Aarons 2003 Annual Report Download - page 21

division offset by a decrease of $8.6 million in our rent-
to-rent division relating to the respective changes in
same store revenues and numbers of open stores.
The 34.4% increase in non-retail sales reflects the
significant growth of our franchise operations.
The 19.5% increase in other revenues was primarily
attributable to franchise fee and royalty income increasing
$3 million, or 21.8%, to $16.6 million in 2002 compared
with $13.6 million in 2001, reflecting the net addition of
23 franchised stores in 2002 and improved operating
revenues at older franchised stores.
COST OF SALES
The increase in retail cost of sales as a percentage of sales
was primarily due to a slight decrease in margins in both the
rent-to-rent and sales and lease ownership divisions in 2002
along with lower margins on retail sales from our newly
acquired Sight & Sound stores. The increased margins on
non-retail sales were primarily the result of higher margins
on certain products sold to franchisees.
EXPENSES
As a percentage of total revenues, operating expenses
were 45.8% in 2002 and 50.6% in 2001. Operating
expenses decreased in 2002 as a percentage of total revenues
primarily due to higher costs in 2001 associated with the
acquisition of sales and lease ownership store locations
formerly operated by one of the nation’s largest furniture
retailers along with other new store openings, coupled with
noncash charges of $5.6 million related to the rent-to-rent
division. In addition, we discontinued amortizing goodwill in
2002 in connection with the adoption of a new accounting
standard. As a result of this adoption, we incurred no
goodwill amortization expense in 2002, compared with
approximately $688,000 in 2001.
As a percentage of total rentals and fees, depreciation of
rental merchandise increased to 35.4% in 2002 from 34.2%
in 2001. The increase as a percentage of rentals and fees
reflects a greater percentage of our rentals and fees revenues
coming from our sales and lease ownership division, which
depreciates its rental merchandise at a faster rate than our
rent-to-rent division.
On January 1, 2002, we began depreciating sales and
lease ownership merchandise upon the earlier to occur of
its initial lease to a customer or12 months after it
is acquired from the vendor. Previously, we began
NET EARNINGS
The 32.7% increase in net earnings was primarily due
to the maturing of new Company-operated sales and lease
ownership stores added over the past several years, a 10.1%
increase in same store revenues, and a 16.5% increase in
franchise fees, royalty income, and other related franchise
income. As a percentage of total revenues, net earnings
improved to 4.8% in 2003 from 4.3% in 2002.
Year Ended December 31, 2002 Versus Year
Ended December 31, 2001
The following table shows key selected financial data
for the years ended December 31, 2002 and 2001, and the
changes in dollars and as a percentage to 2002 from 2001.
Please refer to this table in conjunction with Management’s
Discussion and Analysis:
REVENUES
The 17.2% increase in total revenues in 2002 from 2001
is primarily attributable to continued growth in our sales
and lease ownership division, both from the opening and
acquisition of new Company-operated stores and improve-
ment in same store revenues. Revenues for our sales and
lease ownership division increased $124.2 million to $519.0
million in 2002 compared with $394.8 million in 2001, a
31.5% increase. This increase was attributable to an average
increase of 13% in same store revenues in 2002 and to the
addition of 149 Company-operated stores since the beginning
of 2001. Total revenues were impacted by a decrease in rent-
to-rent division revenues, which decreased 19.9% to $121.7
million from $151.9 million in 2001, due primarily to our
decision to close, merge, or sell 29 underperforming stores
since the beginning of 2001, as well as a decline of same
store revenues.
The 13.8% increase in rentals and fees revenues was
attributable to a $77.3 million increase from our sales and
lease ownership division, driven by the growth in same store
revenues and number of stores as described above. The
growth in our sales and lease ownership division was offset
by a $21.5 million decrease in rental revenues in our rent-to-
rent division. The decrease in rent-to-rent division revenues
was caused primarily by the closure of underperforming
stores and decline in same store revenues described above.
Revenues from retail sales increased 20.2% due to an
increase of $20.8 million in the sales and lease ownership 19
Year Ended Year Ended Increase/ % Increase/
December 31, December 31, (Decrease) in Dollars (Decrease) to
(In Thousands) 2002 2001 to 2002 from 2001 2002 from 2001
REVENUES:
Rentals and Fees $459,179 $403,385 $55,794 13.8%
Retail Sales 72,698 60,481 12,217 20.2
Non-Retail Sales 88,969 66,212 22,757 34.4
Other 19,842 16,603 3,239 19.5
640,688 546,681 94,007 17.2
COSTS AND EXPENSES:
Retail Cost of Sales 53,856 43,987 9,869 22.4
Non-Retail Cost of Sales 82,407 61,999 20,408 32.9
Operating Expenses 293,346 276,682 16,664 6.0
Depreciation of Rental Merchandise 162,660 137,900 24,760 18.0
Interest 4,767 6,258 (1,491) (23.8)
597,036 526,826 70,210 13.3
EARNINGS BEFORE TAXES 43,652 19,855 23,797 119.9
INCOME TAXES 16,212 7,519 8,693 115.6
NET EARNINGS $ 27,440 $ 12,336 $ 15,104 122.4%