Aarons 2011 Annual Report Download

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AARON’S®
brings it home.
Annual Report 2011

Table of contents

  • Page 1
    AARON'S ® brings it home. Annual Report 2011

  • Page 2
    ... of residential furniture, consumer electronics, home appliances and accessories in over 1,950 Company-operated and franchised stores in the United States and Canada. Aaron's is the industry leader in serving the moderate-income consumer and offering affordable payment plans, quality merchandise and...

  • Page 3
    ... 5.6 STORES OPEN AT YEAR-END Aaron's Sales & Lease Ownership Aaron's Sales & Lease Ownership Franchised* HomeSmart Aaron's Office Furniture Total Stores 1,160 713 71 1 1,945 1,146 664 3 1 1,814 1.2% 7.4 2,266.7 0.0 7.2% * Aaron's Sales & Lease Ownership franchised stores are not owned or operated...

  • Page 4
    ... a lease and return a product at any time. We are proud of our business model, our associates, our corporate values and the 2011 operating results. For the second year in a row, the Company achieved more than 10 percent growth in the number of our customers. Customer count on a same store basis...

  • Page 5
    ... January 2012, Jeannie M. Cave joined the Company as Vice President, Real Estate and Construction. After 57 years, Aaron's is still bringing it home - delivering high-quality household products to our customers, bringing jobs to our communities and bringing investment returns to our shareholders. We...

  • Page 6
    AFTER 57 YEARS, AARON'S IS STILL BRINGING IT HOME. ® > Bringing the best business model to the consumer > Bringing price, variety and quality to the showroom floor > Bringing the message to millions of consumers each year > Bringing jobs and service to communities > Bringing outstanding returns to...

  • Page 7
    ... been the story of Aaron's in times of good employment and easy credit and in times of high unemployment and tight credit. Aaron's unique sales and lease ownership business model competes with home furnishings retailers serving the middle- and lower-income market, including rent-to-own stores and...

  • Page 8
    ...,000 Aaron's customers are now enjoying XBOX 360, Sony Playstation and Nintendo Wii gaming systems. We also offer digital cameras, camcorders and blu-ray disc players. Aaron's purchases more Mitsubishi big-screen televisions than any other retailer in America. We offer a full line of high-definition...

  • Page 9
    ...Aaron's customers brought home over 170,000 Aaron's even offers lamps in 2011. We are top-of-the-line Dyson proud to offer a line of vacuum cleaners. high-quality area rugs from Mohawk. DINING ROOM: Aaron's is present in every room in the home. We delivered over 50,000 sets of dining room furniture...

  • Page 10
    Company-Operated Sales and Lease Ownership Store Revenues Other 3% Computers 12% Electronics 39% Furniture 32% Appliances 18% Company Revenues From Franchising $70,000 60,000 40,000 50,000 40,000 30,000 20,000 30,000 $50,000 Company Pretax Profit From Franchising 20,000 8 10,000 10,000 0 2007...

  • Page 11
    ...a monthly payment plan with the remainder paying semimonthly or weekly. Aaron's brings price, variety and quality to the showroom floor. ® Aaron's has the purchasing power in the market place to secure the best pricing on the best products for our customers. We are constantly working with vendors...

  • Page 12
    ...1 16 36 17 20 29 3 38 1 28 LOCATIONS WITHIN THE UNITED STATES AND CANADA STORE COUNT AS OF DECEMBER 31, 2011 Company Stores - 1,160 Franchised Stores - 713 HomeSmart Stores - 71 Aaron's Office Furniture Stores - 1 Fulfillment Centers - 16 Woodhaven Furniture Industries - 13 15 24 1 2 1 5 57 42 1

  • Page 13
    ... Sales & Lease Ownership monthly payment. HomeSmart may prove an additional avenue of growth, broadening the market of customers served by the Company and bringing more jobs to more communities. Aaron's has consistently brought employment opportunities to our communities, creating new jobs each year...

  • Page 14
    ... Total Assets Credit Facilities Shareholders' Equity AT YEAR END Stores Open: Company-Operated 1,232 713 1,508,000 11,200 1,150 664 1,325,000 10,400 1,097 597 1,171,000 10,000 1,053 504 1,017,000 9,600 1,030 484 820,000 9,100 12 Franchised Lease Agreements in Effect Number of Associates Earnings...

  • Page 15
    ... at Company-operated stores, including agreements that result in our customers acquiring ownership at the end of the term. Retail sales represent sales of both new and returned lease merchandise from our stores. Non-retail sales mainly represent new merchandise sales to our Aaron's Sales & Lease...

  • Page 16
    ...Our Aaron's Sales & Lease Ownership and HomeSmart divisions depreciate merchandise over the applicable agreement period, generally 12 to 24 months when leased, and 36 months when not leased, to 0% salvage value. Our Office Furniture store depreciates merchandise over its estimated useful life, which...

  • Page 17
    .... RESULTS OF OPERATIONS Year Ended December 31, 2011 Versus Year Ended December 31, 2010 For the years ended December 31, 2011 and 2010, the Company's Sales and Lease Ownership, Franchise and HomeSmart segments accounted for substantially all of the operations of the Company and, therefore...

  • Page 18
    ...of new Company-operated sales and lease ownership stores added over the past several years, contributing to a 4.4% increase in same store revenues, and a 7.0% increase in franchise royalties and fees. Year Ended December 31, 2010 Versus Year Ended December 31, 2009 The Aaron's Corporate Furnishings...

  • Page 19
    ... to a 7.3% increase in lease revenues and fees and 10.4% increase in non-retail sales (which mainly represents merchandise sold to our franchisees). Lease revenues and fees within the Sales and Lease Ownership segment increased due to a net addition of 112 Company-operated stores since the beginning...

  • Page 20
    ... 2011 the Company accrued $41.5 million, which represents the judgment, as reduced, and associated legal fees and expenses related to the Alford v. Aarons Rents, Inc. et al case discussed in Item 3, "Legal Proceedings" of our Annual Report on Form 10-K for the year ended December 31, 2011 filed with...

  • Page 21
    ..., offset by regularly schedule payments. acquisitions and income tax payments. These capital requirements historically have been financed through: • cash flow from operations; • bank credit; • trade credit with vendors; • proceeds from the sale of lease return merchandise; • private debt...

  • Page 22
    ... the Company remains the owner of merchandise on lease, we benefit more from bonus depreciation, relatively, than traditional furniture, electronics and appliance retailers. In future years, we anticipate having to make increased tax payments on our earnings as a result of expected profitability and...

  • Page 23
    ... fees and expenses associated with the defense of all of our litigation are expensed as such fees and expenses are incurred. Some of the proceedings we are currently a party to are described in Item 3, "Legal Proceedings" of our Annual Report on Form 10-K for the year ended December 31, 2011 filed...

  • Page 24
    ... OF OPERATIONS Purchase obligations are primarily related to certain advertising and marketing programs. We do not have significant agreements for the purchase of lease merchandise or other goods specifying minimum quantities or set prices that exceed our expected requirements for three months...

  • Page 25
    ... 227,513 40,213 41,790 522,655 LIABILITIES & SHAREHOLDERS' EQUITY: Accounts Payable and Accrued Expenses Accrued Litigation Expense Deferred Income Taxes Payable Customer Deposits and Advance Payments Credit Facilities Total Liabilities Shareholders' Equity: Common Stock, Par Value $.50 Per Share...

  • Page 26
    ...299 1,576,348 176,439 63,561 112,878 (277) $ 112,601 $ 1.39 1.38 .00 (.01) COSTS AND EXPENSES: Retail Cost of Sales Non-Retail Cost of Sales Operating Expenses Lawsuit Expense Depreciation of Lease Merchandise Interest 22,738 353,745 872,248 36,500 550,732 4,709 1,840,672 Earnings From Continuing...

  • Page 27
    ...SHAREHOLDERS' EQUITY Accumulated Other Comprehensive (Loss) Income Foreign Retained Comprehensive Currency Marketable... Net Earnings From Continuing Operations Loss From Discontinued Operations Foreign Currency Translation Adjustment ... Earnings of Available for Sale Securities, net of Taxes...

  • Page 28
    ... Proceeds from Dispositions of Businesses and Contracts Proceeds from Sale of Property, Plant, and Equipment Cash Used by Investing Activities FINANCING ACTIVITIES: Proceeds from Credit Facilities Repayments on Credit Facilities Dividends Paid Excess Tax Benefits from Stock-Based Compensation...

  • Page 29
    ... leasing and selling residential furniture, consumer electronics, appliances, computers, and other merchandise throughout the U.S. and Canada. The Company's entire production of furniture and bedding is shipped to Aaron's Company-operated and franchise stores. Lease Merchandise - The Company's lease...

  • Page 30
    ... mix by division, store, and fulfillment center, as well as the average age of merchandise on hand. If unsalable lease merchandise cannot be returned to vendors, it is adjusted to its net realizable value or written off. All lease merchandise is available for lease or sale. On a monthly basis, all...

  • Page 31
    ...for the HomeSmart segment at December 31, 2011. The customer relationship intangible is amortized on a straight-line basis over a two-year useful life. Acquired franchise development rights are amortized over the unexpired life of the franchisee's ten year area development agreement. The non-compete...

  • Page 32
    ... market risks associated with its ongoing operations for a portion of the year. The primary risk it seeks to manage through the use of derivative financial instruments is commodity price risk, including the risk of increases in the market price of diesel fuel used in the Company's delivery vehicles...

  • Page 33
    ...LIBOR plus 87.5 basis points. The pricing under a working capital line is based upon overnight bank borrowing rates. At December 31, 2011 and 2010, there was a zero balance under the Company's revolving credit agreement. The Company pays a .20% commitment fee on unused balances. The weighted average...

  • Page 34
    ... corporation revenue bonds. The weighted-average borrowing rate on these bonds in 2011 was 0.38%. No principal payments are due on the bonds until maturity in 2015. Future maturities under the Company's long-term debt and capital lease obligations are as follows: (In Thousands) 2012 2013 2014 2015...

  • Page 35
    ... is no longer subject to federal, state and local tax examinations by tax The Company leases warehouse and retail store space for most of its operations under operating leases expiring at various times through 2028. The Company also leases certain properties under capital leases that are more fully...

  • Page 36
    ... pricing grid schedule to the franchisee loan facility to reduce the applicable margins and participant unused commitment fee percentages with respect to the funded participations. Legal Proceedings $100,906 87,393 72,205 56,252 40,217 174,322 $531,295 2012 2013 2014 2015 2016 Thereafter Rental...

  • Page 37
    ... advertising and marketing programs of $38.7 million. Payments under these commitments are scheduled to be $19.5 million in 2012, $17.3 million in 2013, and $1.9 million in 2014. The Company maintains a 401(k) savings plan for all its fulltime employees with at least one year of service and who meet...

  • Page 38
    .... Under the Aaron's Management Performance Plan ("AMP Plan") RSUs are granted quarterly upon achievement of certain pre-tax profit levels during the prior quarter by the employees' operating units or the overall Company. The RSUs granted under the AMP Plan vest over four to five years from the date...

  • Page 39
    .... Deferred franchise and area development agreement fees, included in customer deposits and advance payments in the accompanying consolidated balance sheets, were $4.7 million and $5.5 million at December 31, 2011 and 2010, respectively. Franchised Aaron's Sales & Lease Ownership store activity is...

  • Page 40
    ... not significant. The estimated amortization of sales and lease ownership stores customer lists, reacquired franchise development rights and non-compete intangibles in future years approximates $916,000, $728,000, $191,000, $34,000 and $32,000 for 2012, 2013, 2014, 2015 and 2016, respectively. The...

  • Page 41
    ... During 2008, the Company sold its corporate furnishings division. The Aaron's Sales & Lease Ownership division offers electronics, residential furniture, appliances and computers to consumers primarily on a monthly payment basis with no credit requirements. The HomeSmart division offers electronics...

  • Page 42
    ... taxes from continuing operations are as follows: (In Thousands) Year Ended December 31, 2011 Year Ended December 31, 2010 Year Ended December 31, 2009 REVENUES FROM EXTERNAL CUSTOMERS: Sales and Lease Ownership Franchise HomeSmart Manufacturing Other Revenues of Reportable Segments Elimination of...

  • Page 43
    ... Chief Operating Officer as a driver for the Robert Richardson Racing team in the NASCAR Nationwide Series at a cost of $1.6 million. The Company also paid $22,000 for team decals, apparel and driver travel to corporate promotional events. The sponsorship agreement expired at the end of the year and...

  • Page 44
    ... to CORT. The Aaron's Corporate Furnishings division, which operated 47 stores, primarily engaged in the business of leasing and selling residential furniture, electronics, appliances, housewares and accessories. The Company consummated the sale of the Aaron's Corporate Furnishings division in the...

  • Page 45
    ... in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on...

  • Page 46
    ... is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain...

  • Page 47
    ... began trading as a single class on the New York Stock Exchange under the ticker symbol "AAN." The CUSIP number of the Common Stock is 002535300. The number of shareholders of record of the Company's Common Stock at February 22, 2012 was 270. The closing price for the Common Stock at February 22...

  • Page 48
    ... fiscal years of the Company, the yearly percentage change in the cumulative total shareholder returns (assuming reinvestment of dividends) on the Company's Common Stock with that of the S&P MidCap 400 Index and a Peer Group. For 2011, the Peer Group consisted of Rent-A-Center, Inc. The stock price...

  • Page 49
    ... Vice President, Associate Resources Thomas A. Peterson Vice President, Marketing Danny Walker, Sr. Vice President, Internal Security Aaron's Sales & Lease Ownership Division K. Todd Evans* Vice President, Franchising HomeSmart Division Marco A. Scalise Vice President, HomeSmart Operations Mark...

  • Page 50
    ... Investor Services Canton, Massachusetts SEC Counsel Kilpatrick Townsend & Stockton LLP Atlanta, Georgia Aaron's Canada, ULC 309 E. Paces Ferry Rd., N.E. Atlanta, Georgia 30305-2377 (404) 231-0011 Form 10-K Shareholders may obtain a copy of the Company's annual report on Form 10-K filed with...

  • Page 51

  • Page 52
    309 E. Paces Ferry Rd., N.E. Atlanta, Georgia 30305-2377 (404) 231-0011 www.aarons.com www.aaronsinc.com