Aarons 2013 Annual Report Download - page 57

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Lease Merchandise
The Company’s lease merchandise consists primarily of consumer electronics, computers, 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 $58.0 million, $54.9 million and $46.2 million during the years ended December 31, 2013, 2012 and 2011, respectively,
and are included in operating expenses in the accompanying consolidated statements of earnings.
Cash and Cash Equivalents
The Company classifies highly liquid investments with maturity dates of less than three months when purchased as cash
equivalents. The Company maintains its cash and cash equivalents in a limited number of banks. Bank balances typically
exceed coverage provided by the Federal Deposit Insurance Corporation. However, due to the size and strength of the banks
where the balances are held, such exposure to loss is considered minimal.
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 to maturity. Accordingly, the Company classifies its investments in debt
securities, which mature at various dates from 2014 to 2015, 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.
Accounts Receivable
Accounts receivable consist primarily of receivables due from customers of Company-operated stores, corporate receivables
incurred during the normal course of business (primarily related to vendor consideration, real estate leasing activities and in-
transit credit card transactions) and franchisee obligations. Accounts receivable, net of allowances, consists of the following as
of December 31:
(In Thousands) 2013 2012
Customers $ 8,275 $ 7,840
Corporate 16,730 17,215
Franchisee 43,679 49,102
$ 68,684 $ 74,157