Aarons 2011 Annual Report Download - page 31

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 $45.2 million,
$41.4 million and $40.7 million during the years ended December
31, 2011, 2010 and 2009, respectively.
Assets Held for Sale — Certain properties, primarily consisting
of parcels of land, met the held for sale classification criteria at
December 31, 2011 and 2010. After adjustment to fair value, the
$9.9 million and $11.8 million carrying value of these properties
has been classified as assets held for sale in the consolidated bal-
ance sheets as of December 31, 2011 and 2010, respectively. The
Company estimated the fair values of these properties using market
values for similar properties and these are considered Level 2 assets as
defined in FASB ASC Topic 820, Fair Value Measurements.
Goodwill and Other Intangibles with Indefinite
Lives — Goodwill and intangibles with indefinite lives represent the
excess of the purchase price paid over the fair value of the identifi-
able net tangible and intangible assets acquired in connection with
business acquisitions. Impairment occurs when the carrying value
of goodwill and intangibles with indefinite lives is not recoverable
from future cash flows. The Company performs an assessment of
goodwill and intangibles with indefinite lives for impairment at the
reporting unit level annually as of September 30, or when events or
circumstances indicate that impairment may have occurred. Factors
which could necessitate an interim impairment assessment include
a sustained decline in the Company’s stock price, prolonged nega-
tive industry or economic trends and significant underperformance
relative to expected historical or projected future operating results.
The Company tests goodwill and intangibles with indefinite lives at
the operating segment level as operations (stores) included in each
operating segment have similar economic characteristics.
Fair value of reporting units used in the goodwill and intan-
gibles with indefinite lives impairment test is determined based on
either a multiple of gross revenue or other appropriate fair value
methods. If the carrying value of the reporting unit exceeds the
fair value, a second analysis is performed to measure the fair value
of all assets and liabilities. If, based on the second analysis, it is
determined that the fair value of the assets and liabilities is less than
the carrying value, an impairment charge in an amount equal to
the excess of the carrying value over fair value would be recognized.
During the performance of the annual assessment of goodwill
and intangibles with indefinite useful lives for impairment in the
2011, 2010 and 2009 fiscal years, the Company did not identify
any reporting units which had estimated fair values that were
not substantially in excess of their carrying values other than the
HomeSmart division for which locations were recently acquired.
Other Intangibles — Other intangibles represent the value of
customer relationships acquired in connection with business acquisi-
tions, acquired franchise development rights and non-compete agree-
ments, recorded at fair value as determined by the Company. As of
December 31, 2011 and 2010, the net intangibles other than good-
will were $4.0 million and $3.8 million, respectively for the Sales
and Lease Ownership segment, and $2.0 million for the HomeSmart
segment at December 31, 2011. The customer relationship intan-
gible is amortized on a straight-line basis over a two-year useful life.
Acquired franchise development rights are amortized over the unex-
pired 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 of intangibles for the
Sales and Lease Ownership segment, included in operating expenses
in the accompanying consolidated statements of earnings, was $2.0
million, $3.1 million and $3.8 million during the years ended
December 31, 2011, 2010 and 2009, respectively. Amortization
expense of intangibles for the HomeSmart segment, included in
operating expenses in the accompanying consolidated statements of
earnings, was $312,000 during the year ended December 31, 2011.
The following is a summary of the Company’s goodwill in its
Sales and Lease Ownership segment at December 31:
(In Thousands) 2011 2010
Beginning Balance $202,379 $194,376
Additions 5,468 9,240
Disposals (2,338) (1,237)
Ending Balance $205,509 $202,379
The following is a summary of the Company’s goodwill in its
HomeSmart segment at December 31:
(In Thousands) 2011
Beginning Balance $ —
Additions 13,833
Disposals —
Ending Balance $ 13,833
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 values of the assets are not recoverable,
the Company compares the carrying values of the assets to their fair
values 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 also recorded impairment charges of $453,000
and $879,000 within operating expenses in 2011 and 2010,
respectively, both of which related primarily to the impairment
of various land outparcels and buildings included in its Sales and
Lease Ownership segment that the Company decided not to utilize
for future expansion. The assets held for sale are included in the
Other segment.
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 29