True Value 2008 Annual Report Download - page 42

notes to consolidated financial statements
2008 FINAN CIA L REP OR T :: 21
5. LEASE COMMITMENTS
True Value is a lessee of distribution centers, office space, and
computer, manufacturing and transportation equipment under
operating and capital leases. The following is a schedule of future
minimum lease payments under capital and long-term noncan-
celable operating leases (including sale leasebacks), together
with the present value of the net minimum lease payments under
capital leases, as of January 3, 2009:
($ in thousands) Capital Operating
2009 $ 1,597 $ 35,399
2010 1,594 32,565
2011 1,501 24,663
2012 1,106 22,516
2013 80 18,406
Thereafter – 145,544
Net minimum lease payments 5,878 $ 279,093
Less amount representing interest (851)
Present value of net minimum
lease payments 5,027
Less amount due within one year (1,284)
$ 3,743
Minimum annual operating lease payments as shown have been
reduced by $1,235 from future sublease rentals due over the term
of the subleases, and include estimated payments for operating
costs and real estate taxes due to the lessor, where applicable.
Capitalized leases expire at various dates and generally provide
for purchase options but not renewals. Purchase options provide
for purchase prices at either fair market value or a stated value,
which is related to the lessor’s book value at the expiration of
the lease term.
Principal payment schedule for long-term debt:
($ in thousands) 2009 2010 2011 2012 2013 Thereafter
Bank Facility (1) $ – $ – $ 34,300 $ – $ – $ –
Real Estate Mortgage 648 693 741 793 848 16,175
Subordinated promissory and subordinated
promissory installment notes 18,095 17,193 19,658 10,202 319 16,520
Capital lease obligations 1,284 1,374 1,358 933 78 –
Total $ 20,027 $ 19,260 $ 56,057 $ 11,928 $ 1,245 $ 32,695
(1) Borrowings under the Bank Facility fluctuate as a result of the seasonal needs of the business. There are no required payments until the maturity of the Bank Facility in
November 2011. It is management’s intention to refinance the Bank Facility prior to its maturity.
Rent expense under operating leases (reduced by sublease
rentals) was $37,743, $37,639 and $36,775 for the years ended
January 3, 2009, December 29, 2007 and December 30, 2006,
respectively.
Sale Leaseback Transaction
In 2002, True Value sold seven of its distribution centers to
unrelated third parties and concurrently agreed to lease the
distribution centers for a period of 20 years. The transaction was
recorded as a real property sale and as ongoing operating leases
in True Value’s financial statements. The resulting deferred gain
was recorded in the Consolidated Balance Sheet and is being
amortized to income on a straight-line basis over the initial 20-year
lease term. As of January 3, 2009, the balance of the deferred
gain was $36,117. True Value has the right to extend each lease
independently of the other properties for two additional periods
of approximately 10 years each. True Value has the right to assign
the lease without the landlord’s prior written consent, but subject
to certain conditions described in the leases. Provided that True
Value assigns the rent to the landlord, True Value may sublet all
or any part of any property without the landlord’s consent.
6. MEMBERS’ EQUITY
Capitalization
True Value’s capitalization from its members is classified in
Members’ equity and Liabilities. Members’ equity is comprised
of Redeemable Class A voting common stock, Redeemable
qualified Class B nonvoting common stock, Accumulated deficit,
Loss allocation, Deferred patronage and Accumulated other
comprehensive loss. Members are required to purchase upon
becoming a member, 60 shares of True Value’s Class A common
stock per store, up to a maximum of five stores (300 shares). The
Class A common stock is redeemable by True Value and has voting
rights (the ”Redeemable Class A voting common stock”).
($ in thousands)