Ross 2008 Annual Report Download - page 46

44
Note D: Debt
Bank credit facilities. The Company has a $600 million revolving credit facility with an expiration date of July 2011 and
interest pricing at LIBOR plus 45 basis points. This facility contains a $300 million sublimit for issuance of standby letters
of credit, of which $239.6 million was available at January 31, 2009. Interest is payable upon borrowing maturity but no
less than quarterly. Borrowing under this credit facility is subject to the Company maintaining certain interest coverage and
other financial ratios. The Company had no borrowings outstanding under this facility as of January 31, 2009 and was in
compliance with the covenants.
Senior Notes. The Company has a Note Purchase Agreement with various institutional investors for $150 million of unsecured
senior notes. The notes were issued in two series and funding occurred in December 2006. The Series A notes, issued for
an aggregate of $85 million, are due in December 2018, and bear interest at a rate of 6.38%. The Series B notes, issued for
an aggregate of $65 million, are due in December 2021, and bear interest at a rate of 6.53%. The fair value of these notes as
of January 31, 2009 of approximately $156 million is estimated by obtaining comparable market quotes. Borrowings under
these notes are subject to certain covenants including interest coverage and other financial ratios. As of January 31, 2009, the
Company was in compliance with these covenants.
Letters of credit. The Company uses standby letters of credit to collateralize certain obligations related to its self-insured
workers’ compensation and general liability programs. The Company had $60.4 million and $61.1 million in standby letters of
credit at January 31, 2009 and February 2, 2008, respectively.
The Company also had $16.7 million and $20.8 million in trade letters of credit outstanding at January 31, 2009 and
February 2, 2008, respectively.
Note E: Leases
The Company leases all but two of its store sites with original, non-cancelable terms that in general range from three to ten
years. In addition, the Company leases selected information technology related equipment under operating leases. Store leases
typically contain provisions for three to four renewal options of five years each. Most store leases also provide for minimum
annual rentals and for payment of certain expenses. In addition, some store leases also have provisions for additional rent based
on a percentage of sales.
The Company has lease arrangements for certain equipment in its stores for its 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 either two or three years and the Company typically has options to renew the leases for two to three one-year periods.
Alternatively, the Company may purchase or return the equipment at the end of the initial or each renewal term. The Company’s
obligation under the residual value guarantee at the end of the respective lease terms is $3.9 million.
The Company also leases 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 million ten-year synthetic lease facility that expires in July 2013. Rent expense
on this distribution 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, the Company must either refinance the distribution facility, purchase it at the amount of the then-outstanding lease
balance, or sell it to a third party. If the distribution center is sold to a third party for less than $70 million, the Company has
agreed under a residual value guarantee to pay the lessor any shortfall amount up to $56 million.
In accordance with FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,” the Company has 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 $1.2 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 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 consolidated balance sheets.