Aarons 2007 Annual Report Download - page 27

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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 owner-
ship 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.
Balance Sheet
CASH. The Company’s cash balance decreased to $5.2 mil-
lion at December 31, 2007 from $8.8 million at December
31, 2006. Fluctuations in our cash balances are the result of
timing differences 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 $11.3 million in
rental merchandise, net of accumulated depreciation, to
$623.5 million at December 31, 2007 from $612.1 million at
December 31, 2006, is primarily the result of a net increase
of 169 company-operated stores since December 31, 2006
and the continued revenue growth of existing company-
operated stores.
PROPERTY, PLANT AND EQUIPMENT. The increase of $76.7
million in property, plant and equipment, net of accumulated
depreciation, to $247.0 million at December 31, 2007 from
$170.3 million at December 31, 2006, is primarily the result
of a net increase of 169 company-operated stores since
December 31, 2006.
GOODWILL. The $31.2 million increase in goodwill, to
$143.3 million on December 31, 2007 from $112.0 million
on December 31, 2006, is the result of a series of acquisi-
tions of sales and lease ownership businesses. During 2007,
the Company acquired a net of 51 stores. The aggregate
purchase price for these asset acquisitions totaled $57.3
million, with the principal tangible assets acquired consisting
of rental merchandise and certain fixtures and equipment.
OTHER INTANGIBLES. The $1.4 million increase in other
intangibles, to $4.8 million on December 31, 2007 from $3.4
million on December 31, 2006, is the result of acquisitions of
sales and lease ownership businesses mentioned above, net
of amortization of certain finite-life intangible assets.
PREPAID EXPENSES AND OTHER ASSETS. Prepaid expenses
and other assets increased $7.9 million to $37.3 million at
December 31, 2007 from $29.4 million at December 31,
2006, primarily as a result of an increase in prepaid workers
compensation insurance.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES. The
increase of $20.0 million in accounts payable and accrued
expenses, to $141.0 million at December 31, 2007 from
$121.0 million at December 31, 2006, is primarily the result
of an increase in current income taxes payable.
DEFERRED INCOME TAXES PAYABLE. The decrease of
$11.4 million in deferred income taxes payable to $82.3 mil-
lion at December 31, 2007 from $93.7 million at December
31, 2006 is primarily the result of the slow down of rental
merchandise inventory growth during 2007.
CREDIT FACILITIES AND SENIOR NOTES. The $55.9 million
increase in the amounts we owe under our credit facilities to
$185.8 million on December 31, 2007 from $130.0 million
on December 31, 2006, reflects net borrowings under
our revolving credit facility during 2007 primarily to fund
purchases of rental merchandise, acquisitions, and working
capital. Additionally, we made a $10.0 million repayment on
our senior unsecured notes in the third quarter of 2007.
LIQUIDITY AND CAPITAL RESOURCES
General
Cash flows generated from operating activities for the
years ended December 31, 2007 and 2006 were $109.2
million and $75.0 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 offer-
ing 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 pro-
ceeds to repay borrowings under our revolving credit facility.
The Company’s Chairman, Chief Executive Officer and con-
trolling shareholder sold an additional 1,150,000 shares in
the offering.
At December 31, 2007, $82.9 million was outstanding
under our revolving credit agreement. The credit facilities
balance increased by $67.3 million in 2007 primarily as a
result of net borrowings made under our credit facility during
the period. We renegotiated our revolving credit agreement