<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
---------------
(MARK ONE)
<TABLE>
<S> <C>
/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
</TABLE>
FOR THE TRANSITION PERIOD FROM
--------- TO
---------
COMMISSION FILE NUMBER 1-6049
------------------------
DAYTON HUDSON CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: 612/370-6948
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------------- --------------------------------------
<S> <C>
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
</TABLE>
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
NAME TITLE AGE
- ---------------------------------------------- ---------------------------------------------- ---
<S> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<C> <S>
(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
</TABLE>
5
<PAGE>
<TABLE>
<C> <S>
(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
</TABLE>
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
<PAGE>
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.
<TABLE>
<S> <C> <C>
DAYTON HUDSON CORPORATION
By: /s/ DOUGLAS A. SCOVANNER
-----------------------------------------
Douglas A. Scovanner
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
Dated: April 15, 1998 OFFICER
</TABLE>
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.
<TABLE>
<S> <C>
/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
</TABLE>
<TABLE>
<S> <C> <C>
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
</TABLE>
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.
<TABLE>
<S> <C> <C>
By: /s/ DOUGLAS A. SCOVANNER
-----------------------------------------
Douglas A. Scovanner
Dated: April 15, 1998 ATTORNEY-IN-FACT
</TABLE>
7
<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
(Millions of Dollars)
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------
JAN. 31, Feb. 1, Feb. 3, Jan. 28, Jan. 29,
1998 1997 1996 1995 1994
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
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
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
<PAGE>
1997 Results
<TABLE>
<CAPTION>
Target Mervyn's Department Stores
---------------------- ------------------------------------ -------------------------------------
In millions 1997 1996 1995 In millions 1997 1996 1995 In millions 1997 1996 1995
- ----------- ------- ------- ------- ----------- ------- ------- ------- ----------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$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
</TABLE>
- ----------
*In thousands, reflects total square feet, less office, warehouse and vacant
space.
<TABLE>
<CAPTION>
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
------------- -------- -------------- ------- ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
MAJOR MARKETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
16
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Revenue Growth 1997 1996*
- -----------------------------------------------------------------------------
All Comp. All Comp.
Stores Stores Stores Stores
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Target 14% 6% 13% 6%
Mervyn's (3) 3 (3) (4)
DSD -- 1 (1) (4)
- -----------------------------------------------------------------------------
Total 9% 5% 8% 3%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Revenues Per Square Foot**
- -----------------------------------------------------------------------------
(Dollars) 1997 1996 1995*
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Target $244 $235 $230
Mervyn's 187 179 190
DSD 224 223 230
- -----------------------------------------------------------------------------
</TABLE>
- ----------
*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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
LIFO PROVISION: (EXPENSE)/CREDIT
- -----------------------------------------------------------------------------
(Millions of Dollars, except Per Share Data) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Target $ -- $ -- $ --
Mervyn's -- 5 (12)
DSD (6) (14) (5)
Total $ (6) $ (9) $ (17)
Per Share $ (.01) $(.01) $(.02)
- -----------------------------------------------------------------------------
</TABLE>
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
<PAGE>
- - 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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Credit Ratings
- -----------------------------------------------------------------------------
Standard Duff &
Moody's and Poor's Phelps
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Long-term Debt Baa1 BBB+ A-
Commercial Paper P-2 A-2 D-1-
Sold Securitized Receivables Aaa AAA N/A
- -----------------------------------------------------------------------------
</TABLE>
21
<PAGE>
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Debt Ratio* 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Retail 45% 50% 53%
Credit 88% 88% 88%
Total Debt Ratio 54% 57% 60%
- -----------------------------------------------------------------------------
</TABLE>
- ----------
*Includes the impact of off-balance sheet operating leases and sold securitized
receivables as if they were debt.
22
<PAGE>
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Credit Contribution
(Millions of Dollars) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
PRE-TAX SEGMENT PROFIT AS A PERCENT OF REVENUES
- -----------------------------------------------------------------------------
Target Mervyn's DSD
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------
</TABLE>
- ----------
*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
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Business Segment Comparisons
(Millions of Dollars) 1997 1996 1995* 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
*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
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED RESULTS OF OPERATIONS
(Millions of Dollars, Except Per Share Data) 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Fiscal Year Ended Weeks
- ---------------------------------------------------------------------------
<S> <C> <C>
1997 January 31, 1998 52
1996 February 1, 1997 52
1995 February 3, 1996 53
- ---------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Basic EPS Diluted EPS
- -----------------------------------------------------------------------------------------------------
(Millions, Except Per Share Data) 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------
</TABLE>
- ----------
*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
<TABLE>
<CAPTION>
Reconciliation of tax rates is as follows:
- -----------------------------------------------------------------------------
Percent of Earnings Before
Income Taxes 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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%
- -----------------------------------------------------------------------------
</TABLE>
The components of the provision for income taxes were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Income Tax Provision: Expense/(Benefit)
(Millions of Dollars) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------
</TABLE>
The components of the net deferred tax asset/(liability) were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Net Deferred Tax Asset/(Liability) January 31, February 1,
(Millions of Dollars) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
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
- -----------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- -----------------------------------------------------------------------------
January 31, February 1,
(Millions of Dollars) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
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
- -----------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements throughout pages 25--36
28
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Future Minimum Lease Payments Operating Capital
(Millions of Dollars) Leases Leases
- --------------------------------------------------------------------------
<S> <C> <C>
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**
- --------------------------------------------------------------------------
</TABLE>
- ----------
*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:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Long-term Debt
and Notes Payable January 31, 1998 February 1, 1997
(Millions of Dollars) Rate* Balance Rate* Balance
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------
</TABLE>
- ----------
*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
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Convertible Additional
Preferred Common Paid-in Retained Loan to
(Millions of Dollars, Except Share Data) Stock Stock Capital Earnings ESOP Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
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*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------
</TABLE>
*Represents unissued shares
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Options Outstanding (Shares in Thousands)
- ----------------------------------------------------------------
Shares Outstanding at January 31, 1998 Range of Exercise Price
- ----------------------------------------------------------------
<S> <C> <C>
593 $ 5.86 -- $10.00
7,626 $10.00 -- $15.00
6,248 $15.00 -- $34.60
- ----------------------------------------------------------------
Total 14,467 $ 5.86 -- $34.60
- ----------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
- --------------------------------------------------
Pro Forma Earnings 1997 1996 1995
- --------------------------------------------------
<S> <C> <C> <C>
Net Earnings -- as reported $751 $463 $311
Net Earnings -- pro forma $751 $462 $310
- --------------------------------------------------
</TABLE>
The Black-Scholes method was used to estimate the fair value of the options at
grant date based on the following factors:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ------------------------------------------------------------------------
</TABLE>
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
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Net Pension Expense
(Millions of Dollars) 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Actuarial Assumptions (As of December 31) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
December 31, December 31,
Funded Status 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------
</TABLE>
*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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Accumulated Postretirement
Benefit Obligation December 31, December 31,
(Millions of Dollars) 1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
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
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Net Periodic Cost 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during the period $ 1 $ 1 $ 1
Interest cost on accumulated benefits 5 5 5
- ------------------------------------------------------------------------
Total $ 6 $ 6 $ 6
- ------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
(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
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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
<PAGE>
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
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
(Millions of Dollars, Except Per Share Data) 1997 1996 1995(a) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 211
<SECURITIES> 0
<RECEIVABLES> 1,681
<ALLOWANCES> 126
<INVENTORY> 3,251
<CURRENT-ASSETS> 5,561
<PP&E> 11,513
<DEPRECIATION> 3,388
<TOTAL-ASSETS> 14,191
<CURRENT-LIABILITIES> 4,556
<BONDS> 4,425
30
0
<COMMON> 73
<OTHER-SE> 4,387
<TOTAL-LIABILITY-AND-EQUITY> 14,191
<SALES> 27,757
<TOTAL-REVENUES> 27,757
<CGS> 20,320
<TOTAL-COSTS> 20,320
<OTHER-EXPENSES> 5,552
<LOSS-PROVISION> 143
<INTEREST-EXPENSE> 416
<INCOME-PRETAX> 1,326
<INCOME-TAX> 524
<INCOME-CONTINUING> 802
<DISCONTINUED> 0
<EXTRAORDINARY> 51
<CHANGES> 0
<NET-INCOME> 751
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.59
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> FEB-03-1996 FEB-01-1997 FEB-01-1997 FEB-01-1997
FEB-01-1997
<PERIOD-START> JAN-29-1995 FEB-04-1996 FEB-04-1996 FEB-04-1996
FEB-04-1996
<PERIOD-END> FEB-03-1996 FEB-01-1997 MAY-04-1996 AUG-03-1996
NOV-02-1996
<CASH> 175 201 230 221
204
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 1,579 1,839 1,449 1,474
1,652
<ALLOWANCES> 69 119 66 62
70
<INVENTORY> 3,018 3,031 3,175 3,228
3,949
<CURRENT-ASSETS> 4,955 5,440 5,005 5,052
5,991
<PP&E> 10,224 10,469 10,389 10,401
10,572
<DEPRECIATION> 2,930 3,002 3,006 2,944
3,038
<TOTAL-ASSETS> 12,570 13,389 12,785 13,012
14,009
<CURRENT-LIABILITIES> 3,523 4,111 3,546 3,520
4,494
<BONDS> 4,959 4,808 5,125 5,297
5,235
347 50 51 54
51
0 0 0 0
0
<COMMON> 72 72 72 72
72
<OTHER-SE> 3,154 3,718 3,363 3,441
3,524
<TOTAL-LIABILITY-AND-EQUITY> 12,570 13,389 12,785 13,012
14,009
<SALES> 23,133 25,371 5,380 11,131
17,204
<TOTAL-REVENUES> 23,516 25,371 5,380 11,131
17,204
<CGS> 17,527 18,628 3,949 8,146
12,598
<TOTAL-COSTS> 17,527 18,628 3,949 8,146
12,598
<OTHER-EXPENSES> 4,942 5,394 1,234 2,502
3,790
<LOSS-PROVISION> 104 124 20 28
54
<INTEREST-EXPENSE> 442 442 109 220
334
<INCOME-PRETAX> 501 783 68 235
428
<INCOME-TAX> 190 309 27 93
169
<INCOME-CONTINUING> 311 474 41 142
259
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 11 0 0
10
<CHANGES> 0 0 0 0
0
<NET-INCOME> 311 463 41 142
249
<EPS-PRIMARY> 0.67 1.02 0.08 0.35
0.54
<EPS-DILUTED> 0.65 0.97 0.08 0.29
0.52
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998 JAN-31-1998
<PERIOD-START> FEB-02-1997 FEB-02-1997 FEB-02-1997
<PERIOD-END> MAY-03-1997 AUG-02-1997 NOV-01-1997
<CASH> 237 216 220
<SECURITIES> 0 0 0
<RECEIVABLES> 1,678 1,686 1,454
<ALLOWANCES> 131 135 116
<INVENTORY> 3,330 3,363 4,065
<CURRENT-ASSETS> 5,525 5,539 6,049
<PP&E> 10,593 10,920 11,231
<DEPRECIATION> 3,042 3,171 3,304
<TOTAL-ASSETS> 13,567 13,775 14,491
<CURRENT-LIABILITIES> 4,023 4,047 4,953
<BONDS> 5,000 5,072 4,270
44 34 34
0 0 0
<COMMON> 73 73 73
<OTHER-SE> 3,804 3,913 4,045
<TOTAL-LIABILITY-AND-EQUITY> 13,567 13,775 14,491
<SALES> 5,889 12,182 18,804
<TOTAL-REVENUES> 5,889 12,182 18,804
<CGS> 4,253 8,839 12,598
<TOTAL-COSTS> 4,253 8,839 12,598
<OTHER-EXPENSES> 1,285 2,623 5,055
<LOSS-PROVISION> 36 65 92
<INTEREST-EXPENSE> 107 214 321
<INCOME-PRETAX> 208 441 738
<INCOME-TAX> 82 174 292
<INCOME-CONTINUING> 126 267 446
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 21 32 51
<CHANGES> 0 0 0
<NET-INCOME> 105 235 395
<EPS-PRIMARY> 0.23 0.56 0.87
<EPS-DILUTED> 0.22 0.49 0.83
</TABLE>
<PAGE>
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
<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, 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.
