or $.54 per share, compared with $422 million, or $.45 per share, on the same basis, for first half 1999. The extraordinary items relate to the early extinguishment of debt and were a $1 million gain (less than $.01 per share), net of tax, in the second quarter and first half of 2000, and a $4 million charge (less than $.01 per share), net of tax, in the second quarter and first half of 1999.

Revenues and Comparable-Store Sales

    Total revenues for the quarter increased 7.3 percent to $8,251 million compared with $7,687 million for the same period a year ago. Total comparable-store sales (sales from stores open longer than one year) increased 2.0 percent. Our revenue growth in the second quarter reflected Target's comparable-store sales growth and new store expansion.

    Year-over-year changes in comparable-store sales by business segment were as follows:

 
  Three Months
Percentage
Change

  Six Months
Percentage
Change

 
Target   3.2 % 3.9 %
Mervyn's   (0.8 ) (1.3 )
Department Stores   (4.9 ) (4.9 )
   
 
 
Total   2.0 % 2.5 %
     
 
 

Gross Margin Rate

    Our gross margin rate declined slightly, due to the business mix impact of strong growth at Target, our lowest gross margin rate division.

Operating Expense Rate

    Our operating expense rate improved slightly, again due to the business mix impact of strong growth at Target, our lowest expense rate division.

Pre-tax Segment Profit

    Our second quarter pre-tax segment profit increased 9 percent to $568 million compared with $524 million for the same period a year ago. Pre-tax segment profit in the first half of 2000 increased 13 percent to $1,110 million compared with $987 million for the same period a year ago. Pre-tax segment profit is earnings before LIFO, securitization effects, interest, other expense, and unusual items. Target provided substantially all of our pre-tax profit growth in second quarter 2000 with a 12 percent pre-tax profit increase. Mervyn's pre-tax profit increased 20 percent compared with last year; the Department Stores' pre-tax profit decreased 28 percent due to weak sales performance.


Other Performance Factors

    Our proprietary credit programs strategically support our core retail operations and are an integral component of each business segment. Therefore, credit contribution is reflected in each business segment's pre-tax profit. Net of all expenses, including bad debt expense, pre-tax contribution from our credit operations for the second quarter increased over the prior year, principally due to continued growth of the Target Guest Card and improving trends in delinquencies and writeoffs.

    Our Consolidated Results of Operations include reductions of finance charge revenue and bad debt expense related to sold securitized receivables. For analytical purposes, the amounts that represent payments to holders of our sold securitized receivables are included in our pre-tax earnings reconciliation in the Notes to Consolidated Financial Statements as "interest equivalent". The total of interest expense and interest equivalent was $112 million and $220 million in the second quarter and first half of 2000, representing a $2 million and $4 million increase, respectively, from last year. For the quarter, the increase was due to higher average funded balances; year-to-date the increase was due to higher average funded balances, partially offset by a lower average portfolio interest rate.

    The last-in, first-out (LIFO) provision, included in cost of retail sales, was zero for both second quarter 2000 and 1999. The cumulative LIFO provision was $53 million at July 29, 2000 and January 29, 2000, and $60 million at July 31, 1999.

    The estimated annual effective income tax rate was 38.5 percent in the second quarter and first half of 2000, compared to 38.8 percent for the same periods last year.

ANALYSIS OF FINANCIAL CONDITION

    Our financial condition remains strong. We continue to fund the growth in our business through a combination of internally generated funds, debt and sold securitized receivables.

    Retained securitized receivables increased $211 million, or 16 percent, over last year reflecting continued growth of the Target Guest Card. Inventory increased $98 million, or 3 percent, over last year due to new store growth at Target. The inventory growth was more than fully funded by a $236 million, or 8 percent, increase in accounts payable.

    Capital expenditures for the first six months of 2000 were $1,052 million, compared with $863 million for the same period a year ago. Investment in Target accounted for 90 percent of current year capital expenditures.

    Our share repurchase program is described in the Notes to Consolidated Financial Statements. The reduction in shares outstanding and incremental interest expense related to the share repurchase program had an insignificant impact on earnings per share.


STORE DATA

    During the quarter, we opened a total of 23 new Target stores, including two relocations. At July 29, 2000, our number of stores and retail square feet were as follows:

 
  Number of Stores
  Retail Square Feet*
 
  July 29,
2000

  Jan 29,
2000

  July 31,
1999

  July 29,
2000

  Jan 29,
2000

  July 31,
1999

Target   942   912   881   107,278   102,945   98,679
Mervyn's   267   267   267   21,635   21,635   21,661
Department Stores   64   64   63   14,175   14,060   13,890
   
 
 
 
 
 
Total   1,273   1,243   1,211   143,088   138,640   134,230
     
 
 
 
 
 

*
In thousands, reflects total square feet, less office, warehouse and vacant space

OUTLOOK FOR FISCAL YEAR 2000

    We expect our gross margin rate to decline slightly in the second half of the year, principally due to the business mix impact of growth at Target, our lowest gross margin rate division. We expect our operating expense rate to improve slightly as Target, our lowest expense rate division, continues to represent an increasing percentage of our overall business mix. The contribution from our credit operations is also expected to increase for the full year 2000. In light of current business trends and the strength of last year's results, we expect third quarter earnings per share to decline somewhat from last year. We expect our growth in earnings per share to resume in the fourth quarter, and we remain confident in our ability to deliver average annual earnings per share growth of 15 percent over time, despite our outlook for lower double-digit growth in 2000.

    The total of interest expense and interest equivalent is expected to be moderately higher than 1999 due to higher average funded balances.

FORWARD-LOOKING STATEMENTS

    The preceding Management's Discussion and Analysis contains forward-looking statements regarding our performance, liquidity and the adequacy of our capital resources. Those statements are based on our current assumptions and expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. We caution that the forward-looking statements are qualified by the risks and challenges posed by increased competition, shifting consumer demand, changing consumer credit markets, changing capital markets and general economic conditions, hiring and retaining effective team members, sourcing merchandise from domestic and international vendors, investing in new business strategies, achieving our growth objectives, and other risks and uncertainties. As a result, while we believe that there is a reasonable basis for the forward-looking statements, you should not place undue reliance on those statements. You are encouraged to review Exhibit (99)C attached to our Form 10-K Report for the year ended January 29, 2000, which contains additional important factors that may cause actual results to differ materially from those predicted in the forward-looking statements.



PART II. OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K

a)   Exhibits    
 
 
 
 
 
(2).
 
 
 
Not applicable
 
 
 
 
 
(3)A.
 
 
 
Restated Articles of Incorporation (as amended July 19, 2000)
 
 
 
 
 
(4).
 
 
 
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.
 
 
 
 
 
(10)A.
 
 
 
Agreement
 
 
 
 
 
(11).
 
 
 
Not applicable
 
 
 
 
 
(12).
 
 
 
Statements re Computations of Ratios
 
 
 
 
 
(15).
 
 
 
Not applicable
 
 
 
 
 
(18).
 
 
 
Not applicable
 
 
 
 
 
(19).
 
 
 
Not applicable
 
 
 
 
 
(22).
 
 
 
Not applicable
 
 
 
 
 
(23).
 
 
 
Not applicable
 
 
 
 
 
(24).
 
 
 
Not applicable
 
 
 
 
 
(27).
 
 
 
Financial Data Schedule
 
b)
 
 
 
Reports on Form 8-K:
 
 
 
 
 
Registrant did not file any reports on Form 8-K during the quarter ended July 29, 2000.
 
 
 
 
 
 
 
 
 
 


Signature

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    TARGET CORPORATION
 
Dated: September 8, 2000
 
 
 
By:
 
/s/ Douglas A. Scovanner

Douglas A. Scovanner
Executive Vice President, Finance, Chief Financial Officer and Chief Accounting Officer


Exhibit Index

(3)A.   Restated Articles of Incorporation (as amended July 19, 2000)
 
(10)A.
 
 
 
Agreement
 
(12).
 
 
 
Statements re Computations of Ratios
 
(27).
 
 
 
Financial Data Schedule
 
 
 
 
 
 


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Exhibit (3)A

ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
TARGET CORPORATION

    The undersigned, James T. Hale, Executive Vice President, General Counsel and Corporate Secretary of Target Corporation, a Minnesota corporation (the "Corporation"), hereby certifies (i) that the first paragraph of Article III of the Corporation's Restated Articles of Incorporation, as amended, has been amended, effective at the close of business on July 19, 2000 (the "Effective Time"), to read in its entirety as follows:

(ii) that the remainder of the Restated Articles of Incorporation of the Corporation, as amended, including the second, third and fourth paragraphs of Article III, are hereby unchanged; (iii) that such amendment has been adopted in accordance with the requirements of, and pursuant to, Chapter 302A of the Minnesota Statutes; (iv) that such amendment was adopted pursuant to Section 302A.402, Subd. 3, of the Minnesota Statutes in connection with a two-for-one division of the Corporation's Common Stock; and (v) that such amendment will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series of the Corporation and will not result in the percentage of authorized shares of any class or series that remains unissued after such division exceeding the percentage of authorized shares of that class or series that were unissued before the division.

    The division giving rise to the amendment set forth above concerns a two-for-one division of the Common Stock of the Corporation. Such division is being effected as follows:

     (i) Effective at the Effective Time, each share of Common Stock outstanding immediately prior to the Effective Time will be split and divided into two shares of Common Stock of the Corporation, par value $0.0833 per share, all of which shall be validly issued, fully paid and nonassessable;

    (ii) Each stock certificate or uncertificated book entry statement representing or evidencing a share or shares of Common Stock of the Corporation immediately prior to the Effective Time shall continue to represent or evidence the same number of shares of Common Stock following the Effective Time, but with a par value of $0.0833 per share; and

    (iii) One additional share of the authorized but previously unissued Common Stock of the Corporation, par value $0.0833 per share, for each share of Common Stock of the Corporation outstanding immediately prior to the Effective Time shall be distributed on July 19, 2000 to each shareholder of record entitled to receive such distribution. The record date for determining the shareholders of record entitled to receive such stock distribution shall be the close of business on June 30, 2000. With respect to each share of Common Stock, if any, that is first issued and becomes outstanding after the close of business on June 30, 2000, and prior to the Effective Time and remains outstanding at the Effective Time, the additional share resulting from the division of any such share of Common Stock shall be distributed to the first holder to whom such share of Common Stock was issued of record. The shares distributed pursuant to this clause (iii) (other than restricted shares pursuant to incentive plans of the Corporation and shares distributed with respect to shares that are first issued and become outstanding after the close of business on June 30, 2000, and prior to the Effective Time upon the exercise of options) shall be uncertificated shares, provided that any shareholder upon request shall have the right to receive a stock certificate evidencing such shares.


    The foregoing Articles of Amendment shall take effect at the Effective Time previously stated herein.

    IN WITNESS WHEREOF, I have subscribed my name this 15th day of June, 2000.

    /s/            
   
    James T. Hale
    Executive Vice President, General Counsel
and Corporate Secretary


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ARTICLES OF AMENDMENT OF RESTATED ARTICLES OF INCORPORATION OF TARGET CORPORATION
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Exhibit (10)A

AGREEMENT

    THIS AGREEMENT is made effective as of the 8th day of June, 2000 by and among TARGET CORPORATION, a Minnesota corporation ("Company") and LARRY V. GILPIN ("Executive").

RECITALS

    A.  Executive is employed by the Company; and

    B.  The Company and Executive wish to sever the Company's and Executive's relationship as employer and employee respectively, on the terms and conditions thereafter set forth; and

    C.  The Company maintains an Income Continuance Policy (the "ICP") for which Executive is eligible, the terms and provisions of which Executive has been subject to and is familiar with; and

    D.  The Company delivered Notice of Termination to Executive on May 15, 2000.

    E.  The ICP requires a release in writing from Executive; and

    F.  Executive acknowledges he has been advised and encouraged to review this Agreement with an attorney and is fully aware of the potential rights and remedies he may have as a result of the severance; and

    G.  Executive and the Company wish to memorialize herein the resolution and settlement of all their respective rights, remedies and obligations whatsoever, flowing from Executive's employment and relationship with the Company and the severance and termination of that employment and relationship.

    H.  Capitalized terms used, but not defined, in this Agreement shall have the definitions ascribed to them in the ICP.

     1.  Employment Severance Date.  Executive's Effective Date of Termination for ICP purposes is June 3, 2000. Executive shall perform duties assigned to him by the Company through June 3, 2000, when the employer-employee relationship of Executive and the Company shall be severed and terminated (the "Employment Severance Date"). Executive's final day on the premises of the Company shall be May 19, 2000. After the Employment Severance Date, Executive shall be considered to be retired from his employment with the Company. As a retired officer of the Company, he shall be entitled to all benefits normally afforded to other retired executives as currently exist or as otherwise modified in the future.

     2.  Salary.  Executive shall be paid his regular salary for services rendered as an employee under paragraph 1 hereof through June 3, 2000, subject to all required and voluntary withholdings. Such payments will otherwise be made in accordance with the Company's standard payroll practices as in effect at the time of payment.

     3.  Income Continuance Payments.  Executive shall be entitled to income continuance payments aggregating $2,500,512, which shall be paid in fifty-two (52) consecutive biweekly payments pursuant to and subject to the terms and conditions of the ICP, the first payment commencing on the first regular payroll date after the later of (i) the expiration of the revocation period described in Section 23 of this Agreement or (ii) June 2, 2000. The gross amount of each biweekly payment, subject to the terms and conditions of the ICP, shall be $48,086.77. The biweekly amounts shall be reduced for taxes and other amounts required to be withheld by the Company.

     4.  Vacation Pay.  The Company shall pay to Executive any unused accrued vacation due Executive as of the Employment Severance Date, subject to all required withholdings.

     5.  Health Insurance.  Executive may continue to participate in the Company's medical and dental programs to the extent, if any, permitted by the Company's medical and dental plans (the "Plans"). In


order to continue such coverage, Executive must maintain continuous coverage under the Plans and pay 102% of the full cost of such Plans. Executive acknowledges that the Company may modify its premium structure, the terms of the Plans and the coverages of the Plans, including the termination of all or part of any Plan. All insurance coverage shall terminate at the earlier of 18 months from the Employment Severance Date or when the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), permits terminations.

     6.  Life Insurance.  Executive may take his universal life insurance policy, if any, with him after the Employment Severance Date. In order to continue such policy, he will be required to make all payments with respect to the policy.

     7.  Pension Plan - Savings Plan.  Executive's rights, if any, under the Company's Pension Plan and the Target Corporation 401(k) Plan will be determined under the terms of such plans as amended from time to time.

     8.  Deferred Compensation Plan.  Executive shall be paid his deferred benefits, if any, under the Target Corporation Deferred Compensation Plan Senior Management Group and the Target Corporation SMG Executive Deferred Compensation Plan pursuant to the terms of such plans as amended from time to time.

     9.  Excess Pension Plan.  Executive will be paid his benefits, if any, under the Target Corporation Excess Pension Plan pursuant to the terms of such plan as amended from time to time.

    10.  Stock Plan.  Executive's rights under the Dayton Hudson Corporation Executive Long Term Incentive Plans of 1981 and 1999 (collectively, the "LTIP") will be determined under the terms of such plans on the Employment Severance Date. Executive acknowledges that the extension of option exercise periods under Section 6.1(b)(iii) of the LTIP, requires the consent of the Compensation Committee of the Board of Directors. Executive further acknowledges that such consent is in the sole discretion of such Committee. The Company will recommend that the Compensation Committee extend Executive's outstanding stock options such that they shall continue to vest and may be exercised for a period of five years from the Employment Severance Date or ten years and one day after the date of grant of the option, whichever occurs first; provided, however, that such extension will be contingent upon Executive's compliance with the terms of this Agreement and Executive's stock options may be terminated earlier as provided in paragraph 17 of this Agreement.

    11.  Other Benefits.  

    On or before the Employment Severance Date, Executive may purchase his company car for a price equal to the value of such car as carried on Target Stores' books at the time of such purchase.

    The Company shall reimburse the Executive for financial counseling expenses incurred as of June 3, 2000 under the Financial Counseling Expense Reimbursement perquisite for financial counseling expenses incurred prior to the Employment Severance Date. Eligibility of expenses shall be determined in accordance with the Company's standard policy for reimbursement of such expenses to its officer group.

    Except as set forth in this Agreement or as required by law, Executive is entitled to no other employee benefits, fringe benefits or compensation, including, without limitation, any payment from the Company pursuant to its Short-Term Incentive Plan for fiscal year 2000 performance.

    12.  No Recruiting.  Executive agrees, unless he has a written agreement signed by the an authorized officer of the Company allowing Executive to recruit persons named in that agreement, the execution of which agreement shall be in the sole discretion of the such officer, that Executive will not recruit for employment, directly or indirectly, any employee of the Company or any subsidiary of the Company, until the later of the dates upon which Executive has the right to (i) receive payments pursuant to paragraph 3 of this Agreement, or (ii) exercise stock options under the LTIP.

    13.  Consultation and Cooperation.  Following the Employment Severance Date, the Company may request that Executive consult or cooperate with the Company (including, without limitation, serving as a


witness or testifying on the Company's behalf without subpoena), and Executive agrees to be available at mutually agreeable times to perform such duties and provide such cooperation in connection with various business and legal matters in which Executive was involved or has knowledge as result of Executive's employment with the Company. In so consulting or cooperating, Executive shall be reimbursed his reasonable out-of-pocket expenses and he shall not be nor represent to anyone that he is an agent of the Company, unless expressly authorized in writing to do so by an authorized officer of the Company.

    14.  Directly Competitive Employment.  For purposes of Section II.G of the ICP and paragraph 17 of this Agreement, "Directly Competitive Employment" shall be employment with Best Buy, Wal-Mart, Kohl's, or any entity that controls, is controlled by or is under common control with any of these companies. For purposes of this paragraph 14, "control", "controls" or "controlled by" shall mean having a majority ownership interest or majority voting interest in the other company.

    15.  Confidentiality.  Executive understands and agrees that the existence and terms of this Agreement are confidential and are not to be disclosed by Executive to anyone other than Executive's spouse, attorney, financial advisor, tax advisor (each of whom must agree to keep it confidential) or pursuant to court order.

    Executive represents and warrants that prior to signing this Agreement he has not disclosed the terms of this Agreement or any information regarding the negotiations or discussions regarding this Agreement to anyone other than his spouse, attorney, financial advisor or tax advisor (each of whom has agreed to keep such information confidential).

    Executive recognizes and acknowledges that confidential information of various kinds; including, but not limited to the Company's or any of its subsidiaries' (i) employee and personnel data and information, (ii) present, past and future strategies, plans, and proposals (including, but not limited to, customer, merchandising, marketing and store operation strategies), (iii) financial information, and (iv) present, past and future personnel and labor relations strategies, plans, practices, policies, training programs and goals, are valuable, special and unique assets of the Company. Executive will not, during or after Executive's employment with the Company, disclose or use, or cause or permit to be disclosed or used, any such information, to or by any person, firm, corporation, association or other entity for any reason or purpose other than for the sole benefit of the Company.

    Executive represents that he has not removed and will not remove any of the Company's property from the Company's premises. This includes, but is not limited to, business records, manuals, customer lists and records, business forms, personnel lists, information, plans, training materials, and records, information regarding suppliers and vendors, marketing and strategy plans, contracts, contract information, correspondence, computer tapes and diskettes, data processing and other computer reports, and business files.

    16.  Detrimental Conduct.  Executive agrees that he will not directly or indirectly in any manner by word or action defame or slander the Company, any subsidiary of the Company, or any of their management or affiliates, or state or utter an untruth or misstatement of fact that affects any of its or their reputations.

    17.  Termination of Benefits.  In addition to other remedies available to the Company, in the event Executive breaches any of his obligations under this Agreement, then (i) the Company shall be relieved of all liability and obligation to make any payments under this Agreement, (ii) all of Executive's stock options and rights to receive performance shares and restricted stock shall terminate immediately and (iii) the Company may demand the return of any payments theretofore paid to Executive under paragraph 3. In addition, all of Executive's stock options and rights to receive performance shares and restricted stock shall terminate immediately if Executive engages in "Directly Competitive Employment" as defined in paragraph 14 of this Agreement. Even if payments and benefits are terminated pursuant to this paragraph,


Executive's obligations under paragraphs 12, 13, 14, 15 and 16 hereof, and the release set forth in paragraph 18 hereof shall remain in full force and effect.

    18.  Release.  


1
Any references to government statutes include any amendments to such statutes.

    19.  Miscellaneous.  This Agreement shall be binding upon the Company and its successors and assigns and Executive, his heirs, executors, successors and assigns. This Agreement embodies the entire Agreement and understandings between the Company and Executive, and supersedes all prior agreements and understandings (oral or written) between them relating to the subject matter hereof. The terms of this Agreement may only be modified by an agreement in writing signed by Executive and an authorized officer of the Company.

    20.  Construction and Applicable Law.  The ICP is intended to be a welfare benefit plan subject to the applicable requirements of ERISA. The ICP and this Agreement shall be administered and construed consistently with that intent. They shall also be construed and administered according to the laws of the State of Minnesota to the extent such laws are not preempted by laws of the United States of America. All controversies, disputes, and claims arising hereunder shall be submitted to the United States District Court for the District of Minnesota.

    21.  Severability.  Invalidation of any provision contained in this Agreement, or of the application thereof to any party, by judgment or court order shall in no way affect any of the other provisions hereof or the application thereof to any other party or circumstance and the same shall remain in full force and effect, unless enforcement of this Agreement as so invalidated would be unreasonable or grossly inequitable under all the circumstances or would frustrate the purposes of this Agreement.

    22.  Relationship to Income Continuance Plan.  This Agreement is entered into for the purpose of implementing the ICP. The terms of this Agreement are intended to be construed in concert with the terms of the ICP. To the extent there is conflict between the terms of this Agreement and the terms of the ICP, the terms of this Agreement shall prevail.

    23.  Revocation.  Executive understands that he may revoke (that is cancel) the release set forth in paragraph 18, if he does so within 15 calendar days of signing this Agreement. Such revocation must be made in a written statement that is hand delivered or post marked within 15 calendar days of the date Executive signs this Agreement and must be addressed to the Corporate Secretary, Target Corporation, 777 Nicollet Mall, Minneapolis, Minnesota 55402. Executive understands that if he mails such a revocation, mailing by certified mail, return receipt requested, is recommended to show proof of mailing.

    24.  Remedies.  In the event of a breach or threatened breach by Executive of the provisions of paragraphs 12, 13, 14, 15 or 16 of this Agreement, Company shall be entitled to an injunction restraining Executive from breaching, in whole or in part, any of his duties, obligations, or covenants in those paragraphs. Executive acknowledges that such remedy is appropriate. Nothing in this Agreement shall be construed as prohibiting Company from pursuing any other remedy or remedies available to it for such breach or threatened breach, including but not limited to the other remedies specifically provided for in this Agreement and the recovery of damages, together with costs and attorney's fees.


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    IN WITNESS WHEREOF the parties have hereto executed this Agreement.

    TARGET CORPORATION
 
Date: 6/8/00
 
 
 
By:
 
 
 
/s/            
       
James T. Hale
    Title:   Executive Vice President
& General Counsel
 
Date: 6/13/00
 
 
 
 
 
 
 
/s/                 
       
LARRY V. GILPIN


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AGREEMENT
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EXHIBIT (12)

TARGET CORPORATION

Computations of Ratios of Earnings to Fixed Charges and

Ratios of Earnings to Fixed Charges and Preferred Stock Dividends for the

Six Months Ended July 29, 2000 and July 31, 1999

and for the Five Years Ended January 29, 2000

(Millions of Dollars)

 
  Six Months Ended
  Fiscal Year Ended
 
 
  Jul. 29,
2000

  Jul. 31,
1999

  Jan. 29,
2000

  Jan. 30,
1999

  Jan. 31,
1998

  Feb. 1,
1997

  Feb. 3,
1996

 
Ratio of Earnings to Fixed Charges:                                            
Earnings:                                            
Consolidated net earnings before extraordinary charges   $ 496   $ 422   $ 1,185   $ 962   $ 802   $ 474   $ 311  
Income taxes     311     269     751     594     524     309     190  
   
 
 
 
 
 
 
 
  Total earnings before extraordinary charges     807     691     1,936     1,556     1,326     783     501  
   
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense     215     202     415     421     437     464     461  
Interest portion of rental expense     35     33     69     63     59     59     59  
   
 
 
 
 
 
 
 
  Total fixed charges     250     235     484     484     496     523     520  
   
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capitalized interest     (14 )   (9 )   (16 )   (16 )   (16 )   (16 )   (14 )
   
 
 
 
 
 
 
 
  Fixed charges in earnings     236     226     468     468     480     507     506  
   
 
 
 
 
 
 
 
Earnings available for fixed charges   $ 1,043   $ 917   $ 2,404   $ 2,024   $ 1,806   $ 1,290   $ 1,007  
       
 
 
 
 
 
 
 
 
Ratio of earnings before extraordinary charges to fixed charges
 
 
 
 
 
4.18
 
 
 
 
 
3.91
 
 
 
 
 
4.96
 
 
 
 
 
4.18
 
 
 
 
 
3.65
 
 
 
 
 
2.46
 
 
 
 
 
1.94
 
 
       
 
 
 
 
 
 
 
 
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total fixed charges, as above
 
 
 
$
 
250
 
 
 
$
 
235
 
 
 
$
 
484
 
 
 
$
 
484
 
 
 
$
 
496
 
 
 
$
 
523
 
 
 
$
 
520
 
 
Dividends on preferred stock (pre-tax basis)         15     29     32     35     37     37  
   
 
 
 
 
 
 
 
  Total fixed charges and preferred stock dividends     250     250     513     516     531     560     557  
   
 
 
 
 
 
 
 
Earnings available for fixed charges and preferred stock dividends   $ 1,043   $ 917   $ 2,404   $ 2,024   $ 1,806   $ 1,290   $ 1,007  
       
 
 
 
 
 
 
 
 
Ratio of earnings before extraordinary charges to fixed charges and preferred stock dividends
 
 
 
 
 
4.18
 
 
 
 
 
3.67
 
 
 
 
 
4.69
 
 
 
 
 
3.92
 
 
 
 
 
3.40
 
 
 
 
 
2.30
 
 
 
 
 
1.81
 
 
       
 
 
 
 
 
 
 


  

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TARGET CORPORATION'S FORM 10Q FOR THE SECOND QUARTER ENDED JULY 29, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS FEB-03-2001 JAN-30-2000 JUL-29-2000 339 0 1,574 0 4,071 6,667 14,576 4,116 17,932 6,501 4,520 0 0 75 5,899 17,932 15,736 15,997 10,796 10,796 454 0 196 807 311 496 0 1 0 497 0.55 0.54