<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MAY 1, 1999
COMMISSION FILE NUMBER 1-6049
------------------------
DAYTON HUDSON CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MINNESOTA 41-0215170
(State of incorporation or organization) (I.R.S. Employer Identification No.)
777 NICOLLET MALL MINNEAPOLIS, MINNESOTA 55402-2055
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (612) 370-6948
------------------------
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
The registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past 90 days.
The number of shares outstanding of common stock as of May 1, 1999 was
442,096,020.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NO.
---------
<C> <S> <C>
PART I FINANCIAL INFORMATION:
ITEM 1--FINANCIAL STATEMENTS
Condensed Consolidated Results of Operations for the Three Months and Twelve Months ended
May 1, 1999 and May 2, 1998............................................................... 1
Condensed Consolidated Statements of Financial Position at May 1, 1999, January 30, 1999
and May 2, 1998........................................................................... 2
Condensed Consolidated Statements of Cash Flows for the Three Months ended May 1, 1999 and
May 2, 1998............................................................................... 3
Notes to Condensed Consolidated Financial Statements...................................... 4-5
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION.......... 6-10
PART II OTHER INFORMATION:
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................. 11
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K.................................................... 11-12
Signatures.................................................................................. 13
Exhibit Index............................................................................... 14
</TABLE>
<PAGE>
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
PART I. FINANCIAL INFORMATION
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
-------------------- --------------------
MAY 1, MAY 2, MAY 1, MAY 2,
1999 1998 1999 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................................................ $ 7,214 $ 6,468 $ 31,697 $ 28,336
COSTS AND EXPENSES:
Cost of retail sales, buying and occupancy............................ 5,240 4,727 23,147 20,794
Selling, publicity and administrative................................. 1,224 1,074 5,227 4,571
Depreciation and amortization......................................... 206 184 802 705
Interest expense...................................................... 94 96 396 408
Taxes other than income taxes......................................... 133 122 517 475
--------- --------- --------- ---------
Total Costs and Expenses.............................................. 6,897 6,203 30,089 26,953
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY CHARGES.................. 317 265 1,608 1,383
Provision for Income Taxes.............................................. 123 105 612 546
--------- --------- --------- ---------
NET EARNINGS BEFORE EXTRAORDINARY CHARGES............................... 194 160 996 837
Extraordinary Charges from Purchase and Redemption of Debt, Net of
Tax................................................................... -- 2 25 32
--------- --------- --------- ---------
NET EARNINGS............................................................ $ 194 $ 158 $ 971 $ 805
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC EARNINGS PER SHARE:
Earnings before extraordinary charges................................. $ .43 $ .36 $ 2.21 $ 1.87
Extraordinary charges................................................. -- (.01) (.05) (.08)
--------- --------- --------- ---------
BASIC EARNINGS PER SHARE................................................ $ .43 $ .35 $ 2.16 $ 1.79
--------- --------- --------- ---------
DILUTED EARNINGS PER SHARE:
Earnings before extraordinary charges................................. $ .41 $ .34 $ 2.11 $ 1.77
Extraordinary charges................................................. -- (.01) (.05) (.07)
--------- --------- --------- ---------
DILUTED EARNINGS PER SHARE.............................................. $ .41 $ .33 $ 2.06 $ 1.70
--------- --------- --------- ---------
--------- --------- --------- ---------
DIVIDENDS DECLARED PER COMMON SHARE..................................... $ .10 $ .09 $ .37 $ .34
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (MILLIONS):
Basic................................................................. 442.4 438.6 440.9 437.1
Diluted............................................................... 469.5 466.6 468.0 464.7
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
PART I. FINANCIAL INFORMATION
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
MAY 1, JANUARY 30, MAY 2
1999 1999* 1998*
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................... $ 246 $ 255 $ 249
Retained securitized receivables........................................ 1,360 1,656 1,351
Merchandise inventories................................................. 3,779 3,475 3,569
Other................................................................... 692 619 623
----------- ----------- -----------
Total Current Assets.................................................... 6,077 6,005 5,792
PROPERTY AND EQUIPMENT.................................................... 12,925 12,737 11,847
Accumulated depreciation................................................ (3,796) (3,768) (3,527)
----------- ----------- -----------
Property and Equipment, net............................................. 9,129 8,969 8,320
OTHER..................................................................... 780 692 608
----------- ----------- -----------
TOTAL ASSETS.............................................................. $ 15,986 $ 15,666 $ 14,720
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable........................................................ $ 2,917 $ 3,150 $ 2,723
Current portion of long-term debt and notes payable 199 256 538
Other................................................................... 1,345 1,651 1,347
----------- ----------- -----------
Total Current Liabilities............................................... 4,461 5,057 4,608
LONG-TERM DEBT............................................................ 5,216 4,452 4,760
DEFERRED INCOME TAXES AND OTHER........................................... 875 822 731
CONVERTIBLE PREFERRED STOCK, NET.......................................... 10 24 24
SHAREHOLDERS' INVESTMENT.................................................. 5,424 5,311 4,597
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT............................ $ 15,986 $ 15,666 $ 14,720
----------- ----------- -----------
----------- ----------- -----------
COMMON SHARES OUTSTANDING (Millions)...................................... 442.1 441.8 439.1
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------------
* The January 30, 1999 Consolidated Statement of Financial Position is
condensed from the audited financial statement.
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MAY 1, MAY 2,
1999 1998
----------- -----------
<S> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net earnings before extraordinary charges....................................................... $ 194 $ 160
Reconciliation to cash flow:
Depreciation and amortization................................................................. 206 184
Deferred tax provision........................................................................ 101 44
Other non-cash items affecting earnings....................................................... 40 11
Changes in operating accounts providing/(requiring) cash:
Retained securitized receivables............................................................ 296 250
Merchandise inventories..................................................................... (304) (291)
Other current assets........................................................................ (146) (126)
Other assets................................................................................ (86) 6
Accounts payable............................................................................ (233) (91)
Accrued liabilities......................................................................... (208) (118)
Income taxes payable........................................................................ (100) (102)
----- -----
Cash Flow Required by Operations................................................................ (240) (73)
----- -----
----- -----
INVESTING ACTIVITIES
Expenditures for property and equipment......................................................... (362) (378)
Proceeds from disposals of property and equipment............................................... 5 22
Acquisition of subsidiaries, net of cash received............................................... -- (100)
----- -----
Cash Flow Required by Investing Activities...................................................... (357) (456)
----- -----
Net Financing Requirements...................................................................... (597) (529)
----- -----
----- -----
FINANCING ACTIVITIES
Increase in notes payable, net.................................................................. 854 682
Reductions of long-term debt.................................................................... (148) (85)
Dividends paid.................................................................................. (49) (45)
Repurchase of stock............................................................................. (102) --
Other........................................................................................... 33 15
----- -----
Cash Flow Provided by Financing Activities...................................................... 588 567
----- -----
----- -----
Net (Decrease)/Increase in Cash and Cash Equivalents............................................ (9) 38
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................................ 255 211
----- -----
Cash and Cash Equivalents at End of Period...................................................... $ 246 $ 249
----- -----
----- -----
</TABLE>
Amounts in this statement are presented on a cash basis and therefore may
differ from those shown elsewhere in this 10-Q report.
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements should be read
in conjunction with the financial statement disclosures contained in our 1998
Annual Shareholders' Report throughout pages 25-36. As explained on page 36 of
the Annual Report, the same accounting policies are followed in preparing
quarterly financial data as are followed in preparing annual data. In the
opinion of management, all adjustments necessary for a fair presentation of
quarterly operating results are reflected herein and are of a normal, recurring
nature.
Due to the seasonal nature of the retail industry, quarterly earnings are
not necessarily indicative of the results that may be expected for the full
fiscal year.
START-UP EXPENSE
We adopted Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities" in first quarter 1999. The adoption will not impact total
year start-up expense; however, it did result in a shift of $16 million ($.02
per share) of start-up expense out of first quarter 1999 into the remaining
quarters.
PER SHARE DATA
References to earnings per share relate to diluted earnings per share.
<TABLE>
<CAPTION>
BASIC EPS DILUTED EPS
-------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS TWELVE MONTHS THREE MONTHS
ENDED ENDED ENDED
------------------------ ------------------------ ------------------------
<CAPTION>
MAY 1, MAY 2, MAY 1, MAY 2, MAY 1, MAY 2,
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net earnings*......................................... $ 194 $ 160 $ 996 $ 837 $ 194 $ 160
Less: ESOP net earnings adjustment.................... (5) (5) (19) (20) (1) (3)
----- ----- ----- ----- ----- -----
Adjusted net earnings*................................ $ 189 $ 155 $ 977 $ 817 $ 193 $ 157
----- ----- ----- ----- ----- -----
Weighted average common shares outstanding............ 442.4 438.6 440.9 437.1 442.4 438.6
Performance shares.................................. -- -- -- -- .3 1.0
Stock options....................................... -- -- -- -- 6.7 5.5
Assumed conversion of ESOP preferred shares......... -- -- -- -- 20.1 21.5
----- ----- ----- ----- ----- -----
Total common equivalent shares outstanding............ 442.4 438.6 440.9 437.1 469.5 466.6
----- ----- ----- ----- ----- -----
Earnings per share*................................... $ .43 $ .36 $ 2.21 $ 1.87 $ .41 $ .34
----- ----- ----- ----- ----- -----
<CAPTION>
<S> <C> <C>
TWELVE MONTHS
ENDED
------------------------
MAY 1, MAY 2,
1999 1998
----------- -----------
<S> <C> <C>
Net earnings*......................................... $ 996 $ 837
Less: ESOP net earnings adjustment.................... (6) (13)
----- -----
Adjusted net earnings*................................ $ 990 $ 824
----- -----
Weighted average common shares outstanding............ 440.9 437.1
Performance shares.................................. .6 1.2
Stock options....................................... 5.9 4.4
Assumed conversion of ESOP preferred shares......... 20.6 22.0
----- -----
Total common equivalent shares outstanding............ 468.0 464.7
----- -----
Earnings per share*................................... $ 2.11 $ 1.77
----- -----
</TABLE>
- ------------------------
* Before extraordinary charges
SHARE REPURCHASE PROGRAM
In January 1999, our Board of Directors authorized the repurchase of $1
billion of our common stock. We expect to complete our repurchase program over
the next two years. In first quarter 1999, we repurchased 1.6 million shares of
our common stock at an average cost of $68 per share. The shares were purchased
in open market transactions.
4
<PAGE>
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, we issued put options for 1.0 million shares in first quarter
1999, 250,000 of which settled subsequent to the end of the quarter. Holders of
these put options are entitled to sell shares of our common stock to us at
prices ranging from $67 to $69 per share, with exercise dates from June through
July 1999. As of May 1, 1999, all put options were outstanding. Premiums
received from the sale of the put options, which settled during the quarter,
totaled $3.9 million and were recorded in retained earnings.
SEGMENT DISCLOSURES (Millions of Dollars)
Revenues by segment were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
<S> <C> <C>
MAY 1, MAY 2,
1999 1998
--------- ---------
Target..................................................................... $ 5,488 $ 4,807
Mervyn's................................................................... 912 890
DSD........................................................................ 744 726
Corporate and other........................................................ 70 45
--------- ---------
Total revenues............................................................. $ 7,214 $ 6,468
--------- ---------
--------- ---------
</TABLE>
Pre-tax segment profit and reconciliation to pre-tax earnings were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
<S> <C> <C>
MAY 1, MAY 2,
1999 1998
----------- -----------
Target...................................................................... $ 370 $ 302
Mervyn's.................................................................... 45 43
DSD......................................................................... 48 41
----- -----
Total pre-tax segment profit................................................ 463 386
Securitization adjustment (interest equivalent)............................. (12) (12)
Interest expense............................................................ (94) (96)
Corporate and other......................................................... (40) (13)
----- -----
Earnings before income taxes and extraordinary charges...................... $ 317 $ 265
----- -----
----- -----
</TABLE>
The revenues and operating results of The Associated Merchandising
Corporation and Rivertown Trading Company acquired in February and April 1998,
respectively, were immaterial in first quarter 1999 and 1998 and are included
above in corporate and other.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1999
ANALYSIS OF OPERATIONS
First quarter 1999 net earnings were $194 million, or $.41 per share,
compared with $158 million, or $.33 per share, for the same period last year.
First quarter 1998 net earnings included an extraordinary charge, net of tax,
related to the early extinguishment of debt of $2 million ($.01 per share). All
three companies contributed to the improvement in first quarter 1999 earnings,
with strong increases at Target and DSD.
REVENUES AND COMPARABLE-STORE SALES
Total revenues for the quarter increased 11.5 percent to $7,214 million
compared with $6,468 million for the same period a year ago. Total
comparable-store sales (sales from stores open longer than one year) increased
7.0 percent. Year-over-year changes in revenues and comparable-store sales by
business segment were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
PERCENTAGE CHANGE
------------------------------
<S> <C> <C>
COMPARABLE- STORE
REVENUES SALES
----------- -----------------
Target................................................................................... 14.1% 8.2%
Mervyn's................................................................................. 2.5 3.5
DSD...................................................................................... 2.5 3.3
--
---
Total.................................................................................... 11.5% 7.0%
--
--
---
---
</TABLE>
PRE-TAX SEGMENT PROFIT
Pre-tax segment profit is first-in, first-out (FIFO) earnings from
operations before securitization effects, interest, corporate and other, and
unusual items. Our first quarter pre-tax segment profit increased 20 percent to
$463 million compared with $386 million for the same period a year ago.
Year-over-year pre-tax segment profit growth was as follows:
<TABLE>
<CAPTION>
THREE MONTHS
PERCENTAGE
CHANGE
-----------------
<S> <C>
Target............................................................................................. 23%
Mervyn's........................................................................................... 5
DSD................................................................................................ 17
--
Total pre-tax segment profit....................................................................... 20%
--
--
</TABLE>
TARGET'S first quarter pre-tax profit increased 23 percent to $370 million
compared with $302 million for the same period a year ago, reflecting
comparable-store sales growth of 8.2 percent. The 1999 results include a $14
million beneficial effect of a required accounting change for start-up expense.
Excluding the effect of the change for start-up expense, first quarter pre-tax
profit increased 18 percent. The gross margin rate improved due to favorable
markup and markdowns. The operating expense rate, which excludes start-up, was
unfavorable due to higher advertising costs, partially offset by strong sales
leveraging. For the remainder of 1999, we expect mid-single-digit
comparable-store sales growth at Target and a pre-tax profit margin rate
essentially even with that of 1998.
6
<PAGE>
MERVYN'S first quarter pre-tax profit increased 5 percent to $45 million
compared with $43 million for the same period a year ago, reflecting
comparable-store sales growth of 3.5 percent. The gross margin rate was
favorable due to higher markup, partially offset by higher markdowns. The
operating expense rate was unfavorable due to higher advertising costs. We
expect a low to mid-single-digit comparable-store sales increase in 1999 and
measurable improvement in our pre-tax profit margin rate.
DSD'S first quarter pre-tax profit increased 17 percent to $48 million
compared with $41 million for the same period a year ago, reflecting
comparable-store sales growth of 3.3 percent. The gross margin rate improved due
to favorable markdowns and shortage results. The operating expense rate was
essentially even with last year. We expect low single-digit comparable-store
sales growth at DSD in 1999 and a modest increase in our 1999 pre-tax profit
margin rate.
OTHER PERFORMANCE FACTORS
Our proprietary guest credit programs strategically support our core retail
operations and are an integral component of each business segment. Therefore,
credit contribution is reflected in each business segment's pre-tax profit. Net
of all expenses, including bad debt expense, pre-tax contribution from guest
credit for the first quarter increased over the prior year, principally due to
continued growth of the Target Guest Card. We expect to continue to grow guest
credit's contribution during 1999 by acquiring new accounts, enhancing guest
loyalty programs, controlling bad debt expense and leveraging operating
expenses.
The last-in, first-out (LIFO) provision, included in cost of retail sales,
was zero for both first quarter 1999 and 1998. The cumulative LIFO provision was
$60 million at May 1, 1999 and January 30, 1999, and $92 million at May 2, 1998.
"Interest equivalent", as shown in our pre-tax earnings reconciliation on
page 5, represents payments to holders of our sold securitized receivables and
is included in our Consolidated Results of Operations as a reduction of finance
charge revenues and bad debt expense. We expect interest equivalent of
approximately $12 million per quarter in 1999. For analytical purposes,
management includes the interest equivalent in interest expense.
Combined interest expense and interest equivalent was $106 million, a $2
million decrease in the first quarter compared to the same period last year, due
to a lower average portfolio interest rate. Combined interest expense and
interest equivalent in 1999 is expected to be similar to 1998, as we anticipate
the continuing benefit of a lower average portfolio interest rate, offset by
higher debt levels, for the remainder of the year.
The estimated annual effective income tax rate was 38.8 percent in first
quarter 1999 compared to 39.5 percent in first quarter 1998.
YEAR 2000 READINESS DISCLOSURE
We began mitigating the risks associated with the year 2000 date conversion
in 1993. In 1997, we established a corporate-wide, comprehensive plan of action
designed to achieve an uninterrupted transition into the year 2000. This project
includes three major elements: 1) information technology (IT) systems, 2)
non-IT, or embedded technology, systems and 3) relationships with our key
business partners. The project is divided into five phases: awareness,
assessment, renovation, validation and implementation. We have completed the
awareness and assessment phases and substantially completed the renovation phase
for all three elements, and have nearly completed the validation and
implementation phases. We are using both internal and external resources to
implement our plan.
For our IT systems, we have assessed both existing and newly implemented
hardware and applications (software and operating systems), and have finalized
the development of plans to address all assessed risks. Approximately 95 percent
of our hardware is year 2000 compliant, and the remainder is currently in the
7
<PAGE>
implementation phase. Approximately 95 percent of our applications are
compliant, with 5 percent in the validation and implementation phases. We
anticipate completion of the validation, or testing, phase for our software and
all key operating systems by mid 1999. Our year 2000 readiness in this area has
been significantly enhanced by our recent, substantial common systems
development initiatives through which we have invested heavily in IT over the
past three years.
We began addressing non-IT systems, or embedded technology/infrastructure,
risks at our stores, distribution centers and headquarters facilities early in
our initiative. Approximately 95 percent of our non-IT systems are compliant and
the remainder are currently in the renovation, validation and implementation
phases. We anticipate finishing the balance by mid 1999.
We have identified our key business partners and have been working closely
with them to assess their readiness and mitigate the risk to us if they are not
prepared for the year 2000. We have installed the year 2000 compliant version of
Electronic Data Interchange (EDI) software, have completed EDI testing with 75
percent of our key vendors, and are now exchanging data electronically with some
of these vendors using the new version of EDI. We expect to finalize testing of
EDI and other electronic transmissions with key business partners by mid/late
1999.
In planning for the most reasonably likely worst case scenarios, we have
addressed all three major elements in our project. We believe our IT systems
will be ready for the year 2000, but we may experience isolated incidences of
non-compliance. We plan to allocate internal resources and retain dedicated
consultants and vendor representatives to be ready to take action if these
events occur. Our contingency plans for non-IT systems are currently in process,
and we are simultaneously putting the required resources in place to carry out
those plans for key non-IT systems, such as those within our stores. We are
contacting many critical business partners to assess their readiness and will
finish developing appropriate contingency plans by mid 1999. Although we value
our established relationships with key vendors, substitute products for most of
the goods we sell in our stores may be obtained from other vendors. If certain
vendors are unable to deliver product on a timely basis, due to their own year
2000 issues, we anticipate there will be others who will be able to deliver
similar goods. However, the lead time involved in sourcing certain goods may
result in temporary shortages of relatively few items. We also recognize the
risks to us if other key suppliers in areas such as utilities, communications,
transportation, banking and government are not ready for the year 2000, and are
developing contingency plans to minimize the potential adverse impacts of these
risks.
In first quarter 1999, we expensed $7 million related to year 2000
readiness. Prior to 1999, we expensed $32 million related to year 2000
readiness. We estimate another $14 million will be expensed as incurred to
complete the year 2000 readiness program, with most of the spending occurring
over the next three months. In addition, this program has accelerated the timing
of approximately $15 million of planned capital expenditures. To date, we have
incurred $10 million of these planned capital expenditures. All expenditures
related to our year 2000 readiness initiative will be funded by cash flow from
operations and will not materially impact our other operating or investment
plans.
ANALYSIS OF FINANCIAL CONDITION
Our financial condition remains strong. We continue to fund the growth in
our business through a combination of retained earnings, debt and sold
securitized receivables. The ratio of debt to total capitalization attributable
to our retail operations was 45 percent at the end of first quarter 1999,
compared with 49 percent a year ago and 41 percent at year-end.
At May 1, 1999, working capital was $1,616 million, up 36 percent compared
with a year ago. Retained securitized receivables were essentially even with
last year. Merchandise inventories increased $210 million, or 6 percent, over
last year due to new store growth at Target and Mervyn's planned investment in
certain merchandise areas, designed to improve basic in-stock positions. The
inventory growth was nearly fully funded by a $194 million, or 7 percent,
increase in accounts payable.
8
<PAGE>
Capital expenditures for the first three months of 1999 were $362 million,
compared with $378 million for the same period a year ago; 86 percent of the
current year expenditures were made by Target, 5 percent by Mervyn's and 9
percent by DSD.
Our share repurchase program is described on page 5. The reduction in shares
outstanding and incremental interest expense related to the share repurchase
program had an insignificant impact on earnings per share.
STORE DATA
During the quarter, we opened eight net new Target stores. At May 1, 1999,
Target operated 859 stores in 41 states, Mervyn's operated 268 stores in 14
states and DSD operated 63 stores in eight states.
Retail square footage was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, REFLECTS TOTAL SQUARE FEET, LESS OFFICE, WAREHOUSE AND VACANT MAY 1, JANUARY 30, MAY 2,
SPACE) 1999 1999 1998
- ------------------------------------------------------------------------------- --------- ----------- ---------
<S> <C> <C> <C>
Target......................................................................... 95,812 94,553 88,795
Mervyn's....................................................................... 21,729 21,729 21,810
DSD............................................................................ 13,890 13,890 14,090
--------- ----------- ---------
Total retail square footage.................................................... 131,431 130,172 124,695
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
FORWARD-LOOKING STATEMENTS
The preceding Management's Discussion and Analysis contains forward-looking
statements regarding our performance, liquidity and the adequacy of our capital
resources. Those statements are based on our current assumptions and
expectations and are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. We caution that the
forward-looking statements are qualified by the risks and challenges posed by
increased competition, shifting consumer demand, changing consumer credit
markets 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 we believe that there is a reasonable basis for the forward-looking
statements, you should not place undue reliance on those statements. You are
encouraged to review Exhibit (99)C attached to our Form 10-K Report for the year
ended January 30, 1999, which contains additional important factors that may
cause actual results to differ materially from those predicted in the
forward-looking statements.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Company held its Annual Shareholders' Meeting on May 19, 1999.
b) (1). The shareholders voted for four director nominees for three-year
terms. The vote was as follows:
<TABLE>
<CAPTION>
NAME OF CANDIDATE FOR WITHHELD
- ------------------------------------------------------------------ ------------- ----------
<S> <C> <C>
Livio D. DeSimone................................................. 411,485,074 3,027,127
Roger A. Enrico................................................... 411,554,136 2,958,065
William W. George................................................. 411,609,814 2,902,387
James A. Johnson.................................................. 411,478,618 3,033,583
</TABLE>
There were no abstentions and no broker non-votes.
(2). The shareholders voted to approve the appointment of Ernst & Young LLP
as independent auditors of the Corporation for fiscal year 1999. The vote
was 412,448,911 for, 719,647 against and 1,343,643 abstentions. There
were no broker non-votes.
(3). The shareholders voted to approve the Long-Term Incentive Plan of 1999.
The vote was 334,433,319 for, 77,229,349 against and 2,849,533
abstentions. There were no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<C> <S>
(2). Not applicable
(4)A. First Amendment to Rights Agreement. Incorporated by reference to Exhibit 1
to Registrant's Form 8-A/A Registration Statement dated May 17, 1999. Rights
Agreement is incorporated by reference to Exhibit 1 to Registrant's Form 8-K
Report dated September 11, 1996.
(4)B. Instruments defining the rights of security holders, including indentures.
Registrant agrees to furnish the Commission on request copies of instruments
with respect to long-term debt.
(10). Dayton Hudson Corporation Long-Term Incentive Plan of 1999.
(11). Not applicable
(12). Statements re Computations of Ratios
(15). Not applicable
(18). Not applicable
(19). Not applicable
(22). Not applicable
(23). Not applicable
(24). Not applicable
(27). Financial Data Schedule
</TABLE>
- ------------------------
b) Reports on Form 8-K:
Form 8-K dated April 15, 1999 relating to the establishment of a Medium-Term
Note Program, Series I.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
DAYTON HUDSON CORPORATION
Registrant
By: /s/ DOUGLAS A. SCOVANNER
-----------------------------------------
Douglas A. Scovanner
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
Dated: June 11, 1999 OFFICER
By: /s/ J.A. BOGDAN
-----------------------------------------
JoAnn Bogdan
Date: June 11, 1999 CONTROLLER AND CHIEF ACCOUNTING OFFICER
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT INDEX
<TABLE>
<S> <C>
(10). Dayton Hudson Corporation Long-Term Incentive Plan of 1999
(12). Statements re Computations of Ratios
(27). Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DAYTON HUDSON CORPORATION
LONG-TERM INCENTIVE PLAN OF 1999
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.1 The name of this plan shall be "The Dayton Hudson Corporation
Long-Term Incentive Plan of 1999" (hereinafter called the "Plan").
1.2 The purpose of the Plan is to advance the interim performance and
long-term growth of the Company by offering long-term incentives, in addition to
current compensation and other benefits, to directors and employees of the
Company and its Subsidiaries and such other Participants who the Plan Committee
determines will contribute to such performance and growth inuring to the benefit
of the shareholders of the Company. This Plan is also intended to facilitate
recruiting and retaining personnel of outstanding ability. Such long-term
incentives may take the form of Stock Options, Performance Shares, Restricted
Stock Awards or any combination of such Awards.
ARTICLE II
DEFINITIONS
2.1 AWARD. An "Award" is used at times in the Plan to refer to the act
of granting a Stock Option, Performance Share or Restricted Stock Award under
the Plan.
2.2 BOARD. "Board" is the Board of Directors of the Company.
2.3 CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred if:
(a) a majority of the directors of the Company shall be persons other
than persons
(i) for whose election proxies shall have been solicited by the
Board or
(ii) who are then serving as directors appointed by the Board to
fill vacancies on the Board caused by death or resignation
(but not by removal) or to fill newly-created
directorships,
(b) 30% or more of the outstanding Voting Stock (as defined in Article
IV of the Restated Articles of Incorporation, as amended, of the
Company) of the Company is acquired or beneficially owned (as
defined in Article IV of the Restated Articles of Incorporation,
as amended, of the Company) by any person (as defined in Article
IV of the Restated Articles of Incorporation, as amended, of the
Company), or
<PAGE>
(c) the shareholders of the Company approve a definitive agreement or
plan to:
(i) merge or consolidate the Company with or into another
corporation (other than (1) a merger or consolidation with
a Subsidiary of the Company or (2) a merger in which the
Company is the surviving corporation and either (A) no
outstanding Voting Stock of the Company (other than
fractional shares) held by shareholders immediately prior
to the merger is converted into cash (except cash upon the
exercise by holders of Voting Stock of the Company of
statutory dissenters' rights), securities, or other
property or (B) all holders of outstanding Voting Stock of
the Company (other than fractional shares) immediately
prior to the merger (except those that exercise statutory
dissenters' rights) have substantially the same
proportionate ownership of the Voting Stock of the Company
or its parent corporation immediately after the merger),
(ii) exchange, pursuant to a statutory exchange of shares of
Voting Stock of the Company held by shareholders of the
Company immediately prior to the exchange, shares of one or
more classes or series of Voting Stock of the Company for
shares of another corporation or other securities, cash or
other property,
(iii) sell or otherwise dispose of all or substantially all of
the assets of the Company (in one transaction or a series
of transactions) or
(iv) liquidate or dissolve the Company.
2.4 CODE. "Code" is the Internal Revenue Code of 1986, as amended, and
rules and regulations thereunder, as now in force or as hereafter amended.
2.5 COMPANY. "Company" is Dayton Hudson Corporation, a Minnesota
corporation, and any successor thereof.
2.6 COMMON STOCK. "Common Stock" is the common stock, $.1667 par value
per share (as such par value may be adjusted from time to time) of the Company.
2.7 DATE OF GRANT. "Date of Grant" shall be the date designated in the
resolution by the Plan Committee as the date of such Stock Options or
Performance Shares or Restricted Stock Awards, but such date shall not be
earlier than the date of the resolution and action thereon by the Plan
Committee, or earlier than the effective date of the Plan, and in the absence of
a date of grant or a fixed method of computing such date being specifically set
forth in the Plan Committee's resolution, then the Date of Grant shall be the
date of such Plan Committee's resolution or action.
2.8 EXCHANGE ACT. "Exchange Act" is the Securities Exchange Act of
1934, as amended, and rules and regulations thereunder, as now in force or as
hereafter amended.
-2-
<PAGE>
2.9 FAIR MARKET VALUE. "Fair Market Value" of a share of Common Stock
on any date is the Volume Weighted Average Price for such stock as reported for
such stock by Bloomberg L.P. on such date, or in the absence of such report the
Volume Weighted Average Price for such stock as reported for such stock by the
New York Stock Exchange on such date or, if no sale has been recorded by
Bloomberg L.P. or the New York Stock Exchange on such date, then on the last
preceding date on which any such sale shall have been made in the order of
primacy indicated above.
2.10 HOLDER. A "Holder" is a person who has been granted a Restricted
Stock Award.
2.11 INCENTIVE STOCK OPTIONS. "Incentive Stock Options" are Stock
Options that are intended to qualify under Section 422 of the Code.
2.12 NON-QUALIFIED OPTIONS. "Non-Qualified Options" are Stock Options
that are not intended to qualify under Section 422 of the Code.
2.13 PARTICIPANT. A "Participant" is a person designated as such by the
Plan Committee, pursuant to Article III hereof, for participation in the Plan.
2.14 PERFORMANCE GOALS. "Performance Goals" are defined in Section 4.1
hereof.
2.15 PERFORMANCE PERIOD. "Performance Period", with respect to a
Performance Share, is a period of not less than three consecutive fiscal years
of the Company, beginning with the fiscal year in which such Performance Share
is granted and may be referred to herein and by the Plan Committee by use of the
calendar year in which a particular Performance Period commences.
2.16 PERFORMANCE SHARE. A "Performance Share" is a potential award
consisting of a right to one share of Common Stock (subject to increase as
provided in Section 4.2 hereof) or a lesser number of shares and the cash
payment set forth in Section 5.2 hereof. A Performance Share shall be of no
value to a Participant unless and until earned in accordance with Article V
hereof.
2.17 PLAN COMMITTEE. The "Plan Committee" is the Committee referenced
in Article IX hereof.
2.18 PLAN YEAR. The "Plan Year" shall be a fiscal year of the Company
falling within the term of this Plan.
2.19 RESTRICTED STOCK AWARD. A "Restricted Stock Award" is an Award
granted under Article VII of this Plan.
2.20 STOCK OPTION. A "Stock Option" is a right accruing in a
Participant to purchase from the Company one share of Common Stock at the Fair
Market Value of such share of Common Stock on the Date of Grant of the Stock
Option, such exercise of option to be made any time within ten years following
the Date of Grant, and containing the terms and conditions set forth or allowed
-3-
<PAGE>
under Article VI hereof. Stock Options may be either Non-Qualified Options or
Incentive Stock Options.
2.21 SUBSIDIARY CORPORATION. For purposes of this Plan, the term
"Subsidiary" or "Subsidiary Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, in
which each of the corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain as
determined at the point in time when reference is made to such "Subsidiary" or
"Subsidiary Corporation" in this Plan.
ARTICLE III
GRANTING OF STOCK OPTIONS, PERFORMANCE SHARES
AND RESTRICTED STOCK AWARDS TO PARTICIPANTS
3.1 ELIGIBLE PARTICIPANTS. Stock Options, Restricted Stock Awards or
Performance Shares may be granted by the Plan Committee to any employee of the
Company or a Subsidiary Corporation, including any employee who is also a
director of the Company or a Subsidiary Corporation. Non-Qualified Options,
Performance Shares or Restricted Stock Awards may also be granted to (i) a
director of the Company who is not an employee of the Company or a Subsidiary
Corporation and (ii) other individuals or entities who are not employees but who
provide services to the Company or a Subsidiary Corporation in the capacity of
an advisor or consultant. References in this Plan to "employment" and similar
terms (except "employee") shall include the providing of services in the
capacity of a director, advisor or consultant. A person who has been engaged by
the Company for employment shall be eligible for grants under the Plan, provided
such person actually reports for and commences such employment within 90 days
after the Date of Grant.
3.2 DESIGNATION OF PARTICIPANTS. At any time and from time to time
during the Plan Year, the Plan Committee may designate the employees of the
Company and its Subsidiaries and other Participants eligible for Awards.
3.3 ALLOCATION OF STOCK OPTIONS, PERFORMANCE SHARES OR RESTRICTED STOCK
AWARDS. Contemporaneously with the designation of a Participant pursuant to
Section 3.2 hereof, the Plan Committee shall determine the number of Stock
Options and/or Restricted Stock Awards and/or Performance Shares to be granted
to such Participant and the Date of Grant for such related Stock Option or
Performance Share or Restricted Stock Award, taking into consideration such
factors as it deems relevant, which may include the following:
(a) the total number of Stock Options and/or Restricted Stock Awards
and/or Performance Shares available for allocation to all
Participants; and
(b) the work assignment or the position of the Participant and its
sensitivity and/or impact in relationship to the profitability and
growth of the Company and its Subsidiaries; and
-4-
<PAGE>
(c) the Participant's performance in reference to such factors.
Allocation of Awards may, in the discretion of the Plan Committee, be in the
form of Stock Options solely or Performance Shares solely, or Restricted Stock
Awards solely, or any combination in whatever relationship one to the other, if
any, as the Plan Committee in its discretion so determines. Allocation of Stock
Options may, in the discretion of the Plan Committee, be in the form of
Incentive Stock Options solely or Non-Qualified Options solely or a combination
in whatever relationship to the other, if any, as the Plan Committee in its
discretion so determines.
3.4 NOTIFICATION TO PARTICIPANTS AND DELIVERY OF DOCUMENTS. As soon as
practicable after such determinations have been made, each Participant, shall be
notified of (i) his/her designation as a Participant, (ii) the Date of Grant,
and (iii) the number of Stock Options, and/or Restricted Stock Awards and/or the
number of Performance Shares granted to the Participant, and in the case of
Performance Shares, the Performance Period and in the case of Restricted Stock
Awards, the Restriction Period. The Participant shall thereafter be supplied
with written evidence of any such granted Performance Shares and/or Restricted
Stock Awards, and shall receive a Stock Option exercisable for purchase of one
share of Common Stock for each Stock Option granted to the Participant pursuant
to this Plan or indicating the aggregate of such grant, which option
agreement(s) shall be in conformity with the provisions of Article VI hereof.
ARTICLE IV
PERFORMANCE GOALS
4.1 ESTABLISHMENT OF GOALS. Within a reasonable period of time after
the beginning of each Performance Period, Performance Goals relative to such
Performance Period shall be established by the Plan Committee in its absolute
discretion. Such Performance Goals may include any of the following criteria:
PTOC, EVA, amount or rate of growth in consolidated profits of the Company
expressed as a percent, earnings per share, return on capital, return on
investment, and return on shareholders' equity. Performance Goals may be
absolute in their terms or be measured against or in relationship to other
companies comparably, similarly or otherwise situated. The Plan Committee, in
its sole discretion, may modify the Performance Goals if it determines that
circumstances have changed and modification is required to reflect the original
intent of the Performance Goals. The Plan Committee may in its discretion
classify Participants into as many groups as it determines, and as to any
Participant relate his/her Performance Goals partially, or entirely, to the
measured performance, either absolutely or relatively, of an identified
Subsidiary, operating company or test strategy or new venture of the Company.
4.2 LEVELS OF PERFORMANCE REQUIRED TO EARN PERFORMANCE SHARES. At or
about the same time that Performance Goals are established for a specific
period, the Plan Committee shall in its absolute discretion establish the
percentage (not to exceed 150% thereof) of the Performance Shares granted for
such Performance Period which shall be earned by the Participant for various
levels of performance measured in relation to achievement of Performance Goals
for such Performance Period.
-5-
<PAGE>
4.3 OTHER RESTRICTIONS. The Plan Committee may provide restrictions on
the delivery of Common Stock upon the earning of Performance Shares, including
the future forfeiture of all or part of the Common Stock earned. The Plan
Committee may provide that the shares of Common Stock issued on Performance
Shares Earned be held in escrow and/or legended.
4.4 NOTIFICATION TO PARTICIPANTS. Promptly after the Plan Committee has
established Performance Goals for a specific Performance Period or modified such
goals, each Participant who has received a grant of any Performance Shares for
that period shall be provided with written evidence of the Performance Goals so
established or modified.
ARTICLE V
EARNING OF PERFORMANCE SHARES
5.1 MEASUREMENT OF PERFORMANCE AGAINST PERFORMANCE GOALS. The Plan
Committee shall as soon as practicable after the close of each Performance
Period, make a determination of:
(a) the extent to which the Performance Goals for such Performance
Period have been achieved;
(b) the percentage of the Performance Shares granted for such
Performance Period which are earned for such Performance Period by
Participants who have been from his/her date of hire in the
continuous employ of the Company or Subsidiary or a combination
thereof, during the subject Performance Period; and
(c) the percentage of Performance Shares to be paid in cash, if any.
The percentage paid in cash shall be uniform for all Participants
in a particular Performance Period.
These determinations shall be absolute and final as to the facts and conclusions
therein made and be binding on all parties. Promptly after the Plan Committee
has made the foregoing determination, each Participant who has earned
Performance Shares based thereon shall be notified, in writing, of the number of
Performance Shares so earned. For all purposes of this Plan, notice shall be
deemed to have been given the date action is taken by the Plan Committee making
the determination.
5.2 TREATMENT OF PERFORMANCE SHARES EARNED. Upon the determination that
a percentage of the Performance Shares has been earned for a Performance Period,
a Participant to whom such earned Performance Shares have been granted and who
has been (or was) in the employ of the Company or a Subsidiary thereof
continuously from the date of his/her hire during the subject Performance Period
to which the grant relates, subject to the exceptions set forth at Section 5.5
and Section 5.6 hereof, shall be entitled, subject to the other conditions of
this Plan, to receive the shares of Common Stock for each Performance Share
earned (less the shares paid in cash), plus a cash payment in the amount of the
Fair Market Value of the shares of Common Stock to be paid in cash as determined
in Section 5.1(c) hereof, calculated as of the close of business on the date of
the notice referred to in Section 5.1 hereof. The provisions of Section 5.5 to
the contrary notwithstanding, the Plan Committee may provide that the issued
shares of Common Stock be held
-6-
<PAGE>
in escrow and/or be legended and that the Common Stock be subject to
restrictions, including the future forfeiture of all or a part of the shares.
Performance Shares shall under no circumstances become earned or have any value
whatsoever for any Participant who is not in the employ of the Company or its
Subsidiaries continuously during the entire Performance Period for which such
Performance Shares are granted, except as provided at Section 5.5 or Section 5.6
hereof.
5.3 STOCK-CASH DISTRIBUTION. Each distribution determined in accordance
with Section 5.2 above shall be made as soon as practicable after Performance
Shares have been determined to have been earned unless the provisions of Section
5.4(a) hereof are applicable to a Participant.
5.4(a) DEFERRAL OF RECEIPT OF PERFORMANCE SHARE EARNOUT. A Participant
who has received a grant of Performance Shares may by compliance with the then
applicable procedures under the Plan irrevocably elect in writing to defer
receipt of all or any part of the stock-cash distribution associated with the
earnout, if any, of the Performance Shares (the combination thereof hereafter
referred to as the "deferred account"). The deferral shall be effective until
the Participant terminates his/her employment with the Company and its
Subsidiaries except as otherwise provided herein.
The terms and conditions of such deferral, including but not limited to,
the period of time for, and form of, election; the manner and method of payout;
the form in which the deferred account shall be held; the interest equivalent or
other payment that shall accrue upon the deferred account pending its payout;
and the use and form of dividend equivalents in respect of stock units included
within any deferred account, shall be as determined from time to time by the
Plan Committee, which Plan Committee may change any and all of the terms and
conditions at any time applicable to deferrals thereafter made.
5.4(b) AMENDMENT OF DEFERRAL ARRANGEMENTS. The Plan Committee may, at
any time and from time to time, but prospectively only except as hereinafter
provided, amend, modify, change, suspend or cancel any and all of the rights,
procedures, mechanics and timing parameters relating to the deferral of receipt
of Performance Share earnout under the Plan as set forth at Section 5.4(a)
hereof. In addition, the Plan Committee may, in its sole discretion, accelerate
the payout of the deferred account, or any portion thereof, either in a lump sum
or in a series of payments, but under the following conditions only:
(i) the Federal tax statutes, regulations or interpretations are
amended, modified, or otherwise changed or affected in such a
manner as to adversely alter or modify the tax effect of the
"deferred account" as it is comprehended under the tax law and
interpretations in effect for deferred accounts as of the
effective date of this Plan, or
(ii) the deferred account holder suffers or incurs an event that would
qualify for a "withdrawal" of contributions that have not been
accumulated for two years without adverse consequences on the tax
status of a qualified profit-sharing or stock bonus plan under the
Federal tax laws applicable from time to time to such types of
plans.
5.5 NON-DISQUALIFYING TERMINATION OF EMPLOYMENT. Except for Section 5.6
hereof, the only exceptions to the requirement of continuous employment during a
Performance Period for
-7-
<PAGE>
Performance Share earnout eligibility are termination of a Participant's
employment by reason of death (in which event the Performance Shares may be
transferable by will or the laws of descent and distribution only to such
Participant's beneficiary designated to receive the Performance Shares or to the
Participant's applicable legal representatives, heirs or legatees), total and
permanent disability, normal or late retirement or early retirement, with the
consent of the Plan Committee, or transfer of an executive in a spin-off, with
the consent of the Plan Committee, occurring during the Performance Period
applicable to the subject Performance share grant. In such instance an earnout
of the Performance Shares shall be made, as of the end of the Performance
Period, and 100% of the total Performance Shares that would have been earned
during the Performance Period shall be earned and paid out; provided, however,
in a spin-off situation the Plan Committee may set additional conditions, such
as, without limiting the generality of the foregoing, continuous employment with
the spin-off entity. If a Participant's termination of employment does not meet
the criteria set forth above, but the Participant had at least 15 years of
continuous employment with the Company or a Subsidiary or any combination
thereof, provided that if the person is not an Executive Officer (as defined
under the Exchange Act) of the Company at time of termination such 15 years need
not be continuous, the Plan Committee may allow earn-outs of up to 100% of the
total Performance Shares for the Performance Period(s) in which the termination
of employment occurred, subject to any conditions that the Plan Committee shall
determine.
5.6 CHANGE IN CONTROL. In the event of a Change in Control, all
outstanding Performance Shares granted under the Plan shall be proratably
payable ten days after the Change in Control. The amount of Performance Shares
payable shall be determined by multiplying 100% of each Performance Share grant
by a fraction, the numerator of which shall be the number of months that have
elapsed in the applicable Performance Period and the denominator of which shall
be the total number of months in the Performance Period.
ARTICLE VI
STOCK OPTIONS
6.1 NON-QUALIFIED OPTION. Non-Qualified Options granted under the Plan
are not intended to be Incentive Stock Options under the provisions of Section
422 of the Code. The Non-Qualified Options shall be evidenced by Non-Qualified
Option agreements in such form and not inconsistent with the Plan as the Plan
Committee shall in its sole discretion approve from time to time, which
agreements shall specify the number of shares to which they pertain and the
purchase price of such shares and shall, but without limitation, contain in
substance the following terms and conditions:
(a) OPTION PERIOD. Each option granted shall expire and all rights to
purchase shares thereunder shall cease ten years after the Date of
Grant of the Stock Option or on such date prior thereto as may be
fixed by the Plan Committee, or on such other date as is provided
by this Plan in the event of termination of employment, death or
reorganization. No option shall permit the purchase of any shares
thereunder during the first year after the Date of Grant of such
option, except as provided in Section 6.3 hereof or as otherwise
determined by the Plan Committee.
-8-
<PAGE>
(b) TRANSFERABILITY AND TERMINATION OF OPTIONS. During the lifetime
of an individual to whom an option is granted, the option may be
exercised only by such individual and only while such individual
is an employee of the Company or a Subsidiary and only if the
Participant has been continuously so employed by any one or
combination thereof since the Date of Grant of the option,
provided, however, that if the employment of such Participant by
the Company or a Subsidiary Corporation terminates, the option may
additionally be exercised as follows, or in any other manner
provided by the Plan Committee, but in no event later than ten
years after the Date of Grant of the Stock Option, except as set
forth in (ii) below:
(i) if a Participant's termination of employment occurs by
reason of normal or late retirement under any retirement
plan of the Company or its Subsidiaries, such Participant's
Stock Options may be exercised within five years after the
date of such termination of employment. If a Participant's
termination of employment occurs by reason of early
retirement under any retirement plan of the Company or its
Subsidiaries, or by reason of the transfer of a Participant
in a spin-off, or by reason of total and permanent
disability, as determined by the Plan Committee, without
retirement, then such Participant's Stock Options shall be
exercisable for a period of up to five years after the date
of such termination of employment if the Plan Committee
consents to such an extension. During the extension
period, the right to exercise options, if any, accruing in
installments, shall continue; provided, however, that the
Plan Committee may set additional conditions, such as,
without limiting the generality of the foregoing, an
agreement to not provide services to a competitor of the
Company and its Subsidiaries and/or continuous employment
with a spin-off entity.
(ii) if a Participant's termination of employment occurs by
reason of death, then within five years after the date of
death or the life of the option, whichever is less, but in
no event less than one year after the date of death, during
which time installments shall continue to accrue.
(iii) if a Participant's termination of employment occurs for any
reason other than as specified in Section 6.1(b)(i) or (ii)
hereof, the Participant has been continuously employed by
the Company or a Subsidiary or any combination for more
than 15 years, provided that if the person is not an
Executive Officer (as defined under the Exchange Act) of
the Company at the time of termination such 15 years need
not be continuous, and if the Plan Committee so approves,
then within a period of up to five years after the date of
termination of employment. During the extension period,
the right to exercise options, if any, accruing in
installments shall continue; provided, however, the Plan
Committee may set additional conditions.
(iv) if a Participant's termination of employment occurs for any
reason other than as specified in Section 6.1(b)(i) or (ii)
hereof, the Plan Committee has not
-9-
<PAGE>
approved an extension and Participant's termination of
employment is not occasioned by the commission of a
dishonest or other illegal act, then, but only with respect
to installments that have as of the date of termination
already accrued, within ninety days after the date of such
termination of employment except in the case of
Participants who would at the time be subject to the
provisions of Section 16(b) of the Exchange Act, in which
instance the period of exercise shall be two hundred ten
days after termination. Those Participants terminated
because of the commission of a dishonest or other illegal
act shall have no additional period after termination of
employment in which to exercise their options. Absence on
a leave of absence approved by the Plan Committee shall not
be deemed a termination or interruption of continuous
employment for the purposes of the Plan.
(v) Rights accruing to a Participant under Sections 6.1(b)(i),
6.1(b)(iii) and 6.1(b)(iv) may, upon the death of a
Participant subsequent to his/her termination of
employment, be exercised by his/her duly designated
beneficiary or otherwise by his/her applicable legal
representatives, heirs or legatees to the extent vested in
and unexercised or perfected by the Participant at the date
of his/her death.
No option shall be assignable or transferable by the individual to
whom it is granted, except that it may be transferable (X) by
assignment by the Participant to the extent provided in the
applicable option agreement, or (Y) by will or the laws of descent
and distribution in accordance with the provisions of this Plan.
An option transferred after the death of the Participant to whom
it is granted may only be exercised by such individual's
beneficiary designated to exercise the option or otherwise by
his/her applicable legal representatives, heirs or legatees, and
only within the specific time period set forth above and only to
the extent vested in and unexercised by the Participant at the
date of his/her death, except as provided in Section 6.1(b)(ii).
In no event, whether by the Participant directly or by his/her
proper assignee or beneficiary or other representative, shall any
option be exercisable at any time after its expiration date as
stated in the option agreement, except as provided in Section
6.1(b)(ii). When an option is no longer exercisable it shall be
deemed for all purposes and without further act to have lapsed and
terminated. The Plan Committee may in its sole discretion, but
shall not be required to, determine, solely for the purposes of
the Plan, that a Participant is permanently and totally disabled,
and the acts and decisions of the Plan Committee made in good
faith in relation to any such determination shall be conclusive
upon all persons and interests affected thereby.
(c) EXERCISE OF OPTIONS. An individual entitled to exercise an option
may, subject to its terms and conditions and the terms and
conditions of the Plan, exercise it in whole
-10-
<PAGE>
at any time, or in part from time to time, by delivery to the
Company at its principal office of written notice of exercise,
specifying the number of whole shares with respect to which the
option is being exercised. Before shares may be issued, payment
must be made in full, in legal United States tender, in the amount
of the purchase price of the shares to be purchased at the time
and any amounts for withholding as provided in Section 11.9
hereof; provided, however, in lieu of paying for the exercise
price in cash as described above, the individual may pay (subject
to such conditions and procedures as the Plan Committee may
establish) all or part of such exercise price by delivering or
tendering owned and unencumbered shares of Common Stock acceptable
to the Plan Committee and having a Fair Market Value on the date
of exercise of the option equal to or less than the exercise price
of the options exercised, with cash, as set forth above, for the
remainder, if any, of the purchase price; provided, further, that
the Plan Committee may permit a Participant to elect to pay the
exercise price by authorizing a third party to sell shares of
Common Stock (or a sufficient portion of the shares) acquired upon
exercise of the option and remit to the Company a sufficient
portion of the sale proceeds to pay the entire exercise price and
any tax withholding resulting from such exercise. Subject to
rules established by the Plan Committee, the withholdings required
by Section 11.9 hereof may be satisfied by the Company withholding
shares of Common Stock issued on exercise that have a Fair Market
Value on the date of exercise of the option equal to or less than
the withholding required by Section 11.9 hereof.
6.2 INCENTIVE STOCK OPTION. Incentive Stock Options granted under the
Plan are intended to be incentive stock options under Section 422 of the Code,
and the Plan shall be administered, except with respect to the right to exercise
options after termination of employment, to qualify Incentive Stock Options
issued hereunder as incentive stock options under Section 422 of the Code. An
Incentive Stock Option shall not be granted to an employee who owns, or is
deemed under Section 424(d) of the Code to own, stock of the Company (or of any
parent or Subsidiary of the Company) possessing more than 10% of the total
combined voting power of all classes of stock therein. The aggregate Fair
Market Value (determined as of the time the option is granted) of the stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Participant during any calendar year (under all incentive stock option plans
of the Company or any parent or Subsidiary of the Company) shall not exceed
$100,000. The Incentive Stock Options shall be evidenced by Incentive Stock
Option Agreements in such form and not inconsistent with the Plan as the Plan
Committee shall in its sole discretion approve from time to time, which
agreements shall specify the number of shares to which they pertain and the
purchase price of such shares.
The terms and conditions set forth in Sections 6.1(a) through (c) hereof
shall apply to an Incentive Stock Option; provided that, in the event Section
6.1(b)(i) hereof is applicable, all installments shall become immediately
exercisable.
-11-
<PAGE>
6.3 CHANGE IN CONTROL. In the event of a Change in Control:
(a) Without any action by the Plan Committee or the Board, each Stock
Option granted under the Plan that has not been previously
exercised or otherwise lapsed and terminated shall become
immediately exercisable in full.
(b) The Plan Committee, in its sole discretion, and without the
consent of any Participant affected thereby, may determine that
some or all Participants holding outstanding Stock Options shall
receive, with respect to each share of Common Stock subject to a
Stock Option, cash in an amount equal to the excess of the Fair
Market Value of a share of Common Stock immediately prior to such
Change in Control over the exercise price of such share.
(c) The cash payment described in Section 6.3(b) shall be made
promptly following the effective date of such Change in Control.
Upon a determination by the Plan Committee in accordance with
Section 6.3(b), each Stock Option with respect to which a cash
payment is to be made shall terminate, and the Participant holding
such Stock Option shall have no further rights thereunder except
the right to receive such cash payment.
ARTICLE VII
RESTRICTED STOCK
7.1 RESTRICTION PERIOD TO BE ESTABLISHED BY THE PLAN COMMITTEE. At the
time a Restricted Stock Award is made, the Plan Committee shall establish a
period of time (the "Restriction Period") applicable to such Award, which shall
be not less than three years. Each Restricted Stock Award may have a different
Restriction Period, at the discretion of the Plan Committee. Except as
permitted or pursuant to Sections 7.4, 7.5 or 11.8 hereof, the Restriction
Period applicable to a particular Restricted Stock Award shall not be changed.
7.2 OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have
the right to enjoy all shareholder rights during the Restriction Period with the
exception that:
(i) The Holder shall not be entitled to delivery of the stock
certificate until the Restriction Period shall have expired.
(ii) The Company may either issue shares subject to such restrictive
legends and/or stop-transfer instructions as it deems appropriate
or provide for retention of custody of the Common Stock during the
Restriction Period.
(iii) The Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the Common Stock during the Restriction
Period.
-12-
<PAGE>
(iv) A breach of the terms and conditions established by the Plan
Committee pursuant to the Restricted Stock Award shall cause a
forfeiture of the Restricted Stock Award, and any dividends
withheld thereon.
(v) Dividends payable in cash or in shares of stock or otherwise may
be either currently paid or withheld by the Company for the
Holder's account. At the discretion of the Plan Committee,
interest may be paid on the amount of cash dividends withheld,
including cash dividends on stock dividends, at a rate and subject
to such terms as determined by the Plan Committee.
Provided, however, and the provisions of Section 7.4 to the contrary
notwithstanding, in lieu of the foregoing, the Plan Committee may provide that
no shares of Common Stock be issued until the Restriction Period is over and
further provide that the shares of Common Stock issued after the Restriction
Period has been completed, be issued in escrow and/or be legended and that the
Common Stock be subject to restrictions including the forfeiture of all or a
part of the shares.
7.3 PAYMENT FOR RESTRICTED STOCK. A Holder shall not be required to
make any payment for Common Stock received pursuant to a Restricted Stock Award,
unless the Plan Committee requires payment for such stock in the Restricted
Stock Award.
7.4 FORFEITURE PROVISIONS. Subject to Section 7.5, in the event a
Holder terminates employment during a Restriction Period, a Restricted Stock
Award will be forfeited; provided, however, when the Plan Committee issues the
Restricted Stock Award, it may provide in the Restricted Stock Award agreement
for proration or full payout in the event of (i) a termination of employment
because of normal or late retirement, (ii) with the consent of the Plan
Committee, early retirement or spin-off, (iii) death, (iv) total and permanent
disability, as determined by the Plan Committee, or (v) with the consent of the
Plan Committee, termination of employment after 15 years of continuous
employment with the Company or a Subsidiary or any combination thereof, provided
that if the person is not an Executive Officer (as defined under the Exchange
Act) of the Company at the time of termination such 15 years need not be
continuous, all subject to any other conditions the Plan Committee may
determine.
7.5 CHANGE IN CONTROL. In the event of a Change in Control, all
outstanding Restricted Stock Awards granted under the Plan will be proratably
payable ten days after the Change in Control. The amount of Common Stock
payable shall be determined by multiplying each Restricted Stock Award granted
by a fraction, the numerator of which shall be the number of months that have
elapsed in the applicable Restriction Period and the denominator of which shall
be the number of months in the Restriction Period.
ARTICLE VIII
SHARES OF STOCK SUBJECT TO THE PLAN; MAXIMUM AWARD
8.1 SHARES AVAILABLE; PERFORMANCE SHARE AND RESTRICTED STOCK AWARD
LIMITATION. The total number of shares available for issuance under all Awards
pursuant to the Plan shall not exceed in the aggregate 22,000,000 shares of
Common Stock, subject to adjustment as provided in Section
-13-
<PAGE>
8.3 hereof; provided, however, that no more than 10% of all shares of Common
Stock subject to this Plan may be issued in the aggregate pursuant to
Performance Share or Restricted Stock Awards. Such shares may be authorized and
unissued shares, or may be treasury shares held by the Company or may be shares
purchased or held by the Company or a Subsidiary for purposes of the Plan, or
any combination thereof.
8.2 SHARES AGAIN AVAILABLE. Shares covered by granted Performance
Shares which are not earned pursuant to any of the provisions of Article V
hereof, or Stock Options, Performance Shares or Restricted Stock Awards which
are forfeited for any reason or are not distributed or are covered by options
that lapse or are cancelled before exercise, shall (unless the Plan shall have
been terminated) again be available in the same relative amounts for other Award
grants under the Plan. If, in accordance with the Plan, a Participant uses
shares of Common Stock to pay a purchase or exercise price or satisfy tax
withholdings, such shares may again be used for an Award under the Plan.
8.3 RELEVANT CHANGE ADJUSTMENTS. Appropriate adjustments in the number
of shares and in the option price per share as authorized herein may be made by
the Plan Committee, in its discretion (except as provided in Section 11.8
hereof), to give effect to adjustments made in the number of shares of Common
Stock through a merger, consolidation, recapitalization, reclassification,
combination, spin-off, common stock dividend, stock split or other relevant
change.
8.4 MAXIMUM AWARD. During any Plan Year, no Participant may receive
Awards that, in the aggregate, could result in that Participant receiving,
earning or acquiring more than 2,000,000 shares of Common Stock, subject to the
adjustments described in Section 8.3.
ARTICLE IX
ADMINISTRATION OF THE PLAN
9.1 The Plan will be administered by a committee of two or more members
of the Board appointed from time to time by the Board.
9.2 The Plan Committee shall have and exercise all of the powers and
responsibilities granted expressly or by implication to it by the provisions of
the Plan. Subject to and as limited by such provisions, the Plan Committee may
from time to time enact, amend and rescind such rules, regulations and
procedures with respect to the administration of the Plan as it deems
appropriate or convenient.
9.3 All questions arising under the Plan, any Incentive Stock Option,
Non-Qualified Stock Option, Performance Share or Restricted Stock Award
agreement, or any rule, regulation or procedure adopted by the Plan Committee
shall be determined by the Plan Committee, and its determination thereof shall
be conclusive and binding upon all parties.
9.4 Any action required or permitted to be taken by the Plan Committee
under the Plan shall require the affirmative vote of a majority of a quorum of
the members of the Plan Committee.
-14-
<PAGE>
A majority of all members of the Plan Committee shall constitute a "quorum" for
Plan Committee business. The Plan Committee may act by written determination
instead of by affirmative vote at a meeting, provided that any written
determination shall be signed by all members of the Plan Committee, and any such
written determination shall be as fully effective as a majority vote of a quorum
at a meeting.
9.5 The Plan Committee may delegate all or any part of its authority
under the Plan to a subcommittee of directors and/or officers of the Company for
purposes of determining and administering Awards granted to persons who are not
then subject to the reporting requirements of Section 16 of the Exchange Act.
ARTICLE X
REDUCTION IN AWARDS
10.1 Anything in this Plan to the contrary notwithstanding, the
provisions of this Article X shall apply to a Participant if Ernst & Young
determines that each of (a) and (b) below are applicable.
(a) Payments or distributions hereunder, determined without
application of this Article X, either alone or together with other
payments in the nature of compensation to the Participant which
are contingent on a change in the ownership or effective control
of the Company, or in the ownership of a substantial portion of
the assets of the Company, or otherwise (but after any elimination
or reduction of such payments under the terms of the Company's
Income Continuance Policy Statement or SMG Income Continuance
Policy Statement), would result in any portion of the payments
hereunder being subject to an excise tax on excess parachute
payments imposed under Section 4999 of the Code.
(b) The excise tax imposed on the Participant under Section 4999 of
the Code on excess parachute payments, from whatever source, would
result in a lesser net aggregate present value of payments and
distributions to the Participant (after subtraction of the excise
tax) than if payments and distributions to the Participant were
reduced to the maximum amount that could be made without incurring
the excise tax.
10.2 Under this Article X the payments and distributions under this Plan
shall be reduced (but not below zero) so that the present value of such payments
and distributions shall equal the Reduced Amount. The "Reduced Amount" (which
may be zero) shall be an amount expressed in present value which maximizes the
aggregate present value of payments and distributions under this Plan which can
be made without causing any such payment to be subject to the excise tax under
Section 4999 of the Code. The determinations and reductions under this Section
10.2 shall be made after eliminations or reductions, if any, have been made
under the Company's Income Continuance Policy Statement or SMG Income
Continuance Policy Statement.
10.3 If Ernst & Young determines that this Article X is applicable to a
Participant, it shall so advise the Plan Committee in writing. The Plan
Committee shall then promptly give the
-15-
<PAGE>
Participant notice to that effect together with a copy of the detailed
calculation supporting such determination which shall include a statement of the
Reduced Amount. The Participant may then elect, in his/her sole discretion,
which and how much of the Stock Options, Restricted Stock Awards and/or
Performance Shares otherwise awarded under this Plan shall be eliminated or
reduced (as long as after such election the aggregate present value of the
remaining Stock Options, Restricted Stock Awards and/or Performance Shares under
this Plan equals the Reduced Amount), and shall advise the Plan Committee in
writing of his/her election within ten days of his/her receipt of notice. If no
such election is made by the Participant within such ten-day period, the Plan
Committee may elect which and how much of the Stock Options, Restricted Stock
Awards, and/or Performance Shares shall be eliminated or reduced (as long as
after such election their aggregate present value equals the Reduced Amount) and
shall notify the Participant promptly of such election. For purposes of this
Article X, present value shall be determined in accordance with Section 280G of
the Code. All the foregoing determinations made by Ernst & Young under this
Article X shall be made as promptly as practicable after it is determined that
excess parachute payments (as defined in Section 280G of the Code) will be made
to the Participant if an elimination or reduction is not made. As promptly as
practicable following the election hereunder, the Company shall provide to or
for the benefit of the Participant such amounts and shares as are then due to
the Participant under this Plan and shall promptly provide to or for the benefit
of the Participant in the future such amounts and shares as become due to the
Participant under this Plan.
10.4 As a result of the uncertainty in the application of Section 280G
of the Code at the time of the initial determination by Ernst & Young hereunder,
it is possible that payments or distributions under this Plan will have been
made which should not have been made ("Overpayment") or that additional payments
or distributions which will have not been made could have been made
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that Ernst & Young, based upon the assertion of
a deficiency by the Internal Revenue Service against the Company or the
Participant which Ernst & Young believes has a high probability of success,
determines that an Overpayment has been made, any such Overpayment shall be
treated for all purposes as a loan to the Participant which the Participant
shall repay together with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant if and to the extent such payment would not reduce
the amount which is subject to the excise tax under Section 4999 of the Code. In
the event that Ernst & Young, based upon controlling precedent, determines that
an Underpayment has occurred, any such Underpayment shall be promptly paid to or
for the benefit of the Participant together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
10.5 In making its determination under this Article X, the value of any
non-cash benefit shall be determined by Ernst & Young in accordance with the
principles of Section 280G(d)(3) of the Code.
10.6 All determinations made by Ernst & Young under this Article X shall
be binding upon the Company, the Plan Committee and the Participant.
-16-
<PAGE>
ARTICLE XI
GENERAL PROVISIONS
11.1 AMENDMENT OR TERMINATION OF PLAN. The Board may at any time amend,
suspend, discontinue or terminate the Plan (including the making of any
necessary enabling, conforming and procedural amendments to the Plan to
authorize and implement the granting of qualified Stock Options or other income
tax preferred stock options which may be authorized by enactment of the United
States Congress and/or the Internal Revenue Service subsequent to the effective
date of this Plan); provided, however, that no amendment by the Board shall,
without further approval of the shareholders of the Company, increase the total
number of shares of Common Stock which may be made subject to the Plan, except
as provided at Section 8.3 hereof. No action taken pursuant to this Section
11.1 of the Plan shall, without the consent of the Participant, alter or impair
any Awards which have been previously granted to a Participant.
11.2 NON-ALIENATION OF RIGHTS AND BENEFITS. Except as expressly
provided herein, no right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge and
any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge
the same shall be void. No right or benefit hereunder shall in any manner be
liable for or subject to the debts, contracts, liabilities or torts of the
person entitled to such right or benefit. If any Participant or beneficiary
hereunder should become bankrupt or attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge any right or benefit hereunder (other than as
expressly provided herein), then such right or benefit shall, in the sole
discretion of the Plan Committee, cease and in such event the Company may hold
or apply the same or any or no part thereof for the benefit of the Participant
or beneficiary, his/her spouse, children or other dependents or any of them in
any such manner and in such proportion as the Plan Committee in its sole
discretion may deem proper.
11.3 NO RIGHTS AS SHAREHOLDER. The granting of Performance Shares
and/or Stock Options and/or Restricted Stock Awards under the Plan shall not
entitle a Participant or any other person succeeding to his/her rights, to any
dividend, voting or other right as a shareholder of the Company unless and until
the issuance of a stock certificate to the Participant or such other person
pursuant to the provisions of the Plan and then only subsequent to the date of
issuance thereof.
11.4 LIMITATION OF LIABILITY OR OBLIGATION OF THE COMPANY. As
illustrative only of the limitations of liability or obligation of the Company
and not intended to be exhaustive thereof, nothing in the Plan shall be
construed:
(a) to give any employee of the Company any right to be granted any
Award other than at the sole discretion of the Plan Committee;
(b) to give any Participant any rights whatsoever with respect to
shares of Common Stock except as specifically provided in the
Plan;
(c) to limit in any way the right of the Company or any Subsidiary to
terminate, change or modify, with or without cause, the employment
of any Participant at any time; or
-17-
<PAGE>
(d) to be evidence of any agreement or understanding, express or
implied, that the Company or any Subsidiary will employ any
Participant in any particular position at any particular rate of
compensation or for any particular period of time.
Payments and other benefits received by a Participant under an Award shall not
be deemed part of a Participant's regular, recurring compensation for purposes
of any termination, indemnity or severance pay laws and shall not be included
in, nor have any effect on, the determination of benefits under any other
employee benefit plan, contract or similar arrangement provided by the Company
or any Subsidiary, unless expressly so provided by such other plan, contract or
arrangement or the Committee determines that an Award or portion of an Award
should be included to reflect competitive compensation practices or to recognize
that an Award has been made in lieu of a portion of competitive cash
compensation.
11.5 GOVERNMENT REGULATIONS. Notwithstanding any other provisions of
the Plan seemingly to the contrary, the obligation of the Company with respect
to Awards granted under the Plan shall at all times be subject to any and all
applicable laws, rules, and regulations and such approvals by any government
agencies as may be required or deemed by the Board or Plan Committee as
reasonably necessary or appropriate for the protection of the Company.
In connection with any sale, issuance or transfer hereunder, the
Participant acquiring the shares shall, if requested by the Company, give
assurances satisfactory to counsel of the Company that the shares are being
acquired for investment and not with a view to resale or distribution thereof
and assurances in respect of such other matters as the Company may deem
desirable to assure compliance with all applicable legal requirements.
11.6 NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board nor the submission of the Plan to shareholders of the Company for
approval shall be construed as creating any limitations on the power or
authority of the Board to adopt such other or additional incentive or other
compensation arrangements of whatever nature as the Board may deem necessary or
desirable or preclude or limit the continuation of any other plan, practice or
arrangement for the payment of compensation or fringe benefits to employees
generally, or to any class or group of employees, which the Company or any
Subsidiary now has lawfully put into effect, including, without limitation, any
retirement, pension, savings, profit sharing or stock purchase plan, insurance,
death and disability benefits, and executive short term incentive plans.
11.7 EFFECTIVE DATE. Subject to the approval of this restated Plan by
the holders of a majority of the voting power of the shares present and entitled
to vote at the Company's Annual Meeting of Shareholders to be held May 19, 1999
and any necessary approval being obtained from any department, board or agency
of the United States or states having jurisdiction, the Plan shall be effective
as of May 19, 1999.
11.8 REORGANIZATION. In case the Company is merged or consolidated with
another corporation, or in case the property or stock of the Company is acquired
by another corporation, or in case of a separation, reorganization or
liquidation of the Company (for purposes hereof any such
-18-
<PAGE>
occurrence being referred to as an "Event"), the Plan Committee or a comparable
committee of any corporation assuming the obligations of the Company hereunder,
shall either:
(a) make appropriate provision for the protection of any outstanding
Performance Shares, Stock Options and Restricted Stock Awards
granted thereunder by the substitution on an equitable basis of
appropriate stock or options of the Company, or of the merged,
consolidated or otherwise reorganized corporation which will be
issuable in respect to the shares of Common Stock. Stock to be
issued pursuant to such Performance Shares shall be limited so
that the excess of the aggregate fair market value of the shares
subject to the Performance Shares immediately after such
substitution over the purchase price thereof is not more than the
excess of the aggregate fair market value of the shares subject to
such Performance Shares immediately before such substitution over
the purchase price thereof; or
(b) upon written notice to the Participant, declare that all
Performance Shares granted to the Participant are deemed earned,
that the Restriction Period of all Restricted Stock Awards has
been eliminated and that all outstanding Stock Options shall
accelerate and become exercisable in full but that all outstanding
Stock Options, whether or not exercisable prior to such
acceleration, must be exercised within the period of time set
forth in such notice or they will terminate. In connection with
any declaration pursuant to this Section 11.8(b), the Plan
Committee may, but shall not be obligated to, cause a cash payment
to be made to each Participant who holds a Stock Option that is
terminated in an amount equal to the product obtained by
multiplying (x) the amount (if any) by which the Event Proceeds
Per Share (as hereinafter defined) exceeds the exercise price per
share covered by such Stock Option times (y) the number of shares
of Common Stock covered by such Stock Option. For purposes of
this Section 11.8(b), "Event Proceeds Per Share" shall mean the
cash plus the fair market value, as determined in good faith by
the Plan Committee, of the non-cash consideration to be received
per share by the shareholders of the Company upon the occurrence
of the Event.
11.9 WITHHOLDING TAXES, ETC. All distributions under the Plan shall be
subject to any required withholding taxes and other withholdings and, in case of
distributions in Common Stock, the Participant or other recipient may, as a
condition precedent to the delivery of Common Stock, be required to pay to
his/her participating employer the excess, if any, of the amount of required
withholding over the withholdings, if any, from any distributions in cash under
the Plan. No distribution under the Plan shall be made in fractional shares of
Common Stock, but the proportional market value thereof shall be paid in cash.
11.10 GENERAL RESTRICTION. Each Award shall be subject to the
requirement that, if at any time the Board shall determine, in its discretion,
that the listing, registration or qualification of the shares subject to such
option and/or right upon any securities exchange or under any state or federal
law, or the consent or approval of any government regulatory body, is necessary
or desirable as a condition of, or in connection with the granting of such Award
or the issue or purchase of shares respectively thereunder, such Award may not
be exercised in whole or in part unless such listing,
-19-
<PAGE>
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board.
11.11 USE OF PROCEEDS. The proceeds derived from the sale of the stock
pursuant to Stock Options or Restricted Stock Awards granted under the Plan
shall constitute general funds of the Company.
11.12 PRIOR PLANS. Notwithstanding the adoption of this Plan by the
Board and approval of this Plan by the Company's shareholders as provided in
Section 11.7 hereof, the Company's Executive Long Term Incentive Plan of 1981
and the Director Stock Option Plan of 1995, as the same have been amended from
time to time (the "Prior Plans"), shall remain in effect, and all grants and
awards heretofore made under the Prior Plans shall be governed by the terms of
the Prior Plans. The Plan Committee shall not, however, make any additional
grants of performance shares, restricted stock or stock option awards pursuant
to the Prior Plans.
11.13 DURATION OF PLAN. This Plan shall remain in effect until all
shares of Common Stock subject to the Plan are distributed or this Plan is
terminated under Section 11.1 hereof.
11.14 SEVERABILITY. In the event any provision of this Plan shall be
held to be illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of this Plan, and this Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
11.15 GOVERNING LAW. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken pursuant to
this Plan shall be governed by the laws of Minnesota and construed accordingly.
11.16 HEADINGS. The headings of the Articles and their subparts in this
Plan are for convenience of reading only and are not meant to be of substantive
significance and shall not add to or detract from the meaning of such Article or
subpart to which it refers.
-20-
<PAGE>
EXHIBIT (12)
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES AND
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS FOR THE
THREE MONTHS ENDED MAY 1, 1999 AND MAY 2, 1998
AND FOR THE FIVE YEARS ENDED JANUARY 30, 1999
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED
------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MAY 1, MAY 2, JAN. 30, JAN. 31, FEB. 1, FEB. 3,
1999 1998 1999 1998 1997 1996
----------- ----------- --------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES:
Earnings:
Consolidated net earnings before extraordinary charges.... $ 194 $ 160 $ 962 $ 802 $ 474 $ 311
Income taxes.............................................. 123 105 594 524 309 190
----- ----- --------- --------- --------- ---------
Total earnings before extraordinary charges............. 317 265 1,556 1,326 783 501
----- ----- --------- --------- --------- ---------
FIXED CHARGES:
Interest expense.......................................... 98 101 421 437 464 461
Interest portion of rental expense........................ 16 15 63 59 59 59
----- ----- --------- --------- --------- ---------
Total fixed charges..................................... 114 116 484 496 523 520
----- ----- --------- --------- --------- ---------
LESS:
Capitalized interest...................................... (4) (5) (16) (16) (16) (14)
----- ----- --------- --------- --------- ---------
Fixed charges in earnings............................... 110 111 468 480 507 506
----- ----- --------- --------- --------- ---------
Earnings available for fixed charges...................... $ 427 $ 376 $ 2,024 $ 1,806 $ 1,290 $ 1,007
----- ----- --------- --------- --------- ---------
----- ----- --------- --------- --------- ---------
Ratio of earnings before extraordinary charges to fixed
charges................................................. 3.74 3.24 4.18 3.65 2.46 1.94
----- ----- --------- --------- --------- ---------
----- ----- --------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS:
Total fixed charges, as above............................. $ 114 $ 116 $ 484 $ 496 $ 523 $ 520
Dividends on preferred stock (pre-tax basis).............. 8 8 32 35 37 37
----- ----- --------- --------- --------- ---------
Total fixed charges and preferred stock dividends....... 122 124 516 531 560 557
----- ----- --------- --------- --------- ---------
Earnings available for fixed charges and preferred stock
dividends............................................... $ 427 $ 376 $ 2,024 $ 1,806 $ 1,290 $ 1,007
----- ----- --------- --------- --------- ---------
----- ----- --------- --------- --------- ---------
Ratio of earnings before extraordinary charges to fixed
charges and preferred stock dividends................... 3.50 3.03 3.92 3.40 2.30 1.81
----- ----- --------- --------- --------- ---------
----- ----- --------- --------- --------- ---------
<CAPTION>
<S> <C>
JAN. 28,
1995
---------
RATIO OF EARNINGS TO FIXED CHARGES:
Earnings:
Consolidated net earnings before extraordinary charges.... $ 434
Income taxes.............................................. 280
---------
Total earnings before extraordinary charges............. 714
---------
FIXED CHARGES:
Interest expense.......................................... 439
Interest portion of rental expense........................ 56
---------
Total fixed charges..................................... 495
---------
LESS:
Capitalized interest...................................... (7)
---------
Fixed charges in earnings............................... 488
---------
Earnings available for fixed charges...................... $ 1,202
---------
---------
Ratio of earnings before extraordinary charges to fixed
charges................................................. 2.43
---------
---------
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS:
Total fixed charges, as above............................. $ 495
Dividends on preferred stock (pre-tax basis).............. 39
---------
Total fixed charges and preferred stock dividends....... 534
---------
Earnings available for fixed charges and preferred stock
dividends............................................... $ 1,202
---------
---------
Ratio of earnings before extraordinary charges to fixed
charges and preferred stock dividends................... 2.25
---------
---------
</TABLE>
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DAYTON
HUDSON CORPORATION'S FORM 10Q FOR THE FIRST QUARTER ENDED MAY 1, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 246
<SECURITIES> 0
<RECEIVABLES> 1360
<ALLOWANCES> 0
<INVENTORY> 3779
<CURRENT-ASSETS> 6077
<PP&E> 12,925
<DEPRECIATION> 3,796
<TOTAL-ASSETS> 15,986
<CURRENT-LIABILITIES> 4,461
<BONDS> 5,216
10
0
<COMMON> 74
<OTHER-SE> 5,350
<TOTAL-LIABILITY-AND-EQUITY> 15,986
<SALES> 7,214
<TOTAL-REVENUES> 7,214
<CGS> 5,240
<TOTAL-COSTS> 5,240
<OTHER-EXPENSES> 339
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 317
<INCOME-TAX> 123
<INCOME-CONTINUING> 194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 194
<EPS-BASIC> .43
<EPS-DILUTED> .41
</TABLE>
