Aarons 2011 Annual Report Download - page 35

At December 31, 2011, the Company had a federal net operat-
ing loss (“NOL”) carryforward of approximately $31.2 million
available to offset future taxable income. The NOLs expire in 2030
and 2031 and utilization is subject to applicable annual limitations
for U.S. federal and U.S. state tax purposes, including Section 382
of the Internal Revenue Code of 1986, as amended. The Company
intends to carryforward the NOLs to offset future taxable income
and does not anticipate that the utilization will be impacted by the
applicable limitations.
As a result of the bonus depreciation provisions in the 2010
tax acts the Company paid more than it’s anticipated 2010 federal
tax liability. The 2010 acts provided an estimated tax deferral of
approximately $127.0 million. The Company filed for a refund
of overpaid federal tax of approximately $80.9 million in January
2011 and received that refund in February 2011.
Significant components of the Company’s deferred income tax
liabilities and assets at December 31 are as follows:
(In Thousands) 2011 2010
Deferred Tax Liabilities:
Lease Merchandise and Property,
Plant and Equipment $329,497 $248,775
Other, Net 29,607 24,777
Total Deferred Tax Liabilities 359,104 273,552
Deferred Tax Assets:
Accrued Liabilities 33,826 15,859
Advance Payments 16,432 15,231
Federal Net Operating Loss 10,936 6,423
Other, Net 11,760 9,386
Total Deferred Tax Assets 72,954 46,899
Less Valuation Allowance (812) (860)
Net Deferred Tax Liabilities $286,962 $227,513
The Company’s effective tax rate differs from the statutory
United States Federal income tax rate for the years ended
December 31 as follows:
2011 2010 2009
Statutory Rate 35.0% 35.0% 35.0%
Increases (Decreases) in
United States Federal Taxes
Resulting From:
State Income Taxes, Net of
Federal Income Tax Benefit 2.7 2.7 2.8
Other, Net 0.3 0.3 (1.8)
Effective Tax Rate 38.0% 38.0% 36.0%
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 2008. The lower effective tax 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) 2011 2010 2009
Balance at January 1, $1,315 $1,342 $3,110
Additions based on tax positions
related to the current year 178 149 172
Additions for tax positions
of prior years 22 18 523
Prior year reductions (13) (26) (46)
Statute expirations (90) (63) (2,231)
Settlements — (105) (186)
Balance at December 31, $1,412 $1,315 $1,342
As of December 31, 2011 and 2010, the amount of uncertain
tax benefits that, if recognized, would affect the effective tax rate is
$1.2 million and $1.3 million, respectively, including interest and
penalties. During the years ended December 31, 2011, 2010 and
2009, the Company recognized interest and penalties of $41,000,
$35,000, and $276,000, respectively. The Company had $374,000
and $332,000 of accrued interest and penalties at December 31,
2011 and 2010, respectively. The Company recognizes potential
interest and penalties related to uncertain tax benefits as a compo-
nent of income tax expense.
NOTE F: COMMITMENTS
AND CONTINGENCIES
Leases
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
20 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 15 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.
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