Aarons 2012 Annual Report Download - page 45

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Liquidity and Capital Resources
General
Cash flows from operations for the years ended December 31, 2012, 2011 and 2010 were $59.8 million, $307.2 million,
and $49.3 million, respectively. The $247.4 million decrease in cash flows from operating activities in 2012 is due, in
part, to the approximate $102.1 million change in income tax receivable, primarily due to the enactment of tax
legislation in 2010 that resulted in overpayments of federal income taxes in 2010 for which we received approximately
$80.9 million in refunds in 2011. In September 2010 the Small Business Jobs Act of 2010 was enacted and in December
2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was enacted. As a result
of the bonus depreciation provisions in these acts, in 2010 we made estimated payments greater than our anticipated
2010 federal tax liability.
The 2012 decrease in cash flows from operating activities also includes $82.7 million in reduced deferred income taxes,
$81.8 million in decreased non-cash litigation expense, substantially due to the Alford v. Aarons Rents, Inc. et al case
previously discussed, and a net $47.9 million increase in lease merchandise, net of the effects of acquisitions and
dispositions, partially offset by a $59.3 million increase in net earnings.
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 intangibles 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 $11.6 million in
2012, $6.1 million in 2011 and $6.5 million in 2010. Sales of Sales and Lease Ownership stores are an additional
source of investing cash flows in each period presented. Proceeds from such sales were $2.6 million in 2012, $16.5
million in 2011 and $8.0 million in 2010. The amount of lease merchandise sold in these sales and shown under
investing activities was $1.4 million in 2012, $8.9 million in 2011 and $4.5 million in 2010. The amount of HomeSmart
merchandise purchased in acquisitions of sales and lease ownership stores and shown under investing activities was
$427,000 in 2012 and $7.3 million in 2011. There were no purchases of HomeSmart stores in 2010 and no sales
activity in 2012, 2011 or 2010.
Our cash flows include profits on the sale of lease return merchandise. 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, 2012, there was no outstanding balance under our revolving credit agreement. The credit facilities
balance decreased by $12.0 million in 2012, reflecting the repayment at maturity of the remaining $12.0 million 5.03%
senior unsecured notes due July 2012. Our revolving credit facility was amended on December 13, 2012 and extends
the maturity date until December 13, 2017. The amendment to the Company’s revolving credit agreement is discussed
in further detail in Note 6 to our Consolidated Financial Statements. The total available credit under the facility as of
December 31, 2012 is $140.0 million.
On December 19, 2012, the Company entered into Amendment No. 1 to a note purchase agreement with several
insurance companies. The amendment amends the Note Purchase Agreement dated as of July 5, 2011, pursuant to
which the Company and its subsidiaries, Aaron Investment Company, Aaron’s Production Company and 99LTO, LLC,
as co-obligors, issued $125 million in senior unsecured notes to the purchasers in a private placement. The notes bear