ACQUISITIONS

Franchisee 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 operational control to execute our business transformation initiatives.

The acquired operations generated revenues of $58.3 million and earnings before income taxes of $2.5 million from July 27, 2017 through December 31, 2017. During the three and six months ended June 30, 2018, the acquired operations generated revenues of $32.6 million and $67.8 million, respectively, and earnings before income taxes of $3.9 million and $8.0 million, respectively, which are included in our condensed consolidated statements of earnings. Included in the earnings before income taxes of the acquired 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 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 June 30, 2018 had the transaction not been completed.

Acquisition Accounting

The franchisee acquisition has been accounted for as a business combination, and the results of operations of the acquired business are included in the Company’s results of operations from the date of acquisition. The following table presents a summary of the preliminary and final fair value of the assets acquired and liabilities assumed in the franchisee acquisition, as well as measurement period adjustments made during the three months ended June 30, 2018:



(In Thousands)	Amounts Recognized as of Acquisition Date (preliminary)¹			Acquisition Accounting Adjustments²			Final Amounts Recognized as of Acquisition Date
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	143,540			—			143,540
Estimated Fair Value of Identifiable Assets Acquired and Liabilities Assumed
Cash and Cash Equivalents	34			—			34
Receivables	1,448			(103		)	1,345
Lease Merchandise	40,941			—			40,941
Property, Plant and Equipment	8,832			—			8,832
Other Intangibles³	13,779			—			13,779
Prepaid Expenses and Other Assets	440			—			440
Total Identifiable Assets Acquired	65,474			(103		)	65,371
Accounts Payable and Accrued Expenses	(6,698		)	—			(6,698		)
Customer Deposits and Advance Payments	(2,500		)	—			(2,500		)
Capital Leases	(4,514		)	—			(4,514		)
Total Liabilities Assumed	(13,712		)	—			(13,712		)
Goodwill⁴	91,778			103			91,881
Net Assets Acquired	$	51,762		$	(103	)	$	51,659

¹ As previously reported in Note 2 to the condensed consolidated financial statements as of March 31, 2018.

² The acquisition accounting adjustments relate to finalizing certain working capital adjustments.

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

⁴The total goodwill recognized in conjunction with the franchisee 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 estimated intangible assets attributable to the franchisee 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	2,154		1.0
Customer Relationships	3,215		2.0
Reacquired Franchise Rights	3,640		4.1
Favorable Operating Leases	3,526		11.3
Total Acquired Intangible Assets¹	$	13,779

¹Acquired definite-lived intangible assets have a total weighted average life of 5.1 years.

The Company incurred $2.0 million of acquisition-related costs in connection with the franchisee acquisition, substantially all of which were incurred during the third quarter of 2017. These costs were included in operating expenses in the condensed consolidated statements of earnings.

Other Acquisitions

In addition to the acquisition discussed above, the Company acquired the store operations of five franchisees during the six months ended June 30, 2018 and three franchisees during the year ended December 31, 2017.

Net cash outflows related to the acquisitions of other Aaron's franchisees, other rent-to-own store businesses, and customer contracts aggregated to $14.4 million and $0.9 million during the six months ended June 30, 2018 and 2017, respectively. The effect of these acquisitions on the condensed consolidated financial statements for the six months ended June 30, 2018 and 2017 was not significant.