Aarons 2011 Annual Report Download - page 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
As of December 31, 2011 and 2010, and for the Years Ended
December 31, 2011, 2010 and 2009.
Basis of Presentation — The consolidated financial statements
include the accounts of Aaron’s, Inc. and its wholly owned subsidiar-
ies (the “Company” or “Aaron’s”). All significant intercompany
accounts and transactions have been eliminated. The preparation of
the Company’s consolidated financial statements in conformity with
United States generally accepted accounting principles requires man-
agement 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 unsurfaced
or unforeseen events.
On December 7, 2010, at a special meeting of the Company’s
shareholders, such shareholders approved a proposal to amend
and restate the Company’s Amended and Restated Articles of
Incorporation to: (i) convert each outstanding share of Common
Stock, par value $0.50 per share (the “Nonvoting Common
Stock”) into one share of Class A Common Stock (the “Class A
Common Stock”) and to rename the Class A Common Stock as
Common Stock (the “Common Stock”), (ii) eliminate certain
obsolete provisions relating to the Company’s prior dual-class
common stock structure, and (iii) amend the number of autho-
rized shares to be 225,000,000 total shares of Common Stock
(the aggregate of the number of authorized shares of Nonvoting
Common Stock and Class A Common Stock prior to the approval
of the Amended and Restated Articles of Incorporation). Following
receipt of shareholder approval at the special meeting, the
Amended and Restated Articles of Incorporation were filed with
the Secretary of State of the State of Georgia and are now effective.
As a result of the reclassification of shares of Nonvoting
Common Stock into shares of Class A Common Stock and the
other changes described above and effected by the Amended and
Restated Articles of Incorporation, shares of the combined class
now titled Common Stock have one vote per share on all matters
submitted to the Company’s shareholders, including the election of
directors. The former Nonvoting Common Stock did not entitle
the holders thereof to any vote except as otherwise provided in
the Company’s Articles of Incorporation or required by law. In
addition, holders of the combined class now titled Common Stock
will all vote as a single class of stock on any matters subject to a
shareholder vote. Holders of the former Class A Common Stock
and the Nonvoting Common Stock were previously entitled to
separate class voting rights in certain circumstances as required by
law, and those class voting rights were eliminated with the share
reclassification.
The holders of Common Stock are entitled to receive divi-
dends and other distributions in cash, stock or property of the
Company as and when declared by the Board of Directors of the
Company out of legally available funds. Prior to the conversion,
the Company’s Articles of Incorporation permitted the payment of
a cash dividend on the Nonvoting Common Stock without paying
any dividend on the Class A Common Stock or the payment of
a cash dividend on the Nonvoting Common Stock that was up
to 50% higher than any dividend paid on the Class A Common
Stock. Cash dividends could not be paid on the Class A Common
Stock unless equal or higher dividends were paid on the Nonvoting
Common Stock.
The conversion had no other impact on the economic equity
interests of holders of Common Stock, including with regards to
liquidation rights or redemption, regardless of whether holders
previously held shares of Nonvoting Common Stock or Class A
Common Stock.
On March 23, 2010, the Company announced a 3-for-2
stock split effected in the form of a 50% stock dividend on both
Nonvoting Common Stock and Class A Common Stock. New
shares were distributed on April 15, 2010 to shareholders of record
as of the close of business on April 1, 2010. All share and per share
information has been restated for all periods presented to reflect
this stock split.
Certain reclassifications have been made to the prior periods
to conform to the current period presentation. In all periods
presented, the HomeSmart division was reclassified from the Other
segment to the HomeSmart segment. Refer to Note K for the
segment disclosure. In all periods presented, bad debt expense was
reclassified from change in accounts receivable to a separate bad
debt expense line on the consolidated statements of cash flows.
Line of Business — The Company is a specialty retailer engaged in
the business of leasing and selling residential furniture, consumer
electronics, appliances, computers, and other merchandise through-
out 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 merchandise consists
primarily of residential furniture, consumer electronics, appliances,
computers, and other merchandise and is recorded at cost, which
includes overhead from production facilities, shipping costs and
warehousing costs. The sales and lease ownership stores depreciate
merchandise over the lease agreement period, generally 12 to 24
months when on lease and 36 months when not on lease, to a 0%
salvage value. Aaron’s Office Furniture store depreciates merchandise
over its estimated useful life, which ranges from 24 months to 48
months, net of salvage value, which ranges from 0% to 30%. The
Company’s policies require weekly lease merchandise counts by store
managers, which include write-offs for unsalable, damaged, or miss-
ing merchandise inventories. Full physical inventories are generally
taken at the fulfillment and manufacturing facilities two to four
a
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