8169280008553650005P6Y1994100018947000false--12-31Q220190000706688AARON'S
INC28428700030098300062704000630000000.0350.030.030.0350.50.52250000002250000009075212390752123130116000147440000P1Y32356797923204626
0000706688 2019-01-01 2019-06-30 0000706688 2019-07-19 0000706688
2018-12-31 0000706688 2019-06-30 0000706688 2018-04-01 2018-06-30
0000706688 2019-04-01 2019-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember 2019-01-01 2019-06-30
0000706688 2018-01-01 2018-06-30 0000706688
aan:LeaseRevenuesandFeesMember 2019-04-01 2019-06-30 0000706688
aan:NonRetailSalesMember 2018-04-01 2018-06-30 0000706688
aan:OtherRevenueMember 2018-04-01 2018-06-30 0000706688
aan:LeaseRevenuesandFeesMember 2018-01-01 2018-06-30 0000706688
aan:NonRetailSalesMember 2019-01-01 2019-06-30 0000706688
aan:NonRetailSalesMember 2019-04-01 2019-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember 2019-04-01 2019-06-30
0000706688 aan:FranchiseRoyaltiesAndFeesMember 2018-01-01
2018-06-30 0000706688 aan:RetailSalesMember 2019-01-01 2019-06-30
0000706688 aan:NonRetailSalesMember 2018-01-01 2018-06-30
0000706688 aan:RetailSalesMember 2018-04-01 2018-06-30 0000706688
aan:RetailSalesMember 2019-04-01 2019-06-30 0000706688
aan:OtherRevenueMember 2018-01-01 2018-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember 2019-01-01 2019-06-30
0000706688 aan:FranchiseRoyaltiesAndFeesMember 2018-04-01
2018-06-30 0000706688 aan:RetailSalesMember 2018-01-01 2018-06-30
0000706688 aan:InterestandFeesonLoansReceivableMember 2019-04-01
2019-06-30 0000706688 aan:OtherRevenueMember 2019-01-01 2019-06-30
0000706688 aan:InterestandFeesonLoansReceivableMember 2018-01-01
2018-06-30 0000706688 aan:InterestandFeesonLoansReceivableMember
2018-04-01 2018-06-30 0000706688 aan:OtherRevenueMember 2019-04-01
2019-06-30 0000706688 aan:LeaseRevenuesandFeesMember 2018-04-01
2018-06-30 0000706688 aan:LeaseRevenuesandFeesMember 2019-01-01
2019-06-30 0000706688 2017-12-31 0000706688 2018-06-30 0000706688
aan:ProgressiveLeasingMember 2019-04-01 2019-06-30 0000706688
aan:ProgressiveLeasingMember 2018-04-01 2018-06-30 0000706688
us-gaap:CommonStockMember 2018-03-31 0000706688
us-gaap:TreasuryStockMember 2018-06-30 0000706688
us-gaap:AccountingStandardsUpdate201409Member 2018-03-31 0000706688
us-gaap:TreasuryStockMember 2018-01-01 2018-03-31 0000706688
2018-03-31 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-01
2018-06-30 0000706688 us-gaap:AdditionalPaidInCapitalMember
2018-03-31 0000706688 us-gaap:TreasuryStockMember 2018-03-31
0000706688 us-gaap:RetainedEarningsMember 2018-03-31 0000706688
2018-01-01 2018-03-31 0000706688 us-gaap:CommonStockMember
2017-12-31 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01
2018-03-31 0000706688 us-gaap:RetainedEarningsMember 2017-12-31
0000706688 us-gaap:AdditionalPaidInCapitalMember 2018-04-01
2018-06-30 0000706688 us-gaap:AdditionalPaidInCapitalMember
2018-01-01 2018-03-31 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31
0000706688 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30
0000706688 us-gaap:TreasuryStockMember 2018-04-01 2018-06-30
0000706688 us-gaap:TreasuryStockMember 2017-12-31 0000706688
us-gaap:CommonStockMember 2018-06-30 0000706688
us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0000706688
us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30
0000706688 us-gaap:AccountingStandardsUpdate201409Member
us-gaap:RetainedEarningsMember 2018-03-31 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31
0000706688 us-gaap:AdditionalPaidInCapitalMember 2018-06-30
0000706688 us-gaap:RetainedEarningsMember 2018-06-30 0000706688
aan:ProgressiveLeasingMember 2019-06-30 0000706688
aan:RelatedPartyMember 2002-01-01 2004-12-31 0000706688
us-gaap:CreditCardReceivablesMember 2019-01-01 2019-06-30
0000706688 aan:AgreementTwoMember aan:SalesAndLeaseOwnershipMember
2019-01-01 2019-06-30 0000706688 aan:AgreementThreeMember
aan:SalesAndLeaseOwnershipMember 2019-01-01 2019-06-30 0000706688
aan:RelatedPartyMember 2019-01-01 2019-06-30 0000706688
srt:MaximumMember us-gaap:CreditCardReceivablesMember 2019-06-30
0000706688 aan:AgreementOneMember
aan:ProgressiveFinanceHoldingsLLCMember 2019-01-01 2019-06-30
0000706688 srt:MaximumMember us-gaap:CreditCardReceivablesMember
2019-01-01 2019-06-30 0000706688 2018-01-01 2018-12-31 0000706688
us-gaap:CreditCardReceivablesMember 2019-06-30 0000706688
aan:InitialFranchiseFeesMember srt:MaximumMember
aan:SalesandLeaseOwnershipandHomeSmartMember 2019-01-01 2019-06-30
0000706688 aan:AgreementOneMember aan:SalesAndLeaseOwnershipMember
2019-01-01 2019-06-30 0000706688
aan:SalesandLeaseOwnershipandHomeSmartMember 2019-01-01 2019-06-30
0000706688 srt:MinimumMember us-gaap:CreditCardReceivablesMember
2019-01-01 2019-06-30 0000706688 aan:InitialFranchiseFeesMember
srt:MinimumMember aan:SalesandLeaseOwnershipandHomeSmartMember
2019-01-01 2019-06-30 0000706688
us-gaap:AccountingStandardsUpdate201602Member
us-gaap:RetainedEarningsMember 2019-01-01 0000706688
aan:ProgressiveFinanceHoldingsLLCMember 2018-01-01 2018-12-31
0000706688 srt:MaximumMember aan:MerchandiseOnLeaseMember
2019-01-01 2019-06-30 0000706688 srt:MinimumMember
us-gaap:CreditCardReceivablesMember 2019-06-30 0000706688
srt:MinimumMember aan:MerchandiseOnLeaseMember 2019-01-01
2019-06-30 0000706688 aan:MerchandiseNotOnLeaseMember 2019-01-01
2019-06-30 0000706688 us-gaap:OperatingSegmentsMember
us-gaap:EntityOperatedUnitsMember 2018-06-30 0000706688
us-gaap:OperatingSegmentsMember us-gaap:FranchisedUnitsMember
2018-06-30 0000706688 us-gaap:OperatingSegmentsMember 2019-06-30
0000706688 us-gaap:OperatingSegmentsMember 2018-06-30 0000706688
us-gaap:OperatingSegmentsMember us-gaap:FranchisedUnitsMember
2019-06-30 0000706688 us-gaap:OperatingSegmentsMember
us-gaap:EntityOperatedUnitsMember 2019-06-30 0000706688
aan:MerchandiseNotOnLeaseMember 2019-06-30 0000706688
aan:MerchandiseOnLeaseMember 2019-06-30 0000706688
aan:MerchandiseNotOnLeaseMember 2018-12-31 0000706688
aan:MerchandiseOnLeaseMember 2018-12-31 0000706688
aan:FICOScoreLessthan600Member 2018-12-31 0000706688
us-gaap:FicoScoreGreaterThan700Member 2018-12-31 0000706688
us-gaap:FicoScoreGreaterThan700Member 2019-06-30 0000706688
aan:FICOScoreLessthan600Member 2019-06-30 0000706688
us-gaap:FicoScore600To699Member 2019-06-30 0000706688
us-gaap:FicoScore600To699Member 2018-12-31 0000706688
us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31
0000706688 us-gaap:RetainedEarningsMember 2019-06-30 0000706688
us-gaap:TreasuryStockMember 2019-03-31 0000706688
us-gaap:TreasuryStockMember 2019-06-30 0000706688
us-gaap:TreasuryStockMember 2019-04-01 2019-06-30 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30
0000706688 us-gaap:CommonStockMember 2019-03-31 0000706688
us-gaap:AccountingStandardsUpdate201602Member
us-gaap:RetainedEarningsMember 2019-03-31 0000706688
us-gaap:AccountingStandardsUpdate201602Member 2019-03-31 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31
0000706688 2019-01-01 2019-03-31 0000706688
us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0000706688
us-gaap:TreasuryStockMember 2018-12-31 0000706688
us-gaap:TreasuryStockMember 2019-01-01 2019-03-31 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01
2019-03-31 0000706688 us-gaap:AdditionalPaidInCapitalMember
2019-03-31 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01
2019-06-30 0000706688 us-gaap:AdditionalPaidInCapitalMember
2019-06-30 0000706688 us-gaap:RetainedEarningsMember 2018-12-31
0000706688 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30
0000706688 us-gaap:AdditionalPaidInCapitalMember 2019-04-01
2019-06-30 0000706688 us-gaap:CommonStockMember 2019-06-30
0000706688 us-gaap:RetainedEarningsMember 2019-03-31 0000706688
us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000706688
us-gaap:CommonStockMember 2018-12-31 0000706688
us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31
0000706688 2019-03-31 0000706688
us-gaap:TradeAccountsReceivableMember 2018-12-31 0000706688
aan:CorporateReceivableMember 2019-06-30 0000706688
aan:FranchiseeReceivableMember 2018-12-31 0000706688
aan:FranchiseeReceivableMember 2019-06-30 0000706688
us-gaap:TradeAccountsReceivableMember 2019-06-30 0000706688
aan:CorporateReceivableMember 2018-12-31 0000706688
aan:FranchiseeAcquisitionsMember
us-gaap:CustomerRelationshipsMember 2018-07-01 2018-07-31
0000706688 aan:FranchiseeAcquisitionsMember
us-gaap:CustomerContractsMember 2018-07-01 2018-07-31 0000706688
aan:FranchiseeAcquisitionsMember 2018-07-01 2018-07-31 0000706688
aan:FranchiseeAcquisitionsMember us-gaap:FranchiseRightsMember
2018-07-01 2018-07-31 0000706688 aan:FranchiseeAcquisitionsMember
us-gaap:NoncompeteAgreementsMember 2018-07-01 2018-07-31 0000706688
aan:FranchiseeAcquisitionsMember 2018-01-01 2018-12-31 0000706688
aan:AllAcquisitionsExcludingSEIAcquisitionMember 2018-01-01
2018-06-30 0000706688 aan:FranchiseeAcquisitionsMember 2018-12-31
0000706688 aan:FranchiseeAcquisitionsMember 2018-01-01 2018-06-30
0000706688 aan:FranchiseeAcquisitionsMember 2019-01-01 2019-06-30
0000706688 aan:AllAcquisitionsExcludingSEIAcquisitionMember
2019-01-01 2019-06-30 0000706688 aan:FranchiseeAcquisitionsMember
2018-04-01 2018-06-30 0000706688 aan:FranchiseeAcquisitionsMember
2019-04-01 2019-06-30 0000706688 aan:FranchiseeAcquisitionsMember
2019-06-30 0000706688 aan:FranchiseeAcquisitionsMember 2019-03-31
2019-03-31 0000706688 aan:FranchiseeAcquisitionsMember 2019-03-31
0000706688 us-gaap:FairValueInputsLevel1Member 2019-06-30
0000706688 us-gaap:FairValueInputsLevel2Member 2019-06-30
0000706688 us-gaap:FairValueInputsLevel3Member 2019-06-30
0000706688 us-gaap:FairValueInputsLevel3Member 2018-12-31
0000706688 us-gaap:FairValueInputsLevel1Member 2018-12-31
0000706688 us-gaap:FairValueInputsLevel2Member 2018-12-31
0000706688 us-gaap:FairValueInputsLevel1Member
us-gaap:LongTermDebtMember 2018-12-31 0000706688
us-gaap:FairValueInputsLevel3Member us-gaap:LongTermDebtMember
2019-06-30 0000706688 us-gaap:FairValueInputsLevel2Member
us-gaap:LongTermDebtMember 2019-06-30 0000706688
us-gaap:FairValueInputsLevel3Member us-gaap:LongTermDebtMember
2018-12-31 0000706688 us-gaap:FairValueInputsLevel2Member
us-gaap:LongTermDebtMember 2018-12-31 0000706688
us-gaap:FairValueInputsLevel1Member us-gaap:LongTermDebtMember
2019-06-30 0000706688 us-gaap:LongTermDebtMember 2018-12-31
0000706688 us-gaap:LongTermDebtMember 2019-06-30 0000706688
us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0000706688
us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0000706688
us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0000706688
us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0000706688
us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0000706688
us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0000706688
us-gaap:FinancingReceivables30To59DaysPastDueMember 2018-12-31
0000706688
us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember
2019-06-30 0000706688
us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-06-30
0000706688 us-gaap:FinancingReceivables60To89DaysPastDueMember
2018-12-31 0000706688
us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember
2018-12-31 0000706688
us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-06-30
0000706688 aan:AcquiredLoansMember 2018-12-31 0000706688
aan:AcquiredLoansMember 2019-06-30 0000706688
us-gaap:CreditCardReceivablesMember 2018-12-31 0000706688
srt:MaximumMember 2019-06-30 0000706688
aan:RestructuringExpensesMember 2019-01-01 2019-06-30 0000706688
us-gaap:OperatingExpenseMember 2019-04-01 2019-06-30 0000706688
us-gaap:OperatingExpenseMember 2019-01-01 2019-06-30 0000706688
aan:RestructuringExpensesMember 2019-04-01 2019-06-30 0000706688
srt:MinimumMember 2019-06-30 0000706688
us-gaap:UnusedLinesOfCreditMember 2019-06-30 0000706688
aan:FranchiseLoanFacilityMember 2019-01-01 2019-06-30 0000706688
us-gaap:UnusedLinesOfCreditMember 2018-12-31 0000706688
aan:NonRetailSalesMember aan:AaronsBusinessMember 2019-04-01
2019-06-30 0000706688 aan:FranchiseRoyaltiesAndFeesMember
aan:AaronsBusinessMember 2019-04-01 2019-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember aan:DentAMedInc.Member
2019-04-01 2019-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember aan:ProgressiveLeasingMember
2019-04-01 2019-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember
aan:ProgressiveLeasingMember 2019-04-01 2019-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember aan:DentAMedInc.Member
2019-04-01 2019-06-30 0000706688 aan:AaronsBusinessMember
2019-04-01 2019-06-30 0000706688 aan:RetailSalesMember
aan:AaronsBusinessMember 2019-04-01 2019-06-30 0000706688
aan:LeaseRevenuesandFeesMember aan:DentAMedInc.Member 2019-04-01
2019-06-30 0000706688 aan:RetailSalesMember
aan:ProgressiveLeasingMember 2019-04-01 2019-06-30 0000706688
aan:OtherRevenueMember aan:DentAMedInc.Member 2019-04-01 2019-06-30
0000706688 aan:RetailSalesMember aan:DentAMedInc.Member 2019-04-01
2019-06-30 0000706688 aan:OtherRevenueMember
aan:AaronsBusinessMember 2019-04-01 2019-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember aan:AaronsBusinessMember
2019-04-01 2019-06-30 0000706688 aan:LeaseRevenuesandFeesMember
aan:AaronsBusinessMember 2019-04-01 2019-06-30 0000706688
aan:OtherRevenueMember aan:ProgressiveLeasingMember 2019-04-01
2019-06-30 0000706688 aan:DentAMedInc.Member 2019-04-01 2019-06-30
0000706688 aan:NonRetailSalesMember aan:DentAMedInc.Member
2019-04-01 2019-06-30 0000706688 aan:NonRetailSalesMember
aan:ProgressiveLeasingMember 2019-04-01 2019-06-30 0000706688
aan:LeaseRevenuesandFeesMember aan:ProgressiveLeasingMember
2019-04-01 2019-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember
us-gaap:TransferredOverTimeMember 2018-04-01 2018-06-30 0000706688
us-gaap:OperatingSegmentsMember aan:AaronsBusinessMember 2018-12-31
0000706688 aan:FranchiseRoyaltiesAndFeesMember
us-gaap:TransferredOverTimeMember 2019-01-01 2019-06-30 0000706688
srt:SubsidiariesMember aan:DentAMedInc.Member 2019-01-01 2019-06-30
0000706688 aan:AaronsBusinessMember 2018-01-01 2018-06-30
0000706688 aan:LeasesMember 2019-01-01 2019-06-30 0000706688
aan:LeasesMember 2018-04-01 2018-06-30 0000706688 aan:LeasesMember
2018-01-01 2018-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember
us-gaap:TransferredOverTimeMember 2018-01-01 2018-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember
us-gaap:TransferredOverTimeMember 2019-04-01 2019-06-30 0000706688
us-gaap:OperatingSegmentsMember aan:AaronsBusinessMember 2019-06-30
0000706688 aan:LeasesMember 2019-04-01 2019-06-30 0000706688
aan:RetailSalesMember aan:AaronsBusinessMember 2018-04-01
2018-06-30 0000706688 aan:LeaseRevenuesandFeesMember
aan:DentAMedInc.Member 2018-04-01 2018-06-30 0000706688
aan:LeaseRevenuesandFeesMember aan:AaronsBusinessMember 2018-04-01
2018-06-30 0000706688 aan:NonRetailSalesMember
aan:AaronsBusinessMember 2018-04-01 2018-06-30 0000706688
aan:NonRetailSalesMember aan:DentAMedInc.Member 2018-04-01
2018-06-30 0000706688 aan:OtherRevenueMember
aan:AaronsBusinessMember 2018-04-01 2018-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember aan:ProgressiveLeasingMember
2018-04-01 2018-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember aan:AaronsBusinessMember
2018-04-01 2018-06-30 0000706688 aan:LeaseRevenuesandFeesMember
aan:ProgressiveLeasingMember 2018-04-01 2018-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember aan:AaronsBusinessMember
2018-04-01 2018-06-30 0000706688 aan:RetailSalesMember
aan:DentAMedInc.Member 2018-04-01 2018-06-30 0000706688
aan:OtherRevenueMember aan:DentAMedInc.Member 2018-04-01 2018-06-30
0000706688 aan:OtherRevenueMember aan:ProgressiveLeasingMember
2018-04-01 2018-06-30 0000706688 aan:NonRetailSalesMember
aan:ProgressiveLeasingMember 2018-04-01 2018-06-30 0000706688
aan:RetailSalesMember aan:ProgressiveLeasingMember 2018-04-01
2018-06-30 0000706688 aan:DentAMedInc.Member 2018-04-01 2018-06-30
0000706688 aan:InterestandFeesonLoansReceivableMember
aan:ProgressiveLeasingMember 2018-04-01 2018-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember aan:DentAMedInc.Member
2018-04-01 2018-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember aan:DentAMedInc.Member
2018-04-01 2018-06-30 0000706688 aan:AaronsBusinessMember
2018-04-01 2018-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember aan:DentAMedInc.Member
2018-01-01 2018-06-30 0000706688 aan:NonRetailSalesMember
aan:AaronsBusinessMember 2018-01-01 2018-06-30 0000706688
aan:LeaseRevenuesandFeesMember aan:ProgressiveLeasingMember
2018-01-01 2018-06-30 0000706688 aan:NonRetailSalesMember
aan:ProgressiveLeasingMember 2018-01-01 2018-06-30 0000706688
aan:NonRetailSalesMember aan:DentAMedInc.Member 2018-01-01
2018-06-30 0000706688 aan:LeaseRevenuesandFeesMember
aan:AaronsBusinessMember 2018-01-01 2018-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember aan:DentAMedInc.Member
2018-01-01 2018-06-30 0000706688 aan:OtherRevenueMember
aan:AaronsBusinessMember 2018-01-01 2018-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember aan:ProgressiveLeasingMember
2018-01-01 2018-06-30 0000706688 aan:ProgressiveLeasingMember
2018-01-01 2018-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember
aan:ProgressiveLeasingMember 2018-01-01 2018-06-30 0000706688
aan:RetailSalesMember aan:AaronsBusinessMember 2018-01-01
2018-06-30 0000706688 aan:InterestandFeesonLoansReceivableMember
aan:AaronsBusinessMember 2018-01-01 2018-06-30 0000706688
aan:OtherRevenueMember aan:ProgressiveLeasingMember 2018-01-01
2018-06-30 0000706688 aan:RetailSalesMember aan:DentAMedInc.Member
2018-01-01 2018-06-30 0000706688 aan:OtherRevenueMember
aan:DentAMedInc.Member 2018-01-01 2018-06-30 0000706688
aan:LeaseRevenuesandFeesMember aan:DentAMedInc.Member 2018-01-01
2018-06-30 0000706688 aan:DentAMedInc.Member 2018-01-01 2018-06-30
0000706688 aan:FranchiseRoyaltiesAndFeesMember
aan:AaronsBusinessMember 2018-01-01 2018-06-30 0000706688
aan:RetailSalesMember aan:ProgressiveLeasingMember 2018-01-01
2018-06-30 0000706688 aan:DentAMedInc.Member 2019-01-01 2019-06-30
0000706688 aan:ProgressiveLeasingMember 2019-01-01 2019-06-30
0000706688 aan:AaronsBusinessMember 2019-01-01 2019-06-30
0000706688 aan:AaronsBusinessMember 2019-06-30 0000706688
aan:DentAMedInc.Member 2018-12-31 0000706688 aan:DentAMedInc.Member
2019-06-30 0000706688 us-gaap:AllOtherSegmentsMember 2019-06-30
0000706688 aan:AaronsBusinessMember 2018-12-31 0000706688
aan:ProgressiveLeasingMember 2018-12-31 0000706688
us-gaap:AllOtherSegmentsMember 2018-12-31 0000706688
aan:LeaseRevenuesandFeesMember aan:ProgressiveLeasingMember
2019-01-01 2019-06-30 0000706688 aan:RetailSalesMember
aan:DentAMedInc.Member 2019-01-01 2019-06-30 0000706688
aan:RetailSalesMember aan:ProgressiveLeasingMember 2019-01-01
2019-06-30 0000706688 aan:NonRetailSalesMember
aan:ProgressiveLeasingMember 2019-01-01 2019-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember
aan:ProgressiveLeasingMember 2019-01-01 2019-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember aan:DentAMedInc.Member
2019-01-01 2019-06-30 0000706688 aan:NonRetailSalesMember
aan:DentAMedInc.Member 2019-01-01 2019-06-30 0000706688
aan:OtherRevenueMember aan:AaronsBusinessMember 2019-01-01
2019-06-30 0000706688 aan:FranchiseRoyaltiesAndFeesMember
aan:DentAMedInc.Member 2019-01-01 2019-06-30 0000706688
aan:FranchiseRoyaltiesAndFeesMember aan:AaronsBusinessMember
2019-01-01 2019-06-30 0000706688 aan:OtherRevenueMember
aan:DentAMedInc.Member 2019-01-01 2019-06-30 0000706688
aan:LeaseRevenuesandFeesMember aan:DentAMedInc.Member 2019-01-01
2019-06-30 0000706688 aan:FranchiseRoyaltiesAndFeesMember
aan:ProgressiveLeasingMember 2019-01-01 2019-06-30 0000706688
aan:OtherRevenueMember aan:ProgressiveLeasingMember 2019-01-01
2019-06-30 0000706688 aan:NonRetailSalesMember
aan:AaronsBusinessMember 2019-01-01 2019-06-30 0000706688
aan:RetailSalesMember aan:AaronsBusinessMember 2019-01-01
2019-06-30 0000706688 aan:LeaseRevenuesandFeesMember
aan:AaronsBusinessMember 2019-01-01 2019-06-30 0000706688
aan:InterestandFeesonLoansReceivableMember aan:AaronsBusinessMember
2019-01-01 2019-06-30 0000706688 us-gaap:ContractTerminationMember
2019-06-30 0000706688 us-gaap:ContractTerminationMember 2019-01-01
2019-06-30 0000706688 us-gaap:EmployeeSeveranceMember 2019-06-30
0000706688 us-gaap:EmployeeSeveranceMember 2018-12-31 0000706688
us-gaap:AccountingStandardsUpdate201602Member
us-gaap:ContractTerminationMember 2019-01-01 2019-01-01 0000706688
us-gaap:AccountingStandardsUpdate201602Member
us-gaap:EmployeeSeveranceMember 2019-01-01 2019-01-01 0000706688
us-gaap:AccountingStandardsUpdate201602Member
us-gaap:ContractTerminationMember 2018-12-31 0000706688
us-gaap:ContractTerminationMember 2018-12-31 0000706688
us-gaap:EmployeeSeveranceMember 2019-01-01 2019-06-30 0000706688
us-gaap:AccountingStandardsUpdate201602Member
us-gaap:EmployeeSeveranceMember 2018-12-31 0000706688
aan:TwoThousandSixteenAndTwoThousandSeventeenProgramsMember
2016-01-01 2019-06-30 0000706688
aan:TwoThousandSixteenAndTwoThousandSeventeenProgramsMember
2019-04-01 2019-06-30 0000706688
aan:RestructuringProgramTwoThousandandNineteenMember 2019-01-01
2019-06-30 0000706688 us-gaap:FacilityClosingMember 2016-01-01
2018-12-31 0000706688
aan:TwoThousandSixteenAndTwoThousandSeventeenProgramsMember
2019-01-01 2019-06-30 0000706688
aan:RestructuringProgramTwoThousandandNineteenMember 2019-04-01
2019-06-30 0000706688 us-gaap:OtherRestructuringMember 2018-04-01
2018-06-30 0000706688
aan:RightofUseAssetImpairmentandOperatingLeaseChargesMember
2018-01-01 2018-06-30 0000706688 us-gaap:FacilityClosingMember
2018-04-01 2018-06-30 0000706688 aan:FixedAssetsMember 2018-01-01
2018-06-30 0000706688 aan:FixedAssetsMember 2019-04-01 2019-06-30
0000706688
aan:RightofUseAssetImpairmentandOperatingLeaseChargesMember
2018-04-01 2018-06-30 0000706688 us-gaap:OtherRestructuringMember
2018-01-01 2018-06-30 0000706688 us-gaap:EmployeeSeveranceMember
2018-04-01 2018-06-30 0000706688 aan:FixedAssetsMember 2018-04-01
2018-06-30 0000706688 us-gaap:EmployeeSeveranceMember 2019-04-01
2019-06-30 0000706688 us-gaap:EmployeeSeveranceMember 2018-01-01
2018-06-30 0000706688
aan:RightofUseAssetImpairmentandOperatingLeaseChargesMember
2019-04-01 2019-06-30 0000706688 us-gaap:OtherRestructuringMember
2019-04-01 2019-06-30 0000706688 aan:FixedAssetsMember 2019-01-01
2019-06-30 0000706688 us-gaap:FacilityClosingMember 2019-04-01
2019-06-30 0000706688 us-gaap:FacilityClosingMember 2019-01-01
2019-06-30 0000706688
aan:RightofUseAssetImpairmentandOperatingLeaseChargesMember
2019-01-01 2019-06-30 0000706688 us-gaap:OtherRestructuringMember
2019-01-01 2019-06-30 0000706688 us-gaap:FacilityClosingMember
2018-01-01 2018-06-30 iso4217:CAD xbrli:pure aan:lease
aan:franchise aan:property iso4217:USD xbrli:shares aan:store
xbrli:shares aan:state iso4217:USD aan:source aan:segment
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
________________________________
FORM
10-Q
________________________________
|
|
|
☒
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
FOR THE
QUARTERLY PERIOD ENDED June 30, 2019
OR
|
|
|
☐
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
FOR THE
TRANSITION PERIOD FROM
TO
COMMISSION
FILE NUMBER 1-13941
________________________________
AARON’S
INC.
(Exact name
of registrant as specified in its charter)
_________________________________
|
|
|
|
|
|
|
Georgia
|
|
58-0687630
|
(State or
other jurisdiction of
incorporation
or organization)
|
|
(I. R. S.
Employer
Identification
No.)
|
|
|
|
400
Galleria Parkway SE
|
Suite
300
|
Atlanta
|
Georgia
|
|
30339-3182
|
(Address of
principal executive offices)
|
|
(Zip
Code)
|
(
678
)
402-3000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
|
Title of each
class
|
Trading
Symbol
|
Name of each
exchange on which registered
|
Common
Stock, $0.50 Par Value
|
AAN
|
New
York Stock Exchange
|
Not
Applicable
(Former name,
former address and former fiscal year, if changed since last
report)
___________________________________
Indicate by check
mark whether registrant (l) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities
Exchange Act of l934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
ý
No
o
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required
to submit and post such files).
Yes
ý
No
o
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definition of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
|
|
Large Accelerated
Filer
|
|
ý
|
|
|
Accelerated Filer
|
|
o
|
|
|
|
|
|
|
|
|
Non-Accelerated
Filer
|
|
o
|
(Do not check if a smaller
reporting company)
|
|
Smaller Reporting Company
|
|
☐
|
|
|
|
|
|
|
|
|
Emerging Growth
Company
|
|
☐
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If an emerging growth
company, indicate by check mark if the registrant has elected not
to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section
7(a)(2)(B) of the Securities Act
|
|
o
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ☐ No ý
Indicate the
number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
|
|
|
|
Title of Each
Class
|
|
Shares
Outstanding as of
July 19,
2019
|
Common Stock, $0.50 Par
Value
|
|
67,547,497
|
AARON’S,
INC.
INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
|
|
|
|
Item 4. Mine Safety Disclosures
|
|
|
|
Item 5. Other Information
|
|
|
|
|
|
|
|
|
|
PART I –
FINANCIAL INFORMATION
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
AARON’S,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
(In
Thousands, Except Share Data)
|
ASSETS:
|
|
|
|
Cash and Cash
Equivalents
|
$
|
100,242
|
|
|
$
|
15,278
|
|
Accounts Receivable (net of
allowances of $63,000 in 2019 and $62,704 in 2018)
|
85,257
|
|
|
98,159
|
|
Lease Merchandise (net of
accumulated depreciation and allowances of $855,365 in 2019 and
$816,928 in 2018)
|
1,292,724
|
|
|
1,318,470
|
|
Loans Receivable (net of
allowances and unamortized fees of $18,947 in 2019 and $19,941 in
2018)
|
69,974
|
|
|
76,153
|
|
Property, Plant and Equipment
at Cost (net of accumulated depreciation of $300,983 in 2019 and
$284,287 in 2018)
|
233,073
|
|
|
229,492
|
|
Operating Lease Right-of-Use
Assets
|
338,805
|
|
|
—
|
|
Goodwill
|
736,202
|
|
|
733,170
|
|
Other Intangibles (net of
accumulated amortization of $147,440 in 2019 and $130,116 in
2018)
|
207,066
|
|
|
228,600
|
|
Income Tax
Receivable
|
11,921
|
|
|
29,148
|
|
Prepaid Expenses and Other
Assets
|
104,934
|
|
|
98,222
|
|
Total
Assets
|
$
|
3,180,198
|
|
|
$
|
2,826,692
|
|
LIABILITIES &
SHAREHOLDERS’ EQUITY:
|
|
|
|
Accounts Payable and Accrued
Expenses
|
$
|
226,913
|
|
|
$
|
293,153
|
|
Deferred Income Taxes
Payable
|
288,291
|
|
|
267,500
|
|
Customer Deposits and Advance
Payments
|
80,680
|
|
|
80,579
|
|
Operating Lease
Liabilities
|
386,989
|
|
|
—
|
|
Debt
|
347,767
|
|
|
424,752
|
|
Total
Liabilities
|
1,330,640
|
|
|
1,065,984
|
|
Commitments and Contingencies
(Note 6)
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY:
|
|
|
|
Common Stock, Par Value $0.50
Per Share: Authorized: 225,000,000 Shares at June 30, 2019 and
December 31, 2018; Shares Issued: 90,752,123 at June 30, 2019 and
December 31, 2018
|
45,376
|
|
|
45,376
|
|
Additional Paid-in
Capital
|
277,533
|
|
|
278,922
|
|
Retained
Earnings
|
2,101,915
|
|
|
2,005,344
|
|
Accumulated Other
Comprehensive Loss
|
(45
|
)
|
|
(1,087
|
)
|
|
2,424,779
|
|
|
2,328,555
|
|
Less: Treasury Shares at
Cost
|
|
|
|
Common Stock: 23,204,626
Shares at June 30, 2019 and 23,567,979 at December 31,
2018
|
(575,221
|
)
|
|
(567,847
|
)
|
Total
Shareholders’ Equity
|
1,849,558
|
|
|
1,760,708
|
|
Total Liabilities &
Shareholders’ Equity
|
$
|
3,180,198
|
|
|
$
|
2,826,692
|
|
The
accompanying notes are an integral part of the Condensed
Consolidated Financial Statements .
AARON’S,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(In
Thousands, Except Per Share Data)
|
REVENUES:
|
|
|
|
|
|
|
|
Lease Revenues and
Fees
|
$
|
907,565
|
|
|
$
|
845,938
|
|
|
$
|
1,851,722
|
|
|
$
|
1,716,005
|
|
Retail Sales
|
8,898
|
|
|
6,592
|
|
|
21,707
|
|
|
15,108
|
|
Non-Retail Sales
|
34,124
|
|
|
53,661
|
|
|
71,105
|
|
|
106,891
|
|
Franchise Royalties and
Fees
|
8,605
|
|
|
12,125
|
|
|
17,812
|
|
|
24,987
|
|
Interest and Fees on Loans
Receivable
|
8,610
|
|
|
9,208
|
|
|
17,256
|
|
|
18,750
|
|
Other
|
339
|
|
|
335
|
|
|
642
|
|
|
927
|
|
|
968,141
|
|
|
927,859
|
|
|
1,980,244
|
|
|
1,882,668
|
|
COSTS AND
EXPENSES:
|
|
|
|
|
|
|
|
Depreciation of Lease
Merchandise
|
474,868
|
|
|
415,414
|
|
|
975,688
|
|
|
855,422
|
|
Retail Cost of
Sales
|
5,651
|
|
|
4,156
|
|
|
14,283
|
|
|
9,818
|
|
Non-Retail Cost of
Sales
|
28,948
|
|
|
47,068
|
|
|
58,144
|
|
|
95,088
|
|
Operating
Expenses
|
383,576
|
|
|
388,337
|
|
|
770,792
|
|
|
778,569
|
|
Restructuring Expenses
(Reversals), Net
|
18,738
|
|
|
(882
|
)
|
|
32,019
|
|
|
24
|
|
Other Operating Income,
Net
|
(3,486
|
)
|
|
(165
|
)
|
|
(4,383
|
)
|
|
(248
|
)
|
|
908,295
|
|
|
853,928
|
|
|
1,846,543
|
|
|
1,738,673
|
|
OPERATING
PROFIT
|
59,846
|
|
|
73,931
|
|
|
133,701
|
|
|
143,995
|
|
Interest Income
|
944
|
|
|
154
|
|
|
1,045
|
|
|
356
|
|
Interest Expense
|
(4,300
|
)
|
|
(3,807
|
)
|
|
(9,256
|
)
|
|
(8,133
|
)
|
Impairment of
Investment
|
—
|
|
|
(20,098
|
)
|
|
—
|
|
|
(20,098
|
)
|
Other Non-Operating Income
(Expense), Net
|
329
|
|
|
(200
|
)
|
|
1,637
|
|
|
612
|
|
EARNINGS
BEFORE INCOME TAXES
|
56,819
|
|
|
49,980
|
|
|
127,127
|
|
|
116,732
|
|
INCOME
TAXES
|
14,169
|
|
|
11,479
|
|
|
28,399
|
|
|
25,985
|
|
NET
EARNINGS
|
$
|
42,650
|
|
|
$
|
38,501
|
|
|
$
|
98,728
|
|
|
$
|
90,747
|
|
EARNINGS PER
SHARE
|
|
|
|
|
|
|
|
Basic
|
$
|
0.63
|
|
|
$
|
0.55
|
|
|
$
|
1.46
|
|
|
$
|
1.30
|
|
Assuming
Dilution
|
$
|
0.62
|
|
|
$
|
0.54
|
|
|
$
|
1.44
|
|
|
$
|
1.27
|
|
CASH
DIVIDENDS DECLARED PER SHARE:
|
|
|
|
|
|
|
|
Common Stock
|
$
|
0.0350
|
|
|
$
|
0.0300
|
|
|
$
|
0.0700
|
|
|
$
|
0.0600
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
Basic
|
67,687
|
|
|
69,645
|
|
|
67,492
|
|
|
69,875
|
|
Assuming
Dilution
|
68,793
|
|
|
70,837
|
|
|
68,784
|
|
|
71,428
|
|
The
accompanying notes are an integral part of the Condensed
Consolidated Financial Statements .
AARON’S,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
(In
Thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net Earnings
|
$
|
42,650
|
|
|
$
|
38,501
|
|
|
$
|
98,728
|
|
|
$
|
90,747
|
|
Other Comprehensive Income
(Loss):
|
|
|
|
|
|
|
|
Foreign Currency Translation
Adjustment
|
618
|
|
|
(535
|
)
|
|
1,042
|
|
|
(1,012
|
)
|
Total Other Comprehensive
Income (Loss)
|
618
|
|
|
(535
|
)
|
|
1,042
|
|
|
(1,012
|
)
|
Comprehensive
Income
|
$
|
43,268
|
|
|
$
|
37,966
|
|
|
$
|
99,770
|
|
|
$
|
89,735
|
|
The
accompanying notes are an integral part of the Condensed
Consolidated Financial Statements .
AARON’S,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
June 30,
|
|
2019
|
|
2018
|
|
(In
Thousands)
|
OPERATING
ACTIVITIES:
|
|
|
|
Net Earnings
|
$
|
98,728
|
|
|
$
|
90,747
|
|
Adjustments to Reconcile Net
Earnings to Cash Provided by Operating Activities:
|
|
|
|
Depreciation of Lease
Merchandise
|
975,688
|
|
|
855,422
|
|
Other Depreciation and
Amortization
|
53,862
|
|
|
44,591
|
|
Accounts Receivable
Provision
|
137,611
|
|
|
113,077
|
|
Provision for Credit Losses on
Loans Receivable
|
9,223
|
|
|
9,540
|
|
Stock-Based
Compensation
|
14,231
|
|
|
15,143
|
|
Deferred Income
Taxes
|
19,928
|
|
|
39,684
|
|
Impairment of
Assets
|
26,267
|
|
|
20,098
|
|
Non-Cash Lease
Expense
|
58,073
|
|
|
—
|
|
Other Changes,
Net
|
(3,390
|
)
|
|
(1,076
|
)
|
Changes in Operating Assets
and Liabilities, Net of Effects of Acquisitions and
Dispositions:
|
|
|
|
|
|
Additions to Lease
Merchandise
|
(1,141,863
|
)
|
|
(1,034,838
|
)
|
Book Value of Lease
Merchandise Sold or Disposed
|
196,219
|
|
|
199,846
|
|
Accounts
Receivable
|
(126,112
|
)
|
|
(97,385
|
)
|
Prepaid Expenses and Other
Assets
|
(6,847
|
)
|
|
(7,965
|
)
|
Income Tax
Receivable
|
17,227
|
|
|
54,242
|
|
Operating Lease
Liabilities
|
(62,541
|
)
|
|
—
|
|
Accounts Payable and Accrued
Expenses
|
(21,465
|
)
|
|
(36,165
|
)
|
Customer Deposits and Advance
Payments
|
(200
|
)
|
|
1,819
|
|
Cash Provided by Operating
Activities
|
244,639
|
|
|
266,780
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
Investments in Loans
Receivable
|
(29,506
|
)
|
|
(31,797
|
)
|
Proceeds from Loans
Receivable
|
27,720
|
|
|
30,150
|
|
Proceeds from
Investments
|
—
|
|
|
666
|
|
Outflows on Purchases of
Property, Plant and Equipment
|
(48,059
|
)
|
|
(32,785
|
)
|
Proceeds from Property, Plant
and Equipment
|
1,425
|
|
|
4,349
|
|
Outflows on Acquisitions of
Businesses and Customer Agreements, Net of Cash
Acquired
|
(7,612
|
)
|
|
(14,401
|
)
|
Proceeds from Dispositions of
Businesses and Customer Agreements, Net of Cash
Disposed
|
755
|
|
|
318
|
|
Cash Used in Investing
Activities
|
(55,277
|
)
|
|
(43,500
|
)
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
Repayments on Revolving
Facility, Net
|
(16,000
|
)
|
|
—
|
|
Repayments on
Debt
|
(61,465
|
)
|
|
(96,173
|
)
|
Dividends Paid
|
(4,717
|
)
|
|
(2,111
|
)
|
Acquisition of Treasury
Stock
|
(14,414
|
)
|
|
(68,432
|
)
|
Issuance of Stock Under Stock
Option Plans
|
5,056
|
|
|
4,134
|
|
Shares Withheld for Tax
Payments
|
(12,977
|
)
|
|
(17,282
|
)
|
Debt Issuance
Costs
|
—
|
|
|
(55
|
)
|
Cash Used in Financing
Activities
|
(104,517
|
)
|
|
(179,919
|
)
|
EFFECT OF
EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
119
|
|
|
(75
|
)
|
Increase in Cash and Cash
Equivalents
|
84,964
|
|
|
43,286
|
|
Cash and Cash Equivalents at
Beginning of Period
|
15,278
|
|
|
51,037
|
|
Cash and Cash Equivalents at
End of Period
|
$
|
100,242
|
|
|
$
|
94,323
|
|
The
accompanying notes are an integral part of the Condensed
Consolidated Financial Statements .
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
NOTE
1.
|
BASIS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Description of Business
Aaron's, Inc.
(the "Company") is a leading omnichannel provider of lease-purchase
solutions. As of June 30, 2019
, the Company's
operating and reportable segments are Progressive Leasing, Aaron's
Business and DAMI.
Progressive
Leasing is
a virtual lease-to-own company that provides lease-purchase
solutions in 46
states and the
District of Columbia. It does so by purchasing merchandise from
third-party retailers desired by those retailers' customers and, in
turn, leasing that merchandise to the customers through a
lease-to-own transaction. Progressive Leasing consequently has no
stores of its own, but rather offers lease-purchase solutions to
the customers of traditional and e-commerce retailers.
The following
table presents invoice volume for Progressive Leasing:
|
|
|
|
|
|
|
|
|
For the Three
Months Ended June 30 (Unaudited and In Thousands)
|
2019
|
|
2018
|
Progressive Leasing Invoice
Volume 1
|
$
|
403,410
|
|
|
$
|
335,088
|
|
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 segment 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 platform. 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 ("Woodhaven"), 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 five
franchisees
during the six months ended June 30,
2019 and five
franchisees
during the six months ended June 30,
2018 .
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
June 30 (Unaudited)
|
2019
|
|
2018
|
Company-operated Aaron's
Branded Stores
|
1,171
|
|
|
1,179
|
|
Franchised
Stores
|
357
|
|
|
530
|
|
Systemwide
Stores
|
1,528
|
|
|
1,709
|
|
DAMI
partners with
merchants to provide a variety of revolving credit products
originated through two, third-party federally insured banks to
customers that may not qualify for traditional prime lending
(called "second-look" financing programs).
Basis of Presentation
The preparation
of the Company's condensed consolidated financial statements in
conformity with accounting principles generally accepted in the
United States ("U.S. GAAP") for interim financial information
requires management to make estimates and assumptions that affect
the amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates. Generally,
actual experience has been consistent with management's prior
estimates and assumptions. Management does not believe these
estimates or assumptions will change significantly in the future
absent unidentified and unforeseen events.
The accompanying
unaudited condensed consolidated financial statements do not
include all information required by U.S. GAAP for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included in
the accompanying unaudited condensed consolidated financial
statements. These financial statements should be read in
conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2018
(the "
2018
Annual Report")
filed with the U.S. Securities and Exchange Commission on February
14, 2019. The results of operations for the
three and
six months
ended June 30, 2019
are not
necessarily indicative of operating results for the full
year.
Principles of Consolidation
The condensed
consolidated financial statements include the accounts of Aaron's,
Inc. and its subsidiaries, each of which is wholly owned.
Intercompany balances and transactions between consolidated
entities have been eliminated.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounting Policies and Estimates
See Note 1 to the
consolidated financial statements in the 2018 Annual Report.
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, restricted stock units ("RSUs"),
restricted stock awards ("RSAs") and performance share units
("PSUs") and awards issuable under the Company's employee stock
purchase plan ("ESPP") (collectively, "share-based awards") as
determined under the treasury stock method. The following table
shows the calculation of dilutive share-based awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
(Shares In
Thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Weighted Average Shares
Outstanding
|
67,687
|
|
|
69,645
|
|
|
67,492
|
|
|
69,875
|
|
Dilutive Effect of
Share-Based Awards
|
1,106
|
|
|
1,192
|
|
|
1,292
|
|
|
1,553
|
|
Weighted Average Shares
Outstanding Assuming Dilution
|
68,793
|
|
|
70,837
|
|
|
68,784
|
|
|
71,428
|
|
Approximately
522,000
and
482,000
weighted-average
share-based awards were excluded from the computation of earnings
per share assuming dilution during the three and six
months
ended June 30, 2019
, respectively,
as the awards would have been anti-dilutive for the periods
presented.
Approximately
493,000
and
340,000
weighted-average
share-based awards were excluded from the computation of earnings
per share assuming dilution during the three and six
months
ended June 30, 2018
, respectively,
as the awards would have been anti-dilutive for the periods
presented.
Revenue Recognition
Lease
Revenues and Fees
The Company
provides merchandise, consisting primarily of furniture, consumer
electronics, home appliances, jewelry and accessories, to its
customers for lease under certain terms agreed to by the customer.
The Company's Progressive Leasing segment offers customers of
traditional and e-commerce retailers a virtual lease purchase
solution through leases with month to month terms that can be
renewed up to 12 months
. The Company's
Aaron's-branded stores and its e-commerce platform offer leases
with month-to-month terms that can be renewed up to
12
,
18
or
24
months . The Company does not
require deposits upon inception of customer agreements. The
customer has the right to acquire ownership either through a
purchase option or through payment of all required lease
payments.
Progressive lease
revenues are earned prior to the lease payment due date and are
recorded net of related sales taxes as earned. Revenue recorded
prior to the payment due date results in unbilled accounts
receivable in the accompanying condensed consolidated balance
sheets. Beginning January 1, 2019, Progressive lease revenues are
recorded net of a provision for returns and uncollectible renewal
payments.
Aaron's Business
lease revenues are recognized as revenue net of related sales taxes
in the month they are earned. Lease payments received prior to the
month earned are recorded as deferred lease revenue, and this
amount is included in customer deposits and advance payments in the
accompanying condensed consolidated balance sheets. Aaron's
Business lease revenues are recorded net of a provision for returns
and uncollectible renewal payments.
All of the
Company's customer agreements are considered operating leases. The
Company maintains ownership of the lease merchandise until all
payment obligations are satisfied under sales and lease ownership
agreements. Initial direct costs related to Progressive Leasing's
lease purchase agreements are capitalized as incurred and amortized
as operating expense over the estimated lease term. The capitalized
costs have been classified within prepaid expenses and other assets
in the accompanying condensed consolidated balance sheets. Initial
direct costs related to Aaron's Business customer agreements are
expensed as incurred and have been classified as operating expenses
in the Company's condensed consolidated statements of earnings. The
statement of earnings effects of expensing the initial direct costs
of the Aaron's Business as incurred are not materially different
from amortizing initial direct costs over the lease
term.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Retail and
Non-Retail Sales
Revenues from the
retail sale of merchandise to customers are recognized at the point
of sale. Revenues for the non-retail sale of merchandise to
franchisees are recognized when control transfers to the
franchisee, which is upon delivery of the merchandise.
Substantially all
of the amounts reported as non-retail sales and non-retail cost of
sales in the accompanying condensed consolidated statements of
earnings relate to the sale of lease merchandise to franchisees.
The Company classifies the sale of merchandise to other customers
as retail sales in the condensed consolidated statements of
earnings.
Franchise
Royalties and Fees
The Company has
no current plans to franchise additional Aaron's stores. Current
franchisees pay an ongoing royalty of 6%
of the weekly
cash revenue collections, which is recognized as the fees become
due. The Company received a non-refundable initial franchise fee
from current franchisees from $15,000
to
$50,000
per store
depending upon market size. Franchise fees and area development
fees were generated from the sale of rights to develop, own and
operate sales and lease ownership stores and pre-opening services
provided by Aaron's to assist in the start-up operations of the
stores. The Company considers the rights to the intellectual
property and the pre-opening services to be a single performance
obligation, resulting in the recognition of revenue ratably over
time from the store opening date throughout the remainder of the
franchise agreement term. The Company believes that this period of
time is most representative of the time period in which the
franchisee realizes the benefits of having the right to access the
Company's intellectual property.
The Company
guarantees certain debt obligations of some of the franchisees and
receives guarantee fees based on the outstanding debt obligations
of such franchisees. Refer to Note 6 of these condensed
consolidated financial statements for additional discussion of the
Company's franchise-related guarantee obligation. The Company also
charges fees for advertising efforts that benefit the franchisees.
Such fees are recognized at the time the advertising takes place
and are presented as franchise royalties and fees in the Company's
condensed consolidated statements of earnings.
Interest
and Fees on Loans Receivable
DAMI extends or
declines credit to an applicant through its bank partners based
upon the applicant's credit rating and other factors. Qualifying
applicants receive a credit card to finance their initial purchase
and to use in subsequent purchases at the merchant or other
participating merchants for an initial 24
-month period,
which DAMI may renew if the cardholder remains in good
standing.
DAMI acquires the
loan receivable from merchants through its third-party bank
partners at a discount from the face value of the loan. The
discount is comprised of a merchant fee discount and a promotional
fee discount, if applicable.
The merchant fee
discount represents a pre-negotiated, nonrefundable discount that
generally ranges from 3%
to
25%
of the loan face
value. The discount is designed to cover the risk of loss related
to the portfolio of cardholder charges and DAMI's direct
origination costs. The merchant fee discount and origination costs
are presented net on the condensed consolidated balance sheet in
loans receivable. Cardholders generally have an initial
24
-month period
that the card is active. The merchant fee discount, net of the
origination costs, is amortized on a net basis and is recorded as
interest and fee revenue on loans receivable in the condensed
consolidated statements of earnings on a straight-line basis over
the initial 24
-month
period.
The discount from
the face value of the loan on the acquisition of the loan
receivable from the merchant through the third-party bank partners
may also include a promotional fee discount, which generally ranges
from 1%
to
8%
. The promotional
fee discount is intended to compensate the holder of the loan
receivable (i.e. DAMI) for deferred or reduced interest rates that
are offered to the cardholder for a specified period on the
outstanding loan balance (generally for six , 12
or
18
months ). The promotional fee
discount is amortized as interest and fee revenue on loans
receivable in the condensed consolidated statements of earnings on
a straight-line basis over the promotional interest period (i.e.,
over six , 12
or
18
months , depending on the
promotion). The unamortized promotional fee discount is netted on
the condensed consolidated balance sheet in loans
receivable.
The customer is
typically required to make periodic minimum payments of at
least 3.5%
of the
outstanding loan balance, which includes outstanding interest.
Fixed and variable interest rates, typically 25%
to
35.99%
, are compounded
daily for cards that do not qualify for deferred or reduced
interest promotional periods. Interest income, which is recognized
based upon the amount of the loans outstanding, is recognized as
interest and fees on loans receivable in the billing period in
which they are assessed if collectability is reasonably assured.
For credit cards that provide deferred interest, if the balance is
not paid off during the promotional period or if the cardholder
defaults, interest is billed to the customers at standard rates and
the cumulative amount owed is charged to the cardholder account in
the month that the promotional period expires. For credit
cards that provide reduced interest, if the balance is not paid off
during the promotional period, interest is billed to the cardholder
at standard rates in the month that the promotional period expires
or when the cardholder defaults.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company
recognizes interest revenue during the promotional period based on
its historical experience related to cardholders that fail to pay
off balances during the promotional period.
Annual fees are
charged to cardholders at the commencement of the loan and on each
subsequent anniversary date. Annual fees are deferred and
recognized into revenue on a straight-line basis over a one-year
period. Under the provisions of the credit card agreements, the
Company also may assess fees for service calls or for missed or
late payments, which are recognized as revenue in the billing
period in which they are assessed if collectability is reasonably
assured. Annual fees and other fees discussed are recognized as
interest and fee revenue on loans receivable in the condensed
consolidated statements of earnings.
Accounts Receivable
Accounts
receivable consist primarily of receivables due from customers of
Progressive Leasing and Company-operated stores, corporate
receivables incurred during the normal course of business
(primarily for vendor consideration and real estate leasing
activities) and franchisee obligations.
Accounts
receivable, net of allowances, consist of the following:
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
June 30,
2019
|
|
December 31,
2018
|
Customers
|
$
|
60,579
|
|
|
$
|
60,879
|
|
Corporate
|
12,024
|
|
|
18,171
|
|
Franchisee
|
12,654
|
|
|
19,109
|
|
Accounts
Receivable
|
$
|
85,257
|
|
|
$
|
98,159
|
|
The Company
maintains an accounts receivable allowance, which primarily relates
to its Progressive Leasing operations and the Aaron's Business
operations. The Company’s policy for its Progressive Leasing
segment is to record an allowance for returns and uncollectible
renewal payments based on historical collection experience. During
2019, the Company adopted ASU 2016-02, Leases
("ASC 842") which
resulted in the Progressive Leasing provision for returns and
uncollectible renewal payments being recorded as a reduction of
lease revenue and fees within the condensed consolidated statements
of earnings beginning January 1, 2019. The provision for returns
and uncollectible renewal payments for periods prior to 2019 are
reported herein as bad debt expense within operating expenses in
the condensed consolidated statements of earnings. The Progressive
Leasing segment writes off lease receivables that are
120
days or more contractually past
due.
For the Aaron's
Business operations, contractually required lease payments are
accrued when due. The Aaron's Business policy is to record a
provision for returns and uncollectible contractually due renewal
payments based on historical collection experience, which is
recognized as a reduction of lease revenues and fees within the
condensed consolidated statements of earnings. Aaron's Business
write-off of lease receivables that are 60 days
or more past due
occur on pre-determined dates twice monthly.
DAMI's allowance
for uncollectible merchant accounts receivable, which primarily
relates to cardholder returns and refunds, is recorded as bad debt
expense within operating expenses in the condensed consolidated
statements of earnings.
The following
table shows the amounts recognized for bad debt expense and
provision for returns and uncollected payments:
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
(In
Thousands)
|
2019
|
|
2018
|
Bad Debt Expense
1
|
$
|
1,166
|
|
|
$
|
96,651
|
|
Provision for Returns and
Uncollectible Renewal Payments 2
|
136,445
|
|
|
16,426
|
|
Accounts Receivable
Provision
|
$
|
137,611
|
|
|
$
|
113,077
|
|
1
Bad debt expense
is recorded within operating expenses in the condensed consolidated
financial statements.
2
In accordance
with the adoption of ASC 842, Progressive Leasing provision for
returns and uncollectible renewal payments are recorded as a
reduction to lease revenues and fees within the condensed
consolidated financial statements beginning January 1, 2019. Prior
to January 1, 2019, Progressive Leasing provision for returns and
uncollectible renewal payments were recorded as bad debt expense
within operating expenses in the condensed consolidated financial
statements.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Lease Merchandise
The Company's
lease merchandise consists primarily of furniture, consumer
electronics, home appliances, jewelry, and accessories and is
recorded at the lower of cost or net realizable value. The cost of
merchandise manufactured by our Woodhaven operations is recorded at
cost and includes overhead from production facilities, shipping
costs and warehousing costs. The Company's Progressive Leasing
segment, at which substantially all merchandise is on lease,
depreciates merchandise generally over 12
months. The
Company's Aaron's Business segment begins depreciating merchandise
at the earlier of 12 months and one day or when the item is leased.
Aaron's Business depreciates merchandise to a 0%
salvage value
over the lease agreement period when on lease, generally
12
to
24
months , and generally
36
months when not on lease.
Depreciation is accelerated upon early payout.
The following is
a summary of lease merchandise, net of accumulated depreciation and
allowances:
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
June 30,
2019
|
|
December 31,
2018
|
Merchandise on
Lease
|
$
|
1,036,456
|
|
|
$
|
1,053,684
|
|
Merchandise Not on
Lease
|
256,268
|
|
|
264,786
|
|
Lease Merchandise, net of
Accumulated Depreciation and Allowances
|
$
|
1,292,724
|
|
|
$
|
1,318,470
|
|
The Company's
policies require weekly lease merchandise counts at its store-based
operations, which include write-offs for unsalable, damaged, or
missing merchandise inventories. In addition to monthly cycle
counting, full physical inventories are generally taken at the
fulfillment and manufacturing facilities annually 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 obsolete lease merchandise cannot be
returned to vendors, its carrying amount is adjusted to its net
realizable value or written off.
Generally, 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 a provision for write-offs on the
allowance method, which estimates the merchandise losses incurred
but not yet identified by management as of the end of the
accounting period based on historical write-off experience. The
provision for write-offs is included in operating expenses in the
accompanying condensed consolidated statements of
earnings.
The following
table shows the components of the allowance for lease merchandise
write-offs:
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
(In
Thousands)
|
2019
|
|
2018
|
Beginning
Balance
|
$
|
46,694
|
|
|
$
|
35,629
|
|
Merchandise Written off, net
of Recoveries
|
(105,571
|
)
|
|
(80,856
|
)
|
Provision for
Write-offs
|
117,994
|
|
|
91,420
|
|
Ending Balance
|
$
|
59,117
|
|
|
$
|
46,193
|
|
Loans Receivable, Net
Gross loans
receivable represents the principal balances of credit card charges
at DAMI's participating merchants that remain due from cardholders,
plus unpaid interest and fees due from cardholders. The allowances
and unamortized fees represents an allowance for uncollectible
amounts; merchant fee discounts, net of capitalized origination
costs; promotional fee discounts; and deferred annual card
fees.
Loans acquired in
the October 15, 2015 DAMI acquisition (the "Acquired Loans") were
recorded at their estimated fair value at the acquisition date. The
projected net cash flows from expected payments of principal,
interest, fees and servicing costs and anticipated charge-offs were
included in the determination of fair value; therefore, an
allowance for loan losses and an amount for unamortized fees were
not recognized for the Acquired Loans. The difference, or discount,
between the expected cash flows to be received and the fair value
of the Acquired Loans is accreted to interest and fees on loans
receivable based on the effective interest method. At each period
end, the Company evaluates the appropriateness of the accretable
discount on the Acquired Loans based on actual and revised
projected future cash receipts.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Losses on loans
receivable are recognized when they are incurred, which requires
the Company to make its best estimate of probable losses inherent
in the portfolio. The Company evaluates loans receivable
collectively for impairment. The method for calculating the best
estimate of probable losses takes into account the Company's
historical experience, adjusted for current conditions and the
Company's judgment concerning the probable effects of relevant
observable data, trends and market factors. Economic conditions and
loan performance trends are closely monitored to manage and
evaluate exposure to credit risk. Trends in delinquency ratios are
an indicator of credit risk within the loans receivable portfolio,
including the migration of loans between delinquency categories
over time. Charge-off rates represent another indicator of the
potential for future credit losses. The risk in the loans
receivable portfolio is correlated with broad economic trends, such
as unemployment rates, gross domestic product growth and gas
prices, which can have a material effect on credit performance. To
the extent that actual results differ from estimates of
uncollectible loans receivable, the Company's results of operations
and liquidity could be materially affected.
The Company
calculates the allowance for loan losses based on actual
delinquency balances and historical average loss experience on
loans receivable by aging category for the prior eight quarters.
The allowance for loan losses is maintained at a level considered
adequate to cover probable losses of principal, interest and fees
on active loans in the loans receivable portfolio. The adequacy of
the allowance is evaluated at each period end.
Delinquent loans
receivable are those that are 30 days or more past due based
on their contractual billing dates. The Company places loans
receivable on nonaccrual status when they are greater than
90
days past due or
upon notification of cardholder bankruptcy, death or fraud. The
Company discontinues accruing interest and fees and amortizing
merchant fee discounts and promotional fee discounts for loans
receivable in nonaccrual status. Loans receivable are removed from
nonaccrual status when cardholder payments resume, the loan
becomes 90 days or less past due and
collection of the remaining amounts outstanding is deemed probable.
Payments received on nonaccrual loans are allocated according to
the same payment hierarchy methodology applied to loans that are
accruing interest. Loans receivable are charged off no later than
the end of the following month after the billing cycle in which the
loans receivable become 120 days past due.
DAMI extends or
declines credit to an applicant through its bank partners based
upon the applicant's credit rating and other factors. Below is a
summary of the credit quality of the Company's loan portfolio as
of June 30, 2019
and
December 31,
2018 by
Fair Isaac and Company (FICO) score as determined at the time of
loan origination:
|
|
|
|
|
|
|
FICO Score
Category
|
June 30,
2019
|
|
December 31,
2018
|
600 or Less
|
4.5
|
%
|
|
3.7
|
%
|
Between 600 and
700
|
79.6
|
%
|
|
77.9
|
%
|
700 or Greater
|
15.9
|
%
|
|
18.4
|
%
|
Prepaid Expenses and Other Assets
Prepaid expenses
and other assets consist of the following:
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
June 30,
2019
|
|
December 31,
2018
|
Prepaid Expenses
|
$
|
32,937
|
|
|
$
|
30,763
|
|
Prepaid
Insurance
|
26,400
|
|
|
27,948
|
|
Assets Held for
Sale
|
8,992
|
|
|
6,589
|
|
Deferred Tax
Asset
|
8,761
|
|
|
8,761
|
|
Other Assets
|
27,844
|
|
|
24,161
|
|
Prepaid Expenses and Other
Assets
|
$
|
104,934
|
|
|
$
|
98,222
|
|
Assets Held for Sale
Certain
properties, consisting of parcels of land and commercial buildings,
met the held for sale classification criteria as of
June 30,
2019 and December 31, 2018
. Assets held for
sale are recorded at the lower of their carrying value or fair
value less estimated cost to sell and are classified within prepaid
expenses and other assets in the condensed consolidated balance
sheets. Depreciation is suspended on assets upon classification to
held for sale.
The carrying
amount of the properties held for sale as of June 30, 2019
and
December 31,
2018 is $9.0
million and $6.6
million , respectively. The Company
estimated the fair values of real estate properties using the
market values for similar properties. These properties are
considered Level 2 assets as defined below.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounts Payable and Accrued Expenses
Accounts payable
and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
June 30,
2019
|
|
December 31,
2018
|
Accounts Payable
|
$
|
57,414
|
|
|
$
|
88,369
|
|
Accrued Insurance
Costs
|
40,745
|
|
|
40,423
|
|
Accrued Salaries and
Benefits
|
40,125
|
|
|
40,790
|
|
Accrued Real Estate and Sales
Taxes
|
27,379
|
|
|
30,332
|
|
Deferred Rent
1
|
—
|
|
|
27,270
|
|
Other Accrued Expenses and
Liabilities 1
|
61,250
|
|
|
65,969
|
|
Accounts Payable and Accrued
Expenses
|
$
|
226,913
|
|
|
$
|
293,153
|
|
|
|
1
|
Amounts as
of June 30, 2019
were impacted by
the January 1, 2019 adoption of ASC 842. Upon transition to ASC
842, the remaining balances of the Company's deferred rent, lease
incentives, and closed store reserve were reclassified as a
reduction to the operating lease right-of-use asset in the
accompanying condensed consolidated balance sheet.
|
Debt
At
June 30,
2019 , the
Company was in compliance with all covenants related to its
outstanding debt. See Note 7 to the consolidated financial
statements in the 2018 Annual Report for further
information regarding the Company's indebtedness.
Stockholders' Equity
Changes in
stockholders' equity for the six months
ended
June 30,
2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Shareholders’ Equity
|
(In
Thousands, Except Per Share)
|
Shares
|
|
Amount
|
|
|
|
|
Balance, December 31,
2018
|
(23,568
|
)
|
|
$
|
(567,847
|
)
|
|
$
|
45,376
|
|
|
$
|
278,922
|
|
|
$
|
2,005,344
|
|
|
$
|
(1,087
|
)
|
$
|
1,760,708
|
|
Opening Balance Sheet
Adjustment - ASC 842, net of taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,592
|
|
|
—
|
|
2,592
|
|
Cash Dividends, $0.035 per
share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,363
|
)
|
|
—
|
|
(2,363
|
)
|
Stock-Based
Compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
7,050
|
|
|
—
|
|
|
—
|
|
7,050
|
|
Reissued Shares
|
493
|
|
|
4,264
|
|
|
—
|
|
|
(15,245
|
)
|
|
—
|
|
|
—
|
|
(10,981
|
)
|
Net
Earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56,078
|
|
|
—
|
|
56,078
|
|
Foreign Currency Translation
Adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
424
|
|
424
|
|
Balance, March 31,
2019
|
(23,075
|
)
|
|
$
|
(563,583
|
)
|
|
$
|
45,376
|
|
|
$
|
270,727
|
|
|
$
|
2,061,651
|
|
|
$
|
(663
|
)
|
$
|
1,813,508
|
|
Cash Dividends, $0.035 per
share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,386
|
)
|
|
—
|
|
(2,386
|
)
|
Stock-Based
Compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
6,522
|
|
|
—
|
|
|
—
|
|
6,522
|
|
Reissued Shares
|
113
|
|
|
2,776
|
|
|
—
|
|
|
284
|
|
|
—
|
|
|
—
|
|
3,060
|
|
Repurchased
Shares
|
(243
|
)
|
|
(14,414
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(14,414
|
)
|
Net
Earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,650
|
|
|
—
|
|
42,650
|
|
Foreign Currency Translation
Adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
618
|
|
618
|
|
Balance, June 30,
2019
|
(23,205
|
)
|
|
$
|
(575,221
|
)
|
|
$
|
45,376
|
|
|
$
|
277,533
|
|
|
$
|
2,101,915
|
|
|
$
|
(45
|
)
|
$
|
1,849,558
|
|
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Shareholders’ Equity
|
(In
Thousands, Except Per Share)
|
Shares
|
|
Amount
|
|
|
|
|
Balance, December 31,
2017
|
(20,733
|
)
|
|
$
|
(407,713
|
)
|
|
$
|
45,376
|
|
|
$
|
270,043
|
|
|
$
|
1,819,524
|
|
|
$
|
774
|
|
$
|
1,728,004
|
|
Opening Balance Sheet
Adjustment - ASC 606, net of taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,729
|
)
|
|
—
|
|
(1,729
|
)
|
Cash Dividends,
$0.03 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,146
|
)
|
|
—
|
|
(2,146
|
)
|
Stock-Based
Compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
7,862
|
|
|
—
|
|
|
—
|
|
7,862
|
|
Reissued Shares
|
545
|
|
|
3,441
|
|
|
—
|
|
|
(12,602
|
)
|
|
—
|
|
|
—
|
|
(9,161
|
)
|
Repurchased
Shares
|
(391
|
)
|
|
(18,407
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(18,407
|
)
|
Net
Earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,246
|
|
|
—
|
|
52,246
|
|
Foreign Currency Translation
Adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(477
|
)
|
(477
|
)
|
Balance, March 31,
2018
|
(20,579
|
)
|
|
$
|
(422,679
|
)
|
|
$
|
45,376
|
|
|
$
|
265,303
|
|
|
$
|
1,867,895
|
|
|
$
|
297
|
|
$
|
1,756,192
|
|
Cash Dividends,
$0.03 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,087
|
)
|
|
—
|
|
(2,087
|
)
|
Stock-Based
Compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
6,380
|
|
|
—
|
|
|
—
|
|
6,380
|
|
Reissued Shares
|
220
|
|
|
1,795
|
|
|
—
|
|
|
(5,408
|
)
|
|
—
|
|
|
—
|
|
(3,613
|
)
|
Repurchased
Shares
|
(1,234
|
)
|
|
(50,025
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(50,025
|
)
|
Net
Earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,501
|
|
|
—
|
|
38,501
|
|
Foreign Currency Translation
Adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(535
|
)
|
(535
|
)
|
Balance, June 30,
2018
|
(21,593
|
)
|
|
$
|
(470,909
|
)
|
|
$
|
45,376
|
|
|
$
|
266,275
|
|
|
$
|
1,904,309
|
|
|
$
|
(238
|
)
|
$
|
1,744,813
|
|
Fair Value Measurement
Fair value is
defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. To increase the
comparability of fair value measures, the following hierarchy
prioritizes the inputs to valuation methodologies used to measure
fair value:
Level 1—Valuations based
on quoted prices for identical assets and liabilities in active
markets.
Level 2—Valuations based
on observable inputs other than quoted prices included in Level 1,
such as quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, or other inputs that
are observable or can be corroborated by observable market
data.
Level 3—Valuations based
on unobservable inputs reflecting the Company's own assumptions,
consistent with reasonably available assumptions made by other
market participants. These valuations require significant
judgment.
The Company
measures assets held for sale at fair value on a nonrecurring basis
and records impairment charges when they are deemed to be impaired.
The Company maintains certain financial assets and liabilities, and
fixed-rate long-term debt, that are not measured at fair value but
for which fair value is disclosed.
The fair values
of the Company's other current financial assets and liabilities,
including cash and cash equivalents, accounts receivable and
accounts payable, approximate their carrying values due to their
short-term nature. The fair value for the loans receivable, net of
allowances, and the revolving credit borrowings also approximate
their carrying amounts.
Related Party Transactions
Aaron
Ventures I, LLC, which we refer to as "Aaron Ventures," was
formed in December 2002 for the purpose of acquiring properties
from the Company and leasing them back to the Company and is
controlled by certain of the Company’s current and former
executives. Aaron Ventures purchased a combined total of
21
properties from
the Company in 2002 and 2004, and leased the properties back to the
Company. As of June 30, 2019
, the Company
had three
remaining
operating leases with Aaron Ventures with expiration dates between
2023 and 2025. The rate of interest implicit in the leases is
approximately 9.7%
. The land and
buildings, associated depreciation expense and lease obligations
are recorded in the Company's condensed consolidated financial
statements. The three
operating leases
have aggregate annual rental payments of approximately
$0.2
million .
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Disclosure of Noncash Investing
Transactions
During the
three months
ended June 30, 2018 , the Company entered into
transactions to acquire and sell certain customer agreements and
related lease merchandise with third parties which are accounted
for as asset acquisitions and asset disposals. The fair value of
the non-cash consideration exchanged in these transactions
was $0.6
million .
In addition, the
purchase price for the acquisition of certain franchisees made
during the six months
ended
June 30,
2019 and 2018 included the non-cash
settlement of pre-existing accounts receivable the franchisees owed
the Company of $0.3
million and $0.4
million , respectively. This non-cash
consideration has been excluded from the line "Outflows on
Acquisitions of Businesses and Customer Agreements, Net of Cash
Acquired" in the investing activities section of the condensed
consolidated statements of cash flows for the respective
periods.
Hurricane Impact
During the third
and fourth quarters of 2017, Hurricanes Harvey and Irma impacted
the Company in the form of: (i) property damages (primarily
in-store and on-lease merchandise, store leasehold improvements and
furniture and fixtures) and employee assistance payments; (ii)
increased customer-related accounts receivable allowances and lease
merchandise allowances primarily in the impacted areas; (iii) lost
lease revenue due to store closures of Aaron's Business and
Progressive Leasing retail partners; and (iv) lost lease revenue
due to the postponing of customer payments in the impacted
areas.
During the
six months
ended
June 30,
2019 , the
Company received cash payments of $2.7
million and an executed agreement
confirming an additional, final settlement amount of
$4.3
million to be received from its
insurers related to the property damage and business interruption
claims resulting from Hurricanes Harvey and Irma. Settled property
damage claims (either received in cash or deemed collectible as
of June 30, 2019
) that were in
excess of the respective insurance receivable balances, as well as
business interruption proceeds, resulted in gains of
$4.5
million during the
six months
ended
June 30,
2019 .
These gains were recorded within other operating income,
net in the
condensed consolidated statements of earnings. As of
June 30,
2019 , the
Company has an insurance receivable of $4.3
million related to the final
settlement amount, which the Company believes is probable of
receipt.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent Accounting Pronouncements
Adopted
Leases
. In February
2016, the FASB issued ASU 2016-02, Leases
("ASC 842"),
which requires lessees to recognize assets and liabilities for most
leases and changes certain aspects of lessor accounting, among
other things. ASU 2016-02 is effective for annual and interim
periods beginning after December 15, 2018. Companies must use a
modified retrospective approach to adopt ASC 842; however, the
Company adopted an optional transition method in which entities are
permitted to not apply the requirements of ASC 842 in the
comparative periods presented within the financial statements in
the year of adoption, with recognition of a cumulative-effect
adjustment to the opening balance of retained earnings in the
period of adoption. The application of this optional transition
method resulted in a cumulative-effect adjustment of
$2.6
million representing an increase to
the Company’s January 1, 2019 retained earnings balance, net of
tax, due primarily to the recognition of deferred gains recorded
under previous sale and operating leaseback transactions for which
the ASC 842 transition guidance requires companies to recognize any
deferred gains not resulting from off-market terms as a cumulative
adjustment to retained earnings upon adoption of ASC
842.
As a lessor, a
majority of the Company’s revenue generating activities are within
the scope of ASC 842. The new standard did not materially impact
the timing of revenue recognition. Effective January 1, 2019, ASC
842 resulted in the Company classifying the Progressive Leasing
provision for returns and uncollectible renewal payments as a
reduction of lease revenue and fees within the condensed
consolidated statements of earnings. For periods reported herein
prior to January 1, 2019, the Progressive Leasing provision for
returns and uncollectible renewal payments was recorded as bad debt
expense within operating expenses in the condensed consolidated
statements of earnings. The Aaron’s Business provision for returns
and uncollectible renewal payments has historically been, and
continues to be recorded as, a reduction to lease revenue and fees.
The Company has customer lease agreements with lease and non-lease
components that fall within the scope of ASU 2014-09,
Revenue
from Contracts with Customers ("ASC 606"). The Company has
elected to aggregate these components into a single component for
all classes of underlying assets as the lease and non-lease
components generally have the same timing and pattern of
transfer.
The new standard
also impacts the Company as a lessee by requiring substantially all
of its operating leases to be recognized on the balance sheet as
operating lease right-of-use assets and operating lease
liabilities. See Note 5 to these condensed consolidated financial
statements for further details regarding the Company’s leasing
activities as a lessee. The Company elected to adopt a package of
practical expedients offered by the FASB which removes the
requirement to reassess whether expired or existing contracts
contain leases and removes the requirement to reassess the lease
classification for any existing leases prior to the adoption date
of January 1, 2019. Additionally, the Company has elected the
practical expedient to include both lease and non-lease components
as a single component and account for it as a lease.
Cloud
Computing Arrangements . In August 2018, the FASB
issued ASU 2018-15, Customer's
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract. The intent of the standard is
to reduce diversity in practice in accounting for the costs of
implementing cloud computing arrangements that are service
contracts. Under the new standard, entities will be required to
apply the accounting guidance as prescribed by ASC 350-40,
Internal
Use Software , in determining which
implementation costs should be capitalized as assets or expensed as
incurred. The internal-use software guidance requires the
capitalization of certain costs incurred during the application
development stage of an internal-use software project, while
requiring companies to expense all costs incurred during
preliminary project and post-implementation project stages. As a
result, certain implementation costs which were previously expensed
by the Company are now eligible for capitalization under ASU
2018-15. The standard may be applied either prospectively to all
implementation costs incurred after the adoption date or
retrospectively. ASU 2018-15 is effective for annual and interim
periods beginning after December 15, 2019, with early adoption
permitted. The Company elected to early adopt ASU 2018-15 on a
prospective basis effective January 1, 2019, and the impact to the
condensed consolidated financial statements was not significant.
Costs eligible for capitalization will be capitalized within
prepaid expenses and other assets and expensed through operating
expenses in the condensed consolidated balance sheets and
statements of earnings, respectively.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pending
Adoption
Financial
Instruments - Credit Losses . In June 2016, the FASB
issued ASU 2016-13, Measurement
of Credit Losses on Financial Instruments ("CECL"). The main objective
of the update is to provide financial statement users with more
decision-useful information about the expected credit losses on
financial instruments and other commitments to extend credit held
by companies at each reporting date. For trade and other
receivables, held to maturity debt securities and other
instruments, companies will be required to use a new
forward-looking "expected losses" model that generally will result
in the recognition of allowances for losses earlier than under
current accounting guidance. The standard will be adopted on a
modified retrospective basis with a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting period
in which the guidance is effective. ASU 2016-13 is effective for
the Company in the first quarter of 2020.
The Company's
operating lease activities within Aaron's Business and Progressive
Leasing will not be impacted by ASU 2016-13, as operating lease
receivables are not in the scope of the CECL model. The Company
will be impacted by ASU 2016-13 within its DAMI segment by
requiring earlier recognition of estimated credit losses in the
consolidated statements of earnings. DAMI acquires loan receivables
from merchants through its third-party bank partners at a discount
from the face value of the loan, referred to as the "merchant fee
discount." The merchant fee discount represents a pre-negotiated,
nonrefundable discount that generally ranges from
3%
to
25%
of the loan face
value, which is primarily intended to cover the risk of credit loss
related to the portfolio of loans originated. Although the CECL
model will require the estimated credit losses to be recognized at
the time of loan origination, the related merchant fee discount
will continue to be amortized as interest and fee revenue on a
straight-line basis over the initial 24-month period that the card
is active. Therefore, on a loan-by-loan basis, the Company expects
higher losses to be recognized upon loan origination for the
estimated credit losses, generally followed by higher net earnings
as the related merchant fee discount is amortized to interest
income, and as interest income is accrued and earned on the
outstanding loan. Although the CECL model will result in earlier
recognition of credit losses in the statements of earnings, no
changes are expected related to the loan cash flows.
The Company has
evaluated the guidance in ASU 2016-13 related to purchased
financial assets with credit deterioration ("PCD Method") and
currently expects that its loans receivable would not qualify for
the PCD Method as, generally, a more-than-insignificant
deterioration in credit quality since origination does not occur.
The Company is in the process of implementing a software solution
to support the new accounting requirements for the Company's loans
receivable and has organized a project implementation team to
identify and implement changes to processes and procedures that
will be necessary to adopt ASU 2016-13. The Company is also
continuing to evaluate other various potential impacts of CECL,
such as accounting for troubled debt restructuring and its reserve
for losses on unfunded loan commitments.
NOTE 2.
ACQUISITIONS
Franchisee Acquisitions - 2018
During 2018, the
Company acquired 152
Aaron's-branded
franchised stores operated by franchisees for an aggregate purchase
price of $189.8
million , exclusive of the settlement
of pre-existing receivables and post-closing working capital
settlements.
The acquired
operations generated revenues of $45.9
million and $94.8
million during the
three and
six months
ended June 30, 2019
, respectively,
and $4.0
million and $5.2
million during the comparable prior
year periods. The acquired operations generated losses before
income taxes of $1.1
million and earnings before income
taxes of $1.5
million during the
three and
six months
ended June 30, 2019
, respectively,
and earnings before income taxes of $0.6
million and $0.8
million during the comparable prior
year periods. The revenues and earnings before income taxes
described above are included in our condensed consolidated
statements of earnings for the respective periods.
The results of
the acquired operations were negatively impacted by
acquisition-related transaction and transition costs, amortization
expense of the various intangible assets recorded from the
acquisitions, and restructuring charges incurred under the 2019
restructuring program associated with the closure of a number of
acquired stores. The revenues and earnings before income taxes of
the acquired operations discussed above have not been adjusted for
estimated non-retail sales and franchise royalties and fees and
related expenses that the Company could have generated as revenue
and expenses to the Company from the franchisees during the
three and
six months
ended June 30, 2019
and
2018
had the
transaction not been completed.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Acquisition
Accounting
The 2018
acquisitions are benefiting the Company's omnichannel platform
through added scale, strengthening its presence in certain
geographic markets, and enhancing operational control, including
compliance, and enabling the Company to execute its business
transformation initiatives on a broader scale. The following table
presents summaries of the preliminary fair value of the assets
acquired and liabilities assumed in the franchisee acquisitions as
of the respective acquisition dates:
|
|
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
Amounts
Recognized as of Acquisition Dates (as of March 31, 2019)
1
|
Acquisition
Accounting Adjustments
|
Amounts
Recognized as of Acquisition Dates (as of June 30,
2019)
|
Purchase Price
|
$
|
189,826
|
|
$
|
341
|
|
$
|
190,167
|
|
Add: Settlement of
Pre-existing Relationship
|
5,405
|
|
—
|
|
5,405
|
|
Less: Working Capital
Adjustments
|
155
|
|
—
|
|
155
|
|
Aggregate Consideration
Transferred
|
195,386
|
|
341
|
|
195,727
|
|
Estimated Fair Value of
Identifiable Assets Acquired and Liabilities Assumed
|
|
|
|
Cash and Cash
Equivalents
|
50
|
|
—
|
|
50
|
|
Lease
Merchandise
|
59,616
|
|
—
|
|
59,616
|
|
Property, Plant and
Equipment
|
5,568
|
|
—
|
|
5,568
|
|
Operating Lease Right-of-Use
Assets
|
—
|
|
—
|
|
—
|
|
Other Intangibles
2
|
24,498
|
|
—
|
|
24,498
|
|
Prepaid Expenses and Other
Assets
|
1,206
|
|
—
|
|
1,206
|
|
Total Identifiable Assets
Acquired
|
90,938
|
|
—
|
|
90,938
|
|
Accounts Payable and Accrued
Expenses
|
(910
|
)
|
(67
|
)
|
(977
|
)
|
Customer Deposits and Advance
Payments
|
(5,156
|
)
|
—
|
|
(5,156
|
)
|
Total Liabilities
Assumed
|
(6,066
|
)
|
(67
|
)
|
(6,133
|
)
|
Goodwill 3
|
110,514
|
|
408
|
|
110,922
|
|
Net Assets
Acquired
|
$
|
84,872
|
|
$
|
(67
|
)
|
$
|
84,805
|
|
1
As previously
reported in Note 2 to the condensed consolidated financial
statements as of March 31, 2019.
2
Identifiable
intangible assets are further disaggregated in the table set forth
below.
3
The total
goodwill recognized in conjunction with the franchisee
acquisitions, all of which is expected to be deductible for tax
purposes, has been assigned to the Aaron’s Business reporting unit.
The purchase price exceeded the fair value of the net assets
acquired, which resulted in the recognition of goodwill, primarily
due to synergies created from the expected future benefits to the
Company’s omnichannel platform, implementation of the Company’s
operational capabilities, expected inventory supply chain synergies
between the Aaron’s Business and Progressive Leasing, and control
of the Company’s brand name in new geographic markets. Goodwill
also includes certain other intangible assets that do not qualify
for separate recognition, such as an assembled
workforce.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The preliminary
acquisition accounting presented above is subject to refinement.
The Company is still finalizing the valuation of assumed favorable
and unfavorable real estate operating leases based on comparable
market terms of similar leases at the acquisition dates and
obtaining additional information regarding other assets. The
Company expects these items to be finalized prior to the one-year
anniversary date of the acquisitions.
The estimated
intangible assets attributable to the franchisee acquisitions are
comprised of the following:
|
|
|
|
|
|
|
|
Fair
Value
(In
Thousands)
|
|
Weighted
Average Life
(In
Years)
|
Non-compete
Agreements
|
$
|
1,872
|
|
|
3.0
|
Customer Lease
Contracts
|
7,876
|
|
|
1.0
|
Customer
Relationships
|
10,087
|
|
|
3.0
|
Reacquired Franchise
Rights
|
4,663
|
|
|
3.9
|
Total Acquired Intangible
Assets 1
|
$
|
24,498
|
|
|
|
1
Acquired
definite-lived intangible assets have a total weighted average life
of 2.5
years.
The Company
incurred $1.6
million of acquisition-related costs
in connection with the franchisee acquisitions, substantially all
of which were incurred during 2018. These costs were included in
operating expenses in the condensed consolidated statements of
earnings.
Other Acquisitions
In addition to
the acquisitions discussed above, the Company acquired the store
operations of five
franchisees
during the six months ended June 30,
2019 and
the six
months ended June 30, 2018 .
Net cash outflows
related to the acquisitions of other Aaron's franchisees, other
rent-to-own store businesses, and customer contracts aggregated
to $7.6
million and $14.4
million during the
six months ended
June 30, 2019 and 2018 , respectively. The effect of
these acquisitions on the condensed consolidated financial
statements for the three and six
months
ended June 30, 2019
and
2018
was not
significant.
NOTE 3. 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)
|
June 30,
2019
|
|
December 31,
2018
|
|
Level 1
|
|
Level
2
|
|
Level 3
|
|
Level 1
|
|
Level
2
|
|
Level 3
|
Deferred Compensation Liability
|
$
|
—
|
|
|
$
|
(11,295
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(10,389
|
)
|
|
$
|
—
|
|
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 is recorded in accounts payable and
accrued expenses in the condensed consolidated balance sheets. 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)
|
June 30,
2019
|
|
December 31,
2018
|
|
Level 1
|
|
Level
2
|
|
Level 3
|
|
Level 1
|
|
Level
2
|
|
Level 3
|
Assets Held for
Sale
|
$
|
—
|
|
|
$
|
8,992
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,589
|
|
|
$
|
—
|
|
Assets classified
as held for sale are recorded at the lower of carrying value or
fair value less estimated costs to sell, and any adjustment is
recorded in other operating income,
net or
restructuring expenses, net (if the asset is a part of the
Company's restructuring program as described in Note 8) in the
condensed consolidated statements of earnings. The highest and best
use of the assets 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.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Certain Financial Assets and Liabilities Not Measured at Fair
Value
The following
table summarizes the fair value of liabilities that are not
measured at fair value in the condensed consolidated balance
sheets, but for which the fair value is disclosed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
June 30,
2019
|
|
December 31,
2018
|
|
Level 1
|
|
Level
2
|
|
Level 3
|
|
Level 1
|
|
Level
2
|
|
Level
3
|
Fixed-Rate Long-Term
Debt 1
|
—
|
|
|
(124,590
|
)
|
|
—
|
|
|
—
|
|
|
(183,765
|
)
|
|
—
|
|
1
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 $120.0
million and $180.0
million at June 30, 2019
and
December 31,
2018 ,
respectively.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4.
LOANS RECEIVABLE
The following is
a summary of the Company’s loans receivable, net:
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
June 30,
2019
|
|
December 31,
2018
|
Credit Card Loans
1
|
$
|
86,763
|
|
|
$
|
90,406
|
|
Acquired Loans
2
|
2,158
|
|
|
5,688
|
|
Loans Receivable,
Gross
|
88,921
|
|
|
96,094
|
|
|
|
|
|
Allowance for Loan
Losses
|
(12,783
|
)
|
|
(12,970
|
)
|
Unamortized Fees
|
(6,164
|
)
|
|
(6,971
|
)
|
Loans Receivable, Net of
Allowances and Unamortized Fees
|
$
|
69,974
|
|
|
$
|
76,153
|
|
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.
Included in the
table below is an aging of the loans receivable, gross
balance:
|
|
|
|
|
|
|
|
|
(Dollar
Amounts in Thousands)
|
|
|
|
Aging
Category 1
|
June 30,
2019
|
|
December 31,
2018
|
30-59 days past
due
|
6.9
|
%
|
|
6.9
|
%
|
60-89 days past
due
|
3.6
|
%
|
|
3.4
|
%
|
90 or more days past
due
|
4.1
|
%
|
|
4.3
|
%
|
Past due loans
receivable
|
14.6
|
%
|
|
14.6
|
%
|
Current loans
receivable
|
85.4
|
%
|
|
85.4
|
%
|
Balance of Credit Card Loans
on Nonaccrual Status
|
$
|
1,756
|
|
|
$
|
2,110
|
|
Balance of Loans Receivable
90 or More Days Past Due and Still Accruing Interest and
Fees
|
$
|
—
|
|
|
$
|
—
|
|
1
This aging is
based on the contractual amounts outstanding for each loan as of
period end, and does not reflect the fair value adjustments for the
Acquired Loans.
The tables below
present the components of the allowance for loan losses for
the three
and six months ended
June 30,
2019 and 2018 :
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
(In
Thousands)
|
2019
|
|
2018
|
Beginning
Balance
|
$
|
12,363
|
|
|
$
|
10,699
|
|
Provision for Loan
Losses
|
4,968
|
|
|
5,048
|
|
Charge-offs
|
(5,158
|
)
|
|
(4,592
|
)
|
Recoveries
|
610
|
|
|
431
|
|
Ending Balance
|
$
|
12,783
|
|
|
$
|
11,586
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
(In
Thousands)
|
2019
|
|
2018
|
Beginning
Balance
|
$
|
12,970
|
|
|
$
|
11,454
|
|
Provision for Loan
Losses
|
9,223
|
|
|
9,540
|
|
Charge-offs
|
(10,642
|
)
|
|
(10,210
|
)
|
Recoveries
|
1,232
|
|
|
802
|
|
Ending Balance
|
$
|
12,783
|
|
|
$
|
11,586
|
|
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5.
LEASES
Lessor Information
Refer to Note 1
to these condensed consolidated financial statements for further
information about the Company's revenue generating activities as a
lessor. All of the Company's customer agreements are considered
operating leases, and the Company currently does not have any
sales-type or direct financing leases.
Lessee Information
As a lessee, the
Company leases retail store and warehouse space for most of its
Aaron's Business store-based operations, call center space and hubs
for its Progressive Leasing segment, and management and information
technology space for corporate functions under operating leases
expiring at various times through 2033. To the extent that a leased
retail store or warehouse space is vacated prior to the termination
of the lease, the Company may sublease these spaces to third
parties while maintaining its primary obligation as the
intermediate lessor. The Company leases transportation vehicles
under operating and finance leases, most of which generally expire
during the next three years. The transportation leases generally
include a residual value that is guaranteed to the lessor, which
ensures that the vehicles will be returned to the lessor in
reasonable working condition. The Company has existing leases
various IT equipment such as printers and computers under operating
leases, most of which generally expire during the next three years.
For all of its leases in which the Company is a lessee, the Company
has elected to include both the lease and non-lease components as a
single component and account for it as a lease.
Finance lease
costs are comprised of the amortization of right-of-use assets and
the interest accretion on discounted lease liabilities, which are
recorded within operating expenses and interest expense,
respectively, in the Company’s condensed consolidated statements of
earnings. Operating lease costs are recorded on a straight-line
basis within operating expenses. For stores that are related to the
Company's restructuring programs as described in Note 8, operating
lease costs recorded subsequent to any necessary operating lease
right-of-use asset impairment charges are recognized in a pattern
that is generally accelerated within restructuring expenses, net in
the Company’s condensed consolidated statements of earnings. The
Company’s total lease expense is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
(In
Thousands)
|
June 30,
2019
|
|
June 30,
2019
|
Finance Lease
Cost:
|
|
|
|
Amortization of
Right-of-Use Assets
|
$
|
440
|
|
|
$
|
906
|
|
Interest on Lease
Liabilities
|
100
|
|
|
213
|
|
Total Finance Lease
Cost:
|
540
|
|
|
1,119
|
|
|
|
|
|
Operating Lease
Cost:
|
|
|
|
Operating Lease
Cost Classified within Operating Expenses 1
|
27,929
|
|
|
57,142
|
|
Operating Lease
Cost Classified within Restructuring Expenses, Net
|
837
|
|
|
1,640
|
|
Sublease
Receipts
|
(1,039
|
)
|
|
(1,771
|
)
|
Total Operating Lease
Cost:
|
27,727
|
|
|
57,011
|
|
|
|
|
|
Total Lease Cost
|
$
|
28,267
|
|
|
$
|
58,130
|
|
1
Includes
short-term and variable lease costs, which are not
significant.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Additional
information regarding the Company’s leasing activities as a lessee
is as follows:
|
|
|
|
|
|
Six Months
Ended
|
(In
Thousands)
|
June 30,
2019
|
Cash Paid for Amounts
Included in Measurement of Lease Liabilities:
|
|
Operating Cash
Flows for Finance Leases
|
$
|
261
|
|
Operating Cash
Flows for Operating Leases
|
62,541
|
|
Financing Cash
Flows for Finance Leases
|
1,202
|
|
Total Cash Paid for Amounts
Included in Measurement of Lease Liabilities
|
64,004
|
|
Right-of-Use Assets Obtained
in Exchange for New Finance Lease Liabilities
|
—
|
|
Right-of-Use Assets Obtained
in Exchange for New Operating Lease Liabilities, Net of Exercised
Early Lease Termination Options
|
$
|
14,891
|
|
Supplemental
balance sheet information related to leases is as follows:
|
|
|
|
|
|
|
|
(In
Thousands)
|
|
Balance Sheet
Classification
|
|
June 30,
2019
|
Assets
|
|
|
|
|
Operating Lease
Assets
|
|
Operating Lease Right-of-Use
Assets
|
|
$
|
338,805
|
|
Finance Lease
Assets
|
|
Property, Plant and
Equipment, Net
|
|
2,116
|
|
Total Lease
Assets
|
|
|
|
$
|
340,921
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Operating Lease
Liabilities
|
|
Operating Lease
Liabilities
|
|
$
|
386,989
|
|
Finance Lease
Liabilities
|
|
Debt
|
|
3,962
|
|
Total Lease
Liabilities
|
|
|
|
$
|
390,951
|
|
Most of the
Company’s real estate 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 currently does not have any real estate leases in which it
considers the renewal options to be reasonably certain of exercise,
as the Company's historical experience indicates that renewal
options are not reasonably certain to be exercised. Additionally,
the Company's leases contain contractual renewal rental rates that
are considered to be in line with market rental rates, and there
are not significant economic penalties or business disruptions
incurred by not exercising any renewal options.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company uses
its incremental borrowing rate as the discount rate for its leases,
as the implicit rate in the lease is not readily determinable.
Below is a summary of the weighted-average discount rate and
weighted-average remaining lease term for the Company’s finance and
operating leases:
|
|
|
|
|
|
|
Weighted
Average Discount Rate 1
|
|
Weighted
Average Remaining Lease Term (in years)
|
Finance Leases
|
5.9
|
%
|
|
1.5
|
Operating Leases
|
3.6
|
%
|
|
5.1
|
1
Upon adoption of
ASC 842, discount rates for existing operating leases were
established as of January 1, 2019.
Under the
short-term lease exception provided within ASC 842, the Company
does not record a lease liability or right-of-use asset for any
leases that have a lease term of 12 months or less at commencement,
including renewal options that the Company is reasonably certain to
exercise, and do not include purchase options. Below is a summary
of undiscounted finance and operating lease liabilities that have
initial terms in excess of one year as of June 30, 2019
. The table also
includes a reconciliation of the future undiscounted cash flows to
the present value of the finance and operating lease liabilities
included in the condensed consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
Operating
Leases
|
|
Finance
Leases
|
|
Total
|
2019
|
$
|
55,063
|
|
|
$
|
1,327
|
|
|
$
|
56,390
|
|
2020
|
105,901
|
|
|
2,084
|
|
|
107,985
|
|
2021
|
83,319
|
|
|
853
|
|
|
84,172
|
|
2022
|
62,929
|
|
|
87
|
|
|
63,016
|
|
2023
|
42,406
|
|
|
—
|
|
|
42,406
|
|
Thereafter
|
76,525
|
|
|
—
|
|
|
76,525
|
|
Total Undiscounted Cash
Flows
|
426,143
|
|
|
4,351
|
|
|
430,494
|
|
Less: Interest
|
39,154
|
|
|
389
|
|
|
39,543
|
|
Present Value of Lease
Liabilities
|
$
|
386,989
|
|
|
$
|
3,962
|
|
|
$
|
390,951
|
|
NOTE 6.
COMMITMENTS AND CONTINGENCIES
Guarantees
The Company has
guaranteed certain debt obligations of some of the 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, 2019
, the maximum
amount that the Company would be obligated to repay in the event
franchisees defaulted was $35.4
million . The Company has recourse
rights to franchisee assets securing the debt obligations, which
consist primarily of lease merchandise and fixed assets. Since the
inception of the franchisee loan program in 1994, the Company has
had no significant associated losses. The Company believes the
likelihood of any significant amounts being funded by the Company
in connection with these guarantees to be remote. The carrying
amount of the franchisee-related borrowings guarantee, which is
included in accounts payable and accrued expenses in the condensed
consolidated balance sheets, is $0.4
million and $0.3
million as of June 30, 2019
and
December 31,
2018 . The
maximum facility commitment amount under the franchisee loan
program was $55.0
million at June 30, 2019
, including a
Canadian subfacility commitment amount for loans to franchisees
that operate stores in Canada (other than the province of Quebec)
of CAD $25.0
million .
The Company is
subject to financial covenants under the franchisee loan program
that are consistent with the Revolving Credit and Term Loan
Agreement, which are more fully described in Note 7 to the
consolidated financial statements in the 2018 Annual Report. The Company is
in compliance with all covenants at June 30, 2019
and believes it
will continue to be in compliance in the future.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Legal and Regulatory 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 the Company is currently a party are described
below. The Company believes it has meritorious defenses to all of
the claims described below, and intends 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 the
Company will ultimately be successful in these proceedings, or in
others to which it is currently a party. Substantial losses from
these proceedings or the costs of defending them could have a
material adverse impact upon the Company's business, financial
position and results of operations.
The Company
establishes an accrued liability for legal and regulatory
proceedings when it determines that a loss is both probable and the
amount of the loss can be reasonably estimated. The Company
continually monitors its litigation and regulatory exposure and
reviews the adequacy of its legal and regulatory reserves on a
quarterly basis. 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,
2019 and December 31, 2018
, the Company had
accrued $1.2
million and $1.4
million , respectively, for pending
legal and regulatory matters for which it believes losses are
probable and is the Company's best estimate of its exposure to
loss. The Company records these liabilities in accounts payable and
accrued expenses in the condensed consolidated balance sheets. The
Company estimated that the aggregate range of reasonably possible
loss in excess of accrued liabilities for such probable loss
contingencies is between $0
and
$1.4
million as of June 30, 2019
.
At
June 30,
2019 , 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 (i.e., excluding
the contingencies described in the preceding paragraph), is
between $1.5
million and $3.0
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. The Company’s
estimates for legal and regulatory accruals, aggregate probable
loss amounts and reasonably possible loss amounts are all subject
to the uncertainties and variables described above.
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, plaintiffs allege 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 ("ECPA") 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." Plaintiffs filed an
amended complaint, asserting claims under the ECPA, common law
invasion of privacy, seeking an injunction, and naming additional
independently owned and operated Company franchisees as
defendants. Plaintiffs seek monetary damages as well as
injunctive relief.
In March 2014,
the United States District Court dismissed all claims against all
franchisees other than Aspen Way Enterprises, LLC, dismissed claims
for invasion of privacy, aiding and abetting, and conspiracy
against all defendants, and denied plaintiffs’ motion to certify a
class action, but denied the Company’s motion to dismiss the claims
alleging ECPA violations. Following an appeal of the decision to
deny class certification, the matter was sent back to the District
Court and, on September 26, 2017, the District Court denied
plaintiffs' motion for class certification. A petition with the
United States Court of Appeals for permission to appeal the denial
of class certification a second time was denied on December 11,
2018. The case is now proceeding for determination on an individual
basis as to the named plaintiffs. The case is on a trial calendar
in October 2019. The Company filed a motion for summary judgment in
July 2019.
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,
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 as well as certification of a
putative California class. In April 2013, the Company removed
this matter to federal court. In May 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 June
2015, the plaintiffs filed a motion to lift the stay, which was
denied in July 2015.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In Lomi
Price v. Aaron's, Inc. and NW Freedom Corporation
, filed on
February 27, 2013, in the State Court of Fulton County, Georgia, 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. This case has been stayed pending resolution of
the Byrd litigation.
Regulatory Inquiries
In July 2018, the
Company received civil investigative demands ("CIDs") from the
Federal Trade Commission (the "FTC") regarding disclosures related
to financial products offered by the Company through the Aaron’s
Business and Progressive Leasing and whether such disclosures
violate the Federal Trade Commission Act (the "FTC Act"). Although
we believe we are in compliance with the FTC Act, these inquiries
could lead to an enforcement action and/or a consent order, and
substantial costs, including legal fees, fines, penalties, and
remediation expenses. The Company submitted a significant amount of
documentation from both the Aaron’s Business and Progressive
Leasing in October 2018 and continues to work with the FTC as its
inquiry proceeds.
In April 2019,
the Aaron’s Business, along with other rent-to-own companies,
received an unrelated CID from the FTC focused on certain
transactions involving the purchase and sale of customer lease
agreements, and whether such transactions violated the FTC Act.
Although we believe such transactions were in compliance with the
FTC Act, this inquiry could lead to an enforcement action and/or a
consent order, and substantial costs. The Company is fully
cooperating with the FTC in responding to this
inquiry.
Other Contingencies
The Company is a
party to various claims and legal proceedings arising in the
ordinary course of business. Management regularly assesses the
Company’s insurance deductibles, monitors the Company's litigation
and regulatory exposure 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.
Off-Balance Sheet Risk
The Company,
through its DAMI business, had unfunded lending commitments
totaling $307.5
million and $316.4
million as of June 30, 2019
and
December 31,
2018 ,
respectively. These unfunded commitments arise in the ordinary
course of business from credit card agreements with individual
cardholders that give them the ability to borrow, against unused
amounts, up to the maximum credit limit assigned to their account.
While these unfunded amounts represent the total available unused
lines of credit, the Company does not anticipate that all
cardholders will utilize their entire available line at any given
point in time. Commitments to extend unsecured credit are
agreements to lend to a cardholder so long as there is no violation
of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The reserve for losses on unfunded loan
commitments is calculated by the Company based on historical usage
patterns of cardholders after the initial charge and was
approximately $0.6
million and $0.5
million as of June 30, 2019
and
December 31,
2018 ,
respectively. The reserve for losses on unfunded loan commitments
is included in accounts payable and accrued expenses in the
condensed consolidated balance sheets.
See Note 9 to the
consolidated financial statements in the 2018 Annual Report for further
information.
NOTE 7.
SEGMENTS
As of
June 30,
2019 , the
Company has three
operating and
reportable segments: Progressive Leasing, Aaron's Business and
DAMI.
Progressive
Leasing is a leading virtual lease-to-own company that provides
lease-purchase solutions on a variety of products, including
furniture and bedding, automobile electronics and accessories,
mobile phones and accessories, jewelry, consumer electronics and
appliances.
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
e-commerce platform. This operating segment also supports
franchisees of its Aaron's stores. In addition, the Aaron's
Business segment includes the operations of Woodhaven, which
manufactures and supplies the majority of the upholstered furniture
and bedding leased and sold in Company-operated and franchised
stores.
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DAMI offers a
variety of second-look financing programs originated through two
third-party federally insured banks to customers of participating
merchants and, together with Progressive Leasing, allows the
Company to provide retail partners with below-prime
customers one
source for
financing and leasing transactions.
Disaggregated Revenue
The following
table presents revenue by source and by segment for the
three months
ended June 30, 2019 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30, 2019
|
(In
Thousands)
|
Progressive
Leasing
|
Aaron's
Business
|
DAMI
|
Total
|
Lease Revenues and
Fees 1
|
$
|
516,333
|
|
$
|
391,232
|
|
$
|
—
|
|
$
|
907,565
|
|
Retail Sales
2
|
—
|
|
8,898
|
|
—
|
|
8,898
|
|
Non-Retail Sales
2
|
—
|
|
34,124
|
|
—
|
|
34,124
|
|
Franchise Royalties and
Fees 2
|
—
|
|
8,605
|
|
—
|
|
8,605
|
|
Interest and Fees on Loans
Receivable 3
|
—
|
|
—
|
|
8,610
|
|
8,610
|
|
Other
|
—
|
|
339
|
|
—
|
|
339
|
|
Total
|
$
|
516,333
|
|
$
|
443,198
|
|
$
|
8,610
|
|
$
|
968,141
|
|
1
Substantially all
lease revenues and fees are within the scope of ASC 842,
Leases
. The Company
had $6.9
million of other revenue within the
scope of ASC 606, Revenue
from Contracts with Customers.
|
|
2
|
Revenue within
the scope of ASC 606, Revenue
from Contracts with Customers . Of the Franchise Royalties
and Fees, $6.3
million is related to franchise
royalty income that is recognized as the franchisee collects cash
revenue from its customers. The remaining revenue is primarily
related to fees collected for pre-opening services, which are being
deferred and recognized as revenue over the agreement term, and
advertising fees charged to franchisees. Retail sales are
recognized as revenue at the point of sale. Non-retail sales are
recognized as revenue upon delivery of the
merchandise.
|
3
Revenue within
the scope of ASC 310, Credit Card
Interest & Fees .
The following
table presents revenue by source and by segment for the
three months
ended June 30, 2018 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30, 2018
|
(In
Thousands)
|
Progressive
Leasing
|
Aaron's
Business
|
DAMI
|
Total
|
Lease Revenues and
Fees 1
|
$
|
483,666
|
|
$
|
362,272
|
|
$
|
—
|
|
$
|
845,938
|
|
Retail Sales
2
|
—
|
|
6,592
|
|
—
|
|
6,592
|
|
Non-Retail Sales
2
|
—
|
|
53,661
|
|
—
|
|
53,661
|
|
Franchise Royalties and
Fees 2
|
—
|
|
12,125
|
|
—
|
|
12,125
|
|
Interest and Fees on Loans
Receivable 3
|
—
|
|
—
|
|
9,208
|
|
9,208
|
|
Other
|
—
|
|
335
|
|
—
|
|
335
|
|
Total
|
$
|
483,666
|
|
$
|
434,985
|
|
$
|
9,208
|
|
$
|
927,859
|
|
1
Substantially all
lease revenues and fees are within the scope of ASC 840,
Leases
. The Company
had $4.4
million of other revenue within the
scope of ASC 606, Revenue
from Contracts with Customers.
2
Revenue within
the scope of ASC 606, Revenue
from Contracts with Customers . Of the Franchise Royalties
and Fees, $9.1
million is related to franchise
royalty income that is recognized as the franchisee collects cash
revenue from its customers. The remaining revenue is primarily
related to fees collected for pre-opening services, which are being
deferred and recognized as revenue over the agreement term, and
advertising fees charged to franchisees. Retail sales are
recognized as revenue at the point of sale. Non-retail sales are
recognized as revenue upon delivery of the
merchandise.
3
Revenue within
the scope of ASC 310, Credit Card
Interest & Fees .
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following
table presents revenue by source and by segment for the
six months ended
June 30, 2019 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30, 2019
|
(In
Thousands)
|
Progressive
Leasing
|
Aaron's
Business
|
DAMI
|
Total
|
Lease Revenues and
Fees 1
|
$
|
1,039,734
|
|
$
|
811,988
|
|
$
|
—
|
|
$
|
1,851,722
|
|
Retail Sales
2
|
—
|
|
21,707
|
|
—
|
|
21,707
|
|
Non-Retail Sales
2
|
—
|
|
71,105
|
|
—
|
|
71,105
|
|
Franchise Royalties and
Fees 2
|
—
|
|
17,812
|
|
—
|
|
17,812
|
|
Interest and Fees on Loans
Receivable 3
|
—
|
|
—
|
|
17,256
|
|
17,256
|
|
Other
|
—
|
|
642
|
|
—
|
|
642
|
|
Total
|
$
|
1,039,734
|
|
$
|
923,254
|
|
$
|
17,256
|
|
$
|
1,980,244
|
|
1
Substantially all
lease revenues and fees are within the scope of ASC 842,
Leases
. The Company
had $13.4
million of other revenue within the
scope of ASC 606, Revenue
from Contracts with Customers.
|
|
2
|
Revenue within
the scope of ASC 606, Revenue
from Contracts with Customers . Of the Franchise Royalties
and Fees, $13.4
million is related to franchise
royalty income that is recognized as the franchisee collects cash
revenue from its customers. The remaining revenue is primarily
related to fees collected for pre-opening services, which are being
deferred and recognized as revenue over the agreement term, and
advertising fees charged to franchisees. Retail sales are
recognized as revenue at the point of sale. Non-retail sales are
recognized as revenue upon delivery of the
merchandise.
|
3
Revenue within
the scope of ASC 310, Credit Card
Interest & Fees .
The following
table presents revenue by source and by segment for the
six months ended
June 30, 2018 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30, 2018
|
(In
Thousands)
|
Progressive
Leasing
|
Aaron's
Business
|
DAMI
|
Total
|
Lease Revenues and
Fees 1
|
$
|
970,183
|
|
$
|
745,822
|
|
$
|
—
|
|
$
|
1,716,005
|
|
Retail Sales
2
|
—
|
|
15,108
|
|
—
|
|
15,108
|
|
Non-Retail Sales
2
|
—
|
|
106,891
|
|
—
|
|
106,891
|
|
Franchise Royalties and
Fees 2
|
—
|
|
24,987
|
|
—
|
|
24,987
|
|
Interest and Fees on Loans
Receivable 3
|
—
|
|
—
|
|
18,750
|
|
18,750
|
|
Other
|
—
|
|
927
|
|
—
|
|
927
|
|
Total
|
$
|
970,183
|
|
$
|
893,735
|
|
$
|
18,750
|
|
$
|
1,882,668
|
|
1
Substantially all
lease revenues and fees are within the scope of ASC 840,
Leases
. The Company
had $8.4
million of other revenue within the
scope of ASC 606, Revenue
from Contracts with Customers.
2
Revenue within
the scope of ASC 606, Revenue
from Contracts with Customers . Of the Franchise Royalties
and Fees, $19.2
million is related to franchise
royalty income that is recognized as the franchisee collects cash
revenue from its customers. The remaining revenue is primarily
related to fees collected for pre-opening services, which are being
deferred and recognized as revenue over the agreement term, and
advertising fees charged to franchisees. Retail sales are
recognized as revenue at the point of sale. Non-retail sales are
recognized as revenue upon delivery of the
merchandise.
3
Revenue within
the scope of ASC 310, Credit Card
Interest & Fees .
AARON'S, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Measurement of Segment Profit or Loss and Segment
Assets
The Company
evaluates performance and allocates resources based on revenue
growth and pre-tax profit or loss from operations. Intersegment
sales are completed at internally negotiated amounts. Since the
intersegment profit affects inventory valuation, depreciation and
cost of goods sold are adjusted when intersegment profit is
eliminated in consolidation. The Company determines earnings (loss)
before income taxes for all reportable segments in accordance with
U.S. GAAP. Interest expense is allocated to the Progressive Leasing
and DAMI segments based on a percentage of the outstanding balances
of their intercompany borrowings and of the debt incurred when they
were acquired. The following is a summary of earnings (loss) before
income taxes by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
(In
Thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Earnings
(Loss) Before Income Taxes:
|
|
|
|
|
|
|
|
Progressive
Leasing
|
$
|
58,406
|
|
|
$
|
44,575
|
|
|
$
|
113,794
|
|
|
$
|
79,554
|
|
Aaron's Business
1
|
138
|
|
|
7,697
|
|
|
17,726
|
|
|
40,776
|
|
DAMI
|
(1,725
|
)
|
|
(2,292
|
)
|
|
(4,393
|
)
|
|
(3,598
|
)
|
Total Earnings Before Income
Taxes
|
$
|
56,819
|
|
|
$
|
49,980
|
|
|
$
|
127,127
|
|
|
$
|
116,732
|
|
1
Earnings before
income taxes for the Aaron's Business during the
six months ended
June 30, 2019 were impacted by (i)
restructuring charges of $32.0
million related to closed store
right-of-use asset impairment and operating lease charges, the
write-off and impairment of store property, plant and equipment and
related workforce reductions, and other impairment charges in
connection with the Company's strategic decision to close
Company-operated stores, of which $18.7
million was incurred during
the three
months ended June 30, 2019 and (ii) gains on insurance
recoveries of $4.5
million related to payments received
from and final settlements reached with insurance carriers for
Hurricanes Harvey and Irma property and business interruption
claims in excess of the related property insurance receivables, of
which $3.6
million was recorded during
the three
months ended June 30, 2019 .
Earnings before
income taxes for the Aaron's Business during the
three and
six months
ended June 30, 2018
includes a full
impairment of the PerfectHome investment of $20.1
million and restructuring reversals
of $0.9
million .
The following is
a summary of total assets by segment and shared corporate-related
assets.
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
June 30,
2019
|
|
December 31,
2018
|
Assets:
|
|
|
|
Progressive
Leasing
|
$
|
1,128,719
|
|
|
$
|
1,088,227
|
|
Aaron's Business
1
|
1,727,615
|
|
|
1,483,102
|
|
DAMI
|
86,753
|
|
|
95,341
|
|
Other 2
|
237,111
|
|
|
160,022
|
|
Total Assets
|
$
|
3,180,198
|
|
|
$
|
2,826,692
|
|