Fair Value Measurement

3 Months Ended

Mar. 31, 2016

FAIR VALUE MEASUREMENT

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes financial liabilities measured at fair value on a recurring basis:



(In Thousands)	March 31, 2016							December 31, 2015
	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Deferred Compensation Liability	$	—	$	(11,587	)	$	—	$	—	$	(11,576	)	$	—

The Company maintains the Aaron’s, Inc. Deferred Compensation Plan, which is an unfunded, nonqualified deferred compensation plan for a select group of management, highly compensated employees and non-employee directors. The liability representing benefits accrued for plan participants is valued at the quoted market prices of the participants’ investment elections, which consist of equity and debt "mirror" funds. As such, the Company has classified the deferred compensation liability as a Level 2 liability.

Non-Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The following table summarizes non-financial assets measured at fair value on a nonrecurring basis:



(In Thousands)	March 31, 2016						December 31, 2015
	Level 1		Level 2¹		Level 3		Level 1		Level 2		Level 3
Assets Held for Sale	$	—	$	39,059	$	—	$	—	$	6,976	$	—


¹	Assets held for sale is presented in the table net of liabilities of $1.1 million associated with the HomeSmart Disposal Group.

As discussed in Note 1, the HomeSmart Disposal Group is classified as held for sale as of March 31, 2016 and certain real estate properties that consist of land and commercial buildings are classified as held for sale as of March 31, 2016 and December 31, 2015. Assets and disposal groups classified as held for sale are adjusted to fair value less estimated costs to sell, and the adjustment is recorded in other operating income, net in the condensed consolidated statements of earnings.

The Company estimated the fair value of the HomeSmart Disposal Group as of March 31, 2016 based on the contractual sales price. The highest and best use of the real estate properties held for sale is as real estate land parcels for development or real estate properties for use or lease; however, the Company has chosen not to develop or use these properties. The Company estimated the fair values of real estate properties using the market values for similar properties.

Certain Financial Assets and Liabilities Not Measured at Fair Value

The following table summarizes the fair value of assets (liabilities) that are not measured at fair value in the condensed consolidated balance sheets, but for which the fair value is disclosed:



(In Thousands)	March 31, 2016							December 31, 2015
	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Perfect Home Notes¹	$	—	$	—		$	22,108	$	—	$	—		$	22,226
Fixed-Rate Long-Term Debt²	—		(394,375		)	—		—		(395,618		)	—


¹	The Perfect Home notes were initially measured at cost. The Company periodically reviews the carrying amount utilizing company-specific transactions or changes in Perfect Home’s financial performance to determine if fair value adjustments are necessary.


²	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 amount of fixed-rate long-term debt was $375.0 million at March 31, 2016 and December 31, 2015, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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