Aarons 2012 Annual Report Download - page 61

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51
effect of stock options, restricted stock units (―RSUs‖) and restricted stock awards (―RSAs‖) as determined under
the treasury stock method. The following table shows the calculation of dilutive stock awards for the years ended
December 31 (shares in thousands):
2012
2011
2010
Weighted average shares outstanding
75,820
78,101
81,194
Effect of dilutive securities:
Stock options
789
998
745
RSUs
210
237
25
RSAs
7
3
138
Weighted average shares outstanding assuming dilution
76,826
79,339
82,102
Approximately 53,000 and 314,000 stock-based awards were excluded from the computations of earnings per share
assuming dilution in 2012 and 2010, respectively, because the awards would have been anti-dilutive for the years
presented. No stock options, RSUs or RSAs were anti-dilutive during 2011. In addition, under the terms of the
Company’s performance-based RSUs issued in 2012, approximately 167,000 RSUs will vest based on the
achievement of revenue and pre-tax profit margin targets applicable to performance periods beginning subsequent to
December 31, 2012. Accordingly, approximately 167,000 RSUs are not included in the computation of diluted EPS
for the year ended December 31, 2012. Refer to Note 10 for additional information regarding the Company’s
restricted stock arrangements.
Lease Merchandise
The Company’s lease merchandise consists primarily of consumer electronics, computers, residential furniture,
appliances, and household accessories and is recorded at cost, which includes overhead from production facilities,
shipping costs and warehousing costs. The sales and lease ownership stores depreciate merchandise over the lease
agreement period, generally 12 to 24 months (monthly agreements) or 60 to 120 weeks (weekly agreements) when
on lease and 36 months when not on lease, to a 0% salvage value. The Company’s policies require weekly lease
merchandise counts at the store, which include write-offs for unsalable, damaged, or missing merchandise
inventories. Full physical inventories are generally taken at the fulfillment and manufacturing facilities two to four
times a year, and appropriate provisions are made for missing, damaged and unsalable merchandise. In addition, the
Company monitors lease merchandise levels and mix by division, store, and fulfillment center, as well as the
average age of merchandise on hand. If unsalable lease merchandise cannot be returned to vendors, it is adjusted to
its net realizable value or written off.
All lease merchandise is available for lease or sale. On a monthly basis, all damaged, lost or unsalable merchandise
identified is written off. The Company records lease merchandise adjustments on the allowance method. Lease
merchandise write-offs totaled $54.9 million, $46.2 million, and $46.5 million during the years ended December 31,
2012, 2011 and 2010, respectively, and are included in operating expenses in the accompanying consolidated
statements of earnings. Included in 2010 is a write-down of $4.7 million related to the closure of stores of the
Aaron’s Office Furniture division.
Cash and Cash Equivalents
The Company classifies highly liquid investments with maturity dates of less than three months when purchased as
cash equivalents.
Investments
The Company maintains investments in various corporate debt securities, or bonds. The Company has the positive
intent and ability to hold its investments in debt securities, which mature at various dates from 2013 to 2014, to
maturity. Accordingly, the Company classifies its investments in debt securities as held-to-maturity securities and
carries the investments at amortized cost in the consolidated balance sheets.
The Company evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently
when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the
issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value. The Company does not intend to sell the securities and
it is not more likely than not that the Company will be required to sell the investments before recovery of their
amortized cost bases.