ACQUISITIONS

During the years ended December 31, 2014 and 2013, net cash payments related to the acquisitions of businesses and contracts were $700.5 million and $10.9 million, respectively. Cash payments made during the year ended December 31, 2014 were principally related to the April 2014 Progressive acquisition 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. Progressive contributed revenues of $549.5 million and earnings before income taxes of $4.6 million from April 14, 2014 through December 31, 2014.

The effect of the Company’s other acquisitions on the consolidated financial statements for the years ended December 31, 2014 and 2013 was not significant.

Progressive Acquisition

On April 14, 2014, the Company acquired a 100% ownership interest in Progressive, a leading virtual lease-to-own company, for a total purchase price of $705.8 million, inclusive of cash acquired of $5.8 million. Progressive provides lease-purchase solutions through over 15,000 retail locations in 46 states. The Company believes the Progressive acquisition will be strategically transformational and will strengthen its business.

The following table reconciles the total estimated purchase price of the Company’s acquisition of Progressive:



(In Thousands)
Proceeds from Private Placement Note Issuance	$	300,000
Proceeds from Term Loan	126,250
Proceeds from Revolving Credit Facility	65,000
Cash Consideration	185,454
Deferred Cash Consideration	29,106
Estimated Purchase Price	$	705,810

Refer to Note 6 to these consolidated financial statements for additional information regarding the debt incurred to partially finance the Progressive acquisition.

The initial deferred cash consideration had amounts outstanding as of December 31, 2014 which consist of $3.6 million of merger consideration payable in January 2015, as well as $3.3 million in withheld escrow amounts.

The purchase price includes a primary escrow of $35.8 million to secure indemnification obligations of the sellers relating to the accuracy of representations, warranties and the satisfaction of covenants. The primary escrow funds will be distributed 15 months from the April 14, 2014 closing date, after deducting for any claims. In addition, the purchase price includes a secondary escrow of $15.8 million to secure indemnification obligations of the sellers relating to certain acquired tax-related contingent liabilities. The Company believes that the $15.8 million is fully recoverable from the secondary escrow account and has included this indemnification asset as a receivable in the Company’s preliminary acquisition accounting. The secondary escrow is subject to current and future claims of the Company and any remaining undisputed balance is payable to the sellers 36 months from the April 14, 2014 closing date.

Preliminary Acquisition Accounting

The following table presents the summary of the preliminary estimated fair value of the assets acquired and liabilities assumed in the Progressive acquisition as of the April 14, 2014 acquisition date, as well as adjustments made during the year ended December 31, 2014 (referred to as the “measurement period adjustments”):



(In Thousands)	Amounts Recognized as of Acquisition Date¹			Measurement Period Adjustments²			Amounts Recognized as of Acquisition Date (as adjusted)
Estimated Purchase Price	$	705,810		$	—		$	705,810

Estimated Fair Value of Identifiable Assets Acquired and Liabilities Assumed
Cash and Cash Equivalents	5,810			—			5,810
Receivables³	27,581			—			27,581
Lease Merchandise²	138,198			2,987			141,185
Property, Plant and Equipment	4,010			—			4,010
Other Intangibles^{2, 4}	333,000			(8,000		)	325,000
Prepaid Expenses and Other Assets	893			—			893
Total Identifiable Assets Acquired	509,492			(5,013		)	504,479
Accounts Payable and Accrued Expenses²	(23,342		)	(5,762		)	(29,104		)
Deferred Income Taxes Payable²	(48,298		)	(451		)	(48,749		)
Customer Deposits and Advance Payments	(10,000		)	—			(10,000		)
Total Liabilities Assumed	(81,640		)	(6,213		)	(87,853		)
Goodwill⁵	277,958			11,226			289,184
Net Assets Acquired	$	705,810		$	—		$	705,810

¹As previously reported in the notes to consolidated financial statements included in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014.

²The measurement period adjustments primarily related to the resolution of certain sales tax exposures and other tax contingencies subsequent to the acquisition date, which also impacted the fair value estimates of lease merchandise, as well as the finalization of appraisals of intangible assets by the Company’s independent consultants.

³Receivables include $15.8 million related to the secondary escrow amount, which the Company expects to recover prior to termination of the escrow agreement 36 months from the April 14, 2014 closing date. The gross amount due under customer-related receivables acquired was $22.7 million, of which $10.9 million was expected to be uncollectible.

⁴Identifiable intangible assets are further disaggregated in the following table.

⁵The total goodwill recognized in conjunction with the Progressive acquisition has been assigned to the Progressive operating segment. Of the goodwill recognized as part of this acquisition, $245.8 million is expected to be deductible for tax purposes. The primary reasons the purchase price of the acquisition exceeded the fair value of the net assets acquired, which resulted in the recognition of goodwill, is related to synergistic value created from the combination of Progressive’s virtual customer payment capabilities with the Company’s leading traditional lease-to-own model. Goodwill also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce.

The Company has made certain estimates in its acquisition accounting related to sales tax exposures and income tax accounts, as final pre-acquisition Progressive tax return information was not available as of December 31, 2014. The Company expects to complete its assessment of the sales tax and income tax effects of the acquisition accounting in the first quarter of 2015.

The estimated intangible assets attributable to the Progressive acquisition are comprised of the following:



	Fair Value (in thousands)		Weighted Average Life (in years)
Internal Use Software	$	14,000	3.0
Technology	66,000		10.0
Trade Names and Trademarks	53,000		Indefinite
Customer Lease Contracts¹	11,000		1.0
Merchant Relationships	181,000		12.0
Total Acquired Intangible Assets²	$	325,000

¹During the fourth quarter of 2014, the Company recorded adjustments to the customer lease contract intangible asset previously recorded based on the finalization of appraisals by the Company’s independent consultants. The measurement period adjustment resulted in a reduction of customer lease contract intangible assets and an increase in goodwill of $8.0 million and did not have a material effect on amortization expense in the consolidated financial statements in any period presented.

²Acquired definite-lived intangible assets have a total weighted average life of 10.6 years.

During the year ended December 31, 2014, the Company incurred $6.6 million of transaction costs in connection with the acquisition of Progressive. These costs were included in the line item “Progressive-related transaction costs” in the consolidated statements of earnings. In addition, during the year ended December 31, 2014, the Company incurred approximately $2.3 million in debt financing costs related to the $491.3 million of new indebtedness incurred to partially finance the acquisition, which has been capitalized as a component of prepaid expenses and other assets in the consolidated balance sheets.

Pro Forma Financial Information

The following table presents unaudited consolidated pro forma information as if the acquisition of Progressive had occurred on January 1, 2013:



	Twelve Months Ended December 31,
	2014				2013
(In Thousands)	As Reported		Pro Forma		As Reported		Pro Forma
Revenues	$	2,725,239	$	2,894,413	$	2,234,631	$	2,638,582
Net Earnings	78,233		86,038		120,666		105,682

The unaudited pro forma financial information presented above does not purport to represent what the actual results of our operations would have been if the acquisition of Progressive had occurred on January 1, 2013, nor is it indicative of future performance. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated cost savings from operating synergies.

The unaudited pro forma financial information presented in the table above has been adjusted to give effect to adjustments that are (1) directly related to the business combination; (2) factually supportable; and (3) expected to have a continuing impact. These adjustments include, but are not limited to, amortization related to fair value adjustments to intangible assets and the adjustment of interest expense to reflect the additional borrowings of the Company in conjunction with the acquisition.