Target Corp 10-Q for FY2023 Q2
Target Corp (TGT)
10-Q
2022-08-26
For: 2022-07-30
View Original
Added on
April 02, 2026
About this 10-Q
Target Corp filed this 10-Q on August 26, 2022, covering the quarter ended July 30, 2022 (FY2023 Q2).
Headline figures
Quarter ended July 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $26.04B
- up 3.5% from $25.16B a year earlier
- Net income
- $183M
- down 89.9% from net income of $1.82B a year earlier
- Diluted EPS
- $0.39
- down 89.3% from $3.65 a year earlier
| UNITED STATES SECURITIES AND EXCHANGE COMMISSION | ||
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended July 30, 2022
OR
For the transition period from ____ to ____
Commission File Number 1-6049
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(Address of principal executive offices)
(I.R.S. Employer Identification No.)
(Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Total shares of common stock, par value $0.0833, outstanding at August 19, 2022, were 460,262,630 .
TARGET CORPORATION
TABLE OF CONTENTS
| FINANCIAL STATEMENTS | ||||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| Consolidated Statements of Operations | |||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (millions, except per share data) (unaudited) | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||
| Sales | $ | $ | $ | $ | |||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization (exclusive of depreciation included in cost of sales) | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Net interest expense | |||||||||||||||||||||||
| Net other (income) / expense | ( | ( | ( | ( | |||||||||||||||||||
| Earnings before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Antidilutive shares | |||||||||||||||||||||||
| TARGET CORPORATION |  | Q2 2022 Form 10-Q | 1 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Comprehensive Income | |||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (millions) (unaudited) | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||
| Pension benefit liabilities | |||||||||||||||||||||||
| Cash flow hedges and currency translation adjustment | ( | ( | |||||||||||||||||||||
| Other comprehensive income | ( | ||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 2 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Financial Position | |||||||||||||||||
| (millions, except footnotes) (unaudited) | July 30, 2022 | January 29, 2022 | July 31, 2021 | ||||||||||||||
| Assets | |||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||||||||
| Inventory | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Total current assets | |||||||||||||||||
| Property and equipment | |||||||||||||||||
| Land | |||||||||||||||||
| Buildings and improvements | |||||||||||||||||
| Fixtures and equipment | |||||||||||||||||
| Computer hardware and software | |||||||||||||||||
| Construction-in-progress | |||||||||||||||||
| Accumulated depreciation | ( | ( | ( | ||||||||||||||
| Property and equipment, net | |||||||||||||||||
| Operating lease assets | |||||||||||||||||
| Other noncurrent assets | |||||||||||||||||
| Total assets | $ | $ | $ | ||||||||||||||
| Liabilities and shareholders’ investment | |||||||||||||||||
| Accounts payable | $ | $ | $ | ||||||||||||||
| Accrued and other current liabilities | |||||||||||||||||
| Current portion of long-term debt and other borrowings | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Long-term debt and other borrowings | |||||||||||||||||
| Noncurrent operating lease liabilities | |||||||||||||||||
| Deferred income taxes | |||||||||||||||||
| Other noncurrent liabilities | |||||||||||||||||
| Total noncurrent liabilities | |||||||||||||||||
| Shareholders’ investment | |||||||||||||||||
| Common stock | |||||||||||||||||
| Additional paid-in capital | |||||||||||||||||
| Retained earnings | |||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ( | ||||||||||||||
| Total shareholders’ investment | |||||||||||||||||
| Total liabilities and shareholders’ investment | $ | $ | $ | ||||||||||||||
Common Stock Authorized 6,000,000,000 0.0833 460,236,393 471,274,073 489,651,196
Preferred Stock Authorized 5,000,000 0.01 no
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 3 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Cash Flows | ||||||||||||||
| Six Months Ended | ||||||||||||||
| (millions) (unaudited) | July 30, 2022 | July 31, 2021 | ||||||||||||
| Operating activities | ||||||||||||||
| Net earnings | $ | $ | ||||||||||||
| Adjustments to reconcile net earnings to cash (required for) provided by operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Share-based compensation expense | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Gain on Dermstore sale | ( | |||||||||||||
Noncash losses / (gains) and other, net | ||||||||||||||
| Changes in operating accounts: | ||||||||||||||
| Inventory | ( | ( | ||||||||||||
| Other assets | ( | |||||||||||||
| Accounts payable | ( | ( | ||||||||||||
| Accrued and other liabilities | ( | ( | ||||||||||||
| Cash (required for) provided by operating activities | ( | |||||||||||||
| Investing activities | ||||||||||||||
| Expenditures for property and equipment | ( | ( | ||||||||||||
| Proceeds from disposal of property and equipment | ||||||||||||||
| Proceeds from Dermstore sale | ||||||||||||||
| Other investments | ( | |||||||||||||
| Cash required for investing activities | ( | ( | ||||||||||||
| Financing activities | ||||||||||||||
| Change in commercial paper, net | ||||||||||||||
| Reductions of long-term debt | ( | ( | ||||||||||||
| Dividends paid | ( | ( | ||||||||||||
| Repurchase of stock | ( | ( | ||||||||||||
| Stock option exercises | ||||||||||||||
| Cash required for financing activities | ( | ( | ||||||||||||
| Net decrease in cash and cash equivalents | ( | ( | ||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
| Supplemental information | ||||||||||||||
| Leased assets obtained in exchange for new finance lease liabilities | $ | $ | ||||||||||||
| Leased assets obtained in exchange for new operating lease liabilities | ||||||||||||||
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 4 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Shareholders’ Investment | |||||||||||||||||||||||||||||||||||
| Common | Stock | Additional | Accumulated Other | ||||||||||||||||||||||||||||||||
| Stock | Par | Paid-in | Retained | Comprehensive | |||||||||||||||||||||||||||||||
| (millions) (unaudited) | Shares | Value | Capital | Earnings | (Loss) / Income | Total | |||||||||||||||||||||||||||||
| January 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Repurchase of stock | ( | ( | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock options and awards | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| May 1, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Repurchase of stock | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock options and awards | — | — | — | ||||||||||||||||||||||||||||||||
| July 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Repurchase of stock | ( | ( | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock options and awards | — | — | — | — | |||||||||||||||||||||||||||||||
| October 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Repurchase of stock | ( | ( | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock options and awards | — | — | — | ||||||||||||||||||||||||||||||||
| January 29, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 5 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Shareholders’ Investment | |||||||||||||||||||||||||||||||||||
| Common | Stock | Additional | Accumulated Other | ||||||||||||||||||||||||||||||||
| Stock | Par | Paid-in | Retained | Comprehensive | |||||||||||||||||||||||||||||||
| (millions) (unaudited) | Shares | Value | Capital | Earnings | (Loss) / Income | Total | |||||||||||||||||||||||||||||
| January 29, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Repurchase of stock | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Accelerated share repurchase pending final settlement | ( | ( | ( | ( | — | ( | |||||||||||||||||||||||||||||
| Stock options and awards | ( | — | — | ( | |||||||||||||||||||||||||||||||
| April 30, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Dividends declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Repurchase of stock | ( | ( | ( | — | |||||||||||||||||||||||||||||||
| Stock options and awards | — | — | — | ||||||||||||||||||||||||||||||||
| July 31, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
We declared $1.08 and $0.90 dividends per share for the three months ended July 30, 2022, and July 31, 2021, and $3.38 per share for the fiscal year ended January 29, 2022.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 6 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| INDEX | ||||||||
| INDEX TO NOTES | |||||||||||
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 7 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
Notes to Consolidated Financial Statements (unaudited)
1. Accounting Policies
These unaudited condensed consolidated financial statements are prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (U.S. GAAP) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in our 2021 Form 10-K.
We use the same accounting policies in preparing quarterly and annual financial statements.
We operate as a single segment that is designed to enable guests to purchase products seamlessly in stores or through our digital channels. Nearly all of our revenues are generated in the U.S. The vast majority of our long-lived assets are located within the U.S.
Due to the seasonal nature of our business, quarterly revenues, expenses, earnings, and cash flows are not necessarily indicative of the results that may be expected for the full year.
2. Dermstore Sale
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 8 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
3. Revenues
General merchandise sales represent the vast majority of our revenues. We also earn revenues from a variety of other sources, most notably credit card profit-sharing income from our arrangement with TD Bank Group (TD).
| Revenues | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| (millions) | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||
Apparel and accessories (a) | $ | $ | $ | $ | |||||||||||||||||||
Beauty and household essentials (b) | |||||||||||||||||||||||
Food and beverage (c) | |||||||||||||||||||||||
Hardlines (d) | |||||||||||||||||||||||
Home furnishings and décor (e) | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Sales | |||||||||||||||||||||||
| Credit card profit sharing | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
(a)Includes apparel for women, men, boys, girls, toddlers, infants and newborns, as well as jewelry, accessories, and shoes.
(b)Includes beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
(c)Includes dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and food service in our stores.
(d)Includes electronics (including video game hardware and software), toys, entertainment, sporting goods, and luggage.
(e)Includes furniture, lighting, storage, kitchenware, small appliances, home décor, bed and bath, home improvement, school/office supplies, greeting cards and party supplies, and other seasonal merchandise.
Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.
| Gift Card Liability Activity | January 29, 2022 | Gift Cards Issued During Current Period But Not Redeemed (b) | Revenue Recognized From Beginning Liability | July 30, 2022 | |||||||||||||||||||
| (millions) | |||||||||||||||||||||||
Gift card liability (a) | $ | $ | $ | ( | $ | ||||||||||||||||||
(a)Included in Accrued and Other Current Liabilities.
(b)Net of estimated breakage.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 9 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
4. Fair Value Measurements
Fair value measurements are reported in one of three levels reflecting the significant inputs used to determine fair value.
| Financial Instruments Measured On a Recurring Basis | Fair Value | ||||||||||||||||||||||
| (millions) | Classification | Measurement Level | July 30, 2022 | January 29, 2022 | July 31, 2021 | ||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Short-term investments | Cash and Cash Equivalents | Level 1 | $ | $ | $ | ||||||||||||||||||
| Prepaid forward contracts | Other Current Assets | Level 1 | |||||||||||||||||||||
| Interest rate swaps | Other Current Assets | Level 2 | |||||||||||||||||||||
| Interest rate swaps | Other Noncurrent Assets | Level 2 | |||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Interest rate swaps | Other Noncurrent Liabilities | Level 2 | |||||||||||||||||||||
Significant Financial Instruments Not Measured at Fair Value (a) (millions) | July 30, 2022 | January 29, 2022 | July 31, 2021 | |||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||
Long-term debt, including current portion (b) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
(a)The carrying amounts of certain other current assets, commercial paper, accounts payable, and certain accrued and other current liabilities approximate fair value due to their short-term nature.
(b)The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2. These amounts exclude commercial paper, unamortized swap valuation adjustments, and lease liabilities.
5. Property and Equipment
6. Commercial Paper and Long-Term Debt
7. Derivative Financial Instruments
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 10 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
We were party to interest rate swaps with notional amounts totaling $2.25 billion as of July 30, 2022, and $1.5
We were party to forward-starting interest rate swaps with notional amounts totaling $2.15 250 million as of July 31, 2021. We use these derivative financial instruments, which have been designated as cash flow hedges, to hedge the interest rate exposure of anticipated future debt issuances during the next three years. Based on the fair value of these swaps as of July 30, 2022, Accumulated Other Comprehensive Loss (AOCI) included an unrealized gain of $296 million. Any unrealized gain or loss at the time of debt issuance will be reclassified and impact Net Interest Expense as we record interest expense on the associated debt.
Effect of Hedges on Debt (millions) | July 30, 2022 | January 29, 2022 | July 31, 2021 | |||||||||||||||||
| Long-term debt and other borrowings | ||||||||||||||||||||
| Carrying amount of hedged debt | $ | $ | $ | |||||||||||||||||
| Cumulative hedging adjustments, included in carrying amount | ||||||||||||||||||||
| Effect of Hedges on Net Interest Expense | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| (millions) | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||
| Gain (loss) on fair value hedges recognized in Net Interest Expense | |||||||||||||||||||||||
| Interest rate swap designated as fair value hedges | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Hedged debt | ( | ( | |||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
8. Income Taxes
9. Share Repurchase
We periodically repurchase shares of our common stock under a board-authorized repurchase program through a combination of open market transactions, accelerated share repurchase (ASR) arrangements, and other privately negotiated transactions with financial institutions.
| Share Repurchase Activity | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| (millions, except per share data) | July 31, 2022 (a) | July 31, 2021 | July 31, 2022 (a) | July 31, 2021 | |||||||||||||||||||
| Number of shares purchased | |||||||||||||||||||||||
| Average price paid per share | $ | $ | $ | $ | |||||||||||||||||||
| Total investment | $ | $ | $ | $ | |||||||||||||||||||
(a) Includes activity related to the ASR arrangement entered in first quarter 2022 because final settlement occurred in second quarter 2022. Under the ASR arrangement, we repurchased 12.5 million shares for a total cash investment of $2.6 billion. We did not enter into any other ASR arrangements during the periods presented.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 11 | ||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
10. Pension Benefits
We provide pension plan benefits to eligible team members.
| Net Pension Benefits Expense | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||
| (millions) | Classification | July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | |||||||||||||||||||||
| Service cost benefits earned | SG&A | $ | $ | $ | $ | |||||||||||||||||||||
| Interest cost on projected benefit obligation | Net Other (Income) / Expense | |||||||||||||||||||||||||
| Expected return on assets | Net Other (Income) / Expense | ( | ( | ( | ( | |||||||||||||||||||||
| Amortization of losses | Net Other (Income) / Expense | |||||||||||||||||||||||||
| Amortization of prior service cost | Net Other (Income) / Expense | ( | ( | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
11. Accumulated Other Comprehensive Income (Loss)
| Change in Accumulated Other Comprehensive Income (Loss) | Cash Flow Hedges | Currency Translation Adjustment | Pension | Total | |||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| January 29, 2022 | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of tax | ( | ||||||||||||||||||||||
| Amounts reclassified from AOCI, net of tax | |||||||||||||||||||||||
| July 30, 2022 | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 12 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| FINANCIAL SUMMARY | ||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Summary
Second quarter 2022 included the following notable items:
•GAAP diluted earnings per share were $0.39.
•Adjusted diluted earnings per share were $0.39.
•Total revenue increased 3.5 percent, reflecting total sales growth of 3.3 percent and a 14.8 percent increase in other revenue.
•Comparable sales increased 2.6 percent, driven by a 2.7 percent increase in traffic.
◦Comparable stores originated sales grew 1.3 percent.
◦Comparable digitally originated sales increased 9.0 percent.
•Operating income of $321 million was 87.0 percent lower than the comparable prior-year period, driven primarily by a decrease in gross margin, reflecting inventory actions taken as a result of lower-than-expected sales in our discretionary categories (Apparel and Accessories, Hardlines, and Home Furnishings and Décor) and supply chain disruptions, as well as increased freight and merchandise costs. See Business Environment below for additional information.
Sales were $25.7 billion for the three months ended July 30, 2022, an increase of $0.8 billion, or 3.3 percent, from the comparable prior-year period. Cash flow required for operating activities was $47 million for the six months ended July 30, 2022, compared with $3.4 billion cash flow provided by operating activities for the six months ended July 31, 2021. The drivers of the operating cash flow decrease are described on page 20.
| Earnings Per Share | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | Change | July 30, 2022 | July 31, 2021 | Change | ||||||||||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 0.39 | $ | 3.65 | (89.2) | % | $ | 2.55 | $ | 7.82 | (67.4) | % | |||||||||||||||||||||||
| Adjustments | — | (0.01) | 0.03 | (0.48) | |||||||||||||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 0.39 | $ | 3.64 | (89.2) | % | $ | 2.59 | $ | 7.34 | (64.8) | % | |||||||||||||||||||||||
Note: Amounts may not foot due to rounding. Adjusted diluted earnings per share (Adjusted EPS), a non-GAAP metric, excludes the impact of certain items. Management believes that Adjusted EPS is useful in providing period-to-period comparisons of the results of our operations. A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 18.
We report after-tax return on invested capital (ROIC) because we believe ROIC provides a meaningful measure of our capital allocation effectiveness over time. For the trailing twelve months ended July 30, 2022, after-tax ROIC was 18.4 percent, compared with 31.7 percent for the trailing twelve months ended July 31, 2021. The calculation of ROIC is provided on page 19.
Business Environment
During the first two quarters of 2022, we have seen a shift in consumer demand away from discretionary categories (Apparel and Accessories, Hardlines, and Home Furnishings and Décor), resulting in lower-than-expected sales and higher-than-expected inventories in these areas. In response to this shift in demand, we took several actions to address our inventory position and create additional flexibility in a rapidly changing environment, including increasing promotional and clearance markdowns, removing excess inventory, and cancelling purchase orders. These factors, net of pricing actions we have taken to address the impact of merchandise and freight cost inflation, have resulted in decreased profitability in the first half of 2022 compared to the prior-year period. Additionally, in response to continued disruption in our supply chain, we have ordered and are receiving merchandise earlier, and added incremental holding capacity near U.S. ports to add flexibility in the portions of the supply chain most affected by external volatility. We believe that the actions we have taken, including the reduction of orders for Fall merchandise in our discretionary categories, reduce our risks and provide additional flexibility to focus on serving guests in a rapidly changing environment. The Gross Margin Rate analysis on page 16 and the Inventory section on page 20 provide additional information.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 13 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF RESULTS OF OPERATIONS | ||||||||
Analysis of Results of Operations
| Summary of Operating Income | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||
| (dollars in millions) | July 30, 2022 | July 31, 2021 | Change | July 30, 2022 | July 31, 2021 | Change | |||||||||||||||||||||||||||||
| Sales | $ | 25,653 | $ | 24,826 | 3.3 | % | $ | 50,483 | $ | 48,705 | 3.7 | % | |||||||||||||||||||||||
| Other revenue | 384 | 334 | 14.8 | 724 | 652 | 10.9 | |||||||||||||||||||||||||||||
| Total revenue | 26,037 | 25,160 | 3.5 | 51,207 | 49,357 | 3.7 | |||||||||||||||||||||||||||||
| Cost of sales | 20,142 | 17,280 | 16.6 | 38,603 | 33,996 | 13.6 | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 5,002 | 4,849 | 3.1 | 9,764 | 9,358 | 4.3 | |||||||||||||||||||||||||||||
| Depreciation and amortization (exclusive of depreciation included in cost of sales) | 572 | 564 | 1.5 | 1,173 | 1,162 | 0.9 | |||||||||||||||||||||||||||||
| Operating income | $ | 321 | $ | 2,467 | (87.0) | % | $ | 1,667 | $ | 4,841 | (65.6) | % | |||||||||||||||||||||||
| Rate Analysis | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||
| Gross margin rate | 21.5 | % | 30.4 | % | 23.5 | % | 30.2 | % | |||||||||||||||
| SG&A expense rate | 19.2 | 19.3 | 19.1 | 19.0 | |||||||||||||||||||
| Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales) | 2.2 | 2.2 | 2.3 | 2.4 | |||||||||||||||||||
| Operating income margin rate | 1.2 | 9.8 | 3.3 | 9.8 | |||||||||||||||||||
Note: Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales. All other rates are calculated by dividing the applicable amount by total revenue.
Sales
Sales include all merchandise sales, net of expected returns, and our estimate of gift card breakage. We use comparable sales to evaluate the performance of our stores and digital channel sales by measuring the change in sales for a period over the comparable prior-year period of equivalent length. Comparable sales include all sales, except sales from stores open less than 13 months, digital acquisitions we have owned less than 13 months, stores that have been closed, and digital acquisitions that we no longer operate. Comparable sales measures vary across the retail industry. As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies. Digitally originated sales include all sales initiated through mobile applications and our websites. Our stores fulfill the majority of digitally originated sales, including shipment from stores to guests, store Order Pickup or Drive Up, and delivery via Shipt. Digitally originated sales may also be fulfilled through our distribution centers, our vendors, or other third parties.
Sales growth—from both comparable sales and new stores—represents an important driver of our long-term profitability. We expect that comparable sales growth will drive the majority of our total sales growth. We believe that our ability to successfully differentiate our guests’ shopping experience through a careful combination of merchandise assortment, price, convenience, guest experience, and other factors will, over the long-term, drive both increasing shopping frequency (traffic) and the amount spent each visit (average transaction amount).
| Comparable Sales | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||
| Comparable sales change | 2.6 | % | 8.9 | % | 3.0 | % | 15.3 | % | |||||||||||||||
| Drivers of change in comparable sales | |||||||||||||||||||||||
| Number of transactions (traffic) | 2.7 | 12.7 | 3.3 | 14.8 | |||||||||||||||||||
| Average transaction amount | 0.0 | (3.4) | (0.3) | 0.5 | |||||||||||||||||||
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 14 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF RESULTS OF OPERATIONS | ||||||||
| Comparable Sales by Channel | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||
| Stores originated comparable sales change | 1.3 | % | 8.7 | % | 2.3 | % | 13.0 | % | |||||||||||||||
| Digitally originated comparable sales change | 9.0 | 9.9 | 6.1 | 27.3 | |||||||||||||||||||
| Sales by Channel | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||
| Stores originated | 82.1 | % | 83.0 | % | 81.9 | % | 82.3 | % | |||||||||||||||
| Digitally originated | 17.9 | 17.0 | 18.1 | 17.7 | |||||||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
| Sales by Fulfillment Channel | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||
| Stores | 96.6 | % | 96.6 | % | 96.6 | % | 96.4 | % | |||||||||||||||
| Other | 3.4 | 3.4 | 3.4 | 3.6 | |||||||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
Note: Sales fulfilled by stores include in-store purchases and digitally originated sales fulfilled by shipping merchandise from stores to guests, Order Pickup, Drive Up, and Shipt.
| Sales by Product Category | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||
| Apparel and accessories | 18 | % | 19 | % | 18 | % | 18 | % | |||||||||||||||
| Beauty and household essentials | 28 | 27 | 28 | 27 | |||||||||||||||||||
| Food and beverage | 21 | 19 | 21 | 20 | |||||||||||||||||||
| Hardlines | 15 | 16 | 15 | 16 | |||||||||||||||||||
| Home furnishings and décor | 18 | 19 | 18 | 19 | |||||||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
Note 3 to the Financial Statements provides additional product category sales information. The collective interaction of a broad array of macroeconomic, competitive, and consumer behavioral factors, as well as sales mix and the transfer of sales to new stores, makes further analysis of sales metrics infeasible.
We monitor the percentage of purchases that are paid for using RedCards (RedCard Penetration) because our internal analysis has indicated that a meaningful portion of the incremental purchases on RedCards are also incremental sales for Target. Guests receive a 5 percent discount on virtually all purchases when they use a RedCard at Target. RedCard sales increased for the three and six months ended July 30, 2022, and July 31, 2021; however, RedCard penetration declined as total Sales increased at a faster pace.
| RedCard Penetration | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||
| Target Debit Card | 11.2 | % | 11.6 | % | 11.4 | % | 11.9 | % | |||||||||||||||
| Target Credit Cards | 8.9 | 8.7 | 8.8 | 8.6 | |||||||||||||||||||
| Total RedCard Penetration | 20.1 | % | 20.3 | % | 20.2 | % | 20.4 | % | |||||||||||||||
Note: Amounts may not foot due to rounding.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 15 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF RESULTS OF OPERATIONS | ||||||||
Gross Margin Rate
Quarter-to-Date
Year-to-Date
For the three months ended July 30, 2022, our gross margin rate was 21.5 percent compared with 30.4 percent in the comparable prior-year period. For the six months ended July 30, 2022, our gross margin rate was 23.5 percent compared with 30.2 percent in the comparable prior-year period. For both the three and six months ended July 30, 2022, the decrease reflected the net impact of
•merchandising pressure, including
◦higher clearance and promotional markdown rates, which were largely the result of inventory impairments and other actions taken in our discretionary categories; and
◦higher merchandise and freight costs and higher inventory shrink, partially offset by the benefit of retail price increases;
•supply chain pressure related to increased compensation and headcount in our distribution centers, costs of managing excess inventory, and higher last-mile shipping cost; and
•unfavorable mix in the relative growth rates of higher and lower margin categories.
Business Environment on page 13 provides additional information.
Selling, General, and Administrative Expense Rate
For the three months ended July 30, 2022, our SG&A expense rate was 19.2 percent compared with 19.3 percent for the comparable prior-year period. For the six months ended July 30, 2022, our SG&A expense rate was 19.1 percent compared with 19.0 percent for the comparable prior-year end. For both the three and six months ended July 30, 2022, the rates reflected lower incentive compensation, and the net impact of cost increases across our business, including investments in hourly team member wages, compared to the comparable prior-year periods.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 16 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF RESULTS OF OPERATIONS | ||||||||
Store Data
| Change in Number of Stores | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||
| Beginning store count | 1,933 | 1,909 | 1,926 | 1,897 | |||||||||||||||||||
| Opened | 5 | 2 | 12 | 14 | |||||||||||||||||||
| Closed | (1) | (2) | (1) | (2) | |||||||||||||||||||
| Ending store count | 1,937 | 1,909 | 1,937 | 1,909 | |||||||||||||||||||
| Number of Stores and Retail Square Feet | Number of Stores | Retail Square Feet (a) | |||||||||||||||||||||
| July 30, 2022 | January 29, 2022 | July 31, 2021 | July 30, 2022 | January 29, 2022 | July 31, 2021 | ||||||||||||||||||
| 170,000 or more sq. ft. | 273 | 274 | 273 | 48,798 | 49,071 | 48,798 | |||||||||||||||||
| 50,000 to 169,999 sq. ft. | 1,521 | 1,516 | 1,510 | 190,734 | 190,205 | 189,624 | |||||||||||||||||
| 49,999 or less sq. ft. | 143 | 136 | 126 | 4,256 | 4,008 | 3,709 | |||||||||||||||||
| Total | 1,937 | 1,926 | 1,909 | 243,788 | 243,284 | 242,131 | |||||||||||||||||
(a)In thousands; reflects total square feet less office, distribution center, and vacant space.
Other Performance Factors
Net Interest Expense
Net interest expense was $112 million and $224 million for the three and six months ended July 30, 2022, respectively, compared with $104 million and $212 million in the comparable prior-year periods. The increase in net interest expense was primarily due to higher average debt and commercial paper levels for the three and six months ended July 30, 2022, compared with the prior-year periods.
Net Other (Income) / Expense
Net Other (Income) / Expense was $(8) million and $(23) million for the three and six months ended July 30, 2022, respectively, compared with $(7) million and $(350) million in the comparable prior-year periods. The six months ended July 31, 2021, included the $335 million pretax gain on the February 2021 sale of Dermstore. Note 2 to the Financial Statements provides additional information.
Provision for Income Taxes
Our effective income tax rate for the three and six months ended July 30, 2022, was 15.8 percent and 18.7 percent, respectively, compared with 23.4 percent and 21.4 percent in the respective comparable prior-year periods. For the three month period, the decrease reflects lower pretax earnings in the current year resulting in a larger tax rate benefit from ongoing and discrete tax items. For the six month period, the decrease reflects lower pretax earnings in the current period, partially offset by the impacts of discrete tax benefits in the prior-year period, including the resolution of certain income tax matters. Our effective tax rate is generally more volatile at lower amounts of pretax income because the impact of discrete, deductible, and nondeductible tax items and credits is greater.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 17 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share (Adjusted EPS). This metric excludes certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our operations. This measure is not in accordance with, or an alternative to, U.S. GAAP. The most comparable GAAP measure is diluted earnings per share. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate Adjusted EPS differently, limiting the usefulness of the measure for comparisons with other companies.
| Reconciliation of Non-GAAP Adjusted EPS | Three Months Ended | |||||||||||||||||||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||||||||||||||||
| (millions, except per share data) | Pretax | Net of Tax | Per Share | Pretax | Net of Tax | Per Share | ||||||||||||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 0.39 | $ | 3.65 | ||||||||||||||||||||||||||||||||||
| Adjustments | ||||||||||||||||||||||||||||||||||||||
Other (a) | $ | — | $ | — | $ | — | $ | (5) | $ | (4) | $ | (0.01) | ||||||||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 0.39 | $ | 3.64 | ||||||||||||||||||||||||||||||||||
| Reconciliation of Non-GAAP Adjusted EPS | Six Months Ended | |||||||||||||||||||||||||||||||||||||
| July 30, 2022 | July 31, 2021 | |||||||||||||||||||||||||||||||||||||
| (millions, except per share data) | Pretax | Net of Tax | Per Share | Pretax | Net of Tax | Per Share | ||||||||||||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 2.55 | $ | 7.82 | ||||||||||||||||||||||||||||||||||
| Adjustments | ||||||||||||||||||||||||||||||||||||||
| Gain on Dermstore sale | $ | — | $ | — | $ | — | $ | (335) | $ | (269) | $ | (0.54) | ||||||||||||||||||||||||||
Other (a) | 20 | 15 | 0.03 | 36 | 27 | 0.05 | ||||||||||||||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 2.59 | $ | 7.34 | ||||||||||||||||||||||||||||||||||
Note: Amounts may not foot due to rounding.
(a)Other items unrelated to current period operations, none of which were individually significant.
Earnings before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation, and amortization (EBITDA) are non-GAAP financial measures. We believe these measures provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and, for EBITDA, capital investment. These measures are not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is net earnings. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measures for comparisons with other companies.
| EBIT and EBITDA | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||
| (dollars in millions) | July 30, 2022 | July 31, 2021 | Change | July 30, 2022 | July 31, 2021 | Change | ||||||||||||||||||||||||||||||||
| Net earnings | $ | 183 | $ | 1,817 | (89.9) | % | $ | 1,192 | $ | 3,914 | (69.6) | % | ||||||||||||||||||||||||||
| + Provision for income taxes | 34 | 553 | (93.8) | 274 | 1,065 | (74.3) | ||||||||||||||||||||||||||||||||
| + Net interest expense | 112 | 104 | 8.0 | 224 | 212 | 5.8 | ||||||||||||||||||||||||||||||||
| EBIT | $ | 329 | $ | 2,474 | (86.7) | % | $ | 1,690 | $ | 5,191 | (67.4) | % | ||||||||||||||||||||||||||
+ Total depreciation and amortization (a) | 650 | 633 | 2.8 | 1,329 | 1,300 | 2.3 | ||||||||||||||||||||||||||||||||
| EBITDA | $ | 979 | $ | 3,107 | (68.5) | % | $ | 3,019 | $ | 6,491 | (53.5) | % | ||||||||||||||||||||||||||
(a)Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 18 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||
We have also disclosed after-tax ROIC, which is a ratio based on GAAP information, with the exception of the add-back of operating lease interest to operating income. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.
| After-Tax Return on Invested Capital | ||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||
| Trailing Twelve Months | ||||||||||||||||||||||||||
| Numerator | July 30, 2022 | July 31, 2021 | ||||||||||||||||||||||||
| Operating income | $ | 5,773 | $ | 8,611 | ||||||||||||||||||||||
| + Net other income / (expense) | 54 | 346 | ||||||||||||||||||||||||
| EBIT | 5,827 | 8,957 | ||||||||||||||||||||||||
+ Operating lease interest (a) | 88 | 84 | ||||||||||||||||||||||||
- Income taxes (b) | 1,282 | 1,918 | ||||||||||||||||||||||||
| Net operating profit after taxes | $ | 4,633 | $ | 7,123 | ||||||||||||||||||||||
| Denominator | July 30, 2022 | July 31, 2021 | August 1, 2020 | |||||||||||||||||
| Current portion of long-term debt and other borrowings | $ | 1,649 | $ | 1,190 | $ | 109 | ||||||||||||||
| + Noncurrent portion of long-term debt | 13,453 | 11,589 | 14,188 | |||||||||||||||||
| + Shareholders' investment | 10,592 | 14,860 | 12,578 | |||||||||||||||||
+ Operating lease liabilities (c) | 2,823 | 2,695 | 2,448 | |||||||||||||||||
| - Cash and cash equivalents | 1,117 | 7,368 | 7,284 | |||||||||||||||||
| Invested capital | $ | 27,400 | $ | 22,966 | $ | 22,039 | ||||||||||||||
Average invested capital (d) | $ | 25,183 | $ | 22,502 | ||||||||||||||||
| After-tax return on invested capital | 18.4 | % | 31.7 | % | ||||||||||||||||
(a)Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A. Operating lease interest is added back to operating income in the ROIC calculation to control for differences in capital structure between us and our competitors.
(b)Calculated using the effective tax rates, which were 21.7 percent and 21.2 percent for the trailing twelve months ended July 30, 2022, and July 31, 2021, respectively. For the trailing twelve months ended July 30, 2022, and July 31, 2021, includes tax effect of $1.3 billion and $1.9 billion related to EBIT, and $19 million and $18 million, respectively, related to operating lease interest.
(c)Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities, respectively.
(d)Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 19 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF FINANCIAL CONDITION | ||||||||
Analysis of Financial Condition
Liquidity and Capital Resources
Capital Allocation
We follow a disciplined and balanced approach to capital allocation based on the following priorities, ranked in order of importance: first, we fully invest in opportunities to profitably grow our business, create sustainable long-term value, and maintain our current operations and assets; second, we maintain a competitive quarterly dividend and seek to grow it annually; and finally, we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals.
Our cash and cash equivalents balance was $1.1 billion, $5.9 billion, and $7.4 billion as of July 30, 2022, January 29, 2022, and July 31, 2021, respectively. Our cash and cash equivalents balance includes short-term investments of $189 million, $5.0 billion, and $6.4 billion as of July 30, 2022, January 29, 2022, and July 31, 2021, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. 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 dollar limits on our investments in individual funds or instruments.
Operating Cash Flows
Cash flows required for operating activities were $47 million for the six months ended July 30, 2022, compared with $3.4 billion of cash flows provided by operating activities for the six months ended July 31, 2021. For the six months ended July 30, 2022, operating cash flows decreased as a result of lower earnings, increased inventory levels and lower accounts payable leverage due to decreased inventory turnover, compared with the six months ended July 31, 2021.
Inventory
Inventory was $15.3 billion as of July 30, 2022, compared with $13.9 billion and $11.3 billion at January 29, 2022, and July 31, 2021, respectively. The increase over the balance as of July 31, 2021, primarily reflects the following:
•our decision to move merchandise receipt timing earlier due to expected supply chain volatility,
•investments in our inventory position in our frequency categories (Food and Beverage and Beauty and Household Essentials),
•lower-than-expected sales in our discretionary categories, partially offset by actions taken during the current year to reduce excess inventory in these categories, and
•increases in unit costs across all of our categories.
The increase was amplified by unintentionally low inventory levels last year resulting from supply chain disruptions, and demand shifts, described within the Business Environment section on page 13.
Investing Cash Flows
Investing cash flows included capital investments of $2.5 billion and $1.3 billion for the six months ended July 30, 2022, and July 31, 2021, respectively. The increase primarily reflects an increase in store remodel activity, investment in supply chain, and the impact of inflation on these projects. For the six months ended July 31, 2021, investing cash flows included $356 million of proceeds from the sale of Dermstore.
Dividends
We paid dividends totaling $417 million ($0.90 per share) and $841 million ($1.80 per share) for the three and six months ended July 30, 2022, respectively, and $336 million ($0.68 per share) and $676 million ($1.36 per share) for the three and six months ended July 31, 2021, respectively, a per share increase of 32.4 percent. We declared dividends totaling $502 million ($1.08 per share) during the second quarter of 2022 and $445 million ($0.90 per share) during the second quarter of 2021, a per share increase of 20.0 percent. We have paid dividends every quarter since our 1967 initial public offering, and it is our intent to continue to do so in the future.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 20 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF FINANCIAL CONDITION | ||||||||
Share Repurchase
We returned $2.6 billion to shareholders through share repurchase during the six months ended July 30, 2022. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q and Note 9 to the Financial Statements for more information.
Financing
Our financing strategy is to ensure liquidity and access to capital markets, to maintain a balanced spectrum of debt maturities, and to manage our net exposure to floating interest rate volatility. Within these parameters, we seek to minimize our borrowing costs. Our ability to access the long-term debt and commercial paper markets has provided us with ample sources of liquidity. Our continued access to these markets depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings. As of July 30, 2022, our credit ratings were as follows:
| Credit Ratings | Moody’s | Standard and Poor’s | Fitch | ||||||||
| Long-term debt | A2 | A | A | ||||||||
| Commercial paper | P-1 | A-1 | F1 | ||||||||
If our credit ratings were lowered, our ability to access the debt markets, our cost of funds, and other terms 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 ratings will remain the same as described above.
We have the ability to obtain short-term financing from time to time under our commercial paper program and credit facility. Our committed $3.0 billion unsecured revolving credit facility expires in October 2026 and backstops our commercial paper program. No balances were outstanding under our credit facility at any time during 2022 or 2021. As of July 30, 2022, we had $1.5 billion outstanding under our commercial paper program. We did not have any balances outstanding under our commercial paper program as of July 31, 2021. Note 6 to the Financial Statements provides additional information.
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, as of July 30, 2022, no notes or debentures contained provisions requiring acceleration of payment upon a credit 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 credit ratings are either reduced and the resulting rating is non-investment grade, or our long-term credit 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, namely operating cash flows, credit facility capacity, and access to capital markets, will continue to be adequate to meet our contractual obligations, working capital and planned capital expenditures, finance anticipated expansion and strategic initiatives, fund debt maturities, pay dividends, and execute purchases under our share repurchase program for the foreseeable future.
New Accounting Pronouncements
We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 21 | ||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS & SUPPLEMENTAL INFORMATION | ||||||||
| FORWARD LOOKING STATEMENTS & CONTROLS AND PROCEDURES | ||||||||
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 similar words. The principal forward-looking statements in this report include: our financial performance, statements regarding the adequacy of and costs associated with our sources of liquidity, the funding of debt maturities, the continued execution of our share repurchase program, our expected capital expenditures and new lease commitments, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, the expected return on plan assets, the expected outcome of, and adequacy of our reserves for, claims, litigation and the resolution of tax matters, and changes in our assumptions and expectations.
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 in our description of risk factors included in Part I, Item 1A, Risk Factors of our Form 10-K for the fiscal year ended January 29, 2022, 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 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our primary risk exposures or management of market risks from those disclosed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk of our Form 10-K for the fiscal year ended January 29, 2022.
Item 4. Controls and Procedures
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there were no changes which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this quarterly 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 at a reasonable assurance level. 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.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 22 | ||||||||
| SUPPLEMENTAL INFORMATION | ||||||||
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No response is required under Item 103 of Regulation S-K.
Item 1A. Risk Factors
There have been no material changes to the risk factors described in Part I, Item 1A, Risk Factors of our Form 10-K for the fiscal year ended January 29, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 11, 2021, our Board of Directors authorized a $15 billion share repurchase program with no stated expiration. Under the program, we have repurchased 23.8 million shares of common stock at an average price of $223.52, for a total investment of $5.3 billion. The table below presents information with respect to Target common stock purchases made during the three months ended July 30, 2022, by Target or any "affiliated purchaser" of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.
| Share Repurchase Activity | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Programs | ||||||||||||||||||||||
| Period | ||||||||||||||||||||||||||
| May 1, 2022 through May 28, 2022 | ||||||||||||||||||||||||||
| Open market and privately negotiated purchases | — | $ | — | — | $ | 12,316,056,660 | ||||||||||||||||||||
| May 29, 2022 through July 2, 2022 | ||||||||||||||||||||||||||
| Open market and privately negotiated purchases | — | — | — | 12,316,056,660 | ||||||||||||||||||||||
March 2022 ASR (a) | 3,569,904 | 211.58 | 3,569,904 | 9,680,505,231 | ||||||||||||||||||||||
| July 3, 2022 through July 30, 2022 | ||||||||||||||||||||||||||
| Open market and privately negotiated purchases | — | — | — | 9,680,505,231 | ||||||||||||||||||||||
| Total | 3,569,904 | $ | 211.58 | 3,569,904 | $ | 9,680,505,231 | ||||||||||||||||||||
(a)Represents the incremental shares received upon final settlement of the accelerated share repurchase (ASR) agreement initiated in first quarter 2022. $211.58 represents the average price paid per share for the 12.5 million total shares repurchased under the ASR, which consists of the 8.9 million shares initially delivered in first quarter 2022 and the 3.6 million shares received upon final settlement in second quarter 2022. Note 9 to the Financial Statements provides additional information.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 23 | ||||||||
| SUPPLEMENTAL INFORMATION | ||||||||
Item 6. Exhibits
| (3)A | ||||||||
| (3)B | ||||||||
| (10)E | ||||||||
| (10)F | ||||||||
| (10)J | ||||||||
| (10)KK | ||||||||
| (31)A | ||||||||
| (31)B | ||||||||
| (32)A | ||||||||
| (32)B | ||||||||
| 101.INS | XBRL Instance Document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
(1) Incorporated by reference to Exhibit (3)A to the Registrant’s Form 8-K Report filed June 10, 2010.
(2) Incorporated by reference to Exhibit (3)B to the Registrant’s Form 8-K Report filed April 2, 2020.
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 24 | ||||||||
| SUPPLEMENTAL INFORMATION | ||||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TARGET CORPORATION | |||||||||||
| Dated: August 26, 2022 | By: | /s/ Michael J. Fiddelke | |||||||||
| Michael J. Fiddelke | |||||||||||
| Executive Vice President and | |||||||||||
| Chief Financial Officer | |||||||||||
| (Duly Authorized Officer and | |||||||||||
| Principal Financial Officer) | |||||||||||
| /s/ Matthew A. Liegel | |||||||||||
| Matthew A. Liegel | |||||||||||
| Senior Vice President, Chief Accounting Officer | |||||||||||
| and Controller | |||||||||||
| TARGET CORPORATION | | Q2 2022 Form 10-Q | 25 | ||||||||
EXHIBIT 10(E)
TARGET CORPORATION
SPP I
(2022 Plan Statement)
Effective May 1, 2022
As Amended and Restated
i
TARGET CORPORATION
SPP I
(2022 Plan Statement)
TABLE OF CONTENTS
ii
iii
SECTION 1
INTRODUCTION; DEFINITIONS
INTRODUCTION; DEFINITIONS
1.1 History. The Company originally established this Plan (formerly known as the Target Corporation Supplemental Pension Plan I) effective as of January 1, 1995. The Plan is a non-qualified, unfunded plan intended to replace certain pension benefits for a select group of management or highly compensated employees who are officers. The Plan provides retirement benefits not provided under the Pension Plan as a result of the limitations imposed by Code sections 401(a)(17) and 415. The Plan is intended to be a “top hat plan” as defined under the Employee Retirement Income Security Act of 1974, as amended from time to time. Since the effective date of this Plan, upon a Participant becoming an Officer of the Company, the benefit due under the Target Corporation SPP IV has been transferred to this Plan. Effective April 30, 2002, for Participants in this Plan who were members of the Company’s Corporate Operating Committee, the Company transferred the present value of the vested benefit due under this Plan to the Officer EDCP. Effective July 31, 2002, this transfer was extended to all Officers of the Company. After such transfer, no benefits were due or payable to the Participant from this Plan. Further, after the transfer, the individuals would no longer participate in this Plan or be eligible for further accruals under this Plan. Effective January 1, 2005 (and other effective dates as specifically provided), this Plan was operated in compliance with Code section 409A. The Plan, which is intended to comply with Code section 409A, was amended and restated effective January 1, 2009. The Plan was amended to incorporate the Company’s recoupment policy effective January 13, 2010. The Plan was amended and restated to reflect Plan administration and amendment changes authorized by the Board on November 10, 2010 and modification of the Change in Control definition, effective June 8, 2011. The Plan was amended and restated (i) to clarify the definition of executive Officer as being an “executive officer” under Item 401 of Regulation S-K, and (ii) to remove unnecessary language from the recoupment provisions effective April 3, 2016. The Plan was amended and restated effective May 1, 2022, (i) to define the term “Leadership Team Member,” and (ii) to make miscellaneous updating changes to the Plan Statement.
1.2 Definitions. Terms used herein with initial capital letters will have same meaning as those used in the Pension Plan except as otherwise defined below or where the context clearly indicates to the contrary.
1.2.1 Actuarial Equivalent. An “Actuarial Equivalent” will be determined by using such factors and assumptions as the Plan Administrator considers appropriate in its sole and absolute discretion.
1.2.2 Affiliate. An “Affiliate” is the Company and all persons, with whom the Company would be considered a single employer under Code section 414(b) or 414(c).
1.2.3 Beneficiary. The “Beneficiary” is the “Beneficiary” as defined under the Officer EDCP.
1.2.4 Board “Board” is the Board of Directors of the Company, or such committee of the Board of Directors to which the Board of Directors of the Company has delegated the respective authority.
1.2.5 Change in Control. “Change in Control” means one of the following:
1
(a) Individuals who are Continuing Directors cease for any reason to constitute 50% or more of the directors of the Company; or
(b) 30% or more of the outstanding voting power of the Voting Stock of the Company is acquired or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by any Person, other than an entity resulting from a Business Combination in which clauses (x) and (y) of Section 1.2.5(c) apply; or
(c) the consummation of a merger or consolidation of the Company with or into another entity, a statutory share exchange, a sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the Company’s assets or a similar business combination (each, a “Business Combination”), in each case unless, immediately following such Business Combination, (x) all or substantially all of the beneficial owners (within the meaning of Rule 13d-3 under the Exchange Act) of the Company’s Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the voting power of the then outstanding shares of voting stock (or comparable voting equity interests) of the surviving or acquiring entity resulting from such Business Combination (including such beneficial ownership of an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), in substantially the same proportions (as compared to the other beneficial owners of the Company’s Voting Stock immediately prior to such Business Combination) as their beneficial ownership of the Company’s Voting Stock immediately prior to such Business Combination, and (y) no Person beneficially owns, directly or indirectly, 30% or more of the voting power of the outstanding voting stock (or comparable equity interests) of the surviving or acquiring entity (other than a direct or indirect parent entity of the surviving or acquiring entity, that, after giving effect to the Business Combination, beneficially owns, directly or indirectly, 100% of the outstanding voting stock (or comparable equity interests) of the surviving or acquiring entity); or
(d) approval by the shareholders of a definitive agreement or plan to liquidate or dissolve the Company.
For purposes of this Section 1.2.5:
“Continuing Director” means an individual (A) who is, as of June 8, 2011, a director of the Company, or (B) who becomes a director of the Company after June 8, 2011 and whose initial appointment, or nomination for election by the Company’s shareholders, was approved by at least a majority of the then Continuing Directors; provided, however, that any individual whose initial assumption of office occurs as a result of either an actual or threatened contested election by any Person (other than the Board of Directors) seeking the election of such nominee in which the number of nominees exceeds the number of directors to be elected shall not be a Continuing Director;
“Person” means any individual, firm, corporation or other entity and shall include any group comprised of any person and any other person with whom such person or any affiliate or associate (as defined in Rule 14a-1(a) of the Exchange Act) of such person has
2
any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of any capital stock of the Company;
“Voting Stock” means all then-outstanding capital stock of the Company entitled to vote generally in the election of directors of the Company; and
“Exchange Act” means the Securities Exchange Act of 1934, as amended and in effect from time to time, and the regulations promulgated thereunder.
1.2.6 Code. “Code” means the Internal Revenue Code of 1986, as amended (including, when the context requires, all regulations, interpretations and rulings issued thereunder).
1.2.7 [Intentionally left Blank]
1.2.8 Company. “Company” means Target Corporation, a Minnesota corporation, or any successor thereto.
1.2.9 Leadership Team Member. “Leadership Team Member” means each member of the Company’s Leadership Team (or any successor or replacement committee).
1.2.10 Officer. An “Officer” is any employee of the Company or an Affiliate who is designated and categorized as an officer of the Company or other Affiliate by the Company’s Chief Executive Officer.
1.2.11 Officer EDCP. “Officer EDCP” means the Target Corporation Officer EDCP.
1.2.12 Participant. A “Participant” is an Employee who becomes a Participant in this Plan in accordance with the provisions of Section 2. An Employee who has become a Participant shall be considered to continue as a Participant in this Plan until the date of the Participant’s death or, if earlier, the date when the Participant is no longer eligible and upon which the Participant no longer has a benefit due under this Plan (that is, a transfer of the benefit has been made pursuant to Section 6, or the Participant’s benefit under this Plan wears away, or the Participant’s benefit under this Plan has been forfeited as hereinafter provided).
1.2.13 Participating Employer. “Participating Employer” means the Company and each other Affiliate that, with the consent of the Plan Administrator, adopts this Plan. A Participating Employer shall cease to be a Participating Employer on the date it ceases to be an Affiliate.
1.2.14 Pension Plan. “Pension Plan” means the tax qualified defined benefit pension plan, established for the benefit of employees eligible to participate therein, and known as the Target Corporation Pension Plan, including any predecessor plan(s) or successor plan.
1.2.15 Plan. “Plan” means this Target Corporation SPP I (formerly known as the Target Corporation Supplemental Pension Plan I).
1.2.16 Plan Administrator. “Plan Administrator” is the individual designated in Sec. 10.1.1, or, if applicable, its delegate.
3
1.2.17 Plan Rules. “Plan Rules” are rules, policies, practices or procedures adopted by the Plan Administrator or its delegate pursuant to Section 10.1.5.
1.2.18 Plan Statement. “Plan Statement” means this document entitled “Target Corporation SPP I (2022 Plan Statement),” as adopted by the Company, effective as of May 1, 2022, as the same may be amended from time to time.
1.2.19 SPP IV. “SPP IV” means the Target Corporation SPP IV.
1.2.20 Termination of Employment.
(a) For purposes of determining entitlement to or the amount of benefits under the Plan, “Termination of Employment” means a severance of a Participant’s employment relationship with each Participating Employer and all Affiliates, for any reason.
(b) For purposes of determining when a distribution will be made under the Plan, a “Termination of Employment” will be deemed to occur if, based on the relevant facts and circumstances to the Participant, the Participating Employer, all Affiliates and Participant reasonably anticipate that the level of bona fide future services to be performed by the Participant for the Participating Employer and all Affiliates will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period.
(c) A bona fide leave of absence that is six months or less, or during which an individual retains a reemployment right, will not cause a Termination of Employment. In the case of a leave of absence without a right of reemployment that exceeds the time periods described in this paragraph, a Termination of Employment will be deemed to occur once the leave of absence exceeds six months.
(d) Notwithstanding the foregoing, a Termination of Employment shall not occur unless such termination also qualifies as a “separation from service,” as defined under Code section 409A and related guidance thereunder.
1.2.21 Trust. “Trust” means the Target Corporation Deferred Compensation Trust Agreement, dated January 1, 2009 by and between the Company and State Street Bank and Trust Company, as it is amended from time to time, or similar trust agreement.
4
SECTION 2
PARTICIPATION
PARTICIPATION
2.1 Eligibility.
2.1.1 General Requirements. An Employee is eligible to participate in this Plan on and after the date he or she:
(a) is an active participant in the Pension Plan; and
(b) is an Officer.
2.1.2 Applicable Benefit Formula. A Participant’s benefit under this Plan will be determined based on the applicable benefit formula under the Pension Plan.
(a) A Participant with a Pension Plan benefit determined solely by the traditional final average pay formula will have his or her benefit under this Plan determined pursuant to Section 3.
(b) A Participant with a Pension Plan benefit determined solely by the personal pension account formula will have his or her benefit under this Plan determined pursuant to Section 4.
(c) A Participant with a Pension Plan benefit determined in part by the traditional final average pay formula and in part by the personal pension account formula will have his or her benefit under this Plan determined pursuant to Section 3 with respect to the period earning a traditional final average pay benefit under the Pension Plan, and Section 4 with respect to the period earning a personal pension account benefit under the Pension Plan.
2.2 Termination of Participation. Except as otherwise specifically provided in this Plan or by the Plan Administrator, an Employee who ceases to satisfy the requirements of Section 2.1.1 or whose benefit is transferred to the Officer EDCP pursuant to Section 6.2 is not eligible to continue to participate in this Plan, and will not accrue any additional benefits under this Plan. The Participant’s benefit under this Plan will continue to be governed by the terms of this Plan until such time as the Participant’s benefit is transferred, wears away, or is forfeited in accordance with the terms of this Plan. A Participant or Beneficiary will cease to be such as of the date on which his or her entire benefit under this Plan has been transferred, wears away, or forfeited.
2.3 Rehire. A Participant with a vested benefit under this Plan who incurs a Termination of Employment and is rehired will not be eligible to participate in this Plan.
2.4 Effect on Employment.
2.4.1 Not a Term of Employment. Neither the terms of this Plan Statement nor the benefits under this Plan or the continuance thereof shall be a term of the employment of any Employee.
2.4.2 Not an Employment Contract. The Plan is not and shall not be deemed to constitute a contract of employment between any Participating Employer and any Employee or
5
other person, nor shall anything herein contained be deemed to give any Employee or other person any right to be retained in any Participating Employer’s employ or in any way limit or restrict any Participating Employer’s right or power to discharge any Employee or other person at any time and to treat him or her without regard to the effect that such treatment might have upon him or her as a Participant in this Plan.
6
SECTION 3
BENEFIT – TRADITIONAL FINAL AVERAGE PAY FORMULA
BENEFIT – TRADITIONAL FINAL AVERAGE PAY FORMULA
3.1 Amount of Pension.
3.1.1 General Rule. A Participant of this Plan whose benefit under the Pension Plan is determined all or in part by the traditional final average pay formula, shall be entitled to a pension benefit determined under this Plan that is the Actuarial Equivalent of the sum of:
(a) The monthly pension benefit of the Participant transferred to this Plan as determined under Section 3 of SPP IV, and
(b) The excess, if any, of:
(i) The monthly pension benefit of the Participant as determined under the Pension Plan, based on the “traditional formula” (Article VI of the Pension Plan) if such formula were applied:
(A) without regard to the maximum benefit limits imposed by Code section 415;
(B) without regard to the maximum compensation limits imposed by Code section 401(a)(17); and
(C) without regard to the alternative benefit formula of Sections 4.6(a)(3) and 4.6(b)(2) of the Pension Plan.
Over
(ii) The sum of:
(A) The monthly pension benefit of the Participant as determined under the Pension Plan, based on the “traditional formula” (Article VI of the Pension Plan); and
(B) The monthly pension benefit of the Participant transferred to this Plan as determined under Section 3 of SPP IV.
Such benefit will be determined as of the date of transfer as provided in Section 6. Further, such benefit will be determined without regard to any compensation the Participant accrues for any period following the Participant’s Termination of Employment.
3.1.2 Death Benefit. If a Participant dies prior to receiving a transfer of his or her benefit determined under this Section 3, the death benefit to be transferred pursuant to Section 6 will be calculated in the same manner as the Participant’s benefit under this Section 3, and for purposes of Section 3.1.1, as if the Participant were alive and entitled to a benefit under the Pension Plan and SPP IV as of his or her date of death.
3.2 Rehire. If a Participant or former Participant is rehired and eligible to participate in this Plan, then a Participant’s service prior to reemployment will be considered for benefit purposes
7
only to the extent such service would be recognized for benefit purposes under the traditional final average pay formula of the Pension Plan.
SECTION 4
BENEFIT – PERSONAL PENSION ACCOUNT
BENEFIT – PERSONAL PENSION ACCOUNT
4.1 Amount of Pension
4.1.1 General Rule. A Participant of this Plan whose benefit under the Pension Plan is determined all or in part by the personal pension account formula, shall be entitled to a pension benefit under this Plan that is the Actuarial Equivalent of the sum of:
(a) The pension benefit of the Participant transferred to this Plan as determined under Section 4 of SPP IV, and
(b) the excess, if any, of:
(i) The amount that would have been credited each quarter (including both “pay credits” and “interest credits”) to the Participant’s “personal pension account” under the Pension Plan (Article VII of the Pension Plan), if such account were applied:
(A) without regard to the maximum benefit limits imposed by Code section 415; and
(B) without regard to the maximum compensation limits imposed by Code section 401(a)(17).
Over
(ii) The sum of:
(A) The amount of the credits actually made to the Participant’s “personal pension account” under the Pension Plan; and
(B) The pension benefit of the Participant transferred to this Plan as determined under Section 4 of SPP IV.
Such benefit will be determined as of the date of transfer as provided in Section 6. Further, such benefit will be determined without regard to any compensation the Participant accrues for any period following the Participant’s Termination of Employment.
4.1.2 Death Benefit. If a Participant dies prior to receiving a transfer of his or her benefit determined under this Section 4, the death benefit to be transferred pursuant to Section 6 will be calculated in the same manner as the Participant’s benefit under this Section 4.
4.2 Rehire. If a Participant or former Participant is rehired and eligible to participate in this Plan, then a Participant’s service prior to reemployment will be considered for benefit purposes only to the extent such service would be recognized for benefit purposes under the personal pension account formula of the Pension Plan.
8
SECTION 5
VESTING
VESTING
5.1 General Rule. A Participant will be vested in his or her benefit under this Plan to the extent he or she is vested in their benefit under the Pension Plan.
5.2 Rehire. A Participant’s service prior to reemployment will be considered for vesting purposes only to the extent such service would be recognized for vesting purposes under the Pension Plan.
5.3 Transfers to Officer EDCP. A Participant whose benefit under this Plan is transferred to the Officer EDCP pursuant to Section 6 will no longer have any rights under this Plan effective as of the date of such transfer.
9
SECTION 6
TRANSFERS
TRANSFERS
6.1 Benefit Distributions.
6.1.1 Benefit Transfer to Officer EDCP. No benefits transferred to this Plan from SPP IV or benefits accrued and determined under this Plan will be paid directly to Participants. All vested benefits due under this Plan, as determined under Section 3 and Section 4, will be transferred to the Officer EDCP, and paid to the Participant or Beneficiary pursuant to the terms of the Officer EDCP.
6.1.2 Form and Timing of Benefit Distribution. Benefits earned under this Plan will be deemed to have a distribution form and timing of an Actuarial Equivalent single lump payment of the vested benefit determined under Sections 3 and 4, as applicable, within 60 days following the one-year anniversary of the date that the Participant incurs a Termination of Employment. Any benefits earned under this Plan will be subject to the distribution terms of the Officer EDCP, including any provisions regarding the acceleration or delay of distribution (to the extent allowed under Code section 409A).
6.1.3 Transfers from SPP IV. Benefits transferred to this Plan from SPP IV will have the distribution timing, form, and rights as provided under SPP IV, but upon transfer will be subject to the distribution terms of the Officer EDCP, including any provisions regarding the acceleration or delay of distribution (to the extent allowed under Code section 409A).
6.2 Transfers to Officer EDCP. A Participant’s vested benefit under this Plan will be transferred to the Officer EDCP as provided below.
6.2.1 Timing of Benefit Transfer.
(a) On or about the April 30 (or the immediately preceding business day) immediately following the calendar year in which a Participant is first eligible to participate in this Plan and has a vested benefit, a Participant will have his or her vested benefit that is determined under this Plan transferred to the Officer EDCP. The transfer will be an amount equal to the actuarial lump sum present value on March 31 (or the immediately preceding business day) for the Participant’s SPP Benefit accrued through the preceding December 31. In the case of a Participant who is a Leadership Team Member, such transfer will be made and determined on or about the last business day prior to the end of the Company’s fiscal year.
(b) Notwithstanding the foregoing, in the case of a Termination of Employment as defined under Section 1.2.19(a) or a Plan termination upon a Change-in-Control under Section 8.3.2 prior to the date in Section 6.2.1(a), the transfer will be made within 60 days following such event.
6.2.2 Benefit to Be Transferred. The benefit transferred to the Officer EDCP is the vested benefit accrued and determined under this Plan at the time of transfer to the Officer EDCP provided in Section 6.2.1. The transfer to the Officer EDCP will not change the payment form, payment timing, or vested status of the benefit determined under this Plan. After the transfer to the Officer EDCP, the benefit will be subject to the terms of the Officer EDCP, including the acceleration or delay of distributions permitted thereunder.
10
SECTION 7
NATURE OF INTEREST
NATURE OF INTEREST
7.1 Unfunded Obligation. The obligation of the Participating Employers to provide benefits pursuant to this Plan constitutes only the unsecured (but legally enforceable) promise of the Participating Employers to provide such benefits. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, claims or interests in any specific property or assets of the Company or a Participating Employer, nor shall they be beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by the Company.
7.2 Spendthrift Provision. Except as otherwise provided in this Section 7.2, no Participant or Beneficiary shall have any interest in any benefit which can be transferred nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of the Participating Employers. The Plan Administrator shall not recognize any such effort to convey any interest under this Plan. No benefit payable under this Plan shall be subject to attachment, garnishment, or execution following judgment or other legal process before actual payment to such person. This Section 7.2 shall not prevent the Plan Administrator from exercising, in its discretion, any of the applicable powers and options granted to it under any applicable provision hereof.
7.3 Compensation Recovery (Recoupment). Notwithstanding any other provision of the Plan, a Participant who becomes subject to the Company’s recoupment policy as adopted by the Compensation Committee of the Company’s Board of Directors and amended from time to time (“Recoupment Policy”) may have all or a portion of his or her benefit under this Plan forfeited and/or all or a portion of any distributions payable to the Participant or his or her Beneficiary recovered by the Company.
(a) Any portion of the Participant’s benefit resulting from the receipt of compensation that is subject to recovery under the Recoupment Policy may be forfeited and, in such event, a corresponding adjustment will be made to the Participant’s benefit under this Plan.
(b) If a Participant (or his or her Beneficiary) is entitled to receive a distribution under this Plan and the Participant is subject to a claim for recovery under the Recoupment Policy, then the Company may, subject to any limitations under Code section 409A, retain all or any portion of the Participant’s (or the Beneficiary’s) taxable distribution, net of state, federal or foreign tax withholding, to satisfy such claim.
11
SECTION 8
ADOPTION, AMENDMENT AND TERMINATION
ADOPTION, AMENDMENT AND TERMINATION
8.1 Adoption. With the prior approval of the Plan Administrator, an Affiliate may adopt the Plan and become a Participating Employer by furnishing to the Plan Administrator a certified copy of a resolution of its board of directors adopting the Plan.
8.2 Amendment.
8.2.1 General Rule. The Company, by action of its Board of Directors, or by action of a person so authorized by resolution of the Board of Directors and subject to any limitations or conditions in such authorization, may at any time amend the Plan, in whole or in part, for any reason, including but not limited to tax, accounting or insurance changes, a result of which may be to terminate the Plan for future deferrals provided, however, that no amendment shall be effective to decrease the benefits, nature or timing thereof payable under the Plan to any Participant with respect to deferrals made (and benefits thereafter accruing) prior to the date of such amendment. Written notice of any amendment shall be given each Participant then participating in the Plan.
8.2.2 Amendment to Benefit Leadership Team Member. Any amendment to the benefit of a Leadership Team Member under this Plan, to the extent approval of such amendment by the Board would be required by the Securities and Exchange Commission and its regulations or the rules of any applicable securities exchange will require the approval of the Board.
8.2.3 No Oral Amendments. No modification of the terms of this Plan Statement shall be effective unless it is in writing. No oral representation concerning the interpretation or effect of this Plan Statement shall be effective to amend this Plan Statement.
8.3 Termination.
8.3.1 General Rule.
(a) To the extent necessary or reasonable to comply with any changes in law, the Board may at any time terminate this Plan, provided such termination satisfies the requirements of Code section 409A.
(b) To the extent that a Participant’s benefit under the Plan will be immediately included in the income of the Participant, as determined by a court of competent jurisdiction or the Internal Revenue Service, to the extent permitted under Code section 409A, the Board may terminate this Plan, in whole or in part, as it relates to the impacted Participant.
8.3.2 Plan Termination on Account of a Change-in-Control. Upon a Change-in-Control the Plan will terminate and the transfer of all amounts under the Plan will be accelerated if and to the extent provided in this Section 8.3.2.
(a) The Plan will be terminated effective as of the first date on which there has occurred both (i) a Change-in-Control under Section 1.2.5, and (ii) a funding of the Trust on account of such Change-in-Control (referred to herein as the “Plan termination effective date”) unless, prior to such Plan termination effective date,
12
the Board affirmatively determines that the Plan will not be terminated as of such effective date. The Board will be deemed to have taken action to irrevocably terminate the Plan as of the Plan termination effective date by its failure to affirmatively determine that the Plan will not terminate as of such date.
(b) The determination by the Board under paragraph (a) constitutes a determination that such termination will satisfy the requirements of Code section 409A, including an agreement by the Company that it will take such additional action or refrain from taking such action as may be necessary to satisfy the requirements necessary to terminate and liquidate the Plan under paragraph (c) below.
(c) In the event the Board does not affirmatively determine not to terminate the Plan as provided in paragraph (a), such termination shall be subject to either (i) or (ii), as follows:
(i) If the Change-in-Control qualifies as a “change in control event” for purposes of Code section 409A, transfer of all amounts under the Plan will be accelerated and distributed under the Officer EDCP.
(ii) If the Change-in-Control does not qualify as a “change in control event” for purposes of Code section 409A, transfer of all amounts under the Plan will be accelerated and distributed under the Officer EDCP.
13
SECTION 9
CLAIM PROCEDURES
CLAIM PROCEDURES
9.1 Claim Procedures. Until modified by the Plan Administrator, the claim and review procedures set forth in this Section shall be the mandatory claim and review procedures for the resolution of disputes and disposition of claims filed under the Plan. An application for a distribution or withdrawal shall be considered as a claim for the purposes of this Section.
9.1.1 Initial Claim. An individual may, subject to any applicable deadline, file with the Plan Administrator a written claim for benefits under the Plan in a form and manner prescribed by the Plan Administrator.
(a) If the claim is denied in whole or in part, the Plan Administrator shall notify the claimant of the adverse benefit determination within ninety (90) days after receipt of the claim.
(b) The ninety (90) day period for making the claim determination may be extended for ninety (90) days if the Plan Administrator determines that special circumstances require an extension of time for determination of the claim, provided that the Plan Administrator notifies the claimant, prior to the expiration of the initial ninety (90) day period, of the special circumstances requiring an extension and the date by which a claim determination is expected to be made.
9.1.2 Notice of Initial Adverse Determination. A notice of an adverse determination shall set forth in a manner calculated to be understood by the claimant:
(a) the specific reasons for the adverse determination,
(b) references to the specific provisions of the Plan Statement (or other applicable Plan document) on which the adverse determination is based,
(c) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and
(d) a description of the claim and review procedures, including the time limits applicable to such procedure, and a statement of the claimant’s right to bring a civil action under ERISA section 502(a) following an adverse determination on review.
9.1.3 Request for Review. Within sixty (60) days after receipt of an initial adverse benefit determination notice, the claimant may file with the Plan Administrator a written request for a review of the adverse determination and may, in connection therewith submit written comments, documents, records and other information relating to the claim benefits. Any request for review of the initial adverse determination not filed within sixty (60) days after receipt of the initial adverse determination notice shall be untimely.
9.1.4 Claim on Review. If the claim, upon review, is denied in whole or in part, the Plan Administrator shall notify the claimant of the adverse benefit determination within sixty (60) days after receipt of such a request for review.
14
(a) The sixty (60) day period for deciding the claim on review may be extended for sixty (60) days if the Plan Administrator determines that special circumstances require an extension of time for determination of the claim, provided that the Plan Administrator notifies the claimant, prior to the expiration of the initial sixty (60) day period, of the special circumstances requiring an extension and the date by which a claim determination is expected to be made.
(b) In the event that the time period is extended due to a claimant’s failure to submit information necessary to decide a claim on review, the claimant shall have sixty (60) days within which to provide the necessary information and the period for making the claim determination on review shall be tolled from the date on which the notification of the extension is sent to the claimant until the date on which the claimant responds to the request for additional information or, if earlier, the expiration of sixty (60) days.
(c) The Plan Administrator’s review of a denied claim shall take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
9.1.5 Notice of Adverse Determination for Claim on Review. A notice of an adverse determination for a claim on review shall set forth in a manner calculated to be understood by the claimant.
(a) the specific reasons for the denial,
(b) references to the specific provisions of the Plan Statement (or other applicable Plan document) on which the adverse determination is based,
(c) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits,
(d) a statement describing any voluntary appeal procedures offered by the Plan and the claimant’s right to obtain information about such procedures, and
(e) a statement of the claimant’s right to bring an action under ERISA section 502(a).
9.2 Rules and Regulations.
9.2.1 Adoption of Rules. Any rule not in conflict or at variance with the provisions hereof may be adopted by the Plan Administrator.
9.2.2 Specific Rules.
(a) No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the established claim procedures. The Plan Administrator may require that any claim for benefits and any request
15
for a review of a denied claim be filed on forms to be furnished by the Plan Administrator upon request.
(b) All decisions on claims and on requests for a review of denied claims shall be made by the Plan Administrator unless delegated as provided for in the Plan, in which case references in this Section 9 to the Plan Administrator shall be treated as references to the Plan Administrator’s delegate.
(c) Claimants may be represented by a lawyer or other representative at their own expense, but the Plan Administrator reserves the right to require the claimant to furnish written authorization and establish reasonable procedures for determining whether an individual has been authorized to act on behalf of a claimant. A claimant’s representative shall be entitled to copies of all notices given to the claimant.
(d) The decision of the Plan Administrator on a claim and on a request for a review of a denied claim may be provided to the claimant in electronic form instead of in writing at the discretion of the Plan Administrator.
(e) In connection with the review of a denied claim, the claimant or the claimant’s representative shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.
(f) The time period within which a benefit determination will be made shall begin to run at the time a claim or request for review is filed in accordance with the claims procedures, without regard to whether all the information necessary to make a benefit determination accompanies the filing.
(g) The claims and review procedures shall be administered with appropriate safeguards so that benefit claim determinations are made in accordance with governing plan documents and, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants.
(h) The Plan Administrator may, in its discretion, rely on any applicable statute of limitation or deadline as a basis for denial of any claim.
9.3 Limitations and Exhaustion.
9.3.1 Claims. No claim shall be considered under these administrative procedures unless it is filed with the Plan Administrator within two (2) years after the Participant knew (or reasonably should have known) of the general nature of the dispute giving rise to the claim. Every untimely claim shall be denied by the Plan Administrator without regard to the merits of the claim.
9.3.2 Lawsuits. No suit may be brought by or on behalf of any Participant or Beneficiary on any matter pertaining to this Plan unless the action is commenced in the proper forum within two (2) years from the earlier of:
(a) the date the Participant knew (or reasonably should have known) of the general nature of the dispute giving rise to the action, or
16
(b) the date the claim was denied.
9.3.3 Exhaustion of Remedies. These administrative procedures are the exclusive means for resolving any dispute arising under this Plan. As to such matters:
(a) no Participant or Beneficiary shall be permitted to litigate any such matter unless a timely claim has been filed under these administrative procedures and these administrative procedures have been exhausted, and
(b) determinations by the Plan Administrator (including determinations as to whether the claim was timely filed) shall be afforded the maximum deference permitted by law.
9.3.4 Imputed Knowledge. For the purpose of applying the deadlines to file a claim or a legal action, knowledge of all facts that a Participant knew or reasonably should have known shall be imputed to every claimant who is or claims to be a Beneficiary of the Participant or otherwise claims to derive an entitlement by reference to the Participant for the purpose of applying the previously specified periods.
17
SECTION 10
PLAN ADMINISTRATION
PLAN ADMINISTRATION
10.1 Plan Administration.
10.1.1 Administrator. The Company’s Vice President, Pay and Benefits (or any successor thereto) is the "administrator" of the Plan for purposes of 3(16)(A) of ERISA. Except as otherwise expressly provided herein, the Plan Administrator shall control and manage the operation and administration of the Plan and make all decisions and determinations.
10.1.2 Authority and Delegation. The Plan Administrator is authorized to:
(a) Appoint one or more individuals or entities and delegate such of his or her powers and duties as he or she deems desirable to any individual or entity, in which case every reference herein made to Plan Administrator shall be deemed to mean or include the individual or entity as to matters within their jurisdiction. Such individual may be an officer or other employee of a Participating Employer or Affiliate, provided that any delegation to an employee of a Participating Employer or Affiliate will automatically terminate when he or she ceases to be an employee. Any delegation may be rescinded at any time; and
(b) Select, employ and compensate from time to time such agents or consultants as the Plan Administrator may deem necessary or advisable in carrying out its duties and to rely on the advice and information provided by them.
10.1.3 Determinations. The Plan Administrator shall make such determinations as may be required from time to time in the administration of this Plan. The Plan Administrator shall have the discretionary authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under this Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amounts of their respective interests. Each decision of the Plan Administrator shall be final and binding upon all parties. Benefits under the Plan will be paid only if the Plan Administrator decides in its discretion that the applicant is entitled to them.
10.1.4 Reliance. The Plan Administrator may act and rely upon all information reported to it hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
10.1.5 Rules and Regulations. Any rule, regulation, policy, practice or procedure not in conflict or at variance with the provisions hereof may be adopted by the Plan Administrator.
10.2 Conflict of Interest. If any individual to whom authority has been delegated or redelegated hereunder shall also be a Participant in this Plan, such Participant shall have no authority with respect to any matter specially affecting such Participant’s individual interest hereunder or the interest of a person superior to him or her in the organization (as distinguished from the interests of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to other individuals as the case may be, to the exclusion of such Participant, and such Participant shall act only in such Participant’s individual capacity in connection with any such matter.
18
10.3 Service of Process. In the absence of any designation to the contrary by the Plan Administrator, the General Counsel of the Company is designated as the appropriate and exclusive agent for the receipt of service of process directed to this Plan in any legal proceeding, including arbitration, involving this Plan.
10.4 Choice of Law. Except to the extent that federal law is controlling, this Plan Statement will be construed and enforced in accordance with the laws of the State of Minnesota.
10.5 Responsibility for Delegate. No person shall be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of the Plan Statement or pursuant to procedures set forth in the Plan Statement.
10.6 Expenses. All expenses of administering the benefits due under this Plan shall be borne by the Participating Employers.
10.7 Errors in Computations. It is recognized that in the operation and administration of the Plan certain mathematical and accounting errors may be made or mistakes may arise by reason of factual errors in information supplied to the Plan Administrator or trustee. The Plan Administrator shall have power to cause such equitable adjustments to be made to correct for such errors as the Plan Administrator, in its sole discretion, considers appropriate. Such adjustments shall be final and binding on all persons.
10.8 Indemnification. In addition to any other applicable provisions for indemnification, the Participating Employers jointly and severally agree to indemnify and hold harmless, to the extent permitted by law, each director, officer and Employee of the Participating Employers against any and all liabilities, losses, costs or expenses (including legal fees) of whatsoever kind and nature which may be imposed on, incurred by or asserted against such person at any time by reason of such person’s services as an administrator in connection with the Plan, but only if such person did not act dishonestly, or in bad faith, or in willful violation of the law or regulations under which such liability, loss, cost or expense arises.
10.9 Notice. Any notice required under this Plan Statement may be waived by the person entitled thereto.
19
SECTION 11
CONSTRUCTION
CONSTRUCTION
11.1 ERISA Status. The Plan was adopted and is maintained with the understanding that it is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as provided in section 201(2), section 301(a)(3) and section 401(a)(1) of ERISA. The Plan shall be interpreted and administered accordingly.
11.2 IRC Status. The Plan is intended to be a nonqualified deferred compensation arrangement that will comply in form and operation with the requirements of Code section 409A and the Plan will be construed and administered in a manner that is consistent with and gives effect to such intention.
11.3 Rules of Document Construction. In the event any provision of the Plan Statement is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan. The titles given to the various Sections of the Plan Statement are inserted for convenience of reference only and are not part of the Plan Statement, and they shall not be considered in determining the scope, purpose, meaning or intent of any provision hereof. The provisions of the Plan Statement shall be construed as a whole in such manner as to carry out the provisions thereof and shall not be construed separately without relation to the context.
11.4 References to Laws. Any reference in the Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation unless, under the circumstances, it would be inappropriate to do so.
11.5 Appendices. Plan provisions that have application to a limited number of Participants or that otherwise do not apply equally to all Participants may be described in an appendix to the Plan Statement. In the event of a conflict between the terms of an appendix and the terms of the remainder of the Plan Statement, the terms of the appendix control.
20
EXHIBIT 10(F)
TARGET CORPORATION
SPP II
(2022 Plan Statement)
Effective May 1, 2022
As Amended and Restated
TARGET CORPORATION
SPP II
(2022 Plan Statement)
TABLE OF CONTENTS
2
SECTION 1
INTRODUCTION; DEFINITIONS
INTRODUCTION; DEFINITIONS
1.1 History. The Company originally established this Plan (formerly known as the Target Corporation Supplemental Pension Plan II) effective as of January 1, 1995. The Plan is a non-qualified, unfunded plan intended to replace certain pension benefits for a select group of management or highly compensated employees who are officers that cannot be provided under the Pension Plan due to certain limitations imposed by the Code. The Plan provides retirement benefits not provided under the Pension Plan as a result of deferrals into the Officer EDCP. The Plan is intended to be a “top hat plan” as defined under the Employee Retirement Income Security Act of 1974, as amended from time to time. Since the effective date of this Plan, upon a Participant becoming an Officer of the Company, the benefit due under the Target Corporation SPP V is transferred to this Plan. Effective April 30, 2002, for all Officers who were vested in the benefit under this Plan, the Company transferred the present value of the vested benefit due under this Plan to the Officer EDCP. After such transfer, no benefits were due or payable from this Plan. Further, after the transfer, the individuals would no longer participate in this Plan or be eligible for further accruals under this Plan. Effective January 1, 2005 (and other effective dates as specifically provided), this Plan was operated in compliance with Code section 409A. The Plan, which is intended to comply with Code section 409A, was amended and restated effective January 1, 2009. The Plan was amended to incorporate the Company’s recoupment policy effective January 13, 2010. The Plan was amended and restated to reflect Plan administration and amendment changes authorized by the Board on November 10, 2010 and modification of the Change in Control definition, effective June 8, 2011. The Plan was amended and restated (i) to clarify the definition of executive Officer as being an “executive officer” under Item 401 of Regulation S-K, and (ii) to remove unnecessary language from the recoupment provisions effective April 3, 2016. The Plan was amended and restated effective May 1, 2022, (i) to define the term “Leadership Team Member,” and (ii) to make miscellaneous updating changes to the Plan Statement.
1.2 Definitions. Terms used herein with initial capital letters will have same meaning as those used in the Pension Plan except as otherwise defined below or where the context clearly indicates to the contrary.
1.2.1 Actuarial Equivalent. An “Actuarial Equivalent” will be determined by using such factors and assumptions as the Plan Administrator considers appropriate in its sole and absolute discretion.
1.2.2 Affiliate. An “Affiliate” is the Company and all persons, with whom the Company would be considered a single employer under Code section 414(b) or 414(c).
1.2.3 Beneficiary. The “Beneficiary” is the “Beneficiary” as defined under the Officer EDCP.
1.2.4 Board “Board” is the Board of Directors of the Company, or such committee of the Board of Directors to which the Board of Directors of the Company has delegated the respective authority.
1
1.2.5 Change in Control. “Change in Control” means one of the following:
(a) Individuals who are Continuing Directors cease for any reason to constitute 50% or more of the directors of the Company; or
(b) 30% or more of the outstanding voting power of the Voting Stock of the Company is acquired or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by any Person, other than an entity resulting from a Business Combination in which clauses (x) and (y) of Section 1.2.5(c) apply; or
(c) the consummation of a merger or consolidation of the Company with or into another entity, a statutory share exchange, a sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the Company’s assets or a similar business combination (each, a “Business Combination”), in each case unless, immediately following such Business Combination, (x) all or substantially all of the beneficial owners (within the meaning of Rule 13d-3 under the Exchange Act) of the Company’s Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the voting power of the then outstanding shares of voting stock (or comparable voting equity interests) of the surviving or acquiring entity resulting from such Business Combination (including such beneficial ownership of an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), in substantially the same proportions (as compared to the other beneficial owners of the Company’s Voting Stock immediately prior to such Business Combination) as their beneficial ownership of the Company’s Voting Stock immediately prior to such Business Combination, and (y) no Person beneficially owns, directly or indirectly, 30% or more of the voting power of the outstanding voting stock (or comparable equity interests) of the surviving or acquiring entity (other than a direct or indirect parent entity of the surviving or acquiring entity, that, after giving effect to the Business Combination, beneficially owns, directly or indirectly, 100% of the outstanding voting stock (or comparable equity interests) of the surviving or acquiring entity); or
(d) approval by the shareholders of a definitive agreement or plan to liquidate or dissolve the Company.
For purposes of this Section 1.2.5:
“Continuing Director” means an individual (A) who is, as of June 8, 2011, a director of the Company, or (B) who becomes a director of the Company after June 8, 2011 and whose initial appointment, or nomination for election by the Company’s shareholders, was approved by at least a majority of the then Continuing Directors; provided, however, that any individual whose initial assumption of office occurs as a result of either an actual or threatened contested election by any Person (other than the Board of Directors) seeking the election of such nominee in which the number of nominees exceeds the number of directors to be elected shall not be a Continuing Director;
“Person” means any individual, firm, corporation or other entity and shall include any group comprised of any person and any other person with whom such person or any affiliate or associate (as defined in Rule 14a-1(a) of the Exchange Act) of such person has
2
any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of any capital stock of the Company;
“Voting Stock” means all then-outstanding capital stock of the Company entitled to vote generally in the election of directors of the Company; and
“Exchange Act” means the Securities Exchange Act of 1934, as amended and in effect from time to time, and the regulations promulgated thereunder.
1.2.6 Code. “Code” means the Internal Revenue Code of 1986, as amended (including, when the context requires, all regulations, interpretations and rulings issued thereunder).
1.2.7 [Intentionally left blank.]
1.2.8 Company. “Company” means Target Corporation, a Minnesota corporation, or any successor thereto.
1.2.9 Leadership Team Member. “Leadership Team Member” means each member of the Company’s Leadership Team (or any successor or replacement committee).
1.2.10 Officer. An “Officer” is any employee of the Company or an Affiliate who is designated and categorized as an officer of the Company or other Affiliate by the Company’s Chief Executive Officer.
1.2.11 Officer EDCP. “Officer EDCP” means the Target Corporation Officer EDCP.
1.2.12 Participant. A “Participant” is an Employee who becomes a Participant in this Plan in accordance with the provisions of Section 2. An Employee who has become a Participant shall be considered to continue as a Participant in this Plan until the date of the Participant’s death or, if earlier, the date when the Participant is no longer eligible and upon which the Participant no longer has a benefit due under this Plan (that is, a transfer of the benefit has been made pursuant to Section 6, or the Participant’s benefit under this Plan wears away, or the Participant’s benefit under this Plan has been forfeited as hereinafter provided).
1.2.13 Participating Employer. “Participating Employer” means the Company and each other Affiliate that, with the consent of the Company, adopts this Plan. A Participating Employer shall cease to be a Participating Employer on the date it ceases to be an Affiliate.
1.2.14 Pension Plan. “Pension Plan” means the tax qualified defined benefit pension plan, established for the benefit of employees eligible to participate therein, and known as the Target Corporation Pension Plan, including any predecessor plan(s) or successor plan.
1.2.15 Plan. “Plan” means this Target Corporation SPP II (formerly known as the Target Corporation Supplemental Pension Plan II).
1.2.16 Plan Administrator. “Plan Administrator” is the individual designated in Sec. 10.1.1, or, if applicable, its delegate.
1.2.17 Plan Rules. “Plan Rules” are rules, policies, practices or procedures adopted by the Plan Administrator or its delegate pursuant to Section 10.1.5.
3
1.2.18 Plan Statement. “Plan Statement” means this document entitled “Target Corporation SPP II (2022 Plan Statement),” as adopted by the Company, effective as of May 1, 2022, as the same may be amended from time to time.
1.2.19 SPP V. “SPP V” means the Target Corporation SPP V.
1.2.20 Termination of Employment.
(a) For purposes of determining entitlement to or the amount of benefits under the Plan, “Termination of Employment” means a severance of a Participant’s employment relationship with each Participating Employer and all Affiliates, for any reason.
(b) For purposes of determining when a distribution will be made under the Plan, a “Termination of Employment” will be deemed to occur if, based on the relevant facts and circumstances to the Participant, the Participating Employer, all Affiliates and Participant reasonably anticipate that the level of bona fide future services to be performed by the Participant for the Participating Employer and all Affiliates will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period.
(c) A bona fide leave of absence that is six months or less, or during which an individual retains a reemployment right, will not cause a Termination of Employment. In the case of a leave of absence without a right of reemployment that exceeds the time periods described in this paragraph, a Termination of Employment will be deemed to occur once the leave of absence exceeds six months.
(d) Notwithstanding the foregoing, a Termination of Employment shall not occur unless such termination also qualifies as a “separation from service,” as defined under Code section 409A and related guidance thereunder.
1.2.21 Trust. “Trust” means the Target Corporation Deferred Compensation Trust Agreement, dated January 1, 2009 by and between the Company and State Street Bank and Trust Company, as it is amended from time to time, or similar trust agreement.
4
SECTION 2
PARTICIPATION
PARTICIPATION
2.1 Eligibility.
2.1.1 General Requirements. An Employee is eligible to participate in this Plan on and after the date he or she:
(a) is an active participant in the Pension Plan; and
(b) is an Officer.
2.1.2 Applicable Benefit Formula. A Participant’s benefit under this Plan will be determined based on the applicable benefit formula under the Pension Plan.
(a) A Participant with a Pension Plan benefit determined solely by the traditional final average pay formula will have his or her benefit under this Plan determined pursuant to Section 3.
(b) A Participant with a Pension Plan benefit determined solely by the personal pension account formula will have his or her benefit under this Plan determined pursuant to Section 4.
(c) A Participant with a Pension Plan benefit determined in part by the traditional final average pay formula and in part by the personal pension account formula will have his or her benefit under this Plan determined pursuant to Section 3 with respect to the period earning a traditional final average pay benefit under the Pension Plan, and Section 4 with respect to the period earning a personal pension account benefit under the Pension Plan.
2.2 Termination of Participation. Except as otherwise specifically provided in this Plan or by the Plan Administrator, an Employee who ceases to satisfy the requirements of Section 2.1.1 or whose benefit is transferred to the Officer EDCP pursuant to Section 6.2 is not eligible to continue to participate in this Plan, and will not accrue any additional benefits under this Plan. The Participant’s benefit under this Plan will continue to be governed by the terms of this Plan until such time as the Participant’s benefit is transferred, wears away, or is forfeited in accordance with the terms of this Plan. A Participant or Beneficiary will cease to be such as of the date on which his or her entire benefit under this Plan has been transferred, wears away, or forfeited.
2.3 Rehire. A Participant with a vested benefit under this Plan who incurs a Termination of Employment and is rehired will not be eligible to participate in this Plan.
2.4 Effect on Employment.
2.4.1 Not a Term of Employment. Neither the terms of this Plan Statement nor the benefits under this Plan or the continuance thereof shall be a term of the employment of any Employee.
2.4.2 Not an Employment Contract. The Plan is not and shall not be deemed to constitute a contract of employment between any Participating Employer and any Employee or
5
other person, nor shall anything herein contained be deemed to give any Employee or other person any right to be retained in any Participating Employer’s employ or in any way limit or restrict any Participating Employer’s right or power to discharge any Employee or other person at any time and to treat him or her without regard to the effect that such treatment might have upon him or her as a Participant in this Plan.
6
SECTION 3
BENEFIT – TRADITIONAL FINAL AVERAGE PAY FORMULA
BENEFIT – TRADITIONAL FINAL AVERAGE PAY FORMULA
3.1 Amount of Pension.
3.1.1 General Rule. A Participant of this Plan whose benefit under the Pension Plan is determined all or in part by the traditional final average pay formula, shall be entitled to a pension benefit determined under this Plan that is the Actuarial Equivalent of the sum of:
(a) The monthly pension benefit of the Participant transferred to this Plan as determined under Section 3 of SPP V, and
(b) The excess, if any, of:
(i) The monthly pension benefit of the Participant as determined under the Pension Plan, based on the “traditional formula” (Article VI of the Pension Plan) if such formula were applied:
(A) without regard to the maximum benefit limits imposed by Code section 415;
(B) without regard to the maximum compensation limits imposed by Code section 401(a)(17);
(C) without regard to the alternative benefit formula of Sections 4.6(a)(3) and 4.6(b)(2) of the Pension Plan; and
(D) as if the definition of “certified earnings” for a plan year included compensation that would have been paid in the plan year in the absence of the Participant’s election to defer payment of the compensation to a later date pursuant to the provisions of a deferred compensation.
Over
(ii) The sum of:
(A) The monthly pension benefit of the Participant as determined under the Pension Plan, based on the “traditional formula” (Article VI of the Pension Plan);
(B) The pension benefit of the Participant transferred to this Plan as determined under Section 3 of SPP V, and
(C) The pension benefit of the Participant as determined under Section 3 of the SPP I.
Such benefit will be determined as of the date of transfer as provided in Section 6. Further, such benefit will be determined without regard to any compensation the
7
Participant accrues for any period following the Participant’s Termination of Employment.
3.1.2 Death Benefit. If a Participant dies prior to receiving a transfer of his or her benefit determined under this Section 3, the death benefit to be transferred pursuant to Section 6 will be calculated in the same manner as the Participant’s benefit under this Section 3, and for purposes of Section 3.1.1, as if the Participant were alive and entitled to a benefit under the Pension Plan, the SPP V, and the SPP I as of his or her date of death.
3.2 Rehire. If a Participant or former Participant is rehired and eligible to participate in this Plan, then a Participant’s service prior to reemployment will be considered for benefit purposes only to the extent such service would be recognized for benefit purposes under the traditional final average pay formula of the Pension Plan.
8
SECTION 4
BENEFIT – PERSONAL PENSION ACCOUNT
BENEFIT – PERSONAL PENSION ACCOUNT
4.1 Amount of Pension.
4.1.1 General Rule. A Participant of this Plan whose benefit under the Pension Plan is determined all or in part by the personal pension account formula, shall be entitled to a pension benefit under this Plan that is the Actuarial Equivalent of the sum of:
(a) The pension benefit of the Participant transferred to this Plan as determined under Section 4 of SPP V, and
(b) the excess, if any, of:
(i) The amount that would have been credited each calendar quarter (including both “pay credits” and “interest credits”) to the Participant’s “personal pension account” under the Pension Plan (Article VII of the Pension Plan), if such account were applied:
(A) without regard to the maximum benefit limits imposed by Code section 415,
(B) without regard to the maximum compensation limits imposed by Code section 401(a)(17), and
(C) as if the definition of “certified earnings” for a plan year included compensation that would have been paid in the plan year in the absence of the Participant’s election to defer payment of the compensation to a later date pursuant to the provisions of a deferred compensation.
Over
(ii) The sum of:
(A) The amount of the credits actually made to the Participant’s personal pension account under the Pension Plan;
(B) The pension benefit of the Participant transferred to this Plan as determined under Section 4 of SPP V; and
(C) The pension benefit of the Participant as determined under Section 4 of the SPP I.
Such benefit will be determined as of the date of transfer as provided in Section 6. Further, such benefit will be determined without regard to any compensation the Participant accrues for any period following the Participant’s Termination of Employment.
9
4.1.2 Death Benefit. If a Participant dies prior to receiving a transfer of his or her benefit determined under this Section 4, the death benefit to be transferred pursuant to Section 6 will be calculated in the same manner as the Participant’s benefit under this Section 4.
4.2 Rehire. If a Participant or former Participant is rehired and eligible to participate in this Plan, then a Participant’s service prior to reemployment will be considered for benefit purposes only to the extent such service would be recognized for benefit purposes under the personal pension account formula of the Pension Plan.
10
SECTION 5
VESTING
VESTING
5.1 General Rule. A Participant will be vested in his or her benefit under this Plan to the extent he or she is vested in their benefit under the Pension Plan.
5.2 Rehire. A Participant’s service prior to reemployment will be considered for vesting purposes only to the extent such service would be recognized for vesting purposes under the Pension Plan.
5.3 Transfers to Officer EDCP. A Participant whose benefit under this Plan is transferred to the Officer EDCP pursuant to Section 6 will no longer have any rights under this Plan effective as of the date of such transfer.
11
SECTION 6
TRANSFERS
TRANSFERS
6.1 Benefit Distributions.
6.1.1 Benefit Transfer to Officer EDCP. No benefits transferred to this Plan from SPP V or benefits accrued and determined under this Plan will be paid directly to Participants. All vested benefits due under this Plan, as determined under Section 3 and Section 4, will be transferred to the Officer EDCP, and paid to the Participant or Beneficiary pursuant to the terms of the Officer EDCP.
6.1.2 Form and Timing of Benefit Distribution. Benefits earned under this Plan will be deemed to have a distribution form and timing of an Actuarial Equivalent single lump payment of the vested benefit determined under Sections 3 and 4, as applicable, within 60 days following the one-year anniversary of the date that the Participant incurs a Termination of Employment. Any benefits earned under this Plan will be subject to the distribution terms of the Officer EDCP, including any provisions regarding the acceleration or delay of distribution (to the extent allowed under Code section 409A).
6.1.3 Transfers from SPP V. Benefits transferred to this Plan from SPP V will have the distribution timing, form, and rights as provided under SPP V, but upon transfer will be subject to the distribution terms of the Officer EDCP, including any provisions regarding the acceleration or delay of distribution (to the extent allowed under Code section 409A).
6.2 Transfers to Officer EDCP. A Participant’s vested benefit under this Plan will be transferred to the Officer EDCP as provided below:
6.2.1 Timing of Benefit Transfer.
(a) On or about the April 30 (or the immediately preceding business day) immediately following the calendar year in which a Participant is first eligible to participate in this Plan and has a vested benefit, a Participant will have his or her vested benefit that is determined under this Plan transferred to the Officer EDCP. The transfer will be an amount equal to the actuarial lump sum present value on March 31 (or the immediately preceding business day) for the Participant’s SPP Benefit accrued through the preceding December 31. In the case of a Participant who is a Leadership Team Member, such transfer will be made and determined on or about the last business day prior to the end of the Company’s fiscal year.
(b) Notwithstanding the foregoing, in the case of a Termination of Employment as defined under Section 1.2.19(a) or a Plan termination upon a Change-in-Control under Section 8.3.2 prior to the date in Section 6.2.1(a), the transfer will be made within 60 days following such event.
6.2.2 Benefit to Be Transferred. The benefit transferred to the Officer EDCP is the vested benefit accrued and determined under this Plan at the time of transfer to the Officer EDCP provided in Section 6.2.1. The transfer to the Officer EDCP will not change the payment form, payment timing, or vested status of the benefit determined under this Plan. After the transfer to the Officer EDCP, the benefit will be subject to the terms of the Officer EDCP, including the acceleration or delay of distributions permitted thereunder.
12
SECTION 7
NATURE OF INTEREST
NATURE OF INTEREST
7.1 Unfunded Obligation. The obligation of the Participating Employers to provide benefits pursuant to this Plan constitutes only the unsecured (but legally enforceable) promise of the Participating Employers to provide such benefits. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, claims or interests in any specific property or assets of the Company or a Participating Employer, nor shall they be beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by the Company.
7.2 Spendthrift Provision. Except as otherwise provided in this Section 7.2, no Participant or Beneficiary shall have any interest in any benefit which can be transferred nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of the Participating Employers. The Plan Administrator shall not recognize any such effort to convey any interest under this Plan. No benefit payable under this Plan shall be subject to attachment, garnishment, or execution following judgment or other legal process before actual payment to such person. This Section 7.2 shall not prevent the Plan Administrator from exercising, in its discretion, any of the applicable powers and options granted to it under any applicable provision hereof.
7.3 Compensation Recovery (Recoupment). Notwithstanding any other provision of the Plan, a Participant who becomes subject to the Company’s recoupment policy as adopted by the Compensation Committee of the Company’s Board of Directors and amended from time to time (“Recoupment Policy”) may have all or a portion of his or her benefit under this Plan forfeited and/or all or a portion of any distributions payable to the Participant or his or her Beneficiary recovered by the Company.
(a) Any portion of the Participant’s benefit resulting from the receipt of compensation that is subject to recovery under the Recoupment Policy may be forfeited and, in such event, a corresponding adjustment will be made to the Participant’s benefit under this Plan.
(b) If a Participant (or his or her Beneficiary) is entitled to receive a distribution under this Plan and the Participant is subject to a claim for recovery under the Recoupment Policy, then the Company may, subject to any limitations under Code section 409A, retain all or any portion of the Participant’s (or the Beneficiary’s) taxable distribution, net of state, federal or foreign tax withholding, to satisfy such claim.
13
SECTION 8
ADOPTION, AMENDMENT AND TERMINATION
ADOPTION, AMENDMENT AND TERMINATION
8.1 Adoption. With the prior approval of the Plan Administrator, an Affiliate may adopt the Plan and become a Participating Employer by furnishing to the Plan Administrator a certified copy of a resolution of its board of directors adopting the Plan.
8.2 Amendment.
8.2.1 General Rule. The Company, by action of its Board of Directors, or by action of a person so authorized by resolution of the Board of Directors and subject to any limitations or conditions in such authorization, may at any time amend the Plan, in whole or in part, for any reason, including but not limited to tax, accounting or insurance changes, a result of which may be to terminate the Plan for future deferrals provided, however, that no amendment shall be effective to decrease the benefits, nature or timing thereof payable under the Plan to any Participant with respect to deferrals made (and benefits thereafter accruing) prior to the date of such amendment. Written notice of any amendment shall be given each Participant then participating in the Plan.
8.2.2 Amendment to Benefit Leadership Team Member. Any amendment to the benefit of a Leadership Team Member under this Plan, to the extent approval of such amendment by the Board would be required by the Securities and Exchange Commission and its regulations or the rules of any applicable securities exchange, will require the approval of the Board.
8.2.3 No Oral Amendments. No modification of the terms of this Plan Statement shall be effective unless it is in writing. No oral representation concerning the interpretation or effect of this Plan Statement shall be effective to amend this Plan Statement.
8.3 Termination.
8.3.1 General Rule.
(a) To the extent necessary or reasonable to comply with any changes in law, the Board may at any time terminate this Plan, provided such termination satisfies the requirements of Code section 409A.
(b) To the extent that a Participant’s benefit under the Plan will be immediately included in the income of the Participant, as determined by a court of competent jurisdiction or the Internal Revenue Service, to the extent permitted under Code section 409A, the Board may terminate this Plan, in whole or in part, as it relates to the impacted Participant.
8.3.2 Plan Termination on Account of a Change-in-Control. Upon a Change-in-Control the Plan will terminate and the transfer of all amounts under the Plan will be accelerated if and to the extent provided in this Section 8.3.2.
(a) The Plan will be terminated effective as of the first date on which there has occurred both (i) a Change-in-Control under Section 1.2.5, and (ii) a funding of the Trust on account of such Change-in-Control (referred to herein as the “Plan termination effective date”) unless, prior to such Plan termination effective date,
14
the Board affirmatively determines that the Plan will not be terminated as of such effective date. The Board will be deemed to have taken action to irrevocably terminate the Plan as of the Plan termination effective date by its failure to affirmatively determine that the Plan will not terminate as of such date.
(b) The determination by the Board under paragraph (a) constitutes a determination that such termination will satisfy the requirements of Code section 409A, including an agreement by the Company that it will take such additional action or refrain from taking such action as may be necessary to satisfy the requirements necessary to terminate and liquidate the Plan under paragraph (c) below.
(c) In the event the Board does not affirmatively determine not to terminate the Plan as provided in paragraph (a), such termination shall be subject to either (i) or (ii), as follows:
(i) If the Change-in-Control qualifies as a “change in control event” for purposes of Code section 409A, transfer of all amounts under the Plan will be accelerated and distributed under the Officer EDCP.
(ii) If the Change-in-Control does not qualify as a “change in control event” for purposes of Code section 409A, transfer of all amounts under the Plan will be accelerated and distributed under the Officer EDCP.
15
SECTION 9
CLAIM PROCEDURES
CLAIM PROCEDURES
9.1 Claim Procedures. Until modified by the Plan Administrator, the claim and review procedures set forth in this Section shall be the mandatory claim and review procedures for the resolution of disputes and disposition of claims filed under the Plan. An application for a distribution or withdrawal shall be considered as a claim for the purposes of this Section.
9.1.1 Initial Claim. An individual may, subject to any applicable deadline, file with the Plan Administrator a written claim for benefits under the Plan in a form and manner prescribed by the Plan Administrator.
(a) If the claim is denied in whole or in part, the Plan Administrator shall notify the claimant of the adverse benefit determination within ninety (90) days after receipt of the claim.
(b) The ninety (90) day period for making the claim determination may be extended for ninety (90) days if the Plan Administrator determines that special circumstances require an extension of time for determination of the claim, provided that the Plan Administrator notifies the claimant, prior to the expiration of the initial ninety (90) day period, of the special circumstances requiring an extension and the date by which a claim determination is expected to be made.
9.1.2 Notice of Initial Adverse Determination. A notice of an adverse determination shall set forth in a manner calculated to be understood by the claimant:
(a) the specific reasons for the adverse determination,
(b) references to the specific provisions of the Plan Statement (or other applicable Plan document) on which the adverse determination is based,
(c) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and
(d) a description of the claim and review procedures, including the time limits applicable to such procedure, and a statement of the claimant’s right to bring a civil action under ERISA section 502(a) following an adverse determination on review.
9.1.3 Request for Review. Within sixty (60) days after receipt of an initial adverse benefit determination notice, the claimant may file with the Plan Administrator a written request for a review of the adverse determination and may, in connection therewith submit written comments, documents, records and other information relating to the claim benefits. Any request for review of the initial adverse determination not filed within sixty (60) days after receipt of the initial adverse determination notice shall be untimely.
9.1.4 Claim on Review. If the claim, upon review, is denied in whole or in part, the Plan Administrator shall notify the claimant of the adverse benefit determination within sixty (60) days after receipt of such a request for review.
16
(a) The sixty (60) day period for deciding the claim on review may be extended for sixty (60) days if the Plan Administrator determines that special circumstances require an extension of time for determination of the claim, provided that the Plan Administrator notifies the claimant, prior to the expiration of the initial sixty (60) day period, of the special circumstances requiring an extension and the date by which a claim determination is expected to be made.
(b) In the event that the time period is extended due to a claimant’s failure to submit information necessary to decide a claim on review, the claimant shall have sixty (60) days within which to provide the necessary information and the period for making the claim determination on review shall be tolled from the date on which the notification of the extension is sent to the claimant until the date on which the claimant responds to the request for additional information or, if earlier, the expiration of sixty (60) days.
(c) The Plan Administrator’s review of a denied claim shall take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
9.1.5 Notice of Adverse Determination for Claim on Review. A notice of an adverse determination for a claim on review shall set forth in a manner calculated to be understood by the claimant.
(a) the specific reasons for the denial,
(b) references to the specific provisions of the Plan Statement (or other applicable Plan document) on which the adverse determination is based,
(c) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits,
(d) a statement describing any voluntary appeal procedures offered by the Plan and the claimant’s right to obtain information about such procedures, and
(e) a statement of the claimant’s right to bring an action under ERISA section 502(a).
17
9.2 Rules and Regulations.
9.2.1 Adoption of Rules. Any rule not in conflict or at variance with the provisions hereof may be adopted by the Plan Administrator.
9.2.2 Specific Rules.
(a) No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the established claim procedures. The Plan Administrator may require that any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Plan Administrator upon request.
(b) All decisions on claims and on requests for a review of denied claims shall be made by the Plan Administrator unless delegated as provided for in the Plan, in which case references in this Section 9 to the Plan Administrator shall be treated as references to the Plan Administrator’s delegate.
(c) Claimants may be represented by a lawyer or other representative at their own expense, but the Plan Administrator reserves the right to require the claimant to furnish written authorization and establish reasonable procedures for determining whether an individual has been authorized to act on behalf of a claimant. A claimant’s representative shall be entitled to copies of all notices given to the claimant.
(d) The decision of the Plan Administrator on a claim and on a request for a review of a denied claim may be provided to the claimant in electronic form instead of in writing at the discretion of the Plan Administrator.
(e) In connection with the review of a denied claim, the claimant or the claimant’s representative shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.
(f) The time period within which a benefit determination will be made shall begin to run at the time a claim or request for review is filed in accordance with the claims procedures, without regard to whether all the information necessary to make a benefit determination accompanies the filing.
(g) The claims and review procedures shall be administered with appropriate safeguards so that benefit claim determinations are made in accordance with governing plan documents and, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants.
(h) The Plan Administrator may, in its discretion, rely on any applicable statute of limitation or deadline as a basis for denial of any claim.
9.3 Limitations and Exhaustion.
9.3.1 Claims. No claim shall be considered under these administrative procedures unless it is filed with the Plan Administrator within two (2) years after the Participant knew (or
18
reasonably should have known) of the general nature of the dispute giving rise to the claim. Every untimely claim shall be denied by the Plan Administrator without regard to the merits of the claim.
9.3.2 Lawsuits. No suit may be brought by or on behalf of any Participant or Beneficiary on any matter pertaining to this Plan unless the action is commenced in the proper forum within two (2) years from the earlier of:
(a) the date the Participant knew (or reasonably should have known) of the general nature of the dispute giving rise to the action, or
(b) the date the claim was denied.
9.3.3 Exhaustion of Remedies. These administrative procedures are the exclusive means for resolving any dispute arising under this Plan. As to such matters:
(a) no Participant or Beneficiary shall be permitted to litigate any such matter unless a timely claim has been filed under these administrative procedures and these administrative procedures have been exhausted, and
(b) determinations by the Plan Administrator (including determinations as to whether the claim was timely filed) shall be afforded the maximum deference permitted by law.
9.3.4 Imputed Knowledge. For the purpose of applying the deadlines to file a claim or a legal action, knowledge of all facts that a Participant knew or reasonably should have known shall be imputed to every claimant who is or claims to be a Beneficiary of the Participant or otherwise claims to derive an entitlement by reference to the Participant for the purpose of applying the previously specified periods.
19
SECTION 10
PLAN ADMINISTRATION
PLAN ADMINISTRATION
10.1 Plan Administration.
10.1.1 Administrator. The Company’s Vice President, Pay and Benefits (or any successor thereto) is the "administrator" of the Plan for purposes of 3(16)(A) of ERISA. Except as otherwise expressly provided herein, the Plan Administrator shall control and manage the operation and administration of the Plan and make all decisions and determinations.
10.1.2 Authority and Delegation. The Plan Administrator is authorized to:
(a) Appoint one or more individuals or entities and delegate such of his or her powers and duties as he or she deems desirable to any individual or entity, in which case every reference herein made to Plan Administrator shall be deemed to mean or include the individual or entity as to matters within their jurisdiction. Such individual may be an officer or other employee of a Participating Employer or Affiliate, provided that any delegation to an employee of a Participating Employer or Affiliate will automatically terminate when he or she ceases to be an employee. Any delegation may be rescinded at any time; and
(b) Select, employ and compensate from time to time such agents or consultants as the Plan Administrator may deem necessary or advisable in carrying out its duties and to rely on the advice and information provided by them.
10.1.3 Determinations. The Plan Administrator shall make such determinations as may be required from time to time in the administration of this Plan. The Plan Administrator shall have the discretionary authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under this Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amounts of their respective interests. Each decision of the Plan Administrator shall be final and binding upon all parties. Benefits under the Plan will be paid only if the Plan Administrator decides in its discretion that the applicant is entitled to them.
10.1.4 Reliance. The Plan Administrator may act and rely upon all information reported to it hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
10.1.5 Rules and Regulations. Any rule, regulation, policy, practice or procedure not in conflict or at variance with the provisions hereof may be adopted by the Plan Administrator.
10.2 Conflict of Interest. If any individual to whom authority has been delegated or redelegated hereunder shall also be a Participant in this Plan, such Participant shall have no authority with respect to any matter specially affecting such Participant’s individual interest hereunder or the interest of a person superior to him or her in the organization (as distinguished from the interests of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to other individuals as the case may be, to the exclusion of such Participant, and such Participant shall act only in such Participant’s individual capacity in connection with any such matter.
20
10.3 Service of Process. In the absence of any designation to the contrary by the Plan Administrator, the General Counsel of the Company is designated as the appropriate and exclusive agent for the receipt of service of process directed to this Plan in any legal proceeding, including arbitration, involving this Plan.
10.4 Choice of Law. Except to the extent that federal law is controlling, this Plan Statement will be construed and enforced in accordance with the laws of the State of Minnesota.
10.5 Responsibility for Delegate. No person shall be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of the Plan Statement or pursuant to procedures set forth in the Plan Statement.
10.6 Expenses. All expenses of administering the benefits due under this Plan shall be borne by the Participating Employers.
10.7 Errors in Computations. It is recognized that in the operation and administration of the Plan certain mathematical and accounting errors may be made or mistakes may arise by reason of factual errors in information supplied to the Plan Administrator or trustee. The Plan Administrator shall have power to cause such equitable adjustments to be made to correct for such errors as the Plan Administrator, in its sole discretion, considers appropriate. Such adjustments shall be final and binding on all persons.
10.8 Indemnification. In addition to any other applicable provisions for indemnification, the Participating Employers jointly and severally agree to indemnify and hold harmless, to the extent permitted by law, each director, officer and Employee of the Participating Employers against any and all liabilities, losses, costs or expenses (including legal fees) of whatsoever kind and nature which may be imposed on, incurred by or asserted against such person at any time by reason of such person’s services as an administrator in connection with the Plan, but only if such person did not act dishonestly, or in bad faith, or in willful violation of the law or regulations under which such liability, loss, cost or expense arises.
10.9 Notice. Any notice required under this Plan Statement may be waived by the person entitled thereto.
21
SECTION 11
CONSTRUCTION
CONSTRUCTION
11.1 ERISA Status. The Plan was adopted and is maintained with the understanding that it is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as provided in section 201(2), section 301(a)(3) and section 401(a)(1) of ERISA. The Plan shall be interpreted and administered accordingly.
11.2 IRC Status. The Plan is intended to be a nonqualified deferred compensation arrangement that will comply in form and operation with the requirements of Code section 409A and the Plan will be construed and administered in a manner that is consistent with and gives effect to such intention.
11.3 Rules of Document Construction. In the event any provision of the Plan Statement is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan. The titles given to the various Sections of the Plan Statement are inserted for convenience of reference only and are not part of the Plan Statement, and they shall not be considered in determining the scope, purpose, meaning or intent of any provision hereof. The provisions of the Plan Statement shall be construed as a whole in such manner as to carry out the provisions thereof and shall not be construed separately without relation to the context.
11.4 References to Laws. Any reference in the Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation unless, under the circumstances, it would be inappropriate to do so.
11.5 Appendices. Plan provisions that have application to a limited number of Participants or that otherwise do not apply equally to all Participants may be described in an appendix to the Plan Statement. In the event of a conflict between the terms of an appendix and the terms of the remainder of the Plan Statement, the terms of the appendix control.
22
EXHIBIT 10(J)
TARGET CORPORATION
OFFICER EDCP
(2022 PLAN STATEMENT)
Amended and Restated
Effective May 1, 2022
Effective May 1, 2022
TARGET CORPORATION
OFFICER EDCP
(2022 Plan Statement)
TABLE OF CONTENTS
i
ii
iii
SECTION 1
INTRODUCTION; DEFINITIONS
1.1 Name of Plan; History. This Plan (formerly known as the “Target Corporation SMG Executive Officer Deferred Compensation Plan) is a non-qualified, unfunded plan established for the purpose of allowing a select group of management or highly compensated employees to defer the receipt of income. This Plan was originally adopted effective as of January 1, 1997 and was amended at various times thereafter. Effective April 30, 2002, Participants in this Plan who were members of the Company’s Corporate Operating Committee received credits under this Plan equal to the present value of their benefit under the supplemental pension plans maintained by the Company. Each subsequent April, the Participant receives annual SPP Benefit Transfer Credits equal to the change in value of his or her benefit under the supplemental pension plans. Effective July 31, 2002, this program was extended to include all officers of the Company. Effective April 30, 2002, Participants in this Plan who were members of the Company’s Corporate Operating Committee received credits under this Plan equal to the present value of their benefit under the Company’s ESBP. Each subsequent April, Participants received annual credits equal to the change in value of his or her benefit under the ESBP. Effective October 28, 2005, all officers who had not previously received ESBP Benefit Transfer Credits, received a one-time transfer of the present value of their benefit under the ESBP. As of January 28, 2006, a one-time ESBP credit was made to certain executive committee members and no subsequent ESBP Benefit Transfer Credits were made to those receiving the one-time ESBP credit. From time to time, certain participants in the Target Corporation Deferred Compensation Plan – Senior Management Group (“ODCP”) and the Company negotiated to transfer the economic value of their benefit under ODCP to this Plan. Officers eligible to receive performance share awards granted in the fiscal years ending February 1, 2003 and January 31, 2004 had an opportunity to defer receipt of the value of the earned performance shares into this Plan at the end of the performance period. The performance period for the shares granted in 2003 ended February 3, 2007. The performance period for the shares granted in 2004 ended February 2, 2008. Effective January 1, 2005 (and other effective dates as specifically provided), this Plan was operated in compliance with Code section 409A. Effective January 29, 2006, members of the Company’s executive committee ceased to be eligible to receive enhanced earnings on their account balances. The Plan, which is intended to comply with Code section 409A, was amended and restated effective January 1, 2009. The Plan was amended and restated to incorporate the Company’s recoupment policy effective January 13, 2010. The Plan was amended and restated to reflect Plan administration and amendment changes authorized by the Board on November 10, 2010, to modify the Change in Control definition, and to set forth special provisions that are applicable to certain Participants who transfer to Canada, effective as of June 8, 2011. The Plan was amended and restated to reflect the replacement of the Stable Value Crediting Rate Alternative with the Intermediate-Term Bond Crediting Rate Alternative beginning June 6, 2012, effective as of June 5, 2012. The Plan was amended and restated to revise the method for distributing the final SPP Transfer Credit following a Termination of Employment for amounts accruing on or after January 1, 2014, to clarify the differences between “executive officer” and “member of the executive committee,” and to clarify the timing of certain post-death payments, effective December 1, 2013. The Plan was amended and restated effective January 1, 2014 to freeze that portion of the annual SPP Transfer Credit that arises from a positive accrual under SPP III after February 3, 2013 solely from treating the Participant as five years older than his or her actual age for purposes of determining the amount of the annual SPP Benefit Transfer Credit. The
Plan was amended and restated effective January 1, 2015 (i) to revise the participation rules for Participants who are transferred to Canada on a temporary basis, (ii) to modify the Restoration Match Credit determination to cover Participants who are entitled to differing qualified 401(k) plan matching contribution percentages, (iii) to change the phrase “member of the executive committee” to “executive Officer” each place the phrase appears, and (iv) to define the term executive Officer to mean a Section 16 officer or executive officer as defined under Federal securities laws. The Plan was amended and restated effective April 3, 2016, (i) to provide that the Restoration Match Credit will, under certain circumstances, be credited to a Participant’s Account prior to the end of the Plan Year, effective for Plan Years beginning on or after January 1, 2017, (ii) to delete Appendix B – Participants on Temporary Assignment to Canada because it has ceased to be applicable, (iii) to clarify the definition of executive Officer as being an “executive officer” under Item 401 of Regulation S-K, and (iv) to remove unnecessary language from the recoupment provisions. The Plan was amended and restated effective January 1, 2017 (i) to add a five (5) year vesting requirement for the Restoration Match Credits for Plan Years beginning after December 31, 2016, (ii) to change the Enhancement from a monthly credit to an annual credit with an end of the year employment requirement, and (iii) to take advantage of some additional regulatory flexibility with respect to payments following death. The Plan was amended and restated effective May 1, 2017 to include rules about use of the Company Stock Fund Crediting Rate Alternative after Termination of Employment. The Plan was amended and restated effective January 1, 2021, as provided in this Plan Statement, (i) to include a limitation on the frequency of changes made to the Company Stock Fund Crediting Rate Alternative, and (ii) to make miscellaneous updating changes to the Plan Statement. The Plan was amended and restated effective May 1, 2022, (i) to change the term “executive Officer” to “Leadership Team Member”, (ii) to define the term “Leadership Team Member,” and (iii) to make miscellaneous updating changes to the Plan Statement.
1.2 Definitions. When the following terms are used herein with initial capital letters, they shall have the following meanings:
1.2.1 Account. “Account” means the separate bookkeeping account representing the separate unfunded and unsecured general obligation of the Participating Employers established with respect to each person who is a Participant in this Plan. Within each Participant’s Account, separate subaccounts shall be maintained to the extent the Plan Administrator determines it to be necessary or desirable for the administration of this Plan.
1.2.2 Affiliate. An “Affiliate” is the Company and all persons, with whom the Company would be considered a single employer under Code section 414(b) or 414(c).
1.2.3 Base Salary. “Base Salary” with respect to a Plan Year means Certified Earnings as modified by the rules below:
(a) the limits imposed by Code section 401(a)(17) will not apply;
(b) deferrals under Section 2.8 of this Plan are included as Base Salary; and
(c) Bonus and Signing Bonus amounts are not included as Base Salary.
2
1.2.4 Beneficiary. “Beneficiary” means an individual (human being), a trust that is a United Sates person within the meaning of the Code, a person that has been recognized as a charitable organization under Code section 170(b), or the Participant’s estate designated in accordance with Section 6.6 to receive all or a part of the Participant’s Account in the event of the Participant’s death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Participant.
1.2.5 Board. “Board” is the Board of Directors of the Company, or such committee of the Board of Directors to which the Board of Directors of the Company has delegated the respective authority.
1.2.6 Bonus. “Bonus” with respect to a Plan Year means that portion of Certified Earnings that is equal to the amount payable under the primary, regular incentive plan of a Participating Employer or other Affiliate that is earned, or intended to be earned, over a period of at least a calendar quarter or fiscal quarter as modified by the rules below:
(a) the limits imposed by Code section 401(a)(17) will not apply;
(b) deferrals under Section 2.9 of this Plan are included as Bonus; and
(c) Signing Bonus amounts are not included as Bonus.
1.2.7 Certified Earnings. “Certified Earnings” has the same meaning as the defined term in the Target 401(k) Plan (determined without regard to the 30-day receipt rule); provided, however, “Certified Earnings” shall not include compensation that is earned for services rendered by a Participant for any period following a Participant’s Termination of Employment.
1.2.8 Change in Control. ”Change-in-Control” means one of the following:
(a) Individuals who are Continuing Directors cease for any reason to constitute 50% or more of the directors of the Company; or
(b) 30% or more of the outstanding voting power of the Voting Stock of the Company is acquired or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by any Person, other than an entity resulting from a Business Combination in which clauses (x) and (y) of Section 1.2.8(c) apply; or
(c) the consummation of a merger or consolidation of the Company with or into another entity, a statutory share exchange, a sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the Company’s assets or a similar business combination (each, a “Business Combination”), in each case unless, immediately following such Business Combination, (x) all or substantially all of the beneficial owners (within the meaning of Rule 13d-3 under the Exchange Act) of the Company’s Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the voting power of the then outstanding shares of voting stock (or comparable voting equity interests) of the surviving or acquiring entity resulting from such Business Combination (including such beneficial ownership of an entity that, as a result of
3
such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), in substantially the same proportions (as compared to the other beneficial owners of the Company’s Voting Stock immediately prior to such Business Combination) as their beneficial ownership of the Company’s Voting Stock immediately prior to such Business Combination, and (y) no Person beneficially owns, directly or indirectly, 30% or more of the voting power of the outstanding voting stock (or comparable equity interests) of the surviving or acquiring entity (other than a direct or indirect parent entity of the surviving or acquiring entity, that, after giving effect to the Business Combination, beneficially owns, directly or indirectly, 100% of the outstanding voting stock (or comparable equity interests) of the surviving or acquiring entity); or
(d) approval by the shareholders of a definitive agreement or plan to liquidate or dissolve the Company.
For purposes of this Section 1.2.8:
“Continuing Director” means an individual (A) who is, as of the Effective Date, a director of the Company, or (B) who becomes a director of the Company after the Effective Date, and whose initial appointment, or nomination for election by the Company’s shareholders, was approved by at least a majority of the then Continuing Directors; provided, however, that any individual whose initial assumption of office occurs as a result of either an actual or threatened contested election by any Person (other than the Board of Directors) seeking the election of such nominee in which the number of nominees exceeds the number of directors to be elected shall not be a Continuing Director;
“Person” means any individual, firm, corporation or other entity and shall include any group comprised of any person and any other person with whom such person or any affiliate or associate (as defined in Rule 14a-1(a) of the Exchange Act) of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of any capital stock of the Company;
“Voting Stock” means all then-outstanding capital stock of the Company entitled to vote generally in the election of directors of the Company: and “Exchange Act” means the Securities Exchange Act of 1934, as amended and in effect from time to time, and the regulations promulgated thereunder.
1.2.9 Code. “Code” means the Internal Revenue Code of 1986, as amended (including, when the context requires, all regulations, interpretations and rulings issued hereunder).
1.2.10 [Intentionally left blank.]
1.2.11 Company. “Company” means Target Corporation, a Minnesota corporation, or any successor thereto.
4
1.2.12 Company’s Fiscal Year. “Company’s Fiscal Year” means the period commencing on the Sunday that immediately follows the Saturday that is nearest to the last day in January through the Saturday that is nearest to the last day in January in the following year.
1.2.13 Crediting Rate Alternative. “Crediting Rate Alternative” means a hypothetical investment option used for the purpose of measuring income, gains and losses to the Accounts of Participants (as if the Accounts had in fact been so invested). The Crediting Rate Alternatives shall be designated in writing by the Plan Administrator. Reference in this Plan Statement to a specific Crediting Rate Alternative is a reference to the corresponding investment fund available under the Target 401(k) Plan.
1.2.14 Deferral Credit. A “Deferral Credit” is the amount credited to a Participant’s Account pursuant to Section 3.1.
1.2.15 Disabled. A Participant will be “Disabled” if he or she has become entitled to receive disability income benefits under the provisions of the Social Security Act.
1.2.16 Discretionary Credit. A “Discretionary Credit” is the amount credited to a Participant’s Account pursuant to Section 3.5.
1.2.17 Earnings Credit. “Earnings Credit” means the investment adjustment credited to a Participant’s Account pursuant to Section 4.3 or Section 4.5 as applicable.
1.2.18 EDCP. “EDCP” means the Target Corporation EDCP, a non-qualified, unfunded deferred compensation plan maintained by the Company and certain other Affiliates.
1.2.19 Effective Date. The “Effective Date” of this Plan Statement is May 1, 2022, except as otherwise provided.
1.2.20 Eligible Compensation. “Eligible Compensation” means the Base Salary and Bonus that the Participant receives or is entitled to receive from his or her Participating Employer for services rendered.
1.2.21 Employee. An “Employee” is an individual who performs services for a Participating Employer as an employee of the Participating Employer (as classified by the Participating Employer at the time the services are preformed and without regard to any subsequent reclassification) and does not include any individual who is classified an independent contractor.
1.2.22 Enhancement. “Enhancement” means an additional .1667% of investment earnings per month added to the applicable Crediting Rate Alternatives as provided in Section 4.4.
1.2.23 ERISA. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended (including, when the context requires, all regulations, interpretations and rulings issued thereunder).
1.2.24 ESBP. “ESBP” means the Target Corporation Post Retirement Executive Survivor Benefit Plan.
5
1.2.25 ESBP Benefit. “ESBP Benefit” means the actuarial lump sum present value of a Participant’s survivor benefit under the ESBP determined as of a particular determination date under Section 3.4 but without regard to whether the Participant had experienced either an “early retirement” or “normal retirement” under the Target Pension Plan as provided under the ESBP. The present value of such survivor benefit will be determined by the Company in its sole and absolute discretion based on such interest rates, mortality factors and other assumptions deemed appropriate by the Company.
1.2.26 ESBP Benefit Transfer Credits. “ESBP Benefit Transfer Credits” are the initial and annual credits to a Participant’s Account under Section 3.4.
1.2.27 Leadership Team Member. “Leadership Team Member” means each member of the Company’s Leadership Team (or any successor or replacement committee).
1.2.28 Newly Eligible Employee. “Newly Eligible Employee” means an Employee who either (i) was not previously eligible to participate in this Plan or any other non-qualified, deferred compensation plans maintained by a Participating Employer or other Affiliate, (ii) had been paid all amounts previously deferred under all non-qualified, deferred compensation plans maintained by a Participating Employer or other Affiliate and had ceased to be eligible to continue to participate in such plans on or before the date of payment of all amounts due under such plans, or (iii) was not eligible to participate in any non-qualified deferred compensation plans (other than the accrual of earnings) maintained by a Participating Employer or other Affiliate at any time during the 24-month period ending on the date the Employee has again become eligible to participate in the Plan.
1.2.29 Officer. An “Officer” is any Employee who is designated and categorized as an officer of the Company or other Affiliate by the Company’s Chief Executive Officer.
1.2.30 Participant. A “Participant” is an Employee who becomes a Participant in this Plan in accordance with the provisions of Section 2. An Employee who has become a Participant shall be considered to continue as a Participant in this Plan until the date when the Participant no longer has any Account under this Plan, or the date of the Participant’s death, if earlier.
1.2.31 Participating Employer. “Participating Employer” means the Company and each other Affiliate that, with the consent of the Plan Administrator, adopts this Plan. A Participating Employer shall cease to be a Participating Employer on the date it ceases to be an Affiliate.
1.2.32 Performance Share Award. “Performance Share Award” means a performance share award issued under the Company’s Long-Term Incentive Plan of 1999 or the Company’s Long-Term Incentive Plan of 2004.
1.2.33 Plan. “Plan” means the nonqualified, unfunded income deferral program maintained by the Company and established for the benefit of Participants eligible to participate therein, as set forth in this Plan Statement. As used herein, “Plan” does not refer to the documents pursuant to which this Plan is maintained. That document is referred to herein as the “Plan Statement”. The Plan shall be referred to as the “Target Corporation Officer EDCP” (formerly known as the Target Corporation SMG Executive Deferred Compensation Plan).
6
1.2.34 Plan Administrator. “Plan Administrator” is the individual designated in Sec. 10.1.1, or, if applicable, its delegate.
1.2.35 Plan Rules. “Plan Rules” are rules, policies, practices or procedures adopted by the Plan Administrator or its delegate pursuant to Section 10.1.5.
1.2.36 Plan Statement. “Plan Statement” means this document entitled “Target Corporation Officer EDCP (2022 Plan Statement),” as adopted by the Company, effective as of May 1, 2022, as the same may be amended from time to time.
1.2.37 Plan Year. “Plan Year” means the period from January 1 through December 31.
1.2.38 Restoration Match Credit. “Restoration Match Credit” is the amount credited to a Participant’s Account pursuant to Section 3.2.
1.2.39 Signing Bonus. “Signing Bonus” is the cash remuneration earned following a period of employment provided to certain new Employees related to their acceptance of employment with a Participating Employer.
1.2.40 SPP Benefit. “SPP Benefit” means the amount determined under Appendix A.
1.2.41 SPP Benefit Transfer Credit. “SPP Benefit Transfer Credit” is the amount credited to a Participant’s Account under Section 3.3.
1.2.42 Specified Employee. For purposes of complying with the requirements of Code section 409A(a)(2)(B)(i) (relating to the 6 month suspension of certain benefit distributions), an individual is a “Specified Employee” if on his or her Termination of Employment, the Company or other Affiliate has stock that is traded on an established securities market within the meaning of Code section 409A(a)(2)(B) and such individual is a “key employee” (defined below). For this purpose, an individual is a “key employee” during the 12-month period beginning on April 1 immediately following the calendar year in which the individual was employed by the Company and other Affiliates, and satisfied, at any time within such calendar year, the requirements of Code section 416(i)(1)(A)(i), (ii) or (iii) (without regard to Code section 416(i)(5)). An individual will not be treated as a Specified Employee if the individual is not required to be treated as a Specified Employee under Treasury Regulations issued under Code section 409A.
1.2.43 Target 401(k) Plan. “Target 401(k) Plan” means the tax-qualified defined contribution retirement plan, with a qualified cash or deferred arrangement, established by the Company for the benefit of employees eligible to participate therein, including both the Target Corporation 401(k) Plan and the Target Corporation Ventures 401(k) Plan.
1.2.44 Target Pension Plan. “Target Pension Plan” means the tax qualified defined benefit pension plan, established for the benefit of employees eligible to participate therein, and known as the Target Corporation Pension Plan, including any predecessor plan(s) or successor plan.
1.2.45 Termination of Employment.
7
(a) For purposes of determining entitlement to or the amount of benefits under the Plan, “Termination of Employment” means a severance of a Participant’s employment relationship with each Participating Employer and all Affiliates, for any reason.
(b) For purposes of determining when a distribution will be made under the Plan, a “Termination of Employment” will be deemed to occur if, based on the relevant facts and circumstances to the Participant, the Participating Employer, all Affiliates and Participant reasonably anticipate that the level of bona fide future services to be performed by the Participant for the Participating Employer and all Affiliates will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period.
(c) A bona fide leave of absence that is six months or less, or during which an individual retains a reemployment right, will not cause a Termination of Employment. In the case of a leave of absence without a right of reemployment that exceeds the time periods described in this paragraph, a Termination of Employment will be deemed to occur once the leave of absence exceeds six months.
(d) Notwithstanding the foregoing, a Termination of Employment shall not occur unless such termination also qualifies as a “separation from service,” as defined under Code section 409A and related guidance thereunder.
1.2.46 Trust. “Trust” means the Target Corporation Deferred Compensation Trust Agreement, dated January 1, 2009 by and between the Company and State Street Bank and Trust Company, as it is amended from time to time, or similar trust agreement.
1.2.47 Unforeseeable Emergency. “Unforeseeable Emergency” means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (within the meaning of Code section 152(a)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, but only if and to the extent such Unforeseeable Emergency constitutes an “unforeseeable emergency” under Code section 409A.
1.2.48 Valuation Date. “Valuation Date” means each business day on which the New York Stock Exchange is open.
1.2.49 Year of Service. A “Year of Service” means each 12-consecutive month period of an individual’s continuous employment as an Employee after the date the Employee is first eligible to participate under this Plan (or the EDCP if the Employee transferred from the EDCP to this Plan); or in the event of a rehire, each 12-consecutive month period of an individual’s continuous employment as an Employee after the date the Employee is again eligible to participate under this Plan (or the EDCP if the Employee transferred from the EDCP to this Plan).
8
SECTION 2
PARTICIPATION AND DEFERRAL ELECTIONS
PARTICIPATION AND DEFERRAL ELECTIONS
2.1 Eligibility.
2.1.1 An Employee is eligible to participate in this Plan on the first day of a Plan Year if, on such day, he or she:
(a) is a “qualified employee” as that term is defined in the Target 401(k) Plan; and
(b) is an Officer.
2.1.2 A Newly Eligible Employee is eligible to participate in this Plan on the date that is 30 days after the date he or she satisfies the requirements in Section 2.1.1.
2.1.3 An Employee shall, as a condition of participation in this Plan, complete such forms and make such elections in accordance with Plan Rules as the Plan Administrator may require. An Employee who satisfies the requirements of this Section 2.1 is eligible to participate in this Plan in accordance with and subject to the requirements of this Plan.
2.1.4 An Employee who has had a Termination of Employment as defined in Section 1.2.44(b), will not be eligible to make deferral elections for subsequent Plan Years until otherwise notified by the Plan Administrator. Any deferral election in effect at the time of such Termination of Employment will continue to apply with respect to any Eligible Compensation received from a Participating Employer or other Affiliate. Such Employee will still be eligible to receive credits, if any, pursuant to Sections 3.2, 3.3, 3.4 and 3.5.
2.2 Special Rules for Participating Employees. A Participant who transfers employment from one Participating Employer to another Affiliate, whether or not a Participating Employer, will, for the duration of the Plan Year in which the transfer occurs, continue to participate in this Plan in accordance with the deferral election in effect at the time of such transfer. To the extent agreed in writing by an Affiliate and the Plan Administrator, such a transferred Participant may continue to be eligible to participate in this Plan in subsequent Plan Years. A Participant who is simultaneously employed with more than one Participating Employer will participate in this Plan as an Employee of each such Participating Employer on the basis of a single deferral election applied separately to his or her respective, Eligible Compensation from each Participating Employer.
2.3 Termination of Participation. Except as otherwise specifically provided in this Plan Statement or by the Plan Administrator, an Employee who ceases to satisfy the requirements of Section 2.1 is not eligible to continue to participate in the Plan, provided, that any deferral elections in effect, and irrevocable, will continue to apply with respect to any Eligible Compensation received from a Participating Employer or other Affiliate. The Participant’s Account will continue to be governed by the terms of the Plan until such time as the Participant’s Account balance is paid in accordance with the terms of the Plan. A Participant or Beneficiary will cease to be such as of the date on which his or her entire Account balance has been distributed.
2.4 Rehires and Transfers.
9
2.4.1 A Participant who incurs a Termination of Employment and is rehired during the same calendar year will continue Base Salary deferrals for such calendar year in accordance with his or her election in effect immediately prior to the Termination of Employment.
2.4.2 A Participant who incurs a Termination of Employment and is rehired prior to the later of the end of the Plan Year or the date the Bonus for such Plan Year is paid in cash, will continue Bonus Deferrals for such Plan Year in accordance with his or her election in effect immediately prior to the Termination of Employment.
2.4.3 Transfers from Non-Officer Plan. An Employee who is a Participant in the EDCP and is promoted to an Officer position will cease to be eligible to participate in the EDCP and will be eligible to participate in this Plan, subject to the following rules:
(a) The Employee will become a Participant in this Plan immediately upon satisfying the requirements to participate hereunder.
(b) The Employee’s deferral elections made under the EDCP will transfer to the Plan and continue as an election made under Section 2.
(c) The Employee’s account maintained under the EDCP will be transferred to the Employee’s Account under this Plan.
(d) The Employee’s distribution elections made under the EDCP (including any default distributions) will transfer to this Plan and continue as the distribution elections made under this Plan.
(e) The Employee’s beneficiary designation made under the EDCP will be treated as the Employee’s Beneficiary designation under this Plan until changed in accordance with Section 6.6.
2.5 Effect on Employment.
2.5.1 Not a Term of Employment. Neither the terms of this Plan Statement nor the benefits under this Plan (including the continuance thereof) shall be a term of the employment of any Employee.
2.5.2 Not an Employment Contract. This Plan is not and shall not be deemed to constitute a contract of employment between any Participating Employer and any Employee or other person, nor shall anything herein contained be deemed to give any Employee or other person any right to be retained in any Participating Employer’s employ or in any way limit or restrict any Participating Employer’s right or power to discharge any Employee or other person at any time and to treat him or her without regard to the effect that such treatment might have upon him or her as a Participant in this Plan.
2.6 Condition of Participation.
2.6.1 Cooperation. Each Participant shall cooperate with the Plan Administrator by furnishing any and all information requested by the Plan Administrator in order to facilitate the
10
payment of benefits hereunder and taking such other relevant action as may be requested by the Plan Administrator. If a Participant refuses to cooperate, neither the Company nor any Participating Employer shall have any further obligation to the Participant under this Plan, other than payment to such Participant of the aggregate amount of Eligible Compensation deferred under Section 3.1.
2.6.2 Plan Terms and Rules. Each Participant, as a condition of participation in this Plan, is bound by all the terms and conditions of this Plan and the Plan Rules.
2.7 Deferral Elections. An Employee who satisfies the eligibility requirements of Section 2 may, at the time and in the manner provided hereunder, elect to defer the receipt of his or her Eligible Compensation.
2.7.1 General Rule. Except as otherwise provided in this Plan, an election shall be made before the beginning of the Plan Year during which the Participant performs services for which the Eligible Compensation is earned. The election must designate the percentage of the Base Salary or Bonus which shall be deferred under this Plan. In accordance with Plan Rules, the Plan Administrator will determine the manner and timing required to file a deferral election. No deferral election shall be effective unless prior to the deadline for making such election, the Participant has filed with the Plan Administrator, in accordance with Plan Rules, an insurance consent form permitting the Participating Employer or Company to purchase and maintain life insurance coverage on the Employee with the Participating Employer or Company as the beneficiary. An election to defer Eligible Compensation for the Plan Year or other period is irrevocable once it has been accepted by the Plan Administrator and the deadline for making such election has expired, except as otherwise provided under this Plan.
2.7.2 Newly Eligible Employees. For a Newly Eligible Employee, the deferral election may be made after the first day of a Plan Year provided it is made within 30 days after becoming eligible to participate in this Plan. Such a deferral election by a Newly Eligible Employee is irrevocable once it has been received by the Plan Administrator and the deadline for making such election has expired, except as otherwise provided under this Plan. Such election will be effective with respect to Eligible Compensation payable for services performed after becoming eligible for this Plan and commencing with the next full pay period after the deferral election becomes irrevocable.
2.7.3 Terminations of Employment. A Participant who completes a deferral election in accordance with this Section 2.7, but who has a Termination of Employment prior to the expiration of the deadline for making such election, will be deemed to have made no deferral election for the respective period.
2.8 Base Salary Deferrals. A Participant’s election to defer Base Salary is subject to the following requirements:
2.8.1 A Base Salary deferral election will be effective with respect to the first paycheck issued during the Plan Year, including for the payroll period that includes the last day of the preceding Plan Year, and such election will remain in effect through the last paycheck issued during the Plan Year.
11
2.8.2 The Base Salary deferral percentage may not exceed 80%, except as provided in Plan Rules.
2.9 Bonus Deferrals. A Participant’s election to defer his or her Bonus is subject to the following requirements:
2.9.1 A Bonus deferral election will be in effect for service periods that begin in the Plan Year immediately following the date the election becomes irrevocable and continue through the end of the Plan Year or if the Bonus is paid after such Plan Year, through the date the Bonus would have been paid in cash. Notwithstanding Section 2.7.2, a Newly Eligible Employee may not elect to defer a Bonus that is payable with respect to a service period that begins before the effective date of the Newly Eligible Employee’s deferral election.
2.9.2 A Participant’s Bonus effective deferral percentage may not exceed 80%, except as provided in Plan Rules.
2.9.3 If a Participant has a Termination of Employment before the end of the service period for any Bonus, but is still entitled to receive a bonus, the Participant’s existing Bonus deferral election will continue to apply.
2.10 Performance Share Award Deferrals. An election to defer a Participant’s Performance Share Awards was available for Performance Share Awards issued in the Company’s Fiscal Year ending in calendar year 2003 and 2004, as reflected in prior Plan Statements.
2.11 Cancellation of Deferral Elections.
2.11.1 401(k) Hardship. Prior to January 1, 2020, an election to defer under Sections 2.8, 2.9, and 2.10 would be cancelled to the extent necessary for the Participating Employer to comply with the hardship withdrawal provisions of such Participating Employer’s 401(k) plan.
2.11.2 Unforeseeable Emergency. Notwithstanding any provisions in the Plan to the contrary, an election to defer under Sections 2.8, and 2.9, will be cancelled for the remaining portion of the Plan Year in the event the Participant has received a distribution on account of an Unforeseeable Emergency under Section 6.5. The revocation shall be made at the time and in the manner specified in Plan Rules and must otherwise comply with the requirements of Section 6.5.
12
SECTION 3
CREDITS TO ACCOUNTS
CREDITS TO ACCOUNTS
3.1 Elective Deferral Credit. The Plan Administrator shall credit to the Account of each Participant the amount, if any, of Eligible Compensation the Participant elected to defer pursuant to Section 2. Such amount shall be credited as nearly as practicable as of the time or times when the Eligible Compensation would have been paid to the Participant but for the election to defer.
3.2 Restoration Match Credit.
3.2.1 Eligibility for Credit. An Employee who satisfies the eligibility requirements of Section 2.1 during a Plan Year will receive a Restoration Match Credit for the Plan Year if he or she: (i) was actively employed and eligible to participate in this Plan on the last business day of the Plan Year; (ii) has experienced a Termination of Employment as defined under Section 1.2.44(a) during the Plan Year after attaining age 55 and completing five (5) Years of Service; (iii) has experienced a Termination of Employment as a result of death; or (iv) has become Disabled during such Plan Year.
3.2.2 Amount of Credit. A Participant who satisfies the requirements of Section 3.2.1 is entitled to a Restoration Match Credit equal to the sum of:
(a) The maximum matching contribution percentage the Participant is eligible to receive on deferrals under the applicable Target 401(k) Plan multiplied by the Participant’s Base Salary and Bonus that is deferred under this Plan during the Plan Year; and
(b) The maximum matching contribution percentage the Participant is eligible to receive on deferrals under the applicable Target 401(k) Plan multiplied by the Participant’s Plan Year Base Salary and Bonus that is not deferred under this Plan during the Plan Year and that exceeds the compensation limit in effect under Code section 401(a)(17) for such Plan Year; provided, however, that: (x) no Restoration Match Credit shall be made for Base Salary or Bonus paid prior to the date the Participant became eligible to participate in the Target 401(k) Plan, and (y) the credit under this Section 3.2.2 will not exceed the amount of Deferral Credits made by the Participant under Section 3.1 during the Plan Year.
3.2.3 Crediting to Account. The Plan Administrator shall credit to a Participant’s Account the amount of the Restoration Match Credit determined for the Plan Year for that Participant under Section 3.2.2 as of the date determined as follows:
(a) for a Participant described in Section 3.2.1(iii), as soon as practicable following the date of the Participant’s death; or
(b) for all other Participants, the last business day of the Plan Year.
3.2.4 Credit Upon Change-in-Control. Upon a Change-in-Control that causes the Plan to be terminated under Section 8.3.2, the Plan Administrator shall credit to a Participant’s Account as of the date of the Plan termination a Restoration Match Credit determined for the Plan Year for
13
that Participant under Section 3.2.2 through such date. Any subsequent determination of the Restoration Match Credit during the same Plan Year will be made under Section 3.2.2, less any amounts previously credited under this Section 3.2.4.
3.3 SPP Benefit Transfer Credits.
3.3.1 Eligibility. A Participant who satisfies the eligibility requirements of Section 2.1 shall receive an SPP Benefit Transfer Credit under this Plan if he or she: (i) is classified as an Officer of the Company; (ii) has a vested benefit under the Target Pension Plan, including a vested interest arising on account of the Participant’s death; and (iii) satisfies any other requirement established in SPP I or SPP II, as applicable.
3.3.2 Initial SPP Benefit Transfer Credit.
(a) A Participant who satisfies the requirements of Section 3.3.1 receives an initial SPP Benefit Transfer Credit on or about the April 30 (or immediately preceding business day) immediately following the calendar year in which the Participant becomes eligible under Section 3.3.1, in an amount equal to the actuarial lump sum present value on March 31 (or immediately preceding business day) for the Participant’s SPP Benefit accrued through the preceding December 31. In the case of Participant who is a Leadership Team Member, such transfer will be made and determined on or about the last business day prior to the end of the Company’s Fiscal Year.
(b) Upon a Plan termination on account of a Change-in-Control under Section 8.3.2, the Plan Administrator shall credit the initial SPP Benefit Transfer Credit to a Participant’s Account as of the Plan termination effective date in an amount equal to the actuarial lump sum present value on the Plan termination effective date.
3.3.3 Annual SPP Benefit Transfer Credit. A Participant who has received an initial SPP Benefit Transfer Credit under the Plan, who is eligible to receive credits pursuant to Section 3.3.1, and who is employed by a Participating Employer during a Plan Year will receive an annual SPP Benefit Transfer Credit to his or her Account under the Plan as follows:
(a) For each Plan Year, the annual SPP Benefit Transfer Credit will be the difference between (i) the SPP Benefit determined as the last day of the Plan Year expressed as the actuarial lump sum present value on the determination date and (ii) the aggregate amount of the previous SPP Benefit Transfer Credits to the Participant’s Account increased by assumed earnings at an annual rate equal to the sum of the average of the applicable Stable Value Crediting Rate Alternative for the Plan Year plus two percent (2%) determined from the crediting date through the earlier of June 5, 2012 or the determination date and after June 5, 2012 at an annual rate equal to the sum of the average of the applicable Intermediate-Term Bond Index Fund Crediting Rate Alternative for the Plan Year plus two percent (2%) from the later of June 5 or the crediting date through the determination date; provided that with respect to periods that a Participant does not receive the Enhancement on their Account, the annual rate will be equal to the average of the applicable Stable Value
14
Crediting Rate Alternative, through June 5, 2012, or the Intermediate-Term Bond Index Fund Crediting Rate Alternative, after June 5, 2012, as applicable.
(b) If the amount of the annual or final SPP Benefit Transfer Credit is positive, a credit will be made to the Participant’s Account. If the amount of the SPP Benefit Transfer Credit is negative and (i) the Participant is a Leadership Team Member on the determination date, or (ii) the Participant is an Employee and was formerly a Leadership Team Member, then the Plan Administrator, in its sole discretion, may cause such Participant’s Account to be debited by such negative amount. The debit will be made pro rata among all distribution options of the Plan other than fixed payment dates.
(c) The annual SPP Benefit Transfer Credit (including a negative credit) will be made to the Participant’s Account as of the April 30 (or immediately preceding business day) following the determination date. In the case of a Participant who is Leadership Team Member, the Plan Administrator, in its sole discretion, may cause such transfer will be made and determined on or about the last business day prior to the end of the Company’s Fiscal Year.
(d) For purposes of this section, “determination date” means on or about March 31; provided that in the case of a Participant who is a Leadership Team Member, the Plan Administrator, in its sole discretion, may cause the “determination date” to be on or about the last business day prior to the end of the Company’s Fiscal Year.
(e) Upon a Plan termination on account of a Change-in-Control under Section 8.3.2, the Plan Administrator shall credit to a Participant’s Account as of the Plan termination effective date an SPP Benefit Transfer Credit as determined in this Section 3.3.3 as of the Plan termination effective date.
(f) Notwithstanding the foregoing, a Participant’s final SPP Benefit Transfer Credit will be determined within 60 days following his or her Termination of Employment as defined under Section 1.2.44(a).
3.3.4 Forfeiture. A Participant’s SPP Benefit Transfer Credits under this Section 3.3 and corresponding earnings adjustments under Section 4 are subject to forfeiture at the time and in the amount provided under Sections 3.3.3(b).
3.4 ESBP Benefit Transfer Credit. An election to defer a Participant’s ESBP Benefit Transfer Credits was available to certain Participants with a retirement/termination date prior to January 11, 2006, as reflected in prior Plan Statements.
3.5 Discretionary Credits. The Company in its sole and absolute discretion may determine in writing for each Participant an amount that shall be credited the Participant’s Account as a Discretionary Credit. Any Discretionary Credit to a Leadership Team Member will require the approval of the Compensation & Human Capital Management Committee of the Board. The Plan Administrator shall credit to a Participant’s Account the amount of a Participating Employer’s Discretionary Credit, if any, determined for that Participant under this Section. Such amount shall
15
be credited as nearly as practicable as of the time or times fixed by the Participating Employer when awarding such credit. Any special provisions relating to Discretionary Credits made on behalf of a Participating Employer’s Employees will be set forth on an exhibit to the Plan Statement.
16
SECTION 4
ADJUSTMENTS OF ACCOUNTS
ADJUSTMENTS OF ACCOUNTS
4.1 Establishment of Accounts. There shall be established for each Participant an Account which shall be adjusted as provided under Section 4.
4.2 Adjustments of Accounts. On each Valuation Date, the Plan Administrator shall cause the value of the Account (or subaccount) to be increased (or decreased) for distributions, withdrawals, credits, debits and investment income, gains or losses charged to the Account.
4.3 Investment Adjustment. The investment income, gains and losses shall be determined for the Accounts in accordance with the following:
4.3.1 Participant Elections. In accordance with Plan Rules and procedures established by the Plan Administrator, each Participant shall prospectively elect, as part of the initial enrollment process, and from time to time thereafter, one or more Crediting Rate Alternatives that shall be used to measure income, gains and losses until the next Valuation Date.
4.3.2 Default Rate. If a Participant fails to designate one or more Crediting Rate Alternatives to be used to measure income, gains and losses with respect to amounts credited to his or her Account, such amounts will be deemed to be invested in a default Crediting Rate Alternative designated by the Plan Administrator in accordance with Plan Rules.
4.3.3 Crediting. As of each Valuation Date, each Participant’s Account shall be adjusted for income, gains and losses as if the Account had in fact been invested in the Crediting Rate Alternative(s) so selected.
4.3.4 Responsibility for Investment Adjustments. The Plan Administrator will not be responsible in any manner to any Participant, Beneficiary or other person for any damages, losses or liabilities, costs or expenses of any kind arising in connection with any designation or elimination of a Crediting Rate Alternative or a Participant’s election of a Crediting Rate Alternative.
4.3.5 Company Stock Fund Crediting Rate Alternative. Notwithstanding anything in Section 4 or Plan Rules to the contrary, the use of the Company Stock Fund as a Crediting Rate Alternative is subject to the following:
(a) For Participants who experience a Termination of Employment on or after July 1, 2017, the Company Stock Fund will be an available Crediting Rate Alternative until the first business day that is coincident with or next following the end of the 180-day period beginning on the date of the Participant’s Termination of Employment.
(b) For Participants who experience a Termination of Employment after May 1, 2017 but prior to July 1, 2017, the Company Stock Fund will be an available Crediting Rate Alternative until the end of the 180-day period beginning on the earlier of (i) July 1, 2017, and (ii) the date the Plan Administrator provides notice to the Participant of the limitation on use of the Company Stock Fund as a Crediting Rate Alternative following a Participant’s Termination of Employment.
17
(c) For Participants who experience a Termination of Employment on or before May 1, 2017, the Company Stock Fund will be an available Crediting Rate Alternative until November 20, 2017.
(d) Effective as of the end of the period described in Clause (a), (b) or (c), above, a Participant will be deemed to have designated the Money Market Option as the successor Crediting Rate Alternative for any amounts in the Participant’s Account that otherwise remained allocated to the Company Stock Fund.
(e) Any terminated Participant who is reemployed and is a Participant under this Plan is entitled to use the Company Stock Fund as an available Crediting Rate Alternative under this Plan. A Participant who is rehired prior to the end of the period described in Clause (a), (b) or (c), above, will cease to be subject to the terms of Clause (d).
(f) Notwithstanding anything in Section 4 or Plan Rules to the contrary, effective January 1, 2021, any election to transfer into or out of the Company Stock Fund will be subject to a thirty (30) day trading block that restricts an opposite-way transfer election into or out of the Company Stock Fund during such thirty (30) day period, except with respect to (i) credits to the Company Stock Fund that are the result of regular elective Deferral Credits to the Plan, (ii) Company Stock Fund election changes that are the result of an automatic rebalancing feature provided under Plan Rules, (iii) Company Stock Fund election changes that are directed by Alight Financial Advisors (or any successor financial advisor under the Company’s 401(k) Plan) to the extent such feature is in place under the Plan Rules, and (iv) any Company Stock Fund election changes made after a Participant’s Termination of Employment.
4.4 Enhancement.
4.4.1 Eligibility for Enhancement. Subject to Section 4.4.4, a Participant is eligible to receive the Enhancement for a Plan Year if he or she: (i) was actively employed and eligible to participate in this Plan on the last business day of the Plan Year; (ii) has experienced a Termination of Employment as defined under Section 1.2.44(a) during the Plan Year after attaining age 55 and completing five (5) Years of Service; (iii) has experienced a Termination of Employment as a result of death; or (iv) has become Disabled during such Plan Year.
4.4.2 Amount of Enhancement. The amount of the Enhancement to be credited for a Plan Year to the Account of a Participant who satisfies the requirements of Section 4.4.1 is first determined for each calendar month during which the Participant was employed for the entire month by multiplying the Enhancement by the balance of the Account as of the first day of such month, and then adding the monthly Enhancement amounts to determine the amount to be credited for the Plan Year.
4.4.3 Crediting to Account. For Plan Years beginning prior to January 1, 2017, the Plan Administrator shall credit to a Participant’s Account as of the last business day of each month the monthly Enhancement amount, and such Enhancement amount shall be credited according to the
18
Crediting Rate Alternatives in effect for new Deferral Credits. Effective for Plan Years beginning on or after January 1, 2017, the Plan Administrator shall credit to a Participant’s Account the Enhancement amount determined for the Plan Year for that Participant under Section 4.4.2 as of the date determined as follows:
(a) as soon as practicable following the date of the Participant’s death; or
(b) for any Participant not described in Paragraph (a) above, the last business day of the Plan Year.
Such Enhancement amount shall be credited according to the Crediting Rate Alternatives in effect for new Deferral Credits.
4.4.4 Exception. The Plan Administrator, in its sole discretion, may determine that no Enhancement will be credited to the Participant’s Account for the Plan Year ending during the Company’s Fiscal Year in which the Participant becomes a Leadership Team Member or during any of the Plan Years beginning after the date the Participant becomes a Leadership Team Member; provided that the Plan Administrator, in its sole discretion, can cause the forfeiture of the Enhancement credited to a Participant’s Account with respect to any months during the Plan Year ending during the Company’s Fiscal Year in which a Participant initially becomes a Leadership Team Member. Following the date on which the Participant ceases to be a Leadership Team Member, the Plan Administrator, in its sole discretion, can cause the Account of any such Participant to be credited with an Enhancement in accordance with the rules of Section 4.4.2 for any remaining months in the Plan Year ending during Company’s Fiscal Year in which the Participant ceased to be a Leadership Team Member, and/or during any of the Plan Years beginning after the date the Participant ceased to be a Leadership Team Member.
4.5 Account Adjustments Upon a Change-in-Control or Plan Termination.
4.5.1 In the event of a Plan termination following a Change-in-Control under Section 8.3.2 that causes a Trust to be established and funded pursuant to Section 7.3 where distribution of a Participant’s Account may not be made from the Trust within 60 days of the event because of restrictions imposed by Code section 409A, then the Participant’s Account as of the date of such event will no longer receive adjustments determined pursuant to Sections 4.3 and 4.4.
4.5.2 On and after the date of an event described in Section 4.5.1, the Account will have an investment adjustment determined at an annual rate equal to the sum of the 10-Year U.S. Treasury Note plus 2%. The 10-Year U.S. Treasury Note rate will be determined as of the date of the Plan termination under Section 8.3.2, or if no such rate is available on that date, the immediately preceding date such rate is available, and reset each calendar quarter as necessary.
19
SECTION 5
VESTING
VESTING
5.1 Deferral Credits and Restoration Match Credits.
5.1.1 Deferral Credits. Deferral Credits (and related Earnings Credits) of each Participant shall be fully (100%) vested and nonforfeitable at all times, except as otherwise provided.
5.1.2 Restoration Match Credits Prior to 2017. Restoration Match Credits that are credited to a Participant’s Account for Plan Years ending prior to January 1, 2017 (and related Earnings Credits) shall be fully (100%) vested and nonforfeitable at all times, except as otherwise provided.
5.1.3 Restoration Match Credits after 2016. Restoration Match Credits that are credited to a Participant’s Account for Plan Years beginning on or after January 1, 2017 (and related Earnings Credits) will become fully vested and nonforfeitable upon the earliest occurrence of any of the following events while the Participant is still in the employment of a Participating Employer or other Affiliate: (i) the Participant’s death; (ii) the last day of the calendar month in which a Participant attains age sixty-five (65) years; (iii) the determination that the Participant is Disabled; (iv) the occurrence of a Change-in-Control; (v) the Participant’s completion of five (5) Years of Service; or (vi) such other date as provided in writing to a Participant from the Plan Administrator.
5.1.4 Forfeiture. Any forfeiture of the Restoration Match Credits will occur as soon as practicable after the Participant’s Termination of Employment. Forfeiture of the Restoration Match Credits not vested under Section 5.1.3 is limited to the aggregate amount of the Restoration Match Credits credited with respect to such amounts determined without regard to Earnings Credits on such Restoration Match Credits.
5.2 Discretionary Credits. A Participant will be vested in any Discretionary Credits (and related Earnings Credits) as provided by the Plan Administrator when such amounts are credited to the Participant’s Account.
5.3 Enhancement.
5.3.1 General Rule. Except as provided under Section 4.4.2, the Enhancement credited to a Participant’s Account will become fully vested and nonforfeitable upon the earliest occurrence of any of the following events while the Participant is still in the employment of a Participating Employer or other Affiliate: (i) the Participant’s death; (ii) the last day of the calendar month in which a Participant attains age sixty-five (65) years; (iii) the determination that the Participant is Disabled; (iv) the occurrence of a Change-in-Control; (v) the Participant’s completion of five (5) Years of Service; or (vi) such other date as provided in writing to a Participant from the Plan Administrator.
20
5.3.2 Forfeiture. Any forfeiture of the Enhancement will occur as soon as practicable after the Participant’s Termination of Employment. Forfeiture of the Enhancement that is not vested under Section 5.3.1 is limited to the aggregate amount of the Enhancement credited with respect to such amounts determined without regard to Earnings Credits on such Enhancement. The amount of the Enhancement to be forfeited will be debited prorata against the Participant’s distribution options.
5.4 Failure to Cooperate; Misinformation or Failure to Disclose. A Participant’s Account is subject to forfeiture as provided under Sections 2.6.1.
5.5 Plan Administrator Discretion. Notwithstanding anything in this Plan Statement to the contrary, the Plan Administrator may, in its sole and absolute discretion, cause any amounts under the Plan to be fully (100%) vested and nonforfeitable.
21
SECTION 6
DISTRIBUTION
DISTRIBUTION
6.1 Distribution Elections. Except as otherwise specifically provided in this Plan, a Participant may irrevocably elect for each Plan Year the form and time of distribution of the credits made to his or her Account for such Plan Year.
6.2 General Rule. A Participant’s distribution election relating to Deferral Credits must be made prior to the date the Participant’s deferral election becomes irrevocable. The election shall be made in the form and manner prescribed by Plan Rules. Distribution elections for Base Salary deferrals will also apply to Restoration Match Credits related to the same Plan Year. Earnings Credits and Enhancements will be distributed in the same form and time as in effect for the related Account credit. All Discretionary Credits will be distributed in the form of a single lump sum as of the time determined under Section 6.2.2(b).
6.2.1 Form of Distribution. The Participant may elect among the following forms of distribution.
(a) Installments. A series of annual installments made over either five (5) years or ten (10) years commencing at a time provided under Section 6.2.2(a) or (b). For purposes of Code section 409A, installment payments will be treated as a series of separate payments at all times.
(b) Lump Sum. A single lump sum payment.
6.2.2 Time of Payment. The Participant may elect among the distribution commencement times described in this section; provided that SPP Benefit Transfer and unvested ESBP Benefit Transfer Credits may not be distributed on a fixed payment date as described in paragraph (c).
(a) Termination of Employment. Within 60 days following the Participant’s Termination of Employment, other than on account of death.
(b) One-Year Anniversary of Termination of Employment. Within 60 days following the one-year anniversary of the Participant’s Termination of Employment, other than on account of death.
(c) Fixed Payment Date. Within 60 days of January 1 of the calendar year elected by the Participant at the time of deferral. If a Participant has a Termination of Employment as defined in Section 1.2.44 prior to the fixed payment date, such amount shall be paid on the earlier of: (i) within 60 days following January 1 in the tenth year following the year of the Termination of Employment, or (ii) January 1 of the calendar year elected by the Participant at the time of deferral. The Plan Administrator will establish Plan Rules, procedures and limitations on establishing the number and times of the fixed payment dates available for Participants to elect.
(d) Payouts in 2008 and 2009. During 2007 and 2008, consistent with transition relief available under Code section 409A, and subject to Plan Rules, Participants had an
22
opportunity to elect to receive certain distributions, which are described in more detail in prior Plan Statements.
6.2.3 Installment Amounts. The amount of the annual installments shall be determined by dividing the amount of the vested portion of the Account as of the most recent Valuation Date preceding the date the installment is being paid by the number of remaining installment payments to be made (including the payment being determined).
6.2.4 Small Benefit. Subject to Section 6.3, in the event that the vested Account balance of a Participant who has died or experienced a Termination of Employment under the Plan is less than the applicable dollar amount under Code section 402(g)(1)(B) for that Plan Year as of the date on which the Plan Administrator makes such determinations, the Plan Administrator (on behalf of the Company) reserves the right to have the Participant’s entire Account paid in the form of a single lump sum payment, provided the Plan Administrator’s exercise of discretion (on behalf of the Company) complies with the requirements of Treas. Reg. Sec. 1.409A-3(j)(4)(v).
6.2.5 Default. If for any reason a Participant shall have failed to make a timely designation of the form or time of distribution with respect to credits for a Plan Year (including reasons entirely beyond the control of the Participant), except as provided in Section 6.2.6, the distribution shall be made as indicated below:
(a) In the case of SPP Benefit Transfer Credits: a single lump sum within 60 days following the one-year anniversary of the Participant’s Termination of Employment.
(b) In all other cases, a single lump sum payment within 60 days following the Participant’s Termination of Employment.
6.2.6 Crediting of Amounts after Termination of Employment or Benefit Distribution. Notwithstanding any provision in this Plan Statement to the contrary other than Section 6.3:
(a) Enhancement, Deferral and Restoration Match Credits.
(i) Lump Sum Distribution. If Enhancement, Deferral or Restoration Match Credits are due after the complete distribution of the Participant’s vested Account balance, or subaccount balance to which such Enhancement, Deferral or Restoration Match Credit relate, then such subsequent credits will be made to the Account and paid to the Participant in a single lump sum cash payment within 60 days of being credited to the Account.
(ii) Installment Distribution. If Enhancement, Deferral or Restoration Match Credits are due after a related installment distribution occurs, then such subsequent credits will be made to the Account and included in the Account balance to determine the amount of the remaining scheduled payments as applicable.
23
(b) SPP or ESBP Benefit Transfer Credit. The SPP Benefit Transfer Credit shall be distributed as follows:
(i) For amounts accruing prior to January 1, 2014, in a single lump sum within 60 days following the Termination of Employment; and
(ii) For amounts accruing on or after January 1, 2014,
(A) If the SPP Benefit Transfer Credit is due after the complete distribution of the Participant’s vested Account balance, or subaccount balance to which such Credit relates, then such Credit will be made to the Account and paid to the Participant in a single lump sum payment within 60 days of being credited to the Account;
(B) If the SPP Benefit Transfer Credit is due after a related installment distribution occurs, then such subsequent Credit will be made to the Account and included in the Account balance to determine the amount of the remaining scheduled payments as applicable; and
(C) If the SPP Benefit Transfer Credit is due prior to the commencement of payment to which such credit relates, distribution shall be made at the time and in the manner elected by the Participant or pursuant to the Plan’s rule, all as provided in Section 6.2.2.
6.2.7 Vesting in Benefits After the Distribution Date. No portion of a Participant’s Account will be distributed prior to being vested. Subject to Section 6.3, if Participant is scheduled to receive a distribution of a portion of his or her Account that is not vested, such unvested amount will not be paid until subsequently vested, at which time it will be paid out in accordance with the respective distribution election.
6.2.8 No Spousal Rights. No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Participant’s designation of a form or time of payment.
6.3 Six-Month Suspension for Specified Employees. Notwithstanding any other provision in this Section 6 to the contrary, if a Participant is a Specified Employee at Termination of Employment, then any distributions arising on account of the Participant’s Termination of Employment (other than on account of death) that are due shall be suspended and not be made until (6) months have elapsed since such Participant’s Termination of Employment (or, if earlier, upon the date of the Participant’s death). Any payments that were otherwise payable during the six-month suspension period referred to in the preceding sentence, will be paid within 60 days after the end of such six-month suspension period.
6.4 Distribution on Account of Death; Distribution Following Death. Upon the death of a Participant prior to Termination of Employment or other distribution trigger, the Participant’s Account balance will be paid to the Participant’s Beneficiary in a single lump sum as soon as practicable following the Participant’s death, but in no event later than the last day of the calendar year immediately following the calendar year in which the Participant’s death occurs. Upon the death of a Participant following Termination of Employment or other distribution trigger,
24
distribution will continue in the same form and at the same time it was scheduled to be paid to the Participant, subject to Section 6.3, but will be paid in a single lump sum to the estate of the Beneficiary as soon as practicable following the Beneficiary’s death.
6.5 Distribution on Account of Unforeseeable Emergency.
6.5.1 When Available. A Participant may receive a distribution from the vested portion of his or her Account (which shall be deemed to include the deferral that would have been made but for the cancellation under Section 6.5.3) if the Plan Administrator determines that such distribution is on account of an Unforeseeable Emergency and the conditions in Section 6.5.2 have been fulfilled. To receive such a distribution, the Participant must request a distribution by filing an application with the Plan Administrator and furnish such supporting documentation as the Plan Administrator may require. In the application, the Participant shall specify the basis for the distribution and the dollar amount to be distributed. If such request is approved by the Plan Administrator, distribution shall be made in a lump sum payment within 60 days following the approval by the Plan Administrator of the completed application.
6.5.2 Limitations. The amount that may be distributed with respect to a Participant’s Unforeseeable Emergency shall not exceed the amounts necessary to satisfy the emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such Unforeseeable Emergency is or may be relieved through reimbursement or compensation by insurance or otherwise by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), and/or cancellation of deferrals pursuant to Section 6.5.3, provided the determination of such limitation is consistent with the requirements of Code section 409A(a)(2)(B)(ii).
6.5.3 Cancellation of Deferral Elections. As provided by Section 2.12, in the event of a distribution under Section 6.5.1 the Plan Administrator will cancel the Participant’s deferral elections for the balance of the applicable Plan Year.
6.6 Designation of Beneficiaries.
6.6.1 Right to Designate or Revoke.
(a) Each Participant may designate one or more primary Beneficiaries or secondary Beneficiaries to receive all or a specified part of such Participant’s vested Account in the event of such Participant’s death. If fewer than all designated primary or secondary Beneficiaries predecease the Participant, then the amount of such predeceased Beneficiary’s portion shall be allocated to the remaining primary or secondary Beneficiaries, as the case may be.
(b) The Participant may change or revoke any such designation from time to time without notice to or consent from any spouse, any person named as Beneficiary or any other person.
(c) No such designation, change or revocation shall be effective unless completed and filed with the Plan Administrator in accordance with Plan Rules during the Participant’s lifetime.
25
6.6.2 Failure of Designation. If a Participant:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Participant, such Participant’s vested Account, shall be payable to the first class of the following classes of automatic Beneficiaries:
(d) Participant’s surviving spouse Representative of Participant’s estate
6.6.3 Disclaimers by Beneficiaries. A Beneficiary entitled to a distribution of all or a portion of a deceased Participant’s vested Account may disclaim an interest therein subject to the Plan Rules.
6.6.4 Special Rules. Unless the Participant has otherwise specified in the Participant’s Beneficiary designation, the following rules shall apply:
(a) If there is not sufficient evidence that a person designated as a Beneficiary was living at the time of the death of the Participant, it shall be deemed that the Beneficiary was not living at the time of the death of the Participant.
(b) The automatic Beneficiaries specified in Section 6.6.2 and the Beneficiaries designated by the Participant shall become fixed at the time of the Participant’s death (subject to Section 6.6.3) so that, if a Beneficiary survives the Participant but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiary’s estate.
(c) If the Participant designates as a Beneficiary the person who is the Participant’s spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Participant and such person shall automatically revoke such designation. The foregoing shall not prevent the Participant from designating a former spouse as a beneficiary on a form that is both executed by the Participant and received by the Plan Administrator (i) after the date of the legal termination of the marriage between the Participant and such former spouse and (ii) during the Participant’s lifetime.
(d) A finalized marriage (other than a common law marriage) of a Participant subsequent to the date of filing of a Beneficiary designation shall revoke such designation unless the Participant’s new spouse had previously been designated as the Beneficiary.
(e) Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Participant shall be given effect without regard to
26
whether the relationship to the Participant exists either then or at the Participant’s death.
(f) Any designation of a Beneficiary only by statement of relationship to the Participant shall be effective only to designate the person or persons standing in such relationship to the Participant at the Participant’s death.
6.7 Facility of Payment.
6.7.1 Legal Disability. In case of the legal disability, including minority, of an individual entitled to receive any payment under this Plan, payment shall be made, if the Plan Administrator shall be advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal representative of such individual, or
(b) to a person or institution entrusted with the care or maintenance of the incompetent or disable Participant or Beneficiary, provided such person or institution has satisfied the Plan Administrator that the payment will be used for the best interest and assist in the care of such individual, and provided further, that no prior claim for said payment has been made by a duly appointed guardian, conservator or other legal representative of such individual.
6.7.2 Discharge of Liability. Any payment made in accordance with the foregoing provisions of this Section 6.7 shall constitute a complete discharge of any liability or obligation of the Participating Employers under this Plan.
6.8 Tax Withholding. The Participating Employer (or any other person legally obligated to do so) shall withhold the amount of any federal, state or local income tax, payroll tax or other tax that the payer reasonably determines is required to be withheld under applicable law with respect to any amount payable under this Plan. All benefits otherwise due hereunder shall be reduced by the amount to be withheld.
6.9 Payments Upon Rehire. If a Participant who is receiving installment payments or due a deferred lump sum payment under this Plan is rehired, the payments will continue in accordance with the prior distribution elections.
6.10 Application for Distribution. A Participant may be required to make application to receive payment and to complete other forms and furnish other documentation required by the Plan Administrator. Distribution shall not be made to any Beneficiary until such Beneficiary shall have filed an application for benefits in a form acceptable to the Plan Administrator and such application shall have been approved by the Plan Administrator and the Plan Administrator has determined that the applicant is entitled to payment.
6.11 Acceleration of Distributions. The Plan Administrator in its sole discretion may exercise discretion on behalf of the Company to accelerate the distribution of any payment under this Plan to the extent allowed under Code section 409A.
27
6.12 Delay of Distributions. The Plan Administrator in its sole discretion may exercise discretion on behalf of the Company to delay the distribution of any payment under this Plan to the extent allowed under Code section 409A, including, but not limited to, as necessary to maximize the Company’s tax deductions as allowed pursuant to Code section 162(m) or to avoid violation of federal securities or other applicable law.
28
SECTION 7
SOURCE OF PAYMENTS; NATURE OF INTEREST
SOURCE OF PAYMENTS; NATURE OF INTEREST
7.1 Source of Payments.
7.1.1 General Assets. Each Participating Employer will pay, from its general assets, the distribution of the Participant’s Account under Section 6, and all costs, charges and expenses relating thereto.
7.1.2 Trust. Upon a Change-in-Control that causes the Plan to be terminated under Section 8.3.2, the trustee of the Trust will make distributions to Participants and Beneficiaries from the Trust in satisfaction of a Participating Employer’s obligations to make distributions under this Plan in accordance with and subject to the terms of the Trust to the extent such payments are not otherwise made directly by the Participating Employer.
7.2 Unfunded Obligation. The obligation of the Participating Employers to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of the Participating Employers to make such payments. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, claims or interests in any specific property or assets of the Company or a Participating Employer, nor shall they be beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by the Company.
7.3 Establishment of Trust. The Participating Employers shall have no obligation to establish or maintain any fund, trust or account (other than a bookkeeping account or reserve) for the purpose of funding or paying the benefits promised under this Plan except as provided in the Trust. The Participating Employers may from time to time transfer to the Trust cash, or other marketable securities or other property acceptable to the trustee in accordance with the terms of the Trust. If the Participating Employers have deposited funds in the Trust, such funds shall remain the sole and exclusive property of the Participating Employer that deposited such funds.
7.4 Spendthrift Provision. Except as otherwise provided in this Section 7.4, no Participant or Beneficiary shall have any interest in any Account which can be transferred nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of the Participating Employers. The Plan Administrator shall not recognize any such effort to convey any interest under this Plan. No benefit payable under this Plan shall be subject to attachment, garnishment, or execution following judgment or other legal process before actual payment to such person.
7.4.1 Right to Designate Beneficiary. The power to designate Beneficiaries to receive the Account of a Participant in the event of such Participant’s death shall not permit or be construed to permit such power or right to be exercised by the Participant so as thereby to anticipate, pledge, mortgage or encumber such Participant’s Account or any part thereof, and any attempt of a Participant so to exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by the Participating Employers.
29
7.4.2 Plan Administrator’s Right to Exercise Discretion. This Section 7.4 shall not prevent the Plan Administrator from exercising, in its discretion, any of the applicable powers and options granted to it under any applicable provision hereof.
7.5 Compensation Recovery (Recoupment). Notwithstanding any other provision of the Plan, a Participant who becomes subject to the Company’s recoupment policy as adopted by the Compensation & Human Capital Management Committee of the Company’s Board of Directors and amended from time to time (“Recoupment Policy”) may have all or a portion of his or her benefit under this Plan forfeited and/or all or a portion of any distributions payable to the Participant or his or her Beneficiary recovered by the Company.
7.5.1 Any Deferral Credit and related Earnings Credits resulting from the deferral of Eligible Compensation that is subject to recovery under the Recoupment Policy may be forfeited and, in such event, a corresponding adjustment will be made to the Participant’s Account balance.
7.5.2 If a Participant has commenced distributions and is subject to a claim for recovery under the Recoupment Policy, then the Company may, subject to any limitations under Code section 409A, retain all or any portion of the Participant’s (or his or her Beneficiary’s) taxable distribution, net of state, federal or foreign tax withholding, to satisfy such claim.
30
SECTION 8
ADOPTION, AMENDMENT AND TERMINATION
ADOPTION, AMENDMENT AND TERMINATION
8.1 Adoption. With the prior approval of the Plan Administrator, an Affiliate may adopt the Plan and become a Participating Employer by furnishing to the Plan Administrator a certified copy of a resolution of its board of directors adopting this Plan.
8.2 Amendment.
8.2.1 General Rule. The Company, by action of its Board of Directors, or by action of a person so authorized by resolution of the Board of Directors and subject to any limitations or conditions in such authorization, may at any time amend the Plan, in whole or in part, for any reason, including but not limited to tax, accounting or insurance changes, a result of which may be to terminate the Plan for future deferrals provided, however, that no amendment shall be effective to decrease the benefits, nature or timing thereof payable under the Plan to any Participant with respect to deferrals made (and benefits thereafter accruing) prior to the date of such amendment. Written notice of any amendment shall be given each Participant then participating in the Plan.
8.2.2 Amendment to Benefit Leadership Team Member. Any amendment to the benefit of a Leadership Team Member under this Plan, to the extent approval of such amendment by the Board would be required by the Securities and Exchange Commission and its regulations or the rules of any applicable securities exchange, will require the approval of the Board.
8.2.3 No Oral Amendments. No modification of the terms of this Plan Statement shall be effective unless it is in writing. No oral representation concerning the interpretation or effect of this Plan Statement shall be effective to amend this Plan Statement.
8.3 Termination and Liquidation.
8.3.1 General Rule.
(a) To the extent necessary or reasonable to comply with any changes in law, the Board may at any time terminate and liquidate this Plan, provided such termination and liquidation satisfies the requirements of Code section 409A.
(b) To the extent that a Participant’s benefit under the Plan will be immediately included in the income of the Participant, as determined by a court of competent jurisdiction or the Internal Revenue Service, to the extent permitted under Code section 409A, the Board may terminate and liquidate this Plan, in whole or in part, as it relates to the impacted Participant.
8.3.2 Plan Termination and Liquidation on Account of a Change-in-Control. Upon a Change-in-Control, the Plan will terminate and payment of all amounts under the Plan will be accelerated if and to the extent provided in this Section 8.3.2.
(a) The Plan will be terminated effective as of the first date on which there has occurred both (i) a Change-in-Control under Section 1.2.8, and (ii) a funding of the Trust on account of such Change-in-Control (referred to herein as the “Plan termination
31
effective date”) unless, prior to such Plan termination effective date, the Board affirmatively determines that the Plan will not be terminated as of such effective date. The Board will be deemed to have taken action to irrevocably terminate the Plan as of the Plan termination effective date by its failure to affirmatively determine that the Plan will not terminate as of such date.
(b) The determination by the Board under paragraph (a) constitutes a determination that such termination will satisfy the requirements of Code section 409A, including an agreement by the Company that it will take such additional action or refrain from taking such action as may be necessary to satisfy the requirements necessary to terminate and liquidate the Plan under paragraph (c) below.
(c) In the event the Board does not affirmatively determine not to terminate the Plan as provided in paragraph (a), such termination shall be subject to either (i) or (ii), as follows:
(i) If the Change-in-Control qualifies as a “change in control event” for purposes of Code section 409A, payment of all amounts under the Plan will be accelerated and made in a lump sum as soon a administratively practicable but not more than 90 days following the Plan termination effective date, provided the requirements of Treasury Regulation Section 1.409A-3(j)(4)(ix)(B) have been satisfied.
(ii) If the Change-in-Control does not qualify as a “change in control event” for purposes of Code section 409A, payment of all amounts under the Plan will be accelerated and made in a lump sum as soon as administratively practicable but not more than 60 days following the 12 month anniversary of the Plan termination effective date, provided the requirements of Treasury Regulation Section 1.409A-3(j)(4)(ix)(C) have been satisfied.
32
SECTION 9
CLAIM PROCEDURES
CLAIM PROCEDURES
9.1 Claims Procedure. Until modified by the Plan Administrator, the claim and review procedures set forth in this Section shall be the mandatory claim and review procedures for the resolution of disputes and disposition of claims filed under this Plan. An application for a distribution or withdrawal shall be considered as a claim for the purposes of this Section.
9.1.1 Initial Claim. An individual may, subject to any applicable deadline, file with the Plan Administrator a written claim for benefits under this Plan in a form and manner prescribed by the Plan Administrator.
(a) If the claim is denied in whole or in part, the Plan Administrator shall notify the claimant of the adverse benefit determination within ninety (90) days after receipt of the claim.
(b) The ninety (90) day period for making the claim determination may be extended for ninety (90) days if the Plan Administrator determines that special circumstances require an extension of time for determination of the claim, provided that the Plan Administrator notifies the claimant, prior to the expiration of the initial ninety (90) day period, of the special circumstances requiring an extension and the date by which a claim determination is expected to be made.
9.1.2 Notice of Initial Adverse Determination. A notice of an adverse determination shall set forth in a manner calculated to be understood by the claimant.
(a) The specific reasons for the adverse determinations,
(b) references to the specific provisions of this Plan Statement (or other applicable Plan document) on which the adverse determination is based,
(c) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and
(d) a description of the claim and review procedures, including the time limits applicable to such procedure, and a statement of the claimant’s right to bring a civil action under ERISA section 502(a) following an adverse determination on review.
9.1.3 Request for Review. Within sixty (60) days after receipt of an initial adverse benefit determination notice, the claimant may file with the Plan Administrator a written request for a review of the adverse determination and may, in connection therewith submit written comments, documents, records and other information relating to the claim benefits. Any request for review of the initial adverse determination not filed within sixty (60) days after receipt of the initial adverse determination notice shall be untimely.
9.1.4 Claim on Review. If the claim, upon review, is denied in whole or in part, the Plan Administrator shall notify the claimant of the adverse benefit determination within sixty (60) days after receipt of such a request for review.
33
(a) The sixty (60) day period for deciding the claim on review may be extended for sixty (60) days if the Plan Administrator determines that special circumstances require an extension of time for determination of the claim, provided that the Plan Administrator notifies the claimant, prior to the expiration of the initial sixty (60) day period, of the special circumstances requiring an extension and the date by which a claim determination is expected to be made.
(b) In the event that the time period is extended due to a claimant’s failure to submit information necessary to decide a claim on review, the claimant shall have sixty (60) days within which to provide the necessary information and the period for making the claim determination on review shall be tolled from the date on which the notification of the extension is sent to the claimant until the date on which the claimant responds to the request for additional information or, if earlier, the expiration of sixty (60) days.
(c) The Plan Administrator’s review of a denied claim shall take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
9.1.5 Notice of Adverse Determination for Claim on Review. A notice of an adverse determination for a claim on review shall set forth in a manner calculated to be understood by the claimant.
(a) the specific reasons for the denial,
(b) references to the specific provisions of this Plan Statement (or other applicable Plan document) on which the adverse determination is based,
(c) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits,
(d) a statement describing any voluntary appeal procedures offered by the Plan and the claimant’s right to obtain information about such procedures, and
(e) a statement of the claimant’s right to bring an action under ERISA section 502(a).
9.2 Rules and Regulations.
9.2.1 Adoption of Rules. Any rule not in conflict or at variance with the provisions hereof may be adopted by the Plan Administrator.
9.2.2 Specific Rules.
(a) No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the established claim procedures. The Plan Administrator may require that any claim for benefits and any request for a
34
review of a denied claim be filed on forms to be furnished by the Plan Administrator upon request.
(b) All decisions on claims and on requests for a review of denied claims shall be made by the Plan Administrator unless delegated as provided for in the Plan, in which case references in this Section 9 to the Plan Administrator shall be treated as references to the Plan Administrator’s delegate.
(c) Claimants may be represented by a lawyer or other representative at their own expense, but the Plan Administrator reserves the right to require the claimant to furnish written authorization and establish reasonable procedures for determining whether an individual has been authorized to act on behalf of a claimant. A claimant’s representative shall be entitled to copies of all notices given to the claimant.
(d) The decision of the Plan Administrator on a claim and on a request for a review of a denied claim may be provided to the claimant in electronic form instead of in writing at the discretion of the Plan Administrator.
(e) In connection with the review of a denied claim, the claimant or the claimant’s representative shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information necessary to make a benefit determination accompanies the filing.
(f) The time period within which a benefit determination will be made shall begin to run at the time a claim or request for review is filed in accordance with the claims procedures, without regard to whether all the information necessary to make a benefit determination accompanies the filing.
(g) The claims and review procedures shall be administered with appropriate safeguards to that benefit claim determinations are made in accordance with governing plan documents and, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants.
(h) The Plan Administrator may, in its discretion, rely on any applicable statute of limitation or deadline as a basis for denial of any claim.
9.3 Limitations and Exhaustion.
9.3.1 Claims. No claim shall be considered under these administrative procedures unless it is filed with the Plan Administrator within two (2) years after the Participant knew (or reasonably should have known) of the general nature of the dispute giving rise to the claim. Every untimely claim shall be denied by the Plan Administrator without regard to the merits of the claim.
9.3.2 Lawsuits. No suit may be brought by or on behalf of any Participant or Beneficiary on any matter pertaining to this Plan unless the action is commenced in the proper forum within two (2) years from the earlier of:
35
(a) the date the Participant knew (or reasonably should have known) of the general nature of the dispute giving rise to the action, or
(b) the date the claim was denied.
9.3.3 Exhaustion of Remedies. These administrative procedures are the exclusive means for resolving any dispute arising under this Plan. As to such matters:
(a) no Participant or Beneficiary shall be permitted to litigate any such matter unless a timely claim has been filed under these administrative procedures and these administrative procedures have been exhausted, and
(b) determinations by the Plan Administrator (including determinations as to whether the claim was timely filed shall be afforded the maximum deference permitted by law.
9.3.4 Imputed Knowledge. For the purpose of applying the deadlines to file a claim or a legal action, knowledge of all facts that a Participant knew or reasonably should have known shall be imputed to every claimant who is or claims to be a Beneficiary of the Participant or otherwise claims to derive an entitlement by reference to the Participant for the purpose of applying the previously specified periods.
36
SECTION 10
PLAN ADMINISTRATION
PLAN ADMINISTRATION
10.1 Plan Administration.
10.1.1 Administrator. The Company’s Vice President, Pay & Benefits (or any successor thereto) is the “administrator” of the Plan for purposes of section 3(16)(A) of ERISA. Except as otherwise expressly provided herein, the Plan Administrator shall control and manage the operation and administration of this Plan and make all decisions and determinations.
10.1.2 Authority and Delegation. The Plan Administrator is authorized to:
(a) Appoint one or more individuals or entities and delegate such of his or her powers and duties as he or she deems desirable to any individual or entity, in which case every reference herein made to Plan Administrator shall be deemed to mean or include the individual or entity as to matters within their jurisdiction. Such individual may be an officer or other employee of a Participating Employer or Affiliate, provided that any delegation to an employee of a Participating Employer or Affiliate will automatically terminate when he or she ceases to be an employee. Any delegation may be rescinded at any time; and
(b) Select, employ and compensate from time to time such agents or consultants as the Plan Administrator may deem necessary or advisable in carrying out its duties and to rely on the advice and information provided by them.
10.1.3 Determination. The Plan Administrator shall make such determinations as may be required from time to time in the administration of this Plan. The Plan Administrator shall have the discretionary authority and responsibility to interpret and construe this Plan Statement and to determine all factual and legal questions under this Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amounts of their respective interests. Each decision of the Plan Administrator shall be final and binding upon all parties. Benefits under the Plan will be paid only if the Plan Administrator decides in its discretion that the applicant is entitled to them.
10.1.4 Reliance. The Plan Administrator may act and rely upon all information reported to it hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
10.1.5 Rules and Regulations. Any rule, regulation, policy, practice or procedure not in conflict or at variance with the provisions hereof may be adopted by the Plan Administrator.
10.2 Conflict of Interest. If any individual to whom authority has been delegated or redelegated hereunder shall also be a Participant in this Plan, such Participant shall have no authority with respect to any matter specially affecting such Participant’s individual interest hereunder or the interest of a person superior to him or her in the organization (as distinguished from the interests of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to other individuals as the case may
37
be, to the exclusion of such Participant, and such Participant shall act only in such Participant’s individual capacity in connection with any such matter.
10.3 Service of Process. In the absence of any designation to the contrary by the Plan Administrator, the Chief Legal Officer of the Company is designated as the appropriate and exclusive agent for the receipt of service of process directed to this Plan in any legal proceeding, including arbitration, involving this Plan.
10.4 Choice of Law. Except to the extent that federal law is controlling, this Plan Statement will be construed and enforced in accordance with the laws of the State of Minnesota.
10.5 Responsibility for Delegate. No person shall be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of the Plan Statement or pursuant to procedures set forth in the Plan Statement.
10.6 Expenses. All expenses of administering the benefits due under this Plan shall be borne by the Participating Employers.
10.7 Errors in Computations. It is recognized that in the operation and administration of the Plan certain mathematical and accounting errors may be made or mistakes may arise by reason of factual errors in information supplied to the Plan Administrator or trustee. The Plan Administrator shall have power to cause such equitable adjustments to be made to correct for such errors as the Plan Administrator, in its sole discretion, considers appropriate. Such adjustments shall be final and binding on all persons.
10.8 Indemnification. In addition to any other applicable provisions for indemnification, the Participating Employers jointly and severally agree to indemnify and hold harmless, to the extent permitted by law, each director, officer and Employee of the Participating Employers against any and all liabilities, losses, costs or expenses (including legal fees) of whatsoever kind and nature which may be imposed on, incurred by or asserted against such person at any time by reason of such person’s services as an administrator in connection with this Plan, but only if such person did not act dishonestly, or in bad faith, or in willful violation of the law or regulations under which such liability, loss, cost or expense arises.
10.9 Notice. Any notice required under this Plan Statement may be waived by the person entitled thereto.
38
SECTION 11
CONSTRUCTION
11.1 ERISA Status. This Plan was adopted and is maintained with the understanding that it is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as provided in section 201(2), section 301(a)(3) and section 401(a)(1) of ERISA. This Plan shall be interpreted and administered accordingly.
11.2 IRC Status. This Plan is intended to be a nonqualified deferred compensation arrangement that will comply in form and operation with the requirements of Code section 409A and this Plan will be construed and administered in a manner that is consistent with and gives effect to such intention.
11.3 Rules of Document Construction. In the event any provision of this Plan Statement is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. The titles given to the various Sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the scope, purpose, meaning or intent of any provision hereof. The provisions of this Plan Statement shall be construed as a whole in such manner as to carry out the provisions thereof and shall not be construed separately without relation to the context.
11.4 References to Laws. Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation unless, under the circumstances, it would be inappropriate to do so.
11.5 Appendices. The Plan provisions that have application to a limited number of Participants or that otherwise do not apply equally to all Participants may be described in an appendix to this Plan Statement. In the event of a conflict between the terms of an appendix and the terms of the remainder of this Plan Statement, the appendix will control.
39
APPENDIX A
SPP BENEFIT
A-1 Purpose and Application. The purpose of this Appendix A to this Plan Statement is to establish the rules for determining the amount of the SPP Benefit Transfer Credit under this Plan.
A-2 Background.
A-2.1 Transfer Credits. The Company has adopted and maintained several nonqualified supplemental pension plans to provide retirement income to a select group of highly compensated and key management employees in excess of the retirement income that can be provided under the Target Pension Plan on account of limitations imposed by the Code. Effective April 30, 2002, the Company began converting the accrued supplemental pension benefits of certain participants to credits under this Plan as adjusted annually to reflect changes in such benefits.
A-2.2 Cash Balance Formula. Effective January 1, 2003, the Target Pension Plan was amended to add a cash balance pension plan formula (referred to as the “personal pension account”). Depending on the date participation commences or an election was made, a Participant who has a benefit under the Target Pension Plan may have his or her accrued benefit under such plan based solely on the final average pay formula (the “traditional formula”), solely on the personal pension account, or a combination of the traditional formula (frozen as of December 31, 2002) and the personal pension account.
A-3 Definitions.
A-3.1 SPP I “SPP I” means the Target Corporation SPP I.
A-3.2 SPP II “SPP II” means the Target Corporation SPP II.
A-3.3 SPP III “SPP III” means the Target Corporation SPP III.
A-4 SPP Benefit. Each Participant’s SPP Benefit is equal to the sum of the benefits under Section A-4.1, Section A-4.2 and Section A-4.3.
A-4.1 Traditional Formula Benefit. A Participant’s SPP Benefit is the excess, if any, of the monthly pension benefit under (a) over the monthly pension benefit under (b):
(a) the monthly pension benefit the Participant would be entitled to under the Target Pension Plan, based on the “traditional formula,” if such formula were applied
(i) without regard to the maximum benefit limitation required by Code section 415;
(ii) without regard to the maximum compensation limitation under Code section 401(a)(17);
(iii) as if the definition of “certified earnings” under the Target Pension Plan for a plan year included compensation that would have been paid in the plan year in
A-1
the absence of the Participant’s election to defer payment of the compensation to a later date pursuant to the provisions of a deferred compensation plan;
(iv) without regard to the alternative benefit formula of Sections 4.6(a)(3) and 4.6(b)(2) of the Target Pension Plan.
(b) The monthly pension benefit the Participant is entitled to receive under the Target Pension Plan on account of the “traditional formula.”
A-4.2 Personal Pension Account. A Participant’s SPP Benefit includes the excess, if any, of the amount determined under (a) over the amount determined under (b):
(a) The amount that would have been credited each quarter (including both “pay credits” and “interest credits”) to the Participant’s “personal pension account” under the Target Pension Plan, if such account were applied:
(i) without regard to the maximum benefit limitations required by Code section 415;
(ii) without regard to the maximum compensation limitation under Code section 401(a)(17);
(iii) as if the definition of “certified earnings” under the Target Pension Plan for a calendar quarter included compensation that would have been paid during such calendar quarter in the absence of the Participant’s election to defer payment of the compensation to a later date pursuant to the provisions of a deferred compensation plan;
(iv) as if a distribution had been made from such account equal to any SPP Benefit Transfer Credits made under Section 3.3.
(b) The amount of the credits actually made to the Participant’s “personal pension account” under the Target Pension Plan.
A-4.3 SPP III. SPP III benefits, which could have been included in a Participant’s SPP Benefit before SPP III was terminated effective January 1, 2016, were reflected in prior Plan Statements.
A-4.4 Company Determination. The actuarial lump sum present value of a Participant’s benefit determined under this Appendix A will be determined by the Company, in its sole and absolute discretion, by using such factors and assumptions as the Company considers appropriate in its sole and absolute discretion as of the date of distribution or transfer.
A-2
Execution Copy EXHIBIT 10(KK)
TRANSITION AGREEMENT
THIS TRANSITION AGREEMENT (the “Agreement”) is made and entered into effective May 5, 2022, by and among Target Corporation, a Minnesota corporation (“Target”), Target Enterprise, Inc. (“Target Enterprise”) a subsidiary of Target (Target and Target Enterprise collectively, the “Company”) and Michael E. McNamara (“Executive”).
RECITALS
WHEREAS, Executive, who serves as the Company’s Executive Vice President & Chief Information Officer, has notified the Company of his intent to retire; and
WHEREAS, Executive’s service as Executive Vice President and Chief Information Officer will end on May 30, 2022, with the appointment of Executive’s successor; and
WHEREAS, Executive will serve as a strategic advisor to the Company from May 30, 2022 through the last day of the 2022 fiscal year (“Strategic Advisory Period”); and
WHEREAS, Following the conclusion of the Strategic Advisory Period, Executive will voluntarily retire and the Company and Executive will end their entire relationship as employer and employee; and
WHEREAS, The following terms, together with any documents referenced herein, constitute the entire terms of Executive’s employment during this transition period and settlement of all Executive’s rights, remedies, and obligations flowing from Executive’s employment with the Company and the termination of that employment relationship.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive, intending to be legally bound, acknowledge and agree as follows:
1. Strategic Advisory Period. On May 30, 2022, Executive will step down as Executive Vice President and Chief Information Officer and begin serving as a strategic advisor to the Company. During the Strategic Advisory Period, Executive will assist with his successor’s transition and perform such other duties as may be assigned by the Chief Executive Officer or his delegate. Executive will devote such time, effort and attention to the business of the Company during the Strategic Advisory Period as requested by the Company. Executive will fully comply with the standard policies, procedures, and practices of the Company that are in effect during the Strategic Advisory Period. The Strategic Advisory Period will end on January 28, 2023 (the “Scheduled Retirement Date”) unless terminated earlier pursuant to Section 6 (the “Accelerated Retirement Date”). The date this Agreement ends, on the Scheduled Retirement Date or the Accelerated Retirement Date, as applicable, is the “Agreement End Date.”
2. Base Salary. Throughout the Strategic Advisory Period, the Company will pay to Executive the rate of base salary in effect immediately prior to the Strategic Advisory Period. Such salary shall be payable in accordance with the Company’s customary payroll practices applicable to executives.
3. Short-Term Incentive Plan. Throughout the Strategic Advisory Period, Executive will continue to participate in the Company’s Short-Term Incentive Plan for Leadership Team members. Executive’s benefit will continue to be governed by all terms of the Short-Term Incentive Plan. Payment of Executive’s 2022 Short-Term Incentive Plan benefit will occur during April 2023, notwithstanding the fact
1
Execution Copy
Executive will not be actively employed on that date. EDCP deferral elections, if applicable, will apply to this payment.
4. Long-Term Incentive Plan. Executive’s outstanding Durable Model Award, Performance Share Units (“PSUs”) and Performance-Based Restricted Stock Units (“PBRSUs”) will continue to be governed by all terms of the applicable award agreements and the applicable Long-Term Incentive Plan.
5. Benefits. Executive will be entitled to participate in all employee benefit plans and programs of the Company in effect during the Strategic Advisory Period, to the extent that Executive meets the eligibility requirements for each individual plan or program. Executive is eligible for the Company retiree discount in accordance with the terms of such program. The Company provides no assurance as to the adoption or continuance of any particular plan or program, and Executive’s participation in any such plan or program will be pursuant to the provisions, rules and regulations applicable thereto.
6. Termination During Strategic Advisory Period.
(a) Voluntarily by Executive. During the Strategic Advisory Period, Executive may terminate his employment voluntarily at any time. Upon such a voluntary termination by Executive, each of the Company and Executive will be released from any and all further obligations under this Agreement except: (i) that the Company will pay to Executive the base salary and the 2022 Short-Term Incentive Plan benefit earned by Executive as of the Accelerated Retirement Date; and (ii) as described in Section 6(d). In addition, provided that Executive signs this Agreement and signs and does not revoke the release described in 8(c), Executive’s PSUs and PBRSUs will fully vest notwithstanding the fact Executive will not be actively employed on these awards’ scheduled vesting dates.
(b) By Company without Cause. During the Strategic Advisory Period, the Company may terminate this Agreement for any reason. Upon such a not for-Cause termination, each of the Company and Executive will be released from any and all further obligations under this Agreement except: (i) that the Company will pay to Executive the base salary and the 2022 Short-Term Incentive Plan benefit Executive would have earned if he had remained employed through the Scheduled Retirement Date; and (ii) as described in Section 6(d). In addition, provided that Executive signs this Agreement and signs and does not revoke the release described in 8(c), Executive’s Durable Model Award, PSUs and PBRSUs will fully vest notwithstanding the fact Executive will not be actively employed on the awards’ scheduled vesting dates.
(c) By Company with Cause. During the Strategic Advisory Period, the Company may terminate this Agreement for “Cause” as defined in the 2020 Target Corporation Long-Term Incentive Plan. Upon such a for-Cause termination, each of the Company and Executive will be released from any and all further obligations under this Agreement except: (i) that the Company will pay to Executive the base salary earned by Executive as of the Accelerated Retirement Date; and (ii) as described in Section 6(d).
(d) Continuing Obligations. Regardless of the reason for termination, the parties’ respective obligations under Sections 7, 8, 9, 10, 11 and 12 hereof shall survive any termination of this Agreement and be binding on the parties.
7. Cooperation. Following the Agreement End 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 Company’s request without subpoena). Executive agrees to be available at mutually agreeable times to perform such duties and provide such cooperation in connection with the various business and legal matters in which Executive was
Execution Copy
involved or of which Executive has knowledge as a result of Executive’s employment with the Company. In so consulting or cooperating, Executive shall be reimbursed his reasonable out-of-pocket expenses.
8. Prohibited Activities. In exchange for the opportunity to remain employed during the Strategic Advisory Period and post-employment Long-Term Incentive Plan award vesting, Executive agrees to comply with the Company’s standard post-employment covenants and execute the Company’s standard form of release as set forth below. Specifically, Executive agrees:
(a) during his employment and until twenty-four months after the Agreement End Date, to refrain from accepting employment with, or directly or indirectly becoming a consultant or advisor to or performing any services for, or becoming a director of Albertsons Companies, Inc., Amazon.com, Inc., Best Buy Co, Inc., Costco Wholesale Corporation, CVS Health Corporation, Dollar General Corporation, Dollar Tree, Inc., The Gap, Inc., The Home Depot, Inc., Kohl’s Corporation, The Kroger Co., Lowe’s Companies, Inc., Macy’s, Inc., Nordstrom, Inc.; Publix Super Markets, Inc., Rite Aid Corporation, Ross Stores, Inc.; The TJX Companies, Inc., Walgreens Boots Alliance, Inc., or Walmart Inc.; 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); and
(b) during his employment and until twenty-four months after the Agreement End Date, to refrain from doing any of the following:
(i) using or disclosing Non-Public Information, as defined in Executive’s separate Confidentiality and Inventions/Creative Works Agreement, for or to any person or organization not expressly authorized by the Company to receive or use such information; or
(ii) directly inducing, soliciting, or requesting any Company employee to accept employment or a consulting relationship with, or perform services for, anyone other than the Company, or to otherwise take any action detrimental to the relationships between the Company and its employees; or
(iii) disparaging the Company or any of its directors, officers, or employees in a manner that causes significant harm to the Company; or
(iv) directly or indirectly: (A) effecting, offering or proposing or in any way assisting any other person to effect, offer or propose: (1) any acquisition of any securities or rights or options to acquire any securities of the Company (other than ownership of less than 0.1% of the Company’s outstanding shares and investments in publicly available mutual funds or exchange traded funds), (2) any tender or exchange offer, merger or other business combination involving the Company, (3) any recapitalization, restructuring, sale of assets, liquidation, dissolution or other extraordinary transaction with respect to the Company, or (4) any “solicitation” of “proxies” (as such terms are used in the proxy rules of the Securities and Exchange Commission); (B) forming, joining or in any way participating in a “group” (as defined under Securities Exchange Act of 1934, as amended) with respect to the Company or otherwise act in concert with any person in respect of any securities of the Company; (C) otherwise acting, alone or in concert with others, to seek representation on or to control or influence the management, the Board of Directors or policies of the Company or to obtain representation on the Board of Directors; or (D) entering into any discussions or arrangements with any third party with respect to any of the foregoing.
3
Execution Copy
(c) to sign, deliver and not revoke a release of identical or substantially similar content to the release in Exhibit A (as prescribed by the applicable laws then in effect) on or around the Agreement End Date.
Nothing in this Agreement is intended to prohibit Executive from: (i) communicating with any governmental authority without notice to the Company concerning possible legal violations; or (ii) receiving any applicable award for information provided to governmental authorities. The Company reserves all rights to and does not waive any attorney-client privilege that otherwise applies to any such information disclosed to governmental authorities.
9. Enforcement. In the event of a breach or threatened breach by Executive of any of the post-employment covenants in Section 8 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 that Section. Executive acknowledges that such remedies are appropriate. For purposes of a court issuing injunctive relief, Executive waives any argument relating to irreparable injury, success on the merits of the Company’s claims, or the underlying enforceability of this Agreement. Executive agrees that an appropriate court may issue injunctive relief without addressing these issues, and that a temporary or preliminary injunctive order should be issued without prejudice to any final decision that may later be reached affecting the parties’ rights or obligations under this Agreement. 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.
10. Acceptance Period. Executive understands that the terms of this Agreement shall be open for acceptance for a period of ten (10) days from the date he receives this Agreement. To accept the Agreement, Executive must sign and return it to the Company. The Company advises Executive to seek counsel regarding this Agreement. Executive agrees that changes to this Agreement, whether material or immaterial, will not restart this acceptance period.
11. Miscellaneous.
(a) Complete Agreement; Governing Documents. This Agreement, together with the separate Confidentiality and Inventions/Creative Works Agreement and Long-Term Incentive Plan award agreements previously entered into by Executive and the Company, shall constitute the entire agreement and understanding of the Company’s obligation to provide compensation and benefits to Executive and shall supersede all prior and contemporaneous written or verbal agreements and understandings between Executive and the Company relating to such subject matter. Executive acknowledges that this Agreement is in lieu of any continuing right to be covered by the Company’s Income Continuation Plan and that the end of his employment on the Agreement End Date will be treated as a voluntary retirement for all purposes. To the extent the terms of this Agreement conflict with the terms of the separate Confidentiality and Inventions/Creative Works Agreement and Long-Term Incentive Plan award agreements, the terms of this Agreement will control. This Agreement may only be amended by written instrument signed by Executive and a duly authorized employee of the Company.
(b) Successors and Assigns. This Agreement and all rights hereunder are personal to Executive and may not be transferred or assigned by Executive at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided, however, that any such assignee assumes the Company’s obligations hereunder.
Execution Copy
(c) Governing Law. The provisions of this Agreement shall be construed and interpreted under the laws of the State of Minnesota applicable to agreements executed and wholly performed within the State of Minnesota. If any provision of this Agreement as applied to any party or to any circumstance should be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to the maximum extent permissible by law) the application of such provision under circumstances different from those adjudicated by the court, the application of any other provision of this Agreement, or the enforceability or invalidity of this Agreement as a whole.
(d) Jurisdiction and Venue. Executive and the Company consent to jurisdiction of the courts of the State of Minnesota and/or the federal courts, District of Minnesota, for the purpose of resolving all issues of law, equity, or fact, arising out of or in connection with this Agreement. Any action involving claims of a breach of this Agreement must be brought in such courts. Each party consents to personal jurisdiction over such party in the state and/or federal courts of Minnesota and hereby waives any defense of lack of personal jurisdiction. Venue, for the purpose of all such suits, will be in Hennepin County, State of Minnesota.
(e) Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date set forth below.
Target Corporation: By: /s/ Melissa Kremer Melissa Kremer Title: Executive Vice President & Chief Human Resources Officer Date: 5.4.22 | Target Enterprise, Inc.: By: /s/ Melissa Kremer Melissa Kremer Title: Executive Vice President & Chief Human Resources Officer Date: 5.4.22 | ||||
Michael E. McNamara: /s/ Michael E. McNamara Date: May 4, 2022 | |||||
5
Execution Copy
Exhibit A
Model Release
1. Definitions. The definitions below are intended solely for the purpose of this release. All words used in this release are intended to have their plain meanings in ordinary English, except that capitalized words not defined in this Exhibit shall have the same meaning as in that certain Transition Agreement effective May 5, 2022 (the “Agreement”). Specific terms in this release have the following meanings:
(f) “Executive” includes Executive and anyone who has or obtains any legal rights or claims through Executive.
(g) “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 Corporation.
(h) “Corporation” means Target and any company providing insurance to Target in the present or past, any employee benefit plan sponsored or maintained by Target in the present or past and the present and past fiduciaries of any such plans, Target’s present and past officers, directors, employees, committees and agents and any person who acted on behalf of Target or on instructions from Target.
(i) “Executive Claims” means all of the rights Executive has now to any relief of any kind from the Corporation, including without limitation:
(i) all claims arising out of or relating to Executive’s service with Target and Executive’s service termination; and
(ii) all claims arising out of or relating to statements, actions, or omissions of the Corporation; and
(iii) all claims for any alleged unlawful discrimination, harassment, retaliation or reprisal, or other alleged unlawful practices arising under any federal, state, or local statute, ordinance, or regulations, 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, and workers’ compensation non-interference or non-retaliation statutes; and
(iv) 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; 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
(v) all claims for compensation of any kind, including without limitation, bonuses, commissions, stock, stock options or other equity interests, vacation pay, perquisites, and expense reimbursements; and
Execution Copy
(vi) all claims for back pay, front pay, severance pay or income continuation under any Company plan, program, or agreement, reinstatement, equitable relief, compensatory damages, damages for alleged personal injury, liquidated damages, and punitive damages; and
(vii) all claims for attorney’s fees, costs, and interest.
However, Executive Claims do not include any claims related to post-termination benefits accrued before the Agreement End Date under the generally-applicable terms of benefit plans or programs maintained by the Corporation (including without limitation, Executive’s rights under the Company’s Short-Term Incentive Plan and Long-Term Incentive Plan and related agreements), claims relating to Executive’s rights as a shareholder of the Company, claims that the law does not allow to be waived, claims that may arise after the date on which Executive signs this release, claims relating to the enforcement of the Agreement, or claims for defense, indemnification or contribution to the maximum extent permitted under the laws of the State of Minnesota, including without limitation Minn. Stat. § 302A.521, or otherwise for claims brought against Executive in his capacity as an officer, attorney, employee or agent of the Corporation. This paragraph does not preclude Executive from bringing a charge of discrimination with the EEOC however, Executive hereby agrees to give up any right to receive compensation or damages as a result of such a charge.
2. Agreement to Execute Release of Executive Claims. In exchange for all consideration provided by the Agreement, Executive gives up and releases all Executive Claims. Executive will not make any demands or claims against the Corporation for compensation or damages relating to Executive Claims.
7
Exhibit (31)A
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certifications
I, Brian C. Cornell, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Target Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: August 26, 2022 | ||
| /s/ Brian C. Cornell | ||
| Brian C. Cornell | ||
| Chairman 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, Michael J. Fiddelke, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Target Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: August 26, 2022 | ||
| /s/ Michael J. Fiddelke | ||
| Michael J. Fiddelke | ||
| Executive Vice President and Chief Financial Officer | ||
Exhibit (32)A
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Target Corporation, a Minnesota corporation (“the Company”), for the quarter ended July 30, 2022, 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, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the officer's knowledge:
1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: August 26, 2022 | ||
| /s/ Brian C. Cornell | ||
| Brian C. Cornell | ||
| Chairman and Chief Executive Officer | ||
Exhibit (32)B
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Target Corporation, a Minnesota corporation (“the Company”), for the quarter ended July 30, 2022, 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, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the officer's knowledge:
1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: August 26, 2022 | ||
| /s/ Michael J. Fiddelke | ||
| Michael J. Fiddelke | ||
| Executive Vice President and Chief Financial Officer | ||