Aarons 1999 Annual Report Download - page 27

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Note I: Franchising of Aaron’s Rental
Purchase Stores
The Company franchises Aaron’s Rental Purchase stores. As
of December 31, 1999 and December 31, 1998, 277 and
227 franchises had been awarded, respectively. Franchisees
pay a non-refundable initial franchise fee of $35,000 and an
ongoing royalty of 5% of cash receipts. Franchise fees and
area development franchise fees are generated from the sale of
rights to develop, own and operate Aaron’s Rental Purchase
stores. These fees are recognized when substantially all of the
Company’s obligations per location are satisfied (generally
at the date of the store opening). Franchise fees and area
development fees received prior to the substantial completion
of the Company’s obligations are deferred. The Company
includes this income in Other Revenues in the Consolidated
Statement of Earnings.
The Company has guaranteed certain debt obligations
of some of the franchisees amounting to $23,196,745 at
December 31, 1999. The Company receives a guarantee and
servicing fee based on such franchisees’ outstanding debt
obligations which it recognizes as income over the fee period.
The Company has recourse rights to the assets securing the
debt obligations. As a result, the Company does not expect
to incur any significant losses under these guarantees.
Note J: Acquisitions and Dispositions
In December 1997, the Company acquired substantially
all of the assets of RentMart Rent-To-Own, Inc., a wholly-
owned subsidiary of the Associates Capital Corporation, for
$18,012,000 in cash. The excess cost over the fair market
value of tangible assets acquired was approximately
$4,300,000. Also, in December 1997, the Company acquired
substantially all of the assets of Blackhawk Convention
Services, Inc. for $3,500,000 in cash. The excess cost over
the fair market value of tangible assets acquired was approxi-
mately $2,700,000. During 1998, the Company acquired
five rental purchase stores from a franchisee and acquired a
lamp designer and manufacturer, Lamps Forever, Inc. The
aggregate purchase price of these 1998 acquisitions was not
significant. In 1999, the Company acquired 18 rental pur-
chase stores with an aggregate purchase price of $10,252,000.
The excess cost over the fair market value of tangible assets
acquired was approximately $5,985,000. Also in 1999, the
Company acquired two rent-to-rent stores. The aggregate
purchase price of these 1999 acquisitions was not significant.
These acquisitions were accounted for under the purchase
method and, accordingly, the results of operations of the
acquired businesses are included in the Company’s results
of operations from their dates of acquisition. The effect of
these acquisitions on the 1999, 1998 and 1997 consolidated
financial statements was not significant.
In October 1998, the Company sold substantially all of
the assets of its convention furnishings division. The effect of
the sale on the 1998 consolidated financial statements was
not significant.
In 1999, the Company sold four of its rent-to-rent stores.
The effect of the sale on the consolidated financial statements
was not significant.
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The following table summarizes information about stock options outstanding at December 31, 1999.
Options Outstanding Options Exercisable
Weighted Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices December 31, 1999 Life Price December 31, 1999 Price
$ 6.94–$10.00 779,000 5.2 years $ 9.38 779,000 $ 9.38
$10.01–$15.00 96,000 9.1 years 13.13
$15.01–$20.25 427,250 8.6 years 17.04
$ 6.94–$20.25 1,302,250 6.6 years $12.17 779,000 $ 9.38