SEGMENTS

Description of Products and Services of Reportable Segments

As of December 31, 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 segment. The results of DAMI and Progressive have been included in the Company’s consolidated results and presented as reportable segments from their October 15, 2015 and April 14, 2014 acquisition dates, respectively.

The Sales and Lease Ownership segment offers furniture, electronics, appliances and computers to consumers primarily through its stores 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 segment, 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 two third-party federally insured banks 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, which are eliminated through the elimination of intersegment revenues and intersegment profit or loss.

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.

During the year ended December 31, 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.



	Year Ended December 31,
(In Thousands)	2016			2015			2014
Revenues:
Sales and Lease Ownership	$	1,852,312		$	1,997,270		$	2,040,617
Progressive	1,237,597			1,049,681			519,342
HomeSmart	25,392			63,204			64,441
DAMI ¹	24,080			2,845			—
Franchise	58,350			63,507			65,902
Manufacturing	90,274			106,020			104,058
Other ²	950			1,118			2,969
Revenues of Reportable Segments	3,288,955			3,283,645			2,797,329
Elimination of Intersegment Revenues	(81,239		)	(103,889		)	(102,296		)
Total Revenues from External Customers	$	3,207,716		$	3,179,756		$	2,695,033

Earnings (Loss) Before Income Taxes:
Sales and Lease Ownership	$	127,306		$	162,996		$	145,068
Progressive	104,686			54,525			4,603
HomeSmart	(3,479		)	606			(2,613		)
DAMI	(9,273		)	(1,964		)	—
Franchise	46,766			48,576			50,504
Manufacturing	(27		)	2,520			860
Other ³	(48,164		)	(51,651		)	(75,905		)
Earnings Before Income Taxes for Reportable Segments	217,815			215,608			122,517
Elimination of Intersegment Loss (Profit)	607			(2,488		)	(813		)
Total Earnings Before Income Taxes	$	218,422		$	213,120		$	121,704

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

² Revenues in the Other category are primarily 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.

³The pre-tax losses in the Other category are the result of the activity mentioned above, net of the portion of corporate overhead not allocated to the reportable segments for management purposes.



	December 31,
	2016		2015
Assets:
Sales and Lease Ownership	$	1,142,474	$	1,261,040
Progressive	919,487		878,457
HomeSmart	—		44,429
DAMI	102,958		97,486
Franchise	34,188		53,693
Manufacturing ¹	22,551		28,986
Other	394,078		334,397
Total Assets	$	2,615,736	$	2,698,488

Assets From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	17,199	$	8,900

¹ Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the consolidated balance sheets of $14.3 million, $19.4 million and $13.2 million as of December 31, 2016, 2015 and 2014, respectively.



	Year Ended December 31,
(In Thousands)	2016			2015			2014
Depreciation and Amortization:
Sales and Lease Ownership	$	581,738		$	592,450		$	633,119
Progressive	776,207			661,646			346,343
HomeSmart	8,103			20,817			22,407
DAMI	993			218			—
Franchise	1,149			1,429			1,599
Manufacturing	1,297			1,482			1,649
Other	17,186			14,805			13,117
Total Depreciation and Amortization	$	1,386,673		$	1,292,847		$	1,018,234

Interest Expense:
Sales and Lease Ownership	$	8,257		$	7,751		$	7,834
Progressive	20,042			21,959			14,992
HomeSmart	294			900			922
DAMI	4,116			764			—
Franchise	—			—			—
Manufacturing	1			26			50
Other	(9,320		)	(8,061		)	(4,583		)
Total Interest Expense	$	23,390		$	23,339		$	19,215

Capital Expenditures:
Sales and Lease Ownership	$	29,561		$	23,082		$	24,135
Progressive	6,084			8,175			1,625
HomeSmart	304			374			1,020
DAMI	787			40			—
Franchise	—			—			—
Manufacturing	492			387			1,477
Other	20,225			28,499			19,308
Total Capital Expenditures	$	57,453		$	60,557		$	47,565

Revenues From Canadian Operations (included in totals above):
Sales and Lease Ownership	$	12,434		$	3,431		$	179

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


•	Sales and Lease Ownership earnings before income taxes were impacted by $16.6 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.


•	HomeSmart 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 Other category during the year ended December 31, 2016 were impacted by a gain of $11.1 million on the January 2016 sale of the Company's former corporate office building and $3.5 million of restructuring charges related to a reduction in workforce incurred during the year ended December 31, 2016.

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


•	Earnings before income taxes of the Other category included a $3.5 million loss related to a lease termination on a Company aircraft.


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

In 2014, the results of the Company's operating segments were impacted by the following items:


•	Sales and Lease Ownership earnings before income taxes included $4.8 million of restructuring charges related to the Company's strategic decision to close 44 Company-operated stores.

•

Other category loss before income taxes included $13.7 million in financial and advisory costs related to addressing now-resolved strategic matters, including proxy contests, $4.3 million of restructuring charges in connection with the store closures noted above, $9.1 million of charges associated with the retirements of both the Company's Chief Executive Officer and Chief Operating Officer, $6.6 million in transaction costs related to the Progressive acquisition 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.

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.


•	Accruals related to store closures, with the exception of the 2016 restructuring plan, 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.