Aarons 2003 Annual Report Download - page 34

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The table below summarizes option activity for the
periods indicated in the Company’s stock option plans:
Weighted
Average
Options Exercise
(In Thousands) Price
Outstanding at December 31, 2000 2,066 $ 8.68
Granted 200 10.87
Exercised (165) 7.18
Forfeited (149) 10.96
Outstanding at December 31, 2001 1,952 8.86
Granted 307 13.91
Exercised (147) 9.18
Forfeited (105) 11.56
Outstanding at December 31, 2002 2,007 9.47
Granted 492 19.93
Exercised (214) 9.27
Forfeited (95) 12.12
Outstanding at December 31, 2003 2,190 $11.73
Exercisable at December 31, 2003 1,352 $ 8.45
Note J: Franchising of
Aaron’s Sales & Lease
Ownership Stores
The Company franchises Aaron’s Sales & Lease
Ownership stores. As of December 31, 2003 and 2002,
528 and 445 franchises had been awarded, respectively.
Franchisees pay a nonrefundable initial franchise fee of
$35,000 and an ongoing royalty of 5% to 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 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. 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 rental merchandise to franchisees.
Initial franchise fee revenue approximated $2,171,000,
$1,631,000 and $1,580,000 and royalty revenues approxi-
mated $13,999,000, $12,317,000 and $9,932,000 for the
years ended December 31, 2003, 2002 and 2001, respectively.
The Company has guaranteed certain debt obligations
of some of the franchisees amounting to approximately
$67,455,000 at December 31, 2003. The Company receives
guarantee fees based on such franchisees’ outstanding debt
obligations, which it recognizes as the guarantee obligation
is satisfied. 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.
Franchised Sales and Lease Ownership store activity is
summarized as follows:
2003 2002 2001
Franchise Stores Open at January 1 232 209 193
Opened 82 31 30
Purchased by the Company (26) (5) (13)
Closed or Liquidated (1) (3) (1)
Franchise Stores Open
at December 31 287 232 209
Company-operated Sales and Lease Ownership store
activity is summarized as follows:
2003 2002 2001
Company-Operated Stores
Open at January 1 412 364 263
Opened 38 27 100
Added Through Acquisition 59 30 14
Merged or Closed (9) (9) (13)
Company-Operated Stores Open
at December 31 500 412 364
In 2003 the Company acquired the rental contracts,
merchandise, and other related assets of 98 stores, including
26 franchise stores. Many of these stores and/or their
accompanying assets were merged into other stores resulting
in a net gain of 59 stores. The 2002 and 2001 acquisitions
were all primarily additional new store locations.
Note K: Acquisitions
and Dispositions
During 2003, the Company acquired 98 sales and
lease ownership stores with an aggregate purchase price
of $45,041,000. Fair value of acquired tangible assets
included approximately $16,116,000 for rental merchandise,
$999,000 for fixed assets, and $53,000 for other assets.
Fair value of liabilities assumed approximated $1,271,000.
The excess cost over the net fair market value of tangible
assets acquired, representing goodwill and customer lists,
was $26,400,000 and $2,744,000 respectively. The estimated
amortization of these customer lists in future years
approximates $1,390,000 for 2004 and $849,000 for
2005. Also, in 2003 the Company acquired one rent-
to-rent store. The purchase price of the 2003 rent-to-rent
acquisition 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 approximately $14,033,000. The excess
cost over the fair market value of tangible and identifiable
intangible assets acquired, representing goodwill, was
approximately $3,889,000.
In 2001, the Company acquired 23 sales and lease owner-
ship stores including 13 stores purchased from franchisees.
The aggregate purchase price of these 2001 acquisitions 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.
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 2003, 2002 and 2001 consolidated
financial statements was not significant.
In 2003, the Company sold three of its sales and lease
ownership locations to an existing franchisee and sold one