Aarons 2006 Annual Report Download - page 23

21
BALANCE SHEET
CASH. The Company’s cash balance increased to $8.8 million
at December 31, 2006 from $7.0 million at December 31, 2005.
Fluctuations in our cash balances are the result of timing differ-
ences between when our stores deposit cash and when that cash
is available for application against borrowings outstanding under
our revolving credit facility. For additional information, refer to
the “Liquidity and Capital Resources” section below.
RENTAL MERCHANDISE. The increase of $61.2 million in rental
merchandise, net of accumulated depreciation, to $612.1 million
at December 31, 2006 from $550.9 million at December 31,
2005, is primarily the result of a net increase of 98 company-
operated stores since December 31, 2005 and the continued
revenue growth of existing company-operated stores.
PROPERTY, PLANT AND EQUIPMENT. The increase of $36.5
million in property, plant and equipment, net of accumulated
depreciation, to $170.3 million at December 31, 2006 from
$133.8 million at December 31, 2005, is primarily the result
of a net increase of 98 company-operated stores since December
31, 2005.
GOODWILL AND OTHER INTANGIBLES. The $14.4 million
increase in goodwill and other intangibles, to $115.4 million
on December 31, 2006 from $101.1 million on December 31,
2005, is the result of a series of acquisitions of sales and lease
ownership businesses, net of amortization of certain finite-life
intangible assets. The aggregate purchase price for these asset
acquisitions totaled $32.4 million, with the principal tangible
assets acquired consisting of rental merchandise and certain
fixtures and equipment. Additionally, during 2006 we sold the
assets of 12 stores located in Puerto Rico and reduced goodwill
by $1.0 million in conjunction with this sale.
PREPAID EXPENSES AND OTHER ASSETS. Prepaid expenses
and other assets increased $6.5 million to $29.4 million at
December 31, 2006 from $23.0 million at December 31, 2005
primarily as a result of an increase in prepaid workers
compensation insurance.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES. The increase
of $8.2 million in accounts payable and accrued expenses, to
$121.0 million at December 31, 2006 from $112.8 million at
December 31, 2005, is primarily the result of an increase in
current income taxes payable.
DEFERRED INCOME TAXES PAYABLE. The increase of $18.5
million in deferred income taxes payable to $93.7 million at
December 31, 2006 from $75.2 million at December 31, 2005
is primarily the result of accelerated rental merchandise
depreciation deductions for tax purposes.
CREDIT FACILITIES AND SENIOR NOTES. The $81.9 million
decrease in the amounts we owe under our credit facilities to
$130.0 million on December 31, 2006 from $211.9 million on
December 31, 2005, reflects net payments under our revolving
credit facility during 2006 with cash generated from operations
and our 2006 stock offering. Additionally, we made a $10.0
million repayment on our senior unsecured notes in the third
quarter of 2006.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Cash flows generated from and (used by) operating activities
for the years ended December 31, 2006 and 2005 were $75.0
million and $(6.5) million, respectively. Our primary capital
requirements consist of buying rental merchandise for both
sales and lease ownership and corporate furnishings stores. As
Aaron Rents continues to grow, the need for additional rental
merchandise will continue to be our major capital requirement.
Other capital requirements include purchases of property, plant
and equipment and expenditures for acquisitions. These capital
requirements historically have been financed through:
• cash flow from operations;
• bank credit;
• trade credit with vendors;
• proceeds from the sale of rental return merchandise;
• private debt offerings; and
• stock offerings.
In May 2006, we completed an underwritten public offering
of 3.45 million newly-issued shares of our common stock for
net proceeds, after the underwriting discount and expenses, of
approximately $84.0 million. We used the proceeds to repay
borrowings under our revolving credit facility. The Company’s
Chairman, Chief Executive Officer and controlling shareholder
sold an additional 1,150,000 shares in the offering.
At December 31, 2006, $15.6 million was outstanding under
our revolving credit agreement. The credit facilities balance
decreased by $81.9 million in 2006 primarily as a result of net
payments made under our credit facility during the period with
cash generated from operations and proceeds from the stock
offering in the second quarter of 2006. We renegotiated our
revolving credit agreement on February 27, 2006, extending
the life of the agreement until May 28, 2008 and increasing the
total available credit to $140.0 million. We have $30.0 million
currently outstanding in aggregate principal amount of 6.88%
senior unsecured notes due August 2009, the first principal
repayments for which were due and paid in 2005 in the
aggregate amount of $10.0 million, with annual $10.0 million
repayments due until August 2009. Additionally, we have
$60.0 million currently outstanding in aggregate principal
amount of 5.03% senior unsecured notes due July 2012,
principal repayments for which are first required in 2008.
Our revolving credit agreement, senior unsecured notes, and
the former construction and lease facility and franchisee loan
program discussed below, contain financial covenants which,
among other things, forbid us from exceeding certain debt to
equity levels and require us to maintain minimum fixed charge
coverage ratios. If we fail to comply with these covenants, we