Income Taxes Tax Rate Reconciliation Income Tax Provision: Expense Interest Rate Swaps Outstanding at Year-end Leases Net Deferred Tax Asset/(Liability) Other Long-term Liabilities Future Minimum Lease Payments In addition to deferred taxes discussed above, the major components of other long-term liabilities at January 31, 2004 and February 1, 2003 included obligations for deferred compensation plan liabilities, workersGLYPH<213> compensation/general liability costs, property related liabilities and postretirement health care benefits. The increase in the other long-term liability balance primarily represents increases in deferred compensation plan liabilities and workersGLYPH<213> compensation/ general liability costs of $127 million and $34 million, respectively, * Calculated using the interest rate at inception for each lease (the weighted average interest rate was 8.6 percent). **Includes current portion of $9 million. Operating Capital (millions) Leases Leases 2004 $ 163 $ 21 2005 150 20 2006 136 19 2007 125 19 2008 111 19 After 2008 1,093 166 Total future minimum lease payments $1,778 $264 Less: Interest * (780) (106) Present value of minimum lease payments $ 998 $158 ** January 31, February 1, (millions) 2004 2003 Gross deferred tax assets: Self-insured benefits $1 8 9 $ 188 Deferred compensation 241 184 Inventory 89 106 Accounts receivable valuation allowance 158 151 Postretirement health care obligation 42 42 Other 81 77 800 748 Gross deferred tax liabilities: Property and equipment (938) (730) Pension (218) (160) Other (133) (98) (1,289) (988) Total $ (489) $(240) Future minimum lease payments required under noncancelable lease agreements existing at January 31, 2004, were: Assets held under capital leases are included in property and equipment and are charged to depreciation and interest over the life of the lease. Operating leases are not capitalized and lease rentals are expensed. Rent expense on buildings, classified in selling, general and administrative expense, includes percentage rents that are based on a percentage of retail sales over stated levels. Total rent expense was $183 million in 2003, $179 million in 2002 and $171 million in 2001. Most of the long-term leases include options to renew, with terms varying from one to 30 years. Certain leases also include options to purchase the property. The components of the net deferred tax asset/(liability) were: * Reflects floating interest rate accrued at the end of the year. (millions) January 31, 2004 February 1, 2003 Notional Receive Pay Notional Receive Pay Amount Fixed Floating * Amount Fixed Floating * $500 7.5% 1.2% $500 7.5% 1.5% 550 4.6 1.3 550 4.6 1.4 200 4.9 1.1 - - - 400 4.4 1.4 - - - 500 4.4 1.2 - - - - - - 400 5.1 1.4 (millions) 2003 2002 2001 Current: Federal $7 5 1 $ 663 $683 State 121 111 107 872 774 790 Deferred: Federal 219 220 43 State 28 28 6 247 248 49 Total $1,119 $1,022 $839 2003 2002 2001 Federal statutory rate 35.0% 35.0% 35.0% State income taxes,  net of federal tax benefit 3.3 3.4 3.3 Dividends on ESOP stock (.2) (.2) (.1) Work opportunity tax credits (.2) (.2) (.2) Other (.1) .2 — Effective tax rate 37.8% 38.2% 38.0% Reconciliation of tax rates is as follows: $400 million matured in 2002. We also terminated an interest rate swap with a notional amount of $500 million, resulting in a gain of $19 million that will be amortized into income over the life of the hedged debt. In 2003 and 2002, the gains amortized into income were not material to our results of operations. Prior to 2003, we entered into rate lock agreements to hedge the exposure to variability in future cash flows of forecasted debt transactions. During 2002, transactions contemplated by these agreements occurred and the gain or loss was recorded as a component of other comprehensive income. The gain or loss will be reclassified into earnings in the periods during which the designated hedged cash flows affect earnings. These amounts are reflected in the Consolidated Statements of Financial Position. Cash flows from these hedging transactions are classified with the item being hedged. The components of the provision for income taxes were: 34