Aarons 2005 Annual Report Download - page 38

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Notes to Consolidated Financial Statements
Company-operated Aaron’s Sales & Lease Ownership store
activity is summarized as follows:
2005 2004 2003
Company-operated stores
open at January 1 616 500 412
Opened 82 68 38
Added through acquisition 56 61 59
Closed or merged (6) (13) (9)
Company-operated stores open
at December 31 748 616 500
In 2005, the Company acquired the rental contracts,
merchandise, and other related assets of 96 stores, including
35 franchised stores. Many of these stores and/or their accom-
panying assets were merged into other stores resulting in a net
gain of 56 stores. In 2004, the Company acquired the rental
contracts, merchandise, and other related assets of 85 stores,
including 19 franchised stores. Many of these stores and/or
their accompanying assets were merged into other stores
resulting in a net gain of 61 stores. In 2003, the Company
acquired the rental contracts, merchandise, and other related
assets of 98 stores, including 26 franchised stores. Many of
these stores and/or their accompanying assets weremerged
into other stores resulting in a net gain of 59 stores.
Note J: Acquisitions and Dispositions
During 2005, the Company acquired the rental contracts,
merchandise, and other related assets of 96 sales and lease
ownership stores with an aggregate purchase price of $46.6
million. Fair value of acquired tangible assets included $16.8
million for rental merchandise, $1.5 million for fixed assets,
and $1.4 million for other assets. Fair value of liabilities
assumed approximated $.4 million. The excess cost over the
fair value of the assets and liabilities acquired in 2005, repre-
senting goodwill was $24.7 million. The fair value of acquired
separately identifiable intangible assets included $2.6 million
for customer lists and $.4 million for acquired franchise
development rights. The estimated amortization of these
customer lists and acquired franchise development rights in
future years approximates $1.8 million, $912,000, $82,000,
$60,000, and $52,000 for 2006, 2007, 2008, 2009, and
2010, respectively. The purchase price allocations for certain
acquisitions during December 2005 arepreliminarypending
finalization of the Company’s assessment of the fair values
of tangible assets acquired.
During 2004, the Company acquired the rental contracts,
merchandise, and other related assets of 85 sales and lease
ownership stores with an aggregate purchase price of $36.0
million. The fair value of acquired tangible assets included
approximately $12.9 million for rental merchandise, $0.8
million for fixed assets, and $2.4 million for other assets. Fair
value of liabilities assumed approximated $47,000. The excess
cost over the fair value of assets and liabilities acquired,
representing goodwill was $19.4 million. Fair value of acquired
separately identifiable intangible assets included $1.2 million
for customer lists. The estimated amortization of these cus-
tomer lists in future years approximates $456,000 and $19,000
for 2006 and 2007, respectively. In addition, in 2004 the
Company acquired three corporate furnishings stores. The
purchase price of the 2004 corporate furnishings acquisitions
was $2.2 million. Fair value of acquired tangible assets included
$1.5 million for rental merchandise and $309,000 for other
assets. The excess cost over the fair value of tangible assets
acquired, representing goodwill was $399,000. The fair value
of acquired separately identifiable intangible assets included
$42,000 for customer lists.
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
2005, 2004 and 2003 consolidated financial statements was
not significant.
The Company sold five of its sales and lease ownership
locations to an existing franchisee in 2005. In 2004, the
Company sold two of its sales and lease ownership locations
to an existing franchisee. In 2003, the Company sold three
of its sales and lease ownership locations to an existing
franchisee and sold one of its corporate furnishings stores.
The effect of these sales on the consolidated financial
statements was not significant.
Note K: Segments
Description of Products and Services of Reportable Segments
Aaron Rents, Inc. has four reportable segments: sales and
lease ownership, corporate furnishings (formerly known as
rent-to-rent), franchise, and manufacturing. The sales and
lease ownership division offers electronics, residential furniture,
appliances, and computers to consumers primarily on a monthly
payment basis with no credit requirements. The corporate fur-
nishings 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 upholstered furni-
ture, office furniture, lamps and accessories, and bedding
predominantly for use by the other divisions.
Earnings before income taxes for each reportable segment
are generally determined in accordance with accounting
principles generally accepted in the United States with
the following adjustments:
•Apredetermined amount of each reportable segment’s
revenues is charged to the reportable segment as an
allocation of corporate overhead. This allocation was
approximately 2.3% in 2005, 2004, and 2003.
•Accruals related to store closures are not recorded on the
reportable segments’ financial statements, but are rather
maintained and controlled by corporate headquarters.