10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012

OR

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

For the Transition Period from                  to                 

Commission file Number. 1-13941

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)

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

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

Title of each class	Name of each exchange on which registered
Common Stock, $.50 Par Value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	x	Accelerated Filer	¨
Non-Accelerated Filer	¨	Smaller Reporting Company	¨

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

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 29, 2012 was $1,962,847,697 based on the closing price on that date as reported by the New York Stock Exchange. As of February 15, 2013, there were 75,767,000 shares of the Company’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2013 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

PART I	4
ITEM 1. BUSINESS	4
ITEM 1A. RISK FACTORS	14
ITEM 1B. UNRESOLVED STAFF COMMENTS	18
ITEM 2. PROPERTIES	19
ITEM 3. LEGAL PROCEEDINGS	19
ITEM 4. MINE SAFETY DISCLOSURES	21
PART II	22
ITEM  5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	22
ITEM 6. SELECTED FINANCIAL DATA	23
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	70
ITEM 9A. CONTROLS AND PROCEDURES	70
ITEM 9B. OTHER INFORMATION	70
PART III	71
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE	71
ITEM 11. EXECUTIVE COMPENSATION	71
ITEM  12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	71
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	71
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES	71
PART IV	72
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES	72
SIGNATURES	78

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain oral and written statements made by Aaron’s, Inc. about future events and expectations, including statements in this annual report on Form 10-K, are “forward-looking statements.” For those statements we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s current beliefs, assumptions and expectations regarding our future economic performance, taking into account the information currently available to management. Generally, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” and similar expressions identify forward-looking statements, which generally are not historical in nature. All statements which address operating performance, events or developments that we expect or anticipate will occur in the future, including growth in store openings, franchises awarded, market share and statements expressing general optimism about future operating results, are forward-looking statements. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the company’s historical experience and the company’s present expectations or projections. Factors that could cause our actual results to differ materially from any forward-looking statements include changes in general economic conditions, competition, pricing, customer demand and those factors discussed in Item 1A, “Risk Factors.” We qualify any forward-looking statements entirely by these cautionary factors.

The above mentioned risk factors are not all-inclusive. Given these uncertainties and that such statements speak only as of the date made, you should not place undue reliance on forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

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PART I.

ITEM 1. BUSINESS

General

Aaron’s, Inc. (“we”, “our”, “us”, “Aaron’s” or the “Company”) is a leading specialty retailer of consumer electronics, computers, residential furniture, household appliances and accessories. We engage in the lease ownership, lease and retail sale of a wide variety of products such as widescreen and LCD televisions, computers, living room, dining room and bedroom furniture, washers, dryers and refrigerators. We carry well-known brands such as JVC^®, Mitsubishi^®, Panasonic^®, Sony^®, Hewlett-Packard^®, Simmons^®, Frigidaire^®, LG^®, Samsung^® and Sharp^®. Our major operating divisions are the Aaron’s Sales & Lease Ownership division, the HomeSmart division and the Woodhaven Furniture Industries division, which supplies the majority of the upholstered furniture and bedding leased and sold in our stores. Our strategic focus is on expanding our sales and lease ownership business, which includes Aaron’s Sales & Lease Ownership and HomeSmart stores, through opening new Company-operated stores, expanding our franchise program, and making selective acquisitions.

As of December 31, 2012, we had 2,073 stores, comprised of 1,324 Company-operated stores in 29 states and 749 independently-owned franchised stores in 48 states and Canada. We have added 294 Company-operated and 265 franchised stores since the beginning of 2008. Included in the Company store counts above are 1,246 Aaron’s Sales & Lease Ownership stores and 78 Company-operated HomeSmart stores. Aaron’s Sales & Lease Ownership division includes 19 Company-operated RIMCO stores, our wheels, tires and accessories sales and lease ownership concept.

We have a history of revenue growth and profitability. Total revenues increased to $2.223 billion in 2012 from $1.592 billion in 2008, representing an 8.7% compound annual growth rate. Our total net earnings from continuing operations increased to $173.0 million in 2012 from $85.8 million in 2008 representing a 19.2% compound annual growth rate.

Our former Chairman, R. Charles Loudermilk, Sr., established Aaron’s in 1955, and we were incorporated under the laws of Georgia in 1962. Our principal business address is 309 E. Paces Ferry Road, N.E., Atlanta, Georgia, 30305-2377, and our telephone number is (404) 231-0011.

We own or have rights to various trademarks and trade names used in our business including Aaron’s, Aaron’s Sales & Lease Ownership, HomeSmart, RIMCO and Woodhaven Furniture Industries.

Aaron’s Sales & Lease Ownership. Our Aaron’s Sales & Lease Ownership division is primarily a monthly payment model and focuses on providing durable household goods to lower to middle income consumers who have limited or no access to traditional credit sources such as bank financing, installment credit or credit cards. Our sales and lease ownership program enables these customers to obtain quality-of-life enhancing merchandise that they might otherwise not be able to afford, without incurring additional debt or long-term obligations.

Our strategic focus is to expand our Aaron’s Sales & Lease Ownership division by opening Company-operated stores, expanding our franchise program and making selective acquisitions. We franchise our sales and lease ownership stores in select markets where we have no immediate plans to enter. Our franchise program:

• provides additional revenues from franchise fees and royalties;

• allows us to grow more quickly;

• enables us to achieve economies of scale in purchasing, distribution, manufacturing and advertising for our sales and lease ownership stores; and

• increases exposure to our brand.

HomeSmart. In 2012 we expanded our HomeSmart division through an acquisition and new store openings, resulting in a net increase of seven Company-operated stores. The HomeSmart division has been established to serve weekly customers and the stores offer products that are similar to those in our Aaron’s stores.

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Manufacturing (Woodhaven Furniture Industries). Aaron’s is the only major furniture lease company in the United States that manufactures its own furniture. We operate five furniture manufacturing plants and eight bedding manufacturing facilities. By manufacturing our own specially designed residential furniture and bedding, we believe we enjoy an advantage over our competitors. Manufacturing enables us to control the quality, cost, delivery, styling, durability and quantity of our furniture products. Substantially all of Woodhaven Furniture Industries’ production is leased and sold through our Company-operated and franchised stores.

Aaron’s Office Furniture Closure. After disappointing results in a difficult economic environment, in June 2010 we announced plans to close all 12 of the then remaining Aaron’s Office Furniture stores and focus on the Company’s sales and lease ownership business. As of December 31, 2011, we closed 11 of the Aaron’s Office Furniture stores and had one remaining store open to liquidate merchandise; this final store was sold in August 2012. During 2010, we recorded $9.0 million in charges related to 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 with closing the stores and the division. We did not incur significant charges in 2011 or 2012 related to winding down the division.

Industry Overview

The Rent-to-Own Industry

The rent-to-own industry offers customers an alternative to traditional methods of obtaining electronics, computers, home furnishings and appliances. In a typical industry rent-to-own transaction, the customer has the option to acquire merchandise over a fixed term, usually 12 to 24 months, normally by making weekly lease payments. The customer may cancel the agreement at any time by returning the merchandise to the store, generally with no further lease obligation. If customers lease the item to the full term, they obtain ownership of the item, though they can choose to buy it at any time.

The rent-to-own concept is particularly popular with consumers who cannot pay the full purchase price for merchandise at once or who lack the credit to qualify under conventional financing programs. Rent-to-own is also popular with consumers who, despite good credit, do not wish to incur additional debt, have only a temporary need for the merchandise or want to try out a particular brand or model before buying it.

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 the current tightening consumer credit have created a market opportunity for the industry. The traditional retail consumer durable goods market is much larger than the lease market, leaving substantial potential for industry growth. We believe that the segment of the population targeted by the industry comprises approximately 50% of all households in the United States and that the needs of these consumers are generally underserved.

Aaron’s Sales and Lease Ownership versus Traditional Rent-to-Own

We believe that our sales and lease ownership model is unique. By providing customers with the option either to lease merchandise with the opportunity to obtain ownership or to purchase merchandise outright, we blend elements of rent-to-own and traditional retailing. We believe our sales and lease ownership program is a more effective method of retailing our merchandise to lower to middle income consumers than a typical rent-to-own business or the more traditional method of credit installment sales.

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Our sales and lease ownership model is distinctive from a typical rent-to-own business in that we encourage our customers to obtain ownership of their lease merchandise. Based upon industry data, we believe when merchandise is initially leased our customers obtain ownership more (over 46%) versus rent-to-own businesses in general (approximately 25%). We believe our sales and lease ownership model offers the following unique characteristics versus traditional rent-to-own stores:

• Lower total cost—our agreement terms typically provide a lower cost of ownership to the customer.

• Wider merchandise selection—we generally offer a larger selection of higher-quality merchandise.

• Larger store layout—our stores are typically 9,000 square feet, nearly twice the size of typical rent-to-own stores.

• Fewer payments— our typical plan offers semi-monthly or monthly payments versus the industry standard of weekly payments. Our agreements also usually provide for a shorter term until the customer obtains ownership.

• Flexible payment methods—we offer our customers the opportunity to pay by cash, check, debit card or credit card, compared with the more common cash payment method at typical rent-to-own stores. Aaron’s Sales & Lease Ownership stores currently receive approximately 59.9% payment volume (in dollars) from customers by check, debit card or credit card. HomeSmart stores currently receive approximately 45.9% payment volume (in dollars) from customers by check, debit card, credit card or online payment.

We believe our sales and lease ownership model also has attractive features in common with traditional retailers. Among these features are store size, merchandise selection and the latest product offerings, such as “state-of-the-art” electronics and computers. As technology advances and home furnishings and appliances evolve, we strive to offer our customers the latest product developments at affordable prices.

Unlike transactions with most traditional retailers, where the customer is committed to purchase the merchandise, our sales and lease ownership transactions are not credit installment contracts, and the customer may elect to terminate the transaction after a short, initial lease period. Our sales and lease ownership stores offer an up-front “cash and carry” purchase option and a 120 day same-as-cash option on most merchandise at prices that are competitive with traditional retailers.

Operating Strategies

Our operating strategies are focused on differentiation from our competitors and improved efficiencies. We strive to:

• Differentiate our sales and lease ownership concept – We believe that the success of our sales and lease ownership operation is attributable to our distinctive approach to the business that sets us apart from our rent-to-own and credit retail competitors. We have pioneered innovative approaches to meeting changing customer needs that differ from our competitors, such as offering lease ownership agreements which result in a lower “all-in” price, larger and more attractive store showrooms, a wider selection of higher-quality merchandise and up-front cash and carry purchase options on select merchandise at prices that are competitive with traditional retailers. Most sales and lease ownership customers make their payments in person, and we use these frequent visits to strengthen customer relationships and make customers feel welcomed in our stores.

• Offer high levels of customer service and satisfaction – We foster good relationships with our customers to attract recurring business and encourage them to lease merchandise for the full agreement term by providing high levels of service and satisfaction. We demonstrate our commitment to superior customer service by providing customers quick delivery of leased merchandise, in many cases by same or next day delivery, and through Aaron’s Service Plus such other benefits as the 120 day same-as-cash option, repair service at no additional charge to the customer, lifetime reinstatement and other discounts and benefits. We have also established an employee training program called Aaron’s University, which is a 150-plus course curriculum designed to enhance the customer relation skills of both Company-operated and franchised store managers and other operating personnel.

• Promote our vendors and the Aaron’s^® brand name – Our marketing initiatives reach the target Aaron’s customer in a variety of ways. We advertise our brand name “Dream Products” through our “Drive Dreams Home” sponsorship of NASCAR Championship Racing. Sponsorship of other sporting events, such as professional football, basketball and baseball, and various college sports, also targets this distinct market. Every month, we distribute mass mailings of promotional material outlining specific products. Our goal is to reach households within a specified radius of each store on a consistent basis. Currently, we mail over 27 million flyers each month to consumers in areas served by our stores. We also utilize national and local television and radio advertising in our markets and for special promotions throughout the year.

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• Manage merchandise through our manufacturing and distribution capabilities – We believe that our manufacturing operations and network of 16 operating fulfillment centers at December 31, 2012 give us a strategic advantage over our competitors. Manufacturing enables us to control the quality, cost, delivery, styling, durability and quantity of a substantial portion of our furniture and bedding merchandise, and provides us a reliable source of products. Our distribution system allows us to deliver merchandise promptly to our stores in order to meet customer demand quickly and manage inventory levels more effectively.

• Utilize proprietary management information systems – We use proprietary computerized information systems to systematically pursue collections, to manage merchandise returns and to match inventory with demand. Each of our stores is linked by computer directly to our corporate headquarters, which enables us to monitor the performance of each store on a daily basis.

Growth Strategies

We seek to increase our revenues and profitability through the execution of our growth strategies, which are to:

• Open additional Company-operated sales and lease ownership stores – We plan to open sales and lease ownership stores in existing and select new geographic markets. Additional stores help us to realize economies of scale in purchasing, marketing and distribution. We added a net of 93 Company-operated sales and lease ownership stores in 2012.

• Increase our sales and lease ownership franchises – We believe that our franchise program allows us to grow more quickly and increase our brand exposure in new markets. In addition, the combination of Company-operated and franchised stores creates a larger store base that generally enhances the economies of scale in purchasing, distribution, manufacturing and advertising for our sales and lease ownership stores. Franchise fees and royalties represent a growing source of revenues.

• Increase revenues and net earnings from existing sales and lease ownership stores – We experienced same store revenue growth (revenues earned in stores open for the entirety of both periods) from our Company-operated sales and lease ownership stores of 5.1% in 2012, 4.4% in 2011, and 3.5% in 2010. We calculate same store revenue growth by comparing revenues from comparable periods for all stores open during the entirety of those periods, excluding stores that received lease agreements from other acquired, closed or merged stores. We expect revenues and net earnings of our Aaron’s Sales & Lease Ownership division to continue to grow as the large number of stores we have opened in the past few years increase their customer bases.

• Seek selective acquisitions in both new and existing sales and lease ownership markets – We will continue to explore acquisitions of other rent-to-own operations and select franchised stores. In 2012, we acquired the lease agreements, merchandise and assets of 48 sales and lease ownership stores. Twenty-six of these stores were subsequently merged with existing locations, resulting in 22 new stores from acquisitions. We will also seek to convert the stores of existing independent lease operators to Aaron’s Sales & Lease Ownership franchised stores. In 2012, we purchased 21 and sold three of our sales and lease ownership stores to franchisees.

• Develop and expand HomeSmart weekly pay concept – In 2010, we opened our first HomeSmart store and had 78 stores open at the end of 2012. We expect revenue in our HomeSmart division to increase as these recently opened corporate stores add customers and start-up losses in existing stores diminish as the stores mature. We plan to open additional HomeSmart stores in the future assuming acceptable financial returns can be achieved. In 2012, a franchisee also opened the first HomeSmart franchised store.

• Explore international expansion – In 2011 the Company purchased 11.5% of newly issued shares of common stock of a United Kingdom rent-to-own company and may further pursue international opportunities as they present themselves. As part of the transaction, the Company also received notes and an option to acquire the remaining interest in the United Kingdom company at any time through December 31, 2013.

Operations

Aaron’s Sales & Lease Ownership

We established our Aaron’s Sales & Lease Ownership operation in 1987. At December 31, 2012, we had 1,246 Company-operated Aaron’s Sales & Lease Ownership stores in 29 states.

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We have developed a distinctive concept for our sales and lease ownership stores with specific merchandising, store layout, pricing and agreement terms for our target customer market. We believe that these features create a store and a sales and lease ownership concept significantly different from the operations of typical rent-to-own stores and the operations of consumer electronics and home furnishings retailers who finance merchandise.

The typical Aaron’s Sales & Lease Ownership store layout is a combination showroom and warehouse of 8,000 to 10,000 square feet, with an average of approximately 9,000 square feet. In selecting locations for new sales and lease ownership stores, we generally look for sites in well-maintained strip shopping centers with good access, which are strategically located in established working class neighborhoods and communities. We also build to suit or occupy stand-alone stores in certain markets. Many of our stores are placed near existing competitors’ stores. Each sales and lease ownership store usually maintains at least two trucks and crews for pickups and deliveries and generally offers same or next day delivery for addresses located within approximately ten miles of the store. We emphasize a broad selection of brand name electronics, computers and appliances, and offer customers a wide selection of furniture, including furniture manufactured by our Woodhaven Furniture Industries division.

We believe that our sales and lease ownership stores offer lower merchandise prices than similar items offered by traditional rent-to-own operators, and substantially equivalent to the “all-in” contract price of similar items offered by retailers who finance merchandise. Approximately 92% of our Aaron’s Sales & Lease Ownership agreements are monthly and approximately 8% are semi-monthly as compared to the industry standard of weekly agreements, and our agreements usually provide for a shorter term leading to customer ownership. Through Aaron’s Service Plus, customers receive benefits including the 120 days same-as-cash option, repair service at no additional charge to the customer, lifetime reinstatement and other discounts and benefits. We re-lease or sell select merchandise that customers return to us prior to the expiration of their agreements. We also offer, for select merchandise, an up-front cash and carry purchase option at prices that are competitive with traditional retailers.

During the latter part of 2004, we opened two experimental stores under the RIMCO name that lease automobile wheels, tires and rims to customers under sales and lease ownership agreements. Although the products offered are different, these stores are managed, monitored and operated similarly to our other sales and lease ownership stores. At December 31, 2012, we had 19 Company-operated and six franchised RIMCO stores open.

Aaron’s Sales & Lease Ownership Franchise Program

We began franchising Aaron’s Sales & Lease Ownership stores in select markets in 1992 and have continued to attract franchisees. Our franchised stores do not compete with Company-operated stores, nor do we anticipate any such competition, as we mainly award franchises in markets where we have no operations and no current plans to enter. As of December 31, 2012, we had 749 franchised stores open and area development agreements with franchisees to open 180 stores in the future.

Franchisees are approved on the basis of the applicant’s business background and financial resources. We generally seek franchisees who will enter into area development agreements for several stores, although some franchisees currently operate a single store. Most franchisees are involved in the day-to-day operations of their stores.

We enter into franchise agreements with our franchisees to govern the opening and operation of franchised stores. Under our current standard agreement, we require the franchisee to pay a franchise fee from $15,000 to $50,000 per store depending upon market size. Agreements are for a term of ten years, with one ten-year renewal option, and franchisees are obligated to remit to us royalty payments of 5% or 6% of the franchisee’s weekly cash collections. The royalty payments increased from 5% to 6% for most franchise agreements entered into or renewed after December 31, 2002.

We assist each franchisee in selecting the proper site for each store. Because of the importance of location to the Aaron’s sales and lease ownership concept, one of our pre-opening consultants visits the intended market and helps guide the franchisee through the selection process. Once a site is selected, we help in designing the floor plan, including the proper layout of the showroom and warehouse. In addition, we provide assistance in assuring that the design and decor of the showroom is consistent with our requirements. We also lease the exterior signage to the franchisee and assist with placing pre-opening advertising, ordering initial inventory and obtaining delivery vehicles.

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We have an arrangement with several banks to provide financing to qualifying franchisees to assist with establishing and operating their stores. An inventory financing plan to provide franchisees with the capital to purchase inventory is the primary component of the financing program. For qualified established franchisees, we have arranged in some cases for these institutions to provide a revolving credit line to allow franchisees the flexibility to expand. We guarantee amounts outstanding under the franchisee financing programs.

All franchisees are required to complete a comprehensive training program and to operate their franchised sales and lease ownership stores in compliance with our policies, standards and specifications. Additionally, pursuant to the terms of their franchise agreements with Aaron’s, Inc., each franchise represents and warrants its compliance with all applicable federal, state and/or local laws, regulations and ordinances with respect to its business operations as well as its good standing to conduct lawful operations at each location. Franchisees in general are not required to purchase their lease merchandise from our fulfillment centers, although most do so in order to take advantage of Company-sponsored financing, bulk purchasing discounts and favorable delivery terms.

On an annual basis, our internal audit department conducts a financial audit and an operational audit of each franchised store. In addition, our proprietary management information system links each Company and franchised store to corporate headquarters.

HomeSmart

Our HomeSmart division was established to serve weekly customers with products similar to those leased through our Aaron’s Sales & Lease Ownership stores. We established the HomeSmart division in late 2010 and at December 31, 2012, we had 78 Company-operated stores and one franchised store in 11 states.

The typical HomeSmart store layout is a combination showroom and warehouse of 4,000 to 6,000 square feet, with an average of approximately 5,000 square feet. In selecting locations for new HomeSmart stores, we generally look for sites in well-maintained strip shopping centers with good access, which are strategically located in established working class neighborhoods and communities. Many of our stores are placed near existing competitors’ stores. Each HomeSmart store usually maintains at least two trucks and crews for pickups and deliveries and generally offers same or next day delivery for addresses located within approximately ten miles of the store. We emphasize a broad selection of brand name electronics, computers and appliances, and offer customers a wide selection of furniture, including furniture manufactured by our Woodhaven Furniture Industries division.

We believe that our HomeSmart stores offer lower merchandise prices than similar items offered by traditional rent-to-own operators. Approximately 38% of our HomeSmart agreements are currently monthly, 18% are semi-monthly and approximately 44% are weekly. Through Aaron’s Service Plus, customers receive benefits including the 120 days same-as-cash option, repair service at no additional charge to the customer, lifetime reinstatement and other discounts and benefits. We re-lease or sell select merchandise that customers return to us prior to the expiration of their agreements. We also offer, for select merchandise, an up-front cash and carry purchase option at prices that are competitive with traditional retailers.

Manufacturing

Our Woodhaven Furniture Industries division has manufactured furniture for our stores since 1971. The Woodhaven Furniture Industries division manufactures upholstered furniture and bedding predominantly for use by Company-operated and franchised stores. The division has five furniture manufacturing plants and nine bedding manufacturing facilities, totaling approximately 940,000 square feet in the aggregate, that supply the majority of our upholstered furniture and bedding.

Our Woodhaven Furniture Industries division manufactures:

• upholstered living-room furniture, including contemporary sofas, chairs and modular sofa and ottoman collections in a variety of natural and synthetic fabrics; and

• bedding, including standard sizes of mattresses and box springs.

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Woodhaven has designed special features for the furniture it manufactures that we believe reduce production costs, enhance product durability, and improve the shipping process relative to furniture purchased from third parties. These features include:

• standardization of components;

• reduction of parts and features susceptible to wear or damage;

• more resilient foam;

• durable, soil-resistant fabrics and sturdy frames for longer life and higher residual value; and

• devices that allow sofas to stand on end for easier and more efficient transport.

Woodhaven also provides replacement covers of all styles and fabrics of its upholstered furniture for use in reconditioning lease return furniture.

The principal raw materials we use in furniture manufacturing are fabric, foam, fiber, wire-innerspring assemblies, plywood, oriented strand board, and hardwood. All of these materials are purchased in the open market from unaffiliated sources. We are not dependent on any single supplier, and none of the raw materials we use are in short supply.

Marketing and Advertising

In 2012, Aaron’s reached our customer demographic on national broadcast and cable television and radio networks with a combination of brand/image messaging and product/price promotions on networks such as ABC, FOX, TBS, TELEMUNDO and UNIVISION, among others. Aaron’s enhanced its broadcast presence this year with digital marketing and via social environments such as Facebook and Twitter.

Aaron’s targets new customers each month distributing over 27 million, four-page circulars to homes in the United States and Canada. The circulars feature brand name merchandise along with the features, options, and benefits of Aaron’s lease ownership payment plans. We implement grand opening “Jump Start” marketing initiatives designed to ensure each new store quickly establishes a strong customer count. Aaron’s also distributes millions of email and direct mail promotions.

Aaron’s sponsors motorsports teams and event broadcasts at various levels along with select professional and collegiate sports, such as NFL and NBA teams, SEC and ACC college athletic programs, and an IMG collegiate sports national sponsorship package of 31 schools, among others. We also continue our NASCAR Sprint Cup team sponsorship of Michael Waltrip Racing in the NASCAR Sprint Cup Series into the 2013 season with drivers Mark Martin and Michael Waltrip both driving the Aaron’s #55 “Dream Machine.”

Our premier title sponsorship continues to be the Aaron’s Dream Weekend at Talladega Superspeedway consisting of the Aaron’s 499 NASCAR Sprint Cup Series Race and the Aaron’s 312 NASCAR Nationwide Series Race. Both races are broadcast live on national television and are among the most watched events on the NASCAR circuit.

All of our sports partnerships are supported with advertising, promotional, marketing and brand activation initiatives that have proven to significantly enhance the Company’s brand awareness and customer loyalty.

Store Operations

Management. Aaron’s Sales & Lease Ownership division has 12 divisional vice presidents who are primarily responsible for the overall performance of their respective divisions. In addition, our HomeSmart division has one divisional vice president.

Each division is subdivided into geographic groupings of stores overseen by 125 Aaron’s Sales & Lease Ownership regional managers, 11 HomeSmart regional managers and three RIMCO regional managers. At the individual store level, the store manager is primarily responsible for managing and supervising all aspects of the store operations, including but not limited to:

• customer relations and account management;

• deliveries and pickups;

• warehouse and inventory management;

• merchandise selection;

• employment decisions, including hiring, training and terminating store employees; and

• certain marketing efforts.

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Store managers are also responsible for ensuring that lease return merchandise is properly inspected and determining whether it should be sold as is, leased again as is, repaired and sold, or reconditioned and leased again. The store manager’s total compensation is determined based upon the revenue and profits of his/her store.

Our business philosophy has always emphasized safeguarding of Company assets, strict cost containment and fiscal controls. Store managers, as well as other levels of management, monitor expenses to contain costs. We pay all material invoices from Company headquarters in order to enhance fiscal accountability. We believe that careful attention to the safeguarding of lease merchandise, our most significant asset, as well as the expense side of our operations, has enabled us to maintain financial stability and profitability.

Management Information Systems. We use computer-based management information systems to facilitate cash collections, merchandise returns and inventory monitoring. Through the use of proprietary software developed in-house, each of our stores is linked by computer directly to corporate headquarters, which enables us to monitor the performance of each store on a daily basis. At the store level, the store manager is better able to track merchandise on the showroom floor and in the warehouse to minimize delivery times, assist with product purchasing, and match customer needs with available inventory.

Lease Agreement Approval, Renewal and Collection. One of the keys to the success of our sales and lease ownership operation is timely cash collections. Individual store managers oversee the monitoring of cash collections and customers are contacted within a few days of their lease payment due dates in order to encourage customers to keep their agreement current and in force, rather than having to return the merchandise for non-payment, and to renew their agreements for an additional period. Careful attention to cash collections is particularly important in sales and lease ownership operations, where the customer typically has the option to cancel the agreement at any time and each payment is considered a renewal of the agreement rather than a collection of a receivable.

We generally perform no formal credit check with respect to sales and lease ownership customers, other than to verify employment or other reliable sources of income and personal references supplied by the customer. All of our agreements for merchandise require payments in advance, and the merchandise normally is repossessed if a payment is significantly in arrears. We do not extend credit to sales and lease ownership customers.

Net Company-wide merchandise shrinkage as a percentage of combined lease revenues was 3.3% in 2012, 3.0% in 2011 and 3.3% in 2010. We believe that our collection and repossession policies materially comply with applicable legal requirements, and we discipline any employee that we discover deviating from such policies.

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Customer Service. We believe that customer service is one of the most important elements in the success of our business. Customer satisfaction is critical because the customer typically has the option of returning the leased merchandise at any time. Our goal is to make our customers feel positive about Aaron’s and our products from the moment they enter our showrooms. Through Aaron’s Service Plus, customers receive benefits including the 120 days same-as-cash option, repair service at no additional charge to the customer, lifetime reinstatement and other discounts and benefits. In order to increase leasing at existing stores, we foster relationships with existing customers to attract recurring business, and many new agreements are attributable to repeat customers.

Because of the importance of customer service, we believe that a prerequisite for successful operations and growth is skilled, effective employees who value our customers and project a genuine desire to serve customers’ needs. We have developed one of the largest training programs in the industry, called Aaron’s University. Aaron’s University is designed to provide a uniform customer service experience regardless of the store’s location, or whether it is Company-operated or franchised. Standardizing operating procedures throughout our system is a primary focus of Aaron’s University. Aaron’s national trainers provide live interactive training via webinars on a daily basis to entry level and management level associates. The learning program is also complimented with a robust e-learning library with a constantly growing curriculum.

In addition to the e-learning program, Aaron’s University has a management development program that offers facilities-based training for current managers and store management caliber associates. Additionally, approximately once a month we produce video based communications on a wide variety of topics of interest to our store personnel regarding current Company initiatives. Our policy of primarily promoting from within boosts employee retention and underscores our commitment to customer service and other business philosophies, allowing us to realize greater benefits from our employee training programs.

Purchasing and Distribution

Our product mix is determined by store managers in consultation with regional managers and regional vice presidents, based on an analysis of customer demands.

The following table shows the percentage of Company revenues for the year ended December 31, 2012, 2011 and 2010 attributable to different merchandise categories:

Merchandise Category	Percentage of 2012  Revenues			Percentage of 2011  Revenues			Percentage of 2010  Revenues
Electronics		32	%		36	%		37	%
Furniture		35	%		32	%		31	%
Appliances		20	%		17	%		16	%
Computers		10	%		12	%		13	%
Other		3	%		3	%		3	%

We purchase the majority of our merchandise directly from manufacturers, with the balance from local distributors. One of our largest suppliers is our own Woodhaven Furniture Industries division, which supplies the majority of the upholstered furniture and bedding we lease or sell. We have no long-term agreements for the purchase of merchandise.

Sales and lease ownership operations utilize fulfillment centers, which are on average approximately 119,000 square feet, to control merchandise. All Company-operated sales and lease ownership stores receive merchandise directly from our 16 operating fulfillment centers, together totaling approximately 1,900,000 square feet. Most of our continental United States stores are within a 250-mile radius of a fulfillment center, facilitating timely shipment of products to the stores and fast delivery of orders to customers.

We realize freight savings from truckload discounts and more efficient distribution of merchandise by using fulfillment centers. We use our own tractor-trailers, local delivery trucks and various contract carriers to make weekly deliveries to individual stores.

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Competition

Aaron’s business is highly competitive. Our largest competitor in the rent-to-own market is Rent-A-Center, Inc. According to industry sources and our estimates, Aaron’s and Rent-A-Center, which are the two largest industry participants, account for approximately 5,400 of the 8,600 rent-to-own stores in the United States and Canada. Our stores compete with other national and regional rent-to-own businesses, as well as with rental stores that do not offer their customers a purchase option. With respect to customers desiring to purchase merchandise for cash or on credit, we also compete with retail stores. Competition is based primarily on store location, product selection and availability, customer service and lease rates and terms.

Seasonality

Aaron’s revenue mix is moderately seasonal, with the first quarter of each year generally resulting in higher revenues than any other quarter during the year, primarily due to realizing the full benefit of business that historically gradually increases in the fourth quarter as a result of the holiday season, as well as the receipt by our customers in the first quarter of federal income tax refunds. Generally, our customers will more frequently exercise the early purchase option on their existing lease agreements or purchase merchandise off the showroom floor during the first quarter of the year. We expect this trend to continue in future periods. Furthermore, we tend to experience slower growth in the number of agreements on lease in the third quarter of each year when compared to the other quarters of the year. We also expect this trend to continue in future periods unless we significantly change our store base as a result of new store openings or opportunistic acquisitions and dispositions.

Working Capital

We are required to maintain significant levels of lease merchandise in order to provide the enhanced service levels demanded by the nature of our business and our customers, and to ensure timely delivery of our products. Consistent and dependable sources of liquidity are required to maintain such merchandise levels. Failure to maintain appropriate levels of merchandise could materially adversely affect our relationships with our customers and adversely affect our business. We believe our operating cash flows, credit availability under our loan agreements and other sources of financing are adequate to finance our normal liquidity requirements. We will continue to aggressively pursue merchandise management, maintain tight cost controls and limit capital expenditures. However, deterioration in our markets or significant additional cash expenditures above our normal liquidity requirements could require supplemental financing or other funding sources. There can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us.

Government Regulation

Our operations are extensively regulated by and subject to the requirements of various federal, state and local laws and regulations. In general such laws regulate applications for leases, late fees, other finance rates, the form of disclosure statements, the substance and sequence of required disclosures, the content of advertising materials and certain collection procedures. Violations of certain provisions of these laws may result in penalties ranging from nominal amounts up to and including forfeiture of fees and other amounts due on leases. We do not anticipate that the various laws and regulations have had or will have a material adverse effect on our operations. However, we are unable to predict the nature or effect on our operations or earnings of unknown future legislation, regulations and judicial decisions or future interpretations of existing and future legislation or regulations relating to our operations, and there can be no assurance that future laws, decisions or interpretations will not have a material adverse effect on our operations and earnings.

A summary of certain of the state and federal laws under which we operate follows. This summary does not purport to be a complete summary of the laws referred to below or of all the laws regulating our operations.

Currently, 47 states and the District of Columbia specifically regulate rent-to-own transactions, including states in which we currently operate Aaron’s Sales & Lease Ownership and HomeSmart stores. Most state lease purchase laws require rent-to-own companies to disclose to their customers the total number of payments, total amount and timing of all payments to acquire ownership of any item, any other charges that may be imposed, and miscellaneous other items. The more restrictive state lease purchase laws limit the total amount that a customer may be charged for an item, or regulate the amount of deemed “interest” that rent-to-own companies may charge on rent-to-own transactions, generally defining “interest” as lease fees paid in excess of the “retail” price of the goods. Our long-established policy in all states is to disclose the terms of our lease purchase transactions as a matter of good business ethics and customer service. We believe we are in material compliance with the various state lease purchase laws in those states where we use a lease purchase form of agreement. At the present time, no federal law specifically regulates the rent-to-own industry. Federal legislation to regulate the industry has been proposed from time to time.

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There has been increased legislative attention in the United States, at both the state and federal levels, on consumer debt transactions in general, which may result in an increase in legislative regulatory efforts directed at the rent-to-own industry. We cannot predict whether any such legislation will be enacted and what the impact of such legislation would be on us. Although we are unable to predict the results of any regulatory initiatives, we do not believe that existing and currently proposed regulations will have a material adverse impact on our sales and lease ownership or other operations.

In a number of states, we utilize a consumer lease form as an alternative to a typical lease purchase agreement. The consumer lease differs from our state lease agreement in that it has an initial lease term in excess of four months. Generally, state laws that govern the rent-to-own industry only apply to lease agreements with an initial term of four months or less. The consumer lease is governed by federal and state laws and regulations other than the state lease purchase laws. The federal regulations applicable to the consumer lease require certain disclosures similar to the rent-to-own regulations, but are generally less restrictive as to pricing and other charges. We believe we are in material compliance with all laws applicable to our consumer leasing program.

Our sales and lease ownership franchise program is subject to Federal Trade Commission (“FTC”) regulation and various state laws regulating the offer and sale of franchises. Several state laws also regulate substantive aspects of the franchisor-franchisee relationship. The FTC requires us to furnish to prospective franchisees a franchise disclosure document containing prescribed information. A number of states in which we might consider franchising also regulate the sale of franchises and require registration of the franchise offering circular with state authorities. We believe we are in material compliance with all applicable franchise laws in those states in which we do business and with similar laws in Canada.

Employees

At December 31, 2012, Aaron’s had approximately 11,900 employees. None of our employees are covered by a collective bargaining agreement and we believe that our relations with our employees are good.

Information on Segments and Geographic Areas

We currently only operate in the United States, and we have franchise operations in both the United States and Canada. Information on our four reportable segments—Sales and Lease Ownership, Franchise, HomeSmart and Manufacturing—is set forth in Note 12 to our Consolidated Financial Statements. See Item 8 of Part II.

Available Information

We make available free of charge on or through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). Our Internet address is www.investor.aarons.com.

The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The SEC’s website is http://www.sec.gov.

ITEM 1A. RISK FACTORS

Aaron’s business is subject to certain risks and uncertainties, the most significant of which are set forth below.

Our growth strategy depends considerably on opening new Company-operated stores. Our ability to expand our store base is influenced by factors beyond our control, which may impair our growth strategy and impede our revenue growth.

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Opening new Company-operated stores is an important part of our growth strategy. Our ability to continue opening new stores is affected by, among other things:

• the substantial outlay of financial resources required to open new stores and initially operate them, and the availability of capital sources to finance new openings and initial operation;

• difficulties associated with hiring, training and retaining additional skilled personnel, including store managers;

• our ability to identify suitable new store sites and to negotiate acceptable leases for these sites;

• competition in existing and new markets;

• consumer demand, tastes and spending patterns in new markets that differ from those in our existing markets; and

• challenges in adapting our distribution and other operational and management systems to an expanded network of stores.

If we cannot address these challenges successfully, we may not be able to expand our business or increase our revenues at the rates we currently contemplate.

If we cannot manage the costs of opening new stores, our profitability may suffer.

Opening large numbers of new stores requires significant start-up expenses, and new stores are generally not profitable until their second year of operation. Consequently, opening many stores over a short period can materially decrease our net earnings for a time. This effect is called “new store drag.” During 2012, we estimate that start-up expenses for new stores reduced our net earnings by approximately $11 million, or $.14 per diluted share for our Aaron’s Sales & Lease Ownership stores and approximately $2 million, or $.02 per diluted share for our HomeSmart stores. We cannot be certain that we will be able to fully recover these significant costs in the future.

We may not be able to attract qualified franchisees, which may slow the growth of our business.

Our growth strategy also depends significantly upon our franchisees developing new franchised sales and lease ownership stores. We generally seek franchisees who meet our stringent business background and financial criteria, and who are willing to enter into area development agreements for several stores. A number of factors, however, could inhibit our ability to find qualified franchisees, including general economic downturns or legislative or litigation developments that make the rent-to-own industry less attractive to potential franchisees. These developments could also adversely affect our franchisees’ ability to obtain adequate capital to develop and operate new stores on time, or at all. Our inability to find qualified franchisees could slow our growth.

Qualified franchisees who conform to our standards and requirements are also important to the overall success of our business. Our franchisees, however, are independent businesses and not employees, and consequently we cannot and do not control them to the same extent as our Company-operated stores. Our franchisees may fail in key areas, which could in turn slow our growth, reduce our franchise revenues or damage our image and reputation.

If we are unable to integrate acquired businesses successfully and realize anticipated economic, operational and other benefits in a timely manner, our profitability may decrease.

We frequently acquire other sales and lease ownership businesses. We acquired the lease agreements, merchandise and assets of 44 Aaron’s Sales & Lease Ownership stores and four HomeSmart stores through acquisitions in 2012. If we are unable to integrate successfully businesses we acquire, we may incur substantial cost and delays in increasing our customer base. In addition, the failure to integrate acquisitions successfully may divert management’s attention from Aaron’s existing business. Integration of an acquired business may be more difficult when we acquire a business in an unfamiliar market, or a business with a different management philosophy or operating style.

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Our competitors could impede our ability to attract new customers, or cause current customers to cease doing business with us.

The industries in which we compete are highly competitive. In the sales and lease ownership market, our competitors include national, regional and local operators of rent-to-own stores and traditional retailers. Our competitors in the sales and lease ownership and traditional retail markets may have significantly greater financial and operating resources, and greater name recognition in certain markets, than we have. Greater financial resources may allow our competitors to grow faster than us, including through acquisitions. This in turn may enable them to enter new markets before we can, which may decrease our opportunities in those markets. Greater name recognition, or better public perception of a competitor’s reputation, may help them divert market share away from us, even in our established markets.

In addition, new competitors may emerge. Current and potential competitors may establish financial or strategic relationships among themselves or with third parties. Accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share.

If our independent franchisees fail to meet their debt service payments or other obligations under outstanding loans guaranteed by us as part of a franchise loan program, we may be required to pay to satisfy these obligations which could have a material adverse effect on our business and financial condition.

We have guaranteed the borrowings of certain franchisees under a franchise loan program with several banks with a maximum commitment amount of $200.0 million. In the event these franchisees are unable to meet their debt service payments or otherwise experience an event of default, we would be unconditionally liable for a portion of the outstanding balance of the franchisees’ debt obligations, which at December 31, 2012 was $117.3 million. Although we have had no significant losses associated with the franchise loan and guaranty program since its inception, and we believe that any losses associated with any defaults would be mitigated through recovery of lease merchandise and other assets, we cannot guarantee that there will be no significant losses in the future or that we will be able to adequately mitigate any such losses. If we fail to adequately mitigate any such future losses, our business and financial condition could be materially adversely impacted.

Any loss of the services of our key executives, or our inability to attract and retain qualified managers, could have a material adverse impact on our operations.

We believe that we have benefited substantially from our current executive leadership and that the loss of their services at any time in the near future could adversely affect our business and operations. We also depend on the continued services of the rest of our management team. The loss of these individuals without adequate replacement could also adversely affect our business. Although we have employment agreements with the majority of our key executives, they are generally terminable on short notice and we do not carry key man life insurance on any of our officers.

Additionally, we need a growing number of qualified managers to operate our stores successfully. The inability to attract and retain qualified individuals, or a significant increase in the costs to do so, would materially adversely affect our operations.

You should not rely solely on our same store revenues as an indication of our future results of operations because they fluctuate significantly.

Our historical same store revenue growth figures have fluctuated significantly from year to year. For example, we experienced same store revenue growth of 5.1% in 2012 and 4.4% in 2011. We calculate same store revenue growth by comparing revenues for comparable periods for all stores open during the entirety of those periods. Even though we achieved significant same store revenue growth in the past and consider it a key indicator of historical performance, we may not be able to increase same store revenues in the future. A number of factors have historically affected, and will continue to affect, our same store revenues, including:

• changes in competition;

• general economic conditions;

• new product introductions;

• consumer trends;

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• changes in our merchandise mix;

• the opening of new stores;

• the impact of our new stores on our existing stores, including potential decreases in existing stores’ revenues as a result of opening new stores;

• timing of promotional events; and

• our ability to execute our business strategy effectively.

Changes in our quarterly and annual same store revenues could cause the price of our common stock to fluctuate significantly.

Our operations are regulated by and subject to the requirements of various federal and state laws and regulations. These laws and regulations which may be amended or supplemented or interpreted by the courts from time to time, could expose us to significant compliance costs or burdens or force us to change our business practices in a manner that may be materially adverse to our operations, prospects or financial condition.

Currently, 47 states and the District of Columbia specifically regulate rent-to-own transactions, including states in which we currently operate Aaron’s Sales & Lease Ownership and HomeSmart stores. At the present time, no federal law specifically regulates the rent-to-own industry, although federal legislation to regulate the industry has been proposed from time to time. Any adverse changes in existing laws, or the passage of new adverse legislation by states or the federal government could materially increase both our costs of complying with laws and the risk that we could be sued or be subject to government sanctions if we are not in compliance. In addition, new burdensome legislation might force us to change our business model and might reduce the economic potential of our sales and lease ownership operations.

Most of the states that regulate rent-to-own transactions have enacted disclosure laws which require rent-to-own companies to disclose to their customers the total number of payments, total amount and timing of all payments to acquire ownership of any item, any other charges that may be imposed by them and miscellaneous other items. The more restrictive state lease purchase laws limit the total amount that a customer may be charged for an item, or regulate the amount of deemed “interest” that rent-to-own companies may charge on rent-to-own transactions, generally defining “interest” as lease fees paid in excess of the “retail” price of the goods.

There has been increased legislative attention in the United States, at both the state and federal levels, on consumer debt transactions in general, which may result in an increase in legislative regulatory efforts directed at the rent-to-own industry. We cannot guarantee that the federal government or states will not enact additional or different legislation that would be disadvantageous or otherwise materially adverse to us, nor can we guarantee that Canadian law will not be enacted that would be materially adverse to our franchisees there.

In addition to the risk of lawsuits related to the laws that regulate rent-to-own and consumer lease transactions, we or our franchisees could be subject to lawsuits alleging violations of federal and state or Canadian provincial laws and regulations and consumer tort law, including fraud, consumer protection, information security and privacy laws, because of the consumer-oriented nature of the rent-to-own industry. A large judgment against the Company could adversely affect our financial condition and results of operations. Moreover, an adverse outcome from a lawsuit, even one against one of our competitors, could result in changes in the way we and others in the industry do business, possibly leading to significant costs or decreased revenues or profitability.

Continuation or worsening of current economic conditions could result in decreased revenues or increased costs.

The United States’ and other economies are currently experiencing distress and uncertainty, accompanied by high unemployment. Although we believe the economic downturn has resulted in increased business in our sales and lease ownership stores, as consumers increasingly find it difficult to purchase home furnishings, electronics and appliances from traditional retailers on store installment credit, it is possible that if the conditions continue for a significant period of time, or get worse, consumers may curtail spending on all or some of the types of merchandise we offer, in which event our revenues may suffer.

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In addition, unemployment may result in increased defaults on lease payments, resulting in increased merchandise return costs and merchandise losses.

We are subject to laws that regulate franchisor-franchisee relationships. Our ability to develop new franchised stores and enforce our rights against franchisees may be adversely affected by these laws, which could impair our growth strategy and cause our franchise revenues to decline.

As a franchisor, we are subject to regulation by the Federal Trade Commission, state laws and certain Canadian provincial laws regulating the offer and sale of franchises. Because we plan to expand our business in part by selling more franchises, our failure to obtain or maintain approvals to sell franchises could significantly impair our growth strategy. In addition, our failure to comply with applicable franchise regulations could cause us to lose franchise fees and ongoing royalty revenues. Moreover, state and provincial laws that regulate substantive aspects of our relationships with franchisees may limit our ability to terminate or otherwise resolve conflicts with our franchisees. See Item 3, “Legal Proceedings,” for information on some of our pending legal proceedings.

We are subject to legal proceedings from time to time which seek material damages.

We frequently are subject to legal proceedings, including class actions, that seek material damages. Although we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material adverse impact upon us, we cannot assure you that we will not incur material damages in a lawsuit or other proceeding in the future. Significant final judgments, settlement amounts, amounts needed to post a bond pending an appeal or defense costs could materially and adversely affect our liquidity and capital resources.

If we fail to protect the security of personal information about our customers and employees, we could be subject to costly private litigation, government enforcement actions or material remedial costs, and our reputation could suffer.

We collect, transmit and store potentially sensitive information about our employees, franchisees and customers on our information technology systems. Due to the nature of our business, we may collect, transmit and store more of such information than other types of retailers. We also serve as an information technology provider to our franchisees and store and process information related to their customers on our systems. Although we take precautions to protect this information, it is possible that hackers or other malefactors could attack our systems and attempt to obtain such information, or such information could be exposed by accident or failure of our systems.

We have experienced security incidents in the past, including an incident in which customer information was compromised, although no security incidents have resulted in a material loss to date. We are in the process of improving our system security, although there can be no assurance that these improvements, or others that we implement from time to time, will be effective to prevent all security incidents. We maintain cyber security insurance liability coverage intended to help mitigate the financial risk of such incidents, but there can be no guarantee that insurance will be sufficient to cover all losses related to such incidents.

A significant compromise of sensitive customer or employee information in our possession could result in legal damages and regulatory penalties. In addition, the costs of defending such actions, or in remediating breaches, could be material. Security breaches could also harm our reputation with our customers, potentially leading to decreased revenues.

If our information technology systems are impaired, our business could be interrupted, our reputation could be harmed and we may experience lost revenues and increased costs and expenses.

We rely on our information technology systems to process transactions with our customers, including tracking lease payments on merchandise, and to manage other important functions of our business. Failures of our systems—whether due to intentional malfeasance by outside parties or to accidental causes, such as “bugs,” crashes, operator error or catastrophic events—could seriously impair our ability to operate our business. If our information technology systems are impaired, our business (and that of our franchisees) could be interrupted, our reputation could be harmed, we may experience lost revenues or sales and we could experience increased costs and expenses to remediate the problem.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

We lease space for most of our store and warehouse operations under operating leases expiring at various times through 2028. Most of the leases contain renewal options for additional periods ranging from one to 20 years at rental rates generally adjusted on the basis of the consumer price index or other factors.

The following table sets forth certain information regarding our furniture manufacturing plants, bedding facilities, and fulfillment centers:

LOCATION	SEGMENT, PRIMARY USE AND HOW HELD	SQUARE FT.
Cairo, Georgia	Manufacturing—Furniture Manufacturing – Owned		300,000
Cairo, Georgia	Manufacturing—Furniture Manufacturing – Owned		147,000
Cairo, Georgia	Warehouse—Furniture Parts – Leased		111,000
Coolidge, Georgia	Manufacturing—Furniture Manufacturing – Owned		81,000
Coolidge, Georgia	Manufacturing—Furniture Manufacturing – Owned		48,000
Coolidge, Georgia	Manufacturing—Furniture Manufacturing – Owned		41,000
Coolidge, Georgia	Manufacturing—Administration and Showroom – Owned		10,000
Lewisburg, Pennsylvania	Manufacturing—Bedding Manufacturing – Leased		25,000
Fairburn, Georgia	Manufacturing—Bedding Manufacturing – Leased		52,000
Sugarland, Texas	Manufacturing—Bedding Manufacturing – Owned		20,000
Orlando, Florida	Manufacturing—Bedding Manufacturing – Leased		16,000
Kansas City, Kansas	Manufacturing—Bedding Manufacturing – Leased		13,000
Phoenix, Arizona	Manufacturing—Bedding Manufacturing – Leased		20,000
Plainfield, Indiana	Manufacturing—Bedding Manufacturing – Leased		24,000
Buford, Georgia	Manufacturing—Bedding Manufacturing – Leased		32,000
Auburndale, Florida	Sales and Lease Ownership—Fulfillment Center – Leased		125,000
Belcamp, Maryland	Sales and Lease Ownership—Fulfillment Center – Leased		94,000
Obetz, Ohio	Sales and Lease Ownership—Fulfillment Center – Leased		85,000
Dallas, Texas	Sales and Lease Ownership—Fulfillment Center – Leased		130,000
Fairburn, Georgia	Sales and Lease Ownership—Fulfillment Center – Leased		132,000
Sugarland, Texas	Sales and Lease Ownership—Fulfillment Center – Owned		135,000
Huntersville, North Carolina	Sales and Lease Ownership—Fulfillment Center – Leased		214,000
LaVergne, Tennessee	Sales and Lease Ownership—Fulfillment Center – Leased		140,000
Oklahoma City, Oklahoma	Sales and Lease Ownership—Fulfillment Center – Leased		87,000
Phoenix, Arizona	Sales and Lease Ownership—Fulfillment Center – Leased		109,000
Magnolia, Mississippi	Sales and Lease Ownership—Fulfillment Center – Leased		125,000
Plainfield, Indiana	Sales and Lease Ownership—Fulfillment Center – Leased		90,000
Portland, Oregon	Sales and Lease Ownership—Fulfillment Center – Leased		98,000
Rancho Cucamonga, California	Sales and Lease Ownership—Fulfillment Center – Leased		92,000
Westfield, Massachusetts	Sales and Lease Ownership—Fulfillment Center – Leased		130,000
Kansas City, Kansas	Sales and Lease Ownership—Fulfillment Center – Leased		127,000
Cheswick, Pennsylvania1	Sales and Lease Ownership—Fulfillment Center – Leased		155,000

¹  The Cheswick, Pennsylvania fulfillment center is not yet operational and is expected to be operational in March of 2013.

Our executive and administrative offices occupy approximately 41,500 square feet in an 11-story, 87,000 square-foot office building that we own in Atlanta, Georgia. We lease most of the remaining space to third parties under leases with remaining terms averaging three years. We lease a two-story building with over 50,000 square feet in Kennesaw, Georgia and a one-story building that includes over 33,000 square feet in Marietta, Georgia for additional administrative functions. We believe that all of our facilities are well maintained and adequate for their current and reasonably foreseeable uses.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are party to various legal proceedings arising in the ordinary course of business. While we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material adverse impact upon our business, financial position or results of operations, there can be no assurance that we will prevail in all the proceedings we are party to, or that we will not incur material losses from them. Some of the proceedings we are currently a party to are described below. For further information, see Note 8 to the consolidated financial statements.

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In Alford v. Aaron Rents, Inc. et al originally filed in the U.S. District Court for the Southern District of Illinois (No.: 3:08-MJR-DGW-683) on October 2, 2008, plaintiff alleged, among other claims, that she was sexually harassed and subjected to retaliation, in violation of Title VII of the Civil Rights Act of 1964, by a general manager of a Company store. Based on the judgment in the June 14, 2011 jury verdict (as reduced by the court), the Company recorded a charge of $36.5 million in the second quarter of 2011, which represented an accrual for the judgment and associated legal fees and expenses of $41.5 million, less insurance coverage of $5.0 million. On March 26, 2012, following the court’s ruling that the verdict would not be sustained, the Company entered into a settlement agreement resolving the claims in the amount of $6.0 million. The Company recognized $35.5 million of income related to the reversal of the lawsuit accrual in the first quarter of 2012.

In Kunstmann et al v. Aaron Rents, Inc., originally filed with the United States District Court, Northern District of Alabama (Case No.: 2:08-CV-1969-WMA), on October 29, 2008, plaintiffs alleged that the Company improperly classified store general managers as exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”). Plaintiffs seek to recover unpaid overtime compensation and other damages for a class almost exclusively comprised of former general managers, most of whom terminated employment with the Company more than a year ago. On October 4, 2012 the Court denied the Company’s motion for summary judgment as to Mr. Kunstmann individually, and on January 23, 2013, the Court denied the Company’s motion for decertification of the class. The current class includes 247 individuals. The parties are now working on proposing next steps for the conduct of the case.

In Margaret Korrow, et al. v. Aaron’s, Inc., originally filed in the Superior Court of New Jersey, Middlesex County, Law Division on October 26, 2010, plaintiff filed suit on behalf of herself and others similarly situated alleging that the Company is liable in damages to plaintiff and each class member because the Company’s lease agreements issued after March 16, 2006 purportedly violated certain New Jersey state consumer statutes. The Company removed the lawsuit to the United States District Court for the District of New Jersey on December 6, 2010 (Civil Action No.: 10-06317(JAP)(LHG)). Plaintiff on behalf of herself and others similarly situated seeks equitable relief, statutory and treble damages, pre- and post-judgment interest and attorneys’ fees. Discovery on this matter is closed. To date, no class has been certified and, on December 17, 2012, the Company moved to dismiss the class allegations from plaintiff’s complaint. On February 5, 2013, plaintiff filed its response and also moved to certify the class.

In Crystal and Brian Byrd v. Aaron’s, Inc., Aspen Way Enterprises, Inc., John Does (1-100) Aaron’s Franchisees and Designerware, LLC., filed on May 16, 2011 in the United States District Court, Western District of Pennsylvania (Case No. 1:11-CV-00101-SPB), plaintiffs allege that the Company and its franchisees knowingly violated plaintiffs’ and other similarly situated plaintiffs’ privacy in violation of the Electronic Communications Privacy Act and the Computer Fraud Abuse Act through its use of a software program called “PC Rental Agent.” The District Court dismissed the Company from the lawsuit on March 20, 2012. On September 14, 2012, plaintiffs filed an amended complaint against the Company and its franchisees alleging, among other claims, invasion of privacy, interception of electronic communications in violation of the Federal Wiretap Act as amended by the Electronic Communications Privacy Act and vicarious liability claims against the Company. The plaintiffs are seeking damages in connection with the allegations of the amended complaint. On October 15, 2012, the Company filed a motion to dismiss the amended complaint, which still remains pending.

The Company has received inquiries from and is responding to government agencies, including the Federal Trade Commission, requesting information regarding the Byrd litigation and another incident involving the compromise of customer information, and inquiring about, among other things, the Company’s retail transactional, information security and privacy policies and practices.

The matter of Kurtis Jewell v. Aaron’s, Inc. was originally filed in the United States District Court, Northern District of Ohio, Eastern Division on October 28, 2011 and was transferred on February 23, 2012 to the United States District Court for the Northern District of Georgia (Atlanta Division) (Civil No.:1:12-CV-00563-AT). Plaintiff, on behalf of himself and all other non-exempt employees who worked in Company stores, alleges that the Company violated the FLSA when it automatically deducted 30 minutes from employees’ time for meal breaks on days when plaintiffs allegedly did not take their meal breaks. Plaintiff claims he and other employees actually worked through meal breaks or were interrupted during the course of their meal breaks and asked to perform work. As a result of the automatic deduction, plaintiff alleges that the Company failed to account for all of his working hours when it calculated overtime, and consequently underpaid him. On September 28, 2012, the Court issued an order granting conditional certification of a class consisting of all hourly store employees from October 27, 2008 to the present. The current class size is 1,788, which is less than seven percent of the potential class members. With limited exceptions, the time period for additional members to be added to the class has expired.

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The matter of Parish Harrigan and Carlos Urzua v. Aaron’s, Inc. was filed in the Superior Court of the State of California, County of Sacramento on January 27, 2012 (Case No.: 34-2012-0117848). Plaintiffs allege that they were subjected to jokes and name calling on the basis of their race and national origin. Plaintiffs further claim that they were subject to retaliation after reporting the discrimination and harassment to the Company. The plaintiffs are seeking damages in connection with the allegations. The Company denies the underlying allegations, believes that it took prompt action to investigate the claims once it was notified of the allegations, denies that either plaintiff was subject to retaliation and intends to vigorously defend itself in the litigation.

We believe we have meritorious defenses to all of the claims described above, and intend to vigorously defend against the claims. However, these proceedings are still developing and due to the inherent uncertainty in litigation and similar adversarial proceedings, there can be no guarantee that we will ultimately be successful in these proceedings, or in others to which we are currently a party. Substantial losses from legal proceedings or the costs of defending them could have a material adverse impact upon our business, financial position and results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information, Holders and Dividends

Effective December 13, 2010, all shares of the Company’s Common Stock began trading as a single class on the New York Stock Exchange under the ticker symbol “AAN.” The CUSIP number of the Common Stock is 002535300.

The number of shareholders of record of the Company’s Common Stock at February 15, 2013 was 255. The closing price for the Common Stock at February 15, 2013 was $29.26.

The following table shows the range of high and low sales prices per share for the Company’s Common Stock and the quarterly cash dividends declared per share for the periods indicated.

Common Stock	High		Low		Cash Dividends Per Share
December 31, 2012
First Quarter	$	31.78	$	24.59	$	.015
Second Quarter		28.59		24.57		.015
Third Quarter		31.29		27.37		.015
Fourth Quarter		32.53		24.61		.017

Common Stock	High		Low		Cash Dividends Per Share
December 31, 2011
First Quarter	$	25.52	$	19.16	$	.013
Second Quarter		29.29		24.79		.013
Third Quarter		29.34		22.17		.013
Fourth Quarter		29.10		23.24		.015

Subject to our ongoing ability to generate sufficient income, any future capital needs and other contingencies, we expect to continue our policy of paying quarterly dividends. Under our revolving credit agreement, we may pay cash dividends in any year only if the dividends do not exceed 50% of our consolidated net earnings for the prior fiscal year plus the excess, if any, of the cash dividend limitation applicable to the prior year over the dividend actually paid in the prior year.

Issuer Purchases of Equity Securities

The Company repurchased 1,236,689 shares of Common Stock during 2012 at an average price of $27.60. As of December 31, 2012, 4,044,655 Common Stock shares remained available for repurchase under the purchase authority approved by the Company’s Board of Directors and publicly announced from time-to-time. The Company had no purchases of Common Stock during the fourth quarter of 2012.

Securities Authorized for Issuance Under Equity Compensation Plans

Information concerning the Company’s equity compensation plans is set forth in Item 12 of Part III of this Annual Report on Form 10-K.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected consolidated financial data of Aaron’s, Inc. which have been derived from its Consolidated Financial Statements for each of the five years in the period ended December 31, 2012. Amounts have been restated to reflect the Aaron’s Corporate Furnishings division as discontinued operations. This historical information may not be indicative of the Company’s future performance. The information set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the notes thereto.

(Dollar Amounts in Thousands, Except Per Share Data)	Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009			Year Ended December 31, 2008
OPERATING RESULTS
Revenues:
Lease Revenues and Fees	$	1,676,391		$	1,516,508		$	1,402,053		$	1,310,709		$	1,178,719
Retail Sales		38,455			38,557			40,556			43,394			43,187
Non-Retail Sales		425,915			388,960			362,273			327,999			309,326
Franchise Royalties and Fees		66,655			63,255			59,112			52,941			45,025
Other		15,172			15,051			12,344			17,610			16,173
		2,222,588			2,022,331			1,876,338			1,752,653			1,592,430
Costs and Expenses:
Retail Cost of Sales		21,719			22,738			23,013			25,730			26,379
Non-Retail Cost of Sales		389,357			353,745			330,918			299,727			283,358
Operating Expenses		952,262			868,716			824,929			771,634			705,566
Lawsuit (Income) Expense		(35,500	)		36,500			—			—			—
Retirement/Separation Charges		10,394			3,532			—			—			—
Depreciation of Lease Merchandise		604,650			550,732			504,105			474,958			429,907
		1,942,882			1,835,963			1,682,965			1,572,049			1,445,210
Operating Profit		279,706			186,368			193,373			180,604			147,220
Interest Income		3,541			1,718			509			134			178
Interest Expense		(6,392	)		(4,709	)		(3,096	)		(4,299	)		(7,818	)
Earnings Before Income Taxes		276,855			183,377			190,786			176,439			139,580
Income Taxes		103,812			69,610			72,410			63,561			53,811
Net Earnings From Continuing Operations		173,043			113,767			118,376			112,878			85,769
(Loss) Earnings From Discontinued Operations, Net of Tax		—			—			—			(277	)		4,420
Net Earnings	$	173,043		$	113,767		$	118,376		$	112,601		$	90,189
Earnings Per Share From Continuing Operations	$	2.28		$	1.46		$	1.46		$	1.39		$	1.07
Earnings Per Share From Continuing Operations Assuming Dilution		2.25			1.43			1.44			1.38			1.06
Earnings Per Share From Discontinued Operations		.00			.00			.00			.00			.06
(Loss) Earnings Per Share From Discontinued Operations Assuming Dilution		.00			.00			.00			(.01	)		.05
Dividends Per Share:
Common Stock		.062			.054			.049			.046			.043
Former Class A Common Stock		—			—			.049			.046			.043
FINANCIAL POSITION (Dollar Amounts in Thousands)
Lease Merchandise, Net	$	964,067		$	862,276		$	814,484		$	682,402		$	681,086
Property, Plant and Equipment, Net		230,598			226,619			204,912			215,183			209,452
Total Assets		1,812,929			1,731,899			1,500,853			1,320,860			1,233,147
Credit Facilities		141,528			153,789			41,790			55,044			114,817
Shareholders’ Equity		1,136,126			976,554			979,417			887,260			761,544
AT YEAR END
Stores Open:
Company-operated		1,324			1,232			1,150			1,097			1,053
Franchised		749			713			664			597			504
Lease Agreements in Effect		1,662,000			1,508,000			1,325,000			1,171,000			1,017,000
Number of Associates		11,900			11,200			10,400			10,000			9,600

Earnings per share data has been adjusted for the effect of the 3-for-2 partial stock split distributed on April 15, 2010 and effective April 16, 2010.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Aaron’s, Inc. (“we”, “our”, “us”, “Aaron’s” or the “Company”) is a leading specialty retailer of consumer electronics, computers, residential furniture, household appliances and accessories. Our major operating divisions are the Aaron’s Sales & Lease Ownership division, the HomeSmart division and the Woodhaven Furniture Industries division, which manufactures and supplies the majority of the upholstered furniture and bedding leased and sold in our stores.

Aaron’s has demonstrated strong revenue growth over the last three years. Total revenues have increased from $1.876 billion in 2010 to $2.223 billion in 2012, representing a compound annual growth rate of 8.9%. Total revenues for the year ended December 31, 2012 increased $200.3 million, or 10%, over the prior year.

The majority 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 added a net of 93 Company-operated sales and lease ownership stores in 2012. We spend on average approximately $700,000 to $800,000 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, which we believe represents a higher unit revenue volume than the typical rent-to-own store. Most of our stores are cash flow positive in the second year of operations.

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. Our franchisees added a net of 36 stores in 2012. We purchased 21 franchised stores during 2012. Franchise royalties and other related fees represent a growing source of high margin revenue for us, accounting for $66.7 million of revenues in 2012, up from $59.1 million in 2010, representing a compounded annual growth rate of 6.2%.

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. When the Company sold its rent-to-rent business, it decided to keep the then 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 and lease ownership business. As of December 31, 2011, the Company had closed 11 of its Aaron’s Office Furniture stores and had one remaining store open to liquidate merchandise. The Company recorded $9.0 million in 2010 related to 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 with closing the stores. The Company did not incur any significant charges in 2011 or 2012 related to winding down the division.

Stock Split. On March 23, 2010, we announced a 3-for-2 stock split effected in the form of a 50% stock dividend on our 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.

Dual Class Unification. In December 2010, the Company’s shareholders approved the unification of our prior nonvoting Common Stock and voting Class A Common Stock into a single class. Effective December 10, 2010, the two classes were combined into a single voting class now known simply as our Common Stock.

Same Store Revenues. We believe the changes in same store revenues are a key performance indicator. The change in same store revenues is calculated by comparing revenues for the year to revenues for the prior year for all stores open for the entire 24-month period, excluding stores that received lease agreements from other acquired, closed or merged stores.

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Key Components of Net Income

In this management’s discussion and analysis section, we review the Company’s consolidated results, including the five components of our revenues, costs of sales and expenses, of which depreciation of lease merchandise is a significant part.

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 include all revenues derived from lease agreements at Company-operated stores, including agreements that result in our customers acquiring ownership at the end of the term. Retail sales represent sales of both new and returned lease merchandise from our stores. Non-retail sales mainly represent new merchandise sales to our Aaron’s Sales & 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 asset dispositions and other miscellaneous revenues.

Retail Cost of Sales. Retail cost of sales represents the original or depreciated cost of merchandise sold through our Company-operated stores.

Non-Retail Cost of Sales. 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, among other expenses.

Lawsuit (Income) Expense. Lawsuit expense consists of the net cost of paying legal judgments and settlement amounts; defense costs are included in operating expenses. Lawsuit income results from reductions in previously accrued reserves.

Retirement/Separation Charges. Retirement/separation charges represent costs associated with the retirement of the Company’s founder and former Chairman of the Board in 2012 and the departure of the Company’s former Chief Executive Officer in 2011.

Depreciation of Lease Merchandise. Depreciation of lease merchandise reflects the expense associated with depreciating merchandise held for lease and leased to customers by our Company-operated 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 sales and lease ownership agreements are recognized by the reportable segments as revenue in the month the cash is collected. On a monthly basis, we record an accrual for lease revenues due but not yet received, net of allowances, and a deferral of revenue for lease payments received prior to the month due. Our revenue recognition accounting policy matches the lease revenue with the corresponding costs, mainly depreciation, associated with the lease merchandise. At December 31, 2012 and 2011, we had a revenue deferral representing cash collected in advance of being due or otherwise earned totaling $45.3 million and $43.9 million, respectively, and an accrued revenue receivable, net of allowance for doubtful accounts, based on historical collection rates of $7.4 million and $5.2 million, respectively. Revenues from the sale of merchandise to franchisees are recognized at the time of receipt of the merchandise by the franchisee and revenues from such sales to other customers are recognized at the time of shipment.

Lease Merchandise. Our Aaron’s Sales & Lease Ownership and HomeSmart divisions depreciate merchandise over the applicable agreement period, generally 12 to 24 months (monthly agreements) or 60 to 120 weeks (weekly agreements) when leased, and 36 months when not leased, to 0% salvage value. Our policies require weekly lease merchandise counts at the store 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.

25

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 totaled $54.9 million, $46.2 million, and $46.5 million for the years ended December 31, 2012, 2011, and 2010, respectively. The fiscal year ended December 31, 2010 includes a write-down of $4.7 million related to the closure of the Aaron’s Office Furniture stores.

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 approximately 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 stores are the future lease payments and related commitments. We record an estimate of the future obligation related to closed 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 December 31, 2012 and 2011, our reserve for closed stores was $2.8 million and $3.8 million, respectively. Due to changes in market conditions, our estimates related to sublease income may change and, as a result, our actual liability may be more or less than the recorded amount. Excluding estimated sublease income, our future obligations related to closed stores on an undiscounted basis were $4.1 million and $6.1 million as of December 31, 2012 and 2011, respectively.

Insurance Programs. We maintain 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 using historical claims runoff data. Our gross estimated liability for workers compensation insurance claims, vehicle liability, general liability and group health insurance was $29.8 million and $28.5 million at December 31, 2012 and 2011, respectively. In addition, we have prefunding balances on deposit with the insurance carriers of $25.6 million and $23.1 million at December 31, 2012 and 2011, 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 December 31, 2012.

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.

Legal Reserves. We are subject to various legal claims arising in the ordinary course of business. Management regularly assesses the Company’s insurance deductibles, analyzes litigation information with the Company’s attorneys and evaluates its loss experience. We accrue for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the defense of all of our litigation are expensed as such fees and expenses are incurred.

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.

26

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 basis. 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.

Fair Value. For the valuation techniques used to determine the fair value of financial assets and liabilities on a recurring basis, as well as Assets Held for Sale, which are recorded at fair value on a nonrecurring basis, refer to Note 4 in the Consolidated Financial Statements.

Results of Operations

Results of Operations – Years Ended December 31, 2012, 2011 and 2010

										Change
	Year Ended December 31,									2012 vs. 2011						2011 vs. 2010
(In Thousands)	2012			2011			2010			$			%			$			%
REVENUES:
Lease Revenues and Fees	$	1,676,391		$	1,516,508		$	1,402,053		$	159,883			10.5	%	$	114,455			8.2	%
Retail Sales		38,455			38,557			40,556			(102	)		(0.3	)		(1,999	)		(4.9	)
Non-Retail Sales		425,915			388,960			362,273			36,955			9.5			26,687			7.4
Franchise Royalties and Fees		66,655			63,255			59,112			3,400			5.4			4,143			7.0
Other		15,172			15,051			12,344			121			0.8			2,707			21.9
		2,222,588			2,022,331			1,876,338			200,257			9.9			145,993			7.8
COSTS AND EXPENSES:
Retail Cost of Sales		21,719			22,738			23,013			(1,019	)		(4.5	)		(275	)		(1.2	)
Non-Retail Cost of Sales		389,357			353,745			330,918			35,612			10.1			22,827			6.9
Operating Expenses		952,262			868,716			824,929			83,546			9.6			43,787			5.3
Lawsuit (Income) Expense		(35,500	)		36,500			—			(72,000	)		(197.3	)		36,500			nmf
Retirement/Separation Charges		10,394			3,532			—			6,862			194.3			3,532			nmf
Depreciation of Lease Merchandise		604,650			550,732			504,105			53,918			9.8			46,627			9.2
		1,942,882			1,835,963			1,682,965			106,919			5.8			152,998			9.1
OPERATING PROFIT		279,706			186,368			193,373			93,338			50.1			(7,005	)		(3.6	)
Interest Income		3,541			1,718			509			1,823			106.1			1,209			237.5
Interest Expense		(6,392	)		(4,709	)		(3,096	)		(1,683	)		35.7			(1,613	)		52.1
EARNINGS BEFORE INCOME TAXES		276,855			183,377			190,786			93,478			51.0			(7,409	)		(3.9	)
INCOME TAXES		103,812			69,610			72,410			34,202			49.1			(2,800	)		(3.9	)
NET EARNINGS	$	173,043		$	113,767		$	118,376		$	59,276			52.1	%	$	(4,609	)		(3.9	%)

nmf—Calculation is not meaningful

For all years presented, the Company’s Sales and Lease Ownership, HomeSmart and Franchise segments accounted for substantially all of the operations of the Company and, therefore, unless otherwise noted only material changes within these three segments are discussed. The production of our Manufacturing segment, consisting of our Woodhaven Furniture Industries division, is primarily leased or sold through our Company-operated and franchised stores, and consequently, substantially all of that segment’s revenues and earnings before income taxes are eliminated through the elimination of intersegment revenues and intersegment profit.

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Revenues

Information about our revenues by reportable segment is as follows:

										Change
	Year Ended December 31,									2012 vs. 2011						2011 vs. 2010
(In Thousands)	2012			2011			2010			$			%			$			%
REVENUES:
Sales and Lease Ownership 1	$	2,088,894		$	1,938,614		$	1,803,601		$	150,280			7.8	%	$	135,013			7.5	%
HomeSmart 1		55,226			15,624			56			39,602			253.5			15,568			nmf
Franchise 2		66,655			63,255			59,112			3,400			5.4			4,143			7.0
Manufacturing		95,693			89,430			79,113			6,263			7.0			10,317			13.0
Other		9,122			8,096			15,132			1,026			12.7			(7,036	)		(46.5	)
Revenues of Reportable Segments		2,315,590			2,115,019			1,957,014			200,571			9.5			158,005			8.1
Elimination of Intersegment Revenues		(95,150	)		(89,430	)		(79,113	)		(5,720	)		(6.4	)		(10,317	)		13.0
Cash to Accrual Adjustments		2,148			(3,258	)		(1,563	)		5,406			165.9			(1,695	)		108.4
Total Revenues from External Customers	$	2,222,588		$	2,022,331		$	1,876,338		$	200,257			9.9	%	$	145,993			7.8	%

nmf—Calculation is not meaningful

¹  Segment revenue consists of lease revenues and fees, retail sales and non-retail sales.

²  Segment revenue consists of franchise royalties and fees.

Year Ended December 31, 2012 Versus Year Ended December 31, 2011

Sales and Lease Ownership. Sales and Lease Ownership segment revenues increased due to a 10.5% increase in lease revenues and fees and 9.5% increase in non-retail sales. Lease revenues and fees within the Sales and Lease Ownership segment increased due to a net addition of 100 Company-operated stores since the beginning of 2011 and a 5.1% increase in same store revenues. Non-retail sales increased primarily due to net additions of 84 franchised stores since the beginning of 2011.

Sales and Lease Ownership segment revenues include a $660,000 gain from the sales of three Sales and Lease Ownership stores in 2012 and a $3.0 million gain on the sales of 25 Sales and Lease Ownership stores in 2011. The Company has classified gains from the sales of Sales and Lease Ownership stores as “Other” revenues in the Company’s consolidated statements of earnings.

HomeSmart. HomeSmart segment revenues increased to $55.2 million due to the net addition of 75 HomeSmart stores, since the beginning of 2011. HomeSmart segment revenues for 2012 also benefitted from the inclusion of 12 months of revenue attributable to the 68 HomeSmart stores that were added primarily during the second half of 2011.

Franchise. Franchise segment revenues increased due to a $4.5 million, or 8.7%, increase in royalty income from franchisees. Franchise royalty income increased due to the growth in the number of franchised stores and a 5.0% increase in same store revenues of existing franchised stores. The total number of franchised sales and lease ownership stores at December 31, 2012 was 749, reflecting a net addition of 85 stores since the beginning of 2011.

Other. Revenues in the “Other” segment, which are primarily revenues of the Aaron’s Office Furniture division, revenues from leasing space to unrelated third parties in the corporate headquarters building and revenues from several minor unrelated activities, did not fluctuate significantly from 2011 to 2012.

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Year Ended December 31, 2011 Versus Year Ended December 31, 2010

Sales and Lease Ownership. Sales and Lease Ownership segment revenues increased due to a 7.5% increase in lease revenues and fees and 7.4% increase in non-retail sales. Lease revenues and fees within the Sales and Lease Ownership segment increased due to a net addition of 78 Company-operated stores since the beginning of 2010 and a 4.4% increase in same store revenues. Non-retail sales increased primarily due to net additions of 116 franchised stores since the beginning of 2010.

Sales and Lease Ownership segment revenues include a $3.0 million gain from the sales of 25 Sales and Lease Ownership stores in 2011 and a $1.9 million gain on the sales of 11 Sales and Lease Ownership stores in 2010. The Company has classified gains from the sales of Sales and Lease Ownership stores as “Other” revenues in the Company’s consolidated statements of earnings.

HomeSmart. HomeSmart segment revenues increased to $15.6 million due to the growth in the number of HomeSmart stores to 71, all of which have been added since the beginning of 2010.

Franchise. Franchise segment revenues increased largely due to a $4.0 million, or 8.4%, increase in royalty income from franchisees. Franchise royalty income increased due to the growth in the number of franchised stores and a 1.3% increase in same store revenues of existing franchised stores. The total number of franchised sales and lease ownership stores at December 31, 2011 was 713, reflecting a net addition of 116 stores since the beginning of 2010.

Other. Other segment revenues decreased $7.0 million mainly due to a $7.9 million decrease in the Aaron’s Office Furniture division revenues due to the closure of 14 stores during 2010.

Costs and Expenses

Year Ended December 31, 2012 Versus Year Ended December 31, 2011

Retail cost of sales. Retail cost of sales decreased $1.0 million, or 4.5%, to $21.7 million in 2012, from $22.7 million for the comparable period in 2011, and as a percentage of retail sales, decreased to 56.5% from 59.0% due to a change in the mix of products.

Non-retail cost of sales. Non-retail cost of sales increased 10.1%, to $389.4 million in 2012, from $353.7 million for the comparable period in 2011, and as a percentage of non-retail sales, increased to 91.4% in 2012 from 90.9% in 2011.

Operating expenses. Operating expenses in 2012 increased $83.6 million to $952.3 million from $868.7 million in 2011, a 9.6% increase. As a percentage of total revenues, operating expenses decreased to 42.8% in 2012 from 43.1% in 2011.

Lawsuit (income) expense. Litigation expense decreased $72.0 million due to the accrual of $36.5 million in the twelve months ended December 31, 2011, followed by a reversal of the accrual of $35.5 million in the year ended December 31, 2012 related to the Alford v. Aaron Rents, Inc. et al case previously discussed. Based on the judgment in the June 14, 2011 jury verdict (as reduced by the court), the Company recorded a charge of $36.5 million in the second quarter of 2011, which represented an accrual for the judgment and associated legal fees and expenses of $41.5 million, less insurance coverage of $5.0 million. On March 26, 2012, following the court’s ruling that the verdict would not be sustained, the Company entered into a settlement agreement in the amount of $6.0 million. The Company recognized $35.5 million of income related to the reversal of the lawsuit accrual in the first quarter of 2012.

Retirement/separation charges. Retirement/separation charges of $10.4 million represent costs associated with the retirement of the Company’s founder and former Chairman of the Board in 2012, while in 2011 the Company incurred $3.5 million in separation costs related to the departure of the Company’s former Chief Executive Officer.

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Depreciation of lease merchandise. Depreciation of lease merchandise increased $53.9 million to $604.7 million in 2012 from $550.7 million during the comparable period in 2011, a 9.8% increase as a result of higher on-rent lease merchandise due to the growth of our Sales and Lease Ownership and HomeSmart segments. Levels of merchandise on lease remained consistent year over year, resulting in idle merchandise representing approximately 6% of total depreciation expense in 2012 and 2011. As a percentage of total lease revenues and fees, depreciation of lease merchandise decreased slightly to 36.1% from 36.3% in the prior year.

Year Ended December 31, 2011 Versus Year Ended December 31, 2010

Retail cost of sales. Retail cost of sales decreased $275,000, or 1.2%, to $22.7 million in 2011, from $23.0 million for the comparable period in 2010, and as a percentage of retail sales, increased to 59.0% from 56.7% due to a change in the mix of products.

Non-retail cost of sales. Non-retail cost of sales increased 6.9%, to $353.7 million in 2011, from $330.9 million for the comparable period in 2010, and as a percentage of non-retail sales, decreased to 90.9% in 2011 from 91.3% in 2010.

Operating expenses. Operating expenses in 2011 increased $47.3 million to $872.2 million from $824.9 million in 2010, a 5.7% increase. As a percentage of total revenues, operating expenses decreased to 43.1% in 2011 from 44.0% in 2010.

We began ceasing the operations of the Aaron’s Office Furniture division in June of 2010. We closed 14 Aaron’s Office Furniture stores during 2010 and have one remaining store open to liquidate merchandise. As a result, in 2010 we recorded $3.3 million in closed store reserves and $4.7 million in lease merchandise write-downs and other miscellaneous expenses, totaling $9.0 million in operating expenses, related to the closures. No significant operating expenses related to the closure were recorded in 2011.

Lawsuit (income) expense. The Company recorded $36.5 million in lawsuit expense in 2011, which represents the $41.5 million judgment, as reduced, in the Alford v. Aaron Rents, Inc. et al legal proceeding, and associated legal fees and expenses, net of insurance coverage of $5.0 million for this litigation. Refer to Note 8 in the Consolidated Financial Statements for further discussion. There was no similar charge during 2010.

Retirement/separation charges. Retirement/separation charges of $3.5 million related to the departure of the Company’s former Chief Executive Officer in 2011.

Depreciation of lease merchandise. Depreciation of lease merchandise increased $46.6 million to $550.7 million in 2011 from $504.1 million during the comparable period in 2010, a 9.2% increase as a result of higher on-rent lease merchandise due to the growth of our Sales and Lease Ownership and HomeSmart segments. Levels of merchandise on lease remained consistent year over year, resulting in idle merchandise representing approximately 6% and 5% of total depreciation expense in 2011 and 2010, respectively. As a percentage of total lease revenues and fees, depreciation of lease merchandise increased slightly to 36.3% from 36.0% in the prior year.

Operating Profit

Interest income. Interest income increased to $3.5 million in 2012 compared with $1.7 million for the comparable period in 2011. The increase in interest income is due to higher average investment balances during the year ended December 31, 2012. Interest income increased to $1.7 million in 2011 compared with $0.5 million for the comparable period in 2010. The increase in interest income is due to higher average investment balances during the year ended December 31, 2011.

Interest expense. Interest expense increased to $6.4 million in 2012 compared with $4.7 million in 2011, a 35.7% increase. The increase is directly related to the issuance of our senior unsecured notes on July 5, 2011. Interest expense increased to $4.7 million in 2011 compared with $3.1 million in 2010, a 52.1% increase. The increase is directly related to the issuance of our senior unsecured notes on July 5, 2011.

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Income Tax Expense

Income tax expense increased $34.2 million to $103.8 million in 2012, compared with $69.6 million in 2011, representing a 49.1% increase due to a 51% increase in earnings in 2012, offset by a slightly lower tax rate in 2012. Our effective tax rate was 37.5% in 2012 and 38.0% in 2011.

Income tax expense decreased $2.8 million to $69.6 million in 2011, compared with $72.4 million in 2010, representing a 3.9% decrease. Our effective tax rate was 38.0% in both 2011 and 2010.

Net Earnings from Continuing Operations

Information about our earnings before income taxes by reportable segment is as follows:

										Change
	Year Ended December 31,									2012 vs. 2011						2011 vs. 2010
(In Thousands)	2012			2011			2010			$			%			$			%
EARNINGS BEFORE INCOME TAXES:
Sales and Lease Ownership	$	243,531		$	143,686		$	159,417		$	99,845			69.5	%	$	(15,731	)		(9.9	%)
HomeSmart		(6,962	)		(7,283	)		(318	)		321			(4.4	)		(6,965	)		nmf
Franchise		52,672			49,577			45,935			3,095			6.2			3,642			7.9
Manufacturing		382			2,960			3,218			(2,578	)		(87.1	)		(258	)		(8.0	)
Other		(11,854	)		818			(12,437	)		(12,672	)		nmf			13,255			(106.6	)
Earnings Before Income Taxes for Reportable Segments		277,769			189,758			195,815			88,011			46.4			(6,057	)		(3.1	)
Elimination of Intersegment Profit		(393	)		(2,960	)		(3,218	)		2,567			(86.7	)		258			(8.0	)
Cash to Accrual and Other Adjustments		(521	)		(3,421	)		(1,811	)		2,900			(84.8	)		(1,610	)		88.9
Total	$	276,855		$	183,377		$	190,786		$	93,478			51.0	%	$	(7,409	)		(3.9	%)

nmf—Calculation is not meaningful

Year Ended December 31, 2012 Versus Year Ended December 31, 2011

Earnings before income taxes increased $93.5 million, or 51%, primarily due to a $99.8 million, or 69.5%, increase in the Sales and Lease Ownership segment, a $3.1 million, or 6.2%, increase in the Franchise segment, and a $321,000 increase in the HomeSmart segment, partially offset by a decrease of $2.6 million in the Manufacturing segment, and $12.7 million in the “Other” segment, primarily due to the closure of the Aaron’s Office Furniture division store and retirement charges of $10.4 million associated with the retirement of the Company’s founder and former Chairman of the Board.

Net earnings increased $59.3 million to $173.0 million in 2012 compared with $113.8 million in 2011, representing a 52.1% increase. As a percentage of total revenues, net earnings from continuing operations were 7.8% and 5.6% in 2012 and 2011, respectively. Additionally, net earnings for 2012 included the recognition of income of $35.5 million related to the Alford vs. Aaron Rents, Inc. et al case previously discussed. The Company’s increased profitability of new Company-operated sales and lease ownership stores added over the past several years, contributing to a 5.1% increase in same store revenues and a 5.4% increase in franchise royalties and fees.

Year Ended December 31, 2011 Versus Year Ended December 31, 2010

Earnings before income taxes decreased $7.4 million, or 3.9%, primarily due to a $15.7 million, or 9.9%, decrease in the Sales and Lease Ownership segment and a $7.0 million decrease in the HomeSmart segment, partially offset by a $3.6 million, or 7.9%, increase in the Franchise segment and a $13.3 million increase in the “Other” segment, primarily due to the closure of 14 Aaron’s Office Furniture division stores during 2010.

Net earnings decreased $4.6 million to $113.8 million in 2011 compared with $118.4 million in 2010, representing a 3.9% decrease. As a percentage of total revenues, net earnings from continuing operations were 5.6% and 6.3% in 2011 and 2010, respectively. Additionally, the decrease in net earnings for 2011 was impacted by litigation expense of $36.5 million related to the Alford vs. Aaron Rents, Inc. et al case previously discussed partially offset by an increase in profitability of new Company-operated sales and lease ownership stores added over the past several years, contributing to a 4.4% increase in same store revenues, and a 7.0% increase in franchise royalties and fees.

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Balance Sheet

Cash and Cash Equivalents. The Company’s cash balance decreased to $129.5 million at December 31, 2012 from $176.3 million at December 31, 2011. The $46.7 million decrease in our cash balance is due to cash flow generated from operations, less cash used by investing and financing activities. For additional information, refer to the “Liquidity and Capital Resources” section below.

Investment Securities. Our investment securities balance was $85.9 million at December 31, 2012 primarily as a result of purchases of corporate bonds in 2011 and an investment in bonds issued by a privately-held rent-to-own company based in the United Kingdom. The securities are recorded at amortized cost in the consolidated balance sheets and mature at various dates through 2014.

Lease Merchandise, Net. The increase of $101.8 million in lease merchandise, net of accumulated depreciation, to $964.1 million at December 31, 2012 from $862.3 million at December 31, 2011, is primarily the result of a net increase in lease merchandise of $92.7 million in the Sales and Lease Ownership segment and $6.4 million in the HomeSmart segment.

Goodwill. The $14.9 million increase in goodwill, to $234.2 million on December 31, 2012 from $219.3 million on December 31, 2011, is the result of a series of acquisitions of sales and lease ownership businesses. During 2012, the Company acquired 44 Sales and Lease Ownership stores with an aggregate purchase price of $29.7 million. The Company acquired four stores that were converted to HomeSmart with an aggregate purchase price of $1.3 million. The principal tangible assets acquired consisted of lease merchandise, vehicles and fixtures and equipment.

Prepaid Expenses and Other Assets. Prepaid expenses and other assets increased $31.5 million to $77.4 million at December 31, 2012 from $45.9 million at December 31, 2011, primarily as a result of an income tax receivable of $25 million that exists as of December 31, 2012.

Accrued Litigation Expense. Accrued litigation expense decreased $41.7 million to $0 at December 31, 2012 from $41.7 million at December 31, 2011. In 2011 the Company accrued $41.5 million, which represents the judgment, as reduced, and associated legal fees and expenses related to the Alford v. Aarons Rents, Inc. et al case previously discussed. The Company also recorded insurance coverage receivable of $5 million in prepaid expenses and other assets on the consolidated balance sheet as of December 31, 2011.

Deferred Income Taxes Payable. The decrease of $23.3 million in deferred income taxes payable to $263.7 million at December 31, 2012 from $287.0 million at December 31, 2011 is primarily the result of the reversal of bonus depreciation deductions on lease merchandise included in the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010.

Included in the deferred income tax payable as of December 31, 2012 are a deferred tax asset of $50.9 million and a valuation allowance of $657,000. The Company has reserved the entire value of the Canadian net operating loss as there is no expected taxable income to absorb the loss within that jurisdiction. With respect to all other deferred tax assets, the Company believes it will have sufficient taxable income in future years to assure the realization of their benefit. Future reversals of deferred tax liabilities associated with depreciation of rental inventory will occur in a manner necessary to assure realization.

Credit Facilities. The $12.3 million decrease in the amounts owed under credit facilities, to $141.5 million on December 31, 2012 from $153.8 million on December 31, 2011, reflects our repayment at maturity of the remaining principal balance of $12.0 million on the 5.03% private placement note and regularly scheduled payments on other credit facilities.

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Liquidity and Capital Resources

General

Cash flows from operations for the years ended December 31, 2012, 2011 and 2010 were $59.8 million, $307.2 million, and $49.3 million, respectively. The $247.4 million decrease in cash flows from operating activities in 2012 is due, in part, to the approximate $102.1 million change in income tax receivable, primarily due to the enactment of tax legislation in 2010 that resulted in overpayments of federal income taxes in 2010 for which we received approximately $80.9 million in refunds in 2011. In September 2010 the Small Business Jobs Act of 2010 was enacted and in December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was enacted. As a result of the bonus depreciation provisions in these acts, in 2010 we made estimated payments greater than our anticipated 2010 federal tax liability.

The 2012 decrease in cash flows from operating activities also includes $82.7 million in reduced deferred income taxes, $81.8 million in decreased non-cash litigation expense, substantially due to the Alford v. Aarons Rents, Inc. et al case previously discussed, and a net $47.9 million increase in lease merchandise, net of the effects of acquisitions and dispositions, partially offset by a $59.3 million increase in net earnings.

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 acquisitions of Aaron’s Sales & Lease Ownership stores, and shown under investing activities, was $11.6 million in 2012, $6.1 million in 2011 and $6.5 million in 2010. Sales of Sales and Lease Ownership stores are an additional source of investing cash flows in each period presented. Proceeds from such sales were $2.6 million in 2012, $16.5 million in 2011 and $8.0 million in 2010. The amount of lease merchandise sold in these sales and shown under investing activities was $1.4 million in 2012, $8.9 million in 2011 and $4.5 million in 2010. The amount of HomeSmart merchandise purchased in acquisitions of sales and lease ownership stores and shown under investing activities was $427,000 in 2012 and $7.3 million in 2011. There were no purchases of HomeSmart stores in 2010 and no sales activity in 2012, 2011 or 2010.

Our cash flows include profits on the sale of lease return merchandise. Our primary capital requirements consist of buying lease merchandise for sales and lease ownership stores. As we continue to grow, the need for additional lease merchandise will remain our major capital requirement. Other capital requirements include purchases of property, plant and equipment, expenditures for acquisitions and income tax payments. These capital requirements historically have been financed through:

• cash flow from operations;

• bank credit;

• trade credit with vendors;

• proceeds from the sale of lease return merchandise;

• private debt offerings; and

• stock offerings.

At December 31, 2012, there was no outstanding balance under our revolving credit agreement. The credit facilities balance decreased by $12.0 million in 2012, reflecting the repayment at maturity of the remaining $12.0 million 5.03% senior unsecured notes due July 2012. Our revolving credit facility was amended on December 13, 2012 and extends the maturity date until December 13, 2017. The amendment to the Company’s revolving credit agreement is discussed in further detail in Note 6 to our Consolidated Financial Statements. The total available credit under the facility as of December 31, 2012 is $140.0 million.

On December 19, 2012, the Company entered into Amendment No. 1 to a note purchase agreement with several insurance companies. The amendment amends the Note Purchase Agreement dated as of July 5, 2011, pursuant to which the Company and its subsidiaries, Aaron Investment Company, Aaron’s Production Company and 99LTO, LLC, as co-obligors, issued $125 million in senior unsecured notes to the purchasers in a private placement. The notes bear interest at the rate of 3.75% per year and mature on April 27, 2018. Payments of interest are due quarterly, commencing July 27, 2011, with principal payments of $25.0 million each due annually commencing April 27, 2014.

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Our revolving credit agreement and senior unsecured notes, and our franchise 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; and (2) total debt to EBITDA of no greater than 3:1; “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 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 December 31, 2012 and believe that we will continue to be in compliance in the future.

We purchase our stock in the market from time to time as authorized by our board of directors. In May 2011, the Board of Directors approved and authorized the repurchase of an additional 5,955,204 shares of Common Stock over the previously authorized repurchase amount of 4,044,796 shares, increasing the total number of our shares of Common Stock authorized for repurchase to 10,000,000. We repurchased 1,236,689 shares of Common Stock during 2012 at a total purchase price of $34.1 million and have authority to purchase 4,044,655 additional shares. The repurchases in 2012 increased the diluted earnings per share by $.01.

We have a consistent history of paying dividends, having paid dividends for 25 consecutive years. A $.012 per share dividend on our common shares was paid in January 2010, April 2010, July 2010, and October 2010 for a total cash outlay of $3.9 million. Our board of directors increased the dividend 8.3% for the fourth quarter of 2010 on November 3, 2010 to $.013 per share and the dividend was paid to holders of Common Stock in January 2011. A $.013 per share dividend on Common Stock was paid in April 2011, July 2011 and October 2011 for a total cash outlay of $3.1 million. Our board of directors increased the dividend 15.4% for the fourth quarter of 2011 on November 1, 2011 to $.015 per share and the $1.1 million dividend was paid to holders of Common Stock in January 2012. A $.015 per share dividend on Common Stock was paid in April 2012, July 2012 and October 2012 for a total cash outlay of $3.4 million. Our board of directors increased the dividend 13.3% for the fourth quarter of 2012 on November 7, 2012 to $.017 per share and the dividend of $1.3 million was paid to holders of Common Stock in December 2012. 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 will 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 12 to 24 months. We believe we can secure these additional sources of capital in the ordinary course of business. However, if the credit and capital markets experience disruptions, 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 year ended December 31, 2012, we made $145.4 million in income tax payments. Within the next twelve months, we anticipate that we will make cash payments for federal and state income taxes of approximately $87.0 million. In September 2010, the Small Business Jobs Act of 2010 was enacted and in December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was enacted. As a result of the bonus depreciation provisions in these acts, in 2010 we made estimated payments greater than our anticipated 2010 federal tax liability. We filed for a refund of overpaid federal tax of approximately $80.9 million in January 2011 and received that refund in February 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. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 allowed for deduction of 100% of the adjusted basis of qualified property for assets placed in service after September 8, 2010 and before December 31, 2011. This act also allowed for a deduction of 50% of the cost of qualified property placed in service during 2012. The American Taxpayer Relief Act of 2012 extended bonus depreciation of 50% through the end of 2013. 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 the Company remains the owner of merchandise on lease, we benefit more from bonus depreciation, relatively, than traditional furniture, electronics and appliance retailers.

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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 2012 and prior periods. We estimate that at December 31, 2012, the remaining tax deferral associated with the acts described above is approximately $180.0 million, of which approximately 70% will reverse in 2013 and most of the remainder will reverse between 2014 and 2015.

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 December 31, 2012 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 nine officers and two former officers of the Company of which there are six executive officers, with no individual, owning more than 13.33% of the LLC. Nine of these related party leases relate to properties purchased from us 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 us for a 15-year term, with a five-year renewal at our option, at an aggregate annual lease amount of $716,000. Another ten of these related party leases relate to properties purchased from us in December 2002 by the LLC for a total purchase price of approximately $5.0 million. The LLC is leasing back these properties to us for a 15-year term at an aggregate annual lease of $556,000. We do not currently plan to enter into any similar related party lease transactions in the future.

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.

Franchise Loan Guaranty. We have guaranteed the borrowings of certain independent franchisees under a franchise loan program with several banks . On December 13, 2012, we entered into a fifth amendment to our second amended and restated loan facility and guaranty, dated June 18, 2010, as amended, and we entered into a fourth amendment as of May 16, 2012. The amendments to the franchise loan facility extended the maturity date until December 12, 2013, increased the maximum Canadian subfacility commitment amount for loans to franchisees that operate stores in Canada (other than in the Province of Quebec) from Cdn $35.0 million to Cdn $50.0 million, included a revolving loan option for Canadian borrowers, included HomeSmart franchisees in the United States as authorized borrowers under the facility and conformed the covenants to those contained in the Company’s revolving credit agreement, which is discussed in further detail in Note 6 to our Consolidated Financial Statements. We remain subject to financial covenants under the franchise loan facility.

At December 31, 2012, the portion that we might be obligated to repay in the event franchisees defaulted was $117.3 million. 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 franchise loan and guaranty program. We believe the likelihood of any significant amounts being funded in connection with these commitments to be remote. We receive guarantee fees based on such franchisees’ outstanding debt obligations, which were recognized as the guarantee obligation is satisfied.

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Legal Reserves. We are frequently a party to various legal proceedings arising in the ordinary course of business. Management regularly assesses the Company’s insurance deductibles, analyzes litigation information with the Company’s attorneys and evaluates its loss experience. We accrue for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the defense of all of our litigation are expensed as such fees and expenses are incurred. Some of the proceedings we are currently a party to are described in Item 3, “Legal Proceedings,” and in Note 8 to our Consolidated Financial Statements.

Accrued litigation expense decreased $41.7 million to $0 at December 31, 2012 substantially due to the Alford v. Aarons Rents, Inc. et al. case previously discussed.

While we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material adverse impact upon our business, financial position or results of operations, there can be no assurance that we will prevail in all the proceedings we are party to, or that we will not incur material losses from them.

Contractual Obligations and Commitments. We have no long-term commitments to purchase merchandise. See Note 8 to the Consolidated Financial Statements for further information. The following table shows our approximate contractual obligations, including interest, and commitments to make future payments as of December 31, 2012:

Contractual Obligations and Commitments (In Thousands)	Total		Period Less Than 1  Year		Period 1-3 Years		Period 3-5 Years		Period Over 5 Years
Credit Facilities, Excluding Capital Leases	$	128,250	$	—	$	53,250	$	50,000	$	25,000
Capital Leases		13,278		1,755		3,952		3,859		3,712
Interest Obligations		27,438		5,529		10,316		9,897		1,696
Operating Leases		547,893		110,244		174,803		100,744		162,102
Purchase Obligations		26,784		22,532		3,978		274		—
Retirement Charge		8,276		1,727		3,455		3,033		61
Total Contractual Cash Obligations	$	751,919	$	141,787	$	249,754	$	167,807	$	192,571

The following table shows the Company’s approximate commercial commitments as of December 31, 2012:

(In Thousands)	Total Amounts Committed		Period Less Than 1  Year		Period  1-3 Years		Period  3-5 Years		Period Over 5 Years
Guaranteed Borrowings of Franchisees	$	117,347	$	117,203	$	144	$	—	$	—

Purchase obligations are primarily related to certain advertising and marketing programs. We do not have significant agreements for the purchase of lease merchandise or other goods specifying minimum quantities or set prices that exceed our expected requirements for three months.

Deferred income tax liabilities as of December 31, 2012 were approximately $263.7 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.

36

Recent Accounting Pronouncements

Refer to Note 1 to these Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2012, we had $125.0 million of senior unsecured notes outstanding at a fixed rate of 3.75%. We had no balance outstanding under our revolving credit agreement indexed to the LIBOR (“London Interbank Offer Rate”) or the prime rate, which exposes us to the risk of increased interest costs if interest rates rise. Based on our overall interest rate exposure at December 31, 2012, a hypothetical 1.0% increase or decrease in interest rates would not be material.

We do not use any significant market risk sensitive instruments to hedge commodity, foreign currency, or other risks, and hold no market risk sensitive instruments for trading or speculative purposes.

37

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

The Board of Directors of Aaron’s, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Aaron’s, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of earnings, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aaron’s, Inc. and subsidiaries at December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Aaron’s, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Atlanta, Georgia

February 22, 2013

38

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors of Aaron’s, Inc. and Subsidiaries

We have audited Aaron’s, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Aaron’s, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Aaron’s, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Aaron’s, Inc. and subsidiaries as of December 31, 2012 and 2011 and the related consolidated statements of earnings, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2012 of Aaron’s, Inc. and subsidiaries and our report dated February 22, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Atlanta, Georgia

February 22, 2013

39

Management Report on Internal Control over Financial Reporting

Management of Aaron’s, Inc. and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on its assessment, management believes that, as of December 31, 2012, the Company’s internal control over financial reporting was effective based on those criteria.

The Company’s internal control over financial reporting as of December 31, 2012 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report dated February 22, 2013, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012.

40

AARON’S, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31, 2012			December 31, 2011
	(In Thousands, Except Share Data)
ASSETS:
Cash and Cash Equivalents	$	129,534		$	176,257
Investments		85,861			98,132
Accounts Receivable (net of allowances of $6,001 in 2012 and $4,768 in 2011)		74,157			87,471
Lease Merchandise		1,539,594			1,363,903
Less: Accumulated Depreciation		(575,527	)		(501,627	)
		964,067			862,276
Property, Plant and Equipment, Net		230,598			226,619
Goodwill		234,195			219,342
Other Intangibles, Net		6,026			6,066
Prepaid Expenses and Other Assets		77,387			45,851
Assets Held for Sale		11,104			9,885
Total Assets	$	1,812,929		$	1,731,899
LIABILITIES & SHAREHOLDERS’ EQUITY:
Accounts Payable and Accrued Expenses	$	225,532		$	228,303
Accrued Litigation Expense		—			41,720
Deferred Income Taxes Payable		263,721			286,962
Customer Deposits and Advance Payments		46,022			44,571
Credit Facilities		141,528			153,789
Total Liabilities		676,803			755,345
Commitments and Contingencies (Note 8)
Shareholders’ Equity:
Common Stock, Par Value $.50 Per Share; Authorized: 225,000,000 Shares at December 31, 2012 and 2011; Shares Issued: 90,752,123 at December 31, 2012 and 2011		45,376			45,376
Additional Paid-in Capital		220,362			212,311
Retained Earnings		1,087,032			918,699
Accumulated Other Comprehensive (Loss) Income		(69	)		274
		1,352,701			1,176,660
Less: Treasury Shares at Cost
Common Stock, 15,031,741 and 15,111,635 Shares at December 31, 2012 and 2011, respectively		(216,575	)		(200,106	)
Total Shareholders’ Equity		1,136,126			976,554
Total Liabilities & Shareholders’ Equity	$	1,812,929		$	1,731,899

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

41

AARON’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

	Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2010
	(In Thousands, Except Per Share Data)
REVENUES:
Lease Revenues and Fees	$	1,676,391		$	1,516,508		$	1,402,053
Retail Sales		38,455			38,557			40,556
Non-Retail Sales		425,915			388,960			362,273
Franchise Royalties and Fees		66,655			63,255			59,112
Other		15,172			15,051			12,344
		2,222,588			2,022,331			1,876,338
COSTS AND EXPENSES:
Retail Cost of Sales		21,719			22,738			23,013
Non-Retail Cost of Sales		389,357			353,745			330,918
Operating Expenses		952,262			868,716			824,929
Lawsuit (Income) Expense		(35,500	)		36,500			—
Retirement/Separation Charges		10,394			3,532			—
Depreciation of Lease Merchandise		604,650			550,732			504,105
		1,942,882			1,835,963			1,682,965
OPERATING PROFIT		279,706			186,368			193,373
Interest Income		3,541			1,718			509
Interest Expense		(6,392	)		(4,709	)		(3,096	)
EARNINGS BEFORE INCOME TAXES		276,855			183,377			190,786
INCOME TAXES		103,812			69,610			72,410
NET EARNINGS	$	173,043		$	113,767		$	118,376
EARNINGS PER SHARE	$	2.28		$	1.46		$	1.46
EARNINGS PER SHARE ASSUMING DILUTION	$	2.25		$	1.43		$	1.44

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

42

AARON’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year End December 31,
(In Thousands)	2012			2011			2010
Net Earnings	$	173,043		$	113,767		$	118,376
Other Comprehensive Income (Loss):
Foreign Currency Translation:
Foreign Currency Translation Adjustment		(343	)		(648	)		935
Less: Reclassification Adjustments for Net Gains Included in Net Earnings		373			—			—
Net Change		30			(648	)		935
Available-for-Sale Investments:
Change in Net Unrealized Losses on Available-for-Sale Investments		—			88			—
Less: Reclassification Adjustment for Net Losses Included in Net Earnings		—			(88	)		—
Net Change		—			—			—
Cash Flow Hedges:
Change in Net Unrealized Gains on Derivatives Designated as Cash Flow Hedges		—			(12	)		12
Less: Reclassification Adjustment for Net Gains Included in Net Earnings		—			12			—
Net Change		—			—			12
Total Other Comprehensive Income (Loss)		30			(648	)		947
Comprehensive Income	$	173,073		$	113,119		$	119,323

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

43

AARON’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

															Accumulated Other Comprehensive (Loss) Income
	Treasury Stock						Common			Additional Paid-in		Retained			Foreign Currency			Available-for-Sale
(In Thousands, Except Per Share)	Shares			Amount			Stock			Capital		Earnings			Translation			Investments			Cash Flow Hedges
Balance, January 1, 2010		(9,398	)	$	(49,375	)	$	45,378		$	196,669	$	694,689		$	(13	)	$	(88	)	$	—
Dividends, $.049 per share													(3,981	)
Stock-Based Compensation											4,759
Reissued Shares		212			743						324
Repurchased Shares		(1,479	)		(29,009	)
Stock Recombination								(2	)
Net Earnings													118,376
Foreign Currency Translation Adjustment																935
Change in Net Unrealized Losses on Available-for-Sale Investments
Change in Net Unrealized Gains on Derivatives Designated as Cash Flow Hedges																						12
Balance, December 31, 2010		(10,665	)		(77,641	)		45,376			201,752		809,084			922			(88	)		12
Dividends, $.054 per share													(4,152	)
Stock-Based Compensation											8,385
Reissued Shares		737			7,493						2,174
Repurchased Shares		(5,184	)		(129,958	)
Net Earnings													113,767
Foreign Currency Translation Adjustment																(648	)
Change in Net Unrealized Losses on Available-for-Sale Investments																			88
Change in Net Unrealized Gains on Derivatives Designated as Cash Flow Hedges																						(12	)
Balance, December 31, 2011		(15,112	)		(200,106	)		45,376			212,311		918,699			274			—			—
Dividends, $.062 per share													(4,710	)
Stock-Based Compensation											6,374
Reissued Shares		1,317			17,662						1,677
Repurchased Shares		(1,237	)		(34,131	)
Net Earnings													173,043
Foreign Currency Translation Adjustment																(343	)
Balance, December 31, 2012		(15,032	)	$	(216,575	)	$	45,376		$	220,362	$	1,087,032		$	(69	)	$	—		$	—

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

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AARON’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2010
	(In Thousands)
OPERATING ACTIVITIES:
Net Earnings	$	173,043		$	113,767		$	118,376
Adjustments to Reconcile Net Earnings to Net Cash From Operating Activities:
Depreciation of Lease Merchandise		604,650			550,732			504,105
Other Depreciation and Amortization		56,783			52,832			45,427
Bad Debt Expense		31,842			25,402			23,988
Stock-Based Compensation		6,454			8,385			4,759
(Gain) Loss on Sale of Property, Plant, and Equipment and Assets Held for Sale		(397	)		1,172			2,441
Gain on Asset Dispositions		(265	)		(3,045	)		(1,917	)
Deferred Income Taxes		(23,241	)		59,449			63,843
Excess Tax Benefits From Stock-Based Compensation		(5,967	)		(1,264	)		(321	)
Other Changes, Net		7,830			(1,693	)		270
Changes in Operating Assets and Liabilities, Net of Effects of Acquisitions and Dispositions:
Additions to Lease Merchandise		(1,162,703	)		(1,024,602	)		(1,034,474	)
Book Value of Lease Merchandise Sold or Disposed		466,799			430,540			400,304
Accounts Receivable		(18,528	)		(43,211	)		(27,555	)
Prepaid Expenses and Other Assets		(9,263	)		(4,317	)		(4,320	)
Income Tax Receivable		(22,379	)		79,762			(82,378	)
Accounts Payable and Accrued Expenses		(4,635	)		18,885			33,346
Accrued Litigation Expense		(41,720	)		40,043			1,352
Customer Deposits and Advance Payments		1,451			4,358			2,015
Cash Provided by Operating Activities		59,754			307,195			49,261
INVESTING ACTIVITIES:
Purchase of Investments		(91,000	)		(100,513	)		—
Proceeds from Maturities and Calls of Investments		102,118			1,063			—
Additions to Property, Plant and Equipment		(65,073	)		(78,211	)		(87,636	)
Acquisitions of Businesses and Contracts		(30,799	)		(32,176	)		(17,891	)
Proceeds from Dispositions of Businesses and Contracts		1,999			7,282			8,025
Proceeds from Sale of Property, Plant, and Equipment		6,790			11,481			53,399
Cash Used by Investing Activities		(75,965	)		(191,074	)		(44,103	)
FINANCING ACTIVITIES:
Proceeds from Credit Facilities		16,258			129,150			2,429
Repayments on Credit Facilities		(28,519	)		(17,151	)		(15,683	)
Acquisition of Treasury Stock		(34,131	)		(127,193	)		(28,046	)
Dividends Paid		(5,843	)		(4,073	)		(2,929	)
Excess Tax Benefits From Stock-Based Compensation		5,967			1,264			321
Issuance of Stock Under Stock Option Plans		15,756			6,117			1,087
Cash Used by Financing Activities		(30,512	)		(11,886	)		(42,821	)
(Decrease) Increase in Cash and Cash Equivalents		(46,723	)		104,235			(37,663	)
Cash and Cash Equivalents at Beginning of Year		176,257			72,022			109,685
Cash and Cash Equivalents at End of Year	$	129,534		$	176,257		$	72,022
Cash Paid During the Year:
Interest	$	6,498		$	3,983		$	3,203
Income Taxes		145,370			10,991			94,793

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

45

NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Aaron’s, Inc. (the “Company” or “Aaron’s”) is a leading specialty retailer engaged in the business of leasing and selling consumer electronics, computers, residential furniture, appliances and household accessories throughout the United States and Canada. The Company’s major operating divisions are the Sales & Lease Ownership division (established as a monthly payment concept), the HomeSmart division (established as a weekly payment concept) and the Woodhaven Furniture Industries division, which manufactures upholstered furniture and bedding predominantly for use by Company-operated and franchised stores. The Company’s Sales & Lease Ownership division includes the Company’s RIMCO stores, which lease automobile wheels, tires and rims under sales and lease ownership agreements. The Company began ceasing the operations of the Aaron’s Office Furniture division in June of 2010. The Company closed 14 of its Aaron’s Office Furniture stores during 2010 and closed the remaining store in 2012. Refer to Note 2 for additional disclosure regarding the disposal of the Aaron’s Office Furniture division.

The following table presents store count by ownership type:

Stores at December 31 (Unaudited)	2012		2011		2010
Company-operated stores
Sales and Lease Ownership		1,227		1,144		1,135
RIMCO		19		16		11
HomeSmart		78		71		3
Aaron’s Office Furniture		—		1		1
Total Company-operated stores		1,324		1,232		1,150
Franchised stores1		749		713		664
Systemwide stores		2,073		1,945		1,814

¹  As of December 31, 2012, 2011 and 2010, 929, 943 and 946 franchises had been awarded, respectively.

Basis of Presentation

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Generally, actual experience has been consistent with management’s prior estimates and assumptions. Management does not believe these estimates or assumptions will change significantly in the future absent unsurfaced or unforeseen events.

Certain reclassifications have been made to the prior periods to conform to the current period presentation. The HomeSmart division has been reclassified from the Other segment to the HomeSmart segment in all periods presented. Refer to Note 12 for the segment disclosure. In all periods presented, “bad debt expense” has been separately presented from “change in accounts receivable” in the consolidated statements of cash flows. Additionally, interest income has been reclassified from “Other” revenues and presented as a component of non-operating income and expenses in the consolidated statements of earnings for all periods presented.

Principles of Consolidation and Variable Interest Entities

The consolidated financial statements include the accounts of Aaron’s, Inc. and its wholly owned subsidiaries. Intercompany balances and transactions between consolidated entities have been eliminated.

On October 14, 2011, the Company purchased 11.5% of newly issued shares of common stock of Perfect Home Holdings Limited (“Perfect Home”), a privately-held rent-to-own company that is primarily financed by subordinated debt. Perfect Home is based in the United Kingdom and operates 55 retail stores as of December 31, 2012. As part of the transaction, the Company also received notes and an option to acquire the remaining interest in Perfect Home at any time through December 31, 2013. If the Company does not exercise the option prior to December 31, 2013, it will be obligated to sell the common stock and notes back to Perfect Home at the original purchase price plus interest. The Company’s investment is denominated in British Pounds.

46

Perfect Home is a variable interest entity (“VIE”) as it does not have sufficient equity at risk; however, the Company is not the primary beneficiary and lacks the power through voting or similar rights to direct the activities of Perfect Home that most significantly affect its economic performance. As such, the VIE is not consolidated by the Company.

Because the Company is not able to exercise significant influence over the operating and financial decisions of Perfect Home, the equity portion of the investment in Perfect Home totaling less than a thousand dollars at December 31, 2012 is accounted for as a cost method investment and is included in prepaid expenses and other assets in the consolidated balance sheets. The notes purchased from Perfect Home totaling 11.4 million British pounds ($18.4 million) and 10.2 million British pounds ($15.9 million) at December 31, 2012 and 2011, respectively, are accounted for as held-to-maturity securities in accordance with ASC 320, Debt and Equity Securities, and are included in investments in the consolidated balance sheets. The increase in the Company’s British pound-denominated notes during 2012 relates to accretion of the original discount on the notes with a face value of 10.0 million British pounds. Utilizing a Black-Scholes model, the options to buy the remaining interest in Perfect Home and to sell the Company’s interest in Perfect Home were determined to have only nominal values.

The Company’s maximum exposure to any potential losses associated with this VIE is equal to its total recorded investment which totals $18.4 million at December 31, 2012.

Revenue Recognition

Lease Revenues and Fees

The Company provides merchandise, consisting of consumer electronics, computers, residential furniture, appliances, and household accessories, to its customers for lease under certain terms agreed to by the customer. Two primary lease models are offered to customers: one through the Company’s Sales & Lease Ownership division (established as a monthly model) and the other through its HomeSmart division (established as a weekly model). The typical monthly lease model is 12, 18 or 24 months, while the typical weekly lease model is 60, 90 or 120 weeks. The Company does not require deposits upon inception of customer agreements.

In a number of states, the Company utilizes a consumer lease form as an alternative to a typical lease purchase agreement. The consumer lease differs from our state lease agreement in that it has an initial lease term in excess of four months. Generally, state laws that govern the rent-to-own industry only apply to lease agreements with an initial term of four months or less. Following satisfaction of the initial term contained in the consumer or state lease, as applicable, the customer has the right to acquire title either through a purchase option or through payment of all required lease payments.

All of the Company’s customer agreements are considered operating leases under the provisions of ASC 840, Leases. As such, lease revenues are recognized as revenue in the month they are due. Lease payments received prior to the month due are recorded as deferred lease revenue. Until all payment obligations are satisfied under sales and lease ownership agreements, the Company maintains ownership of the lease merchandise. Initial direct costs related to the Company’s customer agreements are expensed as incurred and have been classified as operating expenses in the Company’s consolidated statements of earnings.

Retail and Non-Retail Sales

Revenues from the sale of merchandise to franchisees are recognized at the time of receipt of the merchandise by the franchisee based on the electronic receipt of merchandise by the franchisee within the Company’s fulfillment system. Additionally, revenues from the sale of merchandise to other customers are recognized at the time of shipment, at which time title and risk of ownership are transferred to the customer.

Substantially all of the amounts reported as non-retail sales and non-retail cost of sales in the accompanying consolidated statements of earnings relate to the sale of lease merchandise to franchisees. The Company classifies the sale of merchandise to other customers as retail sales in the consolidated statements of earnings. The Company presents sales net of sales taxes.

Franchise Royalties and Fees

The Company franchises Aaron’s Sales & Lease Ownership stores. Franchisees typically pay a non-refundable initial franchise fee from $15,000 to $50,000 depending upon market size and an ongoing royalty of either 5% or 6% of gross revenues. Franchise fees and area development fees are generated from the sale of rights to develop, own and operate Aaron’s Sales & Lease Ownership stores. These fees are recognized as income when substantially all of the Company’s obligations per location are satisfied, generally at the date of the store opening. Franchise fees and area development fees are received before the substantial completion of the Company’s obligations and deferred. The Company guarantees certain debt obligations of some of the franchisees and receives guarantee fees based on the outstanding debt obligations of such franchisees. The Company recognizes finance fee revenue as the guarantee obligation is satisfied. Refer to Note 8 for additional discussion of the Company’s franchise-related guarantee obligation.

47

Franchise agreement fee revenue was $2.4 million, $2.6 million and $3.0 million; royalty revenue was $56.5 million, $52.0 million and $47.9 million; and finance fee revenue was $4.9 million, $5.9 million and $5.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. Deferred franchise and area development agreement fees, included in accounts payable and accrued expenses in the accompanying consolidated balance sheets, were $3.8 million and $4.7 million at December 31, 2012 and 2011, respectively.

Retail and Non-Retail Cost of Sales

Included in cost of sales is the net book value of merchandise sold, primarily using specific identification. It is not practicable to allocate operating expenses between selling and lease operations.

Shipping and Handling Costs

The Company classifies shipping and handling costs as operating expenses in the accompanying consolidated statements of earnings, and these costs totaled $74.9 million, $68.1 million and $60.6 million in 2012, 2011 and 2010, respectively.

Advertising

The Company expenses advertising costs as incurred when an advertisement appears for the first time. Such advertising costs amounted to $36.5 million, $38.9 million and $31.7 million in 2012, 2011 and 2010, respectively. These advertising expenses are shown net of cooperative advertising considerations received from vendors, substantially all of which represents reimbursement of specific, identifiable and incremental costs incurred in selling those vendors’ products. The amount of cooperative advertising consideration netted against advertising expense was $31.1 million, $25.4 million and $27.2 million in 2012, 2011 and 2010, respectively. The prepaid advertising asset was $3.2 million and $1.6 million at December 31, 2012 and 2011, respectively.

Stock-Based Compensation

The Company has stock-based employee compensation plans, which are more fully described in Note 10. The Company estimates the fair value for the options granted on the grant date using a Black-Scholes option-pricing model and accounts for stock-based compensation under the fair value recognition provisions codified in FASB ASC Topic 718, Stock Compensation. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company’s common stock on the grant date.

Deferred Income Taxes

Deferred income taxes represent primarily temporary differences between the amounts of assets and liabilities for financial and tax reporting purposes. The Company’s largest temporary differences arise principally from the use of accelerated depreciation methods on lease merchandise for tax purposes.

Earnings per Share

Earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. The computation of earnings per share assuming dilution includes the dilutive effect of stock options, restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) as determined under the treasury stock method. The following table shows the calculation of dilutive stock awards for the years ended December 31 (shares in thousands):

	2012		2011		2010
Weighted average shares outstanding		75,820		78,101		81,194
Effect of dilutive securities:
Stock options		789		998		745
RSUs		210		237		25
RSAs		7		3		138
Weighted average shares outstanding assuming dilution		76,826		79,339		82,102

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Approximately 53,000 and 314,000 stock-based awards were excluded from the computations of earnings per share assuming dilution in 2012 and 2010, respectively, because the awards would have been anti-dilutive for the years presented. No stock options, RSUs or RSAs were anti-dilutive during 2011. In addition, under the terms of the Company’s performance-based RSUs issued in 2012, approximately 167,000 RSUs will vest based on the achievement of revenue and pre-tax profit margin targets applicable to performance periods beginning subsequent to December 31, 2012. Accordingly, approximately 167,000 RSUs are not included in the computation of diluted EPS for the year ended December 31, 2012. Refer to Note 10 for additional information regarding the Company’s restricted stock arrangements.

Lease Merchandise

The Company’s lease merchandise consists primarily of consumer electronics, computers, residential furniture, appliances, and household accessories and is recorded at cost, which includes overhead from production facilities, shipping costs and warehousing costs. The sales and lease ownership stores depreciate merchandise over the lease agreement period, generally 12 to 24 months (monthly agreements) or 60 to 120 weeks (weekly agreements) when on lease and 36 months when not on lease, to a 0% salvage value. The Company’s policies require weekly lease merchandise counts at the store, which include write-offs for unsalable, damaged, or missing merchandise inventories. Full physical inventories are generally taken at the fulfillment and manufacturing facilities two to four times a year, and appropriate provisions are made for missing, damaged and unsalable merchandise. In addition, the Company monitors 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, it is adjusted to its net realizable value or written off.

All lease merchandise is available for lease or sale. On a monthly basis, all damaged, lost or unsalable merchandise identified is written off. The Company records lease merchandise adjustments on the allowance method. Lease merchandise write-offs totaled $54.9 million, $46.2 million, and $46.5 million during the years ended December 31, 2012, 2011 and 2010, respectively, and are included in operating expenses in the accompanying consolidated statements of earnings. Included in 2010 is a write-down of $4.7 million related to the closure of stores of the Aaron’s Office Furniture division.

Cash and Cash Equivalents

The Company classifies highly liquid investments with maturity dates of less than three months when purchased as cash equivalents.

Investments

The Company maintains investments in various corporate debt securities, or bonds. The Company has the positive intent and ability to hold its investments in debt securities, which mature at various dates from 2013 to 2014, to maturity. Accordingly, the Company classifies its investments in debt securities as held-to-maturity securities and carries the investments at amortized cost in the consolidated balance sheets.

The Company evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

Accounts Receivable

Accounts receivable consist primarily of receivables due from customers of Company-operated stores, corporate receivables incurred during the normal course of business and franchisee obligations. Accounts receivable, net of allowances, consists of the following as of December 31:

(In Thousands)	2012		2011
Customers	$	7,840	$	5,384
Corporate		17,215		29,650
Franchisee		49,102		52,437
	$	74,157	$	87,471

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The Company maintains an allowance for doubtful accounts. The reserve for returns is calculated based on the historical collection experience associated with lease receivables. The Company’s policy is to write off lease receivables that are 60 days or more past due on pre-determined dates occurring twice monthly. The following is a summary of the Company’s allowance for doubtful accounts as of December 31:

(In Thousands)	2012			2011			2010
Beginning Balance	$	4,768		$	4,544		$	4,157
Accounts written off		(30,609	)		(25,178	)		(23,601	)
Bad debt expense		31,842			25,402			23,988
Ending Balance	$	6,001		$	4,768		$	4,544

Property, Plant and Equipment

The Company records property, plant and equipment at cost. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the respective assets, which range from five to 40 years for buildings and improvements and from one to fifteen years for other depreciable property and equipment. Costs incurred to develop software for internal use are capitalized and amortized over the estimated useful life of the software, which ranges from five to 10 years.

Gains and losses related to dispositions and retirements are recognized as incurred. Maintenance and repairs are also expensed as incurred; renewals and betterments are capitalized. Depreciation expense for property, plant and equipment is included in operating expenses in the accompanying consolidated statements of earnings and was $53.1 million, $45.2 million and $41.4 million during the years ended December 31, 2012, 2011 and 2010, respectively. Amortization of previously capitalized software development costs was $2.6 million, $1.5 million and $1.2 million during the years ended December 31, 2012, 2011 and 2010, respectively.

The Company assesses its long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. When it is determined that the carrying values of the assets are not recoverable, the Company compares the carrying values of the assets to their fair values as estimated using discounted expected future cash flows, market values or replacement values for similar assets. The amount by which the carrying value exceeds the fair value of the asset, if any, is recognized as an impairment loss.

Assets Held for Sale

Certain properties, primarily consisting of parcels of land, met the held for sale classification criteria at December 31, 2012 and 2011. After adjustment to fair value, the $11.1 million and $9.9 million carrying value of these properties has been classified as assets held for sale in the consolidated balance sheets as of December 31, 2012 and 2011, respectively. The Company estimated the fair values of these properties using market values for similar properties and these are considered Level 2 assets as defined in FASB ASC Topic 820, Fair Value Measurements.

The Company recorded impairment charges of $1,060,000 and $453,000 within operating expenses in 2012 and 2011, respectively, both of which related primarily to the impairment of various land outparcels and buildings included in the Sales and Lease Ownership segment that the Company decided not to utilize for future expansion. Gains and losses on the disposal of assets held for sale amounted to net gains of $1,247,000 in 2012 and losses of $20,000 and $306,000 during 2011 and 2010, respectively. The assets held for sale are included in the Other segment.

Goodwill

Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net tangible and intangible assets acquired in connection with business acquisitions. Impairment occurs when the carrying value of goodwill is not recoverable from future cash flows. The Company performs an assessment of goodwill for impairment at the reporting unit level annually as of September 30, and when events or circumstances indicate that impairment may have occurred. Factors which could necessitate an interim impairment assessment include a sustained decline in the Company’s stock price, prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results.

The Company has deemed its operating segments to be reporting units due to the fact that operations (stores) included in each operating segment have similar economic characteristics. As of December 31, 2012, the Company has five operating segments and reporting units: Sales and Lease Ownership, RIMCO, HomeSmart, Franchise and Manufacturing. The Company’s RIMCO stores lease automobile wheels, tires and rims to customers under sales and lease ownership agreements. Although the products offered are different, these stores are managed, monitored and operated similarly to our other sales and lease ownership stores.

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As of December 31, 2012, the Company’s Sales and Lease Ownership and HomeSmart reporting units are the only reporting units with assigned goodwill balances. The following is a summary of the Company’s goodwill by reporting unit at December 31:

(In Thousands)	2012		2011
Sales and Lease Ownership	$	219,547	$	205,509
HomeSmart		14,648		13,833
Total	$	234,195	$	219,342

The goodwill impairment test consists of a two-step process, if necessary. The first step is to compare the fair value of the reporting unit to its carrying value, including goodwill. The Company uses a multiple of gross revenue to determine the fair value of its reporting units. If the carrying value of the reporting unit exceeds the fair value, a second step is performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess.

During the performance of the annual assessment of goodwill for impairment in the 2012, 2011 and 2010 fiscal years, the Company did not identify any reporting units that were not substantially in excess of their carrying values, other than the HomeSmart division for which locations were recently acquired. While no impairment was noted in our impairment test as of September 30, 2012, if profitability is delayed as a result of the significant start-up expenses associated with the HomeSmart stores, there could be a change in the valuation of the HomeSmart reporting unit that may result in the recognition of an impairment loss in future periods.

No new indications of impairment existed during the fourth quarter of 2012, thus no impairment testing was updated as of December 31, 2012.

Other Intangibles

Other intangibles represent the value of customer relationships, non-compete agreements and franchise development rights acquired in connection with business acquisitions and are recorded at fair value as determined by the Company. The customer relationship intangible asset is amortized on a straight-line basis over a two-year estimated useful life. The non-compete intangible asset is amortized on a straight-line basis over a three-year useful life. Acquired franchise development rights are amortized on a straight-line basis over the unexpired life of the franchisee’s ten year area development agreement.

Insurance Reserves

Estimated insurance reserves are accrued primarily for group health, general liability, automobile liability and workers compensation benefits provided to the Company’s employees. Estimates for these insurance reserves are made based on actual reported but unpaid claims and actuarial analyses of the projected claims run off for both reported and incurred but not reported claims.

Asset Retirement Obligations

The Company accrues for asset retirement obligations, which relate to expected costs to remove exterior signage, in the period in which the obligations are incurred. These costs are accrued at estimated fair value. When the related liability is initially recorded, the Company capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company recognizes a gain or loss for any differences between the settlement amount and the liability recorded. Asset retirement obligations amount to approximately $2.3 million and $2.1 million as of December 31, 2012 and 2011, respectively.

Derivative Financial Instruments

The Company utilizes derivative financial instruments, from time to time, to mitigate its exposure to certain market risks associated with its ongoing operations for a portion of the year. 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 December 31, 2010 and the changes in their fair values in 2011 and 2010 were immaterial. The Company did not hold any derivative financial instruments as of December 31, 2012 or 2011.

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Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The Company measures assets held for sale at fair value on a nonrecurring basis and records impairment charges when they are deemed to be impaired. The Company maintains certain financial assets and liabilities, including investments and fixed-rate long term debt, that are not measured at fair value but for which fair value is disclosed.

The fair values of the Company’s other current financial assets and liabilities, including cash and cash equivalents, accounts receivable and accounts payable, approximate their carrying values due to their short-term nature.

Foreign Currency

The financial statements of international subsidiaries are translated to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenues, costs, and expenses. Translation gains and losses of international subsidiaries are recorded in accumulated other comprehensive income as a component of shareholders’ equity. Foreign currency transaction gains and losses are recorded as a component operating expenses in the consolidated statements of earnings and amounted to gains of approximately $2.0 million and $251,000 during 2012 and 2010, respectively, and losses of $465,000 during 2011.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-04”). ASU 2011-04 is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. The amendments are of two types: (i) those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. ASU 2011-04 is effective for annual periods beginning after December 15, 2011 and the Company adopted ASU 2011-04 effective January 1, 2012. The adoption of ASU 2011-04 did not have a material effect on the Company’s financial statements.

In May 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 eliminated the option to report other comprehensive income and its components in the statement of shareholders’ equity. Instead, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. The Company elected to report other comprehensive income and its components in a separate statement of comprehensive income for the year ended December 31, 2012.

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02). ASU 2013-02 will require preparers to report, in one place, information about reclassifications out of accumulated other comprehensive income (“AOCI”). The ASU also requires companies to report changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the same reporting period, reporting (either on the face of the statement where net income is presented or in the notes) is required about the effect of the reclassifications on the respective line items in the statement where net income is presented. For items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other disclosures currently required under US GAAP is required in the notes. The above information must be presented in one place (parenthetically on the face of the financial statements by income statement line item or in a note). ASU 2013-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2012. The Company does not believe the adoption of ASU 2013-02 will have a material effect on the consolidated financial statements.

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NOTE 2: ACQUISITIONS AND DISPOSITIONS

Acquisitions

The following table summarizes the Company’s acquisitions of lease contracts, merchandise and the related assets of sales and lease ownership stores, none of which was individually material to the Company’s consolidated financial statements, during the years ended December 31:

(In Thousands, except for store data)	2012		2011		2010
Number of stores acquired, net		22		52		14
Aggregate purchase price (primarily cash consideration)	$	31,617	$	41,425	$	17,891
Purchase price allocation:
Lease Merchandise		11,936		13,385		6,489
Property, Plant and Equipment		739		500		334
Other Current Assets and Current Liabilities		38		34		43
Identifiable Intangible Assets 1:
Customer Relationships		1,725		2,675		748
Non-Compete Agreements		1,201		1,688		541
Acquired Franchise Development Rights		764		255		496
Goodwill2		15,214		22,888		9,240

¹  The weighted-average amortization period for the Company’s acquired intangible assets was 3.1 years, 2.6 years and 3.5 years in 2012, 2011 and 2010, respectively. The weighted-average amortization period by major intangible asset class for acquisitions completed during 2012, 2011 and 2010 was 2 years for customer relationships, 3 years for non-compete agreements and a range of 6 years to 6.9 years for acquired franchise development rights.

²  Goodwill is primarily attributable to synergies expected to arise after the acquisition. All goodwill resulting from the Company’s 2012, 2011 and 2010 acquisitions is expected to be deductible for tax purposes.

Acquisitions have been accounted for as business combinations, and the results of operations of the acquired businesses are included in the Company’s results of operations from their dates of acquisition. The effect of these acquisitions on the 2012, 2011 and 2010 consolidated financial statements was not significant.

Dispositions

The Company periodically sells sales and lease ownership stores to franchisees and third-party operators. The Company sold three, 25 and 11 of its Aaron’s Sales and Lease Ownership stores in 2012, 2011 and 2010, respectively. The effect of these sales on the consolidated financial statements was not significant.

The Company began ceasing the operations of the Aaron’s Office Furniture division in June of 2010. The Company closed 14 of its Aaron’s Office Furniture stores during 2010 and sold the remaining store in August 2012. As a result, in 2010 the Company recorded $3.3 million in closed store reserves, $4.7 million in lease merchandise write-downs and other miscellaneous expenses, respectively, totaling $9.0 million. The charges were recorded within operating expenses on the consolidated statement of earnings and are included in the Other segment. There were no significant charges related to the closure of this division in 2011 or 2012.

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NOTE 3: GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table provides information related to the carrying value of the Company’s goodwill by operating segment:

(In Thousands)	Sales and Lease Ownership			HomeSmart		Total
Balance at January 1, 2011	$	202,379		$	—	$	202,379
Additions		9,055			13,833		22,888
Disposals		(5,925	)		—		(5,925	)
Balance at December 31, 2011		205,509			13,833		219,342
Additions		14,399			815		15,214
Disposals		(361	)		—		(361	)
Balance at December 31, 2012	$	219,547		$	14,648	$	234,195

Intangible Assets

The following is a summary of the Company’s identifiable intangible assets by category at December 31:

	2012							2011
(In Thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer Relationships	$	4,377	$	(2,170	)	$	2,207	$	3,400	$	(1,001	)	$	2,399
Non-Compete Agreements		3,408		(1,471	)		1,937		2,855		(1,062	)		1,793
Acquired Franchise Development Rights		4,566		(2,684	)		1,882		4,452		(2,578	)		1,874
Total	$	12,351	$	(6,325	)	$	6,026	$	10,707	$	(4,641	)	$	6,066

Total amortization expense of intangible assets, included in operating expenses in the accompanying consolidated statements of earnings, was $3.7 million, $2.3 million and $3.1 million during the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, estimated future amortization expense for the next five years related to identifiable intangible assets is as follows:

(In Thousands)
2013	$	3,509
2014		1,598
2015		466
2016		232
2017		177

NOTE 4: FAIR VALUE MEASUREMENT

Financial Assets Measured at Fair Value on a Recurring Basis

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis:

	December 31, 2012							December 31, 2011
(In Thousands)	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Deferred Compensation Liability	$	—	$	(9,518	)	$	—	$	—	$	(6,291	)	$	—

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The Company maintains a deferred compensation plan that allows for certain management, highly compensated employees and non-employee directors to defer the receipt of base compensation, incentive pay compensation and director fees until a later date based on the terms of the plans. The liability representing benefits accrued for plan participants is valued at the quoted market prices of the participants’ investment elections, which consist of equity and debt funds. As such, the Company has classified the deferred compensation liability as a Level 2 liability. Refer to Note 15 for additional information regarding the deferred compensation plan.

Non-Financial Assets Measured at Fair Value on a Nonrecurring Basis

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

	December 31, 2012						December 31, 2011
(In Thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets Held for Sale	$	—	$	11,104	$	—	$	—	$	9,885	$	—

Assets held for sale primarily represents real estate properties that consist mostly of parcels of land. The highest and best use of these assets is as real estate land parcels for development or real estate properties for use or lease; however, the Company has chosen not to develop these properties. In accordance with ASC Topic 360, Property, Plant and Equipment, assets held for sale are written down to fair value, and the adjustment is recorded in operating expenses. The Company estimated the fair values of these properties using the market values for similar properties.

Certain Financial Assets and Liabilities Not Measured at Fair Value

The following table summarizes the fair value of assets (liabilities) that are not measured at fair value in the consolidated balance sheets, but for which the fair value is disclosed:

	December 31, 2012							December 31, 2011
(In Thousands)	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Corporate Bonds 1	$	—	$	67,470		$	—	$	—	$	81,594		$	—
Perfect Home Bonds 2		—		—			18,449		—		—			15,889
Fixed-Rate Long Term Debt 3		—		(127,261	)		—		—		(135,031	)		—

¹ The fair value of corporate bonds is determined through the use of model-based valuation techniques for which all significant assumptions are observable in the market.

² The Perfect Home bonds were initially valued at cost. The Company periodically reviews the valuation utilizing company-specific transactions or deterioration in the company’s financial performance to determine if fair value adjustments are necessary.

³ The fair value of fixed-rate long term debt is estimated using the present value of underlying cash flows discounted at a current market yield for similar instruments. The carrying value and fair value of fixed-rate long term debt at December 31, 2012 was $125.0 million and $127.3 million, respectively, and $137.0 million and $135.0 million, respectively, at December 31, 2011.

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Held-to-Maturity Securities

The Company classifies its investments in debt securities as held-to-maturity securities based on its intent and ability to hold these securities to maturity. Accordingly, the debt securities, which mature at various dates during 2013 and 2014, are recorded at amortized cost in the consolidated balance sheets. At December 31, 2012 and 2011, investments classified as held-to-maturity securities consisted of the following:

			Gross Unrealized
(In Thousands)	Amortized Cost		Gains		Losses			Fair Value
2012
Corporate Bonds	$	67,412	$	99	$	(41	)	$	67,470
Perfect Home Bonds		18,449		—		—			18,449
Total	$	85,861	$	99	$	(41	)	$	85,919
2011
Corporate Bonds	$	82,243	$	15	$	(664	)	$	81,594
Perfect Home Bonds		15,889		—		—			15,889
Total	$	98,132	$	15	$	(664	)	$	97,483

The amortized cost and fair value of held-to-maturity securities by contractual maturity as of December 31, 2012 are as follows:

(In Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	43,482	$	43,547
Due in years one through two		42,379		42,372
Total	$	85,861	$	85,919

Information pertaining to held-to-maturity securities with gross unrealized losses is as follows. All of the securities have been in a continuous loss position for less than 12 months.

	December 31, 2012					December 31, 2011
(In Thousands)	Fair Value		Gross  Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate Bonds	$	22,785	$	(41	)	$	72,315	$	(664	)

The unrealized losses relate principally to the increases in short-term market interest rates that occurred since the securities were purchased. As of December 31, 2012, 16 of the 38 securities are in an unrealized loss position and at December 31, 2011, 38 of the 44 securities were in an unrealized loss position. The fair value is expected to recover as the securities approach their maturity or if market yields for such investments decline. In analyzing an issuer’s financial condition, management considers whether downgrades by bond rating agencies have occurred. The Company has the intent and ability to hold the investments until their amortized cost basis is recovered on the maturity date. As a result of management’s analysis and review, no declines are deemed to be other than temporary.

The Company has estimated that the carrying value of its Perfect Home bonds approximates fair value and, therefore, no impairment is considered to have occurred as of December 31, 2012. While no impairment was noted during 2012, if profitability is delayed as a result of the significant start-up expenses associated with Perfect Home, there could be a change in the valuation of the Perfect Home bonds that may result in the recognition of an impairment loss in future periods.

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NOTE 5: PROPERTY, PLANT AND EQUIPMENT

Following is a summary of the Company’s property, plant, and equipment at December 31:

(In Thousands)	2012			2011
Land	$	25,285		$	25,882
Buildings and Improvements		81,773			81,566
Leasehold Improvements and Signs		120,883			116,632
Fixtures and Equipment1		152,436			133,615
Assets Under Capital Leases:
with Related Parties		8,158			7,641
with Unrelated Parties		10,564			10,564
Construction in Progress		5,414			5,444
		404,513			381,344
Less: Accumulated Depreciation and Amortization		(173,915	)		(154,725	)
	$	230,598		$	226,619

¹ Includes internal-use software development costs of $22.6 million and $15.6 million as of December 31, 2012 and 2011, respectively. Accumulated amortization of internal-use software development costs amounted to $6.6 million and $9.8 million as of December 31, 2012 and 2011, respectively.

Amortization expense on assets recorded under capital leases is included in operating expenses and was $1.2 million, $1.2 million and $1.9 million in 2012, 2011 and 2010, respectively. Capital leases consist of buildings and improvements. Assets under capital leases with related parties included $4.8 million and $4.2 million in accumulated depreciation and amortization as of December 31, 2012 and 2011, respectively. Assets under capital leases with unrelated parties included $4.4 million and $3.8 million in accumulated depreciation and amortization as of December 31, 2012 and 2011, respectively.

NOTE 6: CREDIT FACILITIES

Following is a summary of the Company’s credit facilities at December 31:

(In Thousands)	2012		2011
Senior Unsecured Notes	$	125,000	$	137,000
Capital Lease Obligation:
with Related Parties		6,122		6,730
with Unrelated Parties		7,156		6,809
Other Debt		3,250		3,250
	$	141,528	$	153,789

Bank Debt

On December 13, 2012, the Company entered into the fourth amendment to its revolving credit agreement (“Credit Agreement”), dated May 23, 2008, as amended. The amendments to the Credit Agreement (i) extend the maturity date of the Credit Agreement until December 13, 2017, (ii) add and amend provisions applicable to lenders to further define instances of lender default, (iii) increase the dollar thresholds applicable to certain negative covenants, events of default and reporting and notice requirements to make them less restrictive, (iv) provide for the removal of certain financial covenants in the event that the agreement governing the Company’s privately placed debt securities are amended to remove substantially similar covenants contained therein, and (v) replace the pricing grid schedule to effect slight increases to certain applicable margins. The Company entered into the fourth amendment in order to extend the maturity date of the Credit Agreement, which would have expired on May 23, 2013, to December 13, 2017.

The Company’s Credit Agreement is with several banks and provides for unsecured borrowings up to $140.0 million (including a letter of credit and swingline loan subfacility). Amounts borrowed bear interest at the lower of the lender’s prime rate or one-month LIBOR plus a margin ranging from 1.0% to 1.5% as determined by the Company’s ratio of total debt to EBITDA. At December 31, 2012 and 2011, there was a zero balance under the Company’s revolving credit agreement. The Company pays a commitment fee on unused balances, which ranges from 0.15% to 0.30% as determined by the Company’s ratio of total debt to EBITDA.

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The revolving credit agreement, senior unsecured notes discussed below and franchise loan program discussed in Note 8 contain financial covenants which, among other things, prohibit the Company from exceeding certain debt to EBITDA levels and require the maintenance of minimum fixed charge coverage ratios. If the Company fails to comply with these covenants, the Company will be in default under these agreements, and all amounts could become due immediately. Under the Company’s revolving credit agreement, senior unsecured notes and franchise loan program, the Company may pay cash dividends in any year only if the dividends do not exceed 50% of our consolidated net earnings for the prior fiscal year plus the excess, if any, of the cash dividend limitation applicable to the prior year over the dividend actually paid in the prior year. At December 31, 2012, $137.6 million of retained earnings was available for dividend payments and stock repurchases under the debt restrictions, and the Company was in compliance with all covenants.

Senior Unsecured Notes

On December 19, 2012, the Company entered into Amendment No. 1 to a note purchase agreement with several insurance companies. The amendment amends the Note Purchase Agreement dated as of July 5, 2011, pursuant to which the Company and its subsidiaries, Aaron Investment Company, Aaron’s Production Company and 99LTO, LLC, as co-obligors, issued $125 million in senior unsecured notes to the purchasers in a private placement. The notes bear interest at the rate of 3.75% per year and mature on April 27, 2018.

The amendment amends the agreement to, among other things, (i) remove the “Total Adjusted Debt to Total Adjusted Capitalization Ratio” financial covenant that forbids the Company from exceeding certain debt to equity levels and (ii) increase the dollar thresholds applicable to certain negative covenants, events of default and reporting and notice requirements to make them less restrictive. The Company remains subject to certain other financial covenants under the senior unsecured notes agreement, which require the Company to maintain a minimum ratio of debt to earnings before interest, taxes, depreciation and amortization and a minimum fixed charge coverage ratio. If the Company fails to comply with these covenants, the Company will be in default under the agreement and the purchasers would have the right to exercise certain default remedies. The Company entered into the amendment in conjunction with its fourth amendment to the Credit Agreement, which is discussed above. We are in compliance with all of these covenants at December 31, 2012 and believe that we will continue to be in compliance in the future.

Payments of interest are due quarterly, commencing July 27, 2011, with principal payments of $25.0 million each due annually commencing April 27, 2014. The note purchase agreement contains financial maintenance covenants, negative covenants regarding the Company’s other indebtedness, its guarantees and investments, and other customary covenants substantially similar to the covenants in the Company’s existing note purchase agreement, revolving credit facility and franchise loan and guaranty facility, as modified.

During July 2012, the Company repaid at maturity the aggregate remaining principal amount of $12.0 million on the 5.03% senior unsecured notes issued on July 27, 2005 and due on July 27, 2012.

Capital Leases with Related Parties

In October and November 2004, the Company sold 11 properties, including leasehold improvements, to a limited liability company (“LLC”) controlled by a group of Company executives, including the Company’s former Chairman. The LLC obtained borrowings collateralized by the land and buildings totaling $6.8 million. The Company occupies the land and buildings collateralizing the borrowings under a 15-year term lease, with a five-year renewal at the Company’s option, at an aggregate annual rental of $716,000. The transaction has been accounted for as a financing in the accompanying consolidated financial statements. The rate of interest implicit in the leases is approximately 9.7%. Accordingly, the land and buildings, associated depreciation expense and lease obligations are recorded in the Company’s consolidated financial statements. No gain or loss was recognized in this transaction.

In December 2002, the Company sold ten properties, including leasehold improvements, to the LLC. The LLC obtained borrowings collateralized by the land and buildings totaling $5.0 million. The Company occupies the land and buildings collateralizing the borrowings under a 15-year term lease at an aggregate annual rental of approximately $556,000. The transaction has been accounted for as a financing in the accompanying consolidated financial statements. The rate of interest implicit in the leases is approximately 11.1%. Accordingly, the land and buildings, associated depreciation expense and lease obligations are recorded in the Company’s consolidated financial statements. No gain or loss was recognized in this transaction.

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Sale-leasebacks

The Company finances a portion of 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. The Company does not have any retained or contingent interests in the stores nor does the Company provide any guarantees, other than a corporate level guarantee of lease payments, in connection with the sale-leasebacks.

Other Debt

Other debt at December 31, 2012 and 2011 includes $3.3 million of industrial development corporation revenue bonds. The weighted-average interest rate on the outstanding bonds was 0.35% and 0.29% as of December 31, 2012 and 2011, respectively. No principal payments are due on the bonds until maturity in 2015.

Future maturities under the Company’s long-term debt and capital lease obligations are as follows:

(In Thousands)
2013	$	1,755
2014		26,881
2015		30,321
2016		27,001
2017		26,858
Thereafter		28,712
	$	141,528

NOTE 7: INCOME TAXES

Following is a summary of the Company’s income tax expense for the years ended December 31:

(In Thousands)	2012			2011			2010
Current Income Tax Expense:
Federal	$	116,234		$	—		$	—
State		10,819			9,797			8,932
		127,053			9,797			8,932
Deferred Income Tax (Benefit) Expense:
Federal		(23,035	)		62,015			64,679
State		(206	)		(2,202	)		(1,201	)
		(23,241	)		59,813			63,478
	$	103,812		$	69,610		$	72,410

At December 31, 2011, the Company had a federal net operating loss (“NOL”) carryforward of approximately $31.2 million available to offset future taxable income. The entire NOL carryforward was absorbed during 2012.

As a result of the bonus depreciation provisions in the Small Business Jobs Act of 2010 and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the Company paid more than anticipated for the 2010 federal tax liability. The 2010 acts provided an estimated tax deferral of approximately $127.0 million. The Company filed for a refund of overpaid federal tax of approximately $80.9 million in January 2011 and received that refund in February 2011.

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Significant components of the Company’s deferred income tax liabilities and assets at December 31 are as follows:

(In Thousands)	2012			2011
Deferred Tax Liabilities:
Lease Merchandise and Property, Plant and Equipment	$	279,926		$	329,497
Other, Net		34,014			29,607
Total Deferred Tax Liabilities		313,940			359,104
Deferred Tax Assets:
Accrued Liabilities		25,365			33,826
Advance Payments		15,834			16,432
Federal Net Operating Loss		—			10,936
Other, Net		9,677			11,760
Total Deferred Tax Assets		50,876			72,954
Less Valuation Allowance		(657	)		(812	)
Net Deferred Tax Liabilities	$	263,721		$	286,962

The Company’s effective tax rate differs from the statutory United States Federal income tax rate for the years ended December 31 as follows:

	2012			2011			2010
Statutory Rate		35.0	%		35.0	%		35.0	%
Increases in United States Federal Taxes
Resulting From:
State Income Taxes, Net of Federal Income Tax Benefit		2.5			2.7			2.7
Other, Net		0.0			0.3			0.3
Effective Tax Rate		37.5	%		38.0	%		38.0	%

The Company files a federal consolidated income tax return in the United States and the separate legal entities 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 2008.

The following table summarizes the activity related to the Company’s uncertain tax positions:

(In Thousands)	2012			2011			2010
Balance at January 1,	$	1,412		$	1,315		$	1,342
Additions based on tax positions related to the current year		178			178			149
Additions for tax positions of prior years		83			22			18
Prior year reductions		(315	)		(13	)		(26	)
Statute expirations		(83	)		(90	)		(63	)
Settlements		(17	)		—			(105	)
Balance at December 31,	$	1,258		$	1,412		$	1,315

As of December 31, 2012 and 2011, the amount of uncertain tax benefits that, if recognized, would affect the effective tax rate is $1.0 million and $1.2 million, respectively, including interest and penalties. During the year ended December 31, 2012, the Company recognized a net benefit of $126,000 related to interest and penalties. During the years ended December 31, 2011 and 2010, the Company recognized interest and penalties of $41,000 and $35,000, respectively. The Company had $234,000 and $374,000 of accrued interest and penalties at December 31, 2012 and 2011, respectively. The Company recognizes potential interest and penalties related to uncertain tax benefits as a component of income tax expense.

NOTE 8: COMMITMENTS AND CONTINGENCIES

Leases

The Company leases warehouse and retail store space for most of its operations under operating leases expiring at various times through 2028. The Company also leases certain properties under capital leases that are more fully described in Note 6. Most of the leases contain renewal options for additional periods ranging from one to 20 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. In addition, certain properties occupied under operating leases contain normal purchase options. Leasehold improvements related to these leases are generally amortized over periods that do not exceed the lesser of the lease term or 15 years. While a majority of leases do not require escalating payments, for the leases which do contain such provisions, the Company records the related lease expense on a straight-line basis over the lease term. The Company also leases transportation and computer equipment under operating leases expiring during the next five years. Management expects that most leases will be renewed or replaced by other leases in the normal course of business.

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Future minimum lease payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2012 are as follows:

(In Thousands)
2013	$	110,244
2014		96,242
2015		78,560
2016		57,822
2017		42,922
Thereafter		162,103
	$	547,893

Rental expense was $102.0 million in 2012, $93.6 million in 2011 and $96.1 million in 2010. The amount of sublease income is $3.1 million in 2012, $3.1 million in 2011 and $2.8 million in 2010. The Company has anticipated future sublease rental income of $4.0 million in 2013, $3.4 million in 2014, $2.8 million in 2015, $2.4 million in 2016, $2.2 million in 2017 and $7.7 million thereafter through 2025. Rental expense and sublease income are included in operating expenses.

Guarantees

The Company has guaranteed certain debt obligations of some of the franchisees amounting to $117.3 million and $128.8 million at December 31, 2012 and 2011, respectively, under a franchise loan program with several banks. The Company has recourse rights to the assets securing the debt obligations, which consist primarily of lease merchandise inventory and fixed assets. As a result, the Company has never incurred any, nor does management expect to incur, any significant losses under these guarantees. The Company has estimated the fair value of the franchise-related borrowings guarantee to approximate $2.6 million, which is included in accounts payable and accrued expenses in the consolidated balance sheet as of December 31, 2012.

On December 13, 2012, the Company entered into a fifth amendment to its second amended and restated loan facility and guaranty, dated June 18, 2010, as amended, and the Company entered into a fourth amendment as of May 16, 2012. The amendments to the franchise loan facility extended the maturity date of the franchise loan facility until December 12, 2013, increased the maximum Canadian subfacility commitment amount for loans to franchisees that operate stores in Canada (other than in the Province of Quebec) from Cdn $35 million to Cdn $50 million, included a revolving loan option for Canadian borrowers, included HomeSmart franchisees in the United States as authorized borrowers under the facility and conformed the covenants to those contained in the Company’s revolving credit agreement, which is discussed in further detail in Note 6. We remain subject to the financial covenants under the franchise loan facility.

Legal Proceedings

From time to time, the Company is party to various legal proceedings arising in the ordinary course of business. While we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material adverse impact upon our business, financial position or results of operations, there can be no assurance that we will prevail in all the proceedings we are party to, or that we will not incur material losses from them. Some of the proceedings we are currently a party to are described below.

In Alford v. Aaron Rents, Inc. et al originally filed in the U.S. District Court for the Southern District of Illinois (No.: 3:08-MJR-DGW-683) on October 2, 2008, plaintiff alleged, among other claims, that she was sexually harassed and subjected to retaliation, in violation of Title VII of the Civil Rights Act of 1964, by a general manager of a Company store. Based on the judgment in the June 14, 2011 jury verdict (as reduced by the court), the Company recorded a charge of $36.5 million in the second quarter of 2011, which represented an accrual for the judgment and associated legal fees and expenses of $41.5 million, less insurance coverage of $5.0 million. On March 26, 2012, following the court’s ruling that the verdict would not be sustained, the Company entered into a settlement agreement resolving the claims in the amount of $6.0 million. The Company recognized $35.5 million of income related to the reversal of the lawsuit accrual in the first quarter of 2012.

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In Kunstmann et al v. Aaron Rents, Inc., filed with the United States District Court, Northern District of Alabama (Case No.: 2:08-CV-1969-WMA), on October 29, 2008, plaintiffs alleged that the Company improperly classified store general managers as exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”). Plaintiffs seek to recover unpaid overtime compensation and other damages for a class almost exclusively comprised of former general managers, most of whom terminated employment with the Company more than a year ago. On October 4, 2012 the Court denied the Company’s motion for summary judgment as to Mr. Kunstmann individually, and on January 23, 2013, the Court denied the Company’s motion for decertification of the class. The current class includes 247 individuals. The parties are now working on proposing next steps for the conduct of the case.

In Margaret Korrow, et al. v. Aaron’s, Inc., originally filed in the Superior Court of New Jersey, Middlesex County, Law Division on October 26, 2010, plaintiff filed suit on behalf of herself and others similarly situated alleging that the Company is liable in damages to plaintiff and each class member because the Company’s lease agreements issued after March 16, 2006 purportedly violated certain New Jersey state consumer statutes. The Company removed the lawsuit to the United States District Court for the District of New Jersey on December 6, 2010 (Civil Action No.: 10-06317(JAP)(LHG)). Plaintiff on behalf of herself and others similarly situated seeks equitable relief, statutory and treble damages, pre- and post-judgment interest and attorneys’ fees. Discovery on this matter is closed. To date, no class has been certified and, on December 17, 2012, the Company moved to dismiss the class allegations from plaintiff’s complaint. On February 5, 2013, plaintiff filed its response and also moved to certify the class.

In Crystal and Brian Byrd v. Aaron’s, Inc., Aspen Way Enterprises, Inc., John Does (1-100) Aaron’s Franchisees and Designerware, LLC., filed on May 16, 2011 in the United States District Court, Western District of Pennsylvania (Case No. 1:11-CV-00101-SPB), plaintiffs allege that the Company and its franchisees knowingly violated plaintiffs’ and other similarly situated plaintiffs’ privacy in violation of the Electronic Communications Privacy Act and the Computer Fraud Abuse Act through its use of a software program called “PC Rental Agent.” The District Court dismissed the Company from the lawsuit on March 20, 2012. On September 14, 2012, plaintiffs filed an amended complaint against the Company and its franchisees alleging, among other claims, invasion of privacy, interception of electronic communications in violation of the Federal Wiretap Act as amended by the Electronic Communications Privacy Act and vicarious liability claims. The plaintiffs are seeking damages in connection with the allegations of the amended complaint. On October 15, 2012, the Company filed a motion to dismiss the amended complaint, which still remains pending.

The Company has received inquiries from and is responding to government agencies, including the Federal Trade Commission, requesting information regarding the Byrd litigation and another incident involving the compromise of customer information, and inquiring about, among other things, the Company’s retail transactional, information security and privacy policies and practices.

The matter of Kurtis Jewell v. Aaron’s, Inc. was originally filed in the United States District Court, Northern District of Ohio, Eastern Division on October 28, 2011 and was transferred on February 23, 2012 to the United States District Court for the Northern District of Georgia (Atlanta Division) (Civil No.:1:12-CV-00563-AT). Plaintiff, on behalf of himself and all other non-exempt employees who worked in Company stores, alleges that the Company violated the FLSA when it automatically deducted 30 minutes from employees’ time for meal breaks on days when plaintiffs allegedly did not take their meal breaks. Plaintiff claims he and other employees actually worked through meal breaks or were interrupted during the course of their meal breaks and asked to perform work. As a result of the automatic deduction, plaintiff alleges that the Company failed to account for all of his working hours when it calculated overtime, and consequently underpaid him. On September 28, 2012, the Court issued an order granting conditional certification of a class consisting of all hourly store employees from October 27, 2008 to the present. The current class size is 1,788, which is less than seven percent of the potential class members. With limited exceptions, the time period for additional members to be added to the class has expired.

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The matter of Parish Harrigan and Carlos Urzua v. Aaron’s, Inc. was filed in the Superior Court of the State of California, County of Sacramento on January 27, 2012 (Case No.: 34-2012-0117848). Plaintiffs allege that they were subjected to jokes and name calling on the basis of their race and national origin. Plaintiffs further claim that they were subject to retaliation after reporting the discrimination and harassment to the Company. The plaintiffs are seeking damages in connection with the allegations. The Company denies the underlying allegations, believes that it took prompt action to investigate the claims once it was notified of the allegations, denies that either plaintiff was subject to retaliation and intends to vigorously defend itself in the litigation.

We believe we have meritorious defenses to all of the claims described above, and intend to vigorously defend against the claims. However, these proceedings are still developing and due to the inherent uncertainty in litigation and similar adversarial proceedings, there can be no guarantee that we will ultimately be successful in these proceedings, or in others to which we are currently a party. Substantial losses from legal proceedings or the costs of defending them could have a material adverse impact upon our business, financial position and results of operations.

At December 31, 2012, we estimated that the aggregate exposure to loss for all material pending legal proceedings for which a loss is probable, excluding an immaterial amount for which we have already accrued, is $5.0 million, although this belief is subject to the uncertainties and variables described above. At December 31, 2012, we estimate that the aggregate range of losses for all material pending legal proceedings for which a loss is reasonably possible, but less likely than probable, is from $0.7 million to $7.6 million, although this belief is also subject to the uncertainties and variables described above. Those matters for which a reasonable estimate is not possible are not included within estimated ranges and, therefore, the estimated ranges do not represent the Company’s maximum loss exposure. We continually monitor our litigation exposure, and review the adequacy of our legal reserves on a quarterly basis in accordance with applicable accounting rules.

Other Commitments

At December 31, 2012, the Company had non-cancelable commitments primarily related to certain advertising and marketing programs of $21.7 million. Payments under these commitments are scheduled to be $17.5 million in 2013, $3.6 million in 2014, $383,000 in 2015, and $274,000 in 2016.

The Company maintains a 401(k) savings plan for all its full-time employees with at least one year of service and who meet certain eligibility requirements. As of December 31, 2012, the plan allows employees to contribute up to 100% of their annual compensation in accordance with federal contribution limits with 50% matching by the Company on the first 4% of compensation. The Company’s expense related to the plan was $999,000 in 2012, $891,000 in 2011, and $841,000 in 2010.

The Company is a party to various claims and legal proceedings arising in the ordinary course of business. Management regularly assesses the Company’s insurance deductibles, analyzes litigation information with the Company’s attorneys and evaluates its loss experience. The Company also enters into various contracts in the normal course of business that may subject it to risk of financial loss if counterparties fail to perform their contractual obligations.

NOTE 9: SHAREHOLDERS’ EQUITY

The Company held 15,031,741 shares in its treasury and was authorized to purchase an additional 4,044,655 shares at December 31, 2012. The Company repurchased 1,236,689 shares of its common stock on the open market in 2012 and 5,075,675 shares of its common stock on the open market in 2011.

The Company has 1,000,000 shares of preferred stock authorized. The shares are issuable in series with terms for each series fixed by the Board and such issuance is subject to approval by the Board of Directors. As of December 31, 2012, no preferred shares have been issued.

On December 7, 2010, at a special meeting of the Company’s shareholders, such shareholders approved a proposal to amend and restate the Company’s Amended and Restated Articles of Incorporation to: (i) convert each outstanding share of common stock, par value $0.50 per share (the “Nonvoting Common Stock”) into one share of Class A Common Stock (the “Class A Common Stock”) and to rename the Class A Common Stock as Common Stock (the “Common Stock”), (ii) eliminate certain obsolete provisions relating to the Company’s prior dual-class common stock structure, and (iii) amend the number of authorized shares to be 225,000,000 total shares of Common Stock (the aggregate of the number of authorized shares of Nonvoting Common Stock and Class A Common Stock prior to the approval of the Amended and Restated Articles of Incorporation). Following receipt of shareholder approval at the special meeting, the Amended and Restated Articles of Incorporation were filed with the Secretary of State of the State of Georgia and are now effective.

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As a result of the reclassification of shares of Nonvoting Common Stock into shares of Class A Common Stock and the other changes described above and effected by the Amended and Restated Articles of Incorporation, shares of the combined class now titled Common Stock have one vote per share on all matters submitted to the Company’s shareholders, including the election of directors. The former Nonvoting Common Stock did not entitle the holders thereof to any vote except as otherwise provided in the Company’s Articles of Incorporation or required by law. In addition, holders of the combined class now titled Common Stock will all vote as a single class of stock on any matters subject to a shareholder vote. Holders of the former Class A Common Stock and the Nonvoting Common Stock were previously entitled to separate class voting rights in certain circumstances as required by law, and those class voting rights were eliminated with the share reclassification.

The holders of Common Stock are entitled to receive dividends and other distributions in cash, stock or property of the Company as and when declared by the Board of Directors of the Company out of legally available funds. Prior to the conversion, the Company’s Articles of Incorporation permitted the payment of a cash dividend on the Nonvoting Common Stock without paying any dividend on the Class A Common Stock or the payment of a cash dividend on the Nonvoting Common Stock that was up to 50% higher than any dividend paid on the Class A Common Stock. Cash dividends could not be paid on the Class A Common Stock unless equal or higher dividends were paid on the Nonvoting Common Stock.

The conversion had no other impact on the economic equity interests of holders of Common Stock, including with regards to liquidation rights or redemption, regardless of whether holders previously held shares of Nonvoting Common Stock or Class A Common Stock.

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

NOTE 10: STOCK OPTIONS AND RESTRICTED STOCK

The Company grants stock options, restricted stock units and restricted stock awards to certain employees and directors of the Company. Total stock-based compensation expense was $6.5 million, $8.4 million and $4.8 million in 2012, 2011 and 2010, respectively, and was included as a component of operating expenses in the consolidated statements of earnings. Excess tax benefits of $6.0 million, $1.3 million and $0.3 million are included in cash provided by financing activities for the years ended 2012, 2011 and 2010, respectively.

As of December 31, 2012, there was $12.2 million of total unrecognized compensation expense related to non-vested stock-based compensation which is expected to be recognized over a period of 2.5 years.

The aggregate number of shares of Common Stock that may be issued or transferred under the incentive stock awards plan is 14,492,585 at December 31, 2012.

Stock Options

Under the Company’s stock option plans, options granted to date become exercisable after a period of two to five years and unexercised options lapse ten years after the date of the grant. Options are subject to forfeiture upon termination of service. The Company recognizes compensation cost for awards with graded vesting on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company determines the fair value of stock options using a Black-Scholes option pricing model that incorporates expected volatility, expected option life, estimated forfeiture rates, risk-free interest rates, and expected dividend yields.

The expected volatility is based on the historical volatility of the Company’s Common Stock over the most recent period generally commensurate with the expected estimated life of each respective grant. The expected lives of options are based on the Company’s historical option exercise experience. Forfeiture assumptions are based on the Company’s historical forfeiture experience. The Company believes that the historical experience method is the best estimate of future exercise and forfeiture patterns. The risk-free interest rates are determined using the implied yield available for zero-coupon United States government issues with a remaining term equal to the expected life of the grant. The expected dividend yields are based on the approved annual dividend rate in effect and market price of the underlying common stock at the time of grant. No assumption for a future dividend rate increase has been included unless there is an approved plan to increase the dividend in the near term. Shares are issued from the Company’s treasury shares upon share option exercises.

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The Company granted 347,000 stock options during 2010. No stock options were granted in 2012 and 2011. The weighted average fair value of options granted was $10.31 in 2010. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2010, respectively: risk-free interest rate of 3.59%; a dividend yield of .25%; a volatility factor of the expected market price of the Company’s common stock of .41; forfeiture rate of 3.89%; and weighted-average expected life of the option of nine years.

The following table summarizes information about stock options outstanding at December 31, 2012:

	Options Outstanding
			Weighted Average				Options Exercisable
Range of Exercise Prices	Number Outstanding December 31, 2012		Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable December 31, 2012		Weighted Average Exercise Price
$5.92-10.00		112,968		0.83	$	9.72		112,968	$	9.72
10.01-15.00		1,110,451		4.81		14.05		749,451		14.02
15.01-19.92		289,328		6.89		19.74		30,578		18.23
$5.92-19.92		1,512,747		4.91		14.81		892,997		13.62

The table below summarizes option activity for the year ended December 31, 2012:

	Options (In  Thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in Thousands)			Weighted Average Fair Value
Outstanding at January 1, 2012		2,849		$	13.78			$	41,252		$	6.38
Granted		—			—				—			—
Exercised		(1,268	)		12.43				(20,033	)		5.91
Forfeited		(68	)		16.21				(783	)		7.38
Outstanding at December 31, 2012		1,513			14.81		4.91 years		20,373			6.74
Expected to Vest at December 31, 2012		1,307			14.79		4.74 years		17,632			6.80
Exercisable at December 31, 2012		893			13.62		3.90 years		13,093			5.93

The aggregate intrinsic value of options exercised was $20.0 million, $5.5 million and $848,000 in 2012, 2011 and 2010, respectively. The total fair value of options vested was $2.2 million, $2.7 million and $3.2 million in 2012, 2011 and 2010, respectively. Income tax benefits resulting from stock option exercises totaled $8.4 million, $2.1 million, and $1.4 million in 2012, 2011 and 2010, respectively.

Restricted Stock

Shares of restricted stock or restricted stock units (collectively, “restricted stock”) may be granted to employees and directors and typically vest over approximately two to five year periods. Restricted stock grants may be subject to one or more objective employment, performance or other forfeiture conditions as established at the time of grant. As of December 31, 2012, under the Aaron’s Management Performance Plan (“AMP Plan”), RSUs are granted quarterly upon achievement of certain pre-tax profit levels during the prior quarter by the employees’ operating units or the overall Company. The RSUs granted under the AMP Plan vest over four to five years from the date of grant. The AMP Plan participants include certain vice presidents, director level employees and other key personnel in the Company’s home office, divisional vice presidents and regional managers.

Any shares of restricted stock that are forfeited may again become available for issuance. Compensation cost for restricted stock is equal to the fair market value of the shares at the date of the award and is amortized to compensation expense on a straight-line basis over the vesting period. The Company granted 368,000, 266,000 and 300,000 shares of restricted stock at weighted-average fair values of $26.08, $23.57 and $16.20 in 2012, 2011 and 2010, respectively.

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The following table summarizes information about restricted stock activity:

	Restricted Stock (In Thousands)			Weighted Average Fair Value
Non-vested at January 1, 2012		415		$	19.64
Granted 1		368			26.08
Vested		(75	)		16.20
Forfeited		(12	)		27.84
Non-vested at December 31, 2012		696			23.28

¹ Includes 250,000 RSUs granted to certain executive officers that will be eligible to vest on March 31, 2015 assuming certain performance conditions are achieved over three annual performance periods. The Company recognizes compensation cost for its performance-based RSUs over the vesting period based on the probability that the performance condition will be satisfied.

The total fair value of restricted stock vesting during the year was $4.4 million, $5.7 million and $1.5 million in 2012, 2011 and 2010, respectively.

Retirement and Separation-Related Modifications

In connection with the retirement of the Company’s founder and Chairman of the Board, the Company recorded a $10.4 million charge to operating expenses, of which $1.7 million related to the accelerated vesting of 75,000 shares of restricted stock and 25,000 stock options. During 2011, the Company recorded a $3.5 million charge for separation costs primarily related to the immediate vest modification of 150,000 shares of restricted stock and 50,000 stock options related to the separation of the Company’s Chief Executive Officer. The total incremental cost resulting from the modifications, due primarily to increases in the Company’s stock price as of the modification date compared to the grant date, was $1.2 million and $1.3 million in 2012 and 2011, respectively.

NOTE 11: STORE COUNT (UNAUDITED)

The Company’s franchised store activity, Company-operated Sales & Lease Ownership store activity and Company-operated HomeSmart store activity is summarized as follows:

(Unaudited)	2012			2011			2010
Franchised stores
Franchised stores open at January 1,		713			664			597
Opened		56			55			62
Added through acquisition		—			—			10
Purchased from the Company		3			9			10
Purchased by the Company		(21	)		(7	)		(12	)
Closed, sold or merged		(2	)		(8	)		(3	)
Franchised stores open at December 31,		749			713			664
Company-operated Sales & Lease Ownership stores
Company-operated Sales & Lease Ownership stores open at January 1,		1,160			1,146			1,082
Opened		76			57			86
Added through acquisition		21			8			14
Closed, sold or merged		(11	)		(51	)		(36	)
Company-operated Sales & Lease Ownership stores open at December 31,		1,246			1,160			1,146
Company-operated HomeSmart stores
Company-operated HomeSmart stores open at January 1,		71			3			—
Opened		7			24			3
Added through acquisition		1			44			—
Closed, sold or merged		(1	)		—			—
Company-operated HomeSmart stores open at December 31,		78			71			3

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In 2012, the Sales and Lease Ownership segment acquired the lease contracts, merchandise and other related assets of 44 stores, including 21 franchised stores, and merged certain acquired stores into existing stores, resulting in a net gain of 21 stores. In 2011, the Sales and Lease Ownership segment acquired the lease contracts, merchandise and other related assets of 38 stores, including seven franchised stores, and merged certain acquired stores into existing stores, resulting in a net gain of eight stores. In 2010, the Sales and Lease Ownership segment acquired the lease contracts, merchandise and other related assets of 30 stores, including 12 franchised stores, and merged certain acquired stores into existing stores, resulting in a net gain of 14 stores.

In 2012, the HomeSmart operations acquired the lease contracts, merchandise and other related assets of four stores and merged certain acquired stores into existing stores, resulting in a net gain of one store. In 2011, HomeSmart operations acquired the lease contracts, merchandise and other related assets of 47 stores and merged certain acquired stores into existing stores, resulting in a net gain of 44 stores.

NOTE 12: SEGMENTS

Description of Products and Services of Reportable Segments

As of December 31, 2012, the Company had five operating segments: Sales and Lease Ownership, RIMCO, HomeSmart, Franchise and Manufacturing. The Company’s RIMCO stores lease automobile wheels, tires and rims to customers under sales and lease ownership agreements. Although the products offered are different, these stores are managed, monitored and operated similarly to our other sales and lease ownership stores.

The Company has evaluated the characteristics of its operating segments and has determined that certain of its operating segments meet the aggregation criteria in ASC 280, Segment Reporting. Accordingly, the Company has identified four reportable segments: Sales and Lease Ownership, Franchise, HomeSmart and Manufacturing. In all periods presented, HomeSmart was reclassified from “Other” to the HomeSmart segment.

The Aaron’s Sales & Lease Ownership division offers electronics, residential furniture, appliances and computers to consumers primarily on a monthly payment basis with no credit requirements. The HomeSmart division was established to offer electronics, residential furniture, appliances and computers to consumers on a weekly payment basis with no credit requirements. The Company’s franchise operation sells and supports franchisees of its sales and lease ownership concept. The Manufacturing segment manufactures upholstered furniture and bedding predominantly for use by Company-operated and franchised stores. Therefore, the Manufacturing segment revenues and earnings before income taxes are primarily the result of intercompany transactions, substantially all of which revenues and earnings are eliminated through the elimination of intersegment revenues.

Measurement of Segment Profit or Loss and Segment Assets

The Company evaluates performance and allocates resources based on revenue growth and pre-tax profit or loss from operations. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies except that the sales and lease ownership division revenues and certain other items are presented on a cash basis. Intersegment sales are completed at internally negotiated amounts. Since the intersegment profit and loss affect inventory valuation, depreciation and cost of goods sold are adjusted when intersegment profit is eliminated in consolidation.

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Factors Used by Management to Identify the Reportable Segments

The Company’s reportable segments are based on the operations of the Company that the chief operating decision maker regularly reviews to analyze performance and allocate resources among business units of the Company.

Information on segments and a reconciliation to earnings before income taxes from continuing operations are as follows:

	Year Ended December 31,			Year Ended December 31,			Year Ended December 31,
(In Thousands)	2012			2011			2010
Revenues From External Customers:
Sales and Lease Ownership	$	2,088,894		$	1,938,614		$	1,803,601
HomeSmart		55,226			15,624			56
Franchise		66,655			63,255			59,112
Manufacturing		95,693			89,430			79,113
Other		9,122			8,096			15,132
Revenues of Reportable Segments		2,315,590			2,115,019			1,957,014
Elimination of Intersegment Revenues		(95,150	)		(89,430	)		(79,113	)
Cash to Accrual Adjustments		2,148			(3,258	)		(1,563	)
Total Revenues from External Customers	$	2,222,588		$	2,022,331		$	1,876,338
Earnings Before Income Taxes:
Sales and Lease Ownership	$	243,531		$	143,686		$	159,417
HomeSmart		(6,962	)		(7,283	)		(318	)
Franchise		52,672			49,577			45,935
Manufacturing		382			2,960			3,218
Other		(11,854	)		818			(12,437	)
Earnings Before Income Taxes for Reportable Segments		277,769			189,758			195,815
Elimination of Intersegment Profit		(393	)		(2,960	)		(3,218	)
Cash to Accrual and Other Adjustments		(521	)		(3,421	)		(1,811	)
Total Earnings Before Income Taxes	$	276,855		$	183,377		$	190,786
Assets:
Sales and Lease Ownership	$	1,421,812		$	1,293,151		$	1,248,785
HomeSmart		58,347			50,600			955
Franchise		53,820			56,131			55,789
Manufacturing1		24,787			21,691			22,312
Other		254,163			310,326			173,012
Total Assets	$	1,812,929		$	1,731,899		$	1,500,853
1    Includes inventory (principally raw materials) that has been classified within lease merchandise in the consolidated balance sheets of $14.1 million, $11.2 million and $11.2 million as of December 31, 2012, 2011 and 2010, respectively.
Depreciation and Amortization:
Sales and Lease Ownership		$629,119			$588,036		$	539,669
HomeSmart		20,482			5,933			21
Franchise		146			41			41
Manufacturing		4,430			1,294			2,958
Other		7,256			8,260			6,843
Total Depreciation and Amortization	$	661,433		$	603,564		$	549,532
Interest Expense:
Sales and Lease Ownership	$	5,531		$	4,473		$	2,937
HomeSmart		846			201			2
Franchise		—			—			—
Manufacturing		106			142			15
Other		(91	)		(107	)		142
Total Interest Expense	$	6,392		$	4,709		$	3,096
Capital Expenditures:
Sales and Lease Ownership	$	35,480		$	53,402		$	72,832
HomeSmart		4,121			10,950			202
Franchise		—			—			—
Manufacturing		4,493			2,107			5,484
Other		20,979			11,752			9,118
Total Capital Expenditures	$	65,073		$	78,211		$	87,636
Revenues From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	308		$	3,258		$	4,470
Assets From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	1,391		$	1,527		$	15,093

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Revenues in the “Other” category are primarily revenues from leasing space to unrelated third parties in the corporate headquarters building, revenues of the Aaron’s Office Furniture division through the date of sale in August 2012 and revenues from several minor unrelated activities. The pre-tax losses or earnings 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. For the year ended December 31, 2012, the pre-tax losses of the “Other” category include $10.4 million in retirement charges associated with the retirement of the Company’s founder and former Chairman of the Board. Earnings Before Income Taxes above for the Sales and Lease Ownership segment includes the $36.5 million accrual of a lawsuit for 2011 and the reversal of the lawsuit accrual of $35.5 million in 2012. In addition, during 2011, the Company incurred $3.5 million in separation costs related to the departure of the Company’s former Chief Executive Officer.

NOTE 13: RELATED PARTY TRANSACTIONS

The Company leases certain properties under capital leases with certain related parties that are more fully described in Note 6 above.

In the fourth quarter of 2011, the Company purchased an airplane for $2.8 million and sold it to R. Charles Loudermilk, Sr., the Company’s founder and former Chairman of the Board, for the same amount. The Company paid approximately $80,000 in brokerage fees in connection with the transaction, for which Mr. Loudermilk reimbursed the Company. In the fourth quarter of 2011, the Company transferred a Company-owned vehicle to Mr. Loudermilk valued at $21,000.

NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(In Thousands, Except Per Share)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Year Ended December 31, 2012
Revenues	$	585,996	$	538,619	$	529,510	$	568,463
Gross Profit *		282,657		265,573		258,637		263,278
Earnings Before Taxes From Continuing Operations		115,029		58,590		46,044		57,192
Net Earnings		71,226		36,244		28,941		36,632
Earnings Per Share		.94		.48		.38		.48
Earnings Per Share Assuming Dilution		.92		.47		.38		.48
Year Ended December 31, 2011
Revenues	$	532,480	$	482,415	$	484,731	$	522,705
Gross Profit *		259,542		236,958		231,942		242,163
Earnings Before Taxes From Continuing Operations		71,919		17,627		45,092		48,739
Net Earnings		44,389		10,799		28,045		30,534
Earnings Per Share		.55		.14		.36		.40
Earnings Per Share Assuming Dilution		.55		.13		.36		.40

* Gross profit is the sum of lease revenues and fees, retail sales, and non-retail sales less retail cost of sales, non-retail cost of sales, depreciation of lease merchandise and write-offs of lease merchandise.

The first quarter of 2012 included a pre-tax $35.5 million reversal of a lawsuit accrual, and the third quarter of 2012 included a pre-tax $10.4 million retirement charge associated with the retirement of the Company’s founder and former Chairman of the Board. The second quarter of 2011 included a pre-tax $36.5 million accrual of a lawsuit, and the fourth quarter of 2011 included a pre-tax $3.5 million separation charge related to the Company’s former Chief Executive Officer.

Revenue amounts for all quarterly periods prior to the third quarter of 2012 have been revised to exclude interest income, which is now presented as a component of non-operating income and expenses in the consolidated statements of earnings.

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NOTE 15: DEFERRED COMPENSATION PLAN

Effective July 1, 2009, the Company implemented the Aaron’s, Inc. Deferred Compensation Plan (the “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 elected to make restoration matching contributions on behalf of eligible employees to compensate for certain limitations on the amount of matching contributions an employee can receive under the Company’s tax-qualified 401(k) plan.

Compensation deferred under the Plan is credited to each 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 $9.5 million and $6.3 million as of December 31, 2012 and 2011, respectively. 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. 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 $10.4 million and $5.8 million as of December 31, 2012 and 2011, respectively, and is included in prepaid expenses and other assets in the consolidated balance sheets.

Deferred compensation expense charged to operations for the Company’s matching contributions totaled $285,000, $306,000 and $231,000 in 2012, 2011, and 2010 respectively. Benefits of $616,000 and $77,000 were paid during the years ended December 31, 2012 and 2011, respectively. No benefits were paid in 2010.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

An evaluation of Aaron’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-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 Annual Report on Form 10-K. Based on management’s evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2012 to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

Reports of Management and Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Management has assessed, and the Company’s independent registered public accounting firm, Ernst & Young LLP, has audited, the Company’s internal control over financial reporting as of December 31, 2012. The unqualified reports of management and Ernst & Young LLP thereon are included in Item 8 of this Annual Report on Form 10-K and are incorporated by reference herein.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, during the Company’s fourth fiscal quarter of 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE

The information contained in the Company’s definitive Proxy Statement, which the Company will file with the Securities and Exchange Commission no later than 120 days after December 31, 2012, with respect to: the identity, background and Section 16 filings of directors and executive officers of the Company; the Audit Committee of the Board of Directors and the Committee’s “audit committee financial expert”; the Company’s procedures by which security holders may recommend nominees to the Board of Directors; and the Company’s code of ethics applicable to its chief executive, financial, and accounting officers is incorporated herein by reference to this item.

ITEM 11. EXECUTIVE COMPENSATION

The information contained in the Company’s definitive Proxy Statement, which the Company will file with the Securities and Exchange Commission no later than 120 days after December 31, 2012, with respect to director and executive compensation, the Compensation Committee of the Board of Directors and the Compensation Committee Report, is incorporated herein by reference in response to this item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained in the Company’s definitive Proxy Statement, which the Company will file with the Securities and Exchange Commission no later than 120 days after December 31, 2012, with respect to the ownership of common stock by certain beneficial owners and management, and with respect to the Company’s compensation plans under which our equity securities are authorized for issuance, is incorporated herein by reference to this item.

For purposes of determining the aggregate market value of the Company’s common stock held by non-affiliates, shares held by all directors and executive officers of the Company have been excluded. The exclusion of such shares is not intended to, and shall not, constitute a determination as to which persons or entities may be “affiliates” of the Company as defined by the Securities and Exchange Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information contained in the Company’s definitive Proxy Statement, which the Company will file with the Securities and Exchange Commission no later than 120 days after December 31, 2012, with respect to related party transactions and director independence, is incorporated herein by reference in response to this item.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained under the heading “Audit Matters” in the Company’s definitive Proxy Statement, which the Company will file with the Securities and Exchange Commission no later than 120 days after December 31, 2012, is incorporated herein by reference in response to this item.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS and SCHEDULES

a) 1. FINANCIAL STATEMENTS

The following financial statements and notes thereto of Aaron’s, Inc. and Subsidiaries, and the related Reports of Independent Registered Public Accounting Firm are set forth in Item 8 and Item 9A.

Consolidated Balance Sheets—December 31, 2012 and 2011

Consolidated Statements of Earnings—Years ended December 31, 2012, 2011 and 2010

Consolidated Statement of Comprehensive Income—Years ended December 31, 2012, 2011 and 2010

Consolidated Statements of Shareholders’ Equity—Years ended December 31, 2012, 2011 and 2010

Consolidated Statements of Cash Flows—Years ended December 31, 2012, 2011 and 2010

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

2. FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in the applicable accounting regulations of the SEC have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto.

3. EXHIBITS

EXHIBIT NO.	DESCRIPTION OF EXHIBIT
2.1	Asset Purchase Agreement between CORT Business Services Corporation as Buyer and the Company as Seller dated as of September 12, 2008, filed as Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, which exhibit is by this reference incorporated herein.
3.1	Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s Registration Statement, as amended, on Form 8-A/A , Commission File No. 001-13941, filed with the Commission on December 10, 2010, which exhibit is by this reference incorporated herein.
3.2	Amended and Restated By-laws of the Company, filed as Exhibit 3.2 to the Company’s Registration Statement, as amended, on Form 8-A/A, Commission File No. 001-13941, filed with the Commission on December 10, 2010, which exhibit is by this reference incorporated herein.
4	See Exhibits 3.1 through 3.2.
10.1	The Company’s Employees Retirement Plan and Trust, filed as Exhibit 4(a) to the Company’s Registration Statement on Form S-8, Commission File No. 33-62538, filed with the Commission on May 12, 1993, which exhibit is by this reference incorporated herein. *

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EXHIBIT NO.	DESCRIPTION OF EXHIBIT
10.2	Loan Agreement between Fort Bend County Industrial Development Corporation and the Company relating to the Industrial Development Revenue Bonds (Aaron Rents, Inc. Project), Series 2000 dated October 1, 2000, filed as Exhibit 10(m) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (the “2000 10-K”), which exhibit is by this reference incorporated herein.
10.3	Letter of Credit and Reimbursement Agreement between the Company and First Union National Bank dated as of October 1, 2000, filed as Exhibit 10(n) to the 2000 10-K, which exhibit is by this reference incorporated herein.
10.4	The Company’s 2001 Stock Option and Incentive Award Plan, filed as Exhibit 4(a) to the Company’s Registration Statement on Form S-8, Commission File No. 333-76026, filed with the Commission on December 28, 2001, which exhibit is by this reference incorporated herein. *
10.5	Amended and Restated Master Agreement by and among the Company, SunTrust Bank and SouthTrust Bank, dated as of October 31, 2001, filed as Exhibit 10(s) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, which exhibit is by this reference incorporated herein.
10.6	Amendment Number One to the Servicing Agreement by and between the Company and SunTrust Bank dated as of April 30, 2003, filed as Exhibit 10(w) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, which exhibit is by this reference incorporated herein.
10.7	First Amendment to the Company’s 2001 Stock Option and Incentive Award Plan, filed as Exhibit 4(b) to the Company’s Registration Statement on Form S-8, Commission File No. 333-123426, filed with the Commission on March 18, 2005, which exhibit is by this reference incorporated herein. *
10.8	Note Purchase Agreement between the Company and certain other obligors and the purchasers dated as of July 27, 2005 and Form of Senior Note, filed as Exhibit 10(ee) to the Company’s Current Report on Form 8-K, filed with the Commission on August 2, 2005 (the “8/2/05 8-K”), which exhibit is by this reference incorporated herein.
10.9	First Amendment dated as of July 27, 2005 to Amended and Restated Master Agreement and Amended and Restated Lease Agreement dated as of October 31, 2001, as amended, among the Company as lessee, SunTrust Banks, Inc. as lessor, Wachovia Bank, National Association, as lender, and SunTrust Bank as lease participant and agent, filed as Exhibit 10(jj) to the 8/2/05 8-K, which exhibit is by this reference incorporated herein.
10.10	First Omnibus Amendment dated as of August 21, 2002, but effective as of October 31, 2001 to the Amended and Restated Master Agreement and Amended and Restated Lease Agreement dated as of October 31, 2001, as amended, among the Company as lessee, SunTrust Banks, Inc. as lessor, Wachovia Bank, National Association, as lender, and SunTrust Bank as lease participant and agent filed as Exhibit 10(kk) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, which exhibit is by this reference incorporated herein.
10.11	Consent Agreement made and entered into as of April 7, 2006 by and among the Company as sponsor, SunTrust Bank and each of the other lending institutions party thereto as participants, and SunTrust Bank as servicer to form one or more Canadian Subsidiaries in one or more Canadian provinces, filed as Exhibit (pp) to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2006 (the “6/30/06 10-Q”), which exhibit is incorporated by this reference.

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EXHIBIT NO.	DESCRIPTION OF EXHIBIT
10.12	Consent Agreement made and entered into as of April 7, 2006 by and among the Company and certain co-borrowers, the several banks and other financial institutions from time to time party thereto and SunTrust Bank as administrative agent to form one or more Canadian Subsidiaries in one or more Canadian provinces, filed as Exhibit (qq) to the 6/30/06 10-Q, which exhibit is by this reference incorporated herein.
10.13	Amendment to Option and Award Agreement under the Company’s 2001 Stock Option and Incentive Award Plan, filed as Exhibit 10(pp) to the Company’s Current Report on Form 8-K, filed with the Commission on December 22, 2006, which exhibit is by this reference incorporated herein. *
10.14	Revolving Credit Agreement, dated as of May 23, 2008, among the Company, as borrower, the lenders from time to time party thereto, and SunTrust Bank, as administrative agent, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 30, 2008 (the “5/30/08 8-K”), which exhibit is by this reference incorporated herein.
10.15	Subsidiary Guaranty Agreement, dated as of May 23, 2008, between Aaron Investment Company and SunTrust Bank, as administrative agent, filed as Exhibit 10.2 to the 5/30/08 8-K, which exhibit is by this reference incorporated herein.
10.16	Amended and Restated Loan Facility Agreement and Guaranty by and among the Company as sponsor, SunTrust Bank, as servicer, and each of the other financial institutions party thereto as participants, dated as of May 23, 2008, filed as Exhibit 10.3 to the 5/30/08 8-K, which exhibit is by this reference incorporated herein.
10.17	Amended and Restated Guaranty Agreement, dated as of May 23, 2008, among Aaron Investment Company and SunTrust Bank, as servicer, filed as Exhibit 10.4 to the 5/30/08 8-K, which exhibit is by this reference incorporated herein.
10.18	First Amendment, dated as of November 4, 2008, to Note Purchase Agreement between the Company and certain other obligors and the purchasers dated as of July 27, 2005, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on November 10, 2008, which exhibit is by this reference incorporated herein.
10.19	The Company’s Amended and Restated 2001 Stock Option and Incentive Award Plan filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on April 10, 2009, which exhibit is by this reference incorporated herein. *
10.20	Form of Share Exchange Agreement, among the Company and R. Charles Loudermilk, Sr., Chairman of the Board of Directors of the Company, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 15, 2009, which exhibit is by this reference incorporated herein.
10.21	First Amendment to the Amended and Restated Loan Facility Agreement and Guaranty by and among the Company as sponsor, SunTrust Bank, as servicer, and each of the other financial institutions party thereto as participants, dated as of May 22, 2009, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 29, 2009, which exhibit is by this reference incorporated herein.
10.22	Second Amendment to Servicing Agreement, by and among the Company, as sponsor, SunTrust Bank, as servicer, dated as of May 22, 2009, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on May 29, 2009, which exhibit is by this reference incorporated.

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EXHIBIT NO.	DESCRIPTION OF EXHIBIT
10.23	The Company’s Deferred Compensation Plan Master Plan Document filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on June 12, 2009, which exhibit is by this reference incorporated herein. *
10.24	Form of Aaron’s, Inc. Performance-Based Vesting Restricted Stock Award Agreement under the 2001 Stock Option and Incentive Award Plan filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on June 12, 2009, which exhibit is by this reference incorporated herein. *
10.25	Second Amended and Restated Loan Facility Agreement and Guaranty with SunTrust Bank, as servicer, and the other participants listed therein, attached hereto as Exhibit 10.1, to the Company’s Current Report on Form 8-K, filed with the Commission on June 18, 2010, which exhibit is by this reference incorporated herein.
10.26	The Company’s Employees Retirement Plan and Trust, as amended and restated, filed as Exhibit 99.3 to the Company’s Registration Statement on Form S-8, Commission File No. 333-17113, filed with the Commission on December 10, 2010, which exhibit is by this reference incorporated herein.*
10.27	Narrative Description of Amendment to 2001 Stock Option and Incentive Award Plan, as Amended and Restated, filed as Exhibit 99.2 to the Company’s Registration Statement on Form S-8, Commission File No. 333-17113, filed with the Commission on December 10, 2010, which exhibit is by this reference incorporated herein.*
10.28	First Amendment made and entered into as of March 31, 2011 to the Second Amended and Restated Loan Facility Agreement and Guaranty, dated as of June 18, 2010, by and among Aarons, Inc. as sponsor, each of the other lending institutions party thereto as participants, and SunTrust Bank as servicer, which exhibit is by this reference incorporated herein.
10.29	First Amendment made and entered into on March 31, 2011 to the Revolving Credit Agreement, dated as of May 23, 2008, by and among Aaron’s, Inc., each of the other lending institutions party thereto as participants, and SunTrust Bank as administrative agent for the lenders, which exhibit is by this reference incorporated herein.
10.30	Second Amendment made and entered into on April 19, 2011 to the Note Purchase Agreement, dated as of July 27, 2005, by and among Aaron’s, Inc., Aaron Investment Company, and the holders of the Notes, which exhibit is by this reference incorporated herein.
10.31	Second Amendment to Revolving Credit Agreement, by and among Aaron’s, Inc., as borrower, SunTrust Bank, as administrative agent, and each of the other financial institutions party thereto as lenders, dated as of May 18, 2011, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 24, 2011, which exhibit is by this reference incorporated herein.
10.32	Second Amendment to Second Amended and Restated Loan Facility Agreement and Guaranty, by and among Aaron’s, Inc., as sponsor, SunTrust Bank, as servicer, and each of the other financial institutions party thereto as participants, dated as of May 18, 2011, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on May 24, 2011, which exhibit is by this reference incorporated herein.
10.33	Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers dated as of July 5, 2011 and Form of Senior Note, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 8, 2011 (“the 7/8/2011 Form 8-K”), which exhibit is by this reference incorporated herein.

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EXHIBIT NO.	DESCRIPTION OF EXHIBIT
10.34	Third Letter Amendment made as of July 5, 2011 to Note Purchase Agreement by and among Aaron’s, Inc. (f/k/a Aaron Rents, Inc.) and certain other obligors and the purchasers dated as of July 27, 2005, as amended by a First Amendment to Note Purchase Agreement, dated as of November 4, 2008, and a letter amendment, dated as of April 19, 2011, filed as Exhibit 10.2 to the 7/8/2011 Form 8-K, which exhibit is by this reference incorporated herein.
10.35	Third Amendment made and entered into as of July 1, 2011 to Revolving Credit Agreement dated as of May 23, 2008 by and among Aaron’s, Inc., the several banks and other financial institutions from time to time party thereto and SunTrust Bank as administrative agent, filed as Exhibit 10.3 to the 7/8/2011 Form 8-K, which exhibit is by this reference incorporated herein.
10.36	Third Amendment made and entered into as of July 1, 2011 to Second Amended and Restated Loan Facility Agreement and Guaranty dated as of June 18, 2010 by and among Aaron’s, Inc. as sponsor, SunTrust Bank and each of the other lending institutions party thereto as participants, and SunTrust Bank as servicer, filed as Exhibit 10.4 to the 7/8/2011 Form 8-K, which exhibit is by this reference incorporated herein.
10.37	Aaron’s Management Performance Plan (Summary of terms for Home Office Vice Presidents), filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on August 5, 2011 (the “8/5/2011 8-K”), which exhibit is by this reference incorporated herein.
10.38	Aaron’s, Inc. 2001 Stock Option and Incentive Award Plan Master Restricted Stock Unit Agreement (Aaron’s Management Performance Plan), filed as Exhibit 10.2 to the 8/5/2011 8-K, which exhibit is by this reference incorporated herein.
10.39	Confidential Waiver and Release, dated as of December 21, 2011, by and between Aaron’s Inc. and Robert C. Loudermilk Jr., filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 28, 2011, which exhibit is by this reference incorporated herein.
10.40	Form of Restricted Stock Unit Award Agreement, filed as Exhibit 10.1 to the Company’s Quarterly Report on form 10-Q for the quarter ended March 31, 2012, which exhibit is by this reference incorporated herein.
10.41	Fourth Amendment made and entered into as of May 16, 2012 to Second Amended and Restated Loan Facility Agreement and Guarantee dated as of June 18, 2010 by and among Aaron’s, Inc. as sponsor, SunTrust Bank and each of the other lending institutions party thereto as participants, and SunTrust Bank as servicer.
10.42	Retirement Agreement between Aaron’s, Inc. and R. Charles Loudermilk, Sr., dated August 24, 2012, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on August 30, 2012, which exhibit is by this reference incorporated herein.
10.43	Fourth Amendment to Revolving Credit Agreement, by and among Aaron’s, Inc., as borrower, SunTrust Bank, as administrative agent, and each of the lending institutions party thereto as lenders, dated as of December 13, 2012, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 19, 2012 (the “12/19/2012 Form 8-K”), which exhibit is by this reference incorporated herein.
10.44	Fifth Amendment to Second Amended and Restated Loan Facility Agreement and Guaranty, by and among Aaron’s, Inc., as sponsor, SunTrust Bank, as servicer, and each of the other financial institutions party thereto as participants, dated as of December 13, 2012, filed as Exhibit 10.2 to the 12/19/2012 Form 8-K, which exhibit is by this reference incorporated herein.
10.45	Amendment No. 1 to Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers, dated as of December 19, 2012, filed as Exhibit 10 to the Company’s Current Report on Form 8-K, filed with the Commission on December 26, 2012, which exhibit is by this reference incorporated herein.
21	Subsidiaries of the Registrant, filed as part of this Annual Report on Form 10-K.
23	Consent of Independent Registered Public Accounting Firm
31.1	Certification of Chief Executive Officer, pursuant to Rules 13a-14(a)/15d-14(a).

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EXHIBIT NO.	DESCRIPTION OF EXHIBIT
31.2	Certification of Chief Financial Officer, pursuant to Rules 13a-14(a)/15d-14(a).
32.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 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. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from Aaron’s, Inc. Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2012 and December 31, 2011, (ii) Consolidated Statements of Earnings for the Years ended December 31, 2012, 2011 and 2010, (iii) Consolidated Statements of Comprehensive Income for the Years ended December 31, 2012, 2011 and 2010, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010, (v) Consolidated Statements of Shareholder’s Equity for the Years ended December 31, 2012, 2011 and 2010 and (v) the Notes to Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement

(b) EXHIBITS

The exhibits listed in Item 15(a)(3) are included elsewhere in this Report.

(c) FINANCIAL STATEMENTS AND SCHEDULES

The financial statements listed in Item 15(a)(1) are included in Item 8 in this Report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 21st day of February 2013.

AARON’S, INC.
By:	/s/ GILBERT L. DANIELSON
	Gilbert L. Danielson
	Executive Vice President, Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 21st day of February 2013.

SIGNATURE	TITLE
/s/ RONALD W. ALLEN Ronald W. Allen	Chairman of the Board of Directors, President and Chief Executive Officer and Director (Principal Executive Officer)
/s/ GILBERT L. DANIELSON Gilbert L. Danielson	Executive Vice President, Chief Financial Officer and Director (Principal Financial Officer)
/s/ ROBERT P. SINCLAIR, JR. Robert P. Sinclair, Jr.	Vice President, Corporate Controller (Principal Accounting Officer)
/s/ WILLIAM K. BUTLER, JR. William K. Butler, Jr.	Chief Operating Officer and Director
/s/ LEO BENATAR Leo Benatar	Director
/s/ KATHY T. BETTY Kathy T. Betty	Director
/s/ CYNTHIA N. DAY Cynthia N. Day	Director
/s/ HUBERT L. HARRIS, JR. Hubert L. Harris, Jr.	Director

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/s/ DAVID L. KOLB David L. Kolb	Director
/s/ RAY M. ROBINSON Ray M. Robinson	Director
/s/ JOHN B. SCHUERHOLZ John B. Schuerholz	Director

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EX-10.41

Exhibit 10.41

Execution Version

FOURTH AMENDMENT TO

SECOND AMENDED AND RESTATED LOAN FACILITY AGREEMENT AND GUARANTY

THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN FACILITY AGREEMENT AND GUARANTY (this “Amendment”), is made and entered into as of May 16, 2012, by and among AARON’S, INC., a Georgia corporation (“Sponsor”), each of the lending institutions listed on the signature pages hereto (such lenders, the “Participants”) and SUNTRUST BANK, a banking corporation organized and existing under the laws of Georgia having its principal office in Atlanta, Georgia, as Servicer (in such capacity, the “Servicer”).

W I T N E S S E T H:

WHEREAS, the Sponsor, the Participants and the Servicer are parties to a certain Second Amended and Restated Loan Facility Agreement and Guaranty, dated as of June 18, 2010, as amended by that certain First Amendment to Second Amended and Restated Loan Facility Agreement and Guaranty dated as of March 31, 2011, by that certain Second Amendment to Second Amended and Restated Loan Facility Agreement and Guaranty dated as of May 18, 2011 and by that certain Third Amendment to Second Amended and Restated Loan Facility Agreement and Guaranty dated as of July 1, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Facility Agreement”; capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Loan Facility Agreement), pursuant to which the Participants have made certain financial accommodations available to the Sponsor;

WHEREAS, the Sponsor has requested that the Participants and the Servicer amend certain provisions of the Loan Facility Agreement, and subject to the terms and conditions hereof, the Participants are willing to do so;

NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of all of which are acknowledged, the Sponsor, the Participants and the Servicer agree as follows:

1. Amendments.

(a) Section 1.1 of the Loan Facility Agreement is amended by replacing the definitions of “Borrower Rate”, “Canadian Loan”, “Canadian Loan Commitment”, “Canadian Master Note”, “Loan Term” and “US Franchisee” in their entirety with the following:

“Borrower Rate” shall mean, (a) with respect to each US Loan, the Prime Rate per annum plus any additional margin per annum specified for such US Loan by Sponsor in the applicable Funding Approval Notice, such margin not to exceed ten percent (10.0%) per annum calculated based upon the actual number of days elapsed in a 360 day year; provided that, at no time may there be more than five different Borrower Rates for US Lines of Credit, and no more than five different Borrower Rates for US Revolving Loans and US Term Loans and (b) with respect to each Canadian Loan, the Canadian Prime Rate per annum plus any additional margin per annum specified for such Canadian Loan by Sponsor in the applicable Funding Approval Notice, such margin not to exceed ten percent (10.0%) per annum calculated based upon the actual number of days elapsed in a 360-day year; provided that, at no time may there be more than five different Borrower Rates for Canadian Lines of Credit, and no more than five different Borrower Rates for Canadian Revolving Loans and Canadian Term Loans.

“Canadian Loan” shall mean either a Canadian Term Loan, a Canadian Revolving Loan or a Canadian Line of Credit Loan, as the case may be.

“Canadian Loan Commitment” shall mean the commitment by the Servicer to make Advances to any Canadian Borrower in Canadian Dollars in the amount not exceeding, and upon the terms described in, the applicable Funding Approval Notice and the applicable Canadian Loan Documents, which Canadian Loan Commitment may be a Canadian Line of Credit Commitment, a Canadian Revolving Commitment or a Canadian Term Loan Commitment.

“Canadian Master Note” shall mean a Canadian Line of Credit Note, a Canadian Revolving Note or a Canadian Term Note, as the case may be.

“Loan Term” shall mean, with respect to any Loan, the prescribed term of the Loan Commitment relating to such Loan, as documented in the applicable Loan Documents, and any term-out period thereafter; provided, however, that the Loan Term shall not exceed (x) in the case of a Line of Credit Commitment, 364 days subject to extension in accordance with the terms of the applicable Loan Agreement, plus, in the event that the Line of Credit Commitment is terminated upon ninety (90) days’ prior notice from the Servicer, the Amortization Period and (y) in the case of a US Revolving Commitment and a US Term Loan Commitment, four (4) years and (z) in the case of a Canadian Revolving Commitment and a Canadian Term Loan Commitment, two (2) years.

“US Franchisee” shall mean those certain store operators located in the United States of America that own and operate stores under the Aaron’s franchise or the HomeSmart franchise.

(b) Section 1.1 of the Loan Facility Agreement is amended adding the following definitions of “Canadian Revolving Commitment”, “Canadian Revolving Loans”, “Canadian Revolving Note”, “HomeSmart”, “Revolving Commitment”, “Revolving Loans” and “Term Loans” in the appropriate alphabetical order:

“Canadian Revolving Commitment” shall mean a commitment to make Canadian Revolving Loans to a Canadian Borrower pursuant to a Loan Agreement.

“Canadian Revolving Loans” shall mean Advances made to a Canadian Borrower pursuant to a Canadian Revolving Commitment.

“Canadian Revolving Note” shall mean that certain Revolving Note, executed by a Canadian Borrower in favor of the Servicer, evidencing such Canadian Borrower’s obligation to repay all Canadian Revolving Loans made to it pursuant to a Canadian Revolving Commitment, substantially in the form of Exhibit A-3 to the Canadian Loan Agreement, with such changes as the Sponsor and the Servicer shall agree to from time to time.

“HomeSmart” shall mean the “HomeSmart” concept of Aaron’s or 99LTO, LLC, a Georgia limited liability company and a wholly owned subsidiary of the Sponsor.

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“Revolving Commitment” shall mean either a US Revolving Commitment or Canadian Revolving Commitment, as the case may be.

“Revolving Loans” shall mean either a US Revolving Loan or Canadian Revolving Loan, as the case may be.

“Term Loans” shall mean either a US Term Loan or Canadian Term Loan, as the case may be.

(c) Section 2.1(a) of the Loan Facility Agreement is amended by replacing the reference to “May 16, 2012” in subsection (a) of such Section with “May 15, 2013”.

(d) Section 2.1 of the Loan Facility Agreement is amended by (i) changing the title of subsection (e) of such Section to “Authorization of Canadian Revolving Commitment and Canadian Term Loan Commitment; Loan Terms”, (ii) by replacing clause (i) of subsection (e) with the following and (iii) by adding the following clause (iii) to subsection (e) thereof:

(i) Within the limits of the Facility Commitment and the Canadian Subfacility Amount and in accordance with the procedures set forth in this Agreement and the Servicing Agreement, the Sponsor may authorize the Servicer to establish a Canadian Revolving Commitment and/or a Canadian Term Loan Commitment in favor of a Canadian Franchisee who meets the credit criteria established by the Sponsor.

(iii) The amount of each Canadian Revolving Commitment shall be determined by the Sponsor, but shall not be less than Cdn$100,000. Pursuant to the Canadian Revolving Commitment, the Servicer shall agree to make Advances in Canadian Dollars to the Canadian Borrower thereunder. Each Canadian Revolving Loan shall bear interest at the Borrower Rate designated by Sponsor in the applicable Funding Approval Notice, and interest shall be payable on each Borrower Payment Date and on the Maturity Date of such Canadian Revolving Loan when all principal and interest shall be due and payable in full. Each Canadian Revolving Loan may be prepaid in full or in part only on a Canadian Borrower Payment Date for such Canadian Revolving Loan (and not on other days), without premium or penalty. The Loan Term of each Canadian Revolving Loan shall not exceed two years. The proceeds of each Advance made pursuant to the Canadian Revolving Commitment shall be used for general corporate purposes. Each Canadian Borrower with a Canadian Revolving Commitment shall agree to pay a commitment fee on the unused Canadian Revolving Commitment in an amount to be determined by the Sponsor but in any event not to exceed 1.00% per annum, such commitment fee to be paid quarterly, in arrears. At no time, except as otherwise provided in the form of Loan Agreement, shall the aggregate outstanding principal amount of all Canadian Revolving Loans and Canadian Term Loans made to any Canadian Borrower exceed the Franchisee Borrowing Base of such Canadian Borrower as in effect at such time.

(e) Section 2.9 of the Loan Facility Agreement is amended by replacing clause (ii) of such Section in its entirety with the following:

(ii) the Servicer to make Advances pursuant to existing Revolving Commitments,

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(f) Section 3.1 of the Loan Facility Agreement is amended by replacing the last sentence of subsection (e) of such Section in its entirety with the following:

Each of the Participants acknowledges and agrees that the Servicer shall be relying solely upon the Sponsor for purposes of calculating and ensuring compliance by Borrowers with the Franchisee Borrowing Base for each US Revolving Loan, US Term Loan, Canadian Revolving Loan and Canadian Term Loan.

(g) Article IX of the Loan Facility Agreement is amended by replacing the references to “US Revolving Commitments” in the last paragraph of such Article with “Revolving Commitments”.

(h) Schedule 1.1(a) to the Loan Facility Agreement is amended by replacing such Schedule in its entirety with the Schedule 1.1 (a) attached hereto.

(i) Exhibit B to the Loan Facility Agreement is amended by replacing such Exhibit in its entirety with the Exhibit B attached hereto.

(j) Exhibit C to the Loan Facility Agreement is amended by:

(i) replacing the first whereas clause with the following:

WHEREAS, Borrower engages in the business of leasing and selling furniture, electronics, appliances, and other household goods and is a franchisee of Aaron’s, Inc., a Georgia corporation formerly known as Aaron Rents, Inc. (“Aaron”) or a franchisee of 99LTO, LLC;

(ii) replacing the definitions of “Aaron’s Proprietary System” and “Franchise Agreement in their entirety with the following:

“Aaron’s Proprietary System” shall mean Aaron’s proprietary point of sale software system, as modified from time to time, used by Aaron and its franchisees and the franchisees of HomeSmart, such as Borrower.

“Franchise Agreement” means the written agreement between (a) Aaron and Borrower whereby Borrower is authorized to establish an “Aaron’s” franchise or (b) Borrower and either Aaron or 99LTO, LLC whereby Borrower is authorized to establish a HomeSmart franchise.

(iii) replacing the reference to “303 Peachtree Street, N.E., 2^nd Floor, Mail Code 1802, Atlanta, Georgia 30308” in Section 2.7(iv) with “3333 Peachtree Road, N.E., 3^rd Floor, Mail Code 1802, Atlanta, Georgia 30326”;

(iv) replacing Section 3.2 of such Exhibit in its entirety with the following:

3.2 Form of Lease Contracts. All Lease Contracts will be (a) in a form prescribed by Aaron for use by its franchisees and the franchisees of HomeSmart, (b) be transferable to Bank and (c) contain the following provision:

“The undersigned consents to the transfer of, or grant of a security interest in, any or all of the Lessor’s right, title and interest (residual or otherwise) in and under this Agreement to any third party. No such transfer, grant of security interest or enforcement of security interest will affect the undersigned’s lease obligations, change any duties of, or increase any burdens or risks imposed on, the parties to this Agreement. All rights and remedies of the undersigned provided under Section 2A-303 of the Uniform Commercial Code, as adopted in the applicable jurisdiction, are waived .”

4

Immediately upon execution of the same, all Lease Contracts shall be hereby assigned to Bank, and, immediately upon Bank’s request, delivered to Bank together with any and all related documents, and will contain, by way of a stamp or as a part of the preprinted lease contract, the following legend directly below Borrower’s customer’s signature:

“FOR VALUE RECEIVED, THIS AGREEMENT HAS BEEN ASSIGNED TO SUNTRUST BANK AS COLLATERAL SECURITY AND THERE ARE NO DEFENSES AGAINST THE ASSIGNEE.”

Borrower will not assign, sell, pledge, convey or by any other means transfer to any person other than Bank any Lease Contracts or Chattel Paper, without Bank’s prior written consent.

(v) replacing the reference to “303 Peachtree Street, N.E., 2^nd Floor, Mail Code 1802, Atlanta, Georgia 30308” in Section 4(i) with “3333 Peachtree Road, N.E., 3^rd Floor, Mail Code 1802, Atlanta, Georgia 30326” and (vi) “303 Peachtree Street, N.E., 2^nd Floor, Mail Code 1802, Atlanta, Georgia 30308, Telecopier No.: (404)724-3716” in Section 12 with “3333 Peachtree Road, N.E., 3^rd Floor, Mail Code 1802, Atlanta, Georgia 30326, Telecopier No.: (404) 439-7489”;

(vi) adding the following new definition in alphabetical order in Section 1.1 thereof:

“HomeSmart” shall mean the “HomeSmart” concept of Aaron’s or 99LTO, LLC, a Georgia limited liability company and a wholly owned subsidiary of the Sponsor.

(vii) amending Exhibit D thereto, the form of Quarterly Covenant Compliance Report, to:

A. add the following footnote after item I Rental Revenue to Debt Service to read as follows:

“Note: This covenant will not apply in the case of any Borrowers who have Revolving Loans or Term Loans as, in such case, the Borrowing Base in the applicable Loan Agreement will apply in lieu of this covenant.”; and

B. to amend and restate the text of footnote 10 in respect of the Debt to Rental Revenue calculation to read in its entirety as follows:

“Note: This covenant will apply and be tested on last day of each calendar quarter and not be tied to any Opening Date of store locations in the case of any Loan Agreement providing for Loans made available to a Borrower consisting solely of Revolving Loans.”

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2. Conditions to Effectiveness of this Amendment. Notwithstanding any other provision of this Amendment and without affecting in any manner the rights of the Participants hereunder, it is understood and agreed that this Amendment shall not become effective, and the Sponsor shall have no rights under this Amendment, until the Servicer shall have received:

(i) executed counterparts to this Amendment from the Sponsor, the Servicer, all Guarantors and all Participants;

(ii) an executed amendment to the Fee Letter between the Sponsor and the Servicer;

(iii) an executed amendment to the Servicing Agreement between the Sponsor and the Servicer;

(iv) a certificate of the Secretary or Assistant Secretary of the Sponsor and each Guarantor, (A) attaching certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of incorporation of the Sponsor and the Guarantors, (B) certifying the name, title and true signature of each officer of the Sponsor or the Guarantor, as the case may be, executing the Amendment and (C) certifying that there have been no changes to the articles of incorporation or bylaws of the Sponsor or any Guarantor since the Effective Date; and

(v) reimbursement or payment of its reasonable costs and expenses incurred in connection with this Amendment (including reasonable fees, charges and disbursements of King & Spalding LLP, counsel to the Servicer).

3. Representations and Warranties. To induce the Participants and the Servicer to enter into this Amendment, each Credit Party hereby represents and warrants to the Participants and the Servicer that:

(a) The execution, delivery and performance by such Credit Party of this Amendment (i) are within such Credit Party’s power and authority; (ii) have been duly authorized by all necessary corporate and shareholder action; (iii) are not in contravention of any provision of such Credit Party’s certificate of incorporation or bylaws or other organizational documents; (iv) do not violate any law or regulation, or any order or decree of any Governmental Authority; (v) do not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Credit Party or any of its Subsidiaries is a party or by which such Credit Party or any such Subsidiary or any of their respective property is bound; (vi) do not result in the creation or imposition of any Lien upon any of the property of such Credit Party or any of its Subsidiaries; and (vii) do not require the consent or approval of any Governmental Authority or any other person;

(b) This Amendment has been duly executed and delivered for the benefit of or on behalf of each Credit Party and constitutes a legal, valid and binding obligation of each Credit Party, enforceable against such Credit Party in accordance with its terms except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights and remedies in general;

(c) After giving effect to this Amendment, the representations and warranties contained in the Loan Facility Agreement and the other Operative Documents are true and correct in all material respects, and no Credit Event or Unmatured Credit Event has occurred and is continuing as of the date hereof; and

6

(d) After giving effect to this Amendment, all Participation Certificates previously issued remain in full force and effect.

4. Reaffirmation of Guaranty. Each Guarantor consents to the execution and delivery by the Sponsor of this Amendment and jointly and severally ratify and confirm the terms of the Guaranty Agreement with respect to the indebtedness now or hereafter outstanding under the Loan Facility Agreement as amended hereby and all promissory notes issued thereunder. Each Guarantor acknowledges that, notwithstanding anything to the contrary contained herein or in any other document evidencing any indebtedness of the Sponsor to the Participants or any other obligation of the Sponsor, or any actions now or hereafter taken by the Participants with respect to any obligation of the Sponsor, the Guaranty Agreement (and in the case of Sponsor, the guaranty as set forth in Article X of the Loan Facility Agreement) (i) is and shall continue to be a primary, absolute and unconditional obligation of such Guarantor, except as may be specifically set forth in the Guaranty Agreement (or in the case of Sponsor, the guaranty provisions set forth in Article X of the Loan Facility Agreement), and (ii) is and shall continue to be in full force and effect in accordance with its terms. Nothing contained herein to the contrary shall release, discharge, modify, change or affect the original liability of the Guarantors under the Guaranty Agreement (or in the case of Sponsor, the guaranty provisions set forth in Article X of the Loan Facility Agreement).

5. Effect of Amendment. Except as set forth expressly herein, all terms of the Loan Facility Agreement, as amended hereby, and the other Operative Documents shall be and remain in full force and effect and shall constitute the legal, valid, binding and enforceable obligations of the Sponsor to the Participants and the Servicer. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Participants under the Loan Facility Agreement, nor constitute a waiver of any provision of the Loan Facility Agreement. This Amendment shall constitute a Operative Document for all purposes of the Loan Facility Agreement.

6. Governing Law. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of Georgia and all applicable federal laws of the United States of America.

7. No Novation. This Amendment is not intended by the parties to be, and shall not be construed to be, a novation of the Loan Facility Agreement or an accord and satisfaction in regard thereto.

8. Costs and Expenses. The Sponsor agrees to pay on demand all reasonable costs and expenses of the Servicer in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of outside counsel for the Servicer with respect thereto.

9. Counterparts. This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile transmission or by electronic mail in pdf form shall be as effective as delivery of a manually executed counterpart hereof.

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10. Binding Nature. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors, successors-in-titles, and assigns.

11. Entire Understanding. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto.

[Signature Pages To Follow]

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

SPONSOR:
AARON’S, INC.
By:	/s/ Gilbert L. Danielson
	Gilbert L. Danielson
	Executive Vice President, Chief Financial Officer
GUARANTORS:
AARON INVESTMENT COMPANY, as Guarantor
By:	/s/ Gilbert L. Danielson
	Gilbert L. Danielson
	Vice President and Treasurer
99 LTO, LLC, as Guarantor
	By: AARON’S, INC., its Sole Manager
By:	/s/ Gilbert L. Danielson
	Gilbert L. Danielson
	Executive Vice President, Chief Financial Officer
AARON’S PRODUCTION COMPANY, as Guarantor
By:	/s/ Gilbert L. Danielson
	Gilbert L. Danielson President and CEO

[SIGNATURE PAGE TO FOURTH AMENDMENT TO

SECOND AMENDED AND RESTATED LOAN FACILITY AGREEEMENT]

PARTICIPANTS:
SUNTRUST BANK
By:	/s/ Mike Smith
	Name: Mike Smith
	Title: Director

[SIGNATURE PAGE TO FOURTH AMENDMENT TO

SECOND AMENDED AND RESTATED LOAN FACILITY AGREEEMENT]

WELLS FARGO BANK, N.A.
By:	/s/ Kay Reedy
	Name: Kay Reedy
	Title: Managing Director

[SIGNATURE PAGE TO FOURTH AMENDMENT TO

SECOND AMENDED AND RESTATED LOAN FACILITY AGREEEMENT]

REGIONS BANK
By:	/s/ Scott Rossman
	Name: Scott Rossman
	Title: SVP

[SIGNATURE PAGE TO FOURTH AMENDMENT TO

SECOND AMENDED AND RESTATED LOAN FACILITY AGREEEMENT]

BRANCH BANKING & TRUST CO.
	By:	/s/ Brantley Echols
		Name: Brantley Echols
		Title: Senior Vice President

[SIGNATURE PAGE TO FOURTH AMENDMENT TO

SECOND AMENDED AND RESTATED LOAN FACILITY AGREEEMENT]

BANK OF AMERICA, N.A.
By:	/s/ Ryan Maples
	Name: Ryan Maples
	Title: Vice President

[SIGNATURE PAGE TO FOURTH AMENDMENT TO

SECOND AMENDED AND RESTATED LOAN FACILITY AGREEEMENT]

Schedule 1.1(a)

PRICING GRID

Level	Total Debt to EBITDA Ratio	Margin			Unused
I	< 1.50:1.00		1.375	%		0.25	%
II	> 1.50:1.00 but < 2.00:1.00		1.625	%		0.25	%
III	> 2.00:1.00 but < 2.50:1.00		1.875	%		0.375	%
IV	> 2.50:1.00		2.125	%		0.375	%

EXHIBIT B

TO

SECOND AMENDED AND RESTATED LOAN FACILITY AGREEMENT

AND GUARANTY

FORM OF CANADIAN LOAN AGREEMENT

THIS LOAN AGREEMENT (this “Agreement”) dated as of                     , is made between                      (“Borrower”), a                      [incorporated]/[formed]under the laws of                     , and SUNTRUST BANK (“Bank”), a Georgia banking corporation having its principal office in Atlanta, Georgia.

W I T N E S S E T H:

WHEREAS, Borrower engages in the business of leasing and selling furniture, electronics, appliances, and other household goods and is a franchisee of Aaron’s, Inc., a Georgia corporation formerly known as Aaron Rents, Inc. (“Aaron”);

WHEREAS, Borrower has requested and Bank has agreed to provide financing to Borrower;

WHEREAS, Borrower and Bank wish to enter into this Agreement to set forth the terms and conditions of Bank’s establishment of a credit facility for Borrower;

THEREFORE, upon the terms and conditions hereinafter stated, and in consideration of the mutual premises set forth above and other adequate consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows:

1. DEFINITIONS AND RULES OF CONSTRUCTION.

1.1 As used in this Agreement, the following terms shall have the meanings set forth below (terms defined in the singular to have the same meaning when used in the plural and vice versa):

“Aaron’s Proprietary System” means Aaron’s proprietary point of sale software system, as modified from time to time, used by Aaron and its franchisees, such as Borrower.

“Account” means any right of Borrower to payment for goods sold or leased or for services rendered which is not evidenced by an Instrument or Chattel Paper, whether or not earned by performance.

“Account Debtor” means any Person who is liable on an Account.

“Advance” means an advance of funds by Bank on behalf of Borrower pursuant to the Line of Credit Note or Revolving Note executed by Borrower.

“Agreement” means this Loan Agreement and all exhibits, riders and schedules at any time executed by the parties and made a part hereof by reference, either as originally executed or as hereafter amended, restated, modified or supplemented from time to time.

“Applicable Law” means all laws, rules and regulations applicable to the Person, conduct, transaction, covenant or Loan Documents in question, including, without limitation, all applicable law and equitable principles; all provisions of all applicable state, provincial, territorial and federal constitutions, statutes, rules, regulations and orders of governmental bodies; and all orders, judgments and decrees of all courts and arbitrators.

“Approved Invoice” means an invoice for the aggregate purchase price of Merchandise purchased by Borrower with a purchase order approved by Aaron.

“Asset Disposition” means (i) all sales of Merchandise; (ii) all Merchandise which is determined to have been stolen; (iii) all Merchandise that is destroyed, lost or otherwise removed from the premises of Borrower other than pursuant to a Lease Contract or by outright sale or for repair work; and (iv) all “skipped” Merchandise which is Merchandise subject to a Lease Contract.

“Asset Disposition Prepayment” shall have the meaning set forth in Section 2.12(ii) hereof.

“Bank” means SunTrust Bank and its successors and assigns.

“BIA” means the Bankruptcy and Insolvency Act (Canada), as it may be amended from time to time.

“Books and Records” means all of Borrower’s books and records evidencing or relating to its business, financial condition or the Collateral, including, but not limited to, all customer lists, ledgers, invoices, purchase orders, financial statements, computer tapes and disks.

“Borrowing Base” shall mean, on any date of determination, an amount equal to [        ] multiplied by Rental Revenue for the most recently ended three calendar months.

“Borrowing Base Report” shall have the meaning set forth in Section 2.5(iv) hereof.

“Business Day” means any day other than a Saturday, Sunday or a day on which commercial banks in Toronto, Ontario are authorized by law to close.

“Business PAD” shall have the meaning set forth in the Pre-Authorized Debt Rules.

“CCAA” means the Companies Creditors Arrangement Act (Canada), as it may be amended from time to time.

“Chattel Paper” shall have the meaning ascribed to it in the PPSA.

“Closing Date” means for (i) the Revolving Commitment, the date set forth in the Revolving Note on which all Loan Documents have been executed and delivered and the conditions precedent to funding an Advance thereunder have been satisfied, (ii) the Term Loan, the date set forth in the Term Note on which all Loan Documents have been executed and delivered and the conditions precedent to funding the loan have been satisfied and (iii) the Line of Credit Commitment, the date set forth in the Line of Credit Note on which all Loan Documents have been executed and delivered and the conditions precedent to funding an Advance thereunder have been satisfied.

“Closing Fee” shall have the meaning given to such term in Section 2.13 hereof.

“Collateral” shall have the meaning given to such term in the Security Agreement.

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“Collateral Agreement” means an agreement executed by Borrower and any other Persons primarily or secondarily liable for all or part of the Loans or granting a security interest to Bank in specified Collateral as security for the Loans, including without limitation, this Agreement and any Guaranties.

“Commitment Fee” shall have the meaning set forth in Section 2.14 hereof.

“Debt” means (i) indebtedness for borrowed money or for the deferred purchase price of property or services (other than trade accounts payable on customary terms in the ordinary course of business), (ii) financial obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) financial obligations as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases, and (iv) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or financial obligations of others of the kinds referred to in clauses (i) through (iii) above.

“Debt Service” means, for any particular period, the total required payments of principal (excluding any payments of principal required to be made as a result of any Asset Disposition), interest and fees made by Borrower with respect to its Debt (other than Debt of Borrower which is subordinated to the Loan Indebtedness owing to Bank pursuant to a subordination agreement in form and substance satisfactory to Bank) during such period to the extent that such Debt arises pursuant to this Agreement or any other financing arrangement with respect to Merchandise.

“Default Condition” means the occurrence of any event which, after satisfaction of any requirement for the giving of notice or the lapse of time, or both, would become an Event of Default.

“Default Rate” means the annual percentage interest rate applied to the principal of the Loans not paid when due under the terms of the applicable Loan Documents, which rate shall equal the sum of two percent (2%) per annum plus the Floating Rate.

“Delinquent Payment Fee” shall have the meaning set forth in Section 2.15 hereof.

“Environment” means the component of the Earth, and includes (i) land, water and air, including all layers of the atmosphere; (ii) all organic and inorganic matter and living organisms; and (iii) the interacting natural systems that include components referred to in paragraphs (i) and (ii).

“Environmental Laws” means federal, provincial, local and foreign laws, principles of common law, regulations and codes, as well as orders, decrees, judgments or injunctions issued, promulgated, approved or entered thereunder relating to pollution, protection and presentation of the environment or occupational health and safety, including, but not limited to the release or threatened release of Hazardous Substances into the Environment or otherwise relating to the presence, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances.

“Equipment” means all machinery, equipment, furniture, fixtures, motor vehicles and other tangible personal property (other than Inventory) of Borrower, including, but not limited to, all items described on the Equipment Schedule (if attached) and all substitutions and replacements thereof.

“Event of Default” shall have the meaning set forth in Section 9 hereof.

“FCTA” means Borrower’s Foreign Currency Transaction Account held with Bank into which Bank shall deposit the Advances for the purpose of paying, by means of SWIFT transfer, Approved Invoices arising from purchases of Merchandise from a supplier, including any freight charges to the extent Aaron consents thereto.

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“Floating Rate” means a rate of interest per annum equal to the Prime Rate plus an additional [four] percent ([4.00%]¹ ) per annum, such rate to change as and when the Prime Rate changes.

“Franchise Agreement” means the written agreement between Aaron and Borrower whereby Borrower is authorized to establish an “Aaron’s” franchise.

“GAAP” means generally accepted accounting principles in Canada, consistently applied.

“Guarantor” means each Person who now or hereafter guarantees payment of the whole or any part of the Loan Indebtedness.

“Guaranty” means any guaranty agreement executed by each of the partners, shareholders, and where not prohibited by law, the spouses of such persons, of Borrower, or such other Persons as may be required by Bank, in favor of Bank with respect to the obligations of Borrower with respect to the Loans in the form provided by Bank, as the same may be amended, restated or supplemented from time to time.

“Hazardous Substances” means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or waste, petroleum or petroleum-derived substance or waste, or any constituent of any such substance or waste, including without limitation, any such substance regulated under or defined by any Environmental Law.

“Instrument” shall have the meaning ascribed to it in the PPSA.

“Inventory” means all inventory of Borrower, including, without limitation, all raw materials, work in process, finished goods, goods being leased pursuant to Lease Contracts, and other goods held by Borrower for sale or lease or furnished under contracts of service.

“Lease Contract” means a contract between Borrower and a customer to lease Merchandise in the form approved by Aaron (and which may included purchase options).

“Lien” means any interest in property securing an obligation, whether such interest is based on the common law, statute or contract, including, without limitation, a security interest, lien or security title arising from a security agreement, mortgage, security deed, trust deed, pledge, hypothec or conditional sale, or a lease, consignment or bailment for security purposes.

“Line of Credit Commitment” means the committed line of credit facility established by Bank in favor of Borrower in the amount set forth in the Line of Credit Note and upon the terms described in this Agreement.

“Line of Credit Loan” means a loan or an advance made by Bank to Borrower under its Line of Credit Commitment.

“Line of Credit Note” means a note executed by Borrower in favor of Bank, substantially in the form of Exhibit A-1 attached hereto in the committed principal amount of Bank’s Line of Credit Commitment evidencing the obligation of Borrower to repay its Line of Credit Loans.

¹  Note: This interest rate shall be as designated by Aaron’s in the applicable loan Funding Approval Notice.

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“Loan Account” means the internal bank loan account established by Bank for Borrower.

“Loan Documents” means this Agreement, the Notes, the Collateral Agreements, any other documents relating to the Loans delivered by Borrower or any guarantor or surety thereof to Bank and any amendments thereto.

“Loan Indebtedness” means all amounts due and payable by Borrower under the terms of the Loan Documents with respect to the Loans made thereunder, including, without limitation, outstanding principal, accrued interest, any late charges, and all reasonable costs and expenses of any legal proceeding brought by Bank to collect any of the foregoing (including without limitation, reasonable legal or attorneys’ fees).

“Loans” means the Line of Credit Loans, Revolving Loans or Term Loans.

“Loan Term” shall have the meaning set forth in Section 2.8(i) hereof.

“Material Adverse Effect” means any materially adverse change in (i) the business, results of operations, financial condition, assets or prospects of Borrower, taken as a whole, (ii) the ability of Borrower to perform its obligations under this Agreement, or (iii) the ability of the Guarantors (taken as a whole) to perform their respective obligations under the Guaranty.

“Maturity Date” means for (i) the Revolving Commitment, the date set forth in the Revolving Note, (ii) the Term Loan, the date set forth in the Term Note and (iii) the Line of Credit Commitment, the date set forth in the Line of Credit Note.

“Merchandise” means goods distributed or sold to Borrower through Aaron.

“Net Book Value” means, for any item of Merchandise, the cost of such Merchandise less accumulated depreciation as calculated in accordance with the Aaron’s Proprietary System.

“Note” means the Line of Credit Note, the Revolving Note, or the Term Note, as the case may be.

“Opening Date” means with respect to each store location, the date determined by Aaron to be the opening date of such location in accordance with its standard practice, as notified to Bank.

“PAD Authorization” means a pre-authorized debit authorization executed by Borrower authorizing Bank to cause a specified account of Borrower to be debited to pay amounts payable hereunder, such authorization to be in the form attached hereto as Exhibit F or such other form as Bank may require from time to time.

“Payment Date” means the last day of each calendar month; provided, however, if such day is not a Business Day, the next succeeding Business Day which is also a US Business Day.

“Permitted Liens” means Liens in favor of Bank or Aaron; Liens for taxes not yet due or payable; statutory Liens securing the claims of materialmen, mechanics, carriers and landlords for labor, materials, supplies or leases incurred in the ordinary course of Borrower’s business, but only if payment thereof is not at the time required and such Liens are at all times junior in priority to the Liens in favor of Bank; Liens shown on Exhibit B attached hereto (if any); and Liens hereafter consented to by Bank in writing.

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“Person” means a corporation, an association, partnership, an organization, a business, a business trust, a limited liability company, an individual, a government or political subdivision thereof or a governmental agency.

“Personal PAD” shall have the meaning set forth in the Pre-Authorized Debit Rules.

“PPSA” means the Personal Property Security Act as in effect from time to time in the Province of Ontario.

“Pre-Authorized Debit Rules” means Rule H-1 of the Canadian Payments Association, as the same may be amended, modified, supplemented, restated, re-enacted or replaced from time to time.

“Prime Rate” means, on any date of determination, the higher of (a) the reference rate of interest, expressed as an annual rate, publicly announced or posted from time to time by Bloomberg on page BTMM for Canadian Money Market rates or (b) the average one month Bankers’ Acceptance rate quoted on Reuters Service, page CDOR, as at approximately 10:00 a.m. (Toronto, Ontario time) on such day plus 1% per annum.

“Quarterly Covenant Compliance Report” means that Quarterly Covenant Compliance Report substantially in the form of Exhibit D attached hereto.

“Rental Revenue” means, for any period, the gross revenues of Borrower from leases to the public of Borrower’s furniture inventory, computers, electronics, appliances and lease equipment including, without limitation, all customer deposits, advance lease payments, waiver fees, late fees, delivery fees, nonsufficient fund fees and reinstatement fees, but excluding all retail sales proceeds, goods and services tax, harmonized sales tax or provincial sales taxes.

“Revolving Commitment” means the committed revolving facility established by the Bank in favor of Borrower in the amount set forth in the Revolving Note and upon the terms described in this Agreement.

“Revolving Loan” means a loan or an advance made by the Bank to the Borrower under its Revolving Commitment.

“Revolving Note” means a note executed by Borrower in favor of Bank, substantially in the form of Exhibit A-3 attached hereto, in the committed principal amount of the Bank’s Revolving Commitment evidencing the obligation of the Borrower to repay its Revolving Loans.

“Security Agreement” means a security agreement made by Borrower in favour of Bank substantially in the form attached hereto as Exhibit E attached hereto.

“Set Interval” shall have the meaning set forth in the Pre-Authorized Debit Rules.

“Solvent” means, as to any Person, such Person (i) is able to pay, and does pay, its debts as they mature and (ii) has a positive tangible net worth determined in accordance with GAAP.

“Sporadic” shall have the meaning set forth in the Pre-Authorized Debit Rules.

“Spousal Consent” means any agreement provided by the spouse of any Person executing a Guaranty to the extent such spouse has not personally executed a Guaranty, to be substantially in the form provided by Bank.

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“Subsidiary” means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by Borrower.

“SWIFT” means Society for Worldwide Interbank Financial Telecommunication.

“Term Loan” means a single loan made by Bank to Borrower in an amount not to exceed the Term Loan Commitment.

“Term Loan Commitment” means the obligation of Bank to make a Term Loan in favor of Borrower in the amount set forth in the Term Note and upon the terms described in this Agreement.

“Term Note” means a note executed by Borrower in favor of Bank, substantially in the form of Exhibit A-2 attached hereto in the committed principal amount of Bank’s Term Loan Commitment evidencing the obligation of Borrower to repay its Term Loan.

“US Business Day” means any day other than a Saturday, Sunday or a day on which commercial banks in Atlanta, Georgia are authorized by law to close.

1.2 Accounting Terms and Determination. Accounting terms used in this Agreement such as “amortization,” “depreciation,” “interest expense,” and “tangible net worth” shall have the meaning normally given them by, and shall be calculated (both as to amounts and classification of items) in accordance with, GAAP. Any pronoun used herein shall be deemed to cover all genders. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations, and all references to any instruments or agreements, including, without limitation, references to any of the Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof.

1.3 Interest Calculation and Payments. Unless otherwise stated, wherever in this Agreement reference is made to a rate of interest “per annum” or a similar expression is used, such interest will be calculated on the basis of a calendar year of 360 days, as the case may be, and using the nominal rate method of calculation and not the effective rate method of calculation or on any other basis that gives effect to the principle of deemed reinvestment of interest. Interest will continue to accrue after maturity and default and/or judgment, if any, until payment thereof, and interest will accrue on overdue interest, if any.

1.4 Interest Act (Canada). For the purposes of this Agreement, whenever interest to be paid hereunder is to be calculated on the basis of 360 days or any other period of time that is less than a calendar year, the yearly rate of interest to which the rate determined pursuant to such calculation is equivalent is the rate so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360 or such other number of days in such period, as the case may be.

1.5 Currency. All references herein to currency or to $ are to lawful currency of Canada.

2. LOAN; USE OF PROCEEDS.

2.1 Establishment of FCTA; Loan Account.

(i) Prior to the Closing Date, Bank shall (unless the Borrower has only a Term Loan) establish a FCTA for Borrower.

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(ii) Prior to the Closing Date, Bank shall also establish on its books an internal loan account in Borrower’s name (the “Loan Account”) in which Bank shall record, in accordance with customary accounting practice, all charges, expenses and other items properly chargeable to Borrower; all payments made by Borrower on account of indebtedness evidenced by the Loan Account; all proceeds of Collateral which are finally paid to Bank at its office in cash or solvent credits; and other appropriate debits and credits. The debit balance of the Loan Account shall reflect the amount of Borrower’s Loan Indebtedness from time to time by reason of the Loans and other appropriate charges hereunder. At least once each month, Bank shall render a statement of account for the Loan Account, which statement shall be considered correct, and accepted by and conclusively binding upon Borrower, unless Borrower notifies Bank to the contrary within thirty (30) days after Bank’s sending of said statement to Borrower.

2.2 Establishment of Line of Credit Loan. Any Line of Credit Commitment now or hereafter committed to by Bank pursuant to which Borrower shall execute and deliver to Bank a Line of Credit Note shall be governed by and issued pursuant to the provisions, terms and conditions set forth herein.

2.3 Line of Credit Advances.

(i) Upon Borrower’s execution of this Agreement and a Line of Credit Note and compliance with the terms of this Agreement, and subject to Bank’s confirmation if requested by Aaron that Bank has a first priority security interest in the Collateral, Bank shall notify Borrower that Borrower may request Advances pursuant to the Line of Credit Commitment. Bank shall make such Advances into the FCTA for the sole purpose of honoring requests from Borrower, made through Aaron by fax, email or other electronic form of notification to Aaron by 12:00 noon (Atlanta, Georgia time) on the last Business Day immediately prior to the 10^th or the 25^th day of each month, for SWIFT transfers to suppliers of Merchandise in payment of Approved Invoices, including any freight charges to the extent Aaron consents thereto, or with Aaron’s consent, to Borrower’s own account for the payment of sales use taxes. Borrower shall not use the FCTA for any purpose other than as contemplated by this Agreement. The maximum principal amount of Advances under the Line of Credit Commitment at any time outstanding shall not exceed the committed amount of the Line of Credit Commitment. Each Advance shall be in the amount of not less than $500.

(ii) Borrower shall submit purchase order requests for Merchandise to Aaron from time to time. In the event that the purchase order is authorized pursuant to the Franchise Agreement, Aaron will prepare the purchase order and submit the same to the appropriate supplier requested by Borrower. The supplier will be instructed to ship all Merchandise directly to Borrower and Borrower will be responsible for (a) inspecting all Merchandise and resolving all disputes regarding the Merchandise with such supplier and (b) paying all freight and other shipping and/or insurance charges arising in connection therewith with funds other than the proceeds of Loans, unless otherwise agreed by Aaron. The supplier will invoice Borrower for such Merchandise in accordance with normal industry practice. When Borrower wishes to pay such invoice, Borrower, subject to availability of the Line of Credit Commitment and the minimum borrowing threshold, shall pay such invoice by requesting, by way of fax, email or other electronic form of notification by 12:00 noon (Atlanta, Georgia time) on the last Business Day immediately prior to the 10^th or the 25^th day of each month, that Aaron direct Bank to pay such invoice by initiating a SWIFT transfer from Borrower’s FCTA to the applicable vendor and Bank shall be entitled to rely on such request from Aaron as if it had been made directly by the Borrower. Any directions for SWIFT transfers transmitted by Aaron to Bank prior to 12:00 noon (Atlanta, Georgia time) on the Business Day immediately preceding the 10^th or the 25^th day of a month, shall be paid by Bank no later than the next Business Day thereafter, unless Borrower is otherwise notified by Aaron or Bank.

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(iii) Upon receipt of the request for a SWIFT transfer (provided, however, that such request relates to an Approved Invoice), Bank shall honor such request by making an Advance pursuant to the Line of Credit Commitment in the amount of such request into Borrower’s FCTA and forwarding such amount to the supplier by means of a SWIFT transfer in accordance with the instructions of Borrower. Upon receipt of any request to deposit funds into an account in the name of Borrower and receipt of Aaron’s approval thereof, Bank shall honor such request by making an Advance pursuant to the Line of Credit Commitment in the amount of such request into Borrower’s FCTA and automatically forwarding such amount to such account of Borrower by means of a SWIFT transfer in accordance with the instructions of Borrower. In the event that a request for a SWIFT transfer is presented for payment and Borrower’s availability pursuant to the Line of Credit Commitment is insufficient to honor such request, Bank may, but shall have no obligation to, make such overadvance, which shall be an Advance for all purposes hereunder, but shall be due and payable upon demand. At the end of each calendar month, Bank shall provide Borrower with a monthly FCTA statement in the form customarily used by Bank for its commercial customers and a loan account statement.

(iv) The aggregate amount of Advances made to Borrower during such month shall be amortized into twenty-four (24) equal payments of principal due and payable on the next succeeding Payment Dates; provided, however, that, in the event that Bank terminates the Line of Credit Commitment as provided in Section 2.8 below, all outstanding amounts shall be due and payable on the 24th Payment Date following such termination.

2.4 Establishment of Revolving Loan. Any Revolving Commitment now or hereafter committed to by Bank pursuant to which Borrower shall execute and deliver to Bank a Revolving Note shall be governed by and issued pursuant to the provisions, terms and conditions set forth herein.

2.5 Revolving Advances.

(i) Upon Borrower’s execution of this Agreement and a Revolving Note and compliance with the terms of this Agreement and subject to Bank’s confirmation if requested by Aaron that Bank has a first priority security interest in the Collateral, Bank shall notify Borrower that Borrower may request Advances pursuant to the Revolving Commitment. Bank shall make such Advances into the FCTA for the sole purpose of honoring requests from Borrower, made through Aaron by fax, email or other electronic form of notification to Aaron by 12:00 noon (Atlanta, Georgia time) on the Business Day immediately preceding the 10^th or the 25^th day of each month, to purchase inventory, and to the extent permitted by Aaron, to pay sales and use taxes and freight charges. Borrower shall not use the FCTA for any purpose other than as contemplated by this Agreement. The maximum principal amount of Advances under the Revolving Commitment at any time outstanding shall not exceed the lesser of (A) the committed amount of the Revolving Commitment and (B) (1) the Borrowing Base, as most recently reported by Aaron to Bank pursuant to Section 2.5(iv) hereof minus (2) the outstanding principal amount of the Term Loan (such lesser amount herein referred to as the “Revolver Availability’’). Each Advance shall be in the amount of not less than $500.

(ii) Borrower shall submit purchase order requests for Merchandise to Aaron from time to time. In the event that the purchase order is authorized pursuant to the Franchise Agreement, Aaron will prepare the purchase order and submit the same to the appropriate supplier requested by Borrower. The supplier will be instructed to ship all Merchandise directly to Borrower and Borrower will be responsible for (a) inspecting all Merchandise and resolving all disputes regarding the Merchandise with such supplier and (b) paying all freight and other shipping and/or insurance charges arising in connection therewith with funds other than the proceeds of Loans, unless otherwise agreed by Aaron. The supplier will invoice Borrower for such Merchandise in accordance with normal industry practice. When Borrower wishes to pay such invoice by Advance pursuant to the Revolving Commitment, Borrower, subject to the Revolver Availability, shall pay such invoice by requesting, through fax, email or other electronic form of notification, that Aaron direct Bank to pay such invoice by initiating a SWIFT transfer from Borrower’s FCTA to the applicable vendor and Bank shall be entitled to rely on such request from Aaron as if it had been made directly by the Borrower. Any directions for such SWIFT transfers transmitted by Aaron to Bank prior to 12:00 noon (Atlanta, Georgia time) on any Business Day immediately preceding the 10^th or the 25^th day of any month, shall be paid by the Bank no later than the next Business Day thereafter, unless Borrower is otherwise notified by Aaron or the Bank.

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(iii) Upon receipt of the request for a SWIFT transfer (provided, however, that such request relates to an Approved Invoice), the Bank shall honor such request by making an Advance pursuant to the Revolving Commitment in the amount of such request into Borrower’s FCTA and automatically forwarding such amount to the supplier by means of a SWIFT transfer in accordance with the instructions of Borrower. Upon receipt of any request to deposit funds into an account in the name of Borrower and receipt of Aaron’s approval thereof, the Bank shall honor such request by making an Advance pursuant to the Revolving Commitment in the amount of such request into Borrower’s FCTA and automatically forwarding such amount to such account of Borrower by means of a SWIFT transfer in accordance with the instructions of Borrower. In the event that a request for a SWIFT transfer is presented for payment and Borrower’s availability pursuant to the Revolving Commitment is insufficient to honor such request, the Bank may, but shall have no obligation to, make such overadvance, which shall be an Advance for all purposes hereunder, but shall be due and payable upon demand. At the end of each calendar month, Bank shall provide Borrower with a monthly FCTA statement in the form customarily used by Bank for its commercial customers and a loan account statement.

(iv) On the fifth Business Day of each month, for a Borrower with a Revolving Loan (as determined on the last day of the preceding calendar month), Aaron shall calculate the Borrowing Base and report the same to Bank in writing (the “Borrowing Base Report”), and Bank shall be entitled to rely conclusively upon such information. Upon receipt of the Borrowing Base Report, Bank shall input such information into Bank’s loan records to be effective as of the date which is two Business Days after receipt of such information. On the 15^th day of each calendar month, Bank shall mail to Borrower a bill setting forth the total amount of principal (to the extent that the Revolving Availability is less than zero) and interest due on the next Payment Date which bill shall be considered correct, and accepted by and conclusively binding upon Borrower, unless Borrower notifies Bank to the contrary within thirty (30) days after Bank’s sending of said bill to Borrower. In addition, Bank, on the date which is two Business Days after receipt of the Borrowing Base Report from Aaron, shall notify Borrower in writing (including facsimile) of the new Borrowing Base for Borrower and shall require that Borrower repay on the next Payment Date any additional Advances made since the date of the preparation of the statement for such Payment Date if necessary to avoid any overadvance as of such date and such amount (in addition to any amounts set forth in the bill to Borrower) shall be due and payable on the next Payment Date.

2.6 Term Loan. Any Term Loan Commitment now or hereafter committed to by Bank pursuant to which Borrower shall execute and deliver to Bank a Term Note shall be governed by and issued pursuant to the provisions, terms and conditions set forth herein. Upon Borrower’s execution of this Agreement and a Term Note and compliance with the terms of this Agreement and subject to Bank’s confirmation if requested by Aaron that Bank has a first priority security interest in the Collateral, Bank may make a Term Loan to Borrower in a principal amount not to exceed the Term Loan Commitment; provided, however, that if for any reason the full amount of Bank’s Term Loan Commitment is not fully drawn on the Closing Date, the undrawn portion thereof shall automatically be cancelled.

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2.7 Repayment.

(i) Line of Credit Loans. Payments of principal for Line of Credit Loans shall be due and payable by Borrower to Bank on each Payment Date and subject to the provisions of Section 2.8 below, on the Maturity Date for the Line of Credit Commitment, unless sooner accelerated in accordance with the terms hereof.

(ii) Revolving Loans. Payments of principal for Revolving Loans shall be due and payable by Borrower to Bank, subject to the provisions of Section 2.10(b) below, on the Maturity Date for the Revolving Commitment, unless sooner accelerated in accordance with the terms hereof.

(iii) Term Loans. Payments of principal for Term Loans shall be due and payable by Borrower to Bank in installments payable on the dates set forth in the Term Note, provided, however, that, to the extent not previously paid, the aggregate unpaid principal balance of the Term Loans shall be due and payable on the Maturity Date for the Term Loan.

(iv) Except as provided below, all payments of principal of, or interest on, the Loans (including Asset Disposition Prepayments) and all other sums due under the terms of the Loan Documents at Set Intervals shall be made by way of pre-authorized debit from an account at a financial institution in Canada specified by Borrower. All voluntary prepayments of the Loan shall be made to Bank at the Lender’s Account by way of SWIFT transfer of immediately available funds or by pre-authorized debit from an account at a financial institution in Canada specified by Borrower.

2.8 Loan Term; Voluntary Termination.

(i) The original term of the Line of Credit Commitment shall be for a period of 364 days from the Closing Date (the “Loan Term”). Thereafter, the Loan Term shall automatically be extended on each anniversary of the Closing Date for an additional 364 day period unless either party terminates the Line of Credit Commitment as set forth hereunder. Upon ninety (90) days prior written notice to Borrower, Bank may, at its option, terminate the Line of Credit Commitment. Upon written notice to Bank, Borrower may, at its option, terminate the Line of Credit Commitment. Bank may also terminate the Line of Credit Commitment pursuant to Section 10 hereof. Upon the effective date of a termination of the Line of Credit Commitment effected by Borrower, the principal of and all accrued but unpaid interest on the Loan Indebtedness in respect of the Line of Credit Loans shall be forthwith due and payable, but all of the duties and covenants of Borrower hereunder, and all rights, remedies and privileges of Bank under this Agreement and Bank’s security interest in the Collateral, shall continue in full force and effect until all of the Loan Indebtedness in respect of the Line of Credit Loans is fully and finally paid. In the event Bank elects to terminate, (a) Bank shall continue to make Advances until the effective date of the termination and (b) Advances outstanding at the effective date of the termination shall be repaid according to the twenty-four (24) month amortization schedule provided above, provided, however, that, notwithstanding the foregoing all outstanding Loan Indebtedness in respect of the Line of Credit Loans shall be due and payable in full on the 24^th Payment Date following termination of the Line of Credit Commitment by Bank. Nothing set forth in this Section 2.8(i) shall be deemed to limit the ability of Bank to declare all amounts outstanding under the Line of Credit Note immediately due and payable upon the occurrence of an Event of Default hereunder as provided herein.

(ii) The Revolving Commitment and the Term Loan shall terminate on the Maturity Date for the Revolving Commitment and the Term Loan set forth in the Revolving Note and the Term Note, as the case may be, which date shall be no more than two years from the Closing Date, subject to Section 10 hereof. Upon the termination of the Revolving Commitment or the Term Loan, the principal of and all accrued but unpaid interest on the Loan Indebtedness shall be forthwith due and payable, but all of the duties and covenants of Borrower hereunder, and all rights, remedies and privileges of Bank under this Agreement and Bank’s security interest in the Collateral, shall continue in full force and effect until all of the Loan Indebtedness is fully and finally paid.

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2.9 Interest.

(i) From and after the date hereof, interest shall accrue on the unpaid principal amount of the Loan Indebtedness at the Floating Rate. Interest shall be calculated daily and shall be computed on the basis of actual days elapsed over the period of a 360 day year. Interest shall be payable in arrears on each Payment Date and on the Maturity Date, whether due to acceleration or otherwise. Any principal balance outstanding pursuant to a Loan Commitment not paid when due shall bear interest at a rate of interest per annum equal to the Default Rate, such interest to be payable upon demand. After the occurrence of an Event of Default and during the continuance thereof, the outstanding principal balance of the Loans shall bear interest at the Default Rate, which shall be payable on demand.

(ii) In no contingency or event whatsoever shall the amount paid or agreed to be paid to Bank for the use, forbearance or detention of money advanced under this Agreement exceed the highest lawful rate permissible under Applicable Law. It is the intent hereof that Borrower will not pay or contract to pay, and that Bank not receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be charged to and paid by Borrower under Applicable Law. All interest (and charges deemed interest) paid or agreed to be paid to Bank shall, to the extent permitted by Applicable Law, be amortized, pro rated, allocated and spread in equal parts throughout the full term hereof until payment in full of the principal amount of the Loan Indebtedness owing hereunder (including the period of any renewal or extension hereof) so that interest on the principal amount of the Loan Indebtedness outstanding hereunder for such full period will not exceed the maximum amount permitted by Applicable Law.

2.10 Loan Prepayment.

(i) Voluntary Prepayment. Borrower shall have the right to prepay the Loans in whole or in part on any Payment Date, but subject to Borrower having provided at least two (2) Business Days’ prior written notice to Bank. Partial prepayments of any Line of Credit Loan (other than proceeds of Asset Dispositions which shall be applied as set forth in the following Section 2.10(ii)) shall be applied to reduce the current month’s Advances with any excess prepayment applied to unpaid principal payments of the Loans in inverse order of maturity.

(ii) Mandatory Prepayment. (i) For the Line of Credit Loan, mandatory prepayment shall be required for Asset Dispositions. For the Revolving Loan, on any Payment Date on which the aggregate outstanding principal amount of the Revolving Loan exceeds the lesser of (x) the Revolving Commitment or (y) (1) the Borrowing Base, as most recently reported to Borrower by Bank pursuant to Section 2.7(iv) hereof minus (2) the outstanding principal balance of the Term Loan, Borrower shall prepay the Revolving Loans in the amount of such overadvance, as notified to Borrower by Bank.

2.11 Audits. Borrower hereby consents and authorizes Aaron or Bank or any agent or representative thereof to conduct periodic field audits of Borrower. Such field audits may include, without limitation, examinations of the payment receipts, tax returns, bank statements, loan statements, Lease Contracts, inventory on hand, computer-generated reports of Asset Dispositions, Rental Revenue and other financial data necessary to determine the accuracy and validity of the reports, compliance certificates, financial reports and other information forwarded to either of Bank or Aaron by Borrower in connection with the Loan.

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2.12 Tracking of Merchandise; Asset Dispositions.

(i) All Merchandise financed by Bank must be serialized by means of the Aaron’s Proprietary System for appropriate reconciliation of Advances and receipt of Merchandise and for purposes of tracking Asset Dispositions, if applicable. Borrower shall be obligated to furnish serial numbers for all Merchandise purchased directly to Aaron on a weekly basis (and, if available, on a daily basis) by transmittal of Borrower’s receiving report (containing Aaron’s Proprietary System numbers) directly to Aaron on the Aaron’s Proprietary System. As set forth more fully below, Aaron will maintain and track such information as agent for Bank and Bank shall at all times have access to such information.

(ii) If Borrower has a Line of Credit Note and an Asset Disposition occurs, Borrower shall immediately report such Asset Disposition to Aaron by means of the Aaron’s Proprietary System, such information to include the Aaron’s Proprietary System numbers, and if assigned, the serial numbers of the Merchandise subject to the Asset Disposition, the Net Book Value of such Merchandise and the proceeds received by Borrower therefrom. Aaron, on a monthly basis, shall transmit all such information to Bank in a summary form. Based solely on such information provided by Aaron, Bank will notify Borrower on a monthly basis, of the amount of the required prepayment (the “Asset Disposition Prepayment”) of the aggregate outstanding amount of the Line of Credit Loan due on the next Payment Date which amount shall be equal to the Net Book Value of the Asset Dispositions during the preceding month not applied to Advances made during such month as set forth above, unless otherwise agreed to by Bank. Borrower shall be notified by Bank by the Business Day next following the 25^th day of each calendar month of the Asset Disposition Prepayment and payment thereof shall be due on the next succeeding Payment Date.

2.13 Closing Fee. On the Closing Date of each Loan, Borrower shall pay to Bank a closing fee (“Closing Fee”) in the amount of $500 per store location[plus $5,000]².

2.14 Commitment Fees.

(i) Borrower shall pay a commitment fee (the “Commitment Fee”) on any unused portion of the Line of Credit Commitment and the Revolving Commitment in the amount of         % per annum, such Commitment Fee to be paid quarterly in arrears on every third Payment Date, commencing on the third Payment Date after the Closing Date.

(ii) All Commitment Fees shall be paid on the dates due, in immediately available funds, to Bank.

2.15 Delinquent Payment Fees. In the event that any payment due and payable hereunder is not received by Bank on the Payment Date when due (including, without limitation, any payment not received as a result of the dishonour of a pre-authorized debit or a return of a pre-authorized debit initiated by Borrower), Borrower shall, upon request from Bank, pay to Bank a delinquent payment fee (the “Delinquent Payment Fee”) in an amount equal to the greater of (i) one percent (1%) of the amount of the late payment and (ii) $500.00.

3. COLLATERAL AND INSURANCE.

3.1 Granting of Security Interest in Collateral. As security for the payment and performance of all of the Loan Indebtedness, Borrower shall enter into the Security Agreement and grant Bank thereunder a continuing security interest in its Collateral. The Loan Indebtedness shall also be secured by any other property (whether real or personal) in which Borrower may have heretofore or concurrently herewith granted, or may hereafter grant, a Lien in favor of Bank.

²  Note: in the case of a Borrower with a Revolving Commitment or a Term Loan Commitment that has customized financial covenants as specified by Sponsor in accordance with Section 6 hereof, an additional $5,000 fee will be charged.

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3.2 Form of Lease Contracts. All Lease Contracts will be (i) in a form prescribed by Aaron for use by its franchisees, (ii) be transferable to Bank and (iii) contain the following provision:

“The undersigned consents to the transfer of, or grant of a security interest in, any or all of the Lessor’s right, title and interest (residual or otherwise) in and under this Agreement to any third party. No such transfer, grant of security interest or enforcement of security interest will (a) affect the undersigned’s lease obligations or (b) change any duties of, or increase any burdens or risks imposed on, the parties to this agreement.”

Immediately upon execution of the same, all Lease Contracts shall be hereby assigned to Bank, and, immediately upon Bank’s request, delivered to Bank together with any and all related documents, and will contain, by way of a stamp or as a part of the preprinted lease contract, the following legend directly below Borrower’s customer’s signature:

“FOR VALUE RECEIVED, THIS AGREEMENT HAS BEEN ASSIGNED TO SUNTRUST BANK AS COLLATERAL SECURITY AND THERE ARE NO DEFENSES AGAINST THE ASSIGNEE.”

Borrower will not assign, sell, pledge, convey or by any other means transfer to any person other than Bank any Lease Contracts or Chattel Paper, without Bank’s prior written consent.

3.3 Other Documents. Borrower shall execute and deliver, or shall be caused to be executed and delivered, to Bank such other instruments, agreements, assignments, notifications or other documents relating to the Collateral as Bank may from time to time request in order to evidence, perfect or continue the perfection of Bank’s Liens upon any of the Collateral.

3.4 Insurance. Borrower shall maintain and keep in force insurance of the types and in the amounts customarily carried in lines of business similar to Borrower’s and such other insurance as Bank may require, including, without limitation, theft, fire, public liability, business interruption, casualty, property damage, and worker’s compensation insurance, which insurance shall be carried with companies and in amounts satisfactory to Bank. All casualty and property damage insurance shall name Bank as mortgagee, sole loss payee, or additional insured, as appropriate. Borrower shall deliver to Bank from time to time, at Bank’s request, copies of all such insurance policies and certificates of insurance and schedules setting forth all insurance then in effect. Each policy of insurance shall contain a clause requiring the insurer to give not less than thirty (30) days’ prior written notice to Bank in the event of any lapse, termination or cancellation of the policy for any reason whatsoever and a clause that the interest of Bank shall not be impaired or invalidated by any act or neglect of Borrower or owner of the property nor by the occupation of the premises for purposes more hazardous than are permitted by said policy. All such insurance policies shall contain such other provisions as Bank may require in order to protect Bank’s Lien in the collateral and Bank’s right to receive payments under such policies. Borrower hereby appoints Bank as attorney in fact for Borrower to file claims under any insurance policies, to receive, receipt and give acquittance for any payments that may be payable to Borrower thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments, or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies, which power of attorney shall be deemed coupled with an interest and irrevocable so long as Bank shall have a Lien in any of the Collateral pursuant to this Agreement. If Borrower shall fail to procure such insurance or to pay any premium with respect thereto, then Bank may, at its discretion, procure such insurance or pay such premium and any costs so incurred by Bank shall constitute a part of the Loan Indebtedness. Bank may apply the proceeds of any insurance policy received by Bank to the payment of any liabilities, whether or not due, in such order of application as Bank shall determine. Borrower shall promptly furnish Bank with certificates or other evidence satisfactory to Bank indicating compliance with the foregoing insurance requirements.

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3.5 Validation and Collection of Accounts. Whether or not a Default Condition or an Event of Default has occurred, Bank shall have the right, at any time or times hereafter, in the name of Bank or any designee of Bank to verify the validity, amount or any other matter relating to any Accounts by mail, telephone or otherwise, and Borrower shall fully cooperate with Bank in an effort to facilitate and promptly conclude any such verification process. Unless Bank shall at any time following the occurrence of an Event of Default, elect to give notice to Account Debtors to make payments on the Accounts directly to Bank, Borrower shall endeavor in the first instance to make collection of its Accounts for Bank. Borrower shall at the request of Bank notify the Account Debtors of the security interest of Bank in any Account and Bank may itself at any time so notify Account Debtors. Upon or after the occurrence of an Event of Default, Borrower shall (if and to the extent requested to do so by Bank) notify the Account Debtors to make all payments owing to Borrower directly to Bank for application to the Loan Indebtedness.

3.6 Maintenance of Collateral. Borrower shall maintain all Inventory and Equipment in good condition, reasonable wear and tear excepted in the case of Equipment, and shall, as and when requested by Bank, provide Bank with a list of all of the Equipment and evidence of ownership thereof. Borrower shall not permit any of the Equipment to become affixed to any real property so that such Equipment is deemed a fixture under the real estate laws of the applicable jurisdiction.

3.7 Expenses Relating to Collateral. Borrower shall pay Bank on demand an amount equal to any and all expenses, including legal fees, incurred or paid by Bank in connection with Bank’s insuring, maintaining, protecting, storing, safeguarding, or paying Liens with respect to any of the Collateral or otherwise discharging any duty or obligation of Borrower with respect to any of the Collateral.

3.8 Rights to Collateral. Bank shall have no duty to collect, protect or preserve the underlying value of any Collateral or any income thereon or to preserve any rights against prior parties. Bank may exercise its rights and remedies with respect to the Collateral without first resorting (and without regard) to any other security for the Loans or other sources of payment or reimbursement for the Loan Indebtedness.

4. CONDITIONS PRECEDENT.

Borrower shall deliver and Bank shall have received the following documents, each in form and substance satisfactory to Bank, as conditions precedent of the Loans:

(i) a validly executed copy of this Agreement and the Security Agreement;

(ii) the validly executed Notes;

(iii) a validly executed copy of a Guaranty of each partner or majority stockholder of Borrower, and to the extent not prohibited by Applicable Law, the spouse of such Person together, in the case of the spouse, a certificate of independent legal advice with respect to the spouse’s execution of such Guaranty; provided, however, that if such spouse is not providing a Guaranty, a validly executed copy of the Spousal Consent;

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(iv) a validly executed landlord’s waiver, in form and substance satisfactory to Bank, for each location leased by Borrower where the financed Merchandise is located;

(v) a validly executed PAD Authorization in the form attached hereto as Exhibit F, authorizing Bank to debit Borrower’s bank account at a Canadian financial institution specified therein for payments due hereunder at Set Intervals, including without limitation, Asset Disposition Prepayments and mandatory prepayments of the Loans pursuant to Section 2.10(ii);

(vi) a validly executed subordination agreement, in form and substance satisfactory to Bank, from each other debtholder of Borrower;

(vii) evidence of Borrower’s good standing;

(viii) a validly executed officer’s certificate or such other evidence acceptable to Bank evidencing Borrower’s corporate, partnership or other necessary authorization of the Loans and incumbency; and

(ix) a certificate of insurance from an insurer acceptable to Bank evidencing Borrower’s compliance with Section 3.4 hereof and naming Bank as loss payee/additional insured as follows:

Aaron’s Program Manager

SunTrust Bank

Program Lending

3333 Peachtree Road, N.E.

3^rd Floor

Mail Code 1802

Atlanta, Georgia 30326

(x) a validly executed authorization in favour of Aaron, authorizing Aaron to initiate SWIFT transfers from the FCTA to pay vendors in accordance with Section 2.3(ii).

In addition, Bank shall have satisfied itself that (y) all necessary steps have been taken and all necessary registrations have been made to perfect Bank’s security interest in the Collateral, and (z) there are no Liens on any of the Collateral, and Bank shall be satisfied that all corporate or partnership proceedings necessary for the authorization of the Loan shall have been taken and Bank shall have received any other documents that it deems necessary or advisable.

5. BORROWER’S REPRESENTATIONS AND WARRANTIES.

To induce Bank to enter into this Agreement, Borrower represents and warrants as follows:

5.1 Organization and Qualification of Borrower. Borrower is             under the laws of the province shown on the first page hereof or under the laws of Canada, and is qualified to do business in all jurisdictions where the character of its properties or the nature of its activities make such qualification necessary.

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5.2 Trade Names, Subsidiaries and Location of Assets. Exhibit B attached hereto and made a part hereof fully and accurately discloses any legal name, trade name or style ever used by Borrower, any Subsidiaries owned by Borrower, and each office, other place of business or location of assets of Borrower.

5.3 Corporate or Other Authority; No Violation of Other Agreements. The execution, delivery and performance by Borrower of this Agreement and the other Loan Documents have been duly authorized by all necessary action on the part of Borrower and do not and will not (i) violate any provision of Borrower’s articles of incorporation, by laws, or other organizational documents or any Applicable Law, or (ii) be in conflict with, result in a breach of, or constitute (following notice or lapse of time or both) a default under any agreement to which Borrower is a party or by which Borrower or any of its property is bound. Each PAD Authorization has been executed by persons with signing authority in respect of the account at a Canadian financial institution that is the subject of such PAD Authorization and any such PAD Authorization is a Business PAD and not a Personal PAD.

5.4 Enforceability. This Agreement and each of the other Loan Documents create legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

5.5 Entire Agreement. The Notes and accompanying Loan Documents executed in connection with the Loans and delivered to Bank are the only contracts evidencing the transaction described herein and constitute the entire agreement of the parties hereto with respect to the transaction.

5.6 Genuineness of Signatures. The Notes and each accompanying Loan Document executed in connection with the Loans are genuine and all signatures, names, amounts and other facts and statements therein and thereon are true and correct.

5.7 Litigation. There are no actions, suits, proceedings or investigations pending or, to the knowledge of Borrower, threatened before any court, tribunal or administrative or governmental agency that may, individually or collectively, adversely affect the financial condition or business operations of Borrower.

5.8 Financial Condition. Borrower’s financial statement previously delivered to Aaron, fairly and accurately presents the financial condition of Borrower as of such date and has been prepared in accordance with GAAP consistently applied, and since the date of that financial statement, there has been no material adverse change in the financial condition of Borrower. Borrower is now and will remain Solvent.

5.9 Taxes. All federal, provincial and local tax returns have been duly filed, and all taxes, assessments and withholdings shown on such returns or billed to Borrower have been paid, and Borrower maintains adequate reserves and accruals in respect of all such federal, provincial and other taxes, assessments and withholdings. There are no unpaid assessments pending against Borrower for any taxes or withholdings, and Borrower knows of no basis therefor.

5.10 Compliance with Laws. Borrower has duly complied with, and its properties and business operations are in compliance in all material respects with, the provisions of all Applicable Laws, including, without limitation, all Environmental Laws. Borrower possesses all permits, franchises, licenses, trademark rights, trade names, patents and other authorizations necessary to enable it to conduct its business operations as now conducted, and no filing with, and no consent, authorization, order or license of, any Person is necessary in connection with the execution or performance of this Agreement or the other Loan Documents.

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5.11 No Default. No Default Condition or Event of Default exists.

5.12 Accounts. Each Account arises out of a bona fide lease or sale and delivery of goods or rendition of services by Borrower and, unless otherwise indicated by Borrower to Bank in writing promptly after learning thereof, the facts appearing on the invoice evidencing such Account and Borrower’s books relating thereto are true and accurate and payment thereof is not subject to any known dispute, offset or claim except for discounts granted in the ordinary course of Borrower’s business that are reflected on the face of such invoice.

5.13 Use of Proceeds. None of the proceeds of any Advances by Bank or the Term Loan have been or will be used to purchase or carry (or to satisfy or refinance any indebtedness incurred to purchase or carry) any “margin stock” (as defined in Regulation U of the Federal Reserve Board). Advances shall be made for the sole purposes of honoring requests for SWIFT transfers to (i) suppliers of Merchandise in payment of Approved Invoices, and (ii) other accounts specified by Borrower with respect to Advances made for working capital purposes, subject to the approval of Aaron, which requests have been made to Aaron as provided in Section 2.3(i) or Section 2.3(ii), or upon the consent of Aaron, for the purpose of payment of freight charges (but not for the purpose of paying provincial sales taxes, goods and services tax, harmonized sales tax or customs duty). The proceeds of the Term Loan shall be used solely for the purpose of financing the acquisition and expansion of stores franchised by Aaron and operated by the Borrower and for Aaron-approved working capital purposes, but excluding in all cases any non-business purposes.

Each submission of an Approved Invoice made by Borrower pursuant to this Agreement or any other Loan Document shall constitute an automatic representation and warranty by Borrower to Bank that there does not then exist any Default Condition or Event of Default and a reaffirmation as of the date of said request that all representations and warranties of Borrower contained in this Agreement and the other Loan Documents are true in all material respects. All representations and warranties contained in this Agreement or in any of the other Loan Documents shall survive the execution, delivery and acceptance hereof by Bank and the closing of the transactions described herein.

6. FINANCIAL COVENANTS.

Borrower shall comply with the following financial covenant[s]:

(i) [Rental Revenue to Debt Service. Commencing on the first day of the calendar quarter in which the 25th month following the Opening Date of the first store location of Borrower occurs and measured as of the last day of the calendar quarter in which such 25th month occurs and on the last day of each calendar quarter thereafter, the ratio of Borrower’s Rental Revenue to Debt Service for such quarter shall not be less than 2.2:1.0;]³

(ii) Debt to Rental Revenue. [Commencing on the first day of the calendar quarter in which the first day of the 19th month following the Opening Date of the first store location of Borrower occurs and measured as of the last day of the calendar quarter in which such 19th month occurs and on the last day of each calendar quarter thereafter,] [On the last day of each calendar quarter] the ratio of Borrower’s Debt to Borrower’s Rental Revenue shall not exceed [ ]:1.0.⁴

³  Note: This covenant will not apply in the case of any Borrowers who have Revolving Loans or Term Loans as, in such case, the Borrowing Base in the applicable Loan Agreement will apply in lieu of this covenant.

⁴  Note: This covenant will apply and be tested on last day of each calendar quarter and not be tied to any Opening Date of store locations in the case of any Loan Agreement providing for Loans to be made available to a Borrower consisting solely of Revolving Loans. Covenant levels for this covenant will be established by Aaron or in the applicable Loan Agreement for each Borrower.

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To the extent any of the financial covenants set forth above in this Section 6 are calculated based upon the Opening Date of a store location, the financial information from store locations that have not reached the Opening Date anniversary incorporated into such covenants shall be excluded from such calculations. Debt Service and Debt attributable to such locations and deducted from the final calculations shall be deducted on a pro rata basis calculated by dividing such stores’ aggregate Net Book Value of Merchandise by the Net Book Value of Merchandise for all store locations. The financial covenants shall otherwise be calculated on a consolidated basis as to all store locations.

7. BORROWER’S AFFIRMATIVE COVENANTS.

During the term of this Agreement, and thereafter for so long as there is any outstanding Loan Indebtedness to Bank, Borrower covenants that, unless otherwise consented to by Bank in writing, it shall:

7.1 Financial Reports. Deliver to Aaron or cause to be delivered to Aaron:

(i) on or before the last Business Day of each month, an unaudited balance sheet and income statement accurately reflecting the financial transactions and status of Borrower as of the end of the prior month and on a year to date basis, on a consolidated and per store basis; prepared in accordance with GAAP in the format recommended by Aaron;

(ii) on or before the last Business Day of each month after the end of each calendar quarter (a) an unaudited balance sheet and income statement accurately reflecting the financial transactions and status of Borrower as of the end of the prior month and on a quarterly basis, on a consolidated and per store basis, prepared in accordance with GAAP in the format recommended by Aaron, and (b) a compliance certificate as described below in Section 7.2;

(iii) within 90 days after the end of each fiscal year a balance sheet and income statement of Borrower as of the end of such year and for the fiscal year then ended, compiled by such firm of chartered accountants as may be designated by Borrower and be satisfactory to Bank as prepared in accordance with GAAP and, to the extent delivered to Aaron, audited financial statements for such period;

(iv) within 120 days after the end of each fiscal year, an annual personal financial statement of each Guarantor; and

(v) with reasonable promptness, all reports by Borrower to its shareholders and such other information as Aaron or Bank may reasonably request from time to time.

7.2 Compliance Certificate. Prepare and deliver to Aaron, to the extent Borrower has a Line of Credit Loan, in conjunction with the quarterly financial reports required to be delivered pursuant to Section 7.1 (iii) above, a quarterly compliance certificate (the form of which is attached hereto as Exhibit C), including a Quarterly Covenant Compliance Report (the form of which is attached hereto as Exhibit D) presenting the calculation of the financial covenants set forth above in Section 6, noting any negative variances with the covenants and explaining any such variances.

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Borrower acknowledges that Aaron will review each compliance certificate and may revise the calculations set forth on such compliance certificate to be consistent with the information shown on quarterly detailed Inventory reconciliation reports and detailed revenue reports prepared by Aaron each quarter showing the amount of Inventory at each of Borrower’s stores as of the end of such quarter and the amount of monthly and quarterly revenue at each of Borrower’s stores. Borrower acknowledges that Aaron will forward copies of each compliance certificate, with revised calculations as appropriate, to Bank and agrees that Bank shall be entitled to rely each such compliance certificate, as revised by Aaron, for purposes of determining whether the covenants set forth in Section 6 above have been met.

7.3 Books and Records. Maintain its Books and Records and accounts in accordance with GAAP and permit any Person designated by Bank or Aaron to visit Borrower’s premises, inspect any of the Collateral or any of the Books and Records, and to make copies thereof and take extracts therefrom, and to discuss Borrower’s financial affairs with Borrower’s financial officers and accountants.

7.4 Taxes. Promptly file all tax returns and pay and discharge all taxes, assessments, withholdings and other governmental charges imposed upon it, its income or profits, or upon any property belonging to it, prior to the date on which penalties attach thereto.

7.5 Notices to Bank. Promptly notify Bank in writing of (i) the occurrence of any Default Condition or Event of Default; (ii) any pending or threatened litigation claiming damages in excess of $25,000 or seeking relief that, if granted, would adversely affect the financial condition or business operations of Borrower; (iii) the release or discharge of any Hazardous Substance on any property owned by Borrower; and (iv) any asserted violation by Borrower of or demand for compliance by Borrower with any Applicable Law.

7.6 Compliance with Applicable Laws. Comply in all material respects with all Applicable Laws, including, without limitation, all Environmental Laws.

7.7 Corporate Existence. Maintain its separate corporate existence and all rights, privileges and franchises in connection therewith, and maintain its qualification and good standing in all jurisdictions where the failure to do so could have a Material Adverse Effect upon its financial condition or ability to collect the Accounts.

7.8 Electronic Debit Authorizations. Execute and deliver to Bank and maintain in effect at all times a PAD Authorization authorizing Bank to debit Borrower’s specified account at a Canadian financial institution for all payments required hereunder that are due at Set Intervals, including, without limitation, all payments of interest payable pursuant to Section 2.9, all Asset Disposition Prepayments and other mandatory principal prepayments payable pursuant to Section 2.10 and all Commitment Fees payable pursuant to Section 2.14 and, if requested by Bank in connection with any Sporadic payment required to be made by Borrower hereunder, a PAD Authorization in respect of such Sporadic payment, each such PAD Authorization to be executed and delivered by persons having signing authority over the bank account that is the subject of such PAD Authorization.

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8. NEGATIVE COVENANTS.

During the term of this Agreement, and thereafter for so long as there are is Loan Indebtedness outstanding, Borrower covenants that unless Bank has first consented thereto in writing, it will not:

8.1 Merger; Disposal or Moving of Collateral. Amalgamate, merge or consolidate with or acquire any substantial portion of the assets or stock of any Person; sell, lease, transfer or otherwise dispose of all or any portion of its properties (including any of the Collateral), except sales or leases of Inventory in the ordinary course of business; or, without having given Bank at least 60 days prior written notice and having executed such instruments and agreements as Bank shall require, change its name, adopt a French form of name, change the location of any Collateral or the location of its chief executive office, principal place of business or the office at which it maintains its Books and Records. Notwithstanding the foregoing, to the extent that Borrower is calculating its compliance with the financial covenants set forth in Section 6 hereof on a consolidated basis, Borrower may move Inventory from one location included in such calculation to another of Borrower’s Aaron’s locations without complying with the notice provisions hereof, as long as such Inventory is properly transferred in the Aaron’s Proprietary System.

8.2 Liens. Grant or suffer to exist any Lien upon any of the Collateral except Permitted Liens.

8.3 Guarantees. Guarantee, assume, endorse or otherwise become contingently liable for any obligation or indebtedness of any Person, either directly or indirectly, exceeding $25,000 not existing as of this date, except by endorsement of items of payment for deposit or collection.

8.4 Loans. Make loans or advances of money to or investments in any Person, or (except in the ordinary course of business and on fair and reasonable terms) engage in any transaction with a Subsidiary or affiliate.

8.5 Stock of Borrower. Repurchase, or pay or declare any dividend on, any of its capital stock; provided, however, that if no Default Condition or Event of Default exists and Borrower remains in compliance with the financial covenants set forth in Section 6 above after giving effect thereto, it may pay dividends and make such repurchases.

9. EVENTS OF DEFAULT.

9.1 List of Events of Default. The occurrence of any one or more of the following conditions or events shall constitute an “Event of Default”:

(i) Borrower shall fail to pay any of the Loan Indebtedness (including any overadvance) or to repay principal as required in connection with any Asset Disposition within ten (10) days of the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise and including any failure to pay resulting from a dishonour of a pre-authorized debit or a return of a pre-authorized debit initiated by Borrower);

(ii) any warranty, representation, or other statement by Borrower herein or in any instrument, certificate or financial statement furnished in compliance herewith proves to have been false or misleading in any material respect when made;

(iii) Borrower shall fail or neglect to perform, keep or observe any covenant contained in this Agreement, any of the other Loan Documents or any other agreement now or hereafter entered into with Bank; Borrower shall fail to abide by the financial covenants set forth in Section 6 hereof, provided that Aaron may waive any financial covenant.

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(iv) Borrower or any Guarantor shall fail to pay when due any amount owed to any creditor (other than Bank) or any Guarantor shall fail to pay or perform any liability or obligation in accordance with the terms of any agreement with Bank;

(v) Borrower, Aaron or any Guarantor shall cease to be Solvent, shall die or become incompetent, shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, shall make an assignment for the benefit of creditors, or shall make an offer of settlement or composition to their respective unsecured creditors generally;

(vi) any petition for an order for relief shall be filed by or against Borrower or any Guarantor or Aaron under the BIA or the CCAA (if against Borrower or any Guarantor, the continuation of such proceeding for more than 30 days);

(vii) any judgment, writ of attachment or similar process is entered or filed against Borrower or any Guarantor or any of Borrower’s or any Guarantor’s property and such judgment, writ of attachment or process is not dismissed, satisfied or vacated within ten (10) days thereafter or (ii) results in the creation or imposition of any Lien upon any Collateral that is not a Permitted Lien;

(viii) any Guarantor shall revoke or attempt to revoke the guaranty signed by such Guarantor or shall repudiate such Guarantor’s liability thereunder or Aaron shall default in its obligations to Bank with respect to the Loan Indebtedness or repudiate its liability therefor;

(ix) any Person, or group of Persons (whether or not related), shall have or obtain legal or beneficial ownership of a majority of the outstanding voting securities or rights of Borrower, other than any Person, or group of Persons, that has such majority ownership on the date of execution of this Agreement;

(x) Borrower shall lose its franchise, license or right to lease or to sell the Inventory or Borrower’s Franchise Agreement is terminated or revoked for any reason;

(xi) Borrower shall fail to enter properly any acquisition of Inventory or Equipment or any Asset Disposition on the Aaron’s Proprietary System;

(xii) Borrower shall use its FCTA for any use other than as explicitly authorized pursuant to this Agreement; or

(xiii) Borrower shall not have in effect at all times an effective PAD Authorization in respect of the payment of all amounts payable by it hereunder at Set Intervals or shall fail, if so requested by Lender, to execute and deliver a PAD Authorization in respect of any sporadic payment due hereunder.

9.2 Cure Period. Borrower shall have a five (5) calendar day period after Bank gives it notice of the occurrence of an Event of Default (other than an Event of Default pursuant to Section 9.1(vi)) above, during which it may cure such Event of Default. An Event of Default arising under Section 9.1(i)(i)) above shall only be cured by Bank’s receipt of payment in immediately available funds by wire transfer or pre-authorized debit.

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9.3 Advances. In no event shall Bank have any obligation to make any Loan hereunder or an Advance pursuant to a Line of Credit Commitment or Revolving Commitment hereunder if there exists a Default Condition or an Event of Default.

10. REMEDIES.

All of the Loan Indebtedness shall become immediately due and payable and the Line of Credit Commitment and Revolving Commitment shall be deemed immediately terminated (without notice to or demand upon Borrower) upon the occurrence of an Event of Default under Section 9.1 (vi) of this Agreement; and upon and after the occurrence of any other Event of Default, subject to the cure period set forth in Section 9.2 hereof, Bank shall have the right to terminate immediately the Line of Credit Commitment and Revolving Commitment and to declare the entire unpaid principal balance of and accrued interest with respect to the Loan Indebtedness to be, and the same shall thereupon become, immediately due and payable upon receipt by Borrower of written notice and demand. From and after the date on which the Loan Indebtedness becomes automatically due and payable or is declared by Bank to be due and payable as aforesaid, Bank shall have and may exercise from time to time any and all rights and remedies afforded to a secured party under the PPSA or any other Applicable Law. If the Loan Indebtedness is collected by or through legal counsel, Bank shall be entitled to collect reasonable legal fees and court costs from Borrower. In addition to, and without limiting the generality of the foregoing, Bank shall have the rights and remedies set forth in the Security Agreement and the following rights and remedies which it may exercise at any time or times (all of which rights and remedies shall be cumulative and may be exercised singularly or concurrently):

(i) the right to notify any Account Debtor to make all payments owing to Borrower directly to Bank for application to the Loan Indebtedness and to collect all amounts owing from any such Account Debtor;

(ii) the right to sell, lease or otherwise dispose of any or all of the Collateral at public or private sale, for cash, upon credit or upon such other terms as Bank deems advisable in its sole discretion, or otherwise to realize upon the whole or from time to time any part of the Collateral in which Bank may have a security interest. Any requirement of reasonable notice shall be met if such notice is sent to Borrower in accordance with Section 12 hereof at least seven (7) days before the date of sale or other disposition of the Collateral. Bank may bid and be the purchaser at any such sale if permitted by Applicable Law;

(iii) the right to require Borrower, at Borrower’s expense, to assemble the Collateral and make it available to Bank at a place reasonably convenient to both parties (and, for purposes hereof, Borrower stipulates that Bank shall be entitled to the remedy of specific performance). Alternatively, Bank may peaceably by its own means or with judicial assistance enter Borrower’s premises and take possession of the Collateral or dispose of the Collateral on Borrower’s premises without interference by Borrower;

(iv) the right to incur legal fees and expenses in exercising any of the rights, remedies, powers or privileges provided hereunder, and the right (but not the obligation) to pay, satisfy and discharge, or to bond, deposit or indemnify against, any tax or other Lien which in the opinion of Bank may in any manner or to any extent encumber any of the Collateral, all of which fees, payments and expenses shall become part of Bank’s expenses of retaking, holding, preparing for sale and the like, and shall be added to and become a part of the principal amount of the Loan Indebtedness;

(v) the right, in Bank’s sole discretion, to perform any agreement of Borrower hereunder which Borrower shall fail to perform and take any other action which Bank deems necessary for the maintenance or preservation of any of the Collateral or Bank’s interest therein, and Borrower agrees forthwith to reimburse Bank for all expenses incurred in connection with the foregoing, together with interest thereon at the Default Rate from the date incurred until the date of reimbursement;

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(vi) the right at any time or times, to the fullest extent permitted by Applicable Law, to set off and apply any and all deposits (general or special, time or demand) held by Bank for Borrower’s account against any of the Loan Indebtedness, irrespective of whether or not Bank has made any demand under the this Agreement;

(vii) the right to apply the proceeds realized from any collection, sale, lease or other disposition of the Collateral first to the costs, expenses and legal fees incurred by Bank for collection and for acquisition, protection, removal, storage, sale and delivery of the Collateral; secondly, to interest due upon the principal amount of the Loan Indebtedness; and thirdly, to the principal amount of the Loan Indebtedness. If any deficiency shall arise, Borrower and Guarantors shall remain bound and liable to Bank therefor; and

(viii) the right to act as Borrower’s attorney in fact (and Borrower hereby irrevocably appoints Bank as Borrower’s agent and attorney in- fact), in Borrower’s or Bank’s name, but at Borrower’s cost and expense, to receive, open and dispose of all mail addressed to Borrower pertaining to any of the Collateral, to notify postal authorities to change the address and delivery of mail to Borrower to such address as Bank may designate, to sign Borrower’s name on any bill of lading constituting or relating to any Collateral, to send verifications with respect to the Collateral, to execute in Borrower’s name any affidavits or notices with regard to any and all Lien rights and to do all other acts and things necessary to carry out the terms of this Agreement or to discharge any obligation of Borrower hereunder, this power, being coupled with an interest, is to be irrevocable so long as any Loan Indebtedness is outstanding.

11. WAIVERS.

Borrower waives notice of Bank’s acceptance hereof. Borrower hereby waives any requirement on the part of Bank to post any bond or other security as a condition to Bank’s right to obtain an immediate writ of possession with respect to any Collateral. Bank shall not be deemed to have waived any of its rights upon or remedies hereunder or any Event of Default unless such waiver be in writing and signed by Bank. No delay or omission on the part of Bank in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right on any future occasion.

12. NOTICES.

All notices and demands to or upon a party hereto shall be in writing and shall be sent by certified or registered mail, return receipt requested, personal delivery against receipt or by telecopier or other facsimile transmission and shall be deemed to have been validly served, given or delivered when delivered against receipt or one Business Day after deposit in the mail, postage prepaid, or, in the case of facsimile transmission, when indicated by verification receipt printed by the sending machine as having been received at the office of the noticed party, addressed in each case as follows:

If to Borrower:
	Attn:
	,
	Telecopier No.:

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If to Bank:	SunTrust Bank Program Lending
	Attn: Aaron’s Program Manager 3333 Peachtree Road, N.E. 3rd Floor Mail Code 1802 Atlanta, Georgia 30326 Telecopier No.: (404) 439-7489

or to such other address as each party may designate for itself by like notice given in accordance with this Section 0. Any written notice or demand that is not sent in conformity with the provisions hereof shall nevertheless be effective on the date that such notice is actually received by the individual to whose attention such notice is to be sent as specified above or such individual’s successor in office.

13. INDEMNIFICATION.

Borrower hereby agrees to indemnify Bank and hold Bank harmless from and against any liability, loss, damage, suit, action or proceeding ever suffered or incurred by Bank as the result of Borrower’s failure to observe, perform or discharge Borrower’s duties hereunder. Without limiting the generality of the foregoing, this indemnity shall extend to any claims asserted against Bank by any Person under any environmental laws. If any taxes, fees or other charges shall be payable by Borrower or Bank on account of the execution, delivery or recording of any of the Loan Documents or any loans outstanding hereunder, Borrower will pay (or reimburse Bank’s payment of) all such taxes, fees or other charges, including any applicable interests and penalties, and will indemnify and hold Bank harmless from and against liability in connection therewith. The indemnity obligations of Borrower under this Section 13 shall survive the payment in full of the Loan Indebtedness.

14. ENTIRE AGREEMENT; AMENDMENT.

This Agreement and the other Loan Documents embody the entire understanding and agreement between the parties hereto with respect to the subject matter hereof, and this Agreement may not be modified or amended except by an agreement in writing signed by Borrower and Bank.

15. SUCCESSORS AND ASSIGNS.

This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; but Borrower shall not assign this Agreement or any right or benefit hereunder to any Person. Bank may assign its rights and obligations hereunder at any time and to any Person, including without limitation, to Aaron.

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16. ARBITRATION.

ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE DETERMINED BY ARBITRATION IN ACCORDANCE WITH THE INTERNATIONAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION EXCEPT TO THE EXTENT OTHERWISE SET FORTH IN THIS SECTION 16. THE PLACE OF ARBITRATION SHALL BE ATLANTA, GEORGIA AND THE LANGUAGE OF ARBITRATION SHALL BE ENGLISH. THE NUMBER OF ARBITRATORS SHALL BE THREE SELECTED AS FOLLOWS: WITHIN FOURTEEN (14) DAYS AFTER THE COMMENCEMENT OF ARBITRATION, EACH PARTY WILL APPOINT ONE ARBITRATOR. THESE TWO ARBITRATORS WILL THEN NAME A PRESIDING ARBITRATOR WITHIN FOURTEEN (14) DAYS AFTER THE SELECTION OF THE PARTY APPOINTEES. EACH ARBITRATOR SHALL BE AN ATTORNEY ADMITTED BEFORE THE BAR OF ANY STATE OF THE UNITED STATES OR THE BAR OF ANY PROVINCE OF CANADA. IF EITHER PARTY FAILS TO APPOINT AN ARBITRATOR, OR IF THE TWO ARBITRATORS DO NOT NAME A THIRD ARBITRATOR WITHIN THESE TIME PERIODS, THE INTERNATIONAL CENTRE FOR DISPUTE RESOLUTION SHALL AT THE WRITTEN REQUEST OF EITHER PARTY COMPLETE THE APPOINTMENTS THAT HAVE NOT BEEN MADE PURSUANT TO THE INTERNATIONAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. THE ARBITRATORS SHALL AWARD TO THE PREVAILING PARTY, IF ANY, AS DETERMINED BY THE ARBITRATORS, ALL COSTS AND EXPENSES OF THE ARBITRATORS AND THE INTERNATIONAL CENTRE FOR DISPUTE RESOLUTION. ALL WITNESS TESTIMONY AT THE HEARING SHALL BE TRANSCRIBED BY A PUBLIC STENOGRAPHER OR COURT REPORTER. ALL PARTIES AGREE TO BE BOUND BY THE RESULTS OF SUCH ARBITRATIONS; JUDGMENT UPON THE AWARD SO RENDERED MAY BE ENTERED AND ENFORCED IN ANY COURT OF COMPETENT JURISDICTION. TO THE EXTENT REASONABLY PRACTICABLE, BOTH PARTIES AGREE TO CONTINUE PERFORMING THEIR RESPECTIVE OBLIGATIONS UNDER THIS AGREEMENT WHILE THE DISPUTE IS BEING RESOLVED.

17. MISCELLANEOUS.

Time is of the essence of this Agreement. Bank reserves the right to participate, sell or assign the Loans made hereunder and provide any participant or assignee all information in Bank’s possession regarding Borrower, its business and the Collateral. Borrower shall reimburse Bank for Bank’s out-of-pocket expenses and for the fees and expenses and disbursements of Bank’s counsel in connection with the negotiation, documentation and closing of the transactions contemplated hereby, and Borrower will pay all expenses incurred by Borrower in connection with the transactions. The Section headings are for convenience only and shall not limit or otherwise affect any of the terms hereof. THIS AGREEMENT AND ALL RIGHTS AND OBLIGATIONS HEREUNDER, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF GEORGIA (WITHOUT REGARD TO THE LAWS OF CONFLICTS THEREOF) AND IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT.

18. RELATIONS WITH AARON.

Borrower recognizes and acknowledges that Bank has made the Loans available to Borrower hereunder at the behest of and as an accommodation to Aaron. Accordingly, Borrower agrees that from time to time Bank may release to Aaron such information about Borrower and the Loans as Aaron may request, and Bank may condition its agreement to any waiver, modification or amendment on the prior written consent of Aaron. Borrower further agrees that upon the occurrence of an Event of Default hereunder, Bank may notify Aaron of such Event of Default prior to notifying Borrower thereof, and Bank shall not be liable to Borrower for failure to give simultaneous notice to Borrower. Borrower further agrees that Bank shall not be liable to Borrower as a result of any information or document obtained by Bank regarding Borrower which is shared by Bank with Aaron.

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WITNESS the hand and seal of the parties hereto on the date first above written.

Accepted in Atlanta, Georgia:

BORROWER:

BANK:

SUNTRUST BANK:

By:

Name:

Title:

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EXHIBIT A-1

FORM OF

LINE OF CREDIT NOTE

Closing Date: [Closing Date]	$
		Atlanta, Georgia

FOR VALUE RECEIVED, the undersigned,                    (the “Borrower”), promises to pay to the order of SUNTRUST BANK, a Georgia banking corporation (the “Bank”), at Bank’s principal office in Atlanta, Georgia, or at such other place as the holder hereof may designate by notice in writing to Borrower, in immediately available funds in lawful money of Canada, on                    , (the “Maturity Date”, as such date may be extended from time to time, for an additional 364 day period unless either party terminates the Loan as set forth in Section 2.8 of the Loan Agreement), the lesser of (x) the principal sum of the Line of Credit Commitment:                     ($                    ), or (y) so much principal thereof as shall have been from time to time disbursed hereunder in accordance with that certain Loan Agreement, dated as of [             ], by and between Borrower and Bank (as amended, restated, modified or supplemented from time to time, the “Agreement”) and not theretofore repaid, as shown on the records of Bank.

In addition to principal, Borrower agrees to pay interest on the principal amounts disbursed hereunder at a floating rate of interest equal to the Prime Rate plus an additional                    , from time to time, upon such dates as provided for in the Agreement. Interest shall accrue on the outstanding principal balance from the date hereof up to and through the date on which all principal and interest hereunder is paid in full, and shall be computed on the basis of the actual number of days elapsed in a year of 360 days. Such interest is to be paid to Bank at its address set forth above or as otherwise provided in the Agreement. For informational purposes, as of the date hereof the Prime Rate in effect is            % per annum, thus producing an initial interest rate under the Agreement on such date of            % per annum and, when adjusted for a year of 365 days, an initial simple interest rate of             % per annum. Any principal amount due under this Line of Credit Note (the “Note”) that is not paid on the due date therefor whether on the Maturity Date, or resulting from the acceleration of maturity upon the occurrence of an Event of Default (as defined in the Agreement), shall bear interest from the date due until payment in full at the Default Rate, as such term is defined in the Agreement.

This Note evidences a loan incurred pursuant to the terms and conditions of the Agreement to which reference is hereby made for a full and complete description of such terms and conditions, including, without limitation, provisions for the acceleration of the maturity hereof upon the existence or occurrence of certain conditions or events, and the terms of any permitted prepayments hereof. All capitalized terms used in this Note shall have the same meanings as set forth in the Agreement.

Upon the existence or occurrence of any Event of Default, the principal and all accrued interest hereof shall automatically become, or may be declared, due and payable in the manner and with the effect provided in the Agreement. In addition, this Note is subject to mandatory prepayment upon the terms and conditions of the Agreement.

Bank shall at all times have a right of set off against any deposit balances of Borrower in the possession of Bank and Bank may apply the same against payment of this Note or any other indebtedness of Borrower to Bank. The payment of any indebtedness evidenced by this Note prior to the Maturity Date shall not affect the enforceability of this Note as to any future, different or other indebtedness incurred hereunder by Borrower. In the event the indebtedness evidenced by this Note is collected by legal action or through legal counsel, Bank shall be entitled to recover from Borrower all costs of collection, including, without limitation, reasonable legal fees if collected by or through legal counsel.

Borrower acknowledges that the actual crediting of the amount of any disbursement under the Agreement to an account of Borrower or recording such amount in the records of Bank shall, in the absence of manifest error, constitute presumptive evidence of such disbursement and that such Advance was made and borrowed under the Agreement. Such account records shall constitute, in the absence of manifest error, presumptive evidence of principal amounts outstanding and the payments made under the Agreement at any time and from time to time, provided, however, that the failure of Bank to record in such account the type or amount of any Advance shall not affect the obligation of the undersigned to repay such amount together with interest thereon in accordance with this Note and the Agreement.

For the purposes of this Note, whenever interest to be paid hereunder is to be calculated on the basis of 360 days or any other period of time that is less than a calendar year, the yearly rate of interest to which the rate determined pursuant to such calculation is equivalent is the rate so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360 or such other number of days in such period, as the case may be.

Failure or forbearance of Bank to exercise any right hereunder, or otherwise granted by the Agreement or by law, shall not affect or release the liability of Borrower hereunder, and shall not constitute a waiver of such right unless so stated by Bank in writing. THIS NOTE AND THE RIGHTS AND OBLIGATION HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF GEORGIA. TIME IS OF THE ESSENCE OF THIS NOTE.

PRESENTMENT FOR PAYMENT, NOTICE OF DISHONOR AND PROTEST ARE HEREBY WAIVED.

Executed under hand and seal of Borrower as of the day and year first above written.

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EXHIBIT A-2

FORM OF

TERM NOTE

Closing Date: [Closing Date]	$
		Atlanta, Georgia

FOR VALUE RECEIVED, the undersigned,                    (the “Borrower”), promises to pay to the order of SUNTRUST BANK, a Georgia banking corporation (the “Bank”), at Bank’s principal office in Atlanta, Georgia, or at such other place as the holder hereof may designate by notice in writing to Borrower, in immediately available funds in lawful money of Canada,                      ($                    ). Repayment will be in            consecutive equal monthly installments of principal in the amount of $             based on a            month amortization plus accrued and unpaid interest and shall be due and payable on each Payment Date, with the first installment being due and payable on                    , and the remaining outstanding principal balance, together with all accumulated unpaid interest shall be due and payable on                    , (the “Maturity Date”).

In addition to principal, Borrower agrees to pay interest on the principal amounts disbursed hereunder at a floating rate of interest equal to the Prime Rate plus an additional                    , from time to time, upon such dates as provided for in that certain Loan Agreement dated as of [            ], by and between Borrower and Bank (as amended, restated, modified or supplemented from time to time, the “Agreement”). Interest shall accrue on the outstanding principal balance from the date hereof up to and through the date on which all principal and interest hereunder is paid in full, and shall be computed on the basis of the actual number of days elapsed in a year of 360 days. Such interest is to be paid to Bank at its address set forth above or as otherwise provided in the Agreement. For informational purposes, as of the date hereof the Prime Rate in effect is            % per annum, thus producing an initial interest rate under the Agreement on such date of             %per annum and, when adjusted for a year of 365 days, an initial simple interest rate of             % per annum. Any principal amount due under this Term Note (the “Note”) that is not paid on the due date therefor whether on the due date, or resulting from the acceleration of maturity upon the occurrence of an Event of Default (as defined in the Agreement), shall bear interest from the date due until payment in full at the Default Rate, as such term is defined in the Agreement.

This Note evidences a loan incurred pursuant to the terms and conditions of the Agreement to which reference is hereby made for a full and complete description of such terms and conditions, including, without limitation, provisions for the acceleration of the maturity hereof upon the existence or occurrence of certain conditions or events, and the terms of any permitted prepayments hereof. All capitalized terms used in this Note shall have the same meanings as set forth in the Agreement.

Upon the existence or occurrence of any Event of Default, the principal and all accrued interest hereof shall automatically become, or may be declared, due and payable in the manner and with the effect provided in the Agreement. In addition, this Note is subject to mandatory prepayment upon the terms and conditions of the Agreement.

Bank shall at all times have a right of set off against any deposit balances of Borrower in the possession of Bank and Bank may apply the same against payment of this Note or any other indebtedness of Borrower to Bank, irrespective of whether or not Bank has made any demand under the Agreement. The payment of any indebtedness evidenced by this Note prior to the Maturity Date shall not affect the enforceability of this Note as to any future, different or other indebtedness incurred hereunder by Borrower. In the event the indebtedness evidenced by this Note is collected by legal action or through legal counsel, Bank shall be entitled to recover from Borrower all costs of collection, including, without limitation, reasonable legal fees if collected by or through legal counsel.

Borrower acknowledges that the actual crediting of the amount of any disbursement under the Agreement to an account of Borrower or recording such amount in the records of Bank shall, in the absence of manifest error, constitute presumptive evidence of such disbursement. Such account records shall constitute, in the absence of manifest error, presumptive evidence of principal amounts outstanding and the payments made under the Agreement at any time and from time to time, provided, however, that the failure of Bank to record in such account the type or amount of any advance shall not affect the obligation of the undersigned to repay such amount together with interest thereon in accordance with this Note and the Agreement.

For the purposes of this Note, whenever interest to be paid hereunder is to be calculated on the basis of 360 days or any other period of time that is less than a calendar year, the yearly rate of interest to which the rate determined pursuant to such calculation is equivalent is the rate so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360 or such other number of days in such period, as the case may be.

Failure or forbearance of Bank to exercise any right hereunder, or otherwise granted by the Agreement or by law, shall not affect or release the liability of Borrower hereunder, and shall not constitute a waiver of such right unless so stated by Bank in writing. THIS NOTE AND THE RIGHTS AND OBLIGATION HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF GEORGIA. TIME IS OF THE ESSENCE OF THIS NOTE.

PRESENTMENT FOR PAYMENT, NOTICE OF DISHONOR AND PROTEST ARE HEREBY WAIVED.

Executed under hand and seal of Borrower as of the day and year first above written.

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EXHIBIT A-3

FORM OF

REVOLVING NOTE

Closing Date: [Closing Date]	$
		Atlanta, Georgia

FOR VALUE RECEIVED, the undersigned,                    (the “Borrower”), promises to pay to the order of SUNTRUST BANK, a Georgia banking corporation (the “Bank”), at Bank’s principal office in Atlanta, Georgia, or at such other place as the holder hereof may designate by notice in writing to Borrower, in immediately available funds in lawful money of the Canada, on                    , (the “Maturity Date”, as such date may be extended from time to time, for an additional 364 day period unless either party terminates the Loan as set forth in Section 2.8 of the Loan Agreement), the lesser of (i) principal sum of the Revolving Commitment:                    ($                     ), or (ii) so much thereof as shall have been from time to time disbursed hereunder in accordance with certain Loan Agreement, dated as of [            ], by and between Borrower and Bank (as amended, restated, modified or supplemented from time to time, the “Agreement”) and not theretofore repaid, as shown on the records of Bank.

In addition to principal, Borrower agrees to pay interest on the principal amounts disbursed hereunder at a floating rate of interest equal to the Prime Rate plus an additional                    , from time to time, upon such dates as provided for in the Agreement. Interest shall accrue on the outstanding principal balance from the date hereof up to and through the date on which all principal and interest hereunder is paid in full, and shall be computed on the basis of the actual number of days elapsed in a year of 360 days. Such interest is to be paid to Bank at its address set forth above or as otherwise provided in the Agreement. For informational purposes, as of the date hereof the Prime Rate in effect is            % per annum, thus producing an initial interest rate under the Agreement on such date of            % per annum and, when adjusted for a year of 365 days, an initial simple interest rate of            % per annum. Any principal amount due under this Revolving Note (the “Note”) that is not paid on the due date therefor whether on the Maturity Date, or resulting from the acceleration of maturity upon the occurrence of an Event of Default (as defined in the Agreement), shall bear interest from the date due until payment in full at the Default Rate, as such term is defined in the Agreement.

This Note evidences loans incurred pursuant to the terms and conditions of the Agreement to which reference is hereby made for a full and complete description of such terms and conditions, including, without limitation, provisions for the acceleration of the maturity hereof upon the existence or occurrence of certain conditions or events, and the terms of any permitted prepayments hereof. All capitalized terms used in this Note shall have the same meanings as set forth in the Agreement.

Upon the existence or occurrence of any Event of Default, the principal and all accrued interest hereof shall automatically become, or may be declared, due and payable in the manner and with the effect provided in the Agreement. In addition, this Note is subject to mandatory prepayment upon the terms and conditions of the Agreement.

Bank shall at all times have a right of set-off against any deposit balances of Borrower in the possession of Bank and Bank may apply the same against payment of this Note or any other indebtedness of Borrower to Bank, irrespective of whether or not Bank has made any demand under the Loan Agreement. The payment of any indebtedness evidenced by this Note prior to the Maturity Date shall not affect the enforceability of this Note as to any future, different or other indebtedness incurred hereunder by Borrower. In the event the indebtedness evidenced by this Note is collected by legal action or through legal counsel, the Bank shall be entitled to recover from Borrower all costs of collection, including, without limitation, reasonable legal fees if collected by or through legal counsel.

Borrower acknowledges that the actual crediting of the amount of any disbursement under the Agreement to an account of Borrower or recording such amount in the records of Bank shall, in the absence of manifest error, constitute presumptive evidence of such disbursement and that such Advance was made and borrowed under the Agreement. Such account records shall constitute, in the absence of manifest error, presumptive evidence of principal amounts outstanding and the payments made under the Agreement at any time and from time to time, provided, however, that the failure of Bank to record in such account the type or amount of any Advance shall not affect the obligation of the undersigned to repay such amount together with interest thereon in accordance with this Note and the Agreement.

For the purposes of this Note, whenever interest to be paid hereunder is to be calculated on the basis of 360 days or any other period of time that is less than a calendar year, the yearly rate of interest to which the rate determined pursuant to such calculation is equivalent is the rate so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360 or such other number of days in such period, as the case may be.

Failure or forbearance of Bank to exercise any right hereunder, or otherwise granted by the Agreement or by law, shall not affect or release the liability of Borrower hereunder, and shall not constitute a waiver of such right unless so stated by Bank in writing. THIS NOTE AND THE RIGHTS AND OBLIGATION HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF GEORGIA. TIME IS OF THE ESSENCE OF THIS NOTE.

PRESENTMENT FOR PAYMENT, NOTICE OF DISHONOR AND PROTEST ARE HEREBY WAIVED.

Executed under hand and seal of Borrower as of the day and year first above written.

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EXHIBIT B

Permitted Liens

The following described Liens are Permitted Liens (if none, so state):

Name of Lien Holder Date of Recording Collateral

Trade Names and Styles

The following are the only trade names or trade styles ever used by Borrower (if none, so state):

Subsidiaries

The following are all of the subsidiaries owned by Borrower (if none, so state):

Business Locations

The following are all of the locations where Borrower has an office or other place of business or owns assets:

EXHIBIT C

COMPLIANCE CERTIFICATE OF BORROWER

(Pursuant to Section 7.2 of Loan Agreement dated                    )

                     (the “Borrower”) HEREBY CERTIFIES that:

This Compliance Certificate is furnished pursuant to the Loan Agreement (the “Agreement”) dated                    by and between Borrower and SUNTRUST BANK (“Bank”). Unless otherwise defined herein, the terms used in this Report have the meanings given to them in this Agreement.

The figures and information for determining compliance by Borrower with the financial covenants set forth in the Quarterly Covenant Compliance Report attached hereto have been prepared based upon the financial reports accompanied hereby and both the Quarterly Covenant Compliance Report and such financial reports are true and complete as of the date hereof.

The activities of Borrower during the preceding quarter have been reviewed by the president or other authorized officer or the employees or agents under his immediate supervision. Based on such review, to the best knowledge and belief of the president or other authorized officer, and as of the date of this Certificate, Borrower has performed and observed each and every covenant contained in the Agreement to be performed by it, and no Event of Default or Default Condition exists, except for the following:

Please describe or indicate “None” if none exist:

Borrower has properly and accurately reported all Asset Dispositions pursuant to Section 2.12 of the Agreement.

WITNESS my hand this              day of                     ,            .

EXHIBIT D

QUARTERLY COVENANT COMPLIANCE REPORT

(Section 6 - Financial Covenants)

Test Borrower

For Quarter Ending:

With respect to the financial covenants set forth below which are calculated based upon the Opening Date of a store location, the financial information from store locations that have not reached the Opening Date anniversary incorporated into such covenants shall be excluded from such calculations. [Debt Service and] Debt attributable to such locations and deducted from the final calculations shall be deducted on a pro rata basis calculated by dividing such stores’ aggregate Net Book Value of Merchandise by the Net Book Value of Merchandise for all store locations. The financial covenants shall otherwise be calculated on a consolidated basis as to all store locations.

I. Rental Revenue to Debt Service5
A. Enter amount of quarterly Rental Revenue.	$
B. Enter amount of quarterly Rental Revenue attributable to store locations open less than 25 months.	$
C. Subtract B from A.	$
D. Enter amount of quarter’s Debt Service.	$
E. Enter amount of quarter’s Debt Service attributable to store locations open less than 25 months.	$
F. Subtract E from D.	$
Ratio of C:F.	________________
STANDARD — Ratio not less than —	2.2: 1.0
Compliance? Yes  ¨    No  ¨
II. Debt to Rental Revenue
A. Enter amount of Debt.	$
B. [Enter amount of Debt attributable to store locations open less than 19 months.]	$

⁵  Note: This covenant will not apply in the case of any Borrowers who have Revolving Loans or Term Loans as, in such case, the Borrowing Base in the applicable Loan Agreement will apply in lieu of this covenant.

C. [Subtract B from A.	$                                     ]
D. Enter Amount of last quarter’ s Rental Revenue.	$
E. [Enter amount of last quarter’s Rental Income attributable to store locations open less than 19 months.	$                                     ]
F. [Subtract E from D.	$                                     ] 6
Ratio of C : F.	________________
STANDARD	[    ]:1.0
Compliance? Yes  ¨    No  ¨

Note: All terms are those used in generally accepted accounting practices unless specifically defined in the Agreement.

⁶  Note: This covenant will apply and be tested on last day of each calender quarter and not be tied to any Opening Date of store locations in the case of any Loan Agreement providing for Loans made available to a Borrower consisting solely of Revolving Loans. In which case, the bracketed portions of this Debt to Rental Revenue covenant will not be applicable.

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EXHIBIT E

FORM OF SECURITY AGREEMENT

THIS AGREEMENT is made as of •, 20•

BETWEEN

•, a [corporation] [limited partnership] [partnership] [incorporated/formed] under the laws of [the Province of •] [Canada] (the “Debtor”), - and -

SUNTRUST BANK, a Georgia banking corporation (the “Secured Party”).

WHEREAS the Debtor has entered into the Loan Agreement with the Secured Party pursuant to

which certain credit facilities will be extended to the Debtor;

AND WHEREAS the Debtor has agreed to grant a security interest and assignment, mortgage and

charge in the Collateral to the Secured Party in order to secure the performance of its Obligations;

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants

and agreements herein contained and other good and valuable consideration, the receipt and

sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1 - INTERPRETATION

1.1 Interpretation. In this Agreement, unless something in the subject matter or context is inconsistent therewith, capitalized terms used and not otherwise defined in this Agreement have the meanings given to them in the Loan agreement and:

“Agreement” means this agreement, including its recitals and schedules, as amended from time to time.

“Collateral” has the meaning set out in Section 2.1.

“Loan Agreement” means the loan agreement made as of •, 20• between the Debtor and the Secured Party as amended from time to time.

“Event of Default” means any of the events described as “events of default” in the Loan Agreement.

“Obligations” means all obligations and liabilities of any kind whatsoever of the Debtor to the Secured Party in connection with or relating to the Loan Agreement, including all debts and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, whenever, wherever and however incurred, in any currency at any time owing by the Debtor to the Secured Party or remaining unpaid by the Debtor to the Secured Party and whether the same is from time to time reduced and thereafter increased or entirely extinguished and thereafter incurred again, whether incurred by the Debtor alone or with another or others and whether as principal or surety or otherwise, including all interest, commissions, legal and other costs, charges and expenses.

The terms “accessions”, “accounts”, “chattel paper”, “documents of title”, “goods”, “instruments”, “intangibles”, “inventory”, “money”, “proceeds” and “securities” whenever used herein have the meanings given to those terms in the Personal Property Security Act currently in effect in the province referred to in Section 5.12 below.

1.2 Headings. The division of this Agreement into Articles and Sections and the insertion of headings are for convenience of reference only and do not affect the construction or interpretation of this Agreement. The terms “hereof, “hereunder” and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Agreement. Extended Meanings. In this Agreement words importing the singular number only include the plural and vice versa, words importing any gender include all genders and words importing persons include individuals, corporations, limited and unlimited liability companies, general and limited partnerships, associations, trusts, unincorporated organizations, joint ventures and governmental authorities. The term “including” means “including without limiting the generality of the foregoing”. The inclusion of reference to Permitted Liens in the Loan Agreement or herein, by reference or otherwise, is not intended to subordinate, and will not subordinate, the security granted hereunder to any such Permitted Lien

ARTICLE II - GRANT OF SECURITY INTEREST

2.1 Security Interest. As general and continuing security for the payment and performance of all Obligations, the Debtor hereby grants to the Secured Party a security interest in all of the Debtor’s present and after-acquired undertaking and property, both real and personal including, without limitation, all Lease Contracts (collectively, the “Collateral”), and, as further general and continuing security for the payment and performance of the Obligations, the Debtor hereby also assigns the Collateral (other than trademarks) to the Secured Party and mortgages and charges the Collateral as and by way of a fixed and specific mortgage and charge to the Secured Party.

2.2 Attachment of Security Interest. The Debtor acknowledges that value has been given and agrees that the security interest granted hereby attaches upon the execution of this Agreement by the Debtor (or, in the case of any after-acquired property, at the time of acquisition by the Debtor of any rights therein).

2.3 Real Property. The assignment, mortgage and charge granted hereby will not extend to the last day of the term of any lease or agreement relating to real property, but the Debtor will hold such last day in trust for the Secured Party and, upon the enforcement by the Secured Party of its security, will assign such last day as directed by the Secured Party.

ARTICLE III - DEALING WITH COLLATERAL

3.1 Dealing with Collateral by the Debtor. The Debtor must not sell, lease or otherwise dispose of any of the Collateral without the prior written consent of the Secured Party, except that the Debtor may, until an Event of Default occurs, deal with its money or rent, lease or sell items of Inventory in the ordinary course of its business so that the purchaser thereof takes title thereto free and clear of the security interest, assignment and mortgage and charge granted hereby, but all proceeds of any such sale will continue to be subject to the security granted hereby. Upon the occurrence of an Event of Default and the exercise by the Secured Party of any of its rights and remedies under Section 4.1, all money received by the Debtor will be held by the Debtor in trust for the Secured Party and must be held separate and apart from other money of the Debtor and paid over to the Secured Party on request.

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3.2 Rights and Duties of the Secured Party. The Secured Party may perform any of its rights and duties hereunder by or through agents and is entitled to retain counsel and to act in reliance upon the advice of such counsel concerning all matters pertaining to its rights and duties hereunder.

ARTICLE IV - REMEDIES

4.1 Consequences of a Default. On or after the occurrence of any Event of Default that has not been either cured or waived, at the option of the Secured Party, (a) any or all of the Obligations not yet payable will become immediately payable, without presentment, protest, notice of protest or notice of dishonour, all of which are expressly waived; (b) the obligation, if any, of the Secured Party to extend further credit to the Debtor will cease; and (c) the security granted hereby will become immediately enforceable.

4.2 Remedies. In addition to any right or remedy otherwise provided herein or by law, on or after the occurrence of any Event of Default that has not been either cured or waived, the Secured Party will have the rights and remedies set out in the Loan Agreement and those rights and remedies set forth below, all of which may be enforced successively or concurrently:

(a) the Secured Party may take possession of the Collateral and require the Debtor to assemble the Collateral and deliver or make the Collateral available to the Secured Party at such places as may be specified by the Secured Party, and neither the Secured Party nor any Receiver will be or be deemed to be a mortgagee in possession by virtue of any such actions;

(b) the Secured Party may take such steps as it considers desirable to maintain, preserve or protect the Collateral;

(c) the Secured Party may carry on, or concur in the carrying on of, all or any part of the business of the Debtor;

(d) the Secured Party may have, exercise or enforce any rights of the Debtor in respect of the Collateral;

(e) the Secured Party may sell, lease or otherwise dispose of the Collateral at public auction, by private tender, by private sale or otherwise either for cash or upon credit, upon such terms and conditions as the Secured Party may determine and without notice to the Debtor unless required by law;

(f) the Secured Party may accept all or any part of the Collateral in total or partial satisfaction of the Obligations in the manner provided by law;

(g) the Secured Party may, for any purpose specified herein, including for the maintenance, preservation or protection of any Collateral or for carrying on any of the business or undertaking of the Debtor, borrow money on the security of the Collateral, which security will rank in priority to the security granted hereby;

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(h) the Secured Party may occupy and use all or any of the premises, buildings and plants occupied by the Debtor and use all or any of the Equipment and other property of the Debtor for such time as the Secured Party requires to facilitate the realization of the Collateral, free of charge and the Secured Party will not be liable for any rent, charges, depreciation or damages in connection with such actions, nor will the Secured Party or any Receiver be or be deemed to be a mortgagee in possession by virtue of any such actions;

(i) the Secured Party may appoint a receiver or receiver and manager (each herein referred to as the “Receiver”) of the whole or any part of the Collateral and may remove or replace such Receiver from time to time or may institute proceedings in any court of competent jurisdiction for the appointment of a Receiver of the Collateral;

(j) the Secured Party may discharge any claim, lien, mortgage, charge, security interest, encumbrance or any rights of others that may exist or be threatened against the Collateral, and in every such case the amounts so paid together with costs, charges and expenses incurred in connection therewith will be added to the Obligations.

4.3 Powers of the Receiver. Any Receiver will have all of the rights and powers that the Secured Party is entitled to exercise pursuant to Section 4.3 but the Secured Party will not be in any way responsible for any misconduct or negligence of any such Receiver.

4.4 Liability of Secured Party. The Secured Party will not be liable or responsible for any failure to seize, collect, realize, or obtain payment with respect to the Collateral and is not bound to institute proceedings or to take other steps for the purpose of seizing, collecting, realizing or obtaining possession or payment with respect to the Collateral or for the purpose of preserving any rights of the Secured Party, the Debtor or any other person in respect of the Collateral. In the exercise of its rights and the performance of its obligations, the Secured Party will only be liable for gross negligence or wilful misconduct.

4.5 Proceeds of Realization. The Secured Party may apply any proceeds of realization of the Collateral to payment of costs, fees and expenses, including those related to the realization of the Collateral, and the Secured Party may apply any balance to payment of all other Obligations in such order as the Secured Party sees fit. If there is any surplus remaining, the Secured Party may pay it to any person entitled thereto by law of whom the Secured Party has knowledge and any balance remaining may be paid to the Debtor. If the realization of the Collateral fails to satisfy the Obligations, the Debtor will be liable to pay any deficiency to the Secured Party

4.6 Waivers by Debtor. The Secured Party may (a) grant extensions of time, (b) take and perfect or abstain from taking and perfecting security, (c) give up any security, (d) accept compositions or compromises, (e) grant releases and discharges, and (f) otherwise waive rights against the Debtor, debtors of the Debtor, guarantors and others and with respect to the Collateral and other security as the Secured Party sees fit. No such action or omission will reduce the Obligations or affect the Secured Party’s rights hereunder.

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ARTICLE V - GENERAL

5.1 Appointment of Consultant. The Secured Party will be entitled to an appoint a consultant to provide such services and advice as the Secured Party may determine in its sole discretion, with power to enter the Debtor’s premises, to inspect and evaluate the Collateral, to make copies of the Debtor’s records, to review the Debtor’s business plans and projections, to assess the conduct and viability of the Debtor’s business, to prepare reports on the Debtor’s affairs and to distribute such reports to the Secured Party or to other such persons as the Secured Party may direct. Such consultant will act as an agent for the Secured Party and will owe no duty to the Debtor. The consultant is to have no managerial or advisory capacity and will have no decision making responsibility. The Debtor authorizes the Secured Party to provide confidential information to the consultant. All fees and expenses in connection with the engagement of a consultant are payable by the Debtor to the Secured Party.

5.2 Waivers of Legal Limitations. To the fullest extent permitted by law, the Debtor waives all of the rights, benefits and protections that is given by the provisions of any law that imposes limitations upon the powers, rights or remedies of a secured party, including any law that limits the rights of a secured party to both seize Collateral and sue for any deficiency following realization of Collateral. Without limitation, the Debtor (if a corporation) agrees that the Limitation of Civil Rights Act and Part IV of the Saskatchewan Farm Securities Act of the Province of Saskatchewan will not apply to this agreement or any of the rights, remedies or powers of the Secured Party or any Receiver hereunder.

5.3 Benefit of the Agreement. This Agreement will enure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.

5.4 Entire Agreement. This Agreement has been entered into pursuant to the provisions of the Loan Agreement and is subject to all the terms and conditions thereof and, if there is any conflict or inconsistency between the provisions of this Agreement and the provisions of the Loan Agreement, the rights and obligations of the parties will be governed by the provisions of the Loan Agreement. This Agreement cancels and supersedes any prior understandings and agreements between the parties with respect thereto. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the Secured Party and the Debtor with respect to the subject matter hereof except as expressly set forth herein or in the Loan Agreement.

5.5 Amendments and Waivers. No amendment to this Agreement will be valid or binding unless set forth in writing and duly executed by all of the parties. No waiver of any breach of any provision of this Agreement will be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided, will be limited to the specific breach waived.

5.6 Assignment. The rights of the Secured Party under this Agreement may be assigned by the Secured Party without the prior consent of the Debtor. The Debtor may not assign its obligations under this Agreement.

5.7 Severability. If any provision of this Agreement is determined by any court of competent jurisdiction to be illegal or unenforceable, that provision will be severed from this Agreement and the remaining provisions will continue in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either of the parties.

5.8 Notices. Any demand, notice or other communication to be given in connection with this Agreement must be given in accordance with the Loan Agreement

5.9 Remedies Cumulative: Additional Continuing Security. The rights and remedies of the Secured Party hereunder are cumulative and are in addition to and not in substitution for any other security now or hereafter held by the Secured Party or any other rights or remedies available at law or in equity or otherwise. No single or partial exercise by the Secured Party of any right or remedy precludes or otherwise affects the exercise of any other right or remedy to which the Secured Party may be entitled. This Agreement is a continuing agreement and security that will remain in full force and effect until discharged by the Secured Party.

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5.10 Further Assurances. Each of the Debtor and the Secured Party will from time to time execute and deliver all such further documents and instruments, including financing statements and schedules, and do all acts and things as the other party may reasonably require to effectively carry out or better evidence or perfect the security granted hereby and the full intent and meaning of this Agreement.

5.11 Power of Attorney. The Debtor hereby irrevocably appoints any officer for the time being of the Secured Party the true and lawful attorney of the Debtor upon the occurrence of an Event of Default that is continuing, with full power of substitution, to do all things and execute and deliver all such documents and instruments, including financing statements and schedules, as are referred to in Section 5.9 above, with the right to use the name of the Debtor whenever and wherever the officer may deem necessary or expedient and from time to time to exercise all rights and powers and to perform all acts of ownership in respect to the Collateral in accordance with this Agreement.

5.12 Discharge. The Debtor will be entitled to a discharge of this Agreement and termination of any and all commitments under the Loan Agreement or under any other Loan Document upon written request by the Debtor and full and irrevocable payment, performance and satisfaction of the Obligations. No discharge will be effective unless in writing and executed by the Secured Party.

5.13 Governing Law. This Agreement is governed by and will be construed in accordance with the laws of the Province of Ÿ and the laws of Canada applicable therein.

5.14 Copy of Documents and Consent to Filings. The Debtor acknowledges having received a fully executed copy of this Agreement and, to the extent permitted by applicable law, waives all rights to receive from the Secured Party a copy of any financing statement, financing change statement, or verification statement, filed or issued at any time in respect of this Agreement. The Debtor confirms its consent to the filing by the Secured Party or on its behalf of any financing statement or financing change statement filed or issued at any time in respect of this Agreement.

IN WITNESS WHEREOF the parties have executed this Agreement.

DEBTOR:		Ÿ
	Per:
Date of Execution		Name: Title:
		c/s

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SECURED PARTY:		Name: Title: SUNTRUST BANK
	Per:
Date of Execution		Name: Title: c/s
		Name: Title:

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EXHIBIT F

FORM OF PAYOR’S PAD AGREEMENT

Business Pre-Authorized Debit Plan* -

Authorization of the Payor to the Payee to Direct Debit an Account

Instructions:

1. Please complete all sections in order to instruct your financial institution to make payments directly from your account.

2. Please sign the Terms and Conditions that are part of this document.

3. Return the completed form with a blank cheque marked “VOID” to the Payee at the address noted below.

4. If you have any questions, please write or call the Payee.

PAYOR INFORMATION (Please type or print clearly)

Payor Name:
Address:
Telephone:
Name(s) of Authorized Signing Officer(s):
Signature(s) of Authorized Signing Officer(s):	Date:

PAYOR FINANCIAL INSTITUTION/BANKING INFORMATION (Please type or print clearly)

Branch Number Institution # Account Number

Name of Financial Institution
Branch
Branch Address
City/Province	Postal Code

PAYEE INFORMATION (Please type or print clearly)

Payee Name:

Address:

Number, Street/Avenue/Blvd/Crsc/ City/Province/Postal Code

Telephone:

Fax:

Email:

PAYMENT INFORMATION (Please type or print clearly)

Please specify whether the payment is a: (Please check one)	¨      Fixed Amount: (Please specify)                                 ¨      Variable Amount: If variable, please specify whether there is a maximum amount or indicate N/A if there is no maximum amount:
Occurring at: (Please check one)	¨      Set intervals: Please specify the timing (i.e. weekly, bi-weekly, monthly)                 Sporadic intervals The Payor must describe the occurrence of an Event or other criteria that will trigger the debit of the account ¨      Mandatory description here:
Are top-ups or adjustments permissible? (Please check one)	¨  Yes ¨  No

* This form is for PADs which relate to commercial activities of a Payor who is a corporation, organization, trade, association, government entity, profession, venture or enterprise.

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PAYOR’S PAD AGREEMENT

Business Pre-Authorized Debit Plan

Terms & Conditions

1. In this Agreement “we”, “us” and “our” refers to the Payor indicated on page 1.

2. We agree to participate in this Business Pre-Authorized Debit Plan and we authorize the Payee indicated on page 1 and any successor or assign of the Payee to draw a debit in paper, electronic or other form for the purpose of making payment for goods or services related to our commercial activities (a “Business PAD”) on our account indicated on the page 1 (the “Account”) at the financial institution indicated on page 1 (the “Financial Institution”) and we authorize the Financial Institution to honour and pay such debits.

This Agreement and our authorization are provided for the benefit of the Payee and our Financial Institution and are provided in consideration of our Financial Institution agreeing to process debits against our Account in accordance with the Rules of the Canadian Payments Association.

We agree that any direction we may provide to draw a Business PAD, and any Business PAD drawn in accordance with this Agreement, shall be binding on us as if signed by us, and, in the case of paper debits, as if they were cheques signed by us.

3. We may revoke or cancel this Agreement at any time upon notice being provided by us either in writing or orally. We acknowledge that in order to revoke or cancel the authorization provided in this Agreement, we must provide notice of revocation or cancellation to the Payee.

This Agreement applies only to the method of payment and we agree that revocation or cancellation of this Agreement does not terminate or otherwise have any bearing on any contract that exists between us and the Payee.

The Payee shall use best efforts to cancel the Business PAD in the next business, billing or processing cycle but shall within not more than 30 days from the notice cease to issue any new Business PADs.

We understand that we may obtain a sample cancellation form, or further information on our right to cancel a PAD Agreement, at our financial institution or at www.cdnpay.ca.

4. We agree that our Financial Institution is not required to verily that any Business PAD has been drawn in accordance with this Agreement, including the amount, frequency and fulfillment of any purpose of any Business PAD.

5. We agree that delivery of this Agreement to the Payee constitutes delivery by us to our Financial Institution. We agree that the Payee may deliver this Agreement to the Payee’s financial institution and agree to the disclosure of any information which may be contained in this Agreement to such financial institution.

Delete either 6(a) or 6(b) as applicable

6. (a) We understand that with respect to:

(i) fixed amount Business PADs occurring at set intervals, we shall receive written notice from the Payee of the amount to be debited and the due date(s) of debiting, at least 10 calendar days before the first Business PAD, and such notice shall be received every time there is a change in the amount or payment date(s), except as provided in clause (iii) below;

(ii) variable amount Business PADs occurring at set intervals, we shall receive written notice from the Payee of the amount to be debited and the due date(s) of debiting, at least 10 calendar days before the due date of every Business PAD, except as provided in clause (iii) below; and

(iii) fixed amount and variable amount Business PADs occurring at set intervals, where the Business PAD Plan provides for a change in the amount of such fixed and variable amount PADs as a result of our direct action (such as, but not limited to, a telephone instruction) requesting the Payee to change the amount of a PAD, no pre-notification of such changes is required.

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- OR -

If Payor agrees to waive pre-notification, Payor must sign where indicated

(b) We agree to waive the pre-notification requirements in section 6(a) of this Agreement.

Signature of Payor   Signature of Payor

7. We agree that with respect to Business PADs, where the payment frequency is sporadic, an authorization given using a password or secret code or other signature equivalent that is issued to us shall constitute a valid authorization for the Payee or its agent to debit our account.

8. We may dispute a Business PAD by providing a signed declaration to our Financial Institution under the following conditions:

(a) the Business PAD was not drawn in accordance with this Agreement;

(b) this Agreement was revoked or cancelled; or

(c) any pre-notification required and not waived by section 6(b) was not received by us.

We acknowledge that, in order to obtain reimbursement from our Financial Institution for the amount of a disputed Business PAD, we must sign a declaration to the effect that either (a), (b) or (c) above took place and present it to our Financial Institution up to and including but not later than ten (10) business days after the date on which the disputed Business PAD was posted to our Account.

We acknowledge that, after this ten (10) business day period, we shall resolve any dispute regarding a Business PAD solely with the Payee, and that our Financial Institution shall have no liability to us respecting any such Business PAD.

9. We certify that all information provided with respect to the Account is accurate and we agree to inform the Payee, in writing, of any change in the Account information provided in this Agreement at least ten (10) business days prior to the next due date of a Paper and/or Electronic Business PAD. In the event of any such change, this Agreement shall continue in respect of any new account to be used for Business PADs.

10. We have certain recourse/reimbursement rights if any debit does not comply with this Agreement. For example, we have the right to receive reimbursement for any debit that is not authorized or is not consistent with this PAD Agreement. To obtain more information on our recourse/reimbursement rights, we may contact our financial institution or visit the CPA website at www.cdnpay.ca.

11. We warrant and guarantee that all persons whose signatures are required to sign on the Account have signed this Agreement below. In addition we warrant and guarantee, where applicable, that we have the authority to electronically agree to commit to this Agreement by secure electronic signature and that our secure electronic signature conforms with the requirements of Rule H1.

If Paee intends to use a payment provider must include statement

12 We agree that a payment service provider will administer the PAD. [INSERT NAME] will be administering the PAD.

13 We understand and agree to the foregoing terms and conditions.

14. We agree to comply with the Rules of the Canadian Payments Association, or any other rules or regulations which may affect the services described herein, as may be introduced in the future or are currently in effect and we agree to execute any further documentation which may be prescribed from time to time by the Canadian Payments Association in respect of the services described herein.

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15. Applicable to the Province of Quebec only: It is the express wish of the parties that this Agreement and any related documents be drawn up and executed in English. Les parties conviennent que la presénte convention et tous les documents s’y rattachant soient rédigés et signes en anglais.

	Per:
Name of Payor		Signature of Authorized Signing Officer Name: Title:	Date
	Per:
		Signature of Authorized Signing Officer Name: Title:	Date

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EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

NAME	STATE OR COUNTRY OF INCORPORATION
Aaron Investment Company	Delaware
Aaron’s Canada, ULC	Canada
Aaron Rents, Inc. Puerto Rico	Commonwealth of Puerto Rico
Aaron’s Foundation, Inc.	Georgia
Aaron’s Production Company	Georgia
99LTO, LLC	Georgia

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

1) Registration Statement (Form S-8 No. 333-160357) dated June 30, 2009 pertaining to the Aaron’s, Inc. Deferred Compensation Plan, and

2) Registration Statement (Form S-8 No. 333-171113) dated December 10, 2010 pertaining to the 2001 Stock Option and Incentive Award Plan, as Amended and Restated, and Aaron’s, Inc. Employees Retirement Plan and Trust, as Amended and Restated;

of our reports dated February 22, 2013, with respect to the consolidated financial statements of Aaron’s, Inc. and subsidiaries and the effectiveness of internal control over financial reporting of Aaron’s, Inc. and subsidiaries included in this Annual Report (Form 10-K) of Aaron’s, Inc. and subsidiaries for the year ended December 31, 2012.

/s/ Ernst & Young LLP

Atlanta, Georgia

February 22, 2013

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Ronald W. Allen, certify that:

1. I have reviewed this annual report on Form 10-K 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the 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 controls over financial reporting.

Date: February 22, 2013	/s/ Ronald W. Allen
	Ronald W. Allen
	Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Gilbert L. Danielson, certify that:

1. I have reviewed this annual report on Form 10-K 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the 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 controls over financial reporting.

Date: February 22, 2013	/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, Ronald W. Allen, Chief Executive Officer of Aaron’s, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2012 (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: February 22, 2013	/s/ Ronald W. Allen
	Ronald W. Allen
	Chairman, President and 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. (the “Company”), certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2012 (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: February 22, 2013	/s/ Gilbert L. Danielson
	Gilbert L. Danielson
	Executive Vice President, Chief Financial Officer

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Store Count by Ownership Type (Parenthetical) (Detail)	12 Months Ended
	Dec. 31, 2012 Entity	Dec. 31, 2011 Entity	Dec. 31, 2010 Entity
Franchisor Disclosure [Line Items]
Franchises granted	929	943	946

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Fair Value of Assets (Liabilities) Not Measured at Fair Value In Consolidated Balance Sheets (Parenthetical) (Detail) (Fixed Rate, USD $)	Dec. 31, 2012	Dec. 31, 2011
Fixed Rate
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long term debt, carrying value	$ 125,000,000	$ 137,000,000
Long term debt, fair value	$ 127,300,000	$ 135,000,000

XML

Summary of Identifiable Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Finite-Lived Intangible Assets [Line Items]
Intangible assets gross	$ 12,351	$ 10,707
Accumulated Amortization	(6,325)	(4,641)
Intangible assets net	6,026	6,066
Customer relationship intangibles
Finite-Lived Intangible Assets [Line Items]
Intangible assets gross	4,377	3,400
Accumulated Amortization	(2,170)	(1,001)
Intangible assets net	2,207	2,399
Non-compete intangibles
Finite-Lived Intangible Assets [Line Items]
Intangible assets gross	3,408	2,855
Accumulated Amortization	(1,471)	(1,062)
Intangible assets net	1,937	1,793
Acquired franchise development rights
Finite-Lived Intangible Assets [Line Items]
Intangible assets gross	4,566	4,452
Accumulated Amortization	(2,684)	(2,578)
Intangible assets net	$ 1,882	$ 1,874

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Commitments and Contingencies - Additional Information (Detail)	1 Months Ended	3 Months Ended		12 Months Ended				12 Months Ended			12 Months Ended
	Mar. 26, 2012 USD ($)	Mar. 31, 2012 USD ($)	Jun. 30, 2011 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2011 USD ($)	Dec. 31, 2010 USD ($)	Dec. 31, 2012 Marketing and Advertising Expense USD ($)	Dec. 31, 2012 Franchise Loan Facility CAD	Dec. 31, 2012 Kunstmann et al Plaintiff	Dec. 31, 2012 Kurtis Jewell Plaintiff	Dec. 31, 2012 Amendment Franchise Loan Facility CAD	Dec. 31, 2012 Minimum	Dec. 31, 2012 Maximum	Dec. 31, 2012 Maximum Kurtis Jewell
Commitments and Contingencies Disclosure [Line Items]
Leases of warehouse and retail store space under operating lease, expiring time				2028
Renewal options of leases for additional periods												1 year	20 years
Leases of transportation and computer equipment under operating leases, expiring period													5 years
Rental expense				$ 102,000,000	$ 93,600,000	$ 96,100,000
Sublease income				3,100,000	3,100,000	2,800,000
Future sublease rental income in one year				4,000,000
Future sublease rental income in two years				3,400,000
Future sublease rental income in three years				2,800,000
Future sublease rental income in four years				2,400,000
Future sublease rental income in five years				2,200,000
Future sublease rental income in five years and thereafter				7,700,000
Portion that Company might be obligated to repay in the event franchisees defaulted				117,300,000	128,800,000
Fair value of franchise related borrowings				2,600,000
Debt instrument, maturity date											May 16, 2012
Loan facility maximum Canadian sub facility commitment amount								35,000,000			50,000,000
Accrued lawsuit expense			36,500,000
Accrued probable losses associated with litigation			41,500,000
Insurance coverage for litigation expenses			5,000,000
Litigation final settlement amount	6,000,000
Income related to reversal of lawsuit accrual		35,500,000	(36,500,000)	35,500,000	(36,500,000)
Number of Plaintiffs									247	1,788
Percentage of class size with respect to potential class members														7.00%
Loss contingency, estimate of probable loss				5,000,000
Minimum range of possible loss				700,000
Maximum range of possible loss				7,600,000
Non-cancelable commitments							21,700,000
Non-cancelable commitments due in 2013							17,500,000
Non-cancelable commitments due in 2014							3,600,000
Non-cancelable commitments due in 2015							383,000
Non-cancelable commitments due in 2016							274,000
Maximum 401 (K) plan contribution rates as percentage of employees earnings				100.00%
Employer 401 (k) matching contribution to employee, Maximum				50.00%
Initial Employer 401(K) Matching Contribution to Employee				4.00%
Compensation expense related to 401(k) savings plan				$ 999,000	$ 891,000	$ 841,000

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Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value of Investment Securities Held to Maturity (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	$ 85,861	$ 98,132
Gross Unrealized Gains	99	15
Gross Unrealized Losses	(41)	(664)
Fair Value	85,919	97,483
Corporate Bond
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	67,412	82,243
Gross Unrealized Gains	99	15
Gross Unrealized Losses	(41)	(664)
Fair Value	67,470	81,594
Perfect Home Bonds
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	18,449	15,889
Fair Value	$ 18,449	$ 15,889

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Summary of Franchised Store Activity, Company-Operated Sales and Lease Ownership Store Activity and Company-Operated HomeSmart Store Activity (Detail)	12 Months Ended
	Dec. 31, 2012 Store	Dec. 31, 2011 Store	Dec. 31, 2010 Store
Franchisor Disclosure [Line Items]
Franchised stores open at January 1,	713	664	597
Opened	56	55	62
Added through acquisition			10
Purchased from the Company	3	9	10
Purchased by the Company	(21)	(7)	(12)
Closed, sold or merged	(2)	(8)	(3)
Franchised stores open at December 31,	749	713	664
Company-operated HomeSmart stores open at January 1,	1,232	1,150
Company-operated HomeSmart stores open at December 31,	1,324	1,232	1,150
HomeSmart
Franchisor Disclosure [Line Items]
Company-operated HomeSmart stores open at January 1,	71	3
Opened	7	24	3
Added through acquisition	1	44
Closed, sold or merged	(1)
Company-operated HomeSmart stores open at December 31,	78	71	3
Sales and Lease Ownership
Franchisor Disclosure [Line Items]
Company-operated HomeSmart stores open at January 1,	1,160	1,146	1,082
Opened	76	57	86
Added through acquisition	21	8	14
Closed, sold or merged	(11)	(51)	(36)
Company-operated HomeSmart stores open at December 31,	1,246	1,160	1,146

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Acquisitions and Dispositions - Additional Information (Detail) (USD $) In Millions, unless otherwise specified				12 Months Ended
	Dec. 31, 2012 Entity	Dec. 31, 2011 Entity	Dec. 31, 2010 Entity	Dec. 31, 2010 Aarons Office Furniture Store
Business Acquisition [Line Items]
Sale of sales and lease ownership locations	3	25	11
Number of stores closed				14
Closed store reserves				$ 3.3
Disposal activities amount recorded in lease merchandise write-downs and other miscellaneous expenses				4.7
Disposal activities amount recorded in operating expense				$ 9.0

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Stock Options And Restricted Stock (Tables)

12 Months Ended

Dec. 31, 2012

Summary Information about Stock Options Outstanding

The following table summarizes information about stock options outstanding at December 31, 2012:

	Options Outstanding
			Weighted Average				Options Exercisable
Range of Exercise Prices	Number Outstanding December 31, 2012		Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable December 31, 2012		Weighted Average Exercise Price
$5.92-10.00		112,968		0.83	$	9.72		112,968	$	9.72
10.01-15.00		1,110,451		4.81		14.05		749,451		14.02
15.01-19.92		289,328		6.89		19.74		30,578		18.23
$5.92-19.92		1,512,747		4.91		14.81		892,997		13.62

Summary of Stock Option Activity

The table below summarizes option activity for the year ended December 31, 2012:

	Options (In  Thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in Thousands)			Weighted Average Fair Value
Outstanding at January 1, 2012		2,849		$	13.78			$	41,252		$	6.38
Granted		—			—				—			—
Exercised		(1,268	)		12.43				(20,033	)		5.91
Forfeited		(68	)		16.21				(783	)		7.38
Outstanding at December 31, 2012		1,513			14.81		4.91 years		20,373			6.74
Expected to Vest at December 31, 2012		1,307			14.79		4.74 years		17,632			6.80
Exercisable at December 31, 2012		893			13.62		3.90 years		13,093			5.93

Summary of Restricted Stock Activity

The following table summarizes information about restricted stock activity:

	Restricted Stock (In Thousands)			Weighted Average Fair Value
Non-vested at January 1, 2012		415		$	19.64
Granted 1		368			26.08
Vested		(75	)		16.20
Forfeited		(12	)		27.84
Non-vested at December 31, 2012		696			23.28

¹ Includes 250,000 RSUs granted to certain executive officers that will be eligible to vest on March 31, 2015 assuming certain performance conditions are achieved over three annual performance periods. The Company recognizes compensation cost for its performance-based RSUs over the vesting period based on the probability that the performance condition will be satisfied.

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Store Count - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2012 Store	Dec. 31, 2011 Store	Dec. 31, 2010 Store
Franchisor Disclosure [Line Items]
Number of stores acquired	22	52	14
Sales and Lease Ownership
Franchisor Disclosure [Line Items]
Number of stores acquired	44	38	30
Sales and Lease Ownership | Franchise
Franchisor Disclosure [Line Items]
Number of stores acquired	21	7	12
Sales and Lease Ownership | Series of Individually Immaterial Business Acquisitions
Franchisor Disclosure [Line Items]
Number of stores acquired	21	8	14
HomeSmart
Franchisor Disclosure [Line Items]
Number of stores acquired	4	47
HomeSmart | Series of Individually Immaterial Business Acquisitions
Franchisor Disclosure [Line Items]
Number of stores acquired	1	44

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Stock Options and Restricted Stock - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011	Dec. 31, 2010
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock based compensation expense	$ 6,500,000		$ 8,400,000	$ 4,800,000
Excess tax benefits included in cash provided by financing activities	5,967,000		1,264,000	321,000
Aggregate number of shares of common stock issued or transferred under the incentive stock awards plan	14,492,585
Unexercised options lapse period	10 years
Stock options granted				347,000
Weighted average fair value of options granted				$ 10.31
Risk-free interest rate				3.59%
Dividend yield				0.25%
Volatility factor of the expected market price				0.41
Weighted average assumptions of forfeiture rate				3.89%
Weighted average expected life of the option				9 years
Aggregate Intrinsic value of options exercised	20,033,000		5,500,000	848,000
Fair value of options vested	2,200,000		2,700,000	3,200,000
Income tax expense benefit resulting from stock options exercised	8,400,000		2,100,000	1,400,000
Separation costs	10,400,000		3,500,000
Separation costs related to share based compensation	1,700,000
Vested	25,000		50,000
Incremental compensation cost resulting from modification	1,200,000		1,300,000
Stock options
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Unrecognized compensation expense related to non-vested award	12,200,000
Unrecognized compensation expense related to non-vested award, recognition period	2 years 6 months
Stock options | Minimum
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Vesting period	2 years
Stock options | Maximum
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Vesting period	5 years
Restricted Stock
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock granted	368,000	[1]	266,000	300,000
Weighted average grant date fair value	$ 26.08	[1]	$ 23.57	$ 16.20
Total fair value of shares vesting	$ 4,400,000		$ 5,700,000	$ 1,500,000
Vested	75,000
Restricted Stock | Minimum
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Vesting period	2 years
Restricted Stock | Maximum
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Vesting period	5 years
Restricted stock awards
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Vested	75,000		150,000

[1] Includes 250,000 RSUs granted to certain executive officers that will be eligible to vest on March 31, 2015 assuming certain performance conditions are achieved over three annual performance periods. The Company recognizes compensation cost for its performance-based RSUs over the vesting period based on the probability that the performance condition will be satisfied.

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Information Pertaining to Held to Maturity Securities With Gross Unrealized Losses (Detail) (Corporate Bond, USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Corporate Bond
Schedule of Held-to-maturity Securities [Line Items]
Fair Value	$ 22,785	$ 72,315
Gross Unrealized Losses	$ (41)	$ (664)

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Summary of Restricted Stock Activity (Detail) (Restricted Stock, USD $)	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011	Dec. 31, 2010
Restricted Stock
Restricted Stock
Beginning Balance	415,000
Granted	368,000	[1]	266,000	300,000
Vested	(75,000)
Forfeited	(12,000)
Ending Balance	696,000		415,000
Weighted Average Grant Price
Beginning Balance	$ 19.64
Granted	$ 26.08	[1]	$ 23.57	$ 16.20
Vested	$ 16.20
Forfeited	$ 27.84
Ending Balance	$ 23.28		$ 19.64

[1] Includes 250,000 RSUs granted to certain executive officers that will be eligible to vest on March 31, 2015 assuming certain performance conditions are achieved over three annual performance periods. The Company recognizes compensation cost for its performance-based RSUs over the vesting period based on the probability that the performance condition will be satisfied.

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Deferred Compensation Plan - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Deferred compensation plan liability	$ 9,500,000	$ 6,300,000
Cash surrender value of the policies	10,400,000	5,800,000
Deferred compensation expense charged to operations for Company's matching contributions	285,000	306,000	231,000
Benefits paid	$ 616,000	$ 77,000
Employee
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Percentage of receipt of base compensation	75.00%
Percentage of receipt of incentive pay compensation	100.00%
Non Employee Director
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Percentage of receipt of base compensation	100.00%
Percentage of receipt of incentive pay compensation	100.00%

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Information on Segments and Reconciliation to Earnings Before Income Taxes from Continuing Operations (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Segment Reporting Information [Line Items]
Revenues	$ 568,463	$ 529,510	$ 538,619	$ 585,996	$ 522,705	$ 484,731	$ 482,415	$ 532,480	$ 2,222,588	$ 2,022,331	$ 1,876,338
Earnings Before Income Taxes	57,192	46,044	58,590	115,029	48,739	45,092	17,627	71,919	276,855	183,377	190,786
Assets	1,812,929				1,731,899				1,812,929	1,731,899	1,500,853
Depreciation and Amortization									661,433	603,564	549,532
Interest Expense									6,392	4,709	3,096
Capital Expenditure					2,800				65,073	78,211	87,636
Sales and Lease Ownership
Segment Reporting Information [Line Items]
Revenues									2,088,894	1,938,614	1,803,601
Earnings Before Income Taxes									243,531	143,686	159,417
Assets	1,421,812				1,293,151				1,421,812	1,293,151	1,248,785
Depreciation and Amortization									629,119	588,036	539,669
Interest Expense									5,531	4,473	2,937
Capital Expenditure									35,480	53,402	72,832
HomeSmart
Segment Reporting Information [Line Items]
Revenues									55,226	15,624	56
Earnings Before Income Taxes									(6,962)	(7,283)	(318)
Assets	58,347				50,600				58,347	50,600	955
Depreciation and Amortization									20,482	5,933	21
Interest Expense									846	201	2
Capital Expenditure									4,121	10,950	202
Franchise
Segment Reporting Information [Line Items]
Revenues									66,655	63,255	59,112
Earnings Before Income Taxes									52,672	49,577	45,935
Assets	53,820				56,131				53,820	56,131	55,789
Depreciation and Amortization									146	41	41
Manufacturing
Segment Reporting Information [Line Items]
Revenues									95,693	89,430	79,113
Earnings Before Income Taxes									382	2,960	3,218
Assets	24,787				21,691				24,787	21,691	22,312
Depreciation and Amortization									4,430	1,294	2,958
Interest Expense									106	142	15
Capital Expenditure									4,493	2,107	5,484
Other
Segment Reporting Information [Line Items]
Revenues									9,122	8,096	15,132
Earnings Before Income Taxes									(11,854)	818	(12,437)
Assets	254,163				310,326				254,163	310,326	173,012
Depreciation and Amortization									7,256	8,260	6,843
Interest Expense									(91)	(107)	142
Capital Expenditure									20,979	11,752	9,118
Reportable Segments
Segment Reporting Information [Line Items]
Revenues									2,315,590	2,115,019	1,957,014
Earnings Before Income Taxes									277,769	189,758	195,815
Elimination of Intersegment
Segment Reporting Information [Line Items]
Revenues									(95,150)	(89,430)	(79,113)
Earnings Before Income Taxes									(393)	(2,960)	(3,218)
Cash to Accrual and Other Adjustments
Segment Reporting Information [Line Items]
Revenues									2,148	(3,258)	(1,563)
Earnings Before Income Taxes									(521)	(3,421)	(1,811)
CANADA | Sales and Lease Ownership
Segment Reporting Information [Line Items]
Revenues									308	3,258	4,470
Assets	$ 1,391				$ 1,527				$ 1,391	$ 1,527	$ 15,093

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Summary of Restricted Stock Activity (Parenthetical) (Detail) (Restricted stock units)	12 Months Ended
	Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Three annual performance period.	3 years
Executive grants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock granted	250,000
Restricted stock units vesting date	Mar. 31, 2015

XML

Future Minimum Lease Payments Required under Operating Leases (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Operating Leased Assets [Line Items]
2013	$ 110,244
2014	96,242
2015	78,560
2016	57,822
2017	42,922
Thereafter	162,103
Operating Leases, Future Minimum Payments Due, Total	$ 547,893

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Business And Summary Of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Store Count by Ownership Type

The following table presents store count by ownership type:

Stores at December 31 (Unaudited)	2012		2011		2010
Company-operated stores
Sales and Lease Ownership		1,227		1,144		1,135
RIMCO		19		16		11
HomeSmart		78		71		3
Aaron’s Office Furniture		—		1		1
Total Company-operated stores		1,324		1,232		1,150
Franchised stores1		749		713		664
Systemwide stores		2,073		1,945		1,814

¹  As of December 31, 2012, 2011 and 2010, 929, 943 and 946 franchises had been awarded, respectively.

Calculation of Dilutive Stock Awards

The following table shows the calculation of dilutive stock awards for the years ended December 31 (shares in thousands):

	2012		2011		2010
Weighted average shares outstanding		75,820		78,101		81,194
Effect of dilutive securities:
Stock options		789		998		745
RSUs		210		237		25
RSAs		7		3		138
Weighted average shares outstanding assuming dilution		76,826		79,339		82,102

Accounts Receivable Net of Allowances

Accounts receivable, net of allowances, consists of the following as of December 31:

(In Thousands)	2012		2011
Customers	$	7,840	$	5,384
Corporate		17,215		29,650
Franchisee		49,102		52,437
	$	74,157	$	87,471

Allowance for Doubtful Accounts

The following is a summary of the Company’s allowance for doubtful accounts as of December 31:

(In Thousands)	2012			2011			2010
Beginning Balance	$	4,768		$	4,544		$	4,157
Accounts written off		(30,609	)		(25,178	)		(23,601	)
Bad debt expense		31,842			25,402			23,988
Ending Balance	$	6,001		$	4,768		$	4,544

Summary of Goodwill by Reporting Unit

The following is a summary of the Company’s goodwill by reporting unit at December 31:

(In Thousands)	2012		2011
Sales and Lease Ownership	$	219,547	$	205,509
HomeSmart		14,648		13,833
Total	$	234,195	$	219,342

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Estimated Future Amortization Expense (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Schedule Of Estimated Future Amortization Expense [Line Items]
2013	$ 3,509
2014	1,598
2015	466
2016	232
2017	$ 177

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Allowance for Doubtful Accounts (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Balance	$ 4,768	$ 4,544	$ 4,157
Accounts written off	(30,609)	(25,178)	(23,601)
Bad debt expense	31,842	25,402	23,988
Ending Balance	$ 6,001	$ 4,768	$ 4,544

XML

Summary of Stock Option Activity (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Options
Outstanding at January 1, 2012	2,849,000
Granted			347,000
Exercised	(1,268,000)
Forfeited	(68,000)
Outstanding at December 31, 2012	1,513,000	2,849,000
Expected to Vest at December 31, 2012	1,307,000
Exercisable at December 31, 2012	893,000
Weighted Average Exercise Price
Outstanding at January 1, 2012	$ 13.78
Granted
Exercised	$ 12.43
Forfeited	$ 16.21
Outstanding at December 31, 2012	$ 14.81	$ 13.78
Expected to Vest at December 31, 2012	$ 14.79
Exercisable at December 31, 2012	$ 13.62
Weighted Average Remaining Contractual Term
Outstanding at December 31, 2012	4 years 10 months 28 days
Expected to Vest at December 31, 2012	4 years 8 months 27 days
Exercisable at December 31, 2012	3 years 10 months 24 days
Aggregate Intrinsic Value
Outstanding at January 1, 2012	$ 41,252,000
Granted
Exercised	(20,033,000)	(5,500,000)	(848,000)
Forfeited	(783,000)
Outstanding at December 31, 2012	20,373,000	41,252,000
Expected to Vest at December 31, 2012	17,632,000
Exercisable at December 31, 2012	$ 13,093,000
Weighted Average Fair Value
Outstanding at January 1, 2012	$ 6.38
Granted			$ 10.31
Exercised	$ 5.91
Forfeited	$ 7.38
Outstanding at December 31, 2012	$ 6.74	$ 6.38
Expected to Vest at December 31, 2012	$ 6.80
Exercisable at December 31, 2012	$ 5.93

XML

Summary of Significant Accounting Policies - Additional Information (Detail)	12 Months Ended															12 Months Ended			12 Months Ended								1 Months Ended			12 Months Ended		1 Months Ended			12 Months Ended	1 Months Ended
	Dec. 31, 2012 USD ($) Segment Store	Dec. 31, 2011 USD ($) Store	Dec. 31, 2010 USD ($) Store	Dec. 31, 2012 Customer relationship intangibles	Dec. 31, 2012 Acquired franchise development rights	Dec. 31, 2012 Non-compete intangibles	Dec. 31, 2012 Software development USD ($)	Dec. 31, 2011 Software development USD ($)	Dec. 31, 2010 Software development USD ($)	Dec. 31, 2010 Aarons Office Furniture USD ($) Store	Dec. 31, 2012 Merchandise Not On Lease	Dec. 31, 2012 Sales and Lease Ownership USD ($) Store	Dec. 31, 2011 Sales and Lease Ownership USD ($) Store	Dec. 31, 2010 Sales and Lease Ownership Store	Dec. 31, 2009 Sales and Lease Ownership Store	Dec. 31, 2012 HomeSmart Store	Dec. 31, 2011 HomeSmart Store	Dec. 31, 2010 HomeSmart Store	Dec. 31, 2012 Agreement One Sales and Lease Ownership	Dec. 31, 2012 Agreement One HomeSmart	Dec. 31, 2012 Agreement Two Sales and Lease Ownership	Dec. 31, 2012 Agreement Two HomeSmart	Dec. 31, 2012 Agreement Three Sales and Lease Ownership	Dec. 31, 2012 Agreement Three HomeSmart	Dec. 31, 2012 Maximum USD ($)	Dec. 31, 2012 Maximum Merchandise On Lease	Dec. 31, 2012 Maximum Buildings and Improvements	Dec. 31, 2012 Maximum Other depreciable property and equipment	Dec. 31, 2012 Maximum Software	Dec. 31, 2012 Minimum USD ($)	Dec. 31, 2012 Minimum Merchandise On Lease	Dec. 31, 2012 Minimum Buildings and Improvements	Dec. 31, 2012 Minimum Other depreciable property and equipment	Dec. 31, 2012 Minimum Software	Dec. 31, 2012 Restricted stock units	Oct. 14, 2011 Variable Interest Entity, Not Primary Beneficiary Store	Dec. 31, 2012 Variable Interest Entity, Not Primary Beneficiary USD ($)	Dec. 31, 2012 Variable Interest Entity, Not Primary Beneficiary GBP (£)	Dec. 31, 2011 Variable Interest Entity, Not Primary Beneficiary USD ($)	Dec. 31, 2011 Variable Interest Entity, Not Primary Beneficiary GBP (£)	Dec. 31, 2012 Variable Interest Entity, Not Primary Beneficiary Maximum USD ($)
Significant Accounting Policies [Line Items]
Number of stores closed										14		11	51	36		1
Percentage of common stock outstanding																																				11.50%
Number of retail stores	1,324	1,232	1,150									1,246	1,160	1,146	1,082	78	71	3																		55
Held to maturity securities	$ 85,861,000	$ 98,132,000																																			$ 18,400,000	£ 11,400,000	$ 15,900,000	£ 10,200,000
Held to maturity securities, face value	85,861,000																																					10,000,000
Investment included in prepaid expenses and other assets																																									1,000
Maximum exposure to any potential losses associated with VIE																																					18,400,000
Period of lease model																			12 months	420 days	18 months	630 days	24 months	840 days
Non-refundable initial franchise fee																									50,000					15,000
Percentage of royalty of gross revenue																									6.00%					5.00%
Franchise agreement fee revenue	2,400,000	2,600,000	3,000,000
Royalty Revenue	56,500,000	52,000,000	47,900,000
Deferred franchise and area development agreement fees	3,800,000	4,700,000
Shipping and handling costs	74,900,000	68,100,000	60,600,000
Advertising costs	36,500,000	38,900,000	31,700,000
Amount of cooperative advertising consideration netted against advertising expense	31,100,000	25,400,000	27,200,000
Prepaid advertising asset	3,200,000	1,600,000
Anti-dilutive Securities excluded from the computation of earnings per share assuming dilution	53,000		314,000																																167,000
Lease merchandise, useful life											36 months															24 months					12 months
Lease merchandise, percentage of salvage value	0.00%
Lease merchandise adjustments	54,900,000	46,200,000	46,500,000
Disposal activities amount recorded in lease merchandise write-downs and other miscellaneous expenses										4,700,000
Property, plant and equipment, useful life																											40 years	15 years	10 years			5 years	1 year	5 years
Depreciation expense for property, plant and equipment	53,100,000	45,200,000	41,400,000
Amortization expense	3,700,000	2,300,000	3,100,000				2,600,000	1,500,000	1,200,000
Assets held for sale	11,104,000	9,885,000
Impairment charge												1,060,000	453,000
Operating segments	5
Estimated useful lives of intangibles				2 years	10 years	3 years
Asset retirement obligations	2,300,000	2,100,000
Foreign currency transaction gains and losses	$ 2,000,000	$ (465,000.0)	$ 251,000.0

XML

Assets Measured At Fair Value on Nonrecurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets held for sale	$ 11,104	$ 9,885
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets held for sale	$ 11,104	$ 9,885

XML

Components of Deferred Income Tax Liabilities and Assets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deferred Tax Liabilities:
Lease Merchandise and Property, Plant and Equipment	$ 279,926	$ 329,497
Other, Net	34,014	29,607
Total Deferred Tax Liabilities	313,940	359,104
Deferred Tax Assets:
Accrued Liabilities	25,365	33,826
Advance Payments	15,834	16,432
Federal Net Operating Loss		10,936
Other, Net	9,677	11,760
Total Deferred Tax Assets	50,876	72,954
Less Valuation Allowance	(657)	(812)
Net Deferred Tax Liabilities	$ 263,721	$ 286,962

XML

Property, Plant and Equipment - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Property, Plant and Equipment [Line Items]
Amortization expense on assets recorded under capital leases	$ 1,200,000	$ 1,200,000	$ 1,900,000
Accumulated depreciation and amortization, Capital lease assets	173,915,000	154,725,000
Related Party
Property, Plant and Equipment [Line Items]
Accumulated depreciation and amortization, Capital lease assets	4,800,000	4,200,000
Non-Related Party
Property, Plant and Equipment [Line Items]
Accumulated depreciation and amortization, Capital lease assets	$ 4,400,000	$ 3,800,000

XML

Summary of Carrying Value of Goodwill by Operating Segment (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Goodwill [Line Items]
Beginning Balance	$ 219,342	$ 202,379
Additions	15,214	22,888
Disposals	(361)	(5,925)
Ending Balance	234,195	219,342
Sales and Lease Ownership
Goodwill [Line Items]
Beginning Balance	205,509	202,379
Additions	14,399	9,055
Disposals	(361)	(5,925)
Ending Balance	219,547	205,509
HomeSmart
Goodwill [Line Items]
Beginning Balance	13,833
Additions	815	13,833
Ending Balance	$ 14,648	$ 13,833

XML

Business And Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Business And Summary Of Significant Accounting Policies

NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Aaron’s, Inc. (the “Company” or “Aaron’s”) is a leading specialty retailer engaged in the business of leasing and selling consumer electronics, computers, residential furniture, appliances and household accessories throughout the United States and Canada. The Company’s major operating divisions are the Sales & Lease Ownership division (established as a monthly payment concept), the HomeSmart division (established as a weekly payment concept) and the Woodhaven Furniture Industries division, which manufactures upholstered furniture and bedding predominantly for use by Company-operated and franchised stores. The Company’s Sales & Lease Ownership division includes the Company’s RIMCO stores, which lease automobile wheels, tires and rims under sales and lease ownership agreements. The Company began ceasing the operations of the Aaron’s Office Furniture division in June of 2010. The Company closed 14 of its Aaron’s Office Furniture stores during 2010 and closed the remaining store in 2012. Refer to Note 2 for additional disclosure regarding the disposal of the Aaron’s Office Furniture division.

The following table presents store count by ownership type:

Stores at December 31 (Unaudited)	2012		2011		2010
Company-operated stores
Sales and Lease Ownership		1,227		1,144		1,135
RIMCO		19		16		11
HomeSmart		78		71		3
Aaron’s Office Furniture		—		1		1
Total Company-operated stores		1,324		1,232		1,150
Franchised stores1		749		713		664
Systemwide stores		2,073		1,945		1,814

¹  As of December 31, 2012, 2011 and 2010, 929, 943 and 946 franchises had been awarded, respectively.

Basis of Presentation

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Generally, actual experience has been consistent with management’s prior estimates and assumptions. Management does not believe these estimates or assumptions will change significantly in the future absent unsurfaced or unforeseen events.

Certain reclassifications have been made to the prior periods to conform to the current period presentation. The HomeSmart division has been reclassified from the Other segment to the HomeSmart segment in all periods presented. Refer to Note 12 for the segment disclosure. In all periods presented, “bad debt expense” has been separately presented from “change in accounts receivable” in the consolidated statements of cash flows. Additionally, interest income has been reclassified from “Other” revenues and presented as a component of non-operating income and expenses in the consolidated statements of earnings for all periods presented.

Principles of Consolidation and Variable Interest Entities

The consolidated financial statements include the accounts of Aaron’s, Inc. and its wholly owned subsidiaries. Intercompany balances and transactions between consolidated entities have been eliminated.

On October 14, 2011, the Company purchased 11.5% of newly issued shares of common stock of Perfect Home Holdings Limited (“Perfect Home”), a privately-held rent-to-own company that is primarily financed by subordinated debt. Perfect Home is based in the United Kingdom and operates 55 retail stores as of December 31, 2012. As part of the transaction, the Company also received notes and an option to acquire the remaining interest in Perfect Home at any time through December 31, 2013. If the Company does not exercise the option prior to December 31, 2013, it will be obligated to sell the common stock and notes back to Perfect Home at the original purchase price plus interest. The Company’s investment is denominated in British Pounds.

Perfect Home is a variable interest entity (“VIE”) as it does not have sufficient equity at risk; however, the Company is not the primary beneficiary and lacks the power through voting or similar rights to direct the activities of Perfect Home that most significantly affect its economic performance. As such, the VIE is not consolidated by the Company.

Because the Company is not able to exercise significant influence over the operating and financial decisions of Perfect Home, the equity portion of the investment in Perfect Home totaling less than a thousand dollars at December 31, 2012 is accounted for as a cost method investment and is included in prepaid expenses and other assets in the consolidated balance sheets. The notes purchased from Perfect Home totaling 11.4 million British pounds ($18.4 million) and 10.2 million British pounds ($15.9 million) at December 31, 2012 and 2011, respectively, are accounted for as held-to-maturity securities in accordance with ASC 320, Debt and Equity Securities, and are included in investments in the consolidated balance sheets. The increase in the Company’s British pound-denominated notes during 2012 relates to accretion of the original discount on the notes with a face value of 10.0 million British pounds. Utilizing a Black-Scholes model, the options to buy the remaining interest in Perfect Home and to sell the Company’s interest in Perfect Home were determined to have only nominal values.

The Company’s maximum exposure to any potential losses associated with this VIE is equal to its total recorded investment which totals $18.4 million at December 31, 2012.

Revenue Recognition

Lease Revenues and Fees

The Company provides merchandise, consisting of consumer electronics, computers, residential furniture, appliances, and household accessories, to its customers for lease under certain terms agreed to by the customer. Two primary lease models are offered to customers: one through the Company’s Sales & Lease Ownership division (established as a monthly model) and the other through its HomeSmart division (established as a weekly model). The typical monthly lease model is 12, 18 or 24 months, while the typical weekly lease model is 60, 90 or 120 weeks. The Company does not require deposits upon inception of customer agreements.

In a number of states, the Company utilizes a consumer lease form as an alternative to a typical lease purchase agreement. The consumer lease differs from our state lease agreement in that it has an initial lease term in excess of four months. Generally, state laws that govern the rent-to-own industry only apply to lease agreements with an initial term of four months or less. Following satisfaction of the initial term contained in the consumer or state lease, as applicable, the customer has the right to acquire title either through a purchase option or through payment of all required lease payments.

All of the Company’s customer agreements are considered operating leases under the provisions of ASC 840, Leases. As such, lease revenues are recognized as revenue in the month they are due. Lease payments received prior to the month due are recorded as deferred lease revenue. Until all payment obligations are satisfied under sales and lease ownership agreements, the Company maintains ownership of the lease merchandise. Initial direct costs related to the Company’s customer agreements are expensed as incurred and have been classified as operating expenses in the Company’s consolidated statements of earnings.

Retail and Non-Retail Sales

Revenues from the sale of merchandise to franchisees are recognized at the time of receipt of the merchandise by the franchisee based on the electronic receipt of merchandise by the franchisee within the Company’s fulfillment system. Additionally, revenues from the sale of merchandise to other customers are recognized at the time of shipment, at which time title and risk of ownership are transferred to the customer.

Substantially all of the amounts reported as non-retail sales and non-retail cost of sales in the accompanying consolidated statements of earnings relate to the sale of lease merchandise to franchisees. The Company classifies the sale of merchandise to other customers as retail sales in the consolidated statements of earnings. The Company presents sales net of sales taxes.

Franchise Royalties and Fees

The Company franchises Aaron’s Sales & Lease Ownership stores. Franchisees typically pay a non-refundable initial franchise fee from $15,000 to $50,000 depending upon market size and an ongoing royalty of either 5% or 6% of gross revenues. Franchise fees and area development fees are generated from the sale of rights to develop, own and operate Aaron’s Sales & Lease Ownership stores. These fees are recognized as income when substantially all of the Company’s obligations per location are satisfied, generally at the date of the store opening. Franchise fees and area development fees are received before the substantial completion of the Company’s obligations and deferred. The Company guarantees certain debt obligations of some of the franchisees and receives guarantee fees based on the outstanding debt obligations of such franchisees. The Company recognizes finance fee revenue as the guarantee obligation is satisfied. Refer to Note 8 for additional discussion of the Company’s franchise-related guarantee obligation.

Franchise agreement fee revenue was $2.4 million, $2.6 million and $3.0 million royalty revenue was $56.5 million, $52.0 million and $47.9 million; and finance fee revenue was $4.9 million, $5.9 million and $5.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. Deferred franchise and area development agreement fees, included in accounts payable and accrued expenses in the accompanying consolidated balance sheets, were $3.8 million and $4.7 million at December 31, 2012 and 2011, respectively.

Retail and Non-Retail Cost of Sales

Included in cost of sales is the net book value of merchandise sold, primarily using specific identification. It is not practicable to allocate operating expenses between selling and lease operations.

Shipping and Handling Costs

The Company classifies shipping and handling costs as operating expenses in the accompanying consolidated statements of earnings, and these costs totaled $74.9 million, $68.1 million and $60.6 million in 2012, 2011 and 2010, respectively.

Advertising

The Company expenses advertising costs as incurred when an advertisement appears for the first time. Such advertising costs amounted to $36.5 million, $38.9 million and $31.7 million in 2012, 2011 and 2010, respectively. These advertising expenses are shown net of cooperative advertising considerations received from vendors, substantially all of which represents reimbursement of specific, identifiable and incremental costs incurred in selling those vendors’ products. The amount of cooperative advertising consideration netted against advertising expense was $31.1 million, $25.4 million and $27.2 million in 2012, 2011 and 2010, respectively. The prepaid advertising asset was $3.2 million and $1.6 million at December 31, 2012 and 2011, respectively.

Stock-Based Compensation

The Company has stock-based employee compensation plans, which are more fully described in Note 10. The Company estimates the fair value for the options granted on the grant date using a Black-Scholes option-pricing model and accounts for stock-based compensation under the fair value recognition provisions codified in FASB ASC Topic 718, Stock Compensation. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company’s common stock on the grant date.

Deferred Income Taxes

Deferred income taxes represent primarily temporary differences between the amounts of assets and liabilities for financial and tax reporting purposes. The Company’s largest temporary differences arise principally from the use of accelerated depreciation methods on lease merchandise for tax purposes.

Earnings per Share

Earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. The computation of earnings per share assuming dilution includes the dilutive effect of stock options, restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) as determined under the treasury stock method. The following table shows the calculation of dilutive stock awards for the years ended December 31 (shares in thousands):

	2012		2011		2010
Weighted average shares outstanding		75,820		78,101		81,194
Effect of dilutive securities:
Stock options		789		998		745
RSUs		210		237		25
RSAs		7		3		138
Weighted average shares outstanding assuming dilution		76,826		79,339		82,102

Approximately 53,000 and 314,000 stock-based awards were excluded from the computations of earnings per share assuming dilution in 2012 and 2010, respectively, because the awards would have been anti-dilutive for the years presented. No stock options, RSUs or RSAs were anti-dilutive during 2011. In addition, under the terms of the Company’s performance-based RSUs issued in 2012, approximately 167,000 RSUs will vest based on the achievement of revenue and pre-tax profit margin targets applicable to performance periods beginning subsequent to December 31, 2012. Accordingly, approximately 167,000 RSUs are not included in the computation of diluted EPS for the year ended December 31, 2012. Refer to Note 10 for additional information regarding the Company’s restricted stock arrangements.

Lease Merchandise

The Company’s lease merchandise consists primarily of consumer electronics, computers, residential furniture, appliances, and household accessories and is recorded at cost, which includes overhead from production facilities, shipping costs and warehousing costs. The sales and lease ownership stores depreciate merchandise over the lease agreement period, generally 12 to 24 months (monthly agreements) or 60 to 120 weeks (weekly agreements) when on lease and 36 months when not on lease, to a 0% salvage value. The Company’s policies require weekly lease merchandise counts at the store, which include write-offs for unsalable, damaged, or missing merchandise inventories. Full physical inventories are generally taken at the fulfillment and manufacturing facilities two to four times a year, and appropriate provisions are made for missing, damaged and unsalable merchandise. In addition, the Company monitors 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, it is adjusted to its net realizable value or written off.

All lease merchandise is available for lease or sale. On a monthly basis, all damaged, lost or unsalable merchandise identified is written off. The Company records lease merchandise adjustments on the allowance method. Lease merchandise write-offs totaled $54.9 million, $46.2 million, and $46.5 million during the years ended December 31, 2012, 2011 and 2010, respectively, and are included in operating expenses in the accompanying consolidated statements of earnings. Included in 2010 is a write-down of $4.7 million related to the closure of stores of the Aaron’s Office Furniture division.

Cash and Cash Equivalents

The Company classifies highly liquid investments with maturity dates of less than three months when purchased as cash equivalents.

Investments

The Company maintains investments in various corporate debt securities, or bonds. The Company has the positive intent and ability to hold its investments in debt securities, which mature at various dates from 2013 to 2014, to maturity. Accordingly, the Company classifies its investments in debt securities as held-to-maturity securities and carries the investments at amortized cost in the consolidated balance sheets.

The Company evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

Accounts Receivable

Accounts receivable consist primarily of receivables due from customers of Company-operated stores, corporate receivables incurred during the normal course of business and franchisee obligations. Accounts receivable, net of allowances, consists of the following as of December 31:

(In Thousands)	2012		2011
Customers	$	7,840	$	5,384
Corporate		17,215		29,650
Franchisee		49,102		52,437
	$	74,157	$	87,471

The Company maintains an allowance for doubtful accounts. The reserve for returns is calculated based on the historical collection experience associated with lease receivables. The Company’s policy is to write off lease receivables that are 60 days or more past due on pre-determined dates occurring twice monthly. The following is a summary of the Company’s allowance for doubtful accounts as of December 31:

(In Thousands)	2012			2011			2010
Beginning Balance	$	4,768		$	4,544		$	4,157
Accounts written off		(30,609	)		(25,178	)		(23,601	)
Bad debt expense		31,842			25,402			23,988
Ending Balance	$	6,001		$	4,768		$	4,544

Property, Plant and Equipment

The Company records property, plant and equipment at cost. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the respective assets, which range from five to 40 years for buildings and improvements and from one to fifteen years for other depreciable property and equipment. Costs incurred to develop software for internal use are capitalized and amortized over the estimated useful life of the software, which ranges from five to 10 years.

Gains and losses related to dispositions and retirements are recognized as incurred. Maintenance and repairs are also expensed as incurred; renewals and betterments are capitalized. Depreciation expense for property, plant and equipment is included in operating expenses in the accompanying consolidated statements of earnings and was $53.1 million, $45.2 million and $41.4 million during the years ended December 31, 2012, 2011 and 2010, respectively. Amortization of previously capitalized software development costs was $2.6 million, $1.5 million and $1.2 million during the years ended December 31, 2012, 2011 and 2010, respectively.

The Company assesses its long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. When it is determined that the carrying values of the assets are not recoverable, the Company compares the carrying values of the assets to their fair values as estimated using discounted expected future cash flows, market values or replacement values for similar assets. The amount by which the carrying value exceeds the fair value of the asset, if any, is recognized as an impairment loss.

Assets Held for Sale

Certain properties, primarily consisting of parcels of land, met the held for sale classification criteria at December 31, 2012 and 2011. After adjustment to fair value, the $11.1 million and $9.9 million carrying value of these properties has been classified as assets held for sale in the consolidated balance sheets as of December 31, 2012 and 2011, respectively. The Company estimated the fair values of these properties using market values for similar properties and these are considered Level 2 assets as defined in FASB ASC Topic 820, Fair Value Measurements.

The Company recorded impairment charges of $1,060,000 and $453,000 within operating expenses in 2012 and 2011, respectively, both of which related primarily to the impairment of various land outparcels and buildings included in the Sales and Lease Ownership segment that the Company decided not to utilize for future expansion. Gains and losses on the disposal of assets held for sale amounted to net gains of $1,247,000 in 2012 and losses of $20,000 and $306,000 during 2011 and 2010, respectively. The assets held for sale are included in the Other segment.

Goodwill

Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net tangible and intangible assets acquired in connection with business acquisitions. Impairment occurs when the carrying value of goodwill is not recoverable from future cash flows. The Company performs an assessment of goodwill for impairment at the reporting unit level annually as of September 30, and when events or circumstances indicate that impairment may have occurred. Factors which could necessitate an interim impairment assessment include a sustained decline in the Company’s stock price, prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results.

The Company has deemed its operating segments to be reporting units due to the fact that operations (stores) included in each operating segment have similar economic characteristics. As of December 31, 2012, the Company has five operating segments and reporting units: Sales and Lease Ownership, RIMCO, HomeSmart, Franchise and Manufacturing. The Company’s RIMCO stores lease automobile wheels, tires and rims to customers under sales and lease ownership agreements. Although the products offered are different, these stores are managed, monitored and operated similarly to our other sales and lease ownership stores.

As of December 31, 2012, the Company’s Sales and Lease Ownership and HomeSmart reporting units are the only reporting units with assigned goodwill balances. The following is a summary of the Company’s goodwill by reporting unit at December 31:

(In Thousands)	2012		2011
Sales and Lease Ownership	$	219,547	$	205,509
HomeSmart		14,648		13,833
Total	$	234,195	$	219,342

The goodwill impairment test consists of a two-step process, if necessary. The first step is to compare the fair value of the reporting unit to its carrying value, including goodwill. The Company uses a multiple of gross revenue to determine the fair value of its reporting units. If the carrying value of the reporting unit exceeds the fair value, a second step is performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess.

During the performance of the annual assessment of goodwill for impairment in the 2012, 2011 and 2010 fiscal years, the Company did not identify any reporting units that were not substantially in excess of their carrying values, other than the HomeSmart division for which locations were recently acquired. While no impairment was noted in our impairment test as of September 30, 2012, if profitability is delayed as a result of the significant start-up expenses associated with the HomeSmart stores, there could be a change in the valuation of the HomeSmart reporting unit that may result in the recognition of an impairment loss in future periods.

No new indications of impairment existed during the fourth quarter of 2012, thus no impairment testing was updated as of December 31, 2012.

Other Intangibles

Other intangibles represent the value of customer relationships, non-compete agreements and franchise development rights acquired in connection with business acquisitions and are recorded at fair value as determined by the Company. The customer relationship intangible asset is amortized on a straight-line basis over a two-year estimated useful life. The non-compete intangible asset is amortized on a straight-line basis over a three-year useful life. Acquired franchise development rights are amortized on a straight-line basis over the unexpired life of the franchisee’s ten year area development agreement.

Insurance Reserves

Estimated insurance reserves are accrued primarily for group health, general liability, automobile liability and workers compensation benefits provided to the Company’s employees. Estimates for these insurance reserves are made based on actual reported but unpaid claims and actuarial analyses of the projected claims run off for both reported and incurred but not reported claims.

Asset Retirement Obligations

The Company accrues for asset retirement obligations, which relate to expected costs to remove exterior signage, in the period in which the obligations are incurred. These costs are accrued at estimated fair value. When the related liability is initially recorded, the Company capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company recognizes a gain or loss for any differences between the settlement amount and the liability recorded. Asset retirement obligations amount to approximately $2.3 million and $2.1 million as of December 31, 2012 and 2011, respectively.

Derivative Financial Instruments

The Company utilizes derivative financial instruments, from time to time, to mitigate its exposure to certain market risks associated with its ongoing operations for a portion of the year. 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 December 31, 2010 and the changes in their fair values in 2011 and 2010 were immaterial. The Company did not hold any derivative financial instruments as of December 31, 2012 or 2011.

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The Company measures assets held for sale at fair value on a nonrecurring basis and records impairment charges when they are deemed to be impaired. The Company maintains certain financial assets and liabilities, including investments and fixed-rate long term debt, that are not measured at fair value but for which fair value is disclosed.

The fair values of the Company’s other current financial assets and liabilities, including cash and cash equivalents, accounts receivable and accounts payable, approximate their carrying values due to their short-term nature.

Foreign Currency

The financial statements of international subsidiaries are translated to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenues, costs, and expenses. Translation gains and losses of international subsidiaries are recorded in accumulated other comprehensive income as a component of shareholders’ equity. Foreign currency transaction gains and losses are recorded as a component operating expenses in the consolidated statements of earnings and amounted to gains of approximately $2.0 million and $251,000 during 2012 and 2010, respectively, and losses of $465,000 during 2011.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-04”). ASU 2011-04 is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. The amendments are of two types: (i) those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. ASU 2011-04 is effective for annual periods beginning after December 15, 2011 and the Company adopted ASU 2011-04 effective January 1, 2012. The adoption of ASU 2011-04 did not have a material effect on the Company’s financial statements.

In May 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 eliminated the option to report other comprehensive income and its components in the statement of shareholders’ equity. Instead, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. The Company elected to report other comprehensive income and its components in a separate statement of comprehensive income for the year ended December 31, 2012.

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02). ASU 2013-02 will require preparers to report, in one place, information about reclassifications out of accumulated other comprehensive income (“AOCI”). The ASU also requires companies to report changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the same reporting period, reporting (either on the face of the statement where net income is presented or in the notes) is required about the effect of the reclassifications on the respective line items in the statement where net income is presented. For items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other disclosures currently required under US GAAP is required in the notes. The above information must be presented in one place (parenthetically on the face of the financial statements by income statement line item or in a note). ASU 2013-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2012. The Company does not believe the adoption of ASU 2013-02 will have a material effect on the consolidated financial statements.

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Summary of Company's Credit Facilities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Senior Unsecured Notes	$ 125,000	$ 137,000
Capital Lease Obligation:
Other Debt	3,250	3,250
Credit Facilities	141,528	153,789
Related Party
Capital Lease Obligation:
Capital Lease Obligation	6,122	6,730
All Other
Capital Lease Obligation:
Capital Lease Obligation	$ 7,156	$ 6,809

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Summary of Goodwill by Reporting Unit (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Goodwill [Line Items]
Goodwill	$ 234,195	$ 219,342	$ 202,379
Sales and Lease Ownership
Goodwill [Line Items]
Goodwill	219,547	205,509	202,379
HomeSmart
Goodwill [Line Items]
Goodwill	$ 14,648	$ 13,833

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Property, Plant And Equipment (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Property, Plant and Equipment

Following is a summary of the Company’s property, plant, and equipment at December 31:

(In Thousands)	2012			2011
Land	$	25,285		$	25,882
Buildings and Improvements		81,773			81,566
Leasehold Improvements and Signs		120,883			116,632
Fixtures and Equipment1		152,436			133,615
Assets Under Capital Leases:
with Related Parties		8,158			7,641
with Unrelated Parties		10,564			10,564
Construction in Progress		5,414			5,444
		404,513			381,344
Less: Accumulated Depreciation and Amortization		(173,915	)		(154,725	)
	$	230,598		$	226,619

¹ Includes internal-use software development costs of $22.6 million and $15.6 million as of December 31, 2012 and 2011, respectively. Accumulated amortization of internal-use software development costs amounted to $6.6 million and $9.8 million as of December 31, 2012 and 2011, respectively.

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Fair Value Measurement (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis:

	December 31, 2012							December 31, 2011
(In Thousands)	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Deferred Compensation Liability	$	—	$	(9,518	)	$	—	$	—	$	(6,291	)	$	—

Assets Measured at Fair Value on Nonrecurring Basis

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

	December 31, 2012						December 31, 2011
(In Thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets Held for Sale	$	—	$	11,104	$	—	$	—	$	9,885	$	—

Fair Value of Assets (Liabilities) Not Measured at Fair Value In Consolidated Balance Sheets

The following table summarizes the fair value of assets (liabilities) that are not measured at fair value in the consolidated balance sheets, but for which the fair value is disclosed:

	December 31, 2012							December 31, 2011
(In Thousands)	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Corporate Bonds 1	$	—	$	67,470		$	—	$	—	$	81,594		$	—
Perfect Home Bonds 2		—		—			18,449		—		—			15,889
Fixed-Rate Long Term Debt 3		—		(127,261	)		—		—		(135,031	)		—

¹ The fair value of corporate bonds is determined through the use of model-based valuation techniques for which all significant assumptions are observable in the market.

² The Perfect Home bonds were initially valued at cost. The Company periodically reviews the valuation utilizing company-specific transactions or deterioration in the company’s financial performance to determine if fair value adjustments are necessary.

³ The fair value of fixed-rate long term debt is estimated using the present value of underlying cash flows discounted at a current market yield for similar instruments. The carrying value and fair value of fixed-rate long term debt at December 31, 2012 was $125.0 million and $127.3 million, respectively, and $137.0 million and $135.0 million, respectively, at December 31, 2011.

Investments Classified as Held to Maturity Securities

At December 31, 2012 and 2011, investments classified as held-to-maturity securities consisted of the following:

			Gross Unrealized
(In Thousands)	Amortized Cost		Gains		Losses			Fair Value
2012
Corporate Bonds	$	67,412	$	99	$	(41	)	$	67,470
Perfect Home Bonds		18,449		—		—			18,449
Total	$	85,861	$	99	$	(41	)	$	85,919
2011
Corporate Bonds	$	82,243	$	15	$	(664	)	$	81,594
Perfect Home Bonds		15,889		—		—			15,889
Total	$	98,132	$	15	$	(664	)	$	97,483

Amortized Cost and Fair Value of Held to Maturity Securities

The amortized cost and fair value of held-to-maturity securities by contractual maturity as of December 31, 2012 are as follows:

(In Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	43,482	$	43,547
Due in years one through two		42,379		42,372
Total	$	85,861	$	85,919

Held to Maturity Securities with Gross Unrealized Losses

Information pertaining to held-to-maturity securities with gross unrealized losses is as follows. All of the securities have been in a continuous loss position for less than 12 months.

	December 31, 2012					December 31, 2011
(In Thousands)	Fair Value		Gross  Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate Bonds	$	22,785	$	(41	)	$	72,315	$	(664	)

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Amortized Cost and Fair Value of Held to Maturity Securities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	$ 85,861
Fair Value	85,919	97,483
Due in one year or less
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	43,482
Fair Value	43,547
Due in years one through two
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	42,379
Fair Value	$ 42,372

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Summary of Acquisitions of Lease Contracts, Merchandise and Related Assets of Sales and Lease Ownership Stores (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 Store		Dec. 31, 2011 Store		Dec. 31, 2010 Store
Business Acquisition [Line Items]
Number of stores acquired, net	22		52		14
Aggregate purchase price (primarily cash consideration)	$ 31,617		$ 41,425		$ 17,891
Lease Merchandise	11,936		13,385		6,489
Property, Plant and Equipment	739		500		334
Other Current Assets and Current Liabilities	38		34		43
Goodwill	15,214	[1]	22,888	[1]	9,240	[1]
Customer relationship intangibles
Business Acquisition [Line Items]
Identifiable intangible assets	1,725	[2]	2,675	[2]	748	[2]
Non-compete intangibles
Business Acquisition [Line Items]
Identifiable intangible assets	1,201	[2]	1,688	[2]	541	[2]
Acquired franchise development rights
Business Acquisition [Line Items]
Identifiable intangible assets	$ 764	[2]	$ 255	[2]	$ 496	[2]

[1] Goodwill is primarily attributable to synergies expected to arise after the acquisition. All goodwill resulting from the Company's 2012, 2011 and 2010 acquisitions is expected to be deductible for tax purposes.

[2] The weighted-average amortization period for the Company's acquired intangible assets was 3.1 years, 2.6 years and 3.5 years in 2012, 2011 and 2010, respectively. The weighted-average amortization period by major intangible asset class for acquisitions completed during 2012, 2011 and 2010 was 2 years for customer relationships, 3 years for non-compete agreements and a range of 6 years to 6.9 years for acquired franchise development rights.

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Credit Facilities (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Company's Credit Facilities

Following is a summary of the Company’s credit facilities at December 31:

(In Thousands)	2012		2011
Senior Unsecured Notes	$	125,000	$	137,000
Capital Lease Obligation:
with Related Parties		6,122		6,730
with Unrelated Parties		7,156		6,809
Other Debt		3,250		3,250
	$	141,528	$	153,789

Future Maturities of Long Term Debt and Capital Lease Obligations

Future maturities under the Company’s long-term debt and capital lease obligations are as follows:

(In Thousands)
2013	$	1,755
2014		26,881
2015		30,321
2016		27,001
2017		26,858
Thereafter		28,712
	$	141,528

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Income Tax Expense

Following is a summary of the Company’s income tax expense for the years ended December 31:

(In Thousands)	2012			2011			2010
Current Income Tax Expense:
Federal	$	116,234		$	—		$	—
State		10,819			9,797			8,932
		127,053			9,797			8,932
Deferred Income Tax (Benefit) Expense:
Federal		(23,035	)		62,015			64,679
State		(206	)		(2,202	)		(1,201	)
		(23,241	)		59,813			63,478
	$	103,812		$	69,610		$	72,410

Components of Deferred Income Tax Liabilities and Assets

Significant components of the Company’s deferred income tax liabilities and assets at December 31 are as follows:

(In Thousands)	2012			2011
Deferred Tax Liabilities:
Lease Merchandise and Property, Plant and Equipment	$	279,926		$	329,497
Other, Net		34,014			29,607
Total Deferred Tax Liabilities		313,940			359,104
Deferred Tax Assets:
Accrued Liabilities		25,365			33,826
Advance Payments		15,834			16,432
Federal Net Operating Loss		—			10,936
Other, Net		9,677			11,760
Total Deferred Tax Assets		50,876			72,954
Less Valuation Allowance		(657	)		(812	)
Net Deferred Tax Liabilities	$	263,721		$	286,962

Effective Tax Rate Differs from Statutory United States Federal Income Tax Rate

The Company’s effective tax rate differs from the statutory United States Federal income tax rate for the years ended December 31 as follows:

	2012			2011			2010
Statutory Rate		35.0	%		35.0	%		35.0	%
Increases in United States Federal Taxes
Resulting From:
State Income Taxes, Net of Federal Income Tax Benefit		2.5			2.7			2.7
Other, Net		0.0			0.3			0.3
Effective Tax Rate		37.5	%		38.0	%		38.0	%

Summary of Activity Related to Uncertain Tax Positions

The following table summarizes the activity related to the Company’s uncertain tax positions:

(In Thousands)	2012			2011			2010
Balance at January 1,	$	1,412		$	1,315		$	1,342
Additions based on tax positions related to the current year		178			178			149
Additions for tax positions of prior years		83			22			18
Prior year reductions		(315	)		(13	)		(26	)
Statute expirations		(83	)		(90	)		(63	)
Settlements		(17	)		—			(105	)
Balance at December 31,	$	1,258		$	1,412		$	1,315

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
OPERATING ACTIVITIES:
Net Earnings	$ 173,043	$ 113,767	$ 118,376
Adjustments to Reconcile Net Earnings to Net Cash From Operating Activities:
Depreciation of Lease Merchandise	604,650	550,732	504,105
Other Depreciation and Amortization	56,783	52,832	45,427
Bad Debt Expense	31,842	25,402	23,988
Stock-Based Compensation	6,454	8,385	4,759
(Gain) Loss on Sale of Property, Plant, and Equipment and Assets Held for Sale	(397)	1,172	2,441
Gain on Asset Dispositions	(265)	(3,045)	(1,917)
Deferred Income Taxes	(23,241)	59,449	63,843
Excess Tax Benefits From Stock-Based Compensation	(5,967)	(1,264)	(321)
Other Changes, Net	7,830	(1,693)	270
Changes in Operating Assets and Liabilities, Net of Effects of Acquisitions and Dispositions:
Additions to Lease Merchandise	(1,162,703)	(1,024,602)	(1,034,474)
Book Value of Lease Merchandise Sold or Disposed	466,799	430,540	400,304
Accounts Receivable	(18,528)	(43,211)	(27,555)
Prepaid Expenses and Other Assets	(9,263)	(4,317)	(4,320)
Income Tax Receivable	(22,379)	79,762	(82,378)
Accounts Payable and Accrued Expenses	(4,635)	18,885	33,346
Accrued Litigation Expense	(41,720)	40,043	1,352
Customer Deposits and Advance Payments	1,451	4,358	2,015
Cash Provided by Operating Activities	59,754	307,195	49,261
INVESTING ACTIVITIES:
Purchase of Investments	(91,000)	(100,513)
Proceeds from Maturities and Calls of Investments	102,118	1,063
Additions to Property, Plant and Equipment	(65,073)	(78,211)	(87,636)
Acquisitions of Businesses and Contracts	(30,799)	(32,176)	(17,891)
Proceeds from Dispositions of Businesses and Contracts	1,999	7,282	8,025
Proceeds from Sale of Property, Plant, and Equipment	6,790	11,481	53,399
Cash Used by Investing Activities	(75,965)	(191,074)	(44,103)
FINANCING ACTIVITIES:
Proceeds from Credit Facilities	16,258	129,150	2,429
Repayments on Credit Facilities	(28,519)	(17,151)	(15,683)
Acquisition of Treasury Stock	(34,131)	(127,193)	(28,046)
Dividends Paid	(5,843)	(4,073)	(2,929)
Excess Tax Benefits From Stock-Based Compensation	5,967	1,264	321
Issuance of Stock Under Stock Option Plans	15,756	6,117	1,087
Cash Used by Financing Activities	(30,512)	(11,886)	(42,821)
(Decrease) Increase in Cash and Cash Equivalents	(46,723)	104,235	(37,663)
Cash and Cash Equivalents at Beginning of Year	176,257	72,022	109,685
Cash and Cash Equivalents at End of Year	129,534	176,257	72,022
Cash Paid During the Year:
Interest	6,498	3,983	3,203
Income Taxes	$ 145,370	$ 10,991	$ 94,793

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Commitments And Contingencies (Tables)

12 Months Ended

Dec. 31, 2012

Future Minimum Lease Payments Required under Operating Leases

Future minimum lease payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2012 are as follows:

(In Thousands)
2013	$	110,244
2014		96,242
2015		78,560
2016		57,822
2017		42,922
Thereafter		162,103
	$	547,893

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Related Party Transactions - Additional Information (Detail) (USD $)	3 Months Ended	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Related Party Transaction [Line Items]
Purchase of airplane	$ 2,800,000	$ 65,073,000	$ 78,211,000	$ 87,636,000
Board of Directors Chairman
Related Party Transaction [Line Items]
Brokerage fees paid	80,000
Board of Directors Chairman | Airplane
Related Party Transaction [Line Items]
Related party transaction amount	2,800,000
Board of Directors Chairman | Vehicle
Related Party Transaction [Line Items]
Related party transaction amount	$ 21,000

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Calculation of Dilutive Stock Awards (Detail) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Weighted average shares outstanding	75,820	78,101	81,194
Weighted average shares outstanding assuming dilution	76,826	79,339	82,102
Stock Option
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Effect of dilutive securities	789	998	745
Restricted stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Effect of dilutive securities	210	237	25
Restricted stock awards
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Effect of dilutive securities	7	3	138

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Fair Value of Assets (Liabilities) Not Measured at Fair Value In Consolidated Balance Sheets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair Value	$ 85,919		$ 97,483
Corporate Bond | Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair Value	67,470	[1]	81,594	[1]
Perfect Home Bonds | Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair Value	18,449	[2]	15,889	[2]
Fixed Rate
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long term debt, fair value	127,300		135,000
Fixed Rate | Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long term debt, fair value	$ (127,261)	[3]	$ (135,031)	[3]

[1] The fair value of corporate bonds is determined through the use of model-based valuation techniques for which all significant assumptions are observable in the market.

[2] The Perfect Home bonds were initially valued at cost. The Company periodically reviews the valuation utilizing company-specific transactions or deterioration in the company's financial performance to determine if fair value adjustments are necessary.

[3] The fair value of fixed-rate long term debt is estimated using the present value of underlying cash flows discounted at a current market yield for similar instruments. The carrying value and fair value of fixed-rate long term debt at December 31, 2012 was $125.0 million and $127.3 million, respectively, and $137.0 million and $135.0 million, respectively, at December 31, 2011.

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Shareholders' Equity - Additional Information (Detail) (USD $)			12 Months Ended			1 Months Ended		1 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Nonvoting Common Stock	Dec. 31, 2011 Nonvoting Common Stock	Dec. 07, 2010 Nonvoting Common Stock	Mar. 31, 2010 Nonvoting Common Stock And Class A Common Stock	Dec. 07, 2010 Nonvoting Common Stock And Class A Common Stock	Dec. 31, 2012 Nonvoting Common Stock And Class A Common Stock Maximum
Class of Stock [Line Items]
Treasury Shares	15,031,741	15,111,635
Additional authorized shares purchased	4,044,655
Nonvoting common stock repurchased			1,236,689	5,075,675
Preferred stock, authorized	1,000,000
Common Stock, Par Value	$ 0.50	$ 0.50			$ 0.50
Common Stock, Shares Authorized	225,000,000	225,000,000					225,000,000
Maximum percentage of cash dividend on Nonvoting Common Stock higher than any dividend paid on Class A Common Stock								50.00%
Stock split conversion ratio						1.5
Percentage of stock dividend on both Nonvoting Common Stock and Class A Common Stock effected by stock split						50.00%

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
ASSETS:
Cash and Cash Equivalents	$ 129,534	$ 176,257
Investments	85,861	98,132
Accounts Receivable (net of allowances of $6,001 in 2012 and $4,768 in 2011)	74,157	87,471
Lease Merchandise	1,539,594	1,363,903
Less: Accumulated Depreciation	(575,527)	(501,627)
Lease Merchandise Net, Total	964,067	862,276
Property, Plant and Equipment, Net	230,598	226,619
Goodwill	234,195	219,342
Other Intangibles, Net	6,026	6,066
Prepaid Expenses and Other Assets	77,387	45,851
Assets held for sale	11,104	9,885
Total Assets	1,812,929	1,731,899
LIABILITIES & SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses	225,532	228,303
Accrued Litigation Expense		41,720
Deferred Income Taxes Payable	263,721	286,962
Customer Deposits and Advance Payments	46,022	44,571
Credit Facilities	141,528	153,789
Total Liabilities	676,803	755,345
Commitments and Contingencies (Note 8)
Shareholders' Equity:
Common Stock, Par Value $.50 Per Share; Authorized: 225,000,000 Shares at December 31, 2012 and 2011; Shares Issued: 90,752,123 at December 31, 2012 and 2011	45,376	45,376
Additional Paid-in Capital	220,362	212,311
Retained Earnings	1,087,032	918,699
Accumulated Other Comprehensive (Loss) Income	(69)	274
Stockholders' Equity before Treasury Stock, Total	1,352,701	1,176,660
Less: Treasury Shares at Cost Common Stock, 15,031,741 and 15,111,635 Shares at December 31, 2012 and 2011, respectively	(216,575)	(200,106)
Total Shareholders' Equity	1,136,126	976,554
Total Liabilities & Shareholders' Equity	$ 1,812,929	$ 1,731,899

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Summary of Acquisitions of Lease Contracts, Merchandise and Related Assets of Sales and Lease Ownership Stores (Parenthetical) (Detail)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Business Acquisition [Line Items]
Weighted average amortization period of intangible assets	3 years 1 month 6 days	2 years 7 months 6 days	3 years 6 months
Customer relationship intangibles
Business Acquisition [Line Items]
Weighted average amortization period of intangible assets	2 years	2 years	2 years
Non-compete intangibles
Business Acquisition [Line Items]
Weighted average amortization period of intangible assets	3 years	3 years	3 years
Minimum | Acquired franchise development rights
Business Acquisition [Line Items]
Weighted average amortization period of intangible assets	6 years	6 years	6 years
Maximum | Acquired franchise development rights
Business Acquisition [Line Items]
Weighted average amortization period of intangible assets	6 years 10 months 24 days	6 years 10 months 24 days	6 years 10 months 24 days

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Consolidated Statements of Shareholders' Equity (USD $) In Thousands	Total	Treasury Stock	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive (Loss) Income Foreign Currency Translation	Accumulated Other Comprehensive (Loss) Income Available-for-Sale Investments	Accumulated Other Comprehensive (Loss) Income Cash Flow Hedges
Beginning Balance at Dec. 31, 2009		$ (49,375)	$ 45,378	$ 196,669	$ 694,689	$ (13)	$ (88)
Beginning Balance (in shares) at Dec. 31, 2009		(9,398)
Dividends, $.049 and $.054 per share in 2010 and 2011 respectively					(3,981)
Stock-Based Compensation				4,759
Reissued Shares (in shares)		212
Reissued Shares		743		324
Repurchased Shares (in shares)		(1,479)
Repurchased Shares		(29,009)
Stock Recombination			(2)
Net Earnings	118,376				118,376
Foreign Currency Translation Adjustment	935					935
Change in Net Unrealized Losses on Available-for-Sale Investments
Change in Net Unrealized Gains on Derivatives Designated as Cash Flow Hedges	12							12
Ending Balance at Dec. 31, 2010		(77,641)	45,376	201,752	809,084	922	(88)	12
Ending Balance (in shares) at Dec. 31, 2010		(10,665)
Dividends, $.049 and $.054 per share in 2010 and 2011 respectively					(4,152)
Stock-Based Compensation				8,385
Reissued Shares (in shares)		737
Reissued Shares		7,493		2,174
Repurchased Shares (in shares)		(5,184)
Repurchased Shares		(129,958)
Net Earnings	113,767				113,767
Foreign Currency Translation Adjustment	(648)					(648)
Change in Net Unrealized Losses on Available-for-Sale Investments							88
Change in Net Unrealized Gains on Derivatives Designated as Cash Flow Hedges	(12)							(12)
Ending Balance at Dec. 31, 2011	976,554	(200,106)	45,376	212,311	918,699	274
Ending Balance (in shares) at Dec. 31, 2011		(15,112)
Dividends, $.049 and $.054 per share in 2010 and 2011 respectively					(4,710)
Stock-Based Compensation				6,374
Reissued Shares (in shares)		1,317
Reissued Shares		17,662		1,677
Repurchased Shares (in shares)		(1,237)
Repurchased Shares		(34,131)
Net Earnings	173,043				173,043
Foreign Currency Translation Adjustment	30					(343)
Change in Net Unrealized Losses on Available-for-Sale Investments
Ending Balance at Dec. 31, 2012	$ 1,136,126	$ (216,575)	$ 45,376	$ 220,362	$ 1,087,032	$ (69)
Ending Balance (in shares) at Dec. 31, 2012		(15,032)

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Summary of Property, Plant and Equipment (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Land	$ 25,285		$ 25,882
Buildings and Improvements	81,773		81,566
Leasehold Improvements and Signs	120,883		116,632
Fixtures and Equipment	152,436	[1]	133,615	[1]
Construction in Progress	5,414		5,444
Property, Plant and Equipment, Gross	404,513		381,344
Less: Accumulated Depreciation and Amortization	(173,915)		(154,725)
Property, Plant and Equipment, Net	230,598		226,619
Related Party
Property, Plant and Equipment [Line Items]
Assets Under Capital Leases	8,158		7,641
Non-Related Party
Property, Plant and Equipment [Line Items]
Assets Under Capital Leases	$ 10,564		$ 10,564

[1] Includes internal-use software development costs of $22.6 million and $15.6 million as of December 31, 2012 and 2011, respectively. Accumulated amortization of internal-use software development costs amounted to $6.6 million and $9.8 million as of December 31, 2012 and 2011, respectively.

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Segments (Tables)

12 Months Ended

Dec. 31, 2012

Information on Segments and Reconciliation to Earnings Before Income Taxes from Continuing Operations

Information on segments and a reconciliation to earnings before income taxes from continuing operations are as follows:

	Year Ended December 31,			Year Ended December 31,			Year Ended December 31,
(In Thousands)	2012			2011			2010
Revenues From External Customers:
Sales and Lease Ownership	$	2,088,894		$	1,938,614		$	1,803,601
HomeSmart		55,226			15,624			56
Franchise		66,655			63,255			59,112
Manufacturing		95,693			89,430			79,113
Other		9,122			8,096			15,132
Revenues of Reportable Segments		2,315,590			2,115,019			1,957,014
Elimination of Intersegment Revenues		(95,150	)		(89,430	)		(79,113	)
Cash to Accrual Adjustments		2,148			(3,258	)		(1,563	)
Total Revenues from External Customers	$	2,222,588		$	2,022,331		$	1,876,338
Earnings Before Income Taxes:
Sales and Lease Ownership	$	243,531		$	143,686		$	159,417
HomeSmart		(6,962	)		(7,283	)		(318	)
Franchise		52,672			49,577			45,935
Manufacturing		382			2,960			3,218
Other		(11,854	)		818			(12,437	)
Earnings Before Income Taxes for Reportable Segments		277,769			189,758			195,815
Elimination of Intersegment Profit		(393	)		(2,960	)		(3,218	)
Cash to Accrual and Other Adjustments		(521	)		(3,421	)		(1,811	)
Total Earnings Before Income Taxes	$	276,855		$	183,377		$	190,786
Assets:
Sales and Lease Ownership	$	1,421,812		$	1,293,151		$	1,248,785
HomeSmart		58,347			50,600			955
Franchise		53,820			56,131			55,789
Manufacturing1		24,787			21,691			22,312
Other		254,163			310,326			173,012
Total Assets	$	1,812,929		$	1,731,899		$	1,500,853
1    Includes inventory (principally raw materials) that has been classified within lease merchandise in the consolidated balance sheets of $14.1 million, $11.2 million and $11.2 million as of December 31, 2012, 2011 and 2010, respectively.
Depreciation and Amortization:
Sales and Lease Ownership		$629,119			$588,036		$	539,669
HomeSmart		20,482			5,933			21
Franchise		146			41			41
Manufacturing		4,430			1,294			2,958
Other		7,256			8,260			6,843
Total Depreciation and Amortization	$	661,433		$	603,564		$	549,532
Interest Expense:
Sales and Lease Ownership	$	5,531		$	4,473		$	2,937
HomeSmart		846			201			2
Franchise		—			—			—
Manufacturing		106			142			15
Other		(91	)		(107	)		142
Total Interest Expense	$	6,392		$	4,709		$	3,096
Capital Expenditures:
Sales and Lease Ownership	$	35,480		$	53,402		$	72,832
HomeSmart		4,121			10,950			202
Franchise		—			—			—
Manufacturing		4,493			2,107			5,484
Other		20,979			11,752			9,118
Total Capital Expenditures	$	65,073		$	78,211		$	87,636
Revenues From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	308		$	3,258		$	4,470
Assets From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	1,391		$	1,527		$	15,093

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Summary of Income Tax Expense (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Current Income Tax Expense:
Federal	$ 116,234
State	10,819	9,797	8,932
Current Income Tax Expense (Benefit), Total	127,053	9,797	8,932
Deferred Income Tax (Benefit) Expense:
Federal	(23,035)	62,015	64,679
State	(206)	(2,202)	(1,201)
Deferred Income Tax Expense (Benefit), Total	(23,241)	59,813	63,478
INCOME TAXES	$ 103,812	$ 69,610	$ 72,410

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Quarterly Financial Information (Unaudited)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information (Unaudited)

NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(In Thousands, Except Per Share)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Year Ended December 31, 2012
Revenues	$	585,996	$	538,619	$	529,510	$	568,463
Gross Profit *		282,657		265,573		258,637		263,278
Earnings Before Taxes From Continuing Operations		115,029		58,590		46,044		57,192
Net Earnings		71,226		36,244		28,941		36,632
Earnings Per Share		.94		.48		.38		.48
Earnings Per Share Assuming Dilution		.92		.47		.38		.48
Year Ended December 31, 2011
Revenues	$	532,480	$	482,415	$	484,731	$	522,705
Gross Profit *		259,542		236,958		231,942		242,163
Earnings Before Taxes From Continuing Operations		71,919		17,627		45,092		48,739
Net Earnings		44,389		10,799		28,045		30,534
Earnings Per Share		.55		.14		.36		.40
Earnings Per Share Assuming Dilution		.55		.13		.36		.40

* Gross profit is the sum of lease revenues and fees, retail sales, and non-retail sales less retail cost of sales, non-retail cost of sales, depreciation of lease merchandise and write-offs of lease merchandise.

The first quarter of 2012 included a pre-tax $35.5 million reversal of a lawsuit accrual, and the third quarter of 2012 included a pre-tax $10.4 million retirement charge associated with the retirement of the Company’s founder and former Chairman of the Board. The second quarter of 2011 included a pre-tax $36.5 million accrual of a lawsuit, and the fourth quarter of 2011 included a pre-tax $3.5 million separation charge related to the Company’s former Chief Executive Officer.

Revenue amounts for all quarterly periods prior to the third quarter of 2012 have been revised to exclude interest income, which is now presented as a component of non-operating income and expenses in the consolidated statements of earnings.

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Quarterly Financial Information (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information (Unaudited)

(In Thousands, Except Per Share)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Year Ended December 31, 2012
Revenues	$	585,996	$	538,619	$	529,510	$	568,463
Gross Profit *		282,657		265,573		258,637		263,278
Earnings Before Taxes From Continuing Operations		115,029		58,590		46,044		57,192
Net Earnings		71,226		36,244		28,941		36,632
Earnings Per Share		.94		.48		.38		.48
Earnings Per Share Assuming Dilution		.92		.47		.38		.48
Year Ended December 31, 2011
Revenues	$	532,480	$	482,415	$	484,731	$	522,705
Gross Profit *		259,542		236,958		231,942		242,163
Earnings Before Taxes From Continuing Operations		71,919		17,627		45,092		48,739
Net Earnings		44,389		10,799		28,045		30,534
Earnings Per Share		.55		.14		.36		.40
Earnings Per Share Assuming Dilution		.55		.13		.36		.40

* Gross profit is the sum of lease revenues and fees, retail sales, and non-retail sales less retail cost of sales, non-retail cost of sales, depreciation of lease merchandise and write-offs of lease merchandise.

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Business And Summary Of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Description of Business

Description of Business

Aaron’s, Inc. (the “Company” or “Aaron’s”) is a leading specialty retailer engaged in the business of leasing and selling consumer electronics, computers, residential furniture, appliances and household accessories throughout the United States and Canada. The Company’s major operating divisions are the Sales & Lease Ownership division (established as a monthly payment concept), the HomeSmart division (established as a weekly payment concept) and the Woodhaven Furniture Industries division, which manufactures upholstered furniture and bedding predominantly for use by Company-operated and franchised stores. The Company’s Sales & Lease Ownership division includes the Company’s RIMCO stores, which lease automobile wheels, tires and rims under sales and lease ownership agreements. The Company began ceasing the operations of the Aaron’s Office Furniture division in June of 2010. The Company closed 14 of its Aaron’s Office Furniture stores during 2010 and closed the remaining store in 2012. Refer to Note 2 for additional disclosure regarding the disposal of the Aaron’s Office Furniture division.

The following table presents store count by ownership type:

Stores at December 31 (Unaudited)	2012		2011		2010
Company-operated stores
Sales and Lease Ownership		1,227		1,144		1,135
RIMCO		19		16		11
HomeSmart		78		71		3
Aaron’s Office Furniture		—		1		1
Total Company-operated stores		1,324		1,232		1,150
Franchised stores1		749		713		664
Systemwide stores		2,073		1,945		1,814

¹  As of December 31, 2012, 2011 and 2010, 929, 943 and 946 franchises had been awarded, respectively.

Basis of Presentation

Basis of Presentation

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Generally, actual experience has been consistent with management’s prior estimates and assumptions. Management does not believe these estimates or assumptions will change significantly in the future absent unsurfaced or unforeseen events.

Certain reclassifications have been made to the prior periods to conform to the current period presentation. The HomeSmart division has been reclassified from the Other segment to the HomeSmart segment in all periods presented. Refer to Note 12 for the segment disclosure. In all periods presented, “bad debt expense” has been separately presented from “change in accounts receivable” in the consolidated statements of cash flows. Additionally, interest income has been reclassified from “Other” revenues and presented as a component of non-operating income and expenses in the consolidated statements of earnings for all periods presented.

Principles of Consolidation and Variable Interest Entities

Principles of Consolidation and Variable Interest Entities

The consolidated financial statements include the accounts of Aaron’s, Inc. and its wholly owned subsidiaries. Intercompany balances and transactions between consolidated entities have been eliminated.

On October 14, 2011, the Company purchased 11.5% of newly issued shares of common stock of Perfect Home Holdings Limited (“Perfect Home”), a privately-held rent-to-own company that is primarily financed by subordinated debt. Perfect Home is based in the United Kingdom and operates 55 retail stores as of December 31, 2012. As part of the transaction, the Company also received notes and an option to acquire the remaining interest in Perfect Home at any time through December 31, 2013. If the Company does not exercise the option prior to December 31, 2013, it will be obligated to sell the common stock and notes back to Perfect Home at the original purchase price plus interest. The Company’s investment is denominated in British Pounds.

Perfect Home is a variable interest entity (“VIE”) as it does not have sufficient equity at risk; however, the Company is not the primary beneficiary and lacks the power through voting or similar rights to direct the activities of Perfect Home that most significantly affect its economic performance. As such, the VIE is not consolidated by the Company.

Because the Company is not able to exercise significant influence over the operating and financial decisions of Perfect Home, the equity portion of the investment in Perfect Home totaling less than a thousand dollars at December 31, 2012 is accounted for as a cost method investment and is included in prepaid expenses and other assets in the consolidated balance sheets. The notes purchased from Perfect Home totaling 11.4 million British pounds ($18.4 million) and 10.2 million British pounds ($15.9 million) at December 31, 2012 and 2011, respectively, are accounted for as held-to-maturity securities in accordance with ASC 320, Debt and Equity Securities, and are included in investments in the consolidated balance sheets. The increase in the Company’s British pound-denominated notes during 2012 relates to accretion of the original discount on the notes with a face value of 10.0 million British pounds. Utilizing a Black-Scholes model, the options to buy the remaining interest in Perfect Home and to sell the Company’s interest in Perfect Home were determined to have only nominal values.

The Company’s maximum exposure to any potential losses associated with this VIE is equal to its total recorded investment which totals $18.4 million at December 31, 2012.

Revenue Recognition

Revenue Recognition

Lease Revenues and Fees

The Company provides merchandise, consisting of consumer electronics, computers, residential furniture, appliances, and household accessories, to its customers for lease under certain terms agreed to by the customer. Two primary lease models are offered to customers: one through the Company’s Sales & Lease Ownership division (established as a monthly model) and the other through its HomeSmart division (established as a weekly model). The typical monthly lease model is 12, 18 or 24 months, while the typical weekly lease model is 60, 90 or 120 weeks. The Company does not require deposits upon inception of customer agreements.

In a number of states, the Company utilizes a consumer lease form as an alternative to a typical lease purchase agreement. The consumer lease differs from our state lease agreement in that it has an initial lease term in excess of four months. Generally, state laws that govern the rent-to-own industry only apply to lease agreements with an initial term of four months or less. Following satisfaction of the initial term contained in the consumer or state lease, as applicable, the customer has the right to acquire title either through a purchase option or through payment of all required lease payments.

All of the Company’s customer agreements are considered operating leases under the provisions of ASC 840, Leases. As such, lease revenues are recognized as revenue in the month they are due. Lease payments received prior to the month due are recorded as deferred lease revenue. Until all payment obligations are satisfied under sales and lease ownership agreements, the Company maintains ownership of the lease merchandise. Initial direct costs related to the Company’s customer agreements are expensed as incurred and have been classified as operating expenses in the Company’s consolidated statements of earnings.

Retail and Non-Retail Sales

Revenues from the sale of merchandise to franchisees are recognized at the time of receipt of the merchandise by the franchisee based on the electronic receipt of merchandise by the franchisee within the Company’s fulfillment system. Additionally, revenues from the sale of merchandise to other customers are recognized at the time of shipment, at which time title and risk of ownership are transferred to the customer.

Substantially all of the amounts reported as non-retail sales and non-retail cost of sales in the accompanying consolidated statements of earnings relate to the sale of lease merchandise to franchisees. The Company classifies the sale of merchandise to other customers as retail sales in the consolidated statements of earnings. The Company presents sales net of sales taxes.

Franchise Royalties and Fees

The Company franchises Aaron’s Sales & Lease Ownership stores. Franchisees typically pay a non-refundable initial franchise fee from $15,000 to $50,000 depending upon market size and an ongoing royalty of either 5% or 6% of gross revenues. Franchise fees and area development fees are generated from the sale of rights to develop, own and operate Aaron’s Sales & Lease Ownership stores. These fees are recognized as income when substantially all of the Company’s obligations per location are satisfied, generally at the date of the store opening. Franchise fees and area development fees are received before the substantial completion of the Company’s obligations and deferred. The Company guarantees certain debt obligations of some of the franchisees and receives guarantee fees based on the outstanding debt obligations of such franchisees. The Company recognizes finance fee revenue as the guarantee obligation is satisfied. Refer to Note 8 for additional discussion of the Company’s franchise-related guarantee obligation.

Franchise agreement fee revenue was $2.4 million, $2.6 million and $3.0 million royalty revenue was $56.5 million, $52.0 million and $47.9 million; and finance fee revenue was $4.9 million, $5.9 million and $5.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. Deferred franchise and area development agreement fees, included in accounts payable and accrued expenses in the accompanying consolidated balance sheets, were $3.8 million and $4.7 million at December 31, 2012 and 2011, respectively.

Retail and Non-Retail Cost of Sales

Retail and Non-Retail Cost of Sales

Included in cost of sales is the net book value of merchandise sold, primarily using specific identification. It is not practicable to allocate operating expenses between selling and lease operations.

Shipping and Handling Costs

Shipping and Handling Costs

The Company classifies shipping and handling costs as operating expenses in the accompanying consolidated statements of earnings, and these costs totaled $74.9 million, $68.1 million and $60.6 million in 2012, 2011 and 2010, respectively.

Advertising

Advertising

The Company expenses advertising costs as incurred when an advertisement appears for the first time. Such advertising costs amounted to $36.5 million, $38.9 million and $31.7 million in 2012, 2011 and 2010, respectively. These advertising expenses are shown net of cooperative advertising considerations received from vendors, substantially all of which represents reimbursement of specific, identifiable and incremental costs incurred in selling those vendors’ products. The amount of cooperative advertising consideration netted against advertising expense was $31.1 million, $25.4 million and $27.2 million in 2012, 2011 and 2010, respectively. The prepaid advertising asset was $3.2 million and $1.6 million at December 31, 2012 and 2011, respectively.

Stock-Based Compensation

Stock-Based Compensation

The Company has stock-based employee compensation plans, which are more fully described in Note 10. The Company estimates the fair value for the options granted on the grant date using a Black-Scholes option-pricing model and accounts for stock-based compensation under the fair value recognition provisions codified in FASB ASC Topic 718, Stock Compensation. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company’s common stock on the grant date.

Deferred Income Taxes

Deferred Income Taxes

Deferred income taxes represent primarily temporary differences between the amounts of assets and liabilities for financial and tax reporting purposes. The Company’s largest temporary differences arise principally from the use of accelerated depreciation methods on lease merchandise for tax purposes.

Earnings Per Share

Earnings per Share

Earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. The computation of earnings per share assuming dilution includes the dilutive effect of stock options, restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) as determined under the treasury stock method. The following table shows the calculation of dilutive stock awards for the years ended December 31 (shares in thousands):

	2012		2011		2010
Weighted average shares outstanding		75,820		78,101		81,194
Effect of dilutive securities:
Stock options		789		998		745
RSUs		210		237		25
RSAs		7		3		138
Weighted average shares outstanding assuming dilution		76,826		79,339		82,102

Approximately 53,000 and 314,000 stock-based awards were excluded from the computations of earnings per share assuming dilution in 2012 and 2010, respectively, because the awards would have been anti-dilutive for the years presented. No stock options, RSUs or RSAs were anti-dilutive during 2011. In addition, under the terms of the Company’s performance-based RSUs issued in 2012, approximately 167,000 RSUs will vest based on the achievement of revenue and pre-tax profit margin targets applicable to performance periods beginning subsequent to December 31, 2012. Accordingly, approximately 167,000 RSUs are not included in the computation of diluted EPS for the year ended December 31, 2012. Refer to Note 10 for additional information regarding the Company’s restricted stock arrangements.

Lease Merchandise

Lease Merchandise

The Company’s lease merchandise consists primarily of consumer electronics, computers, residential furniture, appliances, and household accessories and is recorded at cost, which includes overhead from production facilities, shipping costs and warehousing costs. The sales and lease ownership stores depreciate merchandise over the lease agreement period, generally 12 to 24 months (monthly agreements) or 60 to 120 weeks (weekly agreements) when on lease and 36 months when not on lease, to a 0% salvage value. The Company’s policies require weekly lease merchandise counts at the store, which include write-offs for unsalable, damaged, or missing merchandise inventories. Full physical inventories are generally taken at the fulfillment and manufacturing facilities two to four times a year, and appropriate provisions are made for missing, damaged and unsalable merchandise. In addition, the Company monitors 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, it is adjusted to its net realizable value or written off.

All lease merchandise is available for lease or sale. On a monthly basis, all damaged, lost or unsalable merchandise identified is written off. The Company records lease merchandise adjustments on the allowance method. Lease merchandise write-offs totaled $54.9 million, $46.2 million, and $46.5 million during the years ended December 31, 2012, 2011 and 2010, respectively, and are included in operating expenses in the accompanying consolidated statements of earnings. Included in 2010 is a write-down of $4.7 million related to the closure of stores of the Aaron’s Office Furniture division.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company classifies highly liquid investments with maturity dates of less than three months when purchased as cash equivalents.

Investments

Investments

The Company maintains investments in various corporate debt securities, or bonds. The Company has the positive intent and ability to hold its investments in debt securities, which mature at various dates from 2013 to 2014, to maturity. Accordingly, the Company classifies its investments in debt securities as held-to-maturity securities and carries the investments at amortized cost in the consolidated balance sheets.

The Company evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

Accounts Receivable

Accounts Receivable

Accounts receivable consist primarily of receivables due from customers of Company-operated stores, corporate receivables incurred during the normal course of business and franchisee obligations. Accounts receivable, net of allowances, consists of the following as of December 31:

(In Thousands)	2012		2011
Customers	$	7,840	$	5,384
Corporate		17,215		29,650
Franchisee		49,102		52,437
	$	74,157	$	87,471

The Company maintains an allowance for doubtful accounts. The reserve for returns is calculated based on the historical collection experience associated with lease receivables. The Company’s policy is to write off lease receivables that are 60 days or more past due on pre-determined dates occurring twice monthly. The following is a summary of the Company’s allowance for doubtful accounts as of December 31:

(In Thousands)	2012			2011			2010
Beginning Balance	$	4,768		$	4,544		$	4,157
Accounts written off		(30,609	)		(25,178	)		(23,601	)
Bad debt expense		31,842			25,402			23,988
Ending Balance	$	6,001		$	4,768		$	4,544

Property, Plant and Equipment

Property, Plant and Equipment

The Company records property, plant and equipment at cost. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the respective assets, which range from five to 40 years for buildings and improvements and from one to fifteen years for other depreciable property and equipment. Costs incurred to develop software for internal use are capitalized and amortized over the estimated useful life of the software, which ranges from five to 10 years.

Gains and losses related to dispositions and retirements are recognized as incurred. Maintenance and repairs are also expensed as incurred; renewals and betterments are capitalized. Depreciation expense for property, plant and equipment is included in operating expenses in the accompanying consolidated statements of earnings and was $53.1 million, $45.2 million and $41.4 million during the years ended December 31, 2012, 2011 and 2010, respectively. Amortization of previously capitalized software development costs was $2.6 million, $1.5 million and $1.2 million during the years ended December 31, 2012, 2011 and 2010, respectively.

The Company assesses its long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. When it is determined that the carrying values of the assets are not recoverable, the Company compares the carrying values of the assets to their fair values as estimated using discounted expected future cash flows, market values or replacement values for similar assets. The amount by which the carrying value exceeds the fair value of the asset, if any, is recognized as an impairment loss.

Assets Held for Sale

Assets Held for Sale

Certain properties, primarily consisting of parcels of land, met the held for sale classification criteria at December 31, 2012 and 2011. After adjustment to fair value, the $11.1 million and $9.9 million carrying value of these properties has been classified as assets held for sale in the consolidated balance sheets as of December 31, 2012 and 2011, respectively. The Company estimated the fair values of these properties using market values for similar properties and these are considered Level 2 assets as defined in FASB ASC Topic 820, Fair Value Measurements.

The Company recorded impairment charges of $1,060,000 and $453,000 within operating expenses in 2012 and 2011, respectively, both of which related primarily to the impairment of various land outparcels and buildings included in the Sales and Lease Ownership segment that the Company decided not to utilize for future expansion. Gains and losses on the disposal of assets held for sale amounted to net gains of $1,247,000 in 2012 and losses of $20,000 and $306,000 during 2011 and 2010, respectively. The assets held for sale are included in the Other segment.

Goodwill

Goodwill

Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net tangible and intangible assets acquired in connection with business acquisitions. Impairment occurs when the carrying value of goodwill is not recoverable from future cash flows. The Company performs an assessment of goodwill for impairment at the reporting unit level annually as of September 30, and when events or circumstances indicate that impairment may have occurred. Factors which could necessitate an interim impairment assessment include a sustained decline in the Company’s stock price, prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results.

The Company has deemed its operating segments to be reporting units due to the fact that operations (stores) included in each operating segment have similar economic characteristics. As of December 31, 2012, the Company has five operating segments and reporting units: Sales and Lease Ownership, RIMCO, HomeSmart, Franchise and Manufacturing. The Company’s RIMCO stores lease automobile wheels, tires and rims to customers under sales and lease ownership agreements. Although the products offered are different, these stores are managed, monitored and operated similarly to our other sales and lease ownership stores.

As of December 31, 2012, the Company’s Sales and Lease Ownership and HomeSmart reporting units are the only reporting units with assigned goodwill balances. The following is a summary of the Company’s goodwill by reporting unit at December 31:

(In Thousands)	2012		2011
Sales and Lease Ownership	$	219,547	$	205,509
HomeSmart		14,648		13,833
Total	$	234,195	$	219,342

The goodwill impairment test consists of a two-step process, if necessary. The first step is to compare the fair value of the reporting unit to its carrying value, including goodwill. The Company uses a multiple of gross revenue to determine the fair value of its reporting units. If the carrying value of the reporting unit exceeds the fair value, a second step is performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess.

During the performance of the annual assessment of goodwill for impairment in the 2012, 2011 and 2010 fiscal years, the Company did not identify any reporting units that were not substantially in excess of their carrying values, other than the HomeSmart division for which locations were recently acquired. While no impairment was noted in our impairment test as of September 30, 2012, if profitability is delayed as a result of the significant start-up expenses associated with the HomeSmart stores, there could be a change in the valuation of the HomeSmart reporting unit that may result in the recognition of an impairment loss in future periods.

No new indications of impairment existed during the fourth quarter of 2012, thus no impairment testing was updated as of December 31, 2012.

Other Intangibles

Other Intangibles

Other intangibles represent the value of customer relationships, non-compete agreements and franchise development rights acquired in connection with business acquisitions and are recorded at fair value as determined by the Company. The customer relationship intangible asset is amortized on a straight-line basis over a two-year estimated useful life. The non-compete intangible asset is amortized on a straight-line basis over a three-year useful life. Acquired franchise development rights are amortized on a straight-line basis over the unexpired life of the franchisee’s ten year area development agreement.

Insurance Reserves

Insurance Reserves

Estimated insurance reserves are accrued primarily for group health, general liability, automobile liability and workers compensation benefits provided to the Company’s employees. Estimates for these insurance reserves are made based on actual reported but unpaid claims and actuarial analyses of the projected claims run off for both reported and incurred but not reported claims.

Asset Retirement Obligations

Asset Retirement Obligations

The Company accrues for asset retirement obligations, which relate to expected costs to remove exterior signage, in the period in which the obligations are incurred. These costs are accrued at estimated fair value. When the related liability is initially recorded, the Company capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company recognizes a gain or loss for any differences between the settlement amount and the liability recorded. Asset retirement obligations amount to approximately $2.3 million and $2.1 million as of December 31, 2012 and 2011, respectively.

Derivative Financial Instruments

Derivative Financial Instruments

The Company utilizes derivative financial instruments, from time to time, to mitigate its exposure to certain market risks associated with its ongoing operations for a portion of the year. 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 December 31, 2010 and the changes in their fair values in 2011 and 2010 were immaterial. The Company did not hold any derivative financial instruments as of December 31, 2012 or 2011.

Fair Value Measurement

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The Company measures assets held for sale at fair value on a nonrecurring basis and records impairment charges when they are deemed to be impaired. The Company maintains certain financial assets and liabilities, including investments and fixed-rate long term debt, that are not measured at fair value but for which fair value is disclosed.

The fair values of the Company’s other current financial assets and liabilities, including cash and cash equivalents, accounts receivable and accounts payable, approximate their carrying values due to their short-term nature.

Foreign Currency

Foreign Currency

The financial statements of international subsidiaries are translated to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenues, costs, and expenses. Translation gains and losses of international subsidiaries are recorded in accumulated other comprehensive income as a component of shareholders’ equity. Foreign currency transaction gains and losses are recorded as a component operating expenses in the consolidated statements of earnings and amounted to gains of approximately $2.0 million and $251,000 during 2012 and 2010, respectively, and losses of $465,000 during 2011.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-04”). ASU 2011-04 is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. The amendments are of two types: (i) those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. ASU 2011-04 is effective for annual periods beginning after December 15, 2011 and the Company adopted ASU 2011-04 effective January 1, 2012. The adoption of ASU 2011-04 did not have a material effect on the Company’s financial statements.

In May 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 eliminated the option to report other comprehensive income and its components in the statement of shareholders’ equity. Instead, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. The Company elected to report other comprehensive income and its components in a separate statement of comprehensive income for the year ended December 31, 2012.

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02). ASU 2013-02 will require preparers to report, in one place, information about reclassifications out of accumulated other comprehensive income (“AOCI”). The ASU also requires companies to report changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the same reporting period, reporting (either on the face of the statement where net income is presented or in the notes) is required about the effect of the reclassifications on the respective line items in the statement where net income is presented. For items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other disclosures currently required under US GAAP is required in the notes. The above information must be presented in one place (parenthetically on the face of the financial statements by income statement line item or in a note). ASU 2013-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2012. The Company does not believe the adoption of ASU 2013-02 will have a material effect on the consolidated financial statements.

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Effective Tax Rate Differs from Statutory United States Federal Income Tax Rate (Detail)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes [Line Items]
Statutory Rate	35.00%	35.00%	35.00%
Increases in United States Federal Taxes
State Income Taxes, Net of Federal Income Tax Benefit	2.50%	2.70%	2.70%
Other, Net	0.00%	0.30%	0.30%
Effective Tax Rate	37.50%	38.00%	38.00%

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Consolidated Statements of Shareholders' Equity (Parenthetical) (Retained Earnings, USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Retained Earnings
Dividends, per share	$ 0.062	$ 0.054	$ 0.049

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Accounts Receivable, allowances	$ 6,001	$ 4,768
Common Stock, Par Value	$ 0.50	$ 0.50
Common Stock, Shares Authorized	225,000,000	225,000,000
Common Stock, Shares Issued	90,752,123	90,752,123
Treasury Shares	15,031,741	15,111,635

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Shareholders' Equity

12 Months Ended

Dec. 31, 2012

Shareholders' Equity

NOTE 9: SHAREHOLDERS’ EQUITY

The Company held 15,031,741 shares in its treasury and was authorized to purchase an additional 4,044,655 shares at December 31, 2012. The Company repurchased 1,236,689 shares of its common stock on the open market in 2012 and 5,075,675 shares of its common stock on the open market in 2011.

The Company has 1,000,000 shares of preferred stock authorized. The shares are issuable in series with terms for each series fixed by the Board and such issuance is subject to approval by the Board of Directors. As of December 31, 2012, no preferred shares have been issued.

On December 7, 2010, at a special meeting of the Company’s shareholders, such shareholders approved a proposal to amend and restate the Company’s Amended and Restated Articles of Incorporation to: (i) convert each outstanding share of common stock, par value $0.50 per share (the “Nonvoting Common Stock”) into one share of Class A Common Stock (the “Class A Common Stock”) and to rename the Class A Common Stock as Common Stock (the “Common Stock”), (ii) eliminate certain obsolete provisions relating to the Company’s prior dual-class common stock structure, and (iii) amend the number of authorized shares to be 225,000,000 total shares of Common Stock (the aggregate of the number of authorized shares of Nonvoting Common Stock and Class A Common Stock prior to the approval of the Amended and Restated Articles of Incorporation). Following receipt of shareholder approval at the special meeting, the Amended and Restated Articles of Incorporation were filed with the Secretary of State of the State of Georgia and are now effective.

As a result of the reclassification of shares of Nonvoting Common Stock into shares of Class A Common Stock and the other changes described above and effected by the Amended and Restated Articles of Incorporation, shares of the combined class now titled Common Stock have one vote per share on all matters submitted to the Company’s shareholders, including the election of directors. The former Nonvoting Common Stock did not entitle the holders thereof to any vote except as otherwise provided in the Company’s Articles of Incorporation or required by law. In addition, holders of the combined class now titled Common Stock will all vote as a single class of stock on any matters subject to a shareholder vote. Holders of the former Class A Common Stock and the Nonvoting Common Stock were previously entitled to separate class voting rights in certain circumstances as required by law, and those class voting rights were eliminated with the share reclassification.

The holders of Common Stock are entitled to receive dividends and other distributions in cash, stock or property of the Company as and when declared by the Board of Directors of the Company out of legally available funds. Prior to the conversion, the Company’s Articles of Incorporation permitted the payment of a cash dividend on the Nonvoting Common Stock without paying any dividend on the Class A Common Stock or the payment of a cash dividend on the Nonvoting Common Stock that was up to 50% higher than any dividend paid on the Class A Common Stock. Cash dividends could not be paid on the Class A Common Stock unless equal or higher dividends were paid on the Nonvoting Common Stock.

The conversion had no other impact on the economic equity interests of holders of Common Stock, including with regards to liquidation rights or redemption, regardless of whether holders previously held shares of Nonvoting Common Stock or Class A Common Stock.

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

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Feb. 15, 2013	Jun. 29, 2012
Document Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Trading Symbol	AAN
Entity Registrant Name	AARON'S INC
Entity Central Index Key	0000706688
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		75,767,000
Entity Public Float			$ 1,962,847,697

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Stock Options And Restricted Stock

12 Months Ended

Dec. 31, 2012

Stock Options And Restricted Stock

NOTE 10: STOCK OPTIONS AND RESTRICTED STOCK

The Company grants stock options, restricted stock units and restricted stock awards to certain employees and directors of the Company. Total stock-based compensation expense was $6.5 million, $8.4 million and $4.8 million in 2012, 2011 and 2010, respectively, and was included as a component of operating expenses in the consolidated statements of earnings. Excess tax benefits of $6.0 million, $1.3 million and $0.3 million are included in cash provided by financing activities for the years ended 2012, 2011 and 2010, respectively.

As of December 31, 2012, there was $12.2 million of total unrecognized compensation expense related to non-vested stock-based compensation which is expected to be recognized over a period of 2.5 years.

The aggregate number of shares of Common Stock that may be issued or transferred under the incentive stock awards plan is 14,492,585 at December 31, 2012.

Stock Options

Under the Company’s stock option plans, options granted to date become exercisable after a period of two to five years and unexercised options lapse ten years after the date of the grant. Options are subject to forfeiture upon termination of service. The Company recognizes compensation cost for awards with graded vesting on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company determines the fair value of stock options using a Black-Scholes option pricing model that incorporates expected volatility, expected option life, estimated forfeiture rates, risk-free interest rates, and expected dividend yields.

The expected volatility is based on the historical volatility of the Company’s Common Stock over the most recent period generally commensurate with the expected estimated life of each respective grant. The expected lives of options are based on the Company’s historical option exercise experience. Forfeiture assumptions are based on the Company’s historical forfeiture experience. The Company believes that the historical experience method is the best estimate of future exercise and forfeiture patterns. The risk-free interest rates are determined using the implied yield available for zero-coupon United States government issues with a remaining term equal to the expected life of the grant. The expected dividend yields are based on the approved annual dividend rate in effect and market price of the underlying common stock at the time of grant. No assumption for a future dividend rate increase has been included unless there is an approved plan to increase the dividend in the near term. Shares are issued from the Company’s treasury shares upon share option exercises.

The Company granted 347,000 stock options during 2010. No stock options were granted in 2012 and 2011. The weighted average fair value of options granted was $10.31 in 2010. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2010, respectively: risk-free interest rate of 3.59%; a dividend yield of .25%; a volatility factor of the expected market price of the Company’s common stock of .41; forfeiture rate of 3.89%; and weighted-average expected life of the option of nine years.

The following table summarizes information about stock options outstanding at December 31, 2012:

	Options Outstanding
			Weighted Average				Options Exercisable
Range of Exercise Prices	Number Outstanding December 31, 2012		Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable December 31, 2012		Weighted Average Exercise Price
$5.92-10.00		112,968		0.83	$	9.72		112,968	$	9.72
10.01-15.00		1,110,451		4.81		14.05		749,451		14.02
15.01-19.92		289,328		6.89		19.74		30,578		18.23
$5.92-19.92		1,512,747		4.91		14.81		892,997		13.62

The table below summarizes option activity for the year ended December 31, 2012:

	Options (In  Thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in Thousands)			Weighted Average Fair Value
Outstanding at January 1, 2012		2,849		$	13.78			$	41,252		$	6.38
Granted		—			—				—			—
Exercised		(1,268	)		12.43				(20,033	)		5.91
Forfeited		(68	)		16.21				(783	)		7.38
Outstanding at December 31, 2012		1,513			14.81		4.91 years		20,373			6.74
Expected to Vest at December 31, 2012		1,307			14.79		4.74 years		17,632			6.80
Exercisable at December 31, 2012		893			13.62		3.90 years		13,093			5.93

The aggregate intrinsic value of options exercised was $20.0 million, $5.5 million and $848,000 in 2012, 2011 and 2010, respectively. The total fair value of options vested was $2.2 million, $2.7 million and $3.2 million in 2012, 2011 and 2010, respectively. Income tax benefits resulting from stock option exercises totaled $8.4 million, $2.1 million, and $1.4 million in 2012, 2011 and 2010, respectively.

Restricted Stock

Shares of restricted stock or restricted stock units (collectively, “restricted stock”) may be granted to employees and directors and typically vest over approximately two to five year periods. Restricted stock grants may be subject to one or more objective employment, performance or other forfeiture conditions as established at the time of grant. As of December 31, 2012, under the Aaron’s Management Performance Plan (“AMP Plan”), RSUs are granted quarterly upon achievement of certain pre-tax profit levels during the prior quarter by the employees’ operating units or the overall Company. The RSUs granted under the AMP Plan vest over four to five years from the date of grant. The AMP Plan participants include certain vice presidents, director level employees and other key personnel in the Company’s home office, divisional vice presidents and regional managers.

Any shares of restricted stock that are forfeited may again become available for issuance. Compensation cost for restricted stock is equal to the fair market value of the shares at the date of the award and is amortized to compensation expense on a straight-line basis over the vesting period. The Company granted 368,000, 266,000 and 300,000 shares of restricted stock at weighted-average fair values of $26.08, $23.57 and $16.20 in 2012, 2011 and 2010, respectively.

The following table summarizes information about restricted stock activity:

	Restricted Stock (In Thousands)			Weighted Average Fair Value
Non-vested at January 1, 2012		415		$	19.64
Granted 1		368			26.08
Vested		(75	)		16.20
Forfeited		(12	)		27.84
Non-vested at December 31, 2012		696			23.28

¹ Includes 250,000 RSUs granted to certain executive officers that will be eligible to vest on March 31, 2015 assuming certain performance conditions are achieved over three annual performance periods. The Company recognizes compensation cost for its performance-based RSUs over the vesting period based on the probability that the performance condition will be satisfied.

The total fair value of restricted stock vesting during the year was $4.4 million, $5.7 million and $1.5 million in 2012, 2011 and 2010, respectively.

Retirement and Separation-Related Modifications

In connection with the retirement of the Company’s founder and Chairman of the Board, the Company recorded a $10.4 million charge to operating expenses, of which $1.7 million related to the accelerated vesting of 75,000 shares of restricted stock and 25,000 stock options. During 2011, the Company recorded a $3.5 million charge for separation costs primarily related to the immediate vest modification of 150,000 shares of restricted stock and 50,000 stock options related to the separation of the Company’s Chief Executive Officer. The total incremental cost resulting from the modifications, due primarily to increases in the Company’s stock price as of the modification date compared to the grant date, was $1.2 million and $1.3 million in 2012 and 2011, respectively.

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Segments - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended				12 Months Ended
	Sep. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011	Dec. 31, 2012 Segment	Dec. 31, 2011
Segment Reporting Information [Line Items]
Number of Operating segments					5
Number of reportable segments					4
Retirement/Separation Charges	$ 10,394		$ 3,532		$ 10,394	$ 3,532
Reversal of lawsuit accrual		35,500		(36,500)	35,500	(36,500)
Sales and Lease Ownership
Segment Reporting Information [Line Items]
Reversal of lawsuit accrual					$ 35,500	$ (36,500)

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Consolidated Statements of Earnings (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
REVENUES:
Lease Revenues and Fees	$ 1,676,391	$ 1,516,508	$ 1,402,053
Retail Sales	38,455	38,557	40,556
Non-Retail Sales	425,915	388,960	362,273
Franchise Royalties and Fees	66,655	63,255	59,112
Other	15,172	15,051	12,344
Revenues	2,222,588	2,022,331	1,876,338
COSTS AND EXPENSES:
Retail Cost of Sales	21,719	22,738	23,013
Non-Retail Cost of Sales	389,357	353,745	330,918
Operating Expenses	952,262	868,716	824,929
Lawsuit (Income) Expense	(35,500)	36,500
Retirement/Separation Charges	10,394	3,532
Depreciation of Lease Merchandise	604,650	550,732	504,105
Costs and Expenses, Total	1,942,882	1,835,963	1,682,965
OPERATING PROFIT	279,706	186,368	193,373
Interest Income	3,541	1,718	509
Interest Expense	(6,392)	(4,709)	(3,096)
EARNINGS BEFORE INCOME TAXES	276,855	183,377	190,786
INCOME TAXES	103,812	69,610	72,410
NET EARNINGS	$ 173,043	$ 113,767	$ 118,376
EARNINGS PER SHARE	$ 2.28	$ 1.46	$ 1.46
EARNINGS PER SHARE ASSUMING DILUTION	$ 2.25	$ 1.43	$ 1.44

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Fair Value Measurement

12 Months Ended

Dec. 31, 2012

Fair Value Measurement

NOTE 4: FAIR VALUE MEASUREMENT

Financial Assets Measured at Fair Value on a Recurring Basis

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis:

	December 31, 2012							December 31, 2011
(In Thousands)	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Deferred Compensation Liability	$	—	$	(9,518	)	$	—	$	—	$	(6,291	)	$	—

The Company maintains a deferred compensation plan that allows for certain management, highly compensated employees and non-employee directors to defer the receipt of base compensation, incentive pay compensation and director fees until a later date based on the terms of the plans. The liability representing benefits accrued for plan participants is valued at the quoted market prices of the participants’ investment elections, which consist of equity and debt funds. As such, the Company has classified the deferred compensation liability as a Level 2 liability. Refer to Note 15 for additional information regarding the deferred compensation plan.

Non-Financial Assets Measured at Fair Value on a Nonrecurring Basis

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

	December 31, 2012						December 31, 2011
(In Thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets Held for Sale	$	—	$	11,104	$	—	$	—	$	9,885	$	—

Assets held for sale primarily represents real estate properties that consist mostly of parcels of land. The highest and best use of these assets is as real estate land parcels for development or real estate properties for use or lease; however, the Company has chosen not to develop these properties. In accordance with ASC Topic 360, Property, Plant and Equipment, assets held for sale are written down to fair value, and the adjustment is recorded in operating expenses. The Company estimated the fair values of these properties using the market values for similar properties.

Certain Financial Assets and Liabilities Not Measured at Fair Value

The following table summarizes the fair value of assets (liabilities) that are not measured at fair value in the consolidated balance sheets, but for which the fair value is disclosed:

	December 31, 2012							December 31, 2011
(In Thousands)	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Corporate Bonds 1	$	—	$	67,470		$	—	$	—	$	81,594		$	—
Perfect Home Bonds 2		—		—			18,449		—		—			15,889
Fixed-Rate Long Term Debt 3		—		(127,261	)		—		—		(135,031	)		—

¹ The fair value of corporate bonds is determined through the use of model-based valuation techniques for which all significant assumptions are observable in the market.

² The Perfect Home bonds were initially valued at cost. The Company periodically reviews the valuation utilizing company-specific transactions or deterioration in the company’s financial performance to determine if fair value adjustments are necessary.

³ The fair value of fixed-rate long term debt is estimated using the present value of underlying cash flows discounted at a current market yield for similar instruments. The carrying value and fair value of fixed-rate long term debt at December 31, 2012 was $125.0 million and $127.3 million, respectively, and $137.0 million and $135.0 million, respectively, at December 31, 2011.

Held-to-Maturity Securities

The Company classifies its investments in debt securities as held-to-maturity securities based on its intent and ability to hold these securities to maturity. Accordingly, the debt securities, which mature at various dates during 2013 and 2014, are recorded at amortized cost in the consolidated balance sheets. At December 31, 2012 and 2011, investments classified as held-to-maturity securities consisted of the following:

			Gross Unrealized
(In Thousands)	Amortized Cost		Gains		Losses			Fair Value
2012
Corporate Bonds	$	67,412	$	99	$	(41	)	$	67,470
Perfect Home Bonds		18,449		—		—			18,449
Total	$	85,861	$	99	$	(41	)	$	85,919
2011
Corporate Bonds	$	82,243	$	15	$	(664	)	$	81,594
Perfect Home Bonds		15,889		—		—			15,889
Total	$	98,132	$	15	$	(664	)	$	97,483

The amortized cost and fair value of held-to-maturity securities by contractual maturity as of December 31, 2012 are as follows:

(In Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	43,482	$	43,547
Due in years one through two		42,379		42,372
Total	$	85,861	$	85,919

Information pertaining to held-to-maturity securities with gross unrealized losses is as follows. All of the securities have been in a continuous loss position for less than 12 months.

	December 31, 2012					December 31, 2011
(In Thousands)	Fair Value		Gross  Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate Bonds	$	22,785	$	(41	)	$	72,315	$	(664	)

The unrealized losses relate principally to the increases in short-term market interest rates that occurred since the securities were purchased. As of December 31, 2012, 16 of the 38 securities are in an unrealized loss position and at December 31, 2011, 38 of the 44 securities were in an unrealized loss position. The fair value is expected to recover as the securities approach their maturity or if market yields for such investments decline. In analyzing an issuer’s financial condition, management considers whether downgrades by bond rating agencies have occurred. The Company has the intent and ability to hold the investments until their amortized cost basis is recovered on the maturity date. As a result of management’s analysis and review, no declines are deemed to be other than temporary.

The Company has estimated that the carrying value of its Perfect Home bonds approximates fair value and, therefore, no impairment is considered to have occurred as of December 31, 2012. While no impairment was noted during 2012, if profitability is delayed as a result of the significant start-up expenses associated with Perfect Home, there could be a change in the valuation of the Perfect Home bonds that may result in the recognition of an impairment loss in future periods.

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Goodwill And Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill And Intangible Assets

NOTE 3: GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table provides information related to the carrying value of the Company’s goodwill by operating segment:

(In Thousands)	Sales and Lease Ownership			HomeSmart		Total
Balance at January 1, 2011	$	202,379		$	—	$	202,379
Additions		9,055			13,833		22,888
Disposals		(5,925	)		—		(5,925	)
Balance at December 31, 2011		205,509			13,833		219,342
Additions		14,399			815		15,214
Disposals		(361	)		—		(361	)
Balance at December 31, 2012	$	219,547		$	14,648	$	234,195

Intangible Assets

The following is a summary of the Company’s identifiable intangible assets by category at December 31:

	2012							2011
(In Thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer Relationships	$	4,377	$	(2,170	)	$	2,207	$	3,400	$	(1,001	)	$	2,399
Non-Compete Agreements		3,408		(1,471	)		1,937		2,855		(1,062	)		1,793
Acquired Franchise Development Rights		4,566		(2,684	)		1,882		4,452		(2,578	)		1,874
Total	$	12,351	$	(6,325	)	$	6,026	$	10,707	$	(4,641	)	$	6,066

Total amortization expense of intangible assets, included in operating expenses in the accompanying consolidated statements of earnings, was $3.7 million, $2.3 million and $3.1 million during the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, estimated future amortization expense for the next five years related to identifiable intangible assets is as follows:

(In Thousands)
2013	$	3,509
2014		1,598
2015		466
2016		232
2017		177

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Deferred Compensation Plan

12 Months Ended

Dec. 31, 2012

Deferred Compensation Plan

NOTE 15: DEFERRED COMPENSATION PLAN

Effective July 1, 2009, the Company implemented the Aaron’s, Inc. Deferred Compensation Plan (the “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 elected to make restoration matching contributions on behalf of eligible employees to compensate for certain limitations on the amount of matching contributions an employee can receive under the Company’s tax-qualified 401(k) plan.

Compensation deferred under the Plan is credited to each 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 $9.5 million and $6.3 million as of December 31, 2012 and 2011, respectively. 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. 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 $10.4 million and $5.8 million as of December 31, 2012 and 2011, respectively, and is included in prepaid expenses and other assets in the consolidated balance sheets.

Deferred compensation expense charged to operations for the Company’s matching contributions totaled $285,000, $306,000 and $231,000 in 2012, 2011, and 2010 respectively. Benefits of $616,000 and $77,000 were paid during the years ended December 31, 2012 and 2011, respectively. No benefits were paid in 2010.

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Store Count (Unaudited)

12 Months Ended

Dec. 31, 2012

Store Count (Unaudited)

NOTE 11: STORE COUNT (UNAUDITED)

The Company’s franchised store activity, Company-operated Sales & Lease Ownership store activity and Company-operated HomeSmart store activity is summarized as follows:

(Unaudited)	2012			2011			2010
Franchised stores
Franchised stores open at January 1,		713			664			597
Opened		56			55			62
Added through acquisition		—			—			10
Purchased from the Company		3			9			10
Purchased by the Company		(21	)		(7	)		(12	)
Closed, sold or merged		(2	)		(8	)		(3	)
Franchised stores open at December 31,		749			713			664
Company-operated Sales & Lease Ownership stores
Company-operated Sales & Lease Ownership stores open at January 1,		1,160			1,146			1,082
Opened		76			57			86
Added through acquisition		21			8			14
Closed, sold or merged		(11	)		(51	)		(36	)
Company-operated Sales & Lease Ownership stores open at December 31,		1,246			1,160			1,146
Company-operated HomeSmart stores
Company-operated HomeSmart stores open at January 1,		71			3			—
Opened		7			24			3
Added through acquisition		1			44			—
Closed, sold or merged		(1	)		—			—
Company-operated HomeSmart stores open at December 31,		78			71			3

In 2012, the Sales and Lease Ownership segment acquired the lease contracts, merchandise and other related assets of 44 stores, including 21 franchised stores, and merged certain acquired stores into existing stores, resulting in a net gain of 21 stores. In 2011, the Sales and Lease Ownership segment acquired the lease contracts, merchandise and other related assets of 38 stores, including seven franchised stores, and merged certain acquired stores into existing stores, resulting in a net gain of eight stores. In 2010, the Sales and Lease Ownership segment acquired the lease contracts, merchandise and other related assets of 30 stores, including 12 franchised stores, and merged certain acquired stores into existing stores, resulting in a net gain of 14 stores.

In 2012, the HomeSmart operations acquired the lease contracts, merchandise and other related assets of four stores and merged certain acquired stores into existing stores, resulting in a net gain of one store. In 2011, HomeSmart operations acquired the lease contracts, merchandise and other related assets of 47 stores and merged certain acquired stores into existing stores, resulting in a net gain of 44 stores.

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Quarterly Financial Information (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended																12 Months Ended
	Dec. 31, 2012		Sep. 30, 2012		Jun. 30, 2012		Mar. 31, 2012		Dec. 31, 2011		Sep. 30, 2011		Jun. 30, 2011		Mar. 31, 2011		Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Revenues	$ 568,463		$ 529,510		$ 538,619		$ 585,996		$ 522,705		$ 484,731		$ 482,415		$ 532,480		$ 2,222,588	$ 2,022,331	$ 1,876,338
Gross Profit	263,278	[1]	258,637	[1]	265,573	[1]	282,657	[1]	242,163	[1]	231,942	[1]	236,958	[1]	259,542	[1]
Earnings Before Taxes From Continuing Operations	57,192		46,044		58,590		115,029		48,739		45,092		17,627		71,919		276,855	183,377	190,786
Net Earnings	$ 36,632		$ 28,941		$ 36,244		$ 71,226		$ 30,534		$ 28,045		$ 10,799		$ 44,389		$ 173,043	$ 113,767	$ 118,376
EARNINGS PER SHARE	$ 0.48		$ 0.38		$ 0.48		$ 0.94		$ 0.40		$ 0.36		$ 0.14		$ 0.55		$ 2.28	$ 1.46	$ 1.46
EARNINGS PER SHARE ASSUMING DILUTION	$ 0.48		$ 0.38		$ 0.47		$ 0.92		$ 0.40		$ 0.36		$ 0.13		$ 0.55		$ 2.25	$ 1.43	$ 1.44

[1] Gross profit is the sum of lease revenues and fees, retail sales, and non-retail sales less retail cost of sales, non-retail cost of sales, depreciation of lease merchandise and write-offs of lease merchandise.

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

NOTE 7: INCOME TAXES

Following is a summary of the Company’s income tax expense for the years ended December 31:

(In Thousands)	2012			2011			2010
Current Income Tax Expense:
Federal	$	116,234		$	—		$	—
State		10,819			9,797			8,932
		127,053			9,797			8,932
Deferred Income Tax (Benefit) Expense:
Federal		(23,035	)		62,015			64,679
State		(206	)		(2,202	)		(1,201	)
		(23,241	)		59,813			63,478
	$	103,812		$	69,610		$	72,410

At December 31, 2011, the Company had a federal net operating loss (“NOL”) carryforward of approximately $31.2 million available to offset future taxable income. The entire NOL carryforward was absorbed during 2012.

As a result of the bonus depreciation provisions in the Small Business Jobs Act of 2010 and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the Company paid more than anticipated for the 2010 federal tax liability. The 2010 acts provided an estimated tax deferral of approximately $127.0 million. The Company filed for a refund of overpaid federal tax of approximately $80.9 million in January 2011 and received that refund in February 2011.

Significant components of the Company’s deferred income tax liabilities and assets at December 31 are as follows:

(In Thousands)	2012			2011
Deferred Tax Liabilities:
Lease Merchandise and Property, Plant and Equipment	$	279,926		$	329,497
Other, Net		34,014			29,607
Total Deferred Tax Liabilities		313,940			359,104
Deferred Tax Assets:
Accrued Liabilities		25,365			33,826
Advance Payments		15,834			16,432
Federal Net Operating Loss		—			10,936
Other, Net		9,677			11,760
Total Deferred Tax Assets		50,876			72,954
Less Valuation Allowance		(657	)		(812	)
Net Deferred Tax Liabilities	$	263,721		$	286,962

The Company’s effective tax rate differs from the statutory United States Federal income tax rate for the years ended December 31 as follows:

	2012			2011			2010
Statutory Rate		35.0	%		35.0	%		35.0	%
Increases in United States Federal Taxes
Resulting From:
State Income Taxes, Net of Federal Income Tax Benefit		2.5			2.7			2.7
Other, Net		0.0			0.3			0.3
Effective Tax Rate		37.5	%		38.0	%		38.0	%

The Company files a federal consolidated income tax return in the United States and the separate legal entities 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 2008.

The following table summarizes the activity related to the Company’s uncertain tax positions:

(In Thousands)	2012			2011			2010
Balance at January 1,	$	1,412		$	1,315		$	1,342
Additions based on tax positions related to the current year		178			178			149
Additions for tax positions of prior years		83			22			18
Prior year reductions		(315	)		(13	)		(26	)
Statute expirations		(83	)		(90	)		(63	)
Settlements		(17	)		—			(105	)
Balance at December 31,	$	1,258		$	1,412		$	1,315

As of December 31, 2012 and 2011, the amount of uncertain tax benefits that, if recognized, would affect the effective tax rate is $1.0 million and $1.2 million, respectively, including interest and penalties. During the year ended December 31, 2012, the Company recognized a net benefit of $126,000 related to interest and penalties. During the years ended December 31, 2011 and 2010, the Company recognized interest and penalties of $41,000 and $35,000, respectively. The Company had $234,000 and $374,000 of accrued interest and penalties at December 31, 2012 and 2011, respectively. The Company recognizes potential interest and penalties related to uncertain tax benefits as a component of income tax expense.

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Summary of Property, Plant and Equipment (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Internal-use software development cost	$ 22.6	$ 15.6
Internal-use software development cost, accumulated amortization	$ 6.6	$ 9.8

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Property, Plant And Equipment

12 Months Ended

Dec. 31, 2012

Property, Plant And Equipment

NOTE 5: PROPERTY, PLANT AND EQUIPMENT

Following is a summary of the Company’s property, plant, and equipment at December 31:

(In Thousands)	2012			2011
Land	$	25,285		$	25,882
Buildings and Improvements		81,773			81,566
Leasehold Improvements and Signs		120,883			116,632
Fixtures and Equipment1		152,436			133,615
Assets Under Capital Leases:
with Related Parties		8,158			7,641
with Unrelated Parties		10,564			10,564
Construction in Progress		5,414			5,444
		404,513			381,344
Less: Accumulated Depreciation and Amortization		(173,915	)		(154,725	)
	$	230,598		$	226,619

¹ Includes internal-use software development costs of $22.6 million and $15.6 million as of December 31, 2012 and 2011, respectively. Accumulated amortization of internal-use software development costs amounted to $6.6 million and $9.8 million as of December 31, 2012 and 2011, respectively.

Amortization expense on assets recorded under capital leases is included in operating expenses and was $1.2 million, $1.2 million and $1.9 million in 2012, 2011 and 2010, respectively. Capital leases consist of buildings and improvements. Assets under capital leases with related parties included $4.8 million and $4.2 million in accumulated depreciation and amortization as of December 31, 2012 and 2011, respectively. Assets under capital leases with unrelated parties included $4.4 million and $3.8 million in accumulated depreciation and amortization as of December 31, 2012 and 2011, respectively.

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Credit Facilities

12 Months Ended

Dec. 31, 2012

Credit Facilities

NOTE 6: CREDIT FACILITIES

Following is a summary of the Company’s credit facilities at December 31:

(In Thousands)	2012		2011
Senior Unsecured Notes	$	125,000	$	137,000
Capital Lease Obligation:
with Related Parties		6,122		6,730
with Unrelated Parties		7,156		6,809
Other Debt		3,250		3,250
	$	141,528	$	153,789

Bank Debt

On December 13, 2012, the Company entered into the fourth amendment to its revolving credit agreement (“Credit Agreement”), dated May 23, 2008, as amended. The amendments to the Credit Agreement (i) extend the maturity date of the Credit Agreement until December 13, 2017, (ii) add and amend provisions applicable to lenders to further define instances of lender default, (iii) increase the dollar thresholds applicable to certain negative covenants, events of default and reporting and notice requirements to make them less restrictive, (iv) provide for the removal of certain financial covenants in the event that the agreement governing the Company’s privately placed debt securities are amended to remove substantially similar covenants contained therein, and (v) replace the pricing grid schedule to effect slight increases to certain applicable margins. The Company entered into the fourth amendment in order to extend the maturity date of the Credit Agreement, which would have expired on May 23, 2013, to December 13, 2017.

The Company’s Credit Agreement is with several banks and provides for unsecured borrowings up to $140.0 million (including a letter of credit and swingline loan subfacility). Amounts borrowed bear interest at the lower of the lender’s prime rate or one-month LIBOR plus a margin ranging from 1.0% to 1.5% as determined by the Company’s ratio of total debt to EBITDA. At December 31, 2012 and 2011, there was a zero balance under the Company’s revolving credit agreement. The Company pays a commitment fee on unused balances, which ranges from 0.15% to 0.30% as determined by the Company’s ratio of total debt to EBITDA.

The revolving credit agreement, senior unsecured notes discussed below and franchise loan program discussed in Note 8 contain financial covenants which, among other things, prohibit the Company from exceeding certain debt to EBITDA levels and require the maintenance of minimum fixed charge coverage ratios. If the Company fails to comply with these covenants, the Company will be in default under these agreements, and all amounts could become due immediately. Under the Company’s revolving credit agreement, senior unsecured notes and franchise loan program, the Company may pay cash dividends in any year only if the dividends do not exceed 50% of our consolidated net earnings for the prior fiscal year plus the excess, if any, of the cash dividend limitation applicable to the prior year over the dividend actually paid in the prior year. At December 31, 2012, $137.6 million of retained earnings was available for dividend payments and stock repurchases under the debt restrictions, and the Company was in compliance with all covenants.

Senior Unsecured Notes

On December 19, 2012, the Company entered into Amendment No. 1 to a note purchase agreement with several insurance companies. The amendment amends the Note Purchase Agreement dated as of July 5, 2011, pursuant to which the Company and its subsidiaries, Aaron Investment Company, Aaron’s Production Company and 99LTO, LLC, as co-obligors, issued $125 million in senior unsecured notes to the purchasers in a private placement. The notes bear interest at the rate of 3.75% per year and mature on April 27, 2018.

The amendment amends the agreement to, among other things, (i) remove the “Total Adjusted Debt to Total Adjusted Capitalization Ratio” financial covenant that forbids the Company from exceeding certain debt to equity levels and (ii) increase the dollar thresholds applicable to certain negative covenants, events of default and reporting and notice requirements to make them less restrictive. The Company remains subject to certain other financial covenants under the senior unsecured notes agreement, which require the Company to maintain a minimum ratio of debt to earnings before interest, taxes, depreciation and amortization and a minimum fixed charge coverage ratio. If the Company fails to comply with these covenants, the Company will be in default under the agreement and the purchasers would have the right to exercise certain default remedies. The Company entered into the amendment in conjunction with its fourth amendment to the Credit Agreement, which is discussed above. We are in compliance with all of these covenants at December 31, 2012 and believe that we will continue to be in compliance in the future.

Payments of interest are due quarterly, commencing July 27, 2011, with principal payments of $25.0 million each due annually commencing April 27, 2014. The note purchase agreement contains financial maintenance covenants, negative covenants regarding the Company’s other indebtedness, its guarantees and investments, and other customary covenants substantially similar to the covenants in the Company’s existing note purchase agreement, revolving credit facility and franchise loan and guaranty facility, as modified.

During July 2012, the Company repaid at maturity the aggregate remaining principal amount of $12.0 million on the 5.03% senior unsecured notes issued on July 27, 2005 and due on July 27, 2012.

Capital Leases with Related Parties

In October and November 2004, the Company sold 11 properties, including leasehold improvements, to a limited liability company (“LLC”) controlled by a group of Company executives, including the Company’s former Chairman. The LLC obtained borrowings collateralized by the land and buildings totaling $6.8 million. The Company occupies the land and buildings collateralizing the borrowings under a 15-year term lease, with a five-year renewal at the Company’s option, at an aggregate annual rental of $716,000. The transaction has been accounted for as a financing in the accompanying consolidated financial statements. The rate of interest implicit in the leases is approximately 9.7%. Accordingly, the land and buildings, associated depreciation expense and lease obligations are recorded in the Company’s consolidated financial statements. No gain or loss was recognized in this transaction.

In December 2002, the Company sold ten properties, including leasehold improvements, to the LLC. The LLC obtained borrowings collateralized by the land and buildings totaling $5.0 million. The Company occupies the land and buildings collateralizing the borrowings under a 15-year term lease at an aggregate annual rental of approximately $556,000. The transaction has been accounted for as a financing in the accompanying consolidated financial statements. The rate of interest implicit in the leases is approximately 11.1%. Accordingly, the land and buildings, associated depreciation expense and lease obligations are recorded in the Company’s consolidated financial statements. No gain or loss was recognized in this transaction.

Sale-leasebacks

The Company finances a portion of 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. The Company does not have any retained or contingent interests in the stores nor does the Company provide any guarantees, other than a corporate level guarantee of lease payments, in connection with the sale-leasebacks.

Other Debt

Other debt at December 31, 2012 and 2011 includes $3.3 million of industrial development corporation revenue bonds. The weighted-average interest rate on the outstanding bonds was 0.35% and 0.29% as of December 31, 2012 and 2011, respectively. No principal payments are due on the bonds until maturity in 2015.

Future maturities under the Company’s long-term debt and capital lease obligations are as follows:

(In Thousands)
2013	$	1,755
2014		26,881
2015		30,321
2016		27,001
2017		26,858
Thereafter		28,712
	$	141,528

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Commitments And Contingencies

12 Months Ended

Dec. 31, 2012

Commitments And Contingencies

NOTE 8: COMMITMENTS AND CONTINGENCIES

Leases

The Company leases warehouse and retail store space for most of its operations under operating leases expiring at various times through 2028. The Company also leases certain properties under capital leases that are more fully described in Note 6. Most of the leases contain renewal options for additional periods ranging from one to 20 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. In addition, certain properties occupied under operating leases contain normal purchase options. Leasehold improvements related to these leases are generally amortized over periods that do not exceed the lesser of the lease term or 15 years. While a majority of leases do not require escalating payments, for the leases which do contain such provisions, the Company records the related lease expense on a straight-line basis over the lease term. The Company also leases transportation and computer equipment under operating leases expiring during the next five years. Management expects that most leases will be renewed or replaced by other leases in the normal course of business.

Future minimum lease payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2012 are as follows:

(In Thousands)
2013	$	110,244
2014		96,242
2015		78,560
2016		57,822
2017		42,922
Thereafter		162,103
	$	547,893

Rental expense was $102.0 million in 2012, $93.6 million in 2011 and $96.1 million in 2010. The amount of sublease income is $3.1 million in 2012, $3.1 million in 2011 and $2.8 million in 2010. The Company has anticipated future sublease rental income of $4.0 million in 2013, $3.4 million in 2014, $2.8 million in 2015, $2.4 million in 2016, $2.2 million in 2017 and $7.7 million thereafter through 2025. Rental expense and sublease income are included in operating expenses.

Guarantees

The Company has guaranteed certain debt obligations of some of the franchisees amounting to $117.3 million and $128.8 million at December 31, 2012 and 2011, respectively, under a franchise loan program with several banks. The Company has recourse rights to the assets securing the debt obligations, which consist primarily of lease merchandise inventory and fixed assets. As a result, the Company has never incurred any, nor does management expect to incur, any significant losses under these guarantees. The Company has estimated the fair value of the franchise-related borrowings guarantee to approximate $2.6 million, which is included in accounts payable and accrued expenses in the consolidated balance sheet as of December 31, 2012.

On December 13, 2012, the Company entered into a fifth amendment to its second amended and restated loan facility and guaranty, dated June 18, 2010, as amended, and the Company entered into a fourth amendment as of May 16, 2012. The amendments to the franchise loan facility extended the maturity date of the franchise loan facility until December 12, 2013, increased the maximum Canadian subfacility commitment amount for loans to franchisees that operate stores in Canada (other than in the Province of Quebec) from Cdn $35 million to Cdn $50 million, included a revolving loan option for Canadian borrowers, included HomeSmart franchisees in the United States as authorized borrowers under the facility and conformed the covenants to those contained in the Company’s revolving credit agreement, which is discussed in further detail in Note 6. We remain subject to the financial covenants under the franchise loan facility.

Legal Proceedings

From time to time, the Company is party to various legal proceedings arising in the ordinary course of business. While we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material adverse impact upon our business, financial position or results of operations, there can be no assurance that we will prevail in all the proceedings we are party to, or that we will not incur material losses from them. Some of the proceedings we are currently a party to are described below.

In Alford v. Aaron Rents, Inc. et al originally filed in the U.S. District Court for the Southern District of Illinois (No.: 3:08-MJR-DGW-683) on October 2, 2008, plaintiff alleged, among other claims, that she was sexually harassed and subjected to retaliation, in violation of Title VII of the Civil Rights Act of 1964, by a general manager of a Company store. Based on the judgment in the June 14, 2011 jury verdict (as reduced by the court), the Company recorded a charge of $36.5 million in the second quarter of 2011, which represented an accrual for the judgment and associated legal fees and expenses of $41.5 million, less insurance coverage of $5.0 million. On March 26, 2012, following the court’s ruling that the verdict would not be sustained, the Company entered into a settlement agreement resolving the claims in the amount of $6.0 million. The Company recognized $35.5 million of income related to the reversal of the lawsuit accrual in the first quarter of 2012.

In Kunstmann et al v. Aaron Rents, Inc., filed with the United States District Court, Northern District of Alabama (Case No.: 2:08-CV-1969-WMA), on October 29, 2008, plaintiffs alleged that the Company improperly classified store general managers as exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”). Plaintiffs seek to recover unpaid overtime compensation and other damages for a class almost exclusively comprised of former general managers, most of whom terminated employment with the Company more than a year ago. On October 4, 2012 the Court denied the Company’s motion for summary judgment as to Mr. Kunstmann individually, and on January 23, 2013, the Court denied the Company’s motion for decertification of the class. The current class includes 247 individuals. The parties are now working on proposing next steps for the conduct of the case.

In Margaret Korrow, et al. v. Aaron’s, Inc., originally filed in the Superior Court of New Jersey, Middlesex County, Law Division on October 26, 2010, plaintiff filed suit on behalf of herself and others similarly situated alleging that the Company is liable in damages to plaintiff and each class member because the Company’s lease agreements issued after March 16, 2006 purportedly violated certain New Jersey state consumer statutes. The Company removed the lawsuit to the United States District Court for the District of New Jersey on December 6, 2010 (Civil Action No.: 10-06317(JAP)(LHG)). Plaintiff on behalf of herself and others similarly situated seeks equitable relief, statutory and treble damages, pre- and post-judgment interest and attorneys’ fees. Discovery on this matter is closed. To date, no class has been certified and, on December 17, 2012, the Company moved to dismiss the class allegations from plaintiff’s complaint. On February 5, 2013, plaintiff filed its response and also moved to certify the class.

In Crystal and Brian Byrd v. Aaron’s, Inc., Aspen Way Enterprises, Inc., John Does (1-100) Aaron’s Franchisees and Designerware, LLC., filed on May 16, 2011 in the United States District Court, Western District of Pennsylvania (Case No. 1:11-CV-00101-SPB), plaintiffs allege that the Company and its franchisees knowingly violated plaintiffs’ and other similarly situated plaintiffs’ privacy in violation of the Electronic Communications Privacy Act and the Computer Fraud Abuse Act through its use of a software program called “PC Rental Agent.” The District Court dismissed the Company from the lawsuit on March 20, 2012. On September 14, 2012, plaintiffs filed an amended complaint against the Company and its franchisees alleging, among other claims, invasion of privacy, interception of electronic communications in violation of the Federal Wiretap Act as amended by the Electronic Communications Privacy Act and vicarious liability claims. The plaintiffs are seeking damages in connection with the allegations of the amended complaint. On October 15, 2012, the Company filed a motion to dismiss the amended complaint, which still remains pending.

The Company has received inquiries from and is responding to government agencies, including the Federal Trade Commission, requesting information regarding the Byrd litigation and another incident involving the compromise of customer information, and inquiring about, among other things, the Company’s retail transactional, information security and privacy policies and practices.

The matter of Kurtis Jewell v. Aaron’s, Inc. was originally filed in the United States District Court, Northern District of Ohio, Eastern Division on October 28, 2011 and was transferred on February 23, 2012 to the United States District Court for the Northern District of Georgia (Atlanta Division) (Civil No.:1:12-CV-00563-AT). Plaintiff, on behalf of himself and all other non-exempt employees who worked in Company stores, alleges that the Company violated the FLSA when it automatically deducted 30 minutes from employees’ time for meal breaks on days when plaintiffs allegedly did not take their meal breaks. Plaintiff claims he and other employees actually worked through meal breaks or were interrupted during the course of their meal breaks and asked to perform work. As a result of the automatic deduction, plaintiff alleges that the Company failed to account for all of his working hours when it calculated overtime, and consequently underpaid him. On September 28, 2012, the Court issued an order granting conditional certification of a class consisting of all hourly store employees from October 27, 2008 to the present. The current class size is 1,788, which is less than seven percent of the potential class members. With limited exceptions, the time period for additional members to be added to the class has expired.

The matter of Parish Harrigan and Carlos Urzua v. Aaron’s, Inc. was filed in the Superior Court of the State of California, County of Sacramento on January 27, 2012 (Case No.: 34-2012-0117848). Plaintiffs allege that they were subjected to jokes and name calling on the basis of their race and national origin. Plaintiffs further claim that they were subject to retaliation after reporting the discrimination and harassment to the Company. The plaintiffs are seeking damages in connection with the allegations. The Company denies the underlying allegations, believes that it took prompt action to investigate the claims once it was notified of the allegations, denies that either plaintiff was subject to retaliation and intends to vigorously defend itself in the litigation.

We believe we have meritorious defenses to all of the claims described above, and intend to vigorously defend against the claims. However, these proceedings are still developing and due to the inherent uncertainty in litigation and similar adversarial proceedings, there can be no guarantee that we will ultimately be successful in these proceedings, or in others to which we are currently a party. Substantial losses from legal proceedings or the costs of defending them could have a material adverse impact upon our business, financial position and results of operations.

At December 31, 2012, we estimated that the aggregate exposure to loss for all material pending legal proceedings for which a loss is probable, excluding an immaterial amount for which we have already accrued, is $5.0 million, although this belief is subject to the uncertainties and variables described above. At December 31, 2012, we estimate that the aggregate range of losses for all material pending legal proceedings for which a loss is reasonably possible, but less likely than probable, is from $0.7 million to $7.6 million, although this belief is also subject to the uncertainties and variables described above. Those matters for which a reasonable estimate is not possible are not included within estimated ranges and, therefore, the estimated ranges do not represent the Company’s maximum loss exposure. We continually monitor our litigation exposure, and review the adequacy of our legal reserves on a quarterly basis in accordance with applicable accounting rules.

Other Commitments

At December 31, 2012, the Company had non-cancelable commitments primarily related to certain advertising and marketing programs of $21.7 million. Payments under these commitments are scheduled to be $17.5 million in 2013, $3.6 million in 2014, $383,000 in 2015, and $274,000 in 2016.

The Company maintains a 401(k) savings plan for all its full-time employees with at least one year of service and who meet certain eligibility requirements. As of December 31, 2012, the plan allows employees to contribute up to 100% of their annual compensation in accordance with federal contribution limits with 50% matching by the Company on the first 4% of compensation. The Company’s expense related to the plan was $999,000 in 2012, $891,000 in 2011, and $841,000 in 2010.

The Company is a party to various claims and legal proceedings arising in the ordinary course of business. Management regularly assesses the Company’s insurance deductibles, analyzes litigation information with the Company’s attorneys and evaluates its loss experience. The Company also enters into various contracts in the normal course of business that may subject it to risk of financial loss if counterparties fail to perform their contractual obligations.

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Future Maturities of Long Term Debt and Capital Lease Obligations (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Debt Instrument [Line Items]
2013	$ 1,755
2014	26,881
2015	30,321
2016	27,001
2017	26,858
Thereafter	28,712
Long-term Debt, Total	$ 141,528

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Quarterly Financial Information (Unaudited) - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended				12 Months Ended
	Sep. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011	Dec. 31, 2012	Dec. 31, 2011
Retirement/Separation Charges	$ 10,394		$ 3,532		$ 10,394	$ 3,532
Reversal of lawsuit accrual		$ 35,500		$ (36,500)	$ 35,500	$ (36,500)

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Income Taxes - Additional Information (Detail) (USD $)	1 Months Ended	12 Months Ended
	Feb. 28, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes [Line Items]
Federal net operating loss carryforward		$ 31,200,000
Estimated tax deferral		127,000,000
Proceeds from refund of overpaid federal tax	80,900,000
Uncertain tax benefits that, if recognized, would affect effective tax rate		1,000,000	1,200,000
Recognized interest and penalties related to unrecognized tax benefits		126,000	41,000	35,000
Accrued interest and penalties		$ 234,000	$ 374,000

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Credit Facilities - Additional Information (Detail) (USD $)	12 Months Ended			12 Months Ended				1 Months Ended		1 Months Ended	2 Months Ended				12 Months Ended
	Dec. 31, 2012 Entity	Dec. 31, 2011 Entity	Dec. 31, 2010 Entity	Dec. 31, 2012 Minimum	Dec. 31, 2012 Maximum	Dec. 31, 2012 Amended Credit Facility	Dec. 31, 2012 Revolving Credit Agreement	Jul. 05, 2011 Senior Unsecured Notes Issued July Twenty Eleven	Jul. 31, 2012 Senior Unsecured Notes Issued July Twenty Zero Five	Dec. 31, 2002 Related Party Property	Nov. 30, 2004 Related Party Property	Dec. 31, 2012 Unsecured Revolving Credit Facility	Dec. 31, 2012 Revolving Credit Agreement	Dec. 31, 2011 Revolving Credit Agreement	Dec. 31, 2012 Revolving Credit Agreement Minimum	Dec. 31, 2012 Revolving Credit Agreement Maximum	Dec. 31, 2012 Revolving Credit Agreement LIBOR Minimum	Dec. 31, 2012 Revolving Credit Agreement LIBOR Maximum
Debt Instrument [Line Items]
Revolving credit agreement, expiry date	May 23, 2013					Dec. 13, 2017
Line of Credit Facility, Maximum Borrowing Capacity												$ 140,000,000
Interest rate basis spread																	1.00%	1.50%
Line of credit amount outstanding													0	0
Commitment fee for unused balance amount															0.15%	0.30%
Percentage of cash dividend that can be paid to consolidated net earning							50.00%
Retained earnings available for dividend payments and stock repurchases							137,600,000
Notes issued								125,000,000
Debt interest rate								3.75%
Debt instrument, maturity date								Apr. 27, 2018
Payment of Interest, commencement date								Jul. 27, 2011
Annual principal repayment amount								25,000,000	12,000,000
Debt principal amount, commencement date								Apr. 27, 2014
Properties sold	3	25	11							10	11
Borrowings collateralized by the land and buildings										5,000,000	6,800,000
Lease term										15 years	15 years
Lease renewal option term				1 year	20 years						5 years
Aggregate annual rental										556,000	716,000
Interest implicit in the leases										11.10%	9.70%
Industrial development corporation revenue bonds	$ 3,250,000	$ 3,250,000
Weighted-average borrowing rate on bonds	0.35%	0.29%

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Store Count (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Franchised Store Activity, Company-Operated Sales and Lease Ownership Store Activity and Company-Operated HomeSmart Store Activity

The Company’s franchised store activity, Company-operated Sales & Lease Ownership store activity and Company-operated HomeSmart store activity is summarized as follows:

(Unaudited)	2012			2011			2010
Franchised stores
Franchised stores open at January 1,		713			664			597
Opened		56			55			62
Added through acquisition		—			—			10
Purchased from the Company		3			9			10
Purchased by the Company		(21	)		(7	)		(12	)
Closed, sold or merged		(2	)		(8	)		(3	)
Franchised stores open at December 31,		749			713			664
Company-operated Sales & Lease Ownership stores
Company-operated Sales & Lease Ownership stores open at January 1,		1,160			1,146			1,082
Opened		76			57			86
Added through acquisition		21			8			14
Closed, sold or merged		(11	)		(51	)		(36	)
Company-operated Sales & Lease Ownership stores open at December 31,		1,246			1,160			1,146
Company-operated HomeSmart stores
Company-operated HomeSmart stores open at January 1,		71			3			—
Opened		7			24			3
Added through acquisition		1			44			—
Closed, sold or merged		(1	)		—			—
Company-operated HomeSmart stores open at December 31,		78			71			3

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Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (Level 2, USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Level 2
Fair Value Assets Liabilities Measured On Recurring Basis [Line Items]
Deferred Compensation Liability	$ (9,518)	$ (6,291)

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Related Party Transactions

12 Months Ended

Dec. 31, 2012

Related Party Transactions

NOTE 13: RELATED PARTY TRANSACTIONS

The Company leases certain properties under capital leases with certain related parties that are more fully described in Note 6 above.

In the fourth quarter of 2011, the Company purchased an airplane for $2.8 million and sold it to R. Charles Loudermilk, Sr., the Company’s founder and former Chairman of the Board, for the same amount. The Company paid approximately $80,000 in brokerage fees in connection with the transaction, for which Mr. Loudermilk reimbursed the Company. In the fourth quarter of 2011, the Company transferred a Company-owned vehicle to Mr. Loudermilk valued at $21,000.

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Acquisitions and Dispositions (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Acquisitions of Lease Contracts, Merchandise and Related Assets of Sales and Lease Ownership Stores

The following table summarizes the Company’s acquisitions of lease contracts, merchandise and the related assets of sales and lease ownership stores, none of which was individually material to the Company’s consolidated financial statements, during the years ended December 31:

(In Thousands, except for store data)	2012		2011		2010
Number of stores acquired, net		22		52		14
Aggregate purchase price (primarily cash consideration)	$	31,617	$	41,425	$	17,891
Purchase price allocation:
Lease Merchandise		11,936		13,385		6,489
Property, Plant and Equipment		739		500		334
Other Current Assets and Current Liabilities		38		34		43
Identifiable Intangible Assets 1:
Customer Relationships		1,725		2,675		748
Non-Compete Agreements		1,201		1,688		541
Acquired Franchise Development Rights		764		255		496
Goodwill2		15,214		22,888		9,240

¹  The weighted-average amortization period for the Company’s acquired intangible assets was 3.1 years, 2.6 years and 3.5 years in 2012, 2011 and 2010, respectively. The weighted-average amortization period by major intangible asset class for acquisitions completed during 2012, 2011 and 2010 was 2 years for customer relationships, 3 years for non-compete agreements and a range of 6 years to 6.9 years for acquired franchise development rights.

²  Goodwill is primarily attributable to synergies expected to arise after the acquisition. All goodwill resulting from the Company’s 2012, 2011 and 2010 acquisitions is expected to be deductible for tax purposes.

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Goodwill And Intangible Assets - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Goodwill and Intangible Assets Disclosure [Line Items]
Amortization expense	$ 3.7	$ 2.3	$ 3.1

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Accounts Receivable Net of Allowances (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
Accounts receivable, net of allowances	$ 74,157	$ 87,471
Customer
Financing Receivable, Impaired [Line Items]
Accounts receivable, net of allowances	7,840	5,384
Corporate
Financing Receivable, Impaired [Line Items]
Accounts receivable, net of allowances	17,215	29,650
Franchise
Financing Receivable, Impaired [Line Items]
Accounts receivable, net of allowances	$ 49,102	$ 52,437

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Net Earnings	$ 173,043	$ 113,767	$ 118,376
Foreign Currency Translation:
Foreign Currency Translation Adjustment	(343)	(648)	935
Less: Reclassification Adjustments for Net Gains Included in Net Earnings	373
Net Change	30	(648)	935
Available-for-Sale Investments:
Change in Net Unrealized Losses on Available-for-Sale Investments		88
Less: Reclassification Adjustment for Net Losses Included in Net Earnings		(88)
Net Change
Cash Flow Hedges:
Change in Net Unrealized Gains on Derivatives Designated as Cash Flow Hedges		(12)	12
Less: Reclassification Adjustment for Net Gains Included in Net Earnings		12
Net Change			12
Total Other Comprehensive Income (Loss)	30	(648)	947
Comprehensive Income	$ 173,073	$ 113,119	$ 119,323

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Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2012

Acquisitions and Dispositions

NOTE 2: ACQUISITIONS AND DISPOSITIONS

Acquisitions

The following table summarizes the Company’s acquisitions of lease contracts, merchandise and the related assets of sales and lease ownership stores, none of which was individually material to the Company’s consolidated financial statements, during the years ended December 31:

(In Thousands, except for store data)	2012		2011		2010
Number of stores acquired, net		22		52		14
Aggregate purchase price (primarily cash consideration)	$	31,617	$	41,425	$	17,891
Purchase price allocation:
Lease Merchandise		11,936		13,385		6,489
Property, Plant and Equipment		739		500		334
Other Current Assets and Current Liabilities		38		34		43
Identifiable Intangible Assets 1:
Customer Relationships		1,725		2,675		748
Non-Compete Agreements		1,201		1,688		541
Acquired Franchise Development Rights		764		255		496
Goodwill2		15,214		22,888		9,240

¹  The weighted-average amortization period for the Company’s acquired intangible assets was 3.1 years, 2.6 years and 3.5 years in 2012, 2011 and 2010, respectively. The weighted-average amortization period by major intangible asset class for acquisitions completed during 2012, 2011 and 2010 was 2 years for customer relationships, 3 years for non-compete agreements and a range of 6 years to 6.9 years for acquired franchise development rights.

²  Goodwill is primarily attributable to synergies expected to arise after the acquisition. All goodwill resulting from the Company’s 2012, 2011 and 2010 acquisitions is expected to be deductible for tax purposes.

Acquisitions have been accounted for as business combinations, and the results of operations of the acquired businesses are included in the Company’s results of operations from their dates of acquisition. The effect of these acquisitions on the 2012, 2011 and 2010 consolidated financial statements was not significant.

Dispositions

The Company periodically sells sales and lease ownership stores to franchisees and third-party operators. The Company sold three, 25 and 11 of its Aaron’s Sales and Lease Ownership stores in 2012, 2011 and 2010, respectively. The effect of these sales on the consolidated financial statements was not significant.

The Company began ceasing the operations of the Aaron’s Office Furniture division in June of 2010. The Company closed 14 of its Aaron’s Office Furniture stores during 2010 and sold the remaining store in August 2012. As a result, in 2010 the Company recorded $3.3 million in closed store reserves, $4.7 million in lease merchandise write-downs and other miscellaneous expenses, respectively, totaling $9.0 million. The charges were recorded within operating expenses on the consolidated statement of earnings and are included in the Other segment. There were no significant charges related to the closure of this division in 2011 or 2012.

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Fair Value Measurement - Additional Information (Detail)	Dec. 31, 2012 Securities	Dec. 31, 2011 Securities
Fair Value Measurements Disclosure [Line Items]
Number of securities in unrealized loss position	16	38
Number of securities	38	44

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Information on Segments and Reconciliation to Earnings Before Income Taxes from Continuing Operations (Parenthetical) (Detail) (Manufacturing, USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Manufacturing
Segment Reporting Information [Line Items]
Inventory (principally raw materials)	$ 14.1	$ 11.2	$ 11.2

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Summary of Activity Related to Uncertain Tax Positions (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Tax Contingency [Line Items]
Balance at January 1	$ 1,412	$ 1,315	$ 1,342
Additions based on tax positions related to the current year	178	178	149
Additions for tax positions of prior years	83	22	18
Prior year reductions	(315)	(13)	(26)
Statute expirations	(83)	(90)	(63)
Settlements	(17)		(105)
Balance at December 31	$ 1,258	$ 1,412	$ 1,315

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Goodwill And Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Carrying Value of Goodwill by Operating Segment

The following table provides information related to the carrying value of the Company’s goodwill by operating segment:

(In Thousands)	Sales and Lease Ownership			HomeSmart		Total
Balance at January 1, 2011	$	202,379		$	—	$	202,379
Additions		9,055			13,833		22,888
Disposals		(5,925	)		—		(5,925	)
Balance at December 31, 2011		205,509			13,833		219,342
Additions		14,399			815		15,214
Disposals		(361	)		—		(361	)
Balance at December 31, 2012	$	219,547		$	14,648	$	234,195

Summary of Identifiable Intangible Assets

The following is a summary of the Company’s identifiable intangible assets by category at December 31:

	2012							2011
(In Thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer Relationships	$	4,377	$	(2,170	)	$	2,207	$	3,400	$	(1,001	)	$	2,399
Non-Compete Agreements		3,408		(1,471	)		1,937		2,855		(1,062	)		1,793
Acquired Franchise Development Rights		4,566		(2,684	)		1,882		4,452		(2,578	)		1,874
Total	$	12,351	$	(6,325	)	$	6,026	$	10,707	$	(4,641	)	$	6,066

Estimated Future Amortization Expense

As of December 31, 2012, estimated future amortization expense for the next five years related to identifiable intangible assets is as follows:

(In Thousands)
2013	$	3,509
2014		1,598
2015		466
2016		232
2017		177

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Summary Information about Stock Options Outstanding (Detail) (USD $)			12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Range 1	Dec. 31, 2012 Range 2	Dec. 31, 2012 Range 3	Dec. 31, 2012 Range 4
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise, Prices, Lower Range			$ 5.92	$ 10.01	$ 15.01	$ 5.92
Range of Exercise, Prices, Upper Range			$ 10.00	$ 15.00	$ 19.92	$ 19.92
Options, Number Outstanding			112,968	1,110,451	289,328	1,512,747
Options, Weighted Average Remaining Contractual Life (in years)			9 months 29 days	4 years 9 months 22 days	6 years 10 months 21 days	4 years 10 months 28 days
Options, Weighted Average Exercise Price	$ 14.81	$ 13.78	$ 9.72	$ 14.05	$ 19.74	$ 14.81
Options, Number Exercisable			112,968	749,451	30,578	892,997
Options Exercisable, Weighted Average Exercise Price			$ 9.72	$ 14.02	$ 18.23	$ 13.62

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Store Count by Ownership Type (Detail)	Dec. 31, 2012 Store		Dec. 31, 2011 Store		Dec. 31, 2010 Store
Franchisor Disclosure [Line Items]
Company operated stores	1,324		1,232		1,150
Sales and Lease Ownership Excluding RIMCO
Franchisor Disclosure [Line Items]
Company operated stores	1,227		1,144		1,135
RIMCO
Franchisor Disclosure [Line Items]
Company operated stores	19		16		11
HomeSmart
Franchisor Disclosure [Line Items]
Company operated stores	78		71		3
Aarons Office Furniture
Franchisor Disclosure [Line Items]
Company operated stores			1		1
Franchised Stores
Franchisor Disclosure [Line Items]
Company operated stores	749	[1]	713	[1]	664	[1]
Systemwide Stores
Franchisor Disclosure [Line Items]
Company operated stores	2,073		1,945		1,814

[1] As of December 31, 2012, 2011 and 2010, 929, 943 and 946 franchises had been awarded, respectively.

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Segments

12 Months Ended

Dec. 31, 2012

Segments

NOTE 12: SEGMENTS

Description of Products and Services of Reportable Segments

As of December 31, 2012, the Company had five operating segments: Sales and Lease Ownership, RIMCO, HomeSmart, Franchise and Manufacturing. The Company’s RIMCO stores lease automobile wheels, tires and rims to customers under sales and lease ownership agreements. Although the products offered are different, these stores are managed, monitored and operated similarly to our other sales and lease ownership stores.

The Company has evaluated the characteristics of its operating segments and has determined that certain of its operating segments meet the aggregation criteria in ASC 280, Segment Reporting. Accordingly, the Company has identified four reportable segments: Sales and Lease Ownership, Franchise, HomeSmart and Manufacturing. In all periods presented, HomeSmart was reclassified from “Other” to the HomeSmart segment.

The Aaron’s Sales & Lease Ownership division offers electronics, residential furniture, appliances and computers to consumers primarily on a monthly payment basis with no credit requirements. The HomeSmart division was established to offer electronics, residential furniture, appliances and computers to consumers on a weekly payment basis with no credit requirements. The Company’s franchise operation sells and supports franchisees of its sales and lease ownership concept. The Manufacturing segment manufactures upholstered furniture and bedding predominantly for use by Company-operated and franchised stores. Therefore, the Manufacturing segment revenues and earnings before income taxes are primarily the result of intercompany transactions, substantially all of which revenues and earnings are eliminated through the elimination of intersegment revenues.

Measurement of Segment Profit or Loss and Segment Assets

The Company evaluates performance and allocates resources based on revenue growth and pre-tax profit or loss from operations. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies except that the sales and lease ownership division revenues and certain other items are presented on a cash basis. Intersegment sales are completed at internally negotiated amounts. Since the intersegment profit and loss affect inventory valuation, depreciation and cost of goods sold are adjusted when intersegment profit is eliminated in consolidation.

Factors Used by Management to Identify the Reportable Segments

The Company’s reportable segments are based on the operations of the Company that the chief operating decision maker regularly reviews to analyze performance and allocate resources among business units of the Company.

Information on segments and a reconciliation to earnings before income taxes from continuing operations are as follows:

	Year Ended December 31,			Year Ended December 31,			Year Ended December 31,
(In Thousands)	2012			2011			2010
Revenues From External Customers:
Sales and Lease Ownership	$	2,088,894		$	1,938,614		$	1,803,601
HomeSmart		55,226			15,624			56
Franchise		66,655			63,255			59,112
Manufacturing		95,693			89,430			79,113
Other		9,122			8,096			15,132
Revenues of Reportable Segments		2,315,590			2,115,019			1,957,014
Elimination of Intersegment Revenues		(95,150	)		(89,430	)		(79,113	)
Cash to Accrual Adjustments		2,148			(3,258	)		(1,563	)
Total Revenues from External Customers	$	2,222,588		$	2,022,331		$	1,876,338
Earnings Before Income Taxes:
Sales and Lease Ownership	$	243,531		$	143,686		$	159,417
HomeSmart		(6,962	)		(7,283	)		(318	)
Franchise		52,672			49,577			45,935
Manufacturing		382			2,960			3,218
Other		(11,854	)		818			(12,437	)
Earnings Before Income Taxes for Reportable Segments		277,769			189,758			195,815
Elimination of Intersegment Profit		(393	)		(2,960	)		(3,218	)
Cash to Accrual and Other Adjustments		(521	)		(3,421	)		(1,811	)
Total Earnings Before Income Taxes	$	276,855		$	183,377		$	190,786
Assets:
Sales and Lease Ownership	$	1,421,812		$	1,293,151		$	1,248,785
HomeSmart		58,347			50,600			955
Franchise		53,820			56,131			55,789
Manufacturing1		24,787			21,691			22,312
Other		254,163			310,326			173,012
Total Assets	$	1,812,929		$	1,731,899		$	1,500,853
1    Includes inventory (principally raw materials) that has been classified within lease merchandise in the consolidated balance sheets of $14.1 million, $11.2 million and $11.2 million as of December 31, 2012, 2011 and 2010, respectively.
Depreciation and Amortization:
Sales and Lease Ownership		$629,119			$588,036		$	539,669
HomeSmart		20,482			5,933			21
Franchise		146			41			41
Manufacturing		4,430			1,294			2,958
Other		7,256			8,260			6,843
Total Depreciation and Amortization	$	661,433		$	603,564		$	549,532
Interest Expense:
Sales and Lease Ownership	$	5,531		$	4,473		$	2,937
HomeSmart		846			201			2
Franchise		—			—			—
Manufacturing		106			142			15
Other		(91	)		(107	)		142
Total Interest Expense	$	6,392		$	4,709		$	3,096
Capital Expenditures:
Sales and Lease Ownership	$	35,480		$	53,402		$	72,832
HomeSmart		4,121			10,950			202
Franchise		—			—			—
Manufacturing		4,493			2,107			5,484
Other		20,979			11,752			9,118
Total Capital Expenditures	$	65,073		$	78,211		$	87,636
Revenues From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	308		$	3,258		$	4,470
Assets From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	1,391		$	1,527		$	15,093

Revenues in the “Other” category are primarily revenues from leasing space to unrelated third parties in the corporate headquarters building, revenues of the Aaron’s Office Furniture division through the date of sale in August 2012 and revenues from several minor unrelated activities. The pre-tax losses or earnings 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. For the year ended December 31, 2012, the pre-tax losses of the “Other” category include $10.4 million in retirement charges associated with the retirement of the Company’s founder and former Chairman of the Board. Earnings Before Income Taxes above for the Sales and Lease Ownership segment includes the $36.5 million accrual of a lawsuit for 2011 and the reversal of the lawsuit accrual of $35.5 million in 2012. In addition, during 2011, the Company incurred $3.5 million in separation costs related to the departure of the Company’s former Chief Executive Officer.