SEGMENTS

As of September 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 needed. Progressive is a leading virtual lease-to-own company that provides lease-purchase solutions on a variety of products, including furniture and bedding, 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 needed. 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 September 30,						Nine Months Ended September 30,
(In Thousands)	2015			2014			2015			2014
Revenues From External Customers:
Sales and Lease Ownership	$	468,794		$	481,340		$	1,479,300		$	1,525,100
Progressive	265,986			180,680			773,551			309,539
HomeSmart	15,075			15,445			47,322			48,598
Franchise	15,574			15,838			48,069			50,147
Manufacturing	24,014			20,794			78,048			75,692
Other	308			361			1,002			2,626
Revenues of Reportable Segments	789,751			714,458			2,427,292			2,011,702
Elimination of Intersegment Revenues	(23,803		)	(20,713		)	(76,783		)	(74,375		)
Cash to Accrual Adjustments	1,746			4,673			8,048			9,004
Total Revenues from External Customers	$	767,694		$	698,418		$	2,358,557		$	1,946,331
Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership¹	$	30,080		$	21,415		$	113,514		$	109,166
Progressive	5,617			1,689			44,761			1,366
HomeSmart	(403		)	(986		)	8			(1,717		)
Franchise	11,327			12,542			37,218			38,173
Manufacturing	349			(17		)	2,007			441
Other²	(12,398		)	(23,945		)	(35,545		)	(62,419		)
Earnings Before Income Taxes for Reportable Segments	34,572			10,698			161,963			85,010
Elimination of Intersegment (Profit) Loss	(353		)	22			(2,019		)	(405		)
Cash to Accrual and Other Adjustments	2,337			2,479			18,796			2,866
Total Earnings Before Income Taxes	$	36,556		$	13,199		$	178,740		$	87,471

¹Sales and Lease Ownership segment earnings before income taxes were impacted by $4.8 million of restructuring charges incurred during the nine months ended September 30, 2014, related to the Company's strategic decision to close 44 Company-operated stores, of which $2.6 million was incurred during the three months ended September 30, 2014.

²Loss before income taxes in the other category for the three and nine months ended September 30, 2014 was impacted by $9.1 million due to the retirements of both the Company's Chief Executive Officer and Chief Operating Officer, $4.3 million of restructuring charges related to the closure of 44 Company-operated stores 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.

For the nine months ended September 30, 2014, pretax losses include $13.7 million in financial and advisory costs related to addressing strategic matters, including proxy contests, of which $385,000 was incurred during the three months ended September 30, 2014, and $6.6 million in transaction costs related to the Progressive acquisition, of which $371,000 was incurred during the three months ended September 30, 2014.

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.



(In Thousands)	September 30, 2015		December 31, 2014
Assets:
Sales and Lease Ownership	$	1,190,224	$	1,246,325
Progressive	861,591		858,159
HomeSmart	41,939		47,585
Franchise	38,971		46,755
Manufacturing¹	27,461		23,050
Other	175,488		234,970
Total Assets	$	2,335,674	$	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 $18.4 million and $13.2 million as of September 30, 2015 and December 31, 2014, respectively.

The Company determines earnings (loss) before income taxes for all reportable segments in accordance with U.S. GAAP 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.


•	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 is allocated to the Sales and Lease Ownership and HomeSmart segments based a percentage of their revenues. Interest is allocated to the Progressive segment based on a percentage of the outstanding balances of its intercompany borrowings and of the debt incurred when it was acquired.