Aarons 2011 Annual Report Download - page 22

during 2011 at a total purchase price of $127.2 million and have
authority to purchase 5,281,344 additional shares. The repurchases
in 2011 increased the diluted earnings per share by $.04.
We have a consistent history of paying dividends, having paid
dividends for 24 consecutive years. A $.0113 per share dividend
on our common shares 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 our common shares was paid in January
2010, April 2010, July 2010, and October 2010 for a total cash
outlay of $3.9 million. Our board of directors increased the divi-
dend 8.3% for the fourth quarter of 2010 on November 3, 2010 to
$.013 per share and the dividend was paid to holders of Common
Stock in January 2011. A $.013 per share dividend on Common
Stock was paid in April 2011, July 2011 and October 2011 for a
total cash outlay of $3.1 million. Our board of directors increased
the dividend 15.4% for the fourth quarter of 2011 on November
1, 2011 to $.015 per share and the dividend was paid to holders
of Common Stock in January 2012. Subject to sufficient operating
profits, any future capital needs and other contingencies, we cur-
rently 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 opera-
tions, 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 12 and 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 expe-
rience disruptions, 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 twelve months ended December 31,
2011, we made $11.0 million in income tax payments. Within the
next twelve months, we anticipate that we will make cash payments
for federal and state income taxes of approximately $141.0 million.
In September 2010 the Small Business Jobs Act of 2010 was enacted
and in December 2010, the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010 was enacted. As a
result of the bonus depreciation provisions in these acts, in 2010 we
made estimated payments greater than our anticipated 2010 federal
tax liability. We filed for a refund of overpaid federal tax of approxi-
mately $80.9 million 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
first-year depreciation deduction of 50% of the adjusted basis of
qualified property, such as our lease merchandise, placed in service
during those years. The Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010 allowed for deduc-
tion of 100% of the adjusted basis of qualified property for assets
placed in service after September 8, 2010 and before December
31, 2011. Accordingly, our cash flow benefited from having a
lower cash tax obligation which, in turn, provided additional cash
flow from operations. Because of our sales and lease ownership
model where the Company remains the owner of merchandise on
lease, we benefit more from bonus depreciation, relatively, than
traditional furniture, electronics and appliance retailers. In future
years, we anticipate having to make increased tax payments on
our earnings as a result of expected profitability and the reversal of
the accelerated depreciation deductions that were taken in 2011
and prior periods. We estimate that at December 31, 2011 the
remaining tax deferral associated with the acts described above is
approximately $240.0 million, of which approximately 70% will
reverse in 2012 and most of the remainder will reverse between
2013 and 2014.
Leases. We lease warehouse and retail store space for most of our
operations under operating leases expiring at various times through
2028. Most of the leases contain renewal options for additional peri-
ods ranging from one to 15 years or provide for options to purchase
the related property at predetermined purchase prices that do not
represent bargain purchase options. We also lease transportation and
computer equipment under operating leases expiring during the next
five years. We expect that most leases will be renewed or replaced
by other leases in the normal course of business. Approximate
future minimum rental payments required under operating leases
that have initial or remaining non-cancelable terms in excess of one
year as of December 31, 2011 are shown in the below table under
“Contractual Obligations and Commitments.”
We have 20 capital leases, 19 of which are with a limited liabil-
ity company (“LLC”) whose managers and owners are 10 officers
and one former officer of the Company of which there are seven
executive officers, with no individual, owning more than 13.33%
of the LLC. Nine of these related party leases relate to properties
purchased from us in October and November of 2004 by the LLC
for a total purchase price of $6.8 million. The LLC is leasing back
these properties to us for a 15-year term, with a five-year renewal
at our option, at an aggregate annual lease amount of $716,000.
Another ten of these related party leases relate to properties pur-
chased from us in December 2002 by the LLC for a total purchase
price of approximately $5.0 million. The LLC is leasing back these
properties to us for a 15-year term at an aggregate annual lease
of $556,000. We do not currently plan to enter into any similar
related party lease transactions in the future.
We finance a portion of our store expansion through sale-
leaseback transactions. The properties are generally sold at net
book value and the resulting leases qualify and are accounted for
as operating leases. We do not have any retained or contingent
interests in the stores nor do we provide any guarantees, other than
a corporate level guarantee of lease payments, in connection with
the sale-leasebacks. The operating leases that resulted from these
transactions are included in the table below.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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