Aarons 2007 Annual Report Download - page 29

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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.
We have 22 capital leases, 21 of which are with a limited
liability company (“LLC”) whose managers and owners are
13 Aaron Rents’ executive officers and its controlling
shareholder, with no individual, including the controlling
shareholder, owning more than 11.76% of the LLC. Eleven
of these related party leases relate to properties purchased
from Aaron Rents in October and November 2004 by the LLC
for a total purchase price of $6.8 million. This LLC is leasing
back these properties to Aaron Rents for a 15-year term, with
a five-year renewal at Aaron Rents’ option, at an aggregate
annual rental of $883,000. Another ten of these related
party leases relate to properties purchased from Aaron Rents
in December 2002 by the LLC for a total purchase price of
approximately $5.0 million. This LLC is leasing back these
properties to Aaron Rents for a 15-year term at an aggregate
annual rental of $572,000.
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. We entered into a new capital lease
with the unrelated third party. No gain or loss was recog-
nized on this transaction.
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 pro-
vide 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.
FRANCHISE LOAN GUARANTY. We have guaranteed the
borrowings of certain independent franchisees under a fran-
chise loan program with several banks and we also guarantee
franchisee borrowings under certain other debt facilities. At
December 31, 2007, the portion that the Company might
be obligated to repay in the event franchisees defaulted was
$108.6 million. Of this amount, approximately $77.4 million
represents franchisee borrowings outstanding under the
franchisee loan program and approximately $31.2 million
represents franchisee borrowings that we guarantee under
other debt facilities. However, due to franchisee borrowing
limits, we believe any losses associated with any defaults
would be mitigated through recovery of rental merchandise
and other assets. Since its inception in 1994, we have had
no significant losses associated with the franchisee loan and
guaranty program. The Company believes the likelihood of
any significant amounts being funded in connection with
these commitments to be remote.
We have no long-term commitments to purchase
mer chandise. See Note F to the Consolidated Financial
Statements for further information. The following table
shows our approximate contractual obligations, including
interest, and commitments to make future payments as of
December 31, 2007:
Period Less Period 2–3 Period 4–5 Period Over
(In Thousands) Total Than 1 Year Years Years 5 Years
Credit Facilities, Excluding Capital Leases $166,926 $105,610 $ 34,012 $24,003 $ 3,301
Capital Leases 18,906 1,091 2,421 2,786 12,608
Operating Leases 337,955 83,831 111,505 48,305 94,314
Total Contractual Cash Obligations $523,787 $190,532 $147,938 $75,094 $110,223
The following table shows the Company’s approximate commercial commitments as of December 31, 2007:
Period Less Period 2–3 Period 4–5 Period Over
(In Thousands) Total Than 1 Year Years Years 5 Years
Guaranteed Borrowings of Franchisees $108,632 $108,632 $ — $ — $ —