Target 2007 Annual Report Download - page 54

20. Derivative Financial Instruments
At February 2, 2008 and February 3, 2007, interest rate swaps were outstanding in notional amounts
totaling $4,575 million and $3,725 million, respectively. The increase in swap exposure was executed to
manage our mix of fixed-rate debt and floating-rate debt.
In 2007, 2006 and 2005, the total net gains amortized into net interest expense for terminated swaps were
$6 million, $9 million, and $8 million, respectively.
Interest Rate
Swaps Notional Amount Outstanding at Pay Floating Rate at (a)
(dollars in millions)
Maturity (b) Feb. 2, 2008 Feb. 3, 2007 Receive Fixed Feb. 2, 2008 Feb. 3, 2007
March 2008 $ 250 $ 250 3.9% 3.3% 5.3%
March 2008 250 250 3.8 3.3 5.3
October 2008 500 500 4.4 3.0 5.4
October 2008 250 250 3.8 3.3 5.3
November 2008 200 200 3.9 3.3 5.3
June 2009 400 400 4.4 2.5 5.3
June 2009 350 350 4.2 4.2 5.3
August 2010 325 325 4.8 4.2 5.3
August 2010 225 225 4.5 4.2 5.3
January 2011 225 225 5.5 4.2 5.3
March 2012 250 —5.6 3.3 —
July 2016 500 500 5.7 4.2 5.3
July 2016 250 250 5.7 4.2 5.3
May 2017 400 —5.2 3.3 —
May 2017 200 —5.2 3.3 —
$4,575 $3,725
(a) Reflects the year-end floating interest rate.
(b) The weighted average life of the interest rate swaps was approximately 3.6 years at February 2, 2008.
The market value of outstanding interest rate swaps and net unamortized gains/(losses) from terminated
interest rate swaps was $237 million and $(7) million at February 2, 2008 and February 3, 2007, respectively.
No ineffectiveness was recognized related to these instruments in 2007, 2006 or 2005. See Note 29 for
additional information relating to our interest rate swaps.
We also enter into interest rate forward contracts to offset a portion of the interest rate exposure on our
discounted workers’ compensation and general liability obligations. These instruments are not designated as
hedges for accounting purposes, thus they are marked-to-market through earnings each period. The gain/
(loss) recognized on these instruments in 2007 and 2006 was $18 million and $0 million, respectively. There
were no such instruments outstanding in 2005. See Note 16 and Note 23 for details of our workers’
compensation and general liability accruals.
During 2007, we entered into a series of interest rate lock agreements that effectively fixed the interest
payments on our anticipated issuance of debt that would be affected by interest-rate fluctuations on the US
Treasury benchmark between the effective date of the interest rate locks and the date of the issuance of the
debt. Upon our issuance of fixed-rate debt in January 2008, these agreements were terminated resulting in a
payment of $79 million to the counterparty due to a decline in US Treasury rates prior to issuance. This
payment is classified within other operating cash flows on the Consolidated Statements of Cash Flows. The
loss of $48 million, net of taxes of $31 million, has been recorded in accumulated other comprehensive loss
and is being recognized as an adjustment to interest expense over the same period in which the related
interest costs on the debt are recognized in earnings. During 2007 the amount reclassified into earnings was
not material. We estimate that $3 million ($5 million pre tax) of losses related to these rate locks in
accumulated other comprehensive income will be reclassified to earnings in 2008.
During the fourth quarter of 2007, we purchased and sold call options on our common stock. Refer to
Note 24 for additional details of these instruments.
21. Leases
We lease certain retail locations, warehouses, distribution centers, office space, equipment and land.
Assets held under capital lease are included in property and equipment. Operating lease rentals are expensed
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