Aarons 2010 Annual Report Download - page 24

Interest expense decreased to $4.3 million in 2009 compared
with $7.8 million in 2008, a 45.0% decrease. The decrease in
interest expense was due to lower debt levels during 2009.
Income tax expense increased $9.8 million to $63.6 million
in 2009, compared with $53.8 million in 2008, representing an
18.1% increase. Our effective tax rate decreased to 36.0% in 2009
from 38.6% in 2008 primarily related to the favorable impact of a
$2.3 million reversal of previously recorded liabilities for uncertain
tax positions due to expiration of statute of limitations.
Net Earnings from Continuing Operations
Net earnings from continuing operations increased $27.1 million
to $112.9 million in 2009 compared with $85.8 million in 2008,
representing a 31.6% increase. As a percentage of total revenues, net
earnings from continuing operations were 6.4% and 5.4% in 2009
and 2008, respectively. The increase in net earnings from continuing
operations was primarily the result of the maturing of new company-
operated sales and lease ownership stores added over the past several
years, contributing to an 8.1% increase in same store revenues, and a
17.6% increase in franchise royalties and fees.
Discontinued Operations
Loss from discontinued operations (which represents the loss from
the former Aaron’s Corporate Furnishings division), net of tax, was
$277,000 in 2009, compared to net earnings of $4.4 million in
2008. Included in the 2008 results is a $1.2 million pre-tax gain
on the sale of substantially all of the assets of the Aaron’s Corporate
Furnishings division to CORT Business Services Corporation in the
fourth quarter of 2008.
Balance Sheet
CASH AND CASH EQUIVALENTS. The Company’s cash balance
decreased to $72.0 million at December 31, 2010 from $109.7 mil-
lion at December 31, 2009. The decrease in our cash balance is due
to cash flow generated from operations, less cash used by investing
and financing activities of $37.7 million. For additional information,
refer to the “Liquidity and Capital Resources” section below.
LEASE MERCHANDISE, NET. The increase of $132.1 million
in lease merchandise, net of accumulated depreciation, to
$814.5 million at December 31, 2010 from $682.4 million at
December 31, 2009, is primarily the result of continued revenue
growth of new and existing company-operated stores, partially
offset by lower product costs.
PROPERTY, PLANT AND EQUIPMENT, NET. The decrease of
$10.3 million in property, plant and equipment, net of accumulated
depreciation, to $204.9 million at December 31, 2010 from $215.2
million at December 31, 2009, is primarily the result of sale-lease-
back transactions completed since December 31, 2009.
In addition, the Company recorded an impairment charge of
$3.0 million in 2009 related to various properties and land parcels
which have been reclassified as held for sale in all periods presented.
GOODWILL, NET. The $8.0 million increase in goodwill, to
$202.4 million on December 31, 2010 from $194.4 million on
December 31, 2009, is the result of a series of acquisitions of sales
and lease ownership businesses. During 2010, the Company acquired
a total of 30 stores. The aggregate purchase price for these asset
acquisitions totaled $17.9 million, with the principal tangible assets
acquired consisting of lease merchandise and certain fixtures and
equipment.
PREPAID EXPENSES AND OTHER ASSETS. Prepaid expenses
and other assets increased $86.9 million to $122.9 million at
December 31, 2010 from $36.1 million at December 31, 2009,
primarily as a result of an increase in prepaid income taxes.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES. The
increase of $35.9 million in accounts payable and accrued expenses,
to $213.1 million at December 31, 2010 from $177.3 million at
December 31, 2009, is primarily the result of fluctuations in the
timing of payments and greater purchases of lease merchandise.
DEFERRED INCOME TAXES PAYABLE. The increase of
$63.8 million in deferred income taxes payable to $227.5 million
at December 31, 2010 from $163.7 million at December 31, 2009
is primarily the result of bonus lease merchandise depreciation
deductions for tax purposes included in the Small Business
Jobs Act of 2010 and the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010.
CREDIT FACILITIES. The $13.3 million decrease in the amounts
we owe under our credit facilities to $41.8 million on December 31,
2010 from $55.0 million on December 31, 2009, primarily reflects
net payments in 2010 on our senior unsecured notes.
Liquidity and Capital Resources
General
Cash flows from continuing operations for the year ended
December 31, 2010 and 2009 were $49.3 million and $193.7
million, respectively. The decrease in cash flows from operating
activities is primarily related to higher 2010 tax payments and
greater purchases of lease merchandise.
Purchases of sales and lease ownership stores had a positive
impact on operating cash flows in each period presented. The posi-
tive impact on operating cash flows from purchasing stores occurs as
the result of lease merchandise, other assets and intangibles acquired
in these purchases being treated as an investing cash outflow. As
such, the operating cash flows attributable to the newly purchased
stores usually have an initial positive effect on operating cash flows
that may not be indicative of the extent of their contributions in
future periods. The amount of lease merchandise purchased in
acquisitions and shown under investing activities was $6.5 million in
2010, $9.5 million in 2009 and $28.5 million in 2008. Sales of sales
and lease ownership stores are an additional source of investing cash
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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