Aarons 2010 Annual Report Download - page 36

December 31, 2010 there was $24.0 million outstanding under the
July 2005 senior unsecured notes.
At December 31, 2010, the fair value of fixed-rate long-term debt
approximated its carrying value. The fair value of debt is estimated
using valuation techniques that consider risk-free borrowing rates
and credit risk.
CAPITAL LEASES WITH RELATED PARTIES — In October
and November 2004, the Company sold 11 properties, including
leasehold improvements, to a limited liability company (“LLC”)
controlled by a group of Company executives, including the
Company’s Chairman. The LLC obtained borrowings collateralized
by the land and buildings totaling $6.8 million. The Company
occupies the land and buildings collateralizing the borrowings under
a 15-year term lease, with a five-year renewal at the Company’s
option, at an aggregate annual rental of $716,000. The transaction
has been accounted for as a financing in the accompanying consoli-
dated financial statements. The rate of interest implicit in the leases
is approximately 9.7%. Accordingly, the land and buildings, associ-
ated depreciation expense and lease obligations are recorded in the
Company’s consolidated financial statements. No gain or loss was
recognized in this transaction.
In December 2002, the Company sold 10 properties, including
leasehold improvements, to the LLC. The LLC obtained borrowings
collateralized by the land and buildings totaling $5.0 million. The
Company occupies the land and buildings collateralizing the bor-
rowings under a 15-year term lease at an aggregate annual rental of
approximately $556,000. The transaction has been accounted for as
a financing in the accompanying consolidated financial statements.
The rate of interest implicit in the leases is approximately 11.1%.
Accordingly, the land and buildings, associated depreciation expense
and lease obligations are recorded in the Company’s consolidated
financial statements. No gain or loss was recognized in this
transaction.
SALE-LEASEBACKS — The Company finances a portion of store
expansion through sale-leaseback transactions. The properties are
generally sold at net book value and the resulting leases qualify
and are accounted for as operating leases. The Company does not
have any retained or contingent interests in the stores nor does the
Company provide any guarantees, other than a corporate level guar-
antee of lease payments, in connection with the sale-leasebacks.
OTHER DEBT — Other debt at December 31, 2010 and 2009
includes $3.3 million of industrial development corporation revenue
bonds. The weighted-average borrowing rate on these bonds in
2010 was 0.48%. No principal payments are due on the bonds until
maturity in 2015.
Future maturities under the Company’s long-term debt and
capital lease obligations are as follows:
(In Thousands)
2011 $13,339
2012 13,285
2013 1,423
2014 1,549
2015 5,039
Thereafter 7,155
$41,790
Income Taxes
Following is a summary of the Company’s income tax expense for
the years ended December 31:
(In Thousands) 2010 2009 2008
Current Income Tax Expense (Benefit):
Federal $ — $40,697 $(26,324)
State 8,932 7,832 5,062
8,932 48,529 (21,262)
Deferred Income Tax Expense (Benefit):
Federal 64,679 15,169 73,375
State (1,201) (137) 1,698
63,478 15,032 75,073
$72,410 $63,561 $ 53,811
At December 31, 2010, the Company had a federal net operating
loss (“NOL”) carryforward of approximately $18.0 million available
to offset future taxable income. The NOL expires in 2030 and its
utilization is subject to applicable annual limitations for U.S. federal
and U.S. state tax purposes, including Section 382 of the Internal
Revenue Code of 1986, as amended. The Company intends to
carryforward the NOL to offset future taxable income and does
not anticipate that its utilization will be impacted by the applicable
limitations.
As a result of the bonus depreciation provisions in the 2010
tax acts, the Company has paid more than our anticipated 2010
federal tax liability. The 2010 acts provided an estimated tax deferral
of approximately $127.0 million. The Company filed for a refund of
overpaid federal tax of approximately $81.0 million in January 2011
and received that refund in February 2011.
Significant components of the Company’s deferred income tax
liabilities and assets at December 31 are as follows:
Notes to Consolidated Financial Statements
E
Note
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