Aarons 2009 Annual Report Download - page 21

Revenues
The 14.2% increase in total revenues, to $1.593 billion in 2008
from $1.395 billion in 2007, was due mainly to a $132.9 million,
or 12.7%, increase in lease revenues and fees, plus a $47.7 million
increase in non-retail sales. The $132.9 million increase in lease
revenues and fees was attributable to our sales and lease owner-
ship division, which had a 3.1% increase in same store revenues
during the 24 month period ended December 31, 2008 and added
192 company-operated stores since the beginning of 2007.
The 24.9% increase in revenues from retail sales, to $43.2
million in 2008 from $34.6 million in 2007, was due to increased
demand in our sales and lease ownership division.
The 18.3% increase in non-retail sales (which mainly repre-
sents merchandise sold to our franchisees), to $309.3 million
in 2008 from $261.6 million in 2007, was due to the growth
of our franchise operations and our distribution network. The
total number of franchised sales and lease ownership stores at
December 31, 2008 was 504, reflecting a net addition of 63
stores since the beginning of 2007.
The 16.0% increase in franchise royalties and fees, to $45.0
million in 2008 from $38.8 million in 2007, primarily reflects an
increase in royalty income from franchisees, increasing 22.4%
to $36.5 million in 2008 compared to $29.8 million in 2007.
The increase is due primarily to the growth in the number of
franchised stores and same store growth in the revenues in their
existing stores.
The 15.5% increase in other revenues, to $16.4 million in
2008 from $14.2 million in 2007, is primarily due to an increase
in the gain on store sales in 2008. Included in other revenues
in 2008 is an $8.5 million gain from the sales of the assets of
41 stores. Included in other revenues in 2007 are a $2.7 million
gain on the sales of the assets of 11 stores and a $4.9 million
gain from the sale of a parking deck at the Company’s corporate
headquarters.
Cost of Sales
Cost of sales from retail sales increased 24.4% to $26.4 million
in 2008 compared to $21.2 million in 2007, with retail cost of
sales as a percentage of retail sales remaining stable at 61.1% and
61.3%, respectively, for the comparable periods.
Cost of sales from non-retail sales increased 18.2%, to $283.4
million in 2008 from $239.8 million in 2007, and as a percentage
of non-retail sales, was consistent at 91.6% in 2008 and 91.7%
in 2007.
Expenses
Operating expenses in 2008 increased $88.5 million to $705.6 mil-
lion from $617.1 million in 2007, a 14.3% increase.
As a percentage of total revenues, operating expenses were
44.3% for the year ended December 31, 2008 and 44.2% for the
comparable period in 2007. 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 lease merchandise increased $38.4 mil-
lion to $429.9 million in 2008 from $391.5 million during the
comparable period in 2007, a 9.8% increase. As a percentage of
total lease revenues and fees, depreciation of lease 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 inter-
est 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’s 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 royal-
ties 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 substantially all of the assets 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.
Balance Sheet
CASH AND CASH EQUIVALENTS. The Company’s cash balance
increased to $109.7 million at December 31, 2009 from $7.4
million at December 31, 2008. The increase in our cash balance
is due to cash flow generated from operations, less cash used by
investing and financing activities of $102.6 million. For additional
information, refer to the “Liquidity and Capital Resources” section
below.
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