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Segments

12 Months Ended

Dec. 31, 2019

SEGMENTS

Description of Products and Services of Reportable Segments

As of December 31, 2019, the Company has three operating and reportable segments: Progressive Leasing, Aaron’s Business and Vive. As discussed above, we have updated all disclosures and references of DAMI in this Annual Report on Form 10-K to reflect the January 1, 2020 name change to Vive.

Progressive Leasing is a leading virtual lease-to-own company that provides lease-purchase solutions on a variety of products, including furniture and appliance, jewelry, mobile phones and accessories, mattress, and automobile electronics and accessories.

The Aaron’s Business offers furniture, home appliances, consumer electronics and accessories to consumers with a lease-to-own agreement with no credit needed through the Company’s Aaron’s-branded stores in the United States and Canada and e-commerce platform. This operating segment also supports franchisees of its Aaron’s stores. In addition, the Aaron’s Business segment includes the operations of Woodhaven, which manufactures and supplies the majority of the bedding and a significant portion of the upholstered furniture leased and sold in Company-operated and franchised stores.

Vive offers a variety of second-look financing programs originated through 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.

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.

Disaggregated Revenue

The following table presents revenue by source and by segment for the year ended December 31, 2019:



	Year Ended December 31, 2019
(In Thousands)	Progressive Leasing		Aaron's Business⁴		Vive		Total
Lease Revenues and Fees¹	$	2,128,133	$	1,570,358	$	—	$	3,698,491
Retail Sales²	—		38,474		—		38,474
Non-Retail Sales²	—		140,950		—		140,950
Franchise Royalties and Fees²	—		33,432		—		33,432
Interest and Fees on Loans Receivable³	—		—		35,046		35,046
Other	—		1,263		—		1,263
Total	$	2,128,133	$	1,784,477	$	35,046	$	3,947,656

¹Substantially all lease revenues and fees are within the scope of ASC 842, Leases. The Company had $27.4 million of other revenue within the scope of ASC 606, Revenue from Contracts with Customers.

²Revenue within the scope of ASC 606, Revenue from Contracts with Customers. Of the Franchise Royalties and Fees, $25.5 million is related to franchise royalty income that is recognized as the franchisee collects cash revenue from its customers. The remaining revenue is primarily related to fees collected for pre-opening services, which are being deferred and recognized as revenue over the agreement term, and advertising fees charged to franchisees. Retail sales are recognized as revenue at the point of sale. Non-retail sales are recognized as revenue upon delivery of the merchandise.

³Revenue within the scope of ASC 310, Credit Card Interest & Fees.

⁴Includes revenues from Canadian operations of $24.7 million, which are primarily Lease Revenues and Fees.

The following table presents revenue by source and by segment for the year ended December 31, 2018:



	Year Ended December 31, 2018
(In Thousands)	Progressive Leasing		Aaron's Business⁴		Vive		Total
Lease Revenues and Fees¹	$	1,998,981	$	1,507,437	$	—	$	3,506,418
Retail Sales²	—		31,271		—		31,271
Non-Retail Sales²	—		207,262		—		207,262
Franchise Royalties and Fees²	—		44,815		—		44,815
Interest and Fees on Loans Receivable³	—		—		37,318		37,318
Other	—		1,839		—		1,839
Total	$	1,998,981	$	1,792,624	$	37,318	$	3,828,923

¹Substantially all revenue is within the scope of ASC 840, Leases. The Company had $19.8 million of other revenue within the scope of ASC 606, Revenue from Contracts with Customers.

²Revenue within the scope of ASC 606, Revenue from Contracts with Customers. Of the Franchise Royalties and Fees, $33.3 million relates to franchise royalty income that is recognized as the franchisee collects cash revenue from its customers. Retail sales are recognized as revenue at the point of sale. Non-retail sales are recognized as revenue upon delivery of the merchandise.

³Revenue within the scope of ASC 310, Credit Card Interest & Fees.

⁴Includes revenues from Canadian operations of $21.3 million, which are primarily Lease Revenues and Fees.

The following table presents revenue by source and by segment for the year ended December 31, 2017:



	Year Ended December 31, 2017
(In Thousands)	Progressive Leasing		Aaron's Business⁴		Vive		Total
Lease Revenues and Fees¹	$	1,566,413	$	1,433,818	$	—	$	3,000,231
Retail Sales²	—		27,465		—		27,465
Non-Retail Sales²	—		270,253		—		270,253
Franchise Royalties and Fees²	—		48,278		—		48,278
Interest and Fees on Loans Receivable³	—		—		34,925		34,925
Other	—		2,556		—		2,556
Total	$	1,566,413	$	1,782,370	$	34,925	$	3,383,708

¹Substantially all revenue is within the scope of ASC 840, Leases. The Company had $6.3 million of other revenue within the scope of ASC 605, Revenue from Contracts with Customers.

²Revenue within the scope of ASC 605, Revenue from Contracts with Customers. Of the Franchise Royalties and Fees, $44.6 million relates to franchise royalty income that is recognized as the franchisee collects cash revenue from its customers. Retail sales are recognized as revenue at the point of sale. Non-retail sales are recognized as revenue upon delivery of the merchandise.

³Revenue within the scope of ASC 310, Credit Card Interest & Fees.

⁴Includes revenues from Canadian operations of $18.3 million, which are primarily Lease Revenues and Fees.

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.



	Year Ended December 31,
(In Thousands)	2019			2018			2017
Earnings (Loss) Before Income Tax (Benefit) Expense:
Progressive Leasing	$	55,711		$	175,015		$	140,224
Aaron’s Business	46,731			84,683			110,642
Vive	(9,654		)	(7,494		)	(11,289		)
Total Earnings Before Income Tax (Benefit) Expense	$	92,788		$	252,204		$	239,577

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



	December 31,
(In Thousands)	2019		2018
Assets:
Progressive Leasing	$	1,261,786	$	1,088,227
Aaron’s Business¹	1,740,281		1,483,102
Vive	85,825		95,341
Other	209,908		160,022
Total Assets²	$	3,297,800	$	2,826,692

Assets From Canadian Operations (included in totals above):
Aaron’s Business	$	28,152	$	25,893

¹ Includes inventory (principally raw materials and work-in-process) that has been classified within lease merchandise in the consolidated balance sheets of $14.0 million and $15.2 million as of December 31, 2019 and 2018, respectively.


²	In accordance with the adoption of ASC 842 the Company, as a lessee, is required to recognize substantially all of its operating leases on the balance sheet as operating lease right-of-use assets and operating lease liabilities. For periods prior to the year ended December 31, 2019 the Company's operating lease right of use assets and liabilities are not included on the Company's balance sheet.



	Year Ended December 31,
(In Thousands)	2019		2018			2017
Depreciation and Amortization¹:
Progressive Leasing	$	29,967	$	27,974		$	29,048
Aaron’s Business	73,709		64,744			52,251
Vive	1,385		1,432			1,273
Total Depreciation and Amortization	$	105,061	$	94,150		$	82,572

Depreciation of Lease Merchandise:
Progressive Leasing	$	1,445,027	$	1,219,035		$	949,167
Aaron’s Business	527,331		508,869			499,464
Vive	—		—			—
Total Depreciation of Lease Merchandise	$	1,972,358	$	1,727,904		$	1,448,631

Interest Expense (Income):
Progressive Leasing	$	8,572	$	16,288		$	18,577
Aaron’s Business	4,868		(2,944		)	(2,366		)
Vive	3,527		3,096			4,327
Total Interest Expense	$	16,967	$	16,440		$	20,538

Capital Expenditures:
Progressive Leasing	$	12,608	$	10,711		$	8,213
Aaron’s Business	79,931		67,099			48,335
Vive	424		1,035			1,425
Total Capital Expenditures	$	92,963	$	78,845		$	57,973

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

In 2019, the results of the Company's operating segments were impacted by the following items:

•

Aaron's Business earnings before income taxes were impacted by $40.0 million of restructuring charges which were primarily to record closed store operating lease right-of-use asset impairment and operating lease charges, the impairment of vacant store properties, including the closure of one of our store support buildings, workforce reductions, and other impairment charges related to the Company's strategic decision to close Company-operated stores as discussed in Note 11 to these consolidated financial statements.


•	Aaron's Business earnings before income taxes were impacted by gains of $7.4 million from the sale of various real estate properties which were classified within other operating income in the consolidated statements of earnings.

•

Aaron's Business earnings before income taxes were impacted by gains on insurance recoveries of $4.5 million related to payments received from and final settlements reached with insurance carriers for Hurricanes Harvey and Irma property and business interruption claims in excess of related property insurance receivables. Such gains were classified within other operating income in the consolidated statements of earnings.


•	Progressive earnings before taxes were impacted by $179.3 million in regulatory charges and legal expenses incurred related to Progressive Leasing's tentative settlement of the FTC matter discussed in Note 10 to these consolidated financial statements.

In 2018, the results of the Company’s operating segments were impacted by the following items:


•	Earnings before income taxes for the Aaron's Business includes a full impairment of the PerfectHome investment of $20.1 million.


•	Vive's loss before income taxes includes a gain of $0.8 million related to the sale of Vive's former corporate office building.

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 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 11 to these consolidated financial statements.

For the year ended December 31, 2019 and all prior reporting periods, the Company determined 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, which is consistent with how the chief operating decision maker regularly reviews the segment results.

•

Interest expense is allocated from Aaron's Business to the Progressive Leasing and Vive segments based on a percentage of the outstanding balances of its intercompany borrowings and of the debt incurred when it was acquired. Interest expense allocated to Progressive Leasing and Vive in excess of interest expense incurred by Aaron's Business from third party lenders is reflected in the table above.