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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ________________________________
 FORM 10-Q
________________________________
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                      TO                     
COMMISSION FILE NUMBER 1-39681
 ________________________________
  THE AARON'S COMPANY, INC.
(Exact name of registrant as specified in its charter)
 _________________________________
Georgia
85-2483376
(State or other jurisdiction of
incorporation or organization)		(I. R. S. Employer
Identification No.)
400 Galleria Parkway SESuite 300AtlantaGeorgia30339-3182
(Address of principal executive offices)(Zip Code)
(678) 402-3000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading SymbolName of each exchange on which registered
Common Stock, $0.50 Par ValueAAN New York Stock Exchange

 ___________________________________

    Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒    No  ☐
    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No ☐
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.








Large Accelerated Filer☐Accelerated filer☒
Non-Accelerated Filer☐Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
    Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Title of Each Class
Shares Outstanding as of
August 2, 2024
Common Stock, $0.50 Par Value30,712,772

1

THE AARON'S COMPANY, INC.
INDEX
 
2

PART I – FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
THE AARON'S COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
2024		December 31,
2023
(In Thousands, Except Share Data)
ASSETS:
Cash and Cash Equivalents$34,161 $59,035 
Accounts Receivable (net of allowances of $9,203 at June 30, 2024 and $9,029 at December 31, 2023)
35,050 39,782 
Lease Merchandise (net of accumulated depreciation and allowances of $410,185 at June 30, 2024 and $411,641 at December 31, 2023)
622,645 622,262 
Merchandise Inventories, Net88,517 90,172 
Property, Plant and Equipment, Net263,002 269,833 
Operating Lease Right-of-Use Assets447,405 465,824 
Goodwill55,750 55,750 
Other Intangibles, Net103,175 108,158 
Income Tax Receivable8,490 10,363 
Prepaid Expenses and Other Assets112,861 105,397 
Total Assets$1,771,056 $1,826,576 
LIABILITIES & SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses$273,230 $292,175 
Deferred Tax Liabilities76,170 83,217 
Customer Deposits and Advance Payments62,830 68,391 
Operating Lease Liabilities485,377 502,692 
Debt215,763 193,963 
Total Liabilities 1,113,370 1,140,438 
Commitments and Contingencies (Note 5)
SHAREHOLDERS' EQUITY:
Common Stock, Par Value $0.50 Per Share: Authorized: 112,500,000 Shares at June 30, 2024 and December 31, 2023; Shares Issued: 37,189,351 at June 30, 2024 and 36,656,650 at December 31, 2023
18,595 18,328 
Additional Paid-in Capital756,207 750,751 
Retained Earnings32,252 66,202 
Accumulated Other Comprehensive Loss(257)(1,355)
806,797 833,926 
Treasury Shares at Cost: 6,476,579 Shares at June 30, 2024 and 6,295,216 Shares at December 31, 2023
(149,111)(147,788)
Total Shareholders' Equity
657,686 686,138 
Total Liabilities & Shareholders' Equity
$1,771,056 $1,826,576 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
3

THE AARON'S COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS
(Unaudited)
 
Three Months Ended
June 30,		Six Months Ended
June 30,
2024202320242023
(In Thousands, Except Per Share Data)
REVENUES:
Lease Revenues and Fees$335,658 $353,751 $681,667 $727,546 
Retail Sales139,549 148,046 276,478 298,592 
Non-Retail Sales22,062 22,800 44,704 46,735 
Franchise Royalties and Other Revenues5,856 5,775 11,773 11,860 
503,125 530,372 1,014,622 1,084,733 
COSTS OF REVENUES:
Depreciation of Lease Merchandise and Other Lease Revenue Costs108,275 117,400 220,815 242,541 
Retail Cost of Sales104,310 111,284 210,272 224,813 
Non-Retail Cost of Sales18,522 19,416 37,634 39,413 
231,107 248,100 468,721 506,767 
GROSS PROFIT272,018 282,272 545,901 577,966 
OPERATING EXPENSES:
Personnel Costs126,326 124,945 251,394 256,390 
Other Operating Expenses, Net126,563 121,670 258,498 245,815 
Provision for Lease Merchandise Write-Offs20,565 19,001 41,072 39,161 
Restructuring Expenses, Net2,928 4,835 10,826 10,124 
Separation Costs— — 17 129 
Acquisition-Related Costs7,981 546 8,861 2,394 
284,363 270,997 570,668 554,013 
OPERATING (LOSS) PROFIT(12,345)11,275 (24,767)23,953 
Interest Expense(4,161)(3,910)(8,695)(8,268)
Other Non-Operating Income, Net256 637 893 1,209 
(LOSS) EARNINGS BEFORE INCOME TAXES(16,250)8,002 (32,569)16,894 
INCOME TAX (BENEFIT) EXPENSE(4,347)1,485 (6,485)(2,421)
NET (LOSS) EARNINGS$(11,903)$6,517 $(26,084)$19,315 
(LOSS) EARNINGS PER SHARE$(0.39)$0.21 $(0.85)$0.63 
(LOSS) EARNINGS PER SHARE ASSUMING DILUTION$(0.39)$0.21 $(0.85)$0.62 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
4

THE AARON'S COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
 
Three Months Ended
June 30,		Six Months Ended
June 30,
(In Thousands)2024202320242023
Net (Loss) Earnings$(11,903)$6,517 $(26,084)$19,315 
Other Comprehensive Income:
Unrealized Gain on Derivative Instruments, net of Tax1
137 1,685 1,292 695 
Foreign Currency Translation Adjustment, net of Tax2
(76)180 (194)504 
Total Other Comprehensive Income61 1,865 1,098 1,199 
Comprehensive (Loss) Income
$(11,842)$8,382 $(24,986)$20,514 
1 The Unrealized Gain on Derivative Instruments is presented net of tax expense of $0.4 million for the six months ended June 30, 2024 compared to being presented net of tax expense of $0.2 million in the comparable period of 2023, respectively. The tax impact on Derivative Instruments was not significant for the three months ended June 30, 2024, compared to a tax expense of $0.5 million in the comparable period of 2023, respectively.
2The Foreign Currency Translation Adjustment is presented net of a tax benefit of $0.1 million for the six months ended June 30, 2024, compared to being presented net of a tax benefit of $0.3 million in the comparable period of 2023, respectively. The tax component for the Foreign Currency Translation Adjustment for the three months ended June 30, 2024 was insignificant, compared to tax expense of $0.1 million in the comparable period of 2023, respectively.

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

5

THE AARON'S COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
20242023
(In Thousands)
OPERATING ACTIVITIES:
Net (Loss) Earnings
$(26,084)$19,315 
Adjustments to Reconcile Net (Loss) Earnings to Cash (Used in) Provided by Operating Activities:
Depreciation of Lease Merchandise217,175 238,783 
Other Depreciation and Amortization46,035 44,837 
Provision for Lease Merchandise Write-Offs41,072 39,161 
Accounts Receivable Provision20,342 21,111 
Stock-Based Compensation5,400 5,835 
Deferred Income Taxes(9,154)(6,553)
Impairment of Assets4,226 1,716 
Non-Cash Lease Expense60,553 58,755 
Other Changes, Net(5,015)(3,398)
Changes in Operating Assets and Liabilities:
Lease Merchandise(262,449)(221,851)
Merchandise Inventories1,655 3,285 
Accounts Receivable(15,613)(13,019)
Prepaid Expenses and Other Assets(3,752)(6,935)
Income Tax Receivable1,873 (4,504)
Operating Lease Right-of-Use Assets and Liabilities (61,473)(59,811)
Accounts Payable and Accrued Expenses(16,139)1,712 
Customer Deposits and Advance Payments(5,561)(4,075)
Cash (Used in) Provided by Operating Activities(6,909)114,364 
INVESTING ACTIVITIES:
Purchases of Property, Plant, and Equipment(40,275)(41,565)
Proceeds from Dispositions of Property, Plant, and Equipment8,145 4,878 
Proceeds from Other Investing-Related Activities2,042 — 
Cash Used in Investing Activities(30,088)(36,687)
FINANCING ACTIVITIES:
Borrowings (Repayments) on Swing Line Loans, Net3,900 (19,250)
Proceeds from Revolver and Term Loan21,094 31,094 
Repayments on Revolver and Term Loan(3,281)(68,281)
Dividends Paid(7,825)(7,306)
Acquisition of Treasury Stock
— (804)
Issuance of Stock Under Stock Option Plans
323 60 
Shares Withheld for Tax Payments(1,323)(2,539)
Debt Modification Costs(729)— 
Cash Provided by (Used in) Financing Activities12,159 (67,026)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(36)2 
(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash(24,874)10,653 
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period60,660 29,341 
Cash and Cash Equivalents at End of Period:
Cash and Cash Equivalents34,161 38,369 
Restricted Cash included in Prepaid Expenses and Other Assets1,625 1,625 
Total Cash, Cash Equivalents, and Restricted Cash at End of Period$35,786 $39,994 
    The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
6

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For a discussion of trends that we believe have affected our business during the periods covered by these financial statements, see Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations", including the "Highlights," "Consolidated Results of Operations" and "Liquidity and Capital Resources", below, and Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission ("SEC") on February 29, 2024 (the "2023 Annual Report").
Description of Business
The Company is a leading, technology-enabled, omni-channel provider of lease-to-own ("LTO") and retail purchase solutions of furniture, electronics, appliances, and other home goods across its brands: Aaron's, BrandsMart U.S.A., BrandsMart Leasing, and Woodhaven Furniture Industries ("Woodhaven").
As of June 30, 2024, the Company's operating and reportable segments are the Aaron's Business and BrandsMart, each as described below.
The Aaron's Business segment is comprised of (i) Aaron's branded Company-operated and franchise operated stores; (ii) aarons.com e-commerce platform ("aarons.com"); (iii) Woodhaven; and (iv) BrandsMart Leasing (collectively, the "Aaron's Business").
The operations of BrandsMart U.S.A. (excluding BrandsMart Leasing) comprise the BrandsMart segment (collectively, "BrandsMart").
Aaron's Business Segment
Since its founding in 1955, Aaron's has been committed to serving the overlooked and underserved customer with a dedication to inclusion and improving the communities in which it operates. Through a portfolio of approximately 1,210 stores and its aarons.com e-commerce platform, Aaron's, together with its franchisees, provide consumers with LTO and retail purchase solutions for the products they need and want, with a focus on providing its customers with unparalleled customer service, high approval rates, lease plan flexibility, and an attractive value proposition, including competitive monthly payments and total cost of ownership, as compared to other LTO providers.
Woodhaven manufactures and supplies a significant portion of the upholstered furniture leased and sold in Company-operated and franchised Aaron's stores.
Launched in 2022, BrandsMart Leasing offers LTO purchase solutions to customers of BrandsMart U.S.A.
BrandsMart Segment
Founded in 1977, BrandsMart U.S.A. is one of the leading appliance and consumer electronics retailers in the southeast United States and one of the largest appliance retailers in the country with 12 stores in Florida and Georgia and a growing e-commerce presence on brandsmartusa.com. The operations of BrandsMart U.S.A. (other than BrandsMart Leasing) comprise the BrandsMart segment.
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company and its wholly-owned subsidiaries for the three and six months ended June 30, 2024 and comparable prior year period reflect the historical results of operations, financial position and cash flows of the Company in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). Intercompany balances and transactions between consolidated entities have been eliminated and reflect the historical results of operations, financial position and cash flows of the Company in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").
The accompanying unaudited condensed consolidated financial statements do not include all information required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 2023 Annual Report. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of operating results that may be achieved for any other interim period or for the full year.
7

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Agreement and Plan of Merger with IQVentures
On June 16, 2024, The Aaron's Company, Inc., a Georgia corporation (the "Company"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with IQVentures Holdings, LLC, an Ohio limited liability company ("Parent" or "IQVentures"), and Polo Merger Sub, Inc., a newly formed Georgia corporation and a wholly owned subsidiary of Parent ("Merger Sub"). The Merger Agreement provides for the acquisition of the Company by Parent by means of a merger of Merger Sub with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent.
At the time the Merger becomes effective (the "Effective Time"), each share of the Company's common stock, par value $0.50 per share issued and outstanding immediately prior to the Effective Time (other than dissenting shares, treasury shares and shares owned by Parent or any direct or indirect wholly owned subsidiary of Parent), will be converted automatically into the right to receive $10.10 in cash, without interest. The Company's Board of Directors has approved the Merger Agreement, but completion of the Merger is subject to certain other customary conditions, including approval by the Company's shareholders.
The Merger Agreement contains customary termination rights for the Company and Parent, including the payment of termination fees under specified circumstances. The Merger Agreement also contains customary representations, warranties and covenants of the Company, including covenants to conduct its business in the ordinary course during the interim period between the execution of the Merger Agreement and the consummation of the Merger and not to engage in certain types of transactions during this interim period without the prior written consent of Parent. The consummation of the Merger is not subject to any financing condition. Under the terms of the Merger Agreement, the Company is permitted to continue to pay its regular quarterly dividend, not in excess of $0.125 per share.
For further information on the Merger and the Merger Agreement, refer to the Company's Form 8-K filed with the SEC on June 17, 2024.
Other than transaction-related expenses associated with the proposed Merger of $7.5 million for the three and six months ended June 30, 2024, which are included within acquisition-related costs in the condensed consolidated statements of (loss) earnings, the terms of the Merger Agreement did not impact the Company's consolidated financial statements.
Accounting Policies and Estimates
See Note 1 to the consolidated financial statements in the 2023 Annual Report for an expanded discussion of accounting policies and estimates.
Acquisition-Related Costs
Prior to the three months ended June 30, 2024, acquisition-related costs had been comprised of costs associated with the acquisition of BrandsMart U.S.A in April 2022. The Company began incurring acquisition-related costs related to the planned merger with IQVentures during the three months ended June 30, 2024.
For the three and six months ended June 30, 2024, the Company incurred acquisition-related costs associated with the acquisition of BrandsMart U.S.A. of $0.5 million and $1.4 million, which were primarily comprised of consulting, legal expenses, and retention bonuses. For the three months ended June 30, 2024, the Company incurred $7.5 million in acquisition-related costs comprised primarily of advisory and legal fees related to the merger with IQVentures.
(Loss) Earnings Per Share
(Loss) earnings per share is computed by dividing net (loss) earnings by the weighted average number of shares of common stock outstanding during the period. The computation of (loss) earnings per share assuming dilution includes the dilutive effect of stock options, RSUs, RSAs, PSUs and other awards issuable under the Company's Employee Stock Purchase Program (collectively, "share-based awards") as determined under the treasury stock method, unless the inclusion of such awards would be anti-dilutive.
The following table shows the calculation of weighted-average shares outstanding assuming dilution:
Three Months Ended
June 30,		Six Months Ended
June 30,
(Shares In Thousands)2024202320242023
Weighted Average Shares Outstanding30,785 30,993 30,669 30,894 
Dilutive Effect of Share-Based Awards1
— 314 — 380 
Weighted Average Shares Outstanding Assuming Dilution30,785 31,307 30,669 31,274 
8

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 There was no dilutive effect of share-based awards for the three and six months ended June 30, 2024 due to the net loss incurred in those periods.
Approximately 1.2 million weighted-average share-based awards were excluded from the computation of earnings per share assuming dilution during the three and six months ended June 30, 2023, as the awards would have been anti-dilutive for the period.
Revenue Recognition
The Company provides lease and retail merchandise, consisting of appliances, electronics, furniture, and other home goods to its customers for lease under certain terms agreed to by the customer and through retail sales. The Company's Aaron's stores, aarons.com e-commerce platform, and BrandsMart Leasing components of the Aaron's Business segment offer lease agreements that grant customers an option to purchase the leased merchandise by either renewing the lease agreement a specified number of times, 12, 18 or 24 times, for up to 30 days each time, or by exercising an early purchase option. The Aaron's Business segment also earns revenue from the sale of merchandise to customers and Aaron's franchisees, and earns ongoing revenue from Aaron's franchisees in the form of royalties and through advertising efforts that benefit the franchisees.
The Company's BrandsMart U.S.A. stores and related brandsmartusa.com e-commerce platform offer the sale of merchandise directly to its customers via retail sales.
See Note 4 to these condensed consolidated financial statements for further information regarding the Company's revenue recognition policies and disclosures.
Advertising
The Company expenses advertising costs as incurred. Advertising production costs are initially recognized as a prepaid advertising asset and are expensed when an advertisement appears for the first time. The prepaid advertising asset was $0.2 million and $0.1 million at June 30, 2024 and December 31, 2023, respectively, and is reported within prepaid expenses and other assets on the condensed consolidated balance sheets.
Total advertising costs are classified within other operating expenses, net in the condensed consolidated statements of (loss) earnings. These advertising costs are presented net of cooperative advertising considerations received from vendors, which represents reimbursement of specific, identifiable and incremental costs incurred in selling those vendors' products, and are recorded as a reduction of advertising costs.
The following table shows total advertising costs, net of cooperative advertising consideration:
Three Months Ended
June 30,		Six Months Ended
June 30,
(In Thousands)2024202320242023
Advertising Costs, Gross$19,866 $15,269 $47,551 $35,682 
Less: Cooperative Advertising Considerations(8,101)(8,656)(17,000)(16,115)
Advertising Costs, Net
$11,765 $6,613 $30,551 $19,567 
Accounts Receivable
Accounts receivable consist of receivables due from customers on lease agreements, corporate receivables incurred during the normal course of business (primarily for vendor consideration and third-party warranty providers), and franchisee obligations.
Accounts receivable, net of allowances, consist of the following: 
(In Thousands)June 30, 2024December 31, 2023
Customers$9,800 $8,737 
Corporate17,395 23,660 
Franchisee7,855 7,385 
$35,050 $39,782 
The Company maintains an accounts receivable allowance for the Aaron's Business customer lease agreements, under which its policy is to record a provision for returns and uncollectible contractually due renewal payments based on historical payments experience, which is recognized as a reduction of lease revenues and fees within the condensed consolidated statements of (loss) earnings. Other qualitative factors are considered in estimating the allowance, such as current and forecasted business
9

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
trends. The Company writes off customer lease receivables for its Aaron's Business operations that are 60 days or more past due on pre-determined dates twice monthly. The Company writes off customer lease receivables for its BrandsMart Leasing operations that are 90 days or more past due on pre-determined dates twice monthly.
The Company also maintains an allowance for outstanding franchisee accounts receivable. The Company's policy is to estimate future losses related to certain franchisees that are deemed to have a higher risk of non-payment and record an allowance for these estimated losses. The estimated allowance on franchisee accounts receivable includes consideration of the financial position of each franchisee and qualitative consideration of potential losses associated with uncertainties impacting the franchisee's ability to satisfy their obligations. Uncertainties include inflationary and other economic pressures in the current macroeconomic environment. Accordingly, actual accounts receivable write-offs could differ from the allowance. The provision for uncollectible franchisee accounts receivable is recorded as bad debt expense in other operating expenses, net within the condensed consolidated statements of (loss) earnings.
The allowance related to corporate receivables is not significant as of June 30, 2024 and December 31, 2023.
The following table shows the components of the accounts receivable allowance:
Six Months Ended
June 30,
(In Thousands)20242023
Beginning Balance$9,029 $8,895 
Accounts Written Off, net of Recoveries(20,168)(22,108)
Accounts Receivable Provision20,342 21,111 
Ending Balance$9,203 $7,898 
The following table shows the components of the accounts receivable provision, which includes amounts recognized for bad debt expense and the provision for returns and uncollected payments:
Six Months Ended
June 30,
(In Thousands)20242023
Bad Debt (Reversal) Expense
$(117)$25 
Provision for Returns and Uncollectible Renewal Payments20,459 21,086 
Accounts Receivable Provision$20,342 $21,111 
Lease Merchandise
The Company's lease merchandise is recorded at the lower of depreciated cost, including overhead costs from our distribution centers, or net realizable value. The cost of merchandise manufactured by our Woodhaven operations is recorded at cost and includes overhead from production facilities, shipping costs and warehousing costs. The Company begins depreciating furniture and appliances at the earlier of the lease date or 24 months and one day from its purchase, while all other lease merchandise begins depreciating at the earlier of the lease date or 12 months and one day from its purchase. Lease merchandise fully depreciates over the lease agreement period when on lease, generally 12 to 24 months, and generally 36 months when not on lease. Depreciation is accelerated upon early payout.
The following is a summary of lease merchandise, net of accumulated depreciation and allowances:
(In Thousands)June 30, 2024December 31, 2023
Merchandise on Lease, net of Accumulated Depreciation and Allowances$412,016 $419,531 
Merchandise Not on Lease, net of Accumulated Depreciation and Allowances1
210,629 202,731 
Lease Merchandise, net of Accumulated Depreciation and Allowances$622,645 $622,262 
1 Includes Woodhaven's inventory, which is primarily comprised of raw materials, that has been classified within lease merchandise in the condensed consolidated balance sheets of $12.6 million and $8.7 million as of June 30, 2024 and December 31, 2023, respectively.
10

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Aaron's store-based operations' policies require weekly merchandise counts at its store-based operations, which include write-offs for unsalable, damaged, or missing merchandise inventories. Monthly cycle counting procedures are performed at both the Aaron's distribution centers and Woodhaven manufacturing facilities. Physical inventories are also taken at the manufacturing facilities annually. The Company also monitors merchandise levels and mix by division, store, and distribution center, as well as the average age of merchandise on hand. If obsolete merchandise cannot be returned to vendors, its carrying amount is adjusted to its net realizable value or written off. Generally, all merchandise not on lease is available for lease or sale. On a monthly basis, all damaged, lost or unsalable merchandise identified is written off and is included as a component of the provision for lease merchandise write-offs in the accompanying condensed consolidated statements of (loss) earnings.
The Company records a provision for write-offs using the allowance method, which is included within lease merchandise, net within the condensed consolidated balance sheets. The allowance method for lease merchandise write-offs estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting period based primarily on historical write-off experience. Other qualitative factors are considered in estimating the allowance, such as seasonality and the impacts of uncertainty surrounding inflationary and other economic pressures in the current macroeconomic environment. Therefore, actual lease merchandise write-offs could differ from the allowance. The provision for write-offs is included in provision for lease merchandise write-offs in the accompanying condensed consolidated statements of (loss) earnings. The Company writes off lease merchandise on lease agreements that are 60 days or more past due on pre-determined dates twice monthly. The Company writes off lease merchandise on lease agreements for its BrandsMart Leasing operations that are 90 days or more past due on pre-determined dates twice monthly.
The following table shows the components of the allowance for lease merchandise write-offs:
Six Months Ended
June 30,
(In Thousands)20242023
Beginning Balance$12,912 $13,894 
Merchandise Written off, net of Recoveries(41,257)(39,181)
Provision for Write-offs41,072 39,161 
Ending Balance$12,727 $13,874 
Merchandise Inventories
The Company's merchandise inventories are stated at the lower of weighted average cost or net realizable value and consist entirely of merchandise held for sale by the BrandsMart segment. In-bound freight-related costs from vendors, net of allowances and vendor rebates, are included as part of the net cost of merchandise inventories. Costs associated with storing and transporting merchandise inventories to our retail stores are expensed as incurred and included within retail cost of sales in the condensed consolidated statements of (loss) earnings.
The Company periodically evaluates aged and distressed inventory and establishes an inventory markdown which represents the excess of the carrying value over the amount the Company expects to realize from the ultimate sale of the inventory. Markdowns establish a new cost basis for the inventory and are recorded within retail cost of sales within the condensed consolidated statement of (loss) earnings. The write-offs of merchandise inventories associated with the Company's cycle and physical inventory count processes are also included within retail cost of sales in the condensed consolidated statement of (loss) earnings. The Company records an inventory reserve for the anticipated loss associated with selling inventories below cost. This reserve is based on management's current knowledge with respect to inventory levels, sales trends, and historical experience selling or disposing of aged or obsolete inventory.
The following is a summary of merchandise inventories, net of allowances:
(In Thousands)June 30, 2024December 31, 2023
Merchandise Inventories, gross$89,884 $91,093 
Reserve for Merchandise Inventories(1,367)(921)
Merchandise Inventories, net$88,517 $90,172 
11

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table shows the components of the reserve for merchandise inventories:
Six Months Ended
June 30,
(In Thousands)20242023
Beginning Balance$921 $981 
Merchandise Written off(102)— 
Provision for Write-offs548 (60)
Ending Balance
$1,367 $921 
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
(In Thousands)June 30, 2024December 31, 2023
Prepaid Expenses$14,513 $14,482 
Insurance Related Assets37,381 33,035 
Company-Owned Life Insurance16,102 15,231 
Deferred Tax Assets26,138 24,137 
Other Assets1,2
18,727 18,512 
$112,861 $105,397 
1 Amounts as of June 30, 2024 and December 31, 2023 included restricted cash of $1.6 million held as collateral for BrandsMart U.S.A.'s workers' compensation and general liability insurance policies.
2 Amounts included $1.9 million and $0.9 million as of June 30, 2024 and December 31, 2023, respectively, of certain properties classified as held for sale. Assets held for sale are recorded at the lower of their carrying value or fair value less estimated cost to sell and are classified within prepaid expenses and other assets in the consolidated balance sheets. Depreciation is suspended on assets upon classification as held for sale. The highest and best use of these assets is as real estate land parcels for development or real estate properties for use or lease, though the Company has chosen not to develop or use these properties, and plans to sell them to third parties as quickly as practicable.
Sale-Leaseback Transactions
During the six months ended June 30, 2024, the Company entered into two sale and leaseback transactions related to four Company-owned Aaron's store properties. Net proceeds from the sales were $5.4 million, all of which was received during the six months ended June 30, 2024. Such proceeds are presented within proceeds from dispositions of property, plant and equipment in the condensed consolidated statements of cash flows. The Company recognized a gain of $3.3 million associated with these transactions during the six months ended June 30, 2024, which was classified within other operating expenses, net in the condensed consolidated statements of (loss) earnings.

12

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Interest Rate Swap
In March 2023, the Company entered into a non-speculative interest rate swap agreement for an aggregate notional amount of $100.0 million with an effective date of April 28, 2023 and a termination date of March 31, 2027. The purpose of this hedge is to limit the Company's exposure of its variable interest rate debt by effectively converting it to fixed interest rate debt. Under the terms of the agreement, the Company will receive a floating interest rate based on 1-month Chicago Mercantile Exchange ("CME") Term Secured Overnight Financing Rate ("SOFR") and pay a fixed interest rate of 3.87% on the notional amount. The interest rate swap is designated as a cash flow hedge. Changes in the fair value of the interest rate swap are recorded quarterly, net of income tax, and included as a component of accumulated other comprehensive loss in the Company's condensed consolidated balance sheets.
During the three and six months ended June 30, 2024, the Company reclassified $0.4 million and $0.7 million of net gains from accumulated other comprehensive loss to interest expense compared to $0.2 million of net gains reclassified from accumulated other comprehensive loss to interest expense in the same period of the prior year. See Note 2 to these condensed consolidated financial statements for further information regarding the fair value determination of the Company's interest rate swap agreement.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
(In Thousands)June 30, 2024December 31, 2023
Accounts Payable$114,293 $134,191 
Estimated Claims Liability Costs64,527 64,082 
Accrued Salaries and Benefits39,411 39,058 
Accrued Real Estate and Sales Taxes18,814 20,146 
Other Accrued Expenses and Liabilities36,185 34,698 
$273,230 $292,175 
Estimated Claims Liability Costs
Estimated claims liability costs are accrued primarily for workers compensation and vehicle liability at the Aaron's Business segment, as well as general liability and group health insurance benefits provided to team members. These liabilities are recorded within estimated claims liability costs within accounts payable and accrued expenses in the condensed consolidated balance sheets. Estimates for these claims liabilities are made based on actual reported but unpaid claims and actuarial analysis of the projected claims run off for both reported and incurred but not reported claims. This analysis is based upon an assessment of the likely outcome or historical experience and considers a variety of factors, including the actuarial loss forecasts, company-specific development factors, general industry loss development factors and third-party claim administrator loss estimates of individual claims. The Company makes periodic prepayments to its insurance carriers to cover the projected claims run off for both reported and incurred but not reported claims, considering its retention or stop loss limits. In addition, we have prefunding balances on deposit and other insurance receivables with the insurance carriers which are recorded within prepaid expenses and other assets in our condensed consolidated balance sheets.
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. BrandsMart and BrandsMart Leasing are the only reporting units with goodwill as of June 30, 2024 and December 31, 2023. Impairment occurs when the reporting unit's carrying value exceeds its fair value. The Company's goodwill is not amortized but is subject to an impairment test at the reporting unit level annually as of October 1 and more frequently if events or circumstances indicate that an impairment may have occurred. Such events or circumstances include a sustained decline in the Company's stock price, prolonged negative industry or economic trends and significant underperformance relative to historical results, projected future operating results, or the Company failing to successfully execute on one or more elements of Company's strategic plans.
We may be required to recognize material impairments to the BrandsMart or BrandsMart Leasing goodwill balances in the future if: (i) we fail to successfully execute on one or more elements of the BrandsMart strategic plan; (ii) actual results are unfavorable to our estimates and assumptions used to calculate fair value; (iii) the BrandsMart or BrandsMart Leasing carrying values increase without an associated increase in fair value; and/or (iv) BrandsMart or BrandsMart Leasing is materially impacted by further deterioration of macroeconomic conditions, including inflation and rising interest rates.
13

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company completed its annual goodwill impairment test for BrandsMart and BrandsMart Leasing as of October 1, 2023, and concluded that no impairment had occurred. The Company determined that there were no events or circumstances that occurred during the three months ended June 30, 2024, that would more likely than not reduce the fair value of BrandsMart or BrandsMart Leasing below their carrying amounts, Goodwill allocated to the BrandsMart and BrandsMart Leasing reporting units on June 30, 2024 and December 31, 2023 was $29.2 million and $26.5 million, respectively.
Stockholders' Equity
Changes in stockholders' equity for the three and six months ended June 30, 2024 and 2023 are as follows:
 Treasury StockCommon StockAdditional
Paid-in Capital		Retained Earnings
Accumulated Other Comprehensive Loss
Total Shareholders' Equity
(In Thousands, Except Per Share)SharesAmountSharesAmount
Balance, December 31, 2023(6,295)$(147,788)36,657 $18,328 $750,751 $66,202 $(1,355)$686,138 
Cash Dividends, $0.125 per share
— — — — — (3,929)— (3,929)
Stock-Based Compensation— — — — 2,721 — — 2,721 
Issuance of Shares under Equity Plans(174)(1,250)438 219 (219)— — (1,250)
Net Loss— — — — — (14,181)— (14,181)
Unrealized Gain on Derivative Instruments, net of Tax— — — — — — 1,155 1,155 
Foreign Currency Translation Adjustment, net of tax— — — — — — (118)(118)
Balance, March 31, 2024(6,469)$(149,038)37,095 $18,547 $753,253 $48,092 $(318)$670,536 
Cash Dividends, $0.125 per share
— — — — — (3,937)— (3,937)
Stock-Based Compensation— — — — 2,679 — — 2,679 
Issuance of Shares under Equity Plans(8)(73)94 48 275 — — 250 
Net Loss— — — — — (11,903)— (11,903)
Unrealized Gain on Derivative Instruments, net of Tax— — — — — — 137 137 
Foreign Currency Translation Adjustment, net of tax— — — — — — (76)(76)
Balance, June 30, 2024(6,477)$(149,111)37,189 $18,595 $756,207 $32,252 $(257)$657,686 

14

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Treasury StockCommon StockAdditional
Paid-in Capital		Retained EarningsAccumulated Other Comprehensive Loss
Total Shareholders' Equity
(In Thousands, Except Per Share)SharesAmountSharesAmount
Balance, December 31, 2022(5,480)$(138,753)36,100 $18,050 $738,428 $79,073 $(1,396)$695,402 
Cash Dividends, $0.125 per share
— — — — — (3,966)— (3,966)
Stock-Based Compensation— — — — 2,874 — — 2,874 
Issuance of Shares Under Equity Plans(207)(2,539)496 248 (248)— — (2,539)
Net Earnings— — — — — 12,798 — 12,798 
Unrealized Loss on Derivative Instruments, net of tax— — — — — — (990)(990)
Foreign Currency Translation Adjustment— — — — — — 324 324 
Balance, March 31, 2023(5,687)$(141,292)36,596 $18,298 $741,054 $87,905 $(2,062)$703,903 
Cash Dividends, $0.125 per share
— — — — — (3,874)— (3,874)
Stock-Based Compensation— — — — 2,913 — — 2,913 
Issuance of Shares Under Equity Plans— — 24 12 48 — — 60 
Acquisition of Treasury Stock(66)(804)— — — — — (804)
Net Earnings— — — — — 6,517 6,517 
Unrealized Gain on Derivative Instruments, net of Tax— — — — — — 1,685 1,685 
Foreign Currency Translation Adjustment, net of Tax— — — — — — 180 180 
Balance, June 30, 2023(5,753)$(142,096)36,620 $18,310 $744,015 $90,548 $(197)$710,580 
Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Valuations based on unobservable inputs reflecting the Company's own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
The fair values of the Company's assets and liabilities as of June 30, 2024 and December 31, 2023 are further described in Note 2 to these condensed consolidated financial statements.
15

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component for the six months ended June 30, 2024 and June 30, 2023 are summarized below:
Six Months Ended June 30, 2024
(In Thousands)Derivative InstrumentsForeign CurrencyTotal
Balance at December 31, 2023$(442)$(913)$(1,355)
Other Comprehensive Income (Loss), net of Tax
1,292 (194)1,098 
Balance at June 30, 2024$850 $(1,107)$(257)
Six Months Ended June 30, 2023
(In Thousands)Derivative InstrumentsForeign CurrencyTotal
Balance at December 31, 2022$(17)$(1,379)$(1,396)
Other Comprehensive Income, net of Tax
695 504 1,199 
Balance at June 30, 2023$678 $(875)$(197)
Recent Accounting Pronouncements
Effective in Future Periods
In October 2023, the Financial Accounting Standards Board ("FASB") issued an accounting pronouncement (ASU 2023-06) related to disclosure or presentation requirements for various subtopics in the FASB’s Accounting Standards Codification ("Codification"). The amendments in the update are intended to align the requirements in the Codification with the U.S. Securities and Exchange Commission's ("SEC") regulations and facilitate the application of GAAP for all entities. The effective date for each amendment is the date on which the SEC removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or if the SEC has not removed the requirements by June 30, 2027, this amendment will be removed from the Codification and will not become effective for any entity. Early adoption is prohibited. We do not expect this update to have a material impact on our consolidated financial statements.
In November 2023, the FASB issued an accounting pronouncement (ASU 2023-07) related to the disclosure of incremental segment information on an annual and interim basis. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. We plan to adopt this pronouncement beginning with our fiscal year ended December 31, 2024, and we do not expect it to have a material effect on our consolidated financial statements.
In December 2023, the FASB issued an accounting pronouncement (ASU 2023-09) related to income tax disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. We plan to adopt this pronouncement for our fiscal year beginning January 1, 2025, and we do not expect it to have a material effect on our consolidated financial statements.
16

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2. FAIR VALUE MEASUREMENT
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes financial liabilities measured at fair value on a recurring basis:
(In Thousands)June 30, 2024December 31, 2023
 Level 1Level 2Level 3Level 1Level 2Level 3
Deferred Compensation Liability$— $(11,496)$— $— $(10,574)$— 
Interest Rate Swap Asset (Liability)
$— $1,181 $— $— $(468)$— 
The Company maintains The Aaron's Company, Inc. Deferred Compensation Plan, which is an unfunded, nonqualified deferred compensation plan for a select group of management, highly compensated employees and non-employee directors. The liability represents benefits accrued for plan participants and is valued at the quoted market prices of the participants' investment elections, which consist of equity and debt "mirror" funds. As such, the Company has classified the deferred compensation liability as a Level 2 liability, which is recorded in accounts payable and accrued expenses in the condensed consolidated balance sheets.
In March 2023, the Company entered into an interest rate swap agreement for an aggregate notional amount of $100.0 million which is further described in Note 1 to these condensed consolidated financial statements. The fair value of the interest rate swap agreement is derived by using widely accepted valuation techniques and reflects the contractual terms of the interest rate swap including the period to maturity and uses observable market-based inputs, including interest rate curves. The fair value associated with the interest rate swap is recorded within prepaid expenses and other assets (when the resulting fair value is an asset) or accounts payable and accrued expenses (when the resulting fair value is a liability) within the Company's condensed consolidated balance sheets.
Non-Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following table summarizes non-financial assets measured at fair value on a nonrecurring basis:
(In Thousands)June 30, 2024December 31, 2023
Level 1Level 2Level 3Level 1Level 2Level 3
Assets Held for Sale$— $1,852 $— $— $850 $— 
Assets classified as held for sale are recorded at the lower of carrying value or fair value less estimated costs to sell, and any adjustment is recorded in other operating expenses, net or restructuring expenses, net (if the asset is a part of the Company's restructuring programs as described in Note 6 to these condensed consolidated financial statements) in the condensed consolidated statements of (loss) earnings. The highest and best use of the primary components of assets held for sale are as real estate land parcels for development or real estate properties for use or lease; however, the Company has chosen not to develop or use these properties, and plans to sell the properties to third parties as quickly as practicable.
17

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. INDEBTEDNESS
The following is a summary of the Company's debt, net of unamortized debt issuance costs as applicable:
(In Thousands)June 30, 2024December 31, 2023
Revolving Facility$48,900 $25,000 
Term Loan, Due in Installments through April 20271
166,863 168,963 
Total Debt
215,763 193,963 
Less: Current Maturities12,475 6,388 
Long-Term Debt$203,288 $187,575 
1 Includes unamortized debt issuance costs of $0.5 million and $0.6 million as of June 30, 2024 and December 31, 2023. The Company has included $2.0 million and $2.2 million of debt issuance costs as of June 30, 2024 and December 31, 2023, respectively, related to the amended revolving credit facility, within prepaid expenses and other assets in the condensed consolidated balance sheets.
Revolving Credit Facility and Term Loan
On April 1, 2022 the Company entered into an unsecured credit facility (the "Credit Facility") that provided for a $175 million term loan (the "Term Loan") and a $375 million revolving credit facility (the "Revolving Facility"), which included (i) a $35 million sublimit for the issuance of letters of credit on customary terms, and (ii) a $35 million sublimit for swing line loans on customary terms. The Company pays a commitment fee on unused balances related to the revolving facility, which ranges from 0.20% to 0.30% as determined by the Company's ratio of total net debt to EBITDA (as defined in the credit agreement governing the Credit Facility).
On February 23, 2024, the Company amended its Credit Facility to, among other things: (i) decrease the Revolving Facility commitment from $375 million to $275 million, (ii) require the execution and delivery of a Security Agreement providing for the granting of a first priority lien (subject to Permitted Liens) on substantially all of the assets of the Borrowers and Guarantors (excluding real property), including, subject to customary exceptions, a pledge of the capital stock of all existing and future domestic subsidiaries and 66% of the capital stock of each first tier foreign subsidiary, and (iii) amend the existing Fixed Charge Coverage ratio to lower the required minimum threshold.
As a result of the amendment, during the six months ended June 30, 2024, the Company incurred $0.7 million in creditor and third-party fees. These fees were capitalized and included within prepaid expenses and other assets in the condensed and consolidated balance sheets, and will be amortized over the remaining life of the Revolving Facility. The Company expensed $0.6 million of unamortized debt issuance costs due to the reduction in the borrowing capacity of its Revolving Facility.
As of June 30, 2024, $167.3 million and $48.9 million remained outstanding under the Term Loan and Revolving Facility, respectively, compared to $169.5 million and $25.0 million outstanding at December 31, 2023. Amounts outstanding under the letters of credit, which reduce availability under the Revolving Facility, were $19.0 million as of June 30, 2024 and December 31, 2023, respectively. The Company expects that future additional borrowings under the Revolving Facility will be used to provide for working capital and capital expenditures, to finance future permitted acquisitions and for other general corporate purposes.
Borrowings under the Revolving Facility and the Term Loan bear interest at a rate per annum equal to, at the option of the Company, (i) the forward-looking term rate based on SOFR plus an applicable margin ranging between 1.50% and 2.25%, based on the Company's Total Net Debt to EBITDA Ratio, or (ii) the base rate (as defined in the Credit Facility) plus an applicable margin, which is 1.00% lower than the applicable margin for SOFR loans.
The loans and commitments under the Revolving Facility mature or terminate on April 1, 2027. The Term Loan amortizes in quarterly installments, commencing on December 31, 2022, in an aggregate annual amount equal to (i) 2.50% of the original principal amount of the Term Loan during the first and second years after the closing date, (ii) 5.00% of the original principal amount of the Term Loan during the third, fourth and fifth years after the closing date, with the remaining principal balance of the Term Loan to be due and payable in full on April 1, 2027.
Franchise Loan Facility
On April 1, 2022, the Company also entered into a $12.5 million unsecured franchise loan facility (the "Franchise Loan Facility"), which operates as a guarantee by the Company of certain debt obligations of certain Aaron's franchisees (the "Borrower") under a franchise loan program.
18

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the event these franchisees are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of the franchisees' debt obligations under the Franchise Loan Facility, which would be due in full within 90 days of such event of default. Borrowings under the Franchise Loan Facility bear interest at a rate per annum equal to SOFR plus an applicable margin ranging between 1.50% and 2.25%, based on the Company's Total Net Debt to EBITDA Ratio (as defined in the Franchise Loan Facility). The Franchise Loan Facility is available for a period of 364 days commencing on April 1, 2022, and permits the Borrower to request extensions for additional 364-day periods.
On February 23, 2024, the Company amended its Franchise Loan Facility to conform to the changes resulting from the amendment to its Credit Facility (described above), and to extend the maturity date from March 30, 2024 to March 29, 2025. On April 12, 2024, pursuant to the terms of the Franchise Loan Facility, the Company voluntarily reduced the commitment amount to $3.5 million. As of June 30, 2024, the Franchise Loan Facility had a total commitment amount of $3.5 million.
Financial Covenants
The Credit Facility and the Franchise Loan Facility contain customary financial covenants including (a) a maximum Total Net Debt to EBITDA Ratio of 2.75 to 1.00 and, (b) a minimum Fixed Charge Coverage Ratio of 1.30 to 1.00.
If the Company fails to comply with these covenants, the Company will be in default under these agreements, and all borrowings outstanding could become due immediately. Under the Credit Facility and Franchise Loan Facility, the Company may pay cash dividends in any year so long as, after giving pro forma effect to the dividend payment, the Company maintains compliance with its financial covenants and no event of default has occurred or would result from the payment. The Company is in compliance with all covenants under the Credit Facility at June 30, 2024.
NOTE 4. REVENUE RECOGNITION
The following table disaggregates revenue by source:
Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2024202320242023
Lease Revenues and Fees$335,658 $353,751 $681,667 $727,546 
Retail Sales139,549 148,046 276,478 298,592 
Non-Retail Sales22,062 22,800 44,704 46,735 
Franchise Royalties and Fees5,663 5,588 11,392 11,486 
Other193 187 381 374 
Total Revenues1
$503,125 $530,372 $1,014,622 $1,084,733 
1 Includes revenues from Canadian operations of $4.0 million and $8.2 million during the three and six months ended June 30, 2024, respectively, compared to $4.3 million and $8.7 million, respectively, in the same periods of the prior year.
Lease Revenues and Fees
The Company’s customer lease agreements provide for initial contractual terms up to 30 days, which is less than the majority of the remaining economic life of the leased merchandise. Additionally, the underlying lease merchandise is of such a nature that it has alternative use to other customers. Lease agreements can be renewed for additional terms of the same length. The leases do not transfer ownership by the end of the lease term. Lease agreements grant customers an option to purchase the lease merchandise by renewing their lease agreements a specified number of times, typically 12, 18, or 24 times, or by exercising an early purchase option. Our customers have not exercised such purchase options with sufficient frequency to support that their exercises are reasonably certain. The customer may choose to not renew the lease agreement and return or surrender the leased merchandise at any time without penalty. Therefore, our customer lease agreements are accounted for as operating leases within the scope of ASC 842, Leases.
Initial direct costs related to customer agreements are expensed as incurred and have been classified as other operating expenses, net in the condensed consolidated statements of (loss) earnings. The condensed consolidated statement of (loss) earnings effects of expensing the initial direct costs as incurred are not materially different from amortizing initial direct costs over the lease ownership plan.
Lease revenues related to the leasing of merchandise and Aaron's Club membership fees are recognized as revenue in the month they are earned. Payments received prior to the month earned are recorded as deferred lease revenue, and this amount is included in customer deposits and advance payments in the accompanying condensed consolidated balance sheets. Lease
19

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
payments due but not received prior to month end are recorded as accounts receivable in the accompanying condensed consolidated balance sheets. Lease revenues are recorded net of a provision for returns and uncollectible renewal payments.
The Company had $6.3 million and $12.5 million of revenue during the three and six months ended June 30, 2024, respectively, compared to $6.2 million and $12.5 million, respectively, in the same periods of the prior year, within the scope of ASC 606, Revenue from Contracts with Customers, which is included in lease revenues and fees above in the accompanying condensed consolidated statements of (loss) earnings.
Retail Sales
All retail sales revenue is within the scope of ASC 606, Revenue from Contracts with Customers, during the three and six months ended June 30, 2024 and 2023.
Aaron's Business
Revenues from the retail sale of lease merchandise to individual consumers are recognized at the point of sale and are recorded within retail sales in the accompanying condensed consolidated statements of (loss) earnings. Generally, the transfer of control occurs near or at the point of sale for retail sales. Aaron's Business retail sales are not subject to a returns policy.
BrandsMart
Revenues from the retail sale of merchandise inventories are recorded within retail sales in the accompanying condensed consolidated statements of (loss) earnings and are recognized at a point in time that the Company has satisfied its performance obligation and transferred control of the product to the respective customer. Revenues associated with retail sales transactions for which control has not transferred are deferred and are recorded within customer deposits and advance payments within the accompanying consolidated balance sheets.
Retail sales at the BrandsMart segment, both in store and online, are subject to the segment's 30-day return policy. Accordingly, an allowance, based on historical returns experience, for sales returns is recorded as a component of retail sales in the period in which the related sales are recorded as well as an asset for the returned merchandise. The return asset and allowance for sales returns as of June 30, 2024 was $1.9 million and $2.5 million, respectively, compared to $2.5 million and $3.4 million as of December 31, 2023, respectively. The return asset and allowance for sales returns was recorded within prepaid and other assets and accounts payable and accrued expenses within the accompanying consolidated balance sheets, respectively.
Additional protection plans can be purchased by BrandsMart U.S.A. customers that provides extended warranty coverage on their product purchases, with payment being due for this protection at the point of sale. A third-party underwriter assumes the risk associated with the coverage and is primarily responsible for fulfillment. The Company is an agent to the contract and records the fixed commissions within retail sales in the accompanying condensed consolidated statements of (loss) earnings on a net basis.
Non-Retail Sales
Revenues for the non-retail sale of merchandise to Aaron's franchisees are recognized when control transfers to the franchisee, which is upon delivery of the merchandise and are recorded within non-retail sales in the accompanying condensed consolidated statements of (loss) earnings. All non-retail sales revenue is within the scope of ASC 606, Revenue from Contracts with Customers, during the three and six months ended June 30, 2024 and 2023.
Franchise Royalties and Fees
We have existing agreements with our current Aaron's franchisees to govern the operations of franchised stores. Our standard agreement is for a term of ten years, with one ten-year renewal option. Franchisees are obligated to remit to us royalty payments of 6% of the weekly cash revenue payments received, which is recognized as the fees become due.
20

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company guarantees certain debt obligations of some of the franchisees and receives guarantee fees based on the outstanding debt obligations of such franchisees. Refer to Note 5 to these condensed consolidated financial statements for additional discussion of the franchise-related guarantee obligation. The Company also charges fees for advertising efforts that benefit the franchisees, which are recognized at the time the advertising takes place.
Substantially all franchise royalties and fee revenue is within the scope of ASC 606, Revenue from Contracts with Customers. Of the franchise royalties and fees, during the three and six months ended June 30, 2024, $4.4 million and $8.9 million, respectively, is related to franchise royalty income that is recognized as the fees become due, compared to $4.4 million and $9.2 million, respectively, during the same periods of the prior year. The remaining revenue is primarily related to advertising fees charged to franchisees. Franchise royalties and fees are recorded within franchise royalties and other revenues in the accompanying condensed consolidated statements of (loss) earnings.
NOTE 5. COMMITMENTS AND CONTINGENCIES
Guarantees
The Company has guaranteed certain debt obligations of some of its Aaron's franchisees under a franchise loan program (the "Franchise Loan Facility") as described in further detail in Note 3 to these condensed consolidated financial statements. The Company has recourse rights to franchisee assets securing the debt obligations, which consist primarily of lease merchandise and fixed assets. Since the inception of the franchise loan program in 1994, the Company's losses associated with the program have been insignificant. However, the Company could incur losses that could be significant in a future period due to potential adverse trends in the liquidity and/or financial performance of Aaron's franchisees resulting in an event of default or impending defaults by franchisees.
On April 1, 2022, the Company entered into a Franchise Loan Facility agreement, which has been amended twice since that date. The most recent amendment, which occurred on February 23, 2024, amended the Franchise Loan Facility to conform to the changes resulting from the amendment to its Credit Facility described in Note 3, and to extend the maturity date to March 29, 2025. On April 12, 2024, pursuant to the terms of the Franchise Loan Facility, the Company voluntarily reduced the commitment amount to $3.5 million. As of June 30, 2024, the Franchise Loan Facility had a total commitment amount of $3.5 million, and the maximum amount that the Company would be obligated to repay in the event franchisees defaulted was $2.1 million.
The Company is subject to financial covenants under the Franchise Loan Facility as detailed in Note 3 to these condensed consolidated financial statements. At June 30, 2024, the Company was in compliance with all covenants under the Franchise Loan Facility agreement.
The Company records a liability related to estimated future losses from repaying the franchisees' outstanding debt obligations upon any possible future events of default. This liability is included in accounts payable and accrued expenses in the condensed consolidated balance sheets and was $0.2 million and $1.0 million at June 30, 2024 and December 31, 2023, respectively. The balances at June 30, 2024 and December 31, 2023 included qualitative consideration of potential losses associated with uncertainties impacting the operations and liquidity of our franchisees. Such uncertainties include inflationary and other economic pressures in the current macroeconomic environment.
Legal Proceedings
From time to time, the Company is party to various legal and regulatory proceedings arising in the ordinary course of business, certain of which have been described below. The Company establishes an accrued liability for legal and regulatory proceedings when it determines that a loss is both probable and the amount of the loss can be reasonably estimated. The Company continually monitors its litigation and regulatory exposure and reviews the adequacy of its legal and regulatory reserves on a quarterly basis. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters due to the inherent uncertainty in litigation, regulatory and similar adversarial proceedings, and substantial losses from these proceedings or the costs of defending them could have a material adverse impact upon the Company's business, financial position, and results of operations.
At June 30, 2024 and December 31, 2023, the Company had accrued $1.0 million and $0.7 million, respectively, for pending legal and regulatory matters for which it believes losses are probable and is management's best estimate of its exposure to loss. The Company records these liabilities in accounts payable and accrued expenses in the condensed consolidated balance sheets.


21

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In Jacob Atkinson v. Aaron’s, LLC dba Aaron’s Sales & Lease Ownership, LLC et al., Civil Action NO. 23-2-19649-0 (King Cnty. Sup Ct.), filed on October 11, 2023, plaintiff alleges that the Company violated Washington’s Equal Pay and Opportunity Act, RCW 49.58.110, because certain of the Company’s job postings did not include a wage scale or salary range. Because the statute is new, issues including standing, applicability as to who it covers, and the constitutionality of the statutory penalty have not been determined. Plaintiff seeks injunctive and declaratory relief and also seeks certification of a putative class. On November 14, 2023, the Company removed the lawsuit to federal court in the United States District Court for the Western District of Washington. On January 22, 2024, the Company filed a motion to dismiss the lawsuit. On April 30, 2024, the Company's motion to dismiss was granted by the district court without prejudice and with leave to amend. On May 8, 2024, and on June 26, 2024, the district court granted in part motions for partial reconsideration filed by plaintiff and the Company, respectively. As a result, the district court remanded the proceeding to the King County Superior Court in Washington state and also struck part of the initial order granting the Company's motion to dismiss. The Company has not yet answered or otherwise responded to the complaint.
The assessment as to whether a loss is probable or reasonably possible, and as to whether such loss or a range of such losses is estimable, often involves significant judgment about future events, and the outcome of litigation is inherently uncertain. The Company's estimates for legal and regulatory accruals, aggregate probable loss amounts and reasonably possible loss amounts, are all subject to the uncertainties and variables described above. Other than as described above, there is no material pending or threatened litigation against the Company that remains outstanding as of June 30, 2024.
Other Contingencies
Management regularly assesses the Company's insurance deductibles, monitors litigation and regulatory exposure with the Company's attorneys, and evaluates its loss experience. The Company also enters into various contracts in the normal course of business that may subject it to risk of financial loss if counterparties fail to perform their contractual obligations.
NOTE 6. RESTRUCTURING
As management continues to execute on its long-term strategic plan, additional benefits and charges are expected to result from our restructuring programs. The extent of any future charges related to our restructuring programs are not currently estimable and depend on various factors including the timing and scope of future cost optimization initiatives.
Operational Efficiency and Optimization Restructuring Program
During the third quarter of 2022, the Company initiated the Operational Efficiency and Optimization Restructuring Program intended to strengthen operational efficiencies and reduce the Company's overall costs. Management believes that this restructuring program will help the Company sharpen its operational focus, optimize its cost profile, allocate capital resources towards long-term strategic objectives, and generate incremental value for shareholders through investments in technological capabilities, and fulfillment center logistics competencies. Since initiation, the program resulted in the closure or consolidation of 65 Company-operated Aaron's stores through June 30, 2024. This program also includes the Hub and Showroom model to optimize labor and other operating expenses in markets, store labor realignments, rationalization of the Company's supply chain, the centralization and restructuring of store support center, operations, and multi-unit store oversight functions, as well as other real estate and third party spend costs reductions.
Total net restructuring expenses under the Operational Efficiency and Optimization Restructuring Program related to the initiatives described above were $2.0 million and $7.3 million during the three and six months ended June 30, 2024, respectively, compared to $1.6 million and $4.4 million, respectively, in the same periods of the prior year, and were recorded within the Unallocated Corporate category for segment reporting. For both periods ended June 30, 2024, these expenses were comprised mainly of severance charges resulting from headcount reductions at its store support center to more closely align with current business conditions, continuing variable occupancy costs incurred related to closed stores, operating lease right-of-use asset and fixed asset impairment charges and net losses on the sale of store properties and related assets. For the prior year periods, these expenses were comprised mainly of professional advisory fees in the three months ended June 30, 2023 and severance charges in the three months ended March 31, 2023 relating to the Company's January 2023 headcount reduction. We also incurred continuing variable occupancy costs related to closed stores, operating lease right-of-use asset impairment charges and fixed asset impairment charges throughout the six months ended June 30, 2023. We expect future restructuring expenses (reversals) due to potential future early buyouts of leases with landlords, as well as continuing variable occupancy costs related to closed stores.
Since inception of the Operational Efficiency and Optimization Restructuring Program, the Company has incurred charges of $25.4 million under the plan. These cumulative charges are primarily comprised of operating lease right-of-use asset and fixed
22

THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
impairment charges, continuing variable occupancy costs incurred related to closed stores, professional advisory fees, and severance related to reductions in its store support center and Aaron's Business store oversight functions.
Real Estate Repositioning and Optimization Restructuring Program
During the first quarter of 2020, the Company initiated a real estate repositioning and optimization restructuring program. This program includes a strategic plan to remodel, reposition, and consolidate our Company-operated Aaron's store footprint over the next two to three years. We believe that such strategic actions will allow Aaron's to continue to successfully serve our markets while continuing to utilize our growing aarons.com platform. Management expects that this strategy, along with our increased use of technology, will enable us to reduce store count while retaining a significant portion of our existing customer relationships as well as attract new customers. Since initiation, the program has resulted in the closure, consolidation, or relocation of 262 Company-operated stores through June 30, 2024. This program also resulted in the closure of one administrative store support building, a further rationalization of our store support center staff, which included a reduction in employee headcount in those areas to more closely align with current business conditions.
Total net restructuring expenses under the real estate repositioning and optimization restructuring program were $0.9 million and $3.5 million during the three and six months ended June 30, 2024, compared to $3.3 million and $5.7 million, respectively, in the same periods of the prior year, and are recorded within the Unallocated Corporate category for segment reporting. For both periods ended June 30, 2024, these expenses were comprised mainly of continuing variable occupancy costs incurred related to closed stores, with the six month period ended June 30, 2024 also including a $1.2 million net loss on the sale of store properties and related assets.
Since inception of the real estate repositioning and optimization program, the Company has incurred charges of $74.3 million under the program. These cumulative charges are primarily comprised of operating lease right-of-use asset and fixed impairment charges, losses recognized related to contractual lease obligations, and severance related to reductions in store support center and field support staff headcount. We expect future restructuring expenses (reversals) due to potential future early buyouts of leases with landlords, as well as continuing variable occupancy costs related to closed stores.
The following table summarizes total restructuring charges for the three and six months ended June 30, 2024 and 2023, respectively, under the Company's two restructuring programs described above:
Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2024202320242023
Right-of-Use Asset Impairment
$306 $861 $1,979 $1,635 
Operating Lease Charges
1,278 2,712 3,059 4,620 
Fixed Asset Impairment172 58 546 180 
Severance1
197 (372)2,737 1,830 
Net Loss (Gain) on Sale of Store Properties and Related Assets415 — 1,529 — 
Other Expenses2
560 1,576 976 1,859 
Total Restructuring Expenses, Net
$2,928 $4,835 $10,826 $10,124 
1 During the three months ended June 30, 2023, the Company had a partial reversal of severance charges that were originally estimated in connection with the Company's January 2023 headcount reduction.
2 Includes professional advisory fees.
The following table summarizes the corresponding accrual balances as of June 30, 2024 and December 31, 2023 for the restructuring programs:
(In Thousands)Severance
Operating Lease Charges1
Professional Advisory Fees
Balance at December 31, 2023
$171 $849 $4 
Restructuring Charges2,737 (212)598 
Payments(2,908)— (498)
Balance at June 30, 2024
$— $637 $104 
1 Operating lease charges payable at June 30, 2024 relate to accrued maintenance charges at various properties vacated in conjunction with the restructuring programs discussed herein. These liabilities are included within accounts payable and
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THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
accrued expenses in the consolidated balance sheets. All other operating lease charges incurred during the six months ended June 30, 2024 were expensed as incurred and are not reflected in this table as they do not impact the restructuring accrual.
NOTE 7. SEGMENTS
Segment Reporting
The Aaron's Business segment provides consumers with LTO and retail purchase solutions through the Company's Aaron's stores, along with its franchisees, in the United States and Canada and the aarons.com e-commerce platform. In addition, the Aaron's Business segment includes the operations of BrandsMart Leasing, which offers a lease-to-own solution to customers of BrandsMart U.S.A., and Woodhaven, which manufactures and supplies a significant portion of the upholstered furniture leased and sold in Company-operated and franchised Aaron's stores.
The BrandsMart segment includes the operations of BrandsMart U.S.A. (other than BrandsMart Leasing), which is one of the leading appliance and consumer electronics retailers in the southeastern United States and one of the largest appliance retailers in the country with 12 stores in Florida and Georgia and a growing e-commerce presence on brandsmartusa.com.
Measurement of Segment Profit or Loss and Segment Assets
The Company evaluates segment performance based primarily on revenues and earnings (loss) from operations before unallocated corporate costs, which are evaluated on a consolidated basis and not allocated to the Company's business segments. Intersegment sales between BrandsMart and the Aaron's Business pertaining to BrandsMart Leasing, are recognized at retail prices. Since the intersegment profit affects cost of goods sold, depreciation and lease merchandise valuation, they are adjusted when intersegment profit is eliminated in consolidation. The Company determines earnings (loss) before income taxes for all reportable segments in accordance with U.S. GAAP.
Unallocated Corporate costs are presented separately and generally include unallocated costs associated with the following: equity-based compensation, interest income and expense, information security, executive compensation, legal and compliance, corporate governance, accounting and finance, human resources and other corporate functions. The Unallocated Corporate category also includes acquisition-related costs, restructuring charges and separation costs for which the individual operating segments are not being evaluated.
The Company does not evaluate performance or allocate resources based on segment asset data, and therefore total segment assets are not presented.
Three Months Ended June 30, 2024
(In Thousands)Aaron's BusinessBrandsMartElimination of Intersegment RevenuesTotal
Lease Revenues and Fees$335,658 $— $— $335,658 
Retail Sales5,804 135,420 (1,675)139,549 
Non-Retail Sales22,062 — — 22,062 
Franchise Royalties and Fees5,663 — — 5,663 
Other193 — — 193 
Total Revenues$369,380 $135,420 $(1,675)$503,125 

Three Months Ended June 30, 2024
(In Thousands)Aaron's BusinessBrandsMart
Unallocated Corporate1
EliminationTotal
Gross Profit$238,252 $33,964 $— $(198)$272,018 
Earnings (Loss) Before Income Taxes
17,275 (4,024)(29,396)(105)(16,250)
Other Depreciation and Amortization2
19,053 3,744 202 — 22,999 
Capital Expenditures14,684 4,095 555 — 19,334 
1 The loss before income taxes for the Unallocated Corporate category during the three months ended June 30, 2024 was impacted by restructuring charges of $2.9 million, and acquisition-related costs of $8.0 million.
2 Excludes depreciation of lease merchandise, which is not included in the chief operating decision maker's measure of depreciation and amortization.
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THE AARON’S COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Three Months Ended June 30, 2023
(In Thousands)Aaron's BusinessBrandsMartElimination of Intersegment RevenuesTotal
Lease Revenues and Fees$353,751 $— $— $353,751 
Retail Sales6,615 143,776 (2,345)148,046 
Non-Retail Sales22,800 — — 22,800 
Franchise Royalties and Fees5,588 — — 5,588 
Other187 — — 187 
Total Revenues$388,941 $143,776 $(2,345)$530,372 

Three Months Ended June 30, 2023
(In Thousands)Aaron's BusinessBrandsMart
Unallocated Corporate1
EliminationTotal
Gross Profit$246,839 $35,569 $— $(136)$282,272 
Earnings (Loss) Before Income Taxes
30,840 1,083 (23,833)(