<PAGE>
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 November 1, 1997
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Commission file number 1-6049
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Dayton Hudson Corporation
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(Exact name of registrant as specified in its charter)
Minnesota 41-0215170
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(State of incorporation or organization) (I.R.S. Employer Identification No.)
777 Nicollet Mall Minneapolis, Minnesota 55402-2055
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 370-6948
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None
- ----
(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 November 1, 1997 was
218,556,978.
<PAGE>
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
NO.
PART I FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Results of Operations
for the Three Months, Nine Months and Twelve
Months ended November 1, 1997 and November 2, 1996 1
Condensed Consolidated Statements of Financial
Position at November 1, 1997, February 1, 1997
and November 2, 1996 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended November 1, 1997 and
November 2, 1996 3
Notes to Condensed Consolidated Financial Statements 4-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION 7-11
PART II OTHER INFORMATION:
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 12
Signatures 13
Exhibit Index 14
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED Dayton Hudson Corporation
RESULTS OF OPERATIONS and Subsidiaries
(Millions of Dollars, Except Per Share Data) Three Months Ended Nine Months Ended Twelve Months Ended
- ------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 1, November 2, NOVEMBER 1, November 2, NOVEMBER 1, November 2,
(Unaudited) 1997 1996 1997 1996 1997 1996*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $6,622 $6,073 $18,804 $17,204 $26,971 $25,154
COSTS AND EXPENSES:
Cost of retail sales, buying and occupancy 4,815 4,452 13,654 12,598 19,684 18,612
Selling, publicity and administrative 1,111 1,041 3,225 3,033 4,481 4,227
Depreciation and amortization 176 166 520 482 688 633
Interest expense, net 107 114 321 334 429 450
Taxes other than income taxes 116 109 346 329 462 439
Real estate repositioning charge - - - - 134 -
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Total Costs and Expenses 6,325 5,882 18,066 16,776 25,878 24,361
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EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY
CHARGE 297 191 738 428 1,093 793
Provision for Income Taxes 118 75 292 169 432 306
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NET EARNINGS BEFORE EXTRAORDINARY CHARGE $ 179 $ 116 $ 446 $ 259 $ 661 $ 487
Extraordinary Charge from Purchase and Redemption
of Debt, Net of Tax 19 9 51 10 52 10
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NET EARNINGS $ 160 $ 107 $ 395 $ 249 $ 609 $ 477
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PRIMARY EARNINGS PER SHARE:
Earnings Before Extraordinary Charge $ .80 $ .51 $ 1.96 $ 1.11 $ 2.92 $ 2.14
Extraordinary Charge (.09) (.04) (.23) (.04) (.24) (.04)
- ------------------------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE $ .71 $ .47 $ 1.73 $ 1.07 $ 2.68 $ 2.10
- ------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE:
Earnings Before Extraordinary Charge $ .76 $ .49 $ 1.88 $ 1.08 $ 2.80 $ 2.05
Extraordinary Charge (.08) (.04) (.22) (.04) (.23) (.04)
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FULLY DILUTED EARNINGS PER SHARE $ .68 $ .45 $ 1.66 $ 1.04 $ 2.57 $ 2.01
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER COMMON SHARE $ .16 $ .16 $ .48 $ .47 $ .64 $ .61
AVERAGE COMMON SHARES OUTSTANDING (Millions):
Primary 220.8 218.8 220.4 218.4 219.8 217.8
Fully Diluted 232.0 230.7 231.8 230.5 231.4 230.0
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*Consisted of 53 weeks.
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS Dayton Hudson Corporation
OF FINANCIAL POSITION and Subsidiaries
NOVEMBER 1, February 1, November 2,
(Millions of Dollars) 1997 1997* 1996
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ASSETS (UNAUDITED) (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 220 $ 201 $ 204
Accounts receivable 1,338 1,720 1,581
Merchandise inventories 4,065 3,031 3,949
Other 426 488 257
- --------------------------------------------------------------------------------
Total Current Assets 6,049 5,440 5,991
PROPERTY AND EQUIPMENT 11,234 10,469 10,572
Accumulated depreciation (3,304) (3,002) (3,038)
----- ----- -----
Property and Equipment, net 7,930 7,467 7,534
OTHER 512 482 484
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TOTAL ASSETS $14,491 $13,389 $14,009
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- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt
and notes payable $ 753 $ 233 $ 658
Accounts payable 2,825 2,528 2,662
Other 1,375 1,350 1,174
- --------------------------------------------------------------------------------
Total Current Liabilities 4,953 4,111 4,494
LONG-TERM DEBT 4,720 4,808 5,235
DEFERRED INCOME TAXES AND OTHER 666 630 633
CONVERTIBLE PREFERRED STOCK, NET 34 50 51
SHAREHOLDERS' INVESTMENT 4,118 3,790 3,596
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TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT $14,491 $13,389 $14,009
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- --------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING (Millions) 218.5 217.2 216.9
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- --------------------------------------------------------------------------------
* The February 1, 1997 Consolidated Statement of Financial Position is
condensed from the audited financial statement.
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS Dayton Hudson Corporation
OF CASH FLOWS and Subsidiaries
(Millions of Dollars) Nine Months Ended
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NOVEMBER 1, November 2,
(Unaudited) 1997 1996
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OPERATING ACTIVITIES
Net earnings before extraordinary charge $446 $ 259
Reconciliation to cash flow:
Depreciation and amortization 520 482
Deferred tax provision (36) (39)
Other non-cash items affecting earnings 54 72
Changes in operating accounts providing/(requiring) cash:
Accounts receivable (18) (71)
Sale of accounts receivable 400 -
Merchandise inventories (1,034) (931)
Accounts payable 280 409
Other 26 170
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Cash Flow Provided by Operations 638 351
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INVESTING ACTIVITIES
Expenditures for property and equipment (983) (993)
Proceeds from disposals of property and equipment 114 21
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Cash Flow Required for Investing Activities (869) (972)
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Net Financing Requirements (231) (621)
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FINANCING ACTIVITIES
Increase in notes payable, net 747 261
Additions to long-term debt 175 700
Reductions of long-term debt (568) (209)
Sale of subsidiary preferred stock 160 -
Redemption of subsidiary preferred stock (160) -
Dividends paid (120) (114)
Other 16 12
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Cash Flow Provided by Financing Activities 250 650
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Net Increase in Cash and Cash Equivalents 19 29
Cash and Cash Equivalents at Beginning of Period 201 175
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $220 $ 204
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Amounts in this statement are presented on a cash basis and therefore may differ
from those shown elsewhere in this 10-Q report. Cash paid for income taxes was
$402 million and $266 million during the first nine months of 1997 and 1996,
respectively. Cash paid for interest (including interest capitalized) in the
first nine months of 1997 and 1996 was $360 million and $292 million,
respectively.
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
NOTES TO CONDENSED CONSOLIDATED Dayton Hudson Corporation
FINANCIAL STATEMENTS and Subsidiaries
ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements should be read in
conjunction with the financial statement disclosures contained in our 1996
Annual Shareholders' Report throughout pages 23-34. As explained on page 33 of
the Annual Report, 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, earnings for periods which
exclude the holiday season are not necessarily indicative of the results that
may be expected for the full fiscal year.
PER SHARE DATA
References to earnings per share relate to fully diluted earnings per share.
LONG-TERM DEBT
During the third quarter, we repurchased an additional $79 million of long-term
debt for $93 million and committed to repurchase $95 million of long-term debt
for $111 million, which settled in the fourth quarter. The debt repurchased
had an average interest rate of 9.5% and an average remaining maturity of
approximately 18 years. An extraordinary charge, net of tax, of $19 million
($.08 per share) for early extinguishment of debt was recorded in the third
quarter. Year-to-date, repurchased debt amounted to $503 million with an
extraordinary charge, net of tax, of $51 million ($.22 per share). The
replacement of this debt with lower interest rate financing is expected to
result in future interest expense savings.
As previously disclosed, we redeemed the preferred stock of Retail Properties,
Inc., a subsidiary of the Corporation, in the third quarter. The impact to our
financial statements was not material.
REAL ESTATE REPOSITIONING
In the third quarter, Mervyn's closed one additional under-performing store for
a total of 28 stores closed in 1997, in accordance with our previously announced
plan. In addition, DSD closed its second store in 1997. Exit costs incurred
year-to-date by Mervyn's and DSD approximated $17 million and were charged
against the reserve established in fourth quarter 1996.
4
<PAGE>
INCOME TAXES
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.
As disclosed in previous 10-Q filings, the United States Tax Court returned a
judgment on this issue in favor of the IRS. We continue to believe strongly
that our accrual practice is correct and have appealed this decision to the
United States Court of Appeals for the Eighth Circuit. To stop further interest
accrual, we paid the tax and interest assessed by the IRS in second quarter,
without impact to our results of operations. It is likely that our appeal will
be heard during the first half of 1998.
ACCOUNTS RECEIVABLE SECURITIZATION
During the third quarter, we entered into an accounts receivable securitization
transaction whereby Dayton Hudson Receivables Corporation (DHRC), a
special-purpose subsidiary, sold to the public $400 million of fixed-rate Class
A certificates backed by credit card receivables. This issue of asset-backed
certificates has a maturity of five years and a certificate rate of 6.25%.
Proceeds from the sale were used for general corporate purposes. As required by
Statement of Financial Accounting Standards (SFAS) No. 125, adopted in January
1997, the transaction resulted in a pre-tax gain of $32 million. In conjunction
with this transaction, DHRC retained a $123 million issue of subordinated Class
B asset-backed certificates, which is classified in accounts receivable.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current-year
presentation.
5
<PAGE>
SEGMENT DISCLOSURES
Revenues by business segment were as follows :
<TABLE>
<CAPTION>
(Millions of Dollars) Three Months Ended Nine Months Ended Twelve Months Ended
-------------------- --------------------- ---------------------
NOV. 1, Nov. 2, NOV. 1, Nov. 2, NOV. 1, Nov. 2,
1997 1996 1997 1996 1997 1996*
-------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Target $ 4,778 $ 4,191 $ 13,695 $ 11,992 $ 19,556 $ 17,462
Mervyn's 1,034 1,078 2,925 3,044 4,250 4,506
DSD 810 804 2,184 2,168 3,165 3,186
-------- -------- --------- --------- --------- ---------
Total Revenues $ 6,622 $ 6,073 $ 18,804 $ 17,204 $ 26,971 $25,154
-------- -------- --------- --------- --------- ---------
-------- -------- --------- --------- --------- ---------
</TABLE>
Revenues in 1997 include a $32 million gain related to the sale of $400
million of securitized accounts receivable.
Pre-tax segment profit and the reconciliation to pre-tax earnings were as
follows:
<TABLE>
<CAPTION>
(Millions of Dollars) Three Months Ended Nine Months Ended Twelve Months Ended
-------------------- --------------------- ---------------------
NOV. 1, Nov. 2, NOV. 1, Nov. 2, NOV. 1, Nov. 2,
1997 1996 1997 1996 1997 1996*
-------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Target $ 249 $ 214 $ 775 $ 590 $ 1,233 $ 952
Mervyn's 68 66 176 164 284 242
DSD 70 53 138 95 194 174
-------- -------- --------- --------- --------- ---------
Total Pre-tax Segment Profit 387 333 1,089 849 1,711 1,368
LIFO provision - (5) - (5) (4) (22)
Securitization adjustment:
Interest equivalent (7) (6) (20) (18) (26) (25)
SFAS 125 gain 32 - 45 - 45 -
Interest expense, net (107) (114) (321) (334) (429) (450)
Corporate and other (8) (17) (55) (64) (70) (78)
Real estate repositioning charge - - - - (134) -
-------- -------- --------- --------- --------- ---------
Earnings before income taxes
& extraordinary
charge $ 297 $ 191 $ 738 $ 428 $ 1,093 $ 793
-------- -------- --------- --------- --------- ---------
-------- -------- --------- --------- --------- ---------
</TABLE>
*Consisted of 53 Weeks
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1997
ANALYSIS OF OPERATIONS
Third quarter 1997 net earnings were $160 million, compared with $107 million
for third quarter 1996. For the nine-month period ending November 1, 1997, net
earnings increased 59% to $395 million from $249 million for the same period a
year ago. Third quarter and the nine-month period ending November 1, 1997 net
earnings include extraordinary charges, net of tax, related to the early
extinguishment of debt of $19 million ($.08 per share) and $51 million ($.22 per
share), respectively, compared with $9 million ($.04 per share) and $10 million
($.04 per share), for the same periods last year. Included in the third quarter
and year-to-date 1997 results is a $32 million pre-tax gain ($.08 per share)
from the sale of $400 million in securitized accounts receivable. Year-to-date
1997 results also include an additional $13 million pre-tax gain attributable to
the application of SFAS No. 125 to our 1995 sale of accounts receivable.
The improvement in third quarter earnings is due primarily to continued strong
sales and operating performance at Target, expense reduction initiatives at DSD
and increases in credit profitability at all three divisions.
REVENUES
Total revenues increased 9% for both the three- and nine-month periods, while
comparable-store revenues (revenues from stores open longer than one year)
increased 6% and 5%, respectively.
Year-over-year revenue growth by business segment was as follows :
Three Months Nine Months
Percentage Change Percentage Change
--------------------- ---------------------
All Comparable All Comparable
Stores Stores Stores Stores
------ ---------- ------ ----------
Target 14% 7% 14% 6%
Mervyn's (4) 2 (4) 2
DSD 1 3 1 -
------ ---------- ------ ----------
Total Revenues 9% 6% 9% 5%
------ ---------- ------ ----------
------ ---------- ------ ----------
Excluding the $32 million gain related to the sale of securitized accounts
receivable, the comparable-stores percentage change for Target, Mervyn's and DSD
are 7%, 1% and 2%, and 6%, 1% and flat for the three- and nine-month periods,
respectively.
Target's strong revenue results reflect new-store and comparable-store sales
growth and increased credit revenues from the substantial growth of the Target
Guest Card. Mervyn's comparable-store revenue growth reflects continued focus
on merchandising and marketing initiatives. Mervyn's total revenue decrease
reflects previously announced store closings as part of its real estate
repositioning efforts. DSD's total revenue increased slightly despite fewer
stores. DSD's revenue results reflect continued improvement in merchandise
content and guest service.
7
<PAGE>
PRE-TAX SEGMENT PROFIT
Our pre-tax segment profit increased 16% to $387 million compared with $333
million for the same period a year ago. For the third consecutive quarter, all
three divisions contributed to the year-over-year improvement. Pre-tax segment
profit in the first nine months increased 28% to $1,089 million, compared with
$849 million in 1996.
Year-over-year pre-tax segment profit growth was as follows:
Three Months Nine Months
Percentage Change Percentage Change
----------------- -----------------
Target 16% 31%
Mervyn's 1 7
DSD 35 46
---- ----
Total Pre-tax Segment Profit 16% 28%
---- ----
---- ----
TARGET'S third quarter and nine-month profit increases of 16% and 31%,
respectively, over the same periods last year reflect strong total and
comparable-store sales growth. During the third quarter, the gross margin rate
increased slightly, while the operating expense rate was slightly unfavorable to
last year. During the nine-month period, the gross margin rate increased due
primarily to higher markup which was partially offset by higher markdowns. The
operating expense rate improved over last year, reflecting continued favorable
store productivity resulting from Target's expense reduction program. For 1997,
Target is on-track to realize $60 - $70 million in annualized cost savings
identified as part of its multi-year cost reduction program. For the fourth
quarter, we anticipate continued profitability growth, although not to the
degree experienced in the first nine months.
MERVYN'S profit for the third quarter and nine months increased 1% and 7%,
respectively, from comparable periods last year. The gross margin rate
increased during the third quarter due mainly to favorable markdowns. Mervyn's
operating expense rate for the third quarter and nine-month period was
unfavorable due to poor sales leveraging resulting from fewer stores. Mervyn's
year-to-date gross margin rate increased slightly from the comparable period
last year. In addition, increased credit profitability continues to benefit
Mervyn's overall performance. For the year, despite lost revenue and profit
associated with the closed stores, we continue to expect modest year-over-year
profit growth.
8
<PAGE>
DSD'S profit for the third quarter and nine months increased 35% and 46%,
respectively, from comparable periods last year. The gross margin rate for the
quarter increased due to favorable markdowns. The nine-month period gross
margin rate increased primarily due to favorable markup and markdowns. The
operating expense rate for the third quarter and year-to-date improved
substantially due to increased store productivity. For the fourth quarter,
DSD's substantial profit improvement is expected to continue.
OTHER PERFORMANCE FACTORS
Results of our credit operations are included in each division's third quarter
and year-to-date pre-tax profit. Net of all costs, including bad debt expense,
profitability from our credit business improved in the third quarter reflecting
year-over-year increases at all three segments. Substantial growth in the
Target Guest Card and our enhanced guest loyalty programs at each division
should continue to positively impact our segments' results going forward.
The last-in first-out (LIFO) provision, included in cost of retail sales, was
zero for both the third quarter and the nine-month period for 1997, compared
with a $5 million charge incurred in the third quarter and year-to-date last
year. The cumulative LIFO provision was $86 million at November 1, 1997 and
February 1, 1997, and $82 million at November 2, 1996.
Our results include reductions of finance charge revenues and bad debt
expense related to the sale of securitized accounts receivable of $7 and $20
million during the third quarter and first nine months of 1997, respectively,
compared to $6 million and $18 million for the comparable periods last year.
These amounts represent payments to holders of our sold accounts receivable
and are included in our pre-tax earnings reconciliation on page 6 as
"interest equivalent". Going forward, with the current cumulative amount of
sold receivables, the interest equivalent will approximate $12 million per
quarter. Analytically, as management views interest expense, we include the
interest equivalent discussed above.
Net interest expense, as reported in our Consolidated Results of Operations,
decreased $7 million in the third quarter and $13 million in the first nine
months compared with the same periods last year due to a favorable portfolio
rate and lower average debt balances. On a combined basis, net interest
expense and the interest equivalent is expected to show modest favorability
in the near term.
During the first half of 1997, we recorded a $13 million gain from our adoption
of SFAS No. 125 attributable to our 1995 sale of accounts receivable. In
addition, we recorded a gain of $32 million related to the sale of an additional
$400 million of securitized accounts receivable in third quarter 1997.
The effective income tax rate was 39.5%, the same as the prior year.
9
<PAGE>
ANALYSIS OF FINANCIAL CONDITION
Our financial condition remains strong. The ratio of debt to total
capitalization attributable to our retail operations was 53% at the end of third
quarter 1997, compared with 56% a year ago and 50% at year end. Due to the
seasonality of our business, quarterly comparisons will fluctuate, but we expect
our debt ratio to remain lower than last year for the balance of 1997.
At November 1, 1997, working capital was $1,096 million, 27% lower than a year
ago. Accounts receivable decreased $243 million from third quarter last year
and $382 million from year end, reflecting continued year-over-year receivables
growth due to the Target Guest Card, which was more than offset by our recently
completed securitization transaction. Inventory increased only 3%, or $116
million, over the same period last year as a result of new Target stores and
good controls at all three divisions. The growth in inventory has been more
than fully funded by the $163 million increase in accounts payable over the
comparable period.
Capital expenditures for the first nine months of 1997 were $983 million,
compared with $993 million for the same period a year ago. Approximately 84% of
the current year expenditures were made by Target, 6% by Mervyn's and 10% by
DSD. Proceeds of $114 million were generated from the disposal of property and
equipment, primarily from the sale of Mervyn's Florida and Georgia stores.
We continue to fund the growth in our business through a combination of net
changes in debt, the securitization of accounts receivable and retained
earnings. The net changes from a year ago were as follows.
Twelve months ended
(Millions of Dollars) November 1, 1997
-------------------
Long-term debt and notes payable $ (420)
Sale of securitized accounts receivable 400
Shareholders' investment 522
-------
Net change $ 502
-------
-------
STORE DATA
At November 1, 1997, Target operated 797 stores in 39 states, Mervyn's operated
273 stores in 14 states and DSD operated 65 stores in nine states. During the
quarter, we opened 28 net new Target stores, closed one Mervyn's store and
opened a DSD store while closing another.
Retail square footage was as follows:
(In thousands, reflects total
square feet, less office, NOVEMBER 1, February 1, November 2,
warehouse and vacant space) 1997 1997 1996
- --------------------------------------------------------------------------------
Target 86,865 79,360 79,090
Mervyn's 22,153 24,518 24,533
DSD 14,082 14,111 14,686
- --------------------------------------------------------------------------------
Total Retail Square Footage 123,100 117,989 118,309
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10
<PAGE>
FORWARD-LOOKING STATEMENTS
The preceding Management's Discussion and Analysis sections contain
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. As a result, 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, 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 99.1 attached to this Form
10-Q which contains additional important factors that may cause actual results
to differ materially from those predicted in the forward-looking statements.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
(2). Not applicable
(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.
(11). Statements re Computations of Per Share Earnings
(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
(99.1) Cautionary Statements Relating to Forward-Looking
Information
b) Reports on Form 8-K. Registrant did not file any reports on Form 8-K
during the quarter ended November 1, 1997.
12
<PAGE>
Signatures
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.
DAYTON HUDSON CORPORATION
Registrant
Date: December 12, 1997 By /s/ Douglas A. Scovanner
------------------------------
Douglas A. Scovanner
Senior Vice President and
Chief Financial Officer
Date: December 12, 1997 By /s/ J.A. Bogdan
------------------------------
JoAnn Bogdan
Controller and
Chief Accounting Officer
13
<PAGE>
Exhibit Index
- -------------
(11). Statements re Computations of Per Share Earnings
(12). Statements re Computations of Ratios
(27). Financial Data Schedule
(99.1) Cautionary Statements Relating to Forward-Looking Information
14
<PAGE>
EXHIBIT (11)
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF PER SHARE EARNINGS
(In Millions, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------- -------------------------------------
NOVEMBER 1, 1997 November 2, 1996 NOVEMBER 1, 1997 November 2, 1996
------------------- ------------------- ------------------- ------------------
EARNINGS SHARES Earnings Shares EARNINGS SHARES Earnings Shares
-------- ------ -------- ------ -------- ------ -------- ------
PRIMARY COMPUTATIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings before extraordinary charge............. $ 179 $ 116 $ 446 $ 259
Extraordinary charge, net of tax................. (19) (9) (51) (10)
------- ------- ------- -------
Net earnings..................................... $ 160 $ 107 $ 395 $ 249
------- ------- ------- -------
------- ------- ------- -------
Less: Dividend requirements on ESOP
preferred shares, net of tax benefit on
unallocated shares............................. (5) (5) (15) (15)
------- ------- ------- -------
Adjusted net earnings............................ $ 155 $ 102 $ 380 $ 234
------- ------- ------- -------
------- ------- ------- -------
Average common shares outstanding 218.3 216.8 217.8 216.5
Average number of common share equivalents:
Stock options.................................. 1.9 1.2 1.9 1.1
Performance shares............................. 0.6 0.8 0.7 0.8
----- ----- ----- -----
Adjusted common equivalent shares
outstanding-primary............................ 220.8 218.8 220.4 218.4
----- ----- ----- -----
----- ----- ----- -----
Primary earnings per share before extraordinary
charge.......................................... $ 0.80 $ 0.51 $ 1.96 $ 1.11
Extraordinary charge............................. (0.09) (0.04) (0.23) (0.04)
------- ------- ------- -------
PRIMARY EARNINGS PER SHARE $ 0.71 $ 0.47 $ 1.73 $ 1.07
------- ------- ------- -------
------- ------- ------- -------
FULLY DILUTED COMPUTATIONS
Earnings before extraordinary charge............. $ 179 $ 116 $ 446 $ 259
Extraordinary charge, net of tax................. (19) (9) (51) (10)
------- ------- ------- -------
Net earnings..................................... $ 160 $ 107 $ 395 $ 249
------- ------- ------- -------
------- ------- ------- -------
Less: Earnings impact of assumed ESOP
preferred share conversion, net of tax benefit
on unallocated shares.......................... (5) (3) (10) (10)
------- ------- ------- -------
Adjusted net earnings............................ $ 155 $ 104 $ 385 $ 239
------- ------- ------- -------
------- ------- ------- -------
Average common and common equivalent
shares-primary................................. 220.8 218.8 220.4 218.4
Additional common share equivalents attributable
to applications of the treasury stock method... 0.1 0.2 0.1 0.3
Assumed conversion of ESOP preferred shares...... 11.1 11.7 11.3 11.8
----- ----- ----- -----
Adjusted common equivalent shares
outstanding-fully diluted...................... 232.0 230.7 231.8 230.5
----- ----- ----- -----
----- ----- ----- -----
Fully diluted earnings per share
before extraordinary charge.................... $ 0.76 $ 0.49 $ 1.88 $ 1.08
Extraordinary charge............................. (0.08) (0.04) (0.22) (0.04)
------- ------- ------- -------
FULLY DILUTED EARNINGS PER SHARE $ 0.68 $ 0.45 $ 1.66 $ 1.04
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------------------------
NOVEMBER 1, 1997 November 2, 1996
------------------ -----------------
EARNINGS SHARES Earnings Shares
-------- ------ -------- ------
PRIMARY COMPUTATIONS
<S> <C> <C> <C> <C>
Earnings before extraordinary charge............. $ 661 $ 487
Extraordinary charge, net of tax................. (52) (10)
------- --------
Net earnings..................................... $ 609 $ 477
------- --------
------- --------
Less: Dividend requirements on ESOP
preferred shares, net of tax benefit on
unallocated shares............................. (20) (20)
------- --------
Adjusted net earnings............................ $ 589 $ 457
------- --------
------- --------
Average common shares outstanding 217.3 216.1
Average number of common share equivalents:
Stock options.................................. 1.8 0.9
Performance shares............................. 0.7 0.8
----- -----
Adjusted common equivalent shares
outstanding-primary............................ 219.8 217.8
----- -----
----- -----
Primary earnings per share before
extraordinary charge........................... $ 2.92 $ 2.14
Extraordinary charge............................. (0.24) (0.04)
------- --------
PRIMARY EARNINGS PER SHARE $ 2.68 $ 2.10
------- --------
------- --------
FULLY DILUTED COMPUTATIONS
Earnings before extraordinary charge............. $ 661 $ 487
Extraordinary charge, net of tax................. (52) (10)
------- --------
Net earnings..................................... $ 609 $ 477
------- --------
------- --------
Less: Earnings impact of assumed ESOP
preferred share conversion, net of tax benefit
on unallocated shares.......................... (13) (14)
------- --------
Adjusted net earnings............................ $ 596 $ 463
------- --------
------- --------
Average common and common equivalent
shares-primary................................. 219.8 217.8
Additional common share equivalents attributable
to applications of the treasury stock method... 0.1 0.2
Assumed conversion of ESOP preferred shares...... 11.5 12.0
----- -----
Adjusted common equivalent shares
outstanding-fully diluted...................... 231.4 230.0
----- -----
----- -----
Fully diluted earnings per share before
extraordinary charge........................... $ 2.80 $ 2.05
Extraordinary charge............................. (0.23) (0.04)
------- --------
FULLY DILUTED EARNINGS PER SHARE $ 2.57 $ 2.01
------- --------
------- --------
</TABLE>
<PAGE>
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 FOR THE
NINE MONTHS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996
AND FOR THE FIVE YEARS ENDED FEBRUARY 1, 1997
(Millions of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended
------------------ -----------------------------------------------
NOV. 1, Nov. 2, FEB. 1, Feb 3, Jan. 28, Jan. 29, Jan. 30,
1997 1996 1997 1996 1995 1994 1993
------- ------- ------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES:
Earnings:
Consolidated net earnings before extraordinary
charge . . . . . . . . . . . . . . . . . . . $ 446 $ 259 $ 474 $ 311 $ 434 $ 375 $ 383
Income taxes. . . . . . . . . . . . . . . . . . . 292 169 309 190 280 232 228
------- ------- ------- ------ -------- -------- --------
Total earnings before extraordinary charge . . 738 428 783 501 714 607 611
------- ------- ------- ------ -------- -------- --------
Fixed charges:
Interest expense. . . . . . . . . . . . . . . . . 335 351 464 461 439 459 454
Interest portion of rental expense. . . . . . . . 43 45 59 59 56 45 43
------- ------- ------- ------ -------- -------- --------
Total fixed charges. . . . . . . . . . . . . . 378 396 523 520 495 504 497
------- ------- ------- ------ -------- -------- --------
Less:
Capitalized interest. . . . . . . . . . . . . . . ( 12) ( 15) ( 16) ( 14) ( 7) ( 5) ( 6)
------- ------- ------- ------ -------- -------- --------
Fixed charges in earnings . . . . . . . . . . . 366 381 507 506 488 499 491
------- ------- ------- ------ -------- -------- --------
Earnings available for fixed charges . . . . . . . $ 1,104 $ 809 $ 1,290 $ 1,007 $ 1,202 $ 1,106 $ 1,102
------- ------- ------- ------ -------- -------- --------
------- ------- ------- ------ -------- -------- --------
Ratio of earnings before extraordinary charge
to fixed charges. . . . . . . . . . . . . . . 2.92 2.04 2.46 1.94 2.43 2.19 2.22
------- ------- ------- ------ -------- -------- --------
------- ------- ------- ------ -------- -------- --------
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS:
Total fixed charges, as above. . . . . . . . . . . $ 378 $ 396 $ 523 $ 520 $ 495 $ 504 $ 497
Dividends on preferred stock
(pre-tax basis) . . . . . . . . . . . . . . . . . 27 27 37 37 39 39 39
------- ------- ------- ------ -------- -------- --------
Total fixed charges and preferred
stock dividends. . . . . . . . . . . . . . . 405 423 560 557 534 543 536
------- ------- ------- ------ -------- -------- --------
Earnings available for fixed charges
and preferred stock dividends . . . . . . . . . . $ 1,104 $ 809 $1,290 $ 1,007 $ 1,202 $ 1,106 $ 1,102
------- ------- ------- ------ -------- -------- --------
------- ------- ------- ------ -------- -------- --------
Ratio of earnings before extraordinary charge to
fixed charges and preferred stock dividends . . 2.73 1.91 2.30 1.81 2.25 2.04 2.06
------- ------- ------- ------ -------- -------- --------
------- ------- ------- ------ -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DAYTON
HUDSON CORPORATION'S FORM 10Q FOR THE THIRD QUARTER ENDED NOVEMBER 1, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<CASH> 220
<SECURITIES> 0
<RECEIVABLES> 1,454
<ALLOWANCES> 116
<INVENTORY> 4,065
<CURRENT-ASSETS> 6,049
<PP&E> 11,231
<DEPRECIATION> 3,304
<TOTAL-ASSETS> 14,491
<CURRENT-LIABILITIES> 4,953
<BONDS> 4,270
34
0
<COMMON> 73
<OTHER-SE> 4,045
<TOTAL-LIABILITY-AND-EQUITY> 14,491
<SALES> 18,804
<TOTAL-REVENUES> 18,804
<CGS> 12,598
<TOTAL-COSTS> 12,598
<OTHER-EXPENSES> 5,055
<LOSS-PROVISION> 92
<INTEREST-EXPENSE> 321
<INCOME-PRETAX> 738
<INCOME-TAX> 292
<INCOME-CONTINUING> 446
<DISCONTINUED> 0
<EXTRAORDINARY> 51
<CHANGES> 0
<NET-INCOME> 395
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.66
</TABLE>
<PAGE>
EXHIBIT 99.1
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
<PAGE>
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, 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.
