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Required principal payments on notes and debentures over the next five years, excluding capital lease
obligations and fair market value adjustments recorded in long-term debt, are:
(millions) 2007 2008 2009 2010 2011
Required principal payments $1,355 $1,517 $751 $2,236 $107
Most of our long-term debt obligations contain 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) 2006 2005 2004
Interest expense on debt $635 $524 $509
Interest expense on capital leases 11 89
Loss on debt repurchase ——89
Capitalized interest (49) (42) (18)
Interest income (25) (27) (19)
Net interest expense $572 $463 $570
21. Derivative Financial Instruments
At February 3, 2007 and January 28, 2006, interest rate swaps were outstanding in notional amounts
totaling $3,725 million and $3,300 million, respectively. The increase in swap exposure was executed to
manage our mix of fixed-rate debt and floating-rate debt.
During 2006, we entered into three interest rate swaps with notional amounts of $225 million,
$500 million and $250 million. During 2005, we entered into four interest rate swaps with notional
amounts of $250 million, $350 million, $325 million and $225 million. In 2005 we also terminated an
interest rate swap with a notional amount of $200 million, resulting in a gain of $24 million that will be
amortized into net interest expense over the then remaining 13-year life of the hedged debt. In 2006, 2005
and 2004, the total net gains amortized into net interest expense for terminated swaps were $9 million,
$8 million and $7 million, respectively.
Interest Rate Swaps
(dollars in millions)
Notional Amount Outstanding at Pay Floating Rate at (a)
Maturity (b) Feb. 3, 2007 Jan. 28, 2006 Receive Fixed Feb. 3, 2007 Jan. 28, 2006
May 2006 $— $ 550 4.6% —% 4.8%
Mar. 2008 250 250 3.9 5.3 4.4
Mar. 2008 250 250 3.8 5.3 4.4
Oct. 2008 500 500 4.4 5.4 4.8
Oct. 2008 250 250 3.8 5.3 4.4
Nov. 2008 200 200 3.9 5.3 4.4
Jun. 2009 400 400 4.4 5.3 4.8
Jun. 2009 350 350 4.2 5.3 4.5
Aug. 2010 325 325 4.8 5.3 4.5
Aug. 2010 225 225 4.5 5.3 4.5
Jan. 2011 225 —5.5 5.3 —
Jul. 2016 500 —5.7 5.3 —
Jul. 2016 250 —5.7 5.3 —
$3,725 $3,300
(a) Reflects the year end floating interest rate.
(b) The weighted average life of the interest rate swaps was approximately 3.7 years at February 3, 2007.
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