Aarons 2005 Annual Report Download - page 20

18
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Year Ended December 31, 2005 Versus Year Ended December 31, 2004
The following table shows key selected financial data for the years ended December 31, 2005 and 2004, and the changes in
dollars and as a percentage to 2005 from 2004.
Revenues
The 18.9% increase in total revenues in 2005 from 2004
is primarily attributable to continued growth in our sales
and lease ownership division, from both the opening and
acquisition of new Company-operated stores and improvement
in same storerevenues. Revenues for our sales and lease
ownership division, including sales to franchisees, increased
$173.7 million to $1,004.8 million in 2005 compared with
$831.1 million in 2004, a 20.9% increase. This increase was
attributable to an 8.3% increase in same store revenues and
the addition of 248 sales and lease ownership stores since
the beginning of 2004.
The 21.7% increase in rentals and fees revenues was
attributable to a $143.1 million increase from our sales and
lease ownership division related to the growth in same store
revenues and the increase in the number of stores described
above. Rental revenues in our corporate furnishings division
increased $7.7 million, or 10.1%, to $83.7 million in 2005
from $76.0 million in 2004 as a result of generally improved
economic conditions.
Revenues from retail sales increased 3.7% primarily due to
a$1.5 million increase in our corporate furnishings division as
aresult of generally improved economic conditions.
The 15.5% increase in non-retail sales in 2005 reflects
the significant growth of our franchise operations. The total
number of franchised stores at December 31, 2005 was 392,
reflecting a net addition of 105 since the beginning of 2004.
Year Ended Year Ended Increase/ % Increase/
December 31, December 31, (Decrease) in Dollars (Decrease) to
(In Thousands) 2005 2004 to 2005 from 2004 2005 from 2004
REVENUES:
Rentals and Fees $ 845,162 $694,293 $150,869 21.7%
Retail Sales 58,366 56,259 2,107 3.7
Non-Retail Sales 185,622 160,774 24,848 15.5
Franchise Royalties and Fees 29,474 25,093 4,381 17.5
Other 6,881 10,061 (3,180) (31.6)
1,125,505 946,480 179,025 18.9
COSTS AND EXPENSES:
Retail Cost of Sales 39,054 39,380 (326) (0.8)
Non-Retail Cost of Sales 172,807 149,207 23,600 15.8
Operating Expenses 507,158 414,518 92,640 22.3
Depreciation of Rental Merchandise 305,630 253,456 52,174 20.6
Interest 8,519 5,413 3,106 57.4
1,033,168 861,974 171,194 19.9
EARNINGS BEFORE INCOME TAXES 92,337 84,506 7,831 9.3
INCOME TAXES 34,344 31,890 2,454 7.7
NET EARNINGS $ 57,993 $ 52,616 $ 5,377 10.2%
The 17.5% increase in franchise royalties and fees primarily
reflects an increase in royalty income from franchisees,
increasing $3.8 million to $21.6 million in 2005 compared to
$17.8 million in 2004, with increased franchise and financing
fee revenues comprising the majority of the remainder.Revenue
increased in this area primarily due to the previously mentioned
growth of stores and an in increase in certain royalty rates.
The 31.6% decrease in other revenues is primarily attribu-
table to recognition of a $5.5 million gain in 2004 on the
sale of our holdings of Rainbow Rentals, Inc. common stock in
connection with that company’s merger with Rent-A-Center,
Inc., partially offset by the recognition of a $565,000 gain
in 2005 on the sale of our holdings of Rent-Way, Inc. common
stock. In addition, included in other income in 2005 is
$934,000 of expected proceeds from business interruption
insurance associated with the operations of hurricane-
affected areas.
Cost of Sales
Retail cost of sales decreased 0.8%, with retail cost of
sales as a percentage of retail sales decreasing to 66.9% from
70.0%, primarily due to higher margins on certain retail sales
in our sales and lease ownership division.
Cost of sales from non-retail sales increased 15.8%,
following the increase in non-retail sales described above,
with the margin on non-retail sales remaining comparable
between the periods.