Aarons 2012 Annual Report Download - page 73

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purchase options. In addition, certain properties occupied under operating leases contain normal purchase options.
Leasehold improvements related to these leases are generally amortized over periods that do not exceed the lesser of
the lease term or 15 years. While a majority of leases do not require escalating payments, for the leases which do
contain such provisions, the Company records the related lease expense on a straight-line basis over the lease term.
The Company also leases transportation and computer equipment under operating leases expiring during the next
five years. Management expects that most leases will be renewed or replaced by other leases in the normal course of
business.
Future minimum lease payments required under operating leases that have initial or remaining non-cancelable terms
in excess of one year as of December 31, 2012 are as follows:
(In Thousands)
2013
$ 110,244
2014
96,242
2015
78,560
2016
57,822
2017
42,922
Thereafter
162,103
$ 547,893
Rental expense was $102.0 million in 2012, $93.6 million in 2011 and $96.1 million in 2010. The amount of
sublease income is $3.1 million in 2012, $3.1 million in 2011 and $2.8 million in 2010. The Company has
anticipated future sublease rental income of $4.0 million in 2013, $3.4 million in 2014, $2.8 million in 2015, $2.4
million in 2016, $2.2 million in 2017 and $7.7 million thereafter through 2025. Rental expense and sublease income
are included in operating expenses.
Guarantees
The Company has guaranteed certain debt obligations of some of the franchisees amounting to $117.3 million and
$128.8 million at December 31, 2012 and 2011, respectively, under a franchise loan program with several banks.
The Company has recourse rights to the assets securing the debt obligations, which consist primarily of lease
merchandise inventory and fixed assets. As a result, the Company has never incurred any, nor does management
expect to incur, any significant losses under these guarantees. The Company has estimated the fair value of the
franchise-related borrowings guarantee to approximate $2.6 million, which is included in accounts payable and
accrued expenses in the consolidated balance sheet as of December 31, 2012.
On December 13, 2012, the Company entered into a fifth amendment to its second amended and restated loan
facility and guaranty, dated June 18, 2010, as amended, and the Company entered into a fourth amendment as of
May 16, 2012. The amendments to the franchise loan facility extended the maturity date of the franchise loan
facility until December 12, 2013, increased the maximum Canadian subfacility commitment amount for loans to
franchisees that operate stores in Canada (other than in the Province of Quebec) from Cdn $35 million to Cdn $50
million, included a revolving loan option for Canadian borrowers, included HomeSmart franchisees in the United
States as authorized borrowers under the facility and conformed the covenants to those contained in the Company’s
revolving credit agreement, which is discussed in further detail in Note 6. We remain subject to the financial
covenants under the franchise loan facility.
Legal Proceedings
From time to time, the Company is party to various legal proceedings arising in the ordinary course of business.
While we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately
have a material adverse impact upon our business, financial position or results of operations, there can be no
assurance that we will prevail in all the proceedings we are party to, or that we will not incur material losses from
them. Some of the proceedings we are currently a party to are described below.
In Alford v. Aaron Rents, Inc. et al originally filed in the U.S. District Court for the Southern District of Illinois
(No.: 3:08-MJR-DGW-683) on October 2, 2008, plaintiff alleged, among other claims, that she was sexually
harassed and subjected to retaliation, in violation of Title VII of the Civil Rights Act of 1964, by a general manager
of a Company store. Based on the judgment in the June 14, 2011 jury verdict (as reduced by the court), the
Company recorded a charge of $36.5 million in the second quarter of 2011, which represented an accrual for the
judgment and associated legal fees and expenses of $41.5 million, less insurance coverage of $5.0 million. On