Aarons 2009 Annual Report Download - page 31

IMPAIRMENT — The Company assesses its long-lived assets other
than goodwill for impairment whenever facts and circumstances
indicate that the carrying amount may not be fully recoverable.
When it is determined that the carrying value of the assets are
not recoverable, the Company compares the carrying value of the
assets to their fair value as estimated using discounted expected
future cash flows, market values or replacement values for similar
assets. The amount by which the carrying value exceeds the
fair value of the asset is recognized as an impairment loss. The
Company performed an impairment analysis on the Aaron’s Office
Furniture long-lived assets in the third quarter of 2009 due to
continuing negative performance. As a result, the Company also
recorded an impairment charge of $1.3 million within operat-
ing expenses related primarily to the impairment of leasehold
improvements in the Aaron’s Office Furniture stores. In addition,
the Company recorded an $865,000 write-down to certain office
furniture lease merchandise in 2009 within operating expenses.
The impairment charge and inventory write-down are included in
the other segment.
The Company also recorded an impairment charge of $3.0
million within operating expenses in 2009 which relates primar-
ily to the impairment of various land outparcels and buildings
included in our sales and lease ownership segment that the
Company decided not to utilize for future expansion. In 2008,
the Company recorded an impairment charge of $838,000 within
operating expenses which related primarily to the impairment of
leasehold improvements in several of our RIMCO stores included
in our sales and lease ownership segment.
FAIR VALUE OF FINANCIAL INSTRUMENTS — The fair values of the
Company’s cash and cash equivalents, accounts receivable and
accounts payable approximate their carrying amounts due to their
short-term nature.
DEFERRED INCOME TAXES — Deferred income taxes represent pri-
marily 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 deprecia-
tion methods on lease merchandise for tax purposes.
REVENUE RECOGNITION — Lease revenues are recognized as revenue
in the month they are due. Lease payments received prior to the
month due are recorded as deferred lease revenue. Until all pay-
ments are received under sales and lease ownership agreements,
the Company maintains ownership of the lease merchandise.
Revenues from the sale of merchandise to franchisees are recog-
nized at the time of receipt of the merchandise by the franchisee,
and revenues from such sales to other customers are recognized
at the time of shipment, at which time title and risk of ownership
are transferred to the customer. Refer to Note I for discussion of
recognition of other franchise-related revenues. The Company
presents sales net of sales taxes.
COST OF SALES — Included in cost of sales is the net book value of
merchandise sold, primarily using specific identification. It is not
practicable to allocate operating expenses between selling and
lease operations.
SHIPPING AND HANDLING COSTS — The Company classifies shipping
and handling costs as operating expenses in the accompanying
consolidated statements of earnings, and these costs totaled $55.0
million in 2009, $55.1 million in 2008 and $48.1 million in 2007.
The following is a summary of the Company’s allowance for
doubtful accounts as of December 31:
(In Thousands) 2009 2008 2007
Beginning Balance $ 4,040 $4,014 $2,773
Accounts written off (20,352) (18,876) (18,509)
Provision 20, 469 18,902 19,750
Ending Balance $ 4,157 $4,040 $4,014
PROPERTY, PLANT AND EQUIPMENT — The Company records prop-
erty, plant and equipment at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful
lives of the respective assets, which are from eight to 40 years
for buildings and improvements and from one to five years for
other depreciable property and equipment. Gains and losses
related to dispositions and retirements are recognized as incurred.
Maintenance and repairs are also expensed as incurred; renewals
and betterments are capitalized. Depreciation expense, included in
operating expenses in the accompanying consolidated statements
of earnings, for property, plant and equipment was $40.7 million,
$38.4 million and $34.8 million during the years ended December
31, 2009, 2008 and 2007, respectively.
GOODWILL AND OTHER INTANGIBLES — Goodwill represents the
excess of the purchase price paid over the fair value of the net
tangible and identifiable intangible assets acquired in connection
with business acquisitions. The Company has elected to perform its
annual impairment evaluation as of September 30. Based on the
evaluation, there was no impairment as of September 30, 2009.
More frequent evaluations are completed if indicators of impair-
ment become evident. Other intangibles represent the value of
customer relationships acquired in connection with business acqui-
sitions, acquired franchise development rights and non-compete
agreements, recorded at fair value as determined by the Company.
As of December 31, 2009 and 2008, the net intangibles other
than goodwill were $5.2 million and $7.5 million, respectively. The
customer relationship intangible is amortized on a straight-line
basis over a two-year useful life. Acquired franchise development
rights are amortized over the unexpired life of the franchisee’s ten
year area development agreement. The non-compete intangible
is amortized on a straight-line basis over a three-year useful
life. Amortization expense on intangibles, included in operating
expenses in the accompanying consolidated statements of earn-
ings, was $3.8 million, $3.0 million and $2.5 million during the
years ended December 31, 2009, 2008 and 2007, respectively.
The following is a summary of the Company’s goodwill in its
sales and lease ownership segment at December 31:
(In Thousands) 2009 2008
Beginning Balance $185,965 $141,894
Additions 12,947 44,071
Disposals (4,536)
Ending Balance $194,376 $185,965

