Aarons 2007 Annual Report Download - page 36

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Notes to Consolidated Financial Statements
estimated fair value of the options is amortized to expense
over the options’ vesting period. The following table illus-
trates the effect on net earnings and earnings per share if the
fair value based method had been applied to all outstanding
and unvested awards for the following period:
Year Ended
(In Thousands, Except Per Share) December 31, 2005
Net Earnings before effect
of Key Executive grants $58,522
Expense effect of Key
Executive grants recognized (529)
Net earnings as reported 57,993
Stock-based Employee Compensation
Cost, Net of Tax — Pro Forma (1,996)
Pro forma net earnings $55,997
Earnings per share:
Basic — as reported $ 1.16
Basic — pro forma $ 1.12
Diluted — as reported $ 1.14
Diluted — pro forma $ 1.10
INSURANCE RESERVES — Estimated insurance reserves
are accrued primarily for group health and workers com-
pensation benefits provided to the Company’s employees.
Estimates for these insurance reserves are made based on
actual reported but unpaid claims and actuarial analyses of
the projected claims run off for both reported and incurred
but not reported claims.
COMPREHENSIVE INCOME — For the years ended December
31, 2007, 2006 and 2005, comprehensive income totaled
$80.2 million, $78.6 million, and $58.5 million, respectively.
FOREIGN CURRENCY TRANSLATION — Assets and liabilities
denominated in a foreign currency are translated into U.S.
dollars at the current rate of exchange on the last day of the
reporting period. Revenues and expenses are generally trans-
lated at a daily exchange rate and equity transactions are
translated using the actual rate on the day of the transaction.
NEW ACCOUNTING PRONOUNCEMENTS — In September
2006, the FASB issued SFAS No. 157, Fair Value
Measurements (“SFAS 157”). SFAS 157 establishes a frame-
work 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. However,
on December 14, 2007, the FASB issued FASB Staff Position
FAS 157-b, which deferred the effective date of SFAS 157 for
one year, as it relates to nonfinancial assets and liabilities.
The Company will adopt SFAS 157 as it relates to financial
assets and liabilities beginning in the first quarter of fiscal
2008. The Company is currently evaluating the impact of this
Statement on its 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 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The
Company is currently evaluating the impact of this
Statement on its financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised
2007), “Business Combinations” (“SFAS 141R”). Under SFAS
141R, an acquiring entity will be required to recognize all the
assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions. SFAS 141R
will change the accounting treatment for certain specific
acquisition related items including expensing acquisition
related costs as incurred, valuing noncontrolling interests at
fair value at the acquisition date and expensing restructuring
costs associated with an acquired business. SFAS 141R also
includes a substantial number of new disclosure require-
ments. SFAS 141R is to be applied prospectively to business
combinations for which the acquisition date is on or after
January 1, 2009. The Company is currently evaluating the
impact of this Statement on its financial statements.
NOTE B: EARNINGS PER SHARE
Earnings per share is computed by dividing net income by
the weighted average number of Common Stock and Class
A Common Stock outstanding during the year, which were
approximately 54,163,000 shares in 2007, 52,545,000
shares in 2006, and 49,846,000 shares in 2005. The
computation of earnings per share assuming dilution
includes the dilutive effect of stock options and awards.
Such stock options and awards had the effect of increasing
the weighted average shares outstanding assuming dilution
by approximately 809,000 in 2007, 832,000 in 2006 and
959,000 in 2005.
The Company has a restricted share plan in which
shares are issuable upon satisfaction of certain performance
conditions. As of December 31, 2007, only a portion of the
performance conditions have been met and therefore only a
portion of these shares have been included in the computa-
tion of diluted earnings per share. The effect of restricted
stock increased weighted average shares outstanding by
110,000 in 2007.