| Business and Summary of Significant Accounting Policies | BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Spin-off Transaction On October 16, 2020, management of Aaron’s, Inc. finalized the formation of a new holding company structure in anticipation of the separation and distribution transaction described below. Under the holding company structure, Aaron’s, Inc. became a direct, wholly owned subsidiary of a newly formed company, Aaron’s Holdings Company, Inc. Aaron's, Inc. thereafter was converted to a limited liability company ("Aaron’s, LLC"). Upon completion of the holding company formation, Aaron’s Holdings Company, Inc. became the publicly traded parent company of the Progressive Leasing, Aaron’s Business, and Vive segments. On November 30, 2020 (the "separation and distribution date"), Aaron's Holdings Company, Inc. completed the previously announced separation of the Aaron's Business segment from its Progressive Leasing and Vive segments and changed its name to PROG Holdings, Inc. (referred to herein as "PROG Holdings"). The separation of the Aaron's Business segment was effected through a distribution (the "separation", the "separation and distribution", or the "spin-off transaction") of all outstanding shares of common stock of a newly formed company called The Aaron's Company, Inc. ("Aaron's", "The Aaron's Company" or the "Company"), a Georgia corporation, to the PROG Holdings shareholders of record as of November 27, 2020. Upon the separation and distribution, Aaron's, LLC became a wholly-owned subsidiary of The Aaron's Company. Shareholders of PROG Holdings received one share of The Aaron's Company for every two shares of PROG Holdings' common stock. Upon completion of the separation and distribution transaction, The Aaron's Company, Inc. became an independent, publicly traded company under the ticker "AAN" on the New York Stock Exchange ("NYSE"). Unless the context otherwise requires or we specifically indicate otherwise, references to "we," "us," "our," "our Company," and "the Company" refer to The Aaron's Company, Inc., which holds, directly or indirectly, the assets and liabilities historically associated with the historical Aaron’s Business segment (the "Aaron’s Business") prior to the separation and distribution date. References to "the Company", "Aaron's, Inc.", or "Aaron's Holdings Company, Inc." for periods prior to the separation and distribution date refer to transactions, events, and obligations of Aaron's, Inc. which took place prior to the separation and distribution. Historical amounts herein include revenues and costs directly attributable to The Aaron's Company, Inc. and an allocation of expenses related to certain PROG Holdings' corporate functions prior to the separation and distribution date. We describe in these footnotes the business held by us after the separation as if it were a standalone business for all historical periods described. However, we were not a standalone separate entity with independently conducted operations before the separation. See Note 12 to these consolidated and combined financial statements for additional information regarding the modification of stock-based awards resulting from the separation and distribution. Business Overview Description of Business Aaron's is a leading, technology-enabled, omni-channel provider of lease-to-own ("LTO") and purchase solutions generally focused on serving the large, credit-challenged segment of the population. Through our portfolio of approximately 1,300 stores and our Aarons.com e-commerce platform, we provide consumers with LTO and purchase solutions for the products they need and want, including furniture, appliances, electronics, computers and a variety of other products and accessories. In addition, the Company includes the operations of Woodhaven Furniture Industries ("Woodhaven"), which manufactures and supplies the majority of the bedding and a significant portion of the upholstered furniture leased and sold in company-operated and franchised stores. The following table presents store count by ownership type: Stores at December 31 (Unaudited) 2020 2019 2018 Company-operated Stores 1,092 1,167 1,312 Franchised Stores 248 335 377 Systemwide Stores 1,340 1,502 1,689 Basis of Presentation The financial statements for periods prior to and through the date of the separation and distribution, November 30, 2020, were prepared on a combined standalone basis and were derived from the consolidated financial statements and accounting records of PROG Holdings. The financial statements for the period from December 1, 2020 through December 31, 2020 are consolidated financial statements of the Company and its subsidiaries, each of which is wholly-owned, and is based on the financial position and results of operations of the Company as a standalone company. Intercompany balances and transactions between consolidated entities have been eliminated. These consolidated and combined financial statements reflect the historical results of operations, financial position and cash flows of the Company in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The historical results of operations, financial position and cash flows of the Company presented in these consolidated and combined financial statements may not be indicative of what they would have been had the Company been an independent standalone entity, nor are they necessarily indicative of the Company's future results of operations, financial position and cash flows. The combined financial statements prepared prior to and through November 30, 2020 include all revenues and costs directly attributable to the Company and an allocation of expenses related to certain corporate functions. These costs include executive management, finance, treasury, tax, audit, legal, information technology, human resources and risk management functions and the related benefit cost associated with such functions, including stock-based compensation. These expenses have been allocated to the Company based on direct usage or benefit where specifically identifiable, with the remaining expenses allocated primarily on a pro rata basis using an applicable measure of revenues, headcount or other relevant measures. The Company considers these allocations to be a reasonable reflection of the utilization of services or the benefit received. See Note 14 to these consolidated and combined financial statements for further information regarding the Company’s related party transactions between the Company and PROG Holdings impacting the consolidated and combined financial statements herein. The preparation of the Company's consolidated and combined financial statements requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Generally, actual experience has been consistent with management's prior estimates and assumptions. However, as described above, the extent to which the COVID-19 pandemic and resulting measures taken by the Company will impact the Company's business will depend on future developments, which are highly uncertain and cannot be precisely predicted at this time. In many cases, management's estimates and assumptions are highly dependent on estimates of future developments and may change significantly in the future due to unforeseen direct and indirect impacts of the COVID-19 pandemic. Significant Accounting Policies Revenue Recognition The Company provides lease merchandise, consisting of furniture, appliances, electronics, computers and a variety of other products and accessories to its customers for lease under certain terms agreed to by the customer. Our stores and e-commerce platform offer leases with flexible terms that can be renewed monthly up to 12, 18 or 24 months. The customer has the right to acquire ownership either through an early purchase option or through payment of all required lease payments. Our store-based operations also offer customers the option to obtain a membership in the Aaron’s Club Program (the "Club Program"). The benefits to customers of the Club Program are separated into three general categories: (a) product protection benefits; (b) health & wellness discounts; and (c) dining, shopping and consumer savings. Lease agreements and Aaron's Club Program memberships are cancelable at any time by either party without penalty, and as such, we consider these offerings to be to be month-to-month arrangements. The Company also earns revenue from the sale of merchandise to customers and its franchisees, and earns ongoing revenue from its franchisees in the form of royalties and through advertising efforts that benefit the franchisees. See Note 6 to these consolidated and combined financial statements for further information regarding the Company's revenue recognition policies and disclosures. Lease Merchandise The Company’s lease merchandise is recorded at the lower of depreciated cost or net realizable value. The cost of merchandise manufactured by our Woodhaven operations is recorded at cost and includes overhead from production facilities, shipping costs and warehousing costs. The Company begins depreciating merchandise at the earlier of 12 months and one day from its purchase of the merchandise or when the item is leased to customers. Lease merchandise depreciates to a 0% salvage value over the lease agreement period when on lease, generally 12 to 24 months, and generally 36 months when not on lease. Depreciation is accelerated upon early payout. The following is a summary of lease merchandise, net of accumulated depreciation and allowances: December 31, (In Thousands) 2020 2019 Merchandise on Lease, net of Accumulated Depreciation and Allowances $ 473,964 $ 504,979 Merchandise Not on Lease, net of Accumulated Depreciation and Allowances 1 223,271 276,619 Lease Merchandise, net of Accumulated Depreciation and Allowances 2 $ 697,235 $ 781,598 1 Includes Woodhaven raw materials and work-in-process inventory that has been classified within lease merchandise in the consolidated and combined balance sheets of $10.4 million and $14.0 million as of December 31, 2020 and 2019, respectively. 2 General and administrative overhead costs capitalized into the cost of lease merchandise were $43.5 million, $48.7 million, and $45.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. Capitalized overhead costs remaining in lease merchandise were $45.2 million and $47.5 million as of December 31, 2020 and 2019, respectively. The Company’s policies require weekly merchandise counts for its store-based operations, which include write-offs for unsalable, damaged, or missing merchandise inventories. In addition to monthly cycle counting, full physical inventories are generally taken at the fulfillment and manufacturing facilities annually and appropriate provisions are made for missing, damaged and unsalable merchandise. In addition, the Company monitors merchandise levels and mix by division, store, and fulfillment center, as well as the average age of merchandise on hand. If obsolete merchandise cannot be returned to vendors, its carrying amount is adjusted to its net realizable value or written off. Generally, all merchandise not on lease is available for lease or sale. On a monthly basis, all damaged, lost or unsalable merchandise identified is written off. The Company records a provision for write-offs using the allowance method. The allowance 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 current and forecasted business trends including, but not limited to, the potential unfavorable impacts of the COVID-19 pandemic on our business. Given the significant uncertainty regarding the impacts of the COVID-19 pandemic on our businesses, a high level of estimation was involved in determining the allowance as of December 31, 2020; therefore, actual lease merchandise write-offs could differ materially from the allowance. The provision for write-offs is included in provision for lease merchandise write-offs in the accompanying consolidated and combined statements of earnings. The Company writes off lease merchandise on lease agreements that are 60 days or more past due on pre-determined dates twice monthly. The following table shows the components of the allowance for lease merchandise write-offs, which is included within lease merchandise, net within the consolidated and combined balance sheets: Year Ended December 31, (In Thousands) 2020 2019 2018 Beginning Balance $ 13,823 $ 10,910 $ 8,987 Merchandise Written off, net of Recoveries (65,869) (94,990) (67,047) Provision for Write-offs 63,645 97,903 68,970 Ending Balance $ 11,599 $ 13,823 $ 10,910 Retail and Non-Retail Cost of Sales Included in cost of lease and retail revenues, as well as non-retail cost of sales, is the net book value of merchandise sold via retail and non-retail sales, primarily using specific identification. Shipping and Handling Costs Shipping and handling costs of $64.2 million, $74.3 million and $75.2 million were incurred for the years ended December 31, 2020, 2019 and 2018, respectively. These costs are primarily classified within other operating expenses, net in the accompanying consolidated and combined statements of earnings, and to a lesser extent, capitalized into the cost of lease merchandise and subsequently depreciated or recognized as cost of retail sales. 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. Total advertising costs were $40.2 million, $37.1 million and $33.3 million for the years ended December 31, 2020, 2019 and 2018, respectively, and are classified within other operating expenses, net in the consolidated and combined statements of earnings. These advertising costs are shown net of cooperative advertising considerations received from vendors, which represents reimbursement of specific, identifiable and incremental costs incurred in selling those vendors’ products. The amount of cooperative advertising consideration recorded as a reduction of such advertising costs was $21.8 million, $27.7 million and $28.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. The prepaid advertising asset was $4.3 million and $0.3 million at December 31, 2020 and 2019, respectively, and is reported within prepaid expenses and other assets on the consolidated and combined balance sheets. Stock-Based Compensation Stock-based compensation expense in prior years and until the effective date of the separation and distribution on November 30, 2020 was allocated to The Aaron's Company based on the awards and terms previously granted to its employees under the PROG Holdings stock-based compensation plans and includes an allocation of PROG Holdings' corporate employee stock-based compensation expenses. The Aaron's Company has stock-based employee compensation plans adopted in connection with the separation and distribution in which certain Company employees are participants, which are more fully described in Note 12 to these consolidated and combined financial statements. For stock awards granted under such plans, management estimates the fair value for the options granted on the grant date using a Black-Scholes-Merton option-pricing model. The fair value of each share of restricted stock units ("RSUs"), restricted stock awards ("RSAs"), and performance share units ("PSUs") awarded is equal to the market value of a share of the Company's common stock on the grant date. Management estimates the fair value of awards issued under the Company's employee stock purchase plan ("ESPP") using a series of Black-Scholes-Merton pricing models that consider the components of the "lookback" feature of the plan, including the underlying stock, call option, and put option. The design of awards issued under the Company's ESPP is more fully described in Note 12 to these consolidated and combined financial statements. Retirement-Related Equity Modifications In connection with the completion of the separation and distribution on November 30, 2020, PROG Holdings and the Company entered into a Transition Agreement (the "Transition Agreement") with the Chief Executive Officer of Aaron's Holdings Company, Inc. (the "CEO"), pursuant to which the CEO would retire and transition to become the non-employee Chairman of the Board of Directors of the Company effective November 30, 2020. The Transition Agreement provided that all unvested stock options, restricted stock awards and performance share units granted to the CEO in prior periods become 100% vested as promptly as practicable following the completion of the separation and distribution. The Company concluded that the terms of this Transition Agreement resulted in award modifications under ASC 718, Compensation - Stock Compensation ( "ASC 718"), as both the fair value and vesting conditions of the awards were considered modified. The modifications resulted in incremental compensation expense allocated to the Company of $11.0 million, which was recognized as a component of retirement charges in the consolidated and combined statements of earnings for the year ended December 31, 2020. See Note 12 to these consolidated and combined financial statements for additional information regarding these modifications. Separation Costs Separation costs include allocated expenses prior to November 30, 2020 and actual expenses after November 30, 2020 associated with the separation and distribution, including personnel-related costs and incremental stock-based compensation expense associated with the conversion and modification of unvested and unexercised equity awards related to Company employees, as well as an allocation of similar expenses related to PROG Holdings' corporate and shared function employees. See Note 12 to these consolidated and combined financial statements for additional information regarding the modification of awards that were converted concurrent with the separation and distribution. Separation costs also include one-time expenses incurred by the Company in order to operate as an independent, standalone public entity after completion of the separation and distribution. Income Taxes The Company and its subsidiaries file U.S. federal consolidated income tax returns in the United States, and separate legal entities file in various state and foreign jurisdictions. In all periods presented, the income tax provision has been computed for the entities comprising the Company on a standalone, separate return basis as if the Company were a separate taxpayer. The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Income taxes as presented attribute deferred income taxes of the Company's standalone consolidated and combined financial statements in a manner that is systematic, rational and consistent with the asset and liability method. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when such changes are enacted. The Company's largest temporary differences arise principally from the use of accelerated depreciation methods on lease merchandise for tax purposes. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company recognizes uncertain tax positions in the consolidated and combined financial statements when it is more likely than not that the tax position will be sustained upon examination. Uncertain tax positions are measured based on the probabilities that the uncertain tax position will be realized upon final settlement. See further details on income taxes within Note 9 to these consolidated and combined financial statements. (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 awards issuable under the Company's ESPP (collectively, "share-based awards") as determined under the treasury stock method, unless the inclusion of such awards would be anti-dilutive. The Company's basic earnings per share calculations for the periods prior to the separation and distribution assumes that the weighted average number of common shares outstanding was 33,841,624, which is the number of shares distributed to shareholders on the separation and distribution date, November 30, 2020. The same number of shares was used in the calculation of diluted earnings per share for the periods prior to the separation and distribution, as there were no equity awards of The Aaron's Company, Inc. outstanding prior to the distribution date. The following table shows the calculation of weighted-average shares outstanding assuming dilution: Year Ended December 31, (Shares In Thousands) 2020 2019 2018 Weighted Average Shares Outstanding 33,877 33,842 33,842 Dilutive Effect of Share-Based Awards 1 — — — Weighted Average Shares Outstanding Assuming Dilution 33,877 33,842 33,842 1 There was no dilutive effect to the (loss) earnings per common share for the year ended December 31, 2020 due to the net loss incurred in the year-to-date period. Cash and Cash Equivalents The Company classifies as cash equivalents any highly liquid investments that have maturity dates of three months or less at the time they are purchased. The Company maintains its cash and cash equivalents at various banks. Bank balances may exceed coverage provided by the Federal Deposit Insurance Corporation ("FDIC"). However, due to the size and strength of the banks in which balances that exceed the FDIC coverage are held, any exposure to loss is believed to be minimal. Cash and cash equivalents also includes amounts in transit due from financial institutions related to credit card and debit card transactions, which generally settle within three business days from the original transaction. Investments At December 31, 2017, the Company maintained an investment classified as held-to-maturity securities in PerfectHome, a rent-to-own company operating in the United Kingdom, of £15.1 million ($20.4 million). During the second quarter of 2018, PerfectHome's liquidity deteriorated significantly due to continuing operating losses and the senior lender's decision to no longer provide additional funding under a secured revolving debt agreement resulting from PerfectHome's default of certain covenants. In July 2018, PerfectHome entered into the United Kingdom’s insolvency process and was subsequently acquired by the senior lender. The Company recorded a full impairment of the PerfectHome investment of $20.1 million during the second quarter of 2018 which is classified as an impairment of investment in the consolidated and combined statements of earnings. The Company has not received any repayments since the impairment charge and does not believe it will receive any further payments on its subordinated secured notes. Accounts Receivable Accounts receivable consist primarily of receivables due from customers on lease agreements, corporate receivables incurred during the normal course of business (primarily for vendor consideration and real estate leasing activities) and franchisee obligations. Accounts receivable, net of allowances, consist of the following: December 31, (In Thousands) 2020 2019 Customers $ 8,399 $ 9,820 Corporate 12,771 14,028 Franchisee 12,820 13,231 $ 33,990 $ 37,079 The Company maintains an accounts receivable allowance, under which the Company's policy is to record a provision for returns and uncollectible contractually due renewal payments based on historical collection experience, which is recognized as a reduction of lease and retail revenues within the consolidated and combined statements of earnings. Other qualitative factors are considered in estimating the allowance, such as current and forecasted business trends including, but not limited to, the potential unfavorable impacts of the COVID-19 pandemic on our business. The Company writes off lease receivables that are 60 days or more past due on pre-determined dates twice monthly. The Company also maintains an allowance for outstanding franchisee accounts receivable. The Company's policy is to estimate a specific allowance on accounts receivable to estimate future losses related to certain franchisees that are deemed higher risk of non-payment and a general allowance based on historical losses as well as the Company's assessment of the financial health of all other franchisees. The estimated allowance on accounts receivable includes consideration of broad macroeconomic trends, such as the potential unfavorable impacts of the COVID-19 pandemic on the franchisees' ability to satisfy their obligations. The provision for uncollectible franchisee accounts receivable is recorded as bad debt expense in other operating expenses, net within the consolidated and combined statements of earnings. Given the significant uncertainty regarding the impacts of the COVID-19 pandemic on our business, actual accounts receivable write-offs could differ materially from the allowance. The following table shows the components of the accounts receivable allowance: Year Ended December 31, (In Thousands) 2020 2019 2018 Beginning Balance $ 10,720 $ 9,546 $ 6,992 Accounts Written Off, net of Recoveries (33,860) (45,547) (37,574) Accounts Receivable Provision 30,753 46,721 40,128 Ending Balance $ 7,613 $ 10,720 $ 9,546 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 one Costs incurred to develop software for internal use are capitalized and amortized over the estimated useful life of the software, which ranges from five ten Gains and losses related to dispositions and retirements are recognized as incurred. Maintenance and repairs are also expensed as incurred, and leasehold improvements are capitalized and amortized over the lesser of the expected lease term or the asset's useful life. Depreciation expense for property, plant and equipment is classified within other operating expenses, net in the accompanying consolidated and combined statements of earnings and was $60.9 million, $60.3 million and $53.9 million during the years ended December 31, 2020, 2019 and 2018, respectively. Amortization of previously capitalized internal use software development costs, which is a component of depreciation expense for property, plant and equipment, was $17.4 million, $15.7 million and $13.5 million during the years ended December 31, 2020, 2019 and 2018, respectively. Management assesses its long-lived assets other than goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. If it is determined that the carrying amount of an asset is not recoverable, management compares the carrying amount of the asset to its fair value as estimated using discounted expected future cash flows, market values or replacement values for similar assets. The amount by which the carrying amount exceeds the fair value of the asset, if any, is recognized as an impairment loss. Prepaid Expenses and Other Assets Prepaid expenses and other assets consist of the following: December 31, (In Thousands) 2020 2019 Prepaid Expenses $ 25,882 $ 28,975 Insurance Related Assets 27,960 26,393 Company-Owned Life Insurance 16,223 14,576 Assets Held for Sale 8,956 10,131 Deferred Tax Assets 7,014 3,439 Other Assets 3,860 8,867 $ 89,895 $ 92,381 Assets Held for Sale Certain properties, consisting of parcels of land and commercial buildings, met the held for sale classification criteria as of December 31, 2020 and 2019. 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 and combined balance sheets. Depreciation is suspended on assets upon classification as held for sale. The carrying amount of the properties held for sale as of December 31, 2020 and 2019 was $9.0 million and $10.1 million, respectively. Management estimated the fair values of real estate properties using the market values for similar properties. These properties are considered Level 2 assets as defined below. Charges of $0.2 million and $1.2 million were recorded within restructuring expenses, net during the year ended December 31, 2020 and 2019, respectively, with insignificant charges recorded during 2018. These charges related to the impairment of store properties that the Company decided to close under its restructuring programs as described in Note 11. Impairment charges were also recorded on assets held for sale that were not part of a restructuring program of $0.2 million during the year ended December 31, 2018 and are included in other operating expenses, net within the consolidated and combined statements of earnings with insignificant charges recorded during 2020 and 2019. These charges related to the impairment of various parcels of land and buildings that were not part of a restructuring program and that the Company decided not to utilize for future expansion. Net gains of $1.7 million were recognized during the year ended December 31, 2019 related to the sales of four former company-operated store properties for a total selling price of $2.6 million. The sales proceeds were recorded in proceeds from sales of property, plant and equipment in the consolidated and combined statements of cash flows and the net gains were recorded as a reduction to other operating expenses, net in the consolidated and combined statements of earnings. Other than those mentioned above, gains and losses related to the disposal of assets held for sale were not significant for the years ended December 31, 2020, 2019, and 2018, respectively. Goodwill The Company’s goodwill is not amortized but is subject to an impairment test at the reporting unit level annually as of October 1 and more frequently if events or circumstances indicate that an impairment may have occurred. An interim goodwill impairment test is required if the Company believes it is more likely than not that the carrying amount of one or more reporting units exceeds the reporting units' fair value. The Company concluded that the need for an interim goodwill impairment test was triggered as of March 31, 2020. Factors that led to this conclusion included: (i) a significant decline in the Aaron's, Inc. stock price and market capitalization in March 2020; (ii) the temporary closure of all company-operated store showrooms due to the COVID-19 pandemic, which impacted our financial results and was expected to adversely impact future financial results; (iii) the significant uncertainty with regard to the short-term and long-term impacts that macroeconomic conditions arising from the COVID-19 pandemic and related government emergency and executive orders would have on the financial health of our customers and franchisees; and (iv) consideration given to the amount by which the Aaron's reporting unit's fair value exceeded the carrying value from the October 1, 2019 annual goodwill impairment test. As of March 31, 2020, management of Aaron's, Inc. determined its existing goodwill was fully impaired and recorded a goodwill impairment loss of $446.9 million during the three months ended March 31, 2020. Management engaged the assistance of a third-party valuation firm to perform the interim goodwill impairment test, which entailed an assessment of the Aaron's reporting unit’s fair value relative to the carrying value that was derived using a combination of both income and market approaches and performing a market capitali |
