SEGMENTS

As of June 30, 2016, the Company had five operating and reportable segments: Sales and Lease Ownership, Progressive, DAMI, Franchise and Manufacturing. On May 13, 2016, the Company sold its 82 remaining Company-operated HomeSmart stores and ceased operations of that division. 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, prior to its disposition, offered 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.

During the quarter, management of the Company changed its internal segment measure of profit and loss for the Sales and Lease Ownership and HomeSmart segments to be on an accrual basis rather than on a cash basis. The Company retroactively adjusted Revenues of Reportable Segments and Earnings Before Income Taxes for Reportable Segments disclosed in the tables below to conform to this change.



	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2016			2015			2016			2015
Revenues From External Customers:
Sales and Lease Ownership	$	461,464		$	481,208		$	968,915		$	1,016,739
Progressive	298,574			255,946			605,239			507,565
HomeSmart	7,544			15,541			25,392			32,316
DAMI¹	5,302			—			10,065			—
Franchise	14,772			15,491			31,067			32,495
Manufacturing	21,590			25,228			46,513			54,034
Other	353			327			637			695
Revenues of Reportable Segments	809,599			793,741			1,687,828			1,643,844
Elimination of Intersegment Revenues	(20,246		)	(24,692		)	(44,048		)	(52,981		)
Total Revenues from External Customers	$	789,353		$	769,049		$	1,643,780		$	1,590,863
Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership	$	38,947		$	40,690		$	95,525		$	99,731
Progressive	29,083			23,314			50,997			39,144
HomeSmart²	(694		)	48			(3,653		)	574
DAMI	(2,280		)	—			(5,162		)	—
Franchise	11,781			11,993			24,900			25,891
Manufacturing	536			376			1,404			1,658
Other³	(15,816		)	(11,669		)	(21,971		)	(23,148		)
Earnings Before Income Taxes for Reportable Segments	61,557			64,752			142,040			143,850
Elimination of Intersegment Profit	(433		)	(398		)	(1,188		)	(1,666		)
Total Earnings Before Income Taxes	$	61,124		$	64,354		$	140,852		$	142,184

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

²HomeSmart earnings before income taxes includes a loss on the sale of HomeSmart of $4.2 million and additional charges of $1.4 million related to exiting the HomeSmart business during the six months ended June 30, 2016, of which $1.0 million was incurred during the three months ended June 30, 2016.

³Earnings before income taxes for the Other category during the the six months ended June 30, 2016 includes a gain of $11.1 million on the January 29, 2016 sale of the Company's corporate office building .

The pre-tax losses or earnings in the Other category generally are the result of corporate overhead not allocated to the reportable segments for management purposes.



(In Thousands)	June 30, 2016		December 31, 2015
Assets:
Sales and Lease Ownership	$	1,187,749	$	1,261,040
Progressive	877,413		878,457
HomeSmart	—		44,429
DAMI	93,576		97,486
Franchise	31,582		53,693
Manufacturing¹	28,529		28,986
Other	322,598		291,080
Total Assets	$	2,541,447	$	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 $19.4 million as of June 30, 2016 and December 31, 2015.

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


•	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.


•	Interest expense has been allocated to the Sales and Lease Ownership and HomeSmart segments based on 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.