Aarons 2010 Annual Report Download - page 32

Notes to Consolidated Financial Statements
Summary of Significant
Accounting Policies
As of December 31, 2010 and 2009, and for the Years Ended
December 31, 2010, 2009 and 2008.
BASIS OF PRESENTATION — The consolidated financial state-
ments include the accounts of Aaron’s, Inc. and its wholly owned
subsidiaries (the “Company”). 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, 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 authorized shares to be 225,000,000 total
shares of Common Stock (the aggregate of the number of autho-
rized 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 dividends
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.
During the fourth quarter of 2008, the Company sold substan-
tially all of the assets of its Aaron’s Corporate Furnishings division.
As a result of the sale, the Company’s financial statements have been
prepared reflecting the Aaron’s Corporate Furnishings division as
discontinued operations. See Note N for a discussion of the sale of
the Aaron’s Corporate Furnishings division.
Certain reclassifications have been made to the prior periods to
conform to the current period presentation. In all periods presented,
Aaron’s Office Furniture was reclassified from the Sales and Lease
Ownership Segment to the Other Segment. Refer to Note K for the
segment disclosure. Certain assets have been reclassified as held for
sale in all periods presented.
LINE OF BUSINESS — The Company is engaged in the business
of leasing and selling residential furniture, consumer electronics,
appliances, computers, and other merchandise throughout the
United States and Canada. The Company’s entire production of
furniture and bedding is shipped to Aaron’s 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 division
depreciates 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. Our office furniture stores depreciate mer-
chandise 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
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A
Note