Aarons 2015 Annual Report Download - page 88

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• Other category loss before income taxes included $13.7 million in financial and advisory costs related to addressing now-resolved strategic matters,
including proxy contests, $4.3 million of restructuring charges in connection with the store closures noted above, $9.1 million of charges associated
with the retirements of both the Company's Chief Executive Officer and Chief Operating Officer, $6.6 million in transaction costs related to the
Progressive acquisition and $1.2 million of regulatory income that reduced previously recognized regulatory expense upon the resolution of the
regulatory investigation by the California Attorney General.
In 2013, the results of the Company's operating segments were impacted by the following items:
• Other category loss before income taxes included $28.4 million related to an accrual for loss contingencies for the then-pending regulatory
investigation by the California Attorney General and $4.9 million related to retirement expense and a change in vacation policies.
The Company determines earnings (loss) before income taxes for all reportable segments in accordance with U.S. GAAP with
the following adjustments:
• Revenues in the Sales and Lease Ownership and HomeSmart segments are reported on a cash basis for management reporting purposes.
• Generally a predetermined amount of each reportable segment’s revenues is charged to the reportable segment as an allocation of corporate
overhead.
• 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 is allocated to the Sales and Lease Ownership and HomeSmart segments based a percentage of their revenues. Interest is allocated to the
Progressive segment based on a percentage of the outstanding balances of its intercompany borrowings and of the debt incurred when it was
acquired.

The Company leases certain properties under capital leases with certain related parties that are more fully described in Note 7 above.
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