Aarons 2009 Annual Report Download - page 34

The Company generated a net operating loss (“NOL”) of
approximately $39.2 million in 2008 as a result of favorable
deductions related to bonus depreciation and fully utilized this
NOL in 2009.
Significant components of the Company’s deferred income
tax liabilities and assets at December 31 are as follows:
(In Thousands) 2009 2008
Deferred Tax Liabilities:
Lease Merchandise and Property,
Plant and Equipment $175,293 $163,707
Other, Net 19,449 15,937
Total Deferred Tax Liabilities 194,742 179,644
Deferred Tax Assets:
Accrued Liabilities 10,848 14,638
Advance Payments 14,242 12,378
Other, Net 6,436 3,990
Total Deferred Tax Assets 31,526 31,006
Less Valuation Allowance (454) -
Net Deferred Tax Liabilities $163,670 $148,638
The Company’s effective tax rate differs from the statutory
U.S. Federal income tax rate for the years ended December 31 as
follows:
2009 2008 2007
Statutory Rate 35.0% 35.0% 35.0%
Increases in U.S. Federal Taxes
Resulting From:
State Income Taxes, Net of
Federal Income Tax Benefit 2.8 3.1 2.6
Other, Net (1.8) .4 .0
Effective Tax Rate 36.0% 38.5% 37.6%
The Company files a federal consolidated income tax return
in the United States and the separate legal entities file in vari-
ous states and foreign jurisdictions. With few exceptions, the
Company is no longer subject to federal, state and local tax
examinations by tax authorities for years before 2006. The
decrease in the effective rate in 2009 was due to the favorable
impact of a $2.3 million reversal of previously recorded liabilities
for uncertain tax positions.
The following table summarizes the activity related to the
Company’s uncertain tax positions:
(In Thousands) 2009 2008 2007
Balance at January 1, $3,110 $3,482 $3,159
Additions based on tax
positions related to
the current year 172 119 178
Additions for tax positions
of prior years 523 559 343
Prior year reductions (46) (349) -
Statute expirations (2,231) (176) (61)
Settlements (186) (525) (137)
Balance at December 31, $1,342 $3,110 $3,482
As of December 31, 2009 and 2008, the amount of uncertain
tax benefits that, if recognized, would affect the effective tax
rate is $1.1 million and $3.3 million, respectively, including
interest and penalties. During the years ended December 31,
2009 and 2008, the Company recognized interest and penal-
ties of $276,000 and $435,000, respectively. The Company had
$349,000 and $877,000 of accrued interest and penalties at
December 31, 2009 and 2008, respectively. The Company rec-
ognizes potential interest and penalties related to uncertain tax
benefits as a component of income tax expense.
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The Company leases warehouse and retail store space for most
of its operations under operating leases expiring at various times
through 2028. The Company also leases certain properties under
capital leases that are more fully described in Note D. Most of the
leases contain renewal options for additional periods ranging from
one to 15 years or provide for options to purchase the related
property at predetermined purchase prices that do not represent
bargain purchase options. In addition, certain properties occupied
under operating leases contain normal purchase options. Leasehold
improvements related to these leases are generally amortized
over periods that do not exceed the lesser of the lease term or
five years. While a majority of leases do not require escalating
payments, for the leases which do contain such provisions the
Company records the related lease expense on a straight-line
basis over the lease term. The Company also leases transportation
and computer equipment under operating leases expiring during
the next five years. Management expects that most leases will be
renewed or replaced by other leases in the normal course of busi-
ness.
Future minimum lease payments required under operating
leases that have initial or remaining non-cancelable terms in
excess of one year as of December 31, 2009, are as follows:
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