Aarons 2013 Annual Report Download - page 60

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Derivative Financial Instruments
The Company utilizes derivative financial instruments, from time to time, to mitigate its exposure to certain market risks
associated with its ongoing operations for a portion of the year. The primary risk it seeks to manage through the use of
derivative financial instruments is commodity price risk, including the risk of increases in the market price of diesel fuel used in
the Company’s delivery vehicles. All derivative financial instruments are recorded at fair value on the consolidated balance
sheets. The Company does not use derivative financial instruments for trading or speculative purposes. The Company is
exposed to counterparty credit risk on all its derivative financial instruments. The counterparties to these contracts are high
credit quality commercial banks, which the Company believes largely minimizes the risk of counterparty default. The Company
did not hold any derivative financial instruments as of December 31, 2013 or 2012.
Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. To increase the comparability of fair value measures, the following
hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that
are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available
assumptions made by other market participants. These valuations require significant judgment.
The Company measures assets held for sale at fair value on a nonrecurring basis and records impairment charges when they are
deemed to be impaired. The Company maintains certain financial assets and liabilities, including investments and fixed-rate
long term debt, that are not measured at fair value but for which fair value is disclosed.
The fair values of the Company’s other current financial assets and liabilities, including cash and cash equivalents, accounts
receivable and accounts payable, approximate their carrying values due to their short-term nature.
Foreign Currency
The financial statements of international subsidiaries are translated to U.S. dollars using month-end rates of exchange for assets
and liabilities, and average rates of exchange for revenues, costs and expenses. Translation gains and losses of international
subsidiaries are recorded in accumulated other comprehensive income as a component of shareholders’ equity. Foreign currency
transaction gains and losses are recorded as a component of other non-operating income (expense), net in the consolidated
statements of earnings and amounted to losses of approximately $1.0 million and $465,000 during 2013 and 2011, respectively,
and gains of $2.0 million during 2012.
Recent Accounting Pronouncements
In February 2013, the FASB issued Accounting Standards Update 2013-2, Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income (“ASU 2013-2”). ASU 2013-2 requires preparers to report, in one place,
information about reclassifications out of accumulated other comprehensive income (“AOCI”). ASU 2013-2 also requires
companies to report changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in
the same reporting period, reporting (either on the face of the statement where net income is presented or in the notes) is
required about the effect of the reclassifications on the respective line items in the statement where net income is presented. For
items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other disclosures
currently required under US GAAP is required in the notes. The above information must be presented in one place
(parenthetically on the face of the financial statements by income statement line item or in a note). ASU 2013-2 was effective
for the Company beginning in 2013. The adoption of ASU 2013-2 did not have a material effect on the Company's consolidated
financial statements.