Aarons 2000 Annual Report Download - page 22

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New Accounting Pronouncements — In June 1998, the FASB issued Statement No.133, Accounting for
Derivative Instruments and Hedging Activities (Statement 133). The statement requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value
will be immediately recognized in earnings.
The Company adopted Statement 133 on January 1, 2001. The cumulative effect of this adoption had
no significant effect on the Company’s financial position or results of operations.
Note B: Earnings Per Share
Earnings per share is computed by dividing net income by the weighted average number of common
shares outstanding during the year which were 19,825,000 shares in 2000, 20,062,000 shares in 1999,
and 20,312,000 in 1998. The computation of earnings per share assuming dilution includes the dilutive
effect of stock options and awards. Such stock options and awards had the effect of increasing the
weighted average shares outstanding assuming dilution by 142,000 in 2000, 273,000 in 1999 and
421,000 in 1998, respectively.
Note C: Property, Plant & Equipment
December 31, December 31,
(In Thousands) 2000 1999
Land $ 8,977 $ 8,837
Buildings & Improvements 28,681 25,612
Leasehold Improvements & Signs 34,128 31,294
Fixtures & Equipment 25,786 24,622
Construction in Progress 2,051 1,043
99,623 91,408
Less: Accumulated Depreciation & Amortization (36,449) (35,490)
$ 63,174 $ 55,918
Note D: Debt
Bank Debt — The Company has a revolving credit agreement with four banks providing for unsecured
borrowings up to $90,000,000, which includes a $6,000,000 credit line to fund daily working capital
requirements. Amounts borrowed bear interest at the lower of the lender’s prime rate, libor plus .50%, or
the rate at which certificates of deposit are offered in the secondary market plus .625%. The pricing under
the working capital line is based upon overnight bank borrowing rates. At December 31, 2000 and 1999,
an aggregate of $90,000,000 (bearing interest at 7.04%) and $72,225,000 (bearing interest at 6.88%),
respectively, was outstanding under this agreement. The Company pays a .22% commitment fee on
unused balances. The weighted average interest rate on borrowings under the revolving credit agreement
(before giving effect to interest rate swaps) was 7.07% in 2000, 5.94% in 1999 and 6.41% in 1998. The
effects of interest rate swaps on the weighted average interest rate were not material.
The Company has entered into interest rate swap agreements that effectively fix the interest rate
on $20,000,000 of borrowings under the revolving credit agreement at an average rate of 7.0% until
November 2003 and an additional $20,000,000 at an average rate of 6.85% until June 2005. These swap
agreements involve the receipt of amounts when the floating rates exceed the fixed rates and the payment
of amounts when the fixed rates exceed the floating rates in such agreements over the life of the agree-
ments. The differential to be paid or received is accrued as interest rates change and is recognized as an
adjustment to the floating rate interest expense related to the debt. The related amount payable to or
receivable from counterparties is included in accrued liabilities or other assets. Unrealized losses under
the swap agreements aggregated $804,000 at December 31, 2000.
The revolving credit agreement may be terminated on ninety days’ notice by the Company or six
months’ notice by the lenders. The debt is payable in 60 monthly installments following the termination
date if terminated by the lenders.
The agreement requires that the Company not permit its consolidated net worth as of the last day of
any fiscal quarter to be less than the sum of (a) $105,000,000 plus (b) 50% of the Company’s consolidated