
NOTE 6.	SEGMENTS

As of March 31, 2014, the Company had four operating and reportable segments: Sales and Lease Ownership, HomeSmart, Franchise and Manufacturing. In January 2014, the Company sold the 27 Company-operated RIMCO stores and the rights to five franchised stores. In all periods presented, RIMCO has been reclassified from the RIMCO segment to Other.

The Aaron’s Sales & Lease Ownership division offers electronics, 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 Franchise operation awards franchises 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 March 31,
(In Thousands)	2014			2013
Revenues From External Customers:
Sales and Lease Ownership	$	548,711		$	551,711
HomeSmart	17,404			16,937
Franchise	18,084			18,200
Manufacturing	31,155			27,711
Other	1,898			5,849
Revenues of Reportable Segments	617,252			620,408
Elimination of Intersegment Revenues	(30,258		)	(27,025		)
Cash to Accrual Adjustments	(1,571		)	(373		)
Total Revenues from External Customers	$	585,423		$	593,010

Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership	$	55,619		$	63,825
HomeSmart	(69		)	(209		)
Franchise	14,558			14,509
Manufacturing	547			593
Other	(9,927		)	(2,699		)
Earnings Before Income Taxes for Reportable Segments	60,728			76,019
Elimination of Intersegment Profit	(509		)	(604		)
Cash to Accrual and Other Adjustments	491			5,627
Total Earnings Before Income Taxes	$	60,710		$	81,042



(In Thousands)	March 31, 2014		December 31, 2013
Assets:
Sales and Lease Ownership	$	1,416,740	$	1,431,720
HomeSmart	47,848		47,970
Franchise	44,174		47,788
Manufacturing¹	22,704		24,305
Other	329,764		275,393
Total Assets	$	1,861,230	$	1,827,176


¹	Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the consolidated balance sheets of $12.8 million and $14.0 million as of March 31, 2014 and December 31, 2013, 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 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 2014 and 2013.


•	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 and HomeSmart 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 attributable to (i) the RIMCO segment through the date of sale in January 2014, (ii) leasing space to unrelated third parties in the corporate headquarters building and (iii) 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.