Segment Information

6 Months Ended

Jun. 30, 2012

Segment Information

Note C – Segment Information

Aaron’s, Inc. has four reportable segments: Sales and Lease Ownership, Franchise, HomeSmart and Manufacturing. In all periods presented, HomeSmart was reclassified from the Other segment to the HomeSmart segment.

	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2012			2011			2012			2011
Revenues From External Customers:
Sales and Lease Ownership	$	503,010		$	459,796		$	1,061,033		$	972,794
Franchise		16,142			15,176			33,647			31,519
HomeSmart		13,582			657			26,217			987
Manufacturing		21,866			20,713			52,094			49,122
Other		2,112			2,362			5,495			4,982
Revenues of Reportable Segments		556,712			498,704			1,178,486			1,059,404
Elimination of Intersegment Revenues		(21,866	)		(20,905	)		(52,094	)		(49,496	)
Cash to Accrual Adjustments		4,669			4,901			(1	)		5,457
Total Revenues from External Customers	$	539,515		$	482,700		$	1,126,391		$	1,015,365
Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership	$	47,675		$	2,234		$	152,227		$	59,451
Franchise		12,554			11,846			26,720			24,762
HomeSmart		(1,618	)		(1,130	)		(3,273	)		(1,626	)
Manufacturing		(578	)		(73	)		526			1,318
Other		(6,176	)		663			(6,447	)		2,483
Earnings Before Income Taxes for Reportable Segments		51,857			13,540			169,753			86,388
Elimination of Intersegment Profit (Loss)		578			73			(526	)		(1,318	)
Cash to Accrual and Other Adjustments		6,155			4,014			4,392			4,476
Total Earnings Before Income Taxes	$	58,590		$	17,627		$	173,619		$	89,546

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

• Sales and lease ownership revenues 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 2% in 2012 and 2011.

• 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 the Cash to Accrual and Other Adjustments line.

• 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 the Cash to Accrual and Other Adjustments line.

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

Revenues in the “Other” category are primarily revenues of the Aaron’s Office Furniture division, from leasing space to unrelated third parties in the corporate headquarters building 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. Included in the six months Earnings Before Income Taxes above for the Sales and Lease Ownership segment is the reversal of a lawsuit accrual of $35.5 million.