HD » Topics » 8. LEASES

These excerpts taken from the HD 10-K filed Apr 3, 2008.

8.     LEASES

The Company leases certain retail locations, office space, warehouse and distribution space, equipment and vehicles. While most of the leases are operating leases, certain locations and equipment are leased under capital leases. As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced.

Certain lease agreements include escalating rents over the lease terms. The Company expenses rent on a straight-line basis over the life of the lease which commences on the date the Company has the right to control the property. The cumulative expense recognized on a straight-line basis in excess of the cumulative payments is included in Other Accrued Expenses and Other Long-Term Liabilities in the accompanying Consolidated Balance Sheets.

The Company has a lease agreement under which the Company leases certain assets totaling $282 million. This lease was originally created under a structured financing arrangement and involves two special purpose entities. The Company financed a portion of its new stores opened in fiscal years 1997 through 2003 under this lease agreement. Under this agreement, the lessor purchased the properties, paid for the construction costs and subsequently leased the facilities to the Company. The Company records the rental payments under the terms of the operating lease agreements as SG&A in the accompanying Consolidated Statements of Earnings.

The $282 million lease agreement expires in fiscal 2008 with no renewal option. The lease provides for a substantial residual value guarantee limited to 79% of the initial book value of the assets and includes a purchase option at the original cost of each property. During fiscal 2005, the Company committed to exercise its option to purchase the assets under this lease for $282 million at the end of the lease term in fiscal 2008.

In the first quarter of fiscal 2004, the Company adopted the revised version of FASB Interpretation No. 46(R), "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires consolidation of a variable interest entity if a company's variable interest absorbs a majority of the entity's expected losses or receives a majority of the entity's expected residual returns, or both. In accordance with FIN 46, the Company was required to consolidate one of the two aforementioned special purpose entities that, before the effective date of FIN 46, met the requirements for non-consolidation. The second special purpose entity that owns the assets leased by the Company totaling $282 million is not owned by or affiliated with the Company, its management or its officers. Pursuant to FIN 46, the Company was not deemed to have a variable interest, and therefore was not required to consolidate this entity.

FIN 46 requires the Company to measure the assets and liabilities at their carrying amounts, which amounts would have been recorded if FIN 46 had been effective at the inception of the transaction. Accordingly, during the first quarter of fiscal 2004, the Company recorded Long-Term Debt of $282 million and Long-Term Notes Receivable of $282 million on the Consolidated Balance Sheets. During fiscal 2007, the liability was reclassified to Current Installments of Long-Term Debt as it is due in fiscal 2008. The Company continues to record the rental payments under the operating lease agreements as SG&A in the Consolidated Statements of Earnings. The adoption of FIN 46 had no economic impact on the Company.

Total rent expense, net of minor sublease income for fiscal 2007, 2006 and 2005 was $824 million, $768 million and $720 million, respectively. Certain store leases also provide for contingent rent payments based on percentages of sales in excess of specified minimums. Contingent rent expense for fiscal 2007, 2006 and 2005 was approximately $6 million, $9 million and $9 million, respectively. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property are obligations of the Company under the lease agreements.

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The approximate future minimum lease payments under capital and all other leases at February 3, 2008 were as follows (in millions):

Fiscal Year
  Capital
Leases

  Operating
Leases

2008   $ 79   $ 802
2009     80     716
2010     82     644
2011     82     582
2012     82     523
Thereafter through 2097     882     5,664
   
 
      1,287   $ 8,931
         
Less imputed interest     872      
   
     
  Net present value of capital lease obligations     415      
Less current installments     15      
   
     
  Long-term capital lease obligations, excluding current
    installments
  $ 400      
   
     

Short-term and long-term obligations for capital leases are included in the accompanying Consolidated Balance Sheets in Current Installments of Long-Term Debt and Long-Term Debt, respectively. The assets under capital leases recorded in Property and Equipment, net of amortization, totaled $327 million and $340 million at February 3, 2008 and January 28, 2007, respectively.

8.     LEASES



The Company leases certain retail locations, office space, warehouse and distribution space, equipment and vehicles. While most of the leases are operating leases, certain
locations and equipment are leased under capital leases. As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced.



Certain
lease agreements include escalating rents over the lease terms. The Company expenses rent on a straight-line basis over the life of the lease which commences on the date the
Company has the right to control the property. The cumulative expense recognized on a straight-line basis in excess of the cumulative payments is included in Other Accrued
Expenses and Other Long-Term Liabilities in the accompanying Consolidated Balance Sheets.



The
Company has a lease agreement under which the Company leases certain assets totaling $282 million. This lease was originally created under a structured financing arrangement and involves
two special purpose entities. The Company financed a portion of its new stores opened in fiscal years 1997 through 2003 under this lease agreement. Under this agreement, the lessor purchased the
properties, paid for the construction costs and subsequently leased the facilities to the Company. The Company records the rental payments under the terms of the operating lease agreements as SG&A in
the accompanying Consolidated Statements of Earnings.



The
$282 million lease agreement expires in fiscal 2008 with no renewal option. The lease provides for a substantial residual value guarantee limited to 79% of the initial book value of the
assets and includes a purchase option at the original cost of each property. During fiscal 2005, the Company committed to exercise its option to purchase the assets under this lease for
$282 million at the end of the lease term in fiscal 2008.



In
the first quarter of fiscal 2004, the Company adopted the revised version of FASB Interpretation No. 46(R), "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46
requires consolidation of a variable interest entity if a company's variable interest absorbs a majority of the entity's expected losses or receives a majority of the entity's expected residual
returns, or both. In accordance with FIN 46, the Company was required to consolidate one of the two aforementioned special purpose entities that, before the effective date of FIN 46, met
the requirements for non-consolidation. The second special purpose entity that owns the assets leased by the Company totaling $282 million is not owned by or affiliated with the
Company, its management or its officers. Pursuant to FIN 46, the Company was not deemed to have a variable interest, and therefore was not required to consolidate this entity.



FIN 46
requires the Company to measure the assets and liabilities at their carrying amounts, which amounts would have been recorded if FIN 46 had been effective at the inception of the
transaction. Accordingly, during the first quarter of fiscal 2004, the Company recorded Long-Term Debt of $282 million and Long-Term Notes Receivable of
$282 million on the Consolidated Balance Sheets. During fiscal 2007, the liability was reclassified to Current Installments of Long-Term Debt as it is due in fiscal 2008. The
Company continues to record the rental payments under the operating lease agreements as SG&A in the Consolidated Statements of Earnings. The adoption of FIN 46 had no economic impact on the
Company.



Total
rent expense, net of minor sublease income for fiscal 2007, 2006 and 2005 was $824 million, $768 million and $720 million, respectively. Certain store leases also provide
for contingent rent payments based on percentages of sales in excess of specified minimums. Contingent rent expense for fiscal 2007, 2006 and 2005 was approximately $6 million,
$9 million and $9 million, respectively. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property are obligations of the Company under the lease
agreements.



56









The
approximate future minimum lease payments under capital and all other leases at February 3, 2008 were as follows (in millions):
























































































































































Fiscal Year
 Capital

Leases

 Operating

Leases

2008 $79 $802
2009  80  716
2010  82  644
2011  82  582
2012  82  523
Thereafter through 2097  882  5,664
  
 
   1,287 $8,931
     
Less imputed interest  872   
  
   
 Net present value of capital lease obligations  415   
Less current installments  15   
  
   
 Long-term capital lease obligations, excluding current

    installments
 $400   
  
   




Short-term and long-term obligations for capital leases are included in the accompanying Consolidated Balance Sheets in Current Installments of
Long-Term Debt and Long-Term Debt, respectively. The assets under capital leases recorded in Property and Equipment, net of amortization, totaled $327 million and
$340 million at February 3, 2008 and January 28, 2007, respectively.



This excerpt taken from the HD 10-K filed Mar 29, 2007.

7.     LEASES

The Company leases certain retail locations, office space, warehouse and distribution space, equipment and vehicles. While most of the leases are operating leases, certain locations and equipment are leased under capital leases. As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced.

Certain lease agreements include escalating rents over the lease terms. The Company expenses rent on a straight-line basis over the life of the lease which commences on the date the Company has the right to control the property. The cumulative expense recognized on a straight-line basis in excess of the

53



cumulative payments is included in Other Accrued Expenses and Other Long-Term Liabilities in the accompanying Consolidated Balance Sheets.

The Company has a lease agreement under which the Company leases certain assets totaling $282 million. This lease was originally created under a structured financing arrangement and involves two special purpose entities. The Company financed a portion of its new stores opened in fiscal years 1997 through 2003 under this lease agreement. Under this agreement, the lessor purchased the properties, paid for the construction costs and subsequently leased the facilities to the Company. The Company records the rental payments under the terms of the operating lease agreements as SG&A in the accompanying Consolidated Statements of Earnings.

The $282 million lease agreement expires in fiscal 2008 with no renewal option. The lease provides for a substantial residual value guarantee limited to 79% of the initial book value of the assets and includes a purchase option at the original cost of each property. During fiscal 2005, the Company committed to exercise its option to purchase the assets under this lease for $282 million at the end of the lease term in fiscal 2008.

In the first quarter of fiscal 2004, the Company adopted the revised version of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires consolidation of a variable interest entity if a company's variable interest absorbs a majority of the entity's expected losses or receives a majority of the entity's expected residual returns, or both.

In accordance with FIN 46, the Company was required to consolidate one of the two aforementioned special purpose entities that, before the effective date of FIN 46, met the requirements for non-consolidation. The second special purpose entity that owns the assets leased by the Company totaling $282 million is not owned by or affiliated with the Company, its management or its officers. Pursuant to FIN 46, the Company was not deemed to have a variable interest, and therefore was not required to consolidate this entity.

FIN 46 requires the Company to measure the assets and liabilities at their carrying amounts, which amounts would have been recorded if FIN 46 had been effective at the inception of the transaction. Accordingly, during the first quarter of fiscal 2004, the Company recorded Long-Term Debt of $282 million and Long-Term Notes Receivable of $282 million on the Consolidated Balance Sheets. The Company continues to record the rental payments under the operating lease agreements as SG&A in the Consolidated Statements of Earnings. The adoption of FIN 46 had no economic impact on the Company.

Total rent expense, net of minor sublease income for fiscal 2006, 2005 and 2004 was $958 million, $782 million and $684 million, respectively. Certain store leases also provide for contingent rent payments based on percentages of sales in excess of specified minimums. Contingent rent expense for fiscal 2006, 2005 and 2004 was approximately $9 million, $9 million and $11 million, respectively. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property are obligations of the Company under the lease agreements.

54



The approximate future minimum lease payments under capital and all other leases at January 28, 2007 were as follows (in millions):

Fiscal Year

  Capital
Leases

  Operating
Leases

2007   $ 78   $ 917
2008     79     846
2009     78     734
2010     80     647
2011     80     566
Thereafter through 2097     928     5,421
   
 
      1,323   $ 9,131
         
Less imputed interest     904      
   
     
  Net present value of capital lease obligations     419      
Less current installments     13      
   
     
  Long-term capital lease obligations, excluding current
    installments
  $ 406      
   
     

Short-term and long-term obligations for capital leases are included in the accompanying Consolidated Balance Sheets in Current Installments of Long-Term Debt and Long-Term Debt, respectively. The assets under capital leases recorded in Property and Equipment, net of amortization, totaled $340 million and $304 million at January 28, 2007 and January 29, 2006, respectively.

This excerpt taken from the HD 10-K filed Mar 29, 2006.

6.     LEASES

The Company leases certain retail locations, office space, warehouse and distribution space, equipment and vehicles. While most of the leases are operating leases, certain locations and equipment are leased under capital leases. As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced.

Certain lease agreements include escalating rents over the lease terms. The Company expenses rent on a straight-line basis over life of the lease which commences on the date the Company has the right to control the property. The cumulative expense recognized on a straight-line basis in excess of the cumulative payments is included in Other Accrued Expenses and Other Long-Term Liabilities in the accompanying Consolidated Balance Sheets.

The Company has a lease agreement under which the Company leases certain assets totaling $282 million. This lease was originally created under a structured financing arrangement and involves two special purpose entities. The Company financed a portion of its new stores opened in fiscal years

53



1997 through 2003 under this lease agreement. Under this agreement, the lessor purchased the properties, paid for the construction costs and subsequently leased the facilities to the Company. The Company records the rental payments under the terms of the operating lease agreements as SG&A in the accompanying Consolidated Statements of Earnings.

The $282 million lease agreement expires in 2008 with no renewal option. The lease provides for a substantial residual value guarantee limited to 79% of the initial book value of the assets and includes a purchase option at the original cost of each property. As the leased assets were placed into service, the Company estimated its liability under the residual value guarantee. The maximum amount of the residual value guarantee relative to the assets under the lease agreement described above is estimated to be $223 million. Events or circumstances that would require the Company to perform under the residual value guarantee include (1) initial default on the lease with the assets sold for less than book value, or (2) the Company's decision not to purchase the assets at the end of the lease and the sale of the assets results in proceeds less than the initial book value of the assets. During 2005, the Company committed to exercise its option to purchase the assets under this lease for $282 million at the end of the lease term in 2008.

In the first quarter of fiscal 2004, the Company adopted the revised version of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires consolidation of a variable interest entity if a company's variable interest absorbs a majority of the entity's expected losses or receives a majority of the entity's expected residual returns, or both.

In accordance with FIN 46, the Company was required to consolidate one of the two aforementioned special purpose entities that, before the effective date of FIN 46, met the requirements for non-consolidation. The second special purpose entity that owns the assets leased by the Company totaling $282 million is not owned by or affiliated with the Company, its management or its officers. Pursuant to FIN 46, the Company was not deemed to have a variable interest, and therefore was not required to consolidate this entity.

FIN 46 requires the Company to measure the assets and liabilities at their carrying amounts, which amounts would have been recorded if FIN 46 had been effective at the inception of the transaction. Accordingly, during the first quarter of 2004, the Company recorded Long-Term Debt of $282 million and Long-Term Notes Receivable of $282 million on the Consolidated Balance Sheets. The Company continues to record the rental payments under the operating lease agreements as SG&A in the Consolidated Statements of Earnings. The adoption of FIN 46 had no economic impact on the Company.

Total rent expense, net of minor sublease income for fiscal 2005, 2004 and 2003 was $782 million, $684 million and $570 million, respectively. Certain store leases also provide for contingent rent payments based on percentages of sales in excess of specified minimums. Contingent rent expense for fiscal 2005, 2004 and 2003 was approximately $9 million, $11 million and $7 million, respectively. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property are obligations of the Company under the lease agreements.

54



The approximate future minimum lease payments under capital and all other leases at January 29, 2006 were as follows (in millions):

Fiscal Year

  Capital
Leases

  Operating
Leases

2006   $ 72   $ 706
2007     72     669
2008     73     618
2009     73     558
2010     74     535
Thereafter through 2097     884     5,363
   
 
      1,248   $ 8,449
         
Less imputed interest     867      
   
     
  Net present value of capital lease obligations     381      
Less current installments     11      
   
     
  Long-term capital lease obligations, excluding current
    installments
  $ 370      
   
     

Short-term and long-term obligations for capital leases are included in the accompanying Consolidated Balance Sheets in Current Installments of Long-Term Debt and Long-Term Debt, respectively. The assets under capital leases recorded in Property and Equipment, net of amortization, totaled $304 million and $283 million at January 29, 2006 and January 30, 2005, respectively.

This excerpt taken from the HD 10-K filed Apr 11, 2005.

5.     LEASES

        The Company leases certain retail locations, office space, warehouse and distribution space, equipment and vehicles. While most of the leases are operating leases, certain locations and equipment are leased under capital leases. As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced.

30


        Certain lease agreements include escalating rents over the lease terms. The cumulative expense recognized on a straight-line basis in excess of the cumulative payments is included in Other Accrued Expenses on the accompanying Consolidated Balance Sheets.

        The Company has a lease agreement under which the Company leased assets totaling $282 million. The lease was created as a subsequent lease to an initial lease of $600 million. These two leases were originally created under structured financing arrangements and involve three special purpose entities. The Company financed a portion of its new stores opened in fiscal years 1997 through 2003, as well as a distribution center and office buildings, under these lease agreements. Under both agreements, the lessor purchased the properties, paid for the construction costs and subsequently leased the facilities to the Company. The Company records the rental payments under the terms of the operating lease agreements as Selling and Store Operating Expenses in the accompanying Consolidated Statements of Earnings.

        In December 2003, the Company exercised its option to purchase the assets under the initial lease agreement of $600 million at the original cost of the assets of $598 million, which approximated fair market value. These assets are included in the accompanying Consolidated Balance Sheets in Property and Equipment and are being depreciated on a straight-line basis over their estimated remaining useful lives. In connection with the purchase of the assets, one of the aforementioned special purpose entities was dissolved, leaving two special purpose entities.

        The lease term for the remaining $282 million agreement expires in 2008 with no renewal option. The lease provides for a substantial residual value guarantee limited to 79% of the initial book value of the assets and includes a purchase option at the original cost of each property. As the leased assets were placed into service, the Company estimated its liability under the residual value guarantee. The maximum amount of the residual value guarantee relative to the assets under the off-balance sheet lease agreement described above is estimated to be $223 million. Events or circumstances that would require the Company to perform under the residual value guarantee include (1) initial default on the lease with the assets sold for less than book value, or (2) the Company's decision not to purchase the assets at the end of the lease and the sale of the assets results in proceeds less than the initial book value of the assets.

        In the first quarter of fiscal 2004, the Company adopted the revised version of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires consolidation of a variable interest entity if a company's variable interest absorbs a majority of the entity's expected losses or receives a majority of the entity's expected residual returns, or both.

        In accordance with FIN 46, the Company was required to consolidate one of the two remaining aforementioned special purpose entities that, before the effective date of FIN 46, met the requirements for non-consolidation. The second special purpose entity that owns the assets leased by the Company totaling $282 million is not owned by or affiliated with the Company, its management or its officers. Pursuant to FIN 46, the Company was not deemed to have a variable interest, and therefore was not required to consolidate this entity.

        FIN 46 requires the Company to measure the assets and liabilities at their carrying amounts, which amounts would have been recorded if FIN 46 had been effective at the inception of the transaction. Accordingly, during the first quarter of 2004, the Company recorded Long-Term Debt of $282 million and Long-Term Notes Receivable of $282 million on the Consolidated Balance Sheets. The Company continues to record the rental payments under the operating lease agreements as Selling and Store Operating Expenses in the Consolidated Statements of Earnings. The adoption of FIN 46 had no economic impact on the Company.

31


        Total rent expense, net of minor sublease income for fiscal 2004, 2003 and 2002 was $684 million, $570 million and $533 million, respectively. Certain store leases also provide for contingent rent payments based on percentages of sales in excess of specified minimums. Contingent rent expense for fiscal 2004, 2003 and 2002 was approximately $11 million, $7 million and $8 million, respectively. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property are obligations of the Company under the lease agreements.

        The approximate future minimum lease payments under capital and all other leases, including the off-balance sheet lease, at January 30, 2005, were as follows (in millions):

Fiscal Year

  Capital
Leases

  Operating
Leases

2005   $ 67   $ 660
2006     67     613
2007     67     566
2008     68     514
2009     67     464
Thereafter through 2045     772     5,113
   
 
      1,108   $ 7,930
         
Less imputed interest     757      
   
     
  Net present value of capital lease obligations     351      
Less current installments     10      
   
     
Long-term capital lease obligations, excluding current installments   $ 341      
   
     

        Short-term and long-term obligations for capital leases are included in the accompanying Consolidated Balance Sheets in Other Accrued Expenses and Long-Term Debt, respectively. The assets under capital leases recorded in Property and Equipment, net of amortization, totaled $283 million and $263 million at January 30, 2005, and February 1, 2004, respectively.

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