Exhibit 99.3
Financial Statements
Marshall Field's
Year Ended January 31, 2004
Marshall Field's
Financial Statements
Year Ended January 31, 2004
Contents
Report of Independent Auditors.........................................1
Financial Statements
Results of Operations..................................................2
Statement of Financial Position........................................3
Statement of Cash Flows................................................4
Statement of Shareholder's Investment..................................5
Notes to Financial Statements..........................................6
Report of Independent Auditors
Target Corporation
We have audited the accompanying statement of financial position of Marshall
Field's as of January 31, 2004 and the related results of operations, cash
flows and shareholder's investment for the year ended January 31, 2004. These
financial statements are the responsibility of Marshall Field's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marshall Field's at January
31, 2004 and the results of its operations and its cash flows for the period
ended January 31, 2004, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 23, 2004
1
Marshall Field's
Results of Operations
(In Thousands)
Year Ended January 31, 2004
Sales $2,458,660
Net credit card revenues 125,464
Total revenues 2,584,124
Cost of sales 1,428,512
Selling, general and administrative expense 861,885
Credit card expense 48,436
Depreciation and amortization 115,715
Interest expense 47,225
Earnings before income taxes 82,351
Provision for income taxes 31,494
Net earnings $ 50,857
See accompanying notes.
2
Marshall Field's
Statement of Financial Position
(In Thousands)
January 31, 2004
Assets
Current assets:
Cash and cash equivalents $ 15,826
Accounts receivable, net 647,032
Inventory 325,404
Income taxes receivable 14,404
Deferred taxes and other 70,340
Total current assets 1,073,006
Property and equipment
Land 104,553
Buildings and improvements 790,594
Fixtures and equipment 594,632
Construction in progress 11,222
Accumulated depreciation (643,982)
Property and equipment, net 857,019
Due from affiliate 1,329,913
Prepaid pension and other 233,351
Total assets $3,493,289
Liabilities and shareholder's investment
Current liabilities:
Accounts payable $ 190,650
Accrued liabilities 222,908
Current portion of capital leases 833
Total current liabilities 414,391
Note payable to affiliate 948,325
Capital leases, net of current portion 9,036
Deferred taxes and other long-term liabilities 188,190
Shareholder's investment:
Common stock 2
Additional paid-in capital 11,645
Retained earnings 1,921,700
Total shareholder's investment 1,933,347
Total liabilities and shareholder's investment $3,493,289
See accompanying notes.
3
Marshall Field's
Statement of Cash Flows
(In Thousands)
Year Ended January 31, 2004
Operating activities
Net earnings $ 50,857
Reconciliation to cash flow:
Depreciation and amortization 115,715
Bad debt provision 23,820
Deferred tax provision 21,592
Loss on disposal of fixed assets, net 3,916
Other non-cash items affecting earnings (853)
Changes in operating accounts providing cash:
Accounts receivable 35,837
Inventory (3,538)
Income taxes receivable 34,204
Other current assets (3,252)
Other assets (17,145)
Due from affiliate (137,111)
Accounts payable 33,339
Accrued liabilities (36,495)
Cash flow provided by operating activities 120,886
Investing activities
Expenditures for property and equipment (131,733)
Proceeds from disposals of property and equipment 17,725
Cash flow required for investing activities (114,008)
Financing activities
Dividends (12,453)
Reductions of capital leases (833)
Cash flow required for financing activities (13,286)
Net decrease in cash and cash equivalents (6,408)
Cash and cash equivalents at beginning of year 22,234
Cash and cash equivalents at end of year $ 15,826
See accompanying notes.
4
Marshall Field's
Statement of Shareholder's Investment
(In Thousands)
Additional
Common Paid-In Retained
Stock Capital Earnings Total
February 1, 2003 $2 $ 5,079 $1,883,296 $1,888,377
Net earnings - - 50,857 50,857
Stock options - 6,566 - 6,566
Dividends - - (12,453) (12,453)
January 31, 2004 $2 $11,645 $1,921,700 $1,933,347
See accompanying notes.
5
Marshall Field's
Notes to Financial Statements
January 31, 2004
Summary of Accounting Policies
Organization
Marshall Field's, an operating segment of Target Corporation, is a traditional
department store that emphasizes fashion leadership, quality merchandise and
superior guest service. It is headquartered in Minneapolis, operates 62 stores
and employs approximately 25,000 team members in 8 states in the upper
Midwest. Marshall Field's offers credit to qualified guests through a
proprietary store brand credit card program. Marshall Field's credit card
operations drive revenue growth and are considered an integral component of
our retail operations.
Consolidation
The financial statements include the balances of Marshall Field's and related
liquor licensing entities (collectively, Marshall Field's) after elimination
of material intercompany balances and transactions. The liquor entities are
wholly owned subsidiaries of Target Corporation.
Use of Estimates
The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements and accompanying notes. Actual results may differ from those
estimates.
Fiscal Year
Our fiscal year ends on the Saturday nearest January 31. Unless otherwise
stated, references to year in this report relate to fiscal year rather than to
calendar year. Fiscal year 2003 consisted of 52 weeks.
Revenues
Revenue from retail sales is recognized at the time of sale. Net credit card
revenues are comprised of finance charges and late fees from Marshall Field's
proprietary credit card holders. Net credit card revenues are recognized
according to the contractual provisions of the credit card agreement. If an
account is written off, any uncollected finance charges or late fees are
recorded as a reduction of credit card revenue. The amount of our retail sales
charged to our credit cards was $1 billion in 2003.
6
Marshall Field's
Notes to Financial Statements (continued)
Consideration Received From Vendors
We collect consideration from our vendors (referred to as "vendor income")
primarily as a result of our promotional, advertising and compliance programs.
Promotional and advertising allowances are intended to offset our costs of
promoting and selling the vendors' merchandise in our stores and are
recognized when we incur the cost or complete the promotion. Under our
compliance programs, vendors are charged for merchandise shipments that do not
meet our requirements, such as late or incomplete shipments. We record these
allowances when the violation occurs.
In the first quarter of 2003, we adopted Emerging Issues Task Force (EITF)
Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor. Under the new guidance, cash
consideration received from a vendor is presumed to be a reduction of the
prices of the vendor's products or services and should be classified as a
reduction in cost of sales. If the cash consideration is for assets or
services delivered to the vendor, it should be characterized as revenue. If
the cash consideration is a reimbursement of costs incurred to sell the
vendor's products, it should be characterized as a reduction of that cost. Due
to the adoption of EITF Issue No. 02-16, certain vendor income items are
classified as inventory purchases and recognized into income as the vendor's
merchandise is sold. This treatment had no material impact on sales, cash
flows or financial position for any period and had a positive impact of $1
million on pretax net earnings in 2003.
As required by EITF Issue No. 02-16, the guidance was applied on a prospective
basis only. In 2003, we classified certain vendor income as inventory
purchases that would have been classified as selling, general and
administrative expense prior to the adoption of EITF Issue No. 02-16 as it did
not meet the specific, incremental or identifiable criteria specified in the
new guidance.
Buying and Occupancy Expenses
Buying expenses primarily consist of salaries and expenses incurred by our
merchandising operations, while our occupancy expenses primarily consist of
rent, depreciation, property taxes and other operating costs of our retail and
distribution facilities. Buying and occupancy expenses classified in selling,
general and administrative expenses were $139 million in 2003. In addition, we
recorded $85 million of depreciation expense for our retail and distribution
facilities in 2003.
7
Marshall Field's
Notes to Financial Statements (continued)
Advertising Costs
Advertising costs, included in selling, general and administrative expense,
are expensed as incurred and were $133 million for 2003. Advertising vendor
income recorded within advertising expense was approximately $20 million in
2003.
Accounts Receivable
Accounts receivable are recorded net of an allowance for expected losses. The
allowance, recognized in an amount equal to the anticipated future write-offs
based on delinquencies, risk scores, aging trends, industry risk trends and
our historical experience, was $25 million at January 31, 2004.
Inventory
Our inventory and the related cost of sales are accounted for under the retail
inventory accounting method using the last-in, first-out (LIFO) basis.
Inventory is stated at the lower of LIFO cost or market. In 2003, Marshall
Field's inventory balance was $325 million. In 2003, we reduced our cumulative
LIFO provision from $39 million to $24 million.
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. Depreciation expense for 2003 was $112 million. Accelerated
depreciation methods are generally used for income tax purposes. Repair and
maintenance costs were $25 million in 2003.
Estimated useful lives by major asset category are as follows:
Buildings and improvements 8-39 years
Fixtures and equipment 4-15 years
Computer hardware and software 4 years
Property and equipment include an allocation of common assets from Target
Corporation. The gross and net book values of these assets were $126 million
and $47 million, respectively, at January 31, 2004.
8
Marshall Field's
Notes to Financial Statements (continued)
We follow Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which requires
companies to review long-lived assets when events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. In
accordance with this guidance, all long-lived assets are reviewed when events
or changes in circumstances indicate that the carrying value of the asset may
not be recoverable.
We review most assets at the store level, which is the lowest level of assets
for which there are identifiable cash flows. The carrying amount of the store
assets is compared to the expected undiscounted future cash flows to be
generated by those assets over the estimated remaining useful life of the
primary asset. Cash flows are projected for each store based upon historical
results and expectations. In cases where the expected future cash flows and
fair value are less than the carrying amount of the assets, those stores are
considered impaired, and the assets are written down to fair value. Fair value
is based on appraisals or other reasonable methods to estimate fair value.
Impairment losses are included in depreciation expense for held and used
assets and are included within selling, general and administrative expense on
assets classified as held for sale. Our fixed asset impairment tests,
performed in accordance with the applicable accounting guidance, assumed our
business would continue indefinitely. Changes in these assumptions could
impact the results of our analysis. We did not record an impairment loss for
stores classified as held for use in 2003.
Intangible Assets
Intangible assets are recorded within other long-term assets at cost less
accumulated amortization. Amortization is computed on intangible assets with
definite useful lives using the straight-line method over estimated useful
lives that range from 3 to 15 years. Amortization expense for 2003 was $4
million. At January 31, 2004, net goodwill and intangible assets were $110
million. These assets included $95 million of goodwill and intangible assets
with indefinite useful lives.
Discounted cash flow models were used in determining fair value for the
purposes of the required annual goodwill impairment analysis. Management used
other market data to validate the results of our analysis. No impairments were
recorded in 2003 as a result of the tests performed.
9
Marshall Field's
Notes to Financial Statements (continued)
Accounts Payable
Our accounting policy is to reduce accounts payable when checks to vendors
clear the bank from which they were drawn. Outstanding checks included in
accounts payable were $50 million at January 31, 2004.
Commitments and Contingencies
At January 31, 2004, our debt, lease and royalty contractual obligations were
as follows:
Payments Due by Period
Less Than After 5
Total 1 Year 1-3 Years 3-5 Years Years
(In Thousands)
Long-term debt* $ 948,325 $ - $ - $ - $948,325
Capital lease obligations** 13,412 1,717 3,470 3,640 4,585
Operating leases** 37,304 4,450 9,398 7,705 15,751
Royalties 4,713 2,163 2,550 - -
Contractual cash obligations $1,003,754 $8,330 $15,418 $11,345 $968,661
* Required principal payments only.
** Total contractual lease payments.
Commitments for the purchase, construction, lease or remodeling of real
estate, facilities and equipment were approximately $5 million at January 31,
2004.
Throughout the year, we enter into various commitments to purchase inventory.
In addition to the accounts payable reflected in our statement of financial
position, we had commitments with various vendors for the purchase of
inventory as of January 31, 2004. These purchase commitments are cancelable by
their terms. The above table excludes these commitments.
10
Marshall Field's
Notes to Financial Statements (continued)
We are exposed to claims and litigation arising out of the ordinary course of
business and use various methods to resolve these matters in a manner that
serves the best interest of our shareholder and other constituents. The
dispute resolution methods that we use include vigorous litigation, when
necessary, and alternatives such as settlement discussions, where appropriate,
to reduce the costs of litigation. Our policy is to fully disclose pending
lawsuits and other known claims that we expect may have a material impact on
our results of operations or financial position. However, management, after
consulting with legal counsel, does not believe the currently identified
claims and litigation meet this criterion.
Leases
Assets held under capital leases are included in property and equipment and
are charged to depreciation and interest over the life of the lease. Operating
leases are not capitalized and lease rentals are expensed. Rent expense on
buildings, classified in selling, general and administrative expense, includes
percentage rents that are based on a percentage of retail sales over stated
levels. Total rent expense was $5 million in 2003. Most of the long-term
leases include options to renew, with terms varying from 1 to 30 years.
Certain leases also include options to purchase the property.
Future minimum lease payments required under noncancelable lease agreements
existing at January 31, 2004 were:
Operating Capital
Leases Leases
(In Thousands)
2004 $ 4,450 $ 1,717
2005 4,906 1,718
2006 4,492 1,752
2007 3,978 1,820
2008 3,727 1,820
After 2008 15,751 4,585
Total future minimum lease payments $37,304 13,412
Less interest (3,543)
Present value of minimum lease payments (includes
current portion of $1 million) $ 9,869
11
Marshall Field's
Notes to Financial Statements (continued)
Income Taxes
Marshall Field's is included in the consolidated federal income tax return
filed for Target Corporation and its subsidiaries. Marshall Field's tax
provision was determined by applying Target Corporation's tax rates to
Marshall Field's income and allowing for Marshall Field's tax credits.
Reconciliation of tax rates is as follows:
2003
Federal statutory rate 35.0%
State income taxes, net of federal tax benefit 2.9
Work opportunity tax credits (0.4)
Other 0.7
Effective tax rate 38.2%
The components of the provision for income taxes were:
Income Tax Provision: Expense
(In Thousands) 2003
Current:
Federal $ 8,658
State 1,244
9,902
Deferred:
Federal 19,132
State 2,460
21,592
Total $31,494
12
Marshall Field's
Notes to Financial Statements (continued)
The components of the net deferred tax assets/(liabilities) were:
Net Deferred Tax Assets/(Liabilities)
(In Thousands) January 31,
2004
Gross deferred tax assets:
Self-insured benefits $ 11,744
Deferred compensation 12,177
Inventory 13,904
Accounts receivable valuation allowance 9,428
Postretirement health care obligation 31,586
Other 23,171
102,010
Gross deferred tax liabilities:
Property and equipment (74,359)
Pension (46,407)
Other (32,888)
(153,654)
Total $ (51,644)
Other Long-Term Liabilities
In addition to the deferred taxes discussed above, the major components of
other long-term liabilities at January 31, 2004 includes obligations for
worker's compensation and general liability costs and retiree medical
expenses.
13
Marshall Field's
Notes to Financial Statements (continued)
Stock Option Plans
Certain key employees participate in Target Corporation stock option plans.
These long-term incentive plans provide for the granting of stock options and
performance share awards or a combination of awards which are granted in
Target Corporation common stock. A majority of the awards are non-qualified
stock options that vest annually in equal amounts over a four-year period.
These options expire no later than ten years after the date of grant.
Performance share awards are issuable in the future based upon the attainment
of specified levels of future financial performance of Target Corporation as a
whole.
Awards granted to key employees under the Target Corporation stock option plan
are accounted for using the fair-value-based method to record stock-based
compensation. Stock-based compensation expense for 2003 was $7 million.
Marshall Field's Participants Options and Performance Share Awards Outstanding
Performance
Options Shares
Total Outstanding Currently Exercisable
Number of Average Number of Average Potentially
Options Price* Options Price* Issuable
(Options and shares in thousands)
February 1, 2003 4,375 $25.48 2,912 $21.19 46
Granted 493 38.52 51
Canceled (55) 35.15
Exercised (468) 11.19
January 31, 2004 4,345 $28.38 2,966 $25.06 97
14
Marshall Field's
Notes to Financial Statements (continued)
Options Outstanding
Options Outstanding Currently Exercisable
Range of Number Average Average Number Average
Exercise Prices Outstanding Life** Price* Exercisable Price*
(Options in thousands)
$ 5.81 - $ 9.99 537 2.7 $ 8.64 537 $ 8.64
$10.00 - $19.99 573 4.0 17.30 573 17.30
$20.00 - $29.99 539 5.0 26.38 539 26.38
$30.00 - $39.99 2,254 7.9 33.94 1,118 33.49
$40.00 - $41.16 442 8.1 40.84 199 40.80
Total 4,345 6.4 $28.38 2,966 $25.06
* Weighted average exercise price.
** Weighted average contractual life remaining in years.
The Black-Scholes model was used to estimate the fair value of the options at
grant date based on the following assumptions:
2003
Dividend yield 0.8%
Volatility 29.0%
Risk-free interest rate 3.0%
Expected life in years 5.0
Weighted average fair value at grant date $11.21
Defined Contribution Plans
Employees who meet certain eligibility requirements can participate in Target
Corporation's defined contribution 401(k) plan by investing up to 80% of their
compensation. We match 100% of each employee's contribution up to 5% of
respective total compensation. Our contribution to the plan is initially
invested in Target Corporation common stock. Benefits expense related to these
matching contributions was $14 million in 2003.
15
Marshall Field's
Notes to Financial Statements (continued)
In addition, certain employees participate in Target Corporation's other non-
qualified, unfunded plans that allow participants who are otherwise limited by
qualified plan statutes or regulations to defer compensation and earn returns
either tied to the results of the 401(k) plan investment choices or market
levels of interest rates. Marshall Field's recognized benefits expense for
these non-qualified plans of $2 million in 2003.
Pension and Postretirement Health Care Benefits
We have qualified defined benefit pension plans that cover all employees who
meet certain age, length of service and hours worked per year requirements. We
also have unfunded non-qualified pension plans for employees who have
qualified plan compensation restrictions. Benefits are provided based upon
years of service and the employee's compensation. Retired employees 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.
The Medicare Prescription Drug, Improvements and Modernization Act of 2003
(the Act) was signed into law in December 2003. The Act introduces a
prescription drug benefit under Medicare (Medicare Part D), as well as a
federal subsidy to sponsors of retiree health care benefit plans that provide
a prescription drug benefit that is at least actuarially equivalent to
Medicare Part D. In May 2004, the Financial Accounting Standards Board (FASB)
issued Staff Position (FSP) No. 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act
of 2003. This FSP is effective for interim or annual periods beginning after
June 15, 2004. The accumulated postretirement benefit obligation and the net
periodic benefit cost in these financial statements do not reflect the effect
of the subsidy because we have not yet concluded whether the benefits provided
by our plan are actuarially equivalent to Medicare Part D under the Act.
16
Marshall Field's
Notes to Financial Statements (continued)
Obligations and Funded Status at October 31, 2003
Change in Benefit Obligation
Postretirement
Pension Health Care
Benefits Benefits
(In Thousands)
Benefit obligation at beginning of measurement period $335,427 $ 79,563
Service cost 10,778 393
Interest cost 21,755 5,323
Actuarial loss 42,708 1,423
Benefits paid (25,099) (6,443)
Benefit obligation at end of measurement period $385,569 $ 80,259
Change in Plan Assets
Postretirement
Pension Health Care
Benefits Benefits
(In Thousands)
Fair value of plan assets at beginning of measurement
period $352,037 $ -
Actual return on plan assets 67,217 -
Employer contribution 21,894 6,443
Benefits paid (24,623) (6,443)
Fair value of plan assets at end of measurement period $416,525 $ -
Funded status $ 30,956 $(80,259)
Unrecognized actuarial loss/(gain) 104,613 (3,447)
Unrecognized prior service cost (12,981) 889
Net amount recognized $122,588 $(82,817)
17
Marshall Field's
Notes to Financial Statements (continued)
Amounts recognized in the statement of financial position consist of:
Postretirement
Pension Health Care
Benefits Benefits
(In Thousands)
Prepaid benefit cost $122,588 $ -
Accrued benefit cost - (82,817)
Net amount recognized $122,588 $(82,817)
The accumulated benefit obligation for all defined benefit pension plans was
$355 million at October 31, 2003. The projected benefit obligation,
accumulated benefit obligation and fair value of plan assets for the pension
plans with an accumulated benefit obligation in excess of plan assets were $1
million, $1 million and $-0-, respectively, as of October 31, 2003.
Net Pension and Postretirement Health Care Benefits Expense
Postretirement
Pension Health Care
Benefits Benefits
(In Thousands)
Service cost benefits earned during the period $ 10,778 $ 393
Interest cost on projected benefit obligation 21,755 5,323
Expected return on assets (35,552) -
Recognized losses 5,545 61
Recognized prior service cost (1,807) 386
Total $ 719 $ 6,163
The amortization of any prior service cost is determined using a straight-line
amortization of the cost over the average remaining service period of
employees expected to receive benefits under the plan.
18
Marshall Field's
Notes to Financial Statements (continued)
Assumptions
Weighted average assumptions used to determine benefit obligations at October
31, 2003:
Postretirement
Pension Health Care
Benefits Benefits
Discount rate 6.25% 6.25%
Average assumed rate of compensation increase 3.25 n/a
Weighted average assumptions used to determine net periodic benefit cost for
the year ended October 31, 2003:
Postretirement
Pension Health Care
Benefits Benefits
Discount rate 7.00% 7.00%
Expected long-term rate of return on plan assets 8.50 n/a
Average assumed rate of compensation increase 4.00 n/a
Our rate of return on qualified plans' assets has averaged 5.4% and 9.6% per
year over the five-year and ten-year periods ended October 31, 2003 (our
measurement date). After that date, we reduced our expected long-term rate of
return on plans' assets to 8.0% per year.
An increase in the cost of covered health care benefits of 6.0% was assumed
for 2003 and 2004. The rate is assumed to remain at 6.0% in the future. The
health care cost trend rate assumption may have a significant effect on the
amounts reported.
19
Marshall Field's
Notes to Financial Statements (continued)
A 1% change in assumed health care cost trend rates would have the following
effects:
1% 1%
Increase Decrease
(In Thousands)
Effect on total of service and interest cost components of
net periodic postretirement health care benefit cost $ 334 $ (315)
Effect on the health care component of the postretirement
benefit obligation 4,816 (4,575)
Additional Information
Our pension plan weighted average asset allocations at October 31, 2003 by
asset category are as follows:
2003
Asset category
Equity securities 56%
Debt securities 26
Real estate 5
Other 13
Total 100%
Our asset allocation strategy for 2004 targets 55% in equity securities, 25%
in debt securities, 5% in real estate and 15% in other assets. Equity
securities include Target Corporation common stock in amounts substantially
less than 0.5% of total plan assets at October 31, 2003. Other assets include
private equity, mezzanine and distressed debt and timber. Our expected long-
term rate of return assumptions as of October 31, 2003 are 8.5%, 5.5%, 7.0%
and 10.0% for equity securities, debt securities, real estate and other
assets, respectively.
Contributions
Given the qualified pension plans' funded position, we are not required to
make any contributions in 2004. In similar situations in the past, we have
chosen to make discretionary contributions for various purposes, including
minimizing Pension Benefit Guaranty Corporation premium payments and
maintaining the fully funded status of the plans. In 2004, such discretionary
contributions could range from $-0- to $35 million. We expect to make
contributions in the range of $5 million to $10 million to our other
postretirement benefit plans in 2004.
20
Marshall Field's
Notes to Financial Statements (continued)
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
Postretirement
Pension Health Care
Benefits Benefits
(In Thousands)
2004 $ 25,000 $ 6,854
2005 25,000 7,128
2006 25,000 7,413
2007 25,000 7,672
2008 25,000 7,941
2009-2013 125,000 42,730
Related-Party Transactions
Note Payable
Marshall Field's holds a note payable to Target Corporation for $948 million
maturing in 2011 at a rate to be calculated each year that is equal to Target
Corporation's interest expense for the fiscal year divided by Target
Corporation's average debt outstanding for the fiscal year (4.9% in 2003).
Accrued interest at January 31, 2004, was $38 million.
Shared Services
Certain shared services, such as technology support, finance, assets
protection, facility operations, property development and transportation, are
provided by Target Corporation. The costs of providing these services are
allocated to Marshall Field's without a premium through corporate expense
allocation processes. The total expenses charged to Marshall Field's during
2003 were $54 million. These expenses are reflected in selling, general and
administrative expenses.
21
Marshall Field's
Notes to Financial Statements (continued)
In addition to the shared services, Target Corporation pays Marshall Field's
employees' health plan, dental plan and life insurance claims and transfers
the costs to Marshall Field's. The claim transfers totaled $48 million in
2003.
Associated Merchandising Company (AMC), a wholly owned subsidiary of Target
Corporation, provides inventory sourcing services to Marshall Field's. During
2003, inventory purchases using AMC sourcing services were $53 million. The
amount owed to AMC associated with those purchases was $6 million at January
31, 2004.
The above transactions occurred in the normal course of business during the
year.
Accounting Pronouncements
2004 Adoptions
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51 (FIN 46). FIN 46 will be effective no later than the end of the first
reporting period that ends after March 15, 2004. FIN 46 requires the
consolidation of entities in which an enterprise absorbs a majority of the
entity's expected losses, receives a majority of the entity's expected
residual returns, or both, as a result of ownership, contractual or other
financial interest in the entity. Currently, entities are generally
consolidated by an enterprise when it has a controlling financial interest
through ownership of a majority voting interest in the entity. We do not
expect the adoption of FIN 46 to have a material impact on our net earnings,
cash flows or financial position.
2003 Adoptions
In the first quarter of 2003, we adopted SFAS No. 143, Accounting for Asset
Retirement Obligations. The adoption did not have an impact on current year
net earnings, cash flows or financial position.
In the first quarter of 2003, we adopted SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred instead of recognizing the liability
at the date of commitment to an exit plan as was previously allowed. The
adoption of SFAS No. 146 did not have a material impact on current year net
earnings, cash flows or financial position.
22
Marshall Field's
Notes to Financial Statements (continued)
In the second quarter of 2003, we adopted SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments and is effective for contracts
entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did
not have an impact on current year net earnings, cash flows or financial
position.
In the third quarter of 2003, we adopted SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 clarifies the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity and is
effective for financial instruments entered into or modified after May 31,
2003 or otherwise for the first interim period beginning after June 15, 2003.
The adoption of SFAS No. 150 did not have an impact on current year net
earnings, cash flows or financial position.
Subsequent Events
Subsequent to January 31, 2004, Target Corporation reached an agreement to
sell substantially all of the operating assets of Marshall Field's for
approximately $3.2 billion in cash. The sale, which is subject to regulatory
approval, is expected to be finalized during fiscal year 2004.
23