Dollar General 2006 Annual Report Download - page 73

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In January 1999 and April 1997, the Company sold its DCs located in Ardmore,
Oklahoma and South Boston, Virginia, respectively, for 100% cash consideration. Concurrent
with the sale transactions, the Company leased the properties back for periods of 23 and 25
years, respectively. The transactions were recorded as financing obligations rather than sales as
a result of, among other things, the lessor’ s ability to put the properties back to the Company
under certain circumstances. The property and equipment, along with the related lease
obligations, associated with these transactions were recorded in the consolidated balance sheets.
In May 2003, the Company purchased two secured promissory notes (the “DC Notes”)
from Principal Life Insurance Company totaling $49.6 million. The DC Notes represented debt
issued by the third party entity (“TPE”) from which the Company leased the South Boston DC.
The DC Notes were being accounted for as “held to maturity” debt securities in accordance with
the provisions of SFAS 115, “Accounting for Certain Investments in Debt and Equity
Securities.” However, by acquiring the DC Notes, the Company holds the debt instruments
pertaining to its lease financing obligation and, because a legal right of offset exists, reflected the
acquired DC Notes as a reduction of its outstanding financing obligations in its consolidated
balance sheet as of February 3, 2006 in accordance with the provisions of FASB
Interpretation 39, “Offsetting of Amounts Related to Certain Contracts – An Interpretation of
APB Opinion 10 and FASB Statement 105.”
In June 2006, the Company acquired the TPE, which owned legal title to the South
Boston DC assets and had issued the related debt in connection with the original financing
transaction described above. There was no material gain or loss recognized as a result of this
transaction. Based on the Company’ s ownership of the TPE at February 2, 2007, the financing
obligation and DC notes are eliminated in the Company’ s consolidated financial statements.
Future minimum payments as of February 2, 2007 for capital leases, financing
obligations and operating leases are as follows:
(In thousands) Capital
Leases
Financing
Obligations
Operating
Leases
2007 $ 7,658 $ 4,435 $ 304,567
2008 5,440 4,381 254,087
2009 2,082 3,785 206,369
2010 599 3,785 169,454
2011 599 3,785 139,841
Thereafter 7,036 50,188 415,263
Total minimum payments 23,414 70,359 $ 1,489,581
Less: imputed interest (5,007) (33,055)
Present value of net minimum lease
payments 18,407 37,304
Less: current portion, net (6,667) (1,413)
Long-term portion $ 11,740 $ 35,891
Capital leases were discounted at an effective interest rate of approximately 6.7% at
February 2, 2007. The gross amount of property and equipment recorded under capital leases and
financing obligations at February 2, 2007 and February 3, 2006, was $85.1 million and $150.2
million, respectively. Accumulated depreciation on property and equipment under capital leases
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