Gain on Sale of Distribution Center

12 Months Ended

Jan. 30, 2021

Gain (Loss) on Disposition of Property Plant Equipment [Abstract]

GAIN ON SALE OF DISTRIBUTION CENTER

GAIN ON SALE OF DISTRIBUTION CENTER

In the second quarter of 2020, we completed sale and leaseback transactions for our distribution centers located in Columbus, OH; Durant, OK; Montgomery, AL; and Tremont, PA. The aggregate sale price for the transactions was $725.0 million. Due to sale-leaseback accounting requirements, the proceeds received in the transactions were allocated between proceeds on the sale of the distribution centers and financing proceeds. Accordingly, aggregate net proceeds, before income taxes, on the sales of the distribution centers were $586.9 million and the aggregate gain on the sales was $463.1 million. Additionally, we incurred $4.0 million of additional selling and administrative expenses in connection with the transaction, which primarily consisted of consulting services. The remainder of consideration received was financing liability proceeds of $134.0 million. The current portion of the financing liability was recorded in accrued operating expenses in our consolidated balance sheets. The noncurrent portion of the financing liability was recorded in other liabilities in our consolidated balance sheets. Interest expense will be recognized on the financing liability using the effective interest method and the financing liability will be accreted over the duration of the lease agreements. Future payments to the buyer-lessor will be allocated between the financing liability and the lease liabilities. See note 5 to the accompanying consolidated financial statements for information on the lease agreements.

In connection with our entrance into the sale and leaseback transactions, we agreed to repay all borrowings outstanding under the 2018 Credit Agreement and restrict our borrowings under the 2018 Credit Agreement for 90 days following closing of the transactions.

Aggregate initial annual cash payments to the buyer-lessor, including payments of the financing liability and lease payments, are approximately $50 million and the payments escalate two percent annually. Aggregate annual straight-line rent expense for the four leases is approximately $46 million. Aggregate initial annual interest expense on the financing liability, which will decrease over the term, is approximately $8 million.

In the third quarter of 2019, we completed the sale of our distribution center located in Rancho Cucamonga, CA. As part of our agreement with the purchaser, we leased the property back from the purchaser for several months while we wound down our operations at the distribution center. The Rancho Cucamonga, CA distribution center was closed in the first quarter of 2020. Net proceeds from the sale of the distribution center were $190.3 million and our gain on the sale was $178.5 million.