Aarons 2008 Annual Report Download - page 35

most leases will be renewed or replaced by other leases in the
normal course of business.
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, 2008, are as follows:
(In Thousands)
2009 $ 86,832
2010 67,088
2011 48,008
2012 35,483
2013 26,995
Thereafter 132,146
The Company has guaranteed certain debt obligations of
some of the franchisees amounting to $95.6 million and $108.6
million at December 31, 2008 and 2007, respectively. Of this
amount, approximately $89.2 million represents franchise
borrowings outstanding under the franchise loan program and
approximately $6.4 million represents franchise borrowings
under other debt facilities at December 31, 2008. The Company
receives guarantee fees based on such franchisees’ outstanding
debt obligations, which it recognizes as the guarantee obliga-
tion is satisfied. The Company has recourse rights to the assets
securing the debt obligations. As a result, the Company has
never incurred any, nor does management expect to incur any,
significant losses under these guarantees.
Rental expense was $81.8 million in 2008, $70.8 million
in 2007, and $59.5 million in 2006.
At December 31, 2008, the Company had non-cancelable
commitments primarily related to certain advertising and
marketing programs of $30.3 million. Payments under these
commitments are scheduled to be $12.1 million in 2009, $9.7
million in 2010, and $8.5 million in 2011.
The Company maintains a 401(k) savings plan for all full-time
employees with at least one year of service with the Company
and who meet certain eligibility requirements. The plan allows
employees to contribute up to 10% of their annual compensation
with 50% matching by the Company on the first 4% of compen-
sation. The Company’s expense related to the plan was $775,000
in 2008, $806,000 in 2007, and $791,000 in 2006.
The Company is a party to various claims and legal proceed-
ings arising in the ordinary course of our business. The Company
regularly assesses the Company’s insurance deductibles, analyzes
litigation information with the Company’s attorneys and evalu-
ates the loss experience. The Company also enters into various
contracts in the normal course of business that may subject
the Company to risk of financial loss if counterparties fail to
perform their contractual obligations. The Company does not
believe the exposure to loss under any claims is probable nor
can the Company estimate a range of amounts of loss that are
reasonably possible. The Company’s requirement to record or
disclose potential losses under generally accepted account-
ing principles could change in the near term depending upon
changes in facts and circumstances.
Note G: Shareholders’ Equity
The Company held 6,853,006 common shares in its treasury and
was authorized to purchase an additional 3,920,413 shares at
December 31, 2008. The Company’s articles of incorporation
provide that no cash dividends may be paid on the Class A
Common Stock unless equal or higher dividends are paid on
the Common Stock. The Company repurchased 387,545 shares
of Common Stock in 2008.
If the number of the Class A Common Stock (voting) falls
below 10% of the total number of outstanding shares of the
Company, the Common Stock (non-voting) automatically
converts into Class A Common Stock. The Common Stock may
convert to Class A Common Stock in certain other limited
situations whereby a national securities exchange rule might
cause the Board of Directors to issue a resolution requiring
such conversion. Management considers the likelihood of any
conversion to be remote at the present time.
The Company has 1,000,000 shares of preferred stock
authorized. The shares are issuable in series with terms for
each series fixed by the Board and such issuance is subject to
approval by the Board of Directors. No preferred shares have
been issued.
Note H: Stock Options
The Company estimates the fair value for the options on the
grant date using a Black-Scholes option-pricing model. The
expected volatility is based on the historical volatility of the
Company’s Common Stock over the most recent period generally
commensurate with the expected estimated life of each respective
grant. The expected lives of options are based on the Company’s
historical option exercise experience. Forfeiture assumptions
are based on the Company’s historical forfeiture experience. The
Company believes that the historical experience method is the
best estimate of future exercise and forfeiture patterns currently
available. The risk-free interest rates are determined using the
implied yield currently available for zero-coupon U.S. government
issues with a remaining term equal to the expected life of the
options. The expected dividend yields are based on the approved
annual dividend rate in effect and current market price of the
underlying Common Stock at the time of grant. No assumption
for a future dividend rate increase has been included unless there
is an approved plan to increase the dividend in the near term.
The results of operations for the year ended December 31,
2008, 2007 and 2006 include $1.4 million, $1.9 million and
$3.5 million, respectively, in compensation expense related to
unvested grants. At December 31, 2008, there was $7.2 million
of total unrecognized compensation expense related to non-
vested stock options which is expected to be recognized over
a period of 4.8 years. Excess tax benefits of $1.8 million and
$789,000 are included in cash provided by financing activities
for the year ended December 31, 2008 and 2007, respectively.
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