Aarons 2012 Annual Report Download - page 44

34
from operations, less cash used by investing and financing activities. For additional information, refer to the ―Liquidity
and Capital Resources‖ section below.
Investment Securities. Our investment securities balance was $85.9 million at December 31, 2012 primarily as a result
of purchases of corporate bonds in 2011 and an investment in bonds issued by a privately-held rent-to-own company
based in the United Kingdom. The securities are recorded at amortized cost in the consolidated balance sheets and
mature at various dates through 2014.
Lease Merchandise, Net. The increase of $101.8 million in lease merchandise, net of accumulated depreciation, to
$964.1 million at December 31, 2012 from $862.3 million at December 31, 2011, is primarily the result of a net increase
in lease merchandise of $92.7 million in the Sales and Lease Ownership segment and $6.4 million in the HomeSmart
segment.
Goodwill. The $14.9 million increase in goodwill, to $234.2 million on December 31, 2012 from $219.3 million on
December 31, 2011, is the result of a series of acquisitions of sales and lease ownership businesses. During 2012, the
Company acquired 44 Sales and Lease Ownership stores with an aggregate purchase price of $29.7 million. The
Company acquired four stores that were converted to HomeSmart with an aggregate purchase price of $1.3 million.
The principal tangible assets acquired consisted of lease merchandise, vehicles and fixtures and equipment.
Prepaid Expenses and Other Assets. Prepaid expenses and other assets increased $31.5 million to $77.4 million at
December 31, 2012 from $45.9 million at December 31, 2011, primarily as a result of an income tax receivable of $25
million that exists as of December 31, 2012.
Accrued Litigation Expense. Accrued litigation expense decreased $41.7 million to $0 at December 31, 2012 from
$41.7 million at December 31, 2011. In 2011 the Company accrued $41.5 million, which represents the judgment, as
reduced, and associated legal fees and expenses related to the Alford v. Aarons Rents, Inc. et al case previously
discussed. The Company also recorded insurance coverage receivable of $5 million in prepaid expenses and other assets
on the consolidated balance sheet as of December 31, 2011.
Deferred Income Taxes Payable. The decrease of $23.3 million in deferred income taxes payable to $263.7 million at
December 31, 2012 from $287.0 million at December 31, 2011 is primarily the result of the reversal of bonus
depreciation deductions on lease merchandise included in the Tax Relief, Unemployment Reauthorization and Job
Creation Act of 2010.
Included in the deferred income tax payable as of December 31, 2012 are a deferred tax asset of $50.9 million and a
valuation allowance of $657,000. The Company has reserved the entire value of the Canadian net operating loss as
there is no expected taxable income to absorb the loss within that jurisdiction. With respect to all other deferred tax
assets, the Company believes it will have sufficient taxable income in future years to assure the realization of their
benefit. Future reversals of deferred tax liabilities associated with depreciation of rental inventory will occur in a
manner necessary to assure realization.
Credit Facilities. The $12.3 million decrease in the amounts owed under credit facilities, to $141.5 million on
December 31, 2012 from $153.8 million on December 31, 2011, reflects our repayment at maturity of the remaining
principal balance of $12.0 million on the 5.03% private placement note and regularly scheduled payments on other
credit facilities.