10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 ________________________________

 FORM 10-Q

________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

COMMISSION FILE NUMBER 1-39681

 ________________________________

  THE AARON'S COMPANY, INC.

(Exact name of registrant as specified in its charter)

 _________________________________

Georgia				85-2483376
(State or other jurisdiction of incorporation or organization)				(I. R. S. Employer Identification No.)
400 Galleria Parkway SE	Suite 300	Atlanta	Georgia	30339-3182
(Address of principal executive offices)				(Zip Code)

(678) 402-3000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.50 Par Value	AAN	New York Stock Exchange

 ___________________________________

    Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒    No  ☐

    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No ☐

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	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 13(a) of the Exchange Act. ☐

    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

    Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Each Class	Shares Outstanding as of October 22, 2021
Common Stock, $0.50 Par Value	31,483,247

1

THE AARON'S COMPANY, INC.

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	4
Condensed Consolidated Balance Sheets – September 30, 2021 (Unaudited) and December 31, 2020	4
Condensed Consolidated and Combined Statements of Earnings (Unaudited) – Three and Nine Months Ended September 30, 2021 and 2020	5
Condensed Consolidated and Combined Statements of Comprehensive Income (Loss) (Unaudited) – Three and Nine Months Ended September 30, 2021 and 2020	6
Condensed Consolidated and Combined Statements of Cash Flows (Unaudited) – Nine Months Ended September 30, 2021 and 2020	7
Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3. Quantitative and Qualitative Disclosures About Market Risk	41
Item 4. Controls and Procedures	42
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	43
Item 1A. Risk Factors	43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3. Defaults Upon Senior Securities	43
Item 4. Mine Safety Disclosures	43
Item 5. Other Information	43
Item 6. Exhibits	44
Signatures	45

2

PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

THE AARON’S COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	September 30, 2021		December 31, 2020
	(In Thousands, Except Share Data)
ASSETS:
Cash and Cash Equivalents	$	14,846	$	76,123
Accounts Receivable (net of allowances of $6,343 at September 30, 2021 and $7,613 at December 31, 2020)	30,316		33,990
Lease Merchandise (net of accumulated depreciation and allowances of $446,806 at September 30, 2021 and $458,405 at December 31, 2020)	775,012		697,235
Property, Plant and Equipment, Net	214,375		200,370
Operating Lease Right-of-Use Assets	257,496		238,085
Goodwill	13,162		7,569
Other Intangibles, Net	5,681		9,097
Income Tax Receivable	3,620		1,093
Prepaid Expenses and Other Assets	101,904		89,895
Total Assets	$	1,416,412	$	1,353,457
LIABILITIES & SHAREHOLDERS’ EQUITY:
Accounts Payable and Accrued Expenses	$	259,204	$	230,848
Deferred Income Taxes Payable	88,567		62,601
Customer Deposits and Advance Payments	55,361		68,894
Operating Lease Liabilities	291,750		278,958
Debt	—		831
Total Liabilities	694,882		642,132
Commitments and Contingencies (Note 4)
SHAREHOLDERS' EQUITY:
Common Stock, Par Value $0.50 Per Share: Authorized: 112,500,000 Shares at September 30, 2021 and December 31, 2020; Shares Issued: 35,525,922 at September 30, 2021 and 35,099,571 at December 31, 2020	17,763		17,550
Additional Paid-in Capital	720,194		708,668
Retained Earnings	85,421		1,881
Accumulated Other Comprehensive Loss	(704)		(797)
	822,674		727,302
Less: Treasury Shares at Cost
3,760,052 Shares at September 30, 2021 and 894,660 at December 31, 2020	(101,144)		(15,977)
Total Shareholders’ Equity	721,530		711,325
Total Liabilities & Shareholders’ Equity	$	1,416,412	$	1,353,457

The accompanying notes are an integral part of the Condensed Consolidated and Combined Financial Statements.

3

THE AARON’S COMPANY, INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In Thousands, Except Per Share Data)
REVENUES:
Lease and Retail Revenues	$	413,666	$	397,736	$	1,286,251	$	1,190,903
Non-Retail Sales	32,159		34,820		94,563		94,710
Franchise Royalties and Other Revenues	6,328		8,405		19,888		19,134
	452,153		440,961		1,400,702		1,304,747
COSTS AND REVENUES:
Cost of Lease and Retail Revenues	138,448		132,288		433,149		412,009
Non-Retail Cost of Sales	29,063		29,109		85,163		82,006
	167,511		161,397		518,312		494,015
GROSS PROFIT	284,642		279,564		882,390		810,732
OPERATING EXPENSES
Personnel Costs	122,901		117,764		369,190		351,905
Other Operating Expenses, Net	105,428		105,364		327,840		322,422
Provision for Lease Merchandise Write-Offs	19,799		9,305		45,333		47,478
Restructuring Expenses, Net	2,899		4,041		8,134		33,318
Impairment of Goodwill	—		—		—		446,893
Retirement Charges	—		574		—		574
Separation Costs	397		1,160		6,033		1,160
	251,424		238,208		756,530		1,203,750
OPERATING PROFIT (LOSS)	33,218		41,356		125,860		(393,018)
Interest Expense	(322)		(1,973)		(1,117)		(8,625)
Other Non-Operating (Expense) Income, Net	(88)		698		1,058		887
EARNINGS (LOSS) BEFORE INCOME TAXES	32,808		40,081		125,801		(400,756)
INCOME TAX EXPENSE (BENEFIT)	8,460		7,468		32,155		(131,969)
NET EARNINGS (LOSS)	$	24,348	$	32,613	$	93,646	$	(268,787)
EARNINGS (LOSS) PER SHARE	$	0.75	$	0.96	$	2.79	$	(7.94)
EARNINGS (LOSS) PER SHARE ASSUMING DILUTION	$	0.73	$	0.96	$	2.74	$	(7.94)

The accompanying notes are an integral part of the Condensed Consolidated and Combined Financial Statements.

4

THE AARON’S COMPANY, INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2021		2020		2021		2020
Net Earnings (Loss)	$	24,348	$	32,613	$	93,646	$	(268,787)
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustment	(254)		198		93		(1,225)
Total Other Comprehensive (Loss) Income	(254)		198		93		(1,225)
Comprehensive Income (Loss)	$	24,094	$	32,811	$	93,739	$	(270,012)

The accompanying notes are an integral part of the Condensed Consolidated and Combined Financial Statements.

5

THE AARON’S COMPANY, INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2021		2020
	(In Thousands)
OPERATING ACTIVITIES:
Net Earnings (Loss)	$	93,646	$	(268,787)
Adjustments to Reconcile Net Earnings (Loss) to Cash Provided by Operating Activities:
Depreciation of Lease Merchandise	397,701		382,956
Other Depreciation and Amortization	51,729		50,699
Provision for Lease Merchandise Write-Offs	45,333		47,478
Accounts Receivable Provision	18,840		22,089
Stock-Based Compensation	9,863		9,324
Deferred Income Taxes	25,966		(83,278)
Impairment of Assets	3,937		469,783
Non-Cash Lease Expense	69,205		72,231
Other Changes, Net	(3,851)		1,398
Changes in Operating Assets and Liabilities:
Lease Merchandise	(519,139)		(309,745)
Accounts Receivable	(15,511)		(17,409)
Prepaid Expenses and Other Assets	(15,151)		5,552
Income Tax Receivable	(2,527)		636
Operating Lease Right-of-Use Assets and Liabilities	(78,641)		(81,240)
Accounts Payable and Accrued Expenses	22,917		33,745
Customer Deposits and Advance Payments	(13,923)		1,806
Cash Provided by Operating Activities	90,394		337,238
INVESTING ACTIVITIES:
Insurance Proceeds relating to Property, Plant and Equipment	373		—
Proceeds from Investments	1,974		—
Purchases of Property, Plant, and Equipment	(67,456)		(45,704)
Proceeds from Dispositions of Property, Plant, and Equipment	10,330		3,815
Acquisition of Businesses and Customer Agreements, Net of Cash Acquired	(6,934)		(2,875)
Proceeds from Dispositions of Businesses and Customer Agreements, Net of Cash Disposed	158		358
Cash Used in Investing Activities	(61,555)		(44,406)
FINANCING ACTIVITIES:
Proceeds from Debt	—		5,625
Repayments on Debt	(740)		(61,515)
Dividends Paid	(6,770)		—
Acquisition of Treasury Stock	(81,740)		—
Issuance of Stock Under Stock Option Plans	1,876		—
Shares Withheld for Tax Payments	(2,729)		—
Net Transfers From Former Parent	—		148,189
Debt Issuance Costs	—		(1,020)
Cash (Used in) Provided by Financing Activities	(90,103)		91,279
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(13)		(22)
(Decrease) Increase in Cash and Cash Equivalents	(61,277)		384,089
Cash and Cash Equivalents at Beginning of Period	76,123		48,773
Cash and Cash Equivalents at End of Period	$	14,846	$	432,862

The accompanying notes are an integral part of the Condensed Consolidated and Combined Financial Statements.

6

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As described elsewhere in this Quarterly Report on Form 10-Q, the novel coronavirus ("COVID-19") pandemic led to significant market disruption and has impacted various aspects of our operations, directly and indirectly. Throughout these notes to the condensed consolidated and combined financial statements, the impacts of the COVID-19 pandemic on the financial results for the three and nine months ended September 30, 2021 and comparable prior periods have been identified to the best of our ability under the respective sections. For a discussion of trends that we believe have affected our business as a result of the COVID-19 pandemic, see Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations", including the "Recent Developments and Operational Measures Taken by Us in Response to the COVID-19 Pandemic," "Results of Operations" and "Liquidity and Capital Resources", below, and Part I, Item 1A "Risk Factors" of our Current Report on Form 10-K, filed with the United States Securities and Exchange Commission on February 23, 2021 (the "2020 Annual Report").

Description of Spin-off Transaction

On October 16, 2020, management of Aaron’s, Inc. finalized the formation of a new holding company structure in anticipation of the separation and distribution transaction described below. Under the holding company structure, Aaron’s, Inc. became a direct, wholly owned subsidiary of a newly formed company, Aaron’s Holdings Company, Inc. Aaron's, Inc. was subsequently converted to a limited liability company ("Aaron’s, LLC") holding the assets and liabilities historically associated with the historical Aaron's Business segment (the "Aaron's Business"). Upon completion of the holding company formation, Aaron’s Holdings Company, Inc. became the publicly traded parent company of the Progressive Leasing segment ("Progressive Leasing"), Aaron’s Business, and Vive segment ("Vive").

On November 30, 2020 (the "separation and distribution date"), Aaron's Holdings Company, Inc. completed the previously announced separation of the Aaron's Business from Progressive Leasing and Vive and changed its name to PROG Holdings, Inc. (referred to herein as "PROG Holdings" or "Former Parent"). The separation of the Aaron's Business was effected through a distribution (the "separation", the "separation and distribution", or the "spin-off transaction") of all outstanding shares of common stock of a newly formed company called The Aaron's Company, Inc., a Georgia corporation ("Aaron's", "The Aaron's Company" or "the Company"), to the PROG Holdings shareholders of record as of November 27, 2020. Upon the separation and distribution, Aaron's, LLC became a wholly-owned subsidiary of The Aaron's Company. Shareholders of PROG Holdings received one share of The Aaron's Company for every two shares of PROG Holdings' common stock. Upon completion of the separation and distribution transaction, The Aaron's Company became an independent, publicly traded company under the ticker "AAN" on the New York Stock Exchange.

Unless the context otherwise requires or we specifically indicate otherwise, references to "we," "us," "our," "the Company," and "Aaron's" refer to The Aaron's Company, Inc., which holds, directly or indirectly, the Aaron’s Business prior to the separation and distribution date. References to "the Company", "Aaron's, Inc.", or "Aaron's Holdings Company, Inc." for periods prior to the separation and distribution date refer to transactions, events, and obligations of Aaron's, Inc., which took place prior to the separation and distribution. Historical amounts herein include revenues and costs directly attributable to the Company and an allocation to the Company of expenses of the Aaron's Business related to certain PROG Holdings' corporate functions prior to the separation and distribution date.

We describe in these footnotes the business held by us after the separation as if it were a standalone business for all historical periods described. However, we were not a standalone separate entity with independently conducted operations before the separation.

Description of Business

Aaron's is a leading, technology-enabled, omni-channel provider of lease-to-own ("LTO") and purchase solutions generally focused on serving the large, credit-challenged segment of the population. Through our portfolio of approximately 1,300 stores and our Aarons.com e-commerce platform, we provide consumers with LTO and purchase solutions for the products they need and want, including furniture, appliances, electronics, computers and a variety of other products and accessories. In addition, the Company's business includes the operations of Woodhaven Furniture Industries ("Woodhaven"), which manufactures and supplies the majority of the bedding and a significant portion of the upholstered furniture leased and sold in Company-operated and franchised stores.

7

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

The following table presents store count by ownership type:

Stores as of September 30 (Unaudited)	2021	2020
Company-operated Stores	1,084	1,086
Franchised Stores	237	308
Systemwide Stores	1,321	1,394

Basis of Presentation

The financial statements for periods prior to and through the date of the separation and distribution, November 30, 2020, were prepared on a combined standalone basis and were derived from the consolidated financial statements and accounting records of PROG Holdings. The financial statements for the period from December 1, 2020 through December 31, 2020, and three and nine months ended September 30, 2021 are consolidated financial statements of the Company and its subsidiaries, each of which is wholly-owned, and is based on the financial position and results of operations of the Company as a standalone company. Intercompany balances and transactions between consolidated entities have been eliminated. These condensed consolidated and combined financial statements reflect the historical results of operations, financial position and cash flows of the Company in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The historical results of operations and cash flows of the Company prior to the separation and distribution presented in these condensed consolidated and combined financial statements may not be indicative of what they would have been had the Company been an independent standalone entity, nor are they necessarily indicative of the Company's future results of operations, financial position and cash flows.

The condensed combined balance sheets for periods prior to and through the separation and distribution date include the assets and liabilities associated with the historical Aaron’s Business and certain assets and liabilities where Aaron's, Inc. is the legal beneficiary or obligor. The combined statements of earnings for periods prior to and through the separation and distribution date include all revenues and costs directly attributable to the Company and an allocation of expenses related to certain PROG Holdings corporate functions. These allocated costs and expenses include executive management, finance, treasury, tax, audit, legal, information technology, human resources and risk management functions and the related benefit cost associated with such functions, including stock-based compensation. These costs and expenses have been allocated to the Company based on direct usage or benefit where specifically identifiable, with the remaining expenses allocated primarily on a pro rata basis using an applicable measure of revenues, headcount or other relevant measures. The Company considers these allocations to be a reasonable reflection of the utilization of services or the benefit received.

The preparation of the Company's condensed consolidated and combined financial statements in conformity with 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. However, as described above, the extent to which the normalization of business trends since the start of the COVID-19 pandemic, and the resulting measures taken by the Company and federal and state governments, will impact the Company's business will depend on future developments, which are uncertain and cannot be precisely predicted at this time. In many cases, management's estimates and assumptions are dependent on estimates of such future developments and may change in the future.

The accompanying unaudited condensed consolidated and combined 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 and combined financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 2020 Annual Report. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of operating results for the full year.

Reclassifications

Certain reclassifications have been made to the prior periods to conform to the current period presentation. For all periods prior to September 30, 2021, the Company presented the additions to lease merchandise and the book value of lease merchandise sold or disposed as separate lines within operating activities in the condensed consolidated and combined statements of cash flows. Effective with the nine months ended September 30, 2021, the Company revised its presentation of changes to lease merchandise to separately present the provision for lease merchandise write-offs, and combine the remaining operating activity-related changes in lease merchandise, with the exception of depreciation of lease merchandise, in a single line under changes in operating assets and liabilities in the condensed consolidated and combined statements of cash flows. This revised presentation and the related adjustments to the prior period presentation do not have an impact on cash provided by operating activities.

8

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

Accounting Policies and Estimates

See Note 1 to the consolidated and combined financial statements in the 2020 Annual Report for an expanded discussion of accounting policies and estimates. Discussions of accounting estimates and application of accounting policies herein have also been updated as applicable to describe the uncertainty associated with the impacts of the COVID-19 pandemic described above.

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"), performance share units ("PSUs") and other awards issuable under the Company's employee stock purchase plan ("ESPP") (collectively, "share-based awards") as determined under the treasury stock method, unless the inclusion of such awards would have been anti-dilutive.

The Company's basic earnings per share calculations for the periods prior to the separation and distribution assumes that the weighted average number of common shares outstanding was 33,841,624, which is the number of shares distributed to shareholders on the separation and distribution date, November 30, 2020. The same number of shares was used in the calculation of diluted earnings per share for the periods prior to the separation and distribution, as there were no equity awards of The Aaron's Company outstanding prior to the distribution date.

The following table shows the calculation of weighted-average shares outstanding assuming dilution:

	Three Months Ended September 30,		Nine Months Ended September 30,
(Shares In Thousands)	2021	2020	2021	2020
Weighted Average Shares Outstanding	32,485	33,842	33,513	33,842
Dilutive Effect of Share-Based Awards	703	—	703	—
Weighted Average Shares Outstanding Assuming Dilution	33,188	33,842	34,216	33,842

Approximately 0.2 million and 0.1 million weighted-average shares-based awards were excluded from the computation of earnings per share assuming dilution during the three and nine months ended September 30, 2021, respectively, as the awards would have been anti-dilutive for the periods presented.

Revenue Recognition

The Company provides lease merchandise, consisting of furniture, appliances, electronics, computers and a variety of other products and accessories to its customers for lease under certain terms agreed to by the customer. Our stores and e-commerce platform offer leases with flexible ownership plans that can be renewed monthly up to 12, 18 or 24 months. The Company also earns revenue from the sale of merchandise to customers and its franchisees, and earns ongoing revenue from its franchisees in the form of royalties and through advertising efforts that benefit the franchisees. See Note 3 to these condensed consolidated and combined financial statements for further information regarding the Company's revenue recognition policies and disclosures.

Accounts Receivable

Accounts receivable consist primarily of receivables due from customers on lease agreements, corporate receivables incurred during the normal course of business (primarily for vendor consideration and real estate leasing activities) and franchisee obligations.

Accounts receivable, net of allowances, consist of the following: 

(In Thousands)	September 30, 2021		December 31, 2020
Customers	$	8,606	$	8,399
Corporate	11,822		12,771
Franchisee	9,888		12,820
	$	30,316	$	33,990

The Company maintains an accounts receivable allowance, under which the Company's policy is to record a provision for returns and uncollectible contractually due renewal payments based on historical payments experience, which is recognized as a reduction of lease and retail revenues within the condensed consolidated and combined statements of earnings. Other qualitative

9

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

factors are considered in estimating the allowance, such as current and forecasted business trends. The Company writes off customer lease receivables that are 60 days or more past due on pre-determined dates twice monthly.

The Company also maintains an allowance for outstanding franchisee accounts receivable. The Company's policy is to estimate a specific allowance on accounts receivable to estimate future losses related to certain franchisees that are deemed to have a higher risk of non-payment and a general allowance based on historical losses as well as the Company's assessment of the financial health of all other franchisees. The estimated allowance on franchisee accounts receivable includes consideration of broad macroeconomic trends, such as the uncertainty surrounding the impacts of the normalization of current and future business trends associated with the COVID-19 pandemic on the franchisees' ability to satisfy their obligations. Accordingly, actual accounts receivable write-offs could differ from the allowance. The provision for uncollectible franchisee accounts receivable is recorded as bad debt expense in other operating expenses, net within the condensed consolidated and combined statements of earnings.

The following table shows the components of the accounts receivable allowance:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Beginning Balance	$	7,613	$	10,720
Accounts Written Off, net of Recoveries	(20,110)		(26,304)
Accounts Receivable Provision	18,840		22,089
Ending Balance	$	6,343	$	6,505

The following table shows the components of the accounts receivable provision, which includes amounts recognized for bad debt expense and the provision for returns and uncollected payments:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Bad Debt (Reversal) Expense	$	(728)	$	933
Provision for Returns and Uncollectible Renewal Payments	19,568		21,156
Accounts Receivable Provision	$	18,840	$	22,089

Lease Merchandise

The Company’s lease merchandise is recorded at the lower of depreciated 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 begins depreciating merchandise at the earlier of 12 months and one day from its purchase of the merchandise or when the item is leased to customers. Lease merchandise depreciates 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 following is a summary of lease merchandise, net of accumulated depreciation and allowances:

(In Thousands)	September 30, 2021		December 31, 2020
Merchandise on Lease, net of Accumulated Depreciation and Allowances	$	465,833	$	473,964
Merchandise Not on Lease, net of Accumulated Depreciation and Allowances1	309,179		223,271
Lease Merchandise, net of Accumulated Depreciation and Allowances	$	775,012	$	697,235

1 Includes Woodhaven raw materials, finished goods and work-in-process inventory that has been classified within lease merchandise in the condensed consolidated balance sheets of $20.7 million and $10.4 million as of September 30, 2021 and December 31, 2020, respectively.

10

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

The Company's policies require weekly merchandise counts at its store-based operations, which include write-offs for unsalable, damaged, or missing merchandise inventories. Monthly cycle counting procedures are performed at both the Company's fulfillment centers and manufacturing facilities. Physical inventories are also taken at the manufacturing facilities annually. The Company also monitors merchandise levels and mix by division, store, and fulfillment center, as well as the average age of merchandise on hand. If obsolete merchandise cannot be returned to vendors, its carrying amount is adjusted to its net realizable value or written off. Generally, all merchandise not on lease 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 using the allowance method, which is included within lease merchandise, net within the condensed consolidated balance sheets. The allowance method for lease merchandise write-offs estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting period based primarily on historical write-off experience. Other qualitative factors are considered in estimating the allowance, such as uncertainty surrounding the impacts of the normalization of current and future business trends associated with the COVID-19 pandemic. Therefore, actual lease merchandise write-offs could differ from the allowance. The provision for write-offs is included in provision for lease merchandise write-offs in the accompanying condensed consolidated and combined statements of earnings. The Company writes off lease merchandise on lease agreements that are 60 days or more past due on pre-determined dates twice monthly.

The following table shows the components of the allowance for lease merchandise write-offs:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Beginning Balance	$	11,599	$	13,823
Merchandise Written off, net of Recoveries	(46,414)		(49,058)
Provision for Write-offs	45,333		47,478
Ending Balance	$	10,518	$	12,243

Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following:

(In Thousands)	September 30, 2021		December 31, 2020
Prepaid Expenses1	$	17,401	$	17,411
Insurance Related Assets1	27,606		27,020
Company-Owned Life Insurance	15,275		16,223
Assets Held for Sale	7,370		8,956
Deferred Tax Asset	7,014		7,014
Other Assets1	27,238		13,271
	$	101,904	$	89,895

1 During the second quarter of 2021, the Company recategorized items within the components of prepaid expenses and other assets. The presentation of prior period amounts has been reclassified to be consistent with the current period presentation. Such reclassification has no impact on the total prepaid expenses and other assets balance as of December 31, 2020.

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, 2021 and December 31, 2020. 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. Gains and losses related to the sale of assets held for sale are recorded in other operating expenses, net or restructuring expenses, net (if the asset is a part of the Company's restructuring programs further described in Note 5 to these condensed consolidated and combined financial statements) in the condensed consolidated and combined statements of earnings. Such gains and losses were not significant for the three and nine months ended September 30, 2021 and September 30, 2020.

11

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

Management 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. The carrying amount of the properties held for sale as of September 30, 2021 and December 31, 2020 is $7.4 million and $9.0 million, respectively.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

(In Thousands)	September 30, 2021		December 31, 2020
Accounts Payable 1	$	76,876	$	84,738
Estimated Claims Liability Costs	55,155		49,272
Accrued Salaries and Benefits	64,715		53,396
Accrued Real Estate and Sales Taxes1	24,947		23,968
Other Accrued Expenses and Liabilities1	37,511		19,474
	$	259,204	$	230,848

1 During the second quarter of 2021, the Company recategorized items within the components of accounts payable and accrued expenses. The presentation of prior period amounts has been reclassified to be consistent with the current period presentation. Such reclassification has no impact on the total accounts payable and accrued expenses balance as of December 31, 2020.

Estimated Claims Liability Costs

Estimated claims liability costs are accrued primarily for workers compensation, vehicle liability, general liability and group health insurance benefits provided to employees. These liabilities are recorded within estimated claims liability costs within accounts payable and accrued expenses in the condensed consolidated balance sheets. Estimates for these claims liabilities are made based on actual reported but unpaid claims and actuarial analysis of the projected claims run off for both reported and incurred but not reported claims. This analysis is based upon an assessment of the likely outcome or historical experience. The Company makes periodic prepayments to its insurance carriers to cover the projected claims run off for both reported and incurred but not reported claims, considering its retention or stop loss limits. In addition, we have prefunding balances on deposit and other insurance receivables with the insurance carriers which are recorded within prepaid expenses and other assets in our condensed consolidated balance sheets.

Segment Reporting

Management concluded that the Company has one operating and reportable segment based on the nature of the financial information regularly reviewed by the chief operating decision maker to assess performance and allocate resources. We have also concluded that the Company has one reporting unit due to the fact that the components included within the operating segment have similar economic characteristics, such as the nature of the products and services provided, the nature of the customers we serve, and the interrelated nature of the components that are aggregated to form the sole reporting unit. The Company evaluates performance and allocates resources as a single operating segment based on revenue growth and pre-tax profit or loss from operations.

Goodwill

The Company’s goodwill is not amortized but is subject to an impairment test at the reporting unit level annually as of October 1 and more frequently if events or circumstances indicate that an impairment may have occurred. An interim goodwill impairment test is required if the Company believes it is more likely than not that the carrying amount of its reporting unit exceeds the reporting unit's fair value. The Company concluded that the need for an interim goodwill impairment test was triggered as of March 31, 2020. Factors that led to this conclusion included: (i) a significant decline in the Aaron's, Inc. stock price and market capitalization in March 2020; (ii) the temporary closure of all Company-operated store showrooms due to the COVID-19 pandemic, which impacted our financial results and was expected to adversely impact future financial results; (iii) the significant uncertainty with regard to the short-term and long-term impacts that macroeconomic conditions arising from the COVID-19 pandemic and related government emergency and executive orders would have on the financial health of our customers and franchisees; and (iv) consideration given to the amount by which the Aaron's Business reporting unit's fair value exceeded the carrying value from the October 1, 2019 annual goodwill impairment test.

12

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

As of March 31, 2020, management of Aaron's, Inc. determined its existing goodwill was fully impaired and recorded a goodwill impairment loss of $446.9 million during the three months ended March 31, 2020. Management engaged the assistance of a third-party valuation firm to perform the interim goodwill impairment test, which entailed an assessment of the Aaron's Business reporting unit’s fair value relative to the carrying value that was derived using a combination of both income and market approaches and performing a market capitalization reconciliation, which included an assessment of the control premium implied from the Company's estimated fair values of its reporting units. The fair value measurement involved significant unobservable inputs (Level 3 inputs, as discussed more fully below). The income approach utilized the discounted future expected cash flows, which required assumptions about short-term and long-term revenue growth or decline rates, operating margins, capital requirements, and a weighted-average cost of capital. The income approach reflected assumptions and estimates made by management regarding direct and indirect impacts of the COVID-19 pandemic on the short-term and long-term cash flows for the reporting unit. Due to the significant uncertainty associated with the impacts of the COVID-19 pandemic, the assumptions and estimates used by management were highly subjective. The weighted-average cost of capital used in the income approach was adjusted to reflect the specific risks and uncertainties associated with the COVID-19 pandemic in developing the cash flow projections. Given the uncertainty discussed above, the Company performed certain sensitivity analyses including considering reasonably possible alternative assumptions for short-term and long-term growth or decline rates, operating margins, capital requirements, and weighted-average cost of capital rates. Each of the sensitivity analyses performed supported the conclusion of a full impairment of the existing goodwill balance within the Aaron's Business reporting unit.

The market approach, which includes the guideline public company method, utilized pricing multiples derived from an analysis of comparable publicly traded companies. We believe the comparable companies we evaluate as marketplace participants serve as an appropriate reference when calculating fair value because those companies have similar risks, participate in similar markets, provide similar products and services for their customers and compete with us directly. However, we considered that such publicly available information regarding the comparable companies evaluated likely did not reflect the impact of the COVID-19 pandemic in determining the multiple assumptions selected.

The Company completed acquisitions of certain franchisees and third party rent-to-own stores subsequent to March 31, 2020, which resulted in a goodwill balance of $13.2 million and $7.6 million as of September 30, 2021 and December 31, 2020, respectively. The Company determined that there were no events that occurred or circumstances that changed during the three or nine months ended September 30, 2021 that would more likely than not reduce the fair value of its reporting unit below its carrying amount.

13

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

Related Party

The Aaron's Company was a related party to PROG Holdings prior to the separation and distribution date.

All intercompany transactions between the Company and PROG Holdings were included within invested capital in the historical combined balance sheets prior to the separation and distribution date, and are classified as changes in invested capital within stockholders' equity for the historical periods prior to the separation and distribution date. The total net effect of the settlement of these intercompany transactions is reflected in the condensed consolidated and combined statements of cash flows as a financing activity for the nine months ended September 30, 2020.

Corporate Allocations

The Company's previous operating model included a combination of standalone and combined business functions with PROG Holdings. The condensed consolidated and combined financial statements in the 2020 Annual Report include corporate allocations to the Company through the separation and distribution date for expenses related to activities that were previously provided on a centralized basis within PROG Holdings. These expenses primarily related to executive management, finance, treasury, tax, audit, legal, information technology, human resources and risk management functions and the related benefit cost associated with such functions, including stock-based compensation. See Note 12 to the consolidated and combined financial statements in the 2020 Annual Report for more information regarding stock-based compensation. Corporate allocations to the Company during the three and nine months ended September 30, 2020 also include expenses related to the separation and distribution. These expenses have been allocated to the Company based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis using an applicable measure of revenues, headcount or other relevant measures. The Company considers these allocations to be a reasonable reflection of the utilization of services or the benefit received. These allocated expenses are included within personnel costs and other operating expenses, net in the condensed consolidated and combined statements of earnings and as an increase to invested capital in the historical condensed combined balance sheets prior to the separation and distribution date. General corporate expenses allocated to the Company during the three and nine months ended September 30, 2020 were $8.6 million and $20.4 million, respectively.

Management believes the assumptions regarding the allocation of general corporate expenses from PROG Holdings are reasonable. However, the consolidated and combined financial statements may not include all of the actual expenses that would have been incurred and may not reflect the Company's consolidated and combined results of operations, financial position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if the Company had been a standalone company would depend on multiple factors, including organization structure and various other strategic decisions.

Post-Separation Arrangements

In connection with the separation and distribution, the Company entered into several agreements with PROG Holdings, which (i) govern the separation and our relationship with PROG Holdings after the separation, and (ii) provide for the allocation between the two companies of PROG Holdings' assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at, and after the separation. These agreements are further described in Note 14 to the consolidated and combined financial statements in the 2020 Annual Report. Amounts incurred and due to or from PROG Holdings for transition services were not significant during the three and nine months ended September 30, 2021.

Franchisee Acquisitions

The Company acquired the store operations of various Aaron's franchisees during the nine months ended September 30, 2021 and 2020, for a combined purchase price of $9.8 million and $5.5 million, respectively. The franchisee acquisitions have been accounted for as business combinations and the results of operations of the acquired businesses are included in the Company’s results of operations from their dates of acquisition. The primary tangible asset acquired as part of these transactions was lease merchandise and the primary intangible asset allocated to was customer contracts. The purchase price allocations are preliminary and are subject to change within the measurement period, which is up to one year from the acquisition date. The effect of these acquisitions on the condensed consolidated and combined financial statements for the nine months ended September 30, 2021 and 2020 was not significant.

14

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

Stockholders' Equity

Changes in stockholders' equity for the three and nine months ended September 30, 2021 and 2020 are as follows:

	Treasury Stock			Common Stock		Invested Capital		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(In Thousands, Except Per Share)	Shares	Amount
Balance, December 31, 2020	(895)	$	(15,977)	$	17,550	$	—	$	708,668	$	1,881	$	(797)	$	711,325
Cash Dividends, $0.10 per share	—	—		—		—		—		(3,472)		—		(3,472)
Stock-Based Compensation	—	—		—		—		3,551		—		—		3,551
Issuance of Shares under Equity Plans	(114)	(2,729)		165		—		378		—		—		(2,186)
Acquisition of Treasury Stock	(252)	(6,280)		—		—		—		—		—		(6,280)
Net Earnings	—	—		—		—		—		36,323		—		36,323
Foreign Currency Translation Adjustment	—	—		—		—		—		—		127		127
Balance, March 31, 2021	(1,261)	$	(24,986)	$	17,715	$	—	$	712,597	$	34,732	$	(670)	$	739,388
Cash Dividends, $0.10 per share	—	—		—		—		—		(3,387)		—		(3,387)
Stock-Based Compensation	—	—		—		—		1,714		—		—		1,714
Issuance of shares under equity plans	—	—		45		—		1,202		—		—		1,247
Acquisition of Treasury Stock	(1,166)	(38,642)		—		—		—		—		—		(38,642)
Net Earnings	—	—		—		—		—		32,975		—		32,975
Foreign Currency Translation Adjustment	—	—		—		—		—		—		220		220
Balance, June 30, 2021	(2,427)	$	(63,628)	$	17,760	$	—	$	715,513	$	64,320	$	(450)	$	733,515
Cash Dividends, $0.10 per share	—	—		—		—		—		(3,247)		—		(3,247)
Stock-Based Compensation	—	—		—		—		2,757		—		—		2,757
Reclassification of liability awards to equity awards	—	—		—		—		1,841		—		—		1,841
Reissued Shares	—	—		3		—		83		—		—		86
Acquisition of Treasury Stock	(1,333)	(37,516)		—		—		—		—		—		(37,516)
Net Earnings	—	—		—		—		—		24,348		—		24,348
Foreign Currency Translation Adjustment	—	—		—		—		—		—		(254)		(254)
Balance, September 30, 2021	(3,760)	$	(101,144)	$	17,763	$	—	$	720,194	$	85,421	$	(704)	$	721,530

15

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

	Treasury Stock			Common Stock		Invested Capital		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(In Thousands, Except Per Share)	Shares	Amount
Balance, December 31, 2019	—	$	—	$	—	$	837,800	$	—	$	—	$	(19)	$	837,781
Stock-Based Compensation	—	—		—		2,725		—		—		—		2,725
Net increase in Invested Capital	—	—		—		90,211		—		—		—		90,211
Net Loss	—	—		—		(323,774)		—		—		—		(323,774)
Foreign Currency Translation Adjustment	—	—		—		—		—		—		(1,754)		(1,754)
Balance, March 31, 2020	—	$	—	$	—	$	606,962	$	—	$	—	$	(1,773)	$	605,189
Stock-Based Compensation	—	—		—		2,892		—		—		—		2,892
Net increase in Invested Capital	—	—		—		35,994		—		—		—		35,994
Net Earnings	—	—		—		22,374		—		—				22,374
Foreign Currency Translation Adjustment	—	—		—		—		—		—		331		331
Balance, June 30, 2020	—	$	—	$	—	$	668,222	$	—	$	—	$	(1,442)	$	666,780
Stock-Based Compensation	—	—		—		3,954		—		—		—		3,954
Net Increase in Invested Capital	—	—		—		22,340		—		—		—		22,340
Net Earnings	—	—		—		32,613		—		—		—		32,613
Foreign Currency Translation Adjustment	—	—		—		—		—		—		198		198
Balance, September 30, 2020	—	$	—	$	—	$	727,129	$	—	$	—	$	(1,244)	$	725,885

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 a liability related to its non-qualified deferred compensation plan, which represents benefits accrued for participants that are part of the plan and is valued at the quoted market prices of the participants' investment election, at fair value on a recurring basis. 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 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 Company also measures certain non-financial assets at fair value on a nonrecurring basis, such as goodwill, intangible assets, operating lease right-of-use assets, and property, plant, and equipment, in connection with periodic evaluations for potential impairment.

16

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

Recent Accounting Pronouncements

Adopted

Income Taxes. In December 2019, the Financial Accounting Standards Board (the "FASB") issued ASU 2019-12, Simplifying the Accounting for Income Taxes. This guidance simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (ASC 740). It also simplifies certain aspects of accounting for franchise taxes and clarifies and amends existing guidance to improve consistent application and reduce complexity. There was no material impact on the consolidated financial statements of the Company upon adoption of the standard during the first quarter of 2021.

Pending Adoption

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The standard provides temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of the London Interbank Overnight ("LIBO") rate, which is currently expected to occur on December 31, 2021. The Company's $250.0 million senior unsecured revolving credit facility (the "Revolving Facility"), as further described in Note 8 to the consolidated and combined financial statements in the 2020 Annual Report, currently references the LIBO rate for determining interest payable on outstanding borrowings. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts referencing the LIBO rate. The new guidance provides an expedient which simplifies accounting analyses under current GAAP for contract modifications if the change is directly related to a change from the LIBO rate to a new interest rate index. The Company will adopt the standard in the first quarter of 2022, and is continuing to evaluate the provisions of ASU 2020–04 and the impacts of transitioning to an alternative rate; however, we do not expect it to have a material impact to the Company's consolidated financial statements or to any key terms of our Revolving Facility other than the discontinuation of the LIBO rate.

NOTE 2. 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:

(In Thousands)	September 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Deferred Compensation Liability	$	—	$	(10,499)	$	—	$	—	$	(10,450)	$	—

The Company maintains The Aaron's Company, 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 represents benefits accrued for plan participants and 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, which is recorded in accounts payable and accrued expenses in the condensed consolidated balance sheets.

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:

(In Thousands)	September 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets Held for Sale	$	—	$	7,370	$	—	$	—	$	8,956	$	—

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 expenses, net or restructuring expenses, net (if the asset is a part of the Company's restructuring programs as described in Note 5 to these condensed consolidated and combined financial statements) in the condensed consolidated and combined 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, and plans to sell the properties to third parties as quickly as practicable.

17

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3: REVENUE RECOGNITION

The following table disaggregates revenue by source:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2021		2020		2021		2020
Lease Revenues and Fees	$	401,383	$	384,183	$	1,240,645	$	1,153,799
Retail Sales	12,283		13,553		45,606		37,104
Non-Retail Sales	32,159		34,820		94,563		94,710
Franchise Royalties and Fees	6,147		8,079		19,109		18,168
Other	181		326		779		966
Total1	$	452,153	$	440,961	$	1,400,702	$	1,304,747

1 Includes revenues from Canadian operations of $5.5 million and $17.4 million during the three and nine months ended September 30, 2021, respectively ($5.5 million and $16.2 million during the three and nine months ended September 30, 2020, respectively). The revenues are primarily lease revenues and fees.

Lease Revenues and Fees

The Company provides lease merchandise, consisting of furniture, appliances, electronics, computers, and a variety of other products and accessories to its customers for lease under certain terms agreed to by the customer. The Company’s stores and its e-commerce platform offer leases with flexible ownership plans that can be renewed monthly 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 an early purchase option or through payment of all required lease payments through the end of the ownership plan. Our store-based operations also offer customers the option to obtain a membership in the Aaron’s Club program. The benefits to customers of the Club program are separated into three general categories: (a) product protection benefits; (b) health & wellness discounts; and (c) dining, shopping and consumer savings. Lease agreements and Aaron's Club program memberships are cancelable at any time by either party without penalty, and as such, we consider these offerings to be month-to-month arrangements.

Lease revenues related to the leasing of merchandise and Aaron's Club membership fees are recognized as revenue in the month they are earned. 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. Lease revenues are recorded net of a provision for returns and uncollectible renewal payments.

All of the Company's customer lease 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 customer agreements are expensed as incurred and have been classified as other operating expenses, net in the condensed consolidated and combined statements of earnings. The statement of earnings effects of expensing the initial direct costs as incurred are not materially different from amortizing initial direct costs over the lease ownership plan.

Substantially all lease revenues and fees were within the scope of ASC 842, Leases, during the three and nine months ended September 30, 2021 and 2020. Included in lease revenues and fees above, the Company had $7.1 million and $20.1 million of other revenue during the three and nine months ended September 30, 2021, respectively ($6.5 million and $18.9 million during the three and nine months ended September 30, 2020, respectively) within the scope of ASC 606, Revenue from Contracts with Customers. Lease revenues and fees are recorded within lease and retail revenues in the accompanying condensed consolidated and combined statements of earnings.

Retail and Non-Retail Sales

Revenues from the retail sale of merchandise to individual consumers 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.

Sales of lease merchandise to franchisees and to other customers are recorded within non-retail sales and lease and retail revenues, respectively, in the accompanying condensed consolidated and combined statements of earnings. All retail and non-retail sales revenue is within the scope of ASC 606, Revenue from Contracts with Customers, during the three and nine months ended September 30, 2021 and 2020.

18

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

Franchise Royalties and Fees

Franchisees pay an ongoing royalty of 6% of the weekly cash revenue payments received, which is recognized as the fees become due. In response to the COVID-19 pandemic, the Company temporarily suspended, as opposed to deferring, the royalty fee obligation in March 2020, effectively forgiving the franchisee royalty payments that otherwise would have been due during the suspension period. The Company reinstated the requirement that franchisees make royalty payments during the second quarter of 2020.

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 4 to these condensed consolidated and combined financial statements for additional discussion of the franchise-related guarantee obligation. The Company also charges fees for advertising efforts that benefit the franchisees, which are recognized at the time the advertising takes place.

Substantially all franchise royalties and fees revenue is within the scope of ASC 606, Revenue from Contracts with Customers. Of the franchise royalties and fees, $4.8 million and $15.0 million during the three and nine months ended September 30, 2021, respectively, ($6.1 million and $13.7 million during the three and nine months ended September 30, 2020, respectively) is related to franchise royalty income that is recognized as the fees become due. The remaining revenue is primarily related to advertising fees charged to franchisees. Franchise royalties and fees are recorded within franchise royalties and other revenues in the accompanying condensed consolidated and combined statements of earnings.

19

THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4. COMMITMENTS AND CONTINGENCIES

Guarantees

The Company has guaranteed certain debt obligations of some of its franchisees under a franchise loan program (the "Franchise Loan Facility") as described below with several of the banks in our Revolving Facility. In the event these franchisees are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of the franchisees’ debt obligations under the Franchise Loan Facility, which would be due in full within 75 days of the event of default. During the third quarter of 2021, the Company reduced the total commitment under the Franchise Loan Facility, which expires on November 16, 2021, from $25.0 million to $15.0 million. We are able to request additional 364-day extensions of our Franchise Loan Facility, as long as we are not in violation of any of the covenants under that facility or our Revolving Facility, and no event of default exists under those agreements, until such time as our Revolving Facility expires. We currently expect to include a franchise loan facility as part of any future extension or renewal of our Revolving Facility. At September 30, 2021, the maximum amount that the Company would be obligated to repay in the event franchisees defaulted was $9.4 million. The Company is subject to financial covenants under the Franchise Loan Facility that are consistent with the Revolving Facility, which are more fully described in Note 8 to the consolidated and combined financial statements in the 2020 Annual Report.

The Company has recourse rights to franchisee assets securing the debt obligations, which consist primarily of lease merchandise and fixed assets. Since the inception of the franchise loan program in 1994, the Company's losses associated with the program have been insignificant. However, such losses could be material in a future period due to potential adverse trends in the liquidity and/or financial performance of the Company's franchisees resulting in an event of default or impending defaults by franchisees. The Company records a liability related to estimated future losses from repaying the franchisees' outstanding debt obligations upon any possible future events of default. This is included in accounts payable and accrued expenses in the condensed consolidated balance sheets and was $2.2 million and $2.4 million at September 30, 2021 and December 31, 2020, respectively. The balances at September 30, 2021 and December 31, 2020 included qualitative consideration of potential losses, including uncertainties surrounding the normalization of current and future business trends associated with an anticipated end to the COVID-19 pandemic, and the corresponding unknown effect on the operations and liquidity of our franchisees.

Legal Proceedings

From time to time, the Company is party to various legal and regulatory proceedings arising in the ordinary course of business, certain of which have been described below. The Company establishes an accrued liability for legal and regulatory proceedings when it determines that a loss is both probable and the amount of the loss can be reasonably estimated. The Company continually monitors its litigation and regulatory exposure and reviews the adequacy of its legal and regulatory reserves on a quarterly basis. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters due to the inherent uncertainty in litigation, regulatory and similar adversarial proceedings, and substantial losses from these proceedings or the costs of defending them could have a material adverse impact upon the Company’s business, financial position, and results of operations.

At September 30, 2021 and December 31, 2020, the Company had accrued $1.6 million and $0.8 million, respectively, for pending legal and regulatory matters for which it believes losses are probable and is management’s best estimate of its exposure to loss. The Company records these liabilities in accounts payable and accrued expenses in the condensed consolidated balance sheets. The Company estimates that the aggregate range of reasonably possible loss in excess of accrued liabilities for such probable loss contingencies is between zero and $2.6 million.

At September 30, 2021, the Company estimated that the aggregate range of loss for all material pending legal and regulatory proceedings for which a loss is reasonably possible, but less likely than probable (i.e., excluding the contingencies described in the preceding paragraph), is between zero and $0.5 million. Those matters for which a reasonable estimate is not possible are not included within estimated ranges and, therefore, the estimated ranges do not represent the Company’s maximum loss exposure. The Company’s estimates for legal and regulatory accruals, aggregate probable loss amounts and reasonably possible loss amounts, are all subject to the uncertainties and variables described above.

Regulatory Inquiries

In the first quarter of 2021, Aaron's, LLC, along with a number of other lease-to-own companies, received a subpoena from the California Department of Financial Protection and Innovation (the "DFPI") requesting the production of documents regarding the Company’s compliance with state consumer protection laws. The Company is cooperatively engaging with the DFPI in response to its inquiry. Although the Company believes it is in compliance with all applicable consumer protection laws and regulations in California, this inquiry ultimately could lead to an enforcement action and/or a consent order, and substantial costs, including legal fees, fines, penalties, and remediation expenses.

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THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

Other Contingencies

Management regularly assesses the Company’s insurance deductibles, monitors litigation and regulatory exposure with the Company’s attorneys, and evaluates its loss experience. The Company also enters into various contracts in the normal course of business that may subject it to risk of financial loss if counterparties fail to perform their contractual obligations.

NOTE 5. RESTRUCTURING

Real Estate Repositioning and Optimization Restructuring Program

During the first quarter of 2020, the Company initiated a real estate repositioning and optimization restructuring program. This program includes a strategic plan to remodel, reposition, and consolidate our Company-operated store footprint over the next three to four years. We believe that such strategic actions will allow the Company to continue to successfully serve our markets while continuing to utilize our growing Aarons.com shopping and servicing platform. Management expects that this strategy, along with our increased use of technology, will enable us to reduce store count while retaining a significant portion of our existing customer relationships as well as attract new customers. Since initiation, the program has resulted in the closure, consolidation, or relocation of 126 Company-operated stores during 2020 and the first nine months of 2021. As of September 30, 2021, we have identified approximately 45 remaining stores for closure, consolidation, or relocation that have not yet been closed and vacated, nearly all of which are expected to close during 2021 and the first half of 2022. During the three and nine months ended September 30, 2020, we also further rationalized our store support center 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 $2.2 million and $6.2 million were recorded for the three and nine months ended September 30, 2021 under the real estate repositioning and optimization restructuring program. Restructuring expenses were comprised mainly of operating lease right-of-use asset and fixed asset impairment charges related to the vacancy or planned vacancy of stores identified for closure, continuing variable occupancy costs incurred related to closed stores, and losses on the sale of Company-operated stores located in markets we intend to exit in conjunction with our real estate repositioning strategy. Such losses were offset by gains related to the sale of vehicle and real estate assets previously impaired in conjunction with the repositioning and optimization program in prior periods.

As management continues to execute on its long-term plan, additional restructuring charges are expected to result from our real estate repositioning and optimization initiatives, primarily related to operating lease right-of-use asset and fixed asset impairments. However, the extent of future restructuring charges is not estimable at this time as the specific relocation sites, with the exception of those sites noted above, have not yet been identified by management. Additionally, we expect future restructuring expenses (reversals) due to potential future early buyouts of leases with landlords, as well as continuing variable occupancy costs related to closed stores.

2019 Restructuring Program

During the first quarter of 2019, the Company initiated a restructuring program to optimize its Company-operated Aaron's store portfolio, which resulted in the closure and consolidation of 155 underperforming Company-operated stores during 2019. The Company also rationalized its store support center and field support staff, which resulted in a reduction in associate headcount in those areas to more closely align with current business conditions.

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THE AARON’S COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

Total net restructuring expenses of $0.6 million and $1.6 million were recorded for the three and nine months ended September 30, 2021 under the 2019 restructuring program. Restructuring expenses were primarily comprised of continuing variable occupancy costs incurred related to closed stores. These costs were included in restructuring expenses, net in the condensed consolidated and combined statements of earnings. We expect future restructuring expenses (reversals) due to potential future early buyouts of leases with landlords as well as continuing variable occupancy costs.

The following table summarizes restructuring charges for the three and nine months ended September 30, 2021 and 2020, respectively, under the Company's restructuring programs:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2021		2020		2021		2020
Right-of-Use Asset Impairment	$	871	$	892	$	3,143	$	19,526
Operating Lease Charges	1,495		1,748		4,246		4,318
Fixed Asset Impairment	212		216		628		3,168
Severance	11		986		161		5,711
Other Expenses	55		199		226		595
Loss (Gain) on Sale of Store Properties and Related Assets	255		—		(270)		—
Total Restructuring Expenses, Net1	$	2,899	$	4,041	$	8,134	$	33,318

1 Includes expenses related to our 2016 and 2017 restructuring programs as described within Note 11 to the consolidated and combined financial statements in the 2020 Annual Report, which were not significant during the three and nine months ended September 30, 2021.

To date, the Company has incurred charges of $46.8 million under the 2019 restructuring program, and $40.1 million under the real estate repositioning and optimization restructuring program. These cumulative charges are primarily comprised of operating lease right-of-use asset and fixed impairment charges, losses recognized related to contractual lease obligations, and severance related to reductions in store support center and field support staff headcount.

The following table summarizes the activity for the nine months ended September 30, 2021 and the corresponding accrual balance as of September 30, 2021 for the restructuring programs:

(In Thousands)	Severance
Balance at January 1, 2021	$	773
Restructuring Severance Charges	161
Payments	(934)
Balance at September 30, 2021	$	—

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Information: Except for historical information contained herein, the matters set forth in this Form 10-Q are forward-looking statements. These statements are based on management’s current expectations and plans, which involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "believe," "expect," "expectation," "anticipate," "may," "could," "should", "intend," "belief," "estimate," "plan," "target," "project," "likely," "will," "forecast,", "future", "outlook," and similar expressions. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the filing date of this Quarterly Report and which involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. These risks and uncertainties include factors such as (i) any ongoing impact of the COVID-19 pandemic due to new variants or efficacy and rate of vaccinations, as well as related measures taken by governmental or regulatory authorities to combat the pandemic, including the impact of federal vaccine mandates on our workforce and whether additional government stimulus payments or supplemental unemployment benefits will be approved, and the nature, amount and timing of any such payments or benefits; (ii) the possibility that the operational, strategic and shareholder value creation opportunities expected from the separation and spin-off of the Aaron’s Business (as defined below) into what is now The Aaron’s Company, Inc. may not be achieved in a timely manner, or at all; (iii) the failure of that separation to qualify for the expected tax treatment; (iv) changes in the enforcement and interpretation of existing laws and regulations and the adoption of new laws and regulations that may unfavorably impact our business; (v) legal and regulatory proceedings and investigations, including those related to consumer protection laws and regulations, customer privacy, third party and employee fraud and information security; (vi) the risks associated with our strategy and strategic priorities not being successful, including our e-commerce and real estate repositioning and optimization initiatives or being more costly than anticipated; (vii) risks associated with the challenges faced by our business, including the commoditization of consumer electronics and our high fixed-cost operating model; (viii) increased competition from traditional and virtual lease-to-own competitors, as well as from traditional and online retailers and other competitors; (ix) financial challenges faced by our franchisees; (x) increases in lease merchandise write-offs and the potential limited duration and impact of stimulus and other government payments made by the federal and state governments to counteract the economic impact of the COVID-19 pandemic; (xi) the availability and prices of supply chain resources, including products and transportation; and (xii) the other risks and uncertainties discussed under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 Annual Report"). Except as required by law, the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances after the filing date of this Quarterly Report.

The following discussion should be read in conjunction with the condensed consolidated and combined financial statements as of and for the three and nine months ended September 30, 2021 and 2020, including the notes to those statements, appearing elsewhere in this report. We also suggest that management’s discussion and analysis appearing in this report be read in conjunction with the management’s discussion and analysis and the consolidated and combined financial statements included in our 2020 Annual Report.

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Description of Spin-off Transaction

On October 16, 2020, management of Aaron’s, Inc. finalized the formation of a new holding company structure in anticipation of the separation and distribution transaction described below. Under the holding company structure, Aaron’s, Inc. became a direct, wholly owned subsidiary of a newly formed company, Aaron’s Holdings Company, Inc. Aaron's, Inc. was subsequently converted to a limited liability company ("Aaron’s, LLC") holding the assets and liabilities historically associated with the historical Aaron's Business segment (the "Aaron's Business"). Upon completion of the holding company formation, Aaron’s Holdings Company, Inc. became the publicly traded parent company of the Progressive Leasing segment ("Progressive Leasing"), Aaron’s Business, and Vive segment ("Vive").

On November 30, 2020 (the "separation and distribution date"), Aaron's Holdings Company, Inc. completed the previously announced separation of the Aaron's Business from Progressive Leasing and Vive and changed its name to PROG Holdings, Inc. (referred to herein as "PROG Holdings" or "Former Parent"). The separation of the Aaron's Business segment was effected through a distribution (the "separation", the "separation and distribution", or the "spin-off transaction") of all outstanding shares of common stock of a newly formed company called The Aaron's Company, Inc. ("Aaron's", "The Aaron's Company" or the "Company"), a Georgia corporation, to the PROG Holdings shareholders of record as of November 27, 2020. Upon the separation and distribution, Aaron's, LLC became a wholly-owned subsidiary of The Aaron's Company. Shareholders of PROG Holdings received one share of The Aaron's Company for every two shares of PROG Holdings' common stock. Upon completion of the separation and distribution transaction, The Aaron's Company became an independent, publicly traded company under the ticker "AAN" on the New York Stock Exchange.

Unless the context otherwise requires or we specifically indicate otherwise, references to "we," "us," "our," "our Company," and "the Company" refer to The Aaron's Company, Inc., which holds, directly or indirectly, the Aaron’s Business prior to the separation and distribution date. References to "the Company", "Aaron's, Inc.", or "Aaron's Holdings Company, Inc." for periods prior to the separation and distribution date refer to transactions, events, and obligations of Aaron's, Inc., which took place prior to the separation and distribution. Historical amounts herein include revenues and costs directly attributable to the Company and an allocation to the Company of expenses of the Aaron's Business related to certain PROG Holdings' corporate functions prior to the separation and distribution date.

Business Overview

Aaron's is a leading, technology-enabled, omni-channel provider of lease-to-own ("LTO") and purchase solutions generally focused on serving the large, credit-challenged segment of the population. Through our portfolio of approximately 1,300 stores and our Aarons.com e-commerce platform, we provide consumers with LTO and purchase solutions for the products they need and want, including furniture, appliances, electronics, computers and a variety of other products and accessories. We focus on providing our customers with unparalleled customer service and an attractive value proposition, including low monthly payments and total cost of ownership, high approval rates and flexible lease ownership plans. In addition, we offer a wide product selection, and for our lease customers we offer free prompt delivery, setup, service and product returns, and the ability to pause, cancel or resume lease contracts at any time with no additional costs to the customer.

Recent Restructuring Programs

As a result of our real estate repositioning strategy and other cost-reduction initiatives, we initiated a restructuring program in 2020 to optimize our Company-operated store portfolio. This restructuring program has resulted in the closure, consolidation or relocation of a total of 126 Company-operated stores during 2020 and the first nine months of 2021. We currently expect to close, consolidate, or relocate approximately 45 additional stores during 2021 and the first half of 2022. Additionally, from 2016 to 2019, we closed and consolidated a total of 294 underperforming Company-operated stores under similar restructuring initiatives. We will continue to evaluate our Company-operated store portfolio to determine how to best rationalize and reposition our store base to better align with marketplace demand.

While not all specific locations have been identified under the real estate repositioning and optimization restructuring program, the Company’s current strategic plan is to remodel, reposition and consolidate our Company-operated store footprint over the next three to four years. We believe that such strategic actions will allow the Company to continue to successfully serve our markets while continuing to utilize our growing Aarons.com shopping and servicing platform. Management expects that this strategy, along with our increased use of technology, will enable us to reduce store count while retaining a significant portion of our existing customer relationships and attract new customers. To the extent that management executes on its long-term strategic plan, additional restructuring charges will likely result from our real estate repositioning and optimization initiatives, primarily related to operating lease right-of-use asset and fixed asset impairments. However, the extent of future restructuring charges is not estimable at this time, as specific store locations to be closed and/or consolidated, beyond the stores noted above, have not yet been identified by management.

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Recent Developments and Operational Measures Taken by Us in Response to the COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. As a result of the COVID-19 pandemic, we temporarily closed our showrooms in March 2020 and shifted to e-commerce and curbside service only for all of our Company-operated stores to protect the health and safety of our customers and associates, except where such curbside service was prohibited by governmental authorities. Since that time, we have reopened our store showrooms, but there can be no assurance that those showrooms will not be closed in future months, or have their operations limited, if, for example, there are new variants of the virus, vaccine efficacy weakens or we experience localized increases in infections or "additional waves" in the number of COVID-19 cases in the areas where our stores are located and, in response, governmental authorities issue orders requiring such closures or limitations on operations, or we voluntarily close our showrooms or limit their operations to protect the health and safety of our customers and associates. Furthermore, we have experienced disruptions in our supply chain which have impacted product availability in some of our stores and, in some situations, we are procuring inventory from alternative sources at higher costs. These developments continue to have an unfavorable impact on our generation of lease agreements.

The COVID-19 pandemic may impact our business, results of operations, financial condition, liquidity and/or cash flow in future periods. The extent of any such impacts likely would depend on several factors, including (a) the length and severity of any continuing impact of the pandemic, which may be affected by the impact of federal vaccination mandates on our workforce and the successful distribution and efficacy of COVID-19 vaccines to our customers and associates, as well as any new variants of the virus, localized outbreaks or additional waves of COVID-19 cases, among other factors; (b) the impact of any such outbreaks on our customers, suppliers, and employees; (c) the nature of any government orders issued in response to such outbreaks, including whether we would be deemed essential, and thus, exempt from all or some portion of such orders; (d) the extent of the impact of additional government stimulus and/or enhanced unemployment benefits to our customers in response to the negative economic impacts of the COVID-19 pandemic, as well as the nature, timing and amount of any such stimulus payments or benefits; and (e) supply chain disruptions for our business.

The following summarizes significant developments and operational measures taken by us in response to the COVID-19 pandemic:

•In our Company-operated stores, we are monitoring and limiting, where possible, associates' potential exposure to persons at or who may enter our stores, reviewing orders and industry-specific guidance from applicable federal and state laws, Occupational Safety and Health Administration regulations and Centers for Disease Control ("CDC") and state/local health authorities. Additionally, we are evaluating our existing COVID-19 prevention controls and the need for different or additional controls, and conducting periodic inspections at our stores to identify unhealthy conditions, work practices and work procedures related to COVID-19 to help ensure compliance with our COVID-19 policies and procedures. We have also installed protective plexiglass barriers at check-out counters, implemented enhanced cleaning and sanitization procedures, and reconfigured our showrooms in a manner designed to reduce COVID-19 transmission. We also require associates to adhere to the latest CDC and state/local health authorities guidelines with respect to social distancing and face coverings.

•In conjunction with the operational adjustments made at our Company-operated stores, we accelerated the national rollout of our centralized digital decisioning platform, which is an algorithm-driven lease decisioning tool used in our Company-operated stores that is designed to improve our customers' experiences by streamlining and standardizing the lease application decisioning process, shortening transaction times, and establishing appropriate transaction sizes and lease payment amounts, given the customer’s profile. We completed the national rollout during the second quarter of 2020, and that decisioning platform is now being utilized in all of our Company-operated and franchised store locations in the United States.

•To assist the franchisees of our business who were facing adverse impacts to their businesses, we offered a royalty fee abatement from March 8, 2020 until May 16, 2020 and modified payment terms on outstanding accounts receivable owed to us by franchisees. In addition, payment terms were temporarily modified for the franchise loan facility under which certain franchisees have outstanding borrowings that are guaranteed by us.

•Our management team and store support center associates are continuing to primarily work remotely through January of 2022. We expect that approximately 65% of our management and store support center associates will return to the office between two and five days a week in the first quarter of 2022, with the remainder working fully remote moving forward. Additionally, we reduced our corporate real estate footprint by electing to permanently vacate one of our leased administrative offices in Kennesaw, Georgia during the fourth quarter of 2020.

Coronavirus Legislative Relief

In response to the global impacts of COVID-19 on U.S. companies and citizens, the government enacted the Coronavirus, Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020, the Consolidated Appropriations Act on December 27,

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2020, and the American Rescue Plan Act of 2021 ("American Rescue Plan") on March 11, 2021. We believe a significant portion of our customers have received stimulus payments and/or federally supplemented unemployment payments, pursuant to these economic stimulus measures, which we believe enabled them to continue making payments to us under their lease-to-own agreements, despite the economically challenging times resulting from the COVID-19 pandemic. In addition to the stimulus payments mentioned above, we also believe that certain elements of the American Rescue Plan, primarily the temporary expansion of the child tax credit which increases the amount of the credit, makes the credit fully refundable, and allows for half of the credit to be paid in periodic installments beginning on July 15, 2021, may impact certain of our customers. Additionally, we may experience an increase in the exercise of early purchase options or decreases in the total number of new ownership plans, as customers could potentially opt to use such payments and credits to acquire merchandise outside of our LTO solutions.

The CARES Act included several tax relief options for companies, which resulted in the following provisions available to the Company:

•Aaron's, Inc. elected to carryback its 2018 net operating losses of $242.2 million to 2013, generating a refund of $84.4 million, which was received in July 2020, and a discrete income tax benefit of $34.2 million recognized during the three months ended March 31, 2020. The discrete tax benefit is the result of the federal income tax rate differential between the current statutory rate of 21% and the 35% rate applicable to 2013.

•Throughout 2020, the Company deferred $16.5 million in payroll taxes that it was permitted to defer under the CARES Act, which generally applies to Social Security taxes otherwise due, with 50% of the tax payable on December 31, 2021 and the remaining 50% payable on December 31, 2022.

•Certain wages and benefits that were paid to furloughed employees were eligible for an employee retention credit of up to 50% of wages paid to eligible associates.

Separate from the CARES Act, the Internal Revenue Service extended the due dates for estimated tax payments for the first and second quarters of 2020 to July 15, 2020. Additionally, many states offered similar deferrals. The Company took advantage of all such extended due dates.

The federal supplement to unemployment payments originally lapsed on July 31, 2020, but was extended on a prospective basis through September 6, 2021, although certain states decided to stop participation in the supplemental payments prior to that date. The current nature and/or extent of future stimulus measures, if any, remains unknown. We cannot be certain that our customers will continue making their payments to us at recently experienced levels if the federal government does not continue supplemental measures or enact additional stimulus measures, which could result in a significant reduction in the portion of our customers who continue making payments owed to us under their lease-to-own agreements.

Highlights

The following summarizes significant financial highlights from the three months ended September 30, 2021:

•We reported revenues of $452.2 million in the third quarter of 2021 compared to $441.0 million for the third quarter of 2020, an increase of 2.5%. This increase is primarily due to a $13.7 million increase driven by a 4.6% increase in same store revenues, partially offset by lower customer payment activity during the quarter and the reduction of 79 franchised stores during the 15-month period ended September 30, 2021. The increase in same store revenues was primarily driven by a larger same store lease portfolio size, which ended the second quarter of 2021 at $100.4 million, up 8.7% compared to 2020, and ended the third quarter of 2021 at $99.6 million, up 6.1% compared to the third quarter of 2020. E-commerce revenues increased 13.3% compared to the prior year quarter and were 14.3% and 13.1% of total lease revenues and fees during the three months ended September 30, 2021 and 2020, respectively.

•Earnings before income taxes were $32.8 million in the third quarter of 2021 compared to $40.1 million during the prior comparable period. Earnings before income taxes during the third quarter of 2021 were negatively impacted by restructuring charges of $2.9 million and separation-related costs of $0.4 million. Operating results for the third quarter of 2020 were negatively impacted by restructuring charges of $4.0 million, separation-related costs of $1.2 million and retirement charges of $0.6 million.

•Earnings before income taxes were also impacted by the provision for lease merchandise write-offs as a percentage of lease revenues and fees, which increased to 4.9% for the three months ended September 30, 2021 compared to 2.4% for the comparable period in 2020. This increase was primarily driven by the normalization of customer payment activity during the third quarter of 2021 following a historically low provision for lease merchandise write-offs percentage for the third quarter of 2020, which we believe was driven by government stimulus payments and supplemental federal unemployment benefits received by a significant portion of our customers during 2020.

•Also impacting earnings before income taxes was the change in personnel costs, which increased by $5.1 million during the third quarter of 2021, despite lower than targeted staffing levels, due primarily to higher store-based wages, higher standalone public company costs and additional personnel to support our key strategic initiatives.

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•Net earnings for the third quarter of 2021 were $24.3 million compared to $32.6 million in the prior year period. Diluted earnings per share for the third quarter of 2021 were $0.73 compared with diluted earnings per share of $0.96 in the prior year period.

•The Company repurchased 1,333,264 shares of common stock for $37.5 million during the three months ended September 30, 2021.

Key Metrics

Lease Portfolio Size. Our lease portfolio size represents the total balance of collectible lease payments for the next month derived from our aggregate outstanding customer lease agreements at a point in time. As of the end of any period, the lease portfolio size is calculated as the lease portfolio size at the beginning of the period plus collectible lease payments for the next month derived from new lease agreements originated in the period less the reduction in collectible lease payments for the next month as a result primarily of customer agreements that reach full ownership, lease merchandise returns and write-offs, and customer early purchase option exercises. Lease portfolio size provides management insight into expected future collectible lease payments. The Company ended the third quarter of 2021 with a lease portfolio size for all Company-operated stores of $132.2 million, an increase of 5.8% compared to the balance as of September 30, 2020.

Same Store Revenues. We believe that changes in same store revenues are a key performance indicator of the Company, as it provides management insight into our ability to collect customer payments, including contractually due payments and early purchase options exercised by our current customers. Additionally, this indicator allows management to gain insight into the Company's success in writing new leases into and retaining current customers within our customer lease portfolio.

For the three months ended September 30, 2021, we calculated this amount by comparing revenues for the three months ended September 30, 2021 to revenues for the comparable period in 2020 for all stores open for the entire 15-month period ended September 30, 2021, excluding stores that received lease agreements from other acquired, closed or merged stores. For the nine months ended September 30, 2021, we calculated this amount by comparing revenues for the nine months ended September 30, 2021 to revenues for the nine months ended September 30, 2020 for all stores open for the entire 24-month period ended September 30, 2021, excluding stores that received lease agreements from other acquired, closed or merged stores. Same store revenues increased 4.6% and 10.6% during the three and nine months ended September 30, 2021, respectively, compared to the prior year comparable periods.

Seasonality

Our revenue mix is moderately seasonal. Adjusting for growth, the first quarter of each year generally has higher revenues than any other quarter. This is primarily due to realizing the full benefit of business that historically gradually increases in the fourth quarter as a result of the holiday season, as well as the receipt by our customers in the first quarter of federal and state income tax refunds. Our customers will more frequently exercise the early purchase option on their existing lease agreements or purchase merchandise off the showroom floor during the first quarter of the year. We expect these trends to continue in future periods.

Due to the seasonality of our business and the extent of the impact of additional government stimulus, and/or enhanced unemployment benefits to our customers in response to the economic impacts of the COVID-19 pandemic as discussed above, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

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Key Components of Earnings (Loss) Before Income Taxes

In this management’s discussion and analysis section, we review our condensed consolidated and combined results. The financial statements for periods prior to and through the date of the separation and distribution, November 30, 2020, were prepared on a combined standalone basis and were derived from the consolidated financial statements and accounting records of PROG Holdings. The financial statements for the periods subsequent to December 1, 2020 and through September 30, 2021 are consolidated financial statements of the Company and its subsidiaries, each of which is wholly-owned, and is based on the financial position and results of operations of the Company as a standalone company.

The combined financial statements prepared through November 30, 2020 include all revenues and costs directly attributable to the Company and an allocation of expenses of the Aaron's Business related to certain PROG Holdings corporate functions. These expenses have been allocated to the Company based on direct usage or benefit where specifically identifiable, with the remaining expenses allocated primarily on a pro rata basis using an applicable measure of revenues, headcount or other relevant measures. The Company considers these allocations to be a reasonable reflection of the utilization of services or the benefit received. The combined financial statements include assets and liabilities specifically attributable to the Company. All intercompany transactions and balances within the Company have been eliminated. Transactions between the Company and PROG Holdings that took place prior to the separation and distribution have been included as invested capital within the condensed consolidated and combined financial statements.

For the three and nine months ended September 30, 2021 and the comparable prior year periods, some of the key revenue, cost and expense items that affected earnings (loss) before income taxes were as follows:

Revenues. We separate our total revenues into three components: (a) lease and retail revenues; (b) non-retail sales; and (c) franchise royalties and other revenues. Lease and retail revenues primarily include all revenues derived from lease agreements at our Company-operated stores and e-commerce platform, the sale of both new and returned lease merchandise from our Company-operated stores and fees from our Aaron's Club program. Lease and retail revenues are recorded net of a provision for uncollectible accounts receivable related to lease renewal payments from lease agreements with customers. Non-retail sales primarily represent new merchandise sales to our franchisees and, to a lesser extent, sales of Woodhaven manufactured products to third-party retailers. Franchise royalties and other revenues primarily represent fees from the sale of franchise rights and royalty payments from franchisees, as well as other related income from our franchised stores. Franchise royalties and other revenues also include revenues from leasing Company-owned real estate properties to unrelated third parties, as well as other miscellaneous revenues.

Cost of Lease and Retail Revenues. Cost of lease and retail revenues is primarily comprised of the depreciation expense associated with depreciating merchandise held for lease and leased to customers by our Company-operated stores and through our e-commerce platform. Cost of lease and retail revenues also includes the depreciated cost of merchandise sold through our Company-operated stores as well as the costs associated with the Aaron's Club program.

Non-Retail Cost of Sales. Non-retail cost of sales primarily represents the cost of merchandise sold to our franchisees.

Personnel Costs. Personnel costs represents total compensation costs incurred for services provided by employees of the Company, as well as an allocation of personnel costs for PROG Holdings' corporate and shared function employees for the periods prior to the separation and distribution date.

Other Operating Expenses, Net. Other operating expenses, net includes occupancy costs (including rent expense, store maintenance and depreciation expense related to non-manufacturing facilities), shipping and handling, advertising and marketing, intangible asset amortization expense, professional services expense, bank and credit card related fees, an allocation of general corporate expenses from PROG Holdings for the periods prior to the separation and distribution date, and other miscellaneous expenses. Other operating expenses, net also includes gains or losses on sales of Company-operated stores and delivery vehicles, fair value adjustments on assets held for sale and gains or losses on other transactions involving property, plant and equipment (to the extent such gains or losses are not related to assets that are a part of the Company's restructuring programs).

Provision for Lease Merchandise Write-offs. Provision for lease merchandise write-offs represents charges incurred related to estimated lease merchandise write-offs.

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Restructuring Expenses, Net. Restructuring expenses, net primarily represent the cost of real estate optimization efforts and cost reduction initiatives related to the Company's store support center functions. Restructuring expenses, net are comprised principally of closed store operating lease right-of-use asset impairment and operating lease charges, fixed asset impairment charges, and expenses related to workforce reductions.

Impairment of Goodwill. There were no impairments of goodwill recorded during the first nine months of 2021. Impairment of goodwill is the write-off of our existing goodwill balance at March 31, 2020 that was recorded in the first quarter of 2020. Refer to Note 1 to the condensed consolidated and combined financial statements for further discussions of the interim goodwill impairment assessment and resulting impairment charge.

Retirement Charges. Retirement charges represent costs incurred during the third quarter of 2020 primarily associated with the planned retirement of certain executive-level employees in connection with the separation and distribution.

Separation Costs. Separation costs represent employee-related expenses associated with the spin-off transaction, including employee-related costs, incremental stock-based compensation expense associated with the conversion and modification of unvested and unexercised equity awards and other one-time expenses incurred by the Company in order to operate as an independent, standalone public entity.

Interest Expense. Interest expense for the nine months ended September 30, 2021 consists primarily of commitment fees on unused balances of the Revolving Facility (as defined below), as well as the amortization of debt issuance costs. Interest expense for prior year periods consists primarily of interest incurred on the fixed and variable rate debt agreements of Aaron's, Inc. All of the interest expense for the historical debt obligations of Aaron's, LLC has been included within the condensed consolidated and combined financial statements of the Company for the periods prior to the separation and distribution date because Aaron's, LLC was the primary obligor for the external debt agreements and is one of the legal entities forming the basis of the Company.

Other Non-Operating (Expense) Income, Net. Other non-operating (expense) income, net includes the impact of foreign currency remeasurement, as well as gains and losses resulting from changes in the cash surrender value of Company-owned life insurance related to the Company’s deferred compensation plan. This activity also includes earnings on cash and cash equivalent investments.

29

Results of Operations – Three months ended September 30, 2021 and 2020

	Three Months Ended September 30,				Change
(In Thousands)	2021		2020		$		%
REVENUES:
Lease and Retail Revenues	$	413,666	$	397,736	$	15,930	4.0	%
Non-Retail Sales	32,159		34,820		(2,661)		(7.6)
Franchise Royalties and Other Revenues	6,328		8,405		(2,077)		(24.7)
	452,153		440,961		11,192		2.5
COSTS OF REVENUES
Cost of Lease and Retail Revenues	138,448		132,288		6,160		4.7
Non-Retail Cost of Sales	29,063		29,109		(46)		(0.2)
	167,511		161,397		6,114		3.8
GROSS PROFIT	284,642		279,564		5,078		1.8
Gross Profit %	63.0%		63.4%
OPERATING EXPENSES:
Personnel Costs	122,901		117,764		5,137		4.4
Other Operating Expenses, Net	105,428		105,364		64		0.1
Provision for Lease Merchandise Write-Offs	19,799		9,305		10,494		112.8
Restructuring Expenses, Net	2,899		4,041		(1,142)		(28.3)
Retirement Charges	—		574		(574)		nmf
Separation Costs	397		1,160		(763)		(65.8)
	251,424		238,208		13,216		5.5
OPERATING PROFIT	33,218		41,356		(8,138)		(19.7)
Interest Expense	(322)		(1,973)		1,651		83.7
Other Non-Operating (Expense) Income, Net	(88)		698		(786)		(112.6)
EARNINGS BEFORE INCOME TAXES	32,808		40,081		(7,273)		(18.1)
INCOME TAX EXPENSE	8,460		7,468		992		13.3
NET EARNINGS	$	24,348	$	32,613	$	(8,265)	(25.3)	%

nmf—Calculation is not meaningful

Revenues

The following table presents revenue by source for the three months ended September 30, 2021 and 2020: 

					Change
	Three Months Ended September 30,				2021 vs. 2020
(In Thousands)	2021		2020		$		%
Lease Revenues and Fees	$	401,383	$	384,183	$	17,200	4.5	%
Retail Sales	12,283		13,553		(1,270)		(9.4)
Non-Retail Sales	32,159		34,820		(2,661)		(7.6)
Franchise Royalties and Fees	6,147		8,079		(1,932)		(23.9)
Other	181		326		(145)		(44.5)
Total Revenues	$	452,153	$	440,961	$	11,192	2.5	%

30

The change in lease revenues and fees and retail sales during the three months ended September 30, 2021 was primarily due to a 4.6% increase in same store revenues, inclusive of both in-store and e-commerce originated lease revenues and fees and retail sales, which represented $13.7 million of the increase. The increase in same store revenues was driven primarily by a larger same store lease portfolio size to begin the quarter, partially offset by lower customer payment activity during the quarter. We believe that the increasing size of the lease portfolio was primarily due to (a) operational investments including the national rollout of our centralized digital decisioning platform and digital customer onboarding; and (b) new direct to consumer marketing programs in both in-store and e-commerce channels. Additionally, we believe that the lower customer payment activity was primarily due to lower government stimulus payments and supplemental federal unemployment benefits received by a significant portion our customers during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

E-commerce revenues increased 13.3% compared to the prior year quarter and were 14.3% and 13.1% of total lease revenues and fees during the three months ended September 30, 2021 and 2020, respectively.

The decrease in non-retail sales is primarily due to a $5.6 million decrease related to the reduction of 79 franchised stores during the 15-month period ended September 30, 2021, which was partially offset by higher product demand from franchisees due to similar factors that resulted in the lease portfolio size growth at Company-operated stores as described above.

The decrease in franchise royalties and fees is primarily the result of the reduction of 79 franchised stores during the 15-month period ended September 30, 2021.

Cost of Revenues and Gross Profit

Information about the components of the cost of lease and retail revenues and non-retail sales is as follows:

					Change
	Three Months Ended September 30,				2021 vs. 2020
(In Thousands)	2021		2020		$		%
Depreciation of Lease Merchandise and Other Lease Revenue Costs	$	130,104	$	124,495	$	5,609	4.5	%
Retail Cost of Sales	8,344		7,793		551		7.1
Non-Retail Cost of Sales	29,063		29,109		(46)		(0.2)
Total Costs of Revenues	$	167,511	$	161,397	$	6,114	3.8	%

Depreciation of lease merchandise and other lease revenue costs. Depreciation of lease merchandise and other lease revenue costs increased primarily due to a $4.3 million increase as a result of a higher lease portfolio size and a $2.7 million increase due to higher inventory purchase costs, partially offset by a $0.7 million decrease due to store closures and consolidations and a $1.0 million decrease due to lower levels of idle lease merchandise inventory.

Retail cost of sales. Retail cost of sales increased during the three months ended September 30, 2021 due to higher inventory purchase costs.

Non-retail cost of sales. The decrease in non-retail cost of sales during the three months ended September 30, 2021 is primarily attributable to the decrease in non-retail sales which was driven by the factors discussed above, mostly offset by higher inventory purchase costs.

Gross Profit

Gross profit for lease revenues and fees was $271.3 million and $259.7 million during the three months ended September 30, 2021 and 2020, respectively, which represented a gross profit margin of 67.6% for both periods.

Gross profit for retail sales was $3.9 million and $5.8 million during the three months ended September 30, 2021 and 2020, respectively, which represented a gross profit margin of 32.1% and 42.5% for the respective periods. The decline in gross profit percentage is primarily due to higher inventory purchase costs in 2021 compared to the prior year comparable period.

Gross profit for non-retail sales was $3.1 million and $5.7 million during the three months ended September 30, 2021 and 2020, respectively, which represented a gross profit percentage of 9.6% and 16.4% for the respective periods. The decline in gross profit percentage was driven by higher inventory purchase costs in 2021 compared to the prior year comparable period.

As a percentage of total revenues, gross profit declined to 63.0% during the three months ended September 30, 2021 compared to 63.4% for the comparable period in 2020. The factors impacting the change in gross profit are discussed above.

31

Operating Expenses

Personnel costs. Personnel costs increased by $5.1 million during the third quarter of 2021, despite lower than targeted staffing levels, due primarily to higher store-based wages, higher standalone public company costs and additional personnel to support our key strategic initiatives.

Other Operating Expenses, Net. Information about certain significant components of other operating expenses, net is as follows:

	Three Months Ended September 30,				Change
(In Thousands)	2021		2020		$		%
Occupancy Costs	$	43,607	$	41,783	$	1,824	4.4
Shipping and Handling	13,952		12,367		1,585		12.8
Advertising Costs	11,186		15,371		(4,185)		(27.2)
Intangible Amortization	1,202		1,640		(438)		(26.7)
Professional Services	3,818		1,919		1,899		99.0
Bank and Credit Card Related Fees	5,171		4,700		471		10.0
Gains on Dispositions of Store-Related Assets, net	(656)		(826)		170		20.6
Other Miscellaneous Expenses, net	27,148		28,410		(1,262)		(4.4)
Other Operating Expenses, net	$	105,428	$	105,364	$	64	0.1	%

As a percentage of total revenues, other operating expenses, net decreased to 23.3% for the third quarter of 2021 from 23.9% in the same period in 2020.

Occupancy costs increased primarily due to higher store maintenance costs, higher rent and higher depreciation of leasehold improvements associated with newer store locations under our repositioning and optimization initiatives during the third quarter of 2021. These increases were partially offset by lower occupancy costs due to the planned net reduction of 14 Company-operated stores during the 15-month period ended September 30, 2021 and the closure of one of our leased administrative offices in Kennesaw, Georgia during the fourth quarter of 2020.

Shipping and handling costs increased primarily due to (a) higher fuel and distribution costs; (b) a 1.6% increase in deliveries; and (c) higher handling costs associated with a 7.1% increase in lease merchandise returns during the three months ended September 30, 2021 as compared to the same period in 2020.

Advertising costs decreased primarily due to an increase in vendor marketing contributions eligible to be applied as a reduction to advertising costs during the three months ended September 30, 2021 as compared to the same period in 2020.

Professional services increased $1.9 million during the three months ended September 30, 2021 due to higher standalone public company costs associated with third-party professional services.

Other miscellaneous expenses, net primarily represent the depreciation of IT-related property, plant and equipment, software licensing expenses, franchisee-related reserves, and other expenses. Expenses within this category did not fluctuate significantly on an individual basis versus the prior year.

Provision for lease merchandise write-offs. The provision for lease merchandise write-offs as a percentage of lease revenues and fees increased to 4.9% for the three months ended September 30, 2021 compared to 2.4% for the comparable period in 2020. This increase was primarily driven by the normalization of customer payment activity during the third quarter of 2021 following a historically low provision for lease merchandise write-offs percentage for the third quarter of 2020, which we believe was partially driven by government stimulus payments and supplemental federal unemployment benefits received by a significant portion of our customers during 2020.

Restructuring expenses, net. Restructuring activity for the three months ended September 30, 2021 resulted in expenses of $2.9 million, which were primarily comprised of $1.5 million of continuing variable occupancy costs incurred related to previously closed stores and $1.1 million of operating lease right-of-use asset and fixed asset impairment for Company-operated stores identified for closure during 2021. Restructuring expenses for the three months ended September 30, 2020 were $4.0 million and were primarily due to the identification of stores for closure during the third quarter of 2020, as well as a change in estimates of future sublease activity for vacant properties which resulted in incremental expense.

32

Retirement Charges. Retirement charges represent costs incurred during the third quarter of 2020 primarily associated with the planned retirement of certain executive-level employees in connection with the separation and distribution.

Separation costs. Separation costs for the three months ended September 30, 2021 primarily represent incremental stock-based compensation expense associated with the conversion and modification of unvested and unexercised equity awards, employee-related expenses associated with the spin-off transaction and other one-time expenses incurred by the Company in order to operate as an independent, standalone public entity. Separation costs for the three months ended September 30, 2020 represent employee-related expenses associated with the separation and distribution.

Operating Profit

Interest expense. Interest expense decreased to $0.3 million for three months ended September 30, 2021 from $2.0 million for the three months ended September 30, 2020, which is the result of the full repayment of the outstanding borrowings of $285.0 million under the previous Aaron's, Inc. revolving credit and term loan agreement and senior unsecured notes in conjunction with the separation and distribution in the fourth quarter of 2020. Interest expense for the three months ended September 30, 2021 consists primarily of commitment fees on unused balances of the Revolving Facility, as well as the amortization of debt issuance costs.

Other non-operating (expense) income, net. Other non-operating (expense) income, net includes (a) net gains and losses resulting from changes in the cash surrender value of Company-owned life insurance related to the Company's deferred compensation plan; (b) the impact of foreign currency remeasurement; and (c) earnings on cash and cash equivalent investments. The changes in the cash surrender value of Company-owned life insurance resulted in net losses of $0.1 million and net gains of $0.5 million for the three months ended September 30, 2021 and 2020, respectively. Foreign currency remeasurement net losses and gains resulting from changes in the value of the U.S. dollar against the Canadian dollar and earnings on cash and cash equivalent investments were not significant during the three months ended September 30, 2021 or 2020.

Income Tax Expense

Income tax expense increased to $8.5 million during the three months ended September 30, 2021 compared to $7.5 million for the same period in 2020 due to an increase in the effective tax rate to 25.8% in 2021 from 18.6% in 2020. The increase in the effective tax rate is primarily related to the discrete income tax benefit of $2.0 million related to stock option exercises that decreased the effective tax rate during the three months ended September 30, 2020, combined with the impact of non-deductible expenses on earnings before income taxes during the three months ended September 30, 2021 compared to the same period in 2020.

33

Results of Operations – Nine months ended September 30, 2021 and 2020

	Nine Months Ended September 30,				Change
(In Thousands)	2021		2020		$		%
REVENUES
Lease and Retail Revenues	$	1,286,251	$	1,190,903	$	95,348	8.0	%
Non-Retail Sales	94,563		94,710		(147)		(0.2)
Franchise Royalties and Other Revenues	19,888		19,134		754		3.9
	1,400,702		1,304,747		95,955		7.4
COSTS AND EXPENSES
Cost of Lease and Retail Revenues	433,149		412,009		21,140		5.1
Non-Retail Cost of Sales	85,163		82,006		3,157		3.8
	518,312		494,015		24,297		4.9
GROSS PROFIT	882,390		810,732		71,658		8.8
Gross Profit %	63.0%		62.1%
OPERATING EXPENSES
Personnel Costs	369,190		351,905		17,285		4.9
Other Operating Expenses, Net	327,840		322,422		5,418		1.7
Provision for Lease Merchandise Write-Offs	45,333		47,478		(2,145)		(4.5)
Restructuring Expenses, Net	8,134		33,318		(25,184)		(75.6)
Impairment of Goodwill	—		446,893		(446,893)		nmf
Retirement Charges	—		574		(574)		nmf
Separation Costs	6,033		1,160		4,873		420.1
	756,530		1,203,750		(447,220)		(37.2)
OPERATING PROFIT (LOSS)	125,860		(393,018)		518,878		nmf
Interest Expense	(1,117)		(8,625)		7,508		87.0
Other Non-Operating Income, Net	1,058		887		171		19.3
EARNINGS (LOSS) BEFORE INCOME TAXES	125,801		(400,756)		526,557		nmf
INCOME TAX EXPENSE (BENEFIT)	32,155		(131,969)		164,124		nmf
NET EARNINGS (LOSS)	$	93,646	$	(268,787)	$	362,433	nmf

nmf—Calculation is not meaningful

34

Revenues

The following table presents revenue by source for the nine months ended September 30, 2021:

					Change
	Nine Months Ended September 30,				2021 vs. 2020
(In Thousands)	2021		2020		$
Lease Revenues and Fees	$	1,240,645	$	1,153,799	$	86,846	7.5	%
Retail Sales	45,606		37,104		8,502		22.9
Non-Retail Sales	94,563		94,710		(147)		(0.2)
Franchise Royalties and Fees	19,109		18,168		941		5.2
Other	779		966		(187)		(19.4)
Total	$	1,400,702	$	1,304,747	$	95,955	7.4	%

Lease revenues and fees and retail sales increased during the nine months ended September 30, 2021 primarily due to a 10.6% increase in same store revenues, inclusive of both in-store and e-commerce originated lease revenues and fees and retail sales, as well as early purchase options exercised, which represented $79.9 million of the increase, and the acquisition of franchised stores during the 24-month period ended September 30, 2021, which represented $14.9 million of the increase. The increase in same store revenues was driven by a larger same store lease portfolio size and strong customer payment activity, including retail sales and early purchase option exercises. We believe this was due in part to (a) operational investments including the national rollout of our centralized digital decisioning platform and digital customer onboarding; (b) new direct to consumer marketing programs in both in-store and e-commerce channels; (c) government stimulus payments and supplemental federal unemployment benefits received by a significant portion of our customers; and (d) lower prior period revenues caused by the temporary closure of our showrooms and a shift to e-commerce and curbside service only for all of our Company-operated stores as described above in March of 2020. E-commerce revenues increased 22.7% compared to the prior year comparable period and were approximately 14.2% and 12.5% of total lease revenues and fees during the nine months ended September 30, 2021 and 2020, respectively.

The decrease in non-retail sales is due to a $16.2 million decrease related to the reduction of 104 franchised stores during the 24-month period ended September 30, 2021, mostly offset by higher product demand from franchisees due to similar factors that resulted in the lease portfolio size growth at Company-operated stores as described above.

The increase in franchise royalties and fees is primarily the result of stronger demand and customer payment activity during 2021 and the impact of the temporary royalty fee abatement offered by the Company from March 8, 2020 through May 16, 2020 in response to the COVID-19 pandemic, partially offset by the reduction of 104 franchised stores during the 24-month period ended September 30, 2021. We have provided no royalty fee abatements to our franchisees in 2021.

Cost of Revenues and Gross Profit

Information about the components of the cost of lease and retail revenues and non-retail sales is as follows:

					Change
	Nine Months Ended September 30,				2021 vs. 2020
(In Thousands)	2021		2020		$		%
Depreciation of Lease Merchandise and Other Lease Revenue Costs	$	403,399	$	388,289	$	15,110	3.9	%
Retail Cost of Sales	29,750		23,720		6,030		25.4
Non-Retail Cost of Sales	85,163		82,006		3,157		3.8
Total Costs of Revenues	$	518,312	$	494,015	$	24,297	4.9	%

Depreciation of lease merchandise and other lease revenue costs. Depreciation of lease merchandise and other lease revenue costs increased primarily due to a $8.9 million increase due to a larger lease portfolio size, a $9.8 million increase related to higher early purchase options exercised, and a $8.0 million increase due to higher inventory purchase costs, partially offset by a $6.8 million decrease due to store closures and consolidations and a $4.9 million decrease related to lower levels of idle lease merchandise inventory.

Retail cost of sales. Retail cost of sales increased primarily due to higher inventory purchase costs as well as an increase in retail sales as described above.

35

Non-retail cost of sales. The increase in non-retail cost of sales during the nine months ended September 30, 2021 is primarily attributable to higher inventory purchase costs, partially offset by the reduction of 104 franchised stores during the 24-month period ended September 30, 2021.

Gross Profit

Gross profit for lease revenues and fees was $837.2 million and $765.5 million during the nine months ended September 30, 2021 and 2020, respectively, which represented a gross profit margin of 67.5% and 66.3% for the respective periods. The improvement in gross profit percentage was primarily driven by strong customer payment activity and lower depreciation on idle lease merchandise inventory.

Gross profit for retail sales was $15.9 million and $13.4 million during the nine months ended September 30, 2021 and 2020, respectively, which represented a gross profit margin of 34.8% and 36.1% for the respective periods. The decline in gross profit percentage was driven by higher inventory purchase costs in 2021 compared to the prior year comparable period.

Gross profit for non-retail sales was $9.4 million and $12.7 million during the nine months ended September 30, 2021 and 2020, respectively, which represented a gross profit percentage of 9.9% and 13.4% for the respective periods. The decline in gross profit percentage was driven by higher inventory purchase costs in 2021 compared to the prior year comparable period.

As a percentage of total revenues, gross profit improved to 63.0% during the nine months ended September 30, 2021 compared to 62.1% for the comparable period in 2020. The factors impacting the change in gross profit are discussed above.

Operating Expenses

Personnel costs. Personnel costs increased by $17.3 million during the nine months ended September 30, 2021 due primarily to (a) higher store-based wages and performance-based compensation; (b) higher store labor hours as compared to the prior year comparable period, as personnel costs for the nine months ended September 30, 2020 reflected reduced store labor costs resulting from the temporary store closures; (c) higher standalone public company costs; (d) additional personnel to support our key strategic initiatives; and (e) cost cutting measures taken during 2020 in response to the COVID-19 pandemic that did not occur during 2021, including furloughing or terminating associates and instituting temporary salary reductions for executive officers.

Other Operating Expenses, Net. Information about certain significant components of other operating expenses, net is as follows:

	Nine Months Ended September 30,				Change
(In Thousands)	2021		2020		$		%
Occupancy Costs	$	129,232	$	124,234	$	4,998	4.0
Shipping and Handling	41,084		37,118		3,966		10.7
Advertising Costs	47,568		32,158		15,410		47.9
Intangible Amortization	4,485		5,114		(629)		(12.3)
Professional Services	10,014		25,233		(15,219)		(60.3)
Bank and Credit Card Related Fees	15,840		14,223		1,617		11.4
Gains on Dispositions of Store-Related Assets, net	(2,774)		(796)		(1,978)		(248.5)
Other Miscellaneous Expenses, net	82,391		85,138		(2,747)		(3.2)
Other Operating Expenses, net	$	327,840	$	322,422	$	5,418	1.7	%

As a percentage of total revenues, other operating expenses, net decreased to 23.4% for the nine months ended September 30, 2021 from 24.7% in the same period in 2020.

Occupancy costs increased primarily due to higher store maintenance costs, higher rent and higher depreciation of leasehold improvements associated with newer store locations under our repositioning and optimization initiatives during 2021. These increases were partially offset by lower occupancy costs due to the planned net reduction of 79 Company-operated stores during the 24-month period ended September 30, 2021 and the closure of one of our leased administrative offices in Kennesaw, Georgia during the fourth quarter of 2020. Additionally, occupancy costs for the nine months ended September 30, 2021 were higher than 2020 due to $1.9 million in rent concessions that were negotiated and realized with the landlords of Company-operated stores during 2020 in response to the economic uncertainty created by the COVID-19 pandemic.

Shipping and handling costs increased primarily due to higher fuel and distribution costs driven by a 5.6% increase in deliveries and inflationary fuel price increases during the nine months ended September 30, 2021 as compared to the same period in 2020.

Advertising costs increased primarily due to higher advertising spend related to the launch of a new marketing campaign during the second quarter of 2021, reduced vendor marketing contributions resulting from a general shift towards brand-focused digital

36

and traditional media advertising spend and a reduction in marketing initiatives during the first half of 2020 as a result of the Company's cost cutting measures in response to the COVID-19 pandemic.

Professional services decreased during the nine months ended September 30, 2021 compared to the same period in 2020 due primarily to an early termination fee of $14.1 million for a sales and marketing agreement that was recorded during the first quarter of 2020.

Bank and credit card related fees increased during the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to higher utilization of credit and debit cards by our customers, a greater number of payments due to strong customer payment activity, and a greater number of customer leases added in the current year period.

Gains on asset dispositions increased primarily due to gains related to the sale of Company-owned vehicles.

Other miscellaneous expenses, net primarily represent the depreciation of IT-related property, plant and equipment, software licensing expenses, franchisee-related reserves, and other expenses. The primary decrease was related to the reduction in the provision for franchisee-related losses during the nine months ended September 30, 2021 as compared to the additional allowances and reserves of $3.0 million recognized during nine months ended September 30, 2020 due to the significant uncertainty regarding the future financial health of certain franchisees as a result of the COVID-19 pandemic. The remaining expenses did not fluctuate significantly on an individual basis versus the prior year comparable period.

Provision for lease merchandise write-offs. The provision for lease merchandise write-offs as a percentage of lease revenues and fees decreased to 3.7% for the nine months ended September 30, 2021 compared to 4.1% for the comparable period in 2020. This decrease was primarily driven by strong customer payment activity, strong operational focus, and the impact of improved decisioning technology.

Restructuring expenses, net. Restructuring activity for the nine months ended September 30, 2021 resulted in expenses of $8.1 million, which were primarily comprised of $4.2 million of continuing variable occupancy costs incurred related to previously closed stores and $3.8 million of operating lease right-of-use asset and fixed asset impairment for Company-operated stores identified for closure during 2021. Restructuring expenses for the nine months ended September 30, 2020 were $33.3 million, primarily due to the identification of stores for closure during the first nine months of 2020 as well as a change in estimates of future sublease activity for vacant properties which resulted in incremental expense.

Impairment of goodwill. During the first quarter of 2020, we recorded a loss of $446.9 million to fully write-off our existing goodwill balance as of March 31, 2020. Refer to Note 1 to the condensed consolidated and combined financial statements for further discussion of the interim goodwill impairment assessment and resulting impairment charge.

Retirement Charges. Retirement charges represent costs incurred during the third quarter of 2020 primarily associated with the planned retirement of certain executive-level employees in connection with the separation and distribution.

Separation costs. Separation costs for the nine months ended September 30, 2021 primarily represent incremental stock-based compensation expense associated with the conversion and modification of unvested and unexercised equity awards, employee-related expenses associated with the spin-off transaction and other one-time expenses incurred by the Company in order to operate as an independent, standalone public entity. Separation costs for the nine months ended September 30, 2020 consisted of employee-related expenses associated with the separation and distribution.

Operating Profit (Loss)

Interest expense. Interest expense decreased to $1.1 million for the nine months ended September 30, 2021 from $8.6 million for the nine months ended September 30, 2020, which is the result of the full repayment of the outstanding borrowings of $285.0 million under the previous Aaron's, Inc. revolving credit and term loan agreement and senior unsecured notes in conjunction with the separation and distribution in the fourth quarter of 2020. Interest expense for the nine months ended September 30, 2021 consists primarily of commitment fees on unused balances of the Revolving Facility, as well as the amortization of debt issuance costs.

Other non-operating income, net. Other non-operating income, net includes (a) net gains and losses resulting from changes in the cash surrender value of Company-owned life insurance related to the Company's deferred compensation plan; (b) the impact of foreign currency remeasurement; and (c) earnings on cash and cash equivalent investments. The changes in the cash surrender value of Company-owned life insurance resulted in net gains of $1.1 million and $0.4 million for the nine months ended September 30, 2021 and 2020, respectively. Foreign currency remeasurement net losses resulting from changes in the value of the U.S. dollar against the Canadian dollar and earnings on cash and cash equivalent investments were not significant during the nine months ended September 30, 2021 or 2020.

37

Income Tax Expense (Benefit)

The Company recorded income tax expense of $32.2 million during the nine months ended September 30, 2021 compared to a net income tax benefit of $132.0 million for the same period in 2020. The net income tax benefit recognized in 2020 was primarily the result of losses before income taxes of $400.8 million during the period as well as discrete tax benefits generated by the provisions of the CARES Act. The CARES Act, among other things, (a) waived the 80% taxable income limitation on the use of a net operating loss which was previously set forth under the Tax Cuts and Jobs Act of 2017 and (b) provided that a net operating loss arising in a taxable year beginning after December 31, 2017 and before January 1, 2021 may be treated as a carryback to each of the five preceding taxable years. Aaron's, Inc. elected to carryback its 2018 net operating loss of $242.2 million to 2013 which resulted in a discrete income tax benefit of $34.2 million recognized during the three months ended March 31, 2020. The discrete tax benefit is the result of the federal income tax rate differential between the current statutory rate of 21% and the 35% rate applicable to 2013. The effective tax rate decreased to 25.6% for the nine months ended September 30, 2021 compared to 32.9% for the same period in 2020 due primarily to the impact of the discrete income tax benefit on our 2020 book loss as described above.

Overview of Financial Position

The major changes in the condensed consolidated balance sheet from December 31, 2020 to September 30, 2021 include:

•Cash and cash equivalents decreased $61.3 million to $14.8 million at September 30, 2021. For additional information, refer to the "Liquidity and Capital Resources" section below.

•Lease merchandise increased $77.8 million due to higher lease merchandise purchases and costs, as the Company continues to normalize lease merchandise levels after experiencing supply chain disruptions resulting from the COVID-19 pandemic throughout 2020 and the first nine months of 2021. In addition, the Company continues to opportunistically acquire inventory for sale in the near term in anticipation of continuing supply chain disruptions and challenges.

•Operating lease right-of-use assets increased $19.4 million primarily due to additional real estate lease agreements and amendments executed during the nine months ended September 30, 2021, partially offset by regularly scheduled amortization of right-of-use assets and impairment charges recorded in connection with restructuring actions.

•Property, plant and equipment increased $14.0 million due to an increase in capital expenditures associated with the Company's real estate optimization strategy.

•Goodwill increased $5.6 million due primarily to the acquisitions of various franchisees during the nine months ended September 30, 2021.

•Treasury shares increased $85.2 million due primarily to the Company's repurchase of 2,751,474 shares of common stock for $82.4 million during the nine months ended September 30, 2021.

Liquidity and Capital Resources

General

Our primary uses of capital has historically consisted of (a) buying merchandise; (b) personnel expenditures; (c) purchases of property, plant and equipment, including leasehold improvements for our new store concept and operating model; (d) expenditures related to corporate operating activities; (e) income tax payments; and (f) expenditures for franchisee acquisitions. In 2021, the Company has also periodically repurchased common stock and paid quarterly cash dividends.

Prior to the separation and distribution transaction, our capital requirements were financed through:

•cash on hand;

•cash flows from operations;

•Aaron's, Inc. private debt offerings;

•Aaron's, Inc. bank debt; and

•Aaron's, Inc. stock offerings.

As of September 30, 2021, the Company had $14.8 million of cash and $232.7 million of availability under its $250.0 million senior unsecured revolving credit facility (the "Revolving Facility"). We currently expect to finance our primary capital requirements through cash flows from operations, and as necessary, borrowings under our Revolving Facility.

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Cash Provided by Operating Activities

Cash provided by operating activities was $90.4 million and $337.2 million during the nine months ended September 30, 2021 and 2020, respectively. The $246.8 million decrease in operating cash flows was primarily driven by higher lease merchandise purchases and reductions in working capital, partially offset by improved lease portfolio performance resulting from a larger lease portfolio size and strong customer payment activity. Other changes in cash provided by operating activities are discussed above in our discussion of results for the nine months ended September 30, 2021.

Cash Used in Investing Activities

Cash used in investing activities was $61.6 million and $44.4 million during the nine months ended September 30, 2021 and 2020, respectively. The $17.1 million increase in investing cash outflows was primarily due to $21.8 million higher cash outflows for purchases of property, plant and equipment and $4.1 million higher cash outflows for the acquisition of businesses and customer agreements, partially offset by $6.5 million higher proceeds from the sale of property, plant and equipment during the nine months ended September 30, 2021 compared to the prior year period.

Cash (Used in) Provided by Financing Activities

Cash used in financing activities was $90.1 million during the nine months ended September 30, 2021 compared to cash provided by financing activities of $91.3 million during the nine months ended September 30, 2020, respectively. The net cash outflows during the nine months ended September 30, 2021 were primarily driven by $81.7 million in share repurchases and $6.8 million in dividends paid. The net cash inflows during the nine months ended September 30, 2020 were primarily driven by net transfers from Former Parent of $148.2 million, partially offset by net repayments of debt of $55.9 million.

Share Repurchases

At management's request, during its March 2021 meeting, the Board of Directors of the Company (the "Board") authorized management to purchase the Company's common stock up to an aggregate amount of $150.0 million pursuant to a publicly announced share repurchase program. This authorization expires on December 31, 2023.

During the nine months ended September 30, 2021, the Company purchased 2,751,474 shares for $82.4 million. As of September 30, 2021, we have the authority to purchase additional shares up to our remaining authorization limit of $67.6 million. As of October 22, 2021, the Company had repurchased 3,034,097 shares for $90.4 million and had $59.6 million remaining under its $150.0 million share repurchase program.

Dividends

At its August 2021 meeting, the Board approved a quarterly dividend of $0.10 per share, which was paid to shareholders on October 5, 2021. Aggregate dividend payments for the nine months ended September 30, 2021 were $10.0 million. We expect to continue paying this quarterly cash dividend, subject to further approval from the Board.

Debt Financing

As of September 30, 2021, the Company did not have any outstanding borrowings under the Revolving Facility, under which all borrowings and commitments will mature or terminate on November 9, 2025. The total available credit under our Revolving Facility as of September 30, 2021 was $232.7 million, which was reduced by approximately $17.3 million for our outstanding letters of credit.

The Revolving Facility contains financial covenants, which include requirements that we maintain ratios of (a) fixed charge coverage of no less than 1.75:1.00 and (b) total net leverage of no greater than 2.50:1.00. If we fail to comply with these covenants, we will be in default under these agreements, and all borrowings outstanding could become due immediately. Under the Revolving Facility and Franchise Loan Facility (as defined below), we may pay cash dividends in any year so long as, after giving pro forma effect to the dividend payment, we maintain compliance with our financial covenants and no event of default has occurred or would result from the payment. We are in compliance with all of these covenants at September 30, 2021.

Commitments

Income Taxes

During the nine months ended September 30, 2021, we made net income tax payments of $7.9 million. Within the next three months, we anticipate making estimated cash payments of $1.0 million for state income taxes and $0.2 million for Canadian income taxes.

The Tax Cuts and Jobs Act of 2017, which was enacted in December 2017, provides for 100% expense deduction of certain qualified depreciable assets, including lease merchandise inventory, purchased by the Company after September 27, 2017 (but would be phased down starting in 2023). Because of our sales and lease ownership model, in which the Company remains the owner of merchandise on lease, we benefit more from bonus depreciation, relatively, than traditional furniture, electronics and

39

appliance retailers.

We estimate the deferred tax liability associated with bonus depreciation from the Tax Cuts and Jobs Act of 2017 and the prior tax legislation is approximately $129.0 million as of December 31, 2020, of which approximately 75% is expected to reverse as a deferred income tax benefit in 2021 and most of the remainder during 2022. These amounts exclude bonus depreciation the Company will receive on qualifying expenditures after December 31, 2020.

Franchise Loan Guaranty

We have guaranteed the borrowings of certain independent franchisees under a franchise loan agreement (the "Franchise Loan Facility") with banks that are parties to our Revolving Facility. During the third quarter of 2021, the Company reduced the total commitment under the Franchise Loan Facility, which expires on November 16, 2021, from $25.0 million to $15.0 million. We are able to request an additional 364-day extension of our Franchise Loan Facility, as long as we are not in violation of any of the covenants under that facility or our Revolving Facility, and no event of default exists under those agreements, until such time as our Revolving Facility expires. We expect to include a franchise loan facility as part of any extension or renewal of our Revolving Facility thereafter. At September 30, 2021, the maximum amount that the Company would be obligated to repay in the event franchisees defaulted was $9.4 million, which would be due in full within 75 days of the event of default.

Since the inception of the franchise loan program in 1994, losses associated with the program have been insignificant. However, such losses could be material in a future period due to potential adverse trends in the liquidity and/or financial performance of the Company's franchisees resulting in an event of default or impending defaults by franchisees. The Company records a liability related to estimated future losses from repaying the franchisees' outstanding debt obligations upon any possible future events of default. This liability is included in accounts payable and accrued expenses in the condensed consolidated balance sheets and was $2.2 million and $2.4 million as of September 30, 2021 and December 31, 2020, respectively. The liability for both periods included qualitative consideration of potential losses, including uncertainties surrounding the normalization of current and future business trends associated with an anticipated end to the COVID-19 pandemic, and the corresponding unknown effect on the operations and liquidity of our franchisees.

Contractual Obligations and Commitments

As part of our ongoing operations, we enter into various arrangements that obligate us to make future payments, including debt agreements, operating leases, and other purchase obligations. The future cash commitments owed under these arrangements generally fluctuate in the normal course of business as we, for example, borrow on or pay down our revolving lines of credit, make scheduled payments on leases or purchase obligations, and renegotiate arrangements or enter into new arrangements. There were no material changes outside the normal course of business in our material cash commitments and contractual obligations from those reported in the 2020 Annual Report.

Critical Accounting Policies

Refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in the 2020 Annual Report.

Recent Accounting Pronouncements

Refer to Note 1 to the condensed consolidated and combined financial statements for a discussion of recently issued accounting pronouncements, including pronouncements that were adopted in the current year.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2021, the Company did not have any outstanding borrowings under its Revolving Facility. Borrowings under the Revolving Facility are indexed to the LIBO rate or the prime rate, which exposes us to the risk of increased interest costs if interest rates rise while we have outstanding borrowings. We do not use any significant market risk sensitive instruments to hedge commodity, foreign currency or other risks, and hold no market risk sensitive instruments for trading or speculative purposes.

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ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

An evaluation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), was carried out by management, with the participation of the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as of the end of the period covered by this Quarterly Report on Form 10-Q.

This evaluation is performed to determine if our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the United States Securities and Exchange Commission’s rules and forms. No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures, however, are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

Based on management’s evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of the date of the evaluation to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

Changes in Internal Control Over Financial Reporting.

There were no changes in the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, during the three months and nine months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

From time to time, we are party to various legal proceedings arising in the ordinary course of business. While any proceeding contains an element of uncertainty, we do not currently believe that any of the outstanding legal proceedings to which we are a party will have a material adverse impact on our business, financial position or results of operations. However, an adverse resolution of a number of these items may have a material adverse impact on our business, financial position or results of operations. For further information, see Note 4 to the condensed consolidated and combined financial statements, which discussion is incorporated herein by reference.

ITEM 1A.RISK FACTORS

The risk factors that affect our business and financial results are discussed in Part I, Item 1A, of the 2020 Annual Report. There are no material changes to the risk factors previously disclosed, nor have we identified any previously undisclosed risks that could materially adversely affect our business and financial results.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents our share repurchase activity for the three months ended September 30, 2021:

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, 2021 through July 31, 2021	438,394	$	29.65	438,394	$	92,080,062
August 1, 2021 through August 31, 2021	408,180	28.06		408,180	80,627,135
September 1, 2021 through September 30, 2021	486,690	26.84		486,690	67,562,185
Total	1,333,264			1,333,264

1Share repurchases are conducted under authorizations made from time to time by the Board. The most recent authorization was publicly announced on March 3, 2021 and authorized the repurchase of shares up to a maximum amount of $150.0 million. Subject to the terms of the Board's authorization and applicable law, repurchases may be made at such times and in such amounts as the Company deems appropriate through December 31, 2023. Repurchases may be discontinued at any time.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

None.

ITEM 5.OTHER INFORMATION

None.

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ITEM 6.EXHIBITS

EXHIBIT NO.	DESCRIPTION OF EXHIBIT
10.1*	Form of Director Restricted Stock Unit Award Agreement under The Aaron’s Company, Inc. Amended and Restated 2020 Equity and Incentive Plan.
10.2	The Aaron’s Company, Inc. Amended and Restated 2020 Equity and Incentive Plan (incorporated herein by reference to Appendix A of the Registrant’s Definitive Proxy Statement on Schedule 14A (Commission File No. 001-39681), as filed with the Commission on July 14, 2021).
10.3*	First Amendment to the Credit Agreement among Aaron’s, LLC, The Aaron’s Company, Inc. (formerly Aaron’s SpinCo, Inc.) the several banks and other financial institutions from time to time party thereto and Truist Bank, as administrative agent, dated October 22, 2021.
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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
104	The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (included in Exhibit 101)
*Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		THE AARON’S COMPANY, INC.
			(Registrant)
Date:	October 26, 2021	By:	/s/ C. Kelly Wall
			C. Kelly Wall
			Chief Financial Officer
			(Principal Financial Officer)
Date:	October 26, 2021	By:	/s/ Douglass L. Noe
			Douglass L. Noe
			Vice President, Corporate Controller
			(Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

THE AARON’S COMPANY, INC.
AMENDED AND RESTATED
2020 EQUITY AND INCENTIVE PLAN

DIRECTOR RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS AGREEMENT (the “Agreement”) is made and entered into as of the ____ day of _________, 202__ by and between THE AARON’S COMPANY, INC. (the “Company”) and [DIRECTOR NAME] (“Grantee”).

WITNESSETH:

WHEREAS, the Company maintains The Aaron’s Company, Inc. Amended and Restated 2020 Equity and Incentive Plan (the “Plan”), and Grantee has been selected by the Compensation Committee of the Board (the “Committee”) to receive a grant of Restricted Stock Units under the Plan, subject to the terms and conditions of the Plan and this Agreement.

NOW, THEREFORE, IT IS AGREED, by and between the Company and Grantee, as follows:

1.     Award of Restricted Stock Units

1.1    The Company has granted to Grantee an award of [NUMBER OF RSUs] Restricted Stock Units (“RSUs”), subject to, and in accordance with, the restrictions, terms and conditions set forth in this Agreement and in the Plan. The grant date of this Award of RSUs is [GRANT DATE] (“Grant Date”).

1.2    This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. In the event of any conflict between this Agreement and the Plan, the Plan shall control.

1.3    This Award is conditioned on Grantee’s acceptance of this Agreement. If this Agreement is not accepted by Grantee within one (1) month of Grantee’s receipt of the Agreement, it may be canceled by the Committee resulting in the immediate forfeiture of all RSUs. Acceptance of the Award may be evidenced by electronic means acceptable to the Committee.

2.     Restrictions; Vesting

2.1    Subject to Sections 2.2, 2.3, 2.4 and 9 below, if Grantee remains a Non-Employee Director (as defined in the Plan, “Director”) of the Company, Grantee shall become fully vested in the RSUs on May 8, 2020 (the “Vesting Date”).

2.2    If Grantee ceases to serve as a Director of the Company due to death or Disability, all unvested RSUs shall become fully vested and nonforfeitable as of the date of the Director’s death or cessation of service due to Disability.

2.3    Except as provided in Section 2.2 or Section 2.4, if Grantee resigns or is removed as a Director of the Company prior to the Vesting Date (for any reason including retirement), the RSUs shall vest with respect to a pro rata number of shares of Common Stock (“Shares”) calculated as (a) the number of months Grantee served as a Director from the Grant Date through the date of Grantee’s separation from service, divided by (b) 12. All unvested RSUs shall be forfeited and all rights of Grantee to such unvested RSUs shall be terminated as of such separation from service as a Director.

2.4    Notwithstanding the other provisions of this Agreement, in the event of a Change in Control prior to Grantee’s Vesting Date, all RSUs not yet forfeited shall become fully vested and nonforfeitable as of the date of the Change in Control.

3.     Settlement

3.1    Subject to the requirements of Section 15 below, vested RSUs shall be settled on, or as soon as practicable and no later than sixty (60) days after, the earliest to occur of (a) the date Grantee ceases to serve as a Director and incurs a separation from service (as determined under Section 409A of the Code), (b) the date of a Change in Control that qualifies as a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company (each as defined in Section 409A of the Code), or (c) the date of Grantee’s death. Settlement of the RSUs shall be made by delivering to Grantee a number of Shares equal to the number of vested RSUs, rounded down to the nearest whole number of Shares, with any fractional Share paid in cash based on the closing price of a Share on the trading day immediately prior to the applicable payment date. In the case of settlement due to Grantee’s death, the Shares shall be delivered to Grantee’s beneficiary or personal representative of Grantee’s estate as soon as practical and no later than sixty (60) days after Grantee’s date of death.

3.2    The Company may deliver the Shares by the delivery of physical stock certificates or by certificateless book-entry issuance. The Company may, at the request of Grantee or the personal representative of Grantee’s estate, deliver the Shares to Grantee’s or the estate’s broker-dealer or similar custodian and/or issue the Shares in “street name,” either by delivery of physical certificates or electronically.

4.     Stock; Dividend Equivalents; Voting

4.1    Except as provided in Section 4.3, Grantee shall not have voting rights, rights to dividends or any other rights as a shareholder of the Company with respect to the RSUs until the date on which the Shares underlying the RSUs are issued or transferred to Grantee.

4.2    The RSUs and the number of Shares issuable for each RSU and the other terms and conditions of the grant evidenced by this Agreement are subject to adjustment as provided in Section 4.3 of the Plan.

4.3    From and after the Grant Date and until the earlier of (a) the time when the RSUs become vested and are paid in accordance with the terms of this Agreement or (b) the time when Grantee’s right to receive Shares in payment of the RSUs is forfeited in accordance with the terms of this Agreement, on the date that the Company pays a cash dividend (if any) to holders of Shares generally, Grantee shall be credited with cash per RSU equal to the amount of suchdividend. Any amounts credited pursuant to the immediately preceding sentence shall be subject to the same applicable terms and conditions (including vesting, payment and forfeitability) as apply to the RSUs based on which the dividend equivalents were credited, and such amounts shall be paid in cash at the same time as the RSUs to which they relate.

4.4    The issuance and transfer of Shares shall be subject to compliance by the Company and Grantee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Shares may be listed. No Shares shall be issued or transferred unless and until any then applicable requirements of state and federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel. Grantee understands that the Company is under no obligation to register the shares of Common Stock with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance. A legend may be placed on any certificate(s) or other document(s) delivered to Grantee indicating restrictions on transferability of the Shares pursuant to this Agreement or any other restrictions that the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any applicable federal or state securities laws or any stock exchange on which the Company’s Shares are then listed.

5.     Nontransferability

The RSUs are personal to Grantee and the RSUs may not be sold, assigned, transferred, pledged or otherwise encumbered other than by will or the laws of descent and distribution. Any such purported transfer or assignment shall be null and void.

6.     No Right to Continued Service as a Director

Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon Grantee any right with respect to continuance of services as a Director of the Company; nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate at any time Grantee’s service as a Director, subject to Grantee’s rights under this Agreement.

7.     Taxes

Grantee shall be responsible for all federal, state and local income and employment taxes payable with respect to this Award of RSUs and the delivery of Shares or cash in satisfaction of the RSUs.

8.     Plan Documents; Grantee Bound by the Plan

Grantee hereby acknowledges that a copy of the Plan, the Plan Prospectus and the Company’s latest annual report to shareholders or annual report on Form 10-K are available on the Company’s intranet site or upon request. Grantee agrees to be bound by all the terms and provisions of the Plan.

9.     Restrictive Covenants

9.1    Grantee hereby acknowledges that the Company may disclose (and/or has already disclosed) to Grantee and Grantee may be provided with access to and otherwise make use of, certain valuable, Confidential Information (as defined below) of the Company. Grantee also acknowledges that due to Grantee’s relationship with the Company, Grantee will develop (and/or has developed) special contacts and relationships with the Company’s employees and that it would be unfair and harmful to the Company if Grantee took advantage of these relationships to the detriment of the Company. For purposes of this Section 9, references to the Company shall be deemed to include references to any Subsidiary of the Company.

9.2    Grantee hereby agrees that during Grantee’s service as a Director and for a period of one (1) year following any voluntary or involuntary termination of Grantee’s service as a Director of the Company (regardless of reason), Grantee will not directly or indirectly, individually, or on behalf of any Person other than the Company:

(a)    solicit, recruit or induce (or otherwise assist any person or entity in soliciting, recruiting or inducing) any employee or independent contractor of the Company who performed work for the Company within the final year of Grantee’s service with the Company to terminate his or her relationship with the Company;

(b)    knowingly or intentionally damage or destroy the goodwill and esteem of the Company, the Company’s Business or the Company’s suppliers, employees, patrons, customers, and others who may at any time have or have had relations with the Company.

9.3    Grantee further agrees that during Grantee’s service as a Director and for a period of one (1) year thereafter (or, with respect to Confidential Information that constitutes a “trade secret” under applicable law, until such information ceases to be a trade secret), Grantee will not, except as necessary to carry out Grantee’s duties as a Director of the Company, disclose or use Confidential Information without the Company’s prior written consent. Grantee further agrees that, upon termination or expiration of Grantee’s service as a Director with the Company for any reason whatsoever or at any time, Grantee will deliver promptly to the Company all materials (including electronically-stored materials), documents, plans, records, notes, or other papers, and any copies in Grantee’s possession or control, relating in any way to the Company’s Business or containing any Confidential Information of the Company, which at all times shall be the property of the Company.

9.4    For purposes of this Section 9, the following terms shall have the meanings specified below:

(a)    “Company’s Business” means the businesses of (i) financing, renting, leasing and selling new, rental or reconditioned residential furniture, electronic goods, household appliances, and related equipment and accessories; and/or (ii) providing web-based, virtual or remote lease-to-own programs or financing.

(b)    “Confidential Information” means information, without regard to form and whether or not in writing, relating to Company’s (or any of its affiliate’s) customers, operation, finances, and business that derives value, actual or potential, from not being generally known to other Persons, including, but not limited to, technical or non-technical data (including personnel data relating to Company employees), formulas, patterns, compilations (including compilations of customer information), programs, devices, methods, techniques (including rental, leasing, and sales techniques and methods), processes, financial data (including rate and price information concerning products and services provided by the Company), or lists of actual or potential customers (including identifying information about customers). Such information and compilations of information shall be contractually subject to protection under this Agreement whether or not such information constitutes a trade secret and is separately protectable at law or in equity as a trade secret. Confidential Information includes information disclosed to the Company by third parties that the Company is obligated to maintain as confidential.

(c)    “Person” has the meaning ascribed to such term in the Plan. For the avoidance of doubt, a Person shall include any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity.

9.5    If, during Grantee’s service as a Director of the Company or at any time during the restrictive periods described above, Grantee violates the restrictive covenants set forth in this Section 9, then the Committee may, notwithstanding any other provision in this Agreement to the contrary, cancel any RSUs outstanding under this Award that have not yet been settled through the delivery of Shares. The parties further agree and acknowledge that the rights conveyed by this Agreement are of a unique and special nature and that the Company will not have an adequate remedy at law in the event of a failure by Grantee to abide by its terms and conditions nor will money damages adequately compensate for such injury. It is, therefore, agreed between the parties that, in the event of a breach by Grantee of any of Grantee’s obligations contained in this Section 9, the Company shall have the right, among other rights, to damages sustained thereby and to obtain an injunction or decree of specific performance from any court of competent jurisdiction to restrain or compel Grantee to perform as agreed herein. Grantee agrees that this Section 9 shall survive the termination of his or her service as a Director of the Company. Nothing contained herein shall in any way limit or exclude any other right granted by law or equity to the Company.

10.    Modification of Agreement

No provision of this Agreement may be materially amended or waived unless agreed to in writing and signed by the Committee (or its designee). Any such amendment to this Agreement that is materially adverse to Grantee shall not be effective unless and until Grantee consents, in writing or by electronic means, to such amendment (provided that any amendment that is required to comply with Code Section 409A shall be effective without consent). The failure to

exercise, or any delay in exercising, any right, power or remedy under this Agreement shall not waive any right, power or remedy which the Company has under this Agreement.

11.    Severability

Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. In the event it is determined by a court of competent jurisdiction that any restrictive covenant set forth in this Agreement is excessive in duration or scope or is otherwise unenforceable as drafted, it is the intent of the parties that such restriction be modified by the court to render it enforceable to the maximum extent permitted by law.

12.    Governing Law

The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Georgia without giving effect to the conflicts of laws principles thereof. Any action arising under or related to this Agreement shall be filed exclusively in the state or federal courts with jurisdiction over Cobb County, Georgia and each of the parties hereby consents to the jurisdiction and venue of such courts.

13.    Successors in Interest

This Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns. Without limiting Section 5 hereof, this Agreement shall inure to the benefit of Grantee’s legal representatives. Without limiting Section 5 hereof, all obligations imposed upon Grantee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon Grantee’s heirs, executors, administrators and successors.

14.    Resolution of Disputes

Any dispute or disagreement which may arise under, or as a result of, or in any way relate to the interpretation, construction or application of this Agreement shall be determined by the Committee (or its designee). Any determination made by the Committee hereunder shall be final, binding and conclusive on Grantee and the Company for all purposes.

15.    Code Section 409A

This Agreement and this award of RSUs is intended to be exempt from, or comply with, Code Section 409A and the regulations and guidance promulgated thereunder (“Section 409A”). This Agreement shall be interpreted and administered by the Committee (or its designee) as it determines necessary or appropriate in accordance with Section 409A to avoid a plan failure under Code Section 409A(a)(1). Specifically, if any RSU is subject to Section 409A, (a) no payment of Shares that is payable upon Grantee’s separation from service as a Director will be payable unless and until Grantee incurs a separation from service as defined in Section 409A, and (b) if Grantee is a specified employee as determined under Section 409A, any settlement of

the RSUs by payment of Shares that is payable upon Grantee’s separation from service, rather than upon a fixed date or due to death, shall be subject to the six-month delay rules of Section 409A to the extent necessary to comply with Section 409A. The Company does not guarantee any particular tax treatment, and Grantee is solely responsible for any taxes owed as a result of this Agreement and these RSUs.

16.    Protected rights; Defend Trade Secrets Act

Notwithstanding any other provision of this Agreement, nothing contained herein limits Grantee’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (collectively, “Government Agencies”), or from providing truthful testimony in response to a lawfully issued subpoena or court order, nor limits Grantee’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company, and for purposes of clarity Grantee is not prohibited from providing information voluntarily to the Securities and Exchange Commission pursuant to Section 21F of the Exchange Act. Under the Defend Trade Secrets Act: (a) no person will be held criminally or civilly liable under federal or state trade secret law for disclosure of a trade secret (as defined in the Economic Espionage Act) that is: (i) made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and made solely for the purpose of reporting or investigating a suspected violation of law; or (ii) made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal so that it is not made public; and (b) a person who pursues a lawsuit for retaliation by an employer for reporting a suspected violation of the law may disclose the trade secret to the attorney of the person and use the trade secret information in the court proceeding, if the person files any document containing the trade secret under seal, and does not disclose the trade secret, except as permitted by court order.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

THE AARON’S COMPANY, INC.

By:    

By signing below or by accepting this award of RSUs as evidenced by electronic means acceptable to the Committee, Grantee hereby (i) acknowledges that a copy of the Plan, the Plan Prospectus and the Company’s latest annual report to shareholders or annual report on Form 10-K are available from the Company’s intranet site or upon request, (ii) represents that Grantee is familiar with the terms and provisions of this Agreement and the Plan, and (iii) accepts the award of RSUs subject to all the terms and provisions of this Agreement and the Plan using an online grant agreement/e-signature. Grantee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Compensation Committee of the Board of Directors upon any questions arising under the Plan. Grantee consents to the delivery of documents and other communications by electronic means.

GRANTEE:

[DIRECTOR NAME]

EX-10.3

Exhibit 10.3

EXECUTION VERSION

October 22, 2021

Aaron’s, LLC

400 Galleria Parkway SE, Suite 300

Atlanta, GA 30339

Attention: C. Kelly Wall, Chief Financial Officer

Re:    That certain Credit Agreement, dated as of November 19, 2020 (as amended, restated, amended and restated, supplemented, increased, extended, refinanced, renewed, replaced, and/or otherwise modified in writing from time to time, the “Credit Agreement”), by and among Aaron’s, LLC, a Georgia limited liability company (the “Borrower”), Aaron’s Spinco, Inc., a Georgia corporation (“Holdings”) and the other Guarantors from time to time party thereto, the Lenders from time to time party thereto, and Truist Bank, as Administrative Agent.

Ladies and Gentlemen:

Reference is made to the Credit Agreement. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement.

The Borrower has requested that Truist Bank, in its capacity as an Issuing Bank, issue Letters of Credit in favor of the Borrower in a principal amount in excess of Truist Bank’s existing LC Commitment.

The Borrower has requested that the Lenders, by act of the Required Lenders, amend the Credit Agreement in order to increase Truist Bank’s LC Commitment from $14,000,000 to $17,500,000. For purposes of clarity, the aggregate LC Sublimit of $35,000,000 for all Issuing Banks shall not be increased. By signing below, your institution agrees to amend the Credit Agreement by replacing the text “$14,000,000” in the definition of “LC Commitment” in Section 1.1 of the Credit Agreement with the text “$17,500,000”.

This letter agreement shall constitute the First Amendment to Credit Agreement (this “First Amendment”) and a Loan Document and may be executed by one or more of the parties to this First Amendment on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this letter agreement by facsimile transmission or by any other electronic imaging means (including .pdf), shall be effective as delivery of a manually executed counterpart of this letter agreement.

This First Amendment shall be effective upon the Administrative Agent’s receipt of counterparts hereof duly executed by each of the Administrative Agent, the Required Lenders, and the Borrower.

This letter agreement and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of, or relating to this letter agreement and the transactions contemplated hereby shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of New York.

[Remainder of Page Intentionally Blank; Signature Pages Follow]

CHAR1\1838242v2

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed under seal in the case of the Borrower and Holdings by their respective authorized officers as of the day and year first above written.

AARON’S, LLC

By /s/     (Seal)

Name: C. Kelly Wall
Title: Chief Financial Officer

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

AARON’S SPINCO, INC.

By /s/    (Seal)

Name: C. Kelly Wall
Title: Chief Financial Officer

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

TRUIST BANK,
as Administrative Agent, as an Issuing Bank, as
Swingline Lender and as a Lender

By /s/    

Name:

Title:

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

JPMORGAN CHASE BANK, N.A.,

as a Lender and an Issuing Bank

By /s/    

Name:

Title:

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

BANK OF AMERICA, N.A.,

as a Lender and an Issuing Bank

By /s/    

Name:

Title:

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

CITIZENS BANK, N.A.,

as a Lender

By /s/    

Name:

Title:

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

FIFTH THIRD BANK, NATIONAL ASSOCIATION,

as a Lender

By /s/    

Name:

Title:

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

REGIONS BANK,

as a Lender

By /s/    

Name:

Title:

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

SYNOVUS BANK,

as a Lender

By /s/    

Name:

Title:

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

FIRST HORIZON BANK,

as a Lender

By /s/    

Name:

Title:

AARON’S, LLC

FIRST AMENDMENT TO CREDIT AGREEMENT

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

	I, Douglas A. Lindsay, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of The Aaron's Company, 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 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)	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
	c)	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 (the registrant's fourth fiscal quarter in the case of an annual report) 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:	October 26, 2021	/s/ Douglas A. Lindsay
		Douglas A. Lindsay
		Chief Executive Officer and Director
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

	I, C. Kelly Wall, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of The Aaron's Company, 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 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)	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
	c)	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 (the registrant's fourth fiscal quarter in the case of an annual report) 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:	October 26, 2021	/s/ C. Kelly Wall
		C. Kelly Wall
		Chief Financial Officer (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Douglas A. Lindsay, Chief Executive Officer of The Aaron’s Company, Inc. (the “Company”), certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	October 26, 2021	/s/ Douglas A. Lindsay
		Douglas A. Lindsay
		Chief Executive Officer and Director
		(Principle Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, C. Kelly Wall, Chief Financial Officer of The Aaron’s Company, Inc. (the “Company”), certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	October 26, 2021	/s/ C. Kelly Wall
		C. Kelly Wall
		Chief Financial Officer (Principal Financial Officer)

XML

Cover - shares	9 Months Ended
	Sep. 30, 2021	Oct. 22, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2021
Document Transition Report	false
Entity File Number	1-39681
Entity Registrant Name	THE AARON'S COMPANY, INC.
Entity Incorporation, State or Country Code	GA
Entity Tax Identification Number	85-2483376
Entity Address, Address Line One	400 Galleria Parkway SE
Entity Address, Address Line Two	Suite 300
Entity Address, City or Town	Atlanta
Entity Address, State or Province	GA
Entity Address, Postal Zip Code	30339-3182
City Area Code	678
Local Phone Number	402-3000
Title of 12(b) Security	Common Stock, $0.50 Par Value
Trading Symbol	AAN
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		31,483,247
Amendment Flag	false
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3
Entity Central Index Key	0001821393
Current Fiscal Year End Date	--12-31

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
ASSETS:
Cash and Cash Equivalents	$ 14,846	$ 76,123
Accounts Receivable (net of allowances of $6,343 at September 30, 2021 and $7,613 at December 31, 2020)	30,316	33,990
Lease Merchandise (net of accumulated depreciation and allowances of $446,806 at September 30, 2021 and $458,405 at December 31, 2020)	775,012	697,235
Property, Plant and Equipment, Net	214,375	200,370
Operating Lease Right-of-Use Assets	257,496	238,085
Goodwill	13,162	7,569
Other Intangibles, Net	5,681	9,097
Income Tax Receivable	3,620	1,093
Prepaid Expenses and Other Assets	101,904	89,895
Total Assets	1,416,412	1,353,457
LIABILITIES & SHAREHOLDERS’ EQUITY:
Accounts Payable and Accrued Expenses	259,204	230,848
Deferred Income Taxes Payable	88,567	62,601
Customer Deposits and Advance Payments	55,361	68,894
Operating Lease Liabilities	291,750	278,958
Debt	0	831
Total Liabilities	694,882	642,132
Commitments and Contingencies (Note 4)
SHAREHOLDERS' EQUITY:
Common Stock, Par Value $0.50 Per Share: Authorized: 112,500,000 Shares at September 30, 2021 and December 31, 2020; Shares Issued: 35,525,922 at September 30, 2021 and 35,099,571 at December 31, 2020	17,763	17,550
Additional Paid-in Capital	720,194	708,668
Retained Earnings	85,421	1,881
Accumulated Other Comprehensive Loss	(704)	(797)
Stockholders' Equity before Treasury Stock, Total	822,674	727,302
Less: Treasury Shares at Cost
3,760,052 Shares at September 30, 2021 and 894,660 at December 31, 2020	(101,144)	(15,977)
Total Shareholders’ Equity	721,530	711,325
Total Liabilities & Shareholders’ Equity	$ 1,416,412	$ 1,353,457

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Accounts receivable, allowances	$ 6,343	$ 7,613
Lease Merchandise, accumulated depreciation and allowances	$ 446,806	$ 458,405
Common Stock, Par Value (in dollars per share)	$ 0.50	$ 0.50
Common Stock, Shares Authorized (in shares)	112,500,000	112,500,000
Common Stock, Shares Issued (in shares)	35,525,922	35,099,571
Treasury Shares (in shares)	3,760,052	894,660

XML

Condensed Consolidated and Combined Statements of Earnings - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
REVENUES:
Revenues	$ 452,153	$ 440,961	$ 1,400,702	$ 1,304,747
COSTS AND REVENUES:
Total cost of revenue	167,511	161,397	518,312	494,015
GROSS PROFIT	284,642	279,564	882,390	810,732
Operating Expenses [Abstract]
Personnel Costs	122,901	117,764	369,190	351,905
Other Operating Expenses, Net	105,428	105,364	327,840	322,422
Provision for Lease Merchandise Write-Offs	19,799	9,305	45,333	47,478
Restructuring Expenses, Net	2,899	4,041	8,134	33,318
Impairment of Goodwill	0	0	0	446,893
Retirement Charges	0	574	0	574
Separation Costs	397	1,160	6,033	1,160
Operating expenses, total	251,424	238,208	756,530	1,203,750
OPERATING PROFIT (LOSS)	33,218	41,356	125,860	(393,018)
Interest Expense	(322)	(1,973)	(1,117)	(8,625)
Other Non-Operating (Expense) Income, Net	(88)	698	1,058	887
EARNINGS (LOSS) BEFORE INCOME TAXES	32,808	40,081	125,801	(400,756)
INCOME TAX EXPENSE (BENEFIT)	8,460	7,468	32,155	(131,969)
NET EARNINGS (LOSS)	$ 24,348	$ 32,613	$ 93,646	$ (268,787)
EARNINGS (LOSS) PER SHARE (in dollars per share)	$ 0.75	$ 0.96	$ 2.79	$ (7.94)
EARNINGS (LOSS) PER SHARE ASSUMING DILUTION (in dollars per share)	$ 0.73	$ 0.96	$ 2.74	$ (7.94)
Lease and Retail Revenues
REVENUES:
Revenues	$ 413,666	$ 397,736	$ 1,286,251	$ 1,190,903
COSTS AND REVENUES:
Costs of goods and services sold	138,448	132,288	433,149	412,009
Non-Retail Sales
REVENUES:
Revenues	32,159	34,820	94,563	94,710
COSTS AND REVENUES:
Costs of goods and services sold	29,063	29,109	85,163	82,006
Franchise Royalties and Other Revenues
REVENUES:
Revenues	$ 6,328	$ 8,405	$ 19,888	$ 19,134

XML

Condensed Consolidated and Combined Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Statement of Comprehensive Income [Abstract]
Net Earnings (Loss)	$ 24,348	$ 32,613	$ 93,646	$ (268,787)
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustment	(254)	198	93	(1,225)
Total Other Comprehensive (Loss) Income	(254)	198	93	(1,225)
Comprehensive Income (Loss)	$ 24,094	$ 32,811	$ 93,739	$ (270,012)

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
OPERATING ACTIVITIES:
Net Earnings (Loss)	$ 93,646	$ (268,787)
Adjustments to Reconcile Net Earnings (Loss) to Cash Provided by Operating Activities:
Depreciation of Lease Merchandise	397,701	382,956
Other Depreciation and Amortization	51,729	50,699
Provision for Lease Merchandise Write-Offs	45,333	47,478
Accounts Receivable Provision	18,840	22,089
Stock-Based Compensation	9,863	9,324
Deferred Income Taxes	25,966	(83,278)
Impairment of Assets	3,937	469,783
Non-Cash Lease Expense	69,205	72,231
Other Changes, Net	(3,851)	1,398
Changes in Operating Assets and Liabilities:
Lease Merchandise	(519,139)	(309,745)
Accounts Receivable	(15,511)	(17,409)
Prepaid Expenses and Other Assets	(15,151)	5,552
Income Tax Receivable	(2,527)	636
Operating Lease Right-of-Use Assets and Liabilities	(78,641)	(81,240)
Accounts Payable and Accrued Expenses	22,917	33,745
Customer Deposits and Advance Payments	(13,923)	1,806
Cash Provided by Operating Activities	90,394	337,238
INVESTING ACTIVITIES:
Insurance Proceeds relating to Property, Plant and Equipment	373	0
Proceeds from Investments	1,974	0
Purchases of Property, Plant, and Equipment	(67,456)	(45,704)
Proceeds from Dispositions of Property, Plant, and Equipment	10,330	3,815
Acquisition of Businesses and Customer Agreements, Net of Cash Acquired	(6,934)	(2,875)
Proceeds from Dispositions of Businesses and Customer Agreements, Net of Cash Disposed	158	358
Cash Used in Investing Activities	(61,555)	(44,406)
FINANCING ACTIVITIES:
Proceeds from Debt	0	5,625
Repayments on Debt	(740)	(61,515)
Dividends Paid	(6,770)	0
Acquisition of Treasury Stock	(81,740)	0
Issuance of Stock Under Stock Option Plans	1,876	0
Shares Withheld for Tax Payments	(2,729)	0
Net Transfers From Former Parent	0	148,189
Debt Issuance Costs	0	(1,020)
Cash (Used in) Provided by Financing Activities	(90,103)	91,279
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(13)	(22)
(Decrease) Increase in Cash and Cash Equivalents	(61,277)	384,089
Cash and Cash Equivalents at Beginning of Period	76,123	48,773
Cash and Cash Equivalents at End of Period	$ 14,846	$ 432,862

XML

Basis and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Basis and Summary of Significant Accounting Policies

BASIS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As described elsewhere in this Quarterly Report on Form 10-Q, the novel coronavirus ("COVID-19") pandemic led to significant market disruption and has impacted various aspects of our operations, directly and indirectly. Throughout these notes to the condensed consolidated and combined financial statements, the impacts of the COVID-19 pandemic on the financial results for the three and nine months ended September 30, 2021 and comparable prior periods have been identified to the best of our ability under the respective sections. For a discussion of trends that we believe have affected our business as a result of the COVID-19 pandemic, see Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations", including the "Recent Developments and Operational Measures Taken by Us in Response to the COVID-19 Pandemic," "Results of Operations" and "Liquidity and Capital Resources", below, and Part I, Item 1A "Risk Factors" of our Current Report on Form 10-K, filed with the United States Securities and Exchange Commission on February 23, 2021 (the "2020 Annual Report").

Description of Spin-off Transaction

On October 16, 2020, management of Aaron’s, Inc. finalized the formation of a new holding company structure in anticipation of the separation and distribution transaction described below. Under the holding company structure, Aaron’s, Inc. became a direct, wholly owned subsidiary of a newly formed company, Aaron’s Holdings Company, Inc. Aaron's, Inc. was subsequently converted to a limited liability company ("Aaron’s, LLC") holding the assets and liabilities historically associated with the historical Aaron's Business segment (the "Aaron's Business"). Upon completion of the holding company formation, Aaron’s Holdings Company, Inc. became the publicly traded parent company of the Progressive Leasing segment ("Progressive Leasing"), Aaron’s Business, and Vive segment ("Vive").

On November 30, 2020 (the "separation and distribution date"), Aaron's Holdings Company, Inc. completed the previously announced separation of the Aaron's Business from Progressive Leasing and Vive and changed its name to PROG Holdings, Inc. (referred to herein as "PROG Holdings" or "Former Parent"). The separation of the Aaron's Business was effected through a distribution (the "separation", the "separation and distribution", or the "spin-off transaction") of all outstanding shares of common stock of a newly formed company called The Aaron's Company, Inc., a Georgia corporation ("Aaron's", "The Aaron's Company" or "the Company"), to the PROG Holdings shareholders of record as of November 27, 2020. Upon the separation and distribution, Aaron's, LLC became a wholly-owned subsidiary of The Aaron's Company. Shareholders of PROG Holdings received one share of The Aaron's Company for every two shares of PROG Holdings' common stock. Upon completion of the separation and distribution transaction, The Aaron's Company became an independent, publicly traded company under the ticker "AAN" on the New York Stock Exchange.

Unless the context otherwise requires or we specifically indicate otherwise, references to "we," "us," "our," "the Company," and "Aaron's" refer to The Aaron's Company, Inc., which holds, directly or indirectly, the Aaron’s Business prior to the separation and distribution date. References to "the Company", "Aaron's, Inc.", or "Aaron's Holdings Company, Inc." for periods prior to the separation and distribution date refer to transactions, events, and obligations of Aaron's, Inc., which took place prior to the separation and distribution. Historical amounts herein include revenues and costs directly attributable to the Company and an allocation to the Company of expenses of the Aaron's Business related to certain PROG Holdings' corporate functions prior to the separation and distribution date.

We describe in these footnotes the business held by us after the separation as if it were a standalone business for all historical periods described. However, we were not a standalone separate entity with independently conducted operations before the separation.

Description of Business

Aaron's is a leading, technology-enabled, omni-channel provider of lease-to-own ("LTO") and purchase solutions generally focused on serving the large, credit-challenged segment of the population. Through our portfolio of approximately 1,300 stores and our Aarons.com e-commerce platform, we provide consumers with LTO and purchase solutions for the products they need and want, including furniture, appliances, electronics, computers and a variety of other products and accessories. In addition, the Company's business includes the operations of Woodhaven Furniture Industries ("Woodhaven"), which manufactures and supplies the majority of the bedding and a significant portion of the upholstered furniture leased and sold in Company-operated and franchised stores.

The following table presents store count by ownership type:

Stores as of September 30 (Unaudited)	2021	2020
Company-operated Stores	1,084	1,086
Franchised Stores	237	308
Systemwide Stores	1,321	1,394

Basis of Presentation

The financial statements for periods prior to and through the date of the separation and distribution, November 30, 2020, were prepared on a combined standalone basis and were derived from the consolidated financial statements and accounting records of PROG Holdings. The financial statements for the period from December 1, 2020 through December 31, 2020, and three and nine months ended September 30, 2021 are consolidated financial statements of the Company and its subsidiaries, each of which is wholly-owned, and is based on the financial position and results of operations of the Company as a standalone company. Intercompany balances and transactions between consolidated entities have been eliminated. These condensed consolidated and combined financial statements reflect the historical results of operations, financial position and cash flows of the Company in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The historical results of operations and cash flows of the Company prior to the separation and distribution presented in these condensed consolidated and combined financial statements may not be indicative of what they would have been had the Company been an independent standalone entity, nor are they necessarily indicative of the Company's future results of operations, financial position and cash flows.

The condensed combined balance sheets for periods prior to and through the separation and distribution date include the assets and liabilities associated with the historical Aaron’s Business and certain assets and liabilities where Aaron's, Inc. is the legal beneficiary or obligor. The combined statements of earnings for periods prior to and through the separation and distribution date include all revenues and costs directly attributable to the Company and an allocation of expenses related to certain PROG Holdings corporate functions. These allocated costs and expenses include executive management, finance, treasury, tax, audit, legal, information technology, human resources and risk management functions and the related benefit cost associated with such functions, including stock-based compensation. These costs and expenses have been allocated to the Company based on direct usage or benefit where specifically identifiable, with the remaining expenses allocated primarily on a pro rata basis using an applicable measure of revenues, headcount or other relevant measures. The Company considers these allocations to be a reasonable reflection of the utilization of services or the benefit received.

The preparation of the Company's condensed consolidated and combined financial statements in conformity with 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. However, as described above, the extent to which the normalization of business trends since the start of the COVID-19 pandemic, and the resulting measures taken by the Company and federal and state governments, will impact the Company's business will depend on future developments, which are uncertain and cannot be precisely predicted at this time. In many cases, management's estimates and assumptions are dependent on estimates of such future developments and may change in the future.

The accompanying unaudited condensed consolidated and combined 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 and combined financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 2020 Annual Report. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of operating results for the full year.

Reclassifications

Certain reclassifications have been made to the prior periods to conform to the current period presentation. For all periods prior to September 30, 2021, the Company presented the additions to lease merchandise and the book value of lease merchandise sold or disposed as separate lines within operating activities in the condensed consolidated and combined statements of cash flows. Effective with the nine months ended September 30, 2021, the Company revised its presentation of changes to lease merchandise to separately present the provision for lease merchandise write-offs, and combine the remaining operating activity-related changes in lease merchandise, with the exception of depreciation of lease merchandise, in a single line under changes in operating assets and liabilities in the condensed consolidated and combined statements of cash flows. This revised presentation and the related adjustments to the prior period presentation do not have an impact on cash provided by operating activities.

Accounting Policies and Estimates

See Note 1 to the consolidated and combined financial statements in the 2020 Annual Report for an expanded discussion of accounting policies and estimates. Discussions of accounting estimates and application of accounting policies herein have also been updated as applicable to describe the uncertainty associated with the impacts of the COVID-19 pandemic described above.

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"), performance share units ("PSUs") and other awards issuable under the Company's employee stock purchase plan ("ESPP") (collectively, "share-based awards") as determined under the treasury stock method, unless the inclusion of such awards would have been anti-dilutive.

The Company's basic earnings per share calculations for the periods prior to the separation and distribution assumes that the weighted average number of common shares outstanding was 33,841,624, which is the number of shares distributed to shareholders on the separation and distribution date, November 30, 2020. The same number of shares was used in the calculation of diluted earnings per share for the periods prior to the separation and distribution, as there were no equity awards of The Aaron's Company outstanding prior to the distribution date.

The following table shows the calculation of weighted-average shares outstanding assuming dilution:

	Three Months Ended September 30,		Nine Months Ended September 30,
(Shares In Thousands)	2021	2020	2021	2020
Weighted Average Shares Outstanding	32,485	33,842	33,513	33,842
Dilutive Effect of Share-Based Awards	703	—	703	—
Weighted Average Shares Outstanding Assuming Dilution	33,188	33,842	34,216	33,842

Approximately 0.2 million and 0.1 million weighted-average shares-based awards were excluded from the computation of earnings per share assuming dilution during the three and nine months ended September 30, 2021, respectively, as the awards would have been anti-dilutive for the periods presented.

Revenue Recognition

The Company provides lease merchandise, consisting of furniture, appliances, electronics, computers and a variety of other products and accessories to its customers for lease under certain terms agreed to by the customer. Our stores and e-commerce platform offer leases with flexible ownership plans that can be renewed monthly up to 12, 18 or 24 months. The Company also earns revenue from the sale of merchandise to customers and its franchisees, and earns ongoing revenue from its franchisees in the form of royalties and through advertising efforts that benefit the franchisees. See Note 3 to these condensed consolidated and combined financial statements for further information regarding the Company's revenue recognition policies and disclosures.

Accounts Receivable

Accounts receivable consist primarily of receivables due from customers on lease agreements, corporate receivables incurred during the normal course of business (primarily for vendor consideration and real estate leasing activities) and franchisee obligations.

Accounts receivable, net of allowances, consist of the following: 

(In Thousands)	September 30, 2021		December 31, 2020
Customers	$	8,606	$	8,399
Corporate	11,822		12,771
Franchisee	9,888		12,820
	$	30,316	$	33,990

The Company maintains an accounts receivable allowance, under which the Company's policy is to record a provision for returns and uncollectible contractually due renewal payments based on historical payments experience, which is recognized as a reduction of lease and retail revenues within the condensed consolidated and combined statements of earnings. Other qualitative

factors are considered in estimating the allowance, such as current and forecasted business trends. The Company writes off customer lease receivables that are 60 days or more past due on pre-determined dates twice monthly.

The Company also maintains an allowance for outstanding franchisee accounts receivable. The Company's policy is to estimate a specific allowance on accounts receivable to estimate future losses related to certain franchisees that are deemed to have a higher risk of non-payment and a general allowance based on historical losses as well as the Company's assessment of the financial health of all other franchisees. The estimated allowance on franchisee accounts receivable includes consideration of broad macroeconomic trends, such as the uncertainty surrounding the impacts of the normalization of current and future business trends associated with the COVID-19 pandemic on the franchisees' ability to satisfy their obligations. Accordingly, actual accounts receivable write-offs could differ from the allowance. The provision for uncollectible franchisee accounts receivable is recorded as bad debt expense in other operating expenses, net within the condensed consolidated and combined statements of earnings.

The following table shows the components of the accounts receivable allowance:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Beginning Balance	$	7,613	$	10,720
Accounts Written Off, net of Recoveries	(20,110)		(26,304)
Accounts Receivable Provision	18,840		22,089
Ending Balance	$	6,343	$	6,505

The following table shows the components of the accounts receivable provision, which includes amounts recognized for bad debt expense and the provision for returns and uncollected payments:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Bad Debt (Reversal) Expense	$	(728)	$	933
Provision for Returns and Uncollectible Renewal Payments	19,568		21,156
Accounts Receivable Provision	$	18,840	$	22,089

Lease Merchandise

The Company’s lease merchandise is recorded at the lower of depreciated 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 begins depreciating merchandise at the earlier of 12 months and one day from its purchase of the merchandise or when the item is leased to customers. Lease merchandise depreciates 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 following is a summary of lease merchandise, net of accumulated depreciation and allowances:

(In Thousands)	September 30, 2021		December 31, 2020
Merchandise on Lease, net of Accumulated Depreciation and Allowances	$	465,833	$	473,964
Merchandise Not on Lease, net of Accumulated Depreciation and Allowances1	309,179		223,271
Lease Merchandise, net of Accumulated Depreciation and Allowances	$	775,012	$	697,235

1 Includes Woodhaven raw materials, finished goods and work-in-process inventory that has been classified within lease merchandise in the condensed consolidated balance sheets of $20.7 million and $10.4 million as of September 30, 2021 and December 31, 2020, respectively.

The Company's policies require weekly merchandise counts at its store-based operations, which include write-offs for unsalable, damaged, or missing merchandise inventories. Monthly cycle counting procedures are performed at both the Company's fulfillment centers and manufacturing facilities. Physical inventories are also taken at the manufacturing facilities annually. The Company also monitors merchandise levels and mix by division, store, and fulfillment center, as well as the average age of merchandise on hand. If obsolete merchandise cannot be returned to vendors, its carrying amount is adjusted to its net realizable value or written off. Generally, all merchandise not on lease 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 using the allowance method, which is included within lease merchandise, net within the condensed consolidated balance sheets. The allowance method for lease merchandise write-offs estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting period based primarily on historical write-off experience. Other qualitative factors are considered in estimating the allowance, such as uncertainty surrounding the impacts of the normalization of current and future business trends associated with the COVID-19 pandemic. Therefore, actual lease merchandise write-offs could differ from the allowance. The provision for write-offs is included in provision for lease merchandise write-offs in the accompanying condensed consolidated and combined statements of earnings. The Company writes off lease merchandise on lease agreements that are 60 days or more past due on pre-determined dates twice monthly.

The following table shows the components of the allowance for lease merchandise write-offs:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Beginning Balance	$	11,599	$	13,823
Merchandise Written off, net of Recoveries	(46,414)		(49,058)
Provision for Write-offs	45,333		47,478
Ending Balance	$	10,518	$	12,243

Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following:

(In Thousands)	September 30, 2021		December 31, 2020
Prepaid Expenses1	$	17,401	$	17,411
Insurance Related Assets1	27,606		27,020
Company-Owned Life Insurance	15,275		16,223
Assets Held for Sale	7,370		8,956
Deferred Tax Asset	7,014		7,014
Other Assets1	27,238		13,271
	$	101,904	$	89,895

1 During the second quarter of 2021, the Company recategorized items within the components of prepaid expenses and other assets. The presentation of prior period amounts has been reclassified to be consistent with the current period presentation. Such reclassification has no impact on the total prepaid expenses and other assets balance as of December 31, 2020.

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, 2021 and December 31, 2020. 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. Gains and losses related to the sale of assets held for sale are recorded in other operating expenses, net or restructuring expenses, net (if the asset is a part of the Company's restructuring programs further described in Note 5 to these condensed consolidated and combined financial statements) in the condensed consolidated and combined statements of earnings. Such gains and losses were not significant for the three and nine months ended September 30, 2021 and September 30, 2020.

Management 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. The carrying amount of the properties held for sale as of September 30, 2021 and December 31, 2020 is $7.4 million and $9.0 million, respectively.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

(In Thousands)	September 30, 2021		December 31, 2020
Accounts Payable 1	$	76,876	$	84,738
Estimated Claims Liability Costs	55,155		49,272
Accrued Salaries and Benefits	64,715		53,396
Accrued Real Estate and Sales Taxes1	24,947		23,968
Other Accrued Expenses and Liabilities1	37,511		19,474
	$	259,204	$	230,848

1 During the second quarter of 2021, the Company recategorized items within the components of accounts payable and accrued expenses. The presentation of prior period amounts has been reclassified to be consistent with the current period presentation. Such reclassification has no impact on the total accounts payable and accrued expenses balance as of December 31, 2020.

Estimated Claims Liability Costs

Estimated claims liability costs are accrued primarily for workers compensation, vehicle liability, general liability and group health insurance benefits provided to employees. These liabilities are recorded within estimated claims liability costs within accounts payable and accrued expenses in the condensed consolidated balance sheets. Estimates for these claims liabilities are made based on actual reported but unpaid claims and actuarial analysis of the projected claims run off for both reported and incurred but not reported claims. This analysis is based upon an assessment of the likely outcome or historical experience. The Company makes periodic prepayments to its insurance carriers to cover the projected claims run off for both reported and incurred but not reported claims, considering its retention or stop loss limits. In addition, we have prefunding balances on deposit and other insurance receivables with the insurance carriers which are recorded within prepaid expenses and other assets in our condensed consolidated balance sheets.

Segment Reporting

Management concluded that the Company has one operating and reportable segment based on the nature of the financial information regularly reviewed by the chief operating decision maker to assess performance and allocate resources. We have also concluded that the Company has one reporting unit due to the fact that the components included within the operating segment have similar economic characteristics, such as the nature of the products and services provided, the nature of the customers we serve, and the interrelated nature of the components that are aggregated to form the sole reporting unit. The Company evaluates performance and allocates resources as a single operating segment based on revenue growth and pre-tax profit or loss from operations.

Goodwill

The Company’s goodwill is not amortized but is subject to an impairment test at the reporting unit level annually as of October 1 and more frequently if events or circumstances indicate that an impairment may have occurred. An interim goodwill impairment test is required if the Company believes it is more likely than not that the carrying amount of its reporting unit exceeds the reporting unit's fair value. The Company concluded that the need for an interim goodwill impairment test was triggered as of March 31, 2020. Factors that led to this conclusion included: (i) a significant decline in the Aaron's, Inc. stock price and market capitalization in March 2020; (ii) the temporary closure of all Company-operated store showrooms due to the COVID-19 pandemic, which impacted our financial results and was expected to adversely impact future financial results; (iii) the significant uncertainty with regard to the short-term and long-term impacts that macroeconomic conditions arising from the COVID-19 pandemic and related government emergency and executive orders would have on the financial health of our customers and franchisees; and (iv) consideration given to the amount by which the Aaron's Business reporting unit's fair value exceeded the carrying value from the October 1, 2019 annual goodwill impairment test.

As of March 31, 2020, management of Aaron's, Inc. determined its existing goodwill was fully impaired and recorded a goodwill impairment loss of $446.9 million during the three months ended March 31, 2020. Management engaged the assistance of a third-party valuation firm to perform the interim goodwill impairment test, which entailed an assessment of the Aaron's Business reporting unit’s fair value relative to the carrying value that was derived using a combination of both income and market approaches and performing a market capitalization reconciliation, which included an assessment of the control premium implied from the Company's estimated fair values of its reporting units. The fair value measurement involved significant unobservable inputs (Level 3 inputs, as discussed more fully below). The income approach utilized the discounted future expected cash flows, which required assumptions about short-term and long-term revenue growth or decline rates, operating margins, capital requirements, and a weighted-average cost of capital. The income approach reflected assumptions and estimates made by management regarding direct and indirect impacts of the COVID-19 pandemic on the short-term and long-term cash flows for the reporting unit. Due to the significant uncertainty associated with the impacts of the COVID-19 pandemic, the assumptions and estimates used by management were highly subjective. The weighted-average cost of capital used in the income approach was adjusted to reflect the specific risks and uncertainties associated with the COVID-19 pandemic in developing the cash flow projections. Given the uncertainty discussed above, the Company performed certain sensitivity analyses including considering reasonably possible alternative assumptions for short-term and long-term growth or decline rates, operating margins, capital requirements, and weighted-average cost of capital rates. Each of the sensitivity analyses performed supported the conclusion of a full impairment of the existing goodwill balance within the Aaron's Business reporting unit.

The market approach, which includes the guideline public company method, utilized pricing multiples derived from an analysis of comparable publicly traded companies. We believe the comparable companies we evaluate as marketplace participants serve as an appropriate reference when calculating fair value because those companies have similar risks, participate in similar markets, provide similar products and services for their customers and compete with us directly. However, we considered that such publicly available information regarding the comparable companies evaluated likely did not reflect the impact of the COVID-19 pandemic in determining the multiple assumptions selected.

The Company completed acquisitions of certain franchisees and third party rent-to-own stores subsequent to March 31, 2020, which resulted in a goodwill balance of $13.2 million and $7.6 million as of September 30, 2021 and December 31, 2020, respectively. The Company determined that there were no events that occurred or circumstances that changed during the three or nine months ended September 30, 2021 that would more likely than not reduce the fair value of its reporting unit below its carrying amount.

Related Party

The Aaron's Company was a related party to PROG Holdings prior to the separation and distribution date.

All intercompany transactions between the Company and PROG Holdings were included within invested capital in the historical combined balance sheets prior to the separation and distribution date, and are classified as changes in invested capital within stockholders' equity for the historical periods prior to the separation and distribution date. The total net effect of the settlement of these intercompany transactions is reflected in the condensed consolidated and combined statements of cash flows as a financing activity for the nine months ended September 30, 2020.

Corporate Allocations

The Company's previous operating model included a combination of standalone and combined business functions with PROG Holdings. The condensed consolidated and combined financial statements in the 2020 Annual Report include corporate allocations to the Company through the separation and distribution date for expenses related to activities that were previously provided on a centralized basis within PROG Holdings. These expenses primarily related to executive management, finance, treasury, tax, audit, legal, information technology, human resources and risk management functions and the related benefit cost associated with such functions, including stock-based compensation. See Note 12 to the consolidated and combined financial statements in the 2020 Annual Report for more information regarding stock-based compensation. Corporate allocations to the Company during the three and nine months ended September 30, 2020 also include expenses related to the separation and distribution. These expenses have been allocated to the Company based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis using an applicable measure of revenues, headcount or other relevant measures. The Company considers these allocations to be a reasonable reflection of the utilization of services or the benefit received. These allocated expenses are included within personnel costs and other operating expenses, net in the condensed consolidated and combined statements of earnings and as an increase to invested capital in the historical condensed combined balance sheets prior to the separation and distribution date. General corporate expenses allocated to the Company during the three and nine months ended September 30, 2020 were $8.6 million and $20.4 million, respectively.

Management believes the assumptions regarding the allocation of general corporate expenses from PROG Holdings are reasonable. However, the consolidated and combined financial statements may not include all of the actual expenses that would have been incurred and may not reflect the Company's consolidated and combined results of operations, financial position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if the Company had been a standalone company would depend on multiple factors, including organization structure and various other strategic decisions.

Post-Separation Arrangements

In connection with the separation and distribution, the Company entered into several agreements with PROG Holdings, which (i) govern the separation and our relationship with PROG Holdings after the separation, and (ii) provide for the allocation between the two companies of PROG Holdings' assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at, and after the separation. These agreements are further described in Note 14 to the consolidated and combined financial statements in the 2020 Annual Report. Amounts incurred and due to or from PROG Holdings for transition services were not significant during the three and nine months ended September 30, 2021.

Franchisee Acquisitions

The Company acquired the store operations of various Aaron's franchisees during the nine months ended September 30, 2021 and 2020, for a combined purchase price of $9.8 million and $5.5 million, respectively. The franchisee acquisitions have been accounted for as business combinations and the results of operations of the acquired businesses are included in the Company’s results of operations from their dates of acquisition. The primary tangible asset acquired as part of these transactions was lease merchandise and the primary intangible asset allocated to was customer contracts. The purchase price allocations are preliminary and are subject to change within the measurement period, which is up to one year from the acquisition date. The effect of these acquisitions on the condensed consolidated and combined financial statements for the nine months ended September 30, 2021 and 2020 was not significant.

Stockholders' Equity

Changes in stockholders' equity for the three and nine months ended September 30, 2021 and 2020 are as follows:

	Treasury Stock			Common Stock		Invested Capital		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(In Thousands, Except Per Share)	Shares	Amount
Balance, December 31, 2020	(895)	$	(15,977)	$	17,550	$	—	$	708,668	$	1,881	$	(797)	$	711,325
Cash Dividends, $0.10 per share	—	—		—		—		—		(3,472)		—		(3,472)
Stock-Based Compensation	—	—		—		—		3,551		—		—		3,551
Issuance of Shares under Equity Plans	(114)	(2,729)		165		—		378		—		—		(2,186)
Acquisition of Treasury Stock	(252)	(6,280)		—		—		—		—		—		(6,280)
Net Earnings	—	—		—		—		—		36,323		—		36,323
Foreign Currency Translation Adjustment	—	—		—		—		—		—		127		127
Balance, March 31, 2021	(1,261)	$	(24,986)	$	17,715	$	—	$	712,597	$	34,732	$	(670)	$	739,388
Cash Dividends, $0.10 per share	—	—		—		—		—		(3,387)		—		(3,387)
Stock-Based Compensation	—	—		—		—		1,714		—		—		1,714
Issuance of shares under equity plans	—	—		45		—		1,202		—		—		1,247
Acquisition of Treasury Stock	(1,166)	(38,642)		—		—		—		—		—		(38,642)
Net Earnings	—	—		—		—		—		32,975		—		32,975
Foreign Currency Translation Adjustment	—	—		—		—		—		—		220		220
Balance, June 30, 2021	(2,427)	$	(63,628)	$	17,760	$	—	$	715,513	$	64,320	$	(450)	$	733,515
Cash Dividends, $0.10 per share	—	—		—		—		—		(3,247)		—		(3,247)
Stock-Based Compensation	—	—		—		—		2,757		—		—		2,757
Reclassification of liability awards to equity awards	—	—		—		—		1,841		—		—		1,841
Reissued Shares	—	—		3		—		83		—		—		86
Acquisition of Treasury Stock	(1,333)	(37,516)		—		—		—		—		—		(37,516)
Net Earnings	—	—		—		—		—		24,348		—		24,348
Foreign Currency Translation Adjustment	—	—		—		—		—		—		(254)		(254)
Balance, September 30, 2021	(3,760)	$	(101,144)	$	17,763	$	—	$	720,194	$	85,421	$	(704)	$	721,530

	Treasury Stock			Common Stock		Invested Capital		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(In Thousands, Except Per Share)	Shares	Amount
Balance, December 31, 2019	—	$	—	$	—	$	837,800	$	—	$	—	$	(19)	$	837,781
Stock-Based Compensation	—	—		—		2,725		—		—		—		2,725
Net increase in Invested Capital	—	—		—		90,211		—		—		—		90,211
Net Loss	—	—		—		(323,774)		—		—		—		(323,774)
Foreign Currency Translation Adjustment	—	—		—		—		—		—		(1,754)		(1,754)
Balance, March 31, 2020	—	$	—	$	—	$	606,962	$	—	$	—	$	(1,773)	$	605,189
Stock-Based Compensation	—	—		—		2,892		—		—		—		2,892
Net increase in Invested Capital	—	—		—		35,994		—		—		—		35,994
Net Earnings	—	—		—		22,374		—		—				22,374
Foreign Currency Translation Adjustment	—	—		—		—		—		—		331		331
Balance, June 30, 2020	—	$	—	$	—	$	668,222	$	—	$	—	$	(1,442)	$	666,780
Stock-Based Compensation	—	—		—		3,954		—		—		—		3,954
Net Increase in Invested Capital	—	—		—		22,340		—		—		—		22,340
Net Earnings	—	—		—		32,613		—		—		—		32,613
Foreign Currency Translation Adjustment	—	—		—		—		—		—		198		198
Balance, September 30, 2020	—	$	—	$	—	$	727,129	$	—	$	—	$	(1,244)	$	725,885

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 a liability related to its non-qualified deferred compensation plan, which represents benefits accrued for participants that are part of the plan and is valued at the quoted market prices of the participants' investment election, at fair value on a recurring basis. 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 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 Company also measures certain non-financial assets at fair value on a nonrecurring basis, such as goodwill, intangible assets, operating lease right-of-use assets, and property, plant, and equipment, in connection with periodic evaluations for potential impairment.

Recent Accounting Pronouncements

Adopted

Income Taxes. In December 2019, the Financial Accounting Standards Board (the "FASB") issued ASU 2019-12, Simplifying the Accounting for Income Taxes. This guidance simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (ASC 740). It also simplifies certain aspects of accounting for franchise taxes and clarifies and amends existing guidance to improve consistent application and reduce complexity. There was no material impact on the consolidated financial statements of the Company upon adoption of the standard during the first quarter of 2021.

Pending Adoption

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The standard provides temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of the London Interbank Overnight ("LIBO") rate, which is currently expected to occur on December 31, 2021. The Company's $250.0 million senior unsecured revolving credit facility (the "Revolving Facility"), as further described in Note 8 to the consolidated and combined financial statements in the 2020 Annual Report, currently references the LIBO rate for determining interest payable on outstanding borrowings. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts referencing the LIBO rate. The new guidance provides an expedient which simplifies accounting analyses under current GAAP for contract modifications if the change is directly related to a change from the LIBO rate to a new interest rate index. The Company will adopt the standard in the first quarter of 2022, and is continuing to evaluate the provisions of ASU 2020–04 and the impacts of transitioning to an alternative rate; however, we do not expect it to have a material impact to the Company's consolidated financial statements or to any key terms of our Revolving Facility other than the discontinuation of the LIBO rate.

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Fair Value Measurement

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

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:

(In Thousands)	September 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Deferred Compensation Liability	$	—	$	(10,499)	$	—	$	—	$	(10,450)	$	—

The Company maintains The Aaron's Company, 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 represents benefits accrued for plan participants and 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, which is recorded in accounts payable and accrued expenses in the condensed consolidated balance sheets.

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:

(In Thousands)	September 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets Held for Sale	$	—	$	7,370	$	—	$	—	$	8,956	$	—

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 expenses, net or restructuring expenses, net (if the asset is a part of the Company's restructuring programs as described in Note 5 to these condensed consolidated and combined financial statements) in the condensed consolidated and combined 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, and plans to sell the properties to third parties as quickly as practicable.

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Revenue Recognition

9 Months Ended

Sep. 30, 2021

Revenue from Contract with Customer [Abstract]

Revenue Recognition

REVENUE RECOGNITION

The following table disaggregates revenue by source:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2021		2020		2021		2020
Lease Revenues and Fees	$	401,383	$	384,183	$	1,240,645	$	1,153,799
Retail Sales	12,283		13,553		45,606		37,104
Non-Retail Sales	32,159		34,820		94,563		94,710
Franchise Royalties and Fees	6,147		8,079		19,109		18,168
Other	181		326		779		966
Total1	$	452,153	$	440,961	$	1,400,702	$	1,304,747

1 Includes revenues from Canadian operations of $5.5 million and $17.4 million during the three and nine months ended September 30, 2021, respectively ($5.5 million and $16.2 million during the three and nine months ended September 30, 2020, respectively). The revenues are primarily lease revenues and fees.

Lease Revenues and Fees

The Company provides lease merchandise, consisting of furniture, appliances, electronics, computers, and a variety of other products and accessories to its customers for lease under certain terms agreed to by the customer. The Company’s stores and its e-commerce platform offer leases with flexible ownership plans that can be renewed monthly 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 an early purchase option or through payment of all required lease payments through the end of the ownership plan. Our store-based operations also offer customers the option to obtain a membership in the Aaron’s Club program. The benefits to customers of the Club program are separated into three general categories: (a) product protection benefits; (b) health & wellness discounts; and (c) dining, shopping and consumer savings. Lease agreements and Aaron's Club program memberships are cancelable at any time by either party without penalty, and as such, we consider these offerings to be month-to-month arrangements.

Lease revenues related to the leasing of merchandise and Aaron's Club membership fees are recognized as revenue in the month they are earned. 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. Lease revenues are recorded net of a provision for returns and uncollectible renewal payments.

All of the Company's customer lease 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 customer agreements are expensed as incurred and have been classified as other operating expenses, net in the condensed consolidated and combined statements of earnings. The statement of earnings effects of expensing the initial direct costs as incurred are not materially different from amortizing initial direct costs over the lease ownership plan.

Substantially all lease revenues and fees were within the scope of ASC 842, Leases, during the three and nine months ended September 30, 2021 and 2020. Included in lease revenues and fees above, the Company had $7.1 million and $20.1 million of other revenue during the three and nine months ended September 30, 2021, respectively ($6.5 million and $18.9 million during the three and nine months ended September 30, 2020, respectively) within the scope of ASC 606, Revenue from Contracts with Customers. Lease revenues and fees are recorded within lease and retail revenues in the accompanying condensed consolidated and combined statements of earnings.

Retail and Non-Retail Sales

Revenues from the retail sale of merchandise to individual consumers 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.

Sales of lease merchandise to franchisees and to other customers are recorded within non-retail sales and lease and retail revenues, respectively, in the accompanying condensed consolidated and combined statements of earnings. All retail and non-retail sales revenue is within the scope of ASC 606, Revenue from Contracts with Customers, during the three and nine months ended September 30, 2021 and 2020.

Franchise Royalties and Fees

Franchisees pay an ongoing royalty of 6% of the weekly cash revenue payments received, which is recognized as the fees become due. In response to the COVID-19 pandemic, the Company temporarily suspended, as opposed to deferring, the royalty fee obligation in March 2020, effectively forgiving the franchisee royalty payments that otherwise would have been due during the suspension period. The Company reinstated the requirement that franchisees make royalty payments during the second quarter of 2020.

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 4 to these condensed consolidated and combined financial statements for additional discussion of the franchise-related guarantee obligation. The Company also charges fees for advertising efforts that benefit the franchisees, which are recognized at the time the advertising takes place.

Substantially all franchise royalties and fees revenue is within the scope of ASC 606, Revenue from Contracts with Customers. Of the franchise royalties and fees, $4.8 million and $15.0 million during the three and nine months ended September 30, 2021, respectively, ($6.1 million and $13.7 million during the three and nine months ended September 30, 2020, respectively) is related to franchise royalty income that is recognized as the fees become due. The remaining revenue is primarily related to advertising fees charged to franchisees. Franchise royalties and fees are recorded within franchise royalties and other revenues in the accompanying condensed consolidated and combined statements of earnings.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Guarantees

The Company has guaranteed certain debt obligations of some of its franchisees under a franchise loan program (the "Franchise Loan Facility") as described below with several of the banks in our Revolving Facility. In the event these franchisees are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of the franchisees’ debt obligations under the Franchise Loan Facility, which would be due in full within 75 days of the event of default. During the third quarter of 2021, the Company reduced the total commitment under the Franchise Loan Facility, which expires on November 16, 2021, from $25.0 million to $15.0 million. We are able to request additional 364-day extensions of our Franchise Loan Facility, as long as we are not in violation of any of the covenants under that facility or our Revolving Facility, and no event of default exists under those agreements, until such time as our Revolving Facility expires. We currently expect to include a franchise loan facility as part of any future extension or renewal of our Revolving Facility. At September 30, 2021, the maximum amount that the Company would be obligated to repay in the event franchisees defaulted was $9.4 million. The Company is subject to financial covenants under the Franchise Loan Facility that are consistent with the Revolving Facility, which are more fully described in Note 8 to the consolidated and combined financial statements in the 2020 Annual Report.

The Company has recourse rights to franchisee assets securing the debt obligations, which consist primarily of lease merchandise and fixed assets. Since the inception of the franchise loan program in 1994, the Company's losses associated with the program have been insignificant. However, such losses could be material in a future period due to potential adverse trends in the liquidity and/or financial performance of the Company's franchisees resulting in an event of default or impending defaults by franchisees. The Company records a liability related to estimated future losses from repaying the franchisees' outstanding debt obligations upon any possible future events of default. This is included in accounts payable and accrued expenses in the condensed consolidated balance sheets and was $2.2 million and $2.4 million at September 30, 2021 and December 31, 2020, respectively. The balances at September 30, 2021 and December 31, 2020 included qualitative consideration of potential losses, including uncertainties surrounding the normalization of current and future business trends associated with an anticipated end to the COVID-19 pandemic, and the corresponding unknown effect on the operations and liquidity of our franchisees.

Legal Proceedings

From time to time, the Company is party to various legal and regulatory proceedings arising in the ordinary course of business, certain of which have been described below. The Company establishes an accrued liability for legal and regulatory proceedings when it determines that a loss is both probable and the amount of the loss can be reasonably estimated. The Company continually monitors its litigation and regulatory exposure and reviews the adequacy of its legal and regulatory reserves on a quarterly basis. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters due to the inherent uncertainty in litigation, regulatory and similar adversarial proceedings, and substantial losses from these proceedings or the costs of defending them could have a material adverse impact upon the Company’s business, financial position, and results of operations.

At September 30, 2021 and December 31, 2020, the Company had accrued $1.6 million and $0.8 million, respectively, for pending legal and regulatory matters for which it believes losses are probable and is management’s best estimate of its exposure to loss. The Company records these liabilities in accounts payable and accrued expenses in the condensed consolidated balance sheets. The Company estimates that the aggregate range of reasonably possible loss in excess of accrued liabilities for such probable loss contingencies is between zero and $2.6 million.

At September 30, 2021, the Company estimated that the aggregate range of loss for all material pending legal and regulatory proceedings for which a loss is reasonably possible, but less likely than probable (i.e., excluding the contingencies described in the preceding paragraph), is between zero and $0.5 million. Those matters for which a reasonable estimate is not possible are not included within estimated ranges and, therefore, the estimated ranges do not represent the Company’s maximum loss exposure. The Company’s estimates for legal and regulatory accruals, aggregate probable loss amounts and reasonably possible loss amounts, are all subject to the uncertainties and variables described above.

Regulatory Inquiries

In the first quarter of 2021, Aaron's, LLC, along with a number of other lease-to-own companies, received a subpoena from the California Department of Financial Protection and Innovation (the "DFPI") requesting the production of documents regarding the Company’s compliance with state consumer protection laws. The Company is cooperatively engaging with the DFPI in response to its inquiry. Although the Company believes it is in compliance with all applicable consumer protection laws and regulations in California, this inquiry ultimately could lead to an enforcement action and/or a consent order, and substantial costs, including legal fees, fines, penalties, and remediation expenses.

Other Contingencies

Management regularly assesses the Company’s insurance deductibles, monitors litigation and regulatory exposure with the Company’s attorneys, and evaluates its loss experience. The Company also enters into various contracts in the normal course of business that may subject it to risk of financial loss if counterparties fail to perform their contractual obligations.

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Restructuring

9 Months Ended

Sep. 30, 2021

Restructuring and Related Activities [Abstract]

Restructuring

RESTRUCTURING

Real Estate Repositioning and Optimization Restructuring Program

During the first quarter of 2020, the Company initiated a real estate repositioning and optimization restructuring program. This program includes a strategic plan to remodel, reposition, and consolidate our Company-operated store footprint over the next three to four years. We believe that such strategic actions will allow the Company to continue to successfully serve our markets while continuing to utilize our growing Aarons.com shopping and servicing platform. Management expects that this strategy, along with our increased use of technology, will enable us to reduce store count while retaining a significant portion of our existing customer relationships as well as attract new customers. Since initiation, the program has resulted in the closure, consolidation, or relocation of 126 Company-operated stores during 2020 and the first nine months of 2021. As of September 30, 2021, we have identified approximately 45 remaining stores for closure, consolidation, or relocation that have not yet been closed and vacated, nearly all of which are expected to close during 2021 and the first half of 2022. During the three and nine months ended September 30, 2020, we also further rationalized our store support center 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 $2.2 million and $6.2 million were recorded for the three and nine months ended September 30, 2021 under the real estate repositioning and optimization restructuring program. Restructuring expenses were comprised mainly of operating lease right-of-use asset and fixed asset impairment charges related to the vacancy or planned vacancy of stores identified for closure, continuing variable occupancy costs incurred related to closed stores, and losses on the sale of Company-operated stores located in markets we intend to exit in conjunction with our real estate repositioning strategy. Such losses were offset by gains related to the sale of vehicle and real estate assets previously impaired in conjunction with the repositioning and optimization program in prior periods.

As management continues to execute on its long-term plan, additional restructuring charges are expected to result from our real estate repositioning and optimization initiatives, primarily related to operating lease right-of-use asset and fixed asset impairments. However, the extent of future restructuring charges is not estimable at this time as the specific relocation sites, with the exception of those sites noted above, have not yet been identified by management. Additionally, we expect future restructuring expenses (reversals) due to potential future early buyouts of leases with landlords, as well as continuing variable occupancy costs related to closed stores.

2019 Restructuring Program

During the first quarter of 2019, the Company initiated a restructuring program to optimize its Company-operated Aaron's store portfolio, which resulted in the closure and consolidation of 155 underperforming Company-operated stores during 2019. The Company also rationalized its store support center and field support staff, which resulted in a reduction in associate headcount in those areas to more closely align with current business conditions.

Total net restructuring expenses of $0.6 million and $1.6 million were recorded for the three and nine months ended September 30, 2021 under the 2019 restructuring program. Restructuring expenses were primarily comprised of continuing variable occupancy costs incurred related to closed stores. These costs were included in restructuring expenses, net in the condensed consolidated and combined statements of earnings. We expect future restructuring expenses (reversals) due to potential future early buyouts of leases with landlords as well as continuing variable occupancy costs.

The following table summarizes restructuring charges for the three and nine months ended September 30, 2021 and 2020, respectively, under the Company's restructuring programs:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2021		2020		2021		2020
Right-of-Use Asset Impairment	$	871	$	892	$	3,143	$	19,526
Operating Lease Charges	1,495		1,748		4,246		4,318
Fixed Asset Impairment	212		216		628		3,168
Severance	11		986		161		5,711
Other Expenses	55		199		226		595
Loss (Gain) on Sale of Store Properties and Related Assets	255		—		(270)		—
Total Restructuring Expenses, Net1	$	2,899	$	4,041	$	8,134	$	33,318

1 Includes expenses related to our 2016 and 2017 restructuring programs as described within Note 11 to the consolidated and combined financial statements in the 2020 Annual Report, which were not significant during the three and nine months ended September 30, 2021.

To date, the Company has incurred charges of $46.8 million under the 2019 restructuring program, and $40.1 million under the real estate repositioning and optimization restructuring program. These cumulative charges are primarily comprised of operating lease right-of-use asset and fixed impairment charges, losses recognized related to contractual lease obligations, and severance related to reductions in store support center and field support staff headcount.

The following table summarizes the activity for the nine months ended September 30, 2021 and the corresponding accrual balance as of September 30, 2021 for the restructuring programs:

(In Thousands)	Severance
Balance at January 1, 2021	$	773
Restructuring Severance Charges	161
Payments	(934)
Balance at September 30, 2021	$	—

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Basis and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Description of Business

Description of BusinessAaron's is a leading, technology-enabled, omni-channel provider of lease-to-own ("LTO") and purchase solutions generally focused on serving the large, credit-challenged segment of the population. Through our portfolio of approximately 1,300 stores and our Aarons.com e-commerce platform, we provide consumers with LTO and purchase solutions for the products they need and want, including furniture, appliances, electronics, computers and a variety of other products and accessories. In addition, the Company's business includes the operations of Woodhaven Furniture Industries ("Woodhaven"), which manufactures and supplies the majority of the bedding and a significant portion of the upholstered furniture leased and sold in Company-operated and franchised stores.

Basis of Presentation

Basis of Presentation

The financial statements for periods prior to and through the date of the separation and distribution, November 30, 2020, were prepared on a combined standalone basis and were derived from the consolidated financial statements and accounting records of PROG Holdings. The financial statements for the period from December 1, 2020 through December 31, 2020, and three and nine months ended September 30, 2021 are consolidated financial statements of the Company and its subsidiaries, each of which is wholly-owned, and is based on the financial position and results of operations of the Company as a standalone company. Intercompany balances and transactions between consolidated entities have been eliminated. These condensed consolidated and combined financial statements reflect the historical results of operations, financial position and cash flows of the Company in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The historical results of operations and cash flows of the Company prior to the separation and distribution presented in these condensed consolidated and combined financial statements may not be indicative of what they would have been had the Company been an independent standalone entity, nor are they necessarily indicative of the Company's future results of operations, financial position and cash flows.

The condensed combined balance sheets for periods prior to and through the separation and distribution date include the assets and liabilities associated with the historical Aaron’s Business and certain assets and liabilities where Aaron's, Inc. is the legal beneficiary or obligor. The combined statements of earnings for periods prior to and through the separation and distribution date include all revenues and costs directly attributable to the Company and an allocation of expenses related to certain PROG Holdings corporate functions. These allocated costs and expenses include executive management, finance, treasury, tax, audit, legal, information technology, human resources and risk management functions and the related benefit cost associated with such functions, including stock-based compensation. These costs and expenses have been allocated to the Company based on direct usage or benefit where specifically identifiable, with the remaining expenses allocated primarily on a pro rata basis using an applicable measure of revenues, headcount or other relevant measures. The Company considers these allocations to be a reasonable reflection of the utilization of services or the benefit received.

The preparation of the Company's condensed consolidated and combined financial statements in conformity with 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. However, as described above, the extent to which the normalization of business trends since the start of the COVID-19 pandemic, and the resulting measures taken by the Company and federal and state governments, will impact the Company's business will depend on future developments, which are uncertain and cannot be precisely predicted at this time. In many cases, management's estimates and assumptions are dependent on estimates of such future developments and may change in the future.

The accompanying unaudited condensed consolidated and combined 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 and combined financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 2020 Annual Report. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of operating results for the full year.

Reclassifications

ReclassificationsCertain reclassifications have been made to the prior periods to conform to the current period presentation. For all periods prior to September 30, 2021, the Company presented the additions to lease merchandise and the book value of lease merchandise sold or disposed as separate lines within operating activities in the condensed consolidated and combined statements of cash flows. Effective with the nine months ended September 30, 2021, the Company revised its presentation of changes to lease merchandise to separately present the provision for lease merchandise write-offs, and combine the remaining operating activity-related changes in lease merchandise, with the exception of depreciation of lease merchandise, in a single line under changes in operating assets and liabilities in the condensed consolidated and combined statements of cash flows. This revised presentation and the related adjustments to the prior period presentation do not have an impact on cash provided by operating activities.

Accounting Policies and Estimates

Accounting Policies and Estimates

See Note 1 to the consolidated and combined financial statements in the 2020 Annual Report for an expanded discussion of accounting policies and estimates. Discussions of accounting estimates and application of accounting policies herein have also been updated as applicable to describe the uncertainty associated with the impacts of the COVID-19 pandemic described above.

Earnings Per Share

Earnings Per ShareEarnings 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"), performance share units ("PSUs") and other awards issuable under the Company's employee stock purchase plan ("ESPP") (collectively, "share-based awards") as determined under the treasury stock method, unless the inclusion of such awards would have been anti-dilutive.

Revenue Recognition

Revenue Recognition The Company provides lease merchandise, consisting of furniture, appliances, electronics, computers and a variety of other products and accessories to its customers for lease under certain terms agreed to by the customer. Our stores and e-commerce platform offer leases with flexible ownership plans that can be renewed monthly up to 12, 18 or 24 months. The Company also earns revenue from the sale of merchandise to customers and its franchisees, and earns ongoing revenue from its franchisees in the form of royalties and through advertising efforts that benefit the franchisees. See Note 3 to these condensed consolidated and combined financial statements for further information regarding the Company's revenue recognition policies and disclosures.

Accounts Receivable

Accounts Receivable

Accounts receivable consist primarily of receivables due from customers on lease agreements, corporate receivables incurred during the normal course of business (primarily for vendor consideration and real estate leasing activities) and franchisee obligations.

Accounts receivable, net of allowances, consist of the following: 

(In Thousands)	September 30, 2021		December 31, 2020
Customers	$	8,606	$	8,399
Corporate	11,822		12,771
Franchisee	9,888		12,820
	$	30,316	$	33,990

The Company maintains an accounts receivable allowance, under which the Company's policy is to record a provision for returns and uncollectible contractually due renewal payments based on historical payments experience, which is recognized as a reduction of lease and retail revenues within the condensed consolidated and combined statements of earnings. Other qualitative

factors are considered in estimating the allowance, such as current and forecasted business trends. The Company writes off customer lease receivables that are 60 days or more past due on pre-determined dates twice monthly.

The Company also maintains an allowance for outstanding franchisee accounts receivable. The Company's policy is to estimate a specific allowance on accounts receivable to estimate future losses related to certain franchisees that are deemed to have a higher risk of non-payment and a general allowance based on historical losses as well as the Company's assessment of the financial health of all other franchisees. The estimated allowance on franchisee accounts receivable includes consideration of broad macroeconomic trends, such as the uncertainty surrounding the impacts of the normalization of current and future business trends associated with the COVID-19 pandemic on the franchisees' ability to satisfy their obligations. Accordingly, actual accounts receivable write-offs could differ from the allowance. The provision for uncollectible franchisee accounts receivable is recorded as bad debt expense in other operating expenses, net within the condensed consolidated and combined statements of earnings.

The following table shows the components of the accounts receivable allowance:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Beginning Balance	$	7,613	$	10,720
Accounts Written Off, net of Recoveries	(20,110)		(26,304)
Accounts Receivable Provision	18,840		22,089
Ending Balance	$	6,343	$	6,505

Lease Merchandise

Lease Merchandise

The Company’s lease merchandise is recorded at the lower of depreciated 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 begins depreciating merchandise at the earlier of 12 months and one day from its purchase of the merchandise or when the item is leased to customers. Lease merchandise depreciates 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 following is a summary of lease merchandise, net of accumulated depreciation and allowances:

(In Thousands)	September 30, 2021		December 31, 2020
Merchandise on Lease, net of Accumulated Depreciation and Allowances	$	465,833	$	473,964
Merchandise Not on Lease, net of Accumulated Depreciation and Allowances1	309,179		223,271
Lease Merchandise, net of Accumulated Depreciation and Allowances	$	775,012	$	697,235

1 Includes Woodhaven raw materials, finished goods and work-in-process inventory that has been classified within lease merchandise in the condensed consolidated balance sheets of $20.7 million and $10.4 million as of September 30, 2021 and December 31, 2020, respectively.

The Company's policies require weekly merchandise counts at its store-based operations, which include write-offs for unsalable, damaged, or missing merchandise inventories. Monthly cycle counting procedures are performed at both the Company's fulfillment centers and manufacturing facilities. Physical inventories are also taken at the manufacturing facilities annually. The Company also monitors merchandise levels and mix by division, store, and fulfillment center, as well as the average age of merchandise on hand. If obsolete merchandise cannot be returned to vendors, its carrying amount is adjusted to its net realizable value or written off. Generally, all merchandise not on lease 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 using the allowance method, which is included within lease merchandise, net within the condensed consolidated balance sheets. The allowance method for lease merchandise write-offs estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting period based primarily on historical write-off experience. Other qualitative factors are considered in estimating the allowance, such as uncertainty surrounding the impacts of the normalization of current and future business trends associated with the COVID-19 pandemic. Therefore, actual lease merchandise write-offs could differ from the allowance. The provision for write-offs is included in provision for lease merchandise write-offs in the accompanying condensed consolidated and combined statements of earnings. The Company writes off lease merchandise on lease agreements that are 60 days or more past due on pre-determined dates twice monthly.

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, 2021 and December 31, 2020. 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. Gains and losses related to the sale of assets held for sale are recorded in other operating expenses, net or restructuring expenses, net (if the asset is a part of the Company's restructuring programs further described in Note 5 to these condensed consolidated and combined financial statements) in the condensed consolidated and combined statements of earnings. Such gains and losses were not significant for the three and nine months ended September 30, 2021 and September 30, 2020.

Management 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. The carrying amount of the properties held for sale as of September 30, 2021 and December 31, 2020 is $7.4 million and $9.0 million, respectively.

Estimated Claims Liability Costs

Estimated Claims Liability Costs

Estimated claims liability costs are accrued primarily for workers compensation, vehicle liability, general liability and group health insurance benefits provided to employees. These liabilities are recorded within estimated claims liability costs within accounts payable and accrued expenses in the condensed consolidated balance sheets. Estimates for these claims liabilities are made based on actual reported but unpaid claims and actuarial analysis of the projected claims run off for both reported and incurred but not reported claims. This analysis is based upon an assessment of the likely outcome or historical experience. The Company makes periodic prepayments to its insurance carriers to cover the projected claims run off for both reported and incurred but not reported claims, considering its retention or stop loss limits. In addition, we have prefunding balances on deposit and other insurance receivables with the insurance carriers which are recorded within prepaid expenses and other assets in our condensed consolidated balance sheets.

Segment Reporting

Segment ReportingManagement concluded that the Company has one operating and reportable segment based on the nature of the financial information regularly reviewed by the chief operating decision maker to assess performance and allocate resources. We have also concluded that the Company has one reporting unit due to the fact that the components included within the operating segment have similar economic characteristics, such as the nature of the products and services provided, the nature of the customers we serve, and the interrelated nature of the components that are aggregated to form the sole reporting unit. The Company evaluates performance and allocates resources as a single operating segment based on revenue growth and pre-tax profit or loss from operations.

Goodwill

Goodwill

The Company’s goodwill is not amortized but is subject to an impairment test at the reporting unit level annually as of October 1 and more frequently if events or circumstances indicate that an impairment may have occurred. An interim goodwill impairment test is required if the Company believes it is more likely than not that the carrying amount of its reporting unit exceeds the reporting unit's fair value. The Company concluded that the need for an interim goodwill impairment test was triggered as of March 31, 2020. Factors that led to this conclusion included: (i) a significant decline in the Aaron's, Inc. stock price and market capitalization in March 2020; (ii) the temporary closure of all Company-operated store showrooms due to the COVID-19 pandemic, which impacted our financial results and was expected to adversely impact future financial results; (iii) the significant uncertainty with regard to the short-term and long-term impacts that macroeconomic conditions arising from the COVID-19 pandemic and related government emergency and executive orders would have on the financial health of our customers and franchisees; and (iv) consideration given to the amount by which the Aaron's Business reporting unit's fair value exceeded the carrying value from the October 1, 2019 annual goodwill impairment test.

As of March 31, 2020, management of Aaron's, Inc. determined its existing goodwill was fully impaired and recorded a goodwill impairment loss of $446.9 million during the three months ended March 31, 2020. Management engaged the assistance of a third-party valuation firm to perform the interim goodwill impairment test, which entailed an assessment of the Aaron's Business reporting unit’s fair value relative to the carrying value that was derived using a combination of both income and market approaches and performing a market capitalization reconciliation, which included an assessment of the control premium implied from the Company's estimated fair values of its reporting units. The fair value measurement involved significant unobservable inputs (Level 3 inputs, as discussed more fully below). The income approach utilized the discounted future expected cash flows, which required assumptions about short-term and long-term revenue growth or decline rates, operating margins, capital requirements, and a weighted-average cost of capital. The income approach reflected assumptions and estimates made by management regarding direct and indirect impacts of the COVID-19 pandemic on the short-term and long-term cash flows for the reporting unit. Due to the significant uncertainty associated with the impacts of the COVID-19 pandemic, the assumptions and estimates used by management were highly subjective. The weighted-average cost of capital used in the income approach was adjusted to reflect the specific risks and uncertainties associated with the COVID-19 pandemic in developing the cash flow projections. Given the uncertainty discussed above, the Company performed certain sensitivity analyses including considering reasonably possible alternative assumptions for short-term and long-term growth or decline rates, operating margins, capital requirements, and weighted-average cost of capital rates. Each of the sensitivity analyses performed supported the conclusion of a full impairment of the existing goodwill balance within the Aaron's Business reporting unit.

The market approach, which includes the guideline public company method, utilized pricing multiples derived from an analysis of comparable publicly traded companies. We believe the comparable companies we evaluate as marketplace participants serve as an appropriate reference when calculating fair value because those companies have similar risks, participate in similar markets, provide similar products and services for their customers and compete with us directly. However, we considered that such publicly available information regarding the comparable companies evaluated likely did not reflect the impact of the COVID-19 pandemic in determining the multiple assumptions selected.

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 a liability related to its non-qualified deferred compensation plan, which represents benefits accrued for participants that are part of the plan and is valued at the quoted market prices of the participants' investment election, at fair value on a recurring basis. 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 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 Company also measures certain non-financial assets at fair value on a nonrecurring basis, such as goodwill, intangible assets, operating lease right-of-use assets, and property, plant, and equipment, in connection with periodic evaluations for potential impairment.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Adopted

Income Taxes. In December 2019, the Financial Accounting Standards Board (the "FASB") issued ASU 2019-12, Simplifying the Accounting for Income Taxes. This guidance simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (ASC 740). It also simplifies certain aspects of accounting for franchise taxes and clarifies and amends existing guidance to improve consistent application and reduce complexity. There was no material impact on the consolidated financial statements of the Company upon adoption of the standard during the first quarter of 2021.

Pending Adoption

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The standard provides temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of the London Interbank Overnight ("LIBO") rate, which is currently expected to occur on December 31, 2021. The Company's $250.0 million senior unsecured revolving credit facility (the "Revolving Facility"), as further described in Note 8 to the consolidated and combined financial statements in the 2020 Annual Report, currently references the LIBO rate for determining interest payable on outstanding borrowings. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts referencing the LIBO rate. The new guidance provides an expedient which simplifies accounting analyses under current GAAP for contract modifications if the change is directly related to a change from the LIBO rate to a new interest rate index. The Company will adopt the standard in the first quarter of 2022, and is continuing to evaluate the provisions of ASU 2020–04 and the impacts of transitioning to an alternative rate; however, we do not expect it to have a material impact to the Company's consolidated financial statements or to any key terms of our Revolving Facility other than the discontinuation of the LIBO rate.

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Basis and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Schedule Of Company Operated Store Activity

The following table presents store count by ownership type:

Stores as of September 30 (Unaudited)	2021	2020
Company-operated Stores	1,084	1,086
Franchised Stores	237	308
Systemwide Stores	1,321	1,394

Calculation of Dilutive Stock Awards

The following table shows the calculation of weighted-average shares outstanding assuming dilution:

	Three Months Ended September 30,		Nine Months Ended September 30,
(Shares In Thousands)	2021	2020	2021	2020
Weighted Average Shares Outstanding	32,485	33,842	33,513	33,842
Dilutive Effect of Share-Based Awards	703	—	703	—
Weighted Average Shares Outstanding Assuming Dilution	33,188	33,842	34,216	33,842

Accounts Receivable Net of Allowances

Accounts receivable, net of allowances, consist of the following: 

(In Thousands)	September 30, 2021		December 31, 2020
Customers	$	8,606	$	8,399
Corporate	11,822		12,771
Franchisee	9,888		12,820
	$	30,316	$	33,990

Components of the Accounts Receivable Provision

The following table shows the components of the accounts receivable allowance:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Beginning Balance	$	7,613	$	10,720
Accounts Written Off, net of Recoveries	(20,110)		(26,304)
Accounts Receivable Provision	18,840		22,089
Ending Balance	$	6,343	$	6,505

The following table shows the components of the accounts receivable provision, which includes amounts recognized for bad debt expense and the provision for returns and uncollected payments:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Bad Debt (Reversal) Expense	$	(728)	$	933
Provision for Returns and Uncollectible Renewal Payments	19,568		21,156
Accounts Receivable Provision	$	18,840	$	22,089

Schedule of Lease Merchandise

The following is a summary of lease merchandise, net of accumulated depreciation and allowances:

(In Thousands)	September 30, 2021		December 31, 2020
Merchandise on Lease, net of Accumulated Depreciation and Allowances	$	465,833	$	473,964
Merchandise Not on Lease, net of Accumulated Depreciation and Allowances1	309,179		223,271
Lease Merchandise, net of Accumulated Depreciation and Allowances	$	775,012	$	697,235

1 Includes Woodhaven raw materials, finished goods and work-in-process inventory that has been classified within lease merchandise in the condensed consolidated balance sheets of $20.7 million and $10.4 million as of September 30, 2021 and December 31, 2020, respectively.

Allowance for Lease Merchandise

The following table shows the components of the allowance for lease merchandise write-offs:

	Nine Months Ended September 30,
(In Thousands)	2021		2020
Beginning Balance	$	11,599	$	13,823
Merchandise Written off, net of Recoveries	(46,414)		(49,058)
Provision for Write-offs	45,333		47,478
Ending Balance	$	10,518	$	12,243

Schedule of Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following:

(In Thousands)	September 30, 2021		December 31, 2020
Prepaid Expenses1	$	17,401	$	17,411
Insurance Related Assets1	27,606		27,020
Company-Owned Life Insurance	15,275		16,223
Assets Held for Sale	7,370		8,956
Deferred Tax Asset	7,014		7,014
Other Assets1	27,238		13,271
	$	101,904	$	89,895

1 During the second quarter of 2021, the Company recategorized items within the components of prepaid expenses and other assets. The presentation of prior period amounts has been reclassified to be consistent with the current period presentation. Such reclassification has no impact on the total prepaid expenses and other assets balance as of December 31, 2020.

Schedule of Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

(In Thousands)	September 30, 2021		December 31, 2020
Accounts Payable 1	$	76,876	$	84,738
Estimated Claims Liability Costs	55,155		49,272
Accrued Salaries and Benefits	64,715		53,396
Accrued Real Estate and Sales Taxes1	24,947		23,968
Other Accrued Expenses and Liabilities1	37,511		19,474
	$	259,204	$	230,848

1 During the second quarter of 2021, the Company recategorized items within the components of accounts payable and accrued expenses. The presentation of prior period amounts has been reclassified to be consistent with the current period presentation. Such reclassification has no impact on the total accounts payable and accrued expenses balance as of December 31, 2020.

Schedule of Stockholders Equity

Changes in stockholders' equity for the three and nine months ended September 30, 2021 and 2020 are as follows:

	Treasury Stock			Common Stock		Invested Capital		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(In Thousands, Except Per Share)	Shares	Amount
Balance, December 31, 2020	(895)	$	(15,977)	$	17,550	$	—	$	708,668	$	1,881	$	(797)	$	711,325
Cash Dividends, $0.10 per share	—	—		—		—		—		(3,472)		—		(3,472)
Stock-Based Compensation	—	—		—		—		3,551		—		—		3,551
Issuance of Shares under Equity Plans	(114)	(2,729)		165		—		378		—		—		(2,186)
Acquisition of Treasury Stock	(252)	(6,280)		—		—		—		—		—		(6,280)
Net Earnings	—	—		—		—		—		36,323		—		36,323
Foreign Currency Translation Adjustment	—	—		—		—		—		—		127		127
Balance, March 31, 2021	(1,261)	$	(24,986)	$	17,715	$	—	$	712,597	$	34,732	$	(670)	$	739,388
Cash Dividends, $0.10 per share	—	—		—		—		—		(3,387)		—		(3,387)
Stock-Based Compensation	—	—		—		—		1,714		—		—		1,714
Issuance of shares under equity plans	—	—		45		—		1,202		—		—		1,247
Acquisition of Treasury Stock	(1,166)	(38,642)		—		—		—		—		—		(38,642)
Net Earnings	—	—		—		—		—		32,975		—		32,975
Foreign Currency Translation Adjustment	—	—		—		—		—		—		220		220
Balance, June 30, 2021	(2,427)	$	(63,628)	$	17,760	$	—	$	715,513	$	64,320	$	(450)	$	733,515
Cash Dividends, $0.10 per share	—	—		—		—		—		(3,247)		—		(3,247)
Stock-Based Compensation	—	—		—		—		2,757		—		—		2,757
Reclassification of liability awards to equity awards	—	—		—		—		1,841		—		—		1,841
Reissued Shares	—	—		3		—		83		—		—		86
Acquisition of Treasury Stock	(1,333)	(37,516)		—		—		—		—		—		(37,516)
Net Earnings	—	—		—		—		—		24,348		—		24,348
Foreign Currency Translation Adjustment	—	—		—		—		—		—		(254)		(254)
Balance, September 30, 2021	(3,760)	$	(101,144)	$	17,763	$	—	$	720,194	$	85,421	$	(704)	$	721,530

	Treasury Stock			Common Stock		Invested Capital		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(In Thousands, Except Per Share)	Shares	Amount
Balance, December 31, 2019	—	$	—	$	—	$	837,800	$	—	$	—	$	(19)	$	837,781
Stock-Based Compensation	—	—		—		2,725		—		—		—		2,725
Net increase in Invested Capital	—	—		—		90,211		—		—		—		90,211
Net Loss	—	—		—		(323,774)		—		—		—		(323,774)
Foreign Currency Translation Adjustment	—	—		—		—		—		—		(1,754)		(1,754)
Balance, March 31, 2020	—	$	—	$	—	$	606,962	$	—	$	—	$	(1,773)	$	605,189
Stock-Based Compensation	—	—		—		2,892		—		—		—		2,892
Net increase in Invested Capital	—	—		—		35,994		—		—		—		35,994
Net Earnings	—	—		—		22,374		—		—				22,374
Foreign Currency Translation Adjustment	—	—		—		—		—		—		331		331
Balance, June 30, 2020	—	$	—	$	—	$	668,222	$	—	$	—	$	(1,442)	$	666,780
Stock-Based Compensation	—	—		—		3,954		—		—		—		3,954
Net Increase in Invested Capital	—	—		—		22,340		—		—		—		22,340
Net Earnings	—	—		—		32,613		—		—		—		32,613
Foreign Currency Translation Adjustment	—	—		—		—		—		—		198		198
Balance, September 30, 2020	—	$	—	$	—	$	727,129	$	—	$	—	$	(1,244)	$	725,885

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Fair Value Measurement (Tables)

9 Months Ended

Sep. 30, 2021

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:

(In Thousands)	September 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Deferred Compensation Liability	$	—	$	(10,499)	$	—	$	—	$	(10,450)	$	—

Assets Measured at Fair Value on Nonrecurring Basis

The following table summarizes non-financial assets measured at fair value on a nonrecurring basis:

(In Thousands)	September 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets Held for Sale	$	—	$	7,370	$	—	$	—	$	8,956	$	—

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Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2021

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The following table disaggregates revenue by source:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2021		2020		2021		2020
Lease Revenues and Fees	$	401,383	$	384,183	$	1,240,645	$	1,153,799
Retail Sales	12,283		13,553		45,606		37,104
Non-Retail Sales	32,159		34,820		94,563		94,710
Franchise Royalties and Fees	6,147		8,079		19,109		18,168
Other	181		326		779		966
Total1	$	452,153	$	440,961	$	1,400,702	$	1,304,747

1 Includes revenues from Canadian operations of $5.5 million and $17.4 million during the three and nine months ended September 30, 2021, respectively ($5.5 million and $16.2 million during the three and nine months ended September 30, 2020, respectively). The revenues are primarily lease revenues and fees.

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Restructuring (Tables)

9 Months Ended

Sep. 30, 2021

Restructuring and Related Activities [Abstract]

Restructuring and Related Costs

The following table summarizes restructuring charges for the three and nine months ended September 30, 2021 and 2020, respectively, under the Company's restructuring programs:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2021		2020		2021		2020
Right-of-Use Asset Impairment	$	871	$	892	$	3,143	$	19,526
Operating Lease Charges	1,495		1,748		4,246		4,318
Fixed Asset Impairment	212		216		628		3,168
Severance	11		986		161		5,711
Other Expenses	55		199		226		595
Loss (Gain) on Sale of Store Properties and Related Assets	255		—		(270)		—
Total Restructuring Expenses, Net1	$	2,899	$	4,041	$	8,134	$	33,318

1 Includes expenses related to our 2016 and 2017 restructuring programs as described within Note 11 to the consolidated and combined financial statements in the 2020 Annual Report, which were not significant during the three and nine months ended September 30, 2021.

Schedule of Restructuring Reserve

The following table summarizes the activity for the nine months ended September 30, 2021 and the corresponding accrual balance as of September 30, 2021 for the restructuring programs:

(In Thousands)	Severance
Balance at January 1, 2021	$	773
Restructuring Severance Charges	161
Payments	(934)
Balance at September 30, 2021	$	—

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Basis and Summary of Significant Accounting Policies - Narrative (Details) $ in Millions		3 Months Ended	9 Months Ended
	Nov. 30, 2020	Sep. 30, 2020 USD ($) store	Sep. 30, 2021 segment store	Sep. 30, 2020 USD ($) store
Significant Accounting Policies [Line Items]
Number of retail stores | store		1,394	1,321	1,394
Number of operating segments			1
Number of reportable segments			1
General corporate expenses allocated | $		$ 8.6		$ 20.4
PROG Holdings
Significant Accounting Policies [Line Items]
Shares issued per entity share, conversion ratio	0.5

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Basis and Summary of Significant Accounting Policies - Store Count by Ownership Type (Details) - store	Sep. 30, 2021	Sep. 30, 2020
Significant Accounting Policies [Line Items]
Number of retail stores	1,321	1,394
Company-operated Stores
Significant Accounting Policies [Line Items]
Number of retail stores	1,084	1,086
Franchised Stores
Significant Accounting Policies [Line Items]
Number of retail stores	237	308

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Basis and Summary of Significant Accounting Policies - Calculation of Dilutive Stock Awards (Details) - shares		3 Months Ended		9 Months Ended
	Nov. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Accounting Policies [Abstract]
Anti-dilutive securities excluded from the computation of earnings per share assuming dilution (in shares)	33,841,624	200,000		100,000
Weighted Average Shares Outstanding (in shares)		32,485,000	33,842,000	33,513,000	33,842,000
Dilutive Effect of Share-Based Awards (in shares)		703,000	0	703,000	0
Weighted Average Shares Outstanding Assuming Dilution (in shares)		33,188,000	33,842,000	34,216,000	33,842,000

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Basis and Summary of Significant Accounting Policies - Revenue Recognition Narrative (Details) - Sales And Lease Ownership	Sep. 30, 2021
Agreement One
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Lease agreement period	12 months
Agreement Two
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Lease agreement period	18 months
Agreement Three
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Lease agreement period	24 months

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Basis and Summary of Significant Accounting Policies - Accounts Receivable Net of Allowances (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, net of allowances	$ 30,316	$ 33,990
Threshold period past due for write-off of trade accounts receivable	60 days
Customers
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, net of allowances	$ 8,606	8,399
Corporate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, net of allowances	11,822	12,771
Franchisee
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, net of allowances	$ 9,888	$ 12,820

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Business and Summary of Significant Accounting Policies - Allowance for Doubtful Accounts (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Beginning Balance	$ 7,613	$ 10,720
Accounts Written Off, net of Recoveries	(20,110)	(26,304)
Accounts Receivable Provision	18,840	22,089
Ending Balance	$ 6,343	$ 6,505

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Basis and Summary of Significant Accounting Policies - Components of the Accounts Receivable Provision (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Accounting Policies [Abstract]
Bad Debt (Reversal) Expense	$ (728)	$ 933
Provision for Returns and Uncollectible Renewal Payments	19,568	21,156
Accounts Receivable Provision	$ 18,840	$ 22,089

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Basis and Summary of Significant Accounting Policies - Lease Merchandise (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Significant Accounting Policies [Line Items]
Lease merchandise salvage value percentage	0.00%
Lease Merchandise, net of Accumulated Depreciation and Allowances	$ 775,012		$ 697,235
Components of the allowance of leases merchandise write-offs:
Beginning Balance	11,599	$ 13,823
Merchandise Written off, net of Recoveries	(46,414)	(49,058)
Provision for Write-offs	45,333	47,478
Ending Balance	10,518	$ 12,243
Manufacturing | Operating Segments
Significant Accounting Policies [Line Items]
Inventory (principally raw materials and work-in-process)	20,700		10,400
Merchandise on Lease, net of Accumulated Depreciation and Allowances
Significant Accounting Policies [Line Items]
Lease Merchandise, net of Accumulated Depreciation and Allowances	$ 465,833		473,964
Merchandise on Lease, net of Accumulated Depreciation and Allowances | Minimum
Significant Accounting Policies [Line Items]
Lease merchandise useful life	12 months
Merchandise on Lease, net of Accumulated Depreciation and Allowances | Maximum
Significant Accounting Policies [Line Items]
Lease merchandise useful life	24 months
Merchandise Not on Lease, net of Accumulated Depreciation and Allowances
Significant Accounting Policies [Line Items]
Lease merchandise useful life	36 months
Lease Merchandise, net of Accumulated Depreciation and Allowances	$ 309,179		$ 223,271

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Basis and Summary of Significant Accounting Policies - Components of Prepaid Expenses and Other Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Accounting Policies [Abstract]
Prepaid Expenses	$ 17,401	$ 17,411
Insurance Related Assets	27,606	27,020
Company-Owned Life Insurance	15,275	16,223
Assets Held for Sale	7,370	8,956
Deferred Tax Asset	7,014	7,014
Other Assets	27,238	13,271
Prepaid Expense and Other Assets	$ 101,904	$ 89,895

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Basis and Summary of Significant Accounting Policies - Assets Held for Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Accounting Policies [Abstract]
Assets Held for Sale	$ 7,370	$ 8,956

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Basis and Summary of Significant Accounting Policies - Accounts Payable and Accrued Expenses (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Accounting Policies [Abstract]
Accounts Payable	$ 76,876	$ 84,738
Estimated Claims Liability Costs	55,155	49,272
Accrued Salaries and Benefits	64,715	53,396
Accrued Real Estate and Sales Taxes	24,947	23,968
Other Accrued Expenses and Liabilities	37,511	19,474
Accounts Payable and Accrued Liabilities	$ 259,204	$ 230,848

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Basis and Summary of Significant Accounting Policies - Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Goodwill [Line Items]
Impairment loss	$ 0	$ 0		$ 0	$ 446,893
Goodwill	$ 13,162			$ 13,162		$ 7,569
Aaron's Business
Goodwill [Line Items]
Impairment loss			$ 446,900

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Basis and Summary of Significant Accounting Policies - Franchisee Acquisitions (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Consideration transferred	$ 9.8	$ 5.5

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Basis and Summary of Significant Accounting Policies - Statements of Stockholders' Equity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2021	Sep. 30, 2020
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning Balance	$ 733,515	$ 739,388	$ 711,325	$ 666,780	$ 605,189	$ 837,781	$ 711,325	$ 837,781
Cash Dividends	(3,247)	(3,387)	(3,472)
Stock-Based Compensation	2,757	1,714	3,551	3,954	2,892	2,725
Reissued Shares	86			22,340
Issuance of Shares under Equity Plans		1,247	(2,186)
Net increase in Invested Capital					35,994	90,211
Acquisition of Treasury Stock	(37,516)	(38,642)	(6,280)
Net Earnings (Loss)	24,348	32,975	36,323	32,613	22,374	(323,774)	93,646	(268,787)
Foreign Currency Translation Adjustment	(254)	220	127	198	331	(1,754)	93	(1,225)
Ending Balance	721,530	$ 733,515	$ 739,388	$ 725,885	$ 666,780	$ 605,189	$ 721,530	$ 725,885
Reclassification of liability awards to equity awards	$ 1,841
Treasury Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning Balance (in shares)	(2,427)	(1,261)	(895)	0	0	0	(895)	0
Beginning Balance	$ (63,628)	$ (24,986)	$ (15,977)	$ 0	$ 0	$ 0	$ (15,977)	$ 0
Reissued Shares (in shares)	0
Reissued Shares	$ 0
Issuance of Shares under Equity Plans (in shares)			(114)
Issuance of Shares under Equity Plans			$ (2,729)
Acquisition of Treasury Stock (in shares)	(1,333)	(1,166)	(252)
Acquisition of Treasury Stock	$ (37,516)	$ (38,642)	$ (6,280)
Ending Balance (in shares)	(3,760)	(2,427)	(1,261)	0	0	0	(3,760)	0
Ending Balance	$ (101,144)	$ (63,628)	$ (24,986)	$ 0	$ 0	$ 0	$ (101,144)	$ 0
Common Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning Balance	17,760	17,715	17,550	0	0	0	17,550	0
Reissued Shares	3
Issuance of Shares under Equity Plans		45	165
Ending Balance	17,763	17,760	17,715	0	0	0	17,763	0
Invested Capital
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning Balance				668,222	606,962	837,800		837,800
Stock-Based Compensation				3,954	2,892	2,725
Net increase in Invested Capital				22,340	35,994	90,211
Net Earnings (Loss)				32,613	22,374	(323,774)
Ending Balance				727,129	668,222	606,962		727,129
Additional Paid-in Capital
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning Balance	715,513	712,597	708,668	0	0	0	708,668	0
Stock-Based Compensation	2,757	1,714	3,551
Reissued Shares	83
Issuance of Shares under Equity Plans		1,202	378
Ending Balance	720,194	715,513	712,597	0	0	0	720,194	0
Reclassification of liability awards to equity awards	1,841
Retained Earnings
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning Balance	64,320	34,732	1,881	0	0	0	1,881	0
Cash Dividends	(3,247)	(3,387)	(3,472)
Net Earnings (Loss)	24,348	32,975	36,323
Ending Balance	$ 85,421	$ 64,320	$ 34,732	0	0	0	85,421	0
Dividends, per share (in dollars per share)	$ 0.10	$ 0.10	$ 0.10
Accumulated Other Comprehensive Loss
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning Balance	$ (450)	$ (670)	$ (797)	(1,442)	(1,773)	(19)	(797)	(19)
Foreign Currency Translation Adjustment	(254)	220	127	198	331	(1,754)
Ending Balance	$ (704)	$ (450)	$ (670)	$ (1,244)	$ (1,442)	$ (1,773)	$ (704)	$ (1,244)

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Basis and Summary of Significant Accounting Policies - Recent Accounting Pronouncements (Details)	Mar. 31, 2020 USD ($)
Revolving Credit Facility | Credit Facility
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Line of credit, maximum borrowing capacity	$ 250,000,000

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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, 2021	Dec. 31, 2020
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	(10,499)	(10,450)
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Deferred Compensation Liability	$ 0	$ 0

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Fair Value Measurement - Assets Measured At Fair Value on Nonrecurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Held for Sale	$ 7,370	$ 8,956
Level 1 | Fair value on a nonrecurring basis
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Held for Sale	0	0
Level 2 | Fair value on a nonrecurring basis
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Held for Sale	7,370	8,956
Level 3 | Fair value on a nonrecurring basis
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Held for Sale	$ 0	$ 0

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Revenue Recognition - Disaggregation Of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Disaggregation of Revenue [Line Items]
Revenues	$ 452,153	$ 440,961	$ 1,400,702	$ 1,304,747
Lease Revenues and Fees
Disaggregation of Revenue [Line Items]
Revenues	401,383	384,183	1,240,645	1,153,799
Lease Revenues and Fees | Canada
Disaggregation of Revenue [Line Items]
Revenues	5,500	5,500	17,400	16,200
Retail Sales
Disaggregation of Revenue [Line Items]
Revenues	12,283	13,553	45,606	37,104
Non-Retail Sales
Disaggregation of Revenue [Line Items]
Revenues	32,159	34,820	94,563	94,710
Franchise Royalties and Fees
Disaggregation of Revenue [Line Items]
Revenues	6,147	8,079	19,109	18,168
Other
Disaggregation of Revenue [Line Items]
Revenues	$ 181	$ 326	$ 779	$ 966

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Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Disaggregation of Revenue [Line Items]
Revenues	$ 452,153	$ 440,961	$ 1,400,702	$ 1,304,747
Leases
Disaggregation of Revenue [Line Items]
Revenues	7,100	6,500	20,100	18,900
Franchise Royalties and Fees
Disaggregation of Revenue [Line Items]
Revenues	6,147	8,079	19,109	18,168
Franchise Royalties and Fees | Transferred over Time
Disaggregation of Revenue [Line Items]
Revenues	$ 4,800	$ 6,100	$ 15,000	$ 13,700
Sales and Lease Ownership and HomeSmart | Maximum
Disaggregation of Revenue [Line Items]
Royalty payment rate			6.00%

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Commitments and Contingencies (Details) - USD ($)	9 Months Ended
	Sep. 30, 2021	Jun. 30, 2021	Dec. 31, 2020
Other Commitments [Line Items]
Event of default, loan due In full, term	75 days
Loan facility to franchisees, maximum commitment amount	$ 15,000,000	$ 25,000,000
Portion that company might be obligated to repay in the event franchisees defaulted	9,400,000
Fair value of franchisee-related borrowings	2,200,000		$ 2,400,000
Loss contingency accrual	1,600,000		800,000
Minimum
Other Commitments [Line Items]
Range of possible loss not accrued	0		$ 2,600,000
Maximum
Other Commitments [Line Items]
Range of possible loss not accrued	$ 500,000

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Restructuring - Narrative (Details) $ in Thousands	3 Months Ended				9 Months Ended		12 Months Ended	21 Months Ended
	Dec. 31, 2021 store	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Mar. 31, 2020	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Dec. 31, 2019 store	Sep. 30, 2021 USD ($) store
Restructuring Cost and Reserve [Line Items]
Restructuring expenses, net		$ 2,899	$ 4,041		$ 8,134	$ 33,318
Real Estate Repositioning and Optimization Restructuring Program
Restructuring Cost and Reserve [Line Items]
Number of store closures | store								126
Restructuring expenses, net		2,200			6,200
Restructuring and related cost incurred to date		40,100			40,100			$ 40,100
Real Estate Repositioning and Optimization Restructuring Program | Minimum
Restructuring Cost and Reserve [Line Items]
Strategic plan, term				3 years
Real Estate Repositioning and Optimization Restructuring Program | Maximum
Restructuring Cost and Reserve [Line Items]
Strategic plan, term				4 years
Restructuring Program 2019
Restructuring Cost and Reserve [Line Items]
Number of store closures | store							155
Restructuring expenses, net		600			1,600
Restructuring and related cost incurred to date		$ 46,800			$ 46,800			$ 46,800
Forecast | Real Estate Repositioning and Optimization Restructuring Program
Restructuring Cost and Reserve [Line Items]
Number of store closures | store	45

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Restructuring - Summary of Restructuring Charges (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Restructuring Cost and Reserve [Line Items]
Restructuring Expenses, Net	$ 2,899	$ 4,041	$ 8,134	$ 33,318
Right-of-Use Asset Impairment
Restructuring Cost and Reserve [Line Items]
Restructuring Expenses, Net	871	892	3,143	19,526
Operating Lease Charges
Restructuring Cost and Reserve [Line Items]
Restructuring Expenses, Net	1,495	1,748	4,246	4,318
Fixed Asset Impairment
Restructuring Cost and Reserve [Line Items]
Restructuring Expenses, Net	212	216	628	3,168
Severance
Restructuring Cost and Reserve [Line Items]
Restructuring Expenses, Net	11	986	161	5,711
Other Expenses
Restructuring Cost and Reserve [Line Items]
Restructuring Expenses, Net	55	199	226	595
Loss (Gain) on Sale of Store Properties and Related Assets
Restructuring Cost and Reserve [Line Items]
Restructuring Expenses, Net	$ 255	$ 0	$ (270)	$ 0

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Restructuring - Summary of Accruals of Restructuring Programs (Details) - Severance $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($)
Restructuring Reserve [Roll Forward]
Balance at January 1, 2021	$ 773
Restructuring Severance Charges	161
Payments	(934)
Balance at September 30, 2021	$ 0