Aarons 2005 Annual Report Download - page 35

33
Notes to Consolidated Financial Statements
land and building, associated depreciation expense, and the
debt obligation are recorded in the Company’s consolidated
financial statements. No gain or loss was recognized in
this transaction.
LEASES — The Company finances a portion of store expan-
sion through sale-leaseback transactions. The properties are
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, 2005 and
2004 includes $3.3 million of industrial development corpora-
tion revenue bonds. The average weighted borrowing rate on
these bonds in 2005 was 2.61%. 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)
2006 $20,647
2007 92,094
2008 22,915
2009 23,004
2010 13,116
Thereafter 40,097
Note E: Income Taxes
Following is a summaryof the Company’sincome tax
expense for the years ended December 31:
(In Thousands) 2005 2004 2003
Current Income Tax
Expense (Benefit):
Federal $50,064 ($7,720) $16,506
State 4,541 (309) 1,415
54,605 (8,029) 17,921
Deferred Income Tax
(Benefit) Expense:
Federal (17,751) 35,967 3,220
State (2,510) 3,952 276
(20,261) 39,919 3,496
$34,344 $31,890 $21,417
Significant components of the Company’s deferred income
tax liabilities and assets at December 31 are as follows:
(In Thousands) 2005 2004
Deferred Tax Liabilities:
Rental Merchandise and
Property, Plant and Equipment $81,388 $101,577
Other, Net 6,543 4,054
Total Deferred Tax Liabilities 87,931 105,631
Deferred Tax Assets:
Accrued Liabilities 4,915 4,948
Advance Payments 7,556 5,510
Other, Net 3,256 2,918
Total Deferred Tax Assets 15,727 13,376
Less Deferred Tax Valuation Allowance* (2,993) (2,918)
Net Deferred Tax Assets 12,734 10,458
Net Deferred Tax Liabilities $75,197 $95,173
*The Company has a net tax loss carryforward of $1.9 million which
expires on varying dates through December 31, 2012.
The Company’s effective tax rate differs from the statutory
U.S. federal income tax rate for the years ended December 31
as follows:
2005 2004 2003
StatutoryRate 35.0% 35.0% 35.0%
Increases in U.S. Federal
Taxes Resulting From:
State Income Taxes,
Net of Federal Income
Tax Benefit 2.2 2.8 2.0
Other, Net — (0.1) —
Effective Tax Rate 37.2% 37.7% 37.0%
Note F: Commitments
The Company leases warehouse and retail store space
for substantially all of its operations under operating leases
expiring at various times through 2019. The Company also
leases certain properties under capital leases that are more
fully described in Note D. Most of the leases contain renewal
options for additional periods ranging from one to 15 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.
The Company also has a $25.0 million construction and lease
facility.Properties acquired by the lessor are purchased or
constructed and then leased to the Company under operating