Aarons 2015 Annual Report Download - page 60

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Stock-Based Compensation
The Company has stock-based employee compensation plans, which are more fully described in Note 12. The Company estimates the fair value for the
options granted on the grant date using a Black-Scholes-Merton option-pricing model. The fair value of each share of restricted stock units ("RSUs"),
restricted stock awards ("RSAs") and performance share units ("PSUs") awarded is equal to the market value of a share of the Company’s common stock on the
grant date.
Deferred Income Taxes
Deferred income taxes represent primarily temporary differences between the amounts of assets and liabilities for financial and tax reporting purposes. The
Company’s largest temporary differences arise principally from the use of accelerated depreciation methods on lease merchandise for tax purposes.
Earnings per Share
Earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. The
computation of earnings per share assuming dilution includes the dilutive effect of stock options, RSUs, RSAs and PSUs as determined under the treasury
stock method. The following table shows the calculation of dilutive share-based awards for the years ended December 31 (shares in thousands):
 


Weighted average shares outstanding 72,568
72,384
75,747
Dilutive effect of share-based awards 475
339
643
Weighted average shares outstanding assuming dilution 73,043
72,723
76,390
Approximately 460,000 and 164,000 share-based awards were excluded from the computations of earnings per share assuming dilution in 2015 and 2014,
respectively, as the awards would have been anti-dilutive for the years presented. No stock options, RSUs, RSAs or PSUs were anti-dilutive during 2013.
Cash and Cash Equivalents
The Company classifies highly liquid investments with maturity dates of three months or less 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 in which the balances are held, any exposure to loss is believed to be minimal.
Investments
At December 31, 2015 and 2014, investments classified as held-to-maturity securities consisted of British pound-denominated notes issued by Perfect Home.
The Perfect Home notes, which totaled £15.1 million ($22.2 million) and £13.7 million ($21.3 million) at December 31, 2015 and December 31, 2014,
respectively, are classified as held-to-maturity securities because the Company has the positive intent and ability to hold the investments to maturity. The
Perfect Home notes are carried at amortized cost in investments in the consolidated balance sheets and mature on June 30, 2016. The increase in the carrying
amount of the notes during 2015 and 2014 relates to accretion of the original discount on the notes, which had a face value of £10.0 million.
Historically, the Company maintained investments in various corporate debt securities, or bonds, that were classified as held-to-maturity securities. During
the year ended December 31, 2014, the Company sold all of its investments in corporate bonds due to the Progressive acquisition. The amortized cost of the
investments sold was $68.7 million, and a net realized gain of approximately $95,000 was recorded.
The Company evaluates held-to-maturity 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 its remaining 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. The Company has estimated that the carrying
amount of its Perfect Home notes approximates fair value and, therefore, no impairment is considered to have occurred as of December 31, 2015.
59