SEGMENTS

As of June 30, 2015, 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.

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 16,000 retail locations on a variety of products, including furniture and bedding, prepaid wireless phones, consumer electronics, appliances and jewelry. The HomeSmart division offers 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 or loss.



	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2015			2014			2015			2014
Revenues From External Customers:
Sales and Lease Ownership	$	474,346		$	495,049		$	1,010,506		$	1,043,760
Progressive	255,946			128,859			507,565			128,859
HomeSmart	15,275			15,749			32,247			33,153
Franchise	15,491			16,225			32,495			34,309
Manufacturing	25,228			23,743			54,034			54,898
Other	326			367			694			2,265
Revenues of Reportable Segments	786,612			679,992			1,637,541			1,297,244
Elimination of Intersegment Revenues	(24,691		)	(23,404		)	(52,980		)	(53,662		)
Cash to Accrual Adjustments	7,128			5,902			6,302			4,331
Total Revenues from External Customers	$	769,049		$	662,490		$	1,590,863		$	1,247,913
Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership	$	30,859		$	32,132		$	83,434		$	87,751
Progressive	23,314			(323		)	39,144			(323		)
HomeSmart	(126		)	(662		)	411			(731		)
Franchise	11,993			11,073			25,891			25,631
Manufacturing	376			(89		)	1,658			458
Other	(11,668		)	(28,547		)	(23,147		)	(38,474		)
Earnings Before Income Taxes for Reportable Segments	54,748			13,584			127,391			74,312
Elimination of Intersegment (Profit) Loss	(398		)	82			(1,666		)	(427		)
Cash to Accrual and Other Adjustments	10,004			(104		)	16,459			387
Total Earnings Before Income Taxes	$	64,354		$	13,562		$	142,184		$	74,272

Revenues in the Other category are primarily revenues 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 and (iii) several minor unrelated activities. The pre-tax losses or earnings 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.

During the six months ended June 30, 2014, the results of the Company's operating segments were impacted by the following:


•	Sales and Lease Ownership earnings before income taxes included $2.3 million of restructuring charges related to the Company's strategic decision to close 44 Company-operated stores and restructure its home office and field support.

•

The results of the Other category loss before income taxes included $13.3 million in financial and advisory costs related to addressing strategic matters, including proxy contests, of which $12.4 million was incurred during the three months ended June 30, 2014. In addition, the Other category loss included $6.3 million in transaction costs related to the Progressive acquisition, of which $5.5 million was incurred during the three months ended June 30, 2014.



(In Thousands)	June 30, 2015		December 31, 2014
Assets:
Sales and Lease Ownership	$	1,175,071	$	1,246,325
Progressive	909,440		858,159
HomeSmart	43,950		47,585
Franchise	34,949		46,755
Manufacturing¹	24,222		23,050
Other	167,075		234,970
Total Assets	$	2,354,707	$	2,456,844


¹	Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the condensed consolidated balance sheets of $14.9 million and $13.2 million as of June 30, 2015 and December 31, 2014, respectively.

Earnings (loss) before income taxes for the Progressive reportable segment are determined in accordance with accounting principles generally accepted in the United States. The Company determines earnings (loss) before income taxes for all other reportable segments in accordance with accounting principles generally accepted in the United States with the following adjustments:


•	Revenues in the Sales and Lease Ownership and HomeSmart segments are reported on a cash basis for management reporting purposes.


•	A predetermined amount of each reportable segment’s revenues is charged to the reportable segment as an allocation of corporate overhead. This allocation was generally 5% in 2015 and 2014.


•	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 on borrowings is estimated at the beginning of each year. Interest is then allocated to the Sales and Lease Ownership and HomeSmart segments based on relative total assets.