SEGMENTS

Description of Products and Services of Reportable Segments

As of December 31, 2014, the Company had five operating and reportable segments: Sales and Lease Ownership, Progressive, HomeSmart, Franchise and Manufacturing. The results of Progressive, which is presented as a reportable segment, have been included in the Company's consolidated results from the April 14, 2014 acquisition date. In January 2014, the Company sold the 27 Company-operated RIMCO stores and the rights to five franchised stores. In all periods presented, RIMCO has been reclassified from the RIMCO segment to Other.

The Aaron’s Sales & Lease Ownership division offers furniture, electronics, appliances and computers to consumers primarily on a monthly payment basis with no credit requirements. Progressive is a leading virtual lease-to-own company that provides lease-purchase solutions through over 15,000 retail locations. The HomeSmart division was established to offer furniture, electronics, appliances and computers to consumers primarily on a weekly payment basis with no credit requirements. The Company’s Franchise operation awards franchises and supports franchisees of its sales and lease ownership concept. The Manufacturing segment manufactures upholstered furniture and bedding predominantly for use by Company-operated and franchised stores. Therefore, the Manufacturing segment's revenues and earnings before income taxes are primarily the result of intercompany transactions, substantially all of which revenues and earnings are eliminated through the elimination of intersegment revenues and intersegment profit.

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 a cash basis. Intersegment sales are completed at internally negotiated amounts. Since the intersegment profit 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 based on the operations of the Company that the chief operating decision maker regularly reviews to analyze performance and allocate resources among business units of the Company.

Information on segments and a reconciliation to earnings before income taxes are as follows for the years ended December 31:



(In Thousands)	2014			2013			2012
Revenues From External Customers:
Sales and Lease Ownership	$	2,037,101		$	2,076,269		$	2,068,124
Progressive	549,548			—			—
HomeSmart	64,276			62,840			55,226
Franchise	65,902			68,575			66,655
Manufacturing	104,058			106,523			95,693
Other	2,969			22,158			19,688
Revenues of Reportable Segments	2,823,854			2,336,365			2,305,386
Elimination of Intersegment Revenues	(102,296		)	(103,834		)	(95,150		)
Cash to Accrual Adjustments	3,681			2,100			2,591
Total Revenues from External Customers	$	2,725,239		$	2,234,631		$	2,212,827

Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership	$	140,854		$	183,965		$	244,014
Progressive	4,603			—			—
HomeSmart	(2,643		)	(3,428		)	(6,962		)
Franchise	50,504			54,171			52,672
Manufacturing	860			107			382
Other	(75,905		)	(56,114		)	(12,337		)
Earnings Before Income Taxes for Reportable Segments	118,273			178,701			277,769
Elimination of Intersegment Profit	(813		)	(94		)	(393		)
Cash to Accrual and Other Adjustments	4,244			6,353			(521		)
Total Earnings Before Income Taxes	$	121,704		$	184,960		$	276,855

Assets:
Sales and Lease Ownership	$	1,246,325		$	1,431,720		$	1,410,075
Progressive	858,159			—			—
HomeSmart	47,585			47,970			58,347
Franchise	46,755			47,788			53,820
Manufacturing¹	23,050			24,305			24,787
Other	234,970			275,393			265,900
Total Assets	$	2,456,844		$	1,827,176		$	1,812,929

¹ Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the consolidated balance sheets of $13.2 million, $14.0 million and $14.1 million as of December 31, 2014, 2013 and 2012, respectively.



(In Thousands)	2014			2013			2012
Depreciation and Amortization:
Sales and Lease Ownership	$	633,119		$	639,951		$	619,133
Progressive	346,343			—			—
HomeSmart	22,407			23,977			20,482
Franchise	1,599			1,781			1,787
Manufacturing	1,649			2,081			4,430
Other	13,117			17,315			12,503
Total Depreciation and Amortization	$	1,018,234		$	685,105		$	658,335

Interest Expense:
Sales and Lease Ownership	$	7,834		$	7,070		$	7,589
Progressive	14,992			—			—
HomeSmart	922			916			846
Franchise	—			—			—
Manufacturing	50			80			106
Other	(4,583		)	(2,453		)	(2,149		)
Total Interest Expense	$	19,215		$	5,613		$	6,392

Capital Expenditures:
Sales and Lease Ownership	$	24,135		$	30,831		$	33,460
Progressive	1,625			—			—
HomeSmart	1,020			994			4,121
Franchise	—			—			—
Manufacturing	1,477			1,531			4,493
Other	19,308			24,789			22,999
Total Capital Expenditures	$	47,565		$	58,145		$	65,073

Revenues From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	179		$	300		$	308

Assets From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	776		$	1,021		$	1,391

Revenues in the Other segment are primarily attributable to (i) the RIMCO segment through the date of sale in January 2014 (ii) leasing space to unrelated third parties in the corporate headquarters building, (iii) revenues of the Aaron’s Office Furniture division through the date of sale in August 2012 and (iv) several minor unrelated activities. The pre-tax losses in the Other segment are the result of the activity mentioned above, net of the portion of corporate overhead not allocated to the reportable segments for management purposes.

In 2014, the results of the Company's operating segments were impacted by the following items:


•	Sales and Lease Ownership earnings before income taxes included $4.8 million of restructuring charges related to the Company's strategic decision to close 44 Company-operated stores.

•

Other segment loss before income taxes included $13.7 million in financial and advisory costs related to addressing 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 retirement 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 segment 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.

In 2012, the results of the Company's operating segments were impacted by the following items:


•	Sales and Lease Ownership earnings before income taxes included a $35.5 million reversal of a previously accrued lawsuit loss contingency.


•	Other segment loss before income taxes included $10.4 million in retirement charges associated with the retirement of the Company’s founder and Chairman of the Board.