Target 2002 Annual Report Download - page 33

Long-term Debt and Notes Payable
At February 1, 2003 and February 2, 2002, $100 million of notes
payable were outstanding, representing financing secured by the
Target Credit Card Master Trust Series 1996-1 Class A variable funding
certificate. This certificate is debt of TRC and is classified in the
current portion of long-term debt and notes payable. The average
amount of secured and unsecured notes payable outstanding during
2002 was $170 million at a weighted average interest rate of
1.9 percent. The average amount of secured and unsecured notes
payable outstanding during 2001 was $658 million at a weighted
average interest rate of 4.4 percent.
In 2002, we issued $750 million of long-term debt maturing in
2009 at 5.38 percent, $1 billion of long-term debt maturing in 2012
at 5.88 percent, and $600 million of long-term debt maturing in
2032 at 6.35 percent. Also during 2002, the Trust issued $750 million
of floating rate debt secured by credit card receivables, bearing
interest at an initial rate of 1.99 percent maturing in 2007. We also
called or repurchased $266 million of long-term debt with an
average remaining life of 19 years and a weighted average interest
rate of 8.8 percent, resulting in a loss of $34 million ($.02 per share).
In 2001, we issued $550 million of long-term debt maturing in
2006 at 5.95 percent, $500 million of long-term debt maturing in
2007 at 5.50 percent, $750 million of long-term debt maturing in
2008 at 5.40 percent, and $700 million of long-term debt maturing
in 2031 at 7.00 percent. The Trust issued $750 million of floating
rate debt secured by credit card receivables, bearing interest at an
initial rate of 3.69 percent maturing in 2004. In addition, concurrent
with this transaction, on August 22, 2001 we reflected the obligation
to holders of the $800 million in previously sold receivable-backed
securities as debt of TRC (discussed in detail under Accounts
Receivable and Receivable-backed Securities on page 29). Also
during 2001, we called or repurchased $144 million of long-term
debt with an average remaining life of 7 years and a weighted
average interest rate of 9.2 percent, resulting in a loss of $9 million
($.01 per share).
Subsequent to year-end 2002, we issued $500 million of long-
term debt maturing in 2008 at 3.4 percent.
At year-end our debt portfolio was as follows:
Long-term Debt and Notes Payable
February 1, 2003 February 2, 2002
(millions) Rate*Balance Rate*Balance
Notes payable 1.4% $ 100 1.8% $ 100
Notes and debentures:
Due 2002-2006 3.7 3,072 4.0 3,806
Due 2007-2011 5.1 4,572 6.5 3,056
Due 2012-2016 6.0 1,060 9.4 27
Due 2017-2021 9.4 155 9.6 194
Due 2022-2026 8.0 358 8.2 557
Due 2027-2031 6.9 1,100 6.9 1,100
Due 2032 6.4 600 – –
Total notes payable,
notes and debentures** 5.2% $11,017 5.6% $8,840
Capital lease obligations 144 153
Less: current portion (975) (905)
Long-term debt and
notes payable $10,186 $8,088
*Reflects the weighted average stated interest rate as of year-end, including
the impact of interest rate swaps.
** The estimated fair value of total notes payable and notes and debentures,
using a discounted cash flow analysis based on our incremental interest
rates for similar types of financial instruments, was $11,741 million at
February 1, 2003 and $9,279 million at February 2, 2002.
Required principal payments on long-term debt and notes
payable over the next five years, excluding capital lease obligations,
are $965 million in 2003, $857 million in 2004, $502 million in 2005,
$752 million in 2006 and $1,323 million in 2007.
Derivatives
At February 1, 2003 and February 2, 2002, interest rate swap
agreements were outstanding in notional amounts totaling $1,450
million in both years. The swaps hedge the fair value of certain debt
by effectively converting interest from fixed rate to variable. During
the year, we entered into and terminated an interest rate swap with
a notional amount of $500 million. We also entered into an interest
rate swap with a notional amount of $400 million, and an interest
rate swap with a notional amount of $400 million matured. Any
hedge ineffectiveness related to our swaps is recognized in interest
expense. We have previously entered into rate lock agreements to
hedge the exposure to variability in future cash flows of forecasted
debt transactions. When the transactions contemplated by these
agreements occurred, the gain or loss was recorded as a component
of other comprehensive income and will be reclassified into earnings
in the periods during which the designated hedged cash flows affect
earnings. The fair value of our outstanding derivatives was $110
million and $44 million at February 1, 2003 and February 2, 2002,
respectively. These amounts are reflected in the Consolidated
Statements of Financial Position. Cash flows from hedging
transactions are classified consistent with the item being hedged.
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