True Value 2010 Annual Report Download - page 42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
Financial Report 2010 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 noncancel-
able operating leases (including sale leasebacks), together with
the present value of the net minimum lease payments under
capital leases, as of January 1, 2011.
($ in thousands) Capital Operating
2011 $ 1,977 $ 24,628
2012 1,299 27,344
2013 226 23,057
2014 40 22,810
2015 10 23,061
Thereafter – 149,112
Net minimum lease payments 3,552 $ 270,012
Less amount representing interest (263)
Present value of net minimum
lease payments 3,289
Less amount due within one year (1,796)
$ 1,493
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 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.
Rent expense under operating leases (reduced by sublease
rentals) was $33,783, $34,579 and $37,743 for the years ended
January 1, 2011, January 2, 2010 and January 3, 2009, 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.
SALE LEASEBACK TRANSACTION
In 2002, True Value sold seven of its distribution centers to unre-
lated 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 1, 2011, the balance of the deferred gain was $30,560.
True Value has the right to extend each lease independently of
the other properties for two additional periods of approximately
10 years each. True Value has the right to assign the lease without
the landlord’s prior written consent, but subject to certain condi-
tions described in the leases. Provided that True Value assigns
the rent to the landlord, True Value may sublet all or any part of
any property without the landlord’s consent.
Principal payment schedule for long-term debt:
($ in thousands) 2011 2012 2013 2014 2015 Thereafter
Bank Facility (1) $ – $ – $ – $ – $ – $ –
Real Estate Mortgage 741 793 848 907 970 14,298
Subordinated promissory and subordinated
promissory installment notes 39,214 12,062 2,547 1,452 15,962 44,303
Capital lease obligations 1,796 1,232 214 38 9 –
Total $ 41,751 $ 14,087 $ 3,609 $ 2,397 $ 16,941 $ 58,601
(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 2015. It is management’s intention to refinance the Bank Facility prior to its maturity.