ACQUISITIONS

During 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, 2015 principally 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 results of 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 acquisition date. The effect of the Company’s other acquisitions on the consolidated financial statements for the years ended December 31, 2017, 2016 and 2015 was not significant.

SEI/Aaron’s, Inc. Acquisition

On July 27, 2017, the Company acquired substantially all of the assets and liabilities of the store operations of SEI, the Company’s largest franchisee, for approximately $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, strengthening its presence in certain geographic markets, and enhancing Aaron’s ability to drive inventory supply-chain synergies between the Aaron’s Business and Progressive Leasing in markets that SEI served. The acquired SEI operations generated revenues of $58.3 million and earnings before income taxes of $2.5 million from July 27, 2017 through December 31, 2017, which are included in our consolidated statements of earnings. Included in the earnings before income taxes of the SEI operations are acquisition-related transaction and transition costs, amortization expense of the various intangible assets recorded from the acquisition and restructuring expenses associated with the closure of several acquired SEI stores. The revenues and earnings before income taxes above have not been adjusted for estimated non-retail sales and franchise royalties and fees and related expenses that the Company could have generated from SEI, as a franchisee, from July 27, 2017 through December 31, 2017 had the transaction not been completed.

Acquisition Accounting

The SEI acquisition has been accounted for as a business combination, and the results of operations of the acquired business is included in the Company’s results of operations from the date of acquisition. The following table presents the summary of the preliminary estimated fair value of the assets acquired and liabilities assumed in the SEI acquisition as of the July 27, 2017 acquisition date:



(In Thousands)	Amounts Recognized as of Acquisition Date¹			Acquisition Accounting Adjustments²			Amounts Recognized as of Acquisition Date (as adjusted)
Purchase Price	$	140,000		$	—		$	140,000
Settlement of Pre-existing Accounts Receivable SEI owed Aaron's, Inc.	3,452			—			3,452
Reimbursement for Insurance Costs	(100		)	—			(100		)
Working Capital Adjustment	—			188			188
Consideration Transferred	143,352			188			143,540
Estimated Fair Value of Identifiable Assets Acquired and Liabilities Assumed
Cash and Cash Equivalents	34			—			34
Receivables	1,448			—			1,448
Lease Merchandise	40,941			—			40,941
Property, Plant and Equipment	8,279			553			8,832
Other Intangibles³	16,472			(2,894		)	13,578
Prepaid Expenses and Other Assets	440			—			440
Total Identifiable Assets Acquired	67,614			(2,341		)	65,273
Accounts 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		)
Goodwill⁴	88,338			3,477			91,815
Net Assets Acquired	$	55,014		$	(3,289	)	$	51,725

¹ 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 under capital leases. Additionally, the Company obtained further information regarding the fair value of assumed favorable and unfavorable property operating leases based on comparable market terms of similar leases based on information that existed as of the acquisition date, which the Company expects to complete prior to the one year anniversary date of the acquisition.

³ Identifiable intangible assets are further disaggregated in the table set forth below.

⁴The total goodwill recognized in conjunction with the SEI acquisition, all of which is expected to be deductible for tax purposes, has been assigned to the Aaron’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’s operational capabilities, expected inventory supply chain synergies between the Aaron’s Business and Progressive Leasing, and control of the Company’s brand name in new geographic markets. Goodwill also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce.

The preliminary acquisition accounting presented above is subject to refinement. The Company is still finalizing the valuation of assumed favorable and unfavorable 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	5.0
Customer Lease Contracts	2,130		1.0
Customer Relationships	3,176		2.0
Reacquired Franchise Rights	3,640		4.1
Favorable Operating Leases	3,388		8.5
Total Acquired Intangible Assets¹	$	13,578

¹Acquired 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. These costs were included in operating expenses in the consolidated statements of earnings.

DAMI Acquisition

On October 15, 2015, Progressive Leasing acquired a 100% ownership interest in DAMI for a total purchase price of $54.9 million, inclusive of cash acquired of $4.2 million. Together with Progressive, DAMI allows the Company to provide retail and merchant partners with one source for financing and leasing transactions 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 consolidated statements of earnings.



(In Thousands)	Amounts Recognized as of Acquisition Date¹			Acquisition Accounting Adjustments²			Amounts Recognized as of Acquisition Date (as adjusted)
Purchase Price	$	54,900		$	—		$	54,900

Estimated Fair Value of Identifiable Assets Acquired and Liabilities Assumed
Cash and Cash Equivalents	4,185			—			4,185
Loans Receivable³	89,186			(60		)	89,126
Receivables	45			—			45
Property, Plant and Equipment	2,754			—			2,754
Other Intangibles⁴	3,400			(500		)	2,900
Income Tax Receivable	728			—			728
Prepaid Expenses and Other Assets	671			—			671
Deferred Income Tax Assets	375			2,115			2,490
Total Identifiable Assets Acquired	101,344			1,555			102,899
Accounts Payable and Accrued Expenses	(1,709		)	(1,265		)	(2,974		)
Debt	(45,025		)	—			(45,025		)
Total Liabilities Assumed	(46,734		)	(1,265		)	(47,999		)
Goodwill	290			(290		)	—
Net Assets Acquired	$	54,900		$	—		$	54,900

¹As previously reported in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

²The acquisition accounting adjustments primarily relate to the resolution of certain income tax-related matters and contingencies that existed as of the acquisition date.

³Contractually required amounts due at the acquisition date were $94.2 million.

⁴Identifiable 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	5.0
Non-compete Agreements	350		5.0
Total 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 costs were included in the line item operating expenses in the consolidated statements of earnings.