SAB 74 DISCLOSURE – NO EXPECTED IMPACT
FIN 46, Consolidation of Variable Interest Entities, clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 is applicable immediately for variable interest
entities created after January 31, 2003. For variable interest entities created prior to January 31,
2003, the provisions of FIN 46 are applicable no later than July 1, 2003. The Company does not
expect this Interpretation to have an effect on the consolidated financial statements.
SAB 74 DISCLOSURE – NO EXPECTED IMPACT
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable
Interest Entities. The objective of this interpretation is to provide guidance on how to identify a
variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interests,
and results of operations of a VIE need to be included in a company's consolidated financial
statements. A company that holds variable interests in an entity will need to consolidate the entity
if the company's interest in the VIE is such that the company will absorb a majority of the VIE's
expected losses and/or receive a majority of the entity's expected residual returns, if they occur.
FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable
interest holders. The provisions of this interpretation became effective upon issuance. As of
December 31, 2002, the Corporation had variable interests in securitization trusts, which are
discussed in Note 4. These trusts are qualifying special purpose entities, which are exempt from the
consolidation requirements of FIN 46. The Corporation does not expect this Interpretation to have an
effect on its consolidated financial statements.
TRANSITION DISCLOSURES REQUIRED BY PARAGRAPH 26 of FIN 46 AND SAB 74 DISCLOSURE – IMPACT NOT
In January 2003, the FASB issued Interpretation No.46, Consolidation of Variable Interest Entities.
Interpretation No. 46 requires companies with a variable interest in a variable interest entity to
apply this guidance as of the beginning of the first interim period beginning after June 15, 2003,
for existing interests and immediately for new interests. The application of the guidance could
result in the consolidation of a variable interest entity. The only potential variable interest
entity with which the Company is associated is the lessor of a distribution center as disclosed in
Note 4. The Company is evaluating whether the lessor is a variable interest entity, whether the
Company is the primary beneficiary and, if so, the impact of this interpretation on financial
position and results of operations.
Note 4 Commitments (in part)
Also, the Company has guaranteed the residual value of a leased distribution center (with a maximum
exposure of $10.0 million) and has guaranteed $14.0 million of the debt of the lessor from which
this facility is leased. The lease, which expires in 2005 and has two subsequent five-year renewal
options, is treated as an operating lease. Rent payments under the lease are determined as LIBOR
plus 0.375% applied to the initial cost of the facility.
ENTERPRISE IS THE PRIMARY BENEFICIARY OF A VIE – TRANSITION DISCLOSURES REQUIRED BY PARAGRAPH 26
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities. FIN 46
explains the concept of a variable interest entity and requires consolidation by the primary
beneficiary where the variable interest entity does not have sufficient equity at risk to finance
its activities without additional subordinated financial support from other parties. This
interpretation applies immediately to variable interest entities created after January 31, 2003, and
applies in the first year or interim period beginning after June 15, 2003 to variable interest
entities in which an enterprise holds a variable interest that it acquired before February 1, 2003.
The Company believes that the lessor of the Company's aircraft is a variable interest entity. Under
FIN 46 the lessor will be consolidated in our consolidated balance sheet. The aircraft will be
recorded as our assets and the related debt will be recorded as our liability. The impact to our
future statement of operations will be increased depreciation and interest expense partially offset
by lower rent expense. The Company believes the fair market value of the aircraft is no less than
the related debt of approximately $75 million at December 31, 2002.
AN ENTERPRISE IS THE PRIMARY BENEFICIARY OF A VIE – DISCLOSURES REQUIRED AFTER EFFECTIVE DATE OF FIN
In 2000, the Company leased aircraft from an entity established for the sole purpose of acquiring
and leasing the aircraft. Under FIN 46, the lessor is a variable interest entity and the Company is
the primary beneficiary. Therefore, we have consolidated the lessor in our consolidated financial
statements. The aircraft financed through the lease facility has a carrying amount of $80 million,
with related nonrecourse debt of $75 million.
AN ENTERPRISE LEASES PROPERTY FROM A VIE, BUT THE ENTERPRISE IS NOT THE PRIMARY BENEFICIARY –
DISCLOSURES REQUIRED AFTER EFFECTIVE DATE OF FIN 46
In 2000, the Company entered into a lease of its distribution center in Des Moines, Iowa from a
special-purpose lessor established for the purpose of building and leasing the distribution center.
The Company purchased a residual value guarantee on the distribution center for the benefit of the
lessor and has guaranteed $14.0 million of the lessor’s debt. The term of the guarantee is the term
of the debt. The debt is payable over seven years with a balloon payment in 2007. At December 31,
2003, the outstanding balance of the debt is $12.0 million. The lease, which expires in 2007 and has
two subsequent five-year renewal options, is treated as an operating lease.