Aarons 2014 Annual Report Download - page 48

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During 2013, earnings before income taxes decreased $91.9 million, or 33.2% from $276.9 million in 2012. In 2013, the results
of the Company's operating segments were impacted by the following items:
• Other segment loss before income taxes included $28.4 million related to an accrual for loss contingencies for the
then-pending regulatory investigation by the California Attorney General and $4.9 million related to retirement
expense and a change in vacation policies.
In 2012, the results of the Company's operating segments were impacted by the following items:
• Sales and Lease Ownership earnings before income taxes included a $35.5 million reversal of a previously accrued
lawsuit loss contingency.
• Other segment loss before income taxes included $10.4 million in retirement charges associated with the retirement of
the Company’s founder and Chairman of the Board.
Income Tax Expense
Income tax expense decreased $20.8 million to $43.5 million in 2014, compared with $64.3 million in 2013, representing a
32.4% decrease due primarily to a 34.2% decrease in earnings before income taxes in 2014. Our effective tax rate increased to
35.7% in 2014 from 34.8% in 2013 as a result of decreased tax benefits related to the Company's furniture manufacturing
operations and reduced federal credits.
Income tax expense decreased $39.5 million to $64.3 million in 2013, compared with $103.8 million in 2012, representing a
38.1% decrease due to a 33.2% decrease in earnings before income taxes in 2013 and a lower tax rate in 2013. Our effective tax
rate decreased to 34.8% in 2013 from 37.5% in 2012 due to the recognition of income tax benefits primarily related to the
Company's furniture manufacturing operations and increased federal and state tax credits being applied to lower than expected
earnings.
Net Earnings
Net earnings decreased $42.4 million to $78.2 million in 2014 from $120.7 million in 2013, representing a 35.2% decrease. As
a percentage of total revenues, net earnings were 2.9% and 5.4% in 2014 and 2013, respectively.
Net earnings decreased $52.4 million to $120.7 million in 2013 from $173.0 million in 2012, representing a 30.3% decrease. As
a percentage of total revenues, net earnings were 5.4% and 7.8% in 2013 and 2012, respectively.
Overview of Financial Position
The Company’s consolidated balance sheet as of December 31, 2014 includes the impact of Progressive, which was acquired
on April 14, 2014. The major changes in the consolidated balance sheet from December 31, 2013 to December 31, 2014,
substantially all of which are the result of this significant acquisition, are as follows:
• Cash and cash equivalents decreased $227.5 million due primarily to the Company's use of approximately
$693.1 million in cash on hand to partially finance the $700.0 million Progressive acquisition. Refer to “Liquidity and
Capital Resources” below and Note 2 to the consolidated financial statements for further details regarding this
transaction.
• Investments decreased $91.1 million due to the sale of the Company's corporate bonds as a result of the Progressive
acquisition.
• Lease merchandise increased $217.3 million due primarily to the consolidation of Progressive's lease merchandise of
$227.1 million as of December 31, 2014.
• Goodwill increased $291.5 million due primarily to the addition of estimated Progressive-related goodwill of
$289.2 million. Refer to Note 2 to the consolidated financial statements for further details regarding the acquisition
accounting of this transaction.
• Other intangible assets increased $293.9 million due primarily to recording the estimated fair value of identifiable
Progressive-related intangible assets of $325.0 million. Refer to Note 2 to the consolidated financial statements for
further details regarding the acquisition accounting of this transaction.