Dollar General 2010 Annual Report Download - page 157

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Commitments and contingencies
Leases
As of January 28, 2011, the Company was committed under operating lease agreements for most
of its retail stores. Many of the Company’s stores are subject to build-to-suit arrangements with
landlords which typically carry a primary lease term of 10-15 years with multiple renewal options. The
Company also has stores subject to shorter-term leases (usually with initial or current terms of three to
five years), and many of these leases have multiple renewal options. Approximately 35% of the leased
stores have provisions for contingent rentals based upon a specified percentage of defined sales volume.
The Company leases three of its DCs. The land and buildings of two of the DCs are subject to
operating lease agreements and the third DC is subject to a financing arrangement. The entities
involved in the ownership structure underlying these leases meet the accounting definition of a Variable
Interest Entity (‘‘VIE’’). The Company is not the primary beneficiary of these VIEs and, accordingly,
has not included these entities in its consolidated financial statements. Certain leases contain restrictive
covenants. As of January 28, 2011, the Company is not aware of any material violations of such
covenants.
In January 1999, the Company sold its DC located in Ardmore, Oklahoma for 100% cash
consideration. Concurrent with the sale transaction, the Company leased the property back for a period
of 23 years. The transaction was recorded as a financing obligation rather than a sale as a result of,
among other things, the lessor’s ability to put the property back to the Company under certain
circumstances. The property and equipment, along with the related lease obligation associated with this
transaction are recorded in the consolidated balance sheets. In August 2007, the Company purchased a
secured promissory note (the ‘‘Ardmore Note’’) from an unrelated third party with a face value of
$34.3 million at the date of purchase which approximated the remaining financing obligation. The
Ardmore Note represents debt issued by the third party entity from which the Company leases the
Ardmore DC and therefore the Company holds the debt instrument pertaining to its lease financing
obligation. Because a legal right of offset exists, the Company is accounting for the Ardmore Note as a
reduction of its outstanding financing obligation in its consolidated balance sheets.
Future minimum payments as of January 28, 2011 for capital and operating leases are as follows:
Capital Operating
(In thousands) Leases Leases
2011 .......................................... $1,535 $ 481,921
2012 .......................................... 1,040 444,804
2013 .......................................... 599 394,781
2014 .......................................... 602 338,781
2015 .......................................... 627 275,299
Thereafter ...................................... 4,609 1,067,756
Total minimum payments ........................... 9,012 $3,003,342
Less: imputed interest .............................. (2,649)
Present value of net minimum lease payments ............ 6,363
Less: current portion, net ........................... (1,157)
Long-term portion ................................ $5,206
79