Aarons 2010 Annual Report Download - page 37

(In Thousands) 2010 2009
Deferred Tax Liabilities:
Lease Merchandise and
Property, Plant and Equipment $248,775 $175,293
Other, Net 24,777 19,449
Total Deferred Tax Liabilities 273,552 194,742
Deferred Tax Assets:
Accrued Liabilities 15,859 10,848
Advance Payments 15,231 14,242
Federal Net Operating Loss 6,423 —
Other, Net 9,386 6,436
Total Deferred Tax Assets 46,899 31,526
Less Valuation Allowance (860) (454)
Net Deferred Tax Liabilities $227,513 $163,670
The Company’s effective tax rate differs from the statutory
U.S. Federal income tax rate for the years ended December 31
as follows:
2010 2009 2008
Statutory Rate 35.0% 35.0% 35.0%
Increases in U.S. Federal Taxes
Resulting From:
State Income Taxes, Net of
Federal Income Tax Benefit 2.7 2.8 3.1
Other, Net 0.3 (1.8) .4
Effective Tax Rate 38.0% 36.0% 38.5%
The Company files a federal consolidated income tax return in
the United States and the separate legal entities file in various states
and foreign jurisdictions. With few exceptions, the Company is no
longer subject to federal, state and local tax examinations by tax
authorities for years before 2007. The decrease in the effective rate
in 2009 was due to the favorable impact of a $2.3 million reversal
of previously recorded liabilities for uncertain tax positions.
The following table summarizes the activity related to the
Company’s uncertain tax positions:
(In Thousands) 2010 2009 2008
Balance at January 1, $1,342 $3,110 $3,482
Additions based on tax
positions related to the
current year 149 172 119
Additions for tax positions
of prior years 18 523 559
Prior year reductions (26) (46) (349)
Statute expirations (63) (2,231) (176)
Settlements (105) (186) (525)
Balance at December 31, $1,315 $1,342 $3,110
As of December 31, 2010 and 2009, the amount of uncertain
tax benefits that, if recognized, would affect the effective tax rate
is $1.3 million, for both years, including interest and penalties.
During the years ended December 31, 2010, 2009 and 2008, the
Company recognized interest and penalties of $35,000, $276,000,
and $435,000, respectively. The Company had $332,000 and
$349,000 of accrued interest and penalties at December 31, 2010
and 2009, respectively. The Company recognizes potential interest
and penalties related to uncertain tax benefits as a component of
income tax expense.
Commitments and
Contingencies
The Company leases warehouse and retail store space for most of its
operations under operating leases expiring at various times through
2028. The Company also leases certain properties under capital
leases that are more fully described in Note D. Most of the leases
contain renewal options for additional periods ranging from one to
15 years or provide for options to purchase the related property at
predetermined purchase prices that do not represent bargain pur-
chase options. In addition, certain properties occupied under operat-
ing leases contain normal purchase options. Leasehold improvements
related to these leases are generally amortized over periods that do
not exceed the lesser of the lease term or five years. While a majority
of leases do not require escalating payments, for the leases which
do contain such provisions the Company records the related lease
expense on a straight-line basis over the lease term. The Company
also leases transportation and computer equipment under operating
leases expiring during the next five years. Management expects that
most leases will be renewed or replaced by other leases in the normal
course of business.
Future minimum lease payments required under operating leases
that have initial or remaining non-cancelable terms in excess of one
year as of December 31, 2010, are as follows:
(In Thousands)
2011 $ 96,305
2012 83,334
2013 68,450
2014 55,833
2015 42,490
Thereafter 191,506
$537,918
The Company has guaranteed certain debt obligations of some
of the franchisees amounting to $121.0 million and $128.8 million
at December 31, 2010 and 2009, respectively. Of this amount,
approximately $108.3 million represents franchise borrowings
outstanding under the franchise loan program and approximately
F
Note
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