SEGMENTS

Description of Products and Services of Reportable Segments

As of December 31, 2017, the Company has three operating and reportable segments: Progressive Leasing, Aaron’s Business and DAMI. During the year ended December 31, 2017, the Company changed its composition of reportable segments by combining the Sales and Lease Ownership, Franchise and Woodhaven components into one reportable segment, the Aaron’s Business, to align the reportable segments with the current organizational structure and the operating results that the chief operating decision maker regularly reviews to analyze performance and allocate resources. The Company has retroactively adjusted, for all periods presented, its segment disclosures to align with the current composition of reportable segments.

Progressive Leasing 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. DAMI offers a variety of second-look financing programs originated through two third-party federally insured banks to customers of participating merchants and, together with Progressive Leasing, allows the Company to provide retail partners with below-prime customers one source for financing and leasing transactions. The results of DAMI have been included in the Company’s consolidated results and presented as a reportable segment from the October 15, 2015 acquisition date.

The Aaron’s Business offers furniture, consumer electronics, home appliances and accessories to consumers primarily on a month-to-month, lease-to-own basis with no credit needed through the Company’s Aaron’s stores in the United States and Canada. This operating segment also supports franchisees of its Aaron’s stores. In addition, the Aaron’s Business segment also includes the operations of Woodhaven Furniture Industries, which manufactures and supplies the majority of the upholstered furniture and bedding leased and sold in Company-operated and franchised stores. The HomeSmart operations, prior to the May 2016 disposition, is reflected within the Aaron’s Business segment and offered furniture, electronics, appliances and computers to customers primarily on a weekly payment basis with no credit needed.

Measurement of Segment Profit or Loss and Segment Assets

The Company evaluates performance and allocates resources based on revenue growth and pre-tax profit or loss from operations. Intersegment sales are completed at internally negotiated amounts. Since the intersegment profit affects inventory valuation, depreciation and cost of goods sold are adjusted when intersegment profit is eliminated in consolidation.

Factors Used by Management to Identify the Reportable Segments

The Company’s reportable segments are based on the operations of the Company that the chief operating decision maker regularly reviews to analyze performance and allocate resources among business units of the Company.



	Year Ended December 31,
(In Thousands)	2017			2016			2015
Revenues:
Progressive Leasing	$	1,566,413		$	1,237,597		$	1,049,681
Aaron’s Business	1,782,370			1,946,039			2,127,230
DAMI¹	34,925			24,080			2,845
Total Revenues from External Customers	$	3,383,708		$	3,207,716		$	3,179,756

Earnings (Loss) Before Income Tax (Benefit) Expense:
Progressive Leasing	$	140,224		$	104,686		$	54,525
Aaron’s Business	110,642			123,009			160,559
DAMI	(11,289		)	(9,273		)	(1,964		)
Total Earnings Before Income Tax (Benefit) Expense	$	239,577		$	218,422		$	213,120

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

Corporate-related assets that benefit multiple segments are reported as other assets in the table below.



	December 31,
(In Thousands)	2017		2016
Assets:
Progressive Leasing	$	1,022,413	$	919,487
Aaron’s Business¹	1,261,234		1,199,213
DAMI	108,306		102,958
Other	300,311		394,078
Total Assets	$	2,692,264	$	2,615,736

Assets From Canadian Operations (included in totals above):
Aaron’s Business	$	20,223	$	17,199

¹ Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the consolidated balance sheets of $16.3 million and $14.3 million as of December 31, 2017 and 2016, respectively.



	Year Ended December 31,
(In Thousands)	2017			2016			2015
Depreciation and Amortization¹:
Progressive Leasing	$	29,048		$	30,727		$	28,870
Aaron’s Business	52,251			50,658			51,115
DAMI	1,273			993			218
Total Depreciation and Amortization	$	82,572		$	82,378		$	80,203

Interest Expense:
Progressive Leasing	$	18,577		$	20,042		$	21,959
Aaron’s Business	(2,366		)	(768		)	616
DAMI	4,327			4,116			764
Total Interest Expense	$	20,538		$	23,390		$	23,339

Capital Expenditures:
Progressive Leasing	$	8,213		$	6,084		$	8,175
Aaron’s Business	48,335			50,582			52,342
DAMI	1,425			787			40
Total Capital Expenditures	$	57,973		$	57,453		$	60,557

Revenues From Canadian Operations (included in totals above):
Aaron’s Business	$	18,256		$	12,434		$	3,431

¹Excludes depreciation of lease merchandise, which is not included in the chief operating decision maker's measure of depreciation and amortization.

In 2017, the results of the Company’s operating segments were impacted by the following items:


•	Aaron's Business earnings before income taxes were impacted by $17.5 million of restructuring charges incurred during the year ended December 31, 2017 related to store contractual lease obligations, severance costs and impairment charges in connection with the Company's strategic decision to close Company-operated stores as discussed in Note 10 to these consolidated financial statements.

In 2016, the results of the Company’s operating segments were impacted by the following items:


•	Aaron's Business earnings before income taxes were impacted by $20.2 million of restructuring charges incurred during the year ended December 31, 2016 in connection with the Company’s strategic decision to close Company-operated stores as discussed in Note 10 to these consolidated financial statements.


•	Aaron's Business earnings before income taxes includes a loss on the sale of HomeSmart of $4.3 million and additional charges of $1.1 million related to exiting the HomeSmart business during the year ended December 31, 2016.


•	Earnings before income taxes for the Aaron's Business during the year ended December 31, 2016 were also impacted by a gain of $11.1 million on the January 2016 sale of the Company’s former corporate office building.

In 2015, the results of the Company’s operating segments were impacted by the following items:


•	Earnings before income taxes for the Aaron’s Business included a $3.5 million loss related to a lease termination on a Company aircraft.


•	Progressive Leasing earnings before income taxes included $3.7 million of transaction costs related to the October 15, 2015 DAMI acquisition.

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 Corporate overhead is allocated to each reportable segment based on segment revenues. Any unallocated Corporate overhead in excess of predetermined amounts is assigned to the Aaron's Business.


•	Interest expense is allocated to the Progressive Leasing and DAMI segments based on a percentage of the outstanding balances of its intercompany borrowings and of the debt incurred when it was acquired.