Circuit City 2003 Annual Report Download - page 54

2003 2002
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Mortgage note payable (a) $ 8,170 $ 8,319
Term loan payable (b) 10,338 10,360
Capitalized equipment lease obligations 1,591 90
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20,099 18,769
Less: current portion 1,746 1,250
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$18,353 $17,519
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2004 2005 2006 2007 2008 After 2008
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Maturities $1,746 $1,740 $1,745 $1,675 $1,516 $11,677
(a) Mortgage note payable. The Company has a ten year, $8.4 million mortgage loan on its Georgia
distribution facility. The mortgage has monthly principal and interest payments of $62,000 through May
2012, with a final additional principal payment of $6.4 million at maturity in May 2012. The mortgage bears
interest at 7.04% and is collateralized by the underlying land and building.
(b) Term loan payable. The Company has a term loan agreement which was used to finance the construction
of its United Kingdom facility and which is secured by the underlying land and building. The loan matures
in August 2012 and is repayable in quarterly installments of(pound)165,000 ($295,000) plus interest. The
outstanding borrowing bears interest at LIBOR plus 160 basis points (5.25% at December 31, 2003 and
5.69% at December 31,2002). The term loan agreement also contains certain financial and other covenants
related to the Company's United Kingdom subsidiaries.
In connection with this term loan, the Company also entered into an interest rate collar agreement to reduce
its exposure to market rate fluctuations. The collar agreement covers a period of three years, matures in the
same amounts and over the same periods as the related debt and has a cap of 6.0% and a floor of 4.5%. This
derivative has been designated as a cash flow hedge for accounting purposes. As of December 31, 2003, the
notional amount of the interest rate collar was £
5,775,000 ($10,338,000). The collar was in a loss position of
approximately $39,000 as of December 31, 2003 and $117,000 as of December 31, 2002, and, accordingly,
the aggregate fair value of the collar was recorded as a liability. The changes in the fair value of this
derivative for the years ended December 31, 2003 and 2002 have been recognized in the Consolidated
Statement of Operations as this hedge was determined to be ineffective. The Company considers the credit
risk related to the interest rate collar to be low because such instrument was entered into with a financial
institution having a high credit rating and is generally settled on a net basis.
The aggregate maturities of long
-
term debt outstanding at December 31, 2003 are as follows (in thousands):
7.
RESTRUCTURING AND OTHER CHARGES
The Company periodically assesses its operations to ensure that they are efficient, aligned with market conditions
and responsive to customer needs. During the years ended December 31, 2001, 2002 and 2003, management
approved and implemented restructuring actions which included workforce reductions and facility consolidations.
In the fourth quarter of 2003, the Company implemented a plan to consolidate the warehousing facilities in its
United States computer supplies business. The Company recorded $713,000 of costs related to this plan, including
$233,000 of non-cash costs for impairment of the carrying value of fixed assets and $480,000 of charges for other
exit costs.
During fiscal 2002 the Company implemented a restructuring plan to consolidate the activities of its three United
Kingdom locations into a new facility constructed for the Company. The restructuring plan resulted in a pre-tax
charge, included in "Restructuring and other charges", of $4.1 million. Of the total charge, $0.5 million was non-
cash for the impairment in carrying value of fixed assets, $1.9 million was for recruitment, staff relocation costs
and severance and benefits for approximately 150 terminated employees and $1.7 million was for other exit costs,
primarily facilities closing costs and lease termination costs. During the year ended December 31, 2003, the