Aarons 2007 Annual Report Download - page 38

36
Notes to Consolidated Financial Statements
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
$572,000. The transaction has been accounted for as a
financing in the accompanying consolidated financial state-
ments. The rate of interest implicit in the leases is approxi-
mately 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.
During 2006, a property sold by Aaron Rents to a second
LLC controlled by the Company’s major shareholder for $6.3
million in April 2002 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. 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 expan-
sion through sale-leaseback transactions. The properties
are generally sold at net book value and the resulting leases
qualify and are accounted for as operating leases. The
Company does not have any retained or contingent interests
in the stores nor does the Company provide any guarantees,
other than a corporate level guarantee of lease payments, in
connection with the sale-leasebacks.
OTHER DEBT — Other debt at December 31, 2007 and 2006
includes $3.3 million of industrial development corporation
revenue bonds. The average weighted borrowing rate on
these bonds in 2007 was 3.79%. No principal payments are
due on the bonds until maturity in 2015.
Future maturities under the Company’s Credit Facilities
are as follows:
(In Thousands)
2008 $106,701
2009 23,170
2010 13,263
2011 13,419
2012 13,370
Thereafter 15,909
NOTE E: INCOME TAXES
Following is a summary of the Company’s income tax
expense for the years ended December 31:
(In Thousands) 2007 2006 2005
Current Income Tax
Expense (Benefit):
Federal $53,582 $25,453 $50,064
State 6,382 2,132 4,541
59,964 27,585 54,605
Deferred Income
Tax (Benefit) Expense:
Federal (10,214) 16,524 (17,751)
State (1,180) 1,966 (2,510)
(11,394) 18,490 (20,261)
$48,570 $46,075 $34,344
Significant components of the Company’s deferred income
tax liabilities and assets at December 31 are as follows:
(In Thousands) 2007 2006
Deferred Tax Liabilities:
Rental Merchandise and
Property, Plant and Equipment $ 91,823 $ 99,813
Other, Net 11,625 10,273
Total Deferred Tax Liabilities 103,448 110,086
Deferred Tax Assets:
Accrued Liabilities 6,586 5,053
Advance Payments 10,615 8,959
Other, Net 3,954 2,387
Total Deferred Tax Assets 21,155 16,399
Net Deferred Tax Liabilities $ 82,293 $ 93,687
The Company’s effective tax rate differs from the statutory
U.S. Federal income tax rate for the years ended December
31 as follows:
2007 2006 2005
Statutory Rate 35.0% 35.0% 35.0%
Increases in U.S. Federal Taxes
Resulting From:
State Income Taxes, Net of
Federal Income Tax Benefit 2.6 2.1 2.2
Other, Net .1 (.2) —
Effective Tax Rate 37.7% 36.9% 37.2%