Aarons 2010 Annual Report Download - page 42

• Accruals related to store closures are not recorded on the report-
able segments’ financial statements, but are rather 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 seg-
ment that holds the related lease merchandise.
• Advertising expense in the sales and lease ownership division 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 below.
• 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 below.
• 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 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.
Measurement of Segment Profi t or Loss and
Segment Assets
The Company evaluates performance and allocates resources based
on revenue growth and pre-tax profit or loss from operations. The
accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies except
that the sales and lease ownership division revenues and certain other
items are presented on a cash basis. Intersegment sales are completed
at internally negotiated amounts. Since the intersegment profit and
loss affect inventory valuation, depreciation and cost of goods sold
are adjusted when intersegment profit is eliminated in consolidation.
Factors Used by Management to Identify the
Reportable Segments
The Company’s reportable segments are based on the operations
of the Company that the chief operating decision maker regularly
reviews to analyze performance and allocate resources among busi-
ness units of the Company.
As discussed in Note N, the Company sold substantially all of
the assets of the Aaron’s Corporate Furnishings division during
the fourth quarter of 2008. For financial reporting purposes, this
division has been classified as a discontinued operation and is not
included in our segment information as shown below.
Notes to Consolidated Financial Statements
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