Aaron's Company
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (Mark One)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the Transition Period from to Commission file Number. 1-13941 AARON’S, INC.(Exact name of registrant as specified in its charter) GEORGIA 58-0687630(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 400 Galleria Parkway SE, Suite 300Atlanta, Georgia 30339-3182(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (678) 402-3000Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, $0.50 Par Value New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ýIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes ý No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.Large Accelerated Filerý Accelerated Filer ¨ Non-Accelerated Filer¨ Smaller Reporting Company ¨Emerging Growth Company¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period forcomplying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ýThe aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2017 was $2,390,290,895 based on the closingprice on that date as reported by the New York Stock Exchange. Solely for the purpose of this calculation and for no other purpose, the non-affiliates of theregistrant are assumed to be all shareholders of the registrant other than (i) directors of the registrant, (ii) executive officers of the registrant, and (iii) anyshareholder that beneficially owns 10% or more of the registrant’s common shares.As of February 23, 2018, there were 70,077,559 shares of the Company’s common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive Proxy Statement for the 2018 annual meeting of shareholders, to be filed subsequently with the Securities andExchange Commission, or SEC, pursuant to Regulation 14A, are incorporated by reference into Part III of this Annual Report on Form 10-K.1 PART I4ITEM 1. BUSINESS4ITEM 1A. RISK FACTORS14ITEM 1B. UNRESOLVED STAFF COMMENTS24ITEM 2. PROPERTIES25ITEM 3. LEGAL PROCEEDINGS26ITEM 4. MINE SAFETY DISCLOSURES26 PART II27ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES27ITEM 6. SELECTED FINANCIAL DATA29ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS30ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK47ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA48ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE93ITEM 9A. CONTROLS AND PROCEDURES93ITEM 9B. OTHER INFORMATION93 PART III94ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE94ITEM 11. EXECUTIVE COMPENSATION94ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS94ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE94ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES94 PART IV95ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES95 SIGNATURES1002CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTSCertain oral and written statements made by Aaron’s, Inc. (the "Company") about future events and expectations, including statements in this Annual Reporton Form 10-K, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For those statementswe claim the protection of the safe harbor provisions for forward-looking statements contained in such section. Forward-looking statements are not statementsof historical facts but are based on management’s current beliefs, assumptions and expectations regarding our future economic performance, taking intoaccount the information currently available to management.Generally, the words "anticipate," "believe," "could," "estimate," "expect," "intend," "plan," "project," "would," and similar expressions identify forward-looking statements. All statements which address operating performance, events or developments that we expect or anticipate will occur in the future,including the anticipated impacts and outcomes of our strategic plan, with respect to improving our Aaron’s store profitability; accelerating our omnichannelplatform; promoting communication, coordination and integration; converting our existing pipeline into Progressive Leasing retail partners; optimizing theeconomic return of our active lease portfolio; strengthening our relationships with Progressive Leasing’s and DAMI’s current retail partners; andchampioning compliance, as well as the expected impacts and outcomes of closing and consolidating certain of our Company-operated Aaron’s stores;initiatives to grow market share and statements expressing general optimism about future operating results, are forward-looking statements. Forward-lookingstatements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and theCompany’s present expectations or projections. Factors that could cause our actual results to differ materially from any forward-looking statements include:(i) changes in the enforcement of existing laws and regulations and the adoption of new laws and regulations that may unfavorably impact our businesses; (ii)our strategic plan failing to deliver the benefits and outcomes we expect, with respect to improving our Aaron’s Business in particular; (iii) continuation ofthe economic challenges faced by portions of our traditional lease-to-own customer base; (iv) increased competition from traditional and virtual lease-to-owncompetitors, as well as from traditional and on-line retailers and other competitors; (v) financial challenges faced by our franchisees; and (vi) other factorsdiscussed in Item 1A. Risk Factors of this Annual Report on Form 10-K. We qualify any forward-looking statements entirely by these cautionary factors.The above mentioned risk factors are not all-inclusive. Given these uncertainties and that such statements speak only as of the date made, you should notplace undue reliance on forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as aresult of new information, future events, changes in assumptions or otherwise.3PART IITEM 1. BUSINESSUnless otherwise indicated or unless the context otherwise requires, all references in this Annual Report on Form 10-K to the "Company," "we," "us," "our"and similar expressions are references to Aaron’s, Inc. and its consolidated subsidiaries.General Development of BusinessEstablished in 1955 and incorporated in 1962 as a Georgia corporation, Aaron's, Inc., is a leading omnichannel provider of lease-purchase solutions. Aaron'sengages in the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories through its more than1,700 Company-operated and franchised stores in 47 states and Canada as well as its e-commerce platform, Aarons.com. Our stores carry well-known brandssuch as Samsung®, Frigidaire®, Hewlett-Packard®, LG®, Whirlpool®, Simmons®, Philips®, Ashley®, and United Furniture Industries.On April 14, 2014, the Company acquired a 100% ownership interest in Progressive Finance Holdings, LLC ("Progressive Leasing"), a leading virtual lease-to-own company, providing lease-purchase solutions through approximately 27,000 retail locations in 46 states and the District of Columbia.On October 15, 2015, Progressive Leasing acquired a 100% ownership interest in Dent-A-Med, Inc., d/b/a the HELPcard® (collectively, "DAMI"), whichprovides a variety of "second-look" credit products that are originated through federally insured banks. Together with Progressive Leasing, DAMI allows theCompany to provide retail and merchant partners one source for financing and leasing transactions with below-prime customers.On May 13, 2016, the Company sold its 82 Company-operated HomeSmart stores (our weekly pay concept) and ceased operations of that division.On July 27, 2017, the Company acquired substantially all of the assets of the store operations of SEI/Aaron's, Inc. ("SEI"), the Company's largest franchisee.At the time of the acquisition, the SEI store operations served approximately 90,000 customers through 104 Aaron's-branded stores in 11 states primarily inthe Northeast. The acquisition is benefiting the Company's omnichannel platform through added scale, strengthening its presence in certain geographicmarkets, and enhancing Aaron's ability to drive inventory supply-chain synergies between the Aaron's Business and Progressive Leasing in markets that SEIserved.As of December 31, 2017, we had 1,726 Aaron's stores, comprised of 1,175 Company-operated stores in 35 states and Canada, and 551 independently-ownedfranchised stores in 40 states and Canada.We own, or are otherwise entitled to use, the various trademarks, trade names, service marks, and taglines used in our businesses, including those used withthe operations of Aaron’s®, Aaron’s Sales & Lease Ownership®, Progressive Leasing, Dent-A-Med, the HELPcard®, and Woodhaven®. We intend to file foradditional trade name and trademark protection when appropriate.Business Environment and Company OutlookLike many industries, the lease-to-own industry has been transformed by the internet and virtual marketplace. We believe that the Progressive Leasing andDAMI acquisitions have been strategically transformational in this respect by allowing the Company to diversify its presence in the market and strengthenour business, as demonstrated by Progressive Leasing's significant revenue and profit growth in 2017. The Company is also leveraging franchisee acquisitionopportunities to expand into new geographic markets and benefit from synergies. We believe the traditional store based lease-to-own industry has beennegatively impacted in recent periods by: (i) increased competition from a wide range of competitors, including national, regional and local operators oflease-to-own stores; virtual lease-to-own companies; traditional and e-commerce retailers; and, indirectly, from various types of consumer finance companiesthat enable our customers to shop at traditional or online retailers; (ii) the challenges faced by many traditional "brick-and-mortar" retailers, with respect to adecrease in the number of consumers visiting those stores, especially younger consumers; (iii) the continuing economic challenges facing many traditionallease-to-own customers; and (iv) commoditization of pricing in electronics. In response to these changing market conditions, we are executing a strategicplan that focuses on the following items and that we believe position us for success over the long-term:•Improve Aaron's store profitability – We remain committed to increasing profits through improved marketing and customer acquisition strategies,rapid customer onboarding, improved collections and merchandise loss controls, optimization of product mix, increases in customer retention, costefficiency initiatives and strategic store consolidations. In addition, our Aaron's Business is investing in improving its analytical capabilities tooptimize pricing, promotion, and both product mix and product lifecycle management, which is expected to enhance margins and drive leasevolume. 4•Accelerate our omnichannel platform – We believe Aarons.com represents an opportunity to provide more options and shopping convenience inthe lease-to-own industry. We are focused on engaging customers in ways that are convenient for them by providing them a seamless, direct-to-doorplatform through which to shop in store or online across our product offering.•Strengthen relationships of Progressive Leasing and DAMI's current retail partners – Our Progressive Leasing and DAMI businesses havebenefited from both long-term and relatively newer, mutually beneficial relationships with our existing retailer base. Our ability to maintain theserelationships and address the changing needs of these retailers is critical to the long-term growth strategy of our business.•Focus on converting existing pipeline into Progressive Leasing retail partners – Our Progressive Leasing business segment is continuously focusedon establishing new relationships with retailers and identifying solutions that address their business needs. We believe these new relationships arefundamental to continued revenue growth for Progressive Leasing.•Champion compliance – Aaron's, Inc. is a large and diverse company with thousands of daily transactions that are extensively regulated and subjectto the requirements of various federal, state, and local laws and regulations. We continue to believe and set expectations that long-term successrequires all associates to behave in an ethical manner and to comply with all laws and regulations governing our company's behavior.Operating SegmentsAs of December 31, 2017, the Company has three operating and reportable segments: Progressive Leasing, Aaron's Business and DAMI. During 2017, theCompany changed its composition of reportable segments by combining the Sales and Lease Ownership, Franchise and Woodhaven components into onereportable segment, the Aaron's Business, to align the reportable segments with the current organizational structure and the operating results that the chiefoperating 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.The results of Progressive Leasing and DAMI have been included in the Company's consolidated results and presented as operating segments from theirApril 14, 2014 and October 15, 2015 acquisition dates, respectively. On May 13, 2016, the Company sold its HomeSmart operating segment, which included82 stores.The operating results of our three reportable segments may be found in (i) Item 7. Management's Discussion and Analysis of Financial Condition and Resultsof Operations and (ii) Item 8. Financial Statements and Supplementary Data.Progressive LeasingEstablished in 1999 and acquired by the Company in 2014, Progressive Leasing is a leader in the expanding virtual lease-to-own market. Progressive Leasingpartners with retailers, primarily in the furniture and bedding, automobile electronics and accessories, mobile, jewelry, consumer electronics and applianceindustries to offer a lease-purchase option for credit-challenged customers who may not have access to traditional credit-based financing options.We offer a proprietary, technology-based application and approval process that does not require Progressive Leasing employees to be staffed in a store. Oncea customer is approved, Progressive Leasing purchases the merchandise from the retailer and enters into a lease-to-own agreement with the customer. Thecontract provides early-buyout options or ownership after a contractually specified amount has been paid. Progressive Leasing has retail partners in 46 statesand the District of Columbia, and operates under state-and-District specific regulations.Aaron's BusinessAaron's store-based and e-commerce operationsOur omnichannel platform allows us to engage customers in ways that are convenient for them by providing them a seamless, direct-to-door platform throughwhich to shop in an Aaron's store or through our e-commerce platform across our product offering. Aaron's store-based and e-commerce operations employmonthly, semi-monthly and weekly payment models to provide durable household goods to consumers through our Aaron's stores and at Aarons.com. Itscustomer base is comprised primarily of customers with limited access to traditional credit sources such as bank financing, installment credit or credit cards.Customers of our Aaron's Business segment take advantage of our services to acquire consumer goods they might not otherwise be able to without incurringadditional debt or long-term obligations.5We have developed a distinctive concept for our stores including specific merchandising, store layout, pricing and agreement terms all designed to appeal toour target consumer market. The typical store layout is a combination showroom and warehouse generally comprising 6,000 to 10,000 square feet, with anaverage of approximately 8,000 square feet. Each store usually maintains at least two trucks for delivery, service and return of product. We generally offersame or next day delivery for addresses located within approximately ten miles of the store. Our stores provide a broad selection of brand name electronics,computers, appliances, bedding and furniture, including bedding and furniture manufactured by our Woodhaven Furniture Industries division.Approximately 96% of our store lease agreements have monthly payment terms and most of the remaining 4% are semi-monthly. By comparison, weeklyagreements are the industry standard. Additionally, our proprietary management information system links each Company-operated store to our corporateheadquarters.We may re-lease or sell merchandise that customers return to us prior to the expiration of their agreements. We may also offer up-front purchase options atprices we believe are competitive.FranchiseWe franchise our Aaron's stores in markets where we have no immediate plans to enter. Our franchise program adds value to our Company by allowing us to(i) recognize additional revenues from franchise fees and royalties; (ii) lower our average costs of purchasing, manufacturing and advertising througheconomies of scale; and (iii) increase customer recognition of our brand.We enter into agreements with our franchisees to govern the opening and operations of franchised stores. Under our standard agreement, we receive afranchise fee from $15,000 to $50,000 per store depending upon market size. Our standard agreement is for a term of ten years, with one ten-year renewaloption. Franchisees are also obligated to remit to us royalty payments of 6% of the weekly collections from their stores. Most franchisees are involved in theday-to-day operations of their stores.Qualifying franchisees may take part in a financing arrangement we have established with several financial institutions to assist the franchisee in establishingand operating their store(s). Although an inventory financing plan is the primary component of the financing program, we have also arranged, in certaincircumstances, for the franchisee to receive a revolving credit line, allowing them to expand operations. We provide guarantees for amounts outstandingunder this franchise financing program.All franchisees are required to complete a comprehensive training program and to operate their franchised sales and lease ownership stores in compliancewith our policies, standards and specifications. Annually, each franchise is required to represent and warrant its compliance with all applicable federal, stateand/or local laws, regulations and ordinances with respect to its business operations. Although franchisees are not generally required to purchase their leasemerchandise from our fulfillment centers, many do so in order to take advantage of Company-sponsored financing, bulk purchasing discounts and favorabledelivery terms.ManufacturingWoodhaven Furniture Industries, our manufacturing segment, was established by the Company in 1982. Integrated manufacturing enables us to controlcritical features such as the quality, cost, delivery, styling, durability and quantity of our furniture products, and we believe this provides an integrationadvantage over our competitors. Substantially all produced items continue to be leased or sold through Aaron's stores, including franchised stores. However,we also manufacture and sale furniture products to other retailers.Our Woodhaven Furniture Industries division produces upholstered living-room furniture (including contemporary sofas, chairs and modular sofa andottoman collections in a variety of natural and synthetic fabrics) and bedding (including standard sizes of mattresses and box springs). The furniture designedand produced by this division incorporates features that we believe result in reduced production costs, enhanced durability and improved shipping processesall relative to furniture we would otherwise purchase from third parties. These features include (i) standardized components, (ii) reduced number of parts andfeatures susceptible to wear or damage, (iii) more resilient foam, (iv) durable fabrics and sturdy frames which translate to longer life and higher residual valueand (v) devices that allow sofas to stand on end for easier and more efficient transport. The division also provides replacement covers for all styles and fabricsof its upholstered furniture, as well as other parts, for use in reconditioning leased furniture that has been returned.Woodhaven Furniture Industries consists of five furniture manufacturing plants and seven bedding manufacturing facilities totaling approximately 819,000square feet of manufacturing capacity.6DAMIFounded in 1983 and acquired by the Company in 2015, DAMI primarily serves customers that may not qualify for traditional prime lending who desire topurchase goods and services from participating merchants. DAMI, which operates as a wholly-owned subsidiary of Progressive Leasing, offers customizedprograms, with services that include revolving loans, private label cards and access to a unique processing platform. DAMI's current network of merchantsincludes medical and dental markets, furniture, mattresses, fitness equipment, and jewelry. The Company believes the DAMI product offerings arecomplementary to those of Progressive Leasing and is expanding into the markets and merchants that DAMI serves.We extend or decline credit to an applicant through third party bank partners based upon the customer's credit rating. Our bank partners originate the loan byproviding financing to the merchant at the point of sale and acquiring the receivable at a discount from the face value, which represents a pre-negotiated feebetween DAMI and the merchant. DAMI then acquires the receivable from the bank.Qualifying customers receive a credit card to finance their initial purchase and to use in subsequent purchases at the merchant or other participatingmerchants for an initial two year period, which we will renew if the cardholder remains in good standing. The customer is required to make periodic minimumpayments and may pay certain annual and other periodic fees.OperationsOperating StrategyOur operating strategy is based on distinguishing our brands from those of our competitors along with maximizing our operational efficiencies. OurProgressive Leasing and DAMI operating strategies are based on providing excellent service to our merchant partners and our customers, along withcontinued development of technology-based solutions. This allows us to increase our merchant partners' sales, drive demand for our service, and scale in anefficient manner. Specifically with Progressive Leasing, we believe our ability to service a retailer with limited labor costs allows us to maintain a cost ofownership for leased merchandise lower than that of other options available to our customers.We implement this strategy for our Aaron's store-based and e-commerce operations by (i) emphasizing the uniqueness of our sales and lease ownershipconcept from those in our industry generally; (ii) offering high levels of customer service; (iii) promoting our vendors' and Aaron's brand names; (iv)managing merchandise through our manufacturing and distribution capabilities; and (v) utilizing proprietary management information systems.We believe that the success of our store-based and e-commerce operations is attributable to our distinctive approach to the business that distinguishes us fromboth our lease-to-own and credit retail competitors. We have pioneered innovative approaches to meeting changing customer needs that we believe differfrom many of our competitors. These include (i) offering lease ownership agreements that result in a lower cost to own; (ii) maintaining larger and moreattractive store showrooms; (iii) offering a wider selection of higher-quality merchandise; (iv) providing an up-front cash and carry purchase option on selectmerchandise at competitive prices; and (v) establishing an online platform that provides access to our product offerings.Aaron's Store-Based OperationsThe Aaron's store-based operations has one President, one Chief Operations Officer, five Senior Vice Presidents and one Divisional Vice President thatprovide executive leadership to their respective operations. Each operation is subdivided into geographic groupings overseen by a total of 25 RegionalDirectors, including one Canadian Regional Director and 141 Regional Managers, including three Canadian Regional Managers.At the individual store level, the store manager is primarily responsible for managing and supervising all aspects of store operations, including (i) customerrelations and account management, (ii) deliveries and pickups, (iii) warehouse and inventory management, (iv) partial merchandise selection, (v) employmentdecisions, including hiring, training and terminating store employees and (vi) certain marketing initiatives. Store managers also administer the processing oflease return merchandise including making determinations with respect to inspection, repairs, sales, reconditioning and subsequent leasing.Our business philosophy emphasizes safeguarding of Company assets, strict cost containment and financial controls. All personnel are expected to monitorexpenses to contain costs. We pay all material invoices from Company headquarters in order to enhance financial accountability. We believe that carefulmonitoring of lease merchandise as well as operational expenses enables us to maintain financial stability and profitability.We use management information systems to facilitate customer orders, collections, merchandise returns and inventory monitoring. Through the use ofproprietary software, each of our stores is network linked directly to corporate headquarters enabling us to monitor single store performance on a daily basis.This network system assists the store manager in (i) tracking merchandise on the showroom floor and warehouse, (ii) minimizing delivery times, (iii) assistingwith product purchasing and (iv) matching customer needs with available inventory.7Lease Agreement Approval, Renewal and CollectionOur Progressive Leasing business uses a proprietary decisioning algorithm to determine which customers would meet our leasing qualifications. Thetransaction is completed online or through a point of sale integration with our retail partners. Contractual payments are usually based on a customer's payfrequency and are typically processed through automated clearing house payments. Progressive Leasing agreements for merchandise require payments inarrears. If the payment is unsuccessful, collections are managed in-house through our call center, customer service hubs and proprietary lease managementsystem. The call center contacts customers within a few days after the due date to encourage them to keep their agreement current. If the customer chooses toreturn the merchandise, arrangements are made to receive the merchandise from the customer, either through our retail partners, our Draper, Utah location, ourcustomer service hubs or our Aaron's operated stores.One of the factors in the success of our store-based operations is timely collections, which are monitored by store managers. Customers are contacted within afew days after their lease payment due dates to encourage them to keep their agreement current. Careful attention to collections is particularly important insales and lease ownership operations, where the customer typically has the option to cancel the agreement at any time and each contractually due payment isgenerally considered a renewal of the agreement. The Company continues to encourage customers to take advantage of the convenience of enrolling in theCompany's automatic payment program, EZ Pay.We have a proprietary lease approval process with respect to store customers, which includes obtaining customer data from third party service providers,verifying employment or other reliable sources of income and using personal references supplied by the customer. Generally our Aaron's store operations ande-commerce agreements for merchandise require payments in advance and the merchandise normally is recovered if a payment is significantly in arrears. Wecurrently do not extend credit to our customers at our stores.The provision for lease merchandise write-offs as a percentage of consolidated lease revenues was 4.8%, 4.8% and 5.1% in 2017, 2016 and 2015,respectively. We believe that our collection and recovery policies comply with applicable laws, and we discipline any employee we determine to havedeviated from such policies.Credit Agreement Approval and CollectionDAMI partners with merchants to provide a variety of revolving credit products originated through two third-party federally insured banks to customers thatmay not qualify for traditional prime lending (called "second-look" financing programs). We believe DAMI provides the following strategic benefits whencombined with Progressive Leasing's product offerings:•Enhanced product for retail partners - DAMI enhances Progressive Leasing's best-in-class point-of-sale product with an integrated solution forbelow-prime customers. DAMI has a centralized, scalable underwriting model with a long operating history, deployed through its established bankpartners, and a receivable management system.•Higher consumer credit quality - DAMI primarily serves customers with FICO scores between 600 and 700, which make up approximately a quarterof the U.S. population. These customers generally have greater purchasing power with stronger credit profiles than Progressive Leasing's currentcustomers.•Expanded customer base - In addition to complementing Progressive Leasing's traditional offering for existing and prospective retail partners,DAMI's strong relationships with merchant partners who provide services offer an additional channel for longer-term growth.DAMI uses an underwriting model that provides standardized credit decisions, including borrowing limit amounts. Credit decisions are primarily based onthe customer's credit rating and ability-to-pay ratio. Loans receivable are unsecured, and collections on loans receivable are managed in-house throughDAMI's call center and proprietary loans receivable management system.Customer ServiceA critical component of the success in our operations is our commitment to developing good relationships with our customers. The Company consistentlymonitors consumer interests and trends to ensure that our business model is aligned with our customer's needs. The Company believes that building arelationship with the customer that ensures customer satisfaction is critical because customers of Progressive Leasing and Aaron's store-based and e-commerceoperations have the option of returning the leased merchandise at any time. Our goal, therefore, is to develop positive associations about the Company andour products, service, and support in the minds of our customers from the moment they enter our showrooms and the showrooms of our retail partners. Wedemonstrate our commitment to superior customer service by providing customers with access to product through multiple channels, including ProgressiveLeasing's and DAMI's network of retail partner locations, Aarons.com, and Aaron's store-based operations. Aaron's store-based operations provide rapiddelivery of leased merchandise (often on same or next day delivery) and investments in technology that improve the customer experience.Our Progressive Leasing business offers centralized customer and retailer support through contact centers located in Draper, Utah and Glendale, Arizona.8We believe our strong focus on customer satisfaction at Progressive Leasing and DAMI generates repeat business and long-lasting relationships with ourretail and merchant partners. Aaron's store-based and e-commerce operations customers receive multiple complimentary service benefits. These benefits varyaccording to applicable state law but generally include a same-as-cash option, merchandise repair service, lifetime reinstatement and other discounts andbenefits. In order to increase leasing at existing stores, we foster relationships with existing customers to attract recurring business, and many new agreementsare attributable to repeat customers.During 2015, the Company announced the launch of Approve.Me, which is a proprietary platform that provides a single interface for all Progressive Leasingand DAMI customers seeking credit approval or lease options, from prime to second-look financing, or to Progressive Leasing's lease offering. Approve.Me iscompatible with most primary or secondary providers and is designed to give retailers a faster and more efficient way to service customers seeking to financetransactions or secure a lease option.During 2017, Aaron's store-based operations began offering customers the option to obtain a membership in the Aaron's Club Program (the "Club Program").The benefits to customers of the Club Program are separated into three general categories: (i) health & wellness discounts; (ii) dining, shopping and consumersavings; and (iii) product protection benefits. The product protection benefits provide Club Program members with lease payment waivers for up to fourmonths or a maximum of $1,000 on active customer lease agreements in the event of customer unemployment or illness; replacement of the product in theevent the product is stolen or damaged by an act of God; waiver of remaining lease payments on lease agreements in the event of death of any member namedon the lease agreement; and/or repair of the product for an extended period after the customer takes ownership.Our emphasis on customer service at the Aaron's store-based operations requires that we develop skilled, effective employees who value our customers andwho possess and project a genuine desire to serve our customers' needs. To meet this requirement, we have created and implemented a very comprehensiveassociate development program. The associate development program focuses on and meets the needs of both new and tenured associates.Our associate development program is designed to train our associates to provide a uniform and enhanced customer service experience. The primary focus ofthe associate development program is to equip all associates with the knowledge and skills needed to build strong relationships with our customers and toservice customers in a manner that complies with applicable laws, regulations and Company policies. Our learning and development coaches provide live,interactive instruction via webinars. In addition, associates are provided training through an Intranet-based learning management system that can be accessedat any time. Additionally, Aaron’s has a management development program that offers development for current and future store managers and a leadershipdevelopment program for our multi-unit managers. Also, we produce and post video-based communications regarding important Company initiatives on ourintranet site.Purchasing and Retail RelationshipsThe following table shows the percentage of Progressive Leasing's revenues attributable to different retail partner categories: Year Ended December 31,Progressive Leasing Retail Partner Category2017 2016 2015Furniture55% 57% 53%Mattress15% 19% 20%Automobile electronics and accessories11% 12% 12%Mobile10% 5% 8%Jewelry7% 4% 4%Other2% 3% 3%During 2017, two retail partners each provided greater than 10% of the lease merchandise acquired by Progressive Leasing and subsequently leased tocustomers.9For our Aaron's store-based operations, our merchandise product mix is determined by executive leadership and our merchandising department based on ananalysis of customer demands. The following table shows the percentage of our Aaron's Business revenues attributable to different merchandise categories: Year Ended December 31,Aaron's Business Merchandise Category2017 2016 2015Furniture45% 42% 42%Electronics24% 26% 25%Appliances24% 24% 24%Computers5% 6% 7%Other2% 2% 2%One of Aaron's Business largest suppliers is our own Woodhaven Furniture Industries, which supplies the majority of the upholstered furniture and beddingwe lease or sell through our Aaron's Business segment. We purchase the remaining merchandise directly from manufacturers and local distributors and aregenerally able to obtain bulk discounts that provide us with cost advantages. To a lesser extent, we also may sell or re-lease certain merchandise returned byour Progressive Leasing customers. We have no long-term agreements for the purchase of merchandise.The following table shows the percentage of DAMI's revenues attributable to different merchant partner categories: Year Ended December 31,DAMI Merchant Partner Category2017 2016Medical49% 48%Retail20% 20%Furniture23% 22%Other8% 10%Distribution for Aaron's Store-based OperationsThe Aaron's store-based operations utilize our 16 fulfillment centers to control merchandise. These centers average approximately 124,000 square feet, givingus approximately 2.0 million square feet of logistical capacity.We believe that our network of fulfillment centers provides us with a strategic advantage over our competitors. Our distribution system allows us to delivermerchandise promptly to our stores in order to quickly meet customer demand and effectively manage inventory levels. Most of our continental U.S. storesare within a 250-mile radius of a fulfillment center, facilitating timely shipment of products to the stores and fast delivery of orders to customers.We realize freight savings from bulk discounts and more efficient distribution of merchandise by using fulfillment centers. We use our own tractor-trailers,local delivery trucks and various contract carriers to make weekly deliveries to individual stores. Marketing and AdvertisingProgressive Leasing and DAMI execute their marketing strategy in partnership with retailers and other merchants. This is typically accomplished through in-store signage and marketing material, direct marketing activities, and the education of sales associates.Our marketing for store-based and e-commerce operations targets both current Aaron's customers and potential customers. We feature brand name productsavailable through our no-credit-needed lease ownership plans. We reach our customer demographics by utilizing national and local television and radio witha combination of brand/image messaging and product/price promotions. In addition, we have enhanced our broadcast presence with digital marketing andvia social environments such as Facebook, Instagram, Google+, YouTube and Twitter.We target new and current customers each month by distributing over 27 million, two-page circulars to homes in the United States and Canada. The circularsadvertise brand name merchandise along with the features, options, and benefits of Aaron's no-credit-needed lease ownership plans. We also distributemillions of email and direct mail promotions on an annual basis and monitor store layout plans to ensure that we are optimally attracting customers.Aaron's, Inc. sponsors events at various levels along with select professional and collegiate teams. All of the Company's sports partnerships are supported withadvertising, promotional, marketing and brand activation initiatives that we believe significantly enhance the Company's brand awareness and customerloyalty.10CompetitionAaron's competes with national, regional and local operators of lease-to-own stores, virtual lease-to-own companies, traditional and e-commerce retailers(including many that offer layaway programs) and, indirectly, various types of consumer finance companies that may enable our customers to shop attraditional or on-line retailers, as well as with rental stores that do not offer their customers a purchase option. We also compete with retail stores for customersdesiring to purchase merchandise for cash or on credit. Competition is based primarily on product selection and availability, customer service and lease rates,store location and terms. Our largest competitor for Aaron's store-based and e-commerce operations is Rent-A-Center.Working CapitalThe Aaron's Business and Progressive Leasing sales and lease ownership model results in the Company remaining the owner of merchandise on lease;therefore, the Company's most significant working capital asset is merchandise inventory on lease. The Aaron's Business store-based and e-commerceoperations also require the Company to maintain significant levels of merchandise inventory available for lease in order to provide the service demanded byour customers and to ensure timely delivery of our products. Consistent and dependable sources of liquidity are required to maintain such merchandiselevels. Failure to maintain appropriate levels of merchandise could materially adversely affect our customer relationships and our business. We believe ourcash on hand, operating cash flows, credit availability under our financing agreements and other sources of financing are adequate to meet our normalliquidity requirements.Raw MaterialsThe principal raw materials we use in furniture manufacturing at Woodhaven are fabric, foam, fiber, wire-innerspring assemblies, plywood, oriented strandboard and hardwood. All of these materials are purchased in the open market from unaffiliated sources. We are not dependent on any single supplier. None ofthe raw materials we use are in short supply.SeasonalityOur revenue mix is moderately seasonal for both our Aaron's Business and Progressive Leasing segments. Adjusting for growth, the first quarter of each yeargenerally has higher revenues than any other quarter. This is primarily due to realizing the full benefit of business that historically gradually increases in thefourth quarter as a result of the holiday season, as well as the receipt by our customers in the first quarter of federal and state income tax refunds. Ourcustomers will more frequently exercise the early purchase option on their existing lease agreements or purchase merchandise off the showroom floor duringthe first quarter of the year. We expect these trends to continue in future periods.Industry OverviewThe Lease-to-Own IndustryThe lease-to-own industry offers customers an alternative to traditional methods of obtaining home furnishings, electronics, appliances, computers and otherdurable consumer goods. In a standard industry lease-to-own transaction, the customer has the option to acquire ownership of merchandise over a fixed term,usually 12 to 24 months, normally by making weekly, semi-monthly, or monthly lease payments. The customer may cancel the agreement at any time byreturning the merchandise to the lessor. If the customer leases the item through the completion of the full term, he or she then obtains ownership of the item.The customer may also purchase the item at any time by tendering the contractually specified payment.The lease-to-own model is particularly attractive to customers who are unable to pay the full upfront purchase price for merchandise or who lack the credit toqualify for conventional financing programs. Other individuals who find the lease-to-own model attractive are customers who, despite access to credit, do notwish to incur additional debt, have only a temporary need for the merchandise or desire to field test a particular brand or model before purchasing it.Aaron's, Inc. versus Traditional Lease-to-OwnWe blend elements of lease-to-own and traditional retailing by providing customers with the option to either lease merchandise with the opportunity toobtain ownership or to purchase merchandise outright. We believe our sales and lease ownership program is a more effective method of retailing ourmerchandise to customers than a typical lease-to-own business or the traditional method of credit installment sales. Our model is distinctive from the conventional lease-to-own model in that we encourage our customers to obtain ownership of their leased merchandise.Based upon our own data and industry data, our customers obtain ownership more often (between 50% - 60%) than in the lease-to-own businesses in general(approximately 25%).11We believe our sales and lease ownership model offers the following distinguishing characteristics when compared to traditional lease-to-own stores:•Lower total cost - Our agreement terms generally provide a lower cost of ownership to the customer.•Wider merchandise selection - Our Progressive Leasing and DAMI operations allow us to offer a wider selection of merchandise via partnershipswith various merchants. Additionally, we also generally offer a larger selection of higher-quality merchandise through our Aaron's e-commerce andstore-based operations than others in the lease to own industry.•Larger store layout - Aaron's stores average 8,000 square feet, which is significantly larger than the average size of our largest competitor's lease-to-own stores.•Fewer payments - Our typical plan offers semi-monthly or monthly payments versus the industry standard of weekly payments.•Flexible payment methods - We offer our customers the opportunity to pay by cash, check, ACH, debit card or credit card. We also offer an EZ Payoption which gives customers the ease of using their debit or credit card to set up an automatic payment on the date they select. Our Aaron's storescurrently receive approximately 68% of their payment volume (in dollars) from customers by check, debit card or credit card.We believe our sales and lease ownership model also compares well against traditional retailers in areas such as merchandise selection and the latest productofferings. As technology advances and home furnishings and appliances evolve, we expect to continue offering our customers the latest product at affordableprices.Unlike transactions with traditional retailers, in which the customer is committed to purchasing the merchandise, our sales and lease ownership transactionsare not credit installment contracts. Therefore, the customer may elect to terminate the transaction after a short, initial lease period. Progressive Leasingprovides a 90-day buy-out option on lease-purchase solutions offered through traditional retailers. Our store and e-commerce based operations offer an up-front "cash and carry" purchase option and generally a same-as-cash option on most merchandise at prices that we believe are competitive with traditionalretailers.Government RegulationOur operations are extensively regulated by and subject to the requirements of various federal, state and local laws and regulations, and are subject tooversight by various government agencies, including the Federal Trade Commission ("FTC"), for example, which may exercise oversight of the advertisingand other business practices of our Company. In general, such laws regulate applications for leases, pricing, late charges and other fees, lease disclosures, thecontent of advertising materials, and certain collection procedures. Violations of certain provisions of these laws may result in material penalties. We areunable to predict the nature or effect on our operations or earnings of unknown future legislation, regulations and judicial decisions or future interpretationsof existing and future legislation or regulations relating to our operations, and there can be no assurance that future laws, decisions or interpretations will nothave a material adverse effect on our operations or earnings.A summary of certain laws under which we operate follows. This summary does not purport to be a complete summary of the laws referred to below or of allthe laws regulating our operations.Currently, nearly every state and most provinces in Canada specifically regulate lease-to-own transactions via state or provincial statutes. This includes statesin which our Progressive Leasing business has retail partners and also includes states in which we currently operate our Aaron's Business. Most state leasepurchase laws require lease-to-own companies to disclose to their customers the total number of payments, total amount and timing of all payments to acquireownership of any item, any other charges that may be imposed and miscellaneous other items. The more restrictive state lease purchase laws limit the totalamount that a customer may be charged for an item, or regulate the "cost-of-rental" amount that lease-to-own companies may charge on lease-to-owntransactions, generally defining "cost-of-rental" as lease fees paid in excess of the "retail" price of the goods. Our long-established policy in all states is todisclose the terms of our lease purchase transactions as a matter of good business ethics and customer service. We believe we are in material compliance withthe various state lease purchase laws. At the present time, no federal law specifically regulates the lease-to-own transaction. Federal legislation to regulate thetransaction has been proposed from time to time. In addition, certain elements of the business including matters such as collections activity, customer contactand credit reporting may be subject to federal laws and regulation.12There has been increased legislative and regulatory attention in the United States, at both the federal and state levels, on financial services products offered tonear-prime and subprime consumers in general, which may result in an increase in legislative regulatory efforts directed at the lease-to-own industry. Wecannot predict whether any such legislation or regulations will be enacted and what the impact would be on us. From time to time, certain state attorneysgeneral or federal regulatory agencies, such as the Consumer Financial Protection Bureau ("CFPB"), have directed investigations or regulatory initiativestoward our industry, or toward certain companies within the industry. We cannot predict whether any state attorneys general or federal regulatory agencies,including the CFPB, will direct other investigations or regulatory initiatives towards us or our industry in the future, or what the impact of any such futureregulatory initiatives may be.Our sales and lease ownership franchise program is subject to FTC oversight and various state laws regulating the offer and sale of franchises. Several statelaws also regulate substantive aspects of the franchisor-franchisee relationship. The FTC requires us to furnish to prospective franchisees a FranchiseDisclosure Document ("FDD") containing prescribed information. A number of states in which we might consider franchising also regulate the sale offranchises and require registration of the franchise disclosure document with state authorities. We believe we are in material compliance with all applicablefranchise laws in those states in which we do business and with similar laws in Canada.DAMI is subject to various federal and state laws that address lending regulations, consumer information, consumer rights, and certain credit card specificrequirements, among other things. In addition, DAMI services credit cards issued through third party bank partners and therefore is subject to those banks'Federal Deposit Insurance Corporation regulators. Several regulations affecting DAMI have been updated in recent years through The Credit Card Act andThe Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Additional regulations are being developed, as the attention placedon the True Lender Doctrine and consumer debt transactions has grown significantly. We believe we are in material compliance with all applicable laws andregulations. Although we are unable to predict the results of any regulatory initiatives, we do not believe that existing and currently proposed regulationswill have a material adverse impact on our Progressive Leasing, Aaron's Business and/or DAMI businesses or other operations.Supply Chain Diligence and TransparencySection 1502 of the Dodd-Frank Act was adopted to further the humanitarian goal of ending the violent conflict and human rights abuses in the DemocraticRepublic of the Congo and adjoining countries ("DRC"). This conflict has been partially financed by the exploitation and trade of tantalum, tin, tungsten andgold, often referred to as conflict minerals, which originate from mines or smelters in the region. Securities and Exchange Commission ("SEC") rules adoptedpursuant to the Dodd-Frank Act require reporting companies to disclose annually, among other things, whether any such minerals that are necessary to thefunctionality or production of products they manufactured during the prior calendar year originated in the DRC and, if so, whether the related revenues wereused to support the conflict and/or abuses.Some of the products manufactured by Woodhaven Furniture Industries, our manufacturing division, may contain tantalum, tin, tungsten and/or gold.Consequently, in compliance with SEC rules, we have adopted a policy on conflict minerals, which can be found on our website at investor.aarons.com. Wehave also implemented a supply chain due diligence and risk mitigation process with reference to the Organisation for Economic Co-operation andDevelopment, or the OECD, guidance approved by the SEC to assess and report annually whether our products are conflict free.We expect our suppliers to comply with the OECD guidance and industry standards and to ensure that their supply chains conform to our policy and theOECD guidance. We plan to mitigate identified risks by working with our suppliers and may alter our sources of supply or modify our product design ifcircumstances require.EmployeesAt December 31, 2017, the Company had approximately 11,900 employees. None of our employees are covered by a collective bargaining agreement, andwe believe that our relations with employees are good.Available InformationWe make available free of charge on our Internet website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-Kand amendments to those reports and the Proxy Statement for our Annual Meeting of Shareholders. Our Internet address is investor.aarons.com.13ITEM 1A. RISK FACTORSThe Company's business is subject to certain risks and uncertainties. Any of the following risk factors could cause our actual results to differ materially fromhistorical or anticipated results. These risks and uncertainties are not the only ones we face, but represent the risks that we believe are material. However, theremay be additional risks that we currently consider not to be material or of which we are not currently aware, and any of these risks could cause our actualresults to differ materially from historical or anticipated results.We are subject to various existing federal and state laws and regulations which may require us to incur significant compliance costs and expensesassociated with government investigations, enforcement actions and private litigation, and we may be subject to new or additional federal and state lawsand regulations (or changes in interpretations of existing laws and regulations) that could expose us to government investigations, significantcompliance costs or burdens or force us to change our business practices in a manner that may be materially adverse to our operations, prospects orfinancial condition.Currently, nearly every state, the District of Columbia, and most provinces in Canada specifically regulate lease-to-own transactions. This includes states inwhich we currently operate Aaron's stores, as well as states in which our Progressive Leasing business has retail partners. Furthermore, certain aspects of ourbusiness, such as our debt collection and any collection by third parties of debt owed by our current or former customers, customer contact, credit reportingpractices, the manner in which we process and store certain customer, employee and other information, and various aspects of our cybersecurity risks andmitigation efforts, are subject to federal and state laws and regulations. Many of these laws and regulations are evolving, unclear and inconsistent acrossvarious jurisdictions, and ensuring compliance with them is difficult and costly. We have incurred and will continue to incur substantial costs to comply withthese laws and regulations. In addition to compliance costs, we may incur substantial expenses to respond to government investigations and enforcementactions, proposed fines and penalties, criminal or civil sanctions, and private litigation, arising out of our or our franchisees' alleged violations of existinglaws and/or regulations. In addition, existing laws and regulations have and will continue to, and future laws and regulations may, place limitations andrestrictions on how we conduct our businesses. While no federal law currently specifically regulates the lease-to-own industry, federal legislation to regulatethe industry has been proposed in the past and may be proposed in the future. For example, federal and regulatory authorities such as the CFPB and the FTCare increasingly focused on the subprime financial marketplace in which the lease-to-own industry operates, and may propose and adopt new regulations (orinterpret existing regulations) that could result in significant adverse changes in the regulatory landscape for businesses such as ours. In addition, ourmanufacturing and distribution facilities are subject to various regulations as set forth by the Environmental Protection Agency ("EPA"), Occupational Safetyand Health Administration ("OSHA") and Department of Transportation ("DOT"). Furthermore, with increasing frequency, federal and state regulators areholding businesses like ours to higher standards of training, monitoring and compliance. Failure by us or those businesses to comply with the laws andregulations to which we are or may become subject could result in fines, penalties or limitations on our ability to conduct our business, or federal or stateactions, or private litigation, any of which could significantly harm our reputation with consumers and Progressive Leasing's and DAMI's retail and merchantpartners and could materially and adversely affect our business, prospects and financial condition.In addition, as we execute on our strategic plans, we may continue to expand into complementary businesses, such as DAMI, that engage in financial,banking or lending services that are subject to a variety of statutes and regulatory requirements in addition to those regulations currently applicable to ourlegacy operations, which may impose significant costs, limitations or prohibitions on the manner in which we currently conduct our businesses as well asthose we may acquire in the future. Any additional laws or regulations may result in changes in the way our operations are regulated, exposing us to increasedregulatory oversight, more burdensome regulations and increased litigation risk, each of which could have a material adverse effect on us.Any proposed rulemaking or enforcement action by the CFPB, the FTC or any other federal or state regulators or other adverse changes in (or interpretationsof) existing laws and regulations, the passage of new adverse legislation or regulations by the federal government or the states applicable to our traditionallease-to-own business, our Progressive Leasing virtual lease-to-own business, our Aarons.com e-commerce business and any complementary businesses intowhich we may expand could materially increase both our compliance costs and the risk that we could be subject to government investigations and subject tosanctions if we are not in compliance. In addition, new burdensome laws or regulations could prohibit or force us to modify our business model, expose us toincreased litigation risk, and might reduce the economic potential or sales and profitability of our sales and lease ownership operations.14Progressive Leasing's virtual lease-to-own business differs in some potentially significant respects from the risks of Aaron's store-based lease-to-ownbusiness. The risks could have a material negative effect on Progressive Leasing, which could result in a material adverse effect on our entire business.Progressive Leasing segment offers its lease-to-own solution through the stores of third party retailers. Progressive Leasing consequently faces some differentrisks than are associated with Aaron's sales and lease ownership concept, which Aaron's and its franchisees offer through their own stores. These potentialrisks include, among others, Progressive Leasing's:•reliance on third party retailers (over whom Progressive Leasing cannot exercise the degree of control and oversight that Aaron's and its franchiseescan assert over their own respective employees) for many important business functions, from advertising through assistance with lease transactionapplications, including, for example, explaining the nature of the lease-to-own transaction when asked to do so by the customer, and that thetransaction is with Progressive Leasing and not with the third-party retailer;•possibly different regulatory risks than apply to our traditional, lease-to-own store-based business, which now includes our Aarons.com e-commercebusiness (the "Aaron's Business"), whether arising from the offer by third party retailers of Progressive Leasing's lease-purchase solution alongsidetraditional cash, check or credit payment options or otherwise, including the risk that regulators may mistakenly treat virtual lease-to-owntransactions as some other type of transaction that would face different and more burdensome and complex regulations;•potential that regulators may target the virtual lease-to-own transaction and/or adopt new regulations or legislation (or existing laws and regulationsmay be interpreted in a manner) that negatively impact Progressive Leasing's ability to offer virtual lease-to-own programs through third party retailpartners, and/or that regulators may attempt to force the application of laws and regulations on Progressive Leasing's virtual lease-to-own business ininconsistent and unpredictable ways that could increase the compliance-related costs incurred by Progressive Leasing, and negatively impactProgressive Leasing's financial and operational performance;•reliance on automatic bank account drafts for lease payments, which may become disfavored as a payment method for these transactions byregulators;•revenue concentration in the customers of a relatively small number of retailers, as further discussed below;•lack of control over, and more product diversity within, its lease merchandise inventory relative to the Aaron's Business, which can complicatematters such as merchandise repair and disposition of merchandise that is returned;•indemnification obligations to Progressive Leasing's retail partners and their service providers for losses stemming from Progressive Leasing's failureto perform with respect to its products and services.These risks could have a material negative effect on Progressive Leasing, which could result in a material adverse effect on our entire business.Our Aaron's Business faces many challenges which could materially and adversely affect our overall results of operations, including increasedcompetition from traditional retailers, e-commerce retailers and virtual rent-to-own companies and the impact of unfavorable and uncertain economicconditions on segments of our customers.Our Aaron's Business faces a number of challenges from traditional retailers and the continued expansion of digital retail, which includes a wide array of e-commerce retailers that have established far larger digital operations than our Aarons.com e-commerce platform has been able to achieve to date. Increasingcompetition from the digital sector, as well as more competitive in-store and e-commerce pricing offered by traditional retailers, may reduce the market shareheld by our Aaron's Business as well as its operating margins, and may materially and adversely affect our overall results of operations. Furthermore, as virtuallease-to-own companies continue to partner with traditional retailers, including possibly "big box" retailers, those retailers may increasingly compete withour Aaron's Business. Many of the competitors discussed above have more advanced and modern e-commerce, logistics and other technology applicationsand systems that offer them a competitive advantage in attracting and retaining customers for whom our Aaron’s Business competes, especially with respectto younger customers. In addition, those competitors may offer a larger selection of products and more competitive prices than our Aaron’s Business.15In addition, we believe a portion of our Aaron's Business customer base continues to experience significant economic challenges and uncertainty, includingstagnant incomes or incomes that have not returned to pre-recession levels, and that those challenges could be exacerbated by increasing inflationarypressures and rising interest rates. We believe the extended duration of that economic uncertainty, unfavorable economic conditions and related challengesmay result in those customers of our Aaron's Business curtailing entering into sales and lease ownership agreements for the types of merchandise we offer, orentering into agreements that generate less revenue for us, resulting in lower same store sales, revenue and profits. For example, our Company-operated storesexperienced same store revenue declines of 7.0% and 3.4% in fiscal years 2017 and 2016, respectively. Additionally, our franchised stores experienced samestore revenue declines of 5.4% and 2.2% in fiscal years 2017 and 2016, respectively. We calculate same store revenue growth by comparing revenues forcomparable periods for stores open during the entirety of those periods. A number of factors have historically affected our same store revenues for our Aaron'sBusiness, including:•changes in competition;•general economic conditions;•economic challenges faced by our customer base;•new product introductions;•consumer trends;•changes in our merchandise mix;•timing of promotional events; and•our ability to execute our business strategy effectively.If our Aaron's Business is unable to successfully address these challenges, our overall business and results of operations may be materially and adverselyaffected as well. In addition, any increases in unemployment or underemployment within our customer base may result in increased defaults on leasepayments, resulting in increased merchandise return costs and merchandise losses, which also may adversely affect our business and results of operations.We continue to implement a strategic plan and there is no guarantee that the strategic plan will produce results superior to those achieved under theCompany's prior plan.Our current strategic plan includes focusing on improving Aaron's store profitability; accelerating our omnichannel platform; promoting communication,coordination and integration; and championing compliance.As part of our efforts to improve the profitability of our Aaron's stores, we recently have focused on identifying and closing underperforming stores andconsolidating the customers of those stores into existing, higher performing stores, as opposed to opening new stores, which had traditionally been a centraltenet of the Company's strategy. In addition, we have implemented, and dedicated significant resources to, other business improvement initiatives that webelieve will lower costs and enhance the experience for customers of our Aaron's Business. There can be no guarantee that our current strategy, and ourbusiness improvement initiatives related thereto, including our recent focus on identifying and closing underperforming stores, will yield the results wecurrently anticipate (or results that will exceed those that might be obtained under prior or other strategies). We may fail to successfully execute on one ormore elements of our current strategy, even if we successfully implement one or more other components. For example, as part of our efforts to reduce costs andimprove profitability, we closed 123 under-performing Company-operated stores during 2016 and 2017 under the 2016 restructuring program, and anadditional 15 Company-operated stores under the 2017 restructuring plan. We may not be successful in transitioning the customers of the Company-operatedAaron's stores that are closed to other Company-operated stores that remain open, and thus, could experience a reduction in revenue and profits associatedwith such a loss of customers. In addition, the estimated costs and charges associated with these initiatives may vary materially and adversely based uponvarious factors, including the timing of execution, the outcome of negotiations with landlords and other third parties, or unexpected costs, any of whichcould result in our not realizing the anticipated benefits from our strategic plan.16We may not fully execute on one or more elements of our current strategy due to any number of reasons, including, for instance, because of the division ofmanagement, financial and Company resources among multiple objectives, or other factors beyond or not completely within our control. The successfulexecution of our current strategy depends on, among other things, our ability to:•improve same store revenues and profitability in stores that may be maturing;•drive recurring cost savings to recapture margin;•transition customers of stores to other stores that remain open; and•successfully manage and grow our Aarons.com e-commerce platform.If we cannot address these challenges successfully, or overcome other critical obstacles that may emerge as we continue to pursue our current strategy, wemay not be able to achieve our revenue or profitability goals at the rates we currently contemplate, if at all.We could lose our access to data sources, which could cause us competitive harm and have a material adverse effect on our business, operating results,and financial condition.We are heavily dependent on data provided by third party providers. For example, our Progressive Leasing business employs a proprietary decisioningalgorithm when making lease approval decisions for its customers. This algorithm depends extensively upon continued access to and receipt of data fromexternal sources, such as third party data vendors. In addition, our Aarons.com and DAMI businesses are similarly dependent on customer attribute dataprovided by external sources. Our data providers could stop providing data, provide untimely, incorrect or incomplete data, or increase the costs for their datafor a variety of reasons, including a perception that our systems are insecure as a result of a data security breach, regulatory concerns or for competitivereasons. We could also become subject to increased legislative, regulatory or judicial restrictions or mandates on the collection, disclosure or use of suchdata, in particular if such data is not collected by our providers in a way that allows us to legally use the data. If we were to lose access to this external data orif our access or use were restricted or were to become less economical or desirable, our Progressive Leasing, Aarons.com and DAMI businesses would benegatively impacted, which would adversely affect our operating results and financial condition. We cannot provide assurance that we will be successful inmaintaining our relationships with these external data source providers or that we will be able to continue to obtain data from them on acceptable terms or atall. Furthermore, we cannot provide assurance that we will be able to obtain data from alternative sources if our current sources become unavailable.Our proprietary algorithms and decisioning tools used to approve customers could no longer be indicative of our customer's ability to pay.We believe Progressive Leasing's proprietary, centralized underwriting process to be a key to the success of the Progressive Leasing business. That and otherunderwriting processes and tools are also used to approve customers of Aaron's and DAMI. We assume behavior and attributes observed for prior customers,among other factors, are indicative of performance by future customers. Unexpected changes in behavior caused by macroeconomic conditions, changes inconsumer preferences, availability of alternative products or other factors, however, could lead to increased incidence and costs related to unpaid leasesand/or merchandise losses.Progressive Leasing's loss of operating revenues from key retail partners could materially and adversely affect our business.Progressive Leasing's relationship with its largest retail partners will have a significant impact on our operating revenues in future periods. The loss of anysuch key retailers would have a material adverse effect on our business. In addition, any publicity associated with the loss of any of Progressive Leasing'slarge retail partners could harm our reputation, making it more difficult to attract and retain consumers and other retail partners, and could lessen ProgressiveLeasing's negotiating power with its remaining and prospective retail partners.Many of Progressive Leasing's contracts with its retail partners can be terminated by them on relatively short notice, and all can be terminated in limitedcircumstances, such as our material breach or insolvency, our failure to meet agreed-upon service levels, certain changes in control of Progressive Leasing,and its inability or unwillingness to agree to requested pricing changes. There can be no assurance that Progressive Leasing will be able to continue itsrelationships with its largest retail partners on the same or more favorable terms in future periods or that its relationships will continue beyond the terms ofour existing contracts with them. Our operating revenues and operating results could suffer if, among other things, any of Progressive Leasing's retail partnersrenegotiates, terminates or fails to renew, or fails to renew on similar or favorable terms, their agreements with Progressive Leasing or otherwise chooses tomodify the level of support they provide for Progressive Leasing's lease-purchase option.17If our independent franchisees fail to meet their debt service payments or other obligations under outstanding loans guaranteed by us as part of afranchise loan program, we may be required to pay to satisfy these obligations which could have a material adverse effect on our business and financialcondition.We have guaranteed the borrowings of certain franchisees under a franchise loan program with several banks with a maximum commitment amount of$85.0 million. In the event these franchisees are unable to meet their debt service payments or otherwise experience events of default, we would beunconditionally liable for a portion of the outstanding balance of the franchisees' debt obligations, which at December 31, 2017 was $45.3 million.We have had no significant losses associated with the franchise loan and guaranty program since its inception. Although we believe that any lossesassociated with defaults would be mitigated through recovery of lease merchandise and other assets, we cannot guarantee that there will be no significantlosses in the future or that we will be able to adequately mitigate any such losses. In addition to being liable for franchisee loan defaults under this loan andguaranty program, we could suffer a loss of franchisee fees and royalties, and a loss of revenue and profit derived from our sales of merchandise to franchisees,in the event that any defaulting franchisees become insolvent and/or cease business operations due to financial difficulties, and could suffer write-downs ofoutstanding receivables those franchisees owe us if they fail to make those payments to us. If we fail to adequately mitigate any such future losses, ourbusiness and financial condition could be materially adversely impacted.Operational and other failures by our franchisees may adversely impact us.Qualified franchisees who conform to our standards and requirements are important to the overall success of our business. Our franchisees, however, areindependent businesses and not employees, and consequently we cannot and do not control them to the same extent as our Company-operated stores. Ourfranchisees may fail in key areas, or experience significant business or financial difficulties, which could slow our growth, reduce our franchise revenues,damage our reputation, expose us to regulatory enforcement actions or private litigation and/or cause us to incur additional costs. If our franchiseesexperience business or financial difficulties, we could suffer a loss of franchisee fees, royalties, and revenue and profits derived from our sales of merchandiseto franchisees, and could suffer write-downs of outstanding receivables those franchisees owe us if they fail to make those payments to us. If we fail toadequately mitigate any such future losses, our business and financial condition could be materially adversely impacted.We may engage in litigation with our franchisees.Although we believe we generally enjoy a positive working relationship with the vast majority of our franchisees, the nature of the franchisor-franchiseerelationship may give rise to litigation with our franchisees. In the ordinary course of business, we are the subject of complaints or litigation from franchisees,usually related to alleged breaches of contract or wrongful termination under the franchise arrangements. We may also engage in future litigation withfranchisees to enforce the terms of our franchise agreements and compliance with our brand standards as determined necessary to protect our brand, theconsistency of our products and the customer experience. In addition, we may be subject to claims by our franchisees relating to our franchise disclosuredocuments, including claims based on financial information contained in those documents. Engaging in such litigation may be costly, time-consuming andmay distract management and materially adversely affect our relationships with franchisees. Any negative outcome of these or any other claims couldmaterially adversely affect our results of operations and may damage our reputation and brand. Furthermore, existing and future franchise-related legislationcould subject us to additional litigation risk in the event we terminate or fail to renew a franchise relationship.If we do not maintain the privacy and security of customer, employee, supplier or Company information, we could damage our reputation, incursubstantial additional costs and become subject to litigation and regulatory enforcement actions.Our business involves the collection, storage and transmission of customers' personal information, consumer preferences and credit and debit cardinformation, as well as confidential information about our customers, retail partners, employees, suppliers and the Company. We also serve as an informationtechnology provider to our franchisees including storing and processing information related to their customers on our systems. Our information systems arevulnerable to an increasing threat of continually evolving cybersecurity risks. Any significant compromise or breach of our data security, whether external orinternal, or misuse of employee or customer data, could significantly damage our reputation, cause the disclosure of confidential customer, associate, supplieror Company information, and result in significant costs, lost revenues or sales, fines, regulatory enforcement actions and lawsuits. For example, we arecurrently subject to settlements with the FTC as well as the State of California and the Commonwealth of Pennsylvania regarding our business practices andcompliance with privacy laws in those states, and data breaches of this nature could result in additional penalties under the terms of those settlements.18Various third parties, including computer hackers, who are continually becoming more aggressive and sophisticated, may attempt to penetrate our networksecurity and, if successful, misappropriate confidential customer, retailer partner, employee and/or supplier information. In addition, one of our employees,contractors or other third parties with whom we do business may attempt to circumvent our security measures in order to obtain such information, orinadvertently cause a breach involving such information. While we have implemented systems and processes to protect against unauthorized access to or useof secured data and to prevent data loss and theft, there is no guarantee that these procedures are adequate to safeguard against all data security breaches ormisuse of the data. The regulatory environment related to information security, data collection and use, and privacy is increasingly rigorous, with new andconstantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs. These costs associatedwith information security, such as increased investment in technology, the costs of compliance with privacy laws, and costs incurred to prevent or remediateinformation security breaches, could be substantial and adversely impact our business.We have experienced security incidents in the past, including an incident in which customer information was compromised, although no security incidentshave resulted in a material loss to date. We have been and are continuously in the process of improving our system security, although there can be noassurance that improvements we have already implemented, or others that we may implement from time to time in the future, will be effective to prevent allsecurity incidents. We maintain network security and private liability insurance intended to help mitigate the financial risk of such incidents, but there canbe no guarantee that insurance will be sufficient to cover all losses related to such incidents.A significant compromise of sensitive employee, customer or supplier information in our possession could result in legal damages and regulatory penalties.In addition, the costs of defending such actions or remediating breaches could be material. Security breaches could also harm our reputation with ourcustomers and retail partners, potentially leading to decreased revenues, and with federal and state government agencies and bodies.The geographic concentration of our Aaron's stores, as well as those of Progressive Leasing's retail partners, may magnify the impact of conditions in aparticular region, including economic downturns and other occurrences.The concentration of our Aaron's stores, and/or those of our retail partners at Progressive Leasing, in one region or a limited number of markets may expose usto risks of adverse economic developments that are greater than if our store portfolio and retail partners were more geographically diverse.In addition, our store operations, as well as those of our retail partners at Progressive Leasing, are subject to the effects of adverse acts of nature, such as winterstorms, hurricanes, hail storms, strong winds, earthquakes and tornadoes, which have in the past caused damage such as flooding and other damage to ourstores and those of our retail partners in specific geographic locations, including in Florida and Texas, two of our large markets, and may, depending upon thelocation and severity of such events, unfavorably impact our business continuity. Additionally, we cannot assure you that the amount of our hurricane,windstorm, earthquake, flood, business interruption or other casualty insurance we maintain from time to time would entirely cover damages caused by anysuch event.The transactions offered to consumers by our businesses may be negatively characterized by consumer advocacy groups, the media and certain federal,state and local government officials, and if those negative characterizations become increasingly accepted by consumers and/or Progressive Leasing'sor DAMI's retail and merchant partners, demand for our goods and the transactions we offer could decrease and our business could be materiallyadversely affected.Certain consumer advocacy groups, media reports and federal and state legislators have asserted that laws and regulations should be broader and morerestrictive regarding lease-to-own transactions. The consumer advocacy groups and media reports generally focus on the total cost to a consumer to acquirean item, which is often alleged to be higher than the interest typically charged by banks or similar lending institutions to consumers with better credithistories. This "cost-of-rental" amount, which is generally defined as lease fees paid in excess of the "retail" price of the goods, is from time to timecharacterized by consumer advocacy groups and media reports as predatory or abusive without discussing benefits associated with our lease-to-own programsor the lack of viable alternatives for our customers' needs. If the negative characterization of these types of lease-to-own transactions becomes increasinglyaccepted by consumers or Progressive Leasing's or DAMI's retail and merchant partners, demand for our products and services could significantly decrease,which could have a material adverse effect on our business, results of operations and financial condition. Additionally, if the negative characterization ofthese types of transactions is accepted by legislators and regulators, we could become subject to more restrictive laws and regulations, which could have amaterial adverse effect on our business, results of operations and financial condition. The vast expansion and reach of technology, including social mediaplatforms, has increased the risk that our reputation could be significantly impacted by these negative characterizations in a relatively short amount of time.If we are unable to quickly and effectively respond to such characterizations, we may experience declines in customer loyalty and traffic and ourrelationships with our retail partners may suffer, which could have a material adverse effect on our business, results of operations and financial condition.19If our information technology systems are impaired, our business could be interrupted, our reputation could be harmed and we may experience lostrevenues and increased costs and expenses.We rely on our information technology systems to process transactions with our customers, including tracking lease payments on merchandise, and tomanage other important functions of our business. Failures of our systems, such as "bugs," crashes, internet failures and outages, operator error or catastrophicevents, could seriously impair our ability to operate our business, and our business continuity and contingency plans related to such information technologyfailures may not be adequate to prevent that type of serious impairment. If our information technology systems are impaired, our business (and that of ourfranchisees) could be interrupted, our reputation could be harmed, we may experience lost revenues or sales and we could experience increased costs andexpenses to remediate the problem.From time to time we are subject to legal and regulatory proceedings which seek material damages or seek to place significant restrictions on ourbusiness operations. These proceedings may be negatively perceived by the public and materially and adversely affect our business. Certain judicial orregulatory decisions may restrict or eliminate the enforceability of certain types of contractual provisions designed to limit costly litigation, includingclass actions, as a dispute resolution method.We are subject to legal and regulatory proceedings from time to time which may result in material damages or place significant restrictions on our businessoperations. For example, we are currently subject to settlements with the FTC as well as the State of California and the Commonwealth of Pennsylvaniaregarding our business practices and compliance with privacy laws in those states. Although we do not presently believe that any of our current legal orregulatory proceedings will ultimately have a material adverse impact on our operations, we cannot assure you that we will not incur material damages orpenalties in a lawsuit or other proceeding in the future and/or significant defense costs related to such lawsuits or regulatory proceedings. For example, weoperate a fleet of approximately 3,000 delivery trucks and, in addition to the significant compliance-related costs associated with operating such a fleet, wemay incur significant adverse judgments, damages and penalties related to accidents that those trucks may be involved in from time to time. Significantadverse judgments, penalties, settlement amounts, amounts needed to post a bond pending an appeal or defense costs could materially and adversely affectour liquidity and capital resources. It is also possible that, as a result of a future governmental or other proceeding or settlement, significant restrictions willbe placed upon, or significant changes made to, our business practices, operations or methods, including pricing or similar terms. Any such restrictions orchanges may adversely affect our profitability or increase our compliance costs.To attempt to limit costly and lengthy consumer, employee and other litigation, including class actions, the Company requires its customers and employersto sign arbitration agreements and class action waivers, many of which offer opt-out provisions. Recent judicial and regulatory actions have attempted torestrict or eliminate the enforceability of such agreements and waivers. If the Company is not permitted to use arbitration agreements and/or class actionwaivers, or if the enforceability of such agreements and waivers is restricted or eliminated, the Company could incur increased costs to resolve legal actionsbrought by customers, employees and others, as it would be forced to participate in more expensive and lengthy dispute resolution processes.Failure to successfully manage and grow our Aarons.com e-commerce platform could materially adversely affect our business and future prospects.Our Aarons.com e-commerce platform provides customers the ability to review our product offerings and prices and enter into lease agreements as well asmake payments on existing leases from the comfort of their homes and on their mobile devices. Our e-commerce platform is a significant component of ourstrategic plan and we believe will drive future growth of our business. In order to promote our products and services and allow customers to transact onlineand reach new customers, we must effectively maintain, improve and grow our e-commerce platform. There can be no assurance that we will be able tomaintain, improve or grow our e-commerce platform in a profitable manner.DAMI's "second-look" credit programs for below-prime consumers differ in significant respects from the risks of Aaron's store-based lease-to-ownbusiness. The risks could have a material negative effect on Progressive Leasing, which could result in a material adverse effect on our entire business.As discussed above, as we execute on our strategic plans, we may continue to expand into complementary businesses that engage in financial, banking orlending services. For example, DAMI, which through its HELPcard® and other private label credit products, offers merchant partners one source for a varietyof open-end credit programs for below-prime consumers, is a business that differs in significant respects from our sales and lease ownership businesses.Consequently, DAMI faces different risks than are associated with Aaron's sales and lease ownership concept, which Aaron's and its franchisees offer throughtheir own stores. Because DAMI is operated as a wholly-owned subsidiary of Progressive Leasing, the risks DAMI faces could have a material negative effecton Progressive Leasing, which could result in a material adverse effect on our entire business. These potential risks include, among others, DAMI's:20•reliance on third party retailers (over whom DAMI cannot exercise the degree of control and oversight that Aaron's Business, including franchisees,can assert over their own respective employees) for many important business functions, from advertising through assistance with financeapplications;•reliance on two bank partners to issue DAMI's HELPcard® and other credit products. The banks' regulators, including the FDIC, could at any timelimit or otherwise modify the banks' ability to continue their relationships with DAMI and any significant interruption of those relationships wouldresult in DAMI being unable to use exported rates or acquire new receivables without moving to a costly and inefficient state-by-state model, andbeing unable to provide other credit products. It is possible that a regulatory position or action taken with respect to DAMI's issuing banks mightresult in the banks' inability or unwillingness to originate future credit products on DAMI's behalf or in partnership with it, which would adverselyaffect DAMI's ability to grow its point-of-sale and direct-to-consumer credit products and other consumer credit offerings and underlyingreceivables. In addition, DAMI's agreements with its issuing bank partners have scheduled expiration dates. Although those expiration dates areseveral months apart, if DAMI is unable to extend or execute new agreements with both of its issuing banks upon the expiration of its currentagreements, or if its existing agreements both were terminated or otherwise disrupted, there is a risk that DAMI would not be able to enter into anagreement with an alternative bank provider on terms that DAMI would consider favorable or in a timely manner without disruption of its business;and•different legal and regulatory risks, and different regulators (including the FDIC, for example), than those applicable to Aaron's and ProgressiveLeasing's sales and lease ownership businesses, including risks arising from the Truth in Lending Act, state credit laws and the offering of open-endcredit, the potential that regulators may target DAMI's operating model and the interest rates it charges, and the risk of unfavorable court decisionsrelating to the True Lender Doctrine, including among other factors, exporting of interest rates and state usury laws.These risks could have a material negative effect on Progressive Leasing, which could result in a material adverse effect on our entire business.If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able toaccurately report our financial results, or report them in a timely manner.As a public reporting company subject to the rules and regulations established from time to time by the SEC and the New York Stock Exchange, we arerequired to, among other things, establish and periodically evaluate procedures with respect to our disclosure controls and procedures. In addition, as a publiccompany, we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 sothat our management can certify, on an annual basis, that our internal control over financial reporting is effective.If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accuratelyreport our financial results, or report them in a timely manner, which could cause a decline in our stock price and adversely affect our results of operations andfinancial condition. In addition, if our senior management is unable to conclude that we have effective internal control over financial reporting, or to certifythe effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified opinion on the effectiveness of ourinternal control over financial reporting, when required, or if material weaknesses in our internal controls are identified, we could be subject to increasedregulatory scrutiny and a loss of public and investor confidence, which could also have a material adverse effect on our business and our stock price.We are subject to laws that regulate franchisor-franchisee relationships. Our ability to enforce our rights against our franchisees may be adverselyaffected by these laws, which could impair our growth strategy and cause our franchise revenues to decline.As a franchisor, we are subject to regulation by the FTC, state laws and certain Canadian provincial laws regulating the offer and sale of franchises. Our failureto comply with applicable franchise regulations could cause us to lose franchise fees and ongoing royalty revenues. Moreover, state and provincial laws thatregulate substantive aspects of our relationships with franchisees may limit our ability to terminate or otherwise resolve conflicts with our franchisees orenforce contractual duties or rights we believe we have with respect to our franchisees.Changes to the current law with respect to the assignment of liabilities in the franchise business model could adversely impact our profitability.One of the legal foundations fundamental to the franchise business model has been that, absent special circumstances, a franchisor is generally notresponsible for the acts, omissions or liabilities of its franchisees. Recently, established law has been challenged and questioned by the plaintiffs' bar andcertain regulators, and the outcome of these challenges and new regulatory positions remains unknown. If these challenges and/or new positions aresuccessful in altering currently settled law, it could significantly change the way we and other franchisors conduct business and adversely impact ourprofitability.21For example, a determination that we are a joint employer with our franchisees or that franchisees are part of one unified system with joint and severalliability under the National Labor Relations Act, statutes administered by the Equal Employment Opportunity Commission, OSHA regulations and otherareas of labor and employment law could subject us and/or our franchisees to liability for the unfair labor practices, wage-and-hour law violations,employment discrimination law violations, OSHA regulation violations and other employment-related liabilities of one or more franchisees. Furthermore, anysuch change in law would create an increased likelihood that certain franchised networks would be required to employ unionized labor, which could impactfranchisors like us through, among other things, increased labor costs and difficulty in attracting new franchisees. In addition, if these changes were to beexpanded outside of the employment context, we could be held liable for other claims against franchisees. Therefore, any such regulatory action or courtdecisions could have a material adverse effect on our results of operations.The loss of the services of our key executives, or our inability to attract and retain key technical talent in the areas of IT and analytics, could have amaterial adverse impact on our operations.We believe that we have benefited substantially from our current executive leadership and that the unexpected loss of their services in the future couldadversely affect our business and operations. We also depend on the continued services of the rest of our management team. The loss of these individualswithout adequate replacement could adversely affect our business. Further, we believe that the unexpected loss of certain key technical talent in the areas ofinformation technology and analytics in the future could adversely affect our business and operations. We do not carry key man life insurance on any of ourpersonnel. The inability to attract and retain qualified individuals, or a significant increase in the costs to do so, would materially adversely affect ouroperations.Our competitors could impede our ability to attract new customers, or cause current customers to cease doing business with us.The industries in which we operate are highly competitive and highly fluid, particularly in light of the sweeping new regulatory environment we arewitnessing from regulators such as the CFPB and the FTC, among others, as discussed above.In the sales and lease ownership market, our competitors include national, regional and local operators of lease-to-own stores, virtual lease-to-own companies,traditional and e-commerce retailers (including many retailers who offer layaway programs) and, indirectly, various types of consumer finance companies,including installment, payday and title loan companies, that may enable our customers to shop at traditional or on-line retailers, as well as rental stores thatdo not offer their customers a purchase option. Our competitors in the traditional and virtual sales and lease ownership and traditional retail markets mayhave significantly greater financial and operating resources and greater name recognition in certain markets. Greater financial resources may allow ourcompetitors to grow faster than us, including through acquisitions. This in turn may enable them to enter new markets before we can, which may decrease ouropportunities in those markets. Greater name recognition, or better public perception of a competitor's reputation, may help them divert market share awayfrom us, even in our established markets. Some competitors may be willing to offer competing products on an unprofitable basis in an effort to gain marketshare, which could compel us to match their pricing strategy or lose business.Our Progressive Leasing business relies heavily on relationships with retail partners. An increase in competition could cause our retail partners to no longeroffer the Progressive Leasing product in favor of our competitors which could slow growth in the Progressive Leasing business and limit or reduceprofitability.In addition, as a result of changes to the regulatory framework within which we operate, among other reasons, new competitors may emerge or current andpotential competitors may establish financial or strategic relationships among themselves or with third parties. Accordingly, it is possible that newcompetitors or alliances among competitors could emerge and rapidly acquire significant market share. The occurrence of any of these events couldmaterially adversely impact our business.We may pursue strategic alliances, acquisitions or investments and the failure of an alliance, acquisition or investment to produce the anticipatedresults or the inability to fully integrate the acquired companies could have an adverse impact on our business.We may from time to time acquire or invest in complementary companies or businesses, as we have done in recent years. The success of such acquisitions orinvestments is based on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors relatingto the respective business. There can be no assurance that our acquisitions or investments will produce the results that we expect at the time we enter into orcomplete the transaction. Furthermore, acquisitions may result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities,amortization expenses or write-offs of goodwill or other intangibles, any of which could harm our financial condition. We also may not be able tosuccessfully integrate operations that we acquire, including their customers, personnel, financial systems, supply chain and other operations, which couldadversely affect our business. Acquisitions may also result in the diversion of our capital and our management's attention from other business issues andopportunities and from our on-going strategic plan to improve the performance of the Aaron's Business.22We depend on hiring an adequate number of hourly employees to run our business and are subject to government regulations concerning these and ourother employees, including wage and hour regulations.Our workforce is comprised primarily of employees who work on an hourly basis. To grow our operations and meet the needs and expectations of ourcustomers, we must attract, train, and retain a large number of hourly associates, while at the same time controlling labor costs. These positions havehistorically had high turnover rates, which can lead to increased training, retention and other costs. In certain areas where we operate, there is significantcompetition for employees, including from retailers and the restaurant industries. The lack of availability of an adequate number of hourly employees, or ourinability to attract and retain them, or an increase in wages and benefits to attract and maintain current employees could adversely affect our business, resultsof operations, cash flows and financial condition. We are subject to applicable rules and regulations relating to our relationship with our employees,including wage and hour regulations, health benefits, unemployment and payroll taxes, overtime and working conditions and immigration status.Accordingly, federal, state or local legislated increases in the minimum wage, as well as increases in additional labor cost components such as employeebenefit costs, workers' compensation insurance rates, compliance costs and fines, would increase our labor costs, which could have a material adverse effecton our business, prospects, results of operations and financial condition.Our stock price is volatile, and you may not be able to recover your investment if our stock price declines.The price of our common stock has been volatile and can be expected to be significantly affected by factors such as:•our ability to meet market expectations with respect to the growth and profitability of each of our operating segments;•quarterly variations in our results of operations, which may be impacted by, among other things, changes in same store revenues or when and howmany locations we acquire, open or close;•quarterly variations in our competitors' results of operations;•changes in earnings estimates or buy/sell recommendations by financial analysts;•how our actual financial performance compares to the financial performance outlook we provide;•state or federal legislative or regulatory proposals, initiatives, actions or changes that are, or are perceived to be, adverse to our operations;•the stock price performance of comparable companies; and•continuing unpredictable global and regional economic conditions.In addition, the stock market as a whole historically has experienced price and volume fluctuations that have affected the market price of many specialtyretailers in ways that may have been unrelated to these companies' operating performance.We are subject to sales, income and other taxes, which can be difficult and complex to calculate due to the nature of our various businesses. A failure tocorrectly calculate and pay such taxes could result in substantial tax liabilities and a material adverse effect on our results of operations.The application of indirect taxes, such as sales tax, is a complex and evolving issue, particularly with respect to the lease-to-own industry generally and ourvirtual lease-to-own Progressive Leasing and Aarons.com businesses more specifically. Many of the fundamental statutes and regulations that impose thesetaxes were established before the growth of the lease-to-own industry and e-commerce and, therefore, in many cases it is not clear how existing statutes applyto our various businesses. In addition, governments are increasingly looking for ways to increase revenues, which has resulted in discussions about tax reformand other legislative action to increase tax revenues, including through indirect taxes. This also could result in other adverse changes in or interpretations ofexisting sales, income and other tax regulations. For example, from time to time, some taxing authorities in the United States have notified us that theybelieve we owe them certain taxes imposed on transactions with our customers, including some state tax authorities suggesting that our Progressive Leasingbusiness may owe certain state taxes based on the locations of Progressive Leasing's retail partners where Progressive Leasing's lease-to-own transactions areoriginated. Although these notifications have not resulted in material tax liabilities to date, there is a risk that one or more jurisdictions may be successful inthe future, which could have a material adverse effect on our results of operations.23We must successfully order and manage our Aaron's Business inventory to reflect customer demand and anticipate changing consumer preferences andbuying trends or our revenue and profitability will be adversely affected.The success of our Aaron's Business depends upon our ability to successfully manage our inventory and to anticipate and respond to merchandise trends andcustomer demands in a timely manner. We cannot always accurately predict consumer preferences and they may change over time. We must order certaintypes of merchandise, such as electronics, well in advance of seasonal increases in customer demand for those products. The extended lead times for many ofour purchases may make it difficult for us to respond rapidly to new or changing product trends or changes in prices. If we misjudge either the market for ourmerchandise, our customers' product preferences or our customers' leasing habits, our revenue may decline significantly and we may not have sufficientquantities of merchandise to satisfy customer demand or we may be required to mark down excess inventory, either of which would result in lower profitmargins. In addition, our level of profitability and success in our Aaron's Business depends on our ability to successfully re-lease or sale our inventory ofmerchandise that we take back from the customers of our Aaron's Business, due to their lease agreements expiring, or otherwise.Employee misconduct or misconduct by third parties acting on our behalf could harm us by subjecting us to monetary loss, significant legal liability,regulatory scrutiny and reputational harm.Our reputation is critical to maintaining and developing relationships with our existing and potential customers and third parties with whom we do business.There is a risk that our employees or the employees of a third party retailer with whom our Progressive Leasing business partners, or of a third party merchantwith whom our DAMI segment does business, could engage in misconduct that adversely affects our reputation and business. For example, if one of ouremployees engages in discrimination or harassment in the workplace, or if an employee or a third party associated with our business were to engage in, or beaccused of engaging in, illegal or suspicious activities including fraud or theft of our customers' information, we could suffer direct losses from the activityand, in addition, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial condition, customer relationships and abilityto attract future customers. Employee or third-party misconduct could prompt regulators to allege or to determine based upon such misconduct that we havenot established adequate supervisory systems and procedures to inform employees of applicable rules or to detect violations of such rules. Our Company-operated Aaron's stores have experienced employee fraud from time to time, and it is not always possible to deter employee or third-party misconduct. Theprecautions that we take to detect and prevent misconduct may not be effective in all cases. Misconduct by our employees or third party contractors, or evenunsubstantiated allegations of misconduct, could result in a material adverse effect on our reputation and our business.Product safety and quality control issues, including product recalls, could harm our reputation, divert resources, reduce sales and increase costs.The products we sell and lease in our Aaron’s Business and lease through our Progressive Leasing business are subject to regulation by the U.S. ConsumerProduct Safety Commission and similar state regulatory authorities. Such products could be subject to recalls and other actions by these authorities. Productsafety or quality concerns may require us to voluntarily remove selected products from our Aaron's stores, or from our customers' homes. Such recalls andvoluntary removal of products can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customerservice costs, which could have a material adverse effect on our financial condition. In addition, given the terms of our lease agreements with our customers,in the event of such a product quality or safety issue, our customers who have leased the defective merchandise from us could terminate their leaseagreements for that merchandise and/or not renew those lease arrangements, which could have a material adverse effect on our financial condition, if we areunable to recover those losses from the vendor who supplied us with the defective merchandise.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.24ITEM 2. PROPERTIESThe Company leases warehouse and retail store space for most of its store-based operations, call center space, and management and information technologyspace for corporate functions under operating leases expiring at various times through 2033. Most of the leases contain renewal options for additional periodsranging from one to 20 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchaseoptions. The following table sets forth certain information regarding our furniture manufacturing plants, bedding facilities, fulfillment centers, servicecenters, warehouses, corporate management and call center facilities as of December 31, 2017:LOCATIONSEGMENT, PRIMARY USE AND HOW HELDSQ. FT.Cairo, GeorgiaAaron's Business—Furniture Manufacturing – Owned300,000Cairo, GeorgiaAaron's Business—Furniture Manufacturing – Owned147,000Cairo, GeorgiaAaron's Business—Furniture Parts Warehouse – Leased111,000Coolidge, GeorgiaAaron's Business—Furniture Manufacturing – Owned81,000Coolidge, GeorgiaAaron's Business—Furniture Manufacturing – Owned48,000Coolidge, GeorgiaAaron's Business—Furniture Manufacturing – Owned41,000Coolidge, GeorgiaAaron's Business—Administration and Showroom – Owned10,000Lewisberry, PennsylvaniaAaron's Business—Bedding Manufacturing – Leased25,000Fairburn, GeorgiaAaron's Business—Bedding Manufacturing – Leased57,000Sugarland, TexasAaron's Business—Bedding Manufacturing – Owned23,000Auburndale, FloridaAaron's Business—Bedding Manufacturing – Leased20,000Kansas City, KansasAaron's Business—Bedding Manufacturing – Leased13,000Phoenix, ArizonaAaron's Business—Bedding Manufacturing – Leased24,000Plainfield, IndianaAaron's Business—Bedding Manufacturing – Leased40,000Auburndale, FloridaAaron's Business—Fulfillment Center – Leased131,000Belcamp, MarylandAaron's Business—Fulfillment Center – Leased95,000Obetz, OhioAaron's Business—Fulfillment Center – Leased91,000Dallas, TexasAaron's Business—Fulfillment Center – Leased133,000Fairburn, GeorgiaAaron's Business—Fulfillment Center – Leased115,000Sugarland, TexasAaron's Business—Fulfillment Center – Owned135,000Huntersville, North CarolinaAaron's Business—Fulfillment Center – Leased206,000LaVergne, TennesseeAaron's Business—Fulfillment Center – Leased100,000Oklahoma City, OklahomaAaron's Business—Fulfillment Center – Leased130,000Phoenix, ArizonaAaron's Business—Fulfillment Center – Leased107,000Magnolia, MississippiAaron's Business—Fulfillment Center – Leased125,000Plainfield, IndianaAaron's Business—Fulfillment Center – Leased156,000Portland, OregonAaron's Business—Fulfillment Center – Leased98,000Westfield, MassachusettsAaron's Business—Fulfillment Center – Leased131,000Kansas City, KansasAaron's Business—Fulfillment Center – Leased103,000Cheswick, PennsylvaniaAaron's Business—Fulfillment Center – Leased126,00025LOCATIONSEGMENT, PRIMARY USE AND HOW HELDSQ. FT.Auburndale, FloridaAaron's Business—Service Center – Leased7,000Belcamp, MarylandAaron's Business—Service Center – Leased5,000Buffalo, New YorkAaron's Business—Service Center – Leased1,000Cheswick, PennsylvaniaAaron's Business—Service Center – Leased10,000Citrus Heights, CaliforniaAaron's Business—Service Center – Leased8,000Fairburn, GeorgiaAaron's Business—Service Center – Leased10,000Grand Prairie, TexasAaron's Business—Service Center – Leased7,000Hartford, ConnecticutAaron's Business—Service Center – Leased9,000Houston, TexasAaron's Business—Service Center – Leased20,000Huntersville, North CarolinaAaron's Business—Service Center – Leased18,000Kansas City, KansasAaron's Business—Service Center – Leased8,000Obetz, OhioAaron's Business—Service Center – Leased7,000Oklahoma City, OklahomaAaron's Business—Service Center – Leased10,000Phoenix, ArizonaAaron's Business—Service Center – Leased7,000Plainfield, IndianaAaron's Business—Service Center – Leased13,000Ridgeland, MississippiAaron's Business—Service Center – Leased10,000South Madison, TennesseeAaron's Business—Service Center – Leased23,000Draper, UtahProgressive Leasing —Corporate Management/Call Center – Leased148,000Glendale, ArizonaProgressive Leasing —Corporate Management/Call Center – Leased52,000Draper, UtahDAMI—Corporate Management/Call Center – Leased25,000Springdale, ArkansasDAMI—Corporate Management/Call Center – Owned29,000Tulsa, OklahomaDAMI—Call Center – Leased3,000We sold the building that previously contained our executive and administrative offices in January 2016, and secured a lease in a different part of Atlanta forapproximately 64,000 square feet of a building that we began occupying in 2016 and use for our permanent executive and administrative offices.We currently lease 115,000 square feet in Kennesaw, Georgia, which is used for other administrative functions.We believe that all of our facilities are well maintained and adequate for their current and reasonably foreseeable uses.ITEM 3. LEGAL PROCEEDINGSFrom time to time, we are party to various legal proceedings arising in the ordinary course of business. While any proceeding contains an element ofuncertainty, we do not currently believe that any of the outstanding legal proceedings to which we are a party will have a material adverse impact on ourbusiness, financial position or results of operations. However, an adverse resolution of a number of these items may have a material adverse impact on ourbusiness, financial position or results of operations. For further information, see Note 9 to these consolidated financial statements under the heading "LegalProceedings," which discussion is incorporated by reference in response to this Item 3.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.26PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESMarket Information, Holders and DividendsEffective December 13, 2010, all shares of the Company's common stock began trading as a single class on the New York Stock Exchange under the tickersymbol "AAN." The CUSIP number of the Company's common stock is 002535300.The number of shareholders of record of the Company's common stock at February 23, 2018 was 162. The closing price for the common stock at February 23,2018 was $44.87.The following table shows the range of high and low sales prices per share for the Company's common stock and the quarterly cash dividends declared pershare for the periods indicated. Common StockHigh Low CashDividendsPer ShareYear Ended December 31, 2017 First Quarter$32.88 $26.12 $0.0275Second Quarter40.33 29.05 0.0275Third Quarter48.22 37.14 0.0275Fourth Quarter45.06 34.29 0.0300Common StockHigh Low CashDividendsPer ShareYear Ended December 31, 2016 First Quarter$25.25 $20.24 $0.0250Second Quarter27.72 20.51 0.0250Third Quarter25.90 21.50 0.0250Fourth Quarter34.22 22.37 0.0275Subject to our ongoing ability to generate sufficient income, any future capital needs and other contingencies, we expect to continue our policy of payingquarterly dividends. Dividends will be payable only when, and if, declared by the Company's Board of Directors. Under our revolving credit agreement, wemay pay cash dividends in any year so long as, after giving pro forma effect to the dividend payment, we maintain compliance with our financial covenantsand no event of default has occurred or would result from the payment.Issuer Purchases of Equity SecuritiesAs of December 31, 2017, 7,162,279 shares of common stock remained available for repurchase from time to time under the purchase authority previouslyapproved by the Company's Board of Directors. On February 13, 2018, the Company replaced the stock repurchase program previously authorized by itsBoard of Directors with a newly authorized $500 million common repurchase program. The following table presents our share repurchase activity for thethree months ended December 31, 2017:PeriodTotal Number of SharesPurchased Average Price PaidPer Share Total Number of SharesPurchased as Part ofPublicly AnnouncedPlansOctober 1 through October 31, 2017— — —November 1 through November 30, 2017— — —December 1 through December 31, 2017752,976 37.51 752,976Total752,976 752,9761 Share repurchases are conducted under repurchase programs authorized by the Company's Board of Directors from time to time. Under our previous sharerepurchase program, the maximum number of shares the Company could repurchase at December 31, 2017 was 7,162,279 shares. On February 13, 2018, theCompany's Board of Directors authorized a new $500 million share repurchase program, which replaces our previous repurchase program. Subject to theterms of the Board's authorization given on February 13, 2018, and applicable law, repurchases may be made at such times and in such amounts as theCompany deems appropriate. The share repurchase program may be discontinued at any time.27Securities Authorized for Issuance Under Equity Compensation PlansInformation concerning the Company's equity compensation plans is set forth in Item 12 of Part III of this Annual Report on Form 10-K.Performance GraphComparison of 5 Year Cumulative Total Return*Among Aaron's, Inc., the S&P Midcap 400 Index, and S&P 400 Retailing Index*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends.Fiscal year ending December 31.The line graph above and the table below compare, for the last five years of the Company, the yearly dollar change in the cumulative total shareholder returns(assuming reinvestment of dividends) on the Company's common stock with that of the S&P Midcap 400 Index and the S&P 400 Retailing Index.December 31,201220132014201520162017Aaron's, Inc.$100.00$104.23$108.70$79.86$114.55$143.14S&P Midcap 400100.00133.50146.54143.35173.08201.20S&P 400 Retailing Index100.00126.74136.14108.53107.38105.4528ITEM 6. SELECTED FINANCIAL DATAThe following table sets forth certain selected consolidated financial data of Aaron's, Inc., which have been derived from its Consolidated FinancialStatements for each of the five years in the period ended December 31, 2017. This historical information may not be indicative of the Company's futureperformance. The information set forth below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Resultsof Operations and the Consolidated Financial Statements and the notes thereto. Year Ended December 31,(Dollar Amounts in Thousands, Except Per Share Data)2017 2016 2015 2014 2013OPERATING RESULTS Revenues: Lease Revenues and Fees$3,000,231 $2,780,824 $2,684,184 $2,221,574 $1,748,699Retail Sales27,465 29,418 32,872 38,360 40,876Non-Retail Sales270,253 309,446 390,137 363,355 371,292Franchise Royalties and Fees48,278 58,350 63,507 65,902 68,575Interest and Fees on Loans Receivable34,925 24,080 2,845 — —Other2,556 5,598 6,211 5,842 5,189 3,383,708 3,207,716 3,179,756 2,695,033 2,234,631Costs and Expenses: Depreciation of Lease Merchandise1,448,631 1,304,295 1,212,644 932,634 628,089Retail Cost of Sales17,578 18,580 21,040 24,541 24,318Non-Retail Cost of Sales241,356 276,608 351,777 330,057 337,581Operating Expenses1,403,985 1,351,785 1,357,030 1,231,801 1,022,684Financial Advisory and Legal Costs— — — 13,661 —Restructuring Expenses17,994 20,218 — 9,140 —Retirement and Vacation Charges— — — 9,094 4,917Progressive-Related Transaction Costs— — — 6,638 —Legal and Regulatory (Income) Expense— — — (1,200) 28,400Other Operating (Income) Expense, Net(535) (6,446) 1,324 (1,176) 1,584 3,129,009 2,965,040 2,943,815 2,555,190 2,047,573Operating Profit254,699 242,676 235,941 139,843 187,058Interest Income1,835 2,699 2,185 2,921 2,998Interest Expense(20,538) (23,390) (23,339) (19,215) (5,613)Other Non-Operating Income (Expense), Net3,581 (3,563) (1,667) (1,845) 517Earnings Before Income Tax (Benefit) Expense239,577 218,422 213,120 121,704 184,960Income Tax (Benefit) Expense(52,959) 79,139 77,411 43,471 64,294Net Earnings$292,536$139,283$135,709$78,233$120,666 Earnings Per Share$4.13 $1.93 $1.87 $1.08 $1.59Earnings Per Share Assuming Dilution4.06 1.91 1.86 1.08 1.58Dividends Per Share0.1125 0.1025 0.0940 0.0860 0.0720FINANCIAL POSITION Lease Merchandise, Net$1,152,135 $999,381 $1,138,938 $1,087,032 $869,725Property, Plant and Equipment, Net207,687 211,271 225,836 219,417 231,293Total Assets2,692,264 2,615,736 2,698,488 2,456,844 1,827,176Debt368,798 497,829 606,746 606,082 142,704Shareholders' Equity1,728,004 1,481,598 1,366,618 1,223,521 1,139,963AT YEAR END (unaudited) Stores Open: Company-operated1,175 1,165 1,305 1,326 1,370Franchised551 699 734 782 781Lease Agreements in Effect12,263,200 2,104,700 2,164,200 2,111,800 1,751,000Progressive Leasing Active Doors226,861 21,840 16,947 15,754 —Number of Employees111,900 11,500 12,700 12,400 12,6001 Excludes Franchised operations2 Progressive Leasing was acquired on April 14, 2014. Active doors represent retail store locations at which at least one virtual lease-to-own transaction has been completed during thetrailing twelve month period.29ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSBusiness OverviewAaron’s, Inc. ("we," "our," "us," or the "Company") is a leading omnichannel provider of lease-purchase solutions to individual consumers. As ofDecember 31, 2017, the Company’s operating segments are Progressive Leasing, Aaron’s Business and DAMI.Progressive Leasing is a virtual lease-to-own company that provides lease-purchase solutions through approximately 27,000 retail locations in 46 states andthe District of Columbia. It does so by purchasing merchandise from third-party retailers desired by those retailers’ customers and, in turn, leasing thatmerchandise to the customers on a lease-to-own basis. Progressive Leasing consequently has no stores of its own, but rather offers lease-purchase solutions tothe customers of traditional retailers.Aaron’s Business offers furniture, consumer electronics, home appliances and accessories to consumers primarily on a month-to-month, lease-to-own basiswith no credit needed through the Company’s Aaron’s stores. This operating segment also supports franchisees of its Aaron’s stores. We have more than 1,700Company-operated and franchised Aaron’s stores in 47 states and Canada. In addition, the Aaron’s Business segment also includes the operations ofWoodhaven Furniture Industries, which manufactures and supplies the majority of the upholstered furniture and bedding leased and sold in Company-operated and franchised stores.DAMI, which was acquired by Progressive Leasing on October 15, 2015, partners with merchants to provide a variety of revolving credit products originatedthrough two third-party federally insured banks to customers that may not qualify for traditional prime lending (called "second-look" financing programs).Business Environment and Company OutlookLike many industries, the lease-to-own industry has been transformed by the internet and virtual marketplace. We believe that the Progressive Leasing andDAMI acquisitions have been strategically transformational in this respect by allowing the Company to diversify its presence in the market and strengthenour business, as demonstrated by Progressive Leasing's significant revenue and profit growth in 2017. The Company is also leveraging franchisee acquisitionopportunities to expand into new geographic markets and benefit from synergies. We believe the traditional store based lease-to-own industry has beennegatively impacted in recent periods by: (i) increased competition from a wide range of competitors, including national, regional and local operators oflease-to-own stores; virtual lease-to-own companies; traditional and e-commerce retailers; and, indirectly, from various types of consumer finance companiesthat enable our customers to shop at traditional or online retailers; (ii) the challenges faced by many traditional "brick-and-mortar" retailers, with respect to adecrease in the number of consumers visiting those stores, especially younger consumers; (iii) the continuing economic challenges facing many traditionallease-to-own customers; and (iv) commoditization of pricing in electronics. In response to these changing market conditions, we are executing a strategicplan that focuses on the following items and that we believe position us for success over the long-term:•Improve Aaron’s store profitability;•Accelerate our omnichannel platform;•Strengthen relationships of Progressive Leasing and DAMI’s current retail and merchant partners;•Focus on converting existing pipeline into Progressive Leasing retail partners; and•Champion compliance.As part of executing this strategy, we sold the 82 Company-operated HomeSmart stores on May 13, 2016, which we believe has enabled us to sharpen ourfocus on activities that have the highest potential for return.In July 2017, the Company acquired substantially all of the assets of the store operations of SEI/Aaron’s, Inc. ("SEI"), the Company’s largest franchisee. At thetime of the acquisition, the SEI store operations served approximately 90,000 customers through 104 Aaron's-branded stores in 11 states primarily in theNortheast. The acquisition has benefited our omnichannel platform through added scale, has strengthened the Company’s presence in certain geographicmarkets, and has enhanced the Company's ability to drive inventory supply-chain synergies between the Aaron’s Business and Progressive Leasing inmarkets that SEI served.30We also took steps to further address the expense structure of our Aaron’s Business by completing a thorough review of our remaining store base in order toidentify opportunities for rationalization. As a result of this evaluation and other cost-reduction initiatives, the Company closed 56 underperformingCompany-operated stores during 2016, closed 82 stores during 2017 and anticipates closing an additional eight stores in the first six months of 2018. TheCompany also optimized its home office and field support staff in 2016 and 2017, which resulted in a reduction in employee headcount in those areas, tomore closely align with current business conditions.HighlightsThe following summarizes significant highlights from our 2017 fiscal year:•The Company reported record revenues of $3.4 billion, and its net earnings before income tax (benefit) expense increased to a record $239.6 millioncompared to $218.4 million in 2016.•The Tax Cuts and Jobs Act (the "Tax Act") enacted in December 2017, among other things, lowered the U.S. corporate income tax ratefrom 35% to 21% effective January 1, 2018. The estimated net impact of the Tax Act to our income tax (benefit) expense for the year endedDecember 31, 2017 is a non-cash provisional income tax benefit of $137 million, which primarily relates to the remeasurement of net deferred taxliabilities at the lower tax rate.•Progressive Leasing achieved record revenues of $1.6 billion, an increase of 26.6% over 2016. Progressive Leasing’s revenue growth is due to a23.0% increase in active doors, which contributed to a 31.2% increase in total invoice volume. Progressive Leasing increased its earnings beforeincome taxes to $140.2 million compared to $104.7 million in 2016, due mainly to its revenue growth.•Aaron’s Business revenues decreased to $1.8 billion, an 8.4% decrease compared to 2016. The decline is due primarily to a 7.0% decrease in samestore sales, the net reduction of 130 Company-operated stores during the 24-month period ended December 31, 2017, and declines in non-retail salesto our franchisees. Earnings before income taxes decreased to $110.6 million in 2017 compared to $123.0 million in the prior year due primarily tothe decline in same store sales and the reduction in non-retail sales to franchisees.•The Company acquired substantially all of the assets of the store operations of SEI, its largest franchisee, for approximately $140 million in cash.•The Company generated cash from operating activities of $159.1 million compared to $467.2 million in 2016 and ended 2017 with $51.0 million incash and $393.9 million available on our revolving credit facility.•The Company returned $70.5 million to our shareholders through the repurchase of 2.0 million shares and the payment of our quarterly dividends,which we have paid for 30 consecutive years.Key MetricsActive Doors. We believe that active doors are a key performance indicator of our Progressive Leasing segment. Active doors represent retail store locations atwhich at least one virtual lease-to-own transaction has been completed during the trailing twelve month period. The following table presents active doors forthe Progressive Leasing segment:For the Year Ended December 31 (Unaudited)2017 2016 2015Progressive Leasing Active Doors26,861 21,840 16,947Invoice Volume. We also believe that invoice volume is a key performance indicator of our Progressive Leasing segment. Invoice volume is defined as theretail price of lease merchandise acquired and leased by Progressive Leasing during the period, net of returns. The following table presents total invoicevolume for the Progressive Leasing segment:For the Year Ended December 31 (Unaudited and In Thousands)2017 2016 2015Progressive Leasing Invoice Volume$1,160,732 $884,812 $780,03831The Company’s franchised and Company-operated store activity (unaudited) is summarized as follows: 2017 2016 2015Company-operated Aaron’s stores Company-operated Aaron’s stores open at January 1,1,165 1,223 1,243Opened— — 7Added through acquisition110 16 25Closed, sold or merged(100) (74) (52)Company-operated Aaron’s stores open at December 31,1,175 1,165 1,223 Franchised stores Franchised stores open at January 1,699 734 782Opened1 1 10Purchased from the Company— — 16Purchased by the Company(111) (16) (25)Closed, sold or merged(38) (20) (49)Franchised stores open at December 31,551 699 734 Company-operated HomeSmart stores 1 Company-operated HomeSmart stores open at January 1,— 82 83Opened— — —Closed, sold or merged— (82) (1)Company-operated HomeSmart stores open at December 31,— — 821 In May 2016, we sold our 82 Company-operated HomeSmart stores.Same Store Revenues. We believe that changes in same store revenues are a key performance indicator of the Aaron’s Business. For the year endedDecember 31, 2017, we calculated this amount by comparing revenues for the year ended December 31, 2017 to revenues for the year ended December 31,2016 for all stores open for the entire 24-month period ended December 31, 2017, excluding stores that received lease agreements from other acquired, closedor merged stores. Same store revenues declined by 7.0% during the 24 month period ended December 31, 2017.Key Components of Earnings Before Income TaxesIn this management’s discussion and analysis section, we review our consolidated results. For the years ended December 31, 2017 and the comparable prioryear periods, some of the key revenue, cost and expense items that affected earnings before income tax (benefit) expense were as follows:Revenues. We separate our total revenues into six components: (i) lease revenues and fees; (ii) retail sales; (iii) non-retail sales; (iv) franchise royalties andfees; (v) interest and fees on loans receivable; and (vi) other. Lease revenues and fees include all revenues derived from lease agreements at Company-operated stores and retail locations serviced by Progressive Leasing. Retail sales represent sales of both new and returned lease merchandise from ourCompany-operated stores. Non-retail sales primarily represent new merchandise sales to our franchisees. Franchise royalties and fees represent fees from thesale of franchise rights and royalty payments from franchisees, as well as other related income from our franchised stores. Interest and fees on loans receivableprimarily represents merchant fees, finance charges and annual and other fees earned on loans originated since the DAMI acquisition, as well as the accretionof the discount on loans acquired in the acquisition. Other revenues primarily relate to revenues from leasing real estate properties to unrelated third parties,as well as other miscellaneous revenues.Depreciation of Lease Merchandise. Depreciation of lease merchandise primarily reflects the expense associated with depreciating merchandise held for leaseand leased to customers by Progressive Leasing and our Company-operated stores.Retail Cost of Sales. Retail cost of sales represents the depreciated cost of merchandise sold through our Company-operated stores.Non-Retail Cost of Sales. Non-retail cost of sales primarily represents the cost of merchandise sold to our franchisees.Operating Expenses. Operating expenses include personnel costs, occupancy costs, provision for lease merchandise write-offs, bad debt expense, shippingand handling, advertising and the provision for loan losses, among other expenses.32Restructuring Expenses. Restructuring expenses primarily represent the cost of optimization efforts and cost reduction initiatives related to the Aaron’sBusiness, home office and field support functions. Restructuring charges were comprised principally of closed store contractual lease obligations, the write-off and impairment of store property, plant and equipment, and related workforce reductions.Other Operating (Income) Expense, Net. Other operating (income) expense, net consists of gains or losses on sales of Company-operated stores and deliveryvehicles, fair value adjustments on assets held for sale and gains or losses on other transactions involving property, plant and equipment.Interest Expense. Interest expense consists of interest incurred on fixed and variable rate notes and outstanding borrowings from the revolving credit facility.Other Non-Operating Income (Expense), Net. Other non-operating income (expense), net includes the impact of foreign currency remeasurement, as well asgains resulting from changes in the cash surrender value of Company-owned life insurance related to the Company’s deferred compensation plan.33Results of OperationsThe results of DAMI have been included in the Company’s consolidated results and presented as a reportable segment from the October 15, 2015 acquisitiondate. 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 organizationalstructure and the operating results that the chief operating decision maker regularly reviews to analyze performance and allocate resources. The Company hasretroactively adjusted, for all periods presented, its segment disclosures to align with the current composition of reportable segments.Results of Operations – Years Ended December 31, 2017, 2016 and 2015 Change Year Ended December 31, 2017 vs. 2016 2016 vs. 2015(In Thousands)2017 2016 2015 $ % $ %REVENUES: Lease Revenuesand Fees$3,000,231 $2,780,824 $2,684,184 $219,407 7.9 % $96,640 3.6 %Retail Sales27,465 29,418 32,872 (1,953) (6.6) (3,454) (10.5)Non-Retail Sales270,253 309,446 390,137 (39,193) (12.7) (80,691) (20.7)Franchise Royalties and Fees48,278 58,350 63,507 (10,072) (17.3) (5,157) (8.1)Interest and Fees on LoansReceivable34,925 24,080 2,845 10,845 45.0 21,235 746.4Other2,556 5,598 6,211 (3,042) (54.3) (613) (9.9) 3,383,708 3,207,716 3,179,756 175,992 5.5 27,960 0.9COSTS AND EXPENSES: Depreciation of LeaseMerchandise1,448,631 1,304,295 1,212,644 144,336 11.1 91,651 7.6Retail Cost of Sales17,578 18,580 21,040 (1,002) (5.4) (2,460) (11.7)Non-Retail Cost of Sales241,356 276,608 351,777 (35,252) (12.7) (75,169) (21.4)Operating Expenses1,403,985 1,351,785 1,357,030 52,200 3.9 (5,245) (0.4)Restructuring Expenses17,994 20,218 — (2,224) (11.0) 20,218 nmfOther Operating (Income)Expense, Net(535) (6,446) 1,324 (5,911) (91.7) (7,770) nmf 3,129,009 2,965,040 2,943,815 163,969 5.5 21,225 0.7 OPERATING PROFIT254,699 242,676 235,941 12,023 5.0 6,735 2.9Interest Income1,835 2,699 2,185 (864) (32.0) 514 23.5Interest Expense(20,538) (23,390) (23,339) (2,852) (12.2) 51 0.2Other Non-Operating Income(Expense), Net3,581 (3,563) (1,667) 7,144 nmf (1,896) (113.7) EARNINGS BEFORE INCOMETAX (BENEFIT) EXPENSE239,577 218,422 213,120 21,155 9.7 5,302 2.5 INCOME TAX (BENEFIT)EXPENSE(52,959) 79,139 77,411 (132,098) nmf 1,728 2.2 NET EARNINGS$292,536 $139,283 $135,709 $153,253 110.0 % $3,574 2.6 %nmf—Calculation is not meaningful34RevenuesInformation about our revenues by reportable segment is as follows: Change Year Ended December 31, 2017 vs. 2016 2016 vs. 2015(In Thousands)2017 2016 2015 $ % $ %REVENUES: Progressive Leasing1$1,566,413 $1,237,597 $1,049,681 $328,816 26.6 % $187,916 17.9 %Aaron’s Business21,782,370 1,946,039 2,127,230 (163,669) (8.4) (181,191) (8.5)DAMI334,925 24,080 2,845 10,845 45.0 21,235 nmfTotal Revenues from ExternalCustomers$3,383,708 $3,207,716 $3,179,756 $175,992 5.5 % $27,960 0.9 %1 Segment revenue consists of lease revenues and fees.2 Segment revenue principally consists of lease revenues and fees, retail sales, non-retail sales and franchise royalties and fees.3 Segment revenue consists of interest and fees on loans receivable, and excludes the effect of interest expense.Year Ended December 31, 2017 Versus Year Ended December 31, 2016Progressive Leasing. Progressive Leasing segment revenues increased primarily due to an annualized 23.0% growth in active doors, which contributed to a31.2% increase in total invoice volume.Aaron’s Business. Aaron’s Business segment revenues decreased primarily due to a $109.4 million decrease in lease revenues and fees and a $39.2 milliondecrease in non-retail sales. Lease revenues and fees decreased primarily due to a 7.0% decrease in same store revenues and the net reduction of 130Company-operated stores during the 24 month period ended December 31, 2017, including the sale of 82 HomeSmart stores in May 2016. The decrease innon-retail sales was mainly due to decreasing demand for product by franchisees as a result of the net reduction of 183 franchised stores, which includes theCompany’s acquisition of SEI, during the 24 month period ended December 31, 2017. The July 2017 acquisition of SEI impacted Aaron's Business in theform of an increase in lease revenues and fees, partially offset by lower non-retail sales and franchise royalties and fees during the year ended December 31,2017 as compared to the same period in the prior year.DAMI. DAMI segment revenues increased due to higher interest and fee revenue recognized as a result of the growth of DAMI’s post-acquisition loanportfolio subsequent to the October 15, 2015 DAMI acquisition. The balance of loans originated since the acquisition was approximately $89.7 million atDecember 31, 2017 compared to $64.8 million at December 31, 2016.Year Ended December 31, 2016 Versus Year Ended December 31, 2015Progressive Leasing. Progressive Leasing segment revenues increased primarily due to an annualized 28.9% growth in active doors, which contributed to a13.4% increase in total invoice volume.Aaron’s Business. Aaron’s Business segment revenues decreased primarily due to a $91.3 million decrease in lease revenues and fees and an $80.7 milliondecrease in non-retail sales. Lease revenues and fees decreased primarily due to a 3.4% decrease in same store revenues and the net reduction of 161Company-operated stores during the 24 month period ended December 31, 2016, including the sale of 82 HomeSmart stores in May 2016. The decrease innon-retail sales was mainly due to decreasing demand for product by franchisees as a result of the net reduction of 83 franchised stores during the 24 monthperiod ended December 31, 2016.DAMI. DAMI segment revenues increased due to DAMI’s results being included for a full year in 2016 as compared to a partial year in 2015 from the October15, 2015 acquisition date.35Operating ExpensesInformation about certain significant components of operating expenses is as follows: Change Year Ended December 31, 2017 vs. 2016 2016 vs. 2015(In Thousands)2017 2016 2015 $ % $ %Personnel Costs$615,378 $611,113 $619,557 $4,265 0.7 % $(8,444) (1.4)%Occupancy Costs199,638 208,712 208,927 (9,074) (4.3) (215) (0.1)Provision for Lease MerchandiseWrite-Offs145,460 134,104 136,380 11,356 8.5 (2,276) (1.7)Bad Debt Expense170,574 128,333 122,184 42,241 32.9 6,149 5.0Shipping and Handling67,299 69,939 77,944 (2,640) (3.8) (8,005) (10.3)Advertising34,026 40,823 39,334 (6,797) (16.6) 1,489 3.8Provision for Loan Losses20,973 11,251 937 9,722 86.4 10,314 nmfOther Operating Expenses150,637 147,510 151,767 3,127 2.1 (4,257) (2.8)Operating Expenses$1,403,985 $1,351,785 $1,357,030 $52,200 3.9 % $(5,245) (0.4)%nmf—Calculation is not meaningfulYear Ended December 31, 2017 Versus Year Ended December 31, 2016As a percentage of total revenues, operating expenses decreased to 41.5% in 2017 from 42.1% in 2016.Personnel costs increased primarily due to a $23.7 million increase at Progressive Leasing offset by a $21.0 million decrease at the Aaron's Business. The netincrease in personnel costs in 2017 is the result of hiring to support the growth of Progressive Leasing, the acquisition of our largest franchisee in July 2017and higher stock-based compensation expense, partially offset by a reduction of home office and field support staff from our Aaron’s Business restructuringprograms in 2017 and additional charges incurred in 2016 related to the retirement of the Company’s former Chief Financial Officer.Occupancy costs decreased primarily due to the net reduction of 130 Company-operated stores during the 24 month period ended December 31, 2017. Theoccupancy costs were impacted by the closure and consolidation of our stores from our Aaron's Business restructuring programs, partially offset by theaddition of stores from our acquisition of our largest franchisee in July 2017.The provision for lease merchandise write-offs increased during 2017 primarily due to Progressive Leasing's revenue growth. The provision for leasemerchandise write-offs as a percentage of lease revenues for the Progressive Leasing segment decreased to 5.5% in 2017 from 5.7% in 2016 due to continuedoperational improvements and enhancements to the lease decisioning process. This was partially offset by damaged inventory written off, net of probableinsurance recoveries, and higher estimated inventory charge-offs caused by Hurricanes Harvey and Irma. The provision for lease merchandise write-offs as apercentage of lease revenues for the Aaron’s Business increased slightly to 4.2% in 2017 from 4.1% in 2016 due to higher lease merchandise write-offscaused by the Hurricanes.Bad debt expense increased by $42.2 million during 2017 primarily due to the increases in invoice volume from Progressive Leasing as discussed above.Progressive Leasing’s bad debt expense as a percentage of Progressive Leasing’s revenues increased to 10.9% in 2017 from 10.3% in 2016 due primarily to ashift in the portfolio mix, as well as higher bad debt expense from customers impacted by Hurricanes Harvey and Irma.The provision for loan losses increased during 2017 due to the growth of DAMI’s post-acquisition loan portfolio subsequent to the October 15, 2015acquisition of DAMI.Other operating expenses increased primarily due to higher third-party consulting costs related to various Aaron's Business strategic operating initiatives aswell as transaction costs incurred related to the acquisition of SEI.Year Ended December 31, 2016 Versus Year Ended December 31, 2015As a percentage of total revenues, operating expense decreased to 42.1% during 2016 from 42.7% in 2015.Personnel costs decreased primarily due to the disposition of the HomeSmart business, in which the Company sold all of its 82 HomeSmart stores on May 13,2016, and a reduction of Corporate support staff. This was partially offset by increases in hiring to support the growth of Progressive Leasing and DAMI, theinclusion of a full year of DAMI personnel costs in 2016 and additional charges related to the retirement of the Company’s former Chief Financial Officer in2016.36The provision for lease merchandise write-offs decreased during 2016. Progressive Leasing’s provision for lease merchandise write-offs as a percentage ofProgressive Leasing’s lease revenues decreased to 5.7% in 2016 compared to 7.0% in 2015 due to continued operational improvements and enhancements tothe lease decisioning process. The provision for lease merchandise write-offs as a percentage of lease revenues for the Aaron’s Business increased to 4.1% in2016 compared to 3.8% in 2015.Bad debt expense increased due to the increase in invoice volume from Progressive Leasing as discussed above. Progressive Leasing’s bad debt expense as apercentage of Progressive Leasing’s revenues decreased to 10.3% in 2016 compared to 11.6% in 2015 due to continued operational improvements andenhancements to the lease decisioning process.Shipping and handling expense decreased during 2016 due to lower delivery volumes as a result of the net reduction of 161 Company-operated stores duringthe 24 month period ending December 31, 2016, including the disposition of the 82 HomeSmart stores on May 13, 2016.The provision for loan losses increased during 2016 due to the inclusion of DAMI’s results for a full year in 2016 compared to a partial year in 2015 from theOctober 15, 2015 acquisition date.Other operating expenses during 2015 included $3.7 million of one-time transaction costs incurred by Progressive Leasing in connection with theacquisition of DAMI.Other Costs and ExpensesYear Ended December 31, 2017 Versus Year Ended December 31, 2016Depreciation of lease merchandise. As a percentage of total lease revenues and fees, depreciation of lease merchandise increased to 48.3% from 46.9% in theprior year, primarily due to a shift in product mix from the Aaron’s Business to Progressive Leasing, which is consistent with the increasing proportion ofProgressive Leasing’s revenue to total lease revenue. Progressive Leasing generally experiences higher depreciation as a percentage of lease revenuesbecause, among other factors, its merchandise has a shorter average life on lease, a higher rate of early buyouts, and the merchandise is generally purchased atretail prices compared to the Aaron’s Business, which procures merchandise at wholesale prices. Progressive Leasing's depreciation of lease merchandise as apercentage of Progressive Leasing's lease revenues and fees increased to 60.6% in 2017 from 60.2% in the prior year due to an increase in revenue from earlybuyouts, which has a lower margin, year over year. Aaron's Business depreciation of lease merchandise as a percentage of Aaron's Business lease revenues andfees decreased to 34.8% in 2017 from 36.2% in the prior year, which was primarily driven by less promotional pricing in 2017 and a favorable revenue mixshift from lower-margin early payout revenue to higher-margin lease revenue year over year.Retail cost of sales. Retail cost of sales as a percentage of retail sales increased to 64.0% from 63.2% primarily due to higher inventory purchase cost during2017 as compared to 2016.Non-retail cost of sales. Non-retail cost of sales as a percentage of non-retail sales remained consistent at approximately 89% in both periods.Restructuring expenses. In connection with the announced closure and consolidation of underperforming Company-operated stores and workforce reductionsin our home office and field support operations, charges of $18.0 million were incurred during the year ended December 31, 2017. The charges are comprisedof $13.4 million related to Aaron’s store contractual lease obligations for closed stores, $3.2 million related to workforce reductions, and $1.4 millionprimarily related to the write-down to fair value, less estimated selling costs, of land and buildings from stores closed under the restructuring program andimpairment of Aaron’s store property, plant and equipment. The Company expects to incur approximately $1.5 million of additional charges related to the2017 restructuring program, which are expected to be incurred in the first six months of 2018.Year Ended December 31, 2016 Versus Year Ended December 31, 2015Depreciation of lease merchandise. As a percentage of total lease revenues and fees, depreciation of lease merchandise increased to 46.9% in 2016 from45.2% in 2015, primarily due to a shift in product mix from the Aaron’s Business to Progressive Leasing, which is consistent with the increasing proportionof Progressive Leasing’s revenue to total lease revenue. Progressive Leasing generally experiences higher depreciation as a percentage of lease revenuesbecause, among other factors, its merchandise has a shorter average life on lease, a higher rate of early buyouts, and the merchandise is generally purchased atretail prices compared to the Aaron’s Business, which procures merchandise at wholesale prices.Retail cost of sales. Retail cost of sales as a percentage of retail sales decreased to 63.2% from 64.0% primarily due to lower inventory purchase cost in 2016.37Non-retail cost of sales. Non-retail cost of sales as a percentage of non-retail sales decreased to 89.4% from 90.2% primarily due to lower inventory purchasecost in 2016.Restructuring expenses. In connection with the closure and consolidation of underperforming Company-operated Aaron’s stores and the optimization of ourhome office and field support staff, charges of $20.2 million were incurred during the year ended December 31, 2016. These charges were principallycomprised of $11.6 million related to Aaron’s store contractual lease obligations for closed stores, $4.5 million related to impairment of Aaron’s storeproperty, plant and equipment and $3.9 million related to workforce reductions.Other Operating (Income) Expense, NetInformation about the components of other operating (income) expense, net is as follows: Change Year Ended December 31, 2017 vs. 2016 2016 vs. 2015(In Thousands)2017 2016 2015 $ % $ %Net gains on sales of stores$(743) $(126) $(2,139) $(617) 489.7 % $2,013 (94.1)%Net gains on sales of delivery vehicles(937) (1,319) (1,706) 382 (29.0) 387 (22.7)Impairment charges and net losses (gains) on assetdispositions and assets held for sale1,145 (5,001) 5,169 6,146 (122.9) (10,170) (196.7)Other Operating (Income) Expense, Net$(535) $(6,446) $1,324 $5,911 (91.7)% $(7,770) (586.9)%In 2016, other operating income, net of $6.4 million included a gain of $11.1 million related to the sale of the Company’s former corporate headquartersbuilding in January 2016, partially offset by a loss and other charges related to the sale of HomeSmart of $5.4 million.In 2015, other operating expense, net of $1.3 million included a $3.5 million loss related to a lease termination on a Company aircraft, impairment charges of$0.8 million on leasehold improvements related to Company-operated stores that were closed during the period and impairment charges of $0.5 million onassets held for sale. In addition, the Company recognized gains of $2.1 million from the sale of 25 Company-operated stores during 2015.Operating ProfitInterest income. Interest income decreased to $1.8 million in 2017 from $2.7 million in 2016 due to the discontinuation of accruing interest income related tothe Perfect Home Notes effective April 1, 2017, partially offset by an increase in interest income from higher cash and cash equivalent balances throughout2017. Interest income increased to $2.7 million in 2016 from $2.2 million in 2015 primarily due to an increase in the interest rate of the Perfect Home Notesduring 2016.Interest expense. Interest expense decreased to $20.5 million in 2017 from $23.4 million in 2016 and $23.3 million in 2015 due primarily to a loweroutstanding debt balance throughout 2017.Other non-operating income (expense), net. Other non-operating income (expense), net includes the impact of foreign currency remeasurement, as well asgains resulting from changes in the cash surrender value of Company-owned life insurance related to the Company’s deferred compensation plan. Included inother non-operating income (expense), net were foreign currency remeasurement gains of $2.1 million during 2017 and losses of $3.7 million and $2.5million during 2016 and 2015, respectively. These gains and losses result from changes in the value of the U.S. dollar against the British pound andCanadian dollar. Gains related to the changes in the cash surrender value of Company-owned life insurance were $1.5 million, $0.2 million and $0.8 millionduring 2017, 2016 and 2015, respectively.38Earnings (Loss) Before Income TaxesInformation about our earnings (loss) before income tax (benefit) expense by reportable segment is as follows: Change Year Ended December 31, 2017 vs. 2016 2016 vs. 2015(In Thousands)2017 2016 2015 $ % $ %EARNINGS (LOSS) BEFOREINCOME TAX (BENEFIT)EXPENSE: Progressive Leasing$140,224 $104,686 $54,525 $35,538 33.9 % $50,161 92.0 %Aaron’s Business110,642 123,009 160,559 (12,367) (10.1) (37,550) (23.4)DAMI(11,289) (9,273) (1,964) (2,016) (21.7) (7,309) (372.1)Total Earnings Before IncomeTax (Benefit) Expense$239,577 $218,422 $213,120 $21,155 9.7 % $5,302 2.5 %The factors impacting the change in earnings (loss) before income tax (benefit) expense are discussed above.Income Tax (Benefit) ExpenseThe Company recorded a net income tax benefit of $53.0 million for the year ended December 31, 2017 as compared to income tax expense of $79.1 millionin 2016. The net income tax benefit recognized in 2017 was the result of the Tax Act which was signed into law on December 22, 2017. The Tax Act, amongother things, (i) lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018; (ii) provided for 100% expense deduction of certainqualified depreciable assets, including lease merchandise inventory, purchased after September 27, 2017 (but would be phased down starting in 2023); and(iii) failed to extend the manufacturing deduction that expired in 2017 under the terms of previous tax law. During the three months ended December 31,2017, the Company recorded a net non-cash provisional income tax benefit of $137.0 million related to the Tax Act, which is comprised of an estimated$140.0 million remeasurement of deferred tax liabilities at the lower tax rates, partially offset by an estimated $3.0 million from the loss of the manufacturingdeduction and other impacts.Income tax expense increased in 2016 compared to 2015 due primarily to higher pretax income. The effective tax rate remained relatively unchanged at36.2% in 2016 compared to 36.3% in 2015.Overview of Financial PositionThe major changes in the consolidated balance sheet from December 31, 2016 to December 31, 2017, include:•Cash and cash equivalents decreased $257.5 million to $51.0 million at December 31, 2017 primarily due to the acquisition of our largestfranchisee, scheduled repayments of the Company's unsecured notes and credit facilities, repayment of the DAMI credit facility, and the return of$70.5 million to shareholders in the form of share repurchases and dividends. For additional information, refer to the "Liquidity and CapitalResources" section below.•Lease merchandise increased $152.8 million due primarily to increases in lease merchandise purchases at Progressive Leasing to support higherinvoice volume and growth in active doors and the acquisition of our largest franchisee, partially offset by stores closed as part of the Company'srestructuring initiatives.•Goodwill increased $96.2 million due primarily to the addition of estimated SEI-related goodwill of $91.8 million. Refer to Note 2 to theseconsolidated financial statements for further details regarding the acquisition accounting for SEI.•Income tax receivable increased $88.1 million to $100.0 million primarily due to the enactment of the Tax Act in December 2017. The Companymade periodic tax payments throughout 2017 based on the previous tax laws. The Tax Act changed those laws by providing for 100% expensededuction of the Company's lease merchandise inventory purchased by the Company after September 27, 2017, which resulted in an increase toincome tax receivable as of December 31, 2017.•Deferred income tax payable decreased by $53.5 million primarily due to the remeasurement of the deferred tax liabilities at the lower corporateincome tax rate enacted by the Tax Act.•Debt decreased $129.0 million to $368.8 million at December 31, 2017 due primarily to scheduled repayments of $85.0 million on the Company’sunsecured notes, $15.0 million on the Company's term loan facility, and the $53.0 million payoff of the DAMI credit facility, partially offset by$15.6 million of additional borrowings on the refinanced term loan in September 2017. Refer to the "Liquidity and Capital Resources" sectionbelow for further details regarding the Company’s financing arrangements.39Liquidity and Capital ResourcesGeneralOur primary capital requirements consist of buying merchandise for the operations of Progressive Leasing and the Aaron’s Business. As we continue to grow,the need for additional lease merchandise is expected to remain our major capital requirement. Other capital requirements include (i) purchases of property,plant and equipment; (ii) expenditures for acquisitions; (iii) expenditures related to our corporate operating activities; (iv) personnel expenditures; (v)income tax payments; (vi) funding of loans receivable for DAMI; and (vii) servicing our outstanding debt obligations. The Company has also historicallypaid quarterly cash dividends and periodically repurchases stock. Our capital requirements have been financed through:•cash flows from operations;•private debt offerings;•bank debt; and•stock offerings.As of December 31, 2017, the Company has $51.0 million of cash and $393.9 million of availability under its revolving credit facility.Cash Provided by Operating ActivitiesCash provided by operating activities was $159.1 million, $467.2 million and $167.6 million during the years ended December 31, 2017, 2016 and 2015,respectively.The $308.1 million decrease in operating cash flows in 2017 as compared to 2016 was driven partially by an increase in purchases of lease merchandise forProgressive Leasing during the year ended December 31, 2017 relative to the same period in 2016 due to continuing invoice volume growth. Additionally,the Company made net tax payments of $98.3 million during the year ended December 31, 2017 compared to net tax refunds of $54.3 million receivedduring the year ended December 31, 2016. The Protecting Americans from Tax Hikes Act ("the 2015 Act"), which was signed into law on December 18, 2015,extended 50% bonus depreciation and reauthorized work opportunity tax credits through the end of 2019. This act allowed us to qualify for and receive arefund related to 2015 income tax payments and to limit federal tax payments during the year ended December 31, 2016.The $299.7 million increase in operating cash flows in 2016 as compared to 2015 was primarily due to net tax refunds of $54.3 million received during theyear ended December 31, 2016 compared to net tax payments of $91.7 million made during the year ended December 31, 2015, an increase in ProgressiveLeasing total invoice volumes and operating margins, and inventory reductions in our Aaron’s Business store merchandise not on lease. This was partiallyoffset by declines in the operating results of the Aaron’s Business and declines in accounts payable and accrued expenses. The operating results ofProgressive Leasing and the Aaron’s Business are described in more detail in the "Results of Operations" section above. The Company received net taxrefunds in 2016 compared to making net tax payments in 2015 as a result of the enactment of the 2015 Act as discussed above and further in the"Commitments" section below. Lease merchandise inventory declined in 2016 due to inventory reduction initiatives at the Aaron’s Business, which alsocontributed to declines in accounts payable and accrued expenses as compared to 2015.Cash Used in Investing ActivitiesCash used in investing activities was $205.3 million, $20.1 million and $108.9 million during the years ended December 31, 2017, 2016, and 2015,respectively.The $185.3 million increase in investing cash outflows in 2017 as compared to 2016 was primarily due to: (i) a $140.2 million cash outflow for theacquisition of SEI in July 2017; (ii) $10.2 million higher net cash outflows for investments in DAMI loans receivable in 2017 as compared to 2016; (iii)$35.0 million cash inflow related to the sale of the HomeSmart division in May 2016; and (iv) $13.6 million cash inflow from the sale of the Company’sformer corporate headquarters building in January 2016; partially offset by $2.7 million of cash inflows in 2017 from an investment and $6.9 million ofadditional proceeds from the sale of other property, plant, and equipment in 2017 compared to 2016.The $88.8 million decrease in investing cash outflows in 2016 as compared to 2015 is primarily due to 2016 cash inflows of (i) $35.0 million related to thesale of the HomeSmart division in May 2016 and (ii) $13.6 million from the sale of the Company’s former corporate headquarters building in January 2016 ascompared to 2015 cash outflows of $50.7 million to acquire a 100% ownership interest in DAMI.40Cash Used in Financing ActivitiesCash used in financing activities was $211.4 million, $153.7 million and $47.3 million during the years ended December 31, 2017, 2016 and 2015,respectively.The $57.7 million increase in financing cash outflows in 2017 as compared to 2016 is primarily due to (i) a $28.0 million increase in Company repurchasesof outstanding common stock in 2017 compared to 2016 and (ii) a $25.4 million increase in the net repayments of outstanding debt in 2017 compared to2016. During 2017, the Company made scheduled repayments of $85.0 million on unsecured notes, $15.0 million on the term loan facility, and paid $53.0million to pay off the DAMI credit facility, partially offset by $15.6 million in borrowings from the refinanced term loan in September 2017.The $106.4 million increase in financing cash outflows in 2016 as compared to 2015 is primarily due to the net repayments of outstanding debt in eachperiod. In 2016, the following net repayments were made: $75.0 million on our revolving facility, $25.0 million on our 3.95% senior unsecured notes, and$12.5 million on our term loan. In 2015, total net repayments of outstanding debt were $40.7 million. Separately, the Company repurchased $34.5 million ofits common stock in 2016.Share RepurchasesWe purchase our stock in the market from time to time as authorized by our Board of Directors. During the year ended December 31, 2017, the Companypurchased 1,961,442 shares for $62.6 million. During the year ended December 31, 2016, the Company purchased 1,372,700 shares for $34.5 million. As ofDecember 31, 2017, we have the authority to purchase 7,162,279 additional shares.DividendsWe have a consistent history of paying dividends, having paid dividends for 30 consecutive years. Our annual common stock dividend was $0.1125 pershare, $0.1025 per share and $0.094 per share in 2017, 2016 and 2015, respectively, and resulted in aggregate dividend payments of $8.0 million,$7.4 million and $6.8 million in 2017, 2016 and 2015, respectively. At its November 2017 meeting, our Board of Directors increased the quarterly dividendby 9.1%, raising it to $0.030 per share. The Company also increased its quarterly dividend rate by 10.0%, to $0.0275 per share, in November 2016 and by8.7%, to $0.025 per share, in November 2015.Subject to sufficient operating profits, any future capital needs and other contingencies, we currently expect to continue our policy of paying dividends.Debt FinancingAs of December 31, 2017, $97.5 million of term loans were outstanding under the term loan and revolving credit agreement. Our current revolving creditfacility matures September 18, 2022, and the total available credit on the facility as of December 31, 2017 was $393.9 million. The revolving credit and termloan agreement includes an uncommitted incremental facility increase option (an "accordion facility") which, subject to certain terms and conditions, permitsthe Company at any time prior to the maturity date to request an increase in extensions of credit available thereunder by an aggregate additional principalamount of up to $250.0 million. In conjunction with the amendment and restatement of the term loan and revolving credit agreement as discussed withinNote 7 to these consolidated financial statements, the Company repaid the $53.0 million remaining balance under its DAMI credit facility and terminated theagreement, which was scheduled to mature on October 15, 2017.As of December 31, 2017, the Company had outstanding $240.0 million in aggregate principal amount of senior unsecured notes issued in a privateplacement in connection with the April 14, 2014 Progressive Leasing acquisition. The notes bear interest at the rate of 4.75% per year and mature onApril 14, 2021. Payments of interest are due quarterly and commenced on July 14, 2014, with principal payments of $60.0 million each due annually whichcommenced April 14, 2017.As of December 31, 2017, the Company had outstanding $25.0 million in senior unsecured notes originally issued in a private placement in July 2011. Thenotes bear interest at the rate of 3.95% per year and mature on April 27, 2018. Quarterly payments of interest commenced July 27, 2011, and annual principalpayments of $25.0 million each commenced April 27, 2014.Our revolving credit and term loan agreement and senior unsecured notes, and our franchisee loan agreement discussed below, contain certain financialcovenants. These covenants include requirements that the Company maintain ratios of (i) adjusted earnings before interest, taxes, depreciation andamortization ("EBITDA") plus lease expense to fixed charges of no less than 2.50:1.00 and (ii) total debt to adjusted EBITDA of no greater than 3.00:1.00. Ineach case, adjusted EBITDA refers to the Company’s consolidated net earnings before interest and tax expense, depreciation (other than lease merchandisedepreciation), amortization expense and other cash and non-cash charges. If we fail to comply with these covenants, we will be in default under theseagreements, and all amounts could become due immediately. We are in compliance with all of these covenants at December 31, 2017 and believe that we willcontinue to be in compliance in the future.41CommitmentsIncome Taxes. During the year ended December 31, 2017, the Company made net income tax payments of $98.3 million. During the year ended December 31,2018, we anticipate we will make no cash payments for U.S. federal income taxes, an estimated $2 million for Canadian income taxes, and an estimated $20million for state income taxes.The Tax Act, which was enacted in December 2017 provides for 100% expense deduction of certain qualified depreciable assets, including lease merchandiseinventory, purchased by the Company after September 27, 2017 (but would be phased down starting in 2023). Because of our sales and lease ownershipmodel, in which the Company remains the owner of merchandise on lease, we benefit more from bonus depreciation, relatively, than traditional furniture,electronics and appliance retailers. The Company made periodic tax payments throughout 2017 based on the tax laws in effect at that time. As a result of theTax Act, the Company applied, in January 2018, for a $77 million quick refund from the Internal Revenue Service (the "IRS") for the 2017 tax year.Excluding the effects of bonus depreciation on future qualifying expenditures, we estimate that at December 31, 2017, the remaining tax deferral associatedwith bonus depreciation from the Tax Act and the prior tax legislation is approximately $168.0 million, of which approximately 88% is expected to reversein 2018 and most of the remainder during 2019.Leases. We lease warehouse and retail store space for most of our store-based operations, call center space, and management and information technologyspace for corporate functions under operating leases expiring at various times through 2033. Most of the leases contain renewal options for additional periodsranging from one to 20 years. We also lease transportation vehicles under operating and capital leases which generally expire during the next three years. Weexpect that most leases will be renewed or replaced by other leases in the normal course of business. Approximate future minimum rental payments requiredunder operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2017 are shown in the table set forthbelow under "Contractual Obligations and Commitments."As of December 31, 2017, the Company had nine remaining capital leases with a limited liability company ("LLC") controlled by a group of current andformer executives of the Company. In October and November 2004, the Company sold 11 properties, including leasehold improvements, to the LLC. TheLLC obtained borrowings collateralized by the land and buildings totaling $6.8 million. The Company occupies the land and buildings collateralizing theborrowings under a 15-year term lease at an aggregate annual rental of $0.8 million. The transaction has been accounted for as a capital lease in theaccompanying consolidated financial statements. The rate of interest implicit in the leases is approximately 9.7%. Accordingly, the land and buildings,associated depreciation expense and lease obligations are recorded in the Company’s consolidated financial statements. No gain or loss was recognizedrelated to the properties sold to the LLC. In January 2018, the Company extended the lease agreements with an additional five year term commencing at theexpiration of the original lease agreements in November of 2019.The Company also had ten operating leases with the same limited liability company ("LLC") controlled by a group of current and former executives of theCompany as of December 31, 2017. In December 2002, the Company sold ten properties, including leasehold improvements, to the LLC. The LLC obtainedborrowings collateralized by the land and buildings totaling $5.0 million. Upon the initial sale, no gain or loss was recognized related to the properties soldto the LLC and the leases were originally accounted for as Capital leases in the Company's consolidated financial statements. In January 2018, the Companyrenewed the lease agreements to occupy the land and buildings collateralizing the borrowings under a range of five to eight year term leases at an aggregateannual rental of approximately $0.8 million. In 2018, the transactions will be accounted for as operating leases.Franchise Loan Guaranty. We have guaranteed the borrowings of certain independent franchisees under a franchise loan agreement with several banks,which has a maturity date of October 24, 2018.At December 31, 2017, the portion that we might be obligated to repay in the event franchisees defaulted was $45.3 million. However, due to franchiseeborrowing limits, we believe any losses associated with defaults would be substantially mitigated through recovery of lease merchandise and other assets.Since the inception of the franchise loan program in 1994, we have had no significant associated losses. We believe the likelihood that the Company wouldfund any significant amounts in connection with these commitments to be remote.The following table shows the Company’s approximate commercial commitments as of December 31, 2017:(In Thousands)TotalAmountsCommitted Period LessThan 1 Year Period 1-3Years Period 3-5Years Period Over5 YearsGuaranteed Borrowings of Franchisees$45,301 $35,704 $9,597 $— $—42Contractual Obligations and Commitments. The following table shows the approximate contractual obligations, including interest, and commitments tomake future payments as of December 31, 2017:(In Thousands)Total Period LessThan 1 Year Period 1-3Years Period 3-5Years Period Over5 YearsDebt, Excluding Capital Leases$362,500 $95,000 $140,000 $127,500 $—Capital Leases7,748 2,556 4,438 754 —Interest Obligations34,573 14,091 16,353 4,129 —Operating Leases457,023 107,038 168,373 100,328 81,284Purchase Obligations20,261 9,761 9,804 696 —Severance and Retirement Obligations3,536 3,174 339 23 —Total Contractual Cash Obligations$885,641 $231,620$339,307$233,430$81,284For future interest payments on variable-rate debt, which are based on the adjusted London Interbank Overnight (LIBO) rate plus a margin ranging from1.25% to 2.25% or the administrative agent's prime rate plus a margin ranging from 0.25% to 1.25%, as specified in the agreement, we used the variable ratein effect at December 31, 2017 to calculate these payments. Our variable rate debt at December 31, 2017 consisted of term loan borrowings under ourrevolving credit and term loan agreement. Future interest payments related to our revolving credit and term loan agreement are based on the borrowingsoutstanding at December 31, 2017 through the maturity date, assuming such borrowings are outstanding at that time. The variable rate for our term loanborrowings under the unsecured revolving credit and term loan agreement was 2.82% at December 31, 2017. Future interest payments may be differentdepending on future borrowing activity and interest rates.Operating lease obligations represent amounts scheduled to be paid through the remaining lease term for real estate, vehicle, and equipment lease contracts.These amounts do not include estimated future sublease receipts and include restructuring liabilities related to contractual lease obligations for stores closedunder the 2016 and 2017 restructuring programs, which are recorded in accounts payable and accrued expenses in the consolidated balance sheets.Purchase obligations are primarily related to certain advertising programs, marketing programs, software licenses, hardware and software maintenance andsupport and telecommunications services. The table above includes only those purchase obligations for which the timing and amount of payments is certain.We have no long-term commitments to purchase merchandise nor do we have significant purchase agreements that specify minimum quantities or set pricesthat exceed our expected requirements for three months.Severance and retirement obligations represent future severance payments to former employees under the Company's 2016 and 2017 restructuring programsas well as future payments associated with the retirement of a former executive officer during the year ended December 31, 2016.Deferred income tax liabilities as of December 31, 2017 were approximately $222.6 million. This amount is not included in the total contractual obligationstable because we believe this presentation would not be meaningful. Deferred income tax liabilities are calculated based on temporary differences betweenthe tax basis of assets and liabilities and their respective book basis, which will result in taxable amounts in future years when the liabilities are settled attheir reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in anyfuture periods. As a result, scheduling deferred income tax liabilities as payments due by period could be misleading, because this scheduling would notnecessarily relate to liquidity needs.Unfunded Lending Commitments. The Company, through its DAMI business, has unfunded lending commitments totaling approximately $354.5 million and$366.4 million as of December 31, 2017 and 2016, respectively, that do not give rise to revenues and cash flows. These unfunded commitments arise in theordinary course of business from credit card agreements with individual cardholders that give them the ability to borrow, against unused amounts, up to themaximum credit limit assigned to their account. While these unfunded amounts represented the total available unused lines of credit, the Company does notanticipate that all cardholders will utilize their entire available line at any given point in time. Commitments to extend unsecured credit are agreements tolend to a cardholder so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or othertermination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarilyrepresent future cash requirements. The reserve for losses on unfunded loan commitments, which is included in accounts payable and accrued expenses in theconsolidated balance sheets, is calculated by the Company based on historical customer usage of available credit and is approximately $0.6 million and $0.5million as of December 31, 2017 and 2016, respectively.43Critical Accounting PoliciesWe discuss the most critical accounting policies below. For a discussion of the Company’s significant accounting policies, see Note 1 to these consolidatedfinancial statements.Revenue RecognitionAaron’s Business lease revenues are recognized as revenue in the month they are due. Progressive Leasing lease revenues are earned prior to the leasepayment due date and are recorded as earned. Our revenue recognition accounting policy matches the lease revenue with the corresponding costs, mainlydepreciation, associated with lease merchandise. At December 31, 2017 and 2016, we had deferred revenue representing cash collected in advance of beingdue or otherwise earned totaling $67.6 million and $61.9 million, respectively, and leases accounts receivable, net of an allowance for doubtful accounts,based on historical collection rates, of $47.3 million and $34.4 million, respectively.Revenues from the sale of merchandise to franchisees are recognized at the time of receipt of the merchandise by the franchisee and revenues from such salesto other customers are recognized at the time of shipment.DAMI recognizes interest income based upon the amount of the loans outstanding, which is recognized as interest and fees on loans receivable in the billingperiod in which they are assessed if collectability is reasonably assured. DAMI acquires loans receivable from merchants through its third-party bank partnersat a discount from the face value of the loan. The discount is comprised mainly of a merchant fee discount, which represents a pre-negotiated, nonrefundablediscount that generally ranges from 3.0% to 25% of the loan face value. The discount is designed to cover the risk of loss related to the portfolio ofcardholder charges and DAMI’s direct origination costs. The merchant fee discount, net of the origination costs, is amortized on a net basis and is recorded asinterest and fee revenue on loans receivable on a straight-line basis over the initial 24-month period that the card is active.Lease MerchandiseOur Aaron's Business segment begins depreciating merchandise at the earlier of twelve months and one day or when the item is leased. We depreciatemerchandise to a 0% salvage value over the lease agreement period when on lease, generally 12 to 24 months, and generally 36 months when not on lease.The Company’s Progressive Leasing segment, at which substantially all merchandise is on lease, depreciates merchandise generally over 12 months.Our policies generally require weekly lease merchandise counts at our store-based operations, which include write-offs for unsalable, damaged, or missingmerchandise inventories. In addition to monthly cycle counting, full physical inventories are generally taken at our fulfillment and manufacturing facilitiesannually, and appropriate provisions made for missing, damaged and unsalable merchandise. In addition, we monitor lease merchandise levels and mix bydivision, store and fulfillment center, as well as the average age of merchandise on hand. If obsolete lease merchandise cannot be returned to vendors, itscarrying amount is adjusted to net realizable value or written off.All lease merchandise is available for lease and sale, excluding merchandise determined to be missing, damaged or unsalable. We record a provision for write-offs on the allowance method, which estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting periodbased on historical write-off experience. As of December 31, 2017 and 2016, the allowance for lease merchandise write-offs was $35.6 million and $33.4million, respectively. The provision for lease merchandise write-offs was $145.5 million, $134.1 million and $136.4 million for the years ended December 31,2017, 2016 and 2015, respectively, and is included in operating expenses in the accompanying consolidated statements of earnings.Goodwill and Other Intangible AssetsIntangible assets are classified into one of three categories: (i) intangible assets with definite lives subject to amortization; (ii) intangible assets withindefinite lives not subject to amortization; and (iii) goodwill. For intangible assets with definite lives, tests for impairment must be performed if conditionsexist that indicate the carrying amount may not be recoverable. For intangible assets with indefinite lives and goodwill, tests for impairment must beperformed at least annually, and sooner if events or circumstances indicate that an impairment may have occurred. Factors which could necessitate an interimimpairment assessment include a sustained decline in the Company’s stock price, prolonged negative industry or economic trends and significantunderperformance relative to historical or projected future operating results. As an alternative to this annual impairment testing for intangible assets withindefinite lives and goodwill, the Company may perform a qualitative assessment for impairment if it believes it is not more likely than not that the carryingamount of a reporting unit’s net assets exceeds the reporting unit’s fair value.Indefinite-lived intangible assets represent the value of trade names acquired as part of the Progressive Leasing acquisition. At the date of acquisition, theCompany determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful life of the trade name intangible asset and,therefore, the useful life is considered indefinite. The Company reassesses this conclusion quarterly and continues to believe the useful life of this asset isindefinite.44We estimate the fair value of indefinite-lived trade name intangible assets based on projected discounted future cash flows under a relief from royalty method.The Company completed its indefinite-lived intangible asset impairment test as of October 1, 2017 and determined that no impairment had occurred.The following table presents the carrying amount of goodwill and other intangible assets, net: December 31,(In Thousands)2017Goodwill$622,948Other Indefinite-Lived Intangible Assets53,000Definite-Lived Intangible Assets, Net182,551Goodwill and Other Intangibles, Net$858,499Management has deemed its operating segments to be reporting units due to the fact that the components included in each operating segment have similareconomic characteristics. As of December 31, 2017, the Company had three operating segments and reporting units: Progressive Leasing, Aaron’s Business,and DAMI. The following is a summary of the Company’s goodwill by reporting unit: December 31,(In Thousands)2017Aaron’s Business$334,147Progressive Leasing288,801Total$622,948The Company performs its annual goodwill impairment testing as of October 1 each year. When evaluating goodwill for impairment, the Company may firstperform a qualitative assessment to determine whether it is more likely than not that a reporting unit or intangible asset group is impaired. The decision toperform a qualitative impairment assessment for an individual reporting unit in a given year is influenced by a number of factors, including the size of thereporting unit’s goodwill, the current and projected operating results, the significance of the excess of the reporting unit’s estimated fair value over carryingamount at the last quantitative assessment date and the amount of time in between quantitative fair value assessments and the date of acquisition. During2017, the Company performed a qualitative assessment for the goodwill of the Progressive Leasing reporting unit and concluded no indications ofimpairment existed.For the Aaron's Business reporting unit, we use a combination of valuation techniques to determine the fair value of our reporting units, including an incomeapproach and a market approach. Under the income approach, we estimate fair value based on estimated discounted cash flows, which require assumptionsabout short-term and long-term revenue growth rates, operating margins, capital requirements, and a weighted-average cost of capital and/or discount rate.Under the market approach, we use a combination of valuation techniques to calculate the fair value of our reporting units, including a multiple of grossrevenues approach and a multiple of projected EBITDA approach using assumptions consistent with those we believe a hypothetical marketplace participantwould use.We believe the benchmark companies we evaluate as marketplace participants for each reporting unit serve as an appropriate reference when calculating fairvalue because those benchmark companies have similar risks, participate in similar markets, provide similar products and services for their customers andcompete with us directly. The values separately derived from each of the income and market approach valuation techniques were used to develop an overallestimate of the reporting unit's fair value. The selection and weighting of the various fair value techniques, which requires the use of management judgmentto determine what is most representative of fair value, may result in a higher or lower fair value.The Company completed its annual goodwill impairment test for the Aaron's Business reporting unit as of October 1, 2017, determining that no impairmenthad occurred and that the fair value of the reporting unit was substantially in excess of its carrying value. The Company determined that there were no eventsthat occurred or circumstances that changed in the fourth quarter of 2017 that would more likely than not reduce the fair value of a reporting unit below itscarrying amount.45Provision for Loan Losses and Loan Loss AllowanceLosses on loans receivable are recognized when they are incurred, which requires the Company to make its best estimate of probable losses inherent in theportfolio. The Company evaluates loans receivable collectively for impairment. The method for calculating the best estimate of probable losses takes intoaccount the Company’s historical experience, adjusted for current conditions and the Company’s judgment concerning the probable effects of relevantobservable data, trends and market factors. Economic conditions and loan performance trends are closely monitored to manage and evaluate exposure tocredit risk. Trends in delinquency ratios are an indicator of credit risk within the loans receivable portfolio, including the migration of loans betweendelinquency categories over time (roll rates). Charge-off rates represent another indicator of the potential for future credit losses. The risk in the loansreceivable portfolio is correlated with broad economic trends, such as unemployment rates, gross domestic product growth and gas prices, which can have amaterial effect on credit performance. To the extent that actual results differ from our estimates of uncollectible loans receivable, the Company’s results ofoperations and liquidity could be materially affected.The Company initially calculates the allowance for loan losses based on actual delinquency balances and historical average loss experience on loansreceivable by aging category for the prior eight quarters. The allowance for loan losses is maintained at a level considered adequate to cover probable lossesof principal, interest and fees on active loans in the loans receivable portfolio. The adequacy of the allowance is evaluated at each period end.Delinquent loans receivable are those that are 30 days or more past due based on their contractual billing dates. The Company places loans receivable onnonaccrual status when they are greater than 90 days past due or upon notification of cardholder bankruptcy, death or fraud. The Company discontinuesaccruing interest and fees and amortizing merchant fee discounts and promotional fee discounts for loans receivable in nonaccrual status. Loans receivableare removed from nonaccrual status when cardholder payments resume, the loan becomes 90 days or less past due and collection of the remaining amountsoutstanding is deemed probable. Payments received on nonaccrual loans are allocated according to the same payment hierarchy methodology applied toloans that are accruing interest. Loans receivable are charged off at the end of the month following the billing cycle in which the loans receivable become120 days past due.The provision for loan losses was $21.0 million and $11.3 million for the years ended December 31, 2017 and 2016, respectively. The allowance for loanlosses was $11.5 million and $6.6 million as of December 31, 2017 and 2016, respectively.Leases and Closed Store ReservesThe majority of our Company-operated stores are operated from leased facilities under operating lease agreements. The majority of the leases are for periodsthat do not exceed five years, although lease terms range in length up to approximately 15 years. Leasehold improvements related to these leases aregenerally amortized over periods that do not exceed the lesser of the lease term or useful life. For leases which contain escalating payments we record therelated lease expense on a straight-line basis over the lease term. We generally do not obtain significant amounts of lease incentives or allowances fromlandlords. Any incentive or allowance amounts we receive are recognized on a straight-line basis over the lease term.From time to time, we close or consolidate stores. Our primary costs associated with closing stores are the future lease payments and related commitments. Werecord an estimate of the future obligation related to closed stores based upon the present value of the future lease payments and related commitments, net ofestimated sublease receipts based upon historical experience. As of December 31, 2017 and 2016, our reserve for closed stores was $15.7 million and$14.4 million, respectively. Due to changes in market conditions, our estimates related to sublease receipts may change and, as a result, our actual liabilitymay be more or less than the recorded amount. Excluding actual and estimated sublease receipts, our future obligations related to closed stores on anundiscounted basis were $35.6 million and $31.8 million as of December 31, 2017 and 2016, respectively.Insurance ProgramsWe maintain insurance contracts to fund workers compensation, vehicle liability, general liability and group health insurance claims. Using actuarialanalyses and projections, we estimate the liabilities associated with open and incurred but not reported workers compensation, vehicle liability and generalliability claims. This analysis is based upon an assessment of the likely outcome or historical experience. Our gross estimated liability for workerscompensation insurance claims, vehicle liability, and general liability was $40.5 million and $36.6 million at December 31, 2017 and 2016, respectively. Inaddition, we have prefunding balances on deposit and other insurance receivables with the insurance carriers of $33.8 million and $40.0 million atDecember 31, 2017 and 2016, respectively.If we resolve insurance claims for amounts that are in excess of our current estimates, we will be required to pay additional amounts beyond those accrued atDecember 31, 2017.46The assumptions and conditions described above reflect management’s best assumptions and estimates, but these items involve inherent uncertainties asdescribed above, which may or may not be controllable by management. As a result, the accounting for such items could result in different amounts ifmanagement used different assumptions or if different conditions occur in future periods.Recent Accounting PronouncementsRefer to Note 1 to the Company’s consolidated financial statements for a discussion of recently issued accounting pronouncements.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAs of December 31, 2017, we had $265.0 million of senior unsecured notes outstanding at a weighted-average fixed rate of 4.7%. Amounts outstanding underour unsecured revolving credit and term loan agreement as of December 31, 2017 consisted of $97.5 million in term loans. Borrowings under the revolvingcredit and term loan agreement are indexed to the LIBO rate or the prime rate, which exposes us to the risk of increased interest costs if interest rates rise.Based on the Company’s variable-rate debt outstanding as of December 31, 2017, a hypothetical 1.0% increase or decrease in interest rates would increase ordecrease interest expense by $1.0 million on an annualized basis.We do not use any significant market risk sensitive instruments to hedge commodity, foreign currency or other risks, and hold no market risk sensitiveinstruments for trading or speculative purposes.47ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAReport of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Aaron’s, Inc. and SubsidiariesOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Aaron’s, Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, therelated consolidated statements of earnings, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period endedDecember 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in allmaterial respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and itscash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2018 expressed an unqualifiedopinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 1991. Atlanta, GeorgiaMarch 1, 201848Report of Independent Registered Public Accounting Firm on Internal Control over Financial ReportingTo the Shareholders and the Board of Directors of Aaron’s, Inc. and SubsidiariesOpinion on Internal Control over Financial ReportingWe have audited Aaron’s, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on criteria established in InternalControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Inour opinion, Aaron’s, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2017, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of the Company as of December 31, 2017 and 2016, and the related consolidated statements of earnings, comprehensive income, shareholders’equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and our report dated March 1, 2018 expressedan unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibilityis to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with thePCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ Ernst & Young LLPAtlanta, GeorgiaMarch 1, 201849Management Report on Internal Control over Financial ReportingManagement of Aaron’s, Inc. and subsidiaries (the "Company") is responsible for establishing and maintaining adequate internal control over financialreporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalreporting purposes in accordance with accounting principles generally accepted in the United States of America.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliancewith the policies or procedures may deteriorate.The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. In making thisassessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework) in Internal Control-Integrated Framework. Based on its assessment using those criteria, management concluded that, as of December 31, 2017, theCompany’s internal control over financial reporting was effective.The Company’s internal control over financial reporting as of December 31, 2017 has been audited by Ernst & Young LLP, an independent registered publicaccounting firm, as stated in its report dated March 1, 2018, which expresses an unqualified opinion on the effectiveness of the Company’s internal controlover financial reporting as of December 31, 2017.50AARON’S, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, 2017 2016 (In Thousands, Except Share Data)ASSETS: Cash and Cash Equivalents$51,037 $308,561Investments20,385 20,519Accounts Receivable (net of allowances of $46,946 in 2017 and $35,690 in 2016)99,887 95,777Lease Merchandise (net of accumulated depreciation and allowances of $760,722 in 2017 and $743,222 in 2016)1,152,135 999,381Loans Receivable (net of allowances and unamortized fees of $19,829 in 2017 and $13,830 in 2016)86,112 84,804Property, Plant and Equipment, Net207,687 211,271Goodwill622,948 526,723Other Intangibles, Net235,551 247,672Income Tax Receivable100,023 11,884Prepaid Expenses and Other Assets116,499 109,144Total Assets$2,692,264 $2,615,736LIABILITIES & SHAREHOLDERS’ EQUITY: Accounts Payable and Accrued Expenses$304,810 $297,766Deferred Income Taxes Payable222,592 276,116Customer Deposits and Advance Payments68,060 62,427Debt368,798 497,829Total Liabilities964,260 1,134,138Commitments and Contingencies (Note 9)— —Shareholders’ Equity: Common Stock, Par Value $0.50 Per Share: Authorized: 225,000,000 Shares at December 31, 2017 and 2016;Shares Issued: 90,752,123 at December 31, 2017 and 201645,376 45,376Additional Paid-in Capital270,043 254,512Retained Earnings1,819,524 1,534,983Accumulated Other Comprehensive Income (Loss)774 (531) 2,135,717 1,834,340Less: Treasury Shares at Cost Common Stock: 20,733,010 Shares at December 31, 2017 and 19,303,578 at December 31, 2016(407,713) (352,742)Total Shareholders’ Equity1,728,004 1,481,598Total Liabilities & Shareholders’ Equity$2,692,264 $2,615,736The accompanying notes are an integral part of the Consolidated Financial Statements.51AARON’S, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGS Year Ended December 31, 2017 2016 2015 (In Thousands, Except Per Share Data)REVENUES: Lease Revenues and Fees$3,000,231 $2,780,824 $2,684,184Retail Sales27,465 29,418 32,872Non-Retail Sales270,253 309,446 390,137Franchise Royalties and Fees48,278 58,350 63,507Interest and Fees on Loans Receivable34,925 24,080 2,845Other2,556 5,598 6,211 3,383,708 3,207,716 3,179,756COSTS AND EXPENSES: Depreciation of Lease Merchandise1,448,631 1,304,295 1,212,644Retail Cost of Sales17,578 18,580 21,040Non-Retail Cost of Sales241,356 276,608 351,777Operating Expenses1,403,985 1,351,785 1,357,030Restructuring Expenses17,994 20,218 —Other Operating (Income) Expense, Net(535) (6,446) 1,324 3,129,009 2,965,040 2,943,815OPERATING PROFIT254,699 242,676 235,941Interest Income1,835 2,699 2,185Interest Expense(20,538) (23,390) (23,339)Other Non-Operating Income (Expense), Net3,581 (3,563) (1,667)EARNINGS BEFORE INCOME TAX (BENEFIT) EXPENSE239,577 218,422 213,120INCOME TAX (BENEFIT) EXPENSE(52,959) 79,139 77,411NET EARNINGS$292,536 $139,283 $135,709EARNINGS PER SHARE$4.13 $1.93 $1.87EARNINGS PER SHARE ASSUMING DILUTION$4.06 $1.91 $1.86The accompanying notes are an integral part of the Consolidated Financial Statements.52AARON’S, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31,(In Thousands)2017 2016 2015Net Earnings$292,536 $139,283 $135,709Other Comprehensive Income (Loss): Foreign Currency Translation Adjustment1,305 (14) (427)Total Other Comprehensive Income (Loss)1,305 (14) (427)Comprehensive Income$293,841 $139,269 $135,282The accompanying notes are an integral part of the Consolidated Financial Statements.53AARON’S, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Treasury Stock Common Stock AdditionalPaid-in Capital RetainedEarnings Accumulated OtherComprehensive Income(Loss)Total Shareholders’Equity(In Thousands, Except PerShare)Shares Amount Balance, January 1, 2015(18,264) $(323,288) $45,376 $227,290 $1,274,233 $(90)$1,223,521Dividends, $0.0940 per share— — — — (6,822) —(6,822)Stock-Based Compensation5 89 — 13,605 — —13,694Reissued Shares107 1,726 — (783) — —943Net Earnings— — — — 135,709 —135,709Foreign Currency TranslationAdjustment— — — — — (427)(427)Balance, December 31, 2015(18,152) (321,473) 45,376 240,112 1,403,120 (517)1,366,618Dividends, $0.1025 per share— — — — (7,420) —(7,420)Stock-Based Compensation4 68 — 20,160 — —20,228Reissued Shares217 3,188 — (5,760) — —(2,572)Repurchased Shares(1,373) (34,525) — — — —(34,525)Net Earnings— — — — 139,283 —139,283Foreign Currency TranslationAdjustment— — — — — (14)(14)Balance, December 31, 2016(19,304) (352,742) 45,376 254,512 1,534,983 (531)1,481,598Dividends, $0.1125 per share— — — — (7,995) —(7,995)Stock-Based Compensation3 48 — 25,782 — —25,830Reissued Shares529 7,531 — (10,251) — —(2,720)Repurchased Shares(1,961) (62,550) — — — —(62,550)Net Earnings— — — — 292,536 —292,536Foreign Currency TranslationAdjustment— — — — — 1,3051,305Balance, December 31, 2017(20,733) $(407,713) $45,376 $270,043 $1,819,524 $774$1,728,004The accompanying notes are an integral part of the Consolidated Financial Statements.54AARON’S, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2017 2016 2015 (In Thousands)OPERATING ACTIVITIES: Net Earnings$292,536 $139,283 $135,709Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation of Lease Merchandise1,448,631 1,304,295 1,212,644Other Depreciation and Amortization82,572 82,378 80,203Accounts Receivable Provision203,389 167,923 163,111Provision for Credit Losses on Loans Receivable20,973 11,251 937Stock-Based Compensation27,400 21,470 14,163Deferred Income Taxes(59,201) (35,162) 38,970Other Changes, Net(3,964) (2,751) (4,467)Changes in Operating Assets and Liabilities, Net of Effects of Acquisitions andDispositions: Additions to Lease Merchandise(1,976,012) (1,615,064) (1,775,479)Book Value of Lease Merchandise Sold or Disposed415,607 433,464 510,657Accounts Receivable(208,947) (149,826) (173,159)Prepaid Expenses and Other Assets2,711 1,229 (35,649)Income Tax Receivable(88,139) 167,290 (54,351)Accounts Payable and Accrued Expenses(2,736) (49,186) 69,218Accrued Litigation Expense1,314 (4,737) (22,463)Customer Deposits and Advance Payments3,001 (4,621) 7,508Cash Provided by Operating Activities159,135 467,236 167,552INVESTING ACTIVITIES: Investments in Loans Receivable(77,951) (72,897) (11,700)Proceeds from Loans Receivable59,641 64,739 15,211Proceeds from Investments2,658 — —Outflows on Purchases of Property, Plant & Equipment(57,973) (57,453) (60,557)Proceeds from Property, Plant, and Equipment12,705 19,393 7,515Outflows on Acquisitions of Businesses, Net of Cash Acquired(145,558) (9,762) (73,295)Proceeds from Dispositions of Businesses, Net of Cash Disposed1,141 35,899 13,976Cash Used in Investing Activities(205,337) (20,081) (108,850)FINANCING ACTIVITIES: Proceeds from Debt27,875 98,928 290,090Repayments on Debt(162,910) (208,607) (330,747)Acquisition of Treasury Stock(62,550) (34,525) —Dividends Paid(7,962) (7,420) (6,822)Issuance of Stock Under Stock Option Plans3,457 550 1,038Shares Withheld for Tax Payments(6,177) (2,457) (443)Debt Issuance Costs(3,130) (132) (425)Cash Used in Financing Activities(211,397) (153,663) (47,309)EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS75 127 —(Decrease) Increase in Cash and Cash Equivalents(257,524) 293,619 11,393Cash and Cash Equivalents at Beginning of Year308,561 14,942 3,549Cash and Cash Equivalents at End of Year$51,037 $308,561 $14,942Net Cash Paid (Received) During the Year: Interest$20,492 $22,511 $23,405Income Taxes98,296 (54,258) 91,720The accompanying notes are an integral part of the Consolidated Financial Statements.55AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESDescription of BusinessAaron’s, Inc. (the "Company") is a leading omnichannel provider of lease-purchase solutions to individual consumers. As of December 31, 2017, theCompany’s operating segments are Progressive Leasing, Aaron’s Business and DAMI.Progressive Leasing is a virtual lease-to-own company that provides lease-purchase solutions in 46 states and the District of Columbia. It does so bypurchasing merchandise from third-party retailers desired by those retailers’ customers and, in turn, leasing that merchandise to the customers on a lease-to-own basis. Progressive Leasing consequently has no stores of its own, but rather offers lease-purchase solutions to the customers of traditional retailers.The Aaron’s Business segment 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-branded stores in the United States and Canada. This operating segment also supportsfranchisees of its Aaron’s-branded stores. In addition, the Aaron’s Business segment includes the operations of Woodhaven Furniture Industries, whichmanufactures and supplies the majority of the upholstered furniture and bedding leased and sold in Company-operated and franchised stores.DAMI, which was acquired by Progressive Leasing on October 15, 2015, partners with merchants to provide a variety of revolving credit products originatedthrough two third-party federally insured banks to customers that may not qualify for traditional prime lending (called "second-look" financing programs).On May 13, 2016, the Company sold the 82 Company-operated HomeSmart stores and ceased operations of that segment. See below for further discussion ofthe disposition.On July 27, 2017, the Company acquired substantially all of the assets of the store operations of SEI/Aaron’s, Inc. ("SEI"), the Company’s largest franchisee.Refer to Note 2 to these consolidated financial statements for additional discussion of the SEI acquisition.The following table presents active doors for Progressive Leasing:For the Year Ended December 31 (Unaudited)2017 2016 2015Progressive Leasing Active Doors126,861 21,840 16,9471 An active door is a retail store location at which at least one virtual lease-to-own transaction has been completed during the trailing twelve month period.The following table presents store count by ownership type for the Aaron’s Business operations:Stores at December 31 (Unaudited)201720162015Company-Operated Stores Aaron’s Branded stores1,175 1,165 1,223HomeSmart— — 82Total Company-Operated Stores1,175 1,165 1,305Franchised Stores1551 699 734Systemwide Stores1,726 1,864 2,0391As of December 31, 2017, 2016 and 2015, the Company has awarded 580, 749 and 813 franchises, respectively.Basis of PresentationThe preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States ("U.S.GAAP") requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements andaccompanying notes. Actual results could differ from those estimates. Generally, actual experience has been consistent with management’s prior estimatesand assumptions. Management does not believe these estimates or assumptions will change significantly in the future absent unidentified and unforeseenevents.Principles of Consolidation and Variable Interest EntitiesThe consolidated financial statements include the accounts of Aaron’s, Inc. and its subsidiaries, each of which is wholly owned. Intercompany balances andtransactions between consolidated entities have been eliminated.56AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Company holds notes issued by Perfect Home Holdings Limited ("Perfect Home"), a privately-held lease-to-own company that is primarily financed byshare capital and senior debt. Perfect Home is based in the U.K. and operated 18 retail stores as of December 31, 2017.Perfect Home is a variable interest entity ("VIE") because it does not have sufficient equity at risk. However, the Company is not the primary beneficiary anddoes not consolidate Perfect Home since the Company lacks power through voting or similar rights to direct the activities that most significantly affectPerfect Home’s economic performance. The Company’s maximum exposure to any potential losses associated with this VIE is equal to its total recordedinvestment, which is $20.4 million at December 31, 2017.Revenue RecognitionLease Revenues and FeesThe Company provides merchandise, consisting primarily of furniture, consumer electronics, home appliances and accessories, to its customers for leaseunder certain terms agreed to by the customer. The Company’s Aaron's-branded stores offer leases with month-to-month terms that can be renewed up to 12,18 or 24 months. The Company’s Progressive Leasing segment offers virtual lease-purchase solutions, typically over 12 months, to the customers oftraditional retailers. The Company does not require deposits upon inception of customer agreements. The customer has the right to acquire ownership eitherthrough a purchase option or through payment of all required lease payments.Aaron's Business lease revenues are recognized as revenue net of related sales taxes in the month they are due. Lease payments received prior to the monthdue are recorded as deferred lease revenue, and this amount is included in customer deposits and advance payments in the accompanying consolidatedbalance sheets.Progressive Leasing lease revenues are earned prior to the lease payment due date and are recorded net of related sales taxes as earned. Revenue recordedprior to the payment due date results in unbilled accounts receivable in the accompanying consolidated balance sheets.All of the Company’s customer agreements are considered operating leases. The Company maintains ownership of the lease merchandise until all paymentobligations are satisfied under sales and lease ownership agreements. Initial direct costs related to Progressive Leasing's lease purchase agreements arecapitalized as incurred and amortized over the estimated lease term. The capitalized costs have been classified within prepaid expenses and other assets in theaccompanying consolidated balance sheets. Initial direct costs related to Aaron's Business customer agreements are expensed as incurred and have beenclassified as operating expenses in the Company’s consolidated statements of earnings. The statement of earnings effects of expensing the initial direct costsof the Aaron's Business as incurred are not materially different from amortizing initial direct costs over the lease term.Retail and Non-Retail SalesRevenues from the sale of merchandise to franchisees are recognized when title and risk of ownership transfer to the franchisee upon its receipt of themerchandise. Revenues from the sale of merchandise to other customers are recognized at the time of shipment, at which time title and risk of ownership aretransferred to the customer.Substantially all of the amounts reported as non-retail sales and non-retail cost of sales in the accompanying consolidated statements of earnings relate to thesale of lease merchandise to franchisees. The Company classifies the sale of merchandise to other customers as retail sales in the consolidated statements ofearnings.Franchise Royalties and FeesThe Company franchises its Aaron’s stores in markets where the Company has no immediate plans to enter. Franchisees pay an ongoing royalty of 6% of theweekly cash revenue collections.In addition, franchisees typically pay a non-refundable initial franchise fee from $15,000 to $50,000 depending upon market size. Franchise fees and areadevelopment fees are generated from the sale of rights to develop, own and operate sales and lease ownership stores. These fees are recognized as franchise feerevenue when substantially all of the Company’s obligations per location are satisfied, generally at the date of the store opening. The Company guaranteescertain debt obligations of some of the franchisees and receives guarantee fees based on the outstanding debt obligations of such franchisees. The Companyrecognizes finance fee revenue as the guarantee obligation is satisfied. Refer to Note 9 to these consolidated financial statements for additional discussion ofthe Company’s franchise-related guarantee obligation.57AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFranchise fee revenue was $0.1 million, $0.4 million and $0.6 million; royalty revenue was $44.7 million, $53.7 million and $57.7 million; and finance feerevenue was $2.0 million, $2.3 million and $2.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Deferred franchise and areadevelopment agreement fees, included in accounts payable and accrued expenses in the accompanying consolidated balance sheets, were $0.6 million and$1.1 million at December 31, 2017 and 2016, respectively.Interest and Fees on Loans ReceivableDAMI extends or declines credit to an applicant through its bank partners based upon the applicant’s credit rating and other factors. Qualifying applicantsreceive a credit card to finance their initial purchase and to use in subsequent purchases at the merchant or other participating merchants for an initial 24-month period, which DAMI may renew if the cardholder remains in good standing.DAMI acquires the loan receivable from merchants through its third-party bank partners at a discount from the face value of the loan. The discount iscomprised of a merchant fee discount and a promotional fee discount.The merchant fee discount represents a pre-negotiated, nonrefundable discount that generally ranges from 3% to 25% of the loan face value. The discount isdesigned to cover the risk of loss related to the portfolio of cardholder charges and DAMI’s direct origination costs. The merchant fee discount andorigination costs are netted on the consolidated balance sheet in loans receivable. Cardholders generally have an initial 24-month period that the card isactive. The merchant fee discount, net of the origination costs, is amortized on a net basis and is recorded as interest and fee revenue on loans receivable inthe consolidated statements of earnings on a straight-line basis over the initial 24-month period.The discount from the face value of the loan on the acquisition of the loan receivable from the merchant through the third-party bank partners also includes apromotional fee discount, which generally ranges from 1% to 8%. The promotional fee discount is intended to compensate the holder of the loan receivable(e.g. DAMI) for deferred or reduced interest rates that are offered to the cardholder for a specified period on the outstanding loan balance (generally for six, 12or 18 months). The promotional fee discount is amortized as interest and fee revenue on loans receivable in the consolidated statements of earnings on astraight-line basis over the promotional interest period (i.e., over six, 12 or 18 months, depending on the promotion).The customer is required to make periodic minimum payments that are generally 3.5% of the outstanding loan balance, which includes outstanding interest.Fixed and variable interest rates, typically 17.90% to 29.99%, are compounded daily for cards that do not qualify for deferred or reduced interest promotionalperiods. Interest income, which is recognized based upon the amount of the loans outstanding, is recognized as interest and fees on loans receivable in thebilling period in which they are assessed if collectability is reasonably assured. For credit cards that provide for deferred or reduced interest, if the balance isnot paid off during the promotional period, interest is billed to the customers at standard rates and the cumulative amount owed is charged to the cardholderaccount in the month that the promotional period expires or defaults. The Company recognizes interest revenue during the promotional period based on itshistorical experience related to cardholders that fail to pay off balances during the promotional period.Annual fees are charged to cardholders at the commencement of the loan and on each subsequent anniversary date. Annual fees are deferred and recognizedinto revenue on a straight-line basis over a one year period. Under the provisions of the credit card agreements, the Company also may assess fees for servicecalls or for missed or late payments, which are recognized as revenue in the billing period in which they are assessed if collectability is reasonably assured.Lease MerchandiseThe Company’s lease merchandise consists primarily of furniture, consumer electronics, home appliances and accessories and is recorded at the lower of costor net realizable value. The cost of merchandise manufactured by our Woodhaven Furniture Industries operations is recorded at cost and includes overheadfrom production facilities, shipping costs and warehousing costs. The Company-operated stores begin depreciating merchandise at the earlier of twelvemonths and one day or when the item is leased and depreciate merchandise to a 0% salvage value over the lease agreement period when on lease, generally12 to 24 months, and generally 36 months when not on lease. The Company’s Progressive Leasing segment, at which substantially all merchandise is onlease, depreciates merchandise generally over 12 months. Depreciation is accelerated upon early payout.58AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following is a summary of lease merchandise, net of accumulated depreciation and allowances: December 31,(In Thousands)2017 2016Merchandise on Lease$908,268 $786,936Merchandise Not on Lease243,867 212,445Lease Merchandise, net of Accumulated Depreciation and Allowances$1,152,135 $999,381The Company’s policies require weekly lease merchandise counts at its store-based operations, which include write-offs for unsalable, damaged, or missingmerchandise inventories. In addition to monthly cycle counting, full physical inventories are generally taken at the fulfillment and manufacturing facilitiesannually and appropriate provisions are made for missing, damaged and unsalable merchandise. In addition, the Company monitors lease merchandise levelsand mix by division, store, and fulfillment center, as well as the average age of merchandise on hand. If obsolete lease merchandise cannot be returned tovendors, its carrying amount is adjusted to its net realizable value or written off.All lease merchandise is available for lease or sale. On a monthly basis, all damaged, lost or unsalable merchandise identified is written off. The Companyrecords a provision for write-offs on the allowance method, which estimates the merchandise losses incurred but not yet identified by management as of theend of the accounting period based on historical write-off experience. The provision for write-offs is included in operating expenses in the accompanyingconsolidated statements of earnings.The following table shows the components of the allowance for lease merchandise write-offs: Year ended December 31,(In Thousands)2017 2016 2015Beginning Balance$33,399 $33,405 $27,573Merchandise Written off, net of Recoveries(143,230) (134,110) (130,548)Provision for Write-offs145,460 134,104 136,380Ending Balance$35,629 $33,399 $33,405Retail and Non-Retail Cost of SalesIncluded in cost of sales is the net book value of merchandise sold, primarily using specific identification. It is not practicable to allocate operating expensesbetween selling and lease operations.Shipping and Handling CostsThe Company classifies shipping and handling costs as operating expenses in the accompanying consolidated statements of earnings, and these costs totaled$67.3 million, $69.9 million and $77.9 million in 2017, 2016 and 2015, respectively.AdvertisingThe Company expenses advertising costs as incurred. Advertising production costs are initially recognized as a prepaid advertising asset and are expensedwhen an advertisement appears for the first time. Total advertising costs amounted to $34.0 million, $40.8 million and $39.3 million for the years endedDecember 31, 2017, 2016 and 2015, respectively, and are classified within operating expenses in the consolidated statements of earnings. These advertisingcosts are shown net of cooperative advertising considerations received from vendors, which represents reimbursement of specific, identifiable andincremental costs incurred in selling those vendors’ products. The amount of cooperative advertising consideration recorded as a reimbursement of suchadvertising expense was $22.5 million, $22.2 million and $36.3 million in 2017, 2016 and 2015, respectively. The prepaid advertising asset was $1.4 millionand $1.2 million at December 31, 2017 and 2016, respectively, and is reported within prepaid expenses and other assets on the consolidated balance sheets.Stock-Based CompensationThe Company has stock-based employee compensation plans, which are more fully described in Note 12 to these consolidated financial statements. TheCompany estimates the fair value for the options granted on the grant date using a Black-Scholes-Merton option-pricing model. The fair value of each shareof restricted stock units ("RSUs"), restricted stock awards ("RSAs") and performance share units ("PSUs") awarded is equal to the market value of a share of theCompany’s common stock on the grant date.59AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDeferred Income TaxesDeferred income taxes represent primarily temporary differences between the amounts of assets and liabilities for financial and tax reporting purposes. TheCompany’s largest temporary differences arise principally from the use of accelerated depreciation methods on lease merchandise for tax purposes.Earnings Per ShareEarnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Thecomputation of earnings per share assuming dilution includes the dilutive effect of stock options, RSUs, RSAs and PSUs (collectively, "share-based awards")as determined under the treasury stock method. The following table shows the calculation of dilutive share-based awards: Year Ended December 31,(Shares In Thousands)2017 2016 2015Weighted Average Shares Outstanding70,837 72,354 72,568Dilutive Effect of Share-Based Awards1,284 659 475Weighted Average Shares Outstanding Assuming Dilution72,121 73,013 73,043Approximately 140,000, 939,000 and 460,000 weighted-average share-based awards were excluded from the computations of earnings per share assumingdilution during the years ended December 31, 2017, 2016 and 2015, respectively, as the awards would have been anti-dilutive for the periods presented.Cash and Cash EquivalentsThe Company classifies highly liquid investments with maturity dates of three months or less when purchased as cash equivalents. The Company maintainsits cash and cash equivalents in a limited number of banks. Bank balances typically exceed coverage provided by the Federal Deposit Insurance Corporation.However, due to the size and strength of the banks in which the balances are held, any exposure to loss is believed to be minimal.InvestmentsAt December 31, 2017 and 2016, investments classified as held-to-maturity securities consisted of British pound-denominated notes issued by Perfect Home.The Perfect Home Notes ("Notes") consisted of outstanding principal and accrued interest of £15.1 million ($20.4 million) and £16.6 million ($20.5 million)at December 31, 2017 and 2016, respectively. The Notes are classified as held-to-maturity securities because the Company has the positive intent and abilityto hold the investments to maturity. The Perfect Home notes are carried at amortized cost in investments in the consolidated balance sheets. The Britishpound-denominated notes are remeasured into U.S. dollars at each period end with remeasurement gains and losses recorded as a component of other non-operating income (expense), net in the consolidated statements of earnings. The Notes matured on June 30, 2017. As a result of Perfect Home’s constrainedliquidity, the Company ceased accruing additional interest income of the annualized 12% stated interest rate on the Notes effective April 1, 2017.On December 5, 2017, Perfect Home entered into an agreement with a third party to obtain alternative sources of senior debt financing. In connection withthat transaction, the Company also entered into agreements with Perfect Home to extend and refinance its debt investment in Perfect Home with the followingterms: (i) payment of £2.0 million of the outstanding Note balance due to the Company upon closing of the refinanced agreement, which was paid inDecember 2017 and reduced the outstanding investment balance recorded in the Company’s consolidated balance sheets; (ii) extension of the maturity dateto the earlier of December 31, 2019 or the occurrence of certain events such as a sale of Perfect Home or initial public offering; and (iii) issuance of warrantsto buy non-voting shares of Perfect Home stock with a purchase price of £0.00001 per share. The interest rate remains 12% under the refinanced agreement,which we believe approximates market rates for investments of similar credit quality. In accordance with the terms of the refinanced agreement, Perfect Homebegan making monthly interest payments on the Notes in January 2018.In light of the additional financing obtained by Perfect Home, which may lead to improvement in Perfect Home's future operating results and the Company'ssecurity interest, the Company believes no impairment has occurred as of December 31, 2017. The Company continues to retain a subordinated securityinterest in the assets of Perfect Home, which consists primarily of outstanding loans receivable, merchandise inventory and cash. The Notes will remain onnonaccrual status until Perfect Home demonstrates it has the ability to make consistent payments on the remaining Note balance. If Perfect Home fails toexecute on its business strategy to improve operating results, there could be a change in the valuation of the Notes that may result in an impairment loss infuture periods.60AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAccounts ReceivableAccounts receivable consist primarily of receivables due from customers of Progressive Leasing and Company-operated stores, corporate receivables incurredduring the normal course of business (primarily for in-transit credit card transactions, real estate leasing activities and vendor consideration) and franchiseeobligations.Accounts receivable, net of allowances, consist of the following: December 31,(In Thousands)2017 2016Customers$48,661 $36,227Corporate23,431 26,375Franchisee27,795 33,175 $99,887 $95,777The Company maintains an accounts receivable allowance, which primarily relates to its Progressive Leasing operations and its store-based operations. TheCompany’s policy for its Progressive Leasing segment is to accrue for uncollected amounts due based on historical collection experience. The provision isrecognized as bad debt expense, which is classified in operating expenses within the consolidated statements of earnings. The Progressive Leasing segmentwrites-off lease receivables that are 120 days or more contractually past due.For the Company’s store-based operations, contractually required lease payments are accrued when due; however, they are not always collected andcustomers can terminate the lease agreements at any time. For customers that do not pay timely, the Company’s store-based operations generally focus onobtaining a return of the lease merchandise. Therefore the Company’s policy for its store-based operations is to accrue a provision for returns anduncollectible contractually due renewal payments based on historical collection experience, which is recognized as a reduction of lease revenues and fees.Store-based operations write-off lease receivables that are 60 days or more past due on pre-determined dates occurring twice monthly.The following table shows the components of the accounts receivable allowance: Year Ended December 31,(In Thousands)2017 2016 2015Beginning Balance$35,690 $34,861 $27,401Accounts Written Off, net of Recoveries(192,133) (167,094) (155,651)Accounts Receivable Provision203,389 167,923 163,111Ending Balance$46,946 $35,690 $34,861The following table shows the amounts recognized for bad debt expense and provision for returns and uncollected payments for the years ended December31: Year Ended December 31,(In Thousands)2017 2016 2015Bad Debt Expense170,574 128,333 122,184Provision for Returns and Uncollected Renewal Payments32,815 39,590 40,927Accounts Receivable Provision$203,389 $167,923 $163,111Loans ReceivableGross loans receivable represents the principal balances of credit card charges at DAMI’s participating merchants that remain outstanding to cardholders, plusunpaid interest and fees due from cardholders. The allowances and unamortized fees represents an allowance for uncollectible amounts; merchant feediscounts, net of capitalized origination costs; promotional fee discounts; and deferred annual card fees.Loans acquired in the October 15, 2015 DAMI acquisition (the "Acquired Loans") were recorded at their estimated fair value at the acquisition date. Theprojected net cash flows from expected payments of principal, interest, fees and servicing costs and anticipated charge-offs were included in thedetermination of fair value; therefore, an allowance for loan losses and an amount for unamortized fees were not recognized for the Acquired Loans. Thedifference, or discount, between the expected cash flows to be received and the fair value of the Acquired Loans is accreted to interest and fees on loansreceivable based on the effective interest method. At each period end, the Company evaluates the appropriateness of the accretable discount on the AcquiredLoans based on actual and revised projected future cash receipts.61AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSLosses on loans receivable are recognized when they are incurred, which requires the Company to make its best estimate of probable losses inherent in theportfolio. The Company evaluates loans receivable collectively for impairment. The method for calculating the best estimate of probable losses takes intoaccount the Company’s historical experience, adjusted for current conditions and the Company’s judgment concerning the probable effects of relevantobservable data, trends and market factors. Economic conditions and loan performance trends are closely monitored to manage and evaluate exposure tocredit risk. Trends in delinquency ratios are an indicator of credit risk within the loans receivable portfolio, including the migration of loans betweendelinquency categories over time (roll rates). Charge-off rates represent another indicator of the potential for future credit losses. The risk in the loansreceivable portfolio is correlated with broad economic trends, such as unemployment rates, gross domestic product growth and gas prices, which can have amaterial effect on credit performance. To the extent that actual results differ from estimates of uncollectible loans receivable, the Company’s results ofoperations and liquidity could be materially affected.The Company calculates the allowance for loan losses based on actual delinquency balances and historical average loss experience on loans receivable byaging category for the prior eight quarters. The allowance for loan losses is maintained at a level considered adequate to cover probable losses of principal,interest and fees on active loans in the loans receivable portfolio. The adequacy of the allowance is evaluated at each period end.Delinquent loans receivable are those that are 30 days or more past due based on their contractual billing dates. The Company places loans receivable onnonaccrual status when they are greater than 90 days past due or upon notification of cardholder bankruptcy, death or fraud. The Company discontinuesaccruing interest and fees and amortizing merchant fee discounts and promotional fee discounts for loans receivable in nonaccrual status. Loans receivableare removed from nonaccrual status when cardholder payments resume, the loan becomes 90 days or less past due and collection of the remaining amountsoutstanding is deemed probable. Payments received on nonaccrual loans are allocated according to the same payment hierarchy methodology applied toloans that are accruing interest. Loans receivable are charged off at the end of the month following the billing cycle in which the loans receivable become120 days past due.DAMI extends or declines credit to an applicant through its bank partners based upon the applicant’s credit rating. Below is a summary of the credit qualityof the Company’s loan portfolio as of December 31, 2017 and 2016 by Fair Isaac and Company (FICO) score as determined at the time of loan origination: December 31,FICO Score Category2017 2016600 or Less1.7% 1.8%Between 600 and 70076.5% 78.1%700 or Greater21.8% 20.1%Property, Plant and EquipmentThe Company records property, plant and equipment at cost. Depreciation and amortization are computed on a straight-line basis over the estimated usefullives of the respective assets, which range from five to 40 years for buildings and improvements and from one to 15 years for other depreciable property andequipment.Costs incurred to develop software for internal use are capitalized and amortized over the estimated useful life of the software, which ranges from five to 10years. The Company primarily develops software for use in its Progressive Leasing and store-based operations. The Company uses an agile developmentmethodology in which feature-by-feature updates are made to its software. Costs are capitalized when management, with the relevant authority, authorizesand commits to funding a feature update and it is probable that the project will be completed and the software will be used to perform the function intended.Capitalization of costs ceases when the feature update is substantially complete and ready for its intended use. Generally, the life cycle for each featureupdate implementation is one month.Gains and losses related to dispositions and retirements are recognized as incurred. Maintenance and repairs are also expensed as incurred, and leaseholdimprovements are capitalized. Depreciation expense for property, plant and equipment is included in operating expenses in the accompanying consolidatedstatements of earnings and was $54.8 million, $53.6 million and $52.0 million during the years ended December 31, 2017, 2016 and 2015, respectively.Amortization of previously capitalized internal use software development costs, which is a component of depreciation expense for property, plant andequipment, was $11.5 million, $9.2 million and $7.4 million during the years ended December 31, 2017, 2016 and 2015, respectively.The Company assesses its long-lived assets other than goodwill and other indefinite-lived intangible assets for impairment whenever facts and circumstancesindicate that the carrying amount may not be fully recoverable. If it is determined that the carrying amount of an asset is not recoverable, the Companycompares the carrying amount of the asset to its fair value as62AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSestimated using discounted expected future cash flows, market values or replacement values for similar assets. The amount by which the carrying amountexceeds the fair value of the asset, if any, is recognized as an impairment loss.Prepaid Expenses and Other AssetsPrepaid expenses and other assets consist of the following: December 31,(In Thousands)2017 2016Prepaid Expenses$31,509 $21,769Prepaid Insurance36,735 53,716Assets Held for Sale10,118 8,866Deferred Tax Asset11,589 5,912Other Assets26,548 18,881 $116,499 $109,144Assets Held for SaleCertain properties, consisting of parcels of land and commercial buildings, met the held for sale classification criteria as of December 31, 2017 and 2016.Assets held for sale are recorded at the lower of their carrying value or fair value less estimated cost to sell and are classified within prepaid expenses andother assets in the consolidated balance sheets. Depreciation is suspended on assets upon classification to held for sale.The carrying amount of the properties held for sale as of December 31, 2017 and 2016 was $10.1 million and $8.9 million, respectively. The Companyestimated the fair values of real estate properties using the market values for similar properties. These properties are considered Level 2 assets as definedbelow.The Company recorded impairment charges on assets held for sale of $0.7 million, $5.8 million and $0.5 million during the years ended December 31, 2017,2016 and 2015, respectively, in other operating (income) expense, net within the consolidated statements of earnings. These impairment charges related tothe impairment of various parcels of land and buildings that the Company decided not to utilize for future expansion as well as the sale of the net assets of theHomeSmart disposal group in May 2016 as described below. Additionally, the Company recorded impairment charges on assets held for sale of $0.9 millionduring the year ended December 31, 2017 in restructuring expenses within the consolidated statements of earnings related to the impairment of land andbuildings that the Company closed under the 2016 restructuring plan described in Note 10 to these consolidated financial statements.On May 13, 2016, the Company sold its 82 remaining Company-operated HomeSmart stores for $35.0 million and ceased operations of that segment. Thesale did not represent a strategic shift that would have a major effect on the Company’s operations and financial results and therefore the HomeSmart segmentwas not classified as discontinued operations. The cash proceeds were recorded in proceeds from dispositions of businesses and contracts, net in theconsolidated statements of cash flows. During the year ended December 31, 2016, the Company recognized an impairment loss of $4.3 million on thedisposition and recorded additional charges of $1.1 million related to exiting the HomeSmart business, primarily consisting of impairment charges on certainassets related to the division that were not included in the May 2016 disposition. The impairment loss and additional charges were recorded in otheroperating (income) expense, net in the consolidated statements of earnings.Gains and losses on the disposal of assets held for sale were not significant in 2017 and 2015. The disposal of assets held for sale resulted in the recognitionof net gains of $11.4 million in 2016 due mainly to the sale of the Company's former corporate headquarters building in January 2016 for cash of $13.6million, resulting in a gain of $11.1 million. The cash proceeds were recorded in proceeds from sales of property, plant and equipment in the consolidatedstatements of cash flows and the gain was recorded in other operating (income) expense, net in the consolidated statements of earnings.63AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSGoodwillGoodwill represents the excess of the purchase price paid over the fair value of the identifiable net tangible and intangible assets acquired in connection withbusiness acquisitions. Impairment occurs when the carrying amount of goodwill is not recoverable from future cash flows. The Company’s goodwill is notamortized but is subject to an impairment test at the reporting unit level annually as of October 1 and more frequently if events or circumstances indicate thatimpairment may have occurred. Factors which could necessitate an interim impairment assessment include a sustained decline in the Company’s stock price,prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results. The Companycompleted its annual goodwill impairment test as of October 1, 2017 and determined that no impairment had occurred. The Company determined that therewere no events that occurred or circumstances that changed in the fourth quarter of 2017 that would more likely than not reduce the fair value of a reportingunit below its carrying amount.Other IntangiblesOther intangibles include favorable operating leases, customer relationships, customer lease contracts, non-compete agreements and reacquired franchiserights acquired in connection with store-based business acquisitions, including the acquisition of SEI. The favorable operating lease intangible asset isamortized to rent expense, which is recorded within operating expenses in the consolidated statements of earnings, on a straight-line basis over the remaininglease terms. The customer relationship intangible asset is amortized on a straight-line basis over a two-year estimated useful life. The customer lease contractintangible asset is amortized on a straight-line basis over a one-year estimated useful life. The non-compete intangible asset is amortized on a straight-linebasis over the life of the agreement (generally one to five years). Acquired franchise rights are amortized on a straight-line basis over the unexpired life of thefranchisee’s ten year license term.Other intangibles also include the identifiable intangible assets acquired as a result of the DAMI and Progressive Leasing acquisitions, which the Companyrecorded at the estimated fair value as of the respective acquisition dates. As more fully described in Note 2 to these consolidated financial statements, theCompany amortizes the definite-lived intangible assets acquired as a result of the DAMI acquisition on a straight-line basis over five years. The Companyamortizes the definite-lived intangible assets acquired as a result of the Progressive Leasing acquisition on a straight-line basis over periods ranging from oneto three years for customer lease contracts and internal use software and ten to 12 years for technology and merchant relationships.Indefinite-lived intangible assets represent the value of trade names acquired as part of the Progressive Leasing acquisition. At the date of acquisition, theCompany determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful life of the trade name intangible asset and,therefore, the useful life is considered indefinite. The Company reassesses this conclusion quarterly and continues to believe the useful life of this asset isindefinite.Indefinite-lived intangible assets are not amortized but are subject to an impairment test annually and when events or circumstances indicate that impairmentmay have occurred. The Company performs the impairment test for its indefinite-lived intangible assets on October 1 by comparing the asset’s fair value to itscarrying amount. The Company estimates the fair value based on projected discounted future cash flows under a relief from royalty method. An impairmentcharge is recognized if the asset’s estimated fair value is less than its carrying amount.The Company completed its indefinite-lived intangible asset impairment test as of October 1, 2017 and determined that no impairment had occurred.Accounts Payable and Accrued ExpensesAccounts payable and accrued expenses consist of the following: December 31,(In Thousands)2017 2016Accounts Payable$80,821 $71,941Accrued Insurance Costs41,680 47,649Accrued Salaries and Benefits46,511 41,612Accrued Real Estate and Sales Taxes31,054 32,986Deferred Rent29,912 31,859Other Accrued Expenses and Liabilities74,832 71,719 $304,810 $297,76664AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSInsurance ReservesEstimated insurance reserves are accrued primarily for workers compensation, vehicle liability, general liability and group health insurance benefits providedto the Company’s employees. Insurance reserves are recorded within accrued insurance costs in accounts payable and accrued expense in the consolidatedbalance sheets. Estimates for these insurance reserves are made based on actual reported but unpaid claims and actuarial analysis of the projected claims runoff for both reported and incurred but not reported claims. This analysis is based upon an assessment of the likely outcome or historical experience. TheCompany makes periodic prepayments to its insurance carrier to cover the projected claims run off for both reported and incurred but not reported claims,considering its retention or stop loss limits.Asset Retirement ObligationsThe Company accrues for asset retirement obligations, which relate to expected costs to remove exterior signage, in the period in which the obligations areincurred. These costs are accrued at fair value. When the related liability is initially recorded, the Company capitalizes the cost by increasing the carryingamount of the related long-lived asset. Over time, the liability is accreted to its settlement value and updated for changes in estimates. Upon settlement of theliability, the Company recognizes a gain or loss for any differences between the settlement amount and the liability recorded. Asset retirement obligations,which are included in accounts payable and accrued expenses in the consolidated balance sheets, amounted to approximately $2.5 million as ofDecember 31, 2017 and 2016, respectively. The capitalized cost is depreciated over the useful life of the related asset.Fair Value MeasurementFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used tomeasure fair value:Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets andliabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that areobservable or can be corroborated by observable market data.Level 3—Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably availableassumptions made by other market participants. These valuations require significant judgment.The Company measures assets held for sale at fair value on a nonrecurring basis and records impairment charges when they are deemed to be impaired. TheCompany maintains certain financial assets and liabilities, including investments and fixed-rate long term debt, that are not measured at fair value but forwhich fair value is disclosed.The fair values of the Company’s other current financial assets and liabilities, including cash and cash equivalents, accounts receivable and accountspayable, approximate their carrying values due to their short-term nature. The fair value for the loans receivable, net of allowances, and any revolving creditborrowings also approximate their carrying amounts.Foreign CurrencyThe financial statements of the Company’s Canadian subsidiary are translated from the Canadian dollar to U.S. dollars using month-end rates of exchange forassets and liabilities, and average rates of exchange for revenues, costs and expenses. Translation gains and losses of the subsidiary are recorded inaccumulated other comprehensive income as a component of shareholders’ equity.Foreign currency remeasurement gains and losses are recorded as a component of other non-operating income (expense), net in the consolidated statements ofearnings and were gains of approximately $2.1 million for the year ended December 31, 2017 and losses of $3.7 million and $2.5 million for the years endedDecember 31, 2016 and 2015, respectively.Supplemental Disclosure of Noncash Investing TransactionsDuring the year ended December 31, 2017, the Company entered into exchange transactions to acquire and sell certain customer agreements and related leasemerchandise with third parties which are accounted for as business combinations and business disposals. The fair value of the noncash considerationexchanged in these transactions was $6.1 million.As described in Note 2 to these consolidated financial statements, the purchase price for the acquisition of SEI included the non-cash settlement of pre-existing accounts receivable SEI owed the Company of $3.5 million. This non-cash consideration65AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTShas been excluded from the line "Outflows on Acquisitions of Businesses, Net of Cash Acquired" in the investing activities section of the statement of cashflows.Hurricane ImpactDuring the third and fourth quarters of 2017, Hurricanes Harvey and Irma impacted the Company in the form of: (i) property damages (primarily in-store andon-lease merchandise, store leasehold improvements and furniture and fixtures) and employee assistance payments; (ii) increased customer-related accountsreceivable allowances and lease merchandise allowances primarily in the impacted areas; and (iii) lost lease revenue due to store closures of Aaron’s Businessand Progressive Leasing retail partners and lost lease revenue due to the postponing of customer payments in the impacted areas.As a result of the hurricanes, the Company recorded pre-tax losses of $4.7 million related to property that was either destroyed or severely damaged byHurricanes Harvey or Irma, store repair costs, and other storm related remediation costs. The Company recognized $3.3 million of pre-tax income forestimated future property-related insurance proceeds related to the damages. In December 2017, the Company received a partial cash payment of $0.4 millionfrom its insurers. As of December 31, 2017, the Company has an insurance receivable for property-related damages of $2.9 million, which the Companybelieves is probable of receipt. The Company also increased its customer-related accounts receivable allowances and lease merchandise allowances by acombined $3.6 million, primarily due to delays in payments from customers in the impacted areas. The property losses, net of probable insurance retentionand probable recoveries, and customer-related allowances were recorded within operating expenses in the consolidated statements of earnings. The insurancereceivable was classified within prepaid expenses and other assets in the consolidated balance sheets.As of December 31, 2017, the Company has not recognized or received any insurance proceeds related to its business interruption losses.Recent Accounting PronouncementsAdoptedShare-Based Payments. In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09,Improvements to Employee Share-Based Payment Accounting. The objective of the update is to simplify the accounting for employee share-based awards,including the income tax effects of awards and the classification on the statement of cash flows. The Company adopted this ASU in the first quarter of 2017.The ASU requires excess tax benefits and deficiencies that result from the difference between what is deductible for tax purposes and the compensation costrecognized for financial reporting purposes to be recognized prospectively as income tax benefit or expense in the statement of earnings in the reportingperiod in which they occur. Previously, the excess tax benefits and deficiencies were recognized in additional paid-in capital. During the year endedDecember 31, 2017, the recognition of tax benefits on exercised options and vested restricted stock increased the Company's income tax benefit by $1.1million.The ASU also requires excess tax benefits and deficiencies to be classified as an operating activity on the statement of cash flows. Prior to the update, excesstax benefits and deficiencies were classified as a financing activity. This amendment has been adopted by the Company on a retrospective basis and as aresult we have reclassified $0.7 million and $0.3 million of excess tax deficiencies and benefits, respectively, previously disclosed as a financing activity inthe statement of cash flows to operating activities for the years ended December 31, 2016 and December 31, 2015, respectively.The ASU requires cash paid by the Company when directly withholding shares for tax-withholding purposes to be classified retrospectively as a financingactivity on the statement of cash flows. As a result, cash outflows of $2.5 million and $0.4 million representing cash payments to tax authorities for shareswithheld during the years ended December 31, 2016 and December 31, 2015, respectively, were reclassified from operating activities to financing activities.The Company elected to continue to estimate forfeitures in determining the amount of stock compensation expense.Pending AdoptionRevenue Recognition. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 replaces substantially allexisting revenue recognition guidance with a single, comprehensive revenue recognition model that requires a company to recognize revenue to depict thetransfer of promised goods and services to customers at the amount to which it expects to be entitled in exchange for transferring those goods or services.Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09, and, as a result of a subsequent update, it will beeffective in annual reporting periods, and interim periods within that period, beginning after December 15, 2017. While the majority of the Company’srevenues are related to leasing activities and not within the scope of ASU 2014-09, certain of the66AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCompany’s revenue streams related to its franchise business will result in changes to the timing of revenue recognition as well as the presentation of certainrevenues.The standard will change the timing of recognition of pre-opening revenue from franchisees. The Company’s current accounting policy is to recognize initialfranchise pre-opening revenue when earned, which is generally when a new store opens. Under the new standard, the initial franchise pre-opening services arenot distinct from the continuing franchise services as they would not transfer a benefit to the franchisee directly without use of the franchise license andshould be bundled with the franchise license as a single performance obligation. As a result, the pre-opening revenues will be recognized from the storeopening date over the remaining life of the franchise license term.The standard will change the presentation of advertisement fees charged to franchisees. Advertising fees charged to franchisees are currently recorded as areduction to advertising expense, which is classified within operating expenses in the consolidated statements of earnings. The new standard will result in thepresentation of advertisement fees charged to franchisees to be reported on a gross basis within franchise royalties and fee revenue in the consolidatedstatements of earnings. The Company does not currently believe these matters will result in a material impact to the consolidated statements of earnings. Thechanges associated with the adoption of ASU 2014-09 will not require significant changes to controls and procedures around the revenue recognitionprocess. The Company adopted the standard on January 1, 2018 using the modified retrospective approach and recorded an adjustment to opening retainedearnings and deferred revenue of $2.4 million on January 1, 2018.Business Combinations. In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business. The objective of the update is to addguidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definitionof a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. Companies must use a prospective approach toadopt ASU 2017-01, which is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted.The Company believes the new standard will result in certain store acquisitions (disposals) which do not transfer a substantive process to be accounted for asasset acquisitions (disposals). The Company has identified a separate "expanded customer base" intangible asset, which will be separately valued andrecorded in asset acquisitions as a result of the new definition of a business standard. The "expanded customer base" represents the estimated fair value of theacquisition purchase price paid by the Company for the ability to advertise and execute lease agreements with a larger pool of customers in the respectivemarkets. This intangible asset is currently subsumed in goodwill in a business combination. In situations in which the purchase price exceeds the fair value ofthe assets acquired, any remaining economic goodwill will be allocated on a relative fair value basis to all acquired assets, including merchandise inventory.In situations in which the fair value of the assets acquired exceeds the purchase price, the acquisition will be treated as a bargain purchase with the excessallocated on a relative fair value basis to all assets. This will result in the recognition of the initial asset bases at less than fair value, including merchandiseinventory.The Company routinely enters into arrangements to acquire lease merchandise inventory and the related customer lease agreements of a store; however, thearrangement does not transfer a substantive process. These acquisitions will result in all of the purchase price getting assigned to definite lived assets, insteadof a portion going to goodwill, which will result in higher depreciation and amortization expense under the new standard. Transactions that will now beaccounted for as asset disposals, instead of business disposals, will not result in the write-off of goodwill as part of the disposal.The Company will adopt the new standard in the first quarter of 2018. The impact of this new standard on the Company's consolidated statements of earningswill depend on the quantity and magnitude of future acquisitions (disposals) that will be treated as an asset acquisition (or disposal) in accordance with ASU2017-01.Leases. In February 2016, the FASB issued ASU 2016-02, Leases, which would require lessees to recognize assets and liabilities for most leases and wouldchange certain aspects of today’s lessor accounting, among other things. ASU 2016-02 is effective for annual and interim periods beginning after December15, 2018, with early adoption permitted. Companies must use a modified retrospective approach to adopt ASU 2016-02. A majority of the Company’srevenue generating activities will be within the scope of ASU 2016-02. The Company has preliminarily determined that the new standard will not materiallyimpact the timing of revenue recognition. The new standard will likely result in the Company classifying bad debt expense incurred within its ProgressiveLeasing segment as a reduction of lease revenue and fees within the consolidated statements of earnings. The new standard will impact the Company as alessee by requiring substantially all of its operating leases to be recognized on the balance sheet as a right-to-use asset and lease liability. The Company iscurrently quantifying the impacts of its operating leases to the consolidated financial statements, as well as evaluating the other impacts of adopting ASU2016-02. The Company intends to adopt the new standard in the first quarter of 2019.67AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFinancial Instruments - Credit Losses. In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The mainobjective of the update is to provide financial statement users with more decision-useful information about the expected credit losses on financialinstruments and other commitments to extend credit held by companies at each reporting date. For trade and other receivables, held to maturity debtsecurities and other instruments, companies will be required to use a new forward-looking "expected losses" model that generally will result in therecognition of allowances for losses earlier than under current accounting guidance. The standard will be adopted on a prospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 is effective for annualand interim periods beginning after December 15, 2019, with early adoption permitted. The Company has not yet determined the potential effects ofadopting ASU 2016-13 on its consolidated financial statements.NOTE 2: ACQUISITIONSDuring the years ended December 31, 2017, 2016 and 2015, cash payments, net of cash acquired, related to the acquisitions of businesses and contracts were$145.6 million, $9.8 million and $73.3 million, respectively. Cash payments made during the years ended December 31, 2017 and December 31, 2015principally relate to the SEI and DAMI acquisitions, respectively, as described below.Acquisitions have been accounted for as business combinations and the results of operations of the acquired businesses are included in the Company’s resultsof operations from their dates of acquisition. The results of DAMI have been presented as a reportable segment from the October 15, 2015 acquisition date.Refer to Note 13 to these consolidated financial statements for more information on DAMI’s revenues and earnings before income taxes since the acquisitiondate. The effect of the Company’s other acquisitions on the consolidated financial statements for the years ended December 31, 2017, 2016 and 2015 was notsignificant.SEI/Aaron’s, Inc. AcquisitionOn July 27, 2017, the Company acquired substantially all of the assets and liabilities of the store operations of SEI, the Company’s largest franchisee, forapproximately $140 million in cash. At the time of the acquisition, those store operations served approximately 90,000 customers through 104 Aaron's-branded stores in 11 states primarily in the Northeast. The acquisition is benefiting the Company’s omnichannel platform through added scale, strengtheningits presence in certain geographic markets, and enhancing Aaron’s ability to drive inventory supply-chain synergies between the Aaron’s Business andProgressive Leasing in markets that SEI served. The acquired SEI operations generated revenues of $58.3 million and earnings before income taxes of $2.5million from July 27, 2017 through December 31, 2017, which are included in our consolidated statements of earnings. Included in the earnings beforeincome taxes of the SEI operations are acquisition-related transaction and transition costs, amortization expense of the various intangible assets recordedfrom the acquisition and restructuring expenses associated with the closure of several acquired SEI stores. The revenues and earnings before income taxesabove have not been adjusted for estimated non-retail sales and franchise royalties and fees and related expenses that the Company could have generatedfrom SEI, as a franchisee, from July 27, 2017 through December 31, 2017 had the transaction not been completed.68AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAcquisition AccountingThe SEI acquisition has been accounted for as a business combination, and the results of operations of the acquired business is included in the Company’sresults of operations from the date of acquisition. The following table presents the summary of the preliminary estimated fair value of the assets acquired andliabilities assumed in the SEI acquisition as of the July 27, 2017 acquisition date:(In Thousands)Amounts Recognizedas of AcquisitionDate1 Acquisition AccountingAdjustments2 Amounts Recognized asof Acquisition Date (asadjusted)Purchase Price$140,000 $— $140,000Settlement of Pre-existing Accounts Receivable SEI owed Aaron's, Inc.3,452 — 3,452Reimbursement for Insurance Costs(100) — (100)Working Capital Adjustment— 188 188Consideration Transferred143,352 188 143,540Estimated Fair Value of Identifiable Assets Acquired and Liabilities Assumed Cash and Cash Equivalents34 — 34Receivables1,448 — 1,448Lease Merchandise40,941 — 40,941Property, Plant and Equipment8,279 553 8,832Other Intangibles316,472 (2,894) 13,578Prepaid Expenses and Other Assets440 — 440Total Identifiable Assets Acquired67,614 (2,341) 65,273Accounts Payable and Accrued Expenses(5,470) (1,064) (6,534)Customer Deposits and Advance Payments(2,500) — (2,500)Capital Leases(4,630) 116 (4,514)Total Liabilities Assumed(12,600) (948) (13,548)Goodwill488,338 3,477 91,815Net Assets Acquired$55,014 $(3,289) $51,7251 As previously reported in the notes to the condensed consolidated financial statements as of September 30, 2017.2 The acquisition accounting adjustments relate to finalizing information that existed as of the acquisition date regarding the fair value of vehicles undercapital leases. Additionally, the Company obtained further information regarding the fair value of assumed favorable and unfavorable property operatingleases based on comparable market terms of similar leases based on information that existed as of the acquisition date, which the Company expects tocomplete prior to the one year anniversary date of the acquisition.3 Identifiable intangible assets are further disaggregated in the table set forth below.4 The total goodwill recognized in conjunction with the SEI acquisition, all of which is expected to be deductible for tax purposes, has been assigned to theAaron’s Business operating segment. The purchase price exceeded the fair value of the net assets acquired, which resulted in the recognition of goodwill,primarily due to synergies created from the expected future benefits to the Company’s omnichannel platform, implementation of the Company’soperational capabilities, expected inventory supply chain synergies between the Aaron’s Business and Progressive Leasing, and control of the Company’sbrand name in new geographic markets. Goodwill also includes certain other intangible assets that do not qualify for separate recognition, such as anassembled workforce.69AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe preliminary acquisition accounting presented above is subject to refinement. The Company is still finalizing the valuation of assumed favorable andunfavorable property operating leases as described above and finalizing certain working capital adjustments.The estimated intangible assets attributable to the SEI acquisition are comprised of the following: Fair Value(in thousands) Weighted Average Life(in years)Non-compete Agreements $1,244 5.0Customer Lease Contracts 2,130 1.0Customer Relationships 3,176 2.0Reacquired Franchise Rights 3,640 4.1Favorable Operating Leases 3,388 8.5Total Acquired Intangible Assets1 $13,578 1 Acquired definite-lived intangible assets have a total weighted average life of 4.3 years.During the year ended December 31, 2017, the Company incurred $2.0 million of acquisition-related costs in connection with the SEI acquisition. Thesecosts were included in operating expenses in the consolidated statements of earnings.70AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDAMI AcquisitionOn October 15, 2015, Progressive Leasing acquired a 100% ownership interest in DAMI for a total purchase price of $54.9 million, inclusive of cash acquiredof $4.2 million. Together with Progressive, DAMI allows the Company to provide retail and merchant partners with one source for financing and leasingtransactions with below-prime customers. The following table presents the summary of the assets acquired and liabilities assumed as of the acquisition date,as well as the acquisition accounting adjustments. The final acquisition accounting adjustments did not have a significant effect on the consolidatedstatements of earnings.(In Thousands)Amounts Recognized asof Acquisition Date1 Acquisition AccountingAdjustments2 Amounts Recognized asof Acquisition Date (asadjusted)Purchase Price$54,900 $— $54,900 Estimated Fair Value of Identifiable Assets Acquired and Liabilities Assumed Cash and Cash Equivalents4,185 — 4,185Loans Receivable389,186 (60) 89,126Receivables45 — 45Property, Plant and Equipment2,754 — 2,754Other Intangibles43,400 (500) 2,900Income Tax Receivable728 — 728Prepaid Expenses and Other Assets671 — 671Deferred Income Tax Assets375 2,115 2,490Total Identifiable Assets Acquired101,344 1,555 102,899Accounts Payable and Accrued Expenses(1,709) (1,265) (2,974)Debt(45,025) — (45,025)Total Liabilities Assumed(46,734) (1,265) (47,999)Goodwill290 (290) —Net Assets Acquired$54,900 $— $54,9001 As previously reported in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2015.2 The acquisition accounting adjustments primarily relate to the resolution of certain income tax-related matters and contingencies that existed as of theacquisition date.3 Contractually required amounts due at the acquisition date were $94.2 million.4 Identifiable intangible assets are further disaggregated in the table below.The intangible assets attributable to the DAMI acquisition are comprised of the following: Fair Value(in thousands) Weighted Average Life(in years)Technology$2,550 5.0Non-compete Agreements350 5.0Total Acquired Intangible Assets$2,900 During the year ended December 31, 2015, the Company incurred $3.7 million of transaction costs in connection with the acquisition of DAMI. These costswere included in the line item operating expenses in the consolidated statements of earnings.71AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 3: GOODWILL AND INTANGIBLE ASSETSIndefinite-Lived Intangible AssetsThe following table summarizes information related to indefinite-lived intangible assets at December 31: December 31,(In Thousands)2017 2016Trade Name$53,000 $53,000Goodwill622,948 526,723Indefinite-lived Intangible Assets$675,948 $579,723The following table provides information related to the carrying amount of goodwill by operating segment:(In Thousands)Progressive Leasing Aaron’s Business DAMITotalBalance at January 1, 2016$290,605 $248,580 $290 $539,475Acquisitions— 4,345 — 4,345Disposals, Currency Translation and Other Adjustments(1,804) (15,173) — (16,977)Acquisition Accounting Adjustments— 170 (290) (120)Balance at December 31, 2016288,801 237,922 — 526,723Acquisitions— 97,460 — 97,460Disposals, Currency Translation and Other Adjustments— (1,271) — (1,271)Acquisition Accounting Adjustments— 36 — 36Balance at December 31, 2017$288,801 $334,147 $— $622,948Definite-Lived Intangible AssetsThe following table summarizes information related to definite-lived intangible assets at December 31:2017 2016(In Thousands)Gross AccumulatedAmortization Net Gross AccumulatedAmortization NetAcquired Internal Use Software$14,000 $(14,000) $— $14,000 $(12,665) $1,335Technology68,550 (25,639) 42,911 68,550 (18,529) 50,021Merchant Relationships181,000 (56,018) 124,982 181,000 (40,934) 140,066Other Intangibles119,558 (4,900) 14,658 6,581 (3,331) 3,250Total$283,108 $(100,557) $182,551 $270,131 $(75,459) $194,6721 Other intangibles primarily include favorable operating leases, customer relationships, customer lease contracts, non-compete agreements and reacquiredfranchise rights.Total amortization expense of definite-lived intangible assets, which includes rent expense on favorable operating leases, included in operating expenses inthe accompanying consolidated statements of earnings, was $27.7 million, $28.8 million and $28.2 million during the years ended December 31, 2017, 2016and 2015, respectively. As of December 31, 2017, estimated future amortization expense for the next five years related to definite-lived intangible assets is asfollows:(In Thousands) 2018$28,018201925,317202024,037202122,684202222,54772AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 4: FAIR VALUE MEASUREMENTFinancial Assets and Liabilities Measured at Fair Value on a Recurring BasisThe following table summarizes financial liabilities measured at fair value on a recurring basis: December 31, 2017 December 31, 2016(In Thousands)Level 1 Level 2 Level 3 Level 1 Level 2 Level 3Deferred Compensation Liability$— $(12,927) $— $— $(11,978) $—The Company maintains a deferred compensation plan as described in Note 16 to these consolidated financial statements. The liability representing benefitsaccrued for plan participants is valued at the quoted market prices of the participants’ investment elections, which consist of equity and debt "mirror" funds.As such, the Company has classified the deferred compensation liability as a Level 2 liability.Non-Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring BasisThe following table summarizes non-financial assets measured at fair value on a nonrecurring basis: December 31, 2017 December 31, 2016(In Thousands)Level 1 Level 2 Level 3 Level 1 Level 2 Level 3Assets Held for Sale$— $10,118 $— $— $8,866 $—Assets classified as held for sale are recorded at the lower of carrying value or fair value less estimated costs to sell, and any adjustment is recorded in otheroperating (income) expense, net or restructuring expenses (if the asset is a part of the 2016 or 2017 restructuring program) in the consolidated statements ofearnings. The highest and best use of the assets held for sale is as real estate land parcels for development or real estate properties for use or lease; however,the Company has chosen not to develop or use these properties.Certain Financial Assets and Liabilities Not Measured at Fair ValueThe following table summarizes the fair value of assets (liabilities) that are not measured at fair value in the consolidated balance sheets, but for which the fairvalue is disclosed: December 31, 2017 December 31, 2016(In Thousands)Level 1 Level 2 Level 3 Level 1 Level 2 Level 3Perfect Home Notes 1$— $— $20,385 $— $— $20,519Fixed-Rate Long Term Debt 2— (273,476) — — (368,408) —1 The Perfect Home Notes are carried at cost, which we believe approximates fair value. The Company periodically reviews the carrying amount utilizingcompany-specific transactions or changes in Perfect Home’s financial performance to determine if the Notes are impaired. On December 5, 2017, PerfectHome entered into an agreement with a third party to obtain alternative sources of senior debt financing. In light of the additional financing obtained byPerfect Home and the Company's subordinated security interest in the assets of Perfect Home, which consists primarily of outstanding loans receivable,merchandise inventory and cash, the Company has estimated that the carrying amount of its Perfect Home notes approximates fair value and, therefore, noimpairment has been considered to have occurred as of December 31, 2017. See Note 1 to these consolidated financial statements for further detailsregarding the Perfect Home refinancing agreement.2 The fair value of fixed-rate long term debt is estimated using the present value of underlying cash flows discounted at a current market yield for similarinstruments. The carrying amount of fixed-rate long term debt was $265.0 million and $350.0 million at December 31, 2017 and 2016, respectively.73AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 5: PROPERTY, PLANT AND EQUIPMENTThe following is a summary of the Company’s property, plant, and equipment: December 31,(In Thousands)2017 2016Land$19,768 $22,843Buildings and Improvements67,053 69,935Leasehold Improvements and Signs69,407 75,786Fixtures and Equipment1266,761 247,565Assets Under Capital Leases: with Related Parties4,032 10,573with Unrelated Parties12,426 11,063Construction in Progress10,863 4,568 450,310 442,333Less: Accumulated Depreciation and Amortization(242,623) (231,062) $207,687 $211,2711 Includes internal-use software development costs of $86.2 million and $73.0 million as of December 31, 2017 and 2016, respectively. Accumulatedamortization of internal-use software development costs amounted to $42.6 million and $31.1 million as of December 31, 2017 and 2016, respectively.Amortization expense on assets recorded under capital leases is included in operating expenses and was $1.5 million, $1.7 million and $1.7 million for theyears ended December 31, 2017, 2016 and 2015, respectively. Capital leases primarily consist of buildings and improvements, as well as vehicles assumed aspart of the SEI acquisition. Assets under capital leases with related parties included $3.6 million and $9.0 million in accumulated depreciation andamortization as of December 31, 2017 and 2016, respectively. Assets under capital leases with unrelated parties included $4.7 million and $6.9 million inaccumulated depreciation and amortization as of December 31, 2017 and 2016, respectively.74AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 6: LOANS RECEIVABLEThe following is a summary of the Company’s loans receivable, net: December 31,(In Thousands)2017 2016Credit Card Loans1$89,728 $64,794Acquired Loans216,213 33,840Loans Receivable, Gross105,941 98,634 Allowance for Loan Losses(11,454) (6,624)Unamortized Fees(8,375) (7,206)Loans Receivable, Net of Allowances and Unamortized Fees$86,112 $84,8041 "Credit Card Loans" are loans originated after the 2015 acquisition of DAMI.2 "Acquired Loans" are credit card loans the Company purchased in the 2015 acquisition of DAMI.Included in the table below is an aging of the loans receivable, gross balance:(Dollar Amounts in Thousands)December 31,Aging Category12017 201630-59 Days Past Due7.1% 6.8%60-89 Days Past Due3.6% 3.2%90 or more Days Past Due4.1% 4.3%Past Due Loans Receivable14.8% 14.3%Current Loans Receivable85.2% 85.7%Balance of Loans Receivable on Nonaccrual Status$2,016 $1,072Balance of Loans Receivable 90 or More Days Past Due and Still Accruing Interest and Fees$— $—1 This aging is based on the contractual amounts outstanding for each loan as of period end, and does not reflect the fair value adjustments for the AcquiredLoans.The table below presents the components of the allowance for loan losses: December 31,(In Thousands)2017 2016Beginning Balance1$6,624 $937Provision for Loan Losses20,973 11,251Charge-offs(16,852) (5,675)Recoveries709 111Ending Balance$11,454 $6,6241 The Company acquired DAMI on October 15, 2015 and recorded $89.1 million of loans receivable as of the acquisition date. No corresponding allowancefor loan losses was recorded as the loans receivable were established at fair value in acquisition accounting.75AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 7: INDEBTEDNESSFollowing is a summary of the Company’s debt, net of unamortized debt issuance costs: December 31,(In Thousands) 12017 2016DAMI Credit Facility$— $47,302Revolving Facility— —Senior Unsecured Notes, 3.95%, Due in Installments through April 201824,994 49,975Senior Unsecured Notes, 4.75%, Due in Installments through April 2021239,784 299,562Term Loan, Due in Installments through September 202296,272 94,626 Capital Lease Obligation: with Related Parties1,314 3,095with Unrelated Parties6,434 3,269Total Debt368,798 497,829Less: Current Maturities97,192 146,515Long-Term Debt$271,606 $351,3141 Total debt as of December 31, 2017 includes unamortized debt issuance costs of $1.5 million. The Company has also recorded $3.2 million of debt issuancecosts related to the revolving credit facility within prepaid expenses and other assets in the consolidated balance sheets.Revolving Credit Agreement and Term LoanOn September 18, 2017, the Company entered into a second amended and restated revolving credit and term loan agreement (the "Amended Agreement") to,among other things, (i) increase the maximum revolving credit commitment from $225.0 million to $400.0 million (including increases in the existing letterof credit subfacility from $20.0 million to $35.0 million); (ii) provide for a $100.0 million term loan facility, an increase of $15.6 million from the $84.4million remaining principal on the previous $125.0 million term loan, which is prepayable without penalty; (iii) amend the interest rate to bear interest at anadjusted London Interbank Overnight (LIBO) rate plus a margin within a range of 1.25% to 2.25% depending on the Company’s total net debt to EBITDAratio or, alternatively, the administrative agent's prime rate plus a margin ranging from 0.25% to 1.25%, with the amount of such margin determined basedupon the ratio of the Company's total net debt to EBITDA, for loans based on the base rate; (iv) provide for quarterly term loan repayment installments of$2.5 million, payable on the last day of each March, June, September, and December; and (v) extend the maturity date from December 9, 2019 toSeptember 18, 2022. The increases to the Company’s revolving credit availability and term loan facility are intended for general working capital needs andwere used to fully repay and terminate the $53.0 million of outstanding borrowings under its DAMI credit facility, which was scheduled to mature on October15, 2017. The term loan interest rate was 2.82% as of December 31, 2017.The Amended Agreement also provides for an uncommitted incremental facility increase option which, subject to certain terms and conditions, permits theCompany at any time prior to the maturity date to request an increase in extensions of credit available thereunder (whether through additional term loansand/or revolving credit commitments or any combination thereof) by an aggregate additional principal amount of up to the greater of $250.0 million or anyamount provided that the incremental borrowing does not result in a total debt to adjusted EBITDA ratio greater than 2.50:1.00, with such additional creditextensions provided by one or more lenders thereunder at their sole discretion.The Company pays a commitment fee on unused balances, which ranges from 0.15% to 0.30% as determined by the Company's ratio of total debt to adjustedEBITDA. As of December 31, 2017, the amount available under the revolving credit component of the Amended Agreement was reduced by approximately$6.1 million for our outstanding letters of credit, resulting in availability of $393.9 million.The Company concluded that the Amended Agreement constituted a debt modification and is deferring the $1.7 million of unamortized debt issuance costsremaining as of the amendment date over the term of the Amended Agreement. In connection with the Amended Agreement, the Company incurred $3.0million of lender fees and third party legal and administrative fees, of which $0.2 million was recorded as interest expense within the consolidated statementsof earnings for the year ended December 31, 2017.76AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSenior Unsecured Notes2011 Note Purchase AgreementPursuant to the note purchase agreement dated as of July 5, 2011, as amended, the Company and certain of its subsidiaries as co-obligors previously issued$125.0 million in senior unsecured notes to the purchasers in a private placement. The notes bear interest at a rate of 3.95% per year and mature on April 27,2018. Payments of interest commenced on July 27, 2011 and are due quarterly, and principal payments of $25.0 million commenced on April 27, 2014 andare due annually until maturity.On April 14, 2014, the Company entered into the third amendment which revised the 2011 note purchase agreement to, among other things, replace theinterest rate of 3.75% per year with an interest rate of 3.95% commencing April 28, 2014, conform the covenants, representations, warranties and events ofdefault to the changes reflected in the revolving credit and term loan agreement, to contemplate the acquisition of Progressive and to authorize the new 2014senior unsecured notes.2014 Note Purchase AgreementsOn April 14, 2014, the Company entered into note purchase agreements, as amended, pursuant to which the Company and certain of its subsidiaries as co-obligors issued $300.0 million in aggregate principal amount of senior unsecured notes in a private placement. The notes bear interest at the rate of 4.75%per year and mature on April 14, 2021. Payments of interest commenced on July 14, 2014 and are due quarterly, and principal payments of $60.0 millioncommenced on April 14, 2017 and are due annually until maturity.Financial CovenantsThe revolving credit and term loan agreement, senior unsecured notes discussed above, and franchise loan program discussed in Note 9 to these consolidatedfinancial statements contain financial covenants, which include requirements that the Company maintain ratios of (i) adjusted EBITDA plus lease expense tofixed charges of no less than 2.50:1.00 and (ii) total debt to adjusted EBITDA of no greater than 3.00:1.00. In each case, adjusted EBITDA refers to theCompany’s consolidated net income before interest and tax expense, depreciation (other than lease merchandise depreciation), amortization expense, andother cash and non-cash charges as defined in the Amended Agreement.If the Company fails to comply with these covenants, the Company will be in default under these agreements, and all amounts could become dueimmediately. Under the Company’s revolving credit and term loan agreement, senior unsecured notes and franchise loan program, the Company may paycash dividends in any year so long as, after giving pro forma effect to the dividend payment, the Company maintains compliance with its financial covenantsand no event of default has occurred or would result from the payment. At December 31, 2017, the Company was in compliance with all covenants related toits outstanding debt.Capital Leases with Related PartiesAs of December 31, 2017, the Company had nine remaining capital leases with a limited liability company ("LLC") controlled by a group of current andformer executives of the Company. In October and November 2004, the Company sold 11 properties, including leasehold improvements, to the LLC. TheLLC obtained borrowings collateralized by the land and buildings totaling $6.8 million. The Company leases the land and buildings collateralizing theborrowings under a 15-year term lease at an aggregate annual rental of $0.8 million. The transaction has been accounted for as a capital lease in theaccompanying consolidated financial statements. The rate of interest implicit in the leases is approximately 9.7%. Accordingly, the land and buildings,associated depreciation expense and lease obligations are recorded in the Company’s consolidated financial statements. No gain or loss was recognizedrelated to the properties sold to the LLC. In January 2018, the Company extended six of the nine lease agreements with an additional five year termcommencing at the expiration of the original lease agreements in November 2019.Future principal maturities under the Company’s debt and capital lease obligations are as follows:(In Thousands) 2018$97,556201972,768202071,670202170,693202257,561Thereafter—Total$370,24877AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 8: INCOME TAXESOn December 22, 2017, the President signed the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act, among other things, (i) lowered the U.S. corporateincome tax rate from 35% to 21% effective January 1, 2018; (ii) provided for 100% expense deduction of certain qualified depreciable assets, which includesthe Company's lease merchandise inventory, purchased after September 27, 2017 (but would be phased down starting in 2023); and (iii) the manufacturingdeduction that expired in 2017 under the previous tax legislation was not extended. Consequently, the Company remeasured its net deferred tax liabilities asof December 31, 2017 using the lower U.S. corporate income tax rate, which resulted in a provisional estimated $140 million non-cash income tax benefit.The Company will lose its 2017 manufacturing deduction, which is limited to 9% of taxable income, as the Company is estimating it will be in a netoperating loss position for tax purposes in 2017 as a result of the Tax Act's 100% expense deduction on qualified depreciable assets discussed above.We performed a provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate of such effects. The estimated tax benefit werecorded for the year ended December 31, 2017 related to the Tax Act may differ, possibly materially, due to, among other things, further refinement of ourfederal and state calculations, changes in interpretations and assumptions that we have made, and additional guidance that may be issued by the U.S.Government. We will complete our analysis over a one-year measurement period ending December 22, 2018, and any adjustments during this measurementperiod will be included in net earnings as an adjustment to income tax expense (benefit) in the reporting period when such adjustments are determined.As result of the 100% bonus depreciation provisions in the Tax Act not being enacted until December 22, 2017, the Company made more than the requiredestimated federal tax liability payments in 2017; and therefore, has a $100.0 million income tax receivable as of December 31, 2017. In addition, as a resultof the extended bonus depreciation provisions in the Protecting Americans From Tax Hikes Act of 2015 not being enacted until December 2015, theCompany paid more than the amount ultimately required for the 2015 federal tax liability. Due to that overpayment the Company received a refund of$120.0 million in February 2016.Following is a summary of the Company’s income tax (benefit) expense: Year Ended December 31,(In Thousands)2017 2016 2015Current Income Tax Expense: Federal$(3,530) $103,993 $32,999State9,772 10,308 5,442 6,242 114,301 38,441Deferred Income Tax (Benefit) Expense: Federal(60,547) (33,470) 35,413State1,346 (1,692) 3,557 (59,201) (35,162) 38,970Income Tax (Benefit) Expense$(52,959) $79,139 $77,41178AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSignificant components of the Company’s deferred income tax liabilities and assets are as follows: December 31,(In Thousands)2017 2016Deferred Tax Liabilities: Lease Merchandise and Property, Plant and Equipment$122,155 $185,891Goodwill and Other Intangibles37,080 52,135Investment in Partnership107,173 96,291Other, Net2,074 1,619Total Deferred Tax Liabilities268,482 335,936Deferred Tax Assets: Accrued Liabilities25,509 33,243Advance Payments8,199 13,087Other, Net23,771 20,277Total Deferred Tax Assets57,479 66,607Less Valuation Allowance— (875)Net Deferred Tax Liabilities$211,003 $270,204The Company’s effective tax rate differs from the statutory United States Federal income tax rate as follows: Year Ended December 31, 2017 2016 2015Statutory Rate35.0 % 35.0 % 35.0 %Increases (Decreases) in United States Federal Taxes Resulting From: State Income Taxes, net of Federal Income Tax Benefit2.7 2.6 2.7Federal Tax Credits(0.8) (1.1) (0.5)Change in Valuation Allowance(0.4) — —Tax Act Enactment - Remeasurement of net Deferred Tax Liabilities(58.2) — —Other, net(0.4) (0.3) (0.9)Effective Tax Rate(22.1)% 36.2 % 36.3 %The Company files a federal consolidated income tax return in the United States and the separate legal entities file in various states and foreign jurisdictions.With few exceptions, the Company is no longer subject to federal, state and local tax examinations by tax authorities for years before 2014.The following table summarizes the activity related to the Company’s uncertain tax positions: Year Ended December 31,(In Thousands)2017 2016 2015Balance at January 1,$2,594 $3,561 $2,644Additions Based on Tax Positions Related to the Current Year456 258 331Additions for Tax Positions of Prior Years232 293 1,176Prior Year Reductions(236) (776) (1)Statute Expirations(346) (609) (589)Settlements(431) (133) —Balance at December 31,$2,269 $2,594 $3,561As of December 31, 2017 and 2016, the amount of uncertain tax benefits that, if recognized, would affect the effective tax rate is $1.7 million and$2.5 million, respectively, including interest and penalties.During the year ended December 31, 2017 and 2016, the Company recognized a net benefit of $0.6 million and $0.1 million, respectively, related to interestand penalties. During the year ended December 31, 2015, the Company recognized interest and penalties of $0.4 million. The Company had $0.3 million and$0.9 million of accrued interest and penalties at December 31, 2017 and 2016, respectively. The Company recognizes potential interest and penalties relatedto uncertain tax benefits as a component of income tax (benefit) expense.79AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 9: COMMITMENTS AND CONTINGENCIESLeasesThe Company leases warehouse and retail store space for most of its store-based operations, call center space, and management and information technologyspace for corporate functions under operating leases expiring at various times through 2033. The Company also leases certain properties under capital leasesthat are more fully described in Note 7 to these consolidated financial statements. Most of the leases contain renewal options for additional periods rangingfrom one to 20 years. In addition, certain properties occupied under operating leases contain normal purchase options. Leasehold improvements related tothese leases are generally amortized over periods that do not exceed the lesser of the lease term or 15 years. While a majority of leases do not requireescalating payments, for the leases which do contain such provisions, the Company records the related expense on a straight-line basis over the lease term.The Company leases transportation vehicles mainly under operating leases, with the exception of the acquired SEI vehicles which are leased under capitalleases. Management expects that most leases will be renewed or replaced by other leases in the normal course of business.Rental expense, net of sublease receipts, was $104.3 million, $116.2 million, and $116.5 million in the years ended December 31, 2017, 2016, and 2015,respectively, which are reported within operating expenses in the consolidated statements of earnings. The Company also incurred contractual leaseobligations charges, net of estimated sublease receipts, of $13.4 million and $11.6 million, in the years ended December 31, 2017 and 2016, respectively,related to the closure of Company-operated stores which are reported within restructuring expenses in the consolidated statements of earnings.Future minimum lease payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31,2017 are as follows:(In Thousands)Total2018$107,038201991,317202077,056202158,282202242,046Thereafter81,284 $457,023The Company has anticipated future sublease receipts from executed sublease agreements of $5.0 million in 2018, $4.2 million in 2019, $3.1 million in2020, $2.4 million in 2021, $1.6 million in 2022 and $1.7 million thereafter through 2025.GuaranteesThe Company has guaranteed certain debt obligations of some of the franchisees under a franchise loan program with several banks. In the event thesefranchisees are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for theoutstanding balance of the franchisees’ debt obligations under the franchisee loan program, which would be due in full within 90 days of the event of default.At December 31, 2017, the maximum amount that the Company would be obligated to repay in the event franchisees defaulted was $45.3 million. TheCompany has recourse rights to franchisee assets securing the debt obligations, which consist primarily of lease merchandise and fixed assets. Since theinception of the franchise loan program in 1994, the Company has had no significant associated losses. The Company believes the likelihood of anysignificant amounts being funded by the Company in connection with these guarantees to be remote. The carrying amount of the franchisee-relatedborrowings guarantee, which is included in accounts payable and accrued expenses in the consolidated balance sheets, is $0.7 million as of December 31,2017.On September 18, 2017, the Company entered into the sixth amendment to the franchise loan facility agreement to, among other changes: (i) reduce themaximum facility commitment amount under the franchisee loan program from $125.0 million to $85.0 million and (ii) release certain inactive subsidiariesof the Company from their guarantee obligations. The loan agreement continues to provide a Canadian subfacility commitment amount for loans tofranchisees that operate stores in Canada (other than the province of Quebec) of CAD $25.0 million. On October 25, 2017, the Company entered into anamendment to the franchise loan facility agreement to, among other changes: (i) extend the maturity date from December 7, 2017 to October 24, 2018; and(ii) amend the financial covenants to be consistent with the Revolving Credit and Term Loan Agreement financial covenants. See Note 7 to theseconsolidated financial statements for more information regarding the Company's financial covenants.80AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSLegal ProceedingsFrom time to time, the Company is party to various legal and regulatory proceedings arising in the ordinary course of business.Some of the proceedings to which the Company is currently a party are described below. The Company believes it has meritorious defenses to all of theclaims described below, and intends to vigorously defend against the claims. However, these proceedings are still developing and due to the inherentuncertainty in litigation, regulatory and similar adversarial proceedings, there can be no guarantee that the Company will ultimately be successful in theseproceedings, or in others to which it is currently a party. Substantial losses from these proceedings or the costs of defending them could have a materialadverse impact upon the Company’s business, financial position and results of operations.The Company establishes an accrued liability for legal and regulatory proceedings when it determines that a loss is both probable and the amount of the losscan be reasonably estimated. The Company continually monitors its litigation and regulatory exposure and reviews the adequacy of its legal and regulatoryreserves on a quarterly basis. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher orlower than the amounts accrued for such matters.At December 31, 2017 and 2016, the Company had accrued $7.3 million and $6.0 million, respectively, for pending legal and regulatory matters for which itbelieves losses are probable and is the Company’s best estimate of its exposure to loss. The Company records these liabilities in accounts payable andaccrued expenses in the consolidated balance sheets. The Company estimates that the aggregate range of reasonably possible loss in excess of accruedliabilities for such probable loss contingencies is between $0 and $1.0 million.At December 31, 2017, the Company estimated that the aggregate range of loss for all material pending legal and regulatory proceedings for which a loss isreasonably possible, but less likely than probable (i.e., excluding the contingencies described in the preceding paragraph), is between $0.5 million and $3.5million. Those matters for which a reasonable estimate is not possible are not included within estimated ranges and, therefore, the estimated ranges do notrepresent the Company’s maximum loss exposure. The Company’s estimates for legal and regulatory accruals, aggregate probable loss amounts andreasonably possible loss amounts, are all subject to the uncertainties and variables described above.ConsumerIn Margaret Korrow, et al. v. Aaron's, Inc., originally filed in the Superior Court of New Jersey, Middlesex County, Law Division on October 26, 2010,plaintiff filed suit on behalf of herself and others similarly situated alleging that the Company is liable in damages to plaintiff and each class member becausethe Company's lease agreements issued after March 16, 2006 purportedly violated certain New Jersey state consumer statutes. Plaintiff's complaint seeksequitable relief, treble damages under the New Jersey Consumer Fraud Act, and statutory penalty damages of $100 per violation of all contracts issued in NewJersey, and also claims that there are multiple violations per contract. The complaint also seeks pre-and-post judgment interest and attorneys' fees. On July 31,2013, the Court certified a class comprising all persons who entered into a rent-to-own contract with the Company in New Jersey from March 16, 2006through March 31, 2011. On February 23, 2016, the Court granted in part and denied in part the Company’s motion for partial summary judgment filedAugust 14, 2015, dismissing plaintiff’s claims that a pro-rate feature of the lease agreements violated the New Jersey Consumer Fraud Act, but denyingsummary judgment on the claim that Aaron’s Service Plus violated the same act. In December 2016, a class notice was mailed to certain individuals who werecustomers of Company-operated stores in New Jersey from March 16, 2006 to March 31, 2011. The parties participated in a settlement conference andreached tentative settlement terms in March 2017. On September 15, 2017, the parties submitted the final comprehensive settlement agreement to the Courtfor approval, which remains pending.Privacy and Related MattersIn Crystal and Brian Byrd v. Aaron's, Inc., Aspen Way Enterprises, Inc., John Does (1-100) Aaron's Franchisees and Designerware, LLC, filed on May 16,2011, in the United States District Court, Western District of Pennsylvania, plaintiffs allege the Company and its independently owned and operatedfranchisee Aspen Way Enterprises ("Aspen Way") knowingly violated plaintiffs' privacy in violation of the Electronic Communications Privacy Act ("ECPA")and the Computer Fraud Abuse Act and sought certification of a putative nationwide class. Plaintiffs based these claims on Aspen Way's use of a softwareprogram called "PC Rental Agent." Plaintiffs have filed an amended complaint, which asserts claims under the ECPA, common law invasion of privacy, seeksan injunction, and names additional independently owned and operated Company franchisees as defendants. Plaintiffs seek monetary damages as well asinjunctive relief.81AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn March 2014, the United States District Court dismissed all claims against all franchisees other than Aspen Way Enterprises, LLC, dismissed claims forinvasion of privacy, aiding and abetting, and conspiracy against all defendants, and denied plaintiffs’ motion to certify a class action, but denied theCompany’s motion to dismiss the claims alleging ECPA violations. In April 2015, the United States Court of Appeals for the Third Circuit reversed the denialof class certification on the grounds stated by the District Court, and remanded the case back to the District Court for further consideration of that and theother elements necessary for class certification. On September 26, 2017, the District Court again denied plaintiffs' motion for class certification. Plaintiffshave filed a petition with the United States Court of Appeals for the Third Circuit for permission to appeal the denial of class certification. The Company isopposing this petition, and a decision remains pending.In Michael Winslow and Fonda Winslow v. Sultan Financial Corporation, Aaron's, Inc., John Does (1-10), Aaron's Franchisees and Designerware, LLC,filed on March 5, 2013 in the Los Angeles Superior Court, plaintiffs assert claims against the Company and its independently owned and operated franchisee,Sultan Financial Corporation (as well as certain John Doe franchisees), for unauthorized wiretapping, eavesdropping, electronic stalking, and violation ofCalifornia's Comprehensive Computer Data Access and Fraud Act and its Unfair Competition Law. Each of these claims arises out of the alleged use of PCRental Agent software. The plaintiffs are seeking injunctive relief and damages as well as certification of a putative California class. In April 2013, theCompany removed this matter to federal court. In May 2013, the Company filed a motion to stay this litigation pending resolution of the Byrd litigation, amotion to dismiss for failure to state a claim, and a motion to strike certain allegations in the complaint. The Court subsequently stayed the case. TheCompany's motions to dismiss and strike certain allegations remain pending. In June 2015, the plaintiffs filed a motion to lift the stay, which was denied inJuly 2015.In Lomi Price v. Aaron's, Inc. and NW Freedom Corporation, filed on February 27, 2013, in the State Court of Fulton County, Georgia, an individual plaintiffasserts claims against the Company and its independently owned and operated franchisee, NW Freedom Corporation, for invasion of privacy/intrusion onseclusion, computer invasion of privacy and infliction of emotional distress. Each of these claims arises out of the alleged use of PC Rental Agent software. The plaintiff is seeking compensatory and punitive damages. This case has been stayed pending resolution of the Byrd litigation.In Michael Peterson v. Aaron’s, Inc. and Aspen Way Enterprises, Inc., filed on June 19, 2014, in the United States District Court for the Northern District ofGeorgia, plaintiffs claim that the Company and Aspen Way knowingly violated plaintiffs' privacy and the privacy of plaintiffs' law firm's clients in violationof the ECPA and the Computer Fraud Abuse Act. Plaintiffs seek certification of a putative nationwide class. Plaintiffs based these claims on Aspen Way's useof PC Rental Agent software. The Court has dismissed all claims except a claim for aiding and abetting invasion of privacy. Plaintiffs filed a motion for classcertification which the Court denied on January 25, 2017. On May 5, 2017, the Company filed a motion for summary judgment on the remaining singleplaintiff case, and on October 3, 2017, the District Court granted that motion in its entirety as to Aaron's, Inc. The case remains pending solely against AspenWay Enterprises, Inc.SecuritiesRe Aaron's Securities Litigation, f/k/a Arkansas Teacher Retirement System, et al (f/k/a Employees' Retirement System of the City of Baton Rouge) v. Aaron's,Inc., John W. Robinson, III, Ryan K. Woodley, and Gilbert L. Danielson, was filed on June 16, 2017 in the United States District Court for the NorthernDistrict of Georgia. The litigation relates to the temporary drop in Aaron’s stock price following the Company’s announcement of 2015 third quarterresults. The complaint alleges that during the period from February 6, 2015 through October 29, 2015, Aaron's made misleading public statements about theCompany's expected financial results and business prospects. The allegations underlying the lawsuit principally relate to the loss of certain data feedsexperienced by Progressive Leasing beginning in February 2015 and the alleged failure to disclose the same in a timely manner, as well as certain softwareissues that allegedly hindered the identification of delinquent accounts during certain limited times in 2015. The Company filed a motion to dismiss thelawsuit on December 15, 2017. The Company believes the claims are without merit and intends to vigorously defend against this lawsuit. Other ContingenciesAt December 31, 2017, the Company had non-cancelable commitments primarily related to certain advertising and marketing programs of $20.3 million.Payments under these commitments are scheduled to be $9.8 million in 2018, $7.2 million in 2019, $2.7 million in 2020 and $0.7 million in 2021.The Company is a party to various claims and legal proceedings arising in the ordinary course of business. Management regularly assesses the Company’sinsurance deductibles, monitors the Company’s litigation and regulatory exposure with the Company’s attorneys and evaluates its loss experience. TheCompany also enters into various contracts in the normal course of business that may subject it to risk of financial loss if counterparties fail to perform theircontractual obligations.82AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSOff-Balance Sheet RiskThe Company, through its DAMI business, has unfunded lending commitments totaling $354.5 million and $366.4 million as of December 31, 2017 and2016, respectively. These unfunded commitments arise in the ordinary course of business from credit card agreements with individual cardholders that givethem the ability to borrow, against unused amounts, up to the maximum credit limit assigned to their account. While these unfunded amounts represented thetotal available unused lines of credit, the Company does not anticipate that all cardholders will utilize their entire available line at any given point in time.Commitments to extend unsecured credit are agreements to lend to a cardholder so long as there is no violation of any condition established in the contract.Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawnupon, the total commitment amounts do not necessarily represent future cash requirements. The reserve for losses on unfunded loan commitments iscalculated by the Company based on historical usage patterns of cardholders after the initial charge and was approximately $0.6 million and $0.5 million asof December 31, 2017 and 2016, respectively. The reserve for losses on unfunded loan commitments is included in accounts payable and accrued expenses inthe consolidated balance sheets.NOTE 10: RESTRUCTURING2017 Restructuring ProgramDuring the year ended December 31, 2017, the Company initiated a restructuring program that included a further review of the Company-operated Aaron’sstore portfolio in order to continue rationalizing its store base to better align with marketplace demand. As a result of this restructuring program, theCompany closed 15 underperforming Company-operated stores during 2017 and anticipates closing an additional eight stores in the first six months of 2018.Total restructuring charges of $3.0 million were recorded during the year ended December 31, 2017 under the 2017 program, which were comprised of $1.7million related to a realignment of the Company’s home office organizational structure to more closely align with current business conditions, $0.8 millionrelated to Aaron’s contractual lease obligations for closed stores, and $0.5 million related to the write-off and impairment of Aaron’s store property, plant andequipment. These costs were included in restructuring expenses in the consolidated statements of earnings. The Company expects to incur approximately$1.5 million of additional charges related to the 2017 restructuring program, which are expected to be incurred in the first six months of 2018. This estimateis subject to change based on future changes in assumptions for the remaining minimum lease obligation for stores closed under the restructuring program,including changes related to sublease assumptions and potential earlier buyouts of leases with landlords.2016 Restructuring ProgramDuring the year ended December 31, 2016, the Company initiated a restructuring program that included a thorough review of the Company-operated Aaron’sstore portfolio and the subsequent closure or planned closure of underperforming stores. As a result of this restructuring program, the Company closed 123underperforming Company-operated stores throughout 2016 and 2017. The Company also optimized its home office staff during 2016 and field supportduring 2016 and 2017, which resulted in a reduction in employee headcount in those areas to more closely align with current business conditions. Totalrestructuring charges of $15.0 million and $20.2 million were recorded during the years ended December 31, 2017 and December 31, 2016, respectively,under the 2016 program. Charges incurred during 2017 were comprised of $12.6 million related to Aaron’s store contractual lease obligations for closedstores, $1.5 million related to reduction of headcount to more closely align with current business conditions, and $0.9 million related to the write-down tofair value, less estimated selling costs, of land and buildings from stores closed under the restructuring program. These costs were included in restructuringexpenses in the consolidated statements of earnings. The Company does not expect to incur any further material charges related to the 2016 restructuringprogram.83AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes the balances of the accruals for both programs, which are recorded in accounts payable and accrued expenses in theconsolidated balance sheets, and the activity for the years ended December 31, 2017 and December 31, 2016:(In Thousands)Contractual LeaseObligations Severance TotalBalance at January 1, 2016$— $— $—Charges11,830 3,883 15,713Adjustments1(241) — (241)Restructuring Charges11,589 3,883 15,472Payments(1,006) (1,804) (2,810)Balance at December 31, 201610,583 2,079 12,662Charges13,501 3,176 16,677Adjustments1(69) — (69)Restructuring Charges13,432 3,176 16,608Payments(11,578) (2,952) (14,530)Balance at December 31, 2017$12,437 $2,303 $14,7401Adjustments relate to changes in sublease assumptions and interest accretion.The following table summarizes restructuring charges by segment for the years ended December 31, 2017 and December 31, 2016: Year Ended December 31, 2017 Year Ended December 31, 2016(In Thousands)Aaron’s Business DAMI1 Total Aaron’s Business TotalContractual Lease Obligations$13,432 $— $13,432 $11,589 $11,589Severance2,705 471 3,176 3,883 3,883Fixed Asset Impairment and Other1,386 — 1,386 4,746 4,746Total Restructuring Expense$17,523 $471 $17,994 $20,218 $20,2181Restructuring charges for DAMI relate primarily to severance and other costs related to the segment’s relocation of its headquarters. Future DAMIrestructuring charges are expected to be immaterial.To date, the Company has incurred charges of $38.2 million under the 2016 and 2017 restructuring programs.NOTE 11: SHAREHOLDERS’ EQUITYThe Company held 20,733,010 shares in its treasury and was authorized to purchase an additional 7,162,279 shares at December 31, 2017. On February 13,2018, the Company replaced the stock repurchase program previously authorized by its Board of Directors with a newly authorized $500 million stockrepurchase program. The holders of common stock are entitled to receive dividends and other distributions in cash, stock or property of the Company as andwhen declared by its Board of Directors out of legally available funds. Certain unvested time-based restricted stock awards entitle participants to vote andaccrue dividends during the vesting period. As of December 31, 2017, the Company had issued approximately 306,000 unvested restricted stock awards thatcontain voting rights but are not presented as outstanding on the consolidated balance sheet.In 2017, the Company repurchased 1,961,442 shares of its common stock for $62.6 million. In 2016, the Company repurchased 1,372,700 shares of itscommon stock for $34.5 million. There was no share repurchase activity during 2015.The Company has 1,000,000 shares of preferred stock authorized. The shares are issuable in series with terms for each series fixed by, and such issuancesubject to approval by, the Board of Directors. As of December 31, 2017, no preferred shares have been issued.84AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 12: STOCK-BASED COMPENSATIONThe Company grants stock options, RSUs, RSAs and PSUs to certain employees and directors of the Company under the 2015 Equity and Incentive AwardPlan and previously did so under the 2001 Stock Option and Incentive Award Plan (the "2015 Plan" and "2001 Plan"). The 2001 Plan was originallyapproved by the Company’s shareholders in May 2001 and was amended and restated with shareholder approval in May 2009 and discontinued with theapproval of the 2015 Plan on May 6, 2015. Beginning in 2015, as part of the Company’s long-term incentive compensation program ("LTIP Plan") andpursuant to the Company’s 2001 Plan and 2015 Plan, the Company granted a mix of stock options, time-based restricted stock and performance share units tokey executives and managers.As of December 31, 2017, the aggregate number of shares of common stock that may be issued or transferred under the 2015 Plan is 2,380,572.The Company has elected a policy to estimate forfeitures in determining the amount of stock compensation expense. Total stock-based compensationexpense was $27.4 million, $21.5 million and $14.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. These costs were includedas a component of operating expenses in the consolidated statements of earnings.The total income tax benefit recognized in the consolidated statements of earnings for stock-based compensation arrangements was $10.4 million, $8.2million and $5.4 million in the years ended December 31, 2017, 2016 and 2015, respectively. Benefits of tax deductions in excess of recognizedcompensation cost, which are included in operating cash flows, were $1.1 million and $0.3 million for the years ended December 31, 2017 and 2015,respectively. Tax deductions less than recognized compensation cost were $0.7 million for the year ended December 31, 2016.As of December 31, 2017, there was $24.4 million of total unrecognized compensation expense related to non-vested stock-based compensation which isexpected to be recognized over a period of 1.6 years.Stock OptionsUnder the Company’s 2001 Plan, options granted become exercisable after a period of one to five years and unexercised options lapse 10 years after the dateof grant. Under the Company’s 2015 Plan, options granted to date become exercisable after a period of one to three years and unexercised options lapse 10years after the date of the grant. Unvested options are subject to forfeiture upon termination of service for both plans. The Company recognizes compensationexpense for options that have a graded vesting schedule on a straight-line basis over the requisite service period. Shares are issued from the Company’streasury shares upon share option exercises.The Company determines the fair value of stock options on the grant date using a Black-Scholes-Merton option pricing model that incorporates expectedvolatility, expected option life, risk-free interest rates and expected dividend yields. The expected volatility is based on implied volatilities from tradedoptions on the Company’s stock and the historical volatility of the Company’s common stock over the most recent period generally commensurate with theexpected estimated life of each respective grant. The expected lives of options are based on the Company’s historical option exercise experience. TheCompany believes that the historical experience method is the best estimate of future exercise patterns. The risk-free interest rates are determined using theimplied yield available for zero-coupon United States government issues with a remaining term equal to the expected life of the grant. The expected dividendyields are based on the approved annual dividend rate in effect and market price of the underlying common stock at the time of grant. No assumption for afuture dividend rate increase has been included unless there is an approved plan to increase the dividend in the near term.The Company granted 518,000, 634,000 and 338,000 stock options during the years ended December 31, 2017, 2016 and 2015, respectively. The weighted-average fair value of options granted and the weighted-average assumptions used in the Black-Scholes-Merton option pricing model for such grants were asfollows: 201720162015Dividend Yield0.4%0.4%0.3%Expected Volatility32.8%34.2%28.9%Risk-free Interest Rate1.9%1.3%1.6%Expected Term (in years)5.35.35.2Weighted-average Fair Value of Stock Options Granted$8.55$7.10$8.4185AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes information about stock options outstanding at December 31, 2017: Options Outstanding Options ExercisableRange of ExercisePricesNumber OutstandingDecember 31, 2017 Weighted AverageRemaining ContractualLife(in Years) Weighted AverageExercise Price Number ExercisableDecember 31, 2017 Weighted AverageExercise Price$10.01-15.0061 0.79 $14.11 61 $14.11 15.01-20.0049 2.15 19.92 49 19.92 20.01-25.00586 8.14 22.67 191 22.73 25.01-30.00780 8.37 27.50 244 28.09 30.01-32.20176 7.06 32.10 120 32.06 10.01-32.201,652 7.69 25.56 665 25.39The table below summarizes option activity for the year ended December 31, 2017: Options(In Thousands) Weighted AverageExercise Price Weighted AverageRemainingContractual Term(in Years) AggregateIntrinsic Value(in Thousands) WeightedAverage FairValueOutstanding at January 1, 20171,407 $24.21 Granted518 27.18 Exercised(184) 18.83 Forfeited/expired(89) 27.52 Outstanding at December 31, 20171,652 25.56 7.69 $23,607 $8.12Expected to Vest at December 31, 2017894 25.65 8.56 12,694 7.95Exercisable at December 31, 2017665 25.39 6.36 9,616 8.35The aggregate intrinsic value amounts in the table above represent the closing price of the Company’s common stock on December 31, 2017 in excess of theexercise price, multiplied by the number of in-the-money stock options as of that same date. Options outstanding that are expected to vest are net ofestimated future option forfeitures.The aggregate intrinsic value of options exercised, which represents the value of the Company’s common stock at the time of exercise in excess of theexercise price, was $2.6 million, $0.4 million and $0.8 million during the years ended December 31, 2017, 2016 and 2015, respectively. The total grant-datefair value of options vested during the year ended December 31, 2017, 2016 and 2015 was $1.7 million, $1.4 million and $1.1 million, respectively.Restricted StockShares of restricted stock units or restricted stock awards (collectively, "restricted stock") may be granted to employees and directors under the 2015 Plan andtypically vest over approximately one to three year periods; under the 2001 Plan restricted stock typically vests over approximately one to five year periods.Restricted stock grants are generally settled in stock and may be subject to one or more objective employment, performance or other forfeiture conditions asestablished at the time of grant. The Company generally recognizes compensation expense for restricted stock with a graded vesting schedule on a straight-line basis over the requisite service period. Compensation expense for performance-based restricted stock is amortized on an accelerated basis over thevesting period based on the Company’s projected assessment of the level of performance that will be achieved and earned. Shares are issued from theCompany’s treasury shares upon vesting. Any shares of restricted stock that are forfeited may again become available for issuance.The fair value of restricted stock is generally based on the fair market value of the Company’s common stock on the date of grant.In 2011, the Company established a restricted stock program as a component of the 2001 Plan, referred to as the Aaron’s Management Performance Plan("AMP Plan"). Under the AMP Plan, which expired on December 31, 2012, restricted shares were granted quarterly to eligible participants upon achievementof certain pre-tax profit and revenue levels by the employees’ operating units or the overall Company. Restricted stock granted under the AMP Plan vestsover four to five years from the date of grant. Plan participants included certain vice presidents, director level employees and other key personnel in theCompany’s home office, divisional vice presidents and regional managers. These grants began vesting in 2016.86AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDuring 2013, the Company granted performance-based restricted stock to certain executive officers. During 2016, the performance-based restricted stockunder this program vested with the completion of the three-year service period and the achievement of specific performance criteria. The compensationexpense associated with these awards was amortized ratably over the vesting period based on the Company’s projected assessment of the level of performancethat would be achieved and earned.During 2017, the Company granted performance-based restricted stock awards to certain executive officers that vest over a three-year service period and withthe achievement of specific performance criteria. The compensation expense associated with these awards is amortized on an accelerated basis over thevesting period based on the Company's projected assessment of the level of performance that will be achieved and earned.The Company granted 375,000, 379,000 and 261,000 shares of restricted stock at weighted-average fair values of $29.27, $22.81 and $31.78 in the yearsended December 31, 2017, 2016 and 2015, respectively. The following table summarizes information about restricted stock activity during 2017: Restricted Stock(In Thousands) Weighted AverageFair ValueNon-vested at January 1, 2017953 $27.45Granted375 29.27Vested(325) 28.09Forfeited(56) 27.27Non-vested at December 31, 20179471 27.961 The outstanding non-vested restricted stock as of December 31, 2017 includes 95,730 shares that are subject to performance conditions.The total vest-date fair value of restricted stock described above that vested during the year was $9.9 million, $3.8 million and $1.8 million in the yearsended December 31, 2017, 2016 and 2015, respectively.Performance Share UnitsFor performance share units, which are generally settled in stock, the number of shares earned is determined at the end of the one-year performance periodbased upon achievement of various performance criteria, which have included adjusted EBITDA, revenue, return on capital and invoice volume levels of therespective segments. Beginning in 2016, the Company added adjusted pre-tax profit and production volume levels as additional performance criteria forcertain segments. When the performance criteria are met, the award is earned and one-third of the award vests. One third of the earned award is subject to anadditional one year service period and one-third of the earned award is subject to an additional two year service period. Shares are issued from the Company’streasury shares upon vesting. The number of performance-based shares which could potentially be issued ranges from zero to 200% of the target award.The fair value of performance share units is based on the fair market value of the Company’s common stock on the date of grant. The compensation expenseassociated with these awards is amortized on an accelerated basis over the vesting period based on the Company’s projected assessment of the level ofperformance that will be achieved and earned. In the event the Company determines it is no longer probable that the minimum performance criteria specifiedin the plan will be achieved, all previously recognized compensation expense is reversed in the period such a determination is made.The following table summarizes information about performance share unit activity during 2017: Performance ShareUnits(In Thousands) Weighted AverageFair ValueNon-vested at January 1, 2017693 $25.67Granted479 27.00Vested(269) 26.51Forfeited/unearned(81) 25.74Non-vested at December 31, 2017822 26.31The total vest-date fair value of performance share units described above that vested during the period was $7.9 million and $3.4 million for the years endedDecember 31, 2017 and 2016, respectively. There were no performance share units that vested during 2015.87AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 13: SEGMENTSDescription of Products and Services of Reportable SegmentsAs of December 31, 2017, the Company has three operating and reportable segments: Progressive Leasing, Aaron’s Business and DAMI. During the yearended December 31, 2017, the Company changed its composition of reportable segments by combining the Sales and Lease Ownership, Franchise andWoodhaven components into one reportable segment, the Aaron’s Business, to align the reportable segments with the current organizational structure and theoperating results that the chief operating decision maker regularly reviews to analyze performance and allocate resources. The Company has retroactivelyadjusted, 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 andbedding, consumer electronics, appliances and jewelry. DAMI offers a variety of second-look financing programs originated through two third-party federallyinsured 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 andpresented 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-ownbasis with no credit needed through the Company’s Aaron’s stores in the United States and Canada. This operating segment also supports franchisees of itsAaron’s stores. In addition, the Aaron’s Business segment also includes the operations of Woodhaven Furniture Industries, which manufactures and suppliesthe majority of the upholstered furniture and bedding leased and sold in Company-operated and franchised stores. The HomeSmart operations, prior to theMay 2016 disposition, is reflected within the Aaron’s Business segment and offered furniture, electronics, appliances and computers to customers primarilyon a weekly payment basis with no credit needed.Measurement of Segment Profit or Loss and Segment AssetsThe Company evaluates performance and allocates resources based on revenue growth and pre-tax profit or loss from operations. Intersegment sales arecompleted at internally negotiated amounts. Since the intersegment profit affects inventory valuation, depreciation and cost of goods sold are adjusted whenintersegment profit is eliminated in consolidation.Factors Used by Management to Identify the Reportable SegmentsThe Company’s reportable segments are based on the operations of the Company that the chief operating decision maker regularly reviews to analyzeperformance and allocate resources among business units of the Company. Year Ended December 31,(In Thousands)2017 2016 2015Revenues: Progressive Leasing$1,566,413 $1,237,597 $1,049,681Aaron’s Business1,782,370 1,946,039 2,127,230DAMI134,925 24,080 2,845Total 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 $54,525Aaron’s Business110,642 123,009 160,559DAMI(11,289) (9,273) (1,964)Total Earnings Before Income Tax (Benefit) Expense$239,577 $218,422 $213,1201 Represents interest and fees on loans receivable and excludes the effect of interest expense. 88AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCorporate-related assets that benefit multiple segments are reported as other assets in the table below. December 31,(In Thousands)2017 2016Assets: Progressive Leasing$1,022,413 $919,487Aaron’s Business11,261,234 1,199,213DAMI108,306 102,958Other300,311 394,078Total Assets$2,692,264 $2,615,736 Assets From Canadian Operations (included in totals above): Aaron’s Business$20,223 $17,1991 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 2015Depreciation and Amortization1: Progressive Leasing$29,048 $30,727 $28,870Aaron’s Business52,251 50,658 51,115DAMI1,273 993 218Total Depreciation and Amortization$82,572 $82,378 $80,203 Interest Expense: Progressive Leasing$18,577 $20,042 $21,959Aaron’s Business(2,366) (768) 616DAMI4,327 4,116 764Total Interest Expense$20,538 $23,390 $23,339 Capital Expenditures: Progressive Leasing$8,213 $6,084 $8,175Aaron’s Business48,335 50,582 52,342DAMI1,425 787 40Total Capital Expenditures$57,973 $57,453 $60,557 Revenues From Canadian Operations (included in totals above): Aaron’s Business$18,256 $12,434 $3,4311 Excludes 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 toclose Company-operated stores as discussed in Note 10 to these consolidated financial statements.89AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn 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 financialstatements.•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 millionrelated 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 onthe 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 unallocatedCorporate 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 intercompanyborrowings and of the debt incurred when it was acquired.NOTE 14: RELATED PARTY TRANSACTIONSThe Company leases certain properties under capital leases with certain related parties that are more fully described in Note 7 above.In addition to the related party capital leases that are fully described in Note 7, the Company also had 10 operating leases with the same limited liabilitycompany ("LLC") controlled by a group of current and former executives of the Company as of December 31, 2017. In December 2002, the Company sold 10properties, including leasehold improvements, to the LLC. The LLC obtained borrowings collateralized by the land and buildings totaling $5.0 million.Upon the initial sale, no gain or loss was recognized related to the properties sold to the LLC and the leases were originally accounted for as capital leases inthe Company's consolidated financial statements. During January 2018, the Company renewed its lease agreements to lease the land and buildingscollateralizing the borrowings under a range of five to eight year term leases at an aggregate annual rental of approximately $0.8 million. The transaction hasbeen accounted for as an operating lease in the accompanying consolidated financial statements.90AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 15: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)(In Thousands, Except Per Share Data)First Quarter Second Quarter Third Quarter Fourth QuarterYear Ended December 31, 2017 Revenues$844,554 $815,644 $838,883 $884,627Gross Profit *365,920 352,639 356,743 383,574Earnings Before Income Taxes82,623 56,995 39,221 60,738Net Earnings53,300 36,335 25,341 177,560Earnings Per Share0.75 0.51 0.36 2.51Earnings Per Share Assuming Dilution0.74 0.51 0.35 2.46 Year Ended December 31, 2016 Revenues$854,427 $789,353 $768,982 $794,954Gross Profit *374,268 352,576 332,487 339,599Earnings Before Income Taxes79,728 61,124 45,282 32,288Net Earnings49,687 38,501 29,464 21,631Earnings Per Share0.68 0.53 0.41 0.30Earnings Per Share Assuming Dilution0.68 0.53 0.40 0.30* Gross profit is the sum of lease revenues and fees, retail sales, non-retail sales, and interest and fees on loans receivable less retail cost of sales, non-retailcost of sales, depreciation of lease merchandise, provision for write-offs of lease merchandise, and provision for credit losses.The comparability of the Company’s quarterly financial results during 2017 and 2016 was impacted by certain events, as described below on a pre-tax basis:•The first, second, third and fourth quarter of 2017 included restructuring charges of $0.3 million, $13.5 million, $0.8 million and $3.4 million,respectively, related to store contractual lease obligations, severance costs and impairment charges in connection with the Company's strategicdecision to close Company-operated stores as discussed in Note 10 to these consolidated financial statements.•The comparability of the Company's fourth quarter 2017 net earnings and earnings per share data were impacted by the Tax Act enactment onDecember 22, 2017. The estimated net impact of the Tax Act to income tax (benefit) expense during the fourth quarter of 2017 is a non-cashprovisional income tax benefit of $137 million, which is an estimated $140 million remeasurement of net deferred tax liabilities at the lower U.S.corporate income tax rate provided by the Tax Act, partially offset by an estimated $3 million expense from the loss of the manufacturing deductionin 2017 and other impacts.•The first quarter of 2016 included a gain of $11.1 million on the January 2016 sale of the Company’s former corporate office building, a loss of $4.6million related to the write-down of the HomeSmart disposal group to its fair value less estimated costs to sell upon its classification as held for sale,and charges of $3.7 million related to the retirement of the Company’s former Chief Financial Officer.•The second quarter of 2016 included a loss of $1.0 million primarily consisting of impairment charges on certain assets related to the HomeSmartsegment that have been sold or are held for sale.•The third and fourth quarter of 2016 included restructuring expenses of $4.7 million and $15.5 million, respectively. See Note 10 to theseconsolidated financial statements for further discussion of restructuring activities.91AARON’S, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 16: COMPENSATION ARRANGEMENTSDeferred CompensationThe Company maintains the Aaron’s, Inc. Deferred Compensation Plan, which is an unfunded, nonqualified deferred compensation plan for a select group ofmanagement, highly compensated employees and non-employee directors. On a pre-tax basis, eligible employees can defer receipt of up to 75% of their basecompensation and up to 75% of their incentive pay compensation, and eligible non-employee directors can defer receipt of up to 100% of their cash directorfees.Compensation deferred under the plan is credited to each participant’s deferral account and a deferred compensation liability is recorded in accounts payableand accrued expenses in the consolidated balance sheets. The deferred compensation plan liability was $12.9 million and $12.0 million as of December 31,2017 and 2016, respectively. Liabilities under the plan are recorded at amounts due to participants, based on the fair value of participants’ selectedinvestments. The Company has established a rabbi trust to fund obligations under the plan with Company-owned life insurance. The obligations areunsecured general obligations of the Company and the participants have no right, interest or claim in the assets of the Company, except as unsecured generalcreditors. The cash surrender value of these policies totaled $17.1 million and $15.6 million as of December 31, 2017 and 2016, respectively, and is includedin prepaid expenses and other assets in the consolidated balance sheets. Gains related to the changes in the cash surrender value of the Company-owned lifeinsurance plans were $1.5 million, $0.2 million and $0.8 million during the years ended December 31, 2017, 2016 and 2015, respectively, and were recordedwithin other non-operating income (expense) in the consolidated statement of earnings.Benefits of $2.3 million, $1.4 million and $1.7 million were paid during the years ended December 31, 2017, 2016 and 2015, respectively. Effective January1, 2018 the Company is implementing a new discretionary match within the nonqualified deferred compensation plan. The match allows eligible employeesto receive 100% matching by the Company on the first 3% of contributions and 50% on the next 2% of contributions for a total of a 4% match. The match isnot to exceed $11,000 for an individual employee for 2018 and is subject to a three year cliff vesting schedule. Deferred compensation expense charged tooperations for the Company’s existing restoration matching contributions was not significant during any of the periods presented.401(k) Defined Contribution PlanThe Company maintains a 401(k) savings plan for all its full-time employees who meet certain eligibility requirements. Effective January 1, 2015, the 401(k)savings plan was amended to allow employees to contribute up to 75% of their annual compensation in accordance with federal contribution limits with100% matching by the Company on the first 3% of compensation and 50% on the next 2% of compensation for a total of a 4% match. The Company’sexpense related to the plan was $5.7 million in 2017, $5.4 million in 2016 and $4.7 million in 2015.92ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and ProceduresAn evaluation of Aaron’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, wascarried out by management, with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as of the end of the period coveredby this Annual Report on Form 10-K. Based on management’s evaluation, the CEO and CFO concluded that the Company’s disclosure controls andprocedures were effective as of December 31, 2017 to provide reasonable assurance that the objectives of disclosure controls and procedures are met.Reports of Management and Independent Registered Public Accounting Firm on Internal Control Over Financial ReportingManagement has assessed, and the Company’s independent registered public accounting firm, Ernst & Young LLP, has audited, the Company’s internalcontrol over financial reporting as of December 31, 2017. The unqualified reports of management and Ernst & Young LLP thereon are included in Item 8 ofthis Annual Report on Form 10-K and are incorporated by reference herein.Changes in Internal Control Over Financial ReportingThere were no changes in the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934,during the Company’s fourth fiscal quarter of 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controlover financial reporting.ITEM 9B. OTHER INFORMATIONNone.93PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCEThe information required in response to this Item is contained under the captions "Nominees to Serve as Directors," "Executive Officers Who Are NotDirectors," "Communicating with the Board of Directors and Corporate Governance Documents," "Composition, Meetings and Committees of the Board ofDirectors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement to be filed with the SEC pursuant to Regulation 14A.These portions of the Proxy Statement are hereby incorporated by reference.We have adopted a written code of business conduct and ethics that applies to all our directors, officers and employees, including our principal executiveofficer, principal financial officer, principal accounting officer or controller and other executive officers identified pursuant to this Item 10 who performsimilar functions, which we refer to as the Selected Officers. The code is posted on our website at http://www.aarons.com. We will disclose any materialchanges in or waivers from our code of business conduct and ethics applicable to any Selected Officer on our website at http://www.aarons.com or by filing aForm 8-K.ITEM 11. EXECUTIVE COMPENSATIONThe information required in response to this Item is contained under the captions "Compensation Discussion and Analysis," "Summary Compensation Table,""Grants of Plan Based Awards in Fiscal Year 2017," "Outstanding Equity Awards at 2017 Fiscal Year-End," "Option Exercises and Stock Vested in Fiscal Year2017," "Non-Qualified Deferred Compensation as of December 31, 2017," "Potential Payments Upon Termination or Change in Control," "Non-ManagementDirector Compensation in 2017," "Employment Agreements with Named Executive Officers," "Executive Bonus Plan," "Aaron’s, Inc. 2015 Equity andIncentive Plan," "Amended and Restated 2001 Stock Option and Incentive Award Plan," "Compensation Committee Interlocks and Insider Participation" and"Compensation Committee Report" in the Proxy Statement. These portions of the Proxy Statement are hereby incorporated by reference.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required in response to this Item is contained under the captions "Beneficial Ownership of Common Stock" and "Securities Authorized forIssuance under Equity Compensation Plans" in the Proxy Statement. These portions of the Proxy Statement are hereby incorporated by reference.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required in response to this Item is contained under the captions "Certain Relationships and Related Transactions" and "Election ofDirectors" in the Proxy Statement. These portions of the Proxy Statement are hereby incorporated by reference.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required in response to this Item is contained under the caption "Audit Matters" in the Proxy Statement. This portion of the Proxy Statementis hereby incorporated by reference.94PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENTS and SCHEDULESa) 1. FINANCIAL STATEMENTSThe following financial statements and notes thereto of Aaron’s, Inc. and Subsidiaries, and the related Reports of Independent Registered Public AccountingFirm are set forth in Item 8 and Item 9A. Consolidated Balance Sheets—December 31, 2017 and 2016Consolidated Statements of Earnings—Years ended December 31, 2017, 2016 and 2015Consolidated Statements of Comprehensive Income—Years ended December 31, 2017, 2016 and 2015Consolidated Statements of Shareholders’ Equity—Years ended December 31, 2017, 2016 and 2015Consolidated Statements of Cash Flows—Years ended December 31, 2017, 2016 and 2015Notes to Consolidated Financial StatementsReport of Independent Registered Public Accounting FirmReport of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting2. FINANCIAL STATEMENT SCHEDULESAll schedules for which provision is made in the applicable accounting regulations of the SEC have been omitted because they are not applicable or therequired information is included in the financial statements or notes thereto.3. EXHIBITSEXHIBITNO.DESCRIPTION OF EXHIBIT Plans of Acquisition2.1†Agreement and Plan of Merger, dated April 14, 2014, by and among the Company, Progressive Finance Holdings, LLC, Virtual AcquisitionCompany, LLC, and John W. Robinson, III in his capacity as the representative of the selling unitholders (incorporated by reference to Exhibit2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 15, 2014).2.2†Purchase Agreement, dated April 14, 2014, by and among the Company, SP GE VIII-B Progressive Blocker Corp., SP SD IV-B ProgressiveBlocker Corp., Summit Partners Growth Equity Fund VIII-B, L.P., and Summit Partners Subordinated Debt Fund IV-B, L.P. (incorporated byreference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 15, 2014). Articles of Incorporation and Bylaws3(i)Amended and Restated Articles of Incorporation of Aaron’s, Inc. (incorporated by reference to Exhibit 3(i) of the Registrant’s Annual Report onForm 10-K for the year ended December 31, 2013 filed with the SEC on February 24, 2014).3(ii)Amended and Restated By-laws of Aaron’s, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filedwith the SEC on January 29, 2016). Instruments Defining the Rights of Security Holders, Including Indentures4Specimen of Form of Stock Certificate Representing Shares of Common Stock of the Registrant, par value $0.50 per share (incorporated byreference to Exhibit 4.1 of the Registrant’s Registration Statement on Form 8-A/A filed with the SEC on December 10, 2010). Material Contracts10.1Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers dated as of July 5, 2011 and Form of SeniorNote (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 8, 2011).10.2Amendment No. 1 to Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers, dated as of December19, 2012 (incorporated by reference to Exhibit 10 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 26, 2012).9510.3Amendment No. 2 to Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers, dated as of October 8,2013 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 15, 2013).10.4Amendment No. 3 to Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers, dated as of April 14,2014 and Form of Senior Note (incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for the quarterended June 30, 2014 filed with the SEC on August 8, 2014).10.5Amendment No. 4 to Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers, dated as of December9, 2014 (incorporated by reference to Exhibit 10.7 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 filedwith the SEC on March 2, 2015).10.6Amendment No. 5 to Note Purchase Agreement by and among Aaron’s Inc. and certain other obligors and the purchasers, dated as of September21, 2015 (incorporated by reference to Exhibit 10.5 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015filed with the SEC on November 9, 2015).10.7Amendment No. 6 to Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers, dated as of June 30,2016 (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filedwith the SEC on August 4, 2016).10.8Amendment No. 7 to Note Purchase Agreement by and amount Aaron's Inc. and certain other obligors and purchasers dated as of September 18,2017 (incorporated by reference to Exhibit 10.3 of the Registrant's Current Report on Form 8-K filed with the SEC on September 21, 2017)10.9Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers dated as of April 14, 2014 with respect to$225 million in aggregate principal amount of the Company’s 4.75% Series A Senior Notes due April 14, 2021 and Form of Senior Note(incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 filed with theSEC on August 8, 2014).10.10Amendment No. 1 to Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers dated as of December9, 2014 with respect to $225 million in aggregate principal amount of the Company’s 4.75% Series A Senior Notes Due April 14, 2021 andForm of Senior Note (incorporated by reference to Exhibit 10.9 of the Registrant’s Annual Report on Form 10-K for the year ended December31, 2014 filed with the SEC on March 2, 2015).10.11Amendment No. 2 to Note Purchase Agreement by and among Aaron’s Inc. and certain other obligors and the purchasers dated as of September21, 2015 with respect to $225 million in aggregate principal amount of the Company’s 4.75% Series A Senior Notes due April 14, 2021 andForm of Senior Note (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2015 filed with the SEC on November 9, 2015).10.12Amendment No. 3 to Note Purchase Agreement by and among Aaron’s Inc. and certain other obligors and the purchasers dated as of June 30,2016 with respect to $225 million in aggregate principal amount of the Company’s 4.75% Series A senior Notes Due April 14, 2021 and Formof Senior Note (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016filed with the SEC on August 4, 2016).10.13Amendment No. 4 to Note Purchase Agreement by and among Aaron's Inc. and certain other obligors and the purchasers, dated as of September18, 2017 with respect to $225 million in aggregate principal amount of the Company's 4.75% Series A senior Notes Due April 14, 2021(incorporated by reference to Exhibit 10.4 of the Registrant's Current Report on Form 8-K filed with the SEC on September 21, 2017).10.14Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and the purchasers dated as of April 14, 2014 with respect to$75 million in aggregate principal amount of the Company’s 4.75% Series B Senior Notes due April 14, 2021 and Form of Senior Note(incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 filed with theSEC on August 8, 2014).10.15Amendment No. 1 to Note Purchase Agreement by and among Aaron’s, Inc. and certain other obligors and purchasers dated as of December 9,2014 with respect to $75 million in aggregate principal amount of the Company’s 4.75% Series B Senior Notes due April 14, 2021 and Form ofSenior Notes (incorporated by reference to Exhibit 10.11 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014filed with the SEC on March 2, 2015).10.16Amendment No. 2 to Note Purchase Agreement by and among Aaron’s Inc. and certain other obligors and purchasers dated as of September 21,2015 with respect to $75 million in aggregate principal amount of the Company’s 4.75% Series B Senior Notes due April 14, 2021 and Form ofSenior Note (incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30,2015 filed with the SEC on November 9, 2015).10.17Amendment No. 3 to Note Purchase Agreement by and among Aaron’s Inc. and certain other obligors and purchasers dated as of June 30, 2016with respect to $75 million in aggregate principal amount of the Company’s 4.75% Series B Senior Notes due April 14, 2021 and Form ofSenior Note (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016filed with the SEC on August 4, 2016).9610.18Amendment No. 4 to Note Purchase Agreement by and among Aaron's Inc. and certain other obligors and the purchasers, dated as of September18, 2017 with respect to $75 million in aggregate principal amount of the Company's 4.75% Series B Senior Notes due April 14, 2021(incorporated by reference to Exhibit 10.5 of the Registrant's Current Report on Form 8-K filed with the SEC on September 21, 2017.10.19Second Amended and Restated Revolving Credit Term and Term Loan Agreement by and among Aaron’s Inc. as borrower, the several banksand other financial institutions from time to time party thereto and SunTrust Bank as administrative agent, dated as of September 18, 2017(incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 21, 2017.10.20Fourth Amended and Restated Loan Facility Agreement and Guaranty among Aaron’s Inc. as sponsor, SunTrust Bank, as servicer, and each ofthe other lending institutions party thereto as participants, dated October 25, 2017 (incorporated by reference to Exhibit 10.1 of the Registrant’sCurrent Report on Form 8-K filed with the SEC on October 31, 2017).10.21Loan and Security Agreement by and among Dent-A-Med Inc., Dent-A-Med Receivables Corporation, HC Recovery, Inc. and Wells FargoPreferred Capital, Inc., dated as of May 18, 2011 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filedwith the SEC on October 21, 2015).10.22First Amendment to Loan and Security Agreement by and among Dent-A-Med Inc., Dent-A-Med Receivables Corporation, HC Recovery, Inc.and Wells Fargo Preferred Capital, Inc., dated as of August 3, 2011 (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Reporton Form 8-K filed with the SEC on October 21, 2015).10.23Second Amendment to Loan and Security Agreement by and among Dent-A-Med Inc., Dent-A-Med Receivables Corporation, HC Recovery, Inc.and Wells Fargo Bank, N.A, dated as of July 26, 2012 (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-Kfiled with the SEC on October 21, 2015).10.24Third Amendment to Loan and Security Agreement by and among Dent-A-Med Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A, dated as ofJune 6, 2013 (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 21,2015).10.25Fourth Amendment to Loan and Security Agreement by and among Dent-A-Med Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A, dated as ofNovember 7, 2013 (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 21,2015).10.26Fifth Amendment to Loan and Security Agreement by and among Dent-A-Med Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A, dated as ofMarch 31, 2014 (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 21,2015).10.27Sixth Amendment to Loan and Security Agreement by and among Dent-A-Med Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A, dated as ofOctober 24, 2014 (incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 21,2015).10.28Seventh Amendment to Loan and Security Agreement by and among Dent-A-Med Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A, dated asof February 3, 2015 (incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 21,2015).10.29Eighth Amendment to Loan and Security Agreement by and among Dent-A-Med Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A, dated as ofSeptember 21, 2015 (incorporated by reference to Exhibit 10.9 of the Registrant’s Current Report on Form 8-K filed with the SEC on October21, 2015).10.30Ninth Amendment to the Loan and Security Agreement by and among Dent-A-Med, Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A, datedas of December 29, 2015 (incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year endedDecember 31, 2015 filed with the SEC on February 29, 2016).10.31Tenth Amendment to the Loan and Security Agreement by and among Dent-A-Med, Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A, datedas of February 23, 2016 (incorporated by reference to Exhibit 10.30 of the Registrant’s Annual Report on Form 10-K for the year endedDecember 31, 2015 filed with the SEC on February 29, 2016)10.32Eleventh Amendment to the Loan and Security Agreement by and among Dent-A-Med, Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A.,dated as of May 5, 2016 (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2016 filed with the SEC on May 5, 2016).10.33Twelfth Amendment to the Loan and Security Agreement by and among Dent-A-Med, Inc., HC Recovery, Inc. and Wells Fargo Bank, N.A.,dated as of June 30, 2016 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on July7, 2016). Management Contracts and Compensatory Plans or Arrangements10.34Aaron’s Inc. Employees Retirement Plan, as amended and restated, effective January 1, 2016 (incorporated by reference to Exhibit 10.7 of theRegistrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed with the SEC on August 4, 2016).10.35First Amendment to the Employees Retirement Plan, dated as of June 28, 2016, to be effective October 4, 2016 (incorporated by reference toExhibit 10.8 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed with the SEC on August 4, 2016).9710.36Amended and Restated Aaron Rents, Inc. 2001 Stock Option and Incentive Award Plan (incorporated by reference to Exhibit 10.1 to theRegistrant’s Current Report on Form 8-K filed with the SEC on April 10, 2009).10.37Form of Restricted Stock Unit Award Agreement for awards made prior to February 2014 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 filed with the SEC on May 8, 2012).10.38Amendment to Form of Restricted Stock Unit Award Agreement for awards made prior to February 2014 (incorporated by reference to Exhibit10.11 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 6, 2015).10.39Form of Restricted Stock Unit Award for awards made in or after February 2014 (incorporated by reference to Exhibit 10.29 of the Registrant’sAnnual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 24, 2014).10.40Form of Option Award Agreement for awards made prior to February 2014 (incorporated by reference to Exhibit 10.28 of the Registrant’sAnnual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 24, 2014).10.41Form of Option Award Agreement for awards made in or after February 2014 (incorporated by reference to Exhibit 10.30 of the Registrant’sAnnual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 24, 2014).10.42Amendment to Form of Option Award Agreement for awards made in or after February 2014 (incorporated by reference to Exhibit 10.10 of theRegistrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 6, 2015).10.43Form of Performance Share Award Agreement for awards made in or after February 2014 (incorporated by reference to Exhibit 10.31 of theRegistrant’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 24, 2014).10.44Amendment to Form of Performance Share Award Agreement for awards made in or after February 2014 (incorporated by reference to Exhibit10.12 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 6, 2015).10.45Aaron’s Management Performance Plan (Summary of terms for Home Office Vice Presidents) (incorporated by reference to Exhibit 10.1 to theRegistrant’s Current Report on Form 8-K filed with the SEC on August 5, 2011).10.46Aaron’s, Inc. 2001 Stock Option and Incentive Award Plan Master Restricted Stock Unit Agreement (Aaron’s Management Performance Plan)(incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on August 5, 2011).10.47Aaron’s, Inc. Deferred Compensation Plan as amended and restated effective January 1, 2017 (incorporated by reference to Exhibit 10.53 of theRegistrant’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 24, 2017).10.48Aaron’s, Inc. 2015 Equity and Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed onApril 7, 2015).10.49Form of Employee Stock Option Award Agreement under the Aaron’s, Inc. 2015 Equity and Incentive Plan (incorporated by reference to Exhibit99.2 of the Company’s Registration Statement on Form S-8 (333-204014) filed with the SEC on May 8, 2015).10.50Form of Executive Performance Share Award Agreement under the Aaron’s, Inc. 2015 Equity and Incentive Plan (incorporated by reference toExhibit 99.3 of the Company’s Registration Statement on Form S-8 (333-204014) filed with the SEC on May 8, 2015).10.51Amendment to Form of Executive Performance Share Award Agreement under the Aaron’s, Inc. 2015 Equity and Incentive Plan (incorporatedby reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC onAugust 6, 2015).10.52Form of Executive Officer Restricted Stock Unit Award Agreement under the Aaron’s, Inc. 2015 Equity and Incentive Plan (incorporated byreference to Exhibit 99.4 of the Company’s Registration Statement on Form S-8 (333-204014) filed with the SEC on May 8, 2015).10.53Amendment to Form of Executive Officer Restricted Stock Unit Award Agreement under the Aaron’s, Inc. 2015 Equity and Incentive Plan(incorporated by reference to Exhibit 10.8 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with theSEC on August 6, 2015).10.54Form of Director Restricted Stock Unit Award Agreement under the Aaron’s, Inc. 2015 Equity and Incentive Plan (incorporated by reference toExhibit 99.5 of the Company’s Registration Statement on Form S-8 (333-204014) filed with the SEC on May 8, 2015).10.55Form of Restricted Stock Award Agreement under the Aaron's Inc. 2015 Equity and Incentive Plan (incorporated by reference to Exhibit 10.1 ofthe Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the SEC on May 3, 2017.9810.56Compensation Plan for Non-Employee Directors, as amended and Restated, effective May 4, 2016 (incorporated by reference to Exhibit 10.9 ofthe Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed with the SEC on August 4, 2016).10.57Employment Agreement, dated as of April 18, 2012, by and between Aaron’s, Inc. and Gilbert L. Danielson (incorporated by reference toExhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 24, 2012).10.58Employment Agreement, dated as of November 10, 2014, by and between Aaron’s, Inc. and John W. Robinson (incorporated by reference toExhibit 10.47 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 2, 2015).10.59Amended and Restated Executive Severance Pay Plan of Aaron’s, Inc., effective as of August 5, 2015 (incorporated by reference to Exhibit10.59 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 29, 2016.10.60Retirement Agreement between Aaron’s, Inc. and R. Charles Loudermilk, Sr., dated August 24, 2012 (incorporated by reference to Exhibit 10.1of the Registrant’s Current Report on Form 8-K filed with the SEC on August 30, 2012).10.61Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with theSEC on May 14, 2014). Other Exhibits and Certifications21*Subsidiaries of the Registrant.23*Consent of Ernst & Young LLP.31.1*Certification of the Chief Executive Officer of Aaron’s, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*Certification of the Chief Financial Officer of Aaron’s, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*Certification of the Chief Executive Officer of Aaron’s, Inc. furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*Certification of the Chief Financial Officer of Aaron’s, Inc. furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101The following financial information from Aaron’s, Inc. Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL(eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2017 and 2016, (ii) Consolidated Statements ofEarnings for the Years ended December 31, 2017, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Income for the Years endedDecember 31, 2017, 2016 and 2015, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015, (v)Consolidated Statements of Shareholder’s Equity for the Years ended December 31, 2017, 2016 and 2015 and (v) the Notes to ConsolidatedFinancial Statements. † The Company hereby agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon the request of the SEC.* Filed herewith.(b) EXHIBITSThe exhibits listed in Item 15(a)(3) are included elsewhere in this Report.(c) FINANCIAL STATEMENTS AND SCHEDULESThe financial statements listed in Item 15(a)(1) are included in Item 8 in this Report.99SIGNATURESPursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on March 1, 2018. AARON’S, INC. By: /s/ STEVEN A. MICHAELS Steven A. Michaels Chief Financial Officer and President of Strategic OperationsPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities indicated on March 1, 2018. SIGNATURE TITLE/s/ JOHN W. ROBINSON, III Chief Executive Officer and Director(Principal Executive Officer)John W. Robinson III /s/ STEVEN A. MICHAELS Chief Financial Officer and President of Strategic Operations(Principal Financial Officer)Steven A. Michaels /s/ ROBERT P. SINCLAIR, JR. Vice President, Corporate Controller(Principal Accounting Officer)Robert P. Sinclair, Jr. /s/ KATHY T. BETTY DirectorKathy T. Betty /s/ DOUGLAS C. CURLING DirectorDouglas C. Curling /s/ CYNTHIA N. DAY DirectorCynthia N. Day /s/ CURTIS L. DOMAN DirectorCurtis L. Doman /s/ WALTER EHMER DirectorWalter Ehmer /s/ HUBERT L. HARRIS, JR. DirectorHubert L. Harris, Jr. /s/ RAY M. ROBINSON DirectorRay M. Robinson /s/ ROBERT YANKER DirectorRobert Yanker 100Exhibit 21NAME STATE OR COUNTRY OF INCORPORATIONAaron Investment Company DelawareAaron’s Canada, ULC CanadaAaron’s Foundation, Inc. GeorgiaAaron’s Logistics, LLC GeorgiaAaron’s Procurement Company, LLC GeorgiaAaron’s Production Company GeorgiaAaron’s Strategic Services, LLC GeorgiaAaron's Progressive Holdings Company DelawareWoodhaven Furniture Industries, LLC Georgia99LTO, LLC GeorgiaDent-A-Med, Inc. OklahomaHC Recovery, Inc. OklahomaProgressive Finance Holdings, LLC DelawareProg Leasing, LLC DelawareApprove.Me LLC UtahAM2 Enterprises, LLC UtahPango LLC UtahDAMI LLC OklahomaNPRTO Arizona, LLC UtahNPRTO California, LLC UtahNPRTO Florida, LLC UtahNPRTO Georgia, LLC UtahNPRTO Illinois, LLC UtahNPRTO Michigan, LLC UtahNPRTO New York, LLC UtahNPRTO Ohio, LLC UtahNPRTO Texas, LLC UtahNPRTO Mid-West, LLC UtahNPRTO North-East, LLC UtahNPRTO South-East, LLC UtahNPRTO West, LLC UtahExhibit 23Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:1)Registration Statement (Form S-8 No. 333-171113) dated December 10, 2010 pertaining to the 2001 Stock Option and Incentive Award Plan, asAmended and Restated, and Aaron’s, Inc. Employees Retirement Plan and Trust, as Amended and Restated, and2)Registration Statement (Form S-8 No. 333- 204014) dated May 8, 2015 pertaining to the Aaron’s, Inc. 2015 Equity and Incentive Plan;of our reports dated March 1, 2018, with respect to the consolidated financial statements of Aaron’s, Inc. and subsidiaries and the effectiveness of internalcontrol over financial reporting of Aaron’s, Inc. and subsidiaries included in this Annual Report (Form 10-K) of Aaron’s, Inc. and subsidiaries for the yearended December 31, 2017./s/ Ernst & Young LLPAtlanta, GeorgiaMarch 1, 2018Exhibit 31.1CERTIFICATIONI, John W. Robinson, III, certify that:1.I have reviewed this annual report on Form 10-K of Aaron’s, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likelyto materially affect the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrols over financial reporting. Date: March 1, 2018 /s/ John W. Robinson, III John W. Robinson, III Chief Executive OfficerExhibit 31.2CERTIFICATIONI, Steven A. Michaels, certify that:1.I have reviewed this annual report on Form 10-K of Aaron’s, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likelyto materially affect the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrols over financial reporting. Date: March 1, 2018 /s/ Steven A. Michaels Steven A. Michaels Chief Financial Officer and President of Strategic OperationsExhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, John W. Robinson, III, Chief Executive Officer of Aaron’s, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of2002, 18 U.S.C. Section 1350, that:(1)The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2017 (the “Report”) fully complies with therequirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 1, 2018 /s/ John W. Robinson, III John W. Robinson, III Chief Executive OfficerExhibit 32.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, Steven A. Michaels, Chief Financial Officer of Aaron’s, Inc. (the “Company”), certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002,18 U.S.C. Section 1350, that:(1)The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2017 (the “Report”) fully complies with therequirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 1, 2018 /s/ Steven A. Michaels Steven A. Michaels Chief Financial Officer and President of Strategic Operations

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