Ross 2010 Annual Report Download - page 46

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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.
Store leases typically contain provisions for three to four renewal options of fi ve 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 fi nancial 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 $1.8 million.
The Company also leases a 1.3 million square foot distribution center in Perris, California. The land and building for this
distribution center are fi nanced by the lessor 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 fi xed annual rate of 5.8% on the lease balance of $70 million. At the
end of the lease term, the Company must refi nance the distribution facility, or 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. As of January 29, 2011, the
Company has accrued approximately $3.5 million related to an estimated shortfall in the residual value guarantee recorded in
accrued expenses and other in the consolidated balance sheets. The synthetic lease agreement includes a prepayment penalty
for early payoff of the lease.
The Company has also recognized a liability and corresponding asset for the inception date estimated fair values of the
distribution center and POS synthetic lease residual value guarantees. As of January 29, 2011 we have approximately $2.4 million
of residual value guarantee asset and liability. These residual value guarantees are 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.
The synthetic lease facilities described above, as well as the Company’s revolving credit facility and senior notes, have covenant
restrictions requiring the Company to maintain certain interest coverage and other fi nancial ratios. In addition, the interest rates
under the revolving credit facility may vary depending on the Company’s actual interest coverage ratios. As of January 29, 2011,
the Company was in compliance with these covenants.
The Company leases three warehouses. Two of the warehouses are in Carlisle, Pennsylvania with leases expiring in 2013 and
2014. The third warehouse is in Fort Mill, South Carolina, with a lease expiring in 2013. The Company also owns a 423,000
square foot warehouse in Fort Mill, South Carolina. All four of these warehouses are used to store the Company’s packaway
inventory. The Company also leases a 10-acre parcel that has been developed for trailer parking adjacent to its Perris distribution
center.
The Company leases approximately 181,000 square feet of offi ce space for its corporate headquarters in Pleasanton, California,
under several facility leases. The terms for these leases expire between 2014 and 2015 and contain renewal provisions.
The Company leases approximately 201,000 and 26,000 square feet of offi ce space for its New York City and Los Angeles buying
offi ces, respectively. The lease terms for these facilities expire in 2021 and 2014, respectively and contain renewal provisions.