ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Georgia | 58-0687630 | |
(State or other jurisdiction of incorporation or organization) | (I. R. S. Employer Identification No.) | |
309 E. Paces Ferry Road, N.E. Atlanta, Georgia | 30305-2377 | |
(Address of principal executive offices) | (Zip Code) |
Large Accelerated Filer | ý | Accelerated Filer | ¨ | ||||
Non-Accelerated Filer | o | (Do not check if a smaller reporting company) | Smaller Reporting Company | ¨ |
Title of Each Class | Shares Outstanding as of July 30, 2013 | |
Common Stock, $.50 Par Value | 75,985,522 |
(Unaudited) | |||||||
(In Thousands, Except Share Data) | June 30, 2013 | December 31, 2012 | |||||
ASSETS: | |||||||
Cash and Cash Equivalents | $ | 210,665 | $ | 129,534 | |||
Investments | 93,409 | 85,861 | |||||
Accounts Receivable (net of allowances of $6,628 in 2013 and $6,001 in 2012) | 58,473 | 74,157 | |||||
Lease Merchandise (net of accumulated depreciation of $587,237 in 2013 and $575,527 in 2012) | 965,909 | 964,067 | |||||
Property, Plant and Equipment at Cost (net of accumulated depreciation and amortization of $186,213 in 2013 and $173,915 in 2012) | 231,678 | 230,598 | |||||
Goodwill | 235,048 | 234,195 | |||||
Other Intangibles, Net | 4,328 | 6,026 | |||||
Prepaid Expenses and Other Assets | 68,450 | 77,387 | |||||
Assets Held For Sale | 7,252 | 11,104 | |||||
Total Assets | $ | 1,875,212 | $ | 1,812,929 | |||
LIABILITIES & SHAREHOLDERS’ EQUITY: | |||||||
Accounts Payable and Accrued Expenses | $ | 223,973 | $ | 225,532 | |||
Deferred Income Taxes Payable | 254,510 | 263,721 | |||||
Customer Deposits and Advance Payments | 39,853 | 46,022 | |||||
Debt | 141,348 | 141,528 | |||||
Total Liabilities | 659,684 | 676,803 | |||||
Commitments and Contingencies (Note 5) | |||||||
Shareholders’ Equity: | |||||||
Common Stock, Par Value $.50 Per Share; Authorized: 225,000,000 Shares at June 30, 2013 and December 31, 2012; Shares Issued: 90,752,123 at June 30, 2013 and December 31, 2012 | 45,376 | 45,376 | |||||
Additional Paid-in Capital | 221,902 | 220,362 | |||||
Retained Earnings | 1,161,308 | 1,087,032 | |||||
Accumulated Other Comprehensive Loss | (86 | ) | (69 | ) | |||
1,428,500 | 1,352,701 | ||||||
Less: Treasury Shares at Cost | |||||||
Common Stock, 14,781,707 Shares at June 30, 2013 and 15,031,741 Shares at December 31, 2012 | (212,972 | ) | (216,575 | ) | |||
Total Shareholders’ Equity | 1,215,528 | 1,136,126 | |||||
Total Liabilities & Shareholders’ Equity | $ | 1,875,212 | $ | 1,812,929 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(In Thousands, Except Per Share Data) | 2013 | 2012 | 2013 | 2012 | |||||||||||
REVENUES: | |||||||||||||||
Lease Revenues and Fees | $ | 436,688 | $ | 414,968 | $ | 904,792 | $ | 850,074 | |||||||
Retail Sales | 8,884 | 8,459 | 23,303 | 22,207 | |||||||||||
Non-Retail Sales | 86,785 | 96,376 | 177,740 | 211,939 | |||||||||||
Franchise Royalties and Fees | 16,834 | 16,142 | 35,034 | 33,647 | |||||||||||
Other | 2,873 | 2,674 | 6,336 | 6,748 | |||||||||||
552,064 | 538,619 | 1,147,205 | 1,124,615 | ||||||||||||
COSTS AND EXPENSES: | |||||||||||||||
Retail Cost of Sales | 5,307 | 4,700 | 13,661 | 12,424 | |||||||||||
Non-Retail Cost of Sales | 79,369 | 88,580 | 162,198 | 193,462 | |||||||||||
Operating Expenses | 251,924 | 237,573 | 505,878 | 472,483 | |||||||||||
Legal and Regulatory Expense/(Income) | 15,000 | — | 15,000 | (35,500 | ) | ||||||||||
Retirement and Vacation Charges | 4,917 | — | 4,917 | — | |||||||||||
Depreciation of Lease Merchandise | 154,422 | 148,406 | 322,625 | 306,567 | |||||||||||
510,939 | 479,259 | 1,024,279 | 949,436 | ||||||||||||
OPERATING PROFIT | 41,125 | 59,360 | 122,926 | 175,179 | |||||||||||
Interest Income | 770 | 896 | 1,522 | 1,776 | |||||||||||
Interest Expense | (1,508 | ) | (1,666 | ) | (3,019 | ) | (3,336 | ) | |||||||
EARNINGS BEFORE INCOME TAXES | 40,387 | 58,590 | 121,429 | 173,619 | |||||||||||
INCOME TAXES | 14,533 | 22,346 | 44,575 | 66,149 | |||||||||||
NET EARNINGS | $ | 25,854 | $ | 36,244 | $ | 76,854 | $ | 107,470 | |||||||
EARNINGS PER SHARE | |||||||||||||||
Basic | $ | .34 | $ | .48 | $ | 1.01 | $ | 1.42 | |||||||
Assuming Dilution | $ | .34 | $ | .47 | $ | 1.00 | $ | 1.40 | |||||||
CASH DIVIDENDS DECLARED PER SHARE: | |||||||||||||||
Common Stock | $ | .017 | $ | .015 | $ | .034 | $ | .030 | |||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | |||||||||||||||
Basic | 75,901 | 75,927 | 75,831 | 75,949 | |||||||||||
Assuming Dilution | 76,589 | 76,979 | 76,579 | 77,006 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(In Thousands) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Net Earnings | $ | 25,854 | $ | 36,244 | $ | 76,854 | $ | 107,470 | |||||||
Other Comprehensive Loss: | |||||||||||||||
Foreign Currency Translation Adjustment | (6 | ) | (921 | ) | (17 | ) | (365 | ) | |||||||
Total Other Comprehensive Loss | (6 | ) | (921 | ) | (17 | ) | (365 | ) | |||||||
Comprehensive Income | $ | 25,848 | $ | 35,323 | $ | 76,837 | $ | 107,105 |
Six Months Ended June 30, | |||||||
(In Thousands) | 2013 | 2012 | |||||
OPERATING ACTIVITIES: | |||||||
Net Earnings | $ | 76,854 | $ | 107,470 | |||
Adjustments to Reconcile Net Earnings to Cash Provided by Operating Activities: | |||||||
Depreciation of Lease Merchandise | 322,625 | 306,567 | |||||
Other Depreciation and Amortization | 28,351 | 26,350 | |||||
Bad Debt Expense | 15,703 | 13,384 | |||||
Stock-Based Compensation | 937 | 2,231 | |||||
Loss on Sale of Property, Plant and Equipment and Assets Held for Sale | 386 | 289 | |||||
Change in Deferred Income Taxes | (9,211 | ) | (18,229 | ) | |||
Excess Tax Benefits from Stock-Based Compensation | (956 | ) | (1,521 | ) | |||
Other Changes, Net | 5,516 | 909 | |||||
Changes in Operating Assets and Liabilities, Net of Effects Of Acquisitions and Dispositions: | |||||||
Additions to Lease Merchandise | (524,107 | ) | (570,032 | ) | |||
Book Value of Lease Merchandise Sold or Disposed | 200,835 | 230,405 | |||||
Accounts Receivable | (1 | ) | 4,565 | ||||
Prepaid Expenses and Other Assets | (7,052 | ) | (9,327 | ) | |||
Income Tax Receivable | 15,530 | 2,615 | |||||
Accounts Payable and Accrued Expenses | (17,877 | ) | (9,025 | ) | |||
Accrued Legal and Regulatory Expense | 15,000 | (41,720 | ) | ||||
Customer Deposits and Advance Payments | (6,224 | ) | 1,801 | ||||
Cash Provided by Operating Activities | 116,309 | 46,732 | |||||
INVESTING ACTIVITIES: | |||||||
Purchases of Investments | (31,308 | ) | (71,464 | ) | |||
Proceeds from Maturities and Calls of Investments | 22,230 | 12,000 | |||||
Additions to Property, Plant and Equipment | (29,854 | ) | (27,786 | ) | |||
Acquisitions of Businesses and Contracts | (2,378 | ) | (23,130 | ) | |||
Proceeds from Sale of Property, Plant and Equipment | 4,149 | 1,991 | |||||
Cash Used in Investing Activities | (37,161 | ) | (108,389 | ) | |||
FINANCING ACTIVITIES: | |||||||
Proceeds from Debt | — | 2,546 | |||||
Repayments on Debt | (934 | ) | (2,630 | ) | |||
Dividends Paid | (1,289 | ) | (2,273 | ) | |||
Acquisition of Treasury Stock | — | (9,536 | ) | ||||
Excess Tax Benefits from Stock-Based Compensation | 956 | 1,521 | |||||
Issuance of Stock Under Stock Option Plans | 3,250 | 5,384 | |||||
Cash Provided by (Used in) Financing Activities | 1,983 | (4,988 | ) | ||||
Increase (Decrease) in Cash and Cash Equivalents | 81,131 | (66,645 | ) | ||||
Cash and Cash Equivalents at Beginning of Period | 129,534 | 176,257 | |||||
Cash and Cash Equivalents at End of Period | $ | 210,665 | $ | 109,612 |
NOTE 1: | BASIS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||
Weighted average shares outstanding | 75,901 | 75,927 | 75,831 | 75,949 | |||||||
Effect of dilutive securities: | |||||||||||
Stock options | 471 | 843 | 506 | 859 | |||||||
RSUs | 202 | 204 | 229 | 193 | |||||||
RSAs | 15 | 5 | 13 | 5 | |||||||
Weighted average shares outstanding assuming dilution | 76,589 | 76,979 | 76,579 | 77,006 |
(In Thousands) | June 30, 2013 | December 31, 2012 | |||||
Customers | $ | 8,297 | $ | 7,840 | |||
Corporate | 17,769 | 17,215 | |||||
Franchisee | 32,407 | 49,102 | |||||
$ | 58,473 | $ | 74,157 |
(In Thousands) | Foreign Currency | Total | |||||
Balance at January 1, 2013 | $ | (69 | ) | $ | (69 | ) | |
Other comprehensive loss | (17 | ) | (17 | ) | |||
Balance at June 30, 2013 | $ | (86 | ) | $ | (86 | ) |
NOTE 2. | ACQUISITIONS |
(In Thousands, except for store data) | 2013 | 2012 | |||||
Number of stores acquired, net | 3 | 16 | |||||
Aggregate purchase price (primarily cash consideration) | $ | 2,378 | $ | 23,130 | |||
Purchase price allocation: | |||||||
Lease Merchandise | 1,195 | 8,688 | |||||
Property, Plant and Equipment | 78 | 579 | |||||
Other Current Assets and Current Liabilities | (35 | ) | (4 | ) | |||
Identifiable Intangible Assets1 | |||||||
Customer Relationships | 130 | 1,255 | |||||
Non-Compete Agreements | 111 | 881 | |||||
Acquired Franchise Development Rights | 66 | 578 | |||||
Goodwill2 | 833 | 11,153 |
1 | The Company amortizes customer relationship intangible assets on a straight-line basis over a two-year estimated useful life. The Company amortizes non-compete intangible assets on a straight-line basis over a three-year estimated useful life. The Company amortizes acquired franchise development rights on a straight-line basis over the unexpired life of the franchisee’s ten year area development agreement. |
2 | Goodwill recognized from acquisitions primarily relates to the future strategic benefits expected to be realized upon integrating the businesses. All goodwill resulting from the Company’s 2013 and 2012 acquisitions is expected to be deductible for tax purposes. During the six months ended June 30, 2013, goodwill of approximately $833,000 was assigned to the Company’s Sales and Lease Ownership operating segment. During the six months ended June 30, 2012, goodwill of approximately $10.6 million and $476,000 was assigned to the Company’s Sales and Lease Ownership and HomeSmart operating segments, respectively. |
NOTE 3. | FAIR VALUE MEASUREMENT |
(In Thousands) | June 30, 2013 | December 31, 2012 | |||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Deferred Compensation Liability | $ | — | $ | (10,917 | ) | $ | — | $ | — | $ | (9,518 | ) | $ | — |
(In Thousands) | June 30, 2013 | December 31, 2012 | |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Assets Held for Sale | $ | — | 7,252 | $ | — | $ | — | 11,104 | $ | — |
(In Thousands) | June 30, 2013 | December 31, 2012 | |||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Corporate Bonds1 | $ | — | $ | 75,161 | $ | — | $ | — | $ | 67,470 | $ | — | |||||||||||
Perfect Home Notes2 | — | — | 18,115 | — | — | 18,449 | |||||||||||||||||
Fixed-Rate Long Term Debt3 | — | (131,245 | ) | — | — | (127,261 | ) | — |
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 notes were initially valued at cost. The Company periodically reviews the valuation utilizing company-specific transactions or changes in Perfect Home’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 of fixed-rate long term debt was $125 million at June 30, 2013 and December 31, 2012. |
Gross Unrealized | |||||||||||||||
(In Thousands) | Amortized Cost | Gains | Losses | Fair Value | |||||||||||
June 30, 2013 | |||||||||||||||
Corporate Bonds | $ | 75,294 | $ | 49 | $ | (182 | ) | $ | 75,161 | ||||||
Perfect Home Notes | 18,115 | — | — | 18,115 | |||||||||||
Total | $ | 93,409 | $ | 49 | $ | (182 | ) | $ | 93,276 | ||||||
December 31, 2012 | |||||||||||||||
Corporate Bonds | $ | 67,412 | $ | 99 | $ | (41 | ) | $ | 67,470 | ||||||
Perfect Home Notes | 18,449 | — | — | 18,449 | |||||||||||
Total | $ | 85,861 | $ | 99 | $ | (41 | ) | $ | 85,919 |
(In Thousands) | Amortized Cost | Fair Value | |||||
Due in one year or less | $ | 43,793 | $ | 43,831 | |||
Due in years one through two | 49,616 | 49,445 | |||||
Total | $ | 93,409 | $ | 93,276 |
Less than 12 months | 12 months or longer | Total | |||||||||||||||||||||
(In Thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||
June 30, 2013 | |||||||||||||||||||||||
Corporate Bonds | $ | 40,636 | $ | (182 | ) | $ | — | $ | — | $ | 40,636 | $ | (182 | ) | |||||||||
December 31, 2012 | |||||||||||||||||||||||
Corporate Bonds | $ | 22,785 | $ | (41 | ) | $ | — | $ | — | $ | 22,785 | $ | (41 | ) |
NOTE 4. | INDEBTEDNESS |
NOTE 5. | COMMITMENTS AND CONTINGENCIES |
NOTE 6. | SEGMENTS |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(In Thousands) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Revenues From External Customers: | |||||||||||||||
Sales and Lease Ownership | $ | 506,221 | $ | 499,919 | $ | 1,059,972 | $ | 1,054,376 | |||||||
HomeSmart | 15,588 | 13,461 | 32,525 | 26,280 | |||||||||||
RIMCO | 4,960 | 3,996 | 10,393 | 8,303 | |||||||||||
Franchise | 16,834 | 16,142 | 35,034 | 33,647 | |||||||||||
Manufacturing | 27,410 | 21,866 | 55,121 | 52,094 | |||||||||||
Other | 454 | 677 | 1,232 | 2,343 | |||||||||||
Revenues of Reportable Segments | 571,467 | 556,061 | 1,194,277 | 1,177,043 | |||||||||||
Elimination of Intersegment Revenues | (26,729 | ) | (21,866 | ) | (53,754 | ) | (52,094 | ) | |||||||
Cash to Accrual Adjustments | 7,326 | 4,424 | 6,682 | (334 | ) | ||||||||||
Total Revenues from External Customers | $ | 552,064 | $ | 538,619 | $ | 1,147,205 | $ | 1,124,615 | |||||||
Earnings (Loss) Before Income Taxes: | |||||||||||||||
Sales and Lease Ownership | $ | 47,449 | $ | 48,219 | $ | 111,274 | $ | 151,110 | |||||||
HomeSmart | (779 | ) | (1,594 | ) | (988 | ) | (2,958 | ) | |||||||
RIMCO | (91 | ) | 149 | 203 | 426 | ||||||||||
Franchise | 13,248 | 12,554 | 27,757 | 26,720 | |||||||||||
Manufacturing | (548 | ) | (578 | ) | 45 | 526 | |||||||||
Other | (27,955 | ) | (4,033 | ) | (30,948 | ) | (2,427 | ) | |||||||
Earnings Before Income Taxes for Reportable Segments | 31,324 | 54,717 | 107,343 | 173,397 | |||||||||||
Elimination of Intersegment Profit (Loss) | 554 | 578 | (50 | ) | (526 | ) | |||||||||
Cash to Accrual and Other Adjustments | 8,509 | 3,295 | 14,136 | 748 | |||||||||||
Total Earnings Before Income Taxes | $ | 40,387 | $ | 58,590 | $ | 121,429 | $ | 173,619 |
(In Thousands) | June 30, 2013 | December 31, 2012 | |||||
Assets: | |||||||
Sales and Lease Ownership | $ | 1,482,750 | $ | 1,410,075 | |||
HomeSmart | 53,175 | 58,347 | |||||
RIMCO | 13,047 | 11,737 | |||||
Franchise | 36,584 | 53,820 | |||||
Manufacturing1 | 31,367 | 24,787 | |||||
Other | 258,289 | 254,163 | |||||
Total Assets | $ | 1,875,212 | $ | 1,812,929 |
1 | Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the consolidated balance sheets of $16.8 million and $14.1 million as of June 30, 2013 and December 31, 2012, respectively. |
• | Revenues in the Sales and Lease Ownership, RIMCO and HomeSmart segments are reported on the cash basis for management reporting purposes. |
• | A predetermined amount of each reportable segment’s revenues is charged to the reportable segment as an allocation of corporate overhead. This allocation was approximately 5% in 2013 and 2012. |
• | Accruals related to store closures are not recorded on the reportable segments’ financial statements, but are maintained and controlled by corporate headquarters. |
• | The capitalization and amortization of manufacturing variances are recorded on the consolidated financial statements as part of Cash to Accrual and Other Adjustments and are not allocated to the segment that holds the related lease merchandise. |
• | Advertising expense in the Sales and Lease Ownership, HomeSmart and RIMCO segments is estimated at the beginning of each year and then allocated to the division ratably over time for management reporting purposes. For financial reporting purposes, advertising expense is recognized when the related advertising activities occur. The difference between these two methods is reflected as part of Cash to Accrual and Other Adjustments. |
• | Sales and lease ownership lease merchandise write-offs are recorded using the direct write-off method for management reporting purposes and using the allowance method for financial reporting purposes. The difference between these two methods is reflected as part of Cash to Accrual and Other Adjustments. |
• | Interest on borrowings is estimated at the beginning of each year. Interest is then allocated to reportable segments based on relative total assets. |
NOTE 7. | RELATED PARTY TRANSACTIONS |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Three Months Ended | Change | |||||||||||||
(In Thousands) | June 30, 2013 | June 30, 2012 | $ | % | ||||||||||
REVENUES: | ||||||||||||||
Lease Revenues and Fees | $ | 436,688 | $ | 414,968 | $ | 21,720 | 5.2 | % | ||||||
Retail Sales | 8,884 | 8,459 | 425 | 5.0 | ||||||||||
Non-Retail Sales | 86,785 | 96,376 | (9,591 | ) | (10.0 | ) | ||||||||
Franchise Royalties and Fees | 16,834 | 16,142 | 692 | 4.3 | ||||||||||
Other | 2,873 | 2,674 | 199 | 7.4 | ||||||||||
552,064 | 538,619 | 13,445 | 2.5 | |||||||||||
COSTS AND EXPENSES: | ||||||||||||||
Retail Cost of Sales | 5,307 | 4,700 | 607 | 12.9 | ||||||||||
Non-Retail Cost of Sales | 79,369 | 88,580 | (9,211 | ) | (10.4 | ) | ||||||||
Operating Expenses | 251,924 | 237,573 | 14,351 | 6.0 | ||||||||||
Legal and Regulatory Expense | 15,000 | — | 15,000 | 100.0 | ||||||||||
Retirement and Vacation Charges | 4,917 | — | 4,917 | 100.0 | ||||||||||
Depreciation of Lease Merchandise | 154,422 | 148,406 | 6,016 | 4.1 | ||||||||||
510,939 | 479,259 | 31,680 | 6.6 | |||||||||||
OPERATING PROFIT | 41,125 | 59,360 | (18,235 | ) | (30.7 | ) | ||||||||
Interest Income | 770 | 896 | (126 | ) | (14.1 | ) | ||||||||
Interest Expense | (1,508 | ) | (1,666 | ) | 158 | (9.5 | ) | |||||||
EARNINGS BEFORE INCOME TAXES | 40,387 | 58,590 | (18,203 | ) | (31.1 | ) | ||||||||
INCOME TAXES | 14,533 | 22,346 | (7,813 | ) | (35.0 | ) | ||||||||
NET EARNINGS | $ | 25,854 | $ | 36,244 | $ | (10,390 | ) | (28.7 | )% |
Three Months Ended June 30, | Change | |||||||||||||
(In Thousands) | 2013 | 2012 | $ | % | ||||||||||
REVENUES: | ||||||||||||||
Sales and Lease Ownership1 | $ | 506,221 | $ | 499,919 | $ | 6,302 | 1.3 | % | ||||||
HomeSmart1 | 15,588 | 13,461 | 2,127 | 15.8 | ||||||||||
RIMCO1 | 4,960 | 3,996 | 964 | 24.1 | ||||||||||
Franchise2 | 16,834 | 16,142 | 692 | 4.3 | ||||||||||
Manufacturing | 27,410 | 21,866 | 5,544 | 25.4 | ||||||||||
Other | 454 | 677 | (223 | ) | (32.9 | ) | ||||||||
Revenues of Reportable Segments | 571,467 | 556,061 | 15,406 | 2.8 | ||||||||||
Elimination of Intersegment Revenues | (26,729 | ) | (21,866 | ) | (4,863 | ) | 22.2 | |||||||
Cash to Accrual Adjustments | 7,326 | 4,424 | 2,902 | 65.6 | ||||||||||
Total Revenues from External Customers | $ | 552,064 | $ | 538,619 | $ | 13,445 | 2.5 | % | ||||||
1 Segment revenue consists of lease revenues and fees, retail sales and non-retail sales. | ||||||||||||||
2 Segment revenue consists of franchise royalties and fees. |
Three Months Ended June 30, | Change | |||||||||||||
2013 vs. 2012 | ||||||||||||||
(In Thousands) | 2013 | 2012 | $ | % | ||||||||||
EARNINGS (LOSS) BEFORE INCOME TAXES: | ||||||||||||||
Sales and Lease Ownership | $ | 47,449 | $ | 48,219 | $ | (770 | ) | (1.6 | )% | |||||
HomeSmart | (779 | ) | (1,594 | ) | 815 | (51.1 | ) | |||||||
RIMCO | (91 | ) | 149 | (240 | ) | (161.1 | ) | |||||||
Franchise | 13,248 | 12,554 | 694 | 5.5 | ||||||||||
Manufacturing | (548 | ) | (578 | ) | 30 | (5.2 | ) | |||||||
Other | (27,955 | ) | (4,033 | ) | (23,922 | ) | nmf | |||||||
Earnings Before Income Taxes for Reportable Segments | 31,324 | 54,717 | (23,393 | ) | (42.8 | ) | ||||||||
Elimination of Intersegment Profit | 554 | 578 | (24 | ) | (4.2 | ) | ||||||||
Cash to Accrual and Other Adjustments | 8,509 | 3,295 | 5,214 | 158.2 | ||||||||||
Total | $ | 40,387 | $ | 58,590 | $ | (18,203 | ) | (31.1 | )% | |||||
nmf - Calculation is not meaningful |
Six Months Ended | Change | |||||||||||||
(In Thousands) | June 30, 2013 | June 30, 2012 | $ | % | ||||||||||
REVENUES: | ||||||||||||||
Lease Revenues and Fees | $ | 904,792 | $ | 850,074 | $ | 54,718 | 6.4 | % | ||||||
Retail Sales | 23,303 | 22,207 | 1,096 | 4.9 | ||||||||||
Non-Retail Sales | 177,740 | 211,939 | (34,199 | ) | (16.1 | ) | ||||||||
Franchise Royalties and Fees | 35,034 | 33,647 | 1,387 | 4.1 | ||||||||||
Other | 6,336 | 6,748 | (412 | ) | (6.1 | ) | ||||||||
1,147,205 | 1,124,615 | 22,590 | 2.0 | |||||||||||
COSTS AND EXPENSES: | ||||||||||||||
Retail Cost of Sales | 13,661 | 12,424 | 1,237 | 10.0 | ||||||||||
Non-Retail Cost of Sales | 162,198 | 193,462 | (31,264 | ) | (16.2 | ) | ||||||||
Operating Expenses | 505,878 | 472,483 | 33,395 | 7.1 | ||||||||||
Legal and Regulatory Expense/(Income) | 15,000 | (35,500 | ) | 50,500 | nmf | |||||||||
Retirement and Vacation Charges | 4,917 | — | 4,917 | 100.0 | ||||||||||
Depreciation of Lease Merchandise | 322,625 | 306,567 | 16,058 | 5.2 | ||||||||||
1,024,279 | 949,436 | 74,843 | 7.9 | |||||||||||
OPERATING PROFIT | 122,926 | 175,179 | (52,253 | ) | (29.8 | ) | ||||||||
Interest Income | 1,522 | 1,776 | (254 | ) | (14.3 | ) | ||||||||
Interest Expense | (3,019 | ) | (3,336 | ) | 317 | (9.5 | ) | |||||||
EARNINGS BEFORE INCOME TAXES | 121,429 | 173,619 | (52,190 | ) | (30.1 | ) | ||||||||
INCOME TAXES | 44,575 | 66,149 | (21,574 | ) | (32.6 | ) | ||||||||
NET EARNINGS | $ | 76,854 | $ | 107,470 | $ | (30,616 | ) | (28.5 | )% | |||||
nmf- Calculation is not meaningful |
Six Months Ended June 30, | Change | |||||||||||||
(In Thousands) | 2013 | 2012 | $ | % | ||||||||||
REVENUES: | ||||||||||||||
Sales and Lease Ownership1 | $ | 1,059,972 | $ | 1,054,376 | $ | 5,596 | 0.5 | % | ||||||
HomeSmart1 | 32,525 | 26,280 | 6,245 | 23.8 | ||||||||||
RIMCO1 | 10,393 | 8,303 | 2,090 | 25.2 | ||||||||||
Franchise2 | 35,034 | 33,647 | 1,387 | 4.1 | ||||||||||
Manufacturing | 55,121 | 52,094 | 3,027 | 5.8 | ||||||||||
Other | 1,232 | 2,343 | (1,111 | ) | (47.4 | ) | ||||||||
Revenues of Reportable Segments | 1,194,277 | 1,177,043 | 17,234 | 1.5 | ||||||||||
Elimination of Intersegment Revenues | (53,754 | ) | (52,094 | ) | (1,660 | ) | 3.2 | |||||||
Cash to Accrual Adjustments | 6,682 | (334 | ) | 7,016 | nmf | |||||||||
Total Revenues from External Customers | $ | 1,147,205 | $ | 1,124,615 | $ | 22,590 | 2.0 | % | ||||||
nmf - Calculation is not meaningful | ||||||||||||||
1 Segment revenue consists of lease revenues and fees, retail sales and non-retail sales. | ||||||||||||||
2 Segment revenue consists of franchise royalties and fees. |
Six Months Ended June 30, | Change | |||||||||||||
2013 vs. 2012 | ||||||||||||||
(In Thousands) | 2013 | 2012 | $ | % | ||||||||||
EARNINGS (LOSS) BEFORE INCOME TAXES: | ||||||||||||||
Sales and Lease Ownership | $ | 111,274 | $ | 151,110 | $ | (39,836 | ) | (26.4 | )% | |||||
HomeSmart | (988 | ) | (2,958 | ) | 1,970 | (66.6 | ) | |||||||
RIMCO | 203 | 426 | (223 | ) | (52.3 | ) | ||||||||
Franchise | 27,757 | 26,720 | 1,037 | 3.9 | ||||||||||
Manufacturing | 45 | 526 | (481 | ) | (91.4 | ) | ||||||||
Other | (30,948 | ) | (2,427 | ) | (28,521 | ) | nmf | |||||||
Earnings Before Income Taxes for Reportable Segments | 107,343 | 173,397 | (66,054 | ) | (38.1 | ) | ||||||||
Elimination of Intersegment Loss | (50 | ) | (526 | ) | 476 | (90.5 | ) | |||||||
Cash to Accrual and Other Adjustments | 14,136 | 748 | 13,388 | nmf | ||||||||||
Total | $ | 121,429 | $ | 173,619 | $ | (52,190 | ) | (30.1 | )% | |||||
nmf - Calculation is not meaningful |
• | cash flows from operations; |
• | trade credit with vendors; |
• | proceeds from the sale of lease return merchandise; |
• | private debt offerings; |
• | bank credit; and |
• | stock offerings. |
(In Thousands) | Total | Period Less Than 1 Year | Period 1-3 Years | Period 3-5 Years | Period Over 5 Years | ||||||||||
Debt, Excluding Capital Leases | $ | 128,250 | $ | — | $ | 53,250 | $ | 50,000 | $ | 25,000 | |||||
Capital Leases | 13,098 | 1,963 | 4,396 | 3,664 | 3,075 | ||||||||||
Interest Obligations | 24,273 | 5,367 | 10,221 | 8,612 | 73 | ||||||||||
Operating Leases | 530,405 | 103,993 | 165,516 | 95,112 | 165,784 | ||||||||||
Purchase Obligations | 13,350 | 9,682 | 3,531 | 137 | — | ||||||||||
Retirement Obligations | 12,087 | 5,427 | 4,612 | 1,993 | 55 | ||||||||||
Total Contractual Cash Obligations | $ | 721,463 | $ | 126,432 | $ | 241,526 | $ | 159,518 | $ | 193,987 |
(In Thousands) | Total Amounts Committed | Period Less Than 1 Year | Period 1-3 Years | Period 3-5 Years | Period Over 5 Years | |||||||
Guaranteed Borrowings of Franchisees | $ | 107,512 | $ | 107,512 | — | — | — |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 6. | EXHIBITS |
EXHIBIT NO. | DESCRIPTION OF EXHIBIT | |
10.1 | Amendment No. 1 to the Aaron's Inc. Employees Retirement Plan and Trust, as amended and restated, dated as of December 1, 2011, filed as part of this Quarterly Report on Form 10-Q. | |
10.2 | Amendment No. 2 to the Aaron's Inc. Employees Retirement Plan and Trust, as amended and restated, dated as of December 29, 2011, filed as part of this Quarterly Report on Form 10-Q. | |
10.3 | Amendment No. 3 to the Aaron's Inc. Employees Retirement Plan and Trust, as amended and restated, dated as of December 31, 2012, filed as part of this Quarterly Report on Form 10-Q. | |
10.4 | Separation Agreement, dated as of May 1, 2013, by and between Aaron's, Inc. and William K. Butler, Jr., filed as part of this Quarterly Report on Form 10-Q. | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following financial information from Aaron’s, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Earnings for the three and six months ended June 30, 2013 and 2012, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 and 2012, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012, and (v) the Notes to Consolidated Financial Statements. |
AARON’S, INC. | ||
(Registrant) | ||
Date – August 2, 2013 | By: | /s/ Gilbert L. Danielson |
Gilbert L. Danielson | ||
Executive Vice President, | ||
Chief Financial Officer | ||
Date – August 2, 2013 | /s/ Robert P. Sinclair, Jr. | |
Robert P. Sinclair, Jr. | ||
Vice President, | ||
Corporate Controller |
AARON’S, INC. | ||
By: | /s/ Gilbert L. Danielson | |
Gilbert L. Danielson Executive Vice President and Chief Financial Officer |
AARON’S, INC. | ||
By: | /s/ Gilbert L. Danielson | |
Date: January 3, 2012 | Gilbert L. Danielson Executive Vice President and Chief Financial Officer |
(i) | $50,000, reduced by the excess, if any, of the highest outstanding balance of any other loan to the Participant from the Plan or any other plan maintained by an Employer or a Related Company during the preceding 12-month period over the outstanding balance of such loans on the date a loan is made hereunder; or |
(ii) | 50 percent of the vested portions of the Participant's Account and his vested interest under all other plans maintained by an Employer or a Related Company. |
AARON’S, INC. | ||
By: | /s/ David C. Strickland | |
David C. Strickland Vice President Associate Resources |
8. | Waiver of Rights and Claims Under the Age Discrimination in Employment Act of 1967. |
WILLIAM K. BUTLER, JR. | AARON’S, INC. | ||
/s/ William K. Butler Jr. | By: | /s/ Ronald W. Allen | |
Date: | 4/30/2013 | Its: | Chairman, President and Chief Executive Officer |
Date: | 5/1/2013 | ||
I, Ronald W. Allen, certify that: | |||||
1. | I have reviewed this quarterly report on Form 10-Q of Aaron's, Inc.; | ||||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | ||||
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): | ||||
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | ||||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 2, 2013 | /s/ Ronald W. Allen |
Ronald W. Allen | |
Chairman, President and | |
Chief Executive Officer |
I, Gilbert L. Danielson, certify that: | |||||
1. | I have reviewed this quarterly report on Form 10-Q of Aaron's, Inc.; | ||||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | ||||
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): | ||||
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | ||||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 2, 2013 | /s/ Gilbert L. Danielson |
Gilbert L. Danielson | |
Executive Vice President, | |
Chief Financial Officer |
Date: August 2, 2013 | /s/ Ronald W. Allen |
Ronald W. Allen | |
Chairman, President and | |
Chief Executive Officer |
Date: August 2, 2013 | /s/ Gilbert L. Danielson |
Gilbert L. Danielson | |
Executive Vice President, | |
Chief Financial Officer |
Fair Value Measurement (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis | The following table summarizes financial assets and liabilities measured at fair value on a recurring basis:
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Assets Measured at Fair Value on Nonrecurring Basis | The following table summarizes assets measured at fair value on a nonrecurring basis:
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Fair Value of Assets (Liabilities) Not Measured at Fair Value In Consolidated Balance Sheets | The following table summarizes the fair value of assets (liabilities) that are not measured at fair value in the consolidated balance sheets, but for which the fair value is disclosed:
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Investments Classified as Held to Maturity Securities | At June 30, 2013 and December 31, 2012, investments classified as held-to-maturity securities consisted of the following:
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Amortized Cost and Fair Value of Held to Maturity Securities | The amortized cost and fair value of held-to-maturity debt securities by contractual maturity at June 30, 2013 are as follows:
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Held to Maturity Securities with Gross Unrealized Losses | Information pertaining to held-to-maturity debt securities with gross unrealized losses is as follows:
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Consolidated Statements of Earnings (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
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REVENUES: | ||||
Lease Revenues and Fees | $ 436,688 | $ 414,968 | $ 904,792 | $ 850,074 |
Retail Sales | 8,884 | 8,459 | 23,303 | 22,207 |
Non-Retail Sales | 86,785 | 96,376 | 177,740 | 211,939 |
Franchise Royalties and Fees | 16,834 | 16,142 | 35,034 | 33,647 |
Other | 2,873 | 2,674 | 6,336 | 6,748 |
Revenues | 552,064 | 538,619 | 1,147,205 | 1,124,615 |
COSTS AND EXPENSES: | ||||
Retail Cost of Sales | 5,307 | 4,700 | 13,661 | 12,424 |
Non-Retail Cost of Sales | 79,369 | 88,580 | 162,198 | 193,462 |
Operating Expenses | 251,924 | 237,573 | 505,878 | 472,483 |
Legal and Regulatory Expense/(Income) | 15,000 | 15,000 | (35,500) | |
Retirement and Vacation Charges | 4,917 | 4,917 | 0 | |
Depreciation of Lease Merchandise | 154,422 | 148,406 | 322,625 | 306,567 |
Costs and Expenses, Total | 510,939 | 479,259 | 1,024,279 | 949,436 |
OPERATING PROFIT | 41,125 | 59,360 | 122,926 | 175,179 |
Interest Income | 770 | 896 | 1,522 | 1,776 |
Interest Expense | (1,508) | (1,666) | (3,019) | (3,336) |
EARNINGS BEFORE INCOME TAXES | 40,387 | 58,590 | 121,429 | 173,619 |
INCOME TAXES | 14,533 | 22,346 | 44,575 | 66,149 |
NET EARNINGS | $ 25,854 | $ 36,244 | $ 76,854 | $ 107,470 |
EARNINGS PER SHARE | ||||
Basic | $ 0.34 | $ 0.48 | $ 1.01 | $ 1.42 |
Assuming Dilution | $ 0.34 | $ 0.47 | $ 1.00 | $ 1.40 |
CASH DIVIDENDS DECLARED PER SHARE: | ||||
Common Stock | $ 0.017 | $ 0.015 | $ 0.034 | $ 0.030 |
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||
Basic | 75,901 | 75,927 | 75,831 | 75,949 |
Assuming Dilution | 76,589 | 76,979 | 76,579 | 77,006 |
Indebtedness
|
6 Months Ended | ||||
---|---|---|---|---|---|
Jun. 30, 2013
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Indebtedness |
See Note 6 to the consolidated financial statements in the 2012 Annual Report on Form 10-K. |
Summary of Acquisitions of Lease Contracts, Merchandise and Related Assets of Sales and Lease Ownership Stores (Parenthetical) (Detail) (USD $)
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6 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
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Dec. 31, 2012
|
Jun. 30, 2013
Customer relationship intangibles
|
Jun. 30, 2013
Non-compete intangibles
|
Jun. 30, 2013
Acquired franchise development rights
|
Jun. 30, 2013
Sales and Lease Ownership
|
Jun. 30, 2012
Sales and Lease Ownership
|
Jun. 30, 2012
HomeSmart
|
|
Business Acquisition [Line Items] | ||||||||
Amortization period of intangible assets | 2 years | 3 years | 10 years | |||||
Goodwill | $ 235,048,000 | $ 234,195,000 | $ 833,000 | $ 10,600,000 | $ 476,000 |
Segments (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Information on Segments and Reconciliation to Earnings Before Income Taxes from Continuing Operations |
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Fair Value of Assets (Liabilities) Not Measured at Fair Value In Consolidated Balance Sheets (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
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Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||||||||||
Fair Value | $ 93,276 | $ 85,919 | ||||||||
Corporate Bond | Level 2
|
||||||||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||||||||||
Fair Value | 75,161 | [1] | 67,470 | [1] | ||||||
Perfect Home Bonds | Level 3
|
||||||||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||||||||||
Fair Value | 18,115 | [2] | 18,449 | [2] | ||||||
Fixed Rate | Level 2
|
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Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||||||||||
Long term debt, fair value | $ (131,245) | [3] | $ (127,261) | [3] | ||||||
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Assets Measured At Fair Value on Nonrecurring Basis (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets Held For Sale | $ 7,252 | $ 11,104 |
Segments - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 3 Months Ended | ||
---|---|---|---|---|---|---|---|
Jun. 30, 2013
segments
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Dec. 31, 2012
|
Jun. 30, 2013
Pending Legal and Regulatory Contingency
|
Jun. 30, 2013
Retirement Expenses
|
Jun. 30, 2012
Sales and Lease Ownership
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Segment Reporting Information [Line Items] | |||||||
Number of Operating segments | 5 | ||||||
Approximate percentage of segment revenue charged as an allocation of corporate overhead | 5.00% | 5.00% | |||||
Reversal of a lawsuit accrual | $ (15,000) | $ (15,000) | $ 35,500 | $ (15,000) | $ 4,900 | $ 35,500 |
Information Pertaining to Held to Maturity Securities With Gross Unrealized Losses (Detail) (Corporate Bond, USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
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Dec. 31, 2012
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Corporate Bond
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Schedule of Held-to-maturity Securities [Line Items] | ||
Less than 12 months Fair Value | $ 40,636 | $ 22,785 |
Less than 12 months Gross Unrealized Losses | (182) | (41) |
12 months or longer Fair Value | 0 | 0 |
12 months or longer Gross Unrealized Losses | 0 | 0 |
Total Fair Value | 40,636 | 22,785 |
Total Gross Unrealized Losses | $ (182) | $ (41) |
Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (Level 2, USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
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Dec. 31, 2012
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Level 2
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Fair Value Assets Liabilities Measured On Recurring Basis [Line Items] | ||
Deferred Compensation Liability | $ (10,917) | $ (9,518) |
Acquisitions
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Jun. 30, 2013
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Acquisitions |
The following table summarizes the Company’s acquisitions of lease contracts, merchandise and the related assets of sales and lease ownership stores, none of which was individually material to the Company’s consolidated financial statements, during the six months ended June 30:
Acquisitions have been accounted for as business combinations, and the results of operations of the acquired businesses are included in the Company’s results of operations from their dates of acquisition. The effect of these acquisitions on the consolidated financial statements for the six months ended June 30, 2013 and 2012 was not significant. The purchase price allocations related to current year acquisitions are tentative and preliminary; the Company anticipates finalizing them prior to December 31, 2013. |
Commitments and Contingencies
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6 Months Ended | ||||
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Jun. 30, 2013
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Commitments and Contingencies |
Leases The Company leases warehouse and retail store space for substantially all of its operations under operating leases expiring at various times through 2028. Most of the leases contain renewal options for additional periods ranging from one to 20 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. The Company also leases transportation and computer equipment under operating leases expiring during the next five years. The Company expects that most leases will be renewed or replaced by other leases in the normal course of business. Guarantees The Company has guaranteed certain debt obligations of some of its franchisees under a franchisee loan program with several banks. In the event these franchisees are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of the franchisees’ debt obligations under the franchisee loan program, which would be due in full within 90 days of the event of default. At June 30, 2013, the maximum amount that the Company would be obligated to repay in the event franchisees defaulted was $107.5 million. The Company has recourse rights to franchisee assets securing the debt obligations, which consist primarily of lease merchandise inventory and fixed assets. As a result, the Company has never incurred, nor does management expect to incur, any significant losses under these guarantees. The Company has estimated the fair value of the franchise-related borrowings guarantee to approximate $2.7 million, which is included in accounts payable and accrued expenses in the consolidated balance sheet as of June 30, 2013. Legal Proceedings From time to time, the Company is party to various legal and regulatory proceedings arising in the ordinary course of business. Some of the proceedings to which we are currently a party are described below. We believe we have meritorious defenses to all of the claims described below, and intend to vigorously defend against the claims. However, these proceedings are still developing and due to the inherent uncertainty in litigation, regulatory and similar adversarial proceedings, there can be no guarantee that we will ultimately be successful in these proceedings, or in others to which we are currently a party. Substantial losses from these proceedings or the costs of defending them could have a material adverse impact upon our business, financial position and results of operations. The Company establishes an accrued liability for legal and regulatory proceedings when the Company determines that a loss is both probable and the amount of the loss can be reasonably estimated. We continually monitor our litigation and regulatory exposure, and review the adequacy of our legal and regulatory reserves on a quarterly basis in accordance with applicable accounting rules. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. At June 30, 2013, the Company had accrued $18.0 million for pending legal and regulatory matters for which it believes losses are probable, which is our best estimate of our exposure to loss and mostly relates to the regulatory investigation by the California Attorney General described below. The Company estimates that the aggregate range of possible loss in excess of accrued liabilities for such probable loss contingencies is between $0 and $45.9 million. Finally, at June 30, 2013, the Company estimated that the aggregate range of loss for all material pending legal and regulatory proceedings for which a loss is reasonably possible, but less likely than probable, is from $665,000 to $10.6 million. Those matters for which a reasonable estimate is not possible are not included within estimated ranges and, therefore, the estimated ranges do not represent the Company's maximum loss exposure. Our estimates as to legal and regulatory accruals, as to aggregate probable loss amounts and as to reasonably possible loss amounts are all subject to the uncertainties and variables described above. Labor and Employment In Kunstmann et al v. Aaron Rents, Inc., filed with the United States District Court, Northern District of Alabama (Case No.: 2:08-CV-01969-KOB-JEO) on October 22, 2008, plaintiffs alleged that the Company improperly classified store general managers as exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”). The case was conditionally certified as an FLSA collective action on January 25, 2010, and it now includes 227 individuals, nearly all of whom terminated from the general manager position more than two years ago. Plaintiffs seek to recover unpaid overtime compensation and other damages. On October 4, 2012, the Court denied the Company's motion for summary judgment as to the claims of Kunstmann, the named plaintiff. On January 23, 2013, the Court denied the Company's motion to decertify the class. The Company has since filed two additional motions for summary judgment, including one that seeks summary judgment in the entirety on all class members' claims, or alternatively on matters that will reduce the size of the class or exposure arising from the class claims. Briefing on these motions began in July 2013. The matter of Kurtis Jewell v. Aaron's, Inc. was originally filed in the United States District Court, Northern District of Ohio, Eastern Division on October 27, 2011 and was transferred on February 23, 2012 to the United States District Court for the Northern District of Georgia (Atlanta Division) (Civil No.:1:12-CV-00563-AT). Plaintiff, on behalf of himself and all other non-exempt employees who worked in Company stores, alleges that the Company violated the FLSA when it automatically deducted 30 minutes from employees' time for meal breaks on days when plaintiffs allegedly did not take their meal breaks. Plaintiff claims he and other employees actually worked through meal breaks or were interrupted during the course of their meal breaks and asked to perform work. As a result of the automatic deduction, plaintiff alleges that the Company failed to account for all of his working hours when it calculated overtime, and consequently underpaid him. Plaintiffs seek to recover unpaid overtime compensation and other damages for all similarly situated employees nationwide for the applicable time period. On June 28, 2012, the Court issued an order granting conditional certification of a class consisting of all hourly store employees from June 28, 2009 to the present. The class size is approximately 1,788 opt-in plaintiffs, which is less than seven percent of the potential class members. The parties are engaging in discovery. Discovery is expected to continue until April 2014. In Sowell, et al. v. Aaron's, Inc., United States District Court for the Northern District of Georgia (Civil No.:1:12-cv-03867-CAP-ECS), two former Company associates filed separate lawsuits on November 5, 2012; Elizabeth Cook filed in Fulton County Georgia State Court and Brittany Sowell filed in the U.S. District Court for the Northern District of Georgia. Plaintiff Sowell then filed a First Amended Complaint in the U.S. District Court of the Northern District of Georgia on November 28, 2012. Thereafter, Plaintiff Sowell filed a Second Amended Complaint on December 21, 2012, which included Cook's claims and consolidated the cases. Plaintiffs assert numerous common law tort claims, including assault, battery, intentional infliction of emotional distress, and negligent hiring and retention, and federal employment law claims, including sex discrimination and harassment and retaliation, against the Company. Specifically, plaintiffs allege that their manager and manager's supervisor made repeated sexual, racial, and sexual orientation-based comments, engaged in inappropriate touchings, and threatened them with violence if plaintiffs reported these acts to management. Plaintiffs further allege that they complained to management; that the Company failed to act; and that the Company's hiring processes were deficient. Plaintiffs seek compensatory and punitive damages and attorneys' fees. The case is currently in the discovery phase with discovery set to close in October 2013. Consumer In Margaret Korrow, et al. v. Aaron's, Inc., originally filed in the Superior Court of New Jersey, Middlesex County, Law Division on October 26, 2010, plaintiff filed suit on behalf of herself and others similarly situated alleging that the Company is liable in damages to plaintiff and each class member because the Company's lease agreements issued after March 16, 2006 purportedly violated certain New Jersey state consumer statutes. Plaintiff's complaint seeks treble damages under the New Jersey Consumer Fraud Act, and statutory penalty damages of $100 per violation of all contracts issued in New Jersey, and also claim that there are multiple violations per contract. The Company removed the lawsuit to the United States District Court for the District of New Jersey on December 6, 2010 (Civil Action No.: 10-06317(JAP)(LHG)). Plaintiff on behalf of herself and others similarly situated seeks equitable relief, statutory and treble damages, pre- and post-judgment interest and attorneys' fees. Discovery on this matter is closed. On July 31, 2013, the Court certified a class comprising all persons who entered into a rent-to-own contract with the Company in New Jersey from March 16, 2006 through March 31, 2011. The Company is currently evaluating its next step. Privacy and Related Matters In Crystal and Brian Byrd v. Aaron's, Inc., Aspen Way Enterprises, Inc., John Does (1-100) Aaron's Franchisees and Designerware, LLC, filed on May 16, 2011, in the United States District Court, Western District of Pennsylvania (Case No. 1:11-CV-00101-SPB), plaintiffs alleged that the Company and its independently owned and operated franchisee Aspen Way Enterprises (“Aspen Way”) knowingly violated plaintiffs' privacy in violation of the Electronic Communications Privacy Act and the Computer Fraud Abuse Act and sought certification of a putative nationwide class. Plaintiffs based these claims on Aspen Way's use of a software program called “PC Rental Agent.” The District Court dismissed the Company from the lawsuit on March 20, 2012. On September 14, 2012, plaintiffs filed a second amended complaint against the Company and its franchisee Aspen Way, asserting claims for violation of the Electronic Communications Privacy Act and common law invasion of privacy by intrusion upon seclusion. Plaintiffs also asserted certain vicarious liability claims against the Company based on Aspen Way's alleged conduct. On October 15, 2012, the Company filed a motion to dismiss the amended complaint, and on February 27, 2013, plaintiffs filed a motion for leave of the Court to file a third amended complaint against the Company. On May 23, 2013, the Court granted plaintiffs' motion for leave to file a third amended complaint, which asserts the same claims against the Company as the second amended complaint but also adds a request for injunction and names additional independently owned and operated Company franchisees as defendants. Plaintiffs filed the third amended complaint, and the Company has moved to dismiss that complaint on substantially the same grounds as it sought to dismiss plaintiffs' second amended complaint. That motion remains pending. Plaintiffs filed their motion for class certification on July 1, 2013, and the Company's response is due on August 2, 2013. A hearing on plaintiffs' motion for class certification is tentatively set for September 2013. Plaintiffs seek monetary damages as well as injunctive relief. In Michael Winslow and Fonda Winslow v. Sultan Financial Corporation, Aaron's, Inc., John Does (1-10), Aaron's Franchisees and Designerware, LLC, filed on March 5, 2013 in the Los Angeles Superior Court (Case No. BC502304), plaintiffs assert claims against the Company and its independently owned and operated franchisee, Sultan Financial Corporation (as well as certain John Doe franchisees), for unauthorized wiretapping, eavesdropping, electronic stalking, and violation of California's Comprehensive Computer Data Access and Fraud Act and its Unfair Competition Law. Each of these claims arises out of the alleged use of PC Rental Agent software. The plaintiffs are seeking injunctive relief and damages in connection with the allegations of the complaint. Plaintiffs are also seeking certification of a putative California class. Plaintiffs are represented by the same counsel as in the above described Byrd litigation. In April 2013, the Company timely removed this matter to federal Court. On May 8, 2013, the Company filed a motion to stay this litigation pending resolution of the Byrd litigation, a motion to dismiss for failure to state a claim, and a motion to strike certain allegations in the complaint. The Court subsequently stayed the case. The Company's motions to dismiss and strike certain allegations remain pending. In Lomi Price v. Aaron's, Inc. and NW Freedom Corporation, filed on February 27, 2013, in the State Court of Fulton County, Georgia (Case No. 13-EV-016812B), an individual plaintiff asserts claims against the Company and its independently owned and operated franchisee, NW Freedom Corporation, for invasion of privacy/intrusion on seclusion, computer invasion of privacy and infliction of emotional distress. Each of these claims arises out of the alleged use of PC Rental Agent software. The plaintiff is seeking compensatory and punitive damages of not less than $250,000. On April 3, 2013, the Company filed an answer and affirmative defenses. On that same day, the Company also filed a motion to stay the litigation pending resolution of the Byrd Litigation, a motion to dismiss for failure to state a claim, and a motion to strike certain allegations in the complaint. All three motions remain pending. Regulatory Investigations Federal Trade Commission Investigation. There is a pending, active investigation by the Federal Trade Commission relating to the alleged use of PC Rental Agent software by certain independently owned and operated Company franchisees, as noted above in the Privacy and Related Matters section, and the Company's alleged responsibility for that use. The Company is continuing to cooperate in this investigation and anticipates achieving a comprehensive resolution that would resolve this investigation without active litigation. California Attorney General Investigation. The California Attorney General has been investigating the Company's retail transactional practices, including various leasing and marketing practices, information security and privacy policies and practices related to the alleged use of PC Rental Agent software by certain independently owned and operated Company franchisees. The Company has been cooperating with the investigation, including producing documents for the Attorney General's office and engaging in discussions about a possible resolution of this matter. While the outcome of the investigation is inherently uncertain, the Company currently anticipates achieving a comprehensive resolution without litigation. Pennsylvania Attorney General Investigation. There is a pending, active investigation by the Pennsylvania Attorney General relating to the Company's privacy practices in Pennsylvania. The privacy issues are related to the alleged use of PC Rental Agent software by certain independently owned and operated Company franchisees, and the Company's alleged responsibility for that use. The Company is continuing to cooperate in the investigation. Other Commitments At June 30, 2013, the Company had non-cancelable commitments primarily related to certain advertising and marketing programs of $12.7 million. At June 30, 2013, the Company had $658,000 in non-cancelable commitments to purchase delivery vehicles. The Company is a party to various claims and legal and regulatory proceedings arising in the ordinary course of business. Management regularly assesses the Company’s insurance deductibles, analyzes litigation information with the Company’s attorneys and evaluates its loss experience. The Company also enters into various contracts in the normal course of business that may subject it to risk of financial loss if counterparties fail to perform their contractual obligations. See Note 8 to the consolidated financial statements in the 2012 Annual Report on Form 10-K for further information. |
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