Aarons 2010 Annual Report Download - page 25

flows in each period presented. Proceeds from such sales were
$8.0 million in 2010, $32.0 million in 2009 and $22.7 million
in 2008. The amount of lease merchandise sold in these sales and
shown under investing activities was $4.5 million in 2010, $16.3
million in 2009 and $11.7 million in 2008. In addition, in 2008 the
proceeds from the sale of the Aaron’s Corporate Furnishings division
shown under investing activities were $76.4 million.
Our cash flows include profits on the sale of lease return mer-
chandise. Our primary capital requirements consist of buying lease
merchandise for sales and lease ownership stores. As we continue
to grow, the need for additional lease merchandise will remain
our major capital requirement. Other capital requirements include
purchases of property, plant and equipment and expenditures for
acquisitions. These capital requirements historically have been
financed through:
• cash flow from operations;
• bank credit;
• trade credit with vendors;
• proceeds from the sale of lease return merchandise;
• private debt offerings; and
• stock offerings.
At December 31, 2010, there was no outstanding balance under
our revolving credit agreement. The credit facilities balance decreased
by $13.3 million in 2010 primarily as a result of net payments made
on our senior unsecured notes during the period. Our revolving
credit facility expires May 23, 2013 and the total available credit on
the facility is $140.0 million.
We have $24.0 million currently outstanding in aggregate
principal amount of 5.03% senior unsecured notes due July 2012,
principal repayments of which were made in 2008, 2009 and
2010, and are due in equal $12.0 million annual installments
until maturity.
Our revolving credit agreement and senior unsecured notes,
and our franchisee loan program discussed below, contain certain
financial covenants. These covenants include requirements that we
maintain ratios of: (1) EBITDA plus lease expense to fixed charges
of no less than 2:1; (2) total debt to EBITDA of no greater than 3:1;
and (3) total debt to total capitalization of no greater than 0.6:1.
“EBITDA” in each case means consolidated net income before
interest and tax expense, depreciation (other than lease merchandise
depreciation) and amortization expense, and other non-cash charges.
The Company is also required to maintain a minimum amount of
shareholders’ equity. See the full text of the covenants in our credit
and guarantee agreements, which we have filed as exhibits to our
Securities and Exchange Commission reports, for the details of these
covenants and other terms. If
we fail to comply with these covenants, we will be in default
under these agreements, and all amounts would become due
immediately. We were in compliance with all of these covenants at
December 31, 2010 and believe that we will continue to be in com-
pliance in the future.
We purchase our stock in the market from time to time as
authorized by our board of directors. We repurchased 1,478,805
shares of Nonvoting Common Stock and no shares of Class A
Common Stock during 2010 and have authority to purchase
4,401,815 additional shares. We repurchased $28.0 million of
our stock in 2010.
We have a consistent history of paying dividends, having paid
dividends for 23 consecutive years. A $.0113 per share dividend
on Nonvoting Common Stock and Class A Common Stock was
paid in January 2009, April 2009, July 2009, and October 2009.
Our board of directors increased the dividend 6.2% for the fourth
quarter of 2009 on November 4, 2009 to $.012 per share and was
paid in December 2009. A $.012 per-share dividend on Nonvoting
Common Stock and Class A Common Stock was paid in April 2010,
July 2010 and November 2010. Our board of directors increased
the dividend 8.3% for the fourth quarter of 2010 to $.013 per share
and the fourth quarter dividend was paid in January 2011. Subject
to sufficient operating profits, any future capital needs and other
contingencies, we currently expect to
continue our policy of paying dividends.
If we achieve our expected level of growth in our operations,
we anticipate we will supplement our expected cash flows from
operations, existing credit facilities, vendor credit and proceeds
from the sale of lease return merchandise by expanding our existing
credit facilities, by securing additional debt financing, or by seeking
other sources of capital to ensure we will be able to fund our capital
and liquidity needs for at least the next 24 months. We believe we
can secure these additional sources of capital in the ordinary course
of business. However, if the credit and capital markets experience
disruptions like those that began in the second half of 2008, we
may not be able to obtain access to capital at as favorable costs as
we have historically been able to, and some forms of capital may
not be available at all.
Commitments
INCOME TAXES. During the 12 months ended December 31,
2010, we made $94.8 million in income tax payments. Within the
next 12 months, we anticipate that we will make cash payments for
state income taxes of approximately $9.0 million. The Small Business
Jobs Act of 2010 was enacted after we paid our third quarter esti-
mated federal tax. In December, the Tax Relief, Unemployment
Insurance Reauthorization, and Job Creation Act of 2010 was enact-
ed. As a result of the bonus depreciation provisions in these acts, we
have paid more than our anticipated 2010 federal tax liability. We
filed for a refund of overpaid federal tax of approximately $81.0 mil-
lion in January 2011 and received that refund in February 2011.
The Economic Stimulus Act of 2008, the American Recovery
and Reinvestment Act of 2009, and the Small Business Jobs Act
of 2010 provided for accelerated depreciation by allowing a bonus
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