Aarons 2002 Annual Report Download - page 32

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profit and loss affects 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 business units that
service different customer profiles using distinct payment arrange-
ments. The reportable segments are each managed separately
because of differences in both customer base and infrastructure.
Revenues in the “Other” category are primarily from leasing
space to unrelated, third parties in our corporate headquarters
building and revenues from several minor unrelated activities.
The pretax losses in the “Other” category are the net result of
the profit and losses from leasing a portion of the corporate head-
quarters and several minor unrelated activities, and the portion
of corporate overhead not allocated to the reportable segments
for management purposes. The significant increase in “Other”
losses before income taxes in 2001 and 2002 as compared to
2000 relates to the under allocation of corporate expenses to the
reportable segments in the periods of rising corporate expenses.
“Other Allocations and Adjustments” are primarily comprised
of the capitalization and amortization of manufacturing variances
not allocated to the segment which holds the related rental mer-
chandise, adjustments to the closed store reserve, and other non-
recurring adjustments not allocated to the operating segments. The
reason for the change in the “Other Allocations and Adjustments”
from 2000 to 2001 was primarily the recording of a $5.6 million
charge for future lease obligations and impaired assets which
were not charged to the corresponding operating segment for
management reporting purposes.
Earnings before income taxes for each reportable segment are
generally determined in accordance with generally accepted
accounting principles with the following adjustments:
• A predetermined amount of approximately 2.2% of each
reportable segments’ revenues is charged from corporate as
an allocation of corporate overhead.
• Non-recurring or unusual adjustments related to store
closures and rent payments related to closed stores are not
recorded on the reportable segments financial statements, but
rather maintained and controlled by corporate headquarters.
• The capitalization and amortization of manufacturing vari-
ances is recorded on the corporate financial statements as part
of “Other Allocations and Adjustments” and is not allocated
to the segment which holds the related rental merchandise.
• Interest on borrowings is estimated at the beginning of each
year. Interest is then allocated from corporate to operating
segments on the basis of relative total assets.
• Sales and lease ownership revenues are reported on the cash
basis for management reporting purposes.
Information on segments and a reconciliation to earnings before
income taxes are as follows:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
(In Thousands) 2002 2001 2000
Revenues From
External Customers:
Sales & Lease Ownership $501,390 $380,404 $312,921
Rent-to-Rent 119,885 150,002 174,918
Franchise 16,663 13,913 12,621
Other 4,746 4,243 4,057
Manufacturing 56,002 47,035 54,340
Elimination of
Intersegment Revenues (56,141) (47,801) (54,807)
Cash to Accrual Adjustments (1,857) (1,115) (1,130)
Total Revenues From
External Customers $640,688 $546,681 $502,920
Earnings Before Income Taxes:
Sales & Lease Ownership $ 31,220 $ 11,314 $ 19,527
Rent-to-Rent 9,057 9,152 16,346
Franchise 10,919 9,212 7,484
Other (5,544) (3,244) (943)
Manufacturing 989 (587) 728
Earnings Before Income
Taxes For Reportable
Segments 46,641 25,847 43,142
Elimination of Intersegment
Loss (760) (1,449) (441)
Cash to Accrual Adjustments (3,259) (1,151) (804)
OtherAllocations&Adjustments 1,030 (3,392) 2,009
Total Earnings Before
Income Taxes $ 43,652 $ 19,855 $ 43,906
Assets:
Sales & Lease Ownership $327,845 $241,245 $205,043
Rent-to-Rent 89,133 107,882 128,163
Franchise 12,627 13,991 12,961
Other 35,488 17,533 17,485
Manufacturing 18,555 16,545 16,727
Total Assets $483,648 $397,196 $380,379
Depreciation & Amortization:
Sales & Lease Ownership $154,310 $121,953 $ 97,139
Rent-to-Rent 22,901 29,736 34,557
Franchise 486 444 412
Other 541 690 354
Manufacturing 802 725 647
Total Depreciation
& Amortization $179,040 $153,548 $133,109
Interest Expense:
Sales & Lease Ownership $ 4,768 $ 4,620 $ 2,750
Rent-to-Rent 2,493 3,010 2,496
Franchise 83 119 144
Other (2,577) (1,491) 235
Total Interest Expense $ 4,767 $ 6,258 $ 5,625