SEGMENTS

As of March 31, 2016, the Company had six operating and reportable segments: Sales and Lease Ownership, Progressive, HomeSmart, DAMI, Franchise and Manufacturing. On April 5, 2016, the Company entered into an agreement to sell HomeSmart. See Note 9 for more information. The results of DAMI have been included in the Company's consolidated results and presented as a reportable segment from its October 15, 2015 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, consumer electronics, appliances and jewelry. The HomeSmart division offers furniture, electronics, appliances and computers to customers primarily on a weekly payment basis with no credit needed. DAMI offers a variety of second-look financing programs originated through a federally insured bank to customers of participating merchants and, together with Progressive, allows the Company to provide retail partners one source for financing and leasing transactions with below prime customers. The 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 are eliminated through the elimination of intersegment revenues and intersegment profit or loss.



	Three Months Ended March 31,
(In Thousands)	2016			2015
Revenues From External Customers:
Sales and Lease Ownership	$	502,192		$	536,160
Progressive	306,665			251,619
HomeSmart	17,680			16,972
DAMI¹	4,763			—
Franchise	16,295			17,004
Manufacturing	24,923			28,806
Other	284			368
Revenues of Reportable Segments	872,802			850,929
Elimination of Intersegment Revenues	(23,802		)	(28,289		)
Cash to Accrual Adjustments	5,427			(826		)
Total Revenues from External Customers	$	854,427		$	821,814
Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership	$	43,562		$	52,575
Progressive	21,914			15,830
HomeSmart²	(3,229		)	537
DAMI	(2,882		)	—
Franchise	13,119			13,898
Manufacturing	868			1,282
Other³	(6,156		)	(11,479		)
Earnings Before Income Taxes for Reportable Segments	67,196			72,643
Elimination of Intersegment Profit	(755		)	(1,268		)
Cash to Accrual and Other Adjustments	13,287			6,455
Total Earnings Before Income Taxes	$	79,728		$	77,830

¹Represents interest and fees on loans receivable, and excludes the effect of interest expense.

²HomeSmart earnings before income taxes includes an estimated loss on the sale of HomeSmart of $4.6 million during the three months ended March 31, 2016 incurred upon classification of the HomeSmart Disposal Group as held for sale.

³Earnings before income taxes for the Other category includes a gain of $11.1 million on the sale of the Company's corporate office building during the the three months ended March 31, 2016.

Revenues in the Other category are primarily revenues attributable to leasing space to unrelated third parties in the corporate headquarters building and several minor unrelated activities. The pre-tax losses or earnings in the Other category generally 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 Thousands)	March 31, 2016		December 31, 2015
Assets:
Sales and Lease Ownership	$	1,249,551	$	1,261,040
Progressive	878,204		878,457
HomeSmart	38,621		44,429
DAMI	93,701		97,486
Franchise	39,161		53,693
Manufacturing¹	31,538		28,986
Other	217,991		291,080
Total Assets	$	2,548,767	$	2,655,171


¹	Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the condensed consolidated balance sheets of $22.1 million and $19.4 million as of March 31, 2016 and December 31, 2015, 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.


•	Generally 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 expense is allocated to the Sales and Lease Ownership and HomeSmart segments based a percentage of their revenues. Interest expense 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.