10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010

OR

o 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 1-13941

AARON’S, INC.

(Exact name of registrant as specified in its charter)

Georgia	58-0687630
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification No.)
309 E. Paces Ferry Road, N.E. Atlanta, Georgia	30305-2377
(Address of principal executive offices)	(Zip Code)

(404) 231-0011
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of l934 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer þ	Accelerated Filer o	Non-Accelerated Filer o	Smaller Reporting Company o
		(Do not check if a smaller reporting company)

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

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

	Shares Outstanding as of
Title of Each Class	November 2, 2010
Common Stock, $.50 Par Value	69,427,694
Class A Common Stock, $.50 Par Value	11,635,056

AARON’S, INC.

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	3
Consolidated Balance Sheets — September 30, 2010 (Unaudited) and December 31, 2009	3
Consolidated Statements of Earnings (Unaudited) — Three and Nine Months Ended September 30, 2010 and 2009	4
Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended September 30, 2010 and 2009	5
Notes to Consolidated Financial Statements (Unaudited)	6
Report of Independent Registered Public Accounting Firm	12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosure About Market Risk	25
Item 4. Controls and Procedures	25
PART II. OTHER INFORMATION
Item 1A. Risk Factors	26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 5. Other Information	26
Item 6. Exhibits	27
Signatures	28
Exhibit 15
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1
Exhibit 99.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

AARON’S, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

	(Unaudited)
	September 30,			December 31,
	2010			2009
ASSETS:
Cash and Cash Equivalents	$	100,067		$	109,685
Accounts Receivable (net of allowances of $4,540 in 2010 and $4,157 in 2009)		61,556			66,095
Lease Merchandise		1,178,159			1,122,954
Less: Accumulated Depreciation		(461,463	)		(440,552	)
		716,696			682,402
Property, Plant and Equipment, Net		206,862			215,183
Goodwill		202,493			194,376
Other Intangibles, Net		4,445			5,200
Prepaid Expenses and Other Assets		98,223			36,082
Assets Held For Sale		12,803			12,433
Total Assets	$	1,403,145		$	1,321,456
LIABILITIES & SHAREHOLDERS’ EQUITY:
Accounts Payable and Accrued Expenses	$	173,841		$	177,284
Deferred Income Taxes Payable		186,317			163,670
Customer Deposits and Advance Payments		32,936			38,198
Credit Facilities		42,112			55,044
Total Liabilities		435,206			434,196
Shareholders’ Equity:
Common Stock, Par Value $.50 Per Share; Authorized: 100,000,000 Shares; Shares Issued: 72,656,391 at September 30, 2010 and 72,659,403 at December 31, 2009		36,328			36,330
Class A Common Stock, Par Value $.50 Per Share; Authorized: 25,000,000 Shares; Shares Issued: 18,095,732 at September 30, 2010 and 18,095,784 at December 31, 2009		9,048			9,048
Additional Paid-in Capital		200,692			196,669
Retained Earnings		779,349			694,689
Accumulated Other Comprehensive Income (Loss)		454			(101	)
		1,025,871			936,635
Less: Treasury Shares at Cost,
Common Stock, 3,230,439 Shares at September 30, 2010 and 2,937,321 Shares at December 31, 2009		(26,760	)		(18,203	)
Class A Common Stock, 6,460,676 Shares at September 30, 2010 and December 31, 2009		(31,172	)		(31,172	)
Total Shareholders’ Equity		967,939			887,260
Total Liabilities & Shareholders’ Equity	$	1,403,145		$	1,321,456

The accompanying notes are an integral part of the Consolidated Financial Statements

3

AARON’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2009			2010		2009
	(In Thousands, Except Per Share Data)
REVENUES:
Lease Revenues and Fees	$	340,848	$	320,603		$	1,052,494	$	989,216
Retail Sales		8,362		8,846			32,778		34,211
Non-Retail Sales		84,301		69,501			253,941		230,302
Franchise Royalties and Fees		14,537		12,881			43,611		38,908
Other		4,102		3,428			9,594		13,882
		452,150		415,259			1,392,418		1,306,519
COSTS AND EXPENSES:
Retail Cost of Sales		4,415		5,283			19,028		20,502
Non-Retail Cost of Sales		76,209		63,503			231,729		210,311
Operating Expenses		206,021		193,440			618,690		575,528
Depreciation of Lease Merchandise		122,692		117,024			379,580		360,143
Interest		728		1,010			2,415		3,450
		410,065		380,260			1,251,442		1,169,934
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		42,085		34,999			140,976		136,585
INCOME TAXES		15,906		10,344			53,387		48,744
NET EARNINGS FROM CONTINUING OPERATIONS		26,179		24,655			87,589		87,841
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX		—		(19	)		—		(304	)
NET EARNINGS	$	26,179	$	24,636		$	87,589	$	87,537
EARNINGS PER SHARE FROM CONTINUING OPERATIONS:
Basic	$	.32	$	.30		$	1.08	$	1.08
Assuming Dilution		.32		.30			1.07		1.07
LOSS PER SHARE FROM DISCONTINUED OPERATIONS:
Basic	$	.00	$	.00		$	.00	$	.00
Assuming Dilution		.00		.00			.00		.00
CASH DIVIDENDS DECLARED PER SHARE:
Common Stock	$	.012	$	.011		$	.036	$	.034
Class A Common Stock		.012		.011			.036		.034
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		81,070		81,366			81,315		81,066
Assuming Dilution		81,695		82,050			82,053		81,885

The accompanying notes are an integral part of the Consolidated Financial Statements

4

AARON’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended
	September 30,
	2010			2009
	(In Thousands)
CONTINUING OPERATIONS:
OPERATING ACTIVITIES:
Net Earnings from Continuing Operations	$	87,589		$	87,841
Depreciation of Lease Merchandise		379,580			360,143
Other Depreciation and Amortization		34,011			33,568
Additions to Lease Merchandise		(696,231	)		(598,021	)
Book Value of Lease Merchandise Sold or Disposed		285,377			257,596
Change in Deferred Income Taxes		22,647			24,373
Loss on Sale of Property, Plant, and Equipment		1,065			994
Gain on Asset Dispositions		(1,582	)		(6,273	)
Change in Income Tax Receivable, Included in Prepaid Expenses and Other Assets		(56,961	)		19,978
Change in Accounts Payable and Accrued Expenses		(3,172	)		(33,223	)
Change in Accounts Receivable		4,539			7,015
Excess Tax Benefits from Stock-Based Compensation		(322	)		(3,906	)
Change in Other Assets		(5,414	)		1,710
Change in Customer Deposits and Advanced Payments		(5,262	)		(3,492	)
Stock-Based Compensation		3,629			1,875
Other Changes, Net		(179	)		5,226
Cash Provided by Operating Activities		49,314			155,404
INVESTING ACTIVITIES:
Additions to Property, Plant and Equipment		(64,014	)		(59,643	)
Acquisitions of Businesses and Contracts		(17,475	)		(23,917	)
Proceeds from Sales of Property, Plant, and Equipment		39,345			36,628
Proceeds from Dispositions of Businesses and Contracts		6,182			24,091
Cash Used in Investing Activities		(35,962	)		(22,841	)
FINANCING ACTIVITIES:
Proceeds from Credit Facilities		2,429			57,034
Repayments on Credit Facilities		(15,361	)		(116,513	)
Dividends Paid		(2,931	)		(3,673	)
Acquisition of Treasury Stock		(9,060	)		—
Excess Tax Benefits from Stock-Based Compensation		322			3,906
Issuance of Stock Under Stock Option Plans		1,631			7,696
Cash Used in Financing Activities		(22,970	)		(51,550	)
DISCONTINUED OPERATIONS:
Operating Activities		—			(304	)
Cash Used in Discontinued Operations		—			(304	)
(Decrease) Increase in Cash and Cash Equivalents		(9,618	)		80,709
Cash and Cash Equivalents at Beginning of Period		109,685			7,376
Cash and Cash Equivalents at End of Period	$	100,067		$	88,085

The accompanying notes are an integral part of the Consolidated Financial Statements

5

AARON’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A — Basis of Presentation

The consolidated financial statements include the accounts of Aaron’s, Inc. (the “Company”) and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The consolidated balance sheet as of September 30, 2010, the consolidated statements of earnings for the three months and nine months ended September 30, 2010 and 2009, and the consolidated statements of cash flows for the nine months ended September 30, 2010 and 2009, are unaudited. The preparation of interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Management does not believe these estimates or assumptions will change significantly in the future absent unsurfaced and unforeseen events. Generally, actual experience has been consistent with management’s prior estimates and assumptions; however, actual results could differ from those estimates.

On March 23, 2010, the Company announced a 3-for-2 stock split effected in the form of a 50% stock dividend on both Common Stock and Class A Common Stock. New shares were distributed on April 15, 2010 to shareholders of record as of the close of business on April 1, 2010. All share and per share information has been restated for all periods presented to reflect this stock split.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, all adjustments (generally consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements. We suggest you read these financial statements in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2009. The results of operations for the quarter and nine months ended September 30, 2010 are not necessarily indicative of operating results for the full year.

Certain reclassifications have been made to the prior periods to conform to the current period presentation. In all periods presented, the results from the Aaron’s Office Furniture division were reclassified from the Sales and Lease Ownership Segment to the Other Segment. Refer to Note D for the segment disclosure. Certain assets have been reclassified as held for sale in all periods presented.

Accounting Policies and Estimates

See Note A to the consolidated financial statements in the 2009 Annual Report on Form 10-K.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with maturity dates of less than three months when purchased.

Lease Merchandise

Lease merchandise adjustments for the three month periods ended September 30 were $12.2 million in 2010 and $9.9 million in 2009. Lease merchandise adjustments for the nine month periods ended September 30 were $35.3 million in 2010 and $26.8 million in 2009. These charges are recorded as a component of operating expenses under the allowance method, which includes losses incurred but not yet identified.

6

Goodwill and Other Intangibles

During the nine months ended September 30, 2010 the Company recorded $9.1 million in goodwill, $693,000 in customer relationship intangibles, $520,000 in non-compete intangibles, and $496,000 in acquired franchise development rights in connection with a series of acquisitions of sales and lease ownership businesses. Customer relationship intangibles are amortized on a straight-line basis over their estimated useful lives of two years. Other intangible assets are amortized using the straight-line method over the life of the asset. Amortization expense was $777,000 and $994,000 for the three month periods ended September 30, 2010 and 2009, respectively. Amortization expense was $2.4 million and $3.0 million for the nine month periods ended September 30, 2010 and 2009, respectively. The aggregate purchase price for these asset acquisitions totaled $17.5 million, with the principal tangible assets acquired consisting of lease merchandise and certain fixtures and equipment. These purchase price allocations are tentative and preliminary; the Company anticipates finalizing them prior to December 31, 2010. The results of operations of the acquired businesses are included in the Company’s results of operations from the dates of acquisition and are not significant.

Stock Compensation

The results of operations for the three months ended September 30, 2010 and 2009 include $874,000 and $632,000, respectively, in compensation expense related to unvested stock option grants. The results of operations for the nine months ended September 30, 2010 and 2009 include $2.5 million and $1.9 million, respectively, in compensation expense related to unvested stock option grants. The results of operations for the three months ended September 30, 2010 and 2009 include $359,000 and $219,000, respectively, in compensation expense related to restricted stock and restricted stock unit (“RSU”) awards. The results of operations for the nine months ended September 30, 2010 and 2009 include $1.2 million and $1.0 million, respectively, in compensation expense related to restricted stock and RSU awards.

The Company granted 347,000 stock options and 300,000 RSU awards in the nine months ended September 30, 2010. The Company did not grant stock options or RSU awards in the nine months ended September 30, 2009. Approximately 57,000 and 10,000 options were exercised during the three month period ended September 30, 2010 and 2009, respectively. Approximately 86,000 and 1.0 million options were exercised during the nine month period ended September 30, 2010 and 2009, respectively, and 146,000 restricted stock awards vested on February 28, 2010. The aggregate number of shares of common stock that may be issued or transferred under the incentive stock awards plan is 11,127,750.

Issuance of RSUs That Settle in Class A Common Stock; Proposal for Unification of Common Stock Classes

The 2001 Aaron’s, Inc. Stock Option and Incentive Award Plan was amended in May 2010 to allow for the issuance of Class A shares, which is subject to shareholder approval. Therefore the recent RSU awards, which settle in the Company’s voting Class A Common Stock, are subject to shareholder approval of the plan amendment.

During the third quarter of 2010, the Company announced that it was proposing to unify its two classes of common stock into one voting class by converting all the outstanding Common Stock into Class A Common Stock on a one-for-one basis, and then renaming the Class A Common Stock as “Common Stock.” The unification is subject to the approval of the shareholders of both current classes of common stock at a special meeting that is currently expected to be held during the fourth quarter of 2010. In the event the unification proposal is approved, the Company does not intend to separately submit the stock plan amendment described above to the shareholders, as all stock incentives will thereafter be exercisable for, settle in or be issuable in the Class A Common Stock. In the event the unification proposal is not approved and the dual class structure continues, the Company believes that shareholder approval of the plan amendment at the next annual meeting of shareholders is perfunctory, as it is expected in that case that R. Charles Loudermilk, Sr., Chairman of the Board, will continue to hold more than 50% of the shares eligible to vote.

Deferred Compensation

Effective July 1, 2009, the Company implemented the Aaron’s, Inc. Deferred Compensation Plan an unfunded, nonqualified deferred compensation plan for a select group of management, highly compensated employees and non-employee directors. On a pre-tax basis, eligible employees can defer receipt of up to 75% of their base compensation and up to 100% of their incentive pay compensation, and eligible non-employee directors can defer receipt of up to 100% of both their cash and stock director fees. In addition, the Company may elect to make restoration matching contributions on behalf of eligible employees to compensate for certain limitations on the amount of matching contributions an employee can receive under the Company’s tax-qualified 401(k) plan.

7

Compensation deferred under the plan is credited to each participant’s deferral account and a deferred compensation liability is recorded in accounts payable and accrued expenses in the consolidated balance sheets. The deferred compensation plan liability was approximately $2.8 million as of September 30, 2010. Liabilities under the plan are recorded at amounts due to participants, based on the fair value of participants’ selected investments. The Company has established a Rabbi Trust to fund obligations under the plan with Company-owned life insurance (“COLI”) contracts. The obligations are unsecured general obligations of the Company and the participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The cash surrender value of these policies totaled $3.3 million as of September 30, 2010 and is included in prepaid expenses and other assets in the consolidated balance sheets.

Deferred compensation expense charged to operations for the Company’s matching contributions totaled $59,000 and $173,000 in the three and nine month periods ended September 30, 2010, respectively. No benefits have been paid as of September 30, 2010.

Income Taxes

The Company files a federal consolidated income tax return in the United States, and the parent company and its subsidiaries file in various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local tax examinations by tax authorities for years before 2006.

As of September 30, 2010 and December 31, 2009, the amount of uncertain tax benefits that, if recognized, would affect the effective tax rate is $1.1 million in both periods, including interest and penalties. The Company recognizes potential interest and penalties related to uncertain tax benefits as a component of income tax expense.

Fair Value of Financial Instruments

The fair values of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their carrying amounts due to their short-term nature. At September 30, 2010, the fair value of fixed rate long-term debt approximated its carrying value. The fair value of debt is estimated using valuation techniques that consider risk-free borrowing rates and credit risk.

Earnings Per Share

Earnings per share is computed by dividing net earnings by the weighted average number of shares of Common Stock and Class A Common Stock outstanding during the period. The computation of earnings per share assuming dilution includes the dilutive effect of stock options and RSU awards. Such stock options and awards had the effect of increasing the weighted average shares outstanding assuming dilution by approximately 625,000 and 568,000 for the three month periods ended September 30, 2010 and 2009, respectively. Such stock options and awards had the effect of increasing the weighted average shares outstanding assuming dilution by approximately 738,000 and 698,000 for the nine month periods ended September 30, 2010 and 2009, respectively.

The Company has issued restricted shares under its stock plan in which shares vest upon satisfaction of certain performance and/or service conditions. The effect of unvested restricted stock was to increase weighted average shares outstanding assuming dilution by 116,000 and 121,000 for the three and nine month periods ended September 30, 2009, respectively. There was no impact of unvested restricted stock on the weighted average shares outstanding assuming dilution at September 30, 2010.

Derivative Financial Instruments

The Company utilizes derivative financial instruments to mitigate its exposure to certain market risks associated with its ongoing operations. The primary risk it seeks to manage through the use of derivative financial instruments is commodity price risk, including the risk of increases in the market price of diesel fuel used in the Company’s delivery vehicles. All derivative financial instruments are recorded at fair value on the consolidated balance sheets. The Company does not use derivative financial instruments for trading or speculative purposes. The Company is exposed to counterparty credit risk on all its derivative financial instruments. The counterparties to these contracts are high credit quality commercial banks, which the Company believes largely minimize the risk of counterparty default. The fair values of the Company’s fuel hedges as of September 30, 2010 and the changes in their fair values during the three months and nine months ended September 30, 2010 were immaterial.

8

Assets Held for Sale

Certain properties, primarily consisting of parcels of land, met the held for sale classification criteria at September 30, 2010. After adjustment to fair value, the $12.8 million carrying value of these properties has been classified as assets held for sale in the consolidated balance sheets as of September 30, 2010 and December 31, 2009. The Company estimated the fair values of these properties using the market values for similar properties and these are considered Level 2 assets as defined in FASB ASC Topic 820, “Fair Value Measurements.”

New Accounting Pronouncements

The pronouncements that the Company adopted in the first nine months of 2010 did not have a material impact on the consolidated financial statements.

Disposal Activities

During the second quarter of 2010, the Company began ceasing the operations of its Aaron’s Office Furniture division. During the third quarter of 2010, the Company closed two additional Aaron’s Office Furniture stores and had two remaining stores open. As a result, the Company recorded $949,000 in the three months ended September 30, 2010 related to the closing of this division. In the first nine months of 2010, the Company closed 10 of its Aaron’s Office Furniture stores and recorded $4.7 million in lease merchandise write-downs and other miscellaneous expenses, totaling $8.1 million. The charges were recorded within operating expenses on the consolidated statement of earnings and are included in the Other segment category.

Note B — Credit Facilities

See Note D to the consolidated financial statements in the 2009 Annual Report on Form 10-K.

Note C — Comprehensive Income

Comprehensive income is comprised of the net earnings of the Company, foreign currency translation adjustments and unrealized loss from fuel hedges, as summarized below:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In Thousands)	2010		2009		2010		2009
Net Earnings	$	26,179	$	24,636	$	87,589	$	87,537
Other Comprehensive Income:
Foreign Currency Translation Adjustment		613		328		547		941
Unrealized Income from Fuel Hedges, Net of Tax		13		—		8		—
Comprehensive Income	$	26,805	$	24,964	$	88,144	$	88,478

9

Note D — Segment Information

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In Thousands)	2010			2009			2010			2009
Revenues From External Customers:
Sales and Lease Ownership	$	435,573		$	396,175		$	1,331,635		$	1,250,138
Franchise		14,537			12,881			43,611			38,908
Other		3,940			4,451			13,343			14,649
Manufacturing		17,591			15,106			56,810			54,659
Revenues of Reportable Segments		471,641			428,613			1,445,399			1,358,354
Elimination of Intersegment Revenues		(17,783	)		(15,259	)		(57,383	)		(55,183	)
Cash to Accrual Adjustments		(1,708	)		1,905			4,402			3,348
Total Revenues from External Customers from Continuing Operations	$	452,150		$	415,259		$	1,392,418		$	1,306,519
Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership	$	33,493		$	24,507		$	114,312		$	108,652
Franchise		11,163			9,619			33,706			28,667
Other		(654	)		(1,266	)		(8,729	)		(4,040	)
Manufacturing		891			767			2,443			2,883
Earnings Before Income Taxes for Reportable Segments		44,893			33,627			141,732			136,162
Elimination of Intersegment Profit		(891	)		(764	)		(2,445	)		(2,881	)
Cash to Accrual and Other Adjustments		(1,917	)		2,136			1,689			3,304
Total Earnings from Continuing Operations Before Income Taxes	$	42,085		$	34,999		$	140,976		$	136,585

Earnings from continuing operations before income taxes for each reportable segment are determined in accordance with accounting principles generally accepted in the United States with the following adjustments:

• Sales and lease ownership revenues are reported on a cash basis for management reporting purposes.

• A predetermined amount of each reportable segment’s revenues is charged to the reportable segment as an allocation of corporate overhead. This allocation was approximately 2% in 2010 and 2009.

• Accruals related to store closures are not recorded on the reportable segment’s financial statements, as they are maintained and controlled by corporate headquarters.

• The capitalization and amortization of manufacturing and distribution variances are recorded in the consolidated financial statements as part of Cash to Accrual and Other Adjustments and are not allocated to the segment that holds the related lease merchandise.

• Advertising expense in the sales and lease ownership division is estimated at the beginning of each year and then allocated to the division ratably over the year for management reporting purposes. For financial reporting purposes, advertising expense is recognized when the related advertising activities occur. The difference between these two methods is recorded as part of Cash to Accrual and Other Adjustments.

• Sales and lease ownership lease merchandise write-offs are recorded using the direct write-off method for management reporting purposes. For financial reporting purposes, the allowance method is used and is recorded as part of Cash to Accrual and Other Adjustments.

• Interest on borrowings is estimated at the beginning of each year. Interest is then allocated to operating segments on the basis of relative total assets.

Revenues in the “Other” category are primarily revenues of the Aaron’s Office Furniture division, from leasing space to unrelated third parties in the corporate headquarters building and revenues from several minor unrelated activities. The pre-tax losses in the “Other” category are the net result of the activity mentioned above, net of the portion of corporate overhead not allocated to the reportable segments for management purposes.

10

Note E — Commitments

The Company leases warehouse and retail store space for substantially all of its operations under operating leases expiring at various times through 2028. Most of the leases contain renewal options for additional periods ranging from one to 15 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. The Company also leases transportation and computer equipment under operating leases expiring during the next five years. The Company expects that most leases will be renewed or replaced by other leases in the normal course of business.

On June 18, 2010, the Company entered into the second amended and restated loan facility agreement and guaranty, which amends the previous loan facility agreement and guaranty. The new franchisee loan facility extended the maturity date until May 20, 2011, increased the maximum commitment amount under the facility from $175,000,000 to $200,000,000, provided for the ability to extend loans to franchisees that operate stores located in Canada (other than in the Province of Quebec), increased the maximum available amount of swing loans from $20,000,000 to $25,000,000, reduced the Company’s interest obligations with respect to franchisees that operate stores located in the U.S. and established the Company’s interest obligations with respect to franchisees that operate stores located in Canada, and modified certain exhibits. The Company remains subject to the same financial covenants under the new franchisee loan facility.

The Company has guaranteed the borrowings of certain independent franchisees under the aforementioned franchise loan program with several banks. 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 program, which would be due in full within 90 days of the event of default. At September 30, 2010, the portion that the Company might be obligated to repay in the event franchisees defaulted was $131.4 million. Of this amount, approximately $122.6 million represents franchise borrowings outstanding under the franchise loan program and approximately $8.8 million represents franchise borrowings under other debt facilities. Due to franchisee borrowing limits, management believes any losses associated with any defaults would be mitigated through recovery of lease merchandise as well as the associated lease agreements and other assets. Since its inception in 1994, the Company has had no significant losses associated with the franchisee loan and guaranty program.

The Company has no long-term commitments to purchase merchandise. At September 30, 2010, the Company had non-cancelable commitments primarily related to certain advertising and marketing programs of $29.7 million.

The Company is a party to various claims and legal proceedings arising in the ordinary course of business. The Company regularly assesses its insurance deductibles, analyzes litigation information with its 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. The Company does not believe its exposure to loss under any claims is probable nor can the Company estimate a range of amounts of loss that are reasonably possible. The Company’s requirement to record or disclose potential losses under generally accepted accounting principles could change in the near term depending upon changes in facts and circumstances.

See Note F to the consolidated financial statements in the 2009 Annual Report on Form 10-K for further information.

Note F — Related Party Transactions

The Company leases certain properties under capital leases from certain related parties that are described in Note D to the consolidated financial statements in the 2009 Annual Report on Form 10-K.

11

Report of Independent Registered Public Accounting Firm

The Board of Directors
Aaron’s, Inc.

We have reviewed the consolidated balance sheet of Aaron’s, Inc. and subsidiaries as of September 30, 2010, and the related consolidated statements of earnings for the three–month and nine–month periods ended September 30, 2010 and 2009, and the consolidated statements of cash flows for the nine–month periods ended September 30, 2010 and 2009. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with US generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Aaron’s, Inc. and subsidiaries as of December 31, 2009, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for the year then ended not presented herein, and in our report dated February 26, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Atlanta, Georgia
November 3, 2010

12

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. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including risks and uncertainties associated with our growth strategy, competition, trends in corporate spending, the Company’s franchise program, government regulation and the risks and uncertainties discussed under Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2009, filed with the Securities and Exchange Commission, and in the Company’s other public filings.

The following discussion should be read in conjunction with the consolidated financial statements as of and for the three months and nine months ended September 30, 2010, 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 consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.

Overview

Aaron’s, Inc. is a leading specialty retailer of residential furniture, consumer electronics, computers, household appliances and accessories. Our major operating divisions are the Aaron’s Sales & Lease Ownership Division and the Woodhaven Furniture Industries Division (formerly MacTavish Furniture Industries Division), which manufactures and supplies nearly one-half of the furniture and related accessories leased and sold in our stores.

Aaron’s has demonstrated strong revenue growth over the last three years. Total revenues have increased from $1.395 billion in 2007 to $1.753 billion in 2009, representing a compound annual growth rate of 12.1%. Total revenues from continuing operations for the three months ended September 30, 2010, were $452.2 million, an increase of $36.9 million, or 8.9%, over the comparable period in 2009. Total revenues from continuing operations for the nine months ended September 30, 2010, were $1.392 billion, an increase of $85.9 million, or 6.6%, over the comparable period in 2009.

Most of our growth comes from the opening of new sales and lease ownership stores and increases in same store revenues from previously opened stores. We spend on average approximately $600,000 to $700,000 in the first year of operation of a new store, which includes purchases of lease merchandise, investments in leasehold improvements and financing first year start-up costs. Our new sales and lease ownership stores typically achieve revenues of approximately $1.1 million in their third year of operation. Our comparable stores open more than three years normally achieve approximately $1.4 million in revenues per store, which we believe represents a higher per store revenue volume than the typical rent-to-own store. Most of our stores are cash flow positive in the second year of operations following their opening.

We believe that the decline in the number of furniture stores, the limited number of retailers that focus on credit installment sales to lower and middle income consumers and increased consumer credit constraints during the current economic downturn have created a market opportunity for our unique sales and lease ownership concept. The traditional retail consumer durable goods market is much larger than the lease market, leaving substantial potential for growth for our sales and lease ownership division. We believe that the segment of the population targeted by our sales and lease ownership division comprises approximately 50% of all households in the United States and that the needs of these consumers are generally underserved. However, although we believe our business is ‘recession-resistant’, with those who are no longer able to access consumer credit becoming new customers of Aaron’s, there can be no guarantee that if the current economic downturn deepens or continues for an extensive period of time that our customer base will not curtail spending on household merchandise.

We also use our franchise program to help us expand our sales and lease ownership concept more quickly and into more areas than we otherwise would by opening only Company-operated stores. Franchise royalties and other related fees represent a growing source of high margin revenue for us, accounting for approximately $52.9 million of revenues in 2009, up from $38.8 million in 2007, representing a compound annual growth rate of 16.8%. Total revenues from franchise royalties and fees for the three months ended September 30, 2010, were $14.5 million, an increase of $1.7 million, or 12.9%, over the comparable period in 2009. Total revenues from franchise royalties and fees for the nine months ended September 30, 2010, were $43.6 million, an increase of $4.7 million, or 12.1%, over the comparable period in 2009.

13

Unification of our Dual Common Stock Class Structure. Aaron’s has had a dual common stock class structure since 1992, whereby the Class A Common Stock possesses all the voting power and the Common Stock is nonvoting. On September 13, 2010, the Company announced that its Board of Directors has approved, and is recommending to the Company’s shareholders for approval, the conversion of the nonvoting Common Stock into voting Class A Common Stock on a one-for-one basis and to rename the Company’s Class A Common Stock after conversion as “Common Stock.” The transaction is subject to the approval of the shareholders of the Company’s Common Stock and Class A Common Stock, each voting as a separate class, at a special meeting that is currently expected to be held in December 2010.

The Company expects to realize a number of benefits from the proposed reclassification, including: (1) increasing the trading volume and liquidity of its shares; (2) simplifying its equity capital structure; (3) broadening the appeal of its shares to a larger base of investors; (4) aligning more closely the voting rights of the Company’s shareholders with their economic interests; and (5) providing increased flexibility to use equity as acquisition currency and for possible future offerings of our capital stock to potential investors.

As part of the proposal, the Company also expects to seek to amend and strengthen various anti-takeover measures in its Bylaws.

Aaron’s Office Furniture Closure. In November 2008, the Company completed the sale of substantially all of the assets and the transfer of certain liabilities of its legacy residential rent-to-rent business, Aaron’s Corporate Furnishings division, to CORT Business Services Corporation. When the Company sold its legacy rent-to-rent business, it decided to keep the 13 Aaron’s Office Furniture stores, a rent-to-rent concept aimed at the office market. However, after disappointing results in a difficult environment, in June 2010 the Company announced its plans to close all of the then 12 remaining Aaron’s Office Furniture stores and focus solely on the Company’s Sales & Lease Ownership business. Since June 2010, the Company has closed ten of its Aaron’s Office Furniture stores and has two remaining stores open to liquidate merchandise. The Company currently estimates that it will record a total of approximately $9.2 million in charges for the write-down and cost to dispose of office furniture, estimated future lease liabilities for closed stores, write-off of leaseholds, severance pay, and other costs associated to closing the stores and winding down the division. Approximately $8.1 million, or 88% of the total estimated charges, has been recorded through September 30, 2010.

Same Store Revenues. We believe the changes in same store revenues are a key performance indicator. For the three months ended September 30, 2010, we calculated this amount by comparing revenues for the three months ended September 30, 2010 to revenues for the comparable period in 2009 for all stores open for the entire 15-month period ended September 30, 2010, excluding stores that received lease agreements from other acquired, closed, or merged stores. For the nine months ended September 30, 2010, we calculated this amount by comparing revenues for the nine months ended September 30, 2010 to revenues for the comparable period in 2009 for all stores open for the entire 24-month period ended September 30, 2010, excluding stores that received lease agreements from other acquired, closed or merged stores.

Key Components of Earnings

In this management’s discussion and analysis section, we review the Company’s consolidated results.

Revenues. We separate our total revenues into five components: lease revenues and fees, retail sales, non-retail sales, franchise royalties and fees, and other. Lease revenues and fees includes all revenues derived from lease agreements from our sales and lease ownership and office furniture stores, including agreements that result in our customers acquiring ownership at the end of the term. Retail sales represent sales of both new and lease return merchandise from our sales and lease ownership and office furniture stores. Non-retail sales mainly represent new merchandise sales to our sales and lease ownership division franchisees. Franchise royalties and fees represent fees from the sale of franchise rights and royalty payments from franchisees, as well as other related income from our franchised stores. Other revenues include, at times, income from gains on sales of sales and lease ownership businesses and other miscellaneous revenues.

Cost of Sales. We separate our cost of sales into two components: retail and non-retail. Retail cost of sales represents the original or depreciated cost of merchandise sold through our Company-operated stores. Non-retail cost of sales primarily represents the cost of merchandise sold to our franchisees.

Operating Expenses. Operating expenses include personnel costs, selling costs, occupancy costs, and delivery costs, among other expenses.

14

Depreciation of Lease Merchandise. Depreciation of lease merchandise reflects the expense associated with depreciating merchandise leased to customers and held for lease by our Company-operated sales and lease ownership and office furniture stores.

Critical Accounting Policies

Revenue Recognition. Lease revenues are recognized in the month they are due on the accrual basis of accounting. For internal management reporting purposes, lease revenues from the sales and lease ownership division are recognized as revenue in the month the cash is collected. On a monthly basis, we record a deferral of revenue for lease payments received prior to the month due and an accrual for lease revenues due but not yet received, net of allowances. Our revenue recognition accounting policy matches the lease revenue with the corresponding costs, mainly depreciation, associated with the lease merchandise. As of September 30, 2010 and December 31, 2009, we had a revenue deferral representing cash collected in advance of being due or otherwise earned totaling $32.2 million and $37.4 million, respectively, and accounts revenue receivable, net of allowance for doubtful accounts, based on historical collection rates of $5.0 million and $5.3 million, respectively. Revenues from the sale of merchandise to franchisees are recognized at the time of receipt by the franchisee, and revenues from such sales to other customers are recognized at the time of shipment.

Lease Merchandise. Our sales and lease ownership division depreciates merchandise over the applicable agreement period, generally 12 to 24 months when leased, and 36 months when not leased, to 0% salvage value. Our office furniture stores depreciate merchandise over its estimated useful life, which ranges from 24 months to 48 months, net of salvage value, which ranges from 0% to 30%. Sales and lease ownership merchandise is generally depreciated at a faster rate than our office furniture merchandise. Our policies require weekly lease merchandise counts by store managers and write-offs for unsalable, damaged, or missing merchandise inventories. Full physical inventories are generally taken at our fulfillment and manufacturing facilities two to four times a year with appropriate provisions made for missing, damaged and unsalable merchandise. In addition, we monitor lease merchandise levels and mix by division, store and fulfillment center, as well as the average age of merchandise on hand. If unsalable lease merchandise cannot be returned to vendors, its carrying value is adjusted to net realizable value or written off. All lease merchandise is available for lease and sale, excluding merchandise determined to be missing, damaged or unsalable.

We record lease merchandise carrying value adjustments on the allowance method, which estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting period. Lease merchandise adjustments for the three month periods ended September 30 were $12.2 million in 2010 and $9.9 million in 2009. Lease merchandise adjustments for the nine month periods ended September 30 were $35.3 million in 2010 and $26.8 million in 2009.

Leases and Closed Store Reserves. The majority of our Company-operated stores are operated from leased facilities under operating lease agreements. The majority of the leases are for periods that do not exceed five years, although lease terms range in length up to 15 years. Leasehold improvements related to these leases are generally amortized over periods that do not exceed the lesser of the lease term or useful life. While some of our leases do not require escalating payments, for the leases which do contain such provisions we record the related lease expense on a straight-line basis over the lease term. We do not generally obtain significant amounts of lease incentives or allowances from landlords. Any incentive or allowance amounts we receive are recognized ratably over the lease term.

From time to time, we close or consolidate stores. Our primary costs associated with closing or consolidating stores are the future lease payments and related commitments. We record an estimate of the future obligation related to closed or consolidated stores based upon the present value of the future lease payments and related commitments, net of estimated sublease income based upon historical experience. As of September 30, 2010 and December 31, 2009, our reserve for closed or consolidated stores was $5.8 million and $2.3 million, respectively. Due to changes in the market conditions, our estimates related to sublease income may change and as a result, our actual liability may be more or less than the liability recorded at September 30, 2010.

15

Insurance Programs. Aaron’s maintains insurance contracts to fund workers compensation, vehicle liability, general liability and group health insurance claims. Using actuarial analysis and projections, we estimate the liabilities associated with open and incurred but not reported workers compensation, vehicle liability and general liability claims. This analysis is based upon an assessment of the likely outcome or historical experience, net of any stop loss or other supplementary coverage. We also calculate the projected outstanding plan liability for our group health insurance program. Our gross liability for workers compensation insurance claims, vehicle liability, general liability and group health insurance was estimated at $26.2 million and $22.5 million at September 30, 2010 and December 31, 2009, respectively. In addition, we have prefunding balances on deposit with the insurance carriers of $22.2 million and $19.8 million at September 30, 2010 and December 31, 2009, respectively.

If we resolve insurance claims for amounts that are in excess of our current estimates and within policy stop loss limits, we will be required to pay additional amounts beyond those accrued at September 30, 2010.

The assumptions and conditions described above reflect management’s best assumptions and estimates, but these items involve inherent uncertainties as described above, which may or may not be controllable by management. As a result, the accounting for such items could result in different amounts if management used different assumptions or if different conditions occur in future periods.

Income Taxes. The calculation of our income tax expense requires significant judgment and the use of estimates. We periodically assess tax positions based on current tax developments, including enacted statutory, judicial and regulatory guidance. In analyzing our overall tax position, consideration is given to the amount and timing of recognizing income tax liabilities and benefits. In applying the tax and accounting guidance to the facts and circumstances, income tax balances are adjusted appropriately through the income tax provision. Reserves for income tax uncertainties are maintained at levels we believe are adequate to absorb probable payments. Actual amounts paid, if any, could differ significantly from these estimates.

We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established, when necessary, to reduce deferred tax assets when we expect the amount of tax benefit to be realized is less than the carrying value of the deferred tax asset.

16

Results of Operations

Three months ended September 30, 2010 compared with three months ended September 30, 2009

The following table shows key selected financial data for the three month periods ended September 30, 2010 and 2009, and the changes in dollars and as a percentage to 2010 from 2009:

						Dollar Increase/			% Increase/
	Three Months Ended		Three Months Ended			(Decrease) to			(Decrease) to
(In Thousands)	September 30, 2010		September 30, 2009			2010 from 2009			2010 from 2009
REVENUES:
Lease Revenues and Fees	$	340,848	$	320,603		$	20,245			6.3	%
Retail Sales		8,362		8,846			(484	)		(5.5	)
Non-Retail Sales		84,301		69,501			14,800			21.3
Franchise Royalties and Fees		14,537		12,881			1,656			12.9
Other		4,102		3,428			674			19.7
		452,150		415,259			36,891			8.9
COSTS AND EXPENSES:
Retail Cost of Sales		4,415		5,283			(868	)		(16.4	)
Non-Retail Cost of Sales		76,209		63,503			12,706			20.0
Operating Expenses		206,021		193,440			12,581			6.5
Depreciation of Lease Merchandise		122,692		117,024			5,668			4.8
Interest		728		1,010			(282	)		(27.9	)
		410,065		380,260			29,805			7.8
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		42,085		34,999			7,086			20.2
INCOME TAXES		15,906		10,344			5,562			53.8
NET EARNINGS FROM CONTINUING OPERATIONS		26,179		24,655			1,524			6.2
NET LOSS FROM DISCONTINUED OPERATIONS		—		(19	)		19			(100.0	)
NET EARNINGS	$	26,179	$	24,636		$	1,543			6.3	%

Revenues. The 8.9% increase in total revenues, to $452.2 million for the three months ended September 30, 2010, from $415.3 million in the comparable period in 2009, was due mainly to a $20.2 million, or 6.3%, increase in lease revenues and fees. The $20.2 million increase in lease revenues and fees was attributable to our sales and lease ownership division, which had a 3.2% increase in same store revenues during the third quarter of 2010 and added a net of 44 Company-operated stores since September 30, 2009.

The 5.5% decrease in revenues from retail sales, to $8.4 million for the three months ended September 30, 2010 from $8.8 million in the comparable period in 2009, was due to decreased demand and decreased sales as a result of the closure of the majority of the Aaron’s Office Furniture stores.

The 21.3% increase in non-retail sales (which mainly represents merchandise sold to our franchisees), to $84.3 million for the three months ended September 30, 2010, from $69.5 million for the comparable period in 2009, was due to the growth of our franchise operations. The total number of franchised sales and lease ownership stores at September 30, 2010 was 637, reflecting a net addition of 68 stores since September 30, 2009.

The 12.9% increase in franchise royalties and fees, to $14.5 million for the three months ended September 30, 2010, from $12.9 million for the comparable period in 2009, primarily reflects an increase in royalty income from franchisees, increasing 12.5% to $11.7 million for the three months ended September 30, 2010, compared to $10.4 million for the three months ended September 30, 2009. The increase in royalty income is due primarily to the growth in the number of franchised stores and same store growth in the revenues of existing stores.

17

Other revenues increased 19.7% to $4.1 million for the three months ended September 30, 2010, from $3.4 million for the comparable period in 2009. Included in other revenues for the three months ended September 30, 2010 and September 30, 2009, is a $1.2 million and $193,000, respectively, gain on sales of Company-operated stores.

Cost of Sales. Retail cost of sales decreased 16.4% to $4.4 million for the three months ended September 30, 2010, compared to $5.3 million for the comparable period in 2009, and as a percentage of retail sales, decreased to 52.8% in 2010 from 59.7% in 2009 as a result of the decline in the volume of lower margin office furniture retail sales.

Non-retail cost of sales increased 20.0% to $76.2 million for the three months ended September 30, 2010, from $63.5 million for the comparable period in 2009, and as a percentage of non-retail sales, decreased to 90.4% from 91.4%.

Expenses. Operating expenses for the three months ended September 30, 2010, increased $12.6 million to $206.0 million from $193.4 million for the comparable period in 2009, a 6.5% increase. As a percentage of total revenues, operating expenses were 45.6% for the three months ended September 30, 2010, and 46.6% for the comparable period in 2009.

The Company began ceasing the operations of its Aaron’s Office Furniture division in June of 2010. The Company closed eight of its Aaron’s Office Furniture stores during the second quarter of 2010. During the third quarter of 2010 the Company closed two additional Aaron’s Office Furniture stores and had two remaining stores open to liquidate merchandise. As a result, the Company recorded $949,000 in operating expenses related to the closures in the third quarter of 2010. In the third quarter of 2009, the Company recorded a $2.2 million pre-tax charge to operating expenses relating to the write-down of certain lease merchandise and the impairment of long-lived assets associated with its Aaron’s Office Furniture stores.

Depreciation of lease merchandise increased $5.7 million to $122.7 million for the three months ended September 30, 2010, from $117.0 million during the comparable period in 2009, a 4.8% increase. As a percentage of total lease revenues and fees, depreciation of lease merchandise was 36.0% and 36.5%, for the three months ended September 30, 2010 and 2009, respectively.

Interest expense decreased to $728,000 for the three months ended September 30, 2010, compared with $1.0 million for the comparable period in 2009, a 27.9% decrease. The decrease in interest expense was due to lower debt levels during the third quarter of 2010.

Income tax expense increased $5.6 million to $15.9 million for the three months ended September 30, 2010, compared with $10.3 million for the comparable period in 2009, representing a 53.8% increase. Aaron’s effective tax rate was 37.8% in 2010 and 29.6% in 2009. The increase in effective tax rate was due to the favorable impact of a $2.3 million reversal in 2009 of previously recorded liabilities for uncertain tax positions as a result of expiration of statute of limitations on certain tax matters.

Net Earnings from Continuing Operations. Net earnings increased $1.5 million to $26.2 million for the three months ended September 30, 2010, compared with $24.7 million for the comparable period in 2009, representing a 6.2% increase. As a percentage of total revenues, net earnings from continuing operations were 5.8% and 5.9% for the three months ended September 30, 2010 and 2009. The increase in net earnings was primarily the result of the increased store sales gains in 2010 discussed above and the maturing of new Company-operated sales and lease ownership stores added over the past several years, contributing to a 3.2% increase in same store revenues and a 12.9% increase in franchise royalties and fees.

18

Nine months ended September 30, 2010 compared with nine months ended September 30, 2009

The following table shows key selected financial data for the nine month periods ended September 30, 2010 and 2009, and the changes in dollars and as a percentage to 2010 from 2009:

						Dollar Increase/			% Increase/
	Nine Months Ended		Nine Months Ended			(Decrease) to			(Decrease) to
(In Thousands)	September 30, 2010		September 30, 2009			2010 from 2009			2010 from 2009
REVENUES:
Lease Revenues and Fees	$	1,052,494	$	989,216		$	63,278			6.4	%
Retail Sales		32,778		34,211			(1,433	)		(4.2	)
Non-Retail Sales		253,941		230,302			23,639			10.3
Franchise Royalties and Fees		43,611		38,908			4,703			12.1
Other		9,594		13,882			(4,288	)		(30.9	)
		1,392,418		1,306,519			85,899			6.6
COSTS AND EXPENSES:
Retail Cost of Sales		19,028		20,502			(1,474	)		(7.2	)
Non-Retail Cost of Sales		231,729		210,311			21,418			10.2
Operating Expenses		618,690		575,528			43,162			7.5
Depreciation of Lease Merchandise		379,580		360,143			19,437			5.4
Interest		2,415		3,450			(1,035	)		(30.0	)
		1,251,442		1,169,934			81,508			7.0
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		140,976		136,585			4,391			3.2
INCOME TAXES		53,387		48,744			4,643			9.5
NET EARNINGS FROM CONTINUING OPERATIONS		87,589		87,841			(252	)		(0.3	)
NET LOSS FROM DISCONTINUED OPERATIONS		—		(304	)		304			(100.0	)
NET EARNINGS	$	87,589	$	87,537		$	52			0.1	%

Revenues. The 6.6% increase in total revenues, to $1.392 billion for the nine months ended September 30, 2010, from $1.307 billion in the comparable period in 2009, was due mainly to a $63.3 million, or 6.4%, increase in lease revenues and fees, plus a $23.6 million, or 10.3%, increase in non-retail sales. The increase in lease revenues and fees was attributable to our sales and lease ownership division, which had a 2.2% increase in same store revenues for the nine months ended September 30, 2010 from the comparable period in 2009 and added a net of 44 Company-operated stores since September 30, 2009.

The 4.2% decrease in revenues from retail sales, to $32.8 million for the nine months ended September 30, 2010 from $34.2 million in the comparable period in 2009, was due to decreased demand and decreased sales as a result of the closure of the majority of the Aaron’s Office Furniture stores.

The 10.3% increase in non-retail sales (which mainly represents merchandise sold to our franchisees), to $253.9 million for the nine months of September 30, 2010, from $230.3 million for the comparable period in 2009, was due to the growth of our franchise operations. The total number of franchised sales and lease ownership stores at September 30, 2010 was 637, reflecting a net addition of 68 stores since September 30, 2009.

The 12.1% increase in franchise royalties and fees, to $43.6 million for the nine months ended September 30, 2010, from $38.9 million for the comparable period in 2009, primarily reflects an increase in royalty income from franchisees, increasing 13.7% to $35.6 million for the nine months ended September 30, 2010, compared to $31.3 million for the nine months ended September 30, 2009. The increase is due primarily to the growth in the number of franchised stores and same store growth in the revenues of existing stores.

Other revenues decreased 30.9% to $9.6 million for the nine months ended September 30, 2010, from $13.9 million for the comparable period in 2009. Included in other revenues for the nine months ended September 30, 2010 and 2009, are gains of $1.6 million and a $6.3 million, respectively, on sales of Company-operated stores.

19

Cost of Sales. Retail cost of sales decreased 7.2% to $19.0 million for the nine months ended September 30, 2010, compared to $20.5 million for the comparable period in 2009, and as a percentage of retail sales, decreased to 58.1% in 2010 from 59.9% in 2009 primarily due to as a result of the decline in the volume of lower margin office furniture retail sales.

Non-retail cost of sales increased 10.2%, to $231.7 million for the nine months ended September 30, 2010, from $210.3 million for the comparable period in 2009, and as a percentage of non-retail sales, was 91.3% for both periods.

Expenses. Operating expenses for the nine months ended September 30, 2010, increased $43.2 million to $618.7 million from $575.5 million for the comparable period in 2009, a 7.5% increase. As a percentage of total revenues, operating expenses were 44.4% for the nine months ended September 30, 2010 and 44.1% for the comparable period in 2009.

The Company began ceasing the operations of its Aaron’s Office Furniture division in June of 2010. The Company closed ten of its Aaron’s Office Furniture stores during the first nine months of 2010 and had two remaining stores open to liquidate merchandise. As a result, the Company recorded $2.8 million in closed store reserves, $4.7 million in lease merchandise write-downs and other miscellaneous expenses in the first nine months of 2010, totaling $8.1 million in operating expenses, related to the closures. In the first nine months of 2009 the Company recorded a $2.2 million pre-tax charge to operating expenses relating to the write-down of certain lease merchandise and the impairment of long-lived assets associated with its Aaron’s Office Furniture stores.

Depreciation of lease merchandise increased $19.4 million to $379.6 million for the nine months ended September 30, 2010, from $360.1 million during the comparable period in 2009, a 5.4% increase, and as a percentage of total lease revenues and fees, decreased slightly to 36.1% in 2010 from 36.4% in 2009.

Interest expense decreased to $2.4 million for the nine months ended September 30, 2010, compared with $3.5 million for the comparable period in 2009, a 30.0% decrease. The decrease in interest expense was due to lower debt levels during the first nine months of 2010.

Income tax expense increased $4.6 million to $53.4 million for the nine months ended September 30, 2010, compared with $48.7 million for the comparable period in 2009, representing a 9.5% increase. Aaron’s effective tax rate increased to 37.9% in 2010 from 35.7% in 2009 primarily due to the favorable impact of a $2.3 million reversal in 2009 of previously recorded liabilities for uncertain tax positions as a result of expiration of statute of limitations.

Net Earnings from Continuing Operations. Net earnings decreased to $87.6 million for the nine months ended September 30, 2010, from $87.8 million for the comparable period in 2010. As a percentage of total revenues, net earnings from continuing operations were 6.3% for the nine months ended September 30, 2010, and 6.7% for the nine months ended September 30, 2009. The decrease in net earnings was primarily the result of the office furniture charges and decreased store sales gains in 2010 discussed above, offset by the maturing of new Company-operated sales and lease ownership stores added over the past several years, contributing to a 2.2% increase in same store revenues, and a 12.1% increase in franchise royalties and fees.

Discontinued Operations. The loss from discontinued operations (which represents losses from the Aaron’s Corporate Furnishings division that was sold in November 2008), net of tax, was $304,000 for the nine months ended September 30, 2009.

Balance Sheet

Cash and Cash Equivalents. Our cash balance decreased to $100.1 million at September 30, 2010, from $109.7 million at December 31, 2009. The decrease in our cash balance is primarily due to income tax payments. For additional information, refer to the “Liquidity and Capital Resources” and “Commitments” sections below.

Lease Merchandise, Net. Lease merchandise, net of accumulated depreciation, increased $34.3 million to $716.7 million at September 30, 2010 from $682.4 million at December 31, 2009, primarily due to fluctuations in the normal course of business.

Property, Plant and Equipment, Net. The decrease of $8.3 million in property, plant and equipment, net of accumulated depreciation, to $206.9 million at September 30, 2010 from $215.2 million at December 31, 2009, is primarily the result of sale-leaseback transactions completed since December 31, 2009. Certain assets have been reclassified as held for sale in all periods presented.

20

Goodwill. The $8.1 million increase in goodwill, to $202.5 million at September 30, 2010, from $194.4 million on December 31, 2009, is the result of a series of acquisitions of sales and lease ownership businesses since December 31, 2009. The aggregate purchase price for these asset acquisitions totaled $17.5 million, with the principal tangible assets acquired consisting of lease merchandise and certain fixtures and equipment.

Prepaid Expenses and Other Assets. Prepaid expenses and other assets increased $62.1 million to $98.2 million at September 30, 2010, from $36.1 million at December 31, 2009, primarily as a result of an increase in prepaid income tax expense. The Small Business Jobs Act of 2010 was enacted after the Company had paid its third quarter estimated federal tax. As a result of the bonus depreciation provisions in this bill the Company had paid more than the anticipated 2010 federal tax liability.

Deferred Income Taxes Payable. The increase of $22.6 million in deferred income taxes payable to $186.3 million at September 30, 2010, from $163.7 million at December 31, 2009, is primarily related to bonus depreciation deductions on leased merchandise under the Small Business Jobs Act of 2010. The additional bonus depreciation deductions are partially offset by the reversals of the bonus depreciation deductions under the Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009.

Liquidity and Capital Resources

General

Cash flows from operating activities for the nine months ended September 30, 2010 and 2009 were $49.3 million and $155.4 million, respectively. The decrease in cash flows from operating activities is primarily related to higher 2010 tax payments and purchases of lease merchandise.

Purchases of sales and lease ownership stores had a positive impact on operating cash flows in each period presented. The positive impact on operating cash flows from purchasing stores occurs as the result of lease merchandise, other assets and intangibles acquired in these purchases being treated as an investing cash outflow. As such, the operating cash flows attributable to the newly purchased stores usually have an initial positive effect on operating cash flows that may not be indicative of the extent of their contributions in future periods. The amount of lease merchandise purchased in these acquisitions and shown under investing activities was $6.3 million for the first nine months of 2010 and $9.1 million for the comparable 2009 period. Our cash flows from operations include profits on the sale of lease merchandise. Sales of sales and lease ownership stores are an additional source of investing cash flows. Proceeds from such sales were $6.2 million for the first nine months of 2010. Proceeds from such sales were $24.1 million for the first nine months of 2009.

Our primary capital requirements consist of buying lease merchandise for sales and lease ownership stores. As Aaron’s continues to grow, the need for additional lease merchandise is expected to continue to be our major capital requirement. Other capital requirements include purchases of property, plant and equipment and expenditures for acquisitions. These capital requirements historically have been financed through:

• cash flows from operations;

• bank credit;

• trade credit with vendors;

• proceeds from the sale of lease return merchandise;

• private debt offerings; and

• stock offerings.

At September 30, 2010, we did not have any amounts outstanding under our revolving credit agreement. The balance under the credit facilities decreased by $12.9 million in 2010. Our current revolving credit facility expires May 23, 2013. The total available credit on our revolving credit agreement is $140.0 million. Additionally, we have $24.0 million currently outstanding in aggregate principal amount of 5.03% senior unsecured notes due July 2012, principal repayments of which were first required in 2008.

Our revolving credit agreement and senior unsecured notes, and our franchisee loan program discussed below, contain certain financial covenants. These covenants include requirements that we maintain ratios of: (1) EBITDA plus lease expense to fixed charges of no less than 2:1; (2) total debt to EBITDA of no greater than 3:1; and (3) total debt to total capitalization of no greater than 0.6:1. “EBITDA” in each case, means consolidated net income before interest and tax expense, depreciation (other than lease merchandise depreciation) and amortization expense, and other non-cash charges. The Company is also required to maintain a minimum amount of shareholders’ equity. See the full text of the covenants themselves in our credit and guarantee agreements, which we have filed as exhibits to our Securities and Exchange Commission reports, for the details of these covenants and other terms. If we fail to comply with these covenants, we will be in default under these agreements, and all amounts would become due immediately. We were in compliance with all of these covenants at September 30, 2010 and believe that we will continue to be in compliance in the future.

21

We purchase our common shares in the market from time to time as authorized by our board of directors. We repurchased 478,805 shares in the first nine months of 2010 and we have the have authority to purchase 5,401,815 shares. We did not repurchase shares during 2009.

We have a consistent history of paying dividends, having paid dividends for 23 consecutive years. A $.0113 per share dividend on Common Stock and Class A Common Stock was paid in January 2009, April 2009, July 2009, and October 2009 for a total cash outlay of $3.7 million in 2009. Our board of directors increased the dividend 6.6% for the third quarter of 2009 on November 4, 2009 to $.012 per share and the dividend was paid in January 2010. A $.012 per share dividend on Common Stock and Class A Common Stock was paid in April 2010, July 2010 and October 2010. Subject to sufficient operating profits, any future capital needs and other contingencies, we currently expect to continue our policy of paying dividends.

If we achieve our expected level of growth in our operations, we anticipate we can supplement our expected cash flows from operations, existing credit facilities, vendor credit, and proceeds from the sale of lease return merchandise by expanding our existing credit facilities, by securing additional debt financing, or by seeking other sources of capital to ensure we will be able to fund our capital and liquidity needs for at least the next 24 months. We believe we can secure these additional sources of capital in the ordinary course of business. However, if the credit and capital market disruptions that began in the second half of 2008 continue for an extended period, or if they deteriorate further, we may not be able to obtain access to capital at as favorable costs as we have historically been able to, and some forms of capital may not be available at all.

Commitments

Income Taxes. During the nine months ended September 30, 2010, we made $94.4 million in income tax payments. Within the next three months, we anticipate that we will make cash payments for state income taxes of less than $1 million. The Small Business Jobs Act of 2010 was enacted after we paid our third quarter estimated federal tax. As a result of the bonus depreciation provisions in this bill we have paid more than our anticipated 2010 federal tax liability. We plan to file for a refund of overpaid federal tax of approximately $34 million in January 2011.

The Economic Stimulus Act of 2008, the American Recovery and Reinvestment Act of 2009, and the Small Business Jobs Act of 2010 provided for accelerated depreciation by allowing a bonus first-year depreciation deduction of 50% of the adjusted basis of qualified property, such as our lease merchandise, placed in service during those years. Accordingly, our cash flow benefited from having a lower cash tax obligation which, in turn, provided additional cash flow from operations. Because of our sales and lease ownership model where Aaron’s remains the owner of merchandise on lease, we benefit more from bonus depreciation, relatively, than traditional furniture, electronics and appliance retailers. In future years we anticipate having to make increased tax payments on our earnings as a result of expected profitability and the reversal of the accelerated depreciation deductions that were taken in prior periods. We estimate that at December 31, 2010 the remaining tax deferral associated with the Acts is approximately $77.0 million, of which approximately 78% will reverse in 2011 and the remainder will reverse between 2012 and 2013.

Leases. We lease warehouse and retail store space for most of our operations under operating leases expiring at various times through 2028. Most of the leases contain renewal options for additional periods ranging from one to 15 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. We also lease transportation and computer equipment under operating leases expiring during the next five years. We expect that most leases will be renewed or replaced by other leases in the normal course of business. Approximate future minimum rental payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of September 30, 2010 are shown in the below table under “Contractual Obligations and Commitments.”

We have 20 capital leases, 19 of which are with a limited liability company (“LLC”) whose managers and owners are 11 Aaron’s executive officers and its controlling shareholder, with no individual, including the controlling shareholder, owning more than 13.33% of the LLC. Nine of these related party leases relate to properties purchased from Aaron’s in October and November of 2004 by the LLC for a total purchase price of $6.8 million. The LLC is leasing back these properties to Aaron’s for a 15-year term, with a five-year renewal at Aaron’s option, at an aggregate annual lease amount of $716,000. Another ten of these related party leases relate to properties purchased from Aaron’s in December 2002 by the LLC for a total purchase price of approximately $5.0 million. The LLC is leasing back these properties to Aaron’s for a 15-year term at an aggregate annual lease amount of $556,000. We do not currently plan to enter into any similar related party lease transactions in the future.

22

We finance a portion of our store expansion through sale-leaseback transactions. The properties are generally sold at net book value and the resulting leases qualify and are accounted for as operating leases. We do not have any retained or contingent interests in the stores nor do we provide any guarantees, other than a corporate level guarantee of lease payments, in connection with the sale-leasebacks. The operating leases that resulted from these transactions are included in the table below under “Contractual Obligations and Commitments.”

Franchisee Loan Guaranty. We have guaranteed the borrowings of certain independent franchisees under a franchisee loan program with several banks, and we also guarantee franchisee borrowings under certain other debt facilities. On June 18, 2010, we entered into the second amended and restated loan facility agreement and guaranty, which amends the previous loan facility agreement and guaranty. The new franchisee loan facility extended the maturity date until May 20, 2011, increased the maximum commitment amount under the facility from $175,000,000 to $200,000,000, provided for the ability to extend loans to franchisees that operate stores located in Canada (other than in the Province of Quebec), increased the maximum available amount of swing loans from $20,000,000 to $25,000,000, reduced the Company’s interest obligations with respect to franchisees that operate stores located in the U.S. and established the Company’s interest obligations with respect to franchisees that operate stores located in Canada, and modified certain exhibits. We remain subject to the same financial covenants under the new franchisee loan facility.

At September 30, 2010, the debt amount that we might be obligated to repay in the event franchisees defaulted was $131.4 million. Of this amount, approximately $122.6 million represents franchisee borrowings outstanding under the franchisee loan program, and approximately $8.8 million represents franchisee borrowings that we guarantee under other debt facilities. However, due to franchisee borrowing limits, we believe any losses associated with any defaults would be mitigated through recovery of lease merchandise and other assets. Since its inception in 1994, we have had no significant losses associated with the franchisee loan and guaranty program. We believe the likelihood of any significant amounts being funded in connection with these commitments to be remote.

Contractual Obligations and Commitments. We have no long-term commitments to purchase merchandise. The following table shows the approximate amounts of our contractual obligations, including interest, and commitments to make future payments as of September 30, 2010:

			Period Less		Period 1-3		Period 3-5		Period Over
(In Thousands)	Total		Than 1 Year		Years		Years		5 Years
Credit Facilities, Excluding Capital Leases	$	27,305	$	12,004	$	12,000	$	—	$	3,301
Capital Leases		14,807		1,314		2,686		3,205		7,602
Operating Leases		513,962		91,136		142,124		96,471		184,231
Purchase Obligations		29,705		14,727		14,784		194		—
Total Contractual Cash Obligations	$	585,779	$	119,181	$	171,594	$	99,870	$	195,134

The following table shows the approximate amounts of the Company’s commercial commitments as of September 30, 2010:

	Total
	Amounts		Period Less		Period 1-3		Period 3-5		Period Over
(In Thousands)	Committed		Than 1 Year		Years		Years		5 Years
Guaranteed Borrowings of Franchisees	$	131,430	$	129,924	$	1,506	$	—	$	—

Purchase obligations are primarily related to certain advertising and marketing programs. Purchase orders or contracts for the purchase of lease merchandise and other goods and services are not included in the tables above. We are not able to determine the aggregate amount of those purchase orders that represent contractual obligations, as some purchase orders represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current distribution needs and are fulfilled by our vendors within short time horizons. We do not have a significant number of agreements for the purchase of lease merchandise or other goods that specify minimum quantities or set prices that exceed our expected requirements for twelve months.

23

Deferred income tax liabilities as of September 30, 2010 were approximately $186.3 million. This amount is not included in the total contractual obligations table because we believe this presentation would not be meaningful. Deferred income tax liabilities are calculated based on temporary differences between the tax basis of assets and liabilities and their respective book basis, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling deferred income tax liabilities as payments due by period could be misleading because this scheduling would not relate to liquidity needs.

Market Risk

Occasionally, we manage our exposure to changes in short-term interest rates, particularly to reduce the impact on our floating-rate borrowings, by entering into interest rate swap agreements. At September 30, 2010, we did not have any swap agreements. We do not use any market risk sensitive instruments to hedge foreign currency or other risks and hold no market risk sensitive instruments for trading or speculative purposes. In the first nine months of 2010, we entered into a fuel hedge which had no material impact on our financial position or operating results during the nine month period ended September 30, 2010.

Interest Rate Risk

We occasionally hold long-term debt with variable interest rates indexed to LIBOR or the prime rate that exposes us to the risk of increased interest costs if interest rates rise. Based on our overall interest rate exposure at September 30, 2010, a hypothetical 1.0% increase or decrease in interest rates would not be material.

24

New Accounting Pronouncements

The pronouncements that the Company adopted in the first nine months of 2010 did not have a material impact on the consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is provided under Item 7A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and Part I, Item 2 of this Quarterly Report above under the headings “Market Risk” and “Interest Rate Risk.”

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, 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.

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.

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 Securities Exchange Act of 1934, during the Company’s third quarter of 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

25

PART II — OTHER INFORMATION

ITEM 1A. RISK FACTORS

The Company does not have any updates to its risk factors disclosure from that previously reported in its Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company made repurchases of its Common Stock during the third quarter of 2010, however, the Company made no repurchases of Class A Common Stock during 2010. As of September 30, 2010, the Company’s Board of Directors had authorized the repurchase of up to an additional 5,401,815 common shares pursuant to repurchase authority publicly announced from time-to-time.

					(c) Total Number of
	(a) Total				Shares Purchased as		(d) Maximum Number of
	Number of		(b) Average		Part of Publicly		Shares that May Yet Be
	Shares		Price Paid		Announced Plans or		Purchased Under the Plans
Period	Purchased		per Share		Programs		or Programs
July 1, 2010 through July 31, 2010		478,805	$	16.89		478,805		5,401,815
August 1, 2010 through August 31, 2010		0		0		0		5,401,815
September 1, 2010 through September 30, 2010		0		0		0		5,401,815
Total		478,805	$	16.89		478,805		5,401,815

ITEM 5. OTHER INFORMATION

The Company issued a press release on July 26, 2010 announcing its results for the second quarter ended June 30, 2010, and later that day, at 5:00 pm EDT or Eastern Daylight Time, held a conference call accessible to the public through a webcast to discuss those results. However, due to an inadvertent technical error, a Current Report on Form 8-K furnishing the press release pursuant to Item 2.02 thereof was not filed.

Furnished herewith as Exhibits 99.1 and 99.2, respectively, are the Company’s press release issued July 26, 2010 reporting the Company’s second quarter 2010 financial results and the transcript of its subsequent conference call discussing such results. The earnings call is also archived for playback at the Company’s website, http://www.aaronsinc.com/, in the “Investor Relations” section.”

26

ITEM 6. EXHIBITS

The following exhibits are furnished herewith:

15	Letter re: Unaudited Interim Financial Information.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 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.
99.1	Aaron’s, Inc. press release dated July 26, 2010, announcing the Company’s financial results for the second quarter of 2010 (furnished pursuant to Item 2.02 of Form 8-K).
99.2	Transcript of the conference call discussing the second quarter of 2010 results.
101	The following financial information from Aaron’s, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009, (ii) Consolidated Statements of Earnings for the three and nine months ended September 30, 2010 and 2009, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009, and (iv) the Notes to Consolidated Financial Statements.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AARON’S, INC. (Registrant)
Date — November 3, 2010	By:	/s/ Gilbert L. Danielson
		Gilbert L. Danielson
		Executive Vice President, Chief Financial Officer
Date — November 3, 2010		/s/ Robert P. Sinclair, Jr.
		Robert P. Sinclair, Jr.
		Vice President, Corporate Controller

28

EX-15

EXHIBIT 15

The Board of Directors
Aaron’s, Inc.

We are aware of the incorporation by reference in the Registration Statements (Form S-8 Nos.: 33-9206, 33-62538, 333-33363, 333-76026, 333-123426, 333-160357, and 333-160387) of Aaron’s, Inc. and subsidiaries and in the related Prospectuses of our report dated November 3, 2010 relating to the unaudited consolidated interim financial statements of Aaron’s, Inc. and subsidiaries that are included in its Form 10-Q for the quarter ended September 30, 2010.

/s/ Ernst & Young LLP

Atlanta, Georgia
November 3, 2010

EX-31.1

EXHIBIT 31.1

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

I, Robert C. Loudermilk, Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Aaron’s, 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 internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	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
d)	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 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: November 3, 2010	/s/ Robert C. Loudermilk, Jr.
	Robert C. Loudermilk, Jr.
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

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

I, Gilbert L. Danielson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Aaron’s, 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 internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	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
d)	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 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: November 3, 2010	/s/ Gilbert L. Danielson
	Gilbert L. Danielson
	Executive Vice President, Chief 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, Robert C. Loudermilk, Jr., Chief Executive Officer of Aaron’s, Inc. and subsidiaries (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, 2010 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); 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: November 3, 2010	/s/ Robert C. Loudermilk, Jr.
	Robert C. Loudermilk, Jr.
	Chief 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, Gilbert L. Danielson, Chief Financial Officer of Aaron’s, Inc. and subsidiaries (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, 2010 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); 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: November 3, 2010	/s/ Gilbert L. Danielson
	Gilbert L. Danielson
	Chief Financial Officer

EX-99.1

Exhibit 99.1

Contact: Gilbert L. Danielson

Executive Vice President

Chief Financial Officer

404-231-0011

Aaron’s, Inc.
Reports Second Quarter Results;
Same Store Revenues Up 2.4%;
Diluted EPS $.30 After
Office Furniture Writedown

ATLANTA, July 26, 2010 — Aaron’s, Inc. (NYSE: AAN), the nation’s leader in the sales and lease ownership and specialty retailing of residential furniture, consumer electronics, home appliances and accessories, today announced revenues and earnings for the three and six months ended June 30, 2010.

For the second quarter of 2010, revenues increased 7% to $445.0 million compared to $417.3 million for the same quarter a year ago. Net earnings from continuing operations were down 12% to $24.4 million versus $27.8 million in 2009. Diluted earnings per share were $.30 compared to $.34 per share a year ago, a 12% decrease.

For the first six months of this year, revenues increased 5% to $940.3 million compared to $891.3 million for the first six months of 2009. Net earnings from continuing operations were $61.4 million versus $63.2 million last year. Diluted earnings per share for the first six months were $.75 for 2010 versus $.77 in 2009.

As previously announced on June 29, 2010, the Company is ceasing the operations of its Aaron’s Office Furniture division. During the second quarter, the Company closed all but four of its Aaron’s Office Furniture stores and plans to close the remaining stores by September 30 of this year. The above mentioned financial results include charges to second quarter operating expenses of $7.1 million, or $.05 per diluted share, relating to the closure of this division. These charges include the write-down and cost to dispose of all office merchandise, estimated future lease liabilities of closed stores, the write-off of leaseholds, severance pay, and other associated costs of closing the stores and the division. Another approximately $2.5 million of charges, or approximately $.02 per share, is expected to be incurred during the remainder of fiscal year 2010.

“The results for the quarter were in line with our current guidance, and closing the office furniture stores is a positive going forward, as we will now be able to concentrate all our efforts on our proven and growing Aaron’s Sales & Lease Ownership business,” said Robert C. Loudermilk, Jr., President and Chief Executive Officer of Aaron’s. “Although revenue growth has slowed somewhat in recent months, our sales and lease ownership business continues to grow in revenues and numbers of customers, and our plans to open additional stores are unchanged. The current business environment remains difficult with continued high unemployment and general uncertainty in the marketplace. We are confident, however, that our 55^th year of operations will be another record year for the Company.”

Same store revenues (revenues earned in Company-operated stores open for the entirety of both periods) increased 2.4% during the second quarter of 2010 compared to the second quarter of 2009. Same store revenues increased 1.1% for Company-operated stores open over two years as of June 30, 2010. The Company had 859,000 customers and its franchisees had 465,000 customers at the end of the second quarter of 2010, an 11% increase in total customers over the number at the end of the second quarter a year ago (customers of our franchisees, however, are not customers of Aaron’s, Inc.). The customer count on a same store basis for Company-operated stores was up 5.6% in the second quarter compared to the same quarter last year.

At June 30, 2010, the Company had cash on hand of $85.3 million. Recently the Company reacquired 478,805 shares of Common Stock and has the Board of Director’s authorization to purchase an additional 5,401,815 shares.

Division Results

The Aaron’s Sales & Lease Ownership division increased its revenues in the second quarter of 2010 to $440.6 million, a 7% increase over the $413.3 million in revenues in the second quarter of 2009. Sales and lease ownership revenues for the first half of 2010 increased 6% to $931.2 million compared to $881.4 million for the same period a year ago.

The revenues of the Aaron’s Office Furniture stores were $3.5 million in both the second quarter of 2010 and the second quarter of 2009. The Aaron’s Office Furniture division recorded a pre-tax loss of $8.7 million in the second quarter of 2010 and $1.9 million in the second quarter of 2009. For the first six months of 2010, revenues of the Aaron’s Office Furniture stores were $7.5 million compared to $8.8 million for the same period of 2009, and pre-tax losses were $10.1 million in 2010 versus $2.8 million in 2009. Included in these results is the above mentioned $7.1 million of second quarter charges related to closing the division.

Components of Revenue

Consolidated lease revenues and fees for the second quarter and first half of 2010 both increased 6% over the comparable previous year periods. In addition, franchise royalties and fees were up 9% for the second quarter and 12% for the year to date compared to the same periods in 2009. Non-retail sales, which are primarily sales of merchandise to Aaron’s Sales & Lease Ownership franchisees, increased 8% to $73.6 million for the second quarter from $67.8 million in the comparable period in 2009, and increased 5% to $169.6 million for the first six months compared to $160.8 million for the first six months of last year. The increases in the Company’s franchise revenues and non-retail sales are the result of an increase in revenues of the Company’s franchisees, who, collectively, had revenues of $201.2 million during the second quarter and $421.4 million for the first six months of 2010, a 9% and 12% increase, respectively, over the prior year periods. Same store revenues and customer counts for franchised stores were up 3.8% and 8.4%, respectively, for the second quarter compared to the same quarter last year. Revenues and customers of franchisees, however, are not revenues and customers of Aaron’s, Inc.

The Company’s other revenues in the second quarter of 2010 and 2009 included $406,000 and $417,000 of gains, respectively, from the sale of the assets of Company-operated stores. Other revenues for the first six months included gains from the sale of stores of $406,000 in 2010 and $6.1 million in 2009.

Store Count

During the second quarter of 2010, the Aaron’s Sales & Lease Ownership division opened 17 new Company-operated stores and 20 new franchised stores. It also acquired five franchised stores and one store from an unaffiliated operator, and acquired the accounts of one third-party store. Aaron’s also sold one Company-operated store to an Aaron’s franchisee. Three Company-operated stores were closed during the quarter. In addition, eight Aaron’s Office Furniture stores were closed in the second quarter.

Through the three months and six months ended June 30, 2010, the Company awarded area development agreements to open 28 and 42 additional franchised stores, respectively. At the end of June 2010, there were 266 franchised stores awarded that are expected to be opened over the next several years.

At June 30, 2010, the Aaron’s Sales & Lease Ownership division consisted of 1,099 Company-operated stores, 611 franchised stores, 11 Company-operated RIMCO stores, and seven franchised RIMCO stores. The Company also had four Aaron’s Office Furniture stores. The total number of stores open at June 30, 2010 was 1,732.

Third Quarter and Full Year 2010 Outlook

The Company is updating its guidance for 2010 and expects to achieve the following:

• Third quarter revenues (excluding revenues of franchisees) of approximately $435 million.

• Third quarter diluted earnings per share in the range of $.29 to $.33 per share, assuming no significant store or other asset sales.

• Fiscal year revenues (excluding revenues of franchisees) of approximately $1.85 billion.

• Fiscal year diluted earnings per share in the range of $1.36 to $1.44, which includes the estimated $.07 per diluted share costs associated with closing the office furniture division.

• New store growth of approximately 5% to 9% over the store base at the end of 2010, for the most part an equal mix between Company-operated and franchised stores. This growth is expected to be a net store growth after any opportunistic merging or disposition of stores.

• The consolidation or sale of stores not meeting performance goals.

• The acquisition of franchised stores, conversion of independent operators’ stores to Aaron’s franchised stores, or sale of Company-operated stores to franchisees as opportunities present themselves.

Conference Call

Aaron’s will hold a conference call to discuss its quarterly financial results on Monday, July 26, 2010, at 5:00 pm Eastern Time. The public is invited to listen in to the conference call by webcast accessible through the Company’s website, www.aaronsinc.com, in the “Investor Relations” section. The webcast will be archived for playback at that same site.

Aaron’s, Inc., based in Atlanta, currently has more than 1,730 Company-operated and franchised stores in 48 states and Canada. The Company’s Woodhaven Furniture Industries division manufactured approximately $72 million at cost of furniture and bedding at 11 facilities in five states in 2009. The entire production of Woodhaven is for shipment to Aaron’s stores.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this news release regarding Aaron’s, Inc.’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include factors such as changes in general economic conditions, competition, pricing, customer demand and other issues, and the risks and uncertainties discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. Statements in this release that are “forward-looking” include without limitation Aaron’s projected revenues, earnings, and store openings for future periods.

Aaron’s, Inc. and Subsidiaries
Consolidated Statements of Earnings
(In thousands, except per share amounts)

	(Unaudited)					(Unaudited)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010		2009			2010		2009
Revenues:
Lease Revenues and Fees	$	344,949	$	324,111		$	711,646	$	668,613
Retail Sales		9,330		9,490			24,416		25,365
Non-Retail Sales		73,564		67,835			169,640		160,801
Franchise Royalties and Fees		14,147		12,920			29,074		26,027
Other		3,009		2,954			5,492		10,454
Total		444,999		417,310			940,268		891,260
Costs and Expenses:
Retail Cost of Sales		5,651		5,814			14,613		15,219
Non-Retail Cost of Sales		68,157		62,496			155,520		146,808
Operating Expenses		206,210		185,571			412,669		382,088
Depreciation of Lease Merchandise		124,808		117,915			256,888		243,119
Interest		844		1,164			1,687		2,440
Total		405,670		372,960			841,377		789,674
Earnings from Continuing Operations Before Taxes		39,329		44,350			98,891		101,586
Income Taxes		14,894		16,524			37,481		38,400
Net Earnings from Continuing Operations		24,435		27,826			61,410		63,186
Loss from Discontinued Operations, Net of Tax		—		(76	)		—		(285	)
Net Earnings	$	24,435	$	27,750		$	61,410	$	62,901
Earnings Per Share:
From Continuing Operations	$	.30	$	.34		$	.75	$	.78
From Discontinued Operations		.00		.00			.00		.00
Total	$	.30	$	.34		$	.75	$	.78
Earnings Per Share Assuming Dilution:
From Continuing Operations	$	.30	$	.34		$	.75	$	.77
From Discontinued Operations		.00		.00			.00		.00
Total	$	.30	$	.34		$	.75	$	.77
Weighted Average Shares Outstanding (1)		81,479		81,176			81,439		80,913
Weighted Average Shares Outstanding Assuming Dilution (1)		82,309		82,074			82,228		81,797

(1) Shares have been adjusted for the effect of the 3-for-2 partial stock split distributed on April 15, 2010 and effective April 16, 2010.

Selected Balance Sheet Data
(In thousands)

	(Unaudited and Preliminary)
	June 30,		December 31,
	2010		2009
Cash	$	85,337	$	109,685
Accounts Receivable, Net		53,952		66,095
Lease Merchandise, Net		737,473		682,402
Property, Plant and Equipment, Net		199,424		215,183
Other Assets, Net		264,815		248,091
Total Assets		1,341,001		1,321,456
Bank Debt		—		—
Senior Notes		36,000		36,000
Total Liabilities		391,721		434,196
Shareholders’ Equity	$	949,280	$	887,260

EX-99.2

Exhibit 99.2

F I N A L T R A N S C R I P T AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call Event Date/Time: Jul. 26. 2010 / 9:00PM GMT

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

CORPORATE PARTICIPANTS

Gilbert Danielson

Aaron’s Inc. — CFO

Lee Wilder

Aaron’s Inc. — IR

Robin Loudermilk

Aaron’s Inc. — CEO

Charlie Loudermilk

Aaron’s Inc. — Chairman

Ken Butler

Aaron’s Inc. — COO

Robin Loudermilk

Aaron’s Inc. — CEO

CONFERENCE CALL PARTICIPANTS

John Rowan

Sidoti & Company — Analyst

Bud Bugatch

Raymond James — Analyst

Joel Havard

Hilliard Lyons — Analyst

John Baugh

Stifel Nicolaus — Analyst

David Magee

SunTrust Robinson & Humphrey — Analyst

Matt McCall

BB&T Capital Markets — Analyst

Lauren Champine

Cowen & Company — Analyst

Rob Straus

Gilfor Securities — Analyst

PRESENTATION

Operator

Good afternoon and welcome to the Aaron’s second quarter 2010 earnings conference call.

At this time, I would like to introduce your host, Gilbert Danielson. Thank you and enjoy the conference. You may proceed, Mr. Danielson.

Gilbert Danielson — Aaron’s Inc. — CFO

Thank you for joining us today. As usual I’m going to turn the call over to Lee Wilder, who helps us out in investor relations.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

1

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

She’ll read our Safe Harbor statement, and then she will turn it over to the rest of us for a few opening comments and then we will turn the call over to questions and answers. So, Lee?

Lee Wilder — Aaron’s Inc. — IR

Good afternoon, my name is Lee Wilder and I assist in investor relations for Aaron’s. The Company’s earnings release issued today and related form 8-K, are available on our website, www.aaronsinc.com, in the investor relations section.

This webcast will be archived for replay there as well. With us today are Charlie Loudermilk, Chairman; Robin Loudermilk CEO, Ken Butler, COO, and Gil Danielson, CFO.

Before we discuss the results, I would like to read the Safe Harbor statement.

Except for the historical information the matters discussed today are forward-looking statements of the Company. As such they will involve a number of risks and uncertainties including factors such as changes in general economic conditions, competition, pricing, customer demand and other issues that could cause actual results to differ materially from such statements including the risks and uncertainties discussed under risk factors in the Company’s 2009 annual report on Form 10-K including without limitation the Company’s projected revenues, earnings, store openings and acquisitions and disposition activity for future periods. Robin, Charlie, and Ken will have a few opening remarks then Gil will add further information. Robin?

Robin Loudermilk — Aaron’s Inc. — CEO

Alright. Thank you, Lee. As I think most of you all saw, our second quarter results were as anticipated as we had previously revised on our previous release. Our core Aaron sales and lease ownership continues to grow in revenues and customers even as growth has slowed slightly compared to previous quarters, and therefore has had a slight negative impact on profitability. We believe the revenue slow down in result of our customers being very cautious and tentative in this current economic environment a very prolonged unemployment and general uncertainty.

However, in the quarter our Company operating stores did have same store revenue growth of 2.4% and customer growth of 5.6%. In addition, to all the net — net revenues of Aaron’s Inc. our franchise stores experienced a 3.8% growth in same store revenue 8.4% increase in same store customer growth.

The total of our corporate franchise customers were up 11% over the same period last year.

Although these growth metrics are at the low end of our historical results, we still feel they are good considering the current circumstances.

As credits tighten, we have attracted customers as expected, and I think that the current economic environment will continue to be good for our sales lease ownership business. We continue to see customer gains as some of the highest unemployment markets throughout the country.

With some history, excuse me, with some hesitancy, we decided in the quarter at the end of the quarter to exit our office furniture business. We sold our legacy rent to rent business in 2008, at that time we decided to keep 13 Aaron’s office furniture stores.

For those of you who have followed the Company over the last several years, you know we have recently struggled with the office furniture concept as we once knew it. The office furniture business is a highly cyclical and with economic conditions the last several years the stores have constantly experienced declining revenue and not been profitable. We tried our best to improve the stores performance however, with no acceptable financial projections in the near term, we felt the right alternative is to put the business behind us.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

2

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Production in our manufacturing plants has slowed somewhat in the first half of the year. Manufacturing shipments down 11% for the second quarter compared to the same quarter a year ago and were flat over the six month period. We have changed the name as the press release previously stated to — from MacTavish Furniture Industries to Woodhaven Furniture Industries a brand that we have used in marketing throughout the years.

Our plans for 2010 are unchanged as we are looking to increase store count by approximately 5% to 9% over our number of stores opened at the end of 2009. We anticipate 2010 our 55th year, to be a challenging one, but yet another excellent year.

Thank you for support of the Company. I will turn the call over to Charlie for a few comments, and then Ken will talk about the operating results.

Charlie Loudermilk — Aaron’s Inc. — Chairman

Thank you, Robin.

We are not immune to what is happening in the economy. We have been hit less than I think probably any other chain operation retail. But we do not rent to people who don’t have a job and when joblessness goes up our customer base goes down somewhat.

We have a tremendous program. The program is strong as it’s ever been. We have a good staff to carry this program out. I think we will have a good year, not a barn burner, but a good year and we are looking forward to things turning around, but we are here and we are going to weather any storm, no problem. Thank you for your interest, Ken?

Ken Butler — Aaron’s Inc. — COO

Thank you, for joining us again this afternoon.

Our core business model remains strong as evidence of our lease revenues continuing to grow and our core customer base. Our customer count grew over 31,000 new customers over the first quarter and has grown by over 130,000 new customers over this time last year, which is an 11% increase combined with Company and franchise stores. Over the last two years, we have seen price degadation with our electronics and have pushed our term on furniture to stimulate sales of our best margin business, which is furniture.

Both have made our overall proposition more affordable to our consumers. I believe it’s been a very positive change for our transaction as more and more customers are using Aaron’s as their choice with our unique lease ownership transaction.

Due to the current state of the economy our customers are being cautious about their budgets and we think we have made the right moves at the right time. I believe it’s healthier for business to fuel this growth by adding more customers than by price increases and having fewer customers. The great news is that more and more customers are coming to Aaron’s each and every day. Business in July already looks stronger than the past year. We anticipate continuing to deliver positive results.

We remain focused on adding 90 new Company operated stores in 2010. For the first six months we’ve opened 29 and with over two-thirds of the stores slated to open in the last six months of the year. Our franchise pipeline is still strong with 266 stores to open in the future. And we expect to continue with our conversion of stores as well. In the second quarter alone we converted ten former competitor stores over to the Aaron’s brand. A franchisee purchased four of their stores that were conflicts, and we merged one of their stores into our corporate store. The overall transaction will bring in additional $1 million in revenue in Aaron’s system per month. We will continue to pursue these types of transactions in the future. We continue to focus on how we can operate more efficiently with manpower, expenses and resources and expect to continue to deliver positive operating results in the future. I think, Gil, you are going to summarize.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

3

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Gilbert Danielson — Aaron’s Inc. — CFO

I will. I’ll go through some of the highlights for the quarter. Company revenues increased 7% for the quarter to $445 million and 5% for the six months to $940.3 million. In addition, our franchisees although the revenues of the franchisees are not our revenues. They did increase their revenues in the second quarter 9%, to $201.2 million. And for the six month they had a 12% increase to $421.4 million. Same store revenue growth in the second quarter for Company operated stores was 2.4%, and it was 1.1% for the stores that are over two years old. For stores that were over five years old, it was slightly down 0.2%.

The customer count on a same store basis for Company operated stores was up 5.6% in the second quarter compared to the same quarter last year. Same store revenues and customer count were franchise stores were up 3.8%, and 8.4% respectively. In the second quarter compared to last year, again revenues and customers are franchisees are not revenues and customers of Aaron’s Inc.

The Company had 859,000 Company operated store customers and 465,000 franchise customers at the second quarter, 11% increase in total customers over the number at the end of the second quarter of ’09.

Net earnings from continuing operations for the quarter were $24.4 million versus $27.8 million, in ’09. Net earnings from continuing operations for the six months, $61.4 million, versus $63.2 million, last year. For the second quarter diluted earnings per share from continuing operations were $0.30 compared to $0.34 in the quarter last year. And for the six months diluted earnings per share were $0.75 for ’10, and $0.77 for 2009.

As we talked about and as we announced on June 29, we are closing our Aaron’s office furniture division. In the second quarter resales included charges of $7.4 million, or $0.05 per diluted share, related to the closure of this division. We estimate another approximately $2.5 million of charges or again approximately $0.02 per share, will be expected to expensed over the remainder of the fiscal year to the wind down of the division.

These charges include the write down in cost to dispose of office merchandise, estimated future lease liabilities and closed stores right off lease-holds, severance, and other associated costs. The revenues of the office — Aaron’s office furniture stores were $3.5 million both in the second quarter of 2010 and the second quarter of 2009.

The Aaron’s office store reported a pretax loss of $8.7 million in the second quarter versus $1.9 million in the second quarter of last year. For the six months revenues of Aaron’s office furniture were $7.5 million, compared to $8.8 million for the same period last year. Pre-tax losses were $10.1 million in the the first six months of the year versus $2.8 million in 2009. Again, included in these results are the above mentioned $7.1 million of second quarter charges.

The Company’s other revenues in the second quarter include $406,000 of asset sales in 2010, and $417,000 in 2009. For the six months there was $406,000 of asset sales and $6.1 million in 2009. During the second quarter of 2010, the Aaron’s sales lease ownership division opened 17 new Company operated stores and 20 new franchise stores. We also aquired five franchise stores and one store from an unaffiliated operator and aquired the accounts of one third party store. We also sold one Company operated store to a Aaron’s franchisee. And three Company operated stores were closed in addition to the Aaron’s office furniture stores we talked about. Eight of those stores were closed in the second quarter.

Through the three months and six months ended June 30, we have awarded area development agreements to open 28 and 42 additional franchise stores. At the end of June 2010, there were 256 stores that have been sold that will open in future years. At June 30, 1,099 Company operated sales and lease ownership stores, 611 franchise stores, 11 Company operated RIMCO stores, 7 franchise RIMCO stores, and 4 Aaron’s office furniture stores open for a total of 1,732 stores. We think, again we anticipate the former 4 Aaron’s office furniture stores will close by the end of September. At the end of June we had cash on hand of $85.3 million.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

4

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Our guidance for the third quarter of 2010 is just that revenues of approximately $435 million, and diluted earnings per share in the range of$0.29 to $0.33 per share. Our revenue guidance remains the same, we expect to reach approximately $1.85 billion in Company revenues.

Fiscal year diluted earnings per share are expected to be in the range of $1.36 to $1.44, which again includes the estimated $0.07 per diluted share cost associated with the closing of the office furniture division. As we mentioned we anticipate new store growth of 5% to 9% in 2010, and again for the most part of an equal miss probably a few more Company operated stores than franchise stores.

Recently, the Company has reacquired 479,000 shares of common stock and we have current Board authorization to repurchase another 5.4 million shares. We certainly expect to probably be active at these current stock levels and repurchasing shares for the Company.

Those are our comments. We will certainly turn it over to any questions that anybody may have.

QUESTIONS AND ANSWERS

Operator

We will now have a question-and-answer session. (Operator Instructions)

Our first question comes from the line of John Rowan of Sidoti & Company. You may proceed.

John Rowan — Sidoti & Company — Analyst

Good evening. Forgive me if you gave this already, but can you give us average ticket size?

Gilbert Danielson — Aaron’s Inc. — CFO

We haven’t given that already, but I will give it. The average for the month that the customer was paying in the month of June, let me look here. Yes, the average monthly customer payment in June was $136.25.

This was $136.67 in March. But a year ago, June was $140.

It has deteriorated about 3% to 4%, since June of a year ago. That’s being stretched out. It’s gone down a little bit but relatively flat the last few quarters.

John Rowan — Sidoti & Company — Analyst

Is that price deflation or just not selling higher priced goods.

Gilbert Danielson — Aaron’s Inc. — CFO

I think the deflation in pricing has calmed down. That was an issue we went through about a year or so ago where electronics were going down rapidly. It has settled down as a combination of many things, certainly customers are stressed and looking for lower price television more so than they have the previous years. More of economic times than anything.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

5

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

John Rowan — Sidoti & Company — Analyst

Have you looked at the income demographic of our customers? Has it changed if you have looked at it?

Gilbert Danielson — Aaron’s Inc. — CFO

I don’t think that needle has moved. It really hasn’t. It’s been pretty constant. We talk about it from time to time. But it’s pretty similar.

John Rowan — Sidoti & Company — Analyst

Okay. One last housekeeping item. Where were the bulk of the charges.

Gilbert Danielson — Aaron’s Inc. — CFO

All in operating expenses.

John Rowan — Sidoti & Company — Analyst

All on operating, okay, thank you.

Operator

Our next question comes from the line of Bud Bugatch with Raymond James.

Bud Bugatch — Raymond James — Analyst

Good afternoon Gil. Good afternoon Charlie. Good afternoon Robin.

Gilbert Danielson — Aaron’s Inc. — CFO

Hello, Bud.

Bud Bugatch — Raymond James — Analyst

And Lee. One question I had on a detailed question is if I’m right, your guidance for the year came down by $0.02 a share on an adjusted basis we had $0.07, and I think you were a little bit higher up to a $1.46, including — what changed in the last couple of weeks to make you want to take the top end down a bit.

Gilbert Danielson — Aaron’s Inc. — CFO

We always narrowed the guidance as we go through the year that’s kind been kind of our historical trend. The guidance changed from 30 days ago we just brought the top ends down a little bit. It’s a wide range, but obviously as you get closer to year end you can get a little bit tighter. Our guidance for the second quarter, we kind of came in, — we didn’t come in at the middle of the guidance we kind of came out to a little bit low end of the guidance. We kind of looked at that and where the revenues came out in the quarter and outlook and proven to tighten up a little bit. Tightening came off of the top. It’s really what happened in the second quarter as opposed to what you see in third and fourth that caused you to reign in the top end. Yes. I would say so. Yes. I think outlook for the third and fourth quarter is what we were looking at, 30 days ago.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

6

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Bud Bugatch — Raymond James — Analyst

This is a longer term question, maybe not even knowable at this point in time. The things — the major item changed since the end of the first quarter and the end of the second quarter is the President signed a 2000 plus page document. I don’t believe in that document the name RTO or is all mentioned in there, but there is now a consumer finance protection bureau or agency, whatever it’s going to be called, what is your thinking about that? Maybe get Robin and Charlie can comment on that as well. Looks like whoever it is that’s going to be the administrator is going to have a wide latitude on that.

Gilbert Danielson — Aaron’s Inc. — CFO

None of us in the room are experts on what congress has done or what congress is going to do, but the way we see it now they are going to establish that consumer protection bureau or whatever is going to, they are going to turn it over to that agency whenever that gets established and set up. And regulators will start writing the laws and implementing whatever the bill implies that they can do. That will take some time for that to all shake out. The real question is, by many other industries you really don’t know for sure where the regulators and the bureaucrats will take the consumer agency and what (inaudible)—

Charlie Loudermilk — Aaron’s Inc. — Chairman

We spent a lot of time explaining to the congress people that our business model is quite different than some of the other things that they are looking at very closely, and payday lending is one of them of course and some of the others, so I think we’ve convinced them to leave our business out of the mix whether that continues I don’t know. I understand it was not mentioned in the last bill. But could be in next bill. You just never know how congress is going to act.

We spent a lot of time, both ourselves as well as the national association trying to explain the difference that we are letting people have refrigerators and beds that they couldn’t get otherwise and that because of the problems of operating, we are not making a huge profit in all of this, just a fair profit, so I feel pretty good that we are going to come out of this real well.

Gilbert Danielson — Aaron’s Inc. — CFO

I think at the end of the day there was no clarity. We were hoping that would be some clarity one way on this bill. So I think at the end of the day — continue to lobby, continue to pay the lawyers and go forward, with our effort we were in great position to do with that a pact and the association. So, we were hoping that would be some clarity, some direction but there is not so we just continue on. Always had this hanging over I guess what we call rent to own discount on our stock. It will be there for a continuing number of years. Who knows. I hope we get it cleared up. I think it’s going to more of the same frankly, what we see, talking to our people. Experts and lawyers and lobbyists. We will continue to aggressively educate and try to get some legislation in our

Charlie Loudermilk — Aaron’s Inc. — Chairman

We have been talking about this for probably 20 years. They’ve had different bills in congress, but they haven’t gone anywhere. So, we hope the same thing here.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

7

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Bud Bugatch — Raymond James — Analyst

Has the New York bill been signed does that change any of your operating—

Gilbert Danielson — Aaron’s Inc. — CFO

The state bill in New York, I don’t know, Bud. I haven’t heard of that.

Robin Loudermilk — Aaron’s Inc. — CEO

All our stores in New York, operated underneath the consumer lease, which is the federal legislation, we operate under—and today we certainly have been watching New York but nothing has happened.

Bud Bugatch — Raymond James — Analyst

Thank you very much, good luck on the quarter and the rest of the year.

Gilbert Danielson — Aaron’s Inc. — CFO

Thank you.

Operator

Thank you. Our next question come from the line of Joel Havard with Hilliard Lyons. You may proceed.

Joel Havard — Hilliard Lyons — Analyst

Thank you, afternoon everybody. I don’t know who wants to take them, but the commentary in the release on the store growth forecast. I don’t always have the best foot notes, is that any change or is that really just kind of you guys have been talking about it reads against my model as maybe a slight up tick in the pace of store growth.

Gilbert Danielson — Aaron’s Inc. — CFO

Pretty much the same. I think we forecasted 90 stores in the beginning of the year. We are little bit off pace but we feel confident we are going to —

Charlie Loudermilk — Aaron’s Inc. — Chairman

Joel, I always push the third and fourth quarter, we always come out first quarter saying we are going to open a bunch of stores. But for some reason they always push—

Gilbert Danielson — Aaron’s Inc. — CFO

We don’t do them all even.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

8

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Charlie Loudermilk — Aaron’s Inc. — Chairman

That’s usually the way it works.

Joel Havard — Hilliard Lyons — Analyst

(inaudible) Ken, this may be more for you. The discussion about the number of customers, we didn’t get in to specific in your opinion of contracts. You talked a little bit about the ticket. Is what is going on maybe more a function of tickets or accounts not renewing so they’re as they work down the first contract, they got a second one on but not automatically, are they paying out before they start again. Are they stretching it out that way or is this limited to—there has not been a change in the number of accounts so much or —

Ken Butler — Aaron’s Inc. — COO

I still — our average per accounts per customer is exactly the same. I do think our customers are being conservative. They may drag their feet, and may not get the full set that they may have got a year ago. It has bottomed out.

We saw a more dramatic decline in the average ticket. I hope we are at the bottom. We certainly doing a lot to try to package items together so they can get more receivable. And get a better value for their money.

Joel Havard — Hilliard Lyons — Analyst

Okay.

Ken Butler — Aaron’s Inc. — COO

You know we are doing everything we can do. Somebody mentioned to me about a year ago, what could we do to raise that outside of price increase there is resistance with customers. Then you can overload customers in our business.

You got to make sure they can — making the first payment is usually not the problem it’s the second and third. We haven’t seen a up tick in returning at all, we haven’t seen a change the amount of agreements that each customer has either.

Robin Loudermilk — Aaron’s Inc. — CEO

Joel, it’s Robin. I will just kind of add. The interesting thing is the average ticket I guess has gone down, to deliver TV that we get revenue $160 costs us the same delivering service for $130, you are doing as much work for less revenue and we’re probably putting more in advertising and the showroom traffic is not a problem. Stores are getting traffic and all that.

We are working harder, spending a little more money for fewer dollars but we’re gaining customers. We always view that as a real positive as we gain customers. You don’t see the nonrenewals, the collections going up. Pretty predictable. The customers are paying. They are just wisely saying I don’t need that 47-inch TV I’m going the take the 32-inch and save a little money. I’m going to pay for it, when things turn back around I will come back and get the bigger TV. Just remember—we stretch terms out a little over a year ago. That brought the ticket down.

We are working hard, we are working very hard and we’re working harder for maybe fewer dollars. We’re advertising hard. We’re doing what we should be doing. It’s just tough and as I said we’re seeing good customer traffic in high unemployment areas. But, they’re just being savvy. They’re scared. They’re savings are going up a bit even with our customer base.

It’s a challenge. But, I think metrics are strong. I think we will weather it.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

9

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Joel Havard — Hilliard Lyons — Analyst

Okay. Thanks for that. I know we have been belaboring that point. I guess one last clarification. Gil, did your comments imply that all of the charge, the $7 million or whatever was built in to the $8 million to $9 million operating loss for office in Q2?

Gilbert Danielson — Aaron’s Inc. — CFO

Yes, it was. Yes.

Joel Havard — Hilliard Lyons — Analyst

So excluding the charge —

Gilbert Danielson — Aaron’s Inc. — CFO

Lost about a million and a half throughout the charge.

Joel Havard — Hilliard Lyons — Analyst

Okay. All right. That’s all I got, thanks, good luck.

Operator

Thank you. Our next question comes from the line of John Baugh, Stifel Nicolaus. You may proceed.

John Baugh — Stifel Nicolaus — Analyst

Good afternoon, everyone. Couple of things, can you repeat again please the customer numbers for Company stores and franchisees?

Gilbert Danielson — Aaron’s Inc. — CFO

I will do that. I got it right here if you want. 858,637 corporate customers. 465, 240 franchise.

John Baugh — Stifel Nicolaus — Analyst

Did you have a contract number too?

Gilbert Danielson — Aaron’s Inc. — CFO

Agreements, 1,218,581 customers corporate. 650,052 customers Franchise

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

10

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

John Baugh — Stifel Nicolaus — Analyst

Okay. Then maybe comment on inventory, I know I think in the first quarter it had gone up fairly dramatically. It looked like it went down sequentially a little bit here. I know there are opportunistic buys that can move that thing around. How do you feel about your inventory levels in light of business having slowed here.

Ken Butler — Aaron’s Inc. — COO

We got plenty of it.

Gilbert Danielson — Aaron’s Inc. — CFO

We’re also running a Christmas in July promotion. I think we definitely having enough inventory to carry throughout the promotion.

Business is pretty brisk right now. We are happy with it. Nothing like what we did last July. We really typically hasn’t done a lot of promoting in July and couple of franchisees had a lot of success by doing it. This we replicated the program and have the same type of success as they had.

John Baugh — Stifel Nicolaus — Analyst

So, Gil says you got plenty of inventory, you say July is good. So the current promotion working off the inventory, where you do you expect to see that number at the end of the third quarter, Gil?

Gilbert Danielson — Aaron’s Inc. — CFO

I think it will go down. We’ve got quite a bit of inventory in our distribution centers at the end of June, again building inventory through the Christmas and July and let’s face it revenues were off a little bit in the second quarter than what we anticipated.

John Baugh — Stifel Nicolaus — Analyst

Saying that’s what impacted Woodhaven not MacTavish. In terms of the production of furniture.

Lee Wilder — Aaron’s Inc. — IR

Yes.

Gilbert Danielson — Aaron’s Inc. — CFO

First year billing up to, we probably made done a little bit too good of job of predicting frames we have been building frames to the fulfillment centers, but we’ve got some new stuff coming in for the fall. Business always seems to pick up in the fall. We certainly anticipate that happening again. So, we are flat for six months. I think it’ll hang in there.

John Baugh — Stifel Nicolaus — Analyst

Okay. Charge-offs?

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

11

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Gilbert Danielson — Aaron’s Inc. — CFO

They were for the quarter, 2.6% of revenue— store level revenue.

John Baugh — Stifel Nicolaus — Analyst

And then, I know you advertising expense went up in the first quarter sounds like it went up in the second quarter could you quantify what it was year-to-date, say versus the prior year, maybe as a percentage of revenue?

Robin Loudermilk — Aaron’s Inc. — CEO

Yes. We budget the same amount per store per year in the budget this year is going to come in exactly as it did last year. Sometimes maybe a trigger that causes us to do more in the second quarter than we did last year. When the dust settles down, it will come down to the same amount.

Gilbert Danielson — Aaron’s Inc. — CFO

Our advertising for the year, advertising expense in six months was about $2.9 million higher than this month a year ago, John.

John Baugh — Stifel Nicolaus — Analyst

Okay.

Gilbert Danielson — Aaron’s Inc. — CFO

It was flatish in the second quarter. Most of the advertising came through in the Q2.

John Baugh — Stifel Nicolaus — Analyst

Okay. I assume we will lose roughly $7 million, in the second half of office revenue that was there in the first half, roughly, but we will also lose the roughly $3 million of pre-tax losses.

Gilbert Danielson — Aaron’s Inc. — CFO

Yes. You looked at it, they figured would lose about $1.5 million a quarter in that range. They will still have some revenue here in the third quarter but most of the fourth quarter there’ll be no more revenue.

John Baugh — Stifel Nicolaus — Analyst

And assets held for sale, $12 million on the balance sheet at the end of the last quarter, any update on that?

Gilbert Danielson — Aaron’s Inc. — CFO

No, that is excess real estate that we have that and land we have on the market that moved — they’re basically parcels we had purchased several years for potential stores that hasn’t worked out for us. So, we’re actively trying to market those.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

12

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

John Baugh — Stifel Nicolaus — Analyst

Have you been able — you mentioned a comment about high unemployment, we got the whole gulf mess down there, and I don’t know if you have your request in for part of the $20 billion, seems like everybody else down there does, so you might as well get in line. Could you comment on how that is impacting business at all.

Gilbert Danielson — Aaron’s Inc. — CFO

We did—I think we plotted out 95 stores, 100 stores that were potentially in the four states around the water within 50 miles of the water and nothing definitively positively or negatively yet. So, we will see how it works out. Nothing moved on that.

John Baugh — Stifel Nicolaus — Analyst

Okay. Thank you so much for answering my questions.

Operator

Thank you.

Our next question comes from the line of David Magee with SunTrust Robinson and Humphrey. You may proceed.

David Magee — SunTrust Robinson & Humphrey — Analyst

Good afternoon, guys.

Gilbert Danielson — Aaron’s Inc. — CFO

Hey, David.

David Magee — SunTrust Robinson & Humphrey — Analyst

What is your assumption regarding the furniture shipments in the second half of the year. I guess they were positive in the first quarter and down 11% in the second quarter is what I thought I heard—

Gilbert Danielson — Aaron’s Inc. — CFO

MacTavish — or Woodhaven shipments?

David Magee — SunTrust Robinson & Humphrey — Analyst

Yes.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

13

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Gilbert Danielson — Aaron’s Inc. — CFO

Yes, I think there will be positive—again, it’s just upholstery and bedding is what comes out of Woodhaven. Not all of the furniture that we purchased all wood products and things like that. I would — I would expect it to be slightly positive of production in the last half of the year. Indication of how business is but it does definitely bounce around. Ebbs and flows quite a bit. Manufacturing plants are the tail on the dog they just catch the demand that we have in stores. Is there anything with regard to new technology with TV you saw or whatnot that might spur additional interest?

Robin Loudermilk — Aaron’s Inc. — CEO

We got a couple of new products that are coming out. So, we will see.

David Magee — SunTrust Robinson & Humphrey — Analyst

Larger size TVs?

Robin Loudermilk — Aaron’s Inc. — CEO

Yes. We got a big 82-inch coming in. Landing right now as we speak.

Gilbert Danielson — Aaron’s Inc. — CFO

Price is high, though.

Robin Loudermilk — Aaron’s Inc. — CEO

It is high. May help the average income ticket per customer.

It’s a great value. We are going to be where we need to be price-wise. We think we will move some.

David Magee — SunTrust Robinson & Humphrey — Analyst

Lastly, just to clarify, is July sort of similar to what you reported for the second quarter or has there been a little bit of acceleration in business trends here.

Gilbert Danielson — Aaron’s Inc. — CFO

I think Ken was comparing July this year versus July of last year.

Ken Butler — Aaron’s Inc. — COO

Yes, our activity is better than a year ago and looks like this is the last week, we’ve already matched last year’s gain. So, anything we add on this week will be gravy.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

14

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

David Magee — SunTrust Robinson & Humphrey — Analyst

In terms of the trend line would you say it’s a similar trend line to what you reported for the quarter.

Gilbert Danielson — Aaron’s Inc. — CFO

Historically as you know, July and August are weaker months for billions of reasons.

David Magee — SunTrust Robinson & Humphrey — Analyst

I’m thinking about year to year.

Robin Loudermilk — Aaron’s Inc. — CEO

I think we will be better than last year. We got some line enthusiasm with Christmas in July promotion.

The third quarter is the third quarter if you look at financials historically they have always been worse in that quarter. I don’t think they’re going to be much different than that. The main thing, if we can gain more receivables, keep the plus gain and beat last year’s quarter, which I think we will substantially then we will be okay as far as our customer growth goes.

David Magee — SunTrust Robinson & Humphrey — Analyst

Okay. Great, thank you.

Operator

Thank you.

Our next question comes from the line of Mat McCall with BB&T Capital markets. You may proceed.

Matt McCall — BB&T Capital Markets — Analyst

Good afternoon everybody.

Gilbert Danielson — Aaron’s Inc. — CFO

Hey, Matt.

Matt McCall — BB&T Capital Markets — Analyst

Gil, I guess somewhat housekeeping here. New store drag? Did you get the new store drag number for Q2?

Gilbert Danielson — Aaron’s Inc. — CFO

You are the first to hear it, about $0.04 a share this quarter.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

15

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Matt McCall — BB&T Capital Markets — Analyst

All right. I don’t have a history of that but that seems like maybe it’s a little bit higher and my fault was or I guess — my thinking has been as we slow the pace of store growth that new store drag should maybe move a little bit lower so is that —

Gilbert Danielson — Aaron’s Inc. — CFO

It’s comparable to what it was a year ago in the second quarter. We had about same number of stores in that bucket too I think.

Matt McCall — BB&T Capital Markets — Analyst

Is the outlook, is that a pretty consistent number as we move through the back half of the year.

Gilbert Danielson — Aaron’s Inc. — CFO

I’d say $0.04 a quarter. For — $0.03 to $0.05 a quarter would be a typical way to look at it.

Matt McCall — BB&T Capital Markets — Analyst

And in the past you’ve, Gil, speculated about your same store sales. What is the assumption for same store sales in the Q3 guidance and maybe the back half guidance?

Gilbert Danielson — Aaron’s Inc. — CFO

I would think it would be comparable to the second quarter that we just announced and here looking in a range of 2% to 3%, something like that, probably, but what you could expect.

Matt McCall — BB&T Capital Markets — Analyst

Okay. Then, Ken you talked about, sounded like—Robin you mentioned maybe incremental advertising maybe the numbers were flat in Q2, but if you talk about your H2 assumptions and talk about that 2.4%, is that more a benefit of ticket, is that more of a benefit of units what is the trend as we move from H1 to H2, for both the ticket and units?

Ken Butler — Aaron’s Inc. — COO

I didn’t understand the question. I’m sorry. H1, what is H1 and H2. Half one and half two?

Matt McCall — BB&T Capital Markets — Analyst

Let me rephrase. As we move to the back half of the year, you made some Ken you were talking about the investment, so you got assumptions baked in to this growth are you talking about ticket getting better or unit growth what’s the assumption behind both of those two.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

16

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Ken Butler — Aaron’s Inc. — COO

Think we are hoping that the average ticket value has stabilized and we are scraping the bottom. Hopefully we will start seeing it trend back up somewhere soon, but I don’t think it’s going be too material looking, kinds of looking forward.

Matt McCall — BB&T Capital Markets — Analyst

Then, the final one, as you looked at the trends through the quarter, we were on a legislative theme earlier, we’ve had a couple of things unemployment benefits were extended housing tax credit ended as you look through, did those have any impact or correlation with the trends that you saw in the quarter, in traffic in buying patterns?

Ken Butler — Aaron’s Inc. — COO

No. I don’t think our customers were reading the new most of the time.

Matt McCall — BB&T Capital Markets — Analyst

All right. Okay, I’ll leave that alone, thank you all.

Gilbert Danielson — Aaron’s Inc. — CFO

Matt, let me clarify, we did have a 3 for 2 stock split in March. All historical numbers have been restated for the split for share numbers and things like that.

Matt McCall — BB&T Capital Markets — Analyst

Thank you, all.

Gilbert Danielson — Aaron’s Inc. — CFO

Thank you.

Operator

Thank you, our next question comes from the line of Lauren Champine with Cowen and Company. You may proceed.

Lauren Champine — Cowen & Company — Analyst

Hey guys, wanted to dig a little bit more into the strong customer count growth that you’ve had. Do you think that is a result of share gains maybe against the mom and pops or do you think people are coming fresh to your industry. Where I’m going with that is, as the economy eventually recovers, do you think your customer count growth slows, but your ticket heads back up, I mean have you seen anything analagous gains is that in the past?

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

17

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Robin Loudermilk — Aaron’s Inc. — CEO

No, I can only deal what we’re dealing with today That sound like a good plan particularly if we can add more customers to the ticket price going up. No, I don’t think so. There is less competition out there today than there was even five years ago. I can remember going down the street and seeing ten operators and I think the industry is merged itself somewhat. So, I like to believe we created some new customers, we certainly have postured our program to make it socially acceptable for a larger demographic to come in our store. That’s been successful in the past. I do think that we have accomplished that.

Ken Butler — Aaron’s Inc. — COO

Laura, we also talked about when the economy does recover. And gosh, we hope it’s sooner rather than later. Credit will still be tight. I think we all feel that the consumer is going to be harder and harder to get financing if you will, especially for our customers. As we look out, Ken said, posturing we’re in the right position, we had programs and products and hope that when the thing does turn to recover, we will still be here and have a great program for tighter credit even though the economy is starting to recover.

So, we always kind of said that. I think it’s taken a lot longer than we all anticipated. But we are very hopeful.

Lauren Champine — Cowen & Company — Analyst

Great, thank you.

Operator

Thank you.

Our next question comes from the line of Rob Strauss with Gilford Securities. You may proceed.

Rob Straus — Gilfor Securities — Analyst

Hi, guys. How are you doing tonight? I just have one question, it’s focused on new store growth, so it’s clear that your store count should be up about 5% to 9% this year.

Can you just give us a little bit more detail regarding how many of those locations are identified, how far out your store growth via the locations have been identified and also little bit about whether you’re leasing or buying the properties and then doing sale lease backs at a later time, thank you.

Gilbert Danielson — Aaron’s Inc. — CFO

We have locations secure in to the first quarter of next year. So, pretty nice — this year we are done. So, unless some great deal happens that we can get occupancy quickly. We have moved in to where we are doing a lot more leasing because of the market there is no point in building new space and that seems to be the way to go.

Rob Straus — Gilfor Securities — Analyst

What’s the leasing versus building space, are you completely leasing at this point?

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

18

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Gilbert Danielson — Aaron’s Inc. — CFO

Pretty much. I would say 90%. We have gotten some great prices on a pre-existing building that made more sense to buy the building and 90% of any new stores coming —

Ken Butler — Aaron’s Inc. — COO

We shifted our philosophy from a couple of years ago, Rob, we were doing a lot more building but we’re more or less leasing now.

Gilbert Danielson — Aaron’s Inc. — CFO

Lands we still have purchased that due to whatever reason had been developed, we maybe raising the billing. That’s about the extent of it.

Any new spaces that we are looking at right now, we are looking at leasing.

Ken Butler — Aaron’s Inc. — COO

There are just a lot of empty boxes out there Robert.

Rob Straus — Gilfor Securities — Analyst

Yes, so I’m hearing you right on the front for Company operated new stores going forward for next few quarters, you are pretty much locked and loaded and know where you are going.,

Gilbert Danielson — Aaron’s Inc. — CFO

You’ve got to be, you’ve got to have permits in hand or pretty much under construction or starting to get to the point where 90 days is about the minimum you can turn even a lease space. Everything is identified and it’s a matter of executing and getting them open towards the end of the year.

Rob Straus — Gilfor Securities — Analyst

Regarding the theme, do you know where your franchisees are on that topic?

Robin Loudermilk — Aaron’s Inc. — CEO

I think there are a couple, I think their number was it 75?

Gilbert Danielson — Aaron’s Inc. — CFO

They’re a little bit harder to poke than Company stores from time to time. But pretty well on track. We are comfortable with that.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

19

FINAL TRANSCRIPT

Jul. 26. 2010 / 9:00PM, AAN — Q2 2010 Aaron’s Inc. Earnings Conference Call

Rob Straus — Gilfor Securities — Analyst

Thank you very much.

Operator

Thank you. There are currently no additional questions waiting from the phone line.

Gilbert Danielson — Aaron’s Inc. — CFO

Thank all of you for joining us today.

Charlie Loudermilk — Aaron’s Inc. — Chairman

Thank you.

D I S C L A I M E R

Thomson Reuters reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes.

In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies’ most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

©2010, Thomson Reuters. All Rights Reserved.

THOMSON REUTERS STREETEVENTS  |  www.streetevents.com  |  Contact Us
©2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

20