
	SEGMENTS

As of June 30, 2013, the Company had five operating and reportable segments: Sales and Lease Ownership, HomeSmart, RIMCO, Franchise and Manufacturing. The Company has evaluated the characteristics of its operating segments and has determined that certain of its operating segments no longer meet the aggregation criteria in ASC 280, Segment Reporting. Accordingly, for all periods presented, RIMCO has been reclassified from the Sales and Lease Ownership segment to the RIMCO segment.

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



	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2013			2012			2013			2012
Revenues From External Customers:
Sales and Lease Ownership	$	506,221		$	499,919		$	1,059,972		$	1,054,376
HomeSmart	15,588			13,461			32,525			26,280
RIMCO	4,960			3,996			10,393			8,303
Franchise	16,834			16,142			35,034			33,647
Manufacturing	27,410			21,866			55,121			52,094
Other	454			677			1,232			2,343
Revenues of Reportable Segments	571,467			556,061			1,194,277			1,177,043
Elimination of Intersegment Revenues	(26,729		)	(21,866		)	(53,754		)	(52,094		)
Cash to Accrual Adjustments	7,326			4,424			6,682			(334		)
Total Revenues from External Customers	$	552,064		$	538,619		$	1,147,205		$	1,124,615
Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership	$	47,449		$	48,219		$	111,274		$	151,110
HomeSmart	(779		)	(1,594		)	(988		)	(2,958		)
RIMCO	(91		)	149			203			426
Franchise	13,248			12,554			27,757			26,720
Manufacturing	(548		)	(578		)	45			526
Other	(27,955		)	(4,033		)	(30,948		)	(2,427		)
Earnings Before Income Taxes for Reportable Segments	31,324			54,717			107,343			173,397
Elimination of Intersegment Profit (Loss)	554			578			(50		)	(526		)
Cash to Accrual and Other Adjustments	8,509			3,295			14,136			748
Total Earnings Before Income Taxes	$	40,387		$	58,590		$	121,429		$	173,619



(In Thousands)	June 30, 2013		December 31, 2012
Assets:
Sales and Lease Ownership	$	1,482,750	$	1,410,075
HomeSmart	53,175		58,347
RIMCO	13,047		11,737
Franchise	36,584		53,820
Manufacturing¹	31,367		24,787
Other	258,289		254,163
Total Assets	$	1,875,212	$	1,812,929


¹	Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the consolidated balance sheets of $16.8 million and $14.1 million as of June 30, 2013 and December 31, 2012, respectively.

Earnings (loss) before income taxes for each reportable segment are determined in accordance with accounting principles generally accepted in the United States with the following adjustments:


•	Revenues in the Sales and Lease Ownership, RIMCO and HomeSmart segments are reported on the cash basis for management reporting purposes.


•	A predetermined amount of each reportable segment’s revenues is charged to the reportable segment as an allocation of corporate overhead. This allocation was approximately 5% in 2013 and 2012.


•	Accruals related to store closures are not recorded on the reportable segments’ financial statements, but are maintained and controlled by corporate headquarters.


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

•

Advertising expense in the Sales and Lease Ownership, HomeSmart and RIMCO segments is estimated at the beginning of each year and then allocated to the division ratably over time for management reporting purposes. For financial reporting purposes, advertising expense is recognized when the related advertising activities occur. The difference between these two methods is reflected as part of Cash to Accrual and Other Adjustments.


•	Sales and lease ownership lease merchandise write-offs are recorded using the direct write-off method for management reporting purposes and using the allowance method for financial reporting purposes. The difference between these two methods is reflected as part of Cash to Accrual and Other Adjustments.


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

Revenues in the “Other” category are primarily revenues from leasing space to unrelated third parties in the corporate headquarters building, revenues of the Aaron’s Office Furniture division through the date of sale in August 2012 and revenues from several minor unrelated activities. The pre-tax losses or earnings in the “Other” category are the net result of the activity mentioned above, net of the portion of corporate overhead not allocated to the reportable segments for management purposes. For the three and six months ended June 30, 2013, the pre-tax losses of the "Other" category include $15.0 million related to an additional accrual for loss contingencies for pending legal and regulatory contingencies and $4.9 million related to retirement expenses and a change in vacation policies. Earnings before income taxes above for the Sales and Lease Ownership segment includes $35.5 million related to the reversal of a lawsuit accrual during the six months ended June 30, 2012.