Aarons 2013 Annual Report Download - page 68

Download and view the complete annual report

Please find page 68 of the 2013 Aarons annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 86

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86

58
NOTE 8: COMMITMENTS AND CONTINGENCIES
Leases
The Company leases warehouse and retail store space for most of its operations under operating leases expiring at various times
through 2029. The Company also leases certain properties under capital leases that are more fully described in Note 6 to these
consolidated financial statements. Most of the leases contain renewal options for additional periods ranging from one to 20
years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain
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, 2013 are as follows:
(In Thousands)
2014 $ 113,067
2015 96,508
2016 75,024
2017 57,160
2018 43,225
Thereafter 143,583
$ 528,567
Rental expense was $110.0 million in 2013, $102.0 million in 2012 and $93.6 million in 2011. The amount of sublease income
was $2.6 million in 2013, $3.1 million in 2012 and $3.1 million in 2011. The Company has anticipated future sublease rental
income of $3.5 million in 2014, $3.0 million in 2015, $2.5 million in 2016, $2.2 million in 2017, $2.1 million in 2018 and
$5.6 million thereafter through 2026. Rental expense and sublease income are included in operating expenses.
Guarantees
The Company has guaranteed certain debt obligations of some of the franchisees under a franchise loan program with several
banks. In the event these franchisees are unable to meet their debt service payments or otherwise experience an event of default,
the Company would be unconditionally liable for the outstanding balance of the franchisees' debt obligations under the
franchisee loan program, which would be due in full within 90 days of the event of default. At December 31, 2013, the
maximum amount that the Company would be obligated to repay in the event franchisees defaulted was $105.0 million. The
Company has recourse rights to the assets securing the debt obligations, which consist primarily of lease merchandise and fixed
assets. As a result, the Company has never incurred, nor does management expect to incur, any significant losses under these
guarantees. The carrying amount of the franchise-related borrowings guarantee, which is included in accounts payable and
accrued expenses in the consolidated balance sheet, is approximately $2.5 million as of December 31, 2013.
On December 17, 2013, the Company entered into a seventh amendment to its second amended and restated loan facility and
guaranty, dated June 18, 2010, as amended, and the Company entered into a sixth amendment as of October 8, 2013. The
amendments to the franchise loan facility extended the maturity date of the franchise loan facility until December 11, 2014 and
changed the “Restricted Payments” negative covenant, which imposes certain restrictions on the amount of payments that can
be made in respect of dividends, distributions, redemptions and stock repurchases paid in cash, to make such covenant less
restrictive.
The maximum facility commitment amount under the franchise loan program is $200.0 million, including a Canadian
subfacility commitment amount for loans to franchisees that operate stores in Canada (other than in the Province of Quebec) of
Cdn $50 million. 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 and regulatory proceedings arising in the ordinary course of business.