Aarons 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 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 52

  • 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

2007
Annual Report
A
nn
Making Dreams Come True
one customer at a time
one c
u
u
s
tom
uu
s
s
ms Come
s Come

Table of contents

  • Page 1
    Making Dreams ms sm Come True e im t er at a one custo Annual Report Ann 2007

  • Page 2
    ... the sales and lease ownership business through the addition of new Company-operated stores by both internal expansion and acquisitions, as well as through our successful and expanding franchise program. Financial Highlights ...1 Letter to Shareholders ...2-3 The Aaron's Story ...4-18 Financial...

  • Page 3
    ... 43.0 10.9 12.0 STORES OPEN AT YEAR END Sales and Lease Ownership Sales and Lease Ownership Franchised* Corporate Furnishings Total Stores 1,014 484 62 1,560 845 441 59 1,345 20.0% 9.8 5.1 16.0% * Sales and Lease Ownership franchised stores are not owned or operated by Aaron Rents, Inc. Revenu 00...

  • Page 4
    ... 16% for the year. • The number of customers being served at our Company-operated and franchised Aaron's Sales & Lease Ownership stores increased 15% during the year to over 925,000, also a record. • We awarded area development agreements to open a record 182 new franchised stores, resulting in...

  • Page 5
    ...Second, Aaron's has established market leadership in serving our customers. We have moved consumer rental, sales and lease ownership products to Main Street America over the past two decades with our attractive and spacious stores and a wide range of high-quality brand-name furniture, appliances and...

  • Page 6
    ... televisions; laptop computers; high-efficiency washers and dryers; stainless steel refrigerators; bedroom, living room and dining room furniture; and much, much more. Our Aaron's Sales & Lease Ownership Company-operated and franchised stores serve over 925,000 customers in 48 states and Canada...

  • Page 7
    ... large purchase on a credit card, it takes me longer to pay off, and I end up paying more than I would getting the product from Aaron's. Plus, with leasing, I have the added benefit of warranties and service." Weathe "Weatherford is a suburban community about 20 miles west of Fort Worth, Texas. The...

  • Page 8
    ... tend to be younger families - most are 25-30 years old. I grew up in Columbus and have lived here most of my life except for college and opening a store for Aaron's in Albany, Georgia. I know my customers and know this market." - John Alexander, General Manager, Store F009 r "I have been in the...

  • Page 9
    ..., furniture, appliances and accessories. Key features of the Aaron's Sales & Lease Ownership model include: • Same or next-day delivery, free of charge • Flexible payment options (cash, check, credit and debit cards) • No application fees, no balloon payments, no credit reports • Monthly or...

  • Page 10
    .... Many of our customers are young families 25-27 years old. Often, they acquire a big-screen television or appliances first and then come back for additional merchandise. We do a great business in lawn tractors here. As a manager, I try to get involved in the community, and my store sponsors charity...

  • Page 11
    ... hounding me to pay that day. I know I paid a whole lot more money there than I would have at an Aaron's store. When the Aaron's store opened in Mattoon, I leased a sectional sofa. Since then, I have bought a computer, a laptop computer, bedroom furniture and a television set. There is no comparison...

  • Page 12
    ...of quality. Our stores are open six days a week and can be operated with less than 10 employees. Sixteen regional fulfillment centers enable the Company to minimize inventory at the store level while making possible same or next-day delivery service. A typical urban store will draw customers from up...

  • Page 13
    ... from Dublin, Georgia. Eastman is mostly agricultural, and the population is less than 6,000 people. My store opened in 2007, and business is going well. The competition in this market is rent-to-own as well as some traditional furniture stores. We have a big competitive advantage in that a customer...

  • Page 14
    ... credit-worthiness to shop other places, but we sell them on service and price. We can compete with furniture stores that offer 12 months of no interest. We are also one of the 20 top Aaron's stores in computer leases. We just are a big player in this market." - Robert Valls, General Manager, Store...

  • Page 15
    ... a customer for about a year. I was shopping for a laptop computer, and a friend recommended Aaron's. Since then, I have added a bedroom set and a television. I shopped around for both, but Aaron's had a better selection and a better deal. I didn't see what I had in mind on the showroom floor, but...

  • Page 16
    n, G 14

  • Page 17
    ... 80% of our customers pay by the month with the remainder paying semimonthly. The Company's centralized marketing produces a consistent message and brand image executed by an in-house advertising agency and delivered through national and local television advertising, direct mail, direct delivery of...

  • Page 18
    ... management focus. Aaron's Corporate Furnishings Division The Aaron's Corporate Furnishings division rents and sells new and rental return merchandise to businesses and individuals out of 46 stores in 16 states. In addition, the division operates 16 stores that specialize in office furnishings...

  • Page 19
    ... business under our 90 Day Same as Cash program. We compete with Rent-a-Center and several locally owned rental stores, but there are also two Wal-Mart stores in our region. We have been very successful in converting rent-to-own customers to our sales and lease ownership program by showing the price...

  • Page 20
    ... ...32-43 Management Report on Internal Control Over Financial Reporting ...44 Reports of Independent Registered Public Accounting Firm ...44-45 Aaron's Community Outreach Program Aaron's strives to be a good corporate citizen in our customers' communities through sponsorships, volunteer efforts...

  • Page 21
    ... 434,471 $425,567 111,118 700,288 116,655 375,178 $343,013 99,584 559,884 79,570 320,186 AT YEAR END Stores Open: Company-Operated Franchised Rental Agreements in Effect Number of Employees 1,076 484 965,000 9,600 904 441 773,000 8,400 806 392 697,000 7,600 674 357 582,000 6,400 560 287 464...

  • Page 22
    ... second year of operations following their opening. We also use our franchise program to help us expand our sales and lease ownership concept more quickly and into more areas than we otherwise would by opening only company-operated stores. Our franchisees added a net 43 stores in 2007. We purchased...

  • Page 23
    ... 31, 2006. Insurance Programs Aaron Rents maintains insurance contracts to fund workers compensation and group health insurance claims. Using actuarial analysis and projections, we estimate the liabilities associated with open and incurred but not reported workers compensation claims. This analysis...

  • Page 24
    ... in non-retail sales (which mainly represents merchandise sold to our franchisees), to $261.6 million in 2007 from $224.5 million in 2006, was due to the growth of our franchise operations and our distribution network. The total number of franchised sales and lease ownership stores at December...

  • Page 25
    ... of the maturing of new company-operated sales and lease ownership stores added over the past several years, contributing to a 3.8% increase in same store revenues, and a 15.4% increase in franchise royalties and fees. Additionally, included in other revenues in 2007 was a $4.9 million gain from...

  • Page 26
    ...of rental merchandise increased to 36.7% from 36.2% from a year ago. The increase as a percentage of rentals and fees was primarily due to increased depreciation expense associated with an increase in 90 day same as cash sales and the early payout of lease ownership agreements in our sales and lease...

  • Page 27
    ... General Cash flows generated from operating activities for the years ended December 31, 2007 and 2006 were $109.2 million and $75.0 million, respectively. Our primary capital requirements consist of buying rental merchandise for both sales and lease ownership and corporate furnishings stores...

  • Page 28
    ..., and other noncash charges. The Company is also required to maintain a minimum amount of shareholder's equity. See the full text of the covenants themselves in our credit and guarantee agreements, which we have previously filed as exhibits to our Securities and Exchange Commission reports, for the...

  • Page 29
    ... and leased back to Aaron Rents for a 15-year term at an annual rental of $681,000 was sold to an unrelated third party. We entered into a new capital lease with the unrelated third party. No gain or loss was recognized on this transaction. We finance a portion of our store expansion through sale...

  • Page 30
    ...are fulfilled by our vendors within short time horizons. We do not have significant agreements for the purchase of rental merchandise or other goods specifying minimum quantities or set prices that exceed our expected requirements for three months. RECENT ACCOUNTING PRONOUNCEMENTS In September 2006...

  • Page 31
    ...389 29,425 $979,606 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts Payable and Accrued Expenses Dividends Payable Deferred Income Taxes Payable Customer Deposits and Advance Payments Credit Facilities Total Liabilities Commitments and Contingencies Shareholders' Equity: Common Stock, Par Value $.50...

  • Page 32
    Consolidated Statements of Earnings (In Thousands, Except Per Share) Year Ended December 31, 2007 Year Ended December 31, 2006 Year Ended December 31, 2005 REVENUES Rentals and Fees Retail Sales Non-Retail Sales Franchise Royalties and Fees Other $1,126,812 54,518 261,584 38,803 13,194 1,494,911 36...

  • Page 33
    ...and Other Assets Change in Accounts Payable and Accrued Expenses Change in Accounts Receivable Excess Tax Benefits from Stock-Based Compensation Change in Other Assets Change in Customer Deposits Stock-Based Compensation Other Changes, Net Cash Provided by (Used by) Operating Activities $ 80,275 407...

  • Page 34
    ... and equipment. LINE OF BUSINESS - The Company is engaged in the business of renting and selling residential and office furniture, consumer electronics, appliances, computers, and other merchandise throughout the U.S. and Canada. The Company manufactures furniture principally for its sales and lease...

  • Page 35
    ...net book value of merchandise sold, primarily using specific identification in the sales and lease ownership division and first-in, first-out in the corporate furnishings division. It is not practicable to allocate operating expenses between selling and rental operations. SHIPPING AND HANDLING COSTS...

  • Page 36
    ...to the Company's employees. Estimates for these insurance reserves are made based on actual reported but unpaid claims and actuarial analyses of the projected claims run off for both reported and incurred but not reported claims. COMPREHENSIVE INCOME - For the years ended December 31, 2007, 2006 and...

  • Page 37
    ... of Company executives, including the Company's Chairman, Chief Executive Officer, and controlling shareholder. 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...

  • Page 38
    ... to Aaron Rents for a 15-year term at an annual rental of $681,000 was sold to an unrelated third party. The Company entered into a new capital lease with the unrelated third party. No gain or loss was recognized on this transaction. LEASES - The Company finances a portion of store expansion through...

  • Page 39
    ...payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2007, are as follows: NOTE H: STOCK OPTIONS The Company estimates the fair value for the options granted on the grant date using a Black-Scholes option-pricing model...

  • Page 40
    ...excess of recognized compensation expense be reported as financing cash flows, rather than as operating cash flow as required under prior guidance. Excess tax benefits of $789,000 were accordingly included in cash provided by financing activities for the year ended December 31, 2007. The related net...

  • Page 41
    ... the sale of rights to develop, own and operate Aaron's Sales and Lease Ownership stores. These fees are recognized as income when substantially all of the Company's obligations per location are satisfied, generally at the date of the store opening. Franchise fees and area development fees received...

  • Page 42
    ... its sales and lease ownership locations in Puerto Rico to an unrelated third party in the second quarter of 2006. The Company received $16.0 million in cash proceeds, recognized a $7.2 million gain, and disposed of goodwill of $1.0 million in conjunction with the 2006 sales. Franchised stores open...

  • Page 43
    ... a monthly payment basis with no credit requirements. The corporate furnishings division rents and sells residential and office furniture to businesses and consumers who meet certain minimum credit requirements. The Company's franchise operation sells and supports franchisees of its sales and lease...

  • Page 44
    ... are as follows: Year Ended December 31, 2007 Year Ended December 31, 2006 Year Ended December 31, 2005 (In Thousands) REVENUES FROM EXTERNAL CUSTOMERS: Sales and Lease Ownership Corporate Furnishings Franchise Other Manufacturing Elimination of Intersegment Revenues Cash to Accrual Adjustments...

  • Page 45
    ... the Company has sponsored professional driver Michael Waltrip's Aaron's Dream Machine in the NASCAR Busch Series. The sons of the president of the Company's sales and lease ownership division were paid by Mr. Waltrip's company as full time members of its team of drivers. In 2007 one driver raced in...

  • Page 46
    ... of the Company's internal control over financial reporting as of December 31, 2007. Report of Independent Registered Public Accounting Firm THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AARON RENTS, INC. We have audited the accompanying consolidated balance sheets of Aaron Rents, Inc. and...

  • Page 47
    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Aaron Rents, Inc. as of December 31, 2007 and December 31, 2006, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period...

  • Page 48
    ...fiscal years of the Company, the yearly percentage change in the cumulative total shareholder returns (assuming reinvestment of dividends) on the Company's Common Stock with that of the S&P SmallCap 600 Index and a Peer Group. For 2007, the Peer Group consisted of Rent-A-Center, Inc. The stock price...

  • Page 49
    ... United States and Canada Aaron Rents, Inc. Locations within the U.S. and Canada Store Count As Of December 31, 2006 Company Stores - 845 Franchise Stores - 441 Corporate Furnishings Stores - 59 Fulfillment Centers - 16 MacTavish Manufacturing - 12 Store Count 2007 Store Countas Asof OfDecember...

  • Page 50
    ...Air Lines, Inc. Leo Benatar (2) Principal, Benatar & Associates William K. Butler, Jr. President, Aaron's Sales & Lease Ownership Division Gilbert L. Danielson Executive Vice President, Chief Financial Officer, Aaron Rents, Inc. Earl Dolive Vice Chairman of the Board, Emeritus, Genuine Parts Company...

  • Page 51
    ... Street, Atlanta, Georgia 30303 Transfer Agent and Registrar SunTrust Bank, Atlanta Atlanta, Georgia General Counsel Kilpatrick Stockton LLP Atlanta, Georgia Stock Listing RNT Subsidiaries Aaron Investment Company 4005 Kennett Pike Greenville, Delaware 19807 (302) 888-2351 Aaron Rents Canada, ULC...

  • Page 52
    .E. y Rd., N ces Ferr a 77 P 3 . E -2 9 30 305 orgia 30 e G , ta n Atla 1-0011 (404) 23 .com ronrents www.aa