Chapter 21- Leasee Lease Disclosures
SOUTHWEST AIRLINES CO.
CONSOLIDATED BALANCE SHEET
(In millions, except share data)
DECEMBER 31,
2004
Property and equipment, at cost:
Flight equipment
Ground property and equipment
Deposits on flight equipment purchase contracts
2003
8,646
1,117
787
10,550
10,037
1,202
682
11,921
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
8. LEASES
The Company had seven aircraft classified as capital leases at December 31, 2004. The amounts applicable
to these aircraft included in property and equipment were:
(In millions)
Flight equipment
Less accumulated depreciation
2004
2003
$ 173
126
$ 47
$ 171
114
$ 57
Total rental expense for operating leases, both aircraft and other, charged to operations in 2004, 2003, and
2002 was $403 million, $386 million, and $371 million, respectively. The majority of the Company’s
terminal operations space, as well as 88 aircraft, were under operating leases at December 31, 2004. Future
minimum lease payments under capital leases and noncancelable operating leases with initial or remaining
terms in excess of one year at December 31, 2004, were:
(In millions)
Capital leases Operating leases
2005
2006
2007
2008
2009
After 2009
Total minimum lease payments
Less amount representing interest
$
Present value of minimum lease payments
$
24
13
13
13
13
26
102
22
80
$
$
343
279
256
226
204
1,369
2,677
Less current portion
Long-term portion
$
17
63
The aircraft leases generally can be renewed at rates based on fair market value at the end of the lease term
for one to five years. Most aircraft leases have purchase options at or near the end of the lease term at fair
market value, generally limited to a stated percentage of the lessor’s defined cost of the aircraft.
GAP INC.
CONSOLIDATED BALANCE SHEETS
Jan. 29, 2005
( $ in millions except share amounts and par value)
Property and Equipment, net of
accumulated depreciation of $3,793 and
$3,789
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current Liabilities
Current maturities of long-term debt
Accounts payable
Accrued expenses and other current
liabilities
Income taxes payable
3,376
368
Jan. 31, 2004
(as restated, see Note B
3,626
384
$
10,048 $
10,713
$
— $
1,240
283
1,178
924
78
906
180
Total current liabilities
2,242
2,547
Long-Term Liabilities
Long-term debt
Senior convertible notes
Lease incentives and other liabilities
513
1,373
984
1,107
1,380
1,031
Total long-term liabilities
2,870
3,518
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E: LEASES
We lease most of our store premises and some of our headquarters facilities and distribution centers. These
operating leases expire at various dates through 2033. Most store leases are for a five year base period and
include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed
to at lease inception. Some leases also include early termination options, which can be exercised under
specific conditions.
For leases that contain predetermined fixed escalations of the minimum rentals, we recognize the related
rental expense on a straight-line basis and record the difference between the recognized rental expense and
amounts payable under the leases as deferred lease credits. At January 29, 2005, and January 31, 2004, this
liability amounted to approximately $361 million and $362 million, respectively.
Lease payments that depend on factors that are not measurable at the inception of the lease, such as future
sales volume, are contingent rentals in their entirety and are excluded from minimum lease payments and
included in the determination of total rental expense when it is probable that the expense has been incurred
and the amount is reasonably estimable.
Cash or rent abatements received upon entering into certain store leases are recognized on a straight-line
basis as a reduction to rent expense over the lease term. The unamortized portion is included in deferred
lease credits and other liabilities. At January 29, 2005 and January 31, 2004, the long-term deferred credit
was approximately $496 million and $543 million, respectively. At January 29, 2005 and January 31, 2004,
the short-term deferred credit was approximately $82 million and $83 million, respectively.
The aggregate minimum non-cancelable annual lease payments under leases in effect on January 29, 2005,
are as follows:
Fiscal Year
($ in millions)
2005
2006
2007
2008
2009
Thereafter
$
945
823
689
605
502
1,767
Total minimum lease commitment
$
5,331
Rental expense for all operating leases was as follows:
($ in millions)
Minimum rentals
Contingent rentals
Total
52 Weeks Ended
Jan. 29, 2005
52 Weeks Ended
Jan. 31, 2004
52 Weeks Ended
Feb. 1, 2003
$
$
$
819
148
967
$
808
146
954
$
816
123
939
$
Lessor Lease Disclosures
CATERPILLAR INC.
Consolidated Financial Position at December 31
(Dollars in millions)
2004
Assets
Current assets:
Cash and short-term investments
Receivables—trade and other
Receivables—finance
Retained interests in securitized trade receivables
Deferred and refundable income taxes
Prepaid expenses
Inventories
Total current assets
Property, plant and equipment—net
Long-term receivables—trade and other
Long-term receivables—finance
$
2003
445 $
7,616
6,510
—
398
1,369
4,675
20,856
7,682
764
8,575
2002
342 $
4,025
5,508
1,550
707
1,424
3,047
16,603
7,251
510
7,394
309
3,192
5,066
1,145
781
1,224
2,763
14,480
7,009
433
6,347
Investments in unconsolidated affiliated companies
Deferred income taxes
Intangible assets
Goodwill
Other assets
Total assets
$
517
674
315
1,450
2,258
800
616
239
1,398
1,895
747
711
281
1,402
1,295
43,091 $
36,706 $
32,705
8. Finance receivables
Finance receivables are receivables of Cat Financial, which generally can be repaid or refinanced without penalty prior to contractual maturity.
Total finance receivables reported in Statement 3 are net of an allowance for credit losses.
During 2004, 2003 and 2002, Cat Financial securitized retail installment sale contracts and finance leases into public asset backed
securitization facilities. The securitization facilities are qualifying special purpose entities and thus, in accordance with SFAS 140, are not
consolidated. These finance receivables, which are being held in securitization trusts, are secured by new and used equipment. Cat Financial
retained servicing responsibilities and subordinated interests related to these securitizations. For 2004, subordinated interests included
subordinated certificates with an initial fair value of $8 million, an interest in certain future cash flow (excess) with an initial fair value of
$2 million and a reserve account with an initial fair value of $10 million. For 2003, subordinated interests included subordinated certificates
with an initial fair value of $9 million, an interest in certain future cash flow (excess) with an initial fair value of $14 million and a reserve
account with an initial fair value of $10 million. For 2002, subordinated interests included subordinated certificates with an initial fair value of
$8 million, an interest in certain future cash flow (excess) with an initial fair value of $11 million and a reserve account with an initial fair
value of $10 million. The company's retained interests generally are subordinate to the investors' interests. Net gains of $13 million,
$22 million and $18 million were recognized on these transactions in 2004, 2003 and 2002, respectively.
Significant assumptions used to estimate the fair value of the retained interests and subordinated certificates at the time of the transaction were:
2004
Discount rate
Weighted-average prepayment rate
Expected credit losses
10.7%
14.0%
1.0%
2003
2002
11.0%
14.0%
1.0%
10.9%
14.0%
1.0%
The company receives annual servicing fees of approximately 1% of the unpaid note value.
As of December 31, 2004, 2003 and 2002, the subordinated retained interests in the public securitizations totaled $73 million, $73 million and
$47 million, respectively. Key assumptions used to determine the fair value of the retained interests were:
2004
Cash flow discount rates on retained interests and subordinated tranches
Weighted-average maturity
Average prepayment rate
Expected credit losses
10.7%
28 months
14.0%
1.0%
2003
9.1-10.8%
27 months
14.0%
1.0%
2002
9.0-10.7%
29 months
14.0%
1.0%
The investors and the securitization trusts have no recourse to Cat Financial's other assets for failure of debtors to pay when due.
We estimated the impact of individual 10% and 20% changes to the key economic assumptions used to determine the fair value of residual cash
flow in retained interests on our income. An independent, adverse change to each key assumption had an immaterial impact on the fair value of
residual cash flow.
We consider an account past due if any portion of an installment is due and unpaid for more than 30 days. Recognition of income is suspended
when management determines that collection of future income is not probable (generally after 120 days past due). Accrual is resumed, and
previously suspended income is recognized, when the receivable becomes contractually current and/or collection doubts are removed.
Investment in loans/finance leases on nonaccrual status were $176 million, $233 million and $370 million and past due over 90 days and still
accruing were $11 million, $25 million and $72 million as of December 31, 2004, 2003, and 2002, respectively.
Cat Financial provides financing only when acceptable criteria are met. Credit decisions are based on, among other things, the customer's credit
history, financial strength and intended use of equipment. Cat Financial typically maintains a security interest in retail financed equipment and
requires physical damage insurance coverage on financed equipment.