Ross 2007 Annual Report Download - page 38

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The Company leases approximately 138,000 and 15,000 square feet of office space for our New York and Los Angeles buying
offices, respectively. The lease terms for these facilities expire in 2015 and 2011, respectively. The lease term for the New York
office contains a renewal provision.
We lease a 1.3 million square foot distribution center in Perris, California. The land and building for this distribution center are
financed under a $70 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 million. At the end of the lease term, we have the option to either
refinance the $70 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 million, we have agreed under a residual value guarantee to pay the lessor any shortfall amount up to $56 million. Our
contractual obligation of $56 million is included in Other synthetic lease obligations in the above table.
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 $0.6 million for the POS leases. 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 accrued expenses, 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 consolidated balance sheets.
In November 2001 we entered into a nine-year lease for a 239,000 square foot warehouse and a ten-year lease for a 246,000
square foot warehouse in Carlisle, Pennsylvania. In June 2006, we entered into a two-year lease extension with one one-year
option for a 253,000 square foot warehouse in Fort Mill, South Carolina, extending the term to February 2009. In March 2008, we
amended the term of this lease to February 2010 and obtained three three-year options. In August 2007, we entered into a five-
year lease for a 423,000 square foot warehouse also in Fort Mill, South Carolina. All four of these properties are used to store our
packaway inventory. We also lease a 10-acre parcel which we currently have under construction for future trailer parking adjacent
to our Perris distribution center.
The synthetic lease facilities described above, as well as our revolving credit facility and senior notes, 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 actual interest coverage ratios achieved. As of February 2, 2008, we were in compliance with these
covenants.
Purchase obligations. As of February 2, 2008 we had purchase obligations of $771.1 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 $692.9 million represent purchase
obligations of less than one year as of February 2, 2008.