Aarons 2012 Annual Report Download - page 68

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1 The fair value of corporate bonds is determined through the use of model-based valuation techniques
for which all significant assumptions are observable in the market.
2 The Perfect Home bonds were initially valued at cost. The Company periodically reviews the valuation
utilizing company-specific transactions or deterioration in the company’s financial performance to
determine if fair value adjustments are necessary.
3 The fair value of fixed-rate long term debt is estimated using the present value of underlying cash
flows discounted at a current market yield for similar instruments. The carrying value and fair value of
fixed-rate long term debt at December 31, 2012 was $125.0 million and $127.3 million, respectively,
and $137.0 million and $135.0 million, respectively, at December 31, 2011.
Held-to-Maturity Securities
The Company classifies its investments in debt securities as held-to-maturity securities based on its intent and ability
to hold these securities to maturity. Accordingly, the debt securities, which mature at various dates during 2013 and
2014, are recorded at amortized cost in the consolidated balance sheets. At December 31, 2012 and 2011,
investments classified as held-to-maturity securities consisted of the following:
Gross Unrealized
(In Thousands)
Amortized Cost
Gains
Losses
Fair Value
2012
Corporate Bonds
$ 67,412
$ 99
$ (41)
$ 67,470
Perfect Home Bonds
18,449
-
-
18,449
Total
$ 85,861
$ 99
$ (41)
$ 85,919
2011
Corporate Bonds
$ 82,243
$ 15
$ (664)
$ 81,594
Perfect Home Bonds
15,889
-
-
15,889
Total
$ 98,132
$ 15
$ (664)
$ 97,483
The amortized cost and fair value of held-to-maturity securities by contractual maturity as of December 31, 2012 are
as follows:
(In Thousands)
Amortized Cost
Fair Value
Due in one year or less
$
43,482
$
43,547
Due in years one through two
42,379
42,372
Total
$
85,861
$
85,919
Information pertaining to held-to-maturity securities with gross unrealized losses is as follows. All of the securities
have been in a continuous loss position for less than 12 months.
December 31, 2012
December 31, 2011
(In Thousands)
Fair Value
Gross Unrealized Losses
Fair Value
Gross Unrealized Losses
Corporate Bonds
$ 22,785
$ (41)
$ 72,315
$ (664)
The unrealized losses relate principally to the increases in short-term market interest rates that occurred since the
securities were purchased. As of December 31, 2012, 16 of the 38 securities are in an unrealized loss position and at
December 31, 2011, 38 of the 44 securities were in an unrealized loss position. The fair value is expected to recover
as the securities approach their maturity or if market yields for such investments decline. In analyzing an issuer’s
financial condition, management considers whether downgrades by bond rating agencies have occurred. The
Company has the intent and ability to hold the investments until their amortized cost basis is recovered on the
maturity date. As a result of management’s analysis and review, no declines are deemed to be other than temporary.
The Company has estimated that the carrying value of its Perfect Home bonds approximates fair value and,
therefore, no impairment is considered to have occurred as of December 31, 2012. While no impairment was noted
during 2012, if profitability is delayed as a result of the significant start-up expenses associated with Perfect Home,
there could be a change in the valuation of the Perfect Home bonds that may result in the recognition of an
impairment loss in future periods.