8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):    February 6, 2015

AARON’S, INC.

(Exact name of Registrant as Specified in Charter)

Georgia	1-13941	58-0687630
(State or other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

309 E. Paces Ferry Road, N.E. Atlanta, Georgia	30305-2377
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (404) 231-0011

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On February 6, 2015, Aaron's, Inc. (the “Company”) issued a press release to announce its financial results for the three months and year ended December 31, 2014. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

The press release presents the Company’s net earnings and diluted earnings per share (“EPS”) in accordance with generally accepted accounting principles in the United States (“GAAP”) and in a format that is not in accordance with GAAP that excludes the items described below. The press release also presents the earnings before interest, taxes, depreciation and amortization of each of the Company’s segments, adjusted to exclude certain items as described in more detail below (“Adjusted EBITDA”). Neither EBITDA nor Adjusted EBITDA are financial measures presented in accordance with GAAP.

Non-GAAP financial measures should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP, such as the Company’s GAAP basis net earnings and diluted EPS and the GAAP net income of the Company’s segments, which are also presented in the press release.

Non-GAAP Net Earnings and Non-GAAP EPS

2014 Adjustments

• Progressive Acquisition. On April 14, 2014, the Company completed its acquisition of Progressive Finance Holdings, LLC (“Progressive”) for cash consideration of approximately $700 million. The press release presents earnings and EPS excluding (1) $8.8 million in amortization of intangibles and $1.5 million in deferred revenue fair value adjustments related to the acquisition during the fourth quarter of 2014, (2) $11.3 million in amortization of intangibles and $700,000 in deferred revenue fair value adjustments related to the acquisition during the third quarter of 2014, (3) $9.7 million in amortization of intangibles and $600,000 in deferred revenue fair value adjustments related to the acquisition and (4) acquisition-related fees and expenses (including financial advisory and legal fees) of $6.8 million during 2014. The Company had never previously completed an acquisition of the magnitude of the Progressive transaction.

• Retirement Charges. As previously disclosed, Ronald W. Allen, formerly Chief Executive Officer of the Company, retired from the Company, effective August 31, 2014, and on July 24, 2014, David L. Buck, formerly Chief Operating Officer of the Company, notified the Company that he is retiring as an employee of the Company effective December 31, 2014, and in connection with his retirement relinquished his duties as Chief Operating Officer effective August 1, 2014. The Company incurred $9.1 million in expenses pertaining to the retirement of these two officers during the third quarter of 2014. While charges related to retirement do arise from time to time, management regards the charges incurred in the third quarter of 2014 as uncommon in nature and size.

• California Regulatory Investigation. During the third quarter of 2014, the Company resolved the previously reported regulatory investigation by the California Attorney General into the Company’s business. The press release presents earnings and EPS excluding a $1.2 million reduction during the third quarter of 2014 of previously recognized regulatory expense upon such

resolution. Management believes that the circumstances and costs of this particular matter differentiated it from the Company’s normal course legal and regulatory proceedings.

• Strategic Matters. The Company and its Board addressed various strategic matters during 2014, including an unsolicited acquisition offer, two proxy contests and shareholder proposals. The Company incurred $13.7 million in financial advisory and legal costs to address them during 2014. These matters were unprecedented in the Company’s history, and the level of the professional fees associated with them was similarly exceptional.

• Restructuring Charges. In connection with its previously announced new strategy, which includes an initiative to rationalize the Company’s store base, the Company incurred approximately $6.9 million and $2.3 million in restructuring charges related to store closures in the third and second quarters of 2014, respectively. While the Company has routinely closed and sold stores on an disposed of non-core businesses in substantially their entirety, it has not previously implemented a store rationalization program across the Company’s entire core business, so management regards these restructuring charges as unusual.

2013 Adjustments

• California Regulatory Investigation. The Company accrued $13.4 million and $15.0 million for loss contingencies in connection with this now-resolved investigation during the third quarter of 2013 and second quarter of 2013, respectively.

• Retirement and Vacation Related Charges. As previously disclosed, William K. Butler, Jr., formerly Chief Operating Officer of the Company, retired from the Company effective May 1, 2013. The Company also implemented changes to its vacation policies last year. The Company recorded $4.9 million in charges in the second quarter related to this retirement and change in vacation policies. While charges related to retirement or employee benefit actions or policy changes do arise from time to time, management regards the charges incurred in the quarter ended June 30, 2013 as uncommon in both nature and size.

While some of the matters described above may not be considered as non-recurring in nature in a strictly accounting sense, management regards the circumstances and magnitude of these matters as not arising out of the ordinary course of business and as not entirely susceptible to prediction or management control. For these reasons, management believes that presentation of net earnings and diluted EPS excluding these adjustments is useful because it gives investors supplemental information to evaluate and compare the performance of the Company’s underlying core business from period to period.

Adjusted EBITDA

The press release also presents Adjusted EBITDA of each of the Company’s segments. Adjusted EBITDA excludes the Progressive-related transaction costs, financial advisory and legal costs related to strategic matters, restructuring expenses, executive retirement and vacation-related charges and reversal of regulatory expense related to the resolution of the California Attorney General investigation described above. Management believes presenting the Company’s Adjusted EBITDA is useful to investors because it provides some indication of what the results of Progressive would have been absent the effects of the Company’s acquisition of Progressive, which arise principally from the debt financing of the transaction

and acquisition-related accounting for intangible assets. It also provides additional information on what the results of the Company would have been absent the Progressive acquisition and the aforementioned special charges.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS

(d)    Exhibits:

Exhibit No.	Description
99.1	Aaron’s, Inc. press release dated February 6, 2015, announcing the Company’s financial results for the fourth quarter and full year of 2014.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		AARON’S, INC.
	By:	/s/ Gilbert L. Danielson
Date: February 6, 2015		Gilbert L. Danielson Executive Vice President and Chief Financial Officer

EX-99.1

EXHIBIT 99.1

Contact: Sharon J. Lawrence

Vice President, Finance

404-231-0011

Aaron's, Inc.

Reports Fourth Quarter and Year End 2014 Results

• Total Revenues of $759.7 Million for Quarter; $2.725 Billion for Year

• GAAP Diluted EPS of $.30 for Quarter; $1.08 for Year

• Non-GAAP Diluted EPS of $.39 for Quarter; $1.69 for Year

• Progressive Once Again Exceeds Expectations

• Strategic Initiatives Continue in Core Business

ATLANTA, February 6, 2015 - Aaron's, Inc. (NYSE: AAN), a leader in the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories, today announced revenues and earnings for the three and twelve months endedDecember 31, 2014.

For the fourth quarter of 2014, revenues increased37% to $759.7 million compared to $553.9 million for the fourth quarter of 2013. Net earnings were $22.1 million versus $22.7 million a year ago. Diluted earnings per share were $.30 in both periods. The $205.9 millionincrease in revenue was due to $220.8 million in revenue from Progressive Leasing, acquired in April 2014, partially offset by a decrease in revenue from Aaron’s core business.

“I am honored to be CEO of Aaron’s as the Company begins its 60th year of operations,” said John Robinson, Chief Executive Officer of Aaron’s, Inc. “As we look at Aaron’s today, we believe we have the right blend of assets to grow this Company into a true omni-channel lease purchase provider.  Aaron’s people, technology, brand, customer-base, retail relationships, store footprint, distribution network and manufacturing assets uniquely position us to execute this strategy.”

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“The growth of Progressive, driven by invoice volume growth at both new and existing retail doors, continues to exceed our expectations,” continued Mr. Robinson.  “We are continuing to invest in infrastructure to support our strong customer and retailer growth. We are also investing in our product to improve the efficiency of the process at the point of sale and to expand our offering to enable us to serve more customers.”

“Aaron’s traditional store-based business has not performed at a level that is satisfactory over the past few years,” continued Mr. Robinson.  “I have a high sense of urgency about improving our top-line, correctly aligning our cost structure, and managing the business for cash efficiency.  While a number of initiatives are underway, including the realization of $50 million in annual cost savings, I am keenly focused on addressing each of these issues and will consider all options to improve our store-based operations.”

“As CEO, my continuing priority will be to strengthen our Company for our customers, associates, franchisees, retail partners and shareholders.  As we reduce costs and drive revenues in our profitable core business, we expect to generate the cash flows we need to reduce leverage, support the growth of Progressive and take opportunistic actions to create shareholder value,” concluded Mr. Robinson.

Financial Summary

For the twelve months ended December 31, 2014, revenues increased22% to $2.725 billion compared to $2.235 billion for the twelve months ended December 31, 2013. Net earnings were $78.2 million versus $120.7 million last year. Diluted earnings per share for the twelve months were $1.08 for 2014 compared to $1.58 in 2013.

During the fourth quarter and full year of 2014, pre-tax earnings were negatively impacted by $8.8 million and $29.8 million of amortization expense related to the acquisition of Progressive, respectively, and $1.5 million and $2.8 million in Progressive deferred revenue fair value adjustments, respectively. Results in 2014 and 2013 were also affected by executive and other special retirement expenses, restructuring charges, regulatory investigation expense, Progressive transaction costs, financial advisory and legal costs related to addressing strategic matters, and change in vacation policy. See “Use of Non-GAAP Financial Information” and the related GAAP reconciliation accompanying this release.

On a non-GAAP basis, excluding the special charges, costs and expenses described above from all periods, net earnings for the fourth quarter of 2014 would have been $28.7 million

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compared to $22.7 million for the same period in 2013, and earnings per share assuming dilution would have been $.39 compared to $.30 a year ago. Net earnings for the twelve months of 2014 would have been $123.2 million compared to $142.4 million in 2013, and earnings per share assuming dilution would have been $1.69 versus $1.86 last year.

Adjusted EBITDA for the Company, which excludes the aforementioned special fees and expenses, was $62.8 million and $263.9 million for the three and twelve months ended December 31, 2014, respectively. Adjusted EBITDA is calculated as the Company's earnings before interest, depreciation on property, plant and equipment, amortization of intangible assets, income taxes and special fees and expenses.

Same store revenues in the core business (revenues earned in Company-operated stores open for the entirety of both quarters) decreased2.8% during the fourth quarter of 2014 compared to the fourth quarter of 2013, and customer count on a same store basis was down4.6%. For Company-operated stores open over two years at the end of December 31, 2014, same store revenues decreased3.2% during the fourth quarter of 2014 compared to the fourth quarter of 2013. Company-operated Aaron's stores had 1,080,000 customers and its franchisees had 581,000 customers at the end of the most recent quarter, a 5%decline in total customers over the number at the end of the fourth quarter a year ago (customers of franchisees, however, are not customers of Aaron's, Inc.).

The effective tax rate increased in the fourth quarter of 2014 to 35.5% compared to 33.5% in the fourth quarter of 2013. The effective tax rate also increased for the twelve months of 2014 to 35.7% compared to 34.8% in the same period a year ago. The increase in the tax rate for both the quarter and year ended December 31, 2014 is primarily the result of decreased tax benefits related to the Company's furniture manufacturing operations and the loss of federal credits that have not been renewed by Congress.

The Company reacquired 1,000,952 shares during the first quarter of 2014 at the completion of the previously announced accelerated share repurchase program. The Company has authorization to purchase an additional 10,496,421 shares.

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Division Results

Aaron's Sales & Lease Ownership division revenues, which include non-retail sales, decreased$10.1 million, or 2%, in the fourth quarter of 2014 to $522.6 million compared to $532.7 million in revenues in the fourth quarter of 2013. Sales and lease ownership revenues for the twelve months of 2014decreased2% to $2.107 billion compared to $2.147 billion for the same period a year ago.

Revenues of the HomeSmart division were $15.5 million in the fourth quarter of 2014, a 2%increase over the $15.2 million in revenues in the fourth quarter of 2013. HomeSmart revenues for the twelve months of 2014 were $64.4 million versus $62.7 million for the same period a year ago, a 3%increase.

The Progressive division generated revenues of $220.8 millionand a pre-tax profit of $3.2 million in the fourth quarter, and for the period from the April 14, 2014 acquisition date recorded $549.5 million in revenues and a pre-tax profit of $4.6 million. Progressive’s EBITDA included in the Company’s results during the fourth quarter and twelve months ended December 31, 2014 was $17.9 million and $50.4 million, respectively.

Components of Revenue

Consolidated lease revenues and fees for the fourth quarter and twelve months of 2014increased50% and 29%, respectively, over the comparable previous year periods, due to Progressive. Franchise royalties and fees decreased7% in the fourth quarter and 4% for the twelve months of 2014 compared to the same periods in 2013. The Company's franchisees collectively had revenues of $241.2 million during the fourth quarter and $995.3 million for the twelve months of 2014, decreases of 3% and 2%, respectively, from the comparable 2013 period. Same store revenues and customer counts for franchised stores were down2.9% and 5.2%, respectively, for the fourth quarter2014 compared to the same quarter last year (revenues and customers of franchisees, however, are not revenues and customers of Aaron's, Inc.). Non-retail sales, which are primarily sales of merchandise to Aaron's Sales and Lease Ownership franchisees, were flat for the fourth quarter and decreased2% for the twelve months compared to the same periods last year due to less demand by franchisees.

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Store Count

During the fourth quarter of 2014, the Company opened six Company-operated Aaron's Sales & Lease Ownership stores, four franchised stores and one HomeSmart store. The Company also acquired five Aaron's Sales & Lease Ownership franchised stores and sold one store to a franchisee. One Company-operated Aaron's Sales & Lease Ownership store and three Aaron's Sales & Lease Ownership franchised stores were closed during the quarter. Through the three and twelve months endedDecember 31, 2014, the Company awarded area development agreements to open five and 28 additional franchised stores, respectively. At December 31, 2014, there were area development agreements outstanding for the opening of 138 franchised stores over the next several years.

At December 31, 2014, the Company had 1,243 Company-operated Aaron's Sales & Lease Ownership stores, 780 franchised Aaron's Sales & Lease Ownership stores, 83 Company-operated HomeSmart stores, and two franchised HomeSmart stores. The total number of stores open at December 31, 2014 was 2,108.

2015 Outlook

The Company is providing the below guidance for the 2015 year.

Diluted earnings per share is presented both on a GAAP basis and on a non-GAAP adjusted basis that excludes transaction-related amortization and special fees and expenses. The Company currently expects to achieve the following:

Core Business

• Total revenues of approximately $2.05 billion to $2.15 billion, including lease revenues of $1.55 billion to $1.65 billion.

• Same store revenues of approximately negative 4% to negative 1% quarterly with an improving trend throughout the year.

• Depreciation expense as a percentage of lease revenues of 35% to 37%.

• Gross margins (total revenues minus cost of sales and depreciation) of 55% to 57% and operating profits of 6% to 8%.

• Adjusted EBITDA of approximately $200 million to $220 million.

• The Company anticipates opening approximately 10 new Company-operated and 15 to 20 franchised stores, and consolidating approximately 50 under-performing store locations during 2015.

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Progressive

• Lease revenues of approximately $1.00 billion to $1.10 billion.

• Depreciation expense as a percentage of lease revenues of 61% to 63%.

• Amortization expense of approximately $26 million.

• Gross margins of 37% to 39% and operating profits, excluding amortization expense, of 8% to 10%.

• Adjusted EBITDA of $95 million to $105 million.

• Operations are expected to be funded through internally generated cash flow.

Consolidated Results

• Revenues of approximately $3.05 billion to $3.25 billion, excluding revenues of franchisees.

• Adjusted EBITDA of $295 million to $325 million.

• Capital expenditures of $55 million to $75 million.

• Effective tax rate between approximately 36% and 38%.

• GAAP diluted earnings per share of $1.68 to $1.88

• Non-GAAP adjusted diluted earnings per share of $1.90 to $2.10.

• EPS guidance does not assume any significant repurchases of the Company's common stock or the potential impact of any costs associated with store closures.

Given our focus on executing on our long-term strategy to integrate and grow Progressive, strengthen the core business and continue Aaron's transformation into an omni-channel lease provider, going forward the Company will only be providing annual guidance. While we will no longer provide quarterly guidance, we will update our annual guidance on a quarterly basis when it is appropriate.

Conference Call

Aaron's will hold a conference call to discuss its quarterly and full year financial results on Friday, February 6, 2015, at 10:00 a.m. Eastern Time. The public is invited to listen to the conference call by webcast accessible through the Company's Investor Relations website, investor.aarons.com, in the "Investor Relations" section. The webcast will be archived for playback at that same site.

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About Aaron's, Inc.

Aaron's, Inc. (NYSE: AAN), a leader in the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories, currently has more than 2,100 Company-operated and franchised stores in 48 states and Canada. Aaron's was founded in 1955, is headquartered in Atlanta and has been publicly traded since 1982. Progressive Leasing, a wholly-owned subsidiary and leading virtual lease-to-own company, provides lease-purchase solutions through over 15,000 retail locations in 46 states. Aaron's, Inc. includes the Aarons.com, ShopHomeSmart.com and ProgLeasing.com brands. For more information, visit www.aarons.com. 

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this news release regarding Aaron's, Inc.'s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements. Such forward-looking statements generally can be identified by the use of forward-looking terminology, such as "may," "expect," "forecast," "guidance," "intend," "believe," "could," "project," "estimate," "anticipate," "should" and similar terminology. These risks and uncertainties include factors such as changes in general economic conditions, competition, pricing, legal and regulatory proceedings, customer privacy, information security, customer demand, the integration of the Progressive acquisition, the execution and results of our new strategy, risks related to Progressive's "virtual" lease-to-own business with which the Company may be unfamiliar, and the other risks and uncertainties discussed under “Risk Factors” in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 as updated in its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2014, June 30, 2014, and September 30, 2014. Statements in this release that are “forward-looking” include without limitation: Aaron's projected results (including Progressive’s results) for future periods, including statements under the heading “2015 Outlook;" statements on cash flow, cost and leverage reductions and strategic initiatives; statements regarding the future effects of the Progressive acquisition on the Company's business; statements regarding the Company's omni-channel distribution plans; and statements regarding the effects of planned promotions. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances after the date of this press release.

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Aaron's, Inc. and Subsidiaries

Consolidated Statements of Earnings

(In thousands, except per share amounts)

	(Unaudited)   Three Months Ended						(Unaudited)   Twelve Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Revenues:
Lease Revenues and Fees	$	625,849		$	418,173		$	2,251,780		$	1,748,699
Retail Sales	7,337			8,258			38,360			40,876
Non-Retail Sales	109,334			109,140			363,355			371,292
Franchise Royalties and Fees	15,755			17,011			65,902			68,575
Other	1,467			1,270			5,842			5,189
Total	759,742			553,852			2,725,239			2,234,631
Costs and Expenses:
Depreciation of Lease Merchandise	271,188			152,189			932,634			628,089
Retail Cost of Sales	4,641			5,023			24,541			24,318
Non-Retail Cost of Sales	99,520			99,246			330,057			337,581
Operating Expenses	343,878			263,143			1,262,007			1,022,684
Financial Advisory and Legal Costs	—			—			13,661			—
Restructuring Expenses	—			—			9,140			—
Retirement and Vacation Charges	—			—			9,094			4,917
Progressive-Related Transaction Costs	—			—			6,638			—
Regulatory (Income) Expenses	—			—			(1,200		)	28,400
Other Operating (Income) Expense, Net	(307		)	366			(1,176		)	1,584
Total	718,920			519,967			2,585,396			2,047,573
Operating Profit	40,822			33,885			139,843			187,058
Interest Income	460			757			2,921			2,998
Interest Expense	(6,041		)	(1,097		)	(19,215		)	(5,613		)
Other Non-Operating (Expense) Income, Net	(1,008		)	566			(1,845		)	517
Earnings Before Income Taxes	34,233			34,111			121,704			184,960
Income Taxes	12,139			11,437			43,471			64,294
Net Earnings	$	22,094		$	22,674		$	78,233		$	120,666
Earnings Per Share	$	.30		$	.30		$	1.08		$	1.59
Earnings Per Share Assuming Dilution	$	.30		$	.30		$	1.08		$	1.58
Weighted Average Shares Outstanding	72,482			75,227			72,384			75,747
Weighted Average Shares Outstanding Assuming Dilution	72,753			75,752			72,723			76,390

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Selected Balance Sheet Data

(In thousands)

(Unaudited)

	December 31, 2014		December 31, 2013
Cash and Cash Equivalents	$	8,534	$	231,091
Investments	21,311		112,391
Accounts Receivable, Net	107,383		68,684
Lease Merchandise, Net	1,087,032		869,725
Property, Plant and Equipment, Net	219,417		231,293
Other Assets, Net	1,022,055		313,992
Total Assets	2,465,732		1,827,176
Debt	606,082		142,704
Total Liabilities	1,242,211		687,213
Shareholders' Equity	$	1,223,521	$	1,139,963

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Use of Non-GAAP Financial Information:

This press release presents the Company's net earnings and diluted earnings per share in accordance with generally accepted accounting principles in the United States ("GAAP") and in a format that is not in accordance with GAAP that excludes fourth quarter 2014 charges of (i) $8.8 million in Progressive-related amortization expense and (ii) $1.5 million related to Progressive deferred revenue fair value adjustments, third quarter 2014 charges of (iii) $11.3 million in Progressive-related amortization expense, (iv) $9.1 million in expenses pertaining to the retirement of both the Company's Chief Executive Officer and Chief Operating Officer, (v) $6.9 million of restructuring expenses, (vi) $700,000 related to Progressive deferred revenue fair value adjustments, (vii) a $1.2 million reduction of previously recognized regulatory expense upon the resolution of a regulatory investigation and second quarter 2014 charges of (viii) $9.7 million in amortization expense, (ix) $5.5 million in transaction costs related to the Progressive acquisition, (x) $12.4 million of financial advisory and legal costs related to addressing strategic matters, including proxy contests, (xi) $2.3 million of restructuring expenses and (xii) $600,000 related to Progressive deferred revenue fair value adjustments. Excluded from prior year net earnings and diluted earnings per share are (xiii) third quarter 2013 charges of $13.4 million related to a then-pending regulatory investigation, (xiv) second quarter 2013 charges of $15.0 million related to the same regulatory investigation and (xv) second quarter 2013 retirement and vacation-related charges of $4.9 million. In addition, this press release presents the adjusted EBITDA of the Company and its operating segments. Adjusted EBITDA is also not a measure in accordance with GAAP.

Management regards the circumstances of the special charges mentioned above as not arising out of the ordinary course of business. The adjustments include matters that are not entirely susceptible to prediction or management control, and consequently management believes that presentation of net earnings and diluted earnings per share excluding these adjustments is useful because it gives investors supplemental information to evaluate and compare the performance of the Company's underlying core business from period to period. Management believes presenting the Company's adjusted EBITDA is useful to investors because it provides some indication of what the results of Progressive would have been absent the effects of the Company’s acquisition of Progressive, which arise principally from the debt financing of the transaction and acquisition-related accounting for intangible assets. It also provides additional information on what the results of the Company would have been absent the Progressive acquisition and the aforementioned special charges.

Non-GAAP financial measures, however, should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP, such as the Company's GAAP basis net earnings and diluted earnings per share and the GAAP operating income of the Company's segments, which are also presented in the press release. Please refer to our Current Report on Form 8-K furnishing this earnings release to the SEC on the date hereof for further information on our use of non-GAAP financial measures.

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Reconciliation of Net Earnings and Earnings Per Share Assuming Dilution to Non-GAAP

Net Earnings and Earnings Per Share Assuming Dilution

(In thousands, except earnings per share)

	(Unaudited)   Three Months Ended   December 31,				(Unaudited)   Twelve Months Ended   December 31,
	2014		2013		2014			2013
Net Earnings	$	22,094	$	22,674	$	78,233		$	120,666
Add Preliminary Progressive-Related Amortization Expense (1)	5,663		—		19,163			—
Add Financial Advisory and Legal Costs (2)	—		—		8,781			—
Add Restructuring Expenses (3)	—		—		5,875			—
Add Retirement and Vacation Charges (4)(5)	—		—		5,846			3,208
Add Progressive-Related Transaction Costs (6)	—		—		4,267			—
Add Progressive Deferred Revenue Adjustment (7)	980		—		1,821			—
Add Regulatory (Income) Expenses (8)(9)	—		—		(771		)	18,528
Non-GAAP Net Earnings	$	28,737	$	22,674	$	123,215		$	142,402
Earnings Per Share Assuming Dilution	$	.30	$	.30	$	1.08		$	1.58
Add Preliminary Progressive-Related Amortization Expense	.08		—		.26			—
Add Financial Advisory and Legal Costs	—		—		.12			—
Add Restructuring Expenses	—		—		.08			—
Add Retirement and Vacation Related Charges	—		—		.08			.04
Add Progressive-Related Transaction Costs	—		—		.06			—
Add Progressive Deferred Revenue Adjustment	.01		—		.03			—
Add Regulatory (Income) Expenses	—		—		(.01		)	.24
Non-GAAP Earnings Per Share Assuming Dilution (10)	$	.39	$	.30	$	1.69		$	1.86
Weighted Average Shares Outstanding Assuming Dilution	72,753		75,752		72,723			76,390

_{(1)  Net of taxes of $3,111 for the three months and $10,648 for the twelve months ended December 31, 2014 calculated using the effective tax rates for the three and twelve months ended December 31, 2014.} 

_{(2)  Net of taxes of $4,880 for the twelve months ended December 31, 2014 calculated using the effective tax rate for the twelve months ended December 31, 2014.} 

_{(3)  Net of taxes of $3,265 for the twelve months ended December 31, 2014 calculated using the effective tax rate for the twelve months ended December 31, 2014.} 

_{(4)  Net of taxes of $3,248 for the twelve months ended December 31, 2014 calculated using the effective tax rate for the twelve months ended December 31, 2014.} 

_{(5)  Net of taxes of $1,709 for the twelve months ended December 31, 2013 calculated using the effective tax rate for the twelve months ended December 31, 2013.} 

_{(6)  Net of taxes of $2,371 for the twelve months ended December 31, 2014 calculated using the effective tax rate for the twelve months ended December 31, 2014.} 

_{(7)  Net of taxes of $539 for the three months and $1,012 for the twelve months ended December 31, 2014 calculated using the effective tax rates for the three and twelve months ended December 31, 2014.} 

_{(8)  Net of taxes of $429 for the twelve months ended December 31, 2014 calculated using the effective tax rate for the twelve months ended December 31, 2014.} 

_{(9)  Net of taxes of $9,872 for the twelve months ended December 31, 2013 calculated using the effective tax rate for the twelve months ended December 31, 2013.} 

_{(10)  In some cases the sum of individual EPS amounts may not equal total EPS calculations.} 

11

Aaron's, Inc. and Subsidiaries

Non-GAAP Financial Information

Quarterly Segment EBITDA

(In thousands)

(Unaudited)

	Three Months Ended December 31, 2014
	Sales & Lease Ownership		Progressive		HomeSmart			Franchise		Manufacturing		Other			Consolidated Total
Net Income	$	—	$	—	$	—		$	—	$	—	$	—		$	22,094
Provision for Income Taxes	—		—		—			—		—		—			12,139
Operating Income	33,262		3,237		(1,121		)	12,331		419		(13,895		)	34,233
Interest Expense	1,943		5,491		234			—		10		(1,637		)	6,041
Depreciation	8,033		384		633			382		497		3,440			13,369
Amortization	356		8,774		14			—		—		—			9,144
EBITDA	43,594		17,886		(240		)	12,713		926		(12,092		)	62,787
	Three Months Ended December 31, 2013
	Sales & Lease Ownership		Progressive		HomeSmart			Franchise		Manufacturing		Other			Consolidated Total
Net Income	$	—	$	—	$	—		$	—	$	—	$	—		$	22,674
Provision for Income Taxes	—		—		—			—		—		—			11,437
Operating Income	27,852		—		(1,074		)	13,330		40		(6,037		)	34,111
Interest Expense	1,457		—		233			—		16		(609		)	1,097
Depreciation	8,776		—		625			431		441		3,416			13,689
Amortization	623		—		135			—		—		—			758
EBITDA	38,708		—		(81		)	13,761		497		(3,230		)	49,655

12

Aaron's, Inc. and Subsidiaries

Non-GAAP Financial Information

Year to Date Segment EBITDA

(In thousands)

(Unaudited)

	Twelve Months Ended December 31, 2014
	Sales & Lease Ownership		Progressive		HomeSmart			Franchise		Manufacturing		Other			Consolidated Total
Net Income	$	—	$	—	$	—		$	—	$	—	$	—		$	78,233
Provision for Income Taxes	—		—		—			—		—		—			43,471
Operating Income	145,068		4,603		(2,613		)	50,504		860		(76,718		)	121,704
Interest Expense	7,834		14,992		922			—		50		(4,583		)	19,215
Depreciation	33,799		971		2,577			1,599		1,649		13,117			53,712
Amortization	1,814		29,811		263			—		—		—			31,888
EBITDA	188,515		50,377		1,149			52,103		2,559		(68,184		)	226,519
Financial Advisory and Legal Costs	—		—		—			—		—		13,661			13,661
Restructuring Expenses	4,836		—		6			—		—		4,298			9,140
Retirement Charges	—		—		—			—		—		9,094			9,094
Progressive-Related Transaction Costs	—		—		—			—		—		6,638			6,638
Regulatory Income	—		—		—			—		—		(1,200		)	(1,200		)
Adjusted EBITDA	$	193,351	$	50,377	$	1,155		$	52,103	$	2,559	$	(35,693	)	$	263,852
	Twelve Months Ended December 31, 2013
	Sales & Lease Ownership		Progressive		HomeSmart			Franchise		Manufacturing		Other			Consolidated Total
Net Income	$	—	$	—	$	—		$	—	$	—	$	—		$	120,666
Provision for Income Taxes	—		—		—			—		—		—			64,294
Operating Income	190,261		—		(3,450		)	54,171		107		(56,129		)	184,960
Interest Expense	7,070		—		916			—		80		(2,453		)	5,613
Depreciation	35,781		—		2,461			1,781		2,081		11,208			53,312
Amortization	2,776		—		928			—		—		—			3,704
EBITDA	235,888		—		855			55,952		2,268		(47,374		)	247,589
Regulatory Expenses	—		—		—			—		—		28,400			28,400
Retirement and Vacation Charges	—		—		—			—		—		4,917			4,917
Adjusted EBITDA	$	235,888	$	—	$	855		$	55,952	$	2,268	$	(14,057	)	$	280,906

13

Reconciliation of 2015 Projected Guidance for Earnings Per Share

Assuming Dilution to Non-GAAP Earnings Per Share Assuming Dilution

	Fiscal Year 2015
	Low Range		High Range
Projected Earnings Per Share Assuming Dilution	$	1.68	$	1.88
Add Progressive-Related Amortization Expense	.22		.22
Projected Non-GAAP Earnings Per Share Assuming Dilution	$	1.90	$	2.10

14