Aarons 2008 Annual Report Download - page 20

Expenses
Operating expenses in 2008 increased $88.5 million to $705.6
million from $617.1 million in 2007, a 14.3% increase. Operating
expenses increased slightly as a percentage of total revenues in
2008 mainly due to the addition of 192 company-operated stores
since the beginning of 2007.
Depreciation of rental merchandise increased $38.4 million to
$429.9 million in 2008 from $391.5 million during the compa-
rable period in 2007, a 9.8% increase. As a percentage of total
rentals and fees, depreciation of rental merchandise decreased
to 36.5% from 37.4% a year ago, primarily due to product mix
and lower product cost from favorable purchasing trends.
Interest expense increased to $7.8 million in 2008 compared
with $7.6 million in 2007, a 3.0% increase. The increase in
interest expense was primarily due to higher debt levels on
average throughout 2008.
Income tax expense increased $9.5 million to $53.8 million
in 2008 compared with $44.3 million in 2007, representing
a 21.4% increase. Aaron Rents’ effective tax rate was 38.6%
in 2008 compared with 37.6% in 2007 due to higher state
income taxes.
Net Earnings from Continuing Operations
Net earnings from continuing operations increased $12.3 million
to $85.8 million in 2008 compared with $73.4 million in 2007,
representing a 16.8% increase. As a percentage of total revenues,
net earnings from continuing operations were 5.4% and 5.3% in
2008 and 2007, respectively. The increase in net earnings from
continuing operations 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 3.1% increase in
same store revenues, and a 16.0% increase in franchise royalties
and fees. Additionally, included in other revenues in 2008 is
an $8.5 million gain on the sales of company-operated stores.
Included in other revenues in 2007 are a $2.7 million gain on the
sales of company-operated stores and a $4.9 million gain from the
sale of a parking deck at the Company’s corporate headquarters.
Discontinued Operations
Earnings from discontinued operations (which represents earnings
from the former Aaron’s Corporate Furnishings division), net of
tax, were $4.4 million in 2008, compared to $6.9 million in 2007.
Included in the 2008 results is a $1.2 million pre-tax gain on the
sale of the Aaron’s Corporate Furnishings division in the fourth
quarter of 2008. Operating results in the fourth quarter of 2008
declined significantly from announcement of the transaction until
the sale was consummated on November 6, 2008.
Year Ended December 31, 2007 Versus
Year Ended December 31, 2006
The Aaron’s Corporate Furnishings division is reflected as a
discontinued operation for all periods presented. The following
table shows key selected financial data for the years ended
December 31, 2007 and 2006, and the changes in dollars and
as a percentage to 2007 from 2006.
Year Ended Year Ended Increase/(Decrease) % Increase/
December 31, December 31, in Dollars to 2007 (Decrease) to
(In Thousands) 2007 2006 from 2006 2007 from 2006
Revenues:
Rentals and Fees $1,045,804 $ 915,872 $ 129,932 14.2%
Retail Sales 34,591 40,102 (5,511) (13.7)
Non-Retail Sales 261,584 224,489 37,095 16.5
Franchise Royalties and Fees 38,803 33,626 5,177 15.4
Other 14,157 14,358 (201) (1.4)
1,394,939 1,228,447 166,492 13.6
Costs and Expenses:
Retail Cost of Sales 21,201 25,207 (4,006) (15.9)
Non-Retail Cost of Sales 239,755 207,217 32,538 15.7
Operating Expenses 617,106 525,980 91,126 17.3
Depreciation of Rental Merchandise 391,538 349,218 42,320 12.1
Interest 7,587 8,567 (980) (11.4)
1,277,187 1,116,189 160,998 14.4
Earnings From Continuing
Operations Before Income Taxes 117,752 112,258 5,494 4.9
Income Taxes 44,327 41,355 2,972 7.2
Net Earnings From Continuing
Operations 73,425 70,903 2,522 3.6
Earnings From Discontinued
Operations, Net of Tax 6,850 7,732 (882) (11.4)
Net Earnings $ 80,275 $ 78,635 $ 1,640 2.1%
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