Aarons 2015 Annual Report Download - page 46

Dividends
We have a consistent history of paying dividends, having paid dividends for 28 consecutive years. Our annual common stock dividend was $.094 per share,
$.086 per share and $.072 per share in 2015, 2014 and 2013, respectively, and resulted in aggregate dividend payments of $6.8 million, $7.8 million and
$3.9 million in 2015, 2014 and 2013, respectively. At its November 2015 meeting, our Board of Directors increased the quarterly dividend by 8.7%, raising it
to $.025 per share. The Company also increased its quarterly dividend rate by 9.5%, to $.023 per share, in November 2014 and by 23.5%, to $.021 per share,
in November 2013. 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 12 to 24 months.
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Income Taxes. During the year ended December 31, 2015, we made $91.7 million in income tax payments, net of a $100 million refund. Within the next
twelve months, we anticipate that we will make cash payments for federal and state income taxes of approximately $51.0 million.
The American Taxpayer Relief Act of 2012 allowed for the deduction of 50% of the adjusted basis of qualified property for assets placed in service from
January 1, 2012 through the end of 2013. The Tax Increase Prevention Act of 2014 signed into law on December 20, 2014 extended bonus depreciation and
reauthorized work opportunity tax credits through the end of 2014. The Protecting Americans From Tax Hikes Act of 2015 (the 2015 Act) signed into law on
December 18, 2015 extended 50% bonus depreciation and reauthorized work opportunity tax credits through the end of 2019. As a result, the Company
applied for and received a $100 million quick refund from the Internal Revenue Service (the "IRS") for the 2014 tax year during January 2015, and a $120.0
million quick refund for the 2015 tax year during February 2016. 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, in which 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 may have to make increased tax payments on our earnings as a result of expected profitability and the elimination of the accelerated
depreciation deductions that were taken in 2015 and prior periods. While the 2015 Act extended bonus depreciation through 2019, not considering the
effects of bonus depreciation on future qualifying expenditures, we estimate that at December 31, 2015, the remaining tax deferral associated with the acts
described above is approximately $178.0 million, of which approximately 80% is expected to reverse in 2016 and most of the remainder during 2017 and
2018.
Leases. We lease warehouse and retail store space for most of our store-based operations, call center space, and management and information technology
space for corporate functions under operating leases expiring at various times through 2033. Most of the leases contain renewal options for additional periods
ranging from one to 20 years. We also lease transportation vehicles under operating leases which generally expire during the next four 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, 2015 are shown in the below table under
"Contractual Obligations and Commitments."
As of December 31, 2015, the Company had 19 remaining capital leases with a limited liability company ("LLC") controlled by a group of current and former
executives. In October and November 2004, the Company sold 11 properties, including leasehold improvements, to the LLC. The LLC obtained borrowings
collateralized by the land and buildings totaling $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 $788,000. 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 9.7%. Accordingly, the land and
buildings, associated depreciation expense and 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 10 properties, including leasehold improvements, to the LLC. The LLC obtained borrowings collateralized by the land
and buildings totaling $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 approximately $1.2 million. 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 10.1%. Accordingly, the land and buildings, associated depreciation expense and lease obligations
are recorded in the Company’s consolidated financial statements. No gain or loss was recognized in this transaction.
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