Lowe's 2003 Annual Report Download - page 39

2003 ANNUAL REPORT 37
Note 11
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Leases.
The Company leases certain store facilities under agreements with
original terms generally of 20 years. Certain lease agreements con-
tain rent escalation clauses that are charged to rent expense on a
straight-line basis. Some agreements also provide for contingent
rental based on sales performance in excess of specified mini-
mums. In 2003, 2002 and 2001, contingent rentals have been nom-
inal. The leases usually contain provisions for four renewal options
of five years each. Certain equipment is also leased by the
Company under agreements ranging from two to five years. These
agreements typically contain renewal options providing for a re-
negotiation of the lease, at the Company’s option, based on the fair
market value at that time.
The future minimum rental payments required under capital
and operating leases having initial or remaining non-cancelable
lease terms in excess of one year are summarized as follows:
(In Millions) Operating Leases Capital Leases
–––––––––––––––––––––––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––––––––––––––––––
Fiscal Year Real Estate Equipment Real Estate Equipment Total
2004 $ 224 $ 1 $ 58 $ 2 $ 285
2005 220 1 59 1 281
2006 217 – 59 1 277
2007 217 – 59 1 277
2008 215 – 58 – 273
Later Years 2,125 – 472 – 2,597
Total Minimum
Lease Payments $3,218 $2 $765 $5 $3,990
Total Minimum Capital Lease Payments $ 770
Less Amount
Representing Interest 325
Present Value of Minimum Lease Payments 445
Less Current Maturities 23
Present Value of Minimum Lease Payments,
Less Current Maturities $ 422
Rental expenses under operating leases for real estate and
equipment were $233 million, $215 million and $188 million in
2003, 2002 and 2001, respectively.
In fiscal 2002, the Company exercised its purchase option to
acquire all properties leased under certain operating lease agree-
ments for $261.5 million, which approximated the assets’ original
cost. The Company had three operating lease agreements whereby
lessors committed to purchase land, fund construction costs and
lease properties to the Company. The Company had financed four
regional distribution centers and 14 retail stores through these
lease agreements. Upon repurchase of these properties, the three
operating leases were terminated.
Note 12
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Employee retirement plans.
Effective September 2002, the Employee Stock Ownership Plan
(ESOP) was merged into the Lowe’s Companies 401(k) Plan (the
401(k) Plan or the Plan). There will be no further contributions
made to participants’ ESOP accounts under the 401(k) Plan. All
participants in the ESOP had their balances transferred into a sep-
arately tracked account under the 401(k) Plan on the merger date.
The merger gave ESOP participants more control and flexibility
over their retirement savings by allowing them to diversify their
ESOP account balance over a wider range of investment choices
available under the 401(k) Plan. At the time of the merger, ESOP
shares were vested 100%. There were no ESOP expenses for 2003
and 2002. ESOP expenses for 2001 were $119 million.
As a result of merging the ESOP into the 401(k) Plan, the
Company increased its contribution to the 401(k) Plan to include
two types of contributions. The Company continues to make the
traditional contribution each payroll period based upon a match-
ing formula applied to employee contributions. In addition,
beginning in 2002, the Company offers a performance match to
eligible 401(k) participants based on growth of net earnings before
taxes for the fiscal year. 401(k) Plan participants must have three or
more years of employment service and be actively employed on the
last day of the fiscal year to be eligible for the performance match.
The performance match will be funded in participant accounts in
April of the following year. Employees are eligible to participate in
the 401(k) Plan after completing 90 days of continuous service.
The Company’s contributions to the 401(k) Plan vest immediately
in the participant accounts. Participants are allowed to choose
from a group of mutual funds in order to designate how both
employer and employee contributions are to be invested. The
Company’s common stock is also one of the investment options
for contributions to the Plan. Company shares held on the partic-
ipant’s behalf by the Plan are voted by the participants. Once par-
ticipants reach age 59 1/2, they may elect to withdraw their entire
401(k) Plan balance. This is a one-time, in-service distribution
option. Participants may also withdraw contributions and rollover
contributions while still actively employed for reasons of hardship.
In addition, participants with 20 or more years of service, who
have an ESOP carryforward account balance within the 401(k)
Plan, can elect to receive a one-time in service distribution of 50%
of this account balance. Company contributions to the 401(k) Plan
for 2003, 2002 and 2001 were $83 million, $115 million and $15
million, respectively.
The Company originally adopted a Benefit Restoration Plan
(BRP) on February 1, 1990. This plan was amended and restated
effective as of August 3, 2002. The BRP is unfunded and designed to
provide benefits in addition to those provided under the 401(k)
Plan to 401(k) Plan participants whose benefits are restricted as a
result of certain provisions of the Internal Revenue Code (IRC) of
1986. The Company’s contribution to the BRP totaled $4 million,
$2 million and $0 million in 2003, 2002 and 2001, respectively.