Aarons 2007 Annual Report Download - page 25

retail cost of sales as a percentage of retail sales remaining
stable at 66.2% for both periods. Retail cost of sales as a
percentage of retail sales in our sales and lease ownership
division decreased to 54.0% in 2007 from 58.7% in 2006 as a
result of the increase in retail sales prices mentioned above.
This decrease in the sales and lease ownership division was
offset by an increase in retail cost of sales as a percentage of
retail sales in our corporate furnishings division, to 75.5% in
2007 from 72.2% in 2006.
Cost of sales from non-retail sales increased 15.7%, to
$239.8 million in 2007 from $207.2 million in 2006, and as
a percentage of non-retail sales, decreased slightly to 91.7%
from 92.3%.
Expenses
Operating expenses in 2007 increased $94.8 million to
$674.4 million from $579.6 million in 2006, a 16.4%
increase. As a percentage of total revenues, operating
expenses were 45.1% in 2007 and 43.7% in 2006. Operating
expenses increased as a percentage of total revenues in
2007 mainly due to the adding of 266 company-operated
stores since the beginning of 2006.
Depreciation of rental merchandise increased $43.2
million to $407.3 million in 2007 from $364.1 million
during the comparable period in 2006, an 11.9% increase.
As a percentage of total rentals and fees, depreciation of
rental merchandise decreased slightly to 36.1% from 36.7%
a year ago.
Interest expense decreased to $8.5 million in 2007
compared with $9.7 million in 2006, a 12.8% decrease. The
decrease in interest expense was primarily due to lower debt
levels during the first half of 2007. Debt levels during the
first half of 2007 were lower as a result of debt payments
made with cash from operations.
Income tax expense increased $2.5 million to $48.6
million in 2007 compared with $46.1 million in 2006,
representing a 5.4% increase. Aaron Rents’ effective tax
rate was 37.7% in 2007 compared with 36.9% in 2006.
Net Earnings
Net earnings increased $1.6 million to $80.3 million in 2007
compared with $78.6 million in 2006, representing a 2.1%
increase. As a percentage of total revenues, net earnings
were 5.4% and 5.9% in 2007 and 2006, respectively. The
increase in net earnings was primarily the result of the
maturing of new company-operated sales and lease owner-
ship stores added over the past several years, contributing to
a 3.8% increase in same store revenues, and a 15.4% increase
in franchise royalties and fees. Additionally, included in other
revenues in 2007 was a $4.9 million gain from the sale of a
parking deck at the Company’s corporate headquarters and
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 located in the continental
United States.
Year Ended December 31, 2006 Versus Year Ended
December 31, 2005
The following table shows key selected financial data for the
years ended December 31, 2006 and 2005, and the changes
in dollars and as a percentage to 2006 from 2005.
23
Year Ended Year Ended Increase % Increase
December 31, December 31, in Dollars to 2006 to 2006
(In Thousands) 2006 2005 from 2005 from 2005
REVENUES:
Rentals and Fees $ 992,791 $ 845,162 $147,629 17.5%
Retail Sales 62,319 58,366 3,953 6.8
Non-Retail Sales 224,489 185,622 38,867 20.9
Franchise Royalties and Fees 33,626 29,781 3,845 12.9
Other 13,367 6,574 6,793 103.3
1,326,592 1,125,505 201,087 17.9
COSTS AND EXPENSES:
Retail Cost of Sales 41,262 39,054 2,208 5.7
Non-Retail Cost of Sales 207,217 172,807 34,410 19.9
Operating Expenses 579,565 507,158 72,407 14.3
Depreciation of Rental Merchandise 364,109 305,630 58,479 19.1
Interest 9,729 8,519 1,210 14.2
1,201,882 1,033,168 168,714 16.3
EARNINGS BEFORE INCOME TAXES 124,710 92,337 32,373 35.1
INCOME TAXES 46,075 34,344 11,731 34.2
NET EARNINGS $ 78,635 $ 57,993 $ 20,642 35.6%