True Value 2009 Annual Report Download - page 36

Notes To Consolidated Financial Statements
($ in thousands)
2009 Financial Report 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 2, 2010.
($ in thousands) Capital Operating
2010 $ 1,969 $ 30,479
2011 1,877 23,975
2012 1,243 27,024
2013 195 22,905
2014 34 20,123
Thereafter 8 157,375
Net minimum lease payments 5,326 $ 281,881
Less amount representing interest (550)
Present value of net minimum
lease payments 4,776
Less amount due within one year (1,669)
$ 3,107
Minimum annual operating lease payments as shown above
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 $34,579, $37,743 and $37,639 for the years ended January 2,
2010, January 3, 2009 and December 29, 2007, respectively.
RETAIL HEADQUARTERS LEASE AMENDMENT
True Value executed a fifth amendment to its existing operating
lease for its Retail Headquarters, located in Chicago, Illinois, on
September 14, 2009. The effective date of the fifth amendment is
retroactive to July 1, 2009 and extends the existing lease period
(previously scheduled to expire on December 31, 2010) through
December 31, 2020. The fifth amendment includes a reduction
in the amount of leased space as well as several lease incentives.
True Value has the right to renew this lease for all or a portion of
the space for two five-year periods beginning January 1, 2021.
Additionally, True Value has the right to terminate the entire lease
effective December 31, 2017, or reduce the space under lease
by one floor effective December 31, 2015, both with associated
termination penalties. The effect of the new lease amendment
is not material in 2009.
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 2, 2010, the balance of the deferred
gain was $33,338. 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 Mem-
bers’ equity and Liabilities. Members’ equity is comprised of
Redeemable Class A voting common stock, Redeemable quali-
fied Class B nonvoting common stock, Accumulated deficit, Loss
allocation, Deferred patronage and Accumulated other compre-
hensive 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 patron-
age dividend. The Class B common stock is redeemable and
has no voting rights (the “Redeemable Class B nonvoting com-
mon 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