Aarons 2005 Annual Report Download - page 39

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Notes to Consolidated Financial Statements
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) 2005 2004 2003
Revenues From
External Customers:
Sales and Lease Ownership $ 975,026 $804,723 $634,489
Corporate Furnishings 117,476 108,453 109,083
Franchise 29,781 25,253 19,347
Other 5,411 10,185 4,206
Manufacturing 83,803 70,440 60,608
Elimination of
Intersegment Revenues (83,509) (70,884) (60,995)
Cash to Accrual Adjustments (2,483) (1,690) 59
Total Revenues From
External Customers $1,125,505 $946,480 $766,797
Earnings Before Income Taxes:
Sales and Lease Ownership $ 63,317 $56,578 $ 43,325
Corporate Furnishings 10,802 8,842 6,341
Franchise 22,143 18,374 13,600
Other (585) 2,118 (2,356)
Manufacturing 1,280 (175) 1,222
Earnings Before Income
Taxes For Reportable
Segments 96,957 85,737 62,132
Elimination of Intersegment
(Profit) Loss (1,103) 178 (2,338)
Cash to Accrual and
Other Adjustments (3,517) (1,409) (1,951)
Total Earnings Before
Income Taxes $ 92,337 $ 84,506 $ 57,843
Assets:
Sales and Lease Ownership $669,376 $524,492 $412,836
Corporate Furnishings 91,536 83,478 79,984
Franchise 26,902 23,495 19,493
Other 46,355 50,452 29,244
Manufacturing 24,346 18,371 18,327
Total Assets $ 858,515 $700,288 $559,884
Depreciation and Amortization:
Sales and Lease Ownership $ 309,022 $255,606 $191,777
Corporate Furnishings 20,376 19,213 21,266
Franchise 924 722 547
Other 1,373 711 839
Manufacturing 1,436 935 968
Total Depreciation
and Amortization $333,131 $277,187 $215,397
Interest Expense:
Sales and Lease Ownership $ 7,326 $ 5,197 $ 5,215
Corporate Furnishings 1,382 1,044 1,583
Franchise 93 96 93
Other (282) (924) (1,109)
Total Interest Expense $ 8,519 $ 5,413 $ 5,782
•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 rental 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 rental merchandise write-offs
are recorded using the direct write-off method for manage-
ment reporting purposes and, effective in 2004, 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
for 2004.
•Interest on borrowings is estimated at the beginning of
each year.Interest is then allocated to operating segments
based on relative total assets.
•Sales and lease ownership revenues are reported on the
cash basis for management reporting purposes.
Revenues in the “Other” category are primarily 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, and the $565,000 and
$5.5 million gains recognized on the sale of marketable
securities in 2005 and 2004, respectively.
Measurement of Segment Profit 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
acash basis. Intersegment sales arecompleted at internally
negotiated amounts ensuring competitiveness with outside
vendors. Since the intersegment profit and loss affect inventory
valuation, depreciation and cost of goods sold areadjusted
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
arrangements. The reportable segments are each managed
separately because of differences in both customer base
and infrastructure.