Aarons 2009 Annual Report Download - page 35

(In Thousands)
2010 $89,962
2011 71,743
2012 57,620
2013 45,940
2014 35,645
Thereafter 156,909
$457,819
The Company has guaranteed certain debt obligations of
some of the franchisees amounting to $128.8 million and $95.6
million at December 31, 2009 and 2008, respectively. Of this
amount, approximately $120.2 million represents franchise
borrowings outstanding under the franchise loan program and
approximately $8.6 million represents franchise borrowings
under other debt facilities at December 31, 2009. 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, signifi-
cant losses under these guarantees.
Rental expense was $88.1 million in 2009, $81.8 million in
2008, and $70.8 million in 2007.
At December 31, 2009, the Company had non-cancelable
commitments primarily related to certain advertising and mar-
keting programs of $23.0 million. Payments under these commit-
ments are scheduled to be $11.4 million in 2010, $11.4 million in
2011, and $200,000 in 2012.
The Company maintains a 401(k) savings plan for all its full-
time employees with at least one year of service 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 compensation. The
Company’s expense related to the plan was $844,000 in 2009,
$775,000 in 2008, and $806,000 in 2007.
The Company is a party to various claims and legal proceed-
ings arising in the ordinary course of business. Management
regularly assesses the Company’s insurance deductibles, analyzes
litigation information with the Company’s attorneys and evalu-
ates its loss experience. The Company also enters into various
contracts in the normal course of business that may subject it
to risk of financial loss if counterparties fail to perform their
contractual obligations.
The Company does not currently believe its exposure to
loss under any claims is probable, nor can the Company esti-
mate a range of amounts of loss that are reasonably possible.
Notwithstanding the foregoing, the Company is currently a party
to the following proceeding:
In Kunstmann et al v. Aaron Rents, Inc. pending in the United
States District Court, Northern District of Alabama (the “court”),
plaintiffs have alleged that the Company improperly classified
store general managers as exempt from the overtime provisions
of the Fair Labor Standards Act. Plaintiffs seek to recover unpaid
overtime compensation and other damages for all similarly situ-
ated general managers nationwide for the period January 25,
2007 to present. After initially denying plaintiffs’ class certifica-
tion motion in April 2009, the court ruled to conditionally certify
a plaintiff class in early 2010. The potential class is an estimated
2,600 individuals. Those individuals who affirmatively opt to
join the class may be required to travel at their own expense to
Alabama for discovery purposes and/or trial. The court’s class
certification ruling is procedural only and does not address the
merits of the plaintiffs’ claims.
The Company believes it has meritorious defenses to the
claims described above, and intends to vigorously defend itself
against it. However, this proceeding is still developing, and due
to inherent uncertainty in litigation and similar adversarial
proceedings, there can be no guarantee that the Company will
ultimately be successful in this proceeding, or in others to which
it is currently a party. Substantial losses from this proceeding
could have a material adverse impact upon the Company’s busi-
ness, financial position or results of operations. In addition, the
Company’s requirement to record or disclose potential losses
under generally accepted accounting principles could change
in the near term depending upon changes in facts and circum-
stances. The Company believes it has recorded an adequate
reserve for contingencies at December 31, 2009 and 2008.
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The Company held 6,265,331 shares in its treasury and was autho-
rized to purchase an additional 3,920,413 shares at December 31,
2009. 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
did not repurchase any shares of its capital stock on the open
market in 2009.
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 con-
verts into Class A Common Stock (voting). 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.
The Company has 1,000,000 shares of preferred stock autho-
rized. 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.
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The Company’s outstanding stock options are exercisable for the
Company’s Common Stock (non-voting). 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
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