Aarons 2009 Annual Report Download - page 33

At December 31, 2009, there was a zero balance under our revolv-
ing credit agreement. At December 31, 2008, $35.0 million (bear-
ing interest at 1.37%) was outstanding under the revolving credit
agreement. The Company pays a .20% commitment fee on unused
balances. The weighted average interest rate on borrowings under
the revolving credit agreement was 1.23% in 2009, 3.66% in 2008
and 5.99% in 2007. The revolving credit agreement expires May
23, 2013.
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, 2009, $166.9 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 bore interest at a rate of 6.88%
per฀year.฀Quarterly฀interest฀only฀payments฀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 paid in
full by the Company upon their maturity on August 13, 2009.
On July 27, 2005, the Company sold $60.0 million in aggre-
gate principal amount of senior unsecured notes in a private
placement to a consortium of insurance companies. The notes
bear interest 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 related note
purchase agreement 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 revolving
credit facility. At December 31, 2009 there was $36.0 million
outstanding under the July 2005 senior unsecured notes.
At December 31, 2009, the fair value of fixed rate long-term
debt approximated its carrying value. The fair value of debt is
estimated using valuation techniques that consider risk-free bor-
rowing rates and credit risk.
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 total-
ing $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 $716,000. The transaction has been accounted for
as a financing in the accompanying consolidated financial state-
ments. 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 $556,000. 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, asso-
ciated depreciation expense and lease obligations are recorded in
the Company’s consolidated financial statements. No gain or loss
was recognized in 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, 2009 and 2008 includes
$3.3 million of industrial development corporation revenue bonds.
The weighted average borrowing rate on these bonds in 2009 was
0.66%. No principal payments are due on the bonds until maturity
in 2015.
Future maturities under the Company’s long-term debt and
capital lease obligations are as follows:
(In Thousands)
2010 $13,191
2011 13,333
2012 13,278
2013 1,399
2014 1,537
Thereafter 12,306
$55,044
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Following is a summary of the Company’s income tax expense for
the years ended December 31:
(In Thousands) 2009 2008 2007
Current Income Tax Expense (Benefit):
Federal $40,697 $(26,324) $49,409
State 7,832 5,062 6,107
48,529 (21,262) 55,516
Deferred Income Tax Expense (Benefit):
Federal 15,169 73,375 (10,070)
State (137) 1,698 (1,119)
15,032 75,073 (11,189)
$63,561 $53,811 $44,327
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