True Value 2007 Annual Report Download - page 43

22 | TRUE VALUE COMPANY
N O T E S T O
CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
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
noncancelable operating leases (including sale leasebacks),
together with the present value of the net minimum lease pay-
ments under capital leases, as of December 29, 2007:
($ in thousands) Capital Operating
2008 $ 1,704 $ 36,372
2009 1,587 34,686
2010 1,585 32,552
2011 1,494 23,849
2012 1,099 22,393
Thereafter 75 164,160
Net minimum lease payments 7,544 $ 314,012
Less amount representing interest (1,243)
Present value of net minimum
lease payments 6,301
Less amount due within one year (1,306)
$ 4,995
Minimum annual operating lease payments as shown have been
reduced by $1,809 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 pro-
vide for purchase prices at either fair market value or a stated
value, which is related to the lessor’s book value at the expira-
tion of the lease term.
Rent expense under operating leases (reduced by sublease
rentals) was $37,639, $36,775 and $34,085 for the years ended
December 29, 2007, December 30, 2006 and December 31,
2005, respectively.
Sale Leaseback Transaction
In December 2002, True Value sold seven of its distribution cen-
ters to unrelated third parties for an aggregate purchase price
of $125,753 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 gain on sale of
$55,564 was recorded as deferred gain in the Consolidated
Balance Sheet and is being amortized to income on a straight-
line basis over the initial 20-year lease term. True Value has the
right to extend each lease independently of the other proper-
ties for two additional periods of approximately 10 years each.
True Value has the right to assign the lease without the land-
lord’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”).
True Value issues Class B common stock as part of its patronage
dividend. The Class B common stock is redeemable and has no
voting rights (the “Redeemable Class B nonvoting common
stock”). The By-Laws provide True Value the right to allow a
member to meet the stock ownership requirements for True
Value’s Redeemable Class B nonvoting common stock by the
issuance of Redeemable Class B nonvoting common stock in
payment of the year-end patronage dividend. The shares of
Redeemable Class B nonvoting common stock and other written
notices distributed by True Value to its members, which disclose
to the recipient the stated amount allocated to the member by
True Value and the portion thereof that is a patronage dividend,
are “written notices of allocation” as that phrase is used in the
Internal Revenue Code (the “Code”). For such written notices
to be “qualified written notices of allocation” within the mean-
ing of the Code, it is necessary that True Value pay 20% or more
of the annual patronage dividend in cash and that the members
consent to having the allocations (at their stated dollar amounts)
treated as being constructively received by them and includable
in their gross income. True Value has customarily issued Redeem-
able Class B nonvoting common stock that are “qualified written
notices of allocation” (the “Redeemable qualified Class B non-
voting common stock”) with its patronage dividend and the
current amount issued and outstanding are classified in the