Basis and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Schedule Of Company Operated Store Activity

The following table presents invoice volume for Progressive Leasing:



For the Three Months Ended September 30 (Unaudited and In Thousands)	2018		2017
Progressive Leasing Invoice Volume¹	$	355,005	$	281,724

¹ Invoice volume is defined as the retail price of lease merchandise acquired and then leased to customers during the period, net of returns.

The Aaron's Business offers furniture, consumer electronics, home appliances and accessories to consumers primarily with a month-to-month, lease-to-own agreement with no credit needed through the Company's Aaron's-branded stores in the United States and Canada and its e-commerce website. This operating segment also supports franchisees of its Aaron's-branded stores. In addition, the Aaron's Business segment includes the operations of Woodhaven Furniture Industries, which manufactures and supplies the majority of the upholstered furniture and bedding leased and sold in Company-operated and franchised stores.

The Company acquired the store operations of eight franchisees during the nine months ended September 30, 2018 and four franchisees during the year ended December 31, 2017. Refer to Note 2 to these condensed consolidated financial statements.

The following table presents store count by ownership type for the Aaron's Business operations:



Stores as of September 30 (Unaudited)	2018	2017
Company-operated Aaron's Branded Stores	1,267	1,181
Franchised Stores	432	569
Systemwide Stores	1,699	1,750

Calculation of Dilutive Stock Awards

The following table shows the calculation of dilutive share-based awards:



	Three Months Ended September 30,		Nine Months Ended September 30,
(Shares In Thousands)	2018	2017	2018	2017
Weighted Average Shares Outstanding	68,819	70,746	69,521	70,914
Dilutive Effect of Share-Based Awards	1,320	1,349	1,475	1,143
Weighted Average Shares Outstanding Assuming Dilution	70,139	72,095	70,996	72,057

Accounts Receivable Net of Allowances

Accounts receivable, net of allowances, consist of the following:



(In Thousands)	September 30, 2018		December 31, 2017
Customers	$	54,463	$	48,661
Corporate	15,500		23,431
Franchisee	22,348		27,795
Accounts Receivable	$	92,311	$	99,887

The following is a summary of the Company’s loans receivable, net:



(In Thousands)	September 30, 2018			December 31, 2017
Credit Card Loans¹	$	90,944		$	89,728
Acquired Loans²	7,656			16,213
Loans Receivable, Gross	98,600			105,941

Allowance for Loan Losses	(13,138		)	(11,454		)
Unamortized Fees	(7,400		)	(8,375		)
Loans Receivable, Net of Allowances and Unamortized Fees	$	78,062		$	86,112

¹ "Credit Card Loans" are loans originated after the 2015 acquisition of DAMI.

² "Acquired Loans" are credit card loans the Company purchased in the 2015 acquisition of DAMI.

Components of the Accounts Receivable Provision

The following table shows the amounts recognized for bad debt expense and provision for returns and uncollected payments:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2018		2017		2018		2017
Bad Debt Expense¹	$	64,235	$	50,705	$	160,886	$	118,749
Provision for Returns and Uncollected Renewal Payments²	11,451		9,331		27,877		23,393
Accounts Receivable Provision	$	75,686	$	60,036	$	188,763	$	142,142

¹ Bad debt expense is recorded within operating expenses in the condensed consolidated financial statements.

² The provision for returns and uncollected renewal payments is recorded as a reduction to lease revenues and fees within the condensed consolidated financial statements.

Schedule of Lease Merchandise

The following is a summary of lease merchandise, net of accumulated depreciation and allowances:



(In Thousands)	September 30, 2018		December 31, 2017
Merchandise on Lease	$	933,569	$	908,268
Merchandise not on Lease	263,243		243,867
Lease Merchandise, net of Accumulated Depreciation and Allowances	$	1,196,812	$	1,152,135

Allowance for Lease Merchandise

The following table shows the components of the allowance for lease merchandise write-offs:



	Nine Months Ended			Year Ended
(In Thousands)	September 30, 2018			December 31, 2017
Beginning Balance	$	35,629		$	33,399
Merchandise Written off, net of Recoveries	(130,946		)	(143,230		)
Provision for Write-offs	146,091			145,460
Ending Balance	$	50,774		$	35,629

Loan Portfolio Credit Quality Indicators

Below is a summary of the credit quality of the Company's loan portfolio as of September 30, 2018 and December 31, 2017 by Fair Isaac and Company (FICO) score as determined at the time of loan origination:



FICO Score Category	September 30, 2018		December 31, 2017
600 or Less	3.1	%	1.7	%
Between 600 and 700	77.5	%	76.5	%
700 or Greater	19.4	%	21.8	%

Schedule of Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following:



(In Thousands)	September 30, 2018		December 31, 2017
Prepaid Expenses	$	37,981	$	31,509
Prepaid Insurance	33,370		36,735
Assets Held for Sale	9,626		10,118
Deferred Tax Asset	7,556		11,589
Other Assets	27,822		26,548
Prepaid Expenses and Other Assets	$	116,355	$	116,499

Schedule of Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:



(In Thousands)	September 30, 2018		December 31, 2017
Accounts Payable	$	98,460	$	80,821
Accrued Insurance Costs	42,268		41,680
Accrued Salaries and Benefits	49,849		46,511
Accrued Real Estate and Sales Taxes	31,184		31,054
Deferred Rent	27,454		29,912
Other Accrued Expenses and Liabilities	69,181		74,832
Accounts Payable and Accrued Expenses	$	318,396	$	304,810

Changes in Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income for the nine months ended September 30, 2018 are as follows:



(In Thousands)	Foreign Currency
Balance at January 1, 2018	$	774
Other Comprehensive Loss	(715		)
Balance at September 30, 2018	$	59

Schedule of Impact of Adoption of New Revenue Standard

The impact of adoption on the condensed consolidated statements of earnings and balance sheets was as follows:

Condensed Consolidated Statements of Earnings



Three Months Ended September 30, 2018
(In Thousands)	As Reported		Balance Without ASC 606 Adoption		Effect of Change Higher/(Lower)
Franchise Royalties and Fees	$	10,153	$	8,118	$	2,035
Operating Expenses	420,602		418,928		1,674
OPERATING PROFIT	57,286		56,924		362
EARNINGS BEFORE INCOME TAXES	53,415		53,053		362
INCOME TAXES	9,695		9,606		89
NET EARNINGS	$	43,720	$	43,447	$	273



Nine Months Ended September 30, 2018
(In Thousands)	As Reported		Balance Without ASC 606 Adoption		Effect of Change Higher/(Lower)
Franchise Royalties and Fees	$	35,140	$	28,962	$	6,178
Operating Expenses	1,199,171		1,193,819		5,352
OPERATING PROFIT	201,281		200,455		826
EARNINGS BEFORE INCOME TAXES	170,147		169,321		826
INCOME TAXES	35,680		35,478		202
NET EARNINGS	$	134,467	$	133,843	$	624

Condensed Consolidated Balance Sheets



Balance at September 30, 2018
(In Thousands)	As Reported		Balance Without ASC 606 Adoption		Effect of Change Higher/(Lower)
Deferred Income Taxes Payable	$	248,102	$	248,522	$	(420	)
Customer Deposits and Advance Payments	71,554		70,028		1,526
Total Liabilities	935,392		934,286		1,106
Retained Earnings	1,945,961		1,947,067		(1,106		)
Total Shareholders’ Equity	1,763,506		1,764,612		(1,106		)
Total Liabilities & Shareholders’ Equity	$	2,698,898	$	2,698,898	$	—

Condensed Comprehensive Statements of Income



Three Months Ended September 30, 2018
(In Thousands)	As Reported		Balance Without ASC 606 Adoption		Effect of Change Higher/(Lower)
Comprehensive Income	$	44,017	$	43,744	$	273



Nine Months Ended September 30, 2018
(In Thousands)	As Reported		Balance Without ASC 606 Adoption		Effect of Change Higher/(Lower)
Comprehensive Income	$	133,752	$	133,128	$	624