Aarons 2000 Annual Report Download - page 24

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Note F: Commitments
The Company leases warehouse and retail store space for substantially all of its operations under operating
leases expiring at various times through 2013. Most of the leases contain renewal options for additional
periods ranging from 1 to 15 years or provide for options to purchase the related property at predeter-
mined purchase prices which do not represent bargain purchase options. The Company also leases trans-
portation equipment under operating leases expiring during the next 3 years. Management expects that
most leases will be renewed or replaced by other leases in the normal course of business.
Future minimum rental payments, including guaranteed residual values, required under operating
leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2000,
are as follows: $28,238,000 in 2001; $19,892,000 in 2002; $14,388,000 in 2003; $10,558,000 in 2004;
$9,252,000 in 2005; and $6,404,000 thereafter.
Rental expense was $30,659,000 in 2000; $28,851,000 in 1999; and $25,563,000 in 1998.
The Company leases one building from an officer of the Company under a lease expiring in 2008 for
annual rentals aggregating $212,700.
The Company maintains a 401(k) savings plan for all full-time employees with at least 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 $427,000 in 2000; $447,000 in 1999;
and $415,000 in 1998.
Note G: Shareholders’ Equity
In February 1999, the Company’s Board of Directors authorized the repurchase of up to 2,000,000 shares
of the Company’s Common Stock and/or Class A Common Stock. During 2000, 327,500 shares of the
Company’s common shares were purchased at an aggregate cost of $4,625,000 and the Company was
authorized to purchase an additional 1,284,690 at December 31, 2000. At December 31, 2000, the
Company held a total of 3,762,701 common shares in its treasury.
On April 28, 1998, the Company issued, through a public offering, 2,100,000 shares of Common
Stock. The net proceeds to the Company after deducting underwriting discounts and offering expenses
were $39,958,000. The net proceeds were used to reduce indebtedness and for general business purposes.
The Company has 1,000,000 shares of preferred stock authorized. The shares are issuable in series with
terms for each series fixed by the Board and such issuance is subject to approval by the Board of Directors.
No preferred shares have been issued.
Note H: Stock Options
The Company has stock option plans under which options to purchase shares of the Company’s Common
Stock are granted to certain key employees. Under the plans, options granted become exercisable after
a period of two or three years and unexercised options lapse five or ten years after the date of the grant.
Options are subject to forfeiture upon termination of service. Under the plans, 1,425,000 of the Company
shares are reserved for issuance at December 31, 2000. The weighted average fair value of options granted
was $8.11 in 2000, $9.55 in 1999 and $9.26 in 1998.
Pro forma information regarding net earnings and earnings per share is required by FAS 123, and has
been determined as if the Company had accounted for its employee stock options granted in 2000, 1999
and 1998 under the fair value method. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average assumptions for 2000,
1999 and 1998, respectively: risk-free interest rates of 6.47%, 6.36% and 5.36%, a dividend yield of .28%,
.23% and .26%; a volatility factor of the expected market price of the Company’s Common Stock of .45,
.42 and .43; and a weighted average expected life of the option of 8 years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock price volatility. Because the
Company’s employee stock options have characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially affect the fair value estimate, in
management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.