QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) | (I. R. S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol | Name of each exchange on which registered |
☒ | Accelerated Filer | ☐ | |||||
Non-Accelerated Filer | ☐ | (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 | ☐ |
Title of Each Class | Shares Outstanding as of October 28, 2019 | |
Common Stock, $0.50 Par Value |
Item 3. Defaults Upon Senior Securities | |
Item 4. Mine Safety Disclosures | |
Item 5. Other Information | |
ITEM 1. | FINANCIAL STATEMENTS |
(Unaudited) | |||||||
September 30, 2019 | December 31, 2018 | ||||||
(In Thousands, Except Share Data) | |||||||
ASSETS: | |||||||
Cash and Cash Equivalents | $ | $ | |||||
Accounts Receivable (net of allowances of $74,752 in 2019 and $62,704 in 2018) | |||||||
Lease Merchandise (net of accumulated depreciation and allowances of $890,932 in 2019 and $816,928 in 2018) | |||||||
Loans Receivable (net of allowances and unamortized fees of $19,970 in 2019 and $19,941 in 2018) | |||||||
Property, Plant and Equipment at Cost (net of accumulated depreciation of $311,155 in 2019 and $284,287 in 2018) | |||||||
Operating Lease Right-of-Use Assets | — | ||||||
Goodwill | |||||||
Other Intangibles (net of accumulated amortization of $147,389 in 2019 and $130,116 in 2018) | |||||||
Income Tax Receivable | |||||||
Prepaid Expenses and Other Assets | |||||||
Total Assets | $ | $ | |||||
LIABILITIES & SHAREHOLDERS’ EQUITY: | |||||||
Accounts Payable and Accrued Expenses | $ | $ | |||||
Deferred Income Taxes Payable | |||||||
Customer Deposits and Advance Payments | |||||||
Operating Lease Liabilities | — | ||||||
Debt | |||||||
Total Liabilities | |||||||
Commitments and Contingencies (Note 6) | |||||||
SHAREHOLDERS' EQUITY: | |||||||
Common Stock, Par Value $0.50 Per Share: Authorized: 225,000,000 Shares at September 30, 2019 and December 31, 2018; Shares Issued: 90,752,123 at September 30, 2019 and December 31, 2018 | |||||||
Additional Paid-in Capital | |||||||
Retained Earnings | |||||||
Accumulated Other Comprehensive Loss | ( | ) | ( | ) | |||
Less: Treasury Shares at Cost | |||||||
Common Stock: 23,602,055 Shares at September 30, 2019 and 23,567,979 at December 31, 2018 | ( | ) | ( | ) | |||
Total Shareholders’ Equity | |||||||
Total Liabilities & Shareholders’ Equity | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In Thousands, Except Per Share Data) | |||||||||||||||
REVENUES: | |||||||||||||||
Lease Revenues and Fees | $ | $ | $ | $ | |||||||||||
Retail Sales | |||||||||||||||
Non-Retail Sales | |||||||||||||||
Franchise Royalties and Fees | |||||||||||||||
Interest and Fees on Loans Receivable | |||||||||||||||
Other | |||||||||||||||
COSTS AND EXPENSES: | |||||||||||||||
Depreciation of Lease Merchandise | |||||||||||||||
Retail Cost of Sales | |||||||||||||||
Non-Retail Cost of Sales | |||||||||||||||
Operating Expenses | |||||||||||||||
Restructuring Expenses, Net | |||||||||||||||
Other Operating Income, Net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
OPERATING PROFIT | |||||||||||||||
Interest Income | |||||||||||||||
Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Impairment of Investment | ( | ) | |||||||||||||
Other Non-Operating (Expense) Income, Net | ( | ) | ( | ) | |||||||||||
EARNINGS BEFORE INCOME TAXES | |||||||||||||||
INCOME TAXES | |||||||||||||||
NET EARNINGS | $ | $ | $ | $ | |||||||||||
EARNINGS PER SHARE | |||||||||||||||
Basic | $ | $ | $ | $ | |||||||||||
Assuming Dilution | $ | $ | $ | $ | |||||||||||
CASH DIVIDENDS DECLARED PER SHARE: | |||||||||||||||
Common Stock | $ | $ | $ | $ | |||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | |||||||||||||||
Basic | |||||||||||||||
Assuming Dilution |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In Thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net Earnings | $ | $ | $ | $ | |||||||||||
Other Comprehensive (Loss) Income: | |||||||||||||||
Foreign Currency Translation Adjustment | ( | ) | ( | ) | |||||||||||
Total Other Comprehensive (Loss) Income | ( | ) | ( | ) | |||||||||||
Comprehensive Income | $ | $ | $ | $ |
Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
(In Thousands) | |||||||
OPERATING ACTIVITIES: | |||||||
Net Earnings | $ | $ | |||||
Adjustments to Reconcile Net Earnings to Cash Provided by Operating Activities: | |||||||
Depreciation of Lease Merchandise | |||||||
Other Depreciation and Amortization | |||||||
Accounts Receivable Provision | |||||||
Provision for Credit Losses on Loans Receivable | |||||||
Stock-Based Compensation | |||||||
Deferred Income Taxes | |||||||
Impairment of Assets | |||||||
Non-Cash Lease Expense | — | ||||||
Other Changes, Net | ( | ) | |||||
Changes in Operating Assets and Liabilities, Net of Effects of Acquisitions and Dispositions: | |||||||
Additions to Lease Merchandise | ( | ) | ( | ) | |||
Book Value of Lease Merchandise Sold or Disposed | |||||||
Accounts Receivable | ( | ) | ( | ) | |||
Prepaid Expenses and Other Assets | ( | ) | ( | ) | |||
Income Tax Receivable | |||||||
Operating Lease Liabilities | ( | ) | — | ||||
Accounts Payable and Accrued Expenses | |||||||
Customer Deposits and Advance Payments | ( | ) | ( | ) | |||
Cash Provided by Operating Activities | |||||||
INVESTING ACTIVITIES: | |||||||
Investments in Loans Receivable | ( | ) | ( | ) | |||
Proceeds from Loans Receivable | |||||||
Proceeds from Investments | |||||||
Outflows on Purchases of Property, Plant and Equipment | ( | ) | ( | ) | |||
Proceeds from Property, Plant and Equipment | |||||||
Outflows on Acquisitions of Businesses and Customer Agreements, Net of Cash Acquired | ( | ) | ( | ) | |||
Proceeds from Dispositions of Businesses and Customer Agreements, Net of Cash Disposed | |||||||
Cash Used in Investing Activities | ( | ) | ( | ) | |||
FINANCING ACTIVITIES: | |||||||
(Repayments) Borrowings on Revolving Facility, Net | ( | ) | |||||
Repayments on Debt | ( | ) | ( | ) | |||
Dividends Paid | ( | ) | ( | ) | |||
Acquisition of Treasury Stock | ( | ) | ( | ) | |||
Issuance of Stock Under Stock Option Plans | |||||||
Shares Withheld for Tax Payments | ( | ) | ( | ) | |||
Debt Issuance Costs | ( | ) | |||||
Cash Used in Financing Activities | ( | ) | ( | ) | |||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | ( | ) | |||||
Increase (Decrease) in Cash and Cash Equivalents | ( | ) | |||||
Cash and Cash Equivalents at Beginning of Period | |||||||
Cash and Cash Equivalents at End of Period | $ | $ |
NOTE 1. | BASIS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
For the Three Months Ended September 30 (Unaudited and In Thousands) | 2019 | 2018 | |||||
Progressive Leasing Invoice Volume1 | $ | $ |
Stores as of September 30 (Unaudited) | 2019 | 2018 | |||
Company-operated Aaron's Branded Stores | |||||
Franchised Stores | |||||
Systemwide Stores |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(Shares In Thousands) | 2019 | 2018 | 2019 | 2018 | |||||||
Weighted Average Shares Outstanding | |||||||||||
Dilutive Effect of Share-Based Awards | |||||||||||
Weighted Average Shares Outstanding Assuming Dilution |
(In Thousands) | September 30, 2019 | December 31, 2018 | |||||
Customers | $ | $ | |||||
Corporate | |||||||
Franchisee | |||||||
Accounts Receivable | $ | $ |
Nine Months Ended September 30, | |||||||
(In Thousands) | 2019 | 2018 | |||||
Bad Debt Expense1 | $ | $ | |||||
Provision for Returns and Uncollectible Renewal Payments2 | |||||||
Accounts Receivable Provision | $ | $ |
(In Thousands) | September 30, 2019 | December 31, 2018 | |||||
Merchandise on Lease | $ | $ | |||||
Merchandise Not on Lease | |||||||
Lease Merchandise, net of Accumulated Depreciation and Allowances | $ | $ |
Nine Months Ended September 30, | |||||||
(In Thousands) | 2019 | 2018 | |||||
Beginning Balance | $ | $ | |||||
Merchandise Written off, net of Recoveries | ( | ) | ( | ) | |||
Provision for Write-offs | |||||||
Ending Balance | $ | $ |
FICO Score Category | September 30, 2019 | December 31, 2018 | |||
600 or Less | % | % | |||
Between 600 and 700 | % | % | |||
700 or Greater | % | % |
(In Thousands) | September 30, 2019 | December 31, 2018 | |||||
Prepaid Expenses | $ | $ | |||||
Prepaid Insurance | |||||||
Assets Held for Sale | |||||||
Deferred Tax Asset | |||||||
Other Assets | |||||||
Prepaid Expenses and Other Assets | $ | $ |
(In Thousands) | September 30, 2019 | December 31, 2018 | |||||
Accounts Payable | $ | $ | |||||
Accrued Insurance Costs | |||||||
Accrued Salaries and Benefits | |||||||
Accrued Real Estate and Sales Taxes | |||||||
Deferred Rent1 | |||||||
Other Accrued Expenses and Liabilities1 | |||||||
Accounts Payable and Accrued Expenses | $ | $ |
1 | Amounts as of September 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. |
Treasury Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||
(In Thousands, Except Per Share) | Shares | Amount | |||||||||||||||||||||||
Balance, December 31, 2018 | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
Opening Balance Sheet Adjustment - ASC 842, net of taxes | — | — | — | — | — | ||||||||||||||||||||
Cash Dividends, $0.035 per share | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Stock-Based Compensation | — | — | — | — | — | ||||||||||||||||||||
Reissued Shares | — | ( | ) | — | — | ( | ) | ||||||||||||||||||
Net Earnings | — | — | — | — | — | ||||||||||||||||||||
Foreign Currency Translation Adjustment | — | — | — | — | — | ||||||||||||||||||||
Balance, March 31, 2019 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
Cash Dividends, $0.035 per share | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Stock-Based Compensation | — | — | — | — | — | ||||||||||||||||||||
Reissued Shares | — | — | — | ||||||||||||||||||||||
Repurchased Shares | ( | ) | ( | ) | — | — | — | — | ( | ) | |||||||||||||||
Net Earnings | — | — | — | — | — | ||||||||||||||||||||
Foreign Currency Translation Adjustment | — | — | — | — | — | ||||||||||||||||||||
Balance, June 30, 2019 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
Cash Dividends, $0.035 per share | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Stock-Based Compensation | — | — | — | — | — | ||||||||||||||||||||
Reissued Shares | — | — | — | ||||||||||||||||||||||
Repurchased Shares | ( | ) | ( | ) | — | — | — | — | ( | ) | |||||||||||||||
Net Earnings | — | — | — | — | — | ||||||||||||||||||||
Foreign Currency Translation Adjustment | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance, September 30, 2019 | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ |
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 | ( | ) | $ | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||
Opening Balance Sheet Adjustment - ASC 606, net of taxes | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Cash Dividends, $0.03 per share | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Stock-Based Compensation | — | — | — | — | — | ||||||||||||||||||||
Reissued Shares | — | ( | ) | — | — | ( | ) | ||||||||||||||||||
Repurchased Shares | ( | ) | ( | ) | — | — | — | — | ( | ) | |||||||||||||||
Net Earnings | — | — | — | — | — | ||||||||||||||||||||
Foreign Currency Translation Adjustment | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance, March 31, 2018 | ( | ) | ( | ) | |||||||||||||||||||||
Cash Dividends, $0.03 per share | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Stock-Based Compensation | — | — | — | — | — | ||||||||||||||||||||
Reissued Shares | — | ( | ) | — | — | ( | ) | ||||||||||||||||||
Repurchased Shares | ( | ) | ( | ) | — | — | — | — | ( | ) | |||||||||||||||
Net Earnings | — | — | — | — | — | ||||||||||||||||||||
Foreign Currency Translation Adjustment | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance, June 30, 2018 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
Cash Dividends, $0.03 per share | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Stock-Based Compensation | — | — | — | — | — | ||||||||||||||||||||
Reissued Shares | — | ( | ) | — | — | ||||||||||||||||||||
Repurchased Shares | ( | ) | ( | ) | — | — | — | — | ( | ) | |||||||||||||||
Net Earnings | — | — | — | — | — | ||||||||||||||||||||
Foreign Currency Translation Adjustment | — | — | — | — | — | ||||||||||||||||||||
Balance, September 30, 2018 | ( | ) | $ | ( | ) | $ | $ | $ | $ | $ |
(In Thousands) | Amounts Recognized as of Acquisition Dates (as of June 30, 2019)1 | Acquisition Accounting Adjustments2 | Final Amounts Recognized as of Acquisition Dates | ||||||
Purchase Price | $ | $ | $ | ||||||
Add: Settlement of Pre-existing Relationship | |||||||||
Less: Working Capital Adjustments | |||||||||
Aggregate Consideration Transferred | |||||||||
Estimated Fair Value of Identifiable Assets Acquired and Liabilities Assumed | |||||||||
Cash and Cash Equivalents | |||||||||
Lease Merchandise | |||||||||
Property, Plant and Equipment | |||||||||
Operating Lease Right-of-Use Assets3 | — | ||||||||
Other Intangibles4 | ( | ) | |||||||
Prepaid Expenses and Other Assets | |||||||||
Total Identifiable Assets Acquired | |||||||||
Accounts Payable and Accrued Expenses | ( | ) | ( | ) | |||||
Customer Deposits and Advance Payments | ( | ) | ( | ) | |||||
Total Liabilities Assumed | ( | ) | ( | ) | |||||
Goodwill5 | ( | ) | |||||||
Net Assets Acquired | $ | $ | $ |
Fair Value (In Thousands) | Weighted Average Life (In Years) | ||||
Non-compete Agreements | $ | ||||
Customer Lease Contracts | |||||
Customer Relationships | |||||
Reacquired Franchise Rights | |||||
Total Acquired Intangible Assets1 | $ |
(In Thousands) | September 30, 2019 | December 31, 2018 | |||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Deferred Compensation Liability | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ |
(In Thousands) | September 30, 2019 | December 31, 2018 | |||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Assets Held for Sale | $ | $ | $ | $ | $ | $ |
(In Thousands) | September 30, 2019 | December 31, 2018 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||
Fixed-Rate Long-Term Debt1 | ( | ) | ( | ) |
(In Thousands) | September 30, 2019 | December 31, 2018 | |||||
Credit Card Loans1 | $ | $ | |||||
Acquired Loans2 | |||||||
Loans Receivable, Gross | |||||||
Allowance for Loan Losses | ( | ) | ( | ) | |||
Unamortized Fees | ( | ) | ( | ) | |||
Loans Receivable, Net of Allowances and Unamortized Fees | $ | $ |
(Dollar Amounts in Thousands) | |||||||
Aging Category1 | September 30, 2019 | December 31, 2018 | |||||
30-59 days past due | % | % | |||||
60-89 days past due | % | % | |||||
90 or more days past due | % | % | |||||
Past due loans receivable | % | % | |||||
Current loans receivable | % | % | |||||
Balance of Credit Card Loans on Nonaccrual Status | $ | $ | |||||
Balance of Loans Receivable 90 or More Days Past Due and Still Accruing Interest and Fees | $ | $ |
Three Months Ended September 30, | |||||||
(In Thousands) | 2019 | 2018 | |||||
Beginning Balance | $ | $ | |||||
Provision for Loan Losses | |||||||
Charge-offs | ( | ) | ( | ) | |||
Recoveries | |||||||
Ending Balance | $ | $ |
Nine Months Ended September 30, | |||||||
(In Thousands) | 2019 | 2018 | |||||
Beginning Balance | $ | $ | |||||
Provision for Loan Losses | |||||||
Charge-offs | ( | ) | ( | ) | |||
Recoveries | |||||||
Ending Balance | $ | $ |
Three Months Ended | Nine Months Ended | ||||||
(In Thousands) | September 30, 2019 | September 30, 2019 | |||||
Finance Lease Cost: | |||||||
Amortization of Right-of-Use Assets | $ | $ | |||||
Interest on Lease Liabilities | |||||||
Total Finance Lease Cost: | |||||||
Operating Lease Cost: | |||||||
Operating Lease Cost Classified within Operating Expenses1 | |||||||
Operating Lease Cost Classified within Restructuring Expenses, Net | |||||||
Sublease Receipts | ( | ) | ( | ) | |||
Total Operating Lease Cost: | |||||||
Total Lease Cost | $ | $ |
Nine Months Ended | |||
(In Thousands) | September 30, 2019 | ||
Cash Paid for Amounts Included in Measurement of Lease Liabilities: | |||
Operating Cash Flows for Finance Leases | $ | ||
Operating Cash Flows for Operating Leases | |||
Financing Cash Flows for Finance Leases | |||
Total Cash Paid for Amounts Included in Measurement of Lease Liabilities | |||
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 | $ |
(In Thousands) | Balance Sheet Classification | September 30, 2019 | ||||
Assets | ||||||
Operating Lease Assets | Operating Lease Right-of-Use Assets | $ | ||||
Finance Lease Assets | Property, Plant and Equipment, Net | |||||
Total Lease Assets | $ | |||||
Liabilities | ||||||
Operating Lease Liabilities | Operating Lease Liabilities | $ | ||||
Finance Lease Liabilities | Debt | |||||
Total Lease Liabilities | $ |
Weighted Average Discount Rate1 | Weighted Average Remaining Lease Term (in years) | |||
Finance Leases | % | |||
Operating Leases | % |
(In Thousands) | Operating Leases | Finance Leases | Total | ||||||||
2019 | $ | $ | $ | ||||||||
2020 | |||||||||||
2021 | |||||||||||
2022 | |||||||||||
2023 | |||||||||||
Thereafter | |||||||||||
Total Undiscounted Cash Flows | |||||||||||
Less: Interest | |||||||||||
Present Value of Lease Liabilities | $ | $ | $ |
Three Months Ended September 30, 2019 | ||||||||||||
(In Thousands) | Progressive Leasing | Aaron's Business | DAMI | Total | ||||||||
Lease Revenues and Fees1 | $ | $ | $ | $ | ||||||||
Retail Sales2 | ||||||||||||
Non-Retail Sales2 | ||||||||||||
Franchise Royalties and Fees2 | ||||||||||||
Interest and Fees on Loans Receivable3 | ||||||||||||
Other | ||||||||||||
Total | $ | $ | $ | $ |
2 | Revenue within the scope of ASC 606, Revenue from Contracts with Customers. Of the Franchise Royalties and Fees, $ |
Three Months Ended September 30, 2018 | ||||||||||||
(In Thousands) | Progressive Leasing | Aaron's Business | DAMI | Total | ||||||||
Lease Revenues and Fees1 | $ | $ | $ | $ | ||||||||
Retail Sales2 | ||||||||||||
Non-Retail Sales2 | ||||||||||||
Franchise Royalties and Fees2 | ||||||||||||
Interest and Fees on Loans Receivable3 | ||||||||||||
Other | ||||||||||||
Total | $ | $ | $ | $ |
Nine Months Ended September 30, 2019 | ||||||||||||
(In Thousands) | Progressive Leasing | Aaron's Business | DAMI | Total | ||||||||
Lease Revenues and Fees1 | $ | $ | $ | $ | ||||||||
Retail Sales2 | ||||||||||||
Non-Retail Sales2 | ||||||||||||
Franchise Royalties and Fees2 | ||||||||||||
Interest and Fees on Loans Receivable3 | ||||||||||||
Other | ||||||||||||
Total | $ | $ | $ | $ |
2 | Revenue within the scope of ASC 606, Revenue from Contracts with Customers. Of the Franchise Royalties and Fees, $ |
Nine Months Ended September 30, 2018 | ||||||||||||
(In Thousands) | Progressive Leasing | Aaron's Business | DAMI | Total | ||||||||
Lease Revenues and Fees1 | $ | $ | $ | $ | ||||||||
Retail Sales2 | ||||||||||||
Non-Retail Sales2 | ||||||||||||
Franchise Royalties and Fees2 | ||||||||||||
Interest and Fees on Loans Receivable3 | ||||||||||||
Other | ||||||||||||
Total | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In Thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Earnings (Loss) Before Income Taxes: | |||||||||||||||
Progressive Leasing | $ | $ | $ | $ | |||||||||||
Aaron's Business1 | |||||||||||||||
DAMI | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total Earnings Before Income Taxes | $ | $ | $ | $ |
(In Thousands) | September 30, 2019 | December 31, 2018 | |||||
Assets: | |||||||
Progressive Leasing | $ | $ | |||||
Aaron's Business1 | |||||||
DAMI | |||||||
Other2 | |||||||
Total Assets | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
(In Thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||
Right-of-Use Asset Impairment and Operating Lease Charges | $ | $ | $ | $ | ||||||||||
Fixed Asset Impairment | ||||||||||||||
Severance | ||||||||||||||
Other Expenses (Reversals) | ( | ) | ||||||||||||
Loss (Gain) on Sale of Store Properties | ( | ) | ( | ) | ||||||||||
Total Restructuring Expenses, Net | $ | $ | $ | $ |
(In Thousands) | Contractual Lease Obligations | Severance | |||||
Balance at January 1, 2019 | $ | $ | |||||
ASC 842 Transition Adjustment1 | ( | ) | |||||
Adjusted Balance at January 1, 2019 | |||||||
Restructuring Charges | |||||||
Payments | ( | ) | |||||
Balance at September 30, 2019 | $ | $ |
• | Strengthen relationships of Progressive Leasing current retail partners; |
• | Focus on converting existing pipeline into Progressive Leasing retail partners; |
• | Drive operational excellence in our Aaron's Business stores; |
• | Grow revenue and new customers through our omnichannel platform; |
• | Invest and innovate to provide a superior customer experience while lowering our costs to serve; and |
• | Accelerate our vision of business transformation in the Aaron's Business at a larger scale. |
• | The Company reported revenues of $963.8 million in the third quarter of 2019 compared to $953.1 million for the third quarter of 2018. Earnings before income taxes decreased to $51.7 million compared to $53.4 million during the third quarter of 2018. |
• | Progressive Leasing reported revenues of $528.9 million in the third quarter of 2019, an increase of 4.8% over the third quarter of 2018. Calculated on a basis consistent with the January 2019 adoption of ASC 842, Leases (see the "Use of Non-GAAP Financial Information" section below), Progressive Leasing revenues increased 20.1% over the third quarter of 2018. Progressive Leasing's revenue growth is due to an 18.6% increase in total invoice volume, which was driven by a 20.5% increase in invoice volume per active door. |
• | Progressive Leasing's earnings before income taxes increased to $53.5 million compared to $40.8 million during the third quarter of 2018, due mainly to its higher revenue. |
• | Aaron's Business revenues decreased to $426.3 million for the third quarter of 2019, compared to $439.2 million in the prior year period. The decrease is primarily due to the net reduction of 149 Company-operated stores during 2019 and a 2.9% decrease in same store revenues in the third quarter of 2019, partially offset by the acquisitions of various franchisees in 2018. The Company launched new sales and marketing initiatives during the third quarter, which led to an increase in new customer agreements but also resulted in insufficient labor capacity to handle the elevated workload on our stores. This capacity imbalance created a shortfall in collections performance which had an unfavorable impact on lease revenues, same store revenues, and write-offs in the quarter. |
• | Aaron's Business earnings before income taxes decreased to $0.9 million during the third quarter of 2019 compared to $15.6 million in the prior year period. Earnings before income taxes for the Aaron's Business during the third quarter of 2019 includes restructuring charges of $5.5 million related to the Company's closure and consolidation of underperforming stores. |
• | The Company generated cash from operating activities of $350.8 million for the nine months ended September 30, 2019 compared to $363.0 million for the comparable period in 2018. The decrease in net cash from operating activities was impacted by net income tax refunds of $5.5 million during the nine months ended September 30, 2019, compared to net income tax refunds of $64.8 million in the same period in 2018. |
For the Three Months Ended September 30 (Unaudited and In Thousands) | 2019 | 2018 | |||||
Progressive Leasing Invoice Volume | $ | 420,902 | $ | 355,005 |
Active Doors at September 30 (Unaudited) | 2019 | 2018 | |||
Progressive Leasing Active Doors | 19,926 | 20,258 |
Three Months Ended September 30, | Change | |||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | ||||||||||
REVENUES: | ||||||||||||||
Lease Revenues and Fees | $ | 906,776 | $ | 880,871 | $ | 25,905 | 2.9 | % | ||||||
Retail Sales | 8,854 | 7,620 | 1,234 | 16.2 | ||||||||||
Non-Retail Sales | 31,085 | 44,368 | (13,283 | ) | (29.9 | ) | ||||||||
Franchise Royalties and Fees | 8,087 | 10,153 | (2,066 | ) | (20.3 | ) | ||||||||
Interest and Fees on Loans Receivable | 8,687 | 9,508 | (821 | ) | (8.6 | ) | ||||||||
Other | 319 | 551 | (232 | ) | (42.1 | ) | ||||||||
963,808 | 953,071 | 10,737 | 1.1 | |||||||||||
COSTS AND EXPENSES: | ||||||||||||||
Depreciation of Lease Merchandise | 489,199 | 434,593 | 54,606 | 12.6 | ||||||||||
Retail Cost of Sales | 5,742 | 4,877 | 865 | 17.7 | ||||||||||
Non-Retail Cost of Sales | 24,913 | 35,214 | (10,301 | ) | (29.3 | ) | ||||||||
Operating Expenses | 383,264 | 420,602 | (37,338 | ) | (8.9 | ) | ||||||||
Restructuring Expenses, Net | 5,516 | 537 | 4,979 | nmf | ||||||||||
Other Operating Income, Net | (329 | ) | (38 | ) | (291 | ) | nmf | |||||||
908,305 | 895,785 | 12,520 | 1.4 | |||||||||||
OPERATING PROFIT | 55,503 | 57,286 | (1,783 | ) | (3.1 | ) | ||||||||
Interest Income | 360 | 18 | 342 | nmf | ||||||||||
Interest Expense | (3,991 | ) | (3,735 | ) | 256 | 6.9 | ||||||||
Other Non-Operating Expense, Net | (207 | ) | (154 | ) | (53 | ) | (34.4 | ) | ||||||
EARNINGS BEFORE INCOME TAXES | 51,665 | 53,415 | (1,750 | ) | (3.3 | ) | ||||||||
INCOME TAXES | 11,864 | 9,695 | 2,169 | 22.4 | ||||||||||
NET EARNINGS | $ | 39,801 | $ | 43,720 | $ | (3,919 | ) | (9.0 | )% |
Three Months Ended September 30, | Change | |||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | ||||||||||
REVENUES: | ||||||||||||||
Progressive Leasing | $ | 528,850 | $ | 504,407 | $ | 24,443 | 4.8 | % | ||||||
Aaron's Business | 426,271 | 439,156 | (12,885 | ) | (2.9 | ) | ||||||||
DAMI | 8,687 | 9,508 | (821 | ) | (8.6 | ) | ||||||||
Total Revenues from External Customers | $ | 963,808 | $ | 953,071 | $ | 10,737 | 1.1 | % |
Three Months Ended September 30, 2019 | ||||||||||||
(In Thousands) | Progressive Leasing1 | Aaron's Business | DAMI | Total | ||||||||
Lease Revenues and Fees | $ | 528,850 | $ | 377,926 | $ | — | $ | 906,776 | ||||
Retail Sales | — | 8,854 | — | 8,854 | ||||||||
Non-Retail Sales | — | 31,085 | — | 31,085 | ||||||||
Franchise Royalties and Fees | — | 8,087 | — | 8,087 | ||||||||
Interest and Fees on Loans Receivable | — | — | 8,687 | 8,687 | ||||||||
Other | — | 319 | — | 319 | ||||||||
Total Revenues | $ | 528,850 | $ | 426,271 | $ | 8,687 | $ | 963,808 |
Three Months Ended September 30, 2018 | ||||||||||||
(In Thousands) | Progressive Leasing | Aaron's Business | DAMI | Total | ||||||||
Lease Revenues and Fees | $ | 504,407 | $ | 376,464 | $ | — | $ | 880,871 | ||||
Retail Sales | — | 7,620 | — | 7,620 | ||||||||
Non-Retail Sales | — | 44,368 | — | 44,368 | ||||||||
Franchise Royalties and Fees | — | 10,153 | — | 10,153 | ||||||||
Interest and Fees on Loans Receivable | — | — | 9,508 | 9,508 | ||||||||
Other | — | 551 | — | 551 | ||||||||
Total Revenues | $ | 504,407 | $ | 439,156 | $ | 9,508 | $ | 953,071 | ||||
Progressive Bad Debt Expense | 64,213 | — | — | 64,213 | ||||||||
Total Revenues, net of Progressive Bad Debt Expense1 | $ | 440,194 | $ | 439,156 | $ | 9,508 | $ | 888,858 |
Three Months Ended September 30, | Change | |||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | ||||||||||
Personnel Costs | $ | 173,762 | $ | 164,587 | $ | 9,175 | 5.6 | % | ||||||
Occupancy Costs | 59,264 | 56,860 | 2,404 | 4.2 | ||||||||||
Provision for Lease Merchandise Write-Offs | 68,928 | 54,671 | 14,257 | 26.1 | ||||||||||
Bad Debt Expense | 106 | 64,235 | (64,129 | ) | (99.8 | ) | ||||||||
Shipping and Handling | 17,592 | 18,392 | (800 | ) | (4.3 | ) | ||||||||
Advertising | 9,189 | 9,814 | (625 | ) | (6.4 | ) | ||||||||
Provision for Loan Losses | 6,068 | 6,471 | (403 | ) | (6.2 | ) | ||||||||
Intangible Amortization | 7,938 | 8,807 | (869 | ) | (9.9 | ) | ||||||||
Other Operating Expenses | 40,417 | 36,765 | 3,652 | 9.9 | ||||||||||
Operating Expenses | $ | 383,264 | $ | 420,602 | $ | (37,338 | ) | (8.9 | )% |
Three Months Ended September 30, | Change | ||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | |||||||||
Net gains on sales of delivery vehicles | $ | (539 | ) | $ | (184 | ) | $ | (355 | ) | nmf | |||
Impairment charges and net losses on asset dispositions, assets held for sale and other | 210 | 146 | 64 | 43.8 | |||||||||
Other operating income, net | $ | (329 | ) | $ | (38 | ) | $ | (291 | ) | nmf |
Three Months Ended September 30, | Change | |||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | ||||||||||
EARNINGS (LOSS) BEFORE INCOME TAXES: | ||||||||||||||
Progressive Leasing | $ | 53,473 | $ | 40,839 | $ | 12,634 | 30.9 | % | ||||||
Aaron's Business | 932 | 15,641 | (14,709 | ) | (94.0 | ) | ||||||||
DAMI | (2,740 | ) | (3,065 | ) | 325 | 10.6 | ||||||||
Total Earnings Before Income Taxes | $ | 51,665 | $ | 53,415 | $ | (1,750 | ) | (3.3 | )% |
Nine Months Ended September 30, | Change | |||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | ||||||||||
REVENUES: | ||||||||||||||
Lease Revenues and Fees | $ | 2,758,498 | $ | 2,596,876 | $ | 161,622 | 6.2 | % | ||||||
Retail Sales | 30,561 | 22,728 | 7,833 | 34.5 | ||||||||||
Non-Retail Sales | 102,190 | 151,259 | (49,069 | ) | (32.4 | ) | ||||||||
Franchise Royalties and Fees | 25,899 | 35,140 | (9,241 | ) | (26.3 | ) | ||||||||
Interest and Fees on Loans Receivable | 25,943 | 28,258 | (2,315 | ) | (8.2 | ) | ||||||||
Other | 961 | 1,478 | (517 | ) | (35.0 | ) | ||||||||
2,944,052 | 2,835,739 | 108,313 | 3.8 | |||||||||||
COSTS AND EXPENSES: | ||||||||||||||
Depreciation of Lease Merchandise | 1,464,887 | 1,290,015 | 174,872 | 13.6 | ||||||||||
Retail Cost of Sales | 20,025 | 14,695 | 5,330 | 36.3 | ||||||||||
Non-Retail Cost of Sales | 83,057 | 130,302 | (47,245 | ) | (36.3 | ) | ||||||||
Operating Expenses | 1,154,056 | 1,199,171 | (45,115 | ) | (3.8 | ) | ||||||||
Restructuring Expenses | 37,535 | 561 | 36,974 | nmf | ||||||||||
Other Operating Income, Net | (4,712 | ) | (286 | ) | (4,426 | ) | nmf | |||||||
2,754,848 | 2,634,458 | 120,390 | 4.6 | |||||||||||
OPERATING PROFIT | 189,204 | 201,281 | (12,077 | ) | (6.0 | ) | ||||||||
Interest Income | 1,405 | 374 | 1,031 | nmf | ||||||||||
Interest Expense | (13,247 | ) | (11,868 | ) | 1,379 | 11.6 | ||||||||
Impairment of Investment | — | (20,098 | ) | (20,098 | ) | nmf | ||||||||
Other Non-Operating Income, Net | 1,430 | 458 | 972 | nmf | ||||||||||
EARNINGS BEFORE INCOME TAXES | 178,792 | 170,147 | 8,645 | 5.1 | ||||||||||
INCOME TAXES | 40,263 | 35,680 | 4,583 | 12.8 | ||||||||||
NET EARNINGS | $ | 138,529 | $ | 134,467 | $ | 4,062 | 3.0 | % |
Nine Months Ended September 30, | Change | |||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | ||||||||||
REVENUES: | ||||||||||||||
Progressive Leasing | $ | 1,568,584 | $ | 1,474,590 | $ | 93,994 | 6.4 | % | ||||||
Aaron's Business | 1,349,525 | 1,332,891 | 16,634 | 1.2 | ||||||||||
DAMI | 25,943 | 28,258 | (2,315 | ) | (8.2 | ) | ||||||||
Total Revenues from External Customers | $ | 2,944,052 | $ | 2,835,739 | $ | 108,313 | 3.8 | % |
Nine Months Ended September 30, 2019 | ||||||||||||
(In Thousands) | Progressive Leasing1 | Aaron's Business | DAMI | Total | ||||||||
Lease Revenues and Fees | $ | 1,568,584 | $ | 1,189,914 | $ | — | $ | 2,758,498 | ||||
Retail Sales | — | 30,561 | — | 30,561 | ||||||||
Non-Retail Sales | — | 102,190 | — | 102,190 | ||||||||
Franchise Royalties and Fees | — | 25,899 | — | 25,899 | ||||||||
Interest and Fees on Loans Receivable | — | — | 25,943 | 25,943 | ||||||||
Other | — | 961 | — | 961 | ||||||||
Total Revenues | $ | 1,568,584 | $ | 1,349,525 | $ | 25,943 | $ | 2,944,052 |
Nine Months Ended September 30, 2018 | ||||||||||||
(In Thousands) | Progressive Leasing | Aaron's Business | DAMI | Total | ||||||||
Lease Revenues and Fees | $ | 1,474,590 | $ | 1,122,286 | $ | — | $ | 2,596,876 | ||||
Retail Sales | — | 22,728 | — | 22,728 | ||||||||
Non-Retail Sales | — | 151,259 | — | 151,259 | ||||||||
Franchise Royalties and Fees | — | 35,140 | — | 35,140 | ||||||||
Interest and Fees on Loans Receivable | — | — | 28,258 | 28,258 | ||||||||
Other | — | 1,478 | — | 1,478 | ||||||||
Total Revenues | $ | 1,474,590 | $ | 1,332,891 | $ | 28,258 | $ | 2,835,739 | ||||
Progressive Bad Debt Expense | 160,773 | — | — | 160,773 | ||||||||
Total Revenues, net of Progressive Bad Debt Expense1 | $ | 1,313,817 | $ | 1,332,891 | $ | 28,258 | $ | 2,674,966 |
Nine Months Ended September 30, | Change | |||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | ||||||||||
Personnel Costs | $ | 531,725 | $ | 498,201 | $ | 33,524 | 6.7 | % | ||||||
Occupancy Costs | 174,833 | 164,780 | 10,053 | 6.1 | ||||||||||
Provision for Lease Merchandise Write-Offs | 186,922 | 146,091 | 40,831 | 27.9 | ||||||||||
Bad Debt Expense | 1,272 | 160,886 | (159,614 | ) | (99.2 | ) | ||||||||
Shipping and Handling | 56,121 | 55,485 | 636 | 1.1 | ||||||||||
Advertising | 39,366 | 26,197 | 13,169 | 50.3 | ||||||||||
Provision for Loan Losses | 15,291 | 16,011 | (720 | ) | (4.5 | ) | ||||||||
Intangible Amortization | 27,797 | 23,745 | 4,052 | 17.1 | ||||||||||
Other Operating Expenses | 120,729 | 107,775 | 12,954 | 12.0 | ||||||||||
Operating Expenses | $ | 1,154,056 | $ | 1,199,171 | $ | (45,115 | ) | (3.8 | )% |
Nine Months Ended September 30, | Change | |||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | ||||||||||
Losses (gains) on sales of stores and customer agreements | $ | 4 | $ | (46 | ) | $ | 50 | nmf | ||||||
Net gains on sales of delivery vehicles | (869 | ) | (629 | ) | (240 | ) | (38.2 | ) | ||||||
Gain on insurance recoveries | (4,527 | ) | — | (4,527 | ) | nmf | ||||||||
Impairment charges and net losses on asset dispositions, assets held for sale and other | 680 | 389 | 291 | 74.8 | ||||||||||
Other operating income, net | $ | (4,712 | ) | $ | (286 | ) | $ | (4,426 | ) | nmf |
Nine Months Ended September 30, | Change | |||||||||||||
(In Thousands) | 2019 | 2018 | $ | % | ||||||||||
EARNINGS (LOSS) BEFORE INCOME TAXES: | ||||||||||||||
Progressive Leasing | $ | 167,267 | $ | 120,393 | $ | 46,874 | 38.9 | % | ||||||
Aaron's Business | 18,658 | 56,417 | (37,759 | ) | (66.9 | ) | ||||||||
DAMI | (7,133 | ) | (6,663 | ) | (470 | ) | (7.1 | ) | ||||||
Total Earnings Before Income Taxes | $ | 178,792 | $ | 170,147 | $ | 8,645 | 5.1 | % |
• | Cash and cash equivalents increased $135.0 million to $150.3 million at September 30, 2019. For additional information, refer to the "Liquidity and Capital Resources" section below. |
• | As a result of the adoption of ASC 842 as of January 1, 2019, the Company has operating lease right-of-use assets and operating lease liabilities of $330.5 million and $374.4 million, respectively, as of September 30, 2019. |
• | Income tax receivable decreased $13.2 million due primarily to net income tax refunds of $5.5 million received during the nine months ended September 30, 2019. |
• | Accounts payable and accrued expenses decreased $38.9 million primarily due to the seasonality of the Company's lease merchandise purchases and timing of related payments. Additionally, upon transition to ASC 842, the remaining balances of the Company's deferred rent, lease incentives, and closed store reserve, which were previously recorded within accounts payable and accrued expenses, were reclassified as a reduction to the operating lease right-of-use asset in the accompanying condensed consolidated balance sheet. |
• | Debt decreased $77.6 million due primarily to scheduled repayments on the Company's senior unsecured notes. |
• | cash flows from operations; |
• | private debt offerings; |
• | bank debt; and |
• | stock offerings. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs 1 | |||||
July 1, 2019 through July 31, 2019 | 10,100 | 63.85 | 10,100 | $ | 316,206,310 | ||||
August 1, 2019 through August 31, 2019 | 204,477 | 63.29 | 204,477 | 303,265,450 | |||||
September 1, 2019 through September 30, 2019 | 184,847 | 61.79 | 184,847 | 291,843,242 | |||||
Total | 399,424 | 399,424 |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
EXHIBIT NO. | DESCRIPTION OF EXHIBIT | |
10.1* | ||
10.2 | ||
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
*Filed herewith. |
AARON’S, INC. | |||
(Registrant) | |||
Date: | November 4, 2019 | By: | /s/ Steven A. Michaels |
Steven A. Michaels | |||
Chief Financial Officer, | |||
President Strategic Operations | |||
(Principal Financial Officer) | |||
Date: | November 4, 2019 | By: | /s/ Robert P. Sinclair, Jr. |
Robert P. Sinclair, Jr. | |||
Vice President, | |||
Corporate Controller | |||
(Principal Accounting Officer) |
1. | Section 9.2(c) of the Plan is amended to read as follows: |
2. | Except as provided herein, the Plan will remain in full force and effect. |
I, John W. Robinson III, certify that: | |||||
1. | I have reviewed this quarterly report on Form 10-Q of Aaron's, Inc.; | ||||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; | ||||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | ||||
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): | ||||
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | ||||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | November 4, 2019 | /s/ John W. Robinson III |
John W. Robinson III | ||
Chief Executive Officer | ||
I, Steven A. Michaels, certify that: | |||||
1. | I have reviewed this quarterly report on Form 10-Q of Aaron's, Inc.; | ||||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | ||||
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): | ||||
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | ||||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | November 4, 2019 | /s/ Steven A. Michaels |
Steven A. Michaels | ||
Chief Financial Officer, | ||
President Strategic Operations |
Date: | November 4, 2019 | /s/ John W. Robinson III | |
John W. Robinson III | |||
Chief Executive Officer | |||
Date: | November 4, 2019 | /s/ Steven A. Michaels | |
Steven A. Michaels | |||
Chief Financial Officer, | |||
President Strategic Operations |
Restructuring - Summary of Accruals of Restructuring Programs (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Jan. 01, 2019 |
Sep. 30, 2019 |
|
Contractual Lease Obligations | ||
Restructuring Reserve [Roll Forward] | ||
Balance at January 1, 2019 | $ 8,472 | $ 8,472 |
Restructuring Charges | 0 | |
Payments | 0 | |
Balance at September 30, 2019 | 0 | |
Severance | ||
Restructuring Reserve [Roll Forward] | ||
Balance at January 1, 2019 | 651 | 651 |
Restructuring Charges | 3,368 | |
Payments | (2,902) | |
Balance at September 30, 2019 | 1,117 | |
Accounting Standards Update 2016-02 | Contractual Lease Obligations | ||
Restructuring Reserve [Roll Forward] | ||
Balance at January 1, 2019 | 0 | 0 |
Topic 842 Transition Adjustment | (8,472) | |
Accounting Standards Update 2016-02 | Severance | ||
Restructuring Reserve [Roll Forward] | ||
Balance at January 1, 2019 | 651 | $ 651 |
Topic 842 Transition Adjustment | $ 0 |
Loans Receivable - Components of Loans Receivable, Net (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Jun. 30, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|---|---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||
Loans Receivable, Gross | $ 92,100 | $ 96,094 | ||||
Allowance for Loan Losses | (14,054) | $ (12,783) | (12,970) | $ (13,138) | $ (11,586) | $ (11,454) |
Unamortized Fees | (5,916) | (6,971) | ||||
Loans Receivable, Net of Allowances and Unamortized Fees | 72,130 | 76,153 | ||||
Credit Card Loans | ||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||
Loans Receivable, Gross | 91,279 | 90,406 | ||||
Acquired Loans | ||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||
Loans Receivable, Gross | $ 821 | $ 5,688 |
Fair Value Measurement - Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - Fair value on a recurring basis - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Level 1 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Deferred Compensation Liability | $ 0 | $ 0 |
Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Deferred Compensation Liability | (10,708) | (10,389) |
Level 3 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Deferred Compensation Liability | $ 0 | $ 0 |
Basis and Summary of Significant Accounting Policies - Narrative (Details) |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
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Sep. 30, 2019
USD ($)
state
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Sep. 30, 2018
USD ($)
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Sep. 30, 2018
franchise
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Dec. 31, 2018 |
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Significant Accounting Policies [Line Items] | ||||
Additional number of businesses acquired | franchise | 8 | |||
Threshold period past due for write-off of trade accounts receivable | 60 days | |||
Progressive Finance Holdings, LLC | ||||
Significant Accounting Policies [Line Items] | ||||
Threshold period past due for write-off of trade accounts receivable | 120 days | |||
Progressive Leasing | ||||
Significant Accounting Policies [Line Items] | ||||
Number of states in which entity operates | state | 46 | |||
Progressive leasing invoice volume | $ | $ 420,902 | $ 355,005 |
Basis and Summary of Significant Accounting Policies - Accounts Receivable Net of Allowances (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Accounts Receivable | $ 93,090 | $ 98,159 |
Customers | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Accounts Receivable | 67,359 | 60,879 |
Corporate | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Accounts Receivable | 12,600 | 18,171 |
Franchisee | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Accounts Receivable | $ 13,131 | $ 19,109 |
Basis and Summary of Significant Accounting Policies - Supplemental Disclosure of Noncash Investing Transactions (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Accounting Policies [Abstract] | |||
Asset acquisition, fair value of non-cash consideration | $ 0.6 | ||
Asset acquisition, non-cash settlement of accounts receivable | $ 0.9 | $ 0.4 |
Basis and Summary of Significant Accounting Policies - Assets Held for Sale (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Accounting Policies [Abstract] | ||
Assets Held for Sale | $ 10,017 | $ 6,589 |
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Statement of Comprehensive Income [Abstract] | ||||
Net Earnings | $ 39,801 | $ 43,720 | $ 138,529 | $ 134,467 |
Other Comprehensive (Loss) Income: | ||||
Foreign Currency Translation Adjustment | (303) | 297 | 739 | (715) |
Total Other Comprehensive (Loss) Income | (303) | 297 | 739 | (715) |
Comprehensive Income | $ 39,498 | $ 44,017 | $ 139,268 | $ 133,752 |
Loans Receivable (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the Components of Loans Receivable, Net | Accounts receivable, net of allowances, consist of the following:
The following is a summary of the Company’s loans receivable, net:
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.
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Aging of the Loans Receivable Balance | Included in the table below is an aging of the loans receivable, gross balance:
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.
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Components of the Allowance for Loan Losses | The tables below present the components of the allowance for loan losses for the three and nine months ended September 30, 2019 and 2018:
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Leases |
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Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | 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 lessee in the head lease. 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 also 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:
1 Includes short-term and variable lease costs, which are not significant. Additional information regarding the Company’s leasing activities as a lessee is as follows:
Supplemental balance sheet information related to leases is as follows:
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. 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:
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 September 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.
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Leases | 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 lessee in the head lease. 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 also 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:
1 Includes short-term and variable lease costs, which are not significant. Additional information regarding the Company’s leasing activities as a lessee is as follows:
Supplemental balance sheet information related to leases is as follows:
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. 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:
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 September 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.
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Basis and Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
Description of Business | Description of Business Aaron's, Inc. (the "Company") is a leading omnichannel provider of lease-purchase solutions. As of September 30, 2019, the Company's operating and reportable segments are Progressive Leasing, Aaron's Business and Dent-A-Med, Inc. ("DAMI"). Progressive Leasing is a virtual lease-to-own company that provides month-to-month 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.
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Basis of Presentation | 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 nine months ended September 30, 2019 are not necessarily indicative of operating results for the full year.
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Principles of Consolidation | 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.
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Accounting Policies and Estimates | Accounting Policies and Estimates See Note 1 to the consolidated financial statements in the 2018 Annual Report.
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Earnings Per Share | 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.
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Revenue Recognition | 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. The agreements are cancelable at any time by either party without penalty. Progressive lease revenues are earned prior to the lease payment due date and are recorded net of related sales taxes as earned. Payment due dates terms include weekly, bi-weekly, and monthly. 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. Retail and Non-Retail Sales Revenues from the retail sale of merchandise to customers are recognized at the point of sale. Generally, the transfer of control occurs near or at the point of sale for retail sales. 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.
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Interest and Fees on Loans Receivable | 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. 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.
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Accounts Receivable | 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.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 writes off lease receivables that are 60 days or more past due 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.
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Lease Merchandise | 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 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.
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Loans Receivable, Net | 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. 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 includes 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.
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Assets Held for Sale | Assets Held for Sale Certain properties, consisting of parcels of land and commercial buildings, met the held for sale classification criteria as of September 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 September 30, 2019 and December 31, 2018 is $10.0 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.
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Fair Value Measurement | 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.
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Recent Accounting Pronouncements | 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. 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 standard. 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 standard 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 standard 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 finalizing the implementation of a software solution to support the new accounting requirements and is finalizing its evaluation of other various potential impacts of CECL.
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Fair Value Measurement |
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Fair Value Measurement | 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:
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:
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. 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:
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 $180.0 million at September 30, 2019 and December 31, 2018, respectively.
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Leases - Summary of the Weighted-Average Discount Rate and Weighted-Average Remaining Lease Term (Details) |
Sep. 30, 2019 |
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Weighted Average Discount Rate | |
Finance Leases | 5.80% |
Operating Leases | 3.60% |
Weighted Average Remaining Lease Term (in years) | |
Finance Leases | 1 year 3 months 18 days |
Operating Leases | 5 years |
Basis and Summary of Significant Accounting Policies - Hurricane Impact (Details) - USD ($) $ in Millions |
6 Months Ended | 9 Months Ended |
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Accounting Policies [Abstract] | ||
Partial cash payment from insurer | $ 7.0 | |
Insurance proceeds received, before tax | $ 4.5 |
Basis and Summary of Significant Accounting Policies - Accounts Payable and Accrued Expenses (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Accounting Policies [Abstract] | ||
Accounts Payable | $ 72,190 | $ 88,369 |
Accrued Insurance Costs | 41,872 | 40,423 |
Accrued Salaries and Benefits | 49,052 | 40,790 |
Accrued Real Estate and Sales Taxes | 32,337 | 30,332 |
Deferred Rent | 0 | 27,270 |
Other Accrued Expenses and Liabilities | 58,783 | 65,969 |
Accounts Payable and Accrued Expenses | $ 254,234 | $ 293,153 |
Loans Receivable |
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Loans Receivable | LOANS RECEIVABLE The following is a summary of the Company’s loans receivable, net:
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:
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 nine months ended September 30, 2019 and 2018:
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Restructuring |
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Restructuring | RESTRUCTURING 2019 Restructuring Program During the first quarter of 2019, the Company initiated a restructuring program to further optimize its Company-operated Aaron's Business store portfolio, which resulted in the closure and consolidation of 154 underperforming Company-operated stores during the first nine months of 2019. The Company also further rationalized its home office and field support staff, which resulted in a reduction in employee headcount in those areas to more closely align with current business conditions. Total net restructuring expenses of $5.2 million and $36.2 million were recorded for the three and nine months ended September 30, 2019 under the 2019 restructuring program, all of which were incurred within the Aaron's Business segment. Restructuring expenses for the three and nine months ended September 30, 2019 was comprised of closed store operating lease right-of-use asset impairment and operating lease charges, the impairment of vacant store properties, including the planned exit from one of our store support buildings, workforce reductions, and a loss on the sale of six Canadian stores to a third party. These costs were included in restructuring expenses, net in the condensed consolidated statements of earnings. The Company continually evaluates its Company-operated Aaron's Business store portfolio to determine if it will further rationalize its store base to better align with marketplace-demand. As such, future restructuring expenses related to store relocations, consolidations, and store sales to third parties may be recorded depending on future decisions made regarding our current store footprint. We also expect future restructuring expenses (reversals) due to changes in future sublease activity and potential early buyouts of leases with landlords. 2017 and 2016 Restructuring Programs During the years ended December 31, 2017 and 2016, the Company initiated restructuring programs to rationalize its Company-operated Aaron's Business store portfolio to better align with marketplace demand. The programs resulted in the closure and consolidation of 139 underperforming Company-operated stores throughout 2016, 2017, and 2018. The Company also optimized its home office staff and field support, which resulted in a reduction in employee headcount in those areas to more closely align with current business conditions. Total net restructuring expenses of $0.3 million and $1.3 million were recorded for the three and nine months ended September 30, 2019 under the 2017 and 2016 restructuring programs, all of which were incurred within the Aaron's Business segment. Restructuring expenses for the three and nine months ended September 30, 2019 was comprised principally of operating lease charges for stores closed under the restructuring program. These costs were included in restructuring expenses, net in the condensed consolidated statements of earnings. We expect future restructuring expenses (reversals) due to changes in future sublease activity and potential early buyouts of leases with landlords. The following table summarizes restructuring charges for the three and nine months ended September 30, 2019 and 2018, respectively, under the three programs:
To date, the Company has incurred charges of $40.6 million under the 2016 and 2017 restructuring programs. The following table summarizes the balances of the accruals for the restructuring programs, which are recorded in accounts payable and accrued expenses in the condensed consolidated balance sheets, and the activity for the nine months ended September 30, 2019:
1 Upon the adoption of ASC 842 on January 1, 2019, the Company reclassified the remaining liability for contractual lease obligations from accounts payable and accrued expenses to a reduction to operating lease right-of-use assets within its condensed consolidated balance sheets.
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Acquisitions |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | ACQUISITIONS Franchisee Acquisitions - 2018 During 2018, the Company acquired 152 Aaron's-branded franchised stores operated by franchisees for an aggregate purchase price of $190.2 million, exclusive of the settlement of pre-existing receivables and post-closing working capital settlements. The acquired operations generated revenues of $43.9 million and $138.7 million during the three and nine months ended September 30, 2019, respectively, and $26.8 million and $32.0 million during the comparable prior year periods. The acquired operations generated earnings before income taxes of $0.4 million and $1.6 million during the three and nine months ended September 30, 2019, respectively, and losses before income taxes of $0.2 million during the respective 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 nine months ended September 30, 2019 and 2018 had the transaction not been completed. 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 and final fair value of the assets acquired and liabilities assumed in the franchisee acquisitions as of the respective acquisition dates:
1 As previously reported in Note 2 to the condensed consolidated financial statements as of June 30, 2019. 2 During the third quarter, the Company finalized its valuation of assumed favorable and unfavorable real estate operating leases based on comparable market terms of similar leases at the acquisition dates, which also impacted the valuation of the Company's customer lease contract and customer relationship intangible assets. The adjustment also resulted in the recognition of immaterial adjustments to operating expenses within the condensed consolidated statements of earnings, as well as restructuring expenses (reversals), net during the three months ended September 30, 2019 to recognize expense that would have been recognized in prior periods had the favorable lease asset been recorded as of the acquisition date. 3 As of the respective acquisition dates, the Company had not yet adopted ASC 842. As such, there were no operating lease right-of-use assets or operating lease liabilities recognized within the condensed consolidated financial statements at the time of acquisition. The Company recognized operating lease right-of-use assets and operating lease liabilities for the acquired stores as part of the transition to ASC 842 on January 1, 2019. As discussed above, the Company finalized its valuation of assumed favorable and unfavorable real estate operating leases, which was recorded within operating lease right-of-use assets in our condensed consolidated balance sheet. 4 Identifiable intangible assets are further disaggregated in the table set forth below. 5 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. The intangible assets attributable to the franchisee acquisitions are comprised of the following:
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 six franchisees during the nine months ended September 30, 2019 and five franchisees during the nine months ended September 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 $12.9 million and $14.1 million during the nine months ended September 30, 2019 and 2018, respectively. The effect of these acquisitions on the condensed consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 was not significant.
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Condensed Consolidated Statements of Earnings - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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REVENUES: | ||||
Revenues | $ 963,808 | $ 953,071 | $ 2,944,052 | $ 2,835,739 |
COSTS AND EXPENSES: | ||||
Depreciation of Lease Merchandise | 489,199 | 434,593 | 1,464,887 | 1,290,015 |
Operating Expenses | 383,264 | 420,602 | 1,154,056 | 1,199,171 |
Restructuring Expenses, Net | 5,516 | 537 | 37,535 | 561 |
Other Operating Income, Net | (329) | (38) | (4,712) | (286) |
Costs and Expenses, Total | 908,305 | 895,785 | 2,754,848 | 2,634,458 |
OPERATING PROFIT | 55,503 | 57,286 | 189,204 | 201,281 |
Interest Income | 360 | 18 | 1,405 | 374 |
Interest Expense | (3,991) | (3,735) | (13,247) | (11,868) |
Impairment of Investment | 0 | 0 | 0 | (20,098) |
Other Non-Operating (Expense) Income, Net | (207) | (154) | 1,430 | 458 |
EARNINGS BEFORE INCOME TAXES | 51,665 | 53,415 | 178,792 | 170,147 |
INCOME TAXES | 11,864 | 9,695 | 40,263 | 35,680 |
NET EARNINGS | $ 39,801 | $ 43,720 | $ 138,529 | $ 134,467 |
EARNINGS PER SHARE | ||||
Basic (in dollars per share) | $ 0.59 | $ 0.64 | $ 2.05 | $ 1.93 |
Assuming Dilution (in dollars per share) | 0.58 | 0.62 | 2.02 | 1.89 |
CASH DIVIDENDS DECLARED PER SHARE: | ||||
Common Stock (in dollars per share) | $ 0.0350 | $ 0.0300 | $ 0.1050 | $ 0.0900 |
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||
Basic (in shares) | 67,400 | 68,819 | 67,461 | 69,521 |
Assuming Dilution (in shares) | 68,652 | 70,139 | 68,739 | 70,996 |
Lease Revenues and Fees | ||||
REVENUES: | ||||
Revenues | $ 906,776 | $ 880,871 | $ 2,758,498 | $ 2,596,876 |
Retail Sales | ||||
REVENUES: | ||||
Revenues | 8,854 | 7,620 | 30,561 | 22,728 |
COSTS AND EXPENSES: | ||||
Retail Cost of Sales | 5,742 | 4,877 | 20,025 | 14,695 |
Non-Retail Sales | ||||
REVENUES: | ||||
Revenues | 31,085 | 44,368 | 102,190 | 151,259 |
COSTS AND EXPENSES: | ||||
Retail Cost of Sales | 24,913 | 35,214 | 83,057 | 130,302 |
Franchise Royalties and Fees | ||||
REVENUES: | ||||
Revenues | 8,087 | 10,153 | 25,899 | 35,140 |
Interest and Fees on Loans Receivable | ||||
REVENUES: | ||||
Revenues | 8,687 | 9,508 | 25,943 | 28,258 |
Other | ||||
REVENUES: | ||||
Revenues | $ 319 | $ 551 | $ 961 | $ 1,478 |
Fair Value Measurement (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis | The following table summarizes financial liabilities measured at fair value on a recurring basis:
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Assets Measured at Fair Value on Nonrecurring Basis | The following table summarizes non-financial assets measured at fair value on a nonrecurring basis:
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Fair Value of Assets (Liabilities) Not Measured at Fair Value In Consolidated Balance Sheets | The following table summarizes the fair value of liabilities that are not measured at fair value in the condensed consolidated balance sheets, but for which the fair value is disclosed:
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 September 30, 2019 and December 31, 2018, respectively.
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Leases - Supplemental Balance Sheet Information Related to Leases (Details) $ in Thousands |
Sep. 30, 2019
USD ($)
|
---|---|
Leases [Abstract] | |
Operating Lease Assets | $ 330,508 |
Finance Lease Assets | 1,018 |
Total Lease Assets | 331,526 |
Operating Lease Liabilities | 374,443 |
Finance Lease Liabilities | 3,192 |
Total Lease Liabilities | $ 377,635 |
Segments - Narrative (Details) |
9 Months Ended |
---|---|
Sep. 30, 2019
segment
source
| |
Segment Reporting [Abstract] | |
Number of operating segments | 3 |
Number of reportable segments | 3 |
DAMI | Progressive Subsidiary | |
Business Acquisition [Line Items] | |
Sources of financial and leasing transactions acquired | source | 1 |
Restructuring - Summary of Restructuring Charges (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Restructuring Cost and Reserve [Line Items] | ||||
Total Restructuring Expenses | $ 5,516 | $ 537 | $ 37,535 | $ 561 |
Right-of-Use Asset Impairment and Operating Lease Charges | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Total Restructuring Expenses | 1,828 | 586 | 26,616 | 1,512 |
Fixed Asset Impairment | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Total Restructuring Expenses | 2,174 | 0 | 4,743 | 0 |
Severance | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Total Restructuring Expenses | 376 | 0 | 3,368 | 601 |
Other Expenses (Reversals) | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Total Restructuring Expenses | 73 | 0 | 1,743 | (1,176) |
Loss (Gain) on Sale of Store Properties | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Total Restructuring Expenses | $ 1,065 | $ (49) | $ 1,065 | $ (376) |
Loans Receivable - Aging of the Loans Receivable Balance (Details) - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2019 |
Dec. 31, 2018 |
|
Financing Receivable, Past Due [Line Items] | ||
Past due loans receivable | 15.20% | 14.60% |
Current loans receivable | 84.80% | 85.40% |
Balance of Credit Card Loans on Nonaccrual Status | $ 2,330 | $ 2,110 |
30-59 days past due | ||
Financing Receivable, Past Due [Line Items] | ||
Past due loans receivable | 6.60% | 6.90% |
60-89 days past due | ||
Financing Receivable, Past Due [Line Items] | ||
Past due loans receivable | 3.60% | 3.40% |
90 or more days past due | ||
Financing Receivable, Past Due [Line Items] | ||
Past due loans receivable | 5.00% | 4.30% |
Balance of Loans Receivable 90 or More Days Past Due and Still Accruing Interest and Fees | $ 0 | $ 0 |
Fair Value Measurement - Assets Measured At Fair Value on Nonrecurring Basis (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets Held for Sale | $ 10,017 | $ 6,589 |
Level 1 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets Held for Sale | 0 | 0 |
Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets Held for Sale | 10,017 | 6,589 |
Level 3 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets Held for Sale | $ 0 | $ 0 |
Restructuring (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Costs | The following table summarizes restructuring charges for the three and nine months ended September 30, 2019 and 2018, respectively, under the three programs:
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Schedule of Restructuring Reserve | The following table summarizes the balances of the accruals for the restructuring programs, which are recorded in accounts payable and accrued expenses in the condensed consolidated balance sheets, and the activity for the nine months ended September 30, 2019:
1 Upon the adoption of ASC 842 on January 1, 2019, the Company reclassified the remaining liability for contractual lease obligations from accounts payable and accrued expenses to a reduction to operating lease right-of-use assets within its condensed consolidated balance sheets.
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