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ROST » Topics » Term debt. In March 2006, we repaid the $50.0 million term debt outstanding as of January 28, 2006 in full. Off-Balance Sheet ArrangementsThis excerpt taken from the ROST 10-Q filed Jun 7, 2006. Term debt. In March 2006, we repaid the $50.0 million term debt outstanding as of January 28, 2006 in full. Off-Balance Sheet Arrangements Operating leases. Substantially all of our store sites, certain distribution centers, and our buying offices and corporate headquarters are leased and, except for certain leasehold improvements and equipment, do not represent long-term capital investments. We own our distribution center in Carlisle, Pennsylvania and our warehouse in Moreno Valley, California. In May 2006, after the end of the first fiscal quarter, we exercised our option to purchase our Fort Mill, South Carolina distribution center. We have lease arrangements for certain equipment in our stores for our point-of-sale (“POS”) hardware and software systems. These leases are accounted for as operating leases for financial reporting purposes. The initial terms of these leases are two years, and we typically have options to renew the leases for two to three one-year periods. Alternatively, we may purchase or return the equipment at the end of the initial or each renewal term. We have guaranteed the value of the equipment at the end of the respective initial lease terms of $12.6 million, which is included in Other synthetic lease obligations in the table above. Other financings. As of April 29, 2006, we leased a 1.3 million square foot distribution center in Fort Mill, South Carolina. This distribution center, including equipment and systems, was being financed under an $87.3 million five-year synthetic lease facility that expired in May 2006. Rent expense on this center was payable monthly at 90 basis points over LIBOR on the lease balance of $87.3 million. We had estimated rent expense on the lease based upon prevailing interest rates (LIBOR plus 90 basis points, which resulted in an effective interest rate of 5.5% at April 29, 2006). At the end of the lease term, we had the option to either refinance the $87.3 million synthetic lease facility, purchase the distribution center at the amount of the then-outstanding lease balance, or arrange a sale of the distribution center to a third party. In May 2006, we exercised our option to purchase this facility. Our purchase of the distribution center for $87.3 million is included in Synthetic lease obligations in the contractual obligations table above. We also lease a 1.3 million square foot distribution center in Perris, California. The land and building for this distribution center is being financed under a $70.0 million ten-year synthetic lease that expires in July 2013. Rent expense on this center is payable monthly at a fixed annual rate of 5.8% on the lease balance of $70.0 million. At the end of the lease term, we have the option to either refinance the $70.0 million synthetic lease facility, purchase the distribution center at the amount of the then-outstanding lease obligation, or arrange a sale of the distribution center to a third party. If the distribution center is sold to a third party for less than $70.0 million, we have agreed under a residual value guarantee to pay the lessor the shortfall below $70.0 million not to exceed $56.0 million. Our contractual obligation of $56.0 million is included in Other synthetic lease obligations in the above table. 16 In accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” we have recognized a liability and corresponding asset for the fair value of the residual value guarantee in the amount of $8.3 million for the Perris, California distribution center and $1.8 million for the POS lease. These residual value guarantees are being amortized on a straight-line basis over the original terms of the leases. The current portion of the related asset and liability is recorded in Prepaid expenses and other and Accrued expenses and other, respectively, and the long-term portion of the related assets and liabilities is recorded in Other long-term assets and Other long-term liabilities, respectively, in the accompanying Condensed Consolidated Balance Sheets. In addition, we lease two separate warehouse facilities for packaway storage in Carlisle, Pennsylvania with operating leases expiring through 2011. In January 2004, we entered into a two-year lease with two one-year options for a warehouse facility in Fort Mill, South Carolina, the first option of which has been exercised extending the term to February 1, 2007. These three leased facilities are being used primarily to store packaway merchandise. The synthetic lease facilities described above, as well as our revolving credit facility, have covenant restrictions requiring us to maintain certain interest coverage and leverage ratios. In addition, the interest rates under these agreements may vary depending on our actual interest coverage ratios. As of April 29, 2006, we were in compliance with these covenants. In December 2003, the FASB issued the revised FIN No. 46(R), “Consolidation of Variable Interest Entities,” which addresses consolidation by business enterprises of entities that are not controllable through voting interests or in which the equity investors do not bear the residual economic risks and rewards. FIN No. 46(R) explains how to identify variable interest entities and how an enterprise should assess its interest in an entity to decide whether to consolidate that entity. We were not required under FIN No. 46(R) to consolidate our synthetic leases since the lessors/owners are not variable interest entities. Purchase obligations. As of April 29, 2006 we had purchase obligations of $895.3 million. These purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to store fixtures and supplies, and information technology service and maintenance contracts. Merchandise inventory purchase orders of $878.3 million represent purchase obligations of less than one year as of April 29, 2006. |
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