AC600\'s Due Diligence Report PPP for Target Corp.

1. Target Corporation Dan Gilbreth Edith Matthews Elen Cuaca Wijaya Kari Blevins June, 18th 2010

3. The Retail Segment is classified as general merchandise and discount food stores.

4. Through its Credit Segment Target offers the Target Visa and the Target Card known collectively as the REDcards.

5. The Encyclopedia of Business (2010) reported discount department stores generated $134.4 billion sales in 2001 and numbered 9,120 locations.

6. This industry is dominated by the Wal-Mart, Kmart, and Target chains stores.

7. Discounted sales have existed since the early 1900s and the discount variety store industry became popular after World War II (Encyclopedia, 2010). 2

9. The discount industry surpassed $200 billion in sales in the early 1990s (Encyclopedia, 2010).

10. The early 2000s were tough for the retail industry due to the events of September 11th, 2001 and a shaky economy (Encyclopedia, 2010).

11. Arkansas based Wal-Mart has been the world’s largest retailer but in 2002 it surpassed General Motors and Exxon to become the world’s largest company as well (Encyclopedia, 2010) with more than 4,700 stores, $244 billion in sales and 1.4 million employees.

12. Michigan based Kmart was the country’s third largest retailer in 2002 with 1,500 stores, $30 billion in sales.

13. Minnesota based Target Corporation, posted 2003 sales of $43 billion, more than 1,100 stores and 306,000 employees. 3

15. Most work during peak selling time including nights, weekends, and holidays.

16. General merchandise stores had about 4.5 million in wage and salary jobs in 2008 (Career Guide, 2010).

17. Many jobs in general merchandising do not require more than a high school diploma (Career Guide, 2010).

18. Overall, the number of wage and salary jobs in general merchandising is expected to increase due to growth in the industry from customer demand.

19. Hourly earnings of nonsupervisory workers were far below the average for all workers in private industry. 4

21. Health Care, Dental Coverage, Pharmacy, Team Member LifeResources

22. Benefits For Your Wealth

23. 401(k), Daycare Flexible Spending Account (FSA)

24. Benefits For Your Protection

25. Life Insurance, Disability, Choice Auto and Home Insurance

26. Benefits For Your Benefit

27. Team Member Discount, Tuition Reimbursement, Home Loans, Adoption Assistance Reimbursement, Group Legal Plan, Childcare Discount, Credit Union

28. Benefits For Your Time

29. Vacation, National Holidays, Personal Holidays

30. Benefits For Your Wellness

31. Target Clubs, Flu Shots, NurseLine, Maternity Support Program, Fitness Center Discount, Health Assessment, Wellness Coaching, Health & Wellness Online5

33. American company founded in Minneapolis, MN in 1902, originally named Dayton Company

34. First Target store opened in 1962

35. Original Target logo used from 1962-1968

36. Target expanded into Texas and Oklahoma with 6 new units and its first distribution center in Fridley, Minnesota

38. Target experiences its first decrease in profits in 1972.

39. Target stores became Dayton Hudson’s top revenue producer in 1975.

40. Target acquired Mervyn’s in 1978 and Target became the 7th largest retailer in the United States.

41. By 1979, there were a total of 80 Target stores in 11 states, with $1.2 billion in sales.7

43. In 1981, Target acquired Ayr-Way discount retail chain of 40 stores and one distribution center and reopened them as Target stores.

44. Also in 1981, Target opened 14 additional stores and a third distribution center in Little Rock, AR, to total 151 stores and $2.05 billion in sales.

45. In 1982, Target acquired 33 FedMart stores in Arizona, California and Texas to expand into the West Coast and opened its fourth distribution center in Los Angeles, CA.

46. Target rounded out the 1980s with 399 units in 30 states with $7.51 billion in sales.8

48. An additional 42 Target Greatland stores were opened in 1991 and sales reached $9.01 billion.

49. Target opened its first SuperTarget hypermarket in Omaha, Nebraska in 1995, which increased the store count to 670 stores and $15.7 billion in sales.

50. SuperTarget was expanded into Southern California in 1999, rounding the 1990s out with 912 units in 44 states with sales reaching $26.0 billion.

51. The relaunch of Target.com took place in September 1999.9

53. Target began operations in Bangalore, India in 2005 where operations continue to support all Target business units.

54. Target expanded its retail stores outside the continental United States in 2009 by adding 2 stores in Hawaii and 2 stores in Alaska.

55. At the end of 2009, Target had 1,740 Target Stores.10

57. Target’s customer base.

58. Gregg Steinhafel is the current CEO and Chairman of the board of directors.

59. The Board of Directors.

60. Per the Articles of Inc. Target’s Board of Directors has the following committee…11

62. Target Corporation’s common & preferred share information. 12

64. A copy Ernst & Young LLP’s Auditors letter to management is located on page 14 of our Due Diligence Group Project.13

65. Culture: Mission Statement: The ability of delivering an outstanding value, continuous innovation, and exceptional shopping experience with competitive discount prices. Target empowers the company’s culture by building a strong connection with the customers and employees. Customers=guests, Employees = team members. Target is embracing the culture practice by: (1) Providing great value (2) Supporting the community (3) Encouraging diversity (4) Protecting the environment 14

66. Culture: 15

67. Sales and Marketing Advertising cost: $1,167 million in 2009, $1,233 million in 2008, and $1,195 million in 2007. Advertising vendor income that offset advertising expenses was approx. $130 million in 2009, $143 million in 2008 and $123 million in 2007 Newspaper circulars and media broadcast made up the majority of Target’s advertising costs in all three years. Total sales for Retail Segment were $63,435 in 2009, $62,884 million in 2008, and $61,471 million in 2007 (52 week in years) Growth in total sales between 2009 and 2008 as well 2008 and 2007 resulted from additional stores opened. In 2009, deflation affected sales growth by approx 4% points compared to 2% point in 2008 and 2007 16

69. Hardlines: electronics (video games hardware and software), music, movies, books, sporting goods, toys.

70. Apparel accessories: apparel for women, men, baby, toddlers.

71. Home furnishing and décor: furniture, lighting, kitchenware, home décor.

72. Food and pet supplies: dry grocery, diary, frozen food, beverages, candy, snacks.17

73. Performance Measurements: 18

75. Interest expense to debt ratio (in millions):19

78. Net Income Percentage (in millions):21

80. Sales to Operating Income (in millions):22

81. Performance Measurements: Cash Flow from Operations: 23

82. Performance Measurements: Cash Flow Return on Sales: 24

83. Performance Measurements: Cash Flow Return on Assets: 25

84. Performance Measurements: Liquidity Ratios: 26

86. Debt to total assets (in millions):27

88. Times interest earned (in millions):28

90. Earnings per share (in millions with exception of per share data):29

92. Price/Earnings Ratio30

93. Assets: 31

95. Cash flow provided by operations was $5,881 in 2009 compared with $4,430 million in 2008.

96. Cash flow allowed Target to fund capital expenditures of $1,729 million and pay off $1.3 billion of maturing debt.

97. Jan 30, 2010 and Jan 31, 2009 there were no amounts outstanding under Target’s commercial paper program.

98. An additional source of liquidity is available to Target through a committed $2 billion unsecured revolving credit facility – 2009 bal $0

99. Target’s strategy is to ensure liquidity and access to capital markets, to manage their net exposure to floating interest rate volatility, and to maintain a balanced spectrum of debt maturities32

100. Goodwill & Intangible Assets: Goodwill is tested for impairment by comparing its carrying value to a fair value estimated by discounting future cash flows. This test is performed at least annually or whenever an event or change in circumstances indicates the carrying value of the asset may not be recoverable. Brand image is a critical element of Target’s business strategy. Their principal trademarks are Target, SuperTarget and the “Bulls eye Design”. They also seek to obtain intellectual property protection for their private-label brands. An impairment loss on a long-lived and identifiable intangible asset would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset are less than the asset carrying amount. 33

102. Recognized in an amount equal to the anticipated future write-offs (estimated based on historical experience of delinquencies, risk scores, aging trends, and industry risk trends) of existing receivables, $1,016 million at January 30, 2010 and $1,010 million at January 31, 2009.

103. Accounts are written off when they become 180 days past due.

104. As a method of providing funding for credit card receivables, Target sells an ongoing basis all of their consumer credit card receivables to Target Receivables Corporation (TRC), a wholly owned, bankruptcy remote subsidiary. They are later transferred to Target Credit Card Master Trust (the Trust), which at times sells debt securities to third parties directly or through a related trust.

105. Target consolidates the receivables within the Trust.34

106. Inventory: Effective Inventory Management: in-stock in core product offerings, maintaining positive vendor relationships, carefully planning for seasonal and apparel items to minimize markdowns. Retail Inventory Accounting Method (RIM) using Last-in, First-out (LIFO) method Special arrangements with vendor: Do not purchase or pay until the merchandise is sold. Sales under this arrangements totaled $1,820 million in 2009, $1,524 million in 2008, and $1,643 million in 2007 Inventory purchase orders commitments – authorizations to purchase that are cancellable by specific terms 38 Distribution centers in 2010 including 4 food distributions centers 35

109. Recorded at cost – straight line depreciation.

110. Estimated useful lives.

111. Depreciation expense.

112. Annual review for impairment on long lived assets.

113. Impairment costs.

114. Write off capitalized construction costs due to project changes.

115. Includes capital leases.

116. The lease term is used to determine if it is an operating or capital lease. 36

117. Liabilities: 37

118. Accounts Payable Book overdrafts: leaving credit balance in cash (overdrafts) and reclassify to accounts payable even though total cash is positive. Book overdrafts reclassify to accounts payable were $539 million at Jan 31, 2010 and $606 million at Jan 31, 2009 (booked at period end). 38

119. Accrued and other Current Liabilities: Taxes payable consist of real estate, team member withholdings and sales tax liabilities. Gift card liability represents the amount of gift cards that have been issued but have not been redeemed, net of estimated breakage. 39

120. Treasury: Derivatives Instruments: Interest Rate Swaps : Derivative contracts: types, balance sheet classification & fair value. Assets Liability 40

122. 100% hedge effective in 2009, 2008, 2007

123. Pay fixed swaps to hedge pay floating swaps in 2008

124. Interest Rate lock agreement in 200741

126. $2 billion unsecured revolving credit facility.

127. Contractual obligations:

128. Carrying value of maturing debt including interest rate swaps & FV hedges.42

130. Long term debt (A2), commercial paper (P-1) and securitized receivables (Aa2). 43

132. Consumer preferences.

133. Macroeconomic conditions and consumer confidence.

134. Effective management of workforce.

135. Supply chain disruptions.

136. Product safety concerns.

137. Natural disasters.

138. Access to capital markets, credit and liquidity.

139. Computer system failures. 44

140. On behalf of myself, and my team members: Edith MatthewsElen Cuaca WijayaKari BlevinsThank you most importantly & are there any further questions? 45