Aarons 2002 Annual Report Download - page 31

29
NOTE J: FRANCHISING OF AARON’SSALES
& LEASE OWNERSHIP STORES
The Company franchises Aaron’s Sales & Lease Ownership
stores. As of December 31, 2002 and 2001, 445 and 299 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 Sales & Lease Ownership stores. These fees are recog-
nized 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 $63,704,000 at December 31,
2002. The Company receives a guarantee and servicing fee based
on such franchisees’ outstanding debt obligations which is recog-
nized as income is earned. 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 K: ACQUISITIONS AND
DISPOSITIONS
In 2000, the Company acquired 20 sales and lease ownership
stores including nine stores purchased from franchisees and 10
stores located in Puerto Rico. The aggregate purchase price of
these 2000 acquisitions was $14,273,000 and the excess cost over
the fair market value of tangible assets acquired was approxi-
mately $7,150,000. During 2001, the Company acquired 23 sales
and lease ownership stores including 13 stores purchased from
franchisees. The aggregate purchase price of these 2001 acquisi-
tions was $10,423,000 and the excess cost over the fair market
value of tangible assets acquired was approximately $4,553,000.
Also, in 2001 the Company acquired two rent-to-rent stores. The
aggregate purchase price of these 2001 rent-to-rent acquisitions
was not significant. During 2002, the Company acquired 10 sales
and lease ownership stores and 25 credit retail stores with an
aggregate purchase price of $14,033,000. The excess cost over
the fair market value of tangible assets acquired, representing
goodwill, was approximately $3,889,000.
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 2002, 2001, and 2000 consolidated financial statements
was not significant.
In 2002, the Company sold four of its sales and lease ownership
stores to an existing franchisee. In 2001, the Company sold three
of its sales and lease ownership stores to existing franchisees and
sold five of its rent-to-rent stores. In 2000, the Company sold four
of its rent-to-rent stores. The effect of these sales on the consoli-
dated financial statements was not significant.
NOTE L: SEGMENTS
Description of Products and Services of
Reportable Segments
Aaron Rents, Inc. has four reportable segments: sales and
lease ownership, rent-to-rent, franchise, and manufacturing. The
sales and lease ownership division offers electronics, residential
furniture, and appliances to consumers primarily on a monthly
payment basis with no credit requirements. The rent-to-rent
division rents and sells residential and office furniture to
businesses and consumers who meet certain minimum credit
requirements. The Company’s franchise operation sells and
supports franchises of its sales and lease ownership concept.
The manufacturing division manufactures upholstery, office
furniture, lamps, and accessories, and bedding predominantly
for use by the other divisions.
Measurement of Segment Profit or Loss and
Segment Assets
The Company evaluates performance and allocates resources
based on revenue growth and pre-tax profit or loss from opera-
tions. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting
policies except that the sales and lease ownership division revenues
and certain other items are presented on a cash basis. Intersegment
sales are completed at internally negotiated amounts ensuring
competitiveness with outside vendors. Since the intersegment
The following table summarizes information about stock options outstanding at December 31, 2002.
Options Outstanding Options Exercisable
Weighted Average
Number Outstanding Remaining Weighted Average Number Exercisable Weighted Average
Range of Exercise Prices December 31, 2002 Contractual Life Exercise Price December 31, 2002 Exercise Price
$ 9.87 – $10.00 411,800 3.27 years $ 9.88 411,800 $ 9.88
10.01 – 15.00 408,000 7.42 years 13.38 90,500 13.13
15.01 – 20.86 517,850 6.92 years 16.87 211,350 17.26
$ 9.87 – $20.86 1,337,650 6.23 years $14.21 713,650 $12.47