Aarons 2004 Annual Report Download - page 30

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of such fiscal quarter. It also places other restrictions on
additional borrowings and requires the maintenance of
certain financial ratios. At December 31, 2004, $16.9 million
of retained earnings was available for dividend payments
and stock repurchases under the debt restrictions, and the
Company was in compliance with all covenants.
Senior Unsecured Notes — On August 14, 2002 the
Company sold $50.0 million in aggregate principal amount
of senior unsecured notes (the Notes) in a private placement
to a consortium of insurance companies. The Notes mature
August 13, 2009. Quarterly interest only payments at an
annual rate of 6.88% are due for the first two years followed
by annual $10,000,000 principal repayments plus interest
for the five years thereafter.
Capital Leases with Related Parties — In October and
November 2004 the Company sold 11 properties, including
leasehold improvements, to a separate limited liability corpo-
ration (“LLC”) controlled by a group of Company executives
and managers, including the Company’s chairman, chief
executive officer, and controlling shareholder. The LLC
obtained borrowings collateralized by the land and buildings
totaling approximately $6.8 million. The Company occupies
the land and buildings collateralizing the borrowings
under a 15-year term lease, with a five-year renewal at
the Company’s option, at an aggregate annual rental
of approximately $883,000. The transaction has been
accounted for as a financing in the accompanying consoli-
dated financial statements. The rate of interest implicit in
the leases is approximately 9.7%. Accordingly, the land
and buildings and the lease obligations are recorded in the
Company’s consolidated financial statements. No gain or
loss was recognized in this transaction.
In December 2002 the Company sold 11 properties,
including leasehold improvements, to a separate limited lia-
bility corporation (LLC) controlled by a group of Company
executives and managers, including the Company’s chairman,
chief executive officer, and controlling shareholder. The LLC
obtained borrowings collateralized by the land and buildings
totaling approximately $5.0 million. The Company occupies
the land and buildings collateralizing the borrowings under
a 15-year term lease at an aggregate annual rental of approx-
imately $702,000. The transaction has been accounted for
as a financing in the accompanying consolidated financial
statements. The rate of interest implicit in the leases is
approximately 11.1%. Accordingly, the land and buildings
and the lease obligations are recorded in the Company’s
consolidated financial statements. No gain or loss was
recognized in this transaction.
In April 2002 the Company sold land and buildings with
a carrying value of approximately $6.3 million to a limited
liability corporation (LLC) controlled by the Company’s
major shareholder. Simultaneously, the Company and the
LLC entered into a 15-year lease for the building and a por-
tion of the land, with two five-year renewal options at the
discretion of the Company. The LLC obtained borrowings
collateralized by the land and building totaling approximate-
ly $6.4 million. The Company occupies the land and building
collateralizing the borrowings under a 15-year term lease at
an aggregate annual rental of approximately $681,000. The
transaction has been accounted for as a financing in the
accompanying consolidated financial statements. The rate of
interest implicit in the lease financing is approximately 8.7%.
Accordingly, the land and building and the debt obligation
are recorded in the Company’s consolidated financial state-
ments. No gain or loss was recognized in this transaction.
Other Debt — Other debt at December 31, 2004 and 2003
includes $3.3 million of industrial development corporation
revenue bonds. The average weighted borrowing rate on
these bonds in 2004 was 1.41%. No principal payments are
due on the bonds until maturity in 2015. At December 31,
2004, other debt also includes a note payable for approxi-
mately $33,000 assumed by the Company in connection with
a store acquisition.
Future maturities under the Company’s Credit Facilities
are as follows:
(In Thousands)
2005 $10,591
2006 10,648
2007 56,286
2008 10,914
2009 11,005
Thereafter 17,211
Note E: Income Taxes
Following is a summary of the Company’s income tax
expense for the years ended December 31:
(In Thousands) 2004 2003 2002
Current Income Tax
Expense (Benefit):
Federal ($7,720) $16,506 ($11,431)
State (309) 1,415 (1,911)
(8,029) 17,921 (13,342)
Deferred Income Tax Expense:
Federal 35,967 3,220 26,209
State 3,952 276 3,345
39,919 3,496 29,554
$31,890 $21,417 $16,212
Significant components of the Company’s deferred income
tax liabilities and assets at December 31 are as follows:
(In Thousands) 2004 2003
Deferred Tax Liabilities:
Rental Merchandise and
Property, Plant & Equipment $101,577 $62,795
Other, Net 4,054 3,035
Total Deferred Tax Liabilities 105,631 65,830
Deferred Tax Assets:
Accrued Liabilities 4,948 4,250
Advance Payments 5,510 5,770
Other, Net 520
Total Deferred Tax Assets 10,458 10,540
Net Deferred Tax Liabilities $95,173 $55,290
The Company’s effective tax rate differs from the
statutory U.S. federal income tax rate for the years ended
December 31 as follows: