Aarons 2006 Annual Report Download - page 34

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Notes to Consolidated Financial Statements
under these agreements, and all amounts would become
due immediately. The Company was in compliance with all of
these covenants at December 31, 2006. At December 31, 2006,
$96.5 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.
On December 18, 2005 the Company entered into an $18.0
million demand note as a means of temporary financing and
at December 31, 2005 $10.0 million was outstanding at a rate
of LIBOR plus 100 basis points.
SENIOR UNSECURED NOTES— On August 14, 2002, the
Company sold $50.0 million in aggregate principal amount of
senior unsecured notes in a private placement to a consortium
of insurance companies. The unsecured notes bear interest at a
rate of 6.88% per year and 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. The notes
were amended in July 2005 as a result of entry into a note
purchase agreement for an additional $60.0 million in senior
unsecured notes to the purchasers in a private placement. The
agreement was amended for the purpose of permitting the new
issuance of the notes and amending the negative covenants in
the revolving credit agreement.
On July 27, 2005, the Company entered into a note purchase
agreement with a consortium of insurance companies. Pursuant
to this agreement, the Company and its two subsidiaries as
co-obligors issued $60.0 million in senior unsecured notes to
the purchasers in a private placement. The notes bear interest at
a rate of 5.03% per year and mature on July 27, 2012. Interest
only payments are due quarterly for the first two years, followed
by annual $12 million principal repayments plus interest for the
five years thereafter. The $50.0 million note purchase agreement,
of which $30.0 million is outstanding as of December 31, 2006,
contains financial maintenance covenants, negative covenants
regarding the Company’s other indebtedness, its guarantees and
investments, and other customary covenants substantially similar
to the covenants in the Company’s note purchase agreement,
revolving credit facility, and its former construction and lease
facility, as modified by the amendments described herein.
CAPITAL LEASES WITH RELATED PARTIES— In October and
November 2004, the Company sold eleven properties, including
leasehold improvements, to a limited liability company (“LLC”)
controlled by a group of Company executives, including the
Company’s Chairman, Chief Executive Officer, and controlling
shareholder. 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 $883,000. The transac-
tion 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 ten 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 $572,000. 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,
associated depreciation expense, and lease obligations are
recorded in the Company’s consolidated financial statements.
No gain or loss was recognized in this transaction.
During 2006, a property sold by Aaron Rents to a second LLC
controlled by the Company’s major shareholder for $6.3 million
in April 2002 and leased back to Aaron Rents for a 15-year
term at an annual rental of $681,000 was sold to an unrelated
third party. The Company entered into a new capital lease with
the unrelated third party. No gain or loss was recognized on
this transaction.
LEASES — The Company finances a portion of store expansion
through sale-leaseback transactions. The properties are sold at
net book value and the resulting leases qualify and are accounted
for as operating leases. The Company does not have any retained
or contingent interests in the stores nor does the Company
provide any guarantees, other than a corporate level guarantee
of lease payments, in connection with the sale-leasebacks.
OTHER DEBT — Other debt at December 31, 2006 and 2005
includes $3.3 million of industrial development corporation
revenue bonds. The average weighted borrowing rate on these
bonds in 2006 was 3.60%. No principal payments are due on
the bonds until maturity in 2015.