Aarons 2008 Annual Report Download - page 23

Our revolving credit agreement and senior unsecured notes,
and our franchisee loan program discussed below, contain cer-
tain 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 consoli-
dated net income before interest and tax expense, depreciation
(other than rental 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 themselves 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, 2008
and believe that we will continue to be in compliance in
the future.
Purchases of sales and lease ownership stores had a positive
impact on operating cash flows in each period presented. The
positive impact on operating cash flows from purchasing stores
occurs as the result of rental merchandise acquired in these
purchases being treated as an investing cash outflow rather
than as an operating cash outflow as occurs with our normal
rental merchandise purchases. As such, the operating cash flows
attributable to the newly purchased stores usually have an
initial positive effect on operating cash flows that may not be
indicative of the extent of their contributions in future periods.
The amount of rental merchandise purchased in these acquisi-
tions and shown under investing activities was $28.5 million in
2008, $20.4 million in 2007 and $13.3 million in 2006.
Sales of sales and lease ownership stores are an additional
source of investing cash flows in each period presented.
Proceeds from such sales were $22.7 million in 2008, $6.9
million in 2007 and $16.0 million in 2006. The amount of rental
merchandise sold in these sales and shown under investing
activities was $11.7 million in 2008, $3.5 million in 2007 and
$6.6 million in 2006.
We purchase our common shares in the market from time to
time as authorized by our board of directors. We repurchased
387,545 shares during 2008 and have authority remaining to
purchase 3,920,413 shares.
We have a consistent history of paying dividends, having
paid dividends for 21 consecutive years. A $.015 per share
dividend on Common Stock and Class A Common Stock was paid
in January 2007, April 2007, July 2007, and October 2007 for a
total cash outlay of $3.2 million in 2007. Our board of directors
increased the dividend 6.7% for the fourth quarter of 2007 to
$.016 per share from the previous quarterly dividend of $.015
per share. A $.016 per share dividend on Common Stock and
Class A Common Stock was paid in January 2008, April 2008,
July 2008, and October 2008 for a total cash outlay of $3.4
million in 2008. Our board of directors increased the dividend
6.3% for the fourth quarter of 2008 on November 5, 2008 to
$.017 per share from the previous quarterly dividend of $.016
per share. The payment for the fourth quarter was paid in
January 2009. 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 rental 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 market disruptions that began in the second half
of 2008 continue for an extended period, or if they deteriorate
further, 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 2008, we made $29.2 million in income
tax payments. During 2009, we anticipate that we will make
cash payments for income taxes approximating $14 million.
The Company benefited from the Economic Stimulus Act of 2008
as bonus depreciation was available on our assets nationwide
and tax payments were reduced for one year. The Company will
also benefit from the American Recovery and Reinvestment Act
of 2009 as bonus depreciation will be available on its assets
nationwide and tax payments will be reduced for one year.
In future years we anticipate having to make increased tax
payments on our income as a result of expected profitability
and the reversal of the accelerated depreciation deductions
that were taken in prior periods.
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 periods 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.
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