Aarons 2011 Annual Report Download - page 21

Deferred Income Taxes Payable. The increase of $59.5 million
in deferred income taxes payable to $287.0 million at December
31, 2011 from $227.5 million at December 31, 2010 is primarily
the result of bonus lease merchandise depreciation deductions for
tax purposes included in the Tax Relief, Unemployment Insurance
Reauthorization and Job Creation Act of 2010.
Credit Facilities. The $112.0 million increase in the amounts we
owe under our credit facilities, to $153.8 million on December 31,
2011 from $41.8 million on December 31, 2010, reflects net bor-
rowings under our note purchase agreement during 2011 primarily
to fund purchases of lease merchandise, acquisitions, real estate,
investments, working capital and repurchases of our Common Stock,
offset by regularly schedule payments.
LIQUIDITY AND CAPITAL RESOURCES
General
Cash flows from continuing operations for the year ended December
31, 2011, 2010 and 2009 were $307.2 million, $49.3 million and
$193.7 million, respectively, due to increases in cash flows from
operating activities. The $257.9 million increase in cash flows from
operating activities is primarily related to lower 2011 tax payments,
tax refunds and income from operations.
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 lease merchandise, other assets and intan-
gibles acquired in these purchases being treated as an investing
cash outflow. 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 lease
merchandise purchased in acquisitions of Aaron’s Sales & Lease
Ownership stores and shown under investing activities was $6.1
million in 2011, $6.5 million in 2010 and $9.5 million in 2009.
Sales of Sales and Lease Ownership stores are an additional source
of investing cash flows in each period presented. Proceeds from
such sales were $16.5 million in 2011, $8.0 million in 2010 and
$32.0 million in 2009. The amount of lease merchandise sold in
these sales and shown under investing activities was $8.9 million
in 2011, $4.5 million in 2010 and $16.3 million in 2009. The
amount of HomeSmart merchandise purchased in acquisitions
of sales and lease ownership stores and shown under investing
activities was $7.3 million in 2011. There were no purchases of
HomeSmart stores in 2010 and 2009 and no sales activity in 2011,
2010 or 2009.
Our cash flows include profits on the sale of lease return mer-
chandise. Our primary capital requirements consist of buying lease
merchandise for sales and lease ownership stores. As we continue
to grow, the need for additional lease merchandise will remain
our major capital requirement. Other capital requirements include
purchases of property, plant and equipment, expenditures for
acquisitions and income tax payments. These capital requirements
historically have been financed through:
• cash flow from operations;
• bank credit;
• trade credit with vendors;
• proceeds from the sale of lease return merchandise;
• private debt offerings; and
• stock offerings.
At December 31, 2011, there was no outstanding balance under our
revolving credit agreement. The credit facilities balance increased
by $112.0 million in 2011 primarily as a result of the addition of
senior unsecured notes in July 2011 and was offset by $12.0 million
in payments during the period for previously outstanding debt. Our
revolving credit facility expires May 23, 2013 and the total available
credit under the facility is $140.0 million.
We have $12.0 million currently outstanding in aggregate prin-
cipal amount of 5.03%, senior unsecured notes due July 2012.
On July 5, 2011, the Company entered into a note purchase
agreement with several insurance companies. Pursuant to this
agreement, the Company and its subsidiary, Aaron Investment
Company, as co-obligors issued $125.0 million in senior unsecured
notes to the purchasers in a private placement. The notes bear
interest at the rate of 3.75% per year and mature on April 27,
2018. Payments of interest are due quarterly, commencing July 27,
2011, with principal payments of $25.0 million each due annually
commencing April 27, 2014.
Our revolving credit agreement and senior unsecured notes,
and our franchisee loan program discussed below, contain certain
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 consolidated net income
before interest and tax expense, depreciation (other than lease
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 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,
2011 and believe that we will continue to be in compliance in
the future.
We purchase our stock in the market from time to time as
authorized by our board of directors. In May 2011, the Board of
Directors approved and authorized the repurchase of an additional
5,955,204 shares of Common Stock over the previously authorized
repurchase amount of 4,044,796 shares, increasing the total num-
ber of our shares of Common Stock authorized for repurchase to
10,000,000. We repurchased 5,075,675 shares of Common Stock 19