Aarons 2011 Annual Report Download - page 44

NOTE N: DISCONTINUED
OPERATIONS
On September 12, 2008, the Company entered into an agreement
with CORT Business Services Corporation to sell substantially all of
the assets of its Aaron’s Corporate Furnishings division and to trans-
fer certain of the Aaron’s Corporate Furnishings division’s liabilities
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 fourth quarter of 2008.
Summarized operating results for the Aaron’s Corporate
Furnishings division for the years ended December 31 are
as follows:
(In Thousands) 2011 2010 2009
Loss Before Income Taxes — — $(447)
Loss From Discontinued
Operations, Net of Tax — — (277)
NOTE O: DEFERRED
COMPENSATION PLAN
Effective July 1, 2009, the Company implemented the Aaron’s, Inc.
Deferred Compensation Plan (the “Plan”) an unfunded, nonquali-
fied deferred compensation plan for a select group of management,
highly compensated employees and non-employee directors. On a
pre-tax basis, eligible employees can defer receipt of up to 75% of
their base compensation and up to 100% of their incentive pay com-
pensation, and eligible non-employee directors can defer receipt of
up to 100% of both their cash and stock director fees. In addition,
the Company elected to make restoration matching contributions
on behalf of eligible employees to compensate for certain limitations
on the amount of matching contributions an employee can receive
under the Company’s tax-qualified 401(k) plan.
Compensation deferred under the Plan is credited to each par-
ticipant’s deferral account and a deferred compensation liability is
recorded in accounts payable and accrued expenses in the consoli-
dated balance sheets. The deferred compensation plan liability was
approximately $6.3 million and $3.5 million as of December 31,
2011 and 2010, respectively. Liabilities under the Plan are recorded
at amounts due to participants, based on the fair value of partici-
pants’ selected investments. The Company has established a Rabbi
Trust to fund obligations under the Plan with Company-owned
life insurance. The obligations are unsecured general obligations of
the Company and the participants have no right, interest or claim
in the assets of the Company, except as unsecured general creditors.
The cash surrender value of these policies totaled $5.8 million and
$3.5 million as of December 31, 2011 and 2010, respectively, and
is included in prepaid expenses and other assets in the consolidated
balance sheets.
Deferred compensation expense charged to operations for the
Company’s matching contributions totaled $306,000, $231,000
and $130,000 in 2011, 2010, and 2009 respectively. Benefits of
$77,000 have been paid as of December 31, 2011. No benefits
were paid in 2010.
NOTE P: VARIABLE
INTEREST ENTITIES
On October 14, 2011, the Company purchased 11.5% of the com-
mon stock of Perfect Home Holdings Limited (“Perfect Home”),
a privately-held rent-to-own company that is primarily financed by
subordinated debt. Perfect Home is based in the United Kingdom
and operates over 40 retail stores. As part of the transaction, the
Company also received notes and an option to acquire the remaining
interest in Perfect Home at any time through December 31, 2013.
If the Company does not exercise the option prior to December 31,
2013, it will be obligated to sell the common stock and notes back
to Perfect Home at the original purchase price plus interest. The
Company’s investment is denominated in British Pounds.
Perfect Home is a VIE as it does not have sufficient equity at
risk; however, the Company is not the primary beneficiary and
lacks the power through voting or similar rights to direct those
activities of Perfect Home that most significantly affect its eco-
nomic performance. As such, the VIE is not consolidated by
the Company.
Because the Company is not able to exercise significant influ-
ence over the operating and financial decisions of Perfect Home,
the equity portion of the investment in Perfect Home totaling less
than a thousand dollars at December 31, 2011 is accounted for
as a cost method investment and is included in prepaid expenses
and other assets. The notes purchased from Perfect Home totaling
$15.9 million at December 31, 2011 are accounted for as held to
maturity securities in accordance with ASC 320, Debt and Equity
Securities and are included in investment securities. Utilizing a
Black-Scholes model, the options to buy the remaining interest in
Perfect Home and to sell the Company’s interest in Perfect Home
were determined to have only nominal values. The Company
recorded aggregate transaction losses related to the investment of
$228,000 to expense during the year ended December 31, 2011.
The Company’s maximum exposure to any potential losses associ-
ated with this VIE is equal to its total recorded investment which
totals $15.9 million at December 31, 2011.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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