UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) | ||
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended January 29, 2011 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission file number 1-6049
TARGET CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota (State or other jurisdiction of incorporation or organization) |
41-0215170 (I.R.S. Employer Identification No.) |
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1000 Nicollet Mall, Minneapolis, Minnesota (Address of principal executive offices) |
55403 (Zip Code) |
Registrant's telephone number, including area code: 612/304-6073
Securities Registered Pursuant To Section 12(B) Of The Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
---|---|---|
Common Stock, par value $0.0833 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act).
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
Aggregate market value of the voting stock held by non-affiliates of the registrant on July 31, 2010 was $37,014,234,947, based on the closing price of $51.32 per share of Common Stock as reported on the New York Stock Exchange Composite Index.
Indicate the number of shares outstanding of each of registrant's classes of Common Stock, as of the latest practicable date. Total shares of Common Stock, par value $0.0833, outstanding at March 7, 2011 were 693,063,352.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Target's Proxy Statement to be filed on or about April 28, 2011 are incorporated into Part III.
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General
Target Corporation (the Corporation or Target) was incorporated in Minnesota in 1902. We operate as two reportable segments: Retail and Credit Card.
Our Retail Segment includes all of our merchandising operations, including our fully integrated online business. We offer both everyday essentials and fashionable, differentiated merchandise at discounted prices. Our ability to deliver a shopping experience that is preferred by our customers, referred to as "guests," is supported by our strong supply chain and technology infrastructure, a devotion to innovation that is ingrained in our organization and culture, and our disciplined approach to managing our current business and investing in future growth. As a component of the Retail Segment, our online presence is designed to enable guests to purchase products seamlessly either online or by locating them in one of our stores with the aid of online research and location tools. Our online shopping site offers similar merchandise categories to those found in our stores, excluding food items and household essentials.
Our Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards, the Target Visa and the Target Card. Additionally, we offer a branded proprietary Target Debit Card. Collectively, these REDcards® help strengthen the bond with our guests, drive incremental sales and contribute to our results of operations.
Financial Highlights
Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal year 2010 ended January 29, 2011, and consisted of 52 weeks. Fiscal year 2009 ended January 30, 2010, and consisted of 52 weeks. Fiscal year 2008 ended January 31, 2009, and consisted of 52 weeks.
For information on key financial highlights, see the items referenced in Item 6, Selected Financial Data, and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.
Seasonality
Due to the seasonal nature of our business, a larger share of annual revenues and earnings traditionally occurs in the fourth quarter because it includes the peak sales period from Thanksgiving to the end of December.
Merchandise
We operate Target general merchandise stores, the majority of which offer a wide assortment of general merchandise and a more limited food assortment than traditional supermarkets. During 2009 and 2010 we completed store remodels that enabled us to offer an expanded food assortment in many of our general merchandise stores. The expanded food assortment includes some perishables and some additional dry, dairy and frozen items. In addition, we operate SuperTarget® stores with general merchandise items and a full line of food items comparable to that of traditional supermarkets. Target.com offers a wide assortment of general merchandise including many items found in our stores and a complementary assortment, such as extended sizes and colors, sold only online. A significant portion of our sales is from national brand merchandise. We also sell many products under our owned and exclusive brands. Owned brands include merchandise sold under private-label brands including, but not limited to, Archer Farms®, Archer Farms® Simply Balanced, Boots & Barkley®, choxie®, Circo®, Durabuilt®, Embark®, Gilligan & O'Malley®, itsoTM, Market Pantry®, Merona®, Play Wonder®, Room Essentials®,
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Smith & Hawken®, Sutton & Dodge®, Target Home, Vroom®, up & up, Wine Cube® and Xhilaration®. In addition, we sell merchandise under exclusive licensed and designer brands including, but not limited to, C9 by Champion®, Chefmate®, Cherokee®, Converse® One Star®, Eddie Bauer®, Fieldcrest®, Genuine Kids by OshKosh®, Kitchen Essentials® from Calphalon®, Liz Lange® for Target®, Michael Graves Design, Mossimo®, Nick & Nora®, Simply Shabby Chic®, Sonia Kashuk® and Thomas O'Brien® Vintage Modern. We also sell merchandise through unique programs such as ClearRxSM, GO International® and The Great SaveSM. Additionally, we generate revenue from in-store amenities such as Target CaféSM, Target Clinic®, Target Pharmacy® and Target Photo®, and from leased or licensed departments such as Target Optical®, Pizza Hut, Portrait Studio and Starbucks.
Effective inventory management is key to our ongoing success. We utilize various techniques including demand forecasting and planning and various forms of replenishment management. We achieve effective inventory management by being in-stock in core product offerings, maintaining positive vendor relationships, and carefully planning inventory levels for seasonal and apparel items to minimize markdowns.
Sales by Product Category |
Percentage of Sales |
||||||
---|---|---|---|---|---|---|---|
|
2010 |
2009 |
2008 |
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Household essentials |
24 | % | 23 | % | 22 | % | |
Hardlines |
20 | 22 | 22 | ||||
Apparel and accessories |
20 | 20 | 20 | ||||
Home furnishings and décor |
19 | 19 | 21 | ||||
Food and pet supplies |
17 | 16 | 15 | ||||
Total |
100 | % | 100 | % | 100 | % | |
Household essentials includes pharmacy, beauty, personal care, baby care, cleaning and paper products.
Hardlines includes electronics (including video game hardware and software), music, movies, books, computer software, sporting goods and toys.
Apparel and accessories includes apparel for women, men, boys, girls, toddlers, infants and newborns. It also includes intimate apparel, jewelry, accessories and shoes.
Home furnishings and décor includes furniture, lighting, kitchenware, small appliances, home décor, bed and bath, home improvement, automotive and seasonal merchandise such as patio furniture and holiday décor.
Food and pet supplies includes dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce and pet supplies.
Distribution
The vast majority of our merchandise is distributed through our network of distribution centers. We operated 37 distribution centers, including 4 food distribution centers, at January 29, 2011. General merchandise is shipped to and from our distribution centers by common carriers. In addition, third parties distribute certain food items. Merchandise sold through Target.com is distributed through our own distribution network, through third parties, or shipped directly from vendors.
Employees
At January 29, 2011, we employed approximately 355,000 full-time, part-time and seasonal employees, referred to as "team members." During our peak sales period from Thanksgiving to the end of December, our employment levels peaked at approximately 400,000 team members. We consider our team member relations to be good. We offer a broad range of company-paid benefits to our team members. Eligibility for, and the level of, these benefits varies, depending on team members' full-time or part-time status, compensation level, date of hire
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and/or length of service. These company-paid benefits include a pension plan, 401(k) plan, medical and dental plans, a retiree medical plan, disability insurance, paid vacation, tuition reimbursement, various team member assistance programs, life insurance and merchandise discounts.
Working Capital
Because of the seasonal nature of our business, our working capital needs are greater in the months leading up to our peak sales period from Thanksgiving to the end of December. The increase in working capital during this time is typically financed with cash flow provided by operations and short-term borrowings.
Additional details are provided in the Liquidity and Capital Resources section in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Competition
In our Retail Segment, we compete with traditional and off-price general merchandise retailers, apparel retailers, Internet retailers, wholesale clubs, category specific retailers, drug stores, supermarkets and other forms of retail commerce. Our ability to positively differentiate ourselves from other retailers largely determines our competitive position within the retail industry.
In our Credit Card Segment, our primary mission is to deliver financial products and services that drive sales and deepen guest relationships at Target. Our financial products compete with those of other issuers for market share of sales volume. Our ability to positively differentiate the value of our financial products primarily through our rewards programs, terms, credit line management, and guest service determines our competitive position among credit card issuers.
Intellectual Property
Our brand image is a critical element of our business strategy. Our principal trademarks, including Target, SuperTarget and our "Bullseye Design," have been registered with the U.S. Patent and Trademark Office. We also seek to obtain and preserve intellectual property protection for our private-label brands.
Geographic Information
Substantially, all of our revenues are generated and long-lived assets are located within the United States.
Available Information
Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at www.Target.com (click on "Investors" and "SEC Filings") as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Our Corporate Governance Guidelines, Business Conduct Guide, Corporate Responsibility Report and the position descriptions for our Board of Directors and Board committees are also available free of charge in print upon request or at www.Target.com (click on "Investors" and "Corporate Governance").
Our business is subject to a variety of risks. The most important of these is our ability to remain relevant to our guests with a brand they trust. Meeting our guests' expectations requires us to manage various strategic, operational, compliance, and financial risks. Set forth below are the most significant risks that we face.
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If we are unable to positively differentiate ourselves from other retailers, our results of operations could be adversely affected.
The retail business is highly competitive. In the past we have been able to compete successfully by differentiating our shopping experience by creating an attractive value proposition through a careful combination of price, merchandise assortment, convenience, guest service and marketing efforts. Guest perceptions regarding the cleanliness and safety of our stores, our in-stock levels and other factors also affect our ability to compete. No single competitive factor is dominant, and actions by our competitors on any of these factors could have an adverse effect on our sales, gross margin and expenses.
If we fail to anticipate and respond quickly to changing consumer preferences, our sales, gross margin and profitability could suffer.
A substantial part of our business is dependent on our ability to make trend-right decisions in apparel, home décor, seasonal offerings, food and other merchandise. Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions may result in lost sales, spoilage and increased inventory markdowns, which would lead to a deterioration in our results of operations.
Our continued success is substantially dependent on positive perceptions of Target, including our owned and exclusive brands.
We believe that one of the reasons our guests prefer to shop at Target and our team members choose Target as a place of employment is the reputation we have built over many years of serving our four primary constituencies: guests, team members, the communities in which we operate and shareholders. To be successful in the future, we must continue to preserve, grow and leverage the value of Target's reputation. Reputational value is based in large part on perceptions of subjective qualities, and even isolated incidents that erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation, can have an adverse impact on these perceptions and lead to tangible adverse affects on our business, including consumer boycotts, loss of new store development opportunities, or team member recruiting difficulties.
In addition, we sell many products under our owned and exclusive brands, such as Market Pantry, up & up, Target Home, Merona and Mossimo. These brands generally carry higher margins than national brand products, and represent a growing portion of our overall sales, totaling approximately one-third of sales in 2010. If one or more of these brands experiences a loss of consumer acceptance or confidence, our sales and gross margin rate could be adversely affected.
We are highly susceptible to the state of macroeconomic conditions and consumer confidence in the United States.
All of our stores are located within the United States, making our results highly dependent on U.S. consumer confidence and the health of the U.S. economy. In addition, a significant portion of our total sales is derived from stores located in five states: California, Texas, Florida, Minnesota and Illinois, resulting in further dependence on local economic conditions in these states. Deterioration in macroeconomic conditions and consumer confidence could negatively affect our business in many ways, including slowing sales growth or reduction in overall sales, and reducing gross margins.
In addition to the impact of macroeconomic conditions on our retail sales, these same considerations impact the success of our Credit Card Segment. Deterioration in macroeconomic conditions can adversely affect cardholders' ability to pay their balances, and we may not be able to fully anticipate and respond to changes in the risk profile of our cardholders when extending credit, resulting in higher bad debt expense. Demand for consumer credit is also impacted by consumer choices regarding payment methods, and our performance could be adversely affected by consumer decisions to use debit cards or other forms of payment.
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If we do not effectively manage our large and growing workforce, our results of operations could be adversely affected.
With approximately 355,000 team members, our workforce costs represent our largest operating expense, and our business is dependent on our ability to attract, train and retain a growing number of qualified team members. Many of those team members are in entry-level or part-time positions with historically high turnover rates. Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, prevailing wage rates, health care and other benefit costs and changing demographics. If we are unable to attract and retain adequate numbers of qualified team members, our operations, guest service levels and support functions could suffer. Those factors, together with increasing wage and benefit costs, could adversely affect our results of operations.
Lack of availability of suitable locations in which to build new stores could slow our growth, and difficulty in executing plans for new stores, expansions and remodels could increase our costs and capital requirements.
Our future growth is dependent, in part, on our ability to build new stores and expand and remodel existing stores in a manner that achieves appropriate returns on our capital investment. We compete with other retailers and businesses for suitable locations for our stores. In addition, for many sites we are dependent on a third party developer's ability to acquire land, obtain financing and secure the necessary zoning changes and permits for a larger project, of which our store may be one component. Turmoil in the financial markets may make it difficult for third party developers to obtain financing for new projects. Local land use and other regulations applicable to the types of stores we desire to construct may affect our ability to find suitable locations and also influence the cost of constructing, expanding and remodeling our stores. A significant portion of our expected new store sites are located in fully developed markets, which is generally a more time-consuming and expensive undertaking than expansion into undeveloped suburban and ex-urban markets.
Interruptions with our vendors and within our supply chain could adversely affect our results.
We are dependent on our vendors to supply merchandise in a timely and efficient manner. If a vendor fails to deliver on its commitments, whether due to financial difficulties or other reasons, we could experience merchandise out-of-stocks that could lead to lost sales. In addition, a large portion of our merchandise is sourced, directly or indirectly, from outside the United States, with China as our single largest source. Political or financial instability, trade restrictions, increased tariffs, currency exchange rates, the outbreak of pandemics, labor unrest, transport capacity and costs, port security or other events that could slow port activities and affect foreign trade are beyond our control and could disrupt our supply of merchandise and/or adversely affect our results of operations.
Failure to address product safety concerns could adversely affect our sales and results of operations.
If our merchandise offerings, including food, drug and children's products, do not meet applicable safety standards or our guests' expectations regarding safety, we could experience lost sales, experience increased costs and be exposed to legal and reputational risk. All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety standards. Events that give rise to actual, potential or perceived product safety concerns, including food or drug contamination, could expose us to government enforcement action or private litigation and result in costly product recalls and other liabilities. In addition, negative guest perceptions regarding the safety of the products we sell could cause our guests to seek alternative sources for their needs, resulting in lost sales. In those circumstances, it may be difficult and costly for us to regain the confidence of our guests.
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If we fail to protect the security of personal information about our guests, we could be subject to costly government enforcement actions or private litigation and our reputation could suffer.
The nature of our business involves the receipt and storage of personal information about our guests. If we experience a data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our guests could lose confidence in our ability to protect their personal information, which could cause them to discontinue usage of our credit card products, decline to use our pharmacy services, or stop shopping at our stores altogether. Such events could lead to lost future sales and adversely affect our results of operations.
Our failure to comply with federal, state or local laws, or changes in these laws could increase our expenses.
Our business is subject to a wide array of laws and regulations. Significant legislative changes that affect our relationship with our workforce could increase our expenses and adversely affect our operations. Examples of possible legislative changes affecting our relationship with our workforce include changes to an employer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage requirements, and health care mandates. In addition, changes in the regulatory environment regarding topics such as banking and consumer credit, Medicare reimbursements, privacy and information security, product safety or environmental protection, among others, could cause our expenses to increase without an ability to pass through any increased expenses through higher prices. In addition, if we fail to comply with applicable laws and regulations, particularly wage and hour laws, we could be subject to legal risk, including government enforcement action and class action civil litigation, which could adversely affect our results of operations.
Given the geographic concentration of our stores, natural disasters could adversely affect our results of operations.
Our three largest states, by total sales, are California, Texas and Florida, areas where hurricanes and earthquakes are prevalent. Such events could result in significant physical damage to or closure of one or more of our stores or distribution centers, and cause delays in the distribution of merchandise from our vendors to our distribution centers and stores, which could adversely affect our results of operations.
Changes in our effective income tax rate could affect our results of operations.
Our effective income tax rate is influenced by a number of factors. Changes in the tax laws, the interpretation of existing laws, or our failure to sustain our reporting positions on examination could adversely affect our effective tax rate. In addition, our effective income tax rate generally bears an inverse relationship to capital market returns due to the tax-free nature of investment vehicles used to economically hedge our deferred compensation liabilities.
If we are unable to access the capital markets or obtain bank credit, our growth plans, liquidity and results of operations could suffer.
We are dependent on a stable, liquid and well-functioning financial system to fund our operations and growth plans. In particular, we have historically relied on the public debt markets to raise capital for new store development and other capital expenditures, the commercial paper market and bank credit facilities to fund seasonal needs for working capital, and the asset-backed securities markets to partially fund our accounts receivable portfolio. In addition, we use a variety of derivative products to manage our exposure to market risk, principally interest rate and equity price fluctuations. Disruptions or turmoil in the financial markets could adversely affect our ability to meet our capital requirements, fund our working capital needs or lead to losses on derivative positions resulting from counterparty failures.
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A significant disruption in our computer systems could adversely affect our operations.
We rely extensively on our computer systems to manage inventory, process guest transactions and summarize results. Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches and catastrophic events. If our systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to manage inventories or process guest transactions, which could adversely affect our results of operations.
In 2011 we expect to migrate our online presence (Target.com) from a platform currently operated by Amazon, Inc. to our own proprietary platform. If this new platform does not function as designed, we may experience a loss of guest confidence, data security breaches, lost sales or be exposed to fraudulent purchases.
Our announced plan to expand retail operations into Canada could adversely affect our financial results.
Our plan to enter the Canadian retail market is our first expansion of retail operations outside of the United States. Our ability to convert the leased locations that we acquire from Zellers Inc. to Target stores depends in large measure upon our ability to negotiate acceptable modifications to existing lease terms, remodel existing assets and recruit, hire and retain qualified team members. In addition, access to local suppliers of certain types of goods may limit our ability to offer a full assortment of merchandise in certain markets. The effective execution of our strategy is also contingent on our ability to design new marketing and promotional programs that positively differentiate us from other retailers in Canada. If we do not effectively execute our expansion plans for Canada, our financial performance could be adversely affected.
Item 1B. Unresolved Staff Comments
Not applicable.
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At January 29, 2011, we had 1,750 stores in 49 states and the District of Columbia:
|
Number of Stores |
Retail Sq. Ft. (in thousands) |
|
Number of Stores |
Retail Sq. Ft. (in thousands) |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Alabama |
20 | 2,867 | Montana |
7 | 780 | ||||||||||
Alaska |
3 | 504 | Nebraska |
14 | 2,006 | ||||||||||
Arizona |
48 | 6,363 | Nevada |
19 | 2,461 | ||||||||||
Arkansas |
9 | 1,165 | New Hampshire |
9 | 1,148 | ||||||||||
California |
248 | 32,818 | New Jersey |
43 | 5,671 | ||||||||||
Colorado |
42 | 6,275 | New Mexico |
9 | 1,024 | ||||||||||
Connecticut |
20 | 2,672 | New York |
66 | 9,000 | ||||||||||
Delaware |
3 | 413 | North Carolina |
47 | 6,168 | ||||||||||
District of Columbia |
1 | 179 | North Dakota |
4 | 554 | ||||||||||
Florida |
125 | 17,552 | Ohio |
63 | 7,868 | ||||||||||
Georgia |
55 | 7,517 | Oklahoma |
14 | 2,022 | ||||||||||
Hawaii |
3 | 541 | Oregon |
19 | 2,318 | ||||||||||
Idaho |
6 | 664 | Pennsylvania |
60 | 7,822 | ||||||||||
Illinois |
87 | 11,895 | Rhode Island |
4 | 517 | ||||||||||
Indiana |
33 | 4,377 | South Carolina |
18 | 2,224 | ||||||||||
Iowa |
22 | 3,015 | South Dakota |
5 | 580 | ||||||||||
Kansas |
19 | 2,577 | Tennessee |
32 | 4,096 | ||||||||||
Kentucky |
13 | 1,525 | Texas |
148 | 20,838 | ||||||||||
Louisiana |
15 | 2,108 | Utah |
12 | 1,818 | ||||||||||
Maine |
5 | 630 | Vermont |
| | ||||||||||
Maryland |
36 | 4,663 | Virginia |
56 | 7,454 | ||||||||||
Massachusetts |
34 | 4,437 | Washington |
35 | 4,098 | ||||||||||
Michigan |
59 | 7,036 | West Virginia |
6 | 755 | ||||||||||
Minnesota |
73 | 10,456 | Wisconsin |
37 | 4,482 | ||||||||||
Mississippi |
6 | 743 | Wyoming |
2 | 187 | ||||||||||
Missouri |
36 | 4,735 | |||||||||||||
|
Total |
1,750 | 233,618 | ||||||||||||
The following table summarizes the number of owned or leased stores and distribution centers at January 29, 2011:
|
Stores |
Distribution Centers (b) |
||||||
---|---|---|---|---|---|---|---|---|
Owned |
1,500 | 29 | ||||||
Leased |
84 | 8 | ||||||
Combined (a) |
166 | | ||||||
Total |
1,750 | 37 | ||||||
We own our corporate headquarters buildings located in Minneapolis, Minnesota, and we lease and own additional office space in the United States. Our international sourcing operations have 27 office locations in 18 countries, all of which are leased. We also lease office space in Bangalore, India, where we operate various support functions. Our properties are in good condition, well maintained and suitable to carry on our business.
For additional information on our properties, see also the Capital Expenditures section in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 13 and 21 of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data.
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The following governmental enforcement proceedings relating to environmental matters are reported pursuant to instruction 5(C) of Item 103 of Regulation S-K because they involve potential monetary sanctions in excess of $100,000:
We were a defendant in a civil lawsuit filed by the California Attorney General and a number of California District Attorneys in June 2009 alleging that we did not handle and dispose of certain unsold products as hazardous waste and that we violated California's hazardous waste laws. A settlement was reached in this case on January 27, 2011, which obligates Target to pay $22.5 million and consent to an injunction regarding future compliance with all California hazardous waste laws. The settlement was approved by the Alameda County Superior Court and judgment was entered on March 2, 2011.
We are the subject of an ongoing Environmental Protection Agency (EPA) investigation for alleged violations of the Clean Air Act (CAA). In March 2009, the EPA issued a Finding of Violation (FOV) related to alleged violations of the CAA, specifically the National Emission Standards for Hazardous Air Pollutants (NESHAP) promulgated by the EPA for asbestos. The FOV pertains to the remodeling of 36 Target stores that occurred between January 1, 2003 and October 28, 2007. The EPA FOV process is ongoing and no specific relief has been sought to date by the EPA.
The American Jobs Creation Act of 2004 requires SEC registrants to disclose if they have been required to pay certain penalties for failing to disclose to the Internal Revenue Service their participation in listed transactions. We have not been required to pay any of the penalties set forth in Section 6707A(e)(2) of the Internal Revenue Code.
The executive officers of Target as of March 7, 2011 and their positions and ages are as follows:
Name |
Title |
Age |
||||
---|---|---|---|---|---|---|
Timothy R. Baer | Executive Vice President, General Counsel and Corporate Secretary | 50 | ||||
Michael R. Francis | Executive Vice President and Chief Marketing Officer | 48 | ||||
John D. Griffith | Executive Vice President, Property Development | 49 | ||||
Beth M. Jacob | Executive Vice President, Technology Services and Chief Information Officer | 49 | ||||
Jodeen A. Kozlak | Executive Vice President, Human Resources | 47 | ||||
Tina M. Schiel | Executive Vice President, Stores | 45 | ||||
Douglas A. Scovanner | Executive Vice President and Chief Financial Officer | 55 | ||||
Terrence J. Scully | President, Financial and Retail Services | 58 | ||||
Gregg W. Steinhafel | Chairman of the Board, President and Chief Executive Officer | 56 | ||||
Kathryn A. Tesija | Executive Vice President, Merchandising | 48 | ||||
Laysha L. Ward | President, Community Relations and Target Foundation | 43 | ||||
Each officer is elected by and serves at the pleasure of the Board of Directors. There is neither a family relationship between any of the officers named and any other executive officer or member of the Board of Directors nor any arrangement or understanding pursuant to which any person was selected as an officer. The service period of each officer in the positions listed and other business experience for the past five years is listed below.
Timothy R. Baer | Executive Vice President, General Counsel and Corporate Secretary since March 2007. Senior Vice President, General Counsel and Corporate Secretary from June 2004 to March 2007. |
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Michael R. Francis | Executive Vice President and Chief Marketing Officer since August 2008. Executive Vice President, Marketing from January 2003 to August 2008. | |
John D. Griffith |
Executive Vice President, Property Development since February 2005. |
|
Beth M. Jacob |
Executive Vice President and Chief Information Officer since January 2010. Senior Vice President and Chief Information Officer from July 2008 to January 2010. Vice President, Guest Operations, Target Financial Services from August 2006 to July 2008. Vice President, Guest Contact Centers, Target Financial Services from September 2003 to August 2006. |
|
Jodeen A. Kozlak |
Executive Vice President, Human Resources since March 2007. Senior Vice President, Human Resources from February 2006 to March 2007. Vice President, Human Resources and Employee Relations General Counsel from November 2005 to February 2006. |
|
Tina M. Schiel |
Executive Vice President, Stores since January 2011. Senior Vice President, New Business Development from February 2010 to January 2011. Senior Vice President, Stores from February 2001 to February 2010. |
|
Douglas A. Scovanner |
Executive Vice President and Chief Financial Officer since February 2000. |
|
Terrence J. Scully |
President, Financial and Retail Services since March 2003. |
|
Gregg W. Steinhafel |
Chief Executive Officer since May 2008. President since August 1999. Director since January 2007. Chairman of the Board since February 2009. |
|
Kathryn A. Tesija |
Executive Vice President, Merchandising since May 2008. Senior Vice President, Merchandising from July 2001 to May 2008. |
|
Laysha L. Ward |
President, Community Relations and Target Foundation since July 2008. Vice President, Community Relations from February 2003 to July 2008. |
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Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under the symbol "TGT." We are authorized to issue up to 6,000,000,000 shares of common stock, par value $0.0833, and up to 5,000,000 shares of preferred stock, par value $0.01. At March 7, 2011, there were 17,247 shareholders of record. Dividends declared per share and the high and low closing common stock price for each fiscal quarter during 2010 and 2009 are disclosed in Note 29 of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data.
In November 2007, our Board of Directors authorized the repurchase of $10 billion of our common stock. Since the inception of this share repurchase program, we have repurchased 151.4 million common shares for a total cash investment of $7,827 million ($51.70 per share).
The table below presents information with respect to Target common stock purchases made during the three months ended January 29, 2011, by Target or any "affiliated purchaser" of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.
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Approximate |
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Total Number of |
Dollar Value of |
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Shares Purchased |
Shares that May |
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Total Number |
Average |
as Part of |
Yet Be Purchased |
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of Shares |
Price Paid |
Publicly Announced |
Under the |
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Period |
Purchased (a) |
per Share (a) |
Program (a) |
Program |
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October 31, 2010 through |
1,632,664 | $ | 52.05 | 145,434,588 | $ | 2,501,898,442 | |||||||
November 28, 2010 through |
97,151 | (b) | 54.12 | 145,518,341 | 2,497,365,556 | ||||||||
January 2, 2011 through |
5,872,428 | 55.31 | 151,390,769 | 2,172,553,879 | |||||||||
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7,602,243 | 54.60 | 151,390,769 | 2,172,553,879 | |||||||||
12
Comparison of Cumulative Five Year Total Return
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Fiscal Years Ended |
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January 28, 2006 |
February 3, 2007 |
February 2, 2008 |
January 31, 2009 |
January 30, 2010 |
January 29, 2011 |
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Target |
$ | 100.00 | $ | 114.24 | $ | 106.01 | $ | 58.78 | $ | 98.20 | $ | 105.76 | |||||||
S&P 500 Index |
100.00 | 115.32 | 113.24 | 68.66 | 91.41 | 110.85 | |||||||||||||
Peer Group |
100.00 | 112.67 | 105.89 | 77.34 | 105.84 | 126.16 | |||||||||||||
The graph above compares the cumulative total shareholder return on our common stock for the last five fiscal years with the cumulative total return on the S&P 500 Index and a peer group consisting of the companies comprising the S&P 500 Retailing Index and the S&P 500 Food and Staples Retailing Index (Peer Group) over the same period. The Peer Group index consists of 40 general merchandise, food and drug retailers and is weighted by the market capitalization of each component company. The graph assumes the investment of $100 in Target common stock, the S&P 500 Index and the Peer Group on January 28, 2006, and reinvestment of all dividends.
13
Item 6. Selected Financial Data
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As of or for the Year Ended |
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(millions, except per share data) |
2010 |
2009 |
2008 |
2007 |
2006(a) |
2005 |
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Financial Results: |
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Total revenues |
$ | 67,390 | $ | 65,357 | $ | 64,948 | $ | 63,367 | $ | 59,490 | $ | 52,620 | |||||||
Net earnings |
2,920 | 2,488 | 2,214 | 2,849 | 2,787 | 2,408 | |||||||||||||
Per Share: |
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Basic earnings per share |
4.03 | 3.31 | 2.87 | 3.37 | 3.23 | 2.73 | |||||||||||||
Diluted earnings per share |
4.00 | 3.30 | 2.86 | 3.33 | 3.21 | 2.71 | |||||||||||||
Cash dividends declared per share |
0.92 | 0.67 | 0.62 | 0.54 | 0.46 | 0.38 | |||||||||||||
Financial Position: |
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Total assets |
43,705 | 44,533 | 44,106 | 44,560 | 37,349 | 34,995 | |||||||||||||
Long-term debt, including current portion |
15,726 | 16,814 | 18,752 | 16,590 | 10,037 | 9,872 | |||||||||||||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Our 2010 Retail Segment sales increased 3.7 percent over last year due to a 2.1 percent comparable-store increase combined with the contribution from new stores. Our Retail Segment EBITDA and EBIT increased 4.9 percent and 5.8 percent, respectively, compared with the prior year. In the Credit Card Segment, we achieved a significant increase in segment profit primarily due to declining bad debt expense driven by improved trends in key measures of risk.
Cash flow provided by operations was $5,271 million, $5,881 million and $4,430 million for 2010, 2009 and 2008, respectively. We opened 13 new stores and 76 new stores in 2010 and 2009, respectively. In 2010 we remodeled 341 stores, significantly more than the 67 stores we remodeled in 2009. Additionally, during 2010 and 2009 we repurchased 47.8 million and 9.9 million shares of our common stock for a total cash investment of $2,508 million ($52.44 per share) and $479 million ($48.54 per share), respectively.
In January 2011, we entered into an agreement to purchase the leasehold interests in up to 220 sites in Canada currently operated by Zellers Inc., in exchange for C$1,825 million (Canadian dollars), due in two payments, one in May 2011 and one in September 2011. We believe this transaction will allow us to open 100 to 150 Target stores in Canada, primarily during 2013. We expect that renovation of these stores will require an investment of over C$1 billion, a portion of which may be funded by landlords. At January 29, 2011 the value of C$1.00 approximated the value of $1.00.
Additionally, in January 2011, we announced our plan to actively pursue the sale of our credit card receivables portfolio. As of January 29, 2011 the gross balance of our credit card receivables portfolio was $6,843 million, of which $3,954 million was funded by third parties and $2,889 million was funded by Target. Refer to Note 10 of the Notes to Consolidated Financial Statements for further description of historical financing transactions related to our credit card receivables.
Management's Discussion and Analysis is based on our Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data.
14
Analysis of Results of Operations
Retail Segment
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Percent Change |
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Retail Segment Results (millions) |
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2010 |
2009 |
2008 |
2010/2009 |
2009/2008 |
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Sales |
$ | 65,786 | $ | 63,435 | $ | 62,884 | 3.7 | % | 0.9 | % | ||||||
Cost of sales |
45,725 | 44,062 | 44,157 | 3.8 | (0.2 | ) | ||||||||||
Gross margin |
20,061 | 19,373 | 18,727 | 3.5 | 3.5 | |||||||||||
SG&A expenses (a) |
13,367 | 12,989 | 12,838 | 2.9 | 1.2 | |||||||||||
EBITDA |
6,694 | 6,384 | 5,889 | 4.9 | 8.4 | |||||||||||
Depreciation and amortization |
2,065 | 2,008 | 1,808 | 2.8 | 11.0 | |||||||||||
EBIT |
$ | 4,629 | $ | 4,376 | $ | 4,081 | 5.8 | % | 7.3 | % | ||||||
EBITDA is earnings before interest expense, income taxes, depreciation and amortization.
EBIT is earnings before interest expense and income taxes.
Retail Segment Rate Analysis |
2010 |
2009 |
2008 |
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Gross margin rate |
30.5 | % | 30.5 | % | 29.8 | % | ||||
SG&A expense rate |
20.3 | 20.5 | 20.4 | |||||||
EBITDA margin rate |
10.2 | 10.1 | 9.4 | |||||||
Depreciation and amortization expense rate |
3.1 | 3.2 | 2.9 | |||||||
EBIT margin rate |
7.0 | 6.9 | 6.5 | |||||||
Retail Segment rate analysis metrics are computed by dividing the applicable amount by sales.
Sales
Sales include merchandise sales, net of expected returns, from our stores and our online business, as well as gift card breakage. Refer to Note 2 of the Notes to Consolidated Financial Statements for a definition of gift card breakage. Total sales for the Retail Segment for 2010 were $65,786 million, compared with $63,435 million in 2009 and $62,884 million in 2008. All periods were 52-week years. Growth in total sales between 2010 and 2009 resulted from higher comparable-store sales and additional stores opened, whereas between 2009 and 2008, growth in total sales resulted from sales from additional stores opened, partially offset by lower comparable-store sales. In 2010, deflation affected sales growth by approximately 0.2 percentage points, compared with a deflationary impact of approximately 3.6 percentage points in 2009 and an inflationary impact of 2.2 percentage points in 2008.
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Percentage of Sales |
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Sales by Product Category |
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2010 |
2009 |
2008 |
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Household essentials |
24 | % | 23 | % | 22 | % | ||||
Hardlines |
20 | 22 | 22 | |||||||
Apparel and accessories |
20 | 20 | 20 | |||||||
Home furnishings and décor |
19 | 19 | 21 | |||||||
Food and pet supplies |
17 | 16 | 15 | |||||||
Total |
100 | % | 100 | % | 100 | % | ||||
Refer to the Merchandise section in Item 1, Business, for a description of our product categories.
15
Comparable-store sales is a measure that indicates the performance of our existing stores by measuring the growth in sales for such stores for a period over the comparable, prior-year period of equivalent length. The method of calculating comparable-store sales varies across the retail industry. As a result, our comparable-store sales calculation is not necessarily comparable to similarly titled measures reported by other companies.
Comparable-store sales are sales from our online business and stores open longer than one year, including:
Comparable-store sales do not include:
Comparable-Store Sales |
2010 |
2009 |
2008 |
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Comparable-store sales change |
2.1 | % | (2.5)% | (2.9) | % | |||||||
Drivers of changes in comparable-store sales: |
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Number of transactions |
2.0 | % | (0.2)% | (3.1) | % | |||||||
Average transaction amount |
0.1 | % | (2.3)% | 0.2 | % | |||||||
Units per transaction |
2.5 | % | (1.5)% | (2.1) | % | |||||||
Selling price per unit |
(2.3) | % | (0.8)% | 2.3 | % | |||||||
The comparable-store sales increases or decreases above are calculated by comparing sales in fiscal year periods with comparable prior fiscal year periods of equivalent length.
In 2010, the change in comparable-store sales was driven by an increase in the number of transactions and a slight increase in the average transaction amount, reflecting an increase in units per transaction largely offset by a decrease in selling price per unit. In 2009, the change in comparable-store sales was driven by a decline in the average transaction amount, primarily due to a decrease in the number of units per transaction, as well as a slight decrease in the number of transactions. The collective interaction of a broad array of macroeconomic, competitive and consumer behavioral factors, as well as sales mix, and transfer of sales to new stores makes further analysis of sales metrics infeasible.
Beginning April 2010, all new qualified credit card applicants receive the Target Card, and we no longer issue the Target Visa to credit card applicants. Existing Target Visa cardholders are not affected. Beginning October 2010, guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com.
We monitor the percentage of store sales that are paid for using REDcards (REDcard Penetration), because our internal analysis has indicated that a meaningful portion of the incremental purchases on our REDcards are also incremental sales for Target, with the remainder of the incremental purchases on the REDcards representing a shift in tender type.
REDcard Penetration |
2010 |
2009 |
2008 |
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Target credit penetration |
5.2 | % | 5.2 | % | 6.2 | % | ||||
Target debit penetration |
0.7 | % | 0.4 | % | 0.3 | % | ||||
Total store REDcard penetration |
5.9 | % | 5.6 | % | 6.5 | % | ||||
Since launching our new 5% REDcard Rewards program in October 2010, we have experienced an increase in REDcard penetration. REDcard penetration for the fourth quarter of 2010 was 7.4 percent compared to 5.6 percent in the fourth quarter of 2009.
Gross Margin Rate
Gross margin rate represents gross margin (sales less cost of sales) as a percentage of sales. See Note 3 of the Notes to Consolidated Financial Statements for a description of costs included in cost of sales. Markup is the
16
difference between an item's cost and its retail price (expressed as a percentage of its retail price). Factors that affect markup include vendor offerings and negotiations, vendor income, sourcing strategies, market forces like raw material and freight costs, and competitive influences. Markdowns are the reduction in the original or previous price of retail merchandise. Factors that affect markdowns include inventory management, competitive influences and economic conditions.
Our gross margin rate was 30.5 percent in 2010, unchanged from prior year, as margin rates within categories were generally stable and the impact of sales mix was essentially neutral. There were no other significant variances in the drivers of gross margin rate.
Our gross margin rate was 30.5 percent in 2009, compared with 29.8 percent in 2008. Our 2009 gross margin rate benefitted from rate improvements within categories, partially offset by the mix impact of faster sales growth in lower margin rate categories (generally product categories of household essentials and food). The impact of rate performance within merchandise categories on gross margin rate was an approximate 1.1 percentage point increase for 2009. This increase is the result of improved markups and reduced markdowns. The impact of sales mix on gross margin rate was an approximate 0.4 percentage point reduction.
Selling, General and Administrative Expense Rate
Our selling, general and administrative (SG&A) expense rate represents SG&A expenses as a percentage of sales. See Note 3 of the Notes to Consolidated Financial Statements for a description of costs included in SG&A expenses. SG&A expenses exclude depreciation and amortization, as well as expenses associated with our credit card operations, which are reflected separately in our Consolidated Statements of Operations.
SG&A expense rate was 20.3 percent in 2010 compared with 20.5 percent in 2009 and 20.4 percent in 2008. The change in the rate in 2010 was primarily due to favorable leverage of overall compensation expenses. The change in the SG&A expense rate in 2009 was primarily driven by an approximate 0.4 percentage point impact from an increase in incentive compensation due to better than expected 2009 performance compared with 2008 results, which was partially offset by an approximate 0.2 percentage point impact from sustained productivity gains in our stores.
Depreciation and Amortization Expense Rate
Our depreciation and amortization expense rate represents depreciation and amortization expense as a percentage of sales. In 2010, our depreciation and amortization expense rate was 3.1 percent compared with 3.2 percent in 2009 and 2.9 percent in 2008. The rate was essentially unchanged from the same period last year. In 2009 the increase in the rate was primarily due to accelerated depreciation on assets that were replaced as part of our remodel program.
Store Data
Number of Stores |
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General merchandise |
Expanded food assortment |
SuperTarget |
Total |
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January 30, 2010 |
1,381 | 108 | 251 | 1,740 | |||||||||
Opened |
| 13 | | 13 | |||||||||
Format conversion |
(341 | ) | 341 | | | ||||||||
Closed (a) |
(3 | ) | | | (3 | ) | |||||||
January 29, 2011 |
1,037 | 462 | 251 | 1,750 | |||||||||
Retail Square Feet (b) |
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January 30, 2010 |
172,735 | 14,714 | 44,503 | 231,952 | |||||||||
Opened |
| 1,958 | | 1,958 | |||||||||
Format conversion |
(45,138 | ) | 45,151 | | 13 | ||||||||
Closed (a) |
(305 | ) | | | (305 | ) | |||||||
January 29, 2011 |
127,292 | 61,823 | 44,503 | 233,618 | |||||||||
17
Credit Card Segment
We offer credit to qualified guests through the Target Visa and the Target Card. Our credit card program supports our core retail operations and remains an important contributor to our overall profitability and engagement with our guests. Beginning April 2010, all new qualified credit card applicants receive the Target Card, and we no longer issue the Target Visa to credit card applicants. Existing Target Visa cardholders are not affected. Beginning October 2010, guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com. This new REDcard Rewards program replaced the existing rewards program in which account holders received an initial 10 percent-off coupon for opening the account and earned points toward a 10 percent-off coupon on subsequent purchases. These changes are intended to simplify the program and to generate profitable incremental retail sales.
Credit card revenues are comprised of finance charges, late fees and other revenue, and third party merchant fees, or the amounts received from merchants who accept the Target Visa credit card.
Credit Card Segment Results (dollars in millions) |
2010 | 2009 | 2008 | ||||||||||||||||
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Amount |
Rate (d) |
Amount |
Rate (d) |
Amount |
Rate (d) |
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Finance charge revenue |
$ | 1,302 | 18.3 | % | $ | 1,450 | 17.4 | % | $ | 1,451 | 16.7 | % | |||||||
Late fees and other revenue |
197 | 2.8 | 349 | 4.2 | 461 | 5.3 | |||||||||||||
Third party merchant fees |
105 | 1.5 | 123 | 1.5 | 152 | 1.7 | |||||||||||||
Total revenues |
1,604 | 22.6 | 1,922 | 23.0 | 2,064 | 23.7 | |||||||||||||
Bad debt expense |
528 | 7.4 | 1,185 | 14.2 | 1,251 | 14.4 | |||||||||||||
Operations and marketing expenses (a) |
433 | 6.1 | 425 | 5.1 | 474 | 5.4 | |||||||||||||
Depreciation and amortization |
19 | 0.3 | 14 | 0.2 | 17 | 0.2 | |||||||||||||
Total expenses |
980 | 13.8 | 1,624 | 19.4 | 1,742 | 20.0 | |||||||||||||
EBIT |
624 | 8.8 | 298 | 3.5 | 322 | 3.7 | |||||||||||||
Interest expense on nonrecourse debt collateralized by credit card receivables |
83 | 97 | 167 | ||||||||||||||||
Segment profit |
$ | 541 | $ | 201 | $ | 155 | |||||||||||||
Average receivables funded by Target (b) |
$ | 2,771 | $ | 2,866 | $ | 4,192 | |||||||||||||
Segment pretax ROIC (c) |
19.5 | % | 7.0 | % | 3.7 | % | |||||||||||||
18
Spread Analysis Total Portfolio (dollars in millions) |
2010 | 2009 | 2008 | ||||||||||||||||
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Amount |
Rate |
Amount |
Rate |
Amount |
Rate |
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EBIT |
$ | 624 | 8.8 | % (c) | $ | 298 | 3.5 | % (c) | $ | 322 | 3.7 | % (c) | |||||||
LIBOR (a) |
0.3 | % | 0.3 | % | 2.3 | % | |||||||||||||
Spread to LIBOR (b) |
$ | 604 | 8.5 | % (c) | $ | 270 | 3.2 | % (c) | $ | 118 | 1.4 | % (c) | |||||||
Our primary measure of segment profit in our Credit Card Segment is the EBIT generated by our total credit card receivables portfolio less the interest expense on nonrecourse debt collateralized by credit card receivables. We analyze this measure of profit in light of the amount of capital we have invested in our credit card receivables. In addition, we measure the performance of our overall credit card receivables portfolio by calculating the dollar Spread to LIBOR at the portfolio level. This metric approximates overall financial performance of the entire credit card portfolio we manage by measuring the difference between EBIT earned on the portfolio and a hypothetical benchmark rate financing cost applied to the entire portfolio. The interest rate on all nonrecourse debt securitized by credit card receivables is tied to LIBOR.
Effective April 2009, we implemented a terms change to our portfolio that established a minimum annual percentage rate (APR) applied to cardholder account balances. Under these terms, finance charges accrue at a fixed APR if the benchmark Prime Rate is less than 6%; if the Prime Rate is greater than 6%, finance charges accrue at the benchmark Prime Rate, plus a spread. Because the Prime Rate was less than 6% during 2009, the majority of our portfolio accrued finance charges at a fixed APR subsequent to this terms change. As a result of regulatory actions that impact our portfolio, effective January 2010, we implemented a second terms change that converted the minimum APR for the majority of our accounts to a variable rate, and we eliminated penalty pricing for all current, or nondelinquent accounts. Penalty pricing is the charging of a higher interest rate for a period of time, generally 12 months, and is triggered when a cardholder repeatedly fails to make timely payments. Additionally, beginning in August 2010 late fee limitations went into effect that resulted in reduced late fee revenue.
In 2010, Credit Card Segment profit increased to $541 million from $201 million, driven mostly by favorability in bad debt expense. The reduction in our investment in the portfolio combined with these results produced a strong improvement in segment ROIC. Segment revenues were $1,604 million, a decrease of $318 million, or 16.5 percent, from the prior year, which was primarily driven by lower average receivables as well as reduced late fees. Segment expenses were $980 million, a decrease of $644 million, or 39.7 percent, from prior year driven primarily by lower bad debt expense due to lower actual and expected write-offs. Segment interest expense on nonrecourse debt declined due to a decrease in nonrecourse debt securitized by credit card receivables.
In 2009, Credit Card Segment profit increased to $201 million from $155 million as a result of improved portfolio performance (Spread to LIBOR) and significantly lower funding costs. The reduction in our investment in the portfolio combined with these results produced a strong improvement in segment ROIC. Segment revenues were $1,922 million, a decrease of $143 million, or 6.9 percent, from the prior year. The decrease in revenue was driven by a lower Prime Rate, lower average receivables, higher finance charge and late-fee write-offs, and lower late fees due to fewer delinquent accounts offset by the positive impacts of the terms changes implemented in late 2008 and April 2009. Segment expenses were $1,624 million, a decrease of $118 million, or 6.8 percent, from prior year driven by lower bad debt and operations and marketing expenses, on both a dollar and rate basis. Segment interest expense benefited from a significantly lower LIBOR rate compared to the prior year.
19
Receivables Rollforward Analysis |
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Percent Change |
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(millions) |
2010 |
2009 |
2008 |
2010/2009 |
2009/2008 |
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Beginning gross credit card receivables |
$ | 7,982 | $ | 9,094 | $ | 8,624 | (12.2 | )% | 5.4 | % | ||||||
Charges at Target |
3,699 | 3,553 | 4,207 | 4.1 | (15.5 | ) | ||||||||||
Charges at third parties |
5,815 | 6,763 | 8,542 | (14.0 | ) | (20.8 | ) | |||||||||
Payments |
(11,283 | ) | (12,065 | ) | (13,482 | ) | (6.5 | ) | (10.5 | ) | ||||||
Other |
630 | 637 | 1,203 | (1.1 | ) | (47.1 | ) | |||||||||
Period-end gross credit card receivables |
$ | 6,843 | $ | 7,982 | $ | 9,094 | (14.3 | )% | (12.2 | )% | ||||||
Average gross credit card receivables |
$ | 7,106 | $ | 8,351 | $ | 8,695 | (14.9 | )% | (4.0 | )% | ||||||
Accounts with three or more payments (60+ days) past due as a percentage of period-end credit card receivables |
4.2 | % | 6.3 | % | 6.1 | % | ||||||||||
Accounts with four or more payments (90+ days) past due as a percentage of period-end gross credit card receivables |
3.1 | % | 4.7 | % | 4.3 | % | ||||||||||
Allowance for Doubtful Accounts |
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Percent Change |
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(millions) |
2010 |
2009 |
2008 |
2010/2009 |
2009/2008 |
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Allowance at beginning of period |
$ | 1,016 | $ | 1,010 | $ | 570 | 0.6 | % | 77.1 | % | ||||||
Bad debt expense |
528 | 1,185 | 1,251 | (55.4 | ) | (5.3 | ) | |||||||||
Write-offs (a) |
(1,007 | ) | (1,287 | ) | (912 | ) | (21.8 | ) | 41.1 | |||||||
Recoveries (a) |
153 | 108 | 101 | 40.2 | 8.3 | |||||||||||
Allowance at end of period |
$ | 690 | $ | 1,016 | $ | 1,010 | (32.1 | )% | 0.6 | % | ||||||
As a percentage of period-end gross credit card receivables |
10.1 | % | 12.7 | % | 11.1 | % | ||||||||||
Net write-offs as a percentage of average gross credit card receivables (annualized) |
12.0 | % | 14.1 | % | 9.3 | % | ||||||||||
Our 2010 period-end gross credit card receivables were $6,843 million compared to $7,982 million in 2009, a decrease of 14.3 percent. Average gross credit card receivables in 2010 decreased 14.9 percent compared with 2009 levels. In response to regulatory changes and credit card industry trends, we have undertaken risk management and underwriting initiatives that have reduced available credit lines for higher-risk cardholders. Additionally, we have experienced an increase in payment rates and a decrease in charges at third-parties.
Our 2009 period-end gross credit card receivables were $7,982 million compared with $9,094 million in 2008, a decrease of 12.2 percent. Average gross credit card receivables in 2009 decreased 4.0 percent compared with 2008 levels. This change was driven by the tighter risk management and underwriting initiatives described above, fewer new accounts being opened, and a decrease in charge activity resulting from reductions in card usage by our guests, partially offset by the impact of lower payment rates.
Other Performance Factors
Net Interest Expense
Net interest expense, which includes the interest expense on nonrecourse debt collateralized by credit card receivables detailed in the Credit Card Segment Results above, was $757 million for 2010, decreasing 5.5 percent, or $44 million from 2009 due to lower average debt balances and a $16 million charge related to the early retirement of long-term debt in 2009, partially offset by a higher average portfolio interest rate of 5.3 percent in 2010, compared with 4.8 percent in 2009. In 2009, net interest expense was $801 million, decreasing 7.5 percent, or $65 million from 2008. This decline was due to a lower average portfolio interest rate of 4.8 percent in 2009, compared with 5.3 percent in 2008, partially offset by a $16 million charge related to the early retirement of long-term debt.
20
Provision for Income Taxes
Our effective income tax rate was 35.1 percent in 2010 and 35.7 percent in 2009. The decrease in the effective rate between periods is primarily due to the favorable resolution of various income tax matters, which reduced income tax expense by approximately $100 million.
Our effective income tax rate was 35.7 percent in 2009 and 37.4 percent in 2008. The decrease in the effective rate between periods is primarily due to nontaxable capital market returns on investments used to economically hedge the market risk in deferred compensation plans in 2009, compared with nondeductible losses in 2008. The 2009 effective income tax rate is also lower due to federal and state discrete items.
Analysis of Financial Condition
Liquidity and Capital Resources
Our period end cash and cash equivalents balance was $1,712 million compared with $2,200 million in 2009. Marketable securities of $1,129 million and $1,617 million were included in cash and cash equivalents at the end of 2010 and 2009, respectively. Our investment policy is designed to preserve principal and liquidity of our marketable securities. This policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less. We also place certain limitations on the aggregate dollars invested and percentage of total fund value held when making short-term investment decisions.
Our 2010 operations were funded by both internally and externally generated funds. Cash flow provided by operations was $5,271 million in 2010 compared with $5,881 million in 2009. This cash flow, combined with our prior year-end cash position and the debt issuance described below, allowed us to fund capital expenditures of $2,129 million and pay off $2,259 million of debt. In addition, in 2010 we increased our share repurchases and raised dividends paid to our shareholders.
Our 2010 period-end gross credit card receivables were $6,843 million compared with $7,982 million in 2009, a decrease of 14.3 percent. Average gross credit card receivables in 2010 decreased 14.9 percent compared with 2009 levels. This change was driven by the factors indicated in the Credit Card Segment above. This trend and the factors influencing it are likely to continue into 2011. Due to the decrease in gross credit card receivables, Target Receivables LLC (TR LLC), formerly known as Target Receivables Corporation (TRC), using cash flows from the receivables, repaid an affiliate of JPMorgan Chase (JPMC) $566 million and $163 million during 2010 and 2009, respectively, under the terms of our agreement with them as described in Note 10 of the Notes to Consolidated Financial Statements. To the extent the receivables balance continues to decline, TR LLC expects to continue to pay JPMC a prorata portion of principal collections such that the portion owned by JPMC would not exceed 47 percent.
Year-end inventory levels increased $417 million, or 5.8 percent from 2009. Inventory levels were higher to support traffic-driving strategic initiatives, such as our expanded food assortment in general merchandise stores and pharmacy, in addition to comparatively higher retail square footage. Accounts payable increased by $115 million, or 1.8 percent over the same period.
During 2010, we repurchased 47.8 million shares of our common stock for a total cash investment of $2,508 million ($52.44 per share) under a $10 billion share repurchase plan authorized by our Board of Directors in November 2007. In 2009, we repurchased 9.9 million shares of our common stock for a total cash investment of $479 million ($48.54 per share).
We paid dividends totaling $609 million in 2010 and $496 million in 2009, an increase of 22.7 percent. We declared dividends totaling $659 million ($0.92 per share) in 2010, an increase of 31.1 percent over 2009. In 2009, we declared dividends totaling $503 million ($0.67 per share), an increase of 6.8 percent over 2008. We have paid dividends every quarter since our first dividend was declared following our 1967 initial public offering, and it is our intent to continue to do so in the future.
Our financing strategy is to ensure liquidity and access to capital markets, to manage our net exposure to floating interest rate volatility, and to maintain a balanced spectrum of debt maturities. Within these parameters, we seek to minimize our borrowing costs. As described in Note 19, in July 2010, we issued $1 billion of long-term debt at 3.875% that matures in July 2020. There were no amounts issued in 2009.
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Our ability to access the long-term debt, commercial paper and securitized debt markets has provided ample sources of liquidity to Target in the past. Our continued access to these markets depends on multiple factors including the economic environment, our operating performance and maintaining strong debt ratings. The ratings assigned to our debt by the credit rating agencies affect both the pricing and terms of any new financing. As of January 29, 2011 our credit ratings were as follows:
Credit Ratings |
|
Standard and Poor's |
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Moody's |
Fitch |
||||||||
Long-term debt |
A2 | A+ | A | |||||||
Commercial paper |
P-1 | A-1 | F1 | |||||||
Securitized receivables (a) |
Aa2 | n/a | n/a | |||||||
If our credit ratings were lowered, our ability to access the debt markets and our cost of funds for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit rating will remain the same as described above.
As a measure of our financial condition we monitor our interest coverage ratio, representing the ratio of pretax earnings before fixed charges to fixed charges. Fixed charges include interest expense and the interest portion of rent expense. Our interest coverage ratio as calculated by the SEC's applicable rules was 6.1x in 2010, 5.1x in 2009 and 4.3x in 2008.
At January 29, 2011 and January 30, 2010, there were no amounts outstanding under our commercial paper program. In past years, we funded our peak sales season working capital needs through our commercial paper program and then used the cash generated from that sales season to repay the commercial paper issued. In 2010 and 2009 we funded our working capital needs through internally generated funds and the long-term debt issuance indicated above.
Commercial Paper (millions) |
2010 |
2009 |
|||||
---|---|---|---|---|---|---|---|
Maximum daily amount outstanding during the year |
$ | | $ | 112 | |||
Average amount outstanding during the year |
| 1 | |||||
Amount outstanding at year-end |
| | |||||
Weighted average interest rate |
| 0.2 | % | ||||
An additional source of liquidity is available to us through a committed $2 billion unsecured revolving credit facility obtained through a group of banks in April 2007, which will expire in April 2012. No balances were outstanding at any time during 2010 or 2009 under this facility.
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, at January 29, 2011, no notes or debentures contained provisions requiring acceleration of payment upon a debt rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control; and (ii) our long-term debt ratings are either reduced and the resulting rating is non-investment grade, or our long-term debt ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.
We believe our sources of liquidity will be adequate to maintain operations and to finance anticipated expansion and strategic initiatives during 2011, including our plan to enter the Canadian retail market by paying C$1,825 million to purchase the leasehold interests in up to 220 sites currently operated by Zellers Inc. We may issue new long-term debt for these and other initiatives, and we anticipate ample access to long-term financing. Further, in January 2011, we announced our plan to actively pursue the sale of our credit card receivables portfolio, which may provide additional funding. As of January 29, 2011 the gross balance of our credit card receivables
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portfolio was $6,843 million, of which $3,954 million was funded by third parties and $2,889 million was funded by Target.
Capital Expenditures
Capital expenditures were $2,129 million in 2010 compared with $1,729 million in 2009 and $3,547 million in 2008. This increase was driven by higher capital expenditures for remodels partially offset by reduced expenditures for new stores. Our 2010 capital expenditures include $482 million related to stores that will open in 2011 and later years. Net property and equipment increased $213 million in 2010 following a decrease of $475 million in 2009.
Capital Expenditures (millions) |
2010 |
2009 |
2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
New stores |
$ | 574 | $ | 899 | $ | 2,341 | ||||
Remodels and expansions |
966 | 294 | 284 | |||||||
Information technology, distribution and other |
589 | 536 | 922 | |||||||
Total |
$ | 2,129 | $ | 1,729 | $ | 3,547 | ||||
In connection with the previously described agreement to purchase leasehold interests in Canada, we expect that renovation of these stores will require an investment of over C$1 billion, primarily during 2012 and 2013, a portion of which may be funded by landlords.
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Commitments and Contingencies
At January 29, 2011, our contractual obligations were as follows:
|
Payments Due by Period |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations (millions) |
||||||||||||||||||
Total |
Less than 1 Year |
1-3 Years |
3-5 Years |
After 5 Years |
||||||||||||||
Recorded Contractual Obligations: |
||||||||||||||||||
Long-term debt (a) |
||||||||||||||||||
Unsecured |
$ | 11,287 | $ | 106 | $ | 2,002 | $ | 28 | $ | 9,151 | ||||||||
Nonrecourse |
4,061 | | 4,061 | | | |||||||||||||
Capital lease obligations (b) |
617 | 32 | 66 | 62 | 457 | |||||||||||||
Real estate liabilities (c) |
65 | 65 | | | | |||||||||||||
Deferred compensation (d) |
440 | 44 | 96 | 106 | 194 | |||||||||||||
Tax contingencies (e) |
| | | | | |||||||||||||
Unrecorded Contractual Obligations: |
||||||||||||||||||
Interest payments long-term debt |
||||||||||||||||||
Unsecured |
10,080 | 678 | 1,214 | 1,127 | 7,061 | |||||||||||||
Nonrecourse (f) |
101 | 32 | 69 | | | |||||||||||||
Operating leases (b) |
3,954 | 190 | 376 | 288 | 3,100 | |||||||||||||
Real estate obligations (g) |
243 | 209 | 34 | | | |||||||||||||
Purchase obligations (h) |
1,907 | 713 | 747 | 348 | 99 | |||||||||||||
Payment for Canadian leasehold interests (i) |
1,825 | 1,825 | | | | |||||||||||||
Future contributions to retirement plans (j) |
| | | | | |||||||||||||
Contractual obligations |
$ | 34,580 | $ | 3,894 | $ | 8,665 | $ | 1,959 | $ | 20,062 | ||||||||
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Off Balance Sheet Arrangements We do not have any arrangements or relationships with entities that are not consolidated into the financial statements or financial guarantees that are reasonably likely to materially affect our liquidity or the availability of capital resources.
Critical Accounting Estimates
Our analysis of operations and financial condition is based on our consolidated financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP). Preparation of these consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements, reported amounts of revenues and expenses during the reporting period and related disclosures of contingent assets and liabilities. In the Notes to Consolidated Financial Statements, we describe the significant accounting policies used in preparing the consolidated financial statements. Our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could differ under other assumptions or conditions. However, we do not believe there is a reasonable likelihood that there will be a material change in future estimates or assumptions. Our senior management has discussed the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors. The following items in our consolidated financial statements require significant estimation or judgment:
Inventory and cost of sales We use the retail inventory method to account for substantially our entire inventory and the related cost of sales. Under this method, inventory is stated at cost using the last-in, first-out (LIFO) method as determined by applying a cost-to-retail ratio to each merchandise grouping's ending retail value. Cost includes the purchase price as adjusted for vendor income. Since inventory value is adjusted regularly to reflect market conditions, our inventory methodology reflects the lower of cost or market. We reduce inventory for estimated losses related to shrink and markdowns. Our shrink estimate is based on historical losses verified by ongoing physical inventory counts. Historically, our actual physical inventory count results have shown our estimates to be reliable. Markdowns designated for clearance activity are recorded when the salability of the merchandise has diminished. Inventory is at risk of obsolescence if economic conditions change. Relevant economic conditions include changing consumer demand, customer preferences, changing consumer credit markets or increasing competition. We believe these risks are largely mitigated because our inventory typically turns in less than three months. Inventory was $7,596 million and $7,179 million at January 29, 2011 and January 30, 2010, respectively, and is further described in Note 11 of the Notes to Consolidated Financial Statements.
Vendor income receivable Cost of sales and SG&A expenses are partially offset by various forms of consideration received from our vendors. This "vendor income" is earned for a variety of vendor-sponsored programs, such as volume rebates, markdown allowances, promotions and advertising allowances, as well as for our compliance programs. We establish a receivable for the vendor income that is earned but not yet received. Based on the agreements in place, this receivable is computed by estimating when we have completed our performance and when the amount is earned. The majority of all year-end vendor income receivables are collected within the following fiscal quarter, and we do not believe there is a reasonable likelihood that the assumptions used in our estimate will change significantly. Historically, adjustments to our vendor income receivable have not been material. Vendor income receivable was $517 million and $390 million at January 29, 2011 and January 30, 2010, respectively, and is described further in Note 4 of the Notes to Consolidated Financial Statements.
Allowance for doubtful accounts When receivables are recorded, we recognize an allowance for doubtful accounts in an amount equal to anticipated future write-offs. This allowance includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs based on historical experience of delinquencies, risk scores, aging trends and industry risk trends. Substantially all accounts continue to accrue finance charges until they are written off. Accounts are automatically written off when they become 180 days past due. Management believes the allowance for doubtful accounts is adequate to cover anticipated losses in our credit card accounts receivable under current conditions; however, unexpected, significant deterioration in any of the
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factors mentioned above or in general economic conditions could materially change these expectations. During 2010, we continued risk management and underwriting initiatives that reduced available credit lines for higher-risk cardholders. In addition, we experienced an increase in payment rates and a decrease in charge activity from reductions in card usage by our guests. As a result of these trends, our allowance for doubtful accounts related to our credit card receivables decreased $326 million, from $1,016 million, or 12.7 percent of gross credit card receivables, at January 30, 2010 to $690 million, or 10.1 percent of gross credit card receivables, at January 29, 2011. Credit card receivables and our allowance for doubtful accounts are described in Note 10 of the Notes to Consolidated Financial Statements.
Long-lived assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset group are less than the carrying amount of the asset group. Asset groups have identifiable cash flows independent of other asset groups. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using discounted cash flows or independent opinions of value, as appropriate. A 10 percent decrease in the fair value of assets we intend to sell as of January 29, 2011 would result in additional impairment of approximately $12 million in 2010. Historically, we have not realized material losses upon sale of long-lived assets.
Goodwill and intangible assets We evaluate goodwill and intangible assets for impairment annually, or whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable. Discounted cash flow models are used in determining fair value of goodwill and intangible assets. Growth rates for sales and profits are determined using inputs from our long-range planning process. We also make estimates of discount rates, perpetuity growth rates, and other factors. As of January 29, 2011 and January 30, 2010, we had $223 million and $239 million of goodwill and intangible assets, respectively. While we currently believe that the fair value of our goodwill and intangible assets exceeds its carrying value, materially different assumptions regarding future performance of our businesses or other factors could result in impairment losses.
Insurance/self-insurance We retain a substantial portion of the risk related to certain general liability, workers' compensation, property loss and team member medical and dental claims. However, we maintain stop-loss coverage to limit the exposure related to certain risks. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We use actuarial methods which consider a number of factors to estimate our ultimate cost of losses. General liability and workers' compensation liabilities are recorded at our estimate of their net present value; other liabilities referred to above are not discounted. Our workers' compensation and general liability accrual was $628 million and $653 million at January 29, 2011 and January 30, 2010, respectively. We believe that the amounts accrued are adequate; however, our liabilities could be significantly affected if future occurrences or loss developments differ from our assumptions. For example, a 5 percent increase or decrease in average claim costs would impact our self-insurance expense by approximately $30 million in 2010. Historically, adjustments to our estimates have not been material. Refer to Item 7A for further disclosure of the market risks associated with these exposures.
Income taxes We pay income taxes based on the tax statutes, regulations and case law of the various jurisdictions in which we operate. Significant judgment is required in determining the timing and amounts of deductible and taxable items and in evaluating the ultimate resolution of tax matters in dispute with tax authorities. The benefits of uncertain tax positions are recorded in our financial statements only after determining whether it is likely the uncertain tax positions would withstand challenge by taxing authorities. We periodically reassess these probabilities, and record any changes in the financial statements as deemed appropriate. Liabilities for tax positions considered uncertain, including interest and penalties, were $397 million and $579 million at January 29, 2011 and January 30, 2010, respectively. We believe the resolution of these matters will not have a material adverse impact on our consolidated financial statements. Income taxes are described further in Note 22 of the Notes to Consolidated Financial Statements.
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Pension and postretirement health care accounting We fund and maintain a qualified defined benefit pension plan. We also maintain several smaller nonqualified plans and a postretirement health care plan for certain current and retired team members. The costs for these plans are determined based on actuarial calculations using the assumptions described in the following paragraphs. Eligibility for, and the level of, these benefits varies depending on team members' full-time or part-time status, date of hire and/or length of service.
Our expected long-term rate of return on plan assets is determined by the portfolio composition, historical long-term investment performance and current market conditions. Benefits expense recorded during the year is partially dependent upon the long-term rate of return used. A one percentage point decrease in the expected long-term rate of return used to determine net pension and postretirement health care benefits expense would increase annual expense by approximately $24 million.
The discount rate used to determine benefit obligations is adjusted annually based on the interest rate for long-term high-quality corporate bonds as of the measurement date, using yields for maturities that are in line with the duration of our pension liabilities. Therefore, these liabilities fluctuate with changes in interest rates. Historically, this same discount rate has also been used to determine net pension and postretirement health care benefits expense for the following plan year. Benefits expense recorded during the year is partially dependent upon the discount rates used, and a 0.5 percentage point decrease to the weighted average discount rate used to determine net pension and postretirement health care benefits expense would increase annual expense by approximately $23 million.
Based on our experience, we use a graduated compensation growth schedule that assumes higher compensation growth for younger, shorter-service pension-eligible team members than it does for older, longer-service pension-eligible team members.
Pension and postretirement health care benefits are further described in Note 27 of the Notes to Consolidated Financial Statements.
Legal contingencies We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders and other constituents. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of the currently identified claims or litigation matters will have a material adverse impact on our results of operations, cash flows or financial condition. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there may be a material adverse impact on the results of operations, cash flows or financial condition for the period in which the ruling occurs, or future periods.
New Accounting Pronouncements
Recent Adoptions
In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140" (SFAS 166), codified in the Transfers and Servicing accounting principles, which amends the derecognition guidance in former FASB Statement No. 140 and eliminates the exemption from consolidation for qualifying special-purpose entities. We adopted this guidance at the beginning of 2010 and adoption had no impact on our consolidated net earnings, cash flows or financial position.
In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)" (SFAS 167), codified in the Consolidation accounting principles, which amends the consolidation guidance applicable to variable interest entities. The amendments significantly affected the overall consolidation analysis under former FASB Interpretation No. 46(R). We adopted this guidance at the beginning of 2010 and the adoption had no impact on our consolidated net earnings, cash flows or financial position.
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Outlook
Our outlook is based on the application of business judgment in light of current business trends, our assumptions regarding the macroeconomic environment, and estimates of the impact of current initiatives, the most significant of which are our store remodel program, the new 5 percent REDcard Rewards program, and our planned Canadian expansion.
In the Retail Segment, we expect that comparable-store sales will increase in the 4 to 5 percent range in 2011. We expect that our store remodel program will contribute incremental comparable-store sales, and net of the adverse impact of remodel disruption, this impact will grow to a run rate of about 1.5 percentage points as we progress through the year. Separately we expect that the sales contribution of our 5% REDcard Rewards program will grow more rapidly in its importance, adding up to 2 percentage points to our same store sales growth later in 2011. These estimates are based on extrapolations of the current performance of these programs.
In 2011 we expect to produce a full-year EBIT margin rate consistent with 2010, due to favorable leverage of SG&A and depreciation and amortization expenses offsetting the gross margin rate declines associated with our store remodel and new rewards strategies. This offsetting impact is unlikely to occur in the spring, particularly in the first quarter, resulting in modest pressure on EBIT margin rate in the spring, and modest favorability on this measure in the fall.
In our Credit Card Segment, we expect receivables will continue to decline in 2011, with the pace of the decline moderating as the year progresses. We expect that the allowance for doubtful accounts will continue to decline in 2011 as well, due to this decline in receivables and expected continued improvement in portfolio risks. We also expect measures of our rate of portfolio profitability to remain strong in 2011. Additionally, in January 2011 we announced our plan to actively pursue the sale of our credit card receivables portfolio. As of January 29, 2011 the gross balance of our credit card receivables portfolio was $6,843 million, of which $3,954 million was funded by third parties and $2,889 million was funded by Target.
In January 2011, we entered into an agreement to purchase the leasehold interests in up to 220 sites in Canada currently operated by Zellers Inc., in exchange for C$1,825 million, due in two payments, one in May 2011 and one in September 2011. We believe this transaction will allow us to open 100 to 150 Target stores in Canada, primarily during 2013. We expect that renovation of these stores will require an investment of over C$1 billion, a portion of which may be funded by landlords. Our direct costs associated with entry into Canada may add expenses equating to an earnings per share (EPS) equivalent in the range of $0.10 for 2011, an estimate that will continue to evolve over time. We currently believe the aggregate effect of our Canadian expansion could result in a $0.15 to $0.20 unfavorable impact on 2011 EPS, reflecting direct incremental expenses and the indirect impact of the Canadian investment on the pace of share repurchase. We expect that the 2012 dilutive EPS impact of the Canadian expansion will exceed the 2011 dilutive EPS impact, due primarily to a full year of lease-related expenses.
We expect 2011 capital expenditures related to our U.S. retail operations to be approximately $2.5 billion, driven primarily by a larger remodel program. We expect to open 21 new stores in the U.S. in 2011, adding approximately 15 new locations net of closings and relocations.
We also expect to continue to execute against our share repurchase plan, although at a slower pace due to our Canadian expansion, investing in the range of $1.5 billion to $2.0 billion during 2011. The timing and amount of share repurchase activity will be dependent on market conditions and the amount of future net earnings and cash flows.
We expect our 2011 effective tax rate to be in the range of 36 to 37 percent.
Forward-Looking Statements
This report contains forward-looking statements, which are based on our current assumptions and expectations. These statements are typically accompanied by the words "expect," "may," "could," "believe," "would," "might," "anticipates," or words of similar import. The principal forward-looking statements in this report include: For our Retail Segment, our outlook for sales, comparable-store sales trends, including the impact of our store remodel and 5% REDcard Rewards programs, and EBIT margin rates; for our Credit Card Segment, our outlook for year-end gross credit card receivables, future write-offs of current receivables, rate of portfolio
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profitability, the allowance for doubtful accounts, improvement in portfolio risks, and the pursuit of a portfolio sale; on a consolidated basis, details on the expected investment in Canada and its impact on our results, statements regarding the adequacy of our sources of liquidity, the continued execution of our share repurchase program, our expected capital expenditures and the number of stores to be opened in 2011, the expected effective income tax rate, the expected compliance with debt covenants, our intentions regarding future dividends, our expected future share-based compensation expense, our expected return on plan assets, our expected expense, contributions and benefit payments related to our pension and postretirement health care plans, the adequacy of our reserves for general liability, workers' compensation, property loss, and team member medical and dental, the potential impact of changes in our critical accounting estimates, the expected outcome of claims and litigation, and the resolution of tax uncertainties.
All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth on our description of risk factors in Item 1A to this Form 10-K, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk results primarily from interest rate changes on our debt obligations, some of which are at a LIBOR-plus floating rate, and on our credit card receivables, the majority of which are assessed finance charges at a Prime based floating rate. To manage our net interest margin, we generally maintain levels of floating-rate debt to generate similar changes in net interest expense as finance charge revenues fluctuate. The degree of floating asset and liability matching may vary over time and in different interest rate environments. At January 29, 2011, the amount of floating-rate credit card assets exceeded the amount of net floating-rate debt obligations by approximately $2 billion. As a result, based on our balance sheet position at January 29, 2011, the annualized effect of a 0.1 percentage point decrease in floating interest rates on our floating rate debt obligations, net of our floating rate credit card assets and marketable securities, would be to decrease earnings before income taxes by approximately $2 million. See further description in Note 20 of the Notes to Consolidated Financial Statements.
We record our general liability and workers' compensation liabilities at net present value; therefore, these liabilities fluctuate with changes in interest rates. Periodically, in certain interest rate environments, we economically hedge a portion of our exposure to these interest rate changes by entering into interest rate forward contracts that partially mitigate the effects of interest rate changes. Based on our balance sheet position at January 29, 2011, the annualized effect of a 0.5 percentage point decrease in interest rates would be to decrease earnings before income taxes by approximately $10 million.
In addition, we are exposed to market return fluctuations on our qualified defined benefit pension plans. The annualized effect of a one percentage point decrease in the return on pension plan assets would decrease plan assets by $25 million at January 29, 2011. The value of our pension liabilities is inversely related to changes in interest rates. To protect against declines in interest rates we hold high-quality, long-duration bonds and interest rate swaps in our pension plan trust. At year-end, we had hedged approximately 55 percent of the interest rate exposure of our funded status.
As more fully described in Note 14 and Note 26 of the Notes to Consolidated Financial Statements, we are exposed to market returns on accumulated team member balances in our nonqualified, unfunded deferred compensation plans. We control the risk of offering the nonqualified plans by making investments in life insurance contracts and prepaid forward contracts on our own common stock that offset a substantial portion of our economic exposure to the returns on these plans. The annualized effect of a one percentage point change in market returns on our nonqualified defined contribution plans (inclusive of the effect of the investment vehicles used to manage our economic exposure) would not be significant.
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We do not currently have significant direct exposure to foreign currency rates as all of our stores are located in the United States, and the vast majority of imported merchandise is purchased in U.S. dollars. Our previously described agreement to purchase leasehold interests in Canada will expose us to market risk associated with foreign currency exchange rate fluctuations between the Canadian dollar and the U.S. dollar beginning in 2011.
Overall, there have been no material changes in our primary risk exposures or management of market risks since the prior year.
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Item 8. Financial Statements and Supplementary Data
Report of Management on the Consolidated Financial Statements
Management is responsible for the consistency, integrity and presentation of the information in the Annual Report. The consolidated financial statements and other information presented in this Annual Report have been prepared in accordance with accounting principles generally accepted in the United States and include necessary judgments and estimates by management.
To fulfill our responsibility, we maintain comprehensive systems of internal control designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with established procedures. The concept of reasonable assurance is based upon recognition that the cost of the controls should not exceed the benefit derived. We believe our systems of internal control provide this reasonable assurance.
The Board of Directors exercised its oversight role with respect to the Corporation's systems of internal control primarily through its Audit Committee, which is comprised of independent directors. The Committee oversees the Corporation's systems of internal control, accounting practices, financial reporting and audits to assess whether their quality, integrity and objectivity are sufficient to protect shareholders' investments.
In addition, our consolidated financial statements have been audited by Ernst & Young LLP, independent registered public accounting firm, whose report also appears on this page.
Gregg W. Steinhafel Chief Executive Officer and President March 11, 2011 |
Douglas A. Scovanner Executive Vice President and Chief Financial Officer |
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
The Board of Directors and Shareholders
Target Corporation
We have audited the accompanying consolidated statements of financial position of Target Corporation and subsidiaries (the Corporation) as of January 29, 2011 and January 30, 2010, and the related consolidated statements of operations, cash flows, and shareholders' investment for each of the three years in the period ended January 29, 2011. Our audits also included the financial statement schedule listed in Item 15(a). These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Target Corporation and subsidiaries at January 29, 2011 and January 30, 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 29, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Corporation's internal control over financial reporting as of January 29, 2011, based on criteria established in Internal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2011, expressed an unqualified opinion thereon.
Minneapolis,
Minnesota
March 11, 2011
31
Report of Management on Internal Control
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we assessed the effectiveness of our internal control over financial reporting as of January 29, 2011, based on the framework in Internal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we conclude that the Corporation's internal control over financial reporting is effective based on those criteria.
Our internal control over financial reporting as of January 29, 2011, has been audited by Ernst & Young LLP, the independent registered accounting firm who has also audited our consolidated financial statements, as stated in their report which appears on this page.
Gregg W. Steinhafel Chief Executive Officer and President March 11, 2011 |
Douglas A. Scovanner Executive Vice President and Chief Financial Officer |
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
The Board of Directors and Shareholders
Target Corporation
We have audited Target Corporation and subsidiaries' (the Corporation) internal control over financial reporting as of January 29, 2011, based on criteria established in Internal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Corporation's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of January 29, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Target Corporation and subsidiaries as of January 29, 2011 and January 30, 2010, and the related consolidated statements of operations, cash flows and shareholders' investment for each of the three years in the period ended January 29, 2011, and our report dated March 11, 2011, expressed an unqualified opinion thereon.
Minneapolis,
Minnesota
March 11, 2011
32
Consolidated Statements of Operations
(millions, except per share data) |
2010 |
2009 |
2008 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Sales |
$ | 65,786 | $ | 63,435 | $ | 62,884 | |||||
Credit card revenues |
1,604 | 1,922 | 2,064 | ||||||||
Total revenues |
67,390 | 65,357 | 64,948 | ||||||||
Cost of sales |
45,725 | 44,062 | 44,157 | ||||||||
Selling, general and administrative expenses |
13,469 | 13,078 | 12,954 | ||||||||
Credit card expenses |
860 | 1,521 | 1,609 | ||||||||
Depreciation and amortization |
2,084 | 2,023 | 1,826 | ||||||||
Earnings before interest expense and income taxes |
5,252 | 4,673 | 4,402 | ||||||||
Net interest expense |
|||||||||||
Nonrecourse debt collateralized by credit card receivables |
83 | 97 | 167 | ||||||||
Other interest expense |
677 | 707 | 727 | ||||||||
Interest income |
(3 | ) | (3 | ) | (28 | ) | |||||
Net interest expense |
757 | 801 | 866 | ||||||||
Earnings before income taxes |
4,495 | 3,872 | 3,536 | ||||||||
Provision for income taxes |
1,575 | 1,384 | 1,322 | ||||||||
Net earnings |
$ | 2,920 | $ | 2,488 | $ | 2,214 | |||||
Basic earnings per share |
$ | 4.03 | $ | 3.31 | $ | 2.87 | |||||
Diluted earnings per share |
$ | 4.00 | $ | 3.30 | $ | 2.86 | |||||
Weighted average common shares outstanding |
|||||||||||
Basic |
723.6 | 752.0 | 770.4 | ||||||||
Diluted |
729.4 | 754.8 | 773.6 | ||||||||
See accompanying Notes to Consolidated Financial Statements.
33
Consolidated Statements of Financial Position
(millions, except footnotes) |
January 29, 2011 |
January 30, 2010 |
||||||
---|---|---|---|---|---|---|---|---|
Assets |
||||||||
Cash and cash equivalents, including marketable securities of $1,129 and $1,617 |
$ | 1,712 | $ | 2,200 | ||||
Credit card receivables, net of allowance of $690 and $1,016 |
6,153 | 6,966 | ||||||
Inventory |
7,596 | 7,179 | ||||||
Other current assets |
1,752 | 2,079 | ||||||
Total current assets |
17,213 | 18,424 | ||||||
Property and equipment |
||||||||
Land |
5,928 | 5,793 | ||||||
Buildings and improvements |
23,081 | 22,152 | ||||||
Fixtures and equipment |
4,939 | 4,743 | ||||||
Computer hardware and software |
2,533 | 2,575 | ||||||
Construction-in-progress |
567 | 502 | ||||||
Accumulated depreciation |
(11,555 | ) | (10,485 | ) | ||||
Property and equipment, net |
25,493 | 25,280 | ||||||
Other noncurrent assets |
999 | 829 | ||||||
Total assets |
$ | 43,705 | $ | 44,533 | ||||
Liabilities and shareholders' investment |
||||||||
Accounts payable |
$ | 6,625 | $ | 6,511 | ||||
Accrued and other current liabilities |
3,326 | 3,120 | ||||||
Unsecured debt and other borrowings |
119 | 796 | ||||||
Nonrecourse debt collateralized by credit card receivables |
| 900 | ||||||
Total current liabilities |
10,070 | 11,327 | ||||||
Unsecured debt and other borrowings |
11,653 | 10,643 | ||||||
Nonrecourse debt collateralized by credit card receivables |
3,954 | 4,475 | ||||||
Deferred income taxes |
934 | 835 | ||||||
Other noncurrent liabilities |
1,607 | 1,906 | ||||||
Total noncurrent liabilities |
18,148 | 17,859 | ||||||
Shareholders' investment |
||||||||
Common stock |
59 | 62 | ||||||
Additional paid-in-capital |
3,311 | 2,919 | ||||||
Retained earnings |
12,698 | 12,947 | ||||||
Accumulated other comprehensive loss |
(581 | ) | (581 | ) | ||||
Total shareholders' investment |
15,487 | 15,347 | ||||||
Total liabilities and shareholders' investment |
$ | 43,705 | $ | 44,533 | ||||
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 704,038,218 shares issued and outstanding at January 29, 2011; 744,644,454 shares issued and outstanding at January 30, 2010.
Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding at January 29, 2011 or January 30, 2010.
See accompanying Notes to Consolidated Financial Statements.
34
Consolidated Statements of Cash Flows
(millions) |
2010 |
2009 |
2008 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating activities |
||||||||||||
Net earnings |
$ | 2,920 | $ | 2,488 | $ | 2,214 | ||||||
Reconciliation to cash flow |
||||||||||||
Depreciation and amortization |
2,084 | 2,023 | 1,826 | |||||||||
Share-based compensation expense |
109 | 103 | 72 | |||||||||
Deferred income taxes |
445 | 364 | 91 | |||||||||
Bad debt expense |
528 | 1,185 | 1,251 | |||||||||
Non-cash (gains)/losses and other, net |
(145 | ) | 143 | 316 | ||||||||
Changes in operating accounts: |
||||||||||||
Accounts receivable originated at Target |
(78 | ) | (57 | ) | (458 | ) | ||||||
Inventory |
(417 | ) | (474 | ) | 77 | |||||||
Other current assets |
(124 | ) | (129 | ) | (99 | ) | ||||||
Other noncurrent assets |
(212 | ) | (114 | ) | (55 | ) | ||||||
Accounts payable |
115 | 174 | (389 | ) | ||||||||
Accrued and other current liabilities |
149 | 257 | (230 | ) | ||||||||
Other noncurrent liabilities |
(103 | ) | (82 | ) | (186 | ) | ||||||
Cash flow provided by operations |
5,271 | 5,881 | 4,430 | |||||||||
Investing activities |
||||||||||||
Expenditures for property and equipment |
(2,129 | ) | (1,729 | ) | (3,547 | ) | ||||||
Proceeds from disposal of property and equipment |
69 | 33 | 39 | |||||||||
Change in accounts receivable originated at third parties |
363 | (10 | ) | (823 | ) | |||||||
Other investments |
(47 | ) | 3 | (42 | ) | |||||||
Cash flow required for investing activities |
(1,744 | ) | (1,703 | ) | (4,373 | ) | ||||||
Financing activities |
||||||||||||
Reductions of short-term notes payable |
| | (500 | ) | ||||||||
Additions to long-term debt |
1,011 | | 3,557 | |||||||||
Reductions of long-term debt |
(2,259 | ) | (1,970 | ) | (1,455 | ) | ||||||
Dividends paid |
(609 | ) | (496 | ) | (465 | ) | ||||||
Repurchase of stock |
(2,452 | ) | (423 | ) | (2,815 | ) | ||||||
Stock option exercises and related tax benefit |
294 | 47 | 43 | |||||||||
Other |
| | (8 | ) | ||||||||
Cash flow required for financing activities |
(4,015 | ) | (2,842 | ) | (1,643 | ) | ||||||
Net increase/(decrease) in cash and cash equivalents |
(488 | ) | 1,336 | (1,586 | ) | |||||||
Cash and cash equivalents at beginning of year |
2,200 | 864 | 2,450 | |||||||||
Cash and cash equivalents at end of year |
$ | 1,712 | $ | 2,200 | $ | 864 | ||||||
Cash paid for income taxes was $1,259, $1,040 and $1,399 during 2010, 2009 and 2008, respectively. Cash paid for interest (net of interest capitalized) was $752, $805 and $873 during 2010, 2009 and 2008, respectively.
See accompanying Notes to Consolidated Financial Statements.
35
Consolidated Statements of Shareholders' Investment
|
|
|
|
|
Accumulated Other Comprehensive Income/(Loss) |
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(millions, except footnotes) |
Common Stock Shares |
Stock Par Value |
Additional Paid-in Capital |
Retained Earnings |
Pension and Other Benefit Liability Adjustments |
Derivative Instruments, Foreign Currency and Other |
Total |
|||||||||||||||||
February 2, 2008 |
818.7 | $68 | $2,656 | $12,761 | $(134 | ) | $(44 | ) | $ | 15,307 | ||||||||||||||
Net earnings |
| | | 2,214 | | | 2,214 | |||||||||||||||||
Other comprehensive income/(loss) |
||||||||||||||||||||||||
Pension and other benefit liability adjustments, net of taxes of $242 |
| | | | (376 | ) | | (376 | ) | |||||||||||||||
Net change on cash flow hedges, net of taxes of $2 |
| | | | | (2 | ) | (2 | ) | |||||||||||||||
Total comprehensive income |
1,836 | |||||||||||||||||||||||
Dividends declared |
| | | (471 | ) | | | (471 | ) | |||||||||||||||
Repurchase of stock |
(67.2 | ) | (5 | ) | | (3,061 | ) | | | (3,066 | ) | |||||||||||||
Stock options and awards |
1.2 | | 106 | | | | 106 | |||||||||||||||||
January 31, 2009 |
752.7 | $ | 63 | $ | 2,762 | $ | 11,443 | $ | (510 | ) | $ | (46 | ) | $ | 13,712 | |||||||||
Net earnings |
| | | 2,488 | | | 2,488 | |||||||||||||||||
Other comprehensive income/(loss) |
||||||||||||||||||||||||
Pension and other benefit liability adjustments, net of taxes of $17 |
| | | | (27 | ) | | (27 | ) | |||||||||||||||
Net change on cash flow hedges, net of taxes of $2 |
| | | | | 4 | 4 | |||||||||||||||||
Currency translation adjustment, net of taxes of $0 |
| | | | | (2 | ) | (2 | ) | |||||||||||||||
Total comprehensive income |
2,463 | |||||||||||||||||||||||
Dividends declared |
| | | (503 | ) | | | (503 | ) | |||||||||||||||
Repurchase of stock |
(9.9 | ) | (1 | ) | | (481 | ) | | | (482 | ) | |||||||||||||
Stock options and awards |
1.8 | | 157 | | | | 157 | |||||||||||||||||
January 30, 2010 |
744.6 | $ | 62 | $ | 2,919 | $ | 12,947 | $ | (537 | ) | $ | (44 | ) | $ | 15,347 | |||||||||
Net earnings |
| | | 2,920 | | | 2,920 | |||||||||||||||||
Other comprehensive income/(loss) |
||||||||||||||||||||||||
Pension and other benefit liability adjustments, net of taxes of $4 |
| | | | (4 | ) | | (4 | ) | |||||||||||||||
Net change on cash flow hedges, net of taxes of $2 |
| | | | | 3 | 3 | |||||||||||||||||
Currency translation adjustment, net of taxes of $1 |
| | | | | 1 | 1 | |||||||||||||||||
Total comprehensive income |
2,920 | |||||||||||||||||||||||
Dividends declared |
| | | (659 | ) | | | (659 | ) | |||||||||||||||
Repurchase of stock |
(47.8 | ) | (4 | ) | | (2,510 | ) | | | (2,514 | ) | |||||||||||||
Stock options and awards |
7.2 | 1 | 392 | | | | 393 | |||||||||||||||||
January 29, 2011 |
704.0 | $59 | $3,311 | $12,698 | $(541 | ) | $(40 | ) | $ | 15,487 | ||||||||||||||
Dividends declared per share were $0.92, $0.67 and $0.62 in 2010, 2009 and 2008, respectively.
See accompanying Notes to Consolidated Financial Statements.
36
Notes to Consolidated Financial Statements
1. Summary of Accounting Policies
Organization Target Corporation (Target or the Corporation) operates two reportable segments: Retail and Credit Card. Our Retail Segment includes all of our merchandising operations, including our fully integrated online business. Our Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards, the Target Visa and the Target Card. Additionally, we offer a branded proprietary Target Debit Card. Collectively, these REDcards strengthen the bond with our guests, drive incremental sales and contribute to our results of operations.
Consolidation The consolidated financial statements include the balances of the Corporation and its subsidiaries after elimination of intercompany balances and transactions. All material subsidiaries are wholly owned. We consolidate variable interest entities where it has been determined that the Corporation is the primary beneficiary of those entities' operations. The variable interest entity consolidated is a bankruptcy-remote subsidiary through which we sell certain accounts receivable as a method of providing funding for our accounts receivable.
Use of estimates The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions affecting reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates.
Fiscal year Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal year 2010 ended January 29, 2011, and consisted of 52 weeks. Fiscal year 2009 ended January 30, 2010, and consisted of 52 weeks. Fiscal year 2008 ended January 31, 2009, and consisted of 52 weeks.
Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. Accounting policies applicable to the items discussed in the Notes to the Consolidated Financial Statement are described in the respective notes.
2. Revenues
Our retail stores generally record revenue at the point of sale. Sales from our online business include shipping revenue and are recorded upon delivery to the guest. Total revenues do not include sales tax as we consider ourselves a pass-through conduit for collecting and remitting sales taxes. Generally, guests may return merchandise within 90 days of purchase. Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales. Commissions earned on sales generated by leased departments are included within sales and were $20 million in 2010, $18 million in 2009 and $19 million in 2008.
Revenue from gift card sales is recognized upon gift card redemption. Our gift cards do not have expiration dates. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in 2010, 2009 and 2008.
Credit card revenues are recognized according to the contractual provisions of each credit card agreement. When accounts are written off, uncollected finance charges and late fees are recorded as a reduction of credit card revenues. Target retail sales charged on our credit cards totaled $3,455 million, $3,328 million and $3,948 million in 2010, 2009 and 2008, respectively.
Beginning April 2010, all new qualified credit card applicants receive the Target Card, and we no longer issue the Target Visa to credit card applicants. Existing Target Visa cardholders are not affected. Beginning October 2010, guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com. Target's REDcards include the Target Credit Card, Target Visa Credit Card and
37
Target Debit Card. This new REDcard Rewards program replaced the existing rewards program in which account holders received an initial 10 percent-off coupon for opening the account and earned points toward a 10 percent-off coupon on subsequent purchases. These changes are intended to simplify the program and to generate profitable incremental retail sales. The discounts associated with our REDcard Rewards program are included as reductions in sales in our Consolidated Statements of Operations and were $162 million in 2010, $94 million in 2009 and $114 million in 2008.
3. Cost of Sales and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in each major expense category:
Cost of Sales |
Selling, General and Administrative Expenses |
|
---|---|---|
Total cost of products sold including |
Compensation and benefit costs including |
|
The classification of these expenses varies across the retail industry.
4. Consideration Received from Vendors
We receive consideration for a variety of vendor-sponsored programs, such as volume rebates, markdown allowances, promotions and advertising allowances and for our compliance programs, referred to as "vendor income." Vendor income reduces either our inventory costs or SG&A expenses based on the provisions of the arrangement. Promotional and advertising allowances are intended to offset our costs of promoting and selling merchandise in our stores. Under our compliance programs, vendors are charged for merchandise shipments that do not meet our requirements (violations), such as late or incomplete shipments. These allowances are recorded when violations occur. Substantially all consideration received is recorded as a reduction of cost of sales.
We establish a receivable for vendor income that is earned but not yet received. Based on provisions of the agreements in place, this receivable is computed by estimating the amount earned when we have completed our performance. We perform detailed analyses to determine the appropriate level of the receivable in the aggregate. The majority of year-end receivables associated with these activities are collected within the following fiscal quarter.
5. Advertising Costs
Advertising costs are expensed at first showing or distribution of the advertisement and were $1,292 million in 2010, $1,167 million in 2009 and $1,233 million in 2008. Advertising vendor income that offset advertising expenses was approximately $216 million, $179 million and $188 million in 2010, 2009 and 2008, respectively. Newspaper circulars and media broadcast made up the majority of our advertising costs in all three years.
38
6. Earnings per Share
Basic earnings per share (EPS) is calculated as net earnings divided by the weighted average number of common shares outstanding during the period. Diluted EPS includes the potentially dilutive impact of stock-based awards outstanding at period end, consisting of the incremental shares assumed to be issued upon the exercise of stock options and the incremental shares assumed to be issued under performance share and restricted stock unit arrangements.
Earnings Per Share (millions, except per share data) |
2010 |
2009 |
2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Net earnings |
$ | 2,920 | $ | 2,488 | $ | 2,214 | ||||
Basic weighted average common shares outstanding |
723.6 | 752.0 | 770.4 | |||||||
Dilutive impact of stock-based awards |
5.8 | 2.8 | 3.2 | |||||||
Diluted weighted average common shares outstanding |
729.4 | 754.8 | 773.6 | |||||||
Basic earnings per share |
$ | 4.03 | $ | 3.31 | $ | 2.87 | ||||
Diluted earnings per share |
$ | 4.00 | $ | 3.30 | $ | 2.86 | ||||
For the 2010, 2009 and 2008 EPS computations, 10.9 million, 22.9 million and 17.4 million stock options, respectively, were excluded from the calculation of weighted average shares for diluted EPS because their effects were antidilutive.
7. Other Comprehensive Income/(Loss)
Other comprehensive income/(loss) includes revenues, expenses, gains and losses that are excluded from net earnings under GAAP and are recorded directly to shareholders' investment. In 2010, 2009 and 2008, other comprehensive income/(loss) included gains and losses on certain hedge transactions, foreign currency translation adjustments and amortization of pension and postretirement plan amounts, net of related taxes. Significant items affecting other comprehensive income/(loss) are shown in the Consolidated Statements of Shareholders' Investment.
8. Fair Value Measurements
Fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).
39
The following table presents financial assets and liabilities measured at fair value on a recurring basis:
|
Fair Value at January 29, 2011 |
|
|
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fair Value at January 30, 2010 | |||||||||||||||||||
Fair Value Measurements Recurring Basis (millions) |
||||||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
||||||||||||||||||||
Marketable securities |
$ | 1,129 | $ | | $ | | $ | 1,617 | $ | | $ | | ||||||||
Other current assets |
||||||||||||||||||||
Prepaid forward contracts |
63 | | | 79 | | | ||||||||||||||
Other noncurrent assets |
||||||||||||||||||||
Interest rate swaps (a) |
| 139 | | | 131 | | ||||||||||||||
Company-owned life insurance investments (b) |
| 358 | | | 319 | | ||||||||||||||
Total |
$ | 1,192 | $ | 497 | $ | | $ | 1,696 | $ | 450 | $ | | ||||||||
Liabilities |
||||||||||||||||||||
Other noncurrent liabilities |
||||||||||||||||||||
Interest rate swaps |
$ | | $ | 54 | $ | | $ | | $ | 23 | $ | | ||||||||
Total |
$ | | $ | 54 | $ | | $ | | $ | 23 | $ | | ||||||||
Position |
Valuation Technique |
||
---|---|---|---|
Marketable securities |
Initially valued at transaction price. Carrying value of cash equivalents (including money market funds) approximates fair value because maturities are less than three months. | ||
Prepaid forward contracts |
Initially valued at transaction price. Subsequently valued by reference to the market price of Target common stock. |
||
Interest rate swaps |
Valuation models are calibrated to initial trade price. Subsequent valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. |
||
Company-owned life insurance investments |
Includes investments in separate accounts that are valued based on market rates credited by the insurer. |
||
Certain assets are measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). The fair value measurements related to long-lived assets held for sale and held and used in the following table were determined using available market prices at the measurement date based on recent investments or pending transactions of similar assets, third-party independent appraisals, valuation multiples or public comparables, less cost to sell where appropriate. We classify these measurements as Level 2. The fair value measurement of an intangible asset was determined using unobservable inputs that reflect our own
40
assumptions regarding how market participants price the intangible assets at the measurement date. We classify these measurements as Level 3.
Fair Value Measurements Nonrecurring Basis |
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
Other current assets | Property and equipment | Other noncurrent assets | ||||||||
|
Long-lived assets held for sale |
Long-lived assets held and used (a) |
|||||||||
(millions) |
Intangible asset |
||||||||||
Measured during the year ended January 29, 2011: |
|||||||||||
Carrying amount |
$ | 9 | $ | 127 | $ | | |||||
Fair value measurement |
7 | 101 | | ||||||||
Gain/(loss) |
$ | (2 | ) | $ | (26 | ) | $ | | |||
Measured during the year ended January 30, 2010: |
|||||||||||
Carrying amount |
$ | 74 | $ | 98 | $ | 6 | |||||
Fair value measurement |
57 | 66 | | ||||||||
Gain/(loss) |
$ | (17 | ) | $ | (32 | ) | $ | (6 | ) | ||
The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the Consolidated Statements of Financial Position. The fair value of marketable securities is determined using available market prices at the reporting date. The fair value of debt is generally measured using a discounted cash flow analysis based on our current market interest rates for similar types of financial instruments.
Financial Instruments Not Measured at Fair Value |
January 29, 2011 |
January 30, 2010 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(millions) |
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||||||||
Financial assets |
||||||||||||||
Other current assets |
||||||||||||||
Marketable securities (a) |
$ | 32 | $ | 32 | $ | 27 | $ | 27 | ||||||
Other noncurrent assets |
||||||||||||||
Marketable securities (a) |
4 | 4 | 5 | 5 | ||||||||||
Total |
$ | 36 | $ | 36 | $ | 32 | $ | 32 | ||||||
Financial liabilities |
||||||||||||||
Total debt (b) |
$ | 15,241 | $ | 16,661 | $ | 16,447 | $ | 17,487 | ||||||
Total |
$ | 15,241 | $ | 16,661 | $ | 16,447 | $ | 17,487 | ||||||
The carrying amounts of credit card receivables, net of allowance, accounts payable, and certain accrued and other current liabilities approximate fair value at January 29, 2011.
9. Cash Equivalents
Cash equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions. These receivables typically settle in less than five days and were $313 million at January 29, 2011 and January 30, 2010. Payables due to Visa resulting from the use of Target Visa Cards are included within cash equivalents and were $36 million and $40 million at January 29, 2011 and January 30, 2010, respectively.
41
10. Credit Card Receivables
Credit card receivables are recorded net of an allowance for doubtful accounts and are our only significant class of receivables. Substantially all accounts continue to accrue finance charges until they are written off. All past due accounts were incurring finance charges at January 29, 2011 and January 30, 2010. Accounts are written off when they become 180 days past due.
Age of Credit Card Receivables |
2010 | 2009 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(dollars in millions) |
Amount |
Percent of Receivables |
Amount |
Percent of Receivables |
|||||||||
Current |
$ | 6,132 | 89.6% | $ | 6,935 | 86.9% | |||||||
1-29 days past due |
292 | 4.3% | 337 | 4.2% | |||||||||
30-59 days past due |
131 | 1.9% | 206 | 2.6% | |||||||||
60-89 days past due |
79 | 1.1% | 133 | 1.6% | |||||||||
90+ days past due |
209 | 3.1% | 371 | 4.7% | |||||||||
Period-end gross credit card receivables |
$ | 6,843 | 100% | $ | 7,982 | 100% | |||||||
Allowance for Doubtful Accounts
The allowance for doubtful accounts is recognized in an amount equal to the anticipated future write-offs of existing receivables and includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs on the entire credit card portfolio collectively based on historical experience of delinquencies, risk scores, aging trends and industry risk trends.
Allowance for Doubtful Accounts (millions) |
2010 |
2009 |
|||||
---|---|---|---|---|---|---|---|
Allowance at beginning of period |
$ | 1,016 | $ | 1,010 | |||
Bad debt expense |
528 | 1,185 | |||||
Write-offs (a) |
(1,007 | ) | (1,287 | ) | |||
Recoveries (a) |
153 | 108 | |||||
Allowance at end of period |
$ | 690 | $ | 1,016 | |||
Deterioration of the macroeconomic conditions in the United States would adversely affect the risk profile of our credit card receivables portfolio based on credit card holders' ability to pay their balances. If such deterioration were to occur, it would lead to an increase in bad debt expense. The Corporation monitors both the credit quality and the delinquency status of the credit card receivables portfolio. We consider accounts 30 or more days past due as delinquent, and we update delinquency status daily. We also monitor risk in the portfolio by assigning internally generated scores to each account and by periodically obtaining a statistically representative sample of current FICO scores, a nationally recognized credit scoring model. We update these FICO scores monthly, most recently in
42
January 2011. The credit quality segmentation presented below is consistent with the approach used in determining our allowance for doubtful accounts.
Receivables Credit Quality (millions) |
2010 |
2009 |
||||||
---|---|---|---|---|---|---|---|---|
Nondelinquent accounts (Current and 1 - 29 days past due) |
||||||||
FICO score of 700 or above |
$ | 2,819 | $ | 2,886 | ||||
FICO score of 600 to 699 |
2,737 | 3,114 | ||||||
FICO score below 600 |
868 | 1,272 | ||||||
Total nondelinquent accounts |
6,424 | 7,272 | ||||||
Delinquent accounts (30+ days past due) |
419 | 710 | ||||||
Period-end gross credit card receivables |
$ | 6,843 | $ | 7,982 | ||||
Under certain circumstances, we offer cardholder payment plans that modify finance charges and minimum payments, which meet the accounting definition of a troubled debt restructuring (TDR). These concessions are made on an individual cardholder basis for economic or legal reasons specific to each individual cardholder's circumstances. As a percentage of period-end gross receivables, receivables classified as TDRs were 5.9 percent at January 29, 2011 and 6.7 percent at January 30, 2010. Receivables classified as TDRs are treated consistently with other aged receivables in determining our allowance for doubtful accounts.
Funding for Credit Card Receivables
As a method of providing funding for our credit card receivables, we sell, on an ongoing basis, all of our consumer credit card receivables to Target Receivables LLC (TR LLC), formerly known as Target Receivables Corporation (TRC), a wholly owned, bankruptcy remote subsidiary. TR LLC then transfers the receivables to the Target Credit Card Master Trust (the Trust), which from time to time will sell debt securities to third parties, either directly or through a related trust. These debt securities represent undivided interests in the Trust assets. TR LLC uses the proceeds from the sale of debt securities and its share of collections on the receivables to pay the purchase price of the receivables to the Corporation.
We consolidate the receivables within the Trust and any debt securities issued by the Trust, or a related trust, in our Consolidated Statements of Financial Position based upon the applicable accounting guidance. The receivables transferred to the Trust are not available to general creditors of the Corporation.
In 2005, we entered into a public securitization of our credit card receivables. Note holders participating in this securitization were entitled to receive annual interest payments based on LIBOR plus a spread. The final payment on this securitization was made in April of 2010 as discussed in Note 19.
During 2006 and 2007, we sold an interest in our credit card receivables by issuing a Variable Funding Certificate. Parties who hold the Variable Funding Certificate receive interest at a variable short-term market rate. The Variable Funding Certificate matures in 2012 and 2013.
In the second quarter of 2008, we sold an interest in our credit card receivables to JPMorgan Chase (JPMC). The interest sold represented 47 percent of the receivables portfolio at the time of the transaction. In the event of a decrease in the receivables principal amount such that JPMC's interest in the entire portfolio would exceed 47 percent for three consecutive months, TR LLC (using the cash flows from the assets in the Trust) would be required to pay JPMC a pro rata amount of principal collections such that the portion owned by JPMC would not exceed 47 percent, unless JPMC provides a waiver. Conversely, at the option of the Corporation, JPMC may be required to fund an increase in the portfolio to maintain their 47 percent interest up to a maximum principal balance of $4.2 billion. Due to declines in gross credit card receivables, TR LLC repaid JPMC $566 million during 2010 and $163 million during 2009 under the terms of this agreement. No payments were made during 2008.
If a three-month average of monthly finance charge excess (JPMC's prorata share of finance charge collections less write-offs and specified expenses) is less than 2 percent of the outstanding principal balance of JPMC's interest, the Corporation must implement mutually agreed-upon underwriting strategies. If the three-month average finance charge excess falls below 1 percent of the outstanding principal balance of JPMC's interest, JPMC
43
may compel the Corporation to implement underwriting and collections activities, provided those activities are compatible with the Corporation's systems, as well as consistent with similar credit card receivable portfolios managed by JPMC. If the Corporation fails to implement the activities, JPMC has the right to cause the accelerated repayment of the note payable issued in the transaction. As noted in the preceding paragraph, payments would be made solely from the Trust assets.
All interests in our Credit Card Receivables issued by the Trust are accounted for as secured borrowings. Interest and principal payments are satisfied provided the cash flows from the Trust assets are sufficient and are nonrecourse to the general assets of the Corporation. If the cash flows are less than the periodic interest, the available amount, if any, is paid with respect to interest. Interest shortfalls will be paid to the extent subsequent cash flows from the assets in the Trust are sufficient. Future principal payments will be made from the third party's prorata share of cash flows from the Trust assets.
|
2010 | 2009 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Securitized Borrowings (millions) |
|||||||||||||
Debt Balance |
Collateral |
Debt Balance |
Collateral |
||||||||||
2008 Series (a) |
$ | 2,954 | $ | 3,061 | $ | 3,475 | $ | 3,652 | |||||
2006/2007 Series |
1,000 | 1,266 | 1,000 | 1,266 | |||||||||
2005 Series |
| | 900 | 1,154 | |||||||||
Total |
$ | 3,954 | $ | 4,327 | $ | 5,375 | $ | 6,072 | |||||
11. Inventory
Substantially our entire inventory and the related cost of sales are accounted for under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. Inventory is stated at the lower of LIFO cost or market. Cost includes purchase price as reduced by vendor income. Inventory is also reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated based on inventory levels, markup rates and internally measured retail price indices.
Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value inventory. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market because permanent markdowns are currently taken as a reduction of the retail value of inventory.
We routinely enter into arrangements with vendors whereby we do not purchase or pay for merchandise until the merchandise is ultimately sold to a guest. Revenues under this program are included in sales in the Consolidated Statements of Operations, but the merchandise received under the program is not included in inventory in our Consolidated Statements of Financial Position because of the virtually simultaneous purchase and sale of this inventory. Sales made under these arrangements totaled $1,581 million in 2010, $1,470 million in 2009 and $1,538 million in 2008.
12. Other Current Assets
Other Current Assets (millions) |
January 29, 2011 |
January 30, 2010 |
|||||
---|---|---|---|---|---|---|---|
Vendor income receivable |
$ | 517 | $ | 390 | |||
Other receivables (a) |
405 | 526 | |||||
Deferred taxes |
379 | 724 | |||||
Other |
451 | 439 | |||||
Total |
$ | 1,752 | $ | 2,079 | |||
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13. Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives or lease terms if shorter. We amortize leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably assured at the date the leasehold improvements are acquired. Depreciation expense for 2010, 2009 and 2008 was $2,060 million, $1,999 million and $1,804 million, respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred and were $726 million in 2010, $632 million in 2009 and $609 million in 2008. Facility pre-opening costs, including supplies and payroll, are expensed as incurred.
Estimated Useful Lives |
Life (in years) |
|||
---|---|---|---|---|
Buildings and improvements | 8-39 | |||
Fixtures and equipment | 3-15 | |||
Computer hardware and software | 4-7 | |||
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the asset's carrying value may not be recoverable. Impairments of $28 million in 2010, $49 million in 2009 and $2 million in 2008 were recorded as a result of the reviews performed. Additionally, due to project scope changes, we wrote off capitalized construction in progress costs of $6 million in 2010, $37 million in 2009 and $26 million in 2008.
14. Other Noncurrent Assets
Other Noncurrent Assets (millions) |
January 29, 2011 |
January 30, 2010 |
|||||
---|---|---|---|---|---|---|---|
Company-owned life insurance investments (a) |
$ | 358 | $ | 319 | |||
Goodwill and intangible assets |
223 | 239 | |||||
Interest rate swaps (b) |
139 | 131 | |||||
Other |
279 | 140 | |||||
Total |
$ | 999 | $ | 829 | |||
15. Goodwill and Intangible Assets
Goodwill and intangible assets are recorded within other noncurrent assets. Goodwill totaled $59 million at January 29, 2011 and January 30, 2010. Goodwill and indefinite-lived intangible assets are not amortized; instead, they are tested for impairment annually and whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable. Definite-lived intangible assets are amortized over their expected economic useful life and are tested for impairment whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable. Discounted cash flow models are used in determining fair value
45
for the purposes of the required goodwill and intangible assets impairment tests. No material impairments were recorded in 2010, 2009 or 2008 as a result of the tests performed.
|
Leasehold Acquisition Costs | Other (a) | Total | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Intangible Assets (millions) |
|||||||||||||||||||
Jan. 29, 2011 |
Jan. 30, 2010 |
Jan. 29, 2011 |
Jan. 30, 2010 |
Jan. 29, 2011 |
Jan. 30, 2010 |
||||||||||||||
Gross asset |
$ | 227 | $ | 246 | $ | 121 | $ | 101 | $ | 348 | $ | 347 | |||||||
Accumulated amortization |
(111 | ) | (110 | ) | (73 | ) | (57 | ) | (184 | ) | (167 | ) | |||||||
Net intangible assets |
$ | 116 | $ | 136 | $ | 48 | $ | 44 | $ | 164 | $ | 180 | |||||||
Amortization is computed on definite-lived intangible assets using the straight-line method over estimated useful lives that typically range from 9 to 39 years for leasehold acquisition costs and from 3 to 15 years for other intangible assets. The weighted average life of leasehold acquisition costs and other intangible assets was 29 years and 4 years, respectively, at January 29, 2011. Amortization expense for 2010, 2009 and 2008 was $24 million, $24 million and $21 million, respectively.
Estimated Amortization Expense (millions) |
2011 |
2012 |
2013 |
2014 |
2015 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amortization expense |
$ | 22 | $ | 16 | $ | 13 | $ | 11 | $ | 11 | ||||||
16. Accounts Payable
We reclassify book overdrafts to accounts payable at period end. Overdrafts reclassified to accounts payable were $558 million at January 29, 2011 and $518 million at January 30, 2010.
17. Accrued and Other Current Liabilities
Accrued and Other Current Liabilities (millions) |
January 29, 2011 |
January 30, 2010 |
|||||
---|---|---|---|---|---|---|---|
Wages and benefits |
$ | 921 | $ | 959 | |||
Taxes payable (a) |
497 | 490 | |||||
Gift card liability (b) |
422 | 387 | |||||
Straight-line rent accrual (c) |
200 | 185 | |||||
Dividends payable |
176 | 127 | |||||
Workers' compensation and general liability |
158 | 163 | |||||
Income tax payable |
144 | 24 | |||||
Interest payable |
103 | 105 | |||||
Other |
705 | 680 | |||||
Total |
$ | 3,326 | $ | 3,120 | |||
18. Commitments and Contingencies
In January 2011, we entered into an agreement to purchase the leasehold interests in up to 220 sites in Canada currently operated by Zellers Inc., in exchange for C$1,825 million (Canadian dollars), due in two payments, one in May 2011 and one in September 2011. We believe this transaction will allow us to open 100 to 150 Target stores in
46
Canada, primarily during 2013. We expect that renovation of these stores will require an investment of over C$1 billion, a portion of which may be funded by landlords. At January 29, 2011 the value of C$1.00 approximated the value of $1.00.
Purchase obligations, which include all legally binding contracts, such as firm commitments for inventory purchases, merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts, were approximately $1,907 million and $2,016 million at January 29, 2011 and January 30, 2010, respectively. We issue inventory purchase orders, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments. If we choose to cancel a purchase order, we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation. We also issue trade letters of credit in the ordinary course of business, which are not obligations given they are conditioned on terms of the letter of credit being met.
Trade letters of credit totaled $1,522 million and $1,484 million at January 29, 2011 and January 30, 2010, respectively, a portion of which are reflected in accounts payable. Standby letters of credit, relating primarily to retained risk on our insurance claims, totaled $71 million and $72 million at January 29, 2011 and January 30, 2010, respectively.
We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders and other constituents. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of the currently identified claims or litigation matters will have a material adverse impact on our results of operations, cash flows or financial condition.
19. Notes Payable and Long-Term Debt
We obtain short-term financing throughout the year under our commercial paper program, a form of notes payable.
Commercial Paper (millions) |
2010 |
2009 |
|||||
---|---|---|---|---|---|---|---|
Maximum daily amount outstanding during the year |
$ | | $ | 112 | |||
Average amount outstanding during the year |
| 1 | |||||
Amount outstanding at year-end |
| | |||||
Weighted average interest rate |
| 0.2% | |||||
An additional source of liquidity is available to us through a committed $2 billion unsecured revolving credit facility obtained through a group of banks in April 2007, which will expire in April 2012. No balances were outstanding at any time during 2010 or 2009 under this credit facility.
In July 2010, we issued $1 billion of long-term debt at 3.875% that matures in July 2020. There were no amounts issued in 2009.
47
As further explained in Note 10, we maintain an accounts receivable financing program through which we sell credit card receivables to a bankruptcy remote, wholly owned subsidiary, which in turn transfers the receivables to a Trust. The Trust, either directly or through related trusts, sells debt securities to third parties. The following summarizes this activity for 2009 and 2010.
Nonrecourse Debt Collateralized by Credit Card Receivables (millions) |
2010 |
2009 |
||||||
---|---|---|---|---|---|---|---|---|
Balance at beginning of period |
$ | 5,375 | $ | 5,490 | ||||
Issued |
| | ||||||
Accretion (a) |
45 | 48 | ||||||
Repaid (b) |
(1,466 | ) | (163 | ) | ||||
Balance at end of period |
$ | 3,954 | $ | 5,375 | ||||
Other than debt backed by our credit card receivables and other immaterial borrowings, all of our outstanding borrowings are senior, unsecured obligations.
At January 29, 2011, the carrying value and maturities of our debt portfolio, including unamortized hedged debt valuation gains from terminated or de-designated interest rate swaps, were as follows:
|
January 29, 2011 | |||||||
---|---|---|---|---|---|---|---|---|
Debt Maturities (millions) |
||||||||
Rate (a) |
Balance |
|||||||
Due fiscal 2011-2015 |
3.2 | % | $ | 6,090 | ||||
Due fiscal 2016-2020 |
5.4 | 4,299 | ||||||
Due fiscal 2021-2025 |
8.9 | 120 | ||||||
Due fiscal 2026-2030 |
6.7 | 326 | ||||||
Due fiscal 2031-2035 |
6.6 | 906 | ||||||
Due fiscal 2036-2037 |
6.8 | 3,500 | ||||||
Total notes and debentures |
5.0 | 15,241 | ||||||
Unamortized swap valuation adjustments |
152 | |||||||
Capital lease obligations |
333 | |||||||
Less: |
||||||||
Amounts due within one year |
(119 | ) | ||||||
Long-term debt |
$ | 15,607 | ||||||
Required principal payments on notes and debentures over the next five years, excluding capital lease obligations, are as follows:
Required Principal Payments (a) (millions) |
2011 |
2012 |
2013 |
2014 |
2015 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Unsecured |
$ | 106 | $ | 1,501 | $ | 501 | $ | 1 | $ | 27 | ||||||
Nonrecourse |
| 750 | 3,311 | | | |||||||||||
Total required principal payments |
$ | 106 | $ | 2,251 | $ | 3,812 | $ | 1 | $ | 27 | ||||||
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants.
48
20. Derivative Financial Instruments
Derivative financial instruments are reported at fair value on the Consolidated Statements of Financial Position. Historically our derivative instruments have primarily consisted of interest rate swaps. We use these derivatives to mitigate our interest rate risk. We have counterparty credit risk resulting from our derivative instruments. This risk lies primarily with two global financial institutions. We monitor this concentration of counterparty credit risk on an ongoing basis.
Prior to 2009, the majority of our derivative instruments qualified for fair value hedge accounting treatment. The changes in market value of an interest rate swap, as well as the offsetting change in market value of the hedged debt, were recognized within earnings in the current period. We assessed at the inception of the hedge whether the hedging derivatives were highly effective in offsetting changes in fair value or cash flows of hedged items. Ineffectiveness resulted when changes in the market value of the hedged debt were not completely offset by changes in the market value of the interest rate swap. For those derivatives whose terms met the conditions of the "short-cut method," 100 percent hedge effectiveness was assumed. There was no ineffectiveness recognized in 2010, 2009 or 2008 related to our derivative instruments. As detailed below, at January 29, 2011, there were no derivative instruments designated as accounting hedges.
During the first quarter of 2008, we terminated certain "pay floating" interest rate swaps with a combined notional amount of $3,125 million for cash proceeds of $160 million, which are classified within other operating cash flows in the Consolidated Statements of Cash Flows. These swaps were designated as hedges; therefore, concurrent with their terminations, we were required to stop making market value adjustments to the associated hedged debt. Gains realized upon termination will be amortized into earnings over the remaining life of the associated hedged debt.
Additionally, during 2008, we de-designated certain "pay floating" interest rate swaps, and upon de-designation, these swaps no longer qualified for hedge accounting treatment. As a result of the de-designation, the unrealized gains on these swaps determined at the date of de-designation will be amortized into earnings over the remaining lives of the previously hedged items.
In 2010, 2009 and 2008, total net gains amortized into net interest expense for terminated and de-designated swaps were $45 million, $60 million and $55 million, respectively. The amount remaining on unamortized hedged debt valuation gains from terminated and de-designated interest rate swaps that will be amortized into earnings over the remaining lives of the previously hedged debt totaled $152 million, $197 million and $263 million, at the end of 2010, 2009 and 2008, respectively.
Simultaneous to the de-designations during 2008, we entered into "pay fixed" swaps to economically hedge the risks associated with the de-designated "pay floating" swaps. These swaps are not designated as hedging instruments and along with the de-designated "pay floating" swaps are measured at fair value on a quarterly basis.
49
Changes in fair value measurements are a component of net interest expense on the Consolidated Statements of Operations.
Outstanding Interest Rate Swap Summary (dollars in millions) |
|||||
---|---|---|---|---|---|
|
January 29, 2011 | ||||
|
Pay Floating |
Pay Fixed |
|||
Weighted average rate: |
|||||
Pay |
one-month LIBOR | 2.6% fixed | |||
Receive |
5.0% fixed | one-month LIBOR | |||
Weighted average maturity |
3.4 years | 3.4 years | |||
Notional |
$1,250 | $1,250 | |||
Derivative Contracts Types, Balance Sheet Classifications and Fair Values (millions) |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Asset | Liability | |||||||||||||||
|
|
Fair Value At | |
Fair Value At | |||||||||||||
Type |
Classification |
Jan. 29, 2011 |
Jan. 30, 2010 |
Classification |
Jan. 29, 2011 |
Jan. 30, 2010 |
|||||||||||
Not designated as hedging instruments: |
|||||||||||||||||
Interest rate swaps |
Other noncurrent assets | $ | 139 | $ | 131 | Other noncurrent liabilities | $ | 54 | $ | 23 | |||||||
Total |
$ | 139 | $ | 131 | $ | 54 | $ | 23 | |||||||||
Periodic payments, valuation adjustments and amortization of gains or losses from the termination or de-designation of derivative contracts are summarized below:
Derivative Contracts Effect on Results of Operations (millions) |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Income/(Expense) | ||||||||||
Type |
Classification |
2010 |
2009 |
2008 |
||||||||
Interest rate swaps |
Other interest expense | $ | 51 | $ | 65 | $ | 71 | |||||
Total |
$ | 51 | $ | 65 | $ | 71 | ||||||
21. Leases
We lease certain retail locations, warehouses, distribution centers, office space, land, equipment and software. Assets held under capital leases are included in property and equipment. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date we take possession of the property. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured. The exercise of lease renewal options is at our sole discretion. The expected lease term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of leased buildings and leasehold improvements is limited by the expected lease term.
Rent expense is included in SG&A expenses. Some of our lease agreements include rental payments based on a percentage of retail sales over contractual levels. Certain leases require us to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These expenses are classified in
50
SG&A, consistent with similar costs for owned locations. Sublease income received from tenants who rent properties is recorded as a reduction to SG&A expense.
Rent Expense (millions) |
2010 |
2009 |
2008 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Property and equipment |
$ | 188 | $ | 187 | $ | 184 | |||||
Software |
25 | 27 | 24 | ||||||||
Sublease income |
(13 | ) | (13 | ) | (15 | ) | |||||
Total rent expense |
$ | 200 | $ | 201 | $ | 193 | |||||
Most long-term leases include one or more options to renew, with renewal terms that can extend the lease term from one to more than 50 years. Certain leases also include options to purchase the leased property.
Future Minimum Lease Payments (millions) |
Operating Leases (a) |
Capital Leases |
Sublease Income |
Total |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
$ | 190 | $ | 31 | $ | (11 | ) | $ | 210 | ||||
2012 |
189 | 32 | (8 | ) | 213 | ||||||||
2013 |
187 | 32 | (7 | ) | 212 | ||||||||
2014 |
147 | 32 | (6 | ) | 173 | ||||||||
2015 |
141 | 30 | (6 | ) | 165 | ||||||||
After 2015 |
3,100 | 432 | (35 | ) | 3,497 | ||||||||
Total future minimum lease payments |
$ | 3,954 | $ | 589 | $ | (73 | ) | $ | 4,470 | ||||
Less: Interest (b) |
(256 | ) | |||||||||||
Present value of future minimum capital lease payments (c) |
$ | 333 | |||||||||||
The future minimum lease payments above do not include any payments associated with the leases that may be acquired under our agreement with Zellers Inc., described in Note 18.
22. Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and liabilities are recognized in income at the enactment date. We have not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside the U.S. Such amounts are not significant.
Tax Rate Reconciliation |
2010 |
2009 |
2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||
State income taxes, net of federal tax benefit |
1.4 | 2.8 | 3.8 | |||||||
Other |
(1.3 | ) | (2.1 | ) | (1.4 | ) | ||||
Effective tax rate |
35.1 | % | 35.7 | % | 37.4 | % | ||||
51
Certain discrete state tax items reduced the impact of the state income tax rate, net of federal benefit, by 2.4 percentage points, 0.7 percentage points, and 0.6 percentage points in 2010, 2009, and 2008, respectively.
Provision for Income Taxes (millions) |
2010 |
2009 |
2008 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Current: |
|||||||||||
Federal |
$ | 1,086 | $ | 877 | $ | 1,034 | |||||
State/other |
44 | 143 | 197 | ||||||||
Total current |
1,130 | 1,020 | 1,231 | ||||||||
Deferred: |
|||||||||||
Federal |
388 | 339 | 88 | ||||||||
State/other |
57 | 25 | 3 | ||||||||
Total deferred |
445 | 364 | 91 | ||||||||
Total provision |
$ | 1,575 | $ | 1,384 | $ | 1,322 | |||||
Net Deferred Tax Asset/(Liability) (millions) |
January 29, 2011 |
January 30, 2010 |
||||||
---|---|---|---|---|---|---|---|---|
Gross deferred tax assets: |
||||||||
Accrued and deferred compensation |
$ | 451 | $ | 538 | ||||
Allowance for doubtful accounts |
229 | 393 | ||||||
Accruals and reserves not currently deductible |
373 | 380 | ||||||
Self-insured benefits |
251 | 260 | ||||||
Other |
67 | 92 | ||||||
Total gross deferred tax assets |
1,371 | 1,663 | ||||||
Gross deferred tax liabilities: |
||||||||
Property and equipment |
(1,607 | ) | (1,543 | ) | ||||
Deferred credit card income |
(145 | ) | (166 | ) | ||||
Other |
(174 | ) | (64 | ) | ||||
Total gross deferred tax liabilities |
(1,926 | ) | (1,773 | ) | ||||
Total net deferred tax asset/(liability) |
$ | (555 | ) | $ | (110 | ) | ||
We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations for years before 2009 and, with few exceptions, are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2003.
Reconciliation of Unrecognized Tax Benefit Liabilities (millions) |
2010 |
2009 |
|||||
---|---|---|---|---|---|---|---|
Balance at beginning of period |
$ | 452 | $ | 434 | |||
Additions based on tax positions related to the current year |
16 | 119 | |||||
Additions for tax positions of prior years |
68 | 47 | |||||
Reductions for tax positions of prior years |
(222 | ) | (61 | ) | |||
Settlements |
(12 | ) | (87 | ) | |||
Balance at end of period |
$ | 302 | $ | 452 | |||
If the Corporation were to prevail on all unrecognized tax benefit liabilities recorded, approximately $198 million of the $302 million reserve would benefit the effective tax rate. In addition, the reversal of accrued penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefit liabilities are recorded within income tax expense. During the years ended January 29, 2011 and January 30, 2010, we recorded a net benefit from the reversal of accrued penalties and interest of approximately $28 million and $10 million, respectively. During the year ended January 31, 2009, we recorded a net expense for accrued penalties
52
and interest of approximately $33 million. We had accrued for the payment of interest and penalties of approximately $95 million at January 29, 2011 and $127 million at January 30, 2010.
The January 30, 2010 liability for uncertain tax positions included $133 million for tax positions for which the ultimate deductibility was highly certain, but for which there was uncertainty about the timing of such deductibility. During 2010, we filed a tax accounting method change that resolved the uncertainty surrounding the timing of deductions for these tax positions, resulting in a $133 million decrease to our unrecognized tax benefit liability and no impact on income tax expense in 2010.
In addition, we resolved various state income tax matters in 2010, resulting in a reduction of approximately $80 million to our unrecognized tax benefit liability, which also reduced tax expense in 2010. It is reasonably possible that the amount of the unrecognized tax benefit liabilities with respect to our other unrecognized tax positions will increase or decrease during the next twelve months; however an estimate of the amount or range of the change cannot be made at this time.
During 2009, we filed income tax returns that included tax accounting method changes allowed under applicable tax regulations. These changes resulted in a substantial increase in tax deductions related to property and equipment, resulting in an increase in noncurrent deferred income tax liabilities of approximately $300 million and a corresponding increase in current income taxes receivable, which is classified as other current assets in the Consolidated Statements of Financial Position. These changes did not affect income tax expense for 2009.
23. Other Noncurrent Liabilities
Other Noncurrent Liabilities (millions) |
January 29, 2011 |
January 30, 2010 |
|||||
---|---|---|---|---|---|---|---|
General liability and workers' compensation (a) |
$ | 470 | $ | 490 | |||
Deferred compensation |
396 | 353 | |||||
Income tax |
313 | 579 | |||||
Pension and postretirement health care benefits |
128 | 178 | |||||
Other |
300 | 306 | |||||
Total |
$ | 1,607 | $ | 1,906 | |||
24. Share Repurchase
In November 2007, our Board of Directors approved a share repurchase program totaling $10 billion that replaced a prior program. In November 2008, we announced that, in light of our business outlook, we were temporarily suspending our open-market share repurchase program. In January 2010, we resumed open-market purchases of shares under this program.
Share repurchases for the last three years, repurchased primarily through open market transactions, were as follows:
Share Repurchases (millions, except per share data) |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Investment |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
2008 |
67.2 | $ | 50.49 | $ | 3,395 | |||||
2009 |
9.9 | 48.54 | 479 | |||||||
2010 |
47.8 | 52.44 | 2,508 | |||||||
Total |
124.9 | $ | 51.08 | $ | 6,382 | |||||
53
Of the shares reacquired, a portion was delivered upon settlement of prepaid forward contracts as follows:
Settlement of Prepaid Forward Contracts (a) (millions) |
Total Cash Investment |
Aggregate Market Value (b) |
|||||
---|---|---|---|---|---|---|---|
2008 |
$ | 249 | $ | 251 | |||
2009 |
56 | 60 | |||||
2010 |
56 | 61 | |||||
Total |
$ | 361 | $ | 372 | |||
Our share repurchases during 2008 included 30 million shares that were acquired through the exercise of call options.
Call Option Repurchase Details |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of Options Exercised |
|
(amounts per share) | |
|||||||||||||||
|
Exercise Date |
Total Cost (millions) |
|||||||||||||||||
Series |
Premium (a) |
Strike Price |
Total |
||||||||||||||||
Series I |
10,000,000 | April 2008 | $ | 11.04 | $ | 40.32 | $ | 51.36 | $ | 514 | |||||||||
Series II |
10,000,000 | May 2008 | 10.87 | 39.31 | 50.18 | 502 | |||||||||||||
Series III |
10,000,000 | June 2008 | 11.20 | 39.40 | 50.60 | 506 | |||||||||||||
Total |
30,000,000 | $ | 11.04 | $ | 39.68 | $ | 50.71 | $ | 1,522 | ||||||||||
25. Share-Based Compensation
We maintain a long-term incentive plan (the Plan) for key team members and non-employee members of our Board of Directors. Our long-term incentive plan allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). The number of unissued common shares reserved for future grants under the Plan was 17,552,454 at January 29, 2011 and 21,450,009 at January 30, 2010.
Total share-based compensation expense recognized in the Consolidated Statements of Operations was $109 million, $103 million and $72 million in 2010, 2009 and 2008, respectively. The related income tax benefit was $43 million, $40 million and $28 million in 2010, 2009 and 2008, respectively.
Stock Options
We grant nonqualified stock options to certain team members under the Plan that generally vest and become exercisable annually in equal amounts over a four-year period and expire 10 years after the grant date. We also grant options to the non-employee members of our Board of Directors which vest immediately and become exercisable after one year with a term equal to the lesser of 10 years from date of grant or 5 years following
54
departure from the Board. Starting in 2010, the options granted to our Board of Directors vest quarterly over a one-year period.
Stock Option Activity |
Stock Options (a) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total Outstanding | Exercisable | |||||||||||||||||
|
No. of Options (b) |
Exercise Price (c) |
Intrinsic Value (d) |
No. of Options (b) |
Exercise Price (c) |
Intrinsic Value (d) |
|||||||||||||
January 30, 2010 |
38,242 | $ | 44.05 | $ | 331 | 22,453 | $ | 44.59 | $ | 189 | |||||||||
Granted |
4,584 | 55.33 | |||||||||||||||||
Expired/forfeited |
(956 | ) | 44.87 | ||||||||||||||||
Exercised/issued |
(7,220 | ) | 37.57 | ||||||||||||||||
January 29, 2011 |
34,650 | $ | 46.87 | $ | 288 | 20,813 | $ | 47.06 | $ | 172 | |||||||||
We use a Black-Scholes valuation model to estimate the fair value of the options at grant date based on the assumptions noted in the following table. Volatility represents an average of market estimates for implied volatility of Target common stock. The expected life is estimated based on an analysis of options already exercised and any foreseeable trends or changes in recipients' behavior. The risk-free interest rate is an interpolation of the relevant U.S. Treasury security maturities as of each applicable grant date.
Valuation Assumptions |
2010 |
2009 |
2008 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dividend yield |
1.8 | % | 1.4 | % | 1.9 | % | |||||
Volatility |
26 | % | 31 | % | 47 | % | |||||
Risk-free interest rate |
2.1 | % | 2.7 | % | 1.5 | % | |||||
Expected life in years |
5.5 | 5.5 | 5.5 | ||||||||
Stock options grant date fair value |
$ | 12.51 | $ | 14.18 | $ | 12.87 | |||||
Stock Option Exercises (in millions) |
2010 |
2009 |
2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Cash received for exercise price |
$ | 271 | $ | 62 | $ | 31 | ||||
Intrinsic value |
132 | 21 | 14 | |||||||
Income tax benefit |
52 | 8 | 5 | |||||||
Compensation expense associated with stock options is recognized on a straight-line basis over the shorter of the vesting period or the minimum required service period. At January 29, 2011, there was $120 million of total unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted average period of 1.3 years. The weighted average remaining life of currently exercisable options is 5.4 years, and the weighted average remaining life of all outstanding options is 6.7 years. The total fair value of options vested was $87 million, $85 million and $69 million, in 2010, 2009 and 2008, respectively.
Performance Share Units
We have issued performance share units to certain team members annually since January 2003. These units represent shares potentially issuable in the future; historically, the units have been issued based upon the attainment of certain compound annual growth rates in revenue and EPS over a three-year performance period. Beginning with the March 2009 grant, issuance is based upon our performance relative to a retail peer group over a three-year performance period on two measures: domestic market share change and EPS growth. The fair value of
55
performance share units is calculated based on the stock price at the time of grant. The weighted average grant date fair value for performance share units was $52.62 in 2010, $27.18 in 2009 and $51.68 in 2008.
Performance Share Unit Activity |
Total Nonvested Units | ||||||
---|---|---|---|---|---|---|---|
|
Performance Share Units (a) |
Grant Date Price (b) |
|||||
January 30, 2010 |
2,199 | $ | 44.96 | ||||
Granted |
442 | 52.62 | |||||
Forfeited |
(657 | ) | 58.80 | ||||
Vested |
| | |||||
January 29, 2011 |
1,984 | (c) | $ | 42.10 | |||
Compensation expense associated with unvested performance share units is recognized on a straight-line basis over the shorter of the vesting period or the minimum required service period. The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. Future compensation expense for currently unvested awards could reach a maximum of $16 million assuming payout of all unvested awards. The unrecognized expense is expected to be recognized over a weighted average period of 0.8 years. The fair value of performance share units vested and converted was $0 in 2010, $1 million in 2009, and $36 million in 2008.
Restricted Stock
We issue restricted stock units and restricted stock awards (collectively restricted stock) to certain team members with three-year cliff vesting from the date of grant. We also regularly issue restricted stock units to our Board of Directors, which vest quarterly over a one-year period and are settled in shares of Target common stock upon departure from the Board. Restricted stock units represent shares potentially issuable in the future whereas restricted stock awards represent shares issued upon grant that are restricted. The fair value for restricted stock units and restricted stock awards is calculated based on the stock price at the time of grant. The weighted average grant date fair value for restricted stock was $55.17 in 2010, $49.41 in 2009 and $34.64 in 2008.
Restricted Stock Activity |
Total Nonvested Units | ||||||
---|---|---|---|---|---|---|---|
|
Restricted Stock (a) |
Grant Date Price (b) |
|||||
January 30, 2010 |
767 | $ | 33.47 | ||||
Granted |
578 | 55.17 | |||||
Forfeited |
| | |||||
Vested |
(207 | ) | 11.91 | ||||
January 29, 2011 |
1,138 | $ | 48.29 | ||||
Compensation expense associated with unvested restricted stock is recognized on a straight-line basis over the shorter of the vesting period or the minimum required service period. The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. At January 29, 2011, there was $33 million of total unrecognized compensation expense related to restricted stock, which is expected to be recognized over a weighted average period of 1.2 years. The fair value of restricted stock vested and converted was $3 million in 2010, $12 million in 2009, and $3 million in 2008.
56
26. Defined Contribution Plans
Team members who meet certain eligibility requirements can participate in a defined contribution 401(k) plan by investing up to 80 percent of their compensation, as limited by statute or regulation. Generally, we match 100 percent of each team member's contribution up to 5 percent of total compensation. Company match contributions are made to the fund designated by the participant.
In addition, we maintain a nonqualified, unfunded deferred compensation plan for approximately 3,500 current and retired team members whose participation in our 401(k) plan is limited by statute or regulation. These team members choose from a menu of crediting rate alternatives that are the same as the investment choices in our 401(k) plan, including Target common stock. We credit an additional 2 percent per year to the accounts of all active participants in this plan, excluding executive officer participants, in part to recognize the risks inherent to their participation in a plan of this nature. We also maintain a nonqualified, unfunded deferred compensation plan that was frozen during 1996, covering substantially fewer than 100 participants, most of whom are retired. In this plan, deferred compensation earns returns tied to market levels of interest rates plus an additional 6 percent return, with a minimum of 12 percent and a maximum of 20 percent, as determined by the plan's terms. In response to changing requirements regarding the federal income tax treatment of nonqualified deferred compensation arrangements resulting from Section 409A to the Internal Revenue Code, we allowed participants to elect to accelerate the distribution dates for their account balances during 2009 and 2008. This election was not available in 2010. Participant elections resulted in payments of $29 million in 2009 and $86 million in 2008.
We mitigate some of our risk of offering the nonqualified plans through investing in vehicles, including company-owned life insurance and prepaid forward contracts in our own common stock, that offset a substantial portion of our economic exposure to the returns of these plans. These investment vehicles are general corporate assets and are marked to market with the related gains and losses recognized in the Consolidated Statements of Operations in the period they occur. The total change in fair value for contracts indexed to our own common stock recognized in earnings was pretax income/(loss) of $4 million in 2010, $36 million in 2009 and $(19) million in 2008. During 2010 and 2009, we invested approximately $41 million and $34 million, respectively, in such investment instruments, and this activity is included in the Consolidated Statements of Cash Flows within other investing activities. Adjusting our position in these investment vehicles may involve repurchasing shares of Target common stock when settling the forward contracts. In 2010, 2009 and 2008, these repurchases totaled 1.1 million, 1.5 million and 4.7 million shares, respectively, and are included in the total share repurchases described in Note 24.
Prepaid Forward Contracts on Target Common Stock |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(millions, except per share data) |
Number of Shares |
Contractual Price Paid per Share |
Contractual Fair Value |
Total Cash Investment |
|||||||||
January 30, 2010 |
1.5 | $ | 42.77 | $ | 79 | $ | 66 | ||||||
January 29, 2011 |
1.2 | $ | 44.09 | $ | 63 | $ | 51 | ||||||
The settlement dates of these instruments are regularly renegotiated with the counterparty.
Plan Expenses (millions) |
2010 |
2009 |
2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
401(k) Plan |
||||||||||
Matching contributions expense |
$ | 190 | $ | 178 | $ | 178 | ||||
Nonqualified Deferred Compensation Plans |
||||||||||
Benefits expense/(income) (a) |
$ | 63 | $ | 83 | $ | (80 | ) | |||
Related investment loss/(income) (b) |
(31 | ) | (77 | ) | 83 | |||||
Nonqualified plan net expense |
$ | 32 | $ | 6 | $ | 3 | ||||
57
27. Pension and Postretirement Health Care Plans
We have qualified defined benefit pension plans covering all U.S. team members who meet age and service requirements, including in certain circumstances, date of hire. We also have unfunded nonqualified pension plans for team members with qualified plan compensation restrictions. Eligibility for, and the level of, these benefits varies depending on team members' date of hire, length of service and/or team member compensation. Upon early retirement and prior to Medicare eligibility, team members also become eligible for certain health care benefits if they meet minimum age and service requirements and agree to contribute a portion of the cost. Effective January 1, 2009, our qualified defined benefit pension plan was closed to new participants, with limited exceptions.
We recognize that our obligations to plan participants can only be met over time through a combination of company contributions to these plans and earnings on plan assets. In light of this concept, we elected to contribute $153 million and $252 million to our qualified plans during 2010 and 2009, respectively. This restored the qualified plans to a fully-funded status at year-end on an ABO (Accumulated Benefit Obligation) basis.
During 2009, we amended our postretirement health care plan, resulting in a $46 million reduction to our recorded liability, with a corresponding increase to shareholders' equity of $28 million, net of taxes of $18 million. The financial benefits of this amendment will be recognized through a reduction of benefit plan expense over the six years subsequent to the amendment.
The following tables provide a summary of the changes in the benefit obligations, fair value of plan assets, and funded status and amounts recognized in our Consolidated Statement of Financial Position for our postretirement benefit plans:
|
Pension Benefits | |
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Change in Projected Benefit Obligation |
Postretirement Health Care Benefits |
||||||||||||||||||
|
Qualified Plans | Nonqualified Plans | |||||||||||||||||
(millions) |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
|||||||||||||
Benefit obligation at beginning of year |
$ | 2,227 | $ | 1,948 | $ | 33 | $ | 36 | $ | 87 | $ | 117 | |||||||
Service cost |
114 | 99 | 1 | 1 | 9 | 7 | |||||||||||||
Interest cost |
127 | 123 | 2 | 2 | 4 | 6 | |||||||||||||
Actuarial (gain)/loss |
160 | 155 | (2 | ) | (3 | ) | 3 | 33 | |||||||||||
Participant contributions |
2 | 1 | | | 6 | 6 | |||||||||||||
Benefits paid |
(105 | ) | (99 | ) | (3 | ) | (3 | ) | (15 | ) | (18 | ) | |||||||
Plan amendments |
| | | | | (64 | ) | ||||||||||||
Benefit obligation at end of year |
$ | 2,525 | $ | 2,227 | $ | 31 | $ | 33 | $ | 94 | $ | 87 | |||||||
|
Pension Benefits | |
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Change in Plan Assets |
Postretirement Health Care Benefits |
||||||||||||||||||
|
Qualified Plans | Nonqualified Plans | |||||||||||||||||
(millions) |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
|||||||||||||
Fair value of plan assets at beginning of year |
$ | 2,157 | $ | 1,771 | $ | | $ | | $ | | $ | | |||||||
Actual return on plan assets |
308 | 232 | | | | | |||||||||||||
Employer contributions |
153 | 252 | 3 | 3 | 9 | 12 | |||||||||||||
Participant contributions |
2 | 1 | | | 6 | 6 | |||||||||||||
Benefits paid |
(105 | ) | (99 | ) | (3 | ) | (3 | ) | (15 | ) | (18 | ) | |||||||
Fair value of plan assets at end of year |
2,515 | 2,157 | | | | | |||||||||||||
Benefit obligation at end of year |
2,525 | 2,227 | 31 | 33 | 94 | 87 | |||||||||||||
Funded status |
$ | (10 | ) | $ | (70 | ) | $ | (31 | ) | $ | (33 | ) | $ | (94 | ) | $ | (87 | ) | |
58
Amounts recognized in the Consolidated Statements of Financial Position consist of the following:
Recognition of Funded/(Underfunded) Status |
Qualified Plans | Nonqualified Plans (a) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(millions) |
2010 |
2009 |
2010 |
2009 |
|||||||||
Other noncurrent assets |
$ | 5 | $ | 2 | $ | | $ | | |||||
Accrued and other current liabilities |
(1 | ) | (1 | ) | (11 | ) | (13 | ) | |||||
Other noncurrent liabilities |
(14 | ) | (71 | ) | (114 | ) | (107 | ) | |||||
Net amounts recognized |
$ | (10 | ) | $ | (70 | ) | $ | (125 | ) | $ | (120 | ) | |
The following table summarizes the amounts recorded in accumulated other comprehensive income, which have not yet been recognized as a component of net periodic benefit expense:
Amounts in Accumulated Other Comprehensive Income |
Postretirement |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Pension Plans | Health Care Plans | |||||||||||
(millions) |
2010 |
2009 |
2010 |
2009 |
|||||||||
Net actuarial loss |
$ | 895 | $ | 900 | $ | 48 | $ | 50 | |||||
Prior service credits |
(1 | ) | (5 | ) | (51 | ) | (62 | ) | |||||
Amounts in accumulated other comprehensive income |
$ | 894 | $ | 895 | $ | (3 | ) | $ | (12 | ) | |||
The following table summarizes the changes in accumulated other comprehensive income for the years ended January 29, 2011 and January 30, 2010, related to our pension and postretirement health care plans:
|
|
|
Postretirement Health Care Benefits |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Change in Accumulated Other Comprehensive Income (millions) |
Pension Benefits | ||||||||||||
Pretax |
Net of tax |
Pretax |
Net of tax |
||||||||||
January 31, 2009 |
$ | 821 | $ | 499 | $ | 19 | $ | 11 | |||||
Net actuarial loss |
96 | 58 | 33 | 20 | |||||||||
Amortization of net actuarial losses |
(24 | ) | (14 | ) | (2 | ) | (1 | ) | |||||
Amortization of prior service costs and transition |
2 | 1 | 2 | 1 | |||||||||
Plan amendments |
| | (64 | ) | (38 | ) | |||||||
January 30, 2010 |
$ | 895 | $ | 544 | $ | (12 | ) | $ | (7 | ) | |||
Net actuarial loss |
40 | 25 | 3 | 2 | |||||||||
Amortization of net actuarial losses |
(44 | ) | (27 | ) | (4 | ) | (3 | ) | |||||
Amortization of prior service costs and transition |
3 | 1 | 10 | 6 | |||||||||
January 29, 2011 |
$ | 894 | $ | 543 | $ | (3 | ) | $ | (2 | ) | |||
The following table summarizes the amounts in accumulated other comprehensive income expected to be amortized and recognized as a component of net periodic benefit expense in 2011:
Expected Amortization of Amounts in Accumulated Other Comprehensive Income (millions) |
Pretax |
Net of tax |
|||||
---|---|---|---|---|---|---|---|
Net actuarial loss |
$ | 70 | $ | 42 | |||
Prior service credits |
(12 | ) | (7 | ) | |||
Total amortization expense |
$ | 58 | $ | 35 | |||
59
The following table summarizes our net pension and postretirement health care benefits expense for the years 2010, 2009 and 2008:
Net Pension and Postretirement Health Care Benefits Expense |
Pension Benefits | Postretirement Health Care Benefits |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(millions) |
2010 |
2009 |
2008 |
2010 |
2009 |
2008 |
|||||||||||||
Service cost benefits earned during the period |
$ | 115 | $ | 100 | $ | 94 | $ | 9 | $ | 7 | $ | 5 | |||||||
Interest cost on projected benefit obligation |
129 | 125 | 116 | 4 | 6 | 7 | |||||||||||||
Expected return on assets |
(191 | ) | (177 | ) | (162 | ) | | | | ||||||||||
Amortization of losses |
44 | 24 | 16 | 4 | 2 | | |||||||||||||
Amortization of prior service cost |
(3 | ) | (2 | ) | (4 | ) | (10 | ) | (2 | ) | | ||||||||
Total |
$ | 94 | $ | 70 | $ | 60 | $ | 7 | $ | 13 | $ | 12 | |||||||
Prior service cost amortization is determined using the straight-line method over the average remaining service period of team members expected to receive benefits under the plan.
Defined Benefit Pension Plan Information (millions) |
2010 |
2009 |
|||||
---|---|---|---|---|---|---|---|
Accumulated benefit obligation (ABO) for all plans (a) |
$ | 2,395 | $ | 2,118 | |||
Projected benefit obligation for pension plans with an ABO in excess of plan assets (b) |
47 | 48 | |||||
Total ABO for pension plans with an ABO in excess of plan assets |
42 | 42 | |||||
Fair value of plan assets for pension plans with an ABO in excess of plan assets |
| | |||||
Assumptions
Weighted average assumptions used to determine benefit obligations as of the measurement date were as follows:
|
|
|
Postretirement Health Care Benefits |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Weighted Average Assumptions |
Pension Benefits | ||||||||||||
2010 |
2009 |
2010 |
2009 |
||||||||||
Discount rate |
5.50 | % | 5.85 | % | 4.35 | % | 4.85 | % | |||||
Average assumed rate of compensation increase |
4.00 | % | 4.00 | % | n/a | n/a | |||||||
Weighted average assumptions used to determine net periodic benefit expense for each fiscal year were as follows:
|
Pension Benefits | |
|
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Weighted Average Assumptions |
|
|
|
|
|
||||||||||||||
|
|
|
|
Postretirement Health Care Benefits |
|||||||||||||||
|
2010 |
2009 |
2008 |
2010 |
2009 |
2008 |
|||||||||||||
Discount rate |
5.85 | % | 6.50 | % | 6.45 | % | 4.85 | %(a) | 6.50 | %(a) | 6.45 | % | |||||||
Expected long-term rate of return on plan assets |
8.00 | % | 8.00 | % | 8.00 | % | n/a | n/a | n/a | ||||||||||
Average assumed rate of compensation increase |
4.00 | % | 4.25 | % | 4.25 | % | n/a | n/a | n/a | ||||||||||
The discount rate used to measure net periodic benefit expense each year is the rate as of the beginning of the year (e.g., the prior measurement date). With an essentially stable asset allocation over the following time periods,
60
our most recent annualized rate of return on qualified plans' assets has averaged 5.9 percent, 6.1 percent and 8.6 percent for the 5-year, 10-year and 15-year periods, respectively.
The expected Market-Related Value of Assets (MRV) is determined each year by adjusting the previous year's value by expected return, benefit payments and cash contributions. The expected MRV is adjusted for asset gains and losses in equal 20 percent adjustments over a five-year period.
Our expected annualized long-term rate of return assumptions as of January 29, 2011 were 8.5 percent for domestic and international equity securities, 5.5 percent for long-duration debt securities, 8.5 percent for balanced funds and 10.0 percent for other investments. Balanced funds primarily invest in equities, nominal and inflation-linked fixed income securities, commodities and public real estate. They seek to generate capital market returns while reducing market risk by investing globally in highly diversified portfolios of public securities. These estimates are a judgmental matter in which we consider the composition of our asset portfolio, our historical long-term investment performance and current market conditions. We review the expected long-term rate of return on an annual basis, and revise it accordingly. Additionally, we monitor the mix of investments in our portfolio to ensure alignment with our long-term strategy to manage pension cost and reduce volatility in our assets.
An increase in the cost of covered health care benefits of 7.5 percent was assumed for 2010 and is assumed for 2011. The rate will be reduced to 5.0 percent in 2019 and thereafter.
Health Care Cost Trend Rates1% Change (millions) |
1% Increase |
1% Decrease |
|||||
---|---|---|---|---|---|---|---|
Effect on total of service and interest cost components of net periodic postretirement health care benefit expense |
$ | 1 | $ | (1 | ) | ||
Effect on the health care component of the accumulated postretirement benefit obligation |
6 | (5 | ) | ||||
Plan Assets
Our asset allocation policy is designed to reduce the long-term cost of funding our pension obligations. The plan invests with both passive and active investment managers depending on the investment's asset class. The plan also seeks to reduce the risk associated with adverse movements in interest rates by employing an interest rate hedging program, which may include the use of interest rate swaps, total return swaps and other instruments.
|
|
Actual allocation |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Asset Category |
Current targeted allocation |
|||||||||
2010 |
2009 |
|||||||||
Domestic equity securities (a) |
19 | % | 18 | % | 19 | % | ||||
International equity securities |
12 | 10 | 10 | |||||||
Debt securities |
25 | 25 | 28 | |||||||
Balanced funds |
30 | 26 | 19 | |||||||
Other (b) |
14 | 21 | 24 | |||||||
Total |
100 | % | 100 | % | 100 | % | ||||
61
|
|
Fair Value at January 29, 2011 | |
Fair Value at January 30, 2010 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fair Value Measurements (millions) |
|
|
||||||||||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||||||
Cash and cash equivalents |
$ | 195 | $ | | $ | 195 | $ | | $ | 206 | $ | | $ | 206 | $ | | ||||||||||
Common collective trusts (a) |
490 | | 490 | | 464 | | 464 | | ||||||||||||||||||
Equity securities (b) |
36 | 36 | | | 26 | 26 | | | ||||||||||||||||||
Government securities (c) |
259 | | 259 | | 223 | | 223 | | ||||||||||||||||||
Fixed income (d) |
397 | | 397 | | 365 | | 365 | | ||||||||||||||||||
Balanced funds (e) |
596 | | 596 | | 404 | | 404 | | ||||||||||||||||||
Private equity funds (f) |
327 | | | 327 | 336 | | | 336 | ||||||||||||||||||
Other (g) |
130 | | 3 | 127 | 133 | | 14 | 119 | ||||||||||||||||||
Total |
$ | 2,430 | $ | 36 | $ | 1,940 | $ | 454 | $ | 2,157 | $ | 26 | $ | 1,676 | $ | 455 | ||||||||||
Contributions in transit (h) |
85 | |||||||||||||||||||||||||
Total plan assets |
$ | 2,515 | ||||||||||||||||||||||||
|
|
Actual return on plan assets (a) |
|
|
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Level 3 Reconciliation (millions) |
|
|
|
|
|||||||||||||||
Balance at beginning of period |
Relating to assets still held at the reporting date |
Relating to assets sold during the period |
Purchases, sales and settlements |
Transfers in and/or out of Level 3 |
Balance at end of period |
||||||||||||||
2009 |
|||||||||||||||||||
Private equity funds |
$ | 317 | $ | 19 | $ | 1 | $ | (1 | ) | $ | | $ | 336 | ||||||
Other |
131 | (20 | ) | | 8 | | 119 | ||||||||||||
2010 |
|||||||||||||||||||
Private equity funds |
$ | 336 | $ | 28 | $ | 12 | $ | (49 | ) | $ | | $ | 327 | ||||||
Other |
119 | 7 | 2 | (1 | ) | | 127 | ||||||||||||
62
Position |
Valuation Technique |
|
---|---|---|
Cash and cash equivalents | These investments are cash holdings and investment vehicles valued using the Net Asset Value (NAV) provided by the administrator of the fund. The NAV for the investment vehicles is based on the value of the underlying assets owned by the fund minus applicable costs and liabilities, and then divided by the number of shares outstanding. | |
Equity securities |
Valued at the closing price reported on the major market on which the individual securities are traded. |
|
Common collective trusts/balanced funds/certain multi-strategy hedge funds |
Valued using the NAV provided by the administrator of the fund. The NAV is a quoted transactional price for participants in the fund, which do not represent an active market. |
|
Fixed income and government securities |
Valued using matrix pricing models and quoted prices of securities with similar characteristics. |
|
Private equity/real estate/certain multi-strategy hedge funds/other |
Valued by deriving Target's proportionate share of equity investment from audited financial statements. Private equity and real estate investments require significant judgment on the part of the fund manager due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such investments. Certain multi-strategy hedge funds represent funds of funds that include liquidity restrictions and for which timely valuation information is not available. |
|
Contributions
In 2010 and 2009, we made discretionary contributions of $153 million and $252 million, respectively, to our qualified defined benefit pension plans. Even though we are not required to make any contributions, we may elect to make contributions depending on investment performance and the pension plan funded status in 2011. We expect to make contributions in the range of $10 million to $15 million to our postretirement health care benefit plan in 2011.
Estimated Future Benefit Payments
Benefit payments by the plans, which reflect expected future service as appropriate, are expected to be paid as follows:
Estimated Future Benefit Payments (millions) |
Pension Benefits |
Postretirement Health Care Benefits |
|||||
---|---|---|---|---|---|---|---|
2011 |
$ | 129 | $ | 8 | |||
2012 |
138 | 7 | |||||
2013 |
145 | 7 | |||||
2014 |
154 | 8 | |||||
2015 |
161 | 9 | |||||
2016-2020 |
935 | 67 | |||||
63
28. Segment Reporting
Our measure of profit for each segment is a measure that management considers analytically useful in measuring the return we are achieving on our investment.
|
2010 |
2009 |
2008 |
||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Business Segment Results (millions) |
|||||||||||||||||||||||||||||
Retail |
Credit Card |
Total |
Retail |
Credit Card |
Total |
Retail |
Credit Card |
Total |
|||||||||||||||||||||
Sales/Credit card revenues |
$ | 65,786 | $ | 1,604 | $ | 67,390 | $ | 63,435 | $ | 1,922 | $ | 65,357 | $ | 62,884 | $ | 2,064 | $ | 64,948 | |||||||||||
Cost of sales |
45,725 | | 45,725 | 44,062 | | 44,062 | 44,157 | | 44,157 | ||||||||||||||||||||
Bad debt expense (a) |
| 528 | 528 | | 1,185 | 1,185 | | 1,251 | 1,251 | ||||||||||||||||||||
Selling, general and administrative/ Operations and marketing expenses (a), (b) |
13,367 | 433 | 13,801 | 12,989 | 425 | 13,414 | 12,838 | 474 | 13,312 | ||||||||||||||||||||
Depreciation and amortization |
2,065 | 19 | 2,084 | 2,008 | 14 | 2,023 | 1,808 | 17 | 1,826 | ||||||||||||||||||||
Earnings before interest expense and income taxes |
4,629 | 624 | 5,252 | 4,376 | 298 | 4,673 | 4,081 | 322 | 4,402 | ||||||||||||||||||||
Interest expense on nonrecourse debt collateralized by credit card receivables |
| 83 | 83 | | 97 | 97 | | 167 | 167 | ||||||||||||||||||||
Segment profit |
$ | 4,629 | $ | 541 | $ | 5,169 | $ | 4,376 | $ | 201 | $ | 4,576 | $ | 4,081 | $ | 155 | $ | 4,236 | |||||||||||
Unallocated (income)/expense: |
|||||||||||||||||||||||||||||
Other interest expense |
677 | 707 | 727 | ||||||||||||||||||||||||||
Interest income |
(3 | ) | (3 | ) | (28 | ) | |||||||||||||||||||||||
Earnings before income taxes |
$ | 4,495 | $ | 3,872 | $ | 3,536 | |||||||||||||||||||||||
Note: The sum of the segment amounts may not equal the total amounts due to rounding.
|
2010 |
2009 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total Assets by Business Segment (millions) |
|||||||||||||||||||
Retail |
Credit Card |
Total |
Retail |
Credit Card |
Total |
||||||||||||||
Total assets |
$ | 37,324 | $ | 6,381 | $ | 43,705 | $ | 37,200 | $ | 7,333 | $ | 44,533 | |||||||
Substantially all of our revenues are generated and long-lived assets are located within the United States.
29. Quarterly Results (Unaudited)
Due to the seasonal nature of our business, fourth quarter operating results typically represent a substantially larger share of total year revenues and earnings because they include our peak sales period from Thanksgiving
64
through the end of December. We follow the same accounting policies for preparing quarterly and annual financial data. The table below summarizes quarterly results for 2010 and 2009:
Quarterly Results (millions, except per share data) |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total Year | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
|||||||||||||||||||||||
Total revenues |
$ | 15,593 | $ | 14,833 | $ | 15,532 | $ | 15,067 | $ | 15,605 | $ | 15,276 | $ | 20,661 | $ | 20,181 | $ | 67,390 | $ | 65,357 | ||||||||||||
Earnings before income taxes |
1,055 | 824 | 1,081 | 957 | 773 | 683 | 1,588 | 1,409 | 4,495 | 3,872 | ||||||||||||||||||||||
Net earnings |
671 | 522 | 679 | 594 | 535 | 436 | 1,035 | 936 | 2,920 | 2,488 | ||||||||||||||||||||||
Basic earnings per share |
0.91 | 0.69 | 0.93 | 0.79 | 0.75 | 0.58 | 1.46 | 1.25 | 4.03 | 3.31 | ||||||||||||||||||||||
Diluted earnings per share |
0.90 | 0.69 | 0.92 | 0.79 | 0.74 | 0.58 | 1.45 | 1.24 | 4.00 | 3.30 | ||||||||||||||||||||||
Dividends declared per share |
0.17 | 0.16 | 0.25 | 0.17 | 0.25 | 0.17 | 0.25 | 0.17 | 0.92 | 0.67 | ||||||||||||||||||||||
Closing common stock price |
||||||||||||||||||||||||||||||||
High |
58.05 | 41.26 | 57.13 | 43.79 | 55.05 | 51.35 | 60.77 | 52.02 | 60.77 | 52.02 | ||||||||||||||||||||||
Low |
48.64 | 25.37 | 49.00 | 36.75 | 50.72 | 41.38 | 53.48 | 45.30 | 48.64 | 25.37 | ||||||||||||||||||||||
Note: Per share amounts are computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding and all other quarterly amounts may not equal the total year due to rounding.
65
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
As of the end of the period covered by this Annual Report, we conducted an evaluation, under supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
For the Report of Management on Internal Control and the Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting, see Item 8, Financial Statements and Supplementary Data.
Not applicable.
66
Certain information required by Part III is incorporated by reference from Target's definitive Proxy Statement to be filed on or about April 28, 2011. Except for those portions specifically incorporated in this Form 10-K by reference to Target's Proxy Statement, no other portions of the Proxy Statement are deemed to be filed as part of this Form 10-K.
Item 10. Directors, Executive Officers and Corporate Governance
Election of Directors, Section 16(a) Beneficial Ownership Reporting Compliance, Additional Information Business Ethics and Conduct and General Information About the Board of Directors and Corporate Governance Committees, of Target's Proxy Statement to be filed on or about April 28, 2011, are incorporated herein by reference. See also Item 4A, Executive Officers of Part I hereof.
Item 11. Executive Compensation
Executive and Director Compensation, of Target's Proxy Statement to be filed on or about April 28, 2011, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Beneficial Ownership of Certain Shareholders and Equity Compensation Plan Information, of Target's Proxy Statement to be filed on or about April 28, 2011, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and General Information About the Board of Directors Director Independence, of Target's Proxy Statement to be filed on or about April 28, 2011, are incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Audit and Non-audit Fees, of Target's Proxy Statement to be filed on or about April 28, 2011, are incorporated herein by reference.
67
Item 15. Exhibits and Financial Statement Schedules
The following information required under this item is filed as part of this report:
|
Consolidated Statements of Operations for the Years Ended January 29, 2011, January 30, 2010 and January 31, 2009 |
|
|
Consolidated Statements of Financial Position at January 29, 2011 and January 30, 2010 |
|
|
Consolidated Statements of Cash Flows for the Years Ended January 29, 2011, January 30, 2010 and January 31, 2009 |
|
|
Consolidated Statements of Shareholders' Investment for the Years Ended January 29, 2011, January 30, 2010 and January 31, 2009 |
|
|
Notes to Consolidated Financial Statements |
|
|
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements |
Financial Statement Schedules
For the Years Ended January 29, 2011, January 30, 2010 and January 31, 2009:
II Valuation and Qualifying Accounts
Other schedules have not been included either because they are not applicable or because the information is included elsewhere in this Report.
(2)A | | Transaction Agreement dated January 12, 2011 among Zellers Inc., Hudson's Bay Company, Target Corporation and Target Canada Co. | ||
(3)A | Amended and Restated Articles of Incorporation (as amended through June 9, 2010) (1) | |||
B | By-Laws (as amended through September 9, 2009) (2) | |||
(4)A | Indenture, dated as of August 4, 2000 between Target Corporation and Bank One Trust Company, N.A. (3) | |||
B | First Supplemental Indenture dated as of May 1, 2007 to Indenture dated as of August 4, 2000 between Target Corporation and The Bank of New York Trust Company, N.A. (as successor in interest to Bank One Trust Company N.A.) (4) | |||
C | Registrant agrees to furnish to the Commission on request copies of other instruments with respect to long-term debt. | |||
(10)A | * | Target Corporation Officer Short-Term Incentive Plan (5) | ||
B | * | Target Corporation Long-Term Incentive Plan (as amended and restated on May 28, 2009) (6) | ||
C | * | Target Corporation SPP I (2010 Plan Statement) (7) | ||
D | * | Target Corporation SPP II (2010 Plan Statement) (8) | ||
E | * | Target Corporation SPP III (2010 Plan Statement) (9) | ||
F | * | Target Corporation Officer Deferred Compensation Plan (10) | ||
G | * | Target Corporation Officer EDCP (2010 Plan Statement) (11) | ||
H | * | Amended and Restated Deferred Compensation Plan Directors (12) | ||
I | * | Target Corporation DDCP (2009 Plan Statement) (13) | ||
J | * | Target Corporation Officer Income Continuance Policy Statement (as amended and restated January 13, 2010) (14) |
68
K | * | Target Corporation Executive Excess Long Term Disability Plan (15) | ||
L | * | Director Retirement Program (16) | ||
M | * | Target Corporation Deferred Compensation Trust Agreement (as amended and restated effective January 1, 2009) (17) | ||
N | * | Agreement between Target Corporation, Target Enterprise, Inc. and Troy Risch | ||
O | Five-Year Credit Agreement dated as of April 12, 2007 among Target Corporation, Bank of America, N.A. as Administrative Agent and the Banks listed therein (18) | |||
P | | Note Purchase Agreement dated May 5, 2008 among Target Corporation, Target Receivables Corporation, BOTAC, Inc. and Chase Bank USA, National Association (19) | ||
Q | Indenture dated as of May 19, 2008 between Target Credit Card Owner Trust 2008-1 and Wells Fargo Bank, National Association (20) | |||
R | Series 2008-1 Supplement dated as of May 19, 2008 to Amended and Restated Pooling and Servicing Agreement among Target Receivables Corporation, Target National Bank, and Wells Fargo Bank, National Association (21) | |||
S | Amended and Restated Pooling and Servicing Agreement dated as of April 28, 2000 among Target Receivables Corporation, Target National Bank (formerly known as Retailers National Bank), and Wells Fargo Bank, National Association (formerly known as Norwest Bank Minnesota, National Association) (22) | |||
T | Amendment No. 1 dated as of August 22, 2001 to Amended and Restated Pooling and Servicing Agreement among Target Receivables Corporation, Target National Bank (formerly known as Retailers National Bank) and Wells Fargo Bank, National Association (formerly known as Norwest Bank Minnesota, National Association) (23) | |||
U | Amendment No. 1 dated as of November 10, 2009 to Note Purchase Agreement among Target Corporation, Target Receivables Corporation, BOTAC, Inc. and Chase Bank USA, National Association | |||
V | Amendment No. 2 dated as of January 31, 2011 to Note Purchase Agreement among Target Corporation, Target Receivables LLC (formerly known as Target Receivables Corporation), JPMN II Inc. (formerly known as BOTAC, Inc.) and Chase Bank USA, National Association | |||
W | Amendment No. 1 dated as of January 31, 2011 to Series 2008-1 Supplement among Target Receivables LLC (formerly known as Target Receivables Corporation), Target National Bank, and Wells Fargo Bank, National Association | |||
X | Amendment No. 2 dated as of January 31, 2011 to Amended and Restated Pooling and Servicing Agreement among Target Receivables LLC (formerly known as Target Receivables Corporation), Target National Bank (formerly known as Retailers National Bank) and Wells Fargo Bank, National Association (formerly known as Wells Fargo Bank Minnesota, National Association) | |||
(12) | Statements of Computations of Ratios of Earnings to Fixed Charges | |||
(21) | List of Subsidiaries | |||
(23) | Consent of Independent Registered Public Accounting Firm | |||
(24) | Powers of Attorney | |||
(31)A | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
(31)B | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
(32)A | Certification of the Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
(32)B | Certification of the Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
101.INS | XBRL Instance Document | |||
101.SCH | XBRL Taxonomy Extension Schema | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
69
Copies of exhibits will be furnished upon written request and payment of Registrant's reasonable expenses in furnishing the exhibits.
70
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Target has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TARGET CORPORATION | ||||
By: |
||||
Dated: March 11, 2011 |
Douglas A. Scovanner Executive Vice President, Chief Financial Officer and Chief Accounting Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of Target and in the capacities and on the dates indicated.
Dated: March 11, 2011 |
Gregg W. Steinhafel Chairman of the Board, Chief Executive Officer and President |
|||
Dated: March 11, 2011 |
Douglas A. Scovanner Executive Vice President, Chief Financial Officer and Chief Accounting Officer |
ROXANNE S. AUSTIN CALVIN DARDEN MARY N. DILLON JAMES A. JOHNSON |
DERICA W. RICE STEPHEN W. SANGER JOHN G. STUMPF SOLOMON D. TRUJILLO |
|||
MARY E. MINNICK ANNE M. MULCAHY |
Directors |
Douglas A. Scovanner, by signing his name hereto, does hereby sign this document pursuant to powers of attorney duly executed by the Directors named, filed with the Securities and Exchange Commission on behalf of such Directors, all in the capacities and on the date stated.
By: | ||||
Dated: March 11, 2011 |
Douglas A. Scovanner Attorney-in-fact |
71
TARGET CORPORATION
Schedule IIValuation and Qualifying Accounts
Fiscal Years 2010, 2009 and 2008
(millions) |
|
|
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Column A |
Column B |
Column C |
Column D |
Column E |
||||||||||
Description |
Balance at Beginning of Period |
Additions Charged to Cost, Expenses |
Deductions |
Balance at End of Period |
||||||||||
Allowance for doubtful accounts: |
||||||||||||||
2010 |
$ | 1,016 | 528 | (854 | ) | $ | 690 | |||||||
2009 |
$ | 1,010 | 1,185 | (1,179 | ) | $ | 1,016 | |||||||
2008 |
$ | 570 | 1,251 | (811 | ) | $ | 1,010 | |||||||
Sales returns reserves (a): |
||||||||||||||
2010 |
$ | 41 | 1,146 | (1,149 | ) | $ | 38 | |||||||
2009 |
$ | 29 | 1,118 | (1,106 | ) | $ | 41 | |||||||
2008 |
$ | 29 | 1,088 | (1,088 | ) | $ | 29 | |||||||
72
Exhibit |
Description |
Manner of Filing |
||
---|---|---|---|---|
(2)A | Transaction Agreement dated January 12, 2011 among Zellers Inc., Hudson's Bay Company, Target Corporation, and Target Canada Co. | Filed Electronically | ||
(3)A | Amended and Restated Articles of Incorporation (as amended June 9, 2010) | Incorporated by Reference | ||
(3)B | By-Laws (as amended through September 9, 2009) | Incorporated by Reference | ||
(4)A | Indenture, dated as of August 4, 2000 between Target Corporation and Bank One Trust Company, N.A. | Incorporated by Reference | ||
(4)B | First Supplemental Indenture dated as of May 1, 2007 to Indenture dated as of August 4, 2000 between Target Corporation and The Bank of New York Trust Company, N.A. (as successor in interest to Bank One Trust Company N.A.) | Incorporated by Reference | ||
(10)A | Target Corporation Officer Short-Term Incentive Plan | Incorporated by Reference | ||
(10)B | Target Corporation Long-Term Incentive Plan (as amended and restated on May 28, 2009) | Incorporated by Reference | ||
(10)C | Target Corporation SPP I (2010 Plan Statement) | Incorporated by Reference | ||
(10)D | Target Corporation SPP II (2010 Plan Statement) | Incorporated by Reference | ||
(10)E | Target Corporation SPP III (2010 Plan Statement) | Incorporated by Reference | ||
(10)F | Target Corporation Officer Deferred Compensation Plan | Incorporated by Reference | ||
(10)G | Target Corporation Officer EDCP (2010 Plan Statement) | Incorporated by Reference | ||
(10)H | Amended and Restated Deferred Compensation Plan Directors | Incorporated by Reference | ||
(10)I | Target Corporation DDCP (2009 Plan Statement) | Incorporated by Reference | ||
(10)J | Target Corporation Officer Income Continuance Policy Statement (as amended and restated January 13, 2010) | Incorporated by Reference | ||
(10)K | Target Corporation Executive Excess Long Term Disability Plan | Incorporated by Reference | ||
(10)L | Director Retirement Program | Incorporated by Reference | ||
(10)M | Target Corporation Deferred Compensation Trust Agreement (as amended and restated effective January 1, 2009) | Incorporated by Reference | ||
(10)N | Agreement between Target Corporation, Target Enterprise, Inc. and Troy Risch | Filed Electronically | ||
(10)O | Five-Year Credit Agreement dated as of April 12, 2007 among Target Corporation, Bank of America, N.A. as Administrative Agent and the Banks listed therein | Incorporated by Reference | ||
(10)P | Note Purchase Agreement dated May 5, 2008 among Target Corporation, Target Receivables Corporation, BOTAC, Inc. and Chase Bank USA, National Association | Incorporated by Reference | ||
(10)Q | Indenture dated as of May 19, 2008 between Target Credit Card Owner Trust 2008-1 and Wells Fargo Bank, National Association | Incorporated by Reference | ||
(10)R | Series 2008-1 Supplement dated as of May 19, 2008 to Amended and Restated Pooling and Servicing Agreement among Target Receivables Corporation, Target National Bank, and Wells Fargo Bank, National Association | Incorporated by Reference | ||
(10)S | Amended and Restated Pooling and Servicing Agreement dated as of April 28, 2000 among Target Receivables Corporation, Target National Bank (formerly known as Retailers National Bank), and Wells Fargo Bank, National Association (formerly known as Norwest Bank Minnesota, National Association) | Incorporated by Reference |
73
Exhibit |
Description |
Manner of Filing |
||
---|---|---|---|---|
(10)T | Amendment No. 1 dated as of August 22, 2001 to Amended and Restated Pooling and Servicing Agreement among Target Receivables Corporation, Target National Bank (formerly known as Retailers National Bank) and Wells Fargo Bank, National Association (formerly known as Norwest Bank Minnesota, National Association) | Incorporated by Reference | ||
(10)U | Amendment No. 1 dated as of November 10, 2009 to Note Purchase Agreement among Target Corporation, Target Receivables Corporation, BOTAC, Inc. and Chase Bank USA, National Association | Filed Electronically | ||
(10)V | Amendment No. 2 dated as of January 31, 2011 to Note Purchase Agreement among Target Corporation, Target Receivables LLC (formerly known as Target Receivables Corporation), JPMN II Inc. (formerly known as BOTAC, Inc.) and Chase Bank USA, National Association | Filed Electronically | ||
(10)W | Amendment No. 1 dated as of January 31, 2011 to Series 2008-1 Supplement among Target Receivables LLC (formerly known as Target Receivables Corporation), Target National Bank, and Wells Fargo Bank, National Association | Filed Electronically | ||
(10)X | Amendment No. 2 dated as of January 31, 2011 to Amended and Restated Pooling and Servicing Agreement among Target Receivables LLC (formerly known as Target Receivables Corporation), Target National Bank (formerly known as Retailers National Bank) and Wells Fargo Bank, National Association (formerly known as Wells Fargo Bank Minnesota, National Association) | Filed Electronically | ||
(12) | Statements of Computations of Ratios of Earnings to Fixed Charges | Filed Electronically | ||
(21) | List of Subsidiaries | Filed Electronically | ||
(23) | Consent of Independent Registered Public Accounting Firm | Filed Electronically | ||
(24) | Powers of Attorney | Filed Electronically | ||
(31)A | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed Electronically | ||
(31)B | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed Electronically | ||
(32)A | Certification of the Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed Electronically | ||
(32)B | Certification of the Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed Electronically | ||
101.INS | XBRL Instance Document | Filed Electronically | ||
101.SCH | XBRL Taxonomy Extension Schema | Filed Electronically | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed Electronically | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed Electronically | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed Electronically | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed Electronically |
74
EXHIBIT (2)A
ZELLERS INC.,
HUDSONS BAY COMPANY,
TARGET CORPORATION,
and
TARGET CANADA CO.
TRANSACTION AGREEMENT
January 12, 2011
TABLE OF CONTENTS
|
|
Page |
|
|
|
ARTICLE 1 INTERPRETATION |
1 | |
Section 1.1 |
Defined Terms |
1 |
Section 1.2 |
Gender and Number |
9 |
Section 1.3 |
Headings, etc. |
9 |
Section 1.4 |
Currency |
9 |
Section 1.5 |
Certain Phrases, etc. |
9 |
Section 1.6 |
Knowledge |
9 |
Section 1.7 |
Disclosure Letter |
9 |
Section 1.8 |
References to Persons and Agreements |
10 |
Section 1.9 |
Statutes |
10 |
Section 1.10 |
Non-Business Days |
10 |
Section 1.11 |
Time Periods |
11 |
Section 1.12 |
Designation of Target Canada |
11 |
Section 1.13 |
Leasehold Interests |
11 |
|
|
|
ARTICLE 2 AGREEMENT OF PURCHASE AND SALE |
11 | |
Section 2.1 |
First Tranche Subject Leased Properties |
11 |
Section 2.2 |
Second Tranche Subject Leased Properties |
12 |
Section 2.3 |
Right to Terminate Leases |
13 |
Section 2.4 |
Vacancy Date |
13 |
Section 2.5 |
Ordinary Course Operations |
14 |
Section 2.6 |
Pharmacy Records |
15 |
Section 2.7 |
Target Canada Assignment of Rights |
15 |
Section 2.8 |
Access and Additional Information Relating to Leased Properties |
18 |
Section 2.9 |
Winnipeg Lease Option |
19 |
|
|
|
ARTICLE 3 PURCHASE PRICE |
19 | |
Section 3.1 |
Purchase Price |
19 |
Section 3.2 |
Payment of the Purchase Price |
20 |
Section 3.3 |
Adjustments |
20 |
Section 3.4 |
Sales and Transfer Taxes |
22 |
Section 3.5 |
Goods and Services Tax and Harmonized Sales Tax |
22 |
Section 3.6 |
Self-Assessment of GST and HST on Real Property |
23 |
Section 3.7 |
Tax Refunds |
23 |
Section 3.8 |
Note Purchase Facility |
24 |
|
|
|
ARTICLE 4 ASSUMED LIABILITIES |
26 | |
Section 4.1 |
Assumed Liabilities |
26 |
Section 4.2 |
Excluded Liabilities |
26 |
Section 4.3 |
As Is, Where Is |
27 |
|
|
|
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ZELLERS |
28 |
TABLE OF CONTENTS
(continued)
|
|
Page |
|
|
|
Section 5.1 |
Representations and Warranties of Zellers |
28 |
|
| |
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF TARGET CANADA AND TARGET |
32 | |
Section 6.1 |
Representations and Warranties of Target Canada and Target |
32 |
|
| |
ARTICLE 7 COVENANTS OF THE PARTIES |
33 | |
Section 7.1 |
Actions to Satisfy Closing Conditions |
33 |
Section 7.2 |
Request for Consents |
34 |
Section 7.3 |
Filings and Authorizations |
35 |
Section 7.4 |
Risk of Loss |
36 |
Section 7.5 |
Confidentiality |
36 |
Section 7.6 |
Lease Amendments, Renewals and Notices |
37 |
Section 7.7 |
Zellers Entity Cooperation |
38 |
|
| |
ARTICLE 8 CONDITIONS OF CLOSING |
41 | |
Section 8.1 |
Conditions for the Benefit of Target and Target Canada |
41 |
Section 8.2 |
Conditions for the Benefit of Zellers |
42 |
|
|
|
ARTICLE 9 CLOSING |
|
43 |
Section 9.1 |
Date, Time and Place of Closing |
43 |
Section 9.2 |
Zellers Closing Deliveries |
43 |
Section 9.3 |
Target Canadas Closing Deliveries |
44 |
Section 9.4 |
Closing Procedures |
45 |
|
| |
ARTICLE 10 TERMINATION |
46 | |
Section 10.1 |
Termination Rights |
46 |
Section 10.2 |
Effect of Termination |
46 |
|
| |
ARTICLE 11 INDEMNIFICATION |
46 | |
Section 11.1 |
Liability for Representations and Warranties |
46 |
Section 11.2 |
Indemnification in Favour of Target and Target Canada |
47 |
Section 11.3 |
Indemnification in Favour of Zellers |
48 |
Section 11.4 |
Bulk Sales and Retail Sales Tax Waiver |
48 |
Section 11.5 |
Limitations |
48 |
Section 11.6 |
Notification |
49 |
Section 11.7 |
Limitation Periods |
49 |
Section 11.8 |
Procedure for Direct Claims |
50 |
Section 11.9 |
Procedure for Third Party Claims |
50 |
Section 11.10 |
Remedies |
51 |
Section 11.11 |
One Recovery |
52 |
Section 11.12 |
Duty to Mitigate |
52 |
Section 11.13 |
Adjustment to Purchase Price |
52 |
TABLE OF CONTENTS
(continued)
|
|
Page |
|
|
|
ARTICLE 12 OTHER COVENANTS |
53 | |
Section 12.1 |
Guarantee by HBC |
53 |
Section 12.2 |
Target Guarantee |
54 |
Section 12.3 |
Further Assurances |
54 |
|
|
|
ARTICLE 13 MISCELLANEOUS |
55 | |
Section 13.1 |
Notices |
55 |
Section 13.2 |
Time of the Essence |
56 |
Section 13.3 |
Brokers |
56 |
Section 13.4 |
Announcements |
57 |
Section 13.5 |
Third Party Beneficiaries |
57 |
Section 13.6 |
Expenses |
57 |
Section 13.7 |
Amendments |
57 |
Section 13.8 |
Waiver |
57 |
Section 13.9 |
Non-Merger |
58 |
Section 13.10 |
Subdivision Laws |
58 |
Section 13.11 |
Entire Agreement |
58 |
Section 13.12 |
Successors and Assigns |
59 |
Section 13.13 |
Severability |
59 |
Section 13.14 |
Governing Law |
59 |
Section 13.15 |
Counterparts |
59 |
TRANSACTION AGREEMENT
Transaction Agreement dated January 12, 2011 between Zellers Inc. (Zellers), Hudsons Bay Company (HBC), Target Corporation (Target), and Target Canada Co.
RECITALS:
A. Zellers operates a chain of retail department stores throughout Canada under the Zellers banner.
B. Target operates a chain of retail department stores throughout the United States.
C. Zellers wishes to assign certain of the leasehold interests that it currently uses in its operations subject to subleases back to it so as to allow it to continue to operate its business on such leased premises for varying periods of time.
D. Target wishes to obtain an assignment of the aforesaid leasehold interests from Zellers to use for itself or to allow it to assign certain of such leasehold interests to other parties on terms that it may negotiate, subject in each case to the aforesaid subleases to Zellers.
E. The Parties wish to set out their agreement regarding certain matters relating to such transactions.
THEREFORE, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
Section 1.1 Defined Terms.
As used in this Agreement, the following terms have the following meanings:
Accrued Interest has the meaning specified in Section 3.8(3).
Affiliate of any Person means, at the time such determination is being made, any other Person controlling, controlled by or under common control with such first Person, in each case, whether directly or indirectly, and control and any derivation of such term means the possession, directly or indirectly, of the power to direct the management and policies, business or affairs of a Person whether through the ownership of voting securities or otherwise.
Agreement means this transaction agreement.
Ancillary Agreements means the Lease Assignment and Assumption Agreements, the Subleases, the Designee Assignment and Assumption Agreements, and the Brand Waiver.
Assignee has the meaning specified in Section 12.2(1).
Assumed Liabilities has the meaning specified in Section 4.1.
Authorization means, with respect to any Person, any order, permit, approval, consent, waiver, license, no action letter or similar authorization of any Governmental Entity having jurisdiction over the Person.
Books and Records means all books, records, files, reports and documents (including all correspondence, real estate and engineering data, facilities reports, blueprints and other property records), in whatever format.
Brand Waiver has the meaning specified in Section 9.2(e).
Business Day means any day of the year, other than a Saturday, Sunday or any day on which major banks are closed for business in Toronto, Ontario or Minneapolis, Minnesota.
Closing Date means, as applicable, the First Tranche Closing Date or the Second Tranche Closing Date.
Commissioner of Competition means the Commissioner of Competition appointed pursuant to the Competition Act and includes Persons authorized by the Commissioner of Competition.
Competition Act means the Competition Act (Canada).
Competition Act Approval has the meaning specified in Section 7.3(4).
Competition Tribunal means the Competition Tribunal established under the Competition Act.
Cost Basis has the meaning specified in Section 3.8(2).
Damages means any losses, liabilities, damages, out of pocket expenses or costs (including reasonable legal fees and expenses), contingent or otherwise, whether liquidated or unliquidated, whether resulting from an action, suit, proceeding, arbitration, application, cause of action, claim or demand that is instituted or asserted by a third party, including a Governmental Entity, or a cause, matter, thing, act, omission or state of facts not involving a third party.
Default Notice means any written notice given by the Landlord under any Lease claiming or alleging that Zellers (or any Affiliate of Zellers) is or may be in default of its obligations under such Lease and which default or allegation of default remains uncured.
Delivery Date has the meaning specified in Section 2.1(4).
Designee has the meaning specified in Section 2.7(1).
Designee Assignment and Assumption Agreement has the meaning specified in Section 2.7(1)(a).
Direct Claim means any cause, matter, thing, act, omission or state of facts not involving a Third Party Claim which entitles an Indemnified Party to make a claim for indemnification under this Agreement.
Disclosure Letter means the disclosure letter dated the Execution Date and delivered by Zellers to Target with this Agreement.
Due Diligence File means the electronic files (other than those contained in the folder entitled Bay Lease Info) on a computer hard drive created by Zellers and provided to Target (as updated by the electronic files on a computer hard drive created by Target and provided to Zellers on January 11, 2011) consisting of documents and information related to the Leases (including copies of all leases, occupancy agreements and amendments thereto and all other documents and correspondence in the possession or control of Zellers which relate to the Leases and the Leased Properties) assembled and made available by Zellers to Target.
Effective Time means 12:01 a.m. (Toronto time) on the relevant Closing Date, Vacancy Date or Delivery Date, as the case may be.
Encumbrances means pledges, liens, charges, security interests, leases, title retention agreements, mortgages, hypothecs, restrictions, development or similar agreements, easements, rights-of-way, title defects, options or adverse claims or encumbrances of any kind or character whatsoever.
Excluded Liabilities has the meaning specified in Section 4.2.
Execution Date means the date upon which the last of Zellers, HBC, Target, and Target Canada Co. executed this Agreement.
Failure to Operate means a reduction, change or cessation in Zellers operations at a Leased Property which, were it to continue, would give rise to a Landlord Recapture Right and which is not caused by a force majeure.
Final Adjustments has the meaning specified in Section 3.3.
First Four Fiscal Quarters means the four full Fiscal Quarters ending immediately following the Execution Date.
Fiscal Quarter means any of the quarterly accounting periods of Zellers, ending on or about April 30, July 31, October 31 and January 31 of each year.
First Tranche Closing Date means the date that is 10 Business Days following the later of (i) the last day of the First Tranche Selection Period or (ii) the date that Competition Act Approval is obtained, but in either case subject to the satisfaction or waiver by the applicable Party or Parties of all conditions at the Effective Time on the First Tranche Closing Date.
First Tranche Purchase Price has the meaning specified in Section 3.1(1)(a).
First Tranche Selection List has the meaning specified in Section 2.1(1).
First Tranche Selection Period means the 120-day period following the Execution Date.
First Tranche Subject Leases means the Leases pertaining to the First Tranche Subject Leased Properties, subject to Sections 2.1(4) and 7.2(3).
First Tranche Subject Leased Properties means the Leased Properties listed on the First Tranche Selection List, subject to Section 2.1(4).
Governmental Entity means (i) any international, multinational, national, federal, provincial, state, municipal, local or other governmental or public department, central bank, court, minister, governor-in-council, cabinet, commission, board, bureau, agency, commissioner, tribunal or instrumentality, domestic or foreign, (ii) any subdivision or authority of any of the above, (iii) any stock exchange, and (iv) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the above.
HBC means Hudsons Bay Company.
HST Declaration and Indemnity means the HST declaration and indemnity in the form attached as Section 9.3(g) to the Disclosure Letter.
Indemnified Party means a Party with indemnification rights or benefits under this Agreement, including pursuant to Article 11.
Indemnifying Party means a Party against which a claim may be made for indemnification under this Agreement, including pursuant to Article 11.
Intercreditor Agreement means that certain Intercreditor Agreement dated as of October 2, 2006 among U.S. Bank National Association, as Trustee for the benefit of the holders of Merrill Lynch Floating Trust Pass-Through Certificates, Series 2006-1, and the lenders under the Notes.
Investment Grade Designee means a Designee that, at the time of such Designees execution of a Designee Assignment and Assumption Agreement pursuant to Section 2.7(1)(a) or other assumption document pursuant to Section 2.7 with respect to the Subject Lease to be assigned and transferred to such Designee, has outstanding senior debt rated by at least two of the following rating agencies with minimum ratings as follows:
(i) at least BBB- as determined by Standard & Poors,
(ii) at least Baa3 as determined by Moodys, or
(iii) at least BBB low as determined by the Dominion Bond Rating Service;
and in each case such rating is not subject to a negative watch or other similar notice suggesting a possible downgrade to below such level, and in each case Target Canada has provided to Zellers evidence reasonably satisfactory to Zellers of such ratings.
Landlord means the Person from time to time holding the landlords interest under any Lease.
Landlord Recapture Right means the right of a Landlord (through the exercise of an express right under a Lease) to terminate a Lease by reason of Zellers Failure to Operate.
Laws means any and all applicable (i) laws, constitutions, treaties, statutes, codes, ordinances, orders, decrees, rules, regulations, and by-laws, (ii) judgments, orders, writs, injunctions, decisions, awards and directives of any Governmental Entity, and (iii) policies, guidelines, notices and protocols, to the extent that they have the force of law.
Lease Assignment and Assumption Agreement has the meaning specified in Section 9.2(a).
Lease Default means an event which with the passage of time or the giving of notice or both would constitute a default or event of default of the tenant under a Lease, in each case where the relevant Landlord has provided written notice of such default, provided that any default arising as a result of the failure to obtain the consent of the applicable Landlords under the Subject Leases to the transactions contemplated by this Agreement (inclusive of the Wind-Down Actions, the Subleases and the rights of Zellers therein) shall not constitute a Lease Default.
Leased Properties means the leasehold lands, premises, buildings, and leasehold improvements pertaining to the Leases, which premises are listed and described in Section 5.1(i)(i) of the Disclosure Letter by reference to their mall name or municipal address, as applicable, and Zellers store number.
Leases means all agreements of Zellers to lease or otherwise occupy the Leased Properties.
Material Lease Default means (i) a Lease Default which would result in an express termination of a Lease as a result of a Landlord having provided a termination notice on or prior to the relevant Closing Date; or (ii) a Lease Default which could reasonably be expected to give rise to the termination of a Lease by the relevant Landlord or which could reasonably be expected to give rise to Zellers loss of possession under the Subject Lease by the Landlord; except in the case of (i) and (ii) a Lease Default where such breach or termination could be remedied by Target Canada or its Designee within 12 months after the relevant Closing Date with an expenditure of money not exceeding $50,000. For certainty, any default arising under the Leases as a result of the failure to obtain the consent of the applicable Landlords under the Leases to the transactions contemplated by this Agreement (inclusive of the Wind-Down Actions, the Subleases and the rights of Zellers therein) shall not constitute a Material Lease Default.
Monetary Lien means (1) any Encumbrance that secures the payment of borrowed money, (2) any registered construction or mechanics lien, any execution upon a judgment or any pre-fixture or fixture filing under personal property legislation and (3) any Encumbrance (other than an inchoate or statutory Encumbrance in favour of any Governmental Entity or public or private utility for amounts not then due) that secures the payment of any cost or amount which is Zellers responsibility to pay under this
Agreement or under Laws and which is overdue or in default and, payment of which is not subject to the allocation provisions of this Agreement (unless in the case of (3) Zellers otherwise gives Target Canada credit therefor whether or not allocation thereof is contemplated by this Agreement).
Mortgages means any mortgage of Zellers leasehold interest in the Leased Properties.
Notes means interests in (a) that certain Mezzanine A Loan Agreement dated as of October 2, 2006, as amended, between LT Mezz A LLC, a Delaware limited liability company, and Wells Fargo Bank, National Association, as custodian for the Participation Holders (as defined therein), and (b) that certain Mezzanine B Loan Agreement dated as of October 2, 2006, as amended, between LT Mezz B LLC, a Delaware limited liability company and GSRE-BS II, Ltd., as lender.
Notice has the meaning specified in Section 13.1.
Notice Date means the date upon which Target, Target Canada or a Designee gives Notice to Zellers of the Vacancy Date for any Subleases as contemplated by Section 2.4(1).
Outside Date means September 30, 2011, provided that if the Competition Act Approval is not obtained by August 15, 2011, Zellers or Target may elect to extend from time to time the Outside Date by specified periods of not less than 30 days to no later than December 31, 2011.
Participation Agreement means that certain Mezzanine Loan Participation Agreement dated as of December 12, 2006 among Wells Fargo Bank, National Association, as custodian, and the holders of the Notes associated with the Mezzanine A Loan Agreement.
Parties means Zellers, HBC, Target, Target Canada and any other Person who becomes a party to this Agreement.
Permitted Encumbrances means the Encumbrances identified in Section 5.1(i)(iv) of the Disclosure Letter.
Person means a natural person, partnership, limited partnership, limited liability partnership, corporation, limited liability company, unlimited liability company, joint stock company, trust, unincorporated association, joint venture or other entity or Governmental Entity, and pronouns have a similarly extended meaning.
Pharmacy Notice Date has the meaning specified in Section 2.6.
Pharmacy Records means all of the prescription files and prescription records, including patient profiles and refill histories, with respect to the pharmacies operated at the Subject Leased Properties.
Purchase Price means the aggregate of the First Tranche Purchase Price and the Second Tranche Purchase Price.
Second Tranche Closing Date means the date that is 10 Business Days following the last day of the Second Tranche Selection Period, but subject to the satisfaction or waiver by the applicable Party or Parties of all conditions at the Effective Time on the Second Tranche Closing Date.
Second Tranche Purchase Price has the meaning specified in Section 3.1(1)(a).
Second Tranche Selection List has the meaning specified in Section 2.2(1).
Second Tranche Selection Period means the 240-day period following the Execution Date.
Second Tranche Subject Leases means the Leases pertaining to the Second Tranche Subject Leased Properties, subject to Section 7.2(3).
Second Tranche Subject Leased Properties means the Leased Properties listed on the Second Tranche Selection List.
Subject Leases means the First Tranche Subject Leases and the Second Tranche Subject Leases, subject to Section 7.2(3).
Subject Leased Properties means the First Tranche Subject Leased Properties and the Second Tranche Subject Leased Properties.
Subleases means the subleases in respect of each of the Subject Leased Properties by and between Zellers and Target Canada or its Designee, pursuant to which Zellers shall sublet from Target Canada or its Designee the Subject Leased Properties for a term commencing on the applicable Closing Date and expiring on the earlier of (i) one day prior to the expiry or earlier termination of the term of the applicable Subject Leases, and (ii) the applicable Vacancy Date, and which subleases shall be in the form (and based on the terms and conditions set forth therein) attached as Section 1.1 to the Disclosure Letter (or may be in the form of licenses, occupancy agreement, or other agreements providing substantially all of the benefits and burdens as said form of Sublease, provided such licenses, occupancy agreements or other agreements are satisfactory in form to Zellers and Target Canada, each acting reasonably).
Target means Target Corporation.
Target Canada means, collectively, Target Canada Co. and one or more other subsidiaries (within the meaning of the Business Corporations Act (Ontario)) of Target incorporated under the laws of Canada or a province of Canada, as may be designated by Target in accordance with Section 1.12 prior to the First Tranche Closing Date.
Target Canada Liabilities has the meaning specified in Section 12.2(1).
Target Entity has the meaning specified in Section 7.7(2).
Tax Act means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1.
Tax Refund has the meaning specified in Section 3.7.
Tax Returns means any and all returns, reports, declarations and elections (including any amendments, schedules and attachments to them), made or filed or required to be made or filed in respect of Taxes.
Taxes means (i) any and all taxes, duties, fees, excises, premiums, assessments, imposts, levies and other charges or assessments of any kind whatsoever imposed by any Governmental Entity, and (ii) all interest, penalties, fines, additions to tax or other additional amounts imposed by any Governmental Entity on or in respect of amounts of the type described in clause (i) above or this clause (ii).
Third Party Claim means any action, suit, proceeding, arbitration, application, cause of action, claim or demand that is instituted or asserted by a third party, including a Governmental Entity, against an Indemnified Party which entitles the Indemnified Party to make a claim for indemnification under this Agreement.
Vacancy Date means, with respect to a particular Sublease, the date that is 270 days following the Notice Date with respect to such Sublease; provided, Target or Target Canada may designate up to 20 particular Subleases in each of the First Four Fiscal Quarters for which the Vacancy Date would mean the date that is 180 days following the Notice Date with respect to each such Sublease; and provided further that:
(i) no Vacancy Date shall be earlier than January 31, 2012; and
(ii) no Vacancy Date shall be later than March 31, 2013.
Wind-Down Actions means the (i) conduct of liquidation sales at a Subject Leased Property the period for which shall not exceed, in the aggregate, 12 weeks and (ii) winding-down and closure of Zellers business and operations (including any action reasonably taken in connection therewith) so as to satisfy the provisions of Section 2.4(2), the period for which shall not exceed, in the aggregate, two weeks; provided however, that if a Landlord refuses to allow the conduct of a liquidation sale pursuant to clause (i) above and Target Canada has provided Notice at least 120 days prior to the applicable Vacancy Date, then (a) with respect to up to 10 Subject Leased Properties designated by Target Canada in such Notice from time to time, Zellers shall complete such activities at such Subject Leased Properties within eight weeks and (b) with respect to up to an additional 10 Subject Leased Properties designated by Target Canada in such Notice from time to time, Zellers shall not be permitted to conduct any liquidation sales at such Subject Leased Properties.
Winnipeg Premises means the portion of the premises known municipally as 450 Portage Avenue, Winnipeg, Manitoba and more particularly described in Section 2.9 of the Disclosure Letter.
Zellers means Zellers Inc.
Zellers Entity has the meaning specified in Section 7.7(1).
Zellers Entity Location has the meaning specified in Section 7.7(1).
Zellers Liabilities has the meaning specified in Section 12.1(1).
Section 1.2 Gender and Number.
Any reference in this Agreement or any Ancillary Agreement to gender includes all genders. Words importing the singular number only include the plural and vice versa.
Section 1.3 Headings, etc.
The provision of a Table of Contents, the division of this Agreement into Articles and Sections and the insertion of headings are for convenient reference only and do not affect the interpretation of this Agreement.
Section 1.4 Currency.
All references in this Agreement or any Ancillary Agreement to dollars, or to $ are expressed in Canadian currency unless otherwise specifically indicated.
Section 1.5 Certain Phrases, etc.
In this Agreement and any Ancillary Agreement (i) the words including, includes and include mean including (or includes or include) without limitation, and (ii) the phrase the aggregate of, the total of, the sum of, or a phrase of similar meaning means the aggregate (or total or sum), without duplication, of. Unless otherwise specified, the words Article and Section followed by a number mean and refer to the specified Article or Section of this Agreement.
Section 1.6 Knowledge.
Where any representation or warranty contained in this Agreement or any Ancillary Agreement is qualified by reference to the knowledge of:
(1) Zellers, it refers to the actual knowledge (without further inquiry) of Mark Foote, as Chief Executive Officer of Zellers, Michael Culhane, as Senior Vice-President and Chief Financial Officer of Zellers, David Mock, as Senior Vice-President, Merchandise Hardlines of Zellers, and Bruce Moore, as Senior Vice-President, Real Estate of HBC;
(2) Target, it refers to the actual knowledge (without further inquiry) of Douglas Scovanner, as Executive Vice-President and Chief Financial Officer of Target, and Timothy Baer, as Executive Vice-President and General Counsel of Target;
in each case, without personal liability on the part of any of them.
Section 1.7 Disclosure Letter.
(1) The Disclosure Letter forms an integral part of this Agreement for all purposes of it.
(2) The purpose of the Disclosure Letter is to set out the qualifications, exceptions and other information called for in this Agreement. The Parties acknowledge and agree that the
Disclosure Letter and the information and disclosures contained in it do not constitute or imply, and will not be construed as:
(a) any representation, warranty, covenant or agreement which is not expressly set out in this Agreement;
(b) an admission of any liability or obligation of any Party;
(c) an admission that the information is material;
(d) a standard of materiality, a standard for what is or is not in the ordinary course of business, or any other standard contrary to the standards contained in the Agreement; or
(e) an expansion of the scope of effect of any of the representations, warranties and covenants set out in the Agreement.
(3) Disclosure of any information in the Disclosure Letter that is not strictly required under this Agreement has been made for informational purposes only and does not imply disclosure of all matters of a similar nature. Inclusion of an item in any section of the Disclosure Letter is deemed to be disclosure for all purposes for which disclosure is required under this Agreement to the extent that the relevance of such disclosure to such other purposes is reasonably apparent.
(4) The Disclosure Letter itself is confidential information and may not be disclosed unless (i) it is required to be disclosed pursuant to applicable Law, unless such Law permits the Parties to refrain from disclosing the information for confidentiality or other purposes or (ii) a Party needs to disclose it in order to enforce or exercise its rights under this Agreement.
Section 1.8 References to Persons and Agreements.
Any reference in this Agreement to a Person includes its successors and permitted assigns. The term Agreement and any reference to this Agreement or any other agreement or document includes, and is a reference to, this Agreement or such other agreement or document as it may have been, or may from time to time be amended, restated, replaced, supplemented or novated and includes all schedules to it.
Section 1.9 Statutes.
Except as otherwise provided in this Agreement, any reference in this Agreement to a statute refers to such statute and all rules and regulations made under it, as it or they may have been or may from time to time be amended or re-enacted.
Section 1.10 Non-Business Days.
Whenever payments are to be made or an action is to be taken on a day which is not a Business Day, such payment shall be made or such action shall be taken on or not later than the next succeeding Business Day.
Section 1.11 Time Periods.
Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends and by extending the period to the next Business Day following if the last day of the period is not a Business Day.
Section 1.12 Designation of Target Canada.
Target may, by Notice to Zellers given at least 10 Business Days prior to the First Tranche Closing Date, designate one or more other subsidiaries of Target as Target Canada and shall cause such subsidiaries to enter into and become bound by this Agreement as Target Canada on or prior to the First Tranche Closing Date. Upon such designation, such entities together with Target Canada Co. shall be deemed for purposes of this Agreement and all Ancillary Agreements to be Target Canada.
Section 1.13 Leasehold Interests.
Notwithstanding any provision of this Agreement or Ancillary Agreements to the contrary, for purposes of this Agreement and each Ancillary Agreement, (i) all references to Lease include any sublease or agreement to sublease by which Zellers (as subtenant) holds its interest in the related Leased Property, (ii) for the Leased Properties which are subject to a sublease or agreement to sublease (rather than a lease) in favour of Zellers, all references to Zellers leasehold interest in such Leased Property shall mean Zellers subleasehold interest (rather than a leasehold interest) in such Leased Property, any reference to Landlord shall mean the sublandlord under the applicable sublease or agreement to sublease pursuant to which Zellers (as subtenant) holds its interest in such Leased Property, and any reference to Sublease shall mean a sub-sublease in such Leased Property in favour of Zellers, and (iii) all other similar references relating to the Leases and Leased Properties shall be interpreted and construed in a similar manner.
ARTICLE 2
AGREEMENT OF PURCHASE AND SALE
Section 2.1 First Tranche Subject Leased Properties.
(1) From time to time during the First Tranche Selection Period, Target or Target Canada shall deliver to Zellers a Notice designating up to 110 Leases that shall be assigned and transferred on the First Tranche Closing Date (such list, as updated from time to time, including in accordance with Section 2.1(4), the First Tranche Selection List).
(2) Subject to the terms and conditions of this Agreement, Zellers agrees to assign and transfer to Target Canada or at the direction of Target Canada to a Designee and Target Canada agrees to acquire and assume or cause to be acquired and assumed by a Designee on the First Tranche Closing Date in accordance with the terms of this Agreement, effective as of the Effective Time of the First Tranche Closing Date, the First Tranche Subject Leases, including all rights of Zellers relating thereto or arising thereunder
(inclusive of any options of Zellers therein). On or before the First Tranche Closing Date:
(i) each of Zellers and Target Canada shall enter into a Lease Assignment and Assumption Agreement with respect to those First Tranche Subject Leases to be assigned to Target Canada; and
(ii) Zellers shall, and Target Canada shall cause its Designees to, enter into a Designee Assignment and Assumption Agreement with respect to those First Tranche Subject Leases to be assigned to a Designee;
in respect of each of the First Tranche Subject Leases to effect the aforesaid assignment, transfer and assumption thereof.
(3) Contemporaneous with the assignment and transfer of the First Tranche Subject Leases, each of Zellers and Target Canada shall enter into (or Target Canada shall cause its Designee to enter into) Subleases in respect of each of the First Tranche Subject Leased Properties the terms of which will commence as of the Effective Time of the First Tranche Closing Date.
(4) If at the end of the First Tranche Selection Period the First Tranche Selection List includes fewer than 110 Subject Leases, Target Canada shall have the right to continue to designate additional Leases as First Tranche Subject Leases (and the relevant Leased Properties shall be First Tranche Subject Leased Properties), provided that the number of Leases designated on the First Tranche Selection List plus the number of additional Leases designated as First Tranche Subject Leases pursuant to this Section 2.1(4) may not exceed 110. Target Canada shall have the right to take assignments of one or more First Tranche Subject Leases on one or more dates (each, a Delivery Date) after the First Tranche Closing Date, provided (i) Zellers and Target Canada shall reasonably cooperate in executing, on the applicable Delivery Date, all documents and instruments contemplated under this Agreement to be delivered on a Closing Date, (ii) all such documents, when delivered, shall provide the Parties with all rights and obligations with respect to each Subject Leased Property that the Parties would have had if such documents and instruments had been delivered on the First Tranche Closing Date, (iii) such documents shall in all events be executed and delivered by the Parties on the earlier of (a) a date selected by Target Canada on at least 10 days advance written notice from Target Canada, and (b) the Second Tranche Closing Date, and (iv) no Delivery Date shall be within 10 Business Days of the Second Tranche Closing Date.
Section 2.2 Second Tranche Subject Leased Properties.
(1) From time to time during the Second Tranche Selection Period, Target or Target Canada shall deliver to Zellers a written notice designating additional Leases that shall be assigned and transferred on the Second Tranche Closing Date (such list, as updated from time to time, the Second Tranche Selection List), provided that the number of Leases designated on the Second Tranche Selection List when added to the number of Leases designated on the First Tranche Selection List shall not be more than 220.
(2) Subject to the terms and conditions of this Agreement, Zellers agrees to assign and transfer to Target Canada or at the direction of Target Canada to a Designee and Target Canada agrees to acquire and assume or cause to be acquired and assumed by a Designee on the Second Tranche Closing Date in accordance with the terms of this Agreement, effective as of the Effective Time of the Second Tranche Closing Date, the Second Tranche Subject Leases, including all rights of Zellers relating thereto or arising thereunder (inclusive of any options of Zellers therein). On or before the Second Tranche Closing Date:
(i) each of Zellers and Target Canada shall enter into a Lease Assignment and Assumption Agreement with respect to those Second Tranche Subject Leases to be assigned to Target Canada; and
(ii) Zellers shall, and Target Canada shall cause its Designees to, enter into a Designee Assignment and Assumption Agreement with respect to those Second Tranche Subject Leases to be assigned to a Designee;
in respect of each of the Second Tranche Subject Leases to effect the aforesaid assignment, transfer and assumption thereof.
(3) Contemporaneous with the assignment and transfer of the Second Tranche Subject Leases, each of Zellers and Target Canada shall enter into (or Target Canada shall cause its Designee to enter into) Subleases in respect of each of the Second Tranche Subject Leased Properties the terms of which will commence as of the Effective Time of the Second Tranche Closing Date.
Section 2.3 Right to Terminate Leases.
Instead of taking an assignment of any Subject Lease (or directing the assignment of such Subject Lease to a Designee) on the applicable Closing Date, Target Canada may negotiate with the applicable Landlord for the termination of such Subject Lease, provided that (i) no such termination shall be effective prior to the applicable Closing Date with respect to such Subject Lease; (ii) from and after the applicable Closing Date to and including the applicable Vacancy Date, Zellers shall have the same right to use and occupy the Subject Leased Property relating to such Subject Lease under a Sublease (or other agreement providing substantially similar rights) on all the same terms and conditions that would have applied had such Subject Lease been assigned to Target Canada (instead of terminated) and subleased to Zellers under a Sublease, except that all amounts that would have been paid as rent under such Sublease shall be paid to the Landlord, or as Target Canada may direct; (iii) such Subject Lease shall count as one of the Leases that Target Canada is entitled to designate under Section 2.1(1) or 2.2(1), notwithstanding Target Canadas election to arrange for the termination (rather than assignment) of such Subject Lease; and (iv) the Vacancy Date for such Subject Leased Property shall be established by Target Canada giving a Notice in accordance with Section 2.4.
Section 2.4 Vacancy Date.
(1) Target Canada, Target or a Designee may from time to time provide Notice to Zellers establishing the Vacancy Date for one or more Subleases.
(2) On each Vacancy Date, effective as of the applicable Effective Time, the Sublease(s) identified in the Notice shall be terminated and Target Canada or a Designee shall accept and take possession of the relevant Subject Leased Properties, which Subject Leased Properties shall be (i) empty of all inventory, trade fixtures (including all store shelving, racks, display cases and stockroom shelving systems), personal property and debris, and (ii) free from any subtenants, licensees or other Persons in possession of all or any portion of the relevant Subject Leased Properties. Notwithstanding the foregoing or any other provision of this Agreement, the Subject Leases or any Ancillary Agreement, Zellers shall have no obligation (a) to restore the Subject Leased Properties to a base building condition or standard, (b) to remove any leasehold improvements from the Subject Leased Properties, or (c) to repair, patch or replace any walls, ceilings or flooring damaged by the removal of trade fixtures, provided such removal is accomplished in a commercially reasonable manner.
Section 2.5 Ordinary Course Operations.
From the Execution Date until the expiration of the Second Tranche Selection Period, Zellers shall operate and cause to be operated the operations currently conducted by it and its Affiliates, and use commercially reasonable efforts to cause its licensees and subtenants to operate the operations currently operated by each of them, in and on the Leased Properties in the ordinary course of Zellers business and consistent with Zellers and Zellers Affiliates, licensees and subtenants past practices (including maintaining and updating all Pharmacy Records in accordance with customary practices of the applicable pharmacy operator or required by Laws), Laws and in accordance with and subject to the terms of the Leases (including, with respect to any Lease as to which there exists a dispute or default that is disclosed in Section 5.1(i)(iii), 5.1(i)(vii) or 5.1(i)(viii) of the Disclosure Letter, using commercially reasonable efforts to resolve or cure such dispute or default), in each case in all material respects. As to the Subject Leases and the Subject Leased Properties only, from the expiration of the Second Tranche Selection Period until the applicable Vacancy Date, Zellers shall operate and cause to be operated the operations currently conducted by it and its Affiliates, and use commercially reasonable efforts to cause its pharmacy licensees and subtenants to operate the operations currently operated by each of them, in and on the Subject Leased Properties in the ordinary course of Zellers business and consistent with Zellers and Zellers Affiliates, pharmacy licensees and subtenants past practices (including maintaining and updating all Pharmacy Records in accordance with customary practices of the applicable pharmacy operator or required by Laws), Laws and in accordance with and subject to the terms of the Subleases, in each case in all material respects. Notwithstanding the foregoing, (i) nothing in this Section 2.5 will derogate from Zellers rights contained in the Subleases or in Section 2.4 during the applicable portion of the time period during the conduct of the Wind-Down Actions, nor shall the exercise of such rights constitute a breach of this Section 2.5, (ii) the Wind-Down Actions shall not constitute a breach of this Section 2.5, provided such actions are taken in accordance with the terms of the respective Sublease and all Laws, (iii) the period during which liquidation sales may be conducted (as established pursuant to the definition of Wind-Down Actions) shall not be limited as described in such definition with respect to any Subject Leased Property as to which the conduct of a liquidation sale for such extended period will not and does not (a) give rise to a Landlord Recapture Right, (b) give rise to a Lease Default; or (c) diminish or limit any right or privilege of the tenant under the applicable Subject Lease, and (iv) Zellers has the right to terminate any sublease, license, concession or other occupancy agreement relating to the Leased
Property at any time following the applicable Closing Date, excluding any pharmacy sublease, license, concession or other occupancy agreement.
Section 2.6 Pharmacy Records.
At the option of Target Canada, which may be exercised by Notice given by Target Canada to Zellers from time to time no later than 90 days prior to the applicable Vacancy Date (the Pharmacy Notice Date), but subject to Laws, Zellers shall and shall cause its Affiliates and shall use commercially reasonable efforts to cause any third-party operator of the pharmacy in the applicable Subject Leased Property to transfer to or upon the direction of Target Canada all or any portion of the Pharmacy Records specified in such Notice (to the extent a pharmacy is operating in the applicable Subject Leased Property), including paper file backup and a backup tape for all prescriptions (to the extent such exist), without retaining any copies of such Pharmacy Records other than such copies as Zellers or applicable pharmacy operator is required to retain by Laws (and, in such case, only to the extent and for so long as required by Laws). No additional consideration shall be payable by Target or Target Canada in connection with such transfer of Pharmacy Records. Zellers shall, and shall cause its Affiliates to and use commercially reasonable efforts to cause the applicable pharmacy operator to, make such transfer in respect of each applicable Subject Leased Property (i) in a format reasonably requested by Target Canada, (ii) free and clear of all Encumbrances, (iii) on the applicable Vacancy Date (or such earlier date as is specified in such Notice, which date shall not be less than 30 days after the date such Notice is given) in respect of such Subject Leased Property provided Target Canada has provided appropriate notice by the applicable Pharmacy Notice Date, and (iv) if requested by Target Canada, pursuant to a mutually agreed upon file transfer agreement with terms consistent with those set forth in this Section 2.6. The Parties shall cooperate to effect any such transfers in accordance with Laws. Neither Zellers nor any of its Affiliates will directly or indirectly solicit the transfer of any of the Pharmacy Records that may be transferred to or upon the direction of Target Canada pursuant to this Agreement to any stores or pharmacies operated by Zellers or any of its Affiliates or, subject to Laws, provide to any other Person any of the Pharmacy Records that are to be transferred to or upon the direction of Target Canada pursuant to this Agreement. Zellers shall use commercially reasonable efforts to enforce any contractual rights it may have with the third-party operator of a pharmacy in each applicable Subject Leased Property restricting the solicitation or transfer of any of the Pharmacy Records that are to be transferred to or upon the direction of Target Canada pursuant to this Agreement where Zellers has knowledge of any actual or threatened breach of such provisions. For purposes of this Section 2.6 only, knowledge of Zellers shall include the actual knowledge of the General Merchandise Manager, Pharmacy of Zellers.
Section 2.7 Target Canada Assignment of Rights.
(1) Target Canada may from time to time designate one or more Persons (each, a Designee) to be an immediate or subsequent assignee(s) of the Subject Leases, as follows:
(a) If Target Canada wishes to have one or more Subject Leases assigned directly by Zellers to one or more Designee(s), Target Canada may upon at least 10 Business Days written notice in advance of a Delivery Date or a Closing Date, as the case may be, identify the Designee(s) that is or are to be the assignee(s) of the Subject
Leases to be assigned and transferred by Zellers on the applicable Closing Date or Delivery Date, in which case, on such date, with respect to the Subject Lease(s) so identified:
(i) the Designee(s) will execute and deliver an Assignment and Assumption of Lease Agreement in substantially the form specified in Section 2.7(1) of the Disclosure Letter (as such form may be modified in accordance with Section 2.7(5) of this Agreement, a Designee Assignment and Assumption Agreement) (and Zellers and Target Canada will not execute a Lease Assignment and Assumption Agreement) with respect to such Subject Leases(s), and
(ii) such Designee(s) (and not Target Canada) will execute and deliver the Sublease(s) in favour of Zellers with respect to the applicable Subject Leased Properties.
Zellers need not make any assignment directly to a Designee unless such Designee executes and delivers a Designee Assignment and Assumption Agreement on the applicable Closing Date or Delivery Date. If any Designee shall fail or refuse to execute and deliver a Designee Assignment and Assumption Agreement and Sublease with respect to any Subject Lease, Target Canada and Zellers shall, upon Target Canadas request, enter into a Lease Assignment and Assumption Agreement and a corresponding Sublease in respect of the applicable Subject Lease on the Closing Date or Delivery Date.
(b) If Target Canada wishes to assign to one or more Designee(s) one or more Subject Lease(s) previously assigned to Target Canada, Target Canada may at any time and from time to time do so without limit or qualification of any kind, except that any such assignment by Target Canada shall be subject to the rights of Zellers under any applicable Sublease then in effect.
(2) In connection with the assignment of any Subject Lease(s) to any Designee(s) pursuant to Section 2.7(1), Target Canada and/or Target may by separate agreement with such Designee(s) provide representations and warranties in such form and content as Target Canada and/or Target may elect. Zellers shall have no direct liability or obligation to any Designee on account of any such representations or warranties. The assignment of a Subject Lease(s) to Designee(s) does not relieve Zellers of liability for a breach of any of the representations or warranties contained in Section 5.1 to the extent that such breach results in Damages to Target Canada or Target, subject, in all events, to the limitations contained in this Agreement, including Section 11.5.
(3) Upon assignment of a Subject Lease (whether by Zellers pursuant to Section 2.7(1)(a) or by Target Canada pursuant to Section 2.7(1)(b)) to an Investment Grade Designee at any time up to the second anniversary of the applicable Vacancy Date for such Subject Lease, Target Canada and Target shall be released from all Subject Lease Obligations relating to such Subject Lease, to the extent, and only to the extent, (i) assumed by such Investment Grade Designee and (ii) an indemnity has been provided by such Designee with respect to such Subject Lease Obligation assumed by such Designee, in each case, in writing. Such assumption and indemnity by an Investment Grade Designee may be accomplished:
(a) in the case of an assignment pursuant to Section 2.7(1)(a), pursuant to a Designee Assignment and Assumption Agreement, or pursuant to an assumption and indemnity agreement by the Investment Grade Designee in favour of Zellers in a form which is acceptable to Zellers, acting reasonably; or
(b) in the case of an assignment by Target Canada pursuant to Section 2.7(1)(b), pursuant to an assumption and indemnity agreement by the Investment Grade Designee in favour of Zellers in a form which is acceptable to Zellers, acting reasonably. If pursuant to an instrument of assignment between Target Canada and a Designee, such Designee (i) assumes some or all Subject Lease Obligations with respect to a Subject Lease, and (ii) confirms in writing with Zellers that such assumption and indemnity runs in favour of Zellers, then Zellers shall join in (by attached joinder or otherwise) such instrument in order to (x) accept such assumption and (y) confirm the release of Target and Target Canada to the extent of the Subject Lease Obligations so assumed and indemnified.
Any release provided for in this Section 2.7(a)(3) shall be effective upon the execution by the Investment Grade Designee and receipt by Zellers of the aforesaid Designee Assignment and Assumption Agreement or other assumption and indemnity agreement, and shall require no further act, deed or writing. Zellers agrees from time to time upon request of Target or Target Canada to confirm such releases, but the failure of Target or Target Canada to request any such confirmation, and the failure of Zellers to provide any such confirmation, shall not affect the automatic release provided in the preceding sentence. For purposes hereof, Subject Lease Obligations means all obligations arising under (i) a Subject Lease assigned to a Designee, (ii) the Lease Assignment and Assumption Agreement or Designee Assignment and Assumption Agreement, as applicable, pursuant to which such Subject Lease was assigned, (iii) the Sublease entered into or to be entered into with respect to such Subject Lease, and (iv) Sections 11.3(d) and 11.3(e) with respect to such Subject Lease.
(4) No assignment of a Subject Lease to a Designee that is not an Investment Grade Designee at the time of assignment shall release Target Canada or Target from any Subject Lease Obligations.
(5) The form of Designee Assignment and Assumption Agreement may be varied and modified by Target Canada in its discretion from time to time so long as such variations and modifications do not (a) expand upon any representations, warranties, covenants, obligations, or liabilities of Zellers beyond those contained in the form of Designee Assignment and Assumption Agreement specified in Section 2.7(1) of the Disclosure Letter, or (b) alter in any material respect the provisions of Section 5 of the form of Designee Assignment and Assumption Agreement specified in Section 2.7(1) of the Disclosure Letter.
(6) Target and Target Canada shall remain responsible for and shall not, in any event, be released from any of their covenants and obligations under this Agreement in relation to the payment of the entire Purchase Price by reason of any assignments made pursuant to this Section 2.7.
Section 2.8 Access and Additional Information Relating to Leased Properties.
(1) Subject to Target Canada complying with Laws, prior to the final Vacancy Date, Zellers shall, upon reasonable prior Notice, permit Target Canada and its representatives and advisers reasonable access to the Leased Properties during the period commencing two hours prior to the Leased Property opening for business to the public and ending two hours after the close of business, subject to the rights of all subtenants, licensees and concessionaires in the Leased Property (excluding, however, such subtenants, licensees and concessionaires that are Affiliates of Zellers) in order to make such reasonable investigations as Target Canada shall reasonably determine are necessary or advisable. Target Canada shall perform such investigations in compliance with Laws. Subject to Laws, and at the sole cost and expense of Target Canada, Zellers shall give Target Canadas representatives and agents reasonable means necessary to effect such investigations and shall cause its agents, employees, officers and directors to aid such representatives and agents in such investigations. Zellers is not required to disclose any information to Target Canada where such disclosure is prohibited by Laws or by the terms of any agreement. Any investigations or tests which require drilling or other invasive actions shall be performed outside of the hours when the Leased Property is open for business to the public and shall be done only with the prior written consent of Zellers, acting reasonably, and all such inspections and tests contemplated by this Agreement shall not unduly interfere (and Target Canada and Target shall use their reasonable commercial efforts not to so interfere) with the use, access, operation and enjoyment by Zellers and its subtenants, licensees, concessionaries, customers and suppliers of the Leased Properties.
(2) Except as necessary to perform the investigations contemplated by this Section 2.8, Target Canada and Target shall not make contact with any store employees of Zellers without the prior written consent of Zellers, such consent not to be unreasonably withheld.
(3) Prior to entry onto the Leased Properties, Target Canada or Target, as applicable, shall have in effect a policy of general liability insurance with a reputable national insurance company and with coverages in accordance with normal commercial practices in Toronto, Ontario; provided, however, that such insurance may be carried under a blanket policy or pursuant to Targets self-insurance program. At Zellers request, Target Canada or Target Canadas representatives and agents, as the case may be, shall provide evidence of such insurance or self-insurance prior to any entry onto any of the Leased Properties. Target Canada and Target each agree in favour of Zellers to repair forthwith any damage to the Leased Properties arising from such access or investigations (including by any Designee or potential Designee pursuant to Section 2.8(6)) at Target Canada and Targets expense and shall jointly and severally indemnify and hold Zellers harmless from and against any and all losses, Damages (including, for greater certainty, lost profits), claims, costs (including costs on a solicitor and client basis) or liabilities in respect of physical injury or property damage that may be directly or indirectly suffered or incurred by Zellers directly arising from or in respect of the access or investigations by Target Canada, Target and/or any Designee, potential Designee and each of their representatives and advisors.
(4) Zellers shall, within five days after receipt of a request from Target Canada or Target Canadas counsel, execute and deliver to Target Canada all consents reasonably necessary to permit Target Canada to have inspections made by and to have existing records released to Target Canada by the municipal building and zoning departments, fire departments, public works departments, environmental agencies, elevator inspections branch of the provincial or territorial departments of labour and other appropriate authorities as Target Canada may consider advisable, acting reasonably, between the Execution Date and the Vacancy Date, respectively, for each Subject Lease.
(5) From the Execution Date until the applicable Closing Date or Delivery Date, Zellers shall afford Target, Target Canada, and their respective representatives and advisers reasonable access to all Books and Records in Zellers possession or control relating to the Leased Properties or the Leases.
(6) Each Designee and each Person identified by Target Canada as a potential Designee shall have the same access and inspection rights afforded to Target Canada under this Section 2.8, on and subject to the terms, conditions and requirements of this Section 2.8, provided that such potential Designee executes and delivers in favour of Zellers an access, confidentiality and indemnification agreement in the form attached as Section 2.8(6) to the Disclosure Letter and that the covenants and indemnity of Target and Target Canada in favour of Zellers and set out in Section 2.8(3) shall equally apply in respect of the examinations, investigations and testing undertaken by any Designee or any Person designated as a potential Designee. For greater certainty, nothing in this Section will in any way limit the indemnification obligations of Target and Target Canada in favour of Zellers under Section 2.8(3).
Section 2.9 Winnipeg Lease Option.
Target Canada has the option to enter into an agreement with HBC to lease the Winnipeg Premises, which agreement will be based on the terms and conditions set forth in Section 2.9 to the Disclosure Letter. If Target Canada and HBC have not executed such lease by the Second Tranche Closing Date, the Purchase Price shall increase by $12,500,000, which additional $12,500,000 shall be payable on the Second Tranche Closing Date.
ARTICLE 3
PURCHASE PRICE
Section 3.1 Purchase Price.
(1) The Purchase Price for the Subject Leases is $1,825,000,000, payable as follows:
(a) the consideration payable by Target Canada to Zellers for the First Tranche Subject Leases on the First Tranche Closing Date is $912,500,000 (the First Tranche Purchase Price), subject to adjustment in accordance with Section 3.3; and
(b) the consideration payable by Target Canada to Zellers for the Second Tranche Subject Leases on the Second Tranche Closing Date is $912,500,000 (the
Second Tranche Purchase Price), subject to adjustment pursuant to Section 2.9 and in accordance with Section 3.3.
(2) Zellers and Target Canada agree to allocate the entire amount of the Purchase Price to the leasehold interests. The Parties agree to (and agree to cause each of their Affiliates to) execute and file all Tax Returns and prepare all of their own financial statements and other instruments on the basis of this allocation.
Section 3.2 Payment of the Purchase Price.
(1) On the First Tranche Closing Date, the First Tranche Purchase Price will be paid and satisfied, subject to adjustment in accordance with Section 3.3, as follows:
(a) as to the Cost Basis of the Notes transferred and assigned to or on the direction of Zellers on the First Tranche Closing Date pursuant to Section 3.8(4), if any, plus any Accrued Interest on such Notes that has not been paid to Target Canada, by such transfer of such Notes; and
(b) as to the balance, by Target Canada paying to or to the order of Zellers such amount by wire transfer of immediately available funds in accordance with a direction delivered by Zellers to Target Canada prior to the First Tranche Closing Date.
(2) On the Second Tranche Closing Date, the Second Tranche Purchase Price will be paid and satisfied, subject to adjustment in accordance with Section 3.3, as follows:
(a) as to the Cost Basis of the Notes transferred and assigned to or on the direction of Zellers on the Second Tranche Closing Date pursuant to Section 3.8(5), if any, plus any Accrued Interest on such Notes that has not been paid to Target Canada, by such transfer of such Notes; and
(b) as to the balance, by Target Canada paying to or to the order of Zellers such amount by wire transfer of immediately available funds in accordance with a direction delivered by Zellers to Target Canada prior to the Second Tranche Closing Date.
(3) For purposes of this Section 3.2, the conversion of the Cost Basis of any Note to be transferred and assigned, together with the Accrued Interest thereon, from United States dollars to Canadian dollars shall be determined by reference to the applicable exchange rate, as reported by Bloomberg as of noon (Eastern Time) on the Business Day immediately preceding the date on which such Note was acquired by Target or Target Canada.
Section 3.3 Adjustments.
(1) Except as otherwise provided in this Section 3.3 and subject to the rights and obligations of Zellers and Target Canada under the Subleases, all adjustments for basic rent, additional rents, damage/security deposits paid or payable to Landlords and interest thereon, if any, prepaid rents and interest thereon, if any, and operating expenses, utilities
and realty taxes, payable or receivable under the Subject Leases, shall be made as of the relevant Vacancy Date (with all expenses, liabilities and revenues for the Vacancy Date being allocated to Zellers) and shall be paid on the relevant Vacancy Date pursuant to a statement of adjustments in respect of the relevant Leased Property to be prepared by Zellers and approved by Target Canada, each acting reasonably, at least 10 days prior to the relevant Vacancy Date (a Statement of Adjustments).
(2) If the final cost or amount of any item which is to be adjusted cannot be determined at the relevant Vacancy Date, then (unless otherwise provided in this Section 3.3) an initial adjustment for such item shall be made at the relevant Vacancy Date, such amount to be estimated by Zellers, acting reasonably, as of the relevant Vacancy Date on the basis of the best evidence available at such Vacancy Date as to what the final cost or amount of such item will be. Additional rents and operating cost adjustments to be determined by a Landlord following a fiscal or calendar year end shall not be adjusted until such determination. All amounts which have been estimated because they have not been finally determined by the relevant Vacancy Date shall be finally adjusted in accordance with this Section 3.3(2) (such final adjustments being the Post-Vacancy Adjustments). In each case when such cost or amount is determined, Zellers or Target Canada, as the case may be, shall within 30 days thereafter provide a complete statement of such final determination to the other and within 30 days after such 30-day period (or if there is a dispute over such amount, after the matter is determined by the Auditor pursuant to this Section) the necessary Post-Vacancy Adjustment shall be made. In the case of any dispute between the Parties with respect to any Post-Vacancy Adjustments, the final cost or amount of an item shall be determined by a national audit firm (the Auditor) appointed jointly by Zellers and Target Canada within 10 Business Days after the issue is referred by one of the Parties to the Auditor for such determination. The cost of such determination shall be shared equally between the relevant Parties. Zellers and Target Canada agree to execute and deliver on the relevant Vacancy Date an undertaking to re-adjust and pay the amount of any Post-Vacancy Adjustments as may be owing pursuant to the provisions of this Agreement. Notwithstanding any other provision of this Section 3.3, save and except for those Post-Vacancy Adjustments being determined by the Auditor in the manner set out herein (the Audited Claim), all adjustments and Post-Vacancy Adjustments to be made pursuant to this Section 3.3 shall, in any event, be completed on or before the date which is no later than the second anniversary of the relevant Vacancy Date (the Final Adjustment Date) and no claim for any re-adjustment may be made by either party thereafter, unless and only to the extent such claim is an Audited Claim or is an adjustment pursuant to Section 3.3(3) or Section 3.5. Subject to the terms of the applicable Sublease, Zellers shall, without delay, be responsible to conclude all final reconciliations of all sums payable or receivable by the tenant under the Subject Leases in accordance with the terms of each Subject Lease and Target Canada shall provide such assistance as may be reasonably required. Subject to the terms of the applicable Sublease, Zellers and Target Canada agree that Target Canada shall not be responsible for any percentage rents attributable to Zellers sales, special service costs (such as additional janitorial services, additional HVAC supplied) and other costs for special services provided at the request of Zellers to a standard higher than the norm called for by the terms of the relevant Lease, or penalties and interest charged by the Landlord in respect of amounts owing which are attributable to the period prior to the Vacancy Date.
(3) Zellers shall be entitled after the Vacancy Date to any amounts payable to Zellers and responsible for any amounts owing by Zellers, pursuant to, or in respect of any agreements with Governmental Entities or any owners of property adjoining the Leased Properties or under or in respect of the Subject Leases or the Leased Properties whereby any other Person is required to pay, reimburse, refund or otherwise contribute any amount to Zellers in respect of any improvements, work, services or costs that have been supplied, constructed, installed, performed or paid by Zellers prior to the relevant Vacancy Date (in each case, a Prepaid Cost Refund) or whereby any other Person is entitled to be paid any such similar amount by Zellers. This obligation survives the relevant Vacancy Date and the Final Adjustment Date, notwithstanding any other provision of this Agreement or any Ancillary Agreement. To the extent Target Canada receives any Prepaid Cost Refund, Target Canada shall hold such Prepaid Cost Refund in trust for Zellers and shall endorse in favour of Zellers and deliver to Zellers the Prepaid Cost Refund forthwith upon receipt. Nothing in this Agreement, the Subject Leases or the Ancillary Agreements, shall preclude Zellers from commencing or maintaining an action against a third party from whom Zellers is entitled to receive a Prepaid Cost Refund. Any such amount payable by Zellers shall be paid within 10 days following a request for payment from Target Canada or the applicable recipient. Notwithstanding the foregoing, Zellers may, upon prior consultation with Target Canada, deal directly with a Landlord following the applicable Closing Date in connection with all claims and disputes (including reconciliation of all payments and charges thereunder) between the Landlord and Zellers with respect to the Leased Property arising prior to the applicable Closing Date; provided, however, such actions shall in no event adversely impact Target Canadas rights or obligations under the Subject Lease.
Section 3.4 Sales and Transfer Taxes.
Target Canada or the applicable Designee or Designees shall be liable for and pay all sales and transfer taxes (including land transfer taxes), registration charges and transfer fees payable (i) by the assignee in respect of the assignment of the Subject Leases from Zellers to Target Canada or a Designee or Designees and (ii) in connection with any transfer of Pharmacy Records. Zellers and Target Canada shall each be liable for and shall pay 50% of any sales and transfer taxes (including land transfer taxes), registration charges and transfer fees payable in connection with the registration of any of the Subject Leases and any transfer thereof occurring prior to the applicable Closing Date (to the extent that Target Canada or Target has requested such registration by reason of such registration being reasonably required in order for Target Canada or a Designee to register the assignment to Target Canada or such Designee or obtain title insurance or a title opinion reasonably satisfactory to Target Canada or such Designee). Zellers shall provide such assistance and execute such documents as Target Canada may reasonably require to complete such registrations.
Section 3.5 Goods and Services Tax and Harmonized Sales Tax.
Subject to Section 3.6, Target Canada shall be liable for and shall pay, or shall cause the applicable Designee or Designees to be liable for and pay, to Zellers an amount equal to any goods and services tax and harmonized sales tax payable by Target Canada and collectible by Zellers under the Excise Tax Act (Canada), plus an amount equal to any similar value added or multi-staged tax imposed (including, for greater certainty, any applicable Quebec Sales Tax) by any applicable provincial or territorial legislation, in respect of the assignment of the Subject
Leases to Target Canada or the Designee or Designees. Any such taxes shall be paid to Zellers no later than three Business Days before such taxes, if any, are due to be remitted by Zellers.
Section 3.6 Self-Assessment of GST and HST on Real Property.
To the extent permitted under subsection 221(2) of the Excise Tax Act (Canada) and any equivalent or corresponding provision under any applicable provincial or territorial legislation and provided that Target Canada delivers or causes to be delivered by the applicable Designee or Designees on the Closing Date to Zellers the HST Declaration and Indemnity, Target Canada or the applicable Designee or Designees shall self-assess and remit, where applicable, directly to the appropriate Governmental Entity any goods and services tax and harmonized sales tax imposed under the Excise Tax Act (Canada) and any similar value added or multi-staged tax imposed by any applicable provincial or territorial legislation payable in connection with the assignment of the Subject Leases under this Agreement. Target Canada or the applicable Designee or Designees shall make and file any returns in accordance with the requirements of subsection 228(4) of the Excise Tax Act (Canada) and any equivalent or corresponding provision under any applicable provincial or territorial legislation.
Section 3.7 Tax Refunds.
In the event that there are any realty tax appeals in respect of any Subject Leased Property for any tax year prior to and including the year in which the applicable Vacancy Date for such Subject Leased Property occurs (but not any subsequent tax year), Zellers may, at its option, at no cost to Target Canada, and provided that it does not and will not materially and adversely affect future assessments, continue such appeals (or, at Zellers election, require Target Canada to pursue such appeals in good faith at Zellers expense, and without Target Canada being required to incur any liabilities or obligations) and shall be entitled to receive any rebate, refund, credit, reassessment, readjustment, payment and/or the like from time to time (the full amounts of each being a Tax Refund) resulting therefrom to the extent relating to the period prior to the applicable Vacancy Date; provided that Zellers shall consult with Target Canada (or Target Canada with Zellers as the case may be) with respect to, and Target Canada (or Zellers as the case may be) acting reasonably shall have the right to approve, any final settlement or disposition of any such appeal (such approval shall be deemed to have been given by Target Canada (or Zellers as the case may be) if Target Canada (or Zellers as the case may be) has not responded within 15 Business Days of a request by Zellers (or Target Canada as the case may be) for such approval). Each of Target Canada and Zellers agrees to co-operate with the other with respect to all such appeals or reassessments and to provide the other with access to any necessary documents or materials required to continue any such appeals or reassessments. Target Canada shall cooperate with Zellers as to any tax appeals and shall, if requested to do so, execute such applications, authorizations or other documents as may be necessary for Zellers to undertake and pursue the appeal. To the extent Target Canada receives any Tax Refund in respect of the period prior to the applicable Vacancy Date, Target Canada shall hold such Tax Refund in trust for Zellers and shall endorse in favour of Zellers and deliver to Zellers the Tax Refund promptly upon receipt; provided that, in all cases, readjustments with the Landlords under the Subject Leases as the result of any Tax Refund may be effected by Target Canada prior to the payment of any Tax Refund to Zellers and the amount otherwise owing to Zellers in accordance with the foregoing shall be reduced by any amount payable to any Landlord as a result of any such adjustments (it being agreed that Target Canada shall provide Zellers with copies of any written communication with the Landlord in respect of the foregoing). Similarly, to the extent Zellers
receives any Tax Refund for the period following the relevant Vacancy Date, Zellers shall hold such Tax Refund in trust for Target Canada and shall endorse in favour of Target Canada and deliver to Target Canada the Tax Refund forthwith upon receipt. If Target Canada sells or otherwise disposes of its interest in the Subject Lease to any Person (including to any Designee), it shall obtain a covenant from such Person in favour of Zellers in which such Person agrees to observe and be bound by the terms of this Section.
Section 3.8 Note Purchase Facility.
(1) Target shall, or shall cause Target Canada or one or more other Affiliates of Target to, acquire Notes for an acquisition cost of up to $200,000,000 subject to and in accordance with the terms set out in this Section 3.8 and procedures to be agreed upon by the Parties.
(2) The acquisition cost to Target, Target Canada or such Affiliate of any Notes (the Cost Basis of such Notes) shall not exceed the principal amount of such Notes plus any interest that has accrued and is unpaid on such Notes at the time of such acquisition.
(3) Any interest accruing on any Notes from the time of acquisition of such Notes pursuant to this Section 3.8 to the applicable Closing Date upon which such Notes are transferred in accordance with Section 3.2 (the Accrued Interest) shall accrue to the benefit of Target, Target Canada or the applicable Affiliates, as the case may be. Any interest that is paid to Target, Target Canada or any such Affiliate on the Notes shall be retained by them.
(4) Subject to the terms and conditions of this Agreement, on the First Tranche Closing Date Target Canada shall transfer and assign or cause to be transferred and assigned to or at the direction of Zellers all right, title and interest of Target, Target Canada and such Affiliates, as the case may be, in and to any and all Notes acquired pursuant to this Section 3.8 prior to such time.
(5) Subject to the terms and conditions of this Agreement, on the Second Tranche Closing Date Target Canada shall transfer and assign or cause to be transferred and assigned to or at the direction of Zellers all right, title and interest of Target, Target Canada and such Affiliates, as the case may be, in and to any and all Notes acquired pursuant to this Section 3.8 that have not been transferred and assigned pursuant to Section 3.8(4).
(6) All Notes transferred and assigned pursuant to Section 3.8(4) and Section 3.8(5) shall be free and clear of any Encumbrances other than any such Encumbrances that existed when such Notes were acquired by Target, Target Canada or such Affiliates, as the case may be.
(7) Target and Target Canada shall not be required to acquire any Notes pursuant to this Section 3.8 prior to the date that is 14 days after the conditions set forth in Section 3.8(8)(d) and (e) have been satisfied or after the date that is 14 days before the Second Tranche Closing Date.
(8) The obligations pursuant to this Section 3.8 shall be subject to the following:
(a) the availability of Notes for purchase in the market at prices and on other terms and conditions consistent with this Section 3.8;
(b) compliance by the Parties with Laws;
(c) each of the Parties being satisfied, in its own discretion, with respect to any proposed purchase of Notes contemplated by this Section 3.8:
(i) that such purchase is in the best interests of such Party in the context of the transactions contemplated by this Agreement;
(ii) that such Notes may be acquired and transferred as contemplated by this Section 3.8;
(iii) with the assets, liabilities, obligations, collateral, conditions, obligors and guarantors associated with such Notes and any acquisition or transfer of such Notes; and
(iv) with the tax treatment of the transactions contemplated by this Section 3.8;
(d) in connection with each purchase of Notes, Zellers has obtained and delivered to Target Canada a Rating Agency Confirmation (as defined in the Intercreditor Agreement and in the Participation Agreement) with respect to the transfer of such Notes to Target Canada; and
(e) in connection with each purchase of Notes, Zellers has obtained the consent of all of the holders of such Notes, and if required, the consent of the Senior Lender (as defined in the Intercreditor Agreement) and any other consents as may be required, to allow the transfer of such Notes from Target Canada to Zellers or its designee without any conditions (except as may be acceptable to each Party in its own discretion) and has caused to be amended all agreements that restrict the transfer of such Notes to Zellers or its designee (including the Intercreditor Agreement and Participation Agreement) to allow such transfer without any conditions (except as may be acceptable to each Party in its own discretion), and if required, has delivered a Rating Agency Confirmation with respect to such amendments; provided that Target Canada agrees to consent to elimination of any restrictions on transfer of the Notes to Zellers or its designee.
(9) If, for any reason, Target Canada is not able to transfer and assign any Notes acquired as contemplated by this Section 3.8 in satisfaction of a portion of the Purchase Price as contemplated by Section 3.2, HBC will indemnify and save Target, Target Canada and Targets other Affiliates harmless from and against, and shall reimburse them for, the amount, if any, by which the Cost Basis of such Notes and any Accrued Interest in respect of such Notes exceeds the amount realized by them upon disposition of such Notes.
ARTICLE 4
ASSUMED LIABILITIES
Section 4.1 Assumed Liabilities.
Target Canada agrees to discharge, perform and fulfil the following, except for the Excluded Liabilities (collectively, the Assumed Liabilities):
(a) all obligations and liabilities incurred or accruing after the Effective Time on the applicable Closing Date relating to or arising under the Subject Leases, except obligations and liabilities related to any Lease Default existing prior to the relevant Closing Date;
(b) any defaults, obligations or claims arising solely as a result of the failure to obtain the consent of the applicable Landlords under the Subject Leases to: (i) the transactions contemplated by this Agreement, (ii) the assignment of the Subject Leases as contemplated by this Agreement, (iii) the entering into the Subleases, and/or (iv) the Wind-Down Actions; and
(c) all obligations and liabilities for Taxes allocated to Target Canada under Sections 3.5, 3.6, and 3.7.
Section 4.2 Excluded Liabilities.
Target Canada shall not assume, and shall have no obligation to discharge, perform or fulfil, the following liabilities and obligations (the Excluded Liabilities):
(a) except as otherwise expressly provided in Section 4.1(b), liabilities incurred or accruing prior to the Effective Time on the applicable Closing Date relating to or arising under the Subject Leases, unless otherwise agreed to by the Parties;
(b) any Taxes, other than (i) Taxes incurred or accruing after the Effective Time on the applicable Closing Date relating to or arising under the Subject Leases, and (ii) Taxes allocated to Target Canada under Sections 3.5, 3.6, and 3.7; and
(c) any other obligation or liability which Target Canada has not expressly agreed to discharge, perform or fulfil under this Agreement.
For the avoidance of doubt:
(d) any liabilities and obligations of Zellers under the Subleases shall be deemed to be Excluded Liabilities; and
(e) Target Canada shall not assume, and shall have no obligation to discharge, perform or fulfil, any liabilities or obligations relating to:
(i) contracts or agreements entered into by Zellers or its Affiliates (other than the Subject Leases); or
(ii) employees of Zellers or its Affiliates or benefits relating to those employees.
Section 4.3 As Is, Where Is.
Except for the representations, warranties, covenants and certifications of Zellers and HBC expressly set out in (i) this Agreement, (ii) the Ancillary Agreements and (iii) any closing documents delivered by Zellers on any Closing Date or Delivery Date, Target Canada irrevocably acknowledges and agrees, without condition, reservation or qualification of any kind whatsoever, that:
(a) in entering into this Agreement and completing the purchase of the Subject Leases by Target Canada contemplated hereby, Target Canada and Target have relied and will continue to rely solely and exclusively upon their own inspections, investigations and due diligence with respect to the Subject Leases and the Subject Leased Properties;
(b) the Subject Leases are being purchased by Target Canada and the Subject Leased Properties are being delivered strictly on an as is, where is basis, at Target and Target Canadas sole risk and peril, without any express or implied agreement or representation and warranty or certification of any kind whatsoever or any liability or obligation by or on behalf of Zellers as to any matter concerning or relating to the Subject Leases or the Subject Leased Properties, including its or their physical or financial condition, suitability for development, fitness for a particular purpose, marketability, title, title liens and Encumbrances (registered or otherwise), physical condition or characteristics, profitability, use or zoning, environmental condition, existence of latent defects, quality, or any other condition or characteristic thereof, or availability or non-availability of any Landlord consent required for any assignment of the Subject Leases unless such non-availability is due to a Lease Default; and
(c) as part of Target Canadas agreement to purchase the Subject Leases and accept the Subject Leases and the Leased Properties as-is, where-is, and not as a limitation on such agreement, Target Canada and Target hereby unconditionally and irrevocably waive any and all actual or potential rights or Damages Target Canada or Target might have against Zellers pursuant to any warranty, express or implied, of any kind or type, other than those representations, warranties, covenants and certifications expressly set forth in this Agreement, the Ancillary Agreements and any closing documents delivered by Zellers or HBC on any Closing Date or Delivery Date. Such waiver includes waiver of express warranties, implied warranties, warranties of fitness for a particular use, warranties of merchantability, warranties of occupancy, strict liability and claims of every kind and type, including claims regarding defects, whether or not discoverable, product liability claims, or similar claims, and to all other extent or later created or conceived of strict liability or strict liability type claims and rights.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ZELLERS
Section 5.1 Representations and Warranties of Zellers.
Zellers represents and warrants as follows to Target and Target Canada and acknowledges that Target and Target Canada are relying upon the representations and warranties in connection with Target Canadas purchase of the Subject Leases and the assumption by Target Canada of the Assumed Liabilities:
Corporate Matters
(a) Incorporation and Qualification. Zellers is a corporation incorporated and existing under the Laws of its jurisdiction of incorporation and has the corporate power to own and operate its property, carry on its business and enter into and perform its obligations under this Agreement.
(b) Corporate Authorization. The execution and delivery of, and performance by Zellers of, this Agreement and the Ancillary Agreements have been authorized by all necessary corporate action on the part of Zellers.
(c) No Conflict. The execution and delivery of this Agreement and the Ancillary Agreements, and the performance by Zellers of the transactions contemplated by this Agreement and the Ancillary Agreements, do not constitute or result in a violation or breach of, or conflict with, or default under, or give rise to or create an Encumbrance (other than any Permitted Encumbrance) on any Lease under, or allow any Person to exercise any rights under, any of the terms or provisions of:
(i) its constating documents or by-laws, or
(ii) any Law applicable to Zellers.
(d) Required Authorizations. Except for the Competition Act Approval and as disclosed in Section 5.1(d) of the Disclosure Letter, no material filing with, notice to, or Authorization of, any Governmental Entity is required on the part of Zellers, as a condition to the lawful completion of the transactions contemplated by this Agreement, except with respect to any filing related to the transfer of the Pharmacy Records or except for filings or Authorizations required as a result of the status or identity of Target Canada.
(e) Execution and Binding Obligation. This Agreement has been duly executed and delivered by Zellers and constitutes legal, valid and binding agreements of it enforceable against it in accordance with its terms, subject to any limitation under applicable laws relating to (i) bankruptcy, winding-up, insolvency, arrangement, fraudulent preference and conveyance, assignment and preference and other similar Laws of general application affecting the enforcement of creditors rights, and (ii) the discretion that a court may exercise in the granting of equitable remedies such as specific performance and injunction.
(f) Residence of Zellers. Zellers is not a non-resident of Canada within the meaning of the Tax Act.
General Matters
(g) Compliance with Laws. Other than as disclosed in the Due Diligence File or Section 5.1(g) of the Disclosure Letter, Zellers is operating the stores on the Leased Properties in compliance with all Laws in all material respects; provided, nothing in this Section 5.1(g) shall expand the scope of any representation or warranty contained in Section 5.1(i).
(h) No Options, etc. to Purchase Assets. Except for Target Canadas right under this Agreement, and except as disclosed in the Due Diligence File and in Section 5.1(h) of the Disclosure Letter, no Person has any contractual right or privilege for the purchase or other acquisition from Zellers or any of its Affiliates of any of the Subject Leases or to Zellers knowledge, as of the Execution Date, any of the Pharmacy Records.
(i) Leases and Leased Properties
(i) Section 5.1(i)(i) of the Disclosure Letter sets forth a true, accurate and complete list of each Lease by reference to its municipal address or the name of the shopping centre at which the Leased Properties are located.
(ii) Except as disclosed in Section 5.1(i)(ii) of the Disclosure Letter, the Due Diligence File contains true, accurate and complete copies of the Leases and all Default Notices, in each case in all material respects. Except as disclosed in Section 5.1(i)(ii) of the Disclosure Letter or in the Due Diligence File, and except for any amendment or other instrument entered into after the Execution Date with Target Canadas consent pursuant to Section 7.6, the Leases have not been altered or amended in any material respect.
(iii) Except as disclosed in Section 5.1(i)(iii) of the Disclosure Letter, each of the Leases creates a valid and binding leasehold interest which interest is in full force and effect, excluding any failure of title arising from non-compliance with the Planning Act (Ontario) or any similar Laws governing subdivision or severance of real property in other provinces.
(iv) Zellers is the sole legal and beneficial owner of the leasehold interest in the Leased Properties pursuant to the Leases and has leasehold title under each of the Leases subject only to the Permitted Encumbrances, excluding any failure of title arising from non-compliance with the Planning Act (Ontario) or any similar Laws governing subdivision or severance of real property in other provinces.
(v) Except as set forth in the Due Diligence File or Section 5.1(i)(v) of the Disclosure Letter, to Zellers knowledge as of the Execution Date, there are no prohibitions or material restrictions that have impaired the use of a
Leased Property for a department store or junior department store including pharmacy and food sales operations, to the extent that such uses and operations exist on such Leased Property as of the Execution Date as currently operated by Zellers, but excluding operations which are not typically conducted in a Target store.
(vi) Zellers has not entered into any agreement to sell, transfer, mortgage, or otherwise dispose of the leasehold right, title and interest of Zellers in and to any Leased Property or the air or density rights relating to any Leased Property other than as set out in the Due Diligence File or in Section 5.1(i)(vi) of the Disclosure Letter.
(vii) To Zellers knowledge, all Material Lease Defaults are listed in Section 5.1(i)(vii) of the Disclosure Letter.
(viii) Except as disclosed in Section 5.1(i)(viii) of the Disclosure Letter or in the Due Diligence File:
(1) all payments owed by Zellers under each of the Leases are not overdue and will not be overdue as of the applicable Closing Date or will be adjusted in accordance with Section 3.3;
(2) there is no Material Lease Default under any Lease;
(3) except in respect of any Failure to Operate caused by force majeure (to Zellers knowledge no such force majeure exists as of the Execution Date), at each of the Leased Properties with respect to which the Landlord has a Landlord Recapture Right under the applicable Lease, there is no Failure to Operate; and
(4) as of the Execution Date, Zellers has not given notice to the Landlord of a material default by the Landlord under any Lease.
(ix) Except as disclosed in the Due Diligence File or in Section 5.1(i)(ix) of the Disclosure Letter, Zellers has not exercised any option to terminate or right to terminate any Lease.
(x) Except as disclosed in Section 5.1(i)(x) of the Disclosure Letter neither Zellers nor any of Zellers Affiliates has any option to purchase, right of first refusal or other similar right to acquire any Leased Property, other than as set out in the Due Diligence File.
(xi) Except as disclosed in the Due Diligence File or Section 5.1(i)(xi) of the Disclosure Letter, Zellers has not expressly waived any material rights under any Lease (i) relating to the use of the Leased Property or (ii) impairing the visibility, signage, parking or access to the Leased Property
in any material respect, which remain uncompleted as of the Execution Date.
(xii) Except as disclosed in the Due Diligence File or in Section 5.1(i)(xii) of the Disclosure Letter, to the knowledge of Zellers, no written order or directive (that has not been satisfied) has been received by Zellers from any Governmental Entity (a) prohibiting the operation of any Leased Property or (b) requiring the cure or rectification of any material defects in the construction of the building or improvements on or forming a part of any of the Leased Properties or relating to any work, in order to comply with any building codes, land use, zoning by-laws, fire codes, environmental protection registration or any other Laws which, if not cured or rectified, would have a material adverse effect on any of the Leased Properties.
(xiii) Except as disclosed in Section 5.1(i)(xiii) of the Disclosure Letter, no Person has any right to purchase, option to purchase, right of first offer, right of first refusal or other similar right to acquire the Leased Properties in favour of any Person which will prevent Target Canadas acquisition of Zellers leasehold interest of any Leased Property other than Target Canada pursuant to this Agreement, and subject to generally applicable statutory rights of a Governmental Entity, no Person other than Zellers and its subtenants, licensees and concessionaires whose occupancies will be terminated by Zellers by the applicable Vacancy Date is using or has any right to use, or is in possession or occupancy of, any part of such Leased Property.
(xiv) Except as disclosed in the Due Diligence File, there is not presently outstanding in respect of any Leased Property any judgment, decree, injunction or order of any Governmental Entity or in favour of any Person which would have a material adverse effect on such Leased Property.
(xv) Except as disclosed in the Due Diligence File or in Section 5.1(i)(xv) of the Disclosure Letter, Zellers has no knowledge of any expropriation or condemnation or similar proceeding pending or threatened against any of the Leased Properties.
Other Matters
(j) Litigation. There are no actions, suits, appeals, claims, applications, investigations, orders, proceedings, grievances, arbitrations or alternative dispute resolution processes in progress, pending, or to Zellers knowledge, threatened against Zellers, which, to the extent outstanding or if determined adversely to Zellers, would prohibit a material portion of the transactions contemplated by this Agreement.
(k) Taxes. No failure, if any, of Zellers to duly and timely withhold, collect, report, remit or pay any Taxes as required by Laws will result in an Encumbrance of any nature on the Subject Leases or the Pharmacy Records. There are no proceedings,
investigations, audits or claims now pending or threatened against Zellers in respect of any Taxes, and there are no matters under discussion, audit or appeal with any Governmental Entity relating to Taxes, that may result in an Encumbrance of any nature on the Subject Leases or the Pharmacy Records. Zellers is duly registered under Subdivision (d) of Division V of Part IX of the Excise Tax Act (Canada) with respect to the goods and services tax and harmonized sales tax and under Division I of Chapter VIII of Title I of An Act Respecting the Quebec Sales Tax with respect to the Quebec sales tax, and its registration numbers are: 12196 8549 RT0001 and 101049 4016 TQ1002, respectively.
(l) Brokers. No broker, agent or other intermediary is entitled to any fee, commission or other remuneration in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Zellers or any of its Affiliates.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF TARGET CANADA AND TARGET
Section 6.1 Representations and Warranties of Target Canada and Target.
Target Canada and Target represent and warrant as follows to Zellers and acknowledge and confirm that Zellers is relying on such representations and warranties in connection with the sale by Zellers of the Subject Leases and the Pharmacy Records:
(a) Incorporation and Corporate Power. Target is and Target Canada is or will be a corporation incorporated and existing under the laws of its jurisdiction of incorporation and it has or will have the corporate power to enter into and perform its obligations under this Agreement and the Ancillary Agreements.
(b) Corporate Authorization. The execution and delivery of and performance by Target and Target Canada of this Agreement and the Ancillary Agreements have been or will be at or prior to the First Tranche Closing Date authorized by all necessary corporate action on the part of Target and each Target Canada.
(c) No Conflict. The execution and delivery of this Agreement and the Ancillary Agreements, and the performance by Target and Target Canada of the transactions contemplated by this Agreement and the Ancillary Agreements, do not constitute or result in a violation or breach of, or conflict with, or default under, or allow any Person to exercise any rights under, any of the terms or provisions of:
(i) its constating documents or by-laws; or
(ii) any Laws applicable to Target or a Target Canada, as applicable.
(d) Required Authorizations. Except for the Competition Act Approval, no material filing with, notice to or Authorization of, any Governmental Entity is required on the part of Target or Target Canada as a condition to the lawful
completion of the transactions contemplated by this Agreement, except with respect to any filing related to the transfer of the Pharmacy Records.
(e) Execution and Binding Obligation. This Agreement has been duly executed and delivered by Target and constitutes legal, valid and binding agreements of it, enforceable against it in accordance with its terms, subject to any limitation under applicable Laws relating to (i) bankruptcy, winding-up insolvency, arrangement, fraudulent preference and conveyance, assignment and preference and other similar Laws of general application affecting the enforcement of creditors rights, and (ii) the discretion that a court may exercise in the granting of equitable remedies including specific performance and injunction.
(f) Financing. Target has, and will have at the relevant Closing Date, sufficient funds on hand or available to fund the payment of the Purchase Price by Target Canada.
(g) Litigation. There are no actions, suits, appeals, claims, applications, investigations, orders, proceedings, grievances, arbitrations or alternative dispute resolution processes in progress, pending, or to Targets knowledge, threatened against Target or Target Canada, which, to the extent outstanding or if determined adversely to Target or Target Canada, would prohibit any of the transactions contemplated by this Agreement.
(h) Brokers. No broker, agent or other intermediary is entitled to any fee, commission or other remuneration in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Target or Target Canada.
(i) Due Diligence. Target and Target Canada have conducted to their satisfaction an independent investigation of the Subject Leases and Subject Leased Properties (including all matters relating to the leasehold and underlying freehold title thereto), and, in making the determination to proceed with the transactions contemplated by the Agreement, has relied solely on the results of their own independent investigation, the representations and warranties of Zellers in this Agreement and the covenants of Zellers pursuant to this Agreement and the Ancillary Agreements; provided that nothing in this Section 6.1(i) shall be construed as limiting the scope of Zellers representations, warranties, and covenants pursuant to this Agreement and the Ancillary Agreements or the ability of Target or Target Canada to rely upon them.
ARTICLE 7
COVENANTS OF THE PARTIES
Section 7.1 Actions to Satisfy Closing Conditions.
Subject to this Article 7, Zellers will use its commercially reasonable efforts to ensure compliance with all of the conditions set forth in Section 8.1 (provided that, solely for purposes of this Section 7.1, the condition set forth in Section 8.1(a)(ii) shall be deemed to require the representations and warranties contained in Section 5.1(i) to be true and correct in all material
respects as of the relevant Closing Date with respect to each of the First Tranche Subject Leases or the Second Tranche Subject Leases, as the case may be) and Target will use its commercially reasonable efforts to ensure compliance with all of the conditions set forth in Section 8.2.
Section 7.2 Request for Consents.
(1) From and after the Execution Date, Target and Target Canada shall request such consents, approvals, licenses and agreements (including amendments to Leases) from such Landlords and other Persons as Target may determine to be necessary or desirable. Subject to Section 7.2(4), Zellers agrees to reasonably cooperate with Target and Target Canada in such efforts, as Target may from time to time request.
(2) Target agrees that, if it elects to approach a Landlord with a request for a consent or approval, Target will include among its requests to such Landlord a request that Zellers be released from all Lease obligations accruing after the relevant Closing Date (provided that nothing in this Section 7.2(2) shall limit the obligations of Zellers as subtenant under the Subleases). Obtaining the agreement of any Landlord to any such request shall not be a condition to Closing and in no event will Target have any liability to Zellers if any request for such release is not granted.
(3) If Target or Target Canada has designated a Lease as a Subject Lease for assignment on a Closing Date but has not obtained all consents and approvals determined by Target or Target Canada to be necessary or desirable, Target shall have the option to exclude such Lease from the Subject Leases to be assigned at the Closing and such excluded Lease shall no longer be a Subject Lease, but there shall be no reduction in the Purchase Price on account of such exclusion.
(4) In no event shall Zellers or HBC be obligated to bear any expense or pay any fee or grant any concession in connection with Target or Target Canada seeking to obtain consents, authorizations or approvals to the assignment of Subject Leases. All fees, costs and expenses payable to third parties in connection with obtaining consents, including increased rents, landlord administration and consent fees and landlord counsel fees shall be paid by Target Canada.
(5) If any Landlord fails or refuses to provide any consent requested by Target or Target Canada (or requested by Zellers, at the request of Target or Target Canada), Zellers shall assign to Target Canada with respect to Subject Leases that are assigned to Target Canada or its Designee any rights, claims or Damages that may be available by reason of such failure or refusal (including any right to commence and prosecute any legal action against such Landlord on account of such failure or refusal), and Zellers will cooperate with Target Canadas efforts in connection with any such action.
(6) Target and Target Canada acknowledge and agree as follows:
(a) Target Canada and Target shall be solely responsible for any costs, fees, Damages, Lease Defaults, any increase in any base rent, operating costs, additional rents, percentage rents, and other charges payable under any of the Subject Leases and any other consequences as a result of the failure to request or to obtain any consents, authorizations or approvals to the assignment of the
Subject Leases to Target Canada or a Designee or Designees (whether on or any time after the relevant Closing Date) or to the Subleases or to the Wind-Down Actions of Zellers and furthermore that such failure to request or obtain said consents, authorizations or approvals does not in any way limit or otherwise impact the obligations of Target or Target Canada under this Agreement, including Target Canadas obligation to complete the transactions contemplated herein on the relevant Closing Date; and
(b) that it shall indemnify and hold harmless Zellers and HBC of and from any costs, fees and Damages resulting from the actions of Target or Target Canada or any Designee or those acting by or on behalf of Target or Target Canada or any Designees in seeking consents and approvals to assign the Subject Leases to Target Canada or its Designee or Designees (whether on or anytime after the relevant Closing Dates), the Subleases and the Wind-Down Actions (including under Section 7.2(6)(a) and Section 7.2(4)).
Section 7.3 Filings and Authorizations.
(1) Each of Zellers and Target Canada, as promptly as practicable after the execution of this Agreement, will use its commercially reasonable efforts to make, or cause to be made, all filings with, give all notices to, and obtain all Authorizations from, Governmental Entities that are necessary and desirable for the lawful completion of the assignment of the Subject Leases to Target Canada or applicable Designee or Designees and where the failure to do so would have a material adverse effect on the business of Target Canada, after the First Tranche Closing Date, taken as a whole. Target Canada will pay all filing fees incurred in connection with any such required Authorization, including Competition Act Approval.
(2) Notwithstanding any other provision in this Agreement, Target will take and will cause Target Canada to take all actions necessary to obtain as expeditiously as possible (and in any event so as to permit the First Tranche Closing Date to occur as soon as possible), at its own expense, all Authorizations (including Competition Act Approval) required in connection with the lawful assignment of the Subject Leases to Target Canada or applicable Designee or Designees, including negotiating and effecting by consent agreement or order, hold separate arrangement, undertakings or any form of behavioural remedy or commitment.
(3) The Parties will coordinate and cooperate in exchanging information and supplying assistance that is reasonably requested in connection with this Section 7.3(3) and Section 7.3(2) including providing each other with advance copies and reasonable opportunity to comment on all notices and information supplied to or filed with any Governmental Entity (including notices and information which Zellers or Target Canada, in each case acting reasonably, consider highly confidential and sensitive, which notices and information may be provided on a confidential and privileged basis to outside counsel of the other Party), and all notices and correspondences received from any Governmental Entity. Each of Zellers and Target Canada shall keep the other apprised of the status of any such communications with, and any such inquiries or requests for additional information from, any Governmental Entities, and each Party shall comply promptly with such inquiry or request. No Party shall independently participate in any meeting,
negotiation or material discussion with any Governmental Entity in respect of any such filings, inquiries, or requests, without giving the other prior notice of the meeting and, to the extent permitted by such Governmental Entity, the opportunity to attend and participate.
(4) As used in this Agreement, Competition Act Approval means the earlier of:
(a) either (A) the issuance to Target Canada of an advance ruling certificate by the Commissioner of Competition under Subsection 102(1) of the Competition Act to the effect that the Commissioner of Competition is satisfied that she would not have sufficient grounds upon which to apply to the Competition Tribunal for an order under Section 92 of the Competition Act with respect to the transactions contemplated by this Agreement, or (B) Target Canada shall have been advised in writing by the Commissioner of Competition that she is of the view that grounds do not exist as of the date of the advice to initiate proceedings under the merger provisions of the Competition Act in respect of the transactions contemplated by this Agreement; and
(b) the waiting period, including any extension thereof, under Section 123 of the Competition Act shall have expired or been terminated or the obligation to provide a pre-merger notification in accordance with Part IX of the Competition Act shall have been waived in accordance with paragraph 113(c) of the Competition Act.
Section 7.4 Risk of Loss.
If, prior to the relevant Closing Date, all or any part of the Subject Leased Properties are destroyed or damaged by fire or any other casualty or are appropriated, expropriated or seized by any Governmental Entity, the representations and warranties of Zellers that are not true and correct in all material respects as of the relevant Closing Date solely as a result of such destruction, damage, appropriation, expropriation or seizure will be deemed to be true and correct in all material respects as of the relevant Closing Date for all purposes of this Agreement, and Target Canada will complete the transactions contemplated by this Agreement without reduction of the Purchase Price, in which event all proceeds of any insurance (or which would have been available except for Zellers election of deductibles or self-insurance, which amounts Zellers shall be responsible to contribute) or compensation will be payable to Target Canada and all right and claim of Zellers to any such amounts not paid by the relevant Closing Date will be assigned to Target Canada.
Section 7.5 Confidentiality.
Target acknowledges having signed a confidentiality agreement between Target and Zellers. Subject to Section 7.2, Target Canada agrees that except as provided in this Agreement and the Ancillary Agreements, the confidentiality agreement continues to apply and Target Canada is bound by its terms. The confidentiality agreement will cease to apply with respect to each Subject Lease and Subject Leased Property upon the assignment of such Subject Lease in accordance with this Agreement, and following the Second Tranche Closing Date the confidentiality agreement will terminate except as to Leases that are not Subject Leases. Zellers
acknowledges that Target will be filing a copy of this Agreement with the United States Securities and Exchange Commission in accordance with Laws.
Section 7.6 Lease Amendments, Renewals and Notices.
(1) From and after the Execution Date to and including the Second Tranche Closing Date Zellers will not amend, modify, consent to, grant any approval or take any action, or omit to take any action, under or with respect to any Lease (other than the enforcement of rights under or with respect to any Lease), without the prior written consent of Target Canada, provided (i) if the action taken with respect to the Lease in question is required to allow the continued operation of the Zellers store, then Target Canadas consent may not be unreasonably conditioned or withheld, and (ii) if the immediately preceding clause (i) does not apply, then Target Canada may provide, condition or withhold such consent in its sole and absolute discretion. For the purposes of each of the foregoing matters referred to in this Section 7.6(1) in respect of any Lease and/or any other matter relating to the operation and administration of any Leased Property prior to the Second Tranche Closing Date that require Target Canadas consent or approval (each a Consent Matter), Zellers, through Brian Pall or Bruce Moore (each an Authorized Zellers Representative), may make requests from time to time for Target Canadas consent or approval with respect to any Consent Matter directly to Joan Ahrens (the Authorized Target Representative). For the purposes of this Agreement, any consent or approval with respect to any Consent Matter given by the Authorized Target Representative to an Authorized Zellers Representative from time to time, by email or other form of written communication (which email or other communication shall clearly reference this Section 7.6), shall constitute written consent of Target Canada for all purposes with respect to such Consent Matter.
(2) Section 7.6(2) of the Disclosure Letter lists each Lease (if any) that requires Zellers to deliver notice or otherwise take steps in order to extend or renew the term of such Lease after the Execution Date and prior to December 31, 2011, and the last date (the Renewal Notice Expiration Date) by which such notice must be given or such steps taken. Target Canada shall elect by Notice given to Zellers no later than 30 days (or 14 days, with respect to Leases with a Renewal Notice Expiration Date prior to February 28, 2011) prior to the Renewal Notice Expiration Date as to whether the Lease is a Subject Lease and if so, whether Target Canada wishes to have the term extended or renewed. Failing delivery of Target Canadas Notice as aforesaid, Zellers may elect whether or not to renew or extend such Lease in its discretion, and in no event will Zellers have any liability to Target or Target Canada if such Notice is not delivered.
(3) From and after the Execution Date, to and including the Second Tranche Closing Date, Zellers will use its commercially reasonable efforts to provide to Target Canada (a) a copy of each Default Notice relating to the Leased Properties within two Business Days of receipt by Zellers or any Affiliate of Zellers of such Default Notice, and (b) a copy of each notice of default or claimed default sent by Zellers to any Landlord within two Business Days of the date any such notice is sent.
(4) The terms of this Section 7.6 do not apply in respect of any Lease which Target Canada or Target notifies Zellers will not be a Subject Lease.
Section 7.7 Zellers Entity Cooperation.
(1) Zellers, HBC and their Affiliates (each, a Zellers Entity) currently own, lease, ground lease or hold other similar interests in one or more of the developments in which a Subject Leased Property was or is located (each, a Subject Development).
(2) Zellers and HBC, on behalf of each Zellers Entity, agree to fully cooperate, subject to the allocation of costs set out in Section 7.7(2)(h), in order to allow Target Canada, Target, any Designee permitted under Section 2.7 and any of their respective Affiliates (each, a Target Entity), to enter, operate, develop, remodel and/or redevelop each Subject Development for any uses which are consistent with a first class retail shopping centre in Canada, including a Target discount department store (which store may include, pharmacy, restaurant and food sales operations without restriction as to product types or size of areas devoted to such items) as is typically operated, from time to time, in the United States or Canada (the Permitted Use). Zellers and HBC will cause each Zellers Entity on its own behalf and on behalf of those claiming, by, through and under such Zellers Entity, with respect to a Subject Development only:
(a) to modify, waive, release and terminate all use restrictions and use exclusives benefiting or enforceable by the Zellers Entity that would limit or prohibit the operation of any Permitted Use by a Target Entity.
(b) to consent to the temporary reduction, cessation or reasonable modification of operations of the Target Entity at any Subject Leased Property so as to allow for the remodelling, development or redevelopment of such Subject Leased Property which consent shall be given without such Zellers Entity availing itself of any rights in connection with such consent, including a reduction of rent, right to cease operations, right of termination or any other similar provision, if such consent relates to any Subject Development;
(c) to grant all consents and approvals for the remodelling, developing or redeveloping the interior of any building (provided that any change to the location or size of such building shall be subject to the provisions of Section 7.7(2)(e)) located or to be located on or within a Subject Development;
(d) to grant all consents and approvals for the remodelling, developing or redeveloping the exterior elevations of any building (including building signage, branding, architectural details and closure of entrances to the Target Entitys building) located or to be located on or within a Subject Development (provided that any change to the location or size of such building shall be subject to the provisions of Section 7.7(2)(e)), as well as any appurtenances immediately adjacent to the Target Entitys building (e.g., sidewalks, landscaping and loading docks), but not other common areas;
(e) to grant all consents and approvals for remodelling, developing or redeveloping any Subject Development (including the relocation or any change in the size of any building) and any freestanding signage; provided however, that notwithstanding the foregoing, the Zellers Entities shall have no obligation under this Section 7.7(2)(e) to (i) incur any Damages, liability, costs or expenses from a
third party claim (other than those contemplated to be incurred by a Zellers Entity pursuant to Section 7.7(2)(h)); (ii) take or to refrain from taking any action, or to consent, approve, support or withhold objection to any matter or thing, which would or could reasonably be expected to result in Damages, liability, costs or expenses to any Zellers Entity from a third party claim (other than those contemplated to be incurred by a Zellers Entity pursuant to Section 7.7(2)(h)), in connection with the breach of any Laws or any Encumbrances existing as of the Execution Date by or to which a Zellers Entity is a party or to which it is subject, or which affects a Subject Development; or (iii) take or to refrain from taking any action, or to consent, approve, support or withhold objection to any matter or thing which would, or could reasonably be expected to, materially adversely affect the use, operation, signage, parking rights in any primary parking field, access to common areas, full pedestrian and vehicular access to all existing internal and external roadways and walkways of any Bay store or the business conducted therein (clauses (i), (ii) and (iii) are collectively, the Approval Restrictions). If any Approval Restrictions do exist under item (ii) above, each Zellers Entity will use its commercially reasonable efforts (without payment of consideration or repayment of debt) to (a) obtain the consent from any Person benefiting from such Approval Restriction and/or (b) allow for the requested co-operation of the Zellers Entity to be given in accordance with this Section 7.7;
(f) to join in applications for all permits, variances, special uses, licenses or authorizations deemed necessary or desirable by the Target Entity in connection with remodelling, development or redevelopment of the Subject Leased Property for the foregoing purposes, and to the extent such request is in compliance with Section 7.7(2)(e), the balance of any Subject Development; provided however, that no Zellers Entity shall have any obligation to join in any of the foregoing to the extent that such item would expose such Zellers Entity to Damages, liability, costs or expenses except to the extent the foregoing relate to the Zellers Entitys authority to issue such authorization or the Target Entity agrees to protect the Zellers Entity with respect to risks through an indemnity or other arrangement satisfactory to Zellers;
(g) not to seek, request or demand any charge or concession from any Target Entity or any other third party in connection with fulfilling its obligations under this Section 7.7, except as set forth in Section 7.7(2)(h); and
(h) for each of the first 10 locations selected by any Target Entity (on an aggregate basis for all Target Entities) for cooperation by any Zellers Entity under this Section 7.7, such Zellers Entity shall be responsible and pay for all of the out of pocket costs incurred by such Zellers Entity in connection with any requests for cooperation made by such Target Entity relating to the initial redevelopment of such location by the Target Entity. Thereafter, all requests for cooperation by any Target Entity relating to (i) each additional location, or (ii) to the extent unrelated to the initial redevelopment, each of the initial 10 locations, the related Zellers Entity and the Target Entity shall each be responsible for paying 50% of the out of pocket costs incurred by such Zellers Entity with respect to any such requests, and the Target Entity shall reimburse the Zellers Entity for its share of such costs
in accordance with arrangements to be made between the related Target Entity and the Zellers Entity each acting reasonably.
(3) Target Canada acknowledges that five Subject Developments (which are the following: Devonshire Mall, Windsor; Square One, Mississauga; Centrepoint Mall, North York; Les Promenades, St Bruno; and downtown Winnipeg, Manitoba) held by Zellers Entity Affiliates are subject to an existing Mortgage in favour of GE Capital Canada Finance Inc. which may be breached by the actions contemplated under Sections 7.7(2)(a) through (d) above. The remaining Subject Developments are not subject to any other material restrictions relating to such actions under any Mortgage known to Zellers relating to the Subject Development as of the Execution Date. If the Zellers Entity reasonably determines that such a breach will occur, then the Zellers Entity will use its commercially reasonable efforts (without payment of consideration or repayment of debt) to (i) obtain the consent from the Mortgage holder benefiting from the Approval Restriction in Section 7.7(2)(e)(ii) and/or (ii) allow for the requested co-operation of the Zellers Entity to be given in accordance with this Section 7.7.
(4) So as to allow each Target Entity to confirm a Zellers Entitys compliance with the provisions of this Section 7.7 prior to commencing any of the above activities, each Zellers Entity will, upon a request of a Target Entity, enter into reasonable written documentation evidencing its agreement with respect to all approvals, consents and other requests of such Target Entity with respect to such contemplated location prior to the acquisition by such party.
(5) Zellers and HBC, on behalf of each Zellers Entity, each agree that no Zellers Entity will subordinate its interest (or further restrict its rights to comply with the provisions of this Section 7.7) in any Subject Development to any future encumbrance unless such Zellers Entity receives a written non-disturbance agreement from the holder of such encumbrance with respect to the provisions of this Section 7.7.
(6) The obligations of Zellers, HBC and each Zellers Entity pursuant to this Section 7.7 shall be binding upon the successors and assigns of each such Zellers Entity, including each successor owner of the Zellers Entitys interest in the Subject Development to which such obligations may now or in the future relate. Such obligations shall bind and benefit, as the case may require, the heirs, legal representatives, assigns and successors of the respective parties, and all covenants, conditions and agreements contained in this Section 7.7 shall be construed (to the extent permitted by Laws) as covenants running with the land with respect to each Subject Development. Without limiting the generality of the foregoing, each Zellers Entity shall, at its sole cost and expense (a) inform in writing each successor, assign and purchaser of each Subject Development of the provisions of this Section 7.7, and (b) cause each such successor, assign and purchaser to assume in writing the obligations of this Section 7.7.
(7) Zellers and HBC, on behalf of each Zellers Entity, each agree that upon the request of any Target Entity, it shall execute, or cause the relevant Zellers Entity to execute, to the extent permitted by Laws (with such recordation being at the sole cost of such Target Entity), a recordable memorandum evidencing (i) the agreements contained in this Section 7.7 which may (at the Target Entitys option and cost) be registered on title in the
applicable real estate records and (ii) all actions taken by such Zellers Entity pursuant to this Section 7.7.
(8) Notwithstanding anything to the contrary in this Agreement, the obligations of each Zellers Entity and Target Entity under this Section 7.7 shall commence on the Execution Date and expire on that date that is 10 years after the Second Tranche Closing Date.
ARTICLE 8
CONDITIONS OF CLOSING
Section 8.1 Conditions for the Benefit of Target and Target Canada.
The assignment and transfer of the Subject Leases and the payment of the applicable portion of the Purchase Price are subject to the following conditions being satisfied on or prior to the relevant Closing Date, which conditions are for the exclusive benefit of Target Canada and Target and may be waived, in whole or in part, by Target in its sole discretion:
(a) Truth of Representations and Warranties.
(i) The representations and warranties of Zellers contained in this Agreement other than the representations and warranties contained in Sections 5.1(g), 5.1(h) and 5.1(i) must be true and correct in all material respects as of the relevant Closing Date with the same force and effect as if such representations and warranties were made on and as of such date. However, (A) any such representations or warranties relating to Subject Leases as of the First Tranche Closing Date need only be true and correct in all material respects as they relate to the First Tranche Subject Leases, (B) any such representations or warranties relating to Subject Leases as of the Second Tranche Closing Date need only be true and correct in all material respects as they relate to the Second Tranche Subject Leases, (C) if any such representation and warranty is qualified by materiality, it must be true and correct in all respects after giving effect to such qualification and (D) if any such representation and warranty speaks only as of a specific date it only needs to be true and correct as of that date.
(ii) The failure of the representations and warranties of Zellers contained in Sections 5.1(g), 5.1(h) and 5.1(i) (without regard, in the case of the representations and warranties contained in Sections 5.1(i)(iii), 5.1(i)(vii), and 5.1(i)(viii), to any qualification to such representations and warranties made in the Disclosure Letter) to be true and correct in all material respects as of the relevant Closing Date shall not affect 100 or more Leases designated at any time on (even if later removed from) the First Tranche Selection List or the Second Tranche Selection List in the aggregate for all Closing Dates. However, (A) any such representations or warranties relating to Subject Leases as of the First Tranche Closing Date need only be true and correct in all material respects as they relate to the First Tranche Subject Leases, (B) any such representations or warranties relating to Subject Leases as of the Second Tranche Closing Date need only be true and correct in all material respects as they relate to the Second
Tranche Subject Leases, (C) if any such representation and warranty is qualified by materiality, it must be true and correct in all respects after giving effect to such qualification, and (D) if any such representation and warranty speaks only as of a specific date it only needs to be true and correct as of that date.
(iii) Target Canada must receive a certificate of a senior officer of Zellers as to the matters in this Section 8.1(a).
(b) Performance of Covenants. Zellers must have fulfilled, or complied with, in all material respects, all covenants contained in this Agreement to be fulfilled or complied with by it at or prior to the relevant Closing Date (except for any such covenants requiring Zellers to use commercially reasonable or similar efforts), and Target Canada must receive a certificate of a senior officer of Zellers to that effect.
(c) Competition Act Approval. The Competition Act Approval must have been obtained.
(d) No Legal Action. No action, proceeding, order or notice will have been made, issued or delivered by any Governmental Entity prohibiting a material portion of the transactions contemplated by this Agreement.
(e) Release of Monetary Liens. Target shall have received evidence reasonably satisfactory to it of the release of any Monetary Liens on Zellers leasehold interest in any of the First Tranche Subject Leased Properties (as of the First Tranche Closing Date) or the Second Tranche Subject Leased Properties (as of the Second Tranche Closing Date), except that, with respect to any Monetary Lien under clause (3) of the definition of Monetary Lien, Target shall have received evidence reasonably satisfactory to it of the payment of the obligation underlying such Monetary Lien or such underlying obligation shall be the subject of an adjustment under Section 3.3.
Section 8.2 Conditions for the Benefit of Zellers.
The assignment and transfer of the Subject Leases and the payment of the applicable portion of the Purchase Price are subject to the following conditions being satisfied on or prior to the relevant Closing Date, which conditions are for the exclusive benefit of Zellers and may be waived, in whole or in part, by Zellers in its sole discretion:
(a) Truth of Representations and Warranties. The representations and warranties of each of Target Canada and Target contained in this Agreement must be true and correct in all material respects as of the relevant Closing Date with the same force and effect as if such representations and warranties had been made on and as of such date. However, if a representation and warranty is qualified by materiality, it must be true and correct in all respects after giving effect to such qualification. Zellers must receive a certificate of a senior officer of each of Target Canada and Target to the matters in this paragraph.
(b) Performance of Covenants. Each of Target Canada and Target must have fulfilled or complied with all covenants contained in this Agreement to be fulfilled or complied with by it at or prior to the relevant Closing Date (except for any such covenants requiring Target or Target Canada to use commercially reasonable or similar efforts), and Zellers must receive a certificate of a senior officer of each of Target Canada and Target to that effect.
(c) Competition Act Approval. The Competition Act Approval must have been obtained.
(d) No Legal Action. No action, proceeding, order or notice will have been made, issued or delivered by any Governmental Entity prohibiting a material portion of the transactions contemplated by this Agreement.
(e) Tax Registration. Target Canada will be duly registered under subdivision (d) of Division V of Part IX of the Excise Tax Act (Canada) with respect to goods and service tax and harmonized sales tax and, where applicable, under Division I of Chapter VIII of Title I of An Act Respecting the Quebec Sales Tax, and its registration numbers will have been provided to Zellers prior to the First Tranche Closing Date.
ARTICLE 9
CLOSING
Section 9.1 Date, Time and Place of Closing.
The completion of the transaction of purchase and sale contemplated by this Agreement will take place at the offices of Stikeman Elliott LLP, Suite 5300, Commerce Court West, Toronto, Ontario, at 10:00 a.m. (Toronto time) on each Closing Date or at such other place, on such other date and at such other time as Zellers and Target Canada may agree to in writing.
Section 9.2 Zellers Closing Deliveries.
On each Closing Date Zellers shall deliver or cause to be delivered to Target Canada the following documents (other than the Brand Waiver, which shall only be delivered on the First Tranche Closing Date), executed by Zellers or such other necessary Persons where applicable:
(a) (i) an assignment and assumption agreement with respect to each of the relevant Subject Leases which Target Canada has not identified for assignment to a Designee, substantially in the form attached as Section 9.2(a) of the Disclosure Letter (the Lease Assignment and Assumption Agreement), and (ii) a Designee Assignment and Assumption Agreement with respect to each of the relevant Subject Leases which Target Canada has identified for assignment to a Designee;
(b) the Subleases with respect to the relevant Subject Leased Properties;
(c) a certificate of a duly authorized officer of Zellers certifying: (i) the constating documents and by-laws of Zellers; (ii) resolutions of the directors of Zellers
authorizing this Agreement and the consummation of the transactions contemplated by this Agreement; (iii) the incumbency and signatures of the officers of Zellers executing this Agreement; and (iv) the matters set forth in Section 8.1(a) and Section 8.1(b);
(d) a certificate of a duly authorized officer of HBC certifying: (i) the constating documents and by-laws of HBC; (ii) resolutions of the directors of HBC authorizing this Agreement and its obligations under this Agreement; (iii) the incumbency and signatures of the officers of HBC executing this Agreement;
(e) an agreement waiving exclusivity by Zellers and HBC, on their own behalf and on behalf of their Affiliates, with respect to brands licensed to or controlled by Zellers and agreeing not to enforce by any means any of their current trademarks against any trademarks used by, applied for, or registered to Target, in the form attached as Section 9.2(e) of the Disclosure Letter (the Brand Waiver);
(f) such documentation, including declarations and certificates, as may be customarily required by any title insurer (provided Zellers and any officer thereof shall not be required to provide any such documentation to the extent same expands the scope of any representation or covenant furnished to Target Canada in this Agreement or which creates personal liability to the title insurer) and shall execute the statements required of a vendor in s. 50(22) of the Planning Act (Ontario) and similar legislation in other provinces (to the extent Zellers does not have knowledge contrary to such statements);
(g) an undertaking by Zellers to re-adjust the Final Adjustments in accordance with Section 3.3;
(h) all Books and Records of Zellers and its Affiliates in their possession or control relating to the relevant Subject Leased Properties or the relevant Subject Leases; provided that, subject to Zellers execution of a confidentiality agreement in a form reasonably acceptable to Zellers and Target Canada with respect to such Books and Records, Zellers shall have the right to retain a copy of any Books and Records for use in compliance with Laws or in connection with investigations or litigation; and
(i) all other documents which Target Canada reasonably requests to give effect to the transactions contemplated by this Agreement.
Section 9.3 Target Canadas Closing Deliveries.
On each Closing Date Target Canada shall deliver or cause to be delivered to Zellers the following documents (other than the Brand Waiver, which shall only be delivered on the First Tranche Closing Date), executed by Target Canada or such other necessary Persons (other than Zellers or Affiliate of Zellers that is transferring Pharmacy Records hereunder) where applicable:
(a) a wire transfer in satisfaction of the First Tranche Purchase Price or the Second Tranche Purchase Price, as applicable, in accordance with Section 3.2;
(b) (i) a Lease Assignment and Assumption Agreement with respect to each of the relevant Subject Leases which Target Canada has not identified for assignment to a Designee, and (ii) a Designee Assignment and Assumption Agreement, duly executed by the applicable Designee (and not by Target Canada), with respect to each of the relevant Subject Leases which Target Canada has identified for assignment to a Designee;
(c) the Subleases with respect to the relevant Subject Leased Properties duly executed by Target Canada, or if applicable, its Designees;
(d) a certificate of a duly authorized officer of Target Canada certifying: (i) the constating documents and by-laws of Target Canada; (ii) resolutions of the directors of Target Canada authorizing this Agreement and the consummation of the transactions contemplated by Target Canada; (iii) the incumbency and signatures of the officers of Target Canada executing this Agreement; and (iv) the matters set forth in Section 8.2(a) and Section 8.2(b);
(e) a certificate of a duly authorized officer of Target certifying: (i) the constating documents and by-laws of Target; (ii) resolutions of the directors of Target authorizing this Agreement and its obligations under this Agreement; (iii) the incumbency and signatures of the officers of Target executing this Agreement; and (iv) the matters set forth in Section 8.2(a) and Section 8.2(b);
(f) an undertaking by Target Canada to re-adjust the Final Adjustments in accordance with Section 3.3;
(g) a Goods and Services Tax, Harmonized Sales Tax and Quebec Sales Tax Declaration and Indemnity in the form specified in Section 9.3(g) of the Disclosure Letter; and
(h) all other documents which Zellers reasonably requests to give effect to the transactions contemplated by this Agreement.
Section 9.4 Closing Procedures.
(1) Subject to satisfaction or waiver by the relevant Party of the conditions of closing, on each Closing Date, Zellers will deliver the instruments of conveyance described in Section 9.2 to Target Canada and upon such delivery Target Canada will pay or satisfy the Purchase Price in accordance with Section 3.2. The assignment of a Subject Lease will take effect at the Effective Time on the applicable Closing Date or Delivery Date.
(2) Zellers and Target Canada covenant and agree to enter into and to cause their respective solicitors to enter into a closing arrangement as is customary for each province providing for the delivery of closing documents, the electronic submission or physical submission of documents for registration, as applicable, and other details relating to closing and registration.
ARTICLE 10
TERMINATION
Section 10.1 Termination Rights.
This Agreement may, by notice in writing, be terminated on the Outside Date:
(a) by Target Canada if any of the conditions in Section 8.1 have not been satisfied in respect of the First Tranche Subject Leased Properties as of the Outside Date and Target Canada has not waived such conditions at or prior to the First Tranche Closing Date, provided that Target Canada may not terminate this Agreement under this Section 10.1(a) to the extent that such conditions have not been satisfied as a result of the failure of Target or Target Canada to perform any one or more of its obligations or covenants under this Agreement to be performed at or prior to the First Tranche Closing Date; or
(b) by Zellers if any of the conditions in Section 8.2 have not been satisfied as in respect of the First Tranche Subject Leased Properties as of the Outside Date and Zellers has not waived such condition at or prior to the First Tranche Closing Date, provided that Zellers may not terminate this Agreement under this Section 10.1(b) to the extent that such conditions have not been satisfied as a result of a failure of Zellers or HBC to perform any one or more of its obligations or covenants under this Agreement to be performed at or prior to the First Tranche Closing Date.
Section 10.2 Effect of Termination.
If a Party waives compliance with any of the conditions, obligations or covenants contained in this Agreement, the waiver will be without prejudice to any of its rights in the event of non-fulfilment, non-observance or non-performance of any other representation, warranty, condition, obligation or covenant in whole or in part or to its rights to recover Damages for any incorrectness in or breach of any representation, warranty, condition, obligation or covenant in whole or in part.
ARTICLE 11
INDEMNIFICATION
Section 11.1 Liability for Representations and Warranties.
The representations and warranties contained in this Agreement and the certificates delivered pursuant to Section 8.1(a) and Section 8.2(a) continue in full force and effect for a period of one year after the relevant Closing Date, except that:
(a) the representations and warranties set out in Section 5.1(a), Section 5.1(b), Section 5.1(e), Section 5.1(f), Section 6.1(a), Section 6.1(b), and Section 6.1(e) and the corresponding representations and warranties set out in the certificates delivered pursuant to Section 8.1(a) and Section 8.2(a) survive and continue in full force and effect without limitation of time;
(b) the representations and warranties set out in Section 5.1(k) (and the corresponding representations and warranties set out in the certificates to be delivered pursuant to Section 8.1(a)), will survive and continue in full force and effect until 6 months after the expiration of the period during which any tax assessment may be issued by a Governmental Entity in respect of any taxation year to which such representations and warranties extend. Such period will be determined without regard to any consent, waiver, agreement or other document, made or filed after the Closing Date that extends the period during which a Governmental Entity may issue a tax assessment. A tax assessment includes any assessment, reassessment or other form of recognized document assessing liability for Taxes under Laws;
(c) the representations and warranties set out in Section 5.1(h) and Section 5.1(i) (and the corresponding representations and warranties set out in the certificates to be delivered pursuant to Section 8.1(a)) as they relate to a Subject Lease will survive and continue in full force and effect until the date that is one year after the relevant Vacancy Date for such Subject Lease; and
(d) there is no limitation as to time for claims against a Party based on fraudulent misrepresentation by that Party.
Section 11.2 Indemnification in Favour of Target and Target Canada.
Subject to Section 11.5, Zellers will indemnify and save Target and Target Canada and their respective directors, officers, employees, agents and shareholders harmless from and against, and will pay for, all Damages suffered by, imposed upon or asserted against any of them as a result of, in respect of, connected with, or arising out of, under, or pursuant to:
(a) any failure of any representation or warranty in Article 5 to be true and correct as of the Execution Date or to be true and correct in all material respects as of the relevant Closing Date (or, with respect to any such representation or warranty that speaks only as of a specific date, any failure of such representation or warranty to be true and correct as of such date), in each case for which a notice of claim under Section 11.6 has been provided to Zellers within the applicable time period specified in Section 11.1;
(b) any failure of Zellers to perform or fulfil any of its covenants or obligations under this Agreement;
(c) the use or occupancy of any Subject Leased Property on or prior to the applicable Closing Date;
(d) the ownership, management or control of the operations conducted on any Subject Leased Property on or prior to the relevant Closing Date by Zellers (or any of its Affiliates, subtenants or licensees) where such ownership, management or control results in the release of contaminants for which Target or Target Canada is found liable by a Governmental Entity; and
(e) any Excluded Liabilities.
Section 11.3 Indemnification in Favour of Zellers.
Subject to Section 11.5, Target Canada will indemnify and save Zellers and its directors, officers, employees, agents and shareholders harmless from and against, and will pay for, all Damages suffered by, imposed upon or asserted against any of them as a result of, in respect of, connected with, or arising out of, under, or pursuant to:
(a) any failure of any representation or warranty in Article 6 to be true and correct as of the Execution Date or to be true and correct in all material respects as of the relevant Closing Date (or, with respect to any such representation or warranty that speaks only as of a specific date, any failure of such representation or warranty to be true and correct as of such date), in each case for which a notice of claim under Section 11.6 has been provided to Target Canada within the applicable time period specified in Section 11.1;
(b) any failure of Target Canada to perform or fulfil any of its covenants or obligations under this Agreement;
(c) the Assumed Liabilities;
(d) the use or occupancy of any Subject Leased Property after the applicable Closing Date, subject to the obligations of Zellers under the applicable Sublease; and
(e) the ownership, management or control of the operations conducted on any of the Subject Leased Properties after the relevant Closing Date by Target Canada (or any of its Affiliates, subtenants or licensees) where such ownership, management or control results in the release of contaminants for which Zellers is found liable by a Governmental Entity, subject to the obligations of Zellers under the applicable Sublease.
Section 11.4 Bulk Sales and Retail Sales Tax Waiver.
In respect of the transactions contemplated by this Agreement, Target Canada and the applicable Designee or Designees shall not require Zellers to comply, or to assist Target Canada or the applicable Designee or Designees to comply, with the requirements of (a) the Bulk Sales Act (Ontario), if applicable, or (b) section 6 of the Retail Sales Tax Act (Ontario) or any equivalent or corresponding provisions under any other applicable legislation. Notwithstanding the foregoing, Zellers shall indemnify and save harmless Target, Target Canada and the applicable Designee or Designees and their respective directors, officers, employees, agents and shareholders, on an after-Tax basis, from and against, and will pay for, all Damages suffered by, imposed upon or asserted against any of them as a result of, in respect of, connected with, or arising out of, under or pursuant to such non-compliance.
Section 11.5 Limitations.
(1) A Party has no obligation or liability for indemnification or otherwise with respect to any representation or warranty made by such Party in this Agreement, or the certificates delivered pursuant to Section 8.1(a) and Section 8.2(a), after the end of the applicable
time period specified in Section 11.1, except for claims relating to the representations and warranties that the Party has been notified of prior to the end of the applicable time period.
(2) A Party has no liability for, or obligation with respect to, any punitive or aggravated damages, except to the extent awarded to a third party in a Third Party Claim.
(3) A Party has no obligation to make any payment for Damages for indemnification or otherwise with respect to the matters described in Section 11.2 or Section 11.3, as applicable:
(a) until the total of all Damages with respect to such matters exceeds $18 million, after which such Party shall be liable to make payment for all such Damages including such $18 million; and
(b) to the extent such Damages exceed a maximum of $450 million;
provided that the forgoing limitations shall not apply to Damages with respect to any breach of covenant, Excluded Liabilities, Assumed Liabilities or any of the matters referred to in Section 11.1(a), Section 11.1(b), Section 11.1(d), Section 11.2(c), Section 11.2(d), Section 11.3(d) or Section 11.3(e).
(4) A Party has no obligation to make any payment for Damages for indemnification or otherwise to the extent such Damages exceed a maximum of $1,825,000,000.
Section 11.6 Notification.
(1) If a Third Party Claim is instituted or asserted against an Indemnified Party, the Indemnified Party will promptly notify the Indemnifying Party in writing of the Third Party Claim. The notice must specify in reasonable detail, the identity of the Person making the Third Party Claim and, to the extent known, the nature of the Damages and the estimated amount needed to investigate, defend, remedy or address the Third Party Claim.
(2) If an Indemnified Party becomes aware of a Direct Claim, the Indemnified Party will promptly notify the Indemnifying Party in writing of the Direct Claim.
(3) Notice to an Indemnifying Party under this Section 11.6 of a Direct Claim or a Third Party Claim is assertion of a claim for indemnification against the Indemnifying Party under this Agreement. Upon receipt of such notice, the provisions of Section 11.9 will apply to any Third Party Claim and the provisions of Section 11.8 will apply to any Direct Claim.
Section 11.7 Limitation Periods.
Notwithstanding the provisions of the Limitations Act, 2002 (Ontario) or any other statute, a proceeding in respect of a claim for indemnification or otherwise arising from any breach or inaccuracy of any representation or warranty in this Agreement may be commenced in accordance with this Agreement. Any applicable limitation period is extended or varied to the full extent permitted by law to give effect to this Section 11.7.
Section 11.8 Procedure for Direct Claims.
(1) Following receipt of notice of a Direct Claim, the Indemnifying Party has 60 days to investigate the Direct Claim and respond in writing. For purposes of the investigation, the Indemnified Party shall make available to the Indemnifying Party the information relied upon by the Indemnified Party to substantiate the Direct Claim, together with such other information as the Indemnifying Party may reasonably request.
(2) If the Indemnifying Party disputes the validity or amount of the Direct Claim, the Indemnifying Party shall provide written notice of the dispute to the Indemnified Party within the 60-day period specified in Section 11.8(1). The dispute notice must describe in reasonable detail the nature of the Indemnifying Partys dispute. During the 30-day period immediately following receipt of a dispute notice by the Indemnified Party, the Indemnifying Party and the Indemnified Party shall attempt in good faith to resolve the dispute. If the Indemnifying Party and the Indemnified Party fail to resolve the dispute within that 30-day time period, the Indemnified Party is free to pursue all rights and remedies available to it, subject to this Agreement. If the Indemnifying Party fails to respond in writing to the Direct Claim within the 60-day period specified in Section 11.8(1), the Indemnifying Party is deemed to have rejected the Direct Claim, in which event the Indemnified Party is free to pursue all rights remedies available to it, subject to this Agreement.
Section 11.9 Procedure for Third Party Claims.
(1) Upon receiving notice of a Third Party Claim, the Indemnifying Party may participate in the investigation and defence of the Third Party Claim and may also elect to assume the investigation and defence of the Third Party Claim.
(2) In order to assume the investigation and defence of a Third Party Claim, the Indemnifying Party must give the Indemnified Party written notice of its election within 30 days of Indemnifying Partys receipt of notice of the Third Party Claim and acknowledge that the Third Party Claim is within the scope of its obligation to indemnify the Indemnified Party in accordance with and subject to the terms of this Article 11.
(3) If the Indemnifying Party assumes the investigation and defence of a Third Party Claim:
(a) the Indemnifying Party will pay for all costs and expenses of the investigation and defence of the Third Party Claim except that the Indemnifying Party will not, so long as it diligently conducts such defence, be liable to the Indemnified Party for any fees of other counsel or any other expenses with respect to the defence of the Third Party Claim, incurred by the Indemnified Party after the date the Indemnifying Party validly exercised its right to assume the investigation and defence of the Third Party Claim; provided, however, that if the defendants named in the Third Party Claim include both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have reasonably concluded that there are legal defences or rights available to it that are in actual or potential conflict with those available to the Indemnifying Party, then the Indemnified Party shall have the right to select one law firm to act, at the Indemnifying Partys expense, as separate counsel on behalf of the Indemnified Party; and
(b) the Indemnifying Party will reimburse the Indemnified Party for all costs and expenses incurred by the Indemnified Party in connection with the investigation and defence of the Third Party Claim prior to the date the Indemnifying Party validly exercised its right to assume the investigation and defence of the Third Party Claim.
(4) If the Indemnified Party undertakes the defence of the Third Party Claim, the Indemnifying Party will not be bound by any compromise or settlement of the Third Party Claim effected without the consent of the Indemnifying Party (which consent may not be unreasonably withheld or delayed).
(5) The Indemnifying Party will not be permitted to compromise and settle or to cause a compromise and settlement of a Third Party Claim without the prior written consent of the Indemnified Party, which consent may not be unreasonably withheld or delayed, unless:
(a) the terms of the compromise and settlement require only the payment of money for which the Indemnified Party is entitled to full indemnification under this Agreement; and
(b) the Indemnified Party is not required to admit any wrongdoing, take or refrain from taking any action, acknowledge any rights of the Person making the Third Party Claim or waive any rights that the Indemnified Party may have against the Person making the Third Party Claim.
(6) The Indemnified Party and the Indemnifying Party agree to keep the other fully informed of the status of any Third Party Claim and any related proceedings. If the Indemnifying Party assumes the investigation and defence of a Third Party Claim, the Indemnified Party will, at the request and expense of the Indemnifying Party, use its reasonable efforts to make available to the Indemnifying Party, on a timely basis, those employees whose assistance, testimony or presence is necessary to assist the Indemnifying Party in investigating and defending the Third Party Claim. The Indemnified Party shall, at the request and expense of the Indemnifying Party, make available to the Indemnifying Party, or its representatives, on a timely basis all documents, records and other materials in the possession, control or power of the Indemnified Party, reasonably required by the Indemnifying Party for its use solely in defending any Third Party Claim which it has elected to assume the investigation and defence of. The Indemnified Party shall cooperate on a timely basis with the Indemnifying Party in the defence of any Third Party Claim.
Section 11.10 Remedies.
(1) Except as provided in this Section 11.10, the indemnities provided in this Agreement constitute the only remedy of a Party against another Party in the event of any breach of a representation, warranty, covenant or agreement of such Party contained in this Agreement.
(2) The Parties may exercise their rights of termination in Section 10.1 and their rights of indemnity in Section 13.3.
(3) Target and Target Canada may set off against any amounts payable by either or both of them to Zellers or HBC under this Agreement, any amounts owing to either or both of them by Zellers, HBC or any of their Affiliates under this Agreement or any Ancillary Agreement, including any amounts so owing under any indemnification obligations, up to a maximum aggregate amount to be so set off of $90 million.
(4) The Parties acknowledge that the failure to comply with a covenant or obligation contained in this Agreement may give rise to irreparable injury to a Party inadequately compensable in damages. Accordingly, a Party may seek to enforce the performance of this Agreement by injunction or specific performance upon application to a court of competent jurisdiction without proof of actual damage (and without requirement of posting a bond or other security).
(5) Each of the Parties expressly waives and renounces any other remedies whatsoever, whether at law or in equity, which it would otherwise be entitled to as against any other Party.
Section 11.11 One Recovery.
An Indemnified Party is not entitled to double recovery for any claims even though they may have resulted from the breach, inaccuracy or failure to perform of more than one of the representations, warranties, covenants and obligations of the Indemnifying Party in this Agreement.
Section 11.12 Duty to Mitigate.
Nothing in this Agreement in any way restricts or limits the general obligation at Law of an Indemnified Party to mitigate any loss which it may suffer or incur by reason of the breach, inaccuracy or failure to perform of any representation, warranty, covenant or obligation of the Indemnifying Party under this Agreement. If any claim can be reduced by any recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by or against any other Person, the Indemnified Party shall take all appropriate steps to enforce such recovery, settlement or payment and the amount of any Damages of the Indemnified Party will be reduced by the amount of insurance proceeds actually recovered by the Indemnified Party, net of any out-of-pocket costs incurred in obtaining such recovery and net of the present value of any increase in insurance premiums reasonably attributable to such recovery.
Section 11.13 Adjustment to Purchase Price.
Any payment made by Zellers or HBC to Target Canada under this Article 11 shall be deemed to be a dollar-for-dollar decrease in the Purchase Price. A payment made by Target Canada or Target under this Article 11 shall be deemed to be a dollar-for-dollar increase in the Purchase Price.
ARTICLE 12
OTHER COVENANTS
Section 12.1 Guarantee by HBC.
(1) HBC hereby unconditionally, absolutely, continuingly and irrevocably guarantees to Target Canada and the Indemnified Parties listed in Section 11.2 the timely payment, if any, and performance by Zellers (and its permitted assignees) of its obligations and liabilities arising under or pursuant to this Agreement and the Ancillary Agreements whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due (collectively, the Zellers Liabilities).
(2) Target Canada shall not be required to prosecute collection or seek to enforce or resort to any remedies against Zellers or any other Person liable to Target Canada or any such Indemnified Parties on account of Zellers Liabilities or any guaranty thereof. HBCs liabilities shall in no way be impaired, affected, reduced or released by reason of (i) the failure or delay by Target Canada or any of such Indemnified Parties to do or take any of the actions or things described in this Agreement, (ii) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets of Zellers (or its permitted assignees) or the marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings or any other inability to pay or perform affecting, Zellers (or its permitted assignees) or any of its respective assets, or (iii) any allegation concerning, or contest of the legality or validity of, the indemnification obligations under this Agreement.
(3) HBC hereby expressly waives the right to interpose all substantive and procedural defences of the law of guaranty, indemnification and suretyship, except the defences of prior payment or prior performance.
(4) Without limiting the generality of Section 12.1(1), Section 12.1(2) or Section 12.1(3), the liability of HBC under this Section 12.1 shall not be deemed to have been waived, released, discharged, impaired or affected by (a) the granting of any indulgence or extension of time to Zellers as subtenant under any Sublease, (b) the assignment of any Sublease, or the subletting of the premises under any Sublease by Zellers as subtenant under any Sublease, with or without Target Canadas consent, (c) the expiration of the term of any Sublease, (d) if Zellers, as subtenant under any Sublease, holds over beyond the term of the Sublease, (e) the rejection, disaffirmance or disclaimer of any Sublease by any party in any action or proceeding, (f) any defect or invalidity of any Sublease, or (g) any amendment, supplement or replacement of any Sublease. The liability of HBC shall not be affected by any repossession, re-entry or re-letting of any Subject Leased Property by Target Canada as sublandlord under any Sublease.
(5) In addition to the guarantee specified in Section 12.1(1), HBC shall indemnify and save Target Canada and the Indemnified Parties listed in Section 11.2 harmless from and against all Damages it or they may suffer as a result or consequence of any inability by Target Canada or such Indemnified Parties to recover the ultimate balance due or
remaining due or remaining unpaid to Target Canada and such Indemnified Parties in respect of Zellers Liabilities.
Section 12.2 Target Guarantee.
(1) Target hereby unconditionally, absolutely, continuingly and irrevocably guarantees to Zellers, HBC, and the Indemnified Parties listed in Section 11.3 the timely payment, if any, and performance by Target Canada (and its permitted assignees, including any Designee pursuant to Section 2.7, but excluding each Investment Grade Designee who enters into a Designee Assignment and Assumption Agreement or other assumption document pursuant to Section 2.7 (the Assignees)), of its obligations and liabilities arising under or pursuant to this Agreement and the Ancillary Agreements, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due (collectively, the Target Canada Liabilities).
(2) Zellers shall not be required to prosecute collection or seek to enforce or resort to any remedies against Target Canada, any Assignee or any other Person liable to Zellers or any such Indemnified Parties on account of Target Canada Liabilities or any guaranty thereof. Targets liabilities shall in no way be impaired, affected, reduced or released by reason of (i) the failure or delay by Zellers or any of such Indemnified Parties to do or take any of the actions or things described in this Agreement, (ii) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets of Target Canada (or Assignees) or the marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings or any other inability to pay or perform affecting, Target Canada (or its Assignees) or any of its respective assets, or (iii) any allegation concerning, or contest of the legality or validity of, the indemnification obligations under this Agreement.
(3) Target hereby expressly waives the right to interpose all substantive and procedural defences of the law of guaranty, indemnification and suretyship, except the defences of prior payment or prior performance.
(4) In addition to the guarantee specified in Section 12.2(1), Target shall indemnify and save Zellers, HBC and the Indemnified Parties listed in Section 11.3 harmless from and against all Damages it or they may suffer as a result or consequence of any inability by Zellers, HBC or such Indemnified Parties to recover the ultimate balance due or remaining due or remaining unpaid to Zellers, HBC and such Indemnified Parties in respect of Target Canada Liabilities.
Section 12.3 Further Assurances.
From time to time before and after the relevant Closing Date, each Party will, at the request of any other Party, execute and deliver such additional conveyances, transfers, documents, instruments and other assurances as may be reasonably required to effectively consummate the transactions contemplated by this Agreement and carry out the intent of this Agreement.
ARTICLE 13
MISCELLANEOUS
Section 13.1 Notices.
Any notice, direction or other communication given regarding the matters contemplated by this Agreement or any Ancillary Agreement (each a Notice) must be in writing, sent by personal delivery, courier or facsimile (but not by electronic mail) and addressed:
(a) to Zellers and HBC at:
401 Bay Street
Suite 500
Toronto, Ontario M5H 2Y4
Attention: |
|
General Manager, Legal Services |
Telephone: |
|
(416) 861-6932 |
Facsimile: |
|
(416) 861-4200 |
with a copy (which shall not constitute notice) to:
Hudsons Bay Trading Company, LP
3 Manhattanville Road, 2nd Floor
Purchase, New York 10577
Attention: |
|
Vice President and Secretary |
Telephone: |
|
(914) 272-8067 |
Facsimile: |
|
(914) 272-8088 |
with a copy (which shall not constitute notice) to:
Stikeman Elliott LLP
5300 Commerce Court West
199 Bay Street
Toronto, Ontario M5L 1B9
Attention: |
|
Ian Putnam |
Telephone: |
|
(416) 869-5506 |
Facsimile: |
|
(416) 947-0866 |
(b) to Target Canada and Target at:
Target Corporation
1000 Nicollet Mall, TPS-2670
Minneapolis, MN 55403
Attention: |
|
Timothy R. Baer, Executive Vice-President, General Counsel, Sean D. Kelly, Senior Group Counsel, and |
|
|
Alexander G. Tselos, Senior Counsel, Real Estate |
Telephone: |
|
(612) 696-6908 |
Facsimile: |
|
(612) 696-6909 |
with a copy (which shall not constitute notice) to:
Osler, Hoskin & Harcourt LLP
Box 50, Suite 6100
1 First Canadian Place
Toronto, Ontario M5X 1B8
Attention: |
|
Terry Burgoyne and Heather McKean |
Telephone: |
|
(416) 362-2111 |
Facsimile: |
|
(416) 862-6666 |
with a further copy (which shall not constitute notice) to:
Faegre & Benson LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Michael A. Stanchfield and John R. Wheaton
Telephone: (612) 766-7000
Facsimile: (612) 766-1600
A Notice is deemed to be given and received (i) if sent by personal delivery or same-day courier, on the date of delivery if it is a Business Day and the delivery was made prior to 4:00 p.m. (local time in place of receipt) and otherwise on the next Business Day, (ii) if sent by overnight courier, on the next Business Day, or (iii) if sent by facsimile, on the Business Day following the date of confirmation of transmission by the originating facsimile. A Party may change its address for service from time to time by providing a Notice in accordance with the foregoing. Any subsequent Notice must be sent to the Party at its changed address. Any element of a Partys address that is not specifically changed in a Notice will be assumed not to be changed.
Section 13.2 Time of the Essence.
Time is of the essence in this Agreement.
Section 13.3 Brokers.
Zellers shall indemnify and save harmless Target Canada and Target from and against any and all Damages and Third Party Claims whatsoever for any fee, commission or other remuneration payable or alleged to be payable to any broker, agent or other intermediary who purports to act or have acted for Zellers or any of its Affiliates. Target Canada shall indemnify and save harmless Zellers and HBC from and against any and all Damages and Third Party Claims whatsoever for any fee, commission or other remuneration payable or alleged to be payable to any broker, agent or other intermediary who purports to act or have acted for Target Canada or any of its Affiliates. These indemnities are not subject to any of the limitations set out in Article 11.
Section 13.4 Announcements.
No press release, public statement or announcement or other public disclosure with respect to this Agreement or the transactions contemplated in this Agreement may be made except with the prior written consent and approval of Target, or except if required by Law or a Governmental Entity. Where the public disclosure is required by Law or a Governmental Entity, the Party required to make the public disclosure (if not Target) will use its commercially reasonable efforts to obtain the approval of Target as to the form, nature and extent of the disclosure. The initial announcements of the transactions contemplated by this Agreement will be made in the form of attached as Section 13.4 of the Disclosure Letter.
Section 13.5 Third Party Beneficiaries.
Except as provided in Section 7.7, Zellers, HBC, Target and Target Canada intend that this Agreement will not benefit or create any right or cause of action directly in favour of any Person, other than the Parties; provided however, that the foregoing shall not limit or prohibit (i) Target or Target Canada from pursuing any and all claims, damages, remedies and rights provided hereunder on behalf of itself or for the benefit of any Designee or other assignee of Target Canada or (ii) any Designee from directly pursuing any rights under any Ancillary Agreements to which such Designee is a party. Except for the Indemnified Parties, no Person, other than the Parties, shall be entitled to directly rely on the provisions of this Agreement in any action, suit, proceeding, hearing or other forum. To the extent required by law to give full effect to these direct rights, Target Canada agrees and acknowledges that it is acting as agent and/or as trustee of its Indemnified Parties. The Parties reserve their right, subject to unanimous agreement among the Parties, to vary or rescind the rights, granted by or under this Agreement to any Person who is not a Party, at any time and in any way whatsoever, without notice to or consent of that Person, including any Indemnified Party.
Section 13.6 Expenses.
Except as otherwise expressly provided in this Agreement, each Party will pay for its own costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement. The fees and expenses referred to in this Section are those which are incurred in connection with the negotiation, preparation, execution and performance of this Agreement and the Ancillary Agreements, and the transactions contemplated by this Agreement and the Ancillary Agreements, including the fees and expenses of legal counsel, investment advisers and accountants.
Section 13.7 Amendments.
This Agreement may only be amended, supplemented or otherwise modified by written agreement signed by Zellers and Target.
Section 13.8 Waiver.
No waiver of any of the provisions of this Agreement will constitute a waiver of any other provision (whether or not similar). No waiver will be binding unless executed in writing by the Party to be bound by the waiver. A Partys failure or delay in exercising any right under this Agreement will not operate as a waiver of that right. A single or partial exercise of any right will
not preclude a Party from any other or further exercise of that right or the exercise of any other right.
Section 13.9 Non-Merger.
Except as otherwise expressly provided in this Agreement, the covenants, representations and warranties shall not merge on and shall survive each of the relevant Closing Dates.
Section 13.10 Subdivision Laws.
This Agreement shall only be effective to create an interest in the Subject Leased Properties if the subdivision control provisions of the Planning Act (Ontario) and similar Laws governing the subdivision or severance of real property in other provinces are complied with on or before the relevant Closing Date in respect of such Subject Leased Properties. If necessary at any time and from time to time, Zellers shall forthwith apply for and use reasonable commercial efforts to obtain all necessary consents under such Laws as required in order to carry out the transactions contemplated by this Agreement in respect of the Subject Leased Properties including, without limitation:
(i) any necessary consents that were or are required in respect of any Subject Lease and any transfer occurring prior to the Execution Date; and
(ii) any necessary consents that were or are required to allow Target Canada to obtain the benefit of the full term (including renewal rights) in excess of any reduced term that is deemed to be incorporated in the Subject Lease in the event a required consent was not obtained;
on or before the relevant Closing, and comply with any and all conditions imposed in respect of such consent, at its sole cost and expense. Nothing in this Section 13.10, including non-compliance with the Planning Act (Ontario) and similar Laws governing subdivision or severance of real property in other provinces, will in any way affect Target Canadas obligation to complete the transactions contemplated by this Agreement, including paying the entire Purchase Price as contemplated by Section 3.1 without deduction or abatement of any kind; provided, however, that if such a consent will not reasonably be obtained by the relevant Closing Date, Target or Target Canada may take such interest, subject to such consent being obtained by Target or Target Canada at its expense following the relevant Closing Date or select another Subject Lease by notice given to Zellers.
Section 13.11 Entire Agreement.
This Agreement, together with Ancillary Agreements, constitutes the entire agreement between the Parties with respect to the transactions contemplated by this Agreement and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties. There are no representations, warranties, covenants, conditions or other agreements, express or implied, collateral, statutory or otherwise, between the Parties in connection with the subject matter of this Agreement, except as specifically set forth in this Agreement or the Ancillary Agreements. The Parties have not relied and are not relying on any other information, discussion or understanding in entering into and completing the transactions contemplated by this Agreement.
Section 13.12 Successors and Assigns.
(1) This Agreement becomes effective only when executed by Zellers, HBC and Target. After that time, it is binding on and enures to the benefit of Zellers, HBC and Target, and Target Canada upon compliance with Section 1.12, and their respective successors and permitted assigns.
(2) Other than as contemplated in Section 13.12 and Section 2.7, neither this Agreement nor any of the rights or obligations under this Agreement are assignable or transferable by any Party without the prior written consent of the other Parties.
Section 13.13 Severability.
If, in any jurisdiction, any provision of this Agreement or its application to any Party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions of this Agreement and without affecting the validity or enforceability of such provision in any other jurisdiction or without affecting its application to other Parties or circumstances.
Section 13.14 Governing Law.
(1) This Agreement is governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.
(2) Each Party irrevocably attorns and submits to the exclusive jurisdiction of the Ontario courts situated in the City of Toronto and waives objection to the venue of any proceeding in such court or that such court provides an inconvenient forum.
Section 13.15 Counterparts.
This Agreement may be executed in any number of counterparts (including counterparts by facsimile) and all such counterparts taken together shall be deemed to constitute one and the same instrument.
[Remainder of page intentionally left blank. Signature page follows.]
IN WITNESS WHEREOF the Parties have executed this Transaction Agreement.
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ZELLERS INC. | |
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By: |
/s/ Richard Baker |
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Authorized Signing Officer |
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By: |
/s/ Francis Casale |
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Authorized Signing Officer |
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Dated: |
1/12/2011 |
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HUDSONS BAY COMPANY | |
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By: |
/s/ Richard Baker |
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Authorized Signing Officer |
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By: |
/s/ Francis Casale |
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Authorized Signing Officer |
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Dated: |
1/12/2011 |
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TARGET CORPORATION | |
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By: |
/s/ Gregg Steinhafel |
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Authorized Signing Officer |
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Dated: |
1/12/2011 |
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TARGET CANADA CO. | |
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By: |
/s/ John Griffith |
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Authorized Signing Officer |
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Dated: |
1/12/2011 |
EXHIBIT (10)N
AGREEMENT
THIS AGREEMENT is made by and between Target Corporation, a Minnesota corporation and Target Enterprise, Inc., a subsidiary of Target Corporation (Enterprise) (Target Corporation and Enterprise collectively referred to as the Company), and Troy Risch (Executive).
RECITALS
A. Executive is employed by Enterprise; and
B. Enterprise and Executive wish to sever their relationship as employer and employee respectively, on the terms and conditions set forth in this Agreement; and
C. Target Corporation maintains an Income Continuance Policy (the ICP) for which Executive is eligible, the terms and provisions of which Executive has been subject to and is familiar with; and
D. The Company delivered Notice of Termination to Executive on January 3, 2011; and
E. The ICP requires a release in writing from Executive; and
F. Executive acknowledges he has been advised and encouraged to review this Agreement with an attorney and is fully aware of the potential rights and remedies he may have as a result of the severance of his employment; and
G. Executive and the Company wish to memorialize the resolution and settlement of all Executives rights, remedies and obligations flowing from Executives employment with Enterprise and the severance and termination of that employment relationship.
H. Capitalized terms used, but not defined, in this Agreement shall have the definitions ascribed to them in the ICP.
1. Employment Severance Date. Executives last active day at work on the Companys premises will be January 7, 2011 (the Last Day Worked) and the employer-employee relationship of Executive and Enterprise shall be terminated on January 15, 2011 (the Employment Severance Date). From the Last Day Worked through the Employment Severance Date, Executive shall perform the duties assigned to him by Enterprise, including availability for telephone consultation.
2. Salary. Executive shall be paid his regular salary for services rendered as an employee under Section 1 hereof through the Last Day Worked. Enterprise agrees that Executives regular salary will continue through the Employment Severance Date. Salary payments are subject to all required and voluntary withholdings. Such payments will otherwise be made in accordance with the standard payroll practices of Enterprise as in effect at the time of payment.
3. Income Continuance Payments. Executive shall be entitled to the equivalent of twenty-four (24) months of income continuance payments pursuant to and subject to the terms and conditions of the ICP payable as follows: (i) a payment on July 22, 2011 in the gross amount of $715,416 representing twelve (12) suspended bi-weekly payments and one (1) regularly scheduled bi-weekly payment and (ii) thirty-nine (39) consecutive equal bi-weekly (or such other interval as is consistent with payments under the Companys payroll system) payments each in the gross amount of $55,032 beginning on or about August 5, 2011. This amount is based on a three-year average annual bonus amount of $705,807 and a base salary of $725,000. The payments shall be reduced for taxes and other amounts required to be withheld by the Company. No payments shall be made if Executive revokes this Agreement.
4. Vacation Pay. Enterprise shall pay to Executive any unused vacation due Executive as of the Employment Severance Date consistent with Enterprise practice.
5. Health Insurance. Executive may continue to participate in the Companys medical and dental programs to the extent, if any, permitted by the Companys medical and dental plans (the Plans). In order to continue such coverage, Executive must maintain continuous coverage under the Plans and pay 102% of the full cost of such Plans. Executive acknowledges that the Company may modify its premium structure, the terms of the Plans and the coverages of the Plans, including the termination of all or part of any Plan. All insurance coverage shall terminate 18 months from the end of active employment coverage or at such other date pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA).
6. Life Insurance. Executive may continue his life insurance coverage, if any, after the Employment Severance Date pursuant to the terms and conditions of the Companys plan. In order to continue such coverage, Executive must make all payments required under the policy.
7. Pension Plan 401(k) Plan. Executives rights, if any, under the Target Corporation Pension Plan and the Target Corporation 401(k) Plan will be determined under the terms of such plans as amended from time to time.
8. Deferred Compensation Plan. Executive shall be paid his deferred benefits, if any, under the Target Corporation Officer EDCP pursuant to the terms of such plan as amended from time to time.
9. Supplemental Pension Plan. Executives vested benefits, if any, under any Target Corporation SPP have been or will be transferred to the Target Corporation Officer EDCP and will be determined and paid out pursuant to such terms as amended from time to time.
10. Stock Plans. Executives rights, if any, under the Target Corporation Long-Term Incentive Plan (the LTIP) will be determined under the terms of such plan and the applicable award agreements. Executive acknowledges that Executive must exercise all options that are exercisable on the Employment Severance Date within two hundred ten (210) days after such date or the options will expire. No further installments will vest after the Employment Severance Date.
Executives 2009 and 2010 Restricted Stock Units awards will be paid to him at 50% of the award pursuant to the terms of the Restricted Stock Units Agreement, net of applicable tax withholdings, provided Executive signs and does not revoke this Agreement.
Executive will not be eligible for the 2008, 2009 and 2010 Performance Share award payouts, if any.
11. Other Benefits. The Company will pay up to $30,000 for reasonable outplacement services directly related to Executives termination through January 15, 2012 provided Executive signs and does not revoke this Agreement. Such outplacement fees shall be paid by the Company directly to the mutually agreed upon outplacement firm engaged by Executive after submission of its invoices to Company. Executive shall provide the Company with the name of the outplacement firm he desires to engage for approval by the Company. Such approval shall not be unreasonably withheld. Executive acknowledges that he will not receive a bonus payment pursuant to the Short-Term Incentive Plan (STIP) for fiscal year 2010 performance. Provided Executive signs and does not revoke this Agreement and subject to compliance with the terms of this Agreement, the Company will pay Executive one million dollars ($1,000,000) in addition to payments under Section 3 of this Agreement. Payment will be made as follows: a payment of $150,000 on June 10, 2011, a payment of $200,000 on October 28, 2011, a payment of $200,000 on March 16, 2012, a payment of $150,000 on August 3, 2012
and a payment of $300,000 on January 18, 2013. Each of the foregoing payments will be treated as a separate payment for purposes of Internal Revenue Code Section 409A. Applicable taxes as reasonably determined by the Company shall be withheld from such payments.] Except as set forth in this Agreement or as required by law, Executive is entitled to no other employee benefits, fringe benefits or compensation.
12. No Recruiting. Executive agrees that while he is an employee of Enterprise and through January 15, 2013 he will not recruit, solicit or entice, directly or indirectly, for employment, any employee of the Company or any of their subsidiaries or affiliated companies, unless Executive has a written agreement signed by authorized persons of Target Corporation and Enterprise allowing Executive to recruit persons named in that agreement. The execution of that agreement shall be in the sole discretion of authorized persons of Target Corporation and Enterprise.
13. Consultation and Cooperation. Following the Employment Severance Date, the Company may request that Executive consult or cooperate with the Company (including, without limitation, providing truthful information to the Company or serving as a witness or testifying at the Companys request without subpoena), and Executive agrees to be available at mutually agreeable times to perform such duties and provide such cooperation in connection with various business and legal matters in which Executive was involved or has knowledge as result of Executives employment with the Company. In so consulting or cooperating, Executive shall be reimbursed his reasonable out-of-pocket expenses. After the Employment Severance Date Executive shall not be, nor represent to anyone that he is, an agent of the Company, unless expressly authorized in writing to do so by an authorized officer of the Company.
14. Directly Competitive Employment. For purposes of Section II.G of the ICP and Section 18 of this Agreement, Directly Competitive Employment shall be employment with
Wal-Mart Stores, Inc.; Best Buy Co., Inc.; Kohls Corporation; Toys R Us, Inc.; or CVS Caremark Corporation; or any parent, subsidiary, division or affiliate of any such company (examples of affiliates include entities under common control, joint venture partners and e-commerce affiliates). Executive will promptly report to the Company Executives acceptance of or engagement in any Directly Competitive Employment and provide such other information about any Directly Competitive Employment as may be requested by the Company. Such information shall be provided to the Corporate Secretary, Target Corporation, 1000 Nicollet Mall, TPS 2670, Minneapolis, Minnesota 55403.
15. Confidentiality. Executive understands and agrees that Executive will keep confidential any information regarding the negotiations or discussions relating to this Agreement, except that Executive may disclose such information to Executives spouse or domestic partner, attorney, financial advisor or tax advisor (all of whom must agree to keep it confidential) or unless required by law. Executive is encouraged to share with an employer or potential employer Section 12 and Section 15 of this Agreement.
Executive represents and warrants that prior to signing this Agreement, Executive has not disclosed the terms and conditions of this Agreement (except for those terms and conditions disclosed by the Company) or any information regarding the negotiations or discussions relating to this Agreement to anyone other than Executives spouse or domestic partner, attorney, financial advisor or tax advisor (all of whom have agreed to keep such information confidential).
Executive acknowledges and agrees that confidential information of the Company and any of their subsidiaries and affiliates is a valuable, special and unique asset and such confidential information includes without limitation:
1) employee data and information (including, but not limited to, personnel decisions relating to employees and applicants), and
2) present, past and future strategies, plans, and proposals (including, but not limited to, customer, marketing, merchandising, sourcing, store operations, technology, assets protection, distribution, benefits and compensation strategies, plans and proposals), and
3) financial information, and
4) present, past and future personnel and labor relations strategies, plans, practices, policies, training programs and goals.
as well as any information treated as confidential (Confidential Information).
Executive will not, during or after Executives employment with Enterprise, use or disclose or cause or permit to be used or disclosed any Confidential Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever.
16. Company Property. Executive agrees to return all of the Companys property, including any copies or duplicates, in Executives possession on or before the Employment Severance Date. In addition, as of the Employment Severance Date, Executive represents and warrants that Executive has not removed and agrees that Executive will not remove any of the Companys property, including any copies or duplicates, from the Companys premises. This includes but is not limited to the Companys credit or charge cards; discount cards; cellular phones or other mobile devices; pagers; personal computers; identification badges; keys; business records, reports, policies, files, forms, manuals and correspondence; customer lists and records; personnel lists, information, plans, training materials and records; information regarding suppliers and vendors; marketing plans; strategy information; contracts and contract information; computer tapes and reports; and any type of computer or digital storage media.
17. Detrimental Conduct. Executive agrees that he will not make any untrue statements about the Company or any of their subsidiaries or affiliated companies or any of their management regarding any events taking place during the employment period. Executive will not disparage in any way the Company or any of their subsidiaries or affiliated companies, or any of their officers, managers or employees.
18. Termination of Payments and Benefits. In addition to any other remedies available to the Company, in the event Executive (a) engages in Directly Competitive Employment while Executive has the right to receive payments pursuant to Section 3 or Section 11 or exercise stock options under the LTIP, or (b) breaches any of Executives obligations under the ICP or this Agreement, then (i) the Company will be relieved of all liability and obligations to make payments under this Agreement (including payments under both Section 3 and Section 11), (ii) all of Executives stock options shall terminate immediately and (iii) the Company may demand the return of any payments previously paid to Executive under Section 3 and Section 11. Even if payments and benefits are terminated pursuant to this Section 18, Executives obligations under Sections 12, 13, 15, 16 and 17 hereof, and the release set forth in Section 19 hereof shall remain in full force and effect.
19. Release.
A. DEFINITIONS. The definitions below are intended solely for the purpose of this Section 19. All words used in this release are intended to have their plain meanings in ordinary English. Specific terms in this release have the following meanings:
1) Executive includes Executive and anyone who has or obtains any legal rights or claims through Executive.
2) Target means Target Corporation and any company related to Target Corporation in the present or past (including without limitation, its predecessors, parents, subsidiaries, affiliates and divisions) and any successor of Target.
3) Corporation means Target and any company providing insurance to Target in the present or past, any employee benefit plan sponsored or maintained by Target and the present and past fiduciaries of any such plans, Targets present and past officers, directors, employees, committees and agents and any person who acted on behalf of Target or on instructions from Target.
4) Executive Claims means all of the rights Executive has now to any relief of any kind from the Corporation, including without limitation:
a. all claims arising out of or relating to Executives employment with Target and Executives employment termination; and
b. all claims arising out of or relating to statements, actions, or omissions of the Corporation; and
c. all claims for any alleged unlawful discrimination, harassment, retaliation or reprisal, or other alleged unlawful practices arising under the laws of the United States or any other country or of any state, province, municipality, or other unit of government including without limitation, claims under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, 42 U.S.C § 1981, the Employee Retirement Income Security Act, the Equal Pay Act, the Worker Adjustment and Retraining Notification Act, the Family and Medical Leave
Act, the Fair Credit Reporting Act, the Sarbanes-Oxley Act, and workers compensation non-interference or non-retaliation statutes; and
d. all claims for alleged wrongful discharge; breach of contract; breach of implied contract; failure to keep any promise; breach of a covenant of good faith and fair dealing; breach of fiduciary duty; estoppel; Executives activities, if any, as a whistleblower; defamation; infliction of emotional distress; fraud; misrepresentation; negligence; harassment; retaliation or reprisal; constructive discharge; assault; battery; false imprisonment; invasion of privacy; interference with contractual or business relationships; any other wrongful employment practices; and violation of any other principle of common law; and
e. all claims for compensation of any kind, including without limitation, bonuses, commissions, vacation pay, perquisites, and expense reimbursements; and
f. all claims for back pay, front pay, reinstatement, other equitable relief, compensatory damages, damages for alleged personal injury, liquidated damages, and punitive damages; and
g. all claims for attorneys fees, costs, and interest.
However, Executive Claims do not include any claims that the law does not allow to be waived or any claims that may arise after the date on which Executive signs this Agreement.
B. AGREEMENT TO RELEASE EXECUTIVE CLAIMS. Executive will receive consideration from Target as set forth in this Agreement if he signs and does not revoke this Agreement as provided in Section 25 below. Executive understands and acknowledges that the consideration is in addition to anything of value that Executive would be entitled to receive from the Corporation if Executive did not sign this Agreement or if Executive revoked this Agreement. In exchange for that consideration, Executive gives up and releases all of Executive Claims. Executive will not make any demands or claims against the Corporation for compensation or damages relating to Executive Claims. This provision shall not preclude Executive from filing a charge of discrimination with the Equal Employment Opportunity Commission. However, Executive hereby agrees that he releases any right to compensation arising out of such a charge, agrees not to seek any compensation in such a charge, and specifically agrees to return any compensation that he receives in connection with such a charge to Target. The consideration that Executive is receiving is a full and fair payment for the release of Executive Claims.
C. ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. Even though Target will provide consideration for Executive to settle and release Executive Claims, the Corporation does not admit that it is responsible or legally obligated to Executive. In fact, the Corporation denies that it engaged in any unlawful or improper conduct toward Executive and denies that it has engaged in any wrongdoing.
20. Miscellaneous. This Agreement shall be binding upon the Company and its successors and assigns and Executive, his heirs, executors, successors and assigns. This
Agreement, together with the plans and award agreements specifically referred to herein, embody the entire agreement and understanding between the Company and Executive, and supersedes all prior agreements and understandings (oral or written) between them relating to the subject matter hereof. The terms of this Agreement may only be modified by an agreement in writing signed by Executive and authorized persons of Target Corporation and Enterprise.
21. Construction and Applicable Law. The ICP and its implementation pursuant to this Agreement is intended to be a welfare benefit plan subject to the applicable requirements of ERISA. The ICP and this Agreement shall be administered and construed consistently with that intent and with the applicable provisions of the Internal Revenue Code. The laws of the State of Minnesota, without regard to Minnesotas choice-of-law principles, govern all matters arising out of or related to this Agreement to the extent such laws are not preempted by laws of the United States of America. The parties agree that the exclusive forum and venue for any legal action arising out of or related to this Agreement shall be the United States District Court for the District of Minnesota, and the parties submit to the personal jurisdiction of that court. If neither subject matter nor diversity jurisdiction exists in the United States District Court for the District of Minnesota, then the exclusive forum and venue for any such action shall be the courts of the State of Minnesota located in Hennepin County, and the parties submit to the personal jurisdiction of that court.
22. Severability. If any provision of this Agreement is held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not be affected or impaired, unless enforcement of this Agreement as so invalidated would be unreasonable or grossly inequitable under all the circumstances or would frustrate the purposes of this Agreement.
23. Relationship to Income Continuance Plan. This Agreement is entered into for the purpose of implementing the ICP. The terms of this Agreement are intended to be construed in
concert with the terms of the ICP. To the extent there is conflict between the terms of this Agreement and the terms of the ICP, the terms of this Agreement shall prevail.
24. Acceptance Period. Executive understands that the terms of this Agreement shall be open for acceptance for a period of twenty-one (21) days from the date of its receipt and a signed copy of this Agreement must be delivered to the Company within twenty-five (25) days of receipt of this Agreement. During this time, Executive may consider whether or not to accept this Agreement or seek counsel to advise him regarding the same. Executive agrees that changes to this Agreement, whether material or immaterial, will not restart this acceptance period.
25. Revocation. Executive understands that he may revoke (that is cancel) this Agreement, including the release set forth in Section 19, if he does so within fifteen (15) calendar days of signing this Agreement. Such revocation must be made in a written statement that is hand delivered or post marked within fifteen (15) calendar days of the date Executive signs this Agreement and must be addressed to the Corporate Secretary, Target Corporation, 1000 Nicollet Mall, TPS 2670, Minneapolis, Minnesota 55403. Executive understands that if he mails such a revocation, mailing by certified mail, return receipt requested, is recommended to show proof of mailing.
26. Remedies. In the event of a breach or threatened breach by Executive of the provisions of Sections 12, 13, 15, 16 or 17 of this Agreement, the Company shall be entitled to an injunction restraining Executive from breaching, in whole or in part, any of his duties, obligations, or covenants in those sections. Executive acknowledges that such remedy is appropriate. Nothing in this Agreement shall be construed as prohibiting the Company from pursuing any additional or other remedy or remedies available to it for such breach or threatened breach, including but not limited to the other remedies specifically provided for in this Agreement and the recovery of damages, together with costs and attorneys fees.
27. Reporting. Until all payments are made pursuant to this Agreement, Executive shall promptly inform the Company of the name and business address of each employer of Executive and shall provide a summary description of the nature and principal business locations of the employer. Executive shall also provide the title, principal duties, address and phone number of Executive. Significant changes in employment, duties or location must be promptly reported. Such reports shall be provided to the Executive Vice President, Human Resources, Target Corporation, 1000 Nicollet Mall, TPS 0999, Minneapolis, Minnesota 55403.
Please read carefully before signing
· Executive acknowledges that the Company is hereby advising and encouraging Executive to consult with an attorney prior to signing this Agreement.
· By signing this Agreement, Executive acknowledges that he has not relied on any statements or explanations made by the Company, its agents or its attorneys.
· Executive acknowledges that he has been given twenty-one (21) days (or more) to consider whether to sign this Agreement. Executive acknowledges that if he signs this Agreement before the end of the twenty-one (21) day period, it was Executives personal voluntary decision to do so.
· Executive understands that this Agreement shall not become effective or enforceable until the revocation period has expired. No payment shall be made to Executive until after the revocation period has expired.
· Executive understands that if he revokes this Agreement it will terminate and Executive will not receive any benefits under this Agreement, including the income continuance payments set forth in Section 3, the payments set forth in Section 11, and the Restricted Stock Units awards payouts set forth in Section 10.
In signing below, each party agrees to the terms and conditions above.
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TARGET CORPORATION |
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2/1, 2011 |
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By: |
/s/ Jodeen Kozlak |
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Title: |
EVP HR |
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TARGET ENTERPRISE, INC. |
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Date: |
2/1, 2011 |
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By: |
/s/ Jodeen Kozlak |
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Title: |
EVP HR |
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Date: |
1/26, 2011 |
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/s/ Troy Risch |
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Troy Risch |
EXHIBIT (10)U
TARGET CREDIT CARD OWNER TRUST 2008-1
THIS AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT, dated as of November 10, 2009 (this Amendment), is entered into by and among Target Receivables Corporation, a Minnesota corporation (TRC), Target Corporation, a Minnesota corporation (Target), BOTAC, Inc., a Nevada corporation, as note purchaser (in such capacity, the Note Purchaser) and Chase Bank USA, National Association (Chase USA), a national banking association.
W I T N E S S E T H:
WHEREAS, TRC, Target, the Note Purchaser and Chase USA entered into that certain Note Purchase Agreement, dated as of May 5, 2008 (the Agreement);
WHEREAS, pursuant to Section 15 of the Agreement, the parties hereto desire to amend the Agreement to modify the provisions of Section 17 thereof.
NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
AMENDMENTS
Section 1.1 Subsection 17(d). A new subsection 17(d) shall be added and shall read as follows:
(d) Transferor Note Repurchase.
(i) The parties agree that a Transferor Note Repurchase shall be effectuated by the execution of a repurchase agreement; provided, that, notwithstanding any other provision to the contrary in the Basic Documents, including Section 2.7 of the Indenture, TRC may purchase a portion of the Note Principal Balance without the issuance of a new Note and the cancellation of the Note acquired by TRC in connection with a Transferor Note Repurchase. The Note Principal Balance, the Invested Amount and the Collateral Certificate principal balance shall each be reduced by the same amount as if the Note had been delivered for cancellation and cancelled in accordance with Section 2.7 of the Indenture and Section 7.3 of the Series Supplement. Such repurchase agreement shall be substantially in the form of Exhibit E attached hereto.
(ii) On the date of a Transferor Note Repurchase, TRC shall deliver a copy of the executed Repurchase Agreement to the Indenture Trustee, which shall reflect the outstanding Note Principal Balance, the Invested Amount and the Collateral Certificate principal balance as of the date of (and after giving effect to) the Transferor Note Repurchase.
(iii) The parties agree and confirm that the Note Principal Balance, Invested Amount and the Collateral Certificate principal balance shown in the Repurchase Agreement shall reflect the outstanding Note Principal Balance, Invested Amount and the Collateral Certificate principal balance as of the date of (and after giving effect to) the Transferor Note Repurchase notwithstanding any amount shown on the face of the Note or the Collateral Certificate.
ARTICLE II
MISCELLANEOUS
Section 2.1 Defined Terms. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the Agreement.
Section 2.2 Agreement in Full Force and Effect as Amended. Except as specifically amended hereby, all of the terms and conditions of the Agreement shall remain in full force and effect. This Amendment shall not constitute a novation of the Agreement, but shall constitute an amendment thereof.
Section 2.3 Severability. If any one or more of the covenants, agreements, provisions or terms or portions thereof of this Amendment shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms or portions thereof shall be deemed severable from the remaining covenants, agreements, provisions or terms or portions of this Amendment and shall in no way affect the validity or enforceability of the other covenants, agreements, provisions or terms or portions of this Amendment.
Section 2.4 Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.
SECTION 2.5 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
THE PARTIES HERETO HEREBY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN ANY SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
[REMAINDER OF THE PAGE BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the day and year first above written.
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TARGET RECEIVABLES CORPORATION | |
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/s/ Sara J. Ross |
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Name: Sara J. Ross |
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Title: VP and Assistant Treasurer |
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TARGET CORPORATION | |
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By: |
/s/ Corey L. Haaland |
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Name: Corey L. Haaland |
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Title: VP, Treasurer |
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BOTAC, INC. |
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/s/ David A. Penkrot |
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Name: David A. Penkrot |
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Title: Senior Vice President |
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CHASE BANK USA, NATIONAL ASSOCIATION |
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/s/ Keith Schuck |
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Name: Keith Schuck |
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Title: President |
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Amendment No. 1 to Note Purchase Agreement
As acknowledged and agreed to by:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee and Indenture Trustee
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/s/ Kristen L. Puttin |
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Name: Kristen L. Puttin |
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Title: Vice President |
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Amendment No. 1 to Note Purchase Agreement
Exhibit E
REPURCHASE AGREEMENT
THIS REPURCHASE AGREEMENT, dated as of , 20 , is entered into by and between Target Receivables Corporation, a Minnesota corporation (TRC) and BOTAC, Inc., a Nevada corporation (the Note Reseller).
Pursuant to subsection 17(a) of the Note Purchase Agreement, dated as of May 5, 2008, as amended by Amendment No. 1 thereto, dated as of November 10, 2009, by and among TRC, Target Corporation, the Note Reseller, as note purchaser, and Chase Bank USA, National Association (as amended, the Note Purchase Agreement), TRC agreed to purchase a portion of the Note Principal Balance equal to the lesser of the Transferor Note Repurchase and the Available Series 2008-1 Principal Collections for the related Monthly Period. As of the 20 Determination Date, the Cap Test Percentage will have been equal to or greater than the Cap Trigger for the three (3) immediately preceding Monthly Periods. The Cap Test Percentage as of the 20 Determination Date is % and based upon this Cap Test Percentage the amount of the Transferor Note Repurchase is $ . The Available Series 2008-1 Principal Collections for the related Monthly Period is $ . Capitalized terms used but not defined herein shall have the meaning ascribed thereto in the Note Purchase Agreement.
On the basis of the representations, warranties and agreements in the Note Purchase Agreement, but subject to the terms and conditions therein set forth, the Note Reseller agrees to resell to TRC, and TRC agrees to repurchase from the Note Reseller, a portion of the Note Principal Balance equal to [the Transferor Note Repurchase]/[$ ]. The purchase price for this portion of the Note Principal Balance being purchased shall be the Accreted Note Value, which is $ .
Payment of the purchase price shall be made by TRC in Federal (same day) funds by wire transfer to an account previously designated to TRC by the Note Reseller by 2:00 p.m. (New York time), on , 20 .
Following the payment, the Note Principal Balance shall be $ , the Invested Amount shall be $ and the Collateral Certificate principal balance shall be $ . Pursuant to subsection 17(d) of the Note Purchase Agreement, the parties have agreed that any cancellation or reissuance of the Note is not required.
THIS REPURCHASE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
This Repurchase Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument.
For the avoidance of doubt, and not in limitation of the repurchase made herein, nothing in this Repurchase Agreement shall be deemed to supersede, enlarge, modify or waive any of the provisions of the Note Purchase Agreement, all of which shall survive the execution and delivery of this Repurchase Agreement as provided in, and subject to the limitations set forth in, the Note Purchase Agreement.
[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Repurchase Agreement to be duly executed by their respective officers as of the day and year first above written.
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BOTAC, INC. |
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Exhibit E
As acknowledged and agreed to by:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee and Indenture Trustee
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EXHIBIT (10)V
AMENDMENT NO. 2, dated as of January 31, 2011 (this Amendment), by and among TARGET RECEIVABLES LLC (formerly known as TARGET RECEIVABLES CORPORATION), a Minnesota limited liability company, TARGET CORPORATION, a Minnesota corporation, JPMN II Inc. (formerly known as BOTAC, Inc.), a Nevada corporation, as Note Purchaser and CHASE BANK USA, NATIONAL ASSOCIATION, a national banking association, to the NOTE PURCHASE AGREEMENT, dated as of May 5, 2008, as amended by Amendment No. 1 thereto, dated as of November 10, 2009 (the Note Purchase Agreement), by and among Target Receivables LLC, Target Corporation, the Note Purchaser and Chase Bank USA, National Association.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Target Receivables LLC has duly adopted resolutions (i) approving the change of the name of the Transferor from Target Receivables Corporation to Target Receivables LLC and (ii) approving the conversion of the Transferor from a Minnesota corporation to a Minnesota limited liability company;
WHEREAS, the parties to this Amendment have heretofore executed and delivered Amendment No. 1 to the Note Purchase Agreement, dated as of November 10, 2009;
WHEREAS, the parties to this Amendment desire to amend the Note Purchase Agreement pursuant to Section 15 thereof in order to reflect the conversion of Target Receivables LLC to a limited liability company and make certain modifications to address the transfer of the membership interest in Target Receivables LLC by Target Capital Corporation, a Minnesota corporation, to TCC Corporation SARL, a société à responsabilité limitée existing and organized under the laws of the Grand Duchy of Luxembourg;
WHEREAS, Section 15 of the Note Purchase Agreement provides that no amendment of any provision of the Note Purchase Agreement shall in any event be effective unless (i) such amendment be in writing and signed by the parties thereto and (ii) for so long as there is an Outstanding Series or Class that is rated by a Rating Agency, such Rating Agency shall be provided notice of any amendment of any provision of the Note Purchase Agreement; and
WHEREAS, the conditions precedent to the execution of this Amendment have been complied with.
NOW, THEREFORE, the parties hereto hereby are executing and delivering this Amendment in order to modify the Note Purchase Agreement in the manner set forth below.
Capitalized terms used but not defined herein shall have the meanings assigned to them in the Note Purchase Agreement.
ARTICLE I
Section 1.1 Replacement of Terms. All occurrences of the terms TRC, Target Receivables Corporation and Target Receivables Corporation, a Minnesota corporation in the Note Purchase Agreement shall be replaced with the terms TRLLC, Target Receivables LLC and Target Receivables LLC, a Minnesota limited liability company, respectively. All such replacements shall be applicable for the singular, plural and possessive forms of the respective terms thereof.
ARTICLE II
Section 2.1 Amendment to Section 2(a). With respect to issuances of Additional Notes after the Effective Date, Section 2(a) of the Note Purchase Agreement is hereby replaced in its entirety by the following:
(a) TRLLC has been duly formed and is an existing limited liability company in good standing, Target has been duly incorporated and is an existing corporation in good standing, both under the laws of the State of Minnesota with power and authority (corporate or limited liability, as applicable, and other) to own its properties and conduct its business; and each of TRLLC and Target is duly qualified to do business as a foreign limited liability company or as a foreign corporation, as applicable, in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification and where the failure to so qualify would have a material adverse effect on the Trusts, the Transferors or the Servicers, as applicable, ability to perform its obligations under the Basic Documents to which each is a party.
Section 2.2 Amendment to Section 2(c). With respect to issuances of Additional Notes after the Effective Date, Section 2(c) of the Note Purchase Agreement is hereby replaced in its entirety by the following:
(c) TRLLC is not in violation of its Articles of Organization or Operating Agreement. Target is not in violation of its Articles of Incorporation or Bylaws. Neither TRLLC nor Target is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any agreement or instrument to which it is a party or by which it or its properties are bound which would have a material adverse effect on the transactions contemplated in the Basic Documents. The execution, delivery and performance of the Basic Documents and the issuance and sale of the Note and compliance with the terms and provisions thereof will not result in a material breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule,
regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over TRLLC or Target or any of Targets subsidiaries or any of their properties, or any material agreement or instrument to which TRLLC or Target or any of Targets subsidiaries is a party or by which TRLLC or Target or any of Targets subsidiaries is bound or to which any of the properties of TRLLC or Target or any of Targets subsidiaries is subject, or the Articles of Organization or Operating Agreement of TRLLC or the Articles of Incorporation or Bylaws of Target or any of Targets subsidiaries; TRLLC has full power and authority to authorize, issue and transfer the Collateral Certificate as contemplated by the Deposit and Administration Agreement and sell the Note as contemplated by this Note Purchase Agreement; and each of TRLLC and Target has full power and authority to enter into the Basic Documents to which it is a party.
ARTICLE III
Section 3.1 Counterparts. This Amendment may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument.
Section 3.2 Effect of Headings and Table of Contents. The Article and Section headings herein are for convenience only and shall not affect the construction hereof.
Section 3.3 Separability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby.
Section 3.4 Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 3.5 Effective Date. This Amendment shall become effective as of the day and year first above written (the Effective Date).
Section 3.6 Binding Effect; Ratification. (a) On and after the Effective Date, with respect to issuances of Additional Notes, (i) this Amendment shall be a part of the Note Purchase Agreement and (ii) each reference in the Note Purchase Agreement to this Agreement, the Note Purchase Agreement, hereof, hereunder or words of like import, and each reference in any other transaction document to the Note Purchase Agreement, shall mean and be a reference to the Note Purchase Agreement as amended hereby.
(b) Except as expressly modified or amended in this Amendment, all of the terms, covenants, provisions, agreements and conditions of the Note Purchase Agreement are hereby ratified and confirmed in every respect and shall remain unmodified and unchanged and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the day and year first above written.
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TARGET RECEIVABLES LLC | |
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By: |
/s/ Sara J. Ross |
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Name: Sara J. Ross |
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Title: Vice President and Assistant |
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Treasurer |
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TARGET CORPORATION | |
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By: |
/s/ Sara J. Ross |
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Name: Sara J. Ross |
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Title: Assistant Treasurer |
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JPMN II INC. | |
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By: |
/s/ David A. Penkrot |
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Name: David A. Penkrot |
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Title: Senior Vice President |
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CHASE BANK USA, NATIONAL ASSOCIATION | |
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/s/ David Hoyt |
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Name: David Hoyt |
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Title: Senior Finance Director |
Amendment No. 2
to the Note Purchase Agreement
EXHIBIT (10)W
AMENDMENT NO. 1, dated as of January 31, 2011 (this Amendment), by and among TARGET RECEIVABLES LLC (formerly known as TARGET RECEIVABLES CORPORATION), as Transferor (the Transferor), TARGET NATIONAL BANK, a national banking association organized and existing under the laws of the United States, as Servicer (the Servicer), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, as trustee (the Trustee), to the SERIES 2008-1 SUPPLEMENT, dated as of May 19, 2008 (the 2008-1 Supplement), by and among the Transferor, the Servicer and the Trustee, supplementing the Amended and Restated Pooling and Servicing Agreement, dated as of April 28, 2000, as amended (the Pooling and Servicing Agreement), by and among the Transferor, the Servicer and the Trustee.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Transferor has duly adopted resolutions (i) approving the change of the name of the Transferor from Target Receivables Corporation to Target Receivables LLC and (ii) approving the conversion of the Transferor from a Minnesota corporation to a Minnesota limited liability company;
WHEREAS, the Transferor, the Servicer and the Trustee desire to amend the 2008-1 Supplement pursuant to Section 13.1(a) of the Pooling and Servicing Agreement in order to reflect the conversion of the Transferor to a limited liability company and make certain modifications to address the transfer of the membership interest in the Transferor by Target Capital Corporation, a Minnesota corporation, to TCC Corporation SARL, a société à responsabilité limitée existing and organized under the laws of the Grand Duchy of Luxembourg;
WHEREAS, Section 13.1(a) of the Pooling and Servicing Agreement provides that any Supplement may be amended from time to time, under the circumstances set forth therein, including, without limitation, in connection with adding any provision to, changing in any manner or eliminating any of the provisions of any Supplement or modifying in any manner the rights of Certificateholders of any Series then issued and outstanding, provided, in each case, that (x) the Transferor shall have delivered to the Trustee an Officers Certificate to the effect that the Transferor reasonably believes that such action shall not adversely affect in any material respect the interests of any Investor Certificateholder, (y) the Rating Agency Condition shall have been satisfied with respect to any such amendment and (z) a Tax Opinion is delivered in connection with any such amendment;
WHEREAS, pursuant to Section 13.2(d)(i) of the Pooling and Servicing Agreement, an Opinion of Counsel shall have been delivered to the Trustee in connection with the Amendment; and
WHEREAS, the conditions precedent to the execution of this Amendment have been complied with.
NOW, THEREFORE, the parties hereto hereby are executing and delivering this Amendment in order to modify the 2008-1 Supplement in the manner set forth below.
Capitalized terms used but not defined herein shall have the meanings assigned to them in the 2008-1 Supplement the Pooling and Servicing Agreement.
ARTICLE I
Section 1.1 Replacement of Terms. All occurrences of the terms Target Receivables Corporation or Target Receivables Corporation, a corporation organized and existing under the laws of the State of Minnesota in the 2008-1 Supplement shall be replaced with the terms Target Receivables LLC or Target Receivables LLC, a limited liability company organized and existing under the laws of the State of Minnesota, respectively. All such replacements shall be applicable for the singular, plural and possessive forms of the respective terms thereof.
ARTICLE II
Section 2.1 Counterparts. This Amendment may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument.
Section 2.2 Effect of Headings and Table of Contents. The Article and Section headings herein are for convenience only and shall not affect the construction hereof.
Section 2.3 Separability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby.
Section 2.4 Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 2.5 Effective Date. This Amendment shall become effective as of the day and year first above written (the Effective Date).
Section 2.6 Binding Effect; Ratification. (a) On and after the Effective Date, (i) this Amendment shall be a part of the 2008-1 Supplement and (ii) each reference in the 2008-1 Supplement to this Series Supplement, the 2008-1 Supplement, hereof, hereunder or words of like import, and each reference in any other transaction document to the 2008-1 Supplement, shall mean and be a reference to the 2008-1 Supplement as amended hereby.
(b) Except as expressly modified or amended in this Amendment, all of the terms, covenants, provisions, agreements and conditions of the 2008-1 Supplement are hereby ratified and confirmed in every respect and shall remain unmodified and unchanged and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the day and year first above written.
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as Transferor |
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By: |
/s/ Sara J. Ross |
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Name: Sara J. Ross |
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Title: Vice President and Assistant Treasurer |
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TARGET NATIONAL BANK, | |
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as Servicer |
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/s/ Spencer Johnson |
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Name: Spencer Johnson |
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Title: Vice President |
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WELLS FARGO BANK, NATIONAL ASSOCIATION, | |
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as Trustee |
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/s/ Kristen L. Puttin |
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Name: Kristen L. Puttin |
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Title: Vice President |
Amendment No. 1
to the Series 2008-1 Supplement
EXHIBIT (10)X
AMENDMENT NO. 2, dated as of January 31, 2011 (this Amendment), by and among TARGET RECEIVABLES LLC (formerly known as TARGET RECEIVABLES CORPORATION), a Minnesota limited liability company, as Transferor, TARGET NATIONAL BANK (formerly known as RETAILERS NATIONAL BANK), a national banking association, as Servicer, and WELLS FARGO BANK, NATIONAL ASSOCIATION (formerly known as WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION), a national banking association, as Trustee, to the AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT, dated as of April 28, 2000, as amended by Amendment No. 1 thereto, dated as of August 22, 2001 (the Pooling and Servicing Agreement), by and among the Transferor, the Servicer and the Trustee.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Transferor has duly adopted resolutions, (i) approving the change of the name of the Transferor from Target Receivables Corporation to Target Receivables LLC and (ii) approving the conversion of the Transferor from a Minnesota corporation to a Minnesota limited liability company;
WHEREAS, the parties to this Amendment have heretofore executed and delivered Amendment No. 1 to the Pooling and Servicing Agreement, dated as of August 22, 2001;
WHEREAS, the Transferor, the Servicer and the Trustee desire to amend the Pooling and Servicing Agreement pursuant to Section 13.1(a) thereof in order to reflect the conversion of the Transferor to a limited liability company and make certain modifications to address the transfer of the membership interest in the Transferor by Target Capital Corporation, a Minnesota corporation, to TCC Corporation SARL, a société à responsabilité limitée existing and organized under the laws of the Grand Duchy of Luxembourg;
WHEREAS, Section 13.1(a) of the Pooling and Servicing Agreement provides that the Pooling and Servicing Agreement may be amended from time to time, under the circumstances set forth therein, including, without limitation, in connection with adding any provision to, changing in any manner or eliminating any of the provisions of the Pooling and Servicing Agreement or any Supplement or modifying in any manner the rights of Certificateholders of any Series then issued and outstanding, provided, in each case, that (x) the Transferor shall have delivered to the Trustee an Officers Certificate to the effect that the Transferor reasonably believes that such action shall not adversely affect in any material respect the interests of any Investor Certificateholder, (y) the Rating Agency Condition shall have been satisfied with respect to any such amendment and (z) a Tax Opinion is delivered in connection with any such amendment;
WHEREAS, pursuant to Section 13.2(d)(i) of the Pooling and Servicing Agreement, an Opinion of Counsel shall have been delivered to the Trustee in connection with the Amendment; and
WHEREAS, the conditions precedent to the execution of this Amendment have been complied with.
NOW, THEREFORE, the parties hereto hereby are executing and delivering this Amendment in order to amend the Pooling and Servicing Agreement in the manner set forth below.
Capitalized terms used but not defined herein shall have the meanings assigned to them in the Pooling and Servicing Agreement.
ARTICLE I
Section 1.1 Definitions.
(a) Section 1.1 of the Pooling and Servicing Agreement shall be amended by replacing the definition of Transferor with the following:
Transferor shall mean Target Receivables LLC, a limited liability company formed under the laws of the State of Minnesota, or its permitted successors or assigns under this Agreement and additional transferors, if any, designated in accordance with Sections 2.12 or 6.3(d).
Section 1.2 Replacement of Terms. All occurrences of the terms Target Receivables Corporation and Target Receivables Corporation, a Minnesota corporation in the Pooling and Servicing Agreement shall be replaced with the terms Target Receivables LLC and Target Receivables LLC, a Minnesota limited liability company, respectively. All such replacements shall be applicable for the singular, plural and possessive forms of the respective terms thereof.
ARTICLE II
Section 2.1 Amendment to Section 2.3(a). Section 2.3(a) of the Pooling and Servicing Agreement is hereby replaced in its entirety by the following:
(a) Organization and Good Standing. Prior to January 31, 2011, the effective date of Amendment No. 2 to this Agreement (the Effective Date), the Transferor was a corporation validly existing in good standing under the laws of the State of Minnesota, and had full power, authority and legal right to own its properties and conduct its business as such properties were at that time owned and such business was at that time conducted, to execute, deliver and perform its obligations under this Agreement and each Supplement and to execute and deliver to the Trustee the Certificates pursuant hereto. On and after the Effective Date, the Transferor is a limited liability company validly existing in good standing under the laws of the State of Minnesota, and has full power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, to execute, deliver and perform its obligations under this Agreement and each Supplement and to execute and deliver to the Trustee the Certificates pursuant hereto.
Section 2.2 Amendment to Section 2.3(b). Section 2.3(b) of the Pooling and Servicing Agreement is hereby replaced in its entirety by the following:
(b) Due Qualification. Prior to the Effective Date, the Transferor was duly qualified to do business and was in good standing as a foreign corporation (or was exempt from such requirements); the Transferor has obtained all necessary licenses and approvals in each jurisdiction in which failure to so qualify or to obtain such licenses and approvals would render any Credit Card Agreement relating to an Account owned by the Credit Card Originator or any Receivable transferred to the Trust by the Transferor unenforceable by the Credit Card Originator, the Transferor, the Servicer or the Trustee and would have a material adverse effect on the interests of the Certificateholders hereunder or under any Supplement. On and after the Effective Date, the Transferor is duly qualified to do business and is in good standing as a foreign limited liability company (or is exempt from such requirements); the Transferor has obtained all necessary licenses and approvals in each jurisdiction in which failure to so qualify or to obtain such licenses and approvals would render any Credit Card Agreement relating to an Account owned by the Credit Card Originator or any Receivable transferred to the Trust by the Transferor unenforceable by the Credit Card Originator, the Transferor, the Servicer or the Trustee and would have a material adverse effect on the interests of the Certificateholders hereunder or under any Supplement.
Section 2.3 Amendment to Section 2.7(f). The reference to Separate Corporate Existence in Section 2.7(f) of the Pooling and Servicing Agreement is hereby replaced with Separate Legal Existence.
Section 2.4 Amendment to Section 2.7(f)(i). The references to corporation and incorporation in Section 2.7(f)(i) of the Pooling and Servicing Agreement are hereby replaced with limited liability company and formation, respectively.
Section 2.5 Amendment to Section 2.7(f)(ii). The reference to the corporate use in Section 2.7(f)(ii) of the Pooling and Servicing Agreement is hereby replaced with company use.
Section 2.6 Amendment to Section 2.7(f)(iii) through (v). All references to stockholders in Sections 2.7(f) (iii) through (v) of the Pooling and Servicing Agreement are hereby replaced with members.
Section 2.7 Amendment to Section 2.7(f)(vi). The references to Articles of Incorporation, corporate formalities, stockholders and corporate action in Section 2.7(f)(vi) of the Pooling and Servicing Agreement are hereby replaced with Articles of Organization, company formalities, members and company action, respectively.
Section 2.8 Amendment to Section 2.7 (f)(vii). Section 2.7 (f)(vii) of the Pooling and Servicing Agreement is hereby replaced in its entirety by the following:
(vii) Ensure that its Boards of Governors shall be elected independently from a board of elected or appointed members who jointly oversee the activities of its Affiliates and shall at all times include at least two Independent Governors (for purposes hereof, Independent Governor shall mean an individual who (i) is not, and during the immediately preceding three (3) years has not been, a director, officer, employee, or affiliate of Target Corporation or any of its subsidiaries or affiliates (other than the Transferor), (ii) does not have any ownership interest in the Transferor and (iii) who does not have any ownership interest in Target Corporation or any other subsidiary or affiliate thereof, other than shares of common stock of Target Corporation (x) having an aggregate value of less than 10% of such individuals net worth and (y) representing less than one-half of 1% of the total number of outstanding shares or such common stock).
Section 2.9 Amendment to Section 2.7(f)(ix). The reference to corporate name in Section 2.7(f)(ix) of the Pooling and Servicing Agreement is hereby replaced with company name.
Section 2.10 Amendment to Section 2.7(f)(x). Section 2.7(f)(x) of the Pooling and Servicing Agreement is hereby replaced in its entirety by the following:
(x) Ensure that no Affiliate of the Transferor shall advance funds to the Transferor, other than capital contributions from TCC Corporation SARL, a société à responsabilité limitée existing and organized under the laws of the Grand Duchy of Luxembourg, (TCC Corporation SARL) made to enable the Transferor to pay the purchase price of Receivables, pursuant to the Memorandum of Understanding, dated as of January 31, 2011 by and between TCC Corporation SARL as parent, the Transferor as subsidiary and TCC, or as is otherwise provided in the Receivables Purchase Agreement, and no Affiliate of the Transferor will otherwise supply funds to, or guaranty debts of, the Transferor; provided, however that the Transferor may issue a subordinated note and otherwise be indebted to TCC in connection with the payment of the purchase price for Receivables as provided in the Receivables Purchase Agreement.
Section 2.11 Amendment to Section 6.3(d). Section 6.3(d) of the Pooling and Servicing Agreement is hereby replaced in its entirety by the following:
(d) The Transferor Certificate (or any interest therein) may be transferred to a Person which is a member of the affiliated group as defined in Code Section 1504(a) of which Target National Bank is a member without the consent or approval of the Holders of the Investor Certificates, provided that (i) the Rating Agency Condition shall have been satisfied with respect to such transfer, (ii) the Transferor shall have delivered to the Trustee and each Rating Agency a Tax Opinion, dated the date of such transfer, with respect thereto, and (iii) the Transferor Amount (excluding the interest represented by any Supplemental Certificate) shall not be less than the Required Retained Transferor Amount. In connection with any such transfer, the Person to whom the Transferor Certificate is transferred will, by its acquisition and holding of an interest in the Transferor Certificate, assume all of the rights and obligations of the Transferor as described in this Agreement and in any Supplement or amendment thereto (including the right under this paragraph (d) with respect to subsequent transfers of an interest in the Transferor Certificate). The right to payment on the Transferor Certificate may only be transferred upon record of the transfer and exchange being made in the Certificate Register as provided in Section 6.4. Upon surrender for registration of transfer of the Transferor Certificate at any office or agency of the Transfer Agent and Registrar maintained for such purpose, a new Transferor Certificate shall be executed, authenticated and delivered, in the name of the designated transferee. All Transferor Certificates surrendered for registration of transfer and exchange shall be canceled and disposed of in a manner satisfactory to the Trustee.
Section 2.12 Amendment to Section 6.4(a). The first paragraph of Section 6.4(a) of the Pooling and Servicing Agreement is hereby replaced in its entirety by the following:
The Trustee shall cause to be kept at the office or agency to be maintained in accordance with the provisions of Section 11.16 a register (the Certificate Register) in which, subject to such reasonable regulations as it may prescribe, a transfer agent and registrar (which may be the Trustee) (Transfer Agent and Registrar) shall provide for the registration of the Registered Certificates and the Transferor Certificate and of transfers and exchanges of the Registered Certificates and the Transferor Certificate as herein provided. The Transfer Agent and Registrar shall initially be Wells Fargo Bank, National Association, and any co-transfer agent and co-registrar chosen by the Transferor and acceptable to the Trustee, including, if and so long as any Series or Class is listed on the Luxembourg Stock Exchange and such exchange shall so require, a co-transfer agent and co-registrar in Luxembourg. So long as any Investor Certificates are outstanding, the Transferor shall maintain a co-transfer agent and co-registrar in New York City. Any reference in this Agreement to the Transfer Agent and Registrar shall include any co-transfer agent and co-registrar unless the context requires otherwise.
Section 2.13 Amendment to Section 13.1. The reference to Board of Directors in Section 13.1 of the Pooling and Servicing Agreement is hereby replaced with Board of Governors.
ARTICLE III
Section 3.1 Counterparts. This Amendment may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument.
Section 3.2 Effect of Headings and Table of Contents. The Article and Section headings herein are for convenience only and shall not affect the construction hereof.
Section 3.3 Separability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby.
Section 3.4 Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 3.5 Effective Date. This Amendment shall become effective as of the day and year first above written.
Section 3.6 Binding Effect; Ratification. (a) On and after the Effective Date, (i) this Amendment shall be a part of the Pooling and Servicing Agreement and (ii) each reference in the Pooling and Servicing Agreement to this Agreement, the Pooling and Servicing Agreement, hereof, hereunder or words of like import, and each reference in any other transaction document to the Pooling and Servicing Agreement, shall mean and be a reference to the Pooling and Servicing Agreement as amended hereby.
(b) Except as expressly modified or amended in this Amendment, all of the terms, covenants, provisions, agreements and conditions of the Pooling and Servicing Agreement are hereby ratified and confirmed in every respect and shall remain unmodified and unchanged and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the day and year first above written.
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TARGET RECEIVABLES LLC | |
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(formerly known as TARGET RECEIVABLES CORPORATION), | |
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as Transferor | |
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By: |
/s/ Sara J. Ross |
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Name: Sara J. Ross |
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Title: Vice President and Assistant Treasurer |
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TARGET NATIONAL BANK (formerly known as RETAILERS NATIONAL BANK), | |
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as Servicer | |
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By: |
/s/ Spencer Johnson |
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Name: Spencer Johnson |
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Title: Vice President |
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WELLS FARGO BANK, NATIONAL ASSOCIATION (formerly known as WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION), | |
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as Trustee | |
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By: |
/s/ Kristen L. Puttin |
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Name: Kristen L. Puttin |
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Title: Vice President |
Amendment No. 2
to the Amended and Restated Pooling and Servicing Agreement
TARGET CORPORATION
Computations of Ratios of Earnings to Fixed Charges for each of the
Five Years in the Period Ended January 29, 2011
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Fiscal Year Ended |
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Ratio of Earnings to Fixed Charges |
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(millions) |
Jan. 29, 2011 |
Jan. 30, 2010 |
Jan. 31, 2009 |
Feb. 2, 2008 |
Feb. 3, 2007 |
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Earnings from continuing operations before income taxes |
$ | 4,495 | $ | 3,872 | $ | 3,536 | $ | 4,625 | $ | 4,497 | |||||||||
Capitalized interest |
2 | (9 | ) | (48 | ) | (66 | ) | (47 | ) | ||||||||||
Adjusted earnings from continuing operations before income taxes |
4,497 | 3,863 | 3,488 | 4,559 | 4,450 | ||||||||||||||
Fixed charges: |
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Interest expense (a) |
776 | 830 | 956 | 747 | 646 | ||||||||||||||
Interest portion of rental expense |
110 | 105 | 103 | 94 | 88 | ||||||||||||||
Total fixed charges |
886 | 935 | 1,059 | 841 | 734 | ||||||||||||||
Earnings from continuing operations before income taxes and fixed charges |
$ | 5,383 | $ | 4,798 | $ | 4,547 | $ | 5,400 | $ | 5,184 | |||||||||
Ratio of earnings to fixed charges |
6.08 | 5.13 | 4.29 | 6.42 | 7.06 | ||||||||||||||
75
Exhibit 21
Target Corporation
(A Minnesota Corporation)
List of Subsidiaries
(As of January 29, 2011)
AMC (S) Pte. Ltd. (Singapore)
AMC Dominican Republic, S.A. (Dominican Republic)
AMC Honduras, S.A. (Honduras)
AMC Nicaragua, S.A. (Nicaragua)
Amcrest Corporation (NY)
Amcrest France Sarl (France)
Associated Merchandising Corporation Pensionsverwaltung GmBH (Germany)
Associated Merchandising Korea Corporation (Korea)
Dayton Credit Company (MN)
Glendale West, LLC (CA)
Lafayette Nominee Owner, LLC (DE)
PP&E, LLC (TX)
Red Tail LLC (DE)
STL of Nebraska, Inc. (MN)
SuperTarget Liquor of Massachusetts, Inc. (MA)
SuperTarget Liquor of Missouri, Inc. (MN)
SuperTarget Liquor of Texas, Inc. (TX)
Target Bank (UT banking corporation)
Target Brands, Inc. (MN)
Target Bridges, Inc. (DE)
Target Canada Co. (Nova Scotia)
Target Capital Corporation (MN)
Target Clinic Medical Associates Florida, LLC (MN)
Target Clinic Medical Associates Maryland, LLC (MD)
Target Commercial Interiors, Inc. (MN)
Target Connect, Inc. (MN)
Target Corporate Services, Inc. (MN)
Target Corporation India Private Limited (India)
Target Customs Brokers, Inc. (MN)
Target Enterprise, Inc. (MN)
Target Food, Inc. (MN)
Target General Merchandise, Inc. (MN)
Target Global Trade, Inc. (MN)
Target Jefferson Boulevard, LLC (CA)
Target Medford Urban Renewal, LLC (NJ)
Target Millville Urban Renewal, LLC (NJ)
Target National Bank (a national banking association)
Target Receivables Corporation (MN)
Target Services, Inc. (MN)
Target Sourcing Services Asia Limited (Hong Kong)
Target Sourcing Services Co., Ltd. (Shanghai)
Target Sourcing Services Guatemala Sociedad Anonima (Guatemala)
Target Sourcing Services Hong Kong Limited (Hong Kong)
Target Sourcing Services India Private Limited (India)
Target Sourcing Services Italy S.r.l. (Italy)
Target Sourcing Services Limited (Hong Kong)
Target Sourcing Services Pacific Limited (Hong Kong)
Target Stafford Urban Renewal, LLC (NJ)
Target Stores, Inc. (MN)
Target Wilson Yard QALICB, LLC (DE)
TCC Corporation S.a.r.l. (Luxembourg)
TCDC, Inc. (MN)
TG Holdings (Bermuda)
The Associated Merchandising Corporation (NY)
TSS One Limited (Hong Kong)
TSS Two Limited (Hong Kong)
Walsh Bros. (AZ)
Westbury Holding Company (MN)
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements of Target Corporation of our reports dated March 11, 2011, with respect to the consolidated financial statements and schedule of Target Corporation and the effectiveness of internal control over financial reporting of Target Corporation, included in this Annual Report (Form 10-K) for the year ended January 29, 2011.
Registration Statement Form S-3 Nos. 333-163489 and 333-65347; Form S-8 Nos. 333-30311; pertaining to the Dayton Hudson Corporation Executive Deferred Compensation Plan, the Dayton Hudson Corporation Highly Compensated Capital Accumulation Plan, the Dayton Hudson Corporation SMG Executive Deferred Compensation Plan, and the Dayton Hudson Corporation Director Deferred Compensation Plan; 333-27435 pertaining to the Dayton Hudson Corporation Supplemental Retirement, Savings, and Employee Stock Ownership Plan; 333-86373 pertaining to the Dayton Hudson Corporation Long-Term Incentive Plan of 1999; 333-112260 and 333-75782 pertaining to the Dayton Hudson Corporation Highly Compensated Capital Accumulation Plan; 333-116096 pertaining to the Target Corporation Long-Term Incentive Plan; 333-131082 pertaining to the Target Corporation Director Deferred Compensation Plan, Target Corporation Executive Deferred Compensation Plan, and the Target Corporation SMG Executive Deferred Compensation Plan; 333-103920, 333-131083, 33-66050, and 333-153250 pertaining to the Target Corporation 401(k) Plan.
Minneapolis, Minnesota
March 11, 2011
Exhibit 24
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 9th day of February, 2011.
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/s/ Roxanne S. Austin |
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Roxanne S. Austin |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 24th day of January, 2011.
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/s/ Calvin Darden |
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Calvin Darden |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 2nd day of February, 2011.
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/s/ Mary Dillon |
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Mary Dillon |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 1st day of February, 2011.
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/s/ James A. Johnson |
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James A. Johnson |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 1st day of February, 2011
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/s/ Mary E. Minnick |
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Mary E. Minnick |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 1st day of February, 2011.
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/s/ Anne M. Mulcahy |
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Anne M. Mulcahy |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 1st day of February, 2011.
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/s/ Derica W. Rice |
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Derica W. Rice |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 21st day of February, 2011.
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/s/ Stephen W. Sanger |
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Stephen W. Sanger |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 1st day of February, 2011.
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/s/ Gregg W. Steinhafel |
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Gregg W. Steinhafel |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 1st day of February, 2011.
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/s/ John G. Stumpf |
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John G. Stumpf |
TARGET CORPORATION
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of TARGET CORPORATION, a Minnesota corporation (the Corporation), does hereby make, constitute and appoint GREGG W. STEINHAFEL, DOUGLAS A. SCOVANNER, TIMOTHY R. BAER, DAVID L. DONLIN and MARY B. STANLEY, and each or any one of them, the undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigneds name, place and stead, to sign and affix the undersigneds name as director and/or officer of the Corporation to (1) a Form 10-K, Annual Report, or other applicable form, pursuant to the Securities Exchange Act of 1934, as amended (the 1934 Act), including any and all exhibits, schedules, supplements, certifications and supporting documents thereto, including, but not limited to, the Form 11-K Annual Reports of the Corporations 401(k) Plan and similar plans pursuant to the 1934 Act, and all amendments, supplementations and corrections thereto, to be filed by the Corporation with the Securities and Exchange Commission (the SEC), as required in connection with its registration under the 1934 Act; (2) one or more Forms 3, 4, or 5 pursuant to the 1934 Act, or Forms 144 pursuant to the Securities Act of 1933, as amended (the 1933 Act), and all related documents, amendments, supplementations and corrections thereto; and (3) one or more Registration Statements, on Form S-3, Form S-8, or other applicable forms, and all amendments, including post-effective amendments thereto, to be filed by the Corporation with the SEC in connection with the registration under the 1933 Act, as amended, of debt, equity and other securities of the Corporation, and to file the same, with all exhibits thereto and other supporting documents, with the SEC.
The undersigned also grants to said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. This Power of Attorney shall remain in effect until revoked in writing by the undersigned.
IN WITNESS WHEREOF, the undersigned has signed below as of this 9th day of February, 2011.
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/s/ Solomon D. Trujillo |
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Solomon D. Trujillo |
Exhibit (31)A
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certifications
I, Gregg W. Steinhafel, certify that:
Date: March 11, 2011 | ||
/s/ GREGG W. STEINHAFEL Gregg W. Steinhafel Chairman, President and Chief Executive Officer |
Exhibit (31)B
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certifications
I, Douglas A. Scovanner, certify that:
Date: March 11, 2011 | ||
/s/ DOUGLAS A. SCOVANNER Douglas A. Scovanner Executive Vice President and Chief Financial Officer |
Exhibit (32)A
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Target Corporation, a Minnesota corporation (the "Company"), for the year ended January 29, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned officer of the Company certifies pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: March 11, 2011 | ||
/s/ GREGG W. STEINHAFEL Gregg W. Steinhafel Chairman, President and Chief Executive Officer |
Exhibit (32)B
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Target Corporation, a Minnesota corporation (the "Company"), for the year ended January 29, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned officer of the Company certifies pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: March 11, 2011 | ||
/s/ DOUGLAS A. SCOVANNER Douglas A. Scovanner Executive Vice President and Chief Financial Officer |
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