Aarons 2011 Annual Report Download - page 34

certain debt to equity levels and require the maintenance of mini-
mum 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, 2011, $140.1 million of retained earnings was
available for dividend payments and stock repurchases under
the debt restrictions, and the Company was in compliance with
all covenants.
Senior Unsecured Notes — 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. The new note purchase agreement con-
tains 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 existing note purchase agreement, revolving credit
facility and franchisee loan and guaranty facility, as modified.
On July 27, 2005, the Company sold $60.0 million in
aggregate 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 $12.0 million principal repayments plus inter-
est for the five years thereafter. The related note purchase agree-
ment 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, 2011 and 2010, there was $12.0 million and $24.0
million outstanding under the July 2005 senior unsecured notes,
respectively.
Capital Leases with Related Parties — In October and November
2004, the Company sold 11 properties, including leasehold improve-
ments, to a limited liability company (“LLC”) controlled by a group
of Company executives, including the Company’s Chairman. The
LLC obtained borrowings collateralized by the land and buildings
totaling $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 statements. 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 borrow-
ings 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 state-
ments. The rate of interest implicit in the leases is approximately
11.1%. Accordingly, the land and buildings, associated deprecia-
tion 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 guar-
antee of lease payments, in connection with the sale-leasebacks.
Other Debt — Other debt at December 31, 2011 and 2010 includes
$3.3 million of industrial development corporation revenue bonds.
The weighted-average borrowing rate on these bonds in 2011 was
0.38%. 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)
2012 $ 19,258
2013 6,886
2014 31,833
2015 35,145
2016 31,756
Thereafter 65,184
$190,062
NOTE E:
INCOME TAXES
Following is a summary of the Company’s income tax expense for
the years ended December 31:
(In Thousands) 2011 2010 2009
Current Income Tax Expense:
Federal $ — $ — $40,697
State 9,797 8,932 7,832
9,797 8,932 48,529
Deferred Income Tax Expense (Benefit):
Federal 62,015 64,679 15,169
State (2,202) (1,201) (137)
59,813 63,478 15,032
$69,610 $72,410 $63,561
e
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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