Aarons 2006 Annual Report Download - page 26

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Purchase orders or contracts for the purchase of rental
merchandise and other goods and services are not included
in the table above. We are not able to determine the aggregate
amount of such purchase orders that represent contractual
obligations, as purchase orders may represent authorizations
to purchase rather than binding agreements. Our purchase orders
are based on our current distribution needs and are fulfilled by
our vendors within short time horizons. We do not have signifi-
cant agreements for the purchase of rental merchandise or other
goods specifying minimum quantities or set prices that exceed
our expected requirements for three months.
MARKET RISK
From time-to-time, we manage our exposure to changes in
short-term interest rates, particularly to reduce the impact on
floating-rate borrowings, by entering into interest rate swap
agreements. These swap agreements involve the receipt of
amounts by us when floating rates exceed the fixed rates and
the payment of amounts by us to the counterparties when fixed
rates exceed the floating rates in the agreements over their term.
We accrue the differential we may pay or receive as interest rates
change, and recognize it as an adjustment to the floating rate
interest expense related to our debt. The counterparties to these
contracts are high credit quality commercial banks, which we
believe largely minimize the risk of counterparty default.
At December 31, 2006 and 2005 we did not have any
swap agreements.
We do not use any market risk sensitive instruments to hedge
commodity, foreign currency, or risks other than interest rate
risk, and hold no market risk sensitive instruments for trading
or speculative purposes.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board
(“FASB”) issued FASB Interpretation 48, Accounting for Income
Tax Uncertainties (“FIN 48”). FIN 48 defines the threshold for
recognizing the benefits of tax return positions in the financial
statements as “more-likely-than-not” to be sustained by the
taxing authority. The recently issued literature also provides
guidance on the derecognition, measurement and classification
of income tax uncertainties, along with any related interest and
penalties. FIN 48 also includes guidance concerning accounting
for income tax uncertainties in interim periods and increases
the level of disclosures associated with any recorded income
tax uncertainties. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The differences between the amounts
recognized in the statements of financial position prior to the
adoption of FIN 48 and the amounts reported after adoption
will be accounted for as a cumulative-effect adjustment recorded
to the beginning balance of retained earnings. We are currently
evaluating the impact of FIN 48 on our financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (“SFAS 157”). SFAS 157 establishes a framework
for measuring the fair value of assets and liabilities which is
intended to provide increased consistency in how fair value
determinations are made under various existing accounting
standards which permit, or in some cases require, estimates
of fair value market value. SFAS 157 also expands financial
statement disclosure requirements about the use of fair value
measurements, including the effect of such measures on earnings.
SFAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods
within those years. We are currently evaluating the impact of
this Statement on our financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities —
Including an Amendment of SFAS No. 115 (“SFAS 159”). SFAS
159 permits an entity to choose to measure many financial
instruments and certain other items at fair value. SFAS 159
is effective for financial statements issued for fiscal years
beginning after November 15, 2007. We are currently evaluating
the impact of this Statement on our financial statements.