HiPaper will be:

IV. leases ( 1-2 pages)

VI. Statement of Changes in Financial Position ( 1-2 pages)

VII: Report for CEO (only this part). (3-5 pages)

The company we are using is Target's K-10 (NAMED: 10K-Target-2014-Annual-Report-5.pdf)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2015 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-6049 TARGET CORPORATION (Exact name of registrant as specified in its charter) Minnesota (State or other jurisdiction of incorporation or organization) 1000 Nicollet Mall, Minneapolis, Minnesota (Address of principal executive offices) 41-0215170 (I.R.S. Employer Identification No.) 55403 (Zip Code) Registrant's telephone number, including area code: 612/304-6073 Securities Registered Pursuant To Section 12(B) Of The Act: Title of Each Class Common Stock, par value $0.0833 per share Name of Each Exchange on Which Registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No No Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such No shorter period that the registrant was required to submit and post such files). Yes Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Act). See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 126-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes Smaller reporting company No The aggregate market value of the voting stock held by non-affiliates of the registrant as of August 2, 2014 was $37,874,861,077, based on the closing price of $59.85 per share of Common Stock as reported on the New York Stock Exchange Composite Index. Indicate the number of shares outstanding of each of registrant's classes of Common Stock, as of the latest practicable date. Total shares of Common Stock, par value $0.0833, outstanding at March 6, 2015 were 641,738,798. DOCUMENTS INCORPORATED BY REFERENCE Portions of Target's Proxy Statement to be filed on or about April 27, 2015 are incorporated into Part III. TABLE OF CONTENTS PART I Item 1 Item 1A Item 1B Item 2 Item 3 Item 4 Item 4A PART II Item 5 Item 6 Item 7 Item 7A Item 8 Item 9 Item 9A Item 9B PART III Item 10 Item 11 Item 12 Item 13 Item 14 PART IV Item 15 Signatures Exhibit Index 1 Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Executive Officers Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information 2 5 10 11 11 12 12 13 15 15 27 29 63 63 63 Directors, Executive Officers and Corporate Governance Executive Compensation 63 64 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services 64 64 64 Exhibits, Financial Statement Schedules 65 69 70 Item 1. Business PART I General Target Corporation (Target, the Corporation or the Company) was incorporated in Minnesota in 1902. We offer our customers, referred to as "guests," everyday essentials and fashionable, differentiated merchandise at discounted prices. Our ability to deliver a preferred shopping experience to our guests is supported by our strong supply chain and technology infrastructure, an ingrained devotion to innovation, and our disciplined approach to managing our business and investing in future growth. Prior to the first quarter of 2013, we operated a U.S. Credit Card Segment that offered credit to qualified guests through our branded credit cards: the Target Credit Card and the Target Visa Credit Card. In the first quarter of 2013, we sold our U.S. consumer credit card portfolio, and TD Bank Group (TD) now underwrites, funds and owns Target Credit Card and Target Visa consumer receivables in the U.S. We perform account servicing and primary marketing functions and earn a substantial portion of the profits generated by the portfolio. Refer to Note 7 of the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data (the Financial Statements) for more information on the credit card receivables transaction. Prior to January 15, 2015, we operated a Canadian segment. On January 15, 2015, we announced our exit from the Canadian market and Target Canada Co. and certain other wholly owned subsidiaries of Target filed for protection (the Filing) in Canada under the Companies' Creditors Arrangement Act (CCAA) with the Ontario Superior Court of Justice in Toronto. Following the Filing, we no longer consolidate our Canadian retail operation. Canadian financial results prior to the Filing are included in our financial statements and classified within discontinued operations. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note 6 of the Financial Statements for more information. Effective January 15, 2015, we operate as a single segment that includes all of our continuing operations, which are designed to enable guests to purchase products seamlessly in stores, online or through mobile devices. Unless otherwise noted, discussion of our business and results of operations in this Annual Report on Form 10-K refers to our continuing operations. Financial Highlights For information on key financial highlights and segment financial information, see the items referenced in Item 6, Selected Financial Data, MD&A and Note 28 of the Financial Statements. Seasonality A larger share of annual revenues and earnings traditionally occurs in the fourth quarter because it includes the peak sales period from Thanksgiving to the end of December. Merchandise We sell a wide assortment of general merchandise and food through our store and digital channels. Our general merchandise stores offer an edited food assortment, including perishables, dry grocery, dairy and frozen items while our SuperTarget stores offer a full line of food items comparable to traditional supermarkets. Our urban format stores, CityTarget and TargetExpress, offer edited general merchandise and food assortments. Our digital channels include a wide assortment of general merchandise, including many items found in our stores, along with a complementary assortment such as additional sizes and colors sold only online. 2 A significant portion of our sales is from national brand merchandise. Approximately one-third of 2014 sales related to our owned and exclusive brands, including but not limited to the following: Owned Brands Archer Farms Simply Balanced Boots & Barkley Circo Embark Gilligan & O'Malley Market Pantry Merona Room Essentials Smith & Hawken Spritz Sutton & Dodge Threshold up & up Wine Cube Xhilaration Exclusive Brands Assets by Sarah Blakely Ava & Viv C9 by Champion Carlton Chefmate Cherokee Converse One Star dENiZEN from Levi's Fieldcrest Genuine Kids from OshKosh Just One You made by Carter's Kid Made Modern Liz Lange for Target Mossimo Supply Company Nate Berkus for Target Nick & Nora Papyrus Shaun White Simply Shabby Chic Sonia Kashuk We also sell merchandise through periodic exclusive design and creative partnerships and generate revenue from instore amenities such as Target Caf, Target Clinic, Target Pharmacy and Target Photo, and leased or licensed departments such as Target Optical, Pizza Hut, Portrait Studio and Starbucks. Distribution The vast majority of merchandise is distributed to our stores through our network of 38 distribution centers. Common carriers ship general merchandise to and from our distribution centers. Vendors or third party distributors ship certain food items and other merchandise directly to our stores. Employees At January 31, 2015, we employed approximately 347,000 full-time, part-time and seasonal employees, referred to as "team members." During the sales period from Thanksgiving to the end of December, our employment levels peaked at approximately 447,000 team members. We offer a broad range of company-paid benefits to our team members. Eligibility for, and the level of, these benefits varies depending on team members' full-time or part-time status, compensation level, date of hire and/or length of service. These company-paid benefits include a pension plan, 401 (k) plan, medical and dental plans, a retiree medical plan, disability insurance, paid vacation, tuition reimbursement, various team member assistance programs, life insurance and merchandise discounts. We believe our team member relations are good. Working Capital Our working capital needs are greater in the months leading up to our peak sales period from Thanksgiving to the end of December, which we typically finance with cash flow provided by operations and short-term borrowings. Additional details are provided in the Liquidity and Capital Resources section in MD&A. Effective inventory management is key to our ongoing success, and we use various techniques including demand forecasting and planning and various forms of replenishment management. We achieve effective inventory management by being in-stock in core product offerings, maintaining positive vendor relationships, and carefully planning inventory levels for seasonal and apparel items to minimize markdowns. 3 Competition We compete with traditional and off-price general merchandise retailers, apparel retailers, internet retailers, wholesale clubs, category specific retailers, drug stores, supermarkets and other forms of retail commerce. Our ability to positively differentiate ourselves from other retailers and provide a compelling value proposition largely determine our competitive position within the retail industry. Intellectual Property Our brand image is a critical element of our business strategy. Our principal trademarks, including Target, SuperTarget and our "Bullseye Design," have been registered with the U.S. Patent and Trademark Office. We also seek to obtain and preserve intellectual property protection for our owned brands. Geographic Information Virtually all of our revenues from continuing operations are generated within the United States. Through 2014, our discontinued Canadian operations generated revenues in Canada. The vast majority of our long-lived assets are located within the United States. Data Breach During the fourth quarter of 2013, we experienced a data breach in which an intruder stole certain payment card and other guest information from our network (the Data Breach). For further information, see MD&A and Note 17 of the Financial Statements. Available Information Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at www.Target.com/Investors as soon as reasonably practicable after we file such material with, or furnish it to, the U.S. Securities and Exchange Commission (SEC). Our Corporate Governance Guidelines, Business Conduct Guide, Corporate Responsibility Report and the position descriptions for our Board of Directors and Board committees are also available free of charge in print upon request or at www.Target.com/Investors. 4 Item 1A. Risk Factors Our business is subject to many risks. Set forth below are the most significant risks that we face. For the convenience of the reader, the risks are listed in the categories where those risks primarily apply, but they may also apply to other categories. Competitive and Reputational Risks Our continued success is substantially dependent on positive perceptions of Target which, if eroded, could adversely affect our business and our relationships with our guests and team members. We believe that one of the reasons our guests prefer to shop at Target, our team members choose Target as a place of employment and our vendors choose to do business with us is the reputation we have built over many years for serving our four primary constituencies: guests, team members, shareholders, and the communities in which we operate. To be successful in the future, we must continue to preserve, grow, and leverage the value of Target's reputation. Reputational value is based in large part on perceptions. While reputations may take decades to build, any negative incidents can quickly erode trust and confidence, particularly if they result in adverse mainstream and social media publicity, governmental investigations, or litigation. Those types of incidents could have an adverse impact on perceptions and lead to tangible adverse effects on our business, including consumer boycotts, lost sales, loss of new store and technology development opportunities, or team member retention and recruiting difficulties. For example, we experienced weaker than expected sales immediately following the announcement of the Data Breach that occurred in the fourth quarter of 2013, and while we now believe the incident will not have a long-term impact to our relationship with our guests, it is an example of an incident that affected our reputation and negatively impacted our sales for a period of time. In addition, the long-term reputational impact of discontinuing our Canadian operations on our guests, team members, vendors and other constituencies is unknown, and we may need to take actions that could increase our expenses and adversely affect the results of our operations. If we are unable to positively differentiate ourselves from other retailers, our results of operations could be adversely affected. The retail business is highly competitive. In the past we have been able to compete successfully by differentiating our guests' shopping experience by creating an attractive value proposition through a careful combination of price, merchandise assortment, convenience, guest service, loyalty programs and marketing efforts. Our ability to create a personalized guest experience through the collection and use of guest data is important to our ability to differentiate from other retailers. Guest perceptions regarding the cleanliness and safety of our stores, the functionality and reliability of our digital channels, our in-stock levels and other factors also affect our ability to compete. No single competitive factor is dominant, and actions by our competitors on any of these factors could have an adverse effect on our sales, gross margins, and expenses. We sell many products under our owned and exclusive brands. These brands are an important part of our business because they differentiate us from other retailers, generally carry higher margins than equivalent national brand products and represent a significant portion of our overall sales. If one or more of these brands experiences a loss of consumer acceptance or confidence, our sales and gross margins could be adversely affected. The continuing migration and evolution of retailing to online and mobile channels has increased our challenges in differentiating ourselves from other retailers. In particular, consumers are able to quickly and conveniently comparison shop and determine real-time product availability using digital tools, which can lead to decisions based solely on price, the functionality of the digital tools or a combination of those and other factors. We must compete by offering a consistent and convenient shopping experience for our guests regardless of the ultimate sales channel; providing and maintaining digital tools for our guests and team members that have the right features and are reliable and easy to use; working with our vendors to offer unique and distinctive merchandise; and encouraging our guests to shop with confidence with our price-match policy. Failure to effectively execute in these efforts, actions by our competitors in response to these efforts, or failures of our vendors to manage their own channels, content and technology systems could hurt our ability to differentiate ourselves from other retailers and, as a result, have an adverse effect on sales, gross margins, and expenses. 5 If we are unable to successfully develop and maintain a relevant and reliable omnichannel experience for our guests, our sales, results of operations and reputation could be adversely affected. Our business has evolved from an in-store experience to interaction with guests across multiple channels (in-store, online, mobile and social media, among others). Our guests are using computers, tablets, mobile phones and other devices to shop in our stores and online and provide feedback and public commentary about all aspects of our business. We currently provide full and mobile versions of our website (Target.com), offer applications for mobile phones and tablets, and interact with our guests through social media. Omnichannel retailing is rapidly evolving and we must anticipate and meet changing guest expectations and counteract new developments and technology investments by our competitors. Our omnichannel retailing efforts include implementing new technology, software and processes to be able to fulfill guest orders from any point within our system of stores and distribution centers, which is extremely complex and may not meet guest expectations for timely and accurate deliveries. If we are unable to attract and retain team members or contract with third parties having the specialized skills needed to support our omnichannel efforts, implement improvements to our technology in a timely manner, allow real-time and accurate visibility to product availability when guests are ready to purchase, quickly and efficiently fulfill our guests orders using the fulfillment and payment methods they demand, or provide a convenient and consistent experience for our guests regardless of the ultimate sales channel, our ability to compete and our results of operations could be adversely affected. In addition, if Target.com and our other technology systems do not appeal to our guests, reliably function as designed, or maintain the privacy of guest data, or if we are unable consistently meet our brand promise to our guests, we may experience a loss of guest confidence, lost sales or be exposed to fraudulent purchases, which could adversely affect our reputation and results of operations. If we fail to anticipate and respond quickly to changing consumer preferences, our sales, gross margins and profitability could suffer. A substantial part of our business is dependent on our ability to make decisions and effectively manage our inventory in a broad range of merchandise categories, including apparel, home dcor, seasonal offerings, food and other merchandise. For example, we are investing more of our overall resources, including capital, marketing, and product development to focus on signature categories, including baby, kids, wellness, and style, and tailor our food assortment to support guest wellness goals and become more specialized with unique and differentiated items. Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions, emphasize the correct categories, and personalize our offerings to our guests may result in lost sales, spoilage, and increased inventory markdowns, which would lead to a deterioration in our results of operations by hurting our sales, gross margins, and profitability. Technology Investments and Infrastructure Risks If our capital investments in technology, new stores and remodeling existing stores do not achieve appropriate returns, our competitive position, financial condition and results of operations may be adversely affected. Our business is becoming increasingly reliant on technology investments, and the returns on these investments are less predictable than building new stores and remodeling existing stores. We are currently making, and will continue to make, significant technology investments to support our omnichannel efforts, implement improvements to our technology, and evolve our inventory management system, information processes, and computer systems to more efficiently run our business and remain competitive and relevant to our guests. These technology initiatives might not provide the anticipated benefits or may provide them on a delayed schedule or at a higher cost. We must monitor and choose the right investments and implement them at the right pace. In addition, our growth also depends, in part, on our ability to build new stores and remodel existing stores in a manner that achieves appropriate returns on our capital investment. We compete with other retailers and businesses for suitable locations for our stores. Many of our expected new store sites are smaller and non-standard footprints located in fully developed markets, which are generally more time-consuming and expensive undertakings than expansion into undeveloped suburban and ex-urban markets. Targeting the wrong opportunities, failing to make the best investments, or making an investment commitment significantly above or below our needs could result in the loss of our competitive position and adversely impact our financial condition or results of operations. 6 A significant disruption in our computer systems and our inability to adequately maintain and update those systems could adversely affect our operations and our ability to maintain guest confidence. We rely extensively on our computer systems to manage inventory, process guest transactions, manage and maintain the privacy of guest data, communicate with our vendors and other third parties, service REDcard accounts, and summarize and analyze results, and on continued and unimpeded access to the Internet to use our computer systems. Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses and malicious attacks, security breaches and catastrophic events. If our systems are damaged or fail to function properly, we may incur substantial repair or replacement costs, experience data loss or theft and impediments to our ability to manage inventories or process guest transactions, and encounter lost guest confidence, which could adversely affect our results of operations. The Data Breach we experienced in the fourth quarter of 2013 negatively impacted our ability to handle customer inquiries, and we experienced weaker than expected sales immediately following the announcement of the Data Breach. Similarly, we experienced a temporary network disruption not involving a data breach in June 2014 that prevented many of our point-of-sale registers from working in a limited geographic region. This disruption caused checkout delays and generated negative publicity, and we engaged in promotional activities to retain our customers during the delay. We continually make significant technology investments that will help maintain and update our existing computer systems. Implementing significant system changes increases the risk of computer system disruption. The potential problems and interruptions associated with implementing technology initiatives could disrupt or reduce our operational efficiency, and could impact the guest experience and guest confidence. Data Security and Privacy Risks If our efforts to protect the security of information about our guests, team members and vendors are unsuccessful, we may face additional costly government enforcement actions and private litigation, and our sales and reputation could suffer. An important component of our business involves the receipt and storage of information about our guests, team members, and vendors. We have a program in place to detect and respond to data security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. In addition, hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud, trickery, or other forms of deceiving our team members, contractors, and temporary staff. Until the Data Breach in the fourth quarter of 2013, all incidents we experienced were insignificant. The Data Breach we experienced was significant and went undetected for several weeks. Both we and our vendors have experienced data security incidents other than the Data Breach; however, to date these other incidents have not been material to our consolidated financial statements. If we or our vendors experience additional significant data security breaches or fail to detect and appropriately respond to significant data security breaches, we could be exposed to additional government enforcement actions and private litigation. In addition, our guests could further lose confidence in our ability to protect their information, which could cause them to discontinue using our REDcards or pharmacy services, or stop shopping with us altogether. We have recorded significant expenses related to the Data Breach. Our losses could exceed the amounts we have recorded by material amounts, and these matters could have a material adverse impact on our results of operations. The Data Breach we experienced was significant, went undetected for several weeks, and involved the theft of certain payment card and guest information through unauthorized access to our network. We experienced weaker than expected sales immediately following the announcement of the Data Breach, and we are currently facing litigation seeking damages or other related relief allegedly arising out of the Data Breach. In addition, state and federal agencies, including State Attorneys General, the Federal Trade Commission and the SEC, are investigating events related to the Data Breach, including how it occurred, its consequences and our responses. The governmental agencies investigating the Data Breach may seek to impose on us fines and/or other monetary relief and/or injunctive relief that could materially increase our data security costs, adversely impact how we operate our network and collect and use guest information, and put us at a competitive disadvantage with other retailers. Furthermore, three of the four major 7 payment card networks, which between them represent a substantial majority of the payment cards potentially impacted by the Data Breach, have made written claims against us, either directly or through our acquiring banks, and we believe that it is probable that the fourth major payment card network will also make a claim against us. Collectively, the claims, investigations and other possible consequences of the Data Breach may have an adverse effect on how we operate our business and our results of operations. In the future we may be subject to additional investigations and claims of this sort. We have recorded Data Breach-related expenses that include our estimated probable losses for these matters, and it is reasonably possible that we may incur a material loss in excess of the amount accrued. Supply Chain and Third Party Risks Interruptions in our supply chain or fulfillment network, increased commodity, supply chain and fulfillment costs, or changes in our relationships with our vendors could adversely affect our gross margins, expenses and results of operations. We are dependent on our vendors to supply merchandise to our distribution centers, stores and our guests in a timely and efficient manner. As we continue to add fulfillment capabilities or pursue strategies with different fulfillment requirements, our fulfillment network becomes increasingly complex and operating it becomes more challenging. If our fulfillment network does not operate properly or if a vendor fails to deliver on its commitments, whether due to financial difficulties or other reasons, we could experience merchandise out-of-stocks, delivery delays or increased delivery costs that could lead to lost sales and decreased guest confidence, and adversely affect our results of operations. In addition, a large portion of our merchandise is sourced, directly or indirectly, from outside the United States, with China as our single largest source. Political or financial instability, trade restrictions, the outbreak of pandemics, labor unrest, transport capacity and costs, port security, weather conditions, natural disasters or other events that could slow or disrupt port activities and affect foreign trade are beyond our control and could disrupt our supply of merchandise and/or adversely affect our results of operations. For example, the labor disputes impacting the ports on the west coast of the U.S. that began in 2014 have caused us to make alternative arrangements to continue the flow of inventory, and if these disputes recur or worsen, it may have a material impact on our costs or inventory supply. Changes in the costs of procuring commodities used in our merchandise or the costs related to our supply chain, including vendor costs, labor, fuel, tariffs, currency exchange rates and supply chain transparency initiatives, could have an adverse effect on gross margins, expenses and results of operations. Changes in our relationships with our vendors also have the potential to increase our expenses and adversely affect results of operations. We are unable to determine whether our decision to discontinue our Canadian operations will negatively impact our relationships with vendors that also supply our U.S. operations in a way that might cause less favorable terms, increased costs, result in less timely and efficient deliveries, or impact their ability to sell to Target. A disruption in relationships with third parties who provide us services in connection with certain aspects of our business could adversely affect our operations. We rely on third parties to support a variety of business functions, including portions of our technology development and systems, our digital platforms and distribution network operations, credit and debit card transaction processing, extensions of credit for our 5% REDcard Rewards loyalty program, and aspects of our clinic and pharmacy operations. If we are unable to contract with third parties having the specialized skills needed to support those strategies or integrate their products and services with our business, or if we fail to properly manage those third parties or if they fail to meet our performance standards and expectations, including with respect to data security, our reputation, sales, and results of operations could be adversely affected. In addition, we could face increased costs associated with finding replacement providers or hiring new team members to provide these services in-house. Legal, Regulatory, Global and Other External Risks Our earnings are highly susceptible to the state of macroeconomic conditions and consumer confidence in the United States. Virtually all of our sales are in the United States, making our results highly dependent on U.S. consumer confidence and the health of the U.S. economy. In addition, a significant portion of our total sales is derived from stores located in five states: California, Texas, Florida, Minnesota and Illinois, resulting in further dependence on local economic conditions in these states. Deterioration in macroeconomic conditions or consumer confidence could negatively affect our business in many ways, including slowing sales growth or reduction in overall sales, and reducing gross margins. 8 These same considerations impact the success of our credit card program. Even though we no longer own a consumer credit card receivables portfolio, we share in the economic performance of the credit card program with TD. Deterioration in macroeconomic conditions could adversely affect the volume of new credit accounts, the amount of credit card program balances and the ability of credit card holders to pay their balances. These conditions could result in us receiving lower payments. Weather conditions where our stores are located may impact consumer shopping patterns, which alone or together with natural disasters, particularly in areas where our sales are concentrated, could adversely affect our results of operations. Uncharacteristic or significant weather conditions can affect consumer shopping patterns, particularly in apparel and seasonal items, which could lead to lost sales or greater than expected markdowns and adversely affect our shortterm results of operations. In addition, our three largest states by total sales are California, Texas and Florida, areas where natural disasters are more prevalent. Natural disasters in those states or in other areas where our sales are concentrated could result in significant physical damage to or closure of one or more of our stores, distribution centers or key vendors, and cause delays in the distribution of merchandise from our vendors to our distribution centers, stores, and directly to guests, which could adversely affect our results of operations by increasing our costs and lowering our sales. We rely on a large, global and changing workforce of Target team members, contractors and temporary staffing. If we do not effectively manage our workforce and the concentration of work in certain global locations, our labor costs and results of operations could be adversely affected. With approximately 347,000 team members, our workforce costs represent our largest operating expense, and our business is dependent on our ability to attract, train, and retain the appropriate mix of qualified team members, contractors, and temporary staffing and effectively organize and manage those resources as our business changes. Many team members are in entry-level or part-time positions with historically high turnover rates. Our ability to meet our changing labor needs while controlling our costs is subject to external factors such as unemployment levels, prevailing wage rates, collective bargaining efforts, health care and other benefit costs, changing demographics, and our reputation and relevance within the labor market. If we are unable to attract and retain adequate numbers and an appropriate mix of qualified team members, contractors and temporary staffing, our operations, guest service levels and support functions could suffer. Those factors, together with increasing wage and benefit costs, could adversely affect our results of operations. As of March 13, 2015, none of our team members were working under collective bargaining agreements. We are periodically subject to labor organizing efforts. If we become subject to one or more collective bargaining agreements in the future, it could adversely affect our labor costs and how we operate our business. We maintain a headquarters location in India where there has been greater political, financial, environmental and health instability than the United States. An extended disruption of our operations in India could adversely affect certain operations supporting stability and maintenance of our digital channels and information technology development. Failure to address product safety concerns could adversely affect our sales and results of operations. If our merchandise offerings, including food, drug and children's products, do not meet applicable safety standards or our guests' expectations regarding safety, we could experience lost sales and increased costs and be exposed to legal and reputational risk. All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety standards. Events that give rise to actual, potential or perceived product safety concerns, including food or drug contamination, could expose us to government enforcement action or private litigation and result in costly product recalls and other liabilities. In addition, negative guest perceptions regarding the safety of the products we sell could cause our guests to seek alternative sources for their needs, resulting in lost sales. In those circumstances, it may be difficult and costly for us to regain the confidence of our guests. Our failure to comply with federal, state, local, and international laws, or changes in these laws could increase our costs, reduce our margins, and lower our sales. Our business is subject to a wide array of laws and regulations in the United States and other countries in which we operate. Significant workforce-related legislative changes could increase our expenses and adversely affect our operations. Examples of possible workforce-related legislative changes include changes to an employer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage requirements, and health care mandates. In addition, changes in the regulatory environment 9 affecting Medicare reimbursements, privacy and information security, product safety, payment methods and related fees, responsible sourcing, supply chain transparency, or environmental protection, among others, could cause our expenses to increase without an ability to pass through any increased expenses through higher prices. For example, we are currently facing government inquiries related to the Data Breach that may result in the imposition of fines or other penalties. In addition, any legislative or regulatory changes adopted in reaction to the recent retail-industry data breaches could increase or accelerate our compliance costs. Also, our pharmacy and clinic operations are governed by various regulations, and a significant change in, or our noncompliance with, these regulations could have a material adverse effect on our compliance costs and results of operations. In addition, if we fail to comply with other applicable laws and regulations, including wage and hour laws, the Foreign Corrupt Practices Act and local anti-bribery laws, we could be subject to legal risk, including government enforcement action and class action civil litigation, which could adversely affect our results of operations by increasing our costs, reducing our margins, and lowering our sales. Financial Risks Changes in our effective income tax rate could adversely affect our net income. A number of factors influence our effective income tax rate, including changes in tax law, tax treaties, interpretation of existing laws, and our ability to sustain our reporting positions on examination. Changes in any of those factors could change our effective tax rate, which could adversely affect our net income. In addition, our operations outside of the United States may cause greater volatility in our effective tax rate. If we are unable to access the capital markets or obtain bank credit, our financial position, liquidity, and results of operations could suffer. We are dependent on a stable, liquid, and well-functioning financial system to fund our operations and capital investments. In particular, we have historically relied on the public debt markets to fund portions of our capital investments and the commercial paper market and bank credit facilities to fund seasonal needs for working capital. Our continued access to these markets depends on multiple factors including the condition of debt capital markets, our operating performance, and maintaining strong debt ratings. If rating agencies lower our credit ratings, it could adversely impact our ability to access the debt markets, our cost of funds, and other terms for new debt issuances. Each of the credit rating agencies reviews its rating periodically, and there is no guarantee our current credit rating will remain the same. In addition, we use a variety of derivative products to manage our exposure to market risk, principally interest rate and equity price fluctuations. Disruptions or turmoil in the financial markets could reduce our ability to meet our capital requirements or fund our working capital needs, and lead to losses on derivative positions resulting from counterparty failures, which could adversely affect our financial position and results of operations. If we are unable to make a fair and orderly exit of our Canadian operations, or if our existing reserves are not adequate to cover our ultimate liability, our financial condition and results of operations could be adversely affected. On January 15, 2015, we announced our decision to discontinue our Canadian operations and authorized a filing by our direct wholly owned subsidiary, Target Canada Co., and certain other subsidiaries under the Companies' Creditors Arrangement Act (Canada). During the fourth quarter ended January 31, 2015, we reported pretax losses from our discontinued Canadian operations, including pretax exit losses, a non-cash pretax impairment charge, and other operating losses. The losses from discontinued operations include probable losses relating to certain claims that may be asserted against us as a result of our guaranty of certain obligations of Target Canada Co. or other claims that may be made against us. Our reserves relating to these matters may not be adequate to cover our ultimate liability, and amounts beyond our reserves could have a material adverse effect on our financial condition and results of operations. In addition, we may suffer other losses for which we have not established reserves, although we believe that possibility is not probable. If we are unable to effectively and efficiently execute the wind-down of our Canadian operations, we may incur additional costs and cash outflows. Item 1B. Unresolved Staff Comments Not applicable. 10 Item 2. Properties U.S. Stores at January 31, 2015 Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Stores 22 3 47 9 268 41 20 3 1 123 52 4 6 88 32 21 18 14 16 5 38 37 56 75 6 36 Retail Sq. Ft. (in thousands) 3,150 504 6,263 1,165 35,560 6,215 2,672 440 179 17,311 7,099 695 664 12,159 4,271 2,925 2,473 1,660 2,246 630 4,938 4,869 6,725 10,708 743 4,736 Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Total U.S. Stores and Distribution Centers at January 31, 2015 Owned Leased Owned buildings on leased land Total (a) Stores 7 14 17 9 44 10 71 49 4 63 16 19 65 4 19 5 31 148 13 57 37 6 39 2 Retail Sq. Ft. (in thousands) 780 2,006 2,230 1,148 5,837 1,185 9,747 6,496 554 7,902 2,285 2,280 8,549 517 2,359 580 3,990 20,872 1,953 7,650 4,328 755 4,773 187 1,790 239,963 Stores 1,536 99 155 1,790 Distribution Centers (a) 33 5 38 The 38 distribution centers have a total of 50,185 thousand square feet. We own our corporate headquarters buildings located in and around Minneapolis, Minnesota, and we lease and own additional office space in Minneapolis and elsewhere in the United States. We also lease office space in 14 countries for various support functions. Our properties are in good condition, well maintained, and suitable to carry on our business. For additional information on our properties, see the Capital Expenditures section in MD&A and Notes 12 and 20 of the Financial Statements. Item 3. Legal Proceedings On January 15, 2015, Target Canada Co. and certain other wholly owned subsidiaries of Target (collectively Canada Subsidiaries), filed for protection under the Companies' Creditors Arrangement Act with the Ontario Superior Court of 11 Justice in Toronto (the Court). The Canada Subsidiaries comprise substantially all of our Canadian operations and our Canadian Segment. The Canada Subsidiaries have commenced an orderly liquidation process and expect that stores in Canada will remain open during the liquidation. To assist with the exit plan, the Court approved the appointment of a monitor and certain other financial advisors. See Item 7, MD&A and Note 6 of the Financial Statements for more information. For a description of other legal proceedings, including a discussion of litigation and government inquiries related to the Data Breach, see MD&A and Note 17 of the Financial Statements. Item 4. Mine Safety Disclosures Not applicable. Item 4A. Executive Officers Executive officers are elected by, and serve at the pleasure of, the Board of Directors. There are no family relationships between any of the officers named and any other executive officer or member of the Board of Directors, or any arrangement or understanding pursuant to which any person was selected as an officer. Name Timothy R. Baer Title and Business Experience Executive Vice President, Chief Legal Officer and Corporate Secretary since March 2007. Casey L. Carl Chief Strategy and Innovation Officer since December 2014. President, Omnichannel and Senior Vice President, Enterprise Strategy from July 2014 to December 2014. President, Multichannel, from November 2011 to July 2014. From July 2008 to November 2011, Mr. Carl held several leadership positions with Target in Merchandising. Chairman of the Board and Chief Executive Officer since August 2014. Chief Executive Officer of PepsiCo Americas Foods, a division of PepsiCo, Inc., a multinational food and beverage corporation, from March 2012 to July 2014. Chief Executive Officer and President of Sam's Club, a division of Wal-Mart Stores, Inc., a discount retailer, and Executive Vice President of Wal-Mart Stores, Inc. from April 2009 to January 2012. 39 Jeffrey J. Jones II Executive Vice President and Chief Marketing Officer since April 2012. Partner and President of McKinney Ventures LLC, an advertising agency, from March 2006 to March 2012. 47 Jodeen A. Kozlak Executive Vice President and Chief Human Resources Officer since March 2007. 51 John J. Mulligan Executive Vice President and Chief Financial Officer since April 2012. Interim Chief Executive Officer from May 2014 to August 2014. Senior Vice President, Treasury, Accounting and Operations from February 2010 to March 2012. Vice President, Pay and Benefits from February 2007 to February 2010. 49 Jacqueline Hourigan Rice Senior Vice President, Chief Risk and Compliance Officer since December 2014. Chief Compliance Officer of General Motors Company, a vehicle manufacturer, from March 2013 to November 2014. Executive Director, Global Ethics & Compliance of General Motors Company from January 2010 to February 2013. 43 Tina M. Tyler Executive Vice President and Chief Stores Officer since January 2011. Senior Vice President, New Business Development from February 2010 to January 2011. Senior Vice President, Stores from February 2001 to February 2010. 49 Kathryn A. Tesija Executive Vice President and Chief Merchandising and Supply Chain Officer since October 2012. Executive Vice President, Merchandising from May 2008 to September 2012. 52 Laysha L. Ward Executive Vice President and Chief Corporate Social Responsibility Officer since December 2014. President, Community Relations and Target Foundation from July 2008 to December 2014. 47 Brian C. Cornell Age 54 56 12 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the New York Stock Exchange under the symbol "TGT." We are authorized to issue up to 6,000,000,000 shares of common stock, par value $0.0833, and up to 5,000,000 shares of preferred stock, par value $0.01. At March 6, 2015, there were 15,733 shareholders of record. Dividends declared per share and the high and low closing common stock price for each fiscal quarter during 2014 and 2013 are disclosed in Note 30 of the Financial Statements. In January 2012, our Board of Directors authorized the repurchase of $5 billion of our common stock, with no stated expiration for the share repurchase program. We have repurchased 49.9 million shares of our common stock under this program for a total cash investment of $3.1 billion ($62.85 average price per share). The table below presents our purchases of Target common stock during the three months ended January 31, 2015, as defined in Rule 10b-18(a)(3) under the Exchange Act. Period November 2, 2014 through November 29, 2014 November 30, 2014 through January 3, 2015 January 4, 2015 through January 31, 2015 (a) (b) 13 Total Number Average of Shares Price Paid Purchased (a)(b) per Share (a)(b) 129,608 $ 37,337 166,945 $ Total Number of Dollar Value of Shares Purchased Shares that May as Part of the Yet Be Purchased Current Program (a) Under the Program 51.09 49,877,874 $ 1,864,685,654 48.88 49,915,211 1,862,860,655 50.59 49,915,211 49,915,211 $ 1,862,860,655 1,862,860,655 The table above includes shares reacquired upon settlement of prepaid forward contracts. At January 31, 2015, we held asset positions in prepaid forward contracts for 0.5 million shares of our common stock, for a total cash investment of $21.5 million, or an average per share price of $41.13. 0.2 million shares were reacquired under such contracts during the fourth quarter. Refer to Notes 23 and 25 of the Financial Statements for further details of these contracts. The number of shares above includes shares of common stock reacquired from team members who tendered owned shares to i) satisfy the tax withholding on equity awards as part of our long-term incentive plans or ii) satisfy the exercise price on stock option exercises. For the three months ended January 31, 2015, 14,423 shares were reacquired at an weighted average per share price of $68.73 pursuant to our long-term incentive plan. Target S&P 500 Index Previous Peer Group Peer Group January 30, January 29, 2010 2011 107.69 $ 100.00 $ 121.26 100.00 114.99 100.00 114.34 100.00 Fiscal Years Ended January 28, February 2, February 1, January 31, 2012 2013 2014 2015 $ 101.31 $ 126.61 $ 120.09 $ 161.07 127.72 150.20 180.70 206.41 127.86 161.32 194.44 243.04 127.28 162.13 196.95 244.19 The graph above compares the cumulative total shareholder return on our common stock for the last five fiscal years with (i) the cumulative total return on the S&P 500 Index, (ii) the peer group used in previous filings consisting of 14 online, general merchandise, department store, food and specialty retailers, which are large and meaningful competitors (Amazon.com, Best Buy, Costco, CVS Caremark, Home Depot, J. C. Penney, Kohl's, Kroger, Lowe's, Macy's, Safeway, Sears, Walgreens and Walmart) (Previous Peer Group), and (iii) a new peer group consisting of the companies in the Previous Peer Group excluding J.C. Penney with the addition of Dollar General, The Gap, Publix, Rite Aid, Staples, and TJX (Current Peer Group). The change in peer groups was made to be consistent with the retail peer group used for our definitive Proxy Statement to be filed on or about April 27, 2015. The peer group is weighted by the market capitalization of each component company. The graph assumes the investment of $100 in Target common stock, the S&P 500 Index and the Peer Group on January 30, 2010, and reinvestment of all dividends. 14 Item 6. Selected Financial Data As of or for the Fiscal Year Ended (millions, except per share data) (b) Total revenues Net (Loss)/Earnings Continuing operations Discontinued operations Net (loss)/earnings Basic (Loss)/Earnings Per Share Continuing operations Discontinued operations Basic (loss)/earnings per share Diluted (Loss)/Earnings Per Share Continuing operations Discontinued operations Diluted (loss)/earnings per share Cash dividends declared per share Total assets Long-term debt, including current portion $ 2014 2013 72,618 $ 71,279 $ 2,449 (4,085) (1,636) 2012 (a) 2011 2010 73,301 $ 69,865 $ 67,390 $ 2,694 (723) 1,971 3,315 (316) 2,999 3,049 (120) 2,929 2,920 2,920 2,488 2,488 3.86 (6.44) (2.58) 4.24 (1.14) 5.05 (0.48) 4.57 4.49 (0.18) 4.31 4.03 4.03 3.31 3.31 3.83 4.20 (1.13) 5.00 (0.48) 4.52 1.38 4.46 (0.18) 4.28 1.15 4.00 4.00 0.92 3.30 3.30 0.67 43,705 15,726 44,533 16,814 (6.38) (2.56) 1.99 41,404 12,796 3.10 3.07 1.65 44,553 12,572 48,163 16,359 46,630 16,225 2009 65,357 Note: This information should be read in conjunction with MD&A and the Financial Statements. (a) Consisted of 53 weeks. (b) For 2014 and 2013, total revenues include sales generated by our retail operations. For 2012 and prior, total revenues include sales generated by our retail operations and credit card revenues. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Executive Summary Fiscal 2014 included the following notable items: GAAP earnings per share were $(2.56), including dilution of $(6.38) related to discontinued operations. Adjusted earnings per share from continuing operations were $4.27. Comparable sales grew 1.3 percent. Digital channel sales growth of more than 30 percent contributed 0.7 percentage points to 2014 comparable sales growth. We paid dividends of $1,205 million in 2014, an increase of 19.8 percent above 2013. Sales from continuing operations were $72,618 million for 2014, an increase of $1,339 million or 1.9 percent from the prior year. Earnings from continuing operations before interest expense and income taxes in 2014 decreased by $636 million or 12.3 percent from 2013 to $4,535 million. Cash flow provided by continuing operations was $5,131 million, $7,519 million, and $5,568 million for 2014, 2013, and 2012, respectively. In connection with the sale of our U.S. credit card receivables, we received cash of $5.7 billion during 2013. Of this amount, $2.7 billion is included in operating cash flow provided by continuing operations and $3.0 billion is included in investing cash flow provided by continuing operations. 15 Earnings Per Share From Continuing Operations GAAP diluted earnings per share Adjustments Adjusted diluted earnings per share $ $ 2014 2013 3.83 $ 0.44 4.27 $ 4.20 $ 0.18 4.38 $ 2012 (a) 5.00 (0.23) 4.76 Percent Change 2014/2013 2013/2012 (8.8)% (16.1)% (2.6)% (7.9)% Note: Adjusted diluted earnings per share from continuing operations (Adjusted EPS), a non-GAAP metric, excludes the impact of certain matters not related to our routine retail operations and the impact of our discontinued Canadian operations. Management believes that Adjusted EPS is meaningful to provide period-to-period comparisons of our operating results. A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 21. (a) Consisted of 53 weeks. Canada Exit On January 14, 2015, following a comprehensive assessment of Canadian operations, our Board of Directors approved a plan to discontinue operating stores in Canada. As a result of this decision, on January 15, 2015, Target Canada Co. and certain other wholly owned subsidiaries of Target (collectively Canada Subsidiaries), filed for protection (the Filing) under the Companies' Creditors Arrangement Act (CCAA) with the Ontario Superior Court of Justice in Toronto (the Court). The Canada Subsidiaries comprise substantially all of our Canadian operations and our Canadian Segment. The Canada Subsidiaries have commenced an orderly liquidation process and stores in Canada will remain open during the liquidation. To assist with the exit plan, the Court approved the appointment of a monitor and certain other financial advisors. As a result of the Filing, we no longer have a controlling interest in the Canada Subsidiaries. For this reason, we deconsolidated the Canada Subsidiaries effective January 15, 2015, resulting in a pretax impairment loss on deconsolidation and other charges, collectively totaling $5.1 billion. The pretax loss on deconsolidation includes the derecognition of the carrying amounts of the Canada Subsidiaries' assets, liabilities and accumulated other comprehensive loss and the recording of our remaining interests at fair value. Subsequent to deconsolidation, we will use the cost method to account for our equity investment in the Canada Subsidiaries, which has been reflected as zero in our Consolidated Statement of Financial Position at January 31, 2015 based on the estimated fair value of the Canada Subsidiaries' net assets. Loans to and accounts receivable from the Canada Subsidiaries are recorded at an estimated fair value of $326 million. Our ultimate cash recovery on these claims is subject to the final liquidation value of the Canada Subsidiaries and could vary materially from our estimates. Our Canada exit represents a strategic shift in our business. For this reason, our Canadian Segment results for all periods prior to the January 15, 2015 deconsolidation and costs to exit are classified as discontinued operations. We have recognized a tax benefit of $1.6 billion in discontinued operations, which primarily relates to the loss on our investment in Canada and includes other tax benefits resulting from certain asset write-offs and liabilities paid or accrued to facilitate the liquidation. We have realized the majority of these tax benefits in the first quarter of 2015 and expect to realize substantially all of the remainder in 2015. The recorded expenses include an accrual for the estimated probable loss related to claims that may be asserted against us, primarily under guarantees in certain leases. Our probable loss estimate is based on the expectation that claims will be asserted against us and negotiated settlements will be reached, and not on any determination that it is probable we would be found liable were these claims to be litigated. Given the early stage of our exit and the Filing, our estimates involve significant judgment and are based on currently available information, an assessment of the validity of certain claims and estimated payments by the Canada Subsidiaries. We are not able to reasonably estimate a range of possible losses in excess of the year-end accrual because there are significant factual and legal issues to be resolved. We believe that it is reasonably possible that future changes to our estimates of loss and the ultimate amount paid on these claims could be material to our results of operations in future periods. Any such losses would be recorded in discontinued operations. We expect to incur severance, legal and professional services expenses associated with our Canadian exit. We will recognize these expenses within discontinued operations as services are received and liabilities are incurred. We currently cannot predict the timing of such expenses and associated cash disbursements; however, we do not expect these amounts to be material to our results in future periods. 16 See Note 6 of the Financial Statements for further information regarding our Canada exit. Data Breach In the fourth quarter of 2013, we experienced a data breach in which an intruder stole certain payment card and other guest information from our network (the Data Breach). In 2014, we recorded $191 million of pretax Data Breach-related expenses and $46 million of expected insurance proceeds, for net expenses of $145 million. These expenses were included in our Consolidated Statements of Operations as Selling, General and Administrative Expenses (SG&A), but were not part of segment SG&A. Along with legal and other professional services, these expenses include an accrual for estimated probable losses for what we believe to be the vast majority of actual and potential breach-related claims, including claims by the payment card networks. Our probable loss estimate is based on the expectation of reaching negotiated settlements, and not on any determination that it is probable we would be found liable for the losses we have accrued were these claims to be litigated. As of January 31, 2015 we have incurred $252 million of cumulative Data Breach-related expenses, partially offset by $90 million of expected insurance recoveries, for net cumulative expenses of $162 million. For more information about the Data Breach, see Note 17 of the Financial Statements. Analysis of Results of Operations Segment Results (dollars in millions) Sales Cost of sales Gross margin SG&A expenses (b) EBITDA Depreciation and amortization EBIT $ $ 2014 72,618 $ 51,278 21,340 14,450 6,890 2,129 4,761 $ 2013 71,279 $ 50,039 21,240 14,285 6,955 1,996 4,959 $ (a) 2012 71,960 50,568 21,392 13,759 7,633 2,044 5,589 Percent Change 2014/2013 2013/2012 1.9 % (0.9)% 2.5 (1.0) 0.5 (0.7) 1.2 3.8 (0.9) (8.9) 6.7 (2.4) (4.0)% (11.3)% Note: Effective January 15, 2015, we operate as a single segment which includes all of our continuing operations, excluding net interest expense, data breach related costs and certain other expenses which are discretely managed. Our segment operations are designed to enable guests to purchase products seamlessly in stores, online or through mobile devices. See Note 28 of our Financial Statements for a reconciliation of our segment results to earnings before income taxes. (a) Consisted of 53 weeks. (b) SG&A includes credit card revenues and expenses for all periods presented prior to the March 2013 sale of our U.S. consumer credit card portfolio to TD. For 2014 and 2013, SG&A also includes $682 million and $653 million, respectively, of profit-sharing income from the arrangement with TD. Rate Analysis Gross margin rate SG&A expense rate EBITDA margin rate Depreciation and amortization expense rate EBIT margin rate Note: Rate analysis metrics are computed by dividing the applicable amount by sales. (a) Consisted of 53 weeks. 17 2014 29.4% 19.9 9.5 2.9 6.6 2013 29.8% 20.0 9.8 2.8 7.0 2012 (a) 29.7% 19.1 10.6 2.8 7.8 Sales Sales include merchandise sales, net of expected returns, and gift card breakage. Refer to Note 2 of the Financial Statements for a definition of gift card breakage. The increase in 2014 sales reflects a 1.3 percent increase in comparable sales and the contribution from new stores. The sales decline in 2013 reflected the impact of an additional week in 2012 and a decline in comparable sales, partially offset by the contribution from new stores. Inflation did not materially affect sales in any period presented. Comparable sales is a measure that highlights the performance of our existing 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 from stores open at least 13 months. Digital channel sales include all sales initiated through mobile applications and our conventional websites, including those of acquired entities from the date of acquisition, and may be fulfilled through our distribution centers or our stores. Comparable sales measures vary across the retail industry. As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures