rcii-20200630
RENT A CENTER INC 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 001-38047
Rent-A-Center, Inc.
(Exact name of registrant as specified in its charter)
Delaware45-0491516
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
5501 Headquarters Drive
Plano, Texas 75024
(Address, including zip code of registrant’s principal executive offices)
Registrant’s telephone number, including area code: 972-801-1100
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $.01 par valueRCIIThe Nasdaq Stock Market
Indicate 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 1934 during 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 filing requirements for the past 90 days.   Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of July 29, 2020:
ClassOutstanding
Common stock, $.01 par value53,825,727




TABLE OF CONTENTS
 
  Page No.
Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019
 


i


Item 1. Condensed Consolidated Financial Statements.
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
(In thousands, except per share data)
Revenues
Store
Rentals and fees$534,737  $551,680  $1,102,737  $1,115,034  
Merchandise sales108,080  70,842  209,460  175,312  
Installment sales17,643  17,270  32,390  32,706  
Other775  1,244  1,497  1,908  
Total store revenues661,235  641,036  1,346,084  1,324,960  
Franchise
Merchandise sales18,047  10,673  30,484  19,129  
Royalty income and fees4,464  4,216  9,117  8,530  
Total revenues683,746  655,925  1,385,685  1,352,619  
Cost of revenues
Store
Cost of rentals and fees157,124  155,658  322,579  311,030  
Cost of merchandise sold102,960  76,034  201,717  179,425  
Cost of installment sales6,092  5,682  11,117  10,606  
Total cost of store revenues266,176  237,374  535,413  501,061  
Franchise cost of merchandise sold18,038  10,480  30,562  18,621  
Total cost of revenues284,214  247,854  565,975  519,682  
Gross profit399,532  408,071  819,710  832,937  
Operating expenses
Store expenses
Labor129,929  152,899  283,723  314,555  
Other store expenses160,756  149,225  322,474  313,019  
General and administrative expenses32,943  38,534  72,118  71,458  
Depreciation and amortization
14,348  15,121  29,261  30,894  
Other charges and (gains)7,921  (77,537) 9,624  (44,167) 
Total operating expenses345,897  278,242  717,200  685,759  
Operating profit53,635  129,829  102,510  147,178  
Interest expense4,161  10,092  8,608  19,481  
Interest income(265) (1,997) (409) (2,871) 
Earnings before income taxes49,739  121,734  94,311  130,568  
Income tax expense11,246  27,279  6,526  28,790  
Net earnings$38,493  $94,455  $87,785  $101,778  
Basic earnings per common share$0.72  $1.74  $1.62  $1.88  
Diluted earnings per common share$0.70  $1.70  $1.58  $1.83  
See accompanying notes to condensed consolidated financial statements.

1


RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
(In thousands)
Net earnings$38,493  $94,455  $87,785  $101,778  
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $5 and $(57), $(1,034) and $81 for the three and six months ended June 30, 2020 and 2019, respectively
17  (217) (3,889) 304  
Total other comprehensive income (loss)17  (217) (3,889) 304  
Comprehensive income$38,510  $94,238  $83,896  $102,082  
See accompanying notes to condensed consolidated financial statements.

2


RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 
June 30, 2020December 31, 2019
(In thousands, except share and par value data)Unaudited
ASSETS
Cash and cash equivalents$206,426  $70,494  
Receivables, net of allowance for doubtful accounts of $8,238 and $5,601 in 2020 and 2019, respectively
76,983  84,123  
Prepaid expenses and other assets33,853  46,043  
Rental merchandise, net
On rent645,522  697,270  
Held for rent91,647  138,418  
Merchandise held for installment sale4,317  4,878  
Property assets, net of accumulated depreciation of $538,774 and $522,826 in 2020 and 2019, respectively
151,431  166,138  
Operating lease right-of-use assets273,143  281,566  
Deferred tax asset14,889  14,889  
Goodwill70,217  70,217  
Other intangible assets, net8,200  8,762  
Total assets$1,576,628  $1,582,798  
LIABILITIES
Accounts payable – trade$145,870  $168,120  
Accrued liabilities305,965  275,777  
Operating lease liabilities281,344  285,041  
Deferred tax liability166,165  163,984  
Senior debt, net
190,708  230,913  
Total liabilities1,090,052  1,123,835  
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; 250,000,000 shares authorized; 111,711,051 and 111,166,229 shares issued in 2020 and 2019, respectively
1,101  1,110  
Additional paid-in capital871,915  869,617  
Retained earnings1,003,599  947,875  
Treasury stock at cost, 57,889,659 and 56,428,482 shares in 2020 and 2019, respectively
(1,375,480) (1,348,969) 
Accumulated other comprehensive loss(14,559) (10,670) 
Total stockholders' equity486,576  458,963  
Total liabilities and stockholders' equity$1,576,628  $1,582,798  
See accompanying notes to condensed consolidated financial statements.

3


RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated Other Comprehensive Income (Loss)Total
SharesAmount
 (In thousands)
Balance at December 31, 2019111,166  $1,110  $869,617  $947,875  $(1,348,969) $(10,670) $458,963  
Adoption of ASU 2016-13—  —  —  (769) —  —  (769) 
Net earnings—  —  —  49,292  —  —  49,292  
Other comprehensive loss—  —  —  —  —  (3,906) (3,906) 
Purchase of treasury stock—  (14) —  —  (26,511) —  (26,525) 
Exercise of stock options69  1  1,194  —  —  —  1,195  
Vesting of restricted share units434  4  (4) —  —  —    
Tax effect of stock awards vested and options exercised—  —  (5,270) —  —  —  (5,270) 
Stock-based compensation—  —  3,043  —  —  —  3,043  
Balance at March 31, 2020111,669  $1,101  $868,580  $996,398  $(1,375,480) $(14,576) $476,023  
Net earnings—  —  —  38,493  —  —  38,493  
Other comprehensive income—  —  —  —  —  17  17  
Exercise of stock options42    486  —  —  —  486  
Stock-based compensation—  —  2,849  —  —  —  2,849  
Dividends declared—  —  —  (31,292) —  —  (31,292) 
Balance at June 30, 2020111,711  $1,101  $871,915  $1,003,599  $(1,375,480) $(14,559) $486,576  
See accompanying notes to consolidated financial statements.


4


RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)
(Unaudited)
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated Other Comprehensive Income (Loss)Total
SharesAmount
 (In thousands)
Balance at December 31, 2018109,910  $1,099  $838,436  $805,924  $(1,347,677) $(11,265) $286,517  
ASC 842 adoption—  —  —  (1,976) —  —  (1,976) 
Net earnings—  —  —  7,323  —  —  7,323  
Other comprehensive income—  —  —  —  —  521  521  
Exercise of stock options284  3  2,889  —  —  —  2,892  
Vesting of restricted share units218  2  (2) —  —  —    
Tax effect of stock awards vested and options exercised—  —  (1,734) —  —  —  (1,734) 
Stock-based compensation—  —  709  —  —  —  709  
Balance at March 31, 2019110,412  $1,104  $840,298  $811,271  $(1,347,677) $(10,744) $294,252  
Net earnings—  —  —  94,455  —  —  94,455  
Other comprehensive loss—  —  —  —  —  (217) (217) 
Exercise of stock options101  1  1,417  —  —  —  1,418  
Vesting of restricted share units49  —  —  —  —  —    
Stock-based compensation—  —  1,982  —  —  —  1,982  
Balance at June 30, 2019110,562  $1,105  $843,697  $905,726  $(1,347,677) $(10,961) $391,890  
See accompanying notes to consolidated financial statements.


5


RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 Six Months Ended June 30,
 20202019
(In thousands)
Cash flows from operating activities
Net earnings$87,785  $101,778  
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation of rental merchandise310,810  309,211  
Bad debt expense7,900  5,978  
Stock-based compensation expense5,892  2,691  
Depreciation of property assets28,706  30,809  
Loss on sale or disposal of property assets698  1,472  
Amortization of intangibles561  85  
Amortization of financing fees795  1,958  
Deferred income taxes2,146  10,814  
Changes in operating assets and liabilities
Rental merchandise(211,865) (253,259) 
Receivables(918) (2,995) 
Prepaid expenses and other assets12,190  15,384  
Operating lease right-of-use assets and lease liabilities4,726  5,868  
Accounts payable – trade(22,250) (18,182) 
Accrued liabilities27,543  (26,194) 
Net cash provided by operating activities254,719  185,418  
Cash flows from investing activities
Purchase of property assets(14,750) (5,088) 
Proceeds from sale of property assets187  13,792  
Hurricane insurance recovery proceeds158  995  
Acquisitions of businesses  (155) 
Net cash (used in) provided by investing activities(14,405) 9,544  
Cash flows from financing activities
Share repurchases(26,511)   
Exercise of stock options1,682  4,310  
Shares withheld for payment of employee tax withholdings(5,270) (1,733) 
Debt issuance costs  (157) 
Proceeds from debt198,000  5,400  
Repayments of debt(239,000) (5,400) 
Dividends paid(31,554)   
Net cash (used in) provided by financing activities(102,653) 2,420  
Effect of exchange rate changes on cash(1,729) 366  
Net increase in cash and cash equivalents135,932  197,748  
Cash and cash equivalents at beginning of period70,494  155,391  
Cash and cash equivalents at end of period$206,426  $353,139  
See accompanying notes to condensed consolidated financial statements.

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RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Basis of Presentation
The interim condensed consolidated financial statements of Rent-A-Center, Inc. included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to the SEC’s rules and regulations, although we believe the disclosures are adequate to make the information presented not misleading. We suggest these financial statements be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. In our opinion, the accompanying unaudited interim financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly our results of operations and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
COVID-19
During the first quarter of 2020, the respiratory disease caused by a novel coronavirus (“COVID-19”) began to spread worldwide causing the World Health Organization to declare the outbreak a pandemic, and resulting in significant disruptions to the U.S. and world economies. In response to the issuance of U.S. federal guidelines to contain the spread of the COVID-19 virus, state and local jurisdictions implemented various containment measures, including temporary shelter-in-place orders and closure of non-essential businesses. The effects of these containment measures negatively impacted our operations resulting in the temporary or partial closure of certain locations in all of our U.S. operating segments during the first half of 2020. In addition, certain of our Mexico locations were also temporarily closed in accordance with jurisdictional ordinances issued in Mexico. In response to these restrictions and negative impacts to our operations, we implemented certain measures to reduce operating expenses and cash flow uses in order to mitigate these effects. In addition, we implemented additional electronic payment methods for our Rent-A-Center Business customers.
While the pandemic is ongoing and uncertainties remain that may not allow us to accurately predict the full impact that COVID-19 will ultimately have on our business, as of June 30, 2020, all locations in our Rent-A-Center Business, Franchising and Mexico operating segments, and staffed Preferred Lease locations temporarily or partially closed at the onset of the pandemic have reopened and are fully operational.
Use of Estimates
In preparing financial statements in conformity with U.S. generally accepted accounting principles, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent losses and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. In applying accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. However, uncertainties, including future unknown impacts of the COVID-19 pandemic, may affect certain estimates and assumptions inherent in the financial reporting process, which may impact reported amounts of assets and liabilities in future periods and cause actual results to differ from those estimates.
Principles of Consolidation and Nature of Operations
These financial statements included herein include the accounts of Rent-A-Center, Inc. and its direct and indirect subsidiaries. All intercompany accounts and transactions have been eliminated. Unless the context indicates otherwise, references to “Rent-A-Center” refer only to Rent-A-Center, Inc., the parent, and references to “we,” “us” and “our” refer to the consolidated business operations of Rent-A-Center and any or all of its direct and indirect subsidiaries. We report four operating segments: Rent-A-Center Business, Preferred Lease, Mexico and Franchising.
Our Rent-A-Center Business segment consists of company-owned lease-to-own stores in the United States and Puerto Rico that lease household durable goods to customers on a lease-to-own basis. We also offer merchandise on an installment sales basis in certain of our stores under the names “Get It Now” and “Home Choice.” Our Rent-A-Center Business segment operates through our company-owned stores and e-commerce platform through rentacenter.com.
Our Preferred Lease segment, which operates in the United States and Puerto Rico, and includes the operations of Merchants Preferred (as defined in Note 2 below) acquired in August 2019, generally offers the lease-to-own transaction to consumers who do not qualify for financing from the traditional retailer through kiosks located within such retailer's locations, including staffed options, unstaffed or virtual options, or a combination of the two (the hybrid model). The hybrid model can be staffed by a Preferred Lease employee (staffed locations) or employ a virtual solution where customers, either directly or with the

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RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
assistance of a representative of the third-party retailer, initiate the lease-to-own transaction online in the retailers' locations using our virtual solutions (virtual locations).
Our Mexico segment consists of our company-owned lease-to-own stores in Mexico that lease household durable goods to customers on a lease-to-own basis.
Rent-A-Center Franchising International, Inc., an indirect, wholly owned subsidiary of Rent-A-Center, is a franchisor of lease-to-own stores. Our Franchising segment’s primary source of revenue is the sale of rental merchandise to its franchisees, who in turn offer the merchandise to the general public for rent or purchase under a lease-to-own transaction. The balance of our Franchising segment’s revenue is generated primarily from royalties based on franchisees’ monthly gross revenues.
Newly Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires immediate recognition of estimated current expected credit losses, rather than recognition when incurred. We adopted ASU 2016-13 and all related amendments, including ASU 2020-02 and ASU 2020-03, beginning January 1, 2020, using a modified retrospective approach. Under such approach, we recognized a cumulative-effect of the guidance as an adjustment to the opening balance of retained earnings for the quarter ended March 31, 2020. The application of this new methodology is limited to our installment notes receivables and trade receivables with our franchisees, primarily related to merchandise sales. The comparative information has not been restated and continues to be reported under the accounting standards in effect for periods ending prior to January 1, 2020.
The cumulative effect as of January 1, 2020 resulting from the adoption of ASU 2016-13 and related amendments was a net decrease to opening retained earnings in our condensed consolidated balance sheet of $0.8 million. See Note 4 for additional information regarding our trade and note receivables and related allowances for doubtful accounts.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating the hypothetical purchase price allocation and instead using the difference between the carrying amount and the fair value of the reporting unit. We adopted ASU 2017-04 beginning January 1, 2020, using a prospective approach. There was no impact on our financial statements for the six months ended June 30, 2020 resulting from the adoption of this ASU.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements in ASC 820, to improve the effectiveness of the fair value measurement disclosures. We adopted ASU 2018-13 beginning January 1, 2020, using a prospective approach. There was no impact on our financial statements for the six months ended June 30, 2020 resulting from the adoption of this ASU.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40); Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement, which requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing agreement under the internal-use software guidance in ASC 350-40. We adopted ASU 2018-15 beginning January 1, 2020, using a prospective approach. Impacts to our financial statements resulting from the adoption of this ASU were immaterial to our financial statements for the six months ended June 30, 2020.
Note 2 - Acquisitions
On August 13, 2019, we completed the acquisition of substantially all of the assets of C/C Financial Corp. dba Merchants Preferred ("Merchants Preferred"), a nationwide provider of virtual lease-to-own services. The aggregate purchase price was approximately $46.4 million, including net cash consideration of approximately $28.0 million, and 701,918 shares of our common stock valued at $27.31 per share, as of the date of closing, less working capital adjustments of approximately $0.9 million.
Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The following table provides the final estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date:

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RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(in thousands)August 13, 2019
Receivables$1,813  
Prepaid expenses and other assets154  
Rental merchandise17,904  
Software4,300  
Right of use operating leases404  
Other intangible assets8,900  
Goodwill13,403  
Lease liabilities(487) 
Net identifiable assets acquired$46,391  
The fair value measurements were primarily based on significant unobservable inputs (level 3) developed using company-specific information. Certain fair value estimates were determined based on an independent valuation of the net assets acquired, including identifiable intangible assets, relating to dealer relationships of $8.9 million, and software of $4.3 million. The fair value for dealer relationships and software were estimated using common industry valuation methods for similar asset types, based primarily on cost inputs and projected cash flows. The dealer relationships and software assets were both assigned remaining lives of 10 years.
In addition, we recorded goodwill of $13.4 million, which consists of the excess of the net purchase price over the fair value of the net assets acquired. The goodwill is not deductible for tax purposes.
Note 3 - Revenues
The following table disaggregates our revenue for the periods ended June 30, 2020 and 2019:
 Three Months Ended June 30, 2020
 
Rent-A-Center Business
Preferred LeaseMexicoFranchisingConsolidated
(In thousands)
Store
Rentals and fees$385,338  $139,440  $9,959  $  $534,737  
Merchandise sales55,741  51,690  649    108,080  
Installment sales17,643        17,643  
Other470  113  3  189  775  
Total store revenues459,192  191,243  10,611  189  661,235  
Franchise
Merchandise sales      18,047  18,047  
Royalty income and fees      4,464  4,464  
Total revenues$459,192  $191,243  $10,611  $22,700  $683,746  


9

RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
 Six Months Ended June 30, 2020
 
Rent-A-Center Business
Preferred LeaseMexicoFranchisingConsolidated
(In thousands)
Store
Rentals and fees$778,503  $301,438  $22,796  $  $1,102,737  
Merchandise sales102,428  105,678