Aarons 2008 Annual Report Download - page 33

The revolving credit agreement contains financial covenants
which, among other things, forbid the Company from exceeding
certain debt to equity levels and require the maintenance of
minimum fixed charge coverage ratios. If the Company fails to
comply with these covenants, the Company will be in default
under these agreements, and all amounts could become due
immediately. At December 31, 2008, $97.4 million of retained
earnings was available for dividend payments and stock repur-
chases under the debt restrictions, and the Company was in
compliance with all covenants.
SENIOR UNSECURED NOTES — On August 14, 2002, the Company
sold $50.0 million in aggregate principal amount of senior unse-
cured 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% were 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 agree-
ment. At December 31, there was $48.0 million outstanding under
these senior unsecured notes.
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 inter-
est at a rate of 5.03% per year and mature on July 27, 2012.
Interest only payments were 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 $10.0 million is outstanding as of
December 31, 2008, contains financial maintenance covenants,
negative covenants regarding the Company’s other indebted-
ness, its guarantees and investments, and other customary cov-
enants substantially similar to the covenants in the Company’s,
revolving credit facility, and other note purchase agreement,
as modified by the amendments described herein.
CAPITAL LEASES WITH RELATED PARTIES — In October and
November 2004, the Company sold eleven properties, includ-
ing leasehold improvements, to a limited liability company
(“LLC”) controlled by a group of Company executives, including
the Company’s Chairman and controlling shareholder. The LLC
obtained borrowings collateralized by the land and buildings
totaling $6.8 million. The Company occupies the land and build-
ings 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 transaction has been accounted
for as a financing in the accompanying consolidated financial
statements. The rate of interest implicit in the leases is approxi-
mately 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 accom-
panying 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.
SALE-LEASEBACKS — The Company finances a portion of 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. 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, 2008 and 2007
includes $3.3 million of industrial development corporation rev-
enue bonds. The average weighted borrowing rate on these bonds
in 2008 was 2.50%. No principal payments are due on the bonds
until maturity in 2015.
Future maturities under the Company’s Credit Facilities are
as follows:
(In Thousands)
2009 $58,856
2010 13,264
2011 13,419
2012 13,370
2013 1,514
Thereafter 14,394
31