Aarons 2013 Annual Report Download - page 39

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RIMCO. RIMCO segment revenues increased $5.4 million to $16.7 million due to a 52.5% increase in lease revenues and fees,
primarily attributable to the addition of eight Company-operated stores since the beginning of 2011.
Franchise. Franchise segment revenues increased $3.4 million to $66.7 million primarily due to an increase in royalty income
from franchisees. Franchise royalty income increased due to the net addition of 85 franchised stores since the beginning of
2011 and a 5.0% increase in same store revenues of existing franchised stores.
Other. Revenues in the “Other” segment include revenues from leasing space to unrelated third parties in the corporate
headquarters building, revenues of the Aaron's Office Furniture division through the date of sale in August 2012 and revenues
from several minor unrelated activities.
Costs and Expenses
Year Ended December 31, 2013 Versus Year Ended December 31, 2012
Retail cost of sales. Retail cost of sales increased $2.7 million, or 12.5%, to $24.3 million in 2013, from $21.6 million for the
comparable period in 2012, and as a percentage of retail sales, increased to 59.5% from 56.2% due to a change in the mix of
products.
Non-retail cost of sales. Non-retail cost of sales decreased $49.8 million, or 12.9%, to $337.6 million in 2013, from
$387.4 million for the comparable period in 2012, and as a percentage of non-retail sales, remained consistent at 90.9% in both
periods.
Operating expenses. Operating expenses increased $70.1 million, or 7.4%, to $1.0 billion in 2013, from $952.6 million for the
comparable period in 2012. As a percentage of total revenues, operating expenses increased to 45.8% in 2013 from 43.0% in
2012 due to increased personnel, advertising and facility rent costs incurred to support continued revenue and store growth;
increased lease merchandise adjustments; and a decrease in non-retail sales due to less demand for products by franchisees.
Legal and regulatory expense (income). Legal and regulatory expense during 2013 was $28.4 million relating to a pending
regulatory investigation by the California Attorney General into the Company's leasing, marketing and privacy practices. Refer
to Note 8 to the Company's consolidated financial statements for further discussion of this regulatory investigation. Legal and
regulatory income during 2012 was $35.5 million and represents the reversal of an accrual in the first quarter of 2012 related to
the settlement of a lawsuit.
Retirement and vacation charges. Retirement and vacation charges during 2013 were $4.9 million due primarily to the
retirement of the Company's Chief Operating Officer and a change in the Company's vacation policies. Retirement and vacation
charges during 2012 were $10.4 million associated with the retirement of the Company's founder and Chairman of the Board.
Depreciation of lease merchandise. Depreciation of lease merchandise increased $26.5 million to $628.1 million during 2013
from $601.6 million during the comparable period in 2012, or 4.4%, as a result of higher on-rent lease merchandise due to the
growth of our Sales and Lease Ownership and HomeSmart segments. Levels of merchandise on lease decreased, resulting in
idle merchandise representing approximately 7% of total depreciation expense in 2013 as compared to approximately 6% in
2012. As a percentage of total lease revenues and fees, depreciation of lease merchandise remained consistent at 35.9% in both
periods.
Year Ended December 31, 2012 Versus Year Ended December 31, 2011
Retail cost of sales. Retail cost of sales decreased $1.0 million, or 4.5%, to $21.6 million in 2012, from $22.6 million for the
comparable period in 2011, and as a percentage of retail sales, decreased to 56.2% from 58.7% due to a change in the mix of
products.
Non-retail cost of sales. Non-retail cost of sales increased $35.5 million, or 10.1%, to $387.4 million in 2012, from
$351.9 million for the comparable period in 2011, and as a percentage of non-retail sales, increased to 90.9% in 2012 from
90.5% in 2011.
Operating expenses. Operating expenses increased $86.0 million, or 9.9%, to $952.6 million from $866.6 million in 2011. As a
percentage of total revenues, operating expenses decreased to 43.0% in 2012 from 43.1% in 2011.
Legal and regulatory expense (income). Legal and regulatory expense during 2011 was $36.5 million and related to a legal
accrual established in connection with a jury verdict. Legal and regulatory income during 2012 was $35.5 million and
represented the reversal of the accrual related to the settlement of the above-mentioned legal proceeding.