Aarons 2002 Annual Report Download

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Rewards of
Reaping the
2002 Annual Report
Growth

Table of contents

  • Page 1
    Reaping the Growth 2002 Annual Report Rewards of

  • Page 2
    aron Rents, Inc. is the leading U.S. company engaged in the combined businesses of the rental, sales and lease ownership, and specialty retailing of residential and office furniture, consumer electronics, household appliances, and accessories, with more than 700 stores in 43 states and Puerto Rico. ...

  • Page 3
    ...,967 11.01 26.1% 3.6 2.3 5.8 21.8% 22.5 (5.7) 27.5 17.3 Sales & Lease Ownership Sales & Lease Ownership Franchised Sight & Sound Rent-to-Rent Total Stores 387 232 25 70 714 364 209 75 648 6.3% 11.0 (6.7) 10.2% REVENUES BY YEAR $700,000 NET EARNINGS BY YEAR $30,000 600,000 25,000 500,000 20...

  • Page 4
    ... year with the Aaron's Sales & Lease Ownership store count increasing 12%, on top of a 26% increase the previous year. The Company ended the year with 714 stores in 43 states and Puerto Rico, including 232 franchised stores, as well as 70 stores in the Rent-to-Rent division. • We had a record year...

  • Page 5
    ...record year of production in 2002, manufacturing more than $55 million (at cost) in furniture for our stores. In addition, we now operate 11 distribution centers in the Aaron's Sales & Lease Ownership division, having added four new locations in 2002 (in Arizona, Tennessee, Oklahoma, and Puerto Rico...

  • Page 6
    ... for his service and for his contributions to the success of Aaron Rents. We also note with great sadness the death this February of Lt. General M. Collier Ross, a valued Board member for seven years. We will miss his wise counsel and warm friendship. We strengthened our management team in 2002 with...

  • Page 7
    ...'s Sales & Lease Ownership concept, the Company can reach a broader market of lease ownership, credit retail and rental customers. Aaron's offers quality products at fair prices and sets the standard of customer service for the rent-to-own industry. This Aaron's concept is well-positioned to address...

  • Page 8
    ... application fees, and no balloon payments. Terms are fully disclosed: cash and carry price; monthly payment; and total cost under the lease ownership plan. The payment options include cash, check, and credit cards. With the Aaron Sales & Lease Ownership concept, the Company can now service a broad...

  • Page 9
    ... in the retailing industry. During 2001, Aaron's Sales & Lease Ownership added a total of 101 Company-operated stores and an additional 23 Company-operated stores in 2002. This aggressive expansion penalizes earnings in the early years as a new store does not typically reach breakeven until its...

  • Page 10
    ..., creating cost benefits that are passed on to customers. Aaron's also relies on 11 distribution centers located in key regions of the country, enabling stores to provide same-day or next-day delivery, another competitive edge. Aaron's Sales & Lease Ownership offers its "Dream Products" on the...

  • Page 11
    ... equal to the existing store base of 232 franchise store locations at year-end 2002. A key indication of franchisee satisfaction is that approximately half of the new stores awarded in 2002 were to existing franchisees. The Aaron's Sales & Lease Ownership franchise program has attracted a variety of...

  • Page 12
    ... and representatives of the Company, are the key vehicles for communication and cross-fertilization. Aaron's leadership in franchising is confirmed through annual surveys of franchise programs. For years, Aaron's has placed at or near the top in its category of appliance and furniture rentals by...

  • Page 13
    ..., or lease ownership. In addition to in-office consultation and an array of new products, Aaron's customers also have the option of purchasing previously rented furniture. Aaron's leverages the overhead of the rent-to-rent stores by using those locations as clearance centers for rental return...

  • Page 14
    ...this division among the top furniture IN 2002, THE COMPANY OPENED A NEW DISTRIBUTION CENTER IN PHOENIX, ARIZONA. AARON'S NOW OPERATES 11 DISTRIBUTION CENTERS, ALL WITHIN 250 MILES OF A STORE. AARON HAS THE DISTRIBUTION CAPABILITY TO DELIVER CUSTOMER ORDERS SAME-DAY OR NEXT-DAY DUE TO THIS EFFICIENT...

  • Page 15
    ... causes. Aaron's Community Outreach Program (ACORP) made substantial contributions to communities served by the Company's stores, based on attained performance goals. Through this program, a store may earn up to $500 each A month to be donated to local charities selected by the store's Associates...

  • Page 16
    ... Stores Open: Company-Operated Franchised Rental Agreements in Effect Number of Employees 1 482 232 369,000 4,800 439 209 314,600 4,200 361 193 281,000 3,900 320 155 254,000 3,600 291 136 227,400 3,400 Systemwide revenues include revenues of franchised Aaron's Sales & Lease Ownership stores...

  • Page 17
    ... of the term of the rental agreements. The increase in rentals and fees revenues was attributable to a $77.3 million increase from our sales and lease ownership division, which had an average increase of 13% in same store revenues for the year ended 2002 and added 149 Company-operated stores since...

  • Page 18
    ... start-up costs of sales and lease ownership locations formerly operated by one of the nation's largest furniture retailers along with other new store openings. In addition, we recorded non-cash charges of $5.6 million related to the future real estate lease obligations of closed rent-to-rent stores...

  • Page 19
    ... related party capital lease relates to a property sold by Aaron Rents to a second LLC for $6.3 million in April 2002 and leased back to Aaron Rents for a 15-year term at an annual rental of approximately $617,000. See Note E to the Consolidated Financial Statements. Franchise Guaranty. Aaron Rents...

  • Page 20
    ...M ARKET R ISK Aaron Rents manages its exposure to changes in short-term interest rates, particularly to reduce the impact on our variable payment construction and lease facility and floating-rate borrowings, by entering into interest rate swap agreements. These swap agreements involve the receipt of...

  • Page 21
    ... to the month due. Our revenue recognition accounting policy matches the rental revenue with the corresponding costs - mainly depreciation - associated with the rental merchandise. At the years ended December 31, 2002 and 2001, Aaron Rents had a net revenue deferral representing cash collected in...

  • Page 22
    ...,932 77,282 22,096 13,382 $397,196 Accounts Payable & Accrued Expenses Dividends Payable Deferred Income Taxes Payable Customer Deposits & Advance Payments Credit Facilities Total Liabilities Commitments & Contingencies Shareholders' Equity Preferred Stock, Par Value $1 Per Share; Authorized: 1,000...

  • Page 23
    ...Share) Year Ended December 31, 2002 Year Ended December 31, 2001 Year Ended December 31, 2000 REVENUES Rentals & Fees Retail Sales Non-Retail Sales Other... Shares Net Earnings Change in Fair Value of Financial Instruments, Net of Income Taxes of $1,191 BALANCE, DECEMBER 31, 2001 Reacquired ...

  • Page 24
    ... OF CASH FLOWS (In Thousands) Year Ended December 31, 2002 Year Ended December 31, 2001 Year Ended December 31, 2000 O P E R AT I N G A C T I V I T I E S Net Earnings Depreciation & Amortization Deferred Income Taxes Change in Accounts Payable & Accrued Expenses Change in Accounts Receivable...

  • Page 25
    ... other merchandise throughout the U.S. and Puerto Rico. The Company manufactures furniture for its sales and lease ownership and rent-to-rent operations. Rental Merchandise consists primarily of residential and office furniture, consumer electronics, appliances, and other merchandise and is recorded...

  • Page 26
    ... agreements. Revenues from the sale of residential and office furniture and other merchandise are recognized at the time of shipment which is when title and risk of ownership are transferred to the customer. Franchisees pay a non-refundable initial franchise fee of $35,000 for each store opened...

  • Page 27
    ... the year ended December 31, 2002. Effective January 1, 2002, the Company adopted SFAS No. 141 and SFAS No. 142. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that entities assess the fair value...

  • Page 28
    ... plus interest for the five years thereafter. Capital Leases with Related Parties - In April 2002, the Company sold land and buildings with a carrying value of approximately $6,258,000 to a limited liability company (LLC) controlled by the Company's majority shareholder. Simultaneously, the Company...

  • Page 29
    ... to five years. Management expects that most leases will be renewed or replaced by other leases in the normal course of business. Future minimum rental payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2002, are as...

  • Page 30
    ... one year of service with the Company and who meet certain eligibility requirements. The plan allows employees to contribute up to 10% of their annual compensation with 50% matching by the Company on the first 4% of compensation. The Company's expense related to the plan was $453,000 in 2002, $436...

  • Page 31
    ... a monthly payment basis with no credit requirements. The rent-to-rent division rents and sells residential and office furniture to businesses and consumers who meet certain minimum credit requirements. The Company's franchise operation sells and supports franchises of its sales and lease ownership...

  • Page 32
    ...the related rental merchandise. • Interest on borrowings is estimated at the beginning of each year. Interest is then allocated from corporate to operating segments on the basis of relative total assets. • Sales and lease ownership revenues are reported on the cash basis for management reporting...

  • Page 33
    ... taxes, related to certain store closings and related exit costs. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Aaron Rents, Inc.: We have audited the accompanying consolidated balance sheets of Aaron Rents, Inc. and Subsidiaries as of December 31, 2002 and 2001...

  • Page 34
    ... Quarter Fourth Quarter .02 .02 STORE LOCATIONS IN THE UNITED STATES AND PUERTO RICO AT D E C E M B E R 3 1 , 2 0 0 2 Company-Operated Sales & Lease Ownership Franchised Sales & Lease Ownership Rent-to-Rent Sight & Sound Total Stores Manufacturing & Distribution Centers 387 232 70 __25 714 21...

  • Page 35
    ... Rd., N.E. Atlanta, Georgia 30305-2377 (404) 231-0011 http://www.aaronrents.com Subsidiaries Aaron Investment Company 4005 Kennett Pike Greenville, Delaware 19807 (302) 888-2351 Aaron Rents, Inc. Puerto Rico Avenue Barbosa #376 Hato Rey, Puerto Rico 00917 (787) 764-0420 Annual Shareholders Meeting...

  • Page 36
    309 E. Paces Ferry Rd., N.E. Atlanta, Georgia 30305-2377 (404) 231-0011 www.aaronrents.com