Aarons 2009 Annual Report Download - page 30

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As of December 31, 2009 and 2008, and for the Years Ended
December 31, 2009, 2008 and 2007.
BASIS OF PRESENTATION — The consolidated financial statements
include the accounts of Aaron’s, Inc. and its wholly owned sub-
sidiaries (the “Company”). All significant intercompany accounts
and transactions have been eliminated. The preparation of the
Company’s consolidated financial statements in conformity with
United States generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates. Generally,
actual experience has been consistent with management’s prior
estimates and assumptions. Management does not believe these
estimates or assumptions will change significantly in the future
absent unsurfaced or unforeseen events.
Effective July 1, 2009, the Company adopted the Financial
Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 105-10, “Generally Accepted Accounting
Principles — Overall” (“ASC 105-10”). ASC 105-10 establishes the
FASB Accounting Standards Codification (the “Codification”)
as the source of authoritative accounting principles recognized
by the FASB to be applied by non-governmental entities in the
preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under author-
ity of federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants. All guidance contained in the
Codification carries an equal level of authority. The Codification
superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative.
The FASB will not issue new standards in the form of Statements,
FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates (“ASUs”). The
FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide back-
ground information about the guidance and provide the bases
for conclusions on the change(s) in the Codification. References
previously made to FASB guidance throughout this document
have been updated for the Codification.
During the fourth quarter of 2008, the Company sold sub-
stantially all of the assets of its Aaron’s Corporate Furnishings
division. As a result of the sale, the Company’s financial state-
ments have been prepared reflecting the Aaron’s Corporate
Furnishings division as discontinued operations. All historical
financial statements have been restated to conform to this pre-
sentation. See Note N for a discussion of the sale of the Aaron’s
Corporate Furnishings division.
Certain reclassifications have been made to the prior periods
to conform to the current period presentation. In all periods
presented, Aaron’s Office Furniture was reclassified from the
Sales and Lease Ownership Segment to the Other Segment. Refer
to Note K for the segment disclosure.
The Company evaluated subsequent events through February
26, 2010 which represents the date the financial statements
were issued.
LINE OF BUSINESS — The Company is engaged in the business of
leasing and selling residential and office furniture, consumer elec-
tronics, appliances, computers, and other merchandise throughout
the U.S. and Canada. The Company manufactures furniture princi-
pally for its stores.
LEASE MERCHANDISE — The Company’s lease merchandise consists
primarily of residential and office furniture, consumer electronics,
appliances, computers, and other merchandise and is recorded at
cost, which includes overhead from production facilities, shipping
costs and warehousing costs. The sales and lease ownership divi-
sion depreciates merchandise over the lease agreement period,
generally 12 to 24 months when on rent and 36 months when not
on lease, to a 0% salvage value. The office furniture stores depre-
ciate merchandise over the lease ownership agreement period,
generally 12 to 24 months when leased, and 60 months when not
leased, or when on a rent-to-rent agreement, to 0% salvage value.
The Company’s policies require weekly lease merchandise counts
by store managers, which include write-offs for unsalable, dam-
aged, or missing merchandise inventories. Full physical inventories
are generally taken at the fulfillment and manufacturing facilities
two to four times a year, and appropriate provisions are made
for missing, damaged and unsalable merchandise. In addition,
the Company monitors lease merchandise levels and mix by divi-
sion, store, and fulfillment center, as well as the average age of
merchandise on hand. If unsalable lease merchandise cannot be
returned to vendors, it is adjusted to its net realizable value or
written off.
All lease merchandise is available for lease or sale. On a
monthly basis, all damaged, lost or unsalable merchandise
identified is written off. The Company records lease merchandise
adjustments on the allowance method. Lease merchandise write-
offs totaled $38.3 million, $34.5 million and $29.0 million during
the years ended December 31, 2009, 2008 and 2007, respectively,
and are included in operating expenses in the accompanying
consolidated statements of earnings.
CASH AND CASH EQUIVALENTS — The Company classifies as cash
highly liquid investments with maturity dates of less than three
months when purchased.
ACCOUNTS RECEIVABLE — The Company maintains an allowance for
doubtful accounts. The reserve for returns is calculated based on
the historical collection experience associated with lease receiv-
ables. The Company’s policy is to write off lease receivables that
are 60 days or more past due.
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