Ross 2011 Annual Report Download - page 48

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At January 29, 2011, the Company had a $600 million unsecured, revolving credit facility. Interest pricing on this facility was
LIBOR plus 45 basis points and contained a $300 million sublimit for issuance of standby letters of credit, of which $230.4 million
was available.
Borrowings under the credit facility and the senior notes are subject to certain covenants, including interest coverage and other
financial ratios. In addition, the interest rates under the revolving credit facility may vary depending on actual interest coverage
ratios achieved. As of January 28, 2012, the Company was in compliance with these covenants.
Standby letters of credit and collateral trust. In July 2011, the Company entered into new standby letters of credit outside
of its revolving credit facility and set up a trust to collateralize its insurance obligations. As of January 28, 2012, the Company had
$45.3 million in standby letters of credit which are collateralized by restricted cash and cash equivalents and $21.3 million in a
collateral trust consisting of restricted cash, cash equivalents, and investments.
At January 29, 2011, the Company had $69.6 million in outstanding standby letters of credit issued under its revolving credit facility.
Trade letters of credit. The Company also had $39.9 million and $35.2 million in trade letters of credit outstanding at January 28,
2012 and January 29, 2011, respectively.
Note E: Leases
The Company leases all but three 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 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 $1.2 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 financed 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 fixed annual rate of 5.8% on the lease balance of $70 million. At the
end of the lease term, the Company must 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. As of January 28, 2012, the
Company has accrued approximately $4.6 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 28, 2012 the Company had approximately
$1.4 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
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.