Aarons 2010 Annual Report Download - page 40

The weighted average fair value of unvested options was
$6.66, $6.08 and $6.08 as of December 31, 2010, 2009 and 2008,
respectively. The weighted average fair value of options that vested
during 2010, 2009 and 2008 was $5.87, $5.35 and $4.36, respec-
tively.
The Company granted 300,000 restricted stock unit awards in
2010. The Company did not grant any restricted stock awards in
2009 or 2008. Shares of restricted stock or restricted stock units
may be granted to employees and directors and typically vest over
approximately three-to four-year periods. Restricted stock grants
may be subject to one or more objective employment, performance
or other forfeiture conditions as established at the time of grant.
Any shares of restricted stock that are forfeited may again become
available for issuance. Compensation cost for restricted stock is
equal to the fair market value of the shares at the date of the award
and is amortized to compensation expense over the vesting period.
Total compensation expense related to restricted stock was $1.5
million, $1.3 million and $1.5 million in 2010, 2009 and 2008,
respectively.
The following table summarizes information about restricted
stock activity:
Weighted
Restricted Average
(In Thousands) Stock Grant Price
Outstanding at January 1, 2010 293 18.84
Granted 300 16.20
Vested (147) 18.84
Forfeited (8) 18.84
Outstanding at December 31, 2010 438 17.01
Franchising of Aaron’s Sales and
Lease Ownership Stores
The Company franchises Aaron’s Sales & Lease Ownership stores.
As of December 31, 2010 and 2009, 946 and 866 franchises had
been granted, respectively. Franchisees typically pay a non-refundable
initial franchise fee from $15,000 to $50,000, depending upon
market size and an ongoing royalty of either 5% or 6% of gross
revenues. Franchise fees and area development fees are generated
from the sale of rights to develop, own and operate Aaron’s Sales &
Lease Ownership stores. These fees are recognized as income when
substantially all of the Company’s obligations per location are satis-
fied, generally at the date of the store opening. Franchise fees and
area development fees are received before the substantial completion
of the Company’s obligations and deferred. Substantially all of the
amounts reported as non-retail sales and non-retail cost of sales in
the accompanying consolidated statements of earnings relate to the
sale of lease merchandise to franchisees.
Franchise agreement fee revenue was $3.0 million, $3.8 million
and $3.2 million and royalty revenue was $47.9 million, $42.3
million and $36.5 million for the years ended December 31, 2010,
2009 and 2008, respectively. Deferred franchise and area develop-
ment agreement fees, included in customer deposits and advance
payments in the accompanying consolidated balance sheets, were
$5.5 and $5.3 million at December 31, 2010 and 2009, respec-
tively.
Franchised Aaron’s Sales & Lease Ownership store activity is
summarized as follows:
(Unaudited) 2010 2009 2008
Franchised stores open
at January 1, 597 504 484
Opened 62 84 56
Added through acquisition 10 — 12
Purchased from the Company 10 37 27
Purchased by the Company (12) (19) (66)
Closed, sold or merged (3) (9) (9)
Franchised stores open
at December 31, 664 597 504
Company-operated Aaron’s Sales & Lease Ownership store
activity is summarized as follows:
(Unaudited) 2010 2009 2008
Company-operated stores
open at January 1, 1,082 1,037 1,014
Opened 89 85 54
Added through acquisition 14 19 66
Closed, sold or merged (36) (59) (97)
Company-operated stores
open at December 31, 1,149 1,082 1,037
In 2010, the Company acquired the lease contracts, merchan-
dise and other related assets of 30 stores, including 12 franchised
stores, and merged certain acquired stores into existing stores,
resulting in a net gain of 14 stores. In 2009, the Company
acquired the lease contracts, merchandise and other related assets
of 44 stores, including 19 franchised stores, and merged certain
acquired stores into existing stores, resulting in a net gain of
29 stores. In 2008, the Company acquired the lease contracts,
merchandise and other related assets of 95 stores, including 66
franchised stores, and merged certain acquired stores into existing
stores, resulting in a net gain of 68 stores.
Notes to Consolidated Financial Statements
I
Note
36