Aarons 2012 Annual Report Download - page 70

60
revolving credit agreement. The Company pays a commitment fee on unused balances, which ranges from 0.15% to
0.30% as determined by the Company’s ratio of total debt to EBITDA.
The revolving credit agreement, senior unsecured notes discussed below and franchise loan program discussed in
Note 8 contain financial covenants which, among other things, prohibit the Company from exceeding certain debt to
EBITDA 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. Under the Company’s revolving credit agreement, senior unsecured notes and franchise loan
program, the Company may pay cash dividends in any year only if the dividends do not exceed 50% of our
consolidated net earnings for the prior fiscal year plus the excess, if any, of the cash dividend limitation applicable to
the prior year over the dividend actually paid in the prior year. At December 31, 2012, $137.6 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 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 interest at the rate of 3.75% per year and mature on April 27, 2018.
The amendment amends the agreement to, among other things, (i) remove the ―Total Adjusted Debt to Total
Adjusted Capitalization Ratio‖ financial covenant that forbids the Company from exceeding certain debt to equity
levels and (ii) increase the dollar thresholds applicable to certain negative covenants, events of default and reporting
and notice requirements to make them less restrictive. The Company remains subject to certain other financial
covenants under the senior unsecured notes agreement, which require the Company to maintain a minimum ratio of
debt to earnings before interest, taxes, depreciation and amortization and a minimum fixed charge coverage ratio. If
the Company fails to comply with these covenants, the Company will be in default under the agreement and the
purchasers would have the right to exercise certain default remedies. The Company entered into the amendment in
conjunction with its fourth amendment to the Credit Agreement, which is discussed above. We are in compliance
with all of these covenants at December 31, 2012 and believe that we will continue to be in compliance in the future.
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 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 existing note purchase agreement,
revolving credit facility and franchise loan and guaranty facility, as modified.
During July 2012, the Company repaid at maturity the aggregate remaining principal amount of $12.0 million on the
5.03% senior unsecured notes issued on July 27, 2005 and due on July 27, 2012.
Capital Leases with Related Parties
In October and November 2004, the Company sold 11 properties, including leasehold improvements, to a limited
liability company (―LLC‖) controlled by a group of Company executives, including the Company’s former
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 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, associated depreciation expense and lease obligations are recorded in the Company’s consolidated
financial statements. No gain or loss was recognized in this transaction.