Aarons 2006 Annual Report Download - page 21

With respect to our major operating units, revenues for
our sales and lease ownership division increased 19.5%, to
$1.201 billion for 2006 from $1.005 billion for 2005. This
increase was attributable to the addition of stores and same
store revenue growth described above. The 4.7% increase in
corporate furnishings division revenues, to $123.0 million for
2006 from $117.5 million for 2005, is primarily the result of
improving economic and business conditions.
COST OF SALES
Cost of sales from retail sales increased 5.7% to $41.3 million
in 2006 compared to $39.1 million in 2005, with retail cost of
sales as a percentage of retail sales remaining comparable
between the periods.
Cost of sales from non-retail sales increased 19.9%, to $207.2
million in 2006 from $172.8 million in 2005, and as a percentage
of non-retail sales, decreased slightly to 92.3% from 93.1%.
EXPENSES
Operating expenses in 2006 increased $72.4 million to $579.6
million from $507.2 million in 2005, a 14.3% increase. As a
percentage of total revenues, operating expenses were 43.7%
in 2006 and 45.1% in 2005. Operating expenses decreased
as a percentage of total revenues in 2006 mainly due to the
maturing of new company-operated sales and lease ownership
stores and the 7.2% increase in same store revenues previously
mentioned. Additionally, operating expenses in 2005 included
$2.5 million in expenses, net of $1.9 million of insurance
recoveries, related to losses due to Hurricanes Katrina and Rita.
Depreciation of rental merchandise increased $58.5 million
to $364.1 million in 2006 from $305.6 million during the
comparable period in 2005, a 19.1% increase. As a percentage
of total rentals and fees, depreciation of rental merchandise
increased to 36.7% from 36.2% from year to year. 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 ownership division and, to a lesser extent,
a greater percentage of our rentals and fees revenues coming
from our sales and lease ownership division, which depreciates
its rental merchandise at a faster rate than our corporate
furnishings division.
Interest expense increased to $9.7 million in 2006 compared
with $8.5 million in 2005, a 14.2% increase. The increase in
interest expense was primarily due to higher debt levels during
part of 2006 and, to a lesser extent, higher interest rates in
2006. Debt levels at December 31, 2006 decreased significantly
as a result of debt payments made with the proceeds of the
Company’s 2006 stock offering.
Income tax expense increased $11.7 million to $46.1 million
in 2006 compared with $34.3 million in 2005, representing a
34.2% increase. Aaron Rents’ effective tax rate was 36.9% in
2006 compared with 37.2% in 2005.
NET EARNINGS
Net earnings increased $20.6 million to $78.6 million in 2006
compared with $58.0 million in 2005, representing a 35.6%
increase. As a percentage of total revenues, net earnings were
5.9% and 5.2% in 2006 and 2005, respectively. The increase
in net earnings was primarily the result of the maturing of new
company-operated sales and lease ownership stores added over
the past several years, contributing to a 7.2% increase in same
store revenues, and a 12.9% increase in franchise royalties and
fees. Additionally, included in other revenues in 2006 was a $7.2
million gain from the sale of the assets of our 12 stores located
in Puerto Rico and three additional stores in the continental
United States. Also included in the 2005 results are increased
expenses and losses due to Hurricanes Katrina and Rita.
Year Ended Year Ended Increase/ % Increase/
December 31, December 31, (Decrease) in Dollars (Decrease) to
(In Thousands) 2005 2004 to 2005 from 2004 2005 from 2004
REVENUES:
Rentals and Fees $ 845,162 $694,293 $150,869 21.7%
Retail Sales 58,366 56,259 2,107 3.7
Non-Retail Sales 185,622 160,774 24,848 15.5
Franchise Royalties and Fees 29,781 25,253 4,528 17.9
Other 6,574 9,901 (3,327) (33.6)
1,125,505 946,480 179,025 18.9
COSTS AND EXPENSES:
Retail Cost of Sales 39,054 39,380 (326) (0.8)
Non-Retail Cost of Sales 172,807 149,207 23,600 15.8
Operating Expenses 507,158 414,518 92,640 22.3
Depreciation of Rental Merchandise 305,630 253,456 52,174 20.6
Interest 8,519 5,413 3,106 57.4
1,033,168 861,974 171,194 19.9
EARNINGS BEFORE INCOME TAXES 92,337 84,506 7,831 9.3
INCOME TAXES 34,344 31,890 2,454 7.7
NET EARNINGS $ 57,993 $ 52,616 $ 5,377 10.2%
YEAR ENDED DECEMBER 31, 2005 VERSUS YEAR ENDED
DECEMBER 31, 2004
The following table shows key selected financial data for the years ended December 31, 2005 and 2004, and the changes in dollars
and as a percentage to 2005 from 2004.
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