SEGMENTS

As of September 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 third party federally insured bank to customers of participating merchants and, together with Progressive, allows the Company to provide retail partners with below prime customers one source for financing and leasing transactions. 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 nine months ended September 30, 2016, 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 September 30,						Nine Months Ended September 30,
(In Thousands)	2016			2015			2016			2015
REVENUES:
Sales and Lease Ownership	$	437,075		$	470,478		$	1,405,990		$	1,487,217
Progressive	308,397			265,986			913,636			773,551
HomeSmart	—			15,137			25,392			47,453
DAMI¹	6,480			—			16,545			—
Franchise	13,898			15,574			44,965			48,069
Manufacturing	21,051			24,014			67,564			78,048
Other	102			307			739			1,002
Revenues of Reportable Segments	787,003			791,496			2,474,831			2,435,340
Elimination of Intersegment Revenues	(18,021		)	(23,802		)	(62,069		)	(76,783		)
Total Revenues from External Customers	$	768,982		$	767,694		$	2,412,762		$	2,358,557

EARNINGS (LOSS) BEFORE INCOME TAXES:
Sales and Lease Ownership²	$	23,385		$	32,348		$	118,910		$	132,079
Progressive	24,655			5,617			75,652			44,761
HomeSmart³	(40		)	(335		)	(3,693		)	239
DAMI	(2,524		)	—			(7,686		)	—
Franchise⁴	11,022			11,327			35,922			37,218
Manufacturing	(545		)	349			859			2,007
Other⁵	(11,430		)	(12,397		)	(33,401		)	(35,545		)
Earnings Before Income Taxes for Reportable Segments	44,523			36,909			186,563			180,759
Elimination of Intersegment Loss (Profit)	759			(353		)	(429		)	(2,019		)
Total Earnings Before Income Taxes	$	45,282		$	36,556		$	186,134		$	178,740

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

²Sales and Lease Ownership earnings before income taxes were impacted by $2.6 million of restructuring charges incurred during the three months ended September 30, 2016, primarily related to impairment charges incurred in conjunction with the Company's strategic decision to close 56 Company-operated stores.

³HomeSmart 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 nine months ended September 30, 2016, of which $40,000 was incurred during the three months ended September 30, 2016.

⁴ Franchise earnings before income taxes were impacted by $88,000 of restructuring charges related to a reduction in workforce incurred during the three months ended September 30, 2016.

⁵Earnings before income taxes for the Other category during the nine months ended September 30, 2016 were impacted by a gain of $11.1 million on the January 29, 2016 sale of the Company's corporate office building and $2.0 million of restructuring charges related to a reduction in workforce incurred during the three months ended September 30, 2016.

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)	September 30, 2016		December 31, 2015
Assets:
Sales and Lease Ownership	$	1,130,717	$	1,261,040
Progressive	872,168		878,457
HomeSmart	—		44,429
DAMI	95,211		97,486
Franchise	33,465		53,693
Manufacturing¹	24,943		28,986
Other	394,886		291,080
Total Assets	$	2,551,390	$	2,655,171

¹Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the condensed consolidated balance sheets of $16.7 million and $19.4 million as of September 30, 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:


•	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 and DAMI segments based on a percentage of the outstanding balances of its intercompany borrowings and of the debt incurred when it was acquired.