Aarons 2015 Annual Report Download - page 78

Download and view the complete annual report

Please find page 78 of the 2015 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 134

  • 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
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134

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,
2015 are as follows:

2016 $ 112,134
2017 95,553
2018 79,167
2019 65,342
2020 52,636
Thereafter 135,209
$ 540,041
Rental expense was $116.5 million in 2015, $116.4 million in 2014 and $110.0 million in 2013. Rental expense for the year ended December 31, 2014
included $4.8 million related to the closure of 44 Company-operated stores in 2014, as discussed in Note 10 to these consolidated financial statements. These
costs were included in the line item "Restructuring expenses" in the consolidated statements of earnings. All other rental expense was included as a
component of operating expenses in the consolidated statements of earnings.
Sublease income was $4.6 million in 2015, $3.9 million in 2014 and $2.6 million in 2013. The Company has anticipated future sublease rental income of
$5.1 million in 2016, $4.5 million in 2017, $4.0 million in 2018, $3.1 million in 2019, $2.0 million in 2020 and $3.6 million thereafter through 2025.
Sublease income is included in other revenues in the consolidated statements of earnings.
Guarantees
The Company has guaranteed certain debt obligations of some of the franchisees under a franchise loan program with several banks. On December 4, 2015,
the Company amended the third amended and restated loan facility to, among other things, extend the maturity date to December 8, 2016.
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, 2015, the maximum amount that the Company would be obligated to repay in the event franchisees
defaulted was $81.0 million. The Company has recourse rights to franchisee assets securing the debt obligations, which consist primarily of lease
merchandise and fixed assets. Since the inception of the franchise loan program in 1994, the Company has had no significant associated losses. The
Company believes the likelihood of any significant amounts being funded in connection with these commitments to be remote. The carrying amount of the
franchise-related borrowings guarantee, which is included in accounts payable and accrued expenses in the consolidated balance sheets, is approximately
$863,000 as of December 31, 2015.
The maximum facility commitment amount under the franchise loan program is $175.0 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. The Company remains 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.
Some of the proceedings to which the Company is currently a party are described below. The Company believes it has meritorious defenses to all of the
claims described below, and intends to vigorously defend against the claims. However, these proceedings are still developing and due to the inherent
uncertainty in litigation, regulatory and similar adversarial proceedings, there can be no guarantee that the Company will ultimately be successful in these
proceedings, or in others to which it is currently a party. Substantial losses from these proceedings or the costs of defending them could have a material
adverse impact upon the Company's business, financial position and results of operations.
The Company establishes an accrued liability for legal and regulatory proceedings when it determines that a loss is both probable and the amount of the loss
can be reasonably estimated. The Company continually monitors its litigation and regulatory exposure and reviews the adequacy of its legal and regulatory
reserves on a quarterly basis in accordance with applicable accounting rules. The amount of any loss ultimately incurred in relation to matters for which an
accrual has been established may be higher or lower than the amounts accrued for such matters.
77