Target Fr: Me Re: Funding

Target

Fr: Me

Re: Funding Options for Target Corporation

In regards to the funding options available to Target Corporation, the following is submitted for your perusal. There are currently two separate companies interested in providing funding for Target Corporation.

Company #1 is interested in providing funding by investing in Target Corporation. Company #1 proposes to accomplish this by purchasing newly issued shares from Target Corporation.

Our publicly traded stock is trading at $47.22 (as of August 4, 2006) and as of the end of fiscal year 2005 there were 874.1 million shares outstanding, which is the fewest shares Target has had outstanding since before the year 2000. At the end of fiscal year 2005 the basic Earnings Per Share (EPS) was 2.73 and the diluted EPS was 2.71.

If it is decided by management that this is the method in which new funding will be garnered then the following figures should be helpful in discussions towards that end. We should be able to emphasize a number of positive events that have taken place the last few years and especially in 2005. One of those facts is that Target has an EBIT of 8.2% which is the highest it has been since before the year 2000. Another strong item is that revenues per square foot have grown steadily each of the last 5 years, starting at $272 (in millions) in 2000 and growing incrementally each year until 2005 where it now stands at $307.

Target has also been purchasing back its shares during the previous five years which leaves the corporation in an excellent position to issue more shares without a drastic dilution for the current shareholders.

The corporation is also in excellent condition financially, which makes the corporation an attractive investment. The total number of stores has grown from 977 in the last five years to 1397 currently and the 'SuperTarget' stores have gone from 30 in 2000 to 158 in 2005. Our distribution centers have more than doubled during that time frame as well, growing from 12 in 2000 to 26 by the end of fiscal year 2005.

On the other hand, Company #2 would also like to provide funding for Target Corporation, but they would like to do so in the form of a straight business loan. The information provided for discussions with this particular company will consist of the following; sales at the end of fiscal year 2005 were $51,271 (in millions) as compared to $29,462 at the end of 2000. This growth portrays the strong sales revenue necessary to pay the interest and principal payments on any loans. The corporation's net interest expense has also fallen dramatically and is at the lowest point it has been since 2001. At the end of fiscal year 2005 it was 463 (in millions) versus 570 from the previous year. Target also remains strong in EBIT with a 8.2% and its dividends have growing strongly each year as well. In fiscal year 2000 the annual dividend was.215 per share and it currently is.38 per share (as of fiscal year 2005).

The year end receivables rose over 12% in 2005 and now totals approximately $6,117 millions, mainly from credit card issuance and usage of those credit options by Target customers.

Target Corporation also has a philosophy that seeks to manage its debt and equity ratios which is evidenced by the fact that it has repurchased over $5 billion of its common stock during the last couple of years, as well as maintaining its short- and long-term debt maturities, so that they all do not come due at the same time, putting pressure on any cash flow.