Aarons 2010 Annual Report Download - page 33

and repairs are also expensed as incurred; renewals and betterments
are capitalized. Depreciation expense, included in operating expenses
in the accompanying consolidated statements of earnings, for prop-
erty, plant and equipment, was $41.4 million, $40.7 million and
$38.4 million during the years ended December 31, 2010, 2009 and
2008, respectively.
ASSETS HELD FOR SALE — Certain properties, primarily consist-
ing of parcels of land, met the held-for-sale classification criteria
at December 31, 2010. After adjustment to fair value, the $11.8
million and $12.4 million carrying value of these properties has been
classified as assets held for sale in the consolidated balance sheets as
of December 31, 2010 and 2009, respectively. The Company esti-
mated the fair values of these properties using the market values for
similar properties and these are considered Level 2 assets as defined
in FASB ASC Topic 820, “Fair Value Measurements.”
GOODWILL AND OTHER INTANGIBLES — Goodwill represents
the excess of the purchase price paid over the fair value of the net
tangible and identifiable intangible assets acquired in connection
with business acquisitions. The Company has elected to perform
its annual impairment evaluation as of September 30. Based on the
evaluation, there was no impairment as of September 30, 2010.
More frequent evaluations are completed if indicators of impairment
become evident. Other intangibles represent the value of customer
relationships acquired in connection with business acquisitions,
acquired franchise development rights and non-compete agree-
ments, recorded at fair value as determined by the Company. As of
December 31, 2010 and 2009, the net intangibles other than good-
will were $3.8 million and $5.2 million, respectively. The customer
relationship intangible is amortized on a straight-line basis over a
two-year useful life. Acquired franchise development rights are amor-
tized over the unexpired life of the franchisee’s 10-year area develop-
ment agreement. The non-compete intangible is amortized on a
straight-line basis over a three-year useful life. Amortization expense
of intangibles, included in operating expenses in the accompanying
consolidated statements of earnings, was $3.1 million, $3.8 million
and $3.0 million during the years ended December 31, 2010, 2009
and 2008, respectively.
The following is a summary of the Company’s goodwill in its
sales and lease ownership segment at December 31:
(In Thousands) 2010 2009
Beginning Balance $194,376 $185,965
Additions 9,239 12,947
Disposals (1,236) (4,536)
Ending Balance $202,379 $194,376
IMPAIRMENT — The Company assesses its long-lived assets other
than goodwill for impairment whenever facts and circumstances
indicate that the carrying amount may not be fully recoverable.
When it is determined that the carrying value of the assets are not
recoverable, the Company compares the carrying value of the assets
to their fair value as estimated using discounted expected future cash
flows, market values or replacement values for similar assets. The
store managers, which include write-offs for unsalable, damaged, or
missing merchandise inventories. Full physical inventories are gener-
ally taken at the fulfillment and manufacturing facilities two to four
times a year, and appropriate provisions are made for missing, dam-
aged and unsalable merchandise. In addition, the Company monitors
lease merchandise levels and mix by division, store, and fulfillment
center, as well as the average age of merchandise on hand. If unsal-
able lease merchandise cannot be returned to vendors, it is adjusted
to its net realizable value or written off.
All lease merchandise is available for lease or sale. On a monthly
basis, all damaged, lost or unsalable merchandise identified is written
off. The Company records lease merchandise adjustments on the
allowance method. Lease merchandise write-offs totaled $46.5
million, $38.3 million and $34.5 million during the years ended
December 31, 2010, 2009 and 2008, respectively, and are included
in operating expenses in the accompanying consolidated statements
of earnings. The current year includes a write-down of $4.7 million
related to the closure of the Aaron’s Office Furniture division.
DISPOSAL ACTIVITIES — The Company began ceasing the opera-
tions of the Aaron’s Office Furniture division in June 2010. The
Company closed 14 of its Aaron’s Office Furniture stores during
2010 and had one remaining store open to liquidate merchandise. As
a result, the Company recorded $3.3 million in closed-store reserves,
$4.7 million in lease merchandise write-downs and other miscella-
neous expenses in 2010, totaling $9.0 million in operating expenses,
related to the closures. The charges were recorded within operating
expenses on the consolidated statement of earnings and are included
in the Other segment category.
CASH AND CASH EQUIVALENTS — The Company classifies as
cash highly liquid investments with maturity dates of less than three
months when purchased.
ACCOUNTS RECEIVABLE — The Company maintains an allow-
ance for doubtful accounts. The reserve for returns is calculated
based on the historical collection experience associated with lease
receivables. The Company’s policy is to write off lease receivables
that are 60 days or more past due.
The following is a summary of the Company’s allowance for
doubtful accounts as of December 31:
(In Thousands) 2010 2009 2008
Beginning Balance $ 4,157 $ 4,040 $ 4,014
Accounts written off (23,601) (20,352) (18,876)
Provision 23,988 20,469 18,902
Ending Balance $ 4,544 $ 4,157 $ 4,040
PROPERTY, PLANT AND EQUIPMENT — The Company records
property, plant and equipment at cost. Depreciation and amortiza-
tion are computed on a straight-line basis over the estimated useful
lives of the respective assets, which are from eight to 40 years for
buildings and improvements and from one to five years for other
depreciable property and equipment. Gains and losses related to
dispositions and retirements are recognized as incurred. Maintenance
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