Target 2005 Annual Report Download - page 34

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obligated to reimburse the vendor for unrecoverable outlays incurred
prior to cancellation. Standby letters of credit, which relate primarily to
the portion of our insurance claims for which we have retained the
risk, totaled $104 million at January 28, 2006.
The terms of a significant portion of the Visa/MasterCard antitrust
litigation settlement were finalized during 2005. Consequently, we
recorded a $27 million ($.02 per share) gain for our share of the
proceeds, which we expect to collect during fiscal 2006. We also
expect to receive an additional, smaller payment; however, the amount
and timing of that payment are not certain at this time. Accordingly, no
additional gain was recorded at January 28, 2006.
We are exposed to claims and litigation arising in the ordinary
course of business and use various methods to resolve these matters
in a manner that we believe serves the best interest of our
shareholders and other constituents. We believe the amounts provided
in our consolidated financial statements are adequate in light of the
probable and estimable liabilities. Our policy is to disclose pending
lawsuits and other known claims that may have a material adverse
impact on our results of operations, cash flows or financial condition.
We do not believe any of the currently identified claims and litigated
matters meet this criterion.
19. Notes Payable and Long-Term Debt
We obtain short-term financing throughout the year under our
commercial paper program, which is a form of notes payable.
Information on this program is as follows:
Notes Payable
(dollars in millions) 2005 2004
Notes payable outstanding at year-end $— $—
Maximum amount outstanding during the year $ 994 $1,422
Average amount outstanding during the year $77 $55
Weighted-average interest rate 4.0% 1.3%
At January 28, 2006, a committed unsecured credit facility
totaling $1.6 billion was in place through a group of banks at specified
rates. This 2005 facility replaced our two previous committed credit
agreements and is scheduled to expire in June 2010. No balances
were outstanding at any time during 2005 or 2004 under any of
these agreements.
On November 9, 2005, TRC issued to the public, through the
Target Credit Card Owner Trust 2005-1, $900 million of debt backed
by credit card receivables. This issue of receivable-backed securities
has an expected maturity of five years and a floating interest rate set
at 1-month LIBOR plus 0.06 percent. Refer to Note 10, page 30, for
further discussion of our accounts receivable financing program. The
total amount of long-term debt backed by credit card receivables was
$1,650 million at January 28, 2006 and $750 million at January 29,
2005. We did not repurchase any significant amount of long-term
debt during 2005.
In 2004, we issued no long-term debt and we called or
repurchased $542 million of long-term debt with an average remaining
life of 24 years and weighted average interest rate of 7.0 percent,
resulting in a pre-tax loss of $89 million (approximately $.06 per share),
reflected in net interest expense.
Our debt portfolio, including swap valuation adjustments, was
as follows:
Long-Term Debt
January 28, 2006 January 29, 2005
(dollars in millions) Rate (a) Balance Rate (a) Balance
Notes and debentures:
Due 2005–2009 5.6% $4,249 4.1% $4,818
Due 2010–2014 5.8 3,840 6.2 2,954
Due 2015–2019 5.5 240 3.3 234
Due 2020–2024 9.3 213 9.3 212
Due 2025–2029 6.7 325 6.7 325
Due 2030–2032 6.6 904 6.6 904
Total notes and debentures (b) 5.9% 9,771 5.2% 9,447
Capital lease obligations 101 91
Less: current portion (753) (504)
Long-term debt $9,119 $9,034
(a) Reflects the weighted average stated interest rate as of year-end, including the
impact of interest rate swaps.
(b) The estimated fair value of total notes and debentures, using a discounted cash
flow analysis based on our incremental interest rates for similar types of financial
instruments, was $10,229 million at January 28, 2006 and $10,171 million at
January 29, 2005.
Required principal payments on total notes and debentures over
the next five years, excluding capital lease obligations and fair market
value adjustments recorded in long-term debt, are:
(millions) 2006 2007 2008 2009 2010
Required principal payments $751 $1,321 $1,451 $751 $2,236
Most of our long-term debt obligations contain certain covenants
related to secured debt levels. In addition, our credit facility contains a
debt leverage covenant. We are, and expect to remain, in compliance
with these covenants.
20. Net Interest Expense
(millions) 2005 2004 2003
Interest expense on debt $524 $509 $543
Interest expense on capital leases 899
Loss on debt repurchase —89 15
Capitalized interest (42) (18) (8)
Interest income (27) (19) (3)
Net interest expense $463 $570 $556