Aarons 1999 Annual Report Download - page 23

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Advertising —The Company expenses advertising costs
as incurred. Such costs aggregated $12,496,000 in 1999,
$11,523,000 in 1998, and $9,530,000 in 1997.
Stock Based Compensation— The Company has elected
to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and
related Interpretations in accounting for its employee stock
options and adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation (FAS 123). The
Company grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value
of the shares at the date of grant and, accordingly, recognizes
no compensation expense for the stock option grants.
Excess Costs over Net Assets Acquired—Goodwill is
amortized on a straight-line basis over a period of twenty
years. Long-lived assets, including goodwill, are periodically
reviewed for impairment based on an assessment of future
operations. The Company records impairment losses on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the
assets’ carrying amount. Measurement of an impairment
loss is based on the estimated fair value of the asset.
Fair Value of Financial Instruments — The carrying
amounts reflected in the consolidated balance sheets for cash,
accounts receivable, bank and other debt approximate their
respective fair values.
Revenue Recognition — Rental revenues are recognized
as revenue in the month they are due. Rental payments
received prior to the month due are recorded as deferred
rental revenue. Revenues from the sale of residential and
office furniture and other merchandise are recognized at
the time of shipment.
Comprehensive Income— As of January 1, 1998, the
Company adopted Financial Accounting Standards Board
(“FASB”) Statement No.130, Reporting Comprehensive
Income. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its
components. Statement 130 requires foreign currency
translation adjustments and other items to be included in
other comprehensive income. There were no differences
between net income and comprehensive income in 1999,
1998 or 1997.
Reclassifications —Certain prior year amounts have been
reclassified to conform with current year presentation.
Notes to Consolidated Financial Statements
As of December 31, 1999 and 1998, and for the Years Ended
December 31, 1999, 1998 and 1997.
Note A: Summary of Significant
Accounting Policies
Basis of Presentation— The consolidated financial state-
ments include the accounts of Aaron Rents, Inc. and its
wholly-owned subsidiary, Aaron Investment Company
(the Company). All significant intercompany accounts and
transactions have been eliminated. The preparation of the
Company’s consolidated financial statements in conformity
with generally accepted accounting principles requires man-
agement to make estimates and assumptions that affect the
amounts reported in these financial statements and accompa-
nying notes. Actual results could differ from those estimates.
Line of Business— The Company is engaged in the
business of renting and selling residential and office furniture,
consumer electronics, appliances and other merchandise
throughout the U.S. The Company manufactures furniture
principally for its rental and sales operations.
Rental Merchandise consists primarily of residential and
office furniture, consumer electronics, appliances and other
merchandise and is recorded at cost. The rental purchase
division depreciates merchandise over the agreement period,
generally 12 months, when on rent, and 36 months, when
not on rent, to a 0% salvage value. This method is similar
to a method referred to as the income forecasting method
in the rental purchase industry. The rent-to-rent division
depreciates merchandise over its estimated useful life which
ranges from 6 months to 60 months, net of its salvage value
which ranges from 0% to 60%. All rental merchandise is
available for rental and sale.
Property, Plant and Equipment are recorded at cost.
Depreciation and amortization are computed on a straight-
line basis over the estimated useful lives of the respective
assets, which are from 8 to 27 years for buildings and
improvements and from 2 to 5 years for other depreciable
property and equipment. Gains and losses related to disposi-
tions and retirements are included in income. Maintenance
and repairs are charged to income as incurred; renewals and
betterments are capitalized.
Deferred Income Taxes are provided for temporary
differences between the amounts of assets and liabilities
for financial and tax reporting purposes. Such temporary
differences arise principally from the use of accelerated depre-
ciation methods on rental merchandise for tax purposes.
Cost of Sales includes the net book value of merchandise
sold, primarily using specific identification in the rental
purchase division and first-in, first-out in the rent-to-rent
division. It is not practicable to allocate operating expenses
between selling and rental operations.